This rule amends 14 CFR part 97 by amending the referenced SIAPs. The complete regulatory description of each SIAP is listed on the appropriate FAA Form 8260, as modified by the National Flight Data Center (NFDC)/Permanent Notice to Airmen (P-NOTAM), and is incorporated by reference under 5 U.S.C. 552(a), 1 CFR part 51, and 14 CFR 97.20. The large number of SIAPs, their complex nature, and the need for a special format make their verbatim publication in the Federal Register expensive and impractical. Further, airmen do not use the regulatory text of the SIAPs, but refer to their graphic depiction on charts printed by publishers of aeronautical materials. Thus, the advantages of incorporation by reference are realized and publication of the complete description of each SIAP contained on FAA form documents is unnecessary. This amendment provides the affected CFR sections, and specifies the SIAPs and Takeoff Minimums and ODPs with their applicable effective dates. This amendment also identifies the airport and its location, the procedure and the amendment number.

The material incorporated by reference is publicly available as listed in the ADDRESSES section.

The material incorporated by reference describes SIAPs, Takeoff Minimums and ODPs as identified in the amendatory language for part 97 of this final rule.

This amendment to 14 CFR part 97 is effective upon publication of each separate SIAP and Takeoff Minimums and ODP as amended in the transmittal. For safety and timeliness of change considerations, this amendment incorporates only specific changes contained for each SIAP and Takeoff Minimums and ODP as modified by FDC permanent NOTAMs.

The SIAPs and Takeoff Minimums and ODPs, as modified by FDC permanent NOTAM, and contained in this amendment are based on criteria contained in the U.S. Standard for Terminal Instrument Procedures (TERPS). In developing these changes to SIAPs and Takeoff Minimums and ODPs, the TERPS criteria were applied only to specific conditions existing at the affected airports. All SIAP amendments in this rule have been previously issued by the FAA in a FDC NOTAM as an emergency action of immediate flight safety relating directly to published aeronautical charts.

The circumstances that created the need for these SIAP and Takeoff Minimums and ODP amendments require making them effective in less than 30 days.

Because of the close and immediate relationship between these SIAPs, Takeoff Minimums and ODPs, and safety in air commerce, I find that notice and public procedure under 5 U.S.C. 553(b) are impracticable and contrary to the public interest and, where applicable, under 5 U.S.C. 553(d), good cause exists for making these SIAPs effective in less than 30 days.

The FAA has determined that this regulation only involves an established body of technical regulations for which frequent and routine amendments are necessary to keep them operationally current. It, therefore—(1) is not a “significant regulatory action” under Executive Order 12866; (2) is not a “significant rule” under DOT regulatory Policies and Procedures (44 FR 11034; February 26, 1979); and (3) does not warrant preparation of a regulatory evaluation as the anticipated impact is so minimal. For the same reason, the FAA certifies that this amendment will not have a significant economic impact on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

Accordingly, pursuant to the authority delegated to me, Title 14, CFR part 97, (is amended by amending Standard Instrument Approach Procedures and Takeoff Minimums and ODPs, effective at 0901 UTC on the dates specified, as follows:

This rule amends 14 CFR part 97 by establishing, amending, suspending, or removes SIAPS, Takeoff Minimums and/or ODPS. The complete regulatory description of each SIAP and its associated Takeoff Minimums or ODP for an identified airport is listed on FAA form documents which are incorporated by reference in this amendment under 5 U.S.C. 552(a), 1 CFR part 51, and 14 CFR part 97.20. The applicable FAA Forms 8260-3, 8260-4, 8260-5, 8260-15A, 8260-15B, when required by an entry on 8260-15A, and 8260-15C.

The large number of SIAPs, Takeoff Minimums and ODPs, their complex nature, and the need for a special format make publication in the Federal Register expensive and impractical. Further, airmen do not use the regulatory text of the SIAPs, Takeoff Minimums or ODPs, but instead refer to their graphic depiction on charts printed by publishers or aeronautical materials. Thus, the advantages of incorporation by reference are realized and publication of the complete description of each SIAP, Takeoff Minimums and ODP listed on FAA form documents is unnecessary. This amendment provides the affected CFR sections and specifies the typed of SIAPS, Takeoff Minimums and ODPs with their applicable effective dates. This amendment also identifies the airport and its location, the procedure, and the amendment number.

The material incorporated by reference is publicly available as listed in the ADDRESSES section.

The material incorporated by reference describes SIAPS, Takeoff Minimums and/or ODPs as identified in the amendatory language for part 97 of this final rule.

This amendment to 14 CFR part 97 is effective upon publication of each separate SIAP, Takeoff Minimums and ODP as amended in the transmittal. Some SIAP and Takeoff Minimums and textual ODP amendments may have been issued previously by the FAA in a Flight Data Center (FDC) Notice to Airmen (NOTAM) as an emergency action of immediate flights safety relating directly to published aeronautical charts.

The circumstances that created the need for some SIAP and Takeoff Minimums and ODP amendments may require making them effective in less than 30 days. For the remaining SIAPs and Takeoff Minimums and ODPs, an effective date at least 30 days after publication is provided.

Further, the SIAPs and Takeoff Minimums and ODPs contained in this amendment are based on the criteria contained in the U.S. Standard for Terminal Instrument Procedures (TERPS). In developing these SIAPs and Takeoff Minimums and ODPs, the TERPS criteria were applied to the conditions existing or anticipated at the affected airports. Because of the close and immediate relationship between these SIAPs, Takeoff Minimums and ODPs, and safety in air commerce, I find that notice and public procedure under 5 U.S.C. 553(b) are impracticable and contrary to the public interest and, where applicable, under 5 U.S.C. 553(d), good cause exists for making some SIAPs effective in less than 30 days.

The FAA has determined that this regulation only involves an established body of technical regulations for which frequent and routine amendments are necessary to keep them operationally current. It, therefore—(1) is not a “significant regulatory action” under Executive Order 12866; (2) is not a “significant rule” under DOT Regulatory Policies and Procedures (44 FR 11034; February 26, 1979); and (3) does not warrant preparation of a regulatory evaluation as the anticipated impact is so minimal. For the same reason, the FAA certifies that this amendment will not have a significant economic impact on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

Accordingly, pursuant to the authority delegated to me, Title 14, Code of Federal Regulations, Part 97 (14 CRF part 97) is amended by establishing, amending, suspending, or removing Standard Instrument Approach Procedures and/or Takeoff Minimums and Obstacle Departure Procedures effective at 0901 UTC on the dates specified, as follows:

The Federal Civil Penalties Inflation Adjustment Act of 1990 (Pub. L. 101-410; 28 U.S.C. 2461), as amended by the Debt Collection Improvement Act of 1996 (Pub. L. 104-134), provided for agencies' adjustments for inflation to CMPs to ensure that CMPs continue to maintain their deterrent value and that CMPs due to the Federal Government were properly accounted for and collected.

A CMP is defined as any penalty, fine, or other sanction that:

1. Is for a specific monetary amount as provided by Federal law, or has a maximum amount provided for by Federal law; and,

2. Is assessed or enforced by an agency pursuant to Federal law; and,

3. Is assessed or enforced pursuant to an administrative proceeding or a civil action in the Federal courts.

On November 2, 2015, the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015 (Section 701 of Pub. L. 114-74) further amended the Federal Civil Penalties Inflation Adjustment Act of 1990 to improve the effectiveness of CMPs and to maintain their deterrent effect. This amendment (1) required agencies to adjust the CMP levels in effect as of November 2, 2015, with initial catch up adjustments for inflation through a final rulemaking to take effect no later than August 1, 2016; and (2) requires agencies to make subsequent annual adjustments for inflation to CMPs that shall take effect not later than January 15. The Department of Commerce's 2021 adjustments for inflation to CMPs were published in the Federal Register on January 11, 2021, and the new CMP levels became effective January 15, 2021.

The Department of Commerce's 2022 adjustments for inflation to CMPs apply only to CMPs with a dollar amount, and will not apply to CMPs written as functions of violations. These 2022 adjustments for inflation apply only to those CMPs, including those whose associated violation predated such adjustment, which are assessed by the Department of Commerce after the effective date of the new CMP level.

This regulation adjusts for inflation CMPs that are provided by law within the jurisdiction of the Department of Commerce. The actual CMP assessed for a particular violation is dependent upon a variety of factors. For example, the National Oceanic and Atmospheric Administration's (NOAA) Policy for the Assessment of Civil Administrative Penalties and Permit Sanctions (Penalty Policy), a compilation of NOAA internal guidelines that are used when assessing CMPs for violations for most of the statutes NOAA enforces, will be interpreted in a manner consistent with this regulation to maintain the deterrent effect of the CMPs. The CMP ranges in the Penalty Policy are intended to aid enforcement attorneys in determining the appropriate CMP to assess for a particular violation. NOAA's Penalty Policy is maintained and made available to the public on NOAA's Office of the General Counsel, Enforcement Section website at: http://www.gc.noaa.gov/enforce-office.html.

The Department of Commerce's 2022 adjustments for inflation to CMPs set forth in this regulation were determined pursuant to the methodology prescribed by the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015, which requires the maximum CMP, or the minimum and maximum CMP, as applicable, to be increased by the cost-of-living adjustment. The term “cost-of-living adjustment” is defined by the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015. For the 2022 adjustments for inflation to CMPs, the cost-of-living adjustment is the percentage for each CMP by which the Consumer Price Index for the month of October 2021 exceeds the Consumer Price Index for the month of October 2020.

Pursuant to 5 U.S.C. 553(b)(3)(B), there is good cause to issue this rule without prior public notice or opportunity for public comment because it would be impracticable and unnecessary. The Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015 (Section 701(b)) requires agencies to make annual adjustments for inflation to CMPs notwithstanding section 553 of title 5, United States Code. Additionally, the methodology used for adjusting CMPs for inflation is given by statute, with no discretion provided to agencies regarding the substance of the adjustments for inflation to CMPs. The Department of Commerce is charged only with performing ministerial computations to determine the dollar amounts of adjustments for inflation to CMPs. Accordingly, prior public notice and an opportunity for public comment are not required for this rule. For the same reasons, there is good cause under 5 U.S.C. 553(d)(3) to waive the 30-day delay in effective date.

The provisions of the Paperwork Reduction Act of 1995, Public Law 104-13, 44 U.S.C. Chapter 35, and its implementing regulations, 5 CFR part 1320, do not apply to this rule because there are no new or revised recordkeeping or reporting requirements.

This rule is not a significant regulatory action as that term is defined in Executive Order 12866.

Because notice of proposed rulemaking and opportunity for comment are not required pursuant to 5 U.S.C. 553, or any other law, the analytical requirements of the Regulatory Flexibility Act (5 U.S.C. 601, et seq. ) are inapplicable. Therefore, a regulatory flexibility analysis is not required and has not been prepared.

This final rule revises the Department's regulations promulgated pursuant to 5 U.S.C. 301. The regulations at 15 CFR 15.11 through 15.18 set forth the procedures applicable to requests submitted to Commerce for the testimony of employees and the production of documents for use in legal proceedings to which the agency is not a party. These regulations are also known as “Touhy regulations,” in reference to the case in which the Supreme Court upheld the validity of such agency regulations promulgated pursuant to 5 U.S.C. 301. See United States ex rel. Touhy v. Ragen, 340 U.S. 462 (1951).

These revisions to the Department's regulations clarify the process by which demands for documents or testimony are to be made and considered. They also update and streamline the language of several provisions where past experiences suggest need for elucidation. Additionally, the Department is revising these regulations to more directly address issues that arise frequently in requests for documents or testimony. The Department intends these revisions to provide greater clarity to entities seeking documents or testimony from current or former Department employees. Following is a description of the revisions to specific provisions of the Touhy regulations.

Section 15.11—Scope.

Paragraph (a) has been revised to more clearly set forth the scope and applicability of this subpart, and to state upfront that an employee's compliance with any demand for information or testimony requires prior authorization by the appropriate legal officers. New paragraph (c) clarifies that this subpart does not apply to proceedings in which the Department is a party. New paragraph (d) has been added to direct requests for documents or testimony from the United States Patent and Trademark Office (USPTO) to the applicable USPTO Touhy regulations; all references to the USPTO in the previous regulations have been deleted throughout the revised subpart B. New paragraph (e) combines previous paragraph (c) with previous § 15.17 to clarify that the Department will determine if other statutory authorities exist that address disclosure of the requested information before applying the procedures in this subpart.

Section 15.12—Definitions.

Broadly, this section has been revised to provide additional detail in definitions and add definitions for new terms used in the proposed revisions. Paragraph (a) has been revised to provide more detail in the definition of agency counsel. Paragraphs (c) and (i) define the Office of the Inspector General and its Counsel, reflecting the addition of new § 15.17 to address requests that are made for documents or testimony from the Office of the Inspector General. Paragraphs (b), (d) through (h), and (j) through (m) has been revised to clarify language and provide greater detail.

Section 15.13—Demand for testimony or production of documents: Department procedures.

This rule significantly revises § 15.13. The rule moves from § 15.13 to § 15.16(a) the policies and considerations that Commerce will use in determining responses to demands for documents or testimony. Paragraph (a) of revised § 15.13 restates the existing rule that no document or information may be produced without authorization from the General Counsel or appropriate agency counsel. Paragraph (b) of revised § 15.13 sets forth in more detail the notification requirements for requests submitted pursuant to this subpart; these notification requirements were formerly found at § 15.14(c). Paragraph (b)(1) has been revised to include the full address for mailed requests and an email address for submitting requests electronically. Paragraph (b)(2) refers requestors to regulations for the United States Patent and Trademark Office, for requests relating to that agency. Paragraph (c) directs employees to forward any demand to the appropriate office within the General Counsel's Office; this direction and contact information is currently set forth in § 15.14(a) of the regulations. Paragraph (d) specifically addresses the course of action that the Department will take if it determines its employee should not comply with a subpoena. In addition, this paragraph specifies that electronic service of subpoenas is not authorized.

Section 15.14—Demand for testimony or production of documents in matters in which the United States is not a party.

This section has been revised to consolidate the procedures to be followed for requests relating to matters in which the United States is not a party to proceedings, which were previously interspersed in §§ 15.14, 15.15, and 15.16 of the regulations. Notably, paragraph (g)(2) of revised § 15.14 sets forth new rules and procedures for former Department employees who are asked to provide opinion or expert testimony in such proceedings; these rules and procedures had not previously been addressed. The procedures for matters in which the United States is a party are now provided separately in new § 15.15.

Section 15.15—Demand for testimony or production of documents in matters in which the United States is a party.

This section is partly new, and encompasses provisions found previously in §§ 15.16 and 15.18 on expert and opinion testimony. It sets forth the procedures for requests relating to matters in which the United States, but not the Department, is a named party. Paragraph (a) addresses requests received from entities other than the United States, in proceedings in which the United States is a party, and requires that counsel of record representing the interests of the United States or one of its other agencies and instrumentalities be informed of such demands. Paragraph (b) addresses requests received from agencies or instrumentalities of the United States other than the Department. Notably, and consistent with past practice, paragraph (b) now states that the General Counsel may require reimbursement to the Department of expenses associated with a Department employee providing consultations on behalf of the United States. Paragraph (c) separately sets forth the procedures for expert or opinion testimony for both current and former employees in matters in which the United States, but not the Department, is a named party.

Section 15.16—Demand for testimony or production of documents: Department and Policy Considerations.

This rule revises § 15.16 to set forth in greater detail the factors that, as appropriate, will be considered in deciding whether the requested disclosure of information or testimony is in the interests of the Department. The policy factors in previous § 15.13(a) through (f) have been moved to this section and expanded to better inform non-government requesters. Paragraphs (a)(1) through (9) sets forth a list of factors to be considered. Paragraphs (b)(1) through (3) sets forth additional considerations for the General Counsel to weigh, once requirements in §§ 15.14 and 15.15 of this subpart have been satisfied. Finally, new paragraphs (c)(1) through (8) sets forth a non-exclusive list of the factors that preclude disclosure of information that may be requested.

Section 15.17—Subpoenas and demands served upon employees or former employees of the Office of the Inspector General.

This final rule adds this new section to address requests that are made for documents or testimony from the Office of the Inspector General and to clarify that this subpart applies to requests for documents or testimony from the Office of the Inspector General. This section provides the notification procedures for requests to the Inspector General.

The proposed rule was published in the Federal Register on September 27, 2021 (86 FR 53251), with a request for comments to be submitted by October 27, 2021. No comments were received.

This final rule makes no substantive changes to the proposed rule. We note that the regulatory text of this final rule contains two minor typographical corrections in the regulatory text of the proposed rule: The deletion of an extra word, “a”, in the first sentence of 15 CFR 15.13(d)(1), and the addition of a missing semi-colon after the phrase “the intended use of the testimony” in 15 CFR 15.14(a)(6).

This final rule is published under the authority of 15 CFR part 15, subpart B (§§ 15.11 through 15.18), which sets forth the procedures applicable to requests submitted to the Department for the testimony of employees and the production of documents for use in legal proceedings to which the Department is not a party. These regulations are also known as “Touhy regulations,” in reference to the case in which the Supreme Court upheld the validity of such agency regulations promulgated pursuant to 5 U.S.C. 301. See United States ex rel. Touhy v. Ragen, 340 U.S. 462 (1951).

This final rule has been determined to be not significant for the purposes of Executive Order (E.O.) 12866. The Department has identified no duplicative, overlapping, or conflicting Federal rules.

Pursuant to 5 U.S.C. 553(d)(3), the Department of Commerce has determined that there is good cause to waive the 30-day delay in the date of effectiveness for this final action. Specifically, there is good cause to waive the 30-day delay in the date of effectiveness, because this final rule provides clarifications that will reduce confusion for entities seeking documents or testimony from current or former Department employees, for use in legal proceedings. The Department of Commerce's Touhy regulations were last revised in 1995. This final rule improves the readability of the regulations, and provides clarifications on several points that have been the subject of consideration over the past twenty-five years. It is not necessary to have a 30-day delay in effectiveness for this final rule because (1) it imposes no additional burdens on entities seeking documents or testimony from the agency, and (2) clarifies the process making such requests, thereby making it easier for entities to submit requests to the agency. As such, the Department believes that a 30-day delay in the date of effectiveness of this final rule would be contrary to the public interest. For the reasons described above, the Department finds good cause to make this rule effective immediately upon publication in the Federal Register .

The changes in this final rule are not expected to result in an annual effect on the economy of $100 million or more, a major increase in costs or prices, or significant adverse effects on competition, employment, investment, productivity, innovation, or the ability of United States-based enterprises to compete with foreign-based enterprises in domestic and export markets. Therefore, this final rule is not expected to be considered a “major rule” as defined in 5 U.S.C. 804(2) of the Congressional Review Act provisions of the Small Business Regulatory Enforcement Fairness Act of 1996 (5 U.S.C. 801 et seq. ).

The Chief Counsel for Regulation, Department of Commerce, has certified to the Chief Counsel for Advocacy, Small Business Administration, under the provisions of the Regulatory Flexibility Act, 5 U.S.C. 605(b), that this rule will not have a significant economic impact on a substantial number of small entities. This final rule amends existing regulations in order to clarify the policies, practices, responsibilities, and procedures for Department of Commerce employees related to production of official Departmental documents and testimony by current or former employees as witnesses in legal proceedings. Specifically, the changes in this rule fall into three categories: (1) Clarifying the requirements for individuals or entities making requests for Department information or testimony for use in legal proceedings; (2) refining the procedures the Department uses and elaborating on the polices that support the Department's decision regarding whether to grant such requests; and (3) making non-substantive clarifying changes in the regulations. This rule applies to any individual or entity or their legal representative who requests information from the Department or testimony from Departmental employees for use in legal proceedings. There is no requirement that an individual or entity or their legal representative make such a request to the Department unless they seek information or testimony for use in a legal proceeding. If such a request is made, however, this final rule clarifies the current regulatory language that describes to whom in the Department the request should be sent, the standards that the request must meet, and the procedures the Department will apply to process the request and determine whether to grant it. The revisions made by this final rule are not expected to have any impact on affected entities. For example, the clarifying changes applicable to the actions of Department employees, reorganization of certain provisions, and harmonization of terminology have no impact on affected entities seeking information or testimony from the Department for use in legal proceedings. Other changes impose no additional burden on individuals or entities seeking information or testimony from the Department for use in legal proceedings. For these reasons, this final rule will not have a significant economic impact on a substantial number of small entities.

No comments were received on this determination during the public comment period for the proposed rule. Nor has the Department received any new information that would affect its determination that this rule would not have a significant economic impact on a substantial number of small entities. As a result, a final regulatory flexibility analysis was not required and none was prepared.

This final rule contains no new collection of information subject to the Paperwork Reduction Act, 44 U.S.C. 3501 et seq.

For the reasons set out in the preamble, Commerce amends 15 CFR part 15 as follows:

This document contains amendments to the Income Tax Regulations (26 CFR part 1) under sections 860A, 860G, 1001, 1271, 1275, and 7701(l) of the Internal Revenue Code (Code) and to the Procedure and Administration Regulations (26 CFR part 301) under section 7701 of the Code.

On July 27, 2017, the Financial Conduct Authority, the United Kingdom regulator tasked with overseeing the London Interbank Offered Rate (LIBOR), announced that publication of all currency and term variants of LIBOR, including U.S.-dollar LIBOR (USD LIBOR), may cease after the end of 2021. The administrator of LIBOR, the ICE Benchmark Administration, announced on March 5, 2021, that publication of overnight, one-month, three-month, six-month, and 12-month USD LIBOR will cease immediately following the LIBOR publication on June 30, 2023, and that publication of all other currency and tenor variants of LIBOR will cease immediately following the LIBOR publication on December 31, 2021.

On September 29, 2021, the Financial Conduct Authority announced that it will compel the ICE Benchmark Administration to continue to publish one-month, three-month, and six-month sterling LIBOR and Japanese yen LIBOR after December 31, 2021, using a “synthetic” methodology that is not based on panel bank contributions ( synthetic GBP LIBORs and synthetic JPY LIBORs, respectively). The Financial Conduct Authority has indicated that it may also require the ICE Benchmark Administration to publish one-month, three-month, and six-month USD LIBOR after June 30, 2023, using a similar synthetic methodology ( synthetic USD LIBORs ). However, these synthetic GBP LIBORs, synthetic JPY LIBORs, and synthetic USD LIBORs are expected to be published for a limited period of time.

Various tax issues may arise when taxpayers modify contracts in anticipation of the discontinuation of LIBOR or another interbank offered rate (IBOR). For example, such a modification may be treated as an exchange of property for other property differing materially in kind or extent for purposes of § 1.1001-1(a), giving rise to gain or loss. Such a modification may also have consequences under the rules for integrated transactions and hedging transactions, withholding under chapter 4 of the Code, fast-pay stock, investment trusts, original issue discount, and real estate mortgage investment conduits (REMICs). To minimize potential market disruption and to facilitate an orderly transition in connection with the discontinuation of LIBOR and other IBORs, the Treasury Department and the IRS published proposed regulations (REG-118784-18) in the Federal Register (84 FR 54068) on October 9, 2019 (Proposed Regulations). The Proposed Regulations generally provide that modifying a debt instrument, derivative, or other contract in anticipation of an elimination of an IBOR is not treated as an exchange of property for other property differing materially in kind or extent for purposes of § 1.1001-1(a). The Proposed Regulations also adjust other tax rules to minimize the collateral consequences of the transition away from IBORs.

The Alternative Reference Rates Committee (ARRC), whose ex officio members include the Treasury Department, was convened by the Board of Governors of the Federal Reserve System and the Federal Reserve Bank of New York in 2014. To support the transition away from USD LIBOR, the ARRC has published recommended fallback language for inclusion in the terms of certain cash products, such as syndicated loans and securitizations. The ARRC has also been actively engaged in work led by the International Swaps and Derivatives Association (ISDA) to ensure that the contractual fallback provisions in derivative contracts are sufficiently robust to prevent serious market disruptions when LIBOR is discontinued or becomes unreliable. To that end, ISDA developed the ISDA 2020 IBOR Fallbacks Protocol by which the parties to certain derivative contracts can incorporate certain improved fallback provisions into the terms of those contracts.

On October 9, 2020, the Treasury Department and the IRS released Rev. Proc. 2020-44, 2020-45 I.R.B. 991, in advance of finalizing the Proposed Regulations to support the adoption of the ARRC's recommended fallback provisions and the ISDA 2020 IBOR Fallbacks Protocol. Rev. Proc. 2020-44 provides that a modification within the scope of the revenue procedure is not treated as an exchange of property for other property differing materially in kind or extent for purposes of § 1.1001-1(a). In addition, Rev. Proc. 2020-44 generally provides that a modification within the scope of the revenue procedure will not result in legging out of an integrated transaction or terminating either leg of a hedging transaction.

The Treasury Department and the IRS received public comments on the Proposed Regulations from eight commenters. Copies of these comments are available for public inspection at https://www.regulations.gov or upon request. No public hearing was requested, and none was held. After consideration of the public comments, the Treasury Department and the IRS adopt the Proposed Regulations as amended by this Treasury decision (Final Regulations).

The Final Regulations are intended to provide special rules to help taxpayers adjust to the discontinuation of certain widely used interest rate benchmarks. To achieve this purpose, the Treasury Department and the IRS have concluded that it is appropriate in this context to depart from the ordinary tax rules to the degree and in the manner provided in the Final Regulations. One commenter recommended that the Treasury Department and the IRS supplement the rules in the Final Regulations with “rules of construction” based on the reasonableness of taxpayers' actions. The Treasury Department and the IRS decline to adopt this comment because such a principles-based rule would blur the carefully circumscribed degree and manner in which the Final Regulations authorize taxpayers to depart from the ordinary tax rules.

Although the Final Regulations and Proposed Regulations share many of the same fundamental rules, the structure of § 1.1001-6 in the Final Regulations differs from that of the Proposed Regulations. These structural changes are primarily intended to simplify the operative rules, which are in § 1.1001-6(b) through (g) of the Final Regulations. For example, while the Proposed Regulations separately state the rules for debt and non-debt contracts, the Final Regulations provide a single set of rules for all contracts. The Final Regulations define contract broadly to include not only debt instruments and derivative contracts but also insurance contracts, stock, leases, and other contractual relationships.

The Final Regulations also make use of defined terms, located in § 1.1001-6(h), to streamline references to concepts that are frequently used in the operative rules in § 1.1001-6(b) through (g). In particular, the defined term “covered modification” is the cornerstone of these rules and serves to restructure several of the fundamental rules set forth in the Proposed Regulations. For example, § 1.1001-6 of the Proposed Regulations generally provides certain beneficial tax consequences when the parties to a contract modify the contract to replace an IBOR-based rate with a “qualified rate” and make certain “associated modifications,” which may include a “one-time payment.” The Final Regulations unite these various elements of the Proposed Regulations (that is, modification of a contract, an IBOR-based rate, a qualified rate, associated modifications, and a one-time payment) in the single defined term “covered modification.”

Section 1.1001-6(a) of the Proposed Regulations generally provides rules for applying section 1001 to a contract that is modified to replace an IBOR-based rate or IBOR-based fallback provisions or to add or amend fallback provisions that would replace an IBOR-based rate. Section 1.1001-6(a) of the Proposed Regulations generally provides that such a modification is not treated as an exchange of property under section 1001 and extends this treatment to any reasonably necessary conforming modifications. When modifications that qualify for this special treatment under proposed § 1.1001-6(a) occur contemporaneously with modifications that do not qualify, the non-qualifying modifications are subject to the ordinary rules under § 1.1001-1(a) or § 1.1001-3 and the modifications that qualify for special treatment under proposed § 1.1001-6(a) are treated as part of the existing terms of the contract. Section 1.1001-6(b) of the Final Regulations provides similar rules but makes use of the defined terms “covered modification” and “noncovered modification.”

Under § 1.1001-6(b)(1) of the Final Regulations, a covered modification of a contract is not treated as an exchange of property for other property differing materially in kind or in extent for purposes of § 1.1001-1(a). Consequently, in the case of a debt instrument, a covered modification to which § 1.1001-6(b)(1) applies is not treated as a significant modification for purposes of § 1.1001-3. As defined in § 1.1001-6(h)(1) of the Final Regulations, a covered modification is generally comprised of four elements: (1) A contract with an operative rate or fallback provision that references a discontinued IBOR; (2) a modification of that contract (a) to replace an operative rate that refers to a discontinued IBOR with a qualified rate and, if the parties so choose, to add an obligation for one party to make a qualified one-time payment, (b) to include a qualified rate as a fallback to an operative rate that refers to a discontinued IBOR, or (c) to replace a fallback rate that refers to a discontinued IBOR with a qualified rate; (3) any associated modifications with respect to those modifications of the operative rate or fallback provisions; and (4) satisfaction of rules in § 1.1001-6(j) of the Final Regulations that exclude certain modifications from the definition of covered modification. The defined terms “discontinued IBOR,” “qualified rate,” “qualified one-time payment,” and “associated modification” and the rules in § 1.1001-6(j) of the Final Regulations that exclude certain modifications are discussed in more detail in the sections of this preamble entitled Discontinued IBOR, Qualified rate, Qualified one-time payments, Associated modifications, and Fair market value requirement and excluded modifications, respectively. A modification described in section 4.02 of Rev. Proc. 2020-44, as supplemented by any guidance that may be published in the Internal Revenue Bulletin, is also treated as a covered modification. Rev. Proc. 2020-44 is discussed in more detail in the section of this preamble entitled Rev. Proc. 2020-44. For purposes of the definition of a covered modification, the term “modification” is broadly construed to include any modification, regardless of its form. For example, a holding corporation that issued preferred stock may modify that stock for purposes of the Final Regulations by means of an exchange offer conducted by the corporation's subsidiary. The term also includes any modification regardless of whether the modification is evidenced by an express agreement (oral or written), conduct of the parties, or otherwise. For example, any agreement to make additional payments with respect to a contract is a modification of that contract, regardless of whether the parties memorialize the obligation to make those payments in an amendment to the original contract or in a new, standalone contract.

