This proposed rule would expand the use of the small-business Rule of Two in multiple-award contracting and make other regulatory revisions to encourage the use of small businesses when creating new multiple-award contracts. In issuing this proposed rule, SBA implements recommendations of the Office of Federal Procurement Policy (OFPP) in its memorandum titled “ Increasing Small Business Participation on Multiple-Award Contracts, ” dated January 25, 2024.

Section 15(a)(1)(C) of the Small Business Act, 15 U.S.C. 644(a)(1)(C), provides that the Small Business Administration (SBA) shall “assur[e] that a fair proportion of the total purchases and contracts for goods and services of the Government in each industry category . . . are awarded to small business concerns.” To further this statutory provision, SBA's regulations and the Federal Acquisition Regulation (FAR) provide that an acquisition shall be set aside for small business concerns whenever there is reasonable expectation that offers will be obtained from at least two responsible small business concerns that are competitive in terms of fair market prices, quality, and delivery (13 CFR 125.2(f); 48 CFR 19.502-2). This provision in SBA's regulations and the FAR is commonly referred to as the Rule of Two.

The Rule of Two dates back to 1964, when the Department of Navy first adopted it. Additional agencies implemented the rule afterward, and the FAR extended the Rule of Two for governmentwide application in 1984. The Rule of Two is the cornerstone of the Federal Government's support for small-business prime contracting. In Fiscal Year (FY) 2023, set-aside awards accounted for 65% of contracting dollars awarded to small businesses, the highest percentage since data became available in 2010. Those set-aside dollars pushed the government's spending with small business prime contractors to $178 billion in FY23, or 28.4%. Prior to the government-wide application of the Rule of Two in 1984, the Federal Government spent just 21% of its procurement dollars with small businesses.

This proposed rule would clarify the applicability of the Rule of Two to multiple-award contracts by directing that an agency set aside an order under a multiple-award contract for small business contract holders when the contracting officer determines there is a reasonable expectation of obtaining offers from two or more small business contract holders under the multiple-award contract that are competitive in terms of market prices, quality, and delivery. Like the OFPP memorandum, the proposed rule provides several exceptions, such as orders under the Federal Supply Schedule, or where an exception to fair opportunity or an agency-specific exception applies. When an agency is unable to set aside an order over the micro-purchase threshold and an exception does not apply, the contracting officer must document their rationale and provide the documentation to the agency's small business specialist or the Office of Small and Disadvantaged Business Utilization (OSDBU) or, for the Department of Defense, the Office of Small Business Programs (OSBP). An SBA procurement center representative (PCR) can review the documentation and may submit recommendations to increase small business opportunities.

These proposed changes result from an interagency negotiation among SBA, the FAR Council, and other agencies. SBA initiated this negotiation for three reasons.

First, the Small Business Act specifies that a fair proportion of the total “purchase and contracts” for goods and services shall be awarded to small business concerns. The statute does not limit the fair proportion language only to contracts. Rather, it applies it to both “purchase[s] and contracts.” The Federal Government is directed to assure that a fair proportion of purchases and contracts are awarded to small businesses. SBA believes that the use of the words “purchase and” means that the Rule of Two should not apply only when an agency is considering the award of a contract. It should also apply to all purchases of goods and services, as well. As such, SBA believes that it makes sense to apply the Rule of Two to orders issued under multiple-award contracts. Again, it should apply to all “purchases,” not just to all new contracts.

Second, the proposed rule would provide certainty on how to apply the Rule of Two to task and delivery orders under multiple-award contracts and eliminate confusion created by an unresolved question in dispute between the Court of Federal Claims and the Government Accountability Office (GAO). The Court of Federal Claims agreed with the small-business plaintiffs in Tolliver Group that “an agency must apply the Rule of Two before an agency can even identify the possible universe of procurement vehicles which may be utilized for a particular scope of work.” 151 Fed. Cl. at 104. In a GAO protest decided after the court's ruling, GAO maintained its longstanding interpretation, which differs from the Court's position, that, in 15 U.S.C. 644(r), Congress intended to clearly delineate a distinction between a procuring agency's mandatory set-aside obligations when establishing a contract, and an agency's discretion with respect to setting aside task or delivery orders under a multiple-award contracts, i.e., indefinite delivery indefinite quantity (IDIQ) contracts. Itility, LLC, B-419167, Dec. 23, 2020, 2020 CPD P412 at 18. The proposed change to require application of the Rule of Two to task and delivery orders under multiple-award contracts, with certain exceptions, should eliminate lingering confusion.

Third, for similar reasons as those described in the OFPP memorandum, the proposed rule advances equity in Federal procurement practices. This rule is expected to create more contract opportunities for small businesses, particularly small disadvantaged businesses (SDBs). Executive Order 14091 established a government-wide goal of awarding 15 percent of Federal contract spending to SDBs in FY 2025, and this proposed rule would put the government in a better position to achieve that goal.

This proposed rule rests on the authority in the Small Business Jobs Act of 2010, Public Law 111-240, sec. 1331, codified at 15 U.S.C. 644(r), for SBA and the FAR Council to establish guidance under which Federal agencies may, at their discretion and notwithstanding fair opportunity requirements, set aside orders placed against multiple-award contracts for small business concerns. Under this proposal, agencies are required to document their decisions not to set aside an order for small businesses. Such a decision might be based on one of the exceptions in the regulation, or because the Rule of Two is not satisfied— i.e., where there are zero small businesses or only one small business that are responsible, available, and reasonably priced.

The OFPP memorandum, footnote 4, stated that Federal Supply Schedule orders are not covered by the term “multiple-award contract” as used in the memorandum. The memorandum stated that Schedules are continually open to new entrants and highly accessible to small businesses. Similarly, this proposed rule would not cover the Federal Supply Schedule. This also mirrors the treatment of the Federal Supply Schedule by the Court of Federal Claims, which exempted the Schedule from the Rule of Two in VSolvit, LLC v. United States, 151 Fed. Cl. 678 (2020), because of specific language providing so in FAR subpart 8.4.

SBA intends for the provisions of this proposed rule, if finalized, to be severable from each other such that if a court were to hold that any provision is invalid or unenforceable as to a particular person or circumstance, the rule would remain in effect as to any other person or circumstance.

The proposed rule adopts the updated terminology of “certified service-disabled veteran-owned small businesses concerns,” given that SBA now certifies service-disabled veteran-owned small businesses.

The proposed rule would add a new § 125.2(c)(2) with new documentation and coordination requirements when an agency plans to establish a multiple award contract without an order set-aside provision. The current § 125.2(c)(3) only requires notification at least 30 days prior to the solicitation's issuance when an agency would issue a bundled requirement or one that would be unlikely for award to a small business. SBA believes that 30 days is not enough time to intervene in a large procurement when, oftentimes, the agency has been planning the procurement for over a year. The proposed rule would require small business specialists to notify the PCR as early in the acquisition planning process as possible where the multiple-award contract exceeds the substantial bundling threshold (even if the contract is not bundled), and the number of small business awardees is expected to be less than 30 percent of the total number of awardees. With the notification, the contracting officer must include market research and documentation explaining why the multiple-award contract is not set-aside or reserved with an expectation of at least 30 percent for small businesses. In the future, if this proposed rule is finalized, small business should make up at least 30 percent of new multiple-award contract holders and that should make the Rule of Two more effective on orders issued under those multiple award contracts.

The 30-percent threshold is based on the current proportion of multiple-award contract dollars going to small business, and agencies can reach that threshold by using contract reserves. Contract reserves are a procurement strategy available only for multiple-award contracts in which the agency sets aside some of the contract awards for small businesses (or a small business program such as 8(a) or HUBZone), and then competes orders only among those set-aside awardees.

The proposed rule incorporates the OFPP memorandum's recommendation that agencies share with small-business specialists documentation of the basis for not setting aside orders over the micro-purchase threshold, unless an exception applies. Small business specialists are agency staff, typically working with the agency's OSDBU or OSBP. Small business specialists play a vital role in ensuring that the agency prioritizes small-business participation when planning acquisitions. Under the proposed rule, the agency would also document, and share with its small business specialist, the decision to place an order under a multiple-award contract with only one or no small business contract holders.

The proposed rule would revise the regulation on setting aside orders, § 125.2(e)(6)(i), to require the set-aside of orders over the micro-purchase threshold where the Rule of Two is satisfied with respect to small-business contract holders. The only exceptions to applying the Rule of Two are for orders under Federal Supply Schedule contracts, when an exception to fair opportunity applies, or where agency procedures reflect an appropriate exception. When one of these three exceptions does not apply, the agency would be required to document its determination not to issue a set-aside and coordinate that documentation with the small business specialist. If the agency chooses to issue an order under a multiple award contract that has one or no small business contract holders, the agency must document the rationale for that decision, including the market research conducted by the agency, coordinate that documentation with the small business specialist, and ensure that the small business specialist has a reasonable opportunity to respond. This requirement would not apply to orders under the Federal Supply Schedule, where an exception to fair opportunity applies, or an agency-specific exception applies.

Through this proposed rule, SBA seeks to expand small-business participation on multiple-award contracts. Unlike the Tolliver decision, this proposed rule does not require the application of the Rule of Two prior to choosing a particular multiple-award contract vehicle. Thus, although the proposed rule would permit an agency to use existing multiple award vehicles, agencies would be required to conduct the Rule of Two analysis on the selected multiple-award contract before issuing an order (unless an exception applies). Agencies are not expected to amend ordering procedures of existing multiple-award contracts that did not provide for order set-asides, but they could choose to do so if there is adequate time remaining on the contract ( i.e., more than one year), to permit small business concerns to fully perform or deliver under an order.

Exceptions to the application of the mandatory Rule of Two would apply for orders under the Federal Supply Schedule, where an exception to fair opportunity applies (such as there being only one responsible source), and agency-specific exceptions. For example, agencies may use an agency-specific exception to address supply chain and national security risks, to address goods or services that no small businesses provide and would not provide in the future, or to respond to a major disaster or emergency. The proposed rule would require that agency exceptions be developed in consultation with both the agency OSDBU or OSBP and SBA, and made public before they are used. The exception procedures must have an appropriate mechanism to ensure responsible use.

The Office of Management and Budget (OMB) anticipates that this rulemaking will be a significant regulatory action and, therefore, is subject to review under section 6(b) of Executive Order 12866, Regulatory Planning and Review, dated September 30, 1993. Accordingly, the next section contains SBA's Regulatory Impact Analysis.

1. Is there a need for the regulatory action?

This action implements recommendations made in OFPP's memorandum titled “Increasing Small Business Participation on Multiple-Award Contracts”. It also addresses confusion from the contradictory decisions between the Court of Federal Claims and the Government Accountability Office (GAO). The Court of Federal Claims agreed with the small-business plaintiffs in Tolliver Group that “an agency must apply the Rule of Two before an agency can even identify the possible universe of procurement vehicles which may be utilized for a particular scope of work.” 151 Fed. Cl. at 104. In a GAO protest decided after the court's ruling, GAO ruled that agencies may set aside orders even if the underlying multiple-award contract does not notify contract holders to future set-asides. Itility, LLC, B-419167, Dec. 23, 2020, 2020 CPD P412 at 18. GAO has ruled agencies may set aside orders even if the underlying does not notify contract holders to future set-asides. Marine Hydraulics Int'l LLC, B-420562, May 25, 2022, 2022 CPD P122 at 10. This rulemaking is intended to eliminate any confusion and ensure that the policy is consistently implemented across all agencies. The proposed rule also supports Administration efforts to develop a competitive small-business contracting base and increase spending with small disadvantaged businesses (SDBs).

2. What is the baseline, and the incremental benefits and costs of this regulatory action?

Based on SBA's analysis of FY 2019 to FY 2023 data, as shown in the table below, this change could add up to $6 billion per year in small business contract spending. The table below shows the dollar gap between small-business spending on non-set-aside multiple-award task and delivery order contracts, and that same spending government wide, when the governmentwide numbers are adjusted to use the same NAICS-code distribution present in the non-set-aside multiple-award task-order contracts:

In the table above, the fifth column (Overall Small Business % (NAICS adjusted)) is multiplied by total dollars (second column) to determine the numbers in the sixth column (Potential MAC Small Business Dollars ($B)). SBA presumes that applying the Rule of Two to task and delivery orders would close the dollar gap between small-business spending on non-set-aside multiple-award contracts and small-business spending, governmentwide, as adjusted. The action could add up to $6 billion to small-business contract spending. With contract spending exceeding $600 billion annually, this equates to less than 1 percent of all Federal contract spending.

This rulemaking will impose costs to the acquisition workforce to comply with the market-research, documentation, and coordination requirements when the Rule of Two is not applied, as specified in the rulemaking. Although some agencies currently apply the Rule of Two when ordering under a multiple-award contract vehicle and may have documentation and coordination procedures, SBA will assume for the purpose of calculating the potential cost that no agencies currently require the application of the Rule of Two.

In FY23, agencies awarded 130,246 orders to other-than-small businesses off multiple-award contracts, not including the Federal Supply Schedule. Many of those orders went repeatedly from the same agency to the same other-than-small contractors. The proposed rule allows agencies to use market research conducted within the past 18 months, so if an agency were ordering to the same other-than-small contractor repeatedly under the same multiple-award contract, the agency would, most likely, reuse market research from prior awards. After eliminating orders that went to the same other-than-small contractor on a single vehicle from the same agency, only 5,513 orders remain that would require new small-business market research annually. The actual number of affected orders is likely less because the 5,513 orders presume annual market research ( i.e., every 12 months), but the proposed rule allows for market research to be used from up to 18 months prior.

Contracting officers must base a decision on sufficient facts, considering market research, to demonstrate a reasonable assessment of the availability of small businesses on the selected multiple-award contract. Market research may include but is not limited to a review of procurement history, search of databases such as SBA's Dynamic Small Business Search (DSBS), consultation with SBA Procurement Center, or internet searches. Because of the variety of market research methods, SBA estimates that the time required for justification of a decision ranges from a half-hour to search relevant databases to several hours for more extensive open-market research, with the distribution of methods skewed toward database searches rather than intensive market research. SBA therefore estimates that the mean time required for justification is 60 minutes for an estimated annual number of 5,500 affected contracts, resulting in an estimated annual burden to the government for market research of $683,870. 1

Additionally, agency small-business specialists would review documentation for orders not set-aside above the micropurchase threshold. FAR section 7.104(d) currently requires such a review for orders not set-aside above the substantial bundling threshold. The number of additional orders to be reviewed annually (excluding those going from the same agency to the same contractor for the reasons explained in the last paragraph) is 3,700. SBA estimates that the time required for a small-business specialist to review this order documentation is 60 minutes. This considers that the orders are relatively low-dollar. SBA therefore estimates the annual burden to the government for small-business specialist review to be $460,000.

3. What are the alternatives to this rulemaking?

SBA considered a rule that would require the agency to assess the Rule of Two prior to choosing an existing contracting vehicle. That approach could increase consideration of small businesses that may not presently be on a multiple-award contract, but fails to recognize that the capabilities and capacity of many qualified small businesses already on multiple-award contracts are not being fully leveraged by agencies. SBA's research suggests that the changes proposed by this rulemaking to increase opportunities for small business contract holders on multiple-award contracts could advance diversity and resilience by adding up to $6 billion per year in contract awards to small businesses. Requiring application of the Rule of Two prior to selecting an existing contracting vehicle would, in many cases, duplicate the small business market research that agencies have conducted when establishing the multiple-award contract and could undermine important benefits that these vehicles were designed to create, including the ability to meet mission needs in a timely manner at lower cost and the ability to implement Governmentwide priorities.

This action meets applicable standards set forth in sections 3(a) and 3(b)(2) of Executive Order 12988, Civil Justice Reform, to minimize litigation, eliminate ambiguity, and reduce burden. The action does not have retroactive or preemptive effect. While this rulemaking will have no effect on task and delivery orders already awarded, it will apply to all new multiple-award contracts, the orders placed under those contracts, and a new order entered into on existing multiple-award contracts where ordering procedures allow for the set aside of the order.

For the purposes of Executive Order 13132, SBA has determined that this rulemaking will not have substantial, direct effect on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government. Therefore, for the purpose of Executive Order 13132, Federalism, SBA has determined that this rulemaking has no federalism implications warranting preparation of a federalism assessment.

Executive Order 13563, Improving Regulation and Regulatory Review, directs agencies to, among other things: (a) afford the public a meaningful opportunity to comment through the internet on proposed regulations, with a comment period that should generally consist of not less than 60 days; (b) provide for an “open exchange” of information among government officials, experts, stakeholders, and the public; and (c) seek the views of those who are likely to be affected by the rulemaking, even before issuing a notice of proposed rulemaking. As far as practicable or relevant, SBA considered these requirements in developing this proposed rule, as discussed below.

Did the agency use the best available techniques to quantify anticipated present and future costs when responding to Executive Order 12866 (e.g., identifying changing future compliance costs that might result from technological innovation or anticipated behavioral changes)?

To the extent possible, the agency utilized the most recent data available in the Federal Procurement Data System—Next Generation, DSBS, and SAM.

Public participation: Did the agency: (a) afford the public a meaningful opportunity to comment through the internet on any proposed regulation, with a comment period that should generally consist of not less than 60 days; (b) provide for an “open exchange” of information among government officials, experts, stakeholders, and the public; (c) provide timely online access to the rulemaking docket on Regulations.gov ; and (d) seek the views of those who are likely to be affected by rulemaking, even before issuing a notice of proposed rulemaking?

The proposed rule will have a 60-day comment period and will be posted on www.regulations.gov to allow the public to comment meaningfully on its provisions. SBA has also discussed some of the proposals in this rulemaking with stakeholders at various small business on-line and in-person procurement conferences.

Flexibility: Did the agency identify and consider regulatory approaches that reduce burdens and maintain flexibility and freedom of choice for the public?

The proposed rule is intended to eliminate confusion in the small business acquisition community arising due to contradictory decisions of the Court of Federal Claims and the GAO, and increase procurement opportunities for small businesses.

This rulemaking does not impose additional reporting or recordkeeping requirements under the Paperwork Reduction Act, 44 U.S.C. chapter 35.

The Regulatory Flexibility Act (RFA), 5 U.S.C. 601, requires administrative agencies to consider the effect of their actions on small entities, small nonprofit enterprises, and small local governments. Pursuant to the RFA, when an agency issues a rulemaking, the agency must prepare a regulatory flexibility analysis which describes the impact of the rule on small entities. However, section 605 of the RFA allows an agency to certify a rule, in lieu of preparing an analysis if the rulemaking is not expected to have a significant economic impact on a substantial number of small entities.

This proposed rule implements an OFPP memorandum and seeks to resolve confusion created by differing interpretations of the Rule of Two by the Court of Federal Claims ( Tolliver Group, 151 Fed. Cl. 70) and the GAO ( iTility, B-419167). It does not impose any costs on small business, but rather increases procurement opportunities for small business. Therefore, SBA does not believe the rulemaking would have a disparate impact on small entities or would impose any additional significant costs on them. For the reasons discussed, SBA certifies that this proposed rule does not have a significant economic impact on a substantial number of small entities.

For the reasons discussed in the preamble, the Small Business Administration proposes to amend 13 CFR part 125 as follows:

The additions and revisions read as follows:

Section 104(b) of the Consumer Product Safety Improvement Act of 2008 (CPSIA) requires the Commission to adopt mandatory standards for durable infant or toddler products. 15 U.S.C. 2056a(b)(1). Mandatory standards must be “substantially the same as” voluntary standards, or they may be “more stringent” than the applicable voluntary standards, if the Commission determines that more stringent requirements would further reduce the risk of injury associated with the products. Id. Mandatory standards may be based, in whole or in part, on a voluntary standard.

Section 104(b)(4)(B) of the CPSIA specifies the process for when a voluntary standards organization revises a standard that the Commission incorporated by reference under section 104(b)(1). First, the voluntary standards organization must notify the Commission of the revision. Once the Commission receives this notification, the Commission may reject or accept the revised standard. To reject a revised standard, the Commission must notify the voluntary standards organization within 90 days of receiving the notice of revision that the Commission has determined that the revised standard does not improve the safety of the consumer product and that CPSC is retaining the existing standard. If the Commission does not take this action, the revised voluntary standard will be considered a consumer product safety standard issued under section 9 of the Consumer Product Safety Act (15 U.S.C. 2058), effective 180 days after the Commission received notification of the revision (or a later date specified by the Commission in the Federal Register ). 15 U.S.C. 2056a(b)(4)(B).

Under this authority, the Commission issued two mandatory safety rules that incorporate by reference applicable provisions of ASTM F406: Safety Standard for Non-Full-Size Baby Cribs, codified at 16 CFR part 1220 (75 FR 81787, Dec. 28, 2010), and Safety Standard for Play Yards, codified at 16 CFR part 1221 (77 FR 52228, Aug. 29, 2012). These mandatory standards include performance requirements and test methods, as well as requirements for warning labels and instructions, to address hazards to children. After the Commission's promulgation of these final rules, ASTM published several revisions to ASTM F406 that the Commission considered for incorporation by reference in the mandatory rules, parts 1220 and 1221. Most recently, in 2023, the Commission revised the non-full-size (NFS) cribs mandatory standard to incorporate by reference ASTM F406-2022, but rejected ASTM F406-2022 as it applied to play yards. 88 FR 13686 (Mar. 6, 2023) (NFS cribs); March 2, 2023, Letter to K. Morgan, President, ASTM International (play yards). 1 Accordingly, the NFS cribs mandatory rule currently incorporates the 2022 version of ASTM F406 and the play yard mandatory rule currently incorporates the 2019 version of ASTM F406.

