In light of strains in economic conditions related to the COVID event and stress in U.S. financial markets, the agencies have taken a number of actions intended to: (i) Restore market functioning and support the flow of credit to households, businesses, and communities and (ii) increase flexibility and reduce regulatory reporting burden. Among those actions, the agencies have issued a number of rules and supervisory guidance communications designed to mitigate the consequences of the COVID event and to facilitate the safe and effective operations of banking organizations. 1

Community banking organizations have played an instrumental role in the nation's financial response to the COVID event, and many have experienced significant balance sheet growth as a result of the COVID event and the policy response to the event. Policies encouraging banks to work with their customers, such as the Small Business Administration's (SBA's) Paycheck Protection Program (PPP)  2 and the interagency statement encouraging financial institutions to work with borrowers affected by the COVID event, 3 have resulted in much-needed emergency liquidity being offered to small businesses, including, but not limited to, individuals operating sole proprietorships or acting as independent contractors, certain franchisees, nonprofit corporations, veterans organizations, Tribal businesses, and households. As a result, during the COVID event many community banking organizations have experienced an unexpected and sharp increase in assets, swelling their balance sheets in some cases by more than 25 percent. 4 Much of this growth, particularly that related to participation in PPP, is expected to be temporary.

PPP loans are a special asset class of government-guaranteed assets designed to incentivize businesses to keep workers on payroll. To encourage lending to small businesses through the SBA's PPP, the Board established the PPP Liquidity Facility on April 9, 2019. 5 Under the PPP Liquidity Facility, each of the Federal Reserve Banks may extend non-recourse loans to banking organizations that pledge PPP loans, which continue to be assets on the balance sheets of banking organizations, as collateral. 6 The last day for lenders to make a PPP loan was August 8, 2020, 7 and depending on SBA determinations, a significant amount of PPP debt forgiveness may occur in the fourth calendar quarter of 2020 or early in the first calendar quarter of 2021. However, as a result of the PPP loan forgiveness process, many PPP-related assets remain on community banking organizations' balance sheets. The SBA recently released a simpler loan forgiveness application for PPP loans of $50,000 or less, which will likely result in PPP-related assets being removed from community banking organization's balance sheets at a faster rate. 8

According to SBA statistics, collectively all lenders with less than $10 billion in assets originated 2,745,204 PPP loans totaling $233.7 billion, which buttressed the paychecks of more than 26 million American workers and represented more than 52.6 percent of the number of loans originated under the program. 9 This data suggests that the percentage of PPP loans originated by community banking organizations far exceeds those organizations' market share as a percentage of total banking system assets illustrating the outsized impact that participation in the PPP has had on community banking organizations. 10

Community banking organizations are subject to a wide range of statutory requirements, regulations, and reporting requirements predicated on their risk profile and asset size. 11 Due to their response to the COVID event, many community banking organizations have been, or may soon be, pushed over an asset threshold that could subject them to additional regulation or to additional reporting requirements. 12 In the absence of regulatory burden relief, complying with these new or more stringent regulatory standards, especially if the community banking organization's assets are expected to be above a threshold for a limited time, would impose significant transition and compliance costs on community banking organizations. This interim final rule gives community banking organizations more time to either reduce their balance sheets by shedding temporary growth, or to prepare for higher regulatory and reporting standards.

A number of regulations contain asset-based thresholds that determine whether a banking organization is required to comply with a given regulatory requirement or provide a mandatory regulatory report, or whether a banking organization is otherwise eligible for a particular regulatory treatment. Asset-based regulatory thresholds are meant to ensure that the regulatory requirements applicable to a banking organization are appropriate, given the banking organization's likely risk profile and, in some cases, the potential risk that the banking organization poses to U.S. financial stability.

As discussed above, many community banking organizations have experienced an unexpected and sharp increase in assets since the beginning of the COVID event. This rapid growth has caused the assets of certain community banking organizations to rise above certain asset-based thresholds in the agencies' regulations, and may cause other community banking organizations to do so in the near future. As noted, much of this growth, especially growth related to PPP lending, is likely to be temporary, and the increase in assets currently held by a community banking organization may not reflect a change in the organization's longer-term risk profile.

In the absence of regulatory burden relief, community banking organizations that experience an increase in assets above one or more regulatory thresholds would face significant transition costs necessary to comply with new or more stringent regulatory and reporting standards. Given the rapid and unexpected nature of community banking organization asset growth in 2020, many community banking organizations are unlikely to have planned for these transition costs. Further, to the extent this asset growth is temporary, it does not reflect changes in community banking organizations' risk profiles, and many community banking organizations that cross above asset-based regulatory thresholds could fall back below the thresholds. Additionally, community banking organizations that are approaching certain asset thresholds in the agencies' regulations may become reluctant to continue lending if this would subject them to new or more stringent regulatory and reporting standards. Therefore, the agencies believe it is appropriate to provide temporary regulatory burden relief to community banking organizations that have risen above, or will rise above, certain asset-based regulatory thresholds. The relief should promote further lending and avoid potentially temporary, but significant, transition costs that community banking organizations would otherwise face to comply with new standards.

In order to provide this regulatory burden relief, the agencies are issuing this interim final rule to temporarily change, for a number of asset-based regulatory thresholds, the date as of when a community banking organization measures its assets for the purpose of determining whether it exceeds the threshold (referred to as the “measurement date”). Specifically, the interim final rule will permit community banking organizations, through December 31, 2021, to determine the applicability of certain asset-based regulatory thresholds using asset data as of December 31, 2019, if the organization's assets as of that date were less than its assets on the date as of which the applicability of a given threshold would normally be determined. This means that asset growth in 2020 or 2021 will not trigger new regulatory requirements for these community banking organizations until January 1, 2022, at the earliest. This temporary regulatory burden relief reflects that much of the asset growth since the start of the COVID event, especially growth related to PPP lending, is generally expected to be temporary in nature and therefore likely does not reflect changes in community banking organizations' risk profile.

The agencies are limiting the regulatory burden relief in this interim final rule to banking organizations that had less than $10 billion in assets as of December 31, 2019. Banking organizations with under $10 billion in assets likely have fewer resources available to prepare and comply with previously unanticipated regulatory requirements, especially during a time of economic uncertainty and disruption. Further, as discussed above, community banking organizations have originated a disproportionately large percentage of PPP loans, as compared with the organizations' market share; therefore, as compared to larger organizations, a larger portion of any increase in asset size at community banking organizations is likely to be temporary, and is therefore less likely to reflect a change in an organization's risk profile or business activities.

This temporary regulatory burden relief applies to the following asset-based regulatory thresholds:  13

As a result of this temporary regulatory burden relief, a community banking organization that was below one of the above-listed asset thresholds as of December 31, 2019, generally will be deemed to remain below that threshold through the end of 2021, plus any applicable transition period provided by the regulation. For example, the Board's rules regarding debit card interchange fees and routing include an exemption for small issuers, which provides that a debit card issuer is not required to comply with certain requirements with respect to an electronic debit transaction if the issuer holds the account that is debited and the issuer, together with its affiliates, has assets of less than $10 billion as of the end of the calendar year preceding the date of the electronic debit transaction. 15 Pursuant to this interim final rule, an issuer that, together with its affiliates, had assets of $9.9 billion as of December 31, 2019, $10.1 billion as of December 30, 2020, and $10.1 billion as of December 31, 2021, would be deemed to remain below the $10 billion threshold for purposes of this rule through the end of 2021, at which point the six-month transition period provided by 12 CFR 235.5(a)(3) would begin. Therefore, this issuer would not be required to comply with the Board's rules regarding debit card interchange fees and routing until July 1, 2022.

The temporary regulatory burden relief provided by this interim final rule applies through the end of 2021, so that a community banking organization within the scope of the temporary regulatory burden relief will not be required to comply with the regulatory or reporting requirements covered by this interim final rule until the beginning of 2022 (plus any applicable transition period), 16 at the earliest, assuming that the organization remains above the relevant threshold.

The agencies have determined not to amend in this interim final rule a provision in the agencies' regulations regarding section 13 of the Bank Holding Company Act (BHC Act) (commonly known as the Volcker Rule). The Volcker Rule generally applies to “banking entities,” which include insured depository institutions, their affiliates, and any company that controls an insured depository institution, among other companies. 17 For purposes of the Volcker Rule, the definition of “insured depository institution” excludes an insured depository institution if the insured depository institution, and every entity that controls it, has total consolidated assets equal to or less than $10 billion, as long as the total consolidated trading assets and liabilities of the insured depository institution, and every entity that controls it, are equal to or less than five percent of the insured depository institution's total consolidated assets. 18

The agencies have determined that it is not necessary to amend the Volcker Rule regulations in order to provide temporary regulatory burden relief to a bank or any of its subsidiaries or affiliates that become a “banking entity” for purposes of the Volcker Rule because the assets of the bank or any entity that controls it increase above the $10 billion asset threshold. Under section 13 of the BHC Act and the Board's rule implementing the conformance period in the Volcker Rule, 19 an entity that newly becomes a “banking entity” for purposes of the Volcker Rule has two years to come into compliance with the requirements of the Volcker Rule, and may seek an extension of the conformance period from the Board. 20 A banking entity that ceases to be a banking entity during that period—for example by virtue of reducing its asset size—would no longer be subject to the Volcker Rule.

The regulation implementing the statutory Volcker Rule conformance period have not yet been updated to account for the change in the definition of “banking entity” implemented by EGRRCPA. However, the Board notes that because the changes EGRRCPA made to the Volcker Rule were effective immediately upon enactment, the conformance period regulation should be read in a way that is consistent with EGRRCPA and takes into account the amendments it made to the definition of “banking entity.” Under this interpretation, a company may become a new banking entity by virtue of crossing the $10 billion asset threshold under the definition of “banking entity,” as amended by EGRRCPA. Therefore, for the sake of clarification, the Board confirms that a company that was not a banking entity, or a subsidiary or affiliate of a banking entity, and then becomes a banking entity for purposes of the Volcker Rule because it, or any subsidiary or affiliate, exceeds $10 billion in assets, will qualify for the conformance period described in the Volcker Rule and the Board's implementing regulations. 21 This interpretation covers any company that crossed the $10 billion asset threshold after the enactment of EGRRCPA on May 24, 2018, including a company that crossed the threshold after December 31, 2019.

The temporary regulatory burden relief described above is generally available to community banking organizations that meet the requirements described above. However, there may be limited instances in which such regulatory burden relief would be inappropriate. In order to address certain such situations, the agencies may use existing reservations of authority in their respective regulations to require a community banking organization to comply with a given regulatory requirement that would otherwise not be applicable to the organization pursuant to the relief provided by this interim final rule. Additionally, with respect to each of the asset-based regulatory thresholds that did not previously include a reservation of authority, the interim final rule creates a new reservation of authority pursuant to which an agency may determine that a community banking organization is not eligible to use the relief provision with respect to one or more of the asset thresholds covered by the rule if the relevant agency makes an institution-specific determination that permitting the institution to determine its assets in accordance with that relief provision would not be appropriate based on the organization's risk profile. 22 23 When making any such determination, the agencies would consider all relevant factors, including the extent of asset growth of the community banking organization since December 31, 2019; the causes of such growth, including whether growth occurred as a result of mergers or acquisitions; whether such growth is likely to be temporary or permanent; whether the community banking organization has become involved in any additional activities since December 31, 2019, and, if so, the risk of such activities; the asset size of any parent companies; and the type of assets held by the community banking organization. 24

In FR Doc. 2020-18552, entitled “Amortization Limits,” beginning on page 60691 in the Federal Register of Monday, September 28, 2020, make the following corrections;

1. On page 60693, in the second column, the heading for section V is corrected to read “Regulatory Flexibility Act and Major Rule Conclusion.”

2. On page 60693, in the second column, add paragraph at the end of section V to read as follows:

This document amends the Income Tax Regulations (26 CFR part 1, as revised April 1, 2020) under section 1031 (current regulations). The amendments to the current regulations (final regulations) implement statutory amendments to section 1031 made by section 13303 of Public Law 115-97, 131 Stat. 2054 (2017), commonly referred to as the Tax Cuts and Jobs Act (TCJA). Section 13303(c) of the TCJA amended section 1031 to limit its application to exchanges of real property for exchanges completed after December 31, 2017, subject to a transition rule for certain exchanges in which property had been transferred before January 1, 2018. To implement these statutory changes, the final regulations limit the application of the like-kind exchange rules under section 1031 to exchanges of real property, add a definition of real property, and adapt an existing incidental property exception to apply to a taxpayer's receipt of personal property that is incidental to real property the taxpayer receives in the exchange.

As amended by the TCJA, section 1031(a) provides that no gain or loss is recognized on the exchange of real property held for productive use in a trade or business or for investment (relinquished real property) if the relinquished real property is exchanged solely for real property of a like kind that is to be held either for productive use in a trade or business or for investment (replacement real property). The legislative history to the TCJA amendments to section 1031 provides that Congress “intended that real property eligible for like-kind exchange treatment under present law will continue to be eligible for like-kind exchange treatment under the [amended] provision.” H.R. Conf. Rept. 115-466, at 396, fn. 726 (2017) (Conference Report). However, left unchanged by the TCJA, section 1031(b) provides that a taxpayer must recognize gain to the extent of money and non-like-kind property the taxpayer receives in an exchange.

The need to determine whether the relinquished real property and the replacement real property are of a like kind continues to exist after the changes to section 1031 made by the TCJA. Current § 1.1031(a)-1(b) provides that “like kind” refers to the nature or character of the real property and not to its grade or quality. The fact that any real property involved is improved or unimproved is not material in determining whether real property is of like kind. Under current § 1.1031(a)-1(c), examples of exchanges of real property of a like kind include an exchange of a leasehold interest in a fee with 30 years or more to run for real estate.

Under section 1031(a)(3), unchanged by the TCJA, real property a taxpayer receives in an exchange is not of like-kind to the relinquished property unless, within 45 days after the taxpayer's transfer of the relinquished real property, the real property is identified as replacement real property to be received in the exchange. Current § 1.1031(k)-1(c)(4) provides a limit on the number of properties, or the fair market value of the properties, a taxpayer may identify to meet the requirements of section 1031(a)(3). However, under current § 1.1031(k)-1(c)(5), property is disregarded in evaluating the identification rules if it is incidental to a larger item of property and therefore, is not treated as property separate from the larger item. Property is incidental to a larger property if, in standard commercial transactions, the property is typically transferred with the larger item of property, and the aggregate fair market value of all of the incidental property does not exceed 15 percent of the aggregate fair market value of the larger item of property.

Under current § 1.1031(k)-1(f)(1) and (2), if a taxpayer actually or constructively receives money or non-like-kind property for the relinquished property before the taxpayer receives like-kind replacement real property, the transaction is a sale or taxable exchange and not a like-kind exchange, even though the taxpayer may ultimately receive like-kind replacement real property. Current § 1.1031(k)-1(g)(2) through (5) provides safe harbors, the use of which results in a taxpayer not being considered in actual or constructive receipt of the consideration for the relinquished property.

Under current § 1.1031(k)-1(g)(4)(i), in the case of a taxpayer's transfer of relinquished property involving a qualified intermediary, the determination of whether the taxpayer is in actual or constructive receipt of money or non-like-kind property is made as if the qualified intermediary is not the agent of the taxpayer. However, current § 1.1031(k)-1(g)(4)(i) applies only if the agreement between the taxpayer and the qualified intermediary expressly limits the taxpayer's rights to receive, pledge, borrow, or otherwise obtain the benefits of money or non-like-kind property held by the qualified intermediary. Current § 1.1031(k)-1(g)(7) lists items received in an exchange that are disregarded in determining whether a taxpayer's rights to receive, pledge, borrow, or otherwise obtain the benefits of money or non-like-kind property are expressly limited.

On June 12, 2020, the Department of the Treasury (Treasury Department) and the IRS published a notice of proposed rulemaking (REG-117589-18) in the Federal Register (85 FR 35835) containing proposed regulations under section 1031 (proposed regulations). The Treasury Department and the IRS received 21 written comments in response to the notice of proposed rulemaking. All comments were considered and are available at http://www.regulations.gov or upon request. A public hearing on the proposed regulations was neither requested nor held. After full consideration of the comments received, this Treasury decision adopts the proposed regulations with modifications in response to such comments, as described in the Summary of Comments and Explanation of Revisions following this Background.

The final regulations retain the basic approach and structure of the proposed regulations, with certain revisions. In particular, the final regulations revise the definition of “real property” in the proposed regulations to provide that property is classified as real property for section 1031 purposes if, on the date it is transferred in an exchange, the property is real property under the law of the State or local jurisdiction in which that property is located. The final regulations also revise the proposed definition of real property to eliminate, with regard to both tangible and intangible properties, any consideration of whether the particular property contributes to the production of income unrelated to the use or occupancy of space (referred to as the “purpose or use test,” as defined in part II.B.1 of this Summary of Comments and Explanation of Revisions). Finally, in § 1.1031(a)-3(a)(7), the final regulations retain the language of the proposed regulations clarifying that the rules of these final regulations apply only for purposes of section 1031, and that no inference is intended with respect to the classification or characterization of property for other purposes of the Code.

Section 1031 does not provide a definition for the term “real property.” As noted in part II of the Background section, the Conference Report provides that Congress intended real property that was eligible for like-kind exchange treatment prior to the enactment of the TCJA to continue to be eligible for like-kind exchange treatment after its enactment. See Conference Report, at 396, fn. 726. Specifically, with regard to the applicability of State law for real property determinations, the Conference Report sets forth the following example: “a like-kind exchange of real property includes an exchange of shares in a mutual ditch, reservoir, or irrigation company described in section 501(c)(12)(A) [of the Code] if at the time of the exchange such shares have been recognized by the highest court or statute of the State in which the company is organized as constituting or representing real property or an interest in real property” (Conference Report Example). Id. Accordingly, due to the absence of a statutory definition for the term “real property” in section 1031, the Treasury Department and the IRS based the proposed definition of real property upon the Conference Report Example.

Under proposed § 1.1031(a)-3(a)(1), State law controls whether shares in a mutual ditch, reservoir, or irrigation company are real property for purposes of section 1031. Aside from those enumerated asset types, the proposed regulations provide that State or local law definitions were not controlling for purposes of determining whether property is real property for section 1031 purposes. See proposed § 1.1031(a)-3(a)(1). The intent of the Treasury Department and the IRS in proposing a rule that expressly applied State or local law in this manner was to provide a definition of real property for purposes of section 1031 “in a manner consistent with the scope described by Congress in the Conference Report.” See the preamble to the proposed regulations at 85 FR 35836.

Commenters generally critiqued the apparent scope of the application of State and local law in the proposed regulations for purposes of defining real property. These commenters contended that, prior to enactment of the TCJA, State and local law classification of a property often was the determining factor in characterizing property as real or personal under section 1031. With regard to the Conference Report Example, the commenters asserted that the reference to “shares in a mutual ditch, reservoir, or irrigation company” merely constituted a set of examples that Congress provided to broadly indicate that real property eligible for like-kind treatment under law prior to enactment of the TCJA will continue to be eligible following the TCJA's amendment to section 1031. Consequently, the commenters recommended that the final regulations conform to that intent by expanding the rules to rely significantly, or wholly, on State-law classifications for all assets, rather than limiting such reliance to shares in a mutual ditch, reservoir, or irrigation company. Additionally, commenters suggested that the final regulations should include multiple examples of instances in which taxpayers may rely on State or local law for purposes of classifying property as real or personal.

In light of these comments, the Treasury Department and the IRS have reconsidered the degree to which State or local law determinations of real property should be controlling for defining real property for section 1031 purposes. As a result of that reconsideration, the final regulations provide generally that property is real property for purposes of section 1031 if, on the date it is transferred in an exchange, that property is classified as real property under the law of the State or local jurisdiction in which that property is located (State and local law test). The State and local law test applies to both tangible and intangible property classifications.

However, consistent with Congressional intent that “real property eligible for like-kind exchange treatment” under the law in effect prior to enactment of the TCJA will continue to be eligible for like-kind exchange treatment after enactment of the TCJA, property ineligible for like-kind exchange treatment prior to enactment of the TCJA remains ineligible, including real property that was excluded from the application of section 1031. See Conference Report at 396, fn. 726. Prior to amendment by the TCJA, former section 1031(a)(2) explicitly excluded certain assets from the application of section 1031. Accordingly, the final regulations exclude from the definition of real property the intangible assets listed in section 1031(a)(2) prior to its amendment by the TCJA, regardless of the classification of the property under State or local law, because such property never was “real property eligible for like-kind exchange treatment” prior to enactment of the TCJA. Conference Report at 396, fn. 726 (emphasis added).

In summary, under the final regulations, property is classified as real property for purposes of section 1031 if the property is (i) so classified under the State and local law test, subject to certain exceptions, (ii) specifically listed as real property in the final regulations, or (iii) considered real property based on all the facts and circumstances under the various factors provided in the final regulations. A determination that property is personal property under State or local law does not preclude the conclusion that property is real property as specifically listed in § 1.1031(a)-3(a)(2)(ii) or (a)(2)(iii)(B) or under the factors listed in § 1.1031(a)-3(a)(2)(ii)(C) or (a)(2)(iii)(B).

Multiple commenters who objected to the scope of State and local law determinations under the proposed regulations also asserted that the approach in the proposed regulations replicated the analysis in CCA 201238027 (April 17, 2012), particularly with regard to one of the fact patterns addressed therein regarding a steam turbine (Case 3). In Case 3, the Chief Counsel Advice disregarded State law that characterized the steam turbine as real property and held that the steam turbine was not of like kind to land because it did not have the same nature or character as land. Commenters objected to this conclusion, contending that the State law classification of the steam turbine as real property should be respected and, based on that classification, the steam turbine and the undeveloped land should be considered like-kind property.

These final regulations do not address whether exchanged properties are of like kind to one another. As a consequence of expressly including the State and local law test in the final regulations, the final regulations do not adopt the reasoning of CCA 201238027 to the extent it suggests that State or local law is disregarded in determining whether property is real property under section 1031.

In connection with the State and local law test under the final regulations, the Treasury Department and the IRS have considered numerous additional comments. For instance, one commenter recommended that any asset determined to be essentially the same as an asset classified as a real property for purposes of section 1031 also should automatically be treated as real property for purposes of section 1031. For example, if one asset (Property A) is classified as real property under the State or local law of State X, an asset located in a different jurisdiction (Property B) that is essentially the same as Property A also should be classified as real property for section 1031 purposes, irrespective of whether Property B is classified as real property under (i) the law of the State or local jurisdiction in which Property B is located or (ii) the real property definition and factors under the proposed regulations.

The final regulations do not adopt this suggestion. First, the Treasury Department and the IRS have determined that the “essentially the same” standard recommended by the commenter would be difficult for taxpayers to apply and the IRS to administer with certainty. In addition, the analysis advocated by the commenter is conceptually similar to the analysis applied by CCA 201238027, which, based on several other comments, the Treasury Department and the IRS have determined to be inconsistent with the State and local law test provided in the final regulations.

A commenter also requested that the final regulations classify as real property all property that was treated as real property for section 1031 purposes at any time between May 22, 2008, and the effective date of the TCJA. May 22, 2008, is the effective date of former section 1031(i), which treats shares in certain mutual ditch companies as real property for section 1031 purposes. The commenter reasoned that, because the treatment of mutual ditch company shares has been preserved by the proposed regulations following the enactment of the TCJA, all property classified as real property as of May 22, 2008, also should be classified as real property under the final regulations.

