Executive Orders 12866 and 13771

This proposed rule would not meet the definition of a significant regulatory action contained in section 3(f) of Executive Order 12866 and is not subject to review by the Office of Management and Budget (OMB). Additionally, because this rule would not meet the definition of a significant regulatory action it does not trigger the requirements contained in Executive Order 13771. See OMB's Memorandum titled “Interim Guidance Implementing Section 2 of the Executive Order of January 30, 2017, titled `Reducing Regulation and Controlling Regulatory Costs' ” (February 2, 2017).

Pursuant to the requirements set forth in the Regulatory Flexibility Act (RFA) [5 U.S.C. 601 et seq. ], AMS has considered the economic effect of this action on small entities and has determined that this proposed rule would not have a significant economic impact on a substantial number of small business entities. The purpose of RFA is to fit regulatory actions to the scale of businesses subject to such actions in order that small businesses will not be unduly burdened.

AMS has determined that this rule would not have a significant impact on a substantial number of small entities, as defined by RFA, because the services are voluntary and provided on a fee-for-service basis and are not subject to scalability based on the business size.

Approximately 728 applicants subscribe to AMS's voluntary, fee-for-service activities that are subject to these regulations. The U.S. Small Business Administration's Table of Small Business Size Standards Matched to North American Industry Classification System Codes (NAICS) identifies small business size by average annual receipts or by the average number of employees at a firm. This information can be found in the Code of Federal Regulations (CFR) at 13 CFR parts 121.104, 121.106, and 121.201.

AMS requires that all applicants for service provide information about their company for the purpose of processing bills. Information collected from an applicant includes company name, address, billing address, and similar information. AMS started collecting information about the size of the business in May 2017, but it received the majority of applications prior to May 2017. However, based on working knowledge of these operations, AMS estimates that roughly 25 percent of current applicants may be classified as small entities because they meet the small business requirements of having average annual receipts of $750,000 for beef and poultry producers and $15,000,000 for chicken egg producers as set forth in 13 CFR 121's Small Business Size Standards by NAICS Industry table (sectors 31-33, subsector 311—food manufacturing). The effects of this rule are not expected to be disproportionately greater or lesser for small applicants than for larger applicants. As described above, these are voluntary, fee-for-service activities.

AMS is committed to complying with the E-Government Act of 2002 to promote the use of the internet and other information technologies to provide increased opportunities for citizen access to government information and services, and for other purposes.

USDA has not identified any relevant Federal rules that duplicate, overlap, or conflict with this proposed rule.

This action has been reviewed in accordance with the requirements of Executive Order 13175, Consultation and Coordination with Indian Tribal Governments. The review reveals that this proposed regulation would not have substantial and direct effects on Tribal governments and will not have significant Tribal implications.

This proposed rule has been reviewed under Executive Order 12988, Civil Justice Reform. This proposed rule is not intended to have retroactive effect. The Act prohibits states or political subdivisions of a state to impose any requirement that is in addition to, or inconsistent with, any requirement of the Act. There are no civil justice implications associated with this rule.

AMS has considered the potential civil rights implications of this rule on minorities, women, or persons with disabilities to ensure that no person or group shall be discriminated against on the basis of race, color, national origin, gender, religion, age, disability, sexual orientation, marital or family status, political beliefs, parental status, or protected genetic information. This proposed rule would not require affected entities to relocate or alter their operations in ways that could adversely affect such persons or groups. Further, this proposed rule would not deny any persons or groups the benefits of the program or subject any persons or groups to discrimination.

This proposed rule has been reviewed under Executive Order 13132, Federalism. This Order directs agencies to construe, in regulations and otherwise, a Federal statute to preempt state law only when the statute contains an express preemption provision. There are no federalism implications associated with this proposed rule.

In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. chapter 35), this proposed rule would not change the information collection and recordkeeping requirements previously approved and will not impose additional reporting or recordkeeping burdens on users of these voluntary services.

The information collection and recordkeeping requirements of these parts have been approved by OMB under 44 U.S.C. chapter 35 and have been assigned OMB Control Number 0581-0128.

In September 2014, three separate OMB collections—OMB 0581-0127, OMB 0581-0124, and OMB 0581-0128—were merged, such that the current OMB 0581-0128 pertains to Regulations for Voluntary Grading, Certification, and Standards and includes 7 CFR parts 54, 56, and 70.

The Agricultural Marketing Act of 1946, as amended (7 U.S.C. 1621-1627), hereinafter referred to as the “Act,” directs and authorizes the Secretary of Agriculture to facilitate the competitive and efficient marketing of agricultural products. AMS programs support a strategic marketing perspective that adapts product and marketing decisions to consumer demands, ensures quality, promotes a competitive and efficient domestic and international marketplace, and incorporates new technology. These services include AMS's grading program, which verifies that product meets USDA grade standards. At the request of the buyer or seller, products are officially graded by USDA allowing product application of the grademark or USDA shield. The grademark or USDA shield indicates that USDA has officially graded the product and it has met all the requirements of the designated quality standard. In addition, AMS provides direct certification of products, that meet end-user specifications, in the facilities that manufacture them. Specifications can be for commodities purchased by USDA for nutrition assistance programs, or to a third-party requirement. Product characteristics such as manner of cut, color, and other attributes can be directly examined by an AMS employee to determine if a specification has been met, and the product can be stamped and marketed as “USDA Certified” or “USDA Accepted as Specified.” This service ensures purchasers receive products that comply with their unique specification requirements. Grading and certification services are voluntary, with users paying for the cost of the requested service.

In 2013, AMS merged the Livestock and Seed Program and Poultry Programs to create the Livestock, Poultry, and Seed (LPS) Program. Prior to the merger, both Programs administered parallel grading and certification services to their respective industries with services provided on a fee-for-service bases. Following the merger, the LPS Program created the Quality Assessment Division (QAD) to oversee grading and certification services carried out by the Grading and Verification Division of the former Livestock and Seed Program and the Grading Branch of the former Poultry Programs. The QAD continues to bill customers with the billing rules specified in the regulations governing the grading of various commodities: 7 CFR 54—Meats, Prepared Meats and Meat Products (Grading, Certification, and Standards); 7 CFR 56—Voluntary Grading of Shell Eggs; and 7 CFR 70—Voluntary Grading of Poultry Products and Rabbit Products.

To improve efficiency and reduce costs, QAD graders are cross-utilized between the commodities. Cross-utilization continues to increase as more customers request services for more than one commodity. Billing according to two sets of rules (one set of rules for part 54 and one set of rules for parts 56 and 70) is inefficient and causes customer confusion. The proposed amendments would standardize the billing rules, remove customer confusion, and increase efficiency in billing administration by allowing QAD to bill a customer for multiple services and products with one set of rules.

Proposed amendments would standardize language for providing service under an agreement or on an as-needed basis. Services provided under part 54 currently use the terms “commitment” for services provided under an agreement and “non-commitment” for services provided on an as-needed basis. Services provided under parts 56 and 70 currently use the terms “resident” for services provided under an agreement and “non-resident” for services provided on an as-needed basis. The proposed language for all parts would be “scheduled” for services provided under an agreement and “unscheduled” for services provided on an as-needed basis.

AMS proposes to amend §§ 56.21 and 70.30 (proposed to be redesignated § 70.31) to standardize the application for service language with that found in § 54.6. In addition to language currently in § 54.6, AMS published a proposed rule in the Federal Register on February 5, 2019 to amend 7 CFR part 54, AMS-LP-16-0080. The proposed amendments in AMS-LP-16-0080 would add items 5 and 6 to § 54.6 (a). In this proposed rule, AMS proposes to further amend § 54.6(a) by adding a subparagraph after item 6 stating that the applicant agrees to comply with the terms and conditions of the regulations. Proposed standardized language includes the application requirements, items that must be included in the application, and the applicant's agreement to comply with the terms and conditions of the regulations.

AMS proposes to redesignate §§ 70.30 through 70.37 as §§ 70.29 through 70.36, respectively, and add § 70.37 Types of service. The proposed addition of § 70.37 would clarify and align the services AMS provides with § 56.28.

The proposed amendments would revise §§ 54.28, 56.45, and 70.70 by updating the sections with current language and instructions for payment of services.

Proposed amendments would align holiday billing rules for all services with established policies for employee premium pay under authority of 5 U.S.C. chapter 55 and 5 CFR part 550. Proposed amendments would revise §§ 54.1, 56.1, and 70.1 by adding the definition of Observed Legal Holidays. The proposed addition of Observed Legal Holidays would establish the “in lieu of holiday” for a holiday that falls on a Saturday or Sunday. Proposed amendments would also charge the holiday rate for hours worked on observed legal holidays.

Currently, services covered under part 54 are billed the holiday rate only on the actual holiday when worked, and if the actual holiday is not worked, no charge is applied. Additionally, holidays that fall on Saturday or Sunday but are observed on a Friday or Monday are billed at the commitment rate, not the holiday rate.

The proposed amendments would revise § 54.27(c) for scheduled and non-scheduled bases to state the holiday hourly rate would be charged for hours worked on observed legal holidays. The impact analysis for services provided under this part would be less than a $50,000 increase in costs to the meat industry.

The following scenarios demonstrate how billing for hours worked on observed legal holidays would change under the proposed amendments:

A facility has a commitment agreement for 8 hours of service. Service is provided for 4 hours on a Friday, which is the observed legal holiday for an actual holiday that falls on Saturday.

○ Currently: The facility is charged the commitment rate for 8 hours on the agreement.

○ Proposed: The facility is charged the holiday rate for the 4 hours worked.

A facility requests 8 hours of service (non-commitment) on a Friday, which is the observed legal holiday for an actual holiday that falls on Saturday.

○ Currently: The facility is charged the non-commitment rate for 8 hours.

○ Proposed: The facility is charged the non-commitment holiday rate for 8 hours.

Currently, services covered under parts 56 and 70 are billed the regular rate on the holiday even if the holiday is not worked, the holiday rate when service is provided on the grader's scheduled holiday, 1 and the overtime rate when service is provided on a holiday in excess of the hours stated on the agreement.

The proposed amendments would revise §§ 56.46, 56.52, 70.71, and 70.77 to state that the holiday hourly rate would be charged for hours worked on observed legal holidays. The impact for services provided under these parts would be minimal and to the benefit of the applicant in most cases. Impact analysis shows an average cost savings of $2,200 annually per applicant.

The following scenarios demonstrate how billing for hours worked on observed legal holidays would change under the proposed amendments:

○ Currently: The facility is charged the resident regular rate for 8 hours on the agreement.

○ Proposed: The facility will not be charged.

○ Currently: The facility is charged the resident regular rate for 8 hours on the agreement. The facility is charged the holiday rate if the grader claims it is his/her actual or in lieu of holiday worked.

○ Proposed: The facility will only be charged the holiday rate.

○ Currently: The facility is charged the resident regular rate for 8 hours on the agreement. The facility is charged the holiday rate if the grader claims it is his/her actual or in lieu of holiday worked, plus the overtime rate for 2 hours.

○ Proposed: The facility will be charged the holiday rate for 10 hours.

AMS proposes to further clarify and align rates charged for services. Proposed amendments would update §§ 54.27, 56.46, 56.52, 70.71, and 70.77 and include the specific rates charged to plants for scheduled and unscheduled services.

AMS proposes to align billing rates for services provided over and above agreement hours and following a reasonable amount of billed overtime. Currently services under part 54 are charged the non-commitment rate while services provided under parts 56 and 70 are charged the resident overtime rate for hours in excess of their agreement. AMS proposes to align all services and use the unscheduled rate (the current non-commitment or fee rate) when services are provided over and above their agreement and following a reasonable amount of billed overtime. This amendment would affect only services provided under parts 56 and 70 and cause a higher rate to be charged to applicants who request additional staffing outside of the scheduled shifts for which AMS agreed to provide service. Impact analysis shows an average cost increase of $3,700 annually for applicants that request additional graders.

The following scenarios demonstrate how billing for additional staffing outside the agreed-upon scheduled shifts would change under the proposed amendments:

○ Currently: The facility is charged the overtime rate for 12 hours (service provided Monday, Wednesday, and Friday for 2 hours each day above the agreement, plus 6 hours on Saturday).

○ Proposed: The facility will be charged the overtime rate for 6 hours (service provided Monday, Wednesday, and Friday for 2 hours each day above the agreement) and the unscheduled rate for 6 hours of service provided on Saturday.

○ Currently: The facility is charged the overtime rate for all additional hours of service provided.

○ Proposed: The facility will be charged the unscheduled rate for all hours of service provided on the 2nd shift.

○ Currently: The facility is charged the overtime rate for all hours of service provided by the additional grader.

○ Proposed: The facility will be charged the unscheduled rate for all hours of service provided by the additional grader.

Poultry and shell egg services provided under parts 56 and 70 are billed an administrative volume charge in addition to the hourly rates assessed for providing service. This charge was established to cover overhead costs associated with grading and certification services. In 2014, AMS incorporated new formulas for establishing yearly fee rates into all grading regulations; these new formulas do not include the administrative volume charge, nor do they allow for an increase to the administrative rate. The administrative volume charge was last increased in 2009, and it does not adequately cover overhead costs associated with these voluntary services. The proposed amendments would remove the administrative volume charge altogether from §§ 56.52(a)(4) and 70.77(a)(4) and (5) and would allow QAD to charge hourly rates that encompass all costs for providing service. This amendment would affect only services provided under parts 56 and 70. QAD estimates that plants with a single or double shift scheduled (40 or 80 hours) would see a minor cost savings of $7,500 annually from the removal of the administrative charge and the creation of the new hourly rates, while plants with four shifts scheduled (160 hours) will see an increase of $32,000 annually.

For the reasons set forth in the preamble, AMS proposes to amend 7 CFR parts 54, 56, and 70 as follows:

Background and Explanation of Provisions

This notice of proposed rulemaking contains amendments to the Income Tax Regulations (26 CFR part 1) under section 337(d) of the Internal Revenue Code (Code) set forth in § 1.337(d)-3 (final regulations) that prevent a corporate partner from using a partnership to avoid recognition of corporate-level gain. The final regulations largely adopted proposed regulations (REG-149518-03) published in the Federal Register (80 FR 33451) on June 12, 2015 (2015 regulations) with minor, nonsubstantive clarifying changes in response to requests for further certainty in the single comment letter received on the proposed regulations. See the Explanation of Provisions section of the preamble to TD 9833 (83 FR 26580 (June 8, 2018)) for a detailed discussion of each of the specific points raised in the comment letter received on the 2015 regulations.

The rules set forth in this notice of proposed rulemaking contain substantive modifications to the final regulations relating to the definition of Stock of the Corporate Partner. Accordingly, the Treasury Department and the IRS determined it appropriate to publish these modifications in the form of new proposed regulations to afford the public the opportunity to submit additional comments.

The final regulations apply to certain partnerships that hold stock of a Corporate Partner. For this purpose, a Corporate Partner is defined as a person that holds or acquires an interest in a partnership and that is classified as a corporation for federal income tax purposes. The final regulations define Stock of the Corporate Partner expansively to include stock and other equity interests, including warrants, other options, and similar interests, either in the Corporate Partner or in a corporation (referred to in this Background and Explanation of Provisions section as a Controlling Corporation) that controls the Corporate Partner within the meaning of section 304(c), except that section 318(a)(1) and (3) would not apply. Stock of the Corporate Partner also includes an interest in any entity to the extent that the value of the interest is attributable to Stock of the Corporate Partner.

The final regulations adopted a definition of Stock of the Corporate Partner that was modified as compared to the definition in the regulations that the Treasury Department and the IRS proposed on December 15, 1992 (PS-91-90, REG-208989-90, 1993-1 CB 919) (1992 proposed regulations). The final regulations broadened the definition of Stock of the Corporate Partner with respect to the relationship needed for a Controlling Corporation to be treated as controlling the Corporate Partner (using a modified section 304(c) standard instead of section 1504(a)) but also narrowed the definition, generally excluding sister corporations and subsidiary corporations of the Corporate Partner from being treated as Controlling Corporations.

More specifically, the final regulations define Stock of a Corporate Partner by including stock and other equity interests of any corporation that controls the Corporate Partner within the meaning of section 304(c), except that section 318(a)(1) and (3) shall not apply (section 304(c) control). In contrast, the 1992 proposed regulation's definition was limited to stock or other equity interests issued by the Corporate Partner and its “section 337(d) affiliates”—that is any corporation that is a member of an affiliated group as defined in section 1504(a) of the Code without regard to section 1504(b).

Section 304(c) control generally exists when there is ownership of stock of a corporation possessing at least 50 percent of the total combined voting power of all classes of the corporation's stock entitled to vote or at least 50 percent of the value of the shares of all classes of stock of the corporation, while control of a corporation under section 1504(a)(2) requires ownership of stock of the corporation possessing at least 80 percent of the total voting power of the stock of the corporation and at least 80 percent of the total value of the stock of the corporation. The Treasury Department and the IRS adopted this lower ownership threshold for determining control in the final regulations as a more appropriate standard for this purpose because General Utilities repeal could more easily be avoided by acquiring stock of a corporation that owns less than 80 percent of the vote and value of the Corporate Partner's stock. See General Utilities & Operating Co. v. Helvering, 296 U.S. 200 (1935).

While section 304(c) incorporates the constructive ownership rules of section 318(a) with some modifications, the 2015 regulations excluded the application of section 318(a)(1) and (3) from their definition of control.

The commenter that submitted the only comment on the 2015 regulations demonstrated that families could use the exclusion of section 318(a)(1) attribution from the determination of section 304(c) control to structure transactions using partnerships to eliminate gain on appreciated assets or contravene the purposes of section 337(d) in other ways. For example—

The Treasury Department and the IRS agree with the commenter that excluding section 318(a)(1) attribution from the determination of section 304(c) control could produce unintended results. In addition, the Treasury Department and the IRS have determined that taxpayers can structure transactions to take advantage of the exclusion of section 318(a)(3) attribution from the determination of section 304(c) control. For example, in the preceding fact pattern, if the interests held by Husband and Wife were instead held by a single corporation, X, neither A nor B would control CP without the application of section 318(a)(3) attribution.

As a result, the Treasury Department and the IRS propose to modify the definition of Stock of the Corporate Partner to eliminate the exclusion of section 318(a)(1) and (3) attribution from the determination of section 304(c) control. However, as explained below, the Treasury Department and the IRS propose to limit this expanded definition of Stock of the Corporate Partner to entities that own a direct or indirect interest in the Corporate Partner.

The exclusion of attribution under sections 318(a)(1) and 318(a)(3) in the 2015 regulations and the final regulations was intended to limit section 304(c) control to entities that own a direct or indirect interest in the Corporate Partner, while excluding entities that do not own a direct or indirect interest in the Corporate Partner. To implement this intent more precisely, the Treasury Department and the IRS propose to limit the proposed scope of section 304(c) control to ownership, direct or indirect, of an interest in the Corporate Partner. For the purpose of testing direct or indirect ownership of an interest in the Corporate Partner, ownership of Stock of the Corporate Partner would be attributed to an entity under section 318(a)(2) (except that the 50-percent ownership limitation in section 318(a)(2)(C) would not apply) and under section 318(a)(4), but otherwise without regard to section 318. Thus, sections 318(a)(1), 318(a)(3), and 318(a)(5) would not apply for determining whether an entity directly or indirectly owns an interest in Stock of the Corporate Partner, but once an entity is found to directly or indirectly own an interest in such stock, then the section 304(c) control definition would apply in its entirety to determine whether the tested entity is a Controlling Corporation. The Treasury Department and the IRS continue to study the appropriate scope of the definition of Stock of the Corporate Partner, and request comments regarding these provisions.

These proposed regulations, if finalized, would make a second change to the definition of Stock of the Corporate Partner. The final regulations provide that the term Stock of the Corporate Partner does not include any stock or other equity interests held or acquired by a partnership if all interests in the partnership's capital and profits are held by members of an affiliated group as defined in section 1504(a) that includes the Corporate Partner (Affiliated Group Exception). The 1992 proposed regulations included affiliate stock within its definition of the Stock of a Corporate Partner, but the 2015 proposed regulations instead set forth this Affiliated Group Exception, which the final regulations adopted. Thus, the final regulations do not apply if a domestic corporation and its wholly owned domestic subsidiaries (each of which is an includible corporation under section 1504(b)) are the only partners in a partnership and any of these corporations contributes stock of another affiliate to a partnership. The preamble to T.D. 9722 (80 FR 33402 (June 12, 2015)), which contained temporary regulations that accompanied the 2015 regulations, stated that the Treasury Department and the IRS had determined that the Affiliated Group Exception is appropriate because “the purpose of these regulations is not implicated if a partnership is owned entirely by affiliated corporations.”

After further study, the Treasury Department and the IRS have determined that the Affiliated Group Exception may result in abuse and therefore is not appropriate. Specifically, the Treasury Department and the IRS believe that a partnership held entirely by members of an affiliated group could enter into transactions that permanently eliminate the built-in gain on an appreciated asset that one partner contributes to the partnership. For example—

This ability to increase the basis of an appreciated asset artificially and to eliminate the built-in gain permanently contravenes the purposes of section 337(d) and these regulations. The Treasury Department and the IRS are also aware that practitioners have observed that the Affiliated Group Exception runs counter to the general rule that related-party transactions are subject to greater scrutiny. In light of these concerns, these proposed regulations would remove the Affiliated Group Exception contained in the final regulations.

However, because there may be specific circumstances under which the elimination of the Affiliated Group Exception could adversely impact ordinary business transactions between affiliated group members and group-owned partnerships, the Treasury Department and the IRS request comments describing situations in which a more tailored version of the Affiliated Group Exception would be warranted.

These proposed regulations would modify the scope of the rule in the final regulations that Stock of the Corporate Partner includes interests in any entity to the extent that the value of the interest is attributable to Stock of the Corporate Partner (Value Rule). Under the final regulations, the Value Rule applies to all interests in an entity regardless of whether the entity is controlled by the Corporate Partner. The sole commenter responding to the 2015 regulations agreed that the scope of the Value Rule was appropriate if the entity was controlled by the Corporate Partner. However, for entities that are not controlled by the Corporate Partner, the commenter asked that the scope of the Value Rule be narrowed to apply only if 20 percent or more of the assets of an entity were Stock of the Corporate Partner.

The Treasury Department and the IRS agree that the Value Rule in the 2015 regulations and the final regulations could be overbroad in certain circumstances. For example—

For this reason, the Treasury Department and the IRS have determined that narrowing the scope of the Value Rule is appropriate. However, the Treasury Department and the IRS decline to adopt the commenter's specific suggestion that interests in an entity not be subject to the Value Rule unless 20 percent or more of the assets of the entity consisted of Stock of the Corporate Partner. Such a rule would cause the Value Rule to be overly narrow and could permit taxpayers to structure transactions that would contravene the purpose of section 337(d) and these regulations. Instead, the Treasury Department and the IRS propose to narrow the scope of the Value Rule through an alternate measure. Under the proposed regulations, if an entity is not controlled by the Corporate Partner and is not a Controlling Corporation, the Value Rule would apply to treat interests in the entity as Stock of the Corporate Partner only if the entity owns, directly or indirectly, 5 percent or more of the stock, by vote or value, of the Corporate Partner. For this purpose, direct or indirect ownership would mean ownership of stock that would be attributed to a person under section 318(a)(2) (except that the 50-percent ownership limitation in section 318(a)(2)(C) would not apply) and under section 318(a)(4), but otherwise without regard to section 318. The Treasury Department and the IRS believe that using a 5-percent ownership threshold is appropriate because entities have the ability to determine whether they have 5-percent or greater owners, and corporations may track their 5-percent shareholders for other reasons (such as for section 382 purposes). Further, the Treasury Department and the IRS propose to apply this 5-percent threshold to direct or indirect stock ownership, rather than all equity interests, in the Corporate Partner in order to make the Value Rule more readily administrable.

The proposed regulations also would clarify how taxpayers should apply the Value Rule to determine the extent to which the value of an equity interest is attributable to Stock of the Corporate Partner. The proposed regulations would provide that taxpayers would multiply the value of the equity interest in an entity by a ratio, the numerator of which is the fair market value of the Stock of the Corporate Partner owned directly or indirectly by the entity and the denominator of which is the fair market value of all of the equity interests in the entity. For this purpose, direct or indirect ownership would mean ownership of stock that would be attributed to a person under section 318(a)(2) (except that the 50-percent ownership limitation in section 318(a)(2)(C) would not apply) and under section 318(a)(4), but otherwise without regard to section 318. The proposed regulations would also provide that the ratio may not exceed one. The Treasury Department and the IRS determined that the fair market value of all of the equity interests in the entity is the most appropriate measure to determine the value of the entity because the Value Rule seeks to determine what portion of the value of an equity interest in an entity reflects the value of Stock of the Corporate Partner owned by that entity.

Additionally, the proposed regulations would clarify that, if an equity interest is Stock of the Corporate Partner because it is an interest in the Corporate Partner or in an entity with a direct or indirect ownership interest that controls the Corporate Partner within the meaning of section 304(c), then the Value Rule will not apply. The Treasury Department and the IRS request comments on all aspects of the proposed changes to the scope of the Value Rule, including the appropriate measure of the value of the entity.

Finally, these proposed regulations would make a modification to the exception for certain dispositions of stock in § 1.337(d)-3(f)(2) to make its language consistent with the modified definition of Stock of the Corporate Partner. Under this exception, the final regulations do not apply to Stock of the Corporate Partner that (i) is disposed of (by sale or distribution) by the partnership before the due date (including extensions) of its federal income tax return for the taxable year of the relevant transaction; and (ii) is not distributed to the Corporate Partner or a corporation that controls the Corporate Partner. With respect to the second requirement, the final regulations refer to a corporation that controls the Corporate Partner within the meaning of section 304(c), except that section 318(a)(1) and (3) shall not apply. For the same reasons that these proposed regulations modify the definition of Stock of the Corporate Partner, these proposed regulations also modify the second requirement of this exception to refer to a corporation that controls the Corporate Partner within the meaning of section 304(c), but only if the controlling corporation owns directly or indirectly stock or another equity interest in the Corporate Partner, in order to conform the second requirement with the modified definition of Stock of the Corporate Partner.

These regulations are proposed to be effective as of the date of their publication as final regulations in the Federal Register . Taxpayers may rely on these proposed regulations for transactions occurring on or after June 12, 2015 and prior to the date that these regulations are published as final regulations in the Federal Register , provided that the taxpayer consistently applies all of the proposed regulations to such transactions.

These proposed regulations are not subject to review under section 6(b) of Executive Order 12866 pursuant to the Memorandum of Agreement (April 11, 2018) between the Treasury Department and the Office of Management and Budget regarding review of tax regulations.

These proposed regulations do not impose a collection of information on small entities. Further, pursuant to the Regulatory Flexibility Act (5 U.S.C. chapter 6), it is hereby certified that these proposed regulations would not have a significant economic impact on a substantial number of small entities. This certification is based on the fact that these proposed regulations would primarily affect sophisticated ownership structures with interlocking ownership of corporations, partnerships and corporate stock. Accordingly, a regulatory flexibility analysis is not required. Pursuant to section 7805(f) of the Internal Revenue Code, these regulations have been submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small business.

Before these proposed regulations are adopted as final regulations, consideration will be given to 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. All comments will be available at http://www.regulations.gov or upon request. A public hearing will be scheduled if requested in writing by any person that timely submits written or electronic 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 regulations are Kevin I. Babitz, Office of the Associate Chief Counsel (Passthroughs and Special Industries) and Mary Brewer, Office of the Associate Chief Counsel (Corporate). However, other personnel from the Treasury Department and the IRS participated in their development.

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

Paperwork Reduction Act

The collection of information contained in this notice of proposed rulemaking has been submitted to the Office of Management and Budget for review under OMB Control Numbers 1545-0119, 1545-1621, and 1545-2281 in accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)). In general, the collection of information in the proposed regulations is required under section 6050Y of the Internal Revenue Code (Code): (1) The requirement under § 1.6050Y-2 of the proposed regulations for an acquirer to report certain information about payments made in reportable policy sales is required under section 6050Y(a); (2) the requirement under § 1.6050Y-3 of the proposed regulations for an issuer to report certain information about transferors of life insurance contracts is required under section 6050Y(b); and (3) the requirement under § 1.6050Y-4 of the proposed regulations for a payor to report certain information about payments of reportable death benefits is required under section 6050Y(c). Section 1.6050Y-3(a)(3) of the proposed regulations would require the issuer to report to the seller and the IRS the amount the seller would have received if the seller had surrendered the life insurance contract on the date of the reportable policy sale. This information is necessary to allow the seller and the IRS to determine the character of all or a portion of the seller's taxable income from the sale of the life insurance contract (capital or ordinary). Sections 1.6050Y-3(f)(1) and 1.6050Y-4(e)(1) of the proposed regulations contain reporting exceptions for certain foreign beneficial owners. To determine qualification for these reporting exceptions, §§ 1.6050Y-3(f)(1) and 1.6050Y-4(e)(1) would require that certain foreign beneficial owners provide a Form W-8ECI, “Certificate of Foreign Person's Claim that Income is Effectively Connected with the Conduct of a Trade or Business in the United States,” to certain persons. This information is necessary to document whether the reporting exception in either § 1.6050Y-3(f)(1) or § 1.6050Y-4(e)(1) applies in a particular situation.

The likely respondents to the collection of information are (1) Entities acquiring life insurance contracts in reportable policy sales; (2) life insurance companies; (3) life insurance companies and other entities making payments of reportable death benefits; and (4) entities receiving payments of reportable death benefits.

The burden for the collection of information contained in § 1.6050Y-2 of the proposed regulations will be reflected in the burden on the form that the IRS created to request the information in section 6050Y(a) and § 1.6050Y-2 of the proposed regulations (Form 1099-LS, “Reportable Life Insurance Sale”). The burden for the collection of information contained in § 1.6050Y-3 of the proposed regulations will be reflected in the burden on the form that the IRS created to request the information in section 6050Y(b) and § 1.6050Y-3 of the proposed regulations (Form 1099-SB, “Seller's Investment in Life Insurance Contract”). The OMB Control Number for both of these forms is 1545-2281. The burden for the collection of information contained in § 1.6050Y-4 of the proposed regulations will be reflected in the burden on the Form 1099-R, “Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.” (OMB Control Number 1545-0119). The burden for the collection of information contained in §§ 1.6050Y-3(f)(1) and 1.6050Y-4(e)(1) of the proposed regulations will be reflected in the burden on the Form W-8ECI (OMB Control Number 1545-1621), when the burden is revised to reflect the additional collection of information in §§ 1.6050Y-3(f)(1) and 1.6050Y-4(e)(1) of the proposed regulations.

Comments on the collection of information should be sent to the Office of Management and Budget, Attn: Desk Officer for the Department of the Treasury, Office of Information and Regulatory Affairs, Washington, DC 20503, with copies to the Internal Revenue Service, Attn: IRS Reports Clearance Officer, SE:CAR:MP:T:T:SP, Washington, DC 20224. Comments on the collection of information should be received by May 24, 2019.

Comments are specifically requested concerning:

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

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

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

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

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

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

This document contains proposed amendments to 26 CFR part 1 under sections 101 and 6050Y of the Code (proposed regulations). The proposed regulations implement recent legislative changes to sections 101 and 6050Y by sections 13520 and 13522 of “[a]n Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018,” Public Law 115-97, 131 Stat. 2054, 2149 (Act). The proposed regulations under section 101 amend final regulations under section 101 published in the Federal Register on November 26, 1960 (25 FR 11402), as subsequently amended on December 24, 1964 (29 FR 18356), September 27, 1982 (47 FR 42337), and July 26, 2007 (72 FR 41159) (existing regulations).