Although § 1.1001-6(b)(1) of the Final Regulations generally provides that a covered modification of a contract is not treated as an exchange of property for other property differing materially in kind or in extent for purposes of § 1.1001-1(a), whether a noncovered modification that occurs contemporaneously with the covered modification is an exchange of property for other property differing materially in kind or in extent is determined under the ordinary rules in § 1.1001-1(a) or § 1.1001-3. The Final Regulations define a noncovered modification as any modification or portion of a modification of a contract that is not a covered modification. Two commenters asked whether pairing a modification that would otherwise qualify for beneficial treatment under the Proposed Regulations with a contemporaneous modification that does not so qualify prevents both modifications from benefitting from the Proposed Regulations. The reference to a “portion of a modification” in the definitions of covered modification and noncovered modification in the Final Regulations indicates that a modification is a noncovered modification only to the extent that it fails to be a covered modification.

Two commenters requested that the Treasury Department and the IRS clarify whether, following a covered modification by which the parties add or amend fallback provisions, the change to the terms of the contract that results from the activation of the new fallback provisions must be tested separately at the time of activation to determine whether that change is an exchange of property for other property differing materially in kind or in extent for purposes of § 1.1001-1(a). As is ordinarily the case, a change to the terms of the contract that results from the activation of a fallback provision must be tested at the time of activation to determine whether that change results in such an exchange under § 1.1001-1(a). If the change resulting from the activation of a fallback is a covered modification under § 1.1001-6(h)(1) of the Final Regulations, then the special rules provided in the Final Regulations for covered modifications apply to that change. Otherwise, whether that change is an exchange of property for other property differing materially in kind or in extent is generally determined under § 1.1001-3 for debt instruments and under § 1.1001-1(a) for other kinds of contracts.

Section 1.1001-6(h)(4) of the Final Regulations defines “discontinued IBOR,” a term not used in the Proposed Regulations. Sections 1.860G-1(e) and 1.1275-2(m) of the Final Regulations also incorporate this definition. Under this new definition, a discontinued IBOR is generally an IBOR that will be discontinued, and an IBOR ceases to be a discontinued IBOR a year after the IBOR's discontinuation. The purpose of this new definition is to tailor the relief provided in the Final Regulations to better match the problem that the Final Regulations are intended to address.

One commenter requested that the Final Regulations apply when the parties to a contract modify the terms of the contract after the existing fallback provisions have already replaced all references to the IBOR with another rate. The commenter noted that, in the case of some widely held debt instruments, securing the consent of enough holders to modify the terms of the debt instrument may delay the modification so that the existing fallback provisions are triggered before the modification is complete. In such cases, the Proposed Regulations would not apply to the modification because the qualified rate would not be replacing an IBOR-based rate. The purpose of the Final Regulations is to facilitate the transition away from discontinued IBORs in order to avoid the market disruption that may occur if parties to contracts referencing discontinued IBORs fail to transition before the discontinued IBOR ceases. The change suggested by the commenter is not necessary to achieve this purpose. Moreover, the discontinuation of the most commonly used tenors of USD LIBOR has been deferred until June 30, 2023, giving parties to contracts such as those described by the commenter an additional 18 months to act. Accordingly, the Final Regulations do not adopt this comment.

As discussed in the section of this preamble entitled Discontinuation of LIBOR and Tax Implications, the ICE Benchmark Administration will continue to publish synthetic GBP LIBORs and synthetic JPY LIBORs for a limited time after December 31, 2021, and may publish synthetic USD LIBORs for a limited time after June 30, 2023. The Treasury Department and the IRS have determined that, for purposes of the Final Regulations, these synthetic LIBORs are a continuation of the currency and tenor variant of LIBOR that they succeed. Thus, for example, three-month sterling LIBOR became a discontinued IBOR on March 5, 2021, the date on which the ICE Benchmark Administration announced that it would permanently cease to publish three-month sterling LIBOR, and will cease to be a discontinued IBOR one year after the date on which the ICE Benchmark Administration ceases to publish the three-month tenor of synthetic GBP LIBOR.

The definition of “qualified rate” in § 1.1001-6(b) of the Proposed Regulations generally includes three elements: (1) The putative qualified rate must appear on a list of rates eligible to be a qualified rate in § 1.1001-6(b)(1); (2) the fair market values of the contract before and after the modification involving the putative qualified rate must be substantially equivalent under § 1.1001-6(b)(2); and (3) the interest rate benchmark to which the putative qualified rate refers and the relevant IBOR generally must be based on the same currency under § 1.1001-6(b)(3). The fair market value requirement is addressed in more detail in the section of this preamble entitled Fair market value requirement and excluded modifications.

One commenter recommended streamlining the list of rates that are eligible to be a “qualified rate” in § 1.1001-6(b)(1) of the Proposed Regulations. The commenter pointed out that § 1.1001-6(b)(1)(x) of the Proposed Regulations generally includes qualified floating rates without regard to the limitations on multiples and that the interest rate benchmarks listed in § 1.1001-6(b)(1)(i) through (viii) of the Proposed Regulations are merely examples of qualified floating rates. In response, the Treasury Department and the IRS have merged § 1.1001-6(b)(1)(i) through (viii) and (x) of the Proposed Regulations into a single entry in § 1.1001-6(h)(3)(ii)(A) of the Final Regulations, which includes a non-exclusive list of rates that are generally qualified floating rates, such as the Secured Overnight Financing Rate published by the Federal Reserve Bank of New York (SOFR), the Sterling Overnight Index Average, the Tokyo Overnight Average Rate, the Swiss Average Rate Overnight, and the euro short-term rate administered by the European Central Bank.

This commenter also suggested that § 1.1001-6(b)(1)(xi) of the Proposed Regulations, which describes any rate determined by reference to another rate included in the list of eligible rates, is unnecessary because any rate described in that paragraph is also described in § 1.1001-6(b)(1)(x) of the Proposed Regulations, which is any qualified floating rate without regard to the limitations on multiples. However, certain IBOR-based objective rates (as defined in § 1.1275-5(c)) and certain IBOR-based rates on contingent payment debt instruments (within the meaning of § 1.1275-4) may not be described in § 1.1001-6(b)(1)(x) of the Proposed Regulations. Accordingly, the Final Regulations do not adopt this comment and retain both § 1.1001-6(b)(1)(x) and (xi) of the Proposed Regulations in the list of eligible rates at § 1.1001-6(h)(3)(ii)(A) and (D) of the Final Regulations, respectively.

Other commenters suggested that the list of rates that are eligible to be qualified rates in the Proposed Regulations be expanded to include any rate identified by the ARRC or ISDA as a replacement for an IBOR. The Treasury Department and the IRS have concluded that allowing any purely private organizations the authority to add to the list of rates eligible to be qualified rates would be inconsistent with the carefully circumscribed degree and manner in which the Final Regulations authorize taxpayers to depart from the ordinary tax rules. Accordingly, the Final Regulations extend such authority only to the ARRC and only for as long as the Federal Reserve Bank of New York continues to be an ex officio member of the ARRC.

One commenter recommended that the currency element of the definition of qualified rate in § 1.1001-6(b)(3) of the Proposed Regulations be removed. After stating that a qualified rate under the Proposed Regulations must generally be a qualified floating rate, the commenter reasoned that the currency requirement in the definition of qualified rate is unnecessary because that requirement is already built into the definition of qualified floating rate under § 1.1275-5(b). The Final Regulations do not adopt this comment because a qualified rate under the Final Regulations is not required to be a qualified floating rate. For example, an objective rate based on a qualified floating rate may be described in § 1.1001-6(h)(3)(ii)(D) of the Final Regulations but not in § 1.1001-6(h)(3)(ii)(A) of the Final Regulations. Also, although the currency requirements in § 1.1001-6(h)(3)(i) of the Final Regulations and § 1.1275-5(b) may overlap in many cases, these requirements are not identical. The currency requirement for qualified rates in the Final Regulations requires that the discontinued IBOR and the interest rate benchmark included in the qualified rate be based on the same currency, whereas the currency requirement for qualified floating rates in § 1.1275-5(b) requires that the currency on which the qualified floating rate is based match the currency in which the debt instrument is denominated.

The definition of qualified rate has also been amended in the Final Regulations in response to public comments that identify gaps in how the definition of qualified rate in the Proposed Regulations applies to covered modifications that involve the addition or amendment of fallback provisions. In particular, commenters asked how the definition of qualified rate applies when a contract is modified to include a waterfall of fallback rates, the individual tiers of which may not independently satisfy the definition of qualified rate. Commenters also asked how the definition of qualified rate applies to a fallback rate that will be determined on the date that the fallback rate is triggered and cannot be determined on the date of the modification by which that fallback rate is added to the contract.

The Final Regulations address these comments by providing a series of rules in sect; 1.1001-6(h)(3)(i) and (iii) for determining whether a fallback rate or a collection of fallback rates meet the definition of a qualified rate. Section 1.1001-6(h)(3)(i) of the Final Regulations provides that a single qualified rate may be comprised of more than one fallback rate, such as when the parties add a fallback waterfall. In other words, this rule treats a waterfall of fallbacks as a unit and evaluates that unit to determine if it is a qualified rate. Thus, if the waterfall is designed so that each tier replaces the preceding tier when triggered (for example, when USD LIBOR ceases, USD LIBOR is replaced by the first tier of the waterfall and, if the first tier of the waterfall ceases, that first tier is replaced by the second tier), the entire waterfall is treated as a fallback to a discontinued IBOR even though, as a technical matter, only the first tier of the waterfall is a fallback to the discontinued IBOR. Section 1.1001-6(h)(3)(iii)(A) of the Final Regulations generally provides that, when a collection of fallback rates is added to the contract (for example, a fallback waterfall), that collection of fallback rates is a qualified rate only if each individual fallback rate in the collection meets the requirements to be a qualified rate. Sections 1.1001-6(h)(3)(iii)(B) and (C) of the Final Regulations apply for purposes of determining whether an individual fallback rate (regardless of whether that fallback rate was added to the contract individually or the fallback rate was added as a collection of fallback rates and is being tested individually under § 1.1001-6(h)(3)(iii)(A) of the Final Regulations) meets the requirements to be a qualified rate. Under § 1.1001-6(h)(3)(iii)(B) of the Final Regulations, a fallback rate is treated as not meeting the requirements to be a qualified rate if the contractual terms that comprise the fallback rate do not ensure at the time of the modification that the fallback rate will meet the requirements to be a qualified rate identified in the first sentence of § 1.1001-6(h)(3)(i) of the Final Regulations when the fallback rate is triggered. Under § 1.1001-6(h)(3)(iii)(C) of the Final Regulations, a fallback rate is treated as meeting the requirements to be a qualified rate if the likelihood that it will ever be triggered is remote. If § 1.1001-6(h)(3)(iii)(B) and (C) of the Final Regulations both apply to a given fallback rate, the rule in § 1.1001-6(h)(3)(iii)(C) takes priority over the rule in § 1.1001-6(h)(3)(iii)(B). Examples in § 1.1001-6(h)(3)(iv) of the Final Regulations illustrate the operation of these rules for fallback rates.

The Proposed Regulations generally define an associated modification as a modification that is both associated with the replacement of an IBOR-based rate or the inclusion of fallbacks to an IBOR-based rate and that is reasonably necessary to adopt or to implement that replacement or inclusion. Section 1.1001-6(h)(5) of the Final Regulations generally defines an associated modification similarly but eliminates the requirement that an associated modification be “associated with” such a replacement or inclusion because any modification that is reasonably necessary to adopt or to implement the replacement or inclusion is necessarily associated with that replacement or inclusion.

The definition of “associated modification” in the Proposed Regulations also includes a “one-time payment,” which is generally defined as a payment to offset the change in value of the contract that results from replacing an IBOR-based rate with a qualified rate. One commenter asked whether certain cash payments can qualify as associated modifications even if they do not qualify as one-time payments. For example, if the parties to an interest rate swap agree to replace USD LIBOR with a replacement rate comprised of a compounded average of SOFR (computed in arrears using a two-day observation period shift without payment lag) and a fixed adjustment spread, one party might also agree to make an incidental cash payment to compensate the counterparty for small valuation differences between the pre- modification LIBOR-based contract and the post-modification SOFR-based contract, such as the valuation differences resulting from the difference in observation period. The Treasury Department and the IRS have concluded that including such limited payments within the definition of an associated modification would further the policy goal of the Final Regulations to facilitate the transition away from discontinued IBORs. Accordingly, the definition of “associated modification” in § 1.1001-6(h)(5) of the Final Regulations includes an incidental cash payment intended to compensate a counterparty for small valuation differences resulting from a modification of the administrative terms of a contract, such as the valuation differences resulting from a change in observation period. The Treasury Department and the IRS caution, however, that a payment of an amount that is not incidental cannot qualify as an associated modification.

The Proposed Regulations provide that a “one-time payment,” generally defined as a payment to offset the change in value of the contract that results from replacing an IBOR-based rate with a qualified rate, may be an associated modification. To improve readability and clarity, the Final Regulations redesignate “one-time payments” as “qualified one-time payments” and define the new term in a standalone definition rather than as a kind of associated modification.

Commenters asked whether the Proposed Regulations cap the amount of a one-time payment and described certain abuses that may result if the amount of the payment is not limited in some way. To clarify the intent of the Proposed Regulations and to prevent excessive payments from satisfying the definition of qualified one-time payments, the Final Regulations generally limit a qualified one-time payment to the amount intended to compensate for the basis difference between the discontinued IBOR and the interest rate benchmark to which the qualified rate refers. Any portion in excess of that cap is a noncovered modification.

The Proposed Regulations generally require that the fair market value of the modified contract be substantially equivalent before and after the modification. The Proposed Regulations provide two safe harbors to the fair market value requirement: The historical average safe harbor and the arm's length safe harbor. Under the historical average safe harbor, the fair market value requirement is generally satisfied if, on the date of the modification, the historical average of the IBOR-based rate is within 25 basis points of the historical average of the putative qualified rate. To qualify for the arm's length safe harbor, the parties to the contract generally must not be related under § 267(b) or § 707(b)(1), must conduct bona fide, arm's length negotiations, and must determine based on those negotiations that the fair market value requirement is satisfied. The Treasury Department and the IRS received many public comments identifying practical problems and technical issues with the fair market value requirement and its two safe harbors. In response to these public comments, the Treasury Department and the IRS have replaced the fair market value requirement with rules that describe specific modifications (the excluded modifications) and exclude those modifications from the definition of covered modification. These excluded modifications are described in § 1.1001-6(j)(1) through (5) of the Final Regulations.