The final regulations do not adopt the commenter's suggestion. The Treasury Department and the IRS have determined that a rule that fixes property classifications under State or local laws as of a date certain would add complexity as the post-enactment period of the TCJA continues to lengthen. Given that the final regulations have broadened the applicability of State and local real property classification for purposes of section 1031 qualification, the Treasury Department and the IRS have determined that the perpetually increasing complexity of such a rule would significantly outweigh any potential benefits of the commenter's suggestion.

Under proposed § 1.1031(a)-3(a)(1), real property includes land and improvements to land, and improvements to land include both inherently permanent structures and the structural components of inherently permanent structures. Inherently permanent structures are buildings or other structures that are permanently affixed to real property and that will ordinarily remain affixed for an indefinite period of time. See proposed § 1.1031(a)-3(a)(2)(ii)(A). A list of structures that qualify as buildings or as other inherently permanent structures is provided in proposed § 1.1031(a)-3(a)(2)(ii)(B) and (C). A structural component is any distinct asset, as defined in the proposed regulations, that is a constituent part of, and integrated into, an inherently permanent structure. See proposed § 1.1031(a)-3(a)(2)(iii)(A). Proposed § 1.1031(a)-3(a)(2)(iii)(B) provides examples of items that are structural components under section 1031.

The proposed regulations also consider the function of property in determining whether the property is real property for section 1031 purposes (purpose or use test). In particular, neither tangible property, such as machinery or equipment, nor intangible property, such as licenses or permits, is classified as real property under the proposed regulations if the property contributes to the production of income unrelated to the use or occupancy of space, irrespective of any other factor under the proposed regulations. See proposed §§ 1.1031(a)-3(a)(2)(ii)(D) (regarding machinery and equipment) and 1.1031(a)-3(a)(5) (regarding intangible property). For example, a gas line installed for the sole purpose of providing fuel to fryers and ovens in a restaurant is not a constituent part of an inherently permanent structure and therefore not real property under the proposed regulations. See also proposed § 1.1031(a)-3(b)(12) (providing a similar example with regard to a license to operate a casino business, which is an intangible property). The proposed regulations requested comments on whether the purpose or use test is appropriate to use as the basis for determining whether property qualifies as real property for section 1031 purposes.

Commenters uniformly disagreed with the purpose or use test and advocated that it be omitted from the final regulations. According to these commenters, the purpose or use test improperly narrows the scope of the definition of real property for section 1031 purposes and, if adopted in the final regulations, would treat certain types of property that have historically been treated as real property for section 1031 purposes as personal property contrary to the directive of Congress in the Conference Report. See Conference Report, at 396, fn. 726.

In addition, commenters contend that machinery and equipment should not be disqualified as an inherently permanent structure, and thus as real property, merely because the machinery or equipment is used in the production of income unrelated to use or occupancy of space. Instead, the commenters asserted that if such property is inherently permanent, the property should be treated as real property for purposes of section 1031, regardless of its purpose or use or the type of income it generates. Therefore, according to the commenters, permanently affixed items such as gas lines, cooling units, and piping should be treated as real property without regard to whether those items comprise part of an income-generating structure. The commenters also recommended that the final regulations provide revised examples to reflect the position that the real property characterization of a particular asset is based on the degree to which the item is permanently affixed and not on its purpose and use.

One commenter also emphasized that the purpose or use test would prove burdensome for small businesses and individual taxpayers because that test would require them to expend resources on cost segregation studies to determine which items of machinery and equipment are personal and which are real property. According to the commenter, such expenses would be eliminated if real property determinations are based on permanent affixation and not purpose or use. Finally, the commenter noted that inclusion of the purpose or use test in the final regulations would be problematic because neither section 1031 nor the regulations under section 1031 provide a definition of machinery. However, the term “machinery” is not necessary if, as this commenter recommended, real property determinations for an asset are based on the degree to which the asset is permanently affixed and not its purpose or use.

The Treasury Department and the IRS agree with the commenters and have revised the final regulations to eliminate a purpose or use test for tangible property. Consequently, with regard to tangible property, if such property is permanently affixed to real property and will ordinarily remain affixed for an indefinite period of time, the property is generally an inherently permanent structure and thus real property for section 1031 purposes, irrespective of the purpose or use of the property or whether it contributes to the production of income. A structural component likewise is characterized as real property under the final regulations if it is integrated into an inherently permanent structure, regardless of whether the structural component contributes to the production of income. Accordingly, under the final regulations, items of machinery and equipment are characterized as real property if they comprise an inherently permanent structure, a structural component, or are real property under the State or local law test.

The Treasury Department and the IRS received no comments regarding the application of the proposed purpose or use test to real property classifications of intangible property. However, the Treasury Department and the IRS have determined that many of the comments pertaining to the purpose or use test with regard to tangible property equally apply to classifications of intangible property. As a result, under the final regulations, whether intangible property produces or contributes to the production of income other than consideration for the use or occupancy of space is not considered in determining whether intangible property is real property for section 1031 purposes. However, the purpose of the intangible property remains relevant to the real property determination.

Proposed § 1.1031(a)-3(a)(2)(ii)(A) defines the term “inherently permanent structures” to mean “any building or other structure that is a distinct asset (within the meaning of [proposed § 1.1031(a)-3(a)(4)]) and is permanently affixed to real property and that will ordinarily remain affixed for an indefinite period of time.” One commenter highlighted that the proposed regulations do not define the phrases “permanently affixed” or “indefinite period of time” for purposes of defining “inherently permanent structure,” other than providing that affixation to real property may be accomplished by weight alone. See proposed § 1.1031(a)-3(a)(2)(ii)(C). The commenter noted that § 1.856-10(d)(2)(i) provides that, “[i]f the affixation is reasonably expected to last indefinitely based on all the facts and circumstances, the affixation is considered permanent.” As a result, the commenter recommended that the final regulations clarify the meaning of these terms, including by adding the above-quoted language in § 1.856-10 to explain the phrase “permanently affixed.”

The Treasury Department and the IRS agree with the commenter's suggestion to incorporate the language provided in § 1.856-10(d)(2)(i) to provide additional clarity regarding the meaning of “permanently affixed” and have revised the final regulations accordingly.

Proposed § 1.1031(a)-3(a)(2)(ii)(C) specifically lists offshore drilling platforms and oil and gas pipelines as inherently permanent structures, and therefore such property is defined as real property. The proposed regulations also provide an example addressing a pipeline transmission system comprised of underground pipelines, isolation valves and vents, pressure control and relief valves, meters, and compressors. See proposed § 1.1031(a)-3(b)(10) (Example 10). Example 10 concludes that the meters and compressors are not real property because (i) they are not time consuming and expensive to install and remove from the pipelines, (ii) they are not designed specifically for the particular pipelines for which they are a part, and (iii) their removal does not cause damage to the asset or the pipelines if removed. Based on the same analysis, Example 10 concludes that isolation valves and vents, and pressure control and relief valves are real property for section 1031 purposes.

One commenter suggested that the final regulations should remove the adjective “drilling” from “offshore drilling platform” as listed as an inherently permanent structure in proposed § 1.1031(a)-3(a)(2)(ii)(C). For support, the commenter stated that an offshore platform used for production is structurally similar to an offshore platform used for drilling, and therefore the term should be appropriately broadened. As so modified, the term “offshore platform” would cover both offshore drilling platforms and offshore production platforms.

The commenter also provided additional recommendations regarding assets used in an oil and gas business. For example, the commenter suggested that the final regulations should explicitly provide that underground and above-ground pipelines are real property for section 1031 purposes. The commenter recommended that the final regulations characterize meters and compressors as real property. In contending that Example 10 provided an incorrect conclusion, the commenter explained that meters and compressors generally require substantial amounts of time and money to prepare, construct, and place in service due to unique circumstances affecting individual pipelines.

The Treasury Department and the IRS have clarified the final regulations based on the commenter's recommendations. As an initial matter, the final regulations delete “drilling” from the term “offshore drilling platform,” as listed in proposed § 1.1031(a)-3(a)(2)(ii)(C). The Treasury Department and the IRS agree that an offshore platform used for production likewise should be characterized as an inherently permanent structure because such property is structurally similar to an offshore platform used for drilling.

In addition, the final regulations contain a revised version of Example 10, renumbered as Example 9, to clarify the analysis and conclusions in the proposed example. With regard to an above-ground pipeline, an oil and gas pipeline is listed property in proposed § 1.1031(a)-3(a)(2)(ii)(C) and is therefore real property, regardless of whether above or below ground. Whether particular meters or compressors are real property must be determined by their unique facts and circumstances. If under different circumstances the meters or compressors described in proposed Example 10, now Example 9, required substantial amounts of time and money to prepare, construct, and place in service due to unique circumstances affecting individual pipelines, the components would be real property for section 1031 purposes. Example 9 in the final regulations illustrates these rules.

One commenter requested that the final regulations expressly list as real property installed appliances (also referred to as “appliances in place”), including refrigerators, stoves, dishwashers, and microwave ovens. The commenter explained that, in certain regions of the United States, residential real property generally is sold with the appliances in place as part of the sale. The commenter further stated that, in many like-kind exchanges of one-family rental properties, sellers (i) consider the appliances, furniture, and electrical fixtures remaining in the property to be part of the real property transaction, and (ii) count such items of property towards the amount of replacement property that must be acquired to avoid gain recognition under section 1031.

One commenter recommended adding sheds and carports to the list of assets that are expressly included as buildings in proposed § 1.1031(a)-3(a)(2)(ii)(B). The commenter contended that such structures generally take the form of buildings and, therefore, a specific listing as a building under the final regulations would increase certainty regarding exchanges involving such assets.

Another commenter suggested that proposed § 1.1031(a)-3(a)(2)(iii)(A) be revised to specifically list as structural components Wi-Fi systems, distributed antenna systems, and other integrated systems that may be installed in buildings to transmit and receive wireless signals and cellular service. The commenter asserted that such integrated systems are installed in buildings and inherently permanent structures, and often are as essential to the use of buildings as heating and electricity. Additionally, the commenter emphasized that such integrated systems generally require that the taxpayer hold a real property interest in conjunction with its installation of the system, and therefore should satisfy the definition of a structural component under the proposed regulations.

One commenter recommended that “trade fixtures” be expressly listed as real property under the final regulations. The commenter noted that such items are semi-permanently affixed to real property and perform or support the performance of functions (including manufacturing, cooking, and decorative lighting) unrelated to basic building functions. Additionally, the commenter asserted that trade fixtures have historically been treated as real property for State law purposes, except in instances in which there is a plan to remove or relocate them to a different property.

After consideration of the commenters' recommendations, the Treasury Department and the IRS have determined that the final regulations should not specifically list any of these suggested assets as real property for purposes of section 1031. The final regulations are intended to provide tests under which taxpayers can evaluate the particular facts and circumstances of the property in question to determine with certainty whether particular property is characterized as real or personal property. To limit complexity of the final regulations, the characterization of the above-listed items in this part II.E is most appropriately determined based on the application of the State and local law test or the various factors in the final regulations.

Specifically, with regard to installed appliances, whether a seller considers an item transferred with real property to be part of the real property transaction is not a relevant factor in determining whether the item is real property for section 1031 purposes. Movable items, such as furniture, are personal property irrespective of the terms of the sales contract for the real property that is the subject of the sale. Those items, however, may be incidental personal property that, under the final regulations, is disregarded in determining whether a taxpayer's rights to receive, pledge, borrow, or otherwise obtain the benefits of money or non-like-kind property held by a qualified intermediary are expressly limited as provided in § 1.1031(k)-1(g)(6).

One commenter requested clarification regarding whether carpeting in an office building, or other real property held for productive use in a trade or business or for investment, is considered real property or personal property under the final regulations. Another commenter inquired whether wires installed within the walls of an office building are real property for section 1031 purposes if the wires were installed specifically for computer workstations that produce income for the business. The commenter acknowledged that the proposed regulations provide that wiring is a structural component, and therefore real property for purposes of section 1031, provided the wiring is a constituent part of, and integrated into, an inherently permanent structure.

The Treasury Department and the IRS appreciate the commenters' requests for clarification regarding the qualification of carpeting and wiring as inherently permanent structures or structural components. However, such qualification would be dependent upon a facts-and-circumstances analysis unique to the specific carpeting or wiring, as well as the classification of such items under applicable State or local law. As a result, the final regulations do not adopt the commenters' suggestions, but instruct taxpayers to apply the State and local law test or the various factors in the final regulations.

The proposed regulations provide that an interest in real property, including fee ownership, co-ownership, a leasehold, an option to acquire real property, an easement, or a similar interest, is real property for purposes of section 1031. See proposed § 1.1031(a)-3(a)(1). One commenter suggested that this list of items be revised to include stock held by a person as a tenant-stockholder in a cooperative housing corporation. The commenter noted that the term “interests in real property” for purposes of regulations regarding real estate investment trusts (REITs) includes stock held by a person as a tenant-stockholder in a cooperative housing corporation. See § 1.856-3(c).

One commenter requested that rights to develop land be expressly listed as real property in final § 1.1031(a)-3(a)(1). For support, the commenter emphasized that the IRS has published a private letter ruling that an exchange of a fee interest in real estate for development rights in real estate qualified as a like-kind exchange under section 1031. Accordingly, the commenter concluded that development rights should be specifically listed as real property in the final regulations.

The Treasury Department and the IRS agree with the commenters' recommendations regarding stock in a cooperative housing corporation and land development rights. The intangible assets described in this part II.G have historically been characterized as real property. Accordingly, the final regulations have been revised to expressly list those intangible assets.

Under the proposed regulations, a license, permit, or other similar right that is solely for the use, enjoyment, or occupation of land or an inherently permanent structure, and that is in the nature of a leasehold or easement, generally is an interest in real property under section 1031. See proposed § 1.1031(a)-3(a)(5)(ii). One commenter contended that this language is too restrictive because it addresses only leaseholds and easements.

In response to this comment, the final regulations provide that a license, permit, or other similar right that is solely for the use, enjoyment, or occupation of land or an inherently permanent structure and that is in the nature of a leasehold, an easement, or a similar right generally is an interest in real property and thus is real property under section 1031.

Proposed § 1.1031(a)-3(a)(5)(ii) provides that a “license, permit, or other similar right that is solely for the use, enjoyment, or occupation of land or an inherently permanent structure and that is in the nature of a leasehold or easement generally is an interest in real property.” One commenter requested that final § 1.1031(a)-3(a)(5)(ii) add the word “perpetual” or “permanent” before “easement” to communicate that an easement must have a term exceeding 30 years as of the date of the exchange to be consistent with § 1.1031(a)-1(c). Under that regulation, examples of exchanges of real property of a like kind include an exchange of a leasehold interest in a fee with a term of 30 years or more to run for real estate.

On this aspect of easements and leaseholds, however, the comments received were not uniform. For example, another commenter requested that final § 1.1031(a)-3(a)(5)(ii) specify that leaseholds or easements of any duration are an interest in real property under section 1031. As a conforming revision, the commenter also recommended that the final regulations remove the reference in § 1.1031(a)-1(c) to leaseholds with 30 years or more to run to provide parity among all interests in real property eligible for like-kind exchanges under section 1031. In addition, a separate commenter recommended that the final regulations clarify whether a leasehold interest in real property must have, as of the date of the exchange, a remaining term of at least 30 years or more in order to qualify as an interest in real property.

The Treasury Department and the IRS note, as an initial matter, that the proposed and final regulations address solely the qualification of an asset as real property for section 1031 purposes, and do not specifically address whether an exchange is like kind. Duration of an easement or a leasehold is not relevant in determining whether the easement or leasehold is real property under § 1.1031(a)-3(a)(5), and therefore, proposed § 1.1031(a)-3(a)(5)(ii) did not include a reference to duration. The commenters, however, correctly note that duration may be relevant under § 1.1031(a)-1(c) for purposes of determining whether an exchange of an easement or leasehold for real property would qualify as like kind. Because like-kind determinations exceed the scope of the final regulations, the commenters' suggestions and requests for clarification regarding like-kind determinations are not incorporated into these final regulations.

The proposed regulations provide that, in general, each distinct asset is analyzed separately from each other distinct asset in determining whether a distinct asset is real property for section 1031 purposes. One commenter requested that the final regulations clarify that this distinct asset rule does not apply for purposes of § 1.1031(k)-1(c)(4)(i)(A), which generally limits a taxpayer to the identification of three replacement properties (three-property rule). In response to the comment, the Treasury Department and the IRS have added language to the definition of distinct asset in § 1.1031(a)-3(a)(4) to clarify that the distinct asset rule applies only for purposes of determining whether property is real property for section 1031 purposes and does not affect the application of the three-property rule.

Section 1.1031(k)-1(g)(7)(iii) of the proposed regulations addresses the receipt of personal property that is incidental to the taxpayer's replacement real property in an exchange (incidental property rule). The incidental property rule provides that, for exchanges involving a qualified intermediary, personal property that is incidental to replacement real property (incidental personal property) is disregarded in determining whether a taxpayer's rights to receive, pledge, borrow, or otherwise obtain the benefits of money or non-like-kind property held by the qualified intermediary are expressly limited as provided in § 1.1031(k)-1(g)(6). However, as personal property, incidental personal property is non-like-kind property that generally results in gain recognition under section 1031(b) on the exchange.

Personal property is incidental to real property acquired in an exchange if (i) in standard commercial transactions, the personal property is typically transferred together with the real property, and (ii) the aggregate fair market value of the incidental personal property transferred with the real property does not exceed 15 percent of the aggregate fair market value of the replacement real property (15-percent limitation).

The Treasury Department and the IRS received several comments recommending a change to the calculation of the amount of incidental property that a taxpayer may acquire and still meet the requirements of the incidental property rule. For example, commenters recommended that the value of incidental property under the final regulations be permitted to equal up to 15 percent of the total fair market value of the replacement real property, as well as the incidental property. For support, these commenters highlighted that their suggested 15-percent calculation is consistent with sections 856(d)(1)(C) and 856(c)(9)(A)(ii) of the Code pertaining to REITs. In addition, a commenter suggested that final § 1.1031(k)-1(g)(7)(iii) should permit the aggregate fair market value of the incidental personal property to equal up to 20 percent of the aggregate fair market value of the replacement real property.

The final regulations do not adopt these comments. As explained in part II of the Explanation of Provisions section of the preamble to the proposed regulations, the proposed incidental property rule is “based on the existing rule in §  1.1031(k)-1(c)(5), which provides that certain incidental property is ignored in determining whether a taxpayer has properly identified replacement property under section 1031(a)(3)(A) and §  1.1031(k)-1(c).” 85 FR 35839. In addition, the Treasury Department has determined that a limitation in excess of 15 percent “might induce taxpayers to bundle more personal property with their exchanged property,” which “would lead to increased amounts of personal property exchanged with real property under section 1031 and effectively unlock a class of personal property that would no longer be `incidental' to the real property.” 85 FR 35840. Consequently, the Treasury Department and the IRS continue to believe that the proposed 15-percent limitation, and its calculation, are “responsive to ordinary-course exchanges that often commingle personal property and real property as part of the aggregate exchanged property.” Id.

Commenters requested that the incidental property rule be specifically identified in the final regulations as a safe harbor. One commenter expressed concern that, unless identified as a safe harbor, the incidental property rule may be interpreted as a bright-line rule under which acquisitions of personal property valued in excess of 15 percent of the real property will cause the exchange to fail, and the transfer of relinquished property to be fully taxable. Additionally, a separate commenter requested that the final regulations clarify that incidental property may include intangible property such as goodwill.

The final regulations do not adopt the request that the incidental property rule be identified as a safe harbor. The items in current § 1.1031(k)-1(g)(1) through (5) consist of safe harbors that help taxpayers comply with other rules in § 1.1031(k)-1, and § 1.1031(k)-1(g)(7)(i) and (ii) are items that are disregarded in determining whether one of the existing safe harbors ceases to apply. The incidental property rule adds an additional item to § 1.1031(k)-1(g)(7) that is disregarded in determining whether one of the existing safe harbors ceases to apply. Identifying the incidental property rule as a safe harbor would thus be confusing because it is an item that is disregarded in determining if an existing safe harbor applies. Therefore, the incidental property rule operates as part of an existing safe harbor. Consequently, acquisitions of personal property valued in excess of 15 percent of the replacement real property are not disregarded in determining if one of the safe harbors in § 1.1031(k)-1(g)(3) through (5) ceases to apply and whether the taxpayer's rights to receive, pledge, borrow, or otherwise obtain the benefits of money or non-like-kind property are expressly limited as provided in § 1.1031(k)-1(g)(6), but will not automatically cause the exchange to fail section 1031 and the transfer of relinquished property to be treated as a sale or taxable exchange.

Further, the incidental property rule applies to non-real property, regardless of whether tangible or intangible. No change to the regulations is required to accommodate this suggestion.

Several commenters recommended that the final incidental property rule provide that a taxpayer's receipt of personal property incidental to the real property received in a like-kind exchange be treated as the receipt of real property, and thus not give rise to recognized gain under section 1031(b). Under section 1031(b), a taxpayer must recognize gain on a section 1031 exchange to the extent of money or non-like-kind property the taxpayer receives in the exchange. Similarly, one commenter suggested that, if the final regulations require recognition of gain on the receipt of incidental personal property, the final regulations should not include the incidental property rule. That commenter contended that inclusion of the incidental property rule in the final regulations will result in some taxpayers misinterpreting the rule by treating incidental personal property in the same manner as real property for purposes of the nonrecognition of gain or loss under section 1031.

The final regulations do not adopt the commenters' recommendations. As amended by the TCJA, section 1031(a) is limited to exchanges of real property. However, the TCJA did not amend section 1031(b), which provides that a taxpayer must recognize gain on an exchange to the extent of money and non-like-kind property received in the exchange. Personal property received in a like-kind exchange of real property is non-like-kind property received in the exchange. Consequently, under section 1031(b), gain generally must be recognized to the extent of the personal property received in the exchange.

The final regulations revise proposed § 1.1031(k)-1(g)(7)(iii)(B) slightly to improve readability; the revision does not change the meaning of proposed § 1.1031(k)-1(g)(7)(iii)(B).

The final regulations include the incidental property rule to provide assurance to taxpayers that a qualified intermediary's use of exchange proceeds to acquire incidental personal property will not cause the taxpayer to fail to meet the requirements of § 1.1031(k)-1(g)(6)(i), and thus the requirements of section 1031. As explained in the preamble to the proposed regulations, the incidental property rule was proposed to respond to concerns that a taxpayer would be considered to be in constructive receipt of all of the exchange funds held by the qualified intermediary if the taxpayer is able to direct the qualified intermediary to use those funds to acquire property that is not of a like kind to the taxpayer's relinquished property. See generally part II of the Explanation of Provisions section in the preamble to the proposed regulations. The incidental property rule is intended to help taxpayers comply with the requirements of section 1031, particularly the prohibition on a taxpayer's ability to actually or constructively receive the proceeds from the transfer of relinquished property before receiving like-kind replacement property.

One commenter recommended that the final regulations include language specifically providing that the receipt of incidental personal property in a section 1031 exchange results in taxable gain to the taxpayer. The final regulations adopt this recommendation and add language in § 1.1031(k)-1(g)(7)(iii) to clarify this point.

