This notice of proposed rulemaking contains proposed amendments that would add new regulations to the Income Tax Regulations (26 CFR part 1) under sections 163 and 6050AA of the Internal Revenue Code (Code), as amended and enacted, respectively, by section 70203(a) and (c)(1) of Public Law 119-21, 139 Stat. 72, 176-179 (July 4, 2025), commonly known as the One, Big, Beautiful Bill Act (OBBBA), related to the allowance of a Federal income tax deduction under section 163(a) and (h)(4) for qualified passenger vehicle loan interest (QPVLI) and certain information reporting requirements under section 6050AA for persons receiving certain interest on a specified passenger vehicle loan (SPVL). This notice of proposed rulemaking also contains proposed amendments to the Procedure and Administration Regulations (26 CFR part 301) relating to electronic filing of returns under section 6011 of the Code, and penalties under section 6721 of the Code for failures to file information returns and under section 6722 of the Code for failures to furnish payee statements.

The proposed regulations are issued under the authority of section 7805(a) of the Code, which authorizes the Secretary of the Treasury or the Secretary's delegate (Secretary) to prescribe all needful rules and regulations for the enforcement of the Code including all rules and regulations as may be necessary by reason of any alteration of law in relation to internal revenue. The proposed regulations under section 6050AA are also issued under the authority of section 6050AA(e), which authorizes the Secretary to issue such regulations or other guidance as may be necessary or appropriate to carry out the purposes of section 6050AA, including regulations or other guidance to prevent the duplicate reporting of information under section 6050AA. The proposed regulations under section 6011 are also issued under the authority of section 6011(e), which authorizes the Secretary to prescribe regulations that require taxpayers to electronically file returns, including information returns, if the taxpayer is required to file at least 10 returns of any type during a calendar year.

Section 70203(a) of the OBBBA amended section 163(h) (relating to the disallowance of any deduction for personal interest) by inserting a new paragraph (4) to provide an exception for QPVLI. Additionally, section 70203(b) of the OBBBA amended section 63(b) of the Code by inserting a new paragraph (7) to allow this deduction for taxpayers that do not itemize their deductions. Further, section 70203(c) of the OBBBA added new section 6050AA to the Code to require returns relating to applicable passenger vehicle loan interest received in a trade or business from individuals. The amendments made by section 70203 of the OBBBA apply to indebtedness incurred after December 31, 2024. The new allowance of a deduction for QPVLI under section 163(a) and (h)(4) applies solely to taxable years beginning after December 31, 2024, and before January 1, 2029. New section 6050AA provides that no information return is required under section 6050AA for any period to which new section 163(h)(4) does not apply.

Section 163(a) allows a deduction for all interest paid or accrued within the taxable year on indebtedness. Section 163(h) generally disallows a deduction for personal interest. Section 163(h)(1) provides that a taxpayer other than a corporation cannot take a deduction for personal interest paid or accrued during the taxable year under chapter 1 of the Code. Section 163(h)(2) defines “personal interest” as any interest deductible under chapter 1 other than (a) interest paid or accrued on indebtedness properly allocable to the conduct of a trade or business (other than the trade or business of performing services as an employee), (b) investment interest, (c) interest taken into account under section 469 of the Code in computing income or loss from a passive activity, (d) qualified residence interest, (e) interest payable under section 6601 of the Code on any unpaid portion of the tax imposed by section 2001 of the Code for the period during which an extension of time for payment of such tax is in effect under section 6163 of the Code, and (f) any interest allowable as a deduction under section 221 of the Code.

As added by the OBBBA, new section 163(h)(4)(A) provides that in the case of taxable years beginning after December 31, 2024, and before January 1, 2029, personal interest does not include QPVLI. As a result, a deduction for QPVLI is allowable under section 163(a) for taxable years beginning after December 31, 2024, and before January 1, 2029. Section 163(h)(4)(B)(i) provides that “QPVLI” means any interest that is paid or accrued during the taxable year on indebtedness incurred by the taxpayer after December 31, 2024, for the purchase of, and that is secured by a first lien on, an applicable passenger vehicle (APV) for personal use, subject to certain enumerated exceptions in section 163(h)(4)(B)(ii). Section 163(h)(4)(C) provides limitations on the amount of QPVLI that a taxpayer can deduct during a taxable year. Section 163(h)(4)(D) defines an “APV” as a vehicle that satisfies the requirements of section 163(h)(4)(D)(i) through (vi) but excludes from the definition any vehicle the final assembly of which did not occur within the United States. Section 163(h)(4)(E) provides the definition of “final assembly” and special rules on the treatment of a refinancing and related party indebtedness.

Section 63 defines “taxable income” for purposes of subtitle A of the Code (subtitle A). Section 63(a) provides the general rule that, except as provided in section 63(b), for purposes of subtitle A, the term “taxable income” means gross income minus the deductions allowed by chapter 1 (other than the standard deduction). Section 63(b) provides that, in the case of an individual who does not elect to itemize the individual's deductions for the taxable year, for purposes of subtitle A, the term taxable income means “adjusted gross income” (as defined in section 62 of the Code), minus the deductions enumerated in section 63(b)(1) through (7). As amended by the OBBBA, new section 63(b)(7) provides that so much of the deduction allowed by section 163(a) as is attributable to the exception under section 163(h)(4)(A) is subtracted from adjusted gross income in computing taxable income.

New section 6050AA(a) provides that any person engaged in a trade or business who, in the course of that trade or business, receives from any individual interest aggregating $600 or more for any calendar year on an SPVL, must file an information return reporting the receipt of interest. Section 6050AA(b) provides that the information return filed by the recipient of such interest (interest recipient) must be in the form prescribed by the Secretary and must contain: (A) the name and address of the individual from whom such interest was received, (B) the amount of such interest received for the calendar year, (C) the amount of outstanding principal on the SPVL as of the beginning of such calendar year, (D) the date of origination of that loan, (E) the year, make, model, and vehicle identification number (VIN) of the APV that secures that loan (or any other description of that vehicle as the Secretary may prescribe), and (F) any other information as the Secretary may prescribe.

Section 6050AA(c) provides that every person required to make an information return under section 6050AA(a) must also furnish to each individual whose name is required to be included in the return a written statement showing the name, address, and phone number of the information contact of the interest recipient, and the information required to be included in the information return under section 6050AA(b)(2)(B) through (F).

Section 6050AA(e) authorizes the Secretary to issue regulations or guidance necessary to carry out the purposes of section 6050AA, including regulations or other guidance to prevent duplicate reporting.

Section 6011(e) authorizes the Secretary to prescribe regulations providing standards for determining which returns must be filed on magnetic media or in other machine-readable form. Section 6011(e)(5) authorizes the Secretary to prescribe regulations that require taxpayers to electronically file returns, including information returns, if the taxpayer is required to file at least 10 returns of any type during a calendar year.

Section 6721 imposes a penalty for any failure to file an information return on or before the required filing date, and for any failure to include all the information required to be shown on a return or the inclusion of incorrect information. Section 6722 imposes a penalty for any failure to furnish a payee statement on or before the required furnishing date to the person to whom such statement is required to be furnished and for any failure to include all the information required to be shown on a payee statement or the inclusion of incorrect information.

Section 70203(c)(2)(A) of the OBBBA amended section 6724(d)(1) to add information reporting requirements under section 6050AA—regarding returns relating to QPVLI received in a trade or business from individuals—to the definition of “information return.” Section 70203(c)(2)(B) of the OBBBA similarly amended the definition of “payee statement” in section 6724(d)(2). As a result of these amendments, penalties under sections 6721 and 6722 may be imposed on interest recipients that fail to file correct information returns and payee statements under section 6050AA.

On October 21, 2025, the IRS released Notice 2025-57, 2025-45 I.R.B. 692, to provide transitional guidance on the information reporting requirements under section 6050AA. Notice 2025-57 provides that an interest recipient will be deemed to have satisfied the reporting obligations under section 6050AA for interest on SPVLs received in 2025 if the interest recipient makes a statement available to the individual indicating the total amount of interest received in calendar year 2025 on an SPVL.

Section 163(h)(4)(B)(i) provides the general rule that QPVLI means any interest that is paid or accrued during the taxable year on indebtedness incurred by the taxpayer after December 31, 2024, for the purchase of, and that is secured by a first lien on, an APV for personal use. Proposed § 1.163-16(c)(1) would provide that interest is QPVLI only if the interest is paid or accrued on an SPVL that is secured by a first lien on the purchased APV at the time the taxpayer pays or accrues interest on that SPVL. A lender's release of a lien typically occurs following the borrower's final payment on the related indebtedness. Thus, at the time of the final payment, an SPVL would typically still be secured by a lien on the purchased APV. See parts I.C ( Interest paid or accrued ), I.E.1 ( SPVLs Generally ), and I.D ( QPVLI exceptions ) of this Explanation of Provisions.

Section 163(h)(4)(B)(i) provides that QPVLI is interest paid or accrued on indebtedness incurred by the taxpayer for the purchase of an APV for personal use.

Proposed § 1.163-16(a)(2)(i) would provide that only individuals, decedents' estates, and non-grantor trusts may deduct QPVLI. This is because only those taxpayers could be considered to have purchased an APV for personal use as described in part I.H.2 of this Explanation of Provisions ( Types of Taxpayers that May Satisfy the Personal Use Requirement ).

Under existing rules (for example, § 301.7701-3(b)), an entity may be disregarded as an entity separate from its owner for Federal tax purposes. Accordingly, for Federal income tax purposes (including for purposes of section 163(h)(4)), activities of a disregarded entity are treated as the activities of the owner. Additionally, a grantor or other person treated as owning any portion of a trust under sections 671 through 679 of the Code (a grantor trust) is treated as the owner of the trust property for Federal income tax purposes. See Revenue Ruling 85-13 (1985-1 C.B. 184). For example, if a grantor trust acquires an APV and incurs a secured loan for its purchase, the grantor trust's deemed owner is treated as the owner of the APV and the obligor of the loan, and eligibility of the grantor trust's deemed owner to deduct the interest paid by the grantor trust as QPVLI is determined by disregarding the grantor trust and instead looking to the deemed owner to test whether all of the requirements for deductible QPVLI have been satisfied. In this case, the modified adjusted gross income phaseout (as would be provided in proposed § 1.163-16(h)(2)) is determined based upon the modified adjusted gross income of the deemed owner of the grantor trust, rather than the modified adjusted gross income of the grantor trust or any other person.

Thus, similar to the deduction for qualified residence interest under section 163(h)(3), the proposed regulations would permit QPVLI to be deducted by an individual, decedent's estate, or non-grantor trust, including with respect to a grantor trust or disregarded entity deemed owned by the individual, decedent's estate, or non-grantor trust.

Section 63(b)(7) provides that the deduction for QPVLI is allowed for taxpayers who do not itemize deductions. Proposed § 1.163-16(a)(2)(ii) would clarify that the deduction for QPVLI may be taken by taxpayers who itemize deductions and taxpayers who take the standard deduction. For taxpayers who itemize deductions, the deduction is available under the general rule of section 63(a). For taxpayers who take the standard deduction, the deduction is available under section 63(b)(7).

Proposed § 1.163-16(c)(2)(i) would provide that interest on an SPVL accrues on a daily basis over the term of the SPVL, consistent with the accrual of interest on other debt instruments. The amount of QPVLI that is deductible by a taxpayer for the taxable year is determined by the taxpayer's overall method of accounting for Federal income tax purposes (either the cash receipts and disbursements method or an accrual method) or an applicable special method of accounting. For purposes of section 163(h)(4), QPVLI includes all interest payable with respect to the amount financed under an SPVL.

Proposed § 1.163-16(c)(2)(ii) would provide that a payment on an SPVL is treated first as a payment of interest to the extent interest has accrued and remains unpaid on the SPVL as of the date the payment is due, and second, to the extent of any excess, as a payment of principal. Proposed § 1.163-16(c)(2)(ii) would also make clear that, consistent with the foregoing, a simple interest calculation may be used to determine the amount of interest that has accrued and remains unpaid on an SPVL when a payment is made. Under this simple interest calculation, interest accrues daily over the term of the SPVL based on the outstanding principal balance and the Annual Percentage Rate (APR) or stated interest rate provided in the retail installment sales contract or other contract evidencing the SPVL.

As discussed in part I.A of this Explanation of Provisions ( QPVLI Generally ), proposed § 1.163-16(c)(1) would provide that interest is QPVLI only if the interest is paid or accrued on an SPVL that is secured by a first lien on the purchased APV at the time the taxpayer pays or accrues interest on that SPVL.

Consistent with section 163(h)(4)(B)(ii), proposed § 1.163-16(c)(4) would provide that QPVLI does not include amounts paid or accrued on: (i) a loan to finance fleet sales; (ii) a loan incurred for the purchase of a commercial vehicle that is not used for personal purposes; (iii) any lease financing; (iv) a loan to finance the purchase of a vehicle with a salvage title; or (v) a loan to finance the purchase of a vehicle intended to be used for scrap or parts.

Proposed § 1.163-16(b)(6) would provide that the term “lease financing” means a transaction that is not a purchase of an APV, and under which a taxpayer has usage rights with respect to an APV but is not considered the owner of the APV under State or other applicable law. As stated in part I.F of this Explanation of Provisions ( Purchase of the APV ), proposed § 1.163-16(b)(11) would provide that “purchase” means an acquisition that is both (i) an acquisition of a vehicle for Federal income tax purposes and (ii) the acquisition of the title of the vehicle for purposes of State or other applicable law. Accordingly, because under proposed § 1.163-16(b)(6) a lease financing does not involve a purchase of an APV, it would not be considered an SPVL, and QPVLI would not include any amounts paid or accrued with respect to a lease financing, including any amounts payable under the lease financing that are attributable to the time value of money.

A transaction that is a lease financing under State or other applicable law would not be a purchase within the meaning of section 163(h)(4)(B)(i) and proposed § 1.163-16(b)(6) and (11), even if the transaction is properly viewed as a sale for Federal income tax purposes. Conversely, a transaction that is a purchase of an APV under State or other applicable law that is properly viewed as a lease for Federal income tax purposes also would not be a purchase within the meaning of section 163(h)(4)(B)(i) and proposed § 1.163-16(b)(11).

Proposed § 1.163-16(c)(6)(i) would provide an example that illustrates the application of proposed § 1.163-16(c)(1) and (4) to a non-purchase transaction.

Proposed § 1.163-16(c)(3)(ii) would provide an exception to the proposed general rule in proposed § 1.163-16(c)(1) and (c)(3)(i) that interest is QPVLI only if the interest is paid or accrued on an SPVL that is secured by a first lien on the purchased APV at the time the taxpayer pays or accrues interest on that SPVL. This proposed exception would permit the substitution of collateral on the SPVL in limited circumstances. Under this proposed exception, if an SPVL is secured by a first lien on an APV that is replaced with a substitute APV due to an unforeseen intervening event, and the lien is transferred to that substitute APV under the loan documentation terms, the indebtedness will continue to be treated as an SPVL. Unforeseen intervening events would include a defective APV required to be replaced under State or other applicable lemon law or an APV that is required to be replaced due to an insurance product.

This proposed exception would be limited to substitute vehicles for which original use commences with the taxpayer, and that otherwise meet the requirements to be an APV. Furthermore, this proposed exception would be intended to apply in situations in which the existing SPVL continues without change other than the substitution of the collateral for the SPVL, as if the unforeseen intervening event did not occur. If instead the lender in that situation treats the original SPVL as being satisfied and new indebtedness as being issued to the taxpayer for the substitute vehicle, the generally applicable rules would apply for determining if this new indebtedness for the vehicle is an SPVL.

Proposed § 1.163-16(c)(6)(ii) would provide an example that illustrates the application of proposed § 1.163-16(c)(3).

Consistent with section 163(h)(4)(B)(iii), proposed § 1.163-16(c)(5) would provide that interest paid or accrued by a taxpayer during the taxable year on an SPVL is not deductible as QPVLI unless the taxpayer reports the VIN of the purchased APV on the Schedule 1-A (or successor) or other relevant form specified by the Secretary. Proposed § 1.163-16(b)(16) would provide that “VIN” means the series of Arabic numbers and Roman letters that is assigned to a motor vehicle for identification purposes under 49 CFR 565.13.

Section 163(h)(4)(B)(i) provides that interest is QPVLI only if it is paid or accrued on indebtedness that is incurred by the taxpayer after December 31, 2024, for the purchase of, and that is secured by a first lien on, an APV for personal use. Because section 163(h)(4)(B)(i) does not use a specific term for this indebtedness, proposed § 1.163-16(b)(15) refers to this indebtedness as a “specified passenger vehicle loan” or an “SPVL,” the term used in section 6050AA to reference this indebtedness.

Proposed § 1.163-16(b)(14) would provide that “secured by a first lien” means a valid and enforceable security interest in an APV under State or other applicable law with priority ahead of all other security interests, other than tax liens or other similar security interests that may be given higher priority at a later date following the date of purchase and only in limited circumstances. This exception would be intended to clarify that so-called springing liens that result due to the operation of State or other applicable law and that may be given a higher priority at a later date following the date of purchase, such as a tax lien arising due to the non-payment of State property taxes, do not prevent the APV from being secured by a first lien.

Section 163(h)(4)(E)(iii) provides that indebtedness between the taxpayer and a related party (within the meaning of section 267(b) or 707(b)(1) of the Code) is not an SPVL.

An APV may be sold under loan documentation referred to as a “motor vehicle retail installment sales contract”. A typical motor vehicle retail installment sales contract indicates the total amount to be paid as part of the purchase transaction for the APV, which includes the purchase price of the vehicle and other fees and charges for property and services that are part of the purchase transaction. The total amount to be paid for the purchase transaction takes into account the value of any trade-in vehicle and any amounts paid by a taxpayer at the time of the purchase transaction for an APV, such as a down payment. In certain cases, amounts representing debt on a vehicle traded in as part of the purchase transaction for the APV in excess of the value of the vehicle (so-called “negative equity”) are rolled into the financing for the purchase of the APV and included in the total amount to be paid as part of the purchase transaction for the APV.

The “amount financed” consists of the total amount to be paid as part of the purchase transaction for the APV, including any negative equity, reduced by the value of any trade-in vehicle and any down payment. Under the typical terms of the contract, the APR is the cost of the buyer's credit as a yearly rate. The finance charge stated in the contract, which is the total dollar amount the credit will cost the buyer, is determined based on the APR, the amount financed, and the period over which the buyer will make payments.

Proposed § 1.163-16(d)(2)(i) would provide that indebtedness qualifies as an SPVL only to the extent the indebtedness is incurred for the purchase of an APV as well as for any other items or amounts customarily financed in an APV purchase transaction and that directly relate to the purchased APV (for example, vehicle service plans, extended warranties, sales taxes, and vehicle-related fees). For this purpose, whether an item or amount is customarily financed in an APV purchase transaction would be determined on an industry-wide basis, and not by reference to the financing terms of a particular financing entity.

Proposed § 1.163-16(d)(2)(ii) would provide that to the extent any indebtedness is not described in proposed § 1.163-16(d)(2)(i), this indebtedness is not incurred by a taxpayer for the purchase of an APV, even if it is incurred as part of a purchase transaction for an APV, and, therefore, this indebtedness is not an SPVL. For example, an amount representing negative equity under an existing loan on a trade-in vehicle is not described in proposed § 1.163-16(d)(2)(i) because such negative equity is not an item or amount directly related to the purchased APV.

In addition, indebtedness is not incurred by a taxpayer for the purchase of an APV to the extent the indebtedness is incurred to purchase collision and liability insurance or to purchase any property or services not directly related to the purchased APV (for example, a trailer or a boat). Indebtedness is also not incurred by a taxpayer for the purchase of an APV to the extent the indebtedness relates to cash proceeds that the taxpayer receives from the lender.

In general, under proposed § 1.163-16(d)(2)(iii)(A), if a taxpayer incurs indebtedness attributable to more than the purchase of an APV and any items or amounts customarily financed with the purchase of the APV that are directly related to the purchased APV, the portion of the indebtedness attributable to this excess amount (nonqualifying indebtedness) would not be an SPVL. Accordingly, none of the interest attributable to this portion of the indebtedness would be deductible as QPVLI. Proposed § 1.163-16(d)(2)(iii)(B) would provide that for purposes of determining the portion of the indebtedness that constitutes nonqualifying indebtedness, any down payment or other consideration supplied by the taxpayer is applied first against any negative equity and any other amounts that are not incurred for the purchase of the APV or for other items customarily financed in an APV purchase transaction and that directly relate to the purchase of the APV. This proposed rule would reduce the amount of indebtedness that otherwise would not qualify as an SPVL to the extent of any down payment or other consideration supplied by the taxpayer. For example, if a taxpayer incurred indebtedness totaling $50,000 to purchase an APV, made a down payment of $4,000, and traded in a car with $6,000 of negative equity, and all other amounts incurred by the taxpayer were for the purchase of the APV or for other items or amounts customarily financed in an APV purchase transaction that directly relate to the purchased APV, then $48,000 of the indebtedness would qualify as an SPVL and only $2,000 would not qualify as an SPVL.

Proposed § 1.163-16(d)(6)(i) and (ii) provide examples that would illustrate the application of proposed § 1.163-16(d)(2)(i) through (iii).

Section 163(h)(4)(E)(ii) generally provides that a new loan resulting from refinancing an SPVL is an SPVL if the new loan is secured by a first lien on the APV with respect to which the refinanced SPVL was incurred, but only to the extent the amount of the new loan does not exceed the amount of the refinanced SPVL.

Proposed § 1.163-16(d)(4) would provide this rule and clarify that the amount of the new loan that is an SPVL is limited to the outstanding balance of the refinanced SPVL as of the date of the refinancing. Consistent with proposed § 1.163-16(d)(5)(i), which would provide that the SPVL would have to be originally incurred by the taxpayer, proposed § 1.163-16(d)(4) would provide that, if there is a change in obligor as part of the refinancing, the new loan is not an SPVL with regard to any obligor other than the original obligor unless the refinancing is in connection with a change in obligor by reason of the obligor's death within the meaning of proposed § 1.163-16(d)(5)(ii). See part I.E.4 of this Explanation of Provisions ( SPVL Must Be Incurred by the Taxpayer ).

Proposed § 1.163-16(d)(6)(iii) would provide an example that illustrates the application of proposed § 1.163-16(d)(4).

Proposed § 1.163-16(d)(5) would provide additional guidance on the requirement in section 163(h)(4)(B)(i) that indebtedness be “incurred by the taxpayer” in order to qualify as an SPVL. Generally, section 163(h)(4) provides an exception to the disallowance of a deduction for personal interest in section 163(h)(1) that applies to certain taxpayers that incur SPVLs. Section 163(h)(4) does not provide that indebtedness owed by a taxpayer other than the taxpayer that originally incurred the indebtedness may qualify as an SPVL.

Accordingly, proposed § 1.163-16(d)(5)(i) would provide a proposed general rule that indebtedness is an SPVL only if that indebtedness was originally incurred by the taxpayer. For example, if individual A incurs an SPVL and subsequently is replaced by individual B as the obligor on the indebtedness, the indebtedness is no longer an SPVL.

However, the proposed regulations would contain an exception to this proposed general rule for a change in obligor by reason of the obligor's death. In the limited circumstance of the death of the original obligor, this rule would treat the obligor succeeding to the decedent's interest as stepping into the shoes of the original obligor for purposes of section 163(h)(4). Thus, proposed § 1.163-16(d)(5)(ii)(A) would provide that if a change in obligor on an SPVL occurs by reason of the death of the obligor, then the indebtedness remains an SPVL with respect to the new obligor.

Proposed § 1.163-16(d)(5)(ii)(B) would provide that a change in obligor by reason of death as described in proposed § 1.163-16(d)(5)(ii) would include a change in obligor (whether through a modification of the existing indebtedness or a refinancing) by reason of the following: the succession to ownership of an APV subject to an SPVL by the deceased obligor's estate, a surviving joint owner of the APV, or the surviving beneficiary designated by contract, a transfer on death provision, or by operation of law; and a distribution of an APV subject to an SPVL by a deceased obligor's estate to a legatee or heir or by a trust that is made to a trust beneficiary by reason of death.

Proposed § 1.163-16(d)(5)(ii)(C) would provide that a change in obligor by reason of death as described in proposed § 1.163-16(d)(5)(ii) would not include changes in the obligor resulting from the following: a sale, exchange, or other disposition of an APV by a decedent's estate or trust, other than certain distributions described in proposed § 1.163-16(d)(5)(ii)(B); or any disposition of an APV by an individual who received the APV by reason of death (unless that individual also dies and the change in obligor is described in proposed § 1.163-16(d)(5)(ii)(B)).

For example, assume D, an individual, incurs indebtedness that qualifies as an SPVL. Subsequently, D dies and D's APV, subject to the SPVL, then belongs to D's estate. Sometime thereafter, D's estate distributes the APV, subject to the SPVL, to H, a residuary legatee under D's will. Subsequently, H gifts the APV, subject to the SPVL, to G, an individual. Under proposed § 1.163-16(d)(5)(ii) the indebtedness remains an SPVL with respect to D, D's estate, and H, during such time as each person held the APV subject to the indebtedness, because each of these parties is the obligor on the indebtedness due to the death of D (an obligor of an SPVL). Accordingly, D, D's estate, and H each may deduct the amount of interest that each of D, D's estate, and H, respectively, paid or accrued on the SPVL as QPVLI, subject to the requirements of section 163(h)(4)(C) and proposed § 1.163-16(h). For example, it may be the case that D and H cannot deduct the interest because their respective modified adjusted gross incomes exceed the limits imposed by section 163(h)(4)(C)(ii), but that D's estate is able to deduct the interest. However, the indebtedness is not an SPVL with respect to G because G did not originally incur the indebtedness or become the obligor on the indebtedness by reason of D's death.

Section 163(h)(4)(B)(i) requires that the indebtedness incurred by the taxpayer be for the purchase of an APV. Proposed § 1.163-16(b)(11) would provide that “purchase” means an acquisition that is both an acquisition of a vehicle for Federal income tax purposes and the acquisition of the title of the vehicle for purposes of State or other applicable law. A purchase results in the taxpayer being listed as the owner on the title or registration of the APV under State or other applicable law, with the lender listed on the title as the first lienholder. The fact that a lender may physically hold this title until the indebtedness is repaid would not affect whether the transaction is considered a purchase.

Section 163(h)(4)(D) defines APV as meaning any vehicle: (i) the original use of which commences with the taxpayer; (ii) that is manufactured primarily for use on public streets, roads, and highways (not including a vehicle operated exclusively on a rail or rails); (iii) that has at least 2 wheels; (iv) that is a car, minivan, van, sport utility vehicle, pickup truck, or motorcycle; (v) that is treated as a motor vehicle for purposes of title II of the Clean Air Act; and (vi) that has a gross vehicle weight rating of less than 14,000 pounds. Section 163(h)(4)(D) also provides that the term APV does not include any vehicle the final assembly of which did not occur within the United States.

Proposed § 1.163-16(e)(1) would provide that a vehicle is an APV only if it satisfies the requirements set forth in section 163(h)(4)(D). Proposed § 1.163-16(b)(13) would define car, minivan, van, sport utility vehicle, pickup truck, and motorcycle by reference to existing, well-established vehicle classification standards used by the Environmental Protection Agency (EPA), consistent with the reference in section 163(h)(4)(D)(v) to the Clean Air Act that the EPA administers. Proposed § 1.163-16(e)(2) and (3), respectively, would provide rules for determining whether original use commences with the taxpayer and final assembly occurred in the United States.

Proposed § 1.163-16(e)(2)(i) would provide that original use commences with the first person that takes delivery of a vehicle after the vehicle is sold, registered, or titled. In the case of a dealer, proposed § 1.163-16(e)(2)(i) would also provide that original use of a vehicle does not commence with the dealer unless the dealer registers or titles the vehicle to itself (for example, in the case of certain demonstrator vehicles or loaner vehicles). Proposed § 1.163-16(e)(2)(i) would recognize that dealers may operate vehicles prior to the sale to retail purchasers in a manner that does not require the vehicle to be registered or titled under State or other applicable law, and that operation of the vehicle in this manner would not result in original use commencing with the dealer. For example, if a dealer uses a vehicle for test drives or as a demonstrator vehicle, and State or other applicable law does not require the dealer to register or title the vehicle, original use of that vehicle would not commence with the dealer. In this case, a subsequent retail purchaser of that vehicle could satisfy the original use requirement for the vehicle. On the other hand, dealer operation that requires the vehicle to be registered or titled under State or other applicable law would cause original use to commence with the dealer. For example, if a dealer uses a vehicle as a courtesy car loaned to customers in connection with servicing or the repair of vehicles and State or other applicable law requires the dealer to register or title the vehicle, original use of that vehicle would commence with the dealer. In this case, a subsequent retail purchaser of that vehicle cannot satisfy the original use requirement for the vehicle, and therefore the vehicle would not be an APV when purchased by the retail purchaser. Although a dealer's requirement to register or title vehicles may vary under State or other applicable law, this proposed standard would be straightforward for taxpayers to apply and administrable for the IRS.

The proposed approach to original use for retail purchasers recognizes that prior use of a vehicle by the dealer that would prevent the vehicle from being sold as a new vehicle under the associated loan documentation to a retail purchaser generally would suffice to cause the original use to commence with the dealer. Accordingly, under proposed § 1.163-16(e)(2)(i), for retail purchasers that incur indebtedness to purchase a vehicle, original use would commence with that purchaser only if the loan documentation treats the vehicle as a new vehicle.

Proposed § 1.163-16(e)(2)(ii) would provide an exception to the original use requirement. Under this exception, if a retail purchaser returns a vehicle within 30 days after the purchaser took delivery of that vehicle, the original use of that vehicle would not be considered to have commenced with that purchaser. In this case, the original use of that vehicle may commence with a subsequent retail purchaser of that vehicle if that subsequent purchaser's loan documentation treats the vehicle as a new vehicle. The Treasury Department and the IRS understand that dealers may have return policies that range from several days up to 30 days, and these proposed rules are intended to reflect industry practice.

Proposed § 1.163-16(e)(2)(iii) would provide examples that illustrate the application of proposed § 1.163-16(e)(2)(i) and (ii), including the application of the proposed original use requirement to dealer demonstrator vehicles, a vehicle that was previously the subject of a cancelled sale, a vehicle that was previously leased and was purchased by the lessee after the lease was terminated, and a vehicle that was previously returned by a retail purchaser.

Section 163(h)(4)(D) provides that an APV does not include any vehicle the final assembly of which did not occur within the United States. The final assembly point is listed on the vehicle information label attached to each vehicle on a dealer's premises. Proposed § 1.163-16(e)(3) would provide that, to establish that final assembly occurred within the United States, the taxpayer may rely on (1) the vehicle's plant of manufacture as reported in the VIN under 49 CFR 565; or (2) the final assembly point reported on the label affixed to the vehicle as described in 49 CFR 583.5(a)(3). Taxpayers can determine whether the vehicle's plant of manufacture is located in the United States by following the instructions on the National Highway Traffic Safety Administration (NHTSA) VIN Decoder website: https://www.nhtsa.gov/vin-decoder.

These proposed reliance standards are intended to allow taxpayers to determine whether a vehicle meets the final assembly requirement in a straightforward manner, such that a taxpayer may more clearly make informed purchase decisions that consider the potential applicability of section 163(h)(4) at the time of the purchase of a vehicle.

The definition of QPVLI in section 163(h)(4)(B) requires that the indebtedness is incurred by the taxpayer for the purchase of an APV for personal use, as contrasted with the purchase of a vehicle for use in a trade or business, for investment, or for other non-personal use. Accordingly, proposed § 1.163-16(b)(10) would define “personal use” to mean use by an individual other than in any trade or business (except for use in the trade or business of performing services as an employee), or for the production of income. Costs of commuting between an individual's home and the individual's main or regular place of work are personal expenses. See Revenue Ruling 99-7 (1999-1 C.B. 361) and § 1.262-1(b)(5).

Inherent in section 163(h)(4)(B)(i) of the Code and the proposed definition of personal use in proposed § 1.163-16(b)(10) is that individuals may satisfy the personal use requirement. For example, an individual that incurs indebtedness for the purchase of an APV may satisfy the personal use requirement with the individual's own use of the car.

Ordinary trusts are generally formed for the purpose of protecting or conserving property for one or more beneficiaries, and this property may be property for the personal use of one or more individual beneficiaries. Decedents' estates are generally formed to hold a deceased owner's property for one or more legatees or heirs and then distribute that property to one or more legatees or heirs. Less commonly, a decedent's estate may purchase property for the personal use of one or more individual legatees or heirs. Thus, some decedents' estates and non-grantor trusts that incur indebtedness to purchase APVs may qualify to deduct QPVLI. Other non-grantor trusts might never be able to satisfy the personal use test (for example, qualified funeral trusts as defined in section 685(b) of the Code) and thus would not be able to deduct QPVLI.

In contrast to decedents' estates and non-grantor trusts, business entities generally are formed for the purpose of carrying on profit-making activities. Business entities cannot satisfy the personal use requirement of section 163(h)(4)(B)(i) and proposed § 1.163-16(f)(1) and therefore would not qualify to deduct QPVLI under proposed § 1.163-16(a)(2).

Many taxpayers purchase a vehicle and expect to use it partially for personal use and partially for non-personal use. Section 163(h)(4)(B) does not require that a vehicle be purchased exclusively for personal use. Taxpayers may not be able to estimate with precision the relative proportions of these different types of uses at the time of purchase, and requiring taxpayers to make a determination regarding the exact amount of expected personal use and non-personal use is not administrable and may result in a considerable burden to taxpayers. Additionally, section 163(h)(4) does not require that the person incurring indebtedness for the purchase of the vehicle be the same person that satisfies the personal use requirement. One member of a family may purchase a vehicle for personal use by another member of the family, and such purchase would satisfy the personal use requirement of section 163(h)(4).

Proposed § 1.163-16(f)(1) would provide that a taxpayer is considered to purchase that APV for personal use if, at the time the indebtedness is incurred, the taxpayer expects that the APV will be used for personal use by the taxpayer that incurred the indebtedness, or by certain members of that taxpayer's family and household, for more than 50 percent of the time. The proposed 50 percent threshold is intended to correspond to a vehicle being predominantly used for “personal use” within the meaning of section 163(h)(4)(B)(i) while still allowing taxpayers with considerable non-personal use to benefit from the deduction. The Treasury Department and the IRS understand that automotive retail installment sales contracts often indicate whether the purchased vehicle is for personal use or business use. Therefore, at the time a vehicle loan is incurred, the taxpayer financing the vehicle may have contemplated the intended use of a vehicle in a way that would facilitate evaluating this 50 percent personal use standard. In evaluating whether a taxpayer meets this personal use standard, it is intended that the IRS may consider information relating to the expected usage of the vehicle, such as information contained in the loan documentation and the type of collision and liability insurance held with respect to a vehicle.

Section 163(h)(4)(B)(i) of the Code could be read to require the personal use standard to be met only by reference to use by the taxpayer that incurred indebtedness to purchase the APV. However, the House Budget Report for Public Law 119-21 states that section 163(h)(4) was intended to “ease the financial burden of car ownership for working and growing families” (H.R. Rep. No. 119-106, at 1510 (2025)). As a result, such a narrow standard would appear contrary to Congressional intent in enacting section 163(h)(4) and contrary to common practices of the purchase and use of vehicles by families. Accordingly, proposed § 1.163-16(f)(1) would adopt a broader standard to allow usage by the taxpayer that incurred the indebtedness, that taxpayer's spouse, or an individual that is related to the taxpayer within the meaning of section 152(c)(2) or (d)(2) of the Code, or any combination of these individuals to qualify.

Additionally, proposed § 1.163-16(f)(2) would provide that, for purposes of determining whether a decedent's estate or non-grantor trust expects that an APV will be used for personal use, the determination is based on the expected personal use of the vehicle by the legatees or heirs, or beneficiaries, respectively, who have a present or future interest in such decedent's estate or non-grantor trust; the spouse of such legatees, heirs, or beneficiaries; or an individual that is related to such legatees, heirs, or beneficiaries within the meaning of section 152(c)(2) or (d)(2), or a combination of these individuals.

The personal use requirement in section 163(h)(4) is a requirement that must be satisfied in connection with the incurrence of indebtedness, as opposed to an ongoing requirement. As a result, a taxpayer is not required to reevaluate personal and non-personal use in taxable years after the indebtedness is incurred. Differences between expected use and later actual use do not affect the taxpayer's eligibility to deduct QPVLI, nor the amount of the taxpayer's QPVLI. The taxpayer must evaluate and determine that the personal use requirement is met at the time the indebtedness is incurred.

Under proposed § 1.163-16(f)(1), an individual, decedent's estate, or non-grantor trust that receives an APV subject to an SPVL by reason of an obligor's death would not be required to evaluate whether it satisfies the personal use requirement; instead, the indebtedness would be an SPVL if it was an SPVL in the hands of the decedent (meaning, among other things, that the decedent satisfied the personal use requirement).

See part I.I of this Explanation of Provisions ( Non-personal use and independently deductible interest ) that discusses certain proposed rules relating to vehicles used for non-personal use and independently deductible interest.

Proposed § 1.163-16(f)(3) would provide examples that illustrate the application of proposed § 1.163-16(f).

Under section 163(a), taxpayers may deduct interest that is QPVLI as a different type of interest in certain circumstances. For example, taxpayers paying interest attributable to a vehicle used in a trade or business may be able to deduct that interest as a business interest expense. The Treasury Department and the IRS understand that some taxpayers may prefer to deduct QPVLI as a different type of interest. Further, section 163(h)(4) does not affect the ability of a taxpayer to deduct interest that is otherwise able to be deducted under section 163(a) or a different section of the Code. Accordingly, the proposed regulations would provide certain rules with respect to interest that is both QPVLI and interest otherwise deductible under section 163(a) or a different section of the Code. These proposed rules are intended to provide clarity for taxpayers and to prevent taxpayers from claiming duplicative interest deductions.

Proposed § 1.163-16(g)(1) would provide that independently deductible interest means interest paid or accrued that is QPVLI (prior to the application of the dollar limitation in section 163(h)(4)(C)(i) of the Code and in proposed § 1.163-16(h)(1) and determined without regard to proposed § 1.163-16(g)) and that also is deductible as a different type of interest under section 163(a) or a different section of the Code.

Proposed § 1.163-16(g)(2) would provide that all independently deductible interest may be deductible as QPVLI or may be deductible as a different type of interest described in proposed § 1.163-16(g)(1) (non-QPVLI). In addition, proposed § 1.163-16(g)(2) would provide that the amount of independently deductible interest that may be deductible as QPVLI (before the application of the $10,000 limitation in section 163(h)(4)(C)(i)) is reduced dollar for dollar to the extent the taxpayer deducts that interest as non-QPVLI. These proposed provisions are intended to make clear that taxpayers may take any available interest deductions permitted under section 163(a) or a different section, while clarifying that a taxpayer may not deduct more total interest than otherwise is allowable. To ensure no amount of interest is deducted both as QPVLI and as some other type of deductible interest, proposed § 1.163-16(g)(3) would provide that a taxpayer must report any amount of independently deductible interest that is deducted in a taxable year as non-QPVLI on Form 1040 Schedule 1-A (or successor) or other relevant form.

Non-interest vehicle expenses deducted by a taxpayer would not affect the taxpayer's treatment of independently deductible interest or require any additional reporting. For example, non-interest vehicle expenses deducted by a taxpayer under section 162(a) as trade or business expenses have no effect on interest deducted as QPVLI for that taxable year. These amounts would not be subject to any of the proposed provisions relating to independently deductible interest.

Proposed § 1.163-16(g)(4) would provide examples that illustrate the application of proposed § 1.163-16(g), including examples in which a taxpayer chooses to deduct independently deductible interest as QPVLI, and alternatively in which the taxpayer chooses to deduct independently deductible interest as non-QPVLI.

Section 163(h)(4)(C)(i) provides that the deduction allowed for QPVLI by a taxpayer for any taxable year cannot exceed $10,000. Section 163(h)(4)(C)(i) does not provide a different amount for joint filers (in contrast to section 163(h)(4)(C)(ii), discussed in the immediately following paragraph). Accordingly, proposed § 1.163-16(h)(1) would clarify that this $10,000 limitation applies per Federal tax return. Thus, the maximum deduction allowed on a joint Federal income tax return is $10,000. If two taxpayers have a Federal income tax return filing status of married filing separately, the $10,000 limitation would apply separately to each taxpayer's return.

Section 163(h)(4)(C)(ii) provides that the amount otherwise allowable as a deduction under section 163(a) as QPVLI (after the application of the section 163(h)(4)(C)(i) dollar limitation) is reduced (but not below zero) by $200 for each $1,000 (or portion thereof) by which the modified adjusted gross income of the taxpayer for the taxable year exceeds $100,000. In the case of married taxpayers filing a joint Federal income tax return, section 163(h)(4)(C)(ii) provides that this reduction begins after the taxpayer's modified adjusted gross income exceeds $200,000.

With respect to the deduction of QPVLI by a decedent's estate or non-grantor trust (as would be defined in proposed § 1.163-16(b)(9)), the modified adjusted gross income threshold of $100,000 would be applied to the decedent's estate or non-grantor trust, and not with respect to the beneficiaries of the decedent's estate or non-grantor trust. In the case of a decedent's estate or non-grantor trust, proposed § 1.163-16(b)(7)(ii) would provide that the term “modified adjusted gross income” means adjusted gross income (as defined in section 67(e) of the Code).

Proposed § 1.163-16(h)(3) would provide examples that illustrate the application of proposed § 1.163-16(h).

The proposed regulations under section 6050AA would provide the operational, administrative, and definitional rules for persons in a trade or business who receive interest on an SPVL to comply with the statutory information reporting requirements with respect to receipt of interest to which section 163(h)(4) and proposed § 1.163-16 would apply.

In general, under section 6050AA and proposed § 1.6050AA-1(a), if the interest recipient receives from any individual at least $600 of interest on an SPVL for a calendar year, the interest recipient would be required to file an information return with the IRS and furnish a statement to the payor of record on the SPVL.

Proposed § 1.6050AA-1(b)(1) would provide that the term “applicable passenger vehicle” or “APV” has the meaning provided in section 163(h)(4)(D) and proposed § 1.163-16(b)(1). See part I.G of this Explanation of Provisions ( Applicable passenger vehicle ( APV) ).

Proposed § 1.6050AA-1(b)(2) would provide that the calendar year for which interest is received is the later of the calendar year in which the interest is received or the calendar year in which the interest properly accrues. In order to account for certain payments occurring near year end, the proposed regulations would also permit an interest recipient to report in the current calendar year prepaid interest accruing shortly after year-end. Proposed § 1.6050AA-1(b)(2)(ii) would permit an interest recipient to report as interest received during the current calendar year prepaid interest properly accruing by the following January 15. An interest recipient that reports as interest received during the current calendar year prepaid interest properly accruing by the following January 15 would not report that prepaid interest in the following calendar year. These proposed rules are consistent with the rules for reporting mortgage interest under section 6050H.

Proposed § 1.6050AA-1(b)(3) would provide that the term “interest recipient” means a person that is engaged in a trade or business, whether or not the trade or business of lending money, and that, in the course of that trade or business, receives interest on an SPVL.

The Treasury Department and the IRS understand that, in some situations, a person collects interest on an SPVL on behalf of another (for example, the lender of record). The proposed rules provide that, in that situation, the person that first receives the interest generally would be required to report under proposed § 1.6050AA-1(a), and no reporting would be required upon the transfer of the interest from the interest recipient to the person on whose behalf the interest recipient received the interest. However, an initial recipient would not be required to report interest received on behalf of the person on whose behalf the interest recipient received the interest if the initial recipient does not possess the reporting information for the borrower and the person on whose behalf the interest recipient received the interest is engaged in a trade or business and would receive the interest in the course of its trade or business if it received the interest directly. In this situation, proposed § 1.6050AA-1(b)(3)(ii)(A) would require the person on whose behalf the interest recipient received the interest, rather than the initial recipient, to report.

Proposed § 1.6050AA-1(b)(4) would provide that the term “lender of record” means the person who, at the time the loan is made, is named as the lender on the loan documents and whose right to receive payment from the payor of record is secured by a lien on the payor of record's APV. The proposed regulations would also provide that an intention by the lender of record to sell or otherwise transfer the loan to a third party subsequent to the close of the transaction would not affect the determination of who is the lender of record. As a result of the interaction between proposed § 1.6050AA-1(b)(4) and (a)(2), a lender of record would be required to file an information return with the IRS and furnish a statement to the payor of record on the SPVL if they receive at least $600 of interest on an SPVL for a calendar year, even if they intend to transfer the loan to a third party.

The Treasury Department and the IRS understand that interest recipients maintain books and records regarding loans but do not necessarily track the identity of the party actually making the payments on a particular loan. The Treasury Department and the IRS also understand that some interest recipients provide SPVLs as well as home mortgage loans and these interest recipients have an established practice for determining the payor of record with respect to such mortgage loans. Accordingly, the Treasury Department and the IRS are proposing a definition of the term “payor of record” that is similar to the definition of payor of record in § 1.6050H-1(b)(3). Proposed § 1.6050AA-1(b)(5) would define a payor of record on an SPVL as any person carried on the books and records of the interest recipient as the principal borrower on the SPVL. To prevent the duplicate reporting of information, if the books and records of the interest recipient do not indicate which borrower is the principal borrower, the proposed regulations would provide the interest recipient must designate a borrower as the principal borrower. As a result of the interaction between proposed § 1.6050AA-1(b)(5) and (a)(2), only the payor of record would be furnished a written statement on the SPVL under proposed § 1.6050AA-1(a)(2)(ii).

As described in part I.B of this Explanation of Provisions ( Taxpayers that may deduct QPVLI ), proposed § 1.163-16(a)(2)(i) would provide that only individuals, decedents' estates, and non-grantor trusts may deduct interest under section 163(h)(4). Because only these persons would need the information reported under section 6050AA to complete their income tax returns, proposed § 1.6050AA-1(b)(5) would also provide the term “person” means any individual, decedent's estate, or non-grantor trust.

Proposed § 1.6050AA-1(b)(6) would provide that the term “Secretary ” has the meaning provided in section 7701(a)(11) of the Code.

Section 6050AA(d)(2) provides that the term “specified passenger vehicle loan” means the indebtedness described in section 163(h)(4)(B) with respect to any APV. Proposed § 1.6050AA-1(b)(7) would adopt this definition and would provide that the term “specified passenger vehicle loan” or “SPVL” has the meaning provided in proposed § 1.163-16(b)(15). See part I.E of this Explanation of Provisions ( Specified passenger vehicle loan (SPVL) ).

The Treasury Department and the IRS are aware that some foreign persons may receive interest on SPVLs. Individual borrowers may not be aware that the interest recipient is a foreign person. Under proposed § 1.6050AA-1(c)(1), an interest recipient that is a foreign person would be required to report with respect to interest received on an SPVL to the extent such interest is received at a location in the United States. For example, a foreign bank with a branch located in the United States would be required to report with respect to interest received on an SPVL received at their U.S. branch. Under proposed § 1.6050AA-1(c)(2), an interest recipient that is a foreign person and receives interest at locations outside the United States would be required to report only if the foreign person is a controlled foreign corporation (as defined in section 957(a)) or if 50 percent or more of the foreign person's gross income was effectively connected with the conduct of a trade or business within the United States. This proposed 50-percent figure would be calculated based on the three-year period ending with the close of the taxable year preceding the receipt of interest. These rules are similar to the rules applicable to foreign persons that receive home mortgage interest in § 1.6050H-1(d)(1).

Proposed § 1.6050AA-1(d)(1) would provide that the reporting requirement of section 6050AA would not apply if the payor of record is a nonresident alien individual, foreign decedent's estate, or foreign non-grantor trust. Proposed § 1.6050AA-1(d)(2) would provide the documentation rules that the interest recipient would be required to follow to determine whether the payor of record is a nonresident alien individual, foreign decedent's estate, or foreign non-grantor trust. These rules are similar to the rules applicable to nonresident alien individuals that receive home mortgage interest in § 1.6050H-1(d)(2).

The Treasury Department and the IRS understand that interest recipients will often not be the person listed on the loan documents as the lender of record but that these interest recipients are instead listed on subsequent loan documents as assignees whose right to receive payment from the payor of record is secured by a lien on the payor of record's APV. Regarding the ability of these assignees to determine whether a loan is an SPVL, the Treasury Department and the IRS understand that these assignees typically receive information as part of the loan assignment process that should largely enable them to determine whether reporting is required for the assigned loan. In particular, the Treasury Department and the IRS understand these assignees typically receive a copy of the retail installment sales contract, which generally includes relevant information, including the VIN, which these interest recipients can use to determine whether the vehicle's plant of manufacture is located in the United States, and information regarding the items and amounts financed in connection with the purchase of the vehicle. Accordingly, the Treasury Department and the IRS expect that assignees will have most of the information needed based on current business practices.

One piece of relevant information that assignees may not have as result of receiving a copy of the retail installment sales contract is whether the personal use requirement is met. The Treasury Department and the IRS understand that while retail installment sales contracts often include some indication of whether a vehicle is purchased for personal or business use, this is not true of all such contracts and, for those that include some indication, the information in the contract may not be sufficient for the assignee to determine if the personal use requirement is met. If the information in the contract is sufficient for an assignee of the loan to determine that the personal use requirement is met, then, in the absence of conflicting information, the assignee may rely on that information for purposes of satisfying its information reporting obligations. The assignee may choose to make arrangements to obtain information regarding personal use from the obligor, from the lender of record, or by some other means.

Section 6050AA(a) provides that the information return relates to interest received on an SPVL. Accordingly, under proposed § 1.6050AA-1(e), whether an interest recipient receives $600 or more of interest on an SPVL would be determined on an SPVL-by-SPVL basis. An interest recipient would not be required to report interest of less than $600 received on an SPVL, even if it receives a total of $600 or more of interest on SPVLs from different vehicles from the same payor of record during a calendar year.

The Treasury Department and the IRS are aware that it might be burdensome for interest recipients to determine which SPVLs require reporting under section 6050AA in a given year based on the amount of interest received. To alleviate this burden and because the information may be useful to taxpayers claiming a deduction for QPVLI of less than $600, proposed § 1.6050AA-1(a)(3) would permit, but not require, an interest recipient to report its receipt of less than $600 of interest on an SPVL for a calendar year. To provide taxpayers with accurate information to claim the deduction, an interest recipient that chooses to file an information return under section 6050AA of less than $600 would be subject to the requirements of proposed § 1.6050AA-1.

Section 6050AA(b) provides that the information return filed by the interest recipient must be in the form prescribed by the Secretary and contain certain information. Accordingly, under proposed § 1.6050AA-1(f)(2), the interest recipient would be required to file a form designated by the Secretary that contains: (i) the name, address, and taxpayer identification number of the payor of record; (ii) the name, address, and taxpayer identification number of the interest recipient; (iii) the amount of interest received for the calendar year; (iv) the amount of outstanding principal on the SPVL as of the beginning of such calendar year; (v) the date of origination of such loan; (vi) the year, make, model, and VIN of the APV that secures such loan; (vii) the date the SPVL was acquired; and (viii) any other information required by the form or its instructions.

These items generally follow the items prescribed in section 6050AA(f)(2). In addition, because the Treasury Department and the IRS understand SPVLs may be sold or otherwise transferred to a new lender of record, proposed § 1.6050AA-1(f)(2)(vii) would require the lender of record to include the date it acquired the loan on the form.

Proposed § 1.6050AA-1(g) would require the interest recipient that would be required to file a return under proposed § 1.6050AA-1(a) to furnish a statement to the payor of record. For rules regarding electronic delivery of these written statements, see Revenue Procedure 2025-22 (2025-30 IRB 200) (or its successor), republished as Publication 1179, “General Rules and Specifications for Substitute Forms 1096, 1098, 1099, 5498, and Certain Other Information Returns).”

For purposes of tax administration, the proposed requirement to furnish written statements would require that those with a reporting obligation must provide statements to certain recipients containing the information reported to the IRS and, in some cases, additional information. Under proposed § 1.6050AA-1(g), the recipient would be the payor of record, and the written statement would be required to include the information that was reported on the form designated for this purpose. In addition, the written statement must include a legend that would identify the statement as important tax information that is being furnished to the IRS and would state that penalties may apply if the payor of record overstated a deduction for interest reported on the statement. To minimize the risk of recipients claiming an interest deduction that is limited by section 163(h)(4)(C) or otherwise ineligible, proposed § 1.6050AA-1(g)(2)(ii) would also require that the written statement include a legend stating that the payor of record may be unable to deduct the full amount of interest reported on the statement.

Section 6050AA(a) provides that the information return must be filed at such time as the Secretary may prescribe. Further, under section 6050AA(c), the written statement must be furnished to the recipient on or before January 31 of the year following the calendar year for which the information return was required to be made. Under proposed § 1.6050AA-1(f)(3), the interest recipient would be required to file the information return on or before February 28 (March 31 if filed electronically) of the year following the calendar year in which it receives the interest. To ensure the payor of record has the information necessary to prepare the payor's income tax return, and as directed by section 6050AA(c), proposed § 1.6050AA-1(g)(5) would require the interest recipient to furnish to the payor of record the written statement on or before January 31 of the year following the calendar year for which it receives the interest on the SPVL.

Section 6011(e)(5) authorizes the Secretary to prescribe regulations that require taxpayers to electronically file returns, including information returns, if the taxpayer is required to file at least 10 returns of any type during a calendar year. On February 23, 2023, the Secretary published final regulations implementing this 10-return threshold. TD 9972, 88 FR 11754 (February 23, 2023). Section 301.6011-2(b) prescribes the information returns that must be filed electronically once the ten-return threshold set out in § 301.6011-2(c)(1) is met. Consistent with section 6011(e)(5) and the existing regulations, proposed § 301.6011-2(b)(1) would add the return required under section 6050AA to the list of returns that must be filed electronically. Recipients of interest on SPVLs must file the information return required by section 6050AA and these regulations electronically if they are required to file at least 10 returns that calendar year. Any interest recipients required to file fewer than 10 returns during a calendar year may choose to make the information return reporting the interest electronically.

As amended by the OBBBA, section 6724(d)(1)(B)(xxix) defines an information return for purposes of the penalty imposed by section 6721 as including a return required by section 6050AA(a). Consistent with section 6724(d)(1)(B)(xxix), proposed § 301.6721-1(h)(3)(xxviii) would add returns required by section 6050AA to the list of information returns included in § 301.6721-1 (Failure to furnish correct information returns).

As amended by the OBBBA, section 6724(d)(2)(MM) defines a payee statement for purposes of the penalty imposed by section 6722 as including a statement required by section 6050AA(c). Consistent with section 6724(d)(2)(MM), proposed § 301.6722-1(e)(2)(xxxix) would add returns required by section 6050AA to the list of payee statements included in § 301.6722-1 (Failure to furnish correct payee statements).

The regulations under section 163 are proposed to apply to taxable years in which taxpayers may deduct QPVLI pursuant to section 163(h)(4). The regulations under section 6050AA are proposed to apply to calendar years in which taxpayers may deduct QPVLI pursuant to section 163(h)(4). A taxpayer may rely on the proposed regulations under section 163 with respect to indebtedness incurred for the purchase of an APV after December 31, 2024, and on or before the date these regulations are published as final regulations in the Federal Register , provided that the taxpayer follows these proposed regulations in their entirety and in a consistent manner. Similarly, interest recipients may rely on the proposed regulations under section 6050AA with respect to indebtedness incurred for the purchase of an APV after December 31, 2024, and on or before the date these regulations are published as final regulations in the Federal Register , provided that the taxpayer follows these proposed regulations in their entirety and in a consistent manner.

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

The proposed regulations have been designated by the Office of Management and Budget's (OMB's) Office of Information and Regulatory Affairs (OIRA) as subject to review under Executive Order 12866 pursuant to the Memorandum of Agreement (MOA, July 4, 2025) between the Treasury Department and the Office of Management and Budget regarding review of tax regulations. OIRA has determined that the proposed rulemaking is significant under section 3(f)(1) of Executive Order 12866 and subject to review under Executive Order 12866 and section 1(b) of the MOA. Accordingly, the proposed regulations have been reviewed by OMB.

This proposed rule, if finalized, is expected to be an Executive Order 14192 regulatory action.

Section 70203 of Public Law 119-21, 139 Stat. 72 (July 4, 2025), commonly known as the One, Big, Beautiful Bill Act (OBBBA), amends section 163(h) of the Internal Revenue Code  1 to provide a newly allowable income tax deduction for qualified passenger vehicle loan interest (QPVLI). In the absence of regulations, taxpayers would face substantial uncertainty about which vehicle loan interest is eligible for the deduction. The OBBBA also establishes section 6050AA of the Code to require interest recipients receiving at least $600 of interest on a specified passenger vehicle loan (SPVL) within a calendar year to file an information return with the Internal Revenue Service (IRS) and furnish a statement to the payor of record. In the absence of guidance, interest recipients would face uncertainty about how to comply with the requirements.

The proposed regulations would clarify the statute for taxpayers and lenders, including by: defining “personal use” and providing a standard for “personal use” of a vehicle; clarifying the requirements for interest to be QPVLI; clarifying the requirements for indebtedness to be a SPVL; defining “indebtedness incurred for the purchase of an applicable passenger vehicle” to include the cost of warranties, service plans, and other amounts customarily financed in a vehicle purchase transaction and that are directly related to the purchased vehicle; establishing which information must be reported by lenders to comply with the information reporting requirements; clarifying that the deduction is limited to $10,000 per return, regardless of the taxpayer's filing status; providing rules for determining whether “final assembly” of a vehicle occurred in the United States; and offering further definitions and clarifications of terms in section 163(h)(4) and section 6050AA, such as the vehicle identification number (VIN).

Under section 163(h)(1), certain taxpayers cannot deduct personal interest paid or accrued during the taxable year. Section 70203(a) of the OBBBA adds a new section to the Code, section 163(h)(4). Section 163(h)(4)(A) provides that, in the case of taxable years beginning after December 31, 2024, and before January 1, 2029, personal interest does not include QPVLI. This allows taxpayers to deduct QPVLI for taxable years beginning after December 31, 2024, and before January 1, 2029. Section 163(h)(4)(B) defines QPVLI as any interest that is paid or accrued during the taxable year on indebtedness incurred by the taxpayer after December 31, 2024, for the purchase of, and that is secured by a first lien on, an applicable passenger vehicle (APV) for personal use. Section 163(h)(4)(B) also includes exceptions to QPVLI, such as financing for commercial vehicles or lease financing, and a requirement for taxpayers to include the VIN of the APV on the tax return in order to claim the deduction.

The proposed regulations would provide definitions and clarifications of terms related to QPVLI in section 163(h)(4) and section 6050AA. The proposed regulations would clarify that individuals, decedents' estates, and non-grantor trusts may deduct QPVLI. The proposed regulations would provide that interest is only QPVLI if the interest is paid or accrued during the taxable year on indebtedness that is an SPVL secured by a first lien on an APV and is not otherwise excluded from the definition of QPVLI. The proposed regulations would adopt a standard for personal use that would provide that a taxpayer is considered to purchase an APV for personal use if, at the time the indebtedness is incurred, the taxpayer expects that the APV will be used for personal use by the taxpayer that incurred the indebtedness, that taxpayer's spouse, or an individual that is related to the taxpayer within the meaning of sections 152(c)(2) or (d)(2) of the Code, or any combination of these individuals, for more than 50 percent of the time the taxpayer expects to own the APV. The proposed 50 percent threshold is intended to correspond to a vehicle being predominantly used for “personal use” within the meaning of section 163(h)(4)(B)(i) while still allowing taxpayers with considerable non-personal use to benefit from the deduction. If the taxpayer is a decedent's estate or non-grantor trust, personal use is tested based on the use by legatees or heirs, or beneficiaries, respectively. Further, under the proposed regulations, the taxpayer would not be required to reevaluate compliance with the personal use standard in taxable years after the indebtedness is incurred. The proposed regulations also would clarify that taxpayers may not deduct the same interest as both QPVLI and otherwise deductible interest (such as a business interest expense) and that taxpayers must report certain information relating to vehicle interest deducted independent of QPVLI.

Typical auto loan sales contracts indicate an “amount financed” that may include property and services in addition to the amount for the price of the vehicle. The proposed regulations would provide that indebtedness incurred for the purchase of an APV as well as for certain items or amounts customarily financed in an APV purchase transaction and that are directly related to the purchased APV is an SPVL and therefore interest paid or accrued on such indebtedness is potentially eligible to be deducted. The regulations describe certain items and services that are considered customarily financed in an APV purchase transaction and that are directly related to the purchased APV, such as vehicle service plans, extended warranties, sales taxes, and vehicle-related fees. Indebtedness not incurred for the purchase of an APV nor for any other items or amounts customarily financed in an APV purchase transaction and that are directly related to the purchased APV, and, therefore, interest paid or accrued on such indebtedness is not QPVLI. For example, to the extent that a taxpayer incurs indebtedness to purchase collision and liability insurance or to purchase any property or services unrelated to the vehicle (for example, a trailer or a boat), that indebtedness is not an SPVL, and, therefore, interest paid or accrued on that indebtedness is not QPVLI and may not be deducted under section 163(h)(4).

Section 163(h)(4)(C) establishes limitations on the amount of QPVLI that a taxpayer may deduct. The dollar limit is $10,000 per taxable year. The proposed regulations would clarify that this limit applies regardless of the taxpayer's filing status for that taxable year. Additionally, under section 163(h)(4)(C), the deduction for QPVLI is reduced (but not below zero) by $200 for each $1,000 (or portion thereof) by which the taxpayer's modified adjusted gross income (MAGI) exceeds $100,000 ($200,000 in the case of a married couple filing a joint return). Section 163(h)(4)(C) defines “modified adjusted gross income” for the purposes of this phaseout as adjusted gross income of the taxpayer for the taxable year plus any amount excluded from gross income under sections 911, 931, or 933. The proposed regulations would clarify that for estates and non-grantor trusts, the MAGI phaseout is applied to the estate or trust, not with respect to the beneficiaries of the estate or trust; and for estates and non-grantor trusts, MAGI means AGI as defined in section 67(e).

Section 163(h)(4)(D) defines the term “applicable passenger vehicle”. The criteria for an APV include that its original use must commence with the taxpayer and that its final assembly must have occurred in the United States. The proposed regulations would provide rules for determining whether original use of a vehicle begins with the taxpayer, rules for whether a vehicle's final assembly occurred in the United States, and definitions for other APV-related terms used in the statute. Original use commences with the first person that takes delivery of a vehicle after the vehicle is sold, registered, or titled. For purchasers that are not dealers, original use does not commence with the taxpayer unless the loan documentation treats the vehicle as a new vehicle. For dealers, original use does not commence with the dealer unless the dealer registers or titles the vehicle. The proposed regulations would provide that taxpayers can determine the location of final assembly by (1) the plant of manufacture as reported in the VIN or (2) the final assembly point reported on the label affixed to the vehicle.

Section 163(h)(4)(E) provides other definitions and special rules. These include the treatment of refinancing and of indebtedness owed to related parties. The proposed regulations would clarify that for refinanced loans, the amount of the new loan on which interest is considered QPVLI is limited to the outstanding balance of the refinanced loan as of the date of the refinancing.

Section 70203(b) of the OBBBA amends section 63(b) of the Code so that the deduction for QPVLI is allowed for taxpayers who do not elect to itemize their deductions. The proposed regulations would clarify that the deduction is available to taxpayers who itemize their deductions and to taxpayers who claim the standard deduction.

Section 70203(c) of the OBBBA adds a new section 6050AA to the Code that establishes information reporting requirements for QPVLI. Any person who, in the course of a trade or business, receives from any individual more than $600 in a calendar year on a SPVL must provide an information return to the IRS and furnish a statement to the payor of record. The proposed regulations would provide operational definitions and rules for complying with the information reporting requirements. The regulations clarify the need to report the date the SPVL was acquired; require that the statement to the payor of record includes a legend clarifying that the taxpayer may be unable to deduct the full amount of interest shown on the statement; and offer guidance on reporting by and to certain foreign persons. To prevent duplicate reporting, the proposed regulations also would provide that if an interest recipient's records for a loan do not indicate which borrower is the principal borrower, the interest recipient must designate a principal borrower. This follows established practice with respect to information reporting requirements for qualified residence interest.

This document contains proposed amendments to the Branded Prescription Drug Fee Regulations (26 CFR part 51).

The proposed regulations are issued under the express delegation of authority under section 9008(i) of the Patient Protection and Affordable Care Act, Public Law 111-148, 124 Stat. 119 (2010), as amended by section 1404 of the Health Care and Education Reconciliation Act of 2010, Public Law 111-152, 124 Stat. 1029 (2010). These acts are collectively referred to in this preamble as the “ACA.” All references in this preamble to “section 9008” are references to section 9008 of the ACA. Section 9008(i) provides that the Secretary of the Treasury or the Secretary's delegate (Secretary) “shall publish guidance necessary to carry out the purposes of [section 9008].”

The proposed regulations are also issued under the express delegation of authority under section 7805(a) of the Internal Revenue Code (Code), which provides that the Secretary “shall prescribe all needful rules and regulations for the enforcement of [the Code], including all rules and regulations as may be necessary by reason of any alteration of law in relation to internal revenue.”

The branded prescription drug fee was enacted by section 9008. Section 9008 did not amend the Code but cross-references specific Code sections.

Under section 9008(a)(1), each covered entity engaged in the business of manufacturing or importing branded prescription drugs must pay an annual fee to the Secretary.

Section 9008(b) provides rules for determining the amount of the annual fee for each covered entity. Specifically, section 9008(b)(1) provides that the annual fee for each covered entity for calendar years 2019 and thereafter shall bear the same ratio to $2.8 billion as (i) the covered entity's branded prescription drug sales taken into account during the preceding calendar year to (ii) the aggregate branded prescription drug sales of all covered entities taken into account during the same year.

Section 9008(d)(1) generally defines the term “covered entity” to mean any manufacturer or importer with gross receipts from branded prescription drug sales. Section 9008(e)(1) defines the term “branded prescription drug sales” to mean sales of branded prescription drugs to any specified government program or pursuant to coverage under such program. Section 9008(e)(2)(A) generally defines the term “branded prescription drug” to mean (i) any prescription drug the application for which was submitted under section 505(b) of the Federal Food, Drug, and Cosmetic Act (21 U.S.C. 355(b)), or (ii) any biological product the license for which was submitted under section 351(a) of the Public Health Service Act (42 U.S.C. 262(a)). Section 9008(e)(2)(B) defines the term “prescription drug” for purposes of section 9008(e)(2)(A)(i) to mean any drug which is subject to section 503(b) of the Federal Food, Drug, and Cosmetic Act (21 U.S.C. 353(b)).

Section 9008(e)(4) defines the term “specified government programs” as the Medicare Part D program, the Medicare Part B program, the Medicaid program, any program under which branded prescription drugs are procured by the Department of Veterans Affairs (VA), any program under which branded prescription drugs are procured by the Department of Defense (DOD), and the TRICARE retail pharmacy program, which are collectively referred to in this preamble as the “Programs.”

Section 9008(g) requires the Secretary of Health and Human Services (Secretary of HHS), the Secretary of Veterans Affairs, and the Secretary of Defense to report to the Secretary the total branded prescription drug sales for each covered entity with respect to each specified government program. Section 9008(g)(1) specifies the information that the Secretary of HHS shall report for the Medicare Part D program. Section 9008(g)(1)(A) specifies that the costs of prescription drug plans and Medicare Advantage prescription drug plans reported by the Secretary of HHS is reduced by “any per-unit rebate, discount, or other price concession provided by the covered entity.” Section 9008(b)(3) requires the Secretary to use the data provided by the Programs to calculate the fee.

The Branded Prescription Drug Fee Regulations (TD 9684, 79 FR 43631 (July 28, 2014), as amended by TD 9823, 82 FR 34611 (July 26, 2017)), provide the method by which each covered entity's annual fee is calculated. The regulations also define terms and provide rules for the administration of the fee. See 26 CFR 51.1 through 51.11 and 51.6302.

Section 51.2 explains the terms used in 26 CFR part 51 for purposes of the fee imposed by section 9008 on branded prescription drugs. Section 51.2(b) defines the term “Agencies” to mean the Centers for Medicare & Medicaid Services of the Department of Health and Human Services (CMS), the VA, and the DOD. Section 51.2(i) defines “manufacturer or importer” as the person identified in the Labeler Code of the National Drug Code (NDC) for a branded prescription drug.

Section 51.4 sets forth the methodologies that the Agencies are required to use to calculate the drug sales amount for each specified government program. Section 51.4(b)(1) requires CMS to determine branded prescription drug sales under Medicare Part D by aggregating the ingredient cost reported in the “Ingredient Cost Paid” field on the Prescription Drug Event (PDE) records at the NDC level, reduced by discounts, rebates, and other price concessions provided by the covered entity, for each sales year. Under § 51.2(m), the term “sales year” means the second calendar year preceding the fee year.

Section 51.4(b)(2) provides that for purposes of § 51.4(b)(1), “discounts, rebates, and other price concessions” means (A) any direct and indirect remuneration (DIR) (within the meaning of § 51.4(b)(2)(ii)), which includes any DIR reported on the PDE records at the point of sale and any DIR reported on a Detailed DIR Report (within the meaning of § 51.4(b)(2)(iii)); and (B) any coverage gap discount amount (within the meaning of § 51.4(b)(2)(iv)).

Section 51.4(b)(2)(iv) provides that for purposes of § 51.4(b)(2)(i)(B), the term “coverage gap discount amount” means a 50-percent manufactured-paid (sic) discount on certain drugs under the Coverage Gap Discount Program described in section 1860D-14A of the Social Security Act (SSA) (42 U.S.C. 1395w-114a). The Coverage Gap Discount Program described in section 1860D-14A of the SSA initially required a 50-percent manufacturer-paid discount on applicable drugs in certain instances. In section 53116(b) of the Bipartisan Budget Act of 2018 (BBA), Public Law 115-123, 132 Stat 64 (February 9, 2018), Congress expanded the discount to 70 percent for plan years after plan year 2018. See 42 U.S.C. 1395w-114a(g)(4)(A).

Section 11201 of Public Law 117-169, 136 Stat. 1818 (August 16, 2022), commonly known as the Inflation Reduction Act of 2022 (IRA), redesigned the Medicare Part D benefit, including sunsetting the Coverage Gap Discount Program described in section 1860D-14A of the SSA as of January 1, 2025. Section 11201(c)(1) of the IRA amended the SSA by adding section 1860D-14C (42 U.S.C. 1395w-114c) to establish the new Manufacturer Discount Program beginning January 1, 2025, which requires participating manufacturers to provide discounted prices for applicable drugs of the manufacturer that are dispensed to applicable beneficiaries who are in the initial and catastrophic coverage phases of the Part D benefit. Under section 1860D-43(a) of the SSA, in order for coverage to be available under Part D for covered Part D drugs of a manufacturer beginning January 1, 2025, the manufacturer must participate in the Manufacturer Discount Program by entering into and having in effect a Manufacturer Discount Program agreement under which the manufacturer agrees to provide discounted prices for applicable drugs of the manufacturer that are dispensed to applicable beneficiaries.

Section 11201(c)(2) of the IRA amended section 1860D-14A of the SSA to sunset the Coverage Gap Discount Program for applicable drugs dispensed on or after January 1, 2025, but the provisions (including all responsibilities and duties) of the Coverage Gap Discount Program continue to apply with respect to applicable drugs dispensed before January 1, 2025.

To reflect statutory changes made by the BBA, the proposed regulations would update the percentage discount amount for the Coverage Gap Discount Program to reflect the statutory change from a 50 percent manufacturer-paid discount to a 70 percent manufacturer-paid discount (for plan years after plan year 2018). The proposed regulations would also correct “manufactured-paid” in the current § 51.4(b)(2)(i)(B) to “manufacturer-paid.” To reflect statutory changes made by the IRA, the proposed regulations would add references to the Manufacturer Discount Program to the rules regarding the discounts, rebates, and other price concessions that CMS uses to determine branded prescription drug sales under Medicare Part D, for purposes of the Branded Prescription Drug Fee.

The proposed regulations would not remove the Coverage Gap Discount Program from the rules regarding the discounts, rebates, and other price concessions because, due to the manner in which the fee is calculated, the discounts that the Coverage Gap Discount Program provides through December 31, 2024, may still be used to calculate the fee for sales that occurred while the Coverage Gap Discount Program was effective. Beginning in the 2027 fee year, it is expected that there will be no Coverage Gap Discount Program discounts to take into account.

The Treasury Department and the IRS are considering whether to include a sunset for using the Coverage Gap Discount Program in the final regulations. The Treasury Department and the IRS request comments about whether the final regulations should include a sunset for using the Coverage Gap Discount Program for applicable drugs dispensed on or after January 1, 2025.

Because these regulations reflect statutory changes that took effect at the beginning of 2025, these regulations are proposed to apply to fees calculated based on sales years beginning with calendar year 2025, which will also be sales years ending on or after the date these proposed regulations are filed in the Federal Register .

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

The proposed regulations have been designated by the Office of Management and Budget's (OMB's) Office of Information and Regulatory Affairs (OIRA) as subject to review under Executive Order 12866 pursuant to the Memorandum of Agreement (MOA, July 4, 2025) between the Treasury Department and the OMB regarding review of tax regulations. OIRA has determined that the proposed rulemaking is significant and subject to review under Executive Order 12866 and section 1(b) of the Memorandum of Agreement. Accordingly, the proposed regulations have been reviewed by OMB.

Section 9008 of the Patient Protection and Affordable Care Act, Public Law 111-148, 124 Stat. 119 (2010), as amended by section 1404 of the Health Care and Education Reconciliation Act of 2010, Public Law 111-152, 124 Stat. 1029 (2010) (ACA) imposes an annual fee on covered entities engaged in the business of manufacturing or importing branded prescription drugs. The amount of the annual fee is set by statute. For calendar years 2019 and thereafter, the amount of the annual fee is $2.8 billion. See section 9008(b)(4). Each covered entity's share of the annual fee is calculated by determining the ratio of the covered entity's branded prescription drug sales taken into account during the preceding calendar year to the aggregate branded prescription drug sales of all covered entities taken into account during the same year. Under section 9008(e)(1), branded prescription drug sales are sales of branded prescription drugs to any specified government program or pursuant to coverage under such program. Section 9008(g) requires the Secretary of Health and Human Services (Secretary of HHS), the Secretary of Veterans Affairs, and the Secretary of Defense to report to the Secretary the total branded prescription drug sales for each covered entity with respect to each specified government program.

Existing regulations in 26 CFR part 51 specify the method by which each covered entity's share of the annual fee is calculated. Section 51.4(b)(1) specifies the method by which the Centers for Medicare & Medicaid Services of the Department of Health and Human Services (CMS) is required to determine branded prescription drug sales under Medicare Part D. Two subsequent statutes altered inputs that CMS uses to determine Medicare Part D sales for this purpose. First, the Bipartisan Budget Act of 2018 (BBA), Public Law 115-123, 132, Stat. 64 (February 9, 2018), increased the Coverage Gap Discount Program manufacturer discount rate from 50 percent to 70 percent for plan years after 2018. Second, the Inflation Reduction Act of 2022 (IRA), Public Law 117-169, 136 Stat. 1818 (August 16, 2022), sunsets the Coverage Gap Discount Program effective January 1, 2025, and establishes the Manufacturer Discount Program.

The proposed regulations update existing regulations so that they are consistent with the statute and with how the covered entities have been calculating their share of the annual fee since enactment of the BBA and the IRA. The proposed regulations reflect the BBA's increase to a 70-percent manufacturer discount (as applicable) and add the IRA's Manufacturer Discount Program discounts to the list of reductions CMS uses when computing branded prescription drug sales under Medicare Part D. Because fees are calculated using sales from prior years, Coverage Gap Discount Program discounts provided through December 31, 2024, may still enter fee computations for several sales years. Beginning in the 2027 fee year, no Coverage Gap Discount Program discounts are expected to be taken into account. The updates are necessary to align the regulations with statutory changes so that CMS-reported Medicare Part D sales accurately incorporate the discount programs in effect for the relevant sales years.

The proposed regulations update the existing regulations regarding the discounts, rebates, and other price concessions that CMS uses to determine branded prescription drug sales, to reflect changes made by the BBA and IRA and to reflect how covered entities are currently calculating their share of the fee. The proposed regulations add the Manufacturer Discount Program, which was established by the IRA, to the list of reductions that CMS uses to calculate branded prescription drug sales. The proposed regulations also update the percentage discount amount used for the Coverage Gap Discount Program to reflect the statutory change made by the BBA for plan years after plan year 2018.

The Treasury Department and the IRS have assessed the benefits and costs of the proposed regulations relative to a no-action baseline reflecting anticipated Federal income tax-related behavior in the absence of these proposed regulations.

The Branded Prescription Drug Fee affects manufacturers and importers of branded prescription drugs with sales to specified government programs (Medicare Part D, Medicare Part B, Medicaid, Department of Veterans Affairs programs that procure branded prescription drugs, Department of Defense programs that procure branded prescription drugs, and TRICARE). Based on records from tax year 2024, the Treasury Department and the IRS estimate the fee impacts roughly 300 affected entities. The proposed regulations apply to how other Federal agencies compile and transmit data, not to new reporting requirements for these affected entities.

The primary effect of the proposed regulations would be improved administrative alignment and clarity. Under the baseline, existing regulations would continue to reference only the Coverage Gap Discount Program and a 50-percent discount, which would not reflect post-2018 discount levels or the post-2024 Medicare Part D discount program. That mismatch would increase uncertainty about how agency data should be compiled after changes made by the IRA and BBA. The proposal clarifies which Medicare Part D discounts reduce branded prescription drug sales for fee computations—ensuring the regulations mirror the BBA and IRA changes. Because the rule clarifies information-collection procedures that already occur at other Federal agencies, Treasury and IRS expect minimal impact on affected entity compliance costs since the covered entities are calculating fees according to the statute. Affected entities are expected to benefit from clearer rules that reduce policy uncertainty and the risk of disputes about discount treatment, but, in aggregate, Treasury and IRS expect these benefits to be small. The regulations will also improve administrative efficiency for CMS and the IRS through consistent data definitions across years. Minor one-time administrative costs incurred by CMS to reflect the updated Manufacturer Discount Program are already part of CMS's program implementation under the IRA and are not imposed by this regulation.

The Treasury Department and the IRS considered the alternative option of taking no action to update the existing regulations in 26 CFR part 51 to reflect the changes made by the IRA and BBA. This alternative would leave uncertainty as to how CMS data will be reported to the IRS for purposes of calculating each covered entity's share of the Branded Prescription Drug Fee. Therefore, the approach to issue proposed regulations to update the existing regulations to align with changes made by the IRA and BBA was selected over the alternative option of taking no action.

This rulemaking does not contain a collection of information from the public, and therefore it is not required to be reviewed and approved by the Office of Management and Budget in accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)). An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a valid control number.

It is hereby certified that these regulations will not have a significant economic impact on a substantial number of small entities. These regulations do not affect small entities because they merely clarify procedures that already occur at another Federal agency. Affected entities exclude the first $5 million in sales and exclude 90 percent of sales that are over $5 million and not more than $125 million, which minimizes or completely eliminates any additional burden these proposed regulations might impose on small businesses. Entities engaged in pharmaceutical manufacturing or drug wholesaling with aggregate branded drug sales more than $5 million may benefit from clearer rules, but these impacts are not substantial. Entities with aggregate branded drug sales not more than $5 million will not be impacted.

Pursuant to section 7805(f) of the Code, this notice of proposed rulemaking will be submitted to the Chief Counsel for the Office of Advocacy of the Small Business Administration for comment on its impact on small businesses.

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

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

Before the proposed amendments to the regulations are adopted as final regulations, consideration will be given to comments that are submitted timely to the IRS as prescribed in the preamble under the ADDRESSES section. The Treasury Department and the IRS request comments on all aspects of the proposed regulations. All commenters are strongly encouraged to submit comments electronically. The Treasury Department and the IRS will publish for public availability any comment submitted electronically or on paper to its public docket on https://www.regulations.gov .

A public hearing will be scheduled if requested in writing by any person who timely submits electronic or written comments. Requests for a public hearing are encouraged to be made electronically. If a public hearing is scheduled, a notice of the date and time for the public hearing will be published in the Federal Register . Announcement 2023-16, 2023-20 I.R.B. 854 (May 15, 2023), provides that public hearings will be conducted in person, although the IRS will continue to provide a telephonic option for individuals who wish to attend or testify at a hearing by telephone. Any telephonic hearing will be made accessible to people with disabilities.

Announcement 2023-16 is published in the Internal Revenue Bulletin and is available from the Superintendent of Documents, U.S. Government Publishing Office, Washington, DC 20402, or by visiting the IRS website at http://www.irs.gov .

The principal author of these regulations is Julia Barlow of the Office of the Associate Chief Counsel (Energy, Credit, and Excise Tax). However, other personnel from the Treasury Department and the IRS participated in its development.

Accordingly, the Treasury Department and the IRS propose to amend 26 CFR part 51 as follows:

This document proposes to approve revisions to the Colorado SIP that incorporate certain provisions of Colorado's Procedural Rules and Common Provisions Regulation. We have published a direct final rule approving those revisions in the Rules and Regulations section of this Federal Register because we view this as a noncontroversial action and anticipate no adverse comment. We have explained our reasons for this action in the preamble to the direct final rule.

If we receive no adverse comment, we will not take further action on this proposed rule. If we receive adverse comment, we will withdraw the direct final rule, and it will not take effect. We will address all public comments in any subsequent final rule based on this proposed rule.

We do not intend to institute a second comment period on this action. Any parties interested in commenting must do so at this time. For further information, please see the information provided in the ADDRESSES section of this document.

On February 13, 2025, Maryland submitted a request to revise the Philadelphia nonattainment area into two separate nonattainment areas, covering the identical geographic area of the existing Philadelphia nonattainment area, and creating a smaller stand-alone nonattainment area for Cecil County, MD and a larger nonattainment area consisting of the remainder of the counties in the existing Philadelphia nonattainment area. On August 15, 2025, Delaware also submitted a request to revise the boundaries for the existing Philadelphia nonattainment area and create a stand-alone nonattainment area for New Castle County, DE. However, considering both requests, the EPA is proposing to act on these separate requests in the same notice to streamline the changes to the Philadelphia nonattainment area boundaries. Thus, the EPA is proposing to split the identical geographic area of the existing Philadelphia nonattainment area into three nonattainment areas: the Cecil County, MD nonattainment area, the New Castle County, DE nonattainment area, and the revised Philadelphia-Atlantic City, PA-NJ nonattainment area. These proposed revised designations are supported by an analysis of air quality data, emissions and emissions-related data, meteorology, geography/topography, and jurisdictional boundaries. If finalized, all areas would retain their current designation statuses and classifications for each respective ozone NAAQS. Additionally, if the revised designations and CDDs are finalized, the proposed CDDs would suspend the obligations of Maryland and Delaware to submit certain attainment planning requirements for their respective nonattainment areas for as long as each area continues to attain the 2008 and 2015 ozone NAAQS. Nonetheless, the EPA views each state's request as separable redesignation requests and may take separate final action on each request and adjust the area boundaries accordingly.

Under section 109 of the CAA, the EPA has established primary and secondary NAAQS for certain air pollutants (referred to as “criteria pollutants”) and conducts periodic reviews of the NAAQS to determine whether they should be revised or whether new NAAQS should be established. The primary NAAQS represent ambient air quality standards which the EPA has determined are necessary to protect the public health with an adequate margin of safety. The secondary NAAQS represent ambient air quality standards which the EPA has determined are requisite to protect the public welfare from any known or anticipated adverse effects associated with the presence of such air pollutant in the ambient air.

Ground-level ozone is one such NAAQS. Ozone forms from complex chemical reactions in ambient air between nitrogen oxides (NO X ) and volatile organic compounds (VOCs). Cars, trucks, buses, engines, industries, power plants and products such as solvents and paints are among the major manmade sources of ozone-forming emissions. Exposure to ozone can harm the respiratory system, aggravate asthma and other lung diseases, and is linked to premature death from respiratory causes.

Following promulgation of a new or revised NAAQS, the EPA is required by section 107(d)(1) of the CAA to designate areas throughout the United States as attainment, nonattainment, or unclassifiable for the NAAQS.

On March 27, 2008 (73 FR 16436), the EPA revised the 8-hour ozone NAAQS by lowering the level of the primary and secondary standards from 0.08 parts per million (ppm) to 0.075 ppm (75 parts per billion (ppb)) (40 CFR 50.15). The standards are based on the annual 4th highest daily maximum 8-hour average ozone concentration, averaged over three consecutive years. 1 This average is referred to as the design value for each 3-year period. 2 Only ozone measurement data collected in accordance with the quality assurance (QA) requirements using approved Federal Reference Method (FRM) or Federal Equivalent Method (FEM) monitors are used for NAAQS compliance determinations. 3 The EPA uses FRM/FEM measurement data residing in the EPA's Air Quality System (AQS) database to calculate the ozone design values. On May 21, 2012 (77 FR 30088), the EPA designated the Philadelphia nonattainment area as nonattainment for the 2008 ozone NAAQS, based on air quality data from the 2008-2010 monitoring period that showed a design value of 83 ppb. 4 Cecil County, MD and New Castle County, DE were included in the Philadelphia nonattainment area based on air quality data from the 2008-2010 monitoring period that showed design values of 80 ppb and 76 ppb for each county, respectively.

At the time of designation, the Philadelphia nonattainment area was initially classified as Marginal with an attainment date of July 20, 2015, for the 2008 ozone NAAQS. On May 4, 2016, the EPA determined that the area qualified for a one-year attainment date extension to July 20, 2016 (81 FR 26697).

On November 2, 2017, the EPA determined that the Philadelphia nonattainment area had attained the standard by its extended attainment date of July 20, 2016, effective December 4, 2017 (82 FR 50814). This determination was based on complete, certified, and quality assured ambient air quality monitoring data for the Philadelphia nonattainment area for the 2013-2015 monitoring period. The determination of attainment of the 2008 ozone NAAQS is not equivalent to a redesignation to attainment or a CDD; the states in the Philadelphia nonattainment area must still meet the statutory requirements for redesignation in order to be redesignated to attainment.

On October 26, 2015, the EPA further revised the 8-hour ozone NAAQS by lowering the level of the primary and secondary standards from 75 ppb to 70 ppb (40 CFR 50.19). Effective August 3, 2018, the EPA designated 52 areas throughout the country as nonattainment for the 2015 ozone NAAQS, including the Philadelphia nonattainment area, which was initially classified as a Marginal nonattainment area based on certified air quality monitoring data from calendar years 2014 to 2016 (83 FR 25776, June 4, 2018). The design value for the Philadelphia nonattainment area for the 2014-2016 monitoring period was 77 ppb. Cecil County, MD and New Castle County, DE were included in the Philadelphia nonattainment area based on air quality data from the 2014-2016 monitoring period that showed design values of 74 ppb for each county. As established by the EPA's March 2018 “Classifications Rule”, the attainment date for Marginal nonattainment areas as three years from the effective date of the final designations. 5 Thus, the attainment date for the Philadelphia nonattainment area for the 2015 ozone NAAQS was August 3, 2021.

Effective November 7, 2022, the EPA determined that the Philadelphia nonattainment area failed to attain by the Marginal area attainment date and the area was reclassified by operation of law to Moderate. 6 This finding was based on certified air quality monitoring data from calendar years 2018 to 2020. The design value for the Philadelphia nonattainment area for the 2018-2020 monitoring period was 74 ppb. For that same period, the design value for Cecil County, MD was 68 ppb, and the design value for New Castle County, DE was 65 ppb. As established by the March 2018 “Classifications Rule”, the Moderate area attainment date for the 2015 ozone NAAQS was August 3, 2024, six years from the effective date of designation.

On July 30, 2024 (89 FR 61025), the EPA granted a request from the Commonwealth of Pennsylvania (Pennsylvania) and the States of New Jersey, Maryland, and Delaware to voluntarily reclassify the Philadelphia nonattainment area from Moderate to Serious for the 2015 ozone NAAQS under CAA section 181(b)(3). The attainment date for 2015 ozone NAAQS Serious areas is August 3, 2027, nine years from the effective date of designation. 7 Accordingly, each state in the Philadelphia nonattainment area must provide a Serious nonattainment plan to the EPA by January 1, 2026, demonstrating how the area will come into attainment with the standard by the attainment date. 8

On February 13, 2025, Governor Wes Moore and the Maryland Department of the Environment (MDE) submitted a request and accompanying five-factor analysis for the EPA to revise the boundary of the Philadelphia nonattainment area for the 2008 ozone NAAQS and 2015 ozone NAAQS. 9 Maryland requested, under CAA section 107(d)(3)(D), to revise the boundary for the existing Philadelphia nonattainment area by splitting it into two distinct nonattainment areas for the 2008 ozone NAAQS and 2015 ozone NAAQS: a Southern Philadelphia nonattainment area encompassing all of Cecil County, MD and a Central Philadelphia nonattainment area encompassing the existing nonattainment area counties in Delaware, New Jersey, and Pennsylvania. As discussed in section IV of this proposal, due to Delaware's similar concurrent proposal, the EPA is proposing to revise the Philadelphia nonattainment area into three distinct nonattainment areas.

There are 20 FRM/FEM ozone monitors throughout the existing Philadelphia nonattainment area. The data from these monitors demonstrate a decrease in ozone levels in the Philadelphia nonattainment area from 2014 to 2024. The design values from the Fair Hill monitor in Cecil County, MD have remained below the 2015 NAAQS since the 2018-2020 monitoring period. 10

The EPA is using the technical information contained in Maryland's February 13, 2025 submittal and the most recent complete, quality-assured, and certified air quality data for the 2022-2024 monitoring period to support the record for this proposed rulemaking.

On August 15, 2025, Governor Matt Meyer and the Delaware Department of Natural Resources and Environmental Control (DNREC) submitted a request and accompanying five-factor analysis for the EPA to revise the boundary of the Philadelphia nonattainment area for the 2008 ozone NAAQS and 2015 ozone NAAQS. 11 Delaware requested, under CAA section 107(d)(3)(D), to revise the boundary for the existing Philadelphia nonattainment area for the 2008 ozone NAAQS and the 2015 ozone NAAQS to create a stand-alone nonattainment area for New Castle County, Delaware.

There are 20 ozone monitors throughout the existing Philadelphia nonattainment area. The data from these monitors demonstrate a decrease in ozone levels in the Philadelphia nonattainment area from 2014 to 2024. The design values from the four monitors in New Castle County, DE have remained below the 2015 NAAQS since the 2017-2019 monitoring period. 12

The EPA is using the technical information contained in Delaware's August 15, 2025 submittal, the EPA's supplemental analyses, and the most recent complete, quality-assured, and certified air quality data for the 2022-2024 monitoring period to support the record for this proposed rulemaking.

In this rulemaking, the EPA is proposing to take six actions. In two separate actions, under the authority of CAA section 107(d)(3)(D), the EPA is proposing to approve Maryland and Delaware's separate requested revisions to the Philadelphia nonattainment area. To take both requests into consideration, the EPA is proposing to revise the original Philadelphia-Wilmington-Atlantic City, PA-NJ-MD-DE nonattainment area for the 2008 ozone NAAQS and 2015 ozone NAAQS into three separate nonattainment areas that together cover the identical geographic area of the original nonattainment area. Second, pursuant to regulations at 40 CFR 51.1118 and 51.1318, the EPA is proposing to issue four CDDs for the proposed Cecil County, MD nonattainment area and proposed New Castle County, DE nonattainment area for the 2008 and 2015 ozone NAAQS.

Maryland's redesignation request is separable from Delaware's redesignation request. Each redesignation request is also separable from its associated CDDs, such that the EPA may take final action on the redesignation request separate from the associated CDDs, so long as action on the redesignation request precedes that area's CDDs. A CDD for the 2015 ozone NAAQS is separable from a CDD for the 2008 ozone NAAQS. The proposed Cecil County, MD nonattainment area CDDs are also separable from the proposed New Castle County, DE nonattainment area CDDs. Thus, final action on the CDDs for the Cecil County, MD nonattainment area will not impact final action on the CDDs for the New Castle County, DE nonattainment area. The proposed revisions to the Philadelphia nonattainment area boundary for the 2008 and 2015 ozone NAAQS does not affect the boundary of the Philadelphia-Wilmington, PA-NJ-DE maintenance area for the 2006 24-hour fine particulate matter NAAQS.

In determining whether to approve or deny a state's request for a revision to the designation of an area under CAA section 107(d)(3)(D), the EPA considers the same factors when the EPA initiates a revision to a designation of an area on its own motion under CAA section 107(d)(3)(A). These, CAA section 107(d)(3)(A), factors include “air quality data, planning and control considerations, or any other air quality-related considerations the Administrator deems appropriate.” Using CAA section 107(d)(3)(A) as a framework, the EPA considers 5 factors when issuing initial area designations and when evaluating requests under CAA section 107(d)(3)(D): air quality data, emissions and emissions-related data, meteorology, geography/topography, and jurisdictional boundaries. 13

If the EPA finalizes this rulemaking as proposed, the current Philadelphia nonattainment area for the 2008 ozone NAAQS and the 2015 ozone NAAQS would be split into three distinct nonattainment areas that together cover the identical geographic area of the current area. One of the proposed separate areas, to be called the “Cecil County, MD Nonattainment Area,” would consist of Cecil County, MD. The other proposed separate area, to be called the “New Castle County, DE Nonattainment Area,” would consist of New Castle County, DE. The revised Philadelphia nonattainment area would consist of the remaining existing nonattainment area counties in New Jersey and Pennsylvania, and be called the “Philadelphia-Atlantic City, PA-NJ” nonattainment area. 14 All areas would continue to be designated nonattainment and classified as Marginal for the 2008 ozone NAAQS and classified as Serious for the 2015 ozone NAAQS.

Section 107(d)(1)(A)(i) of the CAA defines “nonattainment” as “any area that does not meet (or that contributes to ambient air quality in a nearby area that does not meet)” the NAAQS. Therefore, consistent with the statute the EPA will not redraw the boundaries of nonattainment areas where one portion of the area contributes to the nonattainment of another portion of the area.

Based on a consideration of the information submitted by Maryland and other available information discussed in the EPA's TSD included in the docket for this rulemaking, the EPA is proposing to find that the air quality data, emissions and emissions-related data, meteorology, geography/topography, jurisdictional boundaries, other air quality related considerations, as well as planning and control considerations, support the state's request to revise the Philadelphia nonattainment area boundary.

Maryland's February 13, 2025, submittal requested that the EPA split the Philadelphia nonattainment area for the 2008 ozone NAAQS and 2015 ozone NAAQS and create a stand-alone nonattainment area for Cecil County, MD. In this rulemaking, the EPA is proposing to revise the existing nonattainment area boundary into three separate nonattainment areas, acknowledging the differences in the factors contributing to ozone levels in the separate areas, and thus providing Maryland with additional flexibility in meeting the CAA's nonattainment area planning and emissions control requirements. This includes the ability to account for differences in air quality in the separate areas in the event that one of the new, separate areas attains the ozone standards faster than the other.

The EPA proposes in this rulemaking that the available information demonstrates that the proposed new Cecil County, MD nonattainment area does not contribute to a violation of the 2015 ozone NAAQS in the proposed Philadelphia nonattainment area or the proposed New Castle County, DE nonattainment area (there is no violation in this area), and thus it is appropriate that the three areas be considered separate for implementation and planning purposes. An analysis of the five recommended factors and a weight-of-evidence approach supports this conclusion. The air quality data in Cecil County, MD show that there have been no violations of the 2015 ozone standard since 2020. An analysis of emissions data, considering meteorological and geographical/topographical factors, support the conclusion that the emissions from this area are not contributing to the violations in the proposed Philadelphia nonattainment area. Additionally, to take jurisdictional boundaries into consideration, the proposed Cecil County, MD nonattainment area follows the county boundary. A detailed analysis supporting this demonstration can be found in the TSD contained in the docket for this rulemaking.

Because this rulemaking also proposes to find that the proposed Cecil County, MD nonattainment area is attaining the 2015 ozone NAAQS, it is not necessary to consider whether the proposed Philadelphia-Atlantic City, PA-NJ nonattainment area or the proposed New Castle County, DE nonattainment area contributes to a violation of the 2015 ozone NAAQS in the proposed Cecil County, MD nonattainment area, as no such violation exists. Because the 2015 ozone NAAQS retains the same general form and averaging time as the 2008 ozone NAAQS, but is set at a more protective level, the EPA's analysis for the 2015 ozone NAAQS suffices as a demonstration for an identical nonattainment area boundary revision for the less stringent 2008 ozone NAAQS.

Based on a consideration of the information submitted by Delaware and other available information discussed in the EPA's TSD included in the docket for this rulemaking, the EPA is proposing to find that the air quality data, emissions and emissions-related data, meteorology, geography/topography, and jurisdictional boundaries, as well as planning and control considerations, support the state's request to revise the Philadelphia nonattainment area boundary.

Delaware's August 15, 2025, submittal requested that the EPA revise the boundary for the existing Philadelphia nonattainment area for the 2008 ozone NAAQS and the 2015 ozone NAAQS and create a stand-alone nonattainment area for New Castle County, DE. To this end, the EPA proposes to revise the existing nonattainment area boundary into three separate nonattainment areas, acknowledging the differences in the factors contributing to ozone levels in the separate areas, thus providing Delaware with additional flexibility in meeting the CAA's nonattainment area planning and emissions control requirements. This includes the ability to account for differences in air quality in the separate areas in the event that one of the new, separate areas attains the ozone standards faster than the other.

The EPA proposes in this document that the available information demonstrates that the proposed New Castle County, DE nonattainment area does not contribute to a violation of the 2015 ozone NAAQS in the proposed Philadelphia nonattainment area or the proposed Cecil County MD, nonattainment area (there is no violation in this area), and thus it is appropriate that the three areas be considered separate for implementation and planning purposes. An analysis of the five recommended factors and a weight-of-evidence approach supports this conclusion. The air quality data in New Castle County, DE show that there have been no violations of the 2015 ozone standard since 2019. An analysis of emissions data, considering meteorological and geographical/topographical factors, support the conclusion that the emissions from this area are not contributing to the violations in the proposed Philadelphia nonattainment area. The EPA supplemented Delaware's meteorological data by analyzing monitors that violated the standard in 2023 and 2024 using HYSPLIT (HYbrid Single-Particle Lagrangian Integrated Trajectory) modeling and TROPOMI (Tropospheric Monitoring Instrument) satellite images. Additionally, to take jurisdictional boundaries into consideration, the proposed New Castle County, DE nonattainment area follows the county boundary. A detailed analysis supporting this demonstration can be found in the TSD contained in the docket for this rulemaking.

Because this rulemaking also proposes to find that the proposed New Castle County, DE nonattainment area is attaining the 2015 ozone NAAQS, it is not necessary to consider whether the proposed Philadelphia-Atlantic City, PA-NJ nonattainment area or the proposed Cecil County, MD nonattainment area contributes to a violation of the 2015 ozone NAAQS in the proposed New Castle County, DE nonattainment area, as no such violation exists. Because the 2015 ozone NAAQS retains the same general form and averaging time as the 2008 ozone NAAQS, but is set at a more protective level, the EPA's analysis for the 2015 ozone NAAQS suffices as a demonstration for an identical nonattainment area boundary revision for the less stringent 2008 ozone NAAQS.

An area is attaining the 2015 ozone NAAQS if it meets the 2015 ozone NAAQS, as determined in accordance with 40 CFR 50.19 and appendix U of part 50, based on three complete, consecutive calendar years of quality-assured air quality data for all monitoring sites in the area. To attain the 2015 ozone NAAQS, the three-year average of the annual fourth-highest daily maximum 8-hour average ozone concentrations (ozone design values) at each monitor must not exceed 70 ppb. The air quality data must be collected and quality-assured in accordance with 40 CFR part 58 and recorded in the EPA's AQS. Ambient air quality monitoring data for the three-year period must also meet data completeness requirements. An ozone design value is valid if daily maximum 8-hour average concentrations are available for at least 90% of the days within the ozone monitoring seasons, 15 on average, for the three-year period, with a minimum data completeness of 75% during the ozone monitoring season of any year during the three-year period. See section 4 of appendix U to 40 CFR part 50.

In accordance with 40 CFR 51.1118 and 51.1318, the EPA proposes to determine that the proposed Cecil County, MD nonattainment area is attaining the 2015 ozone NAAQS. Because the 2015 ozone NAAQS retains the same general form and averaging time as the 2008 ozone NAAQS, but is set at a more protective level, the EPA's analysis for the 2015 ozone NAAQS CDD suffices as a CDD analysis for the less stringent 2008 ozone NAAQS. This determination is based upon two three-year periods of complete, quality-assured and certified data for the 2021-2023 and 2022-2024 monitoring periods. The Fair Hill monitor with site ID 24-015-0003 is the only FRM ozone monitor within the proposed separate Cecil County, MD nonattainment area; the annual fourth-highest 8-hour ozone concentrations and the three-year average of these concentrations (monitoring site ozone design values) for this monitoring site are summarized in Table 1 in this document.

The most recent three-year ozone design value for the proposed Cecil County, MD nonattainment area is 67 ppb, which meets the 2015 ozone NAAQS. Therefore, in this rulemaking, the EPA proposes to determine that the proposed separate Cecil County, MD nonattainment area is attaining the 2008 and 2015 ozone NAAQS.

The EPA will not take final action to determine that the proposed separate Cecil County, MD nonattainment area is attaining the 2008 or 2015 ozone NAAQS if the design value of a monitoring site in the area exceeds the 2008 or 2015 ozone NAAQS respectively after proposal but prior to final approval of the CDD. Additionally, if after proposal but prior to final approval, the proposed separate Cecil County, MD nonattainment area is attaining the 2008 ozone NAAQS but not the 2015 ozone NAAQS, the EPA may finalize a CDD for only the 2008 standard and not the 2015 standard. The EPA will not finalize any CDD for Cecil County unless and until the EPA takes final action on the proposed revision splitting Cecil County, MD nonattainment area from the Philadelphia nonattainment area.

Should this rulemaking be finalized, the requirements for MDE to submit attainment demonstrations, and associated reasonably available control measures (RACM), reasonable further progress (RFP) plans, contingency measures, and any other planning requirements related to attainment of the 2008 and 2015 ozone NAAQS for the proposed Cecil County, MD nonattainment area, would be suspended until the EPA rescinds the CDD due to the area no longer attaining the 2015 ozone NAAQS. This rulemaking does not constitute a redesignation of the area to attainment of the 2008 or 2015 ozone NAAQS under section 107(d)(3)(E) of the CAA, nor does it constitute approval of a maintenance plan for the area as required under section 175A of the CAA, nor does it find that the area has met all other requirements for redesignation. The proposed Cecil County, MD nonattainment area will remain designated nonattainment for the 2008 and 2015 ozone NAAQS until such time as the EPA determines that the area meets CAA requirements for redesignation to attainment and takes a separate action to redesignate the area.

In accordance with 40 CFR 51.1118 and 51.1318, the EPA proposes to determine that the proposed New Castle County, DE nonattainment area is attaining the 2008 and 2015 ozone NAAQS. Because the 2015 ozone NAAQS retains the same general form and averaging time as the 2008 ozone NAAQS, but is set at a more protective level, the EPA's analysis for the 2015 ozone NAAQS CDD suffices as a CDD analysis for the less stringent 2008 ozone NAAQS. This determination is based upon two three-year periods of complete, quality-assured and certified data for the 2021-2023 and 2022-2024 monitoring periods. There are four FRM/FEM monitors within the proposed separate New Castle County, DE nonattainment area; the annual fourth-highest 8-hour ozone concentrations and the three-year average of these concentrations (monitoring site ozone design values) for these monitoring sites are summarized in Table 2 in this document.

Where several monitors are located in a county (or a designated nonattainment area or maintenance area), the design value for the county or area is determined by the monitor with the highest level. The highest most recent three-year ozone design value for the proposed New Castle County, DE nonattainment area is 68 ppb, which meets the 2015 ozone NAAQS. Therefore, in this rulemaking, the EPA proposes to determine that the proposed separate New Castle County, DE nonattainment area is attaining the 2008 and 2015 ozone NAAQS.

The EPA will not take final action to determine that the proposed separate New Castle County, DE nonattainment area is attaining the 2008 or 2015 ozone NAAQS if the design value of a monitoring site in the area exceeds the 2008 or 2015 ozone NAAQS respectively after proposal but prior to final approval of the CDDs. Additionally, if after proposal but prior to final approval, the proposed separate New Castle County, DE nonattainment area is attaining the 2008 ozone NAAQS but not the 2015 ozone NAAQS, the EPA may finalize a CDD for only the 2008 standard and not the 2015 standard. The EPA will not finalize any CDD for New Castle County unless and until the EPA takes final action on the proposed revision splitting New Castle County, DE nonattainment area from the Philadelphia nonattainment area.

Should this rulemaking be finalized, the requirements for DNREC to submit attainment demonstrations, and associated RACM, RFP plans, contingency measures, and any other planning requirements related to attainment of the 2008 and 2015 ozone NAAQS for the proposed New Castle County, DE nonattainment area, would be suspended until the EPA rescinds the CDD due to the area no longer attaining the 2015 ozone NAAQS. This rulemaking does not constitute a redesignation of the area to attainment of the 2008 or 2015 ozone NAAQS under section 107(d)(3)(E) of the CAA, nor does it constitute approval of a maintenance plan for the area as required under section 175A of the CAA, nor does it find that the area has met all other requirements for redesignation. The proposed New Castle County, DE nonattainment area will remain designated nonattainment for the 2008 and 2015 ozone NAAQS until such time as the EPA determines that the area meets CAA requirements for redesignation to attainment and takes a separate action to redesignate the area.

This rulemaking proposes to revise the boundary of an existing ozone nonattainment area by splitting it into three separate nonattainment areas that together cover the identical geographic area of the original nonattainment area and proposes to make a determination of attainment of the 2008 and 2015 ozone NAAQS based on air quality data for two of those proposed areas—the Cecil County, MD nonattainment area and the New Castle County, DE nonattainment area. If the EPA finalizes the boundary revision for the Cecil County, MD nonattainment area, and the CDDs for that proposed revised area, then, the EPA will suspend requirements to submit certain plan requirements to attain the 2008 and 2015 ozone NAAQS, so long as the area continues to attain the standard. Similarly, if the EPA finalizes the boundary revision for the New Castle County, DE nonattainment area, and the CDDs for that proposed revised area, then, EPA will suspend requirements to submit certain plan requirements to attain the 2008 and 2015 ozone NAAQS, so long as the area continues to attain the standard. These actions do not impose additional requirements.

This rulemaking proposes to revise the boundary of an existing ozone nonattainment area by splitting it into three separate nonattainment areas that together cover the identical geographic area of the original nonattainment area. It also proposes to make CDDs for the two new areas in Cecil County, MD and New Castle County, DE resulting from the proposed revisions, which if finalized would suspend the requirement to submit certain attainment plan requirements for the 2008 and 2015 ozone NAAQS. This proposed rulemaking action does not impose additional requirements. For that reason, this action:

• Is not a significant regulatory action subject to review by the Office of Management and Budget under Executive Order 12866 (58 FR 51735, October 4, 1993);

• Is not subject to Executive Order 14192 (90 FR 9065, February 6, 2025) because it is not a significant regulatory action under Executive Order 12866;

• Does not impose an information collection burden under the provisions of the Paperwork Reduction Act (44 U.S.C. 3501 et seq. );

• Is certified as not having a significant economic impact on a substantial number of small entities under the Regulatory Flexibility Act (5 U.S.C. 601 et seq. );

• Does not contain any unfunded mandate or significantly or uniquely affect small governments, as described in the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4);

• Does not have federalism implications as specified in Executive Order 13132 (64 FR 43255, August 10, 1999);

• Is not subject to Executive Order 13045 (62 FR 19885, April 23, 1997) because it is not a significant regulatory action under Executive Order 12866;

• Is not a significant regulatory action subject to Executive Order 13211 (66 FR 28355, May 22, 2001); and

• Is not subject to requirements of section 12(d) of the National Technology Transfer and Advancement Act of 1995 (15 U.S.C. 272 note) because application of those requirements would be inconsistent with the CAA.

In addition, this rulemaking action is not approved to apply on any Indian reservation land or in any other area where the EPA or an Indian Tribe has demonstrated that a Tribe has jurisdiction. In those areas of Indian country, the rule does not have Tribal implications and will not impose substantial direct costs on Tribal governments or preempt Tribal law as specified by Executive Order 13175 (65 FR 67249, November 9, 2000).

This is a summary of the Commission's Notice of Proposed Rulemaking ( NPRM ), in CG Docket Nos. 03-123 and 08-15, FCC 25-79, adopted on November 20, 2025, and released on November 21, 2025,. The full text of this document can be accessed electronically via the Commission's Electronic Document Manage System website at https://docs.fcc.gov/public/attachments/FCC-25-79A1.pdf, or via the Commission's Electronic Comment Filing System (ECFS) website at https://www.fcc.gov/ecfs.

Ex Parte Rules. This proceeding shall be treated as a permit-but-disclose proceeding in accordance with the Commission's ex parte rules. 47 CFR 1.1200 et seq. Persons making ex parte presentations must file a copy of any written presentation or a memorandum summarizing any oral presentation within two business days after the presentation (unless a different deadline applicable to the Sunshine period applies). Persons making oral ex parte presentations are reminded that memoranda summarizing the presentation must (1) list all persons attending or otherwise participating in the meeting at which the ex parte presentation was made, and (2) summarize all data presented and arguments made during the presentation. If the presentation consisted in whole or in part of the presentation of data or arguments already reflected in the presenter's written comments, memoranda, or other filings in the proceeding, the presenter may provide citations to such data or arguments in his or her prior comments, memoranda, or other filings (specifying the relevant page and/or paragraph numbers where such data or arguments can be found) in lieu of summarizing them in the memorandum. Documents shown or given to Commission staff during ex parte meetings are deemed to be written ex parte presentations and must be filed consistent with § 1.1206(b) of the Commission's rules. In proceedings governed by § 1.49(f) of the Commission's rules or for which the Commission has made available a method of electronic filing, written ex parte presentations and memoranda summarizing oral ex parte presentations, and all attachments thereto, must be filed through the electronic comment filing system available for that proceeding, and must be filed in their native format ( e.g., .doc, .xml, .ppt, searchable .pdf). Participants in this proceeding should familiarize themselves with the Commission's ex parte rules.

Providing Accountability Through Transparency Act. The Providing Accountability Through Transparency Act, Public Law 118-9, requires each agency, in providing notice of a rulemaking, to post online a brief plain-language summary of the proposed rule. The required summary of the Notice is available at https://www.fcc.gov/proposed-rulemakings.

Paperwork Reduction Act. The NPRM may contain proposed new or modified information collection requirements. The Commission, as part of its continuing effort to reduce paperwork burdens, invites the general public and the Office of Management and Budget (OMB) to comment on the information collection requirements contained in the NPRM, as required by the Paperwork Reduction Act of 1995, Public Law 104-13. In addition, pursuant to the Small Business Paperwork Relief Act of 2002, Public Law 107-198, see 44 U.S.C. 3506(c)(4), the Commission seeks specific comment on how it might further reduce the information collection burden for small business concerns with fewer than 25 employees.

1. Title IV of the Americans with Disabilities Act of 1990 (ADA), which added section 225 to the Communications Act of 1934, as amended (the Act), directs the Commission to ensure that TRS are available, to the extent possible and in the most efficient manner, to individuals with hearing or speech disabilities in the United States.

2. The Act requires common carriers provide TRS throughout the areas in which they offer service. The Act directs the Commission to adopt, administer, and enforce regulations governing the provision of interstate and intrastate TRS. Section 225 of the Act also authorizes, but does not require, states to establish their own TRS programs, subject to Commission approval and certification. In states with certified TRS programs, carriers may fulfill their obligation to provide intrastate TRS by participating in the state program. If a state does not have a Commission-certified TRS program, the provision of intrastate TRS in that state falls under the direct supervision of the Commission. All 50 states, the District of Columbia, and several U.S. territories have FCC-approved TRS programs. The analog TRS providers provide the relay services for intrastate, interstate, and international calls. They seek reimbursement for intrastate analog TRS calls from the relevant state program and seek reimbursement for interstate and international calls from the Interstate TRS Fund. Currently, the Commission recognizes six forms of TRS, three analog services and three internet-based services. The three analog forms of TRS are TTY Relay, Speech-to-Speech relay service (STS), and Captioned Telephone Service (CTS).

3. Section 225 of the Act provides that, generally, costs attributed to interstate TRS are to be recovered from all subscribers for every interstate service, while costs for intrastate TRS are recovered from the intrastate jurisdiction. Each state is responsible for determining how to fund the provision of intrastate TRS through the state's TRS program. The interstate costs of analog TRS are recovered through the FCC-administered TRS Fund, and the Commission is responsible for determining how providers of interstate TRS shall be compensated. Since 2007, compensation rates for interstate calls using analog services have been determined by applying the Multi-State Average Rate Structure (MARS) methodology, which does not require a calculation of costs or demand for these specific services.

4. As communications technologies continue to evolve, the TRS landscape is undergoing significant transformations, necessitating a re-evaluation of current rules to ensure continued functional equivalence and efficiency. These developments include a decline in the use of analog relay services, the emergence of advanced internet-based solutions, and the integration of accessible communications functionalities into smart devices.

5. In August 2024, National Association for State Relay Administration (NASRA) members, Gallaudet University, and TDIforAccess (TDI) submitted to the Commission a White Paper asserting that the decline in usage of analog TRS, coupled with the accelerating transition from traditional analog to IP-based networks, makes it urgent for federal and state policymakers to proactively adapt TRS obligations and programs to reflect the evolution to IP-based networks.

6. Under section 225 of the Act, states are permitted, but not required, to establish their own TRS programs. The provision of interstate relay services offered through state TRS programs is supported by the Interstate TRS Fund. State TRS programs must offer TTY Relay and STS.

7. TTY is widely acknowledged to be an outdated technology. Over time, the use of TTY Relay has declined greatly, reflecting a shift towards internet-based TRS solutions. Annual intrastate usage of TTY Relay totals less than 2 million minutes with many jurisdictions reporting less than 1,000 minutes in 2024. As communication networks modernize and usage declines, state relay programs are seeking guidance from the Commission regarding the appropriate steps and processes for phasing out TTY Relay.

8. Given the ongoing technology transition to IP-based networks, and the obsolescence of TTY Relay, the Commission seek comment on terminating the mandatory status of TTY Relay for state-based TRS programs. The Commission believes this would allow states to adapt their programs to local needs and technological realities, rather than being burdened by the costs and administrative complexities of maintaining a service with greatly diminished demand. What are the administrative and financial implications for state programs if TTY Relay is no longer mandatory? How would terminating the mandatory status of TTY Relay impact state programs' ability to continue supporting other essential relay services?

9. The Commission believes that terminating the mandatory status of TTY Relay is consistent with the Commission's statutory obligations under section 225 of the Act. The Commission seeks comment on this belief. As discussed below, the Commission believes a number of alternative services will be available to ensure that functionally equivalent communication is available to the remaining users of TTY Relay, in those states that choose to terminate the availability of this service through the state TRS program. For example, IP Relay has long been available to any user with broadband access. In addition, the Commission encourages state programs to offer RTT-based relay service in place of TTY Relay, to the extent that governing state legislation permits support for such a service through the state TRS program. The Commission also seeks comment on whether to provide TRS Fund support for a nationwide RTT-based relay service. Further, as a transitional step, to ensure that text-based relay service continues to be available to any user that does not yet have access to an IP-based alternative, the Commission seeks comment on whether to authorize the temporary certification of a national provider of TTY Relay, which would be available in any state where TTY Relay is no longer available through a state TRS program.

10. The Commission also seeks comment on whether ending the mandate that state TRS programs support TTY Relay, but temporarily certifying a national provider, will help the Commission achieve its statutory goals by ensuring that TRS are available “in the most efficient manner.” Does allowing state TRS programs to discontinue TTY relay relieve analog TRS providers from incurring unnecessary costs? Will it allow analog TRS providers the ability to reallocate funds and other resources to more efficient technology? Will intrastate or interstate TRS Fund contributors experience any cost savings? What are the costs and benefits to state TRS programs discontinuing TTY Relay? What would be the costs and benefits to continue requiring state TRS program to support TTY Relay? The Commission also seeks comment on whether ending the mandate to support TTY Relay will further the Act's directive that TRS regulations encourage the use of existing technology and do not discourage or impair the development of improved technology. Will these actions help transition TTY Relay providers and their remaining users from entirely text-based relay over the public switched telephone network (PSTN) to multimedia offerings that make full use of the internet's capabilities to leverage new technologies to meet user needs? Are there other approaches the Commission should consider to ensure a smooth transition from TTY Relay to IP-based alternatives?

11. The Commission seeks comment on whether terminating the mandatory status of TTY Relay is consistent with the obligation of common carriers under section 225(c) of the Act to provide telecommunications relay services “in compliance with the [Commission's] regulations” throughout the area in which they offer service. Under section 225 of the Act, the Commission has the same oversight and authority with respect to ensuring the availability and provision of both intrastate and interstate TRS. Pursuant to this authority, the Commission is directed to set the requirements for ensuring the provision of TRS and for certifying state programs. Further, the Commission determined that TRS were not limited to TTY Relay, and set guidelines for whether a particular type of TRS must be included within a state TRS program. The Commission believes a common carrier remains compliant with its obligation to offer TRS so long as its interstate TRS offerings align both with the Commission's TRS rules and, where applicable, a state TRS program certified under the Commission's rules. The Commission believes section 225 of the Act does not mandate a particular form of TRS be provided and affords the Commission the ability to re-align its rules around changes in technology, including the ability to wind down forms of TRS that are technologically obsolete. The Commission seeks comment on this belief.

12. Although TTY Relay usage is diminishing, some people with speech or hearing disabilities still rely on TTY devices. Such individuals should not be left without an effective means of telephone communication. The Commission seeks comment on how TTY Relay users can be most effectively and efficiently transitioned to productive alternatives.

13. To better understand the transitioning landscape, the Commission seeks comment on the total number of users of TTY Relay, including users of voice carryover and hearing carryover (in particular states or in the nation as a whole), as well as any available data on user location, availability of reliable broadband internet access, and the extent to which TTY Relay users are utilizing wired or mobile wireless devices to connect. The Commission also solicits any available data on TTY Relay user demographic information, such as age and income, to further the Commission's understanding of the users being impacted by this transition. The Commission also seeks comment on the extent to which TTY services are provided without support from state or federal programs for direct communication with TTY users. Would terminating the mandatory status of TTY Relay affect the ability to provide the service on a privately funded basis?

14. The Commission also seeks comment on the prevalence of state equipment distribution programs (EDPs) or assistive technology (AT) programs for people with disabilities. How many states currently have EDPs? AT programs? What equipment is provided under these programs? How is eligibility for those programs determined? How many programs have adopted income limits, fiscal caps, or have any other restrictions on access? To what extent are those programs connected to state TRS programs? Would changes to the services state TRS programs are required to provide have an effect on the programs?

15. The Commission seeks comment on the extent to which IP Relay can serve as a comprehensive alternative for current TTY Relay users and what, if any, additional steps the Commission should take to facilitate this transition. Does the requirement for users to have an IP-enabled device and broadband internet access service present a barrier to its use by some current TTY Relay users? Are IP Relay providers ensuring direct communications between IP Relay users? What types of barriers are TTY Relay users most likely to experience? Are there steps the Commission could take to mitigate such barriers?

16. RTT communications are able to be converted to be read on TTY devices and messages sent via TTY devices can be read on devices supporting RTT. Given the availability of RTT on mobile devices and the suitability of RTT for transmitting text on IP networks, the Commission believes that many TTY Relay users are currently using RTT, rather than a TTY device, to initiate or answer TTY Relay calls. If an individual initiates such a call using RTT to dial 711, the call may be converted to the TTY format for communication with a CA. Where an end-to-end RTT link is possible, a conversion to the TTY format is technically unnecessary and likely to provide a less reliable text-based communication channel to the TTY Relay user. The Commission seeks comment on the extent to which such conversion is occurring, and why. For example, are there network concerns where the conversion to the TTY-based format is outside the control of the TTY Relay providers who would accept RTT communications if the format was retained when the call reached their call center? Are there economic concerns that hinder state programs from supporting or TTY Relay providers from installing the capability to handle RTT calls in TTY Relay call centers? Or are there legal considerations, e.g., a concern that if the link between user and CA is IP from end to end, the call might not qualify for financial support by the state TRS program or the TRS Fund? Are there other technological or administrative concerns that are inhibiting the transition to end-to-end RTT?

17. The Commission believes that nothing in the Act restricts state programs from offering intrastate, RTT-based relay service. Indeed, section 225 of the Act expressly authorizes states to establish programs for the provision of intrastate TRS, subject only to Commission approval. The only conditions required for such approval are that the program (1) makes intrastate TRS available to eligible individuals in accordance with the Commission's regulations, and (2) provides adequate procedures and remedies for enforcing the program's requirements. In light of this explicit statutory authorization, the Commission has previously determined that states are not precluded from funding and administering VRS, IP Relay, or IP CTS, should they choose to do so. The Commission seeks comment on this belief and analysis.

18. The Commission also seeks comment on whether a RTT-based relay service would provide a useful alternative to TTY Relay. The Commission assumes that such a service would operate similarly to TTY Relay, in that the CA would voice the TRS user's typed text to a hearing party and type the hearing party's speech back to the TRS user. In addition, the Commission assumes that, at least initially, a user would initiate a RTT-based relay call in the same way as TTY Relay—by dialing 711 to connect with a CA. The main difference would be that the link between the texting user and the CA would be carried entirely as an IP format, using the RTT protocol. Are these assumptions correct or are there more efficient RTT-based relay service implementations currently operating?

19. Should the Commission amend its rules to expressly authorize compensation from the TRS Fund for the interstate use of RTT-based relay service? What are the costs and benefits of making an RTT-based relay service available as a replacement for TTY Relay? Would the availability of an RTT-based relay service be more beneficial than IP Relay for some current TTY Relay users—and if so, in what specific ways? For example, would it be easier for TTY Relay users to transition to an RTT-based service than to IP Relay, and if so, in what respects? How would the two types of services compare in their handling of emergency 911 calls? Would there be significant cost differences between IP Relay and RTT-based relay service?

20. The Commission also seeks comment on whether an RTT-based relay service could be modified to enable callers to initiate a TRS call without dialing 711, allowing the user to make and receive direct dialed calls. How could such call initiation methods be implemented, and how would their introduction affect the cost-benefit comparison with IP Relay? Further, how does the availability of text-to-speech software on RTT calls affect the need to connect to a CA and utilize relay? Is ASR technology similarly available for RTT calls? Where a consumer can place an end-to-end RTT call does the ability to communicate via text, voice, text-to-speech software, and ASR alleviate the need to involve a CA to relay the call?

21. Would all state TRS programs be able and willing to support RTT-based relay service for intrastate communications? Are there obstacles that would prevent state programs from supporting RTT-based relay? If some states are not able to support RTT-based relay, should the Commission establish a nationwide form of RTT-based relay service that would be solely supported by the Interstate TRS Fund, and available in any state that does not maintain a TRS program offering such a service? Or is the availability of IP Relay—as well as the availability of text-to-speech software on smartphones or other devices—sufficient to ensure access to text-to-voice communication, so that the Commission does not need to establish new forms of text-based relay service to ensure functionally equivalent access to the voice communication services?

22. While RTT has largely replaced TTY on wireless networks, its utility as a direct substitute for TTYs on wireline voice networks is currently limited as it is not natively available on wireline devices. The Commission has previously acknowledged the importance of continued exploration into wireline RTT as an alternative to TTY technology to achieve a universal, integrated text solution for voice services. The Commission seeks comment on furthering the availability of RTT across IP networks, services, and equipment. Should the Commission extend the TTY support exemption, which allows voice communications services provided over wireless IP facilities and equipment to support RTT, in lieu of continuing to provide TTY connectability and TTY signal compatibility, to include interconnected and non-interconnected VoIP services provided over wired IP facilities and equipment, if such services and equipment support RTT? How else should the Commission encourage wireline providers to support RTT? The Commission also solicits comments on the necessary technical guidance and cost expectations for wireline RTT implementation.

23. What would be an appropriate timeline to transition from TTY to RTT given the current state of RTT deployment? What additional steps, if any, would assist in replacing TTY with RTT? Are providers encountering difficulty working with telecommunications carriers to deploy RTT? Are there additional actions the Commission should take to encourage the development and deployment of RTT?

24. Direct Video Calling (DVC) is video teleconferencing that allows conversations to occur between two callers using American Sign Language (ASL), without the need for translation services. DVC services are provided to customer call centers as a direct ASL-to-ASL communication alternative to direct text-based communications such as TTY-to-TTY calls, and also can be used as an alternative to relay service. The Commission seeks comment on the extent to which DVC can serve as a direct communication alternative to TTY-to-TTY communications when the parties at both ends of the call use ASL—and what, if any, additional steps the Commission should take to facilitate this transition. Does the requirement for users to have an IP-enabled device and broadband internet access service present a barrier to its use by some current TTY users? What types of barriers are TTY users most likely to experience? Are there steps the Commission could take to mitigate such barriers? Is the adoption of DVC widespread among businesses? Government entities? Should the Commission take additional actions to encourage the use of DVC?

25. Some state TRS programs or related state agencies have begun supporting Communication Facilitator services to provide communication access for individuals who are deafblind. During a video call, a Communication Facilitator copies sign language from the other video caller and provides visual information to the individual who is deafblind through in-person close-vision, tactile sign language, tracking, or another communication method. The Commission seek comments on the extent to which Communication Facilitator services can serve as an alternative to TTY Relay or direct TTY-to-TTY communications for individuals who are deafblind using braille devices and what, if any, additional steps the Commission should take to facilitate this transition. Are Communication Facilitator services only used with video communications requiring the users to have an IP-enabled device and broadband internet access service? If so, does this requirement present a barrier for TTY users who use braille? What types of barriers are TTY users using braille most likely to experience? Are there steps the Commission could take to mitigate such barriers? How many states currently offer Communication Facilitator services? What are the costs and benefits to offering such services? What steps have states taken to identify and provide outreach to individuals who are deafblind about such services? How many hours per day and days per week are these services available from states that offer them?

26. To ensure that TTY Relay is used appropriately and efficiently, and to safeguard the TRS Fund from waste, fraud, and abuse, the Commission seeks comment below on applying user eligibility, registration, verification, and call detail records requirements to all forms of TRS—measures that have proven effective in safeguarding other TRS programs. The Commission seeks comment on the specific processes for TTY Relay user registration and verification, including the type of documentation or assessment required to confirm eligibility and how to balance ease of access for legitimate users with robust protections against misuse. Are providers able to verify the identity of TTY Relay users at the beginning of calls? Would user registration requirements unduly burden state TRS programs in their support and oversight of intrastate TRS?

27. As the telecommunications infrastructure continues its transition from analog systems to IP-based networks, the usage of analog CTS has steadily declined. Analog CTS services are administered at the state level, with states typically contracting with a single provider. While most state TRS programs support CTS, the Commission does not mandate support for CTS. In the absence of a mandate, many states have chosen to wind down and discontinue their analog CTS services, in response to declining demand. As other state TRS programs consider whether to continue supporting CTS, the Commission believes it is beneficial to provide oversight and guidance to ensure users are able to successfully transition to alternative solutions.

28. One prominent alternative to analog CTS is IP CTS. IP CTS is administered by the Commission and supports multiple national providers. Technological advancements have significantly modernized IP CTS, particularly through the integration of ASR technology. The viability of IP CTS as a direct alternative to analog CTS has been demonstrated in practice, underscoring its effectiveness as a modern solution.

29. As the telecommunications landscape continues to evolve, smart devices and applications are increasingly incorporating ASR functionalities. The Commission seeks comment on the extent to which ASR functionalities on smart devices are comparable in quality and speed of captions currently offered through Fund-supported IP CTS providers and whether such services present a viable and efficient alternative for users transitioning from analog CTS. Does the direct availability of captions with ASR on smart devices and applications for use by hearing individuals to communicate using voice communication services suggest a separate relay service is unnecessary? Are current users of analog CTS likely to own smart devices? Does every smart device on the market support this technology? Are older smart devices used by consumers capable of supporting ASR captioning? Are all smart devices capable of offering consumers ASR captions on both voice and video calls? What are the costs for consumers to obtain such equipment? How difficult or easy is it for end users to use ASR on smart devices? Are seniors who age into hearing loss likely to be able to use the smart device with ASR and does that ability change as someone ages into their 80s and 90s? Do smart device and application providers who offer ASR captioning permit users to restrict access to the captioning to protect their privacy? Is customer or technical support available for users experiencing problems receiving captions? Do smart device and application providers track the availability and performance of the captions?

30. Should the Commission take any steps to ensure that such communications service providers and equipment manufacturers are providing access to captions under separate statutory authority granted to the Commission, such as the Commission's authority to ensure telecommunications services and advanced communications services are accessible to and usable by individuals with disabilities? Are obligations or performance objectives for ensuring such ASR captions are accessible to and usable by people with disabilities necessary? Are relevant TRS minimum standards ( e.g., outage reporting requirements specific to ASR, redundancy requirements, annual reports attesting to the current IP CTS minimum standards, annual complaint reports specific to the captioning solutions being offered on the smart devices, etc. ) reasonable standards to impose for ensuring native captions are accessible and usable? If such standards are needed, should the communications service provider or the equipment manufacturer be subject to the new standards? Does any separate statutory authority give the Commission jurisdiction to impose on communications service providers and equipment manufacturers the minimum standards it imposes on authorized TRS service providers?

31. The transition to IP-based services, including IP CTS and technologies using ASR, requires internet access and IP-based specialized equipment which may not be universally available. To help transition these users the Commission solicits comments on the feasibility of and burden to state relay programs, telecommunications carriers, and VoIP providers offering appropriate devices to users who wish to transition from CTS to an alternate service but may require new equipment due to network changes or device obsolescence. Are there lessons state programs that have discontinued analog CTS support have learned that may be useful to the Commission and users during the transition to an alternate service?

32. To ensure that CTS is used appropriately and efficiently, and to safeguard the TRS Fund from waste, fraud, and abuse, the Commission seeks comment below on applying user eligibility, registration, verification and call detail records requirements to all forms of TRS. The Commission seeks comment on the specific processes for CTS user registration and verification, including the type of documentation or assessment required to confirm eligibility and how to balance ease of access for legitimate users with robust protections against misuse.

33. In authorizing the provision of STS in March 2000, the Commission determined that all certified state TRS programs must offer STS. STS demand is consistent, with annual usage less than 400,000 minutes. However, unlike TTY Relay and CTS, STS usage has not declined substantially over time. The emergence of IP-based solutions has offered new avenues for people with speech disabilities to access communications services.

34. In 2011, a non-profit organization asked the Commission to open a proceeding on modernizing STS to incorporate IP video technologies. With video-assisted STS, the CA would watch the user's face and any available seen body parts or indicators to add meaning that is translatable by the CA into clear speech that can be voiced to the person called. This concept, referred to as video-assisted Speech-to-Speech (VA-STS), was noted in the Commission's 2013 IP STS Order, published at 78 FR 49693, August 15, 2013, which recognized that it was already being offered in several states. The Commission continues to believe that such an internet-based, video-assisted form of STS holds significant potential to enhance functional equivalence for individuals with severe speech disabilities. The Commission seeks comment on this belief.

35. Recognizing the significant technological advancements since the 2013 IP STS Order, the Commission proposes to authorize IP STS as a compensable form of TRS. This proposal includes video-assisted STS as an integrated or add-on component to IP STS, rather than a standalone service. The Commission believes the service would likely be app or web-based to distinguish it from analog STS, which already permits users to make calls from interconnected VoIP services using internet-enabled devices. This approach aims to leverage the benefits of IP technology, such as enhanced call privacy, improved real-time quality and efficiency, and greater service reliability, which are increasingly realized through automation and over-the-top apps. The Commission seeks comment on this proposal.

36. The Commission also seeks comment on whether authorizing such a service, with its inherent flexibility and potential for a wider range of communication modes, will significantly advance the statutory goal of functional equivalence for individuals with speech disabilities. How would this structure best integrate with existing TRS frameworks? Should IP STS providers be directly certified by the Commission and compensated entirely through the Interstate TRS Fund similar to other IP-based forms of TRS? Should IP STS calls directly connect to a call center allowing users to make and receive direct dialed calls? Are state TRS programs currently supporting and compensating a form of STS similar to this IP STS proposal? Are they supporting and compensating video-assisted STS? If so, do STS providers submit compensation claims for interstate STS minutes for IP STS or video-assisted STS? What are the specific benefits or challenges of positioning video-assisted STS as an add-on rather than a separate service or as part of the cost of providing IP STS? Should IP STS include or support the option for users to access and use ASR engines for non-standard or atypical speech? Is such technology already being made available in smart devices and applications for use within voice communication services, independent of TRS support?

37. To ensure efficient allocation of resources and effective program development, the Commission seeks comment on effective methodologies for assessing the potential demand for new IP STS and video-assisted STS offerings. How can the Commission best identify and reach the segments of the community of people with speech disabilities who would benefit from these services? What data collection mechanisms or surveys would provide reliable estimates of demand and user preferences for IP STS and its features? In considering the potential demand should the Commission distinguish between individuals likely to use the service and individuals who could use the service but may prefer to sign or text first?

38. The Commission does not propose to alter the mandatory status of the analog version of STS at this time. STS remains a mandatory service that all states with a certified state TRS program must offer. Currently, STS is provided only through state-certified relay service programs and has no internet-based, FCC-certified equivalent. This means that users of STS presently have limited alternatives to transition to if their state were to terminate the provision of analog STS. However, the Commission may revisit the mandatory status of analog STS and its provision at such time as IP STS or other suitable IP-based solutions are sufficiently developed and widely available, and the Commission can offer a seamless transition for users from analog STS to IP-based alternatives. Are state programs able to maintain STS as a mandatory service if the Commission moves forward with the proposal to terminate the mandatory status of TTY Relay? Are there challenges associated with maintaining the mandatory status of STS but not TTY Relay?

39. To ensure the quality and accountability of IP STS, the Commission proposes that certification requirements for IP STS providers should be comparable to those established for other internet-based TRS services, such as VRS, IP Relay, and IP CTS. Specifically, applicants would be required to submit detailed plans for service provision, explanations of how they will comply with all relevant technical and operational standards, and descriptions of mechanisms for preventing misuse. The Commission seeks comment on whether additional certification requirements should be established for IP STS providers. Should any particular technical capabilities be prerequisites for certification? Which existing certification requirements, if any, should not be applicable to IP STS?

40. The introduction of IP STS necessitates a reevaluation and refinement of existing mandatory minimum standards for STS to ensure they remain relevant and effective. Current STS rules address aspects such as CA competency and adherence to confidentiality, but some provisions, like those relating to only TTY Relay or VRS, would not be applicable. Should any of the existing mandatory minimum standards not be applied to the provision of IP STS? The Commission requests that commenters who identify such rules, explain the incompatibility and propose changes to the rule to appropriately limit the scope of the rule. Are there other standards unique to the provision of IP STS that the Commission should consider adding?

41. STS CAs require specialized training to understand and repeat the words of individuals with diverse speech patterns. To enhance the quality and efficiency of STS, providers currently allow STS users to set up and utilize profiles or preferences to facilitate call connections. The Commission seeks comment on the feasibility and benefits of implementing caller profiles for IP STS, including the types of information that would be necessary for effective routing, and the safeguards required to protect user privacy and prevent any misuse of user information. Should users be able to identify preferences related to the user's unique speech characteristics? Would providing such preferences enable a user with a particular speech disability to have their calls routed to CAs or ASR engines specifically trained to understand that type of speech? The Commission also seeks comment on how specialized CAs and ASR engine training for IP STS, particularly for handling atypical speech patterns or utilizing new technologies, should be defined and supported.

42. The Commission currently requires STS providers to offer the user the option of having their voice muted so that the other party to the call would only hear the STS CA re-voicing the call, and not also the voice of the STS user. This feature serves to minimize disruption to the conversational flow and potentially enhance the privacy and comfort of the STS user. Should the Commission similarly require IP STS providers to offer a muting option to users, allowing them to control whether their own voice is transmitted to the called party? The Commission seeks comment on providers' experience with the muting feature in analog STS, as well as any technical issues regarding its implementation in an IP environment, its impact on call flow and functional equivalence, and any other benefits or challenges it may present for IP STS users.

43. To ensure that IP STS are used appropriately and efficiently, and to safeguard the TRS Fund from waste, fraud, and abuse, the Commission proposes to apply user eligibility, registration, and verification requirements similar to those already in place for IP Relay, VRS, and IP CTS. This would include requiring users to register with a certified provider and undergo a verification process to confirm their identify and location, as well as to certify eligibility as individuals with speech disabilities who require the service for functionally equivalent communication. The Commission seeks comment on the specific processes for IP STS user registration and verification, including the type of documentation or assessment required to confirm eligibility and how to balance ease of access for legitimate users with robust protections against misuse.

44. The Commission believes IP STS providers should be subject to the same data submission requirements applicable to all TRS providers, which are designed to ensure effective oversight, fund administration, and accountability, and to enable the determination of a TRS Fund budget for each service, as well as the determination of provider compensation rates. Later in the NPRM, the Commission seeks comment on whether any modifications to the Commission's call data requirements are needed to ensure collection of appropriate data for this service and avoid unnecessary data collection.

45. A perceived challenge for STS has been the low awareness and resulting flat usage among its potential user base. Due to concerns that potential STS users were not aware of the service's availability, the Commission in 2007 added a specific per-minute amount of $1.131 to the STS compensation rate, specifically for outreach purposes. This additional funding was intended to promote STS to potential users and required providers to file annual reports detailing their specific outreach efforts attributable to this support.

46. Despite the TRS Fund support for outreach by providers, STS usage remains flat and low in comparison to the number of people with speech disabilities. The availability of IP STS and the possibility of nationwide video-assisted STS may present a new opportunity to inform the public and potential users about the availability of these services. What steps should the Commission take to ensure effective outreach concerning IP STS and video-assisted STS? The Commission seeks comment and data, especially from STS providers and state TRS programs, on the effectiveness over the last 25 years of outreach to potential STS users. How many individuals are using STS? What methods have providers used to market the service or provide outreach to potential users? Are there places, resources, or communities that are or could be targeted to reach people with speech disabilities who would benefit from learning about STS? To what extent have state TRS programs or STS providers conducted outreach to those places? Have STS providers developed outreach plans for STS? If not, why not? If so, the Commission requests information about the details of those plans, and comments on their strengths and weaknesses. Do providers work with organizations for people with speech disabilities to conduct outreach? How broad is the reach of those organizations?

47. If the Commission continues to provide an outreach additive or other additional outreach support and resources for STS, how should the Commission measure the effectiveness of such outreach efforts? Should the Commission consider such an additive for IP STS? Alternatively, is the low adoption rate for STS services not indicative of a lack or outreach and awareness, but rather a preference amongst individuals with speech disabilities for text or sign language communications through other forms of TRS and advance communication services? Do some individuals with speech disabilities prefer alternative services such as online messaging and chat tools or the use of other assistive technology, such as augmentative and alternative communication (AAC) devices? Do individuals with speech disabilities who are fluent in sign language prefer to use VRS or other video-based forms of communication? If STS usage is a matter of preference rather than outreach should the Commission discontinue the outreach additive? What are the potential costs and benefits to discontinuing the additive?

48. There may be some analog TRS users who, for various reasons, cannot successfully transition to IP-based telephony solutions without additional assistance. The Commission seeks comment on the number of such individuals, the reasons they are unable to transition, and what means are available to ensure that such individuals remain able to communicate after the retirement of the copper facilities serving them. For example, are subsidies available at the state or federal level to ensure that analog TRS users who cannot otherwise afford to subscribe to internet access service are able to transition to a VoIP line or other IP-based communications channel?

49. In a similar vein, the Commission solicit comments on whether there are specific roles that state relay programs and communication service providers should fulfill to assist users who wish to transition to an alternate TRS service ( e.g., IP CTS, IP Relay, or RTT-based relay service) but may require new communication services or equipment due to network changes or device obsolescence. How can consumers be informed of prerequisite service or equipment changes and how to obtain them? What options are available for coordination among interested parties for ensuring that analog TRS users who need it receive additional assistance? Are services obtained through universal service programs and equipment obtained through equipment distribution programs sufficiently compatible for the equipment to be used with the relevant services? Can those services and equipment be used with TRS and TRS equipment?

50. The Commission also seeks comment on the availability and feasibility of peripheral devices and specialized customer premises equipment that support captioned phone service or RTT and could be utilized for calls with VoIP services. Are VoIP services and RTT usable on the same device ( e.g. smartphone, tablet, or laptop) by people with disabilities? Are there devices that support RTT and are able to connect to VoIP service devices, particularly VoIP devices without a screen for viewing text? What are the costs for developing such equipment? What are the costs to consumers to obtain such equipment? The Commission also seeks comment on how incurring these transitional costs would compare to the long-term savings associated with retiring obsolete hardware and software linked to analog networks, and whether the cost of these efforts should be compensable from the TRS Fund.

51. Beyond the technological alternatives, the Commission recognizes the benefit of a structured transition process to ensure that all individuals with hearing and speech disabilities maintain access to relay services as analog telecommunications networks transition to IP-based services. To ensure that no analog relay user is left without usable TRS during this network evolution, the Commission seeks comment on developing outreach and transition plans for affected users in coordination with state TRS relay programs, analog TRS providers, and communication service providers. Are state TRS programs able to coordinate with the Commission on such an initiative? Are state TRS programs better positioned to lead on plan development and outreach? If so, how should the Commission support such outreach and plan development? To what extent have state TRS programs and analog relay service providers begun to establish such plans? What is an appropriate timeline for the development and implementation of such plans and outreach? What role can and should communication service providers, whose users rely on analog TRS, perform in the outreach and transition process? Are there other state programs, such as telecommunications equipment distribution programs, or state agencies, separate from TRS programs that the Commission should coordinate with? Should the Commission coordinate with relevant agencies independently or in connection with membership associations, such as NASRA and the Telecommunications Equipment Distribution Program Association (TEDPA)? Should the Commission coordinate with trade associations whose members include communication services providers? If a state is considering discontinuing its state TRS program, what role should the Commission fulfill in that transition?

52. The Commission also seeks comment on any barriers to coordination. To what extent are analog TRS providers limited in the information they are able to share with state TRS programs and the Commission for conducting outreach, while continuing to protect the privacy of customer information? What steps can the Commission take to allow state TRS programs access to more detailed information about individual analog TRS users? If necessary, how could the Commission ensure that such consumers are notified about the potential sharing with and use of personally identifiable information by state TRS programs? Could analog TRS providers provide this notification? Could communication service providers provide this notification? If notification can be provided, should the Commission permit consumers to opt-out of sharing such information? How should the Commission ensure such notifications are accessible?

53. Where a form of TRS is not offered in state TRS programs, the Commission may adopt reasonable measures to ensure equitably distributed contributions from all interstate and intrastate service providers subject to the Commission's authority under sections 225 and 715 of the Act. However, states are not precluded from funding and administering any form of intrastate TRS, including internet-based TRS. As users of TTY Relay, CTS, and STS transition to internet-based options, the Commission seeks comment on the extent to which States plan to continue supporting any forms of TRS, once the telephone network has fully transitioned from analog to IP technology. For example, assuming that the Commission affirms the eligibility of RTT-based relay service and IP STS for TRS Fund compensation, are states likely to support those forms of TRS? How does the broader ongoing transition towards an all-IP communication network impact state decision making? For states that pursue the provision of internet-based forms of TRS, how should the Commission ensure the appropriate separation of costs?

54. Some states, leveraging their intrastate TRS funds, have expanded their offerings beyond analog TRS services to address the evolving communication needs of their residents. Many states operate telecommunications equipment programs, often supported by their intrastate TRS funds. Beyond these, states have pursued other specialized services and initiatives funded from their intrastate TRS funds. Missouri, for instance, added Relay Conference Captioning (RCC) service, a real-time captioning solution designed specifically for conference calls and group meetings, which it funds from its intrastate Relay Missouri Fund. Although the Commission does not mandate them, it has encouraged states to offer non-shared language TRS, noting that states can permissibly exceed federal mandatory minimum standards to meet the unique needs of their diverse populations. Two states, Maryland and Oregon, operate Communication Facilitator (CF) services, funded from their intrastate Relay Fund, which provide equal access to telecommunications to residents who are deafblind via in-person skilled signers so that these people who are deafblind can participate in video conversations.

55. These additional programs highlight how states utilize their intrastate TRS funds for equipment distribution programs and specialized services to address specific community needs. The Commission seeks comment on whether there are other types of programs or communication services, beyond those already identified, that states are considering or funding through their intrastate TRS programs to support their residents with hearing and speech disabilities. If states do not end up supporting the internet-based forms of TRS, what is the optimal role for state relay programs and their intrastate TRS funds? The Commission also invites comments on how the Commission can support state-specific initiatives and ensure a cohesive, efficient nationwide TRS framework as technology and user needs continue to evolve.

56. To ensure the continued availability of TRS to those users who may still be served by analog telephone facilities, the Commission seeks comment on whether to establish a temporary national certification process for providers of TTY Relay and STS. Should a national certification process for TTY Relay and STS providers mirror the federal certification framework already in place for internet-based forms of TRS? The Commission believes such an approach would help ensure that the diminishing number of users still served by copper facilities are not left without recourse if the state chooses to discontinue the provision of TTY Relay or terminates its TRS program before all users in the state have access to internet-based forms of TRS. The Commission seeks comment on that belief. Are there other approaches the Commission should consider to ensure continued access to TRS services during network transitions? Should the Commission establish a sunset for the national certification process? What factors should the Commission consider in establishing a sunset? Should it be date specific or should the Commission rely on specific events occurring, such as no TTY Relay use over a one-year period? If the sunset should be dependent on specific events occurring, what events should the Commission consider?

57. Under this approach, grant of certification would allow the certified provider to provide TRS in any state that ends its provision of TTY Relay or discontinues its TRS program. If more than one application for certification is received, the Commission seeks comment on whether the Commission should grant a national certification to a single applicant or multiple applicants. If the Commission grants a certification to only one entity, what factors should the Commission consider in granting that certification? What weight should it assign the various factors? How should service continuity be ensured in states where current contracts expire or are terminated, and what coordination mechanisms would be necessary between state agencies and the national provider(s)? Alternatively, should the Commission manage the underlying 8XX telephone number associated with 711 in each state? What steps would the Commission need to take to be able to obtain, hold, and assign the relevant, underlying 8XX telephone number(s) for TTY Relay within a state? If the Commission approved multiple national providers, would the Commission be able to maintain the 711 calling structures? Could consumers be afforded the opportunity to choose a provider when dialing 711? What are the costs and benefits of establishing national certification for TTY Relay? For STS? Would adopting such a national certification process allow the Commission to lift the mandatory status for STS, allowing states to transition away from analog forms of TRS without surrendering the certification for their entire TRS program?

58. The Commission also seeks comment on whether to require any nationally certified analog relay provider(s) to provide CTS in addition to TTY Relay and STS. Would requiring the provision of all three forms of analog relay service better ensure that intrastate and interstate TRS are available nationwide to the extent possible, and in the most efficient manner?

59. The Commission proposes that the nationally certified relay provider(s) be compensated from the Interstate TRS Fund, where it is providing service in a state that has discontinued its TRS program or does not support the provided forms of TRS. This approach aligns with the established funding mechanism for IP Relay, VRS, and IP CTS, which are entirely supported through TRS Fund contributions based on interstate and intrastate revenue. The Commission seeks comment on this proposal. The Commission also invites comment on how the jurisdictional separation of costs between intrastate and interstate funds would work in practice, where the TRS Fund would reimburse the nationally certified provider for both its intrastate and interstate minutes of TRS, and state-contracted providers for only their interstate minutes. Would such a change unduly burden the calculation of the relevant contribution factor? The Commission also seeks comment on the potential costs and benefits of such a funding model on both the TRS Fund and state-administered funds.

60. While internet-based TRS users are subject to various registration and verification requirements, analog TRS, such as TTY Relay, CTS, and STS, currently lack comparable mandated user registration and centralized verification processes. To further strengthen the integrity and oversight of the entire TRS program and build upon the recognized benefits of a user registration database, the Commission proposes to extend comprehensive user registration and verification requirements to all forms of TRS, including these analog services and any future internet-based forms of TRS. This expansion is crucial to ensuring that all services supported by the TRS Fund operate with enhanced accountability and to combat waste, fraud, and abuse program-wide. Such a measure would allow the Commission to gather complete and accurate data on service demand and utilization across the entire TRS landscape. The Commission seeks comprehensive comment on the feasibility, costs, and benefits of extending user registration and verification requirements to all forms of TRS. Commenters should detail any unique technical or operational challenges for specific services ( e.g., TTY Relay, STS, CTS, or IP Relay, or proposed IP STS and RTT-based relay service), and identify the specific types of data that would be most relevant and least burdensome for the providers to collect and submit. The Commission also seeks comment on the burdens this would impose on users of each service and the providers of each service? Have registration requirements impeded user access or caused any users not to sign up? What privacy concerns arise with collecting such data and what methods are available to mitigate such concerns? The Commission also solicits input on how current user registration data elements might apply or need modification for these services, and the timeframe for implementation.

61. In the alternative, the Commission seek comment on codifying and extending the current IP Relay registration requirements to analog TRS and the proposed services of IP STS and RTT-based relay service. Specifically, the Commission seeks comment on codifying a “reasonable means of verifying” and “consumer education and outreach efforts” requirements into the Commission's general TRS user registration and verification rules. This would explicitly require providers to implement a reasonable and not unduly burdensome means of verifying user registration and eligibility, alongside consumer education and outreach efforts on the importance of accurate registration. The Commission seeks comment on the appropriateness, feasibility, and potential impact of codifying these specific requirements, including the costs and benefits of applying them uniformly IP Relay, TTY Relay, STS, CTS, and the proposed IP STS and RTT-based relay service.

62. The Commission also seeks comment and supporting data on the various ways individuals currently sign up for service, such as through an in-person representative, a remote conversation with a CA, or a purely electronic application with no human interaction. Should the Commission codify one or more of these proven methods, conducting in-person or on-camera ID checks, as a safe harbor for identification verification? The Commission invites commenters to provide specific data on the efficacy, costs, and benefits associated with different sign-up and verification methods, including the rate of successful verification and user experience. The Commission also invites comments on the safe harbor method for identification verification and whether another method would be more effective as a safe harbor.

63. TRS providers seeking compensation from the TRS Fund must submit Call Detail Records (CDRs) to the TRS Fund administrator for each call for which compensation is sought. The data submission requirements are designed to ensure effective oversight, fund administration, and accountability, and to help enable the determination of a TRS Fund budget for each service, as well as the determination of provider compensation rates.

64. To further enhance the integrity and ensure consistent oversight across the entire TRS program, the Commission proposes that all TRS providers, including those offering traditional analog services as well as any future forms of TRS, such as IP STS and RTT-based relay service, submit comprehensive CDRs to the TRS Fund administrator for intrastate and interstate TRS calls and minutes, whether or not providers are currently compensated for those minutes from the TRS Fund. This measure would strengthen the Commission's ability to combat waste, fraud, and abuse, ensuring that all services supported by the TRS Fund operate with enhanced accountability. The Commission seeks comment on the feasibility, costs, and benefits of clarifying that all TRS providers must meet these CDR requirements, detailing any unique technical or operational challenges for specific services that receive compensation from state TRS programs. Commenters should address the specific types of data that would be most relevant and least burdensome for analog services to collect and submit, how the current CDR data elements ( e.g., minutes of use, unique identifiers, speed of answer) might apply or need modification for these services, and the timeframe for implementation.

65. To help the Commission evaluate the efficacy and appropriateness of our existing regulatory frameworks, the Commission also seeks comment on whether any of the current CDR requirements can be modified or eliminated to reduce administrative burden on providers and the TRS Fund administrator, without compromising program integrity or the Commission's oversight capabilities. Commenters should identify specific CDR elements that they believe are redundant, obsolete, or impose an unduly burdensome collection effort, and propose alternative data points or methodologies that could achieve the same regulatory objectives more efficiently. Are some categories of call data inapplicable or unnecessary for certain types of TRS? Are there additional categories of call data that should be collected for certain types of TRS? The Commission also seeks comment on whether the current granularity of detail required for specific call types, such as integrated VRS in video conferences, is appropriate, or if a more streamlined approach could be adopted.

66. As part of the Commission's effort to modernize the TRS program, the Commission proposes to update the TRS rules by deleting or modifying regulations that are obsolete or otherwise burdensome and unnecessary. The Commission seeks comment on these proposals and the questions, beliefs, and assumptions stated below.

67. Section 64.604(a)(1)(i) of the Commission's rules places a requirement on TRS providers to ensure “all CAs be sufficiently trained to effectively meet the specialized communications needs of individuals with hearing and speech disabilities.” To meet this requirement, many TRS providers maintain their own dedicated CA training programs. While provider maintained training programs are a useful and effective mechanism for ensuring CAs are sufficiently trained, the Commission believes there are other ways TRS providers can ensure their CAs effectively meet the specialized communications needs of people with hearing and speech disabilities. For example, providers may be able to establish that their CAs meet this requirement through evidence of third-party certifications and degrees, independent courses, and other life experience that demonstrate a CA has the required competencies to effectively meet the needs of TRS users. Accordingly, the Commission proposes to delete the phrase “be sufficiently trained to,” giving providers more flexibility to ensure CAs effectively meet the specialized communications needs of individuals with hearing and speech disabilities. The Commission seeks comment on this proposal and belief.

68. Section 64.604(a)(1)(vi) of the Commission's rules requires TRS providers to “make best efforts to accommodate a TRS user's requested CA gender when a call is initiated and, if a transfer occurs, at the time the call is transferred to another CA.” The Commission proposes to delete this rule. The Commission encourages TRS providers to accommodate such requests, as fulfilling such requests may provide a more natural call experience and reduce the number of abandoned TRS calls. However, “best efforts” obligations are inherently difficult to enforce. Further, the Commission believes TRS providers have a built-in financial incentive to attempt to fulfill user preferences to avoid that user changing to another provider or from the user disconnecting and reconnecting to attempt to find a CA with specific attributes.

69. Section 64.604(a)(3)(iii) of the Commission's rules allows TRS providers to decline to complete a call because credit authorization is denied. The Commission proposes to delete this rule, as the Commission does not believe credit authorization is currently an issue for TRS calls. In the last five years, have TRS providers ever declined to complete a call because credit authorization is denied? If so, what is the frequency of such occurrences? What is the cost to a provider to complete a call where credit authorization is denied?

70. Section 64.604(a)(3)(iv) of the Commission's rules requires analog TRS (TTY Relay, STS, and CTS) to be capable of handling pay-per-call calls. The Commission proposes to delete this rule. The Commission believes the use of pay-per-call (900) calls is no longer sufficiently prevalent in the United States to warrant an explicit rule requiring TRS providers to support that type of call. The Commission also notes that, with or without a specific pay-per-call provision, TRS providers remain subject to the general requirement that they “be capable of handling any type of call normally provided by telecommunications carriers unless the Commission determines that it is not technologically feasible to do so.” Is it still technologically feasible to complete 900 number calls using analog TRS? What are the costs and benefits of retaining a specific requirement, given that the general types-of-call provision would still require pay-per-call calls to be handled if “normally provided” and technologically feasible?

71. Section 64.604(a)(3)(v) of the Commission's rules requires TRS providers to provide specific types of TRS calls, such as text-to-voice and voice-to-text, one-line voice carry over (VCO), two-line VCO, VCO-to-TTY, and VCO-to-VCO, one-line hearing carry over (HCO), two-line HCO, HCO-to-TTY, and HCO-to-HCO. The rule also exempts internet-based TRS providers from some of these requirements. The Commission seeks comment on whether updates to this provision are needed. Are there types of TRS calls or functionality that should be added to or deleted from the list?

72. Section 64.604(b)(2)(ii)(E) of the Commission's rules requires a local exchange carrier (LEC), “upon request,” to “provide the call attempt rates and the rates of calls blocked between the LEC and the TRS facility to relay administrators and TRS providers.” The Commission proposes to delete this requirement. When the Commission adopted this requirement it also required TRS relay centers to be designed to a P.01 standard, a network design standard used to ensure that no more than one percent of calls at the busiest hour of the day are unable to be delivered to the relay network due to inadequate facilities. In combination with the speed of answer requirement, the Commission could ensure that placing a call using TTY Relay was functionally equivalent to hearing user placing a voice call. The Commission believes that in meeting these network design standards and measuring a TRS's providers speed of answer, it is no longer necessary to maintain an explicit rule for a LEC that serves the TRS center to provide call attempt rates and the rates of blocked calls between the LEC and the relay center upon the request of relay administrators and TRS providers. The Commission seeks comment on this belief.

73. Section 64.604(b)(4)(i) of the Commission's rules incorporates the statutory requirement that relay services must “operate every day, 24 hours a day.” However, the rule exempts relay services (other than VRS) from this requirement, if they “are not mandated by this Commission.” As a result, TTY Relay and STS, as “mandatory” services, are required to operate 24/7, as is VRS, while other “non-mandatory” services—IP Relay, IP CTS, and analog CTS—are exempt from this requirement. While such differential application of the 24/7 requirement may have been justified on an interim basis, when the exempt services were still in the experimental stage, the Commission does not believe that the exemption reflects the current operating practices of the providers of non-mandated relay service. Further, the Commission does not believe that the exemption aligns with users' current expectations regarding these relay services. Therefore, the Commission proposes to delete this language and require all forms of TRS to operate every day, 24 hours a day. Adopting this change would bring this rule into alignment with the statutory requirement that TRS operate every day for 24 hours per day. Are there any current forms of TRS, or variants thereof, for which 24/7 operation would be economically burdensome without increased TRS Fund support? What would be the costs and benefits of continuing to exempt such services?

74. Section 64.604(b)(5) of the Commission's rules states that “[n]o regulation set forth in this subpart is intended to discourage or impair the development of improved technology that fosters the availability of telecommunications to person with disabilities.” In addition, § 64.604(b)(5) of the Commission's rules explicitly permits TRS facilities to “use SS7 technology or any other type of similar technology to enhance the functional equivalency and quality of TRS” and provides that facilities that use SS7 technology are subject to the Calling Party Telephone Number rules. The Commission proposes to delete this provision in its entirety. The statement that the TRS regulations “are not intended to discourage or impair the development of improved technology” refers to the statutory directive to the Commission to “ensure that regulations prescribed to implement this section encourage, consistent with section 157(a) of this title, the use of existing technology and do not discourage or impair the development of improved technology.” This statutory directive applies regardless of any disclaimer in the Commission's rules. Thus, it appears that the disclaimer in the Commission's rules serves no purpose. As for the statements regarding SS7 technology, they too appear to be mere surplusage. Without this language, the Commission believes such technology would still be permitted for use and that the Calling Telephone Number rules would continue to apply where SS7 is used. As such, retention of this provision appears unnecessary.

75. The Commission seeks comment on closing CG Docket No. 08-15, Speech-to-Speech and internet Protocol (IP) Speech-to-Speech Telecommunications Relay Services. This docket has been inactive for at least a decade. Furthermore, the Commission conducted proceedings in this docket in parallel with CG Docket No. 03-123. In seeking to develop a fresh record on STS, IP STS, and video-assisted STS, the Commission does not see a need to maintain a separate duplicative record, and the Commission believes closing the docket eliminates a duplicative filing requirement that unnecessarily burden commenters. The Commission seeks comment on this belief. The only comments that should be filed in CG Docket No. 08-15 should be those comments raising concerns with closing CG Docket No. 08-15. Comments on all other matters in this proceeding should be filed in CG Docket No. 03-123.

76. As required by the Regulatory Flexibility Act of 1980, as amended (RFA), the Commission has prepared this Initial Regulatory Flexibility Analysis (IRFA) of the policies and rules proposed in the NPRM assessing the possible significant economic impact on a substantial number of small entities. The Commission requests written public comments on this IRFA. Comments must be identified as responses to the IRFA and must be filed by the deadlines for comments specified in the item.

77. Need for, and Objectives of, the Proposed Rules. In the NPRM, the Commission proposes to phase out mandatory support for TTY Relay, permit state TRS programs more flexibility to manage their programs, facilitate the transition from outdated analog forms of TRS to internet-based forms of TRS and other accessible forms of modern communications, streamline eligibility, registration, verification, and data collection requirements, and update or delete obsolete rules. As communications technologies have evolved, analog TRS have seen declining or minimal usage. The Commission proposes these changes to align TRS with modern communications landscape and improve access and service for users of relay service in order to meet its statutory obligation to ensure that TRS are available, “to the extent possible and in the most efficient manner,” to individuals with hearing or speech disabilities in the United States. The Commission also seeks to ensure that all forms of TRS are used appropriately and efficiently, and to safeguard the TRS Fund from waste, fraud, and abuse.

78. Legal Basis. The proposed action is authorized pursuant to sections 1, 2, 4(i), (4)(j), and 225 of the Act.

79. Description and Estimate of the Number of Small Entities Impacted. The rules proposed in the NPRM will apply to small entities in the All Other Telecommunications industries. The Commission estimates that the majority of “All Other Telecommunications” firms can be considered small.

80. Description of Projected Reporting, Recordkeeping, and Other Compliance Requirements. The changes proposed in the NPRM, if adopted, could impose new or modified reporting, recordkeeping, or other compliance obligations on certain small entities that provide TTY Relay, STS, CTS, or seek to provide IP STS or RTT-based relay service. The Commission proposes to make clear the applicability of its call data collection requirements to all forms of TRS to help the TRS Fund administrator verify the validity of submitted minutes of use and seeks comments on any modifications to the call data requirements to ensure collection of appropriate data for each service and avoid unnecessarily burdening small entities. The Commission also seeks comment on streamlining and unifying the applicability of user eligibility, registration, and verification rules to safeguard the TRS program. This could include the collection and verification of user identity and location information, as well as, eligibility certifications. The Commission seeks comment on the specific process that should be utilized for each form of TRS, including the type of documentation or assessment required to confirm eligibility, and how to balance ease of access for legitimate users with robust protections against misuse. The information the Commission receives in comments will help the Commission identify and evaluate relevant compliance matters, costs, and other burdens for small entities that may result from the proposals and inquiries made in the NPRM.

81. Significant Alternatives Considered That Minimize the Significant Economic Impact on Small Entities. The proposed changes to the Commission's TRS rules are designed to align the Commission's TRS program and state TRS programs with modern communications services and better serve the needs of relay users. The Commission seeks to alleviate the burden to state TRS programs and analog TRS providers to continue to support and maintain outdated forms of TRS that are becoming more difficult to provide and support over IP-based communication networks. To facilitate this process, while minimizing the economic impact to small entities, the Commission inquiries on an appropriate process for transitioning analog TRS users, plans and timelines for changes to state TRS program, maintaining support for analog forms of TRS during the transition period, introducing comparable, modern forms of TRS, and aligning and right sizing requirements for registering and verifying TRS users and collecting call detail records. The item also inquiries about reducing burdens through updating or deleting obsolete or unnecessarily burdensome rules.

82. The NPRM, seeks comment from all interested parties, particularly those of small business entities. Small entities are encouraged to bring to the Commission's attention any specific concerns they may have with the proposals outlined in document FCC 25-79 and outline any suggested alternatives. The Commission expects to consider the economic impact on small entities, as identified in comments filed in response to document FCC 25-79, in reaching its final conclusions and taking action in this proceeding.

83. Federal Rules that May Duplicate, Overlap, or Conflict with the Proposed Rules. None.

For the reasons discussed in the preamble, the Federal Communications Commission proposes to amend 47 CFR part 64 as follows:

The revisions read as follows: