On September 4, 2019, the FDIC issued a notice of proposed rulemaking with request for comments on proposed revisions to its regulations relating to interest rate restrictions that apply to less than well capitalized insured depository institutions. (See 84 FR 41910 (September 4, 2019).) The FDIC is supplementing that notice of proposed rulemaking with an updated regulatory flexibility analysis to reflect changes to the Small Business Administration's monetary-based size standards which were adjusted for inflation as of August 19, 2019. (See 84 FR 34261 (July 18, 2019).)

The Regulatory Flexibility Act (RFA) requires that, in connection with a proposed rule, an agency prepare and make available for public comment an initial regulatory flexibility analysis that describes the impact of the proposed rule on small entities. 1 However, a regulatory flexibility analysis is not required if the agency certifies that the proposed rule will not have a significant economic impact on a substantial number of small entities, and publishes its certification and a short explanatory statement in the Federal Register together with the proposed rule. The Small Business Administration (SBA) has defined “small entities” to include banking organizations with total assets of less than or equal to $600 million that are independently owned and operated or owned by a holding company with less than or equal to $600 million in total assets. 2

Generally, the FDIC considers a significant effect to be a quantified effect in excess of 5 percent of total annual salaries and benefits per institution, or 2.5 percent of total noninterest expenses. The FDIC believes that effects in excess of these thresholds typically represent significant effects for FDIC-insured institutions.

The FDIC is proposing revisions to its regulations relating to interest rate restrictions that apply to less than well capitalized insured depository institutions, by amending the methodology for calculating the national rate and national rate cap. The proposal would also modify the current local rate cap calculation and process.

Specifically, the proposal defines the national rate for a deposit product as the average rate for that product, where the average is weighted by domestic deposit share. The proposed national rate cap is the higher of (1) the rate offered at the 95th percentile of rates weighted by domestic deposit share or (2) the proposed national rate plus 75 basis points.

Because the FDIC's experience suggests some institutions compete for particular products within their local market area, the proposal would continue to provide a local rate cap process.

Specifically, the proposal would allow less than well capitalized institutions to provide evidence that any bank or credit union in its local market offers a rate on particular deposit product in excess of the national rate cap. If sufficient evidence is provided, then the less than well capitalized institution would be allowed to offer 90 percent of the competing institution's rate on the particular product. For the reasons discussed below, the FDIC certifies that the proposed rule will not have a significant economic effect on a substantial number of small entities.

Based on March 31, 2019, Call Report data, the FDIC insures 5,371 depository institutions, of which 4,004 are considered small entities for the purposes of RFA. 3 As of March 31, 2019, 20 small, FDIC-insured depository institutions were less than well capitalized. 4 This represents less than two-fifths of one percent of all FDIC-insured institutions as of March 31, 2019, and approximately one-half of one percent of small, FDIC-insured institutions. For 17 small institutions that were less than well capitalized as of March 31, 2019, and that reported rates to a private data aggregator, FDIC analysts compared the national rate caps calculated under the current methodology with the national rate caps which would have been in effect under the proposal during the month of March across 11 deposit products. 5 As described in more detail below, the analysis shows that the proposed national rate caps are less restrictive than the current national rate caps, and would reduce the likelihood that less than well capitalized institutions would need to avail themselves of the local rate cap determination process.

Five of the 17 (just under 30 percent) less than well capitalized institutions for which data were available reported offering rates above the national rate caps calculated under the current methodology for seven out of the 11 products considered. 6 Under the proposed methodology, three institutions reported rates above the national rate caps on two products. Thus, the number of deposit products with rates constrained by the national rate cap is reduced for all five institutions, and two of those institutions would be relieved of the need to avail themselves of the local rate cap determination process.

For the 3-month, 6-month, 36-month, and 48-month CD products, two less than well capitalized small institutions reported offering rates above the national rate caps calculated under the current methodology. On average, the reported offering rates were 6, 13, 29, and 58 basis points above the national rate caps, respectively.

Three institutions reported offering rates above the national rate caps calculated under the current methodology for the 12-month and 24-month CD products, and four reported offering rates above the national rate caps as currently calculated for the 60-month CD product. Rates offered on the 12-month and 24-month CD products were 37 and 45 basis points above the national rate caps, on average. Rates offered on the 60-month CD product averaged 26 basis points above the national rate cap for that product.

Across all deposit products offered at rates above the national rate caps calculated under the current methodology, the rates offered were 30 basis points above the national rate caps on average.

Had the national rate caps in effect at the time been calculated under the proposed methodology, then two less than well capitalized small institutions would have reported offering rates that averaged 11 basis points above the national rate cap for the 3-month CD product, and one institution would have reported offering a rate three basis points above the national rate cap for the 48-month CD product.

Across all deposit products offered at rates above the national rate caps calculated under the proposed methodology, the rates offered were 7 basis points above the national rate caps on average.

No less than well capitalized small institution reported offering a rate above the national rate caps calculated under the current or proposed methodology for savings, interest checking, MMDA, or 1-month CD products during the timeframe considered.

The number of small, less than well capitalized institutions with offered rates above the national rate caps falls from five under the current methodology to three under the proposed methodology. Thus, the number of small less than well capitalized institutions that need to rely on a local rate cap is expected to fall.

The FDIC cannot more precisely quantify the effects of the proposed rule relative to the current methodology because it lacks data on the dollar amounts placed in deposit products broken down by the rates offered. However, few small institutions are less than well capitalized, and most of those small, less than well capitalized institutions for which data were available reported rates across the 11 deposit products considered that were below the national rate caps as calculated under both the current and proposed methodologies. For the few less than well capitalized institutions as of March 31, 2019 whose deposit interest rates are constrained by the current national rate cap but not the proposed rate cap, the effect of the rule would be burden reducing in the sense of reducing the need for local rate cap determinations.

Based on the foregoing information, the FDIC certifies that the proposed rule will not significantly affect a substantial number of small entities. The FDIC welcomes comments on its analysis. Specifically, what data would help the FDIC better quantify the effects of the proposal compared with the current methodology?

On October 2, 2019, the FDIC issued a notice of proposed rulemaking with request for comments on a proposal that would rescind and remove from the Code of Federal Regulations 12 CFR part 390, subpart R, entitled Regulatory Reporting Standards (part 390, subpart R). (See 84 FR 52387 (October 2, 2019).) The FDIC is supplementing that notice of proposed rulemaking with an updated regulatory flexibility analysis to reflect a few typographical changes.

The Regulatory Flexibility Act (RFA), requires that, in connection with a notice of proposed rulemaking, an agency prepare and make available for public comment an initial regulatory flexibility analysis that describes the impact of the proposed rule on small entities. 1 However, a regulatory flexibility analysis is not required if the agency certifies that the rule will not have a significant economic impact on a substantial number of small entities, and publishes its certification and a short explanatory statement in the Federal Register together with the rule. The Small Business Administration (SBA) has defined “small entities” to include banking organizations with total assets of less than or equal to $600 million. 2 Generally, the FDIC considers a significant effect to be a quantified effect in excess of 5 percent of total annual salaries and benefits per institution, or 2.5 percent of total non-interest expenses. The FDIC believes that effects in excess of these thresholds typically represent significant effects for FDIC-supervised institutions. For the reasons provided below, the FDIC certifies that the proposed rule, if adopted in final form, would not have a significant economic impact on a substantial number of small banking organizations. Accordingly, a regulatory flexibility analysis is not required.

As of March 31, 2019, 3 the FDIC supervised 3,465 insured financial institutions, of which 2,705 are considered small banking organizations for the purposes of RFA. The proposed rule primarily affects regulations that govern State savings associations. There are 36 State savings associations considered to be small banking organizations for the purposes of the RFA. 4

As explained previously, the proposed rule would remove sections 390.320, 390.321 and 390.332 of part 390, subpart R because these sections are redundant or otherwise unnecessary in light of applicable statutes and other FDIC regulations. As a result, rescinding the regulations would not have any substantive effects on small FDIC-supervised institutions.

Based on the information above, the FDIC certifies that the proposed rule would not have a significant economic impact on a substantial number of small entities. The FDIC invites comments on all aspects of the supporting information provided in this RFA section. In particular, would this rule have any significant effects on small entities that the FDIC has not identified?

The FAA invites you to send any written relevant data, views, or arguments about this proposal. Send your comments to an address listed under the ADDRESSES section. Include “Docket No. FAA-2019-0713; Product Identifier 2019-NM-116-AD” at the beginning of your comments. The FAA specifically invites comments on the overall regulatory, economic, environmental, and energy aspects of this NPRM. The FAA will consider all comments received by the closing date and may amend this NPRM based on those comments.

The FAA will post all comments, without change, to http://www.regulations.gov, including any personal information you provide. The FAA will also post a report summarizing each substantive verbal contact the agency receives about this NPRM.

The EASA, which is the Technical Agent for the Member States of the European Union, has issued EASA AD 2019-0140, dated June 12, 2019 (“EASA AD 2019-0140”) (also referred to as the Mandatory Continuing Airworthiness Information, or “the MCAI”), to correct an unsafe condition for all Airbus SAS Model A330-941 airplanes. The MCAI states:

EASA AD 2019-0140 describes procedures for repetitively removing the affected chemical oxygen generators and replacing them with serviceable parts. This material is reasonably available because the interested parties have access to it through their normal course of business or by the means identified in the ADDRESSES section.

This product has been approved by the aviation authority of another country, and is approved for operation in the United States. Pursuant to the FAA's bilateral agreement with the State of Design Authority, the FAA has been notified of the unsafe condition described in the MCAI referenced above. The FAA is proposing this AD because the FAA evaluated all the relevant information and determined the unsafe condition described previously is likely to exist or develop in other products of the same type design.

This proposed AD would require accomplishing the actions specified in EASA AD 2019-0140 described previously, as incorporated by reference, except for any differences identified as exceptions in the regulatory text of this AD.

In the FAA's ongoing efforts to improve the efficiency of the AD process, the FAA worked with Airbus and EASA to develop a process to use certain EASA ADs as the primary source of information for compliance with requirements for corresponding FAA ADs. As a result, EASA AD 2019-0140 will be incorporated by reference in the FAA final rule. This proposed AD would, therefore, require compliance with EASA AD 2019-0140 in its entirety, through that incorporation, except for any differences identified as exceptions in the regulatory text of this proposed AD. Using common terms that are the same as the heading of a particular section in the EASA AD does not mean that operators need comply only with that section. For example, where the AD requirement refers to “all required actions and compliance times,” compliance with this AD requirement is not limited to the section titled “Required Action(s) and Compliance Time(s)” in the EASA AD. Service information specified in EASA AD 2019-0140 that is required for compliance with EASA AD 2019-0140 will be available on the internet at http://www.regulations.gov by searching for and locating Docket No. FAA-2019-0713 after the FAA final rule is published.

The FAA estimates that this proposed AD affects 2 airplanes of U.S. registry. The FAA estimates the following costs to comply with this proposed AD:

The FAA invites you to send any written relevant data, views, or arguments about this proposal. Send your comments to an address listed under the ADDRESSES section. Include “Docket No. FAA-2019-0712; Product Identifier 2019-NM-115-AD” at the beginning of your comments. The FAA specifically invites comments on the overall regulatory, economic, environmental, and energy aspects of this NPRM. The FAA will consider all comments received by the closing date and may amend this NPRM based on those comments.

The FAA will post all comments received, without change, to http://www.regulations.gov, including any personal information you provide. The FAA will also post a report summarizing each substantive verbal contact we receive about this NPRM.

The EASA, which is the Technical Agent for the Member States of the European Union, has issued EASA AD 2019-0138, dated June 12, 2019 (“EASA AD 2019-0138”) (also referred to as the Mandatory Continuing Airworthiness Information, or “the MCAI”), to correct an unsafe condition for Airbus SAS Model A330-200 Freighter, A330-200, A330-300, A340-200, and A340-300 series airplanes. This proposed AD was prompted by reports that elevator skin panels were found disbonded as a result of water ingress. The FAA is issuing this proposed AD to address disbonding of the elevator skin panels. This condition, if not detected and corrected, could affect the structural integrity of the elevators, possibly resulting in reduced control of the airplane. See the MCAI for additional background information.

This NPRM would not supersede AD 2011-03-10, Amendment 39-16594 (76 FR 6543, February 7, 2011) (“AD 2011-03-10”). Rather, the FAA has determined that a stand-alone AD would be more appropriate to address the changes in the MCAI. This NPRM would require repetitive detailed inspections of skin panels on both elevators, and corrective actions if necessary, and would expand the Applicability to include the Airbus SAS Model A330-200 Freighter series airplanes. Accomplishment of the proposed actions would then terminate all of the requirements of AD 2011-03-10.

EASA AD 2019-0138 describes procedures for a detailed inspection of the affected parts and corrective actions.

This material is reasonably available because the interested parties have access to it through their normal course of business or by the means identified in the ADDRESSES section.

This product has been approved by the aviation authority of another country, and is approved for operation in the United States. Pursuant to a bilateral agreement with the State of Design Authority, the FAA has been notified of the unsafe condition described in the MCAI referenced above. The FAA is proposing this AD because the agency evaluated all the relevant information and determined the unsafe condition described previously is likely to exist or develop in other products of the same type design.

This proposed AD would require accomplishing the actions specified in EASA AD 2019-0138 described previously, as incorporated by reference, except for any differences identified as exceptions in the regulatory text of this AD.

In the FAA's ongoing efforts to improve the efficiency of the AD process, the FAA worked with Airbus and EASA to develop a process to use certain EASA ADs as the primary source of information for compliance with requirements for corresponding FAA ADs. As a result, EASA AD 2019-0138 will be incorporated by reference in the FAA final rule. This proposed AD would, therefore, require compliance with EASA AD 2019-0138 in its entirety, through that incorporation, except for any differences identified as exceptions in the regulatory text of this proposed AD. Using common terms that are the same as the heading of a particular section in the EASA AD does not mean that operators need comply only with that section. For example, where the AD requirement refers to “all required actions and compliance times,” compliance with this AD requirement is not limited to the section titled “Required Action(s) and Compliance Time(s)” in the EASA AD. Service information specified in EASA AD 2019-0138 that is required for compliance with EASA AD 2019-0138 will be available on the internet at http://www.regulations.gov by searching for and locating Docket No. FAA-2019-0712 after the FAA final rule is published.

Although the service information referenced in EASA AD 2019-0138 specifies to submit certain information to the manufacturer, this AD does not include that requirement.

The FAA estimates that this proposed AD affects 103 airplanes of U.S. registry. The FAA estimates the following costs to comply with this proposed AD:

The FAA estimates the following costs to do any necessary on-condition actions that would be required based on the results of any required actions. The FAA has no way of determining the number of aircraft that might need these on-condition actions:

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

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

This proposed AD is issued in accordance with authority delegated by the Executive Director, Aircraft Certification Service, as authorized by FAA Order 8000.51C. In accordance with that order, issuance of ADs is normally a function of the Compliance and Airworthiness Division, but during this transition period, the Executive Director has delegated the authority to issue ADs applicable to transport category airplanes and associated appliances to the Director of the System Oversight Division.

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

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

(1) Is not a “significant regulatory action” under Executive Order 12866,

(2) Will not affect intrastate aviation in Alaska, and

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

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

Comments Invited

The FAA invites you to send any written relevant data, views, or arguments about this proposal. Send your comments to an address listed under the ADDRESSES section. Include “Docket No. FAA-2019-0714; Product Identifier 2019-NM-103-AD” at the beginning of your comments. The FAA specifically invites comments on the overall regulatory, economic, environmental, and energy aspects of this NPRM. The FAA will consider all comments received by the closing date and may amend this NPRM because of those comments.

The FAA will post all comments, without change, to http://www.regulations.gov, including any personal information you provide. The FAA will also post a report summarizing each substantive verbal contact the agency receives about this NPRM.

Transport Canada Civil Aviation (TCCA), which is the aviation authority for Canada, has issued Canadian AD CF-2019-20R1, dated May 31, 2019 (referred to after this as the Mandatory Continuing Airworthiness Information, or “the MCAI”), to correct an unsafe condition for all Bombardier, Inc., Model CL-600-2C10 (Regional Jet Series 700, 701 & 702) airplanes; Model CL-600-2D15 (Regional Jet Series 705) airplanes; Model CL-600-2D24 (Regional Jet Series 900) airplanes; and Model CL-600-2E25 (Regional Jet Series 1000) airplanes.

This proposed AD was prompted by a report of incorrectly installed flight compartment door edge protection plates on both sides of the upper decompression panel (the flight compartment is also known as the flight deck). The FAA is proposing this AD to address incorrect installation of the flight compartment door edge protection plates on both sides of the flight compartment door upper decompression panel. This condition, if not corrected, could result in the inability of the flight compartment door upper decompression panel to open during a rapid decompression event. This inability to relieve the pressure in the flight compartment may compromise the structural integrity of the bulkhead between the flight compartment and the passenger cabin. See the MCAI for additional background information.

Bombardier, Inc., has issued Task 251700-202, “Functional Check of the Flight Compartment Door Decompression Latches,” of Section 1-25 of Section 125, of the Maintenance Review Board Report, Revision 18, dated July 25, 2018, in Part 1 of the Bombardier CRJ700/900/1000 Maintenance Requirements Manual, CSP-B-053. This service information describes a functional check of the flight compartment door decompression latches. This service information is reasonably available because the interested parties have access to it through their normal course of business or by the means identified in the ADDRESSES section.

This product has been approved by the aviation authority of another country, and is approved for operation in the United States. Pursuant to the FAA's bilateral agreement with the State of Design Authority, the FAA has been notified of the unsafe condition described in the MCAI and service information referenced above. The FAA is proposing this AD because the FAA evaluated all the relevant information and determined the unsafe condition described previously is likely to exist or develop on other products of the same type design.

This proposed AD would require revising the existing maintenance or inspection program, as applicable, to incorporate a new functional check.

The FAA estimates that this proposed AD affects 522 airplanes of U.S. registry. The FAA estimates the following costs to comply with this proposed AD:

The FAA has determined that revising the existing maintenance or inspection program takes an average of 90 work-hours per operator, although the FAA recognizes that this number may vary from operator to operator. In the past, the FAA has estimated that this action takes 1 work-hour per airplane. Since operators incorporate maintenance or inspection program changes for their affected fleet(s), the FAA has determined that a per-operator estimate is more accurate than a per-airplane estimate. Therefore, the FAA estimates the total cost per operator to be $7,650 (90 work-hours × $85 per work-hour).

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

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

This proposed AD is issued in accordance with authority delegated by the Executive Director, Aircraft Certification Service, as authorized by FAA Order 8000.51C. In accordance with that order, issuance of ADs is normally a function of the Compliance and Airworthiness Division, but during this transition period, the Executive Director has delegated the authority to issue ADs applicable to transport category airplanes and associated appliances to the Director of the System Oversight Division.

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

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

(1) Is not a “significant regulatory action” under Executive Order 12866,

(2) Will not affect intrastate aviation in Alaska, and

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

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

The FAA's authority to issue rules regarding aviation safety is found in Title 49 of the United States Code. Subtitle I, Section 106 describes the authority of the FAA Administrator. Subtitle VII, Aviation Programs, describes in more detail the scope of the agency's authority. This rulemaking is promulgated under the authority described in Subtitle VII, Part A, Subpart I, Section 40103. Under that section, the FAA is charged with prescribing regulations to assign the use of airspace necessary to ensure the safety of aircraft and the efficient use of airspace. This regulation is within the scope of that authority as it would amend Class D and Class E airspace at Eagle County Regional Airport, Eagle, Colorado to ensure safety and management of Instrument Flight Rules (IFR) operations within the National Airspace System.

Interested parties are invited to participate in this proposed rulemaking by submitting such written data, views, or arguments, as they may desire. Comments that provide the factual basis supporting the views and suggestions presented are particularly helpful in developing reasoned regulatory decisions on the proposal. Comments are specifically invited on the overall regulatory, aeronautical, economic, environmental, and energy-related aspects of the proposal. Communications should identify both docket numbers and be submitted in triplicate to the address listed above. Persons wishing the FAA to acknowledge receipt of their comments on this notice must submit with those comments a self-addressed, stamped postcard on which the following statement is made: “Comments to Docket No. FAA-2019-0637; Airspace Docket No. 19-ANM-4”. The postcard will be date/time stamped and returned to the commenter.

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

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

You may review the public docket containing the proposal, any comments received, and any final disposition in person in the Dockets Office (see the ADDRESSES section for the address and phone number) between 9:00 a.m. and 5:00 p.m., Monday through Friday, except federal holidays. An informal docket may also be examined during normal business hours at the Northwest Mountain Regional Office of the Federal Aviation Administration, Air Traffic Organization, Western Service Center, Operations Support Group, 2200 S 216th Street, Des Moines, WA 98198.

This document proposes to amend FAA Order 7400.11D, Airspace Designations and Reporting Points, dated August 8, 2019, and effective September 15, 2019. FAA Order 7400.11D is publicly available as listed in the ADDRESSES section of this document. FAA Order 7400.11D lists Class A, B, C, D, and E airspace areas, air traffic service routes, and reporting points.

The FAA is proposing an amendment to Title 14 Code of Federal Regulations (14 CFR) Part 71 by amending Class D airspace at Eagle County Regional Airport extending upward from the surface to and including 9,100 feet MSL within a 4.4-mile radius and extending from the 4.4- mile radius to a 6.5-mile radius along a 199° bearing clockwise to a 277° bearing and extending from the 4.4-mile radius to a 6.5-mile radius along a 45° bearing clockwise to a 103° bearing from the airport. This Class D airspace area is effective during the specific dates and times established in advance by a Notice to Airmen. The effective date and time will thereafter be continuously published in the Chart Supplement. And amending Class E2 airspace extending upward from the within a 4.4-mile radius and extending from the 4.4-mile radius to a 6.5-mile radius along a 199° bearing clockwise to a 277° bearing and extending from the 4.4-mile radius to a 6.5-mile radius along a 45° bearing clockwise to a 103° bearing from the airport. This Class E airspace area is effective during the specific dates and times established in advance by a Notice to Airmen. The effective date and time will thereafter be continuously published in the Chart Supplement. Additionally, this action proposes to amend Class E airspace by adding Class E4 airspace extending upward from the surface within 1.0 mile each side of the 079° bearing extending from the 6.5-mile radius to the 8.7-mile radius east of the Eagle County Regional Airport. Also, this action proposes to amend Class E5 airspace extending upward from 700 feet above the surface within an 8.7-mile radius of the airport and extending within 1.3 miles either side of a 079° bearing from the 8.7-mile radius to 11.6 miles east of the Eagle County Regional Airport. Lastly, this action will update the geographic coordinates at Eagle County Regional Airport to (lat. 39°38′34″ N, long. 106°54′57″ W).

Class D airspace designations are published in paragraph 5000 of FAA Order 7400.11D. Class E2, E4 and E5 airspace designations are published in paragraphs 6002, 6004 and 6005, respectively, of FAA Order 7400.11D, dated August 8, 2019, and effective September 15, 2019, which is incorporated by reference in 14 CFR 71.1. The Class D and Class E airspace designations listed in this document will be published subsequently in the Order.

The FAA has determined that this regulation only involves an established body of technical regulations for which frequent and routine amendments are necessary to keep them operationally current, is non-controversial and unlikely to result in adverse or negative comments. It, therefore: (1) Is not a “significant regulatory action” under Executive Order 12866; (2) is not a “significant rule” under DOT Regulatory Policies and Procedures (44 FR 11034; February 26, 1979); and (3) does not warrant preparation of a regulatory evaluation as the anticipated impact is so minimal. Since this is a routine matter that will only affect air traffic procedures and air navigation, it is certified that this rule, when promulgated, would not have a significant economic impact on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

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

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

Section 14(a) of the Consumer Product Safety Act, (CPSA), as amended by the Consumer Product Safety Improvement Act of 2008 (CPSIA), requires that manufacturers of products subject to a consumer product safety rule or similar rule, ban, standard, or regulation enforced by the CPSC, must certify that the product complies with all applicable CPSC-enforced requirements. 15 U.S.C. 2063(a). For children's products, certification must be based on testing conducted by a CPSC-accepted third party conformity assessment body. Id. Public Law 112-28 (August 12, 2011) directed the CPSC to seek comment on “opportunities to reduce the cost of third party testing requirements consistent with assuring compliance with any applicable consumer product safety rule, ban, standard, or regulation.” Public Law 112-28 also authorized the Commission to issue new or revised third party testing regulations if the Commission determines “that such regulations will reduce third party testing costs consistent with assuring compliance with the applicable consumer product safety rules, bans, standards, and regulations.” Id. 2063(d)(3)(B).

To provide opportunities to reduce the cost of third party testing requirements consistent with assuring compliance with any applicable consumer product safety rule, ban, standard, or regulations, the CPSC assessed whether children's toys and child care articles manufactured with seven manufactured fibers: polyester (polyethylene terephthalate, PET), nylon, polyurethane (spandex), viscose rayon, natural rubber latex, acrylic, and modacrylic, would comply with CPSC's requirements for ASTM F963 elements or phthalates. If the Commission determines that such materials will comply with CPSC's requirements with a high degree of assurance, manufacturers do not need to have those materials tested by a third party testing laboratory to issue a Children's Product Certificate (CPC).

Section 106 of the CPSIA provides that the provisions of ASTM International, Consumer Safety Specifications for Toy Safety (ASTM F963), shall be considered to be consumer product safety standards issued by the Commission. 1 15 U.S.C. 2056b. The Commission has issued a rule that incorporates by reference the relevant provisions of ASTM F963. 16 CFR part 1250. 2 Thus, children's toys subject to ASTM F963 must be tested by a CPSC-accepted third party laboratory and demonstrate compliance with all applicable CPSC requirements for the manufacturer to issue a CPC before the children's toys can be entered into commerce.

Section 4.3.5 of ASTM F963 requires that surface coating materials and accessible substrates of children's toys that can be sucked, mouthed, or ingested  3 must comply with the solubility limits of eight elements given in Table 1 of the toy standard. The materials and their solubility limits are shown in Table 1. We refer to these eight elements as “ASTM F963 elements.”

The third party testing burden could be reduced only if all elements listed in section 4.3.5 have concentrations below their solubility limits. Because third party conformity assessment bodies typically run one test for all of the ASTM F963 elements, no testing burden reduction would be achieved if any one of the elements requires testing.

To alleviate some of the third party testing burdens associated with the ASTM F963 elements in the accessible component parts of children's toys, the Commission determined that certain unfinished and untreated trunk wood does not contain ASTM F963 elements that would exceed the limits specified in section 106 of the CPSIA. Based on this determination, unfinished and untreated trunk wood would not require third party testing for the ASTM F963 elements. 16 CFR part 1251. The Commission also has determined that untreated and unfinished engineered wood products would not require third party testing for the ASTM elements or specified phthalates (discussed below) for children's products, children's toys, and child care products. 16 CFR part 1252.

Section 108(a) of the CPSIA permanently prohibits the manufacture for sale, offer for sale, distribution in commerce, or importation into the United States of any “children's toy or child care article” that contains concentrations of more than 0.1 percent of di-(2-ethylhexyl) phthalate (DEHP), dibutyl phthalate (DBP), or butyl benzyl phthalate (BBP). 15 U.S.C. 2057c(a).

The CPSIA required the Commission to appoint a Chronic Hazard Advisory Panel (CHAP) to “study the effects on children's health of all phthalates and phthalate alternatives as used in children's toys and child care articles.” 15 U.S.C. 2057c(b)(2). The CHAP issued its report in July 2014. On October 27, 2017, the Commission published a final rule in the Federal Register , “Prohibition of Children's Toys and Child Care Articles Containing Specified Phthalates,” 82 FR 49938, prohibiting children's toys and child care articles containing concentrations greater than 0.1 percent of: di-(2-ethylhexyl) phthalate (DEHP); dibutyl phthalate (DBP); benzyl butyl phthalate (BBP); diisononyl phthalate (DINP); diisobutyl phthalate (DIBP); di-n-pentyl phthalate (DPENP); di-n-hexyl phthalate (DHEXP); or dicyclohexyl phthalate (DCHP). These restrictions apply to any plasticized component part of a children's toy or child care article or any other component part of a children's toy or child care article that is made of other materials that may contain phthalates. The phthalates prohibitions are set forth in 16 CFR part 1307.

Tests for phthalate concentration are among the most expensive certification tests to conduct on a product, and each accessible component part subject to section 108 of the CPSIA must be tested. Third party testing burden reductions can occur only if each phthalate's concentration is below 0.1 percent (1000 ppm). Because laboratories typically run one test for all of the specified phthalates, no testing burden reduction likely is achieved if any one of the phthalates requires compliance testing.

The CPSC contracted with the Toxicology Excellence for Risk Assessment (TERA, or the contractor) to conduct literature reviews on the production of certain undyed manufactured fibers and to evaluate whether the specified manufactured fibers potentially contain (1) any of the specified chemical elements that are included in the toy standard in concentrations  5 exceeding specified limits, or (2) any of 10 specified phthalates in concentrations greater than 0.1 percent (1000 ppm). TERA researched the following manufactured fibers: polyester (polyethylene terephthalate, PET), nylon, polyurethane (spandex), viscose rayon, natural rubber latex, acrylic, and modacrylic. Staff reviewed the information provided in the TERA report, Exposure Assessment: Potential for the Presence of Phthalates and Other Specified Elements in Undyed Manufactured Fibers and their Colorants (the report, Task 17). 6 TERA's Task 17 report formed the basis for the proposed unfinished manufactured fiber determinations. For more detailed information on the Task 17 report and staff analysis please see the staff briefing package. https://www.cpsc.gov/s3fs-public/Draft%20NPR-%20Children%27s%20Toys%20and%20Child%20Care%20Articles-%20Determinations%20Regar....pdf?IB4eKjJ_meZH1vdT5uQeojG8FfYGeqD9 .

All of the fibers covered in the Task 17 report are manufactured and do not naturally occur in a fiber state. Although their raw starting materials may be different, these fibers are generally extruded into a fiber form. In many cases, additional chemicals may be added before the extrusion process so that the chemicals are embedded in the fiber structure. To better understand where the specified phthalates or ASTM elements may be present, TERA documented the fiber chemical characteristics, manufacturing processes, typical colorants, and any other relevant information found through their search strategy.

CPSC staff reviewed the TERA Task 17 Report. CPSC staff also examined TERA's source references to better understand the report's findings. The Task 17 Report focused on the possibility of the ASTM F963 elements and specified phthalates being present in seven manufactured fiber types.

The TERA report found one significant use of an ASTM element in unfinished manufactured fibers: antimony in the production of polyester (PET) fibers at concentrations of about 150-300 ppm, amounts that would exceed the solubility limit specified in ASTM F963. Staff does not have information identifying the amount of the antimony that is soluble when tested according to ASTM F963. PET fiber is widely used in consumer textile products, including children's toys. The contractor report did not identify any other instances of the use of ASTM elements or phthalates in the routine manufacturing processes for the specified unfinished fibers.

Compliance to the ASTM F963 standard can be demonstrated by measuring the chemical content of a material—if the total content for a specific element does not exceed the solubility limit, then it must be the case that the solubility requirement is met. Because information about solubility or migration of chemicals from products or materials is rarely available in the scientific literature or other data sources, staff relies on information about chemical content to understand possible uses and presence of chemicals in products. If sufficient solubility testing data were available, especially if data show low levels of migration, such data may help inform decisions about testing requirements under the ASTM F963 standard.

In addition to intentional use of the specified chemicals, staff considered whether contaminants or impurities may be present in unfinished fibers, yarns, or fabrics. In the review of the contractor report, the reports referenced by the contractor, and other reference materials, staff has not found any information or data that suggest contaminants would be present in fibers at significant levels. Reported contaminant levels, such as for arsenic, chromium, mercury, or cadmium, are no higher than a few parts per million. Staff believes that contaminants or impurities are unintentional ( i.e., not added by the manufacturer intentionally), and largely represent the ubiquity of some substances in the environment at trace levels or general industrial practices and conditions. Given the available data and staff's understanding of the raw materials and manufacturing practices for the fibers currently under consideration, staff concludes that any impurities will be at levels well below the relevant limits for this proceeding.

Colorants, such as dyes, often contain metals in their structure. The contractor report cited the use of mercury, arsenic, barium, or chromium in dyes or dye auxiliaries. For example, chrome dyes are a type of acid dye that can be used on nylon fibers and contains chromium to form a complex between the dye and the fiber. Because the use of these metals is not necessarily limited to a specific dye class or fiber type, staff cannot rule out the use of these metals at concentrations greater than those specified in ASTM F963 without more information. Furthermore, the contractor report cited the potential use of some of the specified phthalates as dye auxiliaries or carriers for pigments. Although some of the findings may have been with products not necessarily within the scope of the subject rules, the mechanism by which colorants are applied to fibers could be extended to those products.

Finishes may also be added at the fiber (yarn or fabric) stage to impart desirable characteristics. The contractor report highlighted the use of antimony compounds as flame retardants. Other chemicals of interest may be used in finished fiber (yarn or fabric); however, those finishes were not within the scope of the contractor report, and more information is necessary to consider whether determinations for finished fiber (yarn or fabric) are appropriate. Staff notes that in the case of the ASTM elements (excluding lead, which has separate specific restrictions under the CPSIA), the restriction in the ASTM F963 standard is based on solubility; i.e., migration of the elements from the product or material.

TERA did not examine the potential use of recycled materials in the subject manufactured fibers. Staff is aware that recycled content is present in some textile fibers; however, staff does not know the extent to which recycled content can be expected in products within the scope of the ASTM F963 elements or phthalates requirements. Due to findings in the contractor report on colorants and finishes in manufactured fibers, staff does not recommend determinations for fibers with recycled content unless such content was from unfinished recycled materials.

As discussed in section A.1. of the preamble, section 14(a)(2) of the CPSA requires third party testing for children's products that are subject to a children's product safety rule. 15 U.S.C. 2063(a)(2). Children's toys must comply with the limits on the ASTM F963 elements incorporated in 16 CFR part 1250. Children's toys and child care articles must comply with the phthalates prohibitions in section 108 of the CPSIA and 16 CFR part 1307. 15 U.S.C. 2057c. In response to statutory direction, the Commission has investigated approaches that would reduce the burden of third party testing while also assuring compliance with CPSC requirements. As part of that endeavor, the Commission has considered whether certain materials used in children's toys and child care articles would not require third party testing.

To issue a determination that a manufactured fiber does not require third party testing, the Commission must have sufficient evidence to conclude that the product consistently complies with the CPSC requirements to which the manufactured fiber is subject so that third party testing is unnecessary to provide a high degree of assurance of compliance. Under 16 CFR part 1107 section 1107.2, “a high degree of assurance” is defined as “an evidence-based demonstration of consistent performance of a product regarding compliance based on knowledge of a product and its manufacture.”

For accessible component parts of children's toys and child care articles subject to sections 106 and 108 of the CPSIA and 16 CFR part 1307, compliance to the specified content limits is always required, irrespective of any testing exemptions. Thus, a manufacturer or importer who certifies a children's toy or child care article, must assure the product's compliance. The presence of the ASTM F963 elements or the specified phthalates does not have to be intended to require compliance. The presence of these chemicals, whether for any functional purpose, as a trace material, or as a contaminant, must be in concentrations less than the specified content or solubility limits for the material to be compliant. Additionally, the manufacturer or importer must have a high degree of assurance that the product has not been adulterated or contaminated to an extent that would render it noncompliant. For example, if a manufacturer or importer is relying on a determination that a manufactured fiber does not contain the ASTM F963 elements or specified phthalates in concentrations greater than the specified limits in a children's toy or child care article, the manufacturer must ensure that the manufactured fiber is one on which a determination has been made.

Furthermore, under the proposed rule, any determinations that are made on manufactured fibers are limited to unfinished manufactured fibers. Children's toys and child care articles made from these manufactured fibers may have other materials that are applied to or added on to the manufactured fiber after it is manufactured, such as colorants and flame retardants. Such component parts fall outside of the scope of the proposed determinations and would be subject to third party testing requirements, unless the component part has a separate determination that does not require third-party testing for certification purposes. Finally, even if a determination is in effect and third party testing is not required, a certifier must still issue a certificate.

The six unfinished manufactured fibers for which determinations are proposed for the ASTM F963 elements are: Nylon, polyurethane (spandex), viscose rayon, acrylic, and modacrylic, and natural rubber latex. Based on staff's review of the TERA report as discussed in section C. of the preamble, the Commission is proposing determinations that there is a high degree of assurance that these unfinished manufactured fibers will not contain the ASTM F963 elements in concentrations greater than their specified limits. We note that based on staff's review of the Task 17 report we are not proposing a determination that polyester (PET) fiber does not contain any of the ASTM F963 elements in concentrations greater than their specified solubility limits due to findings in the contractor report regarding the use of antimony compounds in polyester manufacturing.

The Commission is also proposing determinations for seven unfinished manufactured fibers for the specified phthalates prohibitions: Polyester (PET), nylon, polyurethane (spandex), viscose rayon, acrylic, and modacrylic, and natural rubber latex. Based on staff's review of the TERA report as discussed in section C. of the preamble, the Commission is proposing determinations that there is a high degree of assurance that these unfinished manufactured fibers will not contain the prohibited phthalates in concentrations greater than their specified limits.

These determinations would mean that, for the specified unfinished manufactured fibers, third party testing is not required to assure compliance with sections 106 and 108 of the CPSIA and 16 CFR part 1307. The Commission proposes to make these determinations to reduce the third party testing burden on children's product certifiers while continuing to assure compliance.

Section 3 of the CPSIA grants the Commission general rulemaking authority to issue regulations, as necessary, to implement the CPSIA. Public Law 110-314, sec. 3, Aug. 14, 2008. Section 14 of the CPSA, which was amended by the CPSIA, requires third party testing for children's products subject to a children's product safety rule. 15 U.S.C. 2063(a)(2). Section 14(d)(3)(B) of the CPSA, as amended by Public Law 112-28, gives the Commission the authority to “prescribe new or revised third party testing regulations if it determines that such regulations will reduce third party testing costs consistent with assuring compliance with the applicable consumer product safety rules, bans, standards, and regulations.” Id. 2063(d)(3)(B). These statutory provisions authorize the Commission to propose a rule determining that certain unfinished manufactured fibers do not contain the ASTM F963 elements and the specified prohibited phthalates in concentrations greater than their specified limits, and thus, are not required to be third party tested to assure compliance with sections106 and 108 of the CPSIA and 16 CFR part 1307.

The proposed determinations would relieve manufacturers using the specified unfinished manufactured fibers from the third party testing requirements of section 14 of the CPSA for purposes of supporting the required certification. However, the proposed determinations would not be applicable to any other manufactured fibers beyond those listed in the proposed rule. The proposed determinations would only relieve the manufacturers' obligation to have the specified unfinished manufactured fibers tested by a CPSC-accepted third party conformity assessment body. Children's toys and child care articles must still comply with the substantive content limits in sections 106 and 108 of the CPSIA and 16 CFR part 1307 regardless of any relief on third party testing requirements.

This proposed rule would create a new Part 1253 for “Children's toys and Child Care Articles: Determinations Regarding the ASTM F963 Elements and Phthalates for Unfinished Manufactured Fibers.” The proposed rule would determine that the specified unfinished manufactured fibers do not contain any of the ASTM F963 elements in excess of specified concentrations, and any of the phthalates (DEHP, DBP, BBP, DINP, DIBP, DPENP, DHEXP, and DCHP) prohibited by statute or regulation in concentrations greater than 0.1 percent.

Section 1253.1(a) of the proposed rule explains the statutorily-created requirements for limiting the ASTM F963 elements in children's toys under the CPSIA and the third party testing requirements for children's toys.

Section 1253.1(b) of the proposed rule explains the statutory and regulatory requirements limiting phthalates for children's toys and child care articles under the CPSIA and the third party testing requirements for children's toys and child care articles.

Section 1253.2(a) of the proposed rule would provide a definition of the term unfinished manufactured fiber that would apply to part 1253.

Section 1253.2(b) of the proposed rule would establish the Commission's determinations that specified unfinished manufactured fibers do not exceed the solubility limits for ASTM F963 elements with a high degree of assurance as that term is defined in 16 CFR part 1107.

Section 1253.2(c) of the proposed rule would establish the Commission's determinations that specified unfinished manufactured fibers do not exceed the phthalates content limits with a high degree of assurance as that term is defined in 16 CFR part 1107.

Section 1253.2(d) of the proposed rule states that accessible component parts of children's toys and child care articles made with the specified unfinished manufactured fibers specifically listed in the determinations in proposed § 1253.3(b) and (c) are not required to be third party tested pursuant to section 14(a)(2) of the CPSA and 16 CFR part 1107.

Section 1253.2(e) of the proposed rule states that accessible component parts of children's toys and child care articles that are not specifically listed in the determinations in proposed § 1253.3(b) and (c) are required to be third party tested pursuant to section 14(a)(2) of the CPSA and 16 CFR part 1107.

The Commission seeks comments on all aspects of the proposed rule. In particular, comments on the following topics are welcome.

• Are there any data or examples that indicate that the manufactured fibers identified in the proposed rule can and do contain the ASTM F963 elements (besides the identified use of antimony in PET) or prohibited phthalates at levels that are not compliant in an unfinished state? Please provide data supporting your assertion.

• The TERA Task 17 Report identified the use of antimony, an ASTM F963 element, as a catalyst used to manufacture PET. Although TERA looked for the presence and total concentration of antimony, the ASTM F963-17 requirement is for the concentration that migrates out of the subject material. Please provide any information that supports or refutes the claim that antimony will not be present in concentrations greater than the specified limits in PET fiber in an unfinished state without colorants. Please provide any information that antimony will not migrate out of polyester in concentrations greater than the specified limits in PET fiber in an unfinished state with no colorants.

• Are there any data or examples that the colorants or other finishes used for the manufactured fibers identified in the proposed rule never contain the ASTM F963 elements or prohibited phthalates at levels that are not compliant? Please provide data supporting your assertion. These data may be by type of dye, a specific dye, by fiber type, or some other relevant grouping.

• Are there any data or examples that the use of recycled content in the manufactured fibers identified in the proposed rule never contain the ASTM F963 elements or prohibited phthalates at levels that are not compliant? Please provide data supporting your assertion. These data may be by fiber type, product type, or some other relevant grouping.

• In addition to the manufactured fibers within scope of this study, are there other manufactured fibers widely used in children's toys and childcare articles that have not been identified in the proposed rule that do not, and will not contain the ASTM F963 elements or prohibited phthalates? Please provide supporting data to show that these manufactured fibers do not and will not contain the ASTM F963 elements or prohibited phthalates in concentrations above the mandatory limits?

The Administrative Procedure Act (APA) generally requires that a substantive rule must be published not less than 30 days before its effective date. 5 U.S.C. 553(d)(1). Because the proposed rule would provide relief from existing testing requirements under the CPSIA, the Commission proposes a 30 day effective date for the final rule.

The Regulatory Flexibility Act (RFA) requires that agencies review a proposed rule for the rule's potential economic impact on small entities, including small businesses. Section 603 of the RFA generally requires that agencies prepare an initial regulatory flexibility analysis (IRFA) and make the analysis available to the public for comment when the agency is required to publish a notice of proposed rulemaking, unless the agency certifies that the proposed rule will not have a significant economic impact on a substantial number of small entities. The IRFA must describe the impact of the proposed rule on small entities and identify any alternatives which accomplish the statutory objectives and may reduce the significant economic impact of the proposed rule on small entities. We provide a summary of the IRFA.

The proposed rule would apply to small entities that manufacture or import children's toys and child care articles that contain the specified manufactured fibers. The chemical elements in the ASTM F963 toy safety standard and the specified phthalates apply to the particular children's products specified in the respective requirements. The phthalates prohibitions apply to children's toys and child care articles. Regarding the specified manufactured fibers (or yarns or fabrics) in the children's toy category, products potentially affected by a Commission determination about phthalate content may include coverings or fill of stuffed, plush, or other soft toys, doll clothes, puzzle mats or other play mats, and other similar toys. Under the child care article category, products potentially affected by a Commission determination about phthalate content may include sleepwear, bibs, and other products that facilitate sleeping or feeding. The chemical requirements in the ASTM F963 toy safety standard cover accessible substrates of toys that can be sucked, mouthed, or ingested. The specified manufactured fibers (or yarns or fabrics) could be used in coverings or fill of stuffed, plush, or other soft toys, doll clothes, puzzle mats or other play mats, and other similar toys.

The rule would apply to small entities that manufacture or import children's toys or child care articles that contain accessible polyester (PET), nylon, natural latex rubber, polyurethane (spandex), rayon, acrylic, and modacrylic component parts. Toy manufacturers are classified in North American Industry Classification System (NAICS) category 339930 (Doll, Toy, and Game Manufacturing). According to the U.S. Bureau of the Census, in 2015 there were 566 toy manufacturers in the United States, of which 562 had fewer than 500 employees and would be considered small entities according to the SBA criteria. 7 Of the small manufacturers, 347 had fewer than five employees.

Toy importers may be either wholesale merchants or retailers. The proposed rule would not apply to toy wholesalers or retailers if they obtain their merchandise from domestic manufacturers or importers and do not import toys or child care articles themselves. Toy wholesalers are classified in NAICS category 423920 (Toy and Hobby Goods and Supplies Merchant Wholesalers). According to the U.S. Bureau of the Census, there were 2,009 firms in this category in 2015. Of these, 1,937 had fewer than 100 employees and would be considered small businesses, according to SBA criteria. Toy retailers are classified in NAICS category 451120 (Hobby, Toy, and Game Stores). There could be about 4,632 toy retailers that would meet the SBA criteria to be considered a small entity. 8 Although importers are responsible for certifying the children's products that they import, they may rely upon third party testing performed by their foreign suppliers for purposes of certification. We do not know the number of small toy wholesalers or retailers that import toys, as opposed to obtaining their product from domestic sources. We also do not know the number of small importers that must obtain or pay for the third party testing of their products.

The phthalates regulation also applies to manufacturers and importers of child care articles. Child care articles include many types of products for which the CPSC has recently promulgated or proposed new or amended mandatory safety standards. Under the child care article category, products potentially affected by a Commission determination about phthalate content of unfinished manufactured fibers may include bedside sleepers, sleepwear, bibs, and other products that facilitate sleep or feeding. Several types of these child care products likely use the types of manufactured fibers that are addressed by the proposed rule. In its recent market research, CPSC staff identified 364 suppliers of these products that would be considered small according to criteria established by the SBA. 9 Additionally, there could be other child care articles, not listed above, for which CPSC has not yet developed a mandatory or proposed standard, but which nevertheless are covered by the phthalate requirements.

Although the number of small businesses that supply children's toys or child care articles to the U.S. market might be close to 10,000, we do not know the number that actually supply products with the unfinished manufactured fibers in accessible component parts. We also do not know the number of children's toys and child care articles that contain these fibers. Nevertheless, based on the number of domestic toy manufacturers that are classified as small businesses (according to SBA size standards and data provided by the U.S. Bureau of the Census) and evidence that the specified fibers could be used extensively in toys and child care articles, we believe a substantial number of small entities would be positively impacted by the proposed rule.

The proposed rule would not impose any reporting, recordkeeping, or other compliance requirements on small entities. In fact, the proposed rule would eliminate a requirement that third party testing be done, resulting in a small reduction in some of the recordkeeping burden under 16 CFR parts 1107 and 1109 because manufacturers would no longer have to maintain records of third party tests for the component parts manufactured from the specified unfinished manufactured fibers.

The impact of the determinations on small businesses would be to reduce the burden of third party testing for the ASTM F963 elements and the specified phthalates, and would be expected to be entirely beneficial. Based on published invoices and price lists, the cost of a third-party test for the ASTM F963 elements ranges from around $60 in China, up to around $190 in the United States using Inductively Coupled Plasma (ICP) testing. This cost can be greatly reduced with the use of high definition X-Ray fluorescence spectrometry (HDXRF), which is an acceptable method for certification of third party testing for the presence of the ASTM elements. The cost can be reduced to about $40 per component.

The cost of phthalate testing is relatively high: Between about $125 and $350 per component, depending upon where the testing is conducted and any discounts that are applicable. Because one product might have multiple components that require testing, the cost of testing a single product for phthalates could exceed $1,000.

Moreover, more than one sample might have to be tested to provide a high degree of assurance of compliance with the requirements for testing. To the extent that small businesses have lower production or sales volumes than larger businesses, these determinations would be expected to have a disproportionately beneficial impact on small businesses. This beneficial impact is due to spreading the costs of the testing over fewer units; and the benefit of the Commission making the determinations would be greater on a per unit basis for small businesses. Additionally, some testing laboratories may offer their larger customers discounts that might not be available to small businesses that need fewer third-party tests. Making the determinations for these manufactured fibers could significantly benefit a substantial number of firms.

However, it is possible that the benefit of making the determinations could be less than staff expects. Although the manufactured fibers are widely used, the determinations are limited to unfinished fibers, which might be less widely used. Additionally, some firms might have been able to substantially reduce their third party testing costs by using component part testing as allowed by 16 CFR 1109, so the marginal benefit to manufacturers from making the determinations might be low. Also, some firms have reduced their testing costs by using XRF or HDXRF technology, which is less expensive than ICP, and would reduce the marginal benefit of these determinations. Finally, some firms, particularly importers, might not know the specific fibers used in the products they import or whether fibers are unfinished and might opt to conduct the testing anyway to ensure that the products do not violate the requirements.

In summary, although there are a substantial number of small entities that manufacture or import children's toys and childcare articles in which manufactured fibers could be used, we do not have data on the number or the extent to which unfinished manufactured fibers are used in these products. Therefore, we cannot determine whether the reduced burden would be significant for a substantial number of the small entities. We welcome public comments on the potential impact of the proposed rule on small entities. Comments are especially welcome on the following topics:

• The extent to which the specified unfinished manufactured fibers are used in children's toys, and child care articles, especially those manufactured or imported by small firms;

• The potential reduction in third party testing costs that might be provided by the Commission making the determinations, including the extent to which component part testing is already being used and the current cost of testing components made from these unfinished manufactured fibers for compliance with the ASTM elements and phthalate requirements;

• Any situations or conditions in the proposed rule that would make it difficult to use the determinations to reduce third party testing costs; and

• Although the CPSC staff expects that the impact of the proposed rule will be entirely beneficial, any potential negative impacts of the proposed rule.

Under section 603(c) of the RFA, an initial regulatory flexibility analysis should “contain a description of any significant alternatives to the proposed rule which accomplish the stated objectives of the applicable statutes and which minimize any significant impact of the proposed rule on small entities.” Because the proposed rule is intended to reduce the cost of third party testing on small businesses and will not impose any additional burden, the Commission did not consider alternatives to the proposed rule that would reduce the burden of this rule on small businesses.

The Commission's regulations provide a categorical exclusion for Commission rules from any requirement to prepare an environmental assessment or an environmental impact statement because they “have little or no potential for affecting the human environment.” 16 CFR 1021.5(c)(2). This rule falls within the categorical exclusion, so no environmental assessment or environmental impact statement is required. The Commission's regulations state that safety standards for products normally have little or no potential for affecting the human environment. 16 CFR 1021.5(c)(1). Nothing in this rule alters that expectation.

For the reasons stated in the preamble, the Commission proposes to amend title 16 of the CFR to add part 1253 to read as follows:

Section 975 of Title IX of the Dodd-Frank Wall Street Reform and Consumer Protection Act amended the Exchange Act to create a new class of regulated persons, “municipal advisors.”  1 The Commission subsequently adopted registration rules for municipal advisors in 2013. 2 Exchange Act Section 15B(e)(4)(A) defines the term “municipal advisor” to include a person that provides advice to or on behalf of a municipal entity  3 or obligated person  4 (together, “Municipal Issuers”) with respect to municipal financial products or the issuance of municipal securities, including advice with respect to the structure, timing, terms, and other similar matters concerning such financial products or issues. 5

In adopting the municipal advisor registration rules, the Commission stated that “ `advice with respect to the issuance of municipal securities' should be construed broadly from a timing perspective to include advice throughout the life of an issuance of municipal securities, from the pre-issuance planning stage . . . to the repayment stage for those municipal securities.”  6 The Commission noted that, in connection with the issuance of municipal securities, a municipal advisor “may assist municipal entities in developing a financing plan, assist municipal entities in evaluating different financing options and structures, assist in the selection of other parties to the financing (such as bond counsel and underwriters), coordinate the rating process, ensure adequate disclosure, and/or evaluate and negotiate the financing terms.”  7

Unless otherwise excluded or exempted, a person who engages in municipal advisory activities is required to register with the Commission as a municipal advisor  8 and comply with the rules of the Municipal Securities Rulemaking Board (“MSRB”). 9 Exchange Act Section 15B(b)(2) requires the MSRB to develop rules that, among other things, prevent fraudulent and manipulative acts and practices, promote just and equitable principles of trade, and protect investors, municipal entities, obligated persons, and the public interest. 10

Exchange Act Section 15B includes certain statutory exclusions from municipal advisor registration, which the Commission interpreted and provided certain additional regulatory exemptions when it adopted the municipal advisor registration rules. 11 For example, Exchange Act Section 15B(e)(4)(C) provides a statutory exclusion from the requirement to register as a municipal advisor for brokers, dealers, and municipal securities dealers serving as underwriters, 12 which was further interpreted by the Commission in adopting the municipal advisor rules. 13 The statute is otherwise silent with respect to whether, and under what circumstances, municipal advisors would be required to register as brokers.

Since 2009, municipal entities have increasingly relied on direct placements, that is, direct purchases of municipal securities and direct loans from banks and other lenders, as an alternative to public offerings of municipal securities. 14 The demand for these direct placements has grown substantially over the past several years, as the involvement of commercial banks in the municipal capital markets has increased in terms of both purchases of municipal securities and extensions of loans to state and local governments and their instrumentalities. 15

As noted above, the Municipal Advisor Adopting Release identifies a wide range of activities in which a registered municipal advisor may engage on behalf of its Municipal Issuer clients. Since the issuance of the Municipal Advisor Adopting Release, the Commission has received questions and requests that it clarify the application of the broker regulatory framework to registered municipal advisors with respect to their activities in facilitating direct placements of municipal securities. 16

The subject of the public hearing is the notice of proposed rulemaking (REG-106282-18) that was published in the Federal Register on Tuesday, June 18, 2019 (84 FR 28426).

The rules of 26 CFR 601.601(a)(3) apply to the hearing. Persons who wish to present oral comments at the hearing that submitted written comments by September 16, 2019, must submit an outline of the topics to be addressed and the amount of time to be devoted to each topic by Monday, November 11, 2019.

A period of 10 minutes is allotted to each person for presenting oral comments. After the deadline for receiving outlines has passed, the IRS will prepare an agenda containing the schedule of speakers. Copies of the agenda will be made available, free of charge, at the hearing or by contacting the Publications and Regulations Branch at (202) 317-6901 (not a toll-free number).

Because of access restrictions, the IRS will not admit visitors beyond the immediate entrance area more than 30 minutes before the hearing starts. For information about having your name placed on the building access list to attend the hearing, see the FOR FURTHER INFORMATION CONTACT section of this document.

Background

This document contains proposed amendments to the Income Tax Regulations (26 CFR part 1) under sections 860G, 882, 1001, and 1275 of the Internal Revenue Code (Code).

On July 27, 2017, the U.K. Financial Conduct Authority, the U.K. regulator tasked with overseeing the London interbank offered rate (LIBOR), announced that all currency and term variants of LIBOR, including U.S.-dollar LIBOR (USD LIBOR), may be phased out after the end of 2021. The Financial Stability Board (FSB) and the Financial Stability Oversight Council (FSOC) have publicly acknowledged that in light of the prevalence of USD LIBOR as the reference rate in a broad range of financial instruments, the probable elimination of USD LIBOR has created risks that pose a potential threat to the safety and soundness of not only individual financial institutions, but also to financial stability generally. In its 2014 report “Reforming Major Interest Rate Benchmarks,” the FSB discussed the problems associated with key IBORs and made recommendations to address these problems, including the development and adoption of nearly risk-free reference rates to replace IBORs. The FSB and FSOC have recognized that a sudden cessation of a widely used reference rate could cause considerable disruptions in the marketplace and might adversely affect the normal functioning of a variety of markets in the United States, including business and consumer lending and the derivatives markets.

The Alternative Reference Rates Committee (ARRC), whose ex-officio members include the Board of Governors of the Federal Reserve System, the Treasury Department, the Commodity Futures Trading Commission, and the Office of Financial Research, was convened by the Board of Governors of the Federal Reserve System and the Federal Reserve Bank of New York to identify alternative reference rates that would be both more robust than USD LIBOR and that would comply with standards such as the International Organization of Securities Commissions' “Principles for Financial Benchmarks.” The ARRC was also responsible for developing a plan to facilitate the voluntary acceptance of the alternative reference rate or rates that were chosen. On March 5, 2018, the ARRC published a report that summarizes the work done earlier to select the Secured Overnight Financing Rate (SOFR) as the replacement for USD LIBOR. The Federal Reserve Bank of New York began publishing SOFR daily as of April 3, 2018, in cooperation with the Office of Financial Research. In addition, the Chicago Mercantile Exchange and other entities have launched trading in SOFR futures and have begun clearing for over-the-counter SOFR swaps. Although SOFR is calculated from overnight transactions, it is possible that one or more term rates based on SOFR derivatives may be added in the future.

Other jurisdictions have also been working toward replacing the LIBOR associated with their respective currencies. The Working Group on Sterling Risk-Free Reference Rates in the United Kingdom chose the Sterling Overnight Index Average (SONIA) to replace British pound sterling LIBOR; the Study Group on Risk-Free Reference Rates in Japan chose the Tokyo Overnight Average Rate (TONAR) to replace yen LIBOR and to serve as an alternative to the Tokyo Interbank Offered Rate (TIBOR); and the National Working Group in Switzerland selected the Swiss Average Rate Overnight (SARON) to replace Swiss franc LIBOR. Alternatives for the relevant IBOR rate have also been selected for Australia, Canada, Hong Kong, and the Eurozone. Other countries are at various stages of selecting a reference rate to replace their respective versions of IBOR.

On April 8, 2019, and June 5, 2019, the ARRC submitted to the Treasury Department and the IRS documents that identify various potential tax issues associated with the elimination of IBORs and request tax guidance to address those issues and to facilitate an orderly transition (ARRC letters). The ARRC stated that existing debt instruments and derivatives providing for IBOR-based payments must be amended to address the coming elimination of IBORs. The ARRC indicated that these amendments will likely take one of two forms. First, the parties may alter the instruments to replace the IBOR-referencing rate with another rate, such as one based on SOFR. Second, the parties may alter the instruments to replace an IBOR-referencing fallback rate with another fallback rate upon the discontinuance of the IBOR or at some other appropriate time. The ARRC describes fallback provisions as the provisions specifying what is to occur if an IBOR is permanently discontinued or is judged to have deteriorated to an extent that its relevance as a reliable benchmark has been significantly impaired. The ARRC notes that, regardless of which of these two forms the amendment takes, the rate that replaces the IBOR-referencing rate may include “(i) appropriate adjustments to the spread above the base reference rate in order to account for the expected differences between the two base reference rates (generally representing term premium and credit risk) and/or (ii) a one time, lump-sum payment in lieu of a spread adjustment.” The ARRC also stated that newer debt instruments and derivatives may already include fallback provisions that anticipate the elimination of an IBOR and provide a methodology for changing the rate when the relevant IBOR becomes unreliable or ceases to exist.

The ARRC letters urged broad and flexible tax guidance in this area. The ARRC letters requested guidance on specific tax issues that arise as a result of these efforts to transition from IBORs to alternative rates. The ARRC first asked that a debt instrument, derivative, or other contract not be treated as exchanged under section 1001 when the terms of the instrument are amended either to replace an IBOR-referencing rate or to include a fallback rate in anticipation of the elimination of the relevant IBOR. The ARRC noted that these same amendments could cause a taxpayer with a synthetic debt instrument under § 1.1275-6 to be treated as legging out of the integrated transaction, and it also sought clarification on the source and character of a one-time payment in lieu of a spread adjustment on a derivative. The ARRC recommended treating SOFR, similar replacement rates for IBOR-referencing rates in other currencies, and potentially any qualified floating rate under § 1.1275-5 as permitted alternative reference rates to IBOR-referencing rates. The ARRC further requested that alteration of a regular interest in a real estate mortgage investment conduit (REMIC) to replace an IBOR-referencing rate or to change fallback provisions not prevent the regular interest from having fixed terms on the startup day, and that the existence and exercise of a fallback provision not prevent a variable interest rate on a regular interest in a REMIC from being a permitted variable rate under § 1.860G-1. Additionally, the ARRC suggested that, for the purpose of determining the amount and timing of original issue discount (OID) on a debt instrument, an IBOR-referencing qualified floating rate and the fallback rate that replaces the IBOR-referencing rate should be treated as a single qualified floating rate. Finally, the ARRC requested that the reference to 30-day LIBOR in § 1.882-5(d)(5)(ii)(B) be amended so that taxpayers may continue to use the simplified method of computing excess interest permitted under that section. The Treasury Department and the IRS received letters from the Structured Finance Industry Group and the Real Estate Roundtable articulating concerns similar to those set forth in the ARRC letters. The comment letters also raised certain issues that are beyond the scope of this regulation.

The following subsections discuss the primary tax issues raised by changes to the terms of debt instruments and non-debt contracts in anticipation of the elimination of IBORs.

Section 1001 provides rules for determining the amount and recognition of gain or loss from the sale or other disposition of property. The regulations under section 1001 generally provide that gain or loss is realized upon the exchange of property for other property differing materially either in kind or in extent. See § 1.1001-1(a). In the case of a debt instrument, § 1.1001-3(b) provides that a significant modification of the debt instrument results in an exchange of the original debt instrument for a modified debt instrument that differs materially either in kind or in extent for purposes of § 1.1001-1(a). Under § 1.1001-3(c), a modification is generally any alteration, including any deletion or addition, in whole or in part, of a legal right or obligation of the issuer or a holder of a debt instrument. However, a modification generally does not include an alteration of a legal right or obligation that occurs by operation of the terms of a debt instrument. Section 1.1001-3(a)(1) provides that the rules of § 1.1001-3 apply to any modification of a debt instrument, regardless of whether the modification takes the form of an amendment to the terms of the debt instrument or an exchange of a new debt instrument for an existing debt instrument. An alteration of a legal right or obligation that is treated as a modification must be tested for significance under § 1.1001-3(e). Consequently, changing the interest rate index referenced in a U.S. dollar-denominated debt instrument from USD LIBOR to SOFR if no provision has been made in the terms of the debt instrument for such a change is an alteration of the terms of the debt instrument that could be treated as a significant modification and result in a tax realization event, even when USD LIBOR no longer exists.

Other than § 1.1001-4, which generally prescribes the tax consequences to the nonassigning counterparty when there is a transfer or assignment of a derivative contract by a dealer or a clearinghouse, and § 1.1001-5, which addresses the conversion of legacy currencies to the euro, there are no regulations that specifically address when a modification of a derivative or other non-debt contract creates a realization event. This absence of regulations has led to concern that modifying a non-debt contract to reflect the elimination of an IBOR, such as changing the floating rate index referenced in an interest rate swap contract from USD LIBOR to SOFR, could cause a deemed termination of the non-debt contract for tax purposes.

Moreover, a modification of the fallback provisions of a debt instrument or non-debt contract to address the possibility of an IBOR being eliminated might require the parties to recognize income, deduction, gain, or loss. For example, if the terms of a derivative provide for payments at an IBOR-referencing rate but contain no fallback provision, a modification to the terms of the derivative to add a fallback to the IBOR-referencing rate could cause a deemed termination of the derivative. Likewise, if the terms of a debt instrument provide for an IBOR-referencing fallback rate, an alteration of the terms of the debt instrument to replace the IBOR-referencing fallback rate with another fallback rate could cause a deemed exchange of the debt instrument.

A debt instrument and one or more hedges may be treated in certain circumstances as a single, integrated instrument for certain specified purposes. For example, § 1.1275-6 describes the circumstances under which a debt instrument may be integrated with a hedge for the purpose of determining the amount and timing of the taxpayer's income, deduction, gain, or loss. Sections 1.988-5(a) (regarding foreign currency transactions) and 1.148-4(h) (regarding arbitrage investment restrictions on tax-exempt bonds issued by State and local governments) similarly provide rules by which a debt instrument may be integrated with a hedge for a specific purpose. In each of these cases, amending an IBOR-referencing debt instrument or hedge to address the elimination of the IBOR may cause a deemed termination or legging out of the integrated hedge that in effect dissolves the integrated instrument into its component parts, which may yield undesirable tax consequences or recognition events for the parties to those instruments.

Similarly, § 1.446-4 provides rules by which taxpayers determine the timing of income, deduction, gain, or loss attributable to a hedging transaction. These rules generally state that the method of accounting used by a taxpayer for a hedging transaction must reasonably match the timing of income, deduction, gain, or loss from the hedging transaction with the timing of the income, deduction, gain, or loss from the item or items being hedged. If a taxpayer hedges an item and later terminates the item but keeps the hedge, the taxpayer must match the built-in gain or loss on the hedge to the gain or loss on the terminated item. Accordingly, amending the terms of a debt instrument or hedge to address the elimination of an IBOR could affect the timing of gain or loss under § 1.446-4 if the amendment results in an exchange under section 1001.

The ARRC letters pointed out that, when parties alter the terms of a debt instrument or modify the terms of a non-debt contract to replace a rate referencing an IBOR, the alteration or modification may consist not only of the replacement of the IBOR with a new reference rate such as SOFR but also of an adjustment to the existing spread to account for the differences between the IBOR and the new reference rate. Alternatively, in lieu of (or in addition to) an adjustment to the spread, the parties may agree to a one-time payment as compensation for any reduction in payments attributable to the differences between the IBOR and the new reference rate. In the latter case, questions arise about the source and character of this one-time payment for various purposes of the Internal Revenue Code, such as the withholding rules in sections 1441 and 1442.

The requirements of certain statutes and regulations do not apply to debt instruments and non-debt contracts issued before a specific date. For example, an obligation issued on or before March 18, 2012, is not a registration-required obligation under section 163(f) if the obligation was issued under certain arrangements reasonably designed to ensure that the obligation was sold only to non-U.S. persons. If such an obligation is modified after March 18, 2012, in a manner that results in an exchange for purposes of § 1.1001-1(a), the modified obligation is treated as reissued and will be a registration-required obligation unless otherwise excepted under section 163(f)(2)(A). Likewise, payments made on certain debt instruments and non-debt contracts outstanding on July 1, 2014, (grandfathered obligations) are exempt from withholding requirements that may otherwise apply under chapter 4 of the Code, subject to any material modification of a grandfathered obligation that results in the obligation not being treated as outstanding on July 1, 2014. Accordingly, if a debt instrument is altered or a non-debt contract is modified to replace an IBOR-referencing rate in anticipation of the elimination of the IBOR, the debt instrument or non-debt contract may be treated as reissued as a consequence of the alteration or modification and therefore subject to the statute or regulation from which it was previously exempt.

Section 1.1275-5 defines a variable rate debt instrument (VRDI) and provides rules for determining the amount and accrual of qualified stated interest and OID on a VRDI. Under § 1.1275-5(b), a VRDI may provide for stated interest at one or more qualified floating rates. A variable rate is generally a qualified floating rate if variations in the value of the rate can reasonably be expected to measure contemporaneous variations in the cost of newly borrowed funds. The rate may measure contemporaneous variations in borrowing costs for the issuer of the debt instrument or for issuers in general. However, a multiple of a qualified floating rate is not a qualified floating rate, except as permitted within limited parameters. If a debt instrument provides for two or more qualified floating rates that can reasonably be expected to have approximately the same values throughout the term of the instrument, the qualified floating rates together constitute a single qualified floating rate. Under § 1.1275-5(e)(2), if a VRDI provides for stated interest at a single qualified floating rate and certain other requirements are satisfied, the amount of any OID that accrues during an accrual period is determined under the rules applicable to fixed rate debt instruments by assuming that the qualified floating rate is a fixed rate equal to the value, as of the issue date, of the qualified floating rate.

Section 1.1275-2(h) describes the treatment under sections 1271 through 1275 and the regulations under those sections of a debt instrument with respect to which one or more payments are subject to a remote contingency. Section 1.1275-2(h)(2) provides that a contingency is remote if there is a remote likelihood that the contingency will occur and that, in such a case, it is assumed that the contingency will not occur. In the event that a remote contingency actually occurs, § 1.1275-2(h)(6) generally provides that the debt instrument, including a VRDI, that undergoes this “change in circumstances” is treated as retired and then reissued for purposes of sections 1272 and 1273.

In general, if a debt instrument provides for a floating rate of interest and the debt instrument does not qualify as a VRDI, the debt instrument is a contingent payment debt instrument (CPDI) that is subject to more complex and less favorable rules under § 1.1275-4. For example, under § 1.1275-4, all of the stated interest is OID and the holder and issuer recognize interest income or deductions at times other than when cash payments are made. In addition, if a debt instrument that provides for a floating rate of interest is subject to a contingency that is not a remote contingency, the instrument may be a CPDI. Even if the contingency is remote, if the contingency occurs, the debt instrument is treated as retired and reissued for purposes of the OID rules. In both cases, the treatment of the contingency affects whether the debt instrument has OID and, if so, the amount of the OID and the accruals of the OID over the term of the debt instrument.

The transition to alternative rates, such as SOFR, in connection with the phase-out of IBORs has raised questions under the OID rules. For example, it is not clear whether certain debt instruments that reference IBOR qualify as VRDIs or whether they are subject to non-remote contingencies that must be taken into account.

Section 860G(a)(1) provides in part that a regular interest in a REMIC must be issued on the startup day with fixed terms. Section 1.860G-1(a)(4) clarifies that a regular interest has fixed terms on the startup day if, on the startup day, the REMIC's organizational documents irrevocably specify, among other things, the interest rate or rates used to compute any interest payments on the regular interest. Accordingly, an alteration of the terms of the regular interest to change the rate or fallback provisions in anticipation of the cessation of an IBOR could preclude the interest from being a regular interest.

Section 860G(a)(1) also provides in part that interest payments on a regular interest in a REMIC may be payable at a variable rate only to the extent provided in regulations and that a regular interest must unconditionally entitle the holder to receive a specified principal amount. Section 1.860G-1(a)(3) describes the variable rates permitted for this purpose, and § 1.860G-1(a)(5) confirms that the principal amount of a regular interest generally may not be contingent. Notwithstanding these limitations on the payment of principal and interest on a regular interest in a REMIC, § 1.860G-1(b)(3) lists certain contingencies affecting the payment of principal and interest that do not prevent an interest in a REMIC from being a regular interest. The list of excepted contingencies does not, however, include a fallback rate that is triggered by an event, such as the elimination of IBOR, that is likely to occur. Nor does the list expressly include the contingent reduction of principal or interest payments to offset costs incurred by amending a regular interest to replace a rate that refers to an IBOR or by adding a fallback rate in anticipation of the elimination of the relevant IBOR.

Subject to certain exceptions, section 860G(d) imposes a tax equal to 100 percent of amounts contributed to a REMIC after the startup day. If a party other than the REMIC pays costs incurred by the REMIC after the startup day, that payment could be treated as a contribution to the REMIC subject to the tax under section 860G(d).

A foreign corporation applies § 1.882-5 to determine its interest expense allocable under section 882(c) to income that is effectively connected with the conduct of a trade or business within the United States. If a foreign corporation uses the method described in § 1.882-5(b) through (d), that foreign corporation could have U.S.-connected liabilities that exceed U.S.-booked liabilities (excess U.S.-connected liabilities). When a foreign corporation has excess U.S.-connected liabilities, § 1.882-5(d)(5)(ii)(A) generally provides that the interest rate that applies to the excess U.S.-connected liabilities is the foreign corporation's average U.S.-dollar borrowing cost on all U.S.-dollar liabilities other than its U.S.-booked liabilities. Alternatively, § 1.882-5(d)(5)(ii)(B) provides that a foreign corporation that is a bank, may elect to use a published average 30-day LIBOR for the year instead of determining its average U.S.-dollar borrowing cost. Because the election provided in § 1.882-5(d)(5)(ii)(B) only permits a foreign corporation that is a bank to elect a rate that references 30-day LIBOR, the current election will not be available when LIBOR is phased out.

The Treasury Department and the IRS have determined that it is appropriate to provide guidance on the tax issues discussed earlier in this preamble in order to minimize potential market disruption and to facilitate an orderly transition in connection with the phase-out of IBORs and the attendant need for changes in debt instruments and other non-debt contracts to implement this transition. The Treasury Department and the IRS expect that this guidance will reduce Federal income tax uncertainties and minimize taxpayer burden associated with this transition.

The proposed regulations under § 1.1001-6(a) generally provide that, if the terms of a debt instrument are altered or the terms of a non-debt contract, such as a derivative, are modified to replace, or to provide a fallback to, an IBOR-referencing rate and the alteration or modification does not change the fair market value of the debt instrument or non-debt contract or the currency of the reference rate, the alteration or modification does not result in the realization of income, deduction, gain, or loss for purposes of section 1001. The Treasury Department and the IRS intend that the proposed rules in § 1.1001-6(a), as with other regulations under section 1001, apply to both the issuer and holder of a debt instrument and to each party to a non-debt contract. The proposed rules in § 1.1001-6(a) also apply regardless of whether the alteration or modification occurs by an amendment to the terms of the debt instrument or non-debt contract or by an exchange of a new debt instrument or non-debt contract for the existing one.

Section 1.1001-6(a)(1) of the proposed regulations provides that altering the terms of a debt instrument to replace a rate referencing an IBOR with a qualified rate (qualified rates are discussed in detail later in this preamble) is not treated as a modification and therefore does not result in a deemed exchange of the debt instrument for purposes of § 1.1001-3. This same rule applies to “associated alterations,” which are alterations that are both associated with the replacement of the IBOR-referencing rate and reasonably necessary to adopt or implement that replacement. One example of an associated alteration is the addition of an obligation for one party to make a one-time payment in connection with the replacement of the IBOR-referencing rate with a qualified rate to offset the change in value of the debt instrument that results from that replacement.

Section 1.1001-6(a)(2) of the proposed regulations provides that modifying a non-debt contract to replace a rate referencing an IBOR with a qualified rate is not treated as a deemed exchange of property for other property differing materially in kind or extent for purposes of § 1.1001-1(a). The rule also applies to “associated modifications,” which differ from associated alterations only in that they relate to non-debt contracts. The principal example of a non-debt contract for purposes of the proposed regulations is a derivative contract, but the category is also intended to include any other type of contract (such as a lease) that may refer to an IBOR and that is not debt. Thus, for example, if an interest rate swap is modified to change the floating rate leg of the swap from Overnight USD LIBOR plus 25 basis points to an alternative rate referencing SOFR that meets the requirements for a qualified rate under the proposed regulations (including the requirement that the fair market value of the swap contract after the modification is substantially equivalent to the fair market value of the swap contract before the modification), that modification would not be treated as an exchange of property for other property differing materially in kind or extent and would therefore not be an event that results in the realization of income, deduction, gain or loss under § 1.1001-1(a).

Section 1.1001-6(a)(3) of the proposed regulations provides that an alteration to the terms of a debt instrument to include a qualified rate as a fallback to an IBOR-referencing rate and any associated alteration are not treated as modifications and therefore do not result in an exchange of the debt instrument for purposes of § 1.1001-3. In addition, an alteration to the terms of a debt instrument by which an IBOR-based fallback rate is replaced with a different fallback rate that is a qualified rate and any associated alteration are also not treated as modifications. Similar rules provide that these same changes to a non-debt contract do not result in the exchange of property for other property differing materially in kind or extent for purposes of § 1.1001-1(a).

A coordination rule in § 1.1001-6(a)(4) of the proposed regulations makes clear that any alteration to the terms of a debt instrument that is not given special treatment under either § 1.1001-6(a)(1) or (3) is subject to the ordinary operation of § 1.1001-3. The proposed regulations provide a similar rule for non-debt contracts. These proposed rules contemplate that when an alteration or modification not described in § 1.1001-6(a)(1), (2), or (3) occurs at the same time as the alteration or modification described in those paragraphs, the alteration or modification described in § 1.1001-6(a)(1), (2), or (3) is treated as part of the existing terms of the debt instrument or non-debt contract and, consequently, becomes part of the baseline against which the alteration or modification not described in § 1.1001-6(a)(1), (2), or (3) is tested.

Section 1.1001-6(b) of the proposed regulations sets forth the rules for determining whether a rate is a qualified rate. Section 1.1001-6(b)(1) lists the rates that may be qualified rates for purposes of § 1.1001-6, provided that they satisfy the requirements set forth in § 1.1001-6(b)(2) and (3). The list of potential qualified rates in § 1.1001-6(b)(1) includes a qualified floating rate as defined in § 1.1275-5(b), except that for this purpose a multiple of a qualified floating rate is considered a qualified floating rate. This list also includes any rate selected, endorsed or recommended by the central bank, reserve bank, monetary authority or similar institution (including a committee or working group thereof) as a replacement for an IBOR or its local currency equivalent in that jurisdiction. To avoid any uncertainty on the question of whether the rates identified in § 1.1001-6(b)(1)(i) through (viii) may be qualified rates, those rates are individually enumerated even though each is a qualified floating rate, as defined in § 1.1275-5(b), and each has been selected by a central bank, reserve bank, monetary authority or similar institution as a replacement for an IBOR or its local currency equivalent in that jurisdiction. The proposed regulations further provide that a rate that is determined by reference to one of the rates listed in § 1.1001-6(b)(1) may also be a qualified rate. For example, a rate equal to the compound average of SOFR over the past 30 days may be a qualified rate because that rate is determined by reference to SOFR, which is listed in § 1.1001-6(b)(1). To retain the flexibility to respond to future developments, proposed § 1.1001-6(b)(1)(xii) provides authority to add a rate to this list by identifying the new rate in guidance published in the Internal Revenue Bulletin.

A rate described in § 1.1001-6(b)(1) of the proposed regulations is not a qualified rate if it fails to satisfy the requirement of § 1.1001-6(b)(2)(i). Section 1.1001-6(b)(2)(i) of the proposed regulations generally requires that the fair market value of the debt instrument or non-debt contract after the relevant alteration or modification must be substantially equivalent to the fair market value before that alteration or modification. The purpose of this requirement is to ensure that the alterations or modifications described in § 1.1001-6(a)(1) through (3) are generally no broader than is necessary to replace the IBOR in the terms of the debt instrument or non-debt contract with a new reference rate. However, the Treasury Department and the IRS recognize that the fair market value of a debt instrument or non-debt contract may be difficult to determine precisely and intend that the proposed regulations broadly facilitate the transition away from IBORs. Accordingly, the proposed regulations provide that the fair market value of a debt instrument or derivative may be determined by any reasonable valuation method, as long as that reasonable valuation method is applied consistently and takes into account any one-time payment made in lieu of a spread adjustment.

To further ease compliance with the value equivalence requirement in § 1.1001-6(b)(2)(i), the proposed regulations provide two safe harbors and reserve the authority to provide additional safe harbors in guidance published in the Internal Revenue Bulletin. Under the first safe harbor, the value equivalence requirement is satisfied if at the time of the alteration the historic average of the IBOR-referencing rate is within 25 basis points of the historic average of the rate that replaces it. The parties may use any reasonable method to compute an historic average, subject to two limitations. First, the lookback period from which the historic data are drawn must begin no earlier than 10 years before the alteration or modification and end no earlier than three months before the alteration or modification. Second, once a lookback period is established, the historic average must take into account every instance of the relevant rate published during that period. For example, if the lookback period is comprised of the calendar years 2016 through 2020 and the relevant rate is 30-day USD LIBOR, the historic average of that rate must take into account each of the 60 published instances of 30-day USD LIBOR over the five-year lookback period. Alternatively, the parties may compute the historic average of a rate in accordance with an industry-wide standard, such as a standard for determining an historic average set forth by the International Swaps and Derivatives Association or the ARRC for this or a similar purpose. In any application of this safe harbor, the parties must use the same methodology and lookback period to compute the historic average for each of the rates to be compared.

Under the second safe harbor, the value equivalence requirement of § 1.1001-6(b)(2)(i) is satisfied if the parties to the debt instrument or non-debt contract are not related and, through bona fide, arm's length negotiations over the alteration or modification, determine that the fair market value of the altered debt instrument or modified non-debt contract is substantially equivalent to the fair market value of the debt instrument or non-debt contract before the alteration or modification. In determining the fair market value of an altered debt instrument or modified non-debt contract, the parties must take into account the value of any one-time payment made in lieu of a spread adjustment.

A rate described in § 1.1001-6(b)(1) of the proposed regulations is also not a qualified rate if it fails to satisfy the requirement in § 1.1001-6(b)(3). This paragraph generally requires that any interest rate benchmark included in the replacement rate and the IBOR referenced in the replaced rate are based on transactions conducted in the same currency or are otherwise reasonably expected to measure contemporaneous variations in the cost of newly borrowed funds in the same currency. As is the case with the value equivalence requirement under § 1.1001-6(b)(2)(i), this requirement is intended to ensure that the alterations or modifications described in § 1.1001-6(a)(1) through (3) are no broader than necessary to address the elimination of the relevant IBOR.

Section 1.1001-6(c) of the proposed regulations confirms that a taxpayer is permitted to alter the terms of a debt instrument or modify one or more of the other components of an integrated or hedged transaction to replace a rate referencing an IBOR with a qualified rate without affecting the tax treatment of either the underlying transaction or the hedge, provided that the integrated or hedged transaction as modified continues to qualify for integration. For example, a taxpayer that has issued a floating rate debt instrument that pays interest at a rate referencing USD LIBOR and has entered into an interest rate swap contract that permits that taxpayer to create a synthetic fixed rate debt instrument under the integration rules of § 1.1275-6 is not treated as legging out of the integrated transaction if the terms of the debt instrument are altered and the swap is modified to replace the USD LIBOR-referencing interest rate with a SOFR-referencing interest rate, provided that in the transaction as modified the § 1.1275-6 hedge continues to meet the requirements for a § 1.1275-6 hedge. The proposed regulations provide similar rules for a foreign currency hedge integrated with a debt instrument under § 1.988-5(a) and for an interest rate hedge integrated with an issue of tax-exempt bonds under § 1.148-4(h). The proposed regulations also provide that, in the case of a transaction subject to the hedge accounting rules under § 1.446-4, altering the terms of a debt instrument or modifying the terms of a derivative to replace an IBOR-referencing rate with a qualified rate on one or more legs of the transaction is not a disposition or termination of either leg under § 1.446-4(e)(6).

Section 1.1001-6(d) of the proposed regulations provides that, for all purposes of the Internal Revenue Code, the source and character of a one-time payment that is made by a payor in connection with an alteration or modification described in proposed § 1.1001-6(a)(1), (2), or (3) will be the same as the source and character that would otherwise apply to a payment made by the payor with respect to the debt instrument or non-debt contract that is altered or modified. For example, a one-time payment made by a counterparty to an interest rate swap is treated as a payment with respect to the leg of the swap on which the counterparty making the one-time payment is obligated to perform. Accordingly, under § 1.863-7(b), the source of that one-time payment would likely be determined by reference to the residence of the recipient of the payment. With respect to a lease of real property, a one-time payment made by the lessee to the lessor is treated as a payment of rent and, under sections 861(a)(4) and 862(a)(4), the source of that one-time payment would be the location of the leased real property.

The Treasury Department and the IRS expect that parties to debt instruments and non-debt contracts will generally replace the IBOR with an overnight, nearly risk-free rate, such as SOFR. Because of differences in term and credit risk, an overnight, nearly risk-free rate will generally be lower than the IBOR it replaces. Accordingly, the Treasury Department and the IRS expect that, for example, one-time payments with respect to a debt instrument will generally not be paid by the lender to the borrower. However, in the event that it is determined that guidance in respect of such payments is needed, the Treasury Department and the IRS request comments on the source and character of a one-time payment on a debt instrument or non-debt contract received by a party (such as the borrower on a debt instrument or the lessee on a lease) that does not ordinarily receive payments during the term of the debt instrument or non-debt contract.

The rules in § 1.1001-6(a) of the proposed regulations generally prevent debt instruments and non-debt contracts from being treated as reissued following a deemed exchange under section 1001. Thus, for example, a debt instrument grandfathered under section 163(f), 871(m), or 1471 or a regulation under one of those sections would not lose its grandfathered status as a result of any alterations made in connection with the elimination of an IBOR and described in § 1.1001-6(a)(1) or (3) of the proposed regulations. To provide certainty in treating a non-debt contract as a grandfathered obligation for chapter 4 purposes in the case of the modification of the contract to replace an IBOR-referencing rate, § 1.1001-6(e) of the proposed regulations provides that any modification of a non-debt contract to which § 1.1001-6(a)(2) or (3) applies is not a material modification for purposes of § 1.1471-2(b)(2)(iv).

Section 1.1275-2(m) of the proposed regulations sets forth three special rules for determining the amount and accrual of OID in the case of a VRDI that provides both for interest at an IBOR-referencing qualified floating rate and for a fallback rate that is triggered when the IBOR becomes unavailable or unreliable. Under § 1.1275-2(m)(2), the IBOR-referencing qualified floating rate and the fallback rate are treated as a single qualified floating rate for purposes of § 1.1275-5. Under § 1.1275-2(m)(3), the possibility that the relevant IBOR will become unavailable or unreliable is treated as a remote contingency for purposes of § 1.1275-2(h). Under § 1.1275-2(m)(4), the occurrence of the event that triggers activation of the fallback rate is not treated as a change in circumstances. Thus, for example, the VRDI is not treated as retired and reissued under § 1.1275-2(h)(6) when the relevant IBOR becomes unavailable or unreliable and the rate changes to the fallback rate, even if the IBOR becoming unavailable or unreliable was a remote contingency at the time the VRDI was issued. With the exception of these three rules in § 1.1275-2(m) of the proposed regulations, the OID regulations apply to an IBOR-referencing VRDI as they would to any other debt instrument.

Section 1.860G-1(e) of the proposed regulations permits an interest in a REMIC to retain its status as a regular interest despite certain alterations and contingencies. Specifically, if the parties to a regular interest alter the terms after the startup day to replace an IBOR-referencing rate with a qualified rate, to include a qualified rate as a fallback to an IBOR-referencing rate, or to make any other alteration described in § 1.1001-6(a)(1) or (3) of the proposed regulations, § 1.860G-1(e)(2) provides that those alterations are disregarded for the purpose of determining whether the regular interest has fixed terms on the startup day.

Supplementing the list of disregarded contingencies in § 1.860G-1(b)(3), § 1.860G-1(e)(3) and (4) of the proposed regulations describe certain contingencies affecting the payment of principal and interest that do not prevent an interest in a REMIC from being a regular interest. Under § 1.860G-1(e)(3), an interest in a REMIC does not fail to be a regular interest solely because the terms of the interest permit the rate to change from an IBOR-referencing rate to a fallback rate in anticipation of the relevant IBOR becoming unavailable or unreliable. Although this proposed rule permits taxpayers to disregard the contingency in determining whether the rate is a variable rate permitted under § 1.860G-1(a)(3), both the IBOR-referencing rate and the fallback rate considered individually must be rates permitted under section 860G. Under § 1.860G-1(e)(4) of the proposed regulations, an interest in a REMIC does not fail to be a regular interest solely because the amount of payments of principal or interest may be reduced by reasonable costs of replacing an IBOR-referencing rate with a qualified rate, of amending fallback provisions to address the elimination of an IBOR, or of modifying a non-debt contract that is associated with the interest in the REMIC, such as a credit enhancement. Section 1.860G-1(e)(4) further provides that, if a party other than the REMIC pays those reasonable costs after the startup day, that payment is not subject to the tax imposed under section 860G(d).

Because the election provided in § 1.882-5(d)(5)(ii)(B) only permits a foreign corporation that is a bank to elect a rate that references 30-day LIBOR, the current election will not be available when LIBOR is phased out. To address this change in facts, the proposed regulations amend the election in § 1.882-5(d)(5)(ii)(B) to allow a foreign corporation that is a bank to compute interest expense attributable to excess U.S.-connected liabilities using a yearly average SOFR. The Treasury Department and the IRS have determined that SOFR is an appropriate rate to use in § 1.882-5(d)(5)(ii)(B) to replace LIBOR. Since SOFR is an overnight rate that does not reflect credit risk, the use of SOFR is likely to result in a lower rate than the 30-day LIBOR calculation previously allowed under § 1.882-5(d)(5)(ii)(B). Because of these differences between SOFR and 30-day LIBOR, the Treasury Department and the IRS request comments on whether another nearly risk-free rate might be more appropriate in computing interest expense on excess U.S.-connected liabilities for purposes of § 1.882-5(d)(5)(ii)(B).

This part 2(A) of the Explanation of Provisions section describes the various applicability dates proposed to apply to the final regulations. Under the proposed applicability date in § 1.1001-6(g), § 1.1001-6 of the final regulations would apply to an alteration of the terms of a debt instrument or a modification to the terms of a non-debt contract that occurs on or after the date of publication of a Treasury decision adopting those rules as final regulations in the Federal Register . However, under proposed § 1.1001-6(g), a taxpayer may choose to apply § 1.1001-6 of the final regulations to alterations and modifications that occur before that date, provided that the taxpayer and its related parties consistently apply the rules before that date. See section 7805(b)(7).

Under the proposed applicability date in § 1.1275-2(m)(5), the OID rules in § 1.1275-2(m) of the final regulations would apply to debt instruments issued on or after the date of publication of a Treasury decision adopting those rules as final regulations in the Federal Register . However, under proposed § 1.1275-2(m)(5), a taxpayer may choose to apply § 1.1275-2(m) of the final regulations to debt instruments issued before that date. See section 7805(b)(7).

Under the proposed applicability date in § 1.860G-1(e)(5)(i), the REMIC rules in § 1.860G-1(e)(2) and (4) of the final regulations would apply with respect to an alteration or modification that occurs on or after the date of publication of a Treasury decision adopting those rules as final regulations in the Federal Register . However, a taxpayer may choose to apply § 1.860G-1(e)(2) and (4) of the final regulations with respect to an alteration or modification that occurs before that date. See section 7805(b)(7). Under the proposed applicability date in § 1.860G-1(e)(5)(ii), § 1.860G-1(e)(3) of the final regulations would apply to a regular interest in a REMIC issued on or after the date of publication of a Treasury decision adopting that rule as a final regulation in the Federal Register . However, a taxpayer may choose to apply § 1.860G-1(e)(3) of the final regulations to a regular interest in a REMIC issued before that date. See section 7805(b)(7).

Under the proposed applicability date in § 1.882-5(f)(3), § 1.882-5(d)(5)(ii)(B) of the final regulations would apply to taxable years ending after the date of publication of a Treasury decision adopting that rule as a final regulation is published in the Federal Register .

A taxpayer may rely on the proposed regulations to the extent provided in this part 2(B) of the Explanation of Provisions section. A taxpayer may rely on § 1.1001-6 of the proposed regulations for any alteration of the terms of a debt instrument or modification of the terms of a non-debt contract that occurs before the date of publication of a Treasury decision adopting those rules as final regulations in the Federal Register , provided that the taxpayer and its related parties consistently apply the rules of § 1.1001-6 of the proposed regulations before that date. A taxpayer may rely on § 1.1275-2(m) or § 1.860G-1(e)(3) of the proposed regulations for any debt instrument or regular interest in a REMIC issued before the date of publication of a Treasury decision adopting those rules as final regulations in the Federal Register . A taxpayer may rely on § 1.860G-1(e)(2) and (4) of the proposed regulations with respect to any alteration or modification that occurs before the date of publication of a Treasury decision adopting that rule as a final regulation in the Federal Register . A taxpayer may rely on § 1.882-5(d)(5)(ii)(B) of the proposed regulations for any taxable year ending after October 9, 2019 but before the date of publication of a Treasury decision adopting these rules as final regulations in the Federal Register .

Executive Orders 12866 and 13563 direct agencies to assess costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including (i) potential economic, environmental, and public health and safety effects, (ii) potential distributive impacts, and (iii) equity). Executive Order 13563 emphasizes the importance of quantifying both costs and benefits, reducing costs, harmonizing rules, and promoting flexibility.

These proposed regulations have been designated as subject to review under Executive Order 12866 pursuant to the Memorandum of Agreement (April 11, 2018) (MOA) between the Treasury Department and the Office of Management and Budget (OMB) regarding review of tax regulations. The Office of Information and Regulatory Affairs has designated these proposed regulations as economically significant under section 1(c) of the MOA.

A very large volume of U.S. financial products and contracts include terms or conditions that reference LIBOR or, more generally, IBORs. Concern about manipulation and a decline in the volume of the funding from which the LIBOR is calculated led to recommendations for the development of alternatives to the LIBOR, ones that would be based on transactions in a more robust underlying market. In addition, on July 27, 2017, the U.K. Financial Conduct Authority, the U.K. regulator tasked with overseeing LIBOR, announced that all currency and term variants of LIBOR, including USD LIBOR, may be phased out after 2021 and not be published after that timeframe. The ARRC, a group of stakeholders affected by the cessation of the publication of USD LIBOR, was convened to identify an alternative rate and to facilitate its voluntary adoption. The ARRC recommended the SOFR as a potential replacement for USD LIBOR. Essentially all financial products and contracts that currently contain conditions or legal provisions that rely on LIBOR and IBORs are expected to transition to the SOFR or similar alternatives in the next few years. This transition will involve changes in debt, derivatives, and other financial contracts to adopt the SOFR or other alternative reference rates.

The ARRC has estimated that the total exposure to USD LIBOR was close to $200 trillion in 2016, of which approximately 95 percent were in over-the-counter derivatives. 1 ARRC further notes that USD LIBOR is also referenced in several trillion dollars of corporate loans, floating-rate mortgages, and similar financial products.

In the absence of further tax guidance, the vast majority of expected changes in such contracts could lead to the recognition of gains (or losses) in these contracts for U.S. income tax purposes and to correspondingly potentially large tax liabilities for their holders. To address this issue, the proposed regulations provide that changes in debt instruments, derivative contracts, and other affected contracts to replace reference rates based on IBORs with qualified rates (as defined in the proposed regulations) will not result in tax realization events under section 1001 and relevant regulations thereunder. The proposed regulations require that qualified rates be substantially equivalent in fair market value to the replaced rates based on any reasonable, consistently applied method of valuation. The proposed regulations further provide certain safe harbors for this comparability standard, based on historic average rates and bona fide fair market value negotiations between unrelated parties. The proposed regulations also provide corresponding guidance on hedging transactions and derivatives to the effect that taxpayers may modify the components of hedged or integrated transactions to replace IBORs with qualified rates without affecting the tax treatment of the hedges or underlying transactions.

In the absence of these proposed regulations, parties to contracts affected by the cessation of the publication of LIBOR would either suffer tax consequences to the extent that a change to the contract results in a tax realization event under section 1001 or attempt to find alternative contracts that avoid such a tax realization event, which may be difficult as a commercial matter. Both such options would be both costly and highly disruptive to U.S. financial markets. A large number of contracts may end up being breached, leading to bankruptcies or other legal proceedings. The types of actions that contract holders might take in the absence of these proposed regulations are difficult to predict because such an event is outside recent experience in U.S. financial markets. This financial disruption would be particularly unproductive because the economic characteristics of the financial products and contracts under the new rates would be essentially unchanged. Thus, there is no underlying economic rationale for a tax realization event.

The Treasury Department and the IRS project that these proposed regulations would avoid this costly and unproductive disruption. The Treasury Department and the IRS further project that these proposed regulations, by implementing the regulatory provisions requested by ARRC and taxpayers, will help facilitate the economy's adaptation to the cessation of the LIBOR in a least-cost manner.

The Treasury Department and the IRS request comments on these proposed regulations.

Under the Regulatory Flexibility Act (5 U.S.C. chapter 6), it is hereby certified that these proposed regulations will not have a significant economic impact on a substantial number of small entities that are directly affected by the proposed regulations. These proposed regulations provide rules to minimize the economic impact of the elimination of IBORs on all taxpayers. Parties to IBOR-referencing financial instruments are generally expected to alter or to modify those instruments in response to the elimination of the relevant IBOR and, in the absence of rules such as those proposed, those alterations and modifications may trigger significant tax consequences for the parties to those instruments. In addition, these proposed regulations do not impose a collection of information on any taxpayers, including small entities. Accordingly, this rule will not have a significant economic impact on a substantial number of small entities.

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 business.

Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) requires that agencies assess anticipated costs and benefits and take certain other actions before issuing a final rule that includes any Federal mandate that may result in expenditures in any one year by a State, local, or tribal government, in the aggregate, or by the private sector, of $100 million in 1995 dollars, updated annually for inflation. In 2019, that threshold is approximately $150 million. This rule does not include any Federal mandate that may result in expenditures by state, local, or tribal governments, or by the private sector in excess of that threshold.

Executive Order 13132 (titled “Federalism”) prohibits an agency from publishing any rule that has federalism implications if the rule either imposes substantial, direct compliance costs on state and local governments, and is not required by statute, or preempts state law, unless the agency meets the consultation and funding requirements of section 6 of the Executive Order. This proposed rule does not have federalism implications and does not impose substantial direct compliance costs on state and local governments or preempt state law within the meaning of the Executive Order.

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 specifically seek comment on any complications under any section of the Code or existing regulations that may arise from the replacement of an IBOR with a qualified rate and that are not resolved in these proposed regulations. 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 comments. If a public hearing is scheduled, notice of the date, time, and place for the hearing will be published in the Federal Register .

The principal authors of these regulations are Caitlin Holzem and Spence Hanemann of the Office of Associate Chief Counsel (Financial Institutions and Products). 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:

The proposed regulations that are the subject of this correction are under section 451 of the Internal Revenue Code.

As published, the notice of proposed regulations (REG-104870-18) contains errors which may prove to be misleading and need to be clarified.

Accordingly, the notice of proposed rulemaking (REG-104870-18) that was the subject of FR Doc. 2019-19325, published at 84 FR 47191 (September 9, 2019), is corrected to read as follows:

1. On page 47192, first column, the first line under in the caption FOR FURTHER INFORMATION CONTACT , the language “Concerning §§ 1.446-2, 1.451-3 (d)(2),” is corrected to read “Concerning §§ 1.446-2, 1.451-3 (d).”

2. On page 47192, third column, the first line of the last partial paragraph, the language “Proposed § 1.451-3 (d)(1) clarifies that” is corrected to read “Proposed § 1.451-3 (d) clarifies that”.

3. On page 47193, first column, the third line of the first full paragraph, the language “3(d)(2) also provides that the AFS” is corrected to read “3(d) also provides that the AFS”.

4. On page 47197, second column, the second line from the bottom of the first full paragraph, the language “2018-80 (2018 IRB 609), issued” is corrected to read “2018-80 (2018 42 IRB 609), issued”.

5. On page 47197, second column, the sixth line under the caption “Proposed Applicability Date,” the language, “specified fee, proposed § 1.451-3(i)(2) is” is corrected to read “specified fee other than a specified credit card fee, proposed § 1.451-3(i)(2) is”.

On October 1, 2015 (published October 26, 2015, see 80 FR 65292), EPA promulgated a revised primary and secondary NAAQS for ozone revising the 8-hour ozone NAAQS from 0.075 parts per million to a new more protective level of 0.070 ppm. Pursuant to section 110(a)(1) of the CAA, states are required to submit SIP revisions meeting the applicable requirements of section 110(a)(2) within three years after promulgation of a new or revised NAAQS or within such shorter period as EPA may prescribe. Section 110(a)(2) requires states to address basic SIP elements such as requirements for monitoring, basic program requirements, and legal authority that are designed to assure attainment and maintenance of the NAAQS. This particular type of SIP is commonly referred to as an “infrastructure SIP.” States were required to submit such SIPs for the 2015 8-hour ozone NAAQS to EPA no later than October 1, 2018. 1

I. Introduction

The Federal Maritime Commission (Commission) issued a Notice of Proposed Rulemaking (NPRM) to obtain public comments on proposed modifications to its regulations in 46 CFR part 535, Ocean Common Carrier and Marine Terminal Operator Agreements Subject to the Shipping Act of 1984, and 46 CFR 501.27, Delegation to and redelegation by the Director, Bureau of Trade Analysis. 81 FR 53986 (Aug. 15, 2016). The NPRM addressed comments submitted in response to the Commission's Advanced Notice of Proposed Rulemaking (ANPRM), 81 FR 10188 (Feb. 29, 2016), and requested further comments on the proposed modifications to its regulations.

The rulemaking was issued pursuant to Executive Order 13579 (E.O. 13579), Regulation and Independent Regulatory Agencies (July 11, 2011), and the Commission's corresponding Plan for the Retrospective Review of Existing Rules. 1 Under this plan, the Commission requested and received comments on how to improve its existing regulations and programs. With respect to part 535, comments with specific recommendations on regulatory modifications were submitted by ocean carrier members of major discussion agreements effective under the Shipping Act. 2 This rulemaking was also consistent with more recent Executive Orders, as it sought to modify Part 535 to remove outdated, ineffective, or unnecessary regulations. 3

After the Commission instituted this rulemaking process and received comment, Congress enacted the Frank LoBiondo Coast Guard Authorization Act of 2018. Public Law 115-282 (Dec. 4, 2018). In the LoBiondo Act, Congress amended certain provisions of the Shipping Act of 1984, including several provisions relating to the statutory basis for Part 535. In light of the intervening change in law, the Commission has determined to withdraw the previous NPRM, and terminate this rulemaking proceeding. In the future, the Commission may determine to reevaluate part 535, and would seek comments on the statutory amendments to the Shipping Act.

Table of Contents I. Introduction II. Background III. Proposed Changes A. References to Statutory Provisions (Parts 515, 530, 532, 545) B. Commission Meetings (Part 503) C. OTI Licensing, Financial Responsibility, and General Duties (Part 515) 1. Licensing and Financial Responsibility 2. Common Carrier Prohibitions D. Comments on Filed Agreements (Part 535) IV. Public Participation V. Rulemaking Analyses and Notices I. Introduction

On December 4, 2018, the “Frank LoBiondo Coast Guard Authorization Act of 2018” was enacted as Public Law 115-282 (LoBiondo Act or Act). The LoBiondo Act made a number of changes affecting the Federal Maritime Commission (Commission) and the Shipping Act of 1984 (Shipping Act). These included the changes made in Title VII of the Act, referred to as the “Federal Maritime Commission Authorization Act of 2017,” as well as a miscellaneous provision in § 834 of the LoBiondo Act. These changes were summarized by Commission staff at the Commission's May 1, 2019 meeting. 1 In this rulemaking, the Commission is focusing on the statutory changes that warrant corresponding revisions to the Commission's regulations. The proposed changes include:

• Revising several Commission regulations to update references to statutory provisions;

• Revising the regulations governing Commission meetings to include provisions on “nonpublic collaborative discussions,” a new type of meeting established by the LoBiondo Act that is not open to public observation;

• Revising the regulations governing ocean transportation intermediary (OTI)  2 licensing and financial responsibility to reflect statutory changes to the types of persons that are required to be licensed and maintain a bond, insurance, or other surety;

• Revising the regulations governing the general duties of non-vessel-operating common carriers (NVOCCs) to reflect amendments to several prohibited acts; and

• Revising the regulations related to comments on filed ocean common carrier and marine terminal operator (MTO) agreements to reflect that such comments are now confidential and may not be disclosed by the Commission;

Although beyond the scope of this current rulemaking, the Commission also invites comments on any regulatory changes necessary to implement other LoBiondo Act provisions not discussed in this NPRM. 3 Such comments may be considered by the Commission in determining whether additional regulatory changes should be made in a future rulemaking.

The LoBiondo Act amended 46 U.S.C. 41104 to revise several prohibited acts and added a new prohibited act. Public Law 115-282, 708. As part of those amendments, the Act changed the subsection designations in § 41104. The Commission is therefore proposing to revise its regulations to reflect the new subsection designations.

The LoBiondo Act amended 46 U.S.C. 303 to exclude certain Commission meetings from the requirements of the Government in the Sunshine Act (5 U.S.C. 552b). Public Law 115-282, 711(a). Under the revised statute, a majority of Commissioners may hold a meeting closed to the public to discuss Commission business if: (1) No vote or official Commission action is taken at the meeting; (2) only Commissioners and employees are present; (3) at least one Commissioner from each political party is present (assuming there are sitting Commissioners from more than one party); and (4) the Commission's General Counsel is present. 46 U.S.C. 303(c). 4 The statute refers to these closed meetings as “nonpublic collaborative discussions.”

Although the Commission need not publicize such meetings beforehand or record a complete transcript or minutes, the Commission must, following the meeting, make publicly available a list of individuals present at the meeting and a summary of matters discussed, except for those matters the Commission determines may be withheld from the public under one of the applicable exemptions listed in the Sunshine Act § 303(c)(2)-(3). For those matters withheld from the public, the Commission must provide a summary with as much general information as possible. § 303(c)(3). The required disclosures must be made within two business days after the meeting, unless the meeting relates to an ongoing proceeding before the Commission, in which case the disclosures must be made on the date of the final Commission decision. § 303(c)(2), (4); see S. Rep. No. 115-89 at 19.

Finally, the Act includes provisions clarifying that: (1) The Sunshine Act continues to apply to all meetings other than nonpublic collaborative discussions as described in § 303(c), as well as to any information related to those discussions that the Commission proposes to withhold from the public; and (2) the provisions governing nonpublic collaborative discussions do not authorize the Commission to withhold records accessible to an individual under the Privacy Act of 1974 (5 U.S.C. 552a). § 303(b)(5)-(6).

The Commission is proposing to include a new section, § 503.84, in part 503 of its regulations mirroring the new provisions in 46 U.S.C. 303(c)(1)-(4) and to make necessary conforming revisions to other sections in that part.

The LoBiondo Act amendments expanded the class of persons that must be licensed as OTIs and meet the OTI financial responsibility requirements to include persons that advertise or hold themselves out as OTIs. 46 U.S.C. 40901(a); 40902(a); Public Law 115-282, 707(a), (c). Previously, only persons that acted as OTIs were subject to the licensing and financial responsibility requirements.

The Commission is proposing to amend the general licensing and financial responsibility requirements in § 515.3 and § 515.21 to reflect this change. The Commission expects this change to have minimal, if any, effects on the universe of entities that must meet the licensing and financial responsibility requirements. In general, an entity that advertises or holds itself out as an OTI also acts as an OTI, and the practical effect of the change is to make it easier for the Commission to enforce the licensing and financial responsibility requirements and prosecute noncompliant OTIs. Instead of having to show that a noncompliant entity actually acted as an OTI, the mere fact that an unlicensed entity advertised or held itself out as an OTI is now sufficient to show a violation of the statute.

The LoBiondo Act also includes a new provision clarifying that the OTI licensing and financial responsibility requirements do not apply to a person “that performs [OTI] services on behalf of an [OTI] for which it is a disclosed agent.” 46 U.S.C. 40901(c); Public Law 115-282, 707(b). This provision appears to codify the holding in Landstar Express Am. v. Fed. Mar. Comm'n, 569 F.3d 493 (D.C. Cir. 2009), in which the D.C. Circuit held that “[a]gents providing NVOCC services for licensed NVOCC principals are not NVOCCs (or OFFs) solely by virtue of being agents of NVOCCs,” “[t]hey therefore fall outside the coverage of the statute's licensing requirement,” and “[t]he Commission lacks authority to compel those agents to obtain licenses.” 569 F.3d at 500. The Commission's regulations at § 515.4(b) already exclude agents of licensed OTIs from the licensing requirements, and the Commission is proposing minor revisions to that section to reflect the language of the new statutory provision.

The language of the new provision, however, is arguably broader than the holding in Landstar, which was focused on agents of licensed NVOCCs. The new § 40901(c) excludes agents of any OTI from the licensing and financial responsibility requirements, and does not distinguish between agents of licensed and unlicensed OTIs. The Commission has therefore tentatively determined that this statutory change may conflict with the Commission's regulations at 46 CFR 515.3 requiring that only licensed OTIs may act as agents to provide OTI services in the United States for foreign-based, registered NVOCCs (which are not licensed). The Commission seeks comment on whether to remove this requirement.

The LoBiondo Act also expands the common carrier prohibition against knowingly and willfully accepting or transporting cargo for OTIs that do not meet certain Shipping Act requirements. See 46 U.S.C. 41104(a)(11); Public Law 115-282, 708(a)(2)(A). Previously, common carriers were prohibited from knowingly and willfully accepting or transporting cargo for an OTI that did not have a tariff and did not meet the OTI financial responsibility requirements. See 46 U.S.C. 41104(11) (2017). This wording limited the prohibition to dealing with noncompliant NVOCCs, as OFFs are not required to have a tariff. See 46 CFR 515.19(g)(1)(vii); 515.27(a). The LoBiondo Act split the provision into two separate prohibitions in 46 U.S.C. 41104(a)(11). The first prohibits common carriers from knowingly and willfully accepting or transporting cargo from an NVOCC that does not have a tariff. The second prohibits common carriers from knowingly and willfully accepting or transporting cargo from an OTI ( i.e., NVOCC or OFF) that does not meet the financial responsibility requirements.

The Commission's regulations at 46 CFR 515.19 and 515.27 reflect the earlier version of the prohibition (accepting or transporting cargo for noncompliant NVOCCs). The Commission is therefore proposing to amend these sections to reflect the new, broader statutory prohibition.

The LoBiondo Act made several changes to the provisions governing Commission action on agreements. In particular, the LoBiondo Act expanded on the existing requirement that the Commission transmit a notice of an agreement filing to the Federal Register within seven days, adding a requirement that the Commission request interested persons to submit relevant information and documents. 46 U.S.C. 40304(a)(2); Public Law 115-282, 706(a). Although the Commission already includes such requests in its Federal Register notices, see 46 CFR 535.603, adding this provision renders such comments confidential under 46 U.S.C. 40306, which exempts “[i]nformation and documents . . . filed with the . . . Commission under [chapter 403]” from disclosure under the Freedom of Information Act. Previously, only information provided by the filing parties was protected from disclosure under § 40306. See Final Rule: Rules Governing Agreements by Ocean Common Carriers and Other Persons Subject to the Shipping Act of 1984, 49 FR 45320, 45336 (Nov. 15, 1984) (interpreting the provision (as originally enacted in the Shipping Act of 1984) as only protecting information provided by the filing parties).

In addition, the Act includes a saving clause stating that nothing in § 706 of the Act or the amendments made to 46 U.S.C. 40304 may be construed to prescribe a specific deadline for the submission of relevant information and documents from interested persons in response to a request for comment on an agreement filing. Public Law 115-282, 706(c).

The Commission is proposing to revise its regulations in part 535 to address these changes. In particular, the Commission proposes to revise the procedures for submitting comments on filed agreements in § 535.603 to reflect that such comments are exempt from disclosure under FOIA and to make conforming changes to the list of confidentially submitted material in § 535.608. The Commission also proposes to revise the Federal Register notice requirements in § 535.602 to reflect the saving clause, namely that the Shipping Act may not be construed as prescribing a deadline for the submission of comments on filed agreements. Specifically, under revised § 535.602, Federal Register notices would no longer include a “final date” or rigid deadline for filing comments; rather, notices would include a date by which comments are most useful for the Commission's analysis of an agreement within the statutory 45-day review period. Comments received before that date would be considered by the Commission and staff in making determinations within the 45-day review period, while comments received after that date may be considered, to the extent practicable, within the 45-day review period or as part of the Commission's continuing review of the agreement after the 45-day period.

Your comments must be written and in English. To ensure that your comments are correctly filed in the docket, please include the docket number of this document in your comments.

You may submit your comments via email to the email address listed above under ADDRESSES . Please include the docket number associated with this notice and the subject matter in the subject line of the email. Comments should be attached to the email as a Microsoft Word or text-searchable PDF document. Only non-confidential and public versions of confidential comments should be submitted by email.

You may also submit comments by mail to the address listed above under ADDRESSES .

The Commission will provide confidential treatment for identified confidential information to the extent allowed by law. If your comments contain confidential information, you must submit the following by mail to the address listed above under ADDRESSES :

• A transmittal letter requesting confidential treatment that identifies the specific information in the comments for which protection is sought and demonstrates that the information is a trade secret or other confidential research, development, or commercial information.

• A confidential copy of your comments, consisting of the complete filing with a cover page marked “Confidential-Restricted,” and the confidential material clearly marked on each page. You should submit the confidential copy to the Commission by mail.

• A public version of your comments with the confidential information excluded. The public version must state “Public Version—confidential materials excluded” on the cover page and on each affected page, and must clearly indicate any information withheld. You may submit the public version to the Commission by email or mail.

The Commission will consider all comments received before the close of business on the comment closing date indicated above under DATES . To the extent possible, we will also consider comments received after that date.

You may read the comments received by the Commission at the Commission's Electronic Reading Room or the Docket Activity Library at the addresses listed above under ADDRESSES .

The Regulatory Flexibility Act (codified as amended at 5 U.S.C. 601-612) provides that whenever an agency is required to publish a notice of proposed rulemaking under the Administrative Procedure Act (APA) (5 U.S.C. 553), the agency must prepare and make available for public comment an initial regulatory flexibility analysis (IRFA) describing the impact of the proposed rule on small entities, unless the head of the agency certifies that the rulemaking will not have a significant economic impact on a substantial number of small entities. 5 U.S.C. 603, 605. Based on the analysis below, the Chairman of the Federal Maritime Commission certifies that this final rule will not have a significant economic impact on a substantial number of small entities.

Most of the proposed changes will clearly have no economic impact on any regulated entities, i.e., updating references to statutory provisions, the amendments relating to nonpublic collaborative discussions by the Commission, and the amendments relating to comments on filed agreements.

With respect to the proposed amendments to the regulations governing OTI licensing, financial responsibility, and general duties, the Commission recognizes that the majority of businesses affected by these proposed changes (OTIs) qualify as small entities under the guidelines of the Small Business Administration. The proposed rule would not, however, result in a significant economic impact on these entities. The proposed regulatory changes include: (1) Expanding the class of entities that must obtain a license to include those holding themselves out or advertising as OTIs; and (2) expanding the prohibition on common carriers transporting cargo for noncompliant OTIs to include OFFs that have not met the financial responsibility requirements. The Commission is also seeking comment regarding whether to eliminate the requirement that foreign-based, registered NVOCCs employ only licensed OTIs as their agents in the United States.

These changes are expected to have minimal, if any, economic impact. As explained above, the Commission expects that requiring entities that hold themselves out or advertise as OTIs to obtain a license and bond, insurance, or other surety will have minimal, if any, effects on the universe of entities that must meet the licensing and financial responsibility requirements. In general, an entity that advertises or holds itself out as an OTI also acts as an OTI, and the practical effect of the change is to make it easier for the Commission to enforce the licensing and financial responsibility requirements and prosecute noncompliant OTIs. Further, if the Commission determines to eliminate the requirement that agents of foreign-based, registered NVOCCs obtain licenses in a final rule, the change would, at most, reduce the regulatory burden on those agents. 5 Finally, the changes to the prohibition on transporting cargo for noncompliant OTIs would have little, if any, economic impact on common carriers, including NVOCCs. NVOCCs would continue to be able to rely on the Commission's website, which contains an easily searchable database of OTIs, to ascertain both NVOCC and OFF compliance with the relevant requirements.

The Commission's regulations categorically exclude certain rulemakings from any requirement to prepare an environmental assessment or an environmental impact statement because they do not increase or decrease air, water or noise pollution or the use of fossil fuels, recyclables, or energy. 46 CFR 504.4. In addition to correcting references to statutory provisions, the proposed rule would make changes to the regulations governing Commission meetings in part 503, the regulations governing OTI licensing, financial responsibility, and general duties in part 515, and the regulations governing the submission of comments on filed agreements in part 535. This rulemaking thus falls within the categorical exclusion for actions regarding access to public information under part 503 (§ 504.4(a)(24)), actions related to the issuance, modification, denial and revocation of ocean transportation intermediary licenses (§ 504.4(a)(1)), and actions related to the consideration of agreements (§  504.4(a)(9)-(13), (30)-(35)). Therefore, no environmental assessment or environmental impact statement is required.

The Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3521) (PRA) requires an agency to seek and receive approval from the Office of Management and Budget (OMB) before collecting information from the public. 44 U.S.C. 3507. The agency must submit collections of information in proposed rules to OMB in conjunction with the publication of the notice of proposed rulemaking. 5 CFR 1320.11. This proposed rule does not contain any collections of information as defined by 44 U.S.C. 3502(3) and 5 CFR 1320.3(c).

This rule meets the applicable standards in E.O. 12988 titled, “Civil Justice Reform,” to minimize litigation, eliminate ambiguity, and reduce burden.

The Commission assigns a regulation identifier number (RIN) to each regulatory action listed in the Unified Agenda of Federal Regulatory and Deregulatory Actions (Unified Agenda). The Regulatory Information Service Center publishes the Unified Agenda in April and October of each year. You may use the RIN contained in the heading at the beginning of this document to find this action in the Unified Agenda, available at http://www.reginfo.gov/public/do/eAgendaMain.

For the reasons set forth above, the Federal Maritime Commission proposes to amend 46 CFR parts 503, 515, 530, 532, 535, and 545 as follows:

If you submit a comment, please include the docket number for the NPRM (Docket No. FMCSA-2017-0370), indicate the specific section of the NPRM to which each comment applies, and provide a reason for each suggestion or recommendation. You may submit your comments and material online or by fax, mail, or hand delivery, but please use only one of these means. FMCSA recommends that you include your name and a mailing address, an email address, or a phone number in the body of your document so that FMCSA can contact you if there are questions regarding your submission. To submit your comment online, go to https://www.regulations.gov/docket?D=FMCSA-2017-0370. Click on the “Comment Now!” button and type your comment into the text box on the following screen. Choose whether you are submitting your comment as an individual or on behalf of a third party and then submit.

If you submit your comments by mail or hand delivery, submit them in an unbound format, no larger than 8 1/2 by 11 inches, suitable for copying and electronic filing. If you submit comments by mail and would like to know that they reached the facility, please enclose a stamped, self-addressed postcard or envelope.

FMCSA will consider all comments and material received during the comment period.

To view comments, as well as any documents mentioned in the NPRM as being available in the docket, go to https://www.regulations.gov/docket?D=FMCSA-2017-0370 and choose the document to review. If you do not have access to the internet, you may view the docket online by visiting the Docket Management Facility in Room W12-140 on the ground floor of the DOT West Building, 1200 New Jersey Avenue SE, Washington, DC 20590, between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays.

In accordance with 5 U.S.C. 553(c), DOT solicits comments from the public to better inform its rulemaking process. DOT posts these comments, without edit, including any personal information the commenter provides, to www.regulations.gov, as described in the system of records notice (DOT/ALL-14-FDMS), which can be reviewed at www.dot.gov/privacy.

The August NPRM proposed amendments to the Agency's financial assistance programs resulting from the Fixing America's Surface Transportation (FAST) Act, including amendments based on the funding formula recommendations derived from the Motor Carrier Safety Assistance Program (MCSAP) Formula Working Group (working group). The NPRM proposed reorganizing the Agency's regulations to create a standalone subpart for the High Priority Program. It also proposed other programmatic changes to reduce redundancies, require the use of 3-year MCSAP commercial vehicle safety plans (CVSPs), and align the financial assistance programs with FMCSA's current enforcement and compliance programs.

The comment period for the NPRM was set at 45 days, and would end on October 7, 2019. FMCSA received a request to extend the comment period for an additional 45 days from the CVSA (available in the docket). CVSA stated that the original 45-day period did not allow enough time to prepare and approve comments on such a complicated and important issue.

In consideration of the CVSA request, FMCSA extends the public comment period until October 21, 2019.

Issued under authority delegated in 49 CFR 1.87.

The goal of the Atlantic Herring Fishery Management Plan (FMP) is to manage the herring fishery at long-term sustainable levels and objectives of the FMP include providing for full utilization of the optimum yield (OY) and, to the extent practicable, controlled opportunities for participants in other New England and Mid-Atlantic fisheries. The Herring FMP describes OY as the amount of fish that will provide the greatest overall benefit to the Nation, particularly with respect to food production and recreational opportunities, taking into account the protection of marine ecosystems, including maintenance of a biomass that supports the ocean ecosystem, predator consumption of herring, and biologically sustainable human harvest. This includes recognition of the importance of herring as one of many forage species of fish, marine mammals, and birds in the Greater Atlantic Region. Consistent with these aims, the goals for Amendment 8 are to: (1) Account for the role of herring within the ecosystem, including its role as forage; (2) stabilize the fishery at a level designed to achieve OY; and (3) address localized depletion in inshore waters.

On February 26, 2015 (80 FR 10458), the New England Fishery Management Council (Council) published a notice of intent (NOI) to prepare an EIS for Amendment 8 to consider long-term harvest strategies for herring, including an acceptable biological catch (ABC) control rule that addressed the biological and ecological requirements of the herring resource. The importance of herring as a forage species was underscored by the Council's specified intent to consider a wide range of ABC control rule alternatives, including those that explicitly account for herring's role in the ecosystem. The Council held scoping meetings during March and April of 2015 to solicit comments on ABC control rule alternatives.

An ABC control rule is a formulaic approach for setting a harvest limit. For herring and other stocks with a defined overfishing limit (OFL), the ABC is reduced from the OFL by scientific uncertainty, such as uncertainty around stock size estimates, variability around estimates of recruitment, and consideration of ecosystem issues, so that the OFL will not be exceeded. The ABC control rule is developed by the Council to reflect its risk tolerance for not exceeding the OFL and provides guidance to the Council's Scientific and Statistical Committee for recommending annual ABCs based on the best available scientific information about stock status. The specific parameters of an ABC control rule are: (1) Upper biomass parameter; (2) maximum fishing mortality (F); and (3) lower biomass parameter. The values assigned to each of these parameters dictate the overall “shape” or function of the ABC control rule and determine whether F increases or decreases in response to the current estimate of stock biomass.

The Council developed alternatives for a herring ABC control rule using a Management Strategy Evaluation (MSE). MSE is a decision-making tool that uses computer modeling to compare the performance of alternatives ( i.e., management strategies) under various scenarios to achieve multiple, competing objectives. Because we do not have a complete understanding of the ocean ecosystem and all the sources of uncertainty, MSEs are useful to evaluate how alternatives perform under different environmental conditions. The Council held two public workshops to generate stakeholder input to help identify objectives for the MSE analysis. Input generated by the workshops was considered by the Council and, for the most part, adopted and included in Amendment 8. The MSE used three models, a herring model, a predator model, and an economic model, to compare ABC control rule performance. The models simulated how well the ABC control rules achieved herring management objectives, such as biomass, yield, revenue, and predator considerations, under simulated environmental conditions related to herring growth, stock assessment bias, and productivity of herring. Results of the MSE informed the range of ABC control rule alternatives and impact analyses of those alternatives in Amendment 8.

On August 21, 2015 (80 FR 50825), the Council published a supplemental NOI announcing it was expanding the scope of Amendment 8 to consider localized depletion in inshore waters. The supplemental NOI defined localized depletion as harvesting more fish from an area than can be replaced within a given time period. It also explained the Council was seeking input from the interested public as to how to define, measure, and evaluate impacts, and minimize inshore, localized depletion in the herring fishery as part of Amendment 8. Public comment during the supplemental scoping made it clear that localized depletion concerns voiced by many stakeholders were not just related to the biological impacts of herring removals on the herring stock and on predators of herring. Public comment also indicated that impacts of localized depletion should be measured and evaluated relative to competing uses for the herring resource and potentially negative economic impacts on businesses that rely on predators of herring.

The Council's interest in the localized depletion of herring extends back to the early development of the Herring FMP. Despite a lack of quantitative evidence demonstrating localized depletion, Amendment 1 to the Herring FMP (72 FR 11252, March 12, 2007) prohibited midwater trawling for herring in Herring Management Area 1A from June through September as a proactive measure to prevent potential negative impacts on the stock, the fishery, and predators of herring resulting from over harvesting in Area 1A.

Ultimately, the Council's consideration of localized depletion in Amendment 8 included describing localized depletion as involving user group conflict and included both an evaluation of impacts of the user group conflict and consideration of competing interests for how herring should be used. The Council's concern with localized depletion and user group conflict is explained in this excerpt from the Council's April 2016 problem statement: “. . . concerns with concentrated, intense commercial fishing of Atlantic herring in specific areas and at certain times that cause detrimental socioeconomic impacts on other user groups (commercial, recreational, ecotourism) who depend upon adequate local availability of Atlantic herring to support business and recreational interests both at sea and on shore.” The range of localized depletion and user group conflict alternatives in Amendment 8 were developed to address potential localized depletion of herring to minimize possible detrimental biological impacts on predators of herring and associated socioeconomic impacts on other user groups.

A Notice of Availability (NOA) for Amendment 8 was published in the Federal Register on August 21, 2019 (84 FR 43573). The Magnuson-Stevens Fishery Conservation and Management Act (Magnuson-Stevens Act) allows us to approve, partially approve, or disapprove measures recommended by the Council in an amendment based on whether the measures are consistent with the fishery management plan, plan amendment, the Magnuson-Stevens Act and its National Standards, and other applicable law. The Council develops policy for its fisheries, and we defer to the Council on policy decisions unless those policies are inconsistent with the Magnuson-Steven Act or other applicable law. As such, we are seeking comments on whether measures in Amendment 8 are consistent with the Herring FMP, the Magnuson-Stevens Act and its National Standards, and other applicable law. The comment period for the NOA ends on October 21, 2019. Comments submitted on the NOA and/or this proposed rule prior to October 21, 2019, will be considered in our decision to approve, partially approve, or disapprove Amendment 8. We will consider comments received by the end of the comment period for this proposed rule November 25, 2019 in our decision to implement measures proposed by the Council.

This rule proposes a long-term ABC control rule for herring. Under the proposed control rule, when biomass is at or above 50 percent of the biomass associated with maximum sustainable yield (B MSY ) or its proxy, ABC is the catch associated with a maximum fishing mortality (F) of 80 percent of F MSY or its proxy. When biomass falls below 50 percent of B MSY or its proxy, F declines linearly to 0 at 10 percent of B MSY or its proxy. The control rule would set ABC for a three-year period but would allow ABC to vary year-to-year in response to projected changes in biomass. This rule proposes that the control rule could be revised via a framework adjustment if a quantitative assessment is not available, if projections are producing ABCs that are not justified or consistent with available information, or if the stock requires a rebuilding program.

The proposed control rule is intended to explicitly account for herring as forage in the ecosystem by limiting F to 80 percent of F MSY when biomass is high and setting it at zero when biomass is low. It is also intended to generate an ABC consistent with specific criteria identified by the Council, including low variation in yield, low probability of the stock becoming overfished, low probability of a fishery shutdown, and catch limits set at a relatively high proportion of MSY. The Council anticipates that short-term negative economic impacts on participants in the herring or lobster fisheries, resulting from a reduced herring harvest in response to low herring biomass, may become a long-term economic benefit for industry participants, especially if the proposed control rule results in low variation in yield, low probability of a fishery shutdown, and low probability of overfishing. Relative to other control rules considered by the Council, the proposed control rule is designed to more effectively balance the goal and objectives of the Herring FMP, including managing the fishery at long-term sustainable levels, taking forage for predators into account to support the ocean ecosystem, and providing a biologically sustainable harvest as a source of revenue for fishing communities and bait for the lobster fishery.

Shortly before the Council took final action on Amendment 8, an updated stock assessment concluded that herring biomass is low, and the probability of overfishing and the stock becoming overfished is high. While not directly applicable to a long-term harvest policy, the Council noted that under herring's current condition of low biomass, setting catch more conservatively than status quo may increase the likelihood of stock growth. In turn, this would have positive impacts on the herring fishery, predators, and predator fisheries.

This rule also proposes prohibiting the use of midwater trawl gear inshore of 12 nautical miles (22 km) from the U.S./Canada border to the Rhode Island/Connecticut border and inshore of 20 nautical miles (37 km) off the east coast of Cape Cod. Specifically, federally permitted vessels would be prohibited from using, deploying, or fishing with midwater trawl gear within the inshore midwater trawl restricted area located shoreward of the 12-nautical mile (22-km) territorial sea boundary from Canada to Connecticut and within thirty-minute squares 114 and 99 off Cape Cod (Figure 1). Midwater trawl vessels would be able to transit the inshore midwater trawl restricted gear area provided gear was stowed and not available for immediate use. The proposed measure would be in addition to the existing prohibition on midwater trawling for herring in Area 1A during June 1 through September 30.

The Council recommended the proposed inshore midwater trawl restricted area to minimize local depletion and user group conflict when midwater trawl vessels harvesting herring overlap with other user groups ( i.e., commercial fisheries, recreational fisheries, ecotourism) that rely on herring as forage and provide inshore conservation benefits. The Council focused on midwater trawl gear to mitigate potential negative socioeconomic impacts on other user groups in response to short duration, high volume herring removals by midwater trawl vessels that are relatively more mobile and capable of fishing in offshore areas than vessels using other gear types. Information to quantify the impact of midwater trawling on other user groups is scarce, so the amendment analyzed the degree of overlap between midwater trawl vessels and other user groups. The proposed measure is intended to incorporate areas with a high degree of overlap between midwater trawl vessels and other user groups throughout the year. Specifically, it incorporates the overlap with predator fisheries in the Gulf of Maine and southern New England throughout the year, as well as the overlap with ecotourism and the tuna fishery in Area 1A during the fall. While overlap with the midwater trawl vessels does not necessarily translate into negative biological impacts on predators, less overlap may reduce potential user conflicts, provided midwater trawl effort does not shift into other areas and generate additional overlap.

The Herring FMP specifies that herring research set-aside (RSA) can equal up to three percent of the sub-annual catch limit for a herring management area. This rule proposes that RSA compensation fishing using midwater trawl gear would be permitted within the inshore midwater trawl restricted area. The Council recommended permitting RSA compensation fishing within the inshore midwater trawl restricted area to help ensure the RSA would be harvested and those funds would be available to support the projects awarded RSA. Vessels engaged in herring RSA compensation fishing typically operate as authorized by an exempted fishing permit (EFP) so they can request exemptions from certain regulations that would otherwise restrict herring harvest. While vessels would be permitted to use midwater trawl gear within the inshore midwater trawl restricted area while RSA compensation fishing, it does not mean that compensations trips would be without restrictions. Terms and conditions of the EFP must be consistent with the Magnuson-Stevens Act, other applicable law, and Herring FMP. Additionally, we would consider whether additional terms and conditions would be required for EFPs to ensure RSA compensation trips do not exacerbate the overlap between midwater trawl vessels and other user groups.

This rule proposes that the inshore midwater trawl restricted area or new closures to address localized depletion and/or user group conflict could be modified or implemented via framework adjustment. The list of framework provisions at § 648.206 already includes closed areas; this amendment would add the inshore midwater trawl restricted area to that list.

The Council's recommendation to prohibit midwater trawling in inshore areas is an allocation decision intended to balance the needs of user groups and provide conservation benefits. Consistent with objectives in the Herring FMP, the proposed measure is intended to facilitate an efficient, fair, and equitable accommodation of social, economic, and ecological factors associated with achieving OY, in part by providing, to the extent practicable, controlled opportunities for participants in other New England and Mid-Atlantic fisheries. Because midwater trawl vessels historically harvested a larger percentage of herring than other gear types and are able to fish offshore, the Council recommended prohibiting them from inshore waters to help ensure herring was available inshore for other user groups and predators of herring. The proposed inshore midwater trawl restricted area is designed to be reasonably large enough to address the overlap between midwater trawl vessels and other user groups and, ultimately, user group conflict in inshore waters. This proposed measure is likely to negatively impact the midwater trawl fleet, with potentially increased trip costs and lower annual catches, but the Council believes that, on balance, the benefits to other user groups, such as potentially reduced trips costs, higher annual catches, and improved safety, outweigh the costs to midwater trawl vessels. The proposed measure may also have biological benefits if moving midwater trawl vessels offshore minimizes catch of river herring and shad, reduces fishing pressure on the inshore component of the herring stock, and helps ensure herring are available to predators. Herring is currently assessed as one stock, but it likely has stock components. Reducing fishing pressure inshore would benefit an inshore stock component. Analyses in Amendment 8 estimate that in recent years approximately 30 percent of the midwater trawl fleet's annualized revenue came from within the proposed inshore midwater trawl restricted area. Negative economic impacts on the midwater trawl fleet may be mitigated if the fleet is able to offset lost revenue from inshore areas with increased revenue from offshore areas. Herring catch limits are currently low, so the fishery has the capacity to harvest the OY. Recent midwater trawl landings (2007-2015) offshore of the proposed midwater trawl restricted area (36,903 mt) are much higher than the Council-recommended OY for 2020 and 2021 (11,621 mt). In the longer-term, the fishery will likely adapt to be able harvest an increased OY, provided vessels are able to locate herring.

We propose the following revision and clarifications to § 648.202(a) under the authority of section 305(d) to the Magnuson-Stevens Act, which provides that the Secretary of Commerce may promulgate regulations necessary to carry out a FMP or the Magnuson-Stevens Act.

First, this rule proposes revising the title from “Purse Seine/Fixed Gear Only Area” to “Midwater Trawl Restricted Area.” Bottom trawl gear, in addition to purse seine and fixed gear, is permitted in the referenced area; only midwater trawl gear is prohibited in the area. The proposed revision is a more accurate description of the referenced area and is necessary to clarify the intent of the regulation.

Second, this rule proposes clarifying that the regulation applies to all federally permitted vessels fishing for herring. The regulation currently applies midwater trawl gear restrictions to vessels fishing for herring. This clarification is necessary to specify that restrictions on fishing for herring with midwater trawl gear only apply to federally permitted vessels and do not apply to vessels with only a state herring permit fishing exclusively in state waters.

Third, the rule proposes clarifying the conditions under which midwater trawl vessels may transit the “Midwater Trawl Restricted Area” described above. Current regulations specify that midwater trawl vessels with a limited access herring permit may transit Area 1A during June through September with midwater trawl gear on board, provided the gear is stowed and not available for immediate use. This rule proposes clarifying that any federally permitted herring vessel may transit Area 1A during June through September, provided midwater trawl gear is stowed and not available for immediate use. The unnecessary addition of a limited access permit requirement to transit Area 1A is likely a byproduct of the impact analysis identifying the number of limited access vessels that would be affected by the prohibition of midwater trawling in Area 1A implemented in Amendment 1 to the Herring FMP.

Lastly, we propose a revision to § 648.200(b)(3) under the authority of section 305(d) to the Magnuson-Stevens Act. This revision would change the reference from “at” § 648.201(a) to “in” § 648.201(a) to be consistent with other regulatory references within § 648.200.

Pursuant to section 304(a)(1)(A) of the Magnuson-Stevens Act, the NMFS Assistant Administrator has made a preliminary determination that this proposed rule is consistent the Magnuson-Stevens Act and other applicable law. In making the final determination, we will consider the data, views, and comments received during the public comment period.

This proposed rule has been preliminarily determined to be not significant for purposes of Executive Order (E.O.) 12866.

An Initial Regulatory Flexibility Analysis (IRFA) was prepared for this proposed rule, as required by section 603 of the Regulatory Flexibility Act (RFA), 5 U.S.C. 603. The IRFA describes the economic impact that this proposed rule would have on small entities, including small businesses, and also determines ways to minimize these impacts.

The IRFA includes this section of the preamble to this rule and analyses contained in Amendment 8 and its accompanying EIS/RIR/IRFA. A copy of the full analysis is available from the Council (see ADDRESSES ). A summary of the IRFA follows.

This action proposes management measures for the herring fishery. A complete description of the reasons why this action is being considered, and the objectives of and legal basis for this action, are contained in the preamble to this proposed rule and are not repeated here.

Effective July 1, 2016, NMFS established a small business size standard of $11 million in annual gross receipts for all businesses primarily engaged in the commercial fishing industry for RFA compliance purposes only (80 FR 81194, December 29, 2015). A commercial fishing business is classified as a small business if it is independently owned and operated, is not dominant in its field of operation, and has combined annual receipts not in excess of $11 million.

This action would affect all permitted herring vessels; therefore, the direct regulated entity is a firm that owns at least one herring permit. There are many firms that hold an open-access (Category D) herring permit. These firms harvest only a small fraction of herring; furthermore, they are minimally affected by the regulations.

As of June 1, 2018, there were 862 firms (852 small) that held at least one herring permit. There were 126 (123 small) active firms that held at least one herring permit. There were 101 (94 small) firms that held at least one limited access (Categories A, B, C) herring permit or a Category E open access herring permit. There were 53 (50 small) firms that held a limited access or Category E herring permit and were active in the herring fishery. Table 1 characterizes “gross receipts” and “herring receipts” for firms that held a limited access or Category E open access herring permit. Table 2 characterizes “gross receipts” and “herring receipts” for firms that held a limited access or Category E open access herring permit and were active in the herring fishery. In both tables, the small entities are further characterized by gear type to facilitate comparisons. There are fewer than three large entities that use midwater trawl gear, so the description of the large entities is not disaggregated to gear type to preserve confidentiality under the Magnuson-Stevens Act. Table 3 characterizes “gross receipts” and “herring receipts” for firms that held a herring permit and Table 4 characterizes “gross receipts” and “herring receipts” for firms that held a herring permit and were active in the herring fishery. Tables 3 and 4 include firms with Category D open access herring permits that would be minimally impacted by this action.