One commenter recommended that the final regulations clarify that the 15-percent limitation for the incidental property rule is not applied on a property-by-property basis. For example, assume a taxpayer acquires an office building (Building 1) with office furniture, and a second office building (Building 2) with no personal property. The commenter requested that the final regulations confirm that the taxpayer does not exceed the 15-percent limitation if the value of the furniture is 15 percent or less of the total value of Building 1 and Building 2, even if the value of the furniture exceeds 15 percent of the value of just Building 1.

The Treasury Department and the IRS agree with the commenter's recommendation. Accordingly, the final regulations include language to clarify that the 15-percent limitation is calculated by comparing the value of all of the incidental properties to the value of all of the replacement real properties acquired in the same exchange.

One commenter recommended a series of language modifications to the incidental property rule in the proposed § 1.1031(k)-1(g)(7)(iii). For example, the commenter recommended that the rule for determining whether personal property is incidental to real property acquired in an exchange not reference the term “commercial transaction.” For support, the commenter asserted that the term might be interpreted to include only contracts involving transfers of non-residential property such as commercial real estate and not residential rental property. In addition, the commenter suggested that, in the final regulations, the language “the personal property is typically transferred together with the real property” be replaced with “the personal property is typically listed in the contract and transferred with the real property.”

The final regulations do not adopt these suggested modifications because the Treasury Department and the IRS have determined that proposed § 1.1031(k)-1(g)(7)(iii) provides clear guidance for determining whether personal property is incidental to real property acquired in an exchange. In particular, the term “commercial transactions” refers to transactions involving business or investment property rather than personal-use property. Accordingly, the term “commercial” describes the type of transaction, not the type of property. Therefore, a commercial transaction may involve either residential or non-residential property.

The final regulations also do not adopt the commenter's recommendation that the language “the personal property is typically transferred together with the real property” be replaced with “the personal property is typically listed in the contract and transferred with the real property.” Generally, if personal property is transferred as part of a transfer of real property, the personal property would be listed in the contract relating to the transfer. However, if a taxpayer lists the personal property in a contract separate from the contract addressing the transfer of real property, listing the personal property in a separate contract generally will not prevent the taxpayer from using the incidental property rule.

A commenter also requested that, under the final regulations, the incidental property rule apply retroactively to exchanges after either (i) the 1984 enactment of the deferred exchange rules in section 1031(a)(3) or (ii) the 1991 effective date of the § 1.1031(k)-1 deferred exchange final regulations. The commenter observed that the concerns that led to the inclusion of the incidental property rule in the proposed regulations, which include directing a qualified intermediary to use exchange proceeds to acquire non-like-kind property, also existed for pre-TCJA exchanges under section 1031. Thus, the commenter suggested that the incidental property rule apply to pre-TCJA exchanges.

Prior to enactment of the TCJA, personal property was eligible for like-kind exchange treatment. Therefore, a rule disregarding the receipt of incidental personal property in determining whether a taxpayer was in constructive receipt of non-like-kind property prior to enactment of the TCJA would function in a very different way than it does post-TCJA. Accordingly, these final regulations do not adopt this suggestion.

Commenters requested clarification regarding the application of the incidental property rule to cash placed in escrow to pay transactional and other items in a real estate transfer. The Treasury Department and the IRS note that a taxpayer's receipt of escrowed funds that the taxpayer placed in escrow for transactional-type items is not a receipt of incidental personal property. Therefore, the final regulations do not revise the incidental property rule in response to the commenters' request. A commenter also requested guidance regarding situations in which an exchanging taxpayer acquires a substantial amount of personal property due to unforeseen circumstances. The final regulations do not address this specific situation. The 15-percent limitation is not a bright-line test for determining whether a transaction fails to meet the requirements of an exchange under section 1031. All of the facts and circumstances of the taxpayer's situation are considered in determining if the exchange meets the requirements of section 1031.

A commenter recommended that the final regulations provide clarification regarding the application of section 453 to certain like-kind exchanges. Specifically, the commenter requested guidance about the timing of gain recognition when (i) real property is exchanged for both like-kind real property and non-like-kind personal property incidental to the real property, and (ii) the exchange is not completed until the taxable year succeeding the taxable year of the transfer of the relinquished property. The commenter requested that the final regulations address whether the gain on the receipt of the personal property is recognized in the first or the second taxable year (Tax Year 1 and Tax Year 2, respectively) if the like-kind exchange straddles two taxable years.

The commenter also requested guidance regarding a situation involving a taxpayer who (i) has a bona fide intent to execute a section 1031 exchange, (ii) transfers relinquished real property and incidental personal property in Tax Year 1, and (iii) fails to acquire replacement property by the 180th day after the transfer of the relinquished property, which is in Tax Year 2. Specifically, the commenter recommends that the final regulations address whether the gain on the transfer of the personal property is recognized in Tax Year 1 or Tax Year 2.

The Treasury Department and the IRS appreciate the commenter's questions but have determined the commenter's requested guidance exceeds the scope of the final regulations. The issues raised by the commenter relate to the application of current § 1.1031(k)-1(j)(2), which addresses the application of the installment method of accounting in section 453 to like-kind exchanges involving the receipt of non-like-kind property that straddles two taxable years, or that would have straddled two taxable years if successfully completed. The scope of the final regulations is limited to the definition of real property under section 1031 and to incidental property received in a section 1031 exchange. Accordingly, the final regulations do not address the issues relating to the timing of gain recognition raised by the commenter.

Several commenters inquired about the application of current § 1.1031(j)-1 to exchanges of multiple properties following the enactment of the TCJA. Section 1.1031(j)-1 provides an exception to the general rule that section 1031 requires a property-by-property comparison for computing the gain recognized and basis of property received in a like-kind exchange. Section 1.1031(j)-1 applies when there is more than one exchange group created, as described in § 1.1031(j)-1(b)(2)(i), or, if there is only one exchange group, there is more than one property transferred or received within the exchange group. Under § 1.1031(j)-1, the amount of gain recognized and the basis of the properties received by a taxpayer are computed after separating the properties transferred and received by the taxpayer in the exchange into exchange groups, in accordance with the rules in § 1.1031(j)-1(b)(3) and (c), respectively. In addition, under § 1.1031(j)-1(b)(2)(ii), all liabilities assumed by a taxpayer as part of an exchange to which § 1.1031(j)-1 applies are offset against all liabilities of which the taxpayer is relieved as part of the exchange.

One commenter asked whether § 1.1031(j)-1 applies to a post-TCJA exchange of real property and personal property for other real property and personal property. Under section 1031 as in effect before the TCJA amendments, § 1.1031(j)-1 would have applied to this exchange if the relinquished real property was of a like kind to the replacement real property, and the relinquished personal property was of a like kind to the replacement personal property. Other commenters requested the Treasury Department and the IRS to conclude that § 1.1031(j)-1 will continue to apply in this situation so that taxpayers will not have to carry out a property-by-property comparison for computing gain on the exchange.

Another commenter inquired about the application of § 1.1031(j)-1 to exchanges of both qualifying real property and non-qualifying property that involve indebtedness encumbering both types of properties. Specifically, the commenter asked whether the full amount of the indebtedness assumed by the taxpayer would offset the full amount of the indebtedness liabilities of which the taxpayer is relieved as part of the exchange, even if a portion of that indebtedness relates to the personal property in the exchange.

The Treasury Department and the IRS appreciate the issues raised by these commenters but note that the application of § 1.1031(j)-1 to transactions to which the TCJA applies exceeds the scope of the final regulations. Therefore, the final regulations do not address these comments. The Treasury Department and the IRS, however, continue to consider potential future guidance on issues relating to § 1.1031(j)-1.

One commenter suggested that Rev. Rul. 2003-56, 2003-23 I.R.B. 985, likely needs to be modified to address post-TCJA exchanges involving both real and personal property. The commenter also questioned whether Rev. Rul. 2004-86, 2004-33 I.R.B. 191, needs to be updated to address the TCJA changes to section 1031.

Rev. Rul. 2003-56 addresses the consequences under section 752 of the Code and § 1.704-2(d) of a section 1031 like-kind exchange that straddles two taxable years and involves relinquished and replacement property subject to a liability. The revenue ruling addresses whether the liabilities are netted and which taxable year the net change in a partner's share of partnership liability is taken into account.

Rev. Rul. 2004-86 addresses whether an interest in a Delaware statutory trust (DST) is treated as an interest in the real property owned by the DST, and whether a taxpayer may exchange real property for an interest in a DST in a transaction that qualifies for nonrecognition of gain under section 1031. The revenue ruling examines the grantor trust rules of sections 671 and 677 of the Code and the entity-classification rules in section 7701 of the Code and the section 7701 regulations. Rev. Rul. 2004-86 concludes that, under the facts of the ruling, including the DST agreement, the exchange qualifies for nonrecognition under section 1031.

The Treasury Department and the IRS appreciate these helpful comments but have determined that they exceed the scope of the final regulations. That scope is limited to the definition of real property under section 1031 and to incidental property received in a section 1031 exchange. Both Rev. Rul. 2003-56 and Rev. Rul. 2004-86 address other issues related to the application of section 1031.

With regard to Rev. Rul. 2004-86, nothing in the proposed regulations or the TCJA is contrary to the view that a transfer of an interest in a DST, if a grantor trust, is treated as the transfer of the underlying property held by the DST. The Treasury Department and the IRS, however, will continue to review existing guidance concerning section 1031 like-kind exchanges to determine the effect of the TCJA on that guidance.

A commenter highlighted that examples in § 1.1031(k)-1(d)(2) include a computation error. For example, the sum of $187,500 and $87,500 is incorrectly provided as $250,000. Although, the proposed regulations do not address the rules in § 1.1031(k)-1(d)(2), this Treasury decision corrects the scrivener's error identified by the commenter by replacing “$87,500” with “$62,500” each place it appears therein.

One commenter discussed the interaction between the additional first year depreciation deduction rules in section 168 of the Code, commonly referred to as bonus depreciation, and the like-kind exchange rules in section 1031, as amended by the TCJA. The commenter pointed out that there may be an adverse timing difference between (i) when gain is recognized on the transfer of real property that includes the transfer of personal property, and (ii) when a taxpayer is allowed a bonus depreciation deduction for the acquisition of replacement real property and personal property subject to bonus depreciation. The commenter also asserted that when the 100-percent bonus depreciation rules expire after 2022, the gain associated with a section 1031 exchange involving real estate including personal property will be larger than the gain intended by Congress.

These comments, while helpful, exceed the scope of the final regulations. Accordingly, the final regulations do not include the guidance requested by the commenter. However, the Treasury Department and the IRS will consider the interaction between the bonus depreciation rules under section 168 and the like-kind exchange rules under section 1031.

One commenter noted that the background section of the preamble to the proposed regulations provides the following: “Real property of one kind or class may not, under section 1031, be exchanged for real property of a different kind or class.” Proposed regulations, Background, part III. The commenter correctly pointed out that this sentence is inaccurate because distinguishing between properties of a different class is relevant to personal property and whether, under section 1031 prior to enactment of the TCJA, personal properties were of like kind, not whether the properties were real property. Consequently, this sentence is deleted from part III of the Background of the preamble to the final regulations.

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

These final regulations apply to exchanges beginning after December 2, 2020. A taxpayer may rely on the proposed regulations (REG-117589-18) published in the Federal Register on June 12, 2020 (85 FR 35835), if followed consistently and in their entirety, for exchanges of real property beginning after December 31, 2017, and before December 2, 2020.

Executive Orders 12866, 13563, and 13771 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 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 (OIRA) has designated these final regulations as economically significant under section 1(c) of the MOA. Accordingly, the OMB has reviewed these final regulations.

Prior to the amendment of section 1031 by the TCJA, certain exchanges of personal, intangible, or real property held for use in a trade or business or for investment qualified for nonrecognition under section 1031. Section 13303 of the TCJA generally limits the application of like-kind exchange treatment to exchanges of real property after December 31, 2017, subject to a transition rule applicable to exchanges not completed by January 1, 2018. Specifically, section 1031 provides that no gain or loss is recognized on the exchange of real property held for productive use in a trade or business or for investment if the real property is exchanged solely for real property of a like kind that is to be held either for productive use in a trade or business or for investment.

The final rules provide a definition of real property to distinguish it from personal property, as the TCJA limited the nonrecognition of gain or loss in the case of like-kind exchange to exchanges of real property. The legislative history to the TCJA provides that real property eligible for like-kind exchange treatment prior to the TCJA should continue to be eligible for like-kind exchange treatment. Conference Report, at 396, fn. 726. On June 12, 2020, the Treasury Department and the IRS published a notice of proposed rulemaking (REG-117589-18) in the Federal Register (85 FR 35835) containing proposed regulations under section 1031 (proposed regulations). The final regulations retain the basic approach and structure of the proposed regulations, with certain revisions. In particular, the final regulations revise the definition of “real property” in the proposed regulations to provide that property is classified as real property for section 1031 purposes if, on the date it is transferred in an exchange, the property is real property under the law of the State or local jurisdiction in which that property is located. However, property ineligible for like-kind exchange treatment after enactment of the TCJA remains ineligible for like-kind exchange treatment after the enactment of the TCJA regardless of its classification under the laws of the State or local jurisdiction. The final regulations also revise the proposed definition of real property to eliminate, with regard to both tangible and intangible properties, any consideration of whether the particular property contributes to the production of income unrelated to the use or occupancy of space (referred to as the “purpose or use test,” as defined in part II.B.1 of this Summary of Comments and Explanation of Revisions).

The final regulations retain the rule relating to personal property in an exchange that is incidental to the real property exchange. Under this rule personal property is incidental to real property acquired in an exchange if, in standard commercial transactions, the personal property is typically transferred together with the real property, and the aggregate fair market value of the incidental personal property transferred with the real property does not exceed 15 percent of the aggregate fair market value of the replacement real property. This incidental property rule in the proposed regulations is based on an existing rule in the regulations under section 1031, which provides that certain incidental property is ignored in determining whether a taxpayer has properly identified replacement property.

In this analysis, the Treasury Department and the IRS assess the benefits and costs of these final regulations relative to a no-action baseline reflecting anticipated Federal income tax-related behavior in the absence of these final regulations.

The statutory changes made by the TCJA to section 1031 limit like-kind exchanges to real property. The final regulations provide that property is real property for purposes of section 1031 if, on the date it is transferred in an exchange, that property is classified as real property under the law of the State or local jurisdiction in which that property is located (local law test). Consequently, under the final regulations, property is classified as real property for purposes of section 1031 if the property is (i) so classified under the State and local law test, (ii) specifically listed as real property in the final regulations, or (iii) considered real property based on all the facts and circumstances under the various factors provided in the final regulations. The proposed regulations had extracted certain portions of the definition of real property from various existing regulations with the intention that they are consistent with the legislative history underlying the TCJA amendment to section 1031. See, for example, §§ 1.263(a)-3(b)(3) and 1.856-10 (defining the term “real property” to mean land and improvements to land such as buildings and other inherently permanent structures, and their structural components); § 1.263A-8(c) (providing that real property includes unsevered natural products of land such as growing crops and plants, mines wells and other natural deposits); and § 1.856-10(c) (providing, in relevant part, that the term “land” includes “water and air space superjacent to land”).

The final regulations also eliminate the purpose or use test for tangible property to qualify as real property that was included in the proposed regulations. If tangible property is permanently affixed to real property and will ordinarily remain affixed for an indefinite period of time, the property is an inherently permanent structure and thus real property for section 1031 purposes, irrespective of the purpose or use of the property or whether it contributes to the production of income.

As emphasized in comments received by the Treasury Department and the IRS, the proposed regulations may have caused certain real property that qualified for like-kind exchange treatment prior to the enactment of the TCJA to no longer qualify. The final regulations more closely follow the legislative history to the TCJA amendments to section 1031. See Conference Report, at 396, fn. 726 (providing that Congress “intended that real property eligible for like-kind exchange treatment under present law will continue to be eligible for like-kind exchange treatment under the [amended] provision”). The Treasury Department and the IRS have determined that using the local law test and eliminating the purpose or use test will reduce compliance costs relative to the proposed rules. As a result, taxpayers may rely on existing State and local law definitions of real property or may look to the specifically listed property or the various factors provided in the final regulations.

The Treasury Department and the IRS have determined that there is not likely to be a material difference in the quantity of tangible property that qualifies as real property eligible for like-kind exchanges under the two standards. In making this determination, the Treasury Department and the IRS observed that, for an exchange to qualify for gain-deferral treatment under section 1031, the subject property (that is, the relinquished property) not only must constitute “real property,” but also must be “like kind” with regard to the property exchanged therefore (that is, the replacement property). Like-kind determinations are made pursuant to Federal, rather than State or local, tax law. See generally § 1.1031(a)-1(b) through (d). Consequently, State and local law definitions of real property, on their own, affect only one prong of the section 1031 qualification for exchanges of property as a result of these final regulations. In the future, State and local governments could modify their tax laws to include additional assets within the definition of real property. However, the Treasury Department and the IRS cannot determine the extent to which State and local governments may take such actions. The Treasury Department and the IRS note that such actions likely would affect the tax revenue of those jurisdictions.

Moreover, the final regulations provide that property ineligible for like-kind exchange treatment prior to enactment of the TCJA remains ineligible, including real property that was excluded from the application of section 1031. This approach is consistent with Congressional intent that “real property eligible for like-kind exchange treatment” under the law in effect prior to enactment of the TCJA will continue to be eligible for like-kind exchange treatment after enactment of the TCJA. See Conference Report at 396, fn. 726. Prior to amendment by the TCJA, former section 1031(a)(2) explicitly excluded certain assets from the application of section 1031. Accordingly, the final regulations exclude from the definition of real property the intangible assets listed in section 1031(a)(2) prior to its amendment by the TCJA, regardless of the classification of the property under State or local law, because such property never was “real property eligible for like-kind exchange treatment” prior to enactment of the TCJA. Conference Report at 396, fn. 726. The final regulations may influence which intangible assets qualify as real property for like-kind exchanges relative the definition in the proposed regulations. To the extent an intangible asset derives its value from real property or an interest in real property, it is inseparable from that real property or interest in real property. Accordingly, the intangible asset does not produce or contribute to the production of income other than consideration for the use or occupancy of space, and therefore may be real property or an interest in real property under State or local law. Under the proposed regulations, the intangible asset, such as mineral extraction rights or timber cutting rights, that produces income other than for the use or occupancy of space and would not be considered real property. Under the final regulations, the mineral rights and timber cutting rights are real property if they are considered real property under State or local law.

The modification of the definition of real property in the final regulations aligns the proposed definition to more closely track the intent of Congress as described in the Conference Report. The proposed rules could have had a significant impact on the amount of intangible property that previously qualified for like-kind exchanges. For example, oil and gas firms accounted for approximately $4 billion in deferred gains in 2012. This figure can be viewed as an upper limit on the size of the taxable income that the proposed rule could have excluded from qualifying for like-kind exchanges as it includes both developed fields that would have qualified under the proposed rule and mineral rights that may have been excluded. The proposed rule may have also affected other intangible real property such as mineral rights not associated with oil and gas properties or timber cutting rights, but these are likely small when compared to the deferred gains in the oil and gas industry.

Consistent with longstanding regulations under section 1031, in determining whether a taxpayer has actual or constructive receipt of money or other property held by a qualified intermediary, the final regulations disregard certain incidental personal property. Specifically, the final regulations disregard incidental personal property that (1) in standard commercial transactions is typically transferred together with the real property, and (2) does not exceed 15 percent of the aggregate fair market value of the replacement real property. Nonetheless, under section 1031(b), a taxpayer must recognize gain on the receipt of the incidental personal property, which is not like-kind to real property. The 15-percent limitation is responsive to ordinary-course exchanges that often commingle personal property and real property as part of the aggregate exchanged property.

With regard to a limitation on the value of incidental personal property in excess of 15 percent, the Treasury Department and the IRS have determined that a higher limit might induce taxpayers to bundle more personal property with their exchanged property. Such a result would lead to increased amounts of personal property exchanged with real property under section 1031 and effectively unlock a class of personal property that would no longer be “incidental” to the real property. With regard to a lower limit, the Treasury Department and the IRS have determined that the burden of accurately measuring the separate costs of comingled personal and real property would increase.

In addition, the final 15 percent incidental personal property limitation would reduce the cost of investing in real property, when compared to no exchanges for incidental personal property. Raising this limit, however, would further increase the tax incentives for investing in such property, although most taxpayers will be indifferent when exchanging incidental property, plants, and equipment with a depreciable life of 20 years or less that is eligible for 100 percent additional first year depreciation, commonly referred to as “bonus depreciation.” Under 100 percent bonus depreciation, gains from the sale of property can be offset by deductions for investment in other qualifying property. Qualifying property placed in service after September 27, 2017, and before January 1, 2023, qualifies for full bonus depreciation. The bonus depreciation rate is phased down 20 percent a year for property placed in service after this date. In the absence of 100 percent bonus depreciation, expanding incentives for like-kind exchange through a higher incidental personal property limitation could also distort investment decisions within and across industries leading to over-investment in like-kind properties relative to consistent treatment across properties.

As part of the economic analysis of the proposed regulations, the Treasury Department and the IRS requested comments and information that would help further inform the analysis underlying the proposed 15-percent limitation for incidental personal property. See part I.A.4 of the Special Analyses of the proposed regulations (85 FR 35840). No comments were received by the Treasury Department or the IRS.

The Treasury Department and the IRS have determined that these final regulations will not have meaningful effects regarding the section 1031 qualification of real property exchanges. Finally, these final regulations do not significantly affect compliance burdens as the regulations are substantially similar to existing regulations affecting like-kind exchanges for real property.

The collection of information in these final regulations is reflected in the collection of information for Form 8824, Like-Kind Exchanges, which has been reviewed and approved by the Office of Management and Budget in accordance with the Paperwork Reduction Act (44 U.S.C. 3507(c)) under control numbers 1545-0074. The number of respondents to Form 8824 for tax year 2018 is estimated at 125,000-220,000. The estimated burden for individual taxpayers filing this form is approved under OMB control number 1545-0074 and is included in the estimates shown in the instructions for their individual income tax return. The estimated burden for taxpayers who file Form 8824, which has not changed as a result of these final regulations, is shown below.

Form 8824 is used by taxpayers engaging in section 1031 like-kind exchanges. Beginning after December 31, 2017, section 1031 like-kind exchange treatment applies only to exchanges of real property held for use in a trade or business or for investment, other than real property held primarily for sale. Before the law change, section 1031 also applied to certain exchanges of personal or intangible property. These final regulations provide a definition of real property for purposes of section 1031 and a rule for the receipt of personal property that is incidental to real property received in an exchange and makes conforming changes to the regulations. The law change reflected in the final regulations will result in fewer taxpayers engaging in section 1031 like-kind exchanges. This decrease in burden will be reflected in the updated burden estimates for the Form 8824. The requirement to maintain records to substantiate information on the Form 8824 is already contained in the burden associated with the control numbers for those forms and remains unchanged. For purposes of the Paperwork Reduction Act, no burden estimates specific to the final regulations are currently available. The Treasury Department has not estimated the burden, including that of any new information collections, related to the requirements under the final regulations. Those estimates would capture both changes made by the TCJA and those that arise out of discretionary authority exercised in the final regulations.