On October 7, 2024, ASTM notified the Commission that it had approved and published another revised version of the voluntary standard, ASTM F406-2024. CPSC staff is assessing the revised voluntary standard to determine, consistent with section 104(b)(4)(B) of the CPSIA, its effect on the safety of NFS cribs subject to 16 CFR part 1220, and, separately, the safety of play yards subject to 16 CFR part 1221. The Commission invites public comment on those questions to inform staff's assessment and subsequent Commission consideration of the revisions in ASTM F406-2024. 2

The currently incorporated voluntary standards (ASTM F406-2019 and ASTM F406-2022) and the revised voluntary standard (ASTM F406-2024) are available for review in several ways. A read-only copy of the existing, incorporated standards are available for viewing, at no cost, on the ASTM website at: https://www.astm.org/READINGLIBRARY/. A read-only copy of the revised standard (ASTM F406-2024), including red-lined versions that identify the changes from the 2019 and 2022 versions to the 2024 version, are available, at no cost, on ASTM's website at: https://www.astm.org/CPSC.htm. Interested parties can also download copies of the standards by purchasing them from ASTM International, 100 Barr Harbor Drive, P.O. Box C700, West Conshohocken, PA 19428-2959; phone: 610-832-9585; https://www.astm.org. Alternatively, interested parties can schedule an appointment to inspect copies of the standards at CPSC's Office of the Secretary, U.S. Consumer Product Safety Commission, 4330 East-West Highway, Bethesda, MD 20814, telephone: 301-504-7479.

Comments must be received by November 8, 2024. Because of the short statutory time frame Congress established for the Commission to consider revised voluntary standards under section 104(b)(4) of the CPSIA, CPSC will not consider comments received after this date.

This proposed rule is published in exercise of authority delegated by the Secretary of the Interior to the Assistant Secretary—Indian Affairs (Assistant Secretary; AS-IA) by 209 DM 8.

Congress empowered the Secretary of the Interior, under section 10 of the Safeguard Tribal Objects of Patrimony Act (STOP Act) of 2021, Public Law 117-258, codified at 25 U.S.C. 3071 et seq., to “promulgate rules and regulations to carry out this Act” in consultation with the Secretary of State, the Secretary of Homeland Security, and the Attorney General, and after consultation with Indian Tribes and Native Hawaiian organizations. See 25 U.S.C. 3078. The proposed regulations at 25 CFR part 1194 implement this authority.

The Department of the Interior (Department) issued a Dear Tribal Leader Letter inviting input on the development of draft regulations for the STOP Act on April 22, 2023, and a Dear Native Hawaiian Community Leader Letter inviting input on the development of draft regulations for the STOP Act on July 20, 2023. The Department held five consultation sessions with Indian Tribes, and two consultation sessions with the Native Hawaiian Community. The Department convened with Indian Tribes for a first consultation in person on May 31, 2023, at U.S. Geological Survey Oklahoma-Texas Walker Science Center in Oklahoma City, OK; for a second consultation in person on July 14, 2023, at the Bureau of Land Management Fairbanks District Office, in Fairbanks, AK; and for a fifth consultation in person on August 18, 2023, at the Bureau of Land Management New Mexico State Office, in Santa Fe, New Mexico. The Department conducted the third and fourth consultations with Indian Tribes virtually on Zoom on July 27, 2023, and August 8, 2023, respectively. The Department convened the first consultation with the Native Hawaiian Community in person on August 23, 2023, at the State of Hawai'i Office of Hawaiian Affairs in Honolulu, HI, and conducted the next consultation virtually on Zoom on August 24, 2023. The Department of State and the Department of Homeland Security joined several of these consultations. Following the consultation sessions, the Department accepted written comments until September 1, 2023.

Thereafter, beginning on August 31, 2023, the Department convened multiple times per week with representatives of the Secretary of State, the Secretary of Homeland Security, and the Attorney General, to develop the proposed rule based on the feedback received in consultation.

Interior asked for answers to three framing questions during the consultations. Individual comments were separated and categorized after the closing of the comment period on September 1, 2023. In total, the submissions were separated into 501 individual comments. Generally, around 131 comments were exclusively supportive, no comments were not supportive, and 370 provided constructive feedback on how the rule may be improved. The Assistant Secretary for Indian Affairs (AS—IA) has decided to proceed to the proposed rule stage after careful consideration of all comments. The AS—IA's responses to significant comments that provide constructive feedback, were neutral, or provided general support along with constructive criticism are detailed below. No responses are provided for comments that were exclusively supportive.

1. Comment: Fourteen Tribes and organizations recommended that the STOP Act program be housed within the Assistant Secretary-Indian Affairs. Five Tribes recommended that the STOP Act program be housed within the Bureau of Indian Affairs, Office of Justice Services. Four Tribes and organizations asked for one office to take central control over implementation without identifying a specific office. One commenter recommended the National Park Service. Some of these comments came from the same letter.

Response: The Department believes the balance of comments support placing the STOP Act program within the Office of the Assistant Secretary-Indian Affairs.

2. Comment: One Tribe requested more information on the roles and responsibilities of the various offices and bureaus within the Department because the framing question alone was not helpful.

Response: The Department referred this individual to the information about each of the Bureaus and Offices for the Department of the Interior, which may be found at this link: https://www.doi.gov/bureaus .

3. Comment: One commenter asked that the Office of Native Hawaiian Relations (ONHR) view itself as a centralized agency in this process.

Response: The Department appreciates ONHR's engagement in the drafting of the proposed rule and looks forward to ONHR's active role in implementation of these regulations following publication of a final rule.

4. Comment: One Tribe asked that the Department of State prioritize engagement with any foreign government or institution that has been identified by Tribes as holding exported cultural items or ones that are primary markets for items. One Tribe commented that foreign governments and entities that are open to voluntarily returning items should require a different level of engagement than those who are not willing to engage on repatriation.

Response: The Department has conferred with the Department of State about the substance of these comments. The Department of State already engages with international institutions on repatriation and will continue this work in line with provisions in the STOP Act.

5. Comment: One organization and one Tribe asked that formation of any agreements include Tribal consultation as early in the process of development as possible to ensure seamless coordination and harmonization of efforts.

Response: The Department agrees. As interagency agreements are formed involving the Department, the Department commits to consultation to the degree possible.

6. Comment: Two commenters asked that the United States military be part of any interagency working group.

Response: The Department appreciates this feedback and will reach out to the Department of Defense to seek engagement in implementation of a final rule.

7. Comment: One commenter expressed that exporters who act in violation of the STOP Act do not do so alone, and the Department should consult with experts to examine whether the Racketeer Influenced and Corrupt Organizations Act might apply in this situation.

Response: The process for an export certification in subpart B of the proposed regulations, including discussions about potential exports without a certification, was developed with input from the Department of Justice.

8. Comment: One commenter expressed that the STOP Act cannot be a barrier to repatriation and that getting through customs would continue to be difficult.

Response: The process for voluntary return in subpart E of the proposed regulations was developed with input from the Departments of State and Homeland Security, including constituent agency, U.S. Customs and Border Protection.

9. Comment: A Tribe asked that the Department of State notify foreign nations of the STOP Act's passage to facilitate repatriations under other nations' domestic laws and that the Department of State designate a liaison to facilitate voluntary returns. A Tribe and a Tribal Organization asked that the implementing regulations utilize the UNESCO 1970 Convention on the Means of Prohibiting and Preventing the Illicit Import, Export and Transfer of Ownership of Cultural Property (1970 Convention) to advocate for stronger international cooperation, and to encourage other countries to adopt measures similar to the STOP Act.

Response: The STOP Act, and its implementing regulations, apply primarily to items that a putative exporter seeks to take out of the United States prior to their exit from the country. The STOP Act does not contain mechanisms to persuade or obligate international governments or institutions. The 1970 Convention provides a common framework of measures each State Party may take, including some included in the STOP Act, such as the prohibition of exportation of designated cultural property and the establishment of export certificates. The Department works with the Department of State to raise awareness of the STOP Act in order to help other countries that are party to the 1970 Convention to identify items that are prohibited from exportation under the Act and, therefore, may be restricted from import into those countries. The Department of State will designate a liaison to facilitate voluntary returns.

10. Comment: One commenter expressed that international engagement will be important based on processes that exist in international conventions like a Hague Convention that was unspecified by the author. The commenter expressed that establishing such processes could help with international borders.

Response: The Department appreciates this feedback and will confer with the Department of State on types of international engagement.

11. Comment: A collective of Tribes asked that the Department of Justice direct all United States Attorneys to prosecute violations of 25 U.S.C. 3073(a)(2) that are referred to them by the Department of the Interior, the Department of Homeland Security, or the Federal Bureau of Investigation. The same collective asked that the Department of Justice add the STOP Act, NAGPRA, and ARPA to the list of statutes enforced by the Department of Justice Environmental Crimes Section.

Response: This comment is beyond the scope of these regulations. However, the Department has conferred with the Department of Justice about the substance of these comments.

12. Comment: One Tribal commenter asked for memoranda of understanding (MOUs) among DOI's National Park Service, Insular and International Affairs, and the Office of the Inspector General that lay out the purpose, duties and responsibilities, standards and procedures, reporting requirements, confidentiality provisions, and other resolutions. One Tribal commenter proposed an agreement between the Departments of State and Homeland Security that focused upon NAGPRA and repatriation and international repatriation. One Tribal commenter proposed a memorandum between the State Department and the Federal Bureau of Investigation that focused upon international auctions. A Tribe proposed an agreement among the National NAGPRA Program, NAGPRA Review Committee, Cultural Heritage Coordinating Committee, Bureau of Indian Affairs' Office of Justice Services' Cultural Resources Unit, and all other relevant Federal entities. A Tribe and a Tribal organization proposed cooperative agreements be established among the Department, other Federal agencies, Native Nations, and Native organizations and institutions. A Tribe proposed an agreement among the NPS, the Transportation Security Administration, the United States Forest Service, and the Bureau of Land Management. Two Tribes proposed an agreement among the NAGPRA Program, the Cultural Heritage Coordinating Committee established by the Protect and Preserve International Cultural Property Act, the Bureau of Indian Affairs' Office of Justice Services' Cultural Resources Unit, and all other relevant Federal entities. A collective of Tribes proposed an agreement among the Department of Commerce, Department of Homeland Security, Department of Justice, and Department of State regarding the export of Native American cultural items. A Tribe asked that Cooperative Agreements be established among the Interior, agencies, and Tribal nations to foster collaboration, training, documentation, outreach, and education. A Tribe requests agreements so that the Department of Commerce creates a “cultural items” and “archaeological resource” list; Homeland Security notifies international travelers and shippers and instructs all baggage and cargo inspectors to prepare to identify any cultural items or archaeological resources; Justice notifies all attorneys of their responsibilities to prosecute violations referred to them; and the Department asks Congress for three million dollars for STOP Act implementation. A Tribe commented that Tribes may encounter problems importing items back into the United States because of protected animal parts in the items, or for other related reasons, and asks that interagency agreements provide a way to avoid seizure or delays.

Response: The Department is grateful for the breadth and variety of feedback received about parties to interagency agreements. Given the diversity of agreements proposed, the Department will carefully evaluate the efficacy and need for each of these agreements upon implementation of the proposed rule. The scope of work for the Interagency Working Group, set forth at proposed subpart F, includes coordination of policy-making processes to facilitate repatriation. The Department's goal is to establish broad regulatory authority, in alignment with statutory authority, to allow for creation of inter-Departmental MOUs, as appropriate, as these commenters have proposed.

13. Comment: A Tribe asked that any interagency agreements, when read with the regulations, include all STOP Act action items and the two should be written to carry out all action items needed. A Tribal organization and a Tribe asked that any agreements include a step-by-step guide, contacts for each agency with one single Federal point of contact for Tribes, provisions that encourage Tribal collaboration with all agencies, encourage the Native work group to advise Federal agencies, facilitate voluntary return, and provide for Federal monitoring. Another Tribe asked that agreements be set up quickly and outline commitments of resources and responsibilities for agencies involved, include a single point of contact for Tribes, and a regular time period for review and revisions. Three Tribes and a Tribal organization asked that interagency agreements include a step-by-step guide or flow chart, and contacts for each agency. A Tribe asked that interagency agreements should provide for regular and mandatory meetings co-led by the Native Working Group and Interagency Working Group. A Tribe asked that any agreements include training, funding to Tribes for collaboration and travel to retrieve sacred items, coordination among the various agencies, a framework for the safe return of items, and guidelines and policies for how sacred items are returned, including addressing privacy, photography, media requests, and agency information provided to the public. A Tribe asked that any agreements include appropriate steps and a chain of command, mandatory training for agency officials and staff (semi-annual), consultation requirements with Tribes, and agreements designed to facilitate the importation of items voluntarily returned from foreign nations. A Tribe asked that any agreements address safeguarding, protection and inappropriate disclosure, or facilitation of misappropriation or misuse of tangible or intangible cultural heritage. A Native Hawaiian organization asked for an interagency agreement under which the Executive Branch may engage counterpart governmental entities for foreign countries directly and advocate for the return of stolen cultural objects; and call on respective U.S. Embassies to engage appropriate international government authorities and actively negotiate a process for the return of cultural objects.

Response: The Department is grateful for the breadth and variety of feedback received about the contents of interagency agreements. Given the diversity of agreements proposed, the Department will carefully evaluate the efficacy and what should go into each agreement upon implementation of the proposed rule. The scope of work for the Interagency Working Group, set forth at proposed subpart F, includes coordination of policy-making processes to facilitate repatriation. The Department's goal is to establish broad regulatory authority, in alignment with statutory authority, to allow for specific inclusion in various inter-Departmental MOUs such as those commenters have proposed.

14. Comment: A Tribe and a Tribal organization asked that interagency consultation agreements be established to provide meaningful consultation with Tribes and to provide consistent policies for Federal agencies. A Tribe asked that Interagency Consultation Policy and Agreement would specify the process and frequency of consultation, the involvement of relevant agencies, and the sharing of information and expertise related to the protection and repatriation of Native cultural heritage. A Tribe asked that the Department follow the Interagency Consultation Policy and Agreement to ensure meaningful consultation with Indian Tribes, to address frequency of consultation, involvement of agencies, and expertise related to protection and repatriation of cultural heritage.

Response: The Department is grateful for the breadth and variety of feedback received about the contents of interagency consultation agreements. The STOP Act program will maintain a robust consultation function and use of such an agreement may be practical. The scope of work for the Interagency Working Group, set forth at proposed subpart F, includes coordination of policy-making processes to facilitate repatriation. The Department's goal is to establish broad regulatory authority, in alignment with statutory authority, to allow for potential use of an interagency consultation agreement as these commenters have proposed.

15. Comment: A Tribe asked that any interagency agreements include shared jurisdiction or deputization between Tribal Historic Preservation Officers (THPO) and the Department.

Response: This comment is beyond the scope of these regulations; however, the Department has conferred with the Department of Justice about the substance of this comment.

16. Comment: A collective of Tribes commented that the Department of Commerce should immediately amend the Commerce Control List to include “cultural item” as defined by 18 U.S.C. 1170 and 25 U.S.C. 3001 et seq., and “archaeological resource” as defined at 16 U.S.C. 470ee.

Response: The Department has conferred with the Department of Commerce about the substance of this comment.

17. Comment: A Native Hawaiian organization asked that the Interagency Working Group prioritize work on programs and policies to require that museums better establish the provenance of objects within their collections. The Native Hawaiian organization requests that the Department of State call for a closer examination of existing provenance records at international institutions for cultural objects and human remains that would be subject to NAGPRA in domestic institutions as part of this agreement. The Native Hawaiian organization notes that these updates may implicate updates to the NAGPRA Program.

Response: The Department will relay this request to the Interagency Working Group upon its formal establishment. The Department has conferred with the Department of State and the National NAGPRA Program about the balance of this comment.

18. Comment: Several Tribes and Tribal organizations and a Native Hawaiian organization reiterated that cultural resources have been stolen from their homes for many years, resulting in long lasting and devastating harm.

Response: The Department is grateful for this comment and bore it in mind throughout the drafting of the proposed rule.

19. Comment: Several Tribes and Tribal organizations and a Native Hawaiian organization expressed a desire that implementation occur immediately or as soon as possible, and that the Department takes perspective of all Tribes into account and consults as much as possible in the process. One Tribe noted the need to consider what can be done immediately, given that there are items being trafficked currently and encouraged the Department to “chew gum and walk at the same time.”

Response: The Department appreciates the need to move quickly, and this is one consideration for the Department issuing a proposed rule rather than an interim rule at this time. The Department looks forward to consulting with Tribes on this proposed rule and on implementation of the STOP Act as set forth in the proposed rule.

20. Comment: One organization and two Tribes provided recommendations and suggested language to be included in the purpose section of the regulations. One organization recommended parallel language to the Department's regulations implementing the Native American Graves Protection and Repatriation Act. Another Tribe recommended the regulations include information on the STOP Act, its passage, and a description of its provisions.

Response: The Department appreciates this feedback. The Department has incorporated the Tribal suggestion to the degree possible to the Introduction as set forth in proposed § 11941.1.

21. Comment: One Tribe commented about the need for sections on fines and penalties to hold auction houses accountable. The same Tribe explained its desire for a mechanism for Tribes to receive the names, addresses, and information about where the items are going so that the items do not go underground. This will aid Tribes in learning the history of the item and how it moved into commerce. The Tribe commented that this process should be triggered when items are taken outside of reservation boundaries and would require sellers to remove items from the auction block.

Response: The proposed schedule and process for civil penalties and fines appears at proposed § 1194.205. With regard to the mechanism requested, the text of the STOP Act does not provide authority for the Department to obtain information about an item after the sale of that item has been completed. This means the Department's regulations implementing the STOP Act consider primarily the detention and recovery of items prior to export, and do not opine on collection of information about items that have been exported.

22. Comment: One Tribal organization asked that enforcement of the STOP Act commence immediately, even though regulations were still forthcoming. A Tribe emphasized that heavy criminal charges would represent a strong incentive to disincentivize the illicit trade of Native artifacts.

Response: The STOP Act was signed into law in December 2022. The law increased criminal penalties for stealing and illegally trafficking in Tribal cultural property. The increased criminal penalties are effective immediately, despite the need for regulations to implement other parts of the STOP Act. Additionally, prosecutors may continue to use other existing Federal criminal laws or Federal civil forfeiture proceedings, as appropriate, to disincentivize the illicit trade of native artifacts.

23. Comment: Two Tribes and one Tribal organization asked that the Department ensure that a process to revoke wrongly issued export certificates is part of any proposed rule. This is because revocation would be important under treaties and other countries' laws to prevent defendants from presenting evidence in domestic prosecutions for illegal trafficking. The same Tribal organization asked that export certifications contain language that they do not affirmatively establish an item's legality.

Response: The Department appreciates this feedback. Procedures for revocation of an export certification appear at proposed § 1194.106. The Department anticipates consulting with Tribes and Native Hawaiian organizations on the contents of certification applications, which may include issues related to the legality of an item for which a certification is sought.

24. Comment: Two Tribes asked that the proposed rule include processes for the Department to assess civil penalties against individuals attempting to export items without an export certification. A Tribal collective asked that the Department implement the civil penalties, and related appeals section, as an interim rule. The same Tribal collective, another Tribal organization, and a Tribe asked that civil penalties be uniformly applied and sufficient to completely remove any financial incentive to illegally export, attempt to export, or otherwise transport any item requiring export certification.

Response: The Department appreciates this feedback. Procedures for assessment of civil penalties appear at proposed § 1194.205. The Department is issuing a proposed rule rather than an interim rule at this time.

25. Comment: A collective of Tribes asked that the Department be sure that Tribes and Native Hawaiian organizations receive adequate notice of attempted export of objects prohibited from exportation.

Response: The Department appreciates this feedback. The Department anticipates providing notice using current mechanisms for consultation notices, including contact lists directed to THPOs. The Department welcomes methods to improve its consultation processes.

26. Comment: A Tribe comments that an item attempted to be exported without an export certification should be promptly returned to an Indian Tribe rather than through a museum.

Response: The Department agrees. In the event of seizure of an item, return of the item to a Tribe will be affected pursuant to NAGPRA or ARPA under proposed § 1194.206.

27. Comment: A Tribe and a Tribal organization asked that appeals processes be assigned to the Department's Office of Hearing and Appeals for adjudication.

Response: The Department appreciates this feedback. The Department has incorporated the Tribal suggestion to the Tribal Authorization as set forth in proposed subpart D.

28. Comment: Two Tribes and two Tribal organizations provided recommendations on the contents of definitions of the terms “Any other Federal law or treaty,” “consultation,” “cultural affiliation,” “tangible cultural heritage,” “repatriation,” “voluntary return,” “credible evidence,” and “Indian lands.”

Response: The Department is grateful for this comment and the Department sought to incorporate as much of this feedback as possible in the proposed definitions section at proposed § 1194.2.

29. Comment: A Tribe asked how the Department will address potential conflicts between claimants of lineal descendent priority versus Tribal priority, as established by NAGPRA.

Response: The Department's regulations implementing the STOP Act consider primarily the detention and recovery of items prior to export, and do not opine on the implementation of NAGPRA. Even if this comment addressed a matter germane to the STOP Act regulations, the Department generally is not able to provide pre- decisional guidance or to opine on competing claims in the hypothetical.

30. Comment: Several Tribes and a Tribal organization expressed thoughts about the criteria and contents of an export certification application and permit. These included, among others, establishing criteria for granting export certification permits to individuals or organizations with demonstrated expertise and a legitimate need to handle and export cultural items, requiring exporters to exercise reasonable care in verifying the legal origin and compliance of cultural items, and consulting with Indian Tribes about the export certification application.

Response: The Department appreciates this feedback. The Department will develop the form by which an applicant Requests an Export Certification in consultation with interested Tribes.

31. Comment: Three Tribes and one Tribal consortium asked for a high degree of detail about how Tribes may access and view the database of export certification applications. One Tribe asked for the ability to limit sensitive information in databases. One Tribe expressed concern about how the database would operate with respect to FOIA. An individual expressed concern about the database and asked for a focus on process instead. Another Tribe asked for the ability to flag particular items in the database that a Tribe identifies as sensitive or missing and circulating in the marketplace. An additional Tribe asked for the ability to flag items that a Tribe has learned are in circulation at present.

Response: The Department has endeavored to include as much detail as is possible about the database of export certification applications in the regulations. The Act's FOIA exemption is codified in regulation at proposed § 1194.107(b), and Tribes may request removal of any application from the database. At this proposed stage, all data to be included in the database is categorized similarly and no identifiers are proposed. The Department anticipates generating more information, including possible trainings, on the database of export certification applications following publication of a final rule.

32. Comment: A Tribal consortium asked for a receipt template for Tribes to issue to purchasers that would exempt an item from these regulations.

Response: The Department has incorporated the Tribal suggestion to the Tribal Authorization as set forth in proposed § 1194.109.

33. Comment: A Tribe asked that export certification fees not apply to Indian Tribes.

Response: The Department has implemented a process for Tribal Authorization as set forth in proposed § 1194.109. Such a Tribal Authorization would exempt an item from the need for an export certification, and the attendant fee.

34. Comment: One Tribe asked for a process by which a revocation of an export certification could be affected without harming any DOJ processes.

Response: The Department has included a provision in the regulations related to revocation of an export certification. The Department further notes that any administrative revocation of an export certification is, based upon these regulations, an administrative procedure different from actions law enforcement may take as part of an active Federal criminal or civil investigation. The Department will also be closely coordinating with the Department of Justice in implementing the STOP Act.

35. Comment: Two Tribes and an organization asked for a presumption that if an item is cultural heritage or fits the category of archaeological resource under ARPA, that item is held and not provided an Export Certification until further evidence is shown that the exporter has a right of possession.

Response: The Department has proposed that an applicant for Export Certification must demonstrate the right of possession as part of the application process.

36. Comment: A Tribe asked that protection for items under the STOP Act include both objects of matrimony and patrimony and that Tribes be the only ones determining which items are deserving of protection. Another Tribe asked that Tribal consultation inform which items are categorized as cultural items under the STOP Act.

Response: The Department agrees. The STOP Act applies to all “cultural items” as that term is defined in the Native American Graves Protection and Repatriation Act (NAGPRA) (including objects of cultural patrimony) and the proposed rule contemplates alerting Tribes for any request for an export certification and, to the degree possible, treating as determinative Tribal input on the application.

37. Comment: A Tribe and two Tribal consortia asked for development of public education campaigns to encourage the purchase of contemporary Native art and emphasize the illegality of taking certain artifacts. A Tribe asked for the Department of State to conduct public awareness campaigns about Tribal repatriation efforts. A Tribe asked for incentives for international dealers and buyers to repatriate items.

Response: The Department does not propose an educational campaign nor an incentive program as part of the proposed regulatory text. The Department will explore these ideas as possible tools following publication of a final rule.

38. Comment: Three Tribes and a Tribal organization commented that the Department should not create an exhaustive list of items protected under the STOP Act.

Response: The Department agrees. The Department intends to publish a description of characteristics typical of Items Requiring Export Certification rather than a list of items, as set forth in proposed § 1194.101.

39. Comment: A Tribe and a Tribal organization asked that the Federal Register Notice be created in coordination with Indian Tribes. Both commenters suggested that this Notice be a live document and be updated over time. Both commenters asked that the Notice include practical assistance respectful to the fluidity of cultural items and be specific enough to notify exporters, customs officers and others encountering potentially sensitive items.

Response: The Department has incorporated the Tribal suggestion into the Federal Register Notice regarding which items may require an export certification as set forth in proposed § 1194.101.

40. Comment: A Tribe asked for the ability to request an in camera hearing in any administrative appeal or penalty phase associated with a violation of the STOP Act to shield from the public items subject to these proceedings, because many cultural items can only be seen and handled by particular individuals. The Tribe explained that this will protect the items from further harm. Another Tribe commented that in its religion, sensitive items are only able to be touched and seen by certain people, and such items must be treated with respect when they are brought back.

Response: The Department appreciates this feedback. In the administrative appeals provision of the proposed regulations, at proposed § 1194.302, there is a mechanism for Tribes or Native Hawaiian organizations to provide sealed communications concerning the application for an export certification or detention. In the event of a hearing, the proposed regulations incorporate applicable rules from 43 CFR part 4, at proposed § 1194.303. Part 4, in turn, contemplates certain proceedings occurring under seal or in camera.

41. Comment: One Tribe asked for a single point of contact for all Native cultural heritage protection within the Department through which Tribes could access appropriate Federal agencies. A Tribal organization underscores that such Tribal liaisons should be equipped to provide trainings to Tribes about testing cultural heritage items for dangerous chemicals and assisting in the handling, moving, packing, and shipping of items internationally repatriated. The Tribal organization noted that Tribal cultural heritage items, including human remains, have often been subjected to chemicals harmful to humans by collectors or institutions for preservation and that can harm Tribal members that repatriate, handle, or reintegrate cultural heritage items for ceremonial use. The Tribal organization also asked that liaisons coordinate with Federal agencies and domestic institutions to ship fragile Tribal cultural heritage items safely and carefully.

Response: The Department appreciates this feedback. Through the Interagency Working Group, the Department has endeavored to identify and centrally place the most relevant points of contact from the Department, as well as from the Departments of State, Justice, and Homeland Security. The Department welcomes feedback on the appropriateness of this solution.

42. Comment: Two Tribes and a Tribal organization commented that the Department should provide more information on training materials that will be provided to Federal staff and officials. The Tribal organization asks if Tribes may reach out to the Department for technical assistance in developing training materials. The Tribes ask that Tribes be heavily involved in designing trainings.

Response: The Department anticipates providing more information about training following a final rule implementing the STOP Act.

43. Comment: Three Tribes asked for flow charts in the regulation to explain processes in the regulatory text. A Tribal consortium asked for a step-by-step guide for Federal officials within agencies to use in the event of a trafficking incident.

Response: The Department does not propose any flow charts as part of the proposed regulatory text, either for Tribal, private, or Federal use. The Department will explore such flow charts as informational tools following publication of a final rule.

44. Comment: Five Tribes and two Tribal organizations asked for guidance on the Tribal Working Group. Specific areas of inquiry included the process for nominations, a request for mandatory, regular meeting times, inclusion of compensation for the Tribal Working Group members, a mandatory process to implement judicial proceedings, and a requirement for timely responses from agencies.

Response: The regulations governing the Native Working Group appear at proposed subpart G. These include guidance on nominations and eligibility. The Department declined to include mandatory meetings for the Native Working Group to promote maximum flexibility for this group. The Department is unable to compensate members of the Native Working Group based upon the language of the STOP Act. The Native Working Group may make a request that the Department of Justice initiate judicial proceedings, as set forth in proposed § 1194.603(c) and (d), and Native Working Group requests for assistance and information are set forth in proposed § 1194.603(e).

45. Comment: One organization urged the Department to consult on the form of the export certification application. One Tribe asked that the regulations describe the minimum needed to apply for a certification, and also asked for a process or system where Tribes can learn about international or domestic auction yards where their items may be implicated. A Tribe and a Tribal organization asked that publication of characteristics typical of cultural heritage be general in nature and not require photographs or an exact description unless a Tribe consents to provide that information. The same commenters expressed that any descriptions should be more onerous than the Convention on Cultural Property Implementation Act, 19 U.S.C. 2601 et seq.

Response: A draft of the application form is attached to this proposed rule; the Department invites comments on the form from interested Tribes and Native Hawaiian organizations. The form specifically requests the purpose and timeframe of the proposed export. The Department does not have a definitive list of possible auction houses. Consultation on the form will enable Tribes to provide direct feedback on inclusions of photographs and nature of descriptions required.

46. Comment: One Tribe asks that the regulations provide a mechanism for Tribes to review export certification applications.

Response: Under the proposed regulations, the Department will notify the impacted Tribes and Native Hawaiian organizations when an application is submitted and uploaded into the database and again once the Department finds that the application is complete.

47. Comment: One Tribe asks that the Departments of State and Justice consult with and take direction from Tribes on repatriation efforts, especially as it pertains to legal efforts for violations of Federal law and engaging with foreign countries and institutions with a history of holding exported Tribal cultural heritage items.

Response: The Department appreciates this feedback and has included guidance on consultation in a number of areas in the proposed rule.

48. Comment: One Tribal organization asks that where dispute resolution systems exist to minimize burdens for Tribes and review committees, Tribes be proactively included at the outset. Ideally, this would include training and curriculum to stakeholders to promote the types of items to look for, and to teach officers how to return sacred objects or objects of patrimony.

Response: The Department appreciates this feedback. The Department has included guidance on consultation in a number of areas in the proposed rule.

49. Comment: A Tribe asks that the database follow the “Do No Harm” principle and that Tribes should have access to the system to remove or correct information since the information may be confidential, culturally sensitive, sacred, or secret information to a Tribe.

Response: The Department appreciates this feedback. The proposed rule clarifies that information provided to the Department will be protected to the degree possible in accordance with applicable law, and that a Tribe or Native Hawaiian organization may request the deletion of material from the database.

50. Comment: One Tribe asks that the Department focus enforcement efforts on private dealers and brokers rather than placing burdens onto Tribes when facing repatriation.

Response: The Department appreciates this feedback. The Department has endeavored to craft the proposed rule in such a way that it will prevent illegal exportations, while allowing Tribes to authorize exportation at their discretion and facilitate the voluntary return of tangible cultural heritage.

51. Comment: One Tribe asks that the Department create a specific tax form and associated paperwork for tax deductive gifts for those who voluntarily return Tribal cultural items.

Response: The Department anticipates providing tax documentation to an individual who successfully completes a voluntary return, as set forth in proposed § 1194.403. In doing so, the Department must comply with IRS rules and will work with the IRS on what documentation is needed.

52. Comment: A Tribal organization asks that the United States make a worldwide announcement about the voluntary return provision and provide for acknowledgement of voluntary returns.

Response: The Department has consulted with the Department of State about potential methods and mechanisms to provide notice to international entities. The Department has not proposed a uniform approach to publicizing voluntary returns because the Department understands that some Tribes may not wish to share information about their objects of patrimony returning home.

53. Comment: One Commenter asked if the STOP Act will exempt or address how the Marine Mammal Protection Act (MMPA) challenges cultural practices.

Response: The Department is grateful for this comment. Generally, the STOP Act and the MMPA exist in parallel and neither law exempts nor preempts the application of the other.

54. Comment: One Commenter referenced Hawai'i state law and how it identifies objects of patrimony and protects certain categories of objects.

Response: The Department is grateful for this comment and has considered it in the drafting of the proposed rule.

55. Comment: One Commenter requested that the Interagency Working Group look to Office of Native Hawaiian Relations (ONHR) to provide information about Native Hawaiian organizations. The commenter also referenced including an authentication system that ensures NHOs meet the regulatory definition for consultations they are engaged in.

Response: The Department anticipates calling upon ONHR's expertise as the Interagency Working Group commences its work.

57. Comment: Multiple Tribes expressed support for the STOP Act and prompt implementation of the regulations.

Response: The Department appreciates this feedback and is pleased to offer this proposed rule for additional Tribal feedback.

58. Comment: Three Tribes and two Tribal organizations noted that implementation of the STOP Act requires funding for Tribal Historic Preservation Offices (THPO) to ensure capacity to implement the STOP Act and to have staff to track items. One Tribe noted that the Tribe did not have enough funding to get patrimony back or to bid for it, in the worst-case scenario. Another Tribe noted the need for funds for Tribes to implement, identify, and store items subject to the STOP Act, including travel to locations of items, securing means of safe return, and ongoing storage and safekeeping of items after return.

Response: The Department notes that funding is authorized in the statutory text of the STOP Act. However, that funding is not appropriated. If and when funds are appropriated, the Department will explore best ways to implement in line with these comments.

59. Comment: One Tribal organization and one Tribe encouraged regulatory language to utilize more than NAGPRA and ARPA where the STOP Act references “other applicable law.” The commentors cite Tribal law, the Lacey Act, applicable Executive Orders, the Antiquities Act, and the Endangered Species Act.

Response: The Department concurs with Tribes that these and other in-effect laws comprise the “other applicable law” referenced in the STOP Act. However, the Department declines to include a particularized list because all laws in effect may apply depending on a particular factual pattern that arises.

60. Comment: A Tribe asked for monitoring of international institutions likely to house or traffic Tribal cultural heritage items, and that information gained from monitoring be made available to Tribes. The same Tribe asked that State officials be directed to monitor international auctions and sales.

Response: The Department's authority under the STOP Act does not provide a mechanism for the Department to direct monitoring of institutions, either by Federal or State authorities.

61. Comment: A Tribe expressed questions on the Indian Arts and Crafts Act and whether there might be space for that Act and the STOP Act to work together.

Response: The Department notes that the text of the STOP Act allows for an agreement with a foreign country “to expand the market for the products of Indian art and craftsmanship in accordance with section 2 of the Act of August 27, 1935.” Outside of this statutory reference, the Department has not included references to the Indian Arts and Crafts Act in the text of the proposed rule.

62. Comment: A Tribe asked what would happen if a foreign government, entity, or individual is uncooperative, and what recourse the United States has to ensure strong enforcement to persuade uncooperative institutions or governments.

Response: The STOP Act, and its implementing regulations, apply primarily to items that a putative exporter seeks to take out of the United States prior to their exit from the country. The STOP Act does not contain mechanisms to persuade or obligate international governments or institutions to repatriate items.

63. Comment: A Tribal organization asked that the implementing regulations include an intellectual property provision because there continues to be harm to Tribes from the misappropriation, misuse, and exploitation of traditional knowledge, genetic resources associated with traditional knowledge, and traditional cultural expressions because of the lack of protection within the United States' intellectual property system.

Response: The Department's authority under the STOP Act does not provide a mechanism for the Department to propose an intellectual property provision in this proposed rule.

64. Comment: A Tribal organization asked that the United States, through the Department, call on countries to participate in a concerted international effort with necessary concrete measures and implement bilateral agreements to obligate countries to monitor imports and facilitate repatriations.

Response: The STOP Act confirms the authority of the President to request agreements with foreign countries to discourage commerce in and collection of certain items, encourage voluntary return of tangible cultural heritage, and expand markets for products of Indian art and craftsmanship. The Department of State approves the negotiation and conclusion of all international agreements to which the United States will become a party. The STOP Act does not contain mechanisms to persuade or obligate international governments or institutions to repatriate items. However, the existence of the STOP Act, including implementing regulations, may be influential under international mechanisms, such as the UNESCO 1970 Convention on the Means of Prohibiting and Preventing the Illicit Import, Export and Transfer of Ownership of Cultural Property.

65. Comment: One Tribe shared that the application of ARPA was complex on the Tribe's allotted lands, resulting in a scenario where a landholder moved forward with excavation with no permit because ARPA did not apply to Tribal lands and because no Tribal law regulated the excavation. The Tribe wanted the Department to consider this example of complex situations in Indian Country to inform drafting of the proposed regulation.

Response: The Department is grateful to the Tribe for sharing this story as it exemplifies the complex legal issues that manifest in Indian country. ARPA does apply on trust and restricted Indian land. The application for an Export Certification requires presentation of an ARPA permit authorizing export of the resource or attestation that ARPA does not apply.

66. Comment: A Tribal organization asked whether the Department would consult on a draft before a proposed rule, or whether the next draft would be a proposed rulemaking.

Response: The Department is issuing a proposed rule rather than an interim rule at this time.

67. Comment: One commenter expressed concern with the “most appropriate claimant” language used in the STOP Act. The commenter asked to envision alternative approaches.

Response: The Department appreciates this concern. As required, these implementing regulations have been drafted consistent with the STOP Act's express language and Congress' intent in enacting the statute.

68. Comment: A Native Hawaiian commenter asked what would happen if a museum in Europe voluntarily returned an item, and whether that item would return to its community or to the national museum. The same commenter asked who determined the item's ultimate resting place.

Response: The proposed regulations contemplate that the voluntary return of an item would occur as agreed by the individual or organization wishing to return the item and the appropriate Indian Tribe or Native Hawaiian organization.

69. Comment: A Native Hawaiian commenter asked if the STOP Act addressed how items are stored or displayed. Another commenter asked if the STOP Act protected items found on public or private lands.

Response: Manner of storage of items, and items from private lands outside the exterior boundaries of a reservation are outside the scope of the STOP Act and this regulation. The definitions of archaeological resource and cultural item includes resources and items from Federal land.

70. Comment: One commenter expressed concern with the Federal Government's role in identifying who could be criminalized and therefore who may be seen as a legitimate practitioner, particularly with regard to the Native Hawaiian Community.

Response: The Department appreciates this concern and will endeavor to follow its obligations under the statute.

71. Comment: Two commenters reiterated that Native Hawaiian organizations are different from Indian Tribes, and requested the Department avoid making one look like the other.

Response: The Department agrees that Native Hawaiian organizations are different than Indian Tribes and will continue to strive to ensure that its regulations and guidance reflect that difference.

72. Comment: One commenter asked that the proposed rule include “the provision of technical assistance if NHOs lack sufficient resource[s].”

Response: The Department appreciates this concern and has included a broad offer of technical assistance in the proposed rule.

73. Comment: Two commenters expressed concern about traditional divisions between the political and the spiritual.

Response: The Department appreciates this concern and has considered it in drafting the proposed rule.

74. Comment: One commenter asked the Department to amend the definition of Native Hawaiian organization in the STOP Act regulations to include any organization that has Native Hawaiians in substantive and policymaking positions within the organization. Another commenter asked that specific organizations not be listed in applicable definitions.

Response: The Department appreciate these concerns. However, the definition provided in the proposed STOP Act regulations aligns with the terminology utilized in the recently amended NAGPRA regulations.

75. Comment: One commenter asked how NHOs may be recognized. Several other commenters provided comments about recognition of NHOs and the Secretary's list of recognized NHOs.

Response: Recognition of NHOs is outside the scope of the Act and this regulation. The Department respectfully refers the inquirer to ONHR, which is well positioned to provide information about applicable processes.

This section summarizes the seven subparts of the proposed rule.

Subpart A includes an introductory section setting forth the purpose of the regulations, definitions for terms in the regulations, and provisions concerning filing of documents and severability. The definitions are mostly from the Act or, as directed in the Act, from the regulations implementing NAGPRA at 43 CFR part 10 or the Department's uniform regulations implementing the Archaeological Resources Protection Act (ARPA) at 43 CFR part 7. The Department proposes to add Native American human remains to the Act's definition of “items prohibited from exportation.” This is consistent with the provision later in the proposed rule that the Secretary will not issue an export certification for native American human remains. The only major change to the NAGPRA and ARPA definitions is that proposed for “repatriation.” Under NAGPRA that term refers to the transfer of possession or control of a cultural item or human remains, but not necessarily physical custody. One of the purposes of the STOP Act, however, is to return tangible cultural heritage to the physical custody of the Indian Tribe or Native Hawaiian organization. This section also includes a placeholder definition for the “Office,” the entity within the Department of the Interior that will be delegated the responsibility for implementing the export certification and other programs under the Act. As noted above, as of this notice, the Department has not yet established that entity. This definition will be replaced with one for that entity once the Department establishes it.

As noted, the Department is also proposing a provision concerning severability. In enacting the Act, Congress created several different ways to stop the export of cultural items and archaeological resources and facilitate the repatriation of tangible cultural heritage. While this rule is intended to create systematic processes for those methods, if a court holds any provision of one part of this rule invalid, it should not impact the other parts of the rule. For example, a decision finding invalid a portion of subpart B should not impact subpart C, because the detention, forfeiture, and repatriation of items not having a necessary export certification would not be affected by a problem in the process for obtaining a certification. Similarly, a decision finding invalid part of the export certification process should not impact the process for voluntary return of tangible cultural heritage or the provisions for the Native Working Group. Any decision finding any provisions in this rule to be invalid would not impact the remaining provisions, which would remain in force. The intent of this rule is to stop exports and facilitate repatriation as a whole, but the rule is not an interdependent whole—other provisions of the rule would implement that intent even if a court declared certain provisions invalid.

The Act directs the Department to establish a system to issue export certifications, which are required to export cultural items and archaeological resources. In deference to the cultural sensitivity for Indian Tribes and Native Hawaiian organizations surrounding Native American human remains and recognition of the common law rule that human remains cannot be owned, the Department is proposing that it will not issue an export certification for the export of Native American human remains.