One significant purpose of the fair market value requirement in the Proposed Regulations is to ensure that the modifications to the cash flows of an IBOR-referencing contract are intended to address the replacement of the IBOR-based rate in the contract. Because the excluded modifications replace the fair market value requirement, each of the excluded modifications described in § 1.1001-6(j)(1) through (5) of the Final Regulations involves modifying the contract in a way that changes the amount or timing of contractual cash flows.

In addition to a change in cash flows, each of the excluded modifications also describes a particular purpose or intent of the parties making the modification. Section 1.1001-6(j)(1) of the Final Regulations generally describes a situation in which the parties to a contract change the contractual cash flows to induce one or more of the parties to perform any act necessary to consent to a covered modification of the contract. Example 3 in § 1.1001-6(j)(6)(iii) illustrates the operation of § 1.1001-6(j)(1). Section 1.1001-6(j)(2) of the Final Regulations generally describes a situation in which the parties to a contract agree to a contemporaneous noncovered modification of that contract that does not necessarily change contractual cash flows and, in consideration for that change, also agree to change contractual cash flows. Example 5 in § 1.1001-6(j)(6)(v) illustrates the operation of § 1.1001-6(j)(2). Section 1.1001-6(j)(3) of the Final Regulations generally describes a situation in which one party to a contract is experiencing financial distress and another party either makes a concession to or secures a concession from the distressed party in the form of a change in contractual cash flows. Example 6 in § 1.1001-6(j)(6)(vi) illustrates the operation of § 1.1001-6(j)(3). Section 1.1001-6(j)(4) of the Final Regulations generally describes a situation in which the parties to a contract agree to change contractual cash flows on that contract as consideration for some extra-contractual arrangement. Example 7 in § 1.1001-6(j)(6)(vii) illustrates the operation of § 1.1001-6(j)(4). Section 1.1001-6(j)(4) of the Final Regulations also includes a special rule that applies when the parties make an aggregate qualified one-time payment on a portfolio of modified contracts. In that case, the portion of the qualified one-time payment allocable to any one contract in the portfolio is treated as not intended to compensate for any changes in rights or obligations under any other contract in the portfolio.

In § 1.1001-6(j)(5) of the Final Regulations, the Treasury Department and the IRS reserve the authority to expand this list of excluded modifications in guidance published in the Internal Revenue Bulletin. To exercise this authority, the Treasury Department and the IRS must conclude that the modification to be described in such guidance has a principal purpose of achieving a result that is unreasonable in light of the purpose of § 1.1001-6. The Treasury Department and the IRS have concluded that this reservation of authority is necessary to prevent any unforeseen abuses of the significant flexibility granted to taxpayers in the Final Regulations. However, the Treasury Department and the IRS anticipate that any such guidance would be prospective in effect.

In Rev. Proc. 2020-44, the Treasury Department and the IRS provided rules that overlap with certain of the rules in the Final Regulations. Like § 1.1001-6(b)(1) of the Final Regulations, section 5.01 of Rev. Proc. 2020-44 provides that a modification within the scope of the revenue procedure is not treated as an exchange of property for other property differing materially in kind or extent for purposes of § 1.1001-1(a). And like § 1.1001-6(c)(1)(iii) and (c)(2) of the Final Regulations, section 5.02 of Rev. Proc. 2020-44 generally provides that a modification within the scope of the revenue procedure will not result in legging out of an integrated transaction or terminating either leg of a hedging transaction. Section 4.02 of Rev. Proc. 2020-44 generally limits the scope of the revenue procedure to modifications to a contract to incorporate certain fallback provisions published by the ARRC or ISDA, labeled the “ARRC Fallbacks” and the “ISDA Fallbacks” by the revenue procedure. The parties modifying a contract under Rev. Proc. 2020-44 may also deviate in certain limited ways from the ARRC and ISDA Fallbacks. The Treasury Department and the IRS noted that the scope of the revenue procedure may be expanded in subsequent guidance published in the Internal Revenue Bulletin to address developments in the transition away from IBORs. The revenue procedure applies to modifications that occur on or after October 9, 2020, and before January 1, 2023, although the parties to a contract may rely on the revenue procedure for modifications that occur before October 9, 2020.

In the definition of covered modification in § 1.1001-6(h)(1), the Final Regulations generally provide that a modification described in section 4.02 of Rev. Proc. 2020-44 is treated as a covered modification. A modification described in section 4.02 of Rev. Proc. 2020-44 is treated as a covered modification even if the revenue procedure does not apply to that modification, for example, because the modification occurs after the revenue procedure's sunset date of December 31, 2022. The effect of this provision is that the rules in §§ 1.1001-6(b) through (g) and 1.860G-1(e), which rely on the definition of covered modification in § 1.1001-6(h)(1), apply to modifications described in section 4.02 of Rev. Proc. 2020-44. Because of the substantive overlap between the rules in § 1.1001-6(b) and (c) of the Final Regulations and the rules in section 5 of Rev. Proc. 2020-44, it is possible for a single modification to be subject to both sets of rules. As a practical matter, however, the rules in § 1.1001-6(b) and (c) of the Final Regulations are consistent with the rules in section 5 of Rev. Proc. 2020-44, so no conflict is expected to arise.

Prior to the release of Rev. Proc. 2020-44, several commenters recommended that the Final Regulations accommodate the fallback provisions published by the ARRC and ISDA. For example, one commenter recommended that the Final Regulations provide that a modification to incorporate the ARRC's or ISDA's fallback provisions or fallback provisions substantially similar to the ARRC's or ISDA's fallback provisions is not an exchange of property under section 1001. Rev. Proc. 2020-44 and its incorporation into the definition of covered modification in the Final Regulations address these comments.

Section 1.1001-6(c) of the Proposed Regulations generally provides that the modification of a contract to replace an IBOR-based rate with a qualified rate is not treated as legging out of a transaction integrated under § 1.1275-6, § 1.988-5(a), or § 1.148-4(h), provided that the components of the transaction continue to qualify for integration after the modification. That section also generally provides that the modification of a contract to replace an IBOR-based rate with a qualified rate is not treated as a disposition or termination of either leg of a hedging transaction under § 1.446-4(e)(6). One commenter stated that, because § 1.446-4 refers to § 1.1221-2(b) for the definition of “hedging transaction” and because a hedging transaction and the hedged item must be identified as provided in § 1.1221-2(f), the inclusion in the Proposed Regulations of a rule for § 1.446-4 may justify a negative inference that a similar rule is required to avoid reidentification under § 1.1221-2(f). The Treasury Department and the IRS have concluded that § 1.1001-6(b)(1) of the Final Regulations, which provides that a covered modification of either a hedging transaction or the hedged item is not treated as an exchange of property for other property differing materially in kind or in extent for purposes of § 1.1001-1(a), is sufficient to ensure that neither the hedging transaction nor the hedged item, as modified by the covered modification, needs to be reidentified under § 1.1221-2(f).

The same commenter noted that § 1.1001-6(c) of the Proposed Regulations does not include modifications to add or amend fallback provisions and recommended that the Final Regulations clarify whether the rules in that section apply to such modifications. The commenter further stated that, if a debt instrument and a hedge that reference the same ceasing IBOR are integrated under § 1.1275-6 and the parties' covered modifications of the two instruments result in the fallback provisions being slightly mismatched either in timing (that is, the fallbacks have slightly different triggers) or amount (that is, the fallback rates are slightly different), that mismatch of the fallback provisions could cause a leg out of the integrated transaction even before either fallback provision is triggered. The commenter recommended that such mismatched fallback provisions not cause a leg out of an integrated transaction under § 1.1275-6, § 1.988-5(a), or § 1.148-4(h). In response to these comments, § 1.1001-6(c) of the Final Regulations applies to a covered modification, which is generally defined to include the addition or amendment of fallback provisions. Also, § 1.1001-6(c)(2) of the Final Regulations generally provides that a covered modification that adds or amends fallback provisions is treated as not legging out of a transaction integrated under § 1.1275-6, § 1.988-5(a), or § 1.148-4(h). The Treasury Department and the IRS caution, however, that any mismatch in the fallback provisions of the components of a transaction integrated under § 1.1275-6, § 1.988-5(a), or § 1.148-4(h) may result in legging out when one or more of those fallback provisions are triggered. In that case, a taxpayer would first determine whether the rules in § 1.1001-6(c)(1) of the Final Regulations apply to any modification that results from the triggered fallback provisions.

Several commenters raised questions about the Proposed Regulations' requirement that, to avoid legging out under § 1.1275-6, § 1.988-5(a), or § 1.148-4(h), the integrated hedge must continue to qualify as a § 1.1275-6 hedge, a § 1.988-5(a) hedge, or a qualified hedge, respectively, after the modification. Two commenters asserted that certain minor mismatches between the modified terms of the components will inevitably arise (either because of minor differences in the modified terms or because the components are not modified at the same time) and that such mismatches may prevent the modified contracts from qualifying for continued integration under § 1.1001-6(c) of the Proposed Regulations. These commenters recommended that, if under the Final Regulations a modification is not treated as an exchange of property for purposes of section 1001, that modification also not be treated as legging out of an integrated transaction under § 1.1275-6 or § 1.988-5(a), regardless of whether the modified contracts would otherwise continue to qualify for integration. Alternatively, these commenters recommended that the Final Regulations provide a grace period during which the modified components of the integrated transaction do not have to meet the qualifications for integration. The Final Regulations adopt these commenters' alternative recommendation. Sections 1.1001-6(c)(1)(i), (ii), and (iv) of the Final Regulations provide a grace period during which a covered modification of a component of a transaction integrated under § 1.1275-6, § 1.988-5(a), or § 1.148-4(h) does not result in legging out of that integrated transaction, notwithstanding any mismatch in timing or amount of payments that results from the covered modification during the grace period. The grace period lasts 90 days and starts on the date of the first covered modification of any component of the integrated transaction. If, however, the hedge component of the integrated transaction does not qualify as a § 1.1275-6 hedge, a § 1.988-5(a) hedge, or a qualified hedge under § 1.148-4(h), as appropriate, by the end of the grace period, the covered modification is a legging out as of the date of the covered modification.

These commenters also observed that taxpayers may enter into temporary hedges, such as basis swaps, to manage the economic risk posed by temporary mismatches between the terms of the components of a transaction integrated under § 1.1275-6 or § 1.988-5(a). The commenters recommended that the Final Regulations accommodate the temporary integration of these hedges. The Final Regulations adopt this comment and provide that temporary hedges entered into to mitigate the economic effect of such temporary mismatches may be integrated during the 90-day grace period without disruption to a transaction integrated under § 1.1275-6 or § 1.988-5(a).

One commenter offered several comments that are specific to the rules in the Proposed Regulations on integration of tax-advantaged bonds under § 1.148-4(h). This commenter recommended that the Final Regulations clarify that the rules in § 1.1001-6(c) for integration of tax-advantaged bonds apply to a qualified hedge that is super-integrated under § 1.148-4(h)(4). Section 1.148-4(h)(4) generally permits only negligible mismatches in timing and amount of payments on super-integrated hedges and bonds, and super-integration of taxable-index hedges, such as hedges based on IBORs, is even more strictly limited. Accordingly, the Treasury Department and the IRS do not adopt this comment, and the Final Regulations clarify that § 1.1001-6(c)(1)(iv) does not apply to hedges and bonds integrated under § 1.148-4(h)(4).

This commenter also requested that the Final Regulations provide that a one-time payment does not cause a hedge to fail to meet the requirements for qualification under § 1.148-4(h)(3)(iv)(C), as required by § 1.1001-6(c) of the Proposed Regulations. The nonperiodic nature of a one-time payment could prevent qualification under several of the requirements identified in § 1.148-4(h)(3)(iv)(C), such as the requirement that the contract contain no significant investment element and the requirement that the payments on the hedge correspond closely in time to the payments on the hedged bonds. The Treasury Department and the IRS have determined that, in each case, the obstacle to qualification can be eliminated by treating the qualified one-time payment as a series of periodic payments spread over time. Accordingly, § 1.1001-6(c)(1)(iv) of the Final Regulations provides that, solely for purposes of applying the qualification requirements identified in § 1.148-4(h)(3)(iv)(C), a qualified one-time payment on the hedge or the hedged bonds is allocated in a manner consistent with the way in which a termination payment on a variable yield issue is allocated under § 1.148-4(h)(3)(iv)(H) and the qualification requirements under § 1.148-4(h)(3)(iv)(C) are applied as if the qualified one-time payment were a series of periodic payments.

Section 1.7701(l)-3 provides rules that prevent the avoidance of tax by persons participating in fast-pay arrangements. A fast-pay arrangement is defined in § 1.7701(l)-3(b)(1) as any arrangement in which a corporation has fast-pay stock outstanding for any part of its taxable year. Fast-pay stock is defined in § 1.7701(l)-3(b)(2)(i) as stock structured so that dividends (as defined in section 316) paid by the corporation with respect to the stock are economically (in whole or in part) a return of the holder's investment (as opposed to only a return on the holder's investment). Section 1.7701(l)-3(b)(2)(ii) provides that the determination of whether stock is fast-pay stock is based on all facts and circumstances. Stock is examined when it is issued to determine if it is fast-pay stock and, “for stock that is not fast-pay stock when issued, when there is a significant modification in the terms of the stock or the related agreements or a significant change in the relevant facts and circumstances.” Id.

One commenter stated that, in certain circumstances, a covered modification of preferred stock could cause the stock to satisfy the definition of fast-pay stock despite the fact that the parties modified the stock not for the purpose of avoiding tax, but rather for the purpose of addressing the discontinuation of an IBOR. Because stock is re-examined to determine if it is fast-pay stock upon the occurrence of either “a significant modification in the terms of the stock or the related agreements” or “a significant change in the relevant facts and circumstances,” the commenter recommended that the Final Regulations provide that a covered modification is neither a significant modification nor a significant change for this purpose.

The Treasury Department and the IRS have determined that such a rule would further the purpose of the Final Regulations to facilitate the transition away from IBORs that will be discontinued. In addition, the scope and operation of the recommended rule are generally consistent with the scope and operation of the rules in §§ 1.1001-6(b)(1) and (d) of the Final Regulations (treatment of covered modifications under section 1001 and under chapter 4, respectively). Accordingly, the Final Regulations adopt this comment and provide in § 1.1001-6(e) that a covered modification of stock is not a significant modification in the terms of the stock or the related agreements or a significant change in the relevant facts and circumstances for purposes of § 1.7701(l)-3(b)(2)(ii). Unlike §§ 1.1001-6(b)(1) and (d) of the Final Regulations, however, § 1.1001-6(e) of the Final Regulations further provides that, if a covered modification and a noncovered modification are made at the same time or as part of the same plan and the noncovered modification is a significant modification in the terms of the stock or the related agreements or a significant change in the relevant facts and circumstances, then § 1.7701(l)-3(b)(2)(ii) applies and all of the facts and circumstances, including the covered modification and the noncovered modification, are considered in determining whether the stock is fast-pay stock.

Under § 301.7701-4(c)(1), an investment trust is not classified as a trust if there is a power under the trust agreement to vary the investment of the certificate holders. One commenter recommended that a covered modification of the income-apportioning terms of an ownership interest be treated as not manifesting a power to vary the investment of certificate holders in a trust under § 301.7701-4(c)(1). The Final Regulations adopt this comment, providing in § 1.1001-6(f) that neither a covered modification of a contract held by an investment trust nor a covered modification of an ownership interest in the investment trust manifest a power to vary the investment of the certificate holder for this purpose.

The Proposed Regulations generally provide in § 1.1001-6(d) that the character and source of a one-time payment made by a given payor is the same as the source and character of a payment under the contract by that payor. For example, a one-time payment by a lessee on a lease is characterized as a payment of rent and sourced accordingly. The Treasury Department and the IRS received several comments requesting clarification on how this rule applies to certain financial contracts. Several commenters also requested clarification on the timing of tax items associated with a one-time payment. One commenter requested guidance on how a one-time payment is treated for purposes of the arbitrage investment restrictions and private use restrictions that apply to tax-advantaged bonds. The Treasury Department and the IRS are still considering how best to address these issues relating to qualified one-time payments. Until the Treasury Department and the IRS publish further guidance, taxpayers may continue to rely on the rule in § 1.1001-6(d) of the Proposed Regulations to determine source and character of a qualified one-time payment under the Final Regulations.

Section 1.860G-1(e) of the Proposed Regulations provides special rules applicable to REMICs that have issued interests with an IBOR-based rate or that hold obligations with an IBOR-based rate. Section 1.860G-1(e)(4) of the Proposed Regulations provides certain rules addressing the treatment of reasonable costs incurred to effect a modification that qualifies for special treatment under § 1.1001-6(a)(1), (2), or (3) of the Proposed Regulations. One commenter noted that the governing documents for a REMIC may require tax opinions and rating agency confirmations in connection with the modifications contemplated in the Proposed Regulations and recommended that the Treasury Department and the IRS confirm that the costs of obtaining these materials are “reasonable costs” within the meaning of § 1.860G-1(e)(4) of the Proposed Regulations. Whether a cost is reasonable depends upon the facts and circumstances relating both to the nature of the cost and the amount of the cost. However, the Treasury Department and the IRS generally agree that the costs of obtaining tax opinions and rating agency confirmations required by the governing documents for a REMIC are reasonable in nature.

The Proposed Regulations provide in § 1.882-5(d)(5)(ii)(B) that a foreign corporation that is a bank may elect to compute interest expense attributable to excess U.S.-connected liabilities using a yearly average of SOFR. One commenter stated that a yearly average of SOFR is not an equitable substitute for 30-day USD LIBOR, the rate that foreign banks are permitted to elect for this purpose under the existing regulations, because 30-day USD LIBOR is typically a higher rate than a yearly average of SOFR. This commenter recommended that, in lieu of SOFR, the Final Regulations either refer to a widely accepted interest rate benchmark that is more similar than SOFR to 30-day USD LIBOR or add a fixed adjustment spread to the yearly average of SOFR.

The Treasury Department and the IRS continue to study the appropriate rate to replace 30-day USD LIBOR for purposes of the published rate election under § 1.882-5(d)(5)(ii)(B). In evaluating the appropriate replacement rate, the Treasury Department and the IRS will continue to balance the administrative convenience of providing taxpayers an election to use the annual published rate with the need for a replacement rate that more accurately reflects the taxpayer's borrowing costs. In providing taxpayers with an election to use a published rate, the Treasury Department and the IRS must ensure that the replacement rate does not overstate the amount of interest expense allocable to income that is effectively connected with the conduct of a U.S. trade or business. Until final regulations are published that replace the 30-day USD LIBOR election provided in § 1.882-5(d)(5)(ii)(B), taxpayers may continue to apply either the general rule or the annual published rate election provided under § 1.882-5(d)(5)(ii) to calculate interest on excess U.S.-connected liabilities. Taxpayers may also continue to rely on the rule in § 1.882-5(d)(5)(ii)(B) of the Proposed Regulations and compute interest on excess U.S.-connected liabilities by computing a yearly average SOFR based on the rates published by the Federal Bank of New York for the taxable year. Although commenters provided some ideas on a rate that could be closer to a replacement for 30-day LIBOR (for example, a widely accepted interest rate benchmark or adding a fixed adjustment spread to the yearly average of SOFR), the Treasury Department and the IRS continue to request recommendations for a specific rate that would be an appropriate replacement to 30-day LIBOR for computing interest expense on excess U.S.-connected liabilities for purposes of § 1.882-5(d)(5)(ii)(B). The Treasury Department and the IRS anticipate issuing additional guidance addressing § 1.882-5(d)(5)(ii)(B) before 30-day USD LIBOR is discontinued in 2023.

One commenter asked the Treasury Department and the IRS to address whether changing from an IBOR-based discount rate to a discount rate based on a different interest rate benchmark for the purpose of valuing securities under the mark-to-market rules in section 475 is a change in method of accounting that requires the consent of the Secretary under section 446(e). The commenter noted that this change may occur either at the time when the relevant IBOR is discontinued or in advance of that time in anticipation of the IBOR's discontinuation. To facilitate an orderly transition in connection with the discontinuation of IBORs and to treat changes from an IBOR-based discount rate in a consistent manner, the Treasury Department and the IRS will not treat a change from a discount rate that is based on a discontinued IBOR (as defined in § 1.1001-6(h)(4) of the Final Regulations) to a discount rate that is a qualified rate for the purpose of valuing securities under the mark-to-market rules in section 475 as a change in method of accounting under section 446(e).

The Proposed Regulations under §§ 1.860G-1(e), 1.1001-6, and 1.1275-2(m) generally propose that the Final Regulations permit taxpayers to apply the Final Regulations retroactively, as authorized under section 7805(b)(7). However, the Proposed Regulations under § 1.1001-6 propose that the Final Regulations require as a condition of a taxpayer's retroactive application that all the taxpayer's related parties also apply § 1.1001-6 retroactively. One commenter requested that this requirement be more clearly stated, and the Final Regulations do so in § 1.1001-6(k).

Another commenter observed that sections 267(b) and 707(b)(1), under which relatedness is determined for purposes of the applicability dates in the Proposed Regulations, do not effectively address governmental entities or tax-exempt entities described in section 501(c)(3). This commenter recommended that relatedness be determined for such entities under § 1.150-1(b) and (e). The Treasury Department and the IRS agree with this comment and adopt the commenter's recommendation in §§ 1.1001-6(k) and 1.1275-2(m)(5) of the Final Regulations.

Rev. Proc. 2020-44, 2020-45 I.R.B. 991, is amplified.

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

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

A very large volume of U.S. financial products and contracts include terms or conditions that reference LIBOR or, more generally, IBORs. Concern about manipulation and a decline in the volume of the funding from which LIBOR is calculated led to recommendations for the development of alternatives to LIBOR that would be based on transactions in a more robust underlying market. In addition, on July 27, 2017, the U.K. Financial Conduct Authority, the U.K. regulator tasked with overseeing LIBOR, announced that all currency and term variants of LIBOR, including USD LIBOR, may be phased out after 2021 and not be published after that timeframe. The administrator of LIBOR, the ICE Benchmark Administration, announced on March 5, 2021, that publication of overnight, one-month, three-month, six-month, and 12-month USD LIBOR will cease immediately following the LIBOR publication on June 30, 2023, and that publication of all other currency and tenor variants of LIBOR will cease immediately following the LIBOR publication on December 31, 2021.

The ARRC, a group of stakeholders affected by the cessation of the publication of USD LIBOR, was convened to identify an alternative rate and to facilitate voluntary adoption of that alternative rate. The ARRC recommended SOFR as a potential replacement for USD LIBOR. Essentially all financial products and contracts that currently contain conditions or legal provisions that rely on LIBOR and other IBORs are expected to transition to SOFR or similar alternatives in the next few years. This transition will involve changes in debt, derivatives, and other financial contracts to adopt SOFR or other alternative reference rates. The ARRC has estimated that the total exposure to USD LIBOR was close to $200 trillion in 2016, of which approximately 95 percent were in over-the-counter derivatives. ARRC further notes that USD LIBOR is also referenced in several trillion dollars of corporate loans, floating-rate mortgages, and similar financial products. In the absence of further tax guidance, the vast majority of expected changes in such contracts could lead to the recognition of gains (or losses) in these contracts for U.S. income tax purposes and to correspondingly potentially large tax liabilities for their holders. To address this issue, the final regulations provide that changes in debt instruments, derivative contracts, and other affected contracts to replace reference rates based on discontinued IBORs in a covered modification (both as defined in the final regulations) will not result in tax realization events under section 1001 and relevant regulations thereunder. For this purpose, a covered modification is generally the replacement of a discontinued IBOR with a qualified rate, provided that the replacement is not excluded under § 1.1001-6(j)(1) through (5) of these final regulations (the excluded modifications). The excluded modifications ensure that a covered modification includes only modifications to the cash flows of an IBOR-referencing contract intended to address the replacement of the IBOR-based rate in the contract and that modifications of contracts in a manner that is intended to change the amount or timing of contractual cash flows for other reasons or purposes remain subject to the general rules in section 1001 and the regulations thereunder. The final regulations also provide corresponding guidance on hedging transactions and derivatives to the effect that taxpayers may modify the components of hedged or integrated transactions to replace discontinued IBORs in a covered modification without affecting the tax treatment of the hedges or underlying transactions.

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

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

It is hereby certified that the 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).

As discussed elsewhere in this preamble, the administrator of all currency and tenor variants of LIBOR has announced that publication of overnight, one-month, three-month, six-month, and 12-month USD LIBOR will cease on June 30, 2023, and that publication of all other currency and tenor variants of LIBOR will cease on December 31, 2021. Many contracts, including financial contracts such as debt instruments and derivative contracts, refer to LIBOR or another IBOR to determine the parties' rights and obligations under the contract. When parties to IBOR-referencing contracts modify those contracts in anticipation of the discontinuation of the referenced IBOR, that modification can be a tax realization event, giving rise to gain, loss, income, or deduction. That modification can also cause other unintended tax consequences.

The number of small entities potentially affected by the Final Regulations is unknown but could be substantial because entities of all sizes are parties to contracts that reference a discontinued IBOR. Although a substantial number of small entities is potentially affected by the 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. This is because the purpose and effect of the Final Regulations is to minimize the economic impact of the transition away from LIBOR and other discontinued IBORs by preventing many of the tax consequences that might otherwise flow when taxpayers modify IBOR-referencing contracts in anticipation of the cessation of a discontinued IBOR. Furthermore, the Final Regulations do not impose a collection of information on any taxpayers, including small entities. Accordingly, the Final Regulations will not have a significant economic impact on a substantial number of small entities.

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. The Final Regulations do not include any Federal mandate that may result in expenditures by state, local, or tribal governments, or by the private sector in excess of that threshold.

Executive Order 13132 (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. The Final Regulations do not have federalism implications and do 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 the Office of Information and Regulatory Affairs of the OMB 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 . Accordingly, the Treasury Department and IRS are adopting the Final Regulations with the delayed effective date generally prescribed under the Congressional Review Act.

The principal authors of these final regulations are Caitlin Holzem and Spence Hanemann of the Office of Associate Chief Counsel (Financial Institutions and Products). However, other personnel from the Treasury Department and the IRS participated in their development.

The revenue procedure 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 https://www.irs.gov.

Accordingly, 26 CFR parts 1 and 301 are amended as follows:

On October 21, 1998, Public Law 105-277 (112 Stat. 2681), the Omnibus Consolidated and Emergency Supplemental Appropriations Act, 1999 (“the Act”), was enacted. Among other things, the Act amended the Gun Control Act of 1968, Public Law 90-618 (82 Stat. 1213) (“GCA”) (codified as amended at 18 U.S.C. chapter 44). Some of the GCA amendments made by the Act are as follows:  1

(1) Secure Gun Storage. The Act amended section 923(d)(1) of title 18, United States Code, to require that, with certain exceptions, applicants for Federal firearms dealer licenses certify the availability of secure gun storage or safety devices at any place where firearms are sold under the license to nonlicensees. 18 U.S.C. 923(d)(1)(G). The certification requirement does not apply where a secure gun storage or safety device is temporarily unavailable because of theft, casualty loss, consumer sales, backorders from a manufacturer, or any other similar reason beyond the control of the licensee. Id.

In addition, the Act amended 18 U.S.C. 923(e) to provide that the Attorney General may revoke, after notice and opportunity for hearing, the license of any Federal firearms licensee that fails to have secure gun storage or safety devices available at any place where firearms are sold under the license to nonlicensees, subject to the same exceptions noted above.

The Act defined the term “secure gun storage or safety device” in 18 U.S.C. 921(a)(34) to mean: (1) A device that, when installed on a firearm, is designed to prevent the firearm from being operated without first deactivating the device; (2) a device incorporated into the design of the firearm that is designed to prevent the operation of the firearm by anyone not having access to the device; or (3) a safe, gun safe, gun case, lock box, or other device that is designed to be or can be used to store a firearm and that is designed to be unlocked only by means of a key, a combination, or other similar means.

The provisions of the Act relating to secure gun storage became effective April 19, 1999.

(2) Definition of Antique Firearm. The Act amended the definition of “antique firearm” in the GCA to include certain modern muzzle loading firearms. Specifically, section 115 of the Act amended the definition of “antique firearm” in 18 U.S.C. 921(a)(16) to include a weapon that is a muzzle loading rifle, muzzle loading shotgun, or muzzle loading pistol; that is designed to use black powder or a black powder substitute; and that cannot use fixed ammunition. The term expressly does not include any weapon that incorporates a firearm frame or receiver; any firearm converted into a muzzle loading weapon; or any muzzle loading weapon that can be readily converted to fire fixed ammunition by replacing the barrel, bolt, breechblock, or any combination thereof. 18 U.S.C. 921(a)(16)(C).

The provisions of the Act relating to antique firearms became effective upon the date of enactment, October 21, 1998.

(3) Miscellaneous Amendments. Prior to amendment by the Act, the term “rifle” was defined in the GCA to mean “a weapon designed or redesigned, made or remade, and intended to be fired from the shoulder and designed or redesigned and made or remade to use the energy of the explosive in a fixed metallic cartridge to fire only a single projectile through a rifled bore for each single pull of the trigger.” 18 U.S.C. 921(a)(7) (1994). The Act amended the definition of “rifle” by replacing the words “the explosive in a fixed metallic cartridge” with “an explosive.” See 18 U.S.C. 921(a)(7) (2018).

Additionally, prior to amendment by the Act, the term “shotgun” was defined in the GCA to mean “a weapon designed or redesigned, made or remade, and intended to be fired from the shoulder and designed or redesigned and made or remade to use the energy of the explosive in a fixed shotgun shell to fire through a smooth bore either a number of ball shot or a single projectile for each single pull of the trigger.” 18 U.S.C. 921(a)(5) (1994). The Act amended the definition of “shotgun” by replacing the words “the explosive in a fixed shotgun shell” with “an explosive.” See 18 U.S.C. 921(a)(5) (2018).

The provisions of the Act relating to the miscellaneous amendments also became effective upon the date of enactment, October 21, 1998.

On May 26, 2016, the Department of Justice (“the Department”) published in the Federal Register a notice of proposed rulemaking (“NPRM”) to codify into regulation certain provisions of the Act. Commerce in Firearms and Explosives; Secure Gun Storage, Amended Definition of Antique Firearm, and Miscellaneous Amendments, 81 FR 33448 (May 26, 2016). The rule proposed amending ATF's regulations to account for the existing statutory requirement that applicants for Federal firearms dealer licenses certify that secure gun storage or safety devices will be available at any place where firearms are sold under the license to nonlicensed individuals. This certification is already included in ATF Form 7/7CR. The NPRM also proposed requiring applicants for Federal firearms manufacturer or importer licenses to complete the certification if the licensee will have premises where firearms are sold to nonlicensees.

Next, the Department proposed to amend 27 CFR 478.11 by adding a definition for the term “secure gun storage or safety device” that tracks the language in the statute, as well as a new section 27 CFR 478.104 that specifies the terms of the certification requirement. Moreover, the proposed regulation required that the secure gun storage or safety device be compatible with the firearms offered for sale by the licensee. 81 FR at 33449. Therefore, applicants under the proposed rule would be required to certify the availability of compatible secure gun storage or safety devices at any place where firearms were sold under the license to nonlicensees.

The NPRM proposed applying the certification requirement to applicants for Federal firearms importer or manufacturer licenses if the licensee has premises where firearms are sold to nonlicensees. Federal regulations provide that a licensed importer or a licensed manufacturer may engage in business on the licensed premises as a dealer in the same type of firearms authorized by the license to be imported or manufactured. 27 CFR 478.41(b). Accordingly, under the proposed rule, an applicant for a Federal firearms importer or manufacturer license that engaged in business on the licensed premises as a dealer of firearms to nonlicensees was required to complete the certification.

One provision of the Act provides that, “[n]otwithstanding any other provision of law, evidence regarding compliance or noncompliance [with the secure gun storage or safety device requirement] shall not be admissible as evidence in any proceeding of any court, agency, board, or other entity.” Public Law 105-277, sec. 119, reprinted in 18 U.S.C. 923 note. In the proposed rule, ATF explained that this section applies to civil liability actions against dealers and other similar actions, and not to proceedings associated with license denials or revocations (or appeals in Federal court from decisions in such proceedings) involving noncompliance with the secure gun storage or safety device requirement of the GCA. 81 FR at 33449. The proposed rule amended 27 CFR 478.73 to clarify that a notice of revocation of a Federal firearms license may be issued whenever the ATF Director has reason to believe that a licensee fails to have secure gun storage or safety devices available at any place in which firearms are sold under the license to persons who are not licensees (except in any case in which a secure gun storage or safety device is temporarily unavailable because of theft, casualty loss, consumer sales, backorders from a manufacturer, or any other similar reason beyond the control of the licensee). Id. at 33453.

Finally, the Department proposed to amend 27 CFR 478.11 to reflect the definitions of the terms “antique firearm,” “rifle,” and “shotgun” set forth in the Act. Id.

Comments on the notice of proposed rulemaking were to be submitted to ATF on or before August 24, 2016.

In response to the NPRM, with respect to an industry that includes approximately 59,909 federally licensed firearms dealers (including pawnbrokers), 12,673 licensed firearms manufacturers, and 1,054 licensed firearms importers, ATF received only four comments. This small number of responses indicates that a broad majority of the firearms industry accepts codification of behavior that has been statutorily required for more than 20 years.

One commenter argued that the proposed rule imposes the certification requirement on all manufacturers and importers that sell firearms to the public, despite the fact that the statute requires only that dealers in firearms meet the certification requirement. Further, according to the commenter, forcing manufacturers and importers to have secure gun storage available and perhaps even to “use” such secure gun storage could create a burdensome and expensive requirement. Requiring firearms, many of which might not even be finished, to be stored under lock and key every night would, in the opinion of the commenter, be difficult, time consuming, and cost-prohibitive. Therefore, according to the commenter, the proposed rule violated Federal law by creating new requirements for licensees.

The Department disagrees with the comment that ATF does not have the statutory authority to require licensed manufacturers and importers to certify that secure gun storage or safety devices will be available at any place in which firearms are sold to nonlicensees. Under 18 U.S.C. 923(a), the license application must be in such form and contain the information necessary to determine eligibility for licensing as the Attorney General may prescribe by regulation. Similarly, under 18 U.S.C. 926(a), the Attorney General has the authority to promulgate any rules that are necessary to implement the provisions of the GCA. “Because § 926 authorizes the [Attorney General] to promulgate those regulations which are `necessary,' it almost inevitably confers some measure of discretion to determine what regulations are in fact `necessary.' ” Nat'l Rifle Ass'n v. Brady, 914 F.2d 475, 479 (4th Cir. 1990).

Although the language of section 923(d)(1)(G) refers only to applications for license as a dealer, section 923(e), as amended by the Act, more broadly provides that the Attorney General may, after notice and an opportunity for a hearing, “revoke any license issued under this section if the holder of such license . . . fails to have secure gun storage or safety devices available at any place in which firearms are sold under the license to persons who are not licensees.” (Emphasis added.) Section 923(e) thus applies to all licensees that sell firearms to nonlicensees—not just dealer licensees. Hence, because licensed manufacturers and importers may sell their firearms directly to nonlicensees, see 27 CFR 478.41(b), ATF has the authority to revoke the licenses of manufacturers or importers if they fail to have secure gun storage or safety devices available for retail transactions. Requiring manufacturers and importers to certify that secure gun storage or safety devices will be available at any place in which firearms are sold to nonlicensees helps ensure that manufacturers and importers are aware of the implicit requirement in section 923(e) that these licensees must make such storage or devices available. This certification has been required of all license applicants except collectors on ATF Form 7/7CR (5300.12/5310.16) for years.

Finally, neither the NPRM nor the final rule requires manufacturers or importers to use secure gun storage or safety devices on their inventory; rather, they need only make such storage or devices available.

One commenter noted that 18 U.S.C. 923 does not explicitly require that secure gun storage or safety devices maintained by Federal firearms dealers be compatible or even be used, only that they be available; therefore, according to the commenter, the proposed rule cannot require it. Further, the commenter noted that ATF has no authority to revoke the license of a dealer that does not lock up its firearms.

The commenter misinterpreted the proposed rule's application. The proposed rule did not, as the commenter suggested, require federally licensed dealers to use compatible devices on their inventory, nor did the rule require them to lock up and store their firearms inventory. Rather, the NPRM proposed implementing 18 U.S.C. 923(d)(1)(G) by requiring applicants for dealer licenses, or those licensed manufacturers and importers that will also deal firearms to nonlicensed individuals as permitted in 27 CFR 478.41(b), to certify only that compatible secure gun storage or safety devices are available at any place where firearms are sold under the license to nonlicensed individuals.

The Department believes the compatibility language in the rule is consistent with the text of the statute because it clarifies that the secure gun storage or safety devices made available must be compatible with the firearms offered for sale by the licensee.

Courts have explained that “the administration and enforcement of a statute call upon the agency charged with its execution to interpret it.” Continental Airlines, Inc. v. Dep't of Transportation, 843 F.2d 1444, 1449 (D.C. Cir. 1988). When a court is called upon to review an agency's construction of a statute it administers, the court looks to the framework set forth in Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984). The first step of Chevron review is to ask “whether Congress has directly spoken to the precise question at issue.” Id. 842. “If the intent of Congress is clear, that is the end of the matter; for the court, as well as the agency, must give effect to the unambiguously expressed intent of Congress. If, however, the court determines Congress has not directly addressed the precise question at issue . . . the question for the court is whether the agency's answer is based on a permissible construction of the statute.” Id. at 842-43 (footnote omitted). Although the Act defines “secure gun storage or safety device,” that definition does not specify whether or with which sorts of firearms the secure gun storage and safety devices must be compatible. The Department believes that this rule comports with the best reading of the statute and permissibly clarifies that such storage and devices must be compatible with the firearms sold at the licensed premises. This specification in the regulation resolves any ambiguity in the statute and fulfills its purpose because customers purchasing firearms should be able to leave the premises with a secure gun storage or safety device that is compatible with the type of firearm they purchased. A contrary rule, under which licensees could comply with the statute by making available exclusively devices that are incompatible with the firearms they sell, would unreasonably thwart Congress's evident purpose in the Act. See City of Chicago v. U.S. Dep't of Treasury, Bureau of Alcohol, Tobacco & Firearms, 423 F.3d 777, 781 (7th Cir. 2005) (statutes should not be read in a way that “would thwart Congress' intention”).

In the NPRM, ATF referenced a provision in the Act that states that “evidence regarding compliance or noncompliance [with the secure gun storage or safety device requirement] shall not be admissible as evidence in any proceeding of any court, agency, board, or other entity.” See Public Law 105-277, sec. 119. ATF explained that, based on basic tenets of statutory construction, it reads the evidentiary limitation as applying only “to civil liability actions against dealers and other similar actions, and not to proceedings associated with license denials or revocations (or appeals in Federal court from decisions in such proceedings) involving noncompliance with the secure gun storage or safety device requirement” of the Act. 81 FR at 33449.

Three commenters asserted that this provision of the Act prohibits the use of a dealer's compliance or noncompliance with the secure gun storage or safety device requirement in any administrative proceedings to deny or revoke a Federal firearms license. Two commenters also argued that ATF's interpretation substitutes its judgment for that of Congress, and, by effectively amending legislation, violates the “Separation of Powers Doctrine.” These commenters stated that ATF does not have the power to change or ignore statutes. They argued that words have meaning, and that ATF cannot construe statutes to permit something the plain text prohibits or create an exception for ATF's administrative hearings where one does not exist in the law.

The Department respectfully disagrees. There are at least two canons of statutory interpretation that inform the Department's reading of the evidence provision the commenters relied on. The first relevant canon provides that, “[w]henever a power is given by statute, everything necessary to make it effectual or requisite to attain the end is implied.” Luis v. United States, 136 S. Ct. 1093, 1097 (2016) (Thomas, J., concurring) (quoting 1 J. Kent, Commentaries on American Law 464 (13th ed. 1884)). The second relevant canon provides that a “court will not merely look to a particular clause in which general words may be used, but will take in connection with it the whole statute . . . and the objects and policy of the law.” Stafford v. Briggs, 444 U.S. 527, 535 (1980) (quoting Brown v. Duchesne, 19 How. 183, 194 (1857)). The evidence provision cannot be read in isolation. Rather, it must be read within the context of the rest of the statute, including the specific grant of authority for the Attorney General to revoke the license of a licensee that does not comply with the Act. Moreover, the Act specifically provides that none of its amendments “shall be construed . . . as creating a cause of action against any firearms dealer or any other person for any civil liability.” 18 U.S.C. 923 note. That prohibition on civil liability implies that Congress expected compliance with the secure gun storage or safety device requirement to be enforced not by private individuals in civil actions, but by the Attorney General in administrative proceedings, in accordance with the specific authority granted to the Attorney General to do so in 18 U.S.C. 923(e). The Attorney General could not fulfill this role if, as asserted by the commenters, evidence of noncompliance could not be used in administrative proceedings related to that noncompliance, thus indicating that the evidence provision in the Act does not apply to administrative proceedings regarding compliance with the secure gun storage or safety device requirement. Cf. United States v. Tohono O'Odham Nation, 563 U.S. 307, 315 (2011) (“Courts should not render statutes nugatory through construction.”).

The Department's interpretation of the evidence provision is further supported by the legislative history. The secure gun storage provisions that were enacted were initially sponsored by Senator Larry Craig as part of S.10, the Violent and Repeat Juvenile Offender Act of 1997, for which a Senate report was produced by the Senate Committee on the Judiciary. 2 The Committee's report stated that “[t]he penalty for willful violation . . . is revocation of the dealer's license, after notice and opportunity for hearing is given pursuant to current law.”  3 Thus, the Committee evidently expected that noncompliance with the secure gun storage and safety device provisions would be enforced through administrative proceedings, including a hearing. It would accordingly be nonsensical to bar the Attorney General from using evidence of such noncompliance in the same proceedings. Congress, in other words, would not have written the specific amendments giving the Attorney General the ability to revoke or deny a license based on noncompliance if evidence of noncompliance could not be considered at the hearing ATF is required to conduct under the law. Accordingly—in light of the context in which the evidence provision appears, the legislative history underlying the secure gun storage or safety device requirement, and the authority granted in section 923(e)—the Department's position that the evidence provision does not apply to ATF's enforcement hearings or actions is the best interpretation of the law, and is certainly a permissible interpretation of the provision. See Chevron, 467 U.S. at 843.

Furthermore, Congress expressly authorized the Attorney General to deny or revoke a license if the licensee or applicant fails to have or certify that it has secure gun storage or safety devices available at any place in which firearms are sold under the license to persons who are not licensees (with the same exceptions noted above). 18 U.S.C. 923(d), (e). To exercise this authority, the Attorney General is required to provide notice to an applicant or licensee and, upon request of the aggrieved party, is authorized to conduct an administrative hearing to make a final determination. 18 U.S.C. 923(e), (f); 27 CFR 771.40-44. The agency's final decision is appealable to a Federal court. 18 U.S.C. 923(f)(3). ATF  4 can also institute criminal proceedings against a licensee for violations of the GCA or the regulations. 18 U.S.C. 923(f)(4). The express statutory grant of authority in section 923 to deny or revoke a license based on evidence of noncompliance supersedes the general language the commenters relied on. See RadLAX Gateway Hotel, LLC v. Amalgamated Bank, 566 U.S. 639, 645 (2012) (citing HCSC-Laundry v. United States, 450 U.S. 1, 6 (1981) (per curiam), for the proposition that the specific governs the general, “particularly when the two [statutes] are interrelated and closely positioned, both in fact being parts of [the same statutory scheme]”); Busic v. United States, 446 U.S. 398, 406 (1980).

Comments relating to the definitions of “rifle” and “shotgun” stated that, to prevent confusion between a modern rifle or shotgun and a muzzleloader or antique firearm, and to preclude future Federal “over reach” to classify muzzle loading arms as rifles, the definitions should specifically exclude muzzle loading arms using black powder or black powder substitutes. Additionally, one commenter stated that “explosive” is not the correct word for the propellant in a modern firearm and suggested amending the term “explosive” in the definitions of “rifle” and “shotgun” to reference smokeless solid propellants that deflagrate rather than detonate, thereby clarifying that metallic cartridge firearms using smokeless propellants do not fall under the definitions of “rifle” or “shotgun” due to their lack of use of an explosive that detonates.

The Department respectfully declines to revise the definitions of “rifle” and “shotgun” to refer to smokeless solid propellants, rather than an “explosive,” because doing so would not be consistent with the statutory definitions set forth in the Act. The current statutory definition for “antique firearm” excludes certain muzzle loading firearms using black powder or black powder substitutes from the definition of “firearm,” thus making the inclusion of additional language to exclude them unnecessary. This final rule updates the existing regulations to reflect the current language of the statute.

Further, the Department does not agree with the suggested clarification of the term “explosive” in the definitions of “rifle” and “shotgun.” The use of the phrase “by action of an explosive” within the definitions of “rifle” and “shotgun” is appropriate, as it is descriptive of a process and not a classification of the propellant powder. The provisions of the Act relating to antique firearms and definitions of the terms “rifle” and “shotgun” became effective on the day of enactment, October 21, 1998. This final rule updates the existing regulations to reflect the current language of the statute.

This final rule implements the amendments to the regulations in 27 CFR part 478 that were specified in the NPRM published on May 26, 2016 (81 FR 33448) without change.

Executive Order 12866 (Regulatory Planning and Review) directs agencies to assess the costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts, and equity). Executive Order 13563 (Improving Regulation and Regulatory Review) emphasizes the importance of quantifying both costs and benefits, of reducing costs, of harmonizing rules, and of maintaining flexibility.

The Office of Management and Budget (“OMB”) has determined that, although this final rule is not economically significant, it is a “significant regulatory action” under section 3(f)(4) of Executive Order 12866 because this final rule raises novel legal or policy issues arising out of legal mandates. Accordingly, the rule has been reviewed by OMB.

This rule requires that Federal firearms licensees (“FFLs”) make available secure gun storage or safety devices to non-FFLs that purchase firearms. Furthermore, this rule requires that all FFLs must certify that they have secure gun storage or safety devices available if they sell firearms to non-FFLs. This section describes the affected population, costs, and benefits for this rule. In determining the costs and benefits of this rule, ATF has followed OMB guidance for conducting regulatory analyses. See OMB, Memorandum to the Heads of Executive Agencies and Establishments, Re: Regulatory Analysis, Circular A-4 (Sept. 17, 2003) (“Circular A-4”). According to that guidance, regulations such as this one that largely restate self-enforcing statutory requirements should be analyzed against a baseline that pre-dates the enactment of the relevant statute. Thus, although ATF has implemented and enforced the Act in the years since its passage even in the absence of the regulation at issue in this rulemaking, the costs and benefits of doing so have been attributed to this regulation for the purpose of this analysis.

Table 1 provides the summary of the expected effects that this rule will have on the public. For more details regarding this analysis, please refer to the standalone regulatory analysis (“RA”) located on the docket.

Agencies take regulatory action for various reasons. One reason is to carry out Congress's policy decisions, as expressed in statutes. Here, this rulemaking aims to comply with the Omnibus Consolidated and Emergency Supplemental Appropriations Act of 1999 relating to secure gun storage. Another reason underpinning regulatory action is the failure of the market to compensate for negative externalities caused by commercial activity. A negative externality can be the byproduct of a transaction between two parties that is not accounted for in the transaction. This final rule addresses a negative externality. The negative externality of the sale of firearms is that the firearms might not be stored properly and could be accessed by children who could cause accidents with the firearms or accessed by criminals who would use them for illicit activities. This rule provides nonlicensed firearm owners with the option to have devices that enable them to store their firearms so as to inhibit children or criminals from accessing their firearms.

This rulemaking affects two populations. The first population is the number of FFLs required to certify on Form 7/7CR that secure gun storage or safety devices will be available at any place in which firearms are sold under the license to persons who are not licensees. The second population is the number of FFLs that need to acquire secure gun storage or safety devices to make available at their place of business.

Entities directly affected by the requirement to certify the availability of secure gun storage or safety devices are all FFLs. Although this rule primarily affects FFLs that sell firearms to nonlicensed persons, this rule affects all FFLs in that all FFL applicants must indicate on the Form 7/7CR application whether the applicants have gun storage or safety devices available for nonlicensees or whether this requirement is not applicable because they are seeking a Type 3 license for collectors.

Because the Act was enacted shortly before 1999, and because ATF has required certification since 1999, ATF estimated the affected population to be all FFLs from 1999 to present. However, FFLs have to certify the availability of secure gun storage or safety devices only when they apply as new FFLs or every three years when they renew their Federal firearms license. Tables 2 and 3 show the numbers of new applications and renewals by FFL type and year. For more information on the methodology used to determine the numbers of new FFLs by Type, please refer to the standalone RA.

The second population directly affected by this rule primarily consists of Type 1 and 2 FFLs that sell firearms to the public. These FFLs must acquire secure gun storage or safety devices to be made available to firearm purchasers in their place of business. Based on the year the Act was enacted, ATF assumed that all Type 1 and 2 FFLs in 1999 had to acquire secure gun storage or safety devices to make available to any potential nonlicensee customers. From 2000 onwards, only new FFLs would need to acquire some form of gun storage or safety devices to make available to their customers. Although this rule affects all FFLs that sell firearms to nonlicensed individuals, no cost was attributed to Type 9, 10, and 11 licensees because they primarily deal, manufacture, and import destructive devices used by domestic and foreign governments rather than selling firearms at the retail level to nonlicensed individuals. Similarly, although Type 7 and 8 licensees are manufacturers and importers that may sell firearms to nonlicensed persons, most of these licensees, even prior to enactment of the Act, have voluntarily included secure gun storage or safety devices for their firearms, and hence would not have needed to separately acquire such storage or devices to make them available to nonlicensees. 5 Of those Type 7 and 8 FFLs that do not provide secure gun storage or safety devices, ATF assumed these licensees primarily sell firearms wholesale to Type 1 FFLs and do not sell to nonlicensed persons.

Based on congressional testimony and subject matter experts' (“SMEs”) experience, most firearm manufacturers now include locks with new purchases of firearms, and, as noted above, have been doing so since before the enactment of the Act. 6 ATF, however, is not certain of the exact date when manufacturers and importers began voluntarily providing locks and, in the interest of not underestimating the costs attributable to this rule, ATF assumed that all Type 1 FFLs in 1999 would need to acquire secure gun storage or safety devices to make available to their customers. ATF then estimated that, as manufacturers and importers continued to provide locks with their firearms, and as this practice became more common, a decreasing number of FFLs needed to acquire secure gun storage or safety devices each year until year 2003. After 2003, ATF maintained a constant rate of 20 percent of FFLs that do not receive safety devices with the firearms they sell to account for any manufacturers and importers that, even today, do not provide safety devices with their firearms. In addition, Type 2 FFLs are pawnshops that acquire previously owned firearms. ATF does not know whether the firearms acquired by Type 2 FFLs have secure locks or not. Therefore, ATF assumed that all new Type 2 FFLs need to acquire secure gun storage or safety devices to satisfy the requirements of the Act.

Because Type 2 FFLs primarily deal with secondhand firearms and not new purchases, ATF assumed that, in 1999, all Type 2 FFLs acquired secure gun storage or safety devices and, from 2000 onward, only new Type 2 FFLs needed to acquire a means of securing firearms. Therefore, ATF assumed that pawnbrokers from 2000 to 2020 consisted only of new Type 2 FFLs.

Table 4 provides the estimated number of Type 1 and 2 FFLs that needed to acquire secure gun storage or safety devices and make them available at their place of business for potential nonlicensed customers. For more detailed information on obtaining the population of FFLs needing to acquire secure gun storage or safety devices to make available, please refer to the standalone RA.

This analysis considers the rule's direct (or industry) costs, indirect costs, and government costs. Industry costs are the costs to FFLs that need to certify the availability of secure gun storage or safety devices and the costs to FFLs that need to acquire secure gun storage or safety devices to make available to the public. Indirect costs are those costs associated with organizations and manufacturers providing gun locks or safety devices. Government costs are enforcement costs to ensure that the affected FFLs have been and are continuing to comply with the statute.

In determining direct, industry costs, ATF used the average wage rate associated with certain job titles listed on Form 7/7CR by FFL type. ATF used a loaded wage rate of 1.42 to include fringe benefits such as insurance as part of the overall compensation. 7 Because FFLs are segmented by industry type, ATF used a sample from each industry type to determine an average wage rate by each FFL type. For FFLs completing Form 7CR, ATF assigned a leisure wage rate of $16.52 because FFLs that complete Form 7CR are Type 3 FFLs— i.e., collectors who do not apply for a license as part of an occupation. 8 Although Type 3 FFL collectors are not required to make available secure gun storage or safety devices, they are still required to answer the question about availability on Form 7CR by marking “N/A.” Therefore, costs for that action were counted as an industry cost of this rule. For more information on the wages used for each sample, please refer the standalone RA. Table 5 provides the average loaded wage rate by FFL type.

States that have received final authorization from the EPA under RCRA section 3006(b), 42 U.S.C. 6926(b), must maintain a hazardous waste program that is equivalent to, consistent with, and no less stringent than the Federal program. As the Federal program changes, states must change their programs and ask the EPA to authorize the changes. Changes to state programs may be necessary when Federal or state statutory or regulatory authority is modified or when certain other changes occur. Most commonly, states must change their programs because of changes to the EPA's regulations in 40 Code of Federal Regulations (CFR) parts 124, 260 through 268, 270, 273, and 279.

New Federal requirements and prohibitions imposed by Federal regulations that the EPA promulgates pursuant to the Hazardous and Solid Waste Amendments of 1984 (HSWA) take effect in authorized states at the same time that they take effect in unauthorized states. Thus, the EPA will implement those requirements and prohibitions in Massachusetts, including the issuance of new permits implementing those requirements, until Massachusetts is granted authorization to do so.

On August 13, 2021, Massachusetts submitted a complete program revision application seeking authorization of revisions to its hazardous waste program. The EPA concludes that Massachusetts' application to revise its authorized program meets all of the statutory and regulatory requirements established by RCRA, as set forth in RCRA Section 3006(b), 42 U.S.C 6926(b), and 40 CFR part 271. Therefore, the EPA grants final authorization to Massachusetts to operate its hazardous waste program with the revisions described in its authorization application, and as listed below in Section G of this document.

The Massachusetts Department of Environmental Protection (MassDEP) has responsibility for permitting treatment, storage, and disposal facilities within its borders and for carrying out the aspects of the RCRA program described in its application, subject to the limitations of HSWA, as discussed above.

This decision serves to authorize Massachusetts for the revisions to its authorized hazardous waste program described in its authorization application. These changes will become part of the authorized State hazardous waste program and will therefore be Federally enforceable. Massachusetts will continue to have primary enforcement authority and responsibility for its State hazardous waste program. The EPA would maintain its authorities under RCRA sections 3007, 3008, 3013, and 7003, including its authority to:

• Conduct inspections, and require monitoring, tests, analyses and reports;

• Enforce RCRA requirements, including authorized State program requirements, and suspend or revoke permits; and

• Take enforcement actions regardless of whether the State has taken its own actions.

This action will not impose additional requirements on the regulated community because the regulations for which the EPA is authorizing Massachusetts are already effective under state law and are not changed by today's action.

Along with this direct final rule, the EPA is publishing a separate document in the “Proposed Rules” section of today's Federal Register that serves as the proposal to authorize Massachusetts' program revisions. The EPA did not publish a proposal before today's rule because the EPA views this as a routine program change and does not expect comments that oppose this approval. The EPA is providing an opportunity for public comment now, as described in Section E of this document.

If the EPA receives comments that oppose this authorization, the EPA will withdraw today's direct final rule by publishing a document in the Federal Register before the rule becomes effective. The EPA will base any further decision on the authorization of Massachusetts' program revisions on the proposal mentioned in the previous section, after considering all comments received during the comment period. The EPA will then address all such comments in a later final rule. You may not have another opportunity to comment. If you want to comment on this authorization, you must do so at this time.

If the EPA receives comments that oppose only the authorization of a particular revision to Massachusetts' hazardous waste program, the EPA will withdraw that part of this rule, but the authorization of the program revisions that the comments do not oppose will become effective on the date specified above. The Federal Register withdrawal document will specify which part of the authorization will become effective, and which part is being withdrawn.

The Commonwealth of Massachusetts initially received final authorization effective February 7, 1985 (50 FR 3344, January 24, 1985) to implement its base hazardous waste management program. The EPA granted authorization for revisions to Massachusetts' regulatory program on the following dates: September 30, 1998, effective November 30, 1998 (63 FR 52180); October 12, 1999, effective immediately (64 FR 55153); March 12, 2004, effective immediately (69 FR 11801); January 31, 2008, effective March 31, 2008 (73 FR 5753); and June 23, 2010, effective August 23, 2010 (75 FR 35660). Additionally, on November 15, 2000, the EPA granted interim authorization for Massachusetts to regulate Cathode Ray Tubes under the Toxicity Characteristics rule through January 1, 2003, effective immediately (65 FR 68915). This interim authorization was subsequently extended to run through January 1, 2006 (67 FR 66338, October 31, 2002) which was then further extended until January 1, 2011 (70 FR 69900, November 18, 2005).

On August 13, 2021, Massachusetts submitted a final complete program revision application, seeking authorization of additional revisions to its program in accordance with 40 CFR 271.21. Massachusetts seeks authority to administer the Federal requirements that are listed in Table 1 below, including certain waste listings that were promulgated under HSWA authority. This table lists Massachusetts' analogous requirements that are being recognized as no less stringent than the analogous Federal requirements.

Massachusetts' regulatory references are to Title 310 of Code of Massachusetts Regulations (CMR), Chapter 30, as amended effective November 15, 2019. Massachusetts' statutory authority for its hazardous waste program is based on the Massachusetts Hazardous Waste Management Act of 1979 (Massachusetts General Laws Chapter 21C).

The EPA proposes to determine, subject to public review and comment, that Massachusetts' hazardous waste program revisions are equivalent to, consistent with, and no less stringent than the Federal program, and therefore satisfy all of the requirements necessary to qualify for final authorization. Therefore, the EPA is proposing to authorize Massachusetts for the following program revisions:

Massachusetts has already received authorization for some of the checklists in Table 1 to the extent that they contain provisions related to the Land Disposal Restrictions (LDR) program. Regulated entities in Massachusetts that generate these HSWA wastes must comply with the State LDR requirements for these wastes.

The EPA is also clarifying, subject to public review and comment, the scope of Massachusetts' authorized program by explicitly identifying rule checklists which pertain to provisions that have long been part of Massachusetts' authorized program, but which were inadvertently omitted from past authorizations. These checklists include:

• CL 2: Permit Rules: Settlement Agreement (48 FR 39611, September 1, 1983);

• CL 6: Permit Rules: Settlement Agreement (49 FR 17716, April 24, 1984);

• CL 17H: HSWA Codification Rule: Double Liners (50 FR 28702, July 15, 1985);

• CL 17I: HSWA Codification Rule: Ground-water Monitoring (50 FR 28702, July 15, 1985);

• CL 17P: HSWA Codification Rule: Interim Status (50 FR 28702, July 15, 1985);

• CL 17Q: HSWA Codification Rule: Research and Development Permits (50 FR 28702, July 15, 1985);

• CL 30: Biennial Report Correction (51 FR 28556, August 8, 1986);

• CL 36: Closure/Post-closure Care for Interim Status Surface Impoundments (52 FR 8704, March 19, 1987);

• CL 38: Amendments to Part B Information Requirements for Land Disposal Facilities (52 FR 23447, June 22, 1987 as amended September 9, 1987 at 52 FR 33936);

• CL 54: Permit Modification for Hazardous Waste Management Facilities (53 FR 37912, September 28, 1988 as amended October 24, 1988 at 53 FR 41649);

• CL 55: Statistical Methods for Evaluating Groundwater Monitoring Data from Hazardous Waste Facilities (53 FR 39720, October 11, 1988); and

• CL 61: Changes to Interim Status Facilities for Hazardous Waste Management Permits; Modification of Hazardous Waste Management Permits; Procedures for Post-Closure Permitting (54 FR 9596, March 7, 1989).

In the process of seeking authorization for revisions to the State authorized program, Massachusetts has not always used individual rule checklists to demonstrate the equivalency of its State regulations to the Federal program. In addition, Massachusetts has sometimes pursued authorization for only some provisions of an individual rule checklist. As a result, past authorization Federal Register notices may have inadvertently omitted some rule checklists/provisions included in the EPA's authorization decision for State program revisions. The EPA is correcting these omissions with this authorization. The provisions in the checklists cited above continue to be part of Massachusetts' authorized program.

Finally, there are several Federal rules that have been vacated, withdrawn, or superseded. As a result, authorization of these rules may be moot. However, for purposes of completeness, these rule checklists are included, below, with an explanation as to the rule's status in Massachusetts. These checklists include:

• CL 153: Conditionally Exempt Small Quantity Generator Disposal Options (61 FR 34252, July 1, 1996)—As the preamble to this rule discussed, the EPA believes that States which do not allow the disposal of wastes generated by CESQGs into Subtitle D landfills under their existing authorized Subtitle C program would not be required to revise their programs and obtain authorization for this rule, as they would continue to be more stringent. The EPA encouraged states to inform their regional office that for this final rule, they are not required to submit a revision application. Massachusetts does not allow wastes generated by CESQGs to be disposed in Subtitle D landfills. Note that these federal provisions were subsequently superseded by the Hazardous Waste Generator Improvements Rule (81 FR 85732, November 28, 2016).

• CL 199: Vacatur of Mineral Processing Spent Materials Being Reclaimed (67 FR 11251, March 13, 2002)—This rule vacated certain provisions from CL 167D: Mineral Processing Secondary Materials Exclusion (63 FR 28556; May 26, 1998). Massachusetts did not adopt the underlying provisions from CL 167D.

• CL 216: Exclusion of Oil-Bearing Secondary Materials Processed in a Gasification System to Produce Synthetic Gas (73 FR 57, January 2, 2008), CL 221: Expansion of RCRA Comparable Fuel Exclusion (73 FR 77954, December 19, 2008), CL 224: Withdrawal of the Emission Comparable Fuel Exclusion (75 FR 33712, June 15, 2010), and CL 234: Vacatur of the Comparable Fuels Rule and the Gasification Rule (80 FR 18777, April 8, 2015)—CLs 216, 221, and 224 have been vacated. CL 234 implements the vacatur of these provisions. Massachusetts did not adopt the exclusions contained in CLs 216, 221, or 224.

Massachusetts' authorized program continues to be equivalent to and no less stringent than the Federal program without having to make any conforming changes pursuant to these rule checklists, as explained above.

Massachusetts' hazardous waste program contains certain provisions that are broader than the scope of the Federal program. These broader in scope provisions are not part of the program the EPA is proposing to authorize. The EPA cannot enforce requirements that are broader in scope, although compliance with such provisions is required by State law. Examples of broader in scope provisions of Massachusetts' program include, but are not limited to, the following:

(a) In 1996, the EPA vacated the K156, K157, and K158 waste listings to the extent that they encompass wastes generated from the manufacture of 3-iodo-2-popynyl n-butylcarbamate (IPBC). 310 CMR 30.132 does not exclude such wastes from coverage under Massachusetts' analogous listings. State-only wastes such as K156, K157, and K158 wastes from the manufacture of IPBC make Massachusetts' universe of regulated hazardous waste larger than the EPA's and, therefore, broader in scope.

Massachusetts' hazardous waste program contains several provisions that are more stringent than the Federal RCRA program. More stringent provisions are part of a Federally authorized program and are, therefore, Federally-enforceable. Under this action, the EPA would authorize every provision in Massachusetts' program that is more stringent. Every provision of the proposed program revision that is more stringent is noted in Table 1. They include, but are not limited to, the following:

(a) The EPA conditionally excludes certain listed wastes that are reclaimed, reused, or otherwise recycled from the definition of solid waste. In 40 CFR 261.4(a)(9), (10), and (19), the EPA conditionally excludes any spent wood preserving solutions and wastewaters that are reclaimed and reused, wastes from coke by-product processes that are destined for recycling, and spent caustic solutions generated by refineries that are used as feedstock, respectively. Massachusetts has not adopted these exclusions for recycled listed wastes. Instead, 310 CMR 30.104(2)(b) excludes recyclable material that is reclaimed in compliance with the requirements of 310 CMR 30.200 from hazardous waste regulation. The provisions of 310 CMR 30.200, which include but are not limited to obtaining a permit and managing recyclable material in compliance with that permit, are more stringent than the conditions set forth by the EPA at 40 CFR 261.4(a).

(b) At 40 CFR 261.4(a)(12) and (18) and 261.6(a)(3)(iii) and (iv), the EPA conditionally excludes certain recovered oil and oil-bearing hazardous secondary materials that are to be refined, re-refined, or burned as fuels from regulation as hazardous waste. Certain oil-bearing recyclable materials are subject to 40 CFR 279 standards for used oil management. Massachusetts has not adopted the EPA's used oil requirements, nor the EPA's exclusions for management of oil-bearing recyclable materials. Instead, such waste is subject to 310 CMR 30.200 and specifically the waste oil management standards in 310 CMR 30.250, which are more stringent than 40 CFR 279.

(c) In the definition of “drip pad” at 310 CMR 30.010, Massachusetts explicitly restricts use of drip pads to treatment, storage, and disposal facilities that are in interim status. Massachusetts does not permit generators or licensed treatment, storage, and disposal facilities to use drip pads to convey treated wood drippage, precipitation, and/or surface water run-off from an associated collection system.

(d) If wood preserving plants cease or do not initiate use of chlorophenolic preservatives, the EPA allows wastes from such processes to be exempt from the F032 listing once several cleaning, management, and documentation conditions have been met (40 CFR 261.35). Massachusetts has not adopted the conditions included in 40 CFR 261.35 and regulates all such waste as F032 listed hazardous waste.

(e) The EPA excludes mixtures of non-hazardous waste with certain listed hazardous wastes from the definition of hazardous waste if certain conditions are met. The types of mixtures and associated conditions for exclusion are listed in 40 CFR 261.3(a)(2)(iv). 310 CMR 30.102(2)(c) incorporates many of these mixtures and associated conditions for exclusion by reference. However, Massachusetts has not adopted 40 CFR 261.3(a)(2)(iv)(F) and (G), relating to mixtures of non-hazardous waste with wastewaters from the production or treatment of carbamates and carbamoyl oximes (namely, K156 and K157 listed wastes). Mixtures of non-hazardous wastes with K156 and/or K157 listed wastes must be managed as hazardous wastes in Massachusetts.

(f) The EPA conditionally excludes certain wastes generated from the treatment, storage or disposal of listed wastes from hazardous waste regulation. In 40 CFR 261.3(c)(2)(ii)(D), the EPA conditionally excludes biological treatment sludge from the treatment of K156 and K157 wastes. In 40 CFR 261.3(c)(2)(ii)(E), the EPA conditionally excludes catalyst inert support media separated from K171 and K172 wastes. In 40 CFR 261.4(b)(15), the EPA conditionally excludes leachate or gas condensate collected in landfills where certain inorganic chemical manufacturing wastes (namely, K169, K170, K171, K172, K174, K175, K176, K 177, K178, and K181) have been disposed. Massachusetts, at 310 CMR 30.102(d), regulates all waste generated from the treatment, storage, disposal, or use of a hazardous waste as hazardous waste, including any sludge, spill residue, ash emission control dust, and leachate.

(g) The Massachusetts provisions for used, broken cathode ray tubes (CRTs) and processed CRT glass undergoing recycling are more stringent than the Federal requirements in two regards. First, 310 CMR 30.104(3)(h)1.a requires that all used, broken CRTs be containerized, rather than providing an option to store used, broken CRTs in a building as provided at 40 CFR 261.39(a)(1). Second, at 310 CMR 30.104(3)(h)2.b.iii, Massachusetts requires companies that conduct CRT processing to submit a one-time notification to MassDEP prior to commencing CRT processing. The Federal CRT recycling provisions do not require such a notification.

(h) Several of Massachusetts' provisions at 310 CMR 30.354, alternative requirements for unwanted materials generated by academic laboratories, are more stringent than the Federal analogous requirements. First, teaching hospitals and nonprofit research institutes that are not owned by a college or university must keep their written formal affiliation agreements on file with the Director of Laboratories for as long as the laboratories are subject to alternative requirements (310 CMR 30.354(3)(d) and (e), respectively). The EPA does not specify where or with whom such affiliation agreements must be filed or maintained. Second, the container labeling requirements at 40 CFR 262.206(a)(2) do not require that date the unwanted material began accumulating and other information sufficient to allow trained professionals to identify the materials be affixed or attached to the container. Massachusetts does require this information be affixed or attached to the container, as described at 310 CMR 30.354(6)(a)1. Finally, although the Federal provisions have less stringent requirements for where and when Very Small Quantity Generators (VSQGs) must make hazardous waste determinations, as compared to Small and Large Quantity Generators (SQGs and LQGs, respectively), 310 CMR 30.354(10) requires VSQGs to comply with the same standards as SQGs and LQGs when making a hazardous waste determination in the laboratory before the unwanted material is removed from the laboratory.

(i) Massachusetts has prohibited VSQGs from acquiring and utilizing drum-top crushers to crush mercury-containing lamps after the effective date of the revised regulations, unless they first obtain a license to treat hazardous waste. This requirement, at 310 CMR 30.353(10), is more stringent than the federal provisions, which do not restrict or require permits for treatment by VSQGs.

Massachusetts will continue to issue permits covering all the provisions for which it is authorized and will administer the permits it issues. The EPA will continue to administer and enforce any RCRA and HSWA permits or portions of permits that the EPA issued prior to the effective date of this authorization in accordance with the signed Memorandum of Agreement, dated September 30, 2021, which is included with this program revision application. Until such time as formal transfer of the EPA permit responsibility to Massachusetts occurs and the EPA terminates its permit, the EPA and Massachusetts agree to coordinate the administration of permits in order to maintain consistency. The EPA will not issue any new permits or new portions of permits for the provisions listed in Section G after the effective date of this authorization. The EPA will continue to implement and issue permits for HSWA requirements for which Massachusetts is not yet authorized.

Massachusetts has not applied for and is not authorized to carry out its hazardous waste program in Indian country within the State, which includes the land of the Wampanoag tribe. Therefore, this action has no effect on Indian country. The EPA retains jurisdiction over Indian country and will continue to implement and administer the RCRA program on these lands.

Codification is the process of placing citations and references to the State's statutes and regulations that comprise the State's authorized hazardous waste program into the Code of Federal Regulations. The EPA does this by adding those citations and references to the authorized State rules in 40 CFR part 272. The EPA is not codifying the authorization of Massachusetts' revisions at this time. However, the EPA reserves the ability to amend 40 CFR part 272, subpart W for the authorization of Massachusetts' program at a later date.

The Office of Management and Budget (OMB) has exempted this action from the requirements of Executive Order 12866 (58 FR 51735, October 4, 1993) and 13563 (76 FR 3821, January 21, 2011). This action authorizes State requirements for the purpose of RCRA section 3006 and imposes no additional requirements beyond those imposed by State law. Therefore, this action is not subject to review by OMB. This action is not an Executive Order 13771 (82 FR 9339, February 3, 2017) regulatory action because actions such as today's authorization of Massachusetts' revised hazardous waste program under RCRA are exempted under Executive Order 12866. Accordingly, I certify that this action will not have a significant economic impact on a substantial number of small entities under the Regulatory Flexibility Act (5 U.S.C. 601 et seq. ). Because this action authorizes pre-existing requirements under State law and does not impose any additional enforceable duty beyond that required by State law, it does not contain any unfunded mandate or significantly or uniquely affect small governments, as described in the Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1531-1538). For the same reason, this action also does not significantly or uniquely affect the communities of tribal governments, as specified by Executive Order 13175 (65 FR 67249, November 9, 2000). This action will not have substantial direct effects on the states, on the relationship between the national government and the states, or on the distribution of power and responsibilities among the various levels of government, as specified in Executive Order 13132 (64 FR 43255, August 10, 1999), because it merely authorizes State requirements as part of the State RCRA hazardous waste program without altering the relationship or the distribution of power and responsibilities established by RCRA. This action also is not subject to Executive Order 13045 (62 FR 19885, April 23, 1997), because it is not economically significant and it does not make decisions based on environmental health or safety risks. This action is not subject to Executive Order 13211, “Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use” (66 FR 28355, May 22, 2001) because it is not a significant regulatory action under Executive Order 12866.

Under RCRA section 3006(b), the EPA grants a state's application for authorization as long as the state meets the criteria required by RCRA. It would thus be inconsistent with applicable law for the EPA, when it reviews a state authorization application, to require the use of any particular voluntary consensus standard in place of another standard that otherwise satisfies the requirements of RCRA. Thus, the requirements of section 12(d) of the National Technology Transfer and Advancement Act of 1995 (15 U.S.C. 272 note) do not apply. As required by section 3 of Executive Order 12988 (61 FR 4729, February 7, 1996), in taking this action, the EPA has taken the necessary steps to eliminate drafting errors and ambiguity, minimize potential litigation, and provide a clear legal standard for affected conduct. The EPA has complied with Executive Order 12630 (53 FR 8859, March 15, 1988) by examining the takings implications of this action in accordance with the “Attorney General's Supplemental Guidelines for the Evaluation of Risk and Avoidance of Unanticipated Takings” issued under the executive order. This action does not impose an information collection burden under the provisions of the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq. ). “Burden” is defined at 5 CFR 1320.3(b). Executive Order 12898 (59 FR 7629, February 16, 1994) establishes Federal executive policy on environmental justice. Its main provision directs Federal agencies, to the greatest extent practicable and permitted by law, to make environmental justice part of their mission by identifying and addressing, as appropriate, disproportionately high and adverse human health or