The current status of the Paperwork Reduction Act submissions related to section 1031 is provided in the following table. The section 1031 provisions are included in aggregated burden estimates for OMB control number 1545-0074, which represents a total estimated burden time, including all related forms and schedules, of 1.784 billion hours and total estimated monetized costs of $31.764 billion ($2017). The burden estimates provided in the OMB control numbers below are aggregate amounts that relate to the entire package of forms associated with the OMB control number and will in the future include but not isolate the estimated burden of only the section 1031 requirements. These numbers are therefore unrelated to the future calculations needed to assess the burden imposed by the final regulations. The Treasury Department and IRS urge readers to recognize that these numbers are duplicates and to guard against over-counting the burden that tax provisions imposed prior to the TCJA. The Treasury Department and the IRS request comments on all aspects of information collection burdens related to the final regulations. In addition, when available, drafts of IRS forms are posted for comment at www.irs.gov/draftforms.

Form 8824 is also used by members of the executive branch of the Federal Government and judicial officers of the Federal Government to elect to defer gain under section 1043 on certain sales of property due to potential conflicts of interest arising from their status as government officials. These final regulations do not address or affect the deferral of gain on sales under section 1043.

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

Books or records relating to a collection of information must be retained as long as their contents may become material in the administration of any internal revenue law. Generally, tax returns and return information are confidential, as required by 26 U.S.C. 6103.

It is hereby certified that these final regulations will not have a significant economic impact on a substantial number of small entities within the meaning of section 601(6) of the Regulatory Flexibility Act (5 U.S.C. chapter 6).

These final regulations update existing regulations under section 1031 to reflect statutory changes made to section 1031 by the TCJA. Section 1031 provides that a taxpayer exchanging investment property or property held for productive use in a trade or business for other investment or trade or business property recognizes gain only to the extent of money or non-like-kind property received in the exchange, and recognizes no loss on the exchange. Under the TCJA amendments to section 1031, for years after 2017, section 1031 applies only to exchanges of real property and no longer applies to exchanges of personal property and certain intangible property. The final regulations provide a definition of real property to be used in determining whether a taxpayer has met the requirements of section 1031. In so doing, the final regulations follow the legislative history underlying the TCJA amendment to section 1031 providing that real property eligible for like-kind exchange treatment under pre-TCJA law continues to be eligible for like-kind exchange treatment in years beginning after 2017.

Consequently, the final regulations use a State or local law test and certain aspects from existing regulatory definitions of real property in a manner consistent with the legislative history underlying the TCJA amendment to section 1031 requiring that the definition of real property remain the same both before and after enactment of the TCJA. Taxpayers already are familiar with these rules, which provide that real property includes land, improvements to land, unsevered natural products of land, and water and air space superjacent to land. In addition, the final regulations provide a rule addressing a taxpayer's receipt of personal property that is incidental to the real property the taxpayer receives in the exchange that is based on an existing rule in § 1.1031(k)-1.

Individuals and business entities that own investment real property or real property held for productive use in a trade or business may engage in a section 1031 exchange. The provisions of section 1031 apply in the same manner to all taxpayers, so the effect of the final regulations is the same for taxpayers that are small entities and taxpayers that are not small entities. The small entities potentially impacted by these regulations are businesses organized as corporations (including S corporations), partnerships, and individuals that file a Form 1040 Schedule C for their respective trades or businesses or Form 1040 Schedule E for their rental real estate.

The number of small entities potentially affected by these final regulations is unknown but likely substantial because like-kind exchanges are entered into by entities of all sizes. Although a substantial number of small entities is potentially affected by these final regulations, the Treasury Department and the IRS have concluded that the final regulations will not have a significant economic impact on a substantial number of small entities because the costs to comply with these final regulations are not significant. This is because for taxpayers still able to engage in section 1031 exchanges, there are no additional forms they are required to file, and there is no new recordkeeping required, to comply with section 1031 as amended by the TCJA and these final regulations other than the time to read and understand these regulations. Thus, taxpayers that engage in like-kind exchanges of real property in 2018 and later years will not have any additional burden as compared to taxpayers engaging in like-kind exchanges in years before 2018. Accordingly, the Secretary certifies that these final regulations will not have a significant economic impact on a substantial number of small entities.

Pursuant to section 7805(f), the notice of proposed rulemaking preceding this final regulation was submitted to the Chief Counsel for the Office of Advocacy of the Small Business Administration for comment on its impact on small business (85 FR 35835). No comments on the notice were received from the Chief Counsel for the Office of Advocacy of the Small Business Administration.

Section 202 of the Unfunded Mandates Reform Act of 1995 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 2020, that threshold is approximately $156 million. This rule does not include any 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 (entitled “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 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.

The Administrator of OIRA has determined that this Treasury decision is a major rule for purposes of the Congressional Review Act (5 U.S.C. 801 et seq. ) (CRA). Under section 801(3) of the CRA, a major rule takes effect 60 days after the rule is published in the Federal Register .

Notwithstanding this requirement, section 808(2) of the CRA allows agencies to dispense with the requirements of section 801 when the agency for good cause finds that such procedure would be impracticable, unnecessary, or contrary to the public interest and the rule shall take effect at such time as the agency promulgating the rule determines. Pursuant to section 808(2) of the CRA, the Treasury Department and the IRS find, for good cause, that a 60-day delay in the effective date is unnecessary and contrary to the public interest.

Following the amendments to section 1031 by the TCJA, the Treasury Department and the IRS published the proposed regulations to provide certainty to taxpayers. In particular, and as emphasized by the wide variety of public comments received in response to the proposed regulations, taxpayers lacked certainty regarding the longstanding role of State and local law in real property determinations for purposes of qualification under section 1031. Consistent with Executive Order 13924 (May 19, 2020), the Treasury Department and the IRS have determined that an expedited effective date of the final regulations would “give businesses, especially small businesses, the confidence they need to re-open by providing guidance on what the law requires.” 85 FR 31353-4. Accordingly, the Treasury Department and the IRS have determined that the rules in this Treasury decision shall take effect on the date of publication in the Federal Register .

The principal authors of these regulations are Edward C. Schwartz and Suzanne R. Sinno of the Office of Associate Chief Counsel (Income Tax and Accounting). However, other personnel from the Treasury Department and the IRS participated in their development.

Accordingly, 26 CFR part 1 is amended as follows:

In FR doc 2020-18824 at 85 FR 63394 in the issue of October 7, 2020, the following correction to an amendatory instruction to “Appendix A to Part 63” is made.

On page 63419, in the second column, amendatory instruction 34.c is corrected to read: “c. In Method 311, revising sections 1.1 and 17.4 through 17.6;”

Section 108(b) of the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) directs EPA to develop regulations that require classes of facilities to establish and maintain evidence of financial responsibility consistent with the degree and duration of risk associated with the production, transportation, treatment, storage, or disposal of hazardous substances. The statute further requires that the level of financial responsibility be established to protect against the level of risk that the President, in his/her discretion, believes is appropriate, based on factors including the payment experience of the Hazardous Substance Superfund (Fund). The President's authority under this section for non-transportation-related facilities has been delegated to the EPA Administrator.

On January 6, 2010, EPA published an Advance Notice of Proposed Rulemaking (ANPRM), 1 in which the Agency identified three industrial sectors, to follow the hardrock mining industry, for the development, as necessary, of proposed section 108(b) regulations. Those industries identified were the electric power generation, transmission, and distribution; petroleum and coal products manufacturing; and chemical manufacturing industries. In August 2014, the Idaho Conservation League, Earthworks, Sierra Club, Amigos Bravos, Great Basin Resource Watch, and Communities for a Better Environment filed a lawsuit in the U.S. Court of Appeals for the District of Columbia Circuit, seeking a writ of mandamus requiring issuance of CERCLA section 108(b) financial responsibility rules for the hardrock mining industry, and for the three additional industries identified in the 2010 ANPRM. Following oral arguments, EPA and the petitioners submitted a joint motion for an order on consent, filed on August 31, 2015, which included a schedule for further administrative proceedings under CERCLA section 108(b). The court order granting the motion was issued on January 29, 2016.

In addition to requiring EPA to publish a proposed rule on hardrock mining financial responsibility requirements by December 1, 2016, the January 2016 order required EPA to sign for publication in the Federal Register a determination whether EPA will issue a notice of proposed rulemaking on financial responsibility requirements under section 108(b) in the electric power generation, transmission, and distribution industry; the petroleum and coal products manufacturing industry; and the chemical manufacturing industry by December 1, 2016. EPA signed the required determination on December 1, 2016; the document was published on January 11, 2017  2 and announced EPA's intent to proceed with rulemakings for all three of the additional classes.

The purpose of today's action, containing three final rulemakings, is to finalize the Agency's proposed rulemaking decisions that financial responsibility requirements under CERCLA section 108(b) are not warranted for facilities in the electric power generation, transmission, and distribution industry; the petroleum and coal products manufacturing industry; and the chemical manufacturing industry. EPA has reached these conclusions based on the analyses described in the proposed rules for (1) the electric power generation, transmission, and distribution industry proposal (84 FR 36535), (2) the petroleum and coal products manufacturing industry proposal (84 FR 74067), and (3) the chemical manufacturing industry proposal (85 FR 10128); consideration of comments on those proposed rules; and additional analyses based on those comments. The evidence examined in each of these analyses has led EPA to the finding that the degree and duration of risk posed by each of these three industries does not warrant financial responsibility requirements under CERCLA section 108(b).

EPA is publishing this document, containing three final rulemakings, to comply with its obligations under CERCLA section 108(b) to determine whether requirements that classes of facilities establish and maintain evidence of financial responsibility are appropriate, and to satisfy the Agency's obligations under the Mandamus Order issued on January 29, 2016. See In re: Idaho Conservation League, et al., No. 14-1149. A copy of the Mandamus Order can be found in the docket for this document.

These final rulemakings are not applicable to and do not affect, limit, or restrict EPA's authority to take a response action or enforcement action under CERCLA at any facility in the electric power generation, transmission, and distribution industry; the petroleum and coal products manufacturing industry; or the chemical manufacturing industry, including any requirements for financial responsibility as part of such response action. The set of facts in the rulemaking record related to the individual facilities discussed in the proposed and final rulemakings support the Agency's decision not to issue financial responsibility requirements under section 108(b) for these industries as a class. At the same time, a different set of facts could demonstrate a need for a CERCLA response action at an individual site. These rulemakings do not affect the Agency's authority under other authorities that may apply to individual facilities, such as the Clean Air Act (CAA), the Clean Water Act (CWA), the Resource Conservation and Recovery Act (RCRA), and the Toxic Substances Control Act (TSCA).

This document is structured to present the Agency's final rulemakings for the electric power generation, transmission, and distribution industry; the petroleum and coal products manufacturing industry; and the chemical manufacturing industry. As the three rulemakings contained in this document share common features, such as statutory authority and regulatory history, background information which is consistent across the three industries and intended to be applied to all industries is presented first in a unified manner. Additionally, certain executive orders that relate or may relate to these rules are discussed in unison in the last section of this document. Discussion of public comments received on the proposed rules for each industry and industry specific analyses, which were relied upon to reach unique final rulemaking decisions, is presented separately. The Agency's conclusions for each industry were reached based on the specific consideration of risk for each industry.

EPA is issuing this document, containing three final rulemakings, under the authority of sections 101, 104, 108 and 115 of the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, 42 U.S.C. sections 9601, 9604, 9608 and 9615, and Executive Order 12580 (52 FR 2923, January 29, 1987).

CERCLA, as amended by the Superfund Amendments and Reauthorization Act of 1986 (SARA), establishes a comprehensive environmental response and cleanup program. Generally, CERCLA authorizes EPA  3 to undertake removal or remedial actions in response to any release or threatened release into the environment of “hazardous substances” or, in some circumstances, any other “pollutant or contaminant.” As defined in CERCLA section 101, removal actions include actions to “prevent, minimize, or mitigate damage to the public health or welfare or to the environment,” and remedial actions are “actions consistent with [a] permanent remedy[.]” Remedial and removal actions are jointly referred to as “response actions.” CERCLA section 111 authorizes the use of the Hazardous Substance Superfund (Fund) established under title 26, United States Code, to finance response actions undertaken by EPA. In addition, CERCLA section 106 gives EPA  4 authority to compel action by liable parties in response to a release or threatened release of a hazardous substance that may pose an “imminent and substantial endangerment” to public health or welfare or the environment.

The authorities established by CERCLA work alongside other EPA statutes which created programs designed to control releases of contaminants, such as the CAA, the CWA, RCRA, and TSCA. Features of the RCRA program, in particular, complement objectives of CERCLA and help to prevent the types of releases that might become CERCLA sites. Pursuant to RCRA, as amended by HSWA (Hazardous and Solid Waste Amendments), statutory and regulatory requirements, RCRA established a system of cradle-to-grave management of hazardous wastes. Implemented by EPA and authorized state RCRA programs, RCRA permitting requirements for hazardous waste treatment, storage, and disposal (TSD) facilities detail technical standards, set reporting requirements, and include a requirement to establish financial assurance. Where releases do occur, the corrective action program established by RCRA provides a mechanism to clean up contamination as well as authority to require financial assurance. Under RCRA's corrective action program, EPA requires owners and operators of TSDs to investigate and clean up releases of hazardous waste and hazardous constituents from any solid waste management units, thus reducing the likelihood that these facilities would require cleanup under Superfund. RCRA's role was considered so relevant that financial assurance requirements established under RCRA Subtitle C (RCRA §§ 3001-3023) were referenced in Senate Report on legislation that was later enacted as CERCLA section 108(b). That language stated “[I]t is not the intention of the Committee that operators of facilities covered by section 3004(6) of that Act be subject to two financial responsibility requirements for the same dangers.”  5

CERCLA section 107 imposes liability for response costs on a variety of parties, including certain past owners and operators, current owners and operators, and certain generators, arrangers, and transporters of hazardous substances. Such parties are liable for certain costs and damages, including all costs of removal or remedial action incurred by the Federal Government, so long as the costs incurred are “not inconsistent with the national contingency plan” (the National Oil and Hazardous Substances Pollution Contingency Plan or NCP). 6 Section 107 also imposes liability for natural resource damages and health assessment costs. 7

Section 108(b) establishes authority to require owners and operators of classes of facilities to establish and maintain evidence of financial responsibility. Section 108(b)(1) directs EPA to develop regulations requiring owners and operators of facilities to establish evidence of financial responsibility “consistent with the degree and duration of risk associated with the production, transportation, treatment, storage, or disposal of hazardous substances.” In turn, section 108(b)(2) directs that the level of financial responsibility shall be initially established, and, when necessary, adjusted to protect against the level of risk that EPA in its discretion believes is appropriate based on the payment experience of the Fund, commercial insurers, court settlements and judgments, and voluntary claims satisfaction. Section 108(b)(2) does not, however, preclude EPA from considering other factors in addition to those specifically listed. The statute prohibited promulgation of such regulations before December 1985.

In addition, Section 108(b)(1) provides for publication within three years of the date of enactment of CERCLA a “priority notice” identifying the classes of facilities for which EPA would first develop financial responsibility requirements. It also directs that priority in the development of requirements shall be accorded to those classes of facilities, owners, and operators that present the highest level of risk of injury.

On March 11, 2008, Sierra Club, Great Basin Resource Watch, Amigos Bravos, and Idaho Conservation League filed suit in the U.S. District Court for the Northern District of California against then EPA Administrator Stephen Johnson and then Secretary of the U.S. Department of Transportation Mary E. Peters. Sierra Club, et al. v. Johnson, No. 08-01409 (N. D. Cal.). On February 25, 2009, that court ordered EPA to publish the Priority Notice required by CERCLA section 108(b)(1) later that year. The 2009 Priority Notice and supporting documentation presented the Agency's conclusion that hardrock mining facilities would be the first class of facilities for which EPA would issue CERCLA section 108(b) requirements. 8 Additionally, the 2009 Priority Notice stated EPA's view that classes of facilities outside of the hardrock mining industry may warrant the development of financial responsibility requirements. 9 The Agency committed to gather and analyze data on additional classes of facilities and to consider them for possible regulation. The court later dismissed the remaining claims.

On January 6, 2010, EPA published an ANPRM, 10 in which the Agency identified three additional industrial sectors for the development, as necessary, of proposed section 108(b) regulations. To develop the list of additional classes for the 2010 ANPRM, EPA used information from the CERCLA National Priorities List (NPL) and analyzed data from the Resource Conservation and Recovery Act (RCRA) Biennial Report and the Toxics Release Inventory created under the Emergency Planning and Community Right-to-Know Act (EPCRA).

In August 2014, the Idaho Conservation League, Earthworks, Sierra Club, Amigos Bravos, Great Basin Resource Watch, and Communities for a Better Environment filed a new lawsuit in the U.S. Court of Appeals for the District of Columbia Circuit, seeking a writ of mandamus requiring issuance of CERCLA section 108(b) financial assurance rules for the hardrock mining industry and for three other industries: Electric power generation, transmission, and distribution; petroleum and coal products manufacturing; and chemical manufacturing. Thirteen companies and organizations representing business interests in the hardrock mining and other sectors sought to intervene in the case.

Following oral argument, the court issued an order in May 2015 requiring the parties to submit, among other things, supplemental submissions addressing a schedule for further administrative proceedings under CERCLA section 108(b). Petitioners and EPA requested an order from the court with a schedule calling for the Agency to sign a proposed rule for the hardrock mining industry by December 1, 2016, and a final rulemaking by December 1, 2017. The joint motion also included a requested schedule for the additional industry classes, which called for EPA to sign by December 1, 2016, a determination on whether EPA would issue a notice of proposed rulemaking for classes of facilities in any or all of the other industries, and a schedule for proposed and final rulemakings for the additional industry classes as follows:

While the joint motion identified the three additional industries as the chemical manufacturing industry, the petroleum and coal products manufacturing industry, and the electric power generation, transmission and distribution industry, and set a rulemaking schedule, the motion did not indicate which industry would be the first, second or third. The joint motion specified that it did not alter the Agency's discretion as provided by CERCLA and administrative law. 12

On January 29, 2016, the court granted the joint motion and issued an order that mirrored the submitted schedule in substance. The order did not mandate any specific outcome of the rulemakings. 13 The Agency has met the deadlines for all three proposed rulemakings, and today's document meets the requirement for announcing final actions on all three additional industry classes.

Consistent with the January 2016 court order, EPA signed on December 1, 2016, a determination regarding rulemakings for the additional classes—a Notice of Intent to Proceed with Rulemakings for all three of the additional industry classes. The document was published in the Federal Register on January 11, 2017. 14

The document formally announced EPA's intention to move forward with the regulatory process and to publish a notice of proposed rulemaking for classes of facilities within the three industries identified in the 2010 ANPRM. The announcement in the document was not a determination that requirements were necessary for any or all of the classes of facilities within the three industries, or that EPA would propose such requirements. In addition, the document gave an overview of some of the comments received on the 2010 ANPRM and initial responses to those comments. The comments on the ANPRM which specifically addressed the need for CERCLA section 108(b) requirements for the three additional classes fell into four categories: (1) Other laws with which the industry complies that obviate the need for CERCLA section 108(b) regulation; (2) the sources of data that EPA used to select the industries; (3) past versus current practices within each industry; and (4) the overall need for financial responsibility for each industry. In discussing the ANPRM comments in the 2017 document, the Agency stated its intent to use other, more industry-specific and more current sources of data to identify risk; to consider site factors that reduce risks, including those that result from compliance with other regulatory requirements; and to develop a regulatory proposal for each rulemaking.

At the time of the 2017 document, EPA had not identified sufficient evidence to determine that the rulemaking was not warranted, nor had EPA identified sufficient evidence to establish CERCLA section 108(b) requirements. The document described a process to gather and analyze additional information to support the Agency's ultimate decision, including further evaluation of the classes of facilities within the three industry sectors. The document stated that EPA would decide whether proposing requirements was necessary and, accordingly, that EPA would propose appropriate requirements or would propose not to impose requirements.

On January 11, 2017, EPA proposed requirements in a new 40 CFR part 320 that owners and operators of hardrock mining facilities subject to the rule demonstrate and maintain financial responsibility as specified in the proposed rule. The proposed rule identified two goals for section 108(b) regulations—the goal of providing funds to address CERCLA liabilities at sites, and the goal of creating incentives for sound practices that will minimize the likelihood of need for a future CERCLA response. The proposed rule explained that first, when releases of hazardous substances occur, or when a threat of release of hazardous substances must be averted, a Superfund response action may be necessary. Therefore, the costs of such response actions can fall to the taxpayer if parties responsible for the release or potential release of hazardous substances are unable to assume the costs. Second, the likelihood of a CERCLA response action being needed, as well as the costs of such a response action, are likely to be higher where protective management practices were not utilized during facility operations. The proposed rule discussed information assembled by EPA in the record for the action, which included information on legacy practices and legacy contamination, as well as information not related to risk. Based on that record, EPA had proposed to presume that hardrock mining facilities as a class present the type of risks that section 108(b) addresses. The proposed rule then proceeded to establish a methodology to determine a level of financial responsibility in accordance with a proposed formula. The formula then allowed adjustments to the level of those requirements if a facility could demonstrate site specific conditions that rebut the presumption that the hardrock mining facilities that would be regulated under the rule pose a risk. EPA proposed limiting the applicability of the rule to owners and operators of facilities that are authorized to operate or should be authorized to operate on the effective date of the rule (hereinafter referred to as “current hardrock mining operations”). The proposed rule relied, in part, on the grounds that these owners and operators are more likely to further the regulatory goals of section 108(b) requirements than are owners and operators of facilities that are closed or abandoned. EPA also proposed limiting the applicability of the rule to current hardrock mining operations because those facilities are readily identifiable and, since they are ongoing concerns, they are more likely to be able to obtain the kind of financial responsibility necessary under the regulation. 15

On February 21, 2018, EPA issued its final section 108(b) rule for the hardrock mining industry, concluding that it was not appropriate to establish financial responsibility requirements on this class of facilities. The Agency stated that despite its focus on currently operating facilities, the proposed rule relied on a record of releases of hazardous substances from facilities and payments to respond to such releases that did not present the same risk profile as the facilities operating under modern conditions to which the rule would apply. These modern conditions, the Agency stated, include state and federal regulatory requirements and financial responsibility requirements that currently apply to operating facilities. As a result, EPA determined that the analysis of risk presented in the proposed rule was inconsistent with the scope of the proposed rule and EPA's intended approach under the statute. The final rulemaking did not seek to rely on historical practices, many of which would be illegal under current environmental laws and regulations, to identify the degree and duration of risk posed by the facilities that would be subject to financial responsibility requirements. Instead, in the final rulemaking EPA considered modern federal and state regulation of hazardous substance production, transportation, treatment, storage, or disposal at hardrock mining facilities. EPA concluded the record did not document significant risks associated with such facilities. Further, the final rulemaking did not rely on the cost of responding to historic mining activities and instead reflected the reduction in the risk of federally financed response actions at modern hardrock mining facilities that result from modern practices and modern regulation. EPA concluded that the record demonstrated that, with a few exceptions, EPA had made minimal Fund expenditures for modern hardrock mining operations. EPA also engaged in significant discussions with, and received significant comments from, commercial insurers and other financial instrument providers. These providers suggested that the availability of financial responsibility instruments in the form and amount proposed by EPA may be limited for regulated entities, should EPA require companies to obtain them. Thus, to the extent that risks remain at current hardrock mining operations, the information provided by commenters further convinced EPA that it was not appropriate to establish financial responsibility requirements on this class of facilities. EPA also concluded that issuing final financial responsibility requirements was not necessary to achieve the stated goals of the proposed section 108(b) rules for hardrock mining, namely, the goal to increase the likelihood that regulated entities will provide funds necessary to address CERCLA liabilities if and when they arise, and the goal to create an incentive for sound practices. EPA's economic analysis showing that the proposed rule would avoid governmental costs of only $15-$15.5 million a year supported that conclusion. Based on these estimates, commenters objected that the projected annualized costs to industry ($111-$171 million) were an order of magnitude higher than the avoided costs to the government ($15-15.5 million) sought by the proposed rule. Further, given the fact that federal and state laws, including potential liability under CERCLA, already created incentives for sound practices, promulgating additional financial responsibility regulations for hardrock mining facilities under Section 108(b) also was not necessary to advance that goal.

After publication of the final section 108(b) rule for hardrock mining facilities, Environmental groups timely filed a petition for review challenging the final rulemaking, asserting that: (1) EPA's statutory interpretation was incorrect, (2) EPA's decision was arbitrary and capricious, and (3) the promulgated final action was not a logical outgrowth of the proposal. 16 On July 19, 2019, the D.C. Circuit upheld EPA's regulatory action and denied the petition for review. 17

With respect to EPA's statutory interpretation of section 108(b), the court rejected the Petitioners' argument that EPA had misinterpreted “risk” in 108(b) as limited to financial risk. The court explained that, typically, a word repeated in different parts of a single provision has the same meaning throughout that provision, but it can have different meanings if the relevant subject-matter or conditions are different. See, Weaver v. U.S. Info. Agency, 87 F.3d 1429, 1437 (D.C. Cir. 1996). The court noted that while the prioritization clause of Section 108(b)(1) refers to risk to human health and the environment, the scope of “risk” is ambiguous in the general mandate of section 108(b)(1) and the amount clause of section 108(b)(2). In light of the differences among the three clauses, the court held that EPA reasonably interpreted “risk” in the latter two clauses to relate only to financial risks. 18

The court also disagreed with the Petitioners' argument that the mandatory language of section 108(b) required EPA to set financial responsibility requirements for the hardrock mining industry. While the court acknowledged that section 108(b) says that EPA “shall” set requirements for certain classes of facilities, the statute gives EPA discretion to determine which classes of facilities to regulate. 19

Lastly, the court rejected the Petitioners' argument that EPA had failed to account adequately for risks to health and the environment. The court dispensed with this claim, having decided earlier that EPA had reasonably interpreted “risk” in the two relevant clauses of section 108(b) to relate only to financial risk of Fund expenditures. 20

The court also rejected Petitioners' argument that EPA ignored some financial risks and relied on faulty economic analysis. The court concluded that EPA had analyzed the appropriate financial considerations, and the court found no “serious flaw” in EPA's economic analysis. 21

EPA's statutory interpretation, upheld by the D.C. Circuit as described above, provided the basis for the analytic approach followed in the hardrock mining final rule and subsequently used in the proposals being finalized in this document. EPA is reiterating the statutory interpretation presented in the CERCLA section 108(b) Hardrock Mining Final Rule, and does not intend to reopen this interpretation. The analyses relied upon in the rulemakings that are the subject of today's document were consistent with this statutory interpretation.

CERCLA section 108(b) provides general instructions on how to determine what financial responsibility requirements to impose for a particular class of facility. Section 108(b)(1) directs EPA to develop regulations requiring owners and operators of facilities to establish evidence of financial responsibility “consistent with the degree and duration of risk associated with the production, transportation, treatment, storage, or disposal of hazardous substances.” Section 108(b)(2) directs that the “level of financial responsibility shall be initially established and, when necessary, adjusted to protect against the level of risk” that EPA “believes is appropriate based on the payment experience of the Fund, commercial insurers, courts settlements and judgments, and voluntary claims satisfaction.” EPA interprets the risk to be addressed by financial responsibility under section 108(b) as the risk of the need for taxpayer-financed response actions. Read together, the statutory language on determining the degree and duration of risk and on setting the level of financial responsibility confers a significant amount of discretion on EPA.

Section 108(b)(1) directs EPA to evaluate risk from a selected class of facilities, but it does not suggest that a precise calculation of risk is either necessary or feasible. Although the cost of response associated with a particular site can be ascertained only once a response action is required, any financial responsibility requirements imposed under section 108(b) would be imposed before any such response action was identified. The statute thus necessarily confers on EPA wide latitude to determine, in a section 108(b) rulemaking proceeding, what degree and duration of risk are presented by the identified class.

Section 108(b)(2) directs EPA to establish the level of financial responsibility that EPA in its discretion believes is appropriate to protect against the risk. This statutory direction does not specify a methodology for the evaluation. Rather, this decision is committed to the discretion of the EPA Administrator. While the statute provides a list of information sources on which EPA is to base its decision—the payment experience of the Superfund, commercial insurers, courts settlements and judgments, and voluntary claims satisfaction—the statute does not indicate that this list of factors is exclusive, nor does it specify how the information from these sources is to be used, such as by indicating how these categories are to be weighted relative to one another.

EPA believes that sections 108(b)(1) and (b)(2) are sufficiently interrelated that it is appropriate to evaluate the degree and duration of risk under subsection (b)(1) by considering the factors enumerated in subsection (b)(2). EPA therefore concludes that Congress intended the risk associated with a particular class of facilities to mean the risk of future Fund-financed cleanup actions in that industry. This reading is supported by the structure of the statute, as section 108(b) appears between two provisions, Sections 108(a) and 108(c), related to cost recovery. Section 108(a), concerning financial assurance requirements for certain vessels, refers specifically to cleanup costs. And section 108(c), concerning recovery of costs from guarantors who provide the financial responsibility instruments, refers specifically to liability for cleanup costs. EPA thus reads “risk” in the general mandate of section 108(b)(1) and in the amount clause of section 108(b)(2) consistent with its meaning in sections 108(a) and (c); that is, the risk of Fund-financed cleanup. EPA adopted this interpretation in assessing the need for financial responsibility requirements under CERCLA section 108(b) for facilities in the first class of facilities it evaluated: the hardrock mining industry. 22 In its opinion deciding the challenge to the final action for the hardrock mining industry, the U.S. Court of Appeals for the District of Columbia Circuit held that EPA's interpretation that the provisions of section 108(b) “relate only to ensuring against financial risks associated with cleanup costs,” is reasonable and entitled to deference. 23

For the additional industry classes, EPA has investigated the payment history of the Fund, and enforcement settlements and judgments, to evaluate, in the context of these CERCLA section 108(b) rulemakings, the risk of a Fund-financed response action at facilities that would be subject to CERCLA financial responsibility requirements. The statute also authorizes EPA to consider the existence of federal and state regulatory requirements, including any financial responsibility requirements. Section 108(b)(1) directs EPA to promulgate financial responsibility requirements “in addition to those under subtitle C of the Solid Waste Disposal Act and other Federal law.” According to the 1980 Senate Report on legislation that was later enacted as CERCLA, Congress considered it appropriate for EPA to examine those additional requirements when evaluating the degree and duration of risk under the language that was later enacted as CERCLA section 108(b):

While the Senate Report mentions RCRA Section 3004(6) specifically, it is consistent with congressional intent for EPA to consider other potentially duplicative federal financial responsibility requirements when examining the “degree and duration of risk” in the context of CERCLA Section 108(b) to determine whether and what financial responsibility requirements are appropriate. It is also consistent with congressional intent for EPA to consider state laws before imposing additional federal financial responsibility requirements.

Consideration of state laws before developing financial responsibility regulations is consistent with CERCLA Section 114(d), which prevents states from imposing financial responsibility requirements for liability for releases of the same hazardous substances after a facility is regulated under Section 108 of CERCLA. Just as Congress intended to prevent states from imposing duplicative financial assurance requirements after EPA had acted to impose such requirements under Section 108, it is reasonable to also conclude that Congress did not mean for EPA to disrupt existing state programs that are successfully regulating industrial operations to minimize risk, including the risk of taxpayer liability for response actions under CERCLA, and that specifically include appropriate financial assurance requirements under state law. Reviews of both state programs and other federal programs help to identify whether and at what level there is current risk that is appropriate to address under CERCLA Section 108.

EPA also believes that, when evaluating whether and at what level it is appropriate to require evidence of financial responsibility, EPA should examine information on facilities in the subject universes operating under modern conditions. In other words, EPA should assess the types of facilities to which any new financial responsibility regulations would apply. Financial responsibility requirements under Section 108(b) would not apply to legacy operations that are no longer operating. Rather, any requirements would apply to facilities that follow current industry practices and are subject to the modern regulatory framework ( i.e., the regulations currently in place that apply to the industry). These modern conditions include federal and state regulatory requirements and financial responsibility requirements that currently apply to operating facilities. This reading of Section 108(b) is consistent with statements in the legislative history of the statute. The 1980 Senate Report states that the legislative language that became Section 108(b) “requires those engaged in businesses involving hazardous substances to maintain evidence of financial responsibility commensurate with the risk which they present.”  25 This approach is also consistent with the analysis that EPA undertook, in developing its Final Action on Financial Responsibility Requirements Under CERCLA Section 108(b) for Classes of Facilities in the Hardrock Mining Industry. 26 As described above in section III.B.5.c, EPA's approach was upheld by the U.S. Court of Appeals for the District of Columbia Circuit. 27

This statutory interpretation is also reflected in today's final actions. Any financial responsibility requirements imposed under Section 108(b) would apply to currently operating facilities. EPA thus sought to examine the extent to which hazardous substance management at currently operating facilities, as three individual classes, continues to present risk. Moreover, the statutory direction to identify requirements consistent with identified risks guides EPA's interpretation that imposition of financial responsibility requirements under Section 108(b) would not be necessary for currently operating facilities that present minimal current risk of a Fund-financed response action. The interpretation in this proposal does not extend to any site-specific determinations of risk made in the context of individual CERCLA site responses. Those decisions will continue to be made in accordance with preexisting procedures.

As the basis for EPA's proposed and final rulemakings, EPA has examined records of releases of hazardous substances from facilities operating under a modern regulatory framework and data on the actions taken and expenditures incurred in response to such releases. The data collected do not reflect historical practices, many of which would be illegal under current environmental laws and regulations. Instead, EPA has considered current federal and state regulation of hazardous substance production, transportation, treatment, storage, or disposal applicable to facilities in the electric power generation, transmission and distribution industry; the petroleum and coal products manufacturing industry; and the chemical manufacturing industry.

On July 29, 2019, EPA published a notice of proposed rulemaking (NPRM) on the first of the three additional industries. 28 In that document, the Agency proposed to not impose financial responsibility requirements for the electric power generation, transmission, and distribution industry and described the analyses and results that were used to reach that decision. 29 The Agency received 27 comments on this proposed rulemaking. Comments received on the proposal and the Agency's responses are laid out in the Response to Comments document found in the docket to this final rulemaking. 30

Of the 27 comments received on the July 19, 2019 NPRM, 12 were in support of the Agency's proposal to not impose financial responsibility requirements for the electric power generation, transmission, and distribution industry and 15 were opposed.

Seven of the comments the Agency received that supported the proposed rule were from companies in the electric utility industry. In addition, supporting comments were received from the Utility Solid Waste Activities Group, the Superfund Settlements Project, the American Coal Council, the National Mining Association, and a multi- industry comment from the U.S. Chamber of Commerce.

Commenters commended EPA for its consistency in the application of its analysis and methodology from the hardrock mining final action to the electric power generation, transmission and distribution industry. Commenters expressed that EPA had appropriately evaluated the risk of the industry and agreed that modern voluntary industry practices and existing federal and state regulations provide an effective framework for risk minimization. Thus, they found the conclusion that additional financial responsibility requirements were not warranted to be reasonable and encouraged the Agency to finalize the decision.

Twelve of the comments the Agency received that were opposed to the proposed rule were from private citizens. The commenters were concerned that the electric power generation, transmission, and distribution industry should be held accountable for environmental damages that resulted from their actions. Several commenters mentioned wildfires that occurred in California in 2018. It should be noted that the Agency's decision to not impose financial responsibility requirements under Section 108(b) does not diminish liability under CERCLA, and the cost of cleanups will continue to be the responsibility of the PRPs, not the Fund. In addition, comments opposing the proposed rule were received from Earthjustice, the Human Rights Watch, and the Chickaloon Village Traditional Council. Earthjustice submitted comments on behalf of Sierra Club, Earthworks, Environmental Integrity Project, and Western Organization of Resource Councils.

Many of the comments received on the electric power generation, transmission and distribution industry proposal were critical of the Agency's interpretation of the statute and the analyses EPA conducted to conclude that no CERCLA Section 108(b) financial responsibility rules are appropriate. The statutory interpretation presented in the CERCLA Section 108(b) Hardrock Mining Final Rule (described in Statutory Interpretation section above) continues to be the view of the Agency, and that interpretation is not reopened here. After consideration of the critical comments, EPA still concludes that the analyses conducted and information considered were appropriate, consistent with CERCLA, and show that risk posed by the electric power generation, transmission and distribution industry does not warrant financial responsibility requirements under CERCLA Section 108(b).

As part of its electric power generation, transmission and distribution industry proposal, EPA systematically evaluated CERCLA NPL, Superfund Alternative Approach (SAA), and removal sites and Coal Combustion Residuals (CCR) damage cases in the industry where cleanup actions and releases occurred. Specifically, EPA developed an analytic approach that considered cleanup cases to identify risk at currently operating facilities and where taxpayer funds were expended for response action. See discussion in the proposed rule  31 for a detailed description of the analysis conducted. EPA's review of the Superfund NPL, SAA, and removal sites associated with the industry, and CCR damage cases identified as part of the 2015 CCR rule, found that, overwhelmingly, the industry was operating responsibly within the current modern regulatory framework. In fact, EPA's analysis determined that only two facilities in the industry had releases under the modern regulatory framework that required a Fund-financed response action. As a matter of due diligence, EPA conducted additional research into instances of releases or accidents at facilities in the industry cited in comments on the proposal. This additional research did not identify any new examples of the Superfund program bearing the costs of a cleanup. In fact, most of the issues were legacy matters from the 1970s and 80s, which the owner or operator of the facility addressed. EPA believes that the small set of federally funded cleanup cases due to recent contamination does not warrant the imposition of financial responsibility requirements on the entire electric power generation, transmission and distribution industry under CERCLA Section 108(b).

Additionally, as part of its proposal, to understand the modern regulatory framework applicable to currently operating facilities within the electric power generation, transmission and distribution industry, EPA compiled applicable federal and state regulations. 32 Specifically, EPA looked to regulations that address the types of releases identified in the cleanup cases. This review also considered industry voluntary programs that could reduce risk of releases. Finally, EPA also identified financial responsibility regulations that apply to facilities in the electric power generation, transmission and distribution industry, 33 and compliance and enforcement history for the relevant regulations. 34 Based on this review, and after reviewing the comments received, EPA maintains its preliminary conclusion that the network of federal and state regulations applicable to the electric power generation, transmission, and distribution industry creates a comprehensive framework that applies to prevent releases that could result in a need for a Fund-financed response action.

As discussed in the July 29, 2019 proposed rule, EPA had developed an analytic approach to determine whether the current risk under a modern regulatory framework within the electric power generation, transmission and distribution industry rose to a level that warrants imposition of financial responsibility requirements under CERCLA Section 108(b). 35 Earthjustice commented that the term “modern” is not an objective standard, and that it “will change any time any new federal or state law is adopted. In effect, under this approach, if a new law is adopted tomorrow, EPA can use that law as a basis for ignoring all relevant evidence, without regard to whether the new law meaningfully addresses the risk of contamination.”  36 While the Agency agrees the term modern can be subjective, it is used in this case to distinguish the current regulatory landscape versus the one that existed at the time of the passage of the CERCLA statute. Acknowledgment of current federal and state laws that specifically address risks posed by this industry is appropriate to consider in determining whether there is risk of future Fund expenditures. In particular, in the proposal, EPA identified the prevalent sources of risk that were identified in the cleanup cases reviewed. EPA then evaluated the extent to which activities that contributed to the risk associated with the production, transportation, treatment, storage, or disposal of hazardous substances are now regulated. EPA recognized that substantial advances had been made in the development of manufacturing, pollution control, and waste management practices, as well as the implementation of federal and state regulatory programs to both prevent and address such releases at facilities in the electric power generation, transmission, and distribution industry. This analysis is consistent with the approach utilized in the Final Action for Facilities in the Hardrock Mining Industry and upheld by the D.C. Circuit. 37

Earthjustice also raised the point that the existence of federal and state regulations does not ensure prevention of releases, and that legacy contamination exists at currently operating facilities. EPA notes that financial responsibility requirements under Section 108(b) would not apply to legacy operations that are no longer operating. Rather, any Section 108(b) requirements would apply to facilities that follow current industry practices and are subject to the modern regulatory framework ( i.e., the regulations currently in place that apply to the industry). These modern conditions include federal and state regulatory requirements and financial responsibility requirements that currently apply to operating facilities. In contrast to Earthjustice's point, EPA's analysis found that the efficacy of current regulations, as well as voluntary industry practices, while difficult to quantify, have had a demonstrably positive effect in reducing the number of cleanups that require taxpayer expenditures. This was borne out in the analyses conducted in the proposed rule, the results of which indicated that there was no need for further financial responsibility requirements on this industry. An example of an important risk reducing requirement, which targets both legacy and future releases, is the requirement for groundwater monitoring and for corrective action in the 2015 Coal Combustion Residuals rule, for which implementation is ongoing. 38 EPA's 2015 CCR Rule established a first-ever comprehensive set of minimum requirements for the management and disposal of coal ash in landfills and surface impoundments. Among the key requirements included in the rule were structural integrity criteria for CCR surface impoundments, such as periodic hazard potential classification assessments, development of an Emergency Action Plan, periodic structural stability assessments that must document whether the design, construction, operation and maintenance of the unit meets certain stability criteria; periodic safety factor assessments (that must be met or closure will be required); and routine inspections. The rule also required the installation of groundwater monitoring wells and an ongoing groundwater monitoring program designed to detect releases of critical constituents, as well as requirements to clean up any releases. The combination of these requirements and others in the rule have substantially mitigated the risks from these facilities.

The 2015 CCR Rule also established timelines and standards for closure and post-closure care. Specifically, the rule requires all CCR units to close in accordance with specified standards and to monitor and maintain the units for a period of time after closure, including the groundwater monitoring and corrective action programs. These criteria help ensure the long-term safety of closed CCR units.

Earthjustice and Human Rights Watch opposed the Agency's reliance on the Disposal of Coal Combustion Residuals from Electric Utilities Final Rule to evaluate risk posed by this industry for two reasons—first, commenters argued, because it has no proven track record, and secondly, the Agency has had to reconsider, on remand, portions of the 2015 rule as a result of the decision in Utility Solid Waste Activities Group (USWAG) et al. v. EPA. 39 In fact, the USWAG decision invalidated only a limited portion of the 2015 rule. Furthermore, the Water Infrastructure Improvements for the Nation Act (WIIN Act) of 2016 has enhanced the program by providing EPA additional authorities. Section 2301 of the WIIN Act amends Section 4005 of RCRA to provide for state CCR permit programs. As a consequence of the D.C. Circuit's decision in USWAG, unlined, including clay lined, surface impoundments must cease receipt of waste and initiate closure, which will further reduce risks to human health and the environment. To implement this decision, EPA recently promulgated regulations requiring that unlined surface impoundments and CCR units that fail the aquifer location restriction cease receiving waste and initiate closure by April 11, 2021, unless a facility qualifies for one of two narrow extensions. Further, EPA is working on developing a permit program that will increase the oversight of these facilities. Finally, EPA is diligently working with many states to aid in the development of state CCR permitting programs that are at least as protective as the federal CCR regulations. Before the 2015 CCR Rule was promulgated, states were not required to adopt or implement the regulations or to develop a permit program. It also did not provide a mechanism for EPA to approve a state permit program to operate “in lieu of” the federal regulations. The WIIN Act provides EPA the authority to review and approve state CCR permit programs. The Act also allows EPA to develop permits for those units located on tribal lands and, if given specific appropriations, EPA will develop a permitting program for those units located in non-participating states. In addition, EPA must review State permit programs at least once every 12 years and in certain specific situations. The WIIN Act also expands the enforcement authorities available to EPA. EPA may use its information gathering and enforcement authorities under RCRA Sections 3007 and 3008 to enforce the 2015 CCR Rule or permit provisions. All of these actions will further ensure that CCR units are properly regulated to protect human health and the environment. Moreover, EPA notes that the Electric Power sector has generated very few Superfund sites even prior to the 2015 CCR rule.

Earthjustice disagreed with EPA's screening out from its analyses sites where the response actions were funded by private parties as opposed to the government. Earthjustice suggested that it is contrary to CERCLA to focus only on financial risk. In addition, Earthjustice raised concerns about the magnitude and potential long duration of cleanups in the industry, in particular at coal ash facilities.

As a primary matter, EPA's approach and the factors the Agency considered to determine whether or not financial responsibility requirement were appropriate for the electric power generation, transmission, and distribution industry is consistent with CERCLA (see Statutory Interpretation section above). A chief factor was the results of EPA's cleanup case analysis which involved a systematic examination of Superfund sites (NPL, removal, SAA) and CCR damage cases. EPA's analysis, described in detail in section VII of the proposed rule, 40 showed that facilities in the sector have not historically burdened the Fund. First, the Agency identified very few NPL sites with pollution associated with the electric power generation, transmission, and distribution industry. Of the only five NPL sites associated with the Electric Power industry identified, all were either the product of legacy contamination or had PRP leads conducting the cleanup. The Agency also reviewed 27 CCR damage cases and 24 Superfund removal sites associated with the industry and identified only two removal sites where addressing pollution from a modern operation required Superfund expenditures. This minimal historical fund burden is, in part, due to the fact that the potentially responsible parties (PRPs) led many of the cleanups identified. For example, all of the NPL sites associated with the industry were PRP-led as were all of the CCR damage cases for which cleanup lead information was available. Further supporting this finding is the fact that when a cleanup is required under Superfund or corrective action, financial assurance is typically required. Moreover, as discussed below, EPA conducted additional research into examples of releases at facilities in the electric power generation, transmission, and distribution industry identified by commenters. That additional research did not identify any new examples of the Superfund program bearing the costs of a cleanup. The limited number of actions within the sector, combined with its track record of funding cleanups weighs against the need for regulation under CERCLA Section 108(b).

The comment also intended to suggest that CERCLA Section 108(b) financial responsibility could promote rapid cleanup in instances of pollution. As a primary matter, this is not necessarily the case. EPA believes any CERCLA Section 108(b) financial responsibility required for any industry would complement existing Superfund processes by offering a financial backstop for CERCLA costs and damages (see the relevant language at 84 FR 3400 included in the hardrock mining proposal). The financial responsibility would not modify the existing Superfund enforcement authorities, including those to gather information, identify responsible parties, effect cleanup (especially through EPA's enforcement first policy), assess penalties, or provide for citizen suits. In instances where releases occurred that required a Superfund cleanup the same Superfund process would occur as does today.

Of note is that the Superfund program protects human health and the environment regardless of whether or not financial responsibility is in place. EPA can invoke its enforcement authorities to protect human health and the environment. For example, EPA can issue a Unilateral Administrative Order or conduct a removal action to mitigate potential risks posed by the site conditions. If the Agency has to use fund resources to conduct a cleanup, EPA can take an enforcement action to recover its CERCLA costs and replenish government resources. It is thus not accurate to suggest a lack of CERCLA Section 108(b) financial responsibility would result in delays of cleanup and therefore an increased risk to human health and the environment.

Earthjustice took issue with EPA's interpretation of the statute, stating that EPA's “interpretation of the statute to focus solely on the risk of a taxpayer bailout of insolvent companies is contrary to law, because this is not the purpose of CERCLA.”  41 Earthjustice contends that EPA ignored significant risks to human health and the environment. The primary example offered by the commenters was risk to human health and drinking water sources from coal ash. EPA believes that the site analysis for this rulemaking effectively considered human health and environmental risk in multiple steps. First, EPA examined through the Agency's industry practices and environmental characterization analysis the operational practices and environmental profile of the electric power generation, transmission, and distribution industry. This analysis included an examination of the potentially hazardous materials used in the industry, hazardous wastes generated by industry processes, the units used to manage wastes at these sites, how on-site management of these materials can potentially contribute to releases, and what contaminants might be released by the industry that could impact human health and the environment. Next, EPA investigated in what ways the industry is subject to a wide range of modern federal and state regulatory requirements and enforcement oversight imposed to address this potential human health and environment risk. In these analyses, EPA outlined the framework of modern federal and state regulatory programs to which the industry is subject, 42 and also examined compliance and enforcement for the industry, 43 which collectively demonstrate how these components work to address potential risk for modern industry operations. Overall, EPA's full analytic approach developed for the proposed rule examined sites with a variety of contaminants and contaminated media. In effect, the analysis considered the types of human health and environmental risk the Superfund program was designed to address, and that would be addressed by any CERCLA Section 108(b) financial responsibility. This analysis employed by the Agency is consistent with EPA's interpretation of the statutory language and was upheld by the D.C. Circuit, 44 which found that EPA's focus on risk of taxpayer-funded response actions was reasonable. Specifically, the Court stated in its decision, “we defer to the EPA's interpretation that it should set financial responsibility regulations based on financial risks, not risks to health and the environment.”  45 EPA's analysis based on this interpretation showed that there is little evidence of the facilities operating under a modern regulatory framework burdening the Fund.

An additional related concern of Earthjustice was that EPA's analysis of the economics of the industry identified risks in certain subsectors of the electric power generation, transmission, and distribution industry and thus, the commenter argues, those subsectors merit regulation under Section 108(b). To further assess these concerns related to the financial risks posed by the industry, EPA updated its analysis supporting the Economic Sector Profile originally conducted in support of the proposed rulemaking. This updated analysis finds the financial stability of the industry relatively unchanged from the original report, further suggesting that the economic conditions of the industry as a whole are not at undue risk. 46 Numerous commenters also provided further evidence in response to information presented in the proposed rule regarding the positive economic standing of the electric power generation, transmission, and distribution industry. Commenters attributed the positive economic standing to attributes such as the industry's critical monopolistic commodity, inherent governmental nature and oversight, transparent corporate structures, public service goals, broad adherence to strict accounting standards set forth by the Governmental Accounting Standards Board (GASB), and lower relative costs of securing capital.

Some commenters also pointed more specifically to the market decline in coal-fired power generation as a source of particular concern. In both the original Economic Sector Profile and Updated Addendum, EPA acknowledges that this subsector is in a period of transition and on weaker standing compared to the industry overall. However, analyses by the U.S. Energy Information Agency (EIA) forecast that by 2025, the rate of coal plant retirements will stabilize, with steady coal-based generation thereafter over the longer term. 47 Furthermore, characteristics of diversity in terms of organizational structure, ownership type, and energy portfolios are expected to help further stabilize this subsector. Thus, while the subsector may experience a continued decline in capacity and generation levels in the near term, it is forecasted to stabilize and continue to play a material role in electricity generation for decades, even as renewable generation capacity increases significantly. As such, EPA believes that, as with the industry as a whole, the financial stability of this subsector similarly negates the need for regulation under CERCLA Section 108(b).

Also included in the comments were examples of recent accidents and releases at facilities in the electric power generation, transmission, and distribution industry, in particular facilities that manage CCRs. EPA appreciated the comments and undertook additional due diligence to examine some of these releases and accidents referenced by the commenter. While most accidents and releases do not lead to Superfund responses, Fund expenditures, or CERCLA liability claims, and the commenters provided no indication a Superfund response resulted from the incidents in question, EPA acknowledged the possibility that some of these releases and accidents may have required Superfund actions, which the Agency may have missed in the analysis conducted as part of the proposal. As such, EPA examined a selection of the cases referenced by the commenter to better understand the consequences of these incidents, to the extent possible.

In the case of the electric power generation, transmission, and distribution industry proposal, many of the referenced releases were legacy issues which the 2015 CCR rule was designed to address. EPA did not conduct further research into these examples. Likewise, EPA did not conduct further research into accidents and releases referenced by commenters that were already accounted for in the proposed rule. Only a small number of facilities with releases identified by commenters may have represented instances of pollution occurring under a modern regulatory framework resulting in a taxpayer funded Superfund action that were not already accounted for by the EPA proposal. EPA examined these few facilities in greater detail. In all cases, EPA determined that the contamination was a legacy issue stemming from the 1970s and 1980s. Moreover, the pollution was abated, and the owner or operator has or is addressing the issue in all of the cases. As such, EPA does not believe the incidents cited by commenters merit a change in direction from the original proposal. More information on the incidents cited by commenters and researched by EPA is provided in the docket in the spreadsheet titled NAICS 2211 Incident research containing the information gathered, information sources considered and summary findings. 48

Based on the analyses conducted for the July 29, 2019 proposed rule, described in detail in the background documents for that document, as well as additional analyses conducted in response to comments received on that document, the Agency is finalizing the decision that the degree and duration of risk posed by the electric power generation, transmission and distribution industry does not warrant financial responsibility requirements under CERCLA Section 108(b). As such, this rulemaking will not impose CERCLA Section 108(b) financial responsibility requirements for facilities in the electric power generation, transmission, and distribution industry. EPA did not receive evidence from any commenter that changed the Agency's determination from that proposed previously.

Central to this final rulemaking decision is EPA's position that the analyses conducted for the proposal are consistent with the statutory language of CERCLA Section 108(b), described in Section IV above ( Statutory Interpretation ). EPA is further assured of this position following the decision by the D.C. Circuit that upheld EPA's interpretation of the statutory language of CERCLA Section 108(b). 49 The analyses consistent with this interpretation showed that under the modern regulatory framework that applies to the electric power generation, transmission, and distribution industry, little evidence of burden to the Fund by facilities in this industry exists.

EPA believes that the evaluation of the electric power generation, transmission and distribution industry conclusively demonstrates, by the low occurrence of cleanup sites that significantly impact the Fund, low risk of a Fund-financed response action at current electric power generation, transmission and distribution operations. The reduction in risks, relative to when CERCLA was first established, attributable to the requirements of existing regulatory programs and voluntary practices combined with reduced costs to the taxpayer—demonstrated by EPA's cleanup case analysis, existing financial responsibility requirements, and enforcement actions—has reduced the need for federally-financed response action at facilities in the electric power generation, transmission and distribution industry.

On December 23, 2019, EPA published a notice of proposed rulemaking (NPRM) on the second of the three additional industries. 50 In that document, the Agency proposed to not impose financial responsibility requirements for the petroleum and coal products manufacturing industry and described the analyses and results that were used to reach that decision. The Agency received 10,381 comments on this proposed rulemaking, of which 10,216 were from a mass mail campaign and 165 comments were unique. Comments received on the proposal and the Agency's responses are laid out in the Response to Comments document found in the docket to this final rulemaking. 51

Of the 165 unique comments received on the December 23, 2019 NPRM, 6 were in support of the Agency's proposal to not impose financial responsibility requirements for the petroleum and coal products manufacturing industry and 159 were opposed, which includes 142 comments that were associated with the mass mail campaign and 17 other unique comments.

The Agency received comments from the American Coke and Coal Chemicals Institute, the American Fuel and Petrochemical Manufacturers, the American Petroleum Institute (API), Sun Coke Energy, the Superfund Settlements Project, and a multi-industry comment from the U.S. Chamber of Commerce in support of the proposed rule.

Commenters in support of the proposal said that petroleum refineries are owned by very large and stable companies with superior economic resources, and that modern regulations adequately mitigate risks posed by the industry. One commenter stated that “of all the petroleum refineries that have closed since 1990, not a single facility has been added to the NPL that required the expenditure of public funds.” Further, they added that “legacy sites that have been addressed through Superfund largely operated prior to the implementation of the modern regulatory system and are not representative of today's petroleum refinery operations.”  52

In addition, commenters on the petroleum and coal products manufacturing industry proposal positively cited the July 19, 2019 opinion from the D.C. Circuit, as support for the Agency's final action to not impose CERCLA Section 108(b) financial responsibility requirements for facilities in the petroleum and coal products manufacturing industry. 53

Of the 159 comments received that were opposed to the proposed rule, 158 were from private citizens, including 142 comments that were associated with the mass mail campaign and 16 other unique comments, and one was from Earthjustice. The comments from private citizens concerned holding petroleum and coal products manufacturers accountable for environmental damages as a result of their actions. Many commenters were under the belief that the Agency was “rolling back” existing regulations requiring industry accountability. In fact, this rulemaking does not revoke or reverse any existing regulations. As with the other industries, the Agency's decision to not impose financial responsibility requirements under Section 108(b) does not diminish liability under CERCLA, and the cost of cleanups will continue to be the responsibility of the PRPs, not the Fund. Earthjustice submitted comments on behalf of Communities for a Better Environment, Center for Biological Diversity, Earthworks, Sierra Club, Idaho Conservation League, Amigos Bravos, Great Basin Resource Watch, and Public Citizen.

Many of the comments received on the petroleum and coal products manufacturing industry proposal were critical of the Agency's interpretation of the statute and the analyses EPA conducted to conclude that no CERCLA Section 108(b) financial responsibility rules are necessary. The statutory interpretation presented in the CERCLA Section 108(b) Hardrock Mining Final Rule (described in Statutory Interpretation section above) continues to be the view of the Agency, and that interpretation is not reopened here. After consideration of the critical comments, EPA still concludes that the analyses conducted and information considered were appropriate, consistent with CERCLA, and show that risk posed by the petroleum and coal products manufacturing industry does not warrant financial responsibility requirements under CERCLA Section 108(b).

As part of its petroleum and coal products manufacturing industry proposal, EPA systematically evaluated CERCLA NPL, Superfund Alternative Approach (SAA), and removal sites in the industry where releases and cleanup actions occurred. Specifically, EPA developed an analytic approach that considered cleanup cases to identify risk at currently operating facilities and where taxpayer funds were expended for response action. See discussion in the proposed rule  54 for a detailed description of the analysis conducted. EPA's review of the Superfund NPL, SAA, and removal sites associated with the industry found that, overwhelmingly, the industry was practicing responsibly within the current regulatory framework, with just one site indicating a significant impact to the Fund while operating under the modern regulatory framework. EPA described this site in detail in the Removals Site Analysis background document to the proposal. 55 EPA believes that the small set of federally funded cleanup cases due to recent contamination does not warrant the imposition of costly financial responsibility requirements on the entire petroleum and coal products manufacturing industry under CERCLA Section 108(b).

Additionally, as part of its proposal, to understand the modern regulatory framework applicable to currently operating facilities within the petroleum and coal products manufacturing industry, EPA compiled applicable federal and state regulations. 56 Specifically, EPA looked to regulations that address the types of releases identified in the cleanup cases. This review also considered industry voluntary programs that could reduce risk of releases. Finally, EPA also identified financial responsibility regulations that apply to facilities in the petroleum and coal products manufacturing industry, 57 and compliance and enforcement history for the relevant regulations. 58 Based on this review, and after reviewing the comments received, EPA maintains its preliminary conclusion that the network of federal and state regulations applicable to the petroleum and coal products manufacturing industry creates a comprehensive framework that applies to prevent releases that could result in a need for a Fund-financed response action.

As discussed in the December 23, 2019 proposed rule, EPA had developed an analytic approach to determine whether the current risk under a modern regulatory framework within the petroleum and coal products manufacturing industry rose to a level that warrants imposition of financial responsibility requirements under CERCLA Section 108(b). 59 Earthjustice commented that relying on the term “modern” is EPA's “basis for ignoring significant evidence of risk.”  60 The Agency uses the term modern in this case to distinguish the current regulatory landscape versus the one that existed at the time of the passage of the CERCLA statute. Acknowledgment of current federal and state laws that specifically address risks posed by this industry is appropriate to consider in determining whether there is risk of future Fund expenditures. In particular, in the proposal, EPA identified the prevalent sources of risk that were identified in the cleanup cases reviewed. EPA then evaluated the extent to which activities that contributed to the risk associated with the production, transportation, treatment, storage, or disposal of hazardous substances are now regulated. EPA recognized that substantial advances had been made in the development of manufacturing, pollution control, and waste management practices, as well as the implementation of federal and state regulatory programs to both prevent and address such releases at facilities in the petroleum and coal products manufacturing industry. This analysis is consistent with the approach utilized in the Final Action for Facilities in the Hardrock Mining Industry and upheld by the D.C. Circuit. 61

Earthjustice also raised the point that the existence of federal and state regulations does not ensure prevention of releases, and that legacy contamination exists at currently operating facilities. EPA notes that financial responsibility requirements under Section 108(b) would not apply to legacy operations that are no longer operating. Rather, any Section 108(b) requirements would apply to facilities that follow current industry practices and are subject to the modern regulatory framework ( i.e., the regulations currently in place that apply to the industry). These modern conditions include federal and state regulatory requirements and financial responsibility requirements that currently apply to operating facilities. In contrast to Earthjustice's point, EPA's analysis found that the efficacy of current regulations, as well as voluntary industry practices, while difficult to quantify, have had a demonstrably positive effect in reducing the number of cleanups that require taxpayer expenditures. This was borne out in the analyses conducted in the proposed rule, the results of which indicated that there was no need for further financial responsibility requirements on this industry.

Earthjustice disagreed with EPA's screening out from its analyses sites where the response actions were funded by private parties as opposed to the government. Earthjustice suggested that it is contrary to CERCLA to focus only on financial risk. In addition, Earthjustice raised concerns about the magnitude and potential long duration of cleanups in the industry.

As a primary matter, EPA's approach and the factors the Agency considered to determine whether or not financial responsibility requirements were appropriate for the petroleum and coal products manufacturing industry is consistent with CERCLA (see Statutory Interpretation section above). A chief factor was the results of EPA's cleanup case analysis which involved a systematic examination of Superfund sites (NPL, removal, and SAA). EPA's analysis, described in detail in section VII of the proposed rule, 62 showed that facilities in the sector have not historically burdened the Fund in that the Agency identified only one site where pollution from a modern operation required significant Superfund expenditures to address. None of the NPL sites burdened the Fund with pollution that occurred while operating under a modern regulatory framework. This is, in part, due to the fact that the potentially responsible parties (PRPs) led many of the cleanups identified. For example, 19 of the 34 NPL sites associated with the industry were PRP led. Further supporting this finding is the fact that when a cleanup is required under Superfund or corrective action or RCRA, financial assurance is typically required. Moreover, as discussed below, EPA conducted additional research into examples of releases at facilities in the petroleum and coal products manufacturing industry by commenters. That additional research identified only four new examples of the Superfund program bearing the costs of a cleanup. The limited number of actions within the sector, combined with its track record of funding cleanups weighs against the need for regulation under CERCLA Section 108(b).

The comment also intended to suggest that CERCLA Section 108(b) financial responsibility could promote rapid cleanup in instances of pollution. As a primary matter, this is not necessarily the case. EPA believes any CERCLA Section 108(b) financial responsibility required for any industry would complement existing Superfund processes by offering a financial backstop for CERCLA costs and damages (see the relevant language at 84 FR 3400 included in the hardrock mining proposal). The financial responsibility would not modify the existing Superfund enforcement authorities, including those to gather information, identify responsible parties, effect cleanup (especially through EPA's enforcement first policy), assess penalties, or provide for citizen suits. In instances where releases occurred that required a Superfund cleanup, the same Superfund process would occur as does today.

Of note is that the Superfund program protects human health and the environment regardless of whether or not financial responsibility is in place. EPA can invoke its enforcement authorities to protect human health and the environment. For example, EPA can issue a Unilateral Administrative Order or conduct a removal action to mitigate potential risks posed by the site conditions. If the Agency has to use fund resources to conduct a cleanup, EPA can take an enforcement action to recover its CERCLA costs and replenish government resources. It is thus not accurate to suggest a lack of CERCLA Section 108(b) financial responsibility would result in delays of cleanup and therefore an increased risk to human health and the environment.

Earthjustice took issue with EPA's interpretation of the statute, stating that EPA's “interpretation of the statute to focus solely on the risk of a taxpayer bailout of insolvent companies is contrary to law, because this is not the purpose of CERCLA.”  63 Earthjustice contends that EPA ignored significant risks to human health and the environment. Specifically, the comment stated the Agency ignored vast amounts of data that links large oil refineries to toxic pollutants contaminating drinking water. EPA believes that the site analysis for this rulemaking effectively considered human health and environmental risk in multiple steps. First, EPA examined through the Agency's industry practices and environmental characterization analysis the operational practices and environmental profile of the petroleum and coal products manufacturing industry. This analysis included an examination of the potentially hazardous materials used in the industry, hazardous wastes generated by industry processes, the units used to manage wastes at these sites, how on-site management of these materials can potentially contribute to releases, and what contaminants might be released by the industry that could impact human health and the environment. Next, EPA investigated in what ways the industry is subject to a wide range of modern federal and state regulatory requirements and enforcement oversight imposed to address this potential human health and environment risk. In these analyses, EPA outlined the framework of modern federal and state regulatory programs to which the industry is subject, 64 and also examined compliance and enforcement for the industry, 65 which collectively demonstrate how these components work to address potential risk for modern industry operations. Overall, EPA's full analytic approach developed for the proposed rule examined sites with a variety of contaminants and contaminated media. In effect, the analysis considered the types of human health and environmental risk the Superfund program was designed to address, and that would be addressed by any CERCLA Section 108(b) financial responsibility. This analysis employed by the Agency is consistent with EPA's interpretation of the statutory language and was upheld by the D.C. Circuit, 66 which found that EPA's focus on risk of taxpayer-funded response actions was reasonable. Specifically, the Court stated in its decision, “we defer to the EPA's interpretation that it should set financial responsibility regulations based on financial risks, not risks to health and the environment.” EPA's analysis based on this interpretation showed that there is little evidence of the facilities operating under a modern regulatory framework burdening the Fund.

Many of the commenters asserted that, too often, companies file for bankruptcy and avoid financial responsibility for cleaning up harmful pollution. To further assess these concerns, EPA updated its analysis supporting the Economic Sector Profile originally conducted in support of the proposed rulemaking. This update was conducted with data available concurrent with the close of comment period for the proposed rule. This updated analysis finds the financial stability of the industry relatively unchanged from the original report, further suggesting that the economic conditions of the industry as a whole are not at undue risk. 67 In addition, no evidence was identified or provided by commenters that EPA could use to determine that companies in this industry were found to have avoided responsibility for cleanup costs that resulted in CERCLA funds being expended.

Also included in comments from Earthjustice were examples of recent accidents and releases at petroleum refineries. 68 EPA appreciated the comments and undertook additional due diligence to examine and analyze some of these releases and accidents referenced by the commenter. While most accidents and releases do not lead to Superfund responses, Fund expenditures, or CERCLA liability claims, and the commenters provided no indication a Superfund response resulted from the incidents in question, EPA acknowledged that it is possible some of these releases and accidents may have required Superfund actions which the Agency may have missed in the analysis conducted as part of the proposal. As such, EPA examined a selection of the cases referenced by Earthjustice to better understand the consequences of these incidents, to the extent possible.

In the case of the petroleum and coal products manufacturing industry proposal, the selection criteria were based on whether or not releases to land or water were indicated, whether or not data were available, and whether or not the facility was already in the Agency's record. Many of the referenced releases were in the form of data sets of compiled releases. In some cases, there was insufficient information for EPA to identify the underlying data sources or names of specific facilities and thus EPA was unable to conduct further research into those incidents. One specific site referenced, the Oklahoma Refining Company site, was already included in the NPL sites reviewed as part of the proposal and thus was not investigated further. In that case, the contamination at the site was the result of legacy practices that pre-dated RCRA and many other environmental protections. Finally, EPA did not conduct additional investigation into specific incidents of flaring identified by the commenter at refineries, as the practice is actually a common safety practice and highly unlikely to require a response action.

In addition to the facilities selected for research using the above criteria, EPA was able to conduct additional research on a sample of 20 sites provided in a data set from the California Office of Emergency Services referenced by the commenter. In total, EPA conducted research into 43 petroleum and coal products manufacturing facilities with releases or accidents identified by commenters that may have represented instances of pollution occurring under a modern regulatory framework resulting in a taxpayer funded Superfund action.

Generally, the incidents EPA researched fell into three categories: (1) Catastrophic fires, explosions, or environmental releases that endangered worker and community safety and/or caused environmental harm; (2) Clean Water Act, Clean Air Act, and RCRA violations records; and (3) flaring and other minor refinery incidents that were reported to the California Office of Emergency Services. The majority of the information collected about those incidents as part of the supplementary research effort indicated that other primary responders and enforcing agencies (such as the Occupational Safety and Health Administration (OSHA), or state and county agencies) managed the situation, or that it was unclear or unlikely that environmental contamination had occurred as a result of the incident. In total, five of the incidents resulted in EPA response action and/or expenditure. Four of these were removal actions and one an enforcement action. Of these five, the information collected suggests that EPA was able to recover its response costs from the potentially responsible parties (PRPs) at one of the sites. In the remaining four, the EPA Superfund expenditures to date have been minimal. The sites (or incidents, identified by site) and the associated expenditures (listed in parentheses) are the Philadelphia Energy Solutions site in Philadelphia, PA ($85,000), the Husky Refinery in Superior, WI ($200,000), the Chevron Refinery Fire in Richmond, CA ($16,250), and the Caribbean Petroleum Refining Tank Explosion and Fire in Bayamon, PR ($178,295). Recovery of these minimal costs is possible in light of the viable owners and operators at the sites that plan to either redevelop the site or rebuild the facility. For example, at the Philadelphia Energy Solutions site, the current owner operator plans to permanently close the refinery and redevelop the property. A former owner operator is already conducting cleanup of pollution at the site that existed as of 2012 under a 2012 RCRA/CERCLA settlement that includes a financial assurance requirement. 69 Additionally, at two of the sites the owner or operator have agreed to conduct significant environmental work as part of settlements with EPA and other parties. Accordingly, EPA does not believe the incidents cited by commenters merit a change in direction from the proposal.

Moreover, these examples of releases indicated that the modern regulatory framework has robust response and coordination mechanisms in place to respond to such incidents. The major releases triggered responses from a variety of parties including state and federal environmental regulators and state and federal occupational safety responses that undertook appropriate actions ( e.g., fines, orders). For example, at the 2007 Valero refinery fire in Sunray, TX, both EPA and the Texas Commission on Environmental Quality (TCEQ) responded to the incident. TCEQ conducted some initial air monitoring and sampling at the site. Valero conducted all other response activities: Fire suppression, asbestos air sampling, wet removal of asbestos debris, air monitoring, neutralization of acid spill, assessment of leaking propane line, and assessment of all units for damage. EPA and TCEQ monitored progress at the facility, but departed the site three days after the fire on account of the situation being stable. More information on the incidents cited by commenters and researched by EPA is provided in the docket in the spreadsheet titled NAICS 324 Incident research containing the information gathered, information sources considered and summary findings. 70

In addition to completing examination of the incidents cited in comments, EPA is also aware of some recent incidents of releases from refinery facilities, for example the ExxonMobil Fire in Baton Rouge, LA. This example exhibits coordinated response of local and federal services that demonstrate the expected performance of the modern regulatory framework. At the ExxonMobil refinery fire, which occurred on Feb. 11, 2020, the Louisiana Department of Environmental Quality (LDEQ) and the Baton Rouge Fire Department (BRFD) Hazmat team responded to the incident and conducted offsite air monitoring. EPA also mobilized a Superfund Technical Assessment & Response Team contractor to the site. 71 ExxonMobil conducted multiple rounds of air monitoring of the facility, and readings were found to be below the state's ambient air standards. 72 At this site, the local authorities were able to respond quickly and in cooperation with the company to ensure that risk was promptly assessed and addressed.

Although this incident was not cited by commenters, and though releases to air as occurred in this example have not been identified as prevalent causes of inclusion of a site on the NPL, EPA offers that the prompt response that took place following this incident illustrates the protective function of the modern regulatory framework. Coordinated responses at petroleum and coal products manufacturing facilities when incidents do occur lessen the likelihood of these facilities becoming Superfund sites, which further weighs against the need for financial responsibility requirements for the petroleum and coal products manufacturing industry under CERCLA Section 108(b). Furthermore, this response demonstrates that authorities already in place to respond to incidents provide state and local entities the tools to take actions that address many of the risks that might result in a Superfund site.

Based on the analyses conducted for the December 23, 2019 proposed rule, described in detail in the background documents for that document, as well as additional analyses conducted in response to comments received on that document, the Agency is finalizing the decision that the degree and duration of risk posed by the petroleum and coal products manufacturing industry does not warrant financial responsibility requirements under CERCLA Section 108(b). As such, this rulemaking will not impose CERCLA Section 108(b) financial responsibility requirements for facilities in the petroleum and coal products manufacturing industry. EPA did not receive evidence from any commenter that changed the Agency's determination from that proposed previously.

Central to this final rulemaking decision is EPA's position that the analyses conducted for the proposal are consistent with the statutory language of CERCLA Section 108(b), described in Section IV above ( Statutory Interpretation ). EPA is further assured of this position following the decision by the D.C. Circuit that upheld EPA's interpretation of the statutory language of CERCLA Section 108(b). 73 The analyses consistent with this interpretation showed that under the modern regulatory framework that applies to the petroleum and coal products manufacturing industry, little evidence of burden to the Fund by facilities in this industry exists.

EPA believes that the evaluation of the petroleum and coal products manufacturing industry conclusively demonstrates, by the low occurrence of cleanup sites that significantly impact the Fund, low risk of a Fund-financed response action at current petroleum and coal products manufacturing operations. The reduction in risks, relative to when CERCLA was first established, attributable to the requirements of existing federal and state regulatory programs and voluntary practices, combined with reduced costs to the taxpayer—demonstrated by EPA's cleanup case analysis, existing financial responsibility requirements, and enforcement actions—has reduced the need for federally-financed response action at facilities in the petroleum and coal products manufacturing industry.

On February 21, 2020, EPA published a notice of proposed rulemaking (NPRM) on the third of the three additional industries. 74 In that document, the Agency proposed to not impose financial responsibility requirements for the chemical manufacturing industry and described the analyses and results that were used to reach that decision. Due to the COVID-19 pandemic, several commenters requested an extension to the comment period. EPA extended the comment period by two weeks in response to these requests. 75 The Agency received 16 comments on this proposed rulemaking. Comments received on the proposal and the Agency's responses are laid out in the Response to Comments document found in the docket to this final rulemaking. 76

Of the 16 comments received on the February 21, 2020 NPRM, 6 were in support of the Agency's proposal to not impose financial responsibility requirements for the chemical manufacturing industry and 10 were opposed.

Of the six comments in support of the proposed rule, three were from the fertilizer industry; one comment from three associations (the American Fuel and Petrochemical Manufacturers, the American Chemistry Council, and the Society of Chemical Manufacturers and Affiliates (SOCMA)); one comment from the Superfund Settlements Project; and one multi-industry comment from the U.S. Chamber of Commerce.

Commenters supporting the proposed rule cited the extensive federal and state requirements that are already in place and agreed that no additional requirements under CERCLA Section 108(b) are warranted for the chemical manufacturing industry. Commenters felt the February 21, 2020 proposal was fully consistent with EPA's final determination on the hardrock mining industry, which was upheld by the D.C. Circuit. 77

In addition, SOCMA, along with its sister associations, submitted a technical report which reviewed EPA's analysis. The report's conclusions validate EPA's findings, and concluded that “taxpayer-funded cleanups at chemical manufacturing facilities are even less likely than EPA estimated.”  78

Six comments received were from private citizens opposed to the proposed rule. Most private citizen commenters opposed to the proposal stated a general belief that companies should be liable for their pollution, not taxpayers. It should be noted that the Agency's decision to not impose financial responsibility requirements under Section 108(b) does not diminish liability under CERCLA, and the cost of cleanups will continue to be the responsibility of the PRPs, not the Fund. The Agency also received comments from the Confederated Tribes of the Grand Ronde Community of Oregon, the Little Traverse Bay Bands of Odawa Indians, and Earthjustice. Earthjustice submitted comments on behalf of Communities for a Better Environment, Center for International Environmental Law, Public Citizen, Earthworks, Sierra Club, Idaho Conservation League, Center for Biological Diversity, Ohio Valley Environmental Coalition, and Great Basin Resource Watch.

Many of the comments received on the chemical manufacturing industry proposal were critical of the Agency's interpretation of the statute and the analyses EPA conducted to conclude that no CERCLA Section 108(b) financial responsibility rules are necessary. The statutory interpretation presented in the CERCLA Section 108(b) Hardrock Mining Final Rule (described in Statutory Interpretation section above) continues to be the view of the Agency, and that interpretation is not reopened here. After consideration of the critical comments, EPA still concludes that the analyses conducted and information considered were appropriate, consistent with CERCLA, and show that risk posed by the chemical manufacturing industry does not warrant financial responsibility requirements under CERCLA Section 108(b).

As part of the chemical manufacturing industry proposal, EPA systematically evaluated CERCLA NPL, Superfund Alternative Approach (SAA), and removal sites in the industry where releases and cleanup actions occurred. Specifically, EPA developed an analytic approach that considered cleanup cases to identify instances of releases at currently operating facilities where taxpayer funds were expended for response action. See discussion in the proposed rule  79 for a detailed description of the analysis conducted. EPA's review of the Superfund NPL, SAA, and removal sites associated with the industry found that 34 sites indicated a potential for a significant impact to the Fund while operating under the modern regulatory framework. This is a relatively small number of cases in comparison to the approximately 13,480 establishments currently operating in the industry. As noted above, EPA's additional research into facilities referenced by a commenter in opposition to the proposal did not identify any additional Superfund sites in the industry that had burdened the Fund. EPA believes that the small set of federally funded cleanup cases due to recent contamination, in view of the size of the industry, does not warrant the imposition of costly financial responsibility requirements on the entire chemical manufacturing industry under CERCLA Section 108(b).

Additionally, as part of its proposal, to understand the modern regulatory framework applicable to currently operating facilities within the chemical manufacturing industry, EPA compiled applicable federal and state regulations. 80 Specifically, EPA looked to regulations that address the types of releases identified in the cleanup cases. This review also considered industry voluntary programs that could reduce risk of releases. Finally, EPA also identified financial responsibility regulations that apply to facilities in the chemical manufacturing industry, 81 and compliance and enforcement history for the relevant regulations. 82 Regarding concerns expressed in the comments, EPA notes that RCRA corrective action is an example of a control that could apply broadly in the chemical manufacturing industry to facilities that operate as permitted or interim status RCRA treatment, storage, and disposal (TSD) facilities. Both current and former chemical manufacturing facilities are included in the universe of RCRA corrective action facilities. The corrective action program achieves risk reduction through two avenues, by providing a mechanism to clean up contamination as well as authority to require financial assurance. Pursuant to RCRA, as amended by HSWA (Hazardous and Solid Waste Amendments), statutory and regulatory requirements, EPA requires owners and operators of facilities that treat, store or dispose of hazardous waste to investigate and clean up releases of hazardous waste and hazardous constituents from any solid waste management units, thus reducing the likelihood that these facilities would require cleanup under Superfund. RCRA permits issued to TSD facilities must include provisions for both corrective action and financial assurance to cover the costs of implementing those cleanup measures. EPA also possesses additional authorities to order corrective action through enforcement orders, which are not contingent upon a facility's permit. EPA asserts that these features reduce the likelihood of burden to the Fund. Based on this review, and after reviewing the comments received, EPA maintains its preliminary conclusion that the network of federal and state regulations applicable to the chemical manufacturing industry creates a comprehensive framework that applies to prevent releases that could result in a need for a Fund-financed response action.

As discussed in the February 21, 2020 proposed rule, EPA had developed an analytic approach to determine whether the current risk under a modern regulatory framework within the chemical manufacturing industry rose to a level that warrants imposition of financial responsibility requirements under CERCLA Section 108(b). 83 Earthjustice commented that relying on the term “modern” is EPA's “basis for ignoring releases that occurred at facilities before 1980.”  84 The Agency uses the term modern in this case to distinguish the current regulatory landscape versus the one that existed at the time of the passage of the CERCLA statute. Acknowledgment of current federal and state laws that specifically address risks posed by this industry is appropriate to consider in determining whether there is risk of future Fund expenditures. In particular, in the proposal, EPA identified the prevalent sources of risk that were identified in the cleanup cases reviewed. EPA then evaluated the extent to which activities that contributed to the risk associated with the production, transportation, treatment, storage, or disposal of hazardous substances are now regulated. EPA recognized that substantial advances had been made in the development of manufacturing, pollution control, and waste management practices, as well as the implementation of federal and state regulatory programs to both prevent and address such releases at facilities in the chemical manufacturing industry. This analysis is consistent with the approach utilized in the Final Action for Facilities in the Hardrock Mining Industry and upheld by the D.C. Circuit. 85

Earthjustice also raised the point that the existence of federal and state regulations does not ensure prevention of releases, and that legacy contamination exists at currently operating facilities. EPA notes that financial responsibility requirements under Section 108(b) would not apply to legacy operations that are no longer operating. Rather, any Section 108(b) requirements would apply to facilities that follow current industry practices and are subject to the modern regulatory framework ( i.e., the regulations currently in place that apply to the industry). These modern conditions include federal and state regulatory requirements and financial responsibility requirements that currently apply to operating facilities. In contrast to Earthjustice's point, EPA's analysis found that the efficacy of current regulations, as well as voluntary industry practices, while difficult to quantify, have had a demonstrably positive effect in reducing the number of cleanups that require taxpayer expenditures. This was borne out in the analyses conducted in the proposed rule, the results of which indicated that there was no need for further financial responsibility requirements on this industry.

Earthjustice disagreed with EPA's screening out from its analyses sites where the response actions were funded by private parties as opposed to the government. Earthjustice suggested that it is contrary to CERCLA to focus only on financial risk. In addition, Earthjustice raised concerns about the magnitude and potential long duration of cleanups in the industry.

As a primary matter, EPA's approach and the factors the Agency considered to determine whether or not financial responsibility requirement were appropriate for the chemical manufacturing industry is consistent with CERCLA (see Statutory Interpretation section above). A chief factor of the Agency's determination was the results of EPA's cleanup case analysis which involved a systematic examination of Superfund sites (NPL, removal, and SAA). EPA's analysis, described in detail in section VII of the proposed rule, 86 showed that few facilities operating under modern conditions, in light of the size of the industry, have historically burdened the Fund. Specifically, there are relatively few NPL and removal sites with pollution that occurred under a modern regulatory framework associated with the chemical manufacturing industry that required significant Fund expenditures to address. This is, in part, due to the fact that the potentially responsible parties (PRPs) led approximately half of the cleanups identified. Further supporting this finding is the fact that when a cleanup is required under Superfund or corrective action or RCRA, financial assurance is typically required. Moreover, as discussed below, EPA conducted additional research into examples of releases at facilities in the chemical manufacturing industry identified by commenters. That additional research identified only one new example of the Superfund program bearing the costs of a cleanup associated with releases occurring under a modern regulatory framework. The limited number of actions within the sector, combined with its track record of funding cleanups weighs against the need for regulation under CERCLA Section 108(b).

This comment also intended to suggest that CERCLA Section 108(b) financial responsibility could promote rapid cleanup in instances of pollution. As a primary matter, this is not necessarily the case. EPA believes any CERCLA Section 108(b) financial responsibility required for any industry would complement existing Superfund processes by offering a financial backstop for CERCLA costs and damages (see the relevant language at 84 FR 3400 included in the hardrock mining proposal). The financial responsibility would not modify the existing Superfund enforcement authorities, including those to gather information, identify responsible parties, effect cleanup (especially through EPA's enforcement first policy), assess penalties, or provide for citizen suits. In instances where releases occurred that required a Superfund cleanup, the same Superfund process would occur as does today.

Of note is that the Superfund program protects human health and the environment regardless of whether or not financial responsibility is in place. EPA can invoke its enforcement authorities to protect human health and the environment. For example, EPA can issue a Unilateral Administrative Order or conduct a removal action to mitigate potential risks posed by the site conditions. If the Agency has to use fund resources to conduct a cleanup, EPA can take an enforcement action to recover its CERCLA costs and replenish government resources. It is thus not accurate to suggest a lack of CERCLA Section 108(b) financial responsibility would result in delays of cleanup and therefore an increased risk to human health and the environment.

Earthjustice took issue with EPA's interpretation of the statute, stating that EPA's “interpretation of the statute to focus solely on the risk of a taxpayer bailout of insolvent companies is contrary to law, because this is not the purpose of CERCLA.”  87 Earthjustice contends that EPA ignored significant risks to human health and the environment. Earthjustice commented on the long and well-established history of contamination of the Nation's soil and water due to the chemical manufacturing industry, and cited examples of recent cleanups. Nevertheless, EPA believes that the site analysis for this rulemaking effectively considered human health and environmental risk in multiple steps. First, EPA examined through the Agency's industry practices and environmental characterization analysis the operational practices and environmental profile of the chemical manufacturing industry. This analysis included an examination of the potentially hazardous materials used in the industry, hazardous wastes generated by industry processes, the units used to manage wastes at these sites, how on-site management of these materials can potentially contribute to releases, and what contaminants might be released by the industry that could impact human health and the environment. Next, EPA investigated in what ways the industry is subject to a wide range of modern federal and state regulatory requirements and enforcement oversight imposed to address this potential human health and environment risk. In these analyses, EPA outlined the framework of modern federal and state regulatory programs to which the industry is subject  88 and also examined compliance and enforcement for the industry, 89 which collectively demonstrate how these components work to address potential risk for modern industry operations. Overall, EPA's full analytic approach developed for the proposed rule examined sites with a variety of contaminants and contaminated media. In effect, the analysis considered the types of human health and environmental risk the Superfund program was designed to address, and that would be addressed by any CERCLA Section 108(b) financial responsibility. This analysis employed by the Agency is consistent with EPA's interpretation of the statutory language and was upheld by the D.C. Circuit, 90 which found that EPA's focus on risk of taxpayer-funded response actions was reasonable. Specifically, the Court stated in its decision, “we defer to the EPA's interpretation that it should set financial responsibility regulations based on financial risks, not risks to health and the environment.” EPA's analysis based on this interpretation showed that there is little evidence of the facilities operating under a modern regulatory framework burdening the Fund.

Commenters asserted that, too often, companies file for bankruptcy and avoid financial responsibility for cleaning up harmful pollution. To further assess these concerns, EPA updated its analysis supporting the Economic Sector Profile originally conducted in support of the proposed rulemaking. These analyses rely on industry-wide ratio measures of economic stability that are widely used as standard market metrics for such industry by industry comparisons. This update was conducted with the most recent prior year's worth of data available at the close of comment period for the proposed rule. This updated analysis finds the financial stability of the industry relatively unchanged from the original report, further suggesting that the economic conditions of the industry as a whole are not at undue risk. 91 Added factors such as increased transparency from the application of generally accepted accounting practices, and added levels of bankruptcy protection against defaults on environmental liabilities, while not a guarantee, can reduce potential risks to the Fund even further.

EPA disagrees with Earthjustice's comment suggesting that enforcement activities are halted when there are disruptions caused by unforeseen circumstances, or that enforcement in general is a weakness of the modern regulatory framework structure. The commenter specifically referenced a global pandemic, presumably implying that the coronavirus (COVID-19) pandemic has halted enforcement at the federal and state level. While EPA made certain adjustments that were necessary to maintain public safety, EPA disagrees with the commenter's implicit claim that enforcement has halted, or that the level of enforcement undercuts existing environmental protections or EPA's analysis that considered the existing regulations in evaluating the need for CERCLA Section 108(b) financial responsibility.

In fact, EPA's enforcement program remained very active during the public health emergency. For example, from March 16-August 31, 2020, EPA opened 128 criminal enforcement cases, charged 36 defendants, initiated 603 civil enforcement actions, concluded 629 civil enforcement actions, secured $80.4 million in Superfund response commitments, and obtained commitments from parties to clean up 1,032,832 cubic yards of contaminated soil and water. The COVID-19 pandemic has not meaningfully reduced the protectiveness of existing environmental laws and regulations.

Commenters also questioned the performance of the modern regulatory framework under the potential increased risk of release posed by climate change, seismic hazards and other natural disasters. While most accidents and releases do not lead to Superfund responses, Fund expenditures, or CERCLA liability claims, and the commenters provided no indication a Superfund response resulted from a natural disaster, EPA's analysis has shown that existing regulations in the modern regulatory framework address these concerns.

Several environmental laws authorize regulations requiring the development of response plans for a variety of emergencies, including various natural disasters, in order to reduce the effects of a release, and to notify local emergency response personnel and facilitate cooperation. For example, under 40 CFR part 264, subpart B, facility standards for owner and operators of hazardous waste treatment, storage and disposal facilities must meet location standards, including consideration of seismic environment, floodplains, and salt dome formations. Under 40 CFR part 264, subpart D, owners and operators of hazardous waste facilities must have a contingency plan designed to minimize hazards to human health or the environment from fires, explosions, or the release of hazardous waste or hazardous waste constituents. The contingency plans establish the actions personnel must take in response to fires, explosions, or the release of hazardous waste or hazardous waste constituents. Owners and operators may fulfill the requirements of this subpart by amending existing emergency contingency plans, including Spill Prevention, Control and Countermeasure plans.

In 1989, OSHA promulgated the Hazardous Waste Operations and Emergency Response standards (HAZWOPER). HAZWOPER addresses the health and safety risks to workers of unexpected releases or the threat of releases of hazardous substances that may accompany operational failures, natural disasters, or waste dumped in the environment. OSHA promulgated the standards to ensure the safe and effective management and cleanup of unexpected releases of hazardous substances. The regulations require employers to develop a written program for their employees to address hazards and provide for emergency response actions, including an organizational structure, comprehensive work plan, training programs, and medical surveillance program. In 2002, OSHA expanded its emergency response regulations through the implementation of Emergency Action Plans (EAPs). The regulations require that employers prepare a written EAP to create practices to follow during workplace emergencies at a given facility.

In addition, EPA implements the Chemical Accident Prevention Provisions of Section 112(r) of the Clean Air Act Amendments, which require certain facilities to generate Risk Management Plans to mitigate the effects of a chemical accident and to coordinate with local response personnel. EPA implements regulations under EPCRA that impose emergency planning, reporting, and notification requirements for hazardous and toxic chemicals.

EPA appreciated the comments offering examples of sites of concern and undertook additional due diligence to examine some of these releases and accidents referenced by the commenter. While most accidents and releases do not lead to Superfund responses, Fund expenditures, or CERCLA liability claims, EPA acknowledged that it is possible some of the releases and accidents may have required Superfund actions, which the Agency may have missed in the analysis conducted as part of the proposal. As such, EPA examined a selection of the cases referenced by Earthjustice to better understand the consequences of these incidents, to the extent possible. In the case of the chemicals manufacturing industry, most of the facilities referenced by the commenters were referenced by facility name. With the exception of two facilities already included in the Agency's analysis of NPL cleanup sites, EPA conducted additional research into all of the facilities referenced.

The examination of these facilities did not identify any new instances of a facility in the chemicals manufacturing industry burdening the Superfund, and only one example of a previously unidentified CERCLA action. In that one case, a CERCLA enforcement action related to the DuPont (now Chemours) plant in Belle, WV, DuPont paid a penalty and agreed to corrective actions designed to reduce the likelihood of release going forward. Notably, many of the incidents were addressed by existing state or federal authorities.

EPA also examined a couple of geographical areas where the commenter alleged cumulative risks from many chemical manufacturing facilities presents some additional and unique risk. EPA conducted research into the Houston Ship Channel and an 85-mile stretch along the banks of the Mississippi River in Louisiana, nicknamed “Cancer Alley”, to identify instances of releases and responses in those areas associated with chemical manufacturing facilities. EPA identified 18 facilities in those geographical areas that appeared to have releases or responses worthy of investigation. However, many of the facilities had already been considered in the cleanup case analyses done in support of the proposal. Additionally, many either did not require CERCLA involvement or were addressed and/or funded by the PRP. In total, EPA only identified one additional site in those two areas with pollution that appeared to occur under a modern regulatory framework and where the Fund appeared to have been burdened. This site, the Cusol Company, Inc. site in Houston, TX, required an EPA removal action after the facility was abandoned in 2005. However, the cleanup activities were relatively minor at the site with the removal assessment work conducted within three months and the cleanup itself completed within a month. The identification of one additional site alone does not change EPA's conclusion from the proposal that CERCLA Section 108(b) financial responsibility is not necessary for the industry. More information on the incidents cited by commenters and researched by EPA is provided in the spreadsheet titled NAICS 325 Incident research containing the information gathered, information sources considered and summary findings. 92

In addition to completing examination of the incidents cited in comments, EPA is also aware of some recent incidents of releases from chemical manufacturing facilities, for example, the Alchemix Chemical Fire in College Park, GA and Poly-America Fire in Grand Prairie, TX. Both examples exhibit coordinated response of local and federal services that demonstrate the expected performance of the modern regulatory framework. In the Alchemix Chemical Fire that occurred on July 17, 2020, the Fulton County Emergency Management Director and Georgia Environmental Protection Division (GAEPD) requested EPA's assistance with air monitoring and response efforts. EPA mobilized an On-Scene Coordinator (OSC) and Superfund Technical Assessment & Response Team (START) resources in response to the fire. The OSC arrived on site and worked with the fire chief, GAEPD and a representative of the responsible party. After the fire was extinguished by the local fire department and the responsible party hired an environmental contractor, EPA demobilized, and oversight of environmental clean-up was conducted by GAEPD under its state authorities. 93

The Poly-America Fire that occurred on August 18, 2020, was responded to by local fire departments as part of an Incident Management Team under unified command with the City of Grand Prairie and the Texas Commission on Environmental Quality (TCEQ). In addition, EPA lent specialized expertise in deploying support from EPA Consequence Management Advisory Division and START contractors to assist in air monitoring in the local area. EPA resources were demobilized after no detections at or near screening levels were found. 94

Although these incidents were not cited by commenters, and though releases to air as occurred in these examples have not been identified as prevalent causes of inclusion of a site on the NPL, EPA offers that the prompt responses that took place following these incidents illustrate the protective function of the modern regulatory framework. Coordinated responses at chemical manufacturing facilities when incidents do occur lessen the likelihood of these facilities becoming Superfund sites, which further weighs against the need for financial responsibility requirements for the chemical manufacturing industry under CERCLA Section 108(b). Furthermore, these example responses demonstrate that authorities already in place to respond to incidents provide state and local entities the tools to take actions that address many of the risks that might result in a Superfund site.

Based on the analyses conducted for the February 21, 2020 proposed rule, described in detail in the background documents for that document, as well as additional analyses conducted in response to comments received on that document, the Agency is finalizing the decision that the degree and duration of risk posed by the chemical manufacturing industry does not warrant financial responsibility requirements under CERCLA Section 108(b). As such, this rulemaking will not impose CERCLA Section 108(b) financial responsibility requirements for facilities in the chemical manufacturing industry. EPA did not receive evidence from any commenter that changed the Agency's determination from that proposed previously.

Central to this final rulemaking decision is EPA's position that the analyses conducted for the proposal are consistent with the statutory language of CERCLA Section 108(b), described in Section IV above ( Statutory Interpretation ). EPA is further assured of this position following the decision by the D.C. Circuit that upheld EPA's interpretation of the statutory language of CERCLA Section 108(b). 95 The analyses consistent with this interpretation showed that under the modern regulatory framework that applies to the chemical manufacturing industry, little evidence of burden to the Fund by facilities in this industry exists.

EPA believes that the evaluation of the chemical manufacturing industry conclusively demonstrates, by the low occurrence of cleanup sites that significantly impact the Fund, low risk of a Fund-financed response action at current chemical manufacturing operations. The reduction in risks, relative to when CERCLA was first established, attributable to the requirements of existing federal and state regulatory programs and voluntary practices combined with reduced costs to the taxpayer—demonstrated by EPA's cleanup case analysis, existing financial responsibility requirements, and enforcement actions—has reduced the need for federally-financed response action at facilities in the chemical manufacturing industry.

These actions are significant regulatory actions that were submitted to the Office of Management and Budget (OMB) for review, because they may raise novel legal or policy issues [3(f)(4)]. Any changes made in response to OMB recommendations have been documented in the docket. EPA did not prepare an economic analysis for these final rulemakings because no regulatory provisions are being finalized.

This final rule is not subject to the requirements of E.O. 13771 (82 FR 9339, February 3, 2017) because this final rule does not alter any regulatory requirements.

These actions do not impose an information collection burden under the PRA, because they do not impose any regulatory requirements.

I certify that these actions will not have a significant economic impact on a substantial number of small entities under the RFA. These actions will not impose any requirements on small entities.

These actions do not contain any unfunded mandates as described in UMRA, 2 U.S.C. 1531-1538, and do not significantly or uniquely affect small governments, because they do not impose any regulatory requirements.

These actions do not have federalism implications. They will not have substantial direct effects on the states, on the relationship between the Federal Government and the states, or on the distribution of power and responsibilities among the various levels of government, since they impose no regulatory requirements.

These actions do not have tribal implications as specified in Executive Order 13175, because they impose no regulatory requirements. Thus, Executive Order 13175 does not apply to these actions. However, EPA offered consultation and coordination with federally recognized tribes as well as with Alaska Native Claims Settlement Act Corporations during the rulemaking process. EPA sent notification letters to all 574 federally recognized tribes and to the 12 Alaska Native Claims Settlement Act Regional Corporation Executive Directors for each of the three separate proposals. EPA also held public informational webinars for each of the proposed rules and tribes participated in all three webinars. EPA received one comment from a tribe on the Electric Power Generation, Transmission and Distribution industry proposal and two comments on the Chemical Manufacturing industry proposal. All three comments opposed the proposal to not impose financial responsibility requirements. These comments and EPA's responses are included in the Response to Comments documents, which are part of the dockets for these final actions. 96 For more information on the consultation and coordination for these rules, see the consultation summaries in the docket.

These actions are not subject to Executive Order 13045 because they are not economically significant as defined in Executive Order 12866 and they do not establish any new environmental health or safety standard.

These actions are not a “significant energy action” because they are not likely to have a significant adverse effect on the supply, distribution, or use of energy, since they impose no regulatory requirements; in addition, these actions have not otherwise been designated by the Administrator of the Office of Information and Regulatory Affairs as a significant energy action.

These rulemakings do not involve technical standards.

EPA believes that these actions are not subject to Executive Order 12898 (59 FR 7629, February 16, 1994) because these actions establish that no federal CERCLA Section 108(b) financial responsibility requirements are necessary and do not establish any new environmental health or safety standard. Thus, no review of these final actions under Executive Order 12898 is necessary.

This action is subject to the CRA, and EPA will submit a rule report to each House of the Congress and to the Comptroller General of the United States. This action is not a “major rule” as defined by 5 U.S.C. 804(2).

In FR Doc. 2020-20907 of September 29, 2020 (85 FR 61114), there were a number of technical errors that are identified and corrected in this correcting document. The provisions in this correction document are effective as if they had been included in the document published September 29, 2020. Accordingly, the corrections are effective November 30, 2020.

On page 61159, in our discussion of the entitled “Episode Length” there is an error in an in-text citation to the proposed rule, so 84 FR 3499 is corrected to 84 FR 34499, along with the correct link to the proposed rule.

On pages 61289, 61292, 61295, 61296, 61297, 61319, 61327, 61328, 61329, 61349, 61350, 61353, and 61354, we made errors in the numbering and reference numbers for several tables.

On pages 61357, 61358, and 61359 in our discussion of the effects on Radiation Oncology (RO) Participants, we made errors in wage-related information. On page 61359, in our discussion of the Regulatory Flexibility Act requirements for the Radiation Oncology Model, we made a calculation error regarding the distribution of payment changes. Under Medicare FFS, physician group practices (PGPs) are largely paid through the Medicare Physician Fee Schedule (PFS) for radiotherapy services while hospital outpatient departments (HOPDs) are paid through the Outpatient Prospective Payment System (OPPS). Unit-cost increases under the PFS are projected to be lower than under the OPPS. Therefore, the RO Model will affect payments to RO participants that are PGPs and HOPDs differentially over time through the use of a site neutral update factor. The referenced calculations are revised to properly value this effect.

Under 5 U.S.C. 553(b) of the Administrative Procedure Act (APA), the agency is required to publish a notice of proposed rulemaking in the Federal Register to provide a period for public comment before the provisions of a rule take effect. Similarly, section 1871(b)(1) of the Social Security Act (the Act) requires the Secretary to provide for notice of the proposed rulemaking in the Federal Register and provide a period of not less than 60 days for public comment. In addition, section 553(d) of the APA (5 U.S.C. 553(d)) and section 1871(e)(1)(B)(i) of the Act mandate a 30-day delay in effective date after issuance or publication of a rule. Sections 553(b)(B) and 553(d)(3) of the APA provide for exceptions from the notice and comment and delay in the effective date APA requirements; in cases in which these exceptions apply, sections 1871(b)(2)(C) and 1871(e)(1)(B)(ii) of the Act provide exceptions from the notice and 60-day comment period and delay in effective date requirements of the Act as well. Section 553(b)(B) of the APA and section 1871(b)(2)(C) of the Act authorize an agency to dispense with normal rulemaking requirements for good cause if the agency makes a finding that the notice and comment rulemaking processes are impracticable, unnecessary, or contrary to the public interest. In addition, both section 553(d)(3) of the APA and section 1871(e)(1)(B)(ii) of the Act allow the agency to avoid the 30-day delay in effective date where such delay is contrary to the public interest and the agency includes a statement of support.

We believe that this correcting document does not constitute a rule that would be subject to the notice and comment or delayed effective date requirements. This document corrects technical and typographic errors in the Medicare Program; Specialty Care Models To Improve Quality of Care and Reduce Expenditures final rule (the Specialty Care Models final rule), but does not make substantive changes to the policies or payment methodologies that were adopted in the final rule. As a result, this corrective document is intended to ensure that the information in the Specialty Care Models final rule accurately reflects the policies adopted in that document.

In addition, even if this was a rulemaking to which the notice and comment procedures and delayed effective date requirements applied, we find that there is good cause to waive such requirements. Undertaking further notice and comment procedures to incorporate the corrections in this document into the final rule would be contrary to the public interest because it is in the public's interest for model participants to receive appropriate payments in as timely a manner as possible and to ensure that the Specialty Care Models final rule accurately reflects our methodologies and policies as of the date they take effect and are applicable.

Furthermore, such procedures would be unnecessary, as we are not altering the implementation of the models or the way participants in the models will perform, but rather we are simply correctly implementing the policies that we previously proposed, received comment on, and subsequently finalized. This correcting document is intended solely to ensure that the Specialty Care Models final rule accurately reflects these payment methodologies and policies. For these reasons, we believe we have good cause to waive the notice and comment and effective date requirements.

In FR Doc. 2020-20907 of September 29, 2020 (85 FR 61114), make the following corrections:

1. On page 61159, first column, last paragraph, lines 1 and 2, the reference “(84 FR 3499)” is corrected to read “(84 FR 34499)”.

2. On page 61289, lower one-fourth of the page, the table title “TABLE 11: PROPOSED HDPA SCHEDULE” is corrected to read “TABLE 15: PROPOSED HDPA SCHEDULE”.

3. On page 61292, in the middle of the page, the table title “TABLE 11.a: HDPA SCHEDULE” is corrected to read “TABLE 15.a: HDPA SCHEDULE”.

4. On page 61295, third column, last partial paragraph, line 1, the reference “Table 12” is corrected to read “Table 16”.

5. On page 61296—

a. Top of the page, the table title “TABLE 12: PROPOSED ETC MODEL SCHEDULE OF MEASUREMENT YEARS AND PPA PERIODS” is corrected to read “TABLE 16: PROPOSED ETC MODEL SCHEDULE OF MEASUREMENT YEARS AND PPA PERIODS”.

b. Lower half of the page, second column, partial paragraph, line 2, the table reference “Table 12.a” is corrected to read “Table 16.a”.

6. On page 61297, the table title, “TABLE 12.a: ETC MODEL SCHEDULE OF MEASUREMENT YEARS AND PPA PERIODS” is corrected to read “TABLE 16.a: ETC MODEL SCHEDULE OF MEASUREMENT YEARS AND PPA PERIODS”.

7. On page 61319, the table title, “TABLE 13: PROPOSED SCORING METHODOLOGY FOR ASSESSMENT OF MEASUREMENT YEARS 1 AND 2 ACHIEVEMENT SCORES AND IMPROVEMENT SCORES ON THE HOME DIALYSIS RATE AND TRANSPLANT RATE” is corrected to read “TABLE 17: PROPOSED SCORING METHODOLOGY FOR ASSESSMENT OF MEASUREMENT YEARS 1 AND 2 ACHIEVEMENT SCORES AND IMPROVEMENT SCORES ON THE HOME DIALYSIS RATE AND TRANSPLANT RATE”.

8. On page 61327, the table title, “TABLE 14: PROPOSED FACILITY PERFORMANCE PAYMENT ADJUSTMENT AMOUNTS AND SCHEDULE” is corrected to read “TABLE 18: PROPOSED FACILITY PERFORMANCE PAYMENT ADJUSTMENT AMOUNTS AND SCHEDULE”.

9. On page 61328—

a. Top of the page, first column, first full paragraph, line 8, the phrase “Table 14.a” should read “Table 18.a”.

b. Middle of the page, the table title “TABLE 14a: FACILITY PERFORMANCE PAYMENT ADJUSTMENT AMOUNTS AND SCHEDULE” is corrected to read “TABLE 18.a: FACILITY PERFORMANCE PAYMENT ADJUSTMENT AMOUNTS AND SCHEDULE”.

c. In the third column, first full paragraph, line 1, the table reference, “Table 15” is corrected to read “Table 19”.

10. On page 61329—

a. Top of the page, the table title, “TABLE 15: PROPOSED CLINICIAN PERFORMANCE PAYMENT ADJUSTMENT AMOUNTS AND SCHEDULE” is corrected to read “TABLE 19: PROPOSED CLINICIAN PERFORMANCE PAYMENT ADJUSTMENT AMOUNTS AND SCHEDULE”

b. Top half of page (after Table 15), second column, partial paragraph, line 5, the table reference “Table 15.a” is corrected to read “Table 19.a”.

c. Lower half of the page, the table title, “TABLE 15a: CLINICIAN PERFORMANCE PAYMENT ADJUSTMENT AMOUNTS AND SCHEDULE” is corrected to read “TABLE 19.a: CLINICIAN PERFORMANCE PAYMENT ADJUSTMENT AMOUNTS AND SCHEDULE”.

11. On page 61349, first column, first full paragraph, last line, the table reference “Table 2” is corrected to read “Table 21”.

12. On page 61350—

a. First column, last full paragraph, line 1, the table reference “Table 1” is corrected to read “Table 20”.

b. Second column; first paragraph, line 35, the table reference “Table 1” is corrected to read “Table 20”.

13. On page 61351, top of the page, the table title, “TABLE 1. ESTIMATES OF MEDICARE PROGRAM SAVINGS (MILLIONS $) FOR RADIATION ONCOLOGY MODEL (Starting January 1, 2021)” is corrected to read “TABLE 20: ESTIMATES OF MEDICARE PROGRAM SAVINGS (MILLIONS $) FOR RADIATION ONCOLOGY MODEL (Starting January 1, 2021)”

14. On page 61353, first column, first paragraph—,

a. Line 1, the table reference “Table 2” is corrected to read “Table 21”.

b. Line 16, the table reference “Table 2” is corrected to read “Table 21”.

15. On page 61354—

a. Top of the page, the table title, “TABLE 2. ESTIMATES OF MEDICARE PROGRAM SAVINGS (ROUNDED $M) FOR ESRD TREATMENT CHOICES MODEL” is corrected to read “TABLE 21: ESTIMATES OF MEDICARE PROGRAM SAVINGS (ROUNDED $M) FOR ESRD TREATMENT CHOICES MODEL”.

b. Lower half of the page, first column, last paragraph, line 4, the table reference “Table 2” is corrected to read “Table 21”.

16. On page 61355, first column, first full paragraph—

a. Line 9, the table reference, “Table 2” is corrected to read “Table 21”.

b. Line 21, the table reference, “Table 2” is corrected to read “Table 21”.

17. On page 61357, third column—

a. Last paragraph, line 19, the figure “$19.40” is corrected to read “$20.50”

b. Last paragraph, line 21, the figure “$38.80” is corrected to read “$41.00”

c. Last footnote (footnote 175), line 2, the figure “$19.40” is corrected to read “$20.50”.

18. On page 61358—

a. First column, in the first partial paragraph,

(1) Line 2, the figure “$183.14” should be replaced with “$193.52”

(2) Line 4, the figure “$173,983” should be replaced with “$183,844.00”,

(3) Line 5, the figure “$183.14” should be replaced with “$193.52”

(4) Line 6, the figure “$173,983” should be replaced with “$183,844.00”.

b. First column, fourth full paragraph—

(1) Line 12, the figure “$1,743.07” is corrected to read “$1,845.00”.

(2) Line 18, the figure “$1,655,916.50” is corrected to read “$1,752,750.00”.

c. Second column, first full paragraph—

(1) Line 11, the figure “$1,093.26” is corrected to read “$1,106.94”.

(2) Line 13, the figure “$3,170,454.00” is corrected to read “$3,210,126.00”.

(3) Line 14, the phrase “$1,093.269/participant” is corrected to read “$1,106.94/participant”.

(4) Line 20, the figure “$3,019.47” is corrected to read “$3,145.46” and “$1,093.26” is corrected to read $1,106.94”.

(5) Line 21, the figure “$183.14” is corrected to read “$193.52”.

(6) Line 23, the figure “$1,743.07” is corrected to read “$1,845.00”.

(7) Line 25, the figure “$2,868,496.50” is corrected to read “$2,988,187.00”.

(8) Line 27 the figure “$2,131,350.00” is corrected to read “$2,158,533.00”.

(9) Line 30, the figure “$4,999,846.50” is corrected to read “$5,146,720.50”.

19. On page 61359—

a. First column, first full paragraph—

(1) Line 4, the phrase “reduced by 6.0” is corrected to read “increased by 1.6”.

(2) Line 6 the phrase “reduced by 4.7” is corrected to read “reduced by 8.7”.

(3) Line 22, the figure “$1,743.06” is corrected to read “$1,845.00”.

(3) Line 23 to 26, the sentence “We assume that our estimate for the submission of quality measures remains an accurate estimate at $310.40 per year.” is corrected to read, “We revise our estimate for the submission of quality measures to an estimated $328.00 per year.”

(5) Line 28, “$1,432.67” is corrected to read “$1,517.00”, and “$38.80” is corrected to read “$41.00”.

c. Second column—

(1) First full paragraph—

(a) Line 6, the figure “$1,093.26” is corrected to read “$1,106.94”.

(b) Line 8, the figure “$183.14” is corrected to read “$193.52”.

(c) Line 16, the figure “$95.90” is corrected to read “$97.10”.

(d) Line 28, the parenthetical expression (“$1,093.26 = ($95.20 * 11.4))” is corrected to read “($1,106.94 = ($95.20 * 11.4))”.

(e) Line 31, the figure “$183.14” is corrected to read “$193.52”.

(2) Last footnoted paragraph (footnote 181), line 2, the figure “$47.95” is corrected to read “$48.55”.

20. On page 61361, third column, last paragraph, line 4, the phrase “Tables E3 and E4” is corrected to read “Tables 22 and 23”.

21. On page 61362, top of the page—

a. The table title, “TABLE 3: ACCOUNTING STATEMENT ESTIMATED IMPACTS FOR THE RADIATION ONCOLOGY MODEL” is corrected to read “TABLE 22: ACCOUNTING STATEMENT ESTIMATED IMPACTS FOR THE RADIATION ONCOLOGY MODEL”.

b. The table title, “TABLE 4: ACCOUNTING STATEMENT ESTIMATED IMPACTS FOR END STAGE RENAL DISEASE (ESRD) TREATMENT CHOICES MODEL” is corrected to read “TABLE 23: ACCOUNTING STATEMENT ESTIMATED IMPACTS FOR END STAGE RENAL DISEASE (ESRD) TREATMENT CHOICES MODEL”

In the Federal Register of November 23, 2020, in FR Doc. 2020-25806, on page 74615, in the first column, correct the second sentence of the DATES caption to read: The start date for attributing 2020 bigeye tuna catch to the CNMI was November 15, 2020.

NMFS manages the groundfish fishery in the GOA exclusive economic zone according to the Fishery Management Plan for Groundfish of the Gulf of Alaska (FMP) prepared by the North Pacific Fishery Management Council under authority of the Magnuson-Stevens Fishery Conservation and Management Act. Regulations governing fishing by U.S. vessels in accordance with the FMP appear at subpart H of 50 CFR part 600 and 50 CFR part 679.

The 2020 Pacific cod TAC specified for catcher/processors using hook-and-line gear in the Central Regulatory Area of the GOA is 192 metric tons (mt) as established by the final 2020 and 2021 harvest specifications for groundfish of the GOA (85 FR 13802, March 10, 2020).

The 2020 Pacific cod TAC specified for catcher vessels less than 50 feet using hook-and-line gear in the Central Regulatory Area of the GOA is 550 mt as established by the final 2020 and 2021 harvest specifications for groundfish of the GOA (85 FR 13802, March 10, 2020).

The 2020 Pacific cod TAC specified for catcher vessels greater than or equal to 50 feet using hook-and-line gear in the Central Regulatory Area of the GOA is 253 mt as established by the final 2020 and 2021 harvest specifications for groundfish of the GOA (85 FR 13802, March 10, 2020).

The 2020 Pacific cod TAC specified for vessels using pot gear in the Central Regulatory Area of the GOA is 1,048 mt as established by the final 2020 and 2021 harvest specifications for groundfish of the GOA (85 FR 13802, March 10, 2020).

The 2020 Pacific cod TAC specified for catcher/processors using trawl gear in the Central Regulatory Area of the GOA is 158 mt as established by the final 2020 and 2021 harvest specifications for groundfish of the GOA (85 FR 13802, March 10, 2020).

The 2020 Pacific cod TAC apportioned to catcher vessels using trawl gear in the Central Regulatory Area of the GOA is 1,567 mt, as established by the final 2020 and 2021 harvest specifications for groundfish of the GOA (85 FR 13802, March 10, 2020).

The Administrator, Alaska Region, NMFS, (Regional Administrator) has determined that catcher/processors using hook-and-line gear will not be able to use 180 mt, catcher vessels less than 50 feet using hook-and-line gear will not be able to use 460 mt, catcher vessels greater than or equal to 50 feet using hook-and-line gear will not be able to use 100 mt, and vessels using pot gear will not be able to harvest 1,040 mt of the 2020 Pacific cod TAC allocated to those vessels under § 679.20(a)(12)(i)(B)( 1 ) to ( 3 ) and ( 6 ).

In accordance with § 679.20(a)(12)(ii)(B), the Regional Administrator has also determined that catcher vessels using trawl gear and catcher/processors using trawl gear currently have the capacity to harvest this excess allocation. Therefore, NMFS apportions 1,780 mt of Pacific cod from the catcher/processors using hook-and-line gear, catcher vessels less than 50 feet using hook-and-line gear, catcher vessels greater than or equal to 50 feet using hook-and-line gear, and vessels using pot gear apportionments to catcher vessels using trawl gear and catcher/processors using trawl gear in the Central Regulatory Area of the GOA.

The harvest specifications for Pacific cod in the Central Regulatory Area of the GOA included in the final 2020 and 2021 harvest specifications for groundfish of the GOA (85 FR 13802, March 10, 2020) are revised as follows: 12 mt to catcher/processors using hook-and-line gear, 90 mt to catcher vessels less than 50 feet using hook-and-line gear, 153 mt to catcher vessels greater than or equal to 50 feet using hook-and-line gear, 8 mt to vessels using pot gear, 2,521 mt to catcher vessels using trawl gear, and 838 mt to catcher/processors using trawl gear.

NMFS issues this action pursuant to section 305(d) of the Magnuson-Stevens Act. This action is required by 50 CFR part 679, which was issued pursuant to section 304(b), and is exempt from review under Executive Order 12866.

Pursuant to 5 U.S.C. 553(b)(B), there is good cause to waive prior notice and an opportunity for public comment on this action, as notice and comment would be impracticable and contrary to the public interest, as it would prevent NMFS from responding to the most recent fisheries data in a timely fashion and would delay the reallocation of Pacific cod in the Central Regulatory Area of the GOA. NMFS was unable to publish a notice providing time for public comment because the most recent, relevant data only became available as of November 25, 2020.