The proposed export certification process begins with the submission of an application and supporting documents, together with the application fee. Because of the broad variety of such items and variations in the cultural importance of such items to Indian Tribes and Native Hawaiian organizations, the Department is proposing to require a separate application and certification for each item proposed to be exported. A draft application is included with this proposed rule; we invite comment on its contents. To make the Department's review and the subsequent review and consultation with the relevant Indian Tribes and Native Hawaiian organizations as efficient as possible (given the extremely tight decision-making deadlines in the Act), the Department is proposing to require submission of supplemental documents in addition to the application. Such supplemental documents are designed to establish that the item is not an item prohibited from export and to give the Department and the Indian Tribe or Native Hawaiian organization sufficient information to decide what Indian Tribe or Native Hawaiian organization is culturally affiliated with the item and whether the Secretary should issue an export certification.

After the exporter has filed the application and all supporting documents, the Department will upload the application and supporting documents into the Export Certification Database for review by Indian Tribes and Native Hawaiian organizations, with notification to the relevant Tribes and organizations; review the application for completeness; and begin coordination with relevant Federal agencies. Once the Department has determined that the application and all supporting documents are complete, the statutory process and timeframes for consultation and approval or disapproval begins.

At the end of that process, the Department will notify the applicant and any relevant Indian Tribe or Native Hawaiian organization of its determination to issue or deny an export certification. That notification will include notice of the right to administratively appeal that determination under subpart D. Upon the expiration of the period for appeal, or the final exhaustion of administrative remedies, the Department will issue the Export Certification or decline to issue it. That decision may be further appealed to a United States District Court. If the Department issues an Export Certification, the exporter must provide U.S. Customs and Border Protection (CBP) with a copy of the Certification by following the process in these regulations.

The proposed regulations also provide for an Indian Tribe or Native Hawaiian organization to issue, at its sole discretion, a Tribal Authorization that is equivalent to an Export Certification.

The Act provides for detention by CBP, and forfeiture, and repatriation by the Department of (1) any item that may be an Item Prohibited from Exportation that is exported, attempted to be exported, or otherwise transported from the United States; or (2) any item that may be an Item Requiring Export Certification that is exported, attempted to be exported, or otherwise transported from the United States without an Export Certification or Tribal Authorization. Proposed procedures for such actions are in subpart C of the proposed rule. Under the proposed procedures, CBP will detain any such item and contact the Department. The Department will then inform CBP whether the item is within the scope of the Act and should continue to be detained. If the Department advises CBP that the item is within the scope of the Act and should be detained, CBP will continue to detain the item and provide a detention form to the exporter together with a notice the Department provides to CBP of its right to appeal the detention under subpart D of this part. The Department, within 10 days of detention, will retrieve the detained item from the CBP Port of detention and execute the appropriate CBP Chain of Custody form. The Department is responsible for storage of the item in an appropriate manner based on consultation with the relevant Indian Tribe or Native Hawaiian organization.

Upon the expiration of the period for appeal, or the final exhaustion of administrative remedies, the Department may refer the item to an appropriate Federal agency or U.S. Attorney's Office for forfeiture proceedings, or the Department may follow abandonment procedures. If the exporter abandons the item, the Department will repatriate the item to (1) the Indian Tribe or Native Hawaiian organization from whose Tribal Land the item was removed or who is culturally affiliated with the item, for cultural items under NAGPRA; or (2) the Indian Tribe from whose Indian Land the item was removed, for archaeological resources under ARPA. Similarly, after an administrative declaration of forfeiture or a final order of forfeiture in a judicial proceeding, the Department may, consistent with applicable law and regulations governing the remission and mitigation of forfeitures, seek the item and repatriate it to (1) the Indian Tribe or Native Hawaiian organization from whose Tribal Land the item was removed or who is culturally affiliated with the item, for cultural items under NAGPRA; or (2) the Indian Tribe from whose Indian Land the item was removed, for archaeological resources under ARPA.

The Act provides that the Department afford an exporter the opportunity for a hearing concerning certain actions in the export certification and detention processes. As proposed in subpart D, that hearing would be before the Departmental Cases Hearings Division in the Department's Office of Hearings and Appeals, followed by an appeal to the Interior Board of Indian Appeals. Consistent with the exemption under the Act from the Freedom of Information Act, all proceedings before DCHD or the IBIA would be under seal. The proposed regulations provide that the hearing and appeals process must be exhausted before any appeal to a United States District Court.

The Act tasks the Departments of the Interior and State with creating a process for the voluntary return of tangible cultural heritage to Indian Tribes and Native Hawaiian organizations. That proposed process is in subpart E of the proposed rule. The process begins with the individual or organization wishing to return the items submitting a simple list of the items to the Department, with certain information concerning the items, to the extent that the individual or organization has that information. The Department will then conduct the consultation required for it to determine which Indian Tribe(s) or Native Hawaiian organization(s) would potentially be culturally affiliated with the items. Once the Department makes that determination, it will supply contact information and the list to the parties, and will provide assistance, as needed, to the parties to arrange for the return. The Departments of Homeland Security and State will facilitate both foreign and domestic transportation of the items, and at the request of the Indian Tribe or Native Hawaiian organization, the Interagency Working Group will explore funding mechanisms or use of in-kind resources to assist the Indian Tribe or Native Hawaiian organization. The goal of this process is for the Federal government to facilitate the return, not to obstruct or delay it. As noted by the Act, this process does not apply to a return of an object subject to NAGPRA by a museum as that term is defined in NAGPRA.

The Act formalizes an existing informal Interagency Working Group of staff from the Departments of Justice, State, Homeland Security, and the Interior. This subpart sets out the purpose and duties of that group.

The Act also creates a Native Working Group to provide recommendations to Federal agencies on certain areas in implementing the Act. Subpart G of the proposed rule sets out a proposed process for the Secretary to choose the members of the Native Working Group. Under that process, the Native Working Group would consist of thirteen members—one from each of the BIA's twelve regions, plus one representing Native Hawaiian organizations. The members would be nominated by Indian Tribes and Native Hawaiian organizations. Any Tribe or organization could nominate someone as a member of the Working Group, even if that Tribe or organization is not in the same region or State as the nominee. The proposed rule also provides for consideration by the Federal Government of requests from the Native Working Group for agency actions, with specific processes by the Departments of Justice and State, and for the Native Working Group to request information and assistance from Federal agencies, committees, and working groups.

Executive Order (E.O.) 12866, as amended by E.O. 14094, provides that the Office of Information and Regulatory Affairs (OIRA) at the Office of Management and Budget (OMB) will review all significant rules. OIRA has determined that this rule is significant.

E.O. 14094 amends E.O. 12866 and reaffirms the principles of E.O. 12866 and E.O. 13563 and states that that regulatory analysis should facilitate agency efforts to develop regulations that serve the public interest, advance statutory objectives, and be consistent with E.O. 12866, E.O. 13563, and the Presidential Memorandum of January 20, 2021 (Modernizing Regulatory Review). Regulatory analysis, as practicable and appropriate, shall recognize distributive impacts and equity, to the extent permitted by law.

E.O. 13563 reaffirms the principles of E.O. 12866 while calling for improvements in the nation's regulatory system to promote predictability, to reduce uncertainty, and to use the best, most innovative, and lease burdensome tools for achieving regulatory ends. E.O. 13563 directs agencies to consider regulatory approaches that reduce burdens and maintain flexibility and freedom of choice for the public where these approaches are relevant, feasible, and consistent with regulatory objectives. E.O. 13563 emphasizes further that regulations must be based on the best available science and that the rulemaking process must allow for public participation and an open exchange of ideas. The DOI has developed this rule in a manner consistent with these requirements.

In accordance with 5 U.S.C. 553(b)(4), a summary of this rule may be found at https://www.regulations.gov by searching for “RIN 1076-AF78.”

The Department certifies that this document would not have a significant economic effect on a substantial number of small entities under the Regulatory Flexibility Act (5 U.S.C. 601 et seq. ). For the final rule stage, DOI will prepare a final analysis using the public comments received. For the proposed rule stage, DOI welcomes additional data regarding anticipated compliance costs, and impacts to the annual revenues, for small entities.

The following table lists small business size standards, matched to industries described in the North American Industry Classification System (NAICS), as modified by the OMB, effective January 1, 2022, and published March 17, 2023 at https://www.sba.gov/document/support-table-size-standards:

DOI's preliminary threshold analysis included the small entity communities (and industries) for retailers and dealers listed in the above table. The proposed regulations would not have a significant economic impact on these small entities. During Tribal consultations held in fall 2023 on its draft proposed rule, DOI received feedback from stakeholders in these industries but did not receive any information or comments specific to the development of this preliminary threshold analysis. Consequently, DOI has developed a list of questions located at the end of this section to obtain more information from these small entity communities (and industries) for retailers and dealers to aid in further developing this analysis.

The rule DOI proposes creates a minimal burden on select market participants who voluntarily opt to participate in stopping the export of cultural items, and aid in facilitating the international repatriation of cultural items prohibited from being trafficked by the NAGPRA, and archeological resources prohibited from being trafficked by the ARPA. The burden on a participant includes the administrative fee DOI will assess and potentially an appraisal the IRS would require for cultural items that participants claim as a tax-deductible gift if they have a monetary value of $5,000.00 or more. The proposed regulations would not have an impact on a substantial number of these small entities. DOI's threshold analysis identified:

• no increase to regulatory compliance costs;

• no decreases to annual revenue;

• no increases to the risk of short-term or long-term insolvency; and

• no disproportional impacts to small businesses.

As this rule is required by the STOP Act, the Department considered no other alternatives to the proposed rule.

The Department is proposing new regulations to establish an export certification system, set forth procedures for detention of items subject to the rule and repatriation of those items, establish a framework for voluntary return of items subject to the rule, and establish interagency and Native working groups. The Preamble discusses the rationale for all the changes, which we assume will have no major economic effects, small business impacts, or distributional effects. Overall, the rule is expected to prevent the export of Native American cultural items that are held in violation of current Federal laws for sale in foreign countries; to repatriate such items from individuals and organizations having such items; and to improve coordination between Federal agencies, Indian Tribes, and Native Hawaiian organizations (NHOs) seeking to prevent the export and sale of such items.

This regulation will benefit Tribes, NHOs, and individuals who have their patrimony returned, and reduce future illegal trade in patrimony. This will also benefit buyers and sellers of items that qualify for certification, who can be confident of the legality of holding, trading, and owning these items.

Costs related to this regulation may include the time and fees potential exporters spend to obtain certification, higher prices for purchasers of these items (whether certified or not), and the time and expense required for Tribes and NHOs to participate in certification. There may also be costs for purchasers who make a voluntary return of items, and for Tribes and NHOs to receive and curate returned items. Under the Act, the Secretary may assess reasonable fees to process export certification applications and may collect fees to the extent and in the amounts provided in advance in appropriations Acts.

Distributional effects could depend on how fees collected from exporters are used. Distributional effects may be minimal if the fee is set solely to offset the Government costs of administering the program. Under proposed Section 1194.107(e), “if an Indian Tribe or Native Hawaiian organization lacks sufficient resources to access the database or respond to agency communications in a timely manner, the Secretary, in consultation with Indian Tribes and Native Hawaiian organizations, will provide technical assistance to facilitate that access or response, as applicable.” Thus, the Secretary will be able to lessen any distributional effects on Tribes and NHOs.

DOI currently lacks information to describe the baseline, or state of the world in the absence of the regulation. Some priority learning questions where we seek information include:

• What data or estimates do we have to describe the “without-regulation” baseline?

○ How many items are currently exported that will be subject to the regulation?

○ How many firms and individuals are currently engaged in this export?

• What will change as a result of the regulation?

○ Which groups will experience costs and benefits?

○ How can we quantify and value those costs and benefits?

○ What are time and monetary costs of complying with the regulation for the individuals and groups involved?

• What are the likely effects for exporters applying for certification?

○ What are likely scenarios for the proportion of compliant and non-compliant exporters?

• What are the likely effects for purchasers completing a voluntary return?

• What are the roles of Tribes and NHOs in verifying certifications?

• What is the role of Federal government staff?

This rule would not impose an unfunded mandate on State, local, or Tribal governments or the private sector of more than $100 million per year. The rule would not have a significant or unique effect on State, local, or Tribal governments or the private sector because this rule affects only putative exporters and their related businesses. A statement containing the information required by the Unfunded Mandates Reform Act (2 U.S.C. 1531 et seq. ) is not required.

This rule would not affect a taking of private property or otherwise have taking implications under E.O. 12630. A takings implication assessment is not required.

Under the criteria in section 1 of E.O. 13132, this rule would not have sufficient federalism implications to warrant the preparation of a federalism summary impact statement. A federalism summary impact statement is not required.

This rule complies with the requirements of E.O. 12988. Specifically, this rule: (a) meets the criteria of section 3(a) requiring that all regulations be reviewed to eliminate errors and ambiguity and be written to minimize litigation; and (b) meets the criteria of section 3(b)(2) requiring that all regulations be written in clear language and contain clear legal standards.

The Department of the Interior strives to strengthen its government-to-government relationship with Indian Tribes through a commitment to consultation with Indian Tribes and recognition of their right to self-governance and Tribal sovereignty. We have evaluated this rule under the Department's consultation policy and under the criteria in E.O. 13175 and have hosted extensive consultation with federally recognized Indian Tribes in preparation of this proposed rule, including through a Dear Tribal Leader letter delivered to every federally recognized Tribe in the country, and through three consultation sessions held on May 9, 13, and 23, 2022.

This proposed rule contains new information collections. All information collections require approval under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq. ). We may not conduct or sponsor and you are not required to respond to a collection of information unless it displays a currently valid Office of Management and Budget (OMB) control number. The Department is seeking approval of a new information collection, as follows.

Brief Description of Collection: The Act requires the Department to promulgate regulations to implement the Native Working Group; export certification application and issuance procedures; and secure central Federal database information system for the purpose of making export certification applications available to Indian Tribes and Native Hawaiian organizations. We estimate that the annual cost to the Federal Government to administer this information collection is $3,000,000.

Title: Export Certification System, 25 CFR 1194.

OMB Control Number: 1076-NEW.

Form Number: Export Certification Application.

Type of Review: New collection.

Respondents/Affected Public: Individuals, Private Sector, Government.

Total Estimated Number of Annual Respondents: 122.

Total Estimated Number of Annual Responses: 122.

Estimated Completion Time per Response: Varies from 2 to 18 hours.

Total Estimated Number of Annual Burden Hours: 2,504.

Respondents' Obligation: Required to obtain a benefit.

Frequency of Response: On occasion.

Total Estimated Annual Non-Hour Burden Cost: $50,044.

As part of our continuing effort to reduce paperwork and respondent burdens, we invite the public and other Federal agencies to comment on any aspect of this information collection, including:

(1) Whether or not the collection of information is necessary for the proper performance of the functions of the agency, including whether or not the information will have practical utility;

(2) The accuracy of our estimate of the burden for this collection of information, including the validity of the methodology and assumptions used;

(3) Ways to enhance the quality, utility, and clarity of the information to be collected; and

(4) Ways to minimize the burden of the collection of information on those who are to respond, including through the use of appropriate automated, electronic, mechanical, or other technological collection techniques or other forms of information technology, e.g., permitting electronic submission of response.

Written comments and recommendations for the proposed information collection should be sent within 30 days of publication of this notice to https://www.reginfo.gov/public/do/PRAMain.

Find this particular information collection by selecting “Currently under 30-day Review—Open for Public Comments” or by using the search function. Please provide a copy of your comments to consultation@bia.gov. Please reference OMB Control Number 1076-NEW in the subject line of your comments.

Under NEPA, categories of Federal actions that normally do not significantly impact the human environment may be categorically excluded from the requirement to prepare an environmental assessment or impact statement. (40 CFR 1501.4) Under the Department, regulations that are administrative or procedural are categorially excluded from NEPA analysis because they normally do not significantly impact the human environment. (43 CFR 46.210(i)) This rule is administrative and procedural in nature. Consequently, it is categorically excluded from the NEPA requirement to prepare a detailed environmental analysis. Further, the Department also determined that the rule would not involve any of the extraordinary circumstances under a categorical exclusion that would necessitate environmental analysis. (43 CFR 46.215.)

This rule is not a significant energy action under the definition in E.O. 13211. A Statement of Energy Effects is not required.

We are required by Executive Orders 12866 (section 1(b)(12)), 12988 (section 3(b)(l)(B)), and 13563 (section l(a)), and by the Presidential Memorandum of June 1, 1998, to write all rules in plain language. This means that each rule we publish must:

(a) Be logically organized;

(b) Use the active voice to address readers directly;

(c) Use common, everyday words and clear language rather than jargon;

(d) Be divided into short sections and sentences; and

(e) Use lists and tables wherever possible.

If you feel that we have not met these requirements, send us comments by one of the methods listed in the ADDRESSES section. To better help us revise the rule, your comments should be as specific as possible. For example, you should tell us the numbers of the sections or paragraphs that you find unclear, which sections or sentences are too long, the sections where you feel lists or tables would be useful, and so forth.

Before including your address, phone number, email address, or other personal identifying information in your comment, you should be aware that your entire comment—including your personal identifying information—may be made publicly available at any time. While you can ask us in your comment to withhold your personal identifying information from public review, we cannot guarantee that we will be able to do so.

Public Law 117-258: There is authorized to be appropriated to carry out this Act $3,000,000 for each of fiscal years 2022 through 2027.

The Privacy Act of 1974, as amended, embodies fair information practice principles in a statutory framework governing the means by which Federal agencies collect, maintain, use, and disseminate individuals' records. The Privacy Act applies to records about individuals that are maintained in a “system of records.” A “system of records” is a group of any records under the control of an agency from which information is retrieved by the name of an individual or by some identifying number, symbol, or other identifying particular assigned to the individual. The Privacy Act defines an individual as a United States citizen or lawful permanent resident. The Privacy Act requires each agency to publish in the Federal Register a description denoting the existence and character of each system of records that the agency maintains, and the routine uses of each system.

This proposed rule contains recordkeeping requirements subject to the Privacy Act. The Department will publish in the Federal Register a description denoting the existence and character of system of record, and the routine uses of the system.

This notice of proposed rulemaking contains proposed amendments to the Income Tax Regulations (26 CFR part 1) that would implement section 25C of the Internal Revenue Code (Code), as amended by section 13301 of Public Law 117-169, 136 Stat. 1818, 1941 (August 16, 2022), commonly known as the Inflation Reduction Act of 2022 (IRA). The proposed additions are issued by the Secretary of the Treasury or her delegate (Secretary) under the authority granted under sections 25C(b)(6)(B) and (h)(3), and 7805(a) of the Code (proposed regulations).

Section 25C(b)(6)(B) provides a specific delegation of authority related to the substantiation requirement for home energy audits: “No credit shall be allowed under this section by reason of subsection (a)(3) unless the taxpayer includes with the taxpayer's return of tax such information or documentation as the Secretary may require.” Section 25C(h)(3), as applicable to property placed in service after December 31, 2024, provides specific delegations of authority to the Secretary related to the product identification number requirement that must be satisfied by qualified manufacturers, including the authority to enter into an agreement with a manufacturer that provides “that such manufacturer will . . . assign a product identification number to each item of specified property produced by such manufacturer utilizing a methodology that will ensure that such number (including any alphanumeric) is unique to each such item (by utilizing numbers or letters which are unique to such manufacturer or by such other method as the Secretary may provide), . . . label such item with such number in such manner as the Secretary may provide, and . . . make periodic written reports to the Secretary (at such times and in such manner as the Secretary may provide) of the product identification numbers so assigned and including such information as the Secretary may require with respect to the item of specified property to which such number was so assigned.” Finally, section 7805(a) authorizes the Secretary to prescribe all needful rules and regulations for the enforcement of the Code.

Congress originally enacted section 25C of the Code in section 1333(a) of the Energy Policy Act of 2005, Public Law 109-58, 119 Stat. 594, 1026 (August 8, 2005), to provide a “nonbusiness energy property credit” for the purchase and installation of certain energy efficient improvements in a taxpayer's principal residence. Congress has amended section 25C several times, most recently by section 13301 of the IRA, which renamed this provision the “energy efficient home improvement credit.”

Former section 25C expired with respect to any property placed in service after December 31, 2021. Section 13301(i) of the IRA provides that except as otherwise provided in section 13301(i)(2) and (3), the IRA amendments to section 25C apply to property placed in service after December 31, 2022. Section 13301(i)(2) of the IRA provides that the amendments made by section 13301(a) of the IRA apply to property placed in service after December 31, 2021. Section 13301(a) of the IRA extended the credit allowed under section 25C with respect to any property placed in service through December 31, 2032. Section 13301(i)(3) of the IRA provides that the amendments made by section 13301(g) of the IRA apply to property placed in service after December 31, 2024. Section 13301(g) of the IRA amended section 25C by redesignating former subsection (h) as subsection (i) and inserting a new subsection (h) (described in part I.C. of this Background).

Section 25C, as amended by section 13301(b) and (f) of the IRA, allows an individual taxpayer (taxpayer) a credit for the taxable year (section 25C credit) equal to 30 percent of the total amount paid or incurred by the taxpayer during such taxable year for qualified energy efficiency improvements installed during such taxable year, residential energy property expenditures, and home energy audits.

As amended by section 13301(c) of the IRA, the amount of the section 25C credit generally is limited under section 25C(b)(1) to $1,200 with respect to any taxpayer for any taxable year. Within this $1,200 limitation, section 25C(b) sets forth further annual limitations for certain categories of improvements. Section 25C(b)(2) provides that the credit allowed under section 25C(a)(2) is limited to $600 with respect to any taxpayer for any taxable year with respect to any item of qualified energy property. Section 25C(b)(3) provides that the credit allowed under section 25C(a)(1) with respect to any taxpayer for any taxable year is limited to $600 in the aggregate with respect to all exterior windows and skylights. Section 25C(b)(4) provides that the credit allowed under section 25C(a)(1) with respect to any taxpayer for any taxable year is limited to $250 in the case of any exterior door and $500 in the aggregate with respect to all exterior doors. Section 25C(b)(6) limits the credit allowed under section 25C(a)(3) for a home energy audit to $150.

Additionally, notwithstanding the general $1,200 annual limitation (and its internal limitations), section 25C(b)(5) provides that the credit allowed under section 25C(a)(2) with respect to any taxpayer for any taxable year is limited to $2,000 in the aggregate with respect to amounts paid or incurred for an electric or natural gas heat pump water heater described in section 25C(d)(2)(A)(i), an electric or natural gas heat pump described in section 25C(d)(2)(A)(ii), and a biomass stove or boiler described in section 25C(d)(2)(B).

Therefore, a taxpayer could claim a total section 25C credit of $3,200, if the taxpayer has sufficient expenditures in categories of property (or a home energy audit) subject to the $1,200 limitation and in categories of property subject to the $2,000 limitation.

Section 25C(c)(1) provides that the term “qualified energy efficiency improvements” means any “energy efficient building envelope component” if such component is installed in or on a dwelling unit located in the United States and owned and used by the taxpayer as the taxpayer's principal residence (within the meaning of section 121 of the Code), the original use of such component commences with the taxpayer, and such component reasonably can be expected to remain in use for at least 5 years. Section 25C(c)(2) provides that the term “energy efficient building envelope component” means a building envelope component that meets certain energy efficiency requirements. Section 25C(c)(3) provides that the term “building envelope component” means any insulation material or system, including air sealing material or system, which is specifically and primarily designed to reduce the heat loss or gain of a dwelling unit when installed in or on such dwelling unit, exterior windows (including skylights), and exterior doors.

Section 25C(d)(1) provides that the term “residential energy property expenditures” means expenditures made by the taxpayer for “qualified energy property” that is installed on or in connection with a dwelling unit located in the United States and used as a residence by the taxpayer, and that is originally placed in service by the taxpayer. Section 25C(d)(1) also provides that residential energy property expenditures include expenditures for labor costs properly allocable to the onsite preparation, assembly, or original installation of the property. Section 25C(d)(2) provides that the term “qualified energy property” means several categories of property that satisfy certain energy efficiency standards and other requirements.

Section 25C(h) provides that no section 25C credit is allowed with respect to any item of specified property (as further described in part II.D. of this Background) that is placed in service after December 31, 2024, unless the item of specified property is produced by a “qualified manufacturer” (QM) and the taxpayer includes the “qualified product identification number” (PIN) of the item of specified property on the tax return for the taxable year (PIN requirements). Section 25C(h)(2) provides that the term “qualified product identification number” means, with respect to any item of specified property, the product identification number assigned to such item by the QM pursuant to the methodology referred to in section 25C(h)(3).

Section 25C(h)(3) provides that the term “qualified manufacturer” means any manufacturer of specified property that enters into an agreement with the Secretary that provides that such manufacturer will: (1) assign a product identification number to each item of specified property produced by such manufacturer, using a methodology that will ensure that such number (including any alphanumeric) is unique to each such item, by using numbers or letters unique to such manufacturer or by such other method as the Secretary may provide (PIN assignment requirement); (2) label such item with such product identification number in such manner as the Secretary may provide (PIN labeling requirement); and (3) make periodic written reports to the Secretary (at such times and in such manner as the Secretary may provide) of the product identification numbers so assigned and including such information as the Secretary may require with respect to the items of specified property to which such product identification numbers were so assigned (periodic written report requirement). The PIN assignment requirement, the PIN labeling requirement, and the periodic written report requirement are collectively referred to as the “QM PIN requirements” in this preamble.

The proposed regulations aim to provide certainty to manufacturers that want to become QMs and taxpayers who want to claim the section 25C credit, to provide flexibility to manufacturers complying with the QM PIN requirements and taxpayers including PINs on their tax returns, and to facilitate effective administrability of these requirements by the IRS.

Section 25C(h)(4) provides that the term “specified property” means any qualified energy property and any property described in section 25C(c)(3)(B) (exterior windows, including skylights) or (C) (exterior doors).

Section 25C(d)(2) provides that the term “qualified energy property” means any of the following:

(A) Any of the following that meet or exceed the highest efficiency tier (not including any advanced tier) established by the Consortium for Energy Efficiency that is in effect as of the beginning of the calendar year in which the property is placed in service: (i) an electric or natural gas heat pump water heater, (ii) an electric or natural gas heat pump, (iii) a central air conditioner, (iv) a natural gas, propane, or oil water heater, and (v) a natural gas, propane, or oil furnace or hot water boiler.

(B) A biomass stove or boiler that (i) uses the burning of biomass fuel to heat a dwelling unit located in the United States and used as a residence by the taxpayer, or to heat water for use in such a dwelling unit, and (ii) has a thermal efficiency rating of at least 75 percent (measured by the higher heating value of the fuel).

(C) Any oil furnace or hot water boiler that (i) is placed in service after December 31, 2022, and before January 1, 2027, and (I) meets or exceeds 2021 Energy Star certified efficiency criteria, and (II) is rated by the manufacturer for use with fuel blends at least 20 percent of the volume of which consists of an eligible fuel (defined in section 25C(d)(3)) (eligible fuel), or (ii) is placed in service after December 31, 2026, and (I) achieves an annual fuel utilization efficiency rate of not less than 90, and (II) is rated by the manufacturer for use with fuel blends at least 50 percent of the volume of which consists of an eligible fuel.

(D) Any improvement to, or replacement of, a panelboard, sub-panelboard, branch circuits, or feeders that (i) is installed in a manner consistent with the National Electric Code, (ii) has a load capacity of not less than 200 amps, (iii) is installed in conjunction with (I) any qualified energy efficiency improvements, or (II) any qualified energy property described in section 25C(d)(2)(A) through (C) for which a credit is allowed under section 25C for expenditures with respect to such property, and (iv) enables the installation and use of any qualified energy efficiency improvements or any qualified energy property described in section 25C(d)(2)(A) through (C) for which a credit is allowed under section 25C for expenditures with respect to such property.

On October 24, 2022, the Treasury Department and the IRS published Notice 2022-48, 2022-43 I.R.B. 316, which included requests for comments on the amendments to section 25C by section 13301 of the IRA. Specific to section 25C(h), Notice 2022-48 requested comments on what the Treasury Department and the IRS should consider (1) in determining the manner of agreements between the IRS and a QM, (2) in developing a methodology to ensure that each PIN is unique to each item of specified property, (3) in prescribing the manner by which specified property must be labeled with a unique PIN, and (4) in developing the requirements for QM periodic written reports.

On August 21, 2023, the Treasury Department and the IRS published Notice 2023-59, 2023-34 I.R.B. 564, which provided, in part, requirements related to home energy audits under section 25C(a)(3) intended to be included in forthcoming proposed regulations. Section 1 of Notice 2023-59 provided that until the issuance of the forthcoming proposed regulations, taxpayers may rely on the rules described in sections 3 through 6 of Notice 2023-59. As discussed further in part II of the Explanation of Provisions section of this preamble, taxpayers may continue to rely on the rules described in section 3 through 6 of Notice 2023-59 after the issuance of the proposed regulations to satisfy the substantiation requirement of section 25C(b)(6)(B).

On January 9, 2024, the Treasury Department and the IRS published Notice 2024-13, 2024-05 I.R.B. 618. Notice 2024-13 discussed comments related to the PIN requirements received in response to Notice 2022-48.

Some commenters to Notice 2022-48 suggested using existing numbering systems to satisfy the QM PIN requirements. For example, commenters suggested that manufacturers could use existing product serial numbers to satisfy the PIN assignment requirement. Manufacturers routinely assign serial numbers to specific items, which purportedly achieves the specificity suggested by the statutory text. However, as Notice 2024-13 explained, the systems that manufacturers employ to assign serial numbers are insufficient for the QM PIN requirements because they are not uniform by product or manufacturer in length, format, or in other respects. These differences would create processing challenges for the IRS and could cause confusion for consumers claiming the section 25C credit. Additionally, some manufacturers change their serial numbers for products over time.

Some commenters to Notice 2022-48 suggested that manufacturers could employ stock-keeping unit numbers (SKUs) to satisfy the QM PIN requirements. However, as Notice 2024-13 explained, SKUs generally reflect the product line of a merchant or manufacturer but are not specific to the unique items of property themselves. Accordingly, serial numbers and SKUs would not constitute satisfactory PINs for the QM PIN requirements.

Similarly, certain categories of products, such as exterior windows, skylights, and exterior doors currently do not have unique serial numbers for each such product manufactured but instead are assigned numbers that identify multiple windows, skylights, or doors as belonging to a specific product line of such items.

Other commenters to Notice 2022-48 suggested using product line numbers or universal product codes (UPCs) to satisfy the QM PIN requirements. Regarding product line numbers, some commenters pointed to the National Fenestration Rating Council's (NFRC) Certified Product Directory for exterior windows, doors, and skylights. However, as explained in Notice 2024-13, because the NFRC system assigns the same number to multiple (or all) items in a specific product line, these numbers would not provide the specificity needed to satisfy the QM PIN requirements. Similarly, UPCs are a multi-character code assigned to products by manufacturers. Manufacturers and others employ UPCs for tracking and selling inventory. Like the NFRC numbers, however, UPCs generally are assigned per product type, and not per specific item. While UPCs can vary based on product differences, they too would not provide the specificity required by the statute. In addition, because many products would bear the same UPC or NFRC number, these numbering conventions would not satisfy the purposes of section 25C(h), which aims to prevent duplicate or fraudulent claims for the section 25C credit for the same item of specified property.

Notice 2024-13 outlined a proposed PIN system that would require manufacturers to register with the IRS as QMs and to assign 17-digit PINs (made up of four parts, discussed further in part IV.B. of the Explanation of Provisions of this preamble) to specified property. Under Notice 2024-13, QMs also would be required to label their products with a unique individual PIN, furnish the PINs (directly or indirectly) to consumers to report on their tax returns when claiming a section 25C credit, and file with the IRS periodic lists of PINs assigned by the QM.

Finally, Notice 2024-13 requested comments on several questions to help inform the development of rules governing the QM PIN requirements. Notice 2024-13 asked manufacturers to detail the different items of specified property that they produce and whether they maintain a universal system for assigning unique identification numbers to items of property. The notice also requested comments on a proposed PIN assignment system.

All comments to Notice 2024-13 have been considered in developing the proposed regulations.

The proposed regulations would provide general guidance on the section 25C credit, including what property qualifies for the section 25C credit and what limitations apply. The proposed regulations would also provide a safe harbor for certain property that is installed in conjunction with, and enables the installation and use of, other property (see the discussion of enabling property and enabled property in part I.A. of the Explanation of Provisions section of this preamble).

In addition to the proposed regulations, the Treasury Department and the IRS are issuing Revenue Procedure 2024-31, which provides the procedures that manufacturers must follow to become QMs and requirements to comply with the QM PIN requirements. See part IV of the Explanation of Provisions section of this preamble for further discussion of Revenue Procedure 2024-31.

Proposed § 1.25C-1(a) would provide an overview of the proposed regulations. Proposed § 1.25C-1(b) would provide definitions that apply for purposes of section 25C and the proposed regulations. While most of the definitions would mirror those in the statute, proposed § 1.25C-1(b) also would provide definitions of additional key terms. These terms are described in this section.

Proposed § 1.25C-1(b)(5) and (6) would introduce and define the terms “enabled property” and “enabling property,” which are derived from section 25C(d)(2)(D)(iv). Qualified energy property under section 25C(d)(2)(D) includes any improvement to, or replacement of, a panelboard, sub-panelboard, branch circuits, or feeders, that, among other requirements, is installed in conjunction with any qualified energy efficiency improvements or any other type of qualified energy property for which a section 25C credit is allowed, and enables the installation and use of such property. To simplify these rules, the proposed regulations would refer to such improvement to, or replacement of, a panelboard, sub-panelboard, branch circuits, or feeders under section 25C(d)(2)(D) as “enabling property,” and the property the enabling property is installed in conjunction with as “enabled property.”

Section 25C(c)(2)(A), (B), and (d)(2)(C)(i)(I) refer to “Energy Star,” and section 25C(c)(2)(C) refers to the “International Energy Conservation Code standard.” Under section 25C(c)(2)(A), exterior windows and skylights are not qualified energy efficiency improvements unless they meet Energy Star certified most efficient certification requirements. Under section 25C(c)(2)(B), exterior doors are not qualified energy efficiency improvements unless they meet applicable Energy Star certified requirements. Under section 25C(d)(2)(C)(i)(I), oil furnaces and hot water boilers are not qualified energy property unless they meet or exceed 2021 Energy Star certified efficiency criteria. Under section 25C(c)(2)(C), building envelope components other than exterior windows, skylights, and exterior doors are not qualified energy efficiency improvements unless they meet the prescriptive criteria for such components established by the most recent International Energy Conservation Code standard in effect as of the beginning of the calendar year that is 2 years prior to the calendar year in which such component is placed in service.

Proposed § 1.25C-1(b)(8) and (11) would define Energy Star and the International Energy Conservation Code standard. Energy Star is a labeling and rating program administered by the U.S. Environmental Protection Agency (EPA) that helps consumers identify energy- efficient property. Taxpayers can find out more about Energy Star, including the specific climate zones, at https://www.energystar.gov.

The term “International Energy Conservation Code standard” as used in section 25C(c)(2)(C) refers to the version of the International Energy Conservation Code in effect for a particular year. The International Energy Conservation Code is a building code established by the International Code Council that sets minimum conservation requirements for new buildings. The version in effect as of the beginning of the calendar year 2 years prior to the 2023 calendar year ( i.e., the first year to which the IRA amendments to section 25C apply) would be the 2021 version. The 2021 and later versions of the International Energy Conservation Code can be found at https://iccsafe.org (select “Codes” at the top of the home page). Subsequent versions of the International Energy Conservation Code will take effect two years after their publication and following a positive determination from the U.S. Secretary of Energy, which can be found at https://www.energycodes.gov/determinations.

Section 25C(d)(2)(B) provides that qualified energy property includes a biomass stove or boiler that (i) uses the burning of biomass fuel to heat a dwelling unit located in the United States and used as a residence by the taxpayer, or to heat water for use in such a dwelling unit, and (ii) has a thermal efficiency rating of at least 75 percent (measured by the higher heating value of the fuel). Proposed § 1.25C-1(b)(17) would describe a biomass stove or boiler under the definition of qualified energy property exactly as provided in section 25C(d)(2)(B), but with the addition of “as determined by the U.S. Environmental Protection Agency for wood stoves.” This addition would explain how a taxpayer must determine the thermal efficiency rating under section 25C(d)(2)(B)(ii). The EPA maintains an online database that provides information regarding the thermal efficiency of wood stoves. Adopting this source as a means of determining the thermal efficiency rating of biomass stoves or boilers would provide uniformity and simplicity for such measurements.

Section 25C includes the terms “placed in service,” “originally placed in service,” and “original use.”

Under section 25C(c)(2)(C), building envelope components other than exterior windows, skylights, and exterior doors are not qualified energy efficiency improvements unless they meet the prescriptive criteria for such components established by the most recent International Energy Conservation Code standard in effect as of the beginning of the calendar year that is 2 years prior to the calendar year in which such components are placed in service. Whether certain types of property are qualified energy property under section 25C(d)(2)(A) and (C) depends in part on when such property is placed in service. The PIN requirements under section 25C(h) apply to specified property placed in service after December 31, 2024. More broadly, the IRA extended the section 25C credit with respect to any property placed in service through December 31, 2032.

Under section 25C(d)(1)(B), residential energy property expenditures must be for qualified energy property originally placed in service by the taxpayer. Under section 25C(c)(1)(B), the original use of any energy efficient building envelope component must commence with the taxpayer.

In considering the definition of the term “placed in service” under section 25C, two sets of rules were considered. First, § 1.167(a)-10(b) generally provides that the period for depreciation of an asset begins when the asset is placed in service and ends when the asset is retired from service. Section 1.167(a)-11 provides general depreciation rules based on class lives and asset depreciation ranges for property placed in service after December 31, 1970. Many of the depreciation rules in § 1.167(a)-11 apply when the property is “first placed in service.” Section 1.167(a)-11(e)(1) defines the term “first placed in service,” in part, as the time the property is “first placed in a condition or state of readiness and availability for a specifically assigned function,” including in a personal activity. Section 1.167(a)-11(e)(1) provides that the provisions of § 1.46-3(d)(1)(ii) and (2), relating to the investment credit, generally apply for the purpose of determining the date on which property is “placed in service.” Section 1.46-3(d)(1)(ii) and (2) provides, in part, that property is considered placed in service in the taxable year in which the property is placed in a condition or state of readiness and availability for a specifically assigned function, including in a personal activity.

Second, recently published regulations under section 25E (relating to previously-owned clean vehicles) and section 30D (relating to new clean vehicles) define “placed in service” as the date the taxpayer takes possession of the vehicle. See §§ 1.25E-1(b)(10) and 1.30D-2(b)(36). This possession-based standard is not appropriate for the definition of placed in service for purposes of the section 25C credit. Defining “placed in service” as the date the taxpayer takes possession of qualified energy efficiency improvements or qualified energy property (together, section 25C property) is contrary to the intent of section 25C, because the energy efficiency of a dwelling unit cannot be improved until the section 25C property is installed. Accordingly, proposed § 1.25C-1(b)(15) would adopt the definition of placed in service in § 1.46-3(d)(1)(ii) as the date on which the section 25C property is placed in a condition or state of readiness and availability for its specifically assigned function.

The determination of whether property is in a condition or state of readiness and availability for its specifically designed function is factual and has been the subject of many administrative rulings and court cases concerning other Code sections. Because installing section 25C property usually will result in the property being ready and available for its specifically assigned function, it is anticipated that installation and placed in service will be synonymous in most cases. Nonetheless, comments are requested on potential circumstances under which installation of section 25C property may be insufficient to consider it placed in service.

Regarding the requirement that qualified energy property be “originally placed in service” by the taxpayer for purposes of residential energy property expenditures under section 25C(d)(1)(B), § 1.167(a)-11(e)(1) clarifies that the term “first placed in service” refers to the time the property is first placed in service by the taxpayer, not to the first time the property is placed in service. In contrast, section 25C uses the terms “originally placed in service” and “original use.” Section 25C property can only be “originally” placed in service, or “originally” used, once; thus, such property must be new. Accordingly, proposed § 1.25C-1(b)(13) would define “originally placed in service” to refer to the first time property is placed in service, whether or not by the taxpayer, and “original use” to refer to the first use to which the property is put or will be put, whether or not that use corresponds or will correspond to the use of property by the taxpayer.

The definitions of the terms “originally placed in service” and “original use” in the proposed regulations are intended to require that section 25C property be new and not used. These definitions would provide simplicity and clarity for taxpayers and manufacturers.

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

Proposed § 1.25C-2 would provide general rules regarding the section 25C credit, including how to calculate the credit, what limitations apply, and the effect of certain cross-referenced Code sections on the credit.

Proposed § 1.25C-2(a) would provide the general rule that, subject to certain limitations and rules, section 25C allows a taxpayer a credit for the taxable year equal to 30 percent of the total amount paid or incurred by the taxpayer during such taxable year for qualified energy efficiency improvements installed during such taxable year, residential energy property expenditures, and home energy audits.

Proposed § 1.25C-2(b) would provide limitations on the amount of the section 25C credit. Consistent with section 25C(b)(1), proposed § 1.25C-2(b)(1) would provide that the section 25C credit generally is limited to $1,200 with respect to any taxpayer for any taxable year. Consistent with section 25C(b)(2), (3), and (4), the proposed regulations would provide additional annual limits for certain categories of property within this $1,200 limit. Proposed § 1.25C-2(b)(2)(i) would provide that the credit allowed under section 25C(a)(2) is limited to $600 with respect to any taxpayer for any taxable year with respect to any item of qualified energy property. Proposed § 1.25C-2(b)(3) and (4) would provide that the credit allowed under section 25C(a)(1) with respect to any taxpayer for any taxable year is limited to $600 in the aggregate with respect to all exterior doors and skylights, $250 in the case of any exterior door, and $500 in the aggregate with respect to all exterior doors. Consistent with section 25C(b)(6), proposed § 1.25C-2(b)(5) would provide that the credit allowed under section 25C(a)(3) for a home energy audit is limited to $150. Concerning the substantiation requirement of section 25C(b)(6)(B), taxpayers may continue to rely on the rules described in section 3 through 6 of Notice 2023-59.

Consistent with section 25C(b)(5), and notwithstanding the general $1,200 annual limitation (and its internal, lower limitations), proposed § 1.25C-2(b)(2)(ii) would provide that the credit allowed under section 25C(a)(2) with respect to any taxpayer for any taxable year is limited to $2,000 in the aggregate with respect to amounts paid or incurred for an electric or natural gas heat pump water heater described in section 25C(d)(2)(A)(i), an electric or natural gas heat pump described in section 25C(d)(2)(A)(ii), and a biomass stove or boiler described in section 25C(d)(2)(B).

Proposed § 1.25C-2(c) would provide examples that illustrate the operations of proposed § 1.25C-2(a) and (b).

Proposed § 1.25C-2(d) would provide rules consistent with section 25C(f)(1), which provides that rules similar to the rules in section 25D(e)(4) through (8) apply for purposes of section 25C. Proposed § 1.25C-2(d) would provide that, consistent with sections 25C(f)(1) and 25D(e)(8)(A), a taxpayer's expenditure for an item of property would be treated as made when the original installation of the item is completed.

Proposed § 1.25C-2(e)(1) would provide rules consistent with sections 25C(f)(1) and 25D(e)(8) regarding expenditures made in connection with the reconstruction of or an addition to a dwelling unit. In general, such expenditures would be treated as paid or incurred when the taxpayer's use of the reconstructed or post-addition dwelling unit begins. These rules also would require taxpayers to maintain records that itemize the amount paid or incurred for each item of section 25C property in connection with the reconstruction or addition.

Proposed § 1.25C-2(e)(1) would not allow expenditures made in connection with the original construction of a dwelling unit to be eligible for the section 25C credit. Section 25C allows a credit for improving a dwelling unit by adding section 25C property to it or preparing a home energy audit with respect to the dwelling unit. The dwelling unit must be owned and used by the taxpayer as the principal residence under section 25C(a)(1), owned or used by the taxpayer as the principal residence under section 25C(a)(3), or used by the taxpayer as a residence under section 25C(a)(2). Section 25C property must be installed in or on a dwelling unit under section 25C(c)(1)(A) or installed on or in connection with a dwelling unit under section 25C(d)(1)(A). Section 25C property must be originally placed in service under section 25C(d)(1)(B) or originally used by the taxpayer under section 25C(c)(1)(B). The language used in these provisions to refer to the dwelling unit supports the Treasury Department and the IRS's view that the best reading of section 25C is to allow a credit only for improvements to an existing dwelling unit. Section 25C property must be installed on or in (or in connection with) the taxpayer's “residence,” and a dwelling unit cannot be a taxpayer's residence until the taxpayer resides in it. As the final requirement for section 25C property, the taxpayer must originally place in service or originally use section 25C property; the taxpayer is the person who owns or uses the dwelling unit, which in most cases would not be the person who originally constructed the dwelling unit. This interpretation is consistent with the description of former section 25C by the Joint Committee on Taxation in Description Of Energy Tax Changes Made By Public Law 117-169, which refers to the section 25C credit being available “for the purchase of qualified energy efficiency improvements to existing homes.” JCX-5-23, 36 (April 17, 2023). This interpretation is also consistent with prior guidance provided by the IRS. See Notice 2013-70, 2013-47 I.R.B. 528 (“A taxpayer can claim the § 25C credit only for qualifying expenditures incurred for an existing home or for an addition or renovation to an existing home, and not for a newly constructed home”); Notice 2009-53, 2009-25 I.R.B. 1095, 1097 (“[T]he [section 25C] credit is only available for existing homes.”). Comments are requested on the proposed exclusion of expenditures made in connection with the original construction of a dwelling unit for purposes of the section 25C credit.

Proposed § 1.25C-2(f) would provide rules governing joint occupancy of a dwelling unit, tenant-stockholders in cooperative housing, and members of a condominium management association. Section 25C(f)(2)(A) generally provides that any expenditure otherwise qualifying as an expenditure under section 25C will not be treated as failing to so qualify merely because such expenditure was made with respect to two or more dwelling units. Consistent with sections 25C(f)(1) and 25D(e)(4), proposed § 1.25C-2(f)(1) would provide that, in the case of any dwelling unit that is jointly occupied and used during the calendar year as a principal residence by two or more taxpayers, the expenditures allocated to any taxpayer for the taxable year in which such calendar year ends is the amount paid or incurred by such taxpayer for section 25C property with respect to such dwelling unit during such calendar year.

Consistent with sections 25C(f)(1) and 25D(e)(5), proposed § 1.25C-2(f)(2) would provide that in the case of a taxpayer who is an individual tenant-stockholder in a cooperative housing corporation, for purposes of the section 25C credit, such taxpayer would be treated as having paid or incurred the taxpayer's proportionate share of any amounts paid or incurred by such corporation for section 25C property. Non-individual tenant-stockholders may not claim the section 25C credit. Proposed § 1.25C-2(f)(2) looks to section 216(b)(3) to determine each tenant-stockholder's proportionate share, which generally would be the proportion which the stock of the cooperative housing corporation owned by the tenant-stockholder is of the total outstanding stock of the corporation (including any stock held by the corporation).

Consistent with sections 25C(f)(1) and 25D(e)(6), proposed § 1.25C-2(f)(3) would provide that a taxpayer who is a member of a condominium management association with respect to a condominium dwelling unit owned by the taxpayer would be treated as having paid or incurred the taxpayer's proportionate share of the condominium management association's expenditures for section 25C property. Proposed § 1.25C-2(f)(3) would provide a reasonableness standard to determine each individual's proportionate share. While section 25D uses the term “proportionate share” for both cooperatives and condominiums, the definition of “proportionate share” in section 216(b)(3) that applies to cooperative housing corporations cannot apply to condominiums because they do not have shares of stock to determine proportionate shares. Sections 25C, 25D, and 528 do not otherwise define proportionate share for condominiums.

The Treasury Department and the IRS recognize that condominiums are governed largely by boards of directors (or similar bodies) that are subject to State and local laws, and generally operate according to organizational documents. Accordingly, proposed § 1.25C-2(f)(3) would provide that an individual dwelling unit owner's proportionate share of condominium expenses is determined using any reasonable and consistent method. The proposed regulations would further require that the condominium's governing body must develop reasonable procedures to notify individuals of their allocable shares of these expenditures, and of the PINs associated with the specified property. The Treasury Department and the IRS request comments on the definition of proportionate share for condominiums.

Finally, proposed § 1.25C-2(g) would provide, consistent with sections 25C(f)(1) and 25D(e)(7), that if less than 80 percent of the use of an item of property is for nonbusiness purposes, only that portion of the expenditures with respect to such item that is properly allocable to use for nonbusiness purposes can be taken into account for purposes of calculating the section 25C credit.

Proposed § 1.25C-3 would provide a special rule regarding enabling property and the requirement that it be installed in conjunction with, and enable the installation and use of, enabled property under section 25C(d)(2)(D)(iii) and (iv). The Treasury Department and the IRS understand that there may be circumstances where enabling and enabled property cannot be installed in the same taxable year. For example, a taxpayer or third-party installer may not know of the need for an upgrade to a panelboard at the time that enabled property is installed. Alternatively, the installer may not have enabling property available when the enabled property is installed (but the enabled property is otherwise functional).

Proposed § 1.25C-3 would provide a general rule and a safe harbor. Proposed § 1.25C-3(b)(1) would provide that enabling property would be considered to have been installed in conjunction with enabled property if it was installed in the same taxable year as the enabled property was installed. Proposed § 1.25C-3(b)(2) would provide a safe harbor providing that if enabling property and enabled property are installed in consecutive taxable years, then the taxpayer may treat the enabling property and the enabled property as installed in the same taxable year (deemed taxable year), provided that the deemed taxable year is the later of the taxable year in which the enabling property or the enabled property was installed, regardless of which is installed first. The safe harbor would allow flexibility for taxpayers while adhering to the statutory requirement that enabling property enable the installation and use of, enabled property.

If a taxpayer chooses not to apply the safe harbor, and the taxpayer, for example, installs the enabled property in the first taxable year and the enabling property in the second taxable year, then the taxpayer might still be eligible for the section 25C credit with respect to the enabled property installed in the first taxable year. However, the taxpayer would not be eligible for the section 25C credit with respect to the enabling property installed in the second taxable year because it could not enable the installation and use of the enabled property under section 25C(d)(2)(D)(iv) and would not meet the general rule of proposed § 1.25C-3(b)(1).

The safe harbor would impose no burden on taxpayers because no additional reporting requirements are required for its use. However, in order to be entitled to the section 25C credit, taxpayers who rely on the safe harbor must meet all other applicable requirements of section 25C and the proposed regulations, including the requirement to provide PINs for both enabling property and enabled property, as provided in section 25C(h), Revenue Procedure 2024-31 (discussed in part IV of this Explanation of Provisions), and any other applicable guidance.

The Treasury Department and the IRS request comments on the safe harbor under proposed § 1.25C-3(b)(2).

Proposed § 1.25C-4 would provide rules regarding the PIN requirements under section 25C(h) that apply to specified property placed in service after December 31, 2024. Most of the requirements pertain to QMs. Under section 25C(h)(1)(B), a taxpayer's sole obligation with respect to a PIN is to include the PIN of any item of specified property placed in service after December 31, 2024, on the taxpayer's tax return for the taxable year (Taxpayer PIN requirement).

The proposed regulations would refer manufacturers to Revenue Procedure 2024-31, for procedures on how to register and apply to become a QM and how to comply with the QM PIN requirements. The procedures of Revenue Procedure 2024-31 were derived in part from comments received in response to Notice 2024-13.

Notice 2024-13 proposed that manufacturers would need to register with the IRS to become QMs but did not describe a registration process. The Treasury Department and the IRS received no comments about the need for manufacturers to register with the IRS or the process for such registration.

Proposed § 1.25C-4(a) would provide the general rule, pursuant to section 25C(h)(1), that no section 25C credit is allowed with respect to any item of specified property placed in service after December 31, 2024, unless such item is produced by a QM and the taxpayer includes the PIN of such item on the return of tax for the taxable year. Proposed 1.25C-4(a) also would summarize the remaining paragraphs in the section, which would provide rules for manufacturers of specified property to meet the QM PIN requirements.

Proposed § 1.25C-4(b)(1) would provide, pursuant to section 25C(h)(3), that for a manufacturer of specified property to become a QM, the manufacturer must, in accordance with § 1.25C-4(b) and guidance published in the Internal Revenue Bulletin, register with the IRS and enter into an agreement with the IRS, certifying under penalties of perjury that the manufacturer will meet the QM PIN requirements. Revenue Procedure 2024-31 provides that this registration and agreement process is conducted through the IRS Energy Credits Online Portal.

Proposed § 1.25C-4(b)(2) would clarify that only manufacturers producing specified property at the time of registration may register with the IRS to become QMs. Allowing manufacturers that are not producing specified property at the time of registration could create confusion for taxpayers and would impose administrative burdens on the IRS.

Multiple commenters to Notice 2024-13 expressed a need for additional time for manufacturers to comply with the registration and QM PIN requirements effective for property placed in service after December 31, 2024. In response to these requests, Revenue Procedure 2024-31 allows manufacturers of specified property until April 30, 2025, to submit their QM Registration Application and Agreement (as defined in the revenue procedure). Under Revenue Procedure 2024-31, any manufacturer that submits its QM Registration Application and Agreement by April 30, 2025, will be deemed to have been a QM as of December 31, 2024, provided such QM Registration Application and Agreement is validated by the IRS (as described in the revenue procedure). Accordingly, for a manufacturer that meets the requirements of the Special Registration Rule for 2025, any specified property produced by such manufacturer on or after January 1, 2025, and on or before April 30, 2025, will be deemed to have been produced by a QM.

One commenter to Notice 2024-13 requested clarification as to which manufacturer would bear the responsibility to register with the IRS and meet the QM PIN requirements if more than one manufacturer participates in the production of the same product that is specified property, or if under a private labeling arrangement, one manufacturer labels and sells the same product of specified property that was produced by a third party. Proposed § 1.25C-4(b)(2) would provide that if there are multiple manufacturers in the chain of production of the same product of specified property, only one manufacturer may be the QM with respect to such product. Proposed § 1.25C-4(b)(2) would require that, absent an agreement otherwise, where more than one manufacturer participates in the production of the same product that is specified property, only the manufacturer whose production results in the product becoming specified property must register with the IRS to become a QM with respect to such property. Proposed § 1.25C-4(b)(2) would provide manufacturers working together to produce the same product of specified property the flexibility to negotiate which among them would bear responsibility as a QM with respect to such property. Revenue Procedure 2024-31 contains procedures corresponding to proposed § 1.25C-4(b)(2). The Treasury Department and the IRS request comments on proposed § 1.25C-4(b)(2) and how the rules should apply to products with multiple manufacturers.

Revenue Procedure 2024-31 provides certain exceptions to the QM PIN requirements with respect to enabling property and the indoor units of heat pumps. Despite those exceptions, which are discussed later in this preamble, a manufacturer of such products (even if it only produces no other type of specified property other than one or both of such products) must register using the IRS Energy Credits Online Portal and enter into an agreement with the IRS to become a QM.

Proposed § 1.25C-4(b)(3) and (4) would provide that the IRS will validate and may reject a QM Registration Application and Agreement, taking into account a manufacturer's North American Industry Classification System (NAICS) code, and may revoke or suspend a QM's registration status for failure to comply with the QM PIN requirements. Proposed § 1.25C-4(b)(3) and (4) would provide that if the IRS rejects a QM Registration Application and Agreement, or revokes or suspends a QM's registration status, then the manufacturer will be afforded administrative review, but any such rejection, revocation, or suspension would not be reviewable by the IRS Independent Office of Appeals. Revenue Procedure 2024-31 contains procedures corresponding to proposed § 1.25C-4(b)(3) and (4).

One commenter to Notice 2024-13 suggested that the guidance provide that a manufacturer registered as a QM is not required to remain a QM if it determines that compliance with the QM PIN requirements is too burdensome or otherwise unsuitable. Similarly, another commenter to Notice 2024-13 requested that the regulations permit manufacturers to register as QMs at any time of their choosing and to discontinue participation in the QM program or the assignment, labeling, or reporting of PINs at any time.

Proposed § 1.25C-4(b)(5) would allow a QM to discontinue its QM registration status by following the procedures provided in guidance published in the Internal Revenue Bulletin. Revenue Procedure 2024-31 provides procedures corresponding to proposed § 1.25C-4(b)(5), including for the date on which the QM's status is discontinued. A QM that discontinues its QM registration status will no longer be included on the list of QMs published by the IRS, and the IRS will publicize QMs that have discontinued their QM status.

Notice 2024-13 proposed a PIN assignment system that would have required QMs to assign to each item of specified property a 17-digit PIN consisting of four parts: (1) a unique “QM Number” specific to the QM, (2) a “Product Number” specific to the product line of specified property, (3) a number reflecting the year of manufacture, and (4) an “Item number” unique to each item of specified property.

Several commenters generally addressed the proposed PIN assignment system from Notice 2024-13. Some commenters expressed concerns that the system would be burdensome for manufacturers and taxpayers. These commenters asserted that it would be difficult and costly for manufacturers to assign PINs and ensure that consumers receive the PINs, because in many cases there would be one or more intermediaries, such as retailers and contractors, between manufacturers and consumers. These commenters also noted that it could be burdensome for consumers to determine a product's PIN and then retain it to include on their tax returns. According to these commenters, the PIN assignment system proposed in Notice 2024-13 would increase manufacturers' production costs, and consequently increase the cost of specified property, thereby deterring consumers from acquiring the energy efficient products that the section 25C credit aims to promote.

Some commenters asserted that the specifics of the PIN assignment system proposed in Notice 2024-13 would not be workable. Commenters asserted that it would be impractical for manufacturers to adopt this system, particularly those that already have in place longstanding and varied numbering systems for their product lines and individual items. Another commenter recommended that manufacturers of exterior windows and doors be exempt from QM PIN requirements because they produce larger quantities of such items than manufacturers of other types of specified property.

Several commenters suggested allowing manufacturers to employ existing numbering systems, such as serial numbers, NFRC numbers, or SKUs. One commenter asserted that using existing serial numbers would not lead to significant duplication. This commenter further stated that even though window and door manufacturers do not employ serial numbers, the assignment rules should still permit manufacturers of other specified property to employ existing serial numbers. Another commenter suggested that the IRS create a template application on which manufacturers could provide details about their existing serial numbering systems, so that a product's model number and serial number could together constitute its PIN.

The Treasury Department and the IRS acknowledge that the PIN assignment requirement presents certain compliance challenges for manufacturers and taxpayers. However, section 25C(h) requires unique PINs as an integral safeguard to assure that taxpayers entitled to claim the section 25C credit can do so efficiently, without concern that such claim will be rejected by the IRS for a duplicative or otherwise incorrect PIN. The unique PINs also reduce the risk to the fisc by preventing multiple claims for the section 25C credit for the same item of specified property.

In addition, the variety of existing product numbering systems warrants a uniform PIN assignment system. A manufacturer's serial numbers may be unique to individual items of property it produces, but different manufacturers use different forms of serial numbers. While manufacturers generally assign the same SKU to all items within a product line, the SKU would not be unique to each item within such line.

Proposed § 1.25C-4(c) would require a QM to assign PINs unique to each item of specified property it produces, using the PIN Assignment System described in guidance published in the Internal Revenue Bulletin. Revenue Procedure 2024-31 requires a system similar to the one described in Notice 2024-13 in that QMs must assign a 17-character PIN unique to each item of specified property. In response to commenter requests, to reduce complexity and burdens, the 17-character PIN in Revenue Procedure 2024-31 consists of three components, not the four proposed in Notice 2024-13: (1) a four-character “QM Code” that is specific to the QM and is assigned by the IRS once the QM's registration is validated, (2) a one-character “Product Code” that represents category of specified property and, if applicable, its relevant geographic climate zone, that is published by the IRS, and (3) a twelve-digit “Item Number” that is assigned by the QM that is unique to each item of specified property. For the Item Number, a QM may choose any twelve alphanumeric characters (including the common digits 0 to 9 and capital letters A to Z, other than I or O, but not special characters such as *, &, @, etc.), provided that the result is a unique Item Number, and provided that the Item number does not employ leading zeroes. A QM may use its own SKUs or serial numbers (or parts thereof) in the Item Number, provided that the Item Number is unique to each item of specified property. Revenue Procedure 2024-31 encourages QMs to employ nonsequential characters.

A commenter questioned why the letters I and O should not be allowed in PINs. The similarity of the letters I and O to the numbers one and zero could lead taxpayers to make mistakes when including a PIN on their tax returns or cause the IRS's processing systems to misread a PIN that a taxpayer submits, and cause the IRS to incorrectly disallow (or allow) a credit. Accordingly, Revenue Procedure 2024-31 does not allow the use of the letters I and O in PINs.

The PIN Assignment System set forth in Revenue Procedure 2024-31 ensures that each unique item of specified property will have a unique PIN, and that each PIN will employ the same format and the same number of characters. This uniformity is necessary for the IRS to process taxpayer claims for the section 25C credit efficiently.

While the Treasury Department and the IRS appreciate the concerns raised by the commenters, exterior windows and exterior doors cannot be exempted from the QM PIN requirements because section 25C expressly requires PINs to be assigned to exterior windows and exterior doors. However, the PIN Assignment System allows for a variety of digits in the Item Number such that a large volume of specified property can be accommodated.

One commenter asserted that it would be overly burdensome for manufacturers to assign PINs to products that manufacturers intend to export. The Treasury Department and the IRS agree that PINs only need to be assigned to products placed in service in the United States, because the definition of specified property itself includes requirements that can only be met in the United States, and because the section 25C credit is only allowed with respect to dwelling units located in the United States. The definitions of the products that comprise specified property (qualified energy property and exterior windows and exterior doors) each include requirements that can only be met in the United States. Qualified energy property under section 25C(d)(2)(A) must meet or exceed the highest efficiency tier established by the Consortium for Energy Efficiency, the requirements for which are based in part on United States climate zones. Qualified energy property under section 25C(d)(2)(B) must heat a dwelling unit located in the United States. Qualified energy property under section 25C(d)(2)(C) must be rated for use with fuel blends including eligible fuel under section 25C(d)(3), which under section 40 is limited to fuel produced and used in the United States and under section 40A excludes, in part, fuel produced outside the United States for use outside the United States. Qualified energy property under section 25C(d)(2)(D) comprises qualified energy efficiency improvements (which must be installed in the United States under section 25C(c)(1)(A)) and qualified energy property under section 25C(d)(2)(A) through (C), described in this paragraph, and must enable the installation and use of property installed in the United States under section 25C(d)(2)(d)(iv). Finally, exterior windows (including skylights) and exterior doors, as qualified energy efficiency improvements, must be installed in the United States under section 25C(c)(1)(A). Exterior windows and skylights also must meet Energy Star most efficient certification requirements under section 25C(c)(2)(A), and exterior doors must meet applicable Energy Star requirements under section 25C(c)(2)(B), each of which is based in part on United States climate zones. Accordingly, the definition of specified property in proposed § 1.25C-2(b)(25) would provide that any property placed in service outside of the United States is not specified property.

Revenue Procedure 2024-31 also contains procedures regarding the time for assigning PINs to specified property. For property produced on or after January 1, 2026, the QM must assign a 17-digit PIN to the specific property while it is in the QM's possession. This timing rule will assist QMs in meeting the requirement to timely provide the PIN to the taxpayer. For items of specified property produced before January 1, 2026, the QM may, but is not required to, assign a 17-digit PIN to specified property after the property has left the QM's possession, provided that the rules regarding the time to provide the PIN are satisfied (see the discussion later).

Commenters to Notice 2024-13 expressed concern that manufacturers (as well as distributors, contractors, and consumers) could not implement the proposed PIN assignment system before the PIN requirements take effect on January 1, 2025. They requested that the IRS adopt a transition rule that would delay or relax the PIN assignment requirement for at least the 2025 calendar year.

The Treasury Department and the IRS agree that transition relief is appropriate. Accordingly, for all specified property placed in service in the 2025 calendar year, Revenue Procedure 2024-31 provides that a QM can satisfy the PIN assignment requirement by furnishing its four-character “QM Code” to consumers, who can satisfy the Taxpayer PIN requirement by including the QM Code on their tax returns. Thus, for specified property placed in service during calendar year 2025, taxpayers may claim the section 25C credit based on the QM Code in lieu of the PIN for such specified property. This transition relief affords QMs an additional year to implement the full PIN Assignment System.

Two commenters to Notice 2024-13 asserted that the PIN assignment requirement would present unique challenges and burdens to manufacturers of enabling property described in section 25C(d)(2)(D), such as panelboards. These commenters noted that enabling property is eligible for the section 25C credit only if it is installed “in conjunction with” property that is itself eligible for the credit (enabled property, discussed previously). The commenters maintained that because, in most cases, taxpayers do not install the enabling property in conjunction with enabled property, it would saddle manufacturers of enabling properties with a disproportionate cost and burden to assign a PIN to each item of enabling property, without knowing if this was necessary. The commenters noted that because enabling property often costs significantly less than enabled property, full compliance with the QM PIN requirements would have a higher cost per item relative to other categories of specified property. Commenters also noted similar issues for manufacturers of heat pumps, which generally have two units—an indoor and an outdoor unit—with little likelihood one such unit could qualify for the section 25C credit without the other unit being installed.

The Treasury Department and the IRS agree that relief is appropriate to address these two concerns. Accordingly, Revenue Procedure 2024-31 addresses these issues. Regarding enabling property, section 4.01(5) of Revenue Procedure 2024-31 provides that a QM can satisfy the PIN assignment requirement with its QM Code in lieu of its PIN, instead of meeting the 17-digit PIN requirements, regardless of when the enabling property is placed in service. For taxpayers claiming the section 25C credit with respect to enabling property, the IRS will accept the QM Code in lieu of the PIN for the enabling property. QMs that produce enabling property must meet all other QM PIN requirements, including using the 17-digit PIN for enabled property placed in service on or after January 1, 2026.

Regarding heat pumps, section 5.05 of Revenue Procedure 2024-31 provides that only the outdoor unit of a heat pump must be assigned a PIN. A QM that produces heat pumps must meet all other applicable QM PIN requirements. For example, if a manufacture only produces indoor units of a heat pump, it must still register as a QM.

Some commenters suggested that a trade association of manufacturers of certain categories of specified property could create a product directory of specified properties that its members produce. They further suggested that the trade association could carry out all of the QM PIN requirements (assignment, labeling and reporting) on behalf of its members. Nothing in Revenue Procedure 2024-31 prohibits, and nothing in the proposed regulations would prohibit, a trade association from doing so. However, each manufacturer member must register to be a QM, and the PINs must follow all of the requirements provided in Revenue Procedure 2024-31.

One commenter asked how manufacturers should assign PINs to products made up of a combination of product lines. The PIN Assignment System described in Revenue Procedure 2024-31 does not require QMs to reference a product's product line in its PIN. The Product Code character in the PIN Assignment System represents the category of specified property. The Product Code is assigned by the QM in accordance with a list of Product Codes on https://www.irs.gov , on the IRS Energy Credits Online Portal, or in future published guidance. A QM has discretion to reference one product line, multiple product lines, or no product lines in the Item Number of a PIN with respect to a product that combines more than one product line.

Another commenter suggested that the proposed regulations allow manufacturers to use the proposed PIN system for products that do not qualify for the section 25C credit. According to this commenter, such a rule could allow manufacturers to obtain more value from the PIN system, which could potentially mitigate their compliance costs arising from the QM PIN requirements. Nothing in these proposed regulations or Revenue Procedure 2024-31 prohibits a manufacturer from assigning PINs using the requirements described in Revenue Procedure 2024-31 to products that do not qualify for the section 25C credit, particularly because QMs have flexibility in assigning Item Numbers. However, QMs should only report to the IRS the PINs for those products that are eligible for the section 25C credit. QMs may not advise or otherwise suggest to consumers that the PINs for products that do not meet the requirements under section 25C render those products eligible for the section 25C credit.

One commenter suggested that manufacturers should have the option of using a PIN that is longer than 17 characters to accommodate production runs that may exceed this limit. The Treasury Department and the IRS have considered the number of possible QMs and the number of possible products that are specified property. The system must be developed to last for many years. Based on available information, the 17 digits in the PIN Assignment System should suffice.

Commenters to Notice 2024-13 asked that manufacturers be given flexibility in complying with the PIN labeling requirement. Several commenters requested that guidance not require QMs to affix PINs physically to items of specified property, as this would involve significant costs. Another commenter suggested that guidance require QMs to ensure that taxpayers can easily locate and report a product's PIN. This commenter specifically suggested requiring manufacturers to clearly label the PIN as the “Section 25C Energy Efficient Home Improvement Tax Credit PIN.”

One commenter noted that many biomass appliances already have EPA labeling requirements and that it could be difficult to add a PIN to such labels. Another commenter pointed out that manufacturers may already have produced specified property that will be placed in service in 2025, and that it may be too late to affix PINs to these products. Finally, a commenter suggested allowing QMs to furnish PINs through their websites.

Having considered these comments, the Treasury Department and the IRS propose to allow QMs maximum flexibility in meeting the PIN labeling requirement and providing PINs to consumers to ensure that taxpayers have the information needed to claim the section 25C credit. Proposed § 1.25C-4(d) would direct manufacturers to guidance published in the Internal Revenue Bulletin. Revenue Procedure 2024-31 provides that manufacturers generally may choose the method by which to label products. QMs would not be required to affix PINs physically to items of specified property, provided that QMs make such PINs available to taxpayers within the required time frame. Revenue Procedure 2024-31 allows QMs to meet the PIN labeling requirement in various ways, such as by including PINs on documents inside a product's packaging, or furnishing PINs to consumers through QM websites. In accordance with the special requirement for enabling property, Revenue Procedure 2024-31 provides that a QM can meet the PIN labeling requirement for enabling property by providing its QM Code to consumers. In accordance with the special requirement for heat pumps, Revenue Procedure 2024-31 provides that QMs are not required to label the indoor unit of a heat pump.

Revenue Procedure 2024-31 also provides flexible procedures regarding when a QM must make PINs available to consumers. For specified property placed in service on or after January 1, 2025, and before January 1, 2026, in order to comply with the PIN labeling requirement, a QM must provide its QM Code to taxpayers who purchase items of specified property by no later than the date—(i) when the taxpayer places the specified property in service, (ii) when the taxpayer requests a PIN from the QM, or (iii) when the manufacturer becomes a QM, whichever is latest. This is in accord with the requirements for registration and PIN assignment for specified property placed in service in calendar year 2025. For specified property placed in service on or after January 1, 2026, in order to comply with the PIN labeling requirement, a QM must make its PINs available to taxpayer no later than the date when the taxpayer either places the specified property in service, or requests a PIN from the QM, whichever is later. For any specified property produced in calendar year 2025 and placed in service on or after January 1, 2026, and to which only a QM Code has been assigned, the QM must make the full 17-digit PIN available to the taxpayer upon request by the taxpayer. Revenue Procedure 2024-31 also provides that a QM may not establish prerequisites to a taxpayer obtaining a PIN unless such prerequisite is required to verify the taxpayer's purchase of the specified property. For example, a QM cannot require taxpayers to sign up for promotional emails as a condition of obtaining a PIN for specified property they purchase. These PIN delivery rules provide flexibility for QMs to determine which method of delivery works best for their business while ensuring that taxpayers have access to PINs when needed.

Section 25C(h)(3)(C) provides the Secretary with authority to require QMs to provide periodic reporting of PINs assigned to specified property and other information that the Secretary may require with respect to such property.

Proposed § 1.25C-4(e) would direct QMs to guidance published in the Internal Revenue Bulletin regarding the format and timing of the periodic written report. Revenue Procedure 2024-31 provides that to meet the periodic written report requirement, a QM must submit periodic reports (QM Reports) electronically, using a template on the IRS Energy Credits Online Portal. Each QM Report must be signed under penalties of perjury, and include general information such as the QM's name and address, and information about each item of specified property for which a PIN was assigned, including such items month and year of manufacture.

For purposes of a QM Report, Revenue Procedure 2024-31 defines the year of manufacture as the year in which the property becomes specified property for purposes of the section 25C credit. This definition is intended for the convenience of QMs and to assist in determining whether certain energy efficiency standards imposed by section 25C have been met. This definition also comports with the rule for multiple manufacturers under proposed § 1.25C-4(b)(2). Nothing in Revenue Procedure 2024-31 regarding the year of manufacture applies to Code sections other than section 25C. The Treasury Department and the IRS request comments on the definition of year of manufacture in Revenue Procedure 2024-31.

In accordance with the transition relief provided for calendar year 2025, Revenue Procedure 2024-31 provides that for specified property placed in service on or after January 1, 2025, and before January 1, 2026, a QM Report need only include the QM Code provided to taxpayers, instead of the full 17-digit PIN.

In accordance with the special rules for manufacturers of enabling property and certain manufacturers of heat pumps, Revenue Procedure 2024-31 provides that QMs are not required to file QM Reports with respect to enabling property or indoor units of heat pumps.

Notice 2024-13 did not propose a rule for the required frequency of QM Reports. A commenter to Notice 2024-13 suggested that guidance require QMs to file QM Reports annually. The Treasury Department and the IRS recognize that the regular submission of QM Reports could pose a potential burden to some QMs, particularly for specified property placed in service on or after January 1, 2025, and before January 1, 2026. However, the Treasury Department and the IRS have determined that annual QM Reports would not be frequent enough to give the IRS time to address errors and to effectively administer the section 25C credit.

Therefore, Revenue Procedure 2024-31 provides transition relief and requires that for items of specified property that leave a QM's control and enter the stream of commerce on or after January 1, 2025, and before January 1, 2026, only one QM Report is required, and it must be submitted by January 15, 2026. For specified property placed in service on or after January 1, 2026, Revenue Procedure 2024-31 requires a QM to file QM Reports on a quarterly basis, specifically by the fifteenth day of the calendar month following the end of the calendar quarter in which an item of specified property leaves the QM's control and enters the stream of commerce (January 15, April 15, July 15, and October 15). A QM may choose to submit QM Reports more frequently than once per quarter.

Revenue Procedure 2024-31 also provides procedures for updating or rescinding QM Reports, which must be done through the IRS Energy Credits Online Portal as soon as possible after the original submission.

A lessee may not claim the section 25C credit for qualified energy efficiency improvements, as a lessee uses but does not own a dwelling unit. A lessee of a dwelling unit may claim the section 25C credit for residential energy property expenditures, provided that the dwelling unit is used as a residence by the lessee. A lessee may claim the section 25C credit for a home energy audit, provided that the dwelling unit is used by the lessee as the lessee's principal residence.

Two commenters to Notice 2024-13 suggested that a public database of specified products and their PINs would present privacy concerns. One commenter also suggested that the IRS treat manufacturer data and PIN information as confidential business information. The Treasury Department and the IRS understand these concerns, but want to ensure that consumers have some information as they search for products that are specified property. A QM Code assigned to a manufacturer by the IRS does not constitute confidential business information and its publication should not pose any inherent risk to QMs. Nonetheless, the IRS will publish a list of QMs, which will provide consumers with helpful information in determining which QMs offer products that are specified property, but to ensure privacy for QMs, the IRS will not publish any QM Codes.

One commenter suggested that the IRS create an online directory of products eligible for the credit. The IRS declines to adopt this proposal because the statute already provides guidelines for products that qualify for the credit. However, the IRS will publish a list of Product Codes that sets forth each category of specified property. Some commenters asked whether reporting rules would change due to section 25C having been amended. Form 5695, Residential Energy Credits, is being revised to allow reporting of PINs. When available, the revised draft form will be available for comment on https://www.irs.gov/draftforms.

These regulations are proposed to apply to taxable years ending after [DATE OF PUBLICATION OF FINAL REGULATIONS IN THE FEDERAL REGISTER ].

Taxpayers may rely on the proposed regulations for specified property placed in service prior to the date these regulations are published as final regulations in the Federal Register, provided the taxpayer follows the proposed regulations in their entirety, and in a consistent manner.

For copies of recently issued Revenue Procedures, Revenue Rulings, Notices, and other guidance published in the Internal Revenue Bulletin, please visit the IRS website at https://www.irs.gov.

Pursuant to the Memorandum of Agreement, Review of Treasury Regulations under Executive Order 12866 (June 9, 2023), tax regulatory actions issued by the IRS are not subject to the requirements of section 6 of Executive Order 12866, as amended. Therefore, a regulatory impact assessment is not required.

The Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520) (PRA) requires that a Federal agency obtain the approval of the Office of Management and Budget (OMB) before collecting information from the public, whether such collection of information is mandatory, voluntary, or required to obtain or retain a benefit. A Federal agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless the collection of information displays a valid control number.

The collections of information in the proposed regulations contain reporting, third-party disclosure and recordkeeping requirements that are necessary to ensure that specified property meets the requirements for the energy efficient home improvement credit under section 25C. These collections of information generally would be used by the IRS for tax compliance purposes and by taxpayers to ensure the property qualifies for the credit.

The reporting requirements include that manufacturers register with the IRS to become QMs (as detailed proposed § 1.25C-4(b)) and provide IRS with periodic reports (as detailed in proposed § 1.25C-4(e)). Additionally, in the event a manufacturer is disqualified, the manufacturer will have the opportunity to appeal the IRS determination by requesting an administrative review. The third-party disclosure requirement includes the requirement that manufacturers provide taxpayers with a PIN number that identifies the specified property as qualified under section 25C (as detailed in proposed § 1.25C-4(d)). The likely respondents are businesses and other for-profit entities. The burden for these requirements is as follows:

Registration:

Estimated number of respondents: 2,100.

Estimated frequency of responses: 1.

Estimated average annual burden per response: 2 hours.

Estimated total annual reporting burden: 4,200 hours.

Periodic Reporting:

Estimated number of respondents: 2,100.

Estimated frequency of responses: 1.

Estimated average annual burden per response: 15 minutes (0.25 hours).

Estimated total annual reporting burden: 525 hours.

PIN Labeling:

Estimated number of respondents: 2,100.

Estimated frequency of responses: varies*.

*  The IRS anticipates that 1 manufacturer may have multiple products that qualify and will be labeled. For calculation purposes, the IRS is estimating that 1 manufacturer could have 2,000 products that qualify.

Estimated average annual burden per response: 15 minutes (0.25 hours).

Estimated total annual reporting burden: 1,050,000 hours.

Appeals:

Estimated number of respondents: 21.

Estimated frequency of responses: 1.

Estimated average annual burden per response: 1 hour.

Estimated total annual reporting burden: 21 hours.

The collections of information contained in this notice of proposed rulemaking have been submitted to the Office of Management and Budget for review in accordance with the Paperwork Reduction Act under OMB Control Number 1545-NEW. Commenters are strongly encouraged to submit public comments electronically. Written comments and recommendations for the proposed information collection should be sent to https://www.reginfo.gov/public/do/PRAMain, with copies to the IRS. Find this particular information collection by selecting “Currently under Review—Open for Public Comments,” and then by using the search function. Submit electronic submissions for the proposed information collection to the IRS via email at pra.comments@irs.gov (indicate REG-118264-23 on the Subject line). Comments on the collection of information must be received by December 24, 2024. Comments are specifically requested concerning: whether the proposed collection of information is necessary for the proper performance of the functions of the IRS, including whether the information will have practical utility; the accuracy of the estimated burden associated with the proposed collection of information; how the quality, utility, and clarity of the information to be collected may be enhanced; how the burden of complying with the proposed collection of information may be minimized, including through the application of automated collection techniques or other forms of information technology; and estimates of capital or start-up costs and costs of operation, maintenance, and purchase of services to provide information.

Pursuant to the Regulatory Flexibility Act (5 U.S.C. chapter 6) (RFA), the Secretary hereby certifies that the proposed regulations will not have a significant economic impact on a substantial number of small entities within the meaning of section 601(6) of the RFA. Pursuant to section 7805(f), this notice of proposed rulemaking has been submitted to the Chief Counsel for the Office of Advocacy of the Small Business Administration for comment on their impact on small business.

The proposed regulations would affect QMs of specified property and eligible taxpayers who place such property in service during a taxable year. The Treasury Department and the IRS estimate the number of QMs to be 2,100. Data are not readily available on the number of small entities among the QMs, but it is likely that a substantial number may be affected. Although a substantial number of small entities may be affected, the economic impact of the rule is not expected to be significant. Any burden imposed in the proposed regulations on a manufacturer that wants to register as a QM, and any subsequent burden of assigning a PIN, labeling the specified property, and making periodic written reports to the IRS, would be voluntarily assumed by such QM, as manufacturers of specified property are not required to register as QMs under section 25C. Section 25C provides an indirect financial benefit to manufacturers who choose to register as QMs in the form of credits available to eligible taxpayers that subsidize the purchase of specified property manufactured by the QMs. The different credit amounts allowed under section 25C for different types of specified property allow manufacturers considering whether to register as QMs to make an informed decision regarding the potential financial benefit in doing so. The proposed regulations also provide flexibility for QMs in meeting the previously described burdens. Accordingly, the Secretary certifies that the proposed regulations will not have a significant economic impact on a substantial number of small entities. The Treasury Department and the IRS request comments that provide data, other evidence, or models that provide insight on this issue.

Section 202 of the Unfunded Mandates Reform Act of 1995 requires that agencies assess anticipated costs and benefits and take certain other actions before issuing a final rule that includes any Federal mandate that may result in expenditures in any one year by a State, local, or Tribal government, in the aggregate, or by the private sector, of $100 million in 1995 dollars, updated annually for inflation. In 2023, that threshold is approximately $198 million. This rule does not include any Federal mandate that may result in expenditures by State, local, or Tribal governments, or by the private sector in excess of that threshold.

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

Before the proposed regulations are adopted as final regulations, consideration will be given to any comments that are submitted timely to the IRS as prescribed in this preamble under the ADDRESSES heading. The Treasury Department and the IRS request comments on all aspects of the proposed regulations, including their economic impact and any alternative approaches that should be considered during the rulemaking process. In addition, the Treasury Department and the IRS request comments on the specific issues noted in the preamble to the proposed regulations. Any comments submitted, whether electronically or on paper, will be made available at https://www.regulations.gov or upon request.

A public hearing has been scheduled for January 21, 2025, beginning at 10 a.m. ET, in the Auditorium at the Internal Revenue Building, 1111 Constitution Avenue NW, Washington, DC. Due to building security procedures, visitors must enter at the Constitution Avenue entrance. In addition, all visitors must present photo identification to enter the building. Because of access restrictions, visitors will not be admitted beyond the immediate entrance area more than 30 minutes before the hearing starts. Participants may alternatively attend the public hearing by telephone.

The rules of 26 CFR 601.601(a)(3) apply to the hearing. Persons who want to present oral comments at the hearing must submit an outline of the topics to be discussed and the time to be devoted to each topic by December 24, 2024. A period of 10 minutes will be allotted to each person for making comments. An agenda showing the scheduling of the speakers will be prepared after the deadline for receiving outlines has passed. Copies of the agenda will be available free of charge at the hearing. If no outlines of topics to be discussed at the hearing are received by December 24, 2024, the public hearing will be cancelled. If the public hearing is cancelled, a notice of cancellation of the public hearing will be published in the Federal Register .

Individuals who want to testify in person at the public hearing must send an email to publichearings@irs.gov to have your name added to the building access list. The subject line of the email must contain the regulation number REG-118264-23 and the language TESTIFY in Person. For example, the subject line may say: Request to TESTIFY in Person at Hearing for REG-118264-23.

Individuals who want to testify by telephone at the public hearing must send an email to publichearings@irs.gov to receive the telephone number and access code for the hearing. The subject line of the email must contain the regulation number REG-118264-23 and the language TESTIFY Telephonically. For example, the subject line may say: Request to TESTIFY Telephonically at Hearing for REG-118264-23.

Individuals who want to attend the public hearing in person without testifying must also send an email to publichearings@irs.gov to have your name added to the building access list. The subject line of the email must contain the regulation number REG-118264-23 and the language ATTEND In Person. For example, the subject line may say: Request to ATTEND Hearing in Person for REG-118264-23. Requests to attend the public hearing must be received by 5 p.m. ET on January 17, 2025.

Individuals who want to attend the public hearing by telephone without testifying must also send an email to publichearings@irs.gov to receive the telephone number and access code for the hearing. The subject line of the email must contain the regulation number REG-118264-23 and the language ATTEND Hearing Telephonically. For example, the subject line may say: Request to ATTEND Hearing Telephonically for REG-118264-23. Requests to attend the public hearing must be received by 5 p.m. ET on January 17, 2025.

Hearings will be made accessible to people with disabilities. To request special assistance during a hearing please contact the Publications and Regulations Branch of the Office of Associate Chief Counsel (Procedure and Administration) by sending an email to publichearings@irs.gov (preferred) or by telephone at (202) 317-6901 (not a toll-free number) by at least January 16, 2025.

The principal author of the proposed regulations is the Office of Associate Chief Counsel (Passthroughs & Special Industries). However, other personnel from the Treasury Department and the IRS participated in the development of the proposed regulations.

Accordingly, the Treasury Department and the IRS propose to amend 26 CFR part 1 as follows:

Lady's Island (Woods Memorial) Bridge across the AICW (Beaufort River), mile 536.0, at Beaufort, SC, is a swing bridge with a 30-foot vertical clearance at mean high water in the closed position. The normal operating schedule for the bridge is found in 33 CFR 117.911(f).

On March 20, 2024, the Coast Guard published a temporary deviation entitled “Drawbridge Operation Regulation; Atlantic Intracoastal Waterway, Beaufort, SC” in the Federal Register (89 FR 19731). That temporary deviation, effective from 12:01 a.m. on March 25, 2024, through 11:59 p.m. on September 29, 2024, allows Lady's Island (Woods Memorial) Bridge to operate without a seasonal opening schedule. The comment period ended May 20, 2024, with 15 comments received.

The 15 comments received were against the proposed changes. The concerns presented were the need for the seasonal schedule to remain due to the increase in vessel traffic and the environmental conditions mariners experience while transiting in the vicinity of the bridge. The Coast Guard understands the increase in seasonal vessel traffic and also acknowledges an increase in seasonal vehicle traffic. The area is known for moderate currents, however, there is staging areas on either side of the bridge for vessels to maintain station. The requested changes should simplify the current operating schedule, allow for a more consistent and efficient operation of the bridge and provide relief to vehicle traffic congestion while meeting the reasonable needs of navigation.

Under this proposed rule, the Lady's Island (Woods Memorial) Bridge will operate without a seasonal schedule. The Coast Guard is proposing to remove the seasonal operating schedule during the months of April, May, October, and November. This would reduce vehicular traffic congestion and provide a more consistent operating schedule for the bridge. Vessels that can pass beneath the bridge without an opening may do so at any time. Emergency vessels and tugs with tows can still request an opening at any time.

We developed this proposed rule after considering numerous statutes and Executive orders related to rulemaking. Below we summarize our analyses based on these statutes and Executive orders.

Executive Orders 12866 and 13563 direct agencies to assess the costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits. This proposed rule has not been designated a “significant regulatory action,” under section 3(f) of Executive Order 12866, as amended by Executive Order 14094 (Modernizing Regulatory Review). Accordingly, the NPRM has not been reviewed by the Office of Management and Budget (OMB).

This regulatory action determination is based on the ability that vessels can still transit the bridge during the designated times and vessels able to pass without an opening may do so at any time.

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

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

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

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

This proposed rule would call for no new collection of information under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520.).

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

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

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

We have analyzed this proposed rule under Department of Homeland Security Management Directive 023-01, Rev.1, associated implementing instructions, and Environmental Planning Policy COMDTINST 5090.1 (series), which guide the Coast Guard in complying with the National Environmental Policy Act of 1969 (NEPA) (42 U.S.C. 4321-4370f). The Coast Guard has determined that this action is one of a category of actions that do not individually or cumulatively have a significant effect on the human environment. This proposed rule promulgates the operating regulations or procedures for drawbridges. Normally such actions are categorically excluded from further review, under paragraph L49, of Chapter 3, Table 3-1 of the U.S. Coast Guard Environmental Planning Implementation Procedures.

Neither a Record of Environmental Consideration nor a Memorandum for the Record are required for this proposed rule. We seek any comments or information that may lead to the discovery of a significant environmental impact from this proposed rule.

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

Submitting comments. We encourage you to submit comments through the Federal Decision Making Portal at https://www.regulations.gov. To do so, go to https://www.regulations.gov, type USCG-2024-0198 in the search box and click “Search.” Next, look for this document in the Search Results column, and click on it. Then click on the Comment option. If your material cannot be submitted using https://www.regulations.gov, contact the person in the FOR FURTHER INFORMATION CONTACT section of this document for alternate instructions.

Viewing material in docket. To view documents mentioned in this proposed rule as being available in the docket, find the docket as described in the previous paragraph, and then select “Supporting & Related Material” in the Document Type column. Public comments will also be placed in our online docket and can be viewed by following instructions on the https://www.regulations.gov Frequently Asked Questions web page. Also, if you go to the online docket and sign up for email alerts, you will be notified when comments are posted, or a final rule is published of any posting or updates to the docket.

We review all comments received, but we will only post comments that address the topic of the proposed rule. We may choose not to post off-topic, inappropriate, or duplicate comments that we receive.

Personal information. We accept anonymous comments. Comments we post to https://www.regulations.gov will include any personal information you have provided. For more about privacy and submissions in response to this document, see DHS's eRulemaking System of Records notice (85 FR 14226, March 11, 2020).

For the reasons discussed in the preamble, the Coast Guard proposes to amend 33 CFR part 117 as follows:

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

Ground-level ozone pollution is formed from the reaction of volatile organic compounds (VOC) and oxides of nitrogen (NO X ) in the presence of sunlight. 1 These two pollutants, referred to as ozone precursors, are emitted by many types of sources, including on-and off-road motor vehicles and engines, power plants and industrial facilities, and smaller area sources such as lawn and garden equipment, architectural coatings, and other types of consumer products.

Scientific evidence indicates that adverse public health effects occur following exposure to ozone, particularly in children and adults with lung disease. Breathing air containing ozone can reduce lung function and inflame airways, which can increase respiratory symptoms and aggravate asthma or other lung diseases. 2

Under section 109 of the Clean Air Act (CAA or “Act”), the EPA has established national ambient air quality standards (NAAQS or “standards”) for certain pervasive air pollutants, such as ozone. The EPA has previously promulgated NAAQS for ozone in 1979 and 1997. 3 In 2008, the EPA revised and further strengthened the ozone NAAQS by setting the acceptable level of ozone in the ambient air at 0.075 parts per million (ppm), averaged over an 8-hour period. 4 Although the EPA further tightened the 8-hour ozone NAAQS to 0.070 ppm in 2015, this action relates to the requirements for the 2008 ozone NAAQS. 5 6

Following promulgation of a new or revised NAAQS, the EPA is required under CAA section 107(d) to designate areas throughout the country as attaining or not attaining the NAAQS. In 2012, the EPA designated the San Joaquin Valley as nonattainment for the 2008 ozone standards and classified that area as “Extreme.”  7

In California, the California Air Resources Board (CARB or “State”) is the state agency responsible for the adoption and submission to the EPA of California SIP revisions, and it has broad authority to establish emissions standards and other requirements for mobile sources. Local and regional air pollution control districts in California are responsible for the regulation of stationary sources and are generally responsible for the development of regional air quality plans. In the San Joaquin Valley, the San Joaquin Valley Unified Air Pollution Control District (SJVUAPCD or “District”) is responsible for stationary source regulation, and it also develops and adopts air quality management plans to address CAA planning requirements applicable to that region. Such plans are then submitted to CARB for adoption and submittal to the EPA as revisions to the California SIP.

Under CAA section 110(k), the EPA is charged with evaluation of each SIP revision submitted by states for compliance with applicable CAA requirements and with taking action on each submission. The EPA evaluates SIP submissions and takes action to approve or disapprove them through notice-and-comment rulemaking published in the Federal Register . CAA section 110(k)(4) authorizes the EPA to conditionally approve a SIP submission based on a commitment of the State to adopt specific enforceable measures by a date certain, but no later than one year after the date of approval of the SIP submission. Where appropriate, the EPA may act on separate portions of a SIP submission in separate rulemaking actions.

Under the CAA, ozone nonattainment areas classified under subpart 2 as “Serious” or above, such as the San Joaquin Valley area for the 2008 ozone NAAQS, must include in their SIPs, among other requirements, contingency measures consistent with CAA sections 172(c)(9) and 182(c)(9). Contingency measures are additional controls or measures to be implemented in the event the area fails to make reasonable further progress (RFP), meet any applicable milestone, or attain the NAAQS by the attainment date. Additional information about the requirements for contingency measures can be found in section II of this document.

The San Joaquin Valley nonattainment area for the 2008 ozone standards consists of San Joaquin, Stanislaus, Merced, Madera, Fresno, Tulare, and Kings counties, and the western portion of Kern County. The San Joaquin Valley nonattainment area stretches over 250 miles from north to south, averages a width of 80 miles, and encompasses over 23,000 square miles. It is partially enclosed by the Coast Mountain range to the west, the Tehachapi Mountains to the south, and the Sierra Nevada range to the east. 8 The population of the San Joaquin Valley in 2020 was estimated to be more than 4.4 million people and is projected to increase to nearly 5 million people by 2035. 9

In March 2019, the EPA took final action to approve, or conditionally approve, certain SIP revisions submitted by CARB to meet CAA requirements for the 2008 ozone NAAQS in the San Joaquin Valley, California, ozone nonattainment area. 10 Specifically, the EPA approved the base year emissions inventory, RFP demonstration, and motor vehicle emissions budgets, and we conditionally approved the contingency measure element for the 2008 ozone NAAQS. The approval was conditional because it relied on a commitment by the District to amend the District's Rule 4601 (Architectural Coatings) to include contingency provisions and a commitment by CARB to submit the amended District rule to the EPA within a year of final conditional approval of the contingency measure element for the San Joaquin Valley. 11 We justified a conditional approval of the contingency measure element, even though the contingency measure itself would only achieve a small fraction of the recommended amount of emissions reductions for contingency measures, on two bases: (1) surplus emissions reductions anticipated from already-implemented measures in the milestone years and year after the attainment year and (2) a commitment by the State to achieve additional emissions reductions by the attainment year in the San Joaquin Valley that would reduce the chances for failure to attain the 2008 ozone NAAQS by the applicable attainment date. 12

Our final conditional approval of the contingency measure element was the subject of a legal challenge and, in a 2021 Ninth Circuit Court of Appeals decision in the Association of Irritated Residents v. EPA case, the Court remanded the conditional approval action back to the Agency. 13 In so doing, the Court found that, by taking into account the emissions reductions from already-implemented measures to find that the contingency measure would suffice to meet the applicable requirement, the EPA was circumventing the Court's 2016 holding in Bahr v. EPA. 14 The Court also held that the EPA could not avoid the need for robust contingency measures by assuming that they would not be needed. 15

In October 2022, in light of the Association of Irritated Residents v. EPA decision, the EPA took final action to withdraw our previous conditional approval and to partially disapprove the contingency measure element submitted to address the contingency measure requirements for the San Joaquin Valley for the 2008 ozone NAAQS. 16 We did so because we found that, if we did not take into account the likelihood the District would need contingency measures or surplus emissions reductions from already implemented measures, then the one contingency measure that was included in the contingency measure element would have to shoulder the entire burden of achieving the recommended amount for contingency measures (if triggered). Moreover, that one contingency measure would have only achieved a small fraction of the recommended amount of emissions reductions for contingency measures. 17

Pursuant to section 179 of the CAA and 40 CFR 52.31, the EPA's partial disapproval of the contingency measure element triggered sanctions clocks. More specifically, as explained in our final partial disapproval action, under 40 CFR 52.31, the offset sanction in CAA section 179(b)(2) would be imposed 18 months after the effective date of the partial disapproval action (the disapproval took effect November 2, 2022), and the highway funding sanction in CAA section 179(b)(1) would be imposed six months after the offset sanction was imposed, unless the EPA determined that a subsequent SIP submission corrects the identified deficiencies before the applicable deadline. 18 In addition, the EPA's partial disapproval of the contingency measure SIP submissions triggered an obligation on the EPA to promulgate a federal implementation plan (FIP) within two years of the November 2, 2022 effective date, pursuant to CAA section 110(c)(1), unless we approved a subsequent SIP submission that corrects the plan deficiencies before the applicable deadline. 19

In April 2024, in response to our final partial disapproval, the State of California adopted and submitted the 2024 SJV Ozone Contingency Measure Plan, which is the subject of this proposed action, to correct the deficiencies that the EPA identified in the previous contingency measure SIP submissions that were the basis for the EPA's October 2022 disapproval. We describe the 2024 SJV Ozone Contingency Measure Plan in more detail in sections III and IV of this document and present our evaluation of the SIP submission in section V of this document. Based on this proposed conditional approval, in the Rules and Regulations section of this issue of the Federal Register , we are issuing an interim final determination to stay the application of the offset sanction and to defer the application of the highway sanction that were triggered by the EPA's October 2022 partial disapproval.

In addition to the submission of the 2024 SJV Ozone Contingency Measure Plan, the District has adopted, and CARB has submitted, revisions to the District's architectural coatings rule ( i.e., District Rule 4601) to include a contingency measure for the 2008 ozone NAAQS (“Architectural Coatings Contingency Measure”). The EPA approved the amended architectural coatings rule in December 2022. 20 The Architectural Coatings Contingency Measure will, if triggered, remove the rule's small container exemption ( i.e., one liter or less) for certain types of coatings. 21 More recently, CARB adopted and submitted a contingency measure for the vehicle inspection and maintenance (“Smog Check”) program. As adopted, the “Smog Check Contingency Measure” would narrow the Smog Check inspection exemption for newer model year vehicles in certain California nonattainment areas upon a triggering event for certain NAAQS, including the 2008 ozone NAAQS for the San Joaquin Valley. 22 The EPA recently approved the Smog Check Contingency Measure as a revision to the California SIP. 23

In our actions approving the Architectural Coatings Contingency Measure and the Smog Check Contingency Measure, we indicated that we were approving the contingency measures as individual contingency measures but that we were not determining in those actions whether the State had met the contingency measure SIP requirements under CAA sections 172(c)(9) and 182(c)(9) for the areas to which the contingency measures apply. 24 Instead, we indicated that we would take into account the emissions reductions associated with the Architectural Coatings Contingency Measure and the Smog Check Contingency Measure when we take action on the contingency measure element submitted by the State to demonstrate compliance with CAA sections 172(c)(9) and 182(c)(9) for a given area. As expected, we are taking into account the emissions reductions associated with the Architectural Coatings Contingency Measure and the Smog Check Contingency Measure in this proposed action on the 2024 SJV Ozone Contingency Measure Plan, which was submitted to satisfy the contingency measure SIP requirements under CAA sections 172(c)(9) and 182(c)(9) for the 2008 ozone NAAQS for the San Joaquin Valley.

The EPA first provided its views on the CAA's requirements for ozone plans under part D, title I of the Act in the following guidance documents: (1) “State Implementation Plans; General Preamble for the Implementation of Title I of the Clean Air Act Amendments of 1990” (“General Preamble”);  25 and (2) “State Implementation Plans; General Preamble for the Implementation of Title I of the Clean Air Act Amendments of 1990; Supplemental.”  26 More recently, in the Implementation of the 2008 National Ambient Air Quality Standards for Ozone: State Implementation Plan Requirements, “2008 Ozone SIP Requirements Rule (SRR),” the EPA provided further interpretive guidance on the statutory SIP requirements that apply to areas designated nonattainment for the 2008 ozone NAAQS. 27

Under CAA section 172(c)(9), states required to make an attainment plan SIP submission must include contingency measures to be implemented if the area fails to meet RFP (“RFP contingency measures”) or to attain the NAAQS by the applicable attainment date (“attainment contingency measures”). For ozone nonattainment areas classified Serious or above, CAA section 182(c)(9) further specifies that states must include contingency measures to be implemented if the area fails to meet any applicable milestone. An EPA determination that the state failed to meet an RFP milestone or to attain the NAAQS by the applicable attainment date is referred to as a “triggering event” because it triggers the requirement to implement the contingency measures.

Contingency measures must be fully adopted rules or control measures that are ready to be implemented upon a triggering event. 28 In general, the EPA expects all actions needed to effect full implementation of the measures to occur within 60 days after the EPA notifies the state of a failure to meet RFP or to attain. 29 Moreover, we generally expect the additional emissions reductions from the contingency measures to be achieved within a year of the triggering event. 30

The purpose of contingency measures is to continue progress in reducing emissions while a state revises its SIP to meet the missed RFP requirement or to correct the failure to attain. Neither the CAA nor the EPA's implementing regulations establish a specific level of emission reductions that implementation of contingency measures must achieve, but the EPA has traditionally recommended that contingency measures should provide for emission reductions equivalent to approximately one year of reductions needed for RFP in the nonattainment area. 31 As part of the contingency measure SIP submission, the EPA expects states to explain the amount of anticipated emissions reductions that the contingency measures will achieve. In the “Draft: Guidance on the Preparation of State Implementation Plan Provisions that Address the Nonattainment Area Contingency Measure Requirements for Ozone and Particulate Matter (DRAFT—3/17/23—Public Review Version)” (herein referred to as the “Draft Revised Contingency Measure Guidance”)  32 (discussed in section I.B below), the EPA recommends that, in the event that a state is unable to identify and adopt contingency measures that will provide for approximately one year's worth of emissions reductions, the state should provide a reasoned justification why the smaller amount of emissions reductions is appropriate. 33 34

To satisfy the contingency measure requirements of CAA sections 172(c)(9) and 182(c)(9), the contingency measures adopted as part of a 2008 ozone NAAQS attainment plan must consist of control measures for the area that are not otherwise required to meet other attainment plan requirements ( e.g., to meet reasonably available control measure (RACM)/reasonably available control technology (RACT) requirements). By definition, contingency measures are measures that are over and above what a state must adopt and impose to provide for RFP and to provide for attainment by the applicable attainment date.

In addition, to comply with CAA sections 172(c)(9) and 182(c)(9), contingency measures must be both conditional and prospective, i.e., measures that go into effect and achieve emission reductions in the event of a future triggering event, but not before the triggering event. In the 2016 Bahr v. EPA   35 decision, the Ninth Circuit Court of Appeals held that CAA section 172(c)(9) does not allow the EPA to approve already-implemented control measures as contingency measures. In other words, a state must develop, adopt, and submit one or more contingency measures to be implemented upon a triggering event, regardless of the extent to which already-implemented measures would achieve surplus emission reductions beyond those necessary to meet other applicable CAA requirements.

As noted in section I.C of this document, the recent AIR decision held that, under the EPA's current guidance, the surplus emissions reductions from already-implemented measures could not be relied upon to justify the approval of a contingency measure that would achieve far less than one year's worth of RFP as sufficient to meet the contingency measure requirements of CAA sections 172(c)(9) and 182(c)(9) for the nonattainment area. 36

In March 2023, the EPA published a notice of availability announcing new draft guidance ( i.e., the Draft Revised Contingency Measure Guidance) addressing the contingency measure SIP requirements of CAA sections 172(c)(9) and 182(c)(9) and provided the opportunity for public comment. 37 The principal differences between the draft revised guidance and existing guidance on contingency measures relate to the EPA's recommendations concerning the specific amount of emission reductions that implementation of contingency measures should achieve and the timing for when the emissions reductions from the contingency measures should occur. The Draft Revised Contingency Measure Guidance also provides recommended procedures for developing a demonstration, if applicable, that the area lacks sufficient feasible contingency measures to achieve the recommended amount of reductions, which builds on existing guidance that the state provide a reasoned justification for why the smaller amount of emissions reductions from contingency measures is appropriate. 38

Under the Draft Revised Contingency Measure Guidance, the recommended level of emissions reductions that contingency measures should achieve is one year's worth of “progress” as opposed to one year's worth of RFP (the previous recommended amount of reductions). 39 One year's worth of “progress” is calculated by determining the average annual reductions between the base year emissions inventory and the projected attainment year emissions inventory, determining what percentage of the base year emissions inventory this amount represents, and then applying that percentage to the projected attainment year emissions inventory to determine the amount of reductions needed to ensure ongoing progress if contingency measures are triggered.

With respect to the time period within which reductions from contingency measures should occur, the EPA previously recommended that contingency measures take effect within 60 days of being triggered and that the resulting emission reductions generally occur within one year of the triggering event. Under the Draft Revised Contingency Measure Guidance, in instances where there are insufficient contingency measures available to achieve the recommended amount of emissions reductions within one year of the triggering event, the EPA recommends that contingency measures that provide reductions within up to two years of the triggering event could be appropriate to consider toward achieving the recommended amount of emissions reductions. The Draft Revised Contingency Measure Guidance does not alter the 60-day recommendation for the contingency measures to take initial effect.

If, after adequately evaluating additional control measures, the state is unable to identify contingency measures that would provide approximately one year's worth of emissions reductions, the Draft Revised Contingency Measure Guidance recommends that the state should provide a reasoned justification (referred to herein as an “infeasibility demonstration”). This reasoned justification should explain and document the state's evaluation of all existing and potential control measures relevant to the appropriate source categories and pollutants in the nonattainment area and the state's conclusions regarding whether such measures are feasible. 40

As explained in the Draft Revised Contingency Measure Guidance, CAA section 172(c)(9) and section 182(c)(9) do not explicitly provide for consideration of whether specific measures are feasible. However, the Agency does not read these statutory provisions to require states to adopt contingency measures that are not feasible. 41 The statutory provisions applicable to other nonattainment area plan control measure requirements, including RACM/RACT (for ozone and PM), best available control measure (BACM)/best available control technology (BACT) (for PM), and most stringent measures (MSM) (for PM), allow air agencies to exclude certain control measures that are deemed unreasonable or infeasible (depending on the requirement). For example, the MSM provision in CAA section 188(e) requires plans to include “the most stringent measures that are included in the implementation plan of any state or are achieved in practice in any state, and can feasibly be implemented in the area.” While the contingency measures provisions do not include such caveats, the EPA does not conclude that the contingency measures provisions should be read to require plans to include infeasible measures. Thus, the EPA anticipates that a demonstrated lack of feasible measures would be a reasoned justification for adopting contingency measures that achieve less than the recommended amount of emission reductions.

On April 29, 2024, CARB submitted the 2024 SJV Ozone Contingency Measure Plan as a revision to the California SIP. 42 The District adopted the 2024 SJV Ozone Contingency Measure Plan on April 25, 2024, and submitted it to CARB for adoption and submission to EPA as a SIP revision. 43 The April 29, 2024 SIP submission includes the 2024 SJV Ozone Contingency Measure Plan (including appendices), as well as supporting material including the resolutions of adoption, CARB evaluation and completeness forms, and evidence of public notice and hearing.