On July 4, 2025, President Trump signed into law H.R. 1 (Pub. L. 119-21), also known as the One Big Beautiful Bill Act (OBBBA). This rule amends the provisions of the supplemental disaster assistance programs (ELAP, LFP, LIP, and TAP), MAL, LDP, and the Sugar Program to implement changes made by OBBBA. This rule also makes discretionary changes to those programs to improve program administration and clarify existing policy, in addition to minor administrative changes such as updating references to the applicable program years and removing outdated provisions.

CCC is updating the regulations for the supplemental disaster assistance programs as mandated by OBBBA. These updates include ELAP assistance for losses due to bird depredation and a change to honeybee colony loss normal mortality, a lower drought threshold for LFP eligibility, LIP assistance for unborn death losses and changes to compensation for predation losses and the market values used in the LIP payment calculations, and changes to the TAP eligibility threshold and reimbursement percentage for certain costs. This rule also makes additional changes to the regulations for these programs to clarify program provisions and requirements and improve program integrity.

This rule increases the MAL and LDP loan rates for all eligible commodities for the 2026 through 2031 crop years as specified by OBBBA. Additional MAL and LDP changes for upland and extra-long staple (ELS) cotton required by OBBBA include revised formulas to calculate the prevailing world market price for upland cotton, the introduction of a prevailing world market price and adjusted world price for ELS cotton, and changes to the payment of cotton storage costs by area. Additionally, CCC is amending the regulations to add provisions for a 30-day post-repayment loan review in which a refund for upland cotton repayment or an additional LDP disbursement could occur. Sugar Program changes are related to effective loan rates, storage rates, and sugar marketing allocation provisions. This rule also makes minor administrative changes to the Sugar Program regulations. Technical amendments are included for grains and similarly handled commodities and honey. This rule updates the Feedstock Flexibility Program (FFP) provisions to indicate that 2026 is the final crop year covered by the program. This rule also amends definitions in the ARC and PLC regulation and corrects a cross-reference in the DMC regulation.

ELAP, LFP, LIP, and TAP were authorized by section 1501 of the Agricultural Act of 2014 (Pub. L. 113-79, 7 U.S.C. 9081). Section 10401 of OBBBA included mandatory changes for each of these programs. This rule implements those changes and includes additional discretionary changes for these programs.

This rule also amends the general administrative provisions for the supplemental agricultural disaster assistance programs in 7 CFR 1416.2, subpart A, for consistency with other FSA and CCC programs and updates references to USDA's debt management provisions, which are provided in 7 CFR part 3. CCC previously issued a rule on June 2, 2026 (91 FR 32880) to implement changes to the payment limitation provisions for qualified pass-through entities and average adjusted gross income (AGI) limitation provisions that were mandated by OBBBA. This rule revises § 1416.6 to remove outdated payment limitation and AGI provisions and to refer to the current provisions in 7 CFR part 1400.

ELAP provides financial assistance to eligible producers of livestock, honeybees, and farm-raised fish for losses due to disease, certain adverse weather events, or loss conditions, including blizzards and wildfires, as determined by the CCC. In accordance with section 10401(c) of OBBBA, this rule amends the ELAP regulations to add provisions for losses due to bird depredation and establish a honeybee normal mortality rate for determining eligible honeybee colony losses. It also makes additional discretionary changes including adding definitions for terms related to transportation assistance and other minor updates for clarity and consistency.

This rule amends the ELAP regulations to conform with OBBBA provisions that provide assistance for freshwater farm-raised fish damage or loss due to bird depredation, which were not previously covered under ELAP. OBBBA provides that the payment rate for this assistance will take the following factors into account: (1) costs associated with the deterrence of piscivorous birds; (2) the value of lost fish and revenue due to bird depredation; and (3) costs associated with disease loss from bird depredation. OBBBA specifies that the minimum payment rate shall be not less than $600 per acre of farm-raised fish. As provided in this final rule at § 1416.109(e), for program year 2026, CCC has determined that the payment rate will be $600 per eligible acre because CCC does not have data to justify increasing the payment rate above the minimum rate at this time. CCC may increase the rate per acre in future program years if there is documented evidence justifying an increase in the payment rate. For example, CCC welcomes information from independent third-parties, such as a university or cooperative extension service with expertise related to the farm-raised fish industry, that provides documented evidence relating to the costs associated with the deterrence of piscivorous birds, the value of lost fish and revenue due to bird depredation, and costs associated with disease loss from bird depredation. A producer may earn only $600 per eligible acre for each program year; repeated bird depredation events during a year will not result in multiple payments for the same acres. The payment rate is applicable for all eligible farm-raised fish.

In accordance with section 10401(c) of OBBBA, payments for eligible losses due to bird depredation will be equal to the applicable payment rate described above, multiplied by 85 percent of the total number of acres of farm-raised fish farms that the producer has in production for the calendar year (referred to as the “program year” in the ELAP regulations). This rule adds that payment calculation in § 1416.112(c). To be considered eligible acres, the producer must have reported them to FSA on a timely filed acreage report  1 in accordance with 7 CFR part 718, as determined by CCC, and they must have been in use for fish production at the time of bird depredation (§ 1416.103(k)). Unused ponds or waterways, bodies of water not under control of the producer, and any water that is reduced due to drought are not eligible acres for bird depredation losses.

In order to administer assistance for losses due to bird depredation, CCC is also adding and amending several definitions in § 1416.102. This rule adds definitions of “bird depredation”, in alignment with OBBBA, and “freshwater” for clarity. It also amends the definition of “eligible loss condition” to include bird depredation. This rule updates the definition of “farm-raised fish” to specify that, for the purpose of loss due to bird depredation, the term means “fish propagated and reared in a controlled freshwater environment” as provided by OBBBA and clarifies that it does not include crawfish or crayfish for that purpose. Crawfish and crayfish are excluded from “farm-raised fish” for losses due to bird depredation because they are crustaceans, not fish, and producers do not have a standard method to track crawfish and crayfish inventory. Residual inventory from prior years is often present, and producers cannot accurately track current inventory because crawfish and crayfish lay hundreds of eggs, which are not hatched prior to seeding.

To be eligible for payment, a producer must have produced eligible farm-raised fish for commercial use as part of a farming operation and must have had a loss due to bird depredation, as described above (§ 1416.105(d)). The farm-raised fish must be propagated or reared in a controlled freshwater environment, have been maintained for commercial use as part of the farming operation, and have been physically located in the county where the piscivorous birds were present on the beginning day of the loss condition (§ 1416.104(f)(3)).

To apply for losses due to bird depredation, a producer must timely file an acreage report as provided in 7 CFR part 718. By March 1 of the following program year, the producer must also file a notice of loss, an Emergency Loss Assistance for Farm-Raised Fish Application, a report indicating eligible acres of freshwater in use at the time of bird depredation, and an active U.S. Fish and Wildlife Depredation permit with cormorant, American white pelican, heron, or Great egret listed on the permit. If requested by FSA, the producer must also submit documentation to substantiate the producer's use of eligible acres of freshwater reported, inventory losses, and a minimum of 3 of the following 5 items:

• Documentation that losses are from bird depredation, supported by evidence including bird sightings, fish mortality records, aerial surveys, or third-party assessments;

• Documentation of annual expenditures on non-lethal and lethal methods to prevent or reduce bird presence in the area;

• Documentation of costs attributed to disease spread by birds, including prescriptions for medicated feed or any other costs showing disease loss from bird depredation;

• A USDA-Wildlife Services or U.S. Fish and Wildlife Service approved bird harassment plan; and

• A year-end collecting report of the number of birds terminated and reported to the U.S. Fish and Wildlife Service.

Section 10401(c) of OBBBA (7 U.S.C. 9081(d)) provides that a normal mortality rate of 15 percent will be used with respect to eligible honeybee colony losses. Prior to this change, the normal mortality rate was established by FSA for each program year based on published data. This rule updates § 1416.111(b)(2) to conform with OBBBA and specifies the normal mortality rate of 15 percent for program year 2026 and subsequent years.

CCC is adding definitions of “harvested feed or feedstuffs,” “miles above normal,” and “truckload” to clarify provisions related to assistance for transportation costs and improve program integrity. As provided in the definition, “harvested feed or feedstuffs” includes mechanically harvested production that must be wrapped, twined, stacked, or combined in a manner that the harvested product can be transported from one area to another, which aligns with the definition of “harvested” under the Noninsured Crop Disaster Assistance Program (NAP; § 1437.3). This definition is intended to alleviate confusion in situations where a producer has cut a crop but has not further processed it into a condition that allows it to be removed from the field. It clarifies that windrows that have not been mechanically processed into a transportable state are not considered harvested. Similarly, straw left in the field that has not been mechanically processed is also not considered harvested.

The definition of “truckload” and new § 1416.110(r) are intended to clarify how FSA will determine eligibility for payment for feed or livestock transportation. The truckload definition specifies that the transportation must be by a motorized land vehicle, which does not include trains, planes, or ships. A truckload is considered a single trip and includes only the mileage from one point to another, not multiple end points or more than one stop. It also excludes mileage for delivery that is not clearly identified by the mileage rate on verifiable documentation. In addition, the definition and § 1416.110(r) exclude transportation provided through services such as the U.S. Postal Service, FedEx, and UPS. Fees from these transportation service providers are considered part of a commercial shipping service and therefore do not qualify as personal vehicle mileage or an eligible trucking-rate expense.

The definition of “miles above normal” specifies that the term only includes transportation from one point to another, and does not include multiple end points where items are offloaded and then reloaded for transport to additional locations. It also clarifies that eligibility requires verifiable documentation that delineates a mileage rate that is quantitatively separate from the price of the feed or animals being transported. This definition has been added to remove confusion in situations where a producer pays for the transport of feed or animals, but the vendor incorporates transportation costs into the total price and does not separately identify the miles above normal used to calculate ELAP assistance.

This rule amends § 1416.110(a) to specify that livestock feed payments for an eligible livestock producer will be calculated based on losses for no more than 150 grazing days during the program year. The clarification of “grazing” days was previously omitted from the regulation and this addition provides consistency with payments for grazing losses in §  1416.110(g)(2).

This rule also amends the definition of “program year” for clarity and removes unnecessary references to prior years. CCC is adding definitions of “adult water buffalo bull”, “adult water buffalo cow” and “non-adult water buffalo” in § 1416.102 and adding adult and non-adult water buffalo as separate categories of livestock in § 1416.104. Water buffalo were previously considered eligible under the categories for adult and non-adult buffalo; this change is intended to improve clarity and reduce confusion. This rule also amends § 1416.106 to update the provisions for applications for payment for honeybees and farm-raised fish, which now use separate application forms.

CCC is revising § 1416.107(a) to clarify the requirement to file an acreage report. Acreage reports are required by § 1416.106, and they must be filed in accordance with the provisions of §§ 718.101 through 718.112 that generally apply to FSA and CCC programs. As provided in § 718.101(c), acreage reports must be filed by the final reporting date established by the Deputy Administrator, and late-filed acreage reports are subject to the provisions of § 718.104. CCC is also adding § 1416.107(b) to provide the deadline for producers to submit any additional documentation requested by CCC to verify the producer's eligibility or losses. Such documentation must be provided by a producer by the later of March 1 after the end of the applicable program year or 60 days after the date of the request. This rule also amends paragraph references throughout the regulations where necessary due to the changes discussed above.

LFP provides financial assistance to livestock producers who suffer eligible grazing losses due to a qualifying drought during the normal grazing period or when a Federal agency prohibits grazing the normal permitted livestock on managed rangeland due to a qualifying fire. LFP payments for drought are based on the drought severity, as determined in accordance with the U.S. Drought Monitor. Section 10401(b) of OBBBA (7 U.S.C. 9081) lowered the drought threshold for program eligibility.

Prior to this rule, LFP eligibility required eight consecutive weeks of qualifying severe drought (D2) intensity during the normal grazing period before livestock producers were eligible for drought assistance. OBBBA lowered this threshold to four consecutive weeks of qualifying severe drought (D2) conditions for program eligibility in order for a producer to receive a one-month payment. OBBBA also adds eligibility for a two-month payment if severe drought (D2) conditions continue for 7 out of 8 consecutive weeks during the normal grazing period. All other drought intensities, durations, and payment months for LFP eligibility remain the same. These changes will be effective for program year 2026 and subsequent years.

CCC is adding definitions of “adult water buffalo bull”, “adult water buffalo cow” and “non-adult water buffalo” in § 1416.202 and adding adult and non-adult water buffalo as separate categories of covered livestock in § 1416.204(b). Water buffalo were previously considered eligible under the categories for adult and non-adult buffalo; this change is intended to improve clarity and reduce confusion.

As authorized by section 1501(b) of the Agricultural Act of 2014 (7 U.S.C. 9081(b)), LIP provides financial assistance to eligible livestock producers for eligible death losses, in excess of normal mortality, caused by an eligible cause of loss, including adverse weather, disease, and attacks by animals reintroduced into the wild by the Federal government or protected by Federal law. The program also compensates eligible livestock owners who sell livestock at reduced prices due to injury from an eligible loss condition.

As mandated by section 10401(a)(2) (7 U.S.C. 9081(b)) of OBBBA, this rule adds provisions to provide compensation to eligible livestock producers for unborn livestock death losses, in excess of normal mortality, that occurred on or after January 1, 2024. Unborn death loss compensation is determined based on losses of eligible adult livestock that were gestating on the date of their death due to an eligible loss condition. Livestock sold due to injury from an eligible loss event and livestock that are stillborn or aborted from adult females that did not die as a result of an eligible loss event are not eligible for unborn death loss compensation.

Section 10401(a)(2) (7 U.S.C. 9081(b)) of OBBBA requires that payments for unborn death losses will be compensated at a rate that is less than or equal to 85 percent of the payment rate established with respect to the lowest weight class of the same kind and type of livestock. As required by OBBBA, the payment amount will be equal to that payment rate multiplied by an applicable number, referred to in this rule as the “birthing factor” (7 U.S.C. 9081(b)(5)(C)). OBBBA established the birthing factors for cattle, bison, horses, sheep, and swine. For other species of livestock, OBBBA requires that the birthing factor for such livestock would be the average number of birthed animals per gestational cycle for each species. This rule adds these birthing factors to § 1416.306(i). Unborn death losses will be compensated based on the number of eligible adult females that were gestating at the time of the adult female livestock's death, after normal mortality has been applied; no additional normal mortality reductions will apply to unborn death losses.

Eligible livestock categories for unborn death losses include alpacas, beef cattle, beefalo, buffalo, bison, caribou (reindeer), dairy cattle, deer, elk, equine, goats, llamas, sheep, swine, and water buffalo, or other species. Historically, the eligible livestock categories for LIP have been identified by livestock kind, type (adults, non-adults, including sex), and weight class, as applicable, for beef cattle, beefalo, buffalo, bison, dairy cattle, goats, sheep, and water buffalo; however, losses of alpacas, caribou, deer, elk, equine, and llamas have been reported under a single category for each livestock kind that encompasses all adults, non-adults, sexes, and weight ranges due to that livestock kind's limited market data and low program participation. Swine have been identified by types and weights of livestock; however, they have not been separately identified by sex.

OBBBA provides that eligible livestock producers will be compensated for eligible unborn livestock death losses that occurred on or after January 1, 2024. As discussed below, to administer this assistance, CCC is updating the way livestock are categorized for 2026 and subsequent years to collect additional information that is relevant to determining unborn livestock death losses. For the 2024 and 2025 program (calendar) years, FSA will use information that was previously reported, as described below.

Beginning in program year 2026, CCC will update the livestock categories for livestock kinds that were previously reported under a single category, establishing payment rates separately for adults and non-adults using national market data that is available. For those categories that lack ample market data, CCC will use a comparative model of the price ratios between adults and non-adults for other livestock categories that do have ample market data, as applicable. For example, the ratio between the 2025 payment rate for an adult beef cow ($1,810.09) to the payment rate of non-adult beef cattle-less than 400 pounds ($770.86) is 43 percent or a 43:100 ratio. An example of when this scenario could be used is to establish payment rates for alpacas when no market data are available to establish a non-adult rate.

This rule amends the definitions in § 1416.302 to establish separate definitions for adult and non-adult livestock for livestock kinds that were previously reported under a single category and updates the category list to reflect those defined terms in § 1416.304. Form CCC-852, LIP Application for Payment, has been updated to allow producers to certify the number of eligible adult female livestock death losses for livestock that were bred and gestating at the time of the adult female livestock's death. This update enables payments to be calculated for unborn livestock death losses based on the number of eligible adult bred female death losses, after applying normal mortality adjustments. As defined in § 1416.302, “bred” means that an eligible adult female livestock has been exposed to an adult male breeding animal and is gestating or deliberately bred through controlled reproduction. This term does not apply to poultry. Payments will be based on the number of eligible adult bred female death losses identified by the producer on the Application For Payment—livestock producers typically use the term “bred” rather than “gestating” when identifying pregnant livestock and track breeding dates and expected gestation status in accordance with the producer's specific breeding practices for their operation rather than confirmed gestation.

CCC may request additional supporting documentation from eligible livestock producers or conduct spot checks to confirm that livestock were gestating at the time of the eligible loss of the adult female. Additional information that may be requested includes, but is not limited to, verification of breeding records, exposure dates, herd health or veterinary documentation, inventory logs, and other supporting operational records consistent with the producer's normal business practices. A spot check or request for additional information is appropriate when CCC identifies any of the following:

• Missing, inconsistent, or incomplete breeding or inventory records;

• Reported death losses that appear excessive or outside normal expectations for the operation type, size, or production practices;

• Conflicting information between the application, supporting documentation, or prior-year program participation;

• Patterns of repeated corrections, revisions, or documentation gaps by the producer; or

• Situations where CCC has reason to question whether livestock were bred at the time of loss based on reported exposure dates, breeding windows, or herd management practices.

If discrepancies are identified, further documentation may be requested and adjustments may be made to approved death loss numbers.

Payment rates for unborn livestock death losses will be 85 percent of the lowest non-adult weight class, as applicable, of the same livestock kind; this is the maximum payment rate authorized by OBBBA.

The application periods for the 2024 and 2025 program (calendar) years have ended, and CCC's implementation of this provision is intended to minimize the burden on producers who have previously applied for LIP compensation for the adult female in those prior years. To implement this provision retroactively for the 2024 and 2025 program years, CCC is using a two-pronged approach: one approach for eligible livestock categories where producer data on file already identifies eligible adult female losses, and another for livestock categories for which losses of adults, non-adults, males, and females were reported collectively and not identified by type.

For program years 2024 and 2025, FSA records indicate that approximately 4,400 LIP applications have been approved that may require review for unborn death losses. CCC has established LIP payment rates based on livestock kind, type, and weight range for the categories of adult beef, beefalo, bison, buffalo, dairy, and water buffalo cows, nanny goats, and ewes (sheep); as a result, CCC can identify all eligible adult female livestock death losses, after normal mortality, from producers' approved applications. However, CCC does not have the data on file to identify the number of those adult females that were gestating at the time of death. Additionally, CCC can identify all approved eligible losses for livestock categories for which adults, non-adults, males, and females were combined, as applicable, but cannot identify the number of eligible adult females included in those losses.

CCC evaluated the operational challenges of implementing this provision retroactively because all 2024 and 2025 LIP applications would need to be reviewed and revised to indicate whether livestock were female and, if applicable, gestating at the time of death. Instead, CCC reviewed available loss data and typical breeding and disaster patterns to determine an approach based on the best available data. Records show that 86 percent of LIP applications submitted for these program years were for beef cattle losses, and within this category, CCC can identify adult female losses classified as “adult beef cow.” Furthermore, FSA records indicate that 52 percent of eligible loss events in 2024 and 2025 occurred in January, February, and March; this period typically aligns with beef cow gestation in preparation for late winter and spring calving. Under U.S. commercial livestock production practices, breeding females of major livestock species are typically gestating for a substantial portion of the calendar year, commonly more than half the year and, for some species, approaching three-quarters or more (including beef and dairy cattle). Requiring producers to self-certify bred livestock or submit breeding records for 2024 and 2025 losses—information not previously required for LIP participation—would create significant administrative burden and impede timely delivery of critical disaster assistance authorized by OBBBA. These considerations support CCC's decision for 2024 and 2025 to focus on livestock categories where accurate identification is feasible and to apply reasonable assumptions regarding timing and gestation while maintaining program integrity and minimizing producer burden and operational risk.

Accordingly, rather than requiring all producers to revise their 2024 or 2025 LIP application to identify which females were bred at the time of death, CCC will implement a streamlined approach in 2024 and 2025 for producers who reported losses for livestock categories for which the number of eligible adult female livestock is already on file. Based on the rationale and analysis of the timing of loss events, and the livestock categories experiencing the losses, all approved female livestock deaths in 2024 and 2025 will be presumed gestating at the time of loss, and CCC will automatically issue an unborn livestock death loss payment to the applicant based on the number of eligible adult female losses after normal mortality has been applied. No additional action is required by the LIP applicant to receive this payment. The payment for these specific livestock categories will be calculated at 85 percent of the payment rate of the lowest weight range category established for the applicable livestock, multiplied by the applicable birthing factor.

Losses for livestock categories for which adults, non-adults, males, and females were reported collectively, and for which livestock types were not separated by sex for program years 2024 and 2025, account for approximately 100 applications, primarily for deer, elk, equine, and llamas. These species have gestational periods ranging from roughly 200 days to 11 months. Because CCC does not have data to determine how many of these losses were female, applicants with approved losses in these categories may revise their previously approved 2024 and 2025 CCC-852 LIP applications to identify the number of adult females included in their reported losses. Swine have established adult livestock types that combine boars and sows, and they also have established payment rates for adults and non-adults. Applications for these types for program years 2024 and 2025 will need to be revised to identify females specifically. Other revisions to 2024 and 2025 applications, such as any increases to adult livestock losses, are not authorized.

To maintain consistency across the two reporting situations (those who have identified livestock deaths by gender at the time of adult female loss and those who have reported collectively without separating by gender), CCC will only require identification of female losses retroactively for the latter group and will not request additional documentation or proof of breeding status for either group. Once producers identify female livestock and the revised application is reviewed and determined to be accurate, CCC may issue an additional payment to compensate for unborn death losses. With the exception of swine, this payment will be based on the newly determined eligible female losses after normal mortality and will be calculated at 40 percent of the payment rate, since the payment rate for these categories includes both adults and non-adults and does not have an established lower weight class rate. This 40 percent factor was determined using similar ratios of adult and non-adult LIP payment rates in other livestock categories. Swine that are newly identified as sows will be compensated at 85 percent of the lowest weight category already established (sucklings or nursery pigs). The payment calculation will also incorporate the applicable birthing factor that accounts for the average number of offspring per birthing cycle.

For applications that require identification of female losses to receive a payment for unborn livestock death losses, FSA will notify all eligible producers of the opportunity to submit revisions to their approved 2024 or 2025 LIP applications by an established deadline. Any applications that are not revised by this deadline will remain unchanged, and no additional payment will be issued. CCC is not extending the original deadlines to submit an application for these years, and no other revisions to approved applications are authorized.

Section 10401(a) of OBBBA (7 U.S.C. 9081(b)) required changes to the payment calculation for eligible livestock losses due to predation, which includes attacks by animals reintroduced into the wild by the Federal Government or protected by Federal law, including wolves and avian predators. Previously, losses due to predation were compensated at 75 percent of the market value established by CCC. Under OBBBA, losses due to predation must be compensated at 100 percent of the market value as determined by CCC. CCC has added § 1416.306(d) and (f) to provide the updated payment calculation for predation losses and will implement this change starting with the 2026 program year.

Section 10401(a) of OBBBA (7 U.S.C. 9081(b)) amends the Agricultural Act of 2014 to require that indemnity payments to eligible producers must be based on the applicable percentage of the market value of the affected livestock on the “applicable date,” as determined by CCC. In accordance with these OBBBA amendments, the “applicable date” is defined as “the day before the date of death of the livestock” or “the day before the date of the event that caused the harm to the livestock that resulted in a reduced sale price.” Since LIP began, the daily market prices have not been established because consistent market data and resources are not available for most livestock kinds, types, and weight classes. Therefore, payment rates have been set nationally using the previous year's national average market data from USDA's National Agricultural Statistical Service (NASS) or Agricultural Marketing Service (AMS) for most livestock species.

OBBBA includes provisions that allow producers to document regional price premiums that exceed the national average market price established by CCC. Beginning with the 2026 program year, CCC will enhance the process for establishing LIP payment rates to better reflect accurate market values for eligible livestock categories. CCC will continue to set national payment rates using national average market data, but will also provide additional options to allow compensation to be based on the highest of the following:

• National average market value by livestock kind, type, and weight class at the beginning of the program year, based on prior-year market data as determined by CCC;

• National average market value by livestock kind, type, and weight class at the end of the program year, based on current-year market data as determined by CCC;

• The producer's verifiable market value for livestock of the same kind, type, and weight class, based on the market value closest to the date of loss or date of event that caused the injury, specific to the producer's operation and program year, not to exceed 145 percent of the higher of the national average market values established by CCC; or

• Another price approved by CCC on data showing market value the day before the livestock loss or the day before the date of the event that caused the loss.

For 2026 and subsequent program years, CCC has updated the CCC-852 LIP Application to separate the “Notice of Loss” from the “Application for Payment” to be consistent with other CCC disaster programs and to align with policy and software development. The revised Application for Payment allows producers to document an alternative market price specific to their operation for eligible livestock losses, including unborn livestock, which will use the alternative market price for the lowest weight category within the applicable livestock category.

Acceptable documentation for an alternative market price includes, but is not limited to, a producer's verifiable third-party sales or marketing document for their operation. The documentation must include the producer's name as the seller; the buyer's name and contact information; the date and location of the sales transaction; the number of livestock marketed by kind, type, and weight; and the sales price received per head. Alternative pricing must be supported by producer-specific market data for the applicable livestock kind, type, and weight class in the applicable program year.

The CCC-852, LIP Notice of Loss and Application for Payment, including all required supporting documentation and any alternative price documentation, must be submitted by the program deadline of March 1 following the calendar year in which the loss occurred.

CCC is updating and adding definitions in § 1416.302 for clarity. In addition to updates to the definitions of livestock categories to administer assistance for unborn death losses, this rule also specifies in the definitions of adult and non-adult “caribou” that reindeer and caribou are synonymous, as they are the same species (Rangifer tarandus). It also adds definitions for the categories of water buffalo that are separate from the categories for buffalo; previously, water buffalo were included under “buffalo” for LFP, and this change is intended to reduce confusion. In addition, the rule adds definitions for “program year,” which for LIP means the calendar year, and for “reliable record or documentation” and “verifiable record or documentation” to align with other CCC and FSA disaster programs. This rule also amends § 1416.305 to remove a reference to prior program years in paragraph (c), correct a typographical error in paragraph (d)(8), and clarify that paragraph (g) applies to eligible diseases. It also updates cross-references in § 1416.306.

TAP provides assistance to eligible orchardists and nursery tree growers (collectively referred to as “producers”) to replant or rehabilitate trees, bushes, and vines that were lost because of an eligible natural disaster. To receive TAP assistance, a producer must first suffer a qualifying tree, bush, or vine mortality loss in the calendar year (or loss period in the case of plant disease); once that threshold is met, the producer may receive assistance for both loss and damage of eligible trees, bushes, and vines. Prior to OBBBA, a producer had to suffer a minimum 15 percent loss, adjusted for normal mortality, in the calendar year (or loss period in the case of plant disease) to be eligible for TAP payments. OBBBA lowered the loss threshold so that a producer qualifies for TAP if they exceed the normal mortality for a tree, bush, or vine, and this rule amends §§ 1416.403(a) and 1416.406(b) to be consistent with that change.

Additionally, OBBBA increases the portion of a producer's lost or damaged trees, bushes, or vines for which they may receive assistance. This rule amends § 1416.400(b) and § 1416.406(a) to provide that payments will be calculated for the cost of replanting or rehabilitating trees, bushes, or vines that were damaged or lost due to a natural disaster, in excess of normal damage or normal mortality, consistent with OBBBA. Previously, payments were calculated based on the trees, bushes, or vines in excess of 15 percent damage or mortality, adjusted for normal damage or mortality.

To illustrate these changes, suppose a producer has a stand of 1,000 citrus trees and normal mortality for the stand is 3 percent. The producer lost 200 citrus trees due to an eligible natural disaster. Prior to OBBBA implementation, the producer would have had to lose more than 180 trees in the stand (18 percent of the trees, which represents the 15 percent statutory threshold plus 3 percent normal mortality) to be eligible for TAP. With the OBBBA change, the producer is eligible for a TAP payment if they lose more than 30 trees, which represents 3 percent normal mortality.

Prior to OBBBA implementation, the producer would have been eligible for reimbursement for replanting costs for 164 of the 200 citrus trees lost. To calculate this number, the number of trees lost (200 trees) was multiplied by 18 percent (15 percent threshold plus 3 percent normal mortality), which equals 36 trees. That number was then subtracted from the total trees lost (200 − 36 = 164). With the change in this rule, the number of trees lost (200 trees) is multiplied by 3 percent normal mortality, which equals 6 trees, and that number is subtracted from the total trees lost, resulting in 194 trees for which the producer would be eligible for payment.

This rule also increases the reimbursement percentage from 50 percent to 65 percent for the cost of pruning, removal, and other costs to salvage existing trees, bushes, or vines, or, in the case of mortality, to prepare the land for replanting, as mandated by OBBBA (§ 1416.406(a)(2)(i)). The reimbursement amount of 65 percent for replanting costs is not changing, and beginning and veteran farmers and ranchers, as defined in § 718.2, are still eligible for an increased reimbursement amount of 75 percent for both categories of expenses.

The regulatory amendments to implement OBBBA provisions will be effective for the 2026 and subsequent program years, including for any losses in the 2026 program year that occurred prior to the publication of this rule.

In addition to the OBBBA changes, CCC is also amending § 1416.407(a) to extend the time for participants to execute required documents and complete TAP practices from 12 months to 24 months after the application is approved, and to allow CCC to grant an extension of up to 36 months when delays are due to circumstances beyond a participant's control. These changes are intended to allow CCC to address situations where participants need additional time for reasons such as backorders or cancellations of orders of replacement trees, which often occur when suppliers are also affected by disaster events. This rule also removes unnecessary provisions in §§ 1416.400(c) and 1416.403(a) related to the loss threshold for pecan tree losses for the 2017 and 2018 calendar years.

Producers of eligible commodities may apply for MALs or LDPs, subject to requirements codified at 7 U.S.C. 9031 and 7 CFR part 1421. MALs are loans that typically mature within 9 months with the commodity pledged as collateral. Alternatively, a producer eligible for an MAL may elect to receive an LDP instead when the alternative repayment rate for the commodity falls below the loan rate, without requiring the commodity to be pledged as collateral.

Section 10309 of OBBBA increased loan rates for crop years 2026 through 2031 for all commodities eligible under the MAL and LDP programs but did not otherwise change the structure of the MAL and LDP programs. Commodities included in these programs include wheat, feed grains, soybeans and other oilseeds, peanuts, pulse crops, rice, cotton, honey, wool (including unshorn pelts), and mohair.

MALs and LDPs are available beginning with harvest or shearing season for each commodity and extend through the remainder of that commodity's crop year. Nearly all MALs are nonrecourse, meaning that the commodity is used as collateral and may be delivered at maturity as full repayment of the loan. Recourse loans are available for a few commodities that are low quality, contaminated, or for which long term storage is not readily available, meaning that the collateral cannot be delivered as full repayment of the loan. MALs and LDPs must be requested on or before the final loan availability date for the commodity.

Producers may repay the MAL at a rate that is the lesser of the loan rate plus interest or at a repayment rate announced by USDA. The repayment rate is based on average market prices for the preceding 30 days or an alternative rate set by USDA. If the repayment rate is below the loan rate for that commodity, producers can redeem an MAL at the repayment rate and receive the financial benefit of the difference between the loan rate and the repayment rate, referred to as a marketing loan gain. Hence, MALs act as a price floor. This price floor ensures that producers have a guaranteed minimum price for their commodity and helps stabilize producer incomes during periods of low market prices.

As an alternative to taking an MAL, a producer may choose to receive an LDP on their crop, provided an LDP is available for the commodity, and the producer is eligible for an MAL. LDPs provide a payment when the repayment rate for a commodity is lower than its loan rate.

This rule makes technical revisions to the MAL program at 7 CFR part 1421. These revisions include clarification of the role of the Agricultural Marketing Service (AMS) in CCC activities involving Electronic Warehouse Receipts (EWR). Historically, this functionality fell under FSA until Commodity Operations roles moved to AMS in 2018. References to Grain Inspection, Packers and Stockyards Administration (GIPSA) functions were also updated to be functions of AMS. References at 7 CFR part 1421 to Designated Marketing Association (DMA) drawdown accounts for peanuts have been removed because the process to transfer loan or LDP funds to alternative delivery partners, as necessary for disbursement to producers, has been enhanced by using a direct wire process offered by the Federal Reserve Banks known as Fedwire. Parts 1421 and 1427 are amended to make clear that price support provided to producers is limited to commodities produced in the United States. Other technical corrections add clarity to the regulations.

Section 10309(b) of OBBBA extends the honey MAL and LDP programs from crop years 2026 through 2031 and increases the honey loan rate. This rule also makes minor technical corrections to the honey regulations in 7 CFR part 1434.

This rule updates 7 CFR part 1427 to reflect OBBBA changes for the 2026 through 2031 crop years, including higher storage rates for upland and ELS cotton, a revised formula for the prevailing world market price for upland cotton to include the 3 lowest-price quotes (rather than the use of 5 lowest-priced quotes), introduction of a prevailing world market price and adjusted world price for ELS cotton, and a formula to determine a refund amount for upland cotton loan redemptions when the adjusted world price (AWP)  2 declines within 30-days of the loan repayment date. This rule also makes technical clarifying changes and removes expired provisions.

USDA does not pay for storage on non-forfeited commodities; however, for cotton, USDA credits storage (up to the maximum storage credit rate) toward the loan at redemption when the loan rate plus interest plus storage exceeds the AWP. Depending on the AWP, this can result in a partial or full storage credit. Storage payment rates are calculated as the lower of the current marketing year warehouse storage charge or the area-specific storage payment rate cap. Section 10309 of OBBBA (7 U.S.C. 9034(g)) increases storage payment rates compared to previous levels established by CCC in 2006. Effective with the 2026 cotton crop, these storage payment rates are capped at $4.90 for locations in California and Arizona, and at $3.00 for all other states. Additionally effective with the 2026 cotton crop, OBBBA eliminates the prior percentage-based reduction of 10 percent of the storage payment rate cap that was included in section 1204 of the Agricultural Act of 2014 (7 U.S.C. 9034(g)).

Historically, the prevailing world market price for upland cotton, referred to as the “Far East price” (FE), was based on the average of the quotations from the preceding Friday through Thursday for the 5 lowest-priced growths of Middling one and three-thirty-second inch (M 1 3/32 inch) cotton, CFR (cost and freight) Far East. Section 10310 of OBBBA changed the prevailing world market price for upland cotton to be based on the 3 lowest-priced growth quotes, effective retroactively starting from the date of OBBBA's enactment on July 4, 2025. As has been the case historically, the world market price for upland cotton, which is a benchmark for global upland cotton prices, is adjusted for quality and the estimated cost to market for U.S. producers to calculate the upland cotton AWP (repayment rate).

Historically, ELS cotton was redeemed at the loan rate plus interest with no alternative repayment rate, and a prevailing world market price and adjusted world price were not calculated. Section 10310 of OBBBA (7 U.S.C. 9034) provides that a prevailing world market price will be calculated and announced weekly in a manner similar to the process for upland cotton—using the 3 lowest-priced growth quotes adjusted for quality. The prevailing world market price (“extra long staple Far East price” or ELSFE), regardless of whether or not a quality adjustment is made, will then be adjusted for the U.S. producers' average cost to market to calculate the ELS cotton AWP used for repayments.

Upland cotton redemptions are to be made at the lesser of the loan rate, plus interest and other charges, or the AWP (repayment rate) as announced by CCC at 4 p.m. Eastern time each Thursday. Section 10310 of OBBBA, which amends section 1204(b) of the Agricultural Act of 2014, states that in the event that a lower AWP is announced within the 30 calendar days immediately following the date of loan repayment, FSA will issue a refund to the producer equal to the difference between the lowest AWP during the 30-day period and the AWP in effect on the date of loan repayment. The term “producer” includes the remitter or redeemer of the marketing assistance loan. This provision ensures that if market prices drop shortly after repayment, the producer benefits from the lower price through a refund. If a producer requests an LDP in lieu of an MAL, and a lower AWP is announced during the 30-day period immediately following the request, the producer will receive an additional LDP disbursement. The additional LDP disbursement will be equal to the difference in the LDP rate used in the producer's initial LDP request and the lowest AWP during the 30-day period. The term “producer” in this case, will be the requestor of the initial LDP. Producers who elect to receive an LDP in lieu of an MAL cannot pledge the same cotton as collateral under the MAL program and therefore any LDP recipients forfeit any storage credits or other benefits associated with MAL participation. 3 A recalculated rate may not, under any circumstances, result in an LDP for which the producer has not already submitted an approved application. This rule amends §§ 1427.19 and 1427.23.

In addition to implementing OBBBA changes, FSA is making some technical changes for clarity and consistency within the regulations.

This rule amends § 1427.3 to remove the definition for “cotton commercial bank” and to clarify the definitions of “upland cotton” and “ELS cotton.” ELS cotton is cotton of the Gossypium barbadense variety or any hybrid where the barbadense variety predominates. Upland cotton is any strain of the Gossypium variety or a variety that does not include the barbadense species.

Section 1427.22 is updated to include the availability of Commodity Certificate Exchanges (CCE) for ELS cotton on or before loan maturity. Under this rule, CCEs will allow a producer to redeem collateral at the prevailing world market price using a certificate exchange process that provides a market loan gain that is not subject to payment limits and AGI provisions.

This rule also makes technical corrections to §§ 1427.6, 1427.19, and 1427.23. References to “cotton commercial bank” are removed and contact information is provided for AMS's Warehouse and Commodity Management Division. References to the tariff storage rate for warehouse storage for cotton crops under loan are updated to reflect the current marketing year. The term “upland” is removed where it applies to both upland and ELS cotton. With the introduction of the ELS cotton AWP (repayment rate), storage credit applied to loan repayments when the adjusted world market price is less than the combined value of loan principal, accrued interest, and warehouse storage, are now applicable to both upland and ELS cotton.

This rule amends the Sugar Program regulations in 7 CFR part 1435 to implement the changes in section 10312(a) of OBBBA (42 U.S.C. 7272), which extends the Sugar Program from crop year 2025 to 2031 and increased raw cane and refined beet sugar loan rates (§ 1435.101(a) and (b)). Section 10312(b)(1)(a) of OBBBA (7 U.S.C. 7287) also requires the CCC to establish storage rates for forfeited sugar in amounts not less than newly established rates (§ 1435.105(j)).

OBBBA added an exception to certain procedures that apply when reassigning beet sugar allocations following an upward adjustment in the Overall Allotment Quantity (§ 1435.303(d)). If an upward adjustment in sugar marketing allotments was made at the beginning of the fiscal year, each processor's allocation will be increased by the same percentage that the allotment increased. Section 10312(c)(2) of OBBBA (7 U.S.C. 1359cc(g)(2)) added an exception such that when adjusting beet sugar allocations priority will be given to beet sugar processors with available sugar (§ 1435.303(d)). Section 10312(c)(3) of OBBBA (7 U.S.C. 1359ee(b)(2)) also provides consistency for beet sugar processors who will need additional allocations to market their sugar supplies. Under the requirements established by OBBBA, the first reassignment of sugar marketing allocations now must be published no later than 30 days after the publication of each January's World Supply and Demand Estimates report (§ 1435.309(d)(5)).

This rule also makes technical corrections to other sugar provisions, such as clarifying that FSA, Farm Production and Conservation (FPAC), and AMS will administer the Sugar Program for the CCC (§ 1435.1(a)). This rule specifies that sugar pledged as collateral during the crop year may not be pledged as collateral in a subsequent crop year (§ 1435.102(c)(6)). Additionally, this rule provides the rates of storage to be used for crop years 2012 through 2024 that were inadvertently omitted from 7 CFR part 1435 (§ 1435.105(j)).

This rule also updates definitions related to sugar. Section 1435.2 adds a definition for the domestic sugar industry. Three definitional changes are made in § 1435.2: (1) the definition of “crop year” is updated to clarify that a crop year relates to the year in which harvest and processing of the crop begins; (2) clarifying language is added to the definition of “imports” to provide the same level of specificity used in USDA's survey for importers; and (3) a definition of “new entrant” is added because §§ 1435.305, 1435.306, and 1435.308 all relate to new entrant provisions, yet the term had not yet been defined. In addition, § 1435.200h(i) is amended to reflect specific audit terms that have been adopted over time. USDA found that the previous terms were too rigid for sugar industry reporters (who are required to report data monthly to USDA) to manage without incurring burdensome costs.

Although the Feedstock Flexibility Program (FFP) was not mentioned in OBBBA, this rule also updates the regulations in Subpart G to extend FFP through crop year 2026 as authorized in the Continuing Appropriations, Agriculture, Legislative Branch, Military Construction and Veterans Affairs, and Extensions Act, 2026 (Pub. L. 119-37). FFP provides an alternative for USDA to dispose of sugar when the marketplace is oversupplied.

On January 12, 2026, CCC published a final rule amending the regulations for the ARC and PLC programs to conform to OBBBA provisions and make minor administrative changes and updates (91 FR 1043). In that rule, CCC revised the definition of “historically irrigated percentage” in § 1412.3 to update the applicable years; however, CCC inadvertently omitted an update to reflect that it will be calculated using both the planted and considered planted (P&CP) acreage of the commodity plus subsequently planted acreage of the commodity. Use of both P&CP and subsequently planted crop acreage provides a more accurate reflection of a farm's historical irrigation of a commodity. This rule also corrects a typographical error in the applicable beginning year in paragraph (1) of the definition of “reference price” in § 1412.3. As specified in section 10301(b) of OBBBA, the references prices in paragraph (1) are effective beginning with the 2025 crop year.

On January 12, 2026, CCC published a final rule amending the regulations for the DMC Program to conform to OBBBA provisions and make minor administrative changes and updates (91 FR 1043). In that rule, CCC revised § 1430.407(i) but it contained an erroneous cross-reference. That error is corrected in this rule.

The modifications to ARC, PLC, DMC, ELAP, LFP, LIP, TAP, MAL, LDP, and the Sugar Program authorized by OBBBA are distinct and severable from one another, as well as from the minor administrative changes and updates to the regulations. Each provision is designed to function independently, ensuring that the rule as a whole remains effective and aligned with the agency's intent, even if certain provisions were to be invalidated.

As specified in 7 U.S.C. 9091(c)(2), the regulations to implement ARC, PLC, DMC, ELAP, LFP, LIP, TAP, MAL, LDP, and the Sugar Program are exempt from:

• The Paperwork Reduction Act (44 U.S.C. chapter 35), and

• The notice and comment provisions of 5 U.S.C. 553.

The Office of Information and Regulatory Affairs has found that this rule meets the criteria at 5 U.S.C. 804(2) of the Congressional Review Act (CRA). Ordinarily, such a finding would necessitate delaying its effective date for 60 days (5 U.S.C. 801(a)(3)(A)). However, 7 U.S.C. 9091(c)(3) directs the Secretary to use the authority provided by the CRA at 5 U.S.C. 808(2), which allows an agency to make such regulations effective immediately with good cause. USDA has determined that such good cause exists. For the reasons noted above—the APA exception at 7 U.S.C. 9091(c)(2)(B) and the applicability of 5 U.S.C. 553(a)(2)—such notice and public procedure are unnecessary for this rule. Further, this rule implements mandatory requirements of the OBBBA, and the assistance provided by this rule is necessary to help beneficiaries sustain their normal business operations. As a result, USDA finds that notice and public procedure are contrary to the public interest. Therefore, USDA is not required to delay the effective date for 60 days from the date of publication. Accordingly, this rule is effective upon publication in the Federal Register .

This rule is exempt from the regulatory analysis requirements of the Regulatory Flexibility Act (5 U.S.C. 601-612), as amended by the Small Business Regulatory Enforcement Fairness Act of 1996 (SBREFA) because it involves matters relating to benefits. The requirements for the regulatory flexibility analysis in 5 U.S.C. 603 and 604 are specifically tied to the requirement for a proposed rule by section 553 or any other law; in addition, the definition of rule in 5 U.S.C. 601 is tied to the publication of a proposed rule.

Executive Order 12866, “Regulatory Planning and Review,” and Executive Order 13563, “Improving Regulation and Regulatory Review,” direct agencies to assess all 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 emphasized the importance of quantifying both costs and benefits, of reducing costs, of harmonizing rules, and of promoting flexibility. Executive Order 14192, “Unleashing Prosperity Through Deregulation,” announced the Administration policy to significantly reduce the private expenditures required to comply with Federal regulations to secure America's economic prosperity and national security and the highest possible quality of life for each citizen and to alleviate unnecessary regulatory burdens placed on the American people. In line with the Executive order requirements, the Agency chose this regulatory approach, which implements mandatory provisions of the OBBBA and clarifies and simplifies program requirements, to maximize benefits and minimize burden on American producers. This rule is not an Executive Order 14192 regulatory action because it does not impose any more than de minimis regulatory costs.

The Office of Management and Budget (OMB) designated this rule as economically significant under Executive Order 12866, section 3(f)(1), and therefore, OMB has reviewed this rule. The costs and benefits of this rule are summarized below. The full CBA is available on regulations.gov.

The program changes in this rule are, except in the case of MALs and LDPs, largely independent of one another and, generally, affect payment parameters or expand the situations that are now eligible for payment.

• Supplemental Disaster Assistance —CCC is making numerous changes to the supplemental disaster assistance programs, which encompass ELAP, LFP, LIP, and TAP. Examples of OBBBA-driven changes include setting a fixed mortality rate for honeybees for ELAP and increasing the timeliness and amount of LFP payments. By far, the largest increase in projected outlays within this category is due to the LFP changes, which are estimated at $343 million annually. For the other disaster programs combined, the annual increase is $39 million, bringing the total for this category to $382 million annually.

• MALs and LDPs —The major driver increasing MALs and LDPs is the OBBBA increase in marketing assistance loan rates. In addition, OBBBA mandates certain changes to the cotton and sugar programs. The intertwined nature of the OBBBA changes (including for cotton and sugar) is analyzed in a composite fashion and the aggregate estimate (taking into account the intertwined nature of the changes) results in a projected outlay increase of $545 million annually. The cotton and sugar changes are embedded within this estimate.

The total cost of these changes is estimated at $927 million ($382 million + $545 million) annually.

The environmental impacts have been considered in a manner consistent with the provisions of the National Environmental Policy Act (NEPA, 42 U.S.C. 4321-4347) and the USDA regulation for compliance with NEPA (7 CFR part 1b).

This rule implements primarily mandatory changes to the ELAP, LFP, LIP, TAP, MAL, LDP, and Sugar Program provisions that are required by the OBBBA, with limited discretionary aspects that do not have the potential to impact the human environment as they are administrative. Accordingly, these discretionary aspects are covered by the FSA Categorical Exclusions specified in 7 CFR 1b.4(c)(16)(ix) that applies to safety net programs and § 1b.(c)(16)(vii) that applies to price support programs.

No Extraordinary Circumstances (§  1b.3(f)) exist because these are administrative payment programs. As such, the implementation of and participation in the ELAP, LFP, LIP, TAP, MAL, LDP, and Sugar Program do not constitute major Federal actions that would significantly affect the quality of the human environment, individually or cumulatively. Therefore, FSA will not prepare an environmental assessment or environmental impact statement for this action and, consistent with §  1b.3(g), this document serves as the programmatic finding of applicability and no extraordinary circumstance (FANEC) for this Federal action.

This rule has been reviewed in accordance with the requirements of Executive Order 13175, “Consultation and Coordination with Indian Tribal Governments.” Executive Order 13175 requires Federal agencies to consult and coordinate with Tribes on a Government-to-Government basis on policies that have Tribal implications, including regulations, legislative comments or proposed legislation, and other policy statements or actions that have substantial direct effects on one or more Indian Tribes, on the relationship between the Federal Government and Indian Tribes, or on the distribution of power and responsibilities between the Federal Government and Indian Tribes.

USDA has assessed the impact of this rule on Indian Tribes and determined that this rule does not, to our knowledge, have Tribal implications that required Tribal consultation at this time. If a Tribe requests consultation, the USDA Farm Service Agency will work with the FSA Federal Preservation Officer, who will engage the Office of Tribal Relations as needed, to ensure meaningful consultation is provided.

Title II of the Unfunded Mandates Reform Act of 1995 (UMRA, Pub. L. 104-4) requires Federal agencies to assess the effects of their regulatory actions on State, local, and Tribal governments, or the private sector. Agencies generally must prepare a written statement, including cost benefit analysis, for proposed and final rules with Federal mandates that may result in expenditures of $100 million or more in any 1 year for State, local, or Tribal governments, in the aggregate, or to the private sector. UMRA generally requires agencies to consider alternatives and adopt the more cost effective or least burdensome alternative that achieves the objectives of the rule. This rule contains no Federal mandates, as defined in Title II of UMRA, for State, local, and Tribal governments or the private sector. Therefore, this rule is not subject to the requirements of sections 202 and 205 of UMRA.

FSA is committed to complying with the E-Government Act of 2002, to promote the use of the internet and other information technologies to provide increased opportunities for citizen access to Government information and services, and for other purposes.

The titles and numbers of the Federal assistance programs, as found in the Assistance Listing, to which this document applies are 10.112—Price Loss Coverage, 10.113—Agriculture Risk Coverage, 10.127—Dairy Margin Coverage, 10.051—Commodity Loans and Loan Deficiency Payments, 10.088—Livestock Indemnity Program, 10.089—Livestock Forage Disaster Program, 10.091—Emergency Assistance for Livestock, Honeybees, and Farm-Raised Fish Program, and 10.092—Tree Assistance Program.

For the reasons discussed above, CCC amends the regulations in 7 CFR parts 1412, 1416, 1421, 1427, 1430, 1434, and 1435 as follows:

The Biorefinery, Renewable Chemical, and Biobased Product Manufacturing Program, administered under 7 CFR 4279 Subpart C and 7 CFR 4287 Subpart D, provides loan guarantees up to $250 million to eligible applicants to develop advanced biofuels, renewable chemicals, and biobased-products manufacturing facilities to deliver new and innovative technologies. These loan guarantees assist to develop, build, or retrofit facilities to support new and emerging technologies and produce advanced biofuels, renewable chemicals, and biobased products.

This updated final rule for the Section 9003 program strengthens the $250 million loan guarantee framework for advanced biofuels, renewable chemicals, and biobased products by introducing critical integrity measures. These revisions to the regulation will strengthen oversight and management of the growing Section 9003 loan guarantee portfolios. The revisions aim to prevent fraud and abuse by barring any borrower or guarantor from remaining involved in a project if it results in a monetary loss to the Agency. These changes ensure that participants remain fully committed to the long-term success of their operations rather than relying on debt reductions or government-backed bailouts to mitigate poor performance. For example, consider a borrower with a failed project due to cost overruns or bad management. In this example, if the Agency pays the Lender's final loss claim, and the Lender writes down the borrower's debt, but the borrower continues operating the project, the government bore the cost of the borrower's poor management. If the Agency permits a borrower or guarantor to remain involved in a project following the Agency's loss, the borrower or guarantor may eventually profit from the project at the government's expense, effectively turning this government assistance into a grant. This arrangement creates perverse incentives for unethical parties to not execute their project to the best of their ability, seek to write down the loss paid by the taxpayer, and later earn a profit based on the government's loss. These regulatory changes close any loophole that would allow for a borrower or guarantor to later profit from a failed project funded by the Agency.

Section 4287.345(c) is revised to prohibit debt write-downs when borrowers or guarantors retain decision-making authority.

Section 4287.358(h) is added to prohibit borrowers and guarantors, as well as related parties with whom either the applicant or guarantor does not have an arm's length transaction relationship, from remaining involved in a project any time the Agency sustains a loss. The new section 4289.358(h) prevents entities from continuing to benefit from a project after the Agency has absorbed a financial loss on their behalf.

This program is not subject to the requirements of Executive Order 12372, “Intergovernmental Review of Federal Programs,” as implemented under USDA's regulations at 2 CFR 415, subpart C.

This rule has been determined to be not significant for purposes of Executive Order 12866 and, therefore, has not been reviewed by the Office of Management and Budget.

This rule has been reviewed under Executive Order 12988. In accordance with this rule: (1) unless otherwise specifically provided, all State and local laws that conflict with this rule will be preempted; (2) no retroactive effect will be given to this rule except as specifically prescribed in the rule; and (3) administrative proceedings of the National Appeals Division of the Department of Agriculture (7 CFR part 11) must be exhausted before bringing suit in court that challenges action taken under this rule.

The policies contained in this rule do not have any substantial direct effect on States, on the relationship between the National Government and the States, or on the distribution of power and responsibilities among the various levels of government. Nor does this rule impose substantial direct compliance costs on state and local governments. Therefore, consultation with the States is not required.

This final rule has been reviewed in accordance with the requirements of Executive Order 13175, Consultation and Coordination with Indian Tribal Governments. Executive Order 13175 requires Federal agencies to consult and coordinate with Tribes on a government-to-government basis on policies that have Tribal implications, including regulations, legislative comments or proposed legislation, and other policy statements or actions that have substantial direct effects on one or more Indian Tribes, on the relationship between the Federal government and Indian Tribes or on the distribution of power and responsibilities between the Federal government and Indian Tribes. Consultation is also required for any regulation that preempts Tribal law or that imposes substantial direct compliance costs on Indian Tribal governments and that is not required by statute.

The Agency has determined that this final rule does not have Tribal implications that require formal Tribal consultation under Executive Order 13175. If a Tribe requests consultation, the RBCS will work with the Office of Tribal Relations to ensure meaningful consultation is provided where changes, additions and modifications identified herein are not expressly mandated by Congress.

The Assistance Listing Number assigned to the Biorefinery, Renewable Chemical, and Biobased Product Manufacturing Program is 10.865.

This Final Rule was reviewed in accordance with USDA Regulation 4300-4, Civil Rights Impact Analysis,” to identify any major civil rights impacts the rule might have on program participants on the basis of age, race, religion, color, national origin, sex, disability, genetic information, political beliefs, marital status, familial status, parental status, veteran status, religion, reprisal and/or resulting from all or a part of an individual's income being derived from any public assistance program. This Final rule is within a Guarantee-based program. Guarantees are not covered under Title VI of the Civil Rights Act of 1964, Section 504 of the Rehabilitation Act of 1973, and Title IX of the Education Amendments Act of 1972, as amended, when Federal assistance does not include insurance or interest credit loans. Lenders must comply with other applicable Federal laws, including Equal Employment Opportunities, the Equal Credit Opportunity Act, the Fair Housing Act, and the Civil Rights Act of 1964. Guaranteed loans that involve the construction of or addition to facilities that accommodate the public must comply with the Architectural Barriers Act Accessibility Standard. The borrower and lender are responsible for ensuring compliance with these requirements.

Pursuant to the Congressional Review Act (5 U.S.C. 801 et seq. ), the Office of Information and Regulatory Affairs designated this final rule as not a major rule, as defined by 5 U.S.C. 804(2).

Rural Development is committed to the E-Government Act, which requires Government agencies in general to provide the public the option of submitting information or transacting business electronically to the maximum extent possible and to promote the use of the internet and other information technologies to provide increased opportunities for citizen access to Government information and services, and for other purposes.

In accordance with the National Environmental Policy Act of 1969, Public Law 91-190, this final rule has been reviewed in accordance with 7 CFR part 1b (“National Environmental Policy Act”). The Agency has determined that (i) this action meets the criteria established in 7 CFR 1b and (ii) no extraordinary circumstances exist. Therefore, the Agency has determined that the action does not have a significant effect on the human environment, and therefore neither an Environmental Assessment nor an Environmental Impact Statement is required.

This rule contains no reporting or recordkeeping provisions requiring Office of Management and Budget (OMB) approval under the Paperwork Reduction Act of 1995 (44 U.S.C. Chapter 35).

The Regulatory Flexibility Act (5 U.S.C. 601-602) (RFA) generally requires an agency to prepare a regulatory flexibility analysis of any rule subject to notice and comment rulemaking requirements under the Administrative Procedure Act (“APA”) or any other statute. The Administrative Procedures Act exempts from notice and comment requirements rules “relating to agency management or personnel or to public property, loans, grants, benefits, or contracts” (5 U.S.C. 553(a)(2)), so an analysis has not been prepared for this rule.

It is USDA's intention that the provisions of this rule shall operate independently of each other. In the event that this rule or any portion of this rule is ultimately declared invalid or stayed as to a particular provision, it is USDA's intent that the rule nonetheless be severable and remain valid with respect to those provisions not affected by a declaration of invalidity or stayed. USDA concludes it would separately adopt all of the provisions contained in this final rule.

Title II of the UMRA, Public Law 104-4, establishes requirements for Federal Agencies to assess the effects of their regulatory actions on State, local, and Tribal Governments and on the private sector. Under section 202 of the UMRA, Federal Agencies generally must prepare a written statement, including cost-benefit analysis, for proposed and Final Rules with “Federal mandates” that may result in expenditures to State, local, or Tribal Governments, in the aggregate, or to the private sector, of $100 million or more in any one-year. When such a statement is needed for a rule, section 205 of the UMRA generally requires a Federal Agency to identify and consider a reasonable number of regulatory alternatives and adopt the least costly, more cost-effective, or least burdensome alternative that achieves the objectives of the rule.

This rule contains no Federal mandates (under the regulatory provisions of title II of the UMRA) for State, local, and Tribal Governments or for the private sector. Therefore, this rule is not subject to the requirements of sections 202 and 205 of the UMRA.

In accordance with Federal civil rights laws and USDA civil rights regulations and policies, the USDA, its Mission Areas, agencies, staff offices, employees, and institutions participating in or administering USDA programs are prohibited from discriminating based on race, color, national origin, religion, sex, disability, age, marital status, family/parental status, income derived from a public assistance program, political beliefs, or reprisal or retaliation for prior civil rights activity, in any program or activity conducted or funded by USDA (not all bases apply to all programs). Remedies and complaint filing deadlines vary by program or incident.

Persons with disabilities who require alternative means of communication to obtain program information ( e.g., Braille, large print, audiotape, American Sign Language, etc.) should contact the State or local Agency that administers the program or contact USDA through the Telecommunications Relay Service at 711 (voice and TTY). Program information may be made available in languages other than English.

To file a program discrimination complaint, a complainant should complete a Form AD-3027, USDA Program Discrimination Complaint Form, which can be obtained online at https://www.usda.gov/sites/default/files/documents/ad-3027.pdf and at any USDA office or write a letter addressed to USDA and provide in the letter all of the information requested in the form. To request a copy of the complaint form, call (866) 632-9992. Submit your completed form or letter to USDA by:

b. Fax: (202) 690-7442; or

c. Email: program.intake@usda.gov .

USDA is an equal opportunity provider, employer, and lender.

For the reasons stated in the preamble, the RBCS amends 7 CFR 4287 Subpart D as follows:

Due to the receipt of adverse comments, DOE is withdrawing the direct final rule titled “Zero-Based Regulating,” which published on May 29, 2026 (91 FR 31869). DOE stated in that direct final rule that if adverse comments were submitted by June 29, 2026, the direct final rule would not take effect and DOE would publish a timely withdrawal in the Federal Register . Because DOE subsequently received adverse comments on that direct final rule, DOE withdraws the direct final rule.

DOE published a parallel proposed rule (91 FR 31985, May 29, 2026) on the same day as the direct final rule. The proposed rule invited comments on the substance of the direct final rule. DOE will respond to comments received by June 29, 2026, as part of any final action it takes on the parallel proposed rule.

The Secretary of Energy has approved publication of this notice.

This document of the Department of Energy was signed on July 06, 2026, by Chris Wright, Secretary of Energy. That document with the original signature and date is maintained by DOE. For administrative purposes only, and in compliance with requirements of the Office of the Federal Register, the undersigned DOE Federal Register Liaison Officer has been authorized to sign and submit the document in electronic format for publication, as an official document of the Department of Energy. This administrative process in no way alters the legal effect of this document upon publication in the Federal Register .

The Department is rescinding portions of its regulations promulgated pursuant to Title VI, 42 U.S.C. 2000d-1, to more closely align them to the statute, which prohibits only intentionally discriminatory conduct, see 42 U.S.C. 2000d. There are serious statutory and constitutional concerns with the legality of the Department's current Title VI regulations because the current regulations go beyond intentional discrimination to additionally prohibit conduct having an unintentional disparate impact. This rule accordingly deletes those portions of the regulations, which are in considerable tension with the statute and Constitution.

The rule's revisions also conform to Executive Order 14281, Restoring Equality of Opportunity and Meritocracy, 90 FR 17537 (April 28, 2025). That Executive Order states that “[i]t is the policy of the United States to eliminate the use of disparate-impact liability in all contexts to the maximum degree possible to avoid violating the Constitution, Federal civil rights laws, and basic American ideals.” Section 5 of that Executive Order specifically directs the Attorney General to work with Federal agencies, including the Department, to repeal or amend Title VI regulations promulgated under 42 U.S.C. 2000d-1 that address disparate-impact liability. Although the Department would take this action independent of Executive Order 14281, the Order supports this action.

This rule makes clear that the Department's Title VI regulations do not prohibit conduct that has a disparate impact, and the Department thus will not pursue Title VI disparate-impact liability against its Federal-funding recipients.

Title VI of the Civil Rights Act of 1964, as amended, prohibits intentional discrimination on the “ground of race, color, or national origin” in all programs or activities that receive Federal financial assistance. 42 U.S.C. 2000d. Title VI also directs Federal departments and agencies that extend Federal financial assistance to “effectuate the provisions of” Title VI “by issuing rules, regulations, or orders of general applicability.” 42 U.S.C. 2000d-1. The section of Title VI that sets forth the prohibited conduct, 42 U.S.C. 2000d, prohibits only intentional discrimination and makes no reference to unintentional disparate effects or impact. The statute also does not explicitly provide any Federal department or agency with authority to prohibit conduct having an unintentional disparate impact. And no subsequent amendments to the statute have expanded Title VI to encompass disparate-impact liability.

Pursuant to Executive Order 12250, 28 CFR pt. 41, app A, the Department of Justice acts as the lead Federal agency responsible for implementing Title VI's prohibition of discrimination on the basis of race, color, and national origin in programs or activities receiving Federal financial assistance. As part of this responsibility, Executive Order 12250 provides that the Attorney General must approve other agencies' Federal regulations implementing Title VI, including the Department's regulations.

The Department's Title VI implementing regulations are codified at 22 CFR part 141. The Department originally issued its implementing regulations in 1965. 30 FR 314 (Jan. 9, 1965). In 1973, the Department substantively amended its regulatory description of prohibited discrimination. 38 FR 17946 (July 5, 1973). In 2003, the Department added language regarding “program or activity” to reflect the amendment of Title VI by the Civil Rights Restoration Act of 1987. 68 FR 51334, 51358 (Aug. 26, 2003). Thus, apart from the statutorily required updating of the phrase “program or activity” pursuant to the Civil Rights Restoration Act, the Department has not substantively updated its Title VI regulations since 1973, which was over 50 years ago.

The Department's implementing regulation describing the scope of prohibited discriminatory conduct, 22 CFR 141.3, currently includes prohibitions on conduct that has an unintentional disparate impact.

The Supreme Court has held that Title VI does not prohibit conduct that has a disparate impact but rather prohibits only intentional discrimination. In 1978, five years after the Department last substantively amended its Title VI regulations, the Supreme Court held that Congress intended Title VI to prohibit “only those racial classifications that would violate the Equal Protection Clause” if committed by a government actor. Regents of Univ. of Cal. v. Bakke, 438 U.S. 265, 287 (1978) (Powell, J., announcing judgment); id. at 325, 328, 352 (Brennan, J., joined by White, Marshall, and Blackmun, JJ., concurring in part); see also Students for Fair Admissions, Inc. v. President & Fellows of Harvard Coll., 600 U.S. 181, 198 n.2 (2023) (“ SFFA” ). Just prior to Bakke, the Supreme Court held that the Equal Protection Clause prohibits only intentional discrimination, and conduct that has a discriminatory effect or disparate impact alone does not violate that clause. Washington v. Davis, 426 U.S. 229, 242 (1976); see also Vill. of Arlington Heights v. Metro. Hous. Dev. Corp., 429 U.S. 252, 265 (1977) (“Proof of racially discriminatory intent or purpose is required to show a violation of the Equal Protection Clause.”); Personnel Admin. of Mass. v. Feeney, 442 U.S. 256, 272 (1979) (“[E]ven if a neutral law has a disproportionately adverse effect upon a racial minority, it is unconstitutional under the Equal Protection Clause only if that impact can be traced to a discriminatory purpose.”). Taken together, these Supreme Court cases establish that Title VI's statutory prohibition extends only to intentional discrimination.

In 2001, the Supreme Court, in Alexander v. Sandoval, 532 U.S. 275 (2001), reaffirmed that Title VI's statutory prohibition on discrimination extends only to intentional discrimination. Id. at 280-81. In Sandoval, the Supreme Court held that private plaintiffs could not bring a Title VI action to enforce a then-existing implementing regulation issued by the Department of Justice (“DOJ”), which prohibited conduct that had unintentional discriminatory effects or disparate impacts; this regulation was similar in this regard to the Department's current Title VI regulations. See id. at 285. Because Title VI prohibits only intentional discrimination, the statutory private cause of action did not extend to the disparate-impact regulations. Id. at 285-87. Although the Supreme Court in Sandoval assumed, without deciding, that DOJ's disparate-impact regulation was valid, the Court wrote that the regulation was in “considerable tension” with the Supreme Court's Title VI precedents and that the regulation did not “authoritatively” construe Title VI because it prohibited conduct ( i.e., conduct having an unintentional disparate impact), that Title VI “permits.” Id. at 281-82, 284-85.

Finally, in 2024, the Supreme Court overruled Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984). See Loper Bright Enters. v. Raimondo, 603 U.S. 369, 409-12 (2024). In doing so, the Supreme Court made clear that “statutes . . . have a single, best meaning” that is “ `fixed at the time of enactment.' ” Id. at 400 (quoting Wis. Cent. Ltd. v. United States, 585 U.S. 274, 284 (2018)). Thus, Title VI's bar on discrimination can have only one meaning. And under Supreme Court precedent, the single, best meaning of Title VI is that it “prohibits only intentional discrimination” and “permits” facially neutral policies that result in disparate outcomes so long as there is no discriminatory intent. Sandoval, 532 U.S. at 280, 286 n.6.

On April 23, 2025, the President issued Executive Order 14281. This Order restates the “bedrock principle of the United States” “that all citizens are treated equally under the law.” 90 FR at 17537. The Order finds that this “principle guarantees equality of opportunity, not equal outcomes. It promises that people are treated as individuals, not components of a particular race or group.” Id.

This Order also finds that disparate-impact liability “endangers this foundational principle.” Id. Disparate-impact liability, the Order reasons, “all but requires individuals and businesses to consider race and engage in racial balancing to avoid potentially crippling legal liability. It not only undermines our national values but also runs contrary to equal protection under the law and, therefore, violates our Constitution.” Id.

The Order relays that because of these problems, “[i]t is the policy of the United States to eliminate the use of disparate-impact liability in all contexts to the maximum degree possible to avoid violating the Constitution, Federal civil rights laws, and basic American ideals.” Id. The Order directs the Attorney General to, among other things, review Title VI regulations and “initiate appropriate action to repeal or amend” these regulations “to the extent they contemplate disparate-impact liability.” Id. Accordingly, this rule revises Department regulations to conform to the direction that the Department coordinate with the Attorney General to repeal and amend the existing regulations as set forth in Section 5 of the Order.

The Department's regulation at 22 CFR 141.3, entitled “Discrimination prohibited,” contains several provisions that go beyond the text of Title VI and relevant constitutional requirements by prohibiting facially neutral policies that have a disparate impact. Section 143.1(b)(2) is the current regulation's general prohibition of conduct having an unintentional disparate impact; it prohibits certain conduct that has “the effect of subjecting individuals to discrimination,” and it does not mention intent.

Section 141.3(b)(5) addresses “affirmative action” and provides that funding recipients may intentionally use race to overcome unintentional disparate “effects.” This provision authorizes the intentional use of race, color, or national origin without requiring that the recipient narrowly tailor its use to serve a compelling interest, as is required to satisfy constitutional limits on race-based classifications. See Adarand Constructors, Inc. v. Pena, 515 U.S. 200, 220 (1995). Similarly, Section 141.3(b)(5) sometimes requires a recipient to intentionally use race, color, or national origin without requiring that such use be narrowly tailored to serve a compelling interest. Finally, Section 141.3(d)(2) addresses prohibited discriminatory employment practices and extends beyond intentional discrimination to prohibiting conduct that “tends” to have a discriminatory effect.

In addition to the serious statutory and constitutional concerns with the legality of the Department's disparate-impact regulations, the Department also has serious policy concerns, including that the disparate-impact standard creates confusion, undermines public confidence in the nation's civil rights laws and the rule of law, and produces burdensome litigation and compliance costs.

There are serious statutory concerns as to whether Title VI authorizes the disparate-impact provisions of the current regulations. Sandoval and Loper Bright call their legality into serious doubt. Title VI authorizes agencies to promulgate regulations “to effectuate” the statute's prohibition of intentional discrimination. 42 U.S.C. 2000d-1. The current regulations' prohibition of conduct having an unintentional disparate impact expands the regulation to prohibit a vastly broader scope of conduct than the statute itself prohibits. This scope is too broad to be considered a simple prophylactic measure aimed at preventing intentional discrimination.

There are also serious concerns about whether the Department's Title VI regulations pass constitutional muster under the Equal Protection Clause. As the Supreme Court recently held in SFFA, “the Equal Protection Clause . . . applies without regard to any differences of race, of color, or of nationality—it is universal in its application,” and the “guarantee of equal protection cannot mean one thing when applied to one individual and something else when applied to a person of another color.” 600 U.S. at 206 (internal quotation marks omitted) (first quoting Yick Wo v. Hopkins, 118 U.S. 356, 369 (1886); and then quoting Bakke, 438 U.S. at 289-90 (Powell, J.)). Here, however, the funding recipient's risk of disparate-impact liability is triggered by unintentional disparate outcomes, which a recipient may not even know about without investigation. To evaluate and avoid this risk, the funding recipient must incur investigatory costs, such as conducting an impact analysis, and proactively consider race and potentially use it to change unintended disparate outcomes.

Disparate-impact liability thus encourages and, in some cases, requires covered entities to engage in the intentional use of race and racial balancing to eliminate those disparate outcomes. This encouraged or coerced use of race violates the Equal Protection Clause unless it satisfies strict scrutiny. See SFFA, 600 U.S. at 206-07. Similarly, the “affirmative action” provision authorizes and sometimes requires the intentional use of race without requiring that this intentional use be narrowly tailored to serve a recognized compelling interest. Instead, it encourages intentional racial balancing.

This equal protection problem also further calls into doubt the proposition that Title VI authorizes disparate-impact liability, as it presents a conflict between the regulation and the statute. The statute forbids intentional racial balancing, while the regulation requires or encourages it, creating a conflict between the two. This conflict not only produces confusion and tends to undermine public confidence in the law but also shows that the Department has deviated too far from its authority to effectuate the statute.

As summarized above, there are serious statutory and constitutional concerns with the legality of the Department's Title VI disparate-impact regulations. But even if the regulations are legal, the Department finds that eliminating the concerns addressed above and the costs and confusion caused by the conflict between the statute and the regulations also justifies the repeal of the regulations. Cf. U.S. Tel. Ass'n v. FCC, 188 F.3d 521, 528 (D.C. Cir. 1999) (concluding it was not “arbitrary and capricious” to adopt a certain policy in order to “avoid[ ] raising a non-trivial constitutional question”).

The Department also has serious policy concerns with the imposition of disparate-impact liability. Executive Order 14281 explains many of the valid policy concerns associated with disparate-impact liability. 90 FR at 17537. Moreover, the legal concerns described above have caused uncertainty and confusion for Federal-funding recipients as to whether and when they need to comply with the disparate-impact regulations and when they can or must consider race. As explained above, Sandoval has created uncertainty as to the validity of the disparate-impact regulations that many Federal departments and agencies have promulgated.

Additionally, in practice, as above, disparate-impact liability leads covered entities to engage in racial balancing even as Title VI forbids racial balancing. This tension tends to create confusion and undermine public confidence in the nation's civil rights laws and in the rule of law itself, as the law seems to both forbid and require the same conduct. These problems are amplified by the arbitrary nature of the racial and ethnic categories typically used to measure disparate effects, which, by virtue of their arbitrariness, typically lack a meaningful connection to a compelling interest.

This confusion and the weakening of the nation's civil rights laws' ability to teach principles of nondiscrimination is evident in, among other things, many grant proposals for which the U.S. government awarded funds in past years that explicitly targeted certain racial groups. The Department believes these policy concerns justify repealing certain parts of its regulation to cure this confusion, to remove the incentive for covered entities to engage in racial balancing, and to maintain clarity and public confidence in the nation's civil rights laws.

The Department has considered that an evaluation of disparate effects can sometimes be useful in uncovering or deterring subtle discrimination or indifference to unnecessary and arbitrary barriers. Eliminating disparate-impact liability, however, does not preclude the use of data on disparate outcomes to help prove intentional discrimination. Both the Department and private litigants rely on such data, as an evidentiary matter, to help prove intentional discrimination.

The Department has also considered the alternative of trying to adopt a narrower version of disparate-impact liability. One way to adopt a narrower version of liability would be to increase the statistical threshold required for disparate-impact claims. But this would not eliminate the Department's serious legal and policy concerns with disparate-impact liability. Even if possible, developing such a rule would not solve the confusion or rule-of-law concerns expressed above or reduce the compliance and litigation costs that covered entities face. The Department believes that the better course is to avoid the complexities and litigation associated with this alternative, which ultimately would leave some of the problems unaddressed and others inadequately addressed.

The Department also considered the potential reliance interests of funding recipients and others. Sandoval, however, cast serious doubt on the regulations more than 20 years ago. At least since then, the Department's enforcement of its disparate-impact regulations has been virtually nonexistent. And Executive Order 14281 also directed all agencies to “deprioritize enforcement of all statutes and regulations to the extent they include disparate-impact liability,” including specifically the Department's Title VI disparate-impact regulations. The Department accordingly believes that any reliance interests should be minimal, and, regardless, that they do not outweigh the Department's legal and other policy concerns.

The Department notes that Sandoval has also led to a divergence between Title VI enforcement by private plaintiffs and enforcement by Federal departments and agencies. After Sandoval, private plaintiffs can enforce only Title VI's statutory prohibition on intentional discrimination. Repealing the Department's disparate-impact regulations would eliminate this incongruent enforcement.

Overall, the Department finds that, regardless of the legality of the regulations, the above-summarized policy concerns justify the repeal of its disparate-impact regulations.

This rule's regulatory changes address the concerns that the Supreme Court raised in Sandoval and the other legal and policy concerns discussed above, harmonize the implementing regulations with Title VI, promote consistent enforcement among private plaintiffs and Federal departments and agencies, and provide much needed clarity to the courts and Federal-funding recipients and beneficiaries.

For the reasons summarized above, the Department amends the following provisions in its Title VI implementing regulation that explain the particular types of “Discrimination prohibited,” located at 22 CFR 141.3.

The table below indicates the exact wording changes. For each section indicated in the left column, the text shown in the middle column is removed and the text shown in the right column is added:

Section 141.3(b)(2) is the general prohibition of conduct having an unintentional disparate impact. It imposes liability on Federal-funding recipients who “utilize criteria or methods of administration which have the effect of subjecting individuals to discrimination.” Because section 141.3(b)(2)'s only purpose is to prohibit disparate-impact discrimination, this rule deletes this paragraph in its entirety. It thus amends the regulations to conform to Title VI and to address the legal and policy considerations and determinations described in this document. The rule replaces paragraph (b)(2) with regulatory language to make clear that intentional discrimination is prohibited in the selection of the site or location of facilities.

Section 141.3(b)(5) deals with “affirmative action.” Paragraph (b)(5)(ii) authorizes affirmative action in programs even in the absence of a finding of prior discrimination in a program “to overcome the effects of conditions which resulted in limiting participation by persons of a particular race, color, or national origin.” This provision points not to intentional discrimination but rather to the unintentional “effects of conditions.” The provision consequently authorizes intentional racial classifications, racial preferences, and other race-based actions without the supporting compelling interest and narrow tailoring that the Equal Protection Clause demands. This section has long been unlawful in light of the Equal Protection Clause.

Paragraph (b)(5)(i) requires that a recipient “must take affirmative action to overcome the effects of prior discrimination” if in “administering a program” the “recipient has previously discriminated.” This provision problematically goes well beyond the Equal Protection Clause, which permits in limited circumstances, but does not mandate, a government to take narrowly tailored action to remedy the effects of its particular past discrimination. Moreover, even putting aside the mandatory language, this provision does not require sufficient narrow tailoring to particular past discrimination, but rather simply “affirmative action to overcome the effects of prior discrimination.” This provision accordingly promotes potential illegal race discrimination because of a lack of tailoring. Moreover, it problematically requires recipients to consider and use racial preferences when the recipient may not want to consider or use racial preferences. This is contrary to the Department's goal of promoting and defending a culture of nondiscrimination and is destructive of the public's understanding of and faith in the nation's civil rights laws. The Department no longer mandate or authorize this use of race, and this rule therefore deletes paragraph (b)(5) in its entirety.

Section 141.3(d) addresses prohibited discriminatory employment practices. Paragraph (d)(1) prohibits intentionally discriminatory employment practices when a primary objective of the Federal financial assistance is to provide employment. Paragraph (d)(2) extends the prohibition to employment practices of the recipient from Paragraph (d)(1) even when the “primary objective of the financial assistance is not to provide employment” if discrimination in the non-funded “employment practices . . . tends, on the ground of race, color, or national origin, to exclude individuals from participation in, to deny them the benefits of, or to subject them to discrimination under the program to which this regulation applies . . . .” This paragraph prohibits not only intentional discrimination but rather extends to conduct that “tends” to have a discriminatory effect on a program without the primary objective of providing employment.

Moreover, paragraph (d)(2)'s extension to employment practices where the Federal funding's primary objective is not to provide employment conflicts with the limitation on Title VI found in 42 U.S.C. 2000d-3. Section 2000d-3 states that “[n]othing contained in [Title VI] shall be construed to authorize action under [Title VI] by any department or agency with respect to any employment practice of any employer, employment agency, or labor organization except where a primary objective of the Federal financial assistance is to provide employment.” Id.; see also Johnson v. Transp. Agency, Santa Clara Cnty. 480 U.S. 616, 628 n.6 (1987) (citing the statutory limitation and noting Congress's intent that Title VI not “impinge” on Title VII, which prohibits discriminatory employment practices). The rule deletes paragraph (d)(2) to amend the regulation so that it more closely adheres to Title VI. This rule makes no change to the current text of paragraph (d)(1).

The Department's position is that each of the amendments described in this rule serves a vital, related, but distinct purpose. The Department also confirms that each of the amendments is intended to operate independently of each other and that the potential invalidity of one amendment should not affect the other amendments. The Department would adopt any of the amendments independently of the invalidity of a separate amendment.

The Department issues this final rule without prior public notice and comment pursuant to the Administrative Procedure Act's exception for rules “relating to agency management or personnel or to public property, loans, grants, benefits, or contracts.” 5 U.S.C. 553(a)(2). This rule falls into that exception.

Title VI concerns non-discrimination conditions on the receipt of Federal financial assistance, and more particularly to the receipt of Federal “[g]rants and loans,” “property,” “personnel” and “[a]ny Federal agreement, arrangement, or other contract which has as one of its purposes the provision of assistance.” 22 CFR 141.12(e); see also 22 CFR 141.4 (requiring funding recipient sign contractual assurance of compliance with Title VI). Cf. Education Programs or Activities Receiving or Benefitting From Federal Financial Assistance, 82 FR 46655 (Oct. 6, 2017) (invoking exception to amend Title IX regulations to “promote consistency in the enforcement of Title IX for [Department of Agriculture] financial assistance recipients”); Preserving Community and Neighborhood Choice, 85 FR 47899 (Aug. 7, 2020) (invoking exception to repeal Housing and Urban Development rule regarding Federal grantees); Participation by Minority Business Enterprise in Department of Transportation Programs, 53 FR 18285 (May 23, 1988) (invoking exception to expand coverage of Department of Transportation regulation regarding Federal Aviation Administration's airport financial assistance program); Nondiscrimination on the Basis of Handicap in Federally Assisted Programs: Suspension of Guidelines With Respect to Mass Transportation, 46 FR 40687 (Aug. 11, 1981) (invoking exception to suspend Department of Justice guidelines regarding prohibiting disability discrimination in transportation programs and activities receiving Federal financial assistance).

Indeed, invoking 5 U.S.C. 553(a)(2) is consistent with guidance issued by the Office of Management and Budget (“OMB”), see 2 CFR 200.1, which defines “Federal financial assistance” with the same categories as the Administrative Procedure Act's exception for rules “relating to agency management or personnel or to public property, loans, grants, benefits, or contracts,” 5 U.S.C. 553(a)(2). With potentially limited exceptions not applicable to the Department, all the forms of Federal financial assistance set forth under 2 CFR 200.1 that the Department administers would fall under the exception for “public property, loans, grants, benefits, or contracts.” Thus, the Department issues this final rule without prior public notice and comment under 5 U.S.C. 553(a)(2) and without a delayed effective date under 5 U.S.C. 553(d).

The Office of Information and Regulatory Affairs (“OIRA”) has determined that this rulemaking is a “significant regulatory action” under section 3(f) of Executive Order 12866, Regulatory Planning and Review, but it is not an “economically significant” action under section 3(f)(1). Accordingly, this rule has been submitted to the Office of Management and Budget (“OMB”) for review.

This regulation has been drafted and reviewed in accordance with Executive Order 12866, Regulatory Planning and Review, section 1(b), Principles of Regulation, and in accordance with Executive Order 13563, Improving Regulation and Regulatory Review, section 1(b), General Principles of Regulation, which supplements and reaffirms the principles of Executive Order 12866. These Executive Orders direct agencies to assess all costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits. Executive Order 13563 also recognizes that some benefits and costs are difficult to quantify and provides that, where appropriate and permitted by law, agencies may consider and discuss qualitatively values that are difficult or impossible to quantify.

As explained in the preamble, the regulatory modifications this rule makes are necessary to conform Department regulations to Executive Order 14281, to address serious legal concerns regarding the Department's Title VI regulation based on the Supreme Court's reading of Title VI in Sandoval, harmonize the implementing regulation's scope with Title VI, promote consistency in enforcement among private plaintiffs and Federal departments and agencies, and provide much needed clarity to courts and Federal-funding recipients and beneficiaries regarding the scope of the Department's Title VI regulations. Indeed, with respect to section 141.3(b)(5) of the Department's Title VI implementing regulations, the changes this rule makes are clearly necessary to bring the regulations into compliance with the Equal Protection Clause. In short, this rule is necessary to conform the Department's regulation to existing law, as interpreted by the Supreme Court.

Data limitations make the costs and benefits of the rule difficult to quantify. Although it does not represent the monetary impact of the rule, the Department issued approximately 66,665 separate awards totaling approximately $44.64 billion over the past four years. In Fiscal Year 2024 alone, the Department issued approximately 15,795 separate awards totaling $14.01 billion. In the past, the Department did not record data regarding the applicability of Title VI, and these total figures include foreign recipients outside the United States who may not be subject to Title VI requirements. Further, with respect to discrimination and unintentional disparate-impact liability, the Department does not track and cannot reliably quantify the costs attributable to the varying disparate-impact portions of the financial assistance it has awarded. That disparate impact is sometimes a factor that may be considered in determining whether discrimination was intentional further impedes monetizing costs and benefits. Therefore, the overall cost effect on the Department is difficult to quantify, but the deregulatory action should decrease the Department's compliance costs, while also providing a benefit (also difficult to quantify) of bringing the Department's conduct in line with the law. Similarly, the Department is unable to quantify how funding recipients will respond to the regulatory changes, but the deregulatory action should result in greater flexibility and lower compliance costs for recipients.

The Department recognizes that a funding recipient may receive Federal funds from sources other than the Department. Regardless, the Department does not envision that this rule will appreciably increase administrative or compliance costs for funding recipients who must also adhere to the regulations of another department or agency. This deregulatory action does not create any new obligations for funding recipients. On the contrary, by eliminating disparate-impact liability from the regulation, the rule eliminates a source of regulatory confusion, narrows the conduct prohibited, and thus lessens the costs of compliance and potential liability. Moreover, recipients who receive funds for the same program or activity from more than one Federal entity already enter into separate contractual assurances with each funding entity. See, e.g., 22 CFR 141.4. These contractual assurances already impose varying requirements that each Federal funding source deems necessary. Funding recipients will continue to be held to the most stringent contractual assurance and regulation. And in any event, the Department notes that other agencies are currently amending their regulations to align with the changes made in this rule, so the Department anticipates that there will be little, if any, disparity in federal requirements regarding disparate-impact liability going forward.

Based on the analysis of the practical qualitative costs and benefits noted above, the Department believes that this rule is consistent with the principles of Executive Orders 12866 and 13563, including the requirements that, to the extent permitted by law, the Department adopt a regulation only upon a reasoned determination that its benefits justify its costs and choose a regulatory approach that maximizes net benefits.

The Department has determined that this rule is a “significant regulatory action” under Executive Order 12866, section 3(f), and OMB has accordingly reviewed this rule.

Executive Order 14192 (Unleashing Prosperity through Deregulation) requires an agency, unless prohibited by law, to identify at least 10 existing regulations to be repealed when the agency publicly proposes for notice and comment or otherwise promulgates a new regulation. In furtherance of this requirement, section 3(c) of the Order requires that the new incremental costs associated with new regulations shall, to the extent permitted by law, be offset by the elimination of existing costs associated with at least 10 prior regulations. This rule eliminates unnecessary regulation by revising the Department's current Title VI regulations, which extend prohibited conduct to include conduct having an unintentional disparate impact and thus expand the scope of those regulations to a vastly broader range of conduct than the statute prohibits. Accordingly, the Department expects this rule to be a deregulatory action under Executive Order 14192.

Executive Order 14294 requires agencies promulgating regulations with criminal regulatory offenses potentially subject to criminal enforcement to explicitly describe the conduct subject to criminal enforcement, the authorizing statutes, and the mens rea standard applicable to each element of those offenses. This rule does not impose a criminal regulatory penalty and is thus exempt from Executive Order 14924 requirements.

This rule will not have a substantial, direct effect on the relationship between the national government and the states, on distribution of power and responsibilities among various levels of government, or on states' policymaking discretion. States that choose to receive Title VI funding from the Department do so voluntarily and agree to comply with relevant statutory requirements as a condition of receiving such funding. This rule does not subject states or any other funding recipients or beneficiaries to new obligations. This rule amends and clarifies existing regulations that are required by statute. Therefore, in accordance with Section 6 of Executive Order 13132, the Department has determined that these amendments do not have sufficient federalism implications to warrant the preparation of a federalism summary impact statement.

This rule meets the applicable standards set forth in sections 3(a) and (b)(2) of Executive Order 12988 to specify provisions in clear language. Pursuant to section 3(b)(1)(I) of the Executive Order, nothing in this proposed or any previous rule (or in any administrative policy, directive, ruling, notice, guideline, guidance, or writing) directly relating to the program that is the subject of this proposed rule is intended to create any legal or procedural rights enforceable against the United States.

Pursuant to section 1-202 of Executive Order 12250, DOJ has the responsibility to “review . . . proposed rules . . . of the Executive agencies” implementing nondiscrimination statutes such as Title VI in order to identify those which are inadequate, unclear or unnecessarily inconsistent.” Additionally, section 1-101 of Executive Order 12250 delegated the President's responsibility to approve Title VI regulations to the Attorney General. See 42 U.S.C. 2000d-1. DOJ has reviewed and approved this rule.

The Department, in accordance with the Regulatory Flexibility Act (“RFA”), 5 U.S.C. 605(b), has reviewed these regulations and certifies that the rule's changes will not have a significant economic impact on a substantial number of small entities, in large part because these regulatory changes do not impose any new substantive obligations on Federal-funding recipients. The rule amends and clarifies existing regulations that are required by Title VI. The rule merely brings the Department into compliance with the Equal Protection Clause and harmonizes the scope of its regulations to conform with the scope of Title VI, which does not prohibit conduct having an unintentional disparate impact. All Federal-funding recipients have been bound by the existing standards that will remain in place after this rule since their initial promulgation. This rule also does not require a regulatory flexibility analysis under the RFA, 5 U.S.C. 603, 604, because, for the reasons described above, no notice of proposed rulemaking is required under 5 U.S.C. 553. See Or. Trollers Ass'n v. Gutierrez, 452 F.3d 1104, 1123-24 (9th Cir. 2006) (noting that the RFA does not apply when an agency validly invokes an exception to the public comment requirements of 5 U.S.C. 553).

The Unfunded Mandates Reform Act of 1995 (“UMRA”), 15 U.S.C. 1532, requires agencies to prepare several analytic statements before proposing any rule that may result in annual expenditures of $100 million by state, local, tribal governments, or the private sector. Section 4(2) of the UMRA, however, excludes from the Act's coverage any proposed or final Federal regulation that “establishes or enforces any statutory rights that prohibit discrimination on the basis of race, color, religion, sex, national origin, age, handicap, or disability.” Accordingly, this rulemaking is not subject to the provisions of the UMRA.

OIRA has determined that this rule is not a “major rule” as defined by the Congressional Review Act, 5 U.S.C. 804(2).

This rule will not impose additional reporting or recordkeeping requirements under the Paperwork Reduction Act of 1995, 44 U.S.C. 3501, et seq.

This document contains amendments to 26 CFR part 1 under sections 101 and 6050Y of the Internal Revenue Code (Code) issued pursuant to the express delegations of authority to the Secretary of the Treasury or his delegate (Secretary) provided under sections 6050Y(a) through (c), and 7805(a) of the Code (final regulations).

Section 6050Y provides express delegations of authority to the Secretary to prescribe the time and manner to file information returns and furnish statements setting forth certain information specified therein by the following persons: (1) an acquirer of a life insurance contract or any interest in a life insurance contract in a reportable policy sale during any taxable year (section 6050Y(a)); (2) an issuer of a life insurance contract in connection with a reportable policy sale (section 6050Y(b)); and (3) a payor of death benefits during any taxable year under a life insurance contract transferred in a reportable policy sale (section 6050Y(c)).

Section 7805(a) authorizes the 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.”

These final regulations amend regulations under sections 101 and 6050Y published in the Federal Register (TD 9879, 84 FR 58460) on October 31, 2019, as corrected (84 FR 68042) on December 13, 2019 (2019 final regulations).

The Department of the Treasury (Treasury Department) and the IRS published proposed regulations under sections 101 and 6050Y (REG-108054-21) in the Federal Register (88 FR 30058) on May 10, 2023 (2023 proposed regulations). The 2023 proposed regulations were published in response to concerns raised following publication of the 2019 final regulations regarding the application of sections 101 and 6050Y to exchanges to which section 1035 of the Code applies (section 1035 exchanges) and to transfers of contracts occurring in corporate reorganizations under section 368 of the Code. The Treasury Department and the IRS received written comments on the 2023 proposed regulations and held a public hearing on September 28, 2023.

After consideration of the written comments and comments received at the hearing, this Treasury Decision adopts the 2023 proposed regulations as final regulations with modifications, as described in the Summary of Comments and Explanation of Revisions.

This Summary of Comments and Explanation of Revisions section discusses the comments received on the 2023 proposed regulations and explains the revisions adopted in the final regulations in response to those comments.

As described in the preamble to the 2023 proposed regulations, the proposed changes relating to section 1035 exchanges are intended to correct an unintended change effected by the 2019 final regulations to the treatment under section 101 of a life insurance contract issued to a policyholder in a section 1035 exchange, while continuing to address the concerns that prompted the inclusion of rules for section 1035 exchanges in the 2019 final regulations. These concerns include: (1) that the reporting of death benefits paid under section 6050Y(c) could be avoided by exchanging a contract transferred in a reportable policy sale (reportable policy sale (RPS) contract) for a new contract in a section 1035 exchange and (2) that a policyholder could attempt to avoid the limitation on the excludability of death benefits resulting from the application of the “transfer for value” rule set forth in section 101(a)(2) through a section 1035 exchange. The 2023 proposed regulations would accomplish these objectives in four ways: (1) by removing the reference to section 1035 exchanges in the definition of a “transfer of an interest in a life insurance contract” (§ 1.101-1(e)(2) of the 2023 proposed regulations); (2) by adding a new rule on how to determine the amount of the proceeds attributable to an interest in a life insurance contract issued in a section 1035 exchange that is excludable from gross income under section 101(a) (§ 1.101-1(b)(2)(iv) of the 2023 proposed regulations); (3) by modifying the definition of “reportable policy sale” to address section 1035 exchanges (§ 1.101-1(c)(3) of the 2023 proposed regulations); and (4) by making conforming modifications to §§ 1.6050Y-1 through 1.6050Y-4 of the 2019 final regulations. Regarding conforming modifications to the reporting requirements under section 6050Y, because section 1035 exchanges of RPS contracts would no longer be required to be reported under §  1.6050Y-2 of the 2019 final regulations, the 2023 proposed regulations would modify the reporting rules under §§  1.6050Y-3 and 1.6050Y-4 of the 2019 final regulations to ensure proper reporting of reportable death benefits paid under contracts issued in section 1035 exchanges.

Commenters generally expressed support for the 2023 proposed regulations under section 101 regarding the treatment of section 1035 exchanges. However, two commenters requested clarification of certain issues related to these provisions. Additionally, one commenter requested changes to the 2023 proposed regulations under section 6050Y related to tracking and information reporting requirements for section 1035 exchanges of contracts that have been transferred in reportable policy sales.

These comments are addressed in detail in parts 1.A through 1.D of this Summary of Comments and Explanation of Revisions.

Comments supporting the 2023 proposed regulations under section 101 regarding the treatment of section 1035 exchanges included comments from a commenter that agreed with the determination in the 2023 proposed regulations to exclude the issuance of a life insurance contract to a policyholder, without qualification, from the events treated as a transfer of an interest in a life insurance contract. The commenter specifically supported the proposed modification of § 1.101-1(e)(2) of the 2019 final regulations to delete the phrase “other than the issuance of a policy in an exchange pursuant to section 1035” from the last clause of that section. The commenter noted that it is well understood that a section 1035 exchange does not transfer the beneficial rights of life insurance coverage to a different policyholder/beneficiary, but, rather, is an exchange of an existing life insurance coverage for new life insurance coverage without any material change. The commenter also stated that it is well-settled in past IRS rulings that a section 1035 exchange does not change the tax attributes of the relinquished contract. Accordingly, the commenter reasoned, when an RPS contract is relinquished in a section 1035 exchange, the contract received in exchange should be treated as an RPS contract.

Another commenter agreed that the 2023 proposed regulations correctly conclude that a section 1035 exchange, in and of itself, is not a “transfer” of the newly issued contract received in the exchange. In support of the approach adopted in the 2023 proposed regulations, the commenter observed that issuing a contract is not a “transfer,” as a transfer of property presupposes the existence of property that can be transferred, and the new contract received in a section 1035 exchange does not exist until it is issued. The commenter also explained that the 2019 final regulations create a conundrum by treating all section 1035 exchanges as transfers for valuable consideration for which the carryover basis exception is never available to undo that treatment, regardless of whether the policyholder has a substantial relationship with the insured when the exchange occurs. The commenter remarked that, if left uncorrected, the 2019 final regulations would effect a major change in the Federal income tax treatment of contract exchanges, as section 1035 exchanges never triggered the transfer for value rule before the 2019 final regulations. The commenter applauded the Treasury Department and the IRS for recognizing that such a change in law is not warranted or appropriate, for announcing a correction in the 2023 proposed regulations, and for extending the correction retroactively to eliminate any doubt for taxpayers regarding the Federal income tax treatment of contract exchanges they may have completed in prior years. In further support of the 2023 proposed regulations, the commenter also noted that the regulations should not subvert the intent of section 1035, which is to ensure that policyholders are able to exchange existing life insurance contracts for new ones better suited to their needs without having to recognize gain, and that the 2019 final regulations inappropriately subvert the intent of section 1035 by applying the transfer for value rule merely because a life insurance contract is exchanged for a new one. The commenter further expressed agreement with the preamble to the 2023 proposed regulations that the provisions therein are not inconsistent with section 101(j), which concerns the treatment of certain employer-owned life insurance contracts. No comments received on the 2023 proposed regulations expressed an opposing view on this point.

Consistent with these comments supporting the 2023 proposed regulations under section 101 regarding the treatment of section 1035 exchanges, the final regulations retain those provisions with clarifying changes to address the treatment of boot in a section 1035 exchange. These include clarifying changes to the description of a “section 1035 exchange” in §§ 1.101-1(a)(1) and 1.6050Y-1(a)(1) of the 2023 proposed regulations. Additionally, clarifying changes are made to § 1.101-1(b)(2)(iv)(B) of the 2023 proposed regulations. As clarified, § 1.101-1(b)(2)(iv)(B) of the final regulations provides that, in certain circumstances, the amount of boot received tax-free in a section 1035 exchange will reduce the amount of proceeds attributable to the old interest that is excludable from gross income under section 101(a) and will therefore also reduce the amount of proceeds attributable to the new interest that is excludable from gross income under section 101(a). This clarification is consistent with the rules in § 1.101-1(b)(3) of the 2019 final regulations and section 1031(d).

Two of the commenters remarked on the requirement in section 7702(a) of the Code that a contract must be a “life insurance contract under the applicable law” to qualify as a life insurance contract for purposes of the Code. The commenters observed that a contract issued in a purported section 1035 exchange does not qualify as a life insurance contract for purposes of the Code if the contract violates applicable State insurance law, including State “insurable interest” laws, which the commenters described as generally requiring that a policyholder have a substantial family, business, or financial relationship with the insured individual other than the life insurance contract. The commenters noted that, in such a case, section 101 would not apply to exclude the death benefit under the contract from gross income.

One of the commenters expressed the view that it is not necessary to retain the significant expansion of the transfer for value rule that was reflected in the 2019 final regulations in order to discourage or prevent section 1035 exchanges if the exchange would violate State insurable interest laws because current and longstanding Federal income tax rules and potential adverse consequences under State law already provide an incentive to comply with such State laws. Consistent with this comment, the final regulations adopt, as proposed, the provisions of the 2023 proposed regulations reversing the expansion of the transfer for value rule with respect to section 1035 exchanges reflected in the 2019 final regulations.

The other commenter noted that the 2023 proposed regulations may have the unintended effect of creating some confusion in the marketplace about whether the “applicable law” requirement of section 7702(a) continues to apply. The commenter suggested that the Treasury Department and the IRS clarify as part of the process of finalizing the 2023 proposed regulations that a contract issued as part of a purported section 1035 exchange remains subject to other requirements of the Code, such as the requirement in section 7702(a) that the contract issued in an exchange constitute a life insurance contract under the Code, which would require that it be treated as a life insurance contract under applicable State law.

Regardless of whether a contract is issued in a section 1035 exchange, it must be described in section 7702(a) to be considered a life insurance contract under section 101. Section 7702(a) requires, among other things, that a contract be a “life insurance contract under the applicable law,” State or foreign law, as applicable. The 2023 proposed regulations under sections 101 and 6050Y address the consequences under sections 101 and 6050Y in cases in which a life insurance contract is issued in a section 1035 exchange. The 2023 proposed regulations do not affect the application of other Code sections, including, for instance, sections 1035 and 7702. The 2023 proposed regulations, consequently, do not affect the determination of whether a contract issued in a purported section 1035 exchange qualifies as a life insurance contract under section 7702(a) for purposes of the Code or whether an exchange of contracts qualifies as a section 1035 exchange. The same is true of the final regulations.

A third commenter applauded the Treasury Department for proposing to modify the 2019 final regulations to allow employers to pursue section 1035 exchanges of contracts covering the lives of persons who are no longer actively employed. This comment could be read as suggesting that, with respect to section 1035 exchanges, the 2023 proposed regulations change the requirement under section 7702(a) that a contract be a “life insurance contract under the applicable law” to qualify as a life insurance contract for purposes of the Code. However, this is not the case. Neither the 2023 proposed regulations nor the final regulations change this requirement.

One commenter requested confirmation that the circumstances described in Notice 2009-48, 2009-24 I.R.B. 1085, Q&As 14 and 15, do not give rise to a material change in employer-owned life insurance contracts for purposes of applying section 101(j). This commenter also requested clarification that a forgiveness of loaned policy cash value or distribution of cash or other property as a result of an exchange would be recognized as taxable gain under section 1031(b) of the Code, but an enhancement of policy cash value by the new carrier to offset a loss of the exchanged value from the old policy would not be treated as a taxable event. The requests for clarification regarding sections 101(j) and 1031 are not limited to situations involving life insurance contracts acquired in reportable policy sales and are beyond the scope of these regulations, which address the application of sections 101(a) and 6050Y to life insurance contracts acquired in reportable policy sales.

This commenter also remarked that the 2023 proposed regulations do not address Rev. Rul. 2011-9, 2011-12 I.R.B. 554. This revenue ruling concerns the application to section 1035 exchanges of life insurance contracts of section 264(f)(1) of the Code, which disallows any deduction for the portion of a taxpayer's “interest expense” that is allocable to unborrowed policy cash values of life insurance contracts and annuity and endowment contracts. The commenter expressed the understanding that the 2023 proposed regulations render the employee exception in Rev. Rul. 2011-9 moot and requested that this point be clarified. However, the section 264 issue addressed in Rev. Rul. 2011-9 is also outside the scope of these final regulations under sections 101 and 6050Y. Neither the 2023 proposed regulations nor the final regulations affect Rev. Rul. 2011-9 or the conclusion set forth therein.

As described in the preamble to the 2023 proposed regulations, to ensure proper reporting of reportable death benefits paid under contracts issued in section 1035 exchanges, § 1.6050Y-3(a) of the 2023 proposed regulations would require reporting by each “6050Y(b) issuer” that is a “section 1035 issuer” with respect to each “seller” at the time of the exchange. The 2023 proposed regulations would generally impose a reporting obligation on both the issuer of the old interest (old issuer) and the issuer of the new interest (new issuer) in a section 1035 exchange if the policyholder (seller) is exchanging an interest in a life insurance contract that has been transferred in an RPS. The preamble to the 2023 proposed regulations indicated that it is anticipated that this reporting will be completed on Form 1099-SB, Seller's Investment in Life Insurance Contract, and the information to be provided would include the policy number and identification of the transaction as a section 1035 exchange.

One commenter agreed with the Treasury Department and the IRS that modifying the information reporting rules is the right way to address the concern that prompted the inclusion of the section 1035 exchange rules in the 2019 final regulations, which related to the possibility that a contract transferred in an RPS subsequently could be exchanged for a new contract pursuant to section 1035 and the death benefits under the new contract might not be reported under section 6050Y(c). The commenter recommended that the Treasury Department and the IRS finalize the information reporting requirements in a manner that takes into account public comments that may simplify or clarify such requirements or otherwise reduce the administrative burdens imposed on the taxpayers charged with implementing them. The commenter did not, however, make any specific burden reduction recommendations.

Another commenter suggested changes to the provisions of the 2023 proposed regulations related to tracking and information reporting requirements for section 1035 exchanges of RPS contracts. The commenter noted that the 2023 proposed regulations would (1) track the RPS status of a contract in an exchange by the policy owner, (2) assure the death benefits paid on such a contract are reported for tax purposes, and (3) be consistent with the remainder of the section 6050Y tax reporting regime. The commenter suggested that these goals could be achieved with less risk of confusion for policyholders and less administrative burden on insurers than under the 2023 proposed regulations. While expressing appreciation for the need to track the RPS tax attribute of a life insurance contract more formally, the commenter asserted that the requirement in § 1.6050Y-3(a) of the 2023 proposed regulations that the old issuer and new issuer file an information return with the IRS with respect to the section 1035 exchange is not necessary to accomplish the desired compliance goals and should therefore be removed. The commenter also suggested removing the requirement in § 1.6050Y-3(d)(1) of the 2023 proposed regulations that section 6050Y(b) issuers furnish a statement to sellers (policyholders) who make a section 1035 exchange. Additionally, the commenter expressed concerns regarding the anticipated use of Form 1099-SB for reporting section 1035 exchanges of RPS contracts.

The commenter noted that insurers involved in a section 1035 exchange typically share relevant information, including cost basis, without the use of an official IRS form. See, e.g., § 35.3405-1(T), Q&A (E-8), of the Employment Tax Regulations. The commenter stated that the existing process established for companies to share critical information about contracts exchanged is effective and that the RPS tax attribute could be incorporated in this reliable and established practice. The commenter suggested modifying § 1.6050Y-3 of the 2019 final regulations to require the issuer of the existing RPS contract to furnish a statement to the issuer of a new contract received in exchange for the RPS contract in a section 1035 exchange. Also, because the old issuer already must use Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc., to report section 1035 exchanges, the commenter recommended adding a new distribution code for Box 7 of Form 1099-R that would indicate that the section 1035 exchange being reported is an exchange of an RPS contract. Insurance companies currently report section 1035 exchanges of life insurance contracts on Form 1099-R with a distribution code “6” in Box 7, which identifies the distribution as a tax-free section 1035 exchange.

After consideration of the comments received on the provisions of the 2023 proposed regulations relating to information reporting obligations and procedures, the Treasury Department and the IRS have determined that the filing of information returns with the IRS by the old issuer and new issuer with respect to section 1035 exchanges of RPS contracts is not necessary to accomplish the desired compliance goals. These goals can be addressed through the old issuer's Form 1099-R reporting of the section 1035 exchange and the related exchange of information between the old issuer and the new issuer.

Accordingly, the following modifications to the proposed information reporting rules set forth in the 2023 proposed regulations are made in the final regulations: (1) the definition of “issuer” in § 1.6050Y-1(a)(8) of the 2019 final regulations is not expanded to include “section 1035 issuers”; (2) no change is made to §§ 1.6050Y-1(a)(14) and (18) and 1.6050Y-3(c) of the 2019 final regulations because the changes proposed in the 2023 proposed regulations are no longer necessary; (3) the requirement under § 1.6050Y-3(a) of the 2023 proposed regulations for section 1035 issuers (both old issuers described in § 1.6050Y-1(a)(8)(v)(A) of the 2023 proposed regulations and new issuers described in § 1.6050Y-1(a)(8)(v)(B) of the 2023 proposed regulations) to file information returns is not adopted; (4) the exception from reporting set forth in § 1.6050Y-4(e)(3) of the 2023 proposed regulations is modified and clarified; and (5) the reporting requirements under § 1.6050Y-3(a) and (d) of the 2023 proposed regulations for section 1035 issuers to furnish statements are not adopted and reporting with respect to section 1035 exchanges is instead required under new § 1.6050Y-3(h). Section 1.6050Y-3(h) of the final regulations applies to section 1035 exchanges that are treated as the transfer of an interest in a life insurance contract in a reportable policy sale under § 1.101-1(c)(3) of the final regulations, but only if the new issuer is not the old issuer. To ensure proper reporting when a reportable death benefit is paid under the new contract, the old issuer will provide certain information to the new issuer, including the policyholder's investment in the contract with respect to the old interest and a statement indicating whether the old issuer would have reported a payment of reportable death benefits under § 1.6050Y-4 of the final regulations had it paid death benefits attributable to the old interest on the date of the section 1035 exchange. The old issuer may use any reasonable method to provide this information to the new issuer.

Although issuers will have no obligation to furnish statements to policyholders making a section 1035 exchange under the final regulations, issuers may still have an obligation to furnish statements to policyholders with respect to a section 1035 exchange under other Code sections or regulations. See section 6047(d); Rev. Proc. 92-26, 1992-1 C.B. 744. The final regulations do not require additional reporting on the Form 1099-R, but it is anticipated that, as suggested by one of the commenters, a new distribution code for Box 7 of Form 1099-R will be added to indicate that the section 1035 exchange being reported is an exchange of an RPS contract. Such reporting will not be required before the IRS publishes both a final Form 1099-R reflecting such a requirement and final instructions for completing such form.

As described in the preambles to the 2019 final regulations and the 2023 proposed regulations, the 2019 final regulations include provisions that effectively exclude from the definition of RPS certain acquisitions of life insurance contracts, or interests therein, in ordinary course business transactions in which one trade or business acquires another trade or business that owns life insurance. Following the publication of the 2019 final regulations in the Federal Register , the Treasury Department and the IRS received a letter requesting the addition of an exception from the RPS rules for acquisitive transactions involving entities that own a de minimis amount of life insurance (for example, as a proportion of the total value of the transaction). More specifically, the author proposed that the Treasury Department and the IRS consider a further exception for transactions in which the amount of life insurance acquired as a result of an acquisitive transaction (and any related acquisitions) is five percent or less of the value of the acquired stock, assets, or both.

Section 1.101-1(c)(2)(v) of the 2023 proposed regulations provides an exception from the definition of “reportable policy sale” for direct acquisitions of interests in life insurance contracts from a C corporation by a C corporation if (1) the acquisition results from a transaction that qualifies as a reorganization under section 368(a); (2) immediately before the acquisition, (i) the interest is held by a C corporation that conducts an active trade or business within the meaning of § 1.367(a)-2(d)(2) and (3), (ii) the C corporation does not engage in a trade or business of investing in interests in life insurance contracts, and (iii) no more than 5 percent of the gross value of the assets of the C corporation consists of life insurance contracts; and (3) immediately after the acquisition, (i) the acquiring C corporation does not engage in a trade or business of investing in interests in life insurance contracts, and (ii) not more than 5 percent of the gross value of the assets of the C corporation consists of life insurance contracts. The two comments received on the de minimis exception for ordinary course mergers and acquisitions set forth in § 1.101-1(c)(2)(v) of the 2023 proposed regulations agreed that the transactions covered by proposed § 1.101-1(c)(2)(v) should not be reportable policy sales but also requested certain expansions of the exception. Both commenters urged that the de minimis exception be expanded to cover certain taxable transactions, rather than just transactions that qualify as tax-free reorganizations under section 368(a) as provided by § 1.101-1(c)(2)(v)(D) of the 2023 proposed regulations.

One commenter asserted that this limitation is unnecessary and potentially confusing because it could result in disparate treatment of taxpayers engaged in very similar ordinary course business acquisitions that are structured differently for non-tax business reasons with no clear policy reason for why these transactions should have different results under section 101. This commenter also recommended removing the requirement in § 1.101-1(c)(2)(v)(A) of the 2023 proposed regulations that the interest in a life insurance contract be held, immediately before acquisition, by a C corporation that conducts an active trade or business within the meaning of § 1.367(a)-2(d)(2) and (3) because it is unnecessarily restrictive. The commenter noted that acquisitive transactions often occur at the holding company level as opposed to the operating subsidiary level and a holding company may not technically meet the “active trade or business” standard even though the holding company owns operating subsidiaries that are engaged in active trades or businesses. The commenter made an alternative recommendation of modifying § 1.101-1(c)(2)(v)(A) of the 2023 proposed regulations to permit the interest to be held by a C corporation that is engaged in an active trade or business or is a member of an affiliated group that includes one or more members engaged in an active trade or business. The commenter asserted that this approach would be consistent with section 355(b)(3) and the regulations promulgated thereunder, upon which the section 367 regulations appear to have been originally based and which, pursuant to subsequent revisions that were made after the release of the relevant section 367 regulations, test the active conduct of a trade or business on an affiliated group level.

The other commenter similarly urged that the de minimis exception should not be limited to transactions that qualify as a tax-free reorganization under section 368(a), and further, that it should also apply to acquisitive transactions of non-C corporation targets. This commenter highlighted the acknowledgement in the preamble to the 2023 proposed regulations that “C corporations are not frequently used as vehicles for investing in life insurance contracts covering insureds with respect to which the corporation does not have a substantial business, financial, or family relationship at the time the contract is issued because a corporate level income tax applies to corporate earnings in addition to income tax on distributions at the shareholder level” and asserted that other types of business entities also “are not frequently used as vehicles for investing in life insurance contracts covering insureds with respect to which the corporation does not have a substantial business, financial, or family relationship at the time the contract is issued.” This commenter also remarked that it is concerning that transactions with identical (or nearly identical) economic substance may have divergent outcomes with respect to whether the transaction gives rise to an RPS depending on the transaction's form. This commenter further asserted that there are a number of legal, economic, and business reasons why it is highly unlikely that ordinary course business acquisitions involving meager amounts of life insurance contracts can simply be restructured to meet the form-driven rules of either the 2023 proposed regulations or the 2019 final regulations, but that negative outcomes with respect to these incidentally transferred insurance contracts do have significant consequences to a variety of stakeholders. Finally, the commenter expressed concern that since the issuance of the 2019 final regulations, the life insurance industry has continued to see a number of circumstances where transactions that are wholly unrelated to the transfer of life insurance contracts have unclear outcomes under the RPS rules. For these reasons, the commenter urged that the de minimis exception be expanded to entities other than C corporations and regardless of the type of acquisitive transaction involved.

After consideration of the comments received on the de minimis exception for ordinary course mergers and acquisitions set forth in § 1.101-1(c)(2)(v) of the 2023 proposed regulations, the final regulations adopt this provision without change. The Treasury Department and the IRS will continue to consider the possibility of proposing a rule broader than the one set forth in the 2023 proposed regulations, but will not delay the adoption of the 2023 proposed regulations supported by commenters while studying the issue. The Treasury Department and the IRS invite additional comments regarding the scope of the de minimis exception.

In general, the 2023 proposed regulations would apply to certain transactions occurring on or after the date the 2023 proposed regulations are finalized. See §§ 1.101-6(c) and 1.6050Y-1(b)(2) of the 2023 proposed regulations. The commenter requesting changes to the information reporting provisions of the 2023 proposed regulations discussed in part 1.D of this Summary of Comments and Explanation of Revisions also requested transition relief from the reporting obligations if the proposed reporting changes suggested by the commenter were not adopted. Because the final regulations adopt the commenter's suggested reporting changes, no transition relief is provided in the final regulations. The applicability date provisions in the 2023 proposed regulations are adopted in the final regulations. See §§ 1.101-6(c) and 1.6050Y-1(b)(2) of the final regulations. However, for administrative reasons, § 1.6050Y-1(b) is republished in its entirety in the final regulations to reflect all changes to § 1.6050Y-1(b), including the ministerial changes set out in the 2023 proposed regulations to address the addition of § 1.6050Y-1(b)(2).

These final regulations are not subject to review under section 6(b) of Executive Order 12866 pursuant to the Memorandum of Agreement (July 4, 2025) between the Treasury Department and the Office of Management and Budget (OMB) regarding review of tax regulations.

The additional collection of information relating to the final regulations has been reviewed and approved by OMB in accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)) under OMB Control Number 1545-0119. In general, the additional collection of information is required for purposes of enforcing section 6050Y. When an interest in a life insurance contract that was previously transferred, or is treated as having been previously transferred, in an RPS (old contract) is exchanged by a policyholder under section 1035 for a new life insurance contract (new contract), § 1.6050Y-3(h) of the final regulations requires the issuer of the old contract (old issuer) to notify the issuer of the new contract (new issuer) of the status of the old contract as a contract transferred, or treated as having been transferred, in an RPS and to provide the investment in the contract for the old contract. This information is necessary to carry out the purpose of section 6050Y(c), which requires a payor of reportable death benefits to report certain information about payments of reportable death benefits.

The additional collection of information in § 1.6050Y-3(h) of the final regulations was suggested by commenters on the proposed regulations as a simpler and less burdensome alternative to the collection of information rules in the proposed regulations, especially because most old issuers routinely provide new issuers with relevant information about the contract being exchanged, including relevant RPS information. Because the additional collection of information would achieve the goal of providing the information necessary for the proper reporting of reportable death benefits, the final regulations eliminate the reporting obligations that would have been imposed by § 1.6050Y-3 of the 2023 proposed regulations on new issuers with respect to section 1035 exchanges and reduce the reporting obligations that would have been imposed by § 1.6050Y-3 of the 2023 proposed regulations on old issuers with respect to section 1035 exchanges.

The likely respondents to the collection of information are life insurance companies.

The burden for the additional collection of information contained in § 1.6050Y-3 of the final regulations will be reflected on Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc., when the burden is revised to reflect the additional collection of information in § 1.6050Y-3. The burden also will be revised when a new distribution code for Box 7 of Form 1099-R is added to indicate that the section 1035 exchange being reported is an exchange of an RPS contract. The OMB Control Number for Form 1099-R is 1545-0119. The final regulations eliminate the burden on policyholders making section 1035 exchanges of RPS contracts imposed by § 1.6050Y-2 of the 2019 final regulations. The burden on Form 1099-LS, Reportable Life Insurance Sale, will accordingly be reduced when the burden is revised. The OMB Control Number for Form 1099-LS is 1545-2281.

The Regulatory Flexibility Act (RFA) requires agencies to “prepare and make available for public comment an initial regulatory flexibility analysis,” which will “describe the impact of the proposed rule on small entities.” 5 U.S.C. 603(a). Section 605(b) of the RFA allows an agency to certify a rule, in lieu of preparing an analysis, if the proposed rulemaking is not expected to have a significant economic impact on a substantial number of small entities.

Pursuant to the RFA, it is hereby certified that the final regulations will not have a significant economic impact on a substantial number of small entities, because any effect on small entities by the rules finalized in this document flows directly from section 13520 of Public Law 115-97, 131 Stat. 2054, 2148, 2151 (2017), commonly known as the Tax Cuts and Jobs Act (TCJA). In addition, it is anticipated that requirements in the final regulations, which implement the statutory requirements under section 13520 of the TCJA, will fall primarily on financial and insurance firms with annual receipts greater than $47 million and, therefore, on no small entities. Therefore, the Secretary of the Treasury hereby certifies that the final regulations will not have a significant economic impact on a substantial number of small entities.

Pursuant to section 7805(f) of the Code, the notice of proposed rulemaking preceding the final regulations was submitted to the Chief Counsel for the Office of Advocacy of the Small Business Administration for comment on its impact on small business, and no comments were received.

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. This rule does not include any Federal mandate that may result in expenditures by State, local, or Tribal governments, or by the private sector in excess of that threshold.

Executive Order 13132 (Federalism) prohibits an agency 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 final regulations do not have federalism implications and do not impose substantial direct compliance costs on State and local governments or preempt State law within the meaning of the Executive order.

Pursuant to the Congressional Review Act (5 U.S.C. 801 et seq. ), the Office of Information and Regulatory Affairs has designated this rule as not a “major rule,” as defined by 5 U.S.C. 804(2).

The principal author of these regulations is Allan H. Sakaue, Office of Associate Chief Counsel (Financial Institutions and Products), IRS. However, other personnel from the Treasury Department and the IRS participated in their development.

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

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

The additions and revisions read as follows:

This document amends the Income Tax Regulations (26 CFR part 1) by adding final regulations under section 6011 of the Internal Revenue Code (Code) to identify certain CRAT transactions as listed transactions, a type of reportable transaction (final regulations).

Section 6001 of the Code provides an express delegation of authority to the Secretary of the Treasury or his delegate (Secretary) to require, either by notice served or by regulations, every taxpayer to keep the records, render the statements, make the returns, and comply with the rules and regulations that the Secretary deems necessary to demonstrate tax liability.

Section 6011(a) of the Code provides an express delegation of authority to the Secretary to require every taxpayer to “make a return or statement according to the forms and regulations prescribed by the Secretary” and “include therein the information required by such forms or regulations.”

Section 6707A(c) of the Code confirms the Secretary's authority to identify transactions as “reportable transactions” and as “listed transactions” and to require reporting of information relating to such transactions pursuant to the authority conferred by section 6011. Section 6707A(c)(1) defines the term “reportable transaction” to mean “any transaction with respect to which information is required to be included with a return or statement because, as determined under regulations prescribed under section 6011, such transaction is of a type which the Secretary determines as having a potential for tax avoidance or evasion.” In addition, section 6707A(c)(2) defines the term “listed transaction” to mean a reportable transaction that is “the same as, or substantially similar to, a transaction specifically identified by the Secretary as a tax avoidance transaction for purposes of section 6011.”

The final regulations also are issued under the express delegation of authority under section 7805(a) of the Code, which authorizes the 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.”

On March 25, 2024, the Department of Treasury (Treasury Department) and the IRS published a notice of proposed rulemaking (REG-108761-22) in the Federal Register (89 FR 20569) proposing regulations at new § 1.6011-15 (proposed § 1.6011-15) that would identify certain CRAT transactions and substantially similar transactions as “listed transactions” for purposes of § 1.6011-4 and sections 6111 and 6112 of the Code (proposed regulations). The Treasury Department and the IRS received one comment in response to the proposed regulations that are the subject of this final rulemaking. The comment is available for public inspection at https://www.regulations.gov or upon request. No public hearing was held on the proposed regulations because there were no requests to speak.

The one comment received supports the proposed regulations and agrees that the transactions described in the proposed regulations miscomprehend the operation of the tier structure under section 664 that governs the characterization and taxation of distributions from CRATs. In addition, the commenter noted that the CRATs described in the proposed regulations have other technical flaws that would prevent the purported CRATs from qualifying as CRATs under section 664(d)(1).

The commenter also agreed with the proposal that an organization described in section 170(c) of the Code that the purported CRAT designates as a recipient of the remainder interest is not treated as (1) a participant under § 1.6011-4(c)(3)(i)(A) in the transaction, or (2) as a party to the transaction for purposes of section 4965 of the Code solely by reason of its status as a recipient of the remainder interest described in section 664(d)(1). Further, the commenter pointed out that the charitable remainder beneficiary often is not even aware of the existence of its remainder interest until the charitable organization receives a distribution from the trust.

The proposed regulations requested comments concerning whether a charitable remainder beneficiary could be a material advisor under section 6111(b)(1)(A), and asked, in particular, whether the charitable remainder beneficiary ever provides material aid, assistance, or advice with respect to transactions described in proposed § 1.6011-15(b), the nature of the services being provided, and what fees the charitable remainder beneficiary would receive for providing such material aid, assistance, or advice. In response to this request for comments, the commenter stated that, based on its experience, charitable remainder beneficiaries rarely provide material aid, assistance, or advice, and that any material aid, assistance, or advice is most often provided by the promoters of the transaction. Additionally, the commenter stated it is not aware of cases in which charitable remainder beneficiaries have received fees, either directly or indirectly, for providing material aid, assistance, or advice.

However, the commenter noted that it is possible that a charity would provide general information about a CRAT to a participant in the listed transaction. Specifically, it would not be unusual for a charity to suggest consideration of a CRAT to a potential charitable donor or to explain to that potential donor the elements and operation of a trust that qualifies as a CRAT. The commenter requested that the final regulations make clear that a charitable remainder beneficiary will not be considered to provide material aid, assistance, or advice unless the charitable remainder beneficiary provides information that specifically endorses the abusive interpretation of the applicability and operation of the tier structure under which CRAT distributions are taxed by section 664(b).

Section 301.6111-3(b)(1) provides that a person is a material advisor with respect to a transaction if the person provides any material aid, assistance, or advice with respect to organizing, managing, promoting, selling, implementing, insuring, or carrying out any reportable transaction and directly or indirectly derives gross income in excess of the threshold amount provided in § 301.6111-3(b)(3). Section 301.6111-3(b)(2)(i) provides that a person provides material aid, assistance, or advice if the person makes or provides a tax statement to or for the benefit of any person described in § 301.6111-3(b)(2)(i). Section 301.6111-3(b)(2)(ii) generally provides that a tax statement is any statement (including another person's statement), oral or written, that relates to a tax aspect of a transaction that causes the transaction to be a reportable transaction.

A description of the effect of section 664(b) that includes, or a statement endorsing, the abusive interpretation of the application or operation of the tier structure under section 664(b) would be considered a tax statement as defined in § 301.6111-3(b)(2)(ii) as noted by the commenter, as would other statements regarding other elements of the transaction described in these final regulations, such as the validity of the terms of a CRAT used in the structure. However, a mere suggestion or description of a trust qualifying as a CRAT would not be a statement relating to a tax aspect of the transaction that causes the transaction to be a reportable transaction. As a result, as was discussed by the commenter, simply suggesting a donor's consideration of the creation of, or providing general information regarding, a trust qualifying as a CRAT would not be a tax statement that would result in the charity being a material advisor. Furthermore, to be a material advisor, the charitable remainderman must receive gross income (such as a fee) at least equal to the thresholds in § 301.6111-3(b)(3), and the commenter noted that it was not aware of charitable remaindermen receiving fees for providing material aid, assistance, or advice.

Because the application of rules governing who is considered a material adviser seem sufficiently clear in this context, the Treasury Department and IRS have determined that it is unnecessary to address the issue in the regulatory text. Thus, the Treasury Department and IRS decline to adopt the proposed change recommended by the commenter in finalizing the proposed regulations, and the proposed regulations are adopted as final without change.

These regulations are not subject to review under section 6(b) of Executive Order 12866 pursuant to the Memorandum of Agreement (July 4, 2025) between the Treasury Department and the Office of Management and Budget (OMB) regarding review of tax regulations. Therefore, a regulatory impact assessment is not required.

The estimated number of taxpayers impacted by these final regulations is between 50 to 100 per year. No burden on these taxpayers is imposed by these final regulations. Instead, the collection of information contained in these final regulations is reflected in the collection of information for Form 8886, Reportable Transaction Disclosure Statement, and Form 8918, Material Advisor Disclosure Statement, that have been reviewed and approved by the OMB in accordance with the Paperwork Reduction Act (44 U.S.C. 3507(c)) under control numbers 1545-1800 and 1545-0865.

To the extent there is a change in burden as a result of these regulations, the change in burden will be reflected in the updated burden estimates for Forms 8886 and 8918. The requirement to maintain records to substantiate information on Forms 8886 and 8918 already is contained in the burden associated with the control numbers for the forms and remains unchanged.

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

The Regulatory Flexibility Act (5 U.S.C. chapter 6) (RFA) requires the agency to “prepare and make available for public comment an initial regulatory flexibility analysis” which will “describe the impact of the proposed rule on small entities.” 5 U.S.C. 603(a). The term “small entities” is defined in 5 U.S.C. 601(6) to mean “small business,” “small organization,” and “small governmental jurisdiction,” which also are defined in 5 U.S.C. 601(3) through (5). Small business size standards define whether a business is “small” and have been established for types of economic activities, or industry, generally under the North American Industry Classification System (NAICS). See title 13, part 121 of the Code of Federal Regulations (titled “Small Business Size Regulations”). The size standards look at various factors, including annual receipts, number of employees, and amount of assets, to determine whether the business is small. See title 13, part 121.201 of the Code of Federal Regulations for the Small Business Size Standards by NAICS Industry.

Section 605 of the Act allows an agency to certify a rule if the rulemaking is not expected to have a significant economic impact on a substantial number of small entities. The Treasury Department and the IRS hereby certify that these final regulations will not have a significant economic impact on a substantial number of small entities. This certification is based on the fact that the majority of the effect of the final regulations falls on individuals and trusts. Further, the Treasury Department and the IRS expect that the reporting burden is low; the information sought is necessary for regular annual return preparation and ordinary recordkeeping.

For the reasons stated, a regulatory flexibility analysis under the RFA is not required. Pursuant to section 7805(f) of the Code, the proposed rule preceding this rulemaking was submitted to the Chief Counsel for the Office of Advocacy of the Small Business Administration for comment on its impact on small business and no comments were received.

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 (updated annually for inflation). This final rule does not include any Federal mandate that may result in expenditures by State, local, or Tribal governments, or by the private sector in excess of that threshold.

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

The principal author of these final regulations is Charles D. Wien, Office of Associate Chief Counsel (Passthroughs, Trusts, & Estates). However, other personnel from the IRS and the Treasury Department participated in the development of these regulations.

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

Throughout this document whenever “we,” “us,” or “our” is used, we mean the EPA.

On September 12, 2016 (81 FR 45039), the EPA designated part of St. Clair County, Michigan as nonattainment for the 2010 SO 2 NAAQS based on modeling of the two power plant sources in the St. Clair area.

On December 15, 2023, Michigan submitted a redesignation request and maintenance plan for the St. Clair nonattainment area for the 2010 SO 2 NAAQS to which the EPA proposed approval on April 10, 2026 (91 FR 18383). Michigan's modeled demonstration of attainment of the SO 2 NAAQS relied upon the closure of the St. Clair Power Plant along with a Permit to Install containing permanent and enforceable SO 2 emission limits for the Belle River Power Plant. The EPA is incorporating Belle River's Permit to Install 51-22 into Michigan's SIP in this final action. Michigan's modeling analysis demonstrates that the SO 2 emission limits contained in Permit to Install 51-22, in combination with the St. Clair Power Plant shutdown and background concentrations, yield a maximum SO 2 concentration of 62.8 ppb, which meets and is below the 2010 SO 2 NAAQS of 75 ppb. The public comment period for the proposed rule ended on May 10, 2026. The EPA received no comments during the comment period.

The EPA is approving the redesignation of the St. Clair area from nonattainment to attainment, meeting the criteria under CAA section 107(d)(3)(E) for the 2010 SO 2 NAAQS in accordance with Michigan's December 15, 2023, request. The EPA is determining that the area is attaining the 2010 SO 2 NAAQS and that the improvement in air quality is due to permanent and enforceable SO 2 emission reductions in the area. On this basis, the EPA is approving the redesignation request from Michigan for the area and changing the legal designation of the St. Clair area at 40 CFR part 81 to attainment for the 2010 SO 2 NAAQS. The EPA is also approving Michigan's maintenance plan under CAA section 175A. The maintenance plan demonstrates that the area will continue to maintain attainment of the 2010 SO 2 NAAQS as the plan adequately addresses the five basic components of a maintenance plan, an attainment emissions inventory, a maintenance demonstration, a commitment for continued air quality monitoring, a process for verification of continued attainment, and a contingency plan.

Additionally, the EPA is approving into the Michigan SIP the Permit to Install 51-22, governing Belle River Power Plant SO 2 emissions.

In accordance with 5 U.S.C. 553(d) of the APA, this action shall become effective immediately upon publication. The immediate effective date for this action is authorized under 5 U.S.C. 553(d)(1).

Section 553(d)(1) of the APA provides that final rules shall not become effective until 30 days after publication in the Federal Register “except . . . a substantive rule which grants or recognizes an exemption or relieves a restriction.” The purpose of this provision is to “give affected parties a reasonable time to adjust their behavior before the final rule takes effect.” Omnipoint Corp. v. Fed. Commc'n Comm'n, 78 F.3d 620, 630 (D.C. Cir. 1996); see also United States v. Gavrilovic, 551 F.2d 1099, 1104 (8th Cir. 1977) (quoting legislative history). However, when the agency grants or recognizes an exemption or relieves a restriction, affected parties do not need a reasonable time to adjust because the effect is not adverse. The EPA has determined that this rule relieves a restriction because this rule relieves sources in the area of Nonattainment NSR permitting requirements; instead, upon the effective date of this action, sources will be subject to less restrictive Prevention of Significant Deterioration permitting requirements. For this reason, the EPA finds that under 5 U.S.C. 553(d)(1) it is appropriate for this action to become effective on the date of publication of this action.

In this rulemaking, the EPA is finalizing regulatory text that includes incorporation by reference. In accordance with requirements of 1 CFR 51.5, the EPA is finalizing the incorporation by reference of Michigan Permit to Install 51-22 issued to DTE Electric—Belle River Power Plant, approved April 26, 2022 and revised May 25, 2023, described in section I of this preamble and set forth in the amendments to 40 CFR part 52 below. The EPA has made, and will continue to make, these documents generally available through www.regulations.gov and at the EPA Region 5 Office (please contact the person identified in the FOR FURTHER INFORMATION CONTACT section of this preamble for more information). Therefore, these materials have been approved by the EPA for inclusion in the SIP, have been incorporated by reference by the EPA into that plan, are fully federally enforceable under sections 110 and 113 of the CAA as of the effective date of the final rulemaking of the EPA's approval, and will be incorporated by reference in the next update to the SIP compilation. 1

Under the CAA, redesignation of an area to attainment and the accompanying approval of a maintenance plan are actions that affect the status of a geographical area and do not impose any additional regulatory requirements on sources beyond those imposed by State law. A redesignation to attainment does not in and of itself create any new requirements, but rather results in the applicability of requirements contained in the CAA for areas that have been redesignated to attainment. Moreover, the Administrator is required to approve a SIP submission that complies with the provisions of the CAA and applicable Federal regulations. 42 U.S.C. 7410(k); 40 CFR 52.02(a). Thus, in reviewing SIP submissions, the EPA's role is to approve State choices, provided that they meet the criteria of the CAA. Accordingly, this action merely approves State law as meeting Federal requirements and does not impose additional requirements beyond those imposed by State law. For these reasons, 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 an Executive Order 14192 (90 FR 9065, February 6, 2025) regulatory action because this action is not significant 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 approves a State program;

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

Under section 307(b)(1) of the CAA, petitions for judicial review of this action must be filed in the United States Court of Appeals for the appropriate circuit by September 8, 2026. Filing a petition for reconsideration by the Administrator of this final rule does not affect the finality of this action for the purposes of judicial review nor does it extend the time within which a petition for judicial review may be filed, and shall not postpone the effectiveness of such rule or action. This action may not be challenged later in proceedings to enforce its requirements. (See section 307(b)(2).)

For the reasons stated in the preamble, 40 CFR parts 52 and 81 are amended as follows:

This document announces that the Office of Management and Budget (OMB) approved the information collection requirements in 47 CFR 73.3700, 47 CFR 74.787, 47 CFR 74.791, 47 CFR 74.793 and 47 CFR 74.799 on June 26, 2026. The Commission publishes this document as an announcement of the effective date for these amended rules.

As required by the Paperwork Reduction Act of 1995 (44 U.S.C. 3507), the Commission is notifying the public that it received final OMB approval on June 26, 2026, for the information collection requirements contained in 47 CFR 73.3700, 47 CFR 74.787, 47 CFR 74.791, 47 CFR 74.793 and 47 CFR 74.799. Under 5 CFR part 1320, an agency may not conduct or sponsor a collection of information unless it displays a current, valid OMB Control Number.

No person shall be subject to any penalty for failing to comply with a collection of information subject to the Paperwork Reduction Act that does not display a current, valid OMB Control Number. The OMB Control Numbers for these information collections are as follows:

3060-0016, 3060-0466 and 3060-1216. The foregoing notice is required by the Paperwork Reduction Act of 1995, Public Law 104-13, October 1, 1995, and 44 U.S.C. 3507.

The total annual reporting burdens and costs for the respondents are as follows:

OMB Control Number: 3060-0016.

Title: FCC Form 2100, Application for Media Bureau Audio and Video Service Authorization, Schedule C (Former FCC Form 346); §§ 74.793(d) and 74.787, LPTV Out-of-Core Digital Displacement Application; § 73.3700(g)(1)-(3), Post-Incentive Auction Licensing and Operations; § 74.799, Low Power Television and TV Translator Channel Sharing; § 74.720, Digital Low Power TV Distributed Transmission Systems.

OMB Approval Date: June 26, 2026.

OMB Expiration Date: June 30, 2029.

Form Numbers: FCC Form 2100, Schedule C.

Respondents: Business or other for-profit entities; Not-for-profit institutions; State, Local or Tribal government.

Number of Respondents and Responses: 910 respondents; 910 responses.

Estimated Hours per Response: 2-2.5 hours per response.

Frequency of Response: On occasion reporting requirement; Third party disclosure requirement.

Obligation to Respond: Required to obtain or retain benefits. The statutory authority for this collection is contained in 47 U.S.C. 154(i), 303, 307, 308 and 309 of the Communications Act of 1934, as amended.

Total Annual Burden: 4,090 hours.

Total Annual Cost: $4,698,511.

Needs and Uses: On December 19, 2025, the Commission released a Report and Order, FCC 25-84, concerning the advancement of the Class A, LPTV and TV translator services (LPTV Service). The Commission adopted a rule that provides that low power television and TV translator stations filing a displacement application (FCC Form 2100—Schedule C) include an exhibit explaining how their facilities were displaced—74.787(a). The Commission also adopted a rule providing that an LPTV or TV translator channel sharee may cease channel sharing and seek to obtain a license for a non-shared channel by filing a major modification (FCC Form 2100, Schedule C) specifying a non-shared channel and facility—74.799(i). Finally, the Commission adopted a rule—74.793—that requires that applicants seeking to construct facilities that would exceed the permissible interference levels in the rules pursuant to an agreement with the affected parties submit a copy of the agreement with their application.

OMB Control Number: 3060-0466.

Title: §§ 74.783, 74.791, 73.1201 and 74.1283, Station Identification.

OMB Approval Date: June 26, 2026.

OMB Expiration Date: June 30, 2029.

Form Numbers: N/A.

Respondents: Business or other for-profit entities, Not-for-profit institutions; State, Local or Tribal government.

Number of Respondents and Responses: 29,146 respondents; 29,146 responses.

Estimated Hours per Response: 0.166-1 hour.

Frequency of Response: On occasion reporting requirement; Recordkeeping requirement; Third-party disclosure requirements.

Total Annual Burden: 26,884 hours.

Total Annual Cost: No costs.

Obligation to Respond: Required to obtain or retain benefits. The Commission has statutory authority for the information collection requirements under 47 U.S.C. 151, 152, 154(i), 303, 307, 308.

Needs and Uses: On December 19, 2025, the Federal Communications Commission (Commission) released a Report and Order, FCC 25-84, concerning the advancement of the Class A, LPTV and TV translator services (LPTV Service). The Commission revised its LPTV Service call sign rule—74.791 to require that stations have a call sign that is appropriate for their service designation. Stations without an appropriate call sign will be required to file a call sign change to designate a rule complaint call sign. Grandfathering of existing call signs is allowed for Class A and LPTV stations.

OMB Control Number: 3060-1216.

Title: Media Bureau Incentive Auction Implementation, §§ 73.3700(c), (h)(5) and (h)(6).

OMB Approval Date: June 26, 2026.

OMB Expiration Date: June 30, 2029.

Form Numbers: N/A.

Respondents: Business or other for-profit entities; Not-for-profit institutions.

Number of Respondents and Responses: 1,236 respondents; 40,686 responses.

Estimated Hours per Response: .004-15 hours.

Frequency of Response: One-time reporting requirement; on occasion reporting requirement; recordkeeping requirement.

Total Annual Burden: 6,570 hours.

Total Annual Cost: $961,800.

Obligation to Respond: Required to obtain or retain benefits. The Commission has statutory authority for the information collection requirements under 47 U.S.C. 151, 154, 301, 303, 307, 308, 309, 310, 316, 319, 325(b), 332, 336(f), 338, 339, 340, 399b, 403, 534, 535, 1404, 1452, and 1454.

Needs and Uses: On December 19, 2025, the Commission released a Report and Order, FCC 25-84, concerning the advancement of the Class A, LPTV and TV translator services (LPTV Service). The Commission eliminated the requirement in § 73.3700(g)(4) that wireless licensees assigned to frequencies in the 600 MHz band under 47 CFR part 27 notify low power TV and TV translator stations of their intent to commence wireless operations and the likelihood of receiving harmful interference from the low power TV or TV translator station to such operations within the wireless licensee's licensed geographic service area.

NMFS manages the Atlantic mackerel, chub mackerel, Illex squid, longfin squid, and butterfish fisheries pursuant to the FMP in consultation with the Council. In 2024, the most recent year for which complete revenue data are available, this FMP supported commercial fisheries producing an overall $45.2 million in revenues. Regulations implementing the FMP appear at 50 CFR part 648, subpart B.

Section 302(g)(1)(B) of the Magnuson-Stevens Fishery Conservation and Management Act (Magnuson-Stevens Act; 16 U.S.C. 1852(g)(1)(B)) states that the Scientific and Statistical Committee for each regional fishery management council shall provide its council with ongoing scientific advice for fishery management decisions, including recommendations for acceptable biological catch (ABC), preventing overfishing, ensuring maximum sustainable yield, and achieving rebuilding targets. The ABC is a level of catch that accounts for the scientific uncertainty in the estimate of the stock's defined overfishing limit (OFL).

The mackerel, squid, and butterfish specifications regulations at § 648.22 require the Mackerel, Squid, and Butterfish Monitoring Committee (Monitoring Committee) to meet annually to develop specifications recommendations for each species managed under the FMP, as well as recommendations for additional management measures to assure that the specifications will not be exceeded. Specifications may be recommended for a period of up to 3 years, subject to annual review. The Mackerel, Squid, and Butterfish Committee (Committee) will review the Monitoring Committee's recommendations, as well as any public comment received on them, and develop recommendations for the Council. The Council will review the Committee's suggestions, as well as any public comments received on them, and recommend to the Regional Administrator specifications and additional measures necessary to assure that those specifications will not be exceeded.

During its June 2025 meeting, the Council finalized its recommendations for the 2026 and the projected 2027-2028 chub mackerel fishery specifications, and recommended reaffirming the previously projected 2026 longfin squid and butterfish fishery specifications without changes. During its August 2025 meeting, the Council finalized its recommendations for the 2026 and the projected 2027-2028 Illex squid fishery specifications. Specifications for Atlantic mackerel were developed separately as part of Framework Adjustment 17 to the FMP, which was implemented by an interim final rule on April 27, 2026 (91 FR 22457).

Through this final rule, NMFS approves and implements the Council's recommended 2026 chub mackerel and Illex squid fishery specifications, projects the 2027-2028 chub mackerel and Illex squid fishery specifications, and reaffirms the previously projected 2026 longfin squid and butterfish fishery specifications. Additional background information regarding the development of these specifications was provided in the proposed rule (91 FR 12545, March 16, 2026) and is not repeated here. This rule is being issued pursuant to section 305(d) of the Magnuson-Stevens Act, which authorizes the Secretary to implement management measures necessary to carry out an approved fishery management plan. In a previous action taken pursuant to section 304(b) of the Magnuson-Stevens Act, NMFS approved the process in the FMP by which specifications are developed through a rulemaking process distinct from that of section 304(b) (76 FR 60606; Sept. 29, 2011); see the mackerel, squid, and butterfish specifications regulations at § 648.22.

Relative to the 2025 rollover specifications that are currently in effect, the final 2026 and projected 2027-2028 chub mackerel fishery specifications will remain status quo (table 1).

Relative to the 2025 rollover specifications that are currently in effect, the final 2026 and projected 2027-2028 Illex squid fishery specifications will remain status quo (table 2).

Relative to the 2025 rollover specifications that are currently in effect, the reaffirmed 2026 longfin squid fishery specifications will remain status quo (tables 3 and 4).