Section 13520 of the Act added section 6050Y to chapter 61 (Information and Returns) of subtitle A of the Code (chapter 61). Section 6050Y imposes information reporting obligations related to certain life insurance contract transactions, including reportable policy sales and payments of reportable death benefits. Section 6050Y provides that each of the returns required by section 6050Y is to be made “at such time and in such manner as the Secretary shall prescribe.” The proposed regulations under section 6050Y implement section 6050Y. The proposed regulations specify the manner in which and time at which the information reporting obligations must be satisfied. The proposed regulations also provide definitions and rules that govern the application of the information reporting obligations.

Section 13522 of the Act amended section 101. New section 101(a)(3) defines the term “reportable policy sale” and provides rules for determining the amount of death benefits excluded from gross income following a reportable policy sale. The proposed regulations under section 101 provide definitions applicable under sections 101 and 6050Y and guidance for determining the amount of death benefits excluded from gross income following a reportable policy sale.

Notice 2018-41, 2018-20 I.R.B. 584, described sections 13520 and 13522 of the Act and the regulations the Department of the Treasury (Treasury Department) and the IRS expected to propose under sections 101 and 6050Y. The Treasury Department and the IRS received comments in response to the notice and considered these comments in developing these proposed regulations.

Section 6050Y imposes information reporting obligations related to reportable policy sales of life insurance contracts and payments of reportable death benefits. Section 1.6050Y-1 of the proposed regulations contains definitional provisions. Sections 1.6050Y-2, 1.6050Y-3, and 1.6050Y-4 of the proposed regulations provide guidance on the reporting obligations imposed by section 6050Y(a), (b), and (c), respectively.

The definitions set forth in § 1.6050Y-1 of the proposed regulations apply for purposes of §§ 1.6050Y-1 through -4 of the proposed regulations.

Under the proposed regulations, “life insurance contract,” also referred to as a life insurance policy, is defined by reference to section 7702(a). See § 1.6050Y-1(a)(9) of the proposed regulations. “Interest in a life insurance contract,” “transfer of an interest in a life insurance contract,” “direct acquisition of an interest in a life insurance contract,” “indirect acquisition of an interest in a life insurance contract,” and “reportable policy sale” are defined by reference to the proposed regulations under section 101. See § 1.6050Y-1(a)(3), (5), (6), (14), and (19) of the proposed regulations. “Foreign person” means a person that is not a “United States person,” as defined in section 7701(a)(30). See § 1.6050Y-1(a)(4) of the proposed regulations.

Section 6050Y(a) requires any person that acquires a life insurance contract or any interest in a life insurance contract in a reportable policy sale during any taxable year to report certain information regarding the transaction, including information about each recipient of payment in the reportable policy sale. Under the proposed regulations, “acquirer” means any person that, directly or indirectly, acquires an interest in a life insurance contract in a reportable policy sale. See § 1.6050Y-1(a)(1) of the proposed regulations.

Section 6050Y(d)(1) defines “payment,” with respect to any reportable policy sale, to mean the amount of cash and the fair market value of any other consideration transferred in the sale. Under the proposed regulations, “reportable policy sale payment” means the total amount of cash and the fair market value of any other consideration transferred, or to be transferred, in a reportable policy sale, including any amount of a reportable policy sale payment recipient's debt assumed by the acquirer in a reportable policy sale. See § 1.6050Y-1(a)(15) of the proposed regulations. An interest in a life insurance contract may be acquired directly, from the direct holder of the interest, or indirectly, through the acquisition of an ownership interest in an entity that holds an interest in a life insurance contract. See §§ 1.101-1(e)(3)(i) and (ii) and 1.6050Y-1(a)(3) and (5) of the proposed regulations. In the case of an indirect acquisition of an interest in a life insurance contract that is a reportable policy sale, the reportable policy sale payment is the amount of cash and the fair market value of any other consideration transferred for the ownership interest in the entity that is appropriately allocable to the interest in the life insurance contract held by the entity. See § 1.6050Y-1(a)(15) of the proposed regulations. The proposed regulations require the acquirer to report the aggregate amount of reportable policy sale payments made, or to be made, with respect to a reportable policy sale. See § 1.6050Y-2(a)(5) of the proposed regulations. Accordingly, when an acquirer makes payments in installments in more than one year, the acquirer reports the total amount of all payments in the year of the policy sale.

“Reportable policy sale payment recipient” means any person that receives a reportable policy sale payment in a reportable policy sale. See § 1.6050Y-1(a)(16) of the proposed regulations. The seller in a reportable policy sale is a reportable policy sale payment recipient if the seller receives a reportable policy sale payment. A broker or other intermediary that retains a portion of the cash or other consideration transferred in a reportable policy sale is also a reportable policy sale payment recipient. Id. The aggregate amount of all reportable policy sale payments made with respect to a reportable policy sale must be reported under section 6050Y(a). The objective of the proposed regulations is for the acquirer to report the net payment, if any, made to each person involved in a reportable policy sale. Accordingly, if the acquirer transfers cash or other consideration to a broker in a reportable policy sale, the broker is a reportable policy sale payment recipient, and the reportable policy sale payment made to the broker is the amount of cash and the fair market value of any other consideration retained by the broker. The reportable policy sale payment made to the seller would be the amount of cash and fair market value of any other consideration transferred to the seller, including any amount of the seller's debt assumed by the acquirer in a reportable policy sale, and it would not include the amount of the reportable policy sale payment made to the broker.

Comments received on Notice 2018-41 suggested that the amount of the payment to a seller in a reportable policy sale that should be reported under section 6050Y(a) should be the amount actually paid to the seller. These comments were taken into consideration in developing the definition of “reportable policy sale payment recipient” in the proposed regulations, as well as the reporting requirements in the proposed regulations, which require the acquirer in a reportable policy sale to report, with respect to each reportable policy sale payment recipient, the aggregate amount of reportable policy sale payments made to that person. See § 1.6050Y-2(a)(5) of the proposed regulations.

Comments received on Notice 2018-41 suggested that no reporting should be required for payments of ancillary costs and expenses in a reportable policy sale, including broker fees, securities intermediary fees, and other fees and expenses. Comments noted that the person paying these expenses is normally paying them in connection with the conduct of a trade or business, and is therefore required to report these amounts to payees in accordance with applicable rules. The proposed regulations require the acquirer in a reportable policy sale to report all reportable policy sale payments made with respect to the reportable policy sale, meaning all amounts of cash and the fair market value of any other consideration transferred in the reportable policy sale, including any amount of a reportable policy sale payment recipient's debt assumed by the acquirer in a reportable policy sale. The Treasury Department and the IRS are considering whether reportable policy sale payments should be defined to exclude payments of any ancillary costs and expenses and request comments regarding the types of payments made by acquirers in reportable policy sales, the recipients of those payments, and existing reporting requirements applicable to those payments.

Section 6050Y(b) requires issuers of life insurance contracts receiving a written statement furnished by an acquirer under section 6050Y(a) and § 1.6050Y-2 of the proposed regulations (a “reportable policy sale statement” or “RPSS,” under § 1.6050Y-1(a)(17) of the proposed regulations) or notice of a transfer to a foreign person to report certain information regarding sellers. Under the proposed regulations, “seller” means any person that holds an interest in a life insurance contract and transfers that interest, or any part of that interest, to an acquirer in a reportable policy sale or any person that owns a life insurance contract and transfers title to, possession of, or legal ownership of that life insurance contract to a foreign person. See § 1.6050Y-1(a)(18) of the proposed regulations. “Notice of a transfer to a foreign person” means any notice of a transfer of a life insurance contract ( i.e., a transfer of title to, possession of, or legal ownership of the life insurance contract) received by a 6050Y(b) issuer (as that term is defined in § 1.6050Y-1(a)(8)(iii)(B) of the proposed regulations). See § 1.6050Y-1(a)(10) of the proposed regulations. Notice of a transfer to a foreign person includes information provided for nontax purposes such as a change of address notice for purposes of sending statements or for other purposes, and information relating to loans, premiums, or death benefits with respect to the contract, unless the 6050Y(b) issuer knows that no transfer of the life insurance contract has occurred or knows the transferee is a United States person. Id. For this purpose, a 6050Y(b) issuer may rely on a Form W-9, Request for Taxpayer Identification Number and Certification, or a valid substitute form, that meets the requirements of § 1.1441-1(d)(2) (substituting “6050Y(b) issuer” for “withholding agent”), that indicates the transferee is a United States person.

The definition of “issuer” under the proposed regulations depends on the context in which the term is used. In general, the term “issuer” means, on any date, with respect to any interest in a life insurance contract, any person that bears any part of the risk with respect to the life insurance contract on that date and any person responsible on that date for administering the contract, including collecting premiums and paying death benefits. See § 1.6050Y-1(a)(8)(i) of the proposed regulations. For instance, if a reinsurer reinsures on an indemnity basis all or a portion of the risks that the original issuer (and continuing contract administrator) might otherwise have incurred with respect to a life insurance contract, both the reinsurer and the original issuer of the contract are issuers of the life insurance contract. Id.

Additionally, any designee of an issuer for purposes of section 6050Y reporting purposes is generally also considered an issuer. See § 1.6050Y-1(a)(8)(i) of the proposed regulations. Under § 1.6050Y-1(a)(8)(iv) of the proposed regulations, a person is the designee of an issuer for purposes of section 6050Y reporting under § 1.6050Y-1(a)(8) only if so designated in writing, including electronically. The designation must be signed and acknowledged, in writing or electronically, by the person named as designee, or that person's representative, and by the issuer making the designation, or a representative of that issuer.

For purposes of information reporting by the acquirer under section 6050Y(a) and § 1.6050Y-2 of the proposed regulations, the “6050Y(a) issuer” is the issuer that is responsible for administering the life insurance contract, including collecting premiums and paying death benefits under the contract, on the date of the reportable policy sale. See § 1.6050Y-1(a)(8)(ii) of the proposed regulations.

For purposes of information reporting by the issuer under section 6050Y(b) and § 1.6050Y-3 of the proposed regulations, the definition of “6050Y(b) issuer” depends on whether the reporting obligation results from a reportable policy sale and the receipt of a RPSS, or by a transfer to a foreign person and the receipt of notice of a transfer to a foreign person. See § 1.6050Y-1(a)(8)(iii)(A) of the proposed regulations (applicable to reportable policy sales) and § 1.6050Y-1(a)(8)(iii)(B) of the proposed regulations (applicable to transfers to foreign persons).

With respect to a life insurance contract, or an interest therein, that is transferred in a reportable policy sale, the 6050Y(b) issuer is any person that (1) Receives a RPSS with respect to the life insurance contract or interest therein (or, in the case of a designee, receives notice that the issuer for whom it serves as designee received a RPSS), and (2) is or was, on or before the date of receipt of the RPSS, an issuer (as defined in § 1.6050Y-1(a)(8)(i) of the proposed regulations) with respect to the life insurance contract. See § 1.6050Y-1(a)(8)(iii)(A) of the proposed regulations. More than one person may meet this definition, but a 6050Y(b) issuer's reporting obligation is deemed satisfied if the information required by section 6050Y(b) and § 1.6050Y-3 is timely reported by any other 6050Y(b) issuer. See § 1.6050Y-3(b) of the proposed regulations.

With respect to a life insurance contract transferred to a foreign person, the 6050Y(b) issuer generally is any person that (1) Receives notice of the transfer of the life insurance contract to a foreign person, and (2) is or was, on the date of transfer or on the date of receipt of the notice, an issuer (as defined in § 1.6050Y-1(a)(8)(i) of the proposed regulations), with respect to the life insurance contract. See § 1.6050Y-1(a)(8)(iii)(B) of the proposed regulations. However, a person is not a 6050Y(b) issuer under § 1.6050Y-1(a)(8)(iii)(B) of the proposed regulations if (1) That person (or, in the case of a designee, the issuer for whom it serves as designee) is not responsible for administering the life insurance contract, including collecting premiums and paying death benefits under the contract, on the date the notice of a transfer to a foreign person of a life insurance contract is received, and (2) that person, or its designee, provides the 6050Y(b) issuer that is responsible for administering the life insurance contract, including collecting premiums and paying death benefits under the contract, on that date with such notice and any available information necessary to accomplish reporting under section 6050Y(b) and § 1.6050Y-3 of the proposed regulations. See § 1.6050Y-1(a)(8)(iii)(B) of the proposed regulations.

Section 6050Y(c) imposes reporting requirements on any person that makes a payment of reportable death benefits during any taxable year. Section 6050Y(d)(4) defines the term “reportable death benefits” to mean amounts paid by reason of the death of the insured under a life insurance contract that has been transferred in a reportable policy sale. The proposed regulations clarify that the amounts must be attributable to an interest in the life insurance contract that was transferred in a reportable policy sale. See § 1.6050Y-1(a)(12) of the proposed regulations. For instance, if the original policyholder of a life insurance contract transfers a 50 percent interest in the life insurance contract in a reportable policy sale, amounts paid by reason of the death of the insured that are attributable to the 50 percent interest retained by the original policyholder are not reportable death benefits.

The proposed regulations define “payor” to mean any person making a payment of reportable death benefits and “reportable death benefits payment recipient” to mean any person that receives reportable death benefits as a beneficiary under the life insurance contract or as the holder of an interest in the life insurance contract. See § 1.6050Y-1(a)(11) and (13) of the proposed regulations. Comments received on Notice 2018-41 suggested that “payor” be defined the same as “issuer” for purposes of section 6050Y. The proposed regulations do not adopt this suggestion, but comments are requested as to whether payor should be so narrowly defined, or should also include any holder of an interest in a life insurance contract that receives reportable death benefits attributable to that interest and is contractually obligated to pay part or all of the proceeds to the beneficial owner of the interest. Comments are also requested as to whether, for purposes of reporting under section 6050Y(c), reportable death benefits payment recipients should include, in addition to any person that receives reportable death benefits as a beneficiary under the life insurance contract, any person that receives reportable death benefits as the holder of an interest in the life insurance contract.

Section 6050Y(b) and § 1.6050Y-3 of the proposed regulations require issuers to report the seller's investment in the contract to the seller, and section 6050Y(c) and § 1.6050Y-4 of the proposed regulations require payors to report the payor's estimate of the buyer's investment in the contract to the reportable death benefits payment recipient. The “buyer,” with respect to any interest in a life insurance contract that has been transferred in a reportable policy sale, is the person that was the most recent acquirer of that interest in a reportable policy sale as of the date reportable death benefits are paid under the contract. See § 1.6050Y-1(a)(2) of the proposed regulations.

Under the proposed regulations, the meaning of “investment in the contract” depends on whose investment in the contract is being determined. With respect to the original policyholder of a life insurance contract, § 1.6050Y-1(a)(7)(i) of the proposed regulations provides that “investment in the contract” has the same meaning as under section 72(e)(6). With respect to the original policyholder, the issuer will have all of the information required to determine that amount.

With respect to anyone other than the original policyholder, the issuer or payor may lack information required to determine the seller's or buyer's investment in the contract as defined in section 72(e)(6), such as the aggregate amount of consideration paid for the contract and the extent to which amounts received under the contract were excludable from gross income. In this context, § 1.6050Y-1(a)(7)(i) of the proposed regulations provides that “investment in the contract” has the same meaning as “estimate of investment in the contract.” Section 1.6050Y-1(a)(7)(ii) of the proposed regulations defines “estimate of investment in the contract” with respect to any person other than the original policyholder to mean, on any date, the aggregate amount of premiums paid for the contract by that person before that date, less the aggregate amount received under the contract by that person before that date to the extent such information is known to or can reasonably be estimated by the issuer or payor.

Section 6050Y(a) requires reporting of payments made by an acquirer in a reportable policy sale. Section 1.6050Y-2(a) of the proposed regulations sets forth the requirement of information reporting applicable to acquirers in reportable policy sales under section 6050Y(a)(1) and describes the information that must be reported.

The proposed regulations allow for unified reporting by the acquirers in a series of prearranged transfers of any interest in a life insurance contract. See § 1.6050Y-2(b) and (d)(3) of the proposed regulations. A series of prearranged transfers of an interest in a life insurance contract may include transfers in which one or more persons serve as intermediaries. Such intermediaries may acquire title or possession of an interest in a life insurance contract for state law purposes as nominee on behalf of another person or persons. Comments received on Notice 2018-41 suggested that a rule allowing unified reporting be adopted with respect to acquirers in a series of prearranged transfers, and these comments were taken into consideration in developing the rules in the proposed regulations.

Section 1.6050Y-2(c) of the proposed regulations sets forth the time and place for filing returns required under section 6050Y(a)(1).

Section 1.6050Y-2(d) of the proposed regulations sets forth the requirement under section 6050Y(a)(2) for the acquirer in a reportable policy sale to furnish a written statement to certain persons with respect to whom information is required on the return required by section 6050Y(a)(1). These persons are the recipients of payments in reportable policy sales (reportable policy sale payment recipients) and the 6050Y(a) issuers.

A written statement provided to a reportable policy sale payment recipient is not required to include information with respect to any other reportable policy sale payment recipient in the reportable policy sale. See § 1.6050Y-2(d)(1)(i) of the proposed regulations. For instance, the statement is not required to provide information about reportable policy sale payments to any other reportable policy sale payment recipient. Id. The contact information of the person furnishing the written statement must provide direct access to a person that can answer questions about the statement. Id. Reportable policy sale payment recipients may use the information in the written statements furnished by acquirers to determine their taxable income. To facilitate proper tax reporting, the proposed regulations provide that an acquirer must furnish any written statement required to be provided to a reportable policy sale payment recipient no later than February 15 of the year following the calendar year in which the reportable policy sale occurs. See § 1.6050Y-2(d)(1)(ii) of the proposed regulations. The proposed regulations adopt this deadline because a person may be both a reportable policy sale payment recipient and a seller with respect to a reportable policy sale, and this deadline for an acquirer to furnish a written statement to a reportable policy sale payment recipient coordinates with the deadline in § 1.6050Y-3(d)(2) of the proposed regulations for a 6050Y(b) issuer that receives a RPSS to furnish a written statement to a seller.

Generally, a 6050Y(a) issuer that receives a RPSS from an acquirer becomes a 6050Y(b) issuer subject to reporting obligations under section 6050Y(b), including the obligation under section 6050Y(b)(2) to furnish a written statement to the seller in a reportable policy sale. Because 6050Y(b) issuers' reporting obligation is with respect to sellers, the proposed regulations provide that acquirers must furnish the 6050Y(a) issuer with a RPSS with respect to each reportable policy sale payment recipient that is also a seller. See § 1.6050Y-2(d)(2)(i)(A) of the proposed regulations. However, an acquirer acquiring an interest in a life insurance contract in an indirect acquisition is not required to furnish a RPSS to the 6050Y(a) issuer. See § 1.6050Y-2(d)(2)(i)(B) of the proposed regulations. As provided in section 6050Y(a)(2)(B), the proposed regulations provide that acquirers are not required to set forth the amount of any reportable policy sale payment in a RPSS furnished to a 6050Y(a) issuer. See § 1.6050Y-2(d)(2)(i)(A) of the proposed regulations. Sellers may need the information in the written statements furnished by 6050Y(b) issuers that have received a RPSS to determine their taxable income. To facilitate proper tax reporting, the proposed regulations therefore provide that an acquirer must furnish a RPSS to the 6050Y(a) issuer by the later of (1) 20 days after the reportable policy sale, or (2) 5 days after the end of the applicable state law rescission period. See § 1.6050Y-2(d)(2)(ii) of the proposed regulations. However, if the later date is after January 15 of the year following the calendar year in which the reportable policy sale occurred, the RPSS must be furnished by January 15 of the year following the calendar year in which the reportable policy sale occurred. Id. Section 1.6050Y-3(d)(2) of the proposed regulations generally requires that the 6050Y(b) issuer furnish any written statement required by section 6050Y(b)(2) to the seller no later than February 15 of the year following the calendar year in which the reportable policy sale occurs.

Section 1.6050Y-2(e) of the proposed regulations requires the acquirer to correct returns filed under section 6050Y(a)(1) and written statements furnished under section 6050Y(a)(2) within 15 days of the acquirer's receipt of notice of the rescission of the related reportable policy sale.

Section 1.6050Y-2(f) of the proposed regulations sets forth exceptions to reporting under section 6050Y(a) that may apply to an acquirer that is a foreign person. These exceptions are described in section 5 of this Explanation of Provisions.

Section 1.6050Y-2(g) of the proposed regulations describes the penalty provisions applicable when a person is required under section 6050Y(a) to file an information return, or furnish a written statement, but fails to do so on or before the prescribed date, fails to include all of the information required to be shown, or includes incorrect information.

Section 6050Y(b) requires the issuer to report certain information to the seller, including the seller's investment in the contract. Section 1.6050Y-3(a) of the proposed regulations sets forth the information reporting requirement applicable to 6050Y(b) issuers under section 6050Y(b)(1). In addition to the specific information required to be reported under section 6050Y(b)(1), Notice 2018-41 indicated that the proposed regulations would require the issuer to report the amount that would have been received by the policyholder upon surrender of the contract. A comment received on Notice 2018-41 suggested that an issuer should not be required to report this amount because the information may be provided directly by the issuer to the seller upon request.

A purpose of section 6050Y is to provide the seller in a reportable policy sale and the IRS with the information needed to determine the seller's taxable income from the sale. In the case of a sale of a cash value life insurance contract, the gain is ordinary income to the extent of the amount that would be recognized as ordinary income if the contract were surrendered, and any excess is capital gain. See Rev. Rul. 2009-13, 2009-21 I.R.B. 1029. To ensure that the seller and the IRS have the relevant information needed to calculate the seller's gain from the sale, including the amount of any capital or ordinary gain, the proposed regulations do not adopt the suggestion and would require the 6050Y(b) issuer to report to the seller and the IRS the amount that would have been received by the policyholder upon surrender of the contract. The Treasury Department and the IRS have determined that requiring the reporting of this information is authorized under section 6050Y(b)(1), as well as under sections 6011(a) and 7805.

Section 1.6050Y-3(b) of the proposed regulations provides that a 6050Y(b) issuer's reporting obligation under section 6050Y(b) and § 1.6050Y-3(a) is deemed satisfied if the information required by section 6050Y(b) and § 1.6050Y-3 is timely reported by any other 6050Y(b) issuer or a third party information reporting contractor.

Section 1.6050Y-3(c) of the proposed regulations sets forth the time and place for filing returns required under section 6050Y(b)(1).

Section 1.6050Y-3(d)(1) of the proposed regulations sets forth the requirement under section 6050Y(b)(2) to furnish statements to certain persons with respect to whom information is required on the return required by section 6050Y(b)(1). These persons are the sellers that (1) Transfer interests in life insurance contracts in reportable policy sales and are reportable policy sale payment recipients, or (2) transfer life insurance contracts to foreign persons. The sellers may use the information in the written statements furnished under section 6050Y(b)(2) to determine their taxable income.

To facilitate proper tax reporting, § 1.6050Y-2(d)(2)(ii) of the proposed regulations requires acquirers to furnish a RPSS to the 6050Y(a) issuer by January 15 of the year following the calendar year in which the reportable policy sale occurred, if not earlier, and § 1.6050Y-3(d)(2) of the proposed regulations provides that a 6050Y(b) issuer generally must furnish any written statement required to be provided to a seller no later than February 15 of the year following the calendar year in which the reportable policy sale or transfer to a foreign person occurs. Comments received on Notice 2018-41 suggested that issuers be required to furnish written statements required by section 6050Y(b)(2) to the seller no later than February 15 of the year following the calendar year in which the reportable policy sale occurs, noting that this is currently the due date for section 6045 broker returns and consolidated statements, and brokers also rely on third party information ( e.g., dividend reclassifications). The Treasury Department and the IRS propose to adopt this suggestion. See § 1.6050Y-3(d)(2) of the proposed regulations. Section 1.6050Y-3(d)(3) of the proposed regulations provides that a 6050Y(b) issuer's reporting obligation is deemed satisfied if the information required by § 1.6050Y-3(d)(1) of the proposed regulations with respect to that 6050Y(b) issuer is timely reported on behalf of that 6050Y(b) issuer consistent with forms, instructions, and other IRS guidance by one or more other 6050Y(b) issuers or by a third party information reporting contractor.

Section 1.6050Y-3(e) of the proposed regulations requires the 6050Y(b) issuer to correct returns filed under section 6050Y(b)(1) and written statements furnished under section 6050Y(b)(2) within 15 days of the 6050Y(b) issuer's receipt of notice of the rescission of the related reportable policy sale or transfer to a foreign person.

Section 1.6050Y-3(f) of the proposed regulations sets forth exceptions to reporting under section 6050Y(b) that may apply to 6050Y(b) issuers. These exceptions are described in section 5 of this Explanation of Provisions.

Section 1.6050Y-3(g) of the proposed regulations describes the penalty provisions applicable when a person is required under section 6050Y(b) to file an information return, or furnish a written statement, but fails to do so on or before the prescribed date, fails to include all of the information required to be shown, or includes incorrect information.

Section 6050Y(c) requires payors to report payments of reportable death benefits. Section 1.6050Y-4(a) of the proposed regulations sets forth the requirement of information reporting applicable to payors under section 6050Y(c)(1).

Section 1.6050Y-4(b) of the proposed regulations sets forth the time and place for filing returns required under section 6050Y(c)(1).

Section 1.6050Y-4(c)(1) of the proposed regulations sets forth the requirement under section 6050Y(c)(2) to furnish statements to persons with respect to whom information is required on the return required by section 6050Y(c)(1). These persons are the recipients of reportable death benefits (reportable death benefits payment recipients). The reportable death benefits payment recipients may use the information in the written statements furnished under section 6050Y(c)(2) to determine their taxable income. To facilitate proper tax reporting, § 1.6050Y-4(c)(2) of the proposed regulations provides that a payor must furnish any written statement required to be provided to a reportable death benefits payment recipient no later than January 31 of the year following the calendar year in which the reportable policy sale occurs. The proposed regulations use January 31 because it is generally the deadline for furnishing copies of Form 1099-R to recipients.

Section 1.6050Y-4(d) of the proposed regulations requires the payor to correct returns filed under section 6050Y(c)(1) and written statements furnished under section 6050Y(c)(2) within 15 days of the payor's receipt of notice of the rescission of the related reportable policy sale.

Section 1.6050Y-4(e) of the proposed regulations sets forth exceptions to reporting under section 6050Y(c) that may apply to payors. These exceptions are described in the next section of this Explanation of Provisions.

Section 1.6050Y-4(f) of the proposed regulations describes the penalty provisions applicable when a person is required under section 6050Y(c) to file an information return, or furnish a written statement, but fails to do so on or before the prescribed date, fails to include all of the information required to be shown, or includes incorrect information.

The proposed regulations include certain exceptions to the reporting requirements otherwise imposed on acquirers, 6050Y(b) issuers, and payors under §§ 1.6050Y-2, -3, and -4 of the proposed regulations, respectively. These exceptions to reporting are similar in their intended purposes to exceptions included in regulations issued under other sections in chapter 61 that except reporting by certain payors and brokers (as applicable based on the section) with respect to a transaction occurring outside the United States when no nexus of the transaction to the United States is identified (under criteria specified in each of the regulations). For example, § 1.6045-1 generally requires brokers to report the proceeds of certain sales (such as sales of securities) on a Form 1099-B, Proceeds from Broker and Barter Exchange Transactions, but includes an exception to the term “broker” that applies to most non-U.S. securities brokers for sales that are effected outside of the United States within the meaning provided in those regulations. See § 1.6045-1(a) and (g)(3)(iii). Reporting of payments under several of the sections in chapter 61 is also excepted when a payor or broker is permitted to treat the person receiving the payments as a foreign person. For certain of those excepted payments, withholding and reporting requirements may instead apply under chapter 3 of subtitle A of the Code.

Sections 1.6050Y-2(f) and 1.6050Y-3(f)(2) of the proposed regulations describe exceptions to the reporting otherwise required of an acquirer and 6050Y(b) issuer under section 6050Y(a) or (b), respectively, for cases in which the Treasury Department and the IRS are of the view that a nexus of the sale or life insurance contract to the United States is insufficient for applying the reporting provisions of those sections.

Sections 1.6050Y-3(f)(1) and 1.6050Y-4(e)(1) of the proposed regulations provide that reporting under section 6050Y(b) or (c) is not required by 6050Y(b) issuers and payors with respect to sellers or reportable death benefits payment recipients, respectively, documented as foreign beneficial owners under the requirements of the regulations under section 1441. The proposed regulations include, however, two modifications to those requirements. First, §§ 1.6050Y-3(f)(1) and 1.6050Y-4(e)(1) of the proposed regulations permit a 6050Y(b) issuer or payor to treat a partnership or trust as a foreign beneficial owner provided that the 6050Y(b) issuer or payor obtains a written certification from the partnership or trust that no beneficial owner (within the meaning of § 1.1441-1(c)(6)(ii)) of any portion of the sales proceeds or reportable death benefits payment (as applicable based on the section) received by the partnership or trust is a United States person, as well as documentation establishing the partnership's or trust's foreign status. The treatment described in the preceding sentence does not apply, however, when the issuer or payor has actual knowledge that a United States person is a beneficial owner of all or a portion of the sale proceeds or reportable death benefit payment. Second, § 1.6050Y-3(f)(1) of the proposed regulations provides that this exception does not apply to a foreign beneficial owner for which the sale of the insurance contract (or interest therein) results in a requirement to report any of the income from the sale as effectively connected with a U.S. trade or business. To address those cases, the proposed regulations provide that a seller required to report any of the income from the sale of an insurance contract (or interest therein) as effectively connected with the conduct of a trade or business in the United States under section 864(b) must provide to the 6050Y(b) issuer a Form W-8ECI, Certificate of Foreign Person's Claim that Income is Effectively Connected with the Conduct of a Trade or Business in the United States. The proposed regulations do not permit a 6050Y(b) issuer to apply the exception when it receives a Form W-8ECI from a seller or has reason to know that the seller is required to report any of the sale proceeds as income effectively connected with a U.S. trade or business. Similar provisions apply with respect to foreign beneficial owners of reportable death benefits under § 1.6050Y-4(e)(1) of the proposed regulations. However, in response to comments received on Notice 2018-41, the Treasury Department and the IRS are considering whether payors required under section 6050Y(c) and § 1.6050Y-4(e)(1) of the proposed regulations to report payments of reportable death benefits that are income effectively connected with a U.S. trade or business may satisfy their reporting obligation under section 6050Y(c) by filing a Form 1042-S, Foreign Person's U.S. Source Income Subject to Withholding, or if such payors may be relieved from the obligation to report some of the information required to be reported under section 6050Y(c).

Section 1.6050Y-4(e)(2) of the proposed regulations also includes a reporting exception for death benefits paid under an insurance contract (or interest therein) held by a buyer that obtained the contract or interest in a reportable policy sale that was within an exception to reporting described in § 1.6050Y-3(f)(2) of the proposed regulations. The exception to reporting described in § 1.6050Y-3(f)(2) of the proposed regulations applies in those cases in which a 6050Y(b) issuer received only a notice of transfer to a foreign person and, because the requirements set forth in § 1.6050Y-3(f)(2)(i) through (iii) of the proposed regulations were met, was not required to treat the transfer as reportable for purposes of section 6050Y(b).

Generally, amounts received under a life insurance contract that are paid by reason of the death of the insured are excluded from federal income tax under section 101(a)(1). However, if a life insurance contract is sold or otherwise transferred for valuable consideration, the “transfer for value rule” set forth in section 101(a)(2) limits the excludable portion of the amount paid by reason of the death of the insured. Section 101(a)(2) provides that the excludable amount following a transfer for valuable consideration generally may not exceed the sum of (1) The actual value of the consideration paid by the transferee to acquire the life insurance contract and (2) the premiums and other amounts subsequently paid by the transferee. Section 101(a)(2) provides two exceptions to this transfer for value rule. Specifically, the limitation set forth in section 101(a)(2) does not apply if (1) The transferee's basis in the contract is determined in whole or in part by reference to the transferor's basis in the contract or (2) the transfer is to the insured, to a partner of the insured, to a partnership in which the insured is a partner, or to a corporation in which the insured is a shareholder or officer.

Section 13522 of the Act added section 101(a)(3) to the Code. Section 101(a)(3)(A) provides that these two exceptions shall not apply in the case of a transfer of a life insurance contract, or any interest therein, that is a reportable policy sale. Section 101(a)(3)(B) defines the term “reportable policy sale” to mean the acquisition of an interest in a life insurance contract, directly or indirectly, if the acquirer has no substantial family, business, or financial relationship with the insured apart from the acquirer's interest in such life insurance contract. For purposes of the preceding sentence, the term “indirectly” applies to the acquisition of an interest in a partnership, trust, or other entity that holds an interest in the life insurance contract.

The proposed regulations update § 1.101-1(a)(1) of the existing regulations to reflect the repeal of section 101(b) (treatment of employees' death benefits) in 1996, and the addition of section 7702 (definition of life insurance contract) in 1984, section 101(j) (treatment of certain employer-owned life insurance contracts) in 2006, and section 101(a)(3) (exception to valuable consideration rules for reportable policy sales) in 2017. The proposed regulations remove the second and third sentences of § 1.101-1(a)(1) of the existing regulations and add a sentence at the end of § 1.101-1(a)(1) to address the earlier changes in law. To address the changes in law made by the Act, the proposed regulations under section 101 provide updated rules for determining the amount of death benefits excluded from gross income following a transfer for value or gratuitous transfer, including a reportable policy sale, and provide definitions applicable under section 101. The proposed regulations under section 6050Y adopt the relevant definitions by cross-reference.

The proposed regulations provide that any transfer of an interest in a life insurance contract for cash or other consideration reducible to a money value is a transfer for valuable consideration. See § 1.101-1(f)(5) of the proposed regulations; see also § 25.2512-8 (“[a] consideration not reducible to a value in money or money's worth, as love and affection, promise of marriage, etc., is to be wholly disregarded”). An interest in a life insurance contract (also referred to as a life insurance policy) is held by any person that has taken title to or possession of the life insurance contract, in whole or part, for state law purposes, including any person that has taken title or possession as nominee for another person, or by any person that has an enforceable right to receive all or a part of the proceeds of the life insurance contract or to any other economic benefits of the insurance policy as described in § 20.2042-1(c)(2). See § 1.101-1(e)(1) of the proposed regulations. The enforceable right to designate a contract beneficiary is an interest in a life insurance contract. Id. Any person named as the owner in a life insurance contract generally is the owner (or an owner) of the contract and holds an interest in the contract. Id.

The transfer of an interest in a life insurance contract includes the transfer of any interest in the life insurance contract as well as any transfer of the life insurance contract itself (meaning a transfer of title to, possession of, or legal or beneficial ownership of the life insurance contract). See § 1.101-1(e)(2) of the proposed regulations. For instance, the creation of an enforceable right to receive all or a part of the proceeds of a life insurance contract constitutes the transfer of an interest in the life insurance contract. Id. However, the revocable designation of a beneficiary of the policy proceeds does not constitute a transfer of an interest in a life insurance contract to the beneficiary until the designation becomes irrevocable other than by reason of the death of the insured. Id. For purposes of this rule, a beneficiary designation is not revocable if the person with the right to designate the beneficiary of the contract has an enforceable contractual obligation to designate a particular contract beneficiary. The pledging or assignment of a policy as collateral security also is not a transfer of an interest in a life insurance contract. Id. In response to comments received on Notice 2018-41 suggesting that the initial owner of a life insurance contract should not be considered an “acquirer” for purposes of section 6050Y(a), § 1.101-1(e)(2) of the proposed regulations clarifies that the issuance of a life insurance contract to a policyholder, other than the issuance of a policy in an exchange pursuant to section 1035, is not a transfer of an interest in a life insurance contract.

Section 1.101-1(b)(1)(i) of the proposed regulations provides that, in the case of a transfer of an interest in a life insurance contract for valuable consideration, the amount of the proceeds attributable to the interest that is excludable from gross income under section 101(a)(1) is limited under section 101(a)(2) to the sum of the actual value of the consideration for the transfer paid by the transferee and the premiums and other amounts subsequently paid by the transferee with respect to that interest. Consistent with section 101(a)(3), this general rule applies to all transfers of interests in life insurance contracts for valuable consideration that are reportable policy sales. Consistent with section 101(a)(2), this general rule also continues to apply to transfers of interests in life insurance contracts for valuable consideration that are not reportable policy sales, unless an exception set forth in section 101(a)(2) applies. See § 1.101-1(b)(1)(i) and (ii) of the proposed regulations. Section 1.101-1(b)(1)(ii)(A) of the proposed regulations applies to carryover basis transfers that are not also subject to § 1.101-1(b)(1)(ii)(B) of the proposed regulations. Section 1.101-1(b)(1)(ii)(B) of the proposed regulations applies to transfers to certain persons.

Under § 1.101-1(b)(1)(ii)(A) of the proposed regulations, the limitation described in section 101(a)(2) and § 1.101-1(b)(1)(i) of the proposed regulations does not apply to the transfer of an interest in a life insurance contract for valuable consideration if (1) The transfer is not a reportable policy sale, (2) the basis of the interest transferred, for the purpose of determining gain or loss with respect to the transferee, is determinable in whole or in part by reference to the basis of that interest in the hands of the transferor, and (3) § 1.101-1(b)(1)(ii)(B) of the proposed regulations does not apply to the transfer. The amount of the proceeds attributable to the interest that is excludable from gross income under section 101(a)(1) is, however, limited to the sum of (1) The amount that would have been excludable by the transferor, and (2) the premiums and other amounts subsequently paid by the transferee.

This limitation applies without regard to whether the interest previously has been transferred or to the nature of any prior transfer of the interest. For instance, it is irrelevant whether a prior transfer was gratuitous or for value, whether section 101(a)(2)(A) or (B) applied to a prior transfer, whether any prior transfer was a reportable policy sale, or whether the prior transfer was of the same interest or a larger interest in a life insurance contract that included the same interest. If the full amount of the proceeds would have been excludable by the transferor, as would generally be the case if the original policyholder is the transferor, § 1.101-1(b)(1)(ii)(A) of the proposed regulations will, as a practical matter, impose no limitation on the amount of the proceeds attributable to the interest that is excludable from gross income under section 101(a)(1).

Under § 1.101-1(b)(1)(ii)(B)( 1 ) of the proposed regulations, the limitation on the excludable amount of the proceeds described in section 101(a)(2) and § 1.101-1(b)(1)(i) of the proposed regulations will not apply to an interest in a life insurance contract that is transferred for valuable consideration if (1) The transfer is not a reportable policy sale and the interest was not previously transferred for valuable consideration in a reportable policy sale, and (2) the transfer is to the insured, a partner of the insured, a partnership in which the insured is a partner, or a corporation in which the insured is a shareholder or officer (a (B)( 1 ) person).

Under § 1.101-1(b)(1)(ii)(B)( 2 ) of the proposed regulations, if a transfer of an interest in a life insurance contract to a (B)( 1 ) person follows a transfer for valuable consideration in a reportable policy sale (whether in the immediately preceding transfer or an earlier transfer), the amount of the proceeds attributable to that interest that is excludable from gross income under section 101(a)(1) is limited to the sum of (1) The higher of the amount that would have been excludable by the transferor if the transfer to the (B)( 1 ) person had not occurred or the actual value of the consideration for the transfer to the (B)( 1 ) person paid by the (B)( 1 ) person, and (2) the premiums and other amounts subsequently paid by the transferee. Thus, in determining the excludable amount of the proceeds attributable to an interest in a life insurance contract that is transferred to a (B)( 1 ) person in a transfer that is not a reportable policy sale, the limitation described in section 101(a)(2) and § 1.101-1(b)(1)(i) of the proposed regulations is inapplicable unless the interest previously had been transferred in a reportable policy sale. Additionally, because of the alternative in the formula for computing the limitation, a (B)( 1 ) person will not be subject to a less favorable limitation than the limitation applicable to a transferee in a carryover basis transfer eligible for the exception set forth in § 1.101-1(b)(1)(ii)(A) of the proposed regulations.

The proposed regulations provide a single rule applicable to all gratuitous transfers of interests in life insurance contracts, including reportable policy sales that are not for valuable consideration: the amount of the proceeds attributable to the interest that is excludable from gross income under section 101(a)(1) is limited to the sum of (1) The amount of the proceeds attributable to the gratuitously transferred interest that would have been excludable by the transferor if the transfer had not occurred, and (2) the premiums and other amounts subsequently paid by the transferee. See § 1.101-1(b)(2)(i) of the proposed regulations. Although § 1.101-1(b)(2) of the existing regulations provides a special rule for gratuitous transfers made by or to the insured, a partner of the insured, a partnership in which the insured is a partner, or a corporation in which the insured is a shareholder or officer, such a rule is not required by section 101(a), and the proposed regulations do not contain a special rule for these transfers because it could be subject to abuse.

Section 1.101-1(b)(3) of the proposed regulations clarifies that, for purposes of § 1.101-1(b)(1) and (2) of the proposed regulations, in determining the amounts, if any, of consideration paid by the transferee for the transfer of an interest in a life insurance contract and premiums and other amounts subsequently paid by the transferee with respect to that interest, the amounts paid by the transferee are reduced, but not below zero, by amounts received by the transferee under the life insurance contract that are not received as an annuity, to the extent excludable from gross income under section 72(e). This provision is necessary to prevent an exclusion from gross income based on a double-counting of consideration paid.

Section 1.101-1(c) of the proposed regulations defines the term “reportable policy sale,” which was introduced in section 101(a)(3). The proposed regulations provide that, as a general matter, any direct or indirect acquisition of an interest in a life insurance contract is a “reportable policy sale” if the acquirer has, at the time of the acquisition, no substantial family, business, or financial relationship with the insured apart from the acquirer's interest in that life insurance contract. See § 1.101-1(c)(1) of the proposed regulations.

Under § 1.101-1(e)(3)(i) of the proposed regulations, the transfer of an interest in a life insurance contract results in the direct acquisition of the interest by the transferee (acquirer). Under § 1.101-1(e)(3)(ii) of the proposed regulations, an indirect acquisition of an interest in a life insurance contract occurs when a person (acquirer) becomes a beneficial owner of a partnership, trust, or other entity that holds (directly or indirectly) an interest in the life insurance contract. For this purpose, the term “other entity” does not include a C corporation (as that term is defined in section 1361(a)(2)), unless more than 50 percent of the gross value of the assets of the C corporation (as determined under § 1.101-1(f)(4)) consists of life insurance contracts immediately before the indirect acquisition. Under § 1.101-1(f)(1) of the proposed regulations, a “beneficial owner” of a partnership, trust, or other entity is an individual or C corporation with an ownership interest in that partnership, trust, or other entity. The beneficial owner's interest may be held directly or indirectly, through one or more other partnerships, trusts, or other entities.

Accordingly, under § 1.101-1(e)(3)(ii) of the proposed regulations, persons that acquire shares in a C corporation that holds an interest in a life insurance contract generally will not be considered to have an indirect acquisition of an interest in such contract. However, if the C corporation primarily owns life insurance contracts (or interests therein), any person that acquires shares in the C corporation will be considered to have an indirect acquisition of an interest in any life insurance contract held by the C corporation.

Section 1.101-1(d) of the proposed regulations defines the terms “substantial family relationship,” “substantial business relationship,” and “substantial financial relationship.” Under section 1.101-1(d)(1) of the proposed regulations, a “substantial family relationship” is the relationship between an individual and any family member of that individual as defined in § 1.101-1(f)(3) of the proposed regulations. A substantial family relationship also exists between an individual and his or her former spouse with regard to a transfer of an interest in a life insurance contract to (or in trust for the benefit of) that former spouse incident to divorce. See § 1.101-1(d)(1) of the proposed regulations. Additionally, a substantial family relationship exists between the insured and an entity if all of the entity's beneficial owners have a substantial family relationship with the insured. Id.

Section 1.101-1(d)(2) describes the two situations in which a substantial business relationship exists between the acquirer and insured: (1) The insured is a key person (as defined in section 264) of, or materially participates (as defined in section 469 and the corresponding regulations) in, an active trade or business as an owner, employee, or contractor, and at least 80% of that trade or business is owned (directly or indirectly, through one or more partnerships, trusts, or other entities) by the acquirer or the beneficial owners of the acquirer, and (2) the acquirer acquires an active trade or business and acquires the interest in the life insurance contract either as part of that acquisition or from a person owning significant property leased to the acquired trade or business or life insurance policies held to facilitate the succession of the ownership of the business, if certain requirements are met. See § 1.101-1(d)(2)(i) and (ii) of the proposed regulations.

Comments received on Notice 2018-41 suggested that acquisitions of life insurance contracts, or interests therein, in certain ordinary course business transactions involving the acquisition of a trade or business should not be considered reportable policy sales, including ordinary course business transactions whereby one trade or business acquires another trade or business that owns life insurance on the lives of former employees or directors. The definition of substantial business relationship in § 1.101-1(d)(2) of the proposed regulations, as well as certain other provisions in the proposed regulations, are intended to exclude certain of these transactions from the definition of reportable policy sales.

Section 1.101-1(d)(3) of the proposed regulations describes the three situations in which a substantial financial relationship exists between the insured and the acquirer: (1) The acquirer (directly or indirectly, through one or more partnerships, trusts, or other entities of which it is a beneficial owner) has, or the beneficial owners of the acquirer have, a common investment (other than the interest in the life insurance contract) with the insured and a buy-out of the insured's interest in the common investment by the co-investor(s) after the insured's death is reasonably foreseeable; (2) the acquirer maintains the life insurance contract on the life of the insured to provide funds to purchase assets or satisfy liabilities following the death of the insured; or (3) the acquirer is an organization described in sections 170(c), 2055(a), and 2522(a) that previously received financial support in a substantial amount or significant volunteer support from the insured. See § 1.101-1(d)(3)(i) through (iii) of the proposed regulations.

The proposed regulations also specify that the fact that an acquirer is a partner of the insured, a partnership in which the insured is a partner, or a corporation in which the insured is a shareholder or officer (all relationships that are covered by an exception from the transfer for value rule) is not sufficient to establish a substantial business or financial relationship, nor is such status required to establish a substantial business or financial relationship. See § 1.101-1(d)(4)(ii) of the proposed regulations. The proposed regulations also clarify that, for purposes of determining whether the acquirer in an indirect acquisition of an interest in a life insurance contract has a substantial business or financial relationship with the insured, the acquirer will be deemed to have a substantial business or financial relationship with the insured if the direct holder of the interest in the life insurance contract has a substantial business or financial relationship with the insured immediately before and after the date the acquirer acquires its interest. See § 1.101-1(d)(4)(i) of the proposed regulations. Accordingly, the acquirer in an indirect acquisition may establish a substantial business or financial relationship with the insured based on the acquirer's own relationship with the insured or the relationship between the insured and the direct holder of the interest in the life insurance contract.

The proposed regulations also provide several exceptions from the definition of reportable policy sale. The proposed regulations provide that the transfer of an interest in a life insurance contract between certain related entities is not a reportable policy sale. Specifically, a transfer between entities with the same beneficial owners is not a reportable policy sale if the ownership interest of each beneficial owner in each entity does not vary by more than a 20 percent ownership interest. See § 1.101-1(c)(2)(i) and (g)(10) of the proposed regulations. Also, a transfer between corporations that are members of an affiliated group (as defined in section 1504(a)) that files a consolidated U.S. tax return for the taxable year in which the transfer occurs is not a reportable policy sale. See § 1.101-1(c)(2)(ii) of the proposed regulations.

Finally, in response to comments received on Notice 2018-41, certain indirect acquisitions of life insurance contracts, or interests in life insurance contracts, are excepted from the definition of a reportable policy sale. The limited definition of “indirect acquisition” under § 1.101-1(e)(3)(ii) of the proposed regulations means that shareholders acquiring an interest in a C corporation that holds an interest in one or more life insurance contracts will not be considered to have an indirect acquisition or reportable policy sale unless the C corporation primarily owns life insurance contracts (or interests therein). The proposed regulations also provide an exception from the definition of a reportable policy sale for an indirect acquisition of an interest in a life insurance contract if the direct holder of the interest acquired the interest in a reportable policy sale and reported the acquisition in compliance with section 6050Y(a) and § 1.6050Y-2 of the proposed regulations. See § 1.101-1(c)(2)(iii)(A) of the proposed regulations. Also, the indirect acquisition of an interest in a life insurance contract is not a reportable policy sale if (1) Immediately before the acquisition, no more than 50 percent of the gross value of the assets of the entity that directly holds the interest in the life insurance contract consists of life insurance contracts, and (2) the acquirer and his or her family members own five percent or less of the ownership interests in the entity that directly holds the interest in the life insurance contract. See § 1.101-1(c)(2)(iii)(B) of the proposed regulations. Section 1.101-1(f)(4) of the proposed regulations provides rules regarding the determination of the gross value of assets for this purpose.

The rules in § 1.101-1(b) through (g) of the proposed regulations are proposed to apply, for purposes of section 6050Y, to reportable policy sales made after December 31, 2017, and to reportable death benefits paid after December 31, 2017. For any other purpose, § 1.101-1(b) through (g) of the proposed regulations apply to transfers of life insurance contracts, or interests therein, made after the date the Treasury decision adopting these regulations as final regulations is published in the Federal Register .

The rules in § 1.6050Y-1 of the proposed regulations are proposed to apply to reportable policy sales made and reportable death benefits paid after December 31, 2017. The rules in §§ 1.6050Y-2 and 1.6050Y-3 are proposed to apply to reportable policy sales made after December 31, 2017. The rules in § 1.6050Y-4 are proposed to apply to reportable death benefits paid after December 31, 2017. See § 1.6050Y-1(b) of the proposed regulations.

For reportable policy sales and payments of reportable death benefits occurring after December 31, 2017, and before the date final regulations are published in the Federal Register , § 1.6050Y-1(b) of the proposed regulations would provide transition relief as follows:

1. With respect to reportable policy sales occurring after December 31, 2017, and before the date final regulations are published in the Federal Register , statements required to be furnished to issuers under section 6050Y(a)(2) must be furnished by the later of the applicable deadline set forth in final regulations or 60 days after the date final regulations are published in the Federal Register ;

2. With respect to reportable policy sales occurring after December 31, 2017, and before the date final regulations are published in the Federal Register , returns required to be filed under section 6050Y(a)(1) and (b)(1) and statements required to be furnished to payment recipients and sellers under section 6050Y(a)(2) and (b)(2) must be filed or furnished by the later of the applicable deadline set forth in final regulations or 90 days after the date final regulations are published in the Federal Register ; and

3. With respect to payments of reportable death benefits paid after December 31, 2017, and before the date final regulations are published in the Federal Register , returns required to be filed under section 6050Y(c)(1) and statements required to be furnished to payment recipients under section 6050Y(c)(2) must be filed or furnished by the later of the applicable deadline set forth in final regulations or 90 days after the date final regulations are published in the Federal Register .

The proposed regulations are not subject to review under section 6(b) of Executive Order 12866 pursuant to the Memorandum of Agreement (April 11, 2018) between the Treasury Department and the Office of Management and Budget regarding review of tax regulations.

When the IRS issues a proposed rulemaking imposing a requirement on small entities, the Regulatory Flexibility Act (RFA) requires the agency to “prepare and make available for public comment an initial regulatory flexibility analysis,” which will “describe the impact of the proposed rule on small entities.” 5 U.S.C. 603(a). Section 605(b) of the RFA allows an agency to certify a rule, in lieu of preparing an analysis, if the proposed rulemaking is not expected to have a significant economic impact on a substantial number of small entities.

Pursuant to the RFA, it is hereby certified that the proposed regulations will not have a significant economic impact on a substantial number of small entities. Section 13520 of the Act added section 6050Y to chapter 61 (Information and Returns) of the Code. Section 6050Y imposes information reporting obligations related to certain life insurance contract transactions, including reportable policy sales and payments of reportable death benefits. Section 6050Y provides that each of the returns required by section 6050Y is to be made “at such time and in such manner as the Secretary shall prescribe.” The proposed regulations under section 6050Y would implement section 6050Y by specifying the manner in which and time at which the information reporting obligations must be satisfied. Accordingly, because the regulations are limited in scope to time and manner of information reporting and definitional information, the economic impact of the proposal is expected to be minimal. In addition, the IRS and Treasury expect that the reporting burden will fall primarily on financial and insurance firms with annual receipts greater than $38.5 million (see 13 CFR 121.201, sector 52 (finance and insurance)). Therefore, because the Commissioner of the IRS hereby certifies that the proposed regulations will not have a significant economic impact on a substantial number of small entities, a regulatory flexibility analysis is not required. The Treasury Department and the IRS request comments on the accuracy of this statement. Pursuant to section 7805(f) of the Code, this notice of proposed rulemaking will be submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small entities.

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. The Treasury Department and the IRS specifically request comments on the following:

1. Whether the proposed regulations should provide rules regarding the electronic furnishing of statements that differ in any way from the rules regarding the electronic furnishing of statements that are set forth in § 31.6051-1(j).

2. Information about the types and timing of payments made by acquirers in reportable policy sales, including the types of ancillary costs and expenses paid in reportable policy sales, the recipients of those payments, and existing reporting requirements applicable to those payments.

3. Whether, for purposes of reporting under section 6050Y(c), only issuers should be considered payors of reportable death benefits or whether payors should be more broadly defined to include any holder of an interest in a life insurance contract that receives reportable death benefits attributable to that interest and is contractually obligated to pay them to the beneficial owner of the interest.

4. Whether a substantial business relationship or substantial financial relationship should be considered to exist between the acquirer and insured for purposes of section 101(a)(3) in any situation not included in the definition of “substantial business relationship” in § 1.101-1(d)(2) of the proposed regulations or the definition of “substantial financial relationship” in § 1.101-1(d)(3) of the proposed regulations.

5. Whether the proposed regulations should include additional provisions regarding the treatment of section 1035 exchanges of life insurance contracts.

6. Whether the exceptions to reporting by 6050Y(b) issuers and payors under §§ 1.6050Y-3(f)(1) and 1.6050Y-4(e)(1) of the proposed regulations (covering sellers and reportable death benefit payment recipients documented as foreign beneficial owners) are appropriate, including for cases in which a foreign partnership or a foreign trust is the seller or reportable death benefit payment recipient, and also whether the proposed reporting requirements are duplicative or could be combined with other reporting requirements.

All comments that are submitted by the public will be available for public inspection and copying at www.regulations.gov or upon request.

A public hearing has been scheduled for June 5, 2019, at 10 a.m., in the IRS Auditorium, Internal Revenue Service, 1111 Constitution Avenue NW, Washington, DC. Due to building security procedures, visitors must enter at the Constitution Avenue entrance. In addition, all visitors must present photo identification to enter the building. Because of access restrictions, visitors will not be admitted beyond the immediate entrance area more than 15 minutes before the hearing starts. For more information about having your name placed on the building access list to attend the hearing, see the FOR FURTHER INFORMATION CONTACT section of this preamble.

The rules of 26 CFR 601.601(a)(3) apply to the hearing. Persons who wish to present oral comments at the hearing must submit written or electronic comments and an outline of the topics to be discussed and the time to be devoted to each topic by May 9, 2019. Such persons should submit a signed paper original and eight (8) copies or an electronic copy. A period of 10 minutes will be allotted to each person for making comments. An agenda showing the scheduling of the speakers will be prepared after the deadline for receiving outlines has passed. Copies of the agenda will be available free of charge at the hearing.

The principal author of these regulations is Kathryn M. Sneade, Office of Associate Chief Counsel (Financial Institutions and Products), IRS. However, other personnel from the Treasury Department and the IRS participated in their development.

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

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

The revisions and additions read as follows:

On June 8, 2016 (81 FR 36826), MSHA published a request for information (RFI) on Exposure of Underground Miners to Diesel Exhaust. The RFI sought input from the public that will help MSHA evaluate the Agency's existing standards and policy guidance on controlling miners' exposures to diesel exhaust and to evaluate the effectiveness of the protections now in place to preserve miners' health.

MSHA held four public meetings on the RFI in 2016 (81 FR 41486), and the comment period was scheduled to close on September 6, 2016; however, in response to requests from the public, MSHA extended the comment period until November 30, 2016 (81 FR 58424).

In response to requests from stakeholders during the comment period, MSHA and the National Institute for Occupational Safety and Health (NIOSH) convened a Diesel Exhaust Health Effects Partnership (Partnership) with the mining industry, diesel engine manufacturers, academia, and representatives of organized labor to gather information regarding the complex questions contained in the RFI. The Partnership provides an opportunity for all relevant stakeholders from the mining community to come together to understand the health effects from underground miners' exposure to diesel exhaust. The Partnership also provides stakeholders an opportunity to consider best practices and new technologies, including engineering controls that enhance control of diesel exhaust exposures to improve protections for miners.

The first meeting of the Partnership was held on December 8, 2016, in Washington, Pennsylvania; and the second meeting was held on September 19, 2017, in Triadelphia, West Virginia. During the comment period and at the first Partnership meeting, MSHA received requests from stakeholders to reopen the rulemaking record for comment on the RFI and allow the comment period to remain open during the Partnership proceedings. In response to those requests, MSHA reopened the record for comment and extended the comment period for one year, until January 9, 2018 (82 FR 2284).

On March 26, 2018, MSHA reopened the rulemaking record and extended the comment period for one year, until March 26, 2019 (83 FR 12904).

On January 23, 2019, the Partnership sponsored a Diesel Technology Workshop (Workshop) in Washington, DC. The Workshop focused on the types of advanced low-emissions diesel technologies—including new engines, equipment, after-treatment systems, and retrofits—that are available for use in underground mines. The Workshop included five panels of experts that presented information and data on current emissions/control technologies, engine controls, emission reduction/exposure reduction, current barriers to deployment of technologies, and strategies addressing miners' exposures to diesel exhaust.

Partnership proceedings—including additional meetings—are anticipated for 2019 and 2020 to address topics relevant to the RFI. Extending the comment period commensurate with these proceedings will enable stakeholders to add information and data related to these proceedings to the record. Accordingly, in response to requests from stakeholders to allow the comment period on the RFI to remain open during Partnership proceedings, and to allow all interested parties an additional opportunity to review and comment on information and data from the proceedings, MSHA is extending the comment period on the RFI to September 25, 2020.

I. Table of Abbreviations CFR Code of Federal Regulations DHS Department of Homeland Security FR Federal Register NPRM Notice of proposed rulemaking §  Section U.S.C. United States Code II. Background, Purpose, and Legal Basis

The purpose of this rulemaking is to update the safety zones in § 165.941 to ensure accuracy of times, dates, and dimensions for various triggering and marine events that are expected to be conducted within the Captain of the Port Detroit Zone throughout the year. The purpose of the rulemaking is also to ensure vessels and persons are protected from the specific hazards related to the aforementioned events. These specific hazards include obstructions in the waterway that may cause marine casualties; collisions among vessels maneuvering at a high speed within a channel; the explosive dangers involved in pyrotechnics and hazardous cargo; and flaming/falling debris into the water that may cause injuries. The Coast Guard proposes this rulemaking under authority in 46 U.S.C. 70034, 70051; 33 CFR 1.05-1, 6.04-1, 6.04-6, and 160.5; Department of Homeland Security Delegation No. 0170.1.

This proposed rule would consistently apprise the public in a timely manner through permanent publication in Title 33 of the Code of Federal Regulations. The table in this proposed rule would list each annual recurring event requiring a safety zone as administered by the Coast Guard.

The purpose of this rulemaking is to combine all of the Captain of the Port Detroit Zones safety zones from 33 CFR 165.941 into one table under § 165.941. This table will ensure accuracy of times, dates, and dimensions for various marine events that are expected to be conducted within the Captain of the Port Detroit Zone throughout the year. We propose to remove § 165.941(a)(1) through § 165.941(60)(f) replacing these regulations with a table.

Additionally, this proposed rule adds 3 new safety zones to table 165.941 for annually recurring events in the Captain of the Port Detroit Zone. These 3 zones were approved and published in the Federal Register as temporary safety zones in 2018 and were added in order to protect the public from the safety hazards previously described.

The Captain of the Port Detroit has determined that the safety zones in this proposed rule are necessary to ensure the safety of vessels and people during annual marine or triggering events in the Captain of the Port Detroit zone. Although this proposed rule will be effective year-round, the safety zones in this proposed rule will be enforced only immediately before, during, and after events that pose a hazard to the public and only upon a notice of enforcement by the Captain of the Port Detroit.

The Captain of the Port Detroit will notify the public that the zones in this proposal are or will be enforced by all appropriate means to the affected segments of the public, including publication in the Federal Register , as practicable, in accordance with 33 CFR 165.7(a). Such means of notification may also include, but are not limited to, Broadcast Notice to Mariners or Local Notice to Mariners.

All persons and vessels must comply with the instructions of the Coast Guard Captain of the Port Detroit or his or her designated representative. Entry into, transiting, or anchoring within the safety zones is prohibited unless authorized by the Captain of the Port or his or her designated representative. The Captain of the Port or his or her designated representative may be contacted via VHF Channel 16.

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, duration, and time of day of the safety zones. The safety zones created by this rule will be relatively small and effective during the time to ensure safety of spectator and participants for the listed triggering or marine events. Moreover, the Coast Guard would issue a Broadcast Notice to Mariners via VHF-FM about the zone, and the rule would allow vessels to seek permission to enter the zone.

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 Management Directive 023-01, which guides 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 the establishment yearly triggering and marine events on and around Lake Erie, Lake Huron, St. Clair River, and the Detroit River. Normally such actions are categorically excluded from further review under paragraph L[60a] of Appendix A, Table 1 of DHS Instruction Manual 023-01-001-01, Rev. 01. 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 http://www.regulations.gov and will include any personal information you have provided. For more about privacy and the docket, visit http://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 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 a final rule is published.

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

I. Table of Abbreviations CFR Code of Federal Regulations COTP Captain of the Port Sector Ohio Valley DHS Department of Homeland Security FR Federal Register NPRM Notice of proposed rulemaking § Section U.S.C. United States Code II. Background, Purpose, and Legal Basis

The purpose of this rulemaking is to ensure the safety of vessels on the navigable waters of the Lower Mississippi River, Upper Mississippi River, and Ohio River during high water event. The United States Army Corps of Engineers may deem it necessary to demolish certain federal levees on the Lower Mississippi River and utilize the Bird's Point-New Madrid Floodway, to maintain the integrity of the Lower Mississippi River, Upper Mississippi River, Ohio River, and all associated tributaries. During this time, a temporary safety zone on the Lower Mississippi River, Upper Mississippi River, and Ohio River would be necessary to protect persons, property, and infrastructure from potential damage and safety hazards associated with the demolition of federal levees on the Lower Mississippi River and utilization of the Bird's Point-New Madrid Floodway. The Captain of the Port Sector Ohio Valley (COTP) has determined that potential hazards associated with the demolition of the federal levees on the Lower Mississippi River and re-stabilization of the waterway would be a safety concern for anyone in the vicinity of the Lower Mississippi River from mile marker (MM) 953.8 to MM 887.0, the Upper Mississippi River from MM 0.0 to MM 3.0, and the Ohio River from MM 981.5 to MM 978.5. The Coast Guard is proposing this rulemaking under authority in 46 U.S.C. 70034.

The COTP proposes to establish a temporary safety zone on all navigable waters of the Lower Mississippi River from MM 953.8 MM 887.0, the Upper Mississippi River from MM 0.0 to MM 3.0, and the Ohio River from MM 981.5 to MM 978.5, in the event of the demolition of the federal levees on the Lower Mississippi River and utilization of the Bird's Point-New Madrid Floodway. The COTP or a designated representative would inform the public of the enforcement date and times for this safety zone, as well as any emergent safety concerns that may delay the enforcement of the zone through Local Notices to Mariners (LNMs), and/or actual notice.

No vessels or persons would be permitted to enter the proposed safety zone without obtaining permission from the COTP or a designated representative. 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, duration, and time-of-day of the temporary safety zone. The safety zone would only impact a relatively small portion of the waterway and would only be in effect during the demolition process and approximately 36 hours after to allow for stabilization of the waterway. After approximately 36 hours, vessels would be allowed to transit. Additionally, the safety zone would be limited to the high water event if the U.S. Army Corps of Engineers deems it necessary to demolish the federal levees on the Lower Mississippi River and utilize the Bird's Point-New Madrid Floodway.

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 temporary 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 safety zone on all waters of the Lower Mississippi River from MM 953.8 to MM 887.0, the Upper Mississippi River from MM 0.0 to MM 3.0, and the Ohio River from MM 981.5 to MM 978.5, during demolition of the federal levees on the Lower Mississippi River and utilization of the Bird's Point-New Madrid Floodway. 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 is proposing to amend 33 CFR part 165 as follows:

VA national cemeteries are maintained as national shrines, places of honor and memory where veterans and visitors can sense the serenity, historic sacrifice and nobility of purpose of those who have served the Nation in the military. VA provides burial (also called interment) in VA national cemeteries to eligible persons identified in section 2402 of title 38 of the United States Code (U.S.C.). Section 2404(h) of 38 U.S.C. requires VA to respect the expressed wishes of the decedent's next-of-kin and give them appropriate deference when evaluating whether the proposed interment, funeral, memorial service, or ceremony affects the safety and security of the national cemetery and visitors. In addition, section 2404(h) provides that, to the extent possible, all appropriate public areas of the cemetery be made available to the family of the deceased veteran for mourning, prayer, contemplation or reflection, as well as to funeral honors providers. VA must also ensure that the family of the deceased veteran is able to display any religious or other symbols during such interment, memorial service, or ceremony.

VA proposes to amend its regulations by adding a new section 38.619 to address committal services, memorial services and funeral honors, as required in 2404(h). In addition, because a request for such services, particularly a request for a committal service, is normally received as part of a request for interment, we propose to request that the decedent's personal representative provide certain necessary information at the time that the request for interment is made.

As a preliminary matter, we clarify two points regarding language differences between the statutory authority and this proposed regulation. First, while § 2404(h) refers to “next of kin or other agent of the deceased veteran,” we propose to use the term “personal representative” when referring to the person from whom VA receives a request for interment or services. VA has previously defined “personal representative” at 38 CFR 38.600 as “a family member or other individual who has identified himself or herself to the National Cemetery Administration as the person responsible for making decisions concerning the interment . . . or memorialization of a deceased individual.” VA believes that use of this broad term eliminates the need to use the phrase “next of kin or other agent[.]” We note in particular that “next of kin” is defined in various ways in numerous state or federal laws or regulations, and may therefore lead to confusion. In addition, we note that the phrase “agent of the deceased” would generally be a legal contradiction in terms, because any agency relationship the decedent may have had with another person is extinguished upon death, and any individual making arrangements for a committal or memorial service would not be acting in the capacity of agent of the deceased individual. Under the existing regulatory definition, we do not require that a personal representative have any prior relationship to the deceased. This would allow for funeral directors or unrelated individuals to act as a personal representative for a decedent when they have custody of the remains, including for interment of unclaimed remains.

The second language issue is in regard to the use of the term “funeral.” Although Section 2404(h) of 38 U.S.C. refers to “funeral,” we do not propose to use this term in the regulation because generally VA national cemeteries do not conduct or perform funerals. A funeral is generally held at a funeral home or religious facility prior to transporting the remains of the decedent to a cemetery. The committal service is a brief ceremony that provides families and friends the opportunity to remember and honor their deceased loved one before the remains are interred or placed in a columbarium. Alternatively, if remains are not available for interment, VA national cemeteries may allow a personal representative to request a memorial service which provides the same opportunity for families and friends to honor the deceased. For this reason, VA regulations refer to committal services or memorial services, but not funerals. VA believes Congress simply utilized the term “funeral” in section 2404(h) because that term is part of common parlance, but that Congress did not intend to fundamentally alter the character of VA committal or memorial services.

We also point out that, while the focus of 38 U.S.C. 2404(h) is on committal or memorial services and funeral honors for deceased veterans, under 38 U.S.C. 2402, individuals other than veterans are eligible for interment in a VA national cemetery. While a committal or memorial service could be held for such person, if requested, and therefore most provisions proposed here would be applicable, a committal or memorial service for such individuals would not include funeral honors, because funeral honors are available only to honor the military service of a deceased individual. VA would respect the expressed wishes of the decedent's personal representative for the committal or memorial service for a deceased eligible non-veteran and give appropriate deference to those wishes in scheduling and planning the interment, memorial service, or committal service. However, paragraph (f) of proposed section 38.619, regarding funeral honors, would apply only to a committal or memorial service in a VA national cemetery for a deceased veteran or other eligible individual who served in the U.S. armed forces.

Although requests for burial in a VA national cemetery are claims for benefits, not unlike other claims received by VA for health care or other benefits provided under Title 38, because interment related services are a time-sensitive matter, VA accepts requests for burial by telephone, rather than requiring submission of a claim form. The process for requesting interment has been communicated widely by VA, and is efficient and effective, but has not been established in regulation. This regulation would establish in regulation provisions that reflect VA's current procedures for requesting interment in a VA national cemetery.

We propose to establish in section 38.619(a) that a decedent's personal representative may request interment in a VA national cemetery by contacting the National Cemetery Scheduling Office (NCSO). Contacting the NCSO is the most efficient method for scheduling interments at VA national cemeteries. VA established the NCSO in 2007 to improve the process for requesting interment in the national cemeteries. NCSO is able to determine eligibility and schedule committal and memorial services at any open VA national cemetery.

VA requires certain critical information at the time of the request for interment, prior to scheduling. This information is necessary to establish eligibility and decrease potential delays in scheduling, so that the cemetery may plan the committal or memorial service. In paragraph (a)(1), we propose to provide that VA will request of the decedent's personal representative certain information, including documentation, at the time of the request for interment, with or without a committal service or memorial service. VA proposes in paragraph (a)(1)(i) to require submission of documentation at the time of the request for interment necessary to establish the decedent's eligibility for national cemetery interment. We also propose to include language noting that VA will comply with its obligation, under the Veterans Claims Assistance Act (see 38 U.S.C. 5103, 5103A), to advise a claimant of the necessary documentation needed to support a claim for burial, and to make reasonable efforts to assist the claimant (or in this case, the personal representative) in obtaining that documentation, especially information such as military service documents, which may already be available to the Agency. VA must have this documentation to establish eligibility of the decedent before scheduling national cemetery interment, or a committal or memorial service.

VA proposes in paragraph (a)(1)(ii) to request that the personal representative provide a preferred time and date for the interment, or for the committal or memorial service, so that VA may schedule the requested service and, if necessary, provide logistical information to funeral honors providers. In proposed paragraph (a)(1)(iii), VA would request whether a committal service will be conducted before the interment. Committal services are not mandatory, and the personal representative of a decedent eligible for national cemetery interment may opt for interment without additional services. We discuss the content and conduct of committal services further in reference to paragraphs (c), (d), and (f) below.

In proposed (a)(1)(iv), VA would request that the personal representative provide information on whether the remains are in a casket or urn so that logistics for the interment or memorial service may be coordinated, including the placement of the decedent's remains in a gravesite designed for the type of container. In addition, for cremated remains VA would require that a certificate of cremation or other documentation sufficient to identify the decedent also be submitted at the time of interment for cemetery administration and recordkeeping. This would help VA ensure that interment is of an eligible decedent and to maintain its internal records.

In proposed paragraph (a)(1)(v), VA would request information on size of the casket or urn, if the request is for interment. This physical information is essential for logistical planning, primarily to ensure the size of the grave or columbarium niche is sufficient to accommodate the container, and for casketed remains, any outer burial receptacle or grave liner provided by the family or the Government. In proposed paragraph (a)(1)(vi), VA would request contact information for the personal representative so that VA may provide any changes in scheduling or logistical concerns prior to interment timely to the appropriate contact.

In proposed paragraph (a)(1)(vii), VA would request information on whether the personal representative will provide a private vault for casketed remains, or whether a government-furnished grave liner is required. This information is necessary for the cemetery to determine if a government-furnished outer burial receptacle must be ordered and may affect the section of the cemetery where the interment will take place. VA “pre-places” outer burial receptacles in most of its national cemeteries. If a family has privately-purchased a grave liner or outer burial receptacle, the interment would need to be scheduled in a location without a pre-placed outer burial receptacle.

In proposed paragraph (a)(1)(viii), VA would request information on whether the decedent's personal representative intends to have funeral honors included in the requested committal or memorial service, if the decedent is a veteran. VA requires this information for logistical and resource planning purposes and to assist in coordinating, as necessary, with the funeral honors provider(s) at the scheduled time of the committal or memorial service. The NCSO would provide a list of funeral honors providers at the selected cemetery, based on the list of providers maintained by the cemetery director. We discuss funeral honors, including the list of available funeral honors providers, below in the discussion of paragraph (f).

Because each request for interment is unique, VA proposes, in paragraph (a)(1)(ix), to alert requesters that additional information may be requested to establish or confirm eligibility or for cemetery logistical purposes. Additional information could include information relevant to confirming the military service of the deceased veteran to determine eligibility, or information regarding the relationship of the decedent to a veteran to ensure the decedent is an eligible dependent under section 2402.

In proposed paragraph (b), VA proposes that the personal representative may request memorial services for the decedent when remains are unrecoverable or otherwise will not be interred (such as scattering of cremated remains). We propose to include this provision to ensure that families are not dissuaded from requesting a memorial service in a national cemetery when the family does not have the remains of an eligible decedent for burial, or has made other arrangements for disposition of the remains. Additional circumstances under which a memorial service may be requested include deaths in which remains are not recovered, or when a decedent's body is donated for research, or if the remains have been cremated and scattered. If the decedent would have been eligible for burial in the national cemetery, VA seeks to ensure that the family is allowed to have a memorial service to honor the decedent, even when there are no remains to inter. Under proposed (b)(1), we would require information sufficient to confirm that the decedent would have been eligible for burial in a national cemetery. VA does not provide memorial services for individuals who would not be eligible for burial. In proposed paragraphs (b)(2) through (b)(5), we indicate other information VA would request of the personal representative in order for VA to schedule a memorial service. This information is similar to that requested under proposed (a)(1), and is similarly necessary for VA to confirm and schedule the requested services.

Proposed paragraph (c) would codify the statutory mandate to respect and defer to expressed wishes regarding the content and conduct of a committal or memorial service. We propose to provide that VA will respect and defer to the expressed wishes of the personal representative on the display of religious or other symbols chosen by the family, the use of all appropriate public areas, and selection of funeral honors providers, provided that the safety and security of the national cemetery and its visitors are not adversely affected. This paragraph would reaffirm VA's continuing commitment to allowing the family of the deceased veteran to display any religious or other symbols during such interment, memorial service, or ceremony, while in the committal shelter or at the gravesite if the committal service is held at a gravesite. Although VA is committed to respecting a family's wishes for the content of a committal or memorial service, we note that conduct in VA national cemeteries outside of the committal or memorial service, including displays of religious or other symbols, would be subject to VA's security and law enforcement regulations, found at 38 CFR 1.218, which prohibit unauthorized demonstrations. VA is committed to respecting individual rights; however, VA national cemeteries are non-public fora, and VA has established rules of conduct to maintain order and protect the solemnity and dignity of the national cemeteries so that they remain national shrines dedicated to honoring the memory of those who served. The provisions in § 1.218 also ensure the safety and security of the national cemetery and its visitors.

In paragraph (d), we propose to codify current practices that committal and memorial services in a VA national cemetery generally will be held in committal shelters located away from the gravesite. Committal shelters are located away from the actual gravesite to ensure accessibility and visitor safety and to offer a private and quiet area in which to hold a service while minimizing the distraction to families from other cemetery operations. A committal shelter may be temporary or permanent, and consists of a roofed structure for the use of the committal or memorial service attendees. A committal shelter is also the preferred venue for a committal service in a national cemetery because it allows for a greater degree of accessibility for the family and friends of the decedent, particularly those who may find walking difficult. A committal shelter also affords a greater level of safety to visitors by reducing the risk of trips and falls or other potential hazards on the cemetery interment grounds. However, VA cemetery directors have the discretion to hold a committal or memorial service at a gravesite in order to effectively manage cemetery resources and to address unexpected circumstances that may occur in regular cemetery operations, such as a prior committal service that runs longer than scheduled, or when the arrival of a funeral party is delayed. In addition, a personal representative may present significant reasons for preferring that the committal service be held at the gravesite. VA accommodates these wishes to the extent possible, and a cemetery director may approve a committal service at a gravesite, providing certain conditions, set forth in proposed (d)(1) through (d)(4), are met. In proposed (d)(1), we would require that the personal representative make a request that is based on religious practices. As indicated above, VA respects the religious practices of those who wish to bury eligible decedents in VA national cemeteries and this includes requests to hold services at the gravesite. However, VA also seeks to protect the safety of families and VA staff, so proposed (d)(2) through (d)(4) would establish other conditions that must be met before a cemetery director may approve a gravesite service. In proposed (d)(2), we would require that the request be made sufficiently prior to the scheduled service to ensure accessibility of the gravesite. VA must have sufficient time to prepare the area surrounding the gravesite for non-cemetery personnel, who may not be familiar with the safety hazards inherent in cemetery operations. Under proposed (d)(3), the cemetery director would be required to determine that he or she has sufficient resources to accommodate the gravesite service. Because of the number of interments conducted at VA national cemeteries daily, scheduling of interments and committal services is often accomplished with a high degree of precision often unnoticed by cemetery visitors. Accommodating exceptions to the normal scheduling at a committal shelter may divert resources needed for other cemetery operations. The determination whether a request can be accommodated can only be determined by the cemetery director based on the circumstances at the time. Similarly, the condition of the cemetery on a particular day may impact VA's ability to accommodate a request for a gravesite service. For example, although a gravesite service may be approved and scheduled in advance, weather conditions may make access by the funeral party too hazardous. Under proposed (d)(4), we would require that the site be safely accessible on the day of the service.

VA also recognizes that there are instances where the decedent's family or personal representative may want only to have the decedent's remains interred without conducting additional services, but the decedent's family or personal representative may want to observe the actual interment of the remains. We propose, at paragraph (e), to allow this option of witnessing the interment without additional services. We distinguish this option from a gravesite service under proposed paragraph (d), in that an interment under proposed paragraph (e) would allow the decedent's family or personal representative to witness interment of the remains in a gravesite or inurnment in a columbarium without a committal service. Because the safety of all cemetery visitors is a priority for VA and timely notice is necessary to ensure the gravesite is prepared to safely accommodate those witnessing the interment, this option is available at the cemetery director's discretion when he or she finds that the conditions of proposed (e)(1) and (e)(2), regarding timing and safety of the site, are met. Under proposed (e)(2), we would also note that the cemetery director may enforce other restrictions to ensure safety of the visitors and cemetery staff.

Funeral honors are a time-honored tradition, providing a grateful nation an opportunity to pay final tribute to individuals who, in times of war and peace, have dedicated their loyal service to the United States of America. Proposed paragraph (f) codifies the actions that VA would take to meet the statutory mandate contained in 2402(h)(3) that VA notify the personal representative of the funeral honors available to the decedent.

VA proposes, in paragraph (f)(1), that each cemetery director will maintain a list of organizations that are available to provide funeral honors at the cemetery at no cost to the family. These organizations may also be available to augment Department of Defense (DoD) funeral honors providers. Section 2404(h)(3) requires VA to notify the personal representative “of funeral honors available to the deceased veteran, including such honors provided by any military or volunteer veterans honor guard.” We interpret the phrase “volunteer veterans honor guard” to mean that the services provided are without cost to the family. Therefore, we propose that the list include only those groups, including DoD funeral honors providers, that will provide funeral honors without cost to the family. Every cemetery director's list will include the contact information for DoD funeral honors coordinators for the specific branches of service. VA proposes that non-DoD funeral honors providers who want to be included on the funeral honors provider lists must make a request to be on the list and must meet certain requirements enumerated in (f)(5), which are discussed below.

In proposed (f)(2), VA proposes that funeral honors will be provided at a committal or memorial service only if the personal representative requests them. VA would ask the personal representative who is scheduling an interment and committal service under proposed paragraph (a)(1), or memorial service under proposed paragraph (b)(4), whether funeral honors will be included in the services. If so, the NCSO staff would make available to the personal representative the list of funeral honors providers for the cemetery where the interment or services are to be scheduled. We note that providing the names and contact information of funeral honors providers to a personal representative is for information purposes only and should not be viewed as an endorsement of any organization by VA. The personal representative is not required to accept the list, or to use the list to select a funeral honors provider. Under proposed paragraph (f)(2), the personal representative may choose any funeral honors provider(s) on the list, and/or may select other organizations to provide the honors.

As with other aspects of a committal or memorial service, the choice to include funeral honors during the committal or memorial service, and which funeral honors provider should render such services, lies solely with the personal representative. VA proposes in (f)(3) that any agreement to provide funeral honors would be exclusively between the organization(s) providing funeral honors and the personal representative, to ensure that the decedent's personal representative is aware that, should any issues arise between the personal representative and the funeral honors provider regarding the content or conduct of funeral honors, VA would not be involved in resolving the issue. This includes agreements with volunteer organizations that provide funeral honors. This provision applies to the agreement regarding the composition of a funeral honors detail, as well as the specific content of the ceremony provided during a committal or memorial service, which may be dependent on available resources of the providing organization(s). We would also note that while DoD funeral honors may be requested by the personal representative, they are available at the discretion of DoD, and based on eligibility requirements established by DoD. DoD funeral honors denotes funeral honors provided by uniformed military service personnel under the authority of 10 U.S.C. 1491 and is distinguished from funeral honors provided by non-DoD personnel, such as a funeral honors squad comprised of volunteers from a local veterans service organization.

Although the agreement to provide funeral honors is between the personal representative and the funeral honors provider, VA is responsible for the safety of cemetery visitors and maintaining the honor and dignity of VA national cemeteries. Therefore, VA proposes at (f)(4) certain requirements regarding conduct in the national cemeteries by all funeral honors providers, including DoD funeral honors details and providers not on the list maintained by the cemetery director, that would apply without regard to the agreement between the personal representative and the funeral honors provider. Under proposed (f)(4)(i), all funeral honors providers, would be required to designate and provide contact information for a representative of their organization accountable for funeral honors activities. The funeral honors provider's point of contact would have responsibility for communicating with national cemetery director and staff. The designation of a funeral honors provider's single point of contact would facilitate VA's resource planning and cemetery administration, and ensue that cemetery staff have the ability to quickly communicate information to, or obtain information from, an accountable representative from the organization(s) providing funeral honors for a particular committal or memorial service.

VA proposes in (f)(4)(ii) to require that all funeral honors providers be required to be in compliance with VA security, safety, and law enforcement regulations, to ensure the protection of decedent's families and other cemetery visitors and to maintain the honor and dignity of the national cemeteries. VA proposes at (f)(4)(iii) to require that equipment used by the all funeral honors details during a committal or memorial service be maintained and operated in a safe manner consistent with relevant VA policies and regulations, as well as DoD policy, because most weapons and ammunition used by funeral honors providers are issued by DoD. Equipment would include rifles and ammunition used during the rifle salute. We would impose this requirement to ensure the safety and security of national cemetery visitors and staff.

Under proposed (f)(4)(iv), all funeral honors providers would be required to not solicit or accept donations on VA property, except as authorized under 38 CFR 1.218(a)(8). This is a VA-specific regulation that prohibits soliciting contributions, commercial solicitation, vending of all kinds, displaying or distributing commercial advertising, or collecting private debts in or on VA property. Restricting solicitation by all individuals, including all funeral honors providers, helps maintain the dignity and solemnity of the national cemeteries, and protects families from disturbances during a particularly vulnerable and emotional time.

In addition to the requirements in paragraph (f)(4)(i) thru (f)(4)(iv) that would apply to all funeral honors providers, VA proposes to include in paragraph (f)(5) additional requirements for non-DoD funeral honors providers, including providers selected by a personal representative but not on the cemetery director's list. Under proposed (f)(5)(i), the non-DoD funeral honors providers would be required to certify that they will comply with the requirements presented in paragraph (f)(4). This additional requirement for certification would be necessary to raise awareness of VA standards and to increase the accountability of these organizations performing activities on VA property. VA would not require this additional assurance of compliance from DoD funeral honors providers because VA has a long-established relationship with DoD and is confident that DoD funeral providers would abide by these requirements without additional certification. VA proposes at (f)(5)(ii) to require funeral honors providers to certify that they are conducting activities on federal property as an independent entity, not as an agent or employee of VA, unless they are registered as a VA volunteer. This requirement would ensure that non-DoD funeral honors providers understand that they may be liable for any injuries or damages that could occur while providing funeral honors on VA-property. DoD funeral honors details, and funeral honors providers who are registered as VA volunteers, would be exempt from this requirement because authorized action of federal employees would be subject to the Federal Tort Claims Act.

Under proposed (f)(5)(iii), non-DoD funeral honors providers would be required to certify that members of the funeral honors detail have completed training on assigned funeral honors tasks and the safe use of equipment. Funeral honors providers' equipment and activities are capable of causing harm to the user as well as people in close proximity and therefore anyone who uses such equipment or performs such tasks must be trained to safely use the equipment and perform assigned tasks correctly. We would not specify the level of training required because funeral honors providers are aware of the importance of funeral honors and have experience in performing funeral honors for the grieving family of a deceased veteran. VA believes that funeral honors providers should be able to determine the degree of training required to perform any particular funeral honors task competently and safely. DoD funeral honors details are exempt from this requirement because military members of DoD funeral honors details are highly trained individuals and expert at accomplishing funeral honors duties, which eliminates uncertainty regarding their ability to safely and effectively carry out funeral honors functions.

VA proposes at (f)(5)(iv) to require that non-DoD funeral honors providers certify that they will provide funeral honors services in accordance with the agreement between the provider and the personal representative. As discussed above regarding proposed (f)(3), VA is not a party to the agreement between the funeral honors provider and the personal representative. However, VA affirms its commitment to ensure deference to the wishes of the personal representative in planning the content of a committal or memorial service and expects those providing funeral honors as part of those services to similarly respect the choices made by the personal representative.

A VA national cemetery, like other federal property, contains areas that may be accessed by the public as well as areas that are not publicly accessible. Areas that are not considered public areas may include private offices, storage rooms, or maintenance shops. In paragraph (g), we propose that all appropriate public areas of the cemetery, which include committal shelters, chapels, and benches, may be used by national cemetery visitors and funeral honors providers for service preparations, contemplation, prayer, mourning, or reflection so long as the safety and security of the national cemetery and cemetery operations are not adversely affected. This paragraph is intended to clearly state current VA practices and procedures, and does not reflect any change in policy. VA allows funeral honors providers, to the maximum extent practicable, to access appropriate public areas of a national cemetery if such access is requested. We believe that the funeral honors providers should have access to public areas to ensure that the funeral honors detail has adequate space to prepare for the committal or memorial service, and to receive any instructions or requests from the decedent's family.

VA occasionally receives queries on whether organizations or individuals may offer a gift or token to the bereaved family before, after, or during a committal or memorial service in appreciation of a veteran's service or in recognition of the family's grief. VA is not aware of any statutory prohibition against this practice, and we believe the gesture could be meaningful to the surviving family. In paragraph (h), we would state that nothing in this section prohibits or constrains a funeral honors provider, Veterans Service Organization, or the public from offering a gift or token to a family member of the deceased or someone attending a committal or memorial service, provided that no compensation is requested, received, or expected in exchange for such gift or token, and the safety and security of the national cemetery and visitors is not adversely affected in doing so. Committal or memorial service attendees may accept or decline any such gift or token, and may also request that the offeror refrain from any offers to the service attendees.

The Code of Federal Regulations, as proposed to be revised by this proposed rulemaking, would represent the exclusive legal authority on this subject. No contrary rules or procedures would be authorized. All VA guidance would be read to conform with this proposed rulemaking if possible or, if not possible, such guidance would be superseded by this rulemaking.

The Paperwork Reduction Act of 1995 (PRA) (44 U.S.C. 3501-3521), requires that VA consider the impact of paperwork and other information collection burdens imposed on the public. Under 44 U.S.C. 3507(a), an agency may not collect or sponsor the collection of information, nor may it impose an information collection requirement unless it displays a currently valid Office of Management and Budget (OMB) control number. This proposed rule contains provisions constituting collection of information at 38 CFR 38.619(a) and (b), and at 38 CFR 38.619(f)(5).

The information collection at § 38.619(a) and (b) is necessary to establish eligibility for national cemetery burial and to schedule and plan interments. This information collection is currently approved by OMB and has been assigned OMB control number 2900-0232. The burden of this information collection would remain unchanged.

This proposed rule also contains a provision constituting a new collection of information at 38 CFR 38.619(f)(5). Accordingly, under 44 U.S.C. 3507(d), VA has submitted a copy of this rulemaking to OMB for review.

OMB assigns control numbers to collections of information it approves. VA may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a currently valid OMB control number. If OMB does not approve the collection(s) of information as requested, VA will immediately remove the provision(s) containing a collection of information or take such other action as is directed by OMB.

Comments on the collection of information contained in this rule should be submitted to the Office of Management and Budget, Attention: Desk Officer for the Department of Veterans Affairs, Office of Information and Regulatory Affairs, Washington, DC 20503, with copies sent by mail or hand delivery to the Director, Regulations Management (00REG), Department of Veterans Affairs, 810 Vermont Avenue NW, Room 1063B, Washington, DC 20420; fax to (202) 273-9026 (This is not a toll-free no.); or through www.Regulations.gov . Comments should indicate that they are submitted in response to “RIN 2900-AQ35 Committal services, memorial services and funeral honors.”

OMB is required to make a decision concerning the collections of information contained in this rule between 30 and 60 days after publication of this document in the Federal Register . Therefore, a comment to OMB is best assured of having its full effect if OMB receives it within 30 days of publication. This does not affect the deadline for the public to comment on the proposed rule. VA considers comments by the public on proposed collections of information in—

• Evaluating whether the proposed collections of information are necessary for the proper performance of the functions of VA, including whether the information will have practical utility;

• Evaluating the accuracy of VA's estimate of the burden of the proposed collections of information, including the validity of the methodology and assumptions used;

• Enhancing the quality, usefulness, and clarity of the information to be collected; and

• Minimizing the burden of the collections of information on those who are to respond, including through the use of appropriate automated, electronic, mechanical, or other technological collection techniques or other forms of information technology, e.g., permitting electronic submission of responses.

The collection of information contained in regulatory section 38 CFR 38.619(f)(5) is described immediately following this paragraph.

Title: Certification requirements for non-DoD funeral honors providers.

OMB Control No.: XXXX-XXXX.

Summary of collection of information: To ensure the safety of cemetery visitors and staff and to maintain the decorum of the national cemeteries, non-DoD funeral honors providers that perform funeral honors activities at VA national cemeteries must certify to VA that they will comply with certain requirements proposed in these regulations. These requirements include providing contact information for a representative for the organization, abiding by VA security, safety, and law enforcement regulations, maintaining and operating any equipment in a safe manner consistent with VA and DoD policies and regulations, and not soliciting for or accepting donations on VA property except as authorized under 38 CFR 1.218(a)(8). In addition, they must certify that they are conducting activities on federal property as an independent entity, not as an agent or employee of VA, unless registered as a VA volunteer; that members of the organization who will conduct the funeral honors have completed training on funeral honors tasks and the safe use of funeral honors equipment. Finally, the non-DoD funeral honors provider must certify that the funeral honors will be provided in accordance with the agreement between the decedent's personal representative and the funeral honors provider.

Description of the need for information and proposed use of information: The information is needed to ensure that funeral honors activities performed on VA property maintain the honor and dignity of the national cemetery and do not negatively impact the safety of cemetery visitors.

Description of likely respondents: Representatives are non-DoD funeral honors providers performing funeral honors activities at VA national cemeteries. Non-DoD funeral honors providers are unpaid volunteers.

Estimated number of respondents per month/year: 380 annually.

Estimated frequency of responses per month/year: One response total.

Estimated average burden per response: 5 minutes/.08 hours.

Estimated total annual reporting and recordkeeping burden: 31.7 hours.

Estimated cost to respondents per year: NCA estimates the total cost to all respondents to be $771.58 per year (31.7 burden hours × $24.34 per hour). The respondent population for the information collected is composed of individuals representing organizations who provide funeral honors duties for VA national cemetery visitors during committal or memorial services. The funeral honors providers may represent a component of DoD or may represent a non-profit Veteran Service Organization (VSO). The individuals representing VSOs are volunteers and are not paid for performing funeral honors services. Since funeral honors providers consist of unpaid volunteers, the hourly equivalent wage is the value of the volunteers' time, based on the mean hourly wage of all workers, so the volunteers will incur the costs as an opportunity cost, rather than having the non-profits incur the cost. Therefore, NCA used general wage data to estimate the respondents' costs associated with completing the information collection.

The Secretary hereby certifies that this proposed rule would not have a significant economic impact on a substantial number of small entities as they are defined in the Regulatory Flexibility Act, 5 U.S.C. 601-612. Even to the extent some veterans service organizations that provide funeral honors could be viewed as “small entities” as defined in 5 U.S.C. 601(4), (6), this proposed rule would not have a significant economic impact on them because it concerns only the standards of conduct those groups must abide by when conducting funeral honors in national cemeteries. Therefore, pursuant to 5 U.S.C. 605(b), this rulemaking would be exempt from the initial and final regulatory flexibility analysis requirements of 5 U.S.C. 603 and 604.

Executive Orders 12866 and 13563 direct agencies to assess the costs and benefits of available regulatory alternatives and, when regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, and other advantages; distributive impacts; and equity). Executive Order 13563 (Improving Regulation and Regulatory Review) emphasizes the importance of quantifying both costs and benefits, reducing costs, harmonizing rules, and promoting flexibility. Executive Order 12866 (Regulatory Planning and Review) defines a “significant regulatory action,” which requires review by the Office of Management and Budget (OMB), as “any regulatory action that is likely to result in a rule that may: (1) Have an annual effect on the economy of $100 million or more or adversely affect in a material way the economy, a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or State, local, or tribal governments or communities; (2) Create a serious inconsistency or otherwise interfere with an action taken or planned by another agency; (3) Materially alter the budgetary impact of entitlements, grants, user fees, or loan programs or the rights and obligations of recipients thereof; or (4) Raise novel legal or policy issues arising out of legal mandates, the President's priorities, or the principles set forth in this Executive Order.”

VA has examined the economic, interagency, budgetary, legal, and policy implications of this regulatory action and determined that the action is not a significant regulatory action under Executive Order 12866. VA's impact analysis can be found as a supporting document at http://www.regulations.gov, usually within 48 hours after the rulemaking document is published. Additionally, a copy of the rulemaking and its impact analysis are available on VA's website at http://www.va.gov/orpm by following the link for VA Regulations Published from FY 2004 through FYTD. This proposed rule is not expected to be an E.O. 13771 regulatory action because this proposed rule is not significant under E.O. 12866.

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

The Catalog of Federal Domestic Assistance numbers and titles for the programs affected by this document are 64.201 National Cemeteries; 64.202 Procurement of Headstones and Markers and/or Presidential Memorial Certificates; and, 64.203 State Cemetery Grants.

The Secretary of Veterans Affairs approved this document and authorized the undersigned to sign and submit the document to the Office of the Federal Register for publication electronically as an official document of the Department of Veterans Affairs. Robert L. Wilkie, Secretary, Department of Veterans Affairs, approved this document on January 2, 2019, for publication.

For the reasons set out in the preamble, VA proposes to amend 38 CFR part 38 as follows: