To determine eligibility for Federal small business assistance, SBA establishes small business size definitions (usually referred to as “size standards”) for private sector industries in the United States pursuant to the Administrator's authority in the Small Business Act, 15 U.S.C. 631 et seq. (“the Act”). See 15 U.S.C. 632(a)(2)(A).

In conjunction with this Notice of Proposed Rulemaking, SBA is publishing a white paper on an updated methodology for calculating small business size standards for public comment (“Revised Methodology”). This Revised Methodology was used to calculate the size standards proposed herein and all background, analysis, and discussion in the Methodology are incorporated herein.

Briefly, SBA's proposed size standards methodology examines the structural characteristics of an industry or industry group as a basis to assess differences and the overall degree of competitiveness within the industry group or industry. To ensure its size standards offer complete coverage of all areas of the economy where small businesses may compete, SBA uses the most recent revision of the North American Industry Classification System (NAICS) as a method to group similar firms into markets. As used herein, SBA considers an industry to be a 5- or 6-digit NAICS code and an industry group to be a 4-digit NAICS code.

As described more fully in SBA's proposed size standards methodology accompanying this Notice of Proposed Rulemaking (NPRM), market structure is examined by analyzing its average market size. In turn, average market size can be broken down into three components. The first component is the total size of all participants in the industry group or industry, including for-profit businesses, not-for-profit entities, and government owned entities, which is referred to as the national industry size. The second component is the number of distinct geographic markets in which competition takes place. The third component is an adjustment for imports and exports to account for international competition faced by domestic firms.

Industry groups or industries with smaller average market sizes are given smaller size standards since less scale is required in those industries for a firm to be dominant. By contrast, industry groups or industries with larger average market sizes are given larger size standards as a greater level of scale is required for a firm to be dominant. When SBA's proposed or revised size standards deviate from the analytical results based on these factors, the Agency provides a detailed explanation.

In addition to reviewing all size standards and adjusting them as necessary to reflect market conditions, SBA's Methodology adjusts all receipt based standards for inflation and productivity growth. SBA most recently adjusted size standards for inflation on November 17, 2022, but has never before adjusted for productivity growth in the economy.

In September 2010, Congress passed the Small Business Jobs Act (Pub. L. 111-240, 124 Stat. 2504 (September 27, 2010)) (Jobs Act) requiring SBA to review all size standards every five years and make necessary adjustments to reflect current industry and market conditions. Section 1831 of the National Defense Authorization Act for Fiscal Year 2017 (Pub. L. 114-328; December 23, 2016) (NDAA 2017) directed SBA to establish size standards for all agricultural enterprises in the same manner as for other industries and to include them in the five-year rolling review procedures established under section 1344(a) of the Jobs Act.

In accordance with the Jobs Act, SBA completed the first five-year review of all size standards (except size standards for agricultural enterprises) in 2016  1 and the second five-year review of size standards (including size standards for agricultural enterprises in accordance with NDAA 2017) in 2023, 2 and made adjustments to size standards for a number of industries.

During the second five-year review of size standards under the Jobs Act, SBA reviewed a total of 1,037 size standards and increased the size standards for 436 specific industries. The analysis of available data at that time suggested that a total of 492 size standards might be decreased, but in response to ongoing economic impacts as a result of the COVID-19 pandemic, SBA decided to retain those size standards at the current levels. 3

Currently, there are 102 different size standards levels, covering 978 NAICS industries and 18 subindustries (commonly known as “exceptions” in SBA's table of size standards). Seventy-three of these size levels are based on average annual receipts covering 496 industries and 13 subindustries (“exceptions”), 27 are based on average number of employees covering 477 industries and five subindustries (“exceptions”), one is based on refining capacity covering one industry, and one is based on average assets covering four industries.

SBA also adjusts its monetary based size standards for inflation at least once every five years. An interim final rule on SBA's latest inflation adjustment to size standards, effective December 19, 2022, was published in the Federal Register on November 17, 2022 (87 FR 69118), which SBA finalized on July 19, 2023, adopting the November 2022 interim rule (88 FR 46048). SBA also updates its size standards every five years to adopt the Office of Management and Budget's (OMB) quinquennial NAICS revisions to its table of small business size standards. Effective October 1, 2022, SBA adopted the OMB's 2022 NAICS revisions to its size standards (87 FR 59240, September 29, 2022).

On September 12, 2024, SBA issued a revised “Size Standards Methodology” (2024 Methodology), available at www.sba.gov/size, for establishing, reviewing, or modifying SBA existing size standards. In the paper, SBA examined the structural characteristics of an industry as a basis to assess industry differences and the overall degree of competitiveness of an industry and of firms within the industry. Industry structure was examined by analyzing four primary factors—average firm size, degree of competition within an industry, start-up costs and entry barriers, and distribution of firms by size. To assess the ability of small businesses to compete for Federal contracting opportunities under the current size standards, as the fifth primary factor, SBA also examined, for each industry averaging $20 million or more in average annual Federal contract dollars, the Federal contracting factor in terms of two disparity ratios. The first disparity ratio measured the small business share of total contracts relative to the small business share of the total population of firms that are willing, ready, and able to bid on and perform Federal contracts. The second disparity ratio represented the small business share of Federal contract dollars relative to the small business share in total industry's receipts. When warranted, SBA also considered other secondary factors that are relevant to the industries and the interests of small businesses, including the impacts of size standards changes on small businesses. These factors, while often associated with a firm's dominance in its field of operation, did not directly relate and in some cases led size standards astray. For example, the small size of farms led SBA to giving them size standards far below firms in other sectors of the economy despite the fact that the markets they competed in were national in scope.

As discussed further in the Revised Methodology, SBA is proposing to make changes to the methodology of determining size standards to ensure the methodology aligns with statutory requirements. This section gives an overview of the most significant changes. For further details please see the full Revised Methodology, which is available in the docket for this rulemaking at regulations.gov. The five most significant changes are as follows:

1. Changing the NAICS level at which size standards are calculated from the 6-digit NAICS code to a mix of 4- and 5-digit NAICS codes—In the 2024 Methodology, size standards were set at the 6-digit NAICS code which produced nearly 1,000 individual size standards once exceptions for federal contracting were included. The Revised Methodology instead sets size standards at a combination of 4- and 5-digit NAICS code which simplifies these to 338 individual size standards. This will decrease confusion surrounding whether a small business fits into a specific 6-digit category bearing several similar industries. Along with the change in aggregation, SBA has also proposed to remove all size standard exceptions.

2. Converting numerous industry groups and industries from receipt-based size standards to an employee-based one—In the 2024 Methodology, it was SBA's policy to use receipt-based size standards in industries which were neither manufacturing nor services unless the industry maintained certain conditions such as high capital intensity or low operational costs. The proposed methodology takes the opposite approach and defaults to employment-based size standards for all industry groups or industries where SBA has discretion. This will reduce the number of firms fluctuating between small and other than small business status, due to business volatility, inflation, and productivity growth.

3. Updated factors determining small business size standards—In the 2024 Methodology, the SBA used seven factors for calculating size standards: simple average firm size, weighted average firm size, average assets per firm, national four firm concentration ratio, national Gini coefficient, and two disparity measures of federal contracts for any industries which received at least $20 million in federal contracts. By contrast, the proposed Revised Methodology uses three: national industry size, number of geographic markets, and an adjustment for net imports, which are combined together into an average market size measure. The changes in factors is intended to more closely align the size standard's methodology with the Small Business Act's statutory language requiring a small business concern to be one which is “not dominant in its field of operations”. SBA believes the best reading of the language is that a field of operations should include both the goods or services business provide as well as a geographic area in which they compete. This is similar to how the Federal Trade Administration and Department of Justice define a market in their Horizontal Merger Guidelines. 4

4. Updated formula for calculating size standards—In the 2024 Methodology, SBA calculated a size standard for each of the seven factors separately by comparing the industry to other industries in a comparison group and then averaging the results of the seven together. SBA also imposed a minimum and maximum size standard imposing a narrow range for size standards even when the factors suggested a size standard outside the range—most often at the high end. In the Revised Methodology, the average market size for an industry is converted into a size standard by using a single function. The Revised Methodology has no explicit maximum size standard but does have a minimum size standard. This allows size standards to vary over a larger range and, in the case of some industries, allows for higher size standards than the existing methodology.

5. Added in a productivity adjustment for monetary based size standards—In the 2024 methodology, SBA adjusts monetary based size standards for inflation. In the proposed methodology, SBA continues to adjust for inflation but adds in an adjustment for general productivity increases in the U.S. economy as well. The productivity adjustment incorporates technological improvements and growing worker skills which increase business costs and receipts faster than inflation alone. This change allows firms with monetary based size standards to be placed on an equal footing to those with employment based size standards, which have an implicit productivity adjustment built in.

SBA has long weighed prevailing economic conditions in deciding whether to revise size standards. Following the 2007-2009 recession, SBA declined in the first five-year review under the Jobs Act to lower any size standard, even where the then-current methodology supported reductions in some industries. SBA adopted the same policy in the second five-year review for standards retaining the same measure. Economic conditions will continue to inform SBA's analysis as a secondary factor.

Lowering a size standard—or retaining one that is already too low—would cost many currently small firms, especially the most experienced and capable, their small business status and their eligibility for Federal assistance and small business contracts.

Given the difficult conditions small businesses faced during 2021-2024, including high inflation and increased regulatory burdens, SBA believes reductions would stifle the economic growth now underway. SBA therefore proposes not to reduce any industry size standard, even in the 45 industries where analytics may propose a decrease. Unlike prior results, the new results generally give small businesses room to grow while still accurately distinguishing them from larger peers. Reducing standards would run counter to SBA's mission to aid, counsel, assist, and protect the interests of small business concerns, preserve free competitive enterprise, and maintain and strengthen the Nation's economy.

Lowering the threshold for what qualifies as a small business—whether by reducing a standard or leaving one too low—would carry negative effects across the economy: value to the taxpayer, Government contracting, subcontracting and supply chains, access to capital, competition and industry consolidation, innovation and entrepreneurship, job creation, economic growth, the defense industrial base and national security, and the small business industrial base.

Access to capital and other benefits. Small firms without small status lose access to SBA-backed loans and guarantees, limiting investment in equipment, technology, and workforce development, along with other benefits such as lower taxes and exemptions from certain compliance and paperwork requirements. Some would slow expansion or close.

Economic growth and jobs. Small businesses generate roughly 44 percent of U.S. GDP, two-thirds of net new jobs, and nearly half of private sector employment. Small firms without small status—and small firms without small status in industries where standards are already too low—would face financial pressure, reduce hiring, or lay off workers.

Industrial Base Resilience: Small firms excluded from small business status would compete directly against large corporations with far greater resources. Many would be acquired or exit, consolidating key sectors such as manufacturing, construction, and IT, reducing innovation and choice, and raising costs to the taxpayer. That outcome would conflict with Executive Order 14267 ( 90 FR 15629, April 9, 2025), which directs agencies to reduce anticompetitive regulatory barriers.

Small firms without small status would lose access to set-aside contracts, shrinking the pool of qualified suppliers in contract-dependent industries such as defense, construction and IT. Fewer contractors capable of high-value or technically demanding work means delays, lower quality, and higher prices. Firms would also lose subcontracting opportunities, as primes favor subcontractors that still count toward their small business goals.

Small businesses comprise 73 percent of companies in the U.S. defense industrial base ( Department of War ), even while DoW small business vendor count decreased 49 percent between 2010 and 2024. Lowering standards or retaining one that is already too low would disqualify additional firms, narrow DoW's options for specialized capabilities, and further erode the flexibility and resilience essential to the defense and broader industrial base.

At a time of resurgent American manufacturing, preventing small businesses from obtaining small status would undercut American manufacturing, national security, and industrial base resilience. For these reasons, SBA proposes not to reduce any size standard where analytical results suggest a reduction. The 45 affected industries, which will retain their current size standards, are listed in the table below.

The following table describes the current size standards and presents the proposed size standard for each 6-digit NAICS code to facilitate easy comparisons for businesses. The table also provides estimates of the small business count under the current standard and the new standard as well as the difference between them. Empty cells indicate that no estimate is available for the current standard, the proposed standard, or both. 5 To facilitate comparison between the current and proposed standard, if either count is missing, both are excluded from the totals and from the difference calculations.

Executive Orders (E.O.s) 12866 and 13563 direct agencies to assess costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts, and equity). E.O. 13563 emphasizes the importance of quantifying both costs and benefits, of reducing costs, of harmonizing rules, and of promoting flexibility. OMB has determined that this rule is not a significant regulatory action. The rule will not impact the total number of federal contracts and is expected to have a minimal impact on SBA's lending programs, including 7(a) and 504 loans, which are subject to statutory caps. As a result, any impact on the economy is expected to be de minimis. In the next section, SBA provides a Cost-Benefit Analysis of this proposed rule, including: (1) a statement of the need for the proposed action, (2) an evaluation of the benefits and costs—both quantitative and qualitative—of the proposed action; and (3) an examination of alternative approaches. SBA invites comments on Cost-Benefit Analysis.

Under the Small Business Act (15 U.S.C. 632(a)), SBA's Administrator is responsible for establishing small business size definitions (or “size standards”) and ensuring that such definitions vary from industry to industry to reflect differences among industries. The Jobs Act requires SBA to review every five years all size standards and make necessary adjustments to reflect current market conditions. This proposed rule is part of the third five-year review of size standards in accordance with the Jobs Act. The first five-year review of size standards was completed in early 2016 and the second five-year review in early 2023.

In Circular A-4 (September 17, 2003), OMB directs agencies to establish an appropriate baseline to evaluate any benefits, costs, or transfer impacts of regulatory actions and alternative approaches considered. The baseline should represent the agency's best assessment of what the world would look like absent the regulatory action.

For purposes of this regulatory action, the baseline is maintaining the “status quo,” i.e., making no changes to the current size standards. Currently, there are 102 different size standards levels, covering 978 NAICS industries and 18 subindustries (commonly known as “exceptions” in SBA's table of size standards). Of these size levels, 73 are based on average annual receipts covering 496 industries and 13 subindustries (“exceptions”), 27 are based on average number of employees covering 477 industries and five subindustries (“exceptions”), one is based on refining capacity and number of employees covering one industry, and one is based on average assets covering four industries.

The proposed rule applies the Revised Methodology and moves from 6-digit NAICS industries to a combination of 4-digit NAICS industry groups and 5-digit NAICS industries and includes 338 size standards across all areas of the economy in which small businesses may compete (NAICS 4911, 5211, 8141, and all of sector 92 are excluded). The proposed rule also converts many receipt-based industries to employee-based industries, updates the factors used to calculate size standards, updates the process for translating those factors into size standards, and adds an adjustment for productivity growth to receipt based standards. Further details on the proposed changes are provided in the Proposed Size Standards Methodology section. The following table provides a short comparison of the proposed changes to the baseline.

The proposed simplified size standard benefits small businesses, banks including loans officers, federal government agencies including procurement officers, and the public in general.

The proposed simplified size standard is easier to navigate and reduces time taken for review and determination of small business standards for small businesses. In addition, the proposed rule changes which businesses are classified as small. The changes to the size standards would result in a net increase of about 114,541 businesses classified as small. Classification as small confers economic advantages in three primary domains: preferential access to federal government contracts through set-aside programs, access to subsidized and guaranteed financing, and protection from regulatory burdens through the Regulatory Flexibility Act (RFA).

Simplified size standard: In the current version of SBA size standards, there are nearly 1,000 unique size standards, with numerous alternative size standards for different special cases. For example, there is currently a different size standard for Ship Building (1,300 employees) than there is for Boat Building (1,000 employees). While Ships are larger than boats and are more likely to be used for commercial purposes, there is gray area where a firm could be uncertain which standard applied to them. By moving up to the 4-digit level this uncertainty is resolved as both NAICS 6-digit industries are combined into a single 4-digit one for purposes of size standards.

Increases potential for participating in government contracting programs: The federal government is the world's largest buyer of goods and services, spending over $883 billion in federal contracts in Fiscal Year 2025 according to www.usapending,gov. Statute requires the federal government to set a goal for small business participation in the total value of prime contracts at no less than 23 percent. In FY 2024, the federal government exceeded this goal, awarding a record $179 billion in prime contract dollars to small businesses. 6

To help meet these goals, contracting officers at these agencies can use restricted competition to all small businesses, Service-Disabled Veteran-Owned Small Businesses (SDVOSB), Women-Owned Small Businesses (WOSB), Historically Underutilized Business Zones (HUBZone), or 8(a) Business Development (BD) firms. Sole-source authorities exist in SDVOSB, WOSB, HUBZone, and 8(a) BD programs, although their usage differs by each program. In addition, the government can sole-source outside of these programs, including to small businesses, when the requirements are met to warrant a sole-source.

Both SBA's regulations and the Revolutionary Federal Acquisition Regulation (FAR) Overhaul (RFO) require consideration for small business preferences, set-asides, and SBA certification programs, including the 8(a) BD Program, the HUBZone Program, WOSB Program, the Economically Disadvantaged Women-Owned Small Businesses (EDWOSB) Program, and the SDVOSB Program.). 7 Because of the preferences small businesses receive in federal contracting, newly classified small businesses may seek opportunities to participate in federal contracting where they may not have done so before.

Increases potential for participation in SBA business loan programs: Small business determination also allows firms to participate in the SBA business loan programs including disaster loans.

• For FY 2026 (current as of 7/6/26), for instance, $23 billion was approved for 43,089 loans in the 7(a) program and $5.5 billion to 4,710 firms for the 504 program. 8 For the entire FY 2025, $37 billion was approved in 7(a) loans and $7 billion in 504 loans. 9 Newly qualified businesses as well as businesses that retain eligibility will be able to participate in these and other SBA loan programs including the newly introduced 7(a) Working Capital Pilot Program that has delivered more than $150 million in new lending since its inception. 10

• Newly qualified small businesses will also benefit from Economic Injury Disaster Loans (EIDLs). Small businesses, small agricultural cooperatives, and most private nonprofit organizations located in a declared disaster area, and which have suffered substantial economic injury, are eligible. In FY 2022, the last year for which data is available, $131 million in EIDL loans were approved. 11 Since the benefit provided through these loans programs is contingent on small businesses applying for loans following future disasters, SBA cannot make a meaningful estimate of the impact of the proposed rule.

Greater flexibility and lower compliance requirements for small businesses: Besides contracting and financial assistance discussed above, small businesses also benefit through reduced fees and fewer compliance requirements that are available to small businesses through the Federal government. The Regulatory Flexibility Act requires agencies to give special consideration to small businesses in the regulatory process. Regulating agencies often take measures to decrease the burden of regulations on small businesses, including delaying compliance deadlines or even exempting small businesses altogether, and a small business determination under the size standard rule causes agencies to consider applying these exemptions or flexibilities.

For instance, in May 2026, the Consumer Financial Protection Bureau (CFPB) published the Small Business Lending Under the Equal Credit Opportunity Act (Regulation B) Rule governing collection and reporting of data regarding applications for credit by small businesses. This final rule amended coverage of certain credit transactions and financial institutions, the small business definition, and the compliance date. According to an Office of Advocacy Comment Letter, 12 the change from the 2023 Rule reduces compliance costs estimated at $58,400-$95,200 annually for approximately 1,500 smaller financial institutions, while still capturing more than 90% of small business lending by volume.

In some cases, small businesses would have maintained access to the benefits described above through limiting their own growth. The new methods for determining size standards will allow small businesses to grow further before exceeding the size standards, enabling them to continue to benefit from the small business programs without sacrificing growth.

Increases Competition: With more businesses qualifying as small under the proposed increases to size standards, Federal agencies will have a larger pool of small businesses from which to draw for their small business procurement programs. The current, slow to adjust size-standards often leave small businesses with a decision to forego new growth opportunities in order to remain within the limited size threshold. 13 To encourage economic growth and address similar concerns raised by small businesses, the SBA proposes to modernize the size-standards to foster an environment where small firms are encouraged to propose innovative solutions rather than forgo those growth opportunities in order to remain small in the currently restrictive, slow to move standards. By bringing such flexibility to small contractors, and the resulting increase in small firms, the federal government will have more capable firms to consider, and more competitive offers, when purchasing goods and services.

A Naval Postgraduate School Acquisition Research Program study summarizes this issue, stating “One of the other key policy objectives of the Small Business Act is to promote small business in order to foster economic growth. Yet as suppliers grow towards their NAICS thresholds, they encounter a “benefit cliff” that disincentivizes growth, counter to this goal.”  14 Additionally, the study suggests that restricted competition contributes to weak competitive procurements, limiting the range of cost, quality, and delivery options. These constraints result in fewer choices to balance purchasing goals, such as cost and best-value to the government.

Small businesses voiced their concerns about the prior, restrictive size standards in a hearing held by Chairman Roger Williams (R-TX) in the House Committee on Small Business in the 118th Congress titled “Under the Microscope: Reviewing the SBA's Small Business Size Standards.”  15 The hearing examined the previous size standards methodology, and as Chairman Williams' press release stated, “Today's hearing shed a light on how small businesses often get boxed out of the federal procurement marketplace. The federal government is the largest customer in our nation, so ensuring accurate size standards is incredibly important so more small firms can compete for contracts. Antiquated standards leave small businesses behind . . .”  16 Additionally, as Ranking Member Velazquez (D-NY) stated, “Right-sizing the size standards is critical to ensure fairness, promote competition and encourage small businesses to enter and remain in the industrial base.”

Agency Goaling. The proposed size standard increases the total number of eligible small businesses from 6,344,967 firms to 6,459,508 firms, an increase of close to 2%. As discussed above, the federal government has an annual small business federal contracting goal. Businesses with a new determination of `small business' status currently competing for government contracts will now be able to contribute towards these goals. Having small business status will enable these businesses to compete for contracts restricted to small businesses, while agencies will be able to count the contracts awarded to newly-small businesses toward their small business goals (regardless of whether such procurements were restricted to small businesses).

SBA estimates that nearly 37,002 unique firms with FY 2025 contracts will be newly eligible small businesses. Together these firms accounted for roughly 105,655 contracts in FY 2025 for a total of more than $71 billion.

The following table provides the top 20 industry groups by 6-digit NAICS with existing contracts in FY 2025 which will count toward small business goals under the proposed size standards owing to the small business determination of the contracting businesses under the proposed size standards. For instance, in Engineering Services (541330) 5,314 firms with current contracts will now be eligible to compete for small business restricted set asides and contracts awarded to these firms will count toward the small business contracting goals for agencies. In Other Computer Related Services (541519) and Custom Computer Programming Services (541511), 2,247 firms and 2,171 firms respectively will be eligible for small business goals.

GAO found that more competition leads to better performance and price. 17 This indicates potential cost savings for agencies as non-sole source competitive contracts increase and agencies continue to prioritize small businesses in the federal procurement space, as an increased pool of small businesses will likely have a favorable effect on the use of procuring with small business by agencies. Having an increased pool of small businesses competing for contracts restricted to small business could also decrease prices by providing agencies with access to contractors with lower costs, improved offerings and that decrease in price would be a benefit to agencies and provide the best value to the taxpayers who ultimately fund every contract.

Simplifies administration: This rule will decrease the administrative burden on procurement and contracting officers. The rule simplifies the system used to classify small businesses. The rule also combines the receipt-based and employee-based size standards previously published by SBA in two separate rules into a single rule, reducing the burden of understanding the size standards. Savings from publishing the new size standards in a single simplified rule could be meaningful. The current rules account for more than 150 pages in the Federal Register . Assuming 1,000 words per page (a Federal Register page is roughly two dense newspaper columns with small serif font and narrow margins, so it carries more text than a standard 8.5x11 manuscript page, estimated 900-1200 words per page), that is 150,000 words. The proposed rule is expected to reduce this by more than half as it combines the two rules (receipt-based and employee-based) into one and simplifies the system from 6-digit NAICS to a combination of 4-digit and 5-digit NAICS. Suppose this translates to 70 pages or 70,000 words: At 200 words per minute, that is 5 hours 50 minutes of reading time saved. To acknowledge both the capital and labor requirements, SBA applies an average dollar cost to an hour of $37.64, hourly average wage for nonfarm employees in June of 2026, 18 resulting in $219.57 in savings per reading. The federal government employes about 37,600 contracting officers, 19 so the value of the reduction in reading time could be substantial.

As discussed in previous sections, the proposed size standard is shorter and easier to apply and will benefit not only small businesses and federal government but also banks and loan officers. For instance, since 2020, 1,877 FDIC monitored banks, 314 NCUA monitored Credit Unions as well as numerous smaller financial institutions and community banks provided SBA guaranteed 7(a) loans. Responsible loan officers at these institutions will save time in the review and approval of 7(a) loans. This is because the proposed size standard introduces a simplified process for assessing firm size eligibility.

All businesses interested in doing business with Federal government must register in SAM and update their SAM profiles annually, regardless of their size status. Businesses that are newly classified as small may choose to incur these costs in pursuit of federal contracts. Besides having to register in SAM to be able to participate in Federal contracting and update the SAM profile annually, small businesses incur no direct costs to gain or retain their small business status because of increases to size standards.

There is, however, a potential impact on small businesses' ability to access SBA loans and government contracts. In addition, there is the possibility of increased administrative costs for the government. The costs caused by a loss in small business status invert the benefits discussed in the benefits section, including losses in economic efficiency caused by decreases in competition for federal contracts. However, the number of businesses gaining small business status using the proposed methodology is much larger than the number of businesses that could potentially lose small business status. SBA estimates that fewer than 200 businesses would lose small status under the proposed methodology, while about 114,236 would gain small status. Furthermore, SBA is proposing to not reduce any size standards which are keeping the same size standard measure. As such SBA estimates fewer than 5 small businesses in Direct Property and Casualty Insurance Carriers (NAICS 524126) will lose small business status due to the switch from employment to receipt-based size standards. Further discussion about impacts on small businesses can be found in the Regulatory Flexibility Act (RFA) section.

Federal contracting officers are required to ensure that all contracts entered into by the Federal government are provided at a fair market price. Increasing the number of eligible small businesses to compete for Federal contracts increases the likelihood that the government procures services and products from small businesses at a fair market value. The increased competition may, however, result in reduced profits as more small businesses are competing for federal contracts. These issues are discussed in more detail in the RFA.

In the single industry that may see a decrease in the number of small business due to changing, some businesses may no longer be eligible for SBA loan guarantees (7(a), 504) or EIDL loans. While it is not possible to accurately predict the behavior of businesses, a review of the data between 2020-2026 reveals that in NAICS 524126 (Direct Property and Casualty Insurance Carriers), all businesses with approved 7(a) loans are substantially below the size standard and will remain eligible for SBA loans under the proposed size standards.

Among those newly defined small businesses seeking SBA loans, there could be some additional costs associated with verification of their small business status. However, many of SBA's loan programs are subject to a statutory cap and thus increased new businesses would be unlikely to increase administrative costs, and information pertaining to revenue and employment is generally required in the loan application process notwithstanding size standard. Therefore, SBA believes that any added administrative costs will be small.

There is a potential for increased administrative costs for the government in implementing the proposed size standards. To the extent that the newly qualified small businesses could become active in Federal procurement, the proposed increases to size standards, if adopted, may entail some additional administrative costs to the government because of more businesses qualifying as small for Federal small business programs. For example, there may be more firms seeking SBA loans, more firms potentially eligible for certification such as SDVOS, WOSB, EDWOSB, 8(a), HUBZone, or SBA Mentor-Protégé Program. A preliminary analysis of the FPDS database, however, reveals that most of the small businesses participating in the certification and loan programs are significantly below the size standard threshold. While it is not possible for SBA to accurately predict which newly classified firms would be eligible for certification or predict the behavior of newly eligible small businesses, the evidence from existing program participation data thus suggests that the newly eligible small businesses close to the size standard threshold in revenue or employment scale are not likely to apply for certification or loan guarantees in large numbers. Hence, SBA expects any rise in administrative costs to be small.

The SBA's historical data on size protests reveals that the number of size protests decreased following the increases size standards which resulted in more eligible small businesses. This was part of the first and second five-year reviews of size standards under the Jobs Act. Specifically, on an annual basis, the number of size protests fell from about 500-600 during 2011-2016 to an average of about 300 during 2020-2024. 20

The proposed increases to size standards, if adopted, may result in some redistribution of Federal contracts between the newly qualified small businesses and other-than-small businesses and between the newly qualified small businesses and small businesses under the current standards. As discussed in the benefit and cost sections, some of the resulting changes in prices and profits would be the result of gains in economic efficiency. However, some other changes would be transfers between the federal government and small businesses and among small businesses.

With a close to 2% increase in number of firms qualifying as small businesses, there is likely to be an increase in competition for small business government contracts which may impact firms qualifying under the current size standards by reducing their likelihood of winning government contracts if they are not the best solution for the government. Increased competition is likely to have the greatest impact on businesses most similar in size to the businesses that would be newly classified as small, since these are more likely to be competing for the same contracts. In other words, the smallest businesses in particular industries are likely not to be competitive for the same contracts as the businesses closest to the current size standards, while small businesses closest to the current size standards would likely be competitive for the same contracts as the businesses newly classified as small under the proposed rule. Growing small businesses closer to the size standard are therefore likely to face the greatest competition from the newly eligible firms under the proposed rule. Having more eligible businesses compete for set asides may reduce some small businesses' chances of securing a government contract, but the number of small businesses being awarded federal contracts will not be reduced.

Research suggests that firms that remain active in federal contracting rely less on small business set asides over time. Girth and Brown (2018) tracked 977 federal suppliers and their contracts between 2005-2014 to study the potential impact of small business policies on supplier competitiveness, program participation, and growth. 21 They demonstrated that firms that remained in the federal market for the decade under review had nearly twice as much contract activity in 2014 than 2005 with increasingly lower dependency on set asides. Growing firms successfully competed with large businesses in an open market, relying less and less on set asides. Therefore, while growing businesses that are approaching the size standards may face higher competition and lower profit margins from government contracts, they will likely benefit from higher standards by being able to accept more non set aside contracts and private market contracts without risk of losing their small business status because of growth in revenue or employment. For further discussion, please refer to the RFA section of this rule.

OMB's Circular A-4 directs SBA to consider regulatory alternatives to the proposed changes in the proposed rule. Many such alternatives are discussed in the Revised Methodology document. At a high level, however, SBA considered two main alternatives to the proposed rule:

• Alternative One would propose retaining all size standards for all industries. The current size standards were developed in 2022 during COVID and have not been adjusted for inflation since. This makes the standard unreasonably low for many of the industries, including the construction industry, which has remained largely static aside from occasional inflationary adjustments. 22 The proposed standard not only addresses this issue by adjusting for inflation but also for the first time adjusts for productivity growth, developing a size standard that does not unfairly punish small businesses for growing productivity and efficiency.

• Alternative Two would update current size standards at the 6-digit NAICS level. This would use the current, notably flawed methodology white paper published in 2024. 23 This option was rejected because the new proposed size standards more closely track the statutorily required concept of non-dominance, adjusts for both inflation and productivity, and provides an easier to use size standard at the 4- or 5-digit NAICS level where appropriate. The SBA periodically updates its size standards to account for inflation. Including productivity growth helps ensure small businesses with receipts based size standards are able to maintain a more skilled workforce and incorporate new technology into their operations without decreasing head count. The proposed methodology also substantially increases the number of small businesses as compared to the existing methodology. As discussed before, while the existing methodology would cause less disruption for small businesses currently participating in the federal market in terms of their ability to secure contracts and earn profits from these contracts, it would also limit their ability to grow and continue to participate in the federal market because of the continuing low size standards. The proposed standards would create an estimated 114,541 newly eligible small businesses, including 37,002 businesses currently participating in the federal marketplace, 24 which would become eligible for government contracts, SBA loans, and more simplified compliance mechanisms. 25

This proposed rule is anticipated to be an Executive Order 14192 deregulatory action when finalized. This rulemaking will decrease regulatory burden by simplifying SBA size standards. Cost savings created by this rulemaking are expected to outweigh any new costs that may arise because of this rule. See the above Cost-Benefit Analysis for a full discussion of the costs of benefits of the rule.

According to the Regulatory Flexibility Act (RFA), 5 U.S.C. 601-612, when an agency issues a rulemaking, it must prepare a regulatory flexibility analysis to address the impact of the rule on small entities. This proposed rule, if adopted, may have a significant impact on a substantial number of small businesses covered by this proposed rule. As described above, this rule may affect small businesses seeking Federal contracts, loans under SBA's 7(a), CDC/504, micro EIDL Loan Programs, and assistance under other Federal small business programs.

The Small Business Jobs Act of 2010 requires SBA to review every five years all size standards and make necessary adjustments to reflect market conditions. SBA completed the first five-year review of size standards in 2016 and the second five-year review in 2023. This rule serves as the third five-year review of size standards under the Jobs Act. Additional needs and objectives for the proposed rule are discussed in the Revised Methodology.

The proposed rule applies to all small businesses and impacts access to government contracts, SBA loans, federal programs providing funding for small businesses, and regulatory flexibilities available to small businesses. The proposed rule increases the total number of eligible small businesses from 6,344,967 firms to 6,459,508 firms, an increase in 1.8%. Of the 338 size standards produced by the methodology, only 24 industry groups or industries result in a reduction in number of eligible firms with the total decrease expected to be less than 200. Additionally, SBA has chosen to deviate from the proposed methodology to keep all size standards which continue to use the same measure from decreasing. Because of this deviation only one industry, Direct Property and Casualty Insurance Carriers (NAICS 524126), is expected to see a decrease of fewer than five small businesses, as its size standard changes from 1,500 employees to $842 million in receipts. The expected net increase is 114,541 firms.

The proposed size standard changes impose no additional reporting or record keeping requirements on small businesses. However, qualifying for Federal procurement and a number of other programs requires that businesses register in SAM and self-certify that they are small at least once annually. Therefore, businesses opting to participate in those programs must comply with SAM requirements. There are no costs associated with SAM registration or certification.

Most industries will see an increase in the size standard and a corresponding increase in the number of firms eligible to apply to SBA programs. As noted, the methodology results in a reduced size standard for 45 industry groups or industries and a transition in size measure in one industry which effectively lowers the size standard, though only 24 would have seen a reduction in the number of small businesses, however SBA is proposing to adopt a policy of not reducing size standards for all industries maintaining the same size standard measure. As such fewer than 5 small businesses in NAICS 524126 (Direct Property and Casualty Insurance Carriers) are expected to lose small business status. A determination about 7(a) loan eligibility could not be made about this industry owing to lack of available revenue data for loan recipients. However, SBA finds it unlikely that any firm seeking SBA loans would lose access because most firms that take SBA loans are much smaller than the size standard threshold, as discussed earlier.

The ability to compete for government contracts is one of the most significant benefits of being a small business. Using publicly available data from FPDS and SAM, SBA conducted a review of all small businesses with at least one contract in FY 2025. As in the case of loans, most certified businesses have revenue and employment well below the size standard. For the industry where the number of small businesses is lower under the proposed size standard than under the current size standard, SBA was unable to identified any firms with FY 2025 contracts  26 that would likely no longer be small businesses under the proposed size standard.

Both existing and newly eligible small businesses currently active in SAM will be able to compete in federal contracts restricted to small business. More small firms would be size-eligible for SBA contracting programs, however, each program has additional and unique eligibility requirements, such as service-disabled veteran status, economic disadvantage requirements, or firm location dependent criteria. Another advantage is that small firms that outgrew the prior standards would regain access to small business contracting. In fact, under the proposed rule, about 114,541 new firms will become eligible to compete in the federal market. 37,002 firms with more than 105,655 contracts in FY 2025 (accounting for roughly $71 billion dollars in government contracts) will become small businesses under the proposed size standards.

Federal contracting officers are required to ensure that all contracts entered into by the Federal government are provided at a fair market price. Increasing the number of eligible small businesses to compete for Federal contracts increases the likelihood that the government procures services and products from small businesses at a fair market value. The increased competition may, however, result in reduced profits as more small businesses are competing for federal contracts.

Increased competition is likely to have the greatest impact on businesses that most resemble the newly classified small firms. This is because these similar businesses are more likely to compete for the same contracts. Growing small businesses closer to the size standard are therefore likely to face the greatest competition from the newly eligible firms under the proposed rule. While having more eligible businesses compete for set asides may reduce their chances of securing a government contract, the number of small businesses being awarded federal contracts will not be reduced.

However, firms that remain active in the federal marketplace rely less on small business set asides over time. Girth and Brown (2018) tracked 977 federal suppliers and their contracts between 2005-2014 to study the potential impact of small business policies on supplier competitiveness, program participation, and growth. They demonstrated that in the nearly 10 years documented in their study, though many firms exited the federal market, the firms that remained had nearly twice as much contract activity in 2014 than 2005. In 2005, all firms selected for the study had set aside contracts. Of the 424 suppliers with prime contract actions in 2014, 108 had no small business set aside actions. Growing firms successfully competed with large businesses in an open market, relying less and less on set asides.

Furthermore, growing businesses that are approaching the size standards will benefit from the potential to grow while retaining their small business status. Girth and Brown observed a “benefit cliff,” where firms considering the transition from small to mid-sized can face a disincentive to grow because they will enter a federal procurement market dominated by large firms with extensive past performance. The proposed size standard effectively pushes out this benefit cliff, allowing businesses to grow while retaining their small business status and the ability to compete for set asides that comes with it. This could prove to be a significant benefit for small businesses currently facing the risk of being sized out of the federal marketplace.

Under section 3(a)(2)(C) of the Small Business Act, 15 U.S.C. 632(a)(2)(c), Federal agencies must use SBA's size standards to define a small business, unless specifically authorized by statute to do otherwise. In 1995, SBA published in the Federal Register a list of statutory and regulatory size standards that identified the application of SBA's size standards as well as other size standards used by Federal agencies (60FR57988 (November 24, 1995)). SBA is not aware of any Federal rules that would duplicate or conflict with establishing size standards.

However, the Small Business Act and SBA's regulations allow Federal agencies to develop different size standards if they believe that SBA's size standards are not appropriate for their programs, with the approval of SBA's Administrator (13CFR121.903). The Regulatory Flexibility Act authorizes an agency to establish an alternative small business definition, after consultation with the Office of Advocacy of the U.S. Small Business Administration (5 U.S.C. 601(3)).

By law, SBA is required to develop numerical size standards for establishing eligibility for Federal small business assistance programs. In this case, the alternatives considered in the E.O. 12866 section, cited below, also apply here, as do the alternatives discussed in the Revised Methodology:

• Alternative One would propose retaining all size standards for all industries. The current size standards were developed in 2022 during COVID and have not been adjusted for inflation since. This makes the standard unreasonably low for many of the industries including construction. The proposed standard not only addresses this issue by adjusting for inflation but also for the first time adjusts for productivity growth, developing a size standard that does not unfairly punish small businesses for growing productivity and efficiency.

• Alternative Two would update current size standards at the 6-digit NAICS level using existing methodology white paper published in 2024. This option was rejected because the new proposed size standards more closely track the statutorily required concept of non-dominance, adjust for both inflation and productivity, and provide an easier to use size standard at the 4-digit level where appropriate. The Revised Methodology also substantially increases the number of small businesses as compared to the existing methodology. As discussed before, the existing methodology would limit small businesses' ability to grow and continue to participate in the federal market because of the continuing low size standards. The proposed standards would create about 114,541 newly eligible small businesses including 37,002 with existing government contracts in FY 2025 that become eligible for government contracts, SBA loans and increased regulatory flexibility and decided to select the proposed method.

This action meets applicable standards set forth in sections 3(a) and 3(b)(2) of Executive Order 12988, Civil Justice Reform, to minimize litigation, eliminate ambiguity, and reduce burden. The action does not have retroactive or preemptive effect.

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

For the purpose of the Paperwork Reduction Act, 44 U.S.C. Ch. 35, SBA has determined that this proposed rule will not impose any new reporting or record keeping requirements.

For the reasons set forth in the preamble, SBA proposes to amend 13 CFR part 121 as follows:

The FAA invites you to send any written relevant data, views, or arguments about this proposal. Send your comments using a method listed under the ADDRESSES section. Include “Docket No. FAA-2026-8785; Project Identifier MCAI-2026-00073-T” at the beginning of your comments. The most helpful comments reference a specific portion of the proposal, explain the reason for any recommended change, and include supporting data. The FAA will consider all comments received by the closing date and may amend this proposal because of those comments.

Except for Confidential Business Information (CBI) as described in the following paragraph, and other information as described in 14 CFR 11.35, the FAA will post all comments received, without change, to regulations.gov, including any personal information you provide. The agency will also post a report summarizing each substantive verbal contact received about this NPRM.

CBI is commercial or financial information that is both customarily and actually treated as private by its owner. Under the Freedom of Information Act (FOIA) (5 U.S.C. 552), CBI is exempt from public disclosure. If your comments responsive to this NPRM contain commercial or financial information that is customarily treated as private, that you actually treat as private, and that is relevant or responsive to this NPRM, it is important that you clearly designate the submitted comments as CBI. Please mark each page of your submission containing CBI as “PROPIN.” The FAA will treat such marked submissions as confidential under the FOIA, and they will not be placed in the public docket of this NPRM. Submissions containing CBI should be sent to William Reisenauer, Aviation Safety Engineer, FAA, 1600 Stewart Avenue, Suite 410, Westbury, NY 11590; phone: 516-228-7301; email: 9-AVS-AIR-BACO-COS@faa.gov. Any commentary that the FAA receives which is not specifically designated as CBI will be placed in the public docket for this rulemaking.

The FAA issued AD 2025-13-11, Amendment 39-23077 (90 FR 30588, July 10, 2025) (AD 2025-13-11), for all Dassault Aviation Model FALCON 7X airplanes. AD 2025-13-11 was prompted by an MCAI originated by EASA, which is the Technical Agent for the Member States of the European Union. EASA issued AD 2024-0224, dated November 26, 2024, to correct an unsafe condition.

AD 2025-13-11 requires replacing the affected SPECUs and prohibits the installation of affected parts. The FAA issued AD 2025-13-11 to address SPECUs that, following certain failures, can deliver an untimely and permanent activation command to the spoiler power control unit (SPPCU) standby electrical pump, which can possibly result in overheating and significant hydraulic leakage of the unit. This condition, if not corrected, could lead to further occurrences of equipment overheating and hydraulic leakage in the fuel equipment bay during ground operations, which could cause uncontrolled fire in that area.

Since the FAA issued AD 2025-13-11, EASA superseded AD 2024-0224, dated November 26, 2024, and issued EASA AD 2026-0016, dated January 26, 2026 (EASA AD 2026-0016) (also referred to as the MCAI), to correct an unsafe condition for all Dassault Aviation Model FALCON 7X airplanes. The MCAI states that additional SPECUs are subject to the unsafe condition.

The FAA is proposing this AD to address the unsafe condition on these products. You may examine the MCAI in the AD docket at regulations.gov under Docket No. FAA-2026-8785.

Although this proposed AD does not explicitly restate the requirements of AD 2025-13-11, this proposed AD would retain all of the requirements of AD 2025-13-11. Those requirements are referenced in EASA AD 2026-0016, which, in turn, is referenced in paragraph (g) of this proposed AD.

The FAA reviewed EASA AD 2026-0016, which specifies procedures for replacing affected SPECUs. EASA AD 2026-0016 also prohibits the installation of affected parts. This material is reasonably available because the interested parties have access to it through their normal course of business or by the means identified in the ADDRESSES section.

These products have been approved by the civil aviation authority of another country and are approved for operation in the United States. Pursuant to the FAA's bilateral agreement with this State of Design Authority, that authority has notified the FAA of the unsafe condition described in the MCAI referenced above. The FAA is issuing this NPRM after determining that the unsafe condition described previously is likely to exist or develop in other products of the same type design.

This proposed AD would require accomplishing the actions specified in EASA AD 2026-0016 described previously, except for any differences identified as exceptions in the regulatory text of this proposed AD.

In the FAA's ongoing efforts to improve the efficiency of the AD process, the FAA developed a process to use some civil aviation authority (CAA) ADs as the primary source of information for compliance with requirements for corresponding FAA ADs. The FAA has been coordinating this process with manufacturers and CAAs. As a result, the FAA proposes to incorporate EASA AD 2026-0016 by reference in the FAA final rule. This proposed AD would, therefore, require compliance with EASA AD 2026-0016 its entirety through that incorporation, except for any differences identified as exceptions in the regulatory text of this proposed AD. Using common terms that are the same as the heading of a particular section in EASA AD 2026-0016 does not mean that operators need comply only with that section. For example, where the AD requirement refers to “all required actions and compliance times,” compliance with this AD requirement is not limited to the section titled “Required Action(s) and Compliance Time(s)” in EASA AD 2026-0016. Material required by EASA AD 2026-0016 for compliance will be available at regulations.gov under Docket No. FAA-2026-8785 after the FAA final rule is published.

The FAA estimates that this AD, if adopted as proposed, would affect 160 airplanes of U.S. registry. The FAA estimates the following costs to comply with this proposed AD:

According to the manufacturer, some or all of the costs of this proposed AD may be covered under warranty, thereby reducing the cost impact on affected operators. The FAA does not control warranty coverage for affected operators. As a result, the FAA has included all known costs in the cost estimate.

Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, section 106, describes the authority of the FAA Administrator. Subtitle VII: Aviation Programs, describes in more detail the scope of the Agency's authority.

The FAA is issuing this rulemaking under the authority described in Subtitle VII, Part A, Subpart III, Section 44701: General requirements. Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action.

The FAA determined that this proposed AD would not have federalism implications under Executive Order 13132. This proposed AD would not have a substantial direct effect on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government.

For the reasons discussed above, I certify this proposed regulation:

(1) Is not a “significant regulatory action” under Executive Order 12866,

(2) Would not affect intrastate aviation in Alaska, and

(3) Would not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

Accordingly, under the authority delegated to me by the Administrator, the FAA proposes to amend 14 CFR part 39 as follows:

The FAA invites you to send any written relevant data, views, or arguments about this proposal. Send your comments using a method listed under the ADDRESSES section. Include “Docket No. FAA-2026-8784; Project Identifier AD-2026-00202-T” at the beginning of your comments. The most helpful comments reference a specific portion of the proposal, explain the reason for any recommended change, and include supporting data. The FAA will consider all comments received by the closing date and may amend this proposal because of those comments.

Except for Confidential Business Information (CBI) as described in the following paragraph, and other information as described in 14 CFR 11.35, the FAA will post all comments received, without change, to regulations.gov , including any personal information you provide. The agency will also post a report summarizing each substantive verbal contact received about this NPRM.

CBI is commercial or financial information that is both customarily and actually treated as private by its owner. Under the Freedom of Information Act (FOIA) (5 U.S.C. 552), CBI is exempt from public disclosure. If your comments responsive to this NPRM contain commercial or financial information that is customarily treated as private, that you actually treat as private, and that is relevant or responsive to this NPRM, it is important that you clearly designate the submitted comments as CBI. Please mark each page of your submission containing CBI as “PROPIN.” The FAA will treat such marked submissions as confidential under the FOIA, and they will not be placed in the public docket of this NPRM. Submissions containing CBI should be sent to Joseph Hodgin, Aviation Safety Engineer, FAA, 2200 South 216th St., Des Moines, WA 98198; phone: 206-231-3962; email: joseph.j.hodgin@faa.gov. Any commentary that the FAA receives that is not specifically designated as CBI will be placed in the public docket for this rulemaking.

Boeing informed the FAA that it received a notice of escapement (NOE) from a supplier, indicating that LFCD split frames on certain airplanes may have been manufactured with material that did not conform to type design. The sub-tier supplier of the material for these frames did not have the records necessary to show that the type design specified Ti-6Al-4V alloy material was used to manufacture the frames. Use of a material other than specified by type design could result in the inability of a principal structural element (PSE) to sustain limit load and failure of the passenger floor beam to frame attachment, which could result in injury or impeded egress for passengers and crew in a rapid cabin decompression event.

The FAA is issuing this NPRM after determining that the unsafe condition described previously is likely to exist or develop on other products of the same type design.

The FAA reviewed Boeing Alert Requirements Bulletin B787-81205-SB530106-00 RB, Issue 001, dated February 4, 2026. This material specifies procedures for inspecting the LFCD split frames for affected batch numbers and applicable on-condition actions. On-condition actions include replacing each affected LFCD split frame with a new LFCD split frame made of Ti-6Al-4V alloy material.

This material is reasonably available because the interested parties have access to it through their normal course of business or by the means identified in the ADDRESSES section.

This proposed AD would require accomplishing the actions specified in the material already described, except for any differences identified as exceptions in the regulatory text of this proposed AD. For information on the procedures and compliance times, see this material at regulations.gov under Docket No. FAA-2026-8784.

The FAA estimates that this AD, if adopted as proposed, would affect 4 airplanes of U.S. registry. The FAA estimates the following costs to comply with this proposed AD:

The FAA estimates the following costs to do any necessary replacements that would be required based on the results of the proposed inspection. The agency has no way of determining the number of airplanes that might need these replacements:

The FAA has included all known costs in its cost estimate. According to the manufacturer, however, some or all of the costs of this proposed AD may be covered under warranty, thereby reducing the cost impact on affected operators.

Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, section 106, describes the authority of the FAA Administrator. Subtitle VII: Aviation Programs, describes in more detail the scope of the Agency's authority.

The FAA is issuing this rulemaking under the authority described in Subtitle VII, Part A, Subpart III, Section 44701: General requirements. Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action.

The FAA determined that this proposed AD would not have federalism implications under Executive Order 13132. This proposed AD would not have a substantial direct effect on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government.

For the reasons discussed above, I certify this proposed regulation:

(1) Is not a “significant regulatory action” under Executive Order 12866,

(2) Would not affect intrastate aviation in Alaska, and

(3) Would not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

Accordingly, under the authority delegated to me by the Administrator, the FAA proposes to amend 14 CFR part 39 as follows:

The FAA invites you to send any written relevant data, views, or arguments about this proposal. Send your comments using a method listed under ADDRESSES . Include “Docket No. FAA-2026-8783; Project Identifier MCAI-2025-01768-E” at the beginning of your comments. The most helpful comments reference a specific portion of the proposal, explain the reason for any recommended change, and include supporting data. The FAA will consider all comments received by the closing date and may amend the proposal because of those comments.

Except for Confidential Business Information (CBI) as described in the following paragraph, and other information as described in 14 CFR 11.35, the FAA will post all comments received, without change, to regulations.gov, including any personal information you provide. The agency will also post a report summarizing each substantive verbal contact received about this NPRM.

CBI is commercial or financial information that is both customarily and actually treated as private by its owner. Under the Freedom of Information Act (FOIA) (5 U.S.C. 552), CBI is exempt from public disclosure. If your comments responsive to this NPRM contain commercial or financial information that is customarily treated as private, that you actually treat as private, and that is relevant or responsive to this NPRM, it is important that you clearly designate the submitted comments as CBI. Please mark each page of your submission containing CBI as “PROPIN.” The FAA will treat such marked submissions as confidential under the FOIA, and they will not be placed in the public docket of this NPRM. Submissions containing CBI should be sent to Alexis Whitaker, Aviation Safety Engineer, FAA, 2200 South 216th Street, Des Moines, WA 98198. Any commentary that the FAA receives which is not specifically designated as CBI will be placed in the public docket for this rulemaking.

The FAA issued AD 2022-11-15, Amendment 39-22065 (87 FR 34767, June 8, 2022) (AD 2022-11-15), for all RRD Model Trent7000-72 and Trent7000-72C engines. AD 2022-11-15 was prompted by an MCAI originated by EASA, which is the Technical Agent for the Member States of the European Union. EASA issued AD 2021-0169, dated July 19, 2021 (EASA AD 2021-0169) to correct an unsafe condition identified as failure of the HPT blades.

AD 2022-11-15 requires initial and repetitive on-wing BSIs of the HPT blades to detect axial cracking and, depending on the results of the inspections, replacement of the HPT blade set. AD 2022-11-15 also requires replacement of the HPT blade set before exceeding a specified number of flight cycles. The FAA issued AD 2022-11-15 to prevent failure of the HPT blades.

Since the FAA issued AD 2022-11-15, EASA superseded EASA AD 2021-0169 and issued a series of ADs, each superseding the previous one, with the latest one being EASA AD 2025-0266, dated November 28, 2025 (EASA AD 2025-0266) (also referred to as the MCAI). Since EASA AD 2021-0169 was published, RRD published updated service material providing improved instructions for on-wing BSIs of the HPT blades, removing the reduced life limit for affected HPT blades, and revising limits for axial cracking on the leading edge and convex surface of the HPT blades. The MCAI states that in-service experience revealed that certain HPT blades may prematurely deteriorate to an unacceptable condition when managed in accordance with the inspection intervals defined in the RRD engine time limits manual. To address this potential unsafe condition, the MCAI requires initial and repetitive on-wing BSIs of the HPT blades to detect axial cracking and, depending on the results of the inspections, replacement of the HPT blade set. The MCAI also removes the reduced life limit for affected HPT blades.

You may examine the MCAI in the AD docket at regulations.gov under Docket No. FAA-2026-8783.

The FAA reviewed EASA AD 2025-0266, which specifies procedures for performing initial and repetitive on-wing BSIs of the HPT blades to detect axial cracking and, depending on the results of the inspections, removal from service of the engine for in-shop replacement of the HPT blade set.

This material is reasonably available because the interested parties have access to it through their normal course of business or by the means identified in the ADDRESSES section.

These products have been approved by the civil aviation authority (CAA) of another country and are approved for operation in the United States. Pursuant to the FAA's bilateral agreement with this State of Design Authority, that authority has notified the FAA of the unsafe condition described in the MCAI referenced above. The FAA is issuing this NPRM after determining that the unsafe condition described previously is likely to exist or develop on other products of the same type design.

This proposed AD would require the actions specified in EASA AD 2025-0266, described previously, as incorporated by reference, except for any differences identified as exceptions in the regulatory text of this proposed AD.

In the FAA's ongoing efforts to improve the efficiency of the AD process, the FAA developed a process to use some CAA ADs as the primary source of information for compliance with requirements for corresponding FAA ADs. The FAA has been coordinating this process with manufacturers and CAAs. As a result, the FAA proposes to incorporate EASA AD 2025-0266 by reference in the FAA final rule. This proposed AD would, therefore, require compliance with EASA AD 2025-0266 in its entirety through that incorporation, except for any differences identified as exceptions in the regulatory text of this proposed AD. Using common terms that are the same as the heading of a particular section in EASA AD 2025-0266 does not mean that operators need comply only with that section. For example, where the AD requirement refers to “all required actions and compliance times,” compliance with this AD requirement is not limited to the section titled “Required Action(s) and Compliance Time(s)” in EASA AD 2025-0266. Material required by EASA AD 2025-0266 for compliance will be available at regulations.gov under Docket No. FAA-2026-8783 after the FAA final rule is published.

The FAA estimates that this AD, if adopted as proposed, would affect 78 engines installed on airplanes of U.S. registry.

The FAA estimates the following costs to comply with this proposed AD:

The FAA estimates the following costs to do any necessary replacements that would be required based on the results of the proposed inspection. The agency has no way of determining the number of engines that might need this replacement:

Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, section 106, describes the authority of the FAA Administrator. Subtitle VII, Aviation Programs, describes in more detail the scope of the Agency's authority.

The FAA is issuing this rulemaking under the authority described in Subtitle VII, Part A, Subpart III, Section 44701: General requirements. Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action.

The FAA determined that this proposed AD would not have federalism implications under Executive Order 13132. This proposed AD would not have a substantial direct effect on the States, on the relationship between the national Government and the States, or on the distribution of power and responsibilities among the various levels of government.

For the reasons discussed above, I certify that the proposed regulation:

(1) Is not a “significant regulatory action” under Executive Order 12866,

(2) Would not affect intrastate aviation in Alaska, and

(3) Would not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

Accordingly, under the authority delegated to me by the Administrator, the FAA proposes to amend 14 CFR part 39 as follows:

This document contains proposed additions and amendments to 26 CFR part 1 (proposed regulations) under section 250 of the Code. The provisions of the proposed regulations are issued pursuant to the express delegation of authority under section 250(b)(3)(A)(i)(VII) and (c). The proposed regulations are also issued pursuant to the express delegation of authority under section 7805(a).

For taxable years beginning after December 31, 2025, section 250(a)(1) allows a domestic corporation to deduct 33.34 percent of the corporation's foreign-derived deduction eligible income (FDDEI). FDDEI is the deduction eligible income (DEI) of any domestic corporation derived in connection with (i) property sold to any person that is not a United States person and is for a foreign use, or (ii) services provided to any person, or with respect to property, not located within the United States. Section 250(b)(1). Section 250(b)(3)(A) defines DEI as the excess (if any) of a domestic corporation's gross income determined without regard to certain categories of gross income over the expenses and deductions (including taxes), other than interest expense and research or experimental expenditures, properly allocable to such gross income.

Section 70322(a)(1) of Public Law 119-21, 139 Stat. 72 (July 4, 2025), commonly known as the One, Big, Beautiful Bill Act (OBBBA), amended section 250(b)(3)(A)(i) to add a new category of income that is excluded from the determination of DEI. See section 250(b)(3)(A)(i)(VII). Specifically, for purposes of determining DEI and except as otherwise provided by the Secretary, section 250(b)(3)(A)(i)(VII)(aa) and (bb) excludes from gross income any income and gain from the sale or other disposition (including pursuant to the deemed sale or other deemed disposition or a transaction subject to section 367(d)) of intangible property (as defined in section 367(d)(4)), and any other property of a type that is subject to depreciation, amortization, or depletion by the seller, respectively.

Additionally, section 70322(a)(2) of the OBBBA amended section 250(b)(5)(E) (defining the terms “sold,” “sells,” and “sale”, collectively, “sale”) to provide that section 250(b)(5)(E) does not apply for purposes of the new category of gross income excluded from the determination of DEI in section 250(b)(3)(A)(i)(VII). 1 For purposes of section 250(b), except for paragraph (3)(A)(i)(VII) as amended by the OBBBA, the terms “sold,” “sells,” and “sale” included any lease, license, exchange, or other disposition. Section 250(b)(2)(E). Therefore, the general definition of sale under section 250 (which includes leases, licenses, exchanges, or other dispositions) does not apply to sales described in section 250(b)(3)(A)(i)(VII).

Section 70322(a)(3) of the OBBBA provides that the amendments to exclude income and gain from certain property sales, and the modification to the general definition of sale, apply to sales or other dispositions (including pursuant to deemed sales or other deemed dispositions or transactions subject to section 367(d)) occurring after June 16, 2025.

Section 70321(a) amended section 250(a)(1) by reducing the percentage of FDDEI permitted to be deducted under section 250 from 37.5 percent to 33.34 percent. Section 70322(b)(1) of the OBBBA amended section 250(b)(3)(A)(ii), which provides rules regarding the deductions properly allocable to DEI. Section 70323(b) of the OBBBA removed the deemed intangible income (DII) and deemed tangible income return (DTIR) components from the computation of foreign-derived intangible income (FDII), replaced “foreign-derived intangible income” with “foreign-derived deduction eligible income,” and made conforming amendments to reflect the revised terms and redesignated provisions, effective for taxable years beginning after December 31, 2025.

On December 4, 2025, the Treasury Department and the IRS released Notice 2025-78, 2025-52 I.R.B. 874, describing rules expected to be included in forthcoming proposed regulations addressing the scope of certain property sales or dispositions that are excluded from the determination of DEI under section 250(b)(3)(A)(i)(VII), which, when finalized, would apply to sales or other dispositions occurring after June 16, 2025. However, Notice 2025-78 permitted taxpayers to rely on the rules described therein for sales or other dispositions occurring after June 16, 2025, and before these proposed regulations are published in the Federal Register , provided taxpayers apply the rules in their entirety and in a consistent manner for all applicable taxable years.

Consistent with Notice 2025-78, the proposed regulations would address the meaning and scope of section 250(b)(3)(A)(i)(VII), which, as noted previously, excludes from DEI income and gain from the sale or other disposition of (1) intangible property and (2) other property of a type subject to depreciation, amortization, or depletion by the seller. The proposed regulations would also modify certain regulations under section 250 to reflect other amendments under the OBBBA and to clarify that FDDEI remains a subset of DEI.

The Treasury Department and the IRS intend to address other changes made by the OBBBA, including with respect to the deductions properly allocable to DEI and the removal of the DTIR and DII from the FDII calculation, in separate guidance.

Under proposed § 1.250(b)-1(c)(15)(vii), gross DEI would be determined without regard to a new category of gross income, “excluded property sales income.” Proposed § 1.250(b)-1(h) would provide rules to determine whether income and gain from the sale or disposition of certain property to any person is treated as excluded property sales income. Proposed § 1.250(b)-1(h)(1) would define “excluded property sales income” to mean any income and gain derived from the sale or other disposition of two categories of property: intangible property and “other excluded property.”

Section 250(b)(3)(A)(i)(VII)(aa) excludes sales or dispositions of intangible property, as defined in section 367(d)(4), from DEI (and, thus, from FDDEI). Existing regulations under section 250 define intangible property by reference to section 367(d)(4) and specify that, for purposes of section 250, intangible property does not include a copyrighted article as defined in § 1.861-18(c)(3). See § 1.250(b)-3(b)(11). Thus, for purposes of section 250, a copyrighted article includes a copy of digital content from which the work can be perceived, reproduced, or otherwise communicated, either directly or with the aid of a machine or device. See § 1.861-18(c)(3).

Section 3.01(3) of Notice 2025-78 used the same definition of intangible property as the existing section 250 regulations, including that this term does not include a copyrighted article as described in § 1.861-18(c)(3). Proposed § 1.250(b)-1(h)(1)(i) would provide the same definition of intangible property by reference to § 1.250(b)-3(b)(11). See proposed § 1.250(b)-1(h)(1)(i).

Comments in response to Notice 2025-78 requested further clarity on the treatment of software transactions in the context of intangible property and other excluded property. These comments are addressed below in part II.E of this Explanation of Provisions section.

Consistent with section 3.01(4) of Notice 2025-78, the proposed regulations would generally define property of a type that is subject to depreciation, amortization, or depletion (other excluded property) as property that, in the hands of the seller, is or has been of a character subject to the allowance for depreciation, or is or has been subject to an allowance for amortization or depletion. See proposed § 1.250(b)-1(h)(2)(ii). Therefore, other excluded property would not include, for example, property that has always been held as inventory by the seller because such property would not be “of a character” subject to the allowance for depreciation.

For property subject to depreciation under section 167, the proposed regulations would adopt the phrase “property of a character subject to the allowance for depreciation under section 167” to interpret the phrase “property of a type that is subject to depreciation” that appears in section 250(b)(3)(A)(i)(VII)(bb). This phrasing is adopted because it is a term of art commonly used to describe property depreciated under section 167, including by Congress in other Code provisions that reference section 167, such as sections 174A(c)(1) (Domestic research or experimental expenditures), 197(f)(7) (Amortization of goodwill and certain other intangibles), 1221(a)(2) (Capital asset defined), and 1231(b)(1) (Property used in the trade or business and involuntary conversions).

Consistent with section 3.01(6) of Notice 2025-78, the proposed regulations would generally provide that other excluded property retains its character in the hands of certain related parties if acquired pursuant to a basis-carryover transaction with a principal purpose of avoiding the application of section 250(b)(3)(A)(i)(VII)(bb). See proposed § 1.250(b)-1(h)(3).

A comment in response to Notice 2025-78 requested a “remanufacturing” exception, such that other excluded property would not include previously depreciated property that is materially transformed or remanufactured into property held for sale as inventory. The commenter noted that companies often lease or use high-value assets in their trade or business and later repurpose, remanufacture, or refurbish such property for sale to unrelated foreign customers. The commenter asserted that including gain from property that reflects new investment, value creation, and foreign-market expansion as excluded property sales income is inconsistent with the treatment of inventory or newly manufactured property, the income and gain from which is not subject to the exclusion in section 250(b)(3)(A)(i)(VII)(bb). The commenter also recommended a depreciation recapture limitation for taxpayers that do not remanufacture property that would limit the portion of the gain from other excluded property to the amount that reflects previously claimed depreciation, with any gain above that amount remaining eligible for DEI and, therefore, FDDEI. Recognizing concerns with related party transactions that obscure prior use or artificially qualify gain for FDDEI, the commenter supported the continued application of the related-party anti-abuse rule under section 3.01(6) of Notice 2025-78, and suggested the depreciation recapture limitation could be inapplicable if the asset was acquired from a related party with a principal purpose of avoiding exclusion.

The proposed regulations would not adopt the requested remanufacturing exception or the depreciation recapture limitation. The Treasury Department and the IRS are of the view that the phrase in section 250(b)(3)(A)(i)(VII)(bb), “other property of a type that is subject to depreciation, amortization, or depletion by the seller,” would include, for example, property that has been subject to any depreciation in the hands of the seller. Thus, property previously depreciated in a trade or business and repurposed, remanufactured, or refurbished into inventory would retain its characterization as property subject to depreciation. Furthermore, the requested depreciation recapture limitation is contrary to section 250(b)(3)(A)(i)(VII), which excludes all income and gain from the sale or other disposition of referenced property and does not suggest a limitation to depreciation recapture. As a result, the proposed regulations do not include the requested exception or limitation.

As explained in the Background section of this preamble, the general definition of “sale” for section 250 purposes does not apply for purposes of section 250(b)(3)(A)(i)(VII). Instead, and consistent with section 3.01(2) of Notice 2025-78, the proposed regulations would determine a sale or other disposition for this purpose under general Federal income tax principles and include deemed sales, transactions subject to section 367(d), and other deemed dispositions. Accordingly, any transaction or election that is treated as a sale or other disposition of property for Federal income tax purposes (rather than a sale under the broader definition of “sale” for section 250 purposes that includes leases and licenses) would be considered a sale or other disposition under proposed § 1.250(b)-1(h)(2)(iii).

In order to conform to the statutory changes, the proposed regulations would remove and reserve several examples in § 1.250(b)-4(d)(2)(iv)(B) that involve the sale of intangible property.

Section 1.861-18 provides rules for classifying transactions involving software and other digital content for purposes of section 250 and certain other provisions. § 1.861-18(a)(1). As explained above in part II.B of this Explanation of Provisions section, and consistent with the approach taken in the existing 250 regulations, Notice 2025-78 provided that intangible property does not include a copyrighted article as defined in § 1.861-18(c)(3). Two commenters agreed with the approach to exclude copyrighted articles from intangible property in Notice 2025-78 and requested additional examples and clarifications in the software context.

Commenters requested modifying the facts in Example 1 of Notice 2025-78, which illustrates a software transaction that would be treated as a sale of intangible property, to provide additional details on the form of consideration and the transferee's use of the property. However, the Treasury Department and the IRS are of the view that the sale versus license determination does not depend on the form of consideration or the transferee's use of the intangible property. See Rev. Rul. 57-40, 1957-1 C.B. 266 (transfer of patent with all substantial rights considered a sale regardless of whether consideration is for productivity, use or disposition of the property transferred); see also E.I. du Pont de Nemours & Co. v. United States, 432 F.2d 1052 (3d Cir. 1970). Therefore, the proposed regulations would not modify the facts of Example 1.

One commenter requested an additional example illustrating that the sale of a copyrighted article by a domestic corporation, whether through an electronic or physical medium, should not be considered a sale of intangible property or other excluded property, even if the domestic corporation uses the software in its own business. The commenter also requested an example illustrating that a “lease” of a copyrighted article, where the term of the arrangement to the customer is of a limited duration, would not be excluded from DEI because there has been no “sale” of property. To provide the additional clarity requested in the software context, the proposed regulations would include the two requested examples. See proposed § 1.250(b)-1(h)(4)(ii) (Example 2). The analysis in the first requested example is also illustrated by Example 4 (sale of airplanes) in proposed § 1.250(b)-1(h)(4)(iv).

A comment also requested an additional example illustrating that income or gain from a transfer of a copy of a computer program with a limited duration license is not excluded from DEI. Because the comment relates to the characterization of digital content transactions under § 1.861-18, it is outside the scope of the proposed regulations. Accordingly, the proposed regulations would not include the requested example.

As a result of the OBBBA amendments to remove the DTIR and DII components from the calculation and replace “foreign-derived intangible income” with “foreign-derived deduction eligible income,” the foreign-derived ratio in § 1.250(b)-1(c)(13) is no longer needed to compute the deduction under section 250(a)(1). The OBBBA amendments, however, did not modify the definition of FDDEI, including the treatment of FDDEI as a subset of DEI. See section 250(b)(1) (“The term `foreign-derived deduction eligible income' means . . . any deduction eligible income which is derived in connection with” certain property and services). Accordingly, the proposed regulations would clarify that FDDEI continues to be limited by the amount of DEI. See proposed § 1.250(b)-1(c)(12).

The Treasury Department and the IRS expect to finalize these proposed regulations by January 4, 2027. Pursuant to the authority conferred by section 7805(b)(2), the proposed regulations are generally proposed to apply to sales or other dispositions (as defined in proposed § 1.250(b)-1(h)(2)(iii)) occurring after June 16, 2025. See proposed § 1.250-1(b). However, the proposed amendment to § 1.250(b)-1(c)(12) (clarifying FDDEI is a subset of DEI) would apply to taxable years beginning after December 31, 2025. Taxpayers may rely on the proposed regulations for sales or other dispositions (as defined in proposed 1.250(b)-1(h)(2)(iii)) before the date final regulations are published in the Federal Register , provided the taxpayer and its related parties (within the meaning of § 1.250(b)-1(c)(19)) follow the proposed regulations in their entirety and in a consistent manner.

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

The proposed regulations have been designated by the Office of Management and Budget's (OMB's) Office of Information and Regulatory Affairs (OIRA) as subject to review under Executive Order 12866 pursuant to the Memorandum of Agreement (MOA, July 4, 2025) between the Treasury Department and the Office of Management and Budget regarding review of tax regulations. OIRA has determined that the proposed rulemaking is significant and subject to review under section 3(f) of Executive Order 12866 and section 1(c) of the Memorandum of Agreement. Accordingly, the proposed regulations have been reviewed by OMB. This rule is expected to be an Executive Order 14192 regulatory action.

The Tax Cuts and Jobs Act of 2017 (TCJA), Public Law 115-97, fundamentally revised the U.S. international tax system, including through the enactment of the global intangible low-taxed income (GILTI) regime under section 951A and the FDII deduction under section 250. Congress enacted these provisions in part to reduce incentives for U.S. multinational enterprises to locate or move intangible income abroad, including in low- or zero-tax foreign jurisdictions, and to neutralize tax considerations in choosing whether to serve foreign markets through U.S.-based operations or through CFCs. 2 Section 250 allows a domestic corporation a deduction equal to a percentage of its FDDEI, which generally consists of DEI derived from property sold to foreign persons for foreign use, and services provided to persons, or with respect to property, located outside the United States. The section 250 deduction lowers the effective corporate tax rate on qualifying income. 3

As enacted in 2017, section 250(b)(3)(A)(i) excluded six categories of income from DEI, including Subpart F inclusions, GILTI, financial services income, dividends from controlled foreign corporations, domestic oil and gas extraction income, and foreign branch income. Until the 2025 enactment of section 250(b)(3)(A)(i)(VII), section 250 did not generally exclude income or gain derived from sales or other dispositions of intangible property or depreciable, amortizable, or depletable business property from DEI. As a result, taxpayers could claim FDII benefits with respect to certain dispositions of such property. This treatment could undermine the policy objectives of the TCJA's changes to the U.S. international tax system, which were principally directed toward curbing erosion of the U.S. tax base through the offshoring of property that generates ongoing foreign-market intangible income.

Section 70322(a)(1) of the OBBBA amended section 250(b)(3)(A)(i) to add a seventh category of income excluded from DEI. Specifically, section 250(b)(3)(A)(i)(VII) excludes from DEI, except as otherwise provided by the Secretary, income and gain from the sale or other disposition of: (i) intangible property within the meaning of section 367(d)(4);  4 and (ii) other property of a type that is subject to depreciation, amortization, or depletion by the seller (excluded property sales income). The exclusion addresses a narrow category of transactions where taxpayers could obtain a tax benefit for offshoring their intangible property and business operations.

Section 70322(a)(2) of the OBBBA makes a conforming change to the section 250 definition of “sale.” This change prevents the broad section 250 definition of “sale,” which generally includes leases, licenses, exchanges, and other dispositions, from applying to the new income exclusion in section 250(b)(3)(A)(i)(VII). As a result, a sale or other disposition for purposes of the income exclusion in section 250(b)(3)(A)(i)(VII) does not include leases and licenses.

Section 70322(a)(3) of the OBBBA provides that these statutory amendments apply to sales or other dispositions occurring after June 16, 2025. In addition to the Secretary's express regulatory authority to determine the scope of the exclusion in section 250(b)(3)(A)(i)(VII), the statute grants express regulatory authority to prescribe regulations necessary or appropriate to carry out the provisions of section 250.

On December 4, 2025, the Treasury Department and the IRS issued Notice 2025-78 announcing the intent to issue proposed regulations under section 250. 5 The notice provided preliminary guidance addressing the scope of excluded property sales income, and included several definitions and examples illustrating the application of the rules.

The proposed regulations provide guidance to taxpayers in applying section 250(b)(3)(A)(i)(VII) to the determination of the type and amount of income eligible for the section 250 deduction. The Treasury Department and the IRS are of the view that regulatory guidance would provide administrable standards, reduce uncertainty, improve consistency among similarly situated taxpayers, and prevent inappropriate claims of FDDEI with respect to income from the disposition of intangible property and business assets that Congress excluded from DEI.

Consistent with Notice 2025-78, the proposed regulations provide rules to determine when income and gain from the disposition of property would be treated as excluded property sales income, including any income and gain derived from the sale or other disposition of (i) intangible property, or (ii) property that in the hands of a seller: (a) is or has been treated as property that is of a character subject to the allowance for depreciation under section 167, (b) is or has been subject to an allowance for amortization, or (c) is or has been subject to the allowance for depletion under section 611. In particular, as discussed in the Explanation of Provisions section of this preamble, the proposed regulations would (i) provide definitions consistent with existing statutory and regulatory provisions; (ii) pursuant to the authority granted to the Secretary of the Treasury in section 250(b)(3)(A)(i)(VII) and section 250(c), clarify that income and gain from the sale of copyrighted articles and property that has always been held as inventory by the seller would not be treated as excluded property sales income, with the latter subject to a related party anti-abuse rule; and (iii) modify certain regulations under section 250 to reflect amendments under the OBBBA and clarify that FDDEI remains a subset of DEI.

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

The broadest measure of taxpayers potentially affected by the proposed regulations includes all taxpayers that claim an FDII deduction under section 250 on Form 1120, “U.S. Corporation Income Tax Return” (or any successor form). The Treasury Department and the IRS have determined that between 2018 and 2023, the number of Form 1120 filers that had claimed an FDII deduction has increased from 4,000 to 6,900. The estimated number of FDDEI claimants in 2026 is expected to range from 7,000 to 7,500. However, only a subset of those taxpayers is expected to be affected by the statutory change, and an even smaller subset is expected to be materially affected by the proposed regulations relative to the statutory baseline.

The statutory amendment excludes certain categories of sales income from DEI, potentially affecting a subset of all FDII claimants, i.e., taxpayers that recognize income or gain from the sale or other disposition of intangible property, or depreciable, amortizable, or depletable property used in a trade or business.

Available data do not allow the Treasury Department and the IRS to identify the exact transactions or product types that contribute to each taxpayer's FDII deduction. However, Form 8993 reports gross FDDEI by three income categories: sales of general property, sales of intangible property, 7 and services. Table 2 uses these data to present, by industry, the number of taxpayers claiming an FDII deduction in tax year 2021 and their aggregate gross FDDEI by income category.

Gross FDDEI is narrowed further by taking into account allocated and apportioned deductions to get to net FDDEI, the income base on which the section 250 deduction is computed. Accordingly, gross FDDEI exceeds net FDDEI, a portion of which becomes the final section 250 deduction amount. In tax year 2021, taxpayers reported $912 billion of aggregate gross FDDEI, as shown in Table 2, compared to $112 billion of aggregate section 250 deductions for FDII. 8

With these limitations in mind, the gross FDDEI data nevertheless provide useful information about the industries in which affected transactions are more likely to arise. Firms in certain industries are more likely to be affected by the statute because they generate income from intangible property or use production assets that are depreciable, amortizable, and depletable. Firms in the Information industry ( e.g., publishers and software producers) are more likely to engage in transactions involving intangible property. In 2021, 9 percent of all firms claiming a FDII deduction (about 500 by count) are characterized as such, and they account for 55 percent of the gross FDDEI derived from all sales of intangible property. Similarly, firms in the Manufacturing industry may be more likely to use and sell assets that are depreciable, amortizable and depletable. 9 In 2021, 31 percent of all firms claiming a FDII deduction (about 1,710 by count) are characterized as manufacturing firms, and they account for 46 percent of the gross FDDEI derived from all sales of general property.

The proposed regulations are issued under the delegation of authority in section 430(g)(3)(B) of the Internal Revenue Code (Code), which provides that a plan may determine the value of plan assets on the basis of the averaging of fair market values, but only if that method is permitted under regulations prescribed by the Secretary of the Treasury or the Secretary's delegate (Secretary); and section 430(h)(3), which provides that, generally, the Secretary shall prescribe by regulation mortality tables to be used in determining any present value or making any computation under section 430.

In addition, the proposed regulations are issued under the delegation of authority in section 7805. Section 7805(a) directs the Secretary of the Treasury or his delegate to prescribe all needful rules and regulations for the enforcement of that section and other provisions of the Code, including such rules and regulations as may be necessary by reason of any alteration of law relating to internal revenue.

This document contains proposed amendments to the Income Tax Regulations (26 CFR part 1) under section 430 of the Code, which was added by the Pension Protection Act of 2006, Public Law 109-280, 120 Stat. 780 (2006). The proposed amendments to the regulations primarily reflect changes to section 430 of the Code made by: (1) the Worker, Retiree, and Employer Recovery Act of 2008 (WRERA `08), Public Law 110-458, 122 Stat. 5092 (2008); (2) the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act), Division O of the Further Consolidated Appropriations Act, 2020, Public Law 116-94, 133 Stat. 2534 (2019); and (3) the SECURE 2.0 Act of 2022 (SECURE 2.0 Act), Division T of the Consolidated Appropriations Act, 2023, Public Law 117-328, 136 Stat. 4459 (2022).

Section 401(b)(1), as amended by section 201 of the SECURE Act, provides that a plan is considered as satisfying the qualification requirements of section 401(a) for the period beginning with the date on which it was put into effect, or for the period beginning with the earlier of the date on which there was adopted or put into effect any amendment that caused the plan to fail to satisfy those requirements, and ending with the time prescribed by law for filing the return of the employer for his taxable year in which the plan or amendment was adopted (including extensions) or any later time as the Secretary may designate, if all provisions of the plan that are necessary to satisfy those requirements are in effect by the end of that period and have been made effective for all purposes for the whole of that period.

Section 401(b)(2), as added by section 201 of the SECURE Act and amended by Section 317 of the SECURE 2.0 Act, provides that if an employer adopts a plan after the close of a taxable year but before the time prescribed by law for filing the return of the employer for the taxable year (including extensions), then the employer may elect to treat the plan as having been adopted as of the last day of the taxable year.

Section 401(b)(3), as added by Section 316 of the SECURE 2.0 Act, provides that if (A) an employer amends a plan to increase benefits accrued under the plan effective as of any date during the immediately preceding plan year (other than increasing the amount of matching contributions), (B) that amendment would not otherwise cause the plan to fail to meet any of the requirements of sections 401 through 436 of the Code, and (C) that amendment is adopted before the time prescribed by law for filing the return of the employer for the taxable year (including extensions) which includes the effective date of the amendment, then the employer may elect to treat that amendment as having been adopted as of the last day of the plan year in which the amendment is effective.

Section 1.401(b)-1 provides rules regarding remedial amendments under section 401(b). Under § 1.401(b)-1(a), a plan that does not satisfy the requirements of section 401(a) on any date solely as a result of a disqualifying provision (as determined under § 1.401(b)-1(b)) is considered to have satisfied those requirements on that date if, on or before the end of the remedial amendment period (as defined in § 1.401(b)-1(d) through (f) with respect to the disqualifying provision), all provisions of the plan that are necessary to satisfy all requirements under section 401(a) are in effect and have been made effective for all purposes for the entire remedial amendment period. The second sentence of § 1.401(b)-1(a) notes that under some facts and circumstances, it may not be possible to amend a plan retroactively so that all provisions of the plan which are necessary to satisfy the requirements of section 401(a) are in fact made effective for the whole remedial amendment period. 1

Pursuant to § 1.401(b)-1(d)(2), the remedial amendment period generally ends with the time prescribed by law, including extensions, for filing the income tax return (or partnership return of income) of the employer for the employer's taxable year in which falls the latest of: (1) the date on which the remedial amendment period begins, (2) the date on which the disqualifying provision is adopted, or (3) the date on which the disqualifying provision is made effective. However, under § 1.401(b)-1(d)(2), the Commissioner may extend the remedial amendment period.

Revenue Procedure 2022-40, 2022-47 I.R.B. 487, extended the expiration of the remedial amendment period for a disqualifying provision with respect to a provision of a new plan or the absence of a provision from a new plan to the last day of the second calendar year following the calendar year in which the plan is put into effect. In addition, many deadlines for plan amendments made pursuant to specific legislative changes have been further extended in the corresponding legislation. See, for example, section 501 of the SECURE 2.0 Act.

Section 412 provides minimum funding requirements that generally apply for pension plans (including both defined benefit pension plans and money purchase pension plans). Pursuant to section 412(a)(2)(A), section 430 specifies the minimum funding requirements that apply to single-employer defined benefit pension plans (including multiple-employer plans) other than CSEC plans described in section 414(y).

Section 412(d)(1) provides that if the funding method or a plan year for a plan is changed, the change will take effect only if approved by the Secretary. 2 Section 412(d)(2) provides that, for purposes of section 412, any amendment applying to a plan year which is adopted no later than 2 1/2 months after the close of the plan year (or, in the case of a multiemployer plan, no later than 2 years after the close of such plan year), does not reduce the accrued benefit of any participant determined as of the beginning of the first plan year to which the amendment applies, and does not reduce the accrued benefit of any participant determined as of the time of adoption except to the extent required by the circumstances, will, at the election of the plan administrator, be deemed to have been made on the first day of the plan year.

Under section 430, the minimum required contribution for a plan year is a function of the target normal cost under section 430(b)(1), shortfall amortization charge under section 430(c)(1), funding target under section 430(d)(1), waiver amortization charge under section 430(e)(1), and value of plan assets under section 430(g)(3). If the value of plan assets (less the sum of the plan's prefunding balance and funding standard carryover balance determined under section 430(f)) is less than the funding target, section 430(a)(1) defines the minimum required contribution as the sum of the plan's target normal cost and the shortfall and waiver amortization charges for the plan year. If the value of plan assets (less the sum of the plan's prefunding balance and funding standard carryover balance) equals or exceeds the funding target, section 430(a)(2) defines the minimum required contribution as the plan's target normal cost for the plan year reduced (but not below zero) by the amount of any such excess.

Section 430(b)(1) as amended by WRERA `08, provides that, except as otherwise provided in section 430(i)(2) (regarding a plan that is in at-risk status), a plan's target normal cost for a plan year is the sum of the present value of all benefits expected to accrue or be earned under the plan during the plan year (with any increase in any benefit attributable to services performed in a preceding plan year by reason of a compensation increase during the current plan year treated as having accrued during the current plan year) and the amount of plan-related expenses expected to be paid from plan assets during the plan year, reduced by the amount of mandatory employee contributions expected to be made during the plan year.

Section 430(d)(1) provides that, except as otherwise provided in section 430(i)(1) (regarding a plan that is in at-risk status), a plan's funding target for a plan year is the present value of all benefits accrued or earned under the plan as of the beginning of the plan year.

Under section 430(h)(5), if, with respect to a single-employer defined benefit plan, the aggregate unfunded vested benefits as of the close of the preceding plan year (combined with the unfunded vested benefits for all other plans maintained by the contributing sponsors and members of such sponsors' controlled groups) exceeded $50 million, then certain changes in actuarial assumptions must be approved by the Secretary. The changes in actuarial assumptions that require approval are changes that result in a decrease in the funding shortfall of the plan for the current plan year (determined after taking into account any changes in interest rate and mortality table) that exceeds $50 million (or that exceeds $5 million and that is 5 percent or more of the funding target of the plan before that change).

Section 404(o)(6) provides that any computations under section 404(o), which relates to the deduction for contributions to a single-employer defined benefit plan, must use the same actuarial assumptions that are used for the plan year under section 430, except that the interest rate corridor under section 430(h)(2)(C)(iv) does not apply, and section 404(o)(7) provides that any term used in section 404(o) which is also used in section 430 has the same meaning given to that term by section 430. Thus, except for the difference in interest rates, the funding target and target normal cost under section 430 (determined taking into account plan provisions that are recognized under the rules of section 430) are also used to determine the maximum deductible contributions under section 404(o).

Section 436(c)(1) provides that, generally, no amendment to a defined benefit plan which is a single-employer plan which has the effect of increasing liabilities of the plan by reason of increases in benefits, establishment of new benefits, changing the rate of benefit accrual, or changing the rate at which benefits become nonforfeitable may take effect during any plan year if the adjusted funding target attainment percentage (AFTAP) for such plan year is less than 80 percent, or would be less than 80 percent taking into account the amendment. 3 However, section 436(c)(2) provides that such an amendment can take effect if the plan sponsor makes a contribution (in addition to the minimum required contribution) equal to the amount of the increase in the funding target of the plan for the plan year attributable to the amendment (if the AFTAP is less than 80 percent) or (in other cases) the amount necessary to result in an AFTAP of 80 percent.

On October 15, 2009, final regulations regarding the determination of the target normal cost under section 430(b) and the funding target under section 430(d) were published in the Federal Register (TD 9467, 74 FR 53004). Those regulations apply to plan years beginning on or after January 1, 2010.

Section 1.430(d)-1(b)(1)(i) provides that, subject to the adjustments in § 1.430(d)-1(b)(1)(iii), the target normal cost of a defined benefit plan that is not in at-risk status under section 430(i) for a plan year is the present value (determined as of the valuation date) of all benefits under the plan that accrue during, are earned during, or are otherwise allocated to service for the plan year.

Section 1.430(d)-1(b)(1)(iii)(A) provides that the target normal cost of the plan for the plan year is adjusted (not below zero) by adding the amount of plan-related expenses expected to be paid from plan assets during the plan year and subtracting the amount of mandatory employee contributions that are expected to be made during the plan year. Section 1.430(d)-1(b)(1)(iii)(B) is reserved for a definition of plan-related expenses.

Under § 1.430(d)-1(d)(1)(i), a plan's funding target and target normal cost for a plan year generally are determined based on plan provisions that are adopted no later than the valuation date for the plan year and that take effect on or before the last day of the plan year.

Section 1.430(d)-1(d)(1)(ii) provides rules regarding the impact of an election under section 412(d)(2), which is available with respect to a plan amendment adopted no later than 2 1/2 months after the close of the plan year (including an amendment adopted during the plan year). Under § 1.430(d)-1(d)(1)(ii), if a plan administrator makes the election described in section 412(d)(2) with respect to a plan amendment, then the plan amendment is treated as having been adopted on the first day of the plan year for purposes of § 1.430(d)-1(d). However, because a section 412(d)(2) election merely deems the amendment to have been made on the first day of the plan year, it does not determine when the plan amendment takes effect. Accordingly, regardless of whether a section 412(d)(2) election is made, an amendment is taken into account for the plan year only if it takes effect by the last day of the plan year.

Section 1.430(d)-1(d)(1)(iii) provides that, for purposes of § 1.430(d)-1(d)(1), the determination of whether an amendment that increases benefits takes effect and when it takes effect is determined in accordance with the rules of section 436(c) and § 1.436-1(c)(5). Section 1.436-1(c)(5) provides that, for purposes of section 436(c) and § 1.436-1(c), in the case of an amendment that increases benefits, the amendment takes effect under a plan on the first date on which any individual who is or could be a participant or beneficiary under the plan would obtain a legal right to the increased benefit if the individual were on that date to satisfy the applicable requirements for entitlement to the benefit (such as the attainment of any age, performance of any service, receipt or derivation of any compensation, or the occurrence of death, disability, or severance from employment). Section 1.430(d)-1(d)(1)(iii) similarly provides that in the case of an amendment that decreases benefits, the amendment takes effect under a plan on the first date on which the benefits of any individual who is or could be a participant or beneficiary under the plan would be less valuable than those benefits would be under the pre-amendment plan provisions if the individual were on that date to satisfy the applicable conditions for the benefits.

Section 1.430(d)-1(d)(2) provides that, in the case of a plan amendment that is not required to be taken into account under the rules of § 1.430(d)-1(d)(1) because it is adopted after the valuation date for the plan year, the plan amendment must be taken into account in determining a plan's funding target and target normal cost for the plan year if the amendment (i) takes effect by the last day of the plan year; (ii) increases the liabilities of the plan by reason of increases in current benefits, establishment of new benefits, changing the rate of benefit accrual, or changing the rate at which benefits become nonforfeitable; and (iii) would not be permitted to take effect under a modified version of the rules of section 436(c). The modified version of the section 436(c) rules is set forth in § 1.430(d)-1(d)(2)(iii), which provides that those rules are applied by treating the increase in the target normal cost for the plan year attributable to the amendment (and all other amendments that must be taken into account solely because of the application of the rules in § 1.430(d)-1(d)(2)) as if the increase were an increase in the funding target for the plan year, and by taking into account all unpredictable contingent event benefits permitted to be paid for unpredictable contingent events that occurred during the current plan year and all plan amendments that took effect in the current plan year (including all amendments to which § 1.430(d)-1(d)(2) applies for the plan year).

Section 1.430(d)-1(f)(1)(i) provides that the determination of any present value or other computation under section 430 and this section must be made on the basis of actuarial assumptions and a funding method. Section 1.430(d)-1(f)(1)(ii) provides that actuarial assumptions established for a plan year cannot subsequently be changed for that plan year unless the Commissioner determines that the assumptions that were initially used are unreasonable. Similarly, a funding method established for a plan year cannot subsequently be changed for that plan year unless the Commissioner determines that the initial use of that funding method for that plan year is impermissible. Section 1.430(d)-1(f)(1)(iii) provides that generally, the actuarial assumptions and funding method for a plan year are established by the filing of an actuarial report under section 6059 (Schedule SB of Form 5500, Annual Return/Report of Employee Benefit Plan ).

Section 1.430(d)-1(f)(3) provides that, in the case of actuarial assumptions other than those specified in sections 430(h)(2), 430(h)(3), and 430(i), each of those actuarial assumptions must be reasonable (taking into account the experience of the plan and reasonable expectations). In addition, the actuarial assumptions (other than those specified in sections 430(h)(2), 430(h)(3), and 430(i)) must, in combination, offer the plan's enrolled actuary's best estimate of anticipated experience under the plan based on information determined as of the valuation date.

Section 1.430(d)-1(f)(4)(ii) provides that any determination of present value or any other computation under that section must take into account the probability that future benefit payments under the plan will be made in the form of any optional form of benefit provided under the plan (including single-sum distributions), determined on the basis of the plan's experience and other related assumptions, in accordance with § 1.430(d)-1(f)(3); and must take into account any difference in the present value of future benefit payments that results from the use of actuarial assumptions in determining the amount of benefit payments in any such optional form of benefit that are different from those prescribed by section 430(h).

Section 1.430(d)-1(f)(4)(iii)(A) provides that, in the case of a distribution that is subject to section 417(e)(3) and that is determined using the applicable interest rates and applicable mortality table under section 417(e)(3), for purposes of applying § 1.430(d)-1(f)(4)(ii), the computation of the present value of that distribution is treated as having taken into account any difference in present value that results from the use of actuarial assumptions that are different from those prescribed by section 430(h) (as required under § 1.430(d)-1(f)(4)(ii)(B)) if and only if the present value of the distribution is determined in accordance with § 1.430(d)-1(f)(4)(iii).

Section 1.430(d)-1(f)(4)(iii)(B) provides that, generally, the present value of a distribution is determined in accordance with § 1.430(d)-1(f)(4)(iii) if that present value is determined as the present value, using special actuarial assumptions, of the annuity (either the deferred or immediate annuity) which is used under the plan to determine the amount of the distribution. Under these special assumptions, for the period beginning with the expected annuity starting date for the distribution, the current applicable mortality table under section 417(e)(3) that would apply to a distribution with an annuity starting date occurring on the valuation date is substituted for the mortality table under section 430(h)(3) that would otherwise be used. In addition, under these special assumptions, the valuation interest rates under section 430(h)(2) are used for purposes of discounting the projected annuity payments from their expected payment dates to the valuation date (as opposed to the interest rates under section 417(e)(3), which the plan uses to determine the amount of the benefit).

Section 1.430(d)-1(f)(4)(iii)(C) provides some alternative assumptions that may be used in determining the present value of a distribution under § 1.430(d)-1(f)(4)(iii). In the case of a plan for which the generational mortality tables are generally used to determine present values under section 430(d), § 1.430(d)-1(f)(4)(iii)(C) allows for the use of a 50-50 male-female blend of the annuitant mortality rates under the § 1.430(h)(3)-1(a)(4) generational mortality tables in lieu of the applicable mortality table under section 417(e)(3). 4 Section 1.430(d)-1(f)(4)(iii)(C) also provides that adjustments to interest rates are permitted to take into account the differences between the phase-in of the section 430(h)(2) segment rates under section 430(h)(2)(G) and the adjustments to the segment rates under section 417(e)(3)(D)(iii).

Section 1.430(d)-1(f)(5)(i) provides that, in the case of an applicable defined benefit plan described in section 411(a)(13)(C), if the amount of a future distribution is based on an interest adjustment applied to the current accumulated benefit, then the amount of that distribution is determined by projecting the future interest credits or equivalent amount under the plan's interest crediting rules using actuarial assumptions that satisfy the requirements of § 1.430(d)-1(f)(3).

Section 1.430(d)-1(f)(5)(ii)(A) provides that, in the case of an applicable defined benefit plan described in section 411(a)(13)(C), if the amount of an annuity distribution is based on either the balance of a hypothetical account maintained for a participant or the accumulated percentage of a participant's final average compensation, then the amount of that annuity distribution is calculated by converting the projected account balance (or accumulated percentage of final average compensation), in accordance with § 1.430(d)-1(f)(5)(i), to an annuity by applying the plan's annuity conversion provisions using the rules of § 1.430(d)-1(f)(5)(ii).

Section 1.430(d)-1(f)(5)(ii)(B) provides that generally, if the plan bases the conversion of the projected account balance (or accumulated percentage of final average compensation) to an annuity using the applicable interest rates and applicable mortality table under section 417(e)(3), then the amount of the annuity distribution is determined by dividing the projected account balance (or accumulated percentage of final average compensation) by an annuity factor corresponding to the assumed form of payment using, for the period beginning with the annuity starting date, the current applicable mortality table under section 417(e)(3) that would apply to a distribution with an annuity starting date occurring on the valuation date (in lieu of the mortality table under section 430(h)(3) that would otherwise be used) and the valuation interest rates under section 430(h)(2) (as opposed to the interest rates under section 417(e)(3) which the plan uses to determine the amount of the annuity).

Section 1.430(d)-1(f)(5)(ii)(C) provides that, in determining the amount of an annuity distribution under § 1.430(d)-1(f)(5)(ii)(B), a plan is permitted to apply the optional applications of generational mortality and phase-in of interest rates described in § 1.430(d)-1(f)(4)(iii)(C).

These proposed regulations would facilitate the adoption of amendments that increase benefits. Under these proposed regulations, such amendments adopted after the end of the plan year can be taken into account in determining the actuarial results for a plan year which, in turn, will result in an increased deductible limit for the taxable year for the plan sponsor. These proposed regulations would also: (1) clarify the plan-related expenses that are includable in target normal cost; (2) provide rules for plans that are adopted after the end of a plan year; (3) provide rules for when certain plan amendments must be taken into account in the actuarial results for a plan year; (4) extend the deadline for making certain changes in actuarial assumptions or funding methods; and (5) make minor changes to the rules for actuarial assumptions to eliminate references to statutory provisions that are no longer applicable and to conform them to other regulatory provisions.

Proposed § 1.430(d)-1(b)(1)(iii)(B) would provide that plan-related expenses consist of all amounts that are expected to be paid from plan assets that are neither benefits paid to participants and beneficiaries (treating the purchase of an annuity as the payment of benefits), nor investment-related expenses described in proposed § 1.430(d)-1(b)(1)(iii)(C).

Proposed § 1.430(d)-1(b)(1)(iii)(C) would provide that investment-related expenses consist of investment manager fees and other expenses directly related to the investment of the plan's assets. However, if the total payments from plan assets to a service provider are expected to be $5,000 or more for a plan year and consist of both investment-related expenses and expenses for other services (such as recordkeeping services), only those amounts that the service provider itemizes as investment management fees or other expenses directly related to the investment of the plan's assets are treated as investment-related expenses. Amounts itemized as expenses for other services are not treated as investment-related expenses. 5 An example of other services would be if the assets of the pension fund are held by a bank or trust company affiliated with the fund's investment manager and the plan assets are used to pay custodial or trustee fees for the safekeeping of the investment assets, such as holding securities, settling trades, or collecting income. This exclusion means that if the total payments from plan assets to a service provider are expected to be less than $5,000, all payments are treated as investment-related expenses and the service provider does not need to itemize the expenses in order for the plan to exclude these payments from target normal cost.

Proposed § 1.430(d)-1(d)(1) would provide rules for which plan provisions are used to determine a plan's funding target and target normal cost for a plan year based on when the plan provisions were adopted and, if applicable, what election the plan administrator made. For plan provisions adopted by the plan's valuation date, proposed § 1.430(d)-1(d)(1)(i) would provide that, except as otherwise provided in proposed § 1.430(d)-1(d)(1)(ii) and (iii), a plan's funding target and target normal cost for a plan year are determined based on plan provisions that are adopted no later than the valuation date for the plan year and that take effect on or before the last day of the plan year. For example, in the case of a plan amendment adopted on or before the valuation date for the current plan year that has an effective date occurring in the current plan year, the plan amendment is taken into account in determining the funding target and the target normal cost for the current plan year if it is permitted to take effect under the rules of section 436(c) for the current plan year, but the amendment is not taken into account for the current plan year if it does not take effect until a future plan year.

For plan provisions adopted after the plan's valuation date, the rules that apply are determined by the election made by the plan administrator. Proposed § 1.430(d)-1(d)(1)(ii)(A) would provide that if the plan administrator makes an election under section 412(d)(2) with respect to a plan amendment that is adopted no later than 2 1/2 months after the end of the plan year, then the plan amendment will be taken into account in determining the plan's funding target and target normal cost for that plan year, provided that the plan amendment takes effect no later than the date it is adopted. This rule would apply even if the plan amendment were adopted during the plan year, consistent with prior revenue rulings. 6

Proposed § 1.430(d)-1(d)(1)(ii)(B) would provide that if an employer adopts a plan after the last day of the employer's taxable year and before the due date for the employer's income tax return for that taxable year (including extensions) and makes an election under the first sentence of section 401(b)(2), then the plan is treated as adopted on the last day of that taxable year. In such a case, the target normal cost and funding target for the plan's first plan year are determined based on the adopted plan provisions, provided that (1) the plan takes effect no later than the date the plan is adopted; and (2) if the plan's valuation date is before the date the plan is treated as being adopted, a section 412(d)(2) election is made.

Proposed § 1.430(d)-1(d)(1)(ii)(C) would provide that if, before the due date (including extensions) for an employer's income tax return for a taxable year, the employer adopts an amendment increasing benefits accrued under a plan effective as of any date during the plan year that immediately precedes the date of adoption, and makes an election under section 401(b)(3) with respect to the plan amendment, then the plan amendment is treated as having been adopted as of the last day of that preceding plan year. In such a case, the target normal cost and funding target for that preceding plan year are determined taking the plan amendment into account, provided that (1) the amendment takes effect no later than the date it is adopted, and (2) if the plan's valuation date is before the date the amendment is treated as being adopted, a section 412(d)(2) election is made.

Employers that make an election under either section 401(b)(2) or section 401(b)(3) should note that the deadline for minimum required contributions under section 430(j)(1) is 8 1/2 months after the end of the plan year, while the deadline for adopting a section 401(b)(2) or section 401(b)(3) amendment under either proposed § 1.430(d)-1(d)(1)(ii)(B) or (C) can be after that deadline, depending on the timing of the plan year and the employer's taxable year.

Proposed § 1.430(d)-1(d)(1)(iii) would provide rules under which certain planned amendments are taken into account once plan operations are changed pursuant to those planned amendments. The existing rule in § 1.430(d)-1(d)(1)(iii) would be revised as § 1.430(d)-1(d)(1)(iv) and is discussed later in part C of this Explanation of Provisions. Under proposed § 1.430(d)-1(d)(1)(iii)(A), if plan operations are changed during a remedial amendment period (within the meaning of § 1.401(b)-1(d)) to make effective a future remedial amendment, then the provisions of the future remedial amendment would be treated as adopted on the date that the plan operations are changed. To the extent the actual remedial amendment that is adopted is different from the way the plan has been operated, the actual remedial amendment is treated as adopted when plan operations are changed to reflect the actual remedial amendment (if that change in plan operations occurs before the adoption date of the amendment). For example, this could happen in the case of a plan that is operated in accordance with a statutory change and then plan operations are updated to reflect published guidance interpreting that statutory change.

Proposed § 1.430(d)-1(d)(1)(iii)(B) would provide that a plan makes effective a future remedial amendment when (1) it is required to be amended to address a disqualifying provision that has been designated as such by the Commissioner pursuant to § 1.401(b)-1(b)(3), (2) the remedial amendment period with respect to that required amendment has not ended, and (3) plan operations are changed in anticipation of a proposed amendment to the plan relating to the disqualifying provision.

Proposed § 1.430(d)-1(d)(1)(iv) would provide substantially the same rule as existing § 1.430(d)-1(d)(1)(iii). However, proposed § 1.430(d)-1(d)(1)(iv) would not include the existing language regarding the effect of an election made under section 412(d)(2), as that issue would be separately addressed in proposed § 1.430(d)-1(d)(1)(ii)(A).

Proposed § 1.430(d)-1(d)(2)(i) would modify the special rule in existing § 1.430(d)-1(d)(2) under which certain plan amendments that are not required to be taken into account under the rules of § 1.430(d)-1(d)(1), because the amendment is adopted after the valuation date for the plan year, must nonetheless be taken into account in determining a plan's funding target and target normal cost for the plan year. A plan amendment would be subject to this rule if it (1) increases the liabilities of the plan by reason of increases in current benefits, establishment of new benefits, changing the rate of benefit accrual, or changing the rate at which benefits become nonforfeitable; (2) would not be permitted to take effect under the rules of section 436 as described in proposed § 1.430(d)-1(d)(2)(ii); and (3) would increase the target normal cost disproportionately, as described in § 1.430(d)-1(d)(2)(iii).

Under proposed § 1.430(d)-1(d)(2)(i)(C), the anti-abuse rule in § 1.430(d)-1(d)(2) would apply only if the plan amendment increases the target normal cost disproportionately. For this purpose, proposed § 1.430(d)-1(d)(2)(iii) would provide that a plan amendment increases the target normal cost disproportionately if the percentage increase in target normal cost as the result of the amendment is more than twice the percentage increase in the funding target as a result of the amendment (taking into account only the benefits of participants currently employed in the service of the employer). Comments are requested regarding other appropriate methods of measuring whether a plan amendment is considered to increase the target normal cost disproportionately, such as by comparing the present value of current year accruals with the present value of accruals in succeeding plan years.

Proposed § 1.430(d)-1(f)(1)(ii) would revise the existing rule in § 1.430(d)-1(f)(1)(ii) to address the situation in which an application to change actuarial assumptions or funding method has been submitted to the Secretary, 7 but the Secretary has not yet approved the application when the assumptions or method are established for the plan year. In these situations, the proposed regulations would be amended to provide that the assumptions or funding method can be changed for that plan year in accordance with the Secretary's approval of that application.

Proposed § 1.430(d)-1(f)(4)(iii)(C) would provide rules for determining the present value of a distribution under § 1.430(d)-1(f)(4)(iii) that are substantially the same as a rule in existing § 1.430(d)-1(f)(4)(iii)(C). However, the proposed rule would not include the existing reference to the phase-in of the section 430(h)(2) segment rates that applied under section 430(h)(2)(G) for plan years beginning in 2008 or 2009.

Proposed § 1.430(d)-1(f)(5)(i) and (f)(5)(ii)(A) are substantially the same as the corresponding provisions in the existing regulations but would make conforming edits to update the terminology used in those provisions to conform to the terminology used in § 1.411(a)(13)-1.

Proposed § 1.430(d)-1(f)(5)(ii)(C) would provide that the option under § 1.430(d)-1(f)(4)(iii)(C) to substitute the generational mortality table may be used for purposes of determining the amount of an annuity distribution under § 1.430(d)-1(f)(5)(ii)(B). This provision is substantially the same as existing § 1.430(d)-1(f)(5)(ii)(C), except that the heading would be revised to reflect that the option to adjust the present values to take into account the phase-in of segment rates under section 430(h)(2)(G) is no longer applicable.

The regulations are proposed to apply to plan years beginning on or after 6 months after the date of publication of the Treasury decision adopting these amendments to the regulations as final regulations in the Federal Register .

OMB's Office of Information and Regulatory Affairs has determined that this proposed rule is not significant and is not subject to review under section 6(b) of Executive Order 12866, as amended. This proposed rule is expected to be an Executive Order 14192 deregulatory action.

This proposed rulemaking does not impose or revise any information collections subject to 44 U.S.C. Chapter 35.

The Regulatory Flexibility Act requires consideration of the regulatory impact on small businesses. It is hereby certified that these proposed regulations, if adopted, will not have a significant economic impact on a substantial number of small entities within the meaning of section 601(6) of the Regulatory Flexibility Act (5 U.S.C. chapter 6).

The economic impact of these regulations is not expected to be significant. These regulations are not expected to result in economically meaningful changes in behavior. They would update existing regulations in order to implement statutory changes enacted after the publication of the 2009 regulations. They provide guidance for administrators and sponsors of single-employer defined benefit plans regarding the determination of target normal cost and the funding target.

For the reasons stated, a regulatory flexibility analysis under the Regulatory Flexibility Act is not required. Notwithstanding the above, the Treasury Department and the IRS invite comments on the impact the proposed rules would have on small entities.

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

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

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

Before these proposed amendments to the final regulations are adopted as final regulations, consideration will be given to comments that are submitted timely to the IRS as prescribed in this preamble under the ADDRESSES heading. The Treasury Department and the IRS request comments on all aspects of the proposed regulations. Any comments submitted will be made available at https://www.regulations.gov or upon request.

A public hearing will be scheduled if requested in writing by any person who timely submits electronic or written comments. Requests for a public hearing are also encouraged to be made electronically. If a public hearing is scheduled, notice of the date and time for the public hearing will be published in the Federal Register .

The principal author of these proposed regulations is Tom Morgan of the Office of Associate Chief Counsel (Employee Benefits, Exempt Organizations, and Employment Taxes). However, other personnel from the Treasury Department and the IRS participated in their development.

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

This notice of proposed rulemaking contains proposed amendments to the Income Tax Regulations (26 CFR part 1) under sections 23, 24, 25A, and 32 of the Internal Revenue Code (Code) under the authority of section 7805(a) of the Code, which authorizes the Secretary of the Treasury or the Secretary's delegate (Secretary) to prescribe all needful rules and regulations for the enforcement of the Code, including all rules and regulations as may be necessary by reason of any alteration of law in relation to internal revenue.

The proposed regulations are also issued under the authority of section 404 of PRWORA, Public Law 104-193, 110 Stat. 2105, 2267 (Aug. 22, 1996) (8 U.S.C. 1614), which requires a Federal agency administering a Federal public benefit to post information and provide general notification to the public and to benefit recipients of the changes regarding eligibility for any such benefit pursuant to subtitle A of Title IV of PRWORA.

Section 401(a) of PRWORA (8 U.S.C. 1611(a)) provides that aliens who are not qualified aliens (as that term is defined in 8 U.S.C. 1641) are not eligible for any Federal public benefit (as defined in 8 U.S.C. 1611(c)), with certain narrow exceptions. 1

Section 401(c)(1)(B) of PRWORA (8 U.S.C. 1611(c)(1)(B)) defines the term “Federal public benefit,” in relevant part, as “any retirement, welfare, health, disability, public or assisted housing, postsecondary education, food assistance, unemployment benefit, or any other similar benefit for which payments or assistance are provided to an individual, household, or family eligibility unit by an agency of the United States or by appropriated funds of the United States.”

Section 431(b) of PRWORA (8 U.S.C. 1641(b)) defines the term “qualified alien” as “an alien who, at the time the alien applies for, receives, or attempts to receive a Federal public benefit is: (1) an alien who is lawfully admitted for permanent residence under the Immigration and Nationality Act, (2) an alien who is granted asylum under section 208 of such Act, (3) a refugee who is admitted to the United States under section 207 of such Act, (4) an alien who is paroled into the United States under section 212(d)(5) of such Act for a period of at least 1 year, (5) an alien whose deportation is being withheld under section 243(h) of such Act (as in effect immediately before the effective date of section 307 of division C of Public Law 104-208) or section 241(b)(3) of such Act (as amended by section 305(a) of division C of Public Law 104-208), (6) an alien who is granted conditional entry pursuant to section 203(a)(7) of such Act as in effect prior to April 1, 1980, (7) an alien who is a Cuban and Haitian entrant (as defined in section 501(e) of the Refugee Education Assistance Act of 1980), or (8) an individual who lawfully resides in the United States in accordance with a Compact of Free Association referred to in section 1612(b)(2)(G) of [title 8].”

The term “qualified alien” also includes certain aliens who have been battered or subject to extreme cruelty in the United States provided they meet certain requirements including a substantial connection between such battery or cruelty and the need for the benefits to be provided. See 8 U.S.C. 1641(c).

Section 404 of PRWORA (8 U.S.C. 1614) requires each Federal agency that administers a program to which section 1611 of title 8, United States Code, applies, to post information and provide general notification to the public and to program recipients of the changes regarding eligibility for such Federal public benefits.

Prior to 2018, the Treasury Department and the IRS had not viewed tax benefits, including refundable credits, as constituting Federal public benefits under PRWORA. In 2018, the Treasury Department began to reconsider the potential applicability of PRWORA's eligibility restrictions to the refunded portions of three individual refundable income tax credits: (1) the earned income credit under section 32 (EITC), (2) the child tax credit under section 24 (CTC), and (3) the American opportunity tax credit under section 25A (AOTC). In connection with that reconsideration, the General Counsel's office of the Treasury Department requested an opinion from the Office of Legal Counsel (OLC) at the Department of Justice as to whether the refundable portions of each of these three credits “may reasonably be construed as a `Federal public benefit' within the meaning of PRWORA's provision on aliens' ineligibility for such benefits.”  2

On December 9, 2020, OLC sent a memorandum to the General Counsel of the Treasury Department opining that the refunded portion of the named tax credits may reasonably be construed as a “Federal public benefit” for which nonqualified aliens are generally ineligible under PRWORA. 3 OLC reasoned that the EITC, CTC, and AOTC provide direct payments to individual taxpayers and households; are materially similar to other kinds of monetary payments that the Federal government makes to individuals outside of the tax system; and each satisfies PRWORA's definition of a Federal public benefit either as a welfare benefit, postsecondary education benefit, or other similar benefit. The 2020 OLC Opinion stated, however, that “you have not asked us to consider, and we do not reach, the question whether this is the only permissible reading of the statute.”  4

On February 19, 2025, President Trump issued Executive Order 14218, Ending Taxpayer Subsidization of Open Borders (90 FR 10581). The Executive Order directs Federal agencies, among other actions, to identify federally funded programs administered by the agency and to ensure that such programs are operating in compliance with Title IV of PRWORA. 5

Following the issuance of Executive Order 14218, the Treasury Department submitted a second request to OLC asking whether the interpretation that was the subject of the 2020 OLC Opinion represents the best reading of the law, in light of Loper Bright Enterprises v. Raimondo, 603 U.S. 369 (2024). This second request also asked whether the refunded portions of the premium tax credit (PTC) under section 36B and the Saver's Match under section 6433 of the Code constitute Federal public benefits. On November 19, 2025, in response, OLC issued a Memorandum Opinion to the General Counsel of the Treasury Department concluding that the interpretation addressed in the 2020 OLC Opinion reflects the best view of the law and that the refunded portions of the credits addressed in the 2020 OLC Opinion, as well as the PTC and the Saver's Match, are Federal public benefits under PRWORA. 6

In general, a tax credit is an amount allowable as a reduction of tax liability for the purpose of computing the tax or refund due. A tax credit reduces a taxpayer's liability dollar for dollar. Tax credits are available to all taxpayers who meet the eligibility requirements of the particular credit. If an amount allowable as a refundable credit exceeds the tax imposed by subtitle A of the Code (subtitle A) (reduced by any applicable nonrefundable credits), the amount of that excess is considered to be an overpayment of tax, which the IRS may credit against any existing Federal tax liabilities of the taxpayer and must, subject to certain mandatory offsets, refund any balance to the taxpayer. Sections 6401(b)(1) and 6402(a).

In general, to determine the overpayment amount attributable to a refundable tax credit, an individual taxpayer first determines the taxpayer's taxable income for the tax year pursuant to section 63 of the Code and calculates the amount of tax on the taxable income pursuant to section 1 of the Code. The taxpayer then adds any additions to tax under chapter 1 of the Code (chapter 1), such as excess advance payments of the PTC and repayment of certain other credits, and other taxes imposed by subtitle A, such as the tax on self-employment income. Once the total subtitle A income tax liability is calculated, the taxpayer reduces that amount by the amount of the credits allowable under subparts A, B, D and G of part IV of subchapter A of chapter 1. If this reduced tax liability amount is exceeded by the amount of any refundable tax credits under subpart C of part IV of subchapter A of chapter 1, the excess is an overpayment available for refund, credit, or offset. See sections 6401(b)(1) and 6402(a) of the Code.

Section 23 of the Code allows an individual to claim a tax credit for qualified adoption expenses paid or incurred in connection with an eligible child. Beginning in 2025, under section 23(a)(4), up to $5,000 (adjusted for inflation for future years) of the credit is refundable. 7 Section 23(b)(2)(A) imposes income limitations and section 23(h) provides several adjustments for inflation, such as on the income limitations, the cap on qualified adoption expenses, and the cap on the refundable portion of the credit. For example, for taxable year 2025, the adoption tax credit phases out for individuals with adjusted gross income (AGI) over $259,190 and is fully eliminated for individuals with AGI of $299,190 or more.

The adoption tax credit is claimed by an individual on a Federal income tax return, and Form 8839, Qualified Adoption Expenses. Section 23(f)(1) of the Code requires married individuals to file a joint return to claim the credit unless they meet certain requirements. Section 23(f)(2) of the Code requires the individual to provide the name, age, and tax identification number (TIN) of the adopted child.

Section 24(h)(2) of the Code allows eligible taxpayers with a qualifying child or children to claim a CTC of up to $2,200 for 2025 (adjusted for inflation for future years) per qualifying child. 8 The CTC is made up of a nonrefundable and refundable component. If the taxpayer has insufficient Federal income tax liability, the taxpayer may be eligible for the refundable portion of the CTC, generally called the Additional Child Tax Credit (ACTC). The ACTC, under section 24(d) of the Code, is generally calculated using the earned income formula. This formula allows for a refundable credit equal to 15% of the taxpayer's earned income in excess of $2,500, up to a maximum of $1,700 per child for 2025 (adjusted for inflation for future years). Under section 24(h)(3) of the Code, the CTC (including the ACTC portion) phases out for taxpayers with modified AGI over $200,000 and married individuals who file joint returns with modified AGI over $400,000. 9 The actual modified AGI level at which the credit equals zero is dependent on the number of qualifying children of the taxpayer.

The CTC is claimed by a taxpayer on a Federal income tax return and Schedule 8812, Credits for Qualifying Children and Other Dependents. For taxable years beginning after December 31, 2024, section 24(h)(7) of the Code requires the taxpayer to include the social security number (SSN) of the qualifying child and of the taxpayer (or, in the case of a joint return, the SSN of at least one spouse). 10 For purposes of the CTC, an SSN qualifies only if it is issued—(i) to a citizen of the United States or pursuant to subclause (l) (or that portion of subclause (III) that relates to subclause (I)) of section 205(c)(2)(B)(i) of the Social Security Act (a work eligible SSN), and (ii) before the due date for such return. For taxpayers filing a joint return, only one spouse is required to have a work eligible SSN. The other spouse must have an SSN issued by the Social Security Administration or an individual taxpayer identification number (ITIN) issued by the IRS on or before the due date of the return.

Section 25A(a)(1) of the Code allows an individual to claim a tax credit for qualified education expenses paid for an eligible student for the first four years of postsecondary education. Section 25A(b)(1) of the Code limits the maximum annual credit to $2,500 per eligible student. Under section 25A(i) of the Code, 40% of the credit amount is refundable. Under section 25A(d) of the Code, the available credit begins to phase out when the individual's modified AGI reaches $80,000 ($160,000 for joint filers) and is completely phased out at $90,000 ($180,000 for joint filers). Under section 25A(g)(7), an individual who is a nonresident alien for any portion of the taxable year cannot claim the AOTC unless the individual elects to be treated as a U.S. resident alien under section 6013(g) or (h) of the Code.

The AOTC is claimed by an individual on a Federal income tax return and Form 8863, Education Credits (American Opportunity Credit and Lifetime Learning Credits). Section 25A(g)(6) of the Code requires married individuals to file a joint return to claim the AOTC, unless they meet certain requirements. For taxable years beginning after December 31, 2025, section 25A(g)(1) of the Code requires the individual to include the SSN of the individual filing the return and of the individual for whom the qualified education expenses were paid if such individual is other than the taxpayer or the taxpayer's spouse. 11 For purposes of the AOTC, an SSN must be a work eligible SSN issued to an individual by the Social Security Administration before the due date for such return.

Section 32(a) of the Code allows taxpayers with earned income to claim a refundable tax credit in an amount calculated using the taxpayer's earned income and the credit percentage and income amount specified in section 32(b) of the Code. Eligibility for the credit and the amount allowed as a credit are based upon a number of factors, including the taxpayer's earned income, AGI, investment income, number of qualifying children of the taxpayer as of the end of the taxpayer's tax year, U.S. residency, and identification requirements. Section 32(c) of the Code requires the individual's qualifying children to meet the relationship, residency, and age requirements for purposes of claiming the credit. Section 32(c) of the Code also allows individuals who meet certain age and U.S. residency requirements to claim the EITC if they do not have qualifying children.

Individuals with income above certain thresholds, which vary based on marital status and number of qualifying children, are ineligible for the EITC. Section 32(c)(1)(D) of the Code does not allow an individual who is a nonresident alien for any portion of the taxable year to claim the credit unless the individual elects to be treated as a U.S. resident under section 6013(g) or (h) of the Code.

The EITC is claimed by an individual on a Federal income tax return. Section 32(d) of the Code requires married individuals to file a joint return to claim the credit, unless they meet certain requirements. If the individual is claiming the EITC for a qualifying child, the individual must also file Schedule EIC, Earned Income Credit. Section 32(m) of the Code requires the individual to provide the SSN for themselves, their spouse if married, and any qualifying children. For purposes of the EITC, the SSN must be (i) issued to an individual by the Social Security Administration (other than an SSN issued pursuant to clause (II) (or the portion of clause (III) that relates to clause (II)) of section 205(c)(2)(B)(i)) of the Social Security Act), and (ii) issued on or before the due date for filing the return for the taxable year.

Section 36B provides a PTC to applicable taxpayers who meet certain eligibility requirements, and who enroll themselves, or enroll a member of the taxpayer's family, in a qualified health plan (QHP) through an Exchange. An individual is not eligible to enroll in a QHP if the individual is not, or is not reasonably expected to be for the entire period for which enrollment is sought, a citizen or national of the U.S., or an alien lawfully present in the U.S. See section 1312 of the Affordable Care Act (ACA) (42 U.S.C. 18032). 12 Section 36B(e)(1)(A) provides that if one or more individuals in a taxpayer's family (including the taxpayer) are aliens not lawfully present in the U.S., the enrollment premiums and adjusted monthly premiums for the applicable benchmark plan otherwise taken into account in determining the taxpayer's PTC must be reduced by the portion of such premiums attributable to the individuals who are aliens not lawfully present in the U.S. The OBBBA amended section 36B(e)(1) to provide that for tax years beginning after December 31, 2026, such premiums must also be reduced for aliens who are lawfully present in the U.S. but who are not eligible aliens, a narrower category of non-citizens.

Section 6433 allows certain low- and moderate-income individuals who make qualified retirement savings contributions to receive matching contributions of up to $1,000 (Saver's Match contributions) paid by the Secretary of the Treasury or the Secretary's delegate (Secretary) to applicable retirement savings vehicles for tax years beginning after December 31, 2026. Eligible individuals may elect to have matching contributions of less than $100 “treated as a credit allowed by subpart C of part IV of subchapter A of chapter 1.” Section 6433(a)(2)(B).

PRWORA defines “Federal public benefit”, in relevant part, to encompass certain types of benefits for which payments or assistance are provided to an individual, household, or family eligibility unit by an agency of the United States or by appropriated funds of the United States. 13 In analyzing this definition's application to individual refundable income tax credits, OLC first examined whether the refunded portion of such credits constitutes a “benefit.”  14 OLC opined that the refunded portion of such credits is a benefit based on the ordinary meaning of the word since it results in a payment from the Federal government to the taxpayer that goes beyond a return of money paid by the taxpayer to the Federal government. 15

OLC also opined that the refunded portion of individual refundable income tax credits provides a “payment” because it gives the taxpayer money that the taxpayer did not earn and would not have received but for the existence of the government program. 16 OLC distinguished the refunded portion of individual refundable income tax credits from an “ordinary tax refund,” which it described as a return to the taxpayer of his own money that Treasury had held until the taxpayer's net obligations for the tax period could be settled. Finally, OLC opined that the refunded portion of an individual refundable income tax credit is provided to an individual, household, or family eligibility unit (that is, the taxpayer, who is either an individual or the joint-filing members of a household) by an agency (the Treasury Department, through the IRS) or by appropriated funds of the United States (namely the permanent indefinite appropriation of amounts necessary for refunding internal revenue collections in 31 U.S.C. 1324). 17

After concluding this general analysis, OLC next considered whether each of the EITC, ACTC, and AOTC falls within the kinds of benefits identified in 8 U.S.C. 1611(c)(1)(B), which are “any retirement, welfare, health, disability, public or assisted housing, postsecondary education, food assistance, unemployment benefit or any other similar benefit . . . .”  18 OLC opined that both the EITC and the ACTC are welfare or other similar benefits and that the AOTC is a postsecondary education benefit. In 2025, OLC opined that the PTC is a health or similar benefit and the Saver's Match is a retirement or similar benefit. 19 In sum, OLC concluded that the refunded portion of the EITC, ACTC, AOTC, PTC, and Saver's Match are “Federal public benefits” as defined in PRWORA. The Treasury Department and the IRS incorporate the reasoning and conclusions of the 2020 and 2025 OLC Opinions for purposes of these proposed regulations unless otherwise described in this preamble.

The proposed regulations would apply PRWORA to the following individual refundable income tax credits: the (1) adoption tax credit, (2) CTC, (3) AOTC, and (4) EITC, collectively referred to as the “affected refundable tax credits” in this notice of proposed rulemaking. While the adoption tax credit, which was made partially refundable by the OBBBA, 20 has not been addressed by OLC, it is included in the proposed regulations as a “similar benefit.” Though the list of enumerated benefits in section 401(c)(1)(B) of PRWORA does not include any items that relate to adoption, the Department of Health and Human Services (HHS) has determined that Federal adoption assistance benefits are Federal public benefits. 21 The adoption tax credit, although not identical, is sufficiently similar to Federal adoption assistance benefits in that it provides a Federal incentive to promote adoptions, and thus, it would make sense to treat it the same way for purposes of PRWORA. Accordingly, the proposed regulations would treat the refunded portion of the adoption tax credit as a Federal public benefit within the meaning of PRWORA.

The proposed regulations would not apply PRWORA to the refunded portion of the PTC. Although OLC determined that the refunded portion of the PTC is a Federal public benefit for purposes of PRWORA, it stated that its conclusion does not automatically mean that all aliens who are not qualified aliens under PRWORA are ineligible to receive it, noting that “Congress can always supersede existing statutes, including PRWORA, with later-[en]acted laws.”  22 OLC further noted that Congress addressed restrictions on the PTC by including specific statutory language on immigration status in two later-enacted statutes, the ACA and OBBBA. See section 36B(e) (limiting the PTC for the coverage of an alien to aliens lawfully present for tax years beginning before January 1, 2027, and to eligible aliens for tax years beginning after December 31, 2026). The proposed regulations would not apply PRWORA to the refunded portion of the PTC based on the view that these restrictions supersede and override PRWORA. Under both the ACA and OBBBA, Congress specifically addressed immigration status as it relates to the computation of and eligibility for the PTC. As an example, under the ACA, Congress allowed only U.S. citizens, U.S. nationals, or “lawfully present” aliens to enroll in a QHP through an Exchange, and a taxpayer could only receive the PTC for the coverage of these enrollees. Congress also provided a special rule that allowed aliens lawfully present in the U.S. who were ineligible for Medicaid because of their immigration status to receive the PTC despite having household income that generally would make them ineligible for the PTC. See section 36B(c)(1)(B) as in effect for taxable years beginning on or before December 31, 2025. Thus, for PTC purposes, Congress not only restricted the allowance of the PTC on the basis of specific immigration status, but it specifically allowed those who were ineligible for Medicaid, due to the PRWORA limitations, to receive the PTC. Under the OBBBA, Congress further restricted aliens' eligibility for the PTC by disallowing a PTC for the coverage of aliens who are not “eligible aliens,” a narrower category than qualified aliens under PRWORA. See section 36B(e)(2).

In addition, the OBBBA enacted a new program to be administered under the Code, the Trump Accounts Contribution Pilot Program. Although not a tax credit, section 6434 of the Code provides for a one-time, $1,000 pilot program contribution paid by the Secretary into an eligible child's Trump account. 23 Contributions under the Pilot Program are restricted to children who are U.S. citizens. See section 6434(c)(3). Accordingly, there is no need to determine whether the Trump Accounts Contribution Pilot Program is a Federal public benefit under PRWORA because, even if it is, the OBBBA provision limiting account contributions to U.S. citizens would supersede and override PRWORA.

Finally, regarding the Saver's Match, which is effective for tax years beginning in 2027, the Treasury Department and IRS intend to promulgate proposed regulations regarding the Saver's Match separately.

These proposed regulations would provide that PRWORA is applicable to the refunded portion of the affected refundable tax credits. Specifically, proposed §§ 1.23-2(a), 1.24-3(a), 1.25A-7(a), and 1.32-4(a) each would provide that, pursuant to PRWORA, aliens who are not qualified aliens are not eligible to receive the Federal public benefit of the refunded portion of the affected refundable tax credits under sections 23, 24, 25A and 32, respectively.

Proposed § 1.32-4(b) would set forth definitions of the operative PRWORA terms that apply for purposes of applying proposed § 1.32-4(a). For example, proposed § 1.32-4(b)(1) would provide that for purposes of applying PRWORA to the refunded portion of the EITC, the term “alien” has the same definition as in section 101(a) of the Immigration and Nationality Act, Public Law 82-414, 66 Stat. 163, 8 U.S.C. 1101(a)(3). Proposed § 1.32-4(b)(4) would provide that the term “qualified alien” has the same definition as in section 431(b) of PRWORA (8 U.S.C. 1641(b)). Finally, consistent with the OLC conclusion that the refunded portions of the affected refundable tax credits (that is, the portion that exceeds the individual's tax liability and generates an overpayment under 26 U.S.C. 6401(b)(1)) are Federal public benefits within the meaning of 8 U.S.C. 1611(c), proposed § 1.32-4(b)(2) would adopt this same definition of a Federal public benefit for purposes of applying proposed § 1.32-4(a). Sections 1.23-2(b), 1.24-3(b), and 1.25A-7(b), would adopt all of the PRWORA operative definitions applicable to the affected refundable tax credits by cross reference to § 1.32-4(b).

The proposed regulations would provide that only the refunded portion of an affected refundable tax credit is a Federal public benefit. Accordingly, if the taxpayer is eligible for the affected refundable tax credit under the Code, the proposed regulations would bar receipt only of the portion of the sum of those affected refundable tax credits that exceeds the income tax liability imposed by subtitle A (reduced by credits allowable under subparts A, B, D, and G of part IV of subchapter A of chapter 1). 24 Although the proposed definition of a Federal public benefit is similar to what is considered to be an overpayment in section 6401(b)(1), it is not the same because it is limited to affected refundable tax credits. If the taxpayer is not a U.S. citizen, U.S. national, or qualified alien, the amount considered to be the overpayment under section 6401(b) that is available for credit, offset, or refund, which may include other refundable tax credits that are not affected refundable tax credits, would be reduced by the amount of the Federal public benefit.

Proposed §§ 1.23-2(d), 1.24-3(d), 1.25A-7(d), and 1.32-4(d) would clarify who can receive the refunded portion of the affected refundable tax credit under PRWORA by providing that unless a taxpayer is a U.S. citizen, U.S national, or qualified alien, the taxpayer is not eligible to receive a refund, credit, or offset of the refunded portion of the affected refundable tax credit.

As explained in the Background section of this preamble, to be a qualified alien, an individual must fall within one of the defined categories in 8 U.S.C. 1641(b) “at the time the alien applies for, receives, or attempts to receive a Federal public benefit.” The proposed regulations would provide that an alien must be a qualified alien, for purposes of receiving the refunded portion of the affected refundable tax credits, on the date the alien files a Federal income tax return first claiming the affected refundable tax credit. This rule would apply to the Federal income tax return first claiming the affected refundable tax credit, which may be, for example, an early return, amended return, or late return. Using the filing date the taxpayer first claimed the credit would best align Code and tax administration concepts with PRWORA's requirement that an alien be a qualified alien at the time the alien applies for, attempts to receive, or receives the Federal public benefit. In addition, under the Code, a taxpayer either claims or does not claim a credit, and portions of a single credit cannot be claimed at different times. Consequently, the date on which the taxpayer first claims the credit is the most appropriate date for determining whether the taxpayer satisfies PRWORA's qualified alien requirement for the Federal public benefit. Accordingly, sections 1.23-2(e), 1.24-3(e), 1.25A-7(e), and 1.32-4(e) of the proposed regulations would provide that each taxpayer claiming one or more of the affected refundable tax credits must be a U.S. citizen, U.S. national, or qualified alien on the date of filing an initial or amended Federal income tax return first claiming the credit for the taxable year in order to be eligible to receive the refunded portion of the tax credit. Proposed §§ 1.23-2(f), 1.24-3(f), 1.25A-7(f), and 1.32-4(f) would provide examples illustrating the applicability of the timing rule to the claim of the refunded portion of an affected refundable tax credit.

The EITC, AOTC, and the adoption tax credit generally require married individuals to file a joint return to claim the credit. The CTC does not require spouses to file a joint return, but spouses may elect to file a joint return. If married individuals filing a joint return meet the Code's eligibility requirements of the specific refundable tax credit being claimed, and the amount of the affected refundable tax credit(s) exceeds the joint filers' tax liability, then the proposed regulations would require that one of the joint filers be a U.S. citizen, U.S. national, or qualified alien to receive the joint refund, credit, or offset of the refunded portion of any of the affected refundable tax credits. See proposed §§ 1.23-2(b), 1.24-3(b), 1.25A-7(b), and 1.32-4(b)(4).

Under the proposed regulations, each individual (or one spouse in the case of a joint return) claiming an affected refundable tax credit that results in a Federal public benefit would be required to provide a declaration under penalty of perjury stating that the individual is a U.S. citizen, U.S. national, or qualified alien who is eligible to receive the claimed refund under PRWORA. This declaration or attestation would need to be made on the appropriate Federal income tax return, amended tax return, or schedule as required by the IRS. The IRS intends to update forms and instructions to reflect this requirement. Under section 6061(a) of the Code, all returns and refund claims must “be signed in accordance with forms or regulations prescribed by the Secretary.” See also § 1.6061-1(a). These documents must also be “verified by a written declaration that [they are] made under the penalties of perjury.” Section 6065 of the Code; see also §§ 1.6065-1(a), 301.6065-1, § 301.6402-2(b)(1). An individual who fails to provide the required declaration in the manner and on the form or schedule required by the IRS would not be eligible to receive the refunded portion of any of the affected refundable tax credits claimed on the return for the taxable year.

Section 7206 of the Code provides that willfully providing incorrect or untrue information on a tax return constitutes a felony. Penalties for violations of section 7206 include liability for a fine up to $100,000 and being sentenced to up to 3 years in prison. See also section 7207 of the Code. Additionally, 18 U.S.C. 1015(e) punishes as a felony any knowing false statement that one is a citizen or a national of the United States with the intent to obtain any Federal or State benefit or service. Finally, with respect to Federal public benefits, 18 U.S.C. 1001 provides that it is a felony to knowingly and willfully make any materially false, fictitious, or fraudulent statement or representation in any matter within the jurisdiction of any branch of the Federal Government.

These proposed regulations are proposed to apply for taxable years ending on or after the date these regulations are published as final regulations in the Federal Register .

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

The proposed regulations have been designated by the Office of Management and Budget's (OMB's) Office of Information and Regulatory Affairs (OIRA) as subject to review under Executive Order 12866 pursuant to the Memorandum of Agreement (MOA, July 4, 2025) between the Treasury Department and the Office of Management and Budget regarding review of tax regulations. OIRA has determined that the proposed rulemaking is a significant regulatory action and subject to review under Executive Order 12866 and section 1(b) of the Memorandum of Agreement. Accordingly, the proposed regulations have been reviewed by OMB. The proposed rulemaking is not expected to be considered a regulatory action under Executive Order 14192 because it does not impose any more than de minimis regulatory costs.

Tax credits provide a dollar-for-dollar reduction in tax liability. When a tax credit is refundable, any portion of the credit that exceeds the taxpayer's liability may be refunded to the taxpayer. Because tax credits are typically designed to advance specific policy objectives, refundability ensures that low- and moderate-income taxpayers with little or no income tax liability can still benefit, thereby supporting the intended purpose of the credit. Some individual refundable income tax credits have similar eligibility requirements, but the specific rules generally differ across credits. For example, the EITC is intended to encourage work and requires taxpayers to have earned income; the CTC, designed to support families, conditions eligibility on the presence of qualifying children; and the AOTC is aimed at reducing the cost of higher education and requires enrollment of an eligible student in an eligible institution and payments of qualified expenses.

The Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (PRWORA) defines the term “Federal public benefit” as “any retirement, welfare, health, disability, public or assisted housing, postsecondary education, food assistance, unemployment benefit, or any other similar benefit for which payments or assistance are provided to an individual, household, or family eligibility unit by an agency of the United States or by appropriated funds of the United States.” Under PRWORA, other than in limited exceptions, aliens who are not qualified aliens are not eligible for any Federal public benefits. The Treasury Department and the IRS have not previously considered individual refundable income tax credits to constitute Federal public benefits under PRWORA.

In 2020, in response to the Treasury's request for an opinion, the Office of Legal Counsel (OLC) at the Department of Justice opined (2020 Opinion) that the refunded portions of the EITC, CTC, and AOTC satisfies PRWORA's definition of a Federal public benefit. Subsequently in November 2025, in response to the Treasury's second request for an opinion, the OLC concluded in an opinion (2025 Opinion) that its 2020 Opinion reflects the best reading of the law and that the refunded portions of certain individual refundable income tax credits are within the meaning of Federal public benefits under PRWORA.

The proposed regulations would clarify how the term “Federal public benefit” as used in PRWORA applies to certain individual refundable income tax credits administered under the Code.

The proposed regulations would apply PRWORA to the following four individual refundable income tax credits—the adoption tax credit, the CTC, the AOTC, and the EITC.

Section 23 of the Code allows eligible taxpayers to claim the adoption tax credit to offset the costs of adopting a child. Beginning in tax year 2025, up to $5,000 of the credit is refundable. To claim the credit, taxpayers must include on the return the Taxpayer Identification Number (TIN) of the adopted child. Married individuals must file a joint return to claim the credit unless exceptions apply.

Section 24 allows eligible taxpayers to claim the CTC of up to $2,200 for tax year 2025 (adjusted for inflation thereafter) for each qualifying child. The refundable portion of the CTC is referred to as the additional child tax credit (ACTC), which is calculated as 15 percent of the taxpayer's earned income in excess of $2,500, up to $1,700 per qualifying child for tax year 2025 (adjusted for inflation thereafter). To be eligible, the qualifying child and the taxpayer (or the taxpayer's spouse if filing jointly) must have work eligible SSNs issued before the due date of the tax return. For married individuals filing a joint return, if only one spouse meets the work eligible SSN requirements, the other spouse must have an SSN or Individual Taxpayer Identification number (ITIN) issued on or before the due date of the return. Married individuals who file separate returns are eligible to claim the CTC, but the credit begins to phase out at a lower income level than for those filing jointly.

Section 25A(a)(1) allows taxpayers to claim the AOTC for qualified education expenses paid for an eligible student for the first four years of postsecondary education. The maximum annual credit is $2,500 per student, and 40 percent of the credit amount is refundable. To be eligible, the taxpayer (or the taxpayer's spouse if filing jointly) and the student (if not the taxpayer or spouse) must have work eligible SSNs issued before the due date of the tax return. Married individuals must file a joint return to claim the credit unless exceptions apply.

Section 32 allows taxpayers with earned income to claim the EITC, which is fully refundable. The maximum EITC amount varies with the number of qualifying children the taxpayer has. For tax year 2025, the maximum credit amount is $649 for taxpayers with no qualifying child, $4,328 for taxpayers with one qualifying child, $7,152 for taxpayers with two qualifying children, and $8,046 for taxpayers with three or more qualifying children. To be eligible, the taxpayer (both spouses if filing jointly) as well as the qualifying child must have valid SSNs issued on or before the filing due date of the tax return. For the EITC, an SSN is not valid if it is issued solely to allow an individual to receive or apply for a Federal funded benefit. Married individuals must file a joint return to receive the credit unless exceptions apply.

Under sections 6401 and 6402 of the Code, when the amount of a refundable tax credit (under subpart C of part IV of subchapter A of chapter 1) exceeds the tax imposed by subtitle A (reduced by nonrefundable tax credits), the amount of that excess is treated as an overpayment of tax and may be refunded to the taxpayer. Specifically, under section 6402, the IRS may credit the overpayment against any Federal tax liabilities of the taxpayer and shall, subject to certain mandatory offsets, refund any balance to the taxpayer.

Under section 401(a) of PRWORA (8 U.S.C. 1611(a)), aliens who are not qualified aliens as defined in 8 U.S.C. 1641 are not eligible for any Federal public benefit as defined in PRWORA, with certain narrow exceptions. Section 431(b) of PRWORA (8 U.S.C. 1641(b)) defines a qualified alien as an alien who, at the time the alien applies for, receives, or attempts to receive a Federal public benefit, meets certain alien status requirements, including “(1) an alien who is lawfully admitted for permanent residence under the Immigration and Nationality Act, (2) an alien who is granted asylum under section 208 of such Act, (3) a refugee who is admitted to the United States under section 207 of such Act, (4) an alien who is paroled into the United States under section 212(d)(5) of such Act for a period of at least 1 year, (5) an alien whose deportation is being withheld under section 243(h) of such Act (as in effect immediately before the effective date of section 307 of division C of Pub. L. 104-208) or section 241(b)(3) of such Act (as amended by section 305(a) of division C of Pub. L. 104-208), (6) an alien who is granted conditional entry pursuant to section 203(a)(7) of such Act as in effect prior to April 1, 1980, (7) an alien who is a Cuban and Haitian entrant (as defined in section 501(e) of the Refugee Education Assistance Act of 1980), or (8) an individual who lawfully resides in the United States in accordance with a Compact of Free Association referred to in section 1612(b)(2)(G) of [title 8].” Qualified aliens also include aliens who have been battered or subject to extreme cruelty in the United States and meet certain requirements.

These proposed regulations would clarify that the eligibility restrictions under PRWORA mentioned above would apply to the refunded portion of the following four refundable tax credits—the adoption tax credit, the CTC, the AOTC, and the EITC. Furthermore, these proposed regulations would provide that only the refunded portion of an affected refundable tax credit is a Federal public benefit. Accordingly, if the taxpayer is eligible for the affected refundable tax credit under the Code, these proposed regulations would bar receipt only of the portion of the sum of those affected refundable tax credits that exceeds the income tax liability imposed by subtitle A (reduced by credits allowable under subparts A, B, D, and G of part IV of subchapter A of chapter 1). If the taxpayer is not a U.S. citizen, U.S. national, or qualified alien, the amount considered to be the overpayment under section 6401(b) that is available for credit, offset, or refund, which may include other refundable tax credits would be reduced by the amount of the Federal public benefit. The proposed regulations would also establish the timing, in accordance with PRWORA, for determining the taxpayer's eligibility for Federal public benefits administered under the Code. Finally, the proposed regulations would clarify the application to joint returns with only one spouse meeting the status requirements under PRWORA.

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

The Department of the Treasury and the IRS estimate that, for tax year 2026, 49 million Federal individual income tax returns ( i.e., taxpayers) will claim at least one of the four affected refundable tax credits—the adoption tax credit, the CTC, the AOTC, and the EITC. Of these taxpayers, an estimated 24 million will claim an affected refundable tax credit that results in a Federal public benefit. The Department of the Treasury and the IRS do not have data on a taxpayer's qualified alien status with respect to PRWORA to precisely estimate the number of affected taxpayers. There is no direct data to estimate the number of non-qualified aliens whose claims for the affected refundable tax credits would be disallowed under the proposed regulation. A rough estimate based on data from the Social Security Administration shared with the IRS for tax administration, United States Citizenship and Immigration Services statistics, 25 and historical Department of Homeland Security estimates of non-immigrants residing in the U.S. 26 suggests that, of the 24 million taxpayers claiming the Federal public benefit, a range of 200,000 to 700,000 taxpayers (0.8 to 2.8 percent) would likely be ineligible to receive it for tax year 2026 because they do not meet the qualified alien status requirements under PRWORA. These estimated numbers of affected taxpayers assume static behavior and do not account for potential behavioral responses to the proposed rulemaking, once finalized, that would affect whether a taxpayer claims an affected refundable tax credit or whether the claim contains a refunded portion.

These proposed regulations would implement PRWORA's requirements for Federal public benefits administered under the Code while minimizing taxpayer burden and other economic effects. In general, the proposed regulations, which would clarify the process for implementing PRWORA to the refunded portions of the affected refundable tax credits, are expected to have limited economic effects. Under the Code, taxpayers are generally required to have a valid SSN to be eligible for these credits. For tax year 2026, approximately only 200 thousand to 700 thousand taxpayers are estimated to be ineligible to receive the refund of the overpayment, have it credited against Federal tax liabilities, or use it to offset non-tax liabilities, due to the proposed regulations. The Department of the Treasury and the IRS do not have data on a taxpayer's qualified alien status with respect to PRWORA to precisely estimate the dollar amount that would be disallowed under the proposed regulations. The estimated average amount of Federal public benefits for all taxpayers whose claims include the refunded portion of at least one affected refundable tax credit is $3,656 in 2026. Applying this average Federal public benefit for all taxpayers to the estimated range of affected taxpayers translates into an estimate of $0.7 billion to $2.6 billion of disallowed credits. In addition, these taxpayers would still be eligible to receive the nonrefunded portion of the credits if they meet eligibility requirements for the credits. Given the limited scope, any potential behavioral responses by affected taxpayers to the proposed regulations, such as changes to the extensive or intensive margin of labor supply decisions, would not be expected to have a significant impact on the economy.

Under the proposed regulations, taxpayers who claim any of the four affected refundable tax credits would need to identify whether their claim for the credits includes a Federal public benefit, which these proposed regulations would limit to the refunded portion of the credits. Tax software, if used by the taxpayer, is expected to automatically generate this amount based on information provided by taxpayers during the return preparation process. This would reduce the compliance burden for taxpayers using software to complete their tax returns. The Department of the Treasury and the IRS estimate that more than 96 percent of the Federal individual income tax returns use assistance from consumer or professional tax software.

As previously explained in the preamble, taxpayers claiming an affected refundable tax credit that results in a Federal public benefit would be required to provide a declaration or attestation, under the penalty of perjury, stating if they are U.S. citizens, U.S. nationals, or qualified aliens under PRWORA who are eligible for the Federal public benefit claimed. Taxpayers would provide a written declaration on the Federal income tax return or on a schedule attached to the return, as prescribed by the IRS, stating their status eligibility for the Federal public benefit claimed. To minimize compliance burden, taxpayers would not be required to provide a separate document attesting eligibility under PRWORA.

An alternative to the aforementioned self-certification process is first to require every individual who claims any of the four affected refundable tax credits to self-certify eligibility status and then require aliens who are not qualified aliens for Federal public benefits under PRWORA to calculate the amount of the overpayment they would not be eligible for.

Relative to the self-certification process, this alternative would subject fewer taxpayers to the identification of overpayments but would require more individuals, including those whose claim for the affected refundable tax credits does not have a refunded portion, to self-certify whether they are U.S. citizens, U.S. nationals, or qualified aliens under PRWORA. To restrict the attestation of eligibility status only to those who are required to self-certify under PRWORA, i.e., those who claim a Federal public benefit, the self-certification process would require that taxpayers claiming any of the affected refundable tax credits first identify the refunded portion of their claim and then only those whose claim has a refunded portion would self-certify eligibility status. Given the wide prevalence of the use of consumer or professional tax software in return preparation, the cost for this calculation of the refunded portion is expected to be insignificant for most taxpayers.

For married individuals filing a joint return, under these proposed regulations, one spouse would be required to be a U.S. citizen, U.S. national, or qualified alien under PRWORA for the married individuals to receive the full refunded portion of the affected refundable tax credits, have it credited against the couple's Federal tax liabilities, or use it to offset the couple's non-tax liabilities. An alternative approach would require married individuals with one spouse who is not a qualified alien to prorate the applicable credit or credits based on IRS-prescribed allocation rules that would account for each spouse's eligibility status and a range of considerations specific to each credit. For example, allocations for the EITC could be based on which spouse had earned income whereas allocations for the other credits could be based on the share of qualified expenses contributed by, or other factors attributable to, each spouse. This alternative is complex because it would subject joint filers claiming the affected refundable tax credits to new credit allocation rules and additional tax computations that would not have been required otherwise. In addition, depending on the credit and the allocation rules, the IRS may lack the necessary third-party information reports to verify the spouse's contributed expenses, income, or other factors used to determine the credit amount for which the qualified alien spouse is eligible. To reduce taxpayer burden and potential return errors, the proposed regulations provide that, for married individuals filing a joint return, if one spouse is a U.S. citizen, a U.S. national, or a qualified alien, then the other spouse would be treated as a qualified alien.

Based on the available data and analysis, the Treasury Department and the IRS estimate that the economic costs and benefits of the proposed regulations will be small. The Treasury Department and the IRS invite public comments on potential alternatives and additional data related to the economic effects that will result from these proposed regulations.

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

The collections of information in these proposed regulations contain reporting and recordkeeping requirements that are necessary to ensure that individual refundable income tax credits are not received by aliens who are not qualified aliens pursuant to PRWORA. The collections will be used by the individual taxpayers claiming one or more of the affected refundable income tax credits to certify their legal status. The IRS will use the information for tax compliance purposes.

The proposed regulations include reporting requirements for taxpayers to self-certify under penalty of perjury that they are a U.S. citizen, U.S. national, or qualified alien who is eligible to receive the claimed refund as described in proposed §§ 1.23-1, 1.23-2, 1.24-2, 1.24-3, 1.25A-6, 1.25A-7, 1.32-1 and 1.32-4. Taxpayers will be able to complete this certification by completing Schedule 3-A, or other form as determined by the Treasury Secretary. Schedule 3-A, or its successor form, will be filed along with their 1040 tax return.

The likely respondents are individuals who file a Form 1040. For purposes of the PRA, the reporting requirements and associated burden will be included in the Paperwork Reduction Act Submissions associated with Form 1040 (OMB control number 1545-0074) and approved by the OMB in accordance with the PRA procedures under 5 CFR 1320.10.

Books or records relating to a collection of information must be retained as long as their contents may become material in the administration of any internal revenue law. Generally, tax returns and tax return information are confidential, as required by 26 U.S.C. 6103. These recordkeeping requirements are considered general tax records under § 1.6001-1(e) and are already approved by the OMB under 1545-0074. This proposed regulation is not creating or changing the general recordkeeping requirements under § 1.6001-1(e).

The Secretary of the Treasury hereby certifies that these proposed regulations would not have a significant economic impact on a substantial number of small entities pursuant to the Regulatory Flexibility Act (5 U.S.C. chapter 6). The proposed rules would not impose any requirement or obligation upon small entities. Accordingly, a regulatory flexibility analysis under the Regulatory Flexibility Act is not required.

Pursuant to section 7805(f) of the Code, the proposed regulations will be submitted to the Chief Counsel for the Office of Advocacy of the Small Business Administration for comment on their impact on small business.

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. These proposed regulations do not include any Federal mandate that may result in expenditures by State, local, or Tribal governments, or by the private sector in excess of that threshold.

Executive Order 13132 (Federalism) prohibits an agency from publishing any rule that has federalism implications if the rule either imposes substantial, direct compliance costs on State and local governments, and is not required by statute, or preempts State law, unless the agency meets the consultation and funding requirements of section 6 of the Executive order. These proposed regulations would not have federalism implications and would 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 Administrative Procedure Act at 5 U.S.C. 553(b)(4), a plain language summary of these proposed regulations is available on the rulemaking docket at https://www.regulations.gov.

Before the proposed regulations are adopted as final regulations, consideration will be given to comments that are submitted timely to the IRS as prescribed in the preamble under the ADDRESSES heading. The Treasury Department and the IRS request comments on all aspects of the proposed regulations. Specifically, the Treasury Department and the IRS request comments on the proposed rule of eligibility determination. All comments submitted will be available at https://www.regulations.gov or upon request.

A public hearing is being held on October 14, 2026, beginning at 10 a.m. ET at the Internal Revenue Service Building, 1111 Constitution Avenue NW, Washington, DC. Due to building security procedures, visitors must enter at the Constitution Avenue entrance. In addition, all visitors must present photo identification to enter the building. Because of access restrictions, visitors will not be admitted beyond the immediate entrance area more than 30 minutes before the hearing starts. Participants may alternatively attend the public hearing by telephone.

The rules of 26 CFR 601.601(a)(3) apply to the hearing. Persons who wish to present oral comments at the hearing must submit an outline of the topics to be discussed as well as the time to be devoted to each topic by October 5, 2026. A period of ten minutes will be allocated to each person for making comments. After the deadline for receiving outlines has passed, the IRS will prepare an agenda containing the schedule of speakers. Copies of the agenda will be made available free of charge at the hearing. If no outlines of the topics to be discussed at the hearing are received by October 5, 2026, the public hearing will be cancelled. If the public hearing is cancelled, a notice of cancellation of the public hearing will be published in the Federal Register .

Individuals who want to testify in person at the public hearing must send an email to publichearings@irs.gov to have their name added to the building access list. The subject line of the email must contain the regulation number REG-119882-25 and the language TESTIFY In Person. For example, the subject line may say: Request to TESTIFY In Person at Hearing for REG-119882-25.

Individuals who want to testify by telephone at the public hearing must send an email to publichearings@irs.gov to receive the telephone number and access code for the hearing. The subject line of the email must contain the regulation number REG-119882-25 and the language TESTIFY Telephonically. For example, the subject line may say: Request to TESTIFY Telephonically at Hearing for REG-119882-25.

Individuals who want to attend the public hearing in person without testifying must also send an email to publichearings@irs.gov to have their name added to the building access list. The subject line of the email must contain the regulation number REG-119882-25 and the language ATTEND In Person. For example, the subject line may say: Request to ATTEND Hearing in Person for REG-119882-25. Requests to attend the public hearing must be received by 5:00 p.m. ET on October 9, 2026.

Individuals who want to attend the public hearing telephonically without testifying must also send an email to publichearings@irs.gov to receive the telephone number and access code for the hearing. The subject line of the email must contain the regulation number REG-119882-25 and the language ATTEND Hearing Telephonically. For example, the subject line may say: Request to ATTEND Hearing Telephonically for REG-119882-25. Requests to attend the public hearing must be received by 5:00 p.m. ET on October 9, 2026.

Hearings will be made accessible to people with disabilities. To request special assistance during the hearing, contact the Publications and Regulations Section of the Office of Associate Chief Counsel (Procedure and Administration) by sending an email to publichearings@irs.gov (preferred) or by telephone at (202) 317-6901 (not a toll-free number) by at least October 8, 2026.

Opinions from the Office of Legal Counsel, Department of Justice, (OLC) that are cited in this preamble are available by visiting the OLC website at https://www.justice.gov/olc/opinions-main (if selected for official publication). If not selected for official publication, an opinion may be available at https://www.justice.gov/olc/olc-foia-electronic-reading-room if it has been posted publicly by the OLC as a matter of discretion, generally because it is the subject of repeated requests or of public or historical interest. The 2020 OLC Opinion cited in this preamble is currently available at the OLC's electronic reading room. The 2025 OLC Opinion cited in this preamble is available at the OLC's main opinions page.

The principal authors of these proposed regulations are personnel from the Office of the Associate Chief Counsel (Income Tax & Accounting), IRS. However, other personnel from the Treasury Department and the IRS participated in their development.

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

On January 12, 2001, the Forest Service promulgated the Roadless Area Conservation Rule (66 FR 3244) at 36 CFR 294 Subpart B to provide long-term protection for 58.5 million acres of inventoried roadless areas across the National Forest System. The 2001 Roadless Rule generally prohibits road construction, road reconstruction, and timber harvesting in these areas, subject to limited exceptions.

Since its promulgation, the 2001 Roadless Rule has been the subject of extensive and complex litigation. The rule has been enjoined and reinstated on multiple occasions. Notably, a 2006 ruling by the U.S. District Court for the Northern District of California set aside a 2005 replacement rule (the State Petitions Rule) and reinstated the 2001 Roadless Rule. The U.S. Court of Appeals for the Ninth Circuit affirmed this decision in California ex rel. Lockyer v. U.S. Department of Agriculture, 575 F.3d 999 (9th Cir. 2009). Consequently, 36 CFR 294 Subpart B, as it was originally promulgated, is the version currently in effect, although the text published in the Code of Federal Regulations has not been amended to remove the State Petitions Rule to reflect this judicial history. In the intervening years, state-specific rules were developed for Idaho (36 CFR 294 Subpart C) and Colorado (36 CFR 294 Subpart D) in response to petitions received under the Administrative Procedure Act at 5 U.S.C. 553(e) and Department regulations at 7 CFR 1.28, and these state-specific rules remain in effect.

The Department is proposing this rule rescission to reduce regulatory burden and return land management decisionmaking for inventoried roadless areas to local Forest Service officials. In 2001, the Roadless Area Conservation Rule established a single, nationwide set of prohibitions intended to provide lasting protection for inventoried roadless areas within the National Forest System in the context of multiple-use management. Today, the Department believes increased management flexibility in the administration of these lands is needed to better meet the multiple-use mission and provide benefits to the American people. This approach prioritizes decisionmaking by local Forest Service officials informed by Tribes, State, and local communities. As explained below, there is a need to increase local management flexibility and, where necessary, allow for active management to respond to changing and localized conditions, such as increasing wildfire risk, the spread of insect and disease infestations, and the need for community protection in the wildland-urban interface.

Under the current Administration, the Department has refocused policies, programs, and resources on increasing rural economic opportunity, decreasing Federal regulation, and streamlining Federal Government services. Specifically, this deregulatory action advances the policy objectives of Executive Order 14192, Unleashing Prosperity Through Deregulation, to alleviate unnecessary regulatory burdens. In Executive Order 14225, Immediate Expansion of American Timber Production, the President declared that “the United States has an abundance of timber resources that are more than adequate to meet our domestic timber production needs, but heavy-handed Federal policies have prevented full utilization of these resources.” In Executive Order 14154, Unleashing American Energy, the President likewise declared that “it is in the national interest to unleash America's affordable and reliable energy and natural resources.” In Executive Order 14153, Unleashing Alaska's Extraordinary Resource Potential, the President declared that “it is the policy of the United States to fully avail itself of Alaska's vast lands and resources” and “maximize the development and production of the natural resources located on both Federal and State lands within Alaska.” Consistent with this policy, Executive Order 14153 directed the Secretary of Agriculture to reinstate the 2020 Alaska Roadless Rule that exempted the Tongass National Forest in Alaska from the 2001 Roadless Rule. This proposed rescission does not mandate timber cutting or road construction but would relieve regulatory burden relative to management of National Forest System lands.

As resource conditions and national policy have evolved, the Department has determined that a single, national blanket approach to the management of inventoried roadless areas taken in the 2001 Roadless Rule constrains responsible officials from exercising the timely, place-based discretion needed to meet the Forest Service's multiple-use mission. In addition, evolving national priorities and changed conditions have required more active management approaches. The 2001 Roadless Rule limited the Forest Service's ability to conduct vegetation management within inventoried roadless areas and has contributed to the lack of active management of the national forests, which in turn has contributed to challenges in addressing forest health concerns. The 2001 Roadless Rule prohibited cutting, sale, or removal of timber—except when one of a limited set of exceptions applied. Per the Rule's text, the use of these exceptions was “expected to be infrequent” (36 CFR 294.13(b) (2001)). In addition, while exceptions were available, their use was limited and inconsistent due to associated reviews and approvals to demonstrate consistency with the 2001 Roadless Rule. Furthermore, the limited number of roads within inventoried roadless areas and the inability to reconstruct or build new roads to provide the needed access further limit management flexibility. Taken together, the prohibitions have removed important management tools for key areas where there are needs or opportunities to address overgrown and fuel-loaded national forests.

This proposed rescission is intended to return primary authority for determining the appropriate management of inventoried roadless areas at the local level to the land management planning process mandated by the National Forest Management Act of 1976 (16 U.S.C. 1600 et seq. ). The National Forest Management Act requires that plans shall assure multiple use and sustained yield of National Forest System products and services and include coordination of outdoor recreation, range, timber, watershed, wildlife and fish, and wilderness (16 U.S.C. 1604(e)(1)). The National Forest Management Act establishes the requirement for the Forest Service to develop land management plans, including direction in 16 U.S.C. 1604(a) and (b) for interdisciplinary planning and consideration of landscape-level conditions. These statutory requirements are implemented through the Agency's land management planning framework, which require consideration of the plan area in the context of the broader landscape and requires that each plan reflects the unit's expected distinct roles and contributions to the local area, region, and Nation. The land management planning framework ensures each land management plan addresses similar conservation objectives as the 2001 Roadless Rule was intended to address, such as ecological integrity (including air, soil, and water), sources of public drinking water, diversity of plant and animal communities (including federally listed threatened and endangered species), sustainable recreation, scenic character, and protection of cultural and historic resources. At the same time, this planning approach allows for place-based, collaborative decisionmaking that is responsive to specific on-the-ground resource conditions, rather than a “one-size-fits-all” national mandate. While national-level considerations are important, land management planning efforts by local decisionmakers at the national forest or regional scale are best positioned to make decisions about inventoried roadless areas because they understand the unique ecological, economic, and social needs of their communities.

In 2001, USDA and the Forest Service asserted that a national prohibition was the best means to reduce conflict and potential for incremental impacts to the ecological and social values of these areas. Since then, conditions across National Forest System lands have changed substantially, especially in the Western United States where many inventoried roadless areas are located, with increasing drought, extreme temperatures, wildfire frequency and severity, and insect and disease outbreaks. Alongside these landscape changes, the Agency's land management planning framework has become more adaptive, science-based, efficient, and effective. These changes, combined with evolving Department priorities for active forest management and deregulation, diminish the basis for a national prohibition. The proposed rule would return land management decisionmaking for inventoried roadless areas to local Forest Service officials—giving them the flexibility to address conservation and resource issues informed by input from stakeholders, communities, and state, local, and tribal governments. Local decisionmaking would remain subject to the substantive requirements of the Endangered Species Act, National Forest Management Act, and other related laws and regulations.

The Secretary of Agriculture has broad authority under statutes such as the Organic Administration Act of 1897 and the Multiple-Use Sustained-Yield Act of 1960 to manage the National Forest System for a variety of uses. Just as the establishment of the 2001 Roadless Rule was discretionary, this proposed rule is an exercise of discretion to determine the most appropriate process for balancing competing values and uses in inventoried roadless areas within that legal framework.

The USDA proposes to rescind the 2001 Roadless Area Conservation Rule by removing and reserving 36 CFR part 294, Subpart B. The state-specific roadless rules for Idaho (36 CFR part 294, Subpart C) and Colorado (36 CFR part 294, Subpart D) will not be affected by this proposed rule and will remain in effect.

If this proposed rule is finalized, the management direction for inventoried roadless areas would continue to be governed by the applicable land management plans for each unit of the National Forest System. This action does not authorize any specific ground-disturbing projects. Nor does it require or compel the amendment or revision of any land management plan. When this rule is implemented, the governing land management plan could still include restrictions on road construction, road reconstruction, and timber harvesting in roadless areas within the management unit, as well as management direction that influences when, where and how these activities may be carried out. Further, any future proposals for timber harvesting or road construction within an inventoried roadless area would require site-specific compliance with the National Environmental Policy Act (NEPA) and other applicable laws, and would have to be consistent with the governing land management plan. Future projects in inventoried roadless areas will be proposed, reviewed, and approved by local Forest Service officials.

Any State, Tribe, or other interested entity seeking to establish roadless management provisions tailored to specific geographic or resource conditions may submit a petition for rulemaking under the Administrative Procedure Act (5 U.S.C. 553(e)) and USDA regulations at 7 CFR 1.28. The Department will consider such petitions consistent with applicable law and policy. Federally recognized Tribes may separately submit requests for related roadless management provisions under government-to-government consultation. Records of such consultation will be retained and may be referenced in future rulemaking. This process ensures that requests for new or modified roadless management approaches are evaluated transparently and in accordance with established rulemaking procedures.

While the Department believes the rescission of the 2001 Roadless Rule is an important step towards reducing regulatory burden and returning decisionmaking to local Forest Service officials, USDA acknowledges the near-term effects of the rescission would be bounded by existing land management plan direction, as well as operability, budget, and legal constraints. Where plans allow, rescission of the 2001 Roadless Rule could increase management flexibility for access (roads), vegetation management, targeted fuels treatments, and access for minerals or energy uses. However, management opportunities would be modest and localized. A discussion of the potential environmental and economic impacts is described in the draft Environmental Impact Statement and cost benefit analysis. A summary of key considerations follows:

• Roads. Budget, conservation objectives, and physical resource limits are expected to constrain new permanent road construction. Following transportation planning, roads could be constructed for a variety of administrative or multiple use benefits, though timber harvest or other vegetation management activity would likely create the greatest need for new roads. Any near-term permanent road additions would be anticipated to occur on lands where current land management plans allow them (but where the 2001 Roadless Rule currently prohibits them)—totaling about 18.2 million acres, or 45.5 percent of the potentially affected environment. Temporary roads, if proposed, are more likely to occur on lands within 0.5 miles of existing roads—totaling about 11.3 million acres, or 28.3 percent of the potentially affected environment. Permanent road construction within the same 0.5-mile band is less likely because of costs, terrain, and maintenance obligations.

• Timber. Rescinding the 2001 Roadless Rule would expand opportunities for active forest management on lands where both operability and plan allowances are met—totaling about 4.8 million acres, or 16 percent of forested areas in potentially affected inventoried roadless areas. The management flexibility or opportunities in these areas could provide resulting benefits, aligned with land management plan desired conditions, such as improving habitat or reducing wildfire risk to resources. In addition, if annual timber harvest in all those areas occurred (which is unlikely due to budgets, unforeseen limits on operability, and market conditions), it could result in an estimated 5 to 10 percent increase in total annual National Forest System sawtimber harvest and $5.2 to $11.4 million per year in revenue to the Treasury and Forest Service and $4.6 to $10.6 million per year in revenue to the timber industry. However, given the small number of operable areas for timber harvest in roadless areas and the large number of variables that may occur, it is difficult to predict the potential impact rule rescission may have on timber harvest. Increased planning flexibility may improve timber sale design (such as more direct haul routes and access to stands that appraise positively). This could lower delivered costs and make some sales more feasible under current plan goals. However, any efficiency gains are expected to be incremental and limited by road costs, maintenance funding gaps, and the $6.9 billion deferred maintenance backlog for roads and bridges.

• Wildfire risk. While greater public access can increase human-caused ignition potential in some locations, the 2001 Roadless Rule's prohibitions have limited mechanical thinning options and some fire control tactics in inventoried roadless areas. Substantial acreage within potentially affected inventoried roadless areas has a relatively high likelihood of burning under high intensity conditions that are difficult to manage or could pose a risk to communities, infrastructure, or drinking water sources. Rescinding the 2001 Roadless Rule would increase opportunities for hazardous fuel treatments in the wildland-urban interface, where 9.8 million acres (or 24 percent) overlap with inventoried roadless areas, and, where justified, would allow strategically placed roads that can improve suppression effectiveness near communities and critical infrastructure.

• Recreation. U.S. National Forests—including inventoried roadless areas—support a wide range of recreation and tourism activities. These lands are used by outfitters, guides, tour operators, visitors, and the general public for recreational fishing, hunting, hiking, bicycling, wildlife viewing, boating, and other recreation and tourism. Under the proposed rule, there could be temporary impacts to recreation and related industry opportunities, including noise, visible infrastructure, and temporary closures. In the longer term, developed and road-based recreation could expand through development of some new permanent roads, though this expansion is uncertain and anticipated to be limited due to land management plans, budget, and resources. This expansion could increase road-based recreation and accessibility improvements but would result in tradeoffs with opportunities for quiet, remote and self-reliant recreation and may increase user conflicts and result in lost economic benefits. Losses in economic benefit to recreationists are most likely to be associated with the operable areas of current IRAs and could be an estimated $6.1 million annually.

• Commercial Fishing and Seafood Processing. Given the small amount of operable areas for timber harvest in roadless areas, the proposed rule is not expected to have a significant change to the commercial fishing or fish-processing industries. Any changes in the long term to land management plans could result in effects to commercial fisheries if resource conditions are affected.

• Minerals and Energy. Locatable mineral exploration and development is generally accompanied by an access right, and therefore, there are no anticipated changes based on the proposed rule. Under this proposed rule, there is additional flexibility for potential future leasable mineral development (primarily oil, gas, and coal) opportunities and it is reasonably foreseeable that some development could occur in potentially affected inventoried roadless areas, resulting in associated costs and benefits. However, it is anticipated that there would be no net change, relative to baseline conditions, in domestic leasable production under the proposed rule for domestic oil, gas, and coal production.

Although the estimated annual economic effects span a wide range, the additional impacts associated with the proposed rule could exceed $100 million. Some industries, including recreation and tourism, could experience trade-offs as a result of the proposed rule. The cost benefit analysis discusses potential industry impacts in more detail for timber, recreation (including tourism), commercial fishing and seafood processing, minerals and energy. The Department is interested in comments on the baselines and range of impacts expected from the proposed rule across relevant industries, and additional data that demonstrates whether these industries would experience direct effects or distributional effects or both, with a description of the data and analytic methods used to determine these effects.

Local responsible officials (forest supervisors and regional foresters) would continue to have discretion to amend or revise a land management plan. If the proposed rule were finalized, subsequent land management plan amendments and revisions could increase the area where timber harvest and road construction would be allowed, resulting in additional management opportunities or impacts beyond those summarized above. While changes to land management plans are beyond the scope of the proposed rule, USDA nevertheless requests comment and estimates on baselines and range of impacts considering subsequent potential changes in land management plans.

On August 29, 2025, the USDA published in the Federal Register a notice of intent (90 FR 42179) to prepare an environmental impact statement and rulemaking concerning the management of inventoried roadless areas on National Forest System lands. During a 21-day public comment period, the USDA received more than 220,000 comment letters on behalf of over 625,000 individuals and organizations. Public comments received during the comment period helped inform the development of alternatives to the proposed rule and analysis of potential environmental impacts in the draft environmental impact statement.

The USDA invites comments on all aspects of this rulemaking, including the alternatives analyzed in the draft environmental impact statement, the expected economic costs and benefits, any reliance interests in the current rule that could be affected by this proposal, and any additional costs and benefits. Comments received during the comment period on the proposed rule and draft environmental impact statement will be considered in developing a final rule and supporting analyses.

Consistent with the Alaska National Interest Lands Conservation Act (ANILCA) Section 810, the Forest Service will hold public subsistence hearings to evaluate potential impacts of the proposed rule on subsistence uses in Alaska. These hearings provide an opportunity for affected communities and individuals to share input on how rescinding the 2001 Roadless Rule may influence subsistence activities, including access to resources and traditional practices. Details regarding the dates, times, and locations of these hearings will be announced in a subsequent notice and posted on the Forest Service's website at https://www.fs.usda.gov/managing-land/planning/roadless. Interested parties may also contact the Forest Service for additional information or to request accommodations for participation. The Forest Service encourages all interested individuals, Tribes, and organizations to attend these hearings and provide input. Comments received during the hearings will be considered in the development of the final rule and supporting analyses.

During the public comment period on the notice of intent to prepare an environmental impact statement for this rulemaking, the Department received a petition for rulemaking from a resident of the State of Alaska, requesting review and potential amendment or repeal of regulations implementing the national Roadless Area Conservation Rule as applied to Alaska. The petitioner asserts that existing Federal statutes guarantee access rights to timber supply and for road construction that are inconsistent with a nationwide prohibition on road building. The petition further requests that any future roadless regulation recognize statutory rights of access for statehood lands, valid existing rights, mining claims, and inholdings, and exclude areas where roads already exist. The petition is included in the project record, and the Department is considering these issues as part of this rulemaking.

Executive Order (E.O.) 12866 provides that the Office of Information and Regulatory Affairs (OIRA) in the Office of Management and Budget will determine whether a regulatory action is significant as defined by E.O. 12866 and will review significant regulatory actions. This proposed rule has been determined to be economically significant under E.O. 12866 section 3(f)(1). E.O. 13563 reaffirms the principles of E.O. 12866 while calling for improvements in the Nation's regulatory system to promote predictability, to reduce uncertainty, and to use the best, most innovative, and least burdensome tools for achieving regulatory ends. The Department has developed the proposed rule consistent with E.O. 13563.

On August 29, 2025, the USDA published in the Federal Register a notice of intent (90 FR 42179) to prepare an environmental impact statement and rulemaking concerning the management of inventoried roadless areas on National Forest System lands. The comments received helped inform the development of alternatives in the draft environmental impact statement to the proposed rule.

Accompanying the proposed rule, the USDA has prepared a draft environmental impact statement that discloses the potential environmental impacts that may result from the proposed rule and its alternatives. All documents, including the proposed rule and other supporting information, may be found at https://www.regulations.gov, under docket number FS-2025-0001, or on the following website: https://www.fs.usda.gov/managing-land/planning/roadless.

This draft environmental impact statement is also being published to facilitate comments on the proposal and alternatives in accordance with Department regulations (7 CFR 1b.7(n)). The USDA invites written electronic comments on the proposed rule and draft environmental impact statement per the instructions provided in the ADDRESSES section above. Substantive comments received will be published electronically and will be considered in developing the final environmental impact statement and final rule.

This proposed rule has been considered in light of E.O. 13272 that addresses the Regulatory Flexibility Act (5 U.S.C. 601-612), as amended, which requires agencies to prepare and make available to the public a regulatory flexibility analysis that describes the economic effect of a proposed or final rule on small entities (that is, small businesses, small organizations, and small governmental jurisdictions) when the agency is required to publish a general notice of proposed rulemaking for a rule. Furthermore, section 605 of the Regulatory Flexibility Act 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. This proposed rule is not expected to impose any direct requirements or compliance obligations on small entities. Further, this rule is intended to remove a redundant layer of regulation. The Department nevertheless has considered the effects of the proposed rule on small entities and prepared a regulatory flexibility analysis. The analysis can be found at https://www.regulations.gov, under docket number FS-2025-0001, or on the following website: https://www.fs.usda.gov/managing-land/planning/roadless. The Forest Service is directly affected by this rulemaking and is not a small entity. The proposed rule imposes no costs or recordkeeping requirements on small entities; nor does it seek to impose any direct regulatory restrictions on any small entities. A number of small and large entities may experience greater flexibility under the proposed rule or otherwise benefit from it. In consideration of the facts and analysis set forth in the regulatory flexibility analysis prepared by the Forest Service, the undersigned has determined and certified by signature on this document that this proposed rule will not have a significant economic impact on a substantial number of small entities.

The Department has considered this proposed rule under the requirements of E.O. 13132, Federalism. The Department has determined that the proposed rule conforms with the federalism principles set out in this E.O., would not impose compliance costs on the States, and would not have substantial direct effects on the States, on the relationship between the Federal government and the States, or on the distribution of power and responsibilities among the various levels of government. Therefore, the Department has concluded that this proposed rule would not have federalism implications.

E.O. 13175, Consultation and Coordination with Indian Tribal Governments, 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. While Section I(B) of the Office of Management and Budget memorandum on Streamlining the Review of Deregulatory Actions (M-25-36, October 21, 2025) states that rescinding a regulation does not inherently require consultation, the Department has determined that removing and reserving 36 CFR part 294 Subpart B would have substantial direct effects on 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 and therefore warrants consultation under E.O. 13175. Accordingly, the U.S. Forest Service will coordinate with the Department's Office of Tribal Relations to ensure meaningful consultation occurs, and the remainder of this section summarizes Tribal engagements and input received to date.

On July 22, 2025, the Forest Service notified Tribes and Alaska Native Corporations of the opportunity to consult on the rulemaking to rescind the 2001 Roadless Rule, with a summary analysis of proposed changes and an invitation to a Tribal forum engagement session. This information was also emailed to Regional Foresters on July 25, 2025. The Forest Service Office of Tribal Relations held a Tribal forum engagement session on August 5, 2025.

To date, the Forest Service received 64 requests for consultation, 34 consultations have been scheduled, and 29 consultations have been held. Tribal consultations were held either in person or virtually with local or regional Forest Service line officers serving as consulting officials. Some Tribes submitted letters in lieu of, or in addition to, consultations. Consultations will be ongoing throughout the rulemaking process, and a final Tribal Impact Summary Statement will be included with the final rule. In addition, many Tribes submitted comment letters during the public comment period on the notice of intent published on August 29, 2025. The comment letters received from Tribes or Tribal organizations during the comment period (via hardcopy or the regulations.gov comment portal) were included in the public comment summary and considered in the development of the draft environmental impact statement and proposed rule. The summary below includes the input received to date through the consultation process.

The majority sentiment among Tribal governments consulted is opposition to the proposed rescission of the 2001 Roadless Rule, viewing it as a threat to inherent rights, Tribal sovereignty, cultural survival, and the ecological health of ancestral homelands. Support for the proposed rescission of the 2001 Roadless Rule was received from an Alaska Native Corporation, which asserted that the national rule limits their economic and legal rights to access and develop lands. According to the majority Tribal sentiment, a central procedural concern is the Federal Government's failure to fulfill its trust responsibilities by proceeding without adequate government-to-government consultation. Tribes consistently argued that removing this layer of national protection shifts the unsustainable burden of project-level review onto their limited resources and exposes previously untouched areas to industrial activity, mining interests, and destructive recreational access, all of which threaten sacred sites, traditional gathering areas, water quality, and subsistence resources. Proposed alternatives that were frequently requested included retaining the existing rule (“No Action”) or establishing new co-management structures, such as a “Strengthened Roadless Rule Alternative” or a “Traditional Homelands Conservation Rule” that integrates Traditional Ecological Knowledge, Tribal co-stewardship, and Tribal consent for major decisions. For ancestral lands in Alaska, representatives stressed the need for a comprehensive ANILCA Section 810 subsistence analysis prior to any decision and noted the global climate significance of the forest as a critical carbon sink.

A complete Tribal summary impact statement may be found at https://www.regulations.gov, under docket number FS-2025-0001, or on the following website: https://www.fs.usda.gov/managing-land/planning/roadless.

Section 654 of the Treasury and General Government Appropriations Act, 1999 (Pub. L. 105-277), requires Federal agencies to issue a Family Policymaking Assessment for a rule that may affect family well-being. The proposed rule would have no impact on the autonomy or integrity of the family as an institution. Accordingly, the Department has concluded that it is not necessary to prepare a Family Policymaking Assessment for the proposed rule.

The Department has analyzed the proposed rule in accordance with the principles and criteria in E.O. 12630, Governmental Actions and Interference with Constitutionally Protected Property Rights. The Department has determined that the proposed rule would not pose the risk of a taking of private property.

The Department has reviewed the proposed rule under E.O. 13211, Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use. The Department has determined that the proposed rule would not constitute a significant energy action as defined in E.O. 13211.

The Department has analyzed the proposed rule in accordance with the principles and criteria in E.O. 12988, Civil Justice Reform. Upon publication of the proposed rule, (1) all State and local laws and regulations that conflict with the proposed rule or that impede its full implementation would be preempted; (2) no retroactive effect would be given to this proposed rule; and (3) it would not require administrative proceedings before parties may file suit in court challenging its provisions.

Pursuant to Title II of the Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1531-1538), the Department has assessed the effects of the proposed rule on State, local, and Tribal governments and the private sector. The proposed rule would not compel the expenditure of $100 million or more, adjusted annually for inflation, in any 1 year by State, local, and Tribal governments in the aggregate or by the private sector. Therefore, a statement under section 202 of the Act is not required.

The proposed rule does not contain any recordkeeping or reporting requirements or other information collection requirements as defined in 5 CFR part 1320 that are not already required by law or not already approved for use. Accordingly, the review provisions of the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq. ) and its implementing regulations at 5 CFR part 1320 do not apply.

For the reasons set forth in the preamble, the Department of Agriculture proposes to amend part 294 of title 36 of the Code of Federal Regulations as follows:

EPA is issuing a proposed rule to partially delete three sites from the NPL and requests public comments on these proposed actions. The NPL constitutes appendix B of 40 CFR part 300 which is the NCP, which EPA created under section 105 of the CERCLA statute of 1980, as amended. EPA maintains the NPL as those sites that appear to present a significant risk to public health, welfare, or the environment. Sites on the NPL may be the subject of remedial actions financed by the Hazardous Substance Superfund (Fund). These partial deletions are proposed in accordance with 40 CFR 300.425(e) and are consistent with the Notice of Policy Change: Partial Deletion of Sites Listed on the National Priorities List. 60 FR 55466 (November 1, 1995). As described in 40 CFR 300.425(e)(3) of the NCP, a site or portion of a site deleted from the NPL remains eligible for Fund-financed remedial action if future conditions warrant such actions.

EPA will accept comments on the proposal to delete or partially delete these sites for thirty (30) days after publication of this document in the Federal Register .

Section II. of this document explains the criteria for deleting sites from the NPL. Section III. of this document discusses procedures that EPA is using for this action. Section IV. of this document discusses the site or portion of the site proposed for deletion and demonstrates how it meets the deletion criteria, including reference documents with the rationale and data principally relied upon by the EPA to determine that the Superfund response is complete.

The NCP establishes the criteria that EPA uses to delete sites from the NPL. In accordance with 40 CFR 300.425(e), sites may be deleted from the NPL where no further response is appropriate. In making such a determination pursuant to 40 CFR 300.425(e), EPA will consider, in consultation with the State, whether any of the following criteria have been met:

i. Responsible parties or other persons have implemented all appropriate response actions required;

ii. All appropriate Fund-financed response under CERCLA has been implemented, and no further response action by responsible parties is appropriate; or

iii. The remedial investigation has shown that the release poses no significant threat to public health or the environment and, therefore, the taking of remedial measures is not appropriate.

Pursuant to CERCLA section 121(c) and the NCP, EPA conducts five-year reviews to ensure the continued protectiveness of remedial actions where hazardous substances, pollutants, or contaminants remain at a site above levels that allow for unlimited use and unrestricted exposure. EPA conducts such five-year reviews even if a site is deleted from the NPL. EPA may initiate further action to ensure continued protectiveness at a deleted site if new information becomes available that indicates it is appropriate. Whenever there is a significant release from a site deleted from the NPL, the deleted site may be restored to the NPL without application of the hazard ranking system.

In accordance with 40 CFR 300.425(e), the following procedures apply to the deletion or partial deletion of the sites in this proposed rule:

(1) EPA consulted with the respective State before developing this Notice of Intent for deletion.

(2) EPA has provided the State 30 working days for review of site deletion documents prior to publication of it today.

(3) In accordance with the criteria discussed above, EPA has determined that no further response is appropriate.

(4) The State, through their designated State agency, has concurred with the proposed deletion action.

(5) Concurrently, with the publication of this Notice of Intent for deletion in the Federal Register , a notice is being distributed to the surrounding community via one or more of the following methods: publication in a major local newspaper of general circulation near the site, a news release, listservs, social media, or the site's web page. The notice announces the 30-day public comment period concerning the proposed action for deletion.

(6) EPA placed copies of documents supporting the proposed deletion in the deletion docket and made these items available for public inspection and copying at the Regional Records Center identified above.

If comments are received within the 30-day comment period on this document, EPA will consider the comments and respond accordingly before making a final decision to delete or partially delete the site. If necessary, EPA will prepare a Responsiveness Summary to address any significant public comments received. After the public comment period, if EPA determines it is still appropriate to delete or partially delete the site, the EPA will publish a final Notice of Deletion or Partial Deletion in the Federal Register . Public notices, public submissions and copies of the Responsiveness Summary, if prepared, will be made available to interested parties and included in the site information repositories listed above.

Deletion of a site or a portion of a site from the NPL does not itself create, alter, or revoke any individual's rights or obligations. Deletion of a site or a portion of a site from the NPL does not in any way alter EPA's right to take enforcement actions, as appropriate. The NPL is designed primarily for informational purposes and to assist EPA management. Section 300.425(e)(3) of the NCP states that the deletion of a site from the NPL does not preclude eligibility for future response actions, should future conditions warrant such actions.

The sites to be deleted or partially deleted from the NPL, the location of the site, and docket number with information including reference documents with the rationale and data principally relied upon by the EPA to determine that the Superfund response is complete are specified in table 1. The NCP permits activities to occur at a deleted site, or that media or parcel of a partially deleted site, including operation and maintenance of the remedy, monitoring, and five-year reviews. These activities for the site, or portion of the site being deleted, are entered in table 1, if applicable, under Footnote such that; 1 = site, or portion of the site, has continued operation and maintenance of the remedy, 2 = site, or portion of the site, receives continued monitoring, and 3 = site, or portion of the site, five-year reviews are conducted.

Table 2 includes information concerning whether the full site is proposed for deletion from the NPL or a description of the area, media or Operable Units (OUs) of the NPL site proposed for partial deletion from the NPL.

EPA maintains the NPL as the list of sites that appear to present a significant risk to public health, welfare, or the environment. Deletion from the NPL does not preclude further remedial action. Whenever there is a significant release from a site deleted from the NPL, the deleted site may be restored to the NPL without application of the hazard ranking system. Deletion of a site from the NPL does not affect responsible party liability in the unlikely event that future conditions warrant further actions.