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FR

FR-2024-07-09/2024-14994

Federal Register Volume 89 Issue 131 (July 9, 2024)

United States National Archives and Records Administration Office of the Federal Register

[Federal Register Volume 89, Number 131 (Tuesday, July 9, 2024)] [Notices] [Pages 56404-56406] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 2024-14994] ----------------------------------------------------------------------- DEPARTMENT OF THE INTERIOR National Park Service [NPS-WASO-NRNHL-DTS#-38255; PPWOCRADI0, PCU00RP14.R50000] National Register of Historic Places; Notification of Pending Nominations and Related Actions AGENCY: National Park Service, Interior. ACTION: Notice. ----------------------------------------------------------------------- SUMMARY: The National Park Service is soliciting electronic comments on the significance of properties nominated before June 29, 2024, for listing or [[Page 56405]] related actions in the National Register of Historic Places. DATES: Comments should be submitted electronically by July 24, 2024. ADDRESSES: Comments are encouraged to be submitted electronically to [email protected] with the subject line ``Public Comment on .'' If you have no access to email, you may send them via U.S. Postal Service and all other carriers to the National Register of Historic Places, National Park Service, 1849 C Street NW, MS 7228, Washington, DC 20240. FOR FURTHER INFORMATION CONTACT: Sherry A. Frear, Chief, National Register of Historic Places/National Historic Landmarks Program, 1849 C Street NW, MS 7228, Washington, DC 20240, [email protected], 202- 913-3763. SUPPLEMENTARY INFORMATION: The properties listed in this notice are being considered for listing or related actions in the National Register of Historic Places. Nominations for their consideration were received by the National Park Service before June 29, 2024. Pursuant to section 60.13 of 36 CFR part 60, comments are being accepted concerning the significance of the nominated properties under the National Register criteria for evaluation. Before including your address, phone number, email address, or other personal identifying information in your comment, you should be aware that your entire comment--including your personal identifying information--may be made publicly available at any time. While you can ask us in your comment to withhold your personal identifying information from public review, we cannot guarantee that we will be able to do so. Nominations submitted by State or Tribal Historic Preservation Officers Key: State, County, Property Name, Multiple Name (if applicable), Address/Boundary, City, Vicinity, Reference Number. KANSAS Ford County Fort Dodge--Junior Officers' Quarters, (Santa Fe Trail MPS), 266 Custer Street, Fort Dodge, MP100010625 Neosho County Sturdevant Hardware Building, 29-31 W Main, Chanute, SG100010601 Wabaunsee County Pearl Opera House, (Theaters and Opera Houses of Kansas MPS), 601 Main Street, Alta Vista, MP100010620 MICHIGAN Wayne County United States Post Office Plymouth Station, 860 Penniman Avenue, Plymouth, SG100010627 MINNESOTA Crow Wing County Cuyuna Village Hall, 24945 Minnesota Avenue, Cuyuna, SG100010629 St. Louis County United Protestant Church, 830 88th Avenue West, Duluth, SG100010635 NEW YORK Albany County Selfridge & Langford Building, 97-101 Central Avenue, Albany, SG100010630 Cattaraugus County Nies Block, 63-87 Main Street, Salamanca, SG100010608 Erie County Austin Street Police Athletic League (PAL) Center, (Black Rock Planning Neighborhood MPS), 348 Austin Street, Buffalo, MP100010612 Franklin County Berkeley Square Historic District (Boundary Increase), Blocks roughly bounded by Broadway, Main, Olive, and Woodruff Sts., Saranac Lake vicinity, BC100010618 Genesee County Oakfield High School, 1 North Pearl Street, Oakfield, SG100010613 Herkimer County Dolgeville Universalist Church, 78 South Main St., Dolgeville, SG100010614 Monroe County Wimbledon Road Historic District, 201-300 Wimbledon Road, Rochester vicinity, SG100010617 New York County Audubon Park Historic District, Generally, Broadway, Riverside Drive, Riverside Drive West, West 155th, 156th, 157th, and West 158th Street, and Edward M. Morgan Place, New York, SG100010615 Onondaga County National Casket Company Building, 719 East Genesee Street, Syracuse, SG100010632 Orange County Black Walnut Island 2, Address Restricted, Pine Island vicinity, SG100010633 Rensselaer County Neemes Foundry, 206 First Street, Troy, SG100010631 St. Lawrence County Hale Cemetery, 3366 County Route 47, Norfolk, SG100010607 VIRGIN ISLANDS St. Croix District Kingshill Lutheran Church, 18-AA Upper Bethlehem, St. Croix, Frederiksted vicinity, SG100010640 Holy Cross Episcopal Church, 1 Estate Upper Love, Frederiksted vicinity, SG100010641 Sprat Hall Historic District, 29 Sprat Hall, Frederiksted vicinity, SG100010646 La Grange Historic District, Parcels 74, 75, 242, 40, 64 Estate La Grange, Frederiksted vicinity, SG100010647 St. John District, East End Schoolhouse: St. John US Virgin Islands, 6-K Hansen Bay, St. John vicinity, SG100010648 Benjamin Franklin School, 2 Estate Emmaus, Coral Bay, SG100010650 St. Thomas District Barracks No. 2, (World War II Naval and Military Operations in the U.S. Virgin Islands, 1935-1950 MPS), 8189 Subbase Road, Charlotte Amalie vicinity, MP100010644 Evelyn E. Marcelli Elementary School, Haabets Gade 4, Charlotte Amalie vicinity, SG100010645 WEST VIRGINIA Mercer County Bluefield Green Book Historic District, (Green Book Sites in West Virginia MPS), 1039-1047 Wayne Street, Bluefield, MP100010606 WISCONSIN Waupaca County William H. Hatten Recreation Park, 801 Werner-Allen Road, New London, SG100010639 An owner objection received for the following resource(s): MINNESOTA Winona County Holy Trinity School, 101 Broadway Street, Rollingstone, SG100010636 A request for removal has been made for the following resource(s): MICHIGAN Wayne County Mellus Newspapers Building, 1661 Fort St., Lincoln Park, OT05000716 St. Thomas the Apostle Catholic Church and Rectory, 8363-8383 Townsend Ave., Detroit, OT89000785 An additional documentation has been received for the following resource(s): NEW YORK Franklin County Berkeley Square Historic District (Additional Documentation), 30-84 Main St., 2-29 Broadway, Saranac Lake, AD88000114 New York County Greenwich Village Historic District (Additional Documentation), Roughly bounded by W 13th St., St. Luke's Pl., [[Page 56406]] University Pl., and Washington St., New York, AD79001604 TENNESSEE Montgomery County Rexinger, Samuel, House (Additional Documentation), 813 College Street, Clarksville, AD77001284 Smith-Hoffman House (Additional Documentation), 149 Plum Street, Clarksville, AD77001285 VIRGIN ISLANDS St. Thomas District Hassel Island (Additional Documentation), S of Charlotte Amalie in St. Thomas Harbor, Charlotte Amalie vicinity, AD76001862 Authority: Section 60.13 of 36 CFR part 60 Sherry A. Frear, Chief, National Register of Historic Places/National Historic Landmarks Program. [FR Doc. 2024-14994 Filed 7-8-24; 8:45 am] BILLING CODE 4312-52-P

usgpo

2024-10-08T13:27:01.663047

FR

FR-2024-07-09/2024-15059

Federal Register Volume 89 Issue 131 (July 9, 2024)

United States National Archives and Records Administration Office of the Federal Register

[Federal Register Volume 89, Number 131 (Tuesday, July 9, 2024)] [Notices] [Pages 56406-56407] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 2024-15059] ======================================================================= ----------------------------------------------------------------------- INTERNATIONAL TRADE COMMISSION [Investigation No. 337-TA-1406] Certain Memory Devices and Electronic Devices Containing the Same; Notice of Institution of Investigation AGENCY: U.S. International Trade Commission. ACTION: Notice. ----------------------------------------------------------------------- SUMMARY: Notice is hereby given that a complaint was filed with the U.S. International Trade Commission on June 3, 2024, under section 337 of the Tariff Act of 1930, as amended, on behalf of MimirIP LLC of Dallas, Texas. Supplements to the complaint were filed on June 21, 2024, and June 24, 2024. The complaint alleges violations of section 337 based upon the importation into the United States, the sale for importation, and the sale within the United States after importation of certain memory devices and electronic devices containing the same by reason of the infringement of certain claims of U.S. Patent No. 7,468,928 (``the '928 patent''); U.S. Patent No. 7,579,846 (``the '846 patent''); and U.S. Patent No. 8,036,053 (``the '053 patent''). The complaint further alleges that an industry in the United States exists as required by the applicable Federal Statute. The complainant requests that the Commission institute an investigation and, after the investigation, issue a limited exclusion order and cease and desist orders. ADDRESSES: The complaint, except for any confidential information contained therein, may be viewed on the Commission's electronic docket (EDIS) at https://edis.usitc.gov. For help accessing EDIS, please email [email protected]. Hearing impaired individuals are advised that information on this matter can be obtained by contacting the Commission's TDD terminal on (202) 205-1810. Persons with mobility impairments who will need special assistance in gaining access to the Commission should contact the Office of the Secretary at (202) 205- 2000. General information concerning the Commission may also be obtained by accessing its internet server at https://www.usitc.gov. FOR FURTHER INFORMATION CONTACT: Pathenia M. Proctor, The Office of Unfair Import Investigations, U.S. International Trade Commission, telephone (202) 205-2560. SUPPLEMENTARY INFORMATION: Authority: The authority for institution of this investigation is contained in section 337 of the Tariff Act of 1930, as amended, 19 U.S.C. 1337, and in section 210.10 of the Commission's Rules of Practice and Procedure, 19 CFR 210.10 (2024). Scope of Investigation: Having considered the complaint, the U.S. International Trade Commission, on July 3, 2024, ordered that-- (1) Pursuant to subsection (b) of section 337 of the Tariff Act of 1930, as amended, an investigation be instituted to determine whether there is a violation of subsection (a)(1)(B) of section 337 in the importation into the United States, the sale for importation, or the sale within the United States after importation of certain products identified in paragraph (2) by reason of infringement of one or more of claims 1-3 of the '928 patent; claims 1-28 of the '846 patent; and claims 1-9 of the '053 patent; and whether an industry in the United States exists as required by subsection (a)(2) of section 337; (2) Pursuant to section 210.10(b)(1) of the Commission's Rules of Practice and Procedure, 19 CFR 210.10(b)(1), the plain language description of the accused products or category of accused products, which defines the scope of the investigation, is ``certain DRAM memory, DRAM modules, DRAM Components, and Design-in DRAM; and smart devices, augmented and virtual reality products, automotive computers, automotive media control units, computers, laptops, desktops, workstations, tablets, and servers containing the same''; (3) Pursuant to Commission Rule 210.50(b)(l), 19 CFR 210.50(b)(1), the presiding administrative law judge shall take evidence or other information and hear arguments from the parties or other interested persons with respect to the public interest in this investigation, as appropriate, and provide the Commission with findings of fact and a recommended determination on this issue, which shall be limited to the statutory public interest factors set forth in 19 U.S.C. l337(d)(l), (f)(1), (g)(1); (4) For the purpose of the investigation so instituted, the following are hereby named as parties upon which this notice of investigation shall be served: (a) The complainant is: MimirIP LLC, 9330 LBJ Freeway, Suite 900, Dallas, TX (b) The respondents are the following entities alleged to be in violation of section 337, and are the parties upon which the complaint is to be served: Micron Technology Inc., 6360 South Federal Way, Post Office Box 6, Boise ID 83716 Hewlett Packard Enterprise Co., 1701 E Mossy Oaks Rd., Spring, TX 77389 HP, Inc., 1501 Page Mill Road, Palo Alto, CA 94304 Kingston Technology Company, Inc., 17600 Newhope Street, Fountain Valley, CA 92708 Lenovo Group Limited, 23rd Floor, Lincoln House, Taikoo Place, 979 King's Road, Quarry Bay, Hong Kong, S.A.R. of China Lenovo (United States) Inc., 8001 Development Drive, Morrisville, NC 27560 Tesla Inc., 1 Tesla Road, Austin, TX 78725 (c) The Office of Unfair Import Investigations, U.S. International Trade Commission, 500 E Street SW, Suite 401, Washington, DC 20436; and (5) For the investigation so instituted, the Chief Administrative Law Judge, U.S. International Trade Commission, shall designate the presiding Administrative Law Judge. Responses to the complaint and the notice of investigation must be submitted by the named respondents in accordance with section 210.13 of the Commission's Rules of Practice and Procedure, 19 CFR 210.13. Pursuant to 19 CFR 201.16(e) and 210.13(a), as amended in 85 FR 15798 (March 19, 2020), such responses will be considered by the Commission if received not later than 20 days after the date of service by the complainant of the complaint and the notice of investigation. Extensions of time for submitting responses to the complaint and the notice of investigation will not be granted unless good cause therefor is shown. [[Page 56407]] Failure of a respondent to file a timely response to each allegation in the complaint and in this notice may be deemed to constitute a waiver of the right to appear and contest the allegations of the complaint and this notice, and to authorize the administrative law judge and the Commission, without further notice to the respondent, to find the facts to be as alleged in the complaint and this notice and to enter an initial determination and a final determination containing such findings, and may result in the issuance of an exclusion order or a cease and desist order or both directed against the respondent. By order of the Commission. Issued: July 3, 2024. Lisa Barton, Secretary to the Commission. [FR Doc. 2024-15059 Filed 7-8-24; 8:45 am] BILLING CODE 7020-02-P

usgpo

2024-10-08T13:27:01.711872

FR

FR-2024-07-09/2024-15058

Federal Register Volume 89 Issue 131 (July 9, 2024)

United States National Archives and Records Administration Office of the Federal Register

[Federal Register Volume 89, Number 131 (Tuesday, July 9, 2024)] [Notices] [Pages 56407-56408] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 2024-15058] ----------------------------------------------------------------------- INTERNATIONAL TRADE COMMISSION [Investigation Nos. 701-TA-712-715 and 731-TA-1679-1682 (Final)] Ferrosilicon From Brazil, Kazakhstan, Malaysia, and Russia; Scheduling of the Final Phase of Countervailing Duty and Antidumping Duty Investigations AGENCY: United States International Trade Commission. ACTION: Notice. ----------------------------------------------------------------------- SUMMARY: The Commission hereby gives notice of the scheduling of the final phase of antidumping and countervailing duty investigation Nos. 701-TA-712-715 and 731-TA-1679-1682 (Final) pursuant to the Tariff Act of 1930 (``the Act'') to determine whether an industry in the United States is materially injured or threatened with material injury, or the establishment of an industry in the United States is materially retarded, by reason of imports of ferrosilicon from Russia, provided for in subheadings 7202.21 and 7202.29 of the Harmonized Tariff Schedule of the United States, preliminarily determined by the Department of Commerce (``Commerce'') to be subsidized by the Government of Russia and alleged to be sold in the United States at less than fair value. Determinations with respect to imports of ferrosilicon from Brazil, Kazakhstan, and Malaysia, alleged to be subsidized by the Governments of Brazil, Kazakhstan, and Malaysia and alleged to be sold in the United States at less than fair value, are pending. DATES: June 28, 2024. FOR FURTHER INFORMATION CONTACT: Lawrence Jones ((202) 205-3358), Office of Investigations, U.S. International Trade Commission, 500 E Street SW, Washington, DC 20436. Hearing-impaired persons can obtain information on this matter by contacting the Commission's TDD terminal on 202-205-1810. Persons with mobility impairments who will need special assistance in gaining access to the Commission should contact the Office of the Secretary at 202-205-2000. General information concerning the Commission may also be obtained by accessing its internet server (https://www.usitc.gov). The public record for these investigations may be viewed on the Commission's electronic docket (EDIS) at https://edis.usitc.gov. SUPPLEMENTARY INFORMATION: Scope.--For purposes of these investigations, Commerce has defined the subject merchandise as covering ``all forms and sizes of ferrosilicon, regardless of grade, including ferrosilicon briquettes. Ferrosilicon is a ferroalloy containing by weight 4 percent or more iron, more than 8 percent but not more than 96 percent silicon, 3 percent or less phosphorus, 30 percent or less manganese, less than 3 percent magnesium, and 10 percent or less any other element. The merchandise covered also includes product described as slag, if the product meets these specifications. Subject merchandise includes material matching the above description that has been finished, packaged, or otherwise processed in a third country, including by performing any grinding or any other finishing, packaging, or processing that would not otherwise remove the merchandise from the scope of the investigations if performed in the country of manufacture of the ferrosilicon. Ferrosilicon is currently classifiable under subheadings 7202.21.1000, 7202.21.5000, 7202.21.7500, 7202.21.9000, 7202.29.0010, and 7202.29.0050 of the Harmonized Tariff Schedule of the United States (HTSUS). While the HTSUS numbers are provided for convenience and customs purposes, the written description of the scope remains dispositive.'' Background.--The final phase of these investigations is being scheduled pursuant to sections 705(b) and 731(b) of the Act (19 U.S.C. 1671d(b) and 1673d(b)), as a result of affirmative preliminary determinations by Commerce that certain benefits provided by the Government of Russia, which constitute subsidies within the meaning of Sec. 703 of the Act (19 U.S.C. 1671b), are being provided to manufacturers, producers, or exporters of ferrosilicon in Russia, and that such products are being sold in the United States at less than fair value within the meaning of Sec. 733 of the Act (19 U.S.C. 1673b). Determinations with respect to imports of ferrosilicon from Brazil, Kazakhstan, and Malaysia, alleged to be subsidized by the Governments of Brazil, Kazakhstan, and Malaysia and alleged to be sold in the United States at less than fair value, are pending. The investigations were requested in petitions filed on March 28, 2024, by Ferroglobe USA, Inc., Beverly, Ohio and CC Metals and Alloys, LLC, Calvert City, Kentucky. For further information concerning the conduct of this phase of the investigations, hearing procedures, and rules of general application, consult the Commission's Rules of Practice and Procedure, part 201, subparts A and B (19 CFR part 201), and part 207, subparts A and C (19 CFR part 207). Participation in the investigations and public service list.-- Persons, including industrial users of the subject merchandise and, if the merchandise is sold at the retail level, representative consumer organizations, wishing to participate in the final phase of these investigations as parties must file an entry of appearance with the Secretary to the Commission, as provided in Sec. 201.11 of the Commission's rules, no later than 21 days prior to the hearing date specified in this notice. A party that filed a notice of appearance during the preliminary phase of the investigations need not file an additional notice of appearance during this final phase. The Secretary will maintain a public service list containing the names and addresses of all persons, or their representatives, who are parties to the investigations. Please note the Secretary's Office will accept only electronic filings during this time. Filings must be made through the Commission's Electronic Document Information System (EDIS, https://edis.usitc.gov). No in-person paper-based filings or paper copies of any electronic filings will be accepted until further notice. Limited disclosure of business proprietary information (BPI) under an administrative protective order (APO) and BPI service list.-- Pursuant to Sec. 207.7(a) of the Commission's rules, the Secretary will make BPI gathered in the final phase of these investigations available to authorized applicants under the APO issued in the investigations, provided that the application is made no later than 21 days prior to the hearing date specified in this notice. [[Page 56408]] Authorized applicants must represent interested parties, as defined by 19 U.S.C. 1677(9), who are parties to the investigations. A party granted access to BPI in the preliminary phase of the investigations need not reapply for such access. A separate service list will be maintained by the Secretary for those parties authorized to receive BPI under the APO. Staff report.--The prehearing staff report in the final phase of these investigations will be placed in the nonpublic record on August 19, 2024, and a public version will be issued thereafter, pursuant to Sec. 207.22 of the Commission's rules. Hearing.--The Commission will hold a hearing in connection with the final phase of these investigations beginning at 9:30 a.m. on Wednesday, September 4, 2024. Requests to appear at the hearing should be filed in writing with the Secretary to the Commission on or before Tuesday, August 27, 2024. Any requests to appear as a witness via videoconference must be included with your request to appear. Requests to appear via videoconference must include a statement explaining why the witness cannot appear in person; the Chairman, or other person designated to conduct the investigations, may in their discretion for good cause shown, grant such a request. Requests to appear as remote witness due to illness or a positive COVID-19 test result may be submitted by 3:00 p.m. the business day prior to the hearing. Further information about participation in the hearing will be posted on the Commission's website at https://www.usitc.gov/calendarpad/calendar.html. A nonparty who has testimony that may aid the Commission's deliberations may request permission to present a short statement at the hearing. All parties and nonparties desiring to appear at the hearing and make oral presentations should attend a prehearing conference, if deemed necessary, to be held at 9:30 a.m. on Tuesday, September 3, 2024. Parties shall file and serve written testimony and presentation slides in connection with their presentation at the hearing by no later than 4:00 p.m. on Tuesday, September 3, 2024 (one business day prior to hearing). Oral testimony and written materials to be submitted at the public hearing are governed by sections 201.6(b)(2), 201.13(f), and 207.24 of the Commission's rules. Parties must submit any request to present a portion of their hearing testimony in camera no later than 7 business days prior to the date of the hearing. Written submissions.--Each party who is an interested party shall submit a prehearing brief to the Commission. Prehearing briefs must conform with the provisions of Sec. 207.23 of the Commission's rules; the deadline for filing is August 26, 2024. Parties shall also file written testimony in connection with their presentation at the hearing, and posthearing briefs, which must conform with the provisions of Sec. 207.25 of the Commission's rules. The deadline for filing posthearing briefs is September 11, 2024. In addition, any person who has not entered an appearance as a party to the investigations may submit a written statement of information pertinent to the subject of the investigations, including statements of support or opposition to the petition, on or before September 11, 2024. On October 1, 2024, the Commission will make available to parties all information on which they have not had an opportunity to comment. Parties may submit final comments on this information on or before October 3, 2024, but such final comments must not contain new factual information and must otherwise comply with Sec. 207.30 of the Commission's rules. All written submissions must conform with the provisions of Sec. 201.8 of the Commission's rules; any submissions that contain BPI must also conform with the requirements of Sec. Sec. 201.6, 207.3, and 207.7 of the Commission's rules. The Commission's Handbook on Filing Procedures, available on the Commission's website at https://www.usitc.gov/documents/handbook_on_filing_procedures.pdf, elaborates upon the Commission's procedures with respect to filings. Additional written submissions to the Commission, including requests pursuant to Sec. 201.12 of the Commission's rules, shall not be accepted unless good cause is shown for accepting such submissions, or unless the submission is pursuant to a specific request by a Commissioner or Commission staff. In accordance with Sec. Sec. 201.16(c) and 207.3 of the Commission's rules, each document filed by a party to the investigations must be served on all other parties to the investigations (as identified by either the public or BPI service list), and a certificate of service must be timely filed. The Secretary will not accept a document for filing without a certificate of service. Authority: These investigations are being conducted under authority of title VII of the Tariff Act of 1930; this notice is published pursuant to Sec. 207.21 of the Commission's rules. Issued: July 3, 2024. Lisa Barton, Secretary to the Commission. [FR Doc. 2024-15058 Filed 7-8-24; 8:45 am] BILLING CODE 7020-02-P

usgpo

2024-10-08T13:27:01.735050

FR

FR-2024-07-09/2024-14965

Federal Register Volume 89 Issue 131 (July 9, 2024)

United States National Archives and Records Administration Office of the Federal Register

[Federal Register Volume 89, Number 131 (Tuesday, July 9, 2024)] [Notices] [Pages 56408-56409] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 2024-14965] ======================================================================= ----------------------------------------------------------------------- DEPARTMENT OF JUSTICE Notice of Lodging of Proposed Modification of Consent Decree Under the Clean Water Act and Oil Pollution Act On June 29, 2024, the Department of Justice lodged with the United States District Court for the Western District of Michigan a proposed Eighth Modification of Consent Decree (``Eighth Modification'') in the lawsuit entitled United States v. Enbridge Energy, Limited Partnership, et al., Civil Action No. 1:16-cv-914. On May 23, 2017, the United States District Court for the Western District of Michigan approved and entered a Consent Decree that resolved specified claims asserted by the United States against Enbridge Energy, Limited Partnership and eight affiliated entities (``Enbridge'') under the Clean Water Act and Oil Pollution Act arising from two separate 2010 oil spills resulting from failures of Enbridge oil transmission pipelines near Marshall, Michigan and Romeoville, Illinois. The complaint filed by the United States alleged that Enbridge's pipelines had unlawfully discharged oil into waters of the United States and sought civil penalties, recovery of removal costs, and injunctive relief. The Consent Decree established various requirements applicable to a network of 14 pipelines that comprise Enbridge's Lakehead System--including dig selection criteria governing excavation, repair or mitigation, and imposition of interim pressure restrictions for various features, such a cracks, that are detected through In-Line Inspections (``ILI'') of such pipelines. The proposed Modification would revise provisions of the Consent Decree relating to the investigation and repair of ``circumferential cracks''--i.e., cracks that are predominantly oriented around the circumference of the pipeline as opposed to cracks oriented along the length (or central axis) of the pipeline. First, the proposed Eighth Modification would require Enbridge to investigate circumferential crack features in four pipelines. In three pipelines (Lines 2, 62 and a portion of Line 1), Enbridge will deploy ILI tools that are specifically designed to identify and measure circumferential crack features. In a fourth pipeline (Line 4), [[Page 56409]] Enbridge will undertake a newly-created program to excavate and examine a minimum of ten pipe joints that are likely to contain the most severe circumferential crack features. Based upon the results of this investigation, Enbridge will attempt to pass an agreed-upon statistical test for determining whether unexcavated portions of the pipeline are likely to contain any Circumferential Cracks that require repair. Second, the proposed Eighth Modification would revise the methods used by Enbridge for assessing whether a circumferential crack must be excavated and repaired. The new methods are tailored to address the unique threats posed by circumferential crack features, taking into account all stresses and loading conditions that may cause a circumferential crack to grow and ultimately fail. The proposed Eighth Modification would require Enbridge to apply these new assessment methods not only to circumferential crack features in Lines 1, 2, 4, and 62 that Enbridge would be required to investigate under the proposed Eighth Modification, but also those circumferential crack features in Lines 5, 6A, and 10 that Enbridge previously discovered through past ILIs but that Enbridge has not yet excavated and repaired. Third, the proposed Eighth Modification adjusts certain requirements relating to the repair and mitigation of Circumferential Crack features. The proposed Eighth Modification allows more time for the excavation and repair of Circumferential Cracks than is generally afforded for the excavation and repair of axially-aligned cracks (i.e., a crack oriented in parallel to the flow of oil through the pipeline). Further, Enbridge will not be required, in all instances, to limit operating pressure in a pipeline until such repairs are completed. Rather, Enbridge will be required to establish an interim pressure restriction only if a Circumferential Crack is growing at a rate that poses a threat to the integrity of the pipeline. Fouth, the proposed Eighth Modification would eliminate two requirements in the Consent Decree relating to Circumferential Cracks. In contrast to axially-aligned cracks, circumferential crack features that do not require excavation and repair would not be evaluated to determine their remaining life (i.e., the estimated time remaining before a feature may fail either by leaking or rupturing). In addition, the proposed Eighth Modification would not impose any requirements on Enbridge with respect to the future deployment of ILI tools to re- inspect circumferential crack features in Lines 1, 2, 4, 5, 6A, 10, and 62. Finally, the proposed Eighth Modification would revise the Termination Section of the Consent Decree, enabling Enbridge to seek early termination of certain requirements relating to circumferential crack features. The proposed Eighth Modification would require Enbridge to incorporate the circumferential crack remedial program into its operating manual, which is enforceable by the Pipeline and Hazardous Materials Safety Administration (``PHMSA''). Once the manual is revised, Enbridge may request ``Phase 1'' Final Termination, which, upon approval by EPA, will terminate all aspects of the Consent Decree other than two discrete programs relating to circumferential cracks. Phase 2 Final Termination will occur once the United States files notice with the Court confirming that Enbridge has fully implemented these two remaining programs. The publication of this notice opens a period for public comment on the proposed Eighth Modification of Consent Decree. Comments should be addressed to the Assistant Attorney General, Environment and Natural Resources Division, and should refer to United States v. Enbridge Energy, Limited Partnership, et al., D.J. Ref. No. 90-5-1-1-10099. All comments must be submitted no later than thirty (30) days after the publication date of this notice. Comments may be submitted either by email or by mail: ------------------------------------------------------------------------ To submit comments: Send them to: ------------------------------------------------------------------------ By email............................ [email protected]. By mail............................. Assistant Attorney General, U.S. DOJ--ENRD, P.O. Box 7611, Washington, DC 20044-7611. ------------------------------------------------------------------------ During the public comment period, the proposed Eighth Modification may be examined and downloaded at this Justice Department website: https://www.justice.gov/enrd/consent-decrees. If you require assistance accessing the proposed Eighth Modification, you may request assistance by email or by mail to the address provided above for submitting comments. Laura A. Thoms, Assistant Section Chief, Environmental Enforcement Section, Environment and Natural Resources Division. [FR Doc. 2024-14965 Filed 7-8-24; 8:45 am] BILLING CODE 4410-15-P

usgpo

2024-10-08T13:27:01.771659

FR

FR-2024-07-09/2024-14959

Federal Register Volume 89 Issue 131 (July 9, 2024)

United States National Archives and Records Administration Office of the Federal Register

[Federal Register Volume 89, Number 131 (Tuesday, July 9, 2024)] [Notices] [Pages 56409-56416] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 2024-14959] ======================================================================= ----------------------------------------------------------------------- DEPARTMENT OF LABOR Employee Benefits Security Administration [Prohibited Transaction Exemption 2024-03; Application Number L-11989] Exemption for Certain Prohibited Transactions Involving the Association of Washington Business (AWB) HealthChoice Employee Benefits Trust Located in Olympia, Washington AGENCY: Employee Benefits Security Administration, Labor. ACTION: Notice of exemption. ----------------------------------------------------------------------- SUMMARY: This document gives notice of an individual exemption from certain prohibited transaction restrictions of the Employee Retirement Income Security Act of 1974 (ERISA). The exemption permits the trustee of a plan funded by the AWB HealthChoice Employee Benefits Trust (the Arrangement), to hire entities affiliated with AWB to provide services to the Arrangement for a fee subject to conditions designed to safeguard the interests of the plan and its participants and beneficiaries. DATES: Exemption date: This final exemption will be in effect as of July 9, 2024. FOR FURTHER INFORMATION CONTACT: Susan Wilker, Office of Exemption Determinations, Employee Benefits Security Administration, U.S. Department of Labor, (202) 693-8557 (this is not a toll-free number). SUPPLEMENTARY INFORMATION: AWB, Forterra and ProPoint (the Applicants) requested an exemption pursuant to ERISA section 408(a) and supplemented the request with certain additional information (collectively, this information is referred to as ``the Application'').\1\ On June 14, 2023, the Department published a notice of proposed exemption in the Federal Register at 88 FR 38896 (Proposed Exemption). --------------------------------------------------------------------------- \1\ The procedures for requesting an exemption are set forth in 29 CFR part 2570, subpart B (76 FR 66637, 66644, October 27, 2011). Effective December 31, 1978, section 102 of the Reorganization Plan No. 4 of 1978, 5 U.S.C. App. 1 (1996), transferred the authority of the Secretary of the Treasury to issue administrative exemptions under the Code Section 4975(c)(2) to the Secretary of Labor. Accordingly, the Department grants this exemption under its sole authority. --------------------------------------------------------------------------- Based on the record and representations of the Applicants, the Department has determined to grant the Proposed Exemption with the modifications discussed below. This exemption provides only the relief specified herein and does not provide relief from violations of any law other [[Page 56410]] than the prohibited transaction provisions of ERISA. As discussed below, the Department makes the requisite findings under ERISA Section 408(a) based on the Applicants' adherence to all the conditions of the exemption. Accordingly, affected parties should be aware that the conditions incorporated in this exemption are, taken individually and as a whole, necessary for the Department to grant the relief requested by the Applicants. Absent these conditions, the Department would not have granted this exemption. Background AWB HealthChoice Employee Benefits Trust As described in the proposal, Association of Washington Business (AWB) members can choose to offer medical, dental, vision, and life insurance benefits to their eligible employees by participating in a fully-insured ERISA-covered employee welfare benefit plan (the Plans). The Plans are funded through multiple industry trusts (Industry Trusts) that comprise the AWB HealthChoice Employee Benefits Trust. The trustee for each Industry Trust (the Trustee) is a representative (e.g., employee, officer, or director) of an employer participating in the Plan (Participating Employer) that is in a specific industry classification.\2\ The Trustees are Plan fiduciaries under ERISA, responsible for performing a wide range of activities in administering the Plans, including selecting service providers. --------------------------------------------------------------------------- \2\ The industry classifications are: manufacturing, professional services, retail/wholesale, hospitality, construction, agriculture, communications, technology, and transportation. --------------------------------------------------------------------------- Bona Fide Groups or Associations Under the Department's Sub-Regulatory Guidance Under ERISA section 3(1), an employee welfare benefit plan must be established or maintained by an ``employer,'' an ``employee organization,'' or both.\3\ ERISA section 3(5) defines an ``employer'' as ``. . . any person acting directly as an employer, or indirectly in the interest of an employer, in relation to an employee benefit plan; and includes a group or association of employers acting for an employer in such capacity.'' The Department's guidance in this area is provided primarily in several advisory opinions it has issued over more than three decades (the sub-regulatory guidance).\4\ In the sub-regulatory guidance, the Department expressed its position regarding whether a particular group or association is a ``bona fide group or association'' that is permitted to sponsor a multiple employer welfare plan on behalf of its employer members.\5\ In making this determination, the Department has consistently focused on three criteria: (1) whether the group or association has business or organizational purposes and functions unrelated to the provision of benefits (the ``business purpose'' standard); (2) whether the employers share some commonality of interest and genuine organizational relationship unrelated to the provision of benefits (the ``commonality'' standard); and (3) whether the employers that participate in a benefit program, either directly or indirectly, exercise control over the program, both in form and substance (the ``control'' standard). --------------------------------------------------------------------------- \3\ ERISA section 3(1). \4\ In 2018, the Department issued a rule (29 CFR 2510.3-5), which broadened the types of groups and associations that may sponsor a single ERISA-covered group health plan. The rule was vacated by court order in 2019 (State of New York v. United States Department of Labor, 363 F.Supp.3d 109, (March 28, 2019)), and the Department recently proposed to rescind the rule (88 FR 87968 (Dec. 20, 2023)). \5\ See, e.g., Advisory Opinions Nos. 94-07A (Mar. 14, 1994), 95-01A (Feb. 13, 1995), 96-25 (Oct. 31, 1996), 2001-04A (Mar. 22, 2001), 2003-13A (Sept. 30, 2003), 2003-17A (Dec. 12, 2003), 2007-06A (Aug. 16, 2007), 2012-04A (May 25, 2012), and 2019-01A (July 8. 2019). See also Department of Labor Publication, ``Multiple Employer Welfare Arrangements Under ERISA, A Guide to Federal and State Regulation,'' at www.dol.gov/sites/dolgov/files/ebsa/about-ebsa/our-activities/resource-center/publications/mewa-under-erisa-a-guide-to-federal-and-state-regulation.pdf. --------------------------------------------------------------------------- The Applicants represent that each Industry Trust association is an ``employer'' within the meaning of ERISA section 3(5). The Applicants further represent that the Arrangement is sponsored by ``one or more bona fide associations'' as defined in the Department's sub-regulatory guidance.'' \6\ The Department has relied on these representations to grant this exemption, and this background discussion does not reflect factual findings or opinions of the Department regarding whether the Arrangement is sponsored by ``one or more bona fide associations'' or any other representations made by the Applicants. --------------------------------------------------------------------------- \6\ The Applicant made these representations in a draft trust agreement provided to the Department. --------------------------------------------------------------------------- Although this exemption was requested by AWB, Forterra and ProPoint, the prohibited transaction relief it grants only extends to the Plan Trustees; the exemption provides no relief for AWB or its affiliates. AWB, Forterra and ProPoint represent that (i) the Plans are established or maintained by the Industry Trusts associations that act indirectly in the interests of the Participating Employers, and (ii) the Trustees of the Industry Trusts have sole fiduciary authority over the selection of service providers for the Plans. Prohibited Transactions ERISA prohibits fiduciaries with respect to employee welfare benefit plans from engaging in certain transactions, including transactions that involve self-dealing, unless an exemption applies.\7\ In this case, the Applicants represent that the Trustees are vested with fiduciary authority to select service providers for the Plans. Because of the Plans' close relationship with AWB (e.g., the Plans are available only to AWB member employers, and AWB affiliates Forterra and ProPoint have provided services to the Plans since their inception), the Department is concerned that Forterra's and ProPoint's relationship with AWB could affect the Trustees' exercise of their best judgment as fiduciaries with respect to the selection of plan service providers in the absence of appropriate safeguards. --------------------------------------------------------------------------- \7\ See ERISA section 406. --------------------------------------------------------------------------- The Department has authority under ERISA section 408(a) to grant an administrative exemption from the prohibited transaction rules requested by the Applicant only if the Department finds that the exemption is (i) administratively feasible, (ii) in the interests of affected plans and of their participants and beneficiaries, and (iii) protective of the rights of such participants and beneficiaries. As discussed below, this exemption includes conditions that are designed to ensure that each Trustee is fully informed of their fiduciary obligations with respect to the Plan, possesses sole fiduciary authority over Plan service provider selection and monitoring, and exercises their authority in accordance with ERISA's fiduciary standards. The exemption provides relief from ERISA section 406(b)(1), which prohibits fiduciary self-dealing. Each Trustee is a fiduciary, subject to the provisions of ERISA sections 403 and 404. This means that each Plan's assets must be used for the exclusive purpose of providing benefits to participants and beneficiaries covered by that Plan and defraying reasonable expenses of administering the Plan. The Trustees that are part of the Arrangement are permitted to confer with each other and collectively enter into service provider agreements or otherwise act collectively on behalf of all the Plans. However, each Trustee is a fiduciary with respect to the Plan for which it is a Trustee. Each Plan must always have a Trustee in order to satisfy the conditions of the exemption, and that Trustee may not [[Page 56411]] permit the assets, management, or operation of any Plan to be used to benefit participants and beneficiaries of another Plan. The exemption does not provide relief from ERISA section 406(b)(2), which prohibits fiduciaries from acting on behalf of a party whose interests are adverse to the interests of the Plan. This ensures that Trustees may not act on behalf of anyone with interests adverse to a Plan and its participants and beneficiaries. The exemption does not provide relief from ERISA section 406(a)(1)(C), which prohibits fiduciaries from engaging parties in interest as service providers. That relief is available under the statutory exemption provided in ERISA section 408(b)(2), and the Department is not determining whether the conditions of ERISA section 408(b)(2), including reasonable compensation, have been met. To the extent the Trustees fail to comply with ERISA section 408(b)(2) in connection with hiring AWB or any of its affiliates as service providers to the Plans, for example, by paying fees that exceed reasonable compensation, AWB or its affiliates may be subject to liability for knowing participation in a prohibited transaction.\8\ --------------------------------------------------------------------------- \8\ See Harris Trust & Savings Bank v. Salomon Smith Barney, Inc., 530 U.S. 238 (2000). The Department notes its longstanding position that the proposal or grant of a prohibited transaction exemption is not dispositive of whether a prohibited transaction has occurred or will occur. --------------------------------------------------------------------------- Written Comments Received In the proposed exemption, the Department invited all interested persons to submit written comments and/or requests for a public hearing with respect to the Proposed Exemption. All comments and requests for a hearing were due to the Department by August 14, 2023.\9\ The Department received three written comments that raised several issues. One of these comments was from the Applicants who raised four technical issues involving (1) direct fees, (2) related fee increases, (3) AWB membership and (4) the disclosure required in the Proposed Exemption. The Department responds to the material issues and the material information provided in the comments below.\10\ --------------------------------------------------------------------------- \9\ The Proposed Exemption established a July 31, 2023, deadline for the public to submit comments and requests for a hearing. However, the Department was informed that AWB had to redistribute the proposed exemption package, including the notice to interested parties, due to an incomplete first distribution. Therefore, in a Federal Register notice published on July 17, 2023 (88 FR 45448), the Department extended the proposed exemption's comment period until August 14, 2023, to provide additional time for interested parties to prepare and submit their comments. \10\ All information submitted by the Applicant to the Department in connection with this exemption is available through the Department's Public Disclosure Room, by referencing L-11989. --------------------------------------------------------------------------- In granting this exemption, the Department has relied on the representations of the Applicants. If any material statement in the Application, final exemption or the Applicant's comment is not, or may no longer be, completely and factually accurate, the Applicants and recipients of the exemptive relief provided herein must immediately alert the Department.\11\ --------------------------------------------------------------------------- \11\ The Representations stated herein are based on AWB's representations provided in its exemption application and do not reflect factual findings or opinions of the Department unless indicated otherwise. The Department notes that the availability of this exemption is subject to the express condition that the material facts and representations contained in application L-11989 are true and complete at all times, and accurately describe all material terms of the transactions covered by the exemption. If there is any material change in a transaction covered by the exemption, or in a material fact or representation described in the application, the exemption will cease to apply as of the date of the change. --------------------------------------------------------------------------- Comment From the Applicant Comment 1: Direct Fees Section III(c)(1) of the proposed exemption would have required the Trustee to approve, in writing, all fees or other compensation paid to AWB-Affiliated Service Providers for services to the Plan, after determining that the fees and other compensation are direct payments from the Plan. Similarly, Section IV(b)(1) would have required a Trustee to contractually prohibit the AWB-Affiliated Service Provider from receiving any fees other than those paid directly by the Plan as of the first day of the first plan year after the Grant Date. According to the Applicant, fees paid to Forterra and ProPoint no longer are paid out of trust assets. The Applicants explained in their comment that, effective April 1, 2021, Vimly, a service provider that is unaffiliated with AWB, collects contributions remitted by Participating Employers, retains a portion of the collected amount as its fee, remits fees payable to Forterra and ProPoint directly to those entities, and remits the balance to the trust. After considering this comment, the Department is revising Sections III(c)(1) and IV(b)(1) to provide that fees and other compensation must be direct payments from, or on behalf of, the Plan. Adding ``on behalf of'' confirms that the exemption is available for funds paid by Vimly directly to Forterra and ProPoint from contributions remitted by Participating Employers, even if they are not contributed to the trust. Comment 2: Related Fee Increases The Applicants expressed concern with Section IV(b)(2) of the Proposed Exemption. This provision requires fees provided to service providers, other than any insurance broker of record that is not affiliated with AWB, to be established independently of other service provider fees, so that an increase in one fee does not directly or indirectly, cause an increased fee payment to another service provider. The Applicants requested that the Department eliminate this requirement in its entirety. Alternatively, Applicants requested that the Department revise the requirement to provide that when one service provider's fees increase, the fees paid to other service providers, other than insurance brokers of record that are not affiliated with AWB, would be contractually adjusted unless the Trustees determine, in accordance with the other conditions of the Proposed Exemption that (a) the resulting increase to the other service providers' fees does not cause those fees to exceed reasonable compensation within the meaning of ERISA Section 408(b)(2) and (b) such resulting fee increase is prudent and in the best interests of Plan participants. However, if the Department retains Section IV(b)(2) as proposed, the Applicants requested that the Department delay the effective date of the requirement until the second plan year after the Grant Date.\12\ --------------------------------------------------------------------------- \12\ The Applicants requested this delay because the cost of coverage has already been determined for the first plan year after the Grant Date and is in the process of being communicated to Participating Employers. --------------------------------------------------------------------------- After considering the Applicants' comment, the Department has decided to finalize Section IV(b)(2) as proposed. The exemption as a whole requires the Trustees to closely monitor all fees paid to AWB- affiliated service providers. For example, Section III(c) requires the Trustees to closely monitor all fees paid to AWB-Affiliated Service Providers by ensuring that that fees and other compensation paid to them does not exceed reasonable compensation for services that are necessary and actually rendered to the Plan, and Section IV(b)(1)(A) prohibited rates from increasing during the contract period. The Department's position is that allowing automatic increases to all service providers' fees is contrary to Trustee's responsibility. The Department notes there are multiple ways that Applicants may satisfy Section IV(b)(2). For example, the Applicants' current method of [[Page 56412]] calculating service provider compensation based on rates that are determined by Premera using a generally-recognized industry method would not necessarily violate this condition. As requested by the Applicants, the Department is extending the effective date of the condition. Therefore, while most of Section IV becomes applicable as of the first day of the first plan year after the Grant Date, Section IV(b)(2) will not become effective until the first day of the second plan year after the Grant Date. This will ensure that all parties have sufficient time to negotiate fees paid to service providers. Comment 3: AWB Membership As proposed, the definition of ``AWB-Affiliated Service Provider'' was AWB, Forterra, Inc., ProPoint, LLC, or any other entity providing services to the Plan that is an Affiliate. Section IV(b)(1)(B) of the proposal would have required the Trustees to contractually prohibit the AWB-Affiliated Service Providers from receiving any fees other than those paid directly by the Plan. Applicants expressed concern that, because membership in AWB is a prerequisite for participating in the Plan and requires the Participating Employers to pay a membership fee, proposed Section IV(b)(1)(B) could have been interpreted as prohibiting AWB from receiving its routine membership fees. To address this ambiguity, the Applicants requested that the Department clarify that the definition of AWB-Affiliated Service Provider only includes AWB only to the extent AWB provides services to the Plan. Rather than change the definition of AWB-Affiliated Service Provider, which could affect other exemption conditions, the Department is revising Section IV(b)(1)(B) to add ``Notwithstanding the foregoing, AWB may receive a membership fee from Participating Employers.'' Comment 4: Disclosure Section III(d)(2)(B) of the Proposed Exemption would have required the AWB-Affiliated Service Providers to disclose to the Trustee a description of all compensation, both in the aggregate and by service, the AWB-Affiliated Service Providers and any subcontractor reasonably expect to receive from the Plan.\13\ --------------------------------------------------------------------------- \13\ In the proposal, the Department noted ``[t]his is broader than the statutory language in ERISA section 408(b)(2)(B)(iii)(III), which requires a description of all direct compensation `either in the aggregate or by service.' '' However, the requirements of this condition are specific to this Arrangement and this exemption. The Department is not providing guidance on the statutory language. --------------------------------------------------------------------------- The Applicants request that the Department provide further clarification and guidance regarding the requirement to describe compensation ``by service,'' and regarding whether any specific services listed in the disclosure would require a separate allocation of fees. Alternatively, the Applicants request that the Department provide guidance that allows specific services to be broken down into categories for which separate fees would be expressed by category. The disclosure of all services and fees by the AWB-Affiliated Service Providers to the Trustees and the Participating Employers is paramount to the Department making its statutory findings under ERISA section 408(a) that are required for it to provide the exemptive relief provided in this final exemption. The Department's position is that providing aggregate and detailed fee information disclosing the services provided is crucial for the Trustees and the Participating Employers to meet their obligations under the Exemption, including the determination that the fees and other compensation do not exceed reasonable compensation within the meaning of ERISA section 408(b)(2).\14\ The Department, however, acknowledges the exact fees for certain specific services may not be known at the time of the disclosure and the condition requires disclosure of fees that ``AWB- Affiliated Service Providers and any subcontractor reasonably expect to receive from the Plan.'' The Department expects that when the AWB- Affiliated Service Provider or any subcontractor reasonably expects specific fees for specific services, those fees must be disclosed. At the same time, AWB-Affiliated Service Providers must disclose all specific services associated with the aggregate fees. --------------------------------------------------------------------------- \14\ In granting this exemption, the Department is taking no position on whether the fees described in Applicant's comment are reasonable. That determination must be made by the Trustee based on all facts and circumstances. --------------------------------------------------------------------------- Comments From the General Public Comment on ERISA Section 514 The Department received one comment that expressed the commenter's opinion that it was ``legally impermissible'' for the Department ``to grant an exemption from the prohibited transaction restrictions to the Association of Washington Business HealthChoice Employee Benefits Trust'' because ERISA Sections 514(b)(6)(A) and (B) preclude the Department from granting any exemption to a fully insured Multiple Employer Employee Welfare Arrangement (MEWA). The Department disagrees with the commenter's interpretation of ERISA section 514(b)(6). In general, ERISA's broad preemption of state laws contained in ERISA section 514(a) provides that ERISA's Titles I and IV supersede any state laws that relate to any ERISA-covered employee benefit plan except as provided in ERISA section 514(b). In 1983, Congress amended ERISA to add section 514(b)(6). One of the main purposes for this amendment was to protect employee benefit plan participants and beneficiaries by facilitating state regulation of MEWAs.\15\ To that end, ERISA section 514(b)(6) modified the scope of ERISA's preemption of state insurance laws as they apply to employee welfare benefit plans that also are MEWAs. --------------------------------------------------------------------------- \15\ DOL Advisory Opinion 2011-01A. --------------------------------------------------------------------------- Specifically, if an employee welfare benefit plan that is also a MEWA is not fully insured, then ERISA section 514(b)(6)(A)(ii) provides that any state law that regulates insurance may apply to the MEWA to the extent state law is not inconsistent with ERISA. If, on the other hand, an employee welfare benefit plan that also is a MEWA is fully insured, ERISA section 514(b)(6)(A)(i) provides that only those state laws that regulate the maintenance of specified contribution and reserve levels may apply to the MEWA.\16\ --------------------------------------------------------------------------- \16\ ERISA section 514(b)(6)(D) provides, in turn, that a MEWA will be considered fully insured for purposes of ERISA section 514(b)(6) only if the terms of the arrangement provide for benefits the amount of all of which the Secretary determines are guaranteed under a contract, or policy of insurance, issued by an insurance company, insurance service, or insurance organization, ``qualified to conduct business in a State.'' --------------------------------------------------------------------------- The commenter seems to misunderstand several aspects of ERISA section 514(b)(6). Contrary to the commenter's assertion that ``ERISA Section 514(b)(6) provides specific criteria that must be met before ERISA title I provisions can be applied'' to a MEWA, section 514(b)(6) prescribes circumstances when state laws that otherwise would be preempted by ERISA section 514(a) can be applied to MEWAs that are employee welfare benefit plans in addition to ERISA Title I, which governs the operation of these plans. In other words, section 514(b)(6) permits state insurance laws to apply rather than automatically being preempted by ERISA, but it does not eliminate the applicability of Title I enforcement provisions to MEWAs. In fact, section 514(b)(6) only is relevant [[Page 56413]] for plans that are covered by title I of ERISA, because it provides an exception to ERISA's preemption of all State laws that apply to ``employee benefit plans'' described in ERISA section 4(a) that are not exempt by ERISA section 4(b). Furthermore, the commenter asserts that ``the Department is barred from issuing any exemptions that mandate that Title I of ERISA is applicable to a fully insured MEWA.'' To support its assertion, the commenter relies on the language in ERISA section 514(b)(6)(B) which states: ``The Secretary may, under regulations which may be prescribed by the Secretary, exempt from subparagraph (A)(ii), individually or by class, multiple employer welfare arrangements which are not fully insured.'' (emphasis in the comment). However, the commenter fails to realize that this provision is completely irrelevant to this exemption because this exemption provides relief from ERISA section 406, not ERISA section 514(b)(6)(A)(ii). Based upon the Applicants' representation that the Arrangement is a bona fide association as defined in the Department's sub-regulatory guidance, and is a Plan MEWA that provides fully-insured welfare benefits subject to ERISA (including the prohibited transaction provisions in ERISA section 406), the Department has authority to grant this exemption. Comment on ERISA Section 408(a) Another commenter claimed that the proposed exemption violates ERISA section 408(a) due to the Department's failure to ``demonstrate to the public that it properly determined that the specific `rights of participants' of a plan that is subject to ERISA Title I are being protected.'' The Department fully understands and takes very seriously its responsibility to adhere to the mandate in ERISA section 408 that requires the Department to find that the exemption is (1) administratively feasible, (2) in the interests of affected plans and of their participants and beneficiaries, and (3) protective of the rights of participants and beneficiaries of such plans before granting this exemption. The Department made its preliminary statutory findings in the Proposed Exemption and confirms such findings in this Notice of Granted Exemption based on its review of the entire record and the requirement that the Applicants fully comply with the exemption conditions at all times. The record and the Department's findings are based in part on representations made by the Applicants, one representation of which is that the Arrangement is a bona fide association as defined in the Department's sub-regulatory guidance and a Plan MEWA that provides fully-insured welfare benefits subject to ERISA. As stated in the Proposed Exemption and this Notice of Granted Exemption, the availability of this exemption is subject to the express condition that the material facts and representations contained in the application accurately describe all material terms of the transaction that are the subject of the exemption and the fact that a transaction is subject to an administrative or statutory exemption is not dispositive of determining whether the transaction is in fact a prohibited transaction. If any representation made by the Applicants is not accurate or there are any material changes to those representations the exemptive relief provided in this exemption would not be valid. Comment From the Department This final amendment makes minor ministerial changes, such as spelling out numbers and moving clauses within a sentence. The complete application file (L-11989) is available for public inspection in the Public Disclosure Room of the Employee Benefits Security Administration, Room N-1515, U.S. Department of Labor, 200 Constitution Avenue NW, Washington, DC 20210. For a more complete statement of the facts and representations supporting the Department's decision to grant this exemption, please refer to the notice of proposed exemption published on June 14, 2023, at 88 FR 38896. General Information The attention of interested persons is directed to the following: (1) The fact that a transaction is the subject of an exemption under ERISA section 408(a) does not relieve a fiduciary or other party in interest from certain requirements of other ERISA provisions, including any prohibited transaction provisions to which the exemption does not apply and the general fiduciary responsibility provisions of ERISA Section 404, which, among other things, require a fiduciary to discharge their duties respecting the plan solely in the interest of the plan's participants and beneficiaries and in a prudent fashion in accordance with ERISA section 404(a)(1)(B). (2) As required by ERISA section 408(a), the Department hereby finds that the exemption is (1) administratively feasible, (2) in the interests of affected plans and of their participants and beneficiaries, and (3) protective of the rights of participants and beneficiaries of such plans; (3) The exemption is supplemental to, and not in derogation of, any other ERISA provisions, including statutory or administrative exemptions and transitional rules. Furthermore, the fact that a transaction is subject to an administrative or statutory exemption is not dispositive of determining whether the transaction is in fact a prohibited transaction; and (4) The availability of this exemption is subject to the express condition that the material facts and representations contained in the application accurately describe all material terms of the transaction that are the subject of the exemption. Accordingly, the following exemption is granted under the authority of ERISA Section 408(a) and in accordance with the procedures set forth in 29 CFR part 2570, subpart B (76 FR 66637, 66644, October 27, 2011): Exemption Section I. Definitions (a) ``AWB'' means the Association of Washington Business. (b) ``AWB-Affiliated Service Provider'' means AWB, Forterra, Inc., ProPoint, LLC, or any other entity providing services to the Plan that is an Affiliate. (c) An ``Affiliate'' is a person that is: (1) Controlling, controlled by, or under common control with AWB; (2) An officer, director, partner, or employee of AWB; or (3) A corporation or partnership of which AWB is an officer, director, partner, or employee. For purposes of this definition, ``control'' means the power, direct or indirect, to exercise a controlling influence over the management or policies of a person other than an individual; (d) The ``Grant Date'' is the date the final exemption is published in the Federal Register. (e) ``Participating Employer'' means any of the member employers of AWB who provides medical, dental, vision, and life insurance benefits to their employees through the Plan. (f) ``Plan'' means any plan that is funded by the AWB HealthChoice Employee Benefits Trust, including through an Industry Trust. (g) A ``Trustee'' is a person elected in accordance with Section III(a)(3). Section II. Covered Transactions The exemption provides relief to the Trustees for their selection of an AWB-Affiliated Service Provider to provide services to the Plans for a fee, if the [[Page 56414]] conditions of Sections III and IV are met, subject to the definitional terms in Section I. The exemption would provide relief only from the restrictions of ERISA section 406(b)(1). Section III. General Conditions The following conditions apply for each Plan as of the Grant Date, as defined in Section I(d). (a) Plan Structure (1) The Plan is a fully-insured employee welfare benefit plan. (2) The Plan is established or maintained by an employer within the meaning of ERISA section 3(5). (3) The Trustee with respect to the Plan is: (A) A trustee, employee, officer, director, or owner of a Participating Employer in the industry classification associated with the Plan; (B) Nominated by a Participating Employer in the industry classification associated with the Plan and elected by a majority vote of Participating Employers in the industry classification; (C) Independent of AWB and its Affiliate, which means the Trustee (1) is not an Affiliate of AWB or a trustee, employee, officer, director, member or agent of any Affiliate of AWB, and (2) does not have a relationship with or an interest in AWB or any of its Affiliates that might affect the exercise of the person's best judgment in connection with transactions described in Section II of this exemption; and (D) Not an employee, officer, director, member or agent of a Participating Employer that is also a service provider to any Plan. (4) The Participating Employers in each industry classification have the sole authority to: (A) Remove the Trustee with respect to the Plan associated with that industry classification, with or without cause, by majority vote; and (B) Dissolve or amend the Plan associated with that industry classification by majority vote. (5) Each person who is nominated to serve as a Trustee to the Plan undergoes fiduciary training before their decision to serve as a Trustee, if elected, and annually thereafter. The fiduciary training is provided by a professional who has appropriate technical training and proficiency with ERISA and who has been prudently selected by the board of Trustees and covers, at a minimum, ERISA compliance, fiduciary duties, the conditions of the exemption, and the consequences of failing to comply with the conditions (including any loss of exemptive relief provided herein). Existing Trustees as of the Grant Date must receive this training within three (3) months of the Grant Date. (6) Neither the Plan nor any Participating Employer indemnifies AWB or its Affiliates for any reason. (7) Legal counsel for the Plan does not also represent AWB or any Affiliate. (b) Selection of Service Providers (1) The Trustee has and exercises sole fiduciary authority to select service providers for the Plan. The Trustee exercises their fiduciary authority in accordance with ERISA section 404 to prudently and loyally select service providers and document the selection process and considerations, including whether an AWB-Affiliated Service Provider and its personnel have the qualifications and capability to perform such services; whether the fees to be charged reflect arm's- length terms; and whether the arrangements are reasonable, compared with similarly qualified service providers. The documentation must provide sufficient context and detail and be written in a manner to ensure that any party authorized to review the records under Section III(e) can understand the reasoning for the selection. (2) Before entering into or renewing any services contracts with an AWB-Affiliated Service Provider on behalf of the Plan, the Trustee determines that the services are necessary to the operation of the Plan and documents the reasons for the determination. (3) Contracts (including renewals) between the Plan and an AWB- Affiliated Service Provider: (A) Are limited to no more than three years' duration; and (B) Allow the Trustee to terminate the contract any time without penalty to the Plan by providing thirty (30) days' written notice. (4) The AWB-Affiliated Service Provider may be compensated by the Plan for its services as an insurance broker of record to a Participating Employer only if: (A) The Trustee selects the AWB-Affiliated Service Provider in accordance with Section III(b)(2); (B) The Trustee obtains the Participating Employer's written certification that it has received a disclosure from the Trustee that includes descriptions of: (i) the nature of the affiliation (as described in Section I(c)) between the AWB-Affiliated Service Provider and AWB; (ii) the services that will be provided by the AWB-Affiliated Service Provider; and (iii) the amount of fees that the AWB-Affiliated Service Provider will receive, provided that if the fee is disclosed as a percentage of another amount, it is accompanied by an example of the calculation expressed in dollars; and (C) The Trustee ensures the Plan pays the AWB-Affiliated Service Provider for its services as broker of record no more than the lowest commission paid to an unaffiliated broker of record. (5) The Trustee monitors the AWB-Affiliated Service Provider's performance of services and compliance with the applicable conditions of this exemption prudently and loyally in accordance with ERISA section 404. (c) Fees The Trustee approves, in writing, all fees or other compensation paid to AWB-Affiliated Service Providers for services to the Plan, after determining that the fees and other compensation: (1) are direct payments from, or on behalf of, the Plan; (2) are for services that are necessary and actually rendered to the Plan; and (3) do not exceed reasonable compensation within the meaning of ERISA section 408(b)(2). (d) Disclosure (1) The Trustee distributes the following disclosures to Participating Employers at initial enrollment and at each annual renewal thereafter: (A) A description of the relationship between AWB and any other AWB-Affiliated Service Provider that the Trustee has selected; (B) A statement that that the Trustee is a fiduciary with respect to the Plan and that before entering into or renewing any services contracts with an AWB-Affiliated Service Provider on behalf of the Plan, the Trustee exercised their fiduciary authority in accordance with ERISA section 404 to prudently and loyally select service providers; and (C) A statement that the Participating Employers, directly or indirectly through the Trustees, have control over the Plan, including the authority and control to select alternative service providers to AWB or AWB-Affiliated Service Providers. (2) The Trustee receives the following disclosure from the AWB- Affiliated Service Providers, and reviews, approves and distributes the disclosures to Participating Employers at initial enrollment and at each annual renewal thereafter: (A) A description of the services that are to be provided by any AWB-Affiliated Service Provider to the Plan; (B) A description of all compensation, both in the aggregate and by service, the AWB-Affiliated Service Providers and any subcontractor reasonably expect to receive from the Plan; [[Page 56415]] (C) A description of any compensation that will be paid among the AWB-Affiliated Service Providers or a subcontractor, if such compensation is set on a transaction basis (such as commissions, finder's fees, or other similar incentive compensation based on business placed or retained). The AWB-Affiliated Service Provider must identify the services for which such compensation will be paid and identify the payers and recipients of such compensation (including the status of a payer or recipient as an Affiliate or a subcontractor) regardless of whether such compensation also is disclosed pursuant to paragraph (E) or (F), below; (D) A description of any compensation that the AWB-Affiliated Service Provider, an affiliate, or a subcontractor reasonably expects to receive in connection with termination of the contract or arrangement, and how any prepaid amounts will be calculated and refunded upon such termination; and (E) a description of the manner in which the compensation described in clause (B) through (D), as applicable, will be received. (e) Recordkeeping (1) The Trustee maintains for a period of six (6) years, in a manner that is reasonably accessible for examination, the records necessary to enable the persons described in paragraph (2) below to determine whether the conditions of this exemption have been met, except that: (A) If such records are lost or destroyed due to circumstances beyond the control of the Trustee, then no prohibited transaction will be considered to have occurred solely on the basis of the unavailability of those records; and (B) No party in interest other than the Trustee will be subject to the civil penalty that may be assessed under ERISA section 502(i) if the records are not maintained or are not available for examination as required below: (2)(A) Except as provided in paragraph (B) below, and notwithstanding any provisions of ERISA section 504(a)(2) and (b), the records referred to in Section III(d)(1) are reasonably available at their customary location for examination during normal business hours by: (i) Any authorized employee or representative of the Department; (ii) Any Participating Employer or fiduciary of a Plan, or any authorized employee or representative of these entities; or (iii) Any individual participant or beneficiary of a Plan or any authorized representative of the participant or, beneficiary; and (B) None of the persons described in paragraph (e)(2)(A)(ii) or (iii) of this Section above are authorized to examine records that are confidential, privileged trade secrets, or privileged commercial or financial information. (C) If the Trustee refuses to disclose information on the basis that the information is exempt from disclosure under subsection (B), the Trustee must provide a written notice advising the requestor of the reasons for the refusal and that the Department may request such information by the close of the thirtieth (30th) day following the request. (3) The Trustee must provide sufficient information necessary to demonstrate that the exemption conditions have been met over the prior six-year period. The Trustee must maintain and retain such records in a manner that ensures it would be able to provide the information to the Department within 30 calendar days of a request. (f) Material Facts and Representations All the material facts and representations provided by the Applicants are true and accurate at all times. Section IV. Phase-In Conditions Except as otherwise noted in section IV(b)(2), the following additional conditions apply as of the first day of the first plan year after the Grant Date. (a) Plan Documents and Contracts (1) Plan documents and disclosures: (A) accurately describe the role and fiduciary status of the Trustee; (B) do not include any disclaimers of fiduciary status for any party, including AWB and any Affiliate; and (C) do not indicate, in any way, including on a website, that AWB or its Affiliates are the sponsor of the Plan. (2) The insurance contract is held in the name of the Plan. (3) AWB-Affiliated Service Providers contractually agree that all information they provide to the Trustee, Participating Employers and prospective Participating Employers regarding their services to the Plan and related fees is materially accurate at the time it is provided. (b) Fees (1) Before entering into any contract for services with an AWB- Affiliated Service Provider on behalf of the Plan, the Trustee: (A) Negotiates the rate of fees to be paid for services to the Plan and ensures that the rate does not increase during the contract period; and (B) Contractually prohibits the AWB-Affiliated Service Provider from receiving any fees other than those paid directly by, or on behalf of, the Plan. Notwithstanding the foregoing, AWB may receive a membership fee from directly Participating Employers. The membership fee may be a prerequisite for participation in the Plan, but the membership fee may not be compensation for any services provided to the Plan. (2) As of the first day of the second plan year after the Grant Date, fees for service providers, other than any insurance broker of record that is not Affiliated with AWB, are established independently of other service provider fees, so that an increase in one fee does not cause, directly or indirectly, an increased payment to another service provider. For purposes of this condition, a service provider fee does not include an insurance premium (i.e., fees may be calculated as percentages of premiums paid to the insurance company). (3) Fees collected from Participating Employers and Plan participants are based on actual, rather than estimated, amounts due to service providers. (c) Disclosure (1) The disclosure described in Section III(d)(1) includes the following additional information: (A) A description of any compensation that the AWB-Affiliated Service Provider, or any subcontractor, reasonably expects to receive in connection with termination of a contract or arrangement with the Plan and how any prepaid amounts will be calculated and refunded upon such termination; and (B) A description of the methodology by which AWB-Affiliated Service Provider fees are calculated, including examples with dollar amounts. (2) The Plan documents require the AWB-Affiliated Service Provider to furnish, upon written request, any information the Trustee reasonably requests, within 30 days after the request unless the disclosure cannot be provided due to extraordinary circumstances beyond the control of the AWB-Affiliated Service Provider, in which case the information must be provided as soon as reasonably practicable and the AWB-Affiliated Service Provider must provide the Trustee with a notice explaining why they cannot meet the 30-day deadline. [[Page 56416]] (d) Monthly Billing Statements The Trustees provide to Participating Employers a monthly billing statement that includes: (1) The following statement: ``The amounts you pay each month for health insurance coverage include fees for administrative services, including fees paid to service providers affiliated with the Association of Washington Business (AWB). A description of the services provided by each AWB affiliate is provided to you at the time of your initial enrollment and at each annual renewal. You can also contact [NAME, phone number, email address] for additional copies.'' (2) A chart accurately listing all service providers and the fee percentages or other amounts they receive. If any administrative services fees are expressed as a percentage of the insurance premium, the disclosure must also include an example showing how fees would be calculated based on a $1,000 insurance premium; and (3) A point of contact, including a phone number and email address, for copies of disclosures or for additional information. Exemption date: The exemption will be in effect as of the date of publication of the final exemption in the Federal Register. Signed at Washington, DC, this 2nd day of July 2024. George Christopher Cosby, Director, Office of Exemption Determinations, Employee Benefits Security Administration, U.S. Department of Labor. [FR Doc. 2024-14959 Filed 7-8-24; 8:45 am] BILLING CODE 4510-29-P

usgpo

2024-10-08T13:27:01.783048

FR

FR-2024-07-09/2024-15030

Federal Register Volume 89 Issue 131 (July 9, 2024)

United States National Archives and Records Administration Office of the Federal Register

[Federal Register Volume 89, Number 131 (Tuesday, July 9, 2024)] [Notices] [Pages 56416-56422] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 2024-15030] ----------------------------------------------------------------------- DEPARTMENT OF LABOR Employee Benefits Security Administration Agency Information Collection Activities; Request for Public Comment AGENCY: Employee Benefits Security Administration (EBSA), Department of Labor. ACTION: Notice. ----------------------------------------------------------------------- SUMMARY: The Department of Labor (the Department), in accordance with the Paperwork Reduction Act, provides the general public and Federal agencies with an opportunity to comment on proposed and continuing collections of information. This helps the Department assess the impact of its information collection requirements and minimize the public's reporting burden. It also helps the public understand the Department's information collection requirements and provide the requested data in the desired format. The Employee Benefits Security Administration (EBSA) is soliciting comments on the proposed extension of the information collection requests (ICRs) contained in the documents described below. A copy of the ICRs may be obtained by contacting the office listed in the ADDRESSES section of this notice. ICRs also are available at reginfo.gov (http://www.reginfo.gov/public/do/PRAMain). DATES: Written comments must be submitted to the office shown in the Addresses section on or before September 9, 2024. ADDRESSES: U.S. Department of Labor, Employee Benefits Security Administration, Office of Research and Analysis, Attention: PRA Officer, 200 Constitution Avenue NW, Room N-5718, Washington, DC 20210, or [email protected]. SUPPLEMENTARY INFORMATION: I. Current Actions This notice requests public comment on the Department's request for extension of the Office of Management and Budget's (OMB) approval of ICRs contained in the rules and prohibited transaction exemptions described below. This action is not related to any pending rulemakings and the Department is not proposing any changes to the existing ICRs at this time. An agency may not conduct or sponsor, and a person is not required to respond to, an information collection unless it displays a valid OMB control number. A summary of the ICRs and the burden estimates follows: Agency: Employee Benefits Security Administration, Department of Labor. Title: Bank Collective Investment Funds, Prohibited Transaction Class Exemption 1991-38. Type of Review: Extension of a currently approved collection of information. OMB Number: 1210-0082. Affected Public: Private sector, Businesses or other for-profits, Not-for-profit institutions. Respondents: 9,332. Responses: 9,332. Estimated Total Burden Hours: 1,555. Estimated Total Burden Cost (Operating and Maintenance): $0. Description: Prohibited Transaction Class Exemption (PTE) 91-38 provides an exemption from the restrictions of sections 406(a), 406(b)(2) and 407(a) of ERISA and the taxes imposed by section 4975(a) and (b) of the Code by reason of section 4975(c)(1)(A), (B), (C), or (D) of the Code for certain transactions between a bank collective investment fund in which an employee benefit plan has invested assets and persons who are parties in interest to the employee benefit plan, as long as the interest of the plan together with the interests of any other plans maintained by the same employer or employee organization in the collective investment fund does not exceed 10% of the total assets in the collective investment fund. In addition, the bank managing the common investment fund must not itself be a party in interest to the participating plan, the terms of the transaction must be at least as favorable to the collective investment fund as those available in an arm's length transaction with an unrelated party, and the bank must maintain records of the transactions for six years and make the records available for inspection to specified interested persons (including the Department and the Internal Revenue Service). The Department has received approval from OMB for this ICR under OMB Control No. 1210-0082. The current approval is scheduled to expire on April 30, 2025. Agency: Employee Benefits Security Administration, Department of Labor. Title: PTE 1990-1; Insurance Company Pooled Separate Accounts. Type of Review: Extension of a currently approved collection of information. OMB Number: 1210-0083. Affected Public: Private sector, Business or other for profits. Respondents: 108. Responses: 1,080. Estimated Total Burden Hours: 108. Estimated Total Burden Cost (Operating and Maintenance): $0. Description: Prohibited Transaction Exemption (PTE) 90-1 provides an exemption from the restrictions of ERISA section 406 and Code section 4975, in part, for certain transactions between insurance company pooled separate accounts and parties in interest to plans that invest assets in the pooled separate accounts. PTE 90-1 provides an exemption for certain transactions between a party in interest with respect to a plan and an insurance company pooled separate account in which the plan has an interest or any acquisition or holding by the pooled separate account of employer securities or employer real property, provided that the party in interest is not the insurance company (or an affiliate of the insurance company) which holds the plan assets in its pooled separate account or any other separate account of the insurance company and that the amount of the [[Page 56417]] plan's investment in the separate account does not exceed certain specified percentages (or that the separate account is a specialized account with a policy of investing, and invests, substantially all of its assets in certain specified short-term obligations). PTE 90-1 also provides specific, additional relief for the following types of transactions with a party in interest: (1) furnishing goods to an insurance company pooled separate account, (2) leasing of real property of the pooled separate account, (3) transactions involving persons who are parties in interest to a plan solely because they are service providers or provide nondiscretionary services to the plan; (4) the insurance company's provision of any services provided to an insurance company pooled separate account (in which the plan has an interest) by the insurance company or its affiliate in connection with the management of the real property investments of the pooled separate account, and (5) furnishing of services, facilities, and goods incidental to the services and facilities by a place of public accommodations owned by the separate account. In addition to other specified conditions, the insurance company intending to rely on the general exemption or any of the specific exemptions must maintain records of the transactions to which the exemption applies for a period of six years from the date of the transaction and make the records available on request to specified interested persons (including plan fiduciaries, participant and beneficiaries, contributing employers, the Department, and the Internal Revenue Service). The Department has received approval from OMB for this ICR under OMB Control No. 1210-0083. The current approval is scheduled to expire on April 30, 2025. Agency: Employee Benefits Security Administration, Department of Labor. Title: Foreign Currency Transactions, Prohibited Transaction Class Exemption 1994-20. Type of Review: Extension of a currently approved collection of information. OMB Number: 1210-0085. Affected Public: Private sector, Business or other for profits, Not-for-profit institutions. Respondents: 242. Responses: 1,210. Estimated Total Burden Hours: 202. Estimated Total Burden Cost (Operating and Maintenance): $0. Description: Prohibited Transaction Exemption (PTE) PTE 94-20 provides an exemption for banks, broker-dealers, and their affiliates that are parties in interest to a plan to engage in foreign currency transactions with the plan, provided the transaction is directed by a plan fiduciary that is independent of the bank, broker-dealer, and any affiliate thereof and that certain other conditions are satisfied. To protect the interests of participants and beneficiaries of the employee benefit plan, the exemption requires, among other things, that a bank, broker-dealer, and any affiliate wishing to rely on the exemption (1) maintain written policies and procedures applicable to trading in foreign currencies with an employee benefit plan; (2) provide a written confirmation statement of each foreign currency transaction to the independent plan fiduciary directing the transaction for the plan; and (3) maintain records of the transactions for a period of six years from the date of the transaction and make them available upon request to specified interested persons, including plan fiduciaries, participants and beneficiaries, the Internal Revenue Service, and the Department. The Department has received approval from OMB for this ICR under OMB Control No. 1210-0085. The current approval is scheduled to expire on April 30, 2025. Agency: Employee Benefits Security Administration, Department of Labor. Title: Definition of Plan Assets--Participant Contributions. Type of Review: Extension of a currently approved collection of information. OMB Number: 1210-0100. Affected Public: Private sector, Business or other for profits. Respondents: 251. Responses: 251. Estimated Total Burden Hours: 8. Estimated Total Burden Cost (Operating and Maintenance): $1,685. Description: The Department's regulation at 29 CFR 2510.3-102 states that monies that a participant pays to, or has withheld by, an employer for contribution to an employee benefit plan become ``plan assets'' for purposes of Title I of ERISA and the related prohibited transaction provisions of the Internal Revenue Code (the Code) as of the earliest date on which such monies can be reasonably segregated from the employer's general assets. The regulation also establishes specific maximum time limits for contributions becoming plan assets that apply to employee pension benefit plans (with a special rule for SIMPLE IRA plans) and employee welfare benefit plans. The regulation sets a maximum time limit of 15 business days following the end of the month in which the participant contribution amounts are received or withheld by the employer. The regulation includes a procedure through which an employer receiving or withholding participant contributions for an employee pension benefit plan may obtain a 10-business-day extension of the 15-day maximum time period for contributions received or withheld in a single month if certain requirements, including information collection requirements, are met. The regulation requires, among other things, that the employer provide written notice to plan participants within five business days after the end of the extension period and the employer's transfer of the contributions to the plan, for which the employer elected to take the extension that month. The notice must explain why the employer could not transfer the participant contributions within the maximum time period, state that the participant contributions in question have in fact been transmitted to the plan, and provide the date on which this was done. The employer must also provide a copy of the participant notice to the Secretary, along with a certification that the notice was distributed to participants and that the other requirements under the extension procedure were met, within five business days after the end of the extension period. The Department has received approval from OMB for this ICR under OMB Control No. 1210-0100. The current approval is scheduled to expire on April 30, 2025. Agency: Employee Benefits Security Administration, Department of Labor. Title: Collective Investment Funds Conversion Transactions, Prohibited Transaction Class Exemption 1997-41. Type of Review: Extension of a currently approved collection of information. OMB Number: 1210-0104. Affected Public: Private sector, Business or other for profits, Not-for-profit institutions. Respondents: 50. Responses: 105. Estimated Total Burden Hours: 1,760. Estimated Total Burden Cost (Operating and Maintenance): $585,299. Description: Prohibited Transaction Exemption (PTE) 97-41 permits an employee benefit plan to purchase shares of a registered open-end investment company (mutual fund) in exchange for plan assets transferred in-kind from a collective investment fund (CIF) maintained by a bank or plan [[Page 56418]] adviser, even though the bank or plan adviser, or an affiliate thereof, is the investment adviser for the mutual fund and also serves as a fiduciary for the plan, provided that the purchase and transfer is in connection with a complete withdrawal of the plan's investment in the CIF and certain other conditions are met. Among other conditions, the exemption requires the bank or plan adviser to provide an independent fiduciary of the plan with advance written notice of the proposed transfer and full written disclosure of information concerning the mutual fund, including the current prospectus; disclosure of the fees to be charged to, or paid by the plan and funds to the bank or plan adviser, including the nature and extent of any differential between the rates of the fees; the reasons why the bank or plan adviser considers the in-kind transfers appropriate for the plan; and a statement of whether there are any limitations applicable to the bank or plan adviser with respect to which plan assets may be invested in shares of the mutual fund and, if so, the nature of such limitations; and the identity of securities that will have to be valued for the transfer. The independent fiduciary must give prior written approval of the transfer (and written approval of any electronic transmission of subsequent confirmations from the bank or plan adviser, if the independent fiduciary elects to receive such statements in that form); and the bank or adviser must send written (or electronic, if approved) confirmation of the transfer. Subsequent to a transfer, the bank or plan adviser must provide the independent fiduciary of the plan with updated prospectuses at least annually for mutual funds in which the plan remains invested; the bank or plan adviser must also provide, upon the independent fiduciary's request, a report or statement of all fees paid by the mutual fund to the bank or plan adviser, which may be in the form of the most recent financial report. The Department has received approval from OMB for this ICR under OMB Control No. 1210-0104. The current approval is scheduled to expire on April 30, 2025. Agency: Employee Benefits Security Administration, Department of Labor. Title: Prohibited Transaction Class Exemption for Cross-Trades of Securities by Index and Model-Driven Funds (PTCE 2002-12). Type of Review: Extension of a currently approved collection of information. OMB Number: 1210-0115. Affected Public: Private sector, Business or other for profits. Respondents: 60. Responses: 840. Estimated Total Burden Hours: 855. Estimated Total Burden Cost (Operating and Maintenance): $1,290. Description: Prohibited Transaction Exemption (PTE) 2002-12 permits private-sector pension plans and the Federal Thrift Savings Plan to buy and sell securities between certain types of investment funds that participate in passive or model-driven ``cross-trading'' programs pursuant to objective criteria specified in the exemption. The exemption extends only to crossing-trading conducted according to index- or model-driven programs that meet the specific requirements of the exemption, which generally seeks to create objective criteria sufficient to confine or eliminate the manager's discretion to affect the identity or amount of securities to be cross-traded and the timing of cross-trades. The exemption also covers cross-trades among such funds and certain large accounts that engage managers to carry out a specific portfolio restructuring program in order to convert the large account into a fund, or to otherwise act as a ``trading adviser'' for such a restructuring program. The information collection requirements that are conditions for reliance on the class exemption include third-party disclosures and recordkeeping. The exemption does not require any reporting or filing with the Federal government, but the designated records must be made available to specified parties, including the Department and the IRS, upon request. The Department has received approval from OMB for this ICR under OMB Control No. 1210-0115. The current approval is scheduled to expire on April 30, 2025. Agency: Employee Benefits Security Administration, Department of Labor. Title: Acquisition and Sale of Trust Real Estate Investment Trust Shares by Individual Account Plans Sponsored by Trust Real Estate Investment Trusts. Type of Review: Extension of a currently approved collection of information. OMB Number: 1210-0124. Affected Public: Private sector, Business or other for profits. Respondents: 67. Responses: 140,700. Estimated Total Burden Hours: 7,046. Estimated Total Burden Cost (Operating and Maintenance): $465,717. Description: Prohibited Transaction Exemption 2004-07 permits an individual account pension plan sponsored by a real estate investment trust (REIT) within the meaning of Code section 856 that is organized as a trust under applicable law (Trust REIT), or by its affiliates, to purchase, hold and sell publicly traded shares of beneficial interest in the Trust REIT at the direction of the participant or an independent fiduciary. The relief also covers contributions in kind of REIT shares. Such purchases, holdings, and sales would otherwise be prohibited under ERISA section 406 and Code section 4975. The class exemption requires, among other conditions, that the Trust REIT (or its agent) provide the person who has authority to direct acquisition or sale of REIT shares with the most recent prospectus, quarterly report, and annual report concerning the Trust REIT prior to or immediately after an initial investment in the Trust REIT. The person with such authority may be, under the terms of the plan, either an independent fiduciary or a participant exercising investment rights pertaining to his or her individual account under the plan. Updated versions of the reports must be provided to the directing person as published. The exemption further requires the plan to maintain records concerning investments in a Trust REIT for a period of six years and make them available to interested persons including the Department, Internal Revenue Service, fiduciary or authorized representative of the plan, and participants and beneficiaries. The exemption requires confidentiality procedures, which must be designed to protect against the possibility that an employer may exert undue influence on participants regarding share-related transactions, and the participants and beneficiaries of the plan must be provided with a statement describing the confidentiality procedures in place and the fiduciary responsible for monitoring these procedures. The Department has received approval from OMB for this ICR under OMB Control No. 1210-0124. The current approval is scheduled to expire on April 30, 2025. Agency: Employee Benefits Security Administration, Department of Labor. Title: Genetic Information Nondiscrimination Act of 2008 Research Exception Notice. Type of Review: Extension of a currently approved collection of information. OMB Number: 1210-0136. Affected Public: Private sector, Business or other for profits, Not-for-profit institutions. Respondents: 48. [[Page 56419]] Responses: 48. Estimated Total Burden Hours: 12. Estimated Total Burden Cost (Operating and Maintenance): $185. Description: The Genetic Information Nondiscrimination Act of 2008 (GINA), Public Law 110-233, was enacted on May 21, 2008. Title I of GINA amended the Employee Retirement Income Security Act of 1974 (ERISA), the Public Health Service Act (PHS Act), the Internal Revenue Code of 1986 (the Code), and the Social Security Act (SSA) to prohibit discrimination in health coverage based on genetic information. Sections 101 through 103 of Title I of GINA prevent employment-based group health plans and health insurance issuers in the group and individual markets from discriminating based on genetic information and from collecting such information. GINA and the interim final regulations (29 CFR 2590.702-1(c)(5)) provide an exception to the limitations on requesting or requiring genetic testing that allows a group health plan or group health insurance issuer to request, but not require, a participant or beneficiary to undergo a genetic test if all of the following conditions of the research exception are satisfied. First, the request must be made pursuant to research that complies with 45 CFR part 46 (or equivalent Federal regulations) and any applicable State or local law or regulations for the protection of human subjects in research. To comply with the informed consent requirements of 45 CFR 46.116(a)(8), a participant must receive a disclosure that participation in the research is voluntary, refusal to participate cannot involve any penalty or loss of benefits to which the participant is otherwise entitled, and the participant may discontinue participation at any time without penalty or loss of benefits to which the participant is entitled (the Participant Disclosure). Second, the plan or issuer must make the request in writing and must clearly indicate to each participant or beneficiary (or in the case of a minor child, to the legal guardian of such beneficiary) to whom the request is made that compliance with the request is voluntary and noncompliance will have no effect on eligibility for benefits, premium, or contribution amounts. Third, none of the genetic information collected or acquired as a result of the research may be used for underwriting purposes. Finally, the plan or issuer must complete a copy of the ``Notice of Research Exception under the Genetic Information Nondiscrimination Act'' and provide it to the address specified in its instructions. The Notice and instructions are available on the Department's website. The Department has received approval from OMB for this ICR under OMB Control No. 1210-0136. The current approval is scheduled to expire on April 30, 2025. Agency: Employee Benefits Security Administration, Department of Labor. Title: Opt-in State Balance Bill Process. Type of Review: Extension of a currently approved collection of information. OMB Number: 1210-0168. Affected Public: Private sector, Business or other for profits, Not-for-profit institutions. Respondents: 207. Responses: 207. Estimated Total Burden Hours: 311. Estimated Total Burden Cost (Operating and Maintenance): $106. Description: The No Surprises Act was enacted as part of the Consolidated Appropriations Act, 2021 (Pub. L. 116-260). The final rules allow plans to voluntarily opt in to state law that provides for a method for determining the cost-sharing amount or total amount payable under such a plan, where a state has chosen to expand access to such plans, to satisfy their obligations under section 9816(a)-(d) of the Code, section 716(a)-(d) of ERISA, and section 2799A-1(a)-(d) of the PHS Act. A plan that has chosen to opt into a state law must prominently display in its plan materials describing the coverage of out-of-network services a statement that the plan has opted into a specified state law, identify the state (or states), and include a general description of the items and services provided by nonparticipating facilities and providers that are covered by the specified state law. The Department has received approval from OMB for this ICR under OMB Control No. 1210-0168. The current approval is scheduled to expire on April 30, 2025. Agency: Employee Benefits Security Administration, Department of Labor. Title: Settlement Agreements Between a Plan and a Party in Interest. Type of Review: Extension of a currently approved collection of information. OMB Number: 1210-0091. Affected Public: Private sector, Business or other for profits. Respondents: 3. Responses: 810. Estimated Total Burden Hours: 16. Estimated Total Burden Cost (Operating and Maintenance): $214. Description: This information collection request relates to two prohibited transaction class exemptions (PTEs) that the Department has granted, both of which involve settlement agreements. These two exemptions are described below. PTE 94-71 exempts from certain restrictions of ERISA and certain taxes imposed by the Code, a transaction or activity that is authorized, prior to the execution of the transaction or activity, by a settlement agreement, to which the Department is a party, resulting from an investigation of an employee benefit plan conducted by the Department. The following information collections are among the conditions for the exemption: (1) A party engaging in a settlement agreement arising out of a Department investigation must provide written notice to the affected participants and beneficiaries of the plan at least 30 days prior to entry into the settlement agreement. The notice must contain an objective description of the transaction or activity, the approximate date on which the transaction will occur, the address of the regional or district office of the Department that negotiated the settlement agreement, and a statement informing participants and beneficiaries of their right to forward their comments to such office. (2) A copy of the notice and a description of the method by which it will be distributed must be approved in advance by the regional or district office of the Department which negotiated the settlement. PTE 2003-39 exempts from certain restrictions of ERISA and certain taxes imposed by the Code, transactions arising out of the settlement of litigation that involve: the release by the plan or a plan fiduciary of legal claims against parties in interest in exchange for payment given by or on behalf of the party in interest to the plan; an extension of credit by a plan to a party interest in connection with a settlement; and the plan's acquisition, holding, and disposition of employer securities received in settlement of litigation. The relief is granted provided certain conditions are met, such as the requirement of an independent fiduciary who has no relationship to, or interest in, any parties in the litigation to authorize the settlement and the settlement terms of the agreement and any extension of credit are reasonable and no less favorable than comparable arm's length agreement. The other conditions include the following information collections: (1) The terms of the settlement must be specifically described in a written agreement or consent decree. (2) The fiduciary acting on behalf of the plan must acknowledge [[Page 56420]] in writing that the person is a fiduciary with respect to the settlement of the litigation. (3) The plan fiduciary must maintain records of the transaction for six years and must disclose the records on request to the Department and other interested persons. The Department has received approval from OMB for this ICR under OMB Control No. 1210-0091. The current approval is scheduled to expire on May 31, 2025. Agency: Employee Benefits Security Administration, Department of Labor. Title: Voluntary Fiduciary Correction Program. Type of Review: Extension of a currently approved collection of information. OMB Number: 1210-0118. Affected Public: Private sector, Business or other for profits. Respondents: 3,325. Responses: 246,918. Estimated Total Burden Hours: 22,202. Estimated Total Burden Cost (Operating and Maintenance): $42,175. Description: This information collection arises from two related actions: the Voluntary Fiduciary Correction Program (the VFC Program) and Prohibited Transaction Class Exemption (PTE) 2002-51 (the Exemption). The Department adopted the Program and the Exemption in order to encourage members of the public to voluntarily correct transactions that violate (or are suspected of violating) the fiduciary or prohibited transaction provisions of the Employee Retirement Income Security Act of 1974 (ERISA). Both the Program and the Exemption incorporate information collection requirements in order to protect participants and beneficiaries and enable the Department to oversee the appropriate use of the Program and the Exemption. The information collection provisions of the Program and the Exemption include third- party disclosures, recordkeeping, and disclosures to the Federal government. The Department has received approval from OMB for this ICR under OMB Control No. 1210-0118. The current approval is scheduled to expire on May 31, 2025. Agency: Employee Benefits Security Administration, Department of Labor. Title: Affordable Care Act Grandfathered Health Plan Disclosure, Recordkeeping Requirement, and Change in Carrier Disclosure. Type of Review: Extension of a currently approved collection of information. OMB Number: 1210-0140. Affected Public: Private sector, Business or other for profits, Not-for-profit institutions. Respondents: 360,479. Responses: 8,868,468. Estimated Total Burden Hours: 655. Estimated Total Burden Cost (Operating and Maintenance): $125,533. Description: The Patient Protection and Affordable Care Act, Public Law 111-148, (the Affordable Care Act or the Act) was enacted on March 23, 2010. Section 1251 of the Act provides that certain plans and health insurance coverage in existence as of March 23, 2010, known as grandfathered health plans, are not required to comply with certain statutory provisions in the Act. On November 18, 2015, the Departments issued final regulations the contain the information collections (80 FR 72191). To maintain its status as a grandfathered health plan, plans must maintain records documenting the terms of the plan in effect on March 23, 2010, and any other documents that are necessary to verify, explain, or clarify status as a grandfathered health plan. The plan must make such records available for examination upon request by participants, beneficiaries, individual policy subscribers, or a State or Federal agency official. In addition, grandfathered health plans must include a statement in plan materials provided to participants or beneficiaries describing the benefits provided under the plan or health insurance coverage, that the plan or coverage believes it is a grandfathered health plan within the meaning of section 1251 of the Affordable Care Act, that being a grandfathered health plan means that the plan does not include certain consumer protections of the Affordable Care Act, providing contact information for participants to direct questions regarding which protections apply and which protections do not apply to a grandfathered health plan, and what might cause a plan to change from grandfathered health plan status and to file complaints. However, grandfathered health plans are not required to provide the disclosure statement every time they send out a communication, such as an explanation of benefits, to a participant or beneficiary. Instead, grandfathered health plans will comply with this disclosure requirement if they include the model disclosure language provided in the Departments' interim final grandfather regulations (or a similar statement) whenever a summary of the benefits under the plan is provided to participants and beneficiaries. Finally, grandfathered group health plans that change health insurance issuers must provide the succeeding health insurance issuer (and the succeeding health insurance issuer must require) documentation of plan terms (including benefits, cost sharing, employer contributions, and annual limits) under the prior health insurance coverage sufficient to make a determination whether the standards of paragraph (g)(1) of the final regulations are exceeded. The Department has received approval from OMB for this ICR under OMB Control No. 1210-0140. The current approval is scheduled to expire on May 31, 2025. Agency: Employee Benefits Security Administration, Department of Labor. Title: Affordable Care Act Advance Notice of Rescission. Type of Review: Extension of a currently approved collection of information. OMB Number: 1210-0141. Affected Public: Private sector, Business or other for profits, Not-for-profit institutions. Respondents: 100. Responses: 1,744. Estimated Total Burden Hours: 19. Estimated Total Burden Cost (Operating and Maintenance): $230. Description: The Patient Protection and Affordable Care Act, Public Law 111-148, (the Affordable Care Act or the Act) was enacted on March 23, 2010. Section 2712 of the Public Health Service Act (PHS Act), as added by the Affordable Care Act, and the Department's final regulation (26 CFR 54.9815-2712, 29 CFR 2590.715-2712, 45 CFR 147.2712) provides rules regarding rescissions of health coverage for group health plans and health insurance issuers offering group or individual health insurance coverage (80 FR 72191). Under the statute and final regulations, a group health plan, or a health insurance issuer offering group or individual health insurance coverage, generally must not rescind coverage except in the case of fraud or an intentional misrepresentation of a material fact. This standard applies to all rescissions, whether in the group, or individual insurance market, or for self-insured coverage. These rules also apply regardless of any contestability period of the plan or issuer. The PHS Act section 2712 mandated a new advance notice requirement when coverage is rescinded where still permissible. Specifically, the second sentence in section 2712 provides that coverage may not be cancelled unless prior notice is provided, and then only as permitted under PHS Act sections 2702(c) and 2742(b). Under these final [[Page 56421]] regulations, even if prior notice is provided, rescission is only permitted in cases of fraud, or an intentional misrepresentation of a material fact as permitted under the cited provisions. These final regulations provide that a group health plan, or health insurance issuer offering group health insurance coverage, must provide at least 30 days advance notice to an individual before coverage may be rescinded. The notice must be provided regardless of whether the rescission is of group or individual coverage; or whether, in the case of group coverage, the coverage is insured or self-insured, or the rescission applies to an entire group or only to an individual within the group. The Department has received approval from OMB for this ICR under OMB Control No. 1210-0141. The current approval is scheduled to expire on May 31, 2025. Agency: Employee Benefits Security Administration, Department of Labor. Title: Affordable Care Act Internal Claims and Appeals and External Review Procedures for ERISA Plans. Type of Review: Extension of a currently approved collection of information. OMB Number: 1210-0144. Affected Public: Private sector, Business or other for profits, Not-for-profit institutions. Respondents: 2,007,298. Responses: 390,574. Estimated Total Burden Hours: 19,047. Estimated Total Burden Cost (Operating and Maintenance): $602,026. Description: The Patient Protection and Affordable Care Act, Public Law 111-148, (the Affordable Care Act or the Act) was enacted on March 23, 2010. As part of the Act, Congress added Public Health Service Act (the PHS Act) section 2719, which provides rules relating to internal claims and appeals and external review processes. The Department of Labor, Internal Revenue Service, and the Health and Human Services Department (the Departments) issued final regulations (80 FR 72191) that set forth rules implementing PHS Act section 2719 for internal claims and appeals and external review processes. With respect to internal claims and appeals processes for group health coverage, PHS Act section 2719 and paragraph (b)(2)(i) of the final regulations provide that group health plans and health insurance issuers offering group health insurance coverage must comply with the internal claims and appeals processes set forth in 29 CFR 2560.503-1 (the DOL claims procedure regulation) and update such processes in accordance with standards established by the Secretary of Labor in paragraph (b)(2)(ii) of the regulations. The DOL claims procedure regulation requires plans to provide every claimant who is denied a claim with a written or electronic notice that contains the specific reasons for denial, a reference to the relevant plan provisions on which the denial is based, a description of any additional information necessary to perfect the claim, and a description of steps to be taken if the participant or beneficiary wishes to appeal the denial. The regulation also requires that any adverse decision upon review be in writing (including electronic means) and include specific reasons for the decision, as well as references to relevant plan provisions. Paragraph (b)(2)(ii)(C) of the final regulations adds a requirement that non-grandfathered ERISA-covered group health plans provide to the claimant, free of charge, any new or additional evidence considered relied upon, or generated by the plan or issuer in connection with the claim. In addition, the PHS Act section 2719 and the final regulations provide that group health plans and issuers offering group health insurance coverage must comply either with a State external review process or a Federal review process. The regulations provide a basis for determining when plans and issuers must comply with an applicable State external review process and when they must comply with the Federal external review process. The No Surprises Act extends the balance billing protection related to external reviews to grandfathered plans. The definitions of group health plan and health insurance issuer that are cited in section 110 of the No Surprises Act include both grandfathered and non- grandfathered plans and coverage. Accordingly, the practical effect of section 110 of the No Surprises Act is that grandfathered health plans must provide external review for adverse benefit determinations involving benefits subject to these surprise billing protections. The claims procedure regulation imposes information collection requirements as part of the reasonable procedures that an employee benefit plan must establish regarding the handling of a benefit claim. These requirements include third-party notice and disclosure requirements that the plan must satisfy by providing information to participants and beneficiaries of the plan. The Department has received approval from OMB for this ICR under OMB Control No. 1210-0144. The current approval is scheduled to expire on May 31, 2025. Agency: Employee Benefits Security Administration, Department of Labor. Title: Summary of Benefits and Coverage and Uniform Glossary Required Under the Affordable Care Act. Type of Review: Extension of a currently approved collection of information. OMB Number: 1210-0147. Affected Public: Private sector, Business or other for profits, Not-for-profit institutions. Respondents: 2,007,766. Responses: 80,182,298. Estimated Total Burden Hours: 313,490. Estimated Total Burden Cost (Operating and Maintenance): $7,605,988. Description: The Patient Protection and Affordable Care Act, Pub. L. 111-148, was signed into law on March 23, 2010, and the Health Care and Education Reconciliation Act of 2010, Pub. L. 111-152, was signed into law on March 30, 2010 (collectively known as the ``Affordable Care Act''). The Affordable Care Act amends the Public Health Service Act (PHS Act) by adding section 2715 ``Development and Utilization of Uniform Explanation of Coverage Documents and Standardized Definitions.'' Each group health plan and health insurance issuer offering group insurance coverage must provide a summary of benefits and coverage to plans and participants at specified points in the enrollment process. This disclosure must include, among other things, coverage examples that illustrate common benefits scenarios and related cost sharing. Additionally, plans and issuers must make the uniform glossary available in electronic form, with paper upon request, and provide 60 days advance notice of any material modifications in the plan or coverage. The Department has received approval from OMB for this ICR under OMB Control No. 1210-0147. The current approval is scheduled to expire on May 31, 2025. Agency: Employee Benefits Security Administration, Department of Labor. Title: Prohibited Transaction Class Exemptions for Multiple Employer Plans and Multiple Employer Apprenticeship Plans--PTE 1976-1, PTE 1977-10, PTE 1978-6. Type of Review: Extension of a currently approved collection of information. OMB Number: 1210-0058. [[Page 56422]] Affected Public: Private sector, Business or other for profits, Not-for-profit institutions. Respondents: 3,259. Responses: 3,409. Estimated Total Burden Hours: 815. Estimated Total Burden Cost (Operating and Maintenance): $0. Description: The three prohibited transaction class exemptions (PTEs) included in this ICR, (1) PTE 76-1, (2) PTE 77-10, and (3) PTE 78-6, exempt certain types of transactions commonly entered into by ``multiemployer'' plans from certain of the prohibitions contained in sections 406 and 407(a) of ERISA. The Department determined that, in the absence of these exemptions, the affected plans would not be able to operate efficiently or to enter into routine types of transactions necessary for their operations. In order to ensure that the class exemptions for these necessary transactions meet the statutory standards, the Department imposed conditions contained in the exemptions that are information collections. The information collections consist of recordkeeping and third-party disclosures. The Department has received approval from OMB for this ICR under OMB Control No. 1210-0058. The current approval is scheduled to expire on June 30, 2025. Agency: Employee Benefits Security Administration, Department of Labor. Title: Notice for Health Reimbursement Arrangements Integrated with Individual Health Insurance Coverage. Type of Review: Extension of a currently approved collection of information. OMB Number: 1210-0160. Affected Public: Private sector, Business or other for profits, Not-for-profit institutions, Individuals or Households. Respondents: 177,480. Responses: 2,140,197. Estimated Total Burden Hours: 53,131. Estimated Total Burden Cost (Operating and Maintenance): $24,831. Description: On June 21, 2018, the Department published the Definition of Employer under Section 3(5) of ERISA--Association Health Plans final rule. On August 3, 2018, the Department of Labor, HHS and the Treasury Department (the Departments) published the Short-Term, Limited-Duration Insurance final rule. These final rules remove the prohibition on integrating health reimbursement arrangements (HRAs) with individual health insurance coverage, if certain conditions are met. The final rules also set forth conditions under which certain HRAs are as limited excepted benefits. In addition, the Treasury Department and the IRS finalized rules regarding premium tax credit (PTC) eligibility for individuals offered coverage under an HRA integrated with individual health insurance coverage, and DOL finalized a safe harbor to provide HRA plan sponsors with assurance that the individual health insurance coverage that is integrated with an HRA would not become part of an ERISA plan if the conditions of the safe harbor are met. Finally, HHS finalized rules that provide a special enrollment period in the individual market for individuals who gain access to an HRA that is integrated with individual health insurance coverage or who are provided a qualified small employer health reimbursement arrangement (QSEHRA). The following five information Collections are contained in the final rules: (1) Verification of Enrollment in Individual Coverage; (2) HRA Notice to Participants; (3) Notice to Participants that Individual Policy is not Subject to Title I of ERISA; (4) Participant Notification of Individual Coverage HRA of Cancelled or Discontinued Coverage; (5) Notice for Excepted Benefit HRAs. These information collections notify the HRA that participants are enrolled in individual health insurance coverage, help individuals understand the impact of enrolling in an HRA on their eligibility for the PTC, and help individuals understand that coverage is not subject to the rules and consumer protections of the Employee Retirement Income Security Act (ERISA). The Department has received approval from OMB for this ICR under OMB Control No. 1210-0160. The current approval is scheduled to expire on June 30, 2025. II. Focus of Comments The Department is particularly interested in comments that: Evaluate whether the collections of information are necessary for the proper performance of the functions of the agency, including whether the information will have practical utility; Evaluate the accuracy of the agency's estimate of the collections of information, including the validity of the methodology and assumptions used; Enhance the quality, utility, and clarity of the information to be collected; and Minimize the burden of the collection of information on those who are to respond, including through the use of appropriate automated, electronic, mechanical, or other technological collection techniques or other forms of information technology, e.g., by permitting electronic submissions of responses. Comments submitted in response to this notice will be summarized and/or included in the ICR for OMB approval of the information collection; they will also become a matter of public record. Signed at Washington, DC, this 2nd day of July, 2024. Lisa M. Gomez, Assistant Secretary, Employee Benefits Security Administration, U.S. Department of Labor. [FR Doc. 2024-15030 Filed 7-8-24; 8:45 am] BILLING CODE 4510-29-P

usgpo

2024-10-08T13:27:01.806001

FR

FR-2024-07-09/2024-14961

Federal Register Volume 89 Issue 131 (July 9, 2024)

United States National Archives and Records Administration Office of the Federal Register

[Federal Register Volume 89, Number 131 (Tuesday, July 9, 2024)] [Notices] [Pages 56422-56432] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 2024-14961] ----------------------------------------------------------------------- DEPARTMENT OF LABOR Employee Benefits Security Administration [Exemption Application No. D-12073] Proposed Exemption From Certain Prohibited Transaction Restrictions Involving Memorial Sloan Kettering Cancer Center (MSKCC or the Applicant) Located in New York, New York AGENCY: Employee Benefits Security Administration, Department of Labor. ACTION: Notice of proposed exemption. ----------------------------------------------------------------------- SUMMARY: This document provides notice of the pendency before the Department of Labor (the Department) of a proposed individual exemption from certain of the prohibited transaction restrictions of the Employee Retirement Income Security Act of 1974 (ERISA or the Act) and/or the Internal Revenue Code of 1986 (the Code) for the reinsurance of risks and the receipt of a premium by MSK Insurance US, Inc. (the Captive), a captive insurance and reinsurance subsidiary that is wholly-owned by MSKCC, in connection with a single premium group insurance contract sold by an unrelated fronting insurer (the Fronting Insurer) to provide pension annuities to Plan participants and beneficiaries if the conditions in Section III are met in conformance with the definitions in Section I. DATES: If granted, this proposed exemption will be in effect on the date specified by the Department in a grant notice published in the Federal Register. Comments due: Written comments and requests for a public hearing on the proposed exemption must be submitted to the Department by August 23, 2024. ADDRESSES: All written comments and requests for a hearing should be [[Page 56423]] submitted to the Employee Benefits Security Administration (EBSA), Office of Exemption Determinations, Attention: Application No. D-12073, via email to [email protected] or online through http://www.regulations.gov. Any such comments or requests should be sent before the end of the scheduled comment period. The application for exemption and the comments received will be available for public inspection in the Public Disclosure Room of the Employee Benefits Security Administration, U.S. Department of Labor, Room N-1515, 200 Constitution Avenue, NW, Washington, DC 20210. See SUPPLEMENTARY INFORMATION below for additional information regarding comments. FOR FURTHER INFORMATION CONTACT: Mr. Joseph Brennan of the Department at (202) 693-8456. (This is not a toll-free number.) SUPPLEMENTARY INFORMATION: Comments Persons are encouraged to submit all comments electronically and not to follow their submissions with paper copies. Comments should state the nature of the person's interest in the proposed exemption and how the person would be affected by the exemption, if granted. Any person who may be adversely affected by an exemption can request a hearing on the exemption. A hearing request must state: (1) the name, address, telephone number, and email address of the person making the request; (2) the nature of the person's interest in the exemption and how the person would be adversely affected by the exemption; and (3) a statement of the issues to be addressed and a general description of the evidence to be presented at the hearing. The Department will grant a request for a hearing made in accordance with the requirements above where a hearing is necessary to fully explore material factual issues identified by the person requesting the hearing. A notice of such hearing would be published by the Department in the Federal Register. The Department may decline to hold a hearing if: (1) the hearing request does not meet the requirements above; (2) the only issues identified for exploration at the hearing are matters of law; or (3) the factual issues identified can be fully explored through the submission of evidence in written (including electronic) form. WARNING: All comments received will be included in the public record without change and may be made available online at http://www.regulations.gov, including any personal information provided, unless the comment includes information claimed to be confidential, or other information whose disclosure is restricted by statute. If you submit a comment, EBSA recommends that you include your name and other contact information in the body of your comment, but DO NOT submit information that you consider to be confidential, or otherwise protected (such as a Social Security number or an unlisted phone number), or confidential business information that you do not want publicly disclosed. If EBSA cannot read your comment due to technical difficulties and cannot contact you for clarification, EBSA might not be able to consider your comment. Additionally, the http://www.regulations.gov website is an ``anonymous access'' system, which means EBSA will not know your identity or contact information unless you provide such information in the body of your comment. If you send an email directly to EBSA without going through http://www.regulations.gov, your email address will be automatically captured and included as part of the comment that is placed in the public record and made available on the internet. Background Under the proposed exemption, the Memorial Sloan Kettering Cancer Center Pension Plan (the Plan) would enter into a single premium group annuity insurance contract (the GAC) with an unrelated insurance company (the Fronting Insurer) who would be selected by an independent fiduciary in compliance with the requirements of the Department's Interpretive Bulletin 95-1.\1\ The Fronting Insurer would, in turn, enter into a reinsurance contract (the Reinsurance Arrangement) with MSK Insurance US, Inc. (MSK US or the Captive), a captive reinsurer that is wholly owned by MSKCC, the Plan sponsor. Under the Reinsurance Arrangement, MSK US would reinsure 100 percent of the Plan's risks. Importantly, the Fronting Insurer would remain fully responsible for the benefits of participants and beneficiaries for the entire duration of the GAC and Reinsurance Arrangement if MSK US does not fulfill its contractual obligations to the Fronting Insurer, without any caveats, contingencies, or conditions that would relieve or limit the Fronting Insurer's contractual obligation to pay benefits to the Plan's participants and beneficiaries. --------------------------------------------------------------------------- \1\ 29 CFR 2509.95-1. --------------------------------------------------------------------------- In connection with the Reinsurance Arrangement, all Plan participants and beneficiaries would receive an increase to their monthly pension benefit that is currently expected to be 5.37 percent.\2\ The Department expects that this benefit increase would add a total of $64,440,000 in additional benefits to the Plan's participants and beneficiaries in the form of a 5.37 percent increase to their monthly annuity payment for the rest of their lives. Importantly, this increase will remain in place for the entirety of Plan participants' and beneficiaries' lives and, as a condition of this exemption, MSKCC would not reduce any benefits that employees receive from MSKCC, including the benefits Plan participants receive from the Plan, as a result of the Reinsurance Arrangement described in this proposed exemption. Absent this exemption, participants and beneficiaries would not receive this benefit increase. --------------------------------------------------------------------------- \2\ As discussed in more detail below, the exemption requires that Plan participants and beneficiaries receive the majority of the benefits derived from the Reinsurance Arrangement. While, as noted above, it is ``currently expected'' that a 5.37% increase in Plan's participants' and beneficiaries' monthly pension benefits will achieve this objective, the exact percentage increase needed to ensure that Plan participants and beneficiaries receive the majority of the benefits derived from the proposed arrangement will not be known until the Plan actually enters into the GAC, which will occur after the Fronting Insurer is selected by Fiduciary Counselors, the independent fiduciary appointed to solicit bids and select the Fronting Insurer in accord with the requirements of IB 95-1. As described in further detail below, once the Plan enters into the GAC, Milliman, a second independent fiduciary acting solely on behalf of the Plan, must determine, based on objective data, that the Plan participants' and beneficiaries' monthly pension benefits have been increased by a percentage that ensures they will receive the majority of the benefits derived from the Reinsurance Arrangement. The methodology for making this calculation is discussed below. Milliman as independent fiduciary must, among other things, calculate and demonstrate to the Department in a written report that Plan participants and beneficiaries received the appropriate percentage increase in their monthly pension benefits. The written report of the independent fiduciary would be available to the publicly contacting EBSA's Public Disclosure Office and referencing Exemption Application D-12073. --------------------------------------------------------------------------- Proposed Exemption The Department is considering granting an exemption under the authority of ERISA section 408(a) and Code section 4975(c)(2) and in accordance with the procedures set forth in 29 CFR part 2570, subpart B (75 FR 66637, 66644, October 27, 2011).\3\ If [[Page 56424]] the proposed exemption is granted, the Plan will purchase the GAC from an unrelated Fronting Insurer, and the Fronting Insurer will, in turn, enter into a reinsurance contract with MSK US. --------------------------------------------------------------------------- \3\ For purposes of this proposed exemption: (1) references to specific provisions of ERISA Title I, unless otherwise specified, should be read to refer as well to the corresponding provisions of Code section 4975; and (2) if granted, this proposed exemption does not provide relief from the requirements of any law not noted above. Accordingly, the Applicant is responsible for ensuring compliance with any other laws applicable to the transactions described herein. --------------------------------------------------------------------------- As described below, MSKCC is expected to receive a financial benefit from this exemption that will equal approximately $126,444,000. This exemption would require MSKCC to ensure that Plan participants and beneficiaries will receive the majority of that derived benefit in the form of a uniform percentage increase to the monthly retirement benefit of all participants and beneficiaries. Currently, the Department expects that MSKCC would implement a 5.37% increase in each participant's and beneficiary's monthly annuity payment. This benefit increase will continue, without reduction, for the lifetime of each participant and beneficiary until the final annuitant is paid their final monthly annuity payment under the GAC. This proposed exemption also would require MSKCC to delegate fiduciary oversight of the Plan and Reinsurance Arrangement to a qualified fiduciary who is independent of MSKCC and MSKCC's affiliates (the Independent Fiduciary). Among other things, the Independent Fiduciary must approve the Reinsurance Arrangement in advance, ensure that the Reinsurance Arrangement is in the interest of and protective of the Plan's participants and beneficiaries, and submit written annual reports to the Department confirming that MSKCC has met all of the exemption's conditions.\4\ --------------------------------------------------------------------------- \4\ The Department notes that the Independent Fiduciary's annual written reports are essential to the Department's tentative finding that this proposed exemption is, and will continue to be, in the interest of and protective of the Plan and its participants and beneficiaries. The Independent Fiduciary must clearly, prudently, and loyally determine whether MSKCC and its affiliates have complied with each term and condition of the exemption and include its findings in its reports. --------------------------------------------------------------------------- This exemption would provide relief from certain restrictions described in ERISA section 406 and Code section 4975(c)(1). These restrictions are discussed below. No relief or waiver of a violation of any other law is provided by the exemption. When interpreting and implementing this exemption, MSKCC, the Captive, the Independent Fiduciary, and the Fronting Insurer would resolve any ambiguities by considering the exemption's protective purposes. To the extent additional clarification is necessary, these persons or entities should immediately contact EBSA's Office of Exemption Determinations at 202- 693-8540. Summary of Facts and Representations 5 --------------------------------------------------------------------------- \5\ The Summary of Facts and Representations is based on the Applicant's representations provided in its exemption application and does not reflect factual findings or opinions of the Department unless indicated otherwise. The Department notes that the availability of this exemption is subject to the express condition that the material facts and representations contained in application D-12073 are true and complete at all times, and accurately describe all material terms of the transactions covered by the exemption. If there is any material change in a transaction covered by the exemption, or in a material fact or representation described in the application, the exemption will cease to apply as of the date of the change. --------------------------------------------------------------------------- Memorial Sloan Kettering Cancer Center 1. MSKCC is a cancer center that is committed to patient care, research, and educational programs. Headquartered in New York City, MSKCC had 29,732 employees as of December 31, 2022. MSKCC's total operating revenue in 2022 was approximately $6.63 billion, with net assets of $8.74 billion. MSKCC is a non-profit entity designated as a 501(c)(3) organization. The Plan 2. The Plan is a defined benefit pension plan that provides retirement and death benefits for eligible participants. Under the Plan, the normal form of payment for an unmarried participant is a single-life annuity, and the normal form of payment for a married participant is a joint and 50% survivor annuity. The Plan administrator and named fiduciary is the MSK Executive Benefits Committee and the Plan trustee is JPMorgan Chase. In 2012, MSKCC amended the Plan to close enrollment to employees hired on or after December 16, 2012. In 2020, MSKCC amended the Plan to freeze future benefit accruals effective December 20, 2020. As of December 31, 2022, the Plan covered 8,263 participants and held $1,347,320,040 in total assets. The Captive 3. MSK US is MSKCC's wholly-owned captive insurance and reinsurance subsidiary. MSK US was organized on August 21, 2003, to provide coverage to operating subsidiaries of MSKCC, and on August 28, 2003, received a Certificate of Authority to transact insurance business in the State of Vermont. MSK US insures the property and equipment of MSKCC. Today, MSK US writes approximately $75 million in premiums and has expanded its business to include other insurance product lines for MSKCC, such as warranty coverage for health care equipment and bio- medical health care equipment, group life insurance, and group long- term disability insurance. In December 2008, MSKCC received a prohibited transaction exemption from the Department that permits MSK US to reinsure the risks of MSKCC's Group Term Life and Long Term Disability Programs (PTE 08-22E).\6\ --------------------------------------------------------------------------- \6\ The Fronting Insurers under PTE 08-22E are Prudential Insurance Company of America and First Unum Life Insurance Company. --------------------------------------------------------------------------- MSK Employee Benefits IC (MSK EB) is a segregated cell within MSK US that will be used to reinsure the risks related to the Reinsurance Arrangement and this exemption. While MSK US will contract with the Fronting Insurer as part of the Reinsurance Arrangement, MSK EB will hold the reserves that will be used to pay benefits to the Plan's participants and beneficiaries under the GAC. MSK US and MSK EB are collectively referred to herein as ``the Captive.'' The Reinsurance Arrangement 4. The transaction at issue involves the purchase by the Plan of the GAC from an unrelated Fronting Insurer, and the reinsurance of the GAC through the Captive. The Plan has engaged Milliman, Inc. (Milliman) to serve as its Independent Fiduciary with respect to the Reinsurance Arrangement (the Independent Fiduciary). Fiduciary Counselors Inc. and the Selection of the Fronting Insurer 5. MSKCC has engaged Fiduciary Counselors Inc. of Washington, DC to select a Fronting Insurer with respect to the Reinsurance Arrangement based on a competitive bidding process. The Applicant represents that Fiduciary Counselors will send requests for proposals to potential Fronting Insurers and will then select a Fronting Insurer in compliance with the Department's Interpretive Bulletin (IB) 95-1,\7\ which provides several factors that fiduciaries must consider to ensure they select the safest annuity available for a plan.\8\ The [[Page 56425]] Fronting Insurer ultimately selected by Fiduciary Counselors must be unrelated to MSKCC. Given the importance of a highly rated Fronting Insurer to the security of the pension benefits provided to the Plan's participants and beneficiaries, Fiduciary Counselors must provide the Department with a written submission that identifies the Fronting Insurer selected along with a written representation detailing the methodology that it used to select the Fronting Insurer and how that methodology, and the Fronting Insurer selected, met the requirements of IB 95-1. Fiduciary Counselors also must represent to the Department that it would have been consistent with IB 95-1 to select the Fronting Insurer as the insurer for a final termination buy-out annuity, had MSKCC adopted that approach. This information will be available to the public as part of the record attributable to D-12073. --------------------------------------------------------------------------- \7\ Fiduciary Counselors must submit a written representation in writing to the Department's Office of Exemption Determinations that the selection of the Fronting Insurer met the requirements of IB 95- 1 and also that it would have been consistent with IB 95-1 to select the Fronting Insurer as the insurer for a final termination buy-out annuity had MSKCC adopted that approach. \8\ 29 CFR 2509-95-1. As stated in IB 95-1, when conducting a search, a fiduciary must evaluate a number of factors relating to a potential annuity provider's claims-paying ability and creditworthiness. Reliance solely on ratings provided by insurance rating services would not be sufficient to meet this requirement. In this regard, the types of factors a fiduciary should consider would include, among other things: (a) the quality and diversification of the annuity provider's investment portfolio; (b) the size of the insurer relative to the proposed contract; (c) the level of the insurer's capital and surplus; (d) the lines of business of the annuity provider and other indications of an insurer's exposure to liability; (e) the structure of the annuity contract and guarantees supporting the annuities, such as the use of separate accounts; and (f) the availability of additional protection through state guaranty associations and the extent of their guarantees. --------------------------------------------------------------------------- Mechanics of the Reinsurance Arrangement 6. The Plan would purchase the GAC from the Fronting Insurer by using current Plan assets (including an in-kind transfer) to pay a one- time premium amount to the Fronting Insurer. The Fronting Insurer would simultaneously enter into an indemnity reinsurance contract with the Captive, which would cede the Plan's risk from the Fronting Insurer to the Captive. Subsequently, the Fronting Insurer would transfer the premium amount paid by the Plan to the Captive where it would be held in reserve within the captive cell (MSK EB) throughout the duration of the Reinsurance Arrangement. The GAC would cover all of the Plan's liabilities and have two phases: (1) a Buy-In Phase and (2) a Buy-Out Phase that are explained below. Buy-In Phase: During the Buy-in Phase, the Plan would hold the GAC as a plan asset. This means that the Fronting Insurer and Captive would guarantee the payment of Plan benefits and the Plan would remain in place. During the Buy-In Phase, the payment of the participants' and beneficiaries' benefits would be secured by the Plan, the Plan Sponsor, ERISA, and the PBGC, while the Plan's funding of benefit payments would be secured by the Fronting Insurer and Captive. During the Buy-In Phase, the Fronting Insurer would send funds to the Plan Trustee (JPMorgan Chase) to make benefit distribution payments to the Plan's participants and beneficiaries and, every three months, the Fronting Insurer would submit payment requests to the Captive requesting reimbursement to cover participant and beneficiary distributions paid during the preceding three months and the Fronting Insurer's ongoing fees.\9\ If the Fronting Insurer and Captive fail to pay benefits during the Buy-In Phase, the Plan Sponsor would still be required to fund the Plan, and the Plan would still be required to pay all benefits due to participants and beneficiaries. --------------------------------------------------------------------------- \9\ See Representation 7 below for more information on the Fronting Insurer's fees. --------------------------------------------------------------------------- Following the purchase of the GAC, and while the Plan is still active, the Plan's fiduciaries would be obligated to manage all Plan assets, including those assets not used to purchase the GAC, solely in the interest of participants and beneficiaries and exclusively for their benefits. Any payments for Plan expenses that do not clearly and exclusively benefit participants and beneficiaries would be subject to additional scrutiny. Buy-Out Phase: The GAC would contain a ``conversion option'' (the Conversion Option) that the Plan Sponsor could exercise (at any time) if and when it decides to terminate the Plan.\10\ If exercised, the Conversion Option would transition the GAC from the Buy-in Phase to the Buy-Out Phase,\11\ and the following events would occur: (a) the GAC would no longer be held by the Plan as a Plan asset; (b) the Plan Sponsor would replace the Plan as the holder of the GAC; (c) the Fronting Insurer would issue annuity certificates to all Plan participants and beneficiaries; and (d) the Fronting Insurer would take complete control of the administration of the GAC and make benefit payments directly to the former Plan participants and beneficiaries that have become annuitants.\12\ During the Buy-Out Phase, the Captive would continue to hold the reserves and the Fronting Insurer would continue to provide quarterly reimbursement payment requests to the Captive to cover: (1) participant and beneficiary distributions paid by the Fronting Insurer over the preceding three months, plus (2) the Fronting Insurer's ongoing fees. --------------------------------------------------------------------------- \10\ This exemption would not relieve the Plan's fiduciaries from their express ERISA duties to manage the assets of the plan solely in the interest of the plan and its participants and beneficiaries, including when the fiduciaries are contemplating terminating the plan. \11\ The effective date of the conversion would be aligned with the Plan's termination (i.e., the Conversion Option will be exercised only if and when the Plan terminates). \12\ As a condition of this exemption, after the Buy-In phase for the Reinsurance Arrangement is completed and MSKCC exercises the Conversion Option, MSKCC will terminate the Plan in compliance with all applicable Code and ERISA requirements. --------------------------------------------------------------------------- The relationship between the Fronting Insurer and Captive would remain the same during both the Buy-In and Buy-Out Phases; therefore, the Fronting Insurer would assume full responsibility for benefit obligations to participants and beneficiaries, without conditions or caveats, and the Captive would assume the reinsurance risk. Accordingly, both the Fronting Insurer and the Captive would assume full responsibility for making pension benefit payments to participants and beneficiaries throughout the duration of the Reinsurance Arrangement (during both the Buy-In and Buy-Out Phases). Thus, even after conversion to the Buy-Out phase, the Fronting Insurer and the Captive would remain 100 percent liable for making benefit payments to participants and beneficiaries. As a condition of this exemption, the Fronting Insurer would be required to have a direct contractual relationship with the Plan during the Buy-In phase of the GAC and with the Plan's participants and beneficiaries after MSKCC exercises the Conversion Option under the GAC during the Buy-Out phase, without any caveats, contingencies, or conditions that would relieve or limit the Fronting Insurer's contractual obligation to pay benefits to the Plan's participants and beneficiaries in accordance with the terms of this exemption and the Plan. Fees and Other Costs 7. Throughout the duration of the Reinsurance Arrangement, the Captive would pay fees to the Fronting Insurer that are based on a percentage of the reserve held by the Captive. The Applicant represents that the Fronting Insurer's fee would be less than one percent of the total reserve amount held by the Captive and would remain the same throughout the duration of the Reinsurance Arrangement. The Fronting Insurer's fees cover both the risk assumed by the Fronting Insurer to make benefit payments to participants and beneficiaries and the services the Fronting Insurer provides (including administering benefit payments during the Buy-Out Phase). All costs associated with the operation of the Captive would be paid by the Captive (or MSKCC) and not by the Plan. Further, no [[Page 56426]] commissions would be associated with the Reinsurance Arrangement and no fees would be shared by the Fronting Insurer with MSKCC, the Captive, or any affiliates thereof. Collateral Under the Reinsurance Agreement 8. As part of the Reinsurance Arrangement, the Captive would be collateralized by MSKCC, and all collateral will be separate and apart from the Plan assets used to purchase the GAC. The Applicant represents that the collateral would be distinct from the reserves and that pursuant to the GAC, MSKCC would establish a collateral account that the Fronting Insurer can access: (1) in the event the Captive fails to make a required quarterly payment to the Fronting Insurer; or (2) to reduce the financial risk that would arise if, for example, the Captive is holding too large a portion of the reserves in illiquid investments. The assets held in the collateral account would be legally owned by MSKCC, but the Fronting Insurer would have a statutory reserve credit on the assets.\13\ The collateral requirements will be determined by the Fronting Insurer and will be based on the reserve requirements mandated by the State of Vermont. --------------------------------------------------------------------------- \13\ The Department understands that a statutory reserve is the amount of money, securities, or assets that must be set aside as a legal requirement by the Fronting Insurer to cover claims or obligations due. This pool of funds is called a statutory reserve because state laws and regulations require the Fronting Insurer to hold these funds in reserve on their balance sheet. A reserve credit is a financial statement credit to the Fronting Insurer for the reinsurance ceded by the Fronting Insurer to the Captive. The Fronting Insurer would receive a credit because the reserves and collateral would be held by the Captive. Thus, the Fronting Insurer will not have to carry the equivalent statutory reserve on its balance sheet. --------------------------------------------------------------------------- MSKCC would also provide a Parental Guarantee to the Captive and would provide cash as needed if the Captive's general and separate account asset balances were extinguished. In its Feasibility Report submitted to the Vermont Department of Financial Regulation (Vermont DFR), MSKCC noted that it has a substantial endowment of approximately $6.4B that would provide the Parental Guarantee. Oversight by the Vermont DFR 9. Before submitting this exemption request, the Captive requested and received formal approval from the Vermont DFR to enter into the Reinsurance Arrangement and operate the Captive to reinsure the Plan's pension benefits. The Vermont DFR issued its formal approval after reviewing the Captive's Feasibility Report, which included, among other things, actuarial projections, an investment policy statement, and a business plan. If this exemption is granted and the Reinsurance Arrangement takes effect, the Captive would be required to submit an independent audit report and actuarial report to the Vermont DFR on an annual basis. Further, at least every five years, the Vermont DFR would conduct a thorough review of the Captive and issue an Exam Report. This proposed exemption requires the Independent Fiduciary to obtain and review all independent audit reports and actuarial reports submitted by the Captive to the Vermont DFR as well as all Exam Reports issued to the Captive by the Vermont DFR. The Independent Fiduciary would be required to provide the Department with a detailed summary of each Exam Report in its annual Independent Fiduciary Reports, as described below. This proposed exemption also would require the Captive to request a Certificate of Good Standing from the Vermont DFR on an annual basis. Also, as part of this proposed exemption, MSKCC must provide the Department with any Exam Reports it receives no later than 30 days after MSKCC receives such report. Investing the Reserves 10. The Captive would be required to invest the reserves in accordance with the regulations, and under the supervision, of the State of Vermont. Under Vermont state law all captives must file an annual audit report with the state insurance commissioner and such audit report must include the auditor's opinion as to the adequacy of the captive's reserves. In addition, the Fronting Insurer would have oversight of the reserves throughout the duration of the Reinsurance Arrangement. Prohibition on Distributions From the Captive to MSKCC 11. The Applicant represents that the amount of the premium is expected to match the value of the Plan's liabilities and that no excess amounts will be transferred to the Fronting Insurer when the GAC is purchased. When the Fronting Insurer pays the premium to the Captive, the assets held by the Captive will be set aside to fund the liabilities under the GAC until all benefits are paid to participants and beneficiaries, which MSKCC expects will occur after more than 20 years. Financial Benefit to MSKCC 12. The Applicant represents that purchasing the GAC in conjunction with the Reinsurance Arrangement is estimated to result in a ten percent savings on the overall cost of purchasing the GAC without the Captive. For instance, if the single premium cost to acquire the GAC from the Fronting Insurer without the Captive was $1.2 billion, the cost to acquire it with the Captive in place would be $1.08 billion. Since the financial benefit of the cost reduction would ultimately flow to MSKCC, this exemption requires a majority of the cost reduction to purchase the GAC to be provided to the Plan's participants and beneficiaries in the form of a benefit enhancement to their monthly annuity payment, as described below. The Applicant represents that because MSKCC is a non-profit entity, there will be no associated tax advantages flowing to MSKCC from the Reinsurance Arrangement. The Primary Benefits Test 13. The proposed exemption requires the Plan to receive the majority of the financial benefits flowing from the Reinsurance Arrangement (the Primary Benefits Test). For the purposes of the Primary Benefits Test, the Independent Fiduciary must quantify all of the benefits derived from the Reinsurance Arrangement, including all benefits directly and indirectly received by MSKCC and any entity affiliated with MSKCC. The Primary Benefits Test requires MSKCC to provide Plan participants and beneficiaries with a meaningful benefit enhancement that must exceed 50 percent of the total financial benefit MSKCC derives from the Reinsurance Arrangement. So, for example, if the Independent Fiduciary determines that MSKCC will receive a total financial benefit of $126,444,000 over the term of the Reinsurance Arrangement, the Independent Fiduciary would be required to ensure that MSKCC enhances the Plan's benefits that would be paid to participants and beneficiaries by more than 50 percent of that amount. Throughout the Reinsurance Arrangement, the Independent Fiduciary must continuously review and confirm that the majority of the financial benefits flowing from the Reinsurance Arrangement inure to the Plan's participants and beneficiaries. MSKCC-Provided Benefit Enhancement 14. MSKCC represents that it would implement a one-time benefit increase sufficient to pass the Primary Benefits Test (the Benefit Enhancement). MSKCC represents that if the savings generated from the Captive Arrangement equals 10 percent, it will implement a Benefit Enhancement in the form of a 5.37 [[Page 56427]] percent \14\ increase to the monthly benefits of all Plan participants and beneficiaries that will continue without reduction for the remainder of their lives. Collectively, Plan participants and beneficiaries would receive $64,440,000 in increased pension benefit payments, and Plan participants and beneficiaries would therefore receive the majority of the financial benefit derived from the Reinsurance Arrangement. So, for example, a participant with a monthly benefit of $4,000 under the original plan terms would receive a 5.37 percent increase that would increase their monthly benefit payment to $4,214.80 as a result of the Reinsurance Arrangement. This Benefit Enhancement will be applied uniformly to the monthly benefit of all of the Plan's participants and beneficiaries and will continue to be applied for the remainder of all of their lives. --------------------------------------------------------------------------- \14\ The formula underlying the 5.37 percent calculation is based on the actual percentage of savings in the annuity purchase, including the value of the pension benefit enhancement. All details regarding the formula used to calculate the Benefit Enhancement are included in the exemption application file and available to the public upon request. --------------------------------------------------------------------------- MSKCC represents that: (1) apart from the conditions of this exemption, if granted, MSKCC otherwise had no preexisting obligation to provide a benefit increase to the Plan participants and beneficiaries; and (2) before its submission of the exemption application for this exemption, MSKCC had not considered or offered any increase to the current value of the benefits of the Plan's participants and beneficiaries. The amount of the Benefit Enhancement must be adjusted to the extent that the Independent Fiduciary determines such an adjustment is necessary to pass the Primary Benefits Test. Ultimately, the Independent Fiduciary would determine the actual benefit to MSKCC from the proposed Reinsurance Arrangement and would ensure that the Plan's participants and beneficiaries receive the majority of that amount. The Applicant submits that the value of the Benefit Enhancement is transparent, easily determined, and simplifies compliance and oversight with respect to the terms of the exemption, if granted. Independent Fiduciary 15. Milliman would serve as the Plan's Independent Fiduciary with respect to the Reinsurance Arrangement. Kathleen E. Ely of Milliman would perform the functions required of the independent fiduciary on behalf of Milliman with respect to the requirements of this exemption, and Milliman's consultants, actuaries, and analysts would support this work. Ms. Ely and Milliman represent that they are independent of all parties associated with the Reinsurance Arrangement, including the Plan, MSKCC, and the Captive. Ms. Ely and Milliman do not have: (a) an interest in any party involved in the Reinsurance Arrangement; (b) any economic stake or financial interest that is contingent upon the implementation of the Reinsurance Arrangement; or (c) an ownership interest in MSKCC, the Captive, or the Fronting Insurer, nor are they directly or indirectly, controlled by, or under common control with them. Milliman and Ms. Ely have acknowledged to the Department in writing that they accept the fiduciary obligations associated with the duties of the Independent Fiduciary and have agreed not to participate in any decisions with respect to any transaction in which they may have an interest that may affect their best judgment. Milliman represents that its gross income received from parties in interest to the Plan in connection with the Reinsurance Arrangement represents less than 0.1 percent of Milliman's gross annual income from all sources. This proposed exemption requires the Applicant to represent that no party involved in this exemption transaction has or will indemnify Milliman or Ms. Ely in whole or in part for negligence and/or for any violation of state or federal law that may be attributable to the Independent Fiduciary in performing its duties under the Reinsurance Arrangement. In addition, no contract or instrument may purport to waive any liability under state or federal law for any such violation. Further, as a condition of this proposed exemption, neither Milliman nor Ms. Ely will enter into any agreement or instrument that violates ERISA section 410 or 29 CFR 2509.75-4.\15\ --------------------------------------------------------------------------- \15\ ERISA section 410 provides, in part, that ``except as provided in ERISA sections 405(b)(1) and 405(d), any provision in an agreement or instrument which purports to relieve a fiduciary from responsibility or liability for any responsibility, obligation, or duty under this part [meaning Part 4 of Title I of ERISA] shall be void as against public policy.'' --------------------------------------------------------------------------- Independent Fiduciary Duties 16. As the Plan's Independent Fiduciary, Milliman must represent the Plan in accordance with the obligations of prudence and loyalty under ERISA sections 404(a)(1)(A) and (B) and determine whether the Reinsurance Arrangement is in the interests of the Plan's participants and beneficiaries. In this regard, before the GAC purchase and consummation of the Reinsurance Arrangement, Milliman must confirm that the Benefit Enhancement is sufficient to meet the Primary Benefits Test under this exemption. Further, not later than 30 days after the purchase of the GAC and consummation of the Reinsurance Arrangement, Milliman must confirm to the Department in writing that all terms and conditions of the exemption have been met (or, due to timing requirements, can reasonably be expected to be met consistent with the terms of this proposed exemption). This confirmation must include copies of each document relied on and the steps taken to make this determination. In this written determination, the Independent Fiduciary must confirm the actual cost savings associated with the Reinsurance Arrangement by obtaining documentation from the Fronting Insurer that compares the cost to purchase the GAC without the Captive in place to the cost to purchase the GAC with the Captive in place. The Independent Fiduciary must include this documentation from the Fronting Insurer with its written determination to the Department. Milliman would be required to continue monitoring, enforcing, and ensuring compliance with all conditions of this exemption throughout the duration of the Reinsurance Arrangement, including all conditions and obligations imposed on any party dealing with the Plan, and report any instance of non-compliance immediately to the Department's Office of Exemption Determinations. Milliman must also take all appropriate actions to safeguard the interests of the Plan and its participants and beneficiaries, and review all contracts pertaining to the Reinsurance Arrangement, and any renewals of such contracts, to determine whether the requirements of this proposed exemption and the terms of Benefit Enhancement continue to be satisfied. Throughout the duration of the Reinsurance Arrangement, Milliman would be required to submit written annual Independent Fiduciary Reports to the Department certifying under penalty of perjury whether each term and condition of the exemption has been met over the applicable period. Each report would be: (a) completed within six months after the end of the twelve-month period to which it relates (the first twelve-month period would begin on the effective date of the exemption grant); and (b) submitted to the Department within 60 days [[Page 56428]] thereafter. In preparing the Independent Fiduciary Report, Milliman must review: (a) the Captive's annual audit and actuarial reports as submitted to the Vermont DFR; (b) any Certificate of Good Standing received by the Captive; and (c) any Exam Report completed by the Vermont DFR. Finally, the Independent Fiduciary must monitor and ensure that any assets that remain in the Plan during the Buy-In phase of the Reinsurance Arrangement are managed and used exclusively to provide benefits to Plan participants and beneficiaries and to defray reasonable expenses of administering the Plan in compliance with ERISA sections 403(c)(1) and 404(a)(1)(A). The Independent Fiduciary Report 17. On June 27, 2023, Ms. Ely completed an Independent Fiduciary Report in which she confirms that the Benefit Enhancement would provide the Plan's participants and beneficiaries with the majority of the benefits derived from the Reinsurance Arrangement. Ms. Ely confirms that the Benefit Enhancement will be provided to all Plan participants and beneficiaries at no cost to them, and that MSKCC will not offset the cost of the Benefit Enhancement by making any corresponding reductions to other benefits already received by participants and beneficiaries. Ms. Ely also affirms that the Plan will pay no more than adequate consideration for the GAC and that no commissions will be payable with respect to the GAC or the Reinsurance Arrangement. In the Independent Fiduciary Report, Ms. Ely states the purchase of the GAC to fund the Plan's participant and beneficiary pension benefit payments will protect the participants and beneficiaries from investment risk that may impact the reserves used to fund future distributions. With the GAC and Reinsurance Arrangement in place, participant and beneficiary pension benefit payments will be guaranteed by the Fronting Insurer, with an additional layer of security provided by the Captive. Also in her Report, Ms. Ely confirms that the Captive was organized as a captive insurer in the State of Vermont on August 28, 2003, and that under Vermont captive insurance law captives may conduct reinsurance operations. Ms. Ely confirms further that on June 22, 2023, she received written confirmation from the Vermont DFR that the Captive has an active license, is in good standing, and underwent an examination by an independent certified public accounting firm for the fiscal year ending December 31, 2022. ERISA Analysis 18. MSKCC is a party in interest with respect to the Plan pursuant to ERISA section 3(14)(C) because it is an employer whose employees are covered by the Plan. In addition, the Captive is a party in interest with respect to the Plan pursuant to ERISA section 3(14)(G) \16\ because it is wholly owned by MSKCC. --------------------------------------------------------------------------- \16\ Under ERISA section 3(14)(G), a corporation is a ``party in interest'' with respect to an employee benefit plan if 50 percent or more of the combined voting power of all classes of the corporation's stock entitled to vote, or the total value of shares of all classes of stock of the corporation, is owned by an employer any of whose employees are covered by the employee benefit plan. --------------------------------------------------------------------------- ERISA section 406(a) prohibits a wide variety of transactions between plans and parties in interest. For example, ERISA section 406(a)(1)(D) prohibits a plan fiduciary from causing a plan to engage in a transaction that results in the transfer of plan assets to a party in interest. The Reinsurance Arrangement would violate ERISA section 406(a)(1)(D) because it would result in the premium payment used to purchase the GAC (which consists of plan assets) being transferred indirectly from the Plan, via the Fronting Insurer, to the Captive, a party in interest to the Plan. ERISA section 406(b)(1) prohibits a fiduciary from dealing with plan assets for its own interest or own account, ERISA section 406(b)(2) prohibits a fiduciary from acting in any transaction involving the plan on behalf of a party whose interests are adverse to the interests of the plan, and ERISA section 406(b)(3) prohibits a fiduciary from receiving any consideration for the fiduciary's personal account from any party dealing with the plan in connection with a transaction involving the plan's assets. The MSK Executive Benefits Committee is comprised of individuals who also serve as officers of MSKCC. The Reinsurance Arrangement would thus raise issues under ERISA sections 406(b)(1), (b)(2), and (b)(3) because the plan fiduciaries on the Committee would cause the Plan premium to be paid to the Fronting Insurer with the understanding that Fronting Insurer will enter into a reinsurance arrangement with, and the Plan premium will ultimately be paid to, the Captive. Statutory Findings 19. Based on the conditions included in this proposed exemption, the Department has tentatively determined that the relief sought by the Applicant would satisfy the statutory requirements for an exemption under ERISA section 408(a). 20. The Proposed Exemption is ``Administratively Feasible.'' The Department has tentatively determined that this proposed exemption is administratively feasible for the Department. This determination is based on the Department's understanding that the Independent Fiduciary will provide important oversight with respect to the Reinsurance Arrangement and will represent the Plan throughout the duration of the Reinsurance Arrangement by monitoring, enforcing, and ensuring compliance with all conditions of this exemption. This proposed exemption also requires the Independent Fiduciary to submit annual written reports to the Department confirming that all conditions of this exemption have been met. This determination is also based upon the Department's understanding that the Vermont DFR will provide meaningful ongoing oversight of the Captive's operations. 21. The Proposed Exemption is ``In the Interest of the Plan and its Participants and Beneficiaries.'' The Department has tentatively determined that the proposed exemption is in the interest of the Plan and its participants and beneficiaries. The Department notes that the Benefit Enhancement represents significant value that will apply equally across the Plan and help MSKCC's more than 8,000 participants and beneficiaries enjoy a more secure retirement. Importantly, the Department notes that the Plan is not conceding anything in exchange for the Benefit Enhancement because, as confirmed by the Independent Fiduciary, MSKCC will not make any corresponding reductions to other benefits the Plan currently provides to the Plan's participants and beneficiaries. 22. The Proposed Exemption is ``Protective of the Rights of the Plan's Participants and Beneficiaries.'' The Department has tentatively determined that the proposed exemption is protective of the rights of the Plan's participants and beneficiaries. The selection of the Fronting Insurer by Fiduciary Counselors is critical to the Department's finding that the proposed exemption is protective of the rights of participants and beneficiaries. The Department would not have proposed this exemption without a requirement that Fiduciary Counselors provides the Department with a written submission that identifies the Fronting Insurer selected along with a written representation detailing the [[Page 56429]] methodology that it used to select the Fronting Insurer and how that methodology, and the Fronting Insurer selected, meets the requirements of IB 95-1. In addition, the Department notes that the Captive would guarantee to pay the annuitized Plan benefits, which would provide a second layer of protection for the Plan's participants and beneficiaries that would not exist if only the Fronting Insurer were insuring the benefits. Finally, the Department notes that the Independent Fiduciary will represent the Plan's interests for all purposes with respect to the Reinsurance Arrangement and will: (1) monitor, enforce, and ensure compliance with the exemption conditions, in accordance with its obligations of prudence and loyalty under ERISA; (2) report any instance of non-compliance immediately to the Department; and (3) submit written annual reports to the Department throughout the Reinsurance Arrangement. Summary 23. Based on compliance with the conditions that are included in this proposed exemption, the Department has tentatively determined that the relief sought by the Applicant would satisfy the statutory requirements for an individual exemption under ERISA section 408(a) and Code section 4975(c)(2). Notice to Interested Persons Notice of the proposed exemption will be provided to all interested persons within fifteen (15) days of the publication of the notice of this proposed exemption in the Federal Register. The notice will be provided to all interested persons in the manner approved by the Department and will contain the documents described therein and a supplemental statement, as required pursuant to 29 CFR 2570.43(a)(2). The supplemental statement will inform interested persons of their right to comment on and to request a hearing with respect to the pending exemption. All written comments and/or requests for a hearing must be received by the Department within forty-five (45) days of the date of publication of this proposed exemption in the Federal Register. All comments will be made available to the public. Warning: If you submit a comment, EBSA recommends that you include your name and other contact information in the body of your comment, but DO NOT submit information that you consider to be confidential, or otherwise protected (such as a Social Security number or an unlisted phone number), or confidential business information that you do not want publicly disclosed. All comments may be posted on the internet and can be retrieved by most internet search engines. General Information The attention of interested persons is directed to the following: (1) The fact that a transaction is the subject of an exemption under ERISA section 408(a) and/or Code section 4975(c)(2) does not relieve a fiduciary or other party in interest or disqualified person from certain other provisions of ERISA and/or the Code, including any prohibited transaction provisions to which the exemption does not apply and the general fiduciary responsibility provisions of ERISA section 404, which, among other things, require a fiduciary to discharge their duties respecting the plan solely in the interest of the participants and beneficiaries of the plan and in a prudent fashion in accordance with ERISA section 404(a)(1)(B); nor does it affect the requirement of Code section 401(a) that the plan must operate for the exclusive benefit of the employees of the employer maintaining the plan and their beneficiaries; (2) Before an exemption may be granted under ERISA section 408(a) and/or Code section 4975(c)(2), the Department must find that the exemption is administratively feasible, in the interests of the plan and its participants and beneficiaries, and protective of the rights of participants and beneficiaries of the plan; (3) The proposed exemption would be supplemental to, and not in derogation of, any other provisions of ERISA and/or the Code, including statutory or administrative exemptions and transitional rules. Furthermore, the fact that a transaction is subject to an administrative or statutory exemption is not dispositive of whether the transaction is, in fact, a prohibited transaction; and (4) The Department notes that all of the material facts and representations set forth in the Summary of Facts and Representations must be true and accurate at all times and that the relief provided herein is conditioned upon the veracity of all material representations made by the Applicant. Proposed Exemption The Department is considering granting an exemption under the authority of ERISA section 408(a) and Internal Revenue Code (or Code) section 4975(c)(2) in accordance with the Department's exemption procedures regulation.\17\ Effective December 31, 1978, section 102 of Reorganization Plan No. 4 of 1978, 5 U.S.C. App. 1 (1996), transferred the authority of the Secretary of the Treasury to issue exemptions of the type requested by the Applicant to the Secretary of Labor. Therefore, this notice of proposed exemption is issued solely by the Department. --------------------------------------------------------------------------- \17\ 29 CFR part 2570, subpart B (75 FR 66637 October 27, 2011). For purposes of this proposed exemption, references to ERISA section 406, unless otherwise specified, should be read to refer as well to the corresponding provisions of Code section 4975. --------------------------------------------------------------------------- Section I. Definitions (a) An ``affiliate'' of MSKCC or MSK US includes: (1) any person or entity who controls MSKCC or MSK US or is controlled by or under common control with MSKCC or MSK US; (2) any officer, director, employee, relative, or partner with respect to MSKCC or MSK US; and (3) any corporation or partnership of which a person described in (2) above in this paragraph is an officer, director, partner, or employee; (b) The term ``Benefit Enhancement'' means the benefit increase, as determined by the Independent Fiduciary based upon the Primary Benefits Test, that will be applied equally to all participants and beneficiaries across the Plan and last throughout the duration of the group annuity contract (the GAC) and Reinsurance Arrangement. (c) The term ``Captive'' means MSK Insurance US, Inc. a captive insurance and reinsurance subsidiary that is wholly-owned by MSKCC, and MSK Employee Benefits IC, a segregated cell within MSK Insurance US, Inc., that will be used to reinsure the risks related to the Reinsurance Arrangement and are domiciled in the state of Vermont. (d) The term ``control'' means the power to exercise a controlling influence over the management or policies of a person other than an individual; and (e) The term ``Independent Fiduciary'' means a person who: (1) Is not MSKCC or an affiliate of MSKCC, or the Captive and does not hold an ownership interest in MSKCC, the Captive, or their affiliates; (2) Was not a fiduciary with respect to the Plan before its appointment to serve as the Independent Fiduciary; (3) Has acknowledged in writing that: (i) It is a fiduciary and has agreed not to participate in any decision with respect to any transaction in which it has an interest that might affect its best judgment as a fiduciary; and (ii) Has appropriate technical training or experience to perform the services [[Page 56430]] contemplated by this proposed exemption; (4) For purposes of this definition, no organization or individual may serve as Independent Fiduciary for any fiscal year if the gross income received by such organization or individual from MSKCC, the Captive, or their affiliates for that fiscal year exceeds two percent of such organization's or individual's gross income from all sources for the prior fiscal year. This provision also applies to a partnership or corporation of which such organization or individual is an officer, director, or 10 percent or more partner or shareholder and includes as gross income amounts received as compensation for services provided as an independent fiduciary under any prohibited transaction exemption granted by the Department; (5) No organization or individual that is an Independent Fiduciary and no partnership or corporation of which such organization or individual is an officer, director, or ten percent or more partner or shareholder may acquire any property from, sell any property to, or borrow any funds from MSKCC, the Captive, or their affiliates while the individual serves as an Independent Fiduciary. This prohibition would continue for a period of six months after the party ceases to be an Independent Fiduciary and/or the Independent Fiduciary negotiates any transaction on behalf of the Plan during the period that the organization or individual serves as an Independent Fiduciary; and (6) In the event a successor Independent Fiduciary is appointed to represent the interests of the Plan with respect to the subject transaction, no time should elapse between the resignation or termination of the former Independent Fiduciary and the appointment of the successor Independent Fiduciary. Section II. Covered Transactions This exemption would provide relief from the prohibited transactions provisions of ERISA sections 406(a)(1)(D), 406(b)(1), (b)(2), and (b)(3), and the excise tax imposed by Code section 4975(a) and (b) (due to the operation of parallel prohibited transaction provisions contained in Code section 4975(c)(1) (D), (E), and (F)) with respect to: (1) the reinsurance of risks; and (2) the receipt of a premium by the Captive in connection with a single premium group insurance contract sold by an unrelated fronting insurer (the Fronting Insurer) to provide pension annuities to Plan participants and beneficiaries. To receive this relief, the conditions in Section III must be met in conformance with the definitions in Section I. Section III. Conditions (a) MSKCC must improve the Plan by amending the Plan document to provide a universal, benefit increase to all participants and beneficiaries that will apply immediately once the GAC is purchased and will continue with no reduction or offsets for the remainder of the participants and beneficiaries' lives (the Benefit Enhancement). The additional benefit provided by the Benefit Enhancement to participants and beneficiaries must be greater than 50 percent of the total benefit, including cost savings, derived by MSKCC from the Reinsurance Arrangement (the Primary Benefits Test). Stated another way, MSKCC cannot derive a greater benefit from the Reinsurance Arrangement than the Plan's participants and beneficiaries; (b) Following the Plan's purchase of the GAC from the Fronting Insurer and the consummation of the Reinsurance Arrangement between the Fronting Insurer and the Captive, the Independent Fiduciary must determine in writing whether the Primary Benefits Test has been met. The Independent Fiduciary must submit this written determination to the Department within 30 days after the consummation of the Reinsurance Arrangement. In this written determination, the Independent Fiduciary must confirm the actual cost savings associated with the Reinsurance Arrangement by obtaining documentation from the Fronting Insurer that compares the cost to purchase the GAC without the Captive in place to the cost to purchase the GAC with the Captive in place. The Independent Fiduciary must include this documentation from the Fronting Insurer with its written determination to the Department; (c) The Captive must: (1) Be a party in interest with respect to the Plan based on an affiliation with MSKCC that is described in ERISA section 3(14)(G); (2) Be licensed to sell insurance or conduct reinsurance operations in Vermont; (3) Have obtained a Certificate of Authority from the Insurance Commissioner of Vermont to transact business as a captive insurance company and such certificate must not have been revoked or suspended; (4) Have undergone a financial examination (within the meaning of the law of its domiciliary State, Vermont) by the Insurance Commissioner of Vermont within five years before the end of the year preceding the year in which the reinsurance transaction occurred; (5) Have undergone, and continue to undergo, an examination by an independent certified public accountant for its last completed taxable year immediately before the taxable year of the Reinsurance Arrangement covered by this proposed exemption; and (6) Be licensed to conduct reinsurance transactions by a state whose law requires an actuarial review of reserves to be conducted annually by an independent firm of actuaries and reported to the appropriate regulatory authority; (d) The Plan must pay no commissions with respect to the purchase of the GAC or the Reinsurance Arrangement; (e)(1) The Fronting Insurer must be selected by Fiduciary Counselors, an independent fiduciary to the Plan, in compliance with the Department's Interpretive Bulletin 95-1 (29 CFR 2509-95-1). Before this proposed exemption is granted, Fiduciary Counselors must provide the Department with a written submission that identifies the Fronting Insurer selected, details the methodology used to select the Fronting Insurer, and explains how the methodology used, and the Fronting Insurer selected, meets the requirements of IB 95-1. Fiduciary Counselors must also represent in writing to the Department that it would have been consistent with IB 95-1 to select the Fronting Insurer as the insurer for a final termination buy-out annuity had MSKCC adopted that approach. To meet its fiduciary responsibility owed to the Plan's participants and beneficiaries to select and purchase the ``safest available annuity,'' before selecting the Fronting Insurer, Fiduciary Counselors must evaluate such insurer's claims-paying ability and creditworthiness in full compliance with guidance provided in the Department's Interpretive Bulletin 95-1 (29 CFR 2509.95-1); (f) (1) The Reinsurance Arrangement between MSK US and the Fronting Insurer must be indemnity insurance only and must not relieve the Fronting Insurer from any responsibility or liability to the Plan's participants and beneficiaries, including liability that would result if MSK US fails to meet any of its contractual obligations to the Fronting Insurer or any successor Fronting Insurer under the Reinsurance Arrangement; (2) The Fronting Insurer must have a direct contractual relationship with the Plan during the Buy-In phase of the GAC and with the Plan's participants and beneficiaries after MSKCC exercises the Conversion Option under the GAC, [[Page 56431]] without any caveats, contingencies, or conditions that would relieve or limit the Fronting Insurer's contractual obligation to pay benefits to the Plan's participants and beneficiaries in accordance with the Plan and the terms of this exemption; (g) MSKCC must not offset or reduce any benefits provided to Plan participants and beneficiaries in relation to its implementation of the Benefit Enhancement. In this regard, MSKCC must not implement any benefit cuts or offsets of any kind to the benefits the Plan provides to any Plan participant or beneficiary; (h) The Independent Fiduciary must: (1) In compliance with its fiduciary obligations of prudence and loyalty under ERISA sections 404(a)(1)(A) and (B): (i) review the Reinsurance Arrangement and the terms of the exemption; (ii) obtain and review all current objective, reliable, third-party documentation necessary to make the determinations required of the Independent Fiduciary by the exemption; and (iii) confirm in writing that all of the exemption's terms and conditions have been met (or, due to timing requirements, can reasonably be expected to be met consistent with the terms of the exemption) and send this confirmation to the Department's Office of Exemption Determinations not later than 30 days after the Captive enters into the Reinsurance Arrangement. In this written report, the Independent Fiduciary must also confirm that the Fronting Insurer selected and the methodology used by Fiduciary Counselors to make the selection meets the requirements of IB 95-1 and that it would have been consistent with IB 95-1 to select the Fronting Insurer as the insurer for a final termination buy-out annuity had MSKCC adopted that approach; (2) Approve the Reinsurance Arrangement in advance and ensure that the Reinsurance Arrangement is in the interest of the Plan's participants and beneficiaries and protective of the Plan's participants and beneficiaries; (3) Monitor, enforce, and ensure compliance with all conditions of this exemption in accordance with its obligations of prudence and loyalty under ERISA sections 404(a)(1)(A) and (B), including all conditions and obligations imposed on any party dealing with the Plan, throughout the period during which the Captive's assets are directly or indirectly used in connection with a transaction covered by this exemption; (4) Represent and protect the interests of the participants and beneficiaries of the Plan during both the Buy-In and Buy-Out Phases to ensure they receive everything that they are entitled to receive under this exemption, the terms of the Plan, and the GAC; (5) Monitor and ensure that any assets that remain in the Plan during the Buy-In Phase of the Reinsurance Arrangement are managed and used exclusively to provide benefits to Plan participants and beneficiaries and to defray reasonable expenses of administering the Plan in compliance with ERISA sections 403(c)(1) and 404(a)(1)(A); (6) Report any instance of non-compliance immediately to the Department's Office of Exemption Determinations; (7) Take all appropriate actions to safeguard the interests of the Plan and its participants and beneficiaries; and (8) Review all contracts pertaining to the Reinsurance Arrangement, and any renewals of such contracts, to determine whether the requirements of this proposed exemption and the terms of Benefit Enhancement continue to be satisfied; (i)(1) The Independent Fiduciary must submit an annual Independent Fiduciary Report to the Department's Office of Exemption Determinations certifying under penalty of perjury whether each term and condition of the proposed exemption has been met over the applicable period. Each report must be completed within six months after the end of the twelve- month period to which it relates (the first twelve-month period would begin on the effective date of the exemption grant); and submitted to the Department's Office of Exemption Determinations within 60 days thereafter; (2) In preparing the Independent Fiduciary Report, the Independent Fiduciary must: (i) Review the Captive's annual audit and actuarial reports as submitted to the Vermont Department of Financial Regulation (Vermont DFR); (ii) Review any Certificate of Good Standing received by the Captive; (iii) Review Any Exam Report completed by the Vermont DRF and include a detailed summary of the Exam Report; (iv) confirm that MSKCC has not reduced or offset any benefits in relation to its implementation of the Benefit Enhancement; and (v) confirm that MSKCC has not reduced the Benefit Enhancement amount at any point during the year covered. (3) Finally, the Independent Fiduciary must confirm in each Report that the Primary Benefits Test was met for the year covered. In this regard, the Independent Fiduciary must determine the value of the Benefit Enhancement and the total value of the Reinsurance Arrangement to MSKCC, including cost savings, and confirm that MSKCC has not received any additional financial benefit that the Independent Fiduciary did not account for when it previously used the Primary Benefits Test to derive the Benefit Enhancement amount; (j) Neither MSKCC nor any related entity may use participant or beneficiary-related data or information generated by or derived from the Reinsurance Arrangement in a manner that benefits MSKCC or a related entity; (k) All the facts and representations set forth in the Summary of Facts and Representations must be true and accurate at all times; (l) No party related to this exemption request has or will indemnify the Independent Fiduciary or Fiduciary Counselors, in whole or in part, for negligence and/or for any violation of state or federal law that may be attributable to the Independent Fiduciary's or Fiduciary Counselor's performance of its duties in connection with the Reinsurance Arrangement. In addition, no contract or instrument may purport to waive any liability under state or federal law for any such violations; (m) MSKCC must provide the Department's Office of Exemption Determinations with all Exam Reports issued by the State of Vermont throughout the duration of the Reinsurance Arrangement within 30 days after such Exam Report is received; (n) The Captive must request a Certificate of Good Standing from the State of Vermont on an annual basis; (o) MSKCC must notify the Department's Office of Exemption Determinations if there is any change in the Captive's business plan, auditor, or the composition of its board of directors; (p) MSKCC may not receive a dividend or any other form of distribution from the Captive at any point during the Reinsurance Arrangement; (q) Following the discharge of all liabilities under the GAC (the Discharge Date), MSK Employee Benefits IC will determine the amount of assets, if any, that remain in MSK EB after all payments and distributions have been made to the Plan's participants and beneficiaries (the Excess Amount), and MSKCC will distribute the Excess Amount in conformity with the Primary Benefits Test within twelve months after the Discharge Date by remitting the majority of the Excess Amount (at least 50.1 percent) as an employer contribution to another ERISA-covered [[Page 56432]] employee benefit plan sponsored by MSKCC (without any benefit cuts or offsets to other benefits MSKCC provides to its employees) in a manner that does not discriminate in favor of highly compensated employees pursuant to standards set forth in in sections 401(a)(4) and 410(b) of the Internal Revenue Code of 1986 (or under similar standards if these provisions no longer are in effect on the Discharge Date). (r) MSKCC and the Captive must maintain all the records necessary to demonstrate that the conditions of this exemption have been met for a period of six years from the date of each record. MSKCC must provide these records to the Department's Office of Exemption Determinations within 30 days from the date of the Department's request; (s) MSKCC must provide a Parental Guarantee to the Captive and provide cash as needed if the Captive's general and separate account asset balances have been extinguished; (t) The Captive must invest the reserves in accordance with the regulations and under the supervision of the State of Vermont; (u) MSKCC must amend the Plan document to memorialize the Benefit Enhancement and provide a copy of the amended plan document to the Department's Office of Exemption Determinations no later than 30 days after the date the Captive enters into the Reinsurance Arrangement; (v) After the Buy-In phase for the Reinsurance Arrangement is completed and MSKCC exercises the Conversion Option, MSKCC will terminate the Plan in compliance with all applicable Code and ERISA requirements; (w) MSKCC must notify the Department of any change in the independent fiduciary no later than 30 days after the engagement of a substitute or subsequent independent fiduciary and must provide an explanation for the substitution or change including a description of any material disputes between the terminated independent fiduciary and MSKCC; and (x) Once the Benefit Enhancement percentage amount is set (in conformity with the Primary Benefits Test), MSKCC may not reduce that Benefit Enhancement percentage amount at any point. Applicability Date: If granted, the exemption will be in effect on the date the Department publishes a grant notice in the Federal Register. Signed at Washington, DC, this 2nd day of July 2024. George Christopher Cosby, Director, Office of Exemption Determinations, Employee Benefits Security Administration, U.S. Department of Labor. [FR Doc. 2024-14961 Filed 7-8-24; 8:45 am] BILLING CODE 4510-29-P

usgpo

2024-10-08T13:27:01.842821

FR

FR-2024-07-09/2024-14958

Federal Register Volume 89 Issue 131 (July 9, 2024)

United States National Archives and Records Administration Office of the Federal Register

[Federal Register Volume 89, Number 131 (Tuesday, July 9, 2024)] [Notices] [Pages 56432-56433] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 2024-14958] ----------------------------------------------------------------------- DEPARTMENT OF LABOR Agency Information Collection Activities; Submission for OMB Review; Comment Request; Monthly Employment Utilization Report (CC-257) ACTION: Notice of availability; request for comments. ----------------------------------------------------------------------- SUMMARY: The Department of Labor (DOL) is submitting this Office of Federal Contract Compliance Programs (OFCCP)-sponsored information collection request (ICR) to the Office of Management and Budget (OMB) for review and approval in accordance with the Paperwork Reduction Act of 1995 (PRA). Public comments on the ICR are invited. DATES: The OMB will consider all written comments that the agency receives on or before August 8, 2024. ADDRESSES: Written comments and recommendations for the proposed information collection should be sent within 30 days of publication of this notice to www.reginfo.gov/public/do/PRAMain. Find this particular information collection by selecting ``Currently under 30-day Review-- Open for Public Comments'' or by using the search function. FOR FURTHER INFORMATION CONTACT: Michael Howell by telephone at 202- 693-6782, or by email at [email protected]. SUPPLEMENTARY INFORMATION: The U.S. Department of Labor's (DOL) Office of Federal Contract Compliance Programs (OFCCP) is requesting Office of Management and Budget (OMB) review and approval of the Monthly Employment Utilization Report (CC-257). The proposed CC-257 would require covered construction contractors and subcontractors to submit monthly reports on their employee count and work hours by race/ ethnicity, gender, and trade in the covered area. OFCCP previously collected the CC-257 under OMB control number 1215-0163 but discontinued the report in 1995. Since that time, DOL restructured OFCCP as a stand-alone agency and OMB transferred OFCCP's information collections to OMB control numbers that begin with a ``1250'' agency code. As such, OFCCP is requesting a new ``1250'' OMB control number for the CC-257 report. This information collection request (ICR) outlines the legal authority, procedures, burden, and costs associated with the collection. For additional substantive information about this ICR, see the related notice published in the Federal Register on February 26, 2024 (89 FR 14109). Comments are invited on: (1) whether the collection of information is necessary for the proper performance of the functions of the Department, including whether the information will have practical utility; (2) the accuracy of the agency's estimates of the burden and cost of the collection of information, including the validity of the methodology and assumptions used; (3) ways to enhance the quality, utility and clarity of the information collection; and (4) ways to minimize the burden of the collection of information on those who are to respond, including the use of automated collection techniques or other forms of information technology. This information collection is subject to the PRA. A Federal agency generally cannot conduct or sponsor a collection of information, and the public is generally not required to respond to an information collection, unless the OMB approves it and displays a currently valid OMB Control Number. In addition, notwithstanding any other provisions of law, no person shall generally be subject to penalty for failing to comply with a collection of information that does not display a valid OMB Control Number. See 5 CFR 1320.5(a) and 1320.6. DOL seeks PRA authorization for this information collection for three (3) years. OMB authorization for an ICR cannot be for more than three (3) years without renewal. The DOL notes that information collection requirements submitted to the OMB for existing ICRs receive a month-to-month extension while they undergo review. Agency: DOL-OFCCP. Title of Collection: Monthly Employment Utilization Report (CC- 257). OMB Control Number: 1250-0NEW. Affected Public: Businesses or other for-profits. Total Estimated Number of Respondents: 9,982. Total Estimated Number of Responses: 119,784. Total Estimated Annual Time Burden: 179,676 hours. Total Estimated Annual Other Costs Burden: $23,237. [[Page 56433]] (Authority: 44 U.S.C. 3507(a)(1)(D)) Michael Howell, Senior Paperwork Reduction Act Analyst. [FR Doc. 2024-14958 Filed 7-8-24; 8:45 am] BILLING CODE 4510-CM-P

usgpo

2024-10-08T13:27:01.875147

FR

FR-2024-07-09/2024-14960

Federal Register Volume 89 Issue 131 (July 9, 2024)

United States National Archives and Records Administration Office of the Federal Register

[Federal Register Volume 89, Number 131 (Tuesday, July 9, 2024)] [Notices] [Page 56433] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 2024-14960] ----------------------------------------------------------------------- DEPARTMENT OF LABOR Agency Information Collection Activities; Submission for OMB Review; Comment Request; Cranes and Derricks in Construction Standard ACTION: Notice of availability; request for comments. ----------------------------------------------------------------------- SUMMARY: The Department of Labor (DOL) is submitting this Occupational Safety & Health Administration (OSHA)-sponsored information collection request (ICR) to the Office of Management and Budget (OMB) for review and approval in accordance with the Paperwork Reduction Act of 1995 (PRA). Public comments on the ICR are invited. DATES: The OMB will consider all written comments that the agency receives on or before August 8, 2024. ADDRESSES: Written comments and recommendations for the proposed information collection should be sent within 30 days of publication of this notice to www.reginfo.gov/public/do/PRAMain. Find this particular information collection by selecting ``Currently under 30-day Review-- Open for Public Comments'' or by using the search function. FOR FURTHER INFORMATION CONTACT: Nicole Bouchet by telephone at 202- 693-0213, or by email at [email protected]. SUPPLEMENTARY INFORMATION: The collection of information contained in the Cranes and Derricks Standard codified at 29 CFR part 1926 subpart CC mandate that a covered employer produce and maintain records documenting controls and other measures taken to protect workers from hazards related to cranes and derricks used in construction. A construction business with workers who operate or work in the vicinity of cranes and derricks must have, as applicable, the following documents on file and available at the job site: equipment ratings, employee training records, written authorizations from qualified individuals, operator's certification documents and qualification program audits. In addition, the standard for cranes and derricks in construction provides specific exemptions and clarifications with regard to the application of the standard to cranes and derricks used for railway roadway work. These exemptions and clarifications recognize the unique equipment and circumstances in railway roadway work and reflect the preemption of some OSHA requirements by regulations promulgated by the Federal Railroad Administration. For additional substantive information about this ICR, see the related notice published in the Federal Register on April 12, 2024 (89 FR 25903). Comments are invited on: (1) whether the collection of information is necessary for the proper performance of the functions of the Department, including whether the information will have practical utility; (2) the accuracy of the agency's estimates of the burden and cost of the collection of information, including the validity of the methodology and assumptions used; (3) ways to enhance the quality, utility and clarity of the information collection; and (4) ways to minimize the burden of the collection of information on those who are to respond, including the use of automated collection techniques or other forms of information technology. This information collection is subject to the PRA. A Federal agency generally cannot conduct or sponsor a collection of information, and the public is generally not required to respond to an information collection, unless the OMB approves it and displays a currently valid OMB Control Number. In addition, notwithstanding any other provisions of law, no person shall generally be subject to penalty for failing to comply with a collection of information that does not display a valid OMB Control Number. See 5 CFR 1320.5(a) and 1320.6. DOL seeks PRA authorization for this information collection for three (3) years. OMB authorization for an ICR cannot be for more than three (3) years without renewal. The DOL notes that information collection requirements submitted to the OMB for existing ICRs receive a month-to-month extension while they undergo review. Agency: DOL-OSHA. Title of Collection: Cranes and Derricks in Construction Standard. OMB Control Number: 1218-0261. Affected Public: Private Sector--Businesses or other for-profits. Total Estimated Number of Respondents: 213,400. Total Estimated Number of Responses: 3,013,542. Total Estimated Annual Time Burden: 429,483 hours. Total Estimated Annual Other Costs Burden: $2,811,282. (Authority: 44 U.S.C. 3507(a)(1)(D)) Nicole Bouchet, Certifying Official. [FR Doc. 2024-14960 Filed 7-8-24; 8:45 am] BILLING CODE 4510-26-P

usgpo

2024-10-08T13:27:01.905766

FR

FR-2024-07-09/2024-15029

Federal Register Volume 89 Issue 131 (July 9, 2024)

United States National Archives and Records Administration Office of the Federal Register

[Federal Register Volume 89, Number 131 (Tuesday, July 9, 2024)] [Notices] [Pages 56433-56434] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 2024-15029] ----------------------------------------------------------------------- DEPARTMENT OF LABOR Agency Information Collection Activities; Submission for OMB Review; Comment Request; Portable Fire Extinguishers Standard (Annual Maintenance Certification Record) ACTION: Notice of availability; request for comments. ----------------------------------------------------------------------- SUMMARY: The Department of Labor (DOL) is submitting this Occupational Safety & Health Administration (OSHA)-sponsored information collection request (ICR) to the Office of Management and Budget (OMB) for review and approval in accordance with the Paperwork Reduction Act of 1995 (PRA). Public comments on the ICR are invited. DATES: The OMB will consider all written comments that the agency receives on or before August 8, 2024. ADDRESSES: Written comments and recommendations for the proposed information collection should be sent within 30 days of publication of this notice to www.reginfo.gov/public/do/PRAMain. Find this particular information collection by selecting ``Currently under 30-day Review-- Open for Public Comments'' or by using the search function. FOR FURTHER INFORMATION CONTACT: Nicole Bouchet by telephone at 202- 693-0213, or by email at [email protected]. SUPPLEMENTARY INFORMATION: The information collection requirement associated with the Portable Fire Extinguishers Standard is designed to reduce worker death or serious injury by ensuring that portable fire extinguishers are in safe operating conditions. For additional substantive information about this ICR, see the related notice published in the Federal Register on April 11, 2024 (89 FR 25672). Comments are invited on: (1) whether the collection of information is necessary for the proper performance of the functions of the Department, including whether the information will have practical utility; (2) the accuracy of the agency's estimates of the burden and cost of the collection of information, including the validity of the methodology and assumptions used; (3) ways to enhance the quality, utility and clarity of the information collection; and [[Page 56434]] (4) ways to minimize the burden of the collection of information on those who are to respond, including the use of automated collection techniques or other forms of information technology. This information collection is subject to the PRA. A Federal agency generally cannot conduct or sponsor a collection of information, and the public is generally not required to respond to an information collection, unless the OMB approves it and displays a currently valid OMB Control Number. In addition, notwithstanding any other provisions of law, no person shall generally be subject to penalty for failing to comply with a collection of information that does not display a valid OMB Control Number. See 5 CFR 1320.5(a) and 1320.6. DOL seeks PRA authorization for this information collection for three (3) years. OMB authorization for an ICR cannot be for more than three (3) years without renewal. The DOL notes that information collection requirements submitted to the OMB for existing ICRs receive a month-to-month extension while they undergo review. Agency: DOL-OSHA. Title of Collection: Portable Fire Extinguishers Standard (Annual Maintenance Certification Record). OMB Control Number: 1218-0238. Affected Public: Private Sector--Businesses or other for-profits. Total Estimated Number of Respondents: 956,785. Total Estimated Number of Responses: 956,785. Total Estimated Annual Time Burden: 478,393 hours. Total Estimated Annual Other Costs Burden: $434,858,682. (Authority: 44 U.S.C. 3507(a)(1)(D)) Nicole Bouchet, Certifying Official. [FR Doc. 2024-15029 Filed 7-8-24; 8:45 am] BILLING CODE 4510-26-P

usgpo

2024-10-08T13:27:01.933357

FR

FR-2024-07-09/2024-15028

Federal Register Volume 89 Issue 131 (July 9, 2024)

United States National Archives and Records Administration Office of the Federal Register

[Federal Register Volume 89, Number 131 (Tuesday, July 9, 2024)] [Notices] [Page 56434] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 2024-15028] ----------------------------------------------------------------------- DEPARTMENT OF LABOR Agency Information Collection Activities; Submission for OMB Review; Comment Request; Experience Rating Report ACTION: Notice of availability; request for comments. ----------------------------------------------------------------------- SUMMARY: The Department of Labor (DOL) is submitting this Employment and Training Administration (ETA)-sponsored information collection request (ICR) to the Office of Management and Budget (OMB) for review and approval in accordance with the Paperwork Reduction Act of 1995 (PRA). Public comments on the ICR are invited. DATES: The OMB will consider all written comments that the agency receives on or before August 8, 2024. ADDRESSES: Written comments and recommendations for the proposed information collection should be sent within 30 days of publication of this notice to www.reginfo.gov/public/do/PRAMain. Find this particular information collection by selecting ``Currently under 30-day Review-- Open for Public Comments'' or by using the search function. FOR FURTHER INFORMATION CONTACT: Michael Howell by telephone at 202- 693-6782, or by email at [email protected]. SUPPLEMENTARY INFORMATION: The ETA-204 provides data to ETA for the study of seasonality, employment or payroll fluctuations, and stabilization, expansion or contraction in operations on employment experience. The data are used to provide an indication of whether solvency problems exist in the State's Trust Fund accounts and in analyzing factors that give rise to solvency problems. The data are also used to complete the Experience Rating Index. For additional substantive information about this ICR, see the related notice published in the Federal Register on February 14, 2024 (89 FR 11315). Comments are invited on: (1) whether the collection of information is necessary for the proper performance of the functions of the Department, including whether the information will have practical utility; (2) the accuracy of the agency's estimates of the burden and cost of the collection of information, including the validity of the methodology and assumptions used; (3) ways to enhance the quality, utility and clarity of the information collection; and (4) ways to minimize the burden of the collection of information on those who are to respond, including the use of automated collection techniques or other forms of information technology. This information collection is subject to the PRA. A Federal agency generally cannot conduct or sponsor a collection of information, and the public is generally not required to respond to an information collection, unless the OMB approves it and displays a currently valid OMB Control Number. In addition, notwithstanding any other provisions of law, no person shall generally be subject to penalty for failing to comply with a collection of information that does not display a valid OMB Control Number. See 5 CFR 1320.5(a) and 1320.6. DOL seeks PRA authorization for this information collection for three (3) years. OMB authorization for an ICR cannot be for more than three (3) years without renewal. The DOL notes that information collection requirements submitted to the OMB for existing ICRs receive a month-to-month extension while they undergo review. Agency: DOL-ETA. Title of Collection: Experience Rating Report. OMB Control Number: 1205-0164. Affected Public: State, local, and Tribal governments. Total Estimated Number of Respondents: 53. Total Estimated Number of Responses: 53. Total Estimated Annual Time Burden: 26.5 hours. Total Estimated Annual Other Costs Burden: $0. (Authority: 44 U.S.C. 3507(a)(1)(D)) Michael Howell, Senior Paperwork Reduction Act Analyst. [FR Doc. 2024-15028 Filed 7-8-24; 8:45 am] BILLING CODE 4510-FN-P

usgpo

2024-10-08T13:27:01.971180

FR

FR-2024-07-09/2024-15195

Federal Register Volume 89 Issue 131 (July 9, 2024)

United States National Archives and Records Administration Office of the Federal Register

[Federal Register Volume 89, Number 131 (Tuesday, July 9, 2024)] [Notices] [Pages 56434-56435] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 2024-15195] ======================================================================= ----------------------------------------------------------------------- MARINE MAMMAL COMMISSION Sunshine Act Meetings TIME AND DATE: The Marine Mammal Commission will hold a working meeting from 1:00 p.m. to 5:00 p.m. on Thursday 25 July 2024, with a break scheduled from 3:00-3:30 p.m. Members of the Committee of Scientific Advisors may participate in their individual capacities, but this is not a meeting of the Committee of Scientific Advisors on Marine Mammals for purposes of the Federal Advisory Committee Act. All portions of the meeting will be open to the public by Zoom Webinar. PLACE: The Commissioners will convene remotely. Although a core of staff members will assemble for the meeting at the Marine Mammal Commission's office, 4340 East-West Hwy, Room 700, Bethesda, Maryland 20814, no access to the office will be available for in-person participation by the public. STATUS: All portions of the meeting will be open to the public via a Zoom Webinar. Those interested in participating will be required to register prior to joining the meeting at: https://www.zoomgov.com/webinar/register/WN_Roke2ffuQ2ykUl4xLgSUVg. Public participation will be allowed as time permits and as determined to be desirable by the Chair. The meeting agenda and webinar registration details will be posted on the [[Page 56435]] Commission's website (https://www.mmc.gov/events-meetings-and-workshops). MATTERS TO BE CONSIDERED: The Commission intends to discuss and, as appropriate, formulate recommendations and make decisions regarding three subject areas-- The focus of its FY 2025 Request for Proposals under the Commission's research grants program; A retrospective examination of the 1994 Amendments to the Marine Mammal Protection Act and additional actions needed to implement them; and Commission efforts to understand and address impacts of climate change on marine mammals. CONTACT PERSON FOR MORE INFORMATION: Brady O'Donnell, Communications and Legislative Affairs Officer, Marine Mammal Commission, 4340 East- West Highway, Room 700, Bethesda, MD 20814; (301) 504-0087; email: [email protected]. Dated: July 2, 2024. Peter O. Thomas, Executive Director. [FR Doc. 2024-15195 Filed 7-5-24; 4:15 pm] BILLING CODE 6820-31-P

usgpo

2024-10-08T13:27:02.013998

FR

FR-2024-07-09/2024-15010

Federal Register Volume 89 Issue 131 (July 9, 2024)

United States National Archives and Records Administration Office of the Federal Register

[Federal Register Volume 89, Number 131 (Tuesday, July 9, 2024)] [Notices] [Pages 56435-56436] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 2024-15010] ======================================================================= ----------------------------------------------------------------------- NATIONAL ARCHIVES AND RECORDS ADMINISTRATION [NARA-24-0015; NARA-2024-044] Records Schedules; Availability and Request for Comments AGENCY: National Archives and Records Administration (NARA). ACTION: Notice of availability of proposed records schedules; request for comments. ----------------------------------------------------------------------- SUMMARY: The National Archives and Records Administration (NARA) publishes notice of certain Federal agency requests for records disposition authority (records schedules). We publish notice in the Federal Register and on regulations.gov for records schedules in which agencies propose to dispose of records they no longer need to conduct agency business. We invite public comments on such records schedules. DATES: We must receive responses on the schedules listed in this notice by August 26, 2024. ADDRESSES: To view a records schedule in this notice, or submit a comment on one, use the following address: https://www.regulations.gov/docket/NARA-24-0015/document. This is a direct link to the schedules posted in the docket for this notice on regulations.gov. You may submit comments by the following method: Federal eRulemaking Portal: https://www.regulations.gov. On the website, enter either of the numbers cited at the top of this notice into the search field. This will bring you to the docket for this notice, in which we have posted the records schedules open for comment. Each schedule has a `comment' button so you can comment on that specific schedule. For more information on regulations.gov and on submitting comments, see their FAQs at https://www.regulations.gov/faq. If you are unable to comment via regulations.gov, you may email us at [email protected] for instructions on submitting your comment. You must cite the control number of the schedule you wish to comment on. You can find the control number for each schedule in parentheses at the end of each schedule's entry in the list at the end of this notice. FOR FURTHER INFORMATION CONTACT: Eddie Germino, Strategy and Performance Division, by email at [email protected] or at 301-837-3758. For information about records schedules, contact Records Management Operations by email at [email protected] or by phone at 301-837-1799. SUPPLEMENTARY INFORMATION: Public Comment Procedures We are publishing notice of records schedules in which agencies propose to dispose of records they no longer need to conduct agency business. We invite public comments on these records schedules, as required by 44 U.S.C. 3303a(a), and list the schedules at the end of this notice by agency and subdivision requesting disposition authority. In addition, this notice lists the organizational unit(s) accumulating the records or states that the schedule has agency-wide applicability. It also provides the control number assigned to each schedule, which you will need if you submit comments on that schedule. We have uploaded the records schedules and accompanying appraisal memoranda to the regulations.gov docket for this notice as ``other'' documents. Each records schedule contains a full description of the records at the file unit level as well as their proposed disposition. The appraisal memorandum for the schedule includes information about the records. We will post comments, including any personal information and attachments, to the public docket unchanged. Because comments are public, you are responsible for ensuring that you do not include any confidential or other information that you or a third party may not wish to be publicly posted. If you want to submit a comment with confidential information or cannot otherwise use the regulations.gov portal, you may contact [email protected] for instructions on submitting your comment. We will consider all comments submitted by the posted deadline and consult as needed with the Federal agency seeking the disposition authority. After considering comments, we may or may not make changes to the proposed records schedule. The schedule is then sent for final approval by the Archivist of the United States. After the schedule is approved, we will post on regulations.gov a ``Consolidated Reply'' summarizing the comments, responding to them, and noting any changes we made to the proposed schedule. You may elect at regulations.gov to receive updates on the docket, including an alert when we post the Consolidated Reply, whether or not you submit a comment. If you have a question, you can submit it as a comment, and can also submit any concerns or comments you would have to a possible response to the question. We will address these items in consolidated replies along with any other comments submitted on that schedule. We will post schedules on our website in the Records Control Schedule (RCS) Repository, at https://www.archives.gov/records-mgmt/rcs, after the Archivist approves them. The RCS contains all schedules approved since 1973. Background Each year, Federal agencies create billions of records. To control this accumulation, agency records managers prepare schedules proposing retention periods for records and submit these schedules for NARA's approval. Once approved by NARA, records schedules provide mandatory instructions on what happens to records when no longer needed for current Government business. The records schedules authorize agencies to preserve records of continuing value in the National Archives or to destroy, after a specified period, records lacking continuing administrative, legal, research, or other value. Some schedules are comprehensive and cover all the records of an agency or one of its major subdivisions. Most schedules, however, cover records of only one office or [[Page 56436]] program or a few series of records. Many of these update previously approved schedules, and some include records proposed as permanent. Agencies may not destroy Federal records without the approval of the Archivist of the United States. The Archivist grants this approval only after thorough consideration of the records' administrative use by the agency of origin, the rights of the Government and of private people directly affected by the Government's activities, and whether or not the records have historical or other value. Public review and comment on these records schedules is part of the Archivist's consideration process. Schedules Pending 1. Department of the Army, Agency-wide, Centralized Aviation Flight Records System (CAFRS) (DAA-AU-2023-0001). 2. Department of Defense, National Security Agency, Information Assurance (Cybersecurity Mission) Records (DAA-0457-2024-0002). 3. Department of State, Foreign Service Institute, Records of the Foreign Service Institute (DAA-0059-2020-0010). 4. Department of the Treasury, Bureau of the Fiscal Service, Records of Government Securities Regulations Staff (DAA-0425-2024- 0002). 5. American Battle Monuments Commission, Agency-wide, Cemetery Operations and Support Services Records (DAA-0117-2023-0004). 6. National Aeronautics and Space Administration, Agency-wide, Aircraft Operations Records (DAA-0255-2024-0004). Laurence Brewer, Chief Records Officer for the U.S. Government. [FR Doc. 2024-15010 Filed 7-8-24; 8:45 am] BILLING CODE 7515-01-P

usgpo

2024-10-08T13:27:02.033750

FR

FR-2024-07-09/2024-14996

Federal Register Volume 89 Issue 131 (July 9, 2024)

United States National Archives and Records Administration Office of the Federal Register

[Federal Register Volume 89, Number 131 (Tuesday, July 9, 2024)] [Notices] [Page 56436] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 2024-14996] ======================================================================= ----------------------------------------------------------------------- NATIONAL FOUNDATION ON THE ARTS AND THE HUMANITIES National Endowment for the Arts Subject 60-Day Notice for the ``Arts Basic Survey''; Proposed Collection; Comment Request AGENCY: National Endowment for the Arts. ACTION: Notice. ----------------------------------------------------------------------- SUMMARY: The National Endowment for the Arts (NEA), as part of its continuing effort to reduce paperwork and respondent burden, conducts a preclearance consultation program to provide the general public and Federal agencies with an opportunity to comment on proposed and/or continuing collections of information in accordance with the Paperwork Reduction Act of 1995. This program helps to ensure that requested data can be provided in the desired format, reporting burden (time and financial resources) is minimized, collection instruments are clearly understood, and the impact of collection requirements on respondents can be properly assessed. Currently, the NEA is soliciting comments concerning the proposed information collection on arts participation in the U.S. A copy of the current information collection request can be obtained by contacting the office listed below in the address section of this notice. DATES: Written comments must be submitted to the office listed in the address section below within 60 days from the date of this publication in the Federal Register. ADDRESSES: Send comments to Sunil Iyengar, National Endowment for the Arts, via email ([email protected]). SUPPLEMENTARY INFORMATION: The NEA is particularly interested in comments which: Evaluate whether the proposed collection of information is necessary for the proper performance of the functions of the agency, including whether the information will have practical utility; Evaluate the accuracy of the agency's estimate of the burden of the proposed collection of information including the validity of the methodology and assumptions used; Enhance the quality, utility, and clarity of the information to be collected; and Minimize the burden of the collection of information on those who are to respond, including through the use of appropriate automated, electronic, mechanical, or other technological collection techniques or other forms of information technology, e.g., permitting electronic submissions of responses. Dated: July 3, 2024. RaShaunda Thomas, Administrative Officer (Deputy), Office of Administrative Services & Contracts, National Endowment for the Arts. [FR Doc. 2024-14996 Filed 7-8-24; 8:45 am] BILLING CODE 7537-01-P

usgpo

2024-10-08T13:27:02.064250

FR

FR-2024-07-09/2024-15013

Federal Register Volume 89 Issue 131 (July 9, 2024)

United States National Archives and Records Administration Office of the Federal Register

[Federal Register Volume 89, Number 131 (Tuesday, July 9, 2024)] [Notices] [Pages 56436-56437] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 2024-15013] ----------------------------------------------------------------------- NATIONAL FOUNDATION ON THE ARTS AND THE HUMANITIES National Endowment for the Humanities Meeting of National Council on the Humanities AGENCY: National Endowment for the Humanities; National Foundation on the Arts and the Humanities. ACTION: Notice of meeting. ----------------------------------------------------------------------- SUMMARY: Pursuant to the Federal Advisory Committee Act, notice is hereby given that the National Council on the Humanities will meet to advise the Chair of the National Endowment for the Humanities (NEH) with respect to policies, programs and procedures for carrying out her functions; to review applications for financial assistance under the National Foundation on the Arts and Humanities Act of 1965 and make recommendations thereon to the Chair; and to consider gifts offered to NEH and make recommendations thereon to the Chair. DATES: The meeting will be held on Thursday, July 18, 2024, from 10:30 a.m. until adjourned, and Friday, July 19, 2024, from 9:30 a.m. until adjourned. ADDRESSES: The meeting will be held at the Constitution Center, 400 7th Street SW, Washington, DC 20506. FOR FURTHER INFORMATION CONTACT: Elizabeth Voyatzis, Committee Management Officer, 400 7th Street SW, 4th Floor, Washington, DC 20506; (202) 606-8322; [email protected]. SUPPLEMENTARY INFORMATION: The National Council on the Humanities is meeting pursuant to the National Foundation on the Arts and Humanities Act of 1965 (20 U.S.C. 951-960, as amended). The Committee meetings of the National Council on the Humanities will convene on July 18, 2024, from 10:30 a.m. until 12:30 p.m. (closed to the public), to discuss specific grant applications and programs before the Council. The following Committees will meet in the NEH offices at the Constitution Center: Digital Humanities; Education Programs; Federal/State Partnership; Preservation and Access; Public Programs; and Research Programs. The National Council will then convene in executive session on July 18, 2024, from 1:30 p.m. until adjourned (closed to the public). The executive session will be held in the NEH offices at the Constitution Center. The plenary session of the National Council on the Humanities will convene on July 19, 2024, at 9:30 a.m. until [[Page 56437]] adjourned in the Conference Center at the Constitution Center. The agenda for the morning session (open to the public) will be as follows: A. Minutes of Previous Meeting B. Reports 1. Chair's Remarks 2. Presentations by the U.S. Office of Science and Technology Policy, and the Executive Director of Florida Humanities The remainder of the plenary session will be for consideration of specific applications before the Council. The agenda for the afternoon session (closed to the public) will be as follows: A. Reports 1. Actions on Requests for Chair's Grants and Supplemental Funding 2. Actions on Previously Considered Applications B. Digital Humanities C. Education Programs D. Federal/State Partnership E Preservation and Access F. Public Programs G. Research Programs As identified above, portions of the meeting of the National Council on the Humanities will be closed to the public pursuant to sections 552b(c)(4), 552b(c)(6), and 552b(c)(9)(B)of Title 5 U.S.C., as amended, because it will include review of personal and/or proprietary financial and commercial information given in confidence to the agency by grant applicants, and discussion of certain information, the premature disclosure of which could significantly frustrate implementation of proposed agency action. I have made this determination pursuant to the authority granted me by the Chair's Delegation of Authority to Close Advisory Committee Meetings dated April 15, 2016. Please note that individuals planning to attend the public session of the meeting are subject to security screening procedures. If you wish to attend the public session, please inform NEH as soon as possible by contacting [email protected]; or (202) 606-8322. Please provide advance notice of any special needs or accommodations, including for a sign language interpreter. Dated: July 3, 2024. Jessica Graves, Paralegal Specialist, National Endowment for the Humanities. [FR Doc. 2024-15013 Filed 7-8-24; 8:45 am] BILLING CODE 7536-01-P

usgpo

2024-10-08T13:27:02.098932

FR

FR-2024-07-09/2024-14953

Federal Register Volume 89 Issue 131 (July 9, 2024)

United States National Archives and Records Administration Office of the Federal Register

[Federal Register Volume 89, Number 131 (Tuesday, July 9, 2024)] [Notices] [Pages 56437-56438] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 2024-14953] ======================================================================= ----------------------------------------------------------------------- NUCLEAR REGULATORY COMMISSION [Docket No. 50-255; NRC-2024-0123] Holtec Palisades, LLC; Holtec Decommissioning International, LLC; Palisades Nuclear Plant; Petition AGENCY: Nuclear Regulatory Commission. ACTION: 10 CFR 2.206 request; receipt. ----------------------------------------------------------------------- SUMMARY: The U.S. Nuclear Regulatory Commission (NRC) is giving notice that by petition dated December 5, 2023, Beyond Nuclear, Michigan State Energy Future, and Don't Waste Michigan (the petitioners) filed a petition to intervene and a request for hearing on a proceeding to exempt the Palisades Nuclear Power Plant (Palisades) from certain requirements in NRC regulations. In denying the request for hearing, the Commission referred Contention 2 of the request, regarding the misuse of decommissioning funds, to the enforcement petition process under NRC regulations. The petitioner's requests are included in the SUPPLEMENTARY INFORMATION section of this document. DATES: July 9, 2024. ADDRESSES: Please refer to Docket ID NRC-2024-0123 when contacting the NRC about the availability of information regarding this document. You may obtain publicly available information related to this document using any of the following methods: Federal Rulemaking Website: Go to https://www.regulations.gov and search for Docket ID NRC-2024-0123. Address questions about Docket IDs in Regulations.gov to Stacy Schumann; telephone: 301-415-0624; email: [email protected]. For technical questions, contact the individual listed in the FOR FURTHER INFORMATION CONTACT section of this document. NRC's Agencywide Documents Access and Management System (ADAMS): You may obtain publicly available documents online in the ADAMS Public Documents collection at https://www.nrc.gov/reading-rm/adams.html. To begin the search, select ``Begin Web-based ADAMS Search.'' For problems with ADAMS, please contact the NRC's Public Document Room (PDR) reference staff at 1-800-397-4209, at 301-415-4737, or by email to [email protected]. The ADAMS accession number for each document referenced (if it is available in ADAMS) is provided the first time that it is mentioned in this document. NRC's PDR: The PDR, where you may examine and order copies of publicly available documents, is open by appointment. To make an appointment to visit the PDR, please send an email to [email protected] or call 1-800-397-4209 or 301-415-4737, between 8 a.m. and 4 p.m. eastern time (ET), Monday through Friday, except Federal holidays. FOR FURTHER INFORMATION CONTACT: James S. Kim, Office of Nuclear Reactor Regulation, U.S. Nuclear Regulatory Commission, Washington, DC 20555-0001; telephone: 301-415-4125; email: [email protected]. SUPPLEMENTARY INFORMATION: On September 28, 2023, Holtec Decommissioning International, LLC (Holtec), on behalf of Holtec Palisades, LLC, submitted a request (ADAMS Accession No. ML23271A140) to exempt the Palisades Nuclear Power Plant (Palisades) from certain requirements in section 50.82 of title 10 of the Code of Federal Regulations (10 CFR), ``Termination of license.'' On December 5, 2023, the petitioners filed a petition to intervene and a request for hearing on this exemption proceeding (ADAMS Accession No. ML23339A192). In denying the request for hearing (ADAMS Accession No. ML23352A325), the Commission referred Contention 2 of the request, regarding the misuse of decommissioning funds, to the enforcement petition process under 10 CFR 2.206, ``Requests for action under this subpart.'' The underlying concern in Contention 2 of the December 5, 2023, request is that ``Holtec misused the decommissioning trust fund (DTF) to keep Palisades in a status to restart the reactor, rather than to decommission the plant.'' The petitioners cited 10 CFR 50.82(a)(8) regarding appropriate uses of the DTF. Specifically, the petition to intervene asserted that: 1. Holtec expended $44 million from the Palisades DTF from June 28 to December 31, 2022 (ADAMS Accession No. ML23090A140). 2. Holtec continued improper utilization of Palisades DTF from December 31, 2022, to present. The NRC staff assembled a Petition Review Board (PRB) in accordance with NRC Management Directive (MD) 8.11, ``Review Process for 10 CFR 2.206 Petitions,'' and its associated Directive Handbook 8.11, Section III (ADAMS Accession No. ML18296A043). On February 29, 2024 (ADAMS Accession No. ML24061A014), the petition manager informed the petitioners that the PRB's initial assessment was to not accept the petition for review. The PRB's position was that the petition did not meet the MD 8.11 criteria for [[Page 56438]] accepting petitions under 10 CFR 2.206 because the issues raised regarding Holtec's use of the Palisades DTF in 2022 had already been addressed through the NRC's inspection and enforcement process. In August and November 2023 (ADAMS Accession No. ML23276B452 and ADAMS Accession No. ML24045A147, respectively), the NRC completed inspections that addressed, in part, the use of the Palisades DTF. As a result of these inspections, the NRC identified several instances, totaling just over $57,000, in which the licensee used the Palisades DTF to pay for activities not considered legitimate decommissioning expenses per the definition in 10 CFR 50.2, ``Definitions.'' The NRC confirmed that the unauthorized reimbursements from the Palisades DTF were the result of inadvertent oversights and/or inattention to detail in the coding associated with the billing for various projects and community donations. The licensee has implemented several process revisions to address order coding modification issues/ errors, as well as training to eliminate these issues from future DTF expenditures. In February 2024, the NRC issued Holtec a Severity Level IV Non-Cited Violation to address the illegitimate use of decommissioning funds at Palisades (ADAMS Accession No. ML24045A147). On February 29, 2024, along with the initial assessment, the petition manager offered the petitioners an opportunity to address the PRB in a public meeting. This meeting was held on April 10, 2024. The transcript of that meeting is publicly available in ADAMS under Accession No. ML24114A016 and is considered a supplement to the petition. During the April 10, 2024, meeting, the petitioners discussed DTF expenditures of $120 million noted in the 2023 Decommissioning Funding Status Report for Palisades, which was submitted to the NRC on March 29, 2024 (ADAMS Accession No. ML24089A117). The petitioners also raised concerns about whether the $120 million was properly used for decommissioning expenditures in accordance with the current NRC requirements and guidance. Following the April 10, 2024, public meeting, the PRB met to consider what had been presented during the meeting. The PRB found that the issues regarding use of the Palisades DTF in 2022 have been addressed through the inspection and enforcement process, as previously mentioned in this notice. Therefore, the PRB is not accepting those issues into the 10 CFR 2.206 process. The concerns the petitioners raised at the public meeting regarding the recently submitted 2023 expenditure report for Palisades involve new information that has not yet been fully considered by the NRC. Therefore, in accordance with MD 8.11, Section III.C, the PRB is accepting that portion of the petitioner's concern into the 10 CFR 2.206 process for further review. However, the PRB is holding the petition review in abeyance until the NRC's review of the 2023 expenditure report for Palisades is complete, as it is relevant to the decision on the 10 CFR 2.206 petition. Dated: July 2, 2024. For the Nuclear Regulatory Commission. Michael King, Deputy Office Director, Office of Nuclear Reactor Regulation. [FR Doc. 2024-14953 Filed 7-8-24; 8:45 am] BILLING CODE 7590-01-P

usgpo

2024-10-08T13:27:02.122403

FR

FR-2024-07-09/2024-14417

Federal Register Volume 89 Issue 131 (July 9, 2024)

United States National Archives and Records Administration Office of the Federal Register

[Federal Register Volume 89, Number 131 (Tuesday, July 9, 2024)] [Notices] [Pages 56438-56445] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 2024-14417] ----------------------------------------------------------------------- NUCLEAR REGULATORY COMMISSION [NRC-2024-0119] Monthly Notice; Applications and Amendments to Facility Operating Licenses and Combined Licenses Involving No Significant Hazards Considerations AGENCY: Nuclear Regulatory Commission. ACTION: Monthly notice. ----------------------------------------------------------------------- SUMMARY: Pursuant to section 189a.(2) of the Atomic Energy Act of 1954, as amended (the Act), the U.S. Nuclear Regulatory Commission (NRC) is publishing this regular monthly notice. The Act requires the Commission to publish notice of any amendments issued, or proposed to be issued, and grants the Commission the authority to issue and make immediately effective any amendment to an operating license or combined license, as applicable, upon a determination by the Commission that such amendment involves no significant hazards consideration (NSHC), notwithstanding the pendency before the Commission of a request for a hearing from any person. DATES: Comments must be filed by August 8, 2024. A request for a hearing or petitions for leave to intervene must be filed by September 9, 2024. This monthly notice includes all amendments issued, or proposed to be issued, from May 24, 2024, to June 20, 2024. The last monthly notice was published on June 11, 2024. ADDRESSES: You may submit comments by any of the following methods; however, the NRC encourages electronic comment submission through the Federal rulemaking website. Federal rulemaking website: Go to https://www.regulations.gov and search for Docket ID NRC-2024-0119. Address questions about Docket IDs in Regulations.gov to Stacy Schumann; telephone: 301-415-0624; email: [email protected]. For technical questions, contact the individual listed in the ``For Further Information Contact'' section of this document. Mail comments to: Office of Administration, Mail Stop: TWFN-7-A60M, U.S. Nuclear Regulatory Commission, Washington, DC 20555- 0001, ATTN: Program Management, Announcements and Editing Staff. For additional direction on obtaining information and submitting comments, see ``Obtaining Information and Submitting Comments'' in the SUPPLEMENTARY INFORMATION section of this document. FOR FURTHER INFORMATION CONTACT: Susan Lent, Office of Nuclear Reactor Regulation, U.S. Nuclear Regulatory Commission, Washington, DC 20555- 0001, telephone: 301-415-1365; email: [email protected]. SUPPLEMENTARY INFORMATION: I. Obtaining Information and Submitting Comments A. Obtaining Information Please refer to Docket ID NRC-2024-0119, facility name, unit number(s), docket number(s), application date, and subject when contacting the NRC about the availability of information for this action. You may obtain publicly available information related to this action by any of the following methods: Federal Rulemaking website: Go to https://www.regulations.gov and search for Docket ID NRC-2024-0119. NRC's Agencywide Documents Access and Management System (ADAMS): You may obtain publicly available documents online in the ADAMS Public Documents collection at https://www.nrc.gov/reading-rm/adams.html. To begin the search, select ``Begin Web-based ADAMS Search.'' For problems with ADAMS, please contact the NRC's Public Document Room (PDR) reference staff at 1-800-397-4209, at 301-415-4737, or by email to [email protected]. The ADAMS accession number for each document referenced (if it is available in ADAMS) is provided the first time that it is mentioned in this document. NRC's PDR: The PDR, where you may examine and order copies of publicly available documents, is open by appointment. To make an appointment to visit the PDR, please [[Page 56439]] send an email to [email protected] or call 1-800-397-4209 or 301- 415-4737, between 8 a.m. and 4 p.m. eastern time (ET), Monday through Friday, except Federal holidays. B. Submitting Comments The NRC encourages electronic comment submission through the Federal rulemaking website (https://www.regulations.gov). Please include Docket ID NRC-2024-0119, facility name, unit number(s), docket number(s), application date, and subject, in your comment submission. The NRC cautions you not to include identifying or contact information that you do not want to be publicly disclosed in your comment submission. The NRC will post all comment submissions at https://www.regulations.gov as well as enter the comment submissions into ADAMS. The NRC does not routinely edit comment submissions to remove identifying or contact information. If you are requesting or aggregating comments from other persons for submission to the NRC, then you should inform those persons not to include identifying or contact information that they do not want to be publicly disclosed in their comment submission. Your request should state that the NRC does not routinely edit comment submissions to remove such information before making the comment submissions available to the public or entering the comment into ADAMS. II. Notice of Consideration of Issuance of Amendments to Facility Operating Licenses and Combined Licenses and Proposed No Significant Hazards Consideration Determination For the facility-specific amendment requests shown in this notice, the Commission finds that the licensees' analyses provided, consistent with section 50.91 of title 10 of the Code of Federal Regulations (10 CFR) ``Notice for public comment; State consultation,'' are sufficient to support the proposed determinations that these amendment requests involve NSHC. Under the Commission's regulations in 10 CFR 50.92, operation of the facilities in accordance with the proposed amendments would not (1) involve a significant increase in the probability or consequences of an accident previously evaluated; or (2) create the possibility of a new or different kind of accident from any accident previously evaluated; or (3) involve a significant reduction in a margin of safety. The Commission is seeking public comments on these proposed determinations. Any comments received within 30 days after the date of publication of this notice will be considered in making any final determinations. Normally, the Commission will not issue the amendments until the expiration of 60 days after the date of publication of this notice. The Commission may issue any of these license amendments before expiration of the 60-day period provided that its final determination is that the amendment involves NSHC. In addition, the Commission may issue any of these amendments prior to the expiration of the 30-day comment period if circumstances change during the 30-day comment period such that failure to act in a timely way would result, for example in derating or shutdown of the facility. If the Commission takes action on any of these amendments prior to the expiration of either the comment period or the notice period, it will publish in the Federal Register a notice of issuance. If the Commission makes a final NSHC determination for any of these amendments, any hearing will take place after issuance. The Commission expects that the need to take action on any amendment before 60 days have elapsed will occur very infrequently. A. Opportunity To Request a Hearing and Petition for Leave To Intervene Within 60 days after the date of publication of this notice, any person (petitioner) whose interest may be affected by any of these actions may file a request for a hearing and petition for leave to intervene (petition) with respect to that action. Petitions shall be filed in accordance with the Commission's ``Agency Rules of Practice and Procedure'' in 10 CFR part 2. Interested persons should consult a current copy of 10 CFR 2.309. If a petition is filed, the Commission or a presiding officer will rule on the petition and, if appropriate, a notice of a hearing will be issued. Petitions must be filed no later than 60 days from the date of publication of this notice in accordance with the filing instructions in the ``Electronic Submissions (E-Filing)'' section of this document. Petitions and motions for leave to file new or amended contentions that are filed after the deadline will not be entertained absent a determination by the presiding officer that the filing demonstrates good cause by satisfying the three factors in 10 CFR 2.309(c)(1)(i) through (iii). If a hearing is requested, and the Commission has not made a final determination on the issue of no significant hazards consideration, the Commission will make a final determination on the issue of no significant hazards consideration, which will serve to establish when the hearing is held. If the final determination is that the amendment request involves no significant hazards consideration, the Commission may issue the amendment and make it immediately effective, notwithstanding the request for a hearing. Any hearing would take place after issuance of the amendment. If the final determination is that the amendment request involves a significant hazards consideration, then any hearing held would take place before the issuance of the amendment unless the Commission finds an imminent danger to the health or safety of the public, in which case it will issue an appropriate order or rule under 10 CFR part 2. A State, local governmental body, Federally recognized Indian Tribe, or designated agency thereof, may submit a petition to the Commission to participate as a party under 10 CFR 2.309(h) no later than 60 days from the date of publication of this notice. Alternatively, a State, local governmental body, Federally recognized Indian Tribe, or agency thereof may participate as a non-party under 10 CFR 2.315(c). For information about filing a petition and about participation by a person not a party under 10 CFR 2.315, see ADAMS Accession No. ML20340A053 (https://adamswebsearch2.nrc.gov/webSearch2/main.jsp?AccessionNumber=ML20340A053) and on the NRC's public website at https://www.nrc.gov/about-nrc/regulatory/adjudicatory/hearing.html#participate. B. Electronic Submissions (E-Filing) All documents filed in NRC adjudicatory proceedings, including documents filed by an interested State, local governmental body, Federally recognized Indian Tribe, or designated agency thereof that requests to participate under 10 CFR 2.315(c), must be filed in accordance with 10 CFR 2.302. The E-Filing process requires participants to submit and serve all adjudicatory documents over the internet, or in some cases, to mail copies on electronic storage media, unless an exemption permitting an alternative filing method, as further discussed, is granted. Detailed guidance on electronic submissions is located in the ``Guidance for Electronic Submissions to the NRC'' (ADAMS Accession No. ML13031A056) and on the NRC's public website at https://www.nrc.gov/site-help/e-submittals.html. To comply with the procedural requirements of E-Filing, at least 10 [[Page 56440]] days prior to the filing deadline, the participant should contact the Office of the Secretary by email at [email protected], or by telephone at 301-415-1677, to (1) request a digital identification (ID) certificate, which allows the participant (or its counsel or representative) to digitally sign submissions and access the E-Filing system for any proceeding in which it is participating; and (2) advise the Secretary that the participant will be submitting a petition or other adjudicatory document (even in instances in which the participant, or its counsel or representative, already holds an NRC- issued digital ID certificate). Based upon this information, the Secretary will establish an electronic docket for the proceeding if the Secretary has not already established an electronic docket. Information about applying for a digital ID certificate is available on the NRC's public website at https://www.nrc.gov/site-help/e-submittals/getting-started.html. After a digital ID certificate is obtained and a docket created, the participant must submit adjudicatory documents in Portable Document Format. Guidance on submissions is available on the NRC's public website at https://www.nrc.gov/site-help/electronic-sub-ref-mat.html. A filing is considered complete at the time the document is submitted through the NRC's E-Filing system. To be timely, an electronic filing must be submitted to the E-Filing system no later than 11:59 p.m. ET on the due date. Upon receipt of a transmission, the E-Filing system time-stamps the document and sends the submitter an email confirming receipt of the document. The E-Filing system also distributes an email that provides access to the document to the NRC's Office of the General Counsel and any others who have advised the Office of the Secretary that they wish to participate in the proceeding, so that the filer need not serve the document on those participants separately. Therefore, applicants and other participants (or their counsel or representative) must apply for and receive a digital ID certificate before adjudicatory documents are filed to obtain access to the documents via the E-Filing system. A person filing electronically using the NRC's adjudicatory E- Filing system may seek assistance by contacting the NRC's Electronic Filing Help Desk through the ``Contact Us'' link located on the NRC's public website at https://www.nrc.gov/site-help/e-submittals.html, by email to [email protected], or by a toll-free call at 1-866-672- 7640. The NRC Electronic Filing Help Desk is available between 9 a.m. and 6 p.m., ET, Monday through Friday, except Federal holidays. Participants who believe that they have good cause for not submitting documents electronically must file an exemption request, in accordance with 10 CFR 2.302(g), with their initial paper filing stating why there is good cause for not filing electronically and requesting authorization to continue to submit documents in paper format. Such filings must be submitted in accordance with 10 CFR 2.302(b)-(d). Participants filing adjudicatory documents in this manner are responsible for serving their documents on all other participants. Participants granted an exemption under 10 CFR 2.302(g)(2) must still meet the electronic formatting requirement in 10 CFR 2.302(g)(1), unless the participant also seeks and is granted an exemption from 10 CFR 2.302(g)(1). Documents submitted in adjudicatory proceedings will appear in the NRC's electronic hearing docket, which is publicly available at https://adams.nrc.gov/ehd, unless excluded pursuant to an order of the presiding officer. If you do not have an NRC-issued digital ID certificate as previously described, click ``cancel'' when the link requests certificates and you will be automatically directed to the NRC's electronic hearing docket where you will be able to access any publicly available documents in a particular hearing docket. Participants are requested not to include personal privacy information such as social security numbers, home addresses, or personal phone numbers in their filings unless an NRC regulation or other law requires submission of such information. With respect to copyrighted works, except for limited excerpts that serve the purpose of the adjudicatory filings and would constitute a Fair Use application, participants should not include copyrighted materials in their submission. The following table provides the plant name, docket number, date of application, ADAMS accession number, and location in the application of the licensees' proposed NSHC determinations. For further details with respect to these license amendment applications, see the applications for amendment, which are available for public inspection in ADAMS. For additional direction on accessing information related to this document, see the ``Obtaining Information and Submitting Comments'' section of this document. License Amendment Requests ------------------------------------------------------------------------ ------------------------------------------------------------------------ Constellation Energy Generation, LLC; Braidwood Station, Units 1 and 2; Will County, IL ------------------------------------------------------------------------ Docket Nos................... 50-456, 50-457. Application date............. June 4, 2024. ADAMS Accession No........... ML24156A245. Location in Application of Pages 15-17 of Attachment 1. NSHC. Brief Description of The proposed amendments would revise Amendments. Technical Specification Surveillance Requirement 3.7.9.2 to allow an ultimate heat sink temperature of less than or equal to 102.8[deg]F until September 30, 2024. Proposed Determination....... NSHC Name of Attorney for Jason Zorn, Associate General Counsel, Licensee, Mailing Address. Constellation Energy Generation, LLC, 4300 Winfield Road, Warrenville, IL 60555. NRC Project Manager, Joel Wiebe, 301-415-6606. Telephone Number. ------------------------------------------------------------------------ Constellation Energy Generation, LLC; Braidwood Station, Units 1 and 2, Will County, IL; Byron Station, Unit Nos. 1 and 2, Ogle County, IL ------------------------------------------------------------------------ Docket Nos................... 50-454, 50-455, 50-456, 50-457. Application date............. May 24, 2024. ADAMS Accession No........... ML24145A116. [[Page 56441]] Location in Application of Pages 9 and 10 of Attachment 1. NSHC. Brief Description of The proposed amendments would remove Amendments. extraneous detail related to the Best Estimate Analyzer for Core Operations Nuclear software and more closely align with the Standard Technical Specifications, NUREG-1431, Revision 5. Proposed Determination....... NSHC Name of Attorney for Jason Zorn, Associate General Counsel, Licensee, Mailing Address. Constellation Energy Generation, LLC., 4300 Winfield Road, Warrenville, IL 60555. NRC Project Manager, Joel Wiebe, 301-415-6606. Telephone Number. ------------------------------------------------------------------------ Constellation Energy Generation, LLC; Braidwood Station, Units 1 and 2, Will County, IL; Byron Station, Unit Nos. 1 and 2, Ogle County, IL ------------------------------------------------------------------------ Docket Nos................... 50-454, 50-455, 50-456, 50-457. Application date............. April 25, 2024. ADAMS Accession No........... ML24116A112. Location in Application of Pages 26 and 27 of Attachment 1. NSHC. Brief Description of The proposed amendments would remove the Amendments. core operating limits report analytical method 5.6.5.b.5 from the technical specifications. Proposed Determination....... NSHC. Name of Attorney for Jason Zorn, Associate General Counsel, Licensee, Mailing Address. Constellation Energy Generation, LLC, 4300 Winfield Road, Warrenville, IL 60555. NRC Project Manager, Joel Wiebe, 301-415-6606. Telephone Number. ------------------------------------------------------------------------ Constellation Energy Generation, LLC; Dresden Nuclear Power Station, Units 2 and 3; Grundy County, IL ------------------------------------------------------------------------ Docket Nos................... 50-237, 50-249. Application date............. May 8, 2024. ADAMS Accession No........... ML24129A135. Location in Application of Pages 7-9 of Attachment 1. NSHC. Brief Description of The proposed amendments request adoption Amendments. of Technical Specification Task Force (TSTF) Travelers, TSTF-505, Revision 2, ``Provide Risk-Informed Extended Completion Times--RITSTF [Risk Informed TSTF] Initiative 4b,'' and TSTF-591, ``Revise Risk Informed Completion Time (RICT) Program.''. Proposed Determination....... NSHC. Name of Attorney for Jason Zorn, Associate General Counsel, Licensee, Mailing Address. Constellation Energy Generation, LLC, 4300 Winfield Road, Warrenville, IL 60555. NRC Project Manager, Surinder Arora, 301-415-1421. Telephone Number. ------------------------------------------------------------------------ Entergy Louisiana, LLC, and Entergy Operations, Inc.; River Bend Station, Unit 1; West Feliciana Parish, LA; Entergy Operations, Inc., System Energy Resources, Inc., Cooperative Energy, A Mississippi Electric Cooperative, and Entergy Mississippi, LLC; Grand Gulf Nuclear Station, Unit 1; Claiborne County, MS; Entergy Operations, Inc.; Waterford Steam Electric Station, Unit 3; St. Charles Parish, LA ------------------------------------------------------------------------ Docket Nos................... 50-416, 50-382, 50-458. Application date............. May 7, 2024. ADAMS Accession No........... ML24128A042. Location in Application of Pages 20--21 of the Enclosure. NSHC. Brief Description of The proposed amendments would remove Amendments. License Condition 2.F, which requires the Grand Gulf Nuclear Station, Unit 1, River Bend Station, Unit 1, and Waterford Steam Electric Station, Unit 3 sites to report certain violations of Renewed Facility Operating License Section 2.C within 24 hours to the NRC Operations Center via the emergency notification system with a written follow-up at a later date. The licensee stated that this change is consistent with the notice published in the Federal Register on November 4, 2005 (70 FR 67202), as part of the consolidated line- item improvement process. Proposed Determination....... NSHC. Name of Attorney for Susan Raimo, Associate General Counsel-- Licensee, Mailing Address. Nuclear, 101 Constitution Avenue NW, Washington, DC 20001. NRC Project Manager, Mahesh Chawla, 301-415-8371. Telephone Number. ------------------------------------------------------------------------ Florida Power & Light Company, et al.; St. Lucie Plant, Unit No. 2; St. Lucie County, FL ------------------------------------------------------------------------ Docket No.................... 50-389. Application date............. April 30, 2024. ADAMS Accession No........... ML24122A689. Location in Application of Pages 14 and 15 of Enclosure 1. NSHC. [[Page 56442]] Brief Description of The proposed amendment would revise St. Amendment. Lucie Plant, Unit No. 2, Technical Specification (TS) 3.7.15, ``Spent Fuel Pool Storage,'' and TS 4.3, ``Fuel Storage,'' to support updated spent fuel pool and new fuel vault criticality analyses, which account for the impact of a proposed transition to 24-month fuel cycles on fresh and spent fuel storage. Proposed Determination....... NSHC. Name of Attorney for Steven Hamrick, Senior Attorney 801 Licensee, Mailing Address. Pennsylvania Ave. NW, Suite 220 Washington, DC 20004. NRC Project Manager, Natreon Jordan, 301-415-7410. Telephone Number. ------------------------------------------------------------------------ NextEra Energy Seabrook, LLC; Seabrook Station, Unit No. 1; Rockingham County, NH ------------------------------------------------------------------------ Docket No.................... 50-443. Application date............. May 10, 2024. ADAMS Accession No........... ML24131A152. Location in Application of Pages 6-7 of the Enclosure. NSHC. Brief Description of The proposed amendment would revise the Amendment. Seabrook Station, Unit No. 1 Technical Specification (TS) 3.8.1.1.a, ``A.C. Sources--Operating,'' to provide a one- time allowance to change plant modes from Cold Shutdown (MODE 5) to Startup (MODE 2) while one independent circuit between the offsite transmission network and the onsite Class 1E Distribution System is out of service. NextEra is requesting an additional 384 hours to the TS 3.8.1.1.a 72-hour completion time for a total of 456 hours. Proposed Determination....... NSHC. Name of Attorney for Steven Hamrick, Senior Attorney 801 Licensee, Mailing Address. Pennsylvania Ave. NW, Suite 220 Washington, DC 20004. NRC Project Manager, V. Sreenivas, 301-415-2597. Telephone Number. ------------------------------------------------------------------------ Tennessee Valley Authority; Watts Bar Nuclear Plant, Unit 1; Rhea County, TN ------------------------------------------------------------------------ Docket No.................... 50-390. Application date............. April 17, 2024. ADAMS Accession No........... ML24108A015. Location in Application of Pages E-9--E-11 of the Enclosure. NSHC. Brief Description of The proposed amendment would revise the Amendment. expiration date of the Watts Bar Nuclear Plant, Unit 1, Facility Operating License No. NPF-90 to be 40 years from the date that the full-power operating license was issued, rather than the date that the low-power license was issued. Proposed Determination....... NSHC. Name of Attorney for David Fountain, Executive VP and General Licensee, Mailing Address. Counsel, Tennessee Valley Authority, 6A West Tower, 400 West Summit Hill Drive, Knoxville, TN 37902. NRC Project Manager, Kimberly Green, 301-415-1627. Telephone Number. ------------------------------------------------------------------------ Vistra Operations Company LLC; Beaver Valley Power Station, Units 1 and 2; Beaver County, PA ------------------------------------------------------------------------ Docket Nos................... 50-334, 50-412. Application date............. May 7, 2024. ADAMS Accession No........... ML24129A016. Location in Application of Pages 2-4 of Attachment 1. NSHC. Brief Description of The proposed amendments would adopt Amendments. Technical Specification Task Force-569, ``Revise Response Time Testing Definition,'' which is an approved change to the Improved Standard Technical Specifications, into the Beaver Valley Power Station, Units 1 and 2, Technical Specifications (TSs). The proposed amendments would revise the TS definitions for Engineered Safety Feature Response Time and Reactor Trip System Response Time. Proposed Determination....... NSHC. Name of Attorney for Rick Giannantonio, General Counsel, Licensee, Mailing Address. Energy Harbor Nuclear Corp.,168 E. Market Street Akron, OH 44308-2014. NRC Project Manager, V. Sreenivas, 301-415-2597. Telephone Number. ------------------------------------------------------------------------ III. Notice of Issuance of Amendments to Facility Operating Licenses and Combined Licenses During the period since publication of the last monthly notice, the Commission has issued the following amendments. The Commission has determined for each of these amendments that the application complies with the standards and requirements of the Atomic Energy Act of 1954, as amended (the Act), and the Commission's rules and regulations. The Commission has made appropriate findings as required by the Act and the Commission's rules and regulations in 10 CFR chapter I, which are set forth in the license amendment. A notice of consideration of issuance of amendment to facility operating license or combined license, as applicable, proposed NSHC determination, and opportunity for a hearing in connection with these actions, were published in the Federal Register as indicated in the safety evaluation for each amendment. [[Page 56443]] Unless otherwise indicated, the Commission has determined that these amendments satisfy the criteria for categorical exclusion in accordance with 10 CFR 51.22. Therefore, pursuant to 10 CFR 51.22(b), no environmental impact statement or environmental assessment need be prepared for these amendments. If the Commission has prepared an environmental assessment under the special circumstances provision in 10 CFR 51.22(b) and has made a determination based on that assessment, it is so indicated in the safety evaluation for the amendment. For further details with respect to each action, see the amendment and associated documents such as the Commission's letter and safety evaluation, which may be obtained using the ADAMS accession numbers indicated in the following table. The safety evaluation will provide the ADAMS accession numbers for the application for amendment and the Federal Register citation for any environmental assessment. All of these items can be accessed as described in the ``Obtaining Information and Submitting Comments'' section of this document. License Amendment Issuance(s) ------------------------------------------------------------------------ ------------------------------------------------------------------------ Arizona Public Service Company, et al.; Palo Verde Nuclear Generating Station, Units 1, 2, and 3; Maricopa County, AZ ------------------------------------------------------------------------ Docket Nos............................. 50-528, 50-529, 50-530. Amendment Date......................... June 14, 2024. ADAMS Accession No..................... ML24129A206. Amendment Nos.......................... 222 (Unit 1), 222 (Unit 2), and 222 (Unit 3). Brief Description of Amendment(s)...... The amendments revised the Palo Verde Nuclear Generating Station, Units 1, 2, and 3 (Palo Verde) technical specifications (TSs) to adopt Technical Specification Task Force (TSTF) Traveler TSTF-266- A, Revision 3, ``Eliminate the Remote Shutdown System Table of Instrumentation and Controls.'' Specifically, Arizona Public Service Company (the licensee) deleted TS table 3.3.11-1, ``Remote Shutdown System Instrumentation and Controls,'' from Palo Verde TS 3.3.11, ``Remote Shutdown System,'' and placed the content of TS table 3.3.11-1 into licensee-controlled documents. Public Comments Received as to Proposed No. NSHC (Yes/No). ------------------------------------------------------------------------ Constellation Energy Generation, LLC; Calvert Cliffs Nuclear Power Plant, Units 1 and 2; Calvert County, MD ------------------------------------------------------------------------ Docket Nos............................. 50-317, 50-318. Amendment Date......................... May 31, 2024. ADAMS Accession No..................... ML24121A180. Amendment Nos.......................... 350 (Unit 1), 327 (Unit 2). Brief Description of Amendments........ The amendments revised technical specifications to adopt Technical Specifications Task Force (TSTF) Traveler TSTF 59-A, Revision 1, ``Incorporate CE [Combustion Engineering] NPSD-994 Recommendations into the SIT [Safety Injection Tanks] Specification,'' with plant- specific variations. Public Comments Received as to Proposed No. NSHC (Yes/No). ------------------------------------------------------------------------ Constellation Energy Generation, LLC; Peach Bottom Atomic Power Station, Unit 1; York County, PA ------------------------------------------------------------------------ Docket Nos............................. 50-171. Amendment Date......................... June 11, 2024. ADAMS Accession No..................... ML24082A241. Amendment Nos.......................... 18. Brief Description of Amendments........ The amendment modified License Condition 2.C(1) and Technical Specification Sections 1.0, 2.1(b)1, 2.1(b)6, 2.3(b)1, and 2.3(b)2 to remove restrictions that currently limit decommissioning activities/ efforts. Public Comments Received as to Proposed No. NSHC (Yes/No). ------------------------------------------------------------------------ Dominion Energy Nuclear Connecticut, Inc.; Millstone Power Station, Unit No. 3; New London County, CT ------------------------------------------------------------------------ Docket No.............................. 50-423. Amendment Date......................... June 4, 2024. ADAMS Accession No..................... ML24128A277. Amendment No........................... 290. Brief Description of Amendment......... The amendment revised the Millstone Power Station, Unit No. 3, technical specifications (TSs) to update the reactor core safety limits (TS 2.1.1.2), fuel assembly design features (TS 5.3.1), and the list of approved methodologies for the Core Operating Limits Report (TS 6.9.1.6.b) to support the use of Framatome GAIA fuel with M5\TM\ fuel cladding material, which is currently scheduled for insertion into the Millstone Power Station, Unit No. 3, reactor during the spring 2025 refueling outage. Public Comments Received as to Proposed No. NSHC (Yes/No). ------------------------------------------------------------------------ Duke Energy Progress, LLC; H. B. Robinson Steam Electric Plant, Unit No. 2; Darlington County, SC ------------------------------------------------------------------------ Docket No.............................. 50-261. [[Page 56444]] Amendment Date......................... June 3, 2024. ADAMS Accession No..................... ML24114A015. Amendment No........................... 279. Brief Description of Amendment......... The amendment eliminated the dynamic effects of postulated pipe ruptures to auxiliary piping systems attached to the reactor coolant system from the H. B. Robinson Steam Electric Plant, Unit No. 2 design and licensing basis using leak-before-break methodology. Public Comments Received as to Proposed No. NSHC (Yes/No). ------------------------------------------------------------------------ Duke Energy Progress, LLC; H. B. Robinson Steam Electric Plant, Unit No. 2; Darlington County, SC ------------------------------------------------------------------------ Docket No.............................. 50-261. Amendment Date......................... October 12, 2023. ADAMS Accession No..................... ML23226A086. Amendment No........................... 277. Brief Description of Amendment......... The amendment added a Feedwater Isolation on High-High Steam Generator Level function to Table 3.3.2-1 of Technical Specification (TS) 3.3.2, ``Engineered Safety Feature Actuation System (ESFAS) Instrumentation,'' and removed obsolete content from TSs 2.1.1.1, ``Reactor Core SLs [Safety Limits],'' and 5.6.5.b, ``Core Operating Limits Report (COLR).'' Public Comments Received as to Proposed No. NSHC (Yes/No). ------------------------------------------------------------------------ Energy Northwest; Columbia Generating Station; Benton County, WA ------------------------------------------------------------------------ Docket No.............................. 50-397. Amendment Date......................... June 12, 2024. ADAMS Accession No..................... ML24099A223. Amendment No........................... 275. Brief Description of Amendment......... The amendment modified Columbia Generating Station Technical Specification 3.6.2.3, ``Residual Heat Removal (RHR) Suppression Pool Cooling,'' to allow two RHR suppression pool cooling subsystems to be inoperable for 8 hours. The amendment is consistent with NRC-approved Technical Specifications Task Force (TSTF) Traveler TSTF-230-A, Revision 1, ``Add New Condition B to LCO [Limiting Condition for Operation] 3.6.2.3, `RHR Suppression Pool Cooling.' '' Public Comments Received as to Proposed No. NSHC (Yes/No). ------------------------------------------------------------------------ Energy Northwest; Columbia Generating Station; Benton County, WA ------------------------------------------------------------------------ Docket No.............................. 50-397. Amendment Date......................... May 31, 2024. ADAMS Accession No..................... ML24128A224. Amendment No........................... 274. Brief Description of Amendment......... The amendment revised Columbia Generating Station Technical Specification 3.3.6.1, ``Primary Containment Isolation Instrumentation,'' to remove the requirement that the reactor water cleanup (RWCU) system automatically isolate on manual initiation of the standby liquid control (SLC) system. The SLC system is manually actuated in response to an anticipated transient without scram event. The amendment is based on NRC- approved Technical Specifications Task Force (TSTF) Traveler TSTF-584, ``Eliminate Automatic RWCU System Isolation on SLC Initiation.'' Public Comments Received as to Proposed No. NSHC (Yes/No). ------------------------------------------------------------------------ Pacific Gas and Electric Company; Diablo Canyon Nuclear Power Plant, Units 1 and 2; San Luis Obispo County, CA ------------------------------------------------------------------------ Docket Nos............................. 50-275, 50-323. Amendment Date......................... May 29, 2024. ADAMS Accession No..................... ML24099A219. Amendment Nos.......................... 245 (Unit 1) and 247 (Unit 2). Brief Description of Amendments........ The amendments revised technical specifications to adopt Technical Specifications Task Force (TSTF) Traveler TSTF-505, Revision 2, ``Provide Risk-Informed Extended Completion Times-- RITSTF [Risk-Informed TSTF] Initiative 4b.'' The changes would prevent unnecessary unit shutdowns for low-risk scenarios. Public Comments Received as to Proposed No. NSHC (Yes/No). ------------------------------------------------------------------------ PSEG Nuclear LLC; Salem Nuclear Generating Station, Unit Nos. 1 and 2; Salem County, NJ ------------------------------------------------------------------------ Docket Nos............................. 50-272, 50-311. Amendment Date......................... May 29, 2024. ADAMS Accession No..................... ML24099A157. Amendment Nos.......................... 348 (Unit 1), 330 (Unit 2). [[Page 56445]] Brief Description of Amendments........ The amendments revised the Salem Nuclear Generating Station, Unit Nos. 1 and 2, Technical Specification 6.8.4.f, ``Primary Containment Leakage Rate Testing Program,'' by replacing the reference to Regulatory Guide 1.163 with a reference to Nuclear Energy Institute (NEI) Report NEI 94-01, Revision 3-A and the conditions and limitations specified in NEI 94-01, Revision 2-A. Public Comments Received as to Proposed No. NSHC (Yes/No). ------------------------------------------------------------------------ Susquehanna Nuclear, LLC and Allegheny Electric Cooperative, Inc.; Susquehanna Steam Electric Station, Units 1 and 2; Luzerne County, PA ------------------------------------------------------------------------ Docket Nos............................. 50-387, 50-388. Amendment Date......................... May 29, 2024. ADAMS Accession No..................... ML24127A226. Amendment Nos.......................... 288 (Unit 1), 272 (Unit 2). Brief Description of Amendments........ The amendments revised technical specifications to adopt Technical Specifications Task Force (TSTF) Traveler TSTF-563, ``Revise Instrument Testing Deficiencies to Incorporate the Surveillance Frequency Control Program,'' with plant specific variations. Public Comments Received as to Proposed No. NSHC (Yes/No). ------------------------------------------------------------------------ Vistra Operations Company LLC; Comanche Peak Nuclear Power Plant, Unit Nos. 1 and 2; Somervell County, TX ------------------------------------------------------------------------ Docket Nos............................. 50-445, 50-446. Amendment Date......................... June 10, 2024. ADAMS Accession No..................... ML24120A363. Amendment Nos.......................... 187 (Unit 1) and 187 (Unit 2). Brief Description of Amendments........ The amendments revised the Comanche Peak Nuclear Power Plant, Unit Nos. 1 and 2, Facility Operating License Nos. NPF-87 and NPF-89, respectively, to add a new license condition to allow for the implementation of 10 CFR 50.69, ``Risk-informed categorization and treatment of structures, systems and components for nuclear power reactors.'' Public Comments Received as to Proposed No. NSHC (Yes/No). ------------------------------------------------------------------------ Vistra Operations Company LLC; Perry Nuclear Power Plant, Unit 1; Lake County, OH ------------------------------------------------------------------------ Docket No.............................. 50-440. Amendment Date......................... May 28, 2024. ADAMS Accession No..................... ML24124A016. Amendment No........................... 204. Brief Description of Amendment......... The amendment revised the technical specifications in accordance with Technical Specifications Task Force (TSTF) Traveler TSTF-264, Revision 0, ``3.3.9 and 3.3.10--Delete Flux Monitors Specific Overlap Requirement SRs [Surveillance Requirements].'' Specifically, the proposed changes delete SRs 3.3.1.1.6 and 3.3.1.1.7 which verify the overlap between the source range monitor and the intermediate range monitor, and between the intermediate range monitor and the average power range monitor. Public Comments Received as to Proposed No. NSHC (Yes/No). ------------------------------------------------------------------------ Dated: June 26, 2024. For the Nuclear Regulatory Commission. Aida Rivera-Varona, Deputy Director, Division of Operating Reactor Licensing, Office of Nuclear Reactor Regulation. [FR Doc. 2024-14417 Filed 7-8-24; 8:45 am] BILLING CODE 7590-01-P

usgpo

2024-10-08T13:27:02.157254

FR

FR-2024-07-09/2024-15015

Federal Register Volume 89 Issue 131 (July 9, 2024)

United States National Archives and Records Administration Office of the Federal Register

[Federal Register Volume 89, Number 131 (Tuesday, July 9, 2024)] [Notices] [Pages 56445-56446] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 2024-15015] ----------------------------------------------------------------------- NUCLEAR REGULATORY COMMISSION [Docket No. 50-461; NRC-2024-0122] Constellation Energy Generation, LLC; Clinton Power Station, Unit 1; Partial Site Release AGENCY: Nuclear Regulatory Commission. ACTION: Public meeting; request for comment. ----------------------------------------------------------------------- SUMMARY: The U.S. Nuclear Regulatory Commission (NRC) is considering a request from Constellation Energy Generation, LLC (Constellation, the licensee) to approve the release of 172.7 acres of land to DeWitt County, Illinois, for the Clinton Lake Marina. Constellation had recently identified that a Quit Claim Deed was executed by AmerGen Energy Company, LLC, a previous licensee for Clinton Power Station, Unit 1, (CPS) on September 17, 2003, without obtaining approval in accordance with NRC regulations. Constellation states that this property has not been impacted by CPS operations. The NRC will review the request as directed by NRC regulations. The NRC is soliciting public comment on the requested action and invites stakeholders and interested persons to participate. DATES: The public meeting will be held on Wednesday, July 24, 2024, from 5:30 p.m. until 7 p.m. central time (CT), at [[Page 56446]] the Clinton City Hall, 118 W Washington St., Ste. 3, Clinton, IL 61727. See Section III ``Request for Comment and Public Meeting'' of this document for additional information. Submit comments by July 24, 2024. Comments received after this date will be considered if it is practical to do so, but the NRC is able to ensure consideration only for comments received on or before this date. ADDRESSES: You may submit comments by any of the following methods; however, the NRC encourages electronic comment submission through the Federal rulemaking website. Federal Rulemaking Website: Go to https://www.regulations.gov and search for Docket ID NRC-2024-0122. Address questions about Docket IDs in Regulations.gov to Stacy Schumann; telephone: 301-415-0624; email: [email protected]. For technical questions, contact the individual listed in the ``For Further Information Contact'' section of this document. Mail comments to: Office of Administration, Mail Stop: TWFN-7-A60M, U.S. Nuclear Regulatory Commission, Washington, DC 20555- 0001, ATTN: Program Management, Announcements and Editing Staff. For additional direction on obtaining information and submitting comments, see ``Obtaining Information and Submitting Comments'' in the SUPPLEMENTARY INFORMATION section of this document. FOR FURTHER INFORMATION CONTACT: Joel S. Wiebe, Office of Nuclear Reactor Regulation, U.S. Nuclear Regulatory Commission, Washington, DC 20555-0001, telephone: 301-415-6606; email: [email protected]. SUPPLEMENTARY INFORMATION: I. Obtaining Information and Submitting Comments A. Obtaining Information Please refer to Docket ID NRC-2024-0122 when contacting the NRC about the availability of information for this action. You may obtain publicly available information related to this action by any of the following methods: Federal Rulemaking Website: Go to https://www.regulations.gov and search for Docket ID NRC-2024-0122. NRC's Agencywide Documents Access and Management System (ADAMS): You may obtain publicly available documents online in the ADAMS Public Documents collection at https://www.nrc.gov/reading-rm/adams.html. To begin the search, select ``Begin Web-based ADAMS Search.'' For problems with ADAMS, please contact the NRC's Public Document Room (PDR) reference staff at 1-800-397-4209, at 301-415-4737, or by email to [email protected]. The ADAMS accession number for each document referenced (if it is available in ADAMS) is provided the first time that it is mentioned in this document. NRC's PDR: The PDR, where you may examine and order copies of publicly available documents, is open by appointment. To make an appointment to visit the PDR, please send an email to [email protected] or call 1-800-397-4209 or 301-415-4737, between 8 a.m. and 4 p.m. eastern time (ET), Monday through Friday, except Federal holidays. B. Submitting Comments The NRC encourages electronic comment submission through the Federal rulemaking website (https://www.regulations.gov). Please include Docket ID NRC-2024-0122 in your comment submission. The NRC cautions you not to include identifying or contact information that you do not want to be publicly disclosed in your comment submission. The NRC will post all comment submissions at https://www.regulations.gov as well as enter the comment submissions into ADAMS. The NRC does not routinely edit comment submissions to remove identifying or contact information. If you are requesting or aggregating comments from other persons for submission to the NRC, then you should inform those persons not to include identifying or contact information that they do not want to be publicly disclosed in their comment submission. Your request should state that the NRC does not routinely edit comment submissions to remove such information before making the comment submissions available to the public or entering the comment into ADAMS. II. Discussion Constellation Energy Generation LLC (Constellation, the licensee) is the holder of Facility Operating License No. NPF-62 for Clinton Power Station, Unit 1 (CPS). The license provides, among other things, that the CPS, Unit 1 is subject to all rules, regulations, and orders of the NRC now or hereafter in effect. The CPS license (NPF-62, Docket No. 50-461) is for a power reactor under part 50 of title 10 of the Code of Federal Regulations (10 CFR), ``Domestic Licensing of Production and Utilization Facilities.'' The NRC received a request for approval of a partial site release from Constellation, by letter dated June 7, 2023 (ADAMS Accession No. ML23158A262), as supplemented by letter dated February 8, 2024 (ADAMS Accession No. ML24039A182). Constellation requests NRC approval to remove and release from its 10 CFR part 50, license, 172.7 acres of land for the Clinton Lake Marina in accordance with 10 CFR 50.83(b). In its request, the licensee states that the property that is subject to this release request was not used for plant operations or storage of radioactive material. As described in 10 CFR 50.83(c), the NRC will determine whether the licensee has adequately evaluated the effect of releasing the properties per the requirements of 10 CFR 50.83(a)(1); determine whether the licensee's classification of any released areas as ``non-impacted'' is adequately justified; and if the NRC determines that the licensee's submittal is adequate, the NRC will inform the licensee in writing that the release is approved. III. Request for Comment and Public Meeting The NRC will conduct a public meeting to answer questions and gather comments regarding Constellation's request for approval of the partial site release. The meeting will be held on Wednesday, July 24, 2024, from 5:30 p.m. until 7 p.m., CT, at the Clinton City Hall, 118 W Washington St., Ste. 3, Clinton, IL 61727. Comments can be provided orally or in writing to the NRC staff present at the meeting. The NRC will consider and, if appropriate, respond to these written and verbal comments, but such comments will not otherwise constitute part of the decisional record. Please contact Joel S. Wiebe no later than July 17, 2024, by phone at 301-415-6606 or by email at [email protected], if accommodations or special equipment are needed for you to attend or to provide comments, so that the NRC staff can determine whether the request can be accommodated. For information regarding the meeting, monitor the NRC's Public Meeting Schedule website at https://www.nrc.gov/pmns/mtg for information about the public meeting. The agenda will be posted no later than 10 days prior to the meeting. Dated: July 3, 2024. For the Nuclear Regulatory Commission. Joel S. Wiebe, Senior Project Manager, Licensing Projects Branch III, Division of Operating Reactors, Office of Nuclear Reactor Regulation. [FR Doc. 2024-15015 Filed 7-8-24; 8:45 am] BILLING CODE 7590-01-P

usgpo

2024-10-08T13:27:02.193131

FR

FR-2024-07-09/2024-15037

Federal Register Volume 89 Issue 131 (July 9, 2024)

United States National Archives and Records Administration Office of the Federal Register

[Federal Register Volume 89, Number 131 (Tuesday, July 9, 2024)] [Notices] [Pages 56447-56449] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 2024-15037] [[Page 56447]] ======================================================================= ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-100460; File No. SR-NYSE-2024-35] Self-Regulatory Organizations; New York Stock Exchange LLC; Notice of Filing of Proposed Rule Change Amending Section 302.00 of the NYSE Listed Company Manual To Exempt Closed-End Funds Registered Under the Investment Company Act of 1940 From the Requirement To Hold Annual Shareholder Meetings July 3, 2024. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that on June 21, 2024, New York Stock Exchange LLC (``NYSE'' or the ``Exchange'') filed with the Securities and Exchange Commission (``Commission'') the proposed rule change as described in Items I, II, and III below, which Items have been prepared by the self-regulatory organization. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. --------------------------------------------------------------------------- \1\ 15 U.S.C. 78s(b)(1). \2\ 17 CFR 240.19b-4. --------------------------------------------------------------------------- I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend Section 302.00 of the NYSE Listed Company Manual (``Manual'') to exempt closed-end funds registered under the 1940 Act from the requirement to hold annual shareholder meetings. The proposed rule change is available on the Exchange's website at www.nyse.com, at the principal office of the Exchange, and at the Commission's Public Reference Room. II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the self-regulatory organization included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of those statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant parts of such statements. A. Self-Regulatory Organization's Statement of the Purpose of, and the Statutory Basis for, the Proposed Rule Change 1. Purpose Closed-end funds (``CEFs'') are a category of investment companies that are registered under the Investment Company Act of 1940 (``1940 Act'') \3\ and listed by the NYSE under Section 102.04A of the Manual. Section 302.00 of the Manual provides that companies listing common stock or voting preferred stock and their equivalents are required to hold an annual shareholders' meeting for the holders of such securities during each fiscal year.\4\ CEFs are presently required to comply with the annual shareholder meeting requirement. The Exchange now proposes to amend Section 302.00 of the Manual to include CEFs among the categories of issuers that are exempt from this requirement. --------------------------------------------------------------------------- \3\ 15 U.S.C. 80a-1 et seq. \4\ Section 302.00 of the Manual exempts from this requirement companies whose only securities listed on the Exchange are non- voting preferred and debt securities, passive business organizations (such as royalty trusts), or securities listed pursuant to Rule 5.2(j)(2) (Equity Linked Notes), Rule 5.2(j)(3) (Investment Company Units), Rule 5.2(j)(4) (Index-Linked Exchangeable Notes), Rule 5.2(j)(5) (Equity Gold Shares), Rule 5.2(j)(6) (Equity-Index Linked Securities, Commodity-Linked Securities, Currency-Linked Securities, Fixed Income Index-Linked Securities, Futures-Linked Securities and Multifactor Index-Linked Securities), Rule 5.2(j)(8) (Exchange- Traded Fund Shares), Rule 8.100 (Portfolio Depositary Receipts), Rule 8.200 (Trust Issued Receipts), Rule 8.201 (Commodity-Based Trust Shares), Rule 8.202 (Currency Trust Shares), Rule 8.203 (Commodity Index Trust Shares), Rule 8.204 (Commodity Futures Trust Shares), Rule 8.300 (Partnership Units), Rule 8.400 (Paired Trust Shares), Rule 8.600 (Managed Fund Shares), Rule 8.601 (Active Proxy Portfolio Shares), Rule 8.700 (Managed Trust Securities), and 8.900 (Managed Portfolio Shares). --------------------------------------------------------------------------- The Exchange notes that, in addition to the listing under Section 102.04A of the Manual of CEFs registered under the 1940 Act, the Exchange also lists under Section 102.04B of the Manual business development companies (``BDCs''). A BDC is a closed-end management investment company that is registered under the Exchange Act and that has filed an election to be treated as a business development company under the 1940 Act. The Exchange does not at this time propose to provide an exemption from the annual meeting requirement of Section 302.00 to BDCs. The Exchange notes that there are significant differences between CEFs and listed operating companies that justify exempting CEFs from the Exchange's annual meeting requirement. In particular, the Exchange notes that the 1940 Act includes specific requirements with respect to the election of directors by CEF shareholders, while there is no such requirement under federal law for listed operating companies. Specifically, Section 16(a) of the 1940 Act \5\ specifies the right of CEF shareholders to elect directors as follows: --------------------------------------------------------------------------- \5\ 15 U.S.C. 80a-16(a). --------------------------------------------------------------------------- No person shall serve as a director of a registered investment company unless elected to that office by the holders of the outstanding voting securities of such company, at an annual or a special meeting duly called for that purpose; except that vacancies occurring between such meetings may be filled in any otherwise legal manner if immediately after filling any such vacancy at least two-thirds of the directors then holding office shall have been elected to such office by the holders of the outstanding voting securities of the company at such an annual or special meeting. In the event that at any time less than a majority of the directors of such company holding office at that time were so elected by the holders of the outstanding voting securities, the board of directors or proper officer of such company shall forthwith cause to be held as promptly as possible and in any event within sixty days a meeting of such holders for the purpose of electing directors to fill any existing vacancies in the board of directors unless the Commission shall by order extend such period. The foregoing provisions of this subsection shall not apply to members of an advisory board. The Exchange also notes that the 1940 Act requires that directors who are not ``interested persons'' \6\ (``1940 Act Interested Persons'') must comprise at least 40% of an investment company's board.\7\ In the Exchange's experience, a large majority of listed CEFs exceed this requirement by having boards on which more than 50% of members are not 1940 Act Interested Persons. --------------------------------------------------------------------------- \6\ The term ``interested person'' is defined in Section 2(a)(19) of the 1940 Act. \7\ 15 U.S.C. 80a-2(a)(19). --------------------------------------------------------------------------- In addition to the director election provisions described above, the 1940 Act requires that a majority of directors who are not 1940 Act Interested Persons approve significant actions, such as approval of the investment advisory agreement between a CEF and its investment advisor.\8\ Specifically, the following types of actions require approval of a majority of a CEF's directors who are not 1940 Act Interested Persons: approval of advisory agreements; \9\ approval of underwriting [[Page 56448]] agreements; \10\ selection of independent public accountant; \11\ acquisition of securities by a CEF from an underwriting syndicate of which the CEF's advisor or certain other affiliates are members; \12\ the purchase or sale of securities between CEFs that have the same investment advisor; \13\ mergers or asset acquisitions involving CEFs that have the same investment advisor; \14\ use of an affiliate broker- dealer to effect portfolio transactions on a national securities exchange; \15\ and approval of the CEF's fidelity bond coverage.\16\ --------------------------------------------------------------------------- \8\ See Section 15 of the 1940 Act. 15 U.S.C. 80a-15. \9\ Ibid. \10\ Ibid. \11\ See Section 32 of the 1940 Act. 15 U.S.C. 80a-32. \12\ See 1940 Act Rule 10f-3(h). \13\ See 1940 Act Rule 17a-7(e). \14\ See 1940 Act Rule 17a-8(e). \15\ See 1940 Act Rule 17e-1(b). \16\ See 1940 Act Rule 17g-1(d). --------------------------------------------------------------------------- There are also a number of material matters with respect to which the 1940 Act requires registered investment companies, including CEFs, to obtain shareholder approval. These matters include: a new investment management agreement or a material amendment to an investment management agreement; \17\ a change from closed-end to open-end status or vice versa; \18\ a change from diversified company to non- diversified company; \19\ a change in a policy with respect to borrowing money, issuing senior securities; underwriting securities that other persons issue, purchasing or selling real estate or commodities or making loans to other persons, except in each case in accordance with the recitals of policy contained in its registration statement in respect thereto; \20\ a deviation from a policy in respect of concentration of investments in any particular industry or fundamental investment policy; \21\ and a change in the nature of the investment company's business so as to cease to be an investment company.\22\ --------------------------------------------------------------------------- \17\ See U.S.C. 80a-15. \18\ See U.S.C. 80a-13. \19\ Ibid. \20\ Ibid. \21\ Ibid. \22\ Ibid. --------------------------------------------------------------------------- In light of the above-described significant statutory protections under the 1940 Act provided to the shareholders of CEFs, for which there are no parallel legal protections for the shareholders of public operating companies, the Exchange believes that it is appropriate to exempt CEFs from the annual shareholder meeting requirements of Section 302.00 of the Manual. The Exchange notes that all of the categories of investment companies for which the Exchange has listing standards other than CEFs are already explicitly exempt from the annual shareholder meeting requirement of Section 302.00 of the Manual. 2. Statutory Basis The Exchange believes that the proposed rule change is consistent with Section 6(b) of the Act,\23\ in general, and furthers the objectives of Section 6(b)(5) of the Act,\24\ in particular, because it is designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in regulating, clearing, settling, processing information with respect to, and facilitating transactions in securities, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, to protect investors and the public interest and because it is not designed to permit unfair discrimination between customers, issuers, brokers, or dealers. --------------------------------------------------------------------------- \23\ 15 U.S.C. 78f(b). \24\ 15 U.S.C. 78f(b)(5). --------------------------------------------------------------------------- The Exchange believes that the proposed exemption of CEFs from the annual shareholder meeting requirement of Section 302.00 of the Manual is consistent with the protection of investors and the public interest because of the provisions in the 1940 Act providing significant protection of CEF shareholders, including by requiring: (i) the election of directors by the CEF's shareholders when the number of 1940 Act Interested Persons on the board exceed specified levels; (ii) the approval of certain specified material matters by a majority of the directors who are not 1940 Act Interested Persons ; and (ii) the approval of certain specified material matters by the shareholders. B. Self-Regulatory Organization's Statement on Burden on Competition The Exchange believes that the proposal will not impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. The Exchange believes that the proposal will not impose a burden on either intramarket or intermarket competition that is not necessary or appropriate in furtherance of the purposes of the Act. The proposed rule change is designed to permit CEFs to rely on the shareholder voting requirements under the 1940 Act rather than complying with the annual meeting requirement of Section 302.00 of the Manual. As all CEFs listed on the NYSE would be treated the same under the proposed amended rule, the Exchange does not believe that the proposal would impose any burden on intramarket competition. Any other market that lists CEFs could seek to amend its own annual meeting requirements applicable to CEFs and, as such, the Exchange does not believe that the proposal places any undue burden on intermarket competition. C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others No written comments were solicited or received with respect to the proposed rule change. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Within 45 days of the date of publication of this notice in the Federal Register or within such longer period up to 90 days (i) as the Commission may designate if it finds such longer period to be appropriate and publishes its reasons for so finding or (ii) as to which the self-regulatory organization consents, the Commission will: (A) by order approve or disapprove the proposed rule change, or (B) institute proceedings to determine whether the proposed rule change should be disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or Send an email to [email protected]. Please include file number SR-NYSE-2024-35 on the subject line. Paper Comments Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090. All submissions should refer to file number SR-NYSE-2024-35. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's internet website (https://www.sec.gov/rules/sro.shtml). Copies of the [[Page 56449]] submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for website viewing and printing in the Commission's Public Reference Room, 100 F Street NE, Washington, DC 20549, on official business days between the hours of 10 a.m. and 3 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. Do not include personal identifiable information in submissions; you should submit only information that you wish to make available publicly. We may redact in part or withhold entirely from publication submitted material that is obscene or subject to copyright protection. All submissions should refer to file number SR-NYSE-2024-35 and should be submitted on or before July 30, 2024. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\25\ --------------------------------------------------------------------------- \25\ 17 CFR 200.30-3(a)(12). --------------------------------------------------------------------------- Sherry R. Haywood, Assistant Secretary. [FR Doc. 2024-15037 Filed 7-8-24; 8:45 am] BILLING CODE 8011-01-P

usgpo

2024-10-08T13:27:02.254963

FR

FR-2024-07-09/2024-14972

Federal Register Volume 89 Issue 131 (July 9, 2024)

United States National Archives and Records Administration Office of the Federal Register

[Federal Register Volume 89, Number 131 (Tuesday, July 9, 2024)] [Notices] [Pages 56449-56452] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 2024-14972] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-100456; File No. SR-NYSEARCA-2024-57] Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the NYSE Arca Options Fee Schedule July 2, 2024. Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given that, on June 17, 2024, NYSE Arca, Inc. (``NYSE Arca'' or the ``Exchange'') filed with the Securities and Exchange Commission (the ``Commission'') the proposed rule change as described in Items I and II below, which Items have been prepared by the self-regulatory organization. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. --------------------------------------------------------------------------- \1\ 15 U.S.C. 78s(b)(1). \2\ 15 U.S.C. 78a. \3\ 17 CFR 240.19b-4. --------------------------------------------------------------------------- I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend the NYSE Arca Options Fee Schedule (``Fee Schedule'') to modify the Customer Take Fee Discount Tiers. The Exchange proposes to implement the fee change effective June 17, 2024.\4\ The proposed rule change is available on the Exchange's website at www.nyse.com, at the principal office of the Exchange, and at the Commission's Public Reference Room. --------------------------------------------------------------------------- \4\ On June 3, 2024, the Exchange originally filed to amend the Fee Schedule (NYSEARCA-2024-51) and, on June 14, 2024, the Exchange withdrew that filing and submitted NYSEARCA-2024-56. On June 17, 2024, the Exchange withdrew NYSEARCA-2024-56. --------------------------------------------------------------------------- II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the self-regulatory organization included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of those statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant parts of such statements. A. Self-Regulatory Organization's Statement of the Purpose of, and the Statutory Basis for, the Proposed Rule Change 1. Purpose The purpose of this filing is to amend the Fee Schedule to modify the Customer Take Fee Discount Tiers. The Exchange proposes to implement the rule change on June 17, 2024. Background The Exchange first notes that it operates in a highly competitive market in which market participants can readily direct order flow to competing venues if they deem fee levels at a particular venue to be excessive or incentives to be insufficient. The Commission has repeatedly expressed its preference for competition over regulatory intervention in determining prices, products, and services in the securities markets. In Regulation NMS, the Commission highlighted the importance of market forces in determining prices and SRO revenues and, also, recognized that current regulation of the market system ``has been remarkably successful in promoting market competition in its broader forms that are most important to investors and listed companies.'' \5\ --------------------------------------------------------------------------- \5\ See Securities Exchange Act Release No. 51808 (June 9, 2005), 70 FR 37496, 37499 (June 29, 2005) (S7-10-04) (``Reg NMS Adopting Release''). --------------------------------------------------------------------------- There are currently 17 registered options exchanges competing for order flow. Based on publicly-available information, and excluding index-based options, no single exchange has more than 16% of the market share of executed volume of multiply-listed equity and ETF options trades.\6\ Therefore, currently no exchange possesses significant pricing power in the execution of multiply-listed equity & ETF options order flow. More specifically, in April of 2024, the Exchange had 13.71% market share of executed volume of multiply-listed equity & ETF options trades.\7\ Thus, in such a low-concentrated and highly competitive market, no single options exchange possesses significant pricing power in the execution of option order flow. --------------------------------------------------------------------------- \6\ The OCC publishes options and futures volume in a variety of formats, including daily and monthly volume by exchange, available here: https://www.theocc.com/Market-Data/Market-Data-Reports/Volume-and-Open-Interest/Monthly-Weekly-Volume-Statistics. \7\ Based on a compilation of OCC data for monthly volume of equity-based options and monthly volume of equity-based ETF options, see id., the Exchanges market share in equity-based options increased from 12.54% for the month of April 2023 to 13.71% for the month of April 2024. --------------------------------------------------------------------------- The Exchange believes that the ever-shifting market share among the exchanges from month to month demonstrates that market participants can shift order flow, or discontinue use of certain categories of products, in response to fee changes. Accordingly, competitive forces constrain the Exchange's transaction fees (and credits), and market participants can readily trade on competing venues if they deem pricing levels at those other venues to be more favorable. In response to the competitive environment, the Exchange offers specific rates and credits in its Fees Schedule, as do other competing options exchanges, which the Exchange believes provide incentive to OTP Holder and OTP Firms (collectively, ``OTP Holders'') to increase order flow of certain qualifying orders. Proposal In response to these competitive forces, the Exchange has established various pricing incentives designed to encourage increased volume executed on the Exchange, including volume that [[Page 56450]] removes or ``takes'' liquidity on the Exchange (also known as ``liquidity taking'' or ``liquidity removing'' volume). Currently, if an OTP Holder executes a ``liquidity taking'' transaction, the OTP Holder is charged a ``Take Liquidity'' fee (referred to herein as a ``Take Fee'', or collectively, as ``Take Fees'').'' \8\ Currently, Customer executions in Penny and non-Penny issues are subject to Take Fees of $0.49 and $0.85, respectively.\9\ To offset such Take Fees and encourage market participants to direct order flow to the Exchange, the Exchange offers Take Fee discounts to some market participants for executions in Penny and non-Penny issues.\10\ Last year, in September 2023, the Exchange introduced the Customer Take Fee Discount Tiers (the ``Take Fee Discount(s)''), which provides tiered per contract discounts on Customer Take Fees (in both Penny and non-Penny issues) based on an OTP Holder's achievement of certain volume qualifications in average electronic executions per day.\11\ Now that the Take Fee Discounts have been in place for approximately nine months, the Exchange is proposing certain modifications. --------------------------------------------------------------------------- \8\ See Fee Schedule, NYSE Arca OPTIONS: TRADE-RELATED CHARGES FOR STANDARD OPTIONS, TRANSACTION FEE FOR ELECTRONIC EXECUTIONS--PER CONTRACT. \9\ See id. \10\ See, e.g., Fee Schedule, DISCOUNT IN TAKE LIQUIDITY FEES FOR PROFESSIONAL CUSTOMER AND NON-CUSTOMER LIQUIDITY REMOVING INTEREST. \11\ See Securities Exchange Act Release No. 98422 (September 18, 2023), 88 FR 65415 (September 22, 2023) (immediately effective fee filing to adopt the Customer Take Fee Discount Tiers) (SR-SR- NYSEARCA-2023-62). --------------------------------------------------------------------------- Specifically, the Exchange proposes to modify the volume qualifications for Tiers 1 and 2 of the Take Fee Discounts (without changing the per contract discount) and to delete entirely the Tier 3 Take Fee Discount of the Program. The proposed changes to the Take Fee Discounts are as follows (with new text shown in italics and to be deleted text shown in brackets): ---------------------------------------------------------------------------------------------------------------- Take fee discount qualification for Penny and Non-Penny Discount Tier Issues amount ---------------------------------------------------------------------------------------------------------------- Tier 1.............................. At least [0.20%]0.40% of TCADV from Customer liquidity $0.01 removing interest in all issues. Tier 2.............................. At least [0.40%]0.60% of TCADV from Customer liquidity 0.02 removing interest in all issues, and 1% of TCADV from Customer posted interest in all issues. [Tier 3]............................ [At least 0.60% of TCADV from Customer liquidity removing [0.03] interest in all issues, and 1.50% of TCADV from Customer posted interest in all issues]. ---------------------------------------------------------------------------------------------------------------- Professional Customer orders are not included in the above qualifications or in discount-eligible volume. OTP Holders and OTP Firms may earn only the highest discount for which they qualify. ---------------------------------------------------------------------------------------------------------------- As proposed, Tier 1 would continue to offer a $0.01 discount on Customer Take Fees if an OTP Holder achieves at least 0.40% of TCADV (up from 0.20%) in Customer liquidity removing interest in all issues and Tier 2 would continue to offer a $0.02 discount on Customer Take Fees if an OTP Holder achieves at least 0.60% of TCADV (up from 0.40%) in Customer liquidity removing interest in all issues and 1% of TCADV from Customer posting in all issues, which 1% threshold is not being modified. Further, the Exchange is proposing to remove entirely Tier 3, which currently offers a $0.03 discount on Customer Take Fees when an OTP Holder achieves at least 0.60% of TCADV from Customer liquidity removing interest in all issues and 1.50% of TCADV from Customer posting in all issues. The Exchange therefore believes that the proposed modifications to Tiers 1 and 2, coupled with the removal of Tier 3, would strike the right balance between setting the thresholds for the Take Fee Discounts at levels that are achievable, while ensuring that the overall Take Fee rates remain competitive with other options exchanges.\12\ --------------------------------------------------------------------------- \12\ See notes 16-17, infra. --------------------------------------------------------------------------- As is the case today, the Take Fee Discounts only apply to Customer orders, and the qualifications for the discounts are based only on activity in the Customer range; activity in the Professional Customer range is not included in the qualifications and is not eligible to receive any of the proposed discounts, as Professional Customer orders are already eligible for other discounts on Take Fees.\13\ Further, as is the case today, OTP Holders may earn only the highest discount for which they qualify. --------------------------------------------------------------------------- \13\ See note 10, supra. --------------------------------------------------------------------------- Although the Exchange cannot predict with certainty whether any OTP Holders would seek to qualify for the Take Fee Discounts, the Exchange believes that the proposed change would continue to encourage OTP Holders to direct interest--particularly Customer liquidity removing interest--to the Exchange to earn the proposed discounts on Take Fees. To the extent that the proposed Program, as modified, continues to attract Customer order flow, including liquidity taking volume, the Exchange believes all market participants stand to benefit from increased order flow, which promotes market depth, facilitates tighter spreads and enhances price discovery. Such increased liquidity would result in enhanced market quality for all participants. 2. Statutory Basis The Exchange believes that the proposed rule change is consistent with Section 6(b) of the Act,\14\ in general, and furthers the objectives of Sections 6(b)(4) and (5) of the Act,\15\ in particular, because it provides for the equitable allocation of reasonable dues, fees, and other charges among its members, issuers and other persons using its facilities and does not unfairly discriminate between customers, issuers, brokers or dealers. --------------------------------------------------------------------------- \14\ 15 U.S.C. 78f(b). \15\ 15 U.S.C. 78f(b)(4) and (5). --------------------------------------------------------------------------- The Exchange believes that the proposed change to the Take Fee Discounts is reasonable, equitable, and not unfairly discriminatory. As noted above, the Exchange operates in highly competitive market. The Exchange is only one of several options venues to which market participants may direct their order flow, and it represents a small percentage of the overall market. As such, market participants can readily direct order flow to competing venues if they deem fee levels at a particular venue to be excessive or incentives to be insufficient. The Exchange believes that the proposed fee change is reasonable, equitable, and not unfairly discriminatory in that the Exchange and competing options exchanges currently offer similar discounts. The Exchange believes that the proposed Take Fee Discounts would continue to incent OTP Holders to increase the amount of Customer interest sent to the Exchange, especially liquidity removing interest, which [[Page 56451]] benefits all market participants by providing more trading opportunities, thereby making the Exchange a more attractive execution venue. The Exchange further believes that the proposed qualifications for the Take Fee Discounts are attainable for OTP Holders based on recent volumes and that the proposed amounts of the discounts are reasonable, as the Exchange's rates for Customer liquidity removing interest would remain in range of and competitive with the rates assessed by other options exchanges.\16\ In particular, the Exchange believes that the proposed modifications to Tiers 1 and 2, coupled with the removal of Tier 3, would strike the right balance between setting the thresholds for the Take Fee Discounts at levels that are achievable, while ensuring that the overall Take Fee rates remain competitive. --------------------------------------------------------------------------- \16\ See, e.g., Nasdaq Stock Market, Options 7, Pricing Schedule, available at: https://listingcenter.nasdaq.com/rulebook/nasdaq/rules/nasdaq-options-7 (providing for rates of $0.49 for Customer liquidity removing interest in Penny issues and rate of $0.85 for Customer liquidity removing interest in non-Penny issues); MEMX Options Fee Schedule, Transaction Fees, available here: https://info.memxtrading.com/us-options-trading-resources/us-options-fee-schedule/ (providing for rates of $0.46 for Customer liquidity removing interest in Penny issues and rate of $0.85 for Customer liquidity removing interest in non-Penny issues); and Cboe BZX Options, Fee Schedule, Standard Rates, available at: https://www.cboe.com/us/options/membership/fee_schedule/bzx/ (providing for rates of $0.45 for Customer liquidity removing interest in Penny issues and rate of $0.85 for Customer liquidity removing interest in non-Penny issues). Currently, Customer executions in Penny and non- Penny issues are subject to per contract Take Fees of $0.49 and $0.85, respectively. As proposed, an OTP Holder that achieves Tier 1 or Tier 2 would pay $0.48 or $0.47, respectively, for Penny issues and $0.84 or $0.83, respectively, for non-Penny issues, which is comparable to rates available on other options exchanges. --------------------------------------------------------------------------- To the extent the proposed rule change attracts greater volume and liquidity by encouraging OTP Holders to increase their options volume on the Exchange, the Exchange believes the proposed change would improve the Exchange's overall competitiveness and strengthen its market quality for all market participants. In the backdrop of the competitive environment in which the Exchange operates, the proposed rule change is a reasonable attempt by the Exchange to increase the depth of its market and improve its market share relative to its competitors.\17\ --------------------------------------------------------------------------- \17\ See id. --------------------------------------------------------------------------- The Proposed Rule Change is an Equitable Allocation of Credits and Fees The Exchange believes the proposed rule change is an equitable allocation of its fees and credits. The proposal is based on the amount and type of business transacted on the Exchange, and OTP Holders can attempt to qualify for the discounts or not. Moreover, the proposal is designed to incent OTP Holders to continue to direct Customer liquidity removing interest to the Exchange and to aggregate all liquidity removing interest at the Exchange as a primary execution venue. To the extent that the proposed change attracts more opportunities for execution of Customer interest on the Exchange, this increased order flow would continue to make the Exchange a more competitive venue for order execution. Thus, the Exchange believes the proposed rule change would improve market quality for all market participants on the Exchange and, as a consequence, attract more order flow to the Exchange thereby improving market-wide quality and price discovery. The Exchange also believes the proposed Take Fee Discounts are not unfairly discriminatory because they would be available to all similarly-situated market participants on an equal and non- discriminatory basis. The Exchange also believes that the proposed change is not unfairly discriminatory to Professional Customers and non-Customers, as those market participants are already afforded discounts on Take Fees under the current Fee Schedule.\18\ --------------------------------------------------------------------------- \18\ See note 10, supra. --------------------------------------------------------------------------- The proposal is based on the amount and type of business transacted on the Exchange, and OTP Holders are not obligated to try to achieve the proposed qualifications to earn the Take Fee Discounts, nor are they obligated to direct liquidity removing interest or posted interest to the Exchange. To the extent that the proposed change attracts more interest, including liquidity removing interest, to the Exchange, this increased order flow would continue to make the Exchange a more competitive venue for order execution. Thus, the Exchange believes the proposed rule change would improve market quality for all market participants on the Exchange and, in turn, attract more order flow to the Exchange thereby improving market-wide quality and price discovery. The resulting increased volume and liquidity would provide more trading opportunities and tighter spreads to all market participants and thus would promote just and equitable principles of trade, remove impediments to and perfect the mechanism of a free and open market and a national market system and, in general, to protect investors and the public interest. Finally, the Exchange believes that it is subject to significant competitive forces, as described below in the Exchange's statement regarding the burden on competition. B. Self-Regulatory Organization's Statement on Burden on Competition In accordance with Section 6(b)(8) of the Act, the Exchange does not believe that the proposed rule change would impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. Instead, as discussed above, the Exchange believes that the proposed change would encourage the submission of additional liquidity to a public exchange, thereby promoting market depth, price discovery and transparency and enhancing order execution opportunities for all market participants. As a result, the Exchange believes that the proposed change furthers the Commission's goal in adopting Regulation NMS of fostering integrated competition among orders, which promotes ``more efficient pricing of individual stocks for all types of orders, large and small.'' \19\ --------------------------------------------------------------------------- \19\ See Reg NMS Adopting Release, supra note 5, at 37499. --------------------------------------------------------------------------- Intramarket Competition. The proposed change is designed to attract additional order flow to the Exchange, including both liquidity removing interest and posting interest. The Exchange believes that the proposed change would incent OTP Holders to continue to direct their liquidity removing order flow to the Exchange. Greater liquidity benefits all market participants on the Exchange and increased liquidity removing order flow would increase opportunities for execution of other trading interest. The proposed modifications would be available to all similarly-situated market participants and, as such, the proposed change would not impose a disparate burden on competition among market participants on the Exchange. Intermarket Competition. The Exchange operates in a highly competitive market in which market participants can readily favor one of the 16 competing option exchanges if they deem fee levels at a particular venue to be excessive. In such an environment, the Exchange must continually adjust its fees to remain competitive with other exchanges and to attract order flow to the Exchange. Based on publicly- available information, and excluding index-based options, no single exchange has more than 16% of the market share of executed volume of multiply-listed [[Page 56452]] equity and ETF options trades.\20\ Therefore, currently no exchange possesses significant pricing power in the execution of multiply-listed equity and ETF options order flow. More specifically, in April 2024, the Exchange had 13.71% market share of executed volume of multiply- listed equity and ETF options trades.\21\ --------------------------------------------------------------------------- \20\ The OCC publishes options and futures volume in a variety of formats, including daily and monthly volume by exchange, available here: https://www.theocc.com/Market-Data/Market-Data-Reports/Volume-and-Open-Interest/Monthly-Weekly-Volume-Statistics. \21\ Based on a compilation of OCC data for monthly volume of equity-based options and monthly volume of equity-based ETF options, see id., the Exchanges market share in equity-based options increased from 12.54% for the month of April 2023 to 13.71% for the month of April 2024. --------------------------------------------------------------------------- The Exchange believes that the proposed rule change reflects this competitive environment because it modifies the Exchange's fees in a manner designed to incent OTP Holders to direct trading to the Exchange, to provide liquidity and to attract order flow. To the extent that this purpose is achieved, all the Exchange's market participants should benefit from the improved market quality and increased opportunities for price improvement. The Exchange believes that the proposed change could promote competition between the Exchange and other execution venues, including options exchanges that offer comparable rates for Customer liquidity removing interest,\22\ by encouraging additional orders to be sent to the Exchange for execution. --------------------------------------------------------------------------- \22\ See notes 16-17, supra. --------------------------------------------------------------------------- C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others No written comments were solicited or received with respect to the proposed rule change. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action The foregoing rule change is effective upon filing pursuant to Section 19(b)(3)(A) \23\ of the Act and subparagraph (f)(2) of Rule 19b-4 \24\ thereunder, because it establishes a due, fee, or other charge imposed by the Exchange. --------------------------------------------------------------------------- \23\ 15 U.S.C. 78s(b)(3)(A). \24\ 17 CFR 240.19b-4(f)(2). --------------------------------------------------------------------------- At any time within 60 days of the filing of such proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings under Section 19(b)(2)(B) \25\ of the Act to determine whether the proposed rule change should be approved or disapproved. --------------------------------------------------------------------------- \25\ 15 U.S.C. 78s(b)(2)(B). --------------------------------------------------------------------------- IV. Solicitation of Comments Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or Send an email to [email protected]. Please include file number SR-NYSEARCA-2024-57 on the subject line. Paper Comments Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090. All submissions should refer to file number SR-NYSEARCA-2024-57. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's internet website (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for website viewing and printing in the Commission's Public Reference Room, 100 F Street NE, Washington, DC 20549, on official business days between the hours of 10 a.m. and 3 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. Do not include personal identifiable information in submissions; you should submit only information that you wish to make available publicly. We may redact in part or withhold entirely from publication submitted material that is obscene or subject to copyright protection. All submissions should refer to file number SR-NYSEARCA-2024-57 and should be submitted on or before July 30, 2024. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\26\ --------------------------------------------------------------------------- \26\ 17 CFR 200.30-3(a)(12). --------------------------------------------------------------------------- Sherry R. Haywood, Assistant Secretary. [FR Doc. 2024-14972 Filed 7-8-24; 8:45 am] BILLING CODE 8011-01-P

usgpo

2024-10-08T13:27:02.274174

FR

FR-2024-07-09/2024-14971

Federal Register Volume 89 Issue 131 (July 9, 2024)

United States National Archives and Records Administration Office of the Federal Register

[Federal Register Volume 89, Number 131 (Tuesday, July 9, 2024)] [Notices] [Pages 56452-56456] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 2024-14971] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-100455; File No. SR-OCC-2024-006] Self-Regulatory Organizations; The Options Clearing Corporation; Order Approving Proposed Rule Change by The Options Clearing Corporation Concerning Amendments to Its Rules and Comprehensive Stress Testing & Clearing Fund Methodology, and Liquidity Risk Management Description July 2, 2024. I. Introduction On May 2, 2024, The Options Clearing Corporation (``OCC'') filed with the Securities and Exchange Commission (``Commission''), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4 thereunder,\2\ a proposed rule change (the ``Proposed Rule Change'') to amend its Comprehensive Stress Testing & Clearing Fund Methodology, and Liquidity Risk Management Description (``Methodology Description'') to incorporate additional stress scenarios into OCC's financial resource sufficiency monitoring and its Rules to clarify OCC's practice of collecting additional collateral from its members based on such monitoring. The Proposed Rule Change was published for comment in the Federal Register on May 21, 2024.\3\ The Commission has not received any comments on the Proposed Rule Change. For the reasons discussed below, the Commission is approving the Proposed Rule Change. --------------------------------------------------------------------------- \1\ 15 U.S.C. 78s(b)(1). \2\ 17 CFR 240.19b-4. \3\ Securities Exchange Act Release No. 100147 (May 15, 2024), 89 FR 44752 (May 21, 2024) (File No. SR-OCC-2024-006) (``Notice''). --------------------------------------------------------------------------- II. Description of the Proposed Rule Change As a clearing agency, OCC faces a number of risks including credit and [[Page 56453]] liquidity risk.\4\ OCC manages its credit and liquidity risk, in part, by performing daily stress testing \5\ that covers a wide range of scenarios.\6\ --------------------------------------------------------------------------- \4\ Credit Risk is the risk that a counterparty will be unable to meet fully its financial obligations when due, or at any time in the future. Liquidity Risk is the risk that a counterparty will have insufficient funds to meet its financial obligations as and when expected, although it may be able to do so in the future. Bank for International Settlements & International Organization of Securities Commissions, Principles for Financial Market Infrastructures, https://www.bis.org/cpmi/publ/d101a.pdf. \5\ Stress testing is the estimation of credit or liquidity exposures that would result from the realization of potential stress scenarios, such as extreme price changes, multiple defaults, or changes in other valuation inputs and assumptions. 17 CFR 240.17Ad- 22(a). \6\ Notice, 89 FR at 44753; see OCC Rule 609, OCC Rule 1001. --------------------------------------------------------------------------- OCC groups its stress testing scenarios into different categories, including Sufficiency Scenarios and Informational Scenarios.\7\ Sufficiency Scenarios are designed to measure the potential exposures that a Clearing Member Group's portfolios present relative to OCC's credit and liquidity resources so that OCC can determine the potential need to call for additional collateral, either as margin or as Clearing Fund collateral, or adjust the forms of collateral on deposit.\8\ Specifically, depending on Sufficiency Scenario results, OCC Rules 609 or 1001 may allow or require OCC to call for additional margin or Clearing Fund resources from a Clearing Member.\9\ Moreover, under OCC Rules 601 and 609, OCC could require that a Clearing Member provide additional resources in the form of cash.\10\ In contrast, OCC uses Informational Scenarios to monitor and assess the size of OCC's prefunded financial resources against a wide range of stress scenarios for informational and risk monitoring purposes.\11\ These scenarios are not used to determine the size of OCC's financial resources; however, OCC's Risk Committee may approve adjustments with respect to how OCC categorizes these scenarios.\12\ For example, OCC's Risk Committee could approve the recategorization of an Informational Scenario as a Sufficiency Scenario.\13\ --------------------------------------------------------------------------- \7\ Capitalized terms used but not defined herein have the meanings specified in OCC's Rules and By-Laws, available at https://www.theocc.com/about/publications/bylaws.jsp. \8\ Notice, 89 FR at 44753. \9\ Id. \10\ Id. at 44754 n.20. \11\ Id. at 44753. \12\ Id. \13\ Id. --------------------------------------------------------------------------- The Proposed Rule Change would make three groups of changes related to OCC's Sufficiency Scenarios. First, it would recategorize two Informational Scenarios as Sufficiency Scenarios by making changes to the Methodology Description.\14\ As a result, the two recategorized scenarios would be used to determine potential calls for additional collateral. Second, the Proposed Rule Change would add detail to OCC's Rules outlining circumstances under which OCC could require Clearing Members to contribute additional collateral due to the results of Sufficiency Scenarios. Third, the Proposed Rule Change would make minor formatting and grammatical changes to the Methodology Description and the Rules. --------------------------------------------------------------------------- \14\ The Methodology Description describes the Comprehensive Stress Testing and Clearing Fund Methodology, and Liquidity Risk Management Description that OCC uses to analyze the adequacy of its financial resources and to challenge its risk management framework. Id. at 44573 n.5. --------------------------------------------------------------------------- A. Recategorization of Scenarios OCC's Methodology Description lists a subset of the Sufficiency Scenarios that have been implemented in OCC's stress testing system. The Sufficiency Scenarios on this list are historical scenarios that replicate historical events under current market conditions. For example, among the listed Sufficiency Scenarios are scenarios that replicate the largest rally/decline in 2008. To replicate historical events in its current Sufficiency Scenarios, OCC applies one of three price shocks to risk factors in a predetermined order, also referred to as a waterfall.\15\ As its first choice for a price shock, OCC uses the returns of the risk factor observed during the historical event. If such returns do not exist, or are otherwise unavailable, OCC uses the market return from the risk factor's corresponding sector as the price shock. If neither the risk factor return nor the market sector return is available, OCC uses a beta approach to set the price shock.\16\ Currently, OCC applies this waterfall to determine price shocks for the 2008 largest rally/decline Sufficiency Scenarios. --------------------------------------------------------------------------- \15\ Risk factors are products or attributes whose historical data are used to estimate and simulate the risk for an associated product. Id. at 44574 n.12. \16\ Beta is the sensitivity of a security with respect to its corresponding risk driver. Id. at 44754 n.14. Examples of risk drivers include price and volatility with respect to equity securities. Different categories of products--for example, collateral positions in U.S. Government Securities versus Canadian Government Securities--have different risk drivers. Id. at 44754 n.15. The risk driver shock is the return of a risk driver from a historical event. Id. at 44754. The beta approach is the application of the shock of a risk driver to the beta of the related risk factor, which generates a ``risk driver beta derived price shock.'' --------------------------------------------------------------------------- Some of OCC's Informational Scenarios use a different approach to determine the price shock applied to risk factors than the existing Sufficiency Scenarios use, which yields different outcomes. For example, some existing Informational Scenarios are variations of the 2008 largest rally/decline Sufficiency Scenarios that directly apply the risk driver beta-derived price shock as the price shock instead of using the waterfall approach. As part of the regular review of the output of its stress scenarios, OCC found that the variations of the 2008 largest rally/decline Informational Scenarios described above yielded exposures that were consistently higher than those generated by the corresponding Sufficiency Scenarios.\17\ To enhance its ability to manage risks, OCC proposes recategorizing such variations of the 2008 largest rally/decline scenarios from Informational Scenarios to Sufficiency Scenarios by adding them to the Sufficiency Scenarios listed in OCC's Methodology Description.\18\ This would allow the newly-recategorized Sufficiency Scenarios to be used to drive the size of the Clearing Fund and calls for additional margin, which is not the case while they remain categorized as Informational Scenarios.\19\ --------------------------------------------------------------------------- \17\ Id. at 44753. \18\ Id. \19\ Id. --------------------------------------------------------------------------- B. Changes to the Rules Related to Intra-Day Margin and the Clearing Fund OCC also proposes changes to its Rules to clarify OCC's practice of collecting additional collateral from its members based on stress scenario monitoring. Specifically, OCC proposes changes to Rule 609, which governs intra-day margin, and Rule 1001(c), which governs intra- month clearing fund sizing adjustments. OCC proposes these changes to align the Rules with OCC's current practices and procedures.\20\ --------------------------------------------------------------------------- \20\ Id. at 44754-55. --------------------------------------------------------------------------- Some of the proposed changes to Rule 609 clarify OCC's approach to situations where a Clearing Member Group is subject to an intra-day margin call under more than one Sufficiency Stress Test. Rule 609(a)(5) currently provides that OCC may require the Clearing Member Group responsible for a stress test exposure to deposit intra-day margin if a Sufficiency Stress Test identifies an exposure that exceeds 75% of the current Clearing Fund requirement less deficits.\21\ In the event of such a margin call, OCC's current practice is to compare the margin call amount to existing intra-day margin call amounts for the monthly period under OCC Rule [[Page 56454]] 609(a)(5). A new margin call is issued when the margin call amount is greater than existing intra-day margin call amounts under Rule 609(a)(5). The updated margin call amount would remain in effect until either the next monthly resizing of the Clearing Fund, or the amount is superseded by a larger margin call amount.\22\ To reflect this current practice,\23\ and consistent with the Clearing Fund Methodology Policy,\24\ OCC proposes adding language to Rule 609(a)(5) noting that if a Clearing Member Group is subject to intra-day margin calls under more than one Sufficiency Stress Test, the largest call will be applied and remain in effect until the next monthly resizing.\25\ --------------------------------------------------------------------------- \21\ Id. at 44754; OCC Rule 609(a)(5). \22\ Notice, 89 FR at 44754. \23\ Id. \24\ Securities Exchange Act Release No. 83406 (June 11, 2018), 83 FR 28018, 28025 (June 15, 2018) (File No. SR-OCC-2018-008). \25\ While a margin call imposed as the result of a Sufficiency Stress Test will remain in effect until the next monthly Clearing Fund resizing, the imposition of such a margin call would not preclude OCC from making additional margin calls driven by subsequent Sufficiency Stress Tests prior to the monthly resizing. --------------------------------------------------------------------------- Separately, OCC proposes to conform Rule 609(a)(5) to OCC's existing policies.\26\ As noted above, current Rule 609(a)(5) requires the Clearing Member Group responsible for a stress test exposure to deposit margin intra-day if a Sufficiency Stress Test identifies an exposure that exceeds 75% of the current Clearing Fund requirement less deficits. OCC's Clearing Fund Methodology Policy contains similar language with a notable difference. Specifically, the Clearing Fund Methodology Policy does not include the ``less deficits'' language, while such language is in OCC Rule 609(a)(5).\27\ This language was removed from the Clearing Fund Methodology Policy in an effort to conform the Clearing Fund Methodology Policy to changes to OCC's Rules, shortening the number of days a Clearing Member has to meet funding obligations related to the Clearing Fund.\28\ Given the previous change to its rules, OCC considers the ``less deficits'' language in each document unnecessary.\29\ As such, OCC proposes removing the ``less deficits'' language from Rule 609(a)(5) to promote consistency within its rules.\30\ --------------------------------------------------------------------------- \26\ Notice, 89 FR at 44755. \27\ Id. \28\ Securities Exchange Act Release No. 94950 (May 19, 2022), 87 FR 31916, 31918 (May 25, 2022) (File No. SR-OCC-2022-004). Prior to approval of SR-OCC-2022-004, Clearing Members had two days to deposit additional required Clearing Fund assets. In SR-OCC-2022- 004, OCC proposed to shorten this period. Id.; Notice, 89 FR at 44755. \29\ Notice, 89 FR at 44755. \30\ Id. --------------------------------------------------------------------------- OCC also proposes changes to Rule 1001(c) to reflect its current practices.\31\ Rule 1001(c) currently indicates that, if at any time between regular monthly calculations of the size of the Clearing Fund a Sufficiency Stress Test identifies a breach that exceeds 90% of the size of the Clearing Fund requirement (less any margin collected as a result of a Sufficiency Stress Test breach pursuant to Rule 609), the calculated size of the Clearing Fund shall be increased. As is reflected in OCC's Clearing Fund Methodology Policy, OCC's current practice is to include margin called, rather than only margin collected, in the amount subtracted in the calculation from Rule 1001(c).\32\ To align the descriptions in OCC's Rules with OCC's current practices, OCC proposes adding ``or to be collected'' to the text or Rule 1001(c).\33\ --------------------------------------------------------------------------- \31\ Id. \32\ Id. at 44755 n.27. \33\ Id. at 44755. --------------------------------------------------------------------------- C. Minor Formatting and Grammatical Changes OCC also proposes several minor formatting and grammatical changes to its rules. In the Methodology Description, OCC proposes minor edits to correct the formatting of footnotes. Additionally, in the Rules, OCC proposes replacing the words ``such that'' with ``from'' and adding the word ``that'' to Rule 609(a)(5) so that it reads ``stress test exposures from a Sufficiency Stress Test (as defined in Rule 1001(a)) that identifies an exposure'' instead of ``stress test exposures such that a Sufficiency Stress Test (as defined in Rule 1001(a)) identifies an exposure.'' III. Discussion and Commission Findings Section 19(b)(2)(C) of the Act requires the Commission to approve a proposed rule change of a self-regulatory organization if it finds that the Proposed Rule Change is consistent with the requirements of the Act and the rules and regulations thereunder applicable to the organization.\34\ Under the Commission's Rules of Practice, the ``burden to demonstrate that a proposed rule change is consistent with the Exchange Act and the rules and regulations issued thereunder . . . is on the self-regulatory organization [`SRO'] that proposed the rule change.'' \35\ The description of a proposed rule change, its purpose and operation, its effect, and a legal analysis of its consistency with applicable requirements must all be sufficiently detailed and specific to support an affirmative Commission finding,\36\ and any failure of an SRO to provide this information may result in the Commission not having a sufficient basis to make an affirmative finding that a proposed rule change is consistent with the Exchange Act and the applicable rules and regulations.\37\ Moreover, ``unquestioning reliance'' on an SRO's representations in a proposed rule change is not sufficient to justify Commission approval of a proposed rule change.\38\ --------------------------------------------------------------------------- \34\ 15 U.S.C. 78s(b)(2)(C). \35\ Rule 700(b)(3), Commission Rules of Practice, 17 CFR 201.700(b)(3). \36\ Id. \37\ Id. \38\ Susquehanna Int'l Group, LLP v. Securities and Exchange Commission, 866 F.3d 442, 447 (D.C. Cir. 2017) (``Susquehanna''). --------------------------------------------------------------------------- After carefully considering the Proposed Rule Change, the Commission finds that the Proposed Rule Change is consistent with the requirements of the Exchange Act and the rules and regulations thereunder applicable to OCC. More specifically, for the reasons given below, the Commission finds that the Proposed Rule Change is consistent with Section 17A(b)(3)(F) of the Act \39\ and Rule 17Ad-22(e)(4) thereunder.\40\ --------------------------------------------------------------------------- \39\ 15 U.S.C. 78q-1(b)(3)(F). \40\ 17 CFR 240.17Ad-22(e)(4). --------------------------------------------------------------------------- A. Consistency With Section 17A(b)(3)(F) of the Act Under Section 17A(b)(3)(F) of the Act, OCC's rules, among other things, must be ``designed to promote the prompt and accurate clearance and settlement of securities transactions . . . derivative agreements, contracts, and transactions . . . and to assure the safeguarding of securities and funds which are in the custody or control of the clearing agency or for which it is responsible.'' \41\ Based on its review of the record, and for the reasons discussed below, OCC's changes are consistent with Section 17A(b)(3)(F) of the Act \42\ because they decrease the likelihood of loss mutualization, may increase, and cannot decrease, the amount of financial resources that OCC collects to address credit losses that could arise from the default of a Clearing Member, and support OCC's robust default management system. --------------------------------------------------------------------------- \41\ 15 U.S.C. 78q-1(b)(3)(F). \42\ Id. --------------------------------------------------------------------------- OCC's proposal to elevate Informational Scenarios to Sufficiency Scenarios may decrease the likelihood of loss mutualization. As noted above, OCC proposes to expand the scope of stress scenarios against which OCC monitors its financial resources by elevating, from Informational Scenarios to Sufficiency Scenarios, variations on their 2008 largest rally/decline scenarios, which first apply the risk driver beta-derived price shock as the [[Page 56455]] price shock as opposed to using the waterfall approach. Once these scenarios are elevated to Sufficiency Scenarios, they would be used to determine whether it is necessary to call for additional margin intra- day or an increase to the size of the Clearing Fund intra-month.\43\ By elevating the Informational Scenarios to Sufficiency Scenarios, OCC creates a wider range of stress scenarios. Having a wider range of stress scenarios may, in turn, increase the likelihood that OCC will have sufficient collateral on hand to address a default without resorting to loss mutualization through the use of non-defaulting Clearing Members' contributions to the Clearing Fund. Because it avoids loss mutualization, the Proposed Rule Change is consistent with the safeguarding of securities and funds which are in OCC's custody or control. --------------------------------------------------------------------------- \43\ OCC Rule 609(a)(5); OCC Rule 1001(c). --------------------------------------------------------------------------- OCC's proposed changes to its Sufficiency Stress Tests also may increase, and cannot decrease, the amount of financial resources that OCC collects to address credit losses that could arise from the default of a Clearing Member. Based on the impact analyses filed with this Proposed Rule Change, the proposed change could result in OCC calling for additional resources available for resolving a member default. The data provided demonstrates that the proposed scenarios could produce more conservative results relative to the current 2008 largest rally/ decline scenarios. Because OCC does not propose removing any of its existing Sufficiency Scenarios, the proposed changes could not reduce the resources OCC would collect. By maintaining, and potentially increasing, the financial resources OCC collects to address credit losses that could arise from the default of a Clearing Member, the proposed change to OCC's stress tests would potentially help OCC recover from the default of a Clearing Member and could make OCC's default waterfall more robust. As such, it would increase the likelihood that OCC would be able to provide clearing services during and after a Clearing Member default, which is consistent with OCC's ability to promptly and accurately clear and settle securities transactions for participants in the options markets during periods of market stress. Separately, the proposed changes to conform OCC's Rules 609 and 1001 to current practice would continue to support OCC's risk management systems. As described above, the proposed changes would make minor changes, remove unnecessary language, and acknowledge that, when determining whether to call for additional collateral based on OCC's Sufficiency Stress Tests, if a Clearing Member Group is subject to intra-day margin calls under more than one Sufficiency Stress Test, only the largest margin call will be applied and remain in effect until the next monthly resizing. Further, OCC proposes that it account for margin called as a result of a Sufficiency Stress Test breach under Rule 609 when determining whether it must increase the size of the Clearing Fund. Such changes would not reduce the total resources called by OCC. Continuing to require that members contribute resources based on the exposures they pose (as measured by the Sufficiency Scenarios) would increase the likelihood that OCC would have sufficient resources to manage its exposure to such a member in the event of a default. This would increase the likelihood that OCC could promptly and accurately clear transactions in the event of a default. Additionally, requiring members to contribute resources based on the exposures they pose would increase OCC's ability to manage a default with the defaulter's resources and would reduce the risk that OCC would be required to use the resources of other members to manage a default, consistent with OCC's ability to safeguard the funds and securities of such non- defaulting members. Further, OCC's rules require that members meet such calls in a timely manner.\44\ As a result, OCC's rules do not preclude OCC from taking additional steps, such as suspending a member, if it does not receive the required resources promptly. Thus, OCC's rules, both current and as proposed, allow OCC to act quickly to mitigate potential losses and liquidity shortfalls. Such authority reduces the risk that OCC would be unable to continue providing clearance and settlement services, which is consistent with the promotion of the prompt and accurate settlement of securities for the markets OCC serves. --------------------------------------------------------------------------- \44\ See e.g., OCC Rule 609(a) (requiring that members meet intra-day margin calls within one hour of issuance). --------------------------------------------------------------------------- Based on the foregoing, the Proposed Rule Change is consistent with the requirements of Section 17A(b)(3)(F) of the Act.\45\ --------------------------------------------------------------------------- \45\ 15 U.S.C. 78q-1(b)(3)(F). --------------------------------------------------------------------------- B. Consistency With Rule 17Ad-22(e)(4) Under the Act Rule 17Ad-22(e)(4) requires covered clearing agencies to establish, implement, maintain, and enforce written policies and procedures reasonably designed to effectively identify, measure, monitor, and manage its credit exposures to participants and those arising from its payment, clearing, and settlement processes by testing the sufficiency of its total financial resources available to meet the minimum financial resource requirements under Rules 17Ad-22(e)(4)(i) through (iii) under the Act.\46\ Under Rule 17Ad-22(e)(4)(vi)(A), OCC's policies and procedures should provide that OCC conduct such stress testing of its total financial resources once each day using standard predetermined parameters and assumptions.\47\ --------------------------------------------------------------------------- \46\ 17 CFR 240.17Ad-22(e)(4)(vi). \47\ 17 CFR 240.17Ad-22(e)(4)(vi)(A). --------------------------------------------------------------------------- The Proposed Rule Change is consistent with Rule 17Ad-22(e)(4)(vi) because it broadens the scope of stress scenarios that OCC conducts to test its financial resources. Expanding the scope of stress scenarios against which OCC monitors its financial resources would increase the likelihood that OCC maintains sufficient financial resources at all times.\48\ This Proposed Rule Change would expand the scope of stress scenarios by elevating two Informational Scenarios to Sufficiency Scenarios. This expansion could result in the collection of additional resources available for resolving a member default, which, in turn, would increase the likelihood that OCC maintains sufficient financial resources at all times.\49\ --------------------------------------------------------------------------- \48\ See Securities Exchange Act Release No. 90827 (Dec. 30, 2020), 86 FR 659, 661 (Jan. 6, 2021) (File No. SR-OCC-2020-015); Securities Exchange Act Release No. 83735 (July 27, 2018), 83 FR 37855, 37863 (Aug. 2, 2018) (File No. SR-OCC-2018-008). \49\ The Proposed Rule Change does not alter OCC's daily implementation of its Sufficiency Stress Tests. Notice, 89 FR at 44753. Thus, the OCC's Sufficiency Stress Testing continues to be consistent with Rule 17Ad-22(e)(4)(vi)(A)'s daily testing requirements. --------------------------------------------------------------------------- Based on the foregoing, the Proposed Rule Change is consistent with the requirements of Rule 17Ad-22(e)(4) under the Act.\50\ --------------------------------------------------------------------------- \50\ 17 CFR 240.17Ad-22(e)(4). --------------------------------------------------------------------------- IV. Conclusion On the basis of the foregoing, the Commission finds that the Proposed Rule Change is consistent with the requirements of the Act, and in particular, Section 17A(b)(3)(F) of the Act \51\ and Rule 17Ad- 22(e)(4).\52\ --------------------------------------------------------------------------- \51\ 15 U.S.C. 78q-1(b)(3)(F). \52\ 17 CFR 240.17Ad-22(e)(4). --------------------------------------------------------------------------- It is therefore ordered pursuant to Section 19(b)(2) of the Act that the [[Page 56456]] Proposed Rule Change (SR-OCC-2024-006) be, and hereby is, approved.\53\ --------------------------------------------------------------------------- \53\ In approving the Proposed Rule Change, the Commission considered the proposal's impacts on efficiency, competition, and capital formation. 15 U.S.C. 78c(f). For the Commission by the Division of Trading and Markets, pursuant to delegated authority.\54\ --------------------------------------------------------------------------- \54\ 17 CFR 200.30-3(a)(12). --------------------------------------------------------------------------- Sherry R. Haywood, Assistant Secretary. [FR Doc. 2024-14971 Filed 7-8-24; 8:45 am] BILLING CODE 8011-01-P

usgpo

2024-10-08T13:27:02.326383

FR

FR-2024-07-09/2024-15026

Federal Register Volume 89 Issue 131 (July 9, 2024)

United States National Archives and Records Administration Office of the Federal Register

[Federal Register Volume 89, Number 131 (Tuesday, July 9, 2024)] [Notices] [Page 56456] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 2024-15026] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [SEC File No. 270-629, OMB Control No. 3235-0719] Proposed Collection; Comment Request; Extension: Rules 13n-1-13n- 12; Form SDR Upon Written Request, Copies Available From: Securities and Exchange Commission, Office of FOIA Services, 100 F Street NE, Washington, DC 20549-2736 Notice is hereby given that pursuant to the Paperwork Reduction Act of 1995 (``PRA'') (44 U.S.C. 3501 et seq.), the Securities and Exchange Commission (``Commission'') is soliciting comments on the existing collection of information provided for in Rules 13n-1 through 13n-12 (17 CFR 240.13n-1 through 240.13n-12) and Form SDR (``Rules''), under the Securities Exchange Act of 1934 (15 U.S.C. 78m(n)(3) et seq.). The Commission plans to submit this existing collection of information to the Office of Management and Budget (``OMB'') for extension and approval. Under the Rules, security-based swap data repositories (``SDRs'') are required to register with the Commission by filing a completed Form SDR (the filing of a completed Form SDR also constitutes an application for registration as a securities information processor (``SIP'')). SDRs are also required to abide by certain minimum standards set out in the Rules, including a requirement to update Form SDR, abide by certain duties and core principles, maintain data in accordance with the rules, keep systems in accordance with the Rules, keep records, provide reports to the Commission, maintain the privacy of security-based swaps (``SBSs'') data, make certain disclosures, and designate a Chief Compliance Officer. In addition, there are a number of collections of information contained in the Rules. The information collected pursuant to the Rules is necessary to carry out the mandates of the Dodd-Frank Act and help ensure an orderly and transparent market for SBSs. Assuming a maximum of three SDRs, the Commission estimates that the total burden for the Rules and Form SDR for all respondents is 127,505 hours annually and approximately 382,511 burden hours for all respondents over three years. In addition, the Commission estimates that the total cost of the Rules and Form SDR for all respondents is approximately $29,905,416 annually and approximately $89,716,248 for all respondents over three years. Written comments are invited on: (a) whether the proposed collection of information is necessary for the proper performance of the functions of the Commission, including whether the information shall have practical utility; (b) the accuracy of the Commission's estimates of the burden of the proposed collection of information; (c) ways to enhance the quality, utility, and clarity of the information collected; and (d) ways to minimize the burden of the collection of information on respondents, including through the use of automated collection techniques or other forms of information technology. Consideration will be given to comments and suggestions submitted by September 9, 2024. An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information under the PRA unless it displays a currently valid OMB control number. Please direct your written comments to: Austin Gerig, Director/ Chief Data Officer, Securities and Exchange Commission, c/o Oluwaseun Ajayi, 100 F Street NE, Washington, DC 20549, or send an email to: [email protected]. Dated: July 3, 2024. Sherry R. Haywood, Assistant Secretary. [FR Doc. 2024-15026 Filed 7-8-24; 8:45 am] BILLING CODE 8011-01-P

usgpo

2024-10-08T13:27:02.874896

FR

FR-2024-07-09/2024-15036

Federal Register Volume 89 Issue 131 (July 9, 2024)

United States National Archives and Records Administration Office of the Federal Register

[Federal Register Volume 89, Number 131 (Tuesday, July 9, 2024)] [Notices] [Page 56456] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 2024-15036] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-100459; File No. SR-NYSE-2023-36] Self-Regulatory Organizations; New York Stock Exchange LLC; Notice of Withdrawal of Proposed Rule Change Regarding Enhancements to Its DMM Program July 3, 2024. On October 23, 2023, New York Stock Exchange LLC (``NYSE'' or ``Exchange'') filed with the Securities and Exchange Commission (``Commission''), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to amend its Designated Market Maker (``DMM'') program. The proposed rule change was published for comment in the Federal Register on November 13, 2023.\3\ On December 13, 2023, pursuant to Section 19(b)(2) of the Act,\4\ the Commission designated a longer period within which to approve the proposed rule change, disapprove the proposed rule change, or institute proceedings to determine whether to disapprove the proposed rule change.\5\ On February 9, 2024, the Commission instituted proceedings pursuant to Section 19(b)(2)(B) of the Act \6\ to determine whether to approve or disapprove the proposed rule change.\7\ On May 8, 2024, pursuant to Section 19(b)(2) of the Act,\8\ the Commission designated a longer period within which to approve or disapprove the proposed rule change.\9\ On June 28, 2024, NYSE withdrew the proposed rule change (SR-NYSE-2023-36). --------------------------------------------------------------------------- \1\ 15 U.S.C. 78s(b)(1). \2\ 17 CFR 240.19b-4. \3\ See Securities Exchange Act Release No. 98869 (Nov. 6, 2023), 88 FR 77625 (Nov. 13, 2023) (SR-NYSE-2023-36). Comments received on the proposed rule change are available at: https://www.sec.gov/comments/sr-nyse-2023-36/srnyse202336.htm. \4\ 15 U.S.C. 78s(b)(2). \5\ See Securities Exchange Act Release No. 99161 (Dec. 13, 2023), 88 FR 87829 (Dec. 19, 2023). The Commission designated February 11, 2024, as the date by which the Commission shall approve or disapprove, or institute proceedings to determine whether to disapprove, the proposed rule change. \6\ 15 U.S.C. 78s(b)(2)(B). \7\ See Securities Exchange Act Release No. 99511 (Feb. 9, 2024), 89 FR 11893 (Feb. 15, 2024). \8\ 15 U.S.C. 78s(b)(2). \9\ See Securities Exchange Act Release No. 100080 (May 8, 2024), 89 FR 42007 (May 14, 2024). The Commission designated July 10, 2024, as the date by which the Commission shall approve or disapprove the proposed rule change. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\10\ --------------------------------------------------------------------------- \10\ 17 CFR 200.30-3(a)(12). --------------------------------------------------------------------------- Sherry R. Haywood, Assistant Secretary. [FR Doc. 2024-15036 Filed 7-8-24; 8:45 am] BILLING CODE 8011-01-P

usgpo

2024-10-08T13:27:02.923700

FR

FR-2024-07-09/2024-15038

Federal Register Volume 89 Issue 131 (July 9, 2024)

United States National Archives and Records Administration Office of the Federal Register

[Federal Register Volume 89, Number 131 (Tuesday, July 9, 2024)] [Notices] [Pages 56457-56458] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 2024-15038] [[Page 56457]] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-100461; File No. SR-NASDAQ-2024-029] Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing of Proposed Rule Change To Modify the Application of Bid Price Compliance Periods July 3, 2024. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that on June 21, 2024, The Nasdaq Stock Market LLC (``Nasdaq'' or ``Exchange'') filed with the Securities and Exchange Commission (``SEC'' or ``Commission'') the proposed rule change as described in Items I, II, and III, below, which Items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. --------------------------------------------------------------------------- \1\ 15 U.S.C. 78s(b)(1). \2\ 17 CFR 240.19b-4. --------------------------------------------------------------------------- I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to modify the application of the bid price compliance periods where a company takes action that causes non- compliance with another listing requirement. The text of the proposed rule change is available on the Exchange's website at https://listingcenter.nasdaq.com/rulebook/nasdaq/rules, at the principal office of the Exchange, and at the Commission's Public Reference Room. II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose Reverse stock splits have the effect of increasing a company's stock price by consolidating the outstanding shares. Companies may effect a reverse stock split to regain compliance with the minimum bid price required by Exchange listing rules (the ``Bid Price Requirement'').\3\ The share reduction caused by the reverse stock split results in a proportional reduction in the number of Publicly Held Shares \4\ and, depending on how fractional shares are treated, may also reduce the number of holders of the company's securities. As such, implementation of a reverse stock split could trigger non- compliance with other listing rules and start a new deficiency process.\5\ Nasdaq believes that this scenario creates confusion for investors around the Company's ability to maintain compliance with the Listing Rules and could negatively impact investor confidence in the market. Accordingly, Nasdaq believes that in such cases the company should not be afforded additional time to regain compliance with that newly created deficiency. --------------------------------------------------------------------------- \3\ Each tier of Nasdaq includes a requirement that specified securities maintain a $1.00 minimum bid price. See, e.g., Rule 5550(a)(2) (Primary Equity Security listed on the Nasdaq Capital Market); Rule 5450(a)(1) (Primary Equity Security listed on the Nasdaq Global or Global Select Markets). Upon a company's failure to satisfy the applicable Bid Price Requirement, Rule 5810(3)(A) provides for an automatic compliance period of 180 calendar days for the company to achieve compliance with the Bid Price Requirement. Cf. NYSE American Company Guide Section 1003(f)(v), which discusses low selling price issues but does not impose a fixed minimum price requirement nor a timeline for how long a company could remain below $1.00. \4\ Rule 5005(a)(35) defines ``Publicly Held Shares'' as: shares not held directly or indirectly by an officer, director or any person who is the beneficial owner of more than 10 percent of the total shares outstanding. \5\ See, e.g., Rules 5550(a)(3) and (4) (requiring 300 public holders and at least 500,000 Publicly Held Shares for Primary Equity Securities listed on the Nasdaq Capital Market) and Rules 5450(a)(2), 5450(b)(1)(B), 5450(b)(2)(B) and 5450(b)(3)(B) (requiring 400 total holders and, depending on other characteristics of the company, either 750,000 or 1.1 million Publicly Held Shares for Primary Equity Securities listed on the Nasdaq Global Market). Upon a company's failure to satisfy the applicable holder or number of Publicly Held Shares requirement, Rule 5810(c)(2)(A) allows the company a 45-calendar day period to provide a plan to regain compliance to Nasdaq Staff and Rule 5810(c)(2)(B) provides that Nasdaq staff may grant an extension of up to 180 calendar days for the company to achieve compliance. --------------------------------------------------------------------------- Specifically, Nasdaq is proposing to amend Rule 5810(c)(3)(A) to provide that a company will not be considered to have regained compliance with its Bid Price Requirement if the company takes an action to achieve compliance with that requirement (e.g., a reverse stock split), and that action results in the company's security falling below the numeric threshold for another listing requirement, without regard to any compliance process otherwise available for that listing requirement. For example, consider a company listed on the Nasdaq Capital Market (``Company A'') that has 1,600,000 Publicly Held Shares. In order to regain compliance with the Bid Price Requirement under Rule 5550(a)(2), Company A effects a reverse stock split at a ratio of 1-for-4. This reverse stock split initially increases Company A's stock price above $1.00. Assuming Company A thereafter maintains a closing bid price above $1.00 for ten (10) consecutive business days, under current Rule 5810(c)(3)(A), Company A will achieve compliance with the Bid Price Requirement at the conclusion of the tenth (10th) consecutive business day.\6\ However, in this example, at the same time that the reverse stock split increased Company A's stock price, the 1-for-4 reverse stock split also reduced the number of Publicly Held Shares from 1,600,000 to 400,000, causing Company A to no longer satisfy the minimum number of Publicly Held Shares required to remain listed on the Nasdaq Capital Market.\7\ As a result, under these circumstances, the reverse stock split would allow Company A to regain compliance with the Bid Price Requirement of Rule 5550(a)(2) while at the same time causing non-compliance with the minimum Publicly Held Shares requirement of Rule 5550(a)(4). Under Nasdaq's current rules, Nasdaq would notify the company about this new deficiency and the company would be afforded 45 calendar days to submit a plan to regain compliance and could be afforded up to 180 calendar days to regain compliance.\8\ --------------------------------------------------------------------------- \6\ See Rule 5810(c)(3)(A) providing that a company achieves compliance during any compliance period by meeting the applicable standard for a minimum of 10 consecutive business days during the applicable compliance period, unless Staff exercises its discretion to extend this 10-day period as discussed in Rule 5810(c)(3)(H). \7\ The continued listing requirement for publicly held shares on the Nasdaq Capital Market is 500,000 Publicly Held Shares. See Rule 5550(a)(4). \8\ See Rule 5810(c)(2) and IM-5810-2. --------------------------------------------------------------------------- Nasdaq believes that it is not appropriate for a company to receive additional time to cure non-compliance with such newly violated listing standard. Nasdaq is therefore proposing this rule change to prevent companies from benefiting from additional time for the subsequent deficiency that was ultimately caused by the company's non-compliance with the Bid Price Requirement. Under the proposed amendment, Company A in the example above would continue to be considered non-compliant with the Bid Price Requirement until both the new [[Page 56458]] Publicly Held Shares deficiency is cured and thereafter the company maintains a $1.00 bid price for a minimum of ten (10) consecutive business days.\9\ All of this must be accomplished during the compliance period applicable to the initial Bid Price Requirement deficiency. Thus, the proposed rule would not allow Company A to submit a plan to regain compliance with the Publicly Held Shares requirement and would instead require Company A to regain compliance with both rules within the applicable compliance period for the Bid Price Requirement pursuant to Rule 5810(3)(A). --------------------------------------------------------------------------- \9\ Nasdaq Staff could exercise its discretion under Rule 5810(c)(3)(H) to extend this 10-day period to up to 20 days. --------------------------------------------------------------------------- Nasdaq believes the proposed amendment will protect investors and provide additional clarity to companies and market participants by enhancing the quality of a compliance determination following a company's deficiency for failure to comply with the Bid Price Requirement.\10\ --------------------------------------------------------------------------- \10\ Nasdaq is considering other changes to the delisting process applicable to companies that are non-compliant with the Bid Price Requirement. Any such changes will be subject to a separate rule filing. --------------------------------------------------------------------------- 2. Statutory Basis The Exchange believes that its proposed change to Rule 5810(c)(3)(A) is consistent with Section 6(b) of the Act,\11\ in general, and furthers the objectives of Section 6(b)(5) of the Act,\12\ in particular, in that it is designed to protect investors and the public interest. The proposed rule change is designed to enhance Nasdaq's listing standards, thereby strengthening the quality of listed companies and protecting investors. Specifically, the proposal would protect investors by preventing a company from requesting or receiving a compliance determination and communicating to investors that it has regained compliance with the Listing Rules until it also has cured any concerns with numeric listing requirements caused by its actions to cure the initial Bid Price Requirement deficiency. --------------------------------------------------------------------------- \11\ 15 U.S.C. 78f(b). \12\ 15 U.S.C. 78f(b)(5). --------------------------------------------------------------------------- B. Self-Regulatory Organization's Statement on Burden on Competition The Exchange does not believe that the proposed rule change will impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Act. The Exchange does not expect that its proposal will have an adverse impact on competition among listed companies because the proposed change will apply equally to all similarly situated companies seeking to regain compliance with the Bid Price Requirement and will confer no relative advantage or disadvantage upon any listed company. Further, the Exchange does not expect that its proposal will have an adverse impact on competition with other listed venues. The market for listing services is extremely competitive and listed companies may freely choose alternative venues for listing. Such other venues will remain free to adopt similar rules, if they view them as advantageous, or to maintain a rulebook with no minimum price requirement to the extent allowed by the Commission.\13\ As such, the Exchange does not believe that the proposed rule change will impose an unnecessary or inappropriate burden on competition. --------------------------------------------------------------------------- \13\ See NYSE American Company Guide Section 1003(f)(v), which discusses low selling price issues but does not impose a fixed minimum price requirement nor a timeline for how long a company could remain below $1.00. --------------------------------------------------------------------------- C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others No written comments were either solicited or received. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Within 45 days of the date of publication of this notice in the Federal Register or within such longer period (i) as the Commission may designate up to 90 days of such date if it finds such longer period to be appropriate and publishes its reasons for so finding or (ii) as to which the Exchange consents, the Commission shall: (a) by order approve or disapprove such proposed rule change, or (b) institute proceedings to determine whether the proposed rule change should be disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or Send an email to [email protected]. Please include file number SR-NASDAQ-2024-029 on the subject line. Paper Comments Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090. All submissions should refer to file number SR-NASDAQ-2024-029. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's internet website (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for website viewing and printing in the Commission's Public Reference Room, 100 F Street NE, Washington, DC 20549, on official business days between the hours of 10 a.m. and 3 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. Do not include personal identifiable information in submissions; you should submit only information that you wish to make available publicly. We may redact in part or withhold entirely from publication submitted material that is obscene or subject to copyright protection. All submissions should refer to file number SR-NASDAQ-2024-029 and should be submitted on or before July 30, 2024. --------------------------------------------------------------------------- \14\ 17 CFR 200.30-3(a)(12). For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\14\ Sherry R. Haywood, Assistant Secretary. [FR Doc. 2024-15038 Filed 7-8-24; 8:45 am] BILLING CODE 8011-01-P

usgpo

2024-10-08T13:27:02.937909

FR

FR-2024-07-09/2024-14973

Federal Register Volume 89 Issue 131 (July 9, 2024)

United States National Archives and Records Administration Office of the Federal Register

[Federal Register Volume 89, Number 131 (Tuesday, July 9, 2024)] [Notices] [Pages 56459-56461] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 2024-14973] [[Page 56459]] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-100457; File No. SR-NYSEAMER-2024-42] Self-Regulatory Organizations; NYSE American LLC; Notice of Filing and Immediate Effectiveness of Proposed Change To Make Certain Conforming Clarifying Changes to Rule 601 To Harmonize With NYSE Arca Rule 10.16 July 2, 2024. Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 1934 (``Act''),\2\ and Rule 19b-4 thereunder,\3\ notice is hereby given that on June 18, 2024, NYSE American LLC (``NYSE American'' or the ``Exchange'') filed with the Securities and Exchange Commission (``Commission'') the proposed rule change as described in Items I and II below, which Items have been prepared by the self-regulatory organization. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. --------------------------------------------------------------------------- \1\ 15 U.S.C. 78s(b)(1). \2\ 15 U.S.C. 78a. \3\ 17 CFR 240.19b-4. --------------------------------------------------------------------------- I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to certain conforming clarifying changes to Rule 601 (Sanctions Guidelines) to harmonize with Rule 10.16 (Sanctioning Guidelines--Options) of its affiliate NYSE Arca, Inc. The proposed rule change is available on the Exchange's website at www.nyse.com, at the principal office of the Exchange, and at the Commission's Public Reference Room. II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the self-regulatory organization included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of those statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant parts of such statements. A. Self-Regulatory Organization's Statement of the Purpose of, and the Statutory Basis for, the Proposed Rule Change 1. Purpose The Exchange proposes certain conforming clarifying changes to Rule 601 (Sanctions Guidelines) to harmonize with Rule 10.16 (Sanctioning Guidelines--Options) of its affiliate NYSE Arca, Inc. (``NYSE Arca''). In 2023, the Exchange adopted a new Rule 601 incorporating sanctions guidelines similar to Cboe Exchange, Inc. Rule 13.11, Supplementary Material .01, in place of the original sanction guidelines adopted pursuant to Section IV.B.i of the Commission's September 11, 2000 Order Instituting Administrative Proceedings Pursuant to Section 19(h)(1) of the Act (the ``2000 Order'').\4\ Recently, NYSE Arca adopted Rule 601 nearly verbatim as new NYSE Arca Rule 10.16, with three minor differences in the first two full paragraphs of the rule which further clarified the covered entities, provided examples of how disciplinary matters can be resolved, and clarified that the CRO's delegees would be individuals with responsibility for the adjudication of disciplinary actions and thus included in the rule's definition of ``Adjudicatory Bodies.'' \5\ In addition, NYSE Arca referenced summary sanctions in options-related matters governed by Rule 10.13 and appeals of Floor citations and summary sanctions governed by Rule 10.11 as examples of how disciplinary matters can be resolved, both of which are inapplicable to the Exchange. --------------------------------------------------------------------------- \4\ See Securities Exchange Act Release No. 98798 (October 25, 2023), 88 FR 74544 (October 31, 2023) (SR-NYSEAMER-2023-49) (Notice of Filing and Immediate Effectiveness of Proposed Change To Delete Legacy Disciplinary Rules 475, 476, 476A, and 477 and Make Conforming Changes to Rule 41, Rules 8001, 8130(d), 8320(d), 9001, 9216(b)(1), 9810(a), and 781 of the Office Rules, Rules 2A, 12E, 3170(a)(3), 902NY and Adopt a New Rule 600 and Make Conforming Changes to Rules 3170(C)(3), and Adopt a New Rule 601). See generally Securities Exchange Act Release No. 43268 (September 11, 2000), Administrative Proceeding File No. 3-10282. \5\ See Securities Exchange Act Release No. 100047 (May 2, 2024), 89 FR 38939 (May 8, 2024) (SR-NYSEArca-2024-34). NYSE Arca adopted the original version of Rule 10.16 pursuant to the 2000 Order. See Securities Exchange Act Release Nos. 45416 (February 7, 2002), 67 FR 6777 (February 13, 2002) (SR-PCX-2001-23) (Notice); 45567 (March 15, 2002), 67 FR 13392 (March 22, 2002) (SR-PCX-2001- 23) (Order). --------------------------------------------------------------------------- In order to harmonize with NYSE Arca Rule 10.16 and add clarity and consistency to Rule 601, the Exchange proposes to incorporate the three changes from the NYSE Arca rule, as follows. First, the Exchange would add ``against ATP Holders, ATP Firms and covered persons as defined in Rule 9120(g)'' following ``To promote consistency and uniformity in the imposition of penalties'' in the first sentence. Second, in the same sentence, the Exchange would add ``, including letters of acceptance, waiver and consent,'' following ``appropriate remedial sanctions through the resolution of disciplinary matters.'' The Exchange does not propose to adopt the NYSE Arca- specific references to summary sanctions in options-related matters governed by Rule 10.13 and appeals of Floor citations and summary sanctions governed by Rule 10.11. Third, the Exchange would add ``and his or her delegees'' following CRO in the second paragraph, thus bringing the CRO's delegees within the definition of ``Adjudicatory Bodies'' therein.\6\ --------------------------------------------------------------------------- \6\ For the further avoidance of doubt, neither the proposed list of ways that a disciplinary matter can be resolved nor the persons and entities comprising the definition of Adjudicatory Bodies as amended by this filing in Rule 601 are intended to be exhaustive. --------------------------------------------------------------------------- As proposed, Rule 601 would be amended as follows (deletions (bracketed) and additions (italicized)): To promote consistency and uniformity in the imposition of penalties against ATP Holders, ATP Firms and covered persons as defined in Rule 9120(g), the following Principal Considerations in Determining Sanctions should be considered in connection with the imposition of sanctions in all cases in determining appropriate remedial sanctions through the resolution of disciplinary matters, including letters of acceptance, waiver and consent, [through ]offers of settlement, and [or after ]formal disciplinary hearings. These Principal Considerations are not intended to be absolute. Based on the facts and circumstances presented in each case, the various individuals with responsibility for the adjudication of disciplinary actions, including the CRO and his or her delegees, Hearing Panels, Extended Hearing Panels, Hearing Officers, the Committee for Review, and the Board of Directors (collectively, ``Adjudicatory Bodies''), may consider aggravating and mitigating factors in addition to those listed below. No other changes are proposed to Rule 601. 2. Statutory Basis The proposed rule change is consistent with Section 6(b) of the Act,\7\ in general, and furthers the objectives of [[Page 56460]] Section 6(b)(5),\8\ in particular, because it is designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in facilitating transactions in securities, to remove impediments to, and perfect the mechanism of, a free and open market and a national market system and, in general, to protect investors and the public interest. --------------------------------------------------------------------------- \7\ 15 U.S.C. 78f(b). \8\ 15 U.S.C. 78f(b)(5). --------------------------------------------------------------------------- The Exchange believes that harmonizing its sanction guidelines to incorporate certain clarifying conforming changes based on its affiliate's version of the rule would remove impediments to and perfect the mechanism of a free and open market and a national market system and, in general, protect investors and the public interest because the proposed changes would add clarity and consistency to the Exchange's rules. The Exchange believes that market participants would benefit from the increased clarity, thereby reducing potential confusion and ensuring that persons subject to the Exchange's jurisdiction, regulators, and the investing public can more easily navigate and understand the Exchange's rules. Finally, the Exchange believes that the proposed changes would promote fairness and consistency in the marketplace by eliminating differences and harmonizing language related to sanction guidelines for options market participants across affiliates. B. Self-Regulatory Organization's Statement on Burden on Competition The Exchange does not believe that the proposed rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. The proposed change is not designed to address any competitive issue but is rather concerned with making conforming clarifying changes to the Exchange rules. Since the proposal does not substantively modify system functionality or processes on the Exchange, the proposed changes will not impose any burden on competition. C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others No written comments were solicited or received with respect to the proposed rule change. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action The Exchange has filed the proposed rule change pursuant to Section 19(b)(3)(A) of the Act \9\ and Rule 19b-4(f)(6) \10\ thereunder. Because the foregoing proposed rule change does not: --------------------------------------------------------------------------- \9\ 15 U.S.C. 78s(b)(3)(A). \10\ 17 CFR 240.19b-4(f)(6). --------------------------------------------------------------------------- (i) significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate, it has become effective pursuant to Section 19(b)(3)(A) of the Act \11\ and Rule 19b-4(f)(6) thereunder.\12\ --------------------------------------------------------------------------- \11\ 15 U.S.C. 78s(b)(3)(A). \12\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) requires a self-regulatory organization to give the Commission written notice of its intent to file the proposed rule change at least five business days prior to the date of filing of the proposed rule change, or such shorter time as designated by the Commission. The Exchange has satisfied this requirement. --------------------------------------------------------------------------- A proposed rule change filed under Rule 19b-4(f)(6) \13\ normally does not become operative prior to 30 days after the date of the filing. However, pursuant to Rule 19b-4(f)(6)(iii),\14\ the Commission may designate a shorter time if such action is consistent with the protection of investors and the public interest. The Exchange has asked the Commission to waive the 30-day operative delay so that it may become operative immediately upon filing to allow the Exchange to make conforming, clarifying changes that harmonize its sanction guidelines with the version adopted by its affiliate. The Commission believes that, as described above, the Exchange's proposal does not raise any new or novel issues. Therefore, the Commission believes that waving the 30-day operative delay is consistent with the protection of investors and the public interest. Accordingly, the Commission designates the proposed rule change to be operative upon filing.\15\ --------------------------------------------------------------------------- \13\ 17 CFR 240.19b-4(f)(6). \14\ 17 CFR 240.19b-4(f)(6)(iii). \15\ For purposes only of waiving the 30-day operative delay, the Commission also has considered the proposed rule's impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). --------------------------------------------------------------------------- At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission will institute proceedings to determine whether the proposed rule change should be approved or disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or Send an email to [email protected]. Please include file number SR-NYSEAMER-2024-42 on the subject line. Paper Comments Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090. All submissions should refer to file number SR-NYSEAMER-2024-42. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's internet website (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for website viewing and printing in the Commission's Public Reference Room, 100 F Street NE, Washington, DC 20549, on official business days between the hours of 10 a.m. and 3 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. Do not include personal identifiable information in submissions; you should submit only information that you wish to make available publicly. We may redact in part or withhold entirely from publication submitted material that is obscene or subject to copyright protection. All [[Page 56461]] submissions should refer to file number SR-NYSEAMER-2024-42 and should be submitted on or before July 30, 2024. --------------------------------------------------------------------------- \16\ 17 CFR 200.30-3(a)(12), (59). For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\16\ Sherry R. Haywood, Assistant Secretary. [FR Doc. 2024-14973 Filed 7-8-24; 8:45 am] BILLING CODE 8011-01-P

usgpo

2024-10-08T13:27:02.953544

FR

FR-2024-07-09/2024-14977

Federal Register Volume 89 Issue 131 (July 9, 2024)

United States National Archives and Records Administration Office of the Federal Register

[Federal Register Volume 89, Number 131 (Tuesday, July 9, 2024)] [Notices] [Pages 56461-56462] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 2024-14977] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [SEC File No. 270-373, OMB Control No. 3235-0422] Proposed Collection; Comment Request; Extension: Rule 23c-3 and Form N-23c-3 Upon Written Request, Copies Available From: Securities and Exchange Commission, Office of FOIA Services, 100 F Street NE, Washington, DC 20549-2736. Notice is hereby given that, pursuant to the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.), the Securities and Exchange Commission (the ``Commission'') is soliciting comments on the collection of information summarized below. The Commission plans to submit this existing collection of information to the Office of Management and Budget (``OMB'') for extension and approval. Rule 23c-3 (17 CFR 270.23c-3) under the Investment Company Act of 1940 (15 U.S.C. 80a-1 et seq.) permits a registered closed-end investment company (``closed-end fund'' or ``fund'') that meets certain requirements to repurchase common stock of which it is the issuer from shareholders at periodic intervals, pursuant to repurchase offers made to all holders of the stock. The rule enables these funds to offer their shareholders a limited ability to resell their shares in a manner that previously was available only to open-end investment company shareholders. A closed-end fund that relies on rule 23c-3 must send shareholders a notification that contains specified information each time the fund makes a repurchase offer (on a quarterly, semi-annual, or annual basis, or, for certain funds, on a discretionary basis not more often than every two years). The fund also must file copies of the shareholder notification with the Commission (electronically through the Commission's Electronic Data Gathering, Analysis, and Retrieval System (``EDGAR'')) on Form N-23c-3, a filing that provides certain information about the fund and the type of offer the fund is making.\1\ The fund must describe in its annual report to shareholders the fund's policy concerning repurchase offers and the results of any repurchase offers made during the reporting period. The fund's board of directors must adopt written procedures designed to ensure that the fund's investment portfolio is sufficiently liquid to meet its repurchase obligations and other obligations under the rule. The board periodically must review the composition of the fund's portfolio and change the liquidity procedures as necessary. The fund also must file copies of advertisements and other sales literature with the Commission as if it were an open-end investment company subject to Section 24 of the Investment Company Act (15 U.S.C. 80a-24) and the rules that implement Section 24. Rule 24b-3 under the Investment Company Act (17 CFR 270.24b-3), however, exempts the fund from that requirement if the materials are filed instead with the Financial Industry Regulatory Authority (``FINRA''). --------------------------------------------------------------------------- \1\ Form N-23c-3, entitled ``Notification of Repurchase Offer Pursuant to Rule 23c-3,'' requires the fund to state its registration number, its full name and address, the date of the accompanying shareholder notification, and the type of offer being made (periodic, discretionary, or both). --------------------------------------------------------------------------- The requirement that the fund send a notification to shareholders of each offer is intended to ensure that a fund provides material information to shareholders about the terms of each offer. The requirement that copies be sent to the Commission is intended to enable the Commission to monitor the fund's compliance with the notification requirement. The requirement that the shareholder notification be attached to Form N-23c-3 is intended to ensure that the fund provides basic information necessary for the Commission to process the notification and to monitor the fund's use of repurchase offers. The requirement that the fund describe its current policy on repurchase offers and the results of recent offers in the annual shareholder report is intended to provide shareholders current information about the fund's repurchase policies and its recent experience. The requirement that the board approve and review written procedures designed to maintain portfolio liquidity is intended to ensure that the fund has enough cash or liquid securities to meet its repurchase obligations, and that written procedures are available for review by shareholders and examination by the Commission. The requirement that the fund file advertisements and sales literature as if it were an open-end fund is intended to facilitate the review of these materials by the Commission or FINRA to prevent incomplete, inaccurate, or misleading disclosure about the special characteristics of a closed-end fund that makes periodic repurchase offers. The Commission staff estimates that 860 funds make use of rule 23c- 3 annually, including 14 funds that are relying upon rule 23c-3 for the first time. The Commission staff estimates that on average a fund spends 89 hours annually in complying with the requirements of the Rule and Form N-23c-3, with funds relying upon rule 23c-3 for the first time incurring an additional one-time burden of 28 hours. The Commission therefore estimates the total annual hour burden of the rule's and form's paperwork requirements to be 7,512 hours. In addition to the burden hours, the Commission staff estimates that the average yearly cost to each fund that relies on rule 23c-3 to print and mail repurchase offers to shareholders is about $38,003.10. The Commission estimates total annual cost is therefore about $3,040,248. Estimates of average burden hours and costs are made solely for purposes of the Paperwork Reduction Act and are not derived from a comprehensive or even representative survey or study of the costs of Commission rules and forms. Compliance with the collection of information requirements of the rule and form is mandatory only for those funds that rely on the rule in order to repurchase shares of the fund. The information provided to the Commission on Form N-23c-3 will not be kept confidential. An agency may not conduct or sponsor, and a person is not required to respond to a collection of information unless it displays a currently valid OMB control number. Written comments are invited on: (a) whether the proposed collection of information is necessary for the proper performance of the functions of the Commission, including whether the information shall have practical utility; (b) the accuracy of the Commission's estimate of the burden of the collection of information; (c) ways to enhance the quality, utility, and clarity of the information collected; and (d) ways to minimize the burden of the collection of information on respondents, including through the use of automated collection techniques or other forms of information technology. Consideration will be given to comments and suggestions submitted by September 9, 2024. An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information [[Page 56462]] under the PRA unless it displays a currently valid OMB control number. Please direct your written comments to: Austin Gerig, Director/ Chief Data Officer, Securities and Exchange Commission, c/o Oluwaseun Ajayi, 100 F Street NE, Washington, DC 20549 or send an email to: [email protected]. Dated: July 2, 2024. Sherry R. Haywood, Assistant Secretary. [FR Doc. 2024-14977 Filed 7-8-24; 8:45 am] BILLING CODE 8011-01-P

usgpo

2024-10-08T13:27:02.964893

FR

FR-2024-07-09/2024-14974

Federal Register Volume 89 Issue 131 (July 9, 2024)

United States National Archives and Records Administration Office of the Federal Register

[Federal Register Volume 89, Number 131 (Tuesday, July 9, 2024)] [Notices] [Pages 56462-56467] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 2024-14974] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-100458; File No. SR-FINRA-2024-010] Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend FINRA Rule 8312 (FINRA BrokerCheck Disclosure) July 2, 2024. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that on June 27, 2024, the Financial Industry Regulatory Authority, Inc. (``FINRA'') filed with the Securities and Exchange Commission (``SEC'' or ``Commission'') the proposed rule change as described in Items I and II below, which Items have been prepared by FINRA. FINRA has designated the proposed rule change as constituting a ``non-controversial'' rule change under paragraph (f)(6) of Rule 19b-4 under the Act,\3\ which renders the proposal effective upon receipt of this filing by the Commission. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. --------------------------------------------------------------------------- \1\ 15 U.S.C. 78s(b)(1). \2\ 17 CFR 240.19b-4. \3\ 17 CFR 240.19b-4(f)(6). --------------------------------------------------------------------------- I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change FINRA is proposing to amend FINRA Rule 8312 (FINRA BrokerCheck Disclosure), which governs the information FINRA releases to the public via FINRA's BrokerCheck[supreg] tool, to exclude from release through BrokerCheck the street address of a registered location that is reported and identified to FINRA as a private residence.\4\ The proposed rule change would help address privacy and safety concerns raised by broker-dealer firms and their associated persons about the release through BrokerCheck of the full address of an associated person's private residential registered location.\5\ --------------------------------------------------------------------------- \4\ A private residence that meets the office of supervisory jurisdiction (``OSJ'') or branch office definitions under Rule 3110(f)(1) and Rule 3110(f)(2), respectively, must register with FINRA through the use of Form BR (Uniform Branch Office Registration Form) (``Form BR''); provided, however, a private residence that qualifies for an exclusion from the ``branch office'' definition under Rule 3110(f)(2) or is eligible to be designated as a Residential Supervisory Location (``RSL'') under Rule 3110.19 would not have to be registered with FINRA. Rule 3110.19 became effective on June 1, 2024, and allows member firms to designate as an RSL the private residence of an associated person of a member firm at which they engage in specified supervisory activities, subject to certain safeguards and limitations, as a non-branch location. See Regulatory Notice 24-02 (January 2024) (``Notice 24-02''). For purposes of the proposed rule change, an OSJ or branch office will be collectively referred to as a ``registered location'' and a registered location that is also a private residence will be referred to as a ``private residential registered location.'' For purposes of the proposed rule change, the street address would consist of the house number (and apartment or unit number, as applicable), street name, and for U.S. locations, the postal code (``street address''). \5\ As noted below, BrokerCheck displays certain information regarding (i) current or former FINRA member firms (``member firms'') and current or former associated persons of such member firms (``associated persons of member firms'') and (ii) current or former broker-dealers that are members of a self-regulatory organization (``SRO''), other than FINRA, that uses the Central Registration Depository (``CRD[supreg]'') for registration purposes (``non-member firms''), and current or former associated persons of such non-member firms (``associated persons of non-member firms''). For purposes of the proposed rule change, associated persons of member firms and associated persons of non-member firms will be collectively referred to as ``associated persons,'' and member firms and non-member firms will be collectively referred to as ``broker- dealer firms.'' --------------------------------------------------------------------------- Below is the text of the proposed rule change. Proposed new language is in italics; proposed deletions is in brackets. * * * * * 8300. SANCTIONS * * * * * 8312. FINRA BrokerCheck Disclosure (a) through (f) No Change. (g) FINRA shall not release: (1) information reported as a Social Security number, residential history, [or] physical description, the street address of a registered location identified as a private residence, information that FINRA is otherwise prohibited from releasing under Federal law, or information that is provided solely for use by regulators. FINRA reserves the right to exclude, on a case-by-case basis, information that contains confidential customer information, offensive or potentially defamatory language or information that raises significant identity theft, personal safety or privacy concerns that are not outweighed by investor protection concerns; (2) through (7) No Change. Supplementary Material: ------------ .01 through .03 No Change. * * * * * II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, FINRA included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. FINRA has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose a. Background i. FINRA's BrokerCheck Tool BrokerCheck is a free tool available on FINRA's website that is designed to help investors make informed choices about the associated persons and broker-dealer firms with which they conduct or may conduct business.\6\ The information that FINRA releases to the public through BrokerCheck is derived from CRD, the central licensing and registration system that FINRA operates for the benefit of FINRA, the SEC, other SROs, state securities regulators and broker-dealer firms. The information maintained in the CRD system is reported by broker-dealer firms, associated persons and regulatory authorities in response to questions on the uniform registration forms.\7\ These forms are used to collect registration information about broker-dealer firms and associated persons, including, among other things, registrations currently held, office locations, ownership information, and administrative, regulatory, criminal history, financial and other information. --------------------------------------------------------------------------- \6\ BrokerCheck is available at http://www.brokercheck.finra.org. \7\ The uniform registration forms are Form BD (Uniform Application for Broker Dealer Registration), Form BDW (Uniform Request for Broker-Dealer Withdrawal), Form BR, Form U4, Form U5 and Form U6 (Uniform Disciplinary Action Reporting Form). --------------------------------------------------------------------------- [[Page 56463]] The dissemination and accessibility of registration information maintained in the CRD system serves three important purposes. First, the CRD system provides securities regulators with a critical regulatory tool to oversee the activities of broker-dealer firms and associated persons and to detect regulatory problems. Second, broker- dealer firms use information in the CRD system to help them make informed employment decisions.\8\ Finally, to comply with the Exchange Act, FINRA makes a subset of the data maintained in the CRD system available through BrokerCheck so that the investing public can obtain information about associated persons and broker-dealer firms with which they conduct or may conduct business.\9\ --------------------------------------------------------------------------- \8\ As of December 31, 2023, over 67 million registrations for associated persons and investment adviser representatives have been processed through the CRD system over a period spanning more than 20 years. \9\ 15 U.S.C. 78a et seq. --------------------------------------------------------------------------- Rule 8312 specifies which registration information FINRA must release to the public through BrokerCheck.\10\ Subject to specified exceptions described below,\11\ investors are able to obtain information about broker-dealer firms and associated persons who are currently or were formerly registered with such broker-dealer firms, including the full address of any registered location where an associated person conducts business, even if the location is a private residence.\12\ FINRA notes that BrokerCheck generally does not release the address of an unregistered location (i.e., a non-branch location) and this practice would not be impacted by the proposed rule change.\13\ --------------------------------------------------------------------------- \10\ Other aspects of Rule 8312 include, in general, establishing a process to dispute the accuracy of certain information released through BrokerCheck; and permitting FINRA to provide, upon written request, a compilation of information about broker-dealer firms, subject to specified terms and conditions. \11\ See generally Rule 8312(g). \12\ BrokerCheck also displays information already publicly disseminated through the Investment Adviser Public Disclosure (``IAPD[supreg]'') database about individuals that are currently associated persons of a broker-dealer firm who are, or were, licensed as investment adviser representatives. See Rule 8312(d). \13\ See generally Rule 3110(f)(2) (listing the locations, including the residential locations, excluded from the branch office definition). --------------------------------------------------------------------------- Rule 8312 also specifies information that FINRA does not release through BrokerCheck.\14\ For example, FINRA does not release through BrokerCheck information regarding examination scores or failed examinations,\15\ information reported as a Social Security number, residential history, or physical description, information that FINRA is otherwise prohibited from releasing under Federal law, or information that is provided solely for use by regulators.\16\ --------------------------------------------------------------------------- \14\ See note 11, supra. \15\ See Rule 8312(b)(2)(E). \16\ See Rule 8312(g)(1). --------------------------------------------------------------------------- While the Form U4 and Form BR historically have included a ``Private Residence Check Box'' to identify private residential registered locations, this information has been collected for the purpose of enabling regulators to appropriately prepare for and staff onsite examinations that are scheduled at a private residence (which may differ from those examinations taking place at a commercial office). Accordingly, FINRA had historically determined to display through BrokerCheck the full address of a registered location or private residential registered location, irrespective of whether such location is reported and identified as a private residence. However, in recent years, especially after the significant increase in work-from- home and hybrid working arrangements since the pandemic, broker-dealer firms and their associated persons have raised privacy and safety concerns to FINRA about the release through BrokerCheck of the full address of an associated person's private residential registered location. As a result, FINRA undertook an assessment of Rule 8312 to take into consideration such privacy and safety concerns. This assessment, as described below, is consistent with periodic assessments that FINRA conducts regarding the information it provides to the public through BrokerCheck. Based on such periodic assessments, FINRA has previously made numerous changes to strengthen BrokerCheck, including changes that have made BrokerCheck information easier to access \17\ and have expanded the types of information available.\18\ --------------------------------------------------------------------------- \17\ At the outset of FINRA's public disclosure program, FINRA responded to all inquiries (made in writing or via a toll-free telephone number) by mailing or faxing a summary of an associated person's or broker-dealer firm's public information to the requestor. The request and delivery methods of such information eventually moved towards further electronic means by releasing some information on FINRA's website and providing information in the form of an automated report. See generally Notice to Members 97-78 (November 1997) (referencing FINRA responding to inquiries made in writing, electronically, and telephonically); Special Notice to Members 98-71 (August 1998) (referencing public disclosure of some information on FINRA's website); and Notice to Members 00-16 (March 2000) (announcing the ability to generate automated reports that draw disclosure information from CRD). \18\ See, e.g., Securities Exchange Act Release No. 88760 (April 28, 2020), 86 FR 26502 (May 4, 2020) (Notice of Filing and Immediate Effectiveness of File No. SR-FINRA-2020-012) (amending Rule 8312 to allow the dissemination through BrokerCheck of information already publicly disseminated through IAPD about individuals that are currently associated persons of broker-dealer firms who are, or were, licensed as investment adviser representatives). --------------------------------------------------------------------------- ii. Temporary Relief From Registration In early response to the pandemic, many private and government employers closed their offices and their employees continued with their work from alternative locations such as private residences. The pandemic prompted FINRA and other regulators to provide temporary relief to member firms from certain regulatory requirements to address the public health crisis, including the Form BR Relief.\19\ --------------------------------------------------------------------------- \19\ See Regulatory Notice 20-08 (March 2020) (``Notice 20-08'') (describing pandemic-related business continuity planning, guidance and regulatory relief that included the temporary suspension of the requirement that member firms submit Form BR for any newly opened temporary office locations or space-sharing arrangements established as a result of the pandemic (``Form BR Relief'')). The Form BR Relief expired on May 31, 2024, thus triggering the requirement under Article IV, Section 8 of the FINRA By-Laws that a member firm ``shall promptly advise [FINRA] . . . of the opening, closing, relocation, change in designated supervisor, or change in designated activities of any branch office of such member not later than 30 days after the effective date of such change.'' See Notice 24-02. --------------------------------------------------------------------------- The pandemic also prompted many broker-dealer firms to adopt a blended or hybrid work model, whereby associated persons work sometimes on-site in a commercial office setting and other times remotely in an alternative location such as a private residence. Based on feedback from broker-dealer firms received through various pandemic-related initiatives and other industry outreach,\20\ FINRA believes that this model will endure. As noted above, starting on June 1, 2024, member firms, particularly those that have been relying on the Form BR Relief, must resume the obligation to, among other things, submit or update branch office applications on Form BR, as applicable, for those locations, including private residences, that do not otherwise meet an exclusion from branch office registration under Rule 3110(f)(2) or Rule 3110.19.\21\ --------------------------------------------------------------------------- \20\ See generally FINRA's Key Topic: COVID-19/Coronavirus (referencing, among other things, Frequency Asked Questions, temporary amendments to FINRA rules, and Regulatory Notices), located at: https://www.finra.org/rules-guidance/key-topics/covid-19. \21\ See notes 4 and 19, supra. --------------------------------------------------------------------------- b. Proposed Amendments to Rule 8312(g)(1) As noted above, Rule 8312(g)(1) currently provides that FINRA shall not release information reported as a Social Security number, residential history, or physical description, information that [[Page 56464]] FINRA is otherwise prohibited from releasing under Federal law, or information that is provided solely for use by regulators. In light of the privacy and safety concerns raised by broker-dealer firms and associated persons regarding the release through BrokerCheck of the full address of an associated person's private residential registered location, coupled with the potentially significant change to the number of private residences that member firms may be required to register through Form BR following the expiration of the Form BR Relief,\22\ FINRA is proposing to amend Rule 8312(g)(1) to also exclude from release through BrokerCheck the street address of a private residential registered location that a broker-dealer firm has reported and identified to FINRA. To operationalize the proposed rule change, FINRA would implement a technology enhancement that would exclude from release on BrokerCheck the street address information of a private residential registered location when a broker-dealer firm selects the ``Private Residence Check Box'' on Form BR.\23\ --------------------------------------------------------------------------- \22\ See note 19, supra. At this time, an estimate of such change to the number of private residences that member firms may be required to register is difficult to ascertain because of member firm reliance on the Form BR Relief and the potential use of RSLs in accordance with Rule 3110.19. See note 4, supra. \23\ FINRA does not believe that any changes to the uniform registration forms are necessary to conform with the proposed rule change. A broker-dealer firm establishes a registered location through the use of Form BR, which includes a ``Private Residence Check Box'' that a broker-dealer firm must select to report and identify to FINRA a private residential registered location. See ``Specific Instructions for Completing Form BR'' (which provide, in part, that applicants ``[c]heck [the ``Private Residence Check Box''] if this [registered location] is also a private residence.''). Under the proposed rule change, FINRA expects that the release of the street address of a private residential registered location on BrokerCheck would be controlled by the identification of such location as a private residence through the ``Private Residence Check Box'' on Form BR. Accordingly, where a private residential registered location is reported and identified to FINRA through the ``Private Residence Check Box'' on Form BR, BrokerCheck would release only the city and state, and for such a location outside the United States, the city and country. Similarly, under the proposed rule change, for an associated person located at an unregistered location, BrokerCheck would release only the city and state of the associated person's ``Supervised From'' address where such ``Supervised From'' location is a private residential registered location has been reported and identified to FINRA as a private residence through the ``Private Residence Check Box'' on Form BR. However, in some instances, reports or other aggregated information contained on other uniform registration forms and that is aggregated in CRD and released through BrokerCheck may nevertheless include the street address of a private residential registered location, even where such location is reported and identified to FINRA through the ``Private Residence Check Box'' on Form BR. For example, a broker-dealer firm's main address, as identified on Form BD, regardless of whether such location is also reported and identified to FINRA through the ``Private Residence Check Box'' on Form BR, would continue to be released through BrokerCheck. --------------------------------------------------------------------------- FINRA believes that the proposed rule change would address privacy and safety concerns raised by broker-dealer firms and associated persons regarding the release through BrokerCheck of the full address of an associated person's private residential registered location in a manner that would not significantly affect the protection of investors or the public interest in two principal ways. First, the proposed rule change would address the physical privacy and safety concerns raised to FINRA by excluding the street address of an associated person's private residential registered location from release on, and prevent potential bad actors from accessing this information through, BrokerCheck.\24\ Second, the proposed rule change would address the digital privacy and safety of associated persons by excluding from public release on BrokerCheck a piece of personal information that has been linked to identity theft.\25\ --------------------------------------------------------------------------- \24\ FINRA believes that the proposed rule change would also help address specific safety concerns raised by broker-dealer firms and associated persons regarding associated persons whose immediate family members work in certain public service roles (e.g., judges or other public officials) and reside in the same residence as the associated person, or associated persons who have obtained restraining orders or orders of protection against third parties. \25\ An associated person's home address information could be used by a bad actor in connection with an identity theft scheme. See generally What to Know About Identity Theft, Federal Trade Commission (April 2021), https://consumer.ftc.gov/articles/what-know-about-identity-theft. --------------------------------------------------------------------------- Furthermore, widespread changes in workplace models in the financial industry, coupled with a broader adoption by customers of digital means of interacting with broker-dealer firms, appear to place less relevance on the street address of an associated person's private residential registered location as a necessary data point in order for investors to engage in securities activities with an associated person or broker-dealer firm. In this regard, investors now commonly open accounts and place trades through online platforms, and associated persons and broker-dealer firms communicate with customers through email, video or meetings programs (e.g., WebEx, Zoom) in lieu of visiting a broker-dealer firm's physical offices.\26\ --------------------------------------------------------------------------- \26\ Many customers now expect their primary mode of interaction with their broker-dealer firm to be digital. In a study to learn about investors who, during the year 2020, entered into the markets using taxable, non-retirement investment accounts, FINRA found that nearly half (48%) of ``new investors,'' investors who opened a non- retirement investment account during 2020, indicated that they accessed their account primarily through a mobile app, and three- quarters (75%) of ``holdover account owners,'' investors who maintained a taxable investment account opened before year 2020, indicated they accessed their account primarily through a website. See generally FINRA Investor Education Foundation & NORC, Consumer Insights: Money & Investing, Investing 2020: New Accounts and the People Who Opened Them at 11 (February 2021), https://www.finrafoundation.org/sites/finrafoundation/files/investing-2020-new-accounts-and-the-people-who-opened-them_1_0.pdf. --------------------------------------------------------------------------- As a result, FINRA believes that the proposed rule change would not significantly affect the protection of investors or the public interest as it would not impact the information on BrokerCheck that informs an investor's ability to make decisions about the associated person and broker-dealer firm with which the investor conducts or may conduct business, such as disciplinary history (e.g., certain customer complaints, regulatory actions and criminal or civil judicial proceedings); disclosure events (e.g., bankruptcies or liens); registration history; direct and indirect ownership information; affiliate and executive officer information; employment history and other business activities. In addition, FINRA notes that the proposed rule change would align with the approach in IAPD with respect to private residential address suppression, as IAPD currently excludes from release the house number (and apartment or unit number, as applicable), street name, and for U.S. locations, the postal code of a registered location that is reported and identified as a private residence on the relevant uniform investment adviser registration form.\27\ --------------------------------------------------------------------------- \27\ See Investment Advisers Act Release No. 1897 (September 12, 2000), 65 FR 57438, 57439 (September 22, 2000) (Final Rule). The proposed rule change would therefore align IAPD's and BrokerCheck's treatment of the street address of a registered location that is reported and identified to FINRA as a private residence through the relevant uniform registration form (i.e., by excluding from release through BrokerCheck certain street address information regarding a private residential registered location that is reported and identified to FINRA through the ``Private Residence Check Box'' on Form BR). --------------------------------------------------------------------------- In addition, FINRA does not believe that the proposed rule change would significantly affect the protection of investors or the public interest as there are other regulatory requirements that would continue to provide customers with the necessary broker-dealer firm contact information for the purposes of submitting inquiries or complaints.\28\ [[Page 56465]] For example, among other obligations, broker-dealer firms would still be required to provide customers with periodic customer account statements that must clearly and prominently disclose the identity of the introducing firm and carrying firm (if different) and their respective contact information for customer service.\29\ BrokerCheck would also continue to display the street address of a broker-dealer firm's main office, even where such address is a private residence.\30\ Thus, a mailing address would be available if necessary. --------------------------------------------------------------------------- \28\ See, e.g., Exchange Act Rule 17a-3(a)(18)(ii) (which requires broker-dealer firms to maintain a record indicating that each of the broker-dealer firms' customers has been provided with a notice containing the address and telephone number of the department of the broker-dealer firm to which any complaints as to the customers' accounts may be directed). \29\ See FINRA Rule 2231.05 (Customer Account Statements, Information to be Disclosed on Statement). \30\ See note 23, supra. --------------------------------------------------------------------------- FINRA also recognizes that some associated persons or broker-dealer firms may elect to ``hold out'' a private residential registered location that has been reported and identified to FINRA through the ``Private Residence Check Box'' on Form BR and disclose the street address of such private residential registered location to existing or prospective customers through their websites, stationery or otherwise. FINRA notes that the proposed rule change would not preclude an associated person or broker-dealer firm from holding out such private residential registered location to the public using such disclosure methods. The proposed rule change would govern only FINRA's release of this specified personal information on BrokerCheck. Moreover, the full address of an associated person's private residential registered location that is reported and identified to FINRA through the ``Private Residence Check Box'' on Form BR would remain available to FINRA, the SEC, SROs, and state securities regulators through the CRD system. FINRA has filed the proposed rule change for immediate effectiveness and has requested that the SEC waive the requirement that the proposed rule change not become operative for 30 days after the date of the filing, so FINRA can implement the proposed rule change on June 27, 2024. As member firms work to submit or update branch office registrations or information on Form BR within the timeframes set forth in Notice 24-02, FINRA believes that a waiver would efficiently match the timing of the proposed rule change with such efforts and thereby address the privacy and safety concerns of broker-dealer firms and their associated persons relating to the release through BrokerCheck of the full address of an associated person's private residential registered location in a manner that would not significantly affect the protection of investors or the public interest. Among those timeframes are May 31, 2024, the date on which the Form BR Relief expired, and June 1, 2024, the date on which member firms that have been relying on the Form BR Relief must resume the obligation to, among other things, submit or update branch office applications on Form BR for any space- sharing arrangements or office locations, including private residential locations, that were established as a result of the pandemic that have not otherwise been registered or updated with FINRA through Form BR as prescribed in Article IV, Section 8 of the FINRA By-Laws.\31\ In resuming this obligation, FINRA expects member firms will need to submit or update Form BRs for applicable locations and a waiver would allow member firms to report and identify private residential registered locations through the use of the ``Private Residence Check Box'' as part of a single process when updating such Form BRs and thus address the privacy and safety concerns of broker-dealer firms and their associated persons relating to the release through BrokerCheck of the full address of an associated person's private residential registered location. --------------------------------------------------------------------------- \31\ See note 19, supra. --------------------------------------------------------------------------- 2. Statutory Basis FINRA believes that the proposed rule change is consistent with the provisions of Section 15A(b)(6) of the Act,\32\ which requires, among other things, that FINRA rules be designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, and, in general, to protect investors and the public interest. FINRA believes the proposed rule change would help address privacy and safety concerns raised by broker-dealer firms and associated persons regarding the release of an associated person's street address on BrokerCheck in a manner that would not significantly affect the protection of investors or the public interest. As noted above, widespread changes in workplace models, coupled with a broader adoption by customers of digital means of interacting with broker- dealer firms and associated persons, appear to place less relevance on the street address of an associated person's private residential registered location as a necessary data point in order for investors to engage in securities activities with associated persons or broker- dealer firms.\33\ Given the other information that would remain on BrokerCheck, FINRA believes that excluding from release the street address, while continuing to display the city and state (or city and country), of a private residential registered location that is reported and identified to FINRA through the ``Private Residence Check Box'' on Form BR would not significantly affect an investor's ability to make informed decisions about an associated person or broker-dealer firm with which the investor conducts or may wish to conduct business. In addition, FINRA believes that the proposed rule change would not significantly affect the ability of an investor to contact their broker-dealer firm to raise concerns or complaints as there exist other regulatory requirements that would continue to provide customers with the necessary broker-dealer firm contact information.\34\ The proposed rule change also would not impose appreciable costs on broker-dealer firms because the proposed rule change does not impose any new obligation on broker-dealer firms.\35\ In addition, the proposed rule change would not preclude an associated person or broker-dealer firm from electing to ``hold out'' a private residential registered location that has been reported and identified to FINRA through the ``Private Residence Check Box'' on Form BR and disclose the street address of such private residential registered location to existing or prospective customers through their websites, stationery or otherwise. --------------------------------------------------------------------------- \32\ 15 U.S.C. 78o-3(b)(6). \33\ See note 26, supra. \34\ See notes 28 and 29, supra. \35\ See Article IV, Sec. 8(b) of the FINRA By-Laws (Registration of Branch Offices), which requires that member firms notify FINRA (via Form BR) of, among other things, the ``opening, closing or relocation . . . of a branch office location.'' This requirement would apply to the identification and disclosure of a private residential registered location that is reported and identified to FINRA through the use of the ``Private Residence Check Box'' on Form BR. --------------------------------------------------------------------------- Further, FINRA believes that the proposed rule change would not impact the efficiency with which broker-dealer firms report information to the CRD system, or the completeness of information available to FINRA, the SEC, SROs, and state regulators through the CRD system as the full address of an associated person's private residential registered location that is also reported and identified to FINRA through the ``Private Residence Check Box'' on Form BR would remain accessible to regulators. B. Self-Regulatory Organization's Statement on Burden on Competition FINRA does not believe that the proposed rule change will result in any [[Page 56466]] burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act, as discussed below. Economic Impact Assessment 1. Regulatory Need BrokerCheck is a free online tool that allows investors to research the background and qualifications of associated persons and broker- dealer firms with which they conduct or may conduct business. Excluding from release through BrokerCheck the street address of a private residential registered location that is reported and identified to FINRA through the ``Private Residence Check Box'' on Form BR would help address the privacy and safety concerns raised by broker-dealer firms and associated persons about the release of such information through BrokerCheck. The proposed rule change would not significantly affect the protection of investors or the public interest as it would not impact the information on BrokerCheck that informs an investor's ability to make decisions about the broker-dealer firms or associated persons with which they conduct or may conduct business. 2. Economic Baseline The economic baseline for the proposed rule change is the current regulatory framework, the information currently available through BrokerCheck and current investor use of BrokerCheck. As of December 31, 2023, FINRA's membership included 3,300 active member firms with 148,452 registered locations,\36\ of which 20,109 were reported and identified on Form BR as private residences, accounting for about 22,038 associated persons of member firms.\37\ Approximately 900 member firms have private residential registered locations (about 28% of FINRA's membership), and the top five member firms making the greatest use of private residential registered locations account for approximately 34% of all such locations. These data may not fully reflect the number of private residential registered locations due to temporary regulatory relief, including the Form BR Relief.\38\ --------------------------------------------------------------------------- \36\ This count excludes broker-dealers with FINRA membership pending approval and withdrawn or terminated from FINRA membership. \37\ The number of registered locations and private residential registered locations are derived from information provided by broker-dealer firms on Form BR. Under the proposed rule change, for associated persons located at an unregistered location, BrokerCheck would release the city and state of the associated person's ``Supervised From'' address where such ``Supervised From'' location is a private residential registered location that has been reported and identified to FINRA through the ``Private Residence Check Box'' on Form BR. See note 23, supra. FINRA estimates that approximately 6,300 associated persons of member firms working in unregistered locations are supervised from private residential registered locations that are reported and identified to FINRA through the ``Private Residence Check Box'' on Form BR. \38\ See note 22, supra. --------------------------------------------------------------------------- In 2023, BrokerCheck users conducted approximately 18.3 million searches of broker-dealer firms and associated persons. Street address information concerning existing private residential registered locations that could be excluded from release under the proposed rule change (i.e., those that are reported and identified to FINRA through the ``Private Residence Check Box'' on Form BR) may persist in the public domain through other sources that retrieved information from BrokerCheck before the proposed change is implemented. 3. Economic Impacts Due to the expiration of the Form BR Relief, many broker-dealer firms are likely to register additional private residential locations to accommodate hybrid workforce arrangements.\39\ The proposed rule change would help to safeguard the privacy of the street addresses of associated persons' private residential registered locations where such locations are reported and identified to FINRA through the ``Private Residence Check Box'' on Form BR, and thereby make broker-dealer firms and associated person more willing to register private residential locations with FINRA through Form BR, as applicable. FINRA expects that the competitive effects of not releasing the street address of a private residential registered location on BrokerCheck would be negligible; broker-dealer firms that currently use such locations may be more likely to expand their use. --------------------------------------------------------------------------- \39\ See note 22, supra. --------------------------------------------------------------------------- For those private residential registered locations newly established after the proposed rule change would go into effect, the street address would be excluded from release through BrokerCheck where the ``Private Residence Check Box'' on Form BR is selected.\40\ As previously noted, street address information concerning existing private residential registered locations that would be excluded from release under the proposed rule change might be available to the public through other channels that sourced BrokerCheck data prior to the effectiveness of the proposed rule change. --------------------------------------------------------------------------- \40\ See note 23, supra. --------------------------------------------------------------------------- The proposed rule change would not impose appreciable costs on broker-dealer firms, nor would it significantly affect the protection of investors or the public interest. In addition, the proposed rule change would not preclude an associated person or broker-dealer firm from electing to ``hold out'' a private residential registered location that has been reported and identified to FINRA through the ``Private Residence Check Box'' and disclose the street address of such private residential registered location to existing or prospective customers through their websites, stationery or otherwise. FINRA notes that the proposed rule change would not prohibit distributing such street address information selectively, but if doing so is costly, a broker- dealer firm could (as noted above) put the information on its website or not distribute it at all. FINRA believes that the proposed rule change would not significantly affect the protection of investors or the public interest. Given the other information that would remain on BrokerCheck, FINRA does not believe that excluding the street address from release through BrokerCheck, while continuing to display the city and state (or city and country), of a private residential registered location that is reported and identified to FINRA through the ``Private Residence Check Box'' on Form BR would significantly affect the ability of an investor to make an informed decision about an associated person or broker- dealer firm with which the investor conducts or may conduct business. In particular, the disciplinary histories of a broker-dealer firm and its associated persons that are currently released through BrokerCheck would continue to be made available to the public. Excluding from release through BrokerCheck the street address of a private residential registered location that is reported and identified through the ``Private Residence Check Box'' on Form BR also would not significantly affect the ability of an investor to raise concerns or make complaints about the conduct of a broker-dealer firm or associated person.\41\ The proposed rule change would have no impact on investors' continued access to the main address of a broker-dealer firm, even if the location is also reported and identified to FINRA as a private residence through the ``Private Residence Check Box'' on Form BR.\42\ --------------------------------------------------------------------------- \41\ See notes 28 and 29, supra. \42\ See note 23, supra. --------------------------------------------------------------------------- The proposed rule change would have no impact on broker-dealer firms' registration requirements or supervision requirements. FINRA, the SEC, SROs, and state securities regulators would [[Page 56467]] continue to have access to the full street addresses of all registered locations through the CRD system. 4. Alternatives Considered No significant alternatives to these requirements were considered. C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others Written comments were neither solicited nor received. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Because the foregoing proposed rule change does not: (i) significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate, it has become effective pursuant to Section 19(b)(3)(A) of the Act \43\ and Rule 19b- 4(f)(6) thereunder.\44\ --------------------------------------------------------------------------- \43\ 15 U.S.C. 78s(b)(3)(A). \44\ 17 CFR 240.19b-4(f)(6). --------------------------------------------------------------------------- A proposed rule change filed under Rule 19b-4(f)(6) normally does not become operative prior to 30 days after the date of the filing. However, pursuant to Rule 19b-4(f)(6)(iii),\45\ the Commission may designate a shorter time if such action is consistent with the protection of investors and the public interest. FINRA has requested that the Commission waive the 30-day operative delay requirement so that the proposed rule change may become operative on June 27, 2024. The Commission hereby grants the request. During the pandemic, FINRA temporarily suspended the requirement that member firms submit Form BR for any newly opened temporary office locations or space-sharing arrangements established as a result of the pandemic. This Form BR Relief expired on May 31, 2024, triggering a requirement for some of these offices to register with FINRA. As a result, FINRA expects that broker-dealer firms will register a potentially significant number of offices, including a potentially significant number of associated persons' private residences. The proposed rule change would exclude from release through BrokerCheck the street address of a private residential registered location that a broker-dealer firm has reported and identified to FINRA, helping address privacy and safety concerns raised by broker-dealer firms and their associated persons. Extending these protections upon filing of the proposed rule change and without a 30-day operative delay would help ensure that they would apply to private residential registered locations immediately and align the timing of the proposed rule change with the resumption of the obligation to register certain offices following the pandemic, thereby minimizing potential disruptions to the registration process. For these reasons, the Commission believes that waiver of the 30-day operative delay for this proposed rule change is consistent with the protection of investors and the public interest. Accordingly, the Commission hereby waives the 30-day operative delay and designates the proposed rule change operative upon filing. --------------------------------------------------------------------------- \45\ 17 CFR 240.19b-4(f)(6)(iii). --------------------------------------------------------------------------- At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule should be approved or disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or Send an email to [email protected]. Please include file number SR-FINRA-2024-010 on the subject line. Paper Comments Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090. All submissions should refer to file number SR-FINRA-2024-010. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's internet website (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for website viewing and printing in the Commission's Public Reference Room, 100 F Street NE, Washington, DC 20549, on official business days between the hours of 10 a.m. and 3 p.m. Copies of such filing also will be available for inspection and copying at the principal office of FINRA. Do not include personal identifiable information in submissions; you should submit only information that you wish to make available publicly. We may redact in part or withhold entirely from publication submitted material that is obscene or subject to copyright protection. All submissions should refer to file number SR-FINRA-2024-010 and should be submitted on or before July 30, 2024. --------------------------------------------------------------------------- \46\ 17 CFR 200.30-3(a)(12). For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\46\ Sherry R. Haywood, Assistant Secretary. [FR Doc. 2024-14974 Filed 7-8-24; 8:45 am] BILLING CODE 8011-01-P

usgpo

2024-10-08T13:27:03.001105

FR

FR-2024-07-09/2024-15107

Federal Register Volume 89 Issue 131 (July 9, 2024)

United States National Archives and Records Administration Office of the Federal Register

[Federal Register Volume 89, Number 131 (Tuesday, July 9, 2024)] [Notices] [Pages 56467-56468] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 2024-15107] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Sunshine Act Meetings TIME AND DATE: Notice is hereby given, pursuant to the provisions of the Government in the Sunshine Act, Public Law 94-409, that the Securities and Exchange Commission Small Business Capital Formation Advisory Committee will hold a public meeting on Tuesday, July 30, 2024, via videoconference. PLACE: The meeting will be conducted by remote means (videoconference) and/or at the Commission's headquarters, 100 F Street NE, Washington, DC 20549. Members of the public may watch the webcast of the meeting on the Commission's website at www.sec.gov. STATUS: The meeting will begin at 10:00 a.m. (ET) and will be open to the public via webcast on the Commission's website at www.sec.gov. This Sunshine Act notice is being issued because a majority of the Commission may attend the meeting. MATTERS TO BE CONSIDERED: The agenda for the meeting includes matters relating [[Page 56468]] to rules and regulations affecting small and emerging businesses and their investors under the federal securities laws. CONTACT PERSON FOR MORE INFORMATION: For further information, please contact Vanessa A. Countryman from the Office of the Secretary at (202) 551-5400. Authority: 5 U.S.C. 552b. Dated: July 5, 2024. Vanessa A. Countryman, Secretary. [FR Doc. 2024-15107 Filed 7-5-24; 11:15 am] BILLING CODE 8011-01-P

usgpo

2024-10-08T13:27:03.029021

FR

FR-2024-07-09/2024-14938

Federal Register Volume 89 Issue 131 (July 9, 2024)

United States National Archives and Records Administration Office of the Federal Register

[Federal Register Volume 89, Number 131 (Tuesday, July 9, 2024)] [Notices] [Page 56468] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 2024-14938] ======================================================================= ----------------------------------------------------------------------- SMALL BUSINESS ADMINISTRATION [Disaster Declaration #20358 and #20359; TEXAS Disaster Number TX- 20013] Presidential Declaration Amendment of a Major Disaster for Public Assistance Only for the State of Texas AGENCY: U.S. Small Business Administration. ACTION: Amendment 5. ----------------------------------------------------------------------- SUMMARY: This is an amendment of the Presidential declaration of a major disaster for Public Assistance Only for the State of Texas (FEMA- 4781-DR), dated 05/23/2024. Incident: Severe Storms, Straight-line Winds, Tornadoes, and Flooding. Incident Period: 04/26/2024 through 06/05/2024. DATES: Issued on 07/01/2024. Physical Loan Application Deadline Date: 07/22/2024. Economic Injury (EIDL) Loan Application Deadline Date: 02/24/2025. ADDRESSES: Visit the MySBA Loan Portal at https://lending.sba.gov to apply for a disaster assistance loan. FOR FURTHER INFORMATION CONTACT: Alan Escobar, Office of Disaster Recovery & Resilience, U.S. Small Business Administration, 409 3rd Street SW, Suite 6050, Washington, DC 20416, (202) 205-6734. SUPPLEMENTARY INFORMATION: The notice of the President's major disaster declaration for Private Non-Profit organizations in the State of Texas, dated 05/23/2024, is hereby amended to include the following areas as adversely affected by the disaster. Primary Counties: Anderson, Baylor, Cochran, Delta, Henderson, Kaufman, Milam, Rockwall, Rusk, Van Zandt. All other information in the original declaration remains unchanged. (Catalog of Federal Domestic Assistance Number 59008) Rafaela Monchek, Deputy Associate Administrator, Office of Disaster Recovery & Resilience. [FR Doc. 2024-14938 Filed 7-8-24; 8:45 am] BILLING CODE 8026-09-P

usgpo

2024-10-08T13:27:03.054985

FR

FR-2024-07-09/2024-14831

Federal Register Volume 89 Issue 131 (July 9, 2024)

United States National Archives and Records Administration Office of the Federal Register

[Federal Register Volume 89, Number 131 (Tuesday, July 9, 2024)] [Notices] [Page 56468] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 2024-14831] ----------------------------------------------------------------------- SMALL BUSINESS ADMINISTRATION [Disaster Declaration #20431; CALIFORNIA Disaster Number CA-20018 Declaration of Economic Injury] Administrative Declaration of an Economic Injury Disaster for the State of California AGENCY: Small Business Administration. ACTION: Notice. ----------------------------------------------------------------------- SUMMARY: This is a notice of an Economic Injury Disaster Loan (EIDL) declaration for the State of California dated 07/01/2024. Incident: Topanga Landslide & Closure of State Route 27. Incident Period: 03/09/2024 through 06/02/2024. DATES: Issued on 07/01/2024. Economic Injury (EIDL) Loan Application Deadline Date: 04/01/2025. ADDRESSES: Visit the MySBA Loan Portal at https://lending.sba.gov to apply for a disaster assistance loan. FOR FURTHER INFORMATION CONTACT: Alan Escobar, Office of Disaster Recovery Resilience, U.S. Small Business Administration, 409 3rd Street SW, Suite 6050, Washington, DC 20416, (202) 205-6734. SUPPLEMENTARY INFORMATION: Notice is hereby given that as a result of the Administrator's EIDL declaration, applications for disaster loans may be submitted online using the MySBA Loan Portal https://lending.sba.gov or other locally announced locations. Please contact the SBA disaster assistance customer service center by email at [email protected] or by phone at 1-800-659-2955 for further assistance. The following areas have been determined to be adversely affected by the disaster: Primary Counties: Los Angeles. Contiguous Counties: California: Kern, Orange, San Bernardino, Ventura. The Interest Rates are: ------------------------------------------------------------------------ Percent ------------------------------------------------------------------------ Business and Small Agricultural Cooperatives without Credit 4.000 Available Elsewhere....................................... Non-Profit Organizations without Credit Available Elsewhere 3.250 ------------------------------------------------------------------------ The number assigned to this disaster for economic injury is 204310. The State which received an EIDL Declaration is California. (Catalog of Federal Domestic Assistance Number 59008) Isabella Guzman, Administrator. [FR Doc. 2024-14831 Filed 7-8-24; 8:45 am] BILLING CODE 8026-09-P

usgpo

2024-10-08T13:27:03.087379

FR

FR-2024-07-09/2024-14940

Federal Register Volume 89 Issue 131 (July 9, 2024)

United States National Archives and Records Administration Office of the Federal Register

[Federal Register Volume 89, Number 131 (Tuesday, July 9, 2024)] [Notices] [Pages 56468-56469] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 2024-14940] ======================================================================= ----------------------------------------------------------------------- DEPARTMENT OF STATE [Public Notice: 12396] Specially Designated Global Terrorist Designations of Messaoud Belhireche, Talha al-Libi, Hamama Ould Khouier, and Hussein Ould Hammada Acting under the authority of and in accordance with section 1(a)(ii)(B) of E.O. 13224, the Secretary of State has determined that the persons known as Messaoud Belhireche (also known as Usamah `Abd-al- Wahid al-Jaza'iri Belkacem, Usama Abu-`Abd-al-Wahid al-Jaza'iri, Abu Usama al-Jaza'iri) and Talha al-Libi (also known as Sidi Mohamed Ould Mohamed Salem, Abderrahmane Ould Mohamed Salem, Abu Talha al-Azawadi, Abu Talha al-Barbouci) are leaders of Jama'at Nusrat al-Islam wal- Muslimin (JNIM), an entity whose property and interests in property are blocked pursuant to a determination by the Secretary of State pursuant to E.O. 13224, and the persons known as Hamama Ould Khouier (also known as Hamza Ould Koiya, Hamza Tabankort, Hamama Mehri) and Hussein Ould Hammada (also known as Alhoussein Ould Hamada, Zakaria Tabankort) are leaders of al-Murabitoun, an entity whose property and interests in property are blocked pursuant to a determination by the Secretary of State pursuant to E.O. 13224. Consistent with the determination in section 10 of E.O. 13224 that prior notice to persons determined to be subject to the Order who might have a constitutional presence in the United States would render ineffectual the blocking and other measures authorized in the Order because of the ability to transfer funds instantaneously, the Secretary of State determines that no prior notice needs to be provided to any person subject to this determination who might have a constitutional presence in the United States, because [[Page 56469]] to do so would render ineffectual the measures authorized in the Order. This determination shall be published in the Federal Register. Dated: April 23, 2024. Elizabeth H. Richard, Coordinator for Counterterrorism. [FR Doc. 2024-14940 Filed 7-8-24; 8:45 am] BILLING CODE 4710-AD-P

usgpo

2024-10-08T13:27:03.116526

FR

FR-2024-07-09/2024-14946

Federal Register Volume 89 Issue 131 (July 9, 2024)

United States National Archives and Records Administration Office of the Federal Register

[Federal Register Volume 89, Number 131 (Tuesday, July 9, 2024)] [Notices] [Page 56469] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 2024-14946] ----------------------------------------------------------------------- DEPARTMENT OF STATE [Public Notice: 12402] Review of the Foreign Terrorist Organization Designation of al- Shabaab Based upon a review of the Administrative Record assembled pursuant to Section 219(a)(4)(C) of the Immigration and Nationality Act, as amended (8 U.S.C. 1189(a)(4)(C)) (``INA''), and in consultation with the Attorney General and the Secretary of the Treasury, the Secretary of State has determined that the circumstances that were the basis for the designation of al-Shabaab (and other aliases) as a Foreign Terrorist Organization have not changed in such a manner as to warrant revocation of the designation and that the national security of the United States does not warrant a revocation of the designation. Therefore, the Secretary of State has determined that the designation of the aforementioned organization, pursuant to Section 219 of the INA (8 U.S.C. 1189), shall be maintained. This determination shall be published in the Federal Register. Dated: May 2, 2024. Elizabeth H. Richard, Coordinator for Counterterrorism. [FR Doc. 2024-14946 Filed 7-8-24; 8:45 am] BILLING CODE 4710-AD-P

usgpo

2024-10-08T13:27:03.190700

FR

FR-2024-07-09/2024-14941

Federal Register Volume 89 Issue 131 (July 9, 2024)

United States National Archives and Records Administration Office of the Federal Register

[Federal Register Volume 89, Number 131 (Tuesday, July 9, 2024)] [Notices] [Page 56469] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 2024-14941] ----------------------------------------------------------------------- DEPARTMENT OF STATE [Public Notice:12428] Specially Designated Global Terrorist Designations of Harakat Ansar Allah al-Awfiya and Haydar Muzhir Ma'lak al-Sa'idi Acting under the authority of and in accordance with section 1(a)(ii)(A) of Executive Order 13224, as amended (``E.O. 13224'' or ``Order''), the Secretary of State has determined that the person known as Harakat Ansar Allah al-Awfiya (also known as Ansar Allah al Awfiya fi Souriya; Ansar Alah Alofia; Kayan al-Sadiq wa al-Ataa; Harakat al- Sadiq wa al-Ataa; God's Loyal Supporters; The Movement of the Loyal Partisans of God; Honesty and Giving Entity) is a foreign person who has committed or attempted to commit, poses a significant risk of committing, or has participated in training to commit, acts of terrorism that threaten the security of U.S. nationals or the national security, foreign policy, or economy of the United States. Additionally, acting under the authority of and in accordance with section 1(a)(ii)(B) of E.O. 13224, the Secretary of State has determined that the person known as Haydar Muzhir Ma'lak al-Sa'idi (also known as Hayder Mezher Maalak al Saedi; Haydar al-Gharawi; Haider Ibrahim al-Gharawi; `Ali Haydar al-Gharawi) is a leader of Harakat Ansar Allah al-Awfiya, an entity whose property and interests in property are concurrently blocked pursuant to a determination by the Secretary of State pursuant to E.O. 13224. Consistent with the determination in section 10 of E.O. 13224 that prior notice to persons determined to be subject to the Order who might have a constitutional presence in the United States would render ineffectual the blocking and other measures authorized in the Order because of the ability to transfer funds instantaneously, the Secretary of State determines that no prior notice needs to be provided to any person subject to this determination who might have a constitutional presence in the United States, because to do so would render ineffectual the measures authorized in the Order. This determination shall be published in the Federal Register. Dated: June 17, 2024. Elizabeth H. Richard, Coordinator for Counterterrorism. [FR Doc. 2024-14941 Filed 7-8-24; 8:45 am] BILLING CODE 4710-AD-P

usgpo

2024-10-08T13:27:03.201800

FR

FR-2024-07-09/2024-14944

Federal Register Volume 89 Issue 131 (July 9, 2024)

United States National Archives and Records Administration Office of the Federal Register

[Federal Register Volume 89, Number 131 (Tuesday, July 9, 2024)] [Notices] [Page 56469] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 2024-14944] ----------------------------------------------------------------------- DEPARTMENT OF STATE [Public Notice:12437] Specially Designated Global Terrorist Designation of Adam Khamirzaev Acting under the authority of and in accordance with section 1(a)(ii)(B) of Executive Order 13224, as amended (``E.O. 13224'' or ``Order''), the Secretary of State has determined that the person known as Adam Khamirzaev (also known as Adam Abu Darrar al-Shishani; Adam Islamovych Oliferchik; Andrei Guzun) is a leader of ISIS, an entity whose property and interests in property are blocked pursuant to a determination by the Secretary of State pursuant to E.O. 13224. Consistent with the determination in section 10 of E.O. 13224 that prior notice to persons determined to be subject to the Order who might have a constitutional presence in the United States would render ineffectual the blocking and other measures authorized in the Order because of the ability to transfer funds instantaneously, the Secretary of State determines that no prior notice needs to be provided to any person subject to this determination who might have a constitutional presence in the United States, because to do so would render ineffectual the measures authorized in the Order. This determination shall be published in the Federal Register. Dated: June 14, 2024. Elizabeth H. Richard, Coordinator for Counterterrorism. [FR Doc. 2024-14944 Filed 7-8-24; 8:45 am] BILLING CODE 4710-AD-P

usgpo

2024-10-08T13:27:03.222539

FR

FR-2024-07-09/2024-14942

Federal Register Volume 89 Issue 131 (July 9, 2024)

United States National Archives and Records Administration Office of the Federal Register

[Federal Register Volume 89, Number 131 (Tuesday, July 9, 2024)] [Notices] [Pages 56469-56470] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 2024-14942] ----------------------------------------------------------------------- DEPARTMENT OF STATE [Public Notice:12436] Specially Designated Global Terrorist Designations of Nordic Resistance Movement, Tor Fredrik Vejdeland, P[auml]r [Ouml]berg, and Leif Robert Eklund Acting under the authority of and in accordance with section 1(a)(ii)(A) of Executive Order 13224, as amended (``E.O. 13224'' or ``Order''), the Secretary of State has determined that the person known as Nordic Resistance Movement (also known as NRM, Nordiska motst[aring]ndsr[ouml]relsen, NMR, Swedish Resistance Movement, Svenska motst[aring]ndsr[ouml]relsen, SMR, NRM-Sweden, Finnish Resistance Movement, Suomen Vastarintaliike, NRM-Finland, Kohti Vapautta!, Norwegian Resistance Movement, Den norske motstandsbevegelsen, NRM- Norway) is a foreign person who has committed or attempted to commit, poses a significant risk of committing, or has participated in training to commit acts of terrorism that threaten the security of United States nationals or the national security, foreign policy, or economy of the United States. Additionally, acting under the authority of and in accordance with section 1(a)(ii)(B)(2) of E.O. 13224, the Secretary of State has determined that the persons known as Tor Fredrik Vejdeland (also known as Fredrik Vejdeland), P[auml]r [Ouml]berg, and Leif Robert Eklund (also known as Robert Eklund), are foreign persons who are leaders of Nordic Resistance Movement, an entity whose property and interests in property are concurrently blocked [[Page 56470]] pursuant to a determination by the Secretary of State pursuant to E.O. 13224. Consistent with the determination in section 10 of E.O. 13224 that prior notice to persons determined to be subject to the Order who might have a constitutional presence in the United States would render ineffectual the blocking and other measures authorized in the Order because of the ability to transfer funds instantaneously, the Secretary of State determines that no prior notice needs to be provided to any person subject to this determination who might have a constitutional presence in the United States, because to do so would render ineffectual the measures authorized in the Order. This determination shall be published in the Federal Register. Dated: June 14, 2024. Elizabeth H. Richard, Coordinator for Counterterrorism. [FR Doc. 2024-14942 Filed 7-8-24; 8:45 am] BILLING CODE 4710-AD-P

usgpo

2024-10-08T13:27:03.258137

FR

FR-2024-07-09/2024-15004

Federal Register Volume 89 Issue 131 (July 9, 2024)

United States National Archives and Records Administration Office of the Federal Register

[Federal Register Volume 89, Number 131 (Tuesday, July 9, 2024)] [Notices] [Pages 56470-56471] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 2024-15004] ======================================================================= ----------------------------------------------------------------------- SUSQUEHANNA RIVER BASIN COMMISSION Public Hearing AGENCY: Susquehanna River Basin Commission. ACTION: Notice. ----------------------------------------------------------------------- SUMMARY: The Susquehanna River Basin Commission will hold a public hearing on August 1, 2024. The Commission will hold this hearing in person and telephonically. At this public hearing, the Commission will hear testimony on the projects listed in the SUPPLEMENTARY INFORMATION section of this notice and any additional testimony on the proposed rulemaking placed on the table at the June Commission meeting. Such projects and actions are intended to be scheduled for Commission action at its next business meeting, tentatively scheduled for September 12, 2024, which will be noticed separately. The public should note that this public hearing will be the only opportunity to offer oral comments to the Commission for the listed projects and actions. The deadline for the submission of written comments is August 12, 2024. DATES: The public hearing will convene on August 1, 2024, at 6:30 p.m. The public hearing will end at 9:00 p.m. or at the conclusion of public testimony, whichever is earlier. The deadline for submitting written comments is Monday, August 12, 2024. ADDRESSES: This public hearing will be conducted in person and virtually. You may attend in person at Susquehanna River Basin Commission, 4423 N Front St., Harrisburg, Pennsylvania, or join by telephone at Toll-Free Number 1-877-304-9269 and then enter the guest passcode 2619070 followed by #. FOR FURTHER INFORMATION CONTACT: Jason Oyler, General Counsel and Secretary to the Commission, telephone: (717) 238-0423 or [email protected]. The proposed rulemaking that was placed on the table at the June Commission meeting can be viewed on the Federal Register website with the following citation: 89 FR 20148. Information concerning the project applications is available at the Commission's Water Application and Approval Viewer at https://www.srbc.gov/waav. Additional supporting documents are available to inspect and copy in accordance with the Commission's Access to Records Policy at www.srbc.gov/regulatory/policies-guidance/docs/access-to-records-policy-2009-02.pdf. SUPPLEMENTARY INFORMATION: In addition to hearing any additional testimony on the proposed rulemaking, the public hearing will cover the following projects: Projects Scheduled for Action 1. Project Sponsor and Facility: Amazon Data Services, Inc. Project Facility: PHL100 Data Center Campus, Salem Township, Luzerne County, Pa. Application for consumptive use of up to 0.060 mgd (30-day average). 2. Project Sponsor and Facility: Ashland Area Municipal Water Authority, Butler Township, Schuylkill County, Pa. Application for renewal of groundwater withdrawal of up to 0.115 mgd (30-day average) from Well 5 (Docket No. 19931101). Service area is located in an Environmental Justice area. 3. Project Sponsor: Borough of Middletown. Project Facility: Middletown Water System, Borough of Middletown, Dauphin County, Pa. Application for renewal of groundwater withdrawal of up to 1.070 mgd (30-day average) from Well 6 (Docket No. 19970702). Service area is located in an Environmental Justice area. 4. Project Sponsor and Facility: Caernarvon Township Authority, Caernarvon Township, Berks County, Pa. Application for renewal of groundwater withdrawal of up to 0.317 mgd (30-day average) from Well 8 (Docket No. 19940902). Service area is located in an Environmental Justice area. 5. Project Sponsor and Facility: Chesapeake Appalachia, L.L.C. (Loyalsock Creek), Forksville Borough, Sullivan County, Pa. Application for renewal and modification of surface water withdrawal of up to 1.500 mgd (peak day) (Docket No. 20190903). 6. Project Sponsor and Facility: Clear Water Technology, LLC (Middle Branch Wyalusing Creek), Forest Lake Township, Susquehanna County, Pa. Application for surface water withdrawal of up to 1.440 mgd (peak day). 7. Project Sponsor and Facility: Dillsburg Area Authority, Franklin Township, York County, Pa. Application for renewal of groundwater withdrawal of up to 0.199 mgd (30-day average) from Well 3 (Docket No. 20081207). 8. Project Sponsor: Greater Hazleton Community-Area New Development Organization, Inc. Project Facility: CAN DO, Inc.--Corporate Center, Butler Township, Luzerne County, Pa. Application for renewal of groundwater withdrawal of up to 0.547 mgd (30-day average) from Well 1 (Docket No. 20090309). 9. Project Sponsor and Facility: Jersey Shore Area Joint Water Authority, Pine Creek Township, Clinton County, Pa. Application for groundwater withdrawal of up to 0.452 mgd (30-day average) from Pine Creek Well 1, which is an increase of the quantity established in Certificate of Registration No. GF-202012137. 10. Project Sponsor and Facility: JKLM Energy, LLC (Mill Creek), Rutland Township, Tioga County, Pa. Application for surface water withdrawal of up to 0.600 mgd (peak day). 11. Project Sponsor and Facility: JKLM Energy, LLC (Tioga River), Lawrenceville Borough, Tioga County, Pa. Application for renewal with an increase of surface water withdrawal of up to 1.800 mgd (peak day) (Docket No. 20230610). 12. Project Sponsor and Facility: Municipal Authority of the Borough of Mansfield, Richmond Township, Tioga County, Pa. Application for renewal of groundwater withdrawal of up to 0.173 mgd (30-day average) from Well 1 (Docket No. 19940707). 13. Project Sponsor: New Enterprise Stone & Lime Co., Inc. Project Facility: Roaring Spring Quarry (Halter Creek 2), Taylor Township, Blair County, Pa. Applications for renewal of consumptive use of up to 0.380 mgd (peak day) and surface water withdrawal of up to 0.288 mgd (peak day) (Docket No. 19940705 and Certificate of Registration No. GF- 202204215). 14. Project Sponsor and Facility: Pennsylvania General Energy Company, [[Page 56471]] L.L.C. (Loyalsock Creek), Plunketts Creek Township, Lycoming County, Pa. Application for renewal of surface water withdrawal of up to 2.000 mgd (peak day) (Docket No. 20231213). 15. Project Sponsor: The Procter & Gamble Paper Products Company. Project Facility: Mehoopany Plant, Washington Township, Wyoming County, Pa. Application for renewal of consumptive use of up to 2.750 mgd (peak day) (Docket No. 19940704). 16. Project Sponsor and Facility: Repsol Oil & Gas USA, LLC (Lycoming Creek), McIntyre Township, Lycoming County, Pa. Application for renewal of surface water withdrawal of up to 2.000 mgd (peak day) (Docket No. 20190910). 17. Project Sponsor and Facility: Seneca Resources Company, LLC (Marsh Creek), Delmar Township, Tioga County, Pa. Application for renewal of surface water withdrawal of up to 0.499 mgd (peak day) (Docket No. 20190911). 18. Project Sponsor and Facility: Shrewsbury Borough, York County, Pa. Application for renewal of groundwater withdrawal of up to 0.120 mgd (30-day average) from the Woodlyn Well (Docket No. 19920501). 19. Project Sponsor and Facility: State College Borough Water Authority, Benner Township, Centre County, Pa. Applications for renewal of groundwater withdrawal (30-day averages) of up to 1.584 mgd from Well 17, 0.576 mgd from Well 18, and 1.512 mgd from Well 19 (Docket No. 19930501). 20. Project Sponsor and Facility: Strasburg Lancaster County Borough Authority, Strasburg Township, Lancaster County, Pa. Application for renewal of groundwater withdrawal of up to 0.275 mgd (30-day average) from the Fisher Well (Docket No. 19890107). Service area is located in an Environmental Justice area. 21. Project Sponsor: TableTrust Brands LLC. Project Facility: Freebird East, Bethel Township, Lebanon County, Pa. Application for renewal of groundwater withdrawal of up to 0.199 mgd (30-day average) from Well 8 (Docket No. 19990701). 22. Project Sponsor: UGI Development Company. Project Facility: Hunlock Creek Energy Center (Susquehanna River), Hunlock Township, Luzerne County, Pa. Applications for renewal of surface water withdrawal of up to 55.050 mgd (peak day) and consumptive use of up to 2.396 mgd (peak day) (Docket No. 20090916). 23. Project Sponsor and Facility: Williamsburg Municipal Authority, Catharine Township, Blair County, Pa. Application for renewal of groundwater withdrawal of up to 0.180 mgd (30-day average) from Well 3 (Docket No. 19940702). 24. Project Sponsor and Facility: XTO Energy Inc. (West Branch Susquehanna River), Chapman Township, Clinton County, Pa. Application for renewal of surface water withdrawal of up to 2.000 mgd (peak day) (Docket No. 20190912). Located in an Environmental Justice area. Opportunity To Appear and Comment Interested parties may appear or call into the hearing to offer comments to the Commission on any business listed above required to be the subject of a public hearing. Given the nature of the meeting, the Commission strongly encourages those members of the public wishing to provide oral comments to pre-register with the Commission by emailing Jason Oyler at [email protected] before the hearing date. The presiding officer reserves the right to limit oral statements in the interest of time and to control the course of the hearing otherwise. Access to the hearing via telephone will begin at 6:15 p.m. Guidelines for the public hearing are posted on the Commission's website, www.srbc.gov, before the hearing for review. The presiding officer reserves the right to modify or supplement such guidelines at the hearing. Written comments on any business listed above required to be the subject of a public hearing may also be mailed to Mr. Jason Oyler, Secretary to the Commission, Susquehanna River Basin Commission, 4423 North Front Street, Harrisburg, Pa. 17110-1788, or submitted electronically through https://www.srbc.gov/meeting-comment/default.aspx?type=2&cat=7. Comments mailed or electronically submitted must be received by the Commission on or before Monday, August 12, 2024, to be considered. Authority: Pub. L. 91-575, 84 Stat. 1509 et seq., 18 CFR parts 806, 807, and 808. Dated: July 3, 2024. Jason E. Oyler, General Counsel and Secretary to the Commission. [FR Doc. 2024-15004 Filed 7-8-24; 8:45 am] BILLING CODE 7040-01-P

usgpo

2024-10-08T13:27:03.318983

FR

FR-2024-07-09/2024-14993

Federal Register Volume 89 Issue 131 (July 9, 2024)

United States National Archives and Records Administration Office of the Federal Register

[Federal Register Volume 89, Number 131 (Tuesday, July 9, 2024)] [Notices] [Page 56471] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 2024-14993] ======================================================================= ----------------------------------------------------------------------- DEPARTMENT OF TRANSPORTATION Federal Highway Administration Rescission of Record of Decision and Final Environmental Impact Statement: La Crosse County, Wisconsin AGENCY: Federal Highway Administration (FHWA), Department of Transportation (DOT). ACTION: Notice to rescind the Record of Decision (ROD) and the Final Environmental Impact Statement (FEIS). ----------------------------------------------------------------------- SUMMARY: The FHWA, in cooperation with the Wisconsin Department of Transportation (WisDOT), is issuing this notice to advise the public that we are rescinding the 1998 Record of Decision (ROD) and the Final Environmental Impact Statement (FEIS) that proposed various improvements along north-south corridors in La Crosse County, WI. FOR FURTHER INFORMATION CONTACT: Lisa Hemesath, Environmental Protection Specialist, Federal Highway Administration, 525 Junction Road, Suite 8000, Madison, Wisconsin, 53717-2157, Telephone: (608) 829-7503. Barry Paye, Director, Bureau of Technical Services, Wisconsin Department of Transportation, 4822 Madison Yards Way, 5th Floor, Madison, WI 53705, Telephone: (608) 246-7945. SUPPLEMENTARY INFORMATION: The FHWA, as the lead Federal agency, in cooperation with the WisDOT, is rescinding the ROD and the FEIS that proposed various improvements along north-south corridors in La Crosse County, WI. The purpose and need of the FEIS were to develop transportation corridors that supported all transportation users, supported economic growth, and met forecasted transportation demand. The Notice of Intent (NOI) to prepare the EIS was published in the Federal Register on July 27, 1995. The FEIS was approved on January 7, 1998. The ROD was issued on May 22, 1998. The FHWA has determined, in conjunction with WisDOT, that the ROD and the FEIS for the project shall be rescinded for the following reasons: a lack of support from the public and stakeholders, anticipated development in the corridor has not occurred and forecasted travel demand hasn't been realized. Any future Federal-aided action within this corridor will comply with environmental review requirements of the National Environmental Policy Act (NEPA) (42 U.S.C. 4321), FHWA environmental regulations (23 CFR part 771) and related authorities, as appropriate. Comments and questions concerning this action should be directed to FHWA or WisDOT at the addresses provided above. Glenn Fulkerson, Division Administrator, FHWA Wisconsin Division, Madison, WI. [FR Doc. 2024-14993 Filed 7-8-24; 8:45 am] BILLING CODE 4910-RY-P

usgpo

2024-10-08T13:27:03.370079

FR

FR-2024-07-09/2024-15039

Federal Register Volume 89 Issue 131 (July 9, 2024)

United States National Archives and Records Administration Office of the Federal Register

[Federal Register Volume 89, Number 131 (Tuesday, July 9, 2024)] [Notices] [Pages 56472-56473] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 2024-15039] [[Page 56472]] ----------------------------------------------------------------------- DEPARTMENT OF TRANSPORTATION Federal Motor Carrier Safety Administration [Docket No. FMCSA-2024-0012] Qualification of Drivers; Exemption Applications; Hearing AGENCY: Federal Motor Carrier Safety Administration (FMCSA), Department of Transportation (DOT). ACTION: Notice of applications for exemption; request for comments. ----------------------------------------------------------------------- SUMMARY: FMCSA announces receipt of applications from nine individuals for an exemption from the hearing requirement in the Federal Motor Carrier Safety Regulations (FMCSRs) to operate a commercial motor vehicle (CMV) in interstate commerce. If granted, the exemptions would enable these hard of hearing and deaf individuals to operate CMVs in interstate commerce. DATES: Comments must be received on or before August 8, 2024. ADDRESSES: You may submit comments identified by the Federal Docket Management System Docket No. FMCSA-2024-0012 using any of the following methods: Federal eRulemaking Portal: Go to www.regulations.gov/, insert the docket number (FMCSA-2024-0012) in the keyword box and click ``Search.'' Next, choose the only notice listed, and click on the ``Comment'' button. Follow the online instructions for submitting comments. Mail: Dockets Operations; U.S. Department of Transportation, 1200 New Jersey Avenue SE, West Building Ground Floor, Washington, DC 20590-0001. Hand Delivery: West Building Ground Floor, 1200 New Jersey Avenue SE, Washington, DC 20590-0001, between 9 a.m. and 5 p.m. ET Monday through Friday, except Federal Holidays. Fax: (202) 493-2251. To avoid duplication, please use only one of these four methods. See the ``Public Participation'' portion of the SUPPLEMENTARY INFORMATION section for instructions on submitting comments. FOR FURTHER INFORMATION CONTACT: Ms. Christine A. Hydock, Chief, Medical Programs Division, FMCSA, DOT, 1200 New Jersey Avenue SE, Room W64-224, Washington, DC 20590-0001, (202) 366-4001, [email protected]. Office hours are 8:30 a.m. to 5 p.m. ET Monday through Friday, except Federal holidays. If you have questions regarding viewing or submitting material to the docket, contact Dockets Operations, (202) 366-9826. SUPPLEMENTARY INFORMATION: I. Public Participation A. Submitting Comments If you submit a comment, please include the docket number for this notice (Docket No. FMCSA-2024-0012), indicate the specific section of this document to which each comment applies, and provide a reason for each suggestion or recommendation. You may submit your comments and material online or by fax, mail, or hand delivery, but please use only one of these means. FMCSA recommends that you include your name and a mailing address, an email address, or a phone number in the body of your document so that FMCSA can contact you if there are questions regarding your submission. To submit your comment online, go to https://www.regulations.gov/docket/ FMCSA-2024-0012. Next, sort the results by ``Posted (Newer- Older),'' choose the only notice listed, click the ``Comment'' button, and type your comment into the text box on the following screen. Choose whether you are submitting your comment as an individual or on behalf of a third party and then submit. If you submit your comments by mail or hand delivery, submit them in an unbound format, no larger than 8\1/2\ by 11 inches, suitable for copying and electronic filing. FMCSA will consider all comments and material received during the comment period. B. Viewing Comments To view comments go to www.regulations.gov. Insert the docket number (FMCSA-2024-0012) in the keyword box and click ``Search.'' Next, choose the only notice listed, and click ``Browse Comments.'' If you do not have access to the internet, you may view the docket online by visiting Dockets Operations on the ground floor of the DOT West Building, 1200 New Jersey Avenue SE, Washington, DC 20590-0001, between 9 a.m. and 5 p.m. ET Monday through Friday, except Federal holidays. To be sure someone is there to help you, please call (202) 366-9317 or (202) 366-9826 before visiting Dockets Operations. C. Privacy Act In accordance with 49 U.S.C. 31315(b)(6), DOT solicits comments from the public on the exemption requests. DOT posts these comments, without edit, including any personal information the commenter provides, to www.regulations.gov. As described in the system of records notice DOT/ALL 14 (Federal Docket Management System), which can be reviewed at https://www.transportation.gov/individuals/privacy/privacy-act-system-records-notices, the comments are searchable by the name of the submitter. II. Background Under 49 U.S.C. 31136(e) and 31315(b), FMCSA may grant an exemption from the FMCSRs for no longer than a 5-year period if it finds such exemption would likely achieve a level of safety that is equivalent to, or greater than, the level that would be achieved absent such exemption. The statutes also allow the Agency to renew exemptions at the end of the 5-year period. FMCSA grants medical exemptions from the FMCSRs for a 2-year period to align with the maximum duration of a driver's medical certification. The nine individuals listed in this notice have requested an exemption from the hearing requirement in 49 CFR 391.41(b)(11). Accordingly, the Agency will evaluate the qualifications of each applicant to determine whether granting the exemption will achieve the required level of safety mandated by statute. The physical qualification standard for drivers regarding hearing found in Sec. 391.41(b)(11) states that a person is physically qualified to drive a CMV if that person first perceives a forced whispered voice in the better ear at not less than 5 feet with or without the use of a hearing aid or, if tested by use of an audiometric device, does not have an average hearing loss in the better ear greater than 40 decibels at 500 Hz, 1,000 Hz, and 2,000 Hz with or without a hearing aid when the audiometric device is calibrated to American National Standard (formerly ASA Standard) Z24.5--1951. This standard was adopted in 1970 and was revised in 1971 to allow drivers to be qualified under this standard while wearing a hearing aid, (35 FR 6458, 6463 (Apr. 22, 1970) and 36 FR 12857 (July 8, 1971), respectively). On February 1, 2013, FMCSA announced in a Notice of Final Disposition titled, ``Qualification of Drivers; Application for Exemptions; National Association of the Deaf,'' (78 FR 7479), its decision to grant requests from 40 individuals for exemptions from the Agency's physical qualification standard concerning hearing for interstate CMV drivers. Since that time the Agency has published additional notices granting requests from hard of hearing and deaf individuals for exemptions from the Agency's physical [[Page 56473]] qualification standard concerning hearing for interstate CMV drivers. III. Qualifications of Applicants Carl Afroilan Carl Afroilan, 48, holds a class C driver's license in Maryland. Kevin Camper Kevin Camper, 41, holds a regular driver's license in Indiana. Anthony Cline Anthony Cline, 40, holds a class D driver's license in Ohio. Dwain Coppernoll Dwain Coppernoll, 67, holds a class C driver's license in Oregon. Jonathan Hornberger Jonathan Hornberger, 36, holds a class CA Commercial Driver's License (CDL) in Michigan. Scott Prewara Scott Prewara, 50, holds a class A CDL in Minnesota. Gregory Rosa Gregory Rosa, 45, holds a class D driver's license in New York. Barney Toussaint Barney Toussaint, 39, holds a class AM CDL in Georgia. Terrell Williams Terrell Williams, 52, holds a class A CDL in Ohio. IV. Request for Comments In accordance with 49 U.S.C. 31136(e) and 31315(b), FMCSA requests public comment from all interested persons on the exemption petitions described in this notice. We will consider all comments received before the close of business on the closing date indicated under the DATES section of the notice. Larry W. Minor, Associate Administrator for Policy. [FR Doc. 2024-15039 Filed 7-8-24; 8:45 am] BILLING CODE 4910-EX-P

usgpo

2024-10-08T13:27:03.391443

FR

FR-2024-07-09/2024-14992

Federal Register Volume 89 Issue 131 (July 9, 2024)

United States National Archives and Records Administration Office of the Federal Register

[Federal Register Volume 89, Number 131 (Tuesday, July 9, 2024)] [Notices] [Pages 56473-56474] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 2024-14992] ----------------------------------------------------------------------- DEPARTMENT OF TRANSPORTATION Federal Motor Carrier Safety Administration [Docket No. FMCSA-2024-0125] Commercial Driver's License; 3 North LLC; Application for Exemption AGENCY: Federal Motor Carrier Safety Administration (FMCSA), Department of Transportation (DOT). ACTION: Notice, extension of comment period. ----------------------------------------------------------------------- SUMMARY: FMCSA extends the comment period for its June 11, 2024, notice requesting public comment on 3 North LLC's application for a 5-year exemption to enable 3 of its commercial driver's license (CDL) holders under the age 21, with the requisite ``K'' restriction for intrastate- only operations, to drive commercial motor vehicles (CMV) in intrastate operations in a State other than their State of domicile. FMCSA extends the comment period until July 25, 2024, because the application was not available for public review. DATES: The comment period for the request for information published on June 11, 2024, at 89 FR 49623, is extended. Comments will be accepted on or before July 25, 2024. ADDRESSES: You may submit comments identified by Federal Docket Management System Number FMCSA-2024-0125 by any of the following methods: Federal eRulemaking Portal: www.regulations.gov. See the Public Participation and Request for Comments section below for further information. Mail: Dockets Operations, U.S. Department of Transportation, 1200 New Jersey Avenue SE, West Building, Ground Floor, Washington, DC 20590-0001. Hand Delivery or Courier: West Building, Ground Floor, 1200 New Jersey Avenue SE, between 9 a.m. and 5 p.m. E.T., Monday through Friday, except Federal holidays. Fax: (202) 493-2251. Each submission must include the Agency name and the docket number (FMCSA-2024-0125) for this notice. Note that DOT posts all comments received without change to www.regulations.gov, including any personal information included in a comment. Please see the Privacy Act heading below. Docket: If you do not have access to the internet, you may view the docket by visiting Docket Operations on the ground floor of the DOT West Building, 1200 New Jersey Avenue SE, Washington, DC 20590, between 9 a.m. and 5 p.m., ET, Monday through Friday, except Federal holidays. To be sure someone is there to help you, please call (202) 366-9317 or (202) 366-9826 before visiting Dockets Operations. Privacy Act: In accordance with 49 U.S.C. 31315(b), DOT solicits comments from the public to better inform its exemption process. DOT posts these comments, including any personal information the commenter provides, to www.regulations.gov, as described in the system of records notice DOT/ALL-14 FDMS, which can be reviewed at https://www.transportation.gov/privacy. The comments are posted without edit and are searchable by the name of the submitter. FOR FURTHER INFORMATION CONTACT: Ms. Bernadette Walker, Driver, and Carrier Operations Division; Office of Carrier, Driver and Vehicle Safety Standards, FMCSA; (202) 385-2415; [email protected]. If you have questions about viewing or submitting material to the docket, contact Dockets Operations at (202) 366-9826. SUPPLEMENTARY INFORMATION: I. Public Participation and Request for Comments FMCSA encourages you to participate by submitting comments and related materials. Submitting Comments If you submit a comment, please include the docket number for this notice (FMCSA-2024-0125), indicate the specific section of this document to which the comment applies, and provide a reason for your suggestions or recommendations. You may submit your comments and material online or by fax, mail, or hand delivery, but please use only one of these means. FMCSA recommends that you include your name and a mailing address, an email address, or a phone number in the body of your document so the Agency can contact you if it has questions regarding your submission. To submit your comment online, go to www.regulations.gov, enter the docket number ``FMCSA-2024-0125'' in the keyword box, and click ``Search.'' Next, sort the results by ``Posted (Newer-Older),'' choose the first notice listed, click the ``Comment'' button, and type your comment into the text box on the following screen. Choose whether you are submitting your comment as an individual or on behalf of a third party and then submit. If you submit your comments by mail or hand delivery, submit them in an unbound format, no larger than 8\1/2\ by 11 inches, suitable for copying and electronic filing. II. Background The June 11, 2024, notice (89 FR 49263) requested public comment on 3 North LLC's application for a 5-year exemption to enable 3 of its CDL holders under the age 21, with the requisite ``K'' restriction for intrastate-only operations, to drive CMVs in intrastate operations in a State other than their State of domicile. The comment period was set to expire on July 11. FMCSA extends the [[Page 56474]] comment period until July 25, 2024, because the application was not available for public review. The application was placed in the docket for this notice on June 24, 2024. Larry W. Minor, Associate Administrator for Policy. [FR Doc. 2024-14992 Filed 7-8-24; 8:45 am] BILLING CODE 4910-EX-P

usgpo

2024-10-08T13:27:03.421376

FR

FR-2024-07-09/2024-15032

Federal Register Volume 89 Issue 131 (July 9, 2024)

United States National Archives and Records Administration Office of the Federal Register

[Federal Register Volume 89, Number 131 (Tuesday, July 9, 2024)] [Notices] [Pages 56474-56476] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 2024-15032] ----------------------------------------------------------------------- DEPARTMENT OF TRANSPORTATION Federal Railroad Administration [Docket No. FRA-2024-0012] Proposed Agency Information Collection Activities; Comment Request AGENCY: Federal Railroad Administration (FRA), Department of Transportation (DOT). ACTION: Notice of information collection; request for comment. ----------------------------------------------------------------------- SUMMARY: Under the Paperwork Reduction Act of 1995 (PRA) and its implementing regulations, FRA seeks approval of the Information Collection Request (ICR) summarized below. Before submitting this ICR to the Office of Management and Budget (OMB) for approval, FRA is soliciting public comment on specific aspects of the activities identified in the ICR. DATES: Interested persons are invited to submit comments on or before September 9, 2024. ADDRESSES: Written comments and recommendations for the proposed ICR should be submitted at www.regulations.gov to the docket, Docket No. FRA-2024-0012. All comments received will be posted without change to the docket, including any personal information provided. Please refer to the assigned OMB control number (2130-0008) in any correspondence submitted. FRA will summarize comments received in a subsequent 30-day notice. FOR FURTHER INFORMATION CONTACT: Ms. Arlette Mussington, Information Collection Clearance Officer, at email: [email protected] or telephone: (571) 609-1285 or Ms. Joanne Swafford, Information Collection Clearance Officer, at email: [email protected] or telephone: (757) 897-9908. SUPPLEMENTARY INFORMATION: The PRA, 44 U.S.C. 3501-3520, and its implementing regulations, 5 CFR part 1320, require Federal agencies to provide 60 days' notice to the public to allow comment on information collection activities before seeking OMB approval of the activities. See 44 U.S.C. 3506, 3507; 5 CFR 1320.8 through 1320.12. Specifically, FRA invites interested parties to comment on the following ICR regarding: (1) whether the information collection activities are necessary for FRA to properly execute its functions, including whether the activities will have practical utility; (2) the accuracy of FRA's estimates of the burden of the information collection activities, including the validity of the methodology and assumptions used to determine the estimates; (3) ways for FRA to enhance the quality, utility, and clarity of the information being collected; and (4) ways for FRA to minimize the burden of information collection activities on the public, including the use of automated collection techniques or other forms of information technology. See 44 U.S.C. 3506(c)(2)(A); 5 CFR 1320.8(d)(1). FRA believes that soliciting public comment may reduce the administrative and paperwork burdens associated with the collection of information that Federal regulations mandate. In summary, comments received will advance three objectives: (1) reduce reporting burdens; (2) organize information collection requirements in a ``user-friendly'' format to improve the use of such information; and (3) accurately assess the resources expended to retrieve and produce information requested. See 44 U.S.C. 3501. The summary below describes the ICR that FRA will submit for OMB clearance as the PRA requires: Title: Inspection Brake System Safety Standards for Freight and Other Non-Passenger Trains and Equipment (Power Brakes). OMB Control Number: 2130-0008. Abstract: Title 49 CFR part 232 prescribes Federal safety standards for freight and other non-passenger train brake systems and equipment. Part 232 includes recordkeeping and information reporting requirements including the following: General (subpart A)--procedures for special approvals of alternative standards or test procedures and waivers, and procedures related to the movement of equipment with defective brakes. General requirements (subpart B)--generally applicable system requirements for the operation of brake systems on complete trains, including braking systems, locomotive brakes, dynamic braking, train handling and securement. Inspection and testing requirements (subpart C)--various airbrake test requirements for specific train operating scenarios, including initial terminal tests, intermediate inspections, continuity tests, and extended haul trains. This subpart also has specific rules regarding the use of yard air for conducting the above tests in lieu of locomotives and the use of independent locomotives in double-heading and helper service. Periodic maintenance and testing requirements (subpart D)--yearly and other periodic testing of individual equipment. This subpart also specifies the equipment and procedures necessary to modify the instructions used to perform these tests. End-of-train (EOT) devices (subpart E)--design and performance standards of both one-way and two-way EOT devices used on all trains with air brakes. This section also includes the inspection and testing requirements for EOT devices. Introduction of new brake system technology (subpart F)--approval procedures for the introduction of new technologies not already covered by existing regulations, and requirements for the development of a pre- revenue service acceptance testing plan. Electronically controlled pneumatic (ECP) braking systems (subpart G)--alternate standards for the operation and maintenance of ECP brake systems, particularly where the ECP system is not harmonious with previous standards. This includes interoperability, training, inspection and testing, movement of defective equipment, and periodic maintenance. Tourist, scenic, historic, and excursion operations (T&H) braking systems (subpart H)--regulations that apply specifically to T&H railroads. Those regulations are the same as existed in 2001, as stated in current 49 CFR 232.1(c). Overall, the information collection requirements of part 232 serve two important safety purposes. First, the regulations allow FRA to monitor compliance with braking system safety regulations. Second, FRA refers to records regularly maintained under part 232 to assess the effectiveness of the regulations and identify opportunities for improvement. In this 60-day notice, FRA made multiple adjustments that decreased the previously approved burden hours from 528,432 to 324,638 hours. The decrease in burden is the result of the changes described in the following sections discussed below: Under Sec. 232.17, Special approval procedure, FRA determined that the estimated paperwork burden to develop the alternative standard or test plan is already included under Sec. 232.505, Pre- [[Page 56475]] revenue service acceptance plan. The estimated paperwork burden under this section is reduced by 244 hours. Additionally, FRA anticipates receiving zero statements of interest and has determined that the burden previously reported for public comments is excluded from the definition of information covered by the PRA under 5 CFR 1320.3(h)(4). The previously reported burdens under Sec. 232.103 related to job briefings and Sec. 232.209 related to ``roll-by'' inspections are not considered information collections under the PRA because the agency is not collecting any information or requiring a third party to collect any information or keep any records. Therefore, the 328 burden hours associated with those regulatory requirements have been removed. Under Sec. Sec. 232.107, Air source requirements and cold weather operations; 232.109, Dynamic brake requirements; 232.203, Training requirements; 232.207, Class IA brake tests--1,000-mile inspection; 232.213, Extended haul trains; and 232.303, General requirements, FRA made burden estimate adjustments that more accurately reflect the number of responses and estimated average time required by each section, reducing the burden by 6,523 hours. Under Sec. 232.505, Pre-revenue service acceptance testing plans, FRA concluded that the previously reported burden hours for the design plan are already included in the 160 hours reported for each test plan. Accordingly, burden hours have been reduced by 137.29 hours. Additionally, FRA made rounding adjustments that reduced the burden hours by 1,658.76 hours. Overall, total adjustments reduced the total burden by 203,794 hours. Type of Request: Extension without change (with changes in estimates) of a currently approved information collection. Affected Public: Railroads, Association of American Railroads (AAR), and manufacturers. Form(s): N/A. Respondent Universe: 784 Railroads. Frequency of Submission: On occasion. Reported Burden: -------------------------------------------------------------------------------------------------------------------------------------------------------- Avg. time per CFR part 232 section Respondent universe Annual response Total annual Total cost responses (hours) burden hours (C) equivalent U.S.D (A) (B) (A * B = C) (C * wage rate \1\) -------------------------------------------------------------------------------------------------------------------------------------------------------- 232.3--Applicability........................... 784 railroads.................... 8 .............. 1.36 $116.86 (d)(3)--Identification of cars not owned by ................................. 8 0.17 1.36 116.86 RR. 232.7--Waivers................................. 784 railroads.................... 2 .............. 320.00 27,497.60 (a)--Waivers............................... ................................. 2 160 320.00 27,497.60 232.15--Movement of defective equipment........ 784 railroads.................... 153,400 .............. 6,642.80 570,815.80 (a)(11)(ii)--Written Notification.......... ................................. 25,000 0.05 1,250.00 107,412.50 (b)--Tagging of defective equipment........ ................................. 128,400 0.042 5,392.80 463,403.30 232.17--Special approval procedure............. 784 railroads.................... 0.67 .............. 0.67 57.57 (b) through (d)--Submission of petition for ................................. 0.67 1 0.67 57.57 special approval of alternative standard or test procedure and pre-revenue service acceptance plan. 232.103--General requirements for all train 784 railroads.................... 70,014 .............. 11,958.50 1,027,593.91 brake systems. --Requirement for legible decal/stencil/ ................................. 70,000 0.17 11,900.00 1,022,567.00 sticker on all cars. (n)--Securement of unattended equipment-- ................................. 1 10 10.00 859.30 Unattended equipment plans (new plans). --Notification to FRA when RR develops and ................................. 1 0.50 0.50 42.97 has plan in place or modifies existing plan. --(n)(10) Records of inspection following ................................. 12 4 48.00 4,124.64 non-railroad emergency responder on equipment. -------------------------------------------------------------------------------------------------------------------------------------------------------- 232.105--General requirements for locomotives-- The burden for this requirement is included under OMB control number 2130-0004 under 49 CFR 229.23. Inspection records. -------------------------------------------------------------------------------------------------------------------------------------------------------- 232.107--Air source requirements and cold 5 new railroads.................. 1,156 .............. 335.50 28,829.52 weather operations. (a)--Monitoring plans for yard air sources ................................. 1 40 40.00 3,437.20 (new). --Updates/revisions........................ 50 existing plans................ 5 20 100.00 8,593.00 --Recordkeeping............................ 50 existing plans................ 1,150 0.17 195.50 16,799.32 232.109--Dynamic brake requirements............ 784 railroads.................... 1,668,748 .............. 116,474.22 10,008,630.07 (a)--Brake status records.................. ................................. 1,656,000 0.07 115,920.00 9,961,005.60 (c)--Inoperative dynamic brakes, tagging 30,000 locomotives............... 6,358 0.07 445.06 38,244.01 and records. (d)--Tagging inoperative dynamic breaks.... 30,000 locomotives............... 6,358 0.008 50.86 4,370.74 (e)--Deactivated dynamic brakes markings... 1000 locomotives................. 10 0.08 0.80 68.74 (J)--Operating rules....................... ................................. 5 4 20.00 1,718.60 --Amended/revised operating rules.......... ................................. 15 1 15.00 1,288.95 --Request to increase mph overspeed ................................. 1 20.5 20.50 1,761.57 restriction. (k)--Knowledge, skill ability training plan ................................. 1 2 2.00 171.86 232.111--Train handling information............ 784 railroads.................... 2,112,105 .............. 171,160 14,707,778.80 (a)--Written procedures for train handling. ................................. 5 40 200.00 17,186.00 --Amendments/revisions..................... ................................. 100 20 2,000.00 171,860.00 --Provide crew with report................. ................................. 2,112,000 0.08 168,960.00 14,518,732.80 232.203--Training requirements................. 784 railroads.................... 50,587 .............. 6,889.15 591,984.66 (a)--Training programs..................... ................................. 5 100 500.00 42,965.00 --Periodic assessment of training program.. ................................. 784 1 784.00 67,369.12 --Amendments............................... ................................. 236 8 1,888.00 162,235.84 (e)--Training records and notifications.... ................................. 24,781 0.13 3,221.53 276,826.07 --Notifications............................ ................................. 24,781 0.02 495.62 42,588.63 232.205--Class I brake test--initial terminal 784 railroads.................... 383,850 .............. 4,686.08 402,674.85 inspection. (c)(1)(ii)(B)--Operating rules for airflow ................................. 10 8 80.00 6,874.40 compliance. (e)--Brake test notice records............. ................................. 383,840 0.012 4,606.08 395,800.45 -------------------------------------------------------------------------------------------------------------------------------------------------------- [[Page 56476]] (c) (1)(iii)--Form 49A notation/ The estimated paperwork burden for this requirement is included under OMB Control Number 2130-0004. certification of last date of air flow method (AFM) indicator calibration (formally under Sec. 229.29(b). -------------------------------------------------------------------------------------------------------------------------------------------------------- 232.207--Class IA brake tests--1000-mile 784 railroads.................... 53 .............. 9.84 845.55 inspection. (c)--Designated list of inspection ................................. 1 1 1.00 85.93 locations. (c)(2)--Notice of change to inspection ................................. 52 0.17 8.84 759.62 locations.. 232.213--Extended haul trains.................. 83,000 long-haul trains.......... 208 .............. 43.68 3,753.42 (a)--Written designation in writing to FRA. ................................. 104 0.25 26.00 2,234.18 (a)(8)--Notice of change of location of 7 railroads...................... 104 0.17 17.68 1,519.24 brake test. 232.219--Double-heading and helper service..... 2 railroads...................... 100 .............. 8.00 687.44 (c)(4)--Records of device testing.......... ................................. 100 0.08 8.00 687.44 232.303--General requirements--shop or repair 1,633,792 freight cars........... 37,600 .............. 1,408.00 120,989.44 track. (d)(1)--Tagging of moved equipment......... ................................. 5,600 0.08 448.00 38,496.64 (f)--Last repair track brake test or single ................................. 32,000 0.03 960.00 82,492.80 car air brake test marking. 232.307--Modification of brake test procedures. AAR/railroads.................... 2 .............. 20.50 1,761.57 (a)--Request to modify brake test ................................. 1 20 20.00 1,718.60 procedures. (a)(4)--Affirmation statement and copies ................................. 1 0.50 0.50 42.97 served to designated representatives.. 232.309--Equipment and devices used to perform 640 shops........................ 5000 .............. 150.00 12,889.50 single car air brake tests. (d)--Labeling/tagging of test devices...... ................................. 5000 0.03 150.00 12,889.50 232.403--Design standards for one-way end-of- 245 railroads.................... 12 .............. 0.96 82.49 train devices. (e)--Requesting unique code................ ................................. 12 0.08 0.96 82.49 232.409--Inspection and testing of end-of-train- 784 railroads.................... 464,501 .............. 4,102.00 352,484.86 devices. (c)--Two-way end-of-train testing ................................. 447,500 0.008 3,580.00 307,629.40 notification record. (d) through (e)--Telemetry/air pressure ................................. 17,000 0.03 510.00 43,824.30 equipment testing record. (f)(2)--Annual reports to FRA.............. 1 manufacturer................... 1 12 12.00 1,031.16 232.503--Process to introduce new brake system 784 railroads.................... 2 .............. 4.00 343.72 technology. (a)--Special approval--approval for non- ................................. 1 1 1.00 85.93 standard brake technology letter for approval. (b)--Pre-revenue service demonstration..... ................................. 1 3 3.00 257.79 232.505--Pre-revenue service acceptance testing 784 railroads.................... 3.01 .............. 182.71 15,700.27 plan. (a)--Submission of testing plan............ ................................. 0.67 160 107.20 9,211.70 --Revision to testing plan................. ................................. 0.67 40 26.80 2,302.92 --Report to FRA............................ ................................. 0.67 13 8.71 748.45 --(f) Testing records for brake system ................................. 1 40 40.00 3,437.20 technology previously used in revenue service in United States. 232.717--Freight and passenger train car brakes 40 railroads..................... 40 .............. 240.00 20,623.20 (c)--Written maintenance plan.............. ................................. 40 6 240.00 20,623.20 -------------------------------------------------------------------------------------------------------- Total \2\.............................. 784 railroads; 30,000 4,947,392 .............. 324,638 hours $27,896,141 locomotives; 1 manufacturer. responses -------------------------------------------------------------------------------------------------------------------------------------------------------- \1\ The dollar equivalent cost throughout this table is derived from the 2022 Surface Transportation Board Full Year Wage A&B data series using employee group 200 (Professional & Administrative) hourly wage rate of $49.10. The total burden wage rate (straight time plus 75%) used in the table is $85.93 ($49.10 x 1.75 = $85.93). \2\ Total may not add up due to rounding. Total Estimated Annual Responses: 4,947,392. Total Estimated Annual Burden: 324,638 hours. Total Estimated Annual Burden Hour Dollar Cost Equivalent: $27,896,141. FRA informs all interested parties that it may not conduct or sponsor, and a respondent is not required to respond to, a collection of information that does not display a currently valid OMB control number. Authority: 44 U.S.C. 3501-3520. Christopher S. Van Nostrand, Deputy Chief Counsel. [FR Doc. 2024-15032 Filed 7-8-24; 8:45 am] BILLING CODE 4910-06-P

usgpo

2024-10-08T13:27:03.429276

FR

FR-2024-07-09/2024-14957

Federal Register Volume 89 Issue 131 (July 9, 2024)

United States National Archives and Records Administration Office of the Federal Register

[Federal Register Volume 89, Number 131 (Tuesday, July 9, 2024)] [Notices] [Pages 56476-56477] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 2024-14957] ======================================================================= ----------------------------------------------------------------------- DEPARTMENT OF THE TREASURY United States Mint Establishment of New Prices for United States Mint Numismatic Silver Products AGENCY: United States Mint, Department of the Treasury. ACTION: Notice. ----------------------------------------------------------------------- SUMMARY: The United States Mint is announcing new and updated pricing for its numismatic silver products in accordance with the table below, effective July 9, 2024: FOR FURTHER INFORMATION CONTACT: Derrick Griffin, 202-354-7579 or Customer Service; United States Mint; 801 9th Street NW; Washington, DC 20220; or call 1-800-872-6468. ------------------------------------------------------------------------ New Product retail price ------------------------------------------------------------------------ American Eagle 1 oz Silver Proof Coin (W)...................... $95 American Eagle 1 oz Silver Proof Coin (S)...................... 95 American Eagle 1 oz Silver Uncirculated Coin (W)............... 91 2019 American Eagle 1 oz Silver Enhanced Reverse Proof Coin (S) 105 2019 American Liberty 2.5 oz Silver Medal...................... 242.50 American Liberty Silver MedalTM................................ 97 America the Beautiful 5oz Silver Uncirculated (all skus)....... 455 United States Mint Silver Proof Set[supreg].................... 150 United States Mint Congratulations Set......................... 97 United States Mint Birth Set................................... 105 American Women Quarters Silver Proof SetTM..................... 95 Morgan Dollar--Silver Proof.................................... 95 Morgan Dollar--Silver Uncirculated............................. 91 Peace Dollar--Silver Proof..................................... 95 Peace Dollar--Silver Uncirculated.............................. 91 [[Page 56477]] Morgan and Peace Two-Coin Silver Reverse Proof Set............. 215 2024 Liberty/Britannia Silver Medal............................ 104 2024 Flowing Hair Silver Medal--Uncirculated................... 104 Armed Forces 2.5 oz Silver Medal (all skus).................... 225 Armed Forces 1 oz Silver Medal (all skus)...................... 90 1 oz Presidential Silver Medal (all skus)...................... 90 ------------------------------------------------------------------------ Authority: 31 U.S.C. 5111, 5112, 5132, 9701. Eric Anderson, Executive Secretary, United States Mint. [FR Doc. 2024-14957 Filed 7-8-24; 8:45 am] BILLING CODE 4810-37-P

usgpo

2024-10-08T13:27:03.453969

FR

FR-2024-07-09/2024-14947

Federal Register Volume 89 Issue 131 (July 9, 2024)

United States National Archives and Records Administration Office of the Federal Register

[Federal Register Volume 89, Number 131 (Tuesday, July 9, 2024)] [Notices] [Page 56477] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 2024-14947] ======================================================================= ----------------------------------------------------------------------- DEPARTMENT OF VETERANS AFFAIRS [OMB Control No. 2900-0717] Agency Information Collection Activity Under OMB Review: Child Care Provider Information-For the Child Care Subsidy Program AGENCY: Human Resources and Administration/Operations, Security, and Preparedness (HRA/OSP), Department of Veterans Affairs. ACTION: Notice. ----------------------------------------------------------------------- SUMMARY: In compliance with the Paperwork Reduction Act (PRA) of 1995, this notice announces that the Human Resources and Administration/ Operations, Security, and Preparedness (HRA/OSP), is announcing an opportunity for public comment on the proposed collection of certain information by the agency. Under the Paperwork Reduction Act (PRA) of 1995, Federal agencies are required to publish notice in the Federal Register concerning each proposed collection of information, including each proposed extension of a currently approved collection, and allow 60 days for public comment in response to the notice. DATES: Comments must be received on or before August 31, 2024. ADDRESSES: Comments must be submitted through www.regulations.gov. FOR FURTHER INFORMATION CONTACT: Program-Specific information: Brittany Ricks, 585-285-5191, [email protected]. VA PRA information: Maribel Aponte, 202-461-8900, [email protected]. SUPPLEMENTARY INFORMATION: Under the PRA of 1995, Federal agencies must obtain approval from the Office of Management and Budget (OMB) for each collection of information they conduct or sponsor. This request for comment is being made pursuant to section 3506(c)(2)(A) of the PRA. With respect to the following collection of information, VA Child Care Subsidy (CCSP) invites comments on: (1) whether the proposed collection of information is necessary for the proper performance of CCSP functions, including whether the information will have practical utility; (2) the accuracy of CCSP estimate of the burden of the proposed collection of information; (3) ways to enhance the quality, utility, and clarity of the information to be collected; and (4) ways to minimize the burden of the collection of information on respondents, including through the use of automated collection techniques or the use of other forms of information technology. Title: Child Care Provider Information-For the Child Care Subsidy Program. OMB Control Number: 2900-0717. https://www.reginfo.gov/public/do/PRASearch (Once at this link, you can enter the OMB Control Number to find the historical versions of this Information Collection). Type of Review: Extension of a currently approved collection. Abstract: The Department of Veterans Affairs (VA) needs to collect information from child care providers to determine employee eligibility to participate in the VA Child Care Subsidy Program. Affected Public: Individuals and households. Estimated Annual Burden: 937 hours. Estimated Average Burden per Respondent: 15 minutes. Frequency of Response: On occasion. Estimated Number of Respondents: 4,500. Authority: 44 U.S.C. 3501 et seq. Maribel Aponte, VA PRA Clearance Officer, Office of Enterprise and Integration/Data Governance Analytics, Department of Veterans Affairs. [FR Doc. 2024-14947 Filed 7-8-24; 8:45 am] BILLING CODE 8320-01-P

usgpo

2024-10-08T13:27:03.475919

FR

FR-2024-07-09/2024-14004

Federal Register Volume 89 Issue 131 (July 9, 2024)

United States National Archives and Records Administration Office of the Federal Register

[Federal Register Volume 89, Number 131 (Tuesday, July 9, 2024)] [Rules and Regulations] [Pages 56480-56583] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 2024-14004] [[Page 56479]] Vol. 89 Tuesday, No. 131 July 9, 2024 Part II Department of the Treasury ----------------------------------------------------------------------- Internal Revenue Service ----------------------------------------------------------------------- 26 CFR Parts 1, et al. Gross Proceeds and Basis Reporting by Brokers and Determination of Amount Realized and Basis for Digital Asset Transactions; Final Rule Federal Register / Vol. 89 , No. 131 / Tuesday, July 9, 2024 / Rules and Regulations [[Page 56480]] ----------------------------------------------------------------------- DEPARTMENT OF THE TREASURY Internal Revenue Service 26 CFR Parts 1, 31, and 301 [TD 10000] RIN 1545-BP71 Gross Proceeds and Basis Reporting by Brokers and Determination of Amount Realized and Basis for Digital Asset Transactions AGENCY: Internal Revenue Service (IRS), Treasury. ACTION: Final regulations. ----------------------------------------------------------------------- SUMMARY: This document contains final regulations regarding information reporting and the determination of amount realized and basis for certain digital asset sales and exchanges. The final regulations require brokers to file information returns and furnish payee statements reporting gross proceeds and adjusted basis on dispositions of digital assets effected for customers in certain sale or exchange transactions. These final regulations also require real estate reporting persons to file information returns and furnish payee statements with respect to real estate purchasers who use digital assets to acquire real estate. DATES: Effective date: These regulations are effective on September 9, 2024. Applicability dates: For dates of applicability, see Sec. Sec. 1.1001-7(c); 1.1012-1(h)(5); 1.1012-1(j)(6); 1.6045-1(q); 1.6045-4(s); 1.6045B-1(j); 1.6050W-1(j); 31.3406(b)(3)-2(c); 31.3406(g)-1(f); 31.3406(g)-2(h); 301.6721-1(j); 301.6722-1(g). FOR FURTHER INFORMATION CONTACT: Concerning the final regulations under sections 1001 and 1012, Alexa Dubert or Kyle Walker of the Office of the Associate Chief Counsel (Income Tax and Accounting) at (202) 317- 4718; concerning the international sections of the final regulations under sections 3406 and 6045, John Sweeney or Alan Williams of the Office of the Associate Chief Counsel (International) at (202) 317- 6933; and concerning the remainder of the final regulations under sections 3406, 6045, 6045A, 6045B, 6050W, 6721, and 6722, Roseann Cutrone of the Office of the Associate Chief Counsel (Procedure and Administration) at (202) 317-5436 (not toll-free numbers). SUPPLEMENTARY INFORMATION: Background This document contains amendments to the Regulations on Income Taxes (26 CFR part 1), the Regulations on Employment Tax and Collection of Income Tax at the Source (26 CFR part 31), and the Regulations on Procedure and Administration (26 CFR part 301) pursuant to amendments made to the Internal Revenue Code (Code) by section 80603 of the Infrastructure Investment and Jobs Act, Public Law 117-58, 135 Stat. 429, 1339 (2021) (Infrastructure Act) relating to information reporting by brokers under section 6045 of the Code. Specifically, the Infrastructure Act clarified the rules regarding how certain digital asset transactions should be reported by brokers, expanded the categories of assets for which basis reporting is required to include all digital assets, and provided a definition for the term digital assets. Additionally, the Infrastructure Act clarified that transfer statement reporting under section 6045A(a) of the Code applies to covered securities that are digital assets and added a new information reporting provision under section 6045A(d) to require brokers to report on transfers of digital assets that are covered securities, provided the transfer is not a sale and is not to an account maintained by a person, as defined in section 7701(a)(1) of the Code, that the broker knows or has reason to know is also a broker. Finally, the Infrastructure Act provided that these amendments apply to returns required to be filed, and statements required to be furnished, after December 31, 2023, and provided a rule of construction stating that these statutory amendments shall not be construed to create any inference for any period prior to the effective date of the amendments with respect to whether any person is a broker under section 6045(c)(1) or whether any digital asset is property which is a specified security under section 6045(g)(3)(B). On August 29, 2023, the Treasury Department and the IRS published in the Federal Register (88 FR 59576) proposed regulations (REG-122793- 19) (proposed regulations) relating to information reporting under section 6045 by brokers, including real estate reporting persons and certain third party settlement organizations under section 6050W of the Code. Additionally, the proposed regulations included specific rules under section 1001 of the Code for determining the amount realized in a sale, exchange, or other disposition of digital assets and under section 1012 of the Code for calculating the basis of digital assets. The proposed regulations stated that written or electronic comments provided in response to the proposed regulations must be received by October 30, 2023. The Treasury Department and the IRS received over 44,000 written comments in response to the proposed regulations. Although https://www.regulations.gov indicated that over 125,000 comments were received, this larger number reflects the number of ``submissions'' that each submitted comment indicated were included in the posted comment, whether or not the comment actually included such separate submissions. All posted comments were considered and are available at https://www.regulations.gov or upon request. A public hearing was held on November 13, 2023. Several comments requested an extension of the time to file comments in response to the proposed regulations. These requests for extension ranged from a few weeks to several years, but most comments requested a 60-day extension. In response to these comments, the due date for the comments was extended until November 13, 2023. The comment period was not extended further for several reasons. First, information reporting rules are necessary to make digital asset investors aware of their taxable transactions and to make those transactions more transparent to the IRS to reduce the tax gap. It is, therefore, a priority that the publication of these regulations is not delayed more than is necessary. Second, although the Infrastructure Act amended section 6045 in November 2021 to broadly apply the information reporting rules for digital asset transactions to a wide variety of brokers, the broker reporting regulations for digital assets were added to the Treasury Priority Guidance Plan in late 2019. Brokers, therefore, have long been on notice that there would be proposed regulations on which to comment. Third, as discussed in Part VI. of this Summary of Comments and Explanation of Revisions, the Treasury Department and the IRS understand that brokers need time after these final regulations are published to develop systems to comply with the final reporting requirements. Without further delaying the applicability date of these much-needed regulations, therefore, extending the comment period would necessarily reduce the time brokers would have to develop these systems. Fourth, a 60-day comment period is not inherently short or inadequate. Executive Order (E.O.) 12866 provides that generally a comment period should be no less than 60 days, and courts have uniformly upheld comment periods of even shorter comment periods. See, e.g., Connecticut Light & Power Co. v. NRC, [[Page 56481]] 673 F.2d 525, 534 (D.C. Cir. 1982), cert. denied, 459 U.S. 835, 103 S.Ct. 79, 74 L.Ed.2d 76 (1982) (denying petitioner's claim that a 30 day comment period was unreasonable, notwithstanding petitioner's complaint that the rule was a novel proposition); North American Van Lines v. ICC, 666 F.2d 1087, 1092 (7th Cir. 1981) (claim that 45 day comment period was insufficient rejected as ``without merit''). Indeed, over 44,000 comments were received before the conclusion of the comment period ending on November 13, 2023, which demonstrates that this comment period was sufficient for interested parties to submit comments. Fifth, it has been a longstanding policy of the Treasury Department and the IRS to consider comments submitted after the published due date, provided consideration of those comments does not delay the processing of the final regulation. IRS Policy Statement 1- 31, Internal Revenue Manual 1.2.1.15.4(6) (September 3, 1987). In fact, all comments received through the requested 60-day extension period were considered in promulgating these final regulations. Moreover, the Treasury Department and the IRS accepted late comments through noon eastern time on April 5, 2024. The Summary of Comments and Explanation of Revisions of the final regulations summarizes the provisions of the proposed regulations, which are explained in greater detail in the preamble to the proposed regulations. After considering the comments to the proposed regulations, the proposed regulations are adopted as amended by this Treasury decision in response to such comments as described in the Summary of Comments and Explanation Revisions. These final regulations concern Federal tax laws under the Internal Revenue Code only. No interference is intended with respect to any other legal regime, including the Federal securities laws and the Commodity Exchange Act, which are outside the scope of these regulations. Summary of Comments and Explanation of Revisions I. Final Sec. 1.6045-1 A. Definition of Digital Assets Subject to Reporting The proposed regulations required reporting under section 6045 for certain dispositions of digital assets that are made in exchange for cash, different digital assets, stored-value cards, broker services, or property subject to reporting under existing section 6045 regulations or any other property in a payment transaction processed by a digital asset payment processor (referred to in these final regulations as a processor of digital asset payments or PDAP). The proposed regulations defined a digital asset as a digital representation of value that is recorded on a cryptographically secured distributed ledger (or any similar technology), without regard to whether each individual transaction involving that digital asset is actually recorded on the cryptographically secured distributed ledger. Additionally, the proposed regulations provided that a digital asset does not include cash in digital form. While some comments expressed support for the definition of digital asset in the proposed regulations, other comments raised concerns that the definition of digital asset goes beyond the statutory definition found in amended section 6045. For example, one comment recommended applying the definition only to assets held for investment and excluding any assets that are used for other functions, which include, in their view, nonfungible tokens (NFTs), stablecoins, tokenized real estate, and tokenized commodities. Another comment recommended narrowing the definition of digital asset to apply only to blockchain ``native'' digital assets and exempting all NFTs and other tokenized versions of traditional asset classes, such as tokenized securities, and other digital assets that don't function as a medium of exchange, unit of account, or store of value. Another comment recommended that the definition of digital asset distinguish between digital representations of what the comment referred to as ``hard assets,'' such as gold, where the digital asset is merely a proxy for the underlying asset versus digital assets that are not backed by hard assets. Another comment recommended that the definition of digital asset not include tokenized assets, including financial instruments that have been tokenized. The final regulations do not adopt these comments. As discussed more fully in Parts I.A.1. and A.2. of this Summary of Comments and Explanation of Revisions, neither the statutory language nor the legislative history to the Infrastructure Act suggest Congress intended such a narrow interpretation of the term. The Infrastructure Act made changes to the third party information reporting rules under section 6045. Third party information reporting generally contributes to lowering the income tax gap, which is the difference between taxes legally owed and taxes actually paid. GAO, Tax Gap: Multiple Strategies Are Needed to Reduce Noncompliance, GAO-19- 558T at 6 (Washington, DC: May 9, 2019). It is anticipated that broker information reporting on digital asset transactions will lead to higher levels of taxpayer compliance because brokers will provide the information necessary for taxpayers to prepare their Federal income tax returns and reduce the number of inadvertent errors or intentional omissions or misstatements shown on those returns. Because digital assets can easily be held and transferred, including to offshore destinations, directly by a taxpayer rather than by an intermediary, digital asset transactions raise tax compliance concerns that are specific to digital assets in addition to the more general tax compliance concerns relevant to securities, commodities, and other assets that are reportable under section 6045 and to cash payments reportable under other reporting provisions. The Treasury Department and the IRS have consequently concluded that the definition of digital assets in section 6045(g)(3)(D) provides the appropriate scope for digital assets subject to broker reporting. To the extent sales of digital assets including NFTs, tokenized securities, and other digital assets that may not function as a medium of exchange, unit of account, or store of value, give rise to taxable gains and losses, these assets should be included in the definition of digital assets. See, however, Part I.D.3. of this Summary of Comments and Explanation of Revisions for a description of an optional reporting rule for many NFTs that would eliminate reporting on those NFTs when certain conditions are met, and Part I.A.4.a. of this Summary of Comments and Explanation of Revisions for a description of a special rule providing that assets that are both securities and digital assets are reportable as securities rather than as digital assets when specified conditions are met. Some comments asserted that the statutory definition of digital assets is or should be limited to assets that are financial instruments. These comments are discussed in Part I.A.2. of this Summary of Comments and Explanation of Revisions. Other comments raised a concern that the definition of digital assets is ambiguous and recommended adding examples that clarify the types of property that are and are not digital assets. For reasons discussed more fully in Parts I.A.1., A.2., and A.3. of this Summary of Comments and Explanation of Revisions, the final regulations include several additional examples that illustrate and further clarify certain types of digital assets that [[Page 56482]] are included in the definition, such as qualifying stablecoins, specified nonfungible tokens (specified NFTs), and other fungible digital assets. One comment suggested that the term cryptographically secured distributed ledger be defined in the final regulations as a type of data storage and transmission file which uses cryptography to allow for a decentralized system of verifying transactions. This comment also stated that the definition should state that the stored information is an immutable database and includes an embedded system of operation, and that a blockchain is a type of distributed ledger. The final regulations do not adopt this recommendation because clarification of the term is not necessary and because the recommended changes are potentially unduly restrictive to the extent they operate to restrict future broker reporting obligations should advancements be made in how distributed ledgers are cryptographically secured. One comment suggested that the proposed definition of a digital asset is overly broad because it includes transactions recorded in the broker's books and records (commonly referred to as ``off-chain'' transactions) and not directly on a distributed ledger. Another comment specifically supported the decision to not limit the definition to only those digital representations for which each transaction is actually recorded or secured on a cryptographically secured distributed ledger. The Treasury Department and the IRS have determined that the definition of digital asset is not overly broad in this regard because eliminating digital assets that are traded in off-chain transactions from the definition would fail to provide information reporting on the significant amount of trading that occurs off-chain on the internal ledgers of custodial digital asset trading platforms. Moreover, since the mechanics of how an asset sale is recorded does not impact whether there has been a taxable disposition of that asset, those mechanics should not impact whether the underlying asset is or is not a digital asset. A comment suggested that the definition of a digital asset should eliminate the phrase ``or any similar technology'' because the scope of that phrase is unclear and could negatively impact future technology improvements, such as privacy-preserving technology, cryptography, distributed database systems, distributed network systems, or other evolving technology. Another comment requested that the definition of any similar technology be limited to instances in which the IRS identifies such future similar technologies in published guidance. The final regulations do not adopt this comment. Using the phrase ``any similar technology'' is consistent with the Infrastructure Act's use of the same term in its definition of digital assets in section 6045(g)(3)(D). Further, including any similar technology along with cryptographically secured ledgers is necessary to ensure that brokers continue to report on transactions involving these assets without regard to advancements in or changes to the techniques, methods, and technology, on which these assets are based. The Treasury Department and the IRS are not currently aware of any existing technology that would fit within this ``or any similar technology'' standard, but if brokers or other interested parties identify new technological developments and are uncertain whether they fit within the definition, they can make the Treasury Department and the IRS aware of the new technology and request guidance at that time. 1. Stablecoins As explained in the preamble to the proposed regulations, the definition of digital assets was intended to apply to all types of digital assets, including so-called stablecoins that are designed to have a stable value relative to another asset or assets. The preamble to the proposed regulations noted that such stablecoins can take multiple forms, may be backed by several different types of assets that are not limited to currencies, may not be fully collateralized or supported fully by reserves by the underlying asset, do not necessarily have a constant value, are frequently used in connection with transactions involving other types of digital assets, and are held and transferred in the same manner as other digital assets. In addition to fiat currency, other assets to which so-called stablecoins can be pegged include commodities or other financial instruments (including other digital assets). No comments were received that specifically advocated for the exclusion of a so-called stablecoin that has a fixed exchange rate with (that is, is pegged to) a commodity, another financial instrument, or any other asset other than a specific convertible currency issued by a government or a central bank (including the U.S. dollar) (sometimes referred to in this preamble as fiat currency). The Treasury Department and the IRS have determined that it would be inappropriate to exclude stablecoins that are pegged to such assets from the definition of digital assets. Accordingly, this preamble uses the term stablecoin to refer only to the subset of so- called stablecoins referred to in the proposed regulations that are pegged to a fiat currency. Numerous comments received specifically advocated for the exclusion from the definition of digital assets stablecoins that are pegged to a fiat currency. Numerous comments stated that failure to exclude stablecoins from the definition of digital assets would hinder the adoption of these stablecoins in the marketplace, deter their integration into commercial payment systems, and undermine Congressional efforts to establish a regulatory framework for stablecoins that can be used to make payments. Additional comments raised concerns about privacy, drew an analogy to the exemption in the existing regulations for reporting on shares of money market funds, or recommended that reporting on stablecoins be deferred until after the substantive tax treatment of stablecoins is clarified with guidance issued by the Treasury Department and the IRS or until a legislative framework is established by Congress. Several other comments recommended that reporting on stablecoins be required, noting that stablecoins can be volatile in value and regularly vary from a one-to- one parity with the fiat currency they are pegged to, and therefore may give rise to gain or loss on disposition. After consideration of the comments, the final regulations do not exclude stablecoins from the definition of digital assets. Stablecoins unambiguously fall within the statutory definition of digital assets as they are digital representations of the value of fiat currency that are recorded on cryptographically secured distributed ledgers. Moreover, because stablecoins are integral to the digital asset ecosystem, excluding stablecoins from the definition of digital assets would eliminate a source of information about digital asset transactions that the IRS can use in order to ensure compliance with taxpayers' reporting obligations. The Treasury Department and the IRS are aware that legislation has been proposed that would regulate the issuance and terms of stablecoins. If legislation is enacted regulating stablecoins, the Treasury Department and the IRS intend to take that legislation into account in considering whether to revise the rules for reporting on stablecoins provided in these final regulations. Notwithstanding that the final regulations include stablecoins in the [[Page 56483]] definition of digital assets, the Secretary has broad authority under section 6045 to determine the extent of reporting required by brokers on transactions involving digital assets. In response to the request for comments in the preamble to the proposed regulations on whether stablecoins, or other coins whose value is pegged to a specified asset, should be excluded from reporting under the final regulations, numerous comments largely focused on stablecoins, rather than coins that track a commodity price or the price of another digital asset. Many of these comments requested that sales of stablecoins be exempted from broker reporting in whole or in part because reporting on all transactions involving stablecoins would result in a very large number of reports on transactions involving little to no gain or loss, on the grounds that these reports would be burdensome for brokers to provide, potentially confusing to taxpayers and of minimal utility to the IRS. These comments asserted that most transactions involved little or no gain or loss because, in their view, stablecoins closely track the value of the fiat currency to which they are pegged. Some comments recommended that certain types of stablecoin transactions be reportable, including requiring reporting of dispositions of stablecoins for cash or where there is active trading in the stablecoin that is intended to give rise to gain (or loss). The Treasury Department and the IRS agree that transaction-by- transaction reporting for stablecoins would result in a high volume of reports. Indeed, according to a report by Chainalysis on the ``Geography of Cryptocurrency'' analyzing public blockchain transactions (commonly referred to as ``on-chain'' transactions), stablecoins are the most widely used type of digital asset, making up more than half of all on-chain transactions to or from centralized services between July 2022 and March 2023. Chainalysis, The 2023 Geography of Cryptocurrency Report, p. 14 (October 2023). Given the popularity of stablecoins and the number of stablecoin sales that are unlikely to reflect significant gains or losses, the Treasury Department and the IRS have determined that it is appropriate to provide an alternative reporting method for certain stablecoin transactions to alleviate unnecessary and burdensome reporting. Accordingly, the final regulations have added a new optional alternative reporting method for sales of certain stablecoins to allow for aggregate reporting instead of transactional reporting, with a de minimis annual threshold below which no reporting is required. See Part I.D.2. of this Summary of Comments and Explanation of Revisions. Consistent with the proposed regulations, brokers that do not use this alternative reporting method must report sales of stablecoins under the same rules as for other digital assets. See Part I.D.2. of this Summary of Comments and Explanation of Revisions for the discussion of alternative reporting rules for certain stablecoins. 2. Nonfungible Tokens As with stablecoins, the definition of digital assets in the proposed regulations includes NFTs without regard to the nature of the underlying asset, if any, referenced by the NFT. Although some comments expressed agreement that the definition of digital asset in the statute is broad enough to include all NFTs, other comments raised concerns that the Secretary did not have the authority to include NFTs in broker reporting. That is, the comments argued that while NFTs have value, they do not constitute ``representations of value'' as required by the statutory definition in section 6045(g)(3)(D). Classifying an NFT as a ``representation of value'' merely because it has value, these comments asserted, would fail to give effect to the word ``representation'' in the statute. As support for this view, one comment cited to Senator Portman's floor colloquy reference to the intended application of the reporting rule to ``cryptocurrency.'' 167 Cong. Rec. S6095-6 (daily ed. August 9, 2021). Ultimately, these comments recommended excluding sales of NFTs from the definition of digital assets. The final regulations do not adopt these comments. Although NFTs may reference assets with value, this does not prevent them from also ``representing value.'' Moreover, that interpretation would lead to a result that would contravene the statutory changes to the broker reporting rules by the Infrastructure Act. Excluding all NFTs from the definition of digital assets merely because NFTs may reference assets with value rather than ``represent value'' would result in the exclusion of NFTs that reference traditional financial assets. These assets have been subject to reporting under section 6045 for nearly 40 years, and there is no reason to exclude them from reporting now based only on the circumstance of their trades through NFTs, rather than through other traditional means. Numerous comments asserted that the statutory reference to any ``representation of value'' should limit the definition of digital assets to only those digital assets that reference financial instruments or otherwise could be used to deliver value (such as a method of payment). Numerous comments expressed that many NFTs, such as, digital art and collectibles, are unique digital assets that are bought and sold for personal enjoyment rather than financial gain and therefore should not be subject to reporting. Similarly, other comments raised the series-qualifier canon of statutory construction, which provides that when a statute contains a list of closely related, parallel, or overlapping terms followed by a modifier, that modifier should be applied to all the terms in the list. Therefore, according to the comments, because ``any digital asset'' is included in the section 6045(g)(3)(B) list of assets defining specified security and because that list concludes with ``any other financial instrument,'' these comments argue that the definition of ``digital asset'' must be limited to assets that are, or are akin to, ``financial instruments.'' As additional support for this suggestion, one comment cited the rule of last antecedent, which is another canon of statutory construction and provides that a limiting clause or phrase should ordinarily be read as modifying only the noun or phrase that it immediately follows. That is, because the ``other financial instrument'' clause directly follows ``any digital asset'' in the list, the definition of any digital asset must be limited to only those digital assets that constitute financial instruments. The final regulations do not adopt these comments. The plain language of the digital asset definition in section 6045(g)(3)(D) reflects only two specific limitations on the definition: ``[e]xcept as otherwise provided by the Secretary'' and ``recorded on a cryptographically secured distributed ledger or similar technology as specified by the Secretary.'' The legislative history to the Infrastructure Act does not support the conclusion that Congress intended the ``representation of value'' phrase to limit the definition of digital assets to only those digital assets that are financial instruments. To the contrary, a report by the Joint Committee on Taxation published in the Congressional Record prior to the enactment of the Infrastructure Act cited to and relied on the Notice 2014-21, 2014-16 I.R.B. 938 (April 14, 2014) definition of virtual currency, which first used the phrase ``representation of value.'' 167 Cong. Rec. S5702, 5703 (daily ed. August 3, 2021) (Joint Committee on Taxation, Technical Explanation of Section 80603 [[Page 56484]] of the Infrastructure Act). That virtual currency definition specifically limited the ``representation of value'' phrase to those assets that function ``as a medium of exchange, unit of account, and/or store of value.'' This limitation would not have been necessary had the ``representation of value'' phrase been limited to assets that function as financial instruments. Moreover, Congress' use of the term ``digital asset'' instead of ``digital currency'' also supports the broader interpretation of the term. The final regulations also do not adopt the interpretation of the referenced canons of statutory construction presented by the comments because those canons should not be used to limit the definition of digital assets in a statute that includes an explicit and unambiguous definition of that term. Moreover, the referenced canons do not lead to the result asserted by the comments. The series-qualifier canon is not applicable here because not all the items in the list at section 6045(g)(3)(B) are consistent with the ``financial instrument'' language following the list. For example, section 6045(g)(3)(B)(iii) references any commodity, which under Sec. 1.6045-1(a)(5) of the final regulations effective before the effective date of these final regulations \1\ and these final regulations, specifically includes physical assets, such as lead, palm oil, rapeseed, tea, and tin, which are not financial instruments. The term commodity also includes any type of personal property that is traded through regulated futures contracts approved by the U.S. Commodity Futures Trading Commission (CFTC), which include live cattle, natural gas, and wheat. See Sec. 1.6045-1(a)(5) of the pre-2024 final regulations. (These final regulations also add to the definition of commodity personal property that is traded through regulated futures contracts certified to the CFTC.) These assets also are not financial instruments. Consequently, the term ``any other financial instrument'' in section 6045(g)(3)(B)(v) should not be read to limit the meaning of the items in the list that came before it. For similar reasons, the rule of last antecedent also does not limit the meaning of digital assets. Prior to the changes made to section 6045 by the Infrastructure Act, the financial instruments language followed the commodities clause. As such, when enacted the financial instruments phrase could not have been intended to limit the item in the list (commodity) that immediately preceded it. Accordingly, the Treasury Department and the IRS understand the inclusion of other financial instruments as potential specified securities as a grant of authority to expand the list of specified securities, not as a provision limiting the meaning of the other asset types listed as specified securities. --------------------------------------------------------------------------- \1\ Numerous Treasury decisions have been published under Sec. 1.6045-1. See T.D. 7873, 48 FR 10302 (Mar. 11, 1983); T.D. 7880, 48 FR 12940 (Mar 28, 1983); T.D. 7932, 48 FR 57485 (Dec. 30, 1983); T.D. 7960, 49 FR 22281 (May 29, 1984); T.D. 8445, 57 FR 53031 (Nov. 6, 1992); T.D. 8452, 57 FR 58983 (Dec. 14, 1992); T.D. 8683, 61 FR 53058 (Oct. 10, 1996); T.D. 8734, 62 FR 53387 (Oct. 14, 1997); T.D. 8772, 63 FR 35517 (Jun. 30, 1998); T.D. 8804, 63 FR 72183 (Dec. 31, 1998); T.D. 8856, 64 FR 73408 (Dec. 30, 1999); T.D. 8881, 65 FR 32152 (May 22, 2000), corrected 66 FR 18187 (April 6, 2001); T.D. 8895, 65 FR 50405 (Aug. 18, 2000); T.D. 9010, 67 FR 48754 (Jul. 26, 2002); T.D. 9241, 71 FR 4002 (Jan. 24, 2006); T.D. 9504, 75 FR 64072 (Oct. 18, 2010); T.D. 9616, 78 FR 23116 (April 18, 2013); T.D. 9658, 79 FR 12726 (Mar. 6, 2014); T.D. 9713, 80 FR 13233 (Mar. 13, 2015); T.D. 9750, 81 FR 8149 (Feb. 18, 2016), corrected 81 FR 24702 (Apr. 27, 2016); T.D. 9774, 81 FR 44508 (Jul. 8, 2016); T.D. 9808, 82 FR 2046 (Jan. 6, 2017), corrected 82 FR 29719 (Jun. 30, 2017); T.D. 9984, 88 FR 87696 (Dec. 19, 2023). The regulations effective before the effective date of these final regulations will collectively be referred to as the pre-2024 final regulations. --------------------------------------------------------------------------- One comment suggested that the final regulations should limit the definition of a digital asset to exclude NFTs not used as payment or investment instruments to align the section 6045 reporting rules with other rules and regulatory frameworks. One comment recommended limiting the definition to only digital assets that can be converted to U.S. dollars, another fiat currency, or an asset with market value. Several comments suggested that including all NFTs in the definition of digital assets would be inconsistent with the intended guidance announced in Notice 2023-27, Treatment of Certain Nonfungible Tokens as Collectibles, 2023-15 I.R.B. 634 (April 10, 2023), which indicated that the IRS intends to determine whether an NFT constitutes a collectible under section 408(m) of the Code by using a look-through analysis that looks to the NFT's associated right or asset. Other comments recommended that the final regulations limit the definition of digital assets to exclude NFTs not used as payment or investment instruments to align the section 6045 reporting rules with the reporting rules for digital assets by foreign governments, such as the Council directive (EU) 2023/2266 of 17 October amending Directive 2011/16/EU on administrative cooperation in the field of taxation, which is popularly known as DAC8. Yet other comments recommended that the final regulations conform to guidelines from the Financial Action Task Force (FATF), an inter-governmental body that sets international standards that aim to prevent money laundering and terrorism financing. FATF guidelines distinguish between those NFTs that are used ``as collectibles'' from those used ``as payment or investment instruments.'' Finally, one comment urged the Treasury Department and the IRS to follow the Financial Accounting Standards Board (FASB) standards, which completely exclude NFTs from their definition of digital assets due to their nonfungible nature. FASB, Accounting Standards Update, Intangibles--Goodwill and Other--Crypto Assets (Subtopic 350-60), No. 2023-08, December 2023. These final regulations do not adopt these comments because they would make the definition of digital assets unduly restrictive. The goal behind information reporting by brokers is to close or significantly reduce the income tax gap from unreported income and to provide information that assists taxpayers. Information reporting generally can achieve that objective when brokers report to the IRS and to their customers the information necessary for customers to report their income. The considerations relevant to a U.S. third party information reporting regime are not the same as the considerations that are relevant to the definition of collectibles under section 408(m), which applies in order to determine assets that have adverse tax consequences if acquired by certain retirement accounts and that are subject to special tax rates. While non-tax policies relating to combating money laundering and terrorism financing or guidelines for generally accepted accounting standards may have some relevance, they are not determinative for Federal tax purposes under the Code. Finally, the Treasury Department and the IRS understand that DAC8 is intended to apply in the same manner as a closely related OECD standard, discussed in the next paragraph. Moreover, NFTs that are actively traded on trading platforms appear to be used for investment purposes in addition to any other purposes. Publicly available information reports that trading in some NFT collections has been in the billions of dollars over time and that 24-hour trading volume in NFTs in 2024 has ranged from $60-410 million. This trading activity suggests that at least some NFT collections have sufficient volume and liquidity to facilitate their use as investments rather than as traditional collectibles. Another comment suggested that the final regulations should limit the definition of digital assets to exclude NFTs to align the section 6045 definition of digital assets with the definition of ``Relevant Crypto-Asset'' [[Page 56485]] under the Crypto-Asset Reporting Framework (CARF), a framework for the automatic exchange of information between countries on crypto-assets developed by the Organisation for Economic Co-operation and Development (OECD) and to which the United States is a party. As discussed in Part I.G.2. of this Summary of Comments and Explanation of Revisions, once the United States implements the CARF, U.S. digital asset brokers will need to file information returns under both these final regulations with respect to their U.S. customers, and, under separate final regulations implementing the CARF reporting requirements, with respect to their non-U.S. customers that are resident in jurisdictions implementing the CARF. These final regulations generally attempt to align definitions with those used in the CARF to the extent possible. In this case, however, the final regulations do not adopt this comment because the CARF's definition of Relevant Crypto-Assets is already consistent with a definition of digital assets that includes NFTs. As noted in paragraph 12 of the CARF's Commentary on Section IV: Defined terms, although NFTs are often marketed as collectibles, this function does not prevent an NFT from being able to be used for payment or investment purposes. ``NFTs that are traded on a marketplace can be used for payment or investment purposes and are therefore to be considered Relevant Crypto-Assets.'' See Part I.G.1. of this Summary of Comments and Explanation of Revisions, for a discussion of the United States' implementation of the CARF. Notwithstanding that the final regulations include NFTs in the definition of digital assets under section 6045(g)(3)(D), the Treasury Department and the IRS have determined that, pursuant to discretion under section 6045(a), it is appropriate to provide an alternative reporting method for certain types of NFTs to alleviate burdensome reporting. As discussed in Part I.D.3. of this Summary of Comments and Explanation of Revisions, the final regulations have added a new optional alternative reporting method for sales of certain NFTs to allow for aggregate reporting instead of transactional reporting, with a de minimis annual threshold below which no reporting is required. The Treasury Department and the IRS anticipate that the de minimis annual threshold will eliminate reporting on many low-value NFT transactions that are less likely to be used for payment or investment purposes. 3. Closed Loop Assets The preamble to the proposed regulations stated that the definition of a digital asset was not intended to apply to the types of virtual assets that exist only in a closed system and cannot be sold or exchanged outside that system for fiat currency. The preamble also stated that the definition of digital assets was not intended to cover uses of distributed ledger technology for ordinary commercial purposes, such as tracking inventory or processing orders for purchase and sale transactions, that do not create transferable assets and are therefore not likely to give rise to sales as defined for purposes of the regulations. Several comments requested that the final regulations be revised to provide an exception for closed loop uses in the regulatory text and to add examples illustrating that these types of virtual assets are not included in the definition of a digital asset. Another comment recommended that the final regulations expressly limit the definition of digital assets to only those digital assets that function as currency as described in Notice 2014-21 or that have the capability of being purchased, sold, or exchanged. The Treasury Department and the IRS agree that the text of the final regulations should make clear that transactions involving digital assets in the above-described closed loop environments should not be subject to reporting. The final regulations do not limit the definition of a digital asset as requested to accommodate these comments, however, because it is not clear how the definition could narrowly carve out only these closed loop digital assets without also carving out other assets for which reporting is appropriate. Instead, to address these comments, the final regulations add transactions involving these closed loop digital assets to the list of excepted sales that are not subject to reporting under Sec. 1.6045- 1(c)(3)(ii). See Part I.C. of this Summary of Comments and Explanation of Revisions, for a discussion of the closed loop transactions added to the list of excepted sales at Sec. 1.6045-1(c)(3)(ii). 4. Coordination With Reporting Rules for Securities, Commodities, and Real Estate The preamble to the proposed regulations noted that the Treasury Department and the IRS are aware that many provisions of the Code incorporate references to the terms security or commodity, and that questions exist as to whether, and if so, when, a digital asset may be treated as a security or a commodity for purposes of those Code sections. Apart from the rules under sections 1001 and 1012 discussed in Part II. of this Summary of Comments and Explanation of Revisions, these final regulations are information reporting regulations, and are therefore not the appropriate vehicle for answering those questions. Accordingly, the treatment of an asset as reportable as a security, commodity, digital asset, or otherwise in these rules applies for purposes of sections 3406, 6045, 6045A, 6045B, 6050W, 6721, and 6722 of the Code, and for certain purposes of sections 1001 and 1012, and should not be construed to apply for any other purpose of the Code, including but not limited to determining whether a digital asset should be classified as a security, commodity, option, securities futures contract, regulated futures contract, or forward contract. One comment expressed concern that promulgation of final regulations requiring brokers to report on digital asset transactions could be cited by other government agencies to support treating digital assets as securities for purpose of the securities statutes, rules, and regulations. This comment requested that these regulations not take any position on whether digital assets are securities for these other purposes. The Treasury Department and the IRS agree with this comment. The potential characterization of digital assets as securities, commodities, or derivatives for purposes of any other legal regime, such as the Federal securities laws and the Commodity Exchange Act, is outside the scope of these final regulations. a. Special Coordination Rules for Dual Classification Assets Because Sec. 1.6045-1(a)(9) of the pre-2024 final regulations (redesignated in the proposed and final regulations as Sec. 1.6045- 1(a)(9)(i)) require reporting with respect to sales for cash of securities as defined in Sec. 1.6045-1(a)(3) and certain commodities as defined in Sec. 1.6045-1(a)(5), the proposed regulations included coordination rules to provide certainty to brokers with respect to whether a particular transaction involving securities or certain commodities is reportable as a securities or commodities sale under proposed Sec. 1.6045-1(a)(9)(i) (sale of securities or commodities) or as a digital assets sale under proposed Sec. 1.6045-1(a)(9)(ii) (sale of digital assets) and to avoid duplicate reporting obligations. Specifically, for transactions involving the sale of a digital asset that also constitutes the sale of a commodity or security (other than options that [[Page 56486]] constitute contracts covered by section 1256(b) of the Code) (dual classification assets), the proposed regulations provided that the broker would report the sale only as a sale of a digital asset and not as a sale of a security or commodity. Numerous comments raised the concern that requiring brokers that have been historically reporting sales of securities and commodities on Form 1099-B, Proceeds from Broker and Barter Exchange Transactions to report these transactions as sales of digital assets on Form 1099-DA, Digital Asset Proceeds From Broker Transactions would force these brokers to overhaul their existing reporting systems and potentially cause confusion for taxpayers who are not even aware that their securities and commodities have been tokenized. To address this concern, some comments recommended that the digital asset definition be revised to exclude some or all securities and commodities. Other comments recommended revising the coordination rule so that the reporting rules for sales of securities and commodities apply to digital assets that are also securities or commodities. One comment suggested applying the reporting rules for sales of securities and commodities to any digital asset that represents a fund subject to the Investment Company Act of 1940, 15 U.S.C. 80a-1 et seq. (1940 Act Fund), or another highly regulated product outside of 1940 Act Funds. The final regulations do not adopt the comments recommending that sales of dual classification assets generally be reported as sales of securities or commodities. One of the benefits of treating dual classification assets as digital assets is that it avoids forcing brokers to make determinations about whether the dual classification asset is properly classified as a security or a commodity under current law. For example, a rule that treats all dual classification assets as securities and commodities would require brokers to determine whether a digital asset that represents a governance token is properly classified as a security under final Sec. 1.6045-1(a)(3) to determine how to report sales of that digital asset. Moreover, such a rule would affect reporting on digital assets commonly referred to as cryptocurrencies that fit within the definition of a commodity under final Sec. 1.6045- 1(a)(5)(i) because the trading of regulated futures contracts in that digital asset has been certified to the CFTC. It would be inappropriate for brokers to report these assets as sales of commodities rather than as sales of digital assets because, as is discussed in Part I.F. of this Summary of Comments and Explanation of Revisions, it is important that brokers report basis for these sales. Other comments offered recommendations designed to limit reporting of dual classification assets under the rules governing sales of securities and commodities. For example, one comment recommended that the reporting rules for sales of securities and commodities apply to any digital asset representing readily ascertainable securities or commodities and not purely blockchain-based digital assets, such as cryptocurrencies or governance tokens, for which treatment as securities or commodities may be uncertain. Another comment recommended that the reporting rules for sales of securities and commodities apply to any digital asset that represents a non-digital asset security or commodity otherwise reportable on Form 1099-B under the reporting rules for sales of securities and commodities or is otherwise backed by collateral that represents such non-digital asset. One comment suggested applying the reporting rules for sales of securities and commodities to any digital asset, the blockchain ledger entry for which solely serves as a record of legal ownership of an underlying security or commodity that is not itself a digital asset. Another comment recommended applying the reporting rules for sales of securities and commodities to dual classification assets that are digitally native to a blockchain that is used simply to record ownership changes. Recognizing that identifying digital assets that represent securities and commodities that are not themselves digital assets could be burdensome, one comment recommended that when information is not available for brokers to make these determinations about dual classification assets, the broker should report the transaction as a sale of a digital asset. Another comment requested that the final regulations include a safe harbor rule providing that no penalties will be imposed on a broker who consistently and accurately reports the sale of dual classification assets under either the reporting rules for sales of securities and commodities (on Form 1099-B) or for sales of digital assets (on Form 1099-DA) based on the broker's reasonable determination that the chosen reporting method is correct because it may be administratively difficult for brokers to examine every dual classification asset to make a determination based on the nature of the asset. Numerous comments also focused on the circumstances that may give rise to securities and commodities being treated as digital assets. For example, one comment indicated that the proposed coordination rule would inadvertently capture transactions involving securities and commodities for which brokers use distributed ledger technology, shared ledgers, or similar technology merely to facilitate the processing, clearing, or settlement of orders between well-regulated brokers and other financial institutions. To address this concern, several comments recommended that the reporting rules for sales of securities and commodities apply only to digital assets that are more appropriately categorized within a traditional asset class (for example, as a security with an effective registration statement filed under the Securities Act of 1933) and that are issued, stored, or transferred through a distributed ledger that is a regulated clearing agency system in compliance with all applicable Federal and State securities laws. Another comment recommended addressing this problem by making the information required to be reported for digital asset sales (on Form 1099-DA) not more burdensome than that for securities and commodities (on Form 1099-B). Another comment requested that, if brokers are required to report these dual classification assets on the Form 1099- DA, the final regulations allow brokers to optionally make appropriate basis adjustments for dual classification assets that are securities. This comment also recommended revising the rules in Sec. 1.6045- 1(d)(2)(iv)(B) of the pre-2024 final regulations to permit (but not require) brokers to take into account information about a covered security other than what is furnished on a transfer statement or issuer statement and to provide penalty relief under certain circumstances to brokers that take such information into account. Finally, one comment recommended providing written clarity that even though wash sale adjustment rules do not apply to digital assets, they still apply to tokenized securities such as, for example, 1940 Act Funds. The Treasury Department and the IRS have concluded that it is generally not appropriate to permit optional approaches to reporting dual classification assets because the underlying reporting requirements for securities and commodities are significantly different from those for digital assets due, in large part, to industry differences and the timing of when the reporting rules were first implemented. Although the proposed requirement for brokers to report transaction identification numbers and digital asset addresses has been [[Page 56487]] removed in these final regulations (see Part I.D. of this Summary of Comments and Explanation of Revisions), there are several remaining differences in the basis reporting requirements for securities and commodities as compared to digital assets. For example, unlike brokers effecting sales of digital assets, brokers effecting sales of commodities are not required to report the customer's adjusted basis for those commodities because commodities are not included in the definition of covered securities. Additionally, brokers effecting sales of stock, other than stock for which the average basis method is available under Sec. 1.1012-1(e), must generally report the adjusted basis of these shares to the extent they were acquired for cash in an account on or after January 1, 2011, and generally must report the adjusted basis on shares of stock for which the average basis method is available to the extent those shares were acquired for cash in an account on or after January 1, 2012. These brokers of stock that are covered securities under final Sec. 1.6045-1(a)(15)(i)(A) or (B) must also send transfer statements to other brokers under section 6045A when their customers move that stock to another broker. In contrast, as discussed in Part I.F. of this Summary of Comments and Explanation of Revisions, under the final regulations, brokers effecting sales of digital assets that are covered securities under final Sec. 1.6045-1(a)(15)(i)(J) are required to report the adjusted basis of those digital assets only if they were acquired for cash, stored-value cards, different digital assets, or certain other property or services in the customer's account by such brokers providing custodial services for such digital assets on or after January 1, 2026. Additionally, these brokers are not currently required to send transfer statements to other brokers under section 6045A when their customers transfer digital assets that are specified securities to another broker. Indeed, the details of how section 6045A reporting will apply to brokers of digital assets will not be addressed until a future notice of proposed rulemaking. Accordingly, whether the sale of a dual classification asset is treated as a sale of a security or commodity under final Sec. 1.6045-1(a)(9)(i) or as a sale of a digital asset under final Sec. 1.6045-1(a)(9)(ii) has consequences beyond the particular form that the broker must use when filing returns with respect to those sales. Given these different basis reporting requirements and transfer statement obligations under section 6045A, the Treasury Department and the IRS have determined that, except in the case of certain exceptions described in the next several paragraphs, it is not appropriate to treat dual classification assets as subject only to the pre-2024 final regulations (that is, required to report the transactions under final Sec. 1.6045-1(d)(2)(i)(A) as sales described in final Sec. 1.6045- 1(a)(9)(i)) for securities and commodities if those assets can be traded on public blockchains and custodied by customers. Accordingly, final Sec. 1.6045-1(c)(8)(i) provides that brokers must generally treat sales of dual classification assets only as a sale of a digital asset under final Sec. 1.6045-1(a)(9)(ii) and only as a sale of a specified security that is a digital asset under final Sec. 1.6045- 1(a)(14)(v) or (vi). As such, the broker must apply the digital asset reporting rules for the information required to be reported for such sale and file the return on Form 1099-DA. Further, as discussed in Part IV. of this Summary of Comments and Explanation of Revisions, brokers are not required to send transfer statements under final Sec. 1.6045A- 1(a)(1)(vi) with respect to the transfer of these dual classification assets that are reportable as digital assets. Additionally, final Sec. 1.6045-1(d)(2)(iv)(B) does not permit brokers to take into account any other information, including information received from a customer or third party, with respect to covered securities that are digital assets, although brokers may take customer-provided acquisition information into account for purposes of identifying which units are sold, disposed of, or transferred under final Sec. 1.6045- 1(d)(2)(ii)(A). However, to accommodate the comments relating to the application of the various basis adjustment rules, including the wash sale adjustment rules, and other important information applicable to dual classification assets that represent an interest in a traditional security, final Sec. 1.6045-1(c)(8)(i)(D) requires the broker to report certain additional information with respect to any dual classification asset that is a tokenized security. For this purpose, any dual classification asset that provides the holder with an interest in another asset that is a security under final Sec. 1.6045-1(a)(3), other than a security that is also a digital asset, is a tokenized security. This description is intended to apply when the digital asset represents an interest in a separate, traditional, financial asset that is reportable as a security. For example, a digital asset that represents an ownership interest in a traditional share of stock in a 1940 Act Fund or another corporation would be a tokenized security. A dual classification asset that is an interest in a trust or partnership that holds assets that are securities under final Sec. 1.6045-1(a)(3), other than securities that are also digital assets, also would be a tokenized security. In addition, an asset the offer and sale of which was registered with the U.S. Securities and Exchange Commission (SEC) (other than an asset treated as a security for securities law purposes solely as an investment contract) is also treated as a tokenized security. This part of the description of tokenized securities is intended to refer to a digital asset that is also a security within the meaning of final Sec. 1.6045-1(a)(3) but does not represent an interest in a separate financial asset. A bond that exists solely in tokenized form would be an example of such a tokenized security, if the bond was issued pursuant to a registration statement approved by the SEC. The reference to whether an asset's offer and sale was registered with the SEC, other than solely as an investment contract, is intended to limit the scope of the term tokenized security to digital forms of traditional financial assets, and not to capture assets native to the digital asset ecosystem. The reference to registration of an asset's offer and sale with the SEC is not intended to imply that such assets are necessarily securities for Federal income tax purposes or for purposes of final Sec. 1.6045-1(a)(3). Additionally, no inference is intended as to how the Federal securities laws apply to sales of digital assets within the meaning of final Sec. 1.6045-1(a)(19), as the interpretation or applicability of those laws are outside the scope of these final regulations. For the avoidance of doubt, final Sec. 1.6045-1(c)(8)(i)(D) provides that a qualifying stablecoin is not treated as a tokenized security for purposes of these special rules. For sales of tokenized securities, final Sec. 1.6045-1(c)(8)(i)(D) provides that the broker must report additional information required by final Sec. 1.6045- 1(d)(2)(i)(B)(6), generally relating to gross proceeds. Final Sec. 1.6045-1(d)(2)(i)(B)(6) requires that the broker report the Committee on Uniform Security Identification Procedures (CUSIP) number of the security sold, any information related to options required under final Sec. 1.6045-1(m), any information related to debt instruments under final Sec. 1.6045-1(n), and any other information required by the form or instructions. In addition, final Sec. 1.6045-1(c)(8)(i)(D) provides that the broker must report additional information required by final Sec. 1.6045-1(d)(2)(i)(D)(4) (relating to reporting for basis and holding period) for sales of [[Page 56488]] tokenized securities, except that the broker is not required to report such information for a tokenized security that is an interest in another asset that is a security under final Sec. 1.6045-1(a)(3), other than a security that is also a digital asset, unless the tokenized security is also a specified security under final Sec. 1.6045-1(a)(14)(i), (ii), (iii), or (iv). Accordingly, because a trust or partnership interest is not a specified security within the meaning of those paragraphs, a broker is not required to report basis information with respect to a tokenized security that is an interest in a trust or partnership that holds assets that are securities under final Sec. 1.6045-1(a)(3), other than securities that are also digital assets. Final Sec. 1.6045-1(d)(2)(i)(D)(4) provides specific rules for reporting basis and related information for tokenized securities. It cross-references the wash sale rules in final Sec. 1.6045- 1(d)(6)(iii)(A)(2) and (d)(7)(ii)(A)(2), which rules have also been revised to specifically apply to tokenized securities. These wash sale reporting rules apply only to assets treated as stock or securities within the meaning of section 1091 of the Code. They apply regardless of whether the taxpayer buys or sells a tokenized security. For example, if a taxpayer sells a tokenized security (or the underlying traditional stock or security) at a loss and buys the same tokenized security (or the underlying traditional stock or security) within the 30-day period before or after the sale, and the other conditions to the wash sale reporting rules are satisfied, the broker would be required to take the wash sale reporting rules into account in reporting the loss and the basis of the newly acquired asset. Final Sec. 1.6045- 1(d)(2)(i)(D)(4) also cross-references the average basis rules in final Sec. 1.6045-1(d)(6)(v), which have been revised to apply to any stock that is also a tokenized security, and the rules related to options and debt instruments in final Sec. 1.6045-1(m) and (n). Accordingly, the information reportable for tokenized securities on Form 1099-DA should be similar to the information reportable for traditional securities on Form 1099-B, except that under final Sec. 1.6045A-1(a)(1)(vi), no transfer statement is required with respect to the transfer of tokenized securities, though penalty relief is provided if the broker voluntarily chooses to provide a transfer statement with respect to tokenized securities. Additionally, until the Treasury Department and the IRS determine which third party information is sufficiently reliable, final Sec. 1.6045-1(d)(2)(iv)(B) provides that brokers are not permitted to take into account information about covered securities that are digital assets other than what is furnished on a transfer statement or issuer statement, although brokers may take customer- provided acquisition information into account for purposes of identifying which units are sold, disposed of, or transferred under final Sec. 1.6045-1(d)(2)(ii)(A). The Treasury Department and the IRS intend to provide additional guidance on how to report tokenized securities in the instructions to Form 1099-DA. Final Sec. 1.6045-1(d)(2)(i)(D)(3) requires that, for purposes of determining the basis and holding period information required in final Sec. 1.6045-1(d)(2)(i)(D)(1) and (2), the rules related to options in final Sec. 1.6045-1(m) apply, both with respect to the option and also with respect to any asset delivered in settlement of an option. Accordingly, an option that is itself a digital asset, on an asset that is also a digital asset, is subject to the same reporting rules as other options. Additionally, in response to the comments described above, the Treasury Department and the IRS have determined that the final regulations should include three exceptions to the rules requiring that dual classification assets be reported as digital assets, for the reasons described herein. Those exceptions apply to dual classification assets cleared or settled on a limited-access regulated network, to dual classification assets that are section 1256 contracts, and to dual classification assets that are shares in money market funds. First, the Treasury Department and the IRS agree that it is not appropriate to disrupt reporting on dual classification assets that are treated as digital assets solely because distributed ledger technology is used to facilitate the processing, clearing, or settlement of orders between regulated financial entities. Accordingly, in response to the comments submitted, final Sec. 1.6045-1(c)(8)(iii) adds a new exception to the coordination rule for any sale of a dual classification asset that is a digital asset solely because the sale of such asset is cleared or settled on a limited-access regulated network. Under this exception, such a sale will be treated as a sale described in final Sec. 1.6045-1(a)(9)(i) (reportable on the Form 1099-B) and not as a digital asset described in final Sec. 1.6045-1(a)(9)(ii) (reportable on the Form 1099-DA). Additionally, such a sale must be treated as a sale of a specified security under final Sec. 1.6045- 1(a)(14)(i), (ii), (iii), or (iv) to the extent applicable, and not as a sale of a specified security that is a digital asset under final Sec. 1.6045-1(a)(14)(v) or (vi). For all other purposes of this section including transfers, a dual classification asset that is a digital asset solely because it is cleared or settled on a limited- access regulated network is not treated as a digital asset and is not reportable as a digital asset. Accordingly, depending on the type of the asset, the asset may be a covered security under final Sec. 1.6045-1(a)(15)(i)(A) through (G) (if purchased in an account on or after January 1, 2011 through 2016, as applicable) rather than a digital asset covered security under final Sec. 1.6045-1(a)(15)(i)(H), (J) or (K) (if purchased in an account on or after January 1, 2026). Thus, brokers are required under section 6045A to provide transfer statements with respect to transfers of these dual classification assets, and the rules set forth in final Sec. 1.6045-1(d)(2)(iv)(A) and (B), regarding the broker's obligation to take into account the information reported on those statements and certain other customer provided information also apply. Final Sec. 1.6045-1(c)(8)(iii)(B) sets forth three different types of limited-access regulated network for which this rule applies. The first type of limited-access network is described as a cryptographically secured distributed ledger or network of interoperable distributed ledgers that provide clearance or settlement services and provide access only to a group of persons made up of registered dealers in securities or commodities, banks and similar financial institutions, common trust funds, or futures commission merchants. Final Sec. 1.6045-1(c)(8)(iii)(B)(1)(i). As used in this rule, an interoperable distributed ledger means a group of distributed ledgers that permit digital assets to travel from one permissioned distributed ledger (for example, at one securities broker) to another permissioned distributed ledger (at another securities broker). In such cases, while the clearance or settlement of the dual classification asset is on a network of permissioned distributed ledgers, it is anticipated that the asset will remain in a traditional securities or commodities account from the perspective of an investor in the asset and so can readily be reported as a security or commodity under existing rules. The second type of limited-access network is also described as a cryptographically secured distributed ledger or network of interoperable distributed ledgers that provide clearance or settlement services, but this type of limited-access network is distinguishable from the first type [[Page 56489]] because it is provided by an entity that has registered with the SEC as a clearing agency, or has received an exemption order from the SEC as a clearing agency, under section 17A of the Securities Exchange Act of 1934. Additionally, the entity must provide access to the network exclusively to network participants, who are not required to be registered dealers in securities or commodities, banks and similar financial institutions, common trust funds, or futures commission merchants, although it is anticipated that participants typically will be securities brokers and other regulated financial institutions. Final Sec. 1.6045-1(c)(8)(iii)(B)(1)(ii). For example, dual classification assets cleared and settled through a central clearing agency that clears and settles high volumes of equity and debt transactions on a daily basis through automated systems for participants that are financial market participants may be reportable as securities under this exception if the clearance or settlement takes place on a cryptographically secured distributed ledger or network of interoperable distributed ledgers. Finally, the third type of limited-access regulated network is a cryptographically secured distributed ledger controlled by a single person that is a registered dealer in securities or commodities, a futures commission merchant, a bank or similar financial institution, a real estate investment trust, a common trust fund, or a 1940 Act Fund, that permits the ledger to be used solely by itself and its affiliates (and not to any customers or investors) to clear or settle sales of assets. Final Sec. 1.6045-1(c)(8)(iii)(B)(2). As with the other types of limited-access regulated network, it is anticipated that from an investor perspective the assets will remain in a traditional securities or commodities account. This exception in final Sec. 1.6045-1(c)(8)(iii) is limited to dual classification assets that are digital assets solely because the sale of such dual classification asset is cleared or settled on a limited-access regulated network. Accordingly, a digital asset commonly referred to as a cryptocurrency that fits within the definition of commodity under final Sec. 1.6045-1(a)(5)(i) because the trading of regulated futures contracts in that digital asset have been approved by or certified to the CFTC will not be eligible for this rule because the cryptocurrency meets the definition of a digital asset for reasons other than because it is cleared or settled on a limited-access regulated network. Given the requirement that the sole reason that the security or commodity is a digital asset is that transactions involving those assets are cleared or settled on a limited-access regulated network, it is anticipated that brokers will have sufficient information to be able to determine how to report the assets in question under these revised rules. Accordingly, the request for a safe harbor that would allow brokers to avoid penalties if they consistently and accurately report sales of dual classification assets under either final Sec. 1.6045-1(d)(2)(i)(A) (on Form 1099-B) or final Sec. 1.6045-1(d)(2)(i)(B) and (D) as a digital asset (on Form 1099-DA) is not adopted as it is unnecessary. The second exception to the general dual classification asset coordination rule in final Sec. 1.6045-1(c)(8)(i) treating such assets as digital assets was included in the proposed regulations. Proposed Sec. 1.6045-1(c)(8)(iii) provided that digital asset options or other contracts that are also section 1256 contracts should be reported under the rules set forth in Sec. 1.6045-1(c)(5) of the pre-2024 final regulations for contracts that are section 1256 contracts and not under the proposed rules for digital assets. The final regulations retain this exception and redesignate it as final Sec. 1.6045-1(c)(8)(ii). Accordingly, under this rule, for the disposition of a contract that is a section 1256 contract, reporting is required under Sec. 1.6045- 1(c)(5) of the pre-2024 final regulations regardless of whether the contract disposed of is a non-digital asset contract or a digital asset contract or whether the contract was issued with respect to digital asset or non-digital asset underlying property. One comment raised a concern that the proposed rule did not make it clear that information reporting for a section 1256 contract subject to information reporting under section 6045 should be reported on a Form 1099-B regardless of whether the contract is or is not a digital asset. The final regulations respond to this concern by providing additional clarification to the text of Sec. 1.6045-1(c)(5)(i) of the pre-2024 final regulations to make it clear that reporting for all section 1256 contracts should be on Form 1099-B. Accordingly, information reporting for section 1256 contracts in digital asset form will be on Form 1099-B and not on Form 1099-DA. The third exception to the general dual classification asset coordination rule in final Sec. 1.6045-1(c)(8)(i) treating such assets as digital assets applies to interests in money market funds. Final Sec. 1.6045-1(c)(8)(iv) provides that brokers must treat sales of any dual classification asset that is a share in a regulated investment company that is permitted to hold itself out to investors as a money market fund under Rule 2a-7 under the Investment Company Act of 1940 (17 CFR 270.2a-7) only as a sale under final Sec. 1.6045-1(a)(9)(i) and not as a digital asset sale under final Sec. 1.6045-1(a)(9)(ii). Accordingly, under Sec. 1.6045-1(c)(3)(vi) of the pre-2024 final regulations, no return of information is required for these shares. This exception is included in the final regulations because the reasons for not requiring reporting of money market shares in traditional form are also applicable for money market shares in digital asset form. Notably, in either case, the disposition of money market shares by non- exempt recipients like individuals generally will give rise to no, or de minimis, gain or loss. Moreover, money market funds are a special type of regulated investment company that provide a highly regulated product widely used as a surrogate for cash. In response to a number of comments, the Treasury Department and the IRS considered whether an exception should apply more broadly to tokenized shares of other 1940 Act Funds. Based on publicly available information, the Treasury Department and the IRS are aware that some 1940 Act Funds permit their shares to be bought and sold in secondary market transactions on a cryptographically secured distributed ledger on a direct peer-to-peer basis--that is, an investor may transfer the shares directly to another investor--and that those shares may be purchased in exchange for other digital assets. The Treasury Department and the IRS have determined that these transactions go beyond the scope of the pre-2024 final regulations, which are applicable to sales of securities for cash, and that such assets therefore should be reported as digital assets. However, as described in the discussion of tokenized securities above, the information reportable by brokers to investors with respect to such shares of 1940 Act Funds, including the availability of average basis reporting, generally should not change, although the information will be reported on Form 1099-DA rather than Form 1099-B. Finally, the proposed regulations would have included one additional exception to the general coordination rule that would have treated dual classification assets as digital assets. Specifically, proposed Sec. 1.6045-1(c)(8)(ii) provided that a digital asset that also constitutes reportable real estate would be treated as reportable real estate to ensure that real estate reporting persons would only report transactions involving these sales as sales that are subject to reporting under [[Page 56490]] Sec. 1.6045-4(a) of the pre-2024 final regulations and not as sales of digital assets. One comment noted that currently, there is no State law that permits legal title to real estate to be held via a digital asset token. Instead, this comment explained that to transfer real estate using digital assets, the digital asset token must hold an interest in a legal entity (typically either a limited liability company (LLC) or a partnership) that in turn owns the real estate. Thus, according to this comment, each token holder owns an ownership interest in an entity, not a claim of ownership to real estate. This comment also noted that, even if a legal entity was not required to be formed to hold title to real estate, these digital asset interests could potentially constitute an unincorporated association of real estate co-owners meeting the definition of a partnership under Sec. 301.7701-3(b)(1)(i). Either way, this comment asserted, reporting on the sale of these interests is not appropriate as a sale of real estate under Sec. 1.6045-4. No comments received suggested that blockchain deeds do exist. The Treasury Department and the IRS are not aware of any current or proposed State law that authorizes legal title to real estate to be held in a digital asset token. Therefore, to address this comment, the final regulations remove this coordination rule for digital assets that constitute reportable real estate. Accordingly, brokers should report on sales of these interests as sales of digital assets under Sec. 1.6045-1(a)(9)(ii) (unless the sales are eligible for the special rule under Sec. 1.6045-1(c)(8)(iii) for securities and commodities cleared or settled on a limited-access regulated network) and not as sales of real estate under Sec. 1.6045-4. The Treasury Department and the IRS will continue to track developments in this area for potential future guidance. b. Other Coordination Rule Issues The proposed regulations characterized assets as either digital assets or securities based on the nature of the rights held by the customer. Example 27 in proposed Sec. 1.6045-1(b)(27) demonstrated that rule as applied to a fund formed to invest in digital assets, in which the units of the fund were not recorded using cryptographically secured distributed ledger technology. The Example concluded that investments in the units of this fund are not digital assets because transactions involving these fund units are not secured using cryptography and are not digitally recorded on a ledger, such as a blockchain. One comment requested that the final regulations clarify that if a unit in a trust is not itself traded on a distributed ledger, the unit in the trust should not be treated as a digital asset merely because the assets held by the trust are digital assets. Generally, the holder of an interest in a trust described in Sec. 301.7701-4(c) (a fixed investment trust or FIT) is treated as directly holding its pro rata share of each asset held by the FIT. This comment raised the concern that this normal look through treatment could require a broker to report transactions in FIT units as digital assets on a Form 1099-DA even if the FIT units are not themselves digital assets. The final regulations amend the language of proposed Sec. 1.6045-1(b)(27) (redesignated in these final regulations as Example 20 in Sec. 1.6045- 1(b)(20)) to clarify that for purposes of section 6045, if a FIT unit is not itself tradable on a cryptographically secured distributed ledger, the broker is not required to look through to the FIT's assets and should report the sale of a FIT unit under Sec. 1.6045- 1(d)(2)(i)(A) on Form 1099-B. The Example also provides that this answer would be the same if the fund is organized as a C corporation or partnership. The comment also requested expansion of Sec. 1.6045-1(d)(9) of the pre-2024 final regulations, which eliminates the need for widely held fixed investment trusts (WHFITs) to provide duplicate reporting for sales of securities, so that the rule would also apply to WHFIT sales of digital assets. The Treasury Department and the IRS agree that this suggested change is appropriate and have revised the rule in final Sec. 1.6045-1(d)(9) accordingly. As a result, if a WHFIT sells a digital asset, and interests in the WHFIT are held through a securities broker, the WHFIT would report the sale information to the broker pursuant to Sec. 1.671-5 and the broker would in turn send a Form 1099-DA (the appropriate Form 1099) to the IRS and a copy thereof to any trust interest holder that is not an exempt recipient. Under the proposed regulations, a notional principal contract (NPC) that is executed in digital asset form is a digital asset. See proposed Sec. 1.6045-1(a)(19). One comment noted that there is no broker reporting under the pre-2024 final regulations under section 6045 for an NPC that is not a digital asset. As a result, the comment recommended that an NPC that is a digital asset be excluded from reporting under section 6045. After consideration of this recommendation, the Treasury Department and the IRS concluded that certain payments related to NPCs in digital asset form should be reportable as digital asset transactions and therefore decline to adopt the recommendation in the final regulations. However, taking into account that payments on NPCs are generally not reportable under section 6045 under the pre-2024 final regulations, the Treasury Department and the IRS intend to continue to study the issues related to NPC payments. Therefore, Notice 2024-57, which is being issued contemporaneously with these final regulations that provides that brokers are not required to report on certain NPCs in digital form, and that the IRS will not impose penalties under section 6721 or section 6722 for failure to file correct information returns or failure to furnish correct payee statements with respect to these transactions until further guidance is issued. See Part I.C.2. of this Summary of Comments and Explanation of Revisions for a further discussion of Notice 2024-57. One comment requested that the final regulations provide examples to address the proper partnership reporting obligations with respect to digital asset interests that constitute an unincorporated association meeting the definition of a partnership. The final regulations do not adopt this comment as it is outside the scope of these regulations. Another comment requested that the final regulations exempt sales of tokenized partnerships investing in real estate from reporting under section 6045 altogether to avoid duplicative reporting because these partnerships are already subject to reporting such sales under the partnership rules on Form 1065, U.S. Return of Partnership Income, Schedule K-1, and because accountants and tax advisors that file Schedules K-1 have more accurate information than brokers regarding the proceeds and basis information partners need for preparing their Federal income tax returns. The Treasury Department and the IRS have concluded that partnership interests that invest in real estate should not be treated any differently than partnership interests that invest in other assets. Accordingly, no exception from reporting is made for digital assets representing partnership interests that invest in real estate. B. Definition of Brokers Required to Report 1. Custodial Digital Asset Brokers and Non-Custodial Digital Asset Brokers a. Custodial Industry Participants Prior to the enactment of the Infrastructure Act, section 6045(c)(1) [[Page 56491]] defined a broker to include a dealer, a barter exchange, and any other person who (for a consideration) regularly acts as a middleman with respect to property or services. The pre-2024 final regulations under section 6045 applied the ``middleman'' portion of this definition to treat as a broker effecting a sale a person that as part of the ordinary course of a trade or business acts as either (1) an agent with respect to a sale, if the nature of the agency is such that the agent ordinarily would know the gross proceeds of the sale, or (2) as a principal in the sale. See Sec. 1.6045-1(a)(1), and (a)(10)(i) and (ii) of the pre-2024 final regulations (redesignated in these final regs as final Sec. 1.6045-1(a)(1) and (a)(10)(i)(A) and (C), respectively). Under these rules, certain digital asset industry participants that take possession of a customer's digital assets, such as operators of custodial digital asset trading platforms and certain digital asset hosted wallet providers, as well as persons that interact as principals and counterparties to transactions with their customers, such as owners of digital asset kiosks and certain issuers of digital assets who regularly offer to redeem those digital assets, would also generally be considered brokers with respect to digital asset sales. These industry participants that act as principals and counterparties or as agents to effect digital asset transactions on behalf of their customers (custodial industry participants) are generally financial institutions, such as money services businesses (MSBs), under the Bank Secrecy Act (31 U.S.C. 5311 et seq.). Fin-2019- G001, ``Application of FinCEN's Regulations to Certain Business Models Involving Convertible Virtual Currencies,'' May 9, 2019 (2019 FinCEN Guidance). Anti-money laundering (AML) obligations apply to financial institutions, such as MSBs as defined by the Financial Crimes Enforcement Network (FinCEN), futures commission merchants and introducing brokers obligated to register with the CFTC, and broker- dealers and mutual funds obligated to register with the SEC. ``Leaders of CFTC, FinCEN, and SEC Issue Joint Statement on Activities Involving Digital Assets,'' October 11, 2019. For example, MSBs are required under regulations issued by the Financial Crimes Enforcement Network (FinCEN) of the Treasury Department to develop, implement, and maintain an effective AML program that is reasonably designed to prevent the MSB from being used to facilitate the financing of terrorist activities and money laundering. See 31 CFR part 1022.210(a). AML programs for MSBs generally include, among other things, policies, procedures, and internal controls reasonably designed to assure compliance with FinCEN's regulations, as well as a requirement to verify customer- related information. MSBs are also required to register with, and make certain reports to FinCEN, and maintain certain records about transmittals of funds. See 31 CFR part 1022; 2019 FinCEN Guidance. Accordingly, operators of custodial digital asset trading platforms, digital asset hosted wallet providers, and digital asset kiosks have information about their customers and, in many cases, have already reported digital assets sales by these customers under either section 6045 or 6050W. Consistent with the statutory and regulatory definitions of broker that existed prior to the Infrastructure Act as well as amended section 6045, the final regulations apply to operators of custodial digital asset trading platforms, digital asset hosted wallet providers, and digital asset kiosks. Numerous comments agreed that custodial digital asset trading platforms were appropriately treated as brokers under the proposed regulations, and several comments agreed that digital asset hosted wallet providers should also be treated as brokers. One comment requested that the final regulations exclude from the definition of a broker digital asset hosted wallet providers that do not have direct access to the information necessary to know the nature of the transactions processed or the identities of the parties to the transaction. The Treasury Department and the IRS do not agree that a specific exclusion from the definition of broker for digital asset hosted wallet providers is necessary or appropriate. The pre-2024 final regulations defined broker generally to mean any person that, in the ordinary course of a trade or business during the calendar year, stands ready to effect sales to be made by others. The definition of effect under the pre-2024 final regulations treats agents as effecting sales only if the nature of the agency is such that the agent ordinarily would know the gross proceeds of the sale. Accordingly, a digital asset hosted wallet provider that acts as an agent for its customer would be subject to reporting under section 6045 with respect to its customer's sale of digital assets only to the extent that the digital asset hosted wallet provider ordinarily would know the gross proceeds from that sale. Another comment requested that the regulations make clear that acting as a broker with respect to one customer does not mean that the person has a reporting obligation with respect to all customers. This requested guidance relates to Sec. 1.6045-1(c)(2) of the pre-2024 final regulations, which was not amended. This provision makes it clear that a broker is only required to make a return of information for sales that the broker effects for a customer (provided the broker effects that sale in the ordinary course of a trade or business to effect sales made by others). Accordingly, the final regulations do not adopt this comment because the change it requests is unnecessary. Another comment requested that the regulations be clarified to state that the determination of whether a person is a broker is determined on an annual basis and being a broker in one year does not mean that the person is a broker in another year. This requested guidance relates to a portion of Sec. 1.6045-1(a)(1) from the pre-2024 final regulations that was not proposed to be amended and would apply broadly to all brokers under sections 6045 and 6045A, not just those who effectuate sales of digital assets. Accordingly, the final regulations do not adopt this comment because it is outside the scope of these regulations. b. Non-Custodial Industry Participants Unlike custodial industry participants, which generally act as principals or as agents to effect digital asset transactions on behalf of their customers, industry participants that do not take possession of a customer's digital assets (non-custodial industry participants), \2\ such as operators of non-custodial digital asset trading platforms (sometimes referred to as decentralized exchanges or DeFi) and unhosted digital asset wallet providers, normally do not act as custodial agents or principals in effecting their customers' transactions. Instead, these non-custodial industry participants offer other services, such as providing interface services enabling their customers to interact with trading protocols. To resolve any uncertainty over whether these non- custodial digital asset service providers are brokers, section 80603(a) of the Infrastructure Act amended the definition of broker under section 6045 to add ``any person who, for consideration, is responsible for regularly providing any service effectuating transfers of digital assets on [[Page 56492]] behalf of another person'' (the new digital asset middleman rule). 167 Cong. Rec. S5702, 5703. To implement this new digital asset middleman rule, the proposed regulations provided that, subject to certain exclusions, any person that provides facilitative services that effectuate sales of digital assets by customers is a broker, provided the nature of the person's service arrangement with customers is such that the person ordinarily would know or be in a position to know the identity of the party that makes the sale and the nature of the transaction potentially giving rise to gross proceeds. Proposed Sec. 1.6045-1(a)(21)(iii)(A) provided that a facilitative service includes the provision of a service that directly or indirectly effectuates a sale of digital assets, such as providing a party in the sale with access to an automatically executing contract or protocol, providing access to digital asset trading platforms, providing an automated market maker system, providing order matching services, providing market making functions, providing services to discover the most competitive buy and sell prices, or providing escrow or escrow-like services to ensure both parties to an exchange act in accordance with their obligations. The proposed regulations also carved out certain services from this definition, such as certain distributed ledger validation services--whether through proof-of-work, proof-of-stake, or any other similar consensus mechanism--without providing other functions or services, as well as certain sales of hardware, and certain licensing of software, where the sole function is to permit persons to control private keys which are used for accessing digital assets on a distributed ledger. To ensure that existing brokers of property already subject to broker reporting would be considered to effect sales of digital assets when they accept, or otherwise process, certain digital asset payments and to ensure that digital asset brokers would be considered to effect sales of digital assets received as payment for digital asset transaction costs, proposed Sec. 1.6045- 1(a)(21)(iii)(B) provided that a facilitative service also includes the services performed by such brokers in accepting or processing those digital asset payments. --------------------------------------------------------------------------- \2\ Some digital asset trading platforms that do not claim to offer custodial services may be able to exercise effective control over a user's digital assets. See Treasury Department, Illicit Finance Risk Assessment of Decentralized Finance (April 2023), https://home.treasury.gov/system/files/136/DeFi-Risk-Full-Review.pdf. No inference is intended as to the meaning or significance of custody under any other legal regime, including the Bank Secrecy Act and its implementing regulations, which are outside the scope of these regulations. --------------------------------------------------------------------------- The Treasury Department and the IRS received numerous comments directed at these new digital asset middleman rules. One comment recommended the adoption of an IRS-approved central entity service provider to the digital asset marketplace that could gather customer tax identification information and receive, aggregate, and reconcile information from various custodial and non-custodial industry participants. Another comment recommended allowing the use of an optional tax attestation token to facilitate tax compliance by non- custodial industry participants. Many other comments recommended that non-custodial industry participants not be treated as brokers. Comments also expressed concerns that the proposed definitions of a facilitative service in proposed Sec. 1.6045-1(a)(21)(iii)(A) and position to know in proposed Sec. 1.6045-1(a)(21)(ii) are overbroad and would, consequently, result in duplicative reporting of the same transactions. Numerous comments said the broad definition of a broker would stifle American innovation and drive the digital asset industry to move offshore. Additionally, many of the comments indicated that certain non-custodial industry participants have not collected customer information under AML programs, and therefore do not have systems in place to comply with the proposed reporting by the applicability date for transactions on or after January 1, 2025. The Treasury Department and the IRS do not agree that non-custodial industry participants should not be treated as brokers. Prior to the Infrastructure Act, section 6045(c)(1) defined the term broker to include a dealer, a barter exchange, and any other person who (for a consideration) regularly acts as a middleman with respect to property or services. Section 80603(a) of the Infrastructure Act clarified the definition of broker under section 6045 to include any person who, for consideration, is responsible for regularly providing any service effectuating transfers of digital assets on behalf of another person. According to a report by the Joint Committee on Taxation published in the Congressional Record prior to the enactment of the Infrastructure Act, the change clarified prior law ``to resolve uncertainty over whether certain market participants are brokers.'' 167 Cong. Rec. S5702, 5703. However, the Treasury Department and the IRS would benefit from additional consideration of issues involving non-custodial industry participants. The Treasury Department and the IRS have determined that the issuance of these final regulations requiring custodial brokers and brokers acting as principals to report digital asset transactions should not be delayed until additional consideration of issues involving non-custodial industry participants is completed because custodial brokers and brokers acting as principals carry out a substantial majority of digital asset transactions. Clarifying information reporting for the substantial majority of digital asset transactions, consistent with the applicability dates set forth in the proposed regulations, will benefit both taxpayers, who can use the reported information to prepare their Federal income tax returns, and the IRS, which can focus its enforcement resources on taxpayers who are more likely to have underreported their income from digital asset transactions and custodial brokers and brokers acting as principals who may not be meeting their reporting obligations. Accordingly, the proposed new digital asset middleman rules that apply to non-custodial industry participants are not being finalized with these final regulations. The Treasury Department and the IRS continue to study this area and, after full consideration of all comments received, intend to expeditiously issue separate final regulations describing information reporting rules for non-custodial industry participants. Until this further regulatory guidance is issued, the final regulations reserve on the definition of position to know in final Sec. 1.6045-1(a)(21)(ii) and a portion of the facilitative service definition in final Sec. 1.6045-1(a)(21)(iii)(A). Additionally, because comments were received addressing the breadth of the specific exclusions provided for certain validation services, certain sales of hardware, and certain licensing of software, the final regulations also reserve on these exclusions. The Treasury Department and the IRS recognize that persons that are solely engaged in the business of providing validation services without providing other functions or services, or persons that are solely engaged in the business of selling certain hardware, or licensing certain software, for which the sole function is to permit persons to control private keys which are used for accessing digital assets on a distributed ledger, are not digital asset brokers. Accordingly, notwithstanding reserving on the underlying rule to provide time to study the comments received, the final regulations retain the examples in final Sec. 1.6045-1(b)(2)(ix) and (x), which conclude that persons conducting these actions do not constitute brokers. The final regulations do not, however, reserve on the portion of the facilitative services definition in final Sec. 1.6045- 1(a)(21)(iii)(B), which was included to ensure that sales of digital assets conducted by certain persons other than non-custodial industry participants are treated as effected by a broker under [[Page 56493]] final Sec. 1.6045-1(a)(10). For example, proposed Sec. 1.6045- 1(a)(21)(iii)(B), which provided that a facilitative service includes the acceptance of digital assets by a broker in consideration for property reportable under proposed Sec. 1.6045-1(a)(9)(i) and for broker services, was retained and redesignated as final Sec. 1.6045- 1(a)(21)(iii)(B)(1) and (3), respectively. Persons that conduct these actions have complete knowledge about the underlying transaction because they are typically acting as the counterparty. Thus, knowledge is not identified as a specific element of the definition of facilitative services for these persons to be treated as conducting facilitative services. Proposed Sec. 1.6045-1(a)(21)(iii)(B) also provided that a facilitative service includes any service provided by a real estate reporting person with respect to a real estate transaction in which digital assets are paid by the buyer in full or partial consideration for the real estate. This rule has been retained with some modifications to the knowledge requirement which must be met before a real estate reporting person will be treated as conducting facilitative services. See Part I.B.4. of this Summary of Comments and Explanation of Revisions, for a discussion of the modified rule, now in final Sec. 1.6045-1(a)(21)(iii)(B)(2), with respect to treating real estate reporting persons as performing facilitative services and, thereby, as digital asset middlemen under the final regulations. Additionally, to ensure that a digital asset kiosk that does not act as an agent or dealer in a digital asset transaction will nonetheless be considered a digital asset middleman capable of effecting sales of digital assets under final Sec. 1.6045-1(a)(10)(i)(D), final Sec. 1.6045-1(a)(21)(iii)(B)(5) provides that the acceptance of digital assets in return for cash, stored-value cards, or different digital assets by a physical electronic terminal or kiosk is a facilitative service. Like persons that accept digital assets in consideration for property reportable under proposed Sec. 1.6045-1(a)(9)(i) and for broker services, knowledge is not identified as a specific element of the definition of facilitative services for these kiosks to be treated as conducting facilitative services because these kiosks are typically acting as the counterparty in the digital asset sale transaction. Finally, as discussed in Part I.B.2. of this Summary of Comments and Explanation of Revisions, final Sec. 1.6045-1(a)(21)(iii)(B)(4) treats certain PDAPs that receive digital asset payments from one party (buyer) and pay those digital assets, cash, or different digital assets to a second party as performing facilitative services and, thereby, as digital asset middlemen under the final regulations. Taken together, these final regulations apply only to digital asset industry participants that take possession of the digital assets being sold by their customers, such as operators of custodial digital asset trading platforms, certain digital asset hosted wallet providers, certain PDAPs, and digital asset kiosks, as well as to certain real estate reporting persons that are already subject to the broker reporting rules. As a result, this preamble does not set forth nor discuss comments received relating to the application of the proposed regulations to non-custodial industry participants (other than persons that operate digital asset kiosks and process payments without taking custody thereof). The Treasury Department and the IRS will continue to consider comments received addressing non-custodial arrangements and plan to expeditiously publish separate final regulations addressing information reporting rules for non-custodial digital asset service providers after issuance of these final regulations. 2. Processors of Digital Asset Payments PDAPs enable persons (buyers) to make payments to second parties (typically merchants) using digital assets. In some cases, the buyer pays digital assets to the PDAP, and the PDAP in turn pays those digital assets, U.S. dollars, or different digital assets to the merchant. In other cases, the PDAP may not take custody of the digital assets, but instead may instruct or otherwise give assistance to the buyer to transfer the digital assets directly to the merchant. The PDAP may also have a relationship with the merchant specifically obligating the PDAP to process payments on behalf of the merchant. a. The Proposed Regulations The proposed regulations used the term digital asset payment processors instead of PDAPs. To avoid confusion associated with the use of the acronym for digital asset payment processors, which may have a different meaning within the digital asset industry, and for ease in reading this preamble, this preamble solely uses the term PDAP, even when referencing the proposed regulations and comments made with respect to the proposed regulations. The proposed regulations treated PDAPs as brokers that effect sales of digital assets as agents for the buyer. Proposed Sec. 1.6045- 1(a)(22)(i)(A) defined a PDAP as a person who in the ordinary course of its business regularly stands ready to effect digital asset sales by facilitating payments from one party to a second party by receiving digital assets from the first party and exchanging them into different digital assets or cash paid to the second party, such as a merchant. In addition, recognizing that some payment recipients might be willing to receive payments facilitated by an intermediary in digital assets rather than cash in a circumstance in which the PDAP temporarily fixes the exchange rate on the digital asset payment that is transferred directly from a customer to that payment recipient, proposed Sec. 1.6045-1(a)(22)(ii) treated the transfer of digital assets by a customer directly to a second person (such as a vendor of goods or services) pursuant to a processor agreement that provides for the temporary fixing of the exchange rate to be applied to the digital assets received by the second person as if the digital assets were transferred by the customer to the PDAP in exchange for different digital assets or cash paid to the second person. The proposed regulations also included in the definition of a PDAP certain payment settlement entities and certain entities that make payments to payment settlement entities that are potentially subject to reporting under section 6050W. Specifically, proposed Sec. 1.6045- 1(a)(22)(i)(B) provided that a PDAP includes a third party settlement organization (as defined in Sec. 1.6050W-1(c)(2)) that makes (or submits instructions to make) payments using one or more digital assets in settlement of reportable payment transactions as described in Sec. 1.6050W-1(a)(2). Additionally, proposed Sec. 1.6045-1(a)(22)(i)(C) provided that the definition of a PDAP includes a payment card issuer that makes (or submits the instruction to make) payments in one or more digital assets to a merchant acquiring entity, as defined under Sec. 1.6050W-1(b)(2), in a transaction that is associated with a reportable payment transaction under Sec. 1.6050W-1(a)(2) that is effected by the merchant acquiring bank. Proposed Sec. 1.6045-1(a)(9)(ii)(D) provided that a sale includes all these types of payments processed by PDAPs. Finally, proposed Sec. 1.6045-1(a)(2)(ii)(A) provided that the customer in a PDAP transaction includes the person who transfers the digital assets or directs the transfer of the digital assets to the PDAP to make payment to the second person. [[Page 56494]] b. Definition of PDAP, PDAP Customer, and PDAP Sales Several comments stated that some PDAPs contract only with merchants to process and settle digital asset payments on the behalf of those merchants. That is, despite the buyer benefitting from the merchant's relationship with the PDAP, the buyer is not the customer of the PDAP in these transactions. Consequently, these comments warned, PDAPs are unable to leverage any customer relationship to collect personal identification information and other tax documentation-- including Form W-9, Request for Taxpayer Identification Number and Certification, or Form W-8BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting (Individuals)--from buyers. Another comment asserted that treating PDAPs as brokers conflicts with or expands the current FinCEN regulatory AML program requirements for regulated entities to perform due diligence on their customers. Several comments noted that this lack of customer relationship would exacerbate the privacy concerns of the buyers if PDAPs working for the merchant were required to collect tax documentation from buyers. Moreover, these comments raised the concern that collecting this documentation from buyers is even more challenging for one-time small retail purchases because buyers would be unwilling to comply with tax documentation requests at the point of sale. Other comments disagreed with these comments and stated that there is a business relationship between PDAPs and buyers that would make reporting appropriate. Indeed, one comment asserted that PDAPs are technically money transmitters under FinCEN regulations and, as such, are already subject to the AML program obligations, described in Part I.B.1. of this Summary of Comments and Explanation of Revisions, with respect to the person making payments. See 31 CFR part 1010.100(ff)(5). Other comments recommended that the definition of broker be aligned with the concepts outlined in FATF to, in their view, clarify that a broker must be a legal person who exercises some measure of control or dominion over digital assets on behalf of another person. In response to these comments, the Treasury Department and the IRS have concluded that the circumstances under which a person processing digital asset payments for others should be required to report information on those payments to the IRS under section 6045 should be narrowed pending additional consideration of the issues and comments received concerning non-custodial arrangements discussed in Part I.B.1.b. of this Summary of Comments and Explanation of Revisions. Under the final regulations, a PDAP is required to report digital asset payments by a buyer only if the processor already may obtain customer identification information from the buyer in order to comply with AML obligations. In such cases, the processor has the requisite relationship with the buyer to collect additional tax documentation to comply with information reporting requirements. Accordingly, final Sec. 1.6045-1(a)(2)(ii)(A) modifies the proposed definition of customer as it applies to PDAPs to limit the circumstances under which a buyer would be considered the customer of a PDAP. Specifically, under this revised definition, the buyer will be treated as a customer of the PDAP only to the extent that the PDAP has an agreement or other arrangement with the buyer for the provision of digital asset payment services and that agreement or other arrangement provides that the PDAP may verify such person's identity or otherwise comply with AML program requirements, such as those under 31 CFR part 1010, applicable to that PDAP or any other AML program requirements. For this purpose, an agreement or arrangement with the PDAP includes any alternative payment services arrangement such as a computer or mobile application program under which, as part of the PDAP's customary onboarding procedures, the buyer is treated as having agreed to the PDAP's general terms and conditions. The PDAP may also be required to report information on the payment to the merchant on whose behalf the PDAP is acting. Several comments raised the concern that, to the extent there is no contractual relationship between the PDAP and the buyer, the buyer is not the PDAP's customer, and that the proposed regulations, therefore, exceed the Secretary's authority under section 6045(a), which requires persons doing business as a broker to ``make a return . . . showing the name and address of each customer [of the broker], with such details regarding gross proceeds.'' These comments recommended that the final regulations provide that a PDAP that does not have a contractual relationship with a buyer is not a broker with respect to that buyer. Another comment suggested the regulations should not apply to PDAPs at all without a clear congressional mandate. The Treasury Department and the IRS do not agree that section 6045 requires specific statutory language with respect to each type of broker that already fits within the definition of broker under section 6045(c)(1). Section 6045(c)(2) defines the term customer as ``any person for whom the broker has transacted any business.'' This definition does not require that the specific transaction at issue be conducted by the broker for the customer. Accordingly, if a PDAP transacts some business with the buyer--such as would be the case if the buyer sets up a payment account with the PDAP--then there is statutory authority to require that the PDAP report on the buyer's payments, even though the activities performed by that PDAP were performed pursuant to a separate contractual agreement with a merchant. One comment expressed confusion with the definition of PDAP in the proposed regulations. Specifically, this comment requested clarification as to why the definition listed a third party settlement organization separately in proposed Sec. 1.6045-1(a)(22)(i)(B) rather than merely as a subset of the description provided in proposed Sec. 1.6045-1(a)(22)(i)(A), in which the person regularly facilitates payments from one party to a second party by receiving digital assets from the first payment and exchanging those digital assets into cash or different digital assets paid the second party. Another comment expressed confusion over why the processor agreement rules in proposed Sec. 1.6045-1(a)(22)(ii) and (iii) include a provision treating the payment of digital assets to a second party pursuant to a processor agreement that fixes the exchange rate (processor agreement arrangement) as a sale effected by the PDAP. This comment also recommended deleting the processor agreement arrangement paragraphs from the definition of a PDAP and moving them to the definition of gross proceeds. The definition of a PDAP in the proposed regulations included descriptions of ways that a person could facilitate a payment from one party to a second party. Many of these descriptions involved circumstances in which the buyer transfers the digital asset payment to the PDAP, followed by the PDAP transferring payment to a second party. Several of the descriptions involved circumstances in which the PDAP does not take possession of the payment, but instead instructs the buyer to make a direct transfer of the digital asset payment to the second party, or otherwise, pursuant to a processor agreement, temporarily fixes the [[Page 56495]] exchange rate to be applied to the digital assets received by the second party. The Treasury Department and the IRS understand that many of the transactions described in the proposed regulations in which the PDAP does not take possession of the payment are undertaken today by non- custodial industry participants. In light of the decision discussed in Part I.B.1. of this Summary of Comments and Explanation of Revisions to further study the application of the broker reporting rules to non- custodial industry participants, the Treasury Department and the IRS have determined that the definition of PDAP and the definition of a sale effected by a PDAP (PDAP sales) in these final regulations should apply only to transactions in which PDAPs take possession of the digital asset payment. Additionally, given the complexity of the multi- part definition of PDAP in the proposed regulations and in response to the public comments, the Treasury Department and the IRS have determined that all types of payment transactions that were included in the various subparagraphs of the definition should be combined into a single simplified definition. This single definition includes the requirement that a person must receive the digital assets in order to be a PDAP and also covers all transactions--and not just those transactions described in proposed Sec. 1.6045-1(a)(22)(i)(B) and (C)--in which the PDAP receives a digital asset and transfers that same digital asset to the second party. Accordingly, final Sec. 1.6045-1(a)(22) defines a PDAP as a person who in the ordinary course of a trade or business stands ready to effect sales of digital assets by regularly facilitating payments from one party to a second party by receiving digital assets from the first party and paying those digital assets, cash, or different digital assets to the second party. Correspondingly, final Sec. 1.6045- 1(a)(9)(ii)(D) revises and simplifies the proposed regulation's definition of a sale processed by a PDAP to include the payment by a party of a digital asset to a PDAP in return for the payment of that digital asset, cash, or a different digital asset to a second party. Accordingly, if a buyer uses a stablecoin or other digital asset to make payment to a PDAP that then transfers the stablecoin, another digital asset, or cash to the merchant, the transaction is a PDAP sale. Additionally, as discussed in Part I.D.4. of this Summary of Comments and Explanation of Revisions, the final regulations provide that any PDAP sale that is also a sale under one of the other definitions of sale under final Sec. 1.6045-1(a)(9)(ii)(A) through (C) (non-PDAP sale) that is subject to reporting due to the broker effecting the sale as a broker other than as a PDAP must be treated as a non-PDAP sale. Thus, for example, an exchange of digital assets that a custodial broker executes between customers will not be treated as a PDAP sale, but instead will be treated as a sale of digital assets in exchange for different digital assets under final Sec. 1.6045-1(a)(9)(ii)(A)(2). One comment recommended that the regulations be clarified so as not to treat the PDAP as a broker to the extent it does not have sufficient information about the transaction to know it is a sale. Another comment stated that PDAPs do, in fact, maintain detailed records of all transactions for both merchants and buyers. The final regulations adopt this comment by adding services performed by a PDAP to the definition of facilitative service provided the PDAP has actual knowledge or ordinarily would know the nature of the transaction and the gross proceeds therefrom to ensure that payments made using digital assets are treated as sales effected by a broker. Final Sec. 1.6045- 1(a)(21)(iii)(B)(4). Accordingly, in a circumstance in which the PDAP processes a payment on behalf of a merchant and that payment comes from a buyer with an account at the PDAP, the PDAP would ordinarily have the information necessary to know that the transaction constitutes a sale and would know the gross proceeds. As such, that PDAP will be treated under the final regulations as effecting the sale transaction under Sec. 1.6045-1(a)(10)(i)(D) for the buyer-customer as a digital asset middleman under Sec. 1.6045-1(a)(21). In contrast, in a circumstance in which the PDAP does not process the payment on behalf of the merchant, the PDAP would ordinarily not have actual knowledge or other information that would allow the processor to ordinarily know the nature of the transaction. Accordingly, assuming nothing else about the transaction provides the PDAP with either actual knowledge or information that would allow the processor to ordinarily know the nature of the transaction, the payment processor would not be treated as providing a facilitative service that effects a sale transaction under these regulations. One comment stated that PDAPs do not have the infrastructure to collect and store customer identification information or to report transactions involving buyers who do not have accounts with the PDAP. Another comment expressed concern about asking individuals to provide personal identifying information to PDAPs, which could occur in the middle of a busy store. Another comment requested guidance on how PDAPs should collect sensitive taxpayer information. Several comments expressed concern about the increased risk these rules would create with respect to the personal identifying information collected by PDAPs because that information could be held by multiple brokers. Several other comments stated that extending information reporting to PDAPs would create surveillance concerns because it could allow the IRS to collect data on merchandise or services purchased or provided. The Treasury Department and the IRS understand that PDAPs that comply with FinCEN and other regulatory requirements are required to collect and in some cases report customer identification information, and have concluded that such PDAPs will likewise be able to implement the systems necessary to, or contract with service providers who can, protect sensitive information of their customers. It is appropriate to have PDAPs collect, store, and report customer identification information for Federal tax purposes because reporting on digital asset payment transactions is important to closing the income tax gap attributable to digital asset transactions. Indeed, reporting is particularly helpful to buyers in these payment transactions because they may not understand that the use of digital assets to make payments is a transaction that may generate a taxable gain or loss. Finally, the final regulations do not require the reporting of any information regarding the specific services or products purchased by buyers in payment transactions. Accordingly, the IRS could not use this information reporting to track or monitor the types of goods and services a taxpayer purchases using digital assets. c. Other PDAP Issues Comments also raised various other policy and practical objections to including PDAPs in the definition of broker. Specifically, comments suggested that requiring PDAPs to collect tax documentation information for all purchases may halt the development of digital assets as an efficient and secure payment system or may drive customers to not use PDAPs to make their payments, potentially exposing them to more fraud by unscrupulous merchants. Other comments complained that these rules would punish buyers who choose to pay with digital assets and confuse buyers [[Page 56496]] paying with stablecoins, who expect transactions to be no different than cash transactions. Several comments asserted that the benefits of having PDAPs report on digital asset payments made by buyers was not worth the cost because most tax software programs are able to track and report accurately the gains and losses realized in connection with these payment transactions. These comments asserted that for taxpayers already taking steps to comply with their Federal income tax obligations, an information reporting regime that provides only gross proceeds information with respect to these transactions would not produce particularly useful information. Even for other taxpayers, another comment suggested that reporting by PDAPs provided only limited utility because determining a gain or loss on each purchase would still involve a separate search for cost basis information. The final regulations do not adopt these comments. Information reporting facilitates the preparation of Federal income tax returns (and reduces the number of inadvertent errors or intentional misstatements shown on those returns) by taxpayers who engage in digital asset transactions. Information reporting is particularly important in the case of payment transactions involving the disposition of digital assets, which many taxpayers do not realize must be reported on their Federal income tax returns. Clear information reporting rules also helps the IRS to identify taxpayers who have engaged in these transactions, and thereby help to reduce the overall income tax gap. Moreover, regarding the impact of these regulations on the development of digital assets as an efficient and secure payment system, the final regulations will assist digital asset owners who are currently forced to closely monitor and maintain records of all their digital asset transactions to correctly report their tax liability at the end of the year because they will receive the necessary information from the processor of the transactions. Eliminating these high entry costs may allow more potential digital asset owners with little experience accounting for dispositions of digital assets in payment transactions to enter the market. Several comments recommended against having PDAPs report on buyers disposing of digital assets because these PDAPs already report on merchants who receive these payments under section 6050W to the extent the payments are for goods or services. These comments raised concerns that this duplicative reporting for the same transaction would harm the IRS, create an undue burden for brokers, and cause confusion for buyers making payments. The final regulations do not adopt these comments because the reporting is not duplicative. The reporting under section 6050W reports on payments made to the merchant. That reporting is not provided to the buyers making those payments, and therefore does not address the gross proceeds that the buyer must report on the buyer's Federal income tax returns. Another comment suggested that the treatment of digital asset payments should be analogous to that of cash payments. That is, since PDAPs are not required to report on buyers making cash payments, they should not be required to report on buyers making payments with digital assets. The final regulations do not adopt this comment because a buyer making a cash payment does not have a taxable transaction while a buyer making a payment with digital assets is engaging in a sale or exchange that requires the buyer to report any gain or loss from the disposition on its Federal income tax return. Other comments raised the concern that reporting by PDAPs would result in duplicative reporting to the buyer because the buyer's wallet provider or another digital asset trading platform may report these transactions. See Part I.B.5. of this Summary of Comments and Explanation of Revisions for a discussion of how the multiple broker rules provided in these final regulations would apply to PDAPs. Another comment recommended only subjecting PDAPs to broker reporting if they exchange digital assets into fiat currency. The final regulations do not adopt this comment because digital assets are a unique form of property which can be used to make payments. Accordingly, given that digital assets are becoming a more popular form of payment, it is important that taxpayers making payments with digital assets be provided the information they need to report these transactions on their Federal income tax returns. Notwithstanding that the final regulations require PDAPs to report on PDAP sales, as discussed in Part I.D.2. of this Summary of Comments and Explanation of Revisions, the final regulations provide a $10,000 de minimis threshold for qualifying stablecoins below which PDAPs will not have to report PDAP sales using qualifying stablecoins. Additionally, the Treasury Department and the IRS have determined that, pursuant to discretion under section 6045(a), it is appropriate to provide additional reporting relief for certain low-value PDAP sales using digital assets other than qualifying stablecoins that are less likely to give rise to significant gains or losses. As discussed in Part I.D.4. of this Summary of Comments and Explanation of Revisions, the final regulations have added a de minimis annual threshold for PDAP sales below which no reporting is required. 3. Issuers of Digital Assets Proposed Sec. 1.6045-1(a)(1) modified the definition of broker to include persons that regularly offer to redeem digital assets that were created or issued by that person, such as in an initial coin offering or redemptions by an issuer of a so-called stablecoin. One comment focused on stablecoin issuers and recommended against treating such issuers as brokers because it is unclear how they would be in a position to know the gain or loss of their customers. Issuers of digital assets that regularly offer to redeem those digital assets will know the nature of the sale and the gross proceeds from the sale when they redeem those digital assets. Accordingly, it is appropriate to treat these issuers as brokers required to report the gross proceeds of the redemption just as obligors that regularly issue and retire their own debt obligations are treated as brokers and corporations that regularly redeem their own stock also are treated as brokers under Sec. 1.6045-1(a)(1) of the pre-2024 final regulations. Moreover, since these issuers do not provide custodial services for their customers redeeming the issued digital assets, they are not required to report on the customer's adjusted basis under final Sec. 1.6045-1(d)(2)(i)(D). As such whether they are able to know their customer's gain or loss is not relevant to whether they should be treated as brokers under these regulations. 4. Real Estate Reporting Persons The proposed regulations provided that a real estate reporting person is a broker with respect to digital assets used as consideration in a real estate transaction if the reporting person would generally be required to make an information return with respect to that transaction under proposed Sec. 1.6045-4(a). To ensure that real estate reporting persons report on real estate buyers making payment in such transactions with digital assets, the proposed regulations also included these real estate buyers in the definition of customer and included the services performed with respect to these transactions by real estate reporting persons in the definition of facilitative [[Page 56497]] services relevant to the definition of a digital asset middleman. One comment raised the concern that in some real estate transactions, direct (peer to peer) payments of digital assets from buyers to sellers may not be reflected in the contract for sale. In such transactions, the real estate reporting person would not ordinarily know that the buyers used digital assets to make payment. The Treasury Department and the IRS have concluded that it is not appropriate at this time to require real estate reporting persons who do not know or would not ordinarily know that digital assets were used by the real estate buyer to make payment to report on such payments. Accordingly, the definition of facilitative service in final Sec. 1.6045-1(a)(21)(iii)(B)(2) has been revised to limit the services provided by real estate reporting persons that constitute facilitative services to those services for which the real estate reporting person has actual knowledge or ordinarily would know that digital assets were used by the real estate buyer to make payment directly to the real estate seller. For this purpose, a real estate reporting person is considered to have actual knowledge that digital assets were used by the real estate buyer to make payment if the terms of the real estate contract provide for payment using digital assets. Thus, for example, if the contract for sale states that the buyer will make payment using digital assets, either fixed as to number of units or fixed as to the value, the real estate reporting person would be treated as having actual knowledge that digital assets were used to make payment in the transaction notwithstanding that such person might have to query the buyer and seller regarding the name and number of units used to make payment. Additionally, a separate communication to the real estate reporting person, for example, to ensure that the value of the digital asset payment is reflected in any commissions or taxes due at closing, would constitute actual knowledge by the real estate reporting person that digital assets were used by the real estate buyer to make payment directly to the real estate seller. One comment recommended that to relieve burden on the real estate reporting person, the form on which the real estate seller's gross proceeds are reported (Form 1099-S, Proceeds From Real Estate Transactions) be revised with a check box to indicate that digital assets were paid in the transaction and with a new box for the buyer's name, address, and tax identification number (TIN). These revisions would allow the real estate reporting person to file one Form 1099-S instead of one Form 1099-DA (with respect to the real estate buyer) and one Form 1099-S (with respect to the real estate seller). The final regulations do not make this suggested change because it would be inappropriate to include both parties to the transaction on the same information return. The broker reporting regulations require copies of Form 1099-S to be furnished to the taxpayer, and it would be inappropriate to require disclosure of either party's TIN to the other. For a discussion of how the multiple broker rule would apply to a real estate transaction involving a real estate reporting person and a PDAP, see Part I.B.5. of this Summary of Comments and Explanation of Revisions. Notwithstanding these decisions regarding the appropriateness of reporting under these regulations by real estate reporting persons, as discussed in Part VII. Of this Summary of Comments and Explanation of Revisions, the applicability date for reporting has been delayed and backup withholding relief has been provided for real estate reporting persons. 5. Exempt Recipients and the Multiple Broker Rule a. Sales Effected for Exempt Recipients The proposed regulations left unchanged the exceptions to reporting provided under Sec. 1.6045-1(c)(3)(i) of the pre-2024 final regulations for exempt recipients, such as certain corporations, financial institutions, tax exempt organizations, or governments or political subdivisions thereof. Thus, the proposed regulations did not create a reporting exemption for sales of digital assets effected on behalf of a customer that is a digital asset broker. Several comments recommended that custodial digital asset brokers be added to the list of exempt recipients under the final regulations because the comments asserted that these brokers are subject to rigorous oversight by numerous Federal and State regulators. In response to the request that custodial digital asset brokers be added to the list of exempt recipients, final Sec. 1.6045-1(c)(3)(i)(B)(12) adds digital asset brokers to the list of exempt recipients for sales of digital assets, but limits such application to only U.S. digital asset brokers because brokers that are not U.S. digital asset brokers (non-U.S. digital asset brokers) are not currently subject to reporting on digital assets under these final regulations. See Part I.G. of this Summary of Comments and Explanation of Revisions for the definition of a U.S. digital asset broker and a discussion of the Treasury Department's and the IRS's plans to implement the CARF. Additionally, the list also does not include U.S. digital asset brokers that are registered investment advisers that are not otherwise on the list of exempt recipients (Sec. 1.6045-1(c)(3)(i)(B)(1) through (11) of the pre-2024 final regulations) because registered investment advisers were not previously included in the list of exempt recipients. For this purpose, a registered investment adviser means a registered investment adviser registered under the Investment Advisers Act of 1940, 15 U.S.C. 80b-1, et seq., or as a registered investment adviser with a state securities regulator. See Part I.B.5.b. of this Summary of Comments and Explanation of Revisions for the documentation that a broker effecting a sale on behalf of a U.S. digital asset broker (other than a registered investment adviser) must obtain pursuant to final Sec. 1.6045- 1(c)(3)(i)(C)(3) to treat such customer as an exempt recipient under final Sec. 1.6045-1(c)(3)(i)(B)(12). b. The Multiple Broker Rule The proposed regulations also did not extend the multiple broker rule under Sec. 1.6045-1(c)(3)(iii) of the pre-2024 final regulations to digital asset brokers. Comments overwhelmingly requested that the final regulations implement a multiple broker rule applicable to digital asset brokers to avoid burdensome and confusing duplicative reporting. Several comments recommended that the rule in Sec. 1.6045- 1(c)(3)(iii) of the pre-2024 final regulations, which provides that the broker that submits instructions to another broker, such as a digital asset trading platform, should have the obligation to report the transaction to the IRS, not the broker that receives the instructions and executes the transaction, because the brokers that submit instructions are in a position to provide reporting information to those clients with whom they maintain a direct relationship, while the latter are not. Another comment recommended requiring only the digital asset broker that has the final ability to consummate the sale to report the transaction to the IRS unless that broker has no ability to backup withhold. Another comment recommended allowing digital asset brokers to enter into contracts for information reporting to establish who is responsible for reporting the transaction to the IRS. Finally, several comments recommended that, when two digital asset brokers would otherwise have a reporting obligation with respect to a sale transaction, that only the digital asset broker crediting [[Page 56498]] the gross proceeds to the customer's wallet address or account have the obligation to report the transaction to the IRS because this is the broker that has the best ability to backup withhold. As discussed in Part VI. Of this Summary of Comments and Explanation of Revisions, backup withholding on these transactions is a necessary and essential tool to ensure that important information for tax enforcement is reported to the IRS. Because the broker crediting the gross proceeds to the customer's wallet address or account is in the best position to backup withhold on these transactions if the customer does not provide the broker with the necessary tax documentation, final Sec. 1.6045-1(c)(3)(iii)(B) adopts a multiple broker rule for digital asset brokers that would require the broker crediting the gross proceeds to the customer's wallet address or account to report the transaction to the IRS when more than one digital asset broker would otherwise have a reporting obligation with respect to a sale transaction. The relief for the broker that is not the broker crediting the gross proceeds to the customer's wallet address or account, however, is conditioned on that broker obtaining proper documentation from the other broker as discussed in the next paragraph. Additionally, the final regulations do not adopt the suggested rule that would allow a broker to shift the responsibility to report to another broker based on an agreement between the brokers because the broker having the obligation to report in that case may not have the ability to backup withhold. A broker, of course, is not prohibited from contracting with another broker or with another third party to file the required returns on its behalf. Numerous comments provided recommendations in response to the request in the proposed regulations for suggestions to ensure that a digital asset broker would know with certainty that the other digital asset broker involved in a transaction is also a broker with a reporting obligation under these rules. One comment raised a concern with a rule requiring the broker obligated to report to provide notice to the other broker that it will make a return of information for each sale because that requirement would be overly burdensome. Another comment recommended that the broker obtain from the obligated broker a Form W-9 that has been modified to add an exempt payee code for digital asset brokers and a unique broker identification number. Another comment recommended that, absent actual knowledge to the contrary, a broker should be able to rely on a reasonable determination based on another broker's name or other publicly available information it has about the other broker (sometimes referred to as the eye-ball test) that the other broker is a U.S. digital asset broker. To avoid any gaps in reporting, another comment recommended against allowing brokers to treat other brokers as U.S. digital asset brokers based on actual knowledge or the existing presumption rules. Finally, another comment recommended that the IRS establish a registration system and searchable database for digital asset brokers like that used for foreign financial institutions under the provisions commonly known as the Foreign Account Tax Compliance Act (FATCA) of the Hiring Incentives to Restore Employment Act of 2010, Public Law 111-147, 124 Stat. 71 (March 18, 2010). Because of the risk that the multiple broker rule could result in no reporting, the final regulations do not adopt the so-called eye-ball test or the existing presumption rules for determining if another broker is a U.S. digital asset broker. The final regulations also do not adopt an IRS registration system for U.S. digital asset brokers because the IRS is still considering the benefits and burdens of a registration system for both the IRS and brokers. Instead, the final regulations adopt a rule that to be exempt from reporting under the multiple broker rule, a broker must obtain from another broker a Form W-9 certifying that the other broker is a U.S. digital asset broker (other than a registered investment adviser that is not otherwise on the list of exempt recipients (Sec. 1.6045-1(c)(3)(i)(B)(1) through (11) of the pre-2024 final regulations). Because the current Form W-9 does not have this certification, the notice referred to in Part VII. Of this Summary of Comments and Explanation of Revisions will permit brokers to rely upon a written statement that is signed by another broker under penalties of perjury that the other broker is a U.S. digital asset broker until sometime after the Form W-9 is revised to accommodate this certification. It is contemplated that the instructions to the revised Form W-9 will give brokers who have obtained private written certifications a reasonable transition period before needing to obtain a revised Form W-9 from the other broker. One comment requested clarification regarding which broker--the real estate reporting person or the PDAP--is responsible for filing a return with respect to the real estate buyer in a transaction in which the real estate buyer transfers digital assets to a PDAP that in turn transfers cash to the real estate seller. The multiple broker rule included in final Sec. 1.6045-1(c)(3)(iii)(B) would apply in this case if the real estate reporting person is aware that the PDAP was involved to make the payment on behalf of the real estate buyer and obtains from the PDAP the certification described above that the PDAP is a U.S. digital asset broker. If the transaction is undertaken in any other way, it is unclear that the real estate reporting person would know the identity of the PDAP or whether that PDAP was required to report on the transaction. Accordingly, the real estate reporting person would be required to report on the transaction without regard to whether the PDAP also is required to report. It is anticipated that taxpayers will only rarely receive two statements regarding the same real estate transaction; however, when they do, taxpayers will be able to inform the IRS should the IRS inquire that the two statements reflect only one transaction. Another comment requested guidance on how the information reporting rules would work with respect to a digital asset hosted wallet provider that contracts with another business to perform the hosted wallet services for the broker's customers on the broker's behalf. In response to the comment, the final regulations clarify that a broker should be treated as providing hosted wallet services even if it hires an agent to perform some or all of those services on behalf of the broker and without regard to whether that hosted wallet service provider is also in privity with the customer. Additionally, to ensure this interpretation is incorporated in the final regulations, the final regulations revise the definition of covered security in final Sec. 1.6045-1(a)(15)(i)(J) to reference brokers that provide custodial services for digital assets, rather than hosted wallet services for digital assets, to clarify that services provided by the brokers' agents will be ascribed to the broker without regard to the specific custodial method utilized. To the extent a hosted wallet provider acts as an agent of the broker and is in privity with the customer, the multiple broker rules described herein should avoid duplicative reporting. Finally, as discussed in Part I.B.1. of this Summary of Comments and Explanation of Revisions, the Treasury Department and the IRS are continuing to study the question of how a multiple broker rule would apply to the non-custodial digital asset industry. [[Page 56499]] C. Definition of Sales Subject to Reporting 1. In General The proposed regulations modified the definition of a sale subject to reporting to include the disposition of a digital asset in exchange for cash, one or more stored-value cards, or a different digital asset. In addition, the proposed regulations included in the definition of sale the disposition of a digital asset by a customer in exchange for property (including securities and real property) of a type that is subject to reporting under section 6045 or in consideration for the services of a broker. Finally, the proposed regulations provided that a sale includes certain digital asset payments by a customer that are processed by a PDAP. Several comments recommended that the definition of sale not include exchanges of digital assets for different digital assets or certain other property because such reporting would be impractical for brokers, confusing for taxpayers, and not consistent with the reporting rules for non-digital assets. Another comment recommended limiting reporting to off-ramp transactions, which signify the taxpayer's exit from an investment in digital assets. In contrast, another comment supported the requirement for information reporting on exchanges of digital assets for different digital assets because taxpayers must report all taxable gain or loss transactions of this type that occur within their taxable year. The final regulations do not adopt the comments to limit the definition of sale to cash transactions. Digital assets are unique among the types of assets that are subject to reporting under section 6045 because they are commonly exchanged for different digital assets in trading transactions, for example an exchange of bitcoin for ether. Some digital assets can readily function as a payment method and, as such, can also be exchanged for other property in payment transactions. As explained in Notice 2014-21, and clarified in Revenue Ruling 2023- 14, 2023-33 I.R.B. 484 (August 14, 2023), the sale or exchange of a digital asset that is property has tax consequence that may result in a tax liability. Thus, when a taxpayer disposes of a digital asset to make payment in another transaction, the taxpayer has engaged in two taxable transactions: the first being the disposition of the digital asset and the second being the payment associated with the payment transaction. In contrast, when a taxpayer disposes of cash to make payment, the taxpayer has, at most, only one taxable transaction. Accordingly, these regulations require reporting on sales and certain exchanges of digital assets because substantive Federal tax principles do not treat the use of digital assets to make payments in the same way as the use of cash to make payments. Unlike digital assets, traditional financial assets subject to broker reporting are generally disposed of for cash. That is why the definition of sale in Sec. 1.6045-1(a)(9)(i) only requires reporting for cash transactions. In contrast, the barter exchange rules in Sec. 1.6045-1(e) do require reporting on property-for-property exchanges because the barter industry, by definition, applies to property-for- property exchanges and not only cash transactions. Accordingly, the modified definition of sale for digital assets exchanged for other property reflects the differences in the underlying transactions as compared to traditional financial assets, not the disparate treatment of similarly situated transactions based solely on technological differences. Moreover, the purpose behind information reporting is to make taxpayers aware of their taxable transactions so they can report them accurately on their Federal income tax returns and to make those transactions more transparent to the IRS to reduce the income tax gap. Another comment raised a concern that including exchanges of digital assets for property and services exceeded the authority provided to the Secretary by the Infrastructure Act. The Treasury Department and the IRS do not agree with this comment. The term ``sale'' is not used in section 6045(a), which provides broadly that the Secretary may publish regulations requiring returns by brokers with details regarding gross proceeds and other information the Secretary may require by forms or regulations. Nothing in section 6045 limits ``gross proceeds'' to the results of a sale rather than an exchange and the term sale was first defined in the regulations under section 6045 long before the enactment of the Infrastructure Act. Moreover, the Infrastructure Act modified the definition of broker to include certain persons who provide services effectuating transfers of digital assets, which are part of any exchange of digital assets. Accordingly, the changes made by the Infrastructure Act do not provide any limitations on how the Secretary can define the term when applied to the digital asset industry. Another comment suggested that treating the exchange of digital assets for other digital assets or services as a taxable event is impractical and harmful to taxpayers, and that digital assets should be subject to tax only when taxpayers sell those assets for cash. See Part II.A. of this Summary of Comments and Explanation of Revisions for discussion of that issue. 2. Definition of Dispositions Several comments raised questions about whether the definition of sale, which includes any disposition of a digital asset in exchange for a different digital asset, applies to certain dispositions that may or may not be taxable. For this reason, several comments recommended that the final regulations not require reporting on certain transactions until substantive guidance is issued on the tax treatment of those transactions. One comment specifically mentioned reporting should not be applied to transactions involving what it referred to as the ``wrapping'' or ``unwrapping'' of tokens for the purpose of obtaining a token that is otherwise like the disposed-of token in order to use the received token on a particular blockchain. In contrast, another comment suggested that the final regulations should require reporting wrapping and unwrapping transactions. One comment suggested that exchanges of digital assets involving ``liquidity pool'' tokens should also be subject to reporting under the final regulations. Another comment suggested that the final regulations provide guidance on whether reporting is required on exchanges of digital assets for liquidity pool or ``staking pool'' tokens because these transactions typically represent contributions of tokens when the contributor's economic position has not changed. This comment also suggested, if these contributions are excluded from reporting, that the Treasury Department and the IRS study how information reporting rules apply when the contributors are ``rewarded'' for these ``contributions'' or when they receive other digital assets in exchange for the disposition of these pooling tokens. Another comment recommended, instead, that the final regulations explicitly address the information reporting requirements associated with staking rewards and hard forks and recommended that they should be treated like taxable stock dividends for reporting purposes. Another comment recommended that the final regulations address whether digital asset loans and short sales of digital assets will be subject to reporting. The comment expressed the view that the substantive tax treatment of such loans is unresolved, and further suggested that the initial exchange of a digital asset for [[Page 56500]] an obligation to return the same or identical digital asset and the provision of cash, stablecoin, or other digital asset collateral in the future may well constitute a disposition and, in the absence of a statutory provision like section 1058 of the Code, may be taxable. The Treasury Department and the IRS have determined that certain digital asset transactions require further study to determine how to facilitate appropriate reporting pursuant to these final regulations under section 6045. Accordingly, in response to these comments, Notice 2024-57 is being issued with these final regulations that will provide that until a determination is made as to how the transactions identified in the notice should be reported, brokers are not required to report on these identified transactions, and the IRS will not impose penalties for failure to file correct information returns or failure to furnish correct payee statements with respect to these identified transactions. One comment recommended that an exchange of digital assets for governance tokens or any other exchange for tokens that could be treated as a contribution to an actively managed partnership or association also be excluded from reporting under section 6045 until the substantive Federal tax consequences of these contributions are addressed in guidance. The final regulations do not adopt this recommendation. Whether exchanges of digital assets for other digital assets could be treated as a contribution to a partnership or association is outside the scope of these regulations. Additionally, because the potential for duplicate reporting also exists for non- digital asset partnership interests, Treasury Department and the IRS have concluded that different rules should not apply to sales of digital asset partnership interests. Finally, the more general question of whether reporting on partnership interests (in digital asset form or otherwise) under section 6045 is appropriate in light of the potential for duplicate reporting is outside the scope of this regulations project. The preamble to the proposed regulations requested comments regarding whether the broker reporting regulations should apply to include initial coin offerings, simple agreements for future tokens, and similar contracts, but did not propose such reporting. One comment recommended that initial coin offerings, simple agreements for future tokens, and similar contracts should be covered by broker reporting under the final regulations while another comment asserted that this reporting would not be feasible. Upon consideration of the comments, the Treasury Department and the IRS have determined that the issues raised by these comments require further study. Accordingly, the final regulations do not adopt the comment's recommendations. However, the Treasury Department and the IRS may consider publishing additional guidance that could require broker reporting for such transactions. 3. Exceptions for Certain Closed Loop Transactions As discussed in Part I.A.3. of this Summary of Comments and Explanation of Revisions with respect to closed loop digital assets, the Treasury Department and the IRS do not intend the information reporting rules under section 6045 to apply to the types of virtual assets that exist only in a closed system and cannot be sold or exchanged outside that system for fiat currency. Rather than carve these assets out from the definition of a digital asset, however, the final regulations add these closed loop transactions to the list of excepted sales that are not subject to reporting under final Sec. 1.6045-1(c)(3)(ii). Inclusion on the list of excepted sales is not intended to create an inference that the transaction is a sale of a digital asset under current law. Instead, inclusion on the list merely means that the Treasury Department and the IRS have determined that information reporting on these transactions is not appropriate at this time. One comment recommended that the definition of digital assets be limited to exclude from reporting transactions involving dispositions of NFTs used by loyalty programs. The comment explained that these loyalty programs do not permit customers to transfer their digital asset tokens by sale or gift outside of the program's closed (that is, permissioned) distributed ledger. The final regulations add these loyalty program transactions to the list of excepted sales for which reporting is not required. This exception is limited, however, to those programs that do not permit customers to transfer, exchange, or otherwise use, the tokens outside of the program's closed distributed ledger network because tokens that have a market outside the program's closed network raise Federal tax issues similar to those with other digital assets that are subject to reporting. Another comment recommended that video game tokens that owners have only a limited ability to sell outside the video game environment be excluded from the definition of digital assets because sales of these tokens represent a low risk of meaningful Federal tax non-compliance. The final regulations do not treat sales of video game tokens that can be sold outside the video game's closed environment as excepted sales. Instead, as with the loyalty program tokens, the final regulations limit the excepted sale treatment to only those dispositions of video game tokens that are not capable of being transferred, exchanged, or otherwise used, outside the closed distributed ledger environment. Several comments requested that the final regulations exclude from reporting transactions involving digital representations of assets that may be transferred only within a fixed network of banks using permissioned distributed ledgers to communicate payment instructions or other back-office functions. According to these comments, bank networks use digital assets as part of a messaging service. The comments noted that these digital assets have no intrinsic value, function merely as a tool for recordkeeping, and are not freely transferable for cash or other digital assets outside the system. To address these transactions, one comment recommended that the definition of digital asset be limited to only those digital assets that are issued and traded on permissionless (that is, open to the public) distributed ledgers. Other comments requested that the exception apply to permissioned interoperable distributed ledgers, that is, digital assets that can travel from one permissioned distributed ledger (for example, at one bank) to another permissioned distributed ledger (at another bank). The Treasury Department and the IRS are concerned that a broadly applicable restriction on the definition of digital assets could inadvertently create an exception for other digital assets that could be involved in transactions that give rise to taxable gain or loss. Accordingly, to address these comments, the final regulations add certain transactions within a single cryptographically secured distributed ledger, or network of interoperable distributed ledgers, to the list of excepted sales for which reporting is not required. Specifically, final Sec. 1.6045-1(c)(3)(ii)(G) provides that an excepted sale includes the disposition of a digital asset representing information with respect to payment instructions or the management of inventory that does not consist of digital assets, which in each case does not give rise to sales of other digital assets within a cryptographically secured distributed ledger (or network of interoperable distributed ledgers) if access to the distributed ledgers (or network of interoperable distributed [[Page 56501]] ledgers) is restricted to only users of such information and if the digital assets disposed of are not capable of being transferred, exchanged, or otherwise used, outside such distributed ledger or network. No inference is intended that such transactions would otherwise be treated as sales of digital assets. This exception, however, does not apply to sales of digital assets that are also sales of securities or commodities that are cleared or settled on a limited- access regulated network subject to the coordination rule in final Sec. 1.6045-1(c)(8)(iii). See Part I.A.4.a. of this Summary of Comments and Explanation of Revisions for an explanation of the special coordination rule applicable to securities or commodities that are cleared or settled on a limited-access regulated network. The final regulations also include a general exception for closed- loop transactions in order to address other such transactions not specifically brought to the attention of the Treasury Department and the IRS. Because the Treasury Department and the IRS do not have the information available to evaluate those transactions, this exception applies only to a limited class of digital assets. The digital assets must be offered by a seller of goods or provider of services to its customers and exchangeable or redeemable only by those customers for goods or services provided by such seller or provider, and not by others in a network. In addition, the digital asset may not be capable of being transferred, exchanged, or otherwise used outside the cryptographically secured distributed ledger network of the seller or provider and also may not be sold or exchanged for cash, stored-value cards, or stablecoins at a market rate inside the seller or provider's distributed ledger network. The treatment of closed-loop transactions as excepted sales discussed here is not intended to be broadly applicable to any digital asset sold within a permissioned distributed ledger network because such a broad exception could generate incentives for the creation of distributed ledger networks that are nominally permissioned but are, in fact, open to the public. If similar digital assets that cannot be sold or exchanged outside of a controlled, permissioned ledger and that do not raise new tax compliance concerns are brought to the attention of the Treasury Department and the IRS, transactions involving those digital assets may also be designated as excepted sales under final Sec. 1.6045-1(c)(3)(ii)(A). 4. Other Exceptions One comment requested that utility tokens that are limited to a particular timeframe or event be treated like closed system tokens. The final regulations do not adopt this suggestion because not enough information was provided for the Treasury Department and the IRS to determine whether these tokens are capable of being transferred, exchanged, or otherwise used, outside of the closed distributed ledger environment. Another comment requested that digital assets used for test purposes be excluded from the definition of digital assets. According to this comment, test blockchain networks allow users to receive digital assets for free or for a nominal fee as part of the creation and testing of software. These networks have sunset dates beyond which the digital assets created cannot be used. The final regulations do not adopt this comment because not enough information was provided to know if these networks are closed distributed ledger environments or if the tokens are capable of being transferred, exchanged, or otherwise used, prior to the network's sunset date. One comment requested that the final regulations be revised to prevent the application of cascading transaction fees in a sale of digital assets for different digital assets when the broker withholds the received digital assets to pay for such fees. For example, a customer exchanges one unit of digital asset AB for 100 units of digital asset CD (first transaction), and to pay for the customer's digital asset transaction fees, the broker withholds 10 percent (or 10 units) of digital asset CD. The comment recommended that the sale of the 10 units of CD in the second transaction be allocated to the original transaction and not be separately reported. The Treasury Department and the IRS have determined that a limited exception from the definition of sale should apply to cascading digital asset transaction fees. Specifically, final Sec. 1.6045-1(c)(3)(ii)(C) excepts a sale of digital asset units withheld by the broker from digital assets received by the customer in any underlying digital asset sale to pay for the customer's digital asset transaction costs. The special specific identification rule in final Sec. Sec. 1.6045- 1(d)(2)(ii)(B)(3) and 1.1012-1(j)(3)(iii) ensures that the sale of the withheld units does not give rise to gain or loss. See Part VI.B. of this Summary of Comments and Explanation of Revisions for a discussion of the application of this excepted sales rule when the sale of such withheld units gives rise to an obligation by the broker under section 3406 to deduct and withhold a tax. D. Information To Be Reported for Digital Asset Sales 1. In General The proposed regulations required that for each digital asset sale for which a broker is required to file an information return, the broker report, among other things, the date and time of such sale set forth in hours, minutes, and seconds using Coordinated Universal Time (UTC). The proposed regulations requested comments regarding whether UTC time was appropriate and whether a 12-hour clock or a 24-hour clock should be used for this reporting. Some comments agreed with reporting the time of sale based on UTC time; however, other comments suggested using the customer's local time zone as configured on the platform or in the wallet. Other comments suggested that it is not technologically or operationally feasible to use the time zone of the customer's domicile. Another comment raised the concern that reporting in different time zones from the broker's time zone would make the broker and the IRS unable to reconcile backup withholding, timely tax deposits, and other annual filings. Still other comments requested broker flexibility in reporting the time of sale, provided the broker reported the time of the customer's purchases and sales consistently. Several other comments raised the concern that reporting on the time of transaction was excessively burdensome due to the number of tax lots that the broker's customers could potentially acquire and sell in a single day. Another comment suggested that the information reported with respect to the time of the transaction should be the same as the information reported on the Form 1099-B for traditional asset sales unless there is a compelling reason to do otherwise. Additionally, several comments suggested that the burden of developing or modifying systems to report the time of sale was not warranted because the time of sale within a date (that is reported) does not generally impact customer holding periods if the broker treats the time zone of purchases and sales consistently. The final regulations adopt the recommendation to remove the requirement to report the time of the transaction. The Treasury Department and the IRS are concerned about the burdensome nature of the time reporting requirement and the administrability of reconciling different times for customer transactions and backup withholding deposits. Additionally, the issues raised by the time of sale with respect to digital asset year-end transactions are [[Page 56502]] generally the same as for traditional asset sales. It is expected that brokers will determine the date of purchase and date of sale of a customer's digital assets based on a consistent time zone so that holding periods are reported consistently, and that brokers will provide customers with the information necessary for customers to report their year-end sale transactions accurately. The proposed regulations also required that, for each digital asset sale for which a broker is required to file an information return and for which the broker effected the sale on the distributed ledger, the broker report the transaction identification (transaction ID or transaction hash) associated with the digital asset sale and the digital asset address (or digital asset addresses if multiple) from which the digital asset was transferred in connection with the sale. Additionally, for transactions involving sales of digital assets that were previously transferred into the customer's hosted wallet with the broker (transferred-in digital asset), the proposed regulations required the broker to report the date and time of such transferred-in transaction, the transaction ID of such transfer-in transaction, the digital asset address (or digital asset addresses if multiple) from which the transferred-in digital asset was transferred, and the number of units transferred in by the customer as part of that transfer-in transaction. Numerous comments raised privacy and surveillance concerns associated with the requirement to report transaction ID and digital asset address information. These comments noted that a person or entity who knows the digital asset address of another gains access not only to that other user's purchases and exchanges on a blockchain network, but also the entire transaction history associated with that user's digital asset address. One comment expressed concern that reporting transaction ID and digital asset addresses would link the transaction history of the reported digital asset addresses to the taxpayer, thus exposing the financial and spending habits of that taxpayer. Other comments expressed that reporting this information also creates a risk that the information could be intercepted by criminals who could then attempt to extort or otherwise gain access to the private keys of identified persons with digital asset wealth. In short, many comments expressed strongly stated views that requiring this information creates privacy, safety, and national security concerns and could imperil U.S. citizens. Other comments suggested that the information reporting rules should balance the IRS's need for transparency with the taxpayer's interest in privacy. Thus, reporting of transaction IDs and digital asset addresses should not be required because the information exceeds the information that the IRS needs to confirm the value of reported gross proceeds and cost basis information. Further, another comment asserted that the IRS does not need transaction ID and digital asset address information because the IRS already has powerful tools to audit taxpayers and collect this information on audit. Other comments raised concerns with the burden of this requirement for custodial brokers. Citing the estimate of the start-up costs required to put systems in place to comply with the proposed regulations' broker reporting requirements, another comment raised the concern that many industry participants are smaller businesses with limited funding and resources that cannot afford to build infrastructure to securely store this information. Another comment raised the concern that reporting of transaction ID and digital asset address information would make the Form 1099-DA difficult for taxpayers to read. Another comment noted that this information is not helpful to taxpayers, who should already know this information. Other comments suggested that the reporting standard for digital assets should not be any more burdensome than it is for securities, and that any additional data fields for digital assets would force traditional brokers that also effect sales of digital assets to modify their systems. Another comment suggested that the final regulations should not require the reporting of transaction ID and digital asset address information in order to align the information reported under section 6045 with the information required under the CARF, a draft of which would have required the reporting of digital asset addresses but ultimately did not include such a requirement. Some comments offered alternative solutions for providing the IRS with the visibility that this information would provide. For example, one comment suggested that because of the large number of digital asset transactions, brokers should only report the digital asset addresses (not transaction IDs) associated with transactions. Another comment recommended the use of impersonal tax ID numbers that would not reveal the customer's full identity to address privacy concerns. Another comment suggested it would be less burdensome to require reporting of account IDs rather than digital asset addresses. Another comment suggested that the reporting of this information be optional or otherwise limited to transactions that involve a high risk of tax evasion or non-compliance or that otherwise exceed a large threshold. Another comment recommended the use of standardized tax lot identification like the securities industry. Another comment recommended instructing brokers to retain this information for later examination. Another comment recommended that brokers not report this information but, instead, be required to retain this information to align with the CARF reporting requirements. The Treasury Department and the IRS considered these comments. Although transaction ID and digital asset address information would provide uniquely helpful visibility into a taxpayer's transaction history, which the IRS could use to verify taxpayer compliance with past tax reporting obligations, the final regulations remove the obligation to report transaction ID and digital asset address information. The Treasury Department and the IRS have concluded, however, that this information will be important for IRS enforcement efforts, particularly in the event a taxpayer refuses to provide it during an examination. Accordingly, final Sec. 1.6045-1(d)(11) provides a rule that requires brokers to collect this information with respect to the sale of a digital asset and retain it for seven years from the due date for the related information return filing. This collection and retention requirement, however, would not apply to digital assets that are not subject to reporting due to the special reporting methods discussed in Parts I.D.2. through I.D.4. of this Summary of Comments and Explanation of Revisions. The seven-year period was chosen because the due date for electronically filed information under section 6045 is March 31 of the calendar year following the year of the sale transaction. Because most taxpayers' statute of limitations for substantial omissions from gross income will expire six years from the April 15 filing date for their Federal income tax return, a six- year retention period from the March 31 filing date would end before the statute of the limitations expires. Therefore, the final regulations designated a seven-year period for brokers to retain this information to ensure the IRS will have access to all the records it needs during the time that the taxpayer's statute of limitations is open. The IRS intends to monitor the information reported on digital assets and the extent to which taxpayers [[Page 56503]] comply with providing this information when requested by IRS personnel as part of an audit or other enforcement or compliance efforts. If abuses are detected that hamper the IRS's ability to enforce the Code, the Treasury Department and the IRS may reconsider this decision to require brokers to maintain this information in lieu of reporting it to the IRS. Another comment raised the concern that custodial brokers may not have transaction ID and digital asset address information associated with digital assets that were transferred-in to the broker before the applicability date of these regulations. This comment recommended that the reporting requirement be made effective only for assets that were transferred-in to the custodial broker on or after January 1, 2023, to align with the enactment of the Infrastructure Act. The Treasury Department and the IRS understand that brokers may not have transaction ID and digital asset address information associated with digital assets that were transferred-in to the broker before the applicability date of these regulations. The Treasury Department and the IRS, however, decline to adopt an applicability date rule with respect to the collection and retention of this information because some brokers may receive the information on transferred-in assets and to the extent they do, that information should be produced when requested under the IRS's summons authority. Accordingly, brokers should maintain transaction ID and digital asset address information associated with digital assets that were transferred-in to the broker before the applicability date of this regulation to the extent that information was retained in the ordinary course of business. The proposed regulations also required that for each digital asset sale for which a broker is required to file an information return, that the broker report whether the consideration received in that sale was cash, different digital assets, other property, or services. Numerous comments raised the concern that reporting the specific consideration received is too intrusive and causes security concerns. The final regulations do not make any changes in response to these comments because the language in the proposed (and final) regulations does not require brokers to report the specific goods or services purchased by the customer, but instead requires the broker to report on the category type that the consideration falls into. For example, if digital asset A is used to make a payment using the services of a PDAP for a motor vehicle, the regulations require the PDAP to report that the consideration received was for property (as opposed to cash, different digital assets, broker services, or other property). The purpose of this rule is to allow the IRS to be able to distinguish between sales involving categories of consideration because sales for cash do not raise the same valuation concerns as sales for different digital assets, other property, or services. In cases in which digital assets are exchanged for different digital assets, however, the Form 1099-DA may request brokers to report that specific digital asset received in return because of the enhanced valuation concerns that arise in these transactions. Another comment suggested that providing the gross proceeds amount in a non-cash transaction would not be helpful or relevant. The final regulations do not adopt this comment because gross proceeds reporting on non-cash transactions is, in fact, helpful and relevant to customers who must include gains and losses from these transactions on their Federal income tax returns. The proposed regulations would have required the broker to report the name of the digital asset sold. One comment noted that there is no universal convention or standard naming convention for digital assets. As a result, many digital assets share the same name or even the same ticker symbol. This comment recommended that the final regulations allow brokers the flexibility to provide enough information to reasonably identify the digital asset at issue. This comment also recommended that brokers be given the ability to provide the name of the trading platform where the transaction was executed to ensure that the name of the digital asset is clearly communicated. The final regulations do not adopt this comment because it is more appropriate to address these issues on the Form 1099-DA and its instructions. The proposed regulations also required that, for each digital asset sale for which a broker is required to file an information return, the broker report the gross proceeds amount in U.S. dollars regardless of whether the consideration received in that sale was cash, different digital assets, other property, or services. One comment recommended that brokers not be required to report gross proceeds in U.S. dollars for transactions involving the disposition of digital assets in exchange for different digital assets, but instead be required to report only the name of the digital asset received and the number of units received in that transaction. Although this suggestion would relieve the broker from having to determine the fair market value of the received digital assets in that transaction, the final regulations do not adopt this suggestion because the U.S. dollar value of the received digital assets is information that taxpayers need to compute their tax gains or losses and the IRS needs to ensure that taxpayers report their transactions correctly on their Federal income tax returns. The proposed regulations required brokers to report sales of digital assets on a transactional (per-sale) basis. One comment recommended that the final regulations alleviate burden on brokers and instead provide for aggregate reporting, with a separate Form 1099-DA filed for each type of digital asset. The final regulations do not adopt this recommendation. Transactional reporting on sales of digital assets is generally necessary so that the amount received in a digital asset sale can be compared with the basis of those digital assets to determine gain or loss. Transactional reporting is most helpful to taxpayers who must report these transactions on their Federal income tax returns and to the IRS to ensure taxpayers report these transactions on their Federal income tax returns. Several comments recommended that final regulations include a de minimis threshold for digital asset transactions that would exempt from reporting minor sale transactions--and in particular payment transactions--falling below that threshold. One comment suggested that such a de minimis threshold could help to prevent taxpayers from moving their digital assets to self-custodied locations that may be outside the scope of broker reporting. One comment recommended that brokers not be required to obtain tax documentation from customers (and therefore not report on those customers' tax identification numbers) for taxpayers with annual transactions below a de minimis threshold. A few comments recommended that separate de minimis thresholds or reduced reporting requirements be applied to brokers with lower transaction volumes during a start-up or transitional period. Some comments recommended aggregate annual thresholds for this purpose, for example based on the customer's aggregate gross proceeds or aggregate net gain for the year from these transactions, whereas other comments recommended per-transaction thresholds based either on gross proceeds or net gain generated from each transaction. One comment suggested that whatever threshold is applied, that it only be used for PDAPs. Except as discussed in Parts I.B.2., I.D.2., and I.D.3. of this Summary of Comments and Explanation of Revisions (involving payment sale transactions and certain transactions involving [[Page 56504]] qualifying stablecoins and specified NFTs), the final regulations do not adopt an additional de minimis threshold for digital asset sales for several reasons. First, any per-transaction threshold for the types of digital assets not subject to the de minimis thresholds discussed in Parts I.B.2., I.D.2., and I.D.3. of this Summary of Comments and Explanation of Revisions would not be easy for brokers to administer because these thresholds are more easily subject to manipulation and structuring abuse by taxpayers, and brokers are unlikely to have the information necessary to prevent these abuses by taxpayers, for example by applying an aggregation or anti-structuring rule. Second, the de minimis threshold for qualifying stablecoins will already give brokers the ability to avoid reporting on dispositions of $10,000 in qualifying stablecoins, which are the types of digital assets that are least likely to give rise to significant gains or losses, and the de minimis threshold for payment sale transactions will give PDAPs the ability to avoid reporting on dispositions of other types of digital assets that do not exceed $600. Third, extending any additional annual threshold to sales of these other types of digital assets that are more likely to give rise to tax gains and losses will leave taxpayers without the information they need to compute those gains and losses and will leave the IRS without the information it needs to ensure that taxpayers report all transactions required to be reported on their Federal income tax returns. Fourth, information reporting without taxpayer TINs is generally of limited utility to the IRS for verifying taxpayer compliance with their reporting obligations. Finally, a separate de minimis threshold or reduced reporting requirements for small brokers would be relatively easy for brokers to manipulate and would leave the customers of such brokers without essential information. 2. Optional Reporting Rules for Certain Qualifying Stablecoins a. Description of the Reporting Method As discussed in Part I.A.1. of this Summary of Comments and Explanation of Revisions, the Treasury Department and the IRS have determined that it is appropriate to permit brokers to report certain stablecoin sales under an optional alternative reporting method to alleviate burdensome reporting for these transactions. This reporting method was developed after careful consideration of the comments submitted recommending a tailored exemption from reporting for certain stablecoin sales. These recommendations took different forms, including requests for exemptions for certain types of stablecoins and recommendations against granting an exemption for other types of stablecoins. One comment suggested that reporting relief would not be appropriate for dispositions of stablecoins for cash or property other than different digital assets. These so-called ``off-ramp transactions'' convert the owner's overall digital asset investment into a non-digital asset investment and, the comment stated, could provide taxpayers and the IRS with the opportunity to reconcile and verify the blockchain history of such stablecoins to ensure that previous digital asset transactions were reported. The Treasury Department and the IRS agree that reporting is appropriate and important for off-ramp transactions involving stablecoins because the IRS would be able to use this information to gain visibility into previously unreported digital asset transactions. Several comments recommended requiring reporting on stablecoin sales when the reporting reflects explicit trading activity around fluctuations involving the stablecoin. Because stablecoins do not always precisely reflect the value of the fiat currencies to which they are pegged, trading activity associated with fluctuations in stablecoins are more likely to generate taxable gains and losses. The Treasury Department and the IRS have concluded that traders seeking to profit from stablecoin fluctuations are likely to sell these stablecoins for cash (in an off-ramp transaction) or for other stablecoins that have not deviated from their designated fiat currency pegs. Accordingly, the Treasury Department and the IRS have concluded that reporting on sales of stablecoins for different stablecoins is also appropriate to assist in tax administration. In discussing other types of transactions, several comments noted that a disposition of a stablecoin for other digital assets often reflects mere momentary ownership of the stablecoin in transactions that use the stablecoin as a bridge asset in an exchange of one digital asset for a second digital asset. These comments also noted that, to the extent that a disposition of a stablecoin for a different digital asset does give rise to gain or loss, that gain or loss will ultimately be reflected (albeit on a net basis) when the received digital asset is later sold or exchanged. The Treasury Department and the IRS agree that, in contrast to sales of stablecoins for cash or other stablecoins, reports on sales of stablecoins for different digital assets (other than stablecoins) are less important for tax administration. Accordingly, the Treasury Department and the IRS have concluded that it is appropriate to allow brokers not to report sales of certain stablecoins for different digital assets that are not also stablecoins. Some comments recommended exempting sales of stablecoins from cost basis reporting given their belief in the low likelihood that these sales would result in gain or loss. Other comments recommended that the final regulations permit combined or aggregate reporting for stablecoin sales to lessen the reporting burden for brokers and the burden of receiving returns on the IRS. The Treasury Department and the IRS agree that basis reporting for all types of stablecoin sales may not justify the burden of tracking and reporting those sales. Although taxpayers that trade around stablecoin fluctuations would benefit from cost basis reporting, the Treasury Department and the IRS have concluded that these traders are more likely to be more sophisticated traders that are able to keep basis records on their own. The Treasury Department and the IRS have also concluded that allowing for reporting of stablecoins sales on an aggregate basis would strike an appropriate balance between the taxpayer's and IRS's need for information and the broker's interest in a reduced reporting burden. In addition to an overall aggregate reporting approach, numerous comments also recommended that the final regulations include a de minimis threshold for these stablecoin sales that would exempt reporting on a taxpayer's stablecoin sales to the extent that taxpayer's total gross proceeds from all stablecoin sales for the year did not exceed a specified threshold. Several comments suggested de minimis thresholds based on the taxpayer's aggregate net gain from stablecoin sales for the year. Other comments recommended the use of per-transaction de minimis thresholds, based either on the gain or loss in the transaction or the gross proceeds from the transaction. The Treasury Department and the IRS considered these comments to decide whether to further reduce the overall burden on brokers and the IRS. The final regulations do not adopt a per-transaction de minimis threshold because any per-transaction threshold for stablecoins would be relatively easy for customers to abuse by structuring their transactions. Although anti-structuring rules based on the intent of the taxpayer have been used in other information reporting regimes, such as section 6050I of the Code, similar rules [[Page 56505]] would be unadministrable here. Under section 6050I, the person who receives payment is the person who files the information returns and will know when a payor is making multiple payments as part of the same transaction. For purposes of section 6045 digital asset transaction reporting, however, brokers may not have the information necessary to determine the motives behind their customer's decisions to engage in numerous smaller stablecoin transactions instead of fewer larger transactions involving these stablecoins. Moreover, even for transactions exceeding a de minimis threshold, per-transaction reporting still has the potential to result in a very large number of information returns, with a correspondingly large burden on brokers and the IRS. The final regulations also do not adopt an aggregate de minimis threshold based on gains or losses because many brokers will not have the acquisition information necessary to determine basis, which would be necessary in order to be able to take advantage of such a de minimis rule, thus making the threshold less effective at reducing the number of information returns required to be filed. Instead, the final regulations adopt an aggregate gross proceeds threshold as striking an appropriate balance between a threshold that will provide the greatest burden relief for brokers and still provide the IRS with the information needed for efficient tax enforcement. Additionally, to avoid manipulation and structuring techniques that could be used to abuse this threshold, the final regulations require that the overall threshold be applied as a single threshold applicable to a single customer's sales of all stablecoins regardless of how many accounts or wallets that customer may have with the broker. Numerous comments recommended various de minimis thresholds ranging from $10 to $50,000. In determining the dollar amount that should be used for this de minimis threshold, the Treasury Department and the IRS considered that the gross proceeds reported for these stablecoin transactions are unlikely to reflect ordinary income or substantial net gain. The Treasury Department and the IRS have concluded that a larger de minimis threshold would eliminate most of the reporting on customers with small stablecoin holdings and likely small amounts of gain or loss without allowing more significant sales of fiat-based stablecoins to evade both information and income tax reporting. Accordingly, the Treasury Department and the IRS have determined that a $10,000 threshold is the most appropriate because that threshold aligns with the reporting threshold under section 6050I, which Congress has adopted as the threshold for requiring certain payments of cash and cash-like instruments to be reported. In sum, the final regulations adopt an optional $10,000 overall annual de minimis threshold for certain qualifying stablecoin sales and permit sales over this amount to be reported on an aggregate basis rather than on a transactional basis. Specifically, in lieu of requiring brokers to report gross proceeds and basis on stablecoin sales under the transactional reporting rules of Sec. 1.6045- 1(d)(2)(i)(B) and (C), the final regulations at Sec. 1.6045- 1(d)(10)(i) permit brokers to report designated sales of certain stablecoins (termed qualifying stablecoins) under an alternative reporting method described at Sec. 1.6045-1(d)(10)(i)(A) and (B). A designated sale of a qualifying stablecoin is defined in final Sec. 1.6045-1(d)(10)(i)(C) to mean any sale as defined in final Sec. 1.6045-1(a)(9)(ii)(A) through (D) of a qualifying stablecoin other than a sale of a qualifying stablecoin in exchange for different digital assets that are not qualifying stablecoins. In addition, a designated sale of a qualifying stablecoin includes any sale of a qualifying stablecoin that provides for the delivery of a qualifying stablecoin pursuant to the settlement of any executory contract that would be treated as a designated sale of the qualifying digital asset under the previous sentence if the contract had not been executory. Final Sec. 1.6045-1(d)(10)(i)(C) also defines the term non-designated sale of a qualifying stablecoin as any sale of a qualifying stablecoin other than a designated sale of a qualifying stablecoin. A broker reporting under this optional method is not required to report sales of qualifying stablecoins that are non-designated sales of qualifying stablecoins under either this optional method or the transactional reporting rules. Accordingly, for example, if a customer uses a qualifying stablecoin to buy another digital asset that is not a qualifying stablecoin, no reporting would be required if the broker is using the optional reporting method for qualifying stablecoins. Additionally, if a customer's aggregate gross proceeds (after reduction for the allocable digital asset transaction costs) from all designated sales of qualifying stablecoins do not exceed $10,000 for the year, a broker using the optional reporting method would not be required to report those sales. The Treasury Department and the IRS anticipate that the combination of allowing no reporting of non- designated sales of qualifying stablecoins and the $10,000 annual threshold for all designated sales of qualifying stablecoins will have the effect of eliminating reporting on qualifying stablecoin transactions for many customers. If a customer's aggregate gross proceeds (after reduction for the allocable digital asset transaction costs) from all designated sales of qualifying stablecoins exceed $10,000 for the year, the broker must report on a separate information return for each qualifying stablecoin for which there are designated sales. Final Sec. 1.6045- 1(d)(10)(i)(B). If the aggregate gross proceeds exceed the $10,000 threshold, reporting is required with respect to each qualifying stablecoin for which there are designated sales even if the aggregate gross proceeds for that qualifying stablecoin is less than $10,000. This rule is illustrated in final Sec. 1.6045-1(d)(10)(i)(D)(2) (Example 2). A broker reporting under this method must report on a separate Form 1099-DA or any successor form in the manner required by the form or instructions the following information with respect to designated sales of each type of qualifying stablecoin: (1) The name, address, and taxpayer identification number of the customer; (2) The name of the qualifying stablecoin sold; (3) The aggregate gross proceeds for the year from designated sales of the qualifying stablecoin (after reduction for the allocable digital asset transaction costs); (4) The total number of units of the qualifying stablecoin sold in designated sales of the qualifying stablecoin; (5) The total number of designated sale transactions of the qualifying stablecoin; and (6) Any other information required by the form or instructions. Brokers that want to use this reporting method in place of transactional reporting are not required to submit any form or otherwise make an election to be eligible to report in this manner. Additionally, brokers may report sales of qualifying stablecoins under this optional reporting method for some or all customers, though the method chosen for a particular customer must be applied for the entire year for that customer's sales. A broker may change its reporting method for a customer from year to year. Because the obligation to file returns under the transactional method in final Sec. 1.6045- 1(d)(2)(i)(B) is discharged only when a broker files information returns under the optional reporting method under Sec. 1.6045- 1(d)(10)(i), brokers that fail to report a customer's sales under either method will be subject to penalties under section 6721 for failure to file [[Page 56506]] information returns under the transactional method. See Part VI.B. of this Summary of Comments and Explanation of Revisions for a discussion of how the backup withholding rules will apply to payments falling below this de minimis threshold and to the gross proceeds of non- designated sales of qualifying stablecoins. In the case of a joint account, final Sec. 1.6045-1(d)(10)(v) provides a rule for the broker to determine which joint account holder will be the customer for purposes of determining whether the customer's combined gross proceeds for all accounts owned exceed the $10,000 de minimis threshold. This joint account rule follows the general rules for determining which joint account holder's name and TIN should be reported by the broker on the information return (but for the application of the relevant threshold). Like the general rules, the joint account holder's name and TIN that must be reported by the broker is determined after the application of the backup withholding rules under Sec. 31.3406(h)-2(a). For example, under these rules, if two or more individuals own a joint account, the account holder that is treated as the customer is generally the first named individual on the account. See Form W-9 at p.5. If, however, the first named individual does not supply a certified TIN to the broker (or supplies a Form W- 8BEN establishing exempt foreign status) and if another individual joint account holder supplies a certified TIN, then the broker must treat that other individual as the customer for this purpose. See Sec. 31.3406(h)-2(a)(3). Alternatively, if the first named individual joint account holder supplies a Form W-8BEN establishing exempt foreign status and the other individual joint account holder does not supply a certified TIN (or a Form W-8BEN) to the broker, then the broker must treat that other individual as the customer for this purpose because that is the individual that caused the broker to begin the backup withholding that will be shown on the information return. b. Qualifying Stablecoin In describing which stablecoins they thought should be afforded reporting relief, comments recommended many different definitions, and those definitions generally included several types of requirements. Because the recommended definitions encompass multiple kinds of digital assets, for ease of description here we will use the term ``purported stablecoin'' as a stand-in for the type of asset the comments wanted to exempt from some or all reporting. First, many comments recommended that the purported stablecoin must have been designed or structured to track the value of a fiat currency for use as a means of making payment. Other comments recommended looking to whether the purported stablecoin is marketed as pegged to the fiat currency or whether the stablecoin is denominated on a 1:1 basis by reference to the fiat currency. Second, the comments proposed that the purported stablecoin must, in fact, function as a means of exchange and be generally accepted as payment by third parties. Third, the comments generally recommended that the purported stablecoin have some type of built-in mechanism designed to keep the value of the purported stablecoin in line with the value of the tracked fiat currency, or at least within designated narrow bands of variation from value of the fiat currency. Further, these comments recommended that this stabilization mechanism must actually work in practice to keep the trading value of the purported stablecoin within those designated narrow bands. Proposals for how this stabilization mechanism requirement could be met varied. For example, several comments recommended a requirement that the issuer guarantee redemption at par or otherwise be represented by a separate claim on the issuer denominated in fiat currency. Another comment recommended that the issuer meet collateralization (or reserve) requirements and provide annual third party attestation reports regarding reserve assets. Another comment proposed that these reserves be held in segregated, bankruptcy-remote reserve accounts for the benefit of holders. Another comment proposed that these reserves be held in short-term, liquid assets denominated in the same fiat currency. Other comments suggested requiring that the purported stablecoin be issued on receipt of funds for the purpose of making payment transactions. Several other comments proposed requiring that the purported stablecoin be regulated by a Federal, State, or local government. One comment suggested prohibiting any stabilization mechanism that is based on an algorithm that achieves price stability by managing the supply and demand of the stablecoin against a secondary token that is not price-pegged. Several comments recommended requiring that the purported stablecoin not deviate significantly from the fiat currency to which it is pegged. For example, the comments recommended that the value of the stablecoin not be permitted to fall outside a specified range (with suggestions ranging from 1 percent to 10 percent) for a meaningful duration over specified periods (such as for more than 24 hours within any consecutive 10-day period or for any period during a 180-day period during the previous calendar year). Because the purpose of the optional reporting method is to minimize reporting on very high volumes of transactions involving little to no gain or loss, and because the optional reporting regime will ensure at least some visibility into transactions that in the aggregate exceed the $10,000 threshold, the Treasury Department and the IRS have determined that the definition of fiat currency-based stablecoins should be relatively broad to provide the most reduction of burden on brokers and the IRS. Thus, because the optional reporting method for stablecoins will provide for aggregate reporting of all proceeds from sales for cash or other stablecoins exceeding the de minimis threshold, it is not necessary to limit the definition of qualifying stablecoins to those with specific stabilization mechanisms such as fiat currency reserve requirements, as long as the stablecoin, in fact, retains its peg to the fiat currency. Accordingly, based on these considerations, the final regulations describe qualifying stablecoins as any digital asset that meets three conditions set forth in final Sec. 1.6045-1(d)(10)(ii)(A) through (C) for the entire calendar year. First the digital asset must be designed to track on a one-to-one basis a single convertible currency issued by a government or a central bank (including the U.S. dollar). Final Sec. 1.6045-1(d)(10)(ii)(A). Second, final Sec. 1.6045-1(d)(10)(ii)(B) requires that the digital asset use one of two stabilization mechanisms set forth in final Sec. 1.6045-1(d)(10)(ii)(B)(1) and (2), which are based on the recommendations made by the comments. The first stabilization mechanism provided in final Sec. 1.6045-1(d)(10)(ii)(B)(1) sets forth a results- focused test. Under this stabilization mechanism, the stabilization requirement is met if the stabilization mechanism causes the unit value of the digital asset not to fluctuate from the unit value of the convertible currency it was designed to track by more than 3 percent over any consecutive 10-day period during the calendar year. Final Sec. 1.6045-1(d)(10)(ii)(B)(1) also provides that UTC should be used in determining when each day within this 10-day period begins and ends. UTC time was chosen so that the same digital asset [[Page 56507]] will satisfy or not satisfy this test for all brokers regardless of the time zone in which such broker keeps its books and records. Additionally, this stabilization mechanism provides design flexibility to stablecoin issuers because it does not turn on how a digital asset maintains a stable value relative to a fiat currency, so long as it does. The second stabilization mechanism provided in final Sec. 1.6045-1(d)(10)(ii)(B)(2), in contrast, sets forth a design-focused test that provides more certainty to brokers at the time of a transaction. Under this stabilization mechanism, the stabilization requirement is met if regulatory requirements apply to the issuer of the digital asset requiring the issuer to redeem the digital asset at any time on a one-to-one basis for the same convertible currency that the stablecoin was designed to track. Because a qualifying stablecoin that satisfies this second stabilization mechanism includes key requirements set forth in the specified electronic money product definition under section IV.A.4. of the CARF, it is anticipated that this definition will be considered when regulations are drafted to implement the CARF. See Part I.G.2. of this Summary of Comments and Explanation of Revisions (discussing U.S. implementation of the CARF). Third, under final Sec. 1.6045-1(d)(10)(ii)(C), to be a qualifying stablecoin, the digital asset must generally be accepted as payment by persons other than the issuer. This acceptance requirement would be met if the digital asset is accepted by the broker as payment for other digital assets or is accepted by a second party. An example of this is acceptance by a merchant pursuant to a sale effected by a PDAP. To avoid confusion for brokers, customers, and the IRS, the Treasury Department and the IRS have concluded that the determination of whether a digital asset is a qualifying stablecoin or not must be consistent throughout the entire year. Accordingly, the definition of a qualifying stablecoin requires that the digital asset meet the three conditions for the entire calendar year. For example, if a digital asset loses its peg and no longer satisfies the stabilization mechanism set forth in final Sec. 1.6045-1(d)(10)(ii)(B)(1), it will not be treated as a qualifying stablecoin for the entire year unless the digital asset satisfies the stabilization mechanism set forth in final Sec. 1.6045-1(d)(10)(ii)(B)(2). See Part VI.B. of this Summary of Comments and Explanation of Revisions for a discussion of the backup withholding exception for sales of digital assets that would have been non-designated sales of a qualifying stablecoin up to and including the date that digital asset loses its peg and no longer satisfies the stabilization mechanism set forth in final Sec. 1.6045- 1(d)(10)(ii)(B)(1). The Treasury Department and the IRS recognize that brokers will not know at the beginning of a calendar year whether a digital asset that would be a qualifying stablecoin solely under the results-focused test will be a qualifying stablecoin for that year, and therefore will need to be prepared to report and backup withhold on sales of that asset. However, it is anticipated that the results-focused test will rarely result in a digital asset losing qualifying stablecoin status unless there is a significant and possibly permanent loss of parity between the stablecoin and the convertible currency to which it is pegged. Other alternatives suggested by comments, such as a retrospective test that is based on whether a digital asset failed a results-based test during a period in the past, for example the 180 days prior to a sale, could result in different treatment of the same digital asset depending on when a sale of the digital asset took place during a calendar year, which would be confusing for both brokers and customers. Basing qualification on the results for a prior year would alleviate that concern, but could result in treating a digital asset as a qualifying stablecoin for a year in which it was not stable, and as not a qualifying stablecoin for a later year in which it is stable, which would not achieve the purposes of the optional reporting method for qualifying stablecoins. Accordingly, the Treasury Department and the IRS have concluded that a test that treats a digital asset as a qualifying stablecoin, or not, for an entire calendar year is the most administrable way to achieve those purposes. 3. Optional Reporting Rules for Certain Specified Nonfungible Tokens a. Description of the Reporting Method Notwithstanding the conclusion discussed in Part I.A.2. of this Summary of Comments and Explanation of Revisions that the definition of digital assets includes NFTs, the Treasury Department and the IRS considered the many comments received suggesting a modified reporting approach under section 6045 for all or a subset of NFTs. One comment recommended against requiring reporting for NFTs for which the owner does not have the expectation that the NFT will return gain. The final regulations do not adopt this comment because it would be overly burdensome for brokers to determine each customer's investment expectation. Other comments recommended against any reporting on NFT transactions by brokers under section 6045 because reporting under section 6050W (on Form 1099-K, Payment Card and Third Party Network Transactions) is more appropriate for NFT sellers. Indeed, these comments noted, brokers that meet the definition of third party settlement organizations under section 6050W(b)(3) are already filing Forms 1099-K on their customers' sales of NFTs. The final regulations do not adopt these comments because the Treasury Department and the IRS have concluded that the reporting rules should apply uniformly to NFT marketplaces, and not all digital asset brokers meet the definition of a third party settlement organization under section 6050W(b)(3). Several comments raised valuation considerations, particularly in NFT-for-NFT exchanges or NFT sales in conjunction with physical goods or events, as a reason to exempt all NFTs from reporting. The final regulations do not adopt these comments because taxpayers engaging in these transactions still need to report the transactions on their Federal income tax returns. Additionally, the final regulations already permit brokers that cannot determine the value of property customers receive in a transaction with reasonable accuracy to report that the gross proceeds have an undeterminable value. Final Sec. 1.6045- 1(d)(5)(ii)(A). Other comments recommended against requiring reporting for all NFT transactions because NFTs, unlike other digital assets, are easier for taxpayers to track on the relevant blockchain. As a result, these comments suggested, taxpayers do not need to be reminded of their NFT sales and can more easily determine their bases in these assets by referencing the public blockchain. The final regulations do not adopt this comment because to be helpful for closing the income tax gap, information reporting must not only provide the information necessary for taxpayers to compute their tax gains, it must also provide the IRS with that information to ensure that taxpayers report all transactions required to be reported on their Federal income tax returns. Several comments asserted that the cost of reporting on non- financial NFTs outweighs the tax administration benefits to taxpayers and the IRS because these assets generally do not have substantial value, and as such transactions in these assets do not contribute meaningfully to the income tax gap. For example, several comments [[Page 56508]] cited to publicly available statistics showing that many NFT transactions involve small dollar amounts. According to one comment, the average price of an NFT transaction was only $150 for the third quarter of 2022, and the median NFT transaction value was only $37.69 over the six-month period ending October 1, 2023.\3\ Additionally, the comment stated that the value of approximately 45 percent of all NFT transactions was less than $25, and 82 percent of all NFT transaction were valued at less than $500, when compared to total exchange volume on the largest centralized and decentralized exchanges.\4\ Given the cost of transactional reporting and the relatively small value of the transactions, several comments suggested that aggregate reporting, in a regime analogous to that under section 6050W for reporting on payment card and third party network transactions, would lessen the burden of broker reporting on non-financial NFTs without a meaningful curtailment of the overall goal of reducing the income tax gap. Other comments recommended against NFT basis reporting under this aggregate reporting proposal because, unlike cryptocurrency and other fungible tokens, past purchase prices for NFTs are trackable on the blockchain through the NFT's unique token identification. Another comment recommended against transactional reporting for creators of non-financial NFTs (primary sales)--as opposed to resellers of non-financial NFTs (secondary sales)--because transactional reporting for creators would needlessly result in large numbers of separate reports. Additionally, this comment recommended that primary sales of non-financial NFTs should be reported under section 6050W instead of under section 6045 because returns under section 6045 would incorrectly report gross proceeds income instead of ordinary income. --------------------------------------------------------------------------- \3\ The comment cited a report from NonFungible.com, which stated that all data included was sourced from the blockchain via its own dedicated blockchain nodes. The report includes a table showing the average price for an NFT in the third quarter of 2022 was $154. This was a drop in value from an average price of $643 from the second quarter of 2022. The data sets underlying these estimates consist of public blockchain data regarding NFT volume, centralized exchange volume, and decentralized exchange volume. See Dune Analytics, https://dune.com/browse/dashboards (last visited October 30, 2023); Dune Analytics, https://github.com/duneanalytics/spellbook/tree/main (last visited October 30, 2023); The Block, https://www.theblock.co/data/crypto-markets/spot/cryptocurrency-exchange-volume-monthly (last visited Oct. 30, 2023). \4\ This comment cited an article that used data reported in an article published on Medium's website, ``Most artists are not making money off NFTs and here are some graphs to prove it'' from April 19, 2021. This article stated it was based on blockchain and other marketplace data for the week of March 14 through March 21, 2021. During that timeframe, according to the article, 33.6 percent of primary sales of NFTs were $100 or less; 20 percent of primary sales were $100 to $200, and 7.7 percent of primary sales were $200 to $300. While not an exact match to the information provided by the comment, the sales data in this article are comparable. --------------------------------------------------------------------------- Transactional reporting under section 6045 is generally necessary to allow taxpayers and the IRS to compare the gross proceeds taxpayers received in sales of certain property with the cost basis of that property. Because the cited statistics show that a substantial portion of non-financial NFT transactions are small dollar transactions for which taxpayers can more easily track their own cost basis, the Treasury Department and the IRS agree that the cost of transactional reporting for low-value non-financial NFTs may outweigh the benefits to taxpayers and the IRS. Accordingly, the final regulations have added a new optional alternative reporting method for sales of certain NFTs to allow for aggregate reporting instead of transactional reporting, with a de minimis annual threshold below which no reporting is required. Brokers that do not wish to build a separate system for NFTs eligible for aggregate reporting can report all NFT transactions under the transactional system. Additionally, brokers do not need to submit any form or otherwise make an election to report under this method and are not required to report under this optional method consistently from customer to customer or from year to year; however, the method chosen for a particular customer must be applied for the entire year for that customer's sales. Finally, to address the comment regarding the distinction between primary sales of NFTs that give rise to ordinary income and secondary sales of NFTs that give rise to gross proceeds, brokers choosing to report sales of NFTs under this optional method must report, to the extent ordinarily known, the portion of the total gross proceeds reported attributable to primary sales (that is, the first sale of the particular NFT). Given the statistics cited showing the relatively small average and median values for non-financial NFT transactions, numerous comments said these small purchases should not need to be reported and several comments recommended the application of a de minimis threshold below which reporting would not be required at all to alleviate reporting on an overwhelming majority of NFT sales. Some comments recommended the use of a per-transaction threshold with proposed thresholds ranging from $50 to $50,000, while other comments recommended an aggregate gross proceeds threshold, similar to the $600 threshold applicable under section 6050W(e), as most appropriate. Because some of these NFT sales are currently reportable under section 6050W, the Treasury Department and the IRS have concluded that it would be most appropriate to follow the same $600 reporting threshold applicable under that provision. Accordingly, the final regulations adopt an annual $600 de minimis threshold for each customer below which brokers reporting under the optional aggregate method are not required to report gross proceeds from these NFTs transactions. If the customer's total gross proceeds (after reduction for any allocable digital asset transaction costs) from sales of specified NFTs exceed $600 for the year, a broker may report those sales on an aggregate basis in lieu of reporting those sales under the transactional reporting rules. A broker reporting under this method must report on a Form 1099-DA (or any successor form) in the manner required by the form or instructions the following information with respect to the customer's sales of specified NFTs: (1) The name, address, and taxpayer identification number of the customer; (2) The aggregate gross proceeds for the year from all sales of specified NFTs (after reduction for the allocable digital asset transaction costs); (3) The total number of specified NFTs sold; and (4) Any other information required by the form or instructions. Additionally, a broker reporting under this method must report the aggregate gross proceeds that are attributable to the first sale by the creator or minter of the specified NFT to the extent the broker would ordinarily know that the transaction is the first sale of the specified NFT token by the creator or minter. It is anticipated that a broker would ordinarily know that the transaction is the first sale of the specified NFT by the creator or minter if the broker provided services to the creator or minter that enabled the creator to create (or minter to mint) the specified NFT. It is also anticipated that, to the extent a broker inquires whether the customer's sale of the specified NFT will be a first sale, that the broker would ordinarily know this information based on the customer's response. Brokers are not required to seek out such information from third party sources, such as a public blockchain or through blockchain analytics. The IRS intends to monitor NFTs reported under this optional aggregate [[Page 56509]] reporting method to determine whether this reporting hampers its tax enforcement efforts. If abuses are detected, the IRS will reconsider these special reporting rules for NFTs. For a discussion of how the backup withholding rules apply to payments falling below this de minimis threshold, see Part VI.B. of this Summary of Comments and Explanation of Revisions. See Part I.D.2.a. of this Summary of Comments and Explanation of Revisions for a discussion of how the de minimis threshold is applied to joint account holders. b. Specified nonfungible token In determining the specific subset of NFTs that should be eligible for this optional aggregate reporting method, the final regulations considered the comments received in favor of eliminating reporting on sales of certain types of NFTs. For example, one comment suggested the final regulations apply a ``use test'' to distinguish between NFTs that are used for investment purposes and those that are used for enjoyment purposes. The final regulations do not adopt this comment to define the subset of NFTs that are eligible for aggregate reporting because determining how a customer uses an NFTs would not be administratively feasible for most brokers. Another comment recommended that reporting should be required for those NFTs which (on a look through basis) reference assets that were previously subject to reporting under Sec. 1.6045-1 or otherwise could be used to deliver value, such as a method of payment. The Treasury Department and the IRS generally agree with the distinction made in this comment because brokers already must determine if an effected sale is that of a security, commodity, etc. under the definitions provided under the section 6045 regulations. Accordingly, making the determination that an asset referenced by an NFT fits within those same definitions--or otherwise references a digital asset other than an NFT--is administrable and should not create significantly more burden for brokers. Because both types of NFT can result in taxable income, however, the Treasury Department and the IRS disagree with the comment's conclusion that only NFTs that reference assets previously subject to broker reporting or otherwise could be used to deliver value should be subject to the final regulations. Instead, it is appropriate to require transactional reporting on sales of NFTs that reference previously reportable assets or otherwise could be used to deliver value and allow for aggregate reporting on sales of other NFTs. Accordingly, the final regulations under Sec. 1.6045-1(d)(10)(iii) permit optional aggregate reporting for specified NFTs that look to the character of the underlying assets, if any, referenced by the NFT. Under these rules, to constitute a specified NFT, the digital asset must be of the type that is indivisible (that is, the digital asset cannot be subdivided into smaller units without losing its intrinsic value or function) and must be unique as determined by the inclusion in the digital asset itself of a unique digital identifier, other than a digital asset address, that distinguishes that digital asset from all other digital assets. Final Sec. 1.6045-1(d)(10)(iv)(A) and (B). This means that the unique digital identifier is inherently part of the token itself and not merely referenced by the digital asset. Taken together, these requirements would exclude all fungible digital assets from the definition of specified NFTs, including the smallest units of such digital assets. The Treasury Department and the IRS considered whether the smallest units of fungible digital assets should be included in the definition of specified NFTs to the extent specialized off-chain software catalogs and indexes such units. The final regulations do not include such units in the definition of specified NFTs because, even if it was appropriate to include these assets in the definition of specified NFTs based on the application of off-chain software, the specialized off-chain software that catalogs and indexes such units, in fact, indexes every such unit regardless of whether the particular unit is trading separately or as part of a larger denomination of such digital asset. As a result, including these indexed digital assets in the definition would arguably result in larger denominations of a fungible digital asset being treated as combinations of multiple specified NFTs and thus subject to the optional aggregate reporting rule. Moreover, a definitional distinction that would ask brokers to look to the indexed units to determine if the indexed unit has any value separate from the fungible asset value would be difficult for brokers to administer. In addition to satisfying these two criteria associated with the nonfungibility of the digital asset itself, to be a specified NFT, the digital asset must not directly (or indirectly through one or more other digital assets that also satisfy the threshold nonfungibility tests) provide the holder with an interest in certain excluded property. Excluded property generally includes assets that were previously subject to reporting under Sec. 1.6045-1 of the pre-2024 final regulations or any digital asset that does not satisfy either of the two criteria. Specifically, excluded property is defined as any security as defined in final Sec. 1.6045-1(a)(3), commodity as defined in final Sec. 1.6045-1(a)(5), regulated futures contract as defined in final Sec. 1.6045-1(a)(6), or forward contract as defined in final Sec. 1.6045-1(a)(7). Finally, excluded property includes any digital asset that does not satisfy the two threshold nonfungibility tests, such as a qualifying stablecoin or other non-NFT digital assets. In contrast, a digital asset that satisfies the two criteria and references or provides an interest in a work of art, sports memorabilia, music, video, film, fashion design, or any other property or services (non-excluded property) other than excluded property is a specified NFT that is eligible for the optional aggregate reporting rule under the final regulations. An NFT that constitutes a security or commodity or other excluded property is an interest in excluded property for this purpose. Additionally, by excluding any NFT that provides the holder with any interest in excluded property from the definition of specified NFTs, an NFT that provides an interest in both excluded property and non-excluded property will not be included in the definition of specified NFT. This result lets brokers avoid having to undertake burdensome valuations with respect to NFTs that reference more than one type of property. While several comments indicated that it would be administratively feasible for brokers to review each NFT to determine the nature of the underlying assets, one comment requested the adoption of a presumption test that would treat an NFT as an interest in financial assets unless the broker categorizes it otherwise. The Treasury Department and the IRS have concluded that a presumption rule for distinguishing between NFTs that is based on whether a broker chooses to categorize the underlying assets could potentially lead to abuse. Brokers that find it too difficult to determine the nature of assets referenced by NFTs can choose not to use the optional aggregate reporting method for NFTs. Accordingly, the final regulations do not adopt this presumption rule. 4. Reporting Rules for PDAP Sales As discussed in Part I.B.2. of this Summary of Comments and Explanation of Revisions, the Treasury Department and the IRS have [[Page 56510]] determined that it is appropriate to permit some reporting relief for small PDAP sale transactions. Several comments offered alternatives to reporting on payment transaction sales to reduce the reporting burden of PDAPs. For example, several comments suggested exempting PDAPs from the requirement to report cost basis because PDAPs have no visibility into the customer's cost basis. The final regulations do not make any changes to address this comment because neither the proposed regulations nor the final regulations require PDAPs to report cost basis precisely because it is the understanding of the Treasury Department and the IRS that these brokers may not currently have any way to know the customer's cost basis. Numerous comments recommended against any reporting of payments processed by PDAPs on purchases of common, lower-cost items such as a cup of coffee or ordinary consumer goods. Other comments recommended that the final regulations adopt a de minimis threshold for these purchases to reduce the overall reporting burden for these brokers. Another comment asserted that the changes made by the Infrastructure Act to section 6050I (requiring trades or businesses to report the receipt of more than $10,000 in cash including digital assets) shows that Congress did not intend for section 6045 to capture lower-value digital asset purchase transactions. Another comment suggested that the potential revenue loss involving most purchases is extremely low and that using digital assets to make everyday purchases is not a realistic means of tax avoidance. This comment noted that the digital assets that are used to purchase daily items are stablecoins that do not ordinarily fluctuate in value. Another comment suggested a per transaction de minimis threshold for reporting on payments equal to the $10,000 threshold in section 6050I or the $50,000 threshold in the CARF. Another comment suggested that the de minimis threshold should match the annual threshold under section 6050W, though this comment also noted that this $600 threshold amount was too low. Another comment recommended a per-transaction threshold for purchases over $500 (adjusted for inflation), but also recommended, if this de minimis rule is adopted, that taxpayers be reminded in the instructions to Forms 1040 and 1099-DA that they still must report the gains and losses from these unreported payment transactions. As discussed in Parts I.A.1. and I.D.2. of this Summary of Comments and Explanation of Revisions, the final regulations adopt an optional $10,000 overall annual de minimis threshold for qualifying stablecoin sales and permit sales over this amount to be reported on an aggregate basis rather than on a transactional basis. This $10,000 annual threshold applies to PDAPs who choose to report qualifying stablecoin transactions under this optional method. Accordingly, given the comment that digital asset purchase transactions often are made using stablecoins, many purchases made using the services of PDAPs will not be reported due to the application of that de minimis threshold for payment transactions. This sizable overall annual threshold for payments made using qualifying stablecoins is appropriate because taxpayers are unlikely to have significant (if any) unreported gains or losses from these payment transactions that fall below the $10,000 threshold. In contrast, as suggested by one comment, allowing for a de minimis threshold for digital assets other than qualifying stablecoins that are more likely to give rise to significant gains and losses likely would not be helpful to taxpayers who use them. This is because they would have to separately account for their payment transactions below the threshold to accurately report their gains and losses from these transactions for which they would not receive an information return. Moreover, because many PDAP transactions involve transactions in which the digital assets are first exchanged for cash before that cash is transmitted to the merchant, a high threshold for these transactions could create an incentive for taxpayers to dispose of their highly appreciated digital assets by way of payments just to avoid tax reporting. Notwithstanding these concerns, if a given taxpayer engages in relatively low-value payment transactions involving digital assets other than qualifying stablecoins, reporting to the IRS may not be as important in overcoming the overall income tax gap as the burden it would impose on PDAPs. Accordingly, after balancing these competing concerns, the Treasury Department and the IRS have concluded that an annual de minimis threshold of $600 would be appropriate for PDAP sales under final Sec. 1.6045-1(a)(9)(ii)(D) because that threshold is similar to the threshold under sections 6041, 6041A, and 6050W(e) of the Code, thereby reflecting the balance between accurate tax reporting and information reporting requirements imposed on brokers that Congress thought appropriate. Additionally, this overall threshold for PDAP sales should be more administrable because PDAPs would not have to adopt processes to monitor structuring activities used by customers to evade reporting. See, e.g., Sec. 1.6050I-1(c)(1)(ii)(B)(2) (treating an instrument as cash where the recipient knows that it is being used to avoid reporting). Under this threshold, PDAPs would not have to report PDAP sales of digital assets with respect to a customer if those sales did not exceed $600 for the year. If a customer's PDAP sales exceed $600 for the year, all of that customer's sales would be reportable under the general transactional reporting rules, because customers need that reporting to identify taxable dispositions of digital assets. Additionally, to avoid having to apply multiple de minimis thresholds to the same digital assets, the de minimis threshold for PDAP sales only applies to digital assets other than qualifying stablecoins or specified NFTs. Thus, for example, if a customer has PDAP sales of $9,000 using qualifying stablecoins and PDAP sales of $500 using digital assets other than qualifying stablecoins (or specified NFTs) for a particular year, the PDAP should apply the $600 threshold for the second set of PDAP sales to eliminate the reporting obligation on the PDAP sales of $500. Under these facts, the PDAP would not be required to report any of the customer's digital asset transactions for the year. In the case of a joint account, final Sec. 1.6045-1(d)(2)(i)(C) provides a rule (by cross-reference to final Sec. 1.6045-1(d)(10)(v)) for the broker to determine which joint account holder will be the customer for purposes of determining whether the customer's combined gross proceeds for all accounts owned exceed the $600 de minimis threshold. See Part I.D.3.a. of this Summary of Comments and Explanation of Revisions for a discussion of how the de minimis threshold is applied to joint account holders. Finally, because a sale under final Sec. 1.6045-1(a)(9)(ii)(A) through (C) that is effected by brokers holding custody of the customer's digital assets or acting as the counterparty to the sale could also be structured to meet the definition of a PDAP sale effected by that broker, final Sec. 1.6045-1(a)(9)(ii)(D) provides that any PDAP sale that is also a sale under one of the other definitions of sale under final Sec. 1.6045-1(a)(9)(ii)(A) through (C) (non-PDAP sale) that would be subject to reporting due to the broker effecting the sale as a broker other than as a PDAP must be treated as a non-PDAP sale. Thus, if a customer instructs a custodial broker to exchange digital asset A for digital asset B, and that broker executes the transaction by [[Page 56511]] transferring payment (digital asset A) to a second person that is also a customer of that broker, the sale will be treated as a sale under Sec. 1.6045-1(a)(9)(ii)(A)(2), not as a PDAP sale and not eligible for the $600 de minimis threshold. Similarly, if a PDAP, acting as an agent to a buyer of merchandise, receives digital assets from that buyer along with instructions to exchange those digital assets for cash to be paid to a merchant, the sale will be treated as a sale under Sec. 1.6045-1(a)(9)(ii)(A)(1) and not as a PDAP sale. If, in this last example, the PDAP exchanges the digital assets received from the buyer for cash as an agent to the merchant and not the buyer, then the sale will be treated as a PDAP sale because the sale under Sec. 1.6045- 1(a)(9)(ii)(A)(1) would not be subject to reporting by the broker, but for the broker being a PDAP. E. Determining Gross Proceeds and Adjusted Basis In defining gross proceeds and initial basis in a sale transaction, the proposed information reporting regulations generally followed the substantive tax rules under proposed Sec. 1.1001-7(b) for computing the amount realized from transactions involving the sale or other disposition of digital assets and the substantive rules under proposed Sec. 1.1012-1(h) for computing the basis of digital assets received in transactions involving the purchase or other acquisition of digital assets. In addition, the proposed information reporting regulations generally followed the substantive tax rules proposed in Sec. Sec. 1.1001-7(b) and 1.1012-1(h)(3) for determining the fair market value of property or services received or transferred by the customer in an exchange transaction involving digital assets. 1. Valuation Issues Under longstanding legal principles, the value of property exchanged for other property received ordinarily should be equal in value. Under these principles, in an exchange of property, both the amount realized on the property transferred and the basis of the property received in an exchange, ordinarily are determined by reference to the fair market value of the property received. See, e.g., United States v. Davis, 370 U.S. 65 (1962); Philadelphia Park Amusement Co. v. United States, 126 F. Supp. 184 (Ct. Cl. 1954); Rev. Rul. 55- 757, 1955-2 C.B. 557. The proposed rules under proposed Sec. 1.6045-1 generally followed these substantive rules for determining fair market value of property or services received by the customer in an exchange transaction involving digital assets. Specifically, proposed Sec. 1.6045- 1(d)(5)(ii)(A) provided that in determining gross proceeds, the fair market value should be measured as of the date and time the transaction was effected. Additionally, except in the case of services giving rise to digital asset transaction costs, to determine the fair market value of services or property (including different digital assets or real property) paid to the customer in exchange for digital assets, proposed Sec. 1.6045-1(d)(5)(ii)(A) provided that the broker must use a reasonable valuation method that looks to contemporaneous evidence of value of the services, stored-value cards, or other property. In contrast, because the value of digital assets used to pay for digital asset transaction costs is likely to be significantly easier to determine than any other measure of the value of services giving rise to those costs, the proposed regulations provided that brokers must look to the fair market value of the digital assets used to pay for digital asset transaction costs in determining the fair market value of services (including the services of any broker or validator involved in executing or validating the transfer) giving rise to those costs. In the case of one digital asset exchanged for a different digital asset, proposed Sec. 1.6045-1(d)(5)(ii)(A) provided that the broker may rely on valuations performed by a digital asset data aggregator using a reasonable valuation method. For this purpose, the proposed regulations provided that a reasonable valuation method looks to the exchange rate and the U.S. dollar valuations generally applied by the broker effecting the exchange as well as other brokers, taking into account the pricing, trading volumes, market capitalization, and other relevant factors in conducting the valuation. Proposed Sec. 1.6045- 1(d)(5)(ii)(C) also provided that a valuation method is not a reasonable method if the method over-weighs prices from exchangers that have low trading volumes, if the method under-weighs exchange prices that lie near the median price value, or if it inappropriately weighs factors associated with a price that would make that price an unreliable indicator of value. Additionally, proposed Sec. 1.6045- 1(d)(5)(ii)(B) provided that the broker must look to the fair market value of the services or property received if there is a disparity between the value of the services or property received and the value of the digital asset transferred in a digital asset exchange transaction. However, if the broker reasonably determines that the value of services or property received cannot be valued with reasonable accuracy, proposed Sec. 1.6045-1(d)(5)(ii)(B) provided that the fair market value of the received services or property must be determined by reference to the fair market value of the transferred digital asset. Finally, proposed Sec. 1.6045-1(d)(5)(ii)(B) provided that the broker must report an undeterminable value for gross proceeds from the transferred digital asset if the broker reasonably determines that neither the digital asset nor the services or other property exchanged for the digital asset can be valued with reasonable accuracy. The Treasury Department and the IRS solicited comments on: (1) whether the fair market value of services giving rise to digital asset transaction costs (including the services of any broker or validator involved in executing or validating the transfer) should be determined by looking to the fair market value of the digital assets used to pay for the transaction costs, and (2) whether there are circumstances under which an alternative valuation rule would be more appropriate. The responses to these inquiries varied. One comment agreed that using the fair market value of the digital assets used as payment would be the most feasible and easily attainable means of valuing such services. A few comments stated the proposed approach would be problematic, because: (1) market prices of digital assets are highly volatile, not always reflecting the actual economic value of the services rendered, and (2) the reliance on the fair market value of the digital assets, instead of the services rendered, would be inconsistent with longstanding legal principles, resulting in significant compliance costs and recordkeeping burdens. Instead, the comments recommended that the Treasury Department and the IRS develop and re-propose alternative valuation metrics. Another comment recommended that the fair market value of the services giving rise to digital asset transaction costs should be based on the contracted price agreed to by the parties. Another comment stated that these questions rested on an improper assumption that transaction fees should be or can be calculated at a market value. This comment recommended that the final rules provide taxpayers and brokers with the option of determining the value of such services using the acquisition cost of the digital assets used as payment. One comment advised that many digital assets do not have easily ascertainable fair market values, particularly when involving services, [[Page 56512]] other digital assets, or non-standard forms of consideration. The final regulations do not adopt the recommendations for alternative valuation approaches. As noted, except in the case of services giving rise to digital asset transaction costs, the proposed regulations required that brokers look to the value of services or property received by the customer in exchange for transferred digital assets in determining gross proceeds. Only when the services or property received cannot be valued does the broker need to look to the fair market value of the transferred digital assets. For broker services giving rise to digital asset transaction costs, the proposed regulations required brokers to look to the fair market value of the digital assets used to pay for digital asset transaction costs because it is likely to be significantly easier for brokers to determine the value of the transferred digital assets than it is to value their services. These valuation rules are reasonable and appropriate because they are consistent with United States v. Davis, 370 U.S. 65 (1962); Philadelphia Park Amusement Co. v. United States, 126 F. Supp. 184 (Ct. Cl. 1954); Rev. Rul. 55-757, 1955-2 C.B. 557, discussed previously in this Part I.E.1. The proposed alternatives do not conform with these authorities. Additionally, these rules provide practical approaches for brokers to use that are less burdensome than a rule requiring a case- specific valuation of services or other property, particularly for digital asset brokers who likely have more experience valuing digital assets transferred. Several comments stated that brokers would need more detailed guidance on how to determine fair market value in digital asset transactions, including the reasonable methods brokers can use for assigning U.S. dollar pricing to each unique transaction. This comment recommended allowing brokers to choose a reasonable pricing methodology that is convenient for them. For example, this comment noted that it is standard industry practice today to use a daily volume weighted average price (VWAP) to value. Another comment recommended establishing a safe harbor rule that would allow a digital asset's price any time during the date of sale to be used to report gross proceeds. The final regulations do not adopt these comments because the suggested approaches are not consistent with existing case law and IRS guidance as the determination of fair market value must generally be determined at the time of the transaction. See Cottage Savings Association v. Commissioner, 499 U.S. 554 (1991). 2. Allocation of Digital Asset Transaction Costs Proposed Sec. 1.6045-1(d)(5)(iv) and (d)(6)(ii)(C)(2) followed the substantive tax rules provided under proposed Sec. Sec. 1.1001-7(b) and 1.1012-1(h) for allocating amounts paid to effect the disposition or acquisition of a digital asset (digital asset transaction costs). Specifically, these rules generally provided that in the case of a sale or disposition of digital assets, the total digital asset transaction costs paid by the customer are generally allocable to the disposition of the digital assets. Conversely, in the case of an acquisition of digital assets, the total digital asset transaction costs paid by the customer are generally allocable to the acquisition of the digital assets. The rules also provided an exception in an exchange of one digital asset for another digital asset differing materially in kind or in extent. In that case, the proposed regulations allocated one-half of any digital asset transaction cost paid by the customer in cash or property to effect the exchange to the disposition of the transferred digital asset and the other half to the acquisition of the received digital asset (the split digital asset transaction cost rule). As is discussed in Part II.B.1. of this Summary of Comments and Explanation of Revisions, many comments were received raising several concerns with the split digital asset transaction cost rule. For the reasons discussed in that Part, the final Sec. Sec. 1.1001-7(b) and 1.1012- 1(h) include revised rules to instead allocate 100 percent of the digital asset transaction costs to the disposition of the transferred digital asset in the case of an exchange of one digital asset for another digital asset differing materially in kind or in extent. Correspondingly, the final Sec. 1.6045-1(d)(5)(iv)(B) and (d)(6)(ii)(C)(2) include revised rules to follow the final substantive tax rules and now require 100 percent of the digital asset transaction costs to be allocated to the disposition of the transferred digital asset in the case of an exchange of one digital asset for another digital asset differing materially in kind or in extent. Comments were also received expressing concern in the case of digital asset transaction costs imposed on dispositions of digital assets used to pay those costs (cascading digital asset transaction costs). As discussed in Part II.B.4. of this Summary of Comments and Explanation of Revisions, the substantive rules have been revised to respond to these comments, and final Sec. 1.6045-1(d)(5)(iv)(C) correspondingly provides that, in the case of a sale of digital assets in exchange for different digital assets, for which the acquired digital assets are withheld to pay the digital asset transaction costs to effect the original transaction, the total digital asset transaction costs paid by the customer to effect both the original transaction and any dispositions of digital assets to pay such costs are allocable exclusively to the original transaction. Final Sec. 1.1012- 1(h)(2)(ii)(C) includes a similar rule. Additionally, final Sec. 1.6045-1(d)(6)(ii)(C)(2) follows this rule by cross referencing the rules at final Sec. 1.6045-1(d)(5)(iv)(C). 3. Ordering Rules a. Adequate Identification of Digital Assets The proposed information reporting regulations provided ordering rules for a broker to determine which units of the same digital asset should be treated as sold when the customer previously acquired, or had transferred in, multiple units of that same digital asset on different dates or at different prices by cross referencing the identification rules in the proposed substantive tax law regulations. Specifically, proposed Sec. 1.1012-1(j)(3)(ii) provided that the taxpayer can make an adequate identification of the units sold, disposed of, or transferred by specifying to the broker, no later than the date and time of sale, disposition, or transfer, the particular units of the digital asset to be sold, disposed of, or transferred by reference to any identifier (such as purchase date and time or purchase price paid for the units) that the broker designates as sufficiently specific to allow it to determine the basis and holding period of those units. The units so identified, under the proposed regulations, are treated as the units of the digital asset sold, disposed of, or transferred to determine the basis and holding period of such units. This identification must also be taken into consideration in identifying the taxpayer's remaining units of the digital asset for purposes of subsequent sales, dispositions, or transfers. Identifying the units sold, disposed of, or transferred solely on the taxpayer's books or records is not an adequate identification of the digital assets if the assets are held in the custody of a broker. To make the final regulations more accessible for brokers, the final regulations set forth the identification rules in final Sec. 1.6045-1(d)(2)(ii)(B) as well as in final Sec. 1.1012-1(j)(3) for taxpayers. A few comments criticized proposed Sec. 1.1012-1(j)(3)(i) for requiring [[Page 56513]] an adequate identification of digital assets held in the custody of brokers to be made no later than the date and time of the transaction. One comment advised that the proposed rule would provide less flexibility than currently allowed for making an adequate identification of stock under Sec. 1.1012-1(c)(8). The limited flexibility, the comment warned, would pose as ``a trap for the unwary'' for some taxpayers. The final regulations do not adopt these comments. On the contrary, the volatile nature of digital assets and their markets makes the timing requirement necessary. The proposed rule is analogous to Sec. 1.1012-1(c)(8) because settlement for securities takes place one or more days after a trade while the settlement period for digital asset transactions is typically measured in minutes. In both cases, a specific identification must be made before the relevant asset is delivered for settlement. Accordingly, the Treasury Department and the IRS have determined that the timing requirement for adequate identifications does not pose an undue burden on taxpayers, and the final rules retain the principles set forth in proposed Sec. 1.1012- 1(j)(3)(i). One comment recommended that the final rules adopt a more flexible, principles-based approach for identifying digital assets held in the custody of brokers that would allow brokers the flexibility to implement basis identification in a manner that fits their particular systems and business models, so long as the end result provides sufficient transparency and accuracy. The Treasury Department and the IRS have determined that a uniform rule is preferable to the proposed discretionary rule because of administrability concerns and because it does not result in an undue burden for brokers. As a result, the Treasury Department and the IRS do not adopt this recommendation. A few comments recommended the inclusion of a rule allowing taxpayers to make adequate identifications by standing orders so taxpayers would be able to make these identifications using a predetermined set of parameters rather than making them on a per- transaction basis, for example, uniformly identifying the highest cost or closest cost basis available. The final regulations adopt this recommendation. Accordingly, final Sec. Sec. 1.1012-1(j)(3)(ii) and 1.6045-1(d)(2)(ii)(B)(2) include a rule allowing taxpayers to use a standing order or instruction to make adequate identifications. Another comment requested guidance on whether a taxpayer would be treated as having made an adequate identification under proposed Sec. 1.1012-1(j)(3)(ii) if the notified broker is only able to offer one method by which identifications can be made for units of a digital asset held in the broker's custody. The final regulations adopt a clarification pursuant to this comment. Accordingly, in the case of a broker who only offers one method by which a taxpayer may make a specific identification for units of a digital asset held in the broker's custody, final Sec. Sec. 1.1012-1(j)(3)(ii) and 1.6045- 1(d)(2)(ii)(B)(2) treat such method as a standing order or instruction for the specific identification of the digital assets, and thus as an adequate identification unless the special rules in final Sec. Sec. 1.1012-1(j)(3)(iii) and 1.6045-1(d)(2)(ii)(B)(3) apply. Another comment requested clarification on whether an email sent by a taxpayer would satisfy the broker-notification requirement of proposed Sec. 1.1012-1(j)(3)(ii). The Treasury Department and the IRS have determined that it would be most appropriate to allow brokers the discretion to determine the forms by which a notification can or must be made and whether a particular type of notification, by email or otherwise, is sufficiently specific to identify the basis and holding period of the sold, disposed of, or transferred units. Accordingly, to provide brokers with maximum flexibility, the final regulations do not adopt a rule concerning the form of the notification. A few comments recommended against the proposed regulations' use of similar ordering rules for digital assets as apply to stocks because blockchains are uniquely different from traditional financial systems. The final regulations do not adopt this comment. Although some digital assets may differ in certain ways from other asset classes, the Treasury Department and the IRS have concluded that the proposed ordering rules provide the most accurate methodology to determine basis and holding period of digital assets. As discussed in Part VI.C. of this Summary of Comments and Explanation of Revisions, the final regulations add a default specific identification rule to avoid the need to separately report and backup withhold on certain units withheld in a transaction to pay other costs. In particular, in a transaction involving the sale of digital assets in exchange for different digital assets and for which the broker withholds units of the digital assets received in the exchange to pay the customer's digital asset transaction costs or to satisfy the broker's obligation under section 3406 to deduct and withhold a tax with respect to the underlying transaction, final Sec. Sec. 1.1012- 1(j)(3)(iii) and 1.6045-1(d)(2)(ii)(B)(3) provide that the withheld units when sold will be treated as coming from the units received regardless of any other adequate identification (including standing order) to the contrary. This special default specific identification rule ensures that the disposition of the withheld units will not give rise to gain or loss. Final Sec. 1.6045-1(c)(3)(ii)(C) provides that the units that are so withheld for the purpose of paying the customer's digital asset transaction costs are exempt from reporting, thus minimizing the burden on brokers who would have to otherwise report on this low value (and no gain or loss) transaction and any other further withheld units to pay for cascading transaction fees that do not give rise to gains or losses. As discussed in Part VI.C. of this Summary of Comments and Explanation of Revisions, although units that are so withheld for the purpose of satisfying the broker's obligation under section 3406 to deduct and withhold a tax with respect to the underlying transaction also do not give rise to gain or loss, final Sec. 1.6045- 1(c)(3)(ii)(D) provides that these units are only exempt from reporting if the broker sells the withheld units for cash immediately after the underlying sale. The latter limitation was added to the reporting exemption to decrease the valuation risks of units withheld for the purpose of satisfying the broker's backup withholding obligations. See Part VI.B. of this Summary of Comments and Explanation of Revisions, for a more detailed discussion of these valuation risks. b. No Identification of Units Made In cases where a customer does not provide an adequate identification by the date and time of sale, proposed Sec. 1.6045- 1(d)(2)(ii)(B) provided that the broker should treat the units of the digital asset that are sold as the earliest units of that type of digital asset that were either purchased within or transferred into the customer's account with the broker. The proposed regulations provided that units of a digital asset are treated as transferred into the customer's account as of the date and time of the transfer. Numerous comments raised concerns with the rule requiring brokers to treat units transferred into the customer's account as if they were purchased on the transfer-in date without regard to whether the customer provided the broker with actual purchase date information because it is inconsistent [[Page 56514]] with the default identification rule, which requires that the units sold be based on actual purchase dates. As such, these comments noted, the rule will disrupt the reasonable expectations of brokers and customers that make a good faith effort to track lots and basis to have lot identifications align. Additionally, one comment raised the concern that this ordering rule would force custodial brokers to keep track of multiple acquisition dates for customers, one for broker ordering purposes and another for the customer's cost-basis purposes. Another comment recommended that exceptions to the ordering rule be made to enhance accuracy, align tax treatment with real-world transactions, and minimize reporting errors. One comment recommended allowing brokers the option of applying the existing first-in-first-out (FIFO) rules for securities brokers, provided they do so consistently. For a discussion of the FIFO rules, see Part II.C.3. of this Summary of Comments and Explanation of Revisions. That is, until rules under section 6045A rules are in place, this comment recommended that the final regulations allow brokers to rely upon records generated in the ordinary course of the broker's business that evidence the customer's actual acquisition date for a digital asset, either because another broker provided that information or the customer provided it upon transfer, unless the broker knows that information is incorrect. The Treasury Department and the IRS solicited comments on whether there were any alternatives to requiring that the ordering rules for digital assets left in the custody of a broker be followed on an account-by-account basis, for example, if brokers have systems that can otherwise account for their customers' transactions. Several comments advised against the adoption of account-based ordering rules, viewing such rules as imposing unnecessary costs and technical challenges, impeding industry innovation, and ignoring the current industry practice of using omnibus accounting structures or transaction aggregation. Instead, these comments recommended the adoption of discretionary ordering rules for digital assets left in the custody of brokers that would allow brokers to decide how to track and report the basis of these digital assets. Another comment recommended that the final rules adopt a more flexible, principles-based approach for digital assets in the custody of a broker that would allow brokers the flexibility to implement basis identification in a manner that fit their systems and business models, so long as the result provides sufficient transparency and accuracy. Another comment recommended that brokers be allowed to apply more flexible ``lot-relief'' ordering rules. Another comment recommended that the final rules require the consistent application of a uniform rule for identifying digital assets in the custody of a broker. Consistency, the comment advised, would be key to maintaining the integrity of cost basis for transfers of digital assets in the custody of a broker between brokers and eliminating the need for taxpayers to reconcile discrepancies. The final regulations do not adopt the recommendations to provide brokers with the discretion to implement their preferred ordering rules for digital assets in the custody of brokers. The Treasury Department and the IRS have determined that a uniform rule is preferable to the proposed discretionary rule because of administrability concerns and because having all brokers follow a single, consistent method does not result in an undue burden for brokers. Numerous comments requested that the final regulations provide safe harbor penalty relief to brokers that rely on reasonably reliable outside data that supplies purchase-date information. In this regard, several comments noted that the aggregation market offers software solutions to track digital assets as they move through the blockchain ecosystem, thus enabling these aggregators to keep meticulous records of taxpayers' digital asset tax lots. Accordingly, these comments opined that purchase date information from these aggregators constitutes reasonably reliable purchase-date information. Although one comment suggested that any information provided by a customer should be considered reasonably reliable, other comments had more specific suggestions, such as email purchase/trade confirmations from other brokers or immutable data on a public distributed ledger. Other comments suggested that brokers should also be allowed to consider purchase date information received from independent third parties, such as official platform records from recognized digital asset trading platforms, because these records are typically subject to regulatory oversight and verification. Another comment recommended that brokers be allowed to rely upon records audited by reputable third party firms that undergo rigorous verification processes as well as information from any government-approved source or tax authority. The Treasury Department and the IRS have determined that inconsistencies between broker records and customer records regarding digital asset lots in the custody of a broker may give rise to complexities and reporting inaccuracies. Accordingly, final Sec. 1.6045-1(d)(2)(ii)(B)(4) provides that a broker may take into account customer-provided acquisition information for purposes of identifying which units are sold, disposed of, or transferred under the identification rules. Customer-provided acquisition information is defined as reasonably reliable information, such as the date and time of acquisition units of a digital asset, provided to the broker by a customer or the customer's agent no later than the date and time of a sale, disposition, or transfer. Reasonably reliable information for this purpose includes purchase or trade confirmations at other brokers or immutable data on a public distributed ledger. A broker that takes into account customer-provided acquisition information for purposes of identifying which units are sold, disposed of, or transferred is deemed to have relied upon this information in good faith if the broker neither knows nor has reason to know that the information is incorrect for purposes of the information reporting penalties under sections 6721 and 6722. This penalty relief does not apply, however, to a broker who takes into account customer-provided acquisition information for purposes of voluntarily reporting the customer's basis. The Treasury Department and the IRS, notwithstanding, plan to study further the types of information that could be included in customer-provided acquisition information to determine if certain information is sufficiently reliable to permit reporting the customer's basis. Finally, it should be noted that, although taxpayers may in some cases be entitled to penalty relief from reporting incorrect amounts on their Federal income tax returns due to reasonable cause reliance on information included on a Form 1099, this relief would not be permitted to the extent the information included on that Form is due to incomplete or incorrect customer-provided acquisition information. Final Sec. 1.6045-1(d)(2)(i)(B)(8) requires brokers to report on whether they relied upon such customer-provided acquisition information in identifying the unit sold to alert customers and the IRS that the information supplied on the Form 1099-DA is, in part, based on customer-provided acquisition information described in final Sec. 1.6045-1(d)(2)(ii)(B)(4). Under this rule, if the broker takes into account customer- [[Page 56515]] provided acquisition information in determining which unit was sold, the broker must report that it has done so, regardless of whether information on the particular unit sold was derived from the broker's own records or from the customer or its agent. The Treasury Department and the IRS anticipate that brokers will likely identify all units sold as relying on customer-provided acquisition information for customers that regularly transfer digital assets to that broker and provide that broker with customer-provided acquisition information. Final Sec. 1.6045-1(d)(2)(ii)(B) revises the rule in proposed Sec. 1.6045-1(d)(2)(ii)(B) for the identification of the digital asset unit sold so that it also applies to dispositions and other transfers as well as sales because brokers need clear identification rules for these transactions to ensure they have the information they need about the digital assets that are retained in the customer's account. Additionally, the final regulations add a rule to accommodate the unlikely circumstance in which the broker does not have any transfer-in date information about the units in the broker's custody--such as could be the case if the broker's transfer-in records are destroyed and the broker has not received any reasonably reliable acquisition date information from the customer or the customer's agent. Addressing that circumstance, final Sec. 1.6045-1(d)(2)(ii)(B)(1) provides that in cases in which the broker does not receive an adequate identification of the units sold from the customer by the date and time of the sale, disposition, or transfer, and in which the broker does not have adequate transfer-in date records and does not have or take into account customer-provided acquisition information, the broker must first report the sale, disposition, or transfer of units that were not acquired by the broker for the customer. Thereafter, the broker must treat units as sold, disposed of, or transferred in order of time from the earliest date on which units of the same digital asset were acquired by the customer. A broker may take into account customer- provided acquisition information described in final Sec. 1.6045- 1(d)(2)(ii)(B)(4) to determine when units of a digital asset were acquired by the customer if the broker neither knows nor has reason to know that the information is incorrect. For this purpose, unless the broker takes into account customer-provided acquisition information, the broker must treat units of a digital asset that are transferred into the customer's account as acquired as of the date and time of the transfer. Finally, while it is inevitable that some customers will fail to provide their brokers with reasonably reliable acquisition information or that brokers will decline in some circumstances to rely upon customer-provided acquisition information, customers nonetheless can avoid lot identification inconsistencies by adopting a fallback standing order to track lots in a manner consistent with the broker's tracking requirements. Finally, one comment requested that the final regulations set forth the procedures the IRS will follow when a broker's reported cost basis amount does not match the cost basis reported by customers due to lot identification inconsistences. The final regulations do not adopt this comment as being outside the scope of these regulations. F. Basis Reporting Rules Section 6045(g) requires a broker that is otherwise required to make a return under section 6045(a) with respect to covered securities to report the adjusted basis with respect to those securities. Under section 6045(g)(3)(A), a covered security is any specified security acquired on or after the acquisition applicable date if the security was either acquired through a transaction in the account in which the security is held or was transferred to that account from an account in which the security was a covered security, but only if the broker received a transfer statement under section 6045A with respect to that security. Because rulemaking under section 6045A with respect to digital assets was not proposed, much less finalized, the proposed regulations limited the definition of a covered security for purposes of digital asset basis reporting to digital assets that are acquired in a customer's account by a broker providing hosted wallet services (that is, custodial services for such digital assets). Accordingly, under the proposed regulations, mandatory basis reporting was only required for sales of digital assets that were previously acquired, held until sale, and then sold by a custodial broker for the benefit of a customer. One comment raised the concern that brokers do not have access to cost-basis information with respect to transactions that are effected by other brokers. This comment recommended that the final regulations delay requiring brokers to report adjusted basis until the purchase information sharing mechanism under section 6045A is implemented. The proposed regulations did not require basis reporting for sale transactions effected by custodial brokers of digital assets that were not previously acquired by that broker in the customer's account. Accordingly, the final regulations do not adopt this comment. However, a clarification has been made to final Sec. 1.6045-1(d)(2)(i)(D) in order to avoid confusion on this point. Section 80603(b)(1) of the Infrastructure Act added digital assets to the list of specified securities for which basis reporting is specifically required and provided that a digital asset is a covered security if it is acquired on or after January 1, 2023 (the acquisition applicable date for digital assets). Based on this specific authority provided by the Infrastructure Act, the proposed regulations provided that for each sale of a digital asset that is a covered security for which a broker is required to make a return of information, the broker must also report the adjusted basis of the digital asset sold, the date and time the digital asset was purchased, and whether any gain or loss with respect to the digital asset sold is long-term or short-term (within the meaning of section 1222 of the Code). Additionally, proposed Sec. 1.6045-1(a)(15)(i)(J) modified the definition of a covered security for which adjusted basis reporting would be required to include digital assets acquired in a customer's account on or after January 1, 2023, by a broker providing hosted wallet services. Several comments raised the concern that adjusted basis reporting for digital assets acquired before the applicability date of the regulations would make accurate reporting of adjusted basis difficult and, in some cases, impossible. These comments instructed that, to accurately track the adjusted basis of digital assets in an account, brokers need not only purchase price information but also clear lot ordering rules to be sure that the basis of a digital asset sold is removed from the basis pool of the digital assets remaining in the account. Additionally, these comments noted that, the basis reported to customers will not be accurate unless customers applied the same lot ordering rules. The comments also indicated that taxpayers do not have the means to provide brokers with adequate identification of shares they previously sold. Thus, while brokers likely have information about digital assets acquired on or after January 1, 2023, because there were no clear ordering rules in place for transactions that took place on or after January 1, 2023, brokers will not know which lots their customers previously reported as sold between January 1, 2023 and the January 1, 2026 date their systems are in place to allow for cost-basis reporting under these final regulations. Thus, [[Page 56516]] brokers do not have the information necessary to track the basis of the digital assets that remain in the customer's account. Several comments also raised the concern that brokers need time, not only to capture the original cost basis for digital asset lots and to build systems to track adjusted basis of digital assets consistent with the ordering rules in the final regulations, but also to build systems capable of performing complex adjustments for gifting and other blockchain events. While one comment indicated that the earliest that brokers could implement adjusted basis tracking is January 1, 2025, other comments stated that brokers should not be required to start building (or revising existing systems) until these regulations are final. Accordingly, these comments recommended aligning the acquisition applicable date for digital assets with the proposed January 1, 2026, applicable date for basis reporting to allow digital asset brokers to build basis reporting systems and basis tracking systems at the same time. The Treasury Department and the IRS considered these comments. Despite the critical value of adjusted basis tracking and reporting to the broker's customers and to overall tax administration, the final regulations adopt the recommendation made by these comments to align the acquisition applicable date for digital assets with the January 1, 2026, applicability date for adjusted basis reporting. The Treasury Department and the IRS, however, strongly encourage brokers to work with their customers who, as described in Part II.C.2. of this Summary of Comments and Explanation of Revisions, are subject to the new ordering rules for transactions beginning on or after January 1, 2025, to facilitate an earlier transition to these new basis tracking rules to the extent possible. The proposed regulations required adjusted basis reporting for sales of digital assets treated as covered securities and for non- digital asset options and forward contracts on digital assets only to the extent the sales are effected on or after January 1, 2026, in order to allow brokers additional time to build appropriate reporting and basis retrieval systems. Several comments requested a delay in the proposed applicability date for basis reporting. One comment suggested that further delay was warranted because the applicability date for digital asset basis reporting is not consistent with the length of time that stockbrokers were given to implement cost basis reporting rules. The final regulations do not adopt this request for a delay for several reasons. First, brokers have been on notice that cost basis reporting in some form would be required since the Infrastructure Act was enacted in 2021. Second, many brokers already have systems in place to report cost basis to their customers as a service and other brokers have contracts with third party service providers to do the same. Third, cost basis reporting is essential to taxpayers and the IRS to ensure that gains and losses are accurately reported on taxpayers' Federal income tax returns. Fourth, the initial applicability date for cost basis reporting for digital assets--over four years after the Infrastructure Act was enacted--is not inconsistent with the initial 2011 implementation of the cost basis reporting rules for stockbrokers, which was only three years after the Energy Improvement and Extension Act of 2008 was enacted. Notwithstanding this decision, the IRS intends to work closely with stakeholders to ensure the smooth implementation of the basis reporting rules, including the mitigation of penalties in the early stages of implementation for all but particularly egregious cases involving intentionally disregarding these rules. G. Exceptions To Reporting of Sales Effected by Brokers on Behalf of Exempt Foreign Persons and Non-U.S. Broker Reporting 1. In General The proposed regulations provided the same exceptions to reporting in Sec. 1.6045-1(c) for exempt recipients and excepted sales for brokers effecting sales of digital assets (digital asset brokers) that are in the final regulations for securities brokers. Similar to the case of a securities broker effecting a sale of an asset other than a digital asset, the proposed regulations provided an exception to a broker's reporting of a sale of digital assets effected for a customer that is an exempt foreign person and requirements for applying the exception. See Sec. 1.6045-1(g)(1) through (3) (for sales other than digital assets) and proposed Sec. 1.6045-1(g)(4) (for sales of digital assets). For a broker to treat a customer as an exempt foreign person for a sale of a digital asset, the proposed regulations provided requirements for valid documentation of foreign status, standards of knowledge for a broker's reliance on this documentation, and presumption rules in the absence of documentation that may be relied upon to determine a customer's status as a U.S. or foreign person. Under the proposed regulations, these requirements differed in certain respects depending on the broker's status as a U.S. digital asset broker, a non-U.S. digital asset broker, a controlled foreign corporation (CFC), a digital asset broker conducting activities as a money services business (MSB), or as a non-U.S. digital asset broker or a CFC digital asset broker not conducting activities as an MSB (each as defined in the proposed regulations). See proposed Sec. 1.6045- 1(g)(4)(i). A broker's status within one of the foregoing categories also dictated whether a sale of digital assets was considered effected at an office either inside or outside the United States, a determination that in some cases dictated whether a broker was treated as a broker for a sale of a digital asset under proposed Sec. 1.6045- 1(a)(1) and whether the exception to backup withholding under Sec. 31.3406(g)-1(e) applied to a sale that is reportable. See proposed Sec. 1.6045-1(a)(1) (defining broker). Under the proposed regulations, a U.S. digital asset broker is a U.S. payor or middleman as defined in Sec. 1.6049-5(c)(5), other than a CFC, that effects sales of digital assets on behalf of others. A U.S. payor or middleman includes a U.S. person (including a foreign branch of a U.S. person), a CFC (as defined in Sec. 1.6049-5(c)(5)(i)(C)), certain U.S. branches that agree to be treated as U.S. persons, a foreign partnership with controlling U.S. partners or a U.S. trade or business, and a foreign person for which 50 percent or more of its gross income is effectively connected with a U.S. trade or business. Thus, a U.S. digital asset broker included both U.S. persons and certain categories of non-U.S. persons (other than CFCs). Because it is a U.S. payor or middleman, a U.S. digital asset broker is a broker under proposed Sec. 1.6045-1(a)(1) with respect to all sales of digital assets it effects for its customers, such that the broker must report with respect to a sale absent an applicable exception to reporting. To except reporting based on a customer's status as an exempt foreign person, a U.S. digital asset broker must have obtained a withholding certificate (that is, an applicable Form W-8) to which it must have applied certain reliance requirements when it was not permitted to treat the customer as a foreign person under a presumption rule. If a U.S. digital asset broker was not permitted to treat a customer as an exempt foreign person and failed to obtain a valid Form W-9 for the customer when required under Sec. 1.6045-1(c), backup withholding under section 3406 applied to proceeds from digital assets sales made on behalf of the customer. The proposed regulations also specified requirements for foreign [[Page 56517]] brokers that are not U.S. digital asset brokers for sales of digital assets. Under the proposed regulations, a broker effecting sales of digital assets that is not a U.S. digital asset broker is either a CFC digital asset broker or a non-U.S. digital asset broker, which have different requirements depending on whether they conduct activities as a MSB. A non-U.S. digital asset broker or CFC digital asset broker conducts activities as an MSB under the proposed regulations when it is registered with the Department of the Treasury under 31 CFR part 1022.380 (or any successor guidance) as an MSB, as defined in 31 CFR part 1010.100(ff). The requirements for non-U.S. digital asset brokers and CFC digital asset brokers conducting activities as MSBs reference the requirements that apply to a U.S. digital asset broker. In the case of a CFC digital asset broker not conducting activities as an MSB, the broker is (similar to a U.S. digital asset broker) a U.S. payor or middleman, such that it is a broker under proposed Sec. 1.6045-1(a)(1) with respect to all sales of digital asset it effects for its customers. Unlike a U.S. digital asset broker, however, a CFC digital asset broker not conducting activities as an MSB was not permitted to treat a customer as an exempt foreign person based on certain documentary evidence supporting the customer's foreign status (in lieu of a Form W-8), and, because sales of digital assets it effects for customers are treated as effected at an office outside the United States, the exception to backup withholding in proposed Sec. 31.3406(g)-1(e) applied to a sale reportable by the broker. In the case of a non-U.S. digital asset broker not conducting activities as an MSB, more limited requirements applied than those that applied to other digital asset brokers. Under the proposed regulations, unless the broker collects certain information about a customer that shows certain specified ``U.S. indicia,'' the broker has no reporting or backup withholding requirements under the proposed regulations. If the broker has such U.S. indicia for a customer, a sale effected for the customer is treated as effected at an office of the broker inside the United States. In that case, the broker was required to report with respect to a sale of a digital asset it effected for the customer when required under Sec. 1.6045-1(c) unless it was permitted to treat the customer as an exempt foreign person based on certain documentary evidence or a withholding certificate it was permitted to rely upon, or when the broker was permitted to treat the customer as a foreign person under a presumption rule. Finally, the exception to backup withholding in proposed Sec. 31.3406(g)-1(e) would have applied to a sale of digital assets reportable by a non-U.S. digital asset broker not conducting activities as an MSB. 2. Non-U.S. Digital Asset Brokers and the CARF Several comments on the proposed regulations' rules requiring non- U.S. brokers to report information on digital asset transactions recommended that the rules be revised to provide that non-U.S. brokers that are reporting information on U.S. customers to other jurisdictions under the CARF should not be required to report information to the IRS and should not have to obtain a separate U.S. certification from a customer. Other comments requested that the implementation of rules for non-U.S. brokers be delayed until they are harmonized with the CARF. Other comments relating to the proposed regulations' rules requiring non-U.S. brokers to report information on digital asset transactions recommended that a single diligence standard apply to all non-U.S. brokers. The Treasury Department and the IRS agree that rules requiring non- U.S. brokers to report information on digital asset transactions should be revised in order to allow for the implementation of the CARF by the United States. As described in the preamble to the proposed regulations, under the CARF, the IRS would provide information on foreign persons for whom U.S. brokers effect sales of digital assets to other countries that have implemented the CARF and receive information from those countries about transactions by U.S. persons with non-U.S. digital asset brokers. Regulations implementing the CARF would exempt non-U.S. brokers that are reporting information on U.S. customers to jurisdictions that exchange information with the IRS pursuant to an automatic exchange of information mechanism from reporting information on such U.S. customers to the IRS under section 6045. This would mean that such non-U.S. brokers would not be required to report information on U.S. customers to both the IRS and a foreign tax administration that is exchanging information with the IRS. The rules provided in the proposed regulations, when finalized and as revised to take into account comments received on diligence standards and other issues, therefore would be expected to apply only to a limited set of non-U.S. brokers in jurisdictions that do not implement the CARF and exchange digital asset information with the United States. Accordingly, the final regulations reserve on the rules requiring non-U.S. brokers to report information on U.S. customers to the IRS, in order to coordinate the rules for non-U.S. brokers under section 6045 with new rules that will implement the CARF. The Treasury Department and the IRS intend to propose regulations that would, if finalized, implement CARF in sufficient time for the United States to begin exchanges of information with appropriate partner jurisdictions in 2028 with respect to transactions effected in the 2027 calendar year. It is anticipated that those proposed regulations also would require U.S. digital asset brokers to report information on their foreign customers resident in such jurisdictions, so that the IRS could provide that information to those jurisdictions pursuant to automatic exchange of information mechanisms. Since the proposed CARF regulations would require additional reporting by U.S. digital asset brokers, the final regulations have been drafted taking the CARF definitions into account where feasible in order to minimize differences between the types of information that U.S. digital asset brokers are required to report under the final regulations and under forthcoming proposed CARF regulations. It is anticipated, however, that the information required to be reported by U.S. digital asset brokers under the forthcoming proposed CARF regulations would differ from the information required to be reported under the final regulations in significant ways. For example, the CARF requires reporting of acquisitions and transfers of digital assets, requires all reporting to take place on an aggregate basis, and has different rules for reporting of stablecoins than the final regulations. As the final regulations reserve on the rules of Sec. 1.6045- 1(g)(4) relating to non-U.S. brokers, the final regulations limit the definition of a U.S. digital asset broker for purposes of applying the provisions of Sec. 1.6045-1(g)(4). For these brokers, these provisions include documentation, reliance, and presumption rules to determine whether they may treat customers as exempt foreign persons. The final regulations indicate as reserved those paragraphs of the proposed regulations that addressed definitions or requirements specific to brokers that are not U.S. digital asset brokers. For example, the final regulations reserve the rules for CFC digital asset brokers, non-U.S. digital asset brokers conducting activities as money service businesses and other non-U.S. digital asset brokers that were described in proposed Sec. 1.6045-1(g)(4). [[Page 56518]] As a result, the remainder of this Part I.G. discusses those comments relevant to U.S. digital asset brokers (or digital asset brokers generally) and excludes discussion of comments specific to only non- U.S. brokers. Comments specific to non-U.S. brokers will be addressed as part of future regulations. 3. Revised U.S. Indicia for Brokers To Rely on Documentation As referenced in Part I.G.1. of this Summary of Comments and Explanation of Revisions, under the proposed regulations a digital asset broker is subject to specified requirements for relying on a Form W-8 to treat a customer as an exempt foreign person. With respect to a Form W-8 that is a beneficial owner withholding certificate, the proposed regulations provided that a digital asset broker may rely on the certificate unless the broker has actual knowledge or reason to know that the certificate is unreliable or incorrect. Similar to a securities broker effecting a sale, a digital asset broker is treated as having ``reason to know'' that a beneficial owner withholding certificate for a customer is unreliable or incorrect based on certain indicia of the customer's U.S. status (U.S. indicia), which are for this purpose cross-referenced in proposed Sec. 1.6045-1(g)(4)(vi)(B) to the U.S. indicia in proposed Sec. 1.6045-1(g)(4)(iv)(B)(1) through (5) (setting forth the U.S. indicia relevant to a non-U.S. digital asset broker's requirements under the proposed regulations). The U.S. indicia in proposed Sec. 1.6045-1(g)(4)(iv)(B)(1) through (5) included the U.S. indicia in Sec. 1.1441-7(b)(5), which generally apply to determine when a U.S. withholding agent is treated as having ``reason to know'' that a beneficial owner withholding certificate is unreliable or incorrect and which are also applied for that purpose to a securities broker effecting a sale. See Sec. 1.6045-1(g)(1)(ii). Proposed Sec. 1.6045-1(g)(4)(iv) further includes as U.S. indicia the following: (1) a customer's communication with the broker using a device (such as a computer, smart phone, router, server or similar device) that the broker has associated with an internet Protocol (IP) address or other electronic address indicating a location within the United States; (2) cash paid to the customer by a transfer of funds into an account maintained by the customer at a bank or financial institution in the United States, cash deposited with the broker by a transfer of funds from such an account, or if the customer's account is linked to a bank or financial account maintained within the United States; or (3) one or more digital asset deposits into the customer's account at the broker were transferred from, or digital asset withdrawals from the customer's account were transferred to, a digital asset broker that the broker knows or has reason to know to be organized within the United States, or the customer's account is linked to a digital asset broker that the broker knows or has reason to know to be organized within the United States. As noted in the preamble to the proposed regulations, the additional U.S. indicia were included to account for the digital nature of the activities of digital asset brokers, including that they do not typically have physical offices and communicate with customers by digital means rather than by mail. Many comments were received that raised issues with the proposed new U.S. indicia. Some comments noted coordination issues that could arise from the new indicia for brokers effecting sales of both securities and digital assets. These comments requested that the U.S. indicia for digital asset brokers be aligned with the U.S. indicia applicable to traditional financial brokers so that brokers effecting sales in both capacities could avoid maintaining parallel systems to monitor differing U.S. indicia depending on the type of sale. A comment noted that some securities brokers may transact only digitally with customers, such that the stated reasoning for the new U.S. indicia is not limited to digital asset brokers. Other comments objected to one or more of the specified new U.S. indicia, questioning the usefulness of certain of the indicia for identifying potential U.S. customers and noting excessive burdens on brokers in tracking the required information. They noted that IP addresses are not reliable indicators of a customer's residence given that the location indicated by an IP address will change when customers travel outside of their countries of residence and can be masked by the use of a virtual private network (VPN) so that a customer's actual location cannot be determined. A comment noted that the proposed regulations do not describe whether an IP address would be required to be checked for all contacts with the customer as they do not define a ``customer contact'' for this purpose. Some comments raised concerns with the U.S. indicia relating to transfers effected for customers to and from U.S. bank accounts and U.S. digital asset brokers. Certain of those comments noted that the proposed regulations do not specify how a broker should determine that a customer's transfer is to or from a U.S. digital asset broker, with one comment suggesting an actual knowledge standard be permitted, and another comment suggesting that the IRS publish a list of U.S. digital asset brokers. Another comment noted that a customer's dealings with U.S. digital asset brokers or U.S. banks is not a good indication of a customer's U.S. status. Finally, some comments noted that requiring determinations of U.S. status for every transfer would add burdens on digital asset brokers that exceed those resulting from the static forms of U.S. indicia that apply to securities brokers (such as for standing instructions to pay amounts to a U.S. account) and may be read to require documentation cures at multiple times. Because the comments raise concerns sufficient for the Treasury Department and the IRS to reconsider the additional U.S. indicia, the final regulations do not include any of the additional U.S. indicia that are in the proposed regulations for U.S. digital asset brokers. Thus, for purposes of the reliance requirements of U.S. digital asset brokers, the final regulations include only the U.S. indicia generally applicable to U.S. securities brokers. The Treasury Department and the IRS intend to consider whether additional U.S. indicia should be part of the proposed requirements that would be applicable to non-U.S. digital asset brokers (as referenced in Part I.G.2. of this Summary of Comments and Explanation of Revisions). 4. Transitional Determination of Exempt Foreign Status To provide additional time for digital asset brokers to collect the necessary documentation to treat existing customers as exempt foreign persons, the proposed regulations provided a transitional rule for a broker to treat a customer as an exempt foreign person for sales of digital assets effected before January 1, 2026, that were held in a preexisting account established with a broker before January 1, 2025. A broker may apply this transitional rule if the customer has not been previously classified as a U.S. person by the broker, and information the broker has for the customer includes a residence address that is not a U.S. address. See proposed Sec. 1.6045-1(g)(4)(vi)(F). No comments were received in response to this proposed rule. The final regulations include this transitional relief. The dates for which relief will apply have been modified to apply to sales effected before January 1, 2027, that were held in an account established with a broker before January 1, 2026. [[Page 56519]] 5. Certification of Individual Customer's Presence in U.S. With respect to the requirements for a valid beneficial owner withholding certificate provided by a customer to a broker to treat the customer as an exempt foreign person, the proposed regulations stated that a beneficial owner withholding certificate provided by an individual (that is, a Form W-8BEN) must include a certification that the beneficial owner has not been, and at the time the certificate is furnished reasonably expects not to be, present in the United States for 183 days or more during each calendar year to which the certificate pertains. See proposed Sec. 1.6045-1(g)(4)(ii)(B). This certification is based on the same requirement applicable to a securities broker in Sec. 1.6045-1(g)(1)(i) to allow the broker to rely on a beneficial owner withholding certificate to treat an individual as an exempt foreign person. One comment stated that this certification requirement would not add sufficient value or reliability to a standard or substitute Form W-8BEN and further noted that language relating to the substantial presence test is included only in the instructions for Form W-8BEN, with a cross-reference in the form's jurat. The comment thereby asserted that an individual may be unaware they are attesting to this standard when they sign a Form W-8BEN. The comment suggested that this language be removed in the final regulations. As referenced in the comment, this certification relates to a customer's potential classification as a U.S. individual under the substantial presence test in Sec. 301.7701(b)-1(c). It also relates to whether an individual customer is subject to tax on capital gains from sales or exchanges under section 871(a)(2) of the Code when the individual remains a resident alien under section 7701(b)(3)(B) of the Code despite being present in the United States for 183 days or more during a year. As indicated in the preamble to the proposed regulations, Form W-8BEN specifically requires that an individual certify to the individual's status as an exempt foreign person in accordance with the instructions to the form, which include this requirement (relating to broker and barter transactions associated with the form). Thus, this certification is both sufficiently described in the proposed regulations with respect to its reference to Form W-8BEN and relevant to an individual's claim of exempt foreign person status. Moreover, this certification is required today for Forms W-8BEN collected by securities brokers and the Treasury Department and the IRS have determined that the same certification should be required for Forms W-8BEN collected by digital asset brokers. Thus, this comment is not adopted, and this certification requirement is included in the final regulations for a beneficial owner withholding certification provided to a U.S. digital asset broker. In response to this comment, the IRS may consider revising Form W-8BEN or its instructions to highlight this requirement more prominently for individuals completing the form. 6. Substitute Forms W-8 As described in Part I.G.1. of this Summary of Comments and Explanation of Revisions, the proposed regulations provided that a digital asset broker may treat a customer as an exempt foreign person if the broker receives a valid Form W-8 upon which it may rely. They also permit a broker to rely upon a substitute Form W-8 that meets the requirements of Sec. 1.1441-1(e)(4). See proposed Sec. 1.6045- 1(g)(4)(ii)(B) and (g)(4)(vi)(A)(1). Some comments requested that the final regulations be amended to allow substitute certification forms based on other reporting regimes to reduce broker compliance burdens, reduce customer confusion, and streamline global information reporting. Some comments specially suggested that FATCA or Common Reporting Standard (CRS) self-certifications (adjusted to account for digital assets) be permitted as qualifying substitute forms. A comment supported the use of the type of substitute form described in Notice 2011-71, 2011 I.R.B. 233 (August 19, 2011), to establish a payee's status as a foreign person for section 6050W reporting purposes. The Treasury Department and the IRS agree that a broker's ability to leverage a certification form already in use for other purposes may reduce compliance burdens associated with documenting customers. As stated in the preceding paragraph, however, the proposed regulations already permitted brokers to rely on substitute certification forms that meet the standard that applies for purposes of section 1441 of the Code. Under this standard, a substitute form must include information substantially similar to that required on an official certification form and the certifications relevant to the transactions associated with the form. This standard is similar to the standard for the substitute form specified in Notice 2011-71 (in reference to the comment to use that substitute form). Additionally, as the comments referencing the use of self-certifications pertaining to foreign reporting regimes presumably were made with respect to their use by non-U.S. brokers, and as the requirements for non-U.S. brokers are reserved, these comments are not further considered for the final regulations. See Part I.G.2. of this Summary of Comments and Explanation of Revisions. As under the proposed regulations, the final regulations provide that a U.S. digital asset broker may rely on a substitute Form W-8 that meets the standard for purposes of section 1441 to establish a customer's foreign status. H. Definitions and Other Comments The proposed regulations defined a hosted wallet as a custodial service provided to a user that electronically stores the private keys to digital assets held on behalf of others and an unhosted wallet as a non-custodial means of storing, electronically or otherwise, a user's private keys to digital assets held by or for the user. Included in the definition of unhosted wallets was a statement that unhosted wallets can be provided through software that is connected to the internet (a hot wallet) or through hardware or physical media that is disconnected from the internet (a cold wallet). Several comments noted that these definitions were confusing because the proposed regulations failed to define a wallet more generally. The final regulations adopt this comment and define a wallet as a means of storing, electronically or otherwise, a user's private keys to digital assets held by or for the user. Final Sec. 1.6045-1(a)(25)(i). The proposed regulations also provided that ``a digital asset is considered held in a wallet or account if the wallet, whether hosted or unhosted, or account stores the private keys necessary to transfer access to, or control of, the digital asset.'' Several comments expressed confusion with this definition. One comment suggested that this definition was not consistent with how distributed ledgers work because digital assets themselves are not held in wallets but rather exist on the blockchain. The Treasury Department and the IRS recognize that digital assets are not actually stored in wallets. Indeed, the preamble to the proposed regulations explained that references to an owner ``holding'' digital assets generally or ``holding'' digital assets in a wallet or account were meant to refer to holding or controlling, whether directly or indirectly through a custodian, the keys to the digital assets. To address the comment, however, the final regulations conform the definition in the text to the preamble's [[Page 56520]] explanation. Accordingly, under the final Sec. 1.6045-1(a)(25)(iv), ``[a] digital asset is referred to in this section as held in a wallet or account if the wallet, whether hosted or unhosted, or account stores the private keys necessary to transfer control of the digital asset.'' Additionally, the final definition provides that a digital asset associated with a digital asset address that is generated by a wallet, and a digital asset associated with a sub-ledger account of a hosted wallet, are similarly referred to as held in a wallet. The same concept applies to references to ``held at a broker,'' ``held by the user of a wallet,'' ``acquired in a wallet or account,'' or ``transferred into a wallet or account.'' Holding, acquiring, or transferring, in these cases, refer to holding, acquiring, or transferring the ability to control, whether directly or indirectly through a custodian, the keys to the digital assets. Another comment suggested references to ``wallet or account'' in this definition and elsewhere in the proposed regulations failed to recognize the difference between those terms in the digital asset industry. The final regulations do not adopt this comment. Although many terms in the digital asset industry may have their own unique meaning, the terms wallet and account, in these final regulations, are used synonymously. Another comment indicated that there were several additional unclear definitions, including ``software'', ``platform'', and ``ledger.'' The regulations do not adopt this comment. Standard rules of construction apply to give undefined terms, such as software, ledger, and platform, their usual meaning. These terms are sufficiently basic to not warrant additional definitions. I. Comments Based on Constitutional Concerns 1. First Amendment Multiple comments alleged that the proposed regulations, if finalized, would violate the First Amendment to the U.S. Constitution on a variety of asserted bases. Some comments viewed the proposed regulations as requiring developers to include code in their products that would reveal customer data, while others asserted that the proposed regulations would require persons who fit the definition of broker to write their software in a manner that goes directly against their closely held political, moral, and social beliefs. Comments also said the proposed regulations would infringe on a taxpayer's freedom of association under the First Amendment because the IRS could use the taxpayer identification information and wallet data reported by brokers to monitor their financial associations. The Department of the Treasury and the IRS do not agree that the regulations as proposed or as finalized infringe upon rights guaranteed by the First Amendment. The First Amendment provides, among other things, that ``Congress shall make no law . . . abridging the freedom of speech.'' U.S. CONST. Amend. I. Protected speech includes the right to utter, print, distribute, receive, read, inquire about, contemplate, and teach ideas. Griswold v. Connecticut, 381 U.S. 479, 482 (1965). It also includes the right to freely associate with others for expressive purposes. Freeman v. City of Santa Ana, 68 F.9d 1180, 1188 (9th Cir. 1995). Protected speech includes conduct designed to express and convey ideas. New Orleans S.S. Ass'n v. General Longshore Workers, 626 F.2d 455, 462 (5th Cir. 1980), aff'd. Jacksonville Bulk Terminals, Inc. v. International Longshoremen's Ass'n, 457 U.S. 702 (1982). The rights protected by the First Amendment include both the right to speak freely and the right to refrain from speaking at all. Wooley v. Maynard, 430 U.S. 705, 714 (1977). A First Amendment protection against compelled speech, however, has been found only in the context of governmental compulsion to disseminate a particular political or ideological message. See, e.g., Miami Herald Publ'g Co. v. Tornillo, 418 U.S. 241 (1974) (holding unconstitutional a state statute requiring newspapers to publish the replies of political candidates whom they had criticized); Wooley v. Maynard, 430 U.S. 705 (1977) (holding that a state may not require a citizen to display the state motto on his license plate). Challenges to government-compelled disclosures that are based on the freedom of association are determined on an ``exacting scrutiny'' standard, which requires a ``substantial relation between the disclosure requirement and a sufficiently important governmental interest.'' Americans for Prosperity Foundation v. Bonta, 594 U.S. 595 (2021) (quoting Doe v. Reed, 561 U.S. 186, 196 (2010) (internal quotation marks omitted)). The final regulations do not compel political or ideological speech. Although they do require disclosure of certain information, they do not infringe on a taxpayer's right to free association. Instead, the final regulations merely require information reporting for tax compliance purposes, a sufficiently important governmental interest. See Collett v. United States, 781 F.2d 53, 55 (6th Cir. 1985) (rejecting a taxpayer's First Amendment challenge to the imposition of a frivolous return penalty under section 6702 and holding that ``the maintenance and viability of the tax system is a sufficiently important governmental interest to justify incidental regulation upon speech and non-speech communication'') (citing United States v. Lee, 455 U.S. 252, 260 (1982)). The information required from brokers with respect to digital asset sales is similar to the information required to be reported by brokers with respect to other transactions required to be reported, and the IRS has an important interest in receiving this information. The IRS gathers third-party information about income received and taxes withheld to verify self-reported income and tax liability reported on Federal income tax returns. The use of reliable and objective third-party verification of income increases the probability of tax evasion being detected and increases the cost of evasion to the taxpayers, thereby decreasing the overall level of tax evasion by taxpayers. Information reporting also assists taxpayers receiving such reports to prepare their Federal income tax returns and helps the IRS determine whether such returns are correct and complete. Accordingly, the Treasury Department and the IRS have concluded the final regulations would pass muster under First Amendment scrutiny. 2. Fourth Amendment Multiple comments contended the proposed regulations, if finalized, would violate the Fourth Amendment's prohibition on warrantless searches and seizures of a person's papers and effects because they do not currently provide their brokers with their personal information when they transact in digital assets. Comments asserted the proposed regulations would violate the Fourth Amendment because reporting information that would link an individual's identity to transaction ID numbers and their digital asset addresses would allow the government to see historical and prospective information about the individual's activities. Although the Treasury Department and the IRS do not agree that requiring the reporting of this information would violate the Fourth Amendment, the final regulations do not require this information to be reported. Instead, the final regulations require this information to be retained by the broker to ensure the IRS will have access to all the records it needs if requested by IRS personnel as part of [[Page 56521]] an audit or other enforcement or compliance effort. The Fourth Amendment protects against ``unreasonable searches and seizures.'' U.S. CONST. Amend IV. The Fourth Amendment's protections extend only to items or places in which a person has a constitutionally protected reasonable expectation of privacy. See California v. Ciraolo, 476 U.S. 207, 211 (1986). Customers of digital asset brokers do not have a reasonable expectation of privacy with respect to the details of digital asset sale transactions effectuated by brokers. See United States v. Gratkowski, 964 F.3d 307, 311-12 (5th Cir. 2020) (rejecting the defendant's Fourth Amendment claim of a reasonable expectation of privacy in transactions recorded in a publicly available blockchain and in the records maintained by the virtual currency exchange documenting those transactions, noting that ``the nature of the information and the voluntariness of the exposure weigh heavily against finding a privacy interest.''). See also, Goldberger & Dublin, P.C., 935 F.2d 501, 503 (2nd Cir. 1991) (citing United States v. Miller, 425 U.S. 435, 444 (1976); Cal. Bankers Ass'n v. Shultz, 416 U.S. 21, 59-60 (1974)) (summarily rejecting a Fourth and Fifth Amendment challenge to information reporting requirements under section 6050I and noting that similar ``contentions relative to the Fourth and Fifth Amendments have been rejected consistently in cases under the Bank Secrecy Act by both the Supreme Court and this Court.'') (additional citations omitted). Gains or losses from these sale transactions must be reflected on a Federal income tax return. Customers of digital asset brokers do not have a privacy interest in shielding from the IRS the information that the IRS needs to determine tax compliance. Moreover, these taxable transactions will be reported to the IRS in due course anyway. To the extent the digital asset sale transactions are recorded on public ledgers, those transactions are not private. Just because customers might choose not to exchange identifying information with brokers when engaging in digital assets transactions does not render the underlying transactions private, particularly when the customers choose to engage in such transactions in a public forum, such as a public blockchain. Therefore, the Treasury Department and the IRS have concluded that the final regulations do not violate the Fourth Amendment. 3. Fifth Amendment and Assertions of Vagueness Some comments stated that the proposed regulations, if finalized, would violate the Fifth Amendment's prohibition on depriving any person of life, liberty, or property without due process of law. These comments based this assertion on a variety of views, including that the proposed regulations are unconstitutionally vague and impossible to apply in practice, particularly rules relating to customer identification and documentation. Other comments stated the proposed regulations violate the Fifth Amendment due process clause because the definitions of broker, effect, and digital asset middleman are too vague to be applied fairly. Some comments stated the proposed regulations violate the Fifth Amendment's protections against compelled self-incrimination. The Due Process Clause of the Fifth Amendment provides that ``no person shall . . . be deprived of life, liberty, or property, without due process of law.'' This provision has been interpreted to require that statutes, regulations, and agency pronouncements define conduct subject to penalty ``with sufficient definiteness that ordinary people can understand what conduct is prohibited.'' See Kolender v. Lawson, 461 U.S. 352, 357 (1983). Although some comments stated that digital asset users have not routinely exchanged identifying information with their brokers in the past, this does not mean the requirement that brokers obtain customers' identifying information going forward is vague--much less unconstitutionally so. ``The `void for vagueness' doctrine is a procedural due process concept,'' United States v. Professional Air Traffic Controllers Organization, 678 F.2d 1, 3 (1st Cir. 1982), but `` '[a]bsent a protectible liberty or property interest, the protections of procedural due process do not attach.'' United States v. Schutterle, 586 F.2d 1201, 1204-05 (8th Cir. 1978). There is no protectible liberty or property interest in the information required to be disclosed under the regulation. In any event, the relevant test is that a ``regulation is impermissibly vague under the Due Process Clause of the Fifth Amendment if it `fails to provide a person of ordinary intelligence fair notice of what is prohibited, or is so standardless that it authorizes or encourages seriously discriminatory enforcement.' '' United States v. Szabo, 760 F.3d 997, 1003 (9th Cir. 2014) (quoting Holder v. Humanitarian Law Project, 561 U.S. 1, 18 (2010)). The regulation is not unconstitutionally vague by this measure. To be sure, brokers will have to obtain the identifying information of users they may not have met in person. However, online brokers have successfully navigated this issue in other contexts. The Fifth Amendment also provides that ``[n]o person . . . shall be compelled in any criminal case to be a witness against himself.'' U.S. CONST. Am. V. The U.S. Supreme Court has held that this right, properly understood, only prevents the Government from ``compel[ing] incriminating communications . . . that are `testimonial' in character.'' United States v. Hubbell, 530 U.S. 27, 34 (2000). The Supreme Court has held that ``the fact that incriminating evidence may be the byproduct of obedience to a regulatory requirement, such as filing an income tax return . . . [or] maintaining required records . . . does not clothe such required conduct with the testimonial privilege.'' Hubbell, 530 U.S. at 35. Some comments specifically stated that the definitions of broker, effect, and digital asset middleman are unconstitutionally vague. As discussed in Part I.B.1. of this Summary of Comments and Explanation of Revisions, the final regulations apply only to digital asset industry participants that hold custody of their customers' digital assets and the final regulations revise and simplify the definition of a PDAP. The Treasury Department and the IRS continue to study the non-custodial industry and intend to issue separate final regulations describing information reporting rules for non-custodial industry participants. Therefore, any concerns regarding the perceived vagueness of the definitions as they apply to custodial industry participants have been addressed in these final regulations. 4. Privacy and Security Concerns Comments expressed a variety of concerns related to the privacy and safety implications of requiring brokers to collect financial data and social security numbers. The Treasury Department and the IRS considered the privacy and security implications of the proposed regulations. Section 80603 of the Infrastructure Act made several changes to the broker reporting provisions under section 6045 to clarify the rules regarding how digital asset transactions should be reported by brokers. The purpose behind information reporting under section 6045 is to provide information to assist taxpayers receiving the reports in preparing their Federal income tax [[Page 56522]] returns and to help the IRS determine whether such returns are correct and complete. The customer's name and TIN are necessary to match information on Federal income tax returns with section 6045 reporting. Although this is personally identifiable information that customers may wish to keep private and secure, the IRS interest in receiving this information outweighs any privacy concerns about requiring brokers to collect and retain this information. The final regulations do not require brokers to report the transaction ID numbers or digital asset addresses. If brokers do not believe their existing security measures are sufficient to keep personally identifiable information and tax information private and secure, they can choose to implement new security measures or choose to contract with third parties with expertise in securing confidential data. Comments said they were concerned about brokers, especially smaller brokers, being able to securely store customer data and one comment requested that the final regulations include requirements for the IRS to monitor broker compliance with security measures. Other comments requested a reporting exception for small digital asset brokers that would be based on the value of assets traded during a calendar year or a valuation of the broker's business. These comments were not adopted for the final regulations. Traditional brokers, including smaller brokers, have operated online for many years and have implemented their own online security policies and protocols without specific security regulations under section 6045. The final regulations do not include a general de minimis threshold that would exempt small brokers from reporting; however, the Treasury Department and the IRS are providing penalty relief under certain circumstances for transactions occurring during calendar year 2025 and brokers can use this time to improve existing security practices or put a security system in place for the first time. Some comments expressed concerns about numerous third parties, such as multiple brokers, having access to customer data and questioned the ability of brokers to securely transfer customer data to third parties. Comments also included concerns about the IRS's ability to securely store customer data. The final regulations do not require the information reported to be disseminated to third parties, but as with many other information returns, require filing the complete information with the IRS and furnishing a statement to the taxpayer which can include a truncated TIN rather than the entire TIN. The final regulations also provide a multiple broker rule, which require only one broker to be responsible for obtaining and reporting the financial and identifying information of a person who participated in a digital asset transaction. Furthermore, and as more fully explained in Part I.B.2. of this Summary of Comments and Explanation of Revisions, the final regulations require PDAPs to file information returns with respect to a buyer's disposition of digital assets only if the processor already may obtain customer identification information from the buyer to comply with AML obligations pursuant to an agreement or arrangement with the buyer. The Treasury Department and the IRS acknowledge the concerns raised regarding the IRS's ability to securely store customer data and the information reported on digital asset transactions. The information on Forms 1099-DA will be subject to the same security measures as other information reported to the IRS. Generally, tax returns and return information are confidential, as required by section 6103 of the Code. Additionally, the Privacy Act of 1974 (Pub. L. 93-679) affords individuals certain rights with respect to records contained in the IRS's systems of records. One customer asserted that any information collected on the blockchain is public information, not ``return information'' under section 6103 and is therefore subject to the Freedom of Information Act (FOIA). Although the blockchain itself is public, all information reported on a Form 1099-DA and filed with the IRS becomes protected in the hands of the IRS under section 6103(b)(2) and is not subject to FOIA. Some comments express concerns about TIN certification and predicted that individuals would be confused when digital asset brokers requested their TINs. Some comments expressed fear that malicious actors who were not brokers would try to trick individuals into providing their personal information. Some comments said that as potential brokers, they were concerned about having customer data and that data being accessed by unauthorized individuals or entities. Concerns about malicious actors tricking customers into providing their personal information through online scams such as phishing attacks, while unfortunate, are not unique to digital asset reporting. Digital asset brokers who have a legitimate need for the TIN and other personal information of customers should provide their customers with an explanation for their requests to ensure their customers will not be confused or concerned. Additionally, brokers should act responsibly to safely store any information required to be reported on Form 1099-DA, Form 1099-S, Form 1099-B, and Form 1099-K including personal information of customers. 5. Authority for and Timing of Regulations Multiple comments expressed concerns that the Treasury Department and the IRS lacked authority to promulgate the digital asset broker regulations or asserted that the proposed regulations were published too soon or without sufficient development. For example, some comments said the IRS should wait to regulate digital assets until after consulting with other Federal agencies or that the proposed regulations addressed issues that should first be addressed by Congress or other agencies. Congress enacted the Infrastructure Act in 2021 and section 80603 made several changes to the broker reporting provisions under section 6045 to clarify the rules regarding how certain digital asset transactions should be reported by brokers, and to expand the categories of assets for which basis reporting is required to include all digital assets. Congress's power to lay and collect taxes extends to the requirement that brokers report information on taxable digital asset transactions. The proposed regulations were published on August 29, 2023, and the final regulations are intended to implement the Infrastructure Act; therefore, the IRS is not attempting to regulate digital assets without prior Congressional approval. No inference is intended as to when a sale of a digital asset occurs under any other legal regime, including the Federal securities laws and the Commodities Exchange Act, or to otherwise impact the interpretation or applicability of those or any other laws, which are outside the scope of these final regulations. Comments said the proposed regulations exceeded the authority granted by Congress. Section 80603 of the Infrastructure Act clarifies and expands the rules regarding how digital assets should be reported by brokers under sections 6045 and 6045A to improve IRS and taxpayer access to gross proceeds and adjusted basis information when taxpayers dispose of digital assets in transactions involving brokers. The Treasury Department and the IRS are issuing these final regulations to implement these statutory provisions. The Treasury Department [[Page 56523]] and the IRS disagree that these final regulations preempt Congressional action because as discussed in Parts I.A.2. and I.B.1.b. of this Summary of Comments and Explanation of Revisions, the final regulations are consistent with statutory language. Comments said the proposed regulations are hostile and aggressively opposed to digital asset technology and are not technologically neutral. Third-party information reporting addresses numerous types of payments, regardless of whether or not these payments are made online. Section 6045(a) requires brokers to file information returns, regardless of whether or not the brokerage operates online. The Infrastructure Act clarifies and expands the rules regarding how digital assets should be reported by brokers under sections 6045 and 6045A to improve IRS and taxpayer access to gross proceeds and adjusted basis information when taxpayers dispose of digital assets in transactions involving brokers. The final regulations implement the Infrastructure Act and require brokers to file information returns that contain information similar to the existing Form 1099-B. The Infrastructure Act defines a digital asset broadly to mean any digital representation of value which is recorded on a cryptographically secured distributed ledger or any similar technology as specified by the Secretary; therefore, the final regulations that require this additional reporting do not exceed statutory authority. Other comments raised a variety of policy considerations including that the proposed regulations could negatively impact the growth of the digital asset industry which offers a variety of benefits. Information reporting assists taxpayers receiving such reports to prepare their Federal income tax returns and helps the IRS determine whether such returns are correct and complete. The legislation enacted by Congress confirming that information reporting by digital asset brokers is required represents a judgment that tax administration concerns should prevail over the policy considerations raised by the comments. Furthermore, information reporting from these regulations may result in reduced costs for taxpayers to monitor and track their digital asset portfolios. These reduced costs and the increased confidence potential digital asset owners will gain as a result of brokers being compliant with Federal tax laws may increase the number of digital asset owners and may increase existing owners' digital asset trade volume. Digital asset owners currently must closely monitor and maintain records of all their transactions to correctly report their tax liability at the end of the year. This is a complicated and time-consuming task that is prone to error. Those potential digital asset owners who have little experience with accounting for digital assets may have been unwilling to enter the market due to the high learning and record maintenance costs. Eliminating these high entry costs will allow more potential digital asset owners to enter the market. In addition, these regulations may ultimately mitigate some compliance costs for brokers by providing clarity, certainty, and consistency on which types of transactions and information are, and are not, subject to reporting. II. Final Sec. Sec. 1.1001-7, 1.1012-1(h), and 1.1012-1(j) A. Comments on the Taxability of Digital Asset-for-Digital Asset Exchanges A few comments questioned the treatment, under the rules in proposed Sec. 1.1001-7(b)(1) and (b)(1)(iii)(C), of an exchange of one digital asset for another digital asset, differing materially in kind or in extent, as a taxable disposition. Such treatment, a comment advised, would be detrimental to taxpayers, because it would ignore the virtual nature of digital assets and volatile and drastic price swings in this market and the potential adverse tax consequences of having to recognize capital gains immediately but with allowable capital losses being limited in some instances. Another comment stated the proposed treatment would be administratively impractical, because such a rule, the comment argued, rests on the false presumption that an exchange of digital assets is akin to an exchange of stocks/securities and that, unlike those exchanges, taxpayers have opportunities to engage in digital asset exchanges in a manner that may go unnoticed by the IRS, and therefore, untaxed. Another comment challenged the proposed treatment, because digital assets, the comment opined, are software that do not encompass legal rights within the meaning of Cottage Savings Association v. Commissioner, 499 U.S. 554 (1991). The final regulations do not adopt these comments. The Treasury Department and the IRS have determined that treating an exchange of digital assets for digital assets is a realization event, within the meaning of section 1001(a) and existing precedents. See, e.g., Cottage Savings Ass'n, 499 U.S. at 566 (``Under [the Court's] interpretation of [section] 1001(a), an exchange of property gives rise to a realization event so long as the exchanged properties are `materially different'-- that is, so long as they embody legally distinct entitlements''). Moreover, the Treasury Department and the IRS have determined that the treatment is consistent with longstanding legal principles. Nor do the Treasury Department and the IRS agree with the comment's assessment that digital assets are only software that do not represent legally distinct entitlements. Accordingly, final Sec. 1.1001-7(b)(1) and (b)(1)(iii)(C) retain the rules in proposed Sec. 1.1001-7(b)(1) and (b)(1)(iii)(C) treating such an exchange as a realization event. Alternatively, one comment criticized treating an exchange of digital assets for digital assets, differing materially either in kind or in extent, as a taxable disposition, without also providing guidance defining the factors necessary for determining what are material differences. The absence of such guidance, the comment believed, would require taxpayers and brokers to rely on decades-old case law to make such determinations and would result in discrepancies in information reporting for the same types of transactions. Accordingly, the comment recommended the final rules include guidance on these factors. The final regulations do not adopt this recommendation. The Treasury Department and the IRS have concluded that a determination of whether property is materially different in kind or in extent is a factual one, and, thus, beyond the scope of these regulations. B. Digital Asset Transaction Costs Proposed Sec. 1.1001-7(b)(2)(i) defined the term digital asset transaction costs as the amount in cash, or property (including digital assets), to effect the disposition or acquisition of a digital asset and includes transaction fees, transfer taxes, and any other commissions. By cross-reference to proposed Sec. 1.1001-7(b)(2)(i), proposed Sec. 1.1012-1(h)(2)(i) adopted the same meaning for this term. Proposed Sec. 1.1001-7(b)(2)(ii) provided rules for allocating digital asset transaction costs to the disposition or acquisition of a digital asset. Proposed Sec. 1.1001-7(b)(2)(ii)(A) set forth the general rule for allocating digital asset transaction costs for purposes of determining the amount realized. Proposed Sec. 1.1001- 7(b)(2)(ii)(B) included a special rule, in the case of digital assets received in exchange for other digital assets that differ materially in kind or extent, allocating one-half of the total digital asset transaction costs paid by the taxpayer to the disposition of the transferred digital asset for [[Page 56524]] purposes of determining the amount realized. Proposed Sec. 1.1012-1(h)(2)(ii) provided rules for allocating digital asset transaction costs to acquired digital assets. Proposed Sec. 1.1012-1(h)(2)(ii)(A) included a general rule requiring such costs to be allocated to the basis of the digital assets received. As a corollary to proposed Sec. 1.1001-7(b)(2)(ii)(B), proposed Sec. 1.1012-1(h)(2)(ii)(B) included a special rule in the case of digital assets received in exchange for other digital assets that differ materially in kind or extent, allocating one-half of the total digital asset transaction costs paid by the taxpayer to the acquisition of the received digital assets for purposes of determining the basis of those received digital assets. 1. Proposed Split Digital Asset Transaction Cost Rule The Treasury Department and the IRS solicited comments on whether the proposed split digital asset transaction cost rule, as described in proposed Sec. Sec. 1.1001-7(b)(2)(ii)(B) and 1.1012-1(h)(2)(ii)(B), would be administrable. The responses to this inquiry varied widely. One comment viewed the split digital asset transaction cost rule as administrable but only if the digital assets used to pay the digital asset transaction costs can be reasonably valued and recognized at their acquisition cost. The final regulations do not adopt this comment. The determination of whether digital assets can be reasonably valued could be made differently by different brokers and give rise to inconsistent reporting. The sale or disposition of digital assets giving rise to digital asset transaction costs is subject to the rules of final Sec. Sec. 1.1001-7 and 1.1012-1(h), which provide consistent rules for all digital asset-for-digital asset transactions. Another comment opined that the proposed split digital asset transaction cost rule would be administrable, but that its application would pose an increased risk of error and would not reflect current industry practice. In contrast, several comments expressed the view that the proposed split digital asset transaction cost rule, in fact, would not be administrable. These comments cited a variety of reasons, including that the rule's application would be too burdensome, complicated, or confusing for brokers and taxpayers and would render oversimplified allocations not reflective of the diverse and complex nature of digital asset transactions. Other comments opined that the lack of administrability would derive, in part, from the disparity of having a different allocation rule for exchanged digital assets than the allocation rules applied to other asset classes, which, in their view, would result in disparate tax treatment for the latter type of costs. A few comments advised that the administrability issues would be caused in part, from the difficulties the rule would create when later seeking to reconcile transaction accounting and transaction validation. One comment shared the view that the proposed rule would be difficult for decentralized digital asset trading platforms to administer because it would require coordination of multiple parties providing facilitative services, and no such coordination currently exists in the form of technological infrastructure and standardized processes for tracking and communicating cost-basis information across these platforms. Several comments noted that digital asset transaction costs paid for effecting an exchange of digital assets were generally low, with one comment opining that such costs were generally less than 1 percent of a transaction's total value. These comments often noted that the resulting allocations from applying the proposed split digital asset transaction cost rule would result in no or minimal timing differences in the associated income. Other comments questioned whether the benefits derived from having taxpayers and brokers apply the proposed split digital asset transaction cost rule would be commensurate with the additional administrative burdens that would be placed on the parties. A few comments shared the concern that the proposed split digital asset transaction cost rule would impose additional burdens and complexity, because such a rule would require brokers to implement or modify their existing accounting systems, develop new software, and retain additional professional service providers in order to comply. One comment also noted the resulting allocations from the proposed split digital asset transaction cost rule would be inconsistent with the allocations required by Generally Accepted Accounting Principles and would produce unnecessary book-tax differences. Some comments expressed the concern that the proposed split digital asset transaction cost rule would produce arbitrary approximations not necessarily reflecting the economic reality of the particular transactions. Additionally, one comment stated that the proposed split digital asset transaction cost rule would pose litigation risks for the IRS because such a rule would override the parties' contracted cost allocations and thus impede their rights under contract law. Another comment argued that the proposed split digital asset transaction cost rule would impede the right of taxpayers and brokers to determine which party bears the economic burden of digital asset transaction costs. The Treasury Department and the IRS have concluded that the proposed split digital asset transaction cost rule would be overly burdensome for taxpayers and brokers to administer. Accordingly, the final regulations do not adopt the proposed rule. 2. Recommended Alternatives for the Split Digital Asset Transaction Cost Rule A few comments recommended the adoption of a rule allocating digital asset transaction costs based on the actual amounts paid for the specific disposition or acquisition, which some viewed as promoting taxpayer equity. One comment also recommended that this rule be coupled with flexibility sufficient to accommodate different types of transactions and technological solutions for ease of administration. Several comments recommended that the final regulations adopt a discretionary rule allowing brokers to decide how to allocate these costs (discretionary allocation rule). Most of these comments also recommended that brokers be required to notify taxpayers of the cost allocations and to apply the allocations in a consistent manner. The cited benefits for this recommendation included that the resulting allocations would be more consistent with the economics of the actual fees charged by brokers, and that the recommended rule would create symmetry with the rules applied to transactions involving other asset classes. In addition to recommending adoption of a discretionary allocation rule, a few comments also recommended the inclusion of safe harbors for brokers. In urging the inclusion of safe harbors, one comment suggested limiting their availability to those brokers who maintain records documenting the actual cost allocations. Of the comments recommending a discretionary allocation rule, most viewed such a rule as comparable with the current rules for allocating transactional costs incurred in transactions with other asset classes. One comment also recommended that the discretionary allocation rule be extended to cover taxpayers' allocations of digital asset transaction costs. In addition to recommending a discretionary allocation rule, many comments also recommended that the [[Page 56525]] final rules provide an option, allowing brokers or taxpayers to allocate digital asset transaction costs on a per-transaction basis. This approach, in their view, was necessary because of the diverse types of digital asset transactions. Comments claimed that a ``one- size-fits-all'' approach would not account for the inevitable variability, and that the recommended approach would promote fairness and administrability. One comment recommended that the final regulations include a de minimis rule excluding digital asset transaction costs under a specified threshold. Another comment recommended that the split digital asset transaction cost rule be replaced with rules requiring taxpayers to account for digital asset transaction costs in accordance with the principles of section 263(a) of the Code, while permitting brokers to allocate and report digital asset transaction costs either as a reduction in the amount realized on the disposed digital assets or as an additional amount paid for the acquired digital assets so long as the brokers' reporting is consistently applied. One comment recommended the inclusion of a simplified reporting rule with less emphasis on precise allocations of digital asset transaction costs for smaller transactions. The comment did not offer parameters for defining smaller transactions in this context. The final regulations do not adopt these recommendations. The Treasury Department and the IRS have determined that the adoption of discretionary allocation rules would place additional administrative burdens on taxpayers, brokers, and the IRS. Such rules would render disparate treatment of such costs among brokers and/or taxpayers with multiple wallet or broker accounts, thus necessitating the need for additional tracking and coordination to avoid discrepancies. In contrast, a uniform rule is less susceptible to manipulation and avoids administrative complexities. 3. Proposed 100 Percent Digital Asset Transaction Cost Rule The Treasury Department and the IRS also solicited comments on whether a rule requiring a 100 percent allocation of digital asset transaction costs to the disposed-of digital asset in an exchange of one digital asset for a different digital asset (100 percent digital asset transaction cost rule) would be less burdensome. Several comments agreed that the proposed 100 percent digital asset transaction cost rule would be less burdensome. Other comments, however, did not share this view for a variety of reasons. Some comments stated that the resulting allocations would not accurately reflect the economic realities of the transactions, although one comment expressed the view that these allocations would more closely reflect economic realities than the allocations resulting from the proposed split digital asset transaction cost rule. One comment cited the rule's rigidity, which the comment concluded would lead to increased potential disputes between the IRS and taxpayers and expose both parties to additional litigation and administrative burdens. One comment cited the oversimplifying effect the rule would have on diverse and complex digital asset transactions, which would, in the comment's view, result in inaccurate reporting of gains and losses and other unintended tax consequences, pose a potential disincentive for taxpayers to engage in smaller transactions, and disproportionately impact investors engaged in certain investment strategies. The Treasury Department and the IRS do not agree that the resulting allocations rendered by the 100 percent digital asset transaction cost rule are inconsistent with the economic realities of some digital asset transactions. The 100 percent digital asset transaction cost rule likely creates minor timing differences, but such differences do not outweigh the benefits, in the form of clarity and certainty in determining the allocated costs. Further, the Treasury Department and the IRS have concluded that the 100 percent digital asset transaction cost rule appropriately balances concerns about administrability, compliance burdens, manipulability, and accuracy. Specifically, it alleviates the burdens placed on brokers and taxpayers from having to track the allocated costs separately to ensure the amounts are accurate. Additionally, the 100 percent digital asset transaction cost rule, applied to both unhosted wallets and accounts held in the custody of a broker, is less burdensome than the proposed split digital asset transaction cost rule and the recommended discretionary allocation rule. One comment cited the current industry consensus to treat an exchange of one digital asset for another digital asset as two separate transactions consisting of: a sale of the disposed digital asset followed by a purchase of the received digital asset. Because of this industry consensus, the comment recommended that these costs be treated as selling expenses reducing the amount realized on the disposed digital assets. The final regulations adopt this comment. Final Sec. 1.1001-7(b)(2)(ii) sets forth rules for allocating digital asset transaction costs, as defined in final Sec. 1.1001-7(b)(2)(i), by retaining the general rule in proposed Sec. 1.1001-7(b)(2)(ii)(A), and revising proposed Sec. 1.1001-7(b)(2)(ii)(B). Final Sec. 1.1001- 7(b)(2)(ii)(A) replaces the split digital asset transaction cost rule with the 100 percent digital asset transaction cost rule. Under final Sec. 1.1001-7(b)(2)(ii)(A), the total digital asset transaction costs, other than in the case of certain cascading digital asset transaction costs described in final Sec. 1.1001-7(b)(2)(ii)(B), are allocable to the disposed digital assets. Final Sec. 1.1012-1(h)(2)(ii) also includes corresponding rules to those in final Sec. 1.1001-7(b)(2)(ii), for allocating digital asset transaction costs, as defined in final Sec. 1.1012-1(h)(2)(i). Final Sec. 1.1012-1(h)(2)(ii) retains the general rule in proposed Sec. 1.1012-1(h)(2)(ii)(A), and revises the special rule in proposed Sec. 1.1012-1(h)(2)(ii)(B), removing the split digital asset transaction cost rule and allocating digital asset transaction costs paid to effect an exchange of digital assets for other digital assets, differing materially in kind or in extent, exclusively to the disposition of digital assets. Under final Sec. 1.1012-1(h)(2)(ii)(A), digital asset transaction costs, other than those described in final Sec. 1.1012- 1(h)(2)(ii)(B) and (C), are allocable to the digital assets received. Under final Sec. 1.1012-1(h)(2)(ii)(B), if digital asset transaction costs are paid to effect the exchange of digital assets for other digital assets, differing materially in kind or in extent, then such costs are allocable exclusively to the disposed digital assets. Final Sec. 1.1012-1(h)(2)(ii) also adds special rules in final Sec. 1.1012- 1(h)(2)(ii)(C) for allocating certain cascading digital asset transaction costs, which are discussed in Part II.B.4. of this Summary of Comments and Explanation of Revisions. Final Sec. 1.1012- 1(h)(2)(ii) also states that any allocations or specific assignments, other than those in accordance with final Sec. 1.1012-1(h)(2)(ii)(A) through (C), are disregarded. Finally, final Sec. 1.1001-7(b)(2)(ii)(B) adds a new special rule for cascading digital asset transaction costs. See Part II.B.4. of this Summary of Comments and Explanation of Revisions for a discussion of the special rule in final Sec. 1.1001-7(b)(2)(ii)(C) for allocating certain cascading digital asset transaction costs and the Treasury Department's and the IRS's reasons for adopting that rule. [[Page 56526]] 4. Cascading Digital Asset Transaction Costs The Treasury Department and the IRS solicited comments on whether cascading digital asset transaction costs, that is, a digital asset transaction cost paid with respect to the use of a digital asset to pay for a digital asset transaction cost, should be treated as digital asset transaction costs associated with the original transaction. A few comments agreed that cascading digital asset transaction costs should be allocated to the original transaction. Most comments, however, opposed allocating such costs exclusively to the original transaction, citing an array of reasons. A few comments advised that such an approach would improperly aggregate economically distinct transactions and would fail to accurately measure cost basis and any gains or losses on the disposed digital assets used to pay the subsequent digital asset transaction costs. These comments expressed the position that the proposed approach would conflict with existing tax jurisprudence and fail to reflect economic reality. One comment cited the oversimplifying effect of such a rule, which would, in the comment's view, lead to inequitable tax treatment and imposition of undue operational burdens. A few comments cited the significant operational burdens placed on both taxpayers and brokers to implement such a rule. One of these comments also cited the complicating and potentially inequitable effect such a rule would have on making the allocation and tax calculations. Comments recommended a variety of alternatives for allocating cascading digital asset transaction costs. Some comments recommended that these costs be allocated to each specific transaction giving rise to the costs. In recommending this approach, one comment noted that it would offer a more nuanced and accurate reflection of the financial realities of digital asset transactions, thus ensuring ``fairer'' tax treatment, ``clearer'' records, and ``easier'' audit trails, while also acknowledging that it may impose increased administrative burdens. In addition to making the above recommendation, one comment also offered an alternative approach suggesting that such costs be allocated proportionally based on the significance of each transaction in the cascading chain. This alternative recommendation, the comment noted, would balance the needs for accurate cost reporting and accounting, and would reduce disproportionately high tax burdens arising from minor transaction costs, while the comment acknowledged that it may be complex to implement. Another comment recommended allocating cascading digital asset transaction costs based on some other factors, such as the complexity or difficulty of each transaction and market conditions. The final regulations do not adopt these comments for allocating cascading digital asset transaction costs. The Treasury Department and the IRS have determined that these costs should be allocated in the same manner provided in the general allocation rules with a limited exception because this framework is less burdensome, produces accurate tax determinations, and reduces the potential for errors and inconsistencies. A few comments included a description of network fees, exchange fees, one time access fees, and other service charges and recommended that the final rules treat these types of fees as cascading digital asset transaction costs. Final Sec. Sec. 1.1001-7 and 1.1012-1(h) do not adopt these recommendations. The Treasury Department and the IRS have determined that whether a type of transaction fee fits within the definition of cascading digital asset transaction costs is a factual determination and is beyond the scope of these regulations. Final Sec. 1.1001-7(b)(2)(ii)(B) adopts a modified special rule for allocating certain cascading digital asset transaction costs for an exchange described in final Sec. 1.1001-7(b)(1)(iii)(C) (an exchange of digital assets for other digital assets differing materially in kind or in extent) and for which digital assets acquired in the exchange are withheld from digital assets acquired in the original transaction to pay the digital asset transaction costs to effect the original transaction. For such transactions, the total digital asset transaction costs paid by the taxpayer, to effect the original exchange and any dispositions of the withheld digital assets, are allocable exclusively to the disposition of digital assets from the original exchange. For all other transactions not otherwise described in final Sec. 1.1001- 7(b)(2)(ii)(B), digital asset transaction costs are allocable in accordance with the general allocation rule set forth in final Sec. 1.1001-7(b)(2)(ii)(A), that is, digital asset transaction costs are allocable to the specific transaction from which they arise. Final Sec. 1.1012-1(h)(2)(ii) adds corresponding special allocation rules for certain cascading digital asset transaction costs paid to effect an exchange of one digital asset for another digital asset and for which digital assets are withheld from those received in the exchange to pay the digital asset transaction costs to effect such an exchange. For such transactions, the total digital asset transaction costs paid by the taxpayer to effect the exchange and any dispositions of the withheld digital assets are allocable exclusively to the digital assets disposed of in the original exchange. C. Basis Final Sec. 1.1012-1(j) clarifies the scope of the lot identification rules for digital assets defined by cross-reference to Sec. 1.6045-1(a)(19), except for digital assets the sale of which is not reported by a broker as the sale of a digital asset because the sale is a sale of a dual classification asset described in Part I.A.4.a. of this Summary of Comments and Explanation of Revisions that is cleared or settled on a limited-access regulated network subject to the coordination rule in final Sec. 1.6045-1(c)(8)(iii), a disposition of contracts covered by section 1256(b) subject to the coordination rule in final Sec. 1.6045-1(c)(8)(ii), or is a sale of a dual classification asset that is an interest in a money market fund subject to the coordination rule in final Sec. 1.6045-1(c)(8)(iv). Final Sec. 1.1012-1(j)(3) applies to digital assets held in the custody of a broker, whereas the final rules in Sec. 1.1012-1(j)(1) and (2) apply to digital assets not held in the custody of a broker. Final Sec. 1.1012-1(j) also defines the terms wallet, hosted wallet, unhosted wallet, and held in a wallet by cross-reference to the definitions for these terms in Sec. 1.6045-1(a)(25)(i) through (iv). 1. Digital Assets Not Held in the Custody of a Broker For units not held in the custody of a broker, such as in an unhosted wallet, proposed Sec. 1.1012-1(j)(1) provided that if a taxpayer sells, disposes of, or transfers less than all the units of the same digital asset held within a single wallet or account, the units disposed of for purposes of determining basis and holding period are determined by a specific identification of the units of the particular digital asset in the wallet or account that the taxpayer intends to sell, dispose of, or transfer. Under the proposed regulations, for a taxpayer that does not specifically identify the units to be sold, disposed of, or transferred, the units in the wallet or account disposed of are determined in order of time from the earliest purchase date of the units of that same digital asset. For purposes of making this determination, the dates the units were transferred into the taxpayer's wallet or account are [[Page 56527]] disregarded. Proposed Sec. 1.1012-1(j)(2) provided that a specific identification of the units of a digital asset sold, disposed of, or transferred is made if, no later than the date and time of sale, disposition, or transfer, the taxpayer identifies on its books and records the particular units to be sold, disposed of, or transferred by reference to any identifier, such as purchase date and time or the purchase price for the unit, that is sufficient to identify the basis and holding period of the units sold, disposed of, or transferred. A specific identification could be made only if adequate records are maintained for all units of a specific digital asset held in a single wallet or account to establish that a unit is removed from the wallet or account for purposes of subsequent transactions. a. Methods and Functionalities of Unhosted Wallets The Treasury Department and the IRS solicited comments on whether there are methods or functionalities that unhosted wallets can provide to assist taxpayers with the tracking of a digital asset upon the transfer of some or all units between custodial brokers and unhosted wallets. In response, one comment stated that unhosted wallets currently lack the functionalities to allow taxpayers to make specific identifications, as provided in proposed Sec. 1.1012-1(j)(2), of their basis and holding periods by the date and time of a sale, disposition, or transfer from an unhosted wallet even if taxpayers were to employ transaction-aggregation tools. In contrast, another comment advised that existing transaction-aggregation tools could provide the needed assistance for tracking digital assets held in unhosted wallets. The remaining comments suggested that no methods or functionalities are currently available or feasible that would allow unhosted wallets to track purchase dates, times, and/or the basis of specific units. Noting that unhosted wallets are open-source software created by developers with limited resources, one comment opined that any expectation that such functionalities can be added to these wallets before 2030 would be unreasonable. Creating such functionalities, some comments also stated, would require the adoption of universal industry-wide standards or methods for reliably tracking cost basis information across wallets and transactions, yet existing technology challenges and the complexity of some transactions would serve as impediments to their adoption. These comments also stated that the addition of comprehensive cost-basis tracking to unhosted wallets would make such wallets prohibitively risky for taxpayers, thus depriving them of their privacy, security, and control benefits. The Treasury Department and the IRS have determined that the final ordering rules for digital assets not held in the custody of a broker should strike a balance between the compliance burdens placed on taxpayers and the necessity for rules that will comply with the statutory requirements of section 1012(c)(1) to render accurate tax results. Accordingly, notwithstanding existing technology limitations, final Sec. 1.1012-1(j)(2) provides that specific identification of the units of a digital asset sold, disposed of, or transferred is made if, no later than the date and time of the sale, disposition, or transfer, the taxpayer identifies on its books and records the particular units to be sold, disposed of, or transferred by reference to any identifier, such as purchase date and time or the purchase price for the unit, that is sufficient to identify the units sold, disposed of, or transferred in order to determine the basis and holding period of such units. Taxpayers can comply with these rules by keeping books and records separate from the data in the unhosted wallet. A specific identification can be made only if adequate records are maintained for the unit of a specific digital asset not held in the custody of a broker to establish that a unit sold, disposed of, or transferred is removed from the wallet. Taxpayers that wish to simplify their record maintenance tasks may adopt a standing rule in their books and records that specifically identifies a unit selected by an unhosted wallet for sale, disposition or transfer as the unit sold, disposed of or transferred, if that would be sufficient to establish which unit is removed from the wallet. b. Ordering Rule for Digital Assets Not Held in the Custody of a Broker The Treasury Department and the IRS also solicited comments on whether the ordering rules of proposed Sec. 1.1012-1(j)(1) and (2) for digital assets not held in the custody of a broker should be applied on a wallet-by-wallet basis, as proposed, on a digital asset address-by- digital asset address basis, or on some other basis. The Treasury Department and the IRS received a variety of responses to this inquiry. A few comments recommended the adoption of a universal or multi- wallet rule for all digital assets held in unhosted wallets, with one such comment opining that there is not a strong policy reason for prohibiting this approach. The final regulations do not adopt this recommendation because a wallet-by-wallet approach is more consistent with the statutory requirements in section 1012(c)(1), which requires that regulations prescribe an account-by-account approach for determining the basis of specified securities that are sold, exchanged, or otherwise disposed of. One comment recommended that proposed Sec. 1.1012-1(j)(1) be modified to require taxpayers to determine the basis of identical digital assets by averaging the acquisition cost of each identical digital asset if it is acquired at separate times during the same calendar day in executing a single trade order and the executing broker provides a single confirmation that reports an aggregate total cost or an average cost per share. The comment also suggested that taxpayers be provided an option to override the mandatory rule and determine their basis by the actual cost on a per-unit basis if the taxpayer notifies the broker in writing of this intent by the earlier of: the date of the sale of any of such digital assets for which the taxpayer received the confirmation or one year after the date of the confirmation (with the receiving broker having the option to extend the one-year notification period, so long as the extended period would end no later than the date of sale of any of the digital assets). The comment noted a similar rule exists for certain stock acquisitions, citing Sec. 1.1012-1(c)(1)(ii). This comment is not adopted. A key feature of the rules provided in Sec. 1.1012-1(c)(1)(ii) is the confirmation required by U.S. securities laws to be sent from a security broker to the customer shortly after the settlement of a securities trade, which may report the use of average basis for a single trade order that is executed in multiple tranches. Digital asset industry participants do not necessarily issue equivalent confirmations for digital asset purchases. As a result, a customer would not know whether the broker used average basis until the customer received an information return from the broker, even though the customer may need to know whether the broker used average basis sooner, such as when the customer decides which units to dispose of in a transaction. One comment recommended that the final rules adopt an address-based rule for all digital assets held in unhosted wallets, viewing this approach as posing less of a compliance burden on taxpayers. The statutory requirements of section 1012(c)(1) require that in the case of the sale, exchange, or other disposition of a specified security on or after the applicable date for that security, the conventions prescribed by the regulations must be applied on an [[Page 56528]] account-by-account basis. Accordingly, the final regulations do not adopt this recommendation. A few comments expressed general concerns about applying the proposed ordering rules to digital assets held in unhosted wallets, with one comment stating that the rules (1) would not align with how taxpayers currently use unhosted wallets; (2) would require complex tracing, making accurate basis reporting infeasible and unnecessarily complex; and (3) would drive digital asset transactions to offshore exchanges, recommending instead that the ordering rules be applied on a per-transaction basis. Another comment recommended a uniform wallet- based rule for all digital assets held in unhosted wallets. In contrast, a few comments viewed such a rule as imposing administrative difficulties because of technological differences in how different blockchains record and track units, explaining that current blockchains employ one of two types of technology for this purpose: the unspent transaction output (UTXO) model and the account model. The UTXO model, comments described, is similar to a collection of transaction receipts or gift cards with the inputs to a transaction being marked as spent and any outputs remaining under the control of the wallet after a transaction's execution as ``unspent outputs'' or ``UTXOs.'' In contrast, comments described the account model as aggregating the taxpayer's unspent units into a cumulative balance. A relevant difference between the two models, these comments noted, is that units recorded/tracked by a UTXO model are not divisible, whereas those recorded/tracked by an account model are divisible. In light of these differences, a comment recommended that the final rules include separate ordering rules based on the type of model used to record the particular units. This comment recommended that units of a digital asset recorded/tracked with the UTXO model should be identified by taxpayers using the specific identification rule and applied on a wallet-by-wallet basis, defining wallet for this purpose as a collection of logically related digital asset addresses for which the wallet may form transactions involving more than a single address. This comment also recommended that units recorded by the account model should be identified by taxpayers using the FIFO ordering rule and applied on a digital asset address-by-digital asset address basis. The final regulations do not adopt these recommendations. As explained later in this preamble, the final rules adopt uniform basis identification rules not tied to a specific technology. The Treasury Department and the IRS have concluded that the use of different rules based on existing recording models would limit the rules' utility and render disparate timing results of the associated gains or losses. The final rules offer flexibility to accommodate evolving recording models. Moreover, as discussed earlier in this preamble, the recommended address-based rule for units recorded by the account model would not conform to the statutory requirements of section 1012(c)(1). One comment assessed the benefits and drawbacks of both the wallet- based rule and the address-based rule. This comment viewed the wallet- based rule as offering taxpayer simplicity and audit efficiency but posing added complexity and audit burdens in some instances, and the address-based rule as providing more granular tracking results, more accurately reflecting a taxpayer's intentions for a particular transaction but adding additional administrative burdens and increasing the risk of reporting errors. This comment recommended that the final rules adopt a discretionary rule allowing a taxpayer to choose either rule based on the taxpayer's circumstances. The final regulations do not adopt this recommendation because the Treasury Department and the IRS have determined that such a rule would increase the possibility of manipulation and errors in taxpayers' calculations. One comment rejected both a wallet-based rule and an address-based rule. This comment stated that a wallet-based rule would add complexity and administrative burdens to tracking basis and would pose an increased risk for reporting errors. This comment also stated that an address-based rule would produce excessive granular data, raise privacy concerns, and present technical challenges. Instead, this comment recommended two alternatives, the first of which would be to apply the ordering rules for unhosted wallets by grouping digital asset addresses or wallets, and the second of which would be to allow taxpayers to identify or report only transactions above a minimum balance or transactional volume. The Treasury Department and the IRS have determined that both approaches would create undue administrative burden. Additionally, the Treasury Department and the IRS have determined that the de minimis approach would create an unnecessary disparity between the ordering rules for digital assets in unhosted wallets and the ordering rules for digital assets held in the custody of a broker as well as the ordering rules applicable to other assets. Accordingly, the final regulations do not adopt either of these recommendations. A few comments expressed concerns that technology limitations would make the proposed specific identification rule unfeasible for all digital assets held in unhosted wallets regardless of the model used by the blockchain to record and track units. Alternatively, a comment recommended, if a uniform ordering rule is desired for UTXO and account models, then the address-based rule should be adopted but with an option allowing taxpayers to identify related digital asset addresses, subject to a burden-of-proof showing of the relatedness. The comment suggested that this alternative would be easy to administer, provide a verifiable audit trail and flexibility, and avoid potential tax reporting discrepancies. The final regulations do not adopt these suggestions. The Treasury Department and the IRS have concluded that the suggested approaches tied to current technology would have limited usefulness since technology can be expected to change in the future. Accordingly, the final regulations adopt a uniform ordering rule for digital assets not held in the custody of a broker because this rule reduces the risk of errors and simplifies taxpayers' gain or loss calculations. One comment recommended, as an alternative to the proposed ordering rules for digital assets held in unhosted wallets, that taxpayers be required to determine their cost basis of a unit of a digital asset by averaging their costs for all units of the identical digital asset irrespective of their holding periods. This comment suggested that this approach would simplify determination of the basis of individual units because it would eliminate the need to track the acquisition details of each digital asset. This comment noted that certain other countries employ variations of this approach, suggesting, for example, that its adoption would align future information exchanges with other countries under the CARF. The final regulations do not adopt this recommendation because it is inconsistent with sections 1222 and 1223 of the Code, which require taxpayers to determine whether gains or losses with respect disposed digital assets are long term or short term, within the meaning of section 1222, based on the taxpayer's holding period for the disposed asset as determined under section 1223. One comment recommended that the proposed ordering rules be revised to adopt the meaning of ``substantially similar or related'' as the term is used [[Page 56529]] in IRS Tax Publication 550, Investment Income and Expenses. The final regulations do not adopt this recommendation. The Treasury Department and the IRS have determined that this term refers to special rules not covered by these regulations. Accordingly, the term would not serve as a relevant benchmark by which to apply the ordering rules for digital assets held in unhosted wallets. A comment requested guidance on how taxpayers should comply with the proposed specific identification rules for digital assets held in unhosted wallets when using tracking software that neither provides a way to mark the units sold nor incorporates these sold units into gain and loss calculations. The final regulations do not adopt this comment. The Treasury Department and the IRS have determined that additional guidance on how taxpayers maintain their books and records to meet their substantiation obligations is not needed and is beyond the scope of this project. The specific identification rules should not apply differently simply because currently available basis tracking software may not have the ability to mark specific units as sold or otherwise track basis in a manner consistent with the specific identification rules. The Treasury Department and the IRS have determined that the final regulations should include a uniform wallet-based ordering rule for all digital assets held in unhosted wallets rather than separate rules based on existing technological differences. The Treasury Department and the IRS have determined that such a rule best facilitates accurate tax determinations. Moreover, such a rule satisfies the statutory requirements of section 1012(c)(1), which requires that the conventions prescribed by regulations be applied on an account-by-account basis in the case of a sale, exchange, or other disposition of a specified security, on or after the applicable date as defined in section 6045(g). Additionally, to conform with this decision, final Sec. 1.1012-1(j)(1) and (2) retain the term held in a wallet as defined in final Sec. 1.6045-1(a)(25), but no longer incorporate the term ``account'' to avoid confusion with industry usage of the term to refer to the account-based models used by blockchains to record and track units of a digital asset. The Treasury Department and the IRS have determined that the term wallet, as defined by Sec. 1.6045-1(a)(25), is sufficiently broad to incorporate both wallets and accounts and the removal of the latter term avoids confusion. Finally, as discussed in Part VII. of this Summary of Comments and Explanation of Revisions, the final regulations under Sec. 1.6045-1 are applicable beginning January 1, 2025. Accordingly, digital assets constitute specified securities and are subject to these requirements beginning January 1, 2025. 2. Digital Assets Held in the Custody of Brokers For taxpayers that leave their digital assets in the custody of a broker, unless the taxpayer provides the broker with an adequate identification of the units sold, disposed of, or transferred, proposed Sec. 1.1012-1(j)(3)(i) provided that the units disposed of for purposes of determining the basis and holding period of such units is determined in order of time from the earliest units of that same digital asset acquired in the taxpayer's account with the broker. Because brokers do not have the purchase date information about units purchased outside the broker's custody and transferred into the taxpayer's account, proposed Sec. 1.6045-1 instead required brokers to treat units of a particular digital asset that are transferred into the taxpayer's account as purchased as of the date and time of the transfer (rather than as of the date actually acquired as proposed Sec. 1.1012- 1(j)(3)(i) requires taxpayers to do). The rule for units that are transferred into the custody of a broker, the comments received in response to this rule, and the final decisions made after considering those comments are discussed in Part I.E.3.b. of this Summary of Comments and Explanation of Revisions. See also, final Sec. Sec. 1.1012-1(j)(3)(i) and 1.6045-1(d)(2)(ii)(B). Additionally, see Part I.E.3.b. of this Summary of Comments and Explanation of Revisions, for a discussion of final Sec. 1.1012-1(j)(3)(ii) for how and when a taxpayer can make an adequate identification of the units sold, disposed of, or transferred when the taxpayer leaves multiple units of a type of digital asset in the custody of a broker. 3. Transitional Guidance The IRS published Virtual Currency FAQs \5\ explaining how longstanding Federal tax principles apply to virtual currency held by taxpayers as capital assets. For example, FAQs 39-40 explain that a taxpayer may specifically identify the units of virtual currency deemed to be sold, exchanged, or otherwise disposed of either by referencing any identifier, such as the private key, public key, or by records showing the transaction information for units of virtual currency held in a single account, wallet, or address. The information required by these FAQs include: (1) the date and time each unit was acquired; (2) the taxpayer's basis and the fair market value of each unit at the time acquired; (3) the date and time each unit was sold, exchanged, or otherwise disposed of; and (4) the fair market value of each unit when sold, exchanged, or disposed of, and the amount of money or the value of property received for each unit. FAQ 41 further explains that if a taxpayer does not identify specific units of virtual currency, the units are deemed to have been sold, exchanged, or otherwise disposed of in chronological order beginning with the earliest unit of the virtual currency a taxpayer purchased or acquired, that is, on a FIFO basis. --------------------------------------------------------------------------- \5\ The IRS first published the Virtual Currency FAQs on October 9, 2019. Since that time, the FAQs have been revised and renumbered. References to FAQ numbers in this preamble are to the numbering in the version of the FAQs as of June 6, 2024. --------------------------------------------------------------------------- Comments expressed concern that the proposed basis identification rules of proposed Sec. 1.1012-1(j) would apply differently from those in FAQs 39-41. Comments also noted that many taxpayers have interpreted FAQs 39-41 as permitting, or at least not prohibiting, taxpayers from specifically identifying units or applying the FIFO rule on a ``universal or multi-wallet'' basis. The comments generally described this approach as one in which a taxpayer holds units of a digital asset in a combination of unhosted wallets or exchange accounts and sells, disposes of, or transfers units from one wallet or account, but either specifically identifies units or applies the FIFO rule to effectively treat the units sold, disposed of, or transferred as coming from a different wallet or account. For example, assume D holds 50 units of digital asset GH in D's unhosted wallet, each of which was acquired on March 1, Year 1, and has a basis of $5. D also acquires 50 units of digital asset GH through Exchange FYZ, each of which was acquired on July 1, Year 1, and has a basis of $1. Using the universal or multi- wallet approach, D directs Exchange FYZ on December 1, Year 1, to sell 20 units of digital asset GH on D's behalf but specifically identifies the 20 units sold as 20 units coming from D's unhosted wallet for purposes of determining the basis. As a result of the sale, D holds 30 units of GH with Exchange FYZ and 50 units of GH in D's unhosted wallet. Of those 80 units, D treats 30 units as having a basis of $1 and 50 units as having a basis of $5, [[Page 56530]] without regard to whether the units were purchased through Exchange FYZ or in D's unhosted wallet. Whatever the merits of the comments' points, regulations implementing section 1012(c)(1) are required to adopt an account-by-account method for determining basis and the universal or multi-wallet approach does not conform with the statutory requirements. See Part II.C.1.b. of this Summary of Comments and Explanation of Revisions. These comments also expressed concerns that taxpayers, who seek to transition either prospectively or retroactively from the ``universal or multi-wallet'' approach to the proposed basis identification rules would experience, perhaps unknowingly, ongoing discrepancies. Some of the discrepancies, in their view, may be exacerbated by the limitations of current basis-tracking software. A comment also noted that taxpayers often have multiple numbers of different tokens and multiple numbers of different blockchains, both of which further enhance the significant complexity of basis tracking. These complexities, in the comment's view, make it impractical for taxpayers to specifically identify digital assets as provided in proposed Sec. 1.1012-1(j)(1) or to apply the default identification rule in proposed Sec. 1.1012-1(j)(2). A comment requested that taxpayers who previously made basis identifications or applied the FIFO rule on a universal or multi-wallet basis consistently with FAQs 39-41 be exempt from the basis identification rules of proposed Sec. 1.1012-1(j). The final regulations do not adopt the request to exempt previously acquired digital assets from the proposed basis identification rules because such a rule would create significant complexity and confusion if taxpayers used different methods for determining basis for existing and newly acquired digital assets. However, see this Part II.C.3. of this Summary of Comments and Explanation of Revisions for a discussion of transitional guidance with respect to these issues. A few comments requested additional rules and examples, explaining how taxpayers should transition from the universal or multi-wallet approach to specifically identify digital assets as provided in final Sec. 1.1012-1(j)(1) or apply the default identification rule in final Sec. 1.1012-1(j)(2). The Treasury Department and the IRS have determined that any basis adjustments necessary to comply with these final rules is a factual determination. However, to promote taxpayer readiness to comply with the rules in final Sec. 1.1012-1(j) beginning in 2025, Revenue Procedure 2024-28 is being issued contemporaneously with these final regulations, and will be published in the Internal Revenue Bulletin, to provide transitional relief. The transitional relief will take into account that a transition from the universal approach to the specific identification or default identification rules involves evaluating a taxpayer's remaining digital assets and pool of basis originally calculated under the universal approach and may result, unknowingly, in ongoing discrepancies that could be exacerbated by the limitations of currently available basis tracking software. This relief applies to transactions that occur on or after January 1, 2025. Additionally, the IRS will continue to work closely with taxpayers and other stakeholders to ensure the smooth implementation of final Sec. 1.1012-1(j), including the mitigation of penalties in the early stages of implementation for all but particularly egregious cases. Accordingly, final Sec. 1.1012-1(j) will apply to all acquisitions and dispositions of digital assets on or after January 1, 2025. D. Comments Requesting Substantive Guidance on Specific Types of Digital Asset Transactions A few comments requested that the final rules address the tax treatment of specific transactions such as wrapping, burning, liquidity transactions, splitting or combining digital assets into smaller or larger units, and the character and source of revenue-sharing agreements. These regulations provide generally applicable gross proceeds and basis determination rules for digital assets and therefore are not the proper forum to address those issues. Therefore, the final regulations do not adopt these recommendations. See Part I.C.2. of this Summary of Comments and Explanation of Revisions for a further discussion of reporting on such transactions. E. Examples in Proposed Sec. 1.1001-7(b)(5) A few comments recommended revisions to certain examples included in proposed Sec. 1.1001-7(b)(5). One comment stated that the transaction described in proposed Sec. 1.1001-7(b)(5)(iii) (Example 3) is not realistic and should be revised. Final Sec. 1.1001-7(b)(5)(iii) includes a modified example but does not incorporate the comment's recommendation. The Treasury Department and the IRS have determined that the example in final Sec. 1.1001-7(b)(5)(iii) illustrates the rules necessary to assist taxpayers in determining amounts realized and that the comment's recommended revisions would limit its usefulness. Another comment recommended that proposed Sec. 1.1001-7(b)(5)(i) (Example 1) be revised to address a transaction in which the digital assets are recorded on the blockchain using the UTXO model. The final regulations do not adopt this recommendation. The Treasury Department and the IRS have determined that the recommended revisions are not necessary to highlight the general rules set forth herein. F. Miscellaneous Comments Relating to Fair Market Value, Amount Realized, and Basis A comment also recommended that the proposed rules be coordinated with other Federal agencies to harmonize the reporting and tax treatment of digital assets across different jurisdictions and markets and should include a uniform standard for determining the fair market value, amount realized, and basis of digital assets, and should include a requirement that brokers report the same information to the IRS and to the customers on Form 1099-B. Such a rule, the comment believed, could be aligned with the requirements of other Federal agencies, which would simplify valuations and reduce the risk of errors or disputes. The final regulations do not adopt this recommendation. These regulations concern Federal tax laws under the Internal Revenue Code only. No inference is intended with respect to any other legal regime, including the Federal securities laws and the Commodity Exchange Act, which are outside the scope of these regulations. A comment advised that the proposed rules would produce results that would not reflect economic reality or the preferences of taxpayers, who may already employ different methods and standards for tracking their transactions and calculating their gains and losses. The comment recommended that the final rules adopt rules consistent with existing Federal tax principles and guidance, such as Notice 2014-21, or allow more flexibility and choice for taxpayers to use any reasonable standards consistent with their records and tax reporting. The final regulations do not adopt these recommendations. The Treasury Department and the IRS have determined that providing uniform rules will ease the administrative burdens placed on taxpayers, brokers, and the IRS. A comment expressed concerns that applying the cost allocation rules would require meticulous record-keeping on the part [[Page 56531]] of taxpayers, which may be challenging for some taxpayers, particularly those engaged in high-frequency trading or small-scale transactions. These issues are also applicable to taxpayers who engage in high- frequency trading of traditional securities. The Treasury Department and the IRS have determined that special rules are not warranted for digital assets. A few comments suggested that the use of digital assets to pay for transaction costs or certain other services should not be taxable. These comments are not adopted because the Treasury Department and the IRS have determined that treating an exchange of digital assets for services is a realization event, within the meaning of section 1001(a) and existing precedents. See Part II.A. of this Summary of Comments and Explanation of Revisions for a further discussion of digital asset dispositions as realization events. III. Final Sec. 1.6045-4 In addition to reporting on dispositions by real estate buyers of digital assets in exchange for real estate, the proposed regulations required real estate reporting persons to report on digital assets received by sellers of real estate in real estate transactions. One comment questioned the authority behind this change because the Infrastructure Act did not specifically reference reporting of digital asset payments made in real estate transactions. Section 6045(a) provides that a broker must make a return showing ``such details regarding gross proceeds and such other information as the Secretary may by forms or regulations require.'' Additionally, section 6045(e)(2) provides that ``[a]ny person treated as a real estate reporting person . . . shall be treated as a broker.'' Accordingly, the statute gives the Secretary explicit authority to require real estate reporting persons to report on digital asset payments made in real estate transactions. As discussed in Part I.B.4. of this Summary of Comments and Explanation of Revisions, one comment raised the concern that in some real estate transactions, direct (peer to peer) payments of digital assets from buyers to sellers may be paid outside of closing and not reflected in the real estate contract for sale. In such transactions, the comment stated that the real estate reporting person would not ordinarily know that the buyer used digital assets to make payment. Instead, the comment suggested that the buyer (or buyer's representative) would be closer to the details of the transaction and should, therefore, be the reporting party. Section 6045(e) provides authority for just one person to report on the real estate transaction. Accordingly, the final regulations do not make any changes to require a second person to report on the digital asset payment. The Treasury Department and the IRS, however, have determined that it is not appropriate to require reporting by real estate reporting persons on digital asset payments received by the real estate seller when the real estate reporting person does not know, or would not ordinarily know, that digital assets were used by the real estate buyer to make payment. Accordingly, these regulations add final Sec. 1.6045-4(h)(3), which limits the real estate reporting person's obligation to report on digital asset payments received by the seller of real estate unless the real estate reporting person has actual knowledge, or ordinarily would know, that digital assets were received by the real estate seller. Additionally, the regulations modify Example 10 at final Sec. 1.6045- 4(r)(10) to reflect this change. See Part I.B.4. of this Summary of Comments and Explanation of Revisions, for a discussion of the application of this same standard for real estate reporting persons reporting on the buyer of real estate under final Sec. 1.6045-1. Another comment recommended against requiring reporting of digital asset addresses and transaction IDs because that information is not relevant to the seller's gross proceeds or basis. Although the requirement to report digital asset addresses and transaction IDs was included in the proposed regulations to determine if valuations of digital assets and real estate were done properly, the final regulations have removed the requirement. See Part I.D.1. of this Summary of Comments and Explanation of Revisions for a discussion of the rationale behind removing the requirement to report this information under final Sec. 1.6045-1. One comment raised the concern that reporting on digital assets would be burdensome for real estate reporting persons because real estate transactions are stand-alone transactions and not ongoing account relationships. This comment stated that valuations would be particularly burdensome in installment sale transactions, where the real estate reporting person would need to report the fair market value as of the time of closing of digital assets to be paid later. Instead, this comment recommended that a new check box be added to Form 1099-S to indicate that digital assets were received by the transferor instead of reporting the gross proceeds from the digital asset transfer. The Treasury Department and the IRS considered these comments. The final regulations do not adopt this suggestion, however, for several reasons. First, the information reporting rules help to reduce the overall income tax gap because they provide information necessary for taxpayers to prepare their Federal income tax returns and reduce the number of inadvertent errors or intentional misstatements shown on those returns. Information reporting also provides information to the IRS that identifies taxpayers who have engaged in these digital asset transactions and may not be reporting their income appropriately. The fair market value of digital assets used to purchase property (including real property) is generally equal to the value of the property. The real estate reporting person has several ways it can ascertain the value of real estate. For example, the agreed upon price of the real estate could be detailed in the contract of sale. To the extent this agreed upon price influences, for example, the commissions due to real estate agents or the taxes due at closing, this amount may already need to be shared with the real estate reporting person. Additionally, depending on the digital assets, the valuation could be relatively easy to determine if, for example, the digital asset is one that tracks the U.S. dollar or is otherwise widely traded. Also, the real estate reporting person could also ask both the buyer and seller whether they had agreed upon the value of the digital assets paid. Finally, if all these avenues to determine the value of digital assets paid are not successful, the regulations permit the real estate reporting person to report the value as undeterminable. One comment requested that the examples involving closing attorneys that are real estate reporting persons be revised to refer to closing agents instead to reflect the more common and more general term. This comment has been adopted. Finally, unrelated to transactions involving digital assets, the proposed regulations updated the rules to reflect the section 6045(e)(5) exception from reporting for gross income up to $250,000 of gain on the sale or exchange of a principal residence if certain conditions are met. As part of this update, proposed Sec. 1.6045- 4(b)(1) modified an illustration included in the body of the rule of a transaction that is treated as a sale or exchange even though it may not be currently taxable so that it specifically references this exception (that is, a sale of a principal residence giving rise to gain up to $250,000 or $500,000 in the case of married persons filing jointly) to the [[Page 56532]] reporting rule. One comment questioned whether the example should reflect the actual dollars in the reporting exception rule or if the example should, instead, reference the ``prescribed amount'' because the actual prescribed amounts could change in the future. The final regulations do not adopt this change because referencing ``prescribed amounts'' could be confusing, and the amounts referenced are merely included in an example and not in any operative rule. IV. Final Sec. Sec. 1.6045A-1 and 1.6045B-1 The proposed regulations did not provide guidance or otherwise implement the changes made by the Infrastructure Act that require transfer statement reporting in the case of digital asset transfers under section 6045A(a) or broker information reporting under section 6045A(d) for digital asset transfers that are not sales or are not transfers to accounts maintained by persons that the transferring broker knows or has reason to know are also brokers. Additionally, it was unclear whether brokers had systems in place to provide transfer statements under section 6045A or whether issuers had procedures in place to report information about certain organizational actions (like stock splits, mergers, or acquisitions) that affect basis under section 6045B for assets that qualify both as digital assets and specified securities under the existing rules. Accordingly, the proposed regulations provided that any specified security of a type that would have been a covered security under section 6045A pursuant to the pre- 2024 final regulations under section 6045 (that is, described in Sec. 1.6045-1(a)(14)(i) through (iv) of the pre-2024 final regulations) that is also a digital asset is exempt from transfer statement reporting under section 6045A and similarly proposed to exempt issuers from reporting under section 6045B on any such specified security that is also a digital asset. The proposed regulations also provided penalty relief to transferors and issuers that voluntarily provide these transfer statements and issuer reporting statements. One comment raised the concern that the decision to delay transfer statements for digital assets under section 6045A will mean that brokers will not receive the important information regarding basis that would be included on those transfer statements. Another comment recommended that the section 6045A rules remain applicable to transfers of securities that are also digital assets. The Treasury Department and the IRS have determined that specified securities that are digital assets should generally be exempt from the section 6045A transfer reporting requirements because it is unclear at this point how digital asset brokers would be able to provide the necessary information to make basis reporting work efficiently for digital assets that are broadly tradeable. While brokers may more readily be able to provide transfer statements for tokenized securities, the transfer of such assets on a distributed ledger may not necessarily accommodate the provision of transfer statements. Brokers who wish voluntarily to provide transfer statements for digital assets may do so and will not be subject to penalties for failure to furnish the information correctly under section 6722. Accordingly, the final regulations do not make any broadly applicable changes to the regulations under section 6045A in response to these comments. The final regulations do, however, revise the language in proposed Sec. 1.6045A-1(a)(1)(vi) to limit the transfer statement exemption only to those specified securities, the sale of which would be reportable as a digital asset after the application of the coordination rules in final Sec. 1.6045-1(c)(8). See Part I.A.4.a. of this Summary of Comments and Explanation of Revisions, for a discussion of the new coordination rule in final Sec. 1.6045-1(c)(8)(iii) treating sales of dual classification assets that are digital assets solely because the sale of such assets are cleared or settled on a limited-access regulated network as sales of securities or commodities and not sales of digital assets. Additionally, until the Treasury Department and the IRS determine the information that will be required on transfer statements with respect to digital assets, final Sec. 1.6045A-1(a)(1)(vi) limits the penalty relief for voluntarily provided transfer statements to those dual classification assets that are tokenized securities under final Sec. 1.6045-1(c)(8)(i)(D). See Part I.A.4.a. of this Summary of Comments and Explanation of Revisions, for a discussion of the new coordination rule in final Sec. 1.6045-1(c)(8)(i)(D) regarding tokenized securities. One comment agreed with the proposal to exempt issuers from reporting under section 6045B on any specified security that is also a digital asset and recommended delaying the application of section 6045B until after the IRS provides guidance under substantive tax law on which corporate actions affect the basis in specified securities that are digital assets. Another comment recommended against delaying issuer statements under section 6045B because that will hinder the ability of brokers to make basis adjustments related to covered digital assets. Another comment recommended against exempting issuers from reporting on any security that is also a digital asset because tokenized funds, which are 1940 Act Funds, are already subject to section 6045B reporting, and this reporting provides critical information to institutional investors that are otherwise exempt from Form 1099 reporting if they are corporations. The Treasury Department and the IRS agree that issuers that are already providing issuer statements should continue to do so. The ability of an issuer of traditional securities to provide information about organizational events should not be affected by whether those securities are sold on a cryptographically secured distributed ledger, because issuers may provide the information by posting it on their website. Accordingly, final Sec. 1.6045B-1(a)(6) provides that an issuer of specified securities that was subject to the issuer statement requirements before the application of these final regulations (legacy specified securities) should continue to be subject to those rules notwithstanding that such specified securities are also digital assets. Additionally, final Sec. 1.6045B-1(a)(6) provides that an issuer of specified securities that are digital assets and not legacy specified securities is permitted, but not required, to file an issuer return under section 6045B. An issuer that chooses to provide this reporting and furnish statements for a specified security under section 6045B will not be subject to penalties under section 6721 or 6722 for failure to report or furnish this information correctly. Finally, the final regulations do not make any changes to address the comment requesting guidance under substantive tax law on which corporate actions affect the basis in specified securities that are digital assets because the comment addresses questions of substantive tax law that are outside the scope of these regulations. V. Final Sec. 1.6050W-1 Prior to the issuance of the proposed regulations, several digital asset brokers reported sales of digital assets under section 6050W. The proposed regulations did not take a position regarding the appropriateness of treating payments of cash for digital assets, or payments of one digital asset in exchange for a different digital asset as reportable payments under the 2010 final regulations under section 6050W. Instead, to the extent these transactions would be reportable under the proposed section 6045 broker reporting rules, the [[Page 56533]] proposed regulations added a tie-breaker rule that generally provided that section 6045 (and not section 6050W) would apply to these transactions. Thus, when a payor makes a payment using digital assets as part of a third party network transaction involving the exchange of the payor's digital assets for goods or services and that payment constitutes a sale of digital assets by the payor under the broker reporting rules under section 6045, the amount paid by the payee in settlement of that exchange would be subject to the broker reporting rules (including any exemptions from these rules) and not section 6050W. Additionally, when goods or services provided by a payee are digital assets, and the exchange is a sale of digital assets by the payee under the broker reporting rules under section 6045, the payment to the payee in settlement of that exchange would be reportable under the broker reporting rules (including any exemptions from these rules) and not section 6050W. As discussed in Part I.B.1. of this Summary of Comments and Explanation of Revisions, the final regulations reserve and do not finalize rules on the treatment of decentralized exchanges and certain unhosted digital asset wallet providers as brokers. Because these entities will not be subject to reporting on the sales of digital assets as brokers under final Sec. 1.6045-1, the final regulations have been revised to apply the tie-breaker rule only to payors that are brokers under final Sec. 1.6045-1(a)(1) that effected the sale of such digital assets. Accordingly, the tie-breaker rule will not apply to decentralized exchanges, unhosted digital asset wallet providers, or any other industry participant not subject to these final regulations to the extent they are already subject to reporting under section 6050W. The proposed regulations also included an example at proposed Sec. 1.6050W-1(c)(5)(ii)(C) (Example 3) illustrating the tie-breaker rule in the case of a third party network transaction undertaken by CRX, a third party settlement organization. In the example, CRX effects a payment using an NFT buyer's digital assets that have been deposited with CRX to a participating payee (J) that is a seller of NFTs representing digital artwork. The NFTs that J sells have also been deposited with CRX. Although the payment from buyer to J would have otherwise been reportable under section 6050W because the transaction constitutes the settlement of a reportable payment transaction by CRX, the example concludes that because it is also a sale under proposed Sec. 1.6045-1(a)(9)(ii), CRX must file an information return under section 6045 and not under section 6050W. A comment recommended against treating all NFTs as goods and services but instead recommended a case by case determination be made based on the underlying asset or rights referenced by the NFT. To address this comment, the final regulations revise the analysis in Sec. 1.6050W-1(c)(5)(ii)(C) (Example 3) of the proposed regulations, redesignated as final Sec. 1.6050W-1(c)(5)(ii)(B) (Example 2) in the final regulations, to make it clear that the example applies only to NFTs that represent goods or services such as the NFT in the example, which represents unique digital artwork. The comment also asserted that NFTs representing digital artwork cannot be a good or a service because it cannot be seen, weighed, measured, felt, touched, or otherwise perceived by the senses. The Treasury Department and the IRS have determined that the definition of a good or a service should not be limited in the way suggested by this comment and the final regulations do not do so. One comment requested that the final regulations provide a bright line test or other safe harbor guidance for classifying NFTs that represent more than one asset or right as a good or a service. The final regulations do not adopt this comment because it involves determinations about NFTs that are outside the scope of these regulations. Another comment requested that the final regulations under section 6050W be revised to define goods or services and what it means to guarantee payments, which are components of the definition of a third party payment network transaction subject to reporting under section 6050W. The final regulations do not adopt this comment because it addresses definitions under section 6050W and is thus outside the scope of these regulations. The proposed regulations also clarified that in the case of a third party settlement organization that has the contractual obligation to make payments to participating payees, a payment in settlement of a reportable payment transaction includes the submission of an instruction to a purchaser to transfer funds directly to the account of the participating payee for purposes of settling the reportable payment transaction. One comment suggested that a settlement organization that provides instructions to a purchaser to transfer funds should not be treated as making or guaranteeing payment. The Treasury Department and the IRS do not agree with this suggestion and no changes are made to this clarification. Section 6050W(b)(3) provides that a third party settlement organization is a type of payment settlement entity that is a central organization which has the contractual obligation to make payment to participating payees in settlement of third party network transactions. The section 6050W regulations already provided in Sec. 1.6050W-1(a)(2) that a payment settlement entity is making a payment in settlement of a reportable transaction if the payment settlement entity submits the instruction to transfer funds to the account of the participating payee. The final regulations merely clarify these instructions may be made to the purchaser. They do not affect any of the other factors that make a third party a third party settlement organization, such as the existence of an agreement or arrangement that, among other things, guarantees persons providing goods or services pursuant to such agreement or arrangement that such persons will be paid for providing those goods and services, as provided in section 6050W(d)(3)(C). Another comment recommended that the tie-breaker rule be reversed so that transactions involving digital assets would remain reportable under section 6050W rather than under section 6045 because the information reportable under section 6045 is generally for sales of capital assets, whereas the information reportable under section 6050W is for both sales of property and payments for services. This comment also suggested that, since marketplaces that list unique or collectible NFTs resemble well-known marketplaces for tangible goods which are subject to section 6050W reporting, that these NFT marketplaces should report NFT transactions in the same matter as the established marketplaces. Another comment raised the concern that NFT artists find it difficult to calculate their tax under the existing information reporting rules. The final regulations do not adopt the comment recommending that the tie-breaker rule be reversed because section 6045 was affirmatively amended by Congress to regulate the information reporting of digital asset transactions. Additionally, as a broad statutory provision, section 6045 is better suited for reporting on NFTs, the uses for which continue to evolve in ways that the use of goods and services traditionally subject to section 6050W reporting do not. Moreover, broadly applicable information reporting rules help to reduce the overall income tax gap because it provides necessary information to taxpayers, as explained by one comment stating that the existing rules are not sufficient for artists to [[Page 56534]] prepare their Federal income tax returns (and reduce the number of inadvertent errors or intentional misstatements shown on those returns) from NFT transactions. Information reporting also provides information to the IRS that identifies taxpayers who have engaged in these transactions. One comment suggested that a payee statement reflecting the information provided on a Form 1099-K would be easier for taxpayers to reconcile to Federal their income tax return because the transactions are reported in a single aggregate form. The final regulations do not adopt this comment because, as discussed in Part I.D.3. of this Summary of Comments and Explanation of Revisions, the final regulations already allow brokers to report sales of specified NFTs under an optional aggregate reporting method. Another comment recommended that reporting by brokers on Form 1099-DA for NFT sales should distinguish between sales by NFT creators or minters (primary sales) and sales by NFT resellers (secondary sales). As discussed in Part I.D.3. of this Summary of Comments and Explanation of Revisions, the final regulations adopt this comment by requiring brokers that report under the optional reporting method for specified NFTs to indicate the portion of the aggregate gross proceeds reported that is attributable to the specified NFT creator's or minter's first sale to the extent ordinarily known by the broker. Finally, a comment requested that guidance be provided regarding the character of the percentage payments made to the original NFT creator or minter after a secondary sale of that same NFT because this determination would impact whether these payments are reportable as a royalty (with a $10 de minimis threshold) or as a payment reportable under section 6045 or some other information reporting provision. Additionally, the character of the payment could impact the source of the payment income for purposes of withholding under chapter 3 of the Code and application of treaty benefits (if applicable). The final regulations do not adopt this comment as it is outside the scope of these regulations. VI. Final Sec. Sec. 31.3406(b)(3)-2, 31.3406(g)-1, 31.3406(g)-2, 31.3406(h)-2 Section 3406 and the regulations thereunder require certain payors of reportable payments, including payments of gross proceeds required to be reported by a broker under section 6045, to deduct and withhold a tax on a payment at the statutory backup withholding rate (currently 24 percent) if the payee fails to provide a TIN, generally on a Form W-9, along with a certification under penalties of perjury that the TIN furnished is correct (certified TIN), or if the payee provides an incorrect TIN. See Sec. 31.3406(b)(3)-2(a) (Reportable barter exchanges and gross proceeds of sales of securities or commodities by brokers). The proposed regulations added digital assets to the title of Sec. 31.3406(b)(3)-2 of the 2002 final regulations but did not make any substantive changes to the rules therein because these rules were considered broad enough to cover digital asset transactions that are reportable under section 6045. Additionally, proposed Sec. 31.3406(g)- 2(e) provided that a real estate reporting person must withhold under section 3406 and, pursuant to the rules under Sec. 31.3406(b)(3)-2 of the 2002 final regulations, on a reportable payment made in a real estate transaction with respect to a purchaser that exchanges digital assets for real estate to the extent that the exchange is treated as a sale of digital assets subject to reporting under proposed Sec. 1.6045-1. A. Digital Assets Sales for Cash Many comments recommended that the final regulations apply the backup withholding rules only to reportable payments associated with digital assets that are sold for cash. One comment explained that brokers that exchange customers' digital assets for cash are regulated under Federal law as MSBs and under State law as money transmitters. As a result, these brokers already have programs in place to comply with applicable AML and customer identification requirements. This comment suggested that because these brokers already have the infrastructure in place to collect proper tax documentation from customers, they can use their existing systems to deduct and withhold backup withholding taxes on payments of cash made in exchange for digital assets. Other comments requested that the Treasury Department and the IRS provide sufficient time to allow these brokers to contact existing customers to collect certified TINs on Forms W-9. In response to these comments, the Treasury Department and the IRS have concluded that it is appropriate to provide temporary relief on the imposition of backup withholding for these transactions to give brokers the time they need to build and implement backup withholding systems for these types of transactions. See Part VI.D. of this Summary of Comments and Explanation of Revisions for a description of the transitional relief that will be provided. B. Digital Asset Sales for Non-Cash Property Section 3406 requires payors to deduct and withhold the backup withholding tax on the payment made to the payee. When reportable payments made to the payee are made in property (other than money), Sec. 31.3406(h)-2(b)(2)(i) provides that the payor (broker) must withhold 24 percent of the fair market value of the property determined immediately before or on the date of payment. As with all backup withholding, the payor is liable for the amount required to be withheld regardless of whether the payor withholds from such property. Under the general rule, payors are prohibited from withholding from any alternative source maintained by the payor other than the source with respect to which the payor has a withholding liability. Sec. 31.3406(h)-2(b)(1). Exceptions from this general rule are provided in Sec. 31.3406(h)-2(b)(2) for certain payments made in (non-cash) property. Specifically, under these rules, instead of withholding from the property payment itself, Sec. 31.3406(h)-2(b)(2)(i) provides that a payor may withhold ``from the principal amount being deposited with the payor or from another source maintained by the payee with the payor.'' The regulation cross-references to an example illustrating methods of withholding permitted for payments constituting prizes, awards, and gambling winnings paid in property other than cash. See Sec. 31.3406(h)-2(b)(2)(i) (cross-reference to Sec. 31.3402(q)-1(d) (Example 5) later redesigned as Sec. 31.3402(q)-1(f) (Example 4) by TD 9824, 82 FR 44925 (September 27, 2017)). This example illustrates that payors making payments in property may either gross up the overall payment with cash to pay the withholding tax (plus the withholding tax on that grossed-up payment) or have the payee pay the withholding tax to the payor. For a payor that cannot locate an alternative source of cash from which to withhold, Sec. 31.3406(h)-2(b)(2)(ii) permits the payor to defer its obligation to withhold (except for reportable payments made with prizes, awards, or gambling winnings) until the earlier of the date sufficient cash to satisfy the withholding obligation is deposited into the payee's account maintained with the payor or the close of the fourth calendar year after the obligation arose. If no cash becomes available in these other sources by the close of the fourth calendar year after the obligation arose, however, the payor is liable for the backup withholding tax. [[Page 56535]] Several comments requested that the final regulations clarify how the backup withholding rules apply to sales of digital assets for different digital assets and other non-cash property. One comment requested that the final regulations provide added flexibility to allow brokers to meet their withholding obligations. First, to the extent that these comments assumed that non-cash property proceeds cannot be subdivided, it should be noted that some digital assets do allow for subdivision and, when they do, the payor can satisfy backup withholding obligations by liquidating a portion of those proceeds. Additionally, depending on contractual relationships with their customers, brokers may be permitted to liquidate alternative sources that are comprised of digital assets to satisfy their withholding obligations. Accordingly, brokers effecting sales of digital assets for different digital assets in many cases may have the ability to satisfy their withholding obligations from the digital assets received in the transaction (that is, from the reportable payment) or from an alternative source of digital assets maintained by the payee with the payor. Another comment asked if brokers are permitted to withhold from digital assets being disposed of instead of the digital assets received in the exchange when market considerations would make that approach less costly. The Treasury Department and the IRS have determined that withholding from disposed-of digital assets is analogous to having the payee pay the withholding tax to the payor as illustrated in the example of permitted withholding methods for prizes, awards, and gambling winnings. Sec. 31.3402(q)-1(f) (Example 4). Accordingly, whether a broker can withhold from digital assets being disposed of is a matter for brokers and customers to determine based on the legal or other arrangements between them. No changes are made to the final regulations to address this comment. The Treasury Department and the IRS intend to study the rules under Sec. 31.3406(h)-2(b) further and may issue guidance providing brokers a greater ability to liquidate alternative sources of digital assets to satisfy backup withholding obligations. Additionally, such guidance may address the four-year deferral rule in fact patterns where digital assets are maintained by the payee with the payor. One comment recommended that the withholding rate be reduced for dispositions of digital assets for different digital assets or other non-cash property. The final regulations do not adopt these suggestions because the withholding rate is set by statute in section 3406(a)(1). Another comment recommended that the rules permit a delay in the payment of withheld taxes to the later of 180-days or until the end of the calendar year to allow customers to provide their tax documentation. As discussed in Part VI.D. of this Summary of Comments and Explanation of Revisions, the final regulations address this comment by delaying the application of the backup withholding rules. Although a few comments expressed the view that brokers have the ability to administer backup withholding on dispositions of digital assets for certain types of non-cash property, numerous other comments raised concerns with the logistics of withholding on sales of digital assets for different digital assets, particularly when the price of the digital assets received in the exchange (received digital asset) fluctuates between the time of transaction and the time the received digital assets are liquidated into U.S. dollars for deposit with the Treasury Department. These comments noted that, even for received digital assets that do not experience large fluctuations in value, it is not operationally possible for brokers to be certain that they can liquidate 24 percent of the received digital assets at the same valuation price as applies to the underlying transaction giving rise to the withholding obligation. Accordingly, these comments questioned whether the withholding tax payment would be deficient if the liquidated value of the withheld digital assets falls below the value of 24 percent of the received digital assets at the time of the underlying transaction and requested relief to the extent the liquidated value is deficient. Another comment questioned if any excess value must be paid to the Treasury Department when the liquidated value of the withheld digital assets is greater than 24 percent of the received digital assets at the time of the underlying transaction. Another comment stated that some brokers do not have processes in place to liquidate received digital assets daily to make required backup withholding deposits in U.S. dollars and requested that deposits to the Treasury Department be permitted in digital assets. Section 3406 provides that if a payee fails to provide a TIN or certain other conditions are satisfied, the payor shall deduct and withhold from the reportable payment a tax equal to a rate that is currently 24 percent. The responsibility for ensuring that sufficient withholding tax is withheld is by statute a payor responsibility. Moreover, brokers are in the best position to mitigate any volatility risks associated with disposing of digital assets received in an exchange of digital assets. For example, brokers may be able to minimize or eliminate their risk by implementing systems to shorten the time between the initial transaction and the liquidation of the withheld digital asset. Accordingly, the Treasury Department and the IRS have determined that it is not appropriate for the Federal government to accept the market risk of a customer's withheld digital asset. Instead, the risk should be borne in the first instance by the broker offering digital asset transactions to its customers. Accordingly, the final regulations do not adopt the suggestion to pass the price volatility risk of withheld digital assets onto the Federal government. However, see Part VI.D. of this Summary of Comments and Explanation of Revisions regarding temporary penalty relief for backup withholding, which is based in part on the risk of payment shortfalls due to the volatility of some digital assets. The Treasury Department and the IRS understand that a broker may shift the withholding liability risk associated with price volatility to a customer who has invested in the withheld digital asset and has not provided a TIN under penalties of perjury. For example, as suggested by one comment, brokers could mandate that their customers who have not provided a certified TIN maintain with the broker cash margin accounts or digital asset accounts with relatively stable digital assets (such as stablecoins) for brokers to use to satisfy their backup withholding obligations. Brokers could also require their customers to agree to allow the brokers to sell for cash 24 percent of the disposed digital assets at the time of the transaction. In addition, brokers could remind customers that fail to provide their TINs as requested that the customer may be liable for penalties under section 6723 of the Code. Finally, brokers could mandate that their customers provide accurate tax documentation to avoid backup withholding obligations altogether. Because any such arrangement would be a commercial arrangement between the broker and its customer, these final regulations do not address such arrangements. Several comments requested guidance (with examples) setting forth operational solutions to avoid broker liability with respect to this price fluctuation risk and additional time to put those solutions in place. The final regulations do not include specific examples because there appears to be [[Page 56536]] many solutions brokers could adopt that are industry and business specific. However, the Treasury Department and the IRS intend to study these rules further and may issue additional guidance. One comment recommended that the final regulations be revised to prevent the application of cascading backup withholding in a sale of digital assets for different digital assets when the broker sells 24 percent of the received digital assets to pay the backup withholding tax on the initial transaction. For example, a customer exchanges 1 unit of digital asset AB for 100 units of digital asset CD (first transaction), and to apply backup withholding, the broker sells 24 percent (or 24 units) of digital asset CD for cash (second transaction). The comment recommended that the sale of the 24 units of CD in the second transaction not be subject to backup withholding if that sale is effected by the broker to satisfy its backup withholding obligations with respect to a sale of digital assets in exchange for different assets and the cash sale was effected by the broker on or prior to the date that the broker is required to deposit the backup withholding tax liability with respect to the underlying digital asset exchange. The Treasury Department and the IRS have determined that a limited backup withholding exception should apply in the case of cascading backup withholding obligations. To address this cascading backup withholding problem, the final regulations except certain sales for cash of withheld digital assets from the definition of sales required to be reported if the sale is undertaken immediately after the underlying sale to satisfy the broker's obligation under section 3406 to deduct and withhold a tax with respect to the underlying transaction. If that condition is met, the sale will be excepted from broker reporting and backup withholding will not apply. See final Sec. 1.6045-1(c)(3)(ii)(D). The special rule for the identification of units withheld from a transaction, discussed in Part I.E.3.a. of this Summary of Comments and Explanation of Revisions, also ensures that the excepted sale of the withheld units does not give rise to any additional gain or loss. Numerous comments requested an exception from backup withholding for transactions in which digital assets are exchanged for property (other than relatively liquid digital assets), such as traditional financial assets, real estate, goods, services, or different digital assets that cannot be fractionalized, such as NFTs and tokenized financial instruments (illiquid property), when there is insufficient cash in the customer's account. Backup withholding is an essential enforcement tool to ensure that complete and accurate information returns can be filed by payors with respect to payments made to payees. Accurate TINs and other information provided by payors are critical to matching such information with income reported on a payee's Federal income tax return. A complete exception from backup withholding or an exception for sales of digital assets for illiquid property would increase the likelihood that customers will not provide correct TINs to their brokers. Such an exception would also raise factual questions about whether certain property received in a transaction is truly illiquid. For example, one broker might assert that a stored-value card in a fixed amount is illiquid if the broker cannot withhold 24 percent of the value of the card or if the resale market for those cards does not facilitate full face value payments. On the other hand, a different broker might decide to require the payee to send back cash in an amount representing 24 percent of the of the value of the card. Moreover, brokers have some ability to minimize their backup withholding in these circumstances by taking steps to ensure that the customer pays the backup withholding tax instead of the broker. For example, brokers could remind customers that failure to provide their TINs as requested may result in customers being liable for penalties under section 6723. Brokers also may be able to require customers that refuse to provide accurate tax documentation to maintain cash accounts or other digital asset accounts with the broker. Accordingly, subject to the transition relief discussed in Part VI.D. of this Summary of Comments and Explanation of Revisions, the final regulations do not provide an exception to backup withholding for sales of digital assets in exchange for illiquid property. One comment requested relief from backup withholding when the fair market value of the received digital asset is not readily ascertainable. This comment also requested that the final regulations provide guidance clarifying what the broker must do to conclude that the value of received digital assets is not readily ascertainable. The final regulations do not adopt this comment because the fact pattern is not unique to digital asset transactions. Moreover, the final regulations provide rules, at final Sec. 1.6045-1(d)(5)(ii)(A)(1) through (3), that brokers can use to determine the fair market value of gross proceeds received by a customer in a digital asset transaction. For example, in the case of a customer that receives a unique NFT in exchange for other digital assets, the broker can look to the value of the disposed digital assets and use that value for the NFT. Several comments requested an exemption from backup withholding for any sale of a qualifying stablecoin (whether for cash, another digital asset, or other property) because of the low likelihood that these stablecoin sales will give rise to significant gains or losses. Backup withholding on these transactions is a necessary tool to ensure that customers provide their tax documentation in accordance with regulatory requirements and to allow for correct income tax reporting of the gains and losses that do occur. Brokers that request customer TINs in accordance with regulatory requirements are not liable for information reporting penalties with respect to customers who refuse to comply. Backup withholding, therefore, is the only way to ensure that either the broker's customers will provide their TINs and the IRS will receive the information reporting required or that a tax is collected from those customers who do not want the IRS to learn about their activities. Additionally, and as discussed in Part I.D.2. of this Summary of Comments and Explanation of Revisions, the Treasury Department and the IRS have concluded that information about certain qualifying stablecoin transactions is essential to the IRS gaining visibility into previously unreported digital asset transactions. Accordingly, the final regulations do not adopt this comment. However, it should be noted, as discussed in Part I.D.1. of this Summary of Comments and Explanation of Revisions, if a broker reports information on designated qualifying stablecoins sales under the optional method of reporting, sales of non-designated qualifying stablecoins will not be reported. As such, final Sec. 31.3406(b)(3)-2(b)(6)(i)(B)(1) provides that these non-designated sales of qualifying stablecoins will not be subject to backup withholding. As discussed in Part I.D.2.a. of this Summary of Comments and Explanation of Revisions, there may be circumstances in which a digital asset loses its peg during a calendar year and therefore does not satisfy the conditions required to be a qualifying stablecoin. To give brokers time to learn about such de-pegging events and turn on backup withholding for non-designated sales, final Sec. 31.3406(b)(3)- 2(b)(6)(i)(B)(2) provides a grace period before withholding is required. Specifically, in [[Page 56537]] the case of a digital asset that would have satisfied the definition of a non-designated sale of a qualifying stablecoin under final Sec. 1.6045-1(d)(10)(i)(C) for a calendar year but for a non-qualifying event during that year, a broker is not required to withhold under section 3406 on such sale if it occurs no later than the end of the day that is 30 days after the first non-qualifying event with respect to such digital asset during such year. For this purpose, a non-qualifying event is defined as the first date during a calendar year on which the digital asset no longer satisfies all three conditions described in final Sec. 1.6045-1(d)(10)(ii)(A) through (C) to be a qualifying stablecoin. Finally, final Sec. 31.3406(b)(3)-2(b)(6)(i)(B)(2) also provides that the date on which a non-qualifying event has occurred with respect to a digital asset and the date that is no later than 30 days after such non-qualifying event must be determined using UTC. As discussed in Part I.D.2.b. of this Summary of Comments and Explanation of Revisions, UTC time was chosen for this purpose to ensure that the same digital assets will or will not be subject to backup withholding for all brokers regardless of the time zone in which such broker keeps its books and records. One comment recommended that the final regulations provide a de minimis threshold, similar to the $600 threshold for income subject to reporting under section 6041, before backup withholding would be required for dispositions of digital assets for different digital assets or other non-cash property. Under section 3406(b)(4) and (6), unless the payment is of a kind required to be shown on a return required under sections 6041(a) or 6041A(a), the determination of whether any payment is of a kind required to be shown on a return must be made without regard to any minimum amount which must be paid before a return is required. While the Secretary may have the authority to apply a threshold that is established by regulation when determining whether any payment is of a kind that must be shown on a required return for backup withholding purposes, the Treasury Department and the IRS have determined that the application of these thresholds to the backup withholding rules would not be appropriate. Accordingly, although the final regulations provide de minimis thresholds for reporting payment transaction sales and designated sales of qualifying stablecoins and specified NFTs, the transactions that fall below the applicable gross proceeds thresholds are nonetheless potentially taxable transactions that taxpayers must report on their Federal income tax returns. The Treasury Department and the IRS have concluded that customers that have not provided tax documentation to their brokers are less likely to report their digital asset transactions on their Federal income tax returns than customers who comply with the documentation requirements. Accordingly, the Treasury Department and the IRS have determined it is important to impose backup withholding on gross proceeds that fall below these thresholds. Therefore, under the final regulations, gross proceeds that are not required to be reported due to the application of the $600 threshold for payment transaction sales, the $10,000 threshold for designated sales of qualifying stablecoins, or the $600 threshold for sales of specified NFTs are nonetheless reportable payments for purposes of backup withholding. See Part VI.D. of this Summary of Comments and Explanation of Revisions for a discussion of certain transitional relief from backup withholding under section 3406. C. Other Backup Withholding Issues The proposed regulations requested comments addressing short sales of digital assets and whether any changes should be made to the backup withholding rules under Sec. 31.3406(b)(3)-2(b)(3) and (4). In response, one comment requested that the final regulations clarify how gains or losses from short sales of digital assets are to be treated and what, if any, withholding is required for short sales of digital assets. Another comment requested that any backup withholding rules for short sales of digital assets take into account factors like holding periods, borrowed assets, and sale conditions. After considering the requests, as discussed in Part I.C. of this Summary of Comments and Explanation of Revisions, the Treasury Department and the IRS have determined that the substantive issues raised by these comments require further study. Accordingly, the final regulations do not address these comments and do not make any changes to these rules. However, see Part VII. of this Summary of Comments and Explanation of Revisions for a discussion of guidance being provided along with these final regulations to address reporting on certain transactions requiring further study. Another comment requested guidance regarding how to apply the rules for making timely deposits of tax withheld by brokers that operate 24 hours a day. This comment stated that brokers need to know what time (and based on what time zone) their day ends for purposes of making timely deposits and whether timely deposits are measured based on days or by 24 hour rolling periods. Another comment requested that the final regulations permit brokers to report based on the broker's time zone provided that the time zone is disclosed to the customer and is used consistently for all reporting years. Many businesses have continuous operations across several time zones. Because the proposed regulations did not propose any changes to the rules for making timely deposits of tax withheld by digital asset brokers, the final regulations do not provide a special rule for digital asset brokers. Another comment requested guidance regarding the withholding rules for cross-border transactions, including the appropriate withholding rates under existing U.S. tax treaties. The final regulations do not address this comment because the withholding rules under chapter 3 of the Code are outside the scope of these regulations. See Part VI.D. of this Summary of Comments and Explanation of Revisions for a discussion of certain transitional relief from backup withholding under section 3406. D. Applicability Date for Backup Withholding on Digital Asset Sales Several comments requested that the imposition of backup withholding on dispositions of digital assets for cash, different digital assets, or other non-cash property be delayed until brokers can develop systems to implement withholding on these transactions. Other comments advised that software currently exists that can be embedded in any trading platform's user interface to help brokers obtain proper tax document from customers. The Treasury Department and the IRS have determined it is appropriate to provide temporary relief on the imposition of backup withholding for these transactions to give brokers the time they need to build and implement backup withholding systems for these types of transactions. Accordingly, the notice discussed in Part VI. of this Summary of Comments and Explanation of Revisions will also provide transitional relief from backup withholding under section 3406 for sales of digital assets as follows: 1. Digital Asset Sales for Cash The Treasury Department and the IRS recognize that, although brokers engaging in these cash transactions may [[Page 56538]] be in a good position to obtain proper tax documentation, they will need time to build systems to collect and retain that documentation and to obtain that documentation from existing customers. Accordingly, to promote industry readiness to comply with the backup withholding requirements, Notice 2024-56 is being issued contemporaneously with these final regulations to provide transitional relief from backup withholding under section 3406 on these sales. This notice, which will be published in the Internal Revenue Bulletin, provides that the effective date for backup withholding date is postponed to January 1, 2026, for potential backup withholding obligations imposed under section 3406 for payments required to be reported on Forms 1099-DA for sale transactions. Additionally, for sale transactions effected in 2026 for customers that have opened accounts with the broker prior to January 1, 2026, the notice further provides that backup withholding will not apply with respect to any payee that furnishes a TIN to the broker, whether or not on a Form W-9 in the manner required in Sec. Sec. 31.3406(d)-1 through 31.3406(d)-5, provided the broker submits that payee's TIN to the IRS's TIN matching program and receives a response that the TIN furnished by the payee is correct. See Sec. 601.601(d)(2). Transitional relief also is being provided under these final regulations for sales of digital assets effected before January 1, 2027, that were held in a preexisting account established with a broker before January 1, 2026, if the customer has not been previously classified as a U.S. person by the broker, and the information the broker has for the customer includes a residence address that is not a U.S. address. 2. Sales of Digital Assets in Exchange for Different Digital Assets (Other Than Nonfungible Tokens That Cannot Be Fractionalized) As discussed in Part VI.B. of this Summary of Comments and Explanation of Revisions, brokers are concerned with the logistics of withholding on sales of digital assets for different digital assets when the price of the digital assets received in the exchange fluctuates between time of transaction and the time the received digital assets are liquidated into U.S. dollars for deposit with the Treasury Department. Although there are steps brokers can take to diminish this price volatility risk or transfer this risk entirely to the customer, the Treasury Department and the IRS recognize that brokers need time to implement these procedures. Accordingly, in addition to the delayed application of the backup withholding rules provided for digital assets sold for cash, Notice 2024-56 also provides that the IRS will not assert penalties for a broker's failure to deduct, withhold, and pay any backup withholding tax that is caused by a decrease in the value of received digital assets (other than nonfungible tokens that the broker cannot fractionalize) between the time of the transaction giving rise to the backup withholding liability and the time the broker liquidates 24 percent of the received digital assets, provided the broker undertakes to effect that liquidation immediately after the transaction giving rise to the backup withholding liability. One comment recommended that the final regulations apply backup withholding to sales of digital assets other than stablecoins in exchange for stablecoins under the same rules as apply to sales of digital assets for cash. The final regulations do not adopt this comment. Although there may be less price volatility risks in received stablecoins than there is with other digital assets, stablecoins are not cash and are not treated as such by these regulations. 3. Sales of Digital Assets in Exchange for Other Property As discussed in Part VI.B. of this Summary of Comments and Explanation of Revisions, the final regulations do not provide an exception to backup withholding for sales of digital assets in exchange for illiquid property. The Treasury Department and the IRS, however, understand that there are additional practical issues with requiring backup withholding on PDAP sales and sales effected by real estate reporting persons because these brokers typically cannot withhold from the proceeds, which would typically be the goods or services (or real estate) purchased. Accordingly, in addition to the delayed application of the backup withholding rules provided for digital assets sold for cash, Notice 2024-56 also provides that the IRS will not apply the backup withholding rules to any PDAP sale or to any sale effected by a real estate reporting person until further guidance is issued. VII. Applicability Dates and Penalty Relief The Treasury Department and the IRS received and considered many comments about the applicability dates contained in the proposed regulations. Multiple comments requested additional time beyond the proposed applicability date for gross proceeds reporting on transactions occurring on or after January 1, 2025, and for basis reporting for transactions occurring on or after January 1, 2026. Comments asked for time ranging from one to five years after publication of the final rules to prepare for reporting transactions, with the most common suggestion being an applicability date between 18 and 24 months after publication of the final regulations. Several comments suggested that broker reporting begin at the same time as CARF reporting, either for all brokers or for non-U.S. brokers. Multiple comments requested that the final regulations become applicable in stages, with many suggesting that custodial industry participants should be required to report during the first stage but that non- custodial participants should begin reporting a year or more later. Comments generally pointed to the time needed to build information reporting systems and to adequately document customers to support their recommendation of later applicability dates. They also cited concerns about fulfilling backup withholding requirements and adapting to filing a new information return, the Form 1099-DA, and about the IRS's ability to receive and process a large number of new forms. Conversely, some comments indicated that the proposed applicability dates were appropriate. As one comment noted, some digital asset brokers reported digital asset transactions on Forms 1099-B before the passage of the Infrastructure Act. Similarly, another comment stated that brokers that make payments to customers in the form of staking rewards or income from lending digital assets are already required to file and furnish Forms 1099-MISC, Miscellaneous Information, to those customers. Accordingly, in the view of these comments, those brokers have some experience with documenting customers and handling their personally identifiable information. Finally, one comment stated that if transaction ID, digital asset address, and time of the transaction were not required to be reported, then existing traditional financial reporting solutions could be expanded relatively easily to include reporting on dispositions of digital assets. The Treasury Department and the IRS agree that a phased-in or staged approach to broker reporting is appropriate and have determined that the proposed applicability dates for gross proceeds and basis reporting should be retained in the final regulations for custodial industry participants. At least some of these participants have experience reporting transactions involving their customers. [[Page 56539]] Further, as described in Part I.D. of this Summary of Comments and Explanation of Revisions, under the final regulations, these brokers will not be required to report the time of the transaction, the digital asset address or the transaction ID on Forms 1099-DA. Brokers will be required to report basis for transactions occurring on or after January 1, 2026, but only with respect to digital assets the customer acquired from, and held with, the same broker on or after January 1, 2026. Although the proposed regulations required basis reporting for assets acquired on or after January 1, 2023, it is anticipated that moving the acquisition date to on or after January 1, 2026, and eliminating the need to track basis retroactively will assist brokers in preparing to report basis for transactions that occur beginning in 2026. See Part I.F. of this Summary of Comments and Explanation of Revisions for a discussion of the changes made to the basis reporting rules. Finally, and as more fully described in Part I.B.1.b. of this Summary of Comments and Explanation of Revisions, the proposed digital asset middleman rules that would apply to non-custodial industry participants are not being finalized with these final regulations. The Treasury Department and the IRS intend to expeditiously issue separate final regulations describing information reporting rules for non-custodial industry participants with an appropriate, separate applicability date. The rules of final Sec. 1.1001-7 apply to all sales, exchanges, and dispositions of digital assets on or after January 1, 2025. The rules of final Sec. 1.1012-1(h) apply to all acquisitions and dispositions of digital assets on or after January 1, 2025. The rules of final Sec. 1.1012-1(j) apply to all acquisitions and dispositions of digital assets on or after January 1, 2025. The rules of final Sec. 1.6045-1 apply to sales of digital assets on or after January 1, 2025. The amendments to the rules of final Sec. 1.6045-4 apply to real estate transactions with dates of closing occurring on or after January 1, 2026. The changes made in final Sec. 1.6045A-1 limit the application of the pre-2024 final regulations in the case of digital assets. Accordingly, these changes apply as of the effective date of this Treasury decision. The rules of final Sec. 1.6045B-1 apply to organizational actions occurring on or after January 1, 2025, that affect the basis of digital assets that are also described in one or more paragraphs of Sec. 1.6045-1(a)(14)(i) through (iv). The rules of final Sec. 1.6050W-1 apply to payments made using digital assets on or after January 1, 2025. The rules of final Sec. 31.3406(b)(3)-2 apply to reportable payments by a broker to a payee with respect to sales of digital assets on or after January 1, 2025, that are required to be reported under section 6045. The rules of final Sec. 31.3406(g)-1 apply on or after January 1, 2025, and the rules of final Sec. 31.3406(g)-2 apply to sales of digital assets on or after January 1, 2026. The rules of final Sec. 301.6721-1(h)(3)(iii) apply to returns required to be filed on or after January 1, 2026. The rules of final Sec. 301.6722-1(e)(2)(viii) apply to payee statements required to be furnished on or after January 1, 2026. Special Analyses I. Regulatory Planning and Review Pursuant to the Memorandum of Agreement, Review of Treasury Regulations under Executive Order 12866 (June 9, 2023), tax regulatory actions issued by the IRS are not subject to the requirements of section 6(b) of Executive Order 12866, as amended. Therefore, a regulatory impact assessment is not required. II. Paperwork Reduction Act In general, the collection of information in the regulations is required under section 6045. The collection of information in these regulations with respect to dispositions of digital assets is set forth in final Sec. 1.6045-1 and the collection of information with respect to dispositions of real estate in consideration for digital assets is set forth in final Sec. 1.6045-4. The IRS intends that the collection of information pursuant to final Sec. 1.6045-1 will be conducted by way of Form 1099-DA and that the collection of information pursuant to final Sec. 1.6045-4 will be conducted through a revised Form 1099-S. The proposed regulations contained burden estimates regarding the collection of information with respect to the dispositions of digital assets and the collection of information with respect to dispositions of real estate in consideration for digital assets. For the proposed regulations, the Treasury Department and the IRS estimated that approximately 600 to 9,500 brokers would be impacted by the proposed regulations. The proposed regulations also contained an estimate of between 7.5 minutes and 10.5 minutes as the average time to complete the required Forms 1099 for each customer. And the proposed regulations also contained an estimate of 13 to 16 million customers that would have transactions subject to the proposed regulations. Taking the mid- points of the ranges for the number of brokers expected to be impacted by these regulations, the number of taxpayers expected to receive one or more Forms 1099 required by these regulations, and the time to complete those required forms (5,050 brokers, 14.5 million recipients, and 9 minutes respectively), the proposed regulations estimated the average broker would incur 425 hours of time burden and $27,000 of monetized burden for the ongoing costs per year. The proposed regulations contained estimates of 2,146,250 total annual burden hours and $136,350,000 in total monetized annual burden. The proposed regulations estimated start-up costs to be between three to eight times annual costs. Given that the Treasury Department and the IRS expected per firm annual estimated burden hours to be 425 hours and $27,000 of estimated monetized burden, the proposed regulations estimated per firm start-up aggregate burden hours to range from 1,275 to 3,400 hours and $81,000 to $216,000 of aggregate monetized burden. Using the mid-points, start-up total estimated aggregate burden hours was 11,804,375 and total estimated monetized burden is $749,925,000. Regarding the Form 1099-DA, the burden estimate must reflect the continuing costs of collecting and reporting the information required by these regulations as well as the upfront or start-up costs associated with creating the systems to collect and report the information taking into account all of the comments received, as well as the changes made in these final regulations that will affect the paperwork burden. A reasonable burden estimate for the average time to complete these forms for each customer is 9 minutes (0.15 hours). The Treasury Department and the IRS estimate that 13 to 16 million customers will be impacted by these final regulations (mid-point of 14.5 million customers). The Treasury Department and the IRS estimate that approximately 900 to 9,700 brokers will be impacted by these final regulations (mid-point of 5,300 brokers). The Treasury Department and the IRS estimate the average broker to incur approximately 425 hours of time burden and $28,000 of monetized burden. The total estimated aggregate annual burden hours is 2,252,500 and the total estimated monetized burden is $148,400,000. Additionally, start-up costs are estimated to be between five and ten times annual costs. Given that we [[Page 56540]] expect per firm annual estimated burden hours to be 425 hours and $28,000 of estimated monetized burden, the Treasury Department and the IRS estimate per firm start-up aggregate burden hours from 2,125 to 4,250 hours and $140,000 to $280,000 of aggregate monetized burden. Using the mid-points, start-up total estimated aggregate burden hours is 3,188 and total estimated monetized burden is $210,000 per firm. The total estimated aggregate burden hours is 16,896,400 and total estimated monetized burden is $1,113,000,000. Based on the most recent OMB burden estimate for the average time to complete Form 1099-S, it was estimated that the IRS received a total number of 2,563,400 Form 1099-S responses with a total estimated time burden for those responses of 411,744 hours (or 9.6 minutes per Form). Neither a material change in the average time to complete the revised Form, nor a material increase in the number of Forms that will be filed is expected once these final regulations are effective. No material increase is expected in the start-up costs and it is anticipated that less than 1 percent of Form 1099-S issuers will be impacted by this change. Numerous comments were received on the estimates contained in the proposed regulations. Many of these comments asserted that the annual estimated time and monetized burdens were too low. Some comments recommended that the estimates be recalculated using a total of 8 billion Forms 1099-DA filed and furnished annually. The request to use this number was based on a public statement made by a former IRS employee. The Treasury Department and the IRS do not adopt this recommendation because the reference to 8 billion returns was not based on the requirements in the proposed or final regulations. Some comments attempted to calculate the monetized burden for specific exchanges using the average amounts used in the proposed regulations. The Treasury Department and the IRS also note that any attempts to recalculate the monetized burden for specific exchanges will likely yield unrealistic results. The monetized burden is based on average costs, and it is expected that smaller firms may experience lower costs overall but higher costs on an average per customer basis. This is because while the ongoing costs of reporting information to the IRS may be small, there will be larger costs associated with the initial setup. It is expected that the larger initial setup costs will likely be amortized among more customers for the larger exchanges. The Treasury Department and the IRS anticipate conducting a survey in the future to determine the actual costs of compliance with these regulations; however, the estimates used in these final regulations are based on the best currently available information. Multiple comments said that the estimated number of brokers impacted by the proposed regulations was too low. One comment said the number of entities affected should include everyone who uses credit cards or travels in the United States and should therefore be millions of people. That comment also said the number of entities affected should include individual taxpayers since the proposed regulations includes rules affecting individual taxpayers. One comment said the estimate was too low because it underestimated the impact on decentralized autonomous organizations, governance token holders, operators of web applications, and other similarly situated potential brokers. The estimated number of brokers in these final regulations was not increased based on these comments because the issues raised by these comments do not impact the number of brokers subject to the broker reporting requirements of these final regulations. The definition of a digital asset is not intended to apply to the types of virtual assets that exist only in a closed system and cannot be sold or exchanged outside that system for fiat currency; therefore, credit card points are not digital assets subject to reporting under these final regulations. The final regulations include substantive rules for computing the sale or other disposition of digital assets, but because taxpayers are already required to calculate and report their tax liability under existing law, these regulations do not impose an additional reporting requirement on these individuals. Finally, the Treasury Department and the IRS are not increasing the burden estimates based on comments about decentralized autonomous organizations or operators of web applications because the final regulations apply only to digital asset industry participants that take possession of the digital assets being sold by their customers, namely operators of custodial digital asset trading platforms, certain digital asset hosted wallet providers, certain PDAPs, and digital asset kiosks, and to certain real estate persons that are already subject to the broker reporting rules. The Treasury Department and the IRS estimate that approximately 900 to 9,700 brokers, with a mid-point of 5,300, will be impacted by these final regulations. The lower bound of this estimate was derived using Form 1099 issuer data through 2022 and statistics on the number of exchanges from CoinMarketCap.com. Because the Form 1099 issuer data and statistics from CoinMarketCap do not distinguish between centralized and decentralized exchanges, this estimate likely overestimates the number of brokers that will be impacted by these final regulations. The upper bound of this estimate is based on IRS data for brokers with nonzero revenue who may deal in digital assets, specifically the number of issuers with North American Classification System (NAICS) codes for Securities Brokerage (52312), Commodity Contracts Dealing (52313) and Commodity Contracts Brokerage (52314). The proposed regulations estimated the average time to complete these Forms for each customer as between 7.5 minutes and 10.5 minutes, with a mid-point of 9 minutes (or 0.15 hours). Some comments said the 9-minute average time to complete these Forms for each customer is too low, with one comment stating it underestimated time to complete by at least two orders of magnitude. Another comment said considering the complexity and specificity of the proposed reporting, including the requirement to report the time of transactions, the average time should be 15 minutes. The final regulations remove the requirement to report the time of the transaction. The final regulations also remove the obligation to report transaction ID and digital asset addresses. Additionally, the final regulations include a de minimis rule for PDAPs and an optional alternative reporting method for sales of certain NFTs and qualifying stablecoins to allow for aggregate reporting instead of transaction reporting, with a de minimis annual threshold below which no reporting is required, which the Treasury Department and the IRS anticipate will further reduce the reporting burden. Given the final regulations more streamlined reporting requirements, the Treasury Department and the IRS have concluded that the original estimate for the average time to complete these Forms was reasonable and retain the estimated average time to complete these Forms for each customer of between 7.5 minutes and 10.5 minutes, with a mid-point of 9 minutes (or 0.15 hours). The proposed regulations estimated that 13 to 16 million customers will be impacted by these proposed regulations. Some comments asserted that the estimated number of customers was too low. One comment said the estimate was too low because it assumes that [[Page 56541]] each of the affected taxpayers would generate a single Form 1099-DA, but that this is incorrect because brokers generally are required to submit separate reports for each sale by each customer. That comment also said that if substitute annual Forms 1099 and payee statements were permissible, the average affected taxpayer likely would generate between 40 to 50 information returns per year. That comment also asserted that the estimate of 14.5 million customers is too low because 40 to 50 million Americans currently own digital assets and 75 million may transact in digital assets this year. Some comments said the estimated number of customers should be 8 billion based on a statement from a former IRS official. The Treasury Department and the IRS have not updated the estimated number of customers impacted by these final regulations based on these comments. The burden estimate is based on the number of taxpayers who will receive Forms 1099-DA rather than the number of Forms 1099-DA that each taxpayer receives because the primary broker burden is related to the system design and implementation required by these final regulations, including the requirements to confirm or obtain customer identification information. The burden associated with each additional Form 1099-DA required per customer is expected to be marginal compared with the cost of implementing the reporting system. While comments indicated more taxpayers own and transact in digital assets than estimated in the proposed regulations, the Treasury Department and the IRS have concluded that information included on information returns filed with the IRS and tax returns signed under penalties of perjury is the most accurate information currently available for the purpose of estimating the number of affected taxpayers. The Treasury Department and the IRS estimate the number of customers impacted by these final regulations will be between 13 million and 16 million with a midpoint of 14,500,000. The estimate is based on the number of taxpayers who received one or more Forms 1099 reporting digital asset activity in tax year 2021, plus the number of taxpayers who responded yes to the digital asset question on their Form 1040 for tax year 2021. The proposed regulations used a $63.53 per hour estimate to monetize the burden. The proposed regulations used wage and compensation data from the Bureau of Labor Statistics (BLS) that capture the wage, benefit, and overhead costs of a typical tax preparer to estimate the average broker's monetized burden. Some comments said that the monetized burden in the proposed regulations was too low. One comment said the wage and compensation rate used in the proposed regulations was too low because these compliance costs capture the cost of a typical tax preparer and not the atypical digital asset-specific tax and legal expertise needed to comply with these rules. Another comment said the wage and compensation rate was underestimated because of the higher labor cost per hour given the specialized nature of the reporting, the volume of data and cross-functional effort required and similar factors. The Treasury Department and the IRS do not accept the comments that the monetization rate is too low and have concluded that the methodology to determine the rate is correct given the information available about broker reporting costs. The final regulations use an average monetization rate of $65.49. This updated estimate is based on survey data collected from filers of similar information returns with NAICS codes for Securities Brokerage (52312), Commodity Contracts Dealing (52313) and Commodity Contracts Brokerage (52314), adjusted for inflation. A lower bound is set at the Federal minimum wage plus employment taxes. The upper bound is set using rates from the BLS Occupational Employment Statistics (OES) and the BLS Employer Costs for Employee Compensation from the National Compensation Survey. Specifically, the estimate uses the 90th percentile for accountants and auditors from the OES and the ratio of total compensation to wages and salaries from the private industry workers (management, professional, and related occupations) to account for fringe benefits. The proposed regulations estimated that initial start-up costs would be between three to eight times annual costs. Some comments said these costs were underestimated because many brokers are newer companies with limited funding and resources. Other comments stated the start-up costs of compliance would hurt innovation. Another comment said the multiple applied was too low and that using a multiplier for start-up costs between five to ten times annual costs would yield a more reasonable estimate of the start-up costs for such a complex reporting regime and would more closely align with prior outcomes for similar regimes that are currently subject to reporting. Because start- up costs are difficult to measure, the Treasury Department and the IRS use a multiplier of annual costs to estimate the start-up costs. To further acknowledge the difficulty of estimating these cases, the Treasury Department and the IRS have accepted the comment to revise the burden estimate to reflect that start-up costs would be between five and ten times annual costs. In summary, the Treasury Department and the IRS estimate that 13 to 16 million customers will be impacted by these final regulations (mid- point of 14.5 million customers). A reasonable burden estimate for the average time to complete these forms for each customer is 9 minutes (0.15 hours). The Treasury Department and the IRS estimate that approximately 900 to 9,700 brokers will be impacted by these final regulations (mid-point of 5,300 brokers). The Treasury Department and the IRS estimate the average time burden per broker will be approximately 425 hours. The Treasury Department and the IRS use an estimate that the cost of compliance will be $65.49 per hour, so the total monetized burden is estimated at $28,000 per broker. Additionally, start-up costs are estimated to be between five and ten times annual costs. Given the expected per-firm annual burden estimates of 425 hours and $28,000, the Treasury Department and the IRS estimate per-firm start-up burdens as between 2,125 to 4,250 hours and $140,000 to $280,000 of aggregate monetized burden. Using the mid- points, start-up total estimated aggregate burden hours is 3,188 hours and total estimated monetized burden is $210,000 per firm. 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 Office of Management and Budget. On April 22, 2024, the IRS released and invited comments on the draft Form 1099-DA. The draft Form 1099-DA is available on https://www.irs.gov. Also on April 22, 2024, the IRS published in the Federal Register (89 FR 29433) a Notice and request for comments on the collection of information requirements related to the broker regulations with a 60- day comment period. There will be an additional 30-day comment period beginning on the date a second Notice and request for comments on the collection of information requirements related to the broker regulations is published in the Federal Register. The OMB Control Number for the Form 1099-S is 1545-0997. The Form 1099-S will be updated for real estate reporting, which applies to transactions occurring on or after January 1, 2026. Books or records relating to a collection of information must be [[Page 56542]] 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 section 6103. III. Regulatory Flexibility Act The Regulatory Flexibility Act (RFA) (5 U.S.C. chapter 6) requires agencies to ``prepare and make available for public comment an initial regulatory flexibility analysis,'' which will ``describe the impact of the rule on small entities.'' 5 U.S.C. 603(a). Unless an agency determines that a proposal will not have a significant economic impact on a substantial number of small entities, section 603 of the RFA requires the agency to present a final regulatory flexibility analysis (FRFA) of the final regulations. The Treasury Department and the IRS have not determined whether these final regulations will likely have a significant economic impact on a substantial number of small entities. This determination requires further study. Because there is a possibility of significant economic impact on a substantial number of small entities, a FRFA is provided in these final regulations. The expected number of impacted issuers of information returns under these final regulations is between 900 to 9,700 brokers (mid- point of 5,300). Small Business Administration regulations provide small business size standards by NAICS Industry. See 13 CFR 121.201. The NAICS includes virtual currency exchange services in the NAICS code for Commodity Contracts Dealing (52313). According to the Small Business Administration regulations, the maximum annual receipts for a concern and its affiliates to be considered small in this NAICS code is $41.5 million. Based on tax return data, only 200 of the 9,700 firms identified as impacted issuers in the upper bound estimate exceed the upper bound estimate exceed the $41.5 million threshold. This implies there could be 700 to 9,500 impacted small business issuers under the Small Business Administration's small business size standards. Pursuant to section 7805(f) of the Code, the notice of proposed rulemaking was submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small business, and no comments were received. A. Need for and Objectives of the Rule Information reporting is essential to the integrity of the tax system. The IRS estimated in its 2019 tax gap analysis that net misreporting as a percent of income for income with little to no third party information reporting is 55 percent. In comparison, misreporting for income with some information reporting, such as capital gains, is 17 percent, and for income with substantial information reporting, such as dividend and interest income, is just five percent. Prior to these final regulations, many transactions involving digital assets were outside the scope of information reporting rules. Digital assets are treated as property for Federal income tax purposes. The regulations under section 6045 require brokers to file information returns for customers that sell certain types of property providing gross proceeds and, in some cases, adjusted basis. However, the existing regulations do not specify digital assets as a type of property for which information reporting is required. Section 6045 also requires information returns for real estate transactions, but the existing regulations do not require reporting of amounts received in digital assets. Section 6050W requires information reporting by payment settlement entities on certain payments made with respect to payment card and third-party network transactions. However, the existing regulations are silent as to whether certain exchanges involving digital assets are reportable payments under section 6050W. Information reporting by brokers and real estate reporting persons under section 6045 with respect to certain digital asset dispositions and digital asset payments received by real estate transferors will lead to higher levels of taxpayer compliance because the income earned by taxpayers engaging in transactions involving digital assets will be made more transparent to both the IRS and taxpayers. Clear information reporting rules that require reporting of gross proceeds and, in some cases, adjusted basis for taxpayers who engage in digital asset transactions will help the IRS identify taxpayers who have engaged in these transactions, and thereby help to reduce the overall tax gap. These final regulations are also expected to facilitate the preparation of tax returns (and reduce the number of inadvertent errors or intentional misstatements shown on those returns) by and for taxpayers who engage in digital asset transactions. B. Affected Small Entities As discussed above, we anticipate 9,500 of the 9,700 (or 98 percent) impacted issuers in the upper bound estimate could be small businesses. 1. Impact of the Rules As previously stated in the Paperwork Reduction Act section of this preamble, the Form 1099-DA prescribed by the Secretary for reporting sales of digital assets pursuant to final Sec. 1.6045-1(d) of these final regulations is expected to create an average estimated per customer burden on brokers of between 7.5 and 10.5 minutes, with a mid- point of 9 minutes (or 0.15 hours). In addition, the form is expected to create an average estimated per firm start-up aggregated burden of between 2,125 to 4,250 hours in start-up costs to build processes to comply with the information reporting requirements. The revised Form 1099-S prescribed by the Secretary for reporting gross proceeds from the payment of digital assets paid to real estate transferors as consideration in a real estate transaction pursuant to final Sec. 1.6045-4(i) of these final regulations is not expected to change overall costs to complete the revised form. Because we expect that filers of revised Form 1099-S will already be filers of the form, we do not expect them to incur a material increase in start-up costs associated with the revised form. Although small businesses may engage tax reporting services to complete, file, and furnish information returns to avoid the start-up costs associated with building an internal information reporting system for sales of digital assets, it remains difficult to predict whether the economies of scale efficiencies of using these services will offset the somewhat more burdensome ongoing costs associated with using third party contractors. 2. Alternatives Considered for Small Businesses The Treasury Department and the IRS considered alternatives to these final regulations that would have created an exception to reporting, or a delayed applicability date, for small businesses but decided against such alternatives for several reasons. As discussed above, we anticipate that 9,500 of the 9,700 (or 98 percent) impacted issuers in the upper bound estimate could be small businesses. First, one purpose of these regulations is to eliminate the overall tax gap. Any exception or delay to the information reporting rules for small business brokers, which may comprise the vast majority of impacted issuers, would reduce the effectiveness of these final regulations. In addition, such an exception or delay could have the unintended effect of incentivizing taxpayers to move their business to excepted small businesses, thus thwarting IRS efforts to identify [[Page 56543]] taxpayers engaged in digital asset transactions. Additionally, because the information reported on statements furnished to customers will likely be an aid to tax return preparation by those customers, small business brokers will be able to offer their customers the same amount of useful information as their larger competitors. Finally, to the extent investors in digital asset transactions are themselves small businesses, these final regulations will help these businesses with their own tax preparation efforts. 3. Duplicate, Overlapping, or Relevant Federal Rules These final regulations do not overlap or conflict with any relevant Federal rules. As discussed above, the multiple broker rule ensures, in certain instances, that duplicative reporting is not required. IV. Unfunded Mandates Reform Act 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. This rule does not include any Federal mandate that may result in expenditures by State, local, or Tribal governments, or by the private sector in excess of that threshold. V. Executive Order 13132: Federalism 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. This final rule does not have federalism implications, does not impose substantial direct compliance costs on State and local governments, and does not preempt State law within the meaning of the Executive order. VI. Congressional Review Act Pursuant to the Congressional Review Act (5 U.S.C. 801 et seq.), the Office of Information and Regulatory Affairs designated this rule as a major rule as defined by 5 U.S.C. 804(2). Statement of Availability of IRS Documents IRS Revenue Procedures, Revenue Rulings, Notices and other guidance cited in this document are published in the Internal Revenue Bulletin and are available from the Superintendent of Documents, U.S. Government Publishing Office, Washington, DC 20402, or by visiting the IRS website at https://www.irs.gov. Drafting Information The principal authors of these regulations are Roseann Cutrone, Office of the Associate Chief Counsel (Procedure and Administration) and Alexa Dubert, Office of the Associate Chief Counsel (Income Tax and Accounting). However, other personnel from the Treasury Department and the IRS, including Jessica Chase, Office of the Associate Chief Counsel (Procedure and Administration), Kyle Walker, Office of the Associate Chief Counsel (Income Tax and Accounting), John Sweeney and Alan Williams, Office of Associate Chief Counsel (International), and Pamela Lew, Office of Associate Chief Counsel (Financial Institutions and Products), participated in their development. List of Subjects 26 CFR Part 1 Income taxes, Reporting and recordkeeping requirements. 26 CFR Part 31 Employment taxes, Income taxes, Penalties, Pensions, Railroad retirement, Reporting and recordkeeping requirements, Social security, Unemployment compensation. 26 CFR Part 301 Employment taxes, Estate taxes, Excise taxes, Gift taxes, Income taxes, Penalties, Reporting and recordkeeping requirements. Amendments to the Regulations Accordingly, 26 CFR parts 1, 31, and 301 are amended as follows: PART 1--INCOME TAXES 0 Paragraph 1. The authority citation for part 1 continues to read in part as follows: Authority: 26 U.S.C. 7805 * * * 0 Par. 2. Section 1.1001-1 is amended by adding a sentence at the end of paragraph (a) to read as follows: Sec. 1.1001-1 Computation of gain or loss. (a) * * * For rules determining the amount realized for purposes of computing the gain or loss upon the sale, exchange, or other disposition of digital assets, as defined in Sec. 1.6045-1(a)(19), other than a digital asset not required to be reported as a digital asset pursuant to Sec. 1.6045-1(c)(8)(ii), (iii), or (iv), see Sec. 1.1001-7. * * * * * 0 Par. 3. Section 1.1001-7 is added to read as follows: Sec. 1.1001-7 Computation of gain or loss for digital assets. (a) In general. This section provides rules to determine the amount realized for purposes of computing the gain or loss upon the sale, exchange, or other disposition of digital assets, as defined in Sec. 1.6045-1(a)(19) other than a digital asset not required to be reported as a digital asset pursuant to Sec. 1.6045-1(c)(8)(ii), (iii), or (iv). (b) Amount realized in a sale, exchange, or other disposition of digital assets for cash, other property, or services--(1) Computation of amount realized--(i) In general. If digital assets are sold or otherwise disposed of for cash, other property differing materially in kind or in extent, or services, the amount realized is the excess of: (A) The sum of: (1) Any cash received; (2) The fair market value of any property received or, in the case of a debt instrument described in paragraph (b)(1)(iv) of this section, the amount determined under paragraph (b)(1)(iv) of this section; and (3) The fair market value of any services received; reduced by (B) The amount of digital asset transaction costs, as defined in paragraph (b)(2)(i) of this section, allocable to the sale or disposition of the transferred digital asset, as determined under paragraph (b)(2)(ii) of this section. (ii) Digital assets used to pay digital asset transaction costs. If digital assets are used or withheld to pay digital asset transaction costs, as defined in paragraph (b)(2)(i) of this section, such use or withholding is a disposition of the digital assets for services. (iii) Application of general rule to certain sales, exchanges, or other dispositions of digital assets. The following paragraphs (b)(1)(iii)(A) through (C) of this section apply the rules of this section to certain sales, exchanges, or other dispositions of digital assets. (A) Sales or other dispositions of digital assets for cash. The amount realized from the sale of digital assets for cash is the sum of the amount of cash received plus the fair market value of services received as described in paragraph (b)(1)(ii) of this section, [[Page 56544]] reduced by the amount of digital asset transaction costs allocable to the disposition of the transferred digital assets, as determined under paragraph (b)(2)(ii) of this section. (B) Exchanges or other dispositions of digital assets for services, or certain property. The amount realized on the exchange or other disposition of digital assets for services or property differing materially in kind or in extent, other than digital assets or debt instruments described in paragraph (b)(1)(iv) of this section, is the sum of the fair market value of such property and services received (including services received as described in paragraph (b)(1)(ii) of this section), reduced by the amount of digital asset transaction costs allocable to the disposition of the transferred digital assets, as determined under paragraph (b)(2)(ii) of this section. (C) Exchanges of digital assets. The amount realized on the exchange of one digital asset for another digital asset differing materially in kind or in extent is the sum of the fair market value of the digital asset received plus the fair market value of services received as described in paragraph (b)(1)(ii) of this section, reduced by the amount of digital asset transaction costs allocable to the disposition of the transferred digital asset, as determined under paragraph (b)(2)(ii) of this section. (iv) Debt instrument issued in exchange for digital assets. For purposes of this section, if a debt instrument is issued in exchange for digital assets and the debt instrument is subject to Sec. 1.1001- 1(g), the amount attributable to the debt instrument is determined under Sec. 1.1001-1(g) (in general, the issue price of the debt instrument). (2) Digital asset transaction costs--(i) Definition. The term digital asset transaction costs means the amounts paid in cash or property (including digital assets) to effect the sale, disposition or acquisition of a digital asset. Digital asset transaction costs include transaction fees, transfer taxes, and commissions. (ii) Allocation of digital asset transaction costs. This paragraph (b)(2)(ii) provides the rules for allocating digital asset transaction costs to the sale or disposition of a digital asset. Accordingly, any other allocation or specific assignment of digital asset transaction costs is disregarded. (A) In general. Except as provided in paragraph (b)(2)(ii)(B) of this section, the total digital asset transaction costs paid by the taxpayer in connection with the sale or disposition of digital assets are allocable to the sale or disposition of the digital assets. (B) Special rule for allocation of certain cascading digital asset transaction costs. This paragraph (b)(2)(ii)(B) provides a special rule in the case of a transaction described in paragraph (b)(1)(iii)(C) of this section (original transaction) and for which digital assets are withheld from digital assets acquired in the original transaction to pay the digital asset transaction costs to effect the original transaction. The total digital asset transaction costs paid by the taxpayer to effect both the original transaction and any disposition of the withheld digital assets are allocable exclusively to the disposition of digital assets in the original transaction. (3) Time for determining fair market value of digital assets. Generally, the fair market value of a digital asset is determined as of the date and time of the sale or disposition of the digital asset. (4) Special rule when the fair market value of property or services cannot be determined. If the fair market value of the property (including digital assets) or services received in exchange for digital assets cannot be determined with reasonable accuracy, the fair market value of such property or services must be determined by reference to the fair market value of the digital assets transferred as of the date and time of the exchange. This paragraph (b)(4), however, does not apply to a debt instrument described in paragraph (b)(1)(iv) of this section. (5) Examples. The following examples illustrate the application of paragraphs (b)(1) through (3) of this section. Unless the facts specifically state otherwise, the transactions described in the following examples occur after the applicability date set forth in paragraph (c) of this section. For purposes of the examples under this paragraph (b)(5), assume that TP is a digital asset investor, and each unit of digital asset A, B, and C is materially different in kind or in extent from the other units. See Sec. 1.1012-1(h)(4) for examples illustrating the determination of basis of digital assets. (i) Example 1: Exchange of digital assets for services--(A) Facts. TP owns a total of 20 units of digital asset A, and each unit has an adjusted basis of $0.50. X, an unrelated person, agrees to perform cleaning services for TP in exchange for 10 units of digital asset A, which together have a fair market value of $10. The fair market value of the services performed by X also equals $10. X then performs the services, and TP transfers 10 units of digital asset A to X. Additionally, TP pays $1 in cash of transaction fee to dispose of digital asset A. (B) Analysis. Under paragraph (b)(1) of this section, TP has a disposition of 10 units of digital asset A for services received. Under paragraphs (b)(2)(i) and (b)(2)(ii)(A) of this section, TP has digital asset transaction costs of $1, which must be allocated to the disposition of digital asset A. Under paragraph (b)(1)(i) of this section, TP's amount realized on the disposition of the units of digital asset A is $9, which is the fair market value of the services received, $10, reduced by the digital asset transaction costs allocated to the disposition of digital asset A, $1. TP recognizes a gain of $4 on the exchange ($9 amount realized reduced by $5 adjusted basis in 10 units). (ii) Example 2: Digital asset transaction costs paid in cash in an exchange of digital assets--(A) Facts. TP owns a total of 10 units of digital asset A, and each unit has an adjusted basis of $0.50. TP uses BEX, an unrelated third party, to effect the exchange of 10 units of digital asset A for 20 units of digital asset B. At the time of the exchange, each unit of digital asset A has a fair market value of $2 and each unit of digital asset B has a fair market value of $1. BEX charges $2 per transaction, which BEX requires its customers to pay in cash. At the time of the transaction, TP pays BEX $2 in cash. (B) Analysis. Under paragraph (b)(2)(i) of this section, TP has digital asset transaction costs of $2. Under paragraph (b)(2)(ii)(A) of this section, TP must allocate such costs ($2) to the disposition of the 10 units of digital asset A. Under paragraphs (b)(1)(i) and (b)(3) of this section, TP's amount realized from the exchange is $18, which is the fair market value of the 20 units of digital asset B received ($20) as of the date and time of the transaction, reduced by the digital asset transaction costs allocated to the disposition of digital asset A ($2). TP recognizes a gain of $13 on the exchange ($18 amount realized reduced by $5 adjusted basis in the 10 units of digital asset A). (iii) Example 3: Digital asset transaction costs paid with other digital assets--(A) Facts. The facts are the same as in paragraph (b)(5)(ii)(A) of this section (the facts in Example 2), except that BEX requires its customers to pay transaction fees using units of digital asset C. TP has an adjusted basis in each unit of digital asset C of $0.50. TP transfers 2 units of digital asset C to BEX to effect the exchange of digital asset A for digital asset B. TP also pays to BEX an additional unit of digital asset C for services rendered by BEX to effect the disposition of digital asset C for payment of the transaction costs. The fair market value of each unit of digital asset C is $1. (B) Analysis. TP disposes of 3 units of digital asset C for services described in paragraph (b)(1)(ii) of this section. Therefore, under paragraph (b)(2)(i) of this section, TP has digital asset transaction costs of $3. Under paragraph (b)(2)(ii)(A) of this section, TP must allocate $2 of such costs to the disposition of the 10 units of digital asset A. TP must also allocate $1 of such costs to the disposition of the 3 units of digital asset C. None of the digital asset transaction costs are allocable to the acquired units of digital asset B. Under paragraphs (b)(1)(i) and (b)(3) of this section, TP's amount realized on the disposition of digital asset A is $18, which is the excess of the fair market value of the 20 units of digital asset B received ($20) as [[Page 56545]] of the date and time of the transaction over the allocated digital asset transaction costs ($2). Also, under paragraphs (b)(1)(i) and (b)(3) of this section, TP's amount realized on the disposition of the 3 units of digital asset C is $2, which is the excess of the gross proceeds determined as of the date and time of the transaction over the allocated digital asset transaction costs of $1. TP recognizes a gain of $13 on the disposition of 10 units of digital asset A ($18 amount realized over $5 adjusted basis) and a gain of $0.50 on the disposition of the 3 units of digital asset C ($2 amount realized over $1.50 adjusted basis). (iv) Example 4: Digital asset transaction costs withheld from the transferred digital assets in an exchange of digital assets--(A) Facts. The facts are the same as in paragraph (b)(5)(ii)(A) of this section (the facts in Example 2), except that BEX requires its payment be withheld from the units of the digital asset transferred. At the time of the transaction, BEX withholds 1 unit of digital asset A. TP exchanges the remaining 9 units of digital asset A for 18 units of digital asset B. (B) Analysis. The withholding of 1 unit of digital asset A is a disposition of a digital asset for services within the meaning of paragraph (b)(1)(ii) of this section. Under paragraph (b)(2)(i) of this section, TP has digital asset transaction costs of $2. Under paragraph (b)(2)(ii)(A) of this section, TP must allocate such costs to the disposition of the 10 units of digital asset A. Under paragraphs (b)(1)(i) and (b)(3) of this section, TP's amount realized on the 10 units of digital asset A is $18, which is the excess of the fair market value of the 18 units of digital asset B received ($18) and the fair market value of services received ($2) as of the date and time of the transaction over the allocated digital asset transaction costs ($2). TP recognizes a gain on the 10 units of digital asset A transferred of $13 ($18 amount realized reduced by $5 adjusted basis in the 10 units). (v) Example 5: Digital asset transaction fees withheld from the acquired digital assets in an exchange of digital assets--(A) Facts. The facts are the same as in paragraph (b)(5)(iv)(A) of this section (the facts in Example 4), except that BEX requires its payment be withheld from the units of the digital asset acquired. At the time of the transaction, BEX withholds 3 units of digital asset B, 2 units of which effect the exchange of digital asset A for digital asset B and 1 unit of which effects the disposition of digital asset B for payment of the transaction fees. TP does not make an identification to BEX identifying other units of B as the units disposed. (B) Analysis. The withholding of 3 units of digital asset B is a disposition of digital assets for services within the meaning of paragraph (b)(1)(ii) of this section. Under paragraph (b)(2)(i) of this section, TP has digital asset transaction costs of $3. Under paragraph (b)(2)(ii)(B) of this section, TP must allocate such costs to the disposition of the 10 units of digital asset A in the original transaction. Under paragraphs (b)(1)(i) and (b)(3) of this section, TP's amount realized on the 10 units of digital asset A is $17, which is the excess of the fair market value of the 20 units of digital asset B received ($20) as of the date and time of the transaction over the allocated digital asset transaction costs ($3). TP's amount realized on the disposition of the 3 units of digital asset B used to pay digital asset transaction costs is $3, which is the fair market value of services received at the time of the transaction. TP recognizes a gain on the 10 units of digital asset A transferred of $12 ($17 amount realized reduced by $5 adjusted basis in the 10 units). TP recognizes $0 in gain or loss on the 3 units of digital asset B withheld ($3 amount realized reduced by $3 (adjusted basis in the 3 units)). See Sec. 1.1012-1(j)(3)(iii) for the special rule for identifying the basis and holding period of the 3 units withheld. (c) Applicability date. This section applies to all sales, exchanges, and dispositions of digital assets on or after January 1, 2025. 0 Par. 4. Section 1.1012-1 is amended by adding paragraphs (h) through (j) to read as follows: Sec. 1.1012-1 Basis of property. * * * * * (h) Determination of basis of digital assets--(1) Overview and general rule. This paragraph (h) provides rules to determine the basis of digital assets, as defined in Sec. 1.6045-1(a)(19) other than a digital asset not required to be reported as a digital asset pursuant to Sec. 1.6045-1(c)(8)(ii), (iii), or (iv), received in a purchase for cash, a transfer in connection with the performance of services, an exchange for digital assets or other property differing materially in kind or in extent, an exchange for a debt instrument described in paragraph (h)(1)(v) of this section, or in a part sale and part gift transfer described in paragraph (h)(1)(vi) of this section. Except as provided in paragraph (h)(1)(ii), (v), and (vi) of this section, the basis of digital assets received in a purchase or exchange is generally equal to the cost thereof at the date and time of the purchase or exchange, plus any allocable digital asset transaction costs as determined under paragraph (h)(2)(ii) of this section. (i) Basis of digital assets purchased for cash. The basis of digital assets purchased for cash is the amount of cash used to purchase the digital assets plus any allocable digital asset transaction costs as determined under paragraph (h)(2)(ii)(A) of this section. (ii) Basis of digital assets received in connection with the performance of services. For rules regarding digital assets received in connection with the performance of services, see Sec. Sec. 1.61- 2(d)(2) and 1.83-4(b). (iii) Basis of digital assets received in exchange for property other than digital assets. The basis of digital assets received in exchange for property differing materially in kind or in extent, other than digital assets or debt instruments described in paragraph (h)(1)(v) of this section, is the cost as described in paragraph (h)(3) of this section of the digital assets received plus any allocable digital asset transaction costs as determined under paragraph (h)(2)(ii)(A) of this section. (iv) Basis of digital assets received in exchange for other digital assets. The basis of digital assets received in an exchange for other digital assets differing materially in kind or in extent is the cost as described in paragraph (h)(3) of this section of the digital assets received. (v) Basis of digital assets received in exchange for the issuance of a debt instrument. If a debt instrument is issued in exchange for digital assets, the cost of the digital assets attributable to the debt instrument is the amount determined under paragraph (g) of this section, plus any allocable digital asset transaction costs as determined under paragraph (h)(2)(ii)(A) of this section. (vi) Basis of digital assets received in a part sale and part gift transfer. To the extent digital assets are received in a transfer, which is in part a sale and in part a gift, see Sec. 1.1012-2. (2) Digital asset transaction costs--(i) Definition. The term digital asset transaction costs under this paragraph (h) has the same meaning as in Sec. 1.1001-7(b)(2)(i). (ii) Allocation of digital asset transaction costs. This paragraph (h)(2)(ii) provides the rules for allocating digital asset transaction costs, as defined in paragraph (h)(2)(i) of this section, for transactions described in paragraph (h)(1) of this section. Any other allocation or specific assignment of digital asset transaction costs is disregarded. (A) Allocation of digital asset transaction costs on a purchase or exchange for digital assets. Except as provided in paragraphs (h)(2)(ii)(B) and (C) of this section, the total digital asset transaction costs paid by the taxpayer in connection with an acquisition of digital assets are allocable to the digital assets received. (B) Special rule for the allocation of digital asset transaction costs paid to effect an exchange of digital assets for other digital assets. Except as provided in paragraph (h)(2)(ii)(C) of this section, the total digital asset transaction costs paid by the taxpayer, to effect an exchange described in paragraph (h)(1)(iv) of this section are allocable exclusively to the disposition of the transferred digital assets. [[Page 56546]] (C) Special rule for allocating certain cascading digital asset transaction costs. This paragraph (h)(2)(ii)(C) provides a special rule for an exchange described in paragraph (h)(1)(iv) of this section (original transaction) and for which digital assets are withheld from digital assets acquired in the original transaction to pay the digital asset transaction costs to effect the original transaction. The total digital asset transaction costs paid by the taxpayer, to effect both the original transaction and any disposition of the withheld digital assets, are allocable exclusively to the disposition of digital assets in the original transaction. (3) Determining the cost of the digital assets received. In the case of an exchange described in either paragraph (h)(1)(iii) or (iv) of this section, the cost of the digital assets received is the same as the fair market value used in determining the amount realized on the sale or disposition of the transferred property for purposes of section 1001 of the Code. Generally, the cost of a digital asset received is determined at the date and time of the exchange. The special rule in Sec. 1.1001-7(b)(4) also applies in this section for purposes of determining the fair market value of a received digital asset when it cannot be determined with reasonable accuracy. (4) Examples. The following examples illustrate the application of paragraphs (h)(1) through (3) of this section. Unless the facts specifically state otherwise, the transactions described in the following examples occur after the applicability date set forth in paragraph (h)(5) of this section. For purposes of the examples under this paragraph (h)(4), assume that TP is a digital asset investor, and that digital assets A, B, and C are materially different in kind or in extent from each other. See Sec. 1.1001-7(b)(5) for examples illustrating the determination of the amount realized and gain or loss in a sale or disposition of a digital asset for cash, other property differing materially in kind or in extent, or services. (i) Example 1: Transaction fee paid in cash--(A) Facts. TP uses BEX, an unrelated third party, to exchange 10 units of digital asset A for 20 units of digital asset B. At the time of the exchange, a unit of digital asset A has a fair market value of $2, and a unit of digital asset B has a fair market value of $1. BEX charges TP a transaction fee of $2, which TP pays to BEX in cash at the time of the exchange. (B) Analysis. Under paragraph (h)(2)(i) of this section, TP has digital asset transaction costs of $2. Under paragraph (h)(2)(ii)(B) of this section, TP allocates the digital asset transaction costs ($2) to the disposition of the 10 units of digital asset A. Under paragraphs (h)(1)(iv) and (h)(3) of this section, TP's basis in the 20 units of digital asset B received is $20, which is the sum of the fair market value of the 20 units of digital asset B received ($20). (ii) Example 2: Transaction fee paid in other property--(A) Facts. The facts are the same as in paragraph (h)(4)(i)(A) of this section (the facts in Example 1), except that BEX requires its customers to pay transaction fees using units of digital asset C. TP pays the transaction fees using 2 units of digital asset C that TP holds. At the time TP pays the transaction fees, each unit of digital asset C has a fair market value of $1. TP acquires 20 units of digital asset B with a fair market value of $20 in the exchange. (B) Analysis. Under paragraph (h)(2)(i) of this section, TP has digital asset transaction costs of $2. Under paragraph (h)(2)(ii)(B) of this section, TP must allocate the digital asset transaction costs ($2) to the disposition of the 10 units of digital asset A. Under paragraphs (h)(1)(iv) and (h)(3) of this section, TP's basis in the 20 units of digital asset B is $20, which is the sum of the fair market value of the 20 units of digital asset B received ($20). (iii) Example 3: Digital asset transaction costs withheld from the transferred digital assets--(A) Facts. The facts are the same as in paragraph (h)(4)(i)(A) of this section (the facts in Example 1), except that BEX withholds 1 unit of digital asset A in payment of the transaction fees and TP receives 18 units of digital asset B. (B) Analysis. Under paragraph (h)(2)(i) of this section, TP has digital asset transaction costs of $2. Under paragraph (h)(2)(ii)(B) of this section, TP must allocate the digital asset transaction costs ($2) to the disposition of the 10 units of digital asset A. Under paragraphs (h)(1)(iv) and (h)(3) of this section, TP's total basis in the digital asset B units is $18, which is the sum of the fair market value of the 18 units of digital asset B received ($18). (5) Applicability date. This paragraph (h) is applicable to all acquisitions and dispositions of digital assets on or after January 1, 2025. (i) [Reserved] (j) Sale, disposition, or transfer of digital assets. Paragraphs (j)(1) and (2) of this section apply to digital assets not held in the custody of a broker, such as digital assets that are held in an unhosted wallet. Paragraph (j)(3) of this section applies to digital assets held in the custody of a broker. For the definitions of the terms wallet, hosted wallet, unhosted wallet, and held in a wallet or account, as used in this paragraph (j), see Sec. 1.6045-1(a)(25)(i) through (iv). For the definition of the term broker, see Sec. 1.6045- 1(a)(1). For the definition of the term digital asset, see Sec. 1.6045-1(a)(19); however, a digital asset not required to be reported as a digital asset pursuant to Sec. 1.6045-1(c)(8)(ii), (iii), or (iv) is not subject to the rules of this section. (1) Digital assets not held in the custody of a broker. If a taxpayer sells, disposes of, or transfers less than all units of the same digital asset not held in the custody of the broker, such as in a single unhosted wallet or in a hosted wallet provided by a person other than a broker, the basis and holding period of the units sold, disposed of, or transferred are determined by making a specific identification of the units in the wallet that are sold, disposed of, or transferred, as provided in paragraph (j)(2) of this section. If a specific identification is not made, the basis and holding period of the units sold, disposed of, or transferred are determined by treating the units not held in the custody of a broker as sold, disposed of, or transferred in order of time from the earliest date on which units of the same digital asset not held in the custody of a broker were acquired by the taxpayer. For purposes of the preceding sentence, the date any units were transferred into the taxpayer's wallet is disregarded. (2) Specific identification of digital assets not held in the custody of a broker. A specific identification of the units of a digital asset sold, disposed of, or transferred is made if, no later than the date and time of the sale, disposition, or transfer, the taxpayer identifies on its books and records the particular units to be sold, disposed of, or transferred by reference to any identifier, such as purchase date and time or the purchase price for the unit, that is sufficient to identify the units sold, disposed of, or transferred. A specific identification can be made only if adequate records are maintained for the unit of a specific digital asset not held in the custody of a broker to establish that a unit sold, disposed of, or transferred is removed from the wallet. (3) Digital assets held in the custody of a broker. This paragraph (j)(3) applies to digital assets held in the custody of a broker. (i) Unit of a digital asset sold, disposed of, or transferred. Except as provided in paragraph (j)(3)(iii) of this section, where multiple units of the same digital asset are held in the custody of a broker, as defined in Sec. 1.6045-1(a)(1), and the taxpayer does not provide the broker with an adequate identification of which units are sold, disposed of, or transferred by the date and time of the sale, disposition, or transfer, as provided in paragraph (j)(3)(ii) of this section, the basis and holding period of the units sold, disposed of, or transferred are determined by treating the units held in the custody of the broker as sold, disposed of, or transferred in order of time from the earliest date on which units of the same digital asset held in the custody of a broker were acquired by the taxpayer. For purposes of the [[Page 56547]] preceding sentence, the date any units were transferred into the custody of the broker is disregarded. (ii) Adequate identification of units held in the custody of a broker. Except as provided in paragraph (j)(3)(iii) of this section, where multiple units of the same digital asset are held in the custody of a broker, as defined in Sec. 1.6045-1(a)(1), an adequate identification occurs if, no later than the date and time of the sale, disposition, or transfer, the taxpayer specifies to the broker having custody of the digital assets the particular units of the digital asset to be sold, disposed of, or transferred by reference to any identifier, such as purchase date and time or purchase price, that the broker designates as sufficiently specific to identify the units sold, disposed of, or transferred. The taxpayer is responsible for maintaining records to substantiate the identification. A standing order or instruction for the specific identification of digital assets is treated as an adequate identification made at the time of sale, disposition, or transfer. In addition, a taxpayer's election to use average basis for a covered security for which average basis reporting is permitted and that is also a digital asset is also an adequate identification. In the case of a broker offering only one method of making a specific identification, such method is treated as a standing order or instruction. (iii) Special rule for the identification of certain units withheld. Notwithstanding paragraph (j)(3)(i) or (ii) of this section, in the case of a transaction described in paragraph (h)(1)(iv) of this section (digital assets exchanged for different digital assets) and for which the broker withholds units of the same digital asset received for either the broker's backup withholding obligations under section 3406 of the Code, or for payment of services described in Sec. 1.1001- 7(b)(1)(ii) (digital asset transaction costs), the taxpayer is deemed to have made an adequate identification, within the meaning of paragraph (j)(3)(ii) of this section, for such withheld units regardless of any other adequate identification within the meaning of paragraph (j)(3)(ii) of this section designating other units of the same digital asset as the units sold, disposed of, or transferred. (4) Method for specifically identifying units of a digital asset. A method of specifically identifying the units of a digital asset sold, disposed of, or transferred under this paragraph (j), for example, by the earliest acquired, the latest acquired, or the highest basis, is not a method of accounting. Therefore, a change in the method of specifically identifying the digital asset sold, disposed of, or transferred, for example, from the earliest acquired to the latest acquired, is not a change in method of accounting to which sections 446 and 481 of the Code apply. (5) Examples. The following examples illustrate the application of paragraphs (j)(1) through (j)(3) of this section. Unless the facts specifically state otherwise, the transactions described in the following examples occur after the applicability date set forth in paragraph (j)(6) of this section. For purposes of the examples under this paragraph (j)(5), assume that TP is a digital asset investor and that the units of digital assets in the examples are the only digital assets owned by TP. (i) Example 1: Identification of digital assets not held in the custody of a broker--(A) Facts. On September 1, Year 2, TP transfers two lots of digital asset DE to a new digital asset address generated and controlled by an unhosted wallet, as defined in Sec. 1.6045-1(a)(25)(iii). The first lot transferred into TP's wallet consists of 10 units of digital asset DE, with a purchase date of January 1, Year 1, and a basis of $2 per unit. The second lot transferred into TP's wallet consists of 20 units of digital asset DE, with a purchase date of January 1, Year 2, and a basis of $5 per unit. On September 2, Year 2, when the DE units have a fair market value of $10 per unit, TP purchases $100 worth of consumer goods from Merchant M. To make payment, TP transfers 10 units of digital asset DE from TP's wallet to CPP, a processor of digital asset payments as defined in Sec. 1.6045-1(a)(22), that then pays $100 to M, in a transaction treated as a sale by TP of the 10 units of digital asset DE. Prior to making the transfer to CPP, TP keeps a record that the 10 units of DE sold in this transaction were from the second lot of units transferred into TP's wallet. (B) Analysis. Under the facts in paragraph (j)(5)(i)(A) of this section, TP's notation in its records on the date of sale, prior to the time of the sale, specifying that the 10 units sold were from the 20 units TP acquired on January 1, Year 2, is a specific identification within the meaning of paragraph (j)(2) of this section. TP's notation is sufficient to identify the 10 units of digital asset DE sold. Accordingly, TP has identified the units disposed of for purposes of determining the basis ($5 per unit) and holding period (one year or less) of the units sold in order to purchase the merchandise. (ii) Example 2: Identification of digital assets not held in the custody of a broker--(A) Facts. The facts are the same as in paragraph (j)(5)(i)(A) of this section (the facts in Example 1), except in making the transfer to CPP, TP did not keep a record at or prior to the time of the sale of the specific 10 units of digital asset DE that TP intended to sell. (B) Analysis. TP did not make a specific identification within the meaning of paragraph (j)(2) of this section for the 10 units of digital asset DE that were sold. Pursuant to the ordering rule provided in paragraph (j)(1) of this section, the units disposed of are determined by treating the units held in the unhosted wallet as disposed of in order of time from the earliest date on which units of the same digital asset held in the unhosted wallet were acquired by the taxpayer. Accordingly, TP must treat the 10 units sold as the 10 units with a purchase date of January 1, Year 1, and a basis of $2 per unit, transferred into the wallet. (iii) Example 3: Identification of digital assets held in the custody of a broker--(A) Facts. On August 1, Year 1, TP opens a custodial account at CRX, a broker within the meaning of Sec. 1.6045-1(a)(1), and purchases through CRX 10 units of digital asset DE for $9 per unit. On January 1, Year 2, TP opens a custodial account at BEX, an unrelated broker, and purchases through BEX 20 units of digital asset DE for $5 per unit. On August 1, Year 3, TP transfers the digital assets TP holds with CRX into TP's custodial account with BEX. BEX has a policy that purchase or transfer date and time, if necessary, is a sufficiently specific identifier for customers to determine the units sold, disposed of, or transferred. On September 1, Year 3, TP directs BEX to sell 10 units of digital asset DE for $10 per unit and specifies that BEX sell the units that were purchased on January 1, Year 2. BEX effects the sale. (B) Analysis. No later than the date and time of the sale, TP specified to BEX the particular units of digital assets to be sold. Accordingly, under paragraph (j)(3)(ii) of this section, TP provided an adequate identification of the 10 units of digital asset DE sold. Accordingly, the 10 units of digital asset DE that TP sold are the 10 units that TP purchased on January 1, Year 2. (iv) Example 4: Identification of digital assets held in the custody of a broker--(A) Facts. The facts are the same as in paragraph (j)(5)(iii)(A) of this section (the facts in Example 3) except that TP directs BEX to sell 10 units of digital asset DE but does not make any identification of which units to sell. Additionally, TP does not provide purchase date information to BEX with respect to the units transferred into TP's account with BEX. (B) Analysis. Because TP did not specify to BEX no later than the date and time of the sale the particular units of digital assets to be sold, TP did not make an adequate identification within the meaning of paragraph (j)(3)(ii) of this section. Thus, the ordering rule provided in paragraph (j)(3)(i) of this section applies to determine the units of digital asset DE sold. Pursuant to this rule, the units sold must be determined by treating the units held in the custody of the broker as disposed of in order of time from the earliest date on which units of the same digital asset held in the custody of a broker were acquired by the taxpayer. The 10 units of digital asset DE sold must be attributed to the 10 units of digital asset DE acquired on August 1, Year 1, which are the earliest units of digital asset DE acquired by TP that are held in TP's account with BEX. In addition, because TP did not provide to BEX customer- provided acquisition information as defined in Sec. 1.6045- 1(d)(2)(ii)(B)(4) with respect to the units transferred into TP's account with BEX (or adopt a standing order to follow the ordering rule applicable to BEX under [[Page 56548]] Sec. 1.6045-1(d)(2)(ii)(B)(2)), the units determined as sold by BEX under Sec. 1.6045-1(d)(2)(ii)(B)(1) and that BEX will report as sold under Sec. 1.6045-1 are not the same units that TP must treat as sold under this section. See Sec. 1.6045-1(d)(2)(vii)(C) (Example 3). (v) Example 5: Identification of the digital asset used to pay certain digital asset transaction costs--(A) Facts. On January 1, Year 1, TP purchases 10 units of digital asset AB and 30 units of digital asset CD in a custodial account with DRX, a broker within the meaning of Sec. 1.6045-1(a)(1). DRX has a policy that purchase or transfer date and time, if necessary, is a sufficiently specific identifier by which its customers may identify the units sold, disposed of, or transferred. On June 30, Year 2, TP directs DRX to purchase 10 additional units of digital asset AB with 10 units of digital asset CD. DRX withholds one unit of the digital asset AB received for transaction fees. TP does not make any identification of the 1 unit of digital asset AB withheld by DRX. TP engages in no other transactions. (B) Analysis. DRX's withholding of 1 unit of digital asset AB from the 10 units acquired by TP is a disposition by TP of the 1 unit as of June 30, Year 2. See Sec. Sec. 1.1001-7 and 1.1012-1(h) for determining the amount realized and basis of the disposed unit, respectively. Despite TP not making an adequate identification, within the meaning of paragraph (j)(3)(ii) of this section to DRX of the 1 unit withheld, under the special rule of paragraph (j)(3)(iii) of this section, the withheld unit of AB must be attributed to the units of AB acquired on June 30, Year 2 and held in TP's account with DRX. (vi) Example 6: Identification of the digital asset used to pay certain digital asset transaction costs--(A) Facts. The facts are the same as in paragraph (j)(5)(v)(A) of this section (the facts in Example 5) except that TP has a standing order with BEX to treat the earliest unit purchased in TP's account as the unit sold, disposed of, or transferred. (B) Analysis. The transaction is an exchange of digital assets for different digital assets and for which the broker withholds units of the same digital asset received in order to pay digital asset transaction costs. Accordingly, although TP's standing order to treat the earliest unit purchased in TP's account (that is, the units purchased by TP on January 1, Year 1) as the units sold is an adequate identification under paragraph (j)(3)(ii) of this section, TP is deemed to have made an adequate identification for such withheld units pursuant to paragraph (j)(3)(iii) of this section regardless of TP's adequate identification designating other units as the units sold. Thus, the results are the same as provided in paragraph (j)(5)(v)(B) of this section (the analysis in Example 5). (6) Applicability date. This paragraph (j) is applicable to all acquisitions and dispositions of digital assets on or after January 1, 2025. 0 Par. 5. Section 1.6045-0 is added to read as follows: Sec. 1.6045-0 Table of contents. In order to facilitate the use of Sec. 1.6045-1, this section lists the paragraphs contained in Sec. 1.6045-1. Sec. 1.6045-1 Returns of information of brokers and barter exchanges. (a) Definitions. (1) Broker. (2) Customer. (i) In general. (ii) Special rules for payment transactions involving digital assets. (3) Security. (4) Barter exchange. (5) Commodity. (6) Regulated futures contract. (7) Forward contract. (8) Closing transaction. (9) Sale. (i) In general. (ii) Sales with respect to digital assets. (A) In general. (B) Dispositions of digital assets for certain property. (C) Dispositions of digital assets for certain services. (D) Special rule for sales effected by processors of digital asset payments. (10) Effect. (i) In general. (ii) Actions relating to certain options and forward contracts. (11) Foreign currency. (12) Cash. (13) Person. (14) Specified security. (15) Covered security. (i) In general. (ii) Acquired in an account. (iii) Corporate actions and other events. (iv) Exceptions. (16) Noncovered security. (17) Debt instrument, bond, debt obligation, and obligation. (18) Securities futures contract. (19) Digital asset. (i) In general. (ii) No inference. (20) Digital asset address. (21) Digital asset middleman. (i) In general. (ii) [Reserved] (iii) Facilitative service. (A) [Reserved] (B) Special rule involving sales of digital assets under paragraphs (a)(9)(ii)(B) through (D) of this section. (22) Processor of digital asset payments. (23) Stored-value card. (24) Transaction identification. (25) Wallet, hosted wallet, unhosted wallet, and held in a wallet or account. (i) Wallet. (ii) Hosted wallet. (iii) Unhosted wallet. (iv) Held in a wallet or account. (b) Examples. (c) Reporting by brokers. (1) Requirement of reporting. (2) Sales required to be reported. (3) Exceptions. (i) Sales effected for exempt recipients. (A) In general. (B) Exempt recipient defined. (C) Exemption certificate. (1) In general. (2) Limitation for corporate customers. (3) Limitation for U.S. digital asset brokers. (ii) Excepted sales. (iii) Multiple brokers. (A) In general. (B) Special rule for sales of digital assets. (iv) Cash on delivery transactions. (v) Fiduciaries and partnerships. (vi) Money market funds. (A) In general. (B) Effective/applicability date. (vii) Obligor payments on certain obligations. (viii) Foreign currency. (ix) Fractional share. (x) Certain retirements. (xi) Short sales. (A) In general. (B) Short sale closed by delivery of a noncovered security. (C) Short sale obligation transferred to another account. (xii) Cross reference. (xiii) Short-term obligations issued on or after January 1, 2014. (xiv) Certain redemptions. (4) Examples. (5) Form of reporting for regulated futures contracts. (i) In general. (ii) Determination of profit or loss from foreign currency contracts. (iii) Examples. (6) Reporting periods and filing groups. (i) Reporting period. (A) In general. (B) Election. (ii) Filing group. (A) In general. (B) Election. (iii) Example. (7) Exception for certain sales of agricultural commodities and commodity certificates. (i) Agricultural commodities. (ii) Commodity Credit Corporation certificates. (iii) Sales involving designated warehouses. (iv) Definitions. (A) Agricultural commodity. (B) Spot sale. (C) Forward sale. (D) Designated warehouse. (8) Special coordination rules for reporting digital assets that are dual classification assets. (i) General rule for reporting dual classification assets as digital assets. (ii) Reporting of dual classification assets that constitute contracts covered by section 1256(b) of the Code. (iii) Reporting of dual classification assets cleared or settled on a limited-access regulated network. (A) General rule. (B) Limited-access regulated network. (iv) Reporting of dual classification assets that are interests in money market funds. (v) Example: Digital asset securities. (d) Information required. (1) In general. (2) Transactional reporting. (i) Required information. [[Page 56549]] (A) General rule for sales described in paragraph (a)(9)(i) of this section. (B) Required information for digital asset transactions. (C) Exception for certain sales effected by processors of digital asset payments. (D) Acquisition information for sales of certain digital assets. (ii) Specific identification of specified securities. (A) In general. (B) Identification of digital assets sold, disposed of, or transferred. (1) No identification of units by customer. (2) Adequate Identification of units by customer. (3) Special rule for the identification of certain units withheld from a transaction. (4) Customer-provided acquisition information for digital assets. (iii) Penalty relief for reporting information not subject to reporting. (A) Noncovered securities. (B) Gross proceeds from digital assets sold before applicability date. (iv) Information from other parties and other accounts. (A) Transfer and issuer statements. (v) Failure to receive a complete transfer statement for securities. (vi) Reporting by other parties after a sale of securities. (A) Transfer statements. (B) Issuer statements. (C) Exception. (vii) Examples. (3) Sales between interest payment dates. (4) Sale date. (i) In general. (ii) Special rules for digital asset sales. (5) Gross proceeds. (i) In general. (ii) Sales of digital assets. (A) Determining gross proceeds. (1) Determining fair market value. (2) Consideration value not readily ascertainable. (3) Reasonable valuation method for digital assets. (B) Digital asset data aggregator. (iii) Digital asset transactions effected by processors of digital asset payments. (iv) Definition and allocation of digital asset transaction costs. (A) Definition. (B) General allocation rule. (C) Special rule for allocation of certain cascading digital asset transaction costs. (v) Examples. (6) Adjusted basis. (i) In general. (ii) Initial basis. (A) Cost basis for specified securities acquired for cash. (B) Basis of transferred securities. (1) In general. (2) Securities acquired by gift. (C) Digital assets acquired in exchange for property. (1) In general. (2) Allocation of digital asset transaction costs. (iii) Adjustments for wash sales. (A) Securities in the same account or wallet. (1) In general. (2) Special rules for covered securities that are also digital assets. (B) Covered securities in different accounts or wallets. (C) Effect of election under section 475(f)(1). (D) Reporting at or near the time of sale. (iv) Certain adjustments not taken into account. (v) Average basis method adjustments. (vi) Regulated investment company and real estate investment trust adjustments. (vii) Treatment of de minimis errors. (viii) Examples. (ix) Applicability date. (x) Examples. (7) Long-term or short-term gain or loss. (i) In general. (ii) Adjustments for wash sales. (A) Securities in the same account or wallet. (1) In general. (2) Special rules for covered securities that are also digital assets. (B) Covered securities in different accounts or wallets. (C) Effect of election under section 475(f)(1). (D) Reporting at or near the time of sale. (iii) Constructive sale and mark-to-market adjustments. (iv) Regulated investment company and real estate investment trust adjustments. (v) No adjustments for hedging transactions or offsetting positions. (8) Conversion into United States dollars of amounts paid or received in foreign currency. (i) Conversion rules. (ii) Effect of identification under Sec. 1.988-5(a), (b), or (c) when the taxpayer effects a sale and a hedge through the same broker. (iii) Example. (9) Coordination with the reporting rules for widely held fixed investment trusts under Sec. 1.671-5. (10) Optional reporting methods for qualifying stablecoins and specified nonfungible tokens. (i) Optional reporting method for qualifying stablecoins. (A) In general. (B) Aggregate reporting method for designated sales of qualifying stablecoins. (C) Designated sale of a qualifying stablecoin. (D) Examples. (ii) Qualifying stablecoin. (A) Designed to track certain other currencies. (B) Stabilization mechanism. (C) Accepted as payment. (D) Examples. (iii) Optional reporting method for specified nonfungible tokens. (A) In general. (B) Reporting method for specified nonfungible tokens. (C) Examples. (iv) Specified nonfungible token. (A) Indivisible. (B) Unique. (C) Excluded property. (D) Examples. (v) Joint accounts. (11) Collection and retention of additional information with respect to the sale of a digital asset. (e) Reporting of barter exchanges. (1) Requirement of reporting. (2) Exchanges required to be reported. (i) In general. (ii) Exemption. (iii) Coordination rules for exchanges of digital assets made through barter exchanges. (f) Information required. (1) In general. (2) Transactional reporting. (i) In general. (ii) Exception for corporate member or client. (iii) Definition. (3) Exchange date. (4) Amount received. (5) Meaning of terms. (6) Reporting period. (g) Exempt foreign persons. (1) Brokers. (2) Barter exchanges. (3) Applicable rules. (i) Joint owners. (ii) Special rules for determining who the customer is. (iii) Place of effecting sale. (A) Sale outside the United States. (B) Sale inside the United States. (iv) Special rules where the customer is a foreign intermediary or certain U.S. branches. (4) Rules for sales of digital assets. (i) Definitions. (A) U.S. digital asset broker. (B) [Reserved] (ii) Rules for U.S. digital asset brokers. (A) Place of effecting sale. (B) Determination of foreign status. (iii) Rules for CFC digital asset brokers not conducting activities as money services businesses. (iv) Rules for non-U.S. digital asset brokers not conducting activities as money services businesses. (A) [Reserved] (B) Sale treated as effected at an office inside the United States. (1) [Reserved] (2) U.S. indicia. (C) Consequences of treatment as sale effected at an office inside the United States. (v) [Reserved] (vi) Rules applicable to brokers that obtain or are required to obtain documentation for a customer and presumption rules. (A) In general. (1) Documentation of foreign status. (2) Presumption rules. (i) In general. (ii) Presumption rule specific to U.S. digital asset brokers. (iii) [Reserved] (3) Grace period to collect valid documentation in the case of indicia of a foreign customer. (4) Blocked income. (B) Reliance on beneficial ownership withholding certificates to determine foreign status. (1) Collection of information other than U.S. place of birth. (i) In general. (ii) [Reserved] (2) Collection of information showing U.S. place of birth. (C) [Reserved] (D) Joint owners. [[Page 56550]] (E) Special rules for customer that is a foreign intermediary, a flow-through entity, or certain U.S. branches. (1) Foreign intermediaries in general. (i) Presumption rule specific to U.S. digital asset brokers. (ii) [Reserved] (2) Foreign flow-through entities. (3) U.S. branches that are not beneficial owners. (F) Transition rule for obtaining documentation to treat a customer as an exempt foreign person. (vii) Barter exchanges. (5) Examples. (h) Identity of customer. (1) In general. (2) Examples. (i) [Reserved] (j) Time and place for filing; cross-references to penalty and magnetic media filing requirements. (k) Requirement and time for furnishing statement; cross- reference to penalty. (1) General requirements. (2) Time for furnishing statements. (3) Consolidated reporting. (4) Cross-reference to penalty. (l) Use of magnetic media or electronic form. (m) Additional rules for option transactions. (1) In general. (2) Scope. (i) In general. (ii) Delayed effective date for certain options. (iii) Compensatory option. (3) Option subject to section 1256. (4) Option not subject to section 1256. (i) Physical settlement. (ii) Cash settlement. (iii) Rules for warrants and stock rights acquired in a section 305 distribution. (iv) Examples. (5) Multiple options documented in a single contract. (6) Determination of index status. (n) Reporting for debt instrument transactions. (1) In general. (2) Debt instruments subject to January 1, 2014, reporting. (i) In general. (ii) Exceptions. (iii) Remote or incidental. (iv) Penalty rate. (3) Debt instruments subject to January 1, 2016, reporting. (4) Holder elections. (i) Election to amortize bond premium. (ii) Election to currently include accrued market discount. (iii) Election to accrue market discount based on a constant yield. (iv) Election to treat all interest as OID. (v) Election to translate interest income and expense at the spot rate. (5) Broker assumptions and customer notice to brokers. (i) Broker assumptions if the customer does not notify the broker. (ii) Effect of customer notification of an election or revocation. (A) Election to amortize bond premium. (B) Other debt elections. (iii) Electronic notification. (6) Reporting of accrued market discount. (i) Sale. (ii) Current inclusion election. (7) Adjusted basis. (i) Original issue discount. (ii) Amortizable bond premium. (A) Taxable bond. (B) Tax-exempt bonds. (iii) Acquisition premium. (iv) Market discount. (v) Principal and certain other payments. (8) Accrual period. (9) Premium on convertible bond. (10) Effect of broker assumptions on customer. (11) Additional rules for certain holder elections. (i) In general. (A) Election to treat all interest as OID. (B) Election to accrue market discount based on a constant yield. (ii) [Reserved] (12) Certain debt instruments treated as noncovered securities. (i) In general. (ii) Effective/applicability date. (o) [Reserved] (p) Electronic filing. (q) Applicability dates. (r) Cross-references. 0 Par. 6. Section 1.6045-1 is amended by: 0 1. Revising and republishing paragraphs (a), (b), (c)(3) and (4), and (c)(5)(i); 0 2. Adding paragraph (c)(8); 0 3. Revising and republishing paragraph (d)(2) and revising paragraphs (d)(4) and (5); 0 4. Revising and republishing paragraphs (d)(6)(i) and (ii), (d)(6)(iii)(A) and (B), and (d)(6)(v); 0 5. Adding paragraph (d)(6)(x); 0 6. Revising and republishing paragraphs (d)(7)(i), (d)(7)(ii)(A) and (B), and (d)(9); 0 7. Adding paragraphs (d)(10) and (11) and (e)(2)(iii); 0 8. Revising and republishing paragraph (g); 0 9. Revising paragraphs (j) and (m)(1); 0 10. Adding paragraph (m)(2)(ii)(C); 0 11. Revising and republishing paragraphs (n)(6)(i) and (q); and 0 12. Adding paragraph (r). The revisions, republications, and additions read as follows: Sec. 1.6045-1 Returns of information of brokers and barter exchanges. (a) Definitions. The following definitions apply for purposes of this section and Sec. Sec. 1.6045-2 and 1.6045-4. (1) Broker. The term broker means any person (other than a person who is required to report a transaction under section 6043 of the Code), U.S. or foreign, that, in the ordinary course of a trade or business during the calendar year, stands ready to effect sales to be made by others. A broker includes an obligor that regularly issues and retires its own debt obligations, a corporation that regularly redeems its own stock, or a person that regularly offers to redeem digital assets that were created or issued by that person. A broker also includes a real estate reporting person under Sec. 1.6045-4(e) who (without regard to any exceptions provided by Sec. 1.6045-4(c) and (d)) would be required to make an information return with respect to a real estate transaction under Sec. 1.6045-4(a). However, with respect to a sale (including a redemption or retirement) effected at an office outside the United States under paragraph (g)(3)(iii) of this section (relating to sales other than sales of digital assets), a broker includes only a person described as a U.S. payor or U.S. middleman in Sec. 1.6049-5(c)(5). In the case of a sale of a digital asset, a broker includes only a U.S. digital asset broker as defined in paragraph (g)(4)(i)(A)(1) of this section. In addition, a broker does not include an international organization described in Sec. 1.6049- 4(c)(1)(ii)(G) that redeems or retires an obligation of which it is the issuer. (2) Customer--(i) In general. The term customer means, with respect to a sale effected by a broker, the person (other than such broker) that makes the sale, if the broker acts as-- (A) An agent for such person in the sale; (B) A principal in the sale; (C) The participant in the sale responsible for paying to such person or crediting to such person's account the gross proceeds on the sale; or (D) A digital asset middleman, as defined in paragraph (a)(21) of this section, that effects the sale of a digital asset for such person. (ii) Special rules for payment transactions involving digital assets. In addition to the persons defined as customers in paragraph (a)(2)(i) of this section, the term customer includes: (A) The person who transfers digital assets in a sale described in paragraph (a)(9)(ii)(D) of this section to a processor of digital asset payments that has an agreement or other arrangement with such person for the provision of digital asset payment services that provides that the processor of digital asset payments may verify such person's identity or otherwise comply with anti-money laundering (AML) program requirements under 31 CFR part 1010, or any other AML program requirements, as are applicable to that processor of digital asset payments. For purposes of the previous sentence, an agreement or other arrangement includes any arrangement under which, [[Page 56551]] as part of customary onboarding procedures, such person is treated as having agreed to general terms and conditions. (B) The person who transfers digital assets or directs the transfer of digital assets-- (1) In exchange for property of a type the later sale of which, if effected by such broker, would constitute a sale of that property under paragraph (a)(9) of this section; or (2) In exchange for the acquisition of services performed by such broker; and (C) In the case of a real estate reporting person under Sec. 1.6045-4(e) with respect to a real estate transaction as defined in Sec. 1.6045-4(b)(1), the person who transfers digital assets or directs the transfer of digital assets to the transferor of real estate (or the seller's nominee or agent) to acquire such real estate. (3) Security. The term security means: (i) A share of stock in a corporation (foreign or domestic); (ii) An interest in a trust; (iii) An interest in a partnership; (iv) A debt obligation; (v) An interest in or right to purchase any of the foregoing in connection with the issuance thereof from the issuer or an agent of the issuer or from an underwriter that purchases any of the foregoing from the issuer; (vi) An interest in a security described in paragraph (a)(3)(i) or (iv) of this section (but not including executory contracts that require delivery of such type of security); (vii) An option described in paragraph (m)(2) of this section; or (viii) A securities futures contract. (4) Barter exchange. The term barter exchange means any person with members or clients that contract either with each other or with such person to trade or barter property or services either directly or through such person. The term does not include arrangements that provide solely for the informal exchange of similar services on a noncommercial basis. (5) Commodity. The term commodity means: (i) Any type of personal property or an interest therein (other than securities as defined in paragraph (a)(3) of this section), the trading of regulated futures contracts in which has been approved by or has been certified to the Commodity Futures Trading Commission (see 17 CFR 40.3 or 40.2); (ii) Lead, palm oil, rapeseed, tea, tin, or an interest in any of the foregoing; or (iii) Any other personal property or an interest therein that is of a type the Secretary determines is to be treated as a commodity under this section, from and after the date specified in a notice of such determination published in the Federal Register. (6) Regulated futures contract. The term regulated futures contract means a regulated futures contract within the meaning of section 1256(b) of the Code. (7) Forward contract. The term forward contract means: (i) An executory contract that requires delivery of a commodity in exchange for cash and which contract is not a regulated futures contract; (ii) An executory contract that requires delivery of personal property or an interest therein in exchange for cash, or a cash settlement contract, if such executory contract or cash settlement contract is of a type the Secretary determines is to be treated as a forward contract under this section, from and after the date specified in a notice of such determination published in the Federal Register; or (iii) An executory contract that-- (A) Requires delivery of a digital asset in exchange for cash, stored-value cards, a different digital asset, or any other property or services described in paragraph (a)(9)(ii)(B) or (C) of this section; and (B) Is not a regulated futures contract. (8) Closing transaction. The term closing transaction means a lapse, expiration, settlement, abandonment, or other termination of a position. For purposes of the preceding sentence, a position includes a right or an obligation under a forward contract, a regulated futures contract, a securities futures contract, or an option. (9) Sale--(i) In general. The term sale means any disposition of securities, commodities, options, regulated futures contracts, securities futures contracts, or forward contracts, and includes redemptions of stock, retirements of debt instruments (including a partial retirement attributable to a principal payment received on or after January 1, 2014), and enterings into short sales, but only to the extent any of these actions are conducted for cash. In the case of an option, a regulated futures contract, a securities futures contract, or a forward contract, a sale includes any closing transaction. When a closing transaction for a contract described in section 1256(b)(1)(A) involves making or taking delivery, there are two sales, one resulting in profit or loss on the contract, and a separate sale on the delivery. When a closing transaction for a contract described in section 988(c)(5) of the Code involves making delivery, there are two sales, one resulting in profit or loss on the contract, and a separate sale on the delivery. For purposes of the preceding sentence, a broker may assume that any customer's functional currency is the U.S. dollar. When a closing transaction in a forward contract involves making or taking delivery, the broker may treat the delivery as a sale without separating the profit or loss on the contract from the profit or loss on the delivery, except that taking delivery for U.S. dollars is not a sale. The term sale does not include entering into a contract that requires delivery of personal property or an interest therein, the initial grant or purchase of an option, or the exercise of a purchased call option for physical delivery (except for a contract described in section 988(c)(5)). For purposes of this section only, a constructive sale under section 1259 of the Code and a mark to fair market value under section 475 or 1296 of the Code are not sales. (ii) Sales with respect to digital assets--(A) In general. In addition to the specific rules provided in paragraphs (a)(9)(ii)(B) through (D) of this section, the term sale also includes: (1) Any disposition of a digital asset in exchange for cash or stored-value cards; (2) Any disposition of a digital asset in exchange for a different digital asset; and (3) The delivery of a digital asset pursuant to the settlement of a forward contract, option, regulated futures contract, any similar instrument, or any other executory contract which would be treated as a sale of a digital asset under this paragraph (a)(9)(ii) if the contract had not been executory. In the case of a transaction involving a contract described in the previous sentence, see paragraph (a)(9)(i) of this section for rules applicable to determining whether a sale has occurred and how to report the making or taking delivery of the underlying asset. (B) Dispositions of digital assets for certain property. Solely in the case of a broker that is a real estate reporting person defined in Sec. 1.6045-4(e) with respect to real property or is in the business of effecting sales of property for others, which sales when effected would constitute sales under paragraph (a)(9)(i) of this section, the term sale also includes any disposition of a digital asset in exchange for such property. (C) Dispositions of digital assets for certain services. The term sale also includes any disposition of a digital asset in consideration for any services provided by a broker that is a real estate reporting person defined in Sec. 1.6045-4(e) with respect to real property or a broker that is in the business of effecting sales of property described in paragraph (a)(9)(i), paragraphs (a)(9)(ii)(A) and (B), or paragraph (a)(9)(ii)(D) of this section. [[Page 56552]] (D) Special rule for certain sales effected by processors of digital asset payments. In the case of a processor of digital asset payments as defined in paragraph (a)(22) of this section, the term sale also includes the payment by one party of a digital asset to a processor of digital asset payments in return for the payment of that digital asset, cash, or a different digital asset to a second party. If any sale of digital assets described in this paragraph (a)(9)(ii)(D) would also be subject to reporting under one of the definitions of sale described in paragraphs (a)(9)(ii)(A) through (C) of this section as a sale effected by a broker other than as a processor of digital asset payments, the broker must treat the sale solely as a sale under such other paragraph and not as a sale under this paragraph (a)(9)(ii)(D). (10) Effect--(i) In general. The term effect means, with respect to a sale, to act as-- (A) An agent for a party in the sale wherein the nature of the agency is such that the agent ordinarily would know the gross proceeds from the sale; (B) In the case of a broker described in the second sentence of paragraph (a)(1) of this section, a person that is an obligor retiring its own debt obligations, a corporation redeeming its own stock, or an issuer of digital assets redeeming those digital assets; (C) A principal that is a dealer in such sale; or (D) A digital asset middleman as defined in paragraph (a)(21) of this section for a party in a sale of digital assets. (ii) Actions relating to certain options and forward contracts. For purposes of paragraph (a)(10)(i) of this section, acting as an agent, principal, or digital asset middleman with respect to grants or purchases of options, exercises of call options, or enterings into contracts that require delivery of personal property or an interest therein is not of itself effecting a sale. A broker that has on its books a forward contract under which delivery is made effects such delivery. (11) Foreign currency. The term foreign currency means currency of a foreign country. (12) Cash. The term cash means United States dollars or any convertible foreign currency that is issued by a government or a central bank, whether in physical or digital form. (13) Person. The term person includes any governmental unit and any agency or instrumentality thereof. (14) Specified security. The term specified security means: (i) Any share of stock (or any interest treated as stock, including, for example, an American Depositary Receipt) in an entity organized as, or treated for Federal tax purposes as, a corporation, either foreign or domestic (provided that, solely for purposes of this paragraph (a)(14)(i), a security classified as stock by the issuer is treated as stock, and if the issuer has not classified the security, the security is not treated as stock unless the broker knows that the security is reasonably classified as stock under general Federal tax principles); (ii) Any debt instrument described in paragraph (a)(17) of this section, other than a debt instrument subject to section 1272(a)(6) of the Code (certain interests in or mortgages held by a real estate mortgage investment conduit (REMIC), certain other debt instruments with payments subject to acceleration, and pools of debt instruments the yield on which may be affected by prepayments) or a short-term obligation described in section 1272(a)(2)(C); (iii) Any option described in paragraph (m)(2) of this section; (iv) Any securities futures contract; (v) Any digital asset as defined in paragraph (a)(19) of this section; or (vi) Any forward contract described in paragraph (a)(7)(iii) of this section requiring the delivery of a digital asset. (15) Covered security. The term covered security means a specified security described in this paragraph (a)(15). (i) In general. Except as provided in paragraph (a)(15)(iv) of this section, the following specified securities are covered securities: (A) A specified security described in paragraph (a)(14)(i) of this section acquired for cash in an account on or after January 1, 2011, except stock for which the average basis method is available under Sec. 1.1012-1(e). (B) Stock for which the average basis method is available under Sec. 1.1012-1(e) acquired for cash in an account on or after January 1, 2012. (C) A specified security described in paragraphs (a)(14)(ii) and (n)(2)(i) of this section (not including the debt instruments described in paragraph (n)(2)(ii) of this section) acquired for cash in an account on or after January 1, 2014. (D) A specified security described in paragraphs (a)(14)(ii) and (n)(3) of this section acquired for cash in an account on or after January 1, 2016. (E) Except for an option described in paragraph (m)(2)(ii)(C) of this section (relating to an option on a digital asset), an option described in paragraph (a)(14)(iii) of this section granted or acquired for cash in an account on or after January 1, 2014. (F) A securities futures contract described in paragraph (a)(14)(iv) of this section entered into in an account on or after January 1, 2014. (G) A specified security transferred to an account if the broker or other custodian of the account receives a transfer statement (as described in Sec. 1.6045A-1) reporting the security as a covered security. (H) An option on a digital asset described in paragraphs (a)(14)(iii) and (m)(2)(ii)(C) of this section (other than an option described in paragraph (a)(14)(v) of this section) granted or acquired in an account on or after January 1, 2026. (I) [Reserved] (J) A specified security described in paragraph (a)(14)(v) of this section that is acquired in a customer's account by a broker providing custodial services for such specified security on or after January 1, 2026, in exchange for cash, stored-value cards, different digital assets, or any other property or services described in paragraph (a)(9)(ii)(B) or (C) of this section, respectively. (K) A specified security described in paragraph (a)(14)(vi) of this section, not described in paragraph (a)(14)(v) of this section, that is entered into or acquired in an account on or after January 1, 2026. (ii) Acquired in an account. For purposes of this paragraph (a)(15), a security is considered acquired in a customer's account at a broker or custodian if the security is acquired by the customer's broker or custodian or acquired by another broker and delivered to the customer's broker or custodian. Acquiring a security in an account includes granting an option and entering into a forward contract or short sale. (iii) Corporate actions and other events. For purposes of this paragraph (a)(15), a security acquired due to a stock dividend, stock split, reorganization, redemption, stock conversion, recapitalization, corporate division, or other similar action is considered acquired for cash in an account. (iv) Exceptions. Notwithstanding paragraph (a)(15)(i) of this section, the following specified securities are not covered securities: (A) Stock acquired in 2011 that is transferred to a dividend reinvestment plan (as described in Sec. 1.1012-1(e)(6)) in 2011. However, a covered security acquired in 2011 that is transferred to a dividend reinvestment plan after 2011 remains a covered security. (B) A specified security, other than a specified security described in paragraph (a)(14)(v) or (vi) of this section, acquired through an event described in paragraph (a)(15)(iii) of this [[Page 56553]] section if the basis of the acquired security is determined from the basis of a noncovered security. (C) A specified security that is excepted at the time of its acquisition from reporting under paragraph (c)(3) or (g) of this section. However, a broker cannot treat a specified security as acquired by an exempt foreign person under paragraph (g)(1)(i) or paragraphs (g)(4)(ii) through (v) of this section at the time of acquisition if, at that time, the broker knows or should have known (including by reason of information that the broker is required to collect under section 1471 or 1472 of the Code) that the customer is not a foreign person. (D) A security for which reporting under this section is required by Sec. 1.6049-5(d)(3)(ii) (certain securities owned by a foreign intermediary or flow-through entity). (E) Digital assets in a sale required to be reported under paragraph (g)(4)(vi)(E) of this section by a broker making a payment of gross proceeds from the sale to a foreign intermediary, flow-through entity, or U.S. branch. (16) Noncovered security. The term noncovered security means any specified security that is not a covered security. (17) Debt instrument, bond, debt obligation, and obligation. For purposes of this section, the terms debt instrument, bond, debt obligation, and obligation mean a debt instrument as defined in Sec. 1.1275-1(d) and any instrument or position that is treated as a debt instrument under a specific provision of the Code (for example, a regular interest in a REMIC as defined in section 860G(a)(1) of the Code and Sec. 1.860G-1). Solely for purposes of this section, a security classified as debt by the issuer is treated as debt. If the issuer has not classified the security, the security is not treated as debt unless the broker knows that the security is reasonably classified as debt under general Federal tax principles or that the instrument or position is treated as a debt instrument under a specific provision of the Code. (18) Securities futures contract. For purposes of this section, the term securities futures contract means a contract described in section 1234B(c) of the Code whose underlying asset is described in paragraph (a)(14)(i) of this section and which is entered into on or after January 1, 2014. (19) Digital asset--(i) In general. For purposes of this section, the term digital asset means any digital representation of value that is recorded on a cryptographically secured distributed ledger (or any similar technology), without regard to whether each individual transaction involving that digital asset is actually recorded on that ledger, and that is not cash as defined in paragraph (a)(12) of this section. (ii) No inference. Nothing in this paragraph (a)(19) or elsewhere in this section may be construed to mean that a digital asset is or is not properly classified as a security, commodity, option, securities futures contract, regulated futures contract, or forward contract for any other purpose of the Code. (20) Digital asset address. For purposes of this section, the term digital asset address means the unique set of alphanumeric characters, in some cases referred to as a quick response or QR Code, that is generated by the wallet into which the digital asset will be transferred. (21) Digital asset middleman--(i) In general. The term digital asset middleman means any person who provides a facilitative service as described in paragraph (a)(21)(iii) of this section with respect to a sale of digital assets. (ii) [Reserved] (iii) Facilitative service. (A) [Reserved] (B) Special rule involving sales of digital assets under paragraphs (a)(9)(ii)(B) through (D) of this section. A facilitative service means: (1) The acceptance or processing of digital assets as payment for property of a type which when sold would constitute a sale under paragraph (a)(9)(i) of this section by a broker that is in the business of effecting sales of such property. (2) Any service performed by a real estate reporting person as defined in Sec. 1.6045-4(e) with respect to a real estate transaction in which digital assets are paid by the real estate buyer in full or partial consideration for the real estate, provided the real estate reporting person has actual knowledge or ordinarily would know that digital assets were used by the real estate buyer to make payment to the real estate seller. For purposes of this paragraph (a)(21)(iii)(B)(2), a real estate reporting person is considered to have actual knowledge that digital assets were used by the real estate buyer to make payment if the terms of the real estate contract provide for payment using digital assets. (3) The acceptance or processing of digital assets as payment for any service provided by a broker described in paragraph (a)(1) of this section determined without regard to any sales under paragraph (a)(9)(ii)(C) of this section that are effected by such broker. (4) Any payment service performed by a processor of digital asset payments described in paragraph (a)(22) of this section, provided the processor of digital asset payments has actual knowledge or ordinarily would know the nature of the transaction and the gross proceeds therefrom. (5) The acceptance of digital assets in return for cash, stored- value cards, or different digital assets, to the extent provided by a physical electronic terminal or kiosk. (22) Processor of digital asset payments. For purposes of this section, the term processor of digital asset payments means a person who in the ordinary course of a trade or business stands ready to effect sales of digital assets as defined in paragraph (a)(9)(ii)(D) of this section by regularly facilitating payments from one party to a second party by receiving digital assets from the first party and paying those digital assets, cash, or different digital assets to the second party. (23) Stored-value card. For purposes of this section, the term stored-value card means a card, including any gift card, with a prepaid value in U.S. dollars, any convertible foreign currency, or any digital asset, without regard to whether the card is in physical or digital form. (24) Transaction identification. For purposes of this section, the term transaction identification, or transaction ID, means the unique set of alphanumeric identification characters that a digital asset distributed ledger associates with a transaction involving the transfer of a digital asset from one digital asset address to another. The term transaction ID includes terms such as a TxID or transaction hash. (25) Wallet, hosted wallet, unhosted wallet, and held in a wallet or account--(i) Wallet. A wallet is a means of storing, electronically or otherwise, a user's private keys to digital assets held by or for the user. (ii) Hosted wallet. A hosted wallet is a custodial service that electronically stores the private keys to digital assets held on behalf of others. (iii) Unhosted wallet. An unhosted wallet is a non-custodial means of storing, electronically or otherwise, a user's private keys to digital assets held by or for the user. Unhosted wallets, sometimes referred to as self-hosted or self-custodial wallets, can be provided through software that is connected to the internet (a hot wallet) or through hardware or physical media that is disconnected from the internet (a cold wallet). (iv) Held in a wallet or account. A digital asset is referred to in this section as held in a wallet or account if the wallet, whether hosted or unhosted, or [[Page 56554]] account stores the private keys necessary to transfer control of the digital asset. A digital asset associated with a digital asset address that is generated by a wallet, and a digital asset associated with a sub-ledger account of a wallet, are similarly referred to as held in a wallet. References to variations of held in a wallet or account, such as held at a broker, held with a broker, held by the user of a wallet, held on behalf of another, acquired in a wallet or account, or transferred into a wallet or account, each have a similar meaning. (b) Examples. The following examples illustrate the definitions in paragraph (a) of this section. (1) Example 1. The following persons generally are brokers within the meaning of paragraph (a)(1) of this section-- (i) A mutual fund, an underwriter of the mutual fund, or an agent for the mutual fund, any of which stands ready to redeem or repurchase shares in such mutual fund. (ii) A professional custodian (such as a bank) that regularly arranges sales for custodial accounts pursuant to instructions from the owner of the property. (iii) A depositary trust or other person who regularly acts as an escrow agent in corporate acquisitions, if the nature of the activities of the agent is such that the agent ordinarily would know the gross proceeds from sales. (iv) A stock transfer agent for a corporation, which agent records transfers of stock in such corporation, if the nature of the activities of the agent is such that the agent ordinarily would know the gross proceeds from sales. (v) A dividend reinvestment agent for a corporation that stands ready to purchase or redeem shares. (vi) A person who in the ordinary course of a trade or business provides users with hosted wallet services to the extent such person stands ready to effect the sale of digital assets on behalf of its customers, including by acting as an agent for a party in the sale wherein the nature of the agency is as described in paragraph (a)(10)(i)(A) of this section. (vii) A processor of digital asset payments as described in paragraph (a)(22) of this section. (viii) A person who in the ordinary course of a trade or business either owns or operates one or more physical electronic terminals or kiosks that stand ready to effect the sale of digital assets for cash, stored-value cards, or different digital assets, regardless of whether the other person is the disposer or the acquirer of the digital assets in such an exchange. (ix) [Reserved] (x) A person who in the ordinary course of a trade or business stands ready at a physical location to effect sales of digital assets on behalf of others. (xi) [Reserved] (2) Example 2. The following persons are not brokers within the meaning of paragraph (a)(1) of this section in the absence of additional facts that indicate the person is a broker-- (i) A stock transfer agent for a corporation, which agent daily records transfers of stock in such corporation, if the nature of the activities of the agent is such that the agent ordinarily would not know the gross proceeds from sales. (ii) A person (such as a stock exchange) that merely provides facilities in which others effect sales. (iii) An escrow agent or nominee if such agency is not in the ordinary course of a trade or business. (iv) An escrow agent, otherwise a broker, which agent effects no sales other than such transactions as are incidental to the purpose of the escrow (such as sales to collect on collateral). (v) A floor broker on a commodities exchange, which broker maintains no records with respect to the terms of sales. (vi) A corporation that issues and retires long-term debt on an irregular basis. (vii) A clearing organization. (viii) A merchant who is not otherwise required to make a return of information under section 6045 of the Code and who regularly sells goods or other property (other than digital assets) or services in return for digital assets. (ix) A person solely engaged in the business of validating distributed ledger transactions, through proof-of-work, proof-of- stake, or any other similar consensus mechanism, without providing other functions or services. (x) A person solely engaged in the business of selling hardware or licensing software, the sole function of which is to permit a person to control private keys which are used for accessing digital assets on a distributed ledger, without providing other functions or services. (3) Example 3: Barter exchange. A, B, and C belong to a carpool in which they commute to and from work. Every third day, each member of the carpool provides transportation for the other two members. Because the carpool arrangement provides solely for the informal exchange of similar services on a noncommercial basis, the carpool is not a barter exchange within the meaning of paragraph (a)(4) of this section. (4) Example 4: Barter exchange. X is an organization whose members include retail merchants, wholesale merchants, and persons in the trade or business of performing services. X's members exchange property and services among themselves using credits on the books of X as a medium of exchange. Each exchange through X is reflected on the books of X by crediting the account of the member providing property or services and debiting the account of the member receiving such property or services. X also provides information to its members concerning property and services available for exchange through X. X charges its members a commission on each transaction in which credits on its books are used as a medium of exchange. X is a barter exchange within the meaning of paragraph (a)(4) of this section. (5) Example 5: Commodity, forward contract. A warehouse receipt is an interest in personal property for purposes of paragraph (a) of this section. Consequently, a warehouse receipt for a quantity of lead is a commodity under paragraph (a)(5)(ii) of this section. Similarly, an executory contract that requires delivery of a warehouse receipt for a quantity of lead is a forward contract under paragraph (a)(7)(ii) of this section. (6) Example 6: Customer. The only customers of a depositary trust acting as an escrow agent in corporate acquisitions, which trust is a broker, are shareholders to whom the trust makes payments or shareholders for whom the trust is acting as an agent. (7) Example 7: Customer. The only customers of a stock transfer agent, which agent is a broker, are shareholders to whom the agent makes payments or shareholders for whom the agent is acting as an agent. (8) Example 8: Customer. D, an individual not otherwise exempt from reporting, is the holder of an obligation issued by P, a corporation. R, a broker, acting as an agent for P, retires such obligation held by D. Such obligor payments from R represent obligor payments by P. D, the person to whom the gross proceeds are paid or credited by R, is the customer of R. (9) Example 9: Covered security. E, an individual not otherwise exempt from reporting, maintains an account with S, a broker. On June 1, 2012, E instructs S to purchase stock that is a specified security for cash. S places an order to purchase the stock with T, another broker. E does not maintain an account with T. T executes the purchase. Custody of the purchased stock is transferred to E's account at S. Under paragraph (a)(15)(ii) of this section, the stock is considered acquired for cash in E's account at S. Because the stock is acquired on or after January 1, 2012, under paragraph (a)(15)(i) of this section, it is a covered security. (10) Example 10: Covered security. F, an individual not otherwise exempt from reporting, is granted 100 shares of stock in F's employer by F's employer. Because F does not acquire the stock for cash or through a transfer to an account with a transfer statement (as described in Sec. 1.6045A-1), under paragraph (a)(15) of this section, the stock is not a covered security. (11) Example 11: Covered security. G, an individual not otherwise exempt from reporting, owns 400 shares of stock in Q, a corporation, in an account with U, a broker. Of the 400 shares, 100 are covered securities and 300 are noncovered securities. Q takes a corporate action to split its stock in a 2-for-1 split. After the stock split, G owns 800 shares of stock. Because the adjusted basis of 600 of the 800 shares that G owns is determined from the basis of noncovered securities, under paragraphs (a)(15)(iii) and (a)(15)(iv)(B) of this section, these 600 shares are not covered securities and the remaining 200 shares are covered securities. (12) Example 12: Processor of digital asset payments, sale, and customer--(i) Facts. Company Z is an online merchant that accepts digital asset DE as a form of payment for the merchandise it sells. The merchandise Z sells does not include digital assets. Z does not provide any other service that could be considered as standing ready to effect sales of digital assets or any other property subject to reporting under section 6045. CPP is in the [[Page 56555]] business of facilitating payments made by users of digital assets to merchants with which CPP has an account. CPP also has contractual arrangements with users of digital assets for the provision of digital asset payment services that provide that CPP may verify such user's identity pursuant to AML program requirements. Z contracts with CPP to help Z's customers to make payments to Z using digital assets. Under Z's agreement with CPP, when purchasers of merchandise initiate payment on Z's website using DE, they are directed to CPP's website to complete the payment part of the transaction. CPP is a third party settlement organization, as defined in Sec. 1.6050W- 1(c)(2), with respect to the payments it makes to Z. Customer R seeks to purchase merchandise from Z that is priced at $6,000 (which is 6,000 units of DE). After R initiates a purchase, R is directed to CPP's website where R is directed to enter into an agreement with CPP, which as part of CPP's customary onboarding procedures developed pursuant to AML program requirements, requires R to submit information to CPP to verify R's identity. Thereafter, R is instructed to transfer 6,000 units of DE to a digital asset address controlled by CPP. CPP then pays $6,000 in cash to Z, who in turn processes R's order. (ii) Analysis. CPP is a processor of digital asset payments within the meaning of paragraph (a)(22) of this section because CPP, in the ordinary course of its business, regularly effects sales of digital assets as defined in paragraph (a)(9)(ii)(D) of this section by receiving digital assets from one party and paying those digital assets, cash, or different digital assets to a second party. Based on CPP's contractual relationship with Z, CPP has actual knowledge that R's payment was a payment transaction and the amount of gross proceeds R received as a result. Accordingly, CPP's services are facilitative services under paragraph (a)(21)(iii)(B) of this section and CPP is acting as a digital asset middleman under paragraph (a)(21) of this section to effect R's sale of digital assets under paragraph (a)(10)(i)(D) of this section. R's payment of 6,000 units of DE to CPP in return for the payment of $6,000 cash to Z is a sale of digital assets under paragraph (a)(9)(ii)(D) of this section. Additionally, because CPP has an arrangement with R for the provision of digital asset payment services that provides that CPP may verify R's identity pursuant to AML program requirements, R is CPP's customer under paragraph (a)(2)(ii)(A) of this section. Finally, CPP is also required to report the payment to Z under Sec. 1.6050W-1(a) because the payment is a third party network transaction under Sec. 1.6050W-1(c). The answer would be the same if CPP paid Z the 6,000 units of DE or another digital asset instead of cash. (13) Example 13: Broker. The facts are the same as in paragraph (b)(12)(i) of this section (the facts in Example 12), except that Z accepts digital asset DE from its purchasers directly without the services of CPP or any other processor of digital asset payments. To pay for the merchandise R purchases on Z's website, R is directed by Z to transfer 15 units of DE directly to Z's digital asset address. Z is not a broker under the definition of paragraph (a)(1) of this section because Z does not stand ready as part of its trade or business to effect sales as defined in paragraph (a)(9) of this section made by others. That is, the sales that Z is in the business of conducting are of property that is not subject to reporting under section 6045. (14) Example 14: Processor of digital asset payments--(i) Facts. Customer S purchases goods that are not digital assets with 10 units of digital asset DE from Merchant M using a digital asset DE credit card issued by Bank BK. BK has a contractual arrangement with customers using BK's credit cards that provides that BK may verify such customer identification information pursuant to AML program requirements. In addition, as part of BK's customary onboarding procedures, BK requires credit card applicants to submit information to BK to verify their identity. M is one of a network of unrelated persons that has agreed to accept digital asset DE credit cards issued by BK as payment for purchase transactions under an agreement that provides standards and mechanisms for settling the transaction between a merchant acquiring bank and the persons who accept the cards. Bank MAB is the merchant acquiring entity with the contractual obligation to make payments to M for goods provided to S in this transaction. To make payment for S's purchase of goods from M, S transfers 10 units of digital asset DE to BK. BK pays the 10 units of DE, less its processing fee, to Bank MAB, which amount Bank MAB pays, less its processing fee, to M. (ii) Analysis. BK is a processor of digital asset payments as defined in paragraph (a)(22) of this section because BK, in the ordinary course of its business, regularly effects sales of digital assets as defined in paragraph (a)(9)(ii)(D) of this section by receiving digital assets from one party and paying those digital assets, cash, or different digital assets to a second party. Bank BK has actual knowledge that payment made by S is a payment transaction and also knows S's gross proceeds therefrom. Accordingly, BK's services are facilitative services under paragraph (a)(21)(iii)(B) of this section and BK is acting as a digital asset middleman under paragraph (a)(21) of this section to effect sales of digital assets under paragraph (a)(10)(i)(D) of this section. S's payment of 10 units of DE to BK for the payment of those units, less BK's processing fee, to Bank MAB is a sale by S of digital assets under paragraph (a)(9)(ii)(D) of this section. Additionally, because S transferred digital assets to BK in a sale described in paragraph (a)(9)(ii)(D) of this section and because BK has an arrangement with S for the provision of digital asset payment services that provides that BK may verify S's identity, S is BK's customer under paragraph (a)(2)(ii)(A) of this section. (15) Example 15: Digital asset middleman and effect--(i) Facts. SBK is in the business of effecting sales of stock and other securities on behalf of customers. To open an account with SBK, each customer must provide SBK with its name, address, and tax identification number. SBK accepts 20 units of digital asset DE from Customer P as payment for 10 shares of AB stock. Additionally, P pays SBK an additional 1 unit of digital asset DE as a commission for SBK's services. (ii) Analysis. SBK's acceptance of 20 units of DE as payment for the AB stock is a facilitative service under paragraph (a)(21)(iii)(B) of this section because the payment is for property (the AB stock) that when sold would constitute a sale under paragraph (a)(9)(i) of this section by a broker that is in the business of effecting sales of stock and other securities. SBK's acceptance of 1 unit of DE as payment for SBK's commission is also a facilitative service under paragraph (a)(21)(iii)(B) of this section because SBK is a broker under paragraph (a)(1) of this section with respect to a sale of stock under paragraph (a)(9)(i) of this section. Accordingly, SBK is acting as a digital asset middleman to effect P's sale of 10 units of DE in return for the AB stock and P's sale of 1 unit of DE as payment for SBK's commission under paragraphs (a)(10)(i)(D) and (a)(21) of this section. (16) Example 16: Digital asset middleman and effect--(i) Facts. J, an unmarried individual not otherwise exempt from reporting, enters into a contractual agreement with B, an individual not otherwise exempt from reporting, to exchange J's principal residence, Blackacre, which has a fair market value of $225,000 for units of digital asset DE with a value of $225,000. Prior to closing, J provides closing agent CA, who is a real estate reporting person under Sec. 1.6045-4(e), with the certifications required under Sec. 1.6045-4(c)(2)(iv) (to exempt the transaction from reporting under Sec. 1.6045-4(a) due to Blackacre being J's principal residence). Prior to closing, B transfers the digital assets directly from B's wallet to J's wallet, and J certifies to the closing agent (CA) that J received the digital assets required to be paid under the contract. (ii) Analysis. CA is performing services as a real estate reporting person with respect to a real estate transaction in which the real estate buyer (B) pays digital assets in full or partial consideration for the real estate. In addition, CA has actual knowledge that payment made to B included digital assets because the terms of the real estate contract provide for such payment. Accordingly, the closing services provided by CA are facilitative services under paragraph (a)(21)(iii)(B)(2) of this section, and CA is acting as a digital asset middleman under paragraph (a)(21) of this section to effect B's sale of 1,000 DE units under paragraph (a)(10)(i)(D) of this section. These conclusions are not impacted by whether or not CA is required to report the sale of the real estate by J under Sec. 1.6045-4(a). (17) Example 17: Digital asset and cash--(i) Facts. Y is a privately held corporation that issues DL, a digital representation of value designed to track the value of the U.S. dollar. DL is backed in part or in full by U.S. dollars held by Y, and Y offers to redeem units of DL for U.S. dollars at par at any time. Transactions involving DL utilize cryptography to secure transactions that are digitally recorded on a cryptographically secured distributed ledger called the DL blockchain. CRX is a digital asset broker that also provides hosted wallet services for its customers seeking to make trades of digital assets using CRX. R is a customer of CRX. R exchanges 100 units of DL for $100 in cash [[Page 56556]] from CRX. CRX does not record this transaction on the DL blockchain, but instead records the transaction on CRX's own centralized private ledger. (ii) Analysis. DL is not cash under paragraph (a)(12) of this section because it is not issued by a government or central bank. DL is a digital asset under paragraph (a)(19) of this section because it is a digital representation of value that is recorded on a cryptographically secured distributed ledger. The fact that CRX recorded R's transaction on its own private ledger and not on the DL blockchain does not change this conclusion. (18) Example 18: Broker and effect--(i) Facts. Individual J is an artist in the business of creating and selling nonfungible tokens that reference J's digital artwork. To find buyers and to execute these transactions, J uses the services of P2X, an unrelated digital asset marketplace that provides a service for nonfungible token sellers to find buyers and automatically executing contracts in return for a transaction fee. J does not perform any other services with respect to these transactions. Using P2X's platform, buyer K purchases J's newly created nonfungible token (DA-J) for 1,000 units of digital asset DE. Using the interface provided by P2X, J and K execute their exchange using an automatically executing contract, which automatically transfers DA-J to K and K's payment of DE units to J. (ii) Analysis. Although J is a principal in the exchange of DA-J for 1,000 units of DE, J is not acting as an obligor retiring its own debt obligations, a corporation redeeming its own stock, or an issuer of digital assets that is redeeming those digital assets, as described in paragraph (a)(10)(i)(B) of this section. Because J created DA-J as part of J's business of creating and selling specified nonfungible tokens, J is also not acting in these transactions as a dealer as described in paragraph (a)(10)(i)(C) of this section, as an agent for another party as described in paragraph (a)(10)(i)(A) of this section, or as a digital asset middleman described in paragraph (a)(10)(i)(D) of this section. Accordingly, J is not a broker under paragraph (a)(1) of this section because J does not effect sales of digital assets on behalf of others under the definition of effect under paragraph (a)(10)(i) of this section. (19) Example 19: Broker, sale, and effect--(i) Facts. HWP is a person that regularly provides hosted wallet services for customers. HWP does not operate a digital asset trading platform, but at the direction of its customers regularly executes customer exchange orders using the services of digital asset trading platforms. Individual L maintains digital assets with HWP. L places an order with HWP to exchange 10 units of digital asset DE held by L with HWP for 100 units of digital asset RN. To execute the order, HWP places the order with PRX, a person, as defined in section 7701(a)(1) of the Code, that operates a digital asset trading platform. HWP debits L's account for the disposed DE units and credits L's account for the RN units received in exchange. (ii) Analysis. The exchange of L's DE units for RN units is a sale under paragraph (a)(9)(ii)(A)(2) of this section. HWP acts as an agent for L in this sale, and the nature of this agency is such that HWP ordinarily would know the gross proceeds from the sale. Accordingly, HWP has effected the sale under paragraph (a)(10)(i)(A) of this section. Additionally, HWP is a broker under paragraph (a)(1) of this section because in the ordinary course of its trade or business, HWP stands ready to effect sales to be made by others. If PRX is also a broker, see the multiple broker rule in paragraph (c)(3)(iii)(B) of this section. (20) Example 20: Digital asset and security. M owns 10 ownership units of a fund organized as a trust described in Sec. 301.7701- 4(c) of this chapter that was formed to invest in digital assets. M's units are held in a securities brokerage account and are not recorded using cryptographically secured distributed ledger technology. Although the underlying investments are comprised of one or more digital assets, M's investment is in ownership units of a trust, and the units are not themselves digital assets under paragraph (a)(19) of this section because transactions involving these units are not secured using cryptography and are not digitally recorded on a distributed ledger, such as a blockchain. The answer would be the same if the fund is organized as a C corporation or partnership. (21) Example 21: Forward contract, closing transaction, and sale--(i) Facts. On February 24, Year 1, J contracts with broker CRX to sell J's 10 units of digital asset DE to CRX at an agreed upon price, with delivery under the contract to occur at 4 p.m. on March 10, Year 1. Pursuant to this agreement, J delivers the 10 units of DE to CRX, and CRX pays J the agreed upon price in cash. (ii) Analysis. Under paragraph (a)(7)(iii) of this section, the contract between J and CRX is a forward contract. J's delivery of digital asset DE pursuant to the forward contract is a closing transaction described in paragraph (a)(8) of this section that is treated as a sale of the underlying digital asset DE under paragraph (a)(9)(ii)(A)(3) of this section. Pursuant to the rules of paragraphs (a)(9)(i) and (a)(9)(ii)(A)(3) of this section, CRX may treat the delivery of DE as a sale without separating the profit or loss on the forward contract from the profit or loss on the delivery. (22) Example 22: Digital asset--(i) Facts. On February 7, Year 1, J purchases a regulated futures contract on digital asset DE through futures commission merchant FCM. The contract is not recorded using cryptographically secured distributed ledger technology. The contract expires on the last Friday in June, Year 1. On May 1, Year 1, J enters into an offsetting closing transaction with respect to the regulated futures contract. (ii) Analysis. Although the regulated futures contract's underlying assets are comprised of digital assets, J's investment is in the regulated futures contract, which is not a digital asset under paragraph (a)(19) of this section because transactions involving the contract are not secured using cryptography and are not digitally recorded using cryptographically secured distributed ledger technology, such as a blockchain. When J disposes of the contract, the transaction is a sale of a regulated futures contract covered by paragraph (a)(9)(i) of this section. (23) Example 23: Closing transaction and sale--(i) Facts. On January 15, Year 1, J purchases digital asset DE through Broker. On March 1, Year 1, J sells a regulated futures contract on DE through Broker. The contract expires on the last Friday in June, Year 1. On the last Friday in June, Year 1, J delivers the DE in settlement of the regulated futures contract. (ii) Analysis. J's delivery of the DE pursuant to the regulated futures contract is a closing transaction described in paragraph (a)(8) of this section that is treated as a sale of the regulated futures contract under paragraph (a)(9)(i) of this section. In addition, under paragraph (a)(9)(ii)(A)(3) of this section, J's delivery of digital asset DE pursuant to the settlement of the regulated futures contract is a sale of the underlying digital asset DE. (c) * * * (3) Exceptions--(i) Sales effected for exempt recipients--(A) In general. No return of information is required with respect to a sale effected for a customer that is an exempt recipient under paragraph (c)(3)(i)(B) of this section. (B) Exempt recipient defined. The term exempt recipient means-- (1) A corporation as defined in section 7701(a)(3), whether domestic or foreign, except that this exclusion does not apply to sales of covered securities acquired on or after January 1, 2012, by an S corporation as defined in section 1361(a); (2) An organization exempt from taxation under section 501(a) or an individual retirement plan; (3) The United States or a State, the District of Columbia, the Commonwealth of Puerto Rico, Guam, the Commonwealth of Northern Mariana Islands, the U.S. Virgin Islands, or American Samoa, a political subdivision of any of the foregoing, a wholly owned agency or instrumentality of any one or more of the foregoing, or a pool or partnership composed exclusively of any of the foregoing; (4) A foreign government, a political subdivision thereof, an international organization, or any wholly owned agency or instrumentality of the foregoing; (5) A foreign central bank of issue as defined in Sec. 1.895- 1(b)(1) (i.e., a bank that is by law or government sanction the principal authority, other than the government itself, issuing instruments intended to circulate as currency); (6) A dealer in securities or commodities registered as such under the laws of the United States or a State; (7) A futures commission merchant registered as such with the Commodity Futures Trading Commission; (8) A real estate investment trust (as defined in section 856); (9) An entity registered at all times during the taxable year under the [[Page 56557]] Investment Company Act of 1940 (15 U.S.C. 80a-1, et seq.); (10) A common trust fund (as defined in section 584(a)); (11) A financial institution such as a bank, mutual savings bank, savings and loan association, building and loan association, cooperative bank, homestead association, credit union, industrial loan association or bank, or other similar organization; or (12) A U.S. digital asset broker as defined in paragraph (g)(4)(i)(A)(1) of this section other than an investment adviser registered either under the Investment Advisers Act of 1940 (15 U.S.C. 80b-1, et seq.) or with a state securities regulator and that investment adviser is not otherwise an exempt recipient in one or more of paragraphs (c)(3)(i)(B)(1) through (11) of this section. (C) Exemption certificate--(1) In general. Except as provided in paragraph (c)(3)(i)(C)(2) or (3) of this section, a broker may treat a person described in paragraph (c)(3)(i)(B) of this section as an exempt recipient based on a properly completed exemption certificate (as provided in Sec. 31.3406(h)-3 of this chapter); the broker's actual knowledge that the customer is a person described in paragraph (c)(3)(i)(B) of this section; or the applicable indicators described in Sec. 1.6049-4(c)(1)(ii)(A) through (M). A broker may require an exempt recipient to file a properly completed exemption certificate and may treat an exempt recipient that fails to do so as a recipient that is not exempt. (2) Limitation for corporate customers. For sales of covered securities acquired on or after January 1, 2012, a broker may not treat a customer as an exempt recipient described in paragraph (c)(3)(i)(B)(1) of this section based on the indicators of corporate status described in Sec. 1.6049-4(c)(1)(ii)(A). However, for sales of all securities and for sales of digital assets, a broker may treat a customer as an exempt recipient if one of the following applies-- (i) The name of the customer contains the term insurance company, indemnity company, reinsurance company, or assurance company. (ii) The name of the customer indicates that it is an entity listed as a per se corporation under Sec. 301.7701-2(b)(8)(i) of this chapter. (iii) The broker receives a properly completed exemption certificate (as provided in Sec. 31.3406(h)-3 of this chapter) that asserts that the customer is not an S corporation as defined in section 1361(a). (iv) The broker receives a withholding certificate described in Sec. 1.1441-1(e)(2)(i) that includes a certification that the person whose name is on the certificate is a foreign corporation. (3) Limitation for U.S. digital asset brokers. For sales of digital assets, a broker may not treat a customer as an exempt recipient described in paragraph (c)(3)(i)(B)(12) of this section unless it obtains from that customer a certification on a properly completed exemption certificate (as provided in Sec. 31.3406(h)-3 of this chapter) that the customer is a U.S. digital asset broker described in paragraph (g)(4)(i)(A)(1) of this section. (ii) Excepted sales. No return of information is required with respect to a sale effected by a broker for a customer if the sale is an excepted sale. The inclusion in this paragraph (c)(3)(ii) of a digital asset transaction is not intended to create an inference that the transaction is a sale of a digital asset under paragraph (a)(9)(ii) of this section. For this purpose, a sale is an excepted sale if it is-- (A) So designated by the Internal Revenue Service in a revenue ruling or revenue procedure (see Sec. 601.601(d)(2) of this chapter); (B) A sale with respect to which a return is not required by applying the rules of Sec. 1.6049-4(c)(4) (by substituting the term a sale subject to reporting under section 6045 for the term an interest payment); (C) A sale of digital asset units withheld by the broker from digital assets received by the customer in any underlying digital asset sale to pay for the customer's digital asset transaction costs; (D) A sale for cash of digital asset units withheld by the broker from digital assets received by the customer in a sale of digital assets for different digital assets (underlying sale) that is undertaken immediately after the underlying sale to satisfy the broker's obligation under section 3406 of the Code to deduct and withhold a tax with respect to the underlying sale; (E) A disposition of a digital asset representing loyalty program credits or loyalty program rewards offered by a provider of non-digital asset goods or services to its customers, in exchange for non-digital asset goods or services from the provider or other merchants participating with the developer as part of the program, provided that the digital asset is not capable of being transferred, exchanged, or otherwise used outside the cryptographically secured distributed ledger network of the loyalty program; (F) A disposition of a digital asset created and designed for use within a video game or network of video games in exchange for different digital assets also created and designed for use within that video game or video game network, provided the disposed of digital assets are not capable of being transferred, exchanged, or otherwise used outside of the video game or video game network; (G) Except in the case of digital assets cleared or settled on a limited-access regulated network as described in paragraph (c)(8)(iii) of this section, a disposition of a digital asset representing information with respect to payment instructions or the management of inventory that does not consist of digital assets, within a cryptographically secured distributed ledger (or network of interoperable distributed ledgers) that provides access only to users of such information provided the digital assets disposed of are not capable of being transferred, exchanged, or otherwise used outside such distributed ledger or network; or (H) A disposition of a digital asset offered by a seller of goods or provider of services to its customers that can be exchanged or redeemed only by those customers for goods or services provided by such seller or provider if the digital asset is not capable of being transferred, exchanged, or otherwise used outside the cryptographically secured distributed ledger network of the seller or provider and cannot be sold or exchanged for cash, stored-value cards, or qualifying stablecoins at a market rate inside the seller or provider's distributed ledger network. (iii) Multiple brokers--(A) In general. If a broker is instructed to initiate a sale by a person that is an exempt recipient described in paragraph (c)(3)(i)(B)(6), (7), or (11) of this section, no return of information is required with respect to the sale by that broker. In a redemption of stock or retirement of securities, only the broker responsible for paying the holder redeemed or retired, or crediting the gross proceeds on the sale to that holder's account, is required to report the sale. (B) Special rule for sales of digital assets. If more than one broker effects a sale of a digital asset on behalf of a customer, the broker responsible for first crediting the gross proceeds on the sale to the customer's wallet or account is required to report the sale. A broker that did not first credit the gross proceeds on the sale to the customer's wallet or account is not required to report the sale if prior to the sale that broker obtains a certification on a properly completed exemption certificate (as provided in Sec. 31.3406(h)-3 of this chapter) that the [[Page 56558]] broker first crediting the gross proceeds on the sale is a person described in paragraph (c)(3)(i)(B)(12) of this section. (iv) Cash on delivery transactions. In the case of a sale of securities through a cash on delivery account, a delivery versus payment account, or other similar account or transaction, only the broker that receives the gross proceeds from the sale against delivery of the securities sold is required to report the sale. If, however, the broker's customer is another broker (second-party broker) that is an exempt recipient, then only the second-party broker is required to report the sale. (v) Fiduciaries and partnerships. No return of information is required with respect to a sale effected by a custodian or trustee in its capacity as such or a redemption of a partnership interest by a partnership, provided the sale is otherwise reported by the custodian or trustee on a properly filed Form 1041, or the redemption is otherwise reported by the partnership on a properly filed Form 1065, and all Schedule K-1 reporting requirements are satisfied. (vi) Money market funds--(A) In general. No return of information is required with respect to a sale of shares in a regulated investment company that is permitted to hold itself out to investors as a money market fund under Rule 2a-7 under the Investment Company Act of 1940 (17 CFR 270.2a-7). (B) Effective/applicability date. Paragraph (c)(3)(vi)(A) of this section applies to sales of shares in calendar years beginning on or after July 8, 2016. Taxpayers and brokers (as defined in Sec. 1.6045- 1(a)(1)), however, may rely on paragraph (c)(3)(vi)(A) of this section for sales of shares in calendar years beginning before July 8, 2016. (vii) Obligor payments on certain obligations. No return of information is required with respect to payments representing obligor payments on-- (A) Nontransferable obligations (including savings bonds, savings accounts, checking accounts, and NOW accounts); (B) Obligations as to which the entire gross proceeds are reported by the broker on Form 1099 under provisions of the Internal Revenue Code other than section 6045 (including stripped coupons issued prior to July 1, 1982); or (C) Retirement of short-term obligations (i.e., obligations with a fixed maturity date not exceeding 1 year from the date of issue) that have original issue discount, as defined in section 1273(a)(1), with or without application of the de minimis rule. The preceding sentence does not apply to a debt instrument issued on or after January 1, 2014. For a short-term obligation issued on or after January 1, 2014, see paragraph (c)(3)(xiii) of this section. (D) Demand obligations that also are callable by the obligor and that have no premium or discount. The preceding sentence does not apply to a debt instrument issued on or after January 1, 2014. (viii) Foreign currency. No return of information is required with respect to a sale of foreign currency other than a sale pursuant to a forward contract or regulated futures contract that requires delivery of foreign currency. (ix) Fractional share. No return of information is required with respect to a sale of a fractional share of stock if the gross proceeds on the sale of the fractional share are less than $20. (x) Certain retirements. No return of information is required from an issuer or its agent with respect to the retirement of book entry or registered form obligations as to which the relevant books and records indicate that no interim transfers have occurred. The preceding sentence does not apply to a debt instrument issued on or after January 1, 2014. (xi) Short sales--(A) In general. A broker may not make a return of information under this section for a short sale of a security entered into on or after January 1, 2011, until the year a customer delivers a security to satisfy the short sale obligation. The return must be made without regard to the constructive sale rule in section 1259 or to section 1233(h). In general, the broker must report on a single return the information required by paragraph (d)(2)(i)(A) of this section for the short sale except that the broker must report the date the short sale was closed in lieu of the sale date. In applying paragraph (d)(2)(i)(A) of this section, the broker must report the relevant information regarding the security sold to open the short sale and the adjusted basis of the security delivered to close the short sale and whether any gain or loss on the closing of the short sale is long-term or short-term (within the meaning of section 1222). (B) Short sale closed by delivery of a noncovered security. A broker is not required to report adjusted basis and whether any gain or loss on the closing of the short sale is long-term or short-term if the short sale is closed by delivery of a noncovered security and the return so indicates. A broker that chooses to report this information is not subject to penalties under section 6721 or 6722 for failure to report this information correctly if the broker indicates on the return that the short sale was closed by delivery of a noncovered security. (C) Short sale obligation transferred to another account. If a short sale obligation is satisfied by delivery of a security transferred into a customer's account accompanied by a transfer statement (as described in Sec. 1.6045A-1(b)(7)) indicating that the security was borrowed, the broker receiving custody of the security may not file a return of information under this section. The receiving broker must furnish a statement to the transferor that reports the amount of gross proceeds received from the short sale, the date of the sale, the quantity of shares, units, or amounts sold, and the Committee on Uniform Security Identification Procedures (CUSIP) number of the sold security (if applicable) or other security identifier number that the Secretary may designate by publication in the Federal Register or in the Internal Revenue Bulletin (see Sec. 601.601(d)(2) of this chapter). The statement to the transferor also must include the transfer date, the name and contact information of the receiving broker, the name and contact information of the transferor, and sufficient information to identify the customer. If the customer subsequently closes the short sale obligation in the transferor's account with non-borrowed securities, the transferor must make the return of information required by this section. In that event, the transferor must take into account the information furnished under this paragraph (c)(3)(xi)(C) on the return unless the transferor knows that the information furnished under this paragraph (c)(3)(xi)(C) is incorrect or incomplete. A failure to report correct information that arises solely from this reliance is deemed to be due to reasonable cause for purposes of penalties under sections 6721 and 6722. See Sec. 301.6724-1(a)(1) of this chapter. (xii) Cross reference. For an exception for certain sales of agricultural commodities and certificates issued by the Commodity Credit Corporation after January 1, 1993, see paragraph (c)(7) of this section. (xiii) Short-term obligations issued on or after January 1, 2014. No return of information is required under this section with respect to a sale (including a retirement) of a short-term obligation, as described in section 1272(a)(2)(C), that is issued on or after January 1, 2014. (xiv) Certain redemptions. No return of information is required under this section for payments made by a stock transfer agent (as described in Sec. 1.6045-1(b)(iv)) with respect to a redemption of stock of a corporation described in [[Page 56559]] section 1297(a) with respect to a shareholder in the corporation if-- (A) The stock transfer agent obtains from the corporation a written certification signed by a person authorized to sign on behalf of the corporation, that states that the corporation is described in section 1297(a) for each calendar year during which the stock transfer agent relies on the provisions of this paragraph (c)(3)(xiv), and the stock transfer agent has no reason to know that the written certification is unreliable or incorrect; (B) The stock transfer agent identifies, prior to payment, the corporation as a participating FFI (including a reporting Model 2 FFI) (as defined in Sec. 1.6049-4(f)(10) or (14), respectively), or reporting Model 1 FFI (as defined in Sec. 1.6049-4(f)(13)), in accordance with the requirements of Sec. 1.1471-3(d)(4) (substituting the terms stock transfer agent and corporation for the terms withholding agent and payee, respectively) and validates that status annually; (C) The stock transfer agent obtains a written certification representing that the corporation shall report the payment as part of its account holder reporting obligations under chapter 4 of the Code or an applicable IGA (as defined in Sec. 1.6049-4(f)(7)) and provided the stock transfer agent does not know that the corporation is not reporting the payment as required. The paying agent may rely on the written certification until there is a change in circumstances or the paying agent knows or has reason to know that the statement is unreliable or incorrect. A stock transfer agent that knows that the corporation is not reporting the payment as required under chapter 4 of the Code or an applicable IGA must report all payments reportable under this section that it makes during the year in which it obtains such knowledge; and (D) The stock transfer agent is not also acting in its capacity as a custodian, nominee, or other agent of the payee with respect to the payment. (4) Examples. The following examples illustrate the application of the rules in paragraph (c)(3) of this section: (i) Example 1. P, an individual who is not an exempt recipient, places an order with B, a person generally known in the investment community to be a federally registered broker/dealer, to effect a sale of P's stock in a publicly traded corporation. B, in turn, places an order to sell the stock with C, a second broker, who will execute the sale. B discloses to C the identity of the customer placing the order. C is not required to make a return of information with respect to the sale because C was instructed by B, an exempt recipient as defined in paragraph (c)(3)(i)(B)(6) of this section, to initiate the sale. B is required to make a return of information with respect to the sale because P is B's customer and is not an exempt recipient. (ii) Example 2. Assume the same facts as in paragraph (c)(4)(i) of this section (the facts in Example 1) except that B has an omnibus account with C so that B does not disclose to C whether the transaction is for a customer of B or for B's own account. C is not required to make a return of information with respect to the sale because C was instructed by B, an exempt recipient as defined in paragraph (c)(3)(i)(B)(6) of this section, to initiate the sale. B is required to make a return of information with respect to the sale because P is B's customer and is not an exempt recipient. (iii) Example 3. D, an individual who is not an exempt recipient, enters into a cash on delivery stock transaction by instructing K, a federally registered broker/dealer, to sell stock owned by D, and to deliver the proceeds to L, a custodian bank. Concurrently with the above instructions, D instructs L to deliver D's stock to K (or K's designee) against delivery of the proceeds from K. The records of both K and L with respect to this transaction show an account in the name of D. Pursuant to paragraph (h)(1) of this section, D is considered the customer of K and L. Under paragraph (c)(3)(iv) of this section, K is not required to make a return of information with respect to the sale because K will pay the gross proceeds to L against delivery of the securities sold. L is required to make a return of information with respect to the sale because D is L's customer and is not an exempt recipient. (iv) Example 4. Assume the same facts as in paragraph (c)(4)(iii) of this section (the facts in Example 3) except that E, a federally registered investment adviser, instructs K to sell stock owned by D and to deliver the proceeds to L. Concurrently with the above instructions, E instructs L to deliver D's stock to K (or K's designee) against delivery of the proceeds from K. The records of both K and L with respect to the transaction show an account in the name of D. Pursuant to paragraph (h)(1) of this section, D is considered the customer of K and L. Under paragraph (c)(3)(iv) of this section, K is not required to make a return of information with respect to the sale because K will pay the gross proceeds to L against delivery of the securities sold. L is required to make a return of information with respect to the sale because D is L's customer and is not an exempt recipient. (v) Example 5. Assume the same facts as in paragraph (c)(4)(iv) of this section (the facts in Example 4) except that the records of both K and L with respect to the transaction show an account in the name of E. Pursuant to paragraph (h)(1) of this section, E is considered the customer of K and L. Under paragraph (c)(3)(iv) of this section, K is not required to make a return of information with respect to the sale because K will pay the gross proceeds to L against delivery of the securities sold. L is required to make a return of information with respect to the sale because E is L's customer and is not an exempt recipient. E is required to make a return of information with respect to the sale because D is E's customer and is not an exempt recipient. (vi) Example 6. F, an individual who is not an exempt recipient, owns bonds that are held by G, a federally registered broker/dealer, in an account for F with G designated as nominee for F. Upon the retirement of the bonds, the gross proceeds are automatically credited to the account of F. G is required to make a return of information with respect to the retirement because G is the broker responsible for making payments of the gross proceeds to F. (vii) Example 7. On June 24, 2010, H, an individual who is not an exempt recipient, opens a short sale of stock in an account with M, a broker. Because the short sale is entered into before January 1, 2011, paragraph (c)(3)(xi) of this section does not apply. Under paragraphs (c)(2) and (j) of this section, M must make a return of information for the year of the sale regardless of when the short sale is closed. (viii) Example 8--(A) Facts. On August 25, 2011, H opens a short sale of stock in an account with M, a broker. H closes the short sale with M on January 25, 2012, by purchasing stock of the same corporation in the account in which H opened the short sale and delivering the stock to satisfy H's short sale obligation. The stock H purchased is a covered security. (B) Analysis. Because the short sale is entered into on or after January 1, 2011, under paragraphs (c)(2) and (c)(3)(xi) of this section, the broker closing the short sale must make a return of information reporting the sale for the year in which the short sale is closed. Thus, M is required to report the sale for 2012. M must report on a single return the relevant information for the sold stock, the adjusted basis of the purchased stock, and whether any gain or loss on the closing of the short sale is long-term or short- term (within the meaning of section 1222). Thus, M must report the information about the short sale opening and closing transactions on a single return for taxable year 2012. (ix) Example 9--(A) Facts. Assume the same facts as in paragraph (c)(4)(viii) of this section (the facts in Example 8) except that H also has an account with N, a broker, and satisfies the short sale obligation with M by borrowing stock of the same corporation from N and transferring custody of the borrowed stock from N to M. N indicates on the transfer statement that the transferred stock was borrowed in accordance with Sec. 1.6045A-1(b)(7). (B) Analysis with respect to M. Under paragraph (c)(3)(xi)(C) of this section, M may not file the return of information required under this section. M must furnish a statement to N that reports the gross proceeds from the short sale on August 25, 2011, the date of the sale, the quantity of shares sold, the CUSIP number or other security identifier number of the sold stock, the transfer date, the name and contact information of M and N, and information identifying H such as H's name and the account number from which H transferred the borrowed stock. (C) Analysis with respect to N. N must report the gross proceeds from the short sale, the date the short sale was closed, the [[Page 56560]] adjusted basis of the stock acquired to close the short sale, and whether any gain or loss on the closing of the short sale is long- term or short-term (within the meaning of section 1222) on the return of information N is required to file under paragraph (c)(2) of this section when H closes the short sale in the account with N. (x) Example 10: Excepted sale of digital assets representing payment instructions--(A) Facts. BNK is a bank that uses a cryptographically secured distributed ledger technology system (DLT) that provides access only to other member banks to securely transfer payment instructions that are not securities or commodities described in paragraph (c)(8)(iii) of this section. These payment instructions are exchanged between member banks through the use of digital asset DX. Dispositions of DX do not give rise to sales of other digital assets within the cryptographically secured distributed ledger (or network of interoperable distributed ledgers) and are not capable of being transferred, exchanged, or otherwise used, outside the DLT system. BNK disposes of DX using the DLT system to make a payment instruction to another bank within the DLT system. (B) Analysis. BNK's disposition of DX using the DLT system to make a payment instruction to another bank within the DLT system is a disposition of a digital asset representing payment instructions that are not securities or commodities within a cryptographically secured distributed ledger that provides access only to users of such information. Because DX cannot be transferred, exchanged, or otherwise used, outside of DLT, and because the payment instructions are not dual classification assets under paragraph (c)(8)(iii) of this section, BNK's disposition of DX is an excepted sale under paragraph (c)(3)(ii)(G) of this section. (xi) Example 11: Excepted sale of digital assets representing a loyalty program--(A) Facts. S created a loyalty program as a marketing tool to incentivize customers to make purchases at S's store, which sells non-digital asset goods and services. Customers that join S's loyalty program receive 1 unit of digital asset LY at the end of each month for every $1 spent in S's store. Units of LY can only be disposed of within S's cryptographically secured distributed ledger (DLY) in exchange for goods or services provided by S or merchants, such as M, that have contractually agreed to provide goods or services to S's loyalty customers in exchange for a predetermined payment from S. Customer C is a participant in S's loyalty program and has earned 1,000 units of LY. C redeems 1,000 units of LY in exchange for non-digital asset goods in M's store. (B) Analysis. Customer C's disposition of LY using the DLY system in exchange for non-digital asset goods in M's store is a disposition of a digital asset representing loyalty program credits in exchange for non-digital asset goods or services from M, a merchant participating with S's loyalty program. Because LY cannot be transferred, exchanged, or otherwise used outside of DLY, C's disposition of LY is an excepted sale under paragraph (c)(3)(ii)(E) of this section. (xii) Example 12: Multiple brokers--(A) Facts. L, an individual who is not an exempt recipient, maintains digital assets with HWP, a U.S. corporation that provides hosted wallet services. L also maintains an account at CRX, a U.S. corporation that operates a digital asset trading platform and that also provides custodial services for digital assets held by L. L places an order with HWP to exchange 10 units of digital asset DE for 100 units of digital asset RN. To effect the order, HWP places the order with CRX and communicates to CRX that the order is on behalf of L. Prior to initiating the transaction, CRX obtains a certification from HWP on a properly completed exemption certificate (as provided in Sec. 31.3406(h)-3 of this chapter) that HWP is a U.S. digital asset broker described in paragraph (g)(4)(i)(A)(1) of this section. CRX completes the transaction and transfers the 100 units of RN to HWP. HWP, in turn, credits L's account with the 100 units of RN. (B) Analysis. HWP is the broker responsible for first crediting the gross proceeds on the sale to L's wallet. Accordingly, because CRX has obtained from HWP a certification on a properly completed exemption certificate (as provided in Sec. 31.3406(h)-3 of this chapter) that HWP is a U.S. digital asset broker described in paragraph (g)(4)(i)(A)(1) of this section, CRX is not required to make a return of information with respect to the sale of 100 units of RN effected on behalf of L under paragraph (c)(3)(iii)(B) of this section. In contrast, because HWP is the broker that credits the 100 units of RN to L's account, HWP is required to make a return of information with respect to the sale. (xiii) Example 13: Multiple brokers--(A) Facts. The facts are the same as in paragraph (c)(4)(xii)(A) of this section (the facts in Example 12), except that CRX deposits the 100 units of RN into L's account with CRX after the transaction is effected by CRX. Thereafter, L transfers the 100 units of RN in L's account with CRX to L's account with HWP. Prior to the transaction, HWP obtained a certification from CRX on a properly completed exemption certificate (as provided in Sec. 31.3406(h)-3 of this chapter) that CRX is a U.S. digital asset broker described in paragraph (g)(4)(i)(A)(1) of this section. (B) Analysis. Under paragraph (c)(3)(iii)(B) of this section, despite being instructed by HWP to make the sale of 100 units of RN on behalf of L, CRX is required to make a return of information with respect to the sale effected on behalf of L because CRX is the broker that credits the 100 units of RN to L's account. In contrast, HWP is not required to make a return of information with respect to the sale effected on behalf of L because HWP obtained from CRX a certification on a properly completed exemption certificate (as provided in Sec. 31.3406(h)-3 of this chapter) that CRX is a U.S. digital asset broker described in paragraph (g)(4)(i)(A)(1) of this section. (5) * * * (i) In general. A broker effecting closing transactions in regulated futures contracts shall report information with respect to regulated futures contracts solely in the manner prescribed in this paragraph (c)(5). In the case of a sale that involves making delivery pursuant to a regulated futures contract, only the profit or loss on the contract is reported as a transaction with respect to regulated futures contracts under this paragraph (c)(5); such sales are, however, subject to reporting under paragraph (d)(2)(i)(A). The information required under this paragraph (c)(5) must be reported on a calendar year basis, unless the broker is advised in writing by an account's owner that the owner's taxable year is other than a calendar year and the broker elects to report with respect to regulated futures contracts in such account on the basis of the owner's taxable year. The following information must be reported as required by Form 1099-B, Proceeds From Broker and Barter Exchange Transactions, or any successor form, with respect to regulated futures contracts held in a customer's account: (A) The name, address, and taxpayer identification number of the customer. (B) The net realized profit or loss from all regulated futures contracts closed during the calendar year. (C) The net unrealized profit or loss in all open regulated futures contracts at the end of the preceding calendar year. (D) The net unrealized profit or loss in all open regulated futures contracts at the end of the calendar year. (E) The aggregate profit or loss from regulated futures contracts ((b) + (d)-(c)). (F) Any other information required by Form 1099-B. See 17 CFR 1.33. For this purpose, the end of a year is the close of business of the last business day of such year. In reporting under this paragraph (c)(5), the broker shall make such adjustments for commissions that have actually been paid and for option premiums as are consistent with the books of the broker. No additional returns of information with respect to regulated futures contracts so reported are required. * * * * * (8) Special coordination rules for reporting digital assets that are dual classification assets--(i) General rule for reporting dual classification assets as digital assets. Except in the case of a sale described in paragraph (c)(8)(ii), (iii), or (iv) of this section, for any sale of a digital asset under paragraph (a)(9)(ii) of this section that also constitutes a sale under paragraph (a)(9)(i) of this section, the broker must treat the transaction as set forth in paragraphs (c)(8)(i)(A) through (D). For purposes of this section, an asset described in this paragraph (c)(8)(i) is a dual classification asset. [[Page 56561]] (A) The broker must report the sale only as a sale of a digital asset under paragraph (a)(9)(ii) of this section and not as a sale under paragraph (a)(9)(i) of this section. (B) The broker must treat the sale only as a sale of a specified security under paragraph (a)(14)(v) or (vi) of this section, as applicable, and not as a specified security under paragraph (a)(14)(i), (ii), (iii), or (iv) of this section. (C) The broker must apply the reporting rules set forth in paragraphs (d)(2)(i)(B) through (D) of this section, as applicable, for the information required to be reported for such sale. (D) For a sale of a dual classification asset that is treated as a tokenized security, the broker must report the information set forth in paragraph (c)(8)(i)(D)(3) of this section. (1) A tokenized security is a dual classification asset that: (i) Provides the holder with an interest in another asset that is a security described in paragraph (a)(3) of this section, other than a security that is also a digital asset; or (ii) Constitutes an asset the offer and sale of which was registered with the U.S. Securities and Exchange Commission, other than an asset treated as a security for securities law purposes solely as an investment contract. (2) For purposes of paragraph (c)(8)(i)(D)(1) of this section, a qualifying stablecoin is not treated as a tokenized security. (3) In the case of a sale of a tokenized security, the broker must report the information set forth in paragraph (d)(2)(i)(B)(6) of this section, as applicable. In the case of a tokenized security that is a specified security under paragraph (a)(14)(i), (ii), (iii), or (iv) of this section, the broker must also report the information set forth in paragraph (d)(2)(i)(D)(4) of this section. (ii) Reporting of dual classification assets that constitute contracts covered by section 1256(b) of the Code. For a sale of a digital asset on or after January 1, 2025, that is also a contract covered by section 1256(b), the broker must report the sale only under paragraph (c)(5) of this section including, as appropriate, the application of the rules in paragraph (m)(3) of this section. (iii) Reporting of dual classification assets cleared or settled on a limited-access regulated network--(A) General rule. The coordination rule of paragraph (c)(8)(i) of this section does not apply to any sale of a dual classification asset that is a digital asset solely because the sale of such asset is cleared or settled on a limited-access regulated network described in paragraph (c)(8)(iii)(B) of this section. In such case, the broker must report such sale only as a sale under paragraph (a)(9)(i) of this section and not as a sale under paragraph (a)(9)(ii) of this section and must treat the sale as a sale of a specified security under paragraph (a)(14)(i), (ii), (iii), or (iv) of this section, to the extent applicable, and not as a sale of a specified security under paragraph (a)(14)(v) or (vi) of this section. For all other purposes of this section including transfers, a dual classification asset that is a digital asset solely because it is cleared or settled on a limited-access regulated network is not treated as a digital asset and is not reportable as a digital asset. See paragraph (d)(2)(i)(A) of this section for the information required to be reported for such a sale. (B) Limited-access regulated network. For purposes of this section, a limited-access regulated network is described in paragraph (c)(8)(iii)(B)(1) or (2) of this section. (1) A cryptographically secured distributed ledger, or network of interoperable cryptographically secured distributed ledgers, that provides clearance or settlement services and that either: (i) Provides access only to persons described in one or more of paragraphs (c)(3)(i)(B)(6), (7), (10), or (11) of this section; or (ii) Is provided exclusively to its participants by an entity that has registered with the U.S. Securities and Exchange Commission as a clearing agency, or that has received an exemption order from the U.S. Securities and Exchange Commission as a clearing agency, under section 17A of the Securities Exchange Act of 1934. (2) A cryptographically secured distributed ledger controlled by a single person described in one of paragraphs (c)(3)(i)(B)(6) through (11) of this section that permits the ledger to be used solely by itself and its affiliates, and therefore does not provide access to the ledger to third parties such as customers or investors, in order to clear or settle sales of assets. (iv) Reporting of dual classification assets that are interests in money market funds. The coordination rule of paragraph (c)(8)(i) of this section does not apply to any sale of a dual classification asset that is a share in a regulated investment company that is permitted to hold itself out to investors as a money market fund under Rule 2a-7 under the Investment Company Act of 1940 (17 CFR 270.2a-7). In such case, the broker must treat such sale only as a sale under paragraph (a)(9)(i) of this section and not as a sale under paragraph (a)(9)(ii) of this section. See paragraph (c)(3)(vi) of this section, providing that no return of information is required for shares described in the first sentence of this paragraph (c)(8)(iv). (v) Example: Digital asset securities--(A) Facts. Brokers registered under the securities laws of the United States have formed a large network (broker network) that maintains accounts for customers seeking to purchase and sell stock. The broker network clears and settles sales of this stock using a cryptographically secured distributed ledger (DLN) that provides clearance or settlement services to the broker network. DLN may not be used by any person other than a registered broker in the broker network. (B) Analysis. DLN is a limited-access regulated network described in paragraph (c)(8)(iii)(B)(1)(i) of this section because it is a cryptographically secured distributed ledger that provides clearance or settlement services and that provides access only to brokers described in paragraph (c)(3)(i)(B)(6) of this section. Additionally, sales of stock cleared on DLN are sales of securities under paragraph (a)(9)(i) of this section and sales of digital assets under paragraph (a)(9)(ii) of this section. Accordingly, sales of stock cleared on DLN are described in paragraph (c)(8)(iii) of this section and the coordination rule of paragraph (c)(8)(i) of this section does not apply to these sales. Therefore, the sales of stock cleared on DLN are reported only under paragraph (a)(9)(i) of this section. See paragraph (d)(2)(i)(A) of this section for the method for reporting the information required to be reported for such a sale. (d) * * * (2) Transactional reporting--(i) Required information--(A) General rule for sales described in paragraph (a)(9)(i) of this section. Except as provided in paragraph (c)(5) of this section, for each sale described in paragraph (a)(9)(i) of this section for which a broker is required to make a return of information under this section, the broker must report on Form 1099-B, Proceeds From Broker and Barter Exchange Transactions, or any successor form, the name, address, and taxpayer identification number of the customer, the property sold, the Committee on Uniform Security Identification Procedures (CUSIP) number of the security sold (if applicable) or other security identifier number that the Secretary may designate by publication in the Federal Register or in the Internal Revenue Bulletin (see Sec. 601.601(d)(2) of this chapter), the adjusted basis of the security sold, whether any gain or loss with respect to the security sold is long-term or short-term (within the meaning [[Page 56562]] of section 1222 of the Code), the gross proceeds of the sale, the sale date, and other information required by the form in the manner and number of copies required by the form. In addition, for a sale of a covered security on or after January 1, 2014, a broker must report on Form 1099-B whether any gain or loss is ordinary. See paragraph (m) of this section for additional rules related to options and paragraph (n) of this section for additional rules related to debt instruments. See paragraph (c)(8) of this section for rules related to sales of securities or sales of commodities under paragraph (a)(9)(i) of this section that are also sales of digital assets under paragraph (a)(9)(ii) of this section. (B) Required information for digital asset transactions. Except in the case of a sale of a qualifying stablecoin or a specified nonfungible token for which the broker reports in the manner set forth in paragraph (d)(10) of this section and subject to the exception described in paragraph (d)(2)(i)(C) of this section for sales of digital assets described in paragraph (a)(9)(ii)(D) of this section (sales effected by processors of digital asset payments), for each sale of a digital asset described in paragraph (a)(9)(ii) of this section for which a broker is required to make a return of information under this section, the broker must report on Form 1099-DA, Digital Asset Proceeds From Broker Transactions, or any successor form, in the manner required by such form or instructions the following information: (1) The name, address, and taxpayer identification number of the customer; (2) The name and number of units of the digital asset sold; (3) The sale date; (4) The gross proceeds amount (after reduction for the allocable digital asset transaction costs as defined and allocated pursuant to paragraph (d)(5)(iv) of this section); (5) Whether the sale was for cash, stored-value cards, or in exchange for services or other property; (6) In the case of a sale that is reported as a digital asset sale pursuant to the rule in paragraph (c)(8)(i) of this section and is described as a tokenized security in paragraph (c)(8)(i)(D) of this section, the broker must also report to the extent required by Form 1099-DA or instructions: the CUSIP number of the security sold (if applicable) or other security identifier number that the Secretary may designate by publication in the Federal Register or in the Internal Revenue Bulletin (see Sec. 601.601(d)(2) of this chapter); any information required under paragraph (m) of this section (related to options); any information required under paragraph (n) of this section (related to debt instruments); and any other information required by the form or instructions; (7) For each such sale of a digital asset that was held by the broker in a hosted wallet on behalf of a customer and was previously transferred into an account at the broker (transferred-in digital asset), the broker must also report the date of such transfer in and the number of units transferred in by the customer; (8) Whether the broker took into account customer-provided acquisition information from the customer or the customer's agent as described in paragraph (d)(2)(ii)(B)(4) of this section when determining the identification of the units sold (without regard to whether the broker's determination with respect to the particular unit sold was derived from the broker's own records or from that information); and (9) Any other information required by the form or instructions. (C) Exception for certain sales effected by processors of digital asset payments. A broker is not required to report any information required by paragraph (d)(2)(i)(B) of this section with respect to a sale of a digital asset described in paragraph (a)(9)(ii)(D) of this section (sales effected by processors of digital asset payments) by a customer if the gross proceeds (after reduction for the allocable digital asset transaction costs) from all such sales of digital assets effected by that broker for the year by the customer do not exceed $600. Gross proceeds from sales of qualifying stablecoins or specified nonfungible tokens that are reported in the manner set forth in paragraph (d)(10) of this section are not included in determining if this $600 threshold has been met. For the rules applicable for determining who the customer is for purposes of calculating this $600 threshold in the case of a joint account, see paragraph (d)(10)(v) of this section. (D) Acquisition information for sales of certain digital assets. Except in the case of a sale of a qualifying stablecoin or a specified nonfungible token for which the broker reports in the manner set forth in paragraph (d)(10) of this section, for each sale described in paragraph (a)(9)(ii) of this section on or after January 1, 2026, of a covered security defined in paragraph (a)(15)(i)(H), (J), or (K) of this section that was acquired by the broker for the customer and held in the customer's account, for which a broker is required to make a return of information under paragraph (d)(2)(i)(B) of this section, the broker must also report the following information: (1) The adjusted basis of the covered security sold calculated in accordance with paragraph (d)(6) of this section; (2) The date such covered security was purchased, and whether any gain or loss with respect to the covered security sold is long-term or short-term in accordance with paragraph (d)(7) of this section; (3) For purpose of determining the information required in paragraphs (d)(2)(i)(D)(1) through (2) in the case of an option and any asset delivered in settlement of an option, the broker must apply any applicable rules set forth in paragraph (m) of this section; and (4) In the case of a sale that is reported as a digital asset sale pursuant to the rule in paragraph (c)(8)(i) of this section and is described as a tokenized security in paragraph (c)(8)(i)(D) of this section, see paragraphs (d)(6)(iii)(A)(2) and (d)(7)(ii)(A)(2) of this section regarding the basis and holding period adjustments required for wash sales, paragraph (d)(6)(v) of this section for rules regarding the application of the average basis method, paragraph (m) of this section for rules related to options, paragraph (n) of this section for rules related to debt instruments, and any other information required by the form or instructions. (ii) Specific identification of specified securities--(A) In general. Except as provided in Sec. 1.1012-1(e)(7)(ii), for a specified security described in paragraph (a)(14)(i) of this section sold on or after January 1, 2011, or for a specified security described in paragraph (a)(14)(ii) of this section sold on or after January 1, 2014, a broker must report a sale of less than the entire position in an account of a specified security that was acquired on different dates or at different prices consistently with a customer's adequate and timely identification of the security to be sold. See Sec. 1.1012- 1(c). If the customer does not provide an adequate and timely identification for the sale, the broker must first report the sale of securities in the account for which the broker does not know the acquisition or purchase date followed by the earliest securities purchased or acquired, whether covered securities or noncovered securities. (B) Identification of digital assets sold, disposed of, or transferred. For a specified security described in paragraph (a)(14)(v) of this section, a broker must determine the unit sold, disposed of, or transferred, if less than the entire position in an account of such specified security that was acquired on different dates or at different prices, consistently with the adequate identification of the digital asset to be sold, disposed of, or transferred. [[Page 56563]] (1) No identification of units by customer. In the case of multiple units of the same digital asset that are held by a broker for a customer, if the customer does not provide the broker with an adequate identification of which units of a digital asset are sold, disposed of, or transferred by the date and time of the sale, disposition, or transfer, and the broker does not have adequate transfer-in date records and does not have or take into account customer-provided acquisition information as defined by paragraph (d)(2)(ii)(B)(4) of this section, then the broker must first report the sale, disposition, or transfer of units that were not acquired by the broker for the customer. After the disposition of all such units of digital assets, the broker must treat units as sold, disposed of, or transferred in order of time from the earliest date on which units of the same digital asset were acquired by the customer. See paragraph (d)(2)(ii)(B)(4) of this section for circumstances under which a broker may use information provided by the customer or the customer's agent to determine when units of a digital asset were acquired by the customer. If the broker does not receive customer-provided acquisition information with respect to digital assets that were transferred into the customer's account or otherwise does not take such information into account, the broker must treat those units as acquired as of the date and time of the transfer. (2) Adequate identification of units by customer. Except as provided in paragraph (d)(2)(ii)(B)(3) of this section, when multiple units of the same digital asset are left in the custody of the broker, an adequate identification occurs if, no later than the date and time of the sale, disposition, or transfer, the customer specifies to the broker the particular units of the digital asset to be sold, disposed of, or transferred by reference to any identifier that the broker designates as sufficiently specific to determine the units sold, disposed of, or transferred. For example, a customer's reference to the purchase date and time of the units to be sold may be designated by the broker as sufficiently specific to determine the units sold, disposed of, or transferred if no other unidentified units were purchased at that same purchase date and time or purchase price. To the extent permitted by paragraph (d)(2)(ii)(B)(4) of this section, a broker may take into account customer-provided acquisition information with respect to transferred-in digital assets for purposes of enabling a customer to make a sufficiently specific reference. A standing order or instruction for the specific identification of digital assets is treated as an adequate identification made at the date and time of sale, disposition, or transfer. In the case of a broker that offers only one method of making a specific identification, such method is treated as a standing order or instruction within the meaning of the prior sentence. (3) Special rule for the identification of certain units withheld from a transaction. Notwithstanding paragraphs (d)(2)(ii)(B)(1) and (2) of this section, in the case of a sale of digital assets in exchange for other digital assets differing materially in kind or in extent and for which the broker withholds units of the digital assets received for either the broker's obligation to deduct and withhold a tax under section 3406, or for payment of the customer's digital asset transaction costs as defined in paragraph (d)(5)(iv)(A) of this section, the customer is deemed to have made an adequate identification, within the meaning of paragraph (d)(2)(ii)(B)(2) of this section, for such withheld units as from the units received in the underlying transaction regardless of any other adequate identification within the meaning of paragraph (d)(2)(ii)(B)(2) of this section designating other units of the same digital asset as the units sold, disposed of, or transferred. (4) Customer-provided acquisition information for digital assets. For purposes of identifying which units are sold, disposed of, or transferred under paragraph (d)(2)(ii)(A) of this section, a broker is permitted, but not required, to take into account customer-provided acquisition information. For purposes of this section, customer- provided acquisition information means reasonably reliable information, such as the date and time of acquisition of units of a digital asset, provided by a customer or the customer's agent to the broker no later than the date and time of a sale, disposition, or transfer. Reasonably reliable information includes purchase or trade confirmations at other brokers or immutable data on a public distributed ledger. Solely for purposes of penalties under sections 6721 and 6722, a broker that takes into account customer-provided acquisition information for purposes of identifying which units are sold, disposed of, or transferred is deemed to have relied upon this information in good faith if the broker neither knows nor has reason to know that the information is incorrect. See Sec. 301.6724-1(c)(6) of this chapter. (iii) Penalty relief for reporting information not subject to reporting--(A) Noncovered securities. A broker is not required to report adjusted basis and the character of any gain or loss for the sale of a noncovered security if the return identifies the sale as a sale of a noncovered security. A broker that chooses to report this information for a noncovered security is not subject to penalties under section 6721 or 6722 of the Code for failure to report this information correctly if the return identifies the sale as a sale of a noncovered security. For purposes of this paragraph (d)(2)(iii)(A), a broker must treat a security for which a broker makes the single-account election described in Sec. 1.1012-1(e)(11)(i) as a covered security. (B) Gross proceeds from digital assets sold before applicability date. A broker is not required to report the gross proceeds from the sale of a digital asset as described in paragraph (a)(9)(ii) of this section if the sale is effected prior to January 1, 2025. A broker that chooses to report this information on either the Form 1099-B, or when available the Form 1099-DA, pursuant to paragraph (d)(2)(i)(B) of this section is not subject to penalties under section 6721 or 6722 for failure to report this information correctly. See paragraph (d)(2)(iii)(A) of this section for the reporting of adjusted basis and the character of any gain or loss for the sale of a noncovered security that is a digital asset. (iv) Information from other parties and other accounts--(A) Transfer and issuer statements. When reporting a sale of a covered security, a broker must take into account all information, other than the classification of the security (such as stock), furnished on a transfer statement (as described in Sec. 1.6045A-1) and all information furnished or deemed furnished on an issuer statement (as described in Sec. 1.6045B-1) unless the statement is incomplete or the broker has actual knowledge that it is incorrect. A broker may treat a customer as a minority shareholder when taking the information on an issuer statement into account unless the broker knows that the customer is a majority shareholder and the issuer statement reports the action's effect on the basis of majority shareholders. A failure to report correct information that arises solely from reliance on information furnished on a transfer statement or issuer statement is deemed to be due to reasonable cause for purposes of penalties under sections 6721 and 6722. See Sec. 301.6724-1(a)(1) of this chapter. (B) Other information with respect to securities. Except in the case of a covered security that is described in paragraph (a)(15)(i)(H), (J), or (K) of this [[Page 56564]] section, a broker is permitted, but not required, to take into account information about a covered security other than what is furnished on a transfer statement or issuer statement, including any information the broker has about securities held by the same customer in other accounts with the broker. For purposes of penalties under sections 6721 and 6722, a broker that takes into account information with respect to securities described in the previous sentence that is received from a customer or third party other than information furnished on a transfer statement or issuer statement is deemed to have relied upon this information in good faith if the broker neither knows nor has reason to know that the information is incorrect. See Sec. 301.6724-1(c)(6) of this chapter. (v) Failure to receive a complete transfer statement for securities. A broker that has not received a complete transfer statement as required under Sec. 1.6045A-1(a)(3) for a transfer of a specified security described in paragraphs (a)(14)(i) through (iv) of this section must request a complete statement from the applicable person effecting the transfer unless, under Sec. 1.6045A-1(a), the transferor has no duty to furnish a transfer statement for the transfer. The broker is only required to make this request once. If the broker does not receive a complete transfer statement after requesting it, the broker may treat the security as a noncovered security upon its subsequent sale or transfer. A transfer statement for a covered security is complete if, in the view of the receiving broker, it provides sufficient information to comply with this section when reporting the sale of the security. A transfer statement for a noncovered security is complete if it indicates that the security is a noncovered security. (vi) Reporting by other parties after a sale of securities--(A) Transfer statements. If a broker receives a transfer statement indicating that a security is a covered security after the broker reports the sale of the security, the broker must file a corrected return within thirty days of receiving the statement unless the broker reported the required information on the original return consistently with the transfer statement. (B) Issuer statements. If a broker receives or is deemed to receive an issuer statement after the broker reports the sale of a covered security, the broker must file a corrected return within thirty days of receiving the issuer statement unless the broker reported the required information on the original return consistently with the issuer statement. (C) Exception. A broker is not required to file a corrected return under this paragraph (d)(2)(vi) if the broker receives the transfer statement or issuer statement more than three years after the broker filed the return. (vii) Examples. The following examples illustrate the rules of this paragraph (d)(2). Unless otherwise indicated, all events and transactions described in paragraphs (d)(2)(vii)(C) and (D) of this section (Examples 3 and 4) occur on or after January 1, 2026. (A) Example 1--(1) Facts. On February 22, 2012, K sells 100 shares of stock of C, a corporation, at a loss in an account held with F, a broker. On March 15, 2012, K purchases 100 shares of C stock for cash in an account with G, a different broker. Because K acquires the stock purchased on March 15, 2012, for cash in an account after January 1, 2012, under paragraph (a)(15) of this section, the stock is a covered security. K asks G to increase K's adjusted basis in the stock to account for the application of the wash sale rules under section 1091 to the loss transaction in the account held with F. (2) Analysis. Under paragraph (d)(2)(iv)(B) of this section, G is not required to take into account the information provided by K when subsequently reporting the adjusted basis and whether any gain or loss on the sale is long-term or short-term. If G chooses to take this information into account, under paragraph (d)(2)(iv)(B) of this section, G is deemed to have relied upon the information received from K in good faith for purposes of penalties under sections 6721 and 6722 if G neither knows nor has reason to know that the information provided by K is incorrect. (B) Example 2--(1) Facts. L purchases shares of stock of a single corporation in an account with F, a broker, on April 17, 1969, April 17, 2012, April 17, 2013, and April 17, 2014. In January 2015, L sells all the stock. (2) Analysis. Under paragraph (d)(2)(i)(A) of this section, F must separately report the gross proceeds and adjusted basis attributable to the stock purchased in 2014, for which the gain or loss on the sale is short-term, and the combined gross proceeds and adjusted basis attributable to the stock purchased in 2012 and 2013, for which the gain or loss on the sale is long-term. Under paragraph (d)(2)(iii)(A) of this section, F must also separately report the gross proceeds attributable to the stock purchased in 1969 as the sale of noncovered securities in order to avoid treatment of this sale as the sale of covered securities. (C) Example 3: Ordering rule--(1) Facts. On August 1, Year 1, TP opens a hosted wallet account at CRX, a digital asset broker that owns and operates a digital asset trading platform, and purchases within the account 10 units of digital asset DE for $9 per unit. On January 1, Year 2, TP opens a hosted wallet account at BEX, another digital asset broker that owns and operates a digital asset trading platform, and purchases within this account 20 units of digital asset DE for $5 per unit. On August 1, Year 3, TP transfers the digital asset units held in TP's hosted wallet account with CRX into TP's hosted wallet account with BEX. On September 1, Year 3, TP directs BEX to sell 10 units of DE but does not specify which units are to be sold and does not provide to BEX purchase date and time information with respect to the DE units transferred into TP's account with BEX. BEX has adequate transfer-in date records with respect to TP's transfer of the 10 units of DE on August 1, Year 3. BEX effects the sale on TP's behalf for $10 per unit. (2) Analysis. TP did not make an adequate identification of the units to be sold in a sale of DE units that was less than TP's entire position in digital asset DE. Therefore, BEX must treat the units of digital asset DE sold according to the ordering rule provided in paragraph (d)(2)(ii)(B) of this section. Pursuant to that rule, because BEX has adequate transfer-in date records with respect to TP's transfer of the 10 units of DE on August 1, Year 3, and because TP did not give BEX customer-provided acquisition information as defined by paragraph (d)(2)(ii)(B)(4) of this section with respect to the units transferred into TP's account at BEX, the units sold must be attributed to the earliest units of digital asset DE acquired by TP. Additionally, because TP did not give BEX customer-provided acquisition information, BEX must treat those units as acquired as of the date and time of the transfer (August 1, Year 3). Accordingly, the 10 units sold must be attributed to 10 of the 20 DE units purchased by TP on January 1, Year 2, in the BEX account because based on the information known to BEX these units were purchased prior to the date (August 1, Year 3) when TP transferred the other units purchased at CRX into the account. The DE units are digital assets that were acquired on or after January 1, 2026, for TP by a broker (BEX) providing custodial services, and, thus, constitute covered securities under paragraph (a)(15)(i)(J) of this section. Accordingly, in addition to the gross proceeds and other information required to be reported under paragraph (d)(2)(i)(B) of this section, BEX must also report the adjusted basis of the DE units sold, the date the DE units were purchased, and whether any gain or loss with respect to the DE units sold is long-term or short-term as required by paragraph (d)(2)(i)(D) of this section. Finally, because TP did not give BEX customer-provided acquisition information, TP will be required to treat different units as sold under the rules provided by Sec. 1.1012-1(j)(3) from those units that BEX treats as sold under this section unless TP adopts a standing order to follow the ordering rule result required by BEX. See Sec. 1.1012-1(j)(5)(iv) (Example 4). (D) Example 4: Ordering rule--(1) Facts. The facts are the same as in paragraph (d)(2)(vii)(C)(1) of this section (the facts in Example 3), except on September 1, Year 3, TP's agent (CRX) provides BEX with purchase confirmations showing that the 10 units TP transferred into TP's account at BEX were purchased on August 1, Year 1. BEX neither knows nor has reason to know that the information supplied by CRX is incorrect and chooses to take this information into account for purposes of identifying which of the TP's units are sold, disposed of, or transferred. (2) Analysis. Because TP did not make an adequate identification of the units to be sold [[Page 56565]] in a sale of DE units that was less than TP's entire position in digital asset DE, BEX must treat the units of digital asset DE sold as the earliest units of digital asset DE acquired by TP. The purchase confirmations (showing a purchase date of August 1, Year 1) for the 10 units that were transferred into TP's account at BEX constitute customer-provided acquisition information under paragraph (d)(2)(ii)(B)(4) of this section, which BEX is permitted, but not required, to take into account. Accordingly, BEX is permitted to treat the 10 units sold by TP as the 10 DE units TP purchased on August 1, Year 1 (and transferred into BEX's account on August 1, Year 3), because these were the earliest units of digital asset DE acquired by TP. The DE units are digital assets that were acquired on or after January 1, 2026, for TP by a broker (CRX) providing custodial services, and, thus, constitute covered securities under paragraph (a)(15)(i)(J) of this section. However, because these covered securities were not acquired and thereafter held by the selling broker (BEX), BEX is not required to report the acquisition information required by paragraph (d)(2)(i)(D) of this section. Finally, because TP provided the purchase information with respect to the transferred in units to BEX, the units determined as sold by BEX are the same units that TP must treat as sold under Sec. 1.1012-1(j)(3)(i). See Sec. 1.1012-1(j)(5)(iv) (Example 4). * * * * * (4) Sale date--(i) In general. For sales of property that are reportable under this section other than digital assets, a broker must report a sale as occurring on the date the sale is entered on the books of the broker. (ii) Special rules for digital asset sales. For sales of digital assets that are effected when digitally recorded using cryptographically secured distributed ledger technology, such as a blockchain or similar technology, the broker must report the date of sale as the date when the transactions are recorded on the ledger. For sales of digital assets that are effected by a broker and recorded in the broker's books and records (commonly referred to as an off-chain transaction) and not directly on a distributed ledger or similar technology, the broker must report the date of sale as the date when the transactions are recorded on its books and records without regard to the date that the transactions may be later recorded on the distributed ledger or similar technology. (5) Gross proceeds--(i) In general. Except as otherwise provided in paragraph (d)(5)(ii) of this section with respect to digital asset sales, for purposes of this section, gross proceeds on a sale are the total amount paid to the customer or credited to the customer's account as a result of the sale reduced by the amount of any qualified stated interest reported under paragraph (d)(3) of this section and increased by any amount not paid or credited by reason of repayment of margin loans. In the case of a closing transaction (other than a closing transaction related to an option) that results in a loss, gross proceeds are the amount debited from the customer's account. For sales before January 1, 2014, a broker may, but is not required to, reduce gross proceeds by the amount of commissions and transfer taxes, provided the treatment chosen is consistent with the books of the broker. For sales on or after January 1, 2014, a broker must reduce gross proceeds by the amount of commissions and transfer taxes related to the sale of the security. For securities sold pursuant to the exercise of an option granted or acquired before January 1, 2014, a broker may, but is not required to, take the option premiums into account in determining the gross proceeds of the securities sold, provided the treatment chosen is consistent with the books of the broker. For securities sold pursuant to the exercise of an option granted or acquired on or after January 1, 2014, or for the treatment of an option granted or acquired on or after January 1, 2014, see paragraph (m) of this section. A broker must report the gross proceeds of identical stock (within the meaning of Sec. 1.1012-1(e)(4)) by averaging the proceeds of each share if the stock is sold at separate times on the same calendar day in executing a single trade order and the broker executing the trade provides a single confirmation to the customer that reports an aggregate total price or an average price per share. However, a broker may not average the proceeds if the customer notifies the broker in writing of an intent to determine the proceeds of the stock by the actual proceeds per share and the broker receives the notification by January 15 of the calendar year following the year of the sale. A broker may extend the January 15 deadline but not beyond the due date for filing the return required under this section. (ii) Sales of digital assets. The rules contained in paragraphs (d)(5)(ii)(A) and (B) of this section apply solely for purposes of this section. (A) Determining gross proceeds. Except as otherwise provided in this section, gross proceeds from the sale of a digital asset are equal to the sum of the total cash paid to the customer or credited to the customer's account from the sale plus the fair market value of any property or services received (including services giving rise to digital asset transaction costs), reduced by the amount of digital asset transaction costs, as defined and allocated under paragraph (d)(5)(iv) of this section. In the case of a debt instrument issued in exchange for the digital asset and subject to Sec. 1.1001-1(g), the amount realized attributable to the debt instrument is determined under Sec. 1.1001-7(b)(1)(iv) rather than by reference to the fair market value of the debt instrument. See paragraph (d)(5)(iv)(C) of this section for a special rule setting forth how cascading digital asset transaction costs are to be allocated in certain exchanges of one digital asset for a different digital asset. (1) Determining fair market value. Fair market value is measured at the date and time the transaction was effected. Except as provided in the next sentence, in determining the fair market value of services or property received or credited in exchange for a digital asset, the broker must use a reasonable valuation method that looks to contemporaneous evidence of value, such as the purchase price of the services, goods or other property, the exchange rate, and the U.S. dollar valuation applied by the broker to effect the exchange. In determining the fair market value of services giving rise to digital asset transaction costs, the broker must look to the fair market value of the digital assets used to pay for such transaction costs. In determining the fair market value of a digital asset, the broker may perform its own valuations or rely on valuations performed by a digital asset data aggregator as defined in paragraph (d)(5)(ii)(B) of this section, provided such valuations apply a reasonable valuation method for digital assets as described in paragraph (d)(5)(ii)(A)(3) of this section. (2) Consideration value not readily ascertainable. When valuing services or property (including digital assets) received in exchange for a digital asset, the value of what is received should ordinarily be identical to the value of the digital asset exchanged. If there is a disparity between the value of services or property received and the value of the digital asset exchanged, the gross proceeds received by the customer is the fair market value at the date and time the transaction was effected of the services or property, including digital assets, received. If the broker or digital asset data aggregator, in the case of digital assets, reasonably determines that the fair market value of the services or property received cannot be determined with reasonable accuracy, the fair market value of the received services or property must be determined by reference to the fair market value of the transferred digital asset at the time of the exchange. See Sec. 1.1001-7(b)(4). If the broker or digital asset data aggregator, in the case of a digital asset, reasonably determines that neither the [[Page 56566]] value of the received services or property nor the value of the transferred digital asset can be determined with reasonable accuracy, the broker must report that the received services or property has an undeterminable value. (3) Reasonable valuation method for digital assets. A reasonable valuation method for digital assets is a method that considers and appropriately weighs the pricing, trading volumes, market capitalization and other factors relevant to the valuation of digital assets traded through digital asset trading platforms. A valuation method is not a reasonable valuation method for digital assets if it, for example, gives an underweight effect to exchange prices lying near the median price value, an overweight effect to digital asset trading platforms having low trading volume, or otherwise inappropriately weighs factors associated with a price that would make that price an unreliable indicator of value. (B) Digital asset data aggregator. A digital asset data aggregator is an information service provider that provides valuations of digital assets based on any reasonable valuation method. (iii) Digital asset transactions effected by processors of digital asset payments. The amount of gross proceeds under paragraph (d)(5)(ii) of this section received by a party who sells a digital asset under paragraph (a)(9)(ii)(D) of this section (effected by a processor of digital asset payments) is equal to: the sum of the amount paid in cash, and the fair market value of the amount paid in digital assets by that processor to a second party, plus any digital asset transaction costs and other fees charged to the second party that are withheld (whether withheld from the digital assets transferred by the first party or withheld from the amount due to the second party); and reduced by the amount of digital asset transaction costs paid by or withheld from the first party, as defined and allocated under the rules of paragraph (d)(5)(iv) of this section. (iv) Definition and allocation of digital asset transaction costs-- (A) Definition. The term digital asset transaction costs means the amount paid in cash or property (including digital assets) to effect the sale, disposition, or acquisition of a digital asset. Digital asset transaction costs include transaction fees, transfer taxes, and commissions. (B) General allocation rule. Except as provided in paragraph (d)(5)(iv)(C) of this section, in the case of a sale or disposition of digital assets, the total digital asset transaction costs paid by the customer are allocable to the sale or disposition of the digital assets. (C) Special rule for allocation of certain cascading digital asset transaction costs. In the case of a sale of one digital asset in exchange for another digital asset differing materially in kind or in extent (original transaction) and for which digital assets received in the original transaction are withheld to pay digital asset transaction costs, the total digital asset transaction costs paid by the taxpayer to effect both the original transaction and the disposition of the withheld digital assets are allocable exclusively to the disposition of digital assets in the original transaction. (v) Examples. The following examples illustrate the rules of this paragraph (d)(5). Unless otherwise indicated, all events and transactions in the following examples occur on or after January 1, 2025. (A) Example 1: Determination of gross proceeds when digital asset transaction costs paid in digital assets--(1) Facts. CRX, a digital asset broker, buys, sells, and exchanges various digital assets for cash or different digital assets on behalf of its customers. For this service, CRX charges a transaction fee equal to 1 unit of CRX's proprietary digital asset CM per transaction. Using the services of CRX, customer K, an individual not otherwise exempt from reporting, purchases 15 units of CM and 10 units of digital asset DE. On April 28, Year 1, when the CM units have a value of $2 per unit, the DE units have a value of $8 per unit, and digital asset ST units have a value of $0.80 per unit, K instructs CRX to exchange K's 10 units of DE for 100 units of digital asset ST. CRX charges K one unit of CM as a transaction fee for the exchange. (2) Analysis. Under paragraph (d)(5)(iv)(A) of this section, K has digital asset transaction costs of $2, which is the value of 1 CM unit. Under paragraph (d)(5)(ii)(A) of this section, the gross proceeds amount that CRX must report from K's sale of the 10 units of DE is equal to the fair market value of the 100 units of ST that K received (less the value of the CM unit sold to pay the digital asset transaction cost to CRX and allocable to the sale of the DE units). The fair market value of the 100 units of ST at the date and time the transaction was effected is equal to $80 (the product of $0.80 and 100 units). Accordingly, CRX must report gross proceeds of $78 from K's sale of the 10 units of DE. CRX must also report the gross proceeds from K's sale of one CM unit to pay for CRX's services. Under paragraph (d)(5)(ii)(A) of this section, the gross proceeds from K's sale of one unit of CM is equal to the fair market value of the digital assets used to pay for such transaction costs. Accordingly, CRX must report $2 as gross proceeds from K's sale of one unit of CM. (B) Example 2: Determination of gross proceeds when digital asset transaction costs are withheld from transferred digital assets--(1) Facts. K owns a total of 10 units of digital asset A that K deposits with broker BEX that provides custodial services for digital assets. K directs BEX to effect the exchange of 10 units of K's digital asset A for 20 units of digital asset B. At the time of the exchange, each unit of digital asset A has a fair market value of $2 and each unit of digital asset B has a fair market value of $1. BEX charges a fee of $2 per transaction, which BEX withholds from the units of the digital asset A transferred. At the time of the transaction, BEX withholds 1 unit of digital asset A. TP exchanges the remaining 9 units of digital asset A for 18 units of digital asset B. (2) Analysis. The withholding of 1 unit of digital asset A is a sale of a digital asset for BEX's services within the meaning of paragraph (a)(9)(ii)(C) of this section. Under paragraph (d)(5)(iv)(A) of this section, K has digital asset transaction costs of $2. Under paragraph (d)(5)(iv)(C) of this section, TP must allocate such costs to the disposition of the 10 units of digital asset A. Under paragraphs (d)(5)(ii)(A) and (d)(5)(iv)(C) of this section, TP's gross proceeds from the sale of the 10 units of digital asset A is $18, which is the excess of the fair market value of the 18 units of digital asset B received ($18) and the fair market value of the broker services received ($2) as of the date and time of the transaction over the allocated digital asset transaction costs ($2). Accordingly, BEX must report $18 as gross proceeds from K's sale of 10 units of digital asset A. (C) Example 3: Determination of gross proceeds when digital asset transaction costs are withheld from acquired digital assets in an exchange of digital assets--(1) Facts. The facts are the same as in paragraph (d)(5)(v)(B)(1) of this section (the facts in Example 2), except that BEX requires its payment be withheld from the units of the digital asset acquired. At the time of the transaction, BEX withholds 3 units of digital asset B, two units of which effect the exchange of digital asset A for digital asset B and one unit of which effects the disposition of digital asset B for payment of the transaction fees. (2) Analysis. The withholding of 3 units of digital asset B is a disposition of digital assets for BEX's services within the meaning of paragraph (a)(9)(ii)(C) of this section. Under paragraph (d)(5)(iv)(A) of this section, K has digital asset transaction costs of $3. Under paragraph (d)(5)(iv)(C) of this section, K must allocate such costs to the disposition of the 10 units of digital asset A. Under paragraphs (d)(5)(ii)(A) and (d)(5)(iv)(C) of this section, K's gross proceeds from the sale of the 10 units of digital asset A is $17, which is the excess of the fair market value of the 20 units of digital asset B received ($20) as of the date and time of the transaction over the allocated digital asset transaction costs ($3). K's gross proceeds from the sale of the 3 units of digital asset B used to pay digital asset transaction costs is $3, which is the fair market value of BEX's services received at the time of the transaction. Accordingly, BEX must report $17 as gross proceeds from K's sale of 10 units of digital asset A. Additionally, pursuant to paragraph (c)(3)(ii)(C) of this section, BEX is not required to report K's sale of the 3 withheld units of digital asset B because the 3 units of [[Page 56567]] digital asset B were units withheld from digital assets received by K to pay for K's digital asset transaction costs. (D) Example 4: Determination of gross proceeds--(1) Facts. CPP, a processor of digital asset payments, offers debit cards to its customers who hold digital asset FE in their accounts with CPP. The debit cards allow CPP's customers to use digital assets held in accounts with CPP to make payments to merchants who do not accept digital assets. CPP charges its card holders a 2% transaction fee for purchases made using the debit card and sets forth in its terms and conditions the process CPP will use to determine the exchange rate provided at the date and time of its customers' transactions. CPP has issued a debit card to B, an individual not otherwise exempt from reporting, who wants to make purchases using digital assets. B transfers 1,000 units of FE into B's account with CPP. B then uses the debit card to purchase merchandise from a U.S. merchant STR for $1,000. An exchange rate of 1 FE = $2 USD is applied to effect the transaction, based on the exchange rate at that date and time and pursuant to B's account agreement. To settle the transaction, CPP removes 510 units of FE from B's account equal to $1,020 ($1,000 plus a 2% transaction fee equal to $20). CPP then pays STR $1,000 in cash. (2) Analysis. B paid $20 of digital asset transaction costs as defined in paragraph (d)(5)(iv)(A) of this section. Under paragraph (d)(5)(iii) of this section, the gross proceeds amount that CPP must report with respect to B's sale of the 510 units of FE to purchase the merchandise is $1,000, which is the sum of the amount of cash paid by CPP to STR plus the $20 digital asset transaction costs withheld by CPP, reduced by the $20 digital asset transaction costs as allocated under paragraph (d)(5)(iv)(B) of this section. CPP's payment of cash to STR is also a payment card transaction under Sec. 1.6050W-1(b) subject to reporting under Sec. 1.6050W-1(a). (E) Example 5: Determination of gross proceeds--(1) Facts. STR, a U.S. merchant corporation, advertises that it accepts digital asset FE as payment for its merchandise that is not digital assets. Customers making purchases at STR using digital asset FE are directed to create an account with CXX, a processor of digital asset payments, which, pursuant to a preexisting agreement with STR, accepts digital asset FE in return for payments in cash made to STR. CXX charges a 2% transaction fee, which is paid by STR and not STR's customers. S, an individual not otherwise exempt from reporting, seeks to purchase merchandise from STR for $10,000. To effect payment, S is directed by STR to CXX, with whom S has an account. An exchange rate of 1 FE = $2 USD is applied to effect the purchase transaction. Pursuant to this exchange rate, S then transfers 5,000 units of FE to CXX, which, in turn, pays STR $9,800 ($10,000 less a 2% transaction fee equal to $200). (2) Analysis. Under paragraph (d)(5)(iii) of this section, the gross proceeds amount that CXX must report with respect to this sale is $10,000, which is the sum of the amount in U.S. dollars paid by CPP to STR ($9,800) plus the $200 digital asset transaction costs withheld from the payment due to STR. Because S does not have any digital asset transaction costs, the $9,800 amount is not reduced by any digital asset transaction costs charged to STR because that fee was not paid by S. In addition, CXX's payment of cash to STR (plus the withheld transaction fee) may be reportable under Sec. 1.6050W- 1(a) as a third party network transaction under Sec. 1.6050W-1(c) if CXX is a third party settlement organization under the definition in Sec. 1.6050W-1(c)(2). (F) Example 6: Determination of gross proceeds in a real estate transaction--(1) Facts. J, an unmarried individual not otherwise exempt from reporting, enters into a contractual agreement with B, an individual not otherwise exempt from reporting, to exchange J's principal residence, Blackacre, which has a fair market value of $300,000, for cash in the amount of $75,000 and units of digital asset DE with a value of $225,000. Prior to closing, B transfers the digital asset portion of the payment directly from B's wallet to J's wallet. At closing, J certifies to the closing agent (CA) that J received the DE units required to be paid under the contractual agreement. CA is also a real estate reporting person under Sec. 1.6045-4, and a digital asset middleman under paragraph (a)(21) of this section with respect to the transaction. (2) Analysis. CA is required to report on Form 1099-DA the gross proceeds received by B in exchange for B's sale of digital assets in this transaction. The gross proceeds amount to be reported under paragraph (d)(5)(ii)(A) of this section is equal to $225,000, which is the $300,000 value of Blackacre less $75,000 that B paid in cash. In addition, under Sec. 1.6045-4, CA is required to report on Form 1099-S the $300,000 of gross proceeds received by J ($75,000 cash and $225,000 in digital assets) as consideration for J's disposition of Blackacre. (6) * * * (i) In general. For purposes of this section, the adjusted basis of a specified security is determined from the initial basis under paragraph (d)(6)(ii) of this section as of the date the specified security is acquired in an account, increased by the commissions and transfer taxes related to its sale to the extent not accounted for in gross proceeds as described in paragraph (d)(5) of this section. A broker is not required to consider transactions or events occurring outside the account except for an organizational action taken by an issuer of a specified security other than a digital asset during the period the broker holds custody of the security (beginning with the date that the broker receives a transferred security) reported on an issuer statement (as described in Sec. 1.6045B-1) furnished or deemed furnished to the broker. Except as otherwise provided in paragraph (n) of this section, a broker is not required to consider customer elections. For rules related to the adjusted basis of a debt instrument, see paragraph (n) of this section. (ii) Initial basis--(A) Cost basis for specified securities acquired for cash. For a specified security acquired for cash, the initial basis generally is the total amount of cash paid by the customer or credited against the customer's account for the specified security, increased by the commissions, transfer taxes, and digital asset transaction costs related to its acquisition. A broker may, but is not required to, take option premiums into account in determining the initial basis of securities purchased or acquired pursuant to the exercise of an option granted or acquired before January 1, 2014. For rules related to options granted or acquired on or after January 1, 2014, see paragraph (m) of this section. A broker may, but is not required to, increase initial basis for income recognized upon the exercise of a compensatory option or the vesting or exercise of other equity-based compensation arrangements, granted or acquired before January 1, 2014. A broker may not increase initial basis for income recognized upon the exercise of a compensatory option or the vesting or exercise of other equity-based compensation arrangements, granted or acquired on or after January 1, 2014, or upon the vesting or exercise of a digital asset-based compensation arrangement granted or acquired on or after January 1, 2025. A broker must report the basis of identical stock (within the meaning of Sec. 1.1012-1(e)(4)) by averaging the basis of each share if the stock is purchased at separate times on the same calendar day in executing a single trade order and the broker executing the trade provides a single confirmation to the customer that reports an aggregate total price or an average price per share. However, a broker may not average the basis if the customer timely notifies the broker in writing of an intent to determine the basis of the stock by the actual cost per share in accordance with Sec. 1.1012-1(c)(1)(ii). (B) Basis of transferred securities--(1) In general. The initial basis of a security transferred to an account is generally the basis reported on the transfer statement (as described in Sec. 1.6045A-1). (2) Securities acquired by gift. If a transfer statement indicates that the security is acquired as a gift, a broker must apply the relevant basis rules for property acquired by gift in determining the initial basis, but is not required to adjust basis for gift tax. A broker must treat the initial basis as equal to the gross proceeds from the sale determined under paragraph (d)(5) of this section if the relevant basis rules for property [[Page 56568]] acquired by gift prevent recognizing both gain and loss, or if the relevant basis rules treat the initial basis of the security as its fair market value as of the date of the gift and the broker neither knows nor can readily ascertain this value. If the transfer statement did not report a date for the gift, the broker must treat the settlement date for the transfer as the date of the gift. (C) Digital assets acquired in exchange for property--(1) In general. This paragraph (d)(6)(ii)(C) applies solely for purposes of this section. For a digital asset acquired in exchange for property that is not a debt instrument described in Sec. 1.1012-1(h)(1)(v) or another digital asset differing materially in kind or extent, the initial basis of the digital asset is the fair market value of the digital asset received at the time of the exchange, increased by any digital asset transaction costs allocable to the acquisition of the digital asset. The fair market value of the digital asset received must be determined using a reasonable valuation method as of the date and time the exchange transaction was effected. In valuing the digital asset received, the broker may perform its own valuations or rely on valuations performed by a digital asset data aggregator as defined in paragraph (d)(5)(ii)(B) of this section, provided such valuations apply a reasonable valuation method for digital assets as described in paragraph (d)(5)(ii)(A)(3) of this section. If the broker or digital asset data aggregator reasonably determines that the fair market value of the digital asset received cannot be determined with reasonable accuracy, the fair market value of the digital asset received must be determined by reference to the property transferred at the time of the exchange. If the broker or digital asset data aggregator reasonably determines that neither the value of the digital asset received nor the value of the property transferred can be determined with reasonable accuracy, the fair market value of the received digital asset must be treated as zero. For a digital asset acquired in exchange for another digital asset differing materially in kind or extent, see paragraph (d)(6)(ii)(C)(2) of this section. For a digital asset acquired in exchange for a debt instrument described in Sec. 1.1012-1(h)(1)(v), the initial basis of the digital asset attributable to the debt instrument is the amount determined under Sec. 1.1012-1(h)(1)(v). (2) Allocation of digital asset transaction costs. Except as provided in the following sentence, in the case of a sale of one digital asset in exchange for another digital asset differing materially in kind or extent, the total digital asset transaction costs paid by the customer are allocable to the digital assets disposed. In the case of a transaction described in paragraph (d)(5)(iv)(C) of this section, the digital asset transaction costs paid by the customer to acquire the digital assets received are allocable as provided therein. (iii) * * * (A) Securities in the same account or wallet--(1) In general. A broker must apply the wash sale rules under section 1091 if both the sale and purchase transactions are of covered securities, other than covered securities reportable as digital assets after the application of paragraph (c)(8) of this section, with the same CUSIP number or other security identifier number that the Secretary may designate by publication in the Federal Register or in the Internal Revenue Bulletin (see Sec. 601.601(d)(2) of this chapter). When reporting the sale transaction that triggered the wash sale, the broker must report the amount of loss that is disallowed by section 1091 in addition to gross proceeds and adjusted basis. The broker must increase the basis of the purchased covered security by the amount of loss disallowed on the sale transaction. (2) Special rules for covered securities that are also digital assets. In the case of a purchase or sale of a tokenized security described in paragraph (c)(8)(i)(D) of this section that is a stock or security for purposes of section 1091, a broker must apply the wash sale rules under section 1091 if both the sale and purchase transactions are of covered securities with the same CUSIP number or other security identifier number that the Secretary may designate by publication in the Federal Register or in the Internal Revenue Bulletin (see Sec. 601.601(d)(2) of this chapter). When reporting the sale transaction that triggered the wash sale, the broker must report the amount of loss that is disallowed by section 1091 in addition to gross proceeds and adjusted basis. The broker must increase the basis of the purchased covered security by the amount of loss disallowed on the sale transaction. (B) Covered securities in different accounts or wallets. A broker is not required to apply paragraph (d)(6)(iii)(A) of this section if the covered securities are purchased and sold from different accounts or wallets, if the purchased covered security is transferred to another account or wallet before the wash sale, or if the covered securities are treated as held in separate accounts under Sec. 1.1012-1(e). A covered security is not purchased in an account or wallet if it is purchased in another account or wallet and transferred into the account or wallet. * * * * * (v) Average basis method adjustments. For a covered security for which basis may be determined by the average basis method, a broker must compute basis using the average basis method if a customer validly elects that method for the covered securities sold or, in the absence of any instruction from the customer, if the broker chooses that method as its default basis determination method. See Sec. 1.1012-1(e). The previous sentence applies to any stock that is also a tokenized security described in paragraph (c)(8)(i)(D) of this section. * * * * * (x) Examples. The following examples illustrate the rules of paragraph (d)(5) of this section and this paragraph (d)(6) as applied to digital assets. Unless otherwise indicated, all events and transactions in the following examples occur using the services of CRX, an entity that owns and operates a digital asset trading platform and provides digital asset broker and hosted wallet services. In performing these services, CRX holds and records all customer purchase and sale transactions using CRX's centralized omnibus account. CRX does not record any of its customer's purchase or sale transactions on the relevant cryptographically secured distributed ledgers. Additionally, unless otherwise indicated, all events and transactions in the following examples occur on or after January 1, 2026. (A) Example 1: Determination of gross proceeds and basis in digital assets--(1) Facts. As a digital asset broker, CRX generally charges transaction fees equal to 1 unit of CRX's proprietary digital asset CM per transaction. CRX does not, however, charge transaction fees for the purchase of CM. On March 9, Year 1, K, an individual not otherwise exempt from reporting, purchases 20 units of CM for $20 in cash in K's account at CRX. A week later, on March 16, Year 1, K uses CRX's services to purchase 10 units of digital asset DE for $80 in cash. To pay for CRX's transaction fee, K directs CRX to debit 1 unit of CM (worth $1 at the time of transfer) from K's account. (2) Analysis. Under paragraph (d)(2)(i)(B) of this section, CRX must report the gross proceeds from K's sale of 1 unit of CM. Additionally, because the units of CM were purchased in K's account at a broker providing custodial services for digital assets that are specified securities described in paragraph (a)(14)(v) of this section, the units of CM purchased by K are covered securities under paragraph (a)(15)(i)(J) of this section. Accordingly, under paragraphs (d)(2)(i)(D)(1) and (2) of this section, CRX must report K's adjusted basis in the 1 unit of CM and whether any gain or loss with respect to the [[Page 56569]] CM unit sold is long-term or short-term. The gross proceeds from that sale is equal to the fair market value of the CM units on March 16, Year 1 ($1), and the adjusted basis of that unit is equal to the amount K paid in cash for the CM unit on March 9, Year 1 ($1). This reporting is required regardless of the fact that there is $0 of gain or loss associated with this sale. Additionally, K's adjusted basis in the 10 units of DE acquired is equal to the $81 initial basis in DE, which is $80 plus the $1 value of 1 unit of CM paid as a digital asset transaction cost for the purchase of the DE units. (B) Example 2: Determination of gross proceeds and basis in digital assets--(1) Facts. The facts are the same as in paragraph (d)(6)(x)(A)(1) of this section (the facts in Example 1), except that on June 12, Year 2, K instructs CRX to exchange K's 10 units of DE for 50 units of digital asset ST. CRX effects this exchange using its own omnibus account holdings of ST at an exchange rate of 1 DE = 5 ST. The total value of the 50 units of ST received by K is $100. K directs CRX to debit 1 CM unit (worth $2 at the time of the transfer) from K's account to pay CRX for the transaction fee. (2) Analysis. K has digital asset transaction costs of $2 as defined in paragraph (d)(5)(iv)(A) of this section, which is the value of 1 unit of CM. Under paragraph (d)(2)(i)(B) of this section, CRX must report the gross proceeds from K's exchange of DE for ST (as a sale of K's 10 units of DE) and the gross proceeds from K's disposition of 1 unit of CM for CRX's services. Additionally, because the units of DE and CM were purchased in K's account at a broker providing custodial services for digital assets that are specified securities described in paragraph (a)(14)(v) of this section, the units of DE and CM are covered securities under paragraph (a)(15)(i)(J) of this section, and, pursuant to paragraphs (d)(2)(i)(D)(1) and (2) of this section, CRX must report K's adjusted basis in the 10 units of DE and 1 unit of CM and whether any gain or loss with respect to the those units is long-term or short-term. Under paragraph (d)(5)(ii)(A) of this section, the gross proceeds from K's sale of the DE units is $98 (the fair market value of the 50 units of ST that K received less the $2 digital asset transaction costs paid by K using 1 unit of CM), that is allocable to the sale of the DE units. Under this paragraph (d)(6), K's adjusted basis in the 10 units of DE is $81 (which is $80 plus the $1 value of 1 unit of CM paid as a digital asset transaction cost for the purchase of the DE units), resulting in a long-term capital gain to K of $17 ($98-$81). The gross proceeds from K's sale of the single unit of CM is $2, and K's adjusted basis in the single unit of CM is $1, resulting in a long-term capital gain to K of $1 ($2- $1). K's adjusted basis in the ST units under paragraph (d)(6)(ii)(C) of this section is equal to the initial basis in ST, which is $100. (C) Example 3: Determination of gross proceeds and basis when digital asset transaction costs are withheld from transferred digital assets--(1) Facts. K has an account with digital asset broker BEX. On December 20, Year 1, K acquired 10 units of digital asset A, for $2 per unit, and 100 units of digital asset B, for $0.50 per unit. (Assume that K did not incur any digital asset transaction costs on the units acquired on December 20, Year 1.) On July 20, Year 2, K directs BEX to effect the exchange of 10 units of digital asset A for 50 units of digital asset B. At the time of the exchange, each unit of digital asset A has a fair market value of $5 per unit and each unit of digital asset B has a fair market value of $1 per unit. For the exchange of 10 units of digital asset A for 50 units of digital asset B, BEX charges K a transaction fee equal to 2 units of digital asset B, which BEX withholds from the units of the digital asset B credited to K's account on July 20, Year 2. For the disposition of 2 units of digital asset B withheld, BEX charges an additional transaction fee equal to 1 unit of digital asset B, which BEX also withholds from the units of digital asset B credited to K's account on July 20, Year 2. K has a standing order with BEX for the specific identification of digital assets as from the earliest units acquired. (2) Reporting with respect to the disposition of the A units. The withholding of 3 units of digital asset B is a disposition of digital assets for BEX's services within the meaning of paragraph (a)(9)(ii)(C) of this section. Under paragraph (d)(5)(iv)(A) of this section, K has digital asset transaction costs of $3. Under paragraph (d)(5)(iv)(C) of this section, the exchange of 10 units of digital asset A for 50 units of digital asset B is the original transaction. Accordingly, BEX must allocate the digital asset transaction costs of $3 exclusively to the disposition of the 10 units of digital asset A. Additionally, because the units of A are specified securities described in paragraph (a)(14)(v) of this section and were purchased in K's account at BEX by a broker providing custodial services for such specified securities, the units of A are covered securities under paragraph (a)(15)(i)(J) of this section, and BEX must report K's adjusted basis in the 10 units of A. Under paragraphs (d)(5)(ii)(A) and (d)(5)(iv)(C) of this section, K's gross proceeds from the sale of the 10 units of digital asset A is $47, which is the excess of the fair market value of the 50 units of digital asset B received ($50) as of the date and time of the transaction over the allocated digital asset transaction costs ($3). Under this paragraph (d)(6), K's adjusted basis in the 10 units of A is $20, resulting in a short-term capital gain to K of $27 ($47-$20). (3) Reporting with respect to the disposition of the withheld B units. K's gross proceeds from the sale of the 3 units of digital asset B used to pay digital asset transaction costs is $3, which is the fair market value of the digital assets used to pay for such transaction costs. Pursuant to the special rule for the identification of units withheld from digital assets received in a transaction to pay a customer's digital asset transaction costs under paragraph (d)(2)(ii)(B)(3) of this section and regardless of K's standing order, the withheld units sold are treated as from the units received in the original (A for B) transaction. Accordingly, the basis of the 3 withheld units of digital asset B is $3, which is the fair market value of the 3 units of digital asset B received. Finally, pursuant to paragraph (c)(3)(ii)(C) of this section, BEX is not required to report K's sale of the 3 withheld units of digital asset B because the 3 units of digital asset B were units withheld from digital assets received by K to pay for K's digital asset transaction costs. (D) Example 4: Determination of gross proceeds and basis for digital assets--(1) Facts. On August 26, Year 1, Customer P purchases 10 units of digital asset DE for $2 per unit in cash in an account at CRX. CRX charges P a fixed transaction fee of $5 in cash for the exchange. On October 26, Year 2, P directs CRX to exchange P's 10 units of DE for units of digital asset FG. At the time of the exchange, CRX determines that each unit of DE has a fair market value of $100 and each unit of FG has a fair market value of $50. As a result of this determination, CRX effects an exchange of P's 10 units of DE for 20 units of FG. CRX charges P a fixed transaction fee of $20 in cash for the exchange. (2) Analysis. Under paragraph (d)(5)(iv)(B) of this section, P has digital asset transaction costs of $20 associated with the exchange of DE for FG which must be allocated to the sale of the DE units. For the transaction that took place on October 26, Year 2, under paragraph (d)(2)(i)(B) of this section, CRX must report the amount of gross proceeds from the sale of DE in the amount of $980 (the $1,000 fair market value of FG received on the date and time of transfer, less all of the digital asset transaction costs of $20 allocated to the sale). Under paragraph (d)(6)(ii)(C) of this section, the adjusted basis of P's DE units is equal to $25, which is the $20 paid in cash for the 10 units increased by the $5 digital asset transaction costs allocable to that purchase. Finally, P's adjusted basis in the 20 units of FG is equal to the fair market value of the FG received, $1,000, because none of the $20 transaction fee may be allocated under paragraph (d)(6)(ii)(C)(2) of this section to the acquisition of P's FG units. (7) * * * (i) In general. In determining whether any gain or loss on the sale of a covered security is long-term or short-term within the meaning of section 1222 for purposes of this section, the following rules apply: (A) A broker must consider the information reported on a transfer statement (as described in Sec. 1.6045A-1). (B) A broker is not required to consider transactions, elections, or events occurring outside the account except for an organizational action taken by an issuer during the period the broker holds custody of the covered security (beginning with the date that the broker receives a transferred security) reported on an issuer statement (as described in Sec. 1.6045B-1) furnished or deemed furnished to the broker. (C) A broker is required to apply the relevant rules for property acquired from a decedent or by gift for all covered securities. (ii) * * * [[Page 56570]] (A) Securities in the same account or wallet--(1) In general. A broker must apply the wash sale rules under section 1091 if both the sale and purchase transactions are of covered securities, other than covered securities reportable as digital assets after the application of paragraph (c)(8) of this section, with the same CUSIP number or other security identifier number that the Secretary may designate by publication in the Federal Register or in the Internal Revenue Bulletin (see Sec. 601.601(d)(2) of this chapter). (2) Special rules for covered securities that are also digital assets. In the case of a purchase or sale of a tokenized security described in paragraph (c)(8)(i)(D) of this section that is a stock or security for purposes of section 1091, a broker must apply the wash sale rules under section 1091 if both the sale and purchase transactions are of covered securities with the same CUSIP number or other security identifier number that the Secretary may designate by publication in the Federal Register or in the Internal Revenue Bulletin (see Sec. 601.601(d)(2) of this chapter). (B) Covered securities in different accounts or wallets. A broker is not required to apply paragraph (d)(7)(ii)(A) of this section if the covered securities are purchased and sold from different accounts or wallets, if the purchased covered security is transferred to another account or wallet before the wash sale, or if the covered securities are treated as held in separate accounts under Sec. 1.1012-1(e). A covered security is not purchased in an account or wallet if it is purchased in another account or wallet and transferred into the account or wallet. * * * * * (9) Coordination with the reporting rules for widely held fixed investment trusts under Sec. 1.671-5. Information required to be reported under section 6045(a) for a sale of a security or a digital asset in a widely held fixed investment trust (WHFIT) (as defined under Sec. 1.671-5) and the sale of an interest in a WHFIT must be reported as provided by this section unless the information is also required to be reported under Sec. 1.671-5. To the extent that this section requires additional information under section 6045(g), those requirements are deemed to be met through compliance with the rules in Sec. 1.671-5. (10) Optional reporting methods for qualifying stablecoins and specified nonfungible tokens. This paragraph (d)(10) provides optional reporting rules for sales of qualifying stablecoins as defined in paragraph (d)(10)(ii) of this section and sales of specified nonfungible tokens as defined in paragraph (d)(10)(iv) of this section. A broker may report sales of qualifying stablecoins or report sales of specified nonfungible tokens under the optional method provided in this paragraph (d)(10) instead of under paragraphs (d)(2)(i)(B) and (D) of this section for some or all customers and may change its reporting method for any customer from year to year; however, the method chosen for a particular customer must be applied for the entire year of that customer's sales. (i) Optional reporting method for qualifying stablecoins--(A) In general. In lieu of reporting all sales of qualifying stablecoins under paragraphs (d)(2)(i)(B) and (D) of this section, a broker may report designated sales of qualifying stablecoins, as defined in paragraph (d)(10)(i)(C) of this section, on an aggregate basis as provided in paragraph (d)(10)(i)(B) of this section. A broker reporting under this paragraph (d)(10)(i) is not required to report sales of qualifying stablecoins under this paragraph (d)(10)(i) or under paragraphs (d)(2)(i)(B) through (D) of this section if such sales are non- designated sales of qualifying stablecoins or if the gross proceeds (after reduction for the allocable digital asset transaction costs) from all designated sales effected by that broker of qualifying stablecoins by the customer do not exceed $10,000 for the year as described in paragraph (d)(10)(i)(B) of this section. (B) Aggregate reporting method for designated sales of qualifying stablecoins. If a customer's aggregate gross proceeds (after reduction for the allocable digital asset transaction costs) from all designated sales effected by that broker of qualifying stablecoins exceed $10,000 for the year, the broker must make a separate return for each qualifying stablecoin that includes the information set forth in this paragraph (d)(10)(i)(B). If the aggregate gross proceeds reportable under the previous sentence exceed $10,000, reporting is required with respect to each qualifying stablecoin for which there are designated sales even if the aggregate gross proceeds for a particular qualifying stablecoin does not exceed $10,000. A broker reporting under this paragraph (d)(10)(i)(B) must report the following information with respect to designated sales of each qualifying stablecoin on a separate Form 1099-DA or any successor form in the manner required by such form or instructions-- (1) The name, address, and taxpayer identification number of the customer; (2) The name of the qualifying stablecoin sold; (3) The aggregate gross proceeds for the year from designated sales of the qualifying stablecoin (after reduction for the allocable digital asset transaction costs as defined and allocated pursuant to paragraph (d)(5)(iv) of this section); (4) The total number of units of the qualifying stablecoin sold in designated sales of the qualifying stablecoin; (5) The total number of designated sale transactions of the qualifying stablecoin; and (6) Any other information required by the form or instructions. (C) Designated sale of a qualifying stablecoin. For purposes of this paragraph (d)(10), the term designated sale of a qualifying stablecoin means: any sale as defined in paragraphs (a)(9)(ii)(A) through (D) of this section of a qualifying stablecoin other than a sale of a qualifying stablecoin in exchange for different digital assets that are not qualifying stablecoins. In addition, the term designated sale of a qualifying stablecoin includes the delivery of a qualifying stablecoin pursuant to the settlement of any executory contract which would be treated as a designated sale of the qualifying digital asset under the previous sentence if the contract had not been executory. Finally, the term non-designated sale of a qualifying stablecoin means any sale of a qualifying stablecoin other than a designated sale of a qualifying stablecoin as defined in this paragraph (d)(10)(i)(C). (D) Examples. For purposes of the following examples, assume that digital asset WW and digital asset YY are qualifying stablecoins, and digital asset DL is not a qualifying stablecoin. Additionally, assume that the transactions set forth in each example include all sales of qualifying stablecoins on behalf of the customer during Year 1, and that no transaction costs were imposed on the sales described therein. (1) Example 1: Optional reporting method for qualifying stablecoins--(i) Facts. CRX is a digital asset broker that provides services to customer K, an individual not otherwise exempt from reporting. CRX effects the following sales on behalf of K: sale of 1,000 units of WW in exchange for cash of $1,000; sale of 5,000 units of WW in exchange for YY, with a value of $5,000; sale of 10,000 units of WW in return for DL, with a value of $10,000; and sale of 3,000 units of YY in exchange for cash of $3,000. (ii) Analysis. In lieu of reporting all of K's sales of WW and YY under paragraph (d)(2)(i)(B) of this section, CRX may report K's designated sales of WW and YY under the optional reporting method set forth in paragraph (d)(10)(i)(B) of this section. In this case, K's designated sales of qualifying stablecoins resulted in total gross proceeds of [[Page 56571]] $9,000, which is the total of $1,000 from sale of WW for cash, $5,000 from the sale of WW in exchange for YY, and $3,000 from the sale of YY for cash. Because K's designated sales of WW and YY did not exceed $10,000, CRX is not required to make a return of information under this section for any of K's qualifying stablecoin sales. The $10,000 of gross proceeds from the sale of WW for DL, which is not a qualifying stablecoin, is not included in this calculation to determine if the de minimis threshold has been exceeded because that sale is not a designated sale and, as such, is not reportable. (2) Example 2: Optional reporting method for qualifying stablecoins--(i) Facts. The facts are the same as in paragraph (d)(10)(i)(D)(1)(i) of this section (the facts in Example 1), except that CRX also effects an additional sale of 4,000 units of YY in exchange for cash of $4,000 on behalf of K. (ii) Analysis. In lieu of reporting all of K's sales of WW and YY under paragraph (d)(2)(i)(B) of this section, CRX may report K's designated sales of WW and YY under the optional reporting method set forth in paragraph (d)(10)(i)(B) of this section. In this case, K's designated sales of qualifying stablecoins resulted in total gross proceeds of $13,000, which is the total of $1,000 from sale of WW for cash, $5,000 from the sale of WW for YY, $3,000 from the sale of YY for cash, and $4,000 from the sale of YY for cash. Because K's designated sales of all types of qualifying stablecoins exceeds $10,000, CRX must make two returns of information under this section: one for all of K's designated sales of WW and another for all of K's designated sales of YY. (ii) Qualifying stablecoin. For purposes of this section, the term qualifying stablecoin means any digital asset that satisfies the conditions set forth in paragraphs (d)(10)(ii)(A) through (C) of this section for the entire calendar year. (A) Designed to track certain other currencies. The digital asset is designed to track on a one-to-one basis a single convertible currency issued by a government or a central bank (including the U.S. dollar). (B) Stabilization mechanism. Either: (1) The digital asset uses a stabilization mechanism that causes the unit value of the digital asset not to fluctuate from the unit value of the convertible currency it was designed to track by more than 3 percent over any consecutive 10-day period, determined using Coordinated Universal Time (UTC), during the calendar year; or (2) The issuer of the digital asset is required by regulation to redeem a unit of the digital asset at any time on a one-to-one basis for the same convertible currency that the digital asset was designed to track. (C) Accepted as payment. The digital asset is generally accepted as payment by persons other than the issuer. A digital asset that satisfies the conditions set forth in paragraphs (d)(10)(ii)(A) and (B) of this section that is accepted by a broker pursuant to a sale of another digital asset, or that is accepted by a second party pursuant to a sale effected by a processor of digital asset payments described in paragraph (a)(9)(ii)(D) of this section, meets the condition set forth in this paragraph (d)(10)(ii)(C). (D) Examples--(1) Example 1--(i) Facts. Y is a privately held corporation that issues DL1, a digital asset designed to track the value of the U.S. dollar. Pursuant to regulatory requirements, DL1 is backed in full by U.S. dollars and other liquid short-term U.S. dollar-denominated assets held by Y, and Y offers to redeem units of DL1 for U.S. dollars at par at any time. Y's retention of U.S. dollars and other liquid short-term U.S. dollar-denominated assets as collateral and Y's offer to redeem units of DL for U.S. dollars at par at any time are intended to cause DL1 to track the U.S. dollar on a one-to-one basis. Broker B accepts DL1 as payment in return for sales of other digital assets. (ii) Analysis. DL1 satisfies the three conditions set forth in paragraphs (d)(10)(ii)(A) through (C) of this section. First, DL1 was designed to track on a one-to-one basis the U.S. dollar, which is a single convertible currency issued by a government or a central bank. Second, DL1 uses a stabilization mechanism, as described in paragraph (d)(10)(ii)(B)(2) of this section, that pursuant to regulatory requirements requires Y to offer to redeem one unit of DL1 for one U.S. dollar at any time. Finally, because B accepts DL1 as payment for sales of other digital assets, DL1 is generally accepted as payment by persons other than Y. Accordingly, DL1 is a qualifying stablecoin under this paragraph (d)(10)(ii). (2) Example 2--(i) Facts. Z is a privately held corporation that issues DL2, a digital asset designed to track the value of the U.S. dollar on a one-to-one basis that has a mechanism that is intended to effect that tracking. On April 28, Year X, Broker B effects the sale of units of DL2 for cash on behalf of customer C. During Year X, the unit value of DL2 did not fluctuate from the U.S. dollar by more than 3 percent over any consecutive 10-day period. Merchant M accepts payment in DL2 in return for goods and services in connection with sales effected by processors of digital asset payments. (ii) Analysis. DL2 satisfies the three conditions set forth in paragraphs (d)(10)(ii)(A) through (C) of this section. First, DL2 was designed to track on a one-to-one basis the U.S. dollar, which is a single convertible currency issued by a government or a central bank. Second, DL2 uses a stabilization mechanism, as described in paragraph (d)(10)(ii)(B)(2) of this section, that results in the unit value of DL2 not fluctuating from the U.S. dollar by more than 3 percent over any consecutive 10-day period during the calendar year (Year X). Third, Merchant M accepts payment in DL2 in return for goods and services in connection with sales effected by processors of digital asset payments DL2 is generally accepted as payment by persons other than Z. Accordingly, DL2 is a qualifying stablecoin under this paragraph (d)(10)(ii). (iii) Optional reporting method for specified nonfungible tokens-- (A) In general. In lieu of reporting sales of specified nonfungible tokens under the reporting rules provided under paragraph (d)(2)(i)(B) of this section, a broker may report sales of specified nonfungible tokens as defined in paragraph (d)(10)(iv) of this section on an aggregate basis as provided in this paragraph (d)(10)(iii). Other digital assets, including nonfungible tokens that are not specified nonfungible tokens, are not eligible for the optional reporting method in this paragraph (d)(10)(iii). (B) Reporting method for specified nonfungible tokens. A broker reporting under this paragraph (d)(10)(iii) must report sales of specified nonfungible tokens if the customer's aggregate gross proceeds (after reduction for the allocable digital asset transaction costs) from all sales of specified nonfungible tokens exceed $600 for the year. If the customer's aggregate gross proceeds (after reduction for the allocable digital asset transaction costs) from such sales effected by that broker do not exceed $600 for the year, no report is required. A broker reporting under this paragraph (d)(10)(iii)(B) must report on a Form 1099-DA or any successor form in the manner required by such form or instructions the following information with respect to the customer's sales of specified nonfungible tokens-- (1) The name, address, and taxpayer identification number of the customer; (2) The aggregate gross proceeds for the year from all sales of specified nonfungible tokens (after reduction for the allocable digital asset transaction costs as defined and allocated pursuant to paragraph (d)(5)(iv) of this section); (3) The total number of specified nonfungible token sales; (4) To the extent ordinarily known by the broker, the aggregate gross proceeds that is attributable to the first sale by a creator or minter of the specified nonfungible token; and (5) Any other information required by the form or instructions. (C) Examples. The following examples illustrate the rules of this paragraph (d)(10)(iii). (1) Example 1: Optional reporting method for specified nonfungible tokens--(i) Facts. CRX is a digital asset broker that provides services to customer J, an individual not otherwise exempt from reporting. In Year 1, CRX sells on behalf of J, ten specified nonfungible tokens for a gross proceeds amount equal to $1,500. CRX does not sell any other specified nonfungible tokens for J during Year 1. [[Page 56572]] (ii) Analysis. In lieu of reporting J's sales of the ten specified nonfungible tokens under paragraph (d)(2)(i)(B) of this section, CRX may report these sales under the reporting method set forth in this paragraph (d)(10)(iii). In this case, J's sales of the ten specified nonfungible tokens gave rise to total gross proceeds of $1,500 for Year 1. Because the total gross proceeds from J's sales of the ten specified nonfungible tokens exceeds $600, CRX must make a single return of information under this section for these sales. (2) Example 2: Optional reporting method for specified nonfungible tokens--(i) Facts. The facts are the same as in paragraph (d)(10)(iii)(C)(1)(i) of this section (the facts in Example 1), except that the total gross proceeds from the sale of J's ten specified nonfungible tokens is $500. (ii) Analysis. Because J's sales of the specified nonfungible tokens result in total gross proceeds of $500, CRX is not required to make a return of information under this section for J's sales of the specified nonfungible tokens. (iv) Specified nonfungible token. For purposes of this section, the term specified nonfungible token means a digital asset that satisfies the conditions set forth in paragraphs (d)(10)(iv)(A) through (C) of this section. (A) Indivisible. The digital asset cannot be subdivided into smaller units without losing its intrinsic value or function. (B) Unique. The digital asset itself includes a unique digital identifier, other than a digital asset address, that distinguishes that digital asset from all other digital assets. (C) Excluded property. The digital asset is not and does not directly or through one or more other digital assets that satisfy the conditions described in paragraphs (d)(10)(iv)(A) and (B) of this section, provide the holder with any interest in any of the following excluded property-- (1) A security under paragraph (a)(3) of this section; (2) A commodity under paragraph (a)(5) of this section; (3) A regulated futures contract under paragraph (a)(6) of this section; (4) A forward contract under paragraph (a)(7) of this section; or (5) A digital asset that does not satisfy the conditions described in paragraphs (d)(10)(iv)(A) and (B) of this section. (D) Examples. The following examples illustrate the rules of this paragraph (d)(10)(iv). (1) Example 1: Specified nonfungible token--(i) Facts. Individual J is an artist in the business of creating and selling digital assets that reference J's artwork. J creates a unique digital asset (DA-J) that represents J's artwork. The digital asset includes a unique digital identifier, other than a digital asset address, that distinguishes DA-J from all other digital assets. DA-J cannot be subdivided into smaller units. (ii) Analysis. DA-J is a digital asset that satisfies the three conditions described in paragraphs (d)(10)(iv)(A) through (C) of this section. DA-J cannot be subdivided into smaller units without losing its intrinsic value or function. Additionally, DA-J includes a unique digital identifier that distinguishes DA-J from all other digital assets. Finally, DA-J does not provide the holder with any interest in excluded property listed in paragraphs (d)(10)(iv)(C)(1) through (5) of this section Accordingly, DA-J is a specified nonfungible token under this paragraph (d)(10)(iv). (2) Example 2: Specified nonfungible token--(i) Facts. K creates a unique digital asset (DA-K) that provides the holder with the right to redeem DA-K for 100 units of digital asset DE. Units of DE can be subdivided into smaller units and do not include a unique digital identifier, other than a digital asset address, that distinguishes one unit of DE from any other unit of DE. DA-K cannot be subdivided into smaller units and includes a unique digital identifier, other than a digital asset address, that distinguishes DA-K from all other digital assets. (ii) Analysis. DA-K provides its holder with an interest in 100 units of digital asset DE, which is excluded property, as described in paragraph (d)(10)(iv)(C)(5) of this section, because DE units can be subdivided into smaller units and do not include unique digital identifiers that distinguishes one unit of DE from any other unit of DE. Accordingly, DA-K is not a specified nonfungible token under this paragraph (d)(10)(iv). (3) Example 3: Specified nonfungible token--(i) Facts. The facts are the same as in paragraph (d)(10)(iv)(D)(2)(i) of this section (the facts in Example 2) except that in addition to providing its holder with an interest in the 100 units of DE, DA-K also provides rights to or access to a unique work of art. (ii) Analysis. Because DA-K provides its holder with an interest in excluded property described in paragraph (d)(10)(iv)(C)(5) of this section, it is not a specified nonfungible token under paragraph this (d)(10)(iv) without regard to whether it also references property that is not excluded property. (4) Example 4: Specified nonfungible token--(i) Facts. B creates a unique digital asset (DA-B) that provides the holder with the right to redeem DA-B for physical merchandise in B's store. DA-B cannot be subdivided into smaller units and includes a unique digital identifier, other than a digital asset address, that distinguishes DA-B from all other digital assets. (ii) Analysis. DA-B is a digital asset that satisfies the three conditions described in paragraphs (d)(10)(iv)(A) through (C) of this section. DA-B cannot be subdivided into smaller units without losing its intrinsic value or function. Additionally, DA-B includes a unique digital identifier that distinguishes DA-B from all other digital assets. Finally, DA-B does not provide the holder with any interest in excluded property listed in paragraphs (d)(10)(iv)(C)(1) through (5) of this section. Accordingly, DA-B is a specified nonfungible token under this paragraph (d)(10)(iv). (v) Joint accounts. For purposes of determining if the gross proceeds thresholds set forth in paragraphs (d)(10)(i)(B) and (d)(10)(iii)(B) of this section have been met for the customer, the customer is the person whose tax identification number would be required to be shown on the information return (but for the application of the relevant threshold) after the application of the backup withholding rules under Sec. 31.3406(h)-2(a) of this chapter. (11) Collection and retention of additional information with respect to the sale of a digital asset. A broker required to make an information return under paragraph (c) of this section with respect to the sale of a digital asset must collect the following additional information, retain it for seven years from the date of the due date for the information return required to be filed under this section, and make it available for inspection upon request by the Internal Revenue Service: (i) The transaction ID as defined in paragraph (a)(24) of this section in connection with the sale, if any; and the digital asset address as defined in paragraph (a)(20) of this section (or digital asset addresses if multiple) from which the digital asset was transferred in connection with the sale, if any; (ii) For each sale of a digital asset that was held by the broker in a hosted wallet on behalf of a customer and was previously transferred into an account at the broker (transferred-in digital asset), the transaction ID of such transfer in and the digital asset address (or digital asset addresses if multiple) from which the digital asset was transferred, if any. (e) * * * (2) * * * (iii) Coordination rules for exchanges of digital assets made through barter exchanges. Exchange transactions involving the exchange of one digital asset held by one customer of a broker for a different digital asset held by a second customer of the same broker must be treated as a sale under paragraph (a)(9)(ii) of this section subject to reporting under paragraphs (c) and (d) of this section, and not as an exchange of personal property through a barter exchange subject to reporting under this paragraph (e) and paragraph (f) of this section, with respect to both customers involved in the exchange transaction. In the case of an exchange transaction that involves the transfer of a digital asset for personal property or services that are not also digital assets, if the digital asset payment also is a reportable payment transaction subject to reporting by the barter exchange under Sec. 1.6050W-1(a)(1), the exchange transaction must be treated as a [[Page 56573]] reportable payment transaction and not as an exchange of personal property through a barter exchange subject to reporting under this paragraph (e) and paragraph (f) of this section with respect to the member or client disposing of personal property or services. Additionally, an exchange transaction described in the previous sentence must be treated as a sale under paragraph (a)(9)(ii)(D) of this section subject to reporting under paragraphs (c) and (d) of this section and not as an exchange of personal property through a barter exchange subject to reporting under this paragraph (e) and paragraph (f) of this section with respect to the member or client disposing of the digital asset. Nothing in this paragraph (e)(2)(iii) may be construed to mean that any broker is or is not properly classified as a barter exchange. * * * * * (g) Exempt foreign persons--(1) Brokers. No return of information is required to be made by a broker with respect to a customer who is considered to be an exempt foreign person under paragraphs (g)(1)(i) through (iii) or paragraph (g)(4) of this section. See paragraph (a)(1) of this section for when a person is not treated as a broker under this section for a sale effected at an office outside the United States. See paragraphs (g)(1)(i) through (g)(3) of this section for rules relating to sales as defined in paragraph (a)(9)(i) of this section and see paragraph (g)(4) of this section for rules relating to sales of digital assets as defined in paragraph (a)(9)(ii) of this section. (i) With respect to a sale as defined in paragraph (a)(9)(i) of this section (relating to sales other than sales of digital assets) that is effected at an office of a broker either inside or outside the United States, the broker may treat the customer as an exempt foreign person if the broker can, prior to the payment, reliably associate the payment with documentation upon which it can rely in order to treat the customer as a foreign beneficial owner in accordance with Sec. 1.1441- 1(e)(1)(ii), as made to a foreign payee in accordance with Sec. 1.6049-5(d)(1), or presumed to be made to a foreign payee under Sec. 1.6049-5(d)(2) or (3). For purposes of this paragraph (g)(1)(i), the provisions in Sec. 1.6049-5(c) regarding rules applicable to documentation of foreign status shall apply with respect to a sale when the broker completes the acts necessary to effect the sale at an office outside the United States, as described in paragraph (g)(3)(iii)(A) of this section, and no office of the same broker within the United States negotiated the sale with the customer or received instructions with respect to the sale from the customer. The provisions in Sec. 1.6049- 5(c) regarding the definitions of U.S. payor, U.S. middleman, non-U.S. payor, and non-U.S. middleman shall also apply for purposes of this paragraph (g)(1)(i). The provisions of Sec. 1.1441-1 shall apply by substituting the terms broker and customer for the terms withholding agent and payee, respectively, and without regard for the fact that the provisions apply to amounts subject to withholding under chapter 3 of the Code. The provisions of Sec. 1.6049-5(d) shall apply by substituting the terms broker and customer for the terms payor and payee, respectively. For purposes of this paragraph (g)(1)(i), a broker that is required to obtain, or chooses to obtain, a beneficial owner withholding certificate described in Sec. 1.1441-1(e)(2)(i) from an individual may rely on the withholding certificate only to the extent the certificate includes a certification that the beneficial owner has not been, and at the time the certificate is furnished, reasonably expects not to be present in the United States for a period aggregating 183 days or more during each calendar year to which the certificate pertains. The certification is not required if a broker receives documentary evidence under Sec. 1.6049-5(c)(1) or (4). (ii) With respect to a redemption or retirement of stock or an obligation (the interest or original issue discount on, which is described in Sec. 1.6049-5(b)(6), (7), (10), or (11) or the dividends on, which are described in Sec. 1.6042-3(b)(1)(iv)) that is effected at an office of a broker outside the United States by the issuer (or its paying or transfer agent), the broker may treat the customer as an exempt foreign person if the broker is not also acting in its capacity as a custodian, nominee, or other agent of the payee. (iii) With respect to a sale as defined in paragraph (a)(9)(i) of this section (relating to sales other than sales of digital assets) that is effected by a broker at an office of the broker either inside or outside the United States, the broker may treat the customer as an exempt foreign person for the period that those proceeds are assets blocked as described in Sec. 1.1441-2(e)(3). For purposes of this paragraph (g)(1)(iii) and section 3406, a sale is deemed to occur in accordance with paragraph (d)(4) of this section. The exemption in this paragraph (g)(1)(iii) shall terminate when payment of the proceeds is deemed to occur in accordance with the provisions of Sec. 1.1441- 2(e)(3). (2) Barter exchange. No return of information is required by a barter exchange under the rules of paragraphs (e) and (f) of this section with respect to a client or a member that the barter exchange may treat as an exempt foreign person pursuant to the procedures described in paragraph (g)(1) of this section. (3) Applicable rules--(i) Joint owners. Amounts paid to joint owners for which a certificate or documentation is required as a condition for being exempt from reporting under paragraph (g)(1)(i) or (g)(2) of this section are presumed made to U.S. payees who are not exempt recipients if, prior to payment, the broker or barter exchange cannot reliably associate the payment either with a Form W-9 furnished by one of the joint owners in the manner required in Sec. Sec. 31.3406(d)-1 through 31.3406(d)-5 of this chapter, or with documentation described in paragraph (g)(1)(i) of this section furnished by each joint owner upon which it can rely to treat each joint owner as a foreign payee or foreign beneficial owner. For purposes of applying this paragraph (g)(3)(i), the grace period described in Sec. 1.6049-5(d)(2)(ii) shall apply only if each payee qualifies for such grace period. (ii) Special rules for determining who the customer is. For purposes of paragraph (g)(1) of this section, the determination of who the customer is shall be made on the basis of the provisions in Sec. 1.6049-5(d) by substituting in that section the terms payor and payee with the terms broker and customer. (iii) Place of effecting sale--(A) Sale outside the United States. For purposes of this paragraph (g), a sale as defined in paragraph (a)(9)(i) of this section (relating to sales other than sales of digital assets) is considered to be effected by a broker at an office outside the United States if, in accordance with instructions directly transmitted to such office from outside the United States by the broker's customer, the office completes the acts necessary to effect the sale outside the United States. The acts necessary to effect the sale may be considered to have been completed outside the United States without regard to whether-- (1) Pursuant to instructions from an office of the broker outside the United States, an office of the same broker within the United States undertakes one or more steps of the sale in the United States; or (2) The gross proceeds of the sale are paid by a draft drawn on a United States bank account or by a wire or other electronic transfer from a United States account. [[Page 56574]] (B) Sale inside the United States. For purposes of this paragraph (g), a sale that is considered to be effected by a broker at an office outside the United States under paragraph (g)(3)(iii)(A) of this section shall nevertheless be considered to be effected by a broker at an office inside the United States if either-- (1) The customer has opened an account with a United States office of that broker; (2) The customer has transmitted instructions concerning this and other sales to the foreign office of the broker from within the United States by mail, telephone, electronic transmission or otherwise (unless the transmissions from the United States have taken place in isolated and infrequent circumstances); (3) The gross proceeds of the sale are paid to the customer by a transfer of funds into an account (other than an international account as defined in Sec. 1.6049-5(e)(4)) maintained by the customer in the United States or mailed to the customer at an address in the United States; (4) The confirmation of the sale is mailed to a customer at an address in the United States; or (5) An office of the same broker within the United States negotiates the sale with the customer or receives instructions with respect to the sale from the customer. (iv) Special rules where the customer is a foreign intermediary or certain U.S. branches. A foreign intermediary, as defined in Sec. 1.1441-1(c)(13), is an exempt foreign person, except when the broker has actual knowledge (within the meaning of Sec. 1.6049-5(c)(3)) that the person for whom the intermediary acts is a U.S. person that is not exempt from reporting under paragraph (c)(3) of this section or the broker is required to presume under Sec. 1.6049-5(d)(3) that the payee is a U.S. person that is not an exempt recipient. If a foreign intermediary, as described in Sec. 1.1441-1(c)(13), or a U.S. branch that is not treated as a U.S. person receives a payment from a payor or middleman (as defined in Sec. 1.6049-4(a) and (f)(4)), which payment the payor or middleman can reliably associate with a valid withholding certificate described in Sec. 1.1441-1(e)(3)(ii), (iii) or (v), respectively, furnished by such intermediary or branch, then the intermediary or branch is not required to report such payment when it, in turn, pays the amount, unless, and to the extent, the intermediary or branch knows that the payment is required to be reported under this section and was not so reported. For example, if a U.S. branch described in Sec. 1.1441-1(b)(2)(iv) fails to provide information regarding U.S. persons that are not exempt from reporting under paragraph (c)(3) of this section to the person from whom the U.S. branch receives the payment, the U.S. branch must report the payment on an information return. See, however, paragraph (c)(3)(ii) of this section for when reporting under section 6045 is coordinated with reporting under chapter 4 of the Code or an applicable IGA (as defined in Sec. 1.6049-4(f)(7)). The exception of this paragraph (g)(3)(iv) for amounts paid by a foreign intermediary shall not apply to a qualified intermediary that assumes reporting responsibility under chapter 61 of the Code except as provided under the agreement described in Sec. 1.1441-1(e)(5)(iii). (4) Rules for sales of digital assets. The rules of this paragraph (g)(4) apply to a sale of a digital asset as defined in paragraph (a)(9)(ii) of this section. See paragraph (a)(1) of this section for when a person is treated as a broker under this section with respect to a sale of a digital asset. See paragraph (c) of this section for rules requiring brokers to report sales. See paragraph (g)(1) of this section providing that no return of information is required to be made by a broker effecting a sale of a digital asset for a customer who is considered to be an exempt foreign person under this paragraph (g)(4). (i) Definitions. The following definitions apply for purposes of this section. (A) U.S. digital asset broker. A U.S. digital asset broker is a person that effects sales of digital assets on behalf of others and that is-- (1) A U.S. payor or U.S. middleman as defined in Sec. 1.6049- 5(c)(5)(i)(A) that is not a foreign branch or office of such person, Sec. 1.6049-5(c)(5)(i)(B) or (F) that is not a territory financial institution described in Sec. 1.1441-1(b)(2)(iv). (2) [Reserved] (B) [Reserved] (ii) Rules for U.S. digital asset brokers--(A) Place of effecting sale. For purposes of this section, a sale of a digital asset that is effected by a U.S. digital asset broker is considered a sale effected at an office inside the United States. (B) Determination of foreign status. A U.S. digital asset broker may treat a customer as an exempt foreign person with respect to a sale effected at an office inside the United States provided that, prior to the payment to such customer of the gross proceeds from the sale, the broker has a beneficial owner withholding certificate described in Sec. 1.1441-1(e)(2)(i) that the broker may treat as valid under Sec. 1.1441-1(e)(2)(ii) and that satisfies the requirements of paragraph (g)(4)(vi) of this section. Additionally, a U.S. digital asset broker may treat a customer as an exempt foreign person with respect to a sale effected at an office inside the United States under an applicable presumption rule as provided in paragraph (g)(4)(vi)(A)(2)(i) of this section. A beneficial owner withholding certificate provided by an individual must include a certification that the beneficial owner has not been, and at the time the certificate is furnished reasonably expects not to be, present in the United States for a period aggregating 183 days or more during each calendar year to which the certificate pertains. See paragraphs (g)(4)(vi)(A) through (D) of this section for additional rules applicable to withholding certificates, when a broker may rely on a withholding certificate, presumption rules that apply in the absence of documentation, and rules for customers that are joint account holders. See paragraph (g)(4)(vi)(E) of this section for the extent to which a U.S. digital asset broker may treat a customer as an exempt foreign person with respect to a payment treated as made to a foreign intermediary, flow-through entity or certain U.S. branches. See paragraph (g)(4)(vi)(F) of this section for a transition rule for preexisting accounts. (iii) Rules for CFC digital asset brokers not conducting activities as money services businesses. (iv) Rules for non-U.S. digital asset brokers not conducting activities as money services businesses. (A) [Reserved] (B) Sale treated as effected at an office inside the United States--(1) [Reserved] (2) U.S. indicia. The U.S. indicia relevant for purposes of this paragraph (g)(4)(iv)(B) are as follows-- (i) A permanent residence address (as defined in Sec. 1.1441- 1(c)(38)) in the U.S. or a U.S. mailing address for the customer, a current U.S. telephone number and no non-U.S. telephone number for the customer, or the broker's classification of the customer as a U.S. person in its records; (ii) An unambiguous indication of a U.S. place of birth for the customer; or (v) [Reserved] (vi) Rules applicable to brokers that obtain or are required to obtain documentation for a customer and presumption rules--(A) In general. Paragraph (g)(4)(vi)(A)(1) of this section describes rules applicable to documentation permitted to be used under this paragraph (g)(4) to determine whether a customer may be treated as an exempt foreign person. Paragraph [[Page 56575]] (g)(4)(vi)(A)(2) of this section provides presumption rules that apply if the broker does not have documentation on which the broker may rely to determine a customer's status. Paragraph (g)(4)(vi)(A)(3) of this section provides a grace period for obtaining documentation in circumstances where there are indicia that a customer is a foreign person. Paragraph (g)(4)(vi)(A)(4) of this section provides rules relating to blocked income. Paragraph (g)(4)(vi)(B) of this section provides rules relating to reliance on beneficial ownership withholding certificates to determine whether a customer is an exempt foreign person. Paragraph (g)(4)(vi)(C) of this section provides rules relating to reliance on documentary evidence to determine whether a customer is an exempt foreign person. Paragraph (g)(4)(vi)(D) of this section provides rules relating to customers that are joint account holders. Paragraph (g)(4)(vi)(E) of this section provides special rules for a customer that is a foreign intermediary, a flow-through entity, or certain U.S. branches. Paragraph (g)(4)(vi)(F) of this section provides a transition rule for obtaining documentation to treat a customer as an exempt foreign person. (1) Documentation of foreign status. A broker may treat a customer as an exempt foreign person when the broker obtains valid documentation permitted to support a customer's foreign status as described in paragraph (g)(4)(ii), (iii), or (iv) of this section (as applicable) that the broker can reliably associate (within the meaning of Sec. 1.1441-1(b)(2)(vii)(A)) with a payment of gross proceeds, provided that the broker is not required to treat the documentation as unreliable or incorrect under paragraph (g)(4)(vi)(B) or (C) of this section. For rules regarding the validity period of a withholding certificate, or of documentary evidence (when permitted to be relied upon under paragraph (g)(4)(vi)(C) of this section), retention of documentation, electronic transmission of documentation, information required to be provided on a withholding certificate, who may sign a withholding certificate, when a substitute withholding certificate may be accepted, and general reliance rules on documentation (including when a prior version of a withholding certificate may be relied upon), the provisions of Sec. Sec. 1.1441-1(e)(4)(i) through (ix) and 1.6049-5(c)(1)(ii) apply, with the following modifications-- (i) The provisions in Sec. 1.1441-1(e)(4)(i) through (ix) apply by substituting the terms broker and customer for the terms withholding agent and payee, respectively, and disregarding the fact that the provisions under Sec. 1.1441-1 apply only to amounts subject to withholding under chapter 3 of the Code; (ii) The provisions of Sec. 1.6049-5(c)(1)(ii) (relating to general requirements for when a payor may rely upon and must maintain documentary evidence with respect to a payee) apply (as applicable to the broker) by substituting the terms broker and customer for the terms payor and payee, respectively; (iii) To apply Sec. 1.1441-1(e)(4)(viii) (reliance rules for documentation), the reference to Sec. 1.1441-7(b)(4) through (6) is replaced by the provisions of paragraph (g)(4)(vi)(B) or (C) of this section, as applicable, and the reference to Sec. 1.1441-6(c)(2) is disregarded; and (iv) To apply Sec. 1.1441-1(e)(4)(viii) (reliance rules for documentation) and (ix) (certificates to be furnished to a withholding agent for each obligation unless an exception applies), the provisions applicable to a financial institution apply to a broker described in this paragraph (g)(4) whether or not it is a financial institution. (2) Presumption rules--(i) In general. If a broker is not permitted to treat a customer as an exempt foreign person under paragraph (g)(4)(vi)(A)(1) of this section because the broker has not collected the documentation permitted to be collected under this paragraph (g)(4) or is not permitted to rely on the documentation it has collected, the broker must determine the classification of a customer (as an individual, entity, etc.) by applying the presumption rules of Sec. 1.1441-1(b)(3)(ii), except that references in Sec. 1.1441- 1(b)(3)(ii)(B) to exempt recipient categories under section 6049 are replaced by the exempt recipient categories in paragraph (c)(3)(i) of this section. With respect to a customer that a broker has classified as an entity, the broker must determine the status of the customer as U.S. or foreign by applying Sec. Sec. 1.1441-1(b)(3)(iii)(A) and 1.1441-5(d) and (e)(6), except that Sec. 1.1441-1(b)(3)(iii)(A)(1)(iv) does not apply. For presumption rules to treat a payment as made to an intermediary or flow-through entity and whether the payment is also treated as made to an exempt foreign person, see paragraph (g)(4)(vi)(E) of this section. Notwithstanding the provisions of this paragraph (g)(4)(vi)(A)(2), a broker may not treat a customer as a foreign person under this paragraph (g)(4)(vi)(A)(2) if the broker has actual knowledge or reason to know that the customer is a U.S. person. For purposes of applying the presumption rules of this paragraph (g)(4)(vi)(A)(2), a broker must identify its customer by applying the rules of Sec. 1.6049-5(d)(1), substituting the terms customer and broker for the terms payee and payor, respectively. (ii) Presumption rule specific to U.S. digital asset brokers. With respect to a customer that a U.S. digital asset broker has classified as an individual, the broker must treat the customer as a U.S. person. (3) Grace period to collect valid documentation in the case of indicia of a foreign customer. If a broker has not obtained valid documentation that it can reliably associate with a payment of gross proceeds to a customer to treat the customer as an exempt foreign person, or if the broker is unable to rely upon documentation under the rules described in paragraph (g)(4)(vi)(A)(1) of this section or is required to treat documentation obtained for a customer as unreliable or incorrect (after applying paragraphs (g)(4)(vi)(B) and (C) of this section), the broker may apply the grace period described in Sec. 1.6049-5(d)(2)(ii) (generally allowing in certain circumstances a payor to treat an account as owned by a foreign person for a 90 day period). In applying Sec. 1.6049-5(d)(2)(ii), references to securities described in Sec. 1.1441-6(c)(2) are replaced with digital assets. (4) Blocked income. A broker may apply the provisions in paragraph (g)(1)(iii) of this section to treat a customer as an exempt foreign person when the proceeds are blocked income as described in Sec. 1.1441-2(e)(3). (B) Reliance on beneficial ownership withholding certificates to determine foreign status. For purposes of determining whether a customer may be treated as an exempt foreign person under this section, except as otherwise provided in this paragraph (g)(4)(vi)(B), a broker may rely on a beneficial owner withholding certificate described in paragraph (g)(4)(ii)(B) of this section unless the broker has actual knowledge or reason to know that the certificate is unreliable or incorrect. With respect to a U.S. digital asset broker described in paragraph (g)(4)(i)(A)(1) of this section, reason to know is limited to when the broker has any of the U.S. indicia set forth in paragraph (g)(4)(iv)(B)(2)(i) or (ii) of this section in its account opening files or other files pertaining to the account (account information), including documentation collected for purposes of an AML program or the beneficial owner withholding certificate. A broker will not be considered to have reason to know that a certificate is unreliable or incorrect based on documentation collected for an AML program until the date that is 30 days after the account is opened. A [[Page 56576]] broker may rely, however, on a beneficial owner withholding certificate notwithstanding the presence of any of the U.S. indicia set forth in paragraph (g)(4)(iv)(B)(2)(i) or (ii) of this section on the withholding certificate or in the account information for a customer in the circumstances described in paragraphs (g)(4)(vi)(B)(1) and (2) of this section. (1) Collection of information other than U.S. place of birth--(i) In general. With respect to any of the U.S. indicia described in paragraph (g)(4)(iv)(B)(2)(i) of this section, the broker has in its possession for a customer who is an individual documentary evidence establishing foreign status (as described in Sec. 1.1471-3(c)(5)(i)) that does not contain a U.S. address and the customer provides the broker with a reasonable explanation (as defined in Sec. 1.1441- 7(b)(12)) from the customer, in writing, supporting the claim of foreign status. Notwithstanding the preceding sentence, in a case in which the broker classified an individual customer as a U.S. person in its account information, the broker may treat the customer as an exempt foreign person only if it has in its possession documentary evidence described in Sec. 1.1471-3(c)(5)(i)(B) evidencing citizenship in a country other than the United States. In the case of a customer that is an entity, the broker may treat the customer as an exempt foreign person if it has in its possession documentation establishing foreign status that substantiates that the entity is actually organized or created under the laws of a foreign country. (ii) [Reserved] (2) Collection of information showing U.S. place of birth. With respect to the U.S. indicia described in paragraph (g)(4)(iv)(B)(2)(ii) of this section, the broker has in its possession documentary evidence described in Sec. 1.1471-3(c)(5)(i)(B) evidencing citizenship in a country other than the United States and the broker has in its possession either a copy of the customer's Certificate of Loss of Nationality of the United States or a reasonable written explanation of the customer's renunciation of U.S. citizenship or the reason the customer did not obtain U.S. citizenship at birth. (C) [Reserved] (D) Joint owners. In the case of amounts paid to customers that are joint account holders for which a certificate or documentation is required as a condition for being exempt from reporting under this paragraph (g)(4), such amounts are presumed made to U.S. payees who are not exempt recipients (as defined in paragraph (c)(3)(i)(B) of this section) when the conditions of paragraph (g)(3)(i) of this section are met. (E) Special rules for customer that is a foreign intermediary, a flow-through entity, or certain U.S. branches--(1) Foreign intermediaries in general. For purposes of this paragraph (g)(4), a broker may determine the status of a customer as a foreign intermediary (as defined in Sec. 1.1441-1(c)(13)) by reliably associating (under Sec. 1.1441-1(b)(2)(vii)) a payment of gross proceeds with a valid foreign intermediary withholding certificate described in Sec. 1.1441- 1(e)(3)(ii) or (iii), without regard to whether the withholding certificate contains a withholding statement and withholding certificates or other documentation for each account holder. In the case of a payment of gross proceeds from a sale of a digital asset that a broker treats as made to a foreign intermediary under this paragraph (g)(4)(vi)(E)(1), the broker must treat the foreign intermediary as an exempt foreign person except to the extent required by paragraph (g)(3)(iv) of this section (rules for when a broker is required to treat a payment as made to a U.S. person that is not an exempt recipient under paragraph (c)(3) of this section and for reporting that may be required by the foreign intermediary). (i) Presumption rule specific to U.S. digital asset brokers. A U.S. digital asset broker that does not have a valid foreign intermediary withholding certificate or a valid beneficial owner withholding certificate described in paragraph (g)(4)(ii)(B) of this section for the customer applies the presumption rules in Sec. 1.1441- 1(b)(3)(ii)(B) (which would presume that the entity is not an intermediary). For purposes of applying the presumption rules referenced in the preceding sentence, a U.S. digital asset broker must identify its customer by applying the rules of Sec. 1.6049-5(d)(1), substituting the terms customer and U.S. digital asset broker for the terms payee and payor, respectively. See Sec. 1.1441-1(b)(3)(iii) for presumption rules relating to the U.S. or foreign status of a customer. (ii) [Reserved] (2) Foreign flow-through entities. For purposes of this paragraph (g)(4), a broker may determine the status of a customer as a foreign flow-through entity (as defined in Sec. 1.1441-1(c)(23)) by reliably associating (under Sec. 1.1441-1(b)(2)(vii)) a payment of gross proceeds with a valid foreign flow-through withholding certificate described in Sec. 1.1441-5(c)(3)(iii) (relating to nonwithholding foreign partnerships) or Sec. 1.1441-5(e)(5)(iii) (relating to foreign simple trusts and foreign grantor trusts that are nonwithholding foreign trusts), without regard to whether the withholding certificate contains a withholding statement and withholding certificates or other documentation for each partner. A broker may alternatively determine the status of a customer as a foreign flow-through entity based on the presumption rules in Sec. Sec. 1.1441-1(b)(3)(ii)(B) (relating to entity classification), 1.1441-5(d) (relating to partnership status as U.S. or foreign) and 1.1441-5(e)(6) (relating to the status of trusts and estates as U.S. or foreign). For purposes of applying the presumption rules referenced in the preceding sentence, a broker must identify its customer by applying the rules of Sec. 1.6049-5(d)(1), substituting the terms customer and broker for the terms payee and payor, respectively. In the case of a payment of gross proceeds from a sale of a digital asset that a broker treats as made to a foreign flow- through entity under this paragraph (g)(4)(vi)(E)(2), the broker must treat the foreign flow-through entity as an exempt foreign person except to the extent required by Sec. 1.6049-5(d)(3)(ii) (rules for when a broker is required to treat a payment as made to a U.S. person other than an exempt recipient (substituting exempt recipient under Sec. 1.6045-1(c)(3) for exempt recipient described in Sec. 1.6049- 4(c))). (3) U.S. branches that are not beneficial owners. For purposes of this paragraph (g)(4), a broker may determine the status of a customer as a U.S. branch (as described in Sec. 1.1441-1(b)(2)(iv)) that is not a beneficial owner (as defined in Sec. 1.1441-1(c)(6)) of a payment of gross proceeds by reliably associating (under Sec. 1.1441- 1(b)(2)(vii)) the payment with a valid U.S. branch withholding certificate described in Sec. 1.1441-1(e)(3)(v) without regard to whether the withholding certificate contains a withholding statement and withholding certificates or other documentation for each person for whom the branch receives the payment. If a U.S. branch certifies on a U.S. branch withholding certificate described in the preceding sentence that it agrees to be treated as a U.S. person under Sec. 1.1441- 1(b)(2)(iv)(A), the broker provided the certificate must treat the U.S. branch as an exempt foreign person. If a U.S. branch does not certify as described in the preceding sentence on its U.S. branch withholding certificate, the broker provided the certificate must treat the U.S. branch as an exempt foreign person except to the extent required by paragraph (g)(3)(iv) of this section (rules for when a broker is required to treat a payment as made to a U.S. person that is not an exempt [[Page 56577]] recipient under paragraph (c)(3) of this section and for reporting that may be required by the U.S. branch). In a case in which a broker cannot reliably associate a payment of gross proceeds made to a U.S. branch with a U.S. branch withholding certificate described in Sec. 1.1441- 1(e)(3)(v) or a valid beneficial owner withholding certificate described in paragraph (g)(4)(ii)(B) of this section, see paragraph (g)(4)(vi)(E)(1) of this section for determining the status of the U.S. branch as a beneficial owner or intermediary. (F) Transition rule for obtaining documentation to treat a customer as an exempt foreign person. Notwithstanding the rules of this paragraph (g)(4) for determining the status of a customer as an exempt foreign person, for a sale of a digital asset effected before January 1, 2027, that was held in an account established for the customer by a broker before January 1, 2026, the broker may treat the customer as an exempt foreign person provided that the customer has not previously been classified as a U.S. person by the broker, and the information that the broker has in the account opening files or other files pertaining to the account, including documentation collected for purposes of an AML program, includes a residence address for the customer that is not a U.S. address. (vii) Barter exchanges. No return of information is required by a barter exchange under the rules of paragraphs (e) and (f) of this section with respect to a client or a member that the barter exchange may treat as an exempt foreign person pursuant to the procedures described in this paragraph (g)(4). (5) Examples. The application of the provisions of paragraphs (g)(1) through (3) of this section may be illustrated by the following examples: (i) Example 1. FC is a foreign corporation that is not a U.S. payor or U.S. middleman described in Sec. 1.6049-5(c)(5) that regularly issues and retires its own debt obligations. A is an individual whose residence address is inside the United States, who holds a bond issued by FC that is in registered form (within the meaning of section 163(f) and the regulations under that section). The bond is retired by FP, a foreign corporation that is a broker within the meaning of paragraph (a)(1) of this section and the designated paying agent of FC. FP mails the proceeds to A at A's U.S. address. The sale would be considered to be effected at an office outside the United States under paragraph (g)(3)(iii)(A) of this section except that the proceeds of the sale are mailed to a U.S. address. For that reason, the sale is considered to be effected at an office of the broker inside the United States under paragraph (g)(3)(iii)(B) of this section. Therefore, FC is a broker under paragraph (a)(1) of this section with respect to this transaction because, although it is not a U.S. payor or U.S. middleman, as described in Sec. 1.6049-5(c)(5), it is deemed to effect the sale in the United States. FP is a broker for the same reasons. However, under the multiple broker exception under paragraph (c)(3)(iii) of this section, FP, rather than FC, is required to report the payment because FP is responsible for paying the holder the proceeds from the retired obligations. Under paragraph (g)(1)(i) of this section, FP may not treat A as an exempt foreign person and must make an information return under section 6045 with respect to the retirement of the FC bond, unless FP obtains the certificate or documentation described in paragraph (g)(1)(i) of this section. (ii) Example 2. The facts are the same as in paragraph (g)(5)(i) of this section (the facts in Example 1) except that FP mails the proceeds to A at an address outside the United States. Under paragraph (g)(3)(iii)(A) of this section, the sale is considered to be effected at an office of the broker outside the United States. Therefore, under paragraph (a)(1) of this section, neither FC nor FP is a broker with respect to the retirement of the FC bond. Accordingly, neither is required to make an information return under section 6045. (iii) Example 3. The facts are the same as in paragraph (g)(5)(ii) of this section (the facts in Example 2) except that FP is also the agent of A. The result is the same as in paragraph (g)(5)(ii) of this section (Example 2). Neither FP nor FC are brokers under paragraph (a)(1) of this section with respect to the sale since the sale is effected outside the United States and neither of them are U.S. payors (within the meaning of Sec. 1.6049- 5(c)(5)). (iv) Example 4. The facts are the same as in paragraph (g)(5)(i) of this section (the facts in Example 1) except that the registered bond held by A was issued by DC, a domestic corporation that regularly issues and retires its own debt obligations. Also, FP mails the proceeds to A at an address outside the United States. Interest on the bond is not described in paragraph (g)(1)(ii) of this section. The sale is considered to be effected at an office outside the United States under paragraph (g)(3)(iii)(A) of this section. DC is a broker under paragraph (a)(1)(i)(B) of this section. DC is not required to report the payment under the multiple broker exception under paragraph (c)(3)(iii) of this section. FP is not required to make an information return under section 6045 because FP is not a U.S. payor described in Sec. 1.6049-5(c)(5) and the sale is effected outside the United States. Accordingly, FP is not a broker under paragraph (a)(1) of this section. (v) Example 5. The facts are the same as in paragraph (g)(5)(iv) of this section (the facts in Example 4) except that FP is also the agent of A. DC is a broker under paragraph (a)(1) of this section. DC is not required to report under the multiple broker exception under paragraph (c)(3)(iii) of this section. FP is not required to make an information return under section 6045 because FP is not a U.S. payor described in Sec. 1.6049-5(c)(5) and the sale is effected outside the United States and therefore FP is not a broker under paragraph (a)(1) of this section. (vi) Example 6. The facts are the same as in paragraph (g)(5)(iv) of this section (the facts in Example 4) except that the bond is retired by DP, a broker within the meaning of paragraph (a)(1) of this section and the designated paying agent of DC. DP is a U.S. payor under Sec. 1.6049-5(c)(5). DC is not required to report under the multiple broker exception under paragraph (c)(3)(iii) of this section. DP is required to make an information return under section 6045 because it is the person responsible for paying the proceeds from the retired obligations unless DP obtains the certificate or documentary evidence described in paragraph (g)(1)(i) of this section. (vii) Example 7--(A) Facts. Customer A owns U.S. corporate bonds issued in registered form after July 18, 1984, and carrying a stated rate of interest. The bonds are held through an account with foreign bank, X, and are held in street name. X is a wholly-owned subsidiary of a U.S. company and is not a qualified intermediary within the meaning of Sec. 1.1441-1(e)(5)(ii). X has no documentation regarding A. A instructs X to sell the bonds. In order to effect the sale, X acts through its agent in the United States, Y. Y sells the bonds and remits the sales proceeds to X. X credits A's account in the foreign country. X does not provide documentation to Y and has no actual knowledge that A is a foreign person but it does appear that A is an entity (rather than an individual). (B) Analysis with respect to Y's obligations to withhold and report. Y treats X as the customer, and not A, because Y cannot treat X as an intermediary because it has received no documentation from X. Y is not required to report the sales proceeds under the multiple broker exception under paragraph (c)(3)(iii) of this section, because X is an exempt recipient. Further, Y is not required to report the amount of accrued interest paid to X on Form 1042-S under Sec. 1.1461-1(c)(2)(ii) because accrued interest is not an amount subject to reporting under chapter 3 unless the withholding agent knows that the obligation is being sold with a primary purpose of avoiding tax. (C) Analysis with respect to X's obligations to withhold and report. Although X has effected, within the meaning of paragraph (a)(1) of this section, the sale of a security at an office outside the United States under paragraph (g)(3)(iii) of this section, X is treated as a broker, under paragraph (a)(1) of this section, because as a wholly-owned subsidiary of a U.S. corporation, X is a controlled foreign corporation and therefore is a U.S. payor. See Sec. 1.6049-5(c)(5). Under the presumptions described in Sec. 1.6049-5(d)(2) (as applied to amounts not subject to withholding under chapter 3), X must apply the presumption rules of Sec. 1.1441-1(b)(3)(i) through (iii), with respect to the sales proceeds, to treat A as a partnership that is a U.S. non-exempt recipient because the presumption of foreign status for offshore obligations under Sec. 1.1441-1(b)(3)(iii)(D) does not apply. See paragraph (g)(1)(i) of this section. Therefore, unless X is an FFI (as defined in Sec. 1.1471-1(b)(47)) that is excepted from reporting the sales proceeds under paragraph (c)(3)(ii) of this section, the [[Page 56578]] payment of proceeds to A by X is reportable on a Form 1099 under paragraph (c)(2) of this section. X has no obligation to backup withhold on the payment based on the exemption under Sec. 31.3406(g)-1(e) of this chapter, unless X has actual knowledge that A is a U.S. person that is not an exempt recipient. X is also required to separately report the accrued interest (see paragraph (d)(3) of this section) on Form 1099 under section 6049 because A is also presumed to be a U.S. person who is not an exempt recipient with respect to the payment because accrued interest is not an amount subject to withholding under chapter 3 and, therefore, the presumption of foreign status for offshore obligations under Sec. 1.1441-1(b)(3)(iii)(D) does not apply. See Sec. 1.6049-5(d)(2)(i). (viii) Example 8--(A) Facts. The facts are the same as in paragraph (g)(5)(vii) of this section (the facts in Example 7) except that X is a foreign corporation that is not a U.S. payor under Sec. 1.6049-5(c). (B) Analysis with respect to Y's obligations to withhold and report. Y is not required to report the sales proceeds under the multiple broker exception under paragraph (c)(3)(iii) of this section, because X is the person responsible for paying the proceeds from the sale to A. (C) Analysis with respect to X's obligations to withhold and report. Although A is presumed to be a U.S. payee under the presumptions of Sec. 1.6049-5(d)(2), X is not considered to be a broker under paragraph (a)(1) of this section because it is a not a U.S. payor under Sec. 1.6049-5(c)(5). Therefore, X is not required to report the sale under paragraph (c)(2) of this section. * * * * * (j) Time and place for filing; cross-references to penalty and magnetic media filing requirements. Forms 1096 and 1099 required under this section shall be filed after the last calendar day of the reporting period elected by the broker or barter exchange and on or before February 28 of the following calendar year with the appropriate Internal Revenue Service Center, the address of which is listed in the instructions for Form 1096. For a digital asset sale effected prior to January 1, 2025, for which a broker chooses under paragraph (d)(2)(iii)(B) of this section to file an information return, Form 1096 and the Form 1099-B, Proceeds From Broker and Barter Exchange Transactions, or the Form 1099-DA, Digital Asset Proceeds from Broker Transactions, must be filed on or before February 28 of the calendar year following the year of that sale. See paragraph (l) of this section for the requirement to file certain returns on magnetic media. For provisions relating to the penalty provided for the failure to file timely a correct information return under section 6045(a), see Sec. 301.6721-1 of this chapter. See Sec. 301.6724-1 of this chapter for the waiver of a penalty if the failure is due to reasonable cause and is not due to willful neglect. * * * * * (m) * * * (1) In general. This paragraph (m) provides rules for a broker to determine and report the information required under this section for an option that is a covered security under paragraph (a)(15)(i)(E) or (H) of this section. (2) * * * (ii) * * * (C) Notwithstanding paragraph (m)(2)(i) of this section, if an option is an option on a digital asset or an option on derivatives with a digital asset as an underlying property, this paragraph (m) applies to the option if it is granted or acquired on or after January 1, 2026. * * * * * (n) * * * (6) * * * (i) Sale. A broker must report the amount of market discount that has accrued on a debt instrument as of the date of the instrument's sale, as defined in paragraph (a)(9)(i) of this section. See paragraphs (n)(5) and (n)(11)(i)(B) of this section to determine whether the amount reported should take into account a customer election under section 1276(b)(2). See paragraph (n)(8) of this section to determine the accrual period to be used to compute the accruals of market discount. This paragraph (n)(6)(i) does not apply if the customer notifies the broker under the rules in paragraph (n)(5) of this section that the customer elects under section 1278(b) to include market discount in income as it accrues. * * * * * (q) Applicability dates. Except as otherwise provided in paragraphs (d)(6)(ix), (m)(2)(ii), and (n)(12)(ii) of this section, and in this paragraph (q), this section applies on or after January 6, 2017. Paragraphs (k)(4) and (l) of this section apply with respect to information returns required to be filed and payee statements required to be furnished on or after January 1, 2024. (For rules that apply after June 30, 2014, and before January 6, 2017, see 26 CFR 1.6045-1, as revised April 1, 2016.) Except in the case of a sale of digital assets for real property as described in paragraph (a)(9)(ii)(B) of this section, this section applies to sales of digital assets on or after January 1, 2025. In the case of a sale of digital assets for real property as described in paragraph (a)(9)(ii)(B) of this section, this section applies to sales of digital assets on or after January 1, 2026. For assets that are commodities pursuant to the Commodity Futures Trading Commission's certification procedures described in 17 CFR 40.2, this section applies to sales of such commodities on or after January 1, 2025, without regard to the date such certification procedures were undertaken. (r) Cross-references. For provisions relating to backup withholding for reportable transactions under this section, see Sec. 31.3406(b)(3)-2 of this chapter for rules treating gross proceeds as reportable payments, Sec. 31.3406(d)-1 of this chapter for rules with respect to backup withholding obligations, and Sec. 31.3406(h)-3 of this chapter for the prescribed form for the certification of information required under this section. 0 Par. 7. Section 1.6045-4 is amended by: 0 1. Revising the section heading and paragraph (b)(1); 0 2. Removing the period at the end of paragraph (c)(2)(i) and adding a semicolon in its place; 0 3. Removing the word ``or'' from the end of paragraph (c)(2)(ii); 0 4. Removing the period at the end of paragraph (c)(2)(iii) and adding ``; or'' in its place; 0 5. Adding paragraph (c)(2)(iv); 0 6. Revising paragraph (d)(2)(ii)(A); 0 7. In paragraphs (e)(3)(iii)(A) and (B), adding the words ``or digital asset'' after the word ``cash''; 0 8. Revising and republishing paragraphs (g) and (h)(1); 0 9. Adding paragraphs (h)(2)(iii) and (h)(3); 0 10. Revising paragraphs (i)(1) and (2), (i)(3)(ii), and (o); 0 11. In paragraph (r): 0 a. Redesignating Examples 1 through 9 as paragraphs (r)(1) through (9), respectively; 0 b. In newly redesignated paragraph (r)(3), removing ``section (b)(1)'' and adding ``paragraph (b)(1)'' in its place; 0 c. Removing the heading in newly redesignated reserved paragraph (r)(5); 0 d. Revising newly redesignated paragraph (r)(7); 0 e. In the first sentence of newly redesignated paragraph (r)(8), removing ``example (6)'' and adding ``paragraph (r)(6) of this section (the facts in Example 6)'' in its place; 0 f. In the first sentence of newly redesignated paragraph (r)(9), removing ``example (8)'' and adding ``paragraph (r)(8) of this section (the facts in Example 8)'' in its place; and 0 g. Adding paragraph (r)(10). 0 12. Adding a sentence to the end of paragraph (s). The revisions and additions read as follows: Sec. 1.6045-4 Information reporting on real estate transactions. * * * * * [[Page 56579]] (b) * * * (1) In general. A transaction is a real estate transaction under this section if the transaction consists in whole or in part of the sale or exchange of reportable real estate (as defined in paragraph (b)(2) of this section) for money, indebtedness, property other than money, or services. The term sale or exchange shall include any transaction properly treated as a sale or exchange for Federal income tax purposes, whether or not the transaction is currently taxable. Thus, for example, a sale or exchange of a principal residence is a real estate transaction under this section even though the transferor may be entitled to the special exclusion of gain up to $250,000 (or $500,000 in the case of married persons filing jointly) from the sale or exchange of a principal residence provided by section 121 of the Code. * * * * * (c) * * * (2) * * * (iv) A principal residence (including stock in a cooperative housing corporation) provided the reporting person obtain from the transferor a written certification consistent with guidance that the Secretary has designated or may designate by publication in the Federal Register or in the Internal Revenue Bulletin (see Sec. 601.601(d)(2) of this chapter). If a residence has more than one owner, a real estate reporting person must either obtain a certification from each owner (whether married or not) or file an information return and furnish a payee statement for any owner that does not make the certification. The certification must be retained by the reporting person for four years after the year of the sale or exchange of the residence to which the certification applies. A reporting person who relies on a certification made in compliance with this paragraph (c)(2)(iv) will not be liable for penalties under section 6721 of the Code for failure to file an information return, or under section 6722 of the Code for failure to furnish a payee statement to the transferor, unless the reporting person has actual knowledge or reason to know that any assurance is incorrect. (d) * * * (2) * * * (ii) * * * (A) The United States or a State, the District of Columbia, the Commonwealth of Puerto Rico, Guam, the Commonwealth of Northern Mariana Islands, the U.S. Virgin Islands, or American Samoa, a political subdivision of any of the foregoing, or any wholly owned agency or instrumentality of any one or more of the foregoing; or * * * * * (g) Prescribed form. Except as otherwise provided in paragraph (k) of this section, the information return required by paragraph (a) of this section shall be made on Form 1099-S, Proceeds From Real Estate Transactions or any successor form. (h) * * * (1) In general. The following information must be set forth on the Form 1099-S required by this section: (i) The name, address, and taxpayer identification number (TIN) of the transferor (see also paragraph (f)(2) of this section); (ii) A general description of the real estate transferred (in accordance with paragraph (h)(2)(i) of this section); (iii) The date of closing (as defined in paragraph (h)(2)(ii) of this section); (iv) To the extent required by the Form 1099-S and its instructions, the entire gross proceeds with respect to the transaction (as determined under the rules of paragraph (i) of this section), and, in the case of multiple transferors, the gross proceeds allocated to the transferor (as determined under paragraph (i)(5) of this section); (v) To the extent required by the Form 1099-S and its instructions, an indication that the transferor-- (A) Received (or will, or may, receive) property (other than cash, consideration treated as cash, and digital assets in computing gross proceeds) or services as part of the consideration for the transaction; or (B) May receive property (other than cash and digital assets) or services in satisfaction of an obligation having a stated principal amount; or (C) May receive, in connection with a contingent payment transaction, an amount of gross proceeds that cannot be determined with certainty using the method described in paragraph (i)(3)(iii) of this section and is therefore not included in gross proceeds under paragraphs (i)(3)(i) and (iii) of this section; (vi) The real estate reporting person's name, address, and TIN; (vii) In the case of a payment made to the transferor using digital assets, the name and number of units of the digital asset, and the date the payment was made; (viii) [Reserved] (ix) Any other information required by the Form 1099-S or its instructions. (2) * * * (iii) Digital assets. For purposes of this section, a digital asset has the meaning set forth in Sec. 1.6045-1(a)(19). (3) Limitation on information provided. The information required in the case of payment made to the transferor using digital assets under paragraph (h)(1)(vii) of this section and the portion of any gross proceeds attributable to that payment required to be reported by paragraph (h)(1)(iv) of this section is not required unless the real estate reporting person has actual knowledge or ordinarily would know that digital assets were received by the transferor as payment. For purposes of this limitation, a real estate reporting person is considered to have actual knowledge that payment was made to the transferor using digital assets if the terms of the real estate contract provide for payment using digital assets. (i) * * * (1) In general. Except as otherwise provided in this paragraph (i), the term gross proceeds means the total cash received, including cash received from a processor of digital asset payments as described in Sec. 1.6045-1(a)(22), consideration treated as cash received, and the value of any digital asset received by or on behalf of the transferor in connection with the real estate transaction. (i) Consideration treated as cash. For purposes of this paragraph (i), consideration treated as cash received by or on behalf of the transferor in connection with the real estate transaction includes the following amounts: (A) The stated principal amount of any obligation to pay cash to or for the benefit of the transferor in the future (including any obligation having a stated principal amount that may be satisfied by the delivery of property (other than cash) or services); (B) The amount of any liability of the transferor assumed by the transferee as part of the consideration for the transfer or of any liability to which the real estate acquired is subject (whether or not the transferor is personally liable for the debt); and (C) In the case of a contingent payment transaction, as defined in paragraph (i)(3)(ii) of this section, the maximum determinable proceeds, as defined in paragraph (i)(3)(iii) of this section. (ii) Digital assets received. For purposes of this paragraph (i), the value of any digital asset received means the fair market value in U.S. dollars of the digital asset actually received. Additionally, if the consideration received by the transferor includes an obligation to pay a digital asset to, or for the benefit of, the transferor in the future, the value of any digital asset received includes the fair market value, [[Page 56580]] as of the date and time the obligation is entered into, of the digital assets to be paid as stated principal under such obligation. The fair market value of any digital asset received must be determined based on the valuation rules provided in Sec. 1.6045-1(d)(5)(ii). (iii) Other property. Gross proceeds does not include the value of any property (other than cash, consideration treated as cash, and digital assets) or services received by, or on behalf of, the transferor in connection with the real estate transaction. See paragraph (h)(1)(v) of this section for the information that must be included on the Form 1099-S required by this section in cases in which the transferor receives (or will, or may, receive) property (other than cash, consideration treated as cash, and digital assets) or services as part of the consideration for the transfer. (2) Treatment of sales commissions and similar expenses. In computing gross proceeds, the total cash, consideration treated as cash, and digital assets received by or on behalf of the transferor shall not be reduced by expenses borne by the transferor (such as sales commissions, amounts paid or withheld from consideration received to effect the digital asset transfer as described in Sec. 1.1001-7(b)(2), expenses of advertising the real estate, expenses of preparing the deed, and the cost of legal services in connection with the transfer). (3) * * * (ii) Contingent payment transaction. For purposes of this section, the term contingent payment transaction means a real estate transaction with respect to which the receipt, by or on behalf of the transferor, of cash, consideration treated as cash under paragraph (i)(1)(i)(A) of this section, or digital assets under paragraph (i)(1)(ii) of this section is subject to a contingency. * * * * * (o) No separate charge. A reporting person may not separately charge any person involved in a real estate transaction for complying with any requirements of this section. A reporting person may, however, take into account its cost of complying with such requirements in establishing its fees (other than in charging a separate fee for complying with such requirements) to any customer for performing services in the case of a real estate transaction. * * * * * (r) * * * (7) Example 7: Gross proceeds (contingencies). The facts are the same as in paragraph (r)(6) of this section (the facts in Example 6), except that the agreement does not provide for adequate stated interest. The result is the same as in paragraph (r)(6) of this section (the results in Example 6). * * * * * (10) Example 10: Gross proceeds (exchange involving digital assets)--(i) Facts. K, an individual, agrees in a contract for sale to pay 140 units of digital asset DE with a total fair market value of $280,000 to J, an unmarried individual who is not an exempt transferor, in exchange for Whiteacre, which has a fair market value of $280,000. No liabilities are involved in the transaction. P is the reporting person with respect to both sides of the transaction. (ii) Analysis. P has actual knowledge that payment was made to J using digital assets because the terms of the real estate contract provide for payment using digital assets. Accordingly, with respect to the payment by K of 140 units of digital asset DE to J, P must report gross proceeds received by J of $280,000 (140 units of DE) on Form 1099-S, Proceeds From Real Estate Transactions. Additionally, to the extent K is not an exempt recipient under Sec. 1.6045-1(c) or an exempt foreign person under Sec. 1.6045-1(g), P is required to report gross proceeds paid to K on Form 1099-DA, Digital Asset Proceeds from Broker Transactions, with respect to K's sale of 140 units of digital asset DE, in the amount of $280,000 pursuant to Sec. 1.6045-1. (s) * * * The amendments to paragraphs (b)(1), (c)(2)(iv), (d)(2)(ii), (e)(3)(iii), (h)(1)(v) through (ix), (h)(2)(iii), (i)(1) and (2), (i)(3)(ii), (o), and (r) of this section apply to real estate transactions with dates of closing occurring on or after January 1, 2026. 0 Par. 8. Section 1.6045A-1 is amended by: 0 1. In paragraph (a)(1)(i), in the first sentence, removing ``paragraphs (a)(1)(ii) through (v) of this section,'' and adding ``paragraphs (a)(1)(ii) through (vi) of this section,'' in its place; and 0 2. Adding paragraph (a)(1)(vi). The addition reads as follows: Sec. 1.6045A-1 Statements of information required in connection with transfers of securities. (a) * * * (1) * * * (vi) Exception for transfers of specified securities that are reportable as digital assets. No transfer statement is required under paragraph (a)(1)(i) of this section with respect to a specified security, the sale of which is reportable as a digital asset after the application of the special coordination rules under Sec. 1.6045- 1(c)(8). A transferor that chooses to provide a transfer statement with respect to a specified security described in the preceding sentence that is a tokenized security described in Sec. 1.6045-1(c)(8)(i)(D) that reports some or all of the information described in paragraph (b) of this section is not subject to penalties under section 6722 of the Code for failure to report this information correctly. * * * * * 0 Par. 9. Section 1.6045B-1 is amended by: 0 1. Revising paragraph (a)(1) introductory text; 0 2. Adding paragraph (a)(6); 0 3. Removing the word ``and'' from the end of paragraph (j)(5); 0 4. Removing the period from the end of paragraph (j)(6) and adding in its place ``; and''; 0 5. Adding paragraph (j)(7). The revision and additions read as follows: Sec. 1.6045B-1 Returns relating to actions affecting basis of securities. (a) * * * (1) Information required. Except as provided in paragraphs (a)(4) and (5) of this section, an issuer of a specified security within the meaning of Sec. 1.6045-1(a)(14)(i) through (iv) that takes an organizational action that affects the basis of the security must file an issuer return setting forth the following information and any other information specified in the return form and instructions: * * * * * (6) Reporting for certain specified securities that are digital assets. Unless otherwise excepted under this section, an issuer of a specified security described in paragraph (a)(1) of this section is required to report under this section without regard to whether the specified security is also described in Sec. 1.6045-1(a)(14)(v) or (vi). If a specified security is described in Sec. 1.6045-1(a)(14)(v) or (vi) but is not also described in Sec. 1.6045-1(a)(14)(i), (ii), (iii) or (iv), the issuer of that specified security is permitted, but not required, to report under this section. An issuer that chooses to provide the reporting and furnish statements for a specified security described in the previous sentence is not subject to penalties under section 6721 or 6722 of the Code for failure to report this information correctly. * * * * * (j) * * * (7) Organizational actions occurring on or after January 1, 2025, that affect the basis of digital assets described in Sec. 1.6045- 1(a)(14)(v) or (vi) that are also described in one or more paragraphs of Sec. 1.6045-1(a)(14)(i) through (iv). 0 Par. 10. Section 1.6050W-1 is amended by adding a sentence to the end of paragraph (a)(2), adding paragraph (c)(5), and revising paragraph (j) to read as follows: [[Page 56581]] Sec. 1.6050W-1 Information reporting for payments made in settlement of payment card and third party network transactions. (a) * * * (2) * * * In the case of a third party settlement organization that has the contractual obligation to make payments to participating payees, a payment in settlement of a reportable payment transaction includes the submission of instructions to a purchaser to transfer funds directly to the account of the participating payee for purposes of settling the reportable payment transaction. * * * * * (c) * * * (5) Coordination with information returns required under section 6045 of the Code--(i) Reporting on exchanges involving digital assets. Notwithstanding the provisions of this paragraph (c), the reporting of a payment made in settlement of a third party network transaction in which the payment by a payor is made using digital assets as defined in Sec. 1.6045-1(a)(19) or the goods or services provided by a payee are digital assets must be as follows: (A) Reporting on payors with respect to payments made using digital assets. If a payor makes a payment using digital assets and the exchange of the payor's digital assets for goods or services is a sale of digital assets by the payor under Sec. 1.6045-1(a)(9)(ii), the amount paid to the payor in settlement of that exchange is subject to the rules as described in Sec. 1.6045-1 (including any exemption from reporting under Sec. 1.6045-1) and not this section. (B) Reporting on payees with respect to the sale of goods or services that are digital assets. If the goods or services provided by a payee in an exchange are digital assets, the exchange is a sale of digital assets by the payee under Sec. 1.6045-1(a)(9)(ii), and the payor is a broker under Sec. 1.6045-1(a)(1) that effected the sale of such digital assets, the amount paid to the payee in settlement of that exchange is subject to the rules as described in Sec. 1.6045-1 (including any exemption from reporting under Sec. 1.6045-1) and not this section. (ii) Examples. The following examples illustrate the rules of this paragraph (c)(5). (A) Example 1--(1) Facts. CRX is a shared-service organization that performs accounts payable services for numerous purchasers that are unrelated to CRX. A substantial number of sellers of goods and services, including Seller S, have established accounts with CRX and have agreed to accept payment from CRX in settlement of their transactions with purchasers. The agreement between sellers and CRX includes standards and mechanisms for settling the transactions and guarantees payment to the sellers, and the arrangement enables purchasers to transfer funds to providers. Pursuant to this seller agreement, CRX accepts cash from purchasers as payment as well as digital assets, which it exchanges into cash for payment to sellers. Additionally, CRX is a processor of digital asset payments as defined in Sec. 1.6045-1(a)(22) and a broker under Sec. 1.6045- 1(a)(1). P, an individual not otherwise exempt from reporting, purchases one month of services from S through CRX's organization. S is also an individual not otherwise exempt from reporting. S's services are not digital assets under Sec. 1.6045-1(a)(19). To effect this transaction, P transfers 100 units of DE, a digital asset as defined in Sec. 1.6045-1(a)(19), to CRX. CRX, in turn, exchanges the 100 units of DE for $1,000, based on the fair market value of the DE units, and pays $1,000 to S. (2) Analysis with respect to CRX's status. CRX's arrangement constitutes a third party payment network under paragraph (c)(3) of this section because a substantial number of persons that are unrelated to CRX, including S, have established accounts with CRX, and CRX is contractually obligated to settle transactions for the provision of goods or services by these persons to purchasers, including P. Thus, under paragraph (c)(2) of this section, CRX is a third party settlement organization and the transaction involving P's purchase of S's services using 100 units of digital asset DE is a third party network transaction under paragraph (c)(1) of this section. (3) Analysis with respect to the reporting on P. P's payment of 100 units of DE to CRX in return for the payment by CRX of $1,000 in cash to S is a sale of the DE units as defined in Sec. 1.6045- 1(a)(9)(ii)(D) that is effected by CRX, a processor of digital asset payments and broker under Sec. 1.6045-1(a)(1). Accordingly, pursuant to the rules under paragraph (c)(5)(i)(A) of this section, CRX must file an information return under Sec. 1.6045-1 with respect to P's sale of the DE units and is not required to file an information return under paragraph (a)(1) of this section with respect to P. (4) Analysis with respect to the reporting on S. S's services are not digital assets as defined in Sec. 1.6045-1(a)(19). Accordingly, pursuant to the rules under paragraph (c)(5)(i)(B) of this section, CRX's payment of $1,000 to S in settlement of the reportable payment transaction is subject to the reporting rules under paragraph (a)(1) of this section and not the reporting rules as described in Sec. 1.6045-1. (B) Example 2--(1) Facts. CRX is an entity that owns and operates a digital asset trading platform and provides digital asset custodial services and digital asset broker services under Sec. 1.6045-1(a)(1). CRX also exchanges on behalf of customers digital assets under Sec. 1.6045-1(a)(19), including nonfungible tokens, referred to as NFTs, representing ownership in unique digital artwork, video, or music. Exchange transactions undertaken by CRX on behalf of its customers are considered sales under Sec. 1.6045- 1(a)(9)(ii) that are effected by CRX and subject to reporting by CRX under Sec. 1.6045-1. A substantial number of NFT sellers have accounts with CRX, into which their NFTs are deposited for sale. None of these sellers are related to CRX, and all have agreed to settle transactions for the sale of their NFTs in digital asset DE, or other forms of consideration, and according to the terms of their contracts with CRX. Buyers of NFTs also have accounts with CRX, into which digital assets are deposited for later use as consideration to acquire NFTs. Once a buyer decides to purchase an NFT for a price agreed to by the NFT seller, CRX effects the requested exchange of the buyer's consideration for the NFT, which allows CRX to guarantee delivery of the bargained for consideration to both buyer and seller. CRX charges a transaction fee on every NFT sale, which is paid by the buyer in additional units of digital asset DE. Seller J, an individual not otherwise exempt from reporting, sells NFTs representing digital artwork on CRX's digital asset trading platform. J does not perform any other services with respect to these transactions. Buyer B, also an individual not otherwise exempt from reporting, seeks to purchase J's NFT-4 using units of DE. Using CRX's platform, buyer B and seller J agree to exchange J's NFT-4 for B's 100 units of DE (with a value of $1,000). At the direction of J and B, CRX executes this exchange, with B paying CRX's transaction fee using additional units of DE. (2) Analysis with respect to CRX's status. CRX's arrangement with J and the other NFT sellers constitutes a third party payment network under paragraph (c)(3) of this section because a substantial number of providers of goods or services who are unrelated to CRX, including J, have established accounts with CRX, and CRX is contractually obligated to settle transactions for the provision of goods or services, such as NFTs representing goods or services, by these persons to purchasers. Thus, under paragraph (c)(2) of this section, CRX is a third party settlement organization and the sale of J's NFT-4 for 100 units of DE is a third party network transaction under paragraph (c)(1) of this section. Therefore, CRX is a payment settlement entity under paragraph (a)(4)(i)(B) of this section. (3) Analysis with respect to the reporting on B. The exchange of B's 100 units of DE for J's NFT-4 is a sale under Sec. 1.6045- 1(a)(9)(ii)(A)(2) by B of the 100 DE units that was effected by CRX. Accordingly, under paragraph (c)(5)(i)(A) of this section, the amount paid to B in settlement of the exchange is subject to the rules as described in Sec. 1.6045-1, and CRX must file an information return under Sec. 1.6045-1 with respect to B's sale of the 100 DE units. CRX is not required to also file an information return under paragraph (a)(1) of this section with respect to the amount paid to B even though CRX is a third party settlement organization. (4) Analysis with respect to the reporting on J. The exchange of J's NFT-4 for 100 units of DE is a sale under Sec. 1.6045- 1(a)(9)(ii) by J of a digital asset under Sec. 1.6045-1(a)(19) that was effected by CRX. Accordingly, under paragraph (c)(5)(i)(B) of this section, the amount paid to J in settlement of the [[Page 56582]] exchange is subject to the rules as described in Sec. 1.6045-1, and CRX must file an information return under Sec. 1.6045-1 with respect to J's sale of the NFT-4. CRX is not required to also file an information return under paragraph (a)(1) of this section with respect to the amount paid to J even though CRX is a third party settlement organization. * * * * * (j) Applicability date. Except with respect to payments made using digital assets, the rules in this section apply to returns for calendar years beginning after December 31, 2010. For payments made using digital assets, this section applies on or after January 1, 2025. PART 31--EMPLOYMENT TAXES AND COLLECTION OF INCOME TAX AT SOURCE 0 Par. 11. The authority citation for part 31 continues to read in part as follows: Authority: 26 U.S.C. 7805. 0 Par. 12. Section 31.3406-0 is amended by: 0 1. Revising the heading for the entry for Sec. 31.3406(b)(3)-2; 0 2. Adding entries for Sec. Sec. 31.3406(b)(3)-2(b)(6), 31.3406(g)- 1(e)(1) and (2); and 0 3. Revising the entry for Sec. 31.3406(g)-1(f). The additions and revision read as follows: Sec. 31.3406-0 Outline of the backup withholding regulations. * * * * * 31.3406(b)(3)-2 Reportable barter exchanges and gross proceeds of sales of securities, commodities, or digital assets by brokers. * * * * * (b) * * * (6) Amount subject to backup withholding in the case of reporting under Sec. 1.6045-1(d)(2)(i)(C) and (d)(10) of this chapter. (i) Optional reporting method for sales of qualifying stablecoins and specified nonfungible tokens. (A) In general. (B) Backup withholding on non-designated sales of qualifying stablecoins. (1) In general. (2) Non-qualifying events. (ii) Applicable threshold for sales by processors of digital asset payments. * * * * * Sec. 31.3406(g)-1 Exception for payments to certain payees and certain other payments. * * * * * (e) * * * (1) Reportable payments other than gross proceeds from sales of digital assets. (2) Reportable payments of gross proceeds from sales of digital assets. (i) [Reserved] (ii) [Reserved] (f) Applicability date. * * * * * 0 Par. 13. Section 31.3406(b)(3)-2 is amended by revising the section heading and adding paragraphs (b)(6) and (c) to read as follows: Sec. 31.3406(b)(3)-2. Reportable barter exchanges and gross proceeds of sales of securities, commodities, or digital assets by brokers. * * * * * (b) * * * (6) Amount subject to backup withholding in the case of reporting under Sec. 1.6045-1(d)(2)(i)(C) and (d)(10) of this chapter--(i) Optional reporting method for sales of qualifying stablecoins and specified nonfungible tokens--(A) In general. The amount subject to withholding under section 3406 for a broker that reports sales of digital assets under the optional method for reporting qualifying stablecoins or specified nonfungible tokens under Sec. 1.6045-1(d)(10) of this chapter is the amount of gross proceeds from designated sales of qualifying stablecoins as defined in Sec. 1.6045-1(d)(10)(i)(C) of this chapter and sales of specified nonfungible tokens without regard to the amount which must be paid to the broker's customer before reporting is required. (B) Backup withholding on non-designated sales of qualifying stablecoins--(1) In general. A broker is not required to withhold under section 3406 on non-designated sales of qualifying stablecoins as defined under Sec. 1.6045-1(d)(10)(i)(C) of this chapter. (2) Non-qualifying events. In the case of a digital asset that would satisfy the definition of a non-designated sale of a qualifying stablecoin as defined under Sec. 1.6045-1(d)(10)(i)(C) of this chapter for a calendar year but for a non-qualifying event during that year, a broker is not required to withhold under section 3406 on such sale if it occurs no later than the end of the day that is 30 days after the first non-qualifying event with respect to such digital asset during such year. A non-qualifying event is the first date during a calendar year on which the digital asset no longer satisfies all three conditions described in Sec. 1.6045-1(d)(10)(ii)(A) through (C) of this chapter to be a qualifying stablecoin. For purposes of this paragraph (b)(6)(i)(B)(2), the date on which a non-qualifying event has occurred with respect to a digital asset and the date that is no later than 30 days after such non-qualifying event must be determined using Coordinated Universal Time (UTC). (ii) Applicable threshold for sales by processors of digital asset payments. For purposes of determining the amount subject to withholding under section 3406, the amount subject to reporting under section 6045 is determined without regard to the minimum gross proceeds which must be paid to the customer under Sec. 1.6045-1(d)(2)(i)(C) of this chapter before reporting is required. (c) Applicability date. This section applies to reportable payments made on or after January 1, 2025. For the rules applicable to reportable payments made prior to January 1, 2025, see Sec. 31.3406(b)(3)-2 in effect and contained in 26 CFR part 1 revised April 1, 2024. 0 Par. 14. Section 31.3406(g)-1 is amended by revising paragraphs (e) and (f) to read as follows: Sec. 31.3406(g)-1 Exception for payments to certain payees and certain other payments. * * * * * (e) Certain reportable payments made outside the United States by foreign persons, foreign offices of United States banks and brokers, and others--(1) Reportable payments other than gross proceeds from sales of digital assets. For reportable payments made after June 30, 2014, other than gross proceeds from sales of digital assets (as defined in Sec. 1.6045-1(a)(19) of this chapter), a payor or broker is not required to backup withhold under section 3406 of the Code on a reportable payment that is paid and received outside the United States (as defined in Sec. 1.6049-4(f)(16) of this chapter) with respect to an offshore obligation (as defined in Sec. 1.6049-5(c)(1) of this chapter) or on the gross proceeds from a sale effected at an office outside the United States as described in Sec. 1.6045-1(g)(3)(iii) of this chapter (without regard to whether the sale is considered effected inside the United States under Sec. 1.6045-1(g)(3)(iii)(B) of this chapter). The exception to backup withholding described in the preceding sentence does not apply when a payor or broker has actual knowledge that the payee is a United States person. Further, no backup withholding is required on a reportable payment of an amount already withheld upon by a participating FFI (as defined in Sec. 1.1471- 1(b)(91) of this chapter) or another payor in accordance with the withholding provisions under chapter 3 or 4 of the Code and the regulations under those chapters even if the payee is a known U.S. person. For example, a participating FFI is not required to backup withhold on a reportable payment allocable to its chapter 4 withholding rate pool (as defined in Sec. 1.6049-4(f)(5) of this chapter) of recalcitrant account holders (as described in Sec. 1.6049-4(f)(11) of this chapter), if withholding was applied to the payment (either by the participating [[Page 56583]] FFI or another payor) pursuant to Sec. 1.1471-4(b) or Sec. 1.1471- 2(a) of this chapter. For rules applicable to notional principal contracts, see Sec. 1.6041-1(d)(5) of this chapter. For rules applicable to reportable payments made before July 1, 2014, see Sec. 31.3406(g)-1(e) in effect and contained in 26 CFR part 1 revised April 1, 2013. (2) [Reserved] (f) Applicability date. This section applies to payments made on or after January 1, 2025. (For payments made before January 1, 2025, see Sec. 31.3406(g)-1 in effect and contained in 26 CFR part 1 revised April 1, 2024.) 0 Par. 15. Section 31.3406(g)-2 is amended by adding a sentence to the end of paragraphs (e) and (h) to read as follows: Sec. 31.3406(g)-2 Exception for reportable payment for which withholding is otherwise required. * * * * * (e) * * * Notwithstanding the previous sentence, a real estate reporting person must withhold under section 3406 of the Code and pursuant to the rules under Sec. 31.3406(b)(3)-2 on a reportable payment made in a real estate transaction with respect to a purchaser that exchanges digital assets for real estate to the extent that the exchange is treated as a sale of digital assets subject to reporting under Sec. 1.6045-1 of this chapter. * * * * * (h) * * * For sales of digital assets, this section applies on or after January 1, 2026. PART 301--PROCEDURE AND ADMINISTRATION 0 Par. 16. The authority citation for part 301 continues to read in part as follows: Authority: 26 U.S.C. 7805. 0 Par. 17. Section 301.6721-1 is amended by revising paragraph (h)(3)(iii) and adding a sentence to the end of paragraph (j) to read as follows: Sec. 301.6721-1 Failure to file correct information returns. * * * * * (h) * * * (3) * * * (iii) Section 6045(a) or (d) of the Code (relating to returns of brokers, generally reported on Form 1099-B, Proceeds From Broker and Barter Exchange Transactions, for broker transactions not involving digital assets; Form 1099-DA, Digital Asset Proceeds from Broker Transactions for broker transactions involving digital assets; Form 1099-S, Proceeds From Real Estate Transactions, for gross proceeds from the sale or exchange of real estate; and Form 1099-MISC, Miscellaneous Income, for certain substitute payments and payments to attorneys); and * * * * * (j) * * * Paragraph (h)(3)(iii) of this section applies to returns required to be filed on or after January 1, 2026. 0 Par. 18. Section 301.6722-1 is amended by revising paragraph (e)(2)(viii) and adding a sentence to the end of paragraph (g) to read as follows: Sec. 301.6722-1 Failure to furnish correct payee statements. * * * * * (e) * * * (2) * * * (viii) Section 6045(a) or (d) (relating to returns of brokers, generally reported on Form 1099-B, Proceeds From Broker and Barter Exchange Transactions, for broker transactions not involving digital assets; Form 1099-DA, Digital Asset Proceeds From Broker Transactions, for broker transactions involving digital assets; Form 1099-S, Proceeds From Real Estate Transactions, for gross proceeds from the sale or exchange of real estate; and Form 1099-MISC, Miscellaneous Income, for certain substitute payments and payments to attorneys); * * * * * (g) * * * Paragraph (e)(2)(viii) of this section applies to payee statements required to be furnished on or after January 1, 2026. Douglas W. O' Donnell, Deputy Commissioner. Approved: June 17, 2024. Aviva R. Aron-Dine, Acting Assistant Secretary of the Treasury (Tax Policy). [FR Doc. 2024-14004 Filed 6-28-24; 4:15 pm] BILLING CODE 4830-01-P

usgpo

2024-10-08T13:27:03.626712

FR

FR-2024-07-09/2024-14609

Federal Register Volume 89 Issue 131 (July 9, 2024)

United States National Archives and Records Administration Office of the Federal Register

[Federal Register Volume 89, Number 131 (Tuesday, July 9, 2024)] [Rules and Regulations] [Pages 56586-56617] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 2024-14609] [[Page 56585]] Vol. 89 Tuesday, No. 131 July 9, 2024 Part III Library of Congress ----------------------------------------------------------------------- Copyright Office ----------------------------------------------------------------------- 37 CFR Part 210 Termination Rights, Royalty Distributions, Ownership Transfers, Disputes, and the Music Modernization Act; Final Rule Federal Register / Vol. 89 , No. 131 / Tuesday, July 9, 2024 / Rules and Regulations [[Page 56586]] ----------------------------------------------------------------------- LIBRARY OF CONGRESS Copyright Office 37 CFR Part 210 [Docket No. 2022-5] Termination Rights, Royalty Distributions, Ownership Transfers, Disputes, and the Music Modernization Act AGENCY: U.S. Copyright Office, Library of Congress. ACTION: Final rule. ----------------------------------------------------------------------- SUMMARY: The U.S. Copyright Office is issuing a final rule regarding how the Copyright Act's derivative works exception to termination rights applies to the statutory mechanical blanket license established by the Music Modernization Act. The final rule also addresses other matters relevant to identifying the proper payee to whom the mechanical licensing collective must distribute royalties. Among other things, the Office is adopting regulations addressing the mechanical licensing collective's distribution of matched historical royalties and administration of ownership transfers, other royalty payee changes, and related disputes. DATES: This rule is effective August 8, 2024. However, compliance by the mechanical licensing collective, other than with respect to Sec. Sec. 210.27(g)(2)(ii)(B)(1), 210.29(b)(4)(i)(C), 210.29(k), and 210.30(c)(1)(i)(B), is not required until the first distribution of royalties based on the first payee snapshot taken after October 7, 2024. The Copyright Office may, upon request, extend the compliance deadlines in its discretion by providing public notice through its website. FOR FURTHER INFORMATION CONTACT: Rhea Efthimiadis, Assistant to the General Counsel, by email at [email protected] or telephone at 202- 707-8350. SUPPLEMENTARY INFORMATION: I. Background The Copyright Office (``Office'') issues this final rule subsequent to a supplemental notice of proposed rulemaking (``SNPRM''), published in the Federal Register on September 26, 2023,\1\ and a notice of proposed rulemaking (``NPRM''), published in the Federal Register on October 25, 2022.\2\ This final rule assumes familiarity with the NPRM and SNPRM, as well as the public comments received in response to those notices.\3\ --------------------------------------------------------------------------- \1\ 88 FR 65908 (Sept. 26, 2023). \2\ 87 FR 64405 (Oct. 25, 2022). \3\ The NPRM stemmed from a previous rulemaking, discussed in detail in the NPRM, that involved multiple rounds of public comments through a notification of inquiry, 84 FR 49966 (Sept. 24, 2019), a notice of proposed rulemaking, 85 FR 22518 (Apr. 22, 2020), and an ex parte communications process. Guidelines for ex parte communications, along with records of such communications, including those referenced herein, are available at https://www.copyright.gov/rulemaking/mma-implementation/ex-parte-communications.html. All rulemaking activity, including public comments, as well as educational material regarding the MMA, can currently be accessed via navigation from https://www.copyright.gov/music-modernization. Comments received in response to the NPRM and SNPRM are available at https://copyright.gov/rulemaking/mma-termination/. References to the public comments are by party name (abbreviated where appropriate), followed by ``NPRM Initial Comments,'' ``NPRM Reply Comments,'' ``SNPRM Initial Comments,'' ``SNPRM Reply Comments,'' or ``Ex Parte Letter,'' as appropriate. --------------------------------------------------------------------------- While the final rule retains many elements from the SNPRM, it also adopts a number of changes in response to the public comments, including a scaling back of certain proposals. We have adopted a number of commenter suggestions where reasonable, and have striven to establish a fair and balanced approach to the issues presented in this proceeding. In particular, the Office has endeavored to find solutions to the practical and administrative concerns that were raised by commenters. We are thankful for their participation in this process. This document first summarizes the Office's earlier proposals and the public comments. It next addresses questions raised regarding our rulemaking authority. Finally, it discusses the different parts of the final rule: termination and the derivative works exception; the copyright owner entitled to blanket license royalties; matched historical royalties; ownership transfers and royalty payee changes; disputes; the corrective royalty adjustment; and the rule's effective date and compliance deadline. A. The NPRM The Office commenced this proceeding after the Mechanical Licensing Collective (``MLC'') \4\ adopted a termination dispute policy (``Termination Policy'') that conflicted with prior Office guidance and was based on an erroneous interpretation of how the Copyright Act's derivative works exception (``Exception'') to termination rights applies to the statutory mechanical blanket license (``blanket license'') established by the Orrin G. Hatch-Bob Goodlatte Music Modernization Act (``MMA'').\5\ The Office concluded it was necessary to address the legal issues more directly, including how termination law and the Exception intersect with the blanket license.\6\ In the NPRM, it explained that clarifying the issues ``would provide much needed business certainty to music publishers and songwriters'' and ``would enable the MLC to appropriately operationalize the distribution of post-termination royalties in accordance with existing law.'' \7\ The NPRM contained a detailed discussion of the procedural background leading to this rulemaking,\8\ the Office's regulatory authority,\9\ and legal background about the Copyright Act's termination provisions and the Exception.\10\ --------------------------------------------------------------------------- \4\ The preamble uses the terms ``Mechanical Licensing Collective'' or ``MLC'' to refer to the currently designated mechanical licensing collective. The regulatory text uses the lowercase statutory term ``mechanical licensing collective,'' as the regulations apply to any designated mechanical licensing collective, including the current or any future designee. \5\ 87 FR 64405, 64407. \6\ Id. \7\ Id. (``Moreover, without the uniformity in application that a regulatory approach brings, the Office is concerned that the MLC's ability to distribute post-termination royalties efficiently would be negatively impacted.''). \8\ Id. at 64406-07. \9\ Id. at 64407-08. \10\ Id. at 64408-10. --------------------------------------------------------------------------- The Office then analyzed the application of the Exception in the context of the blanket license and preliminarily concluded that the MLC's Termination Policy was ``inconsistent with the law.'' \11\ We explained that ``[w]hether or not the Exception applies to a [digital music provider's (``DMP's'')] blanket license (and the Office concludes that the Exception does not), the statute entitles the current copyright owner to the royalties under the blanket license, whether pre- or post-termination.'' \12\ This means that ``the post-termination copyright owner (i.e., the author, the author's heirs, or their successors, such as a subsequent publisher grantee) is due the post- termination royalties paid by the DMP to the MLC.'' \13\ --------------------------------------------------------------------------- \11\ Id. at 64410-11. \12\ Id. at 64411. \13\ Id. --------------------------------------------------------------------------- The Office proposed a rule to recognize the payee under the blanket license who is legally entitled to royalties following a statutory termination.\14\ We also proposed to require the MLC to immediately repeal its Termination Policy in full after concluding that it was ``contrary to the Office's interpretation of current law.'' \15\ We further proposed to require the MLC to adjust any royalties distributed under the policy within 90 [[Page 56587]] days to make copyright owners whole for any distributions it made based on ``an erroneous understanding and application of current law.'' \16\ --------------------------------------------------------------------------- \14\ Id. at 64411-12. \15\ Id. at 64412. \16\ Id. --------------------------------------------------------------------------- After the NPRM was published, the MLC said that it voluntarily ``suspended [its Termination Policy] pending the outcome of the [Office's] rulemaking proceeding'' and will ``hold[ ] all royalties for uses of musical works that are subject to statutory termination claims beginning with the royalties for the October 2022 usage period, which would have been initially distributed in January 2023.'' \17\ To the Office's knowledge, the MLC continues to hold such royalties. --------------------------------------------------------------------------- \17\ The MLC, Policies, https://www.themlc.com/dispute-policy (last visited June 14, 2024). --------------------------------------------------------------------------- B. The NPRM Comments The Office received over 40 public comments in response to the NPRM. These comments reflected the views of hundreds of interested parties, including songwriters, music publishers and administrators, record companies, public interest groups, academics, and practitioners. Most commenters, including multiple music publishers and administrators, generally supported the NPRM.\18\ While some commenters raised concerns with certain aspects of the NPRM,\19\ the National Music Publishers' Association (``NMPA'') was the only commenter to oppose the proposed rule more broadly, though it supported the NPRM's goal of ``ensuring that royalties for uses under the Section 115(d) blanket license . . . are paid to the proper copyright owner.'' \20\ --------------------------------------------------------------------------- \18\ See, e.g., Authors All. et al. NPRM Initial Comments at 1- 3; BMG Rights Mgmt. NPRM Initial Comments at 1-2; BMG Rights Mgmt. NPRM Reply Comments at 1; ClearBox Rights NPRM Initial Comments at 2, 6-8; Fishman & Garcia NPRM Initial Comments at 1-4; Gates NPRM Reply Comments; Howard NPRM Initial Comments at 1-2; Howard NPRM Reply Comments at 2-3; King, Holmes, Paterno & Soriano LLP NPRM Initial Comments; Landmann NPRM Initial Comments; Miller NPRM Initial Comments; North Music Grp. NPRM Reply Comments at 2-3; NSAI NPRM Initial Comments at 3; Promopub NPRM Initial Comments at 1-2; Promopub NPRM Reply Comments at 1-2; Recording Academy NPRM Reply Comments at 2-3; Rights Recapture NPRM Initial Comments; SGA et al. NPRM Initial Comments at 1-2, 5; SONA et al. NPRM Initial Comments at 2-3; SONA et al. NPRM Reply Comments at 3; Songwriters NPRM Reply Comments at 1; Wixen Music Publ'g NPRM Initial Comments at 1-2. \19\ See, e.g., CMPA NPRM Initial Comments at 1-2; A2IM & RIAA NPRM Reply Comments at 1-2; MPA NPRM Reply Comments at 2-5. \20\ See generally NMPA NPRM Initial Comments; NMPA Ex Parte Letter (Feb. 6, 2023). --------------------------------------------------------------------------- Several commenters, including the MLC, sought additional guidance from the Office on various related issues not directly addressed by the NPRM. Examples include the following: Application of the Exception to other types of statutory mechanical licenses; \21\ --------------------------------------------------------------------------- \21\ See, e.g., MLC NPRM Initial Comments at 6; MLC NPRM Reply Comments at 2; ClearBox Rights NPRM Initial Comments at 6; ClearBox Rights NPRM Reply Comments at 2; Howard NPRM Initial Comments at 5; King, Holmes, Paterno & Soriano LLP NPRM Initial Comments. --------------------------------------------------------------------------- Application of the Exception to voluntary licenses; \22\ --------------------------------------------------------------------------- \22\ See, e.g., MLC NPRM Initial Comments at 4-6; MLC NPRM Reply Comments at 2; ClearBox Rights NPRM Initial Comments at 6; ClearBox Rights NPRM Reply Comments at 2; Howard NPRM Initial Comments at 5; Rights Recapture NPRM Initial Comments. --------------------------------------------------------------------------- Procedures for carrying out the proposed corrective royalty adjustment to remedy prior distributions by the MLC based on an erroneous understanding and application of the Exception; \23\ --------------------------------------------------------------------------- \23\ See, e.g., MLC NPRM Initial Comments at 6-8; ClearBox Rights NPRM Reply Comments at 3-4; ClearBox Rights Ex Parte Letter at 2-4 (June 28, 2023); Howard NPRM Initial Comments at 6; Promopub NPRM Initial Comments at 2; Promopub NPRM Reply Comments at 3; North Music Grp. NPRM Reply Comments at 2. --------------------------------------------------------------------------- Procedures concerning notice, documentation, timing, and other matters relating to the MLC's implementation of a termination notification; \24\ and --------------------------------------------------------------------------- \24\ See, e.g., MLC NPRM Initial Comments at 10-11; ClearBox Rights NPRM Initial Comments at 8; ClearBox Rights NPRM Reply Comments at 5-6; Howard NPRM Initial Comments at 3-5; Howard NPRM Reply Comments at 2-3; SGA et al. NPRM Initial Comments at 2, 6-8. --------------------------------------------------------------------------- Procedures concerning termination disputes and related confidential information.\25\ --------------------------------------------------------------------------- \25\ See, e.g., MLC NPRM Initial Comments at 11-14; ClearBox Rights NPRM Reply Comments at 6. --------------------------------------------------------------------------- The MLC emphasized the importance of the Office providing guidance regarding its termination-related procedures, explaining that rules addressing these procedures are ``essential to processing royalties in connection with statutory termination claims'' and ``would provide important guidance to parties involved in termination claims.'' \26\ --------------------------------------------------------------------------- \26\ MLC NPRM Initial Comments at 9-10; see also MLC NPRM Reply Comments at 2. --------------------------------------------------------------------------- C. The SNPRM After considering the requests for further guidance and other comments received, the Office issued an SNPRM modifying the NPRM, providing additional detail, and expanding the NPRM's scope. In addition to addressing the Exception, the SNPRM addressed and sought comments on other matters relevant to identifying the proper payee to whom the MLC must distribute royalties. Such matters included issues related to the MLC's distribution of matched historical royalties and administration of ownership transfers, other royalty payee changes, and related disputes. While requests for additional guidance largely pertained to termination-related issues, those requests and other comments suggested that more comprehensive regulations would be beneficial to the MLC, publishers, songwriters, and the wider music industry. As the SNPRM explained, ``[t]he accurate distribution of royalties is a core objective of the MLC'' and ``[a]dopting the [supplemental proposed rule] would establish standards and settle expectations for all parties with respect to such distributions.'' \27\ At a high level, the SNPRM provided the following views and proposals beyond those in the NPRM: --------------------------------------------------------------------------- \27\ 88 FR 65908, 65909. --------------------------------------------------------------------------- The Office's preliminary views on the application of the Exception to matched historical royalties,\28\ pre-2021 statutory mechanical licenses, individual download licenses, and voluntary licenses.\29\ --------------------------------------------------------------------------- \28\ Phrases defined in the SNPRM--e.g., ``historical unmatched royalties,'' ``matched historical royalties,'' ``the owner at the time of the use,'' and ``the owner at the time of the payment''-- have the same meaning here. See id. at 65909-10, 65912-13. \29\ Id. at 65910-12. --------------------------------------------------------------------------- Additional discussion relating to the Office's preliminary view in the NPRM that the owner at the time of the use is entitled to distributions of blanket license royalties absent an agreement to the contrary, and a related proposal to accommodate and give effect to contractual payment arrangements that may require a different result.\30\ --------------------------------------------------------------------------- \30\ Id. at 65912-14. --------------------------------------------------------------------------- A proposal that the MLC report and distribute matched historical royalties in the same manner and subject to the same requirements that apply to the reporting and distribution of blanket license royalties.\31\ --------------------------------------------------------------------------- \31\ Id. at 65914. --------------------------------------------------------------------------- A proposal regarding how the MLC should be notified about an ownership transfer or other royalty payee change, with detailed provisions covering different types of changes, such as those relating to contractual assignments, statutory terminations, and other changes (e.g., when parties direct the MLC to pay an alternative designated payee).\32\ --------------------------------------------------------------------------- \32\ Id. at 65914-65917. --------------------------------------------------------------------------- A proposal regarding how the MLC should implement and give effect to such payee changes.\33\ --------------------------------------------------------------------------- \33\ Id. at 65917-18. --------------------------------------------------------------------------- A proposal regarding the process and documentation for termination- [[Page 56588]] related disputes initiated with the MLC.\34\ --------------------------------------------------------------------------- \34\ Id. at 65919. --------------------------------------------------------------------------- A proposal regarding the resolution of all types of disputes initiated with the MLC.\35\ --------------------------------------------------------------------------- \35\ Id. at 65919-20. --------------------------------------------------------------------------- A proposal regarding certain disclosures to be made by the MLC in connection with disputes and other royalty holds.\36\ --------------------------------------------------------------------------- \36\ Id. at 65919. --------------------------------------------------------------------------- A proposal regarding how the MLC should administer a corrective royalty adjustment to cure any distributions it previously made under its since-suspended Termination Policy.\37\ --------------------------------------------------------------------------- \37\ Id. at 65920-21. --------------------------------------------------------------------------- D. The SNPRM Comments The Office received over 50 public comments in response to the SNPRM from a wide variety of interested parties across the music industry. Some parties supported aspects of the SNPRM,\38\ while others were critical of certain provisions. The primary criticism addressed the question of whether the owner at the time of the use or the owner at the time of the payment should receive distributions of blanket license royalties from the MLC.\39\ Commenters also took issue with the Office's proposed expansion of the rule beyond the NPRM, with some commenters requesting that those new issues be removed from consideration.\40\ The MLC provided a regulatory proposal that shared many similarities with the SNPRM and was ``aimed at implementing certain proposals of the Office concerning statutory terminations, while omitting language concerning'' various other issues that, in its view, ``do not need further regulation.'' \41\ --------------------------------------------------------------------------- \38\ See, e.g., MAC et al. SNPRM Initial Comments at 2, 4 (``The Copyright Office's proposed rules, both initially and as altered here, accurately, clearly, concisely, and properly addresses the implementation of the MMA while maintaining and supporting the significant advances made by the MLC. We continue to enthusiastically support this proposed rule and remain thankful to the Copyright Office for addressing this area of great need by utilizing its oversight and governance authority.''); Howard SNPRM Initial Comments at 1 (``I support the supplemental rulemaking and directives proposed by the Office.''). \39\ See, e.g., MLC SNPRM Initial Comments at 1-16; NMPA SNPRM Initial Comments at 2-13; NMPA Ex Parte Letter at 1-2 (Jan. 24, 2024); AIMP SNPRM Initial Comments at 1-4; Combustion Music SNPRM Initial Comments; Endurance Music Grp. SNPRM Initial Comments at 1- 2; Farris, Self & Moore, LLC SNPRM Initial Comments at 1-2; Boom Music SNPRM Initial Comments; Jonas Grp. Publ'g SNPRM Initial Comments; Kobalt Music SNPRM Initial Comments at 2; Liz Rose Music SNPRM Initial Comments at 1-2; Big Machine Music SNPRM Initial Comments at 1-2; Legacyworks SNPRM Initial Comments; Me Gusta Music SNPRM Initial Comments at 1-2; Relative Music Grp. SNPRM Initial Comments at 1-2; Harding SNPRM Initial Comments; Moore SNPRM Initial Comments; North Music Grp. SNPRM Initial Comments at 2; NSAI SNPRM Initial Comments at 2-5; Big Yellow Dog SNPRM Initial Comments; Reservoir Media Mgmt. SNPRM Initial Comments at 1-2; SMACKSongs SNPRM Initial Comments; Sony Music Publ'g SNPRM Initial Comments at 1-5; Spirit Music Grp. SNPRM Initial Comments at 1-3; Turner SNPRM Initial Comments at 1-2; Wiatr & Assocs. SNPRM Initial Comments; Jody Williams Songs SNPRM Initial Comments at 1; Concord Music Publ'g SNPRM Initial Comments at 1-3; ClearBox Rights SNPRM Reply Comments at 4-5; Creative Nation SNPRM Reply Comments at 1-2; The Greenroom Resource SNPRM Reply Comments at 1; MAC et al. SNPRM Reply Comments at 2; Recording Academy SNPRM Reply Comments at 3; SONA SNPRM Reply Comments at 2-5; Universal Music Publ'g Grp. SNPRM Reply Comments at 1-5; Warner Chappell Music SNPRM Reply Comments at 3-8; DLC SNPRM Reply Comments at 2-4. \40\ See, e.g., MLC SNPRM Initial Comments at 17-20; NMPA SNPRM Initial Comments at 3-4; NMPA Ex Parte Letter at 2-3 (Jan. 24, 2024); Kobalt Music SNPRM Initial Comments at 3; Big Machine Music SNPRM Initial Comments at 2; NSAI SNPRM Initial Comments at 1-2; North Music Grp. SNRPM Initial Comments at 1, 3-4; MAC et al. SNPRM Reply Comments at 2-3; MAC Ex Parte Letter at 1-2 (Dec. 29, 2023); Recording Academy SNPRM Reply Comments at 1-2; Warner Chappell Music SNPRM Reply Comments at 2-3; ClearBox Rights SNPRM Reply Comments at 3, 10; SONA SNPRM Reply Comments at 5; DLC SNPRM Reply Comments at 1. \41\ MLC SNPRM Reply Comments at 2 & App. A; MLC SNPRM Initial Comments at 17 (stating that ``the Office's procedural guidance on notice and transfer procedures in the terminations context is helpful'' and that ``much of the proposal with respect to terminations generally addresses a regulatory need''); see also NMPA Ex Parte Letter at 3 (Jan. 24, 2024) (conveying ``its desire for the Office to provide any guidance the MLC has requested''). --------------------------------------------------------------------------- II. Rulemaking Authority Having considered all relevant comments, the Office concludes that we have appropriate statutory authority to adopt the final rule for the reasons explained in the NPRM and SNPRM, as well as the additional reasons discussed below.\42\ As previously explained, section 702 of the Copyright Act specifically grants the Office the authority to ``establish regulations not inconsistent with law for the administration of the functions and duties made the responsibility of the Register under [title 17].'' \43\ Implementation of the MMA is one of those ``functions and duties'' that Congress made the Office's responsibility. Specifically, the Office has been granted the authority to ``conduct such proceedings and adopt such regulations as may be necessary or appropriate to effectuate the provisions of [the MMA pertaining to the blanket license.]'' \44\ Several commenters explicitly supported the Office's general rulemaking authority.\45\ The only commenter to question the Office's authority was NMPA, which offered various arguments for why the Office lacks authority to issue this rule.\46\ None are persuasive. --------------------------------------------------------------------------- \42\ 87 FR 64405, 64407-08; 88 FR 65908, 65910. \43\ 17 U.S.C. 702. \44\ Id. at 115(d)(12)(A). \45\ See, e.g., ClearBox Rights NPRM Initial Comments at 2; SONA et al. NPRM Initial Comments at 2; SGA et al. NPRM Initial Comments at 2; Howard NPRM Reply Comments at 3; Recording Academy NPRM Reply Comments at 2; Promopub NPRM Reply Comments at 2; MCNA et al. Ex Parte Letter at 2 (Mar. 15, 2024). \46\ NMPA NPRM Initial Comments at 7-10. Despite its previous objections, NMPA's SNPRM comments appear to signal a change in its position on the Office's general rulemaking authority, though this is not entirely clear. See NMPA SNPRM Initial Comments at 2 & n.2 (stating that ``[t]here is clear industry consensus on the [proposed rule requiring that all post-termination royalties under the blanket license be paid to the post-termination copyright owner], and the [Office] should adopt it immediately,'' but then also noting some of its previous concerns). --------------------------------------------------------------------------- NMPA first argued that the Office has no authority under section 702 of the Copyright Act or the MMA to promulgate rules that involve substantive questions of copyright law.\47\ This is clearly incorrect. The Office ``has statutory authority to issue regulations necessary to administer the Copyright Act'' and ``to interpret the Copyright Act.'' \48\ As the NPRM detailed, ``[t]he Office's authority to interpret title 17 in the context of statutory licenses in particular has long been recognized.'' \49\ --------------------------------------------------------------------------- \47\ See NMPA NPRM Initial Comments at 7-8. \48\ Motion Picture Ass'n of Am., Inc. v. Oman, 750 F. Supp. 3, 6 (D.D.C. 1990), aff'd, 969 F.2d 1154 (D.C. Cir. 1992); see also, e.g., Fox Tel. Stations, Inc. v. Aereokiller, LLC, 851 F.3d 1002, 1011 (9th Cir. 2017) (recognizing that ``the Copyright Office has a much more intimate relationship with Congress [than the courts] and is institutionally better equipped than we are to sift through and to make sense of the vast and heterogeneous expanse that is the Act's legislative history''); Satellite Broad. & Commc'ns Ass'n of Am. v. Oman, 17 F.3d 344, 345, 347-48 (11th Cir. 1994), cert. denied, 513 U.S. 823 (1994) (recognizing the Copyright Office's authority to issue regulations and ``statutory authority to interpret the provisions of the compulsory licensing scheme'' found in 17 U.S.C. 111). \49\ 87 FR 64405, 64408. --------------------------------------------------------------------------- Indeed, as the Office has previously explained, ``[t]he Office exercises its authority under section 702 when it is necessary `to interpret the statute in accordance with Congress'[s] intentions and framework.' '' \50\ That is what the Office is doing here, just as we have done on numerous previous occasions, for example to determine that satellite carriers are not ``cable systems'' within the meaning of section 111 and therefore do not qualify for that statutory license,\51\ to state the meaning of ``digital phonorecord delivery'' under [[Page 56589]] the section 115 statutory license,\52\ and to determine that internet streaming of AM/FM broadcast signals are not exempted ``broadcast transmissions'' within the meaning of section 114.\53\ The Office has done this in the termination context as well, adopting a rule addressing the meaning of ``executed'' under section 203 in the context of gap grants.\54\ --------------------------------------------------------------------------- \50\ 73 FR 40802, 40806 (July 16, 2008) (quoting 57 FR 3284, 3292 (Jan. 29, 1992)). \51\ 57 FR 3284, 3290-92, 3296; see Satellite Broad. & Commc'ns Ass'n of Am., 17 F.3d 344. \52\ 73 FR 66173, 66174-75 (Nov. 7, 2008). \53\ 65 FR 77292, 77293-95 (Dec. 11, 2000); see Bonneville Int'l Corp. v. Peters, 347 F.3d 485 (3d Cir. 2003). \54\ 76 FR 32316, 32316-20 (June 6, 2011). While the Office has express authority to regulate the content of notices of termination, we also referred to our authority under section 702 in adopting the rule and stated that the focus of the rulemaking was our recordation practices. Id. at 32319-20. Moreover, the rulemaking required the Office to opine on a substantive area of copyright law, namely whether or how the statute's termination provisions apply to gap grants. Id. at 32316-17; see U.S. Copyright Office, Analysis of Gap Grants under the Termination Provisions of Title 17 (2010), https://www.copyright.gov/reports/gap-grant-analysis.pdf. At least one court appears to have followed the Office's interpretation. See Mtume v. Sony Music Ent., 408 F. Supp. 3d 471, 475-76 (S.D.N.Y. 2019). --------------------------------------------------------------------------- Regarding the Office's specific authority under the MMA, we have issued several rules that required analyzing substantive provisions of the statute. For example, the Office determined what constitutes ``the due date for payment'' under section 115(d)(8)(B)(i),\55\ how the endorsement criterion for designating the MLC is to be evaluated under section 115(d)(3)(A)(ii),\56\ the meaning of ``producer'' under section 115(d)(4)(A)(ii)(I)(aa),\57\ and what constitutes minimum ``good-faith, commercially reasonable efforts'' under section 115(d)(4)(B).\58\ --------------------------------------------------------------------------- \55\ 88 FR 60587, 60590-91 (Sept. 5, 2023). \56\ 84 FR 32274, 32280-84 (July 8, 2019). \57\ 85 FR 22518, 22532. \58\ 85 FR 58114, 58119 (Sept. 17, 2020). We also note that, in addition to the specific authority granted in section 115 and general authority granted in section 702, Congress gave the Office the responsibility to interpret title 17 when questions of law arise in proceedings before the Copyright Royalty Judges. 17 U.S.C. 802(f)(1)(B)(i), (f)(1)(D) (granting the Office the ability to ``resolve'' any ``novel material question of substantive law concerning an interpretation of those provisions of [title 17] that are the subject of [a] proceeding'' before the Copyright Royalty Judges and to review the Judges' final determinations for ``legal error . . . of a material question of substantive law under [title 17]''). --------------------------------------------------------------------------- NMPA also made a series of arguments based on the premise that any rulemaking authority the Office may have with respect to section 115 or other statutory licenses does not extend to other areas of the Copyright Act, like those dealing with termination.\59\ These arguments, and their underlying premise, are similarly unsupported by title 17. The MMA and section 702 provide the Office with ample authority to interpret sections 203 and 304, as well as other provisions of the Copyright Act, in the context of the blanket license and the MLC's operations.\60\ --------------------------------------------------------------------------- \59\ NMPA NPRM Initial Comments at 8-10. \60\ See 17 U.S.C. 115(d)(12)(A), 702; see also, e.g., Motion Picture Ass'n of Am., Inc., 750 F. Supp. at 6; Aereokiller, LLC, 851 F.3d at 1011; Satellite Broad. & Commc'ns Ass'n of Am., 17 F.3d at 345, 347-48. --------------------------------------------------------------------------- As explained in the NPRM, despite its focus on termination issues, ``this rulemaking ultimately reflects the Office's oversight and governance of the MLC's reporting and payment obligations to copyright owners.'' \61\ The Office has exercised its authority in this area before. As discussed in the NPRM, the Office previously issued regulations regarding the MLC's reporting and distribution of royalties to copyright owners with ``no dispute regarding the propriety or authority of the Office to promulgate [them].'' \62\ In that prior proceeding, we concluded that we have ``the authority to promulgate these rules under the general rulemaking authority in the MMA.'' \63\ --------------------------------------------------------------------------- \61\ 87 FR 64405, 64408. \62\ Id. at 64408 & n.39 (quoting 85 FR 22549, 22550-52 (Apr. 22, 2020)). \63\ 85 FR 22549, 22551 (quoting 17 U.S.C. 115(d)(12)) (observing that ``Congress provided general authority to the Register of Copyrights to `conduct such proceedings and adopt such regulations as may be necessary or appropriate to effectuate the provisions of this subsection' ''). --------------------------------------------------------------------------- The final rule in this proceeding is no different. It governs how the MLC is to report and distribute royalties to copyright owners, including with respect to identifying the proper royalty payee. The fact that the final rule addresses that core MLC function in a context that raises substantive questions of copyright law (like termination)-- and thus requires analysis of various points of substantive copyright law (such as termination and the Exception)--does not deprive the Office of its authority to regulate how the MLC reports and pays royalties. Nor does the fact that parts of the Office's analysis or reasoning could potentially be applied by others in contexts outside the scope of this proceeding.\64\ --------------------------------------------------------------------------- \64\ At a minimum, this proceeding has demonstrated that it is ``necessary or appropriate'' to ``adopt . . . regulations'' ``to effectuate'' section 115(d)(3)(G)(i)(II), requiring the MLC to ``distribute royalties to copyright owners in accordance with . . . the ownership and other information contained in the records of the [MLC].'' 17 U.S.C. 115(d)(3)(G)(i)(II), (12)(A); see also, e.g., 87 FR 64405, 64407 (discussing need to revisit the termination issue more directly, including ``how termination law intersects with the blanket license''); 88 FR 65908, 65909-10 (explaining that the MLC sought additional regulatory guidance ``necessary'' and ``essential'' to its operations). Thus, the current rulemaking ``is consistent with the Office's practice of promulgating regulations to construe statutory terms that are critical to the administration of a statutory license administered by the Office.'' 73 FR 66173, 66175. --------------------------------------------------------------------------- The flaw in NMPA's argument is highlighted by considering its consequences. If the Office's authority is as limited as NMPA suggested, it would mean that the MLC would be the one (in the absence of a lawsuit) to determine the meaning of any questioned statutory provisions. The Office's oversight of the MLC through regulatory action cannot be frustrated when such oversight may involve addressing substantive issues of copyright law. Concluding otherwise would be contrary to the statute's logic and Congress's intent. Congress intentionally invested the Office with ``broad regulatory authority'' under the MMA, in part to oversee the MLC, such as by ``thoroughly review[ing]'' MLC policies ``to ensure the fair treatment of interested parties.'' \65\ --------------------------------------------------------------------------- \65\ H.R. Rep. No. 115-651, at 5-6 (2018); S. Rep. No. 115-339, at 5 (2018); Report and Section-by-Section Analysis of H.R. 1551 by the Chairmen and Ranking Members of Senate and House Judiciary Committees 4 (2018) (``Conf. Rep.''), https://www.copyright.gov/legislation/mma_conference_report.pdf. --------------------------------------------------------------------------- NMPA also specifically challenged the Office's authority to adopt the corrective royalty adjustment, arguing that it is an impermissible retroactive rule and an unconstitutional taking.\66\ We disagree with this characterization and address this topic in Part III.F., below. --------------------------------------------------------------------------- \66\ NMPA NPRM Initial Comments at 4-6, 12-13; NMPA Ex Parte Letter at 2 (Feb. 6, 2023); NMPA SNPRM Initial Comments at 2 n.2; see also CMPA NPRM Initial Comments at 1-2 (arguing against retroactivity); Warner Chappell Music SNPRM Reply Comments at 2-3 (same). --------------------------------------------------------------------------- III. Final Rule Having reviewed and considered all comments, the Office has weighed the relevant legal, business, and practical implications and equities raised, and pursuant to its authority under 17 U.S.C. 115 and 702 is adopting a final rule regarding MLC royalty distributions. The Office finds it reasonable to adopt much of the SNPRM as final regulations, but with some significant modifications. As discussed in more detail below, the Office is adopting a final rule that is a scaled-down version of the SNPRM and applies a different solution to the issue of identifying the payee to whom the MLC must distribute royalties. Specifically, in response to the comments that the SNPRM was too broad \67\ and the MLC's own regulatory [[Page 56590]] proposal,\68\ the Office has narrowed the scope of the rule to provide the guidance the MLC sought without expanding the rule to other areas that do not appear to need regulation at this time based on the current record.\69\ While some commenters would prefer that the Office not address any issues beyond those raised in the original NPRM, the Office disagrees. As discussed above, the MLC and several other commenters had requested additional guidance from the Office on various related topics. Consequently, the Office issued the SNPRM seeking public comments on a supplemental proposed rule focused on providing such guidance. When the MLC requests guidance from the Office, we will generally provide it given the oversight role we play under the MMA. The Office finds that it is reasonable and appropriate to provide such guidance here. --------------------------------------------------------------------------- \67\ See, e.g., Kobalt Music SNPRM Initial Comments at 3; Big Machine Music SNPRM Initial Comments at 2; NSAI SNPRM Initial Comments at 1-2; North Music Grp. SNRPM Initial Comments at 1, 3-4; MAC et al. SNPRM Reply Comments at 2-3; MAC Ex Parte Letter at 1-2 (Dec. 29, 2023); Recording Academy SNPRM Reply Comments at 1-2; Warner Chappell Music SNPRM Reply Comments at 2-3; ClearBox Rights SNPRM Reply Comments at 3, 10; SONA SNPRM Reply Comments at 5. \68\ MLC SNPRM Reply Comments at App. A. \69\ To be clear, the Office reserves the right to regulate these other areas in the future should it become necessary or appropriate to do so. --------------------------------------------------------------------------- To the extent some commenters suggested that the Office is moving too quickly on some of these issues or has not engaged in a sufficient administrative process, the Office disagrees.\70\ The Office issued the SNPRM precisely to solicit substantive comments from interested parties about these expanded topics. In doing so, the Office provided for both initial and reply comment periods as well as deadline extensions, ultimately providing parties with over two months to submit written comments. The Office also made itself available for ex parte meetings for several months after the period for written comments ended. Given this ample opportunity to engage with the Office on these issues, we see no reason to delay providing the MLC with the guidance it needs to operate. As always, the Office will continue to monitor the effect of the rule, and if there are any unforeseen consequences or should anything not operate as intended, we can consider amending the rule in the future. --------------------------------------------------------------------------- \70\ See, e.g., North Music Grp. SNRPM Initial Comments at 1, 3- 4; Recording Academy SNPRM Reply Comments at 1-2; ClearBox Rights SNPRM Reply Comments at 3, 10. --------------------------------------------------------------------------- Where parties have objected to certain aspects of the SNPRM, the Office has considered those comments and addressed these issues, as discussed below. If not otherwise discussed, the Office has concluded that the relevant proposed provision should be adopted for the reasons stated in the NPRM or SNPRM. A. Termination and the Exception In the NPRM, the Office engaged in an extensive preliminary analysis that concluded that ``[w]hether or not the Exception applies to a DMP's blanket license (and the Office concludes that the Exception does not), the statute entitles the current copyright owner to the royalties under the blanket license, whether pre- or post- termination.'' \71\ We explained that this means that ``the post- termination copyright owner (i.e., the author, the author's heirs, or their successors, such as a subsequent publisher grantee) is due the post-termination royalties paid by the DMP to the MLC.'' \72\ --------------------------------------------------------------------------- \71\ 87 FR 64405, 64410-11. \72\ Id. at 64411. --------------------------------------------------------------------------- Based on the MLC's and other commenters' requests for additional guidance,\73\ the SNPRM contained additional analysis and made further preliminary conclusions, including that: (1) the Exception does not apply to matched historical royalties; \74\ (2) with respect to covered activities, record companies' pre-2021 individual download licenses and the authority obtained from them by DMPs are the only pre-2021 statutory mechanical licenses to have continued in effect after the license availability date; \75\ (3) the Exception does not apply to individual download licenses; \76\ and (4) the Exception may apply to some voluntary licenses, but not others.\77\ --------------------------------------------------------------------------- \73\ 88 FR 65908, 65909-10. \74\ Id. at 65910-11. \75\ Id. at 65911. \76\ Id. \77\ Id. at 65911-12. --------------------------------------------------------------------------- Most comments addressing the Office's termination analysis were in response to the NPRM, as parties largely did not comment on the additional analysis from the SNPRM. While many commenters agreed with the Office's analysis,\78\ others raised some concerns.\79\ Several commenters, even some who raised concerns with the Office's analysis, supported its end result that the post-termination copyright owner is entitled to post-termination royalties under the blanket license.\80\ --------------------------------------------------------------------------- \78\ See, e.g., A2IM & RIAA NPRM Reply Comments at 2; Authors All. et al. NPRM Initial Comments at 2-3; BMG Rights Mgmt. NPRM Initial Comments at 2; ClearBox Rights NPRM Initial Comments at 6-7; Fishman & Garcia NPRM Initial Comments at 1-4; King, Holmes, Paterno & Soriano LLP NPRM Initial Comments; North Music Grp. NPRM Reply Comments at 2; Recording Academy NPRM Reply Comments at 2; SGA et al. NPRM Initial Comments at 2, 5; SONA et al. NPRM Initial Comments at 2-3; King, Holmes, Paterno & Soriano LLP SNPRM Reply Comments. \79\ See NMPA NPRM Initial Comments at 2-3; NMPA Ex Parte Letter at 2-3 (Feb. 6, 2023); MPA NPRM Reply Comments at 2-5; see also A2IM & RIAA NPRM Reply Comments at 2; A2IM & RIAA SNPRM Initial Comments at 1-4; Fishman & Garcia NPRM Initial Comments at 4; NMPA SNPRM Initial Comments at 2 n.2. \80\ See, e.g., NMPA SNPRM Initial Comments at 1-2 (``NMPA supported and continues to support the bright-line rule that the [Office] proposed to establish in the NPRM, requiring that all post- termination royalties under the Blanket License be paid to the post- termination copyright owner.''); Universal Music Publ'g Grp. SNPRM Reply Comments at 5 n.4; Warner Chappell Music SNPRM Reply Comments at 2; Kobalt Music SNPRM Initial Comments at 1; NSAI SNPRM Initial Comments at 2; Promopub SNPRM Initial Comments at 2. --------------------------------------------------------------------------- Having considered all relevant comments, the Office is adopting the termination-related aspects of the SNPRM's proposal as final for the reasons discussed below, as well as the reasoning in the NPRM and SNPRM in relevant part. 1. Blanket Licenses i. Background In the NPRM, the Office thoroughly analyzed the Exception in the context of the blanket license. In that analysis, the Office made two overarching conclusions that: (1) the Exception does not apply to blanket licenses; and (2) even if the Exception did apply, under the terms of the blanket license (i.e., the applicable text of section 115 and related regulations), a terminated publisher still would not be entitled to post-termination blanket license royalties.\81\ --------------------------------------------------------------------------- \81\ 87 FR 64405, 64410-11. --------------------------------------------------------------------------- In concluding that the Exception does not apply, the Office made three further overall conclusions. First, the Office concluded that ``[t]o be subject to termination, a grant must be executed by the author or the author's heirs,'' and that, ``[a]s a type of statutory license, the blanket license is `self-executing,' such that it cannot be terminated'' under section 203 or 304.\82\ The Office explained that ``[i]f a blanket license cannot be terminated, then it cannot be subject to an exception to termination; the license simply continues in effect according to its terms.'' \83\ --------------------------------------------------------------------------- \82\ Id. at 64410. \83\ Id. --------------------------------------------------------------------------- Second, the Office concluded that ``[s]ection 115's blanket licensing regime is premised on the assumption that DMPs are not preparing derivative works pursuant to their blanket licenses,'' and that ``where no sound recording derivative is prepared pursuant to a DMP's blanket license, [[Page 56591]] that blanket license is not part of any preserved grants that make the Exception applicable.'' \84\ The Office explained that ``[i]f no derivative work is prepared `under authority of the grant,' then the Exception cannot apply,'' but recognized that ``[p]roponents of the Exception's application to the blanket license might argue that the blanket license should be construed as being included within a so- called `panoply' of grants pursuant to which a pre-termination derivative work of the musical work was prepared.'' \85\ The Office observed that the ``only panoply to which the blanket license could theoretically belong would be the grant (or chain of successive grants) emanating from the songwriter and extending to the record company (or other person) who prepared the sound recording derivative licensed to the DMP.'' \86\ After analyzing that possibility, the Office concluded that ``[t]he Exception, as interpreted by [the Supreme Court in Mills Music, Inc. v. Snyder],\87\ should not be read as freezing other grants related to, but outside of, the direct chain of successive grants providing authority to utilize the sound recording derivative, such as the musical work licenses obtained by DMPs,'' and the Office discussed several reasons explaining why.\88\ --------------------------------------------------------------------------- \84\ Id. at 64410-11. \85\ Id. \86\ Id. \87\ 469 U.S. 153 (1985). \88\ 87 FR 64405, 64410-11. --------------------------------------------------------------------------- Third, the Office concluded that applying the Exception to the blanket license in the manner the MLC had done previously, whereby the payee would be frozen in time, would lead to an ``extreme result'' because it would also freeze all other aspects of the license in time.\89\ For example, ``it would freeze in time everything from DMP reporting requirements and MLC royalty statement requirements to the rates and terms of royalty payments for using the license set by the [Copyright Royalty Judges].'' \90\ --------------------------------------------------------------------------- \89\ Id. at 64411. \90\ Id. --------------------------------------------------------------------------- The SNPRM addressed this analysis as well.\91\ There, the Office described the NPRM's conclusions about the Exception as ``preliminary,'' making clear that we ``welcome[d] further comments and legal discussion.'' \92\ The Office has considered all comments, including those raising concerns with aspects of this analysis. For the reasons discussed below, we find those concerns unpersuasive. Therefore, the Office is adopting the termination analysis from the NPRM and SNPRM as final for the reasons discussed in the NPRM and SNPRM, subject to the further discussion below. --------------------------------------------------------------------------- \91\ 88 FR 65908, 65910. \92\ Id. at 65912 n.69. --------------------------------------------------------------------------- ii. Comments and Discussion The principal critics of the NPRM's analysis were NMPA and the Motion Picture Association (``MPA''). NMPA asserted that ``[t]he Exception has historically been interpreted by many industry stakeholders to permit the pre-termination musical composition copyright owner to continue to receive mechanical royalties post- termination for uses of those compositions in derivative sound recordings, including in interactive streaming, provided that the mechanical license was issued pre-termination and the recording was prepared pre-termination.'' \93\ NMPA said that ``[t]his interpretation was based on, inter alia, the Supreme Court's decision in Mills Music, Inc. v. Snyder, and the Second Circuit's decision in Woods v. Bourne Co.,'' \94\ and that ``[b]ased on this interpretation, before the MMA was enacted, [DMPs], along with other Section 115 statutory licensees, continued to pay mechanical royalties to the pre-termination rights owner for uses of recordings prepared pre-termination pursuant to pre- termination mechanical licenses.'' \95\ NMPA stated that it ``never understood the MMA to change or resolve the law of statutory termination or to provide a new or different rule applicable to Blanket Licenses.'' \96\ It explained its view that ``the MMA addresses the termination issue in Section 115(d)(9)(A),'' which was intended to ``preserve the status quo.'' \97\ --------------------------------------------------------------------------- \93\ NMPA NPRM Initial Comments at 2-3; see also NMPA Ex Parte Letter at 2 (Feb. 6, 2023). \94\ 60 F.3d 978 (2d Cir. 1995). \95\ NMPA NPRM Initial Comments at 3; see also NMPA Ex Parte Letter at 2 (Feb. 6, 2023). \96\ NMPA NPRM Initial Comments at 3. \97\ Id. at 3 n.5. --------------------------------------------------------------------------- After a full review and analysis, the Office is not persuaded by NMPA's argument. We do not dispute NMPA's assertion that certain publishers may have adopted a different approach to termination, but this approach is not supported by the law in the context of the blanket license. As discussed further below in Part III.F., the Office is not adopting a new position, or changing the law as it relates to termination or the Exception. Nor are we contending that the MMA or blanket license altered the law as it relates to the Exception. The Office is merely stating what the law is and has always been. In support of its approach, NMPA suggested that its view of the Exception was universally relied on as the status quo. The comments, however, reveal otherwise. For example, ClearBox Rights said that ``there has not been consistency in the history of how these royalties have been paid [with respect to the Exception], so such past practices should not be interpreted as any kind of precedent or guidance into how they should be paid in the future, or adjusted for any given period of time.'' \98\ NMPA even described its views with qualifying language, stating that its interpretation of Mills Music has been followed by ``some'' copyright owners and that ``legal interpretations of this holding and views as to the applicability of the [Exception] to the [blanket license] may differ.'' \99\ --------------------------------------------------------------------------- \98\ ClearBox Rights NPRM Reply Comments at 1-2 (further stating that performing rights organizations ``fairly consistently pass through to the post-termination rights holder the performance side of these very same [DMP] interactive streams''); see also, e.g., King, Holmes, Paterno & Soriano LLP NPRM Initial Comments at 1 (``We have been concerned for years about some music publishers' claims that the [Exception] entitles the original publisher of a composition to continue to collect indefinitely on mechanical licenses issued pursuant to the compulsory license provisions of the U.S. Copyright Act. Such claims do not comport with the language of the [Exception] itself or the legislative history surrounding it.''); McAnally & North Ex Parte Letter at 2 (Mar. 14, 2023) (asserting that views like NMPA's are ``inconsistent with our understanding of how terminations have been treated in the industry regarding payments of mechanical royalties under Section 115''). \99\ NMPA Ex Parte Letter at 2 (Feb. 6, 2023). --------------------------------------------------------------------------- Further, NMPA's claim that section 115(d)(9)(A) supports its position is misplaced. That provision does not speak to the Exception or the preservation of any pre-MMA status quo (outside the narrow context of individual download licenses). As explained in the SNPRM, that provision, read together with section 115(d)(9)(B), provides, with respect to covered activities, that ``only record companies' pre-2021 individual download licenses and the authority obtained from them by DMPs survived the license availability date.'' \100\ The Office explained that ``[b]ecause all other pre-2021 statutory mechanical licenses to engage in covered activities are no longer in effect pursuant to their own terms (i.e., the statutory text), any application the Exception may or may not have had while they were in force seems to have no bearing on the MLC's distribution of royalties for post-2021 usage.'' \101\ --------------------------------------------------------------------------- \100\ 88 FR 65908, 65911. \101\ Id. --------------------------------------------------------------------------- The statute plainly states that the blanket license was ``automatically substituted for and supersede[d] any existing compulsory license previously obtained under [section 115].'' \102\ The [[Page 56592]] language NMPA highlighted--that this substitution happened ``without any interruption in license authority enjoyed by [a DMP]''--simply means that the substitution did not cause there to be any gap in a DMP's licensing authority, between the old pre-2021 statutory license and the new blanket license, that could potentially subject the DMP to an infringement claim.\103\ If this language meant that all previous licensing authority remains intact indefinitely after the license availability date, then it would render the rest of the provision superfluous. There would be no need to have the blanket license substitute for and supersede the pre-2021 license because the authority provided by the pre-2021 license would continue in effect. It would also directly contradict section 115(d)(9)(B), which states that ``licenses other than individual download licenses obtained under [section 115] for covered activities prior to the license availability date shall no longer continue in effect.'' \104\ Thus, the Office disagrees with NMPA's reading of the statute.\105\ --------------------------------------------------------------------------- \102\ See 17 U.S.C. 115(d)(9)(A). \103\ See id. \104\ See id. at 115(d)(9)(B). \105\ See also 85 FR 58114, 58118 (discussing how ``the statutory provisions regarding notices of [blanket] license and the transition to the blanket license must be read together, such that DMPs transitioning to the blanket license must still submit notices of license to the MLC''). --------------------------------------------------------------------------- NMPA next argued that ``the phrase `terminated grant' in the statutory text appears to refer to the original grant from the author to the publisher that is being terminated, and not to subsequent grants made by the publisher under the authority of that original grant.'' \106\ It asserted that ``[s]ubsequent grants of the right to prepare and use derivative works made by the publisher are not the terminated grant under Sections 203 and 304 and are instead part of the `panoply' of licenses preserved by the [Exception].'' \107\ Thus, in NMPA's view, ``the terminable grant that must be executed by the author is the original license from author to publisher; therefore, whether Section 115 licenses are `self-executing' would be inapposite to the relevant analysis'' because ``[t]he subsequent grants of the right to prepare derivative works are in virtually all cases not `executed by the author or the author's heirs.' '' \108\ --------------------------------------------------------------------------- \106\ NMPA Ex Parte Letter at 3 (Feb. 6, 2023); see also NMPA NPRM Initial Comments at 11 n.27. \107\ NMPA Ex Parte Letter at 3 (Feb. 6, 2023); see also NMPA NPRM Initial Comments at 11 n.27. \108\ NMPA NPRM Initial Comments at 11 n.27. --------------------------------------------------------------------------- The Office disagrees. The phrase ``terminated grant'' in the statutory text is not limited solely to the original grant from the songwriter to the publisher. In Mills Music, the Supreme Court concluded that all three references to the word ``grant'' in the text of the Exception should be given a ``consistent meaning,'' and that each reference encompasses both the original grant and subsequent grants.\109\ That lack of distinction between the original grant and subsequent grants was central to the Court's holding that the Exception preserved ``the total contractual relationship.'' \110\ The cornerstone of the Court's opinion was its conclusion that the successive grants were connected to each other in such a way that they both needed to be preserved under the Exception in the context at issue.\111\ --------------------------------------------------------------------------- \109\ Mills Music, 469 U.S. at 164-67 (concluding that the phrase ``under the terms of the grant after its termination'' ``as applied to any particular licensee would necessarily encompass both the 1940 grant [from the songwriter to the publisher] and the individual license [from the publisher to the record company to prepare a sound recording derivative] executed pursuant thereto''); see id. at 164 (explaining that the Exception is ``defined by reference to the scope of the privilege that had been authorized under the terminated grant and by reference to the time the derivative works were prepared'') (emphasis added); id. at 173 (explaining that ``[p]retermination derivative works--those prepared under the authority of the terminated grant--may continue to be utilized under the terms of the terminated grant'') (emphasis added); see also Howard B. Abrams & Tyler T. Ochoa, 2 The Law of Copyright sec. 12:44 (2023) (``[T]he term ``grant'' is read to include the entire chain of authority for the preparation of a derivative work.''). \110\ Mills Music, 469 U.S. at 163-69 (``We are not persuaded that Congress intended to draw a distinction between authorizations to prepare derivative works that are based on a single direct grant and those that are based on successive grants.''). \111\ Id. at 166-69 (explaining that, with respect to the particular facts in the case, defining the relevant ``terms of the grant'' as ``the entire set of documents that created and defined each licensee's right to prepare and distribute derivative works'' meant preserving not only the record companies' right to prepare and distribute the derivative works, but also their corresponding duty to pay the publisher any due royalties and the publisher's duty to pay the songwriter's heirs any due royalties, and that if it were otherwise, then there would be no contractual or statutory obligation on the publisher or record companies to pay the songwriter's heirs any royalties). --------------------------------------------------------------------------- In asserting that the NPRM's conclusions about the application of the Exception to the blanket license must be wrong because the subsequent grants of the right to prepare derivative works are almost always not executed by the author or the author's heirs, NMPA misapprehends how the subsequent grants are connected to the original grant. Outside the context of a statutory license, where a songwriter makes a grant to a publisher and the publisher then makes subsequent grants to third parties (e.g., to a record company to prepare a sound recording derivative, to a DMP to make and distribute phonorecords, or an assignment of the full copyright to a different publisher), each of those subsequent grants, despite not being executed by the songwriter or the songwriter's heirs, can still be terminated. This is because the authority for each of those subsequent grants derives from and is dependent upon the authority conveyed by the original grant from the songwriter to the publisher. Thus, when the original grant is terminated, it also terminates the subsequent grants (subject to the possible preservation of certain contractual terms governing the utilization of pre-termination derivative works under the Exception).\112\ It is a foundational legal principle that one cannot give what one does not have.\113\ In this context, what the publisher possesses with respect to the original grant, and can therefore subsequently convey to third parties, is encumbered by the songwriter's termination rights.\114\ This concept is plainly embodied in the statute, which makes reference not only to ``the grantee,'' but also ``the grantee's successor in title.'' \115\ --------------------------------------------------------------------------- \112\ Melville B. Nimmer & David Nimmer, 3 Nimmer on Copyright sec. 11.02[C][2] (2023) (``When A terminates the original grant to B, it follows that B's license to C will also terminate.''). \113\ Legal Maxims, Black's Law Dictionary (11th ed. 2019) (``Nemo dat quod non habet. No one gives what he does not have; no one transfers (a right) that he does not possess.''). \114\ Melville B. Nimmer & David Nimmer, 3 Nimmer on Copyright sec. 11.02[A][4][b] (2023) (``If the original grant from A to B had by its terms provided for a reversion to A thirty-five years after execution, B would lack the power to convey rights to C beyond such thirty-five-year period. The fact that reversion from B to A occurs by operation of law rather than by the express terms of the grant to B does not enlarge the rights that B can convey to C.''); see also Int'l Ribbon Mills, Ltd. v. Arjan Ribbons, Inc., 325 NE2d 137, 139 (N.Y. 1975) (``It is elementary ancient law that an assignee never stands in any better position than his assignor. He is subject to all the equities and burdens which attach to the property assigned because he receives no more and can do no more than his assignor.''). \115\ See 17 U.S.C. 203(a)(4), (b)(4); id at 304(c)(4), (6)(D). --------------------------------------------------------------------------- The blanket license, however, operates differently. Unlike voluntary licenses, the authority a DMP has to make and distribute phonorecords of musical works under a blanket license does not derive from and is not dependent upon any authority granted by a songwriter or publisher. The blanket license is self-executing,\116\ and a DMP's authority under it is established by Congress.\117\ Therefore, if the original grant from the songwriter to the publisher is terminated, it has no effect on the DMP's blanket license [[Page 56593]] (other than the transfer of copyright ownership causing the royalty payee to change). Unlike a voluntary license, the grant of authority provided to the DMP under its blanket license was never encumbered by the songwriter's termination rights, so exercising those rights has no impact on the continuation of the DMP's authority. As a blanket license cannot be terminated under section 203 or 304, whether directly or indirectly, ``it cannot be subject to an exception to termination; the license simply continues in effect according to its terms.'' \118\ --------------------------------------------------------------------------- \116\ Mills Music, 469 U.S. at 168 n.36; see Melville B. Nimmer & David Nimmer, 3 Nimmer on Copyright sec. 11.02 n.121 (2023); Paul Goldstein, Goldstein on Copyright sec. 5.4.1.1.a (3d ed. 2023). \117\ See also Mills Music, 469 U.S. at 168 n.36 (referring to section 115 statutory licenses as ``a statutory right'' belonging to the licensee) (emphasis added). \118\ 87 FR 64405, 64410. As noted in the NPRM, this ``does not mean that entitlement to royalties is fixed. It travels with ownership of the copyright.'' Id. at 64410 n.70. --------------------------------------------------------------------------- MPA's criticism of the NPRM focused on a different issue, namely its concerns that the Office's legal analysis ``could be read as narrowing the holdings [of Mills Music and Woods] by injecting a `direct chain' limitation on the pre-termination grants preserved under the [Exception].'' \119\ MPA argued that: --------------------------------------------------------------------------- \119\ MPA NPRM Reply Comments at 2. To the extent that the Office's discussion of Mills [Music] could be read to limit the [Exception] solely to a ``direct chain'' of grants, such a reading would appear to be in tension not only with the [Exception]--which provides that a derivative work prepared under authority of a grant ``may continue to be used under the terms of the grant,'' . . .--but also the Supreme Court's interpretation of that language in Mills [Music], as well as the Second Circuit's further explication of the [Exception] in Woods v. Bourne. Mills [Music] held that, as used in the [Exception], ``the terms of the grant'' means the ``entire set of documents that created and defined each licensee's right to prepare and distribute derivative works.'' 469 U.S. at 167. The [Exception] thus encompasses the original grant from author to publisher, as well as the succeeding grants derived therefrom, potentially involving multiple licensees. See id. at 165- 67 (emphasis added).\120\ --------------------------------------------------------------------------- \120\ Id. at 4 (citing 17 U.S.C. 203(b)(1), 304(c)(6)(A)). MPA further said that ``[i]n some cases, an initial grant by an author to a movie studio or music publisher, and that entity's subsequent grants to third parties to for the use and distribution of derivative works, will generate `branches' of licensing authority rather than a simple linear chain.'' \121\ According to MPA, ``[t]here is nothing in the [Exception] or Mills [Music] . . . to suggest that a pre-termination publisher is entitled to royalties only if the pre- termination license falls within a single `direct chain' to the party that prepared the derivative.'' \122\ --------------------------------------------------------------------------- \121\ Id. \122\ Id. --------------------------------------------------------------------------- MPA then pointed to Woods for confirmation that ``Mills [Music] is not so limited.'' \123\ It stated that ``[a]s further explicated in Woods, the Supreme Court's holding in Mills [Music] established that `where multiple levels of licenses govern use of a derivative work, the ``terms of the grant'' encompass the original grant from author to publisher and each subsequent grant necessary to enable the particular use at issue,' '' and that ``[t]he effect of Mills [Music] is to preserve during the post-termination period the panoply of contractual obligations that governed pre-termination uses of derivative works by derivative work owners or their licensees.'' \124\ MPA asserted that ``[c]onsistent with its understanding of Mills [Music], the Woods court upheld the pre-termination publisher's right to collect public performance royalties from [the performing rights organization,] ASCAP for post-termination performances in movies and television programs even though ASCAP's licensing relationship was outside of the `direct chain' of authority by which the original publisher had granted synch rights to the producers of those shows.'' \125\ MPA highlighted that the Second Circuit said that ``the `terms of the grant' included `the provisions of the grants from [the publisher] to ASCAP and from ASCAP to the television stations' in place at the time of termination,'' and that `` `[t]he fact that the performance right in the Song [was] conveyed separately through ASCAP [was] simply an accommodation' that did not negate the applicability of the [Exception].'' \126\ It concluded that ``[n]either the [Exception], nor Mills [Music] or Woods, limits post-termination utilization of a derivative based on the particular configuration of the relevant pre-termination grants'' and that ``[i]n considering the applicability of the [Exception], the correct question is not whether the user prepared the derivative pursuant to some `direct chain' of authority, but whether the use is permitted under the entire `set' or `panoply' of grants emanating from the original grant by the author.'' \127\ --------------------------------------------------------------------------- \123\ Id. at 4-5. \124\ Id. (quoting Woods, 60 F.3d at 987). \125\ Id. at 5 (citing Woods, 60 F.3d at 984). \126\ Id. (all alterations, except the last one, in original) (quoting Woods, 60 F.3d at 987-88). \127\ Id. --------------------------------------------------------------------------- The Office disagrees with these assertions to the extent they relate to the blanket license. The blanket license is not part of any so-called ``panoply,'' regardless of whether a panoply is limited to a ``direct chain'' of successive grants or can include ``branches'' of related grants outside of that chain. As discussed above, the blanket license, as a type of statutory license, is fundamentally different from voluntary licenses. Because the authority provided by a blanket license is supplied by law and is divorced from any authority deriving from an author or any terminated grant, it is an intervening grant. It sits outside of any potential panoply of grants authorized by the author and the author's successors, assignees, licensees, and the like that form the overall transaction involving the relevant derivative work and which is subject to termination and possibly the Exception. The blanket license simply is not part of that contractual transaction.\128\ --------------------------------------------------------------------------- \128\ See also 17 U.S.C. 115(d)(2) (explaining how a DMP may obtain a blanket license based on its unilateral actions). --------------------------------------------------------------------------- Neither Mills Music nor Woods holds otherwise, as neither involved a statutory license. In both cases, all of the grants at issue were contractual and emanated from a songwriter's copyright and the authority initially conveyed by the original grant from the songwriter to a publisher.\129\ Thus, neither case's holding is directly applicable to the operation of the Exception to a non-contractual intervening grant, like the blanket license. The Supreme Court, in Mills Music, noted that statutory licenses are different and were not at issue in the case.\130\ And key language in Woods specifically refers to ``the panoply of contractual obligations.'' \131\ --------------------------------------------------------------------------- \129\ Mills Music, 469 U.S. at 154-58; Woods, 60 F.3d at 981-84, 987-88. \130\ Mills Music, 469 U.S. at 168 n.36; see also id. at 185 n.12 (White, J. dissenting). \131\ Woods, 60 F.3d at 987 (emphasis added). --------------------------------------------------------------------------- The Office's conclusions about the Exception are fully consistent with Mills Music, both as described here and in the NPRM. Neither MPA nor any other commenter addressed the specific points made in the NPRM regarding how the Exception operates with respect to panoplies of grants,\132\ other than to assert that the overall conclusion was at odds with Mills Music and Woods. --------------------------------------------------------------------------- \132\ See 87 FR 64405, 64410 (``The Exception, as interpreted by Mills Music, should not be read as freezing other grants related to, but outside of, the direct chain of successive grants providing authority to utilize the sound recording derivative, such as the musical work licenses obtained by DMPs.''). --------------------------------------------------------------------------- Relying on a single out-of-context quote, MPA argued that, because Mills Music said that `` `the terms of the grant' means the `entire set of documents that created and defined each licensee's right to prepare and distribute derivative works,' '' it must mean that the [[Page 56594]] Exception ``thus encompasses the original grant from author to publisher, as well as the succeeding grants derived therefrom, potentially involving multiple licensees.'' \133\ The Office is not persuaded. Read in its proper context, the Court's reference to ``each licensee'' is not referring to multiple licensees across different branches of grants involved in the preparation and utilization of a single derivative work. Rather, it is plainly referring to a single licensee for each derivative work; specifically, each record company that prepared one of the sound recording derivatives at issue in the case (which involved over 400 voluntary mechanical licenses and the preparation of over 400 sound recording derivatives).\134\ This conclusion is apparent not only from reading the opinion as a whole, but from the sentence immediately preceding the one quoted by MPA, which states that ``a fair construction of the phrase `under the terms of the grant' as applied to any particular licensee would necessarily encompass both the 1940 grant [from the songwriter to the publisher] and the individual [voluntary mechanical] license [from the publisher to the record company] executed pursuant thereto.'' \135\ --------------------------------------------------------------------------- \133\ MPA NPRM Reply Comments at 4 (quoting Mills Music, 469 U.S. at 165-67). \134\ See Mills Music, 469 U.S. at 158, 167, 168 n.36. \135\ See id. at 166-67 (emphasis added). --------------------------------------------------------------------------- Other language in the Court's opinion similarly reflects that it was only addressing direct chains of successive grants providing authority to prepare derivative works.\136\ For example, the Court was ``not persuaded that Congress intended to draw a distinction between authorizations to prepare derivative works that are based on a single direct grant and those that are based on successive grants.'' \137\ The Court found it to be ``a matter of indifference . . . whether the authority to prepare the work had been received in a direct license from an author, or in a series of licenses and sublicenses.'' \138\ According to the Court, ``Congress saw no reason to draw a distinction between a direct grant by an author to a party that produces derivative works itself and a situation in which a middleman is given authority to make subsequent grants to such producers.'' \139\ It makes sense that the Court's opinion was limited to discussing a direct chain of successive grants because that is what was at issue in the case. We continue to believe that our reading of the statute and Mills Music, as well as our analysis and conclusions regarding panoplies and direct chains of successive grants, are correct.\140\ --------------------------------------------------------------------------- \136\ See Howard B. Abrams & Tyler T. Ochoa, 2 The Law of Copyright sec. 12:44 (2023) (explaining that ``the Supreme Court seemed to be using the concept that the series of documents running from the author to the ultimate preparer of the derivative work should best be treated as a single transaction although it was spread over several documents executed at different times''). \137\ Mills Music, 469 U.S. at 163-64 (emphasis added). \138\ Id. at 173-74 (emphasis added). \139\ Id. at 172 (emphasis added). \140\ See 87 FR 64405, 64410-11; see also, e.g., Fishman & Garcia NPRM Initial Comments at 1-4 (agreeing with the Office's analysis and conclusions); SONA et al. NPRM Initial Comments at 2-3 (same). --------------------------------------------------------------------------- With respect to Woods, even if the discussion in that case could be read in the broad manner that MPA suggested, it is not clear that the court's reasoning was correct or involved the same circumstances at issue here. Among other concerns, Woods did not speak to all the issues identified in the NPRM.\141\ For example, nothing in Woods appears to address the fact that if the word ``grant'' is given a consistent meaning within the text of the Exception--which, according to Mills Music, it should--it cannot be referring to a grant that did not provide authority to prepare the derivative work at issue.\142\ --------------------------------------------------------------------------- \141\ See 87 FR 64405, 64410-11. \142\ See id. at 64411 (explaining that because ``[t]he Exception's first use of `grant' is to a `derivative work prepared under authority of the grant,' '' it ``cannot be referring to the DMP's musical work licenses pursuant to which no derivative work was prepared''). --------------------------------------------------------------------------- The Woods court did not engage in this level of textual analysis. Instead, it reviewed Mills Music and cited a law review article for the proposition that the Exception applies to ``each subsequent grant necessary to enable the particular use at issue.'' \143\ As discussed above, the Office does not believe Mills Music is so expansive. Nor does the cited law review article appear to support such a broad reading.\144\ In any event, we emphasize that because Woods is distinguishable with respect to section 115 statutory licenses, it is not necessary for the Office to resolve these disagreements to adopt the final rule. --------------------------------------------------------------------------- \143\ See Woods, 60 F.3d at 986-88 (emphasis added). \144\ Woods quotes from a law review article ``describing [the] holding in Mills Music as `preserving the entire paper chain that defines the entire transaction.' '' Woods, 60 F.3d at 987 (quoting Howard B. Abrams, Who's Sorry Now? Termination Rights and the Derivative Works Exception, 62 U. Det. L. Rev. 181, 234-35 (1985) (``Abrams'')). But a few sentences earlier, that article explained that the ``transaction'' being referred to was the ``set of transfers and licenses that ran from the author to a record company.'' Abrams at 234. --------------------------------------------------------------------------- Lastly, Professors Fishman and Garcia, while supportive of most of the Office's analysis, believed that the NPRM overestimated what would happen if the Exception did apply to blanket licenses.\145\ They said that the NPRM's suggestion that all of the blanket license's terms ``would be frozen indefinitely'' under the Exception, such as ``the royalty rate to be paid,'' ``would contradict the plain terms established in [section] 115, which explicitly contemplate a variable rate to be determined by the [Copyright Royalty Judges].'' \146\ They explained that ``[t]hat variability is a term of the grant,'' and that to conclude otherwise ``would read into the terms of the blanket license a permanently fixed royalty rate that does not exist.'' \147\ The professors then noted that the NPRM ``correctly rejected the possibility of freezing the payee on the same basis.'' \148\ --------------------------------------------------------------------------- \145\ Fishman & Garcia NPRM Initial Comments at 4. \146\ Id. \147\ Id. \148\ Id. --------------------------------------------------------------------------- Considering this comment, the Office wishes to clarify this point from the NPRM. We meant to illustrate the problems with the MLC's previous view of how the Exception would apply--that the Exception would freeze the royalty payee.\149\ This portion of the NPRM was intended to explain that if the MLC were correct that the Exception applied in such a manner as to freeze the royalty payee, then the Exception would have to freeze everything else too, which would lead to the ``extreme result.'' \150\ --------------------------------------------------------------------------- \149\ See 87 FR 64405, 64411 (premising the discussion on the observation that if the Exception applies to the blanket license, ``then it is not clear why it would only apply to the payee, as the MLC's prior rulemaking comments seem to suggest'') (emphasis added). \150\ See id. --------------------------------------------------------------------------- 2. Individual Download Licenses The Office received few comments responding to the SNPRM's analysis regarding individual download licenses. The American Association of Independent Music and the Recording Industry Association of America (``A2IM & RIAA'') sought ``to clarify ambiguity in [the sections of the proposed rule about individual download licenses and voluntary licenses] and to ensure that the proposed rule will not affect the status quo as it applies to record companies' mechanical licensing and payment practices.'' \151\ They stated that ``the broadened scope of the current SNPRM in fact could have unintended consequences for record company practices in ways that are contrary to both the law and established industry practice, and in a manner that is not [[Page 56595]] necessary to the Office's regulation of the [MLC].'' \152\ --------------------------------------------------------------------------- \151\ A2IM & RIAA SNPRM Initial Comments at 1. \152\ Id. --------------------------------------------------------------------------- Regarding individual download licenses, A2IM & RIAA agreed with parts of the Office's legal analysis of the Exception, but said that ``in a regulation about the MLC's recognition of deductions from royalties that would otherwise be due under the blanket license, [the] proposed language is opaque and potentially confusing.'' \153\ They said that: --------------------------------------------------------------------------- \153\ Id. at 2-3. [T]he main point is that a termination pursuant to Section 203 or 304 does not affect an individual download license, so a blanket license royalty deduction for usage pursuant to an individual download license that was appropriate prior to termination remains so after termination. The regulations should state that plainly, rather than the language that is currently proposed. In any event, it should be clear that [this provision] does not mean that a record company that relied on an individual download license for the creation of a sound recording cannot continue to rely on that license for distribution of the recording (in download form or otherwise) after termination of the author's publishing agreement.\154\ --------------------------------------------------------------------------- \154\ Id. at 3. The Office disagrees that the language is confusing. The provision clearly provides that the Exception does not apply to an individual download license, and further states that, for avoidance of doubt, no one may be understood to be the copyright owner or royalty payee of a work used under an individual download license based on an interpretation or application of the Exception. A2IM & RIAA's statement that a termination ``does not affect an individual download license'' is accurate.\155\ But it is important to recognize that, as explained in the NPRM and SNPRM, even though ``the license simply continues in effect according to its terms,'' under those terms, ``entitlement to royalties . . . travels with ownership of the copyright.'' \156\ ``[W]henever a change is effectuated, whether via a contractual assignment or by operation of a statutory termination, the new owner becomes the proper payee entitled to royalties under the [individual download] license.'' \157\ This provision is meant to clarify the Exception's correct operation in light of the MLC's prior views.\158\ --------------------------------------------------------------------------- \155\ See id. \156\ 87 FR 64405, 64410-11 & n.70; 88 FR 65908, 65911 & n.67. \157\ 87 FR 64405, 64411; 88 FR 65908, 65911 & n.67. \158\ See 87 FR 64405, 64406-07. --------------------------------------------------------------------------- 3. Voluntary Licenses The Office also received few comments regarding the SNPRM's discussion of voluntary licenses. A2IM & RIAA agreed with the SNPRM's description of the complexities involved, noting that ``record companies regularly obtain voluntary mechanical licenses rather than compulsory licenses, and generally pass through download rights to DMPs.'' \159\ They asserted that the ``[r]ights that the record company obtains from the pre-termination copyright owner are clearly preserved by the [Exception] when the record company relies on its voluntary mechanical license for the creation of either a first use recording or a cover.'' \160\ Based on this, A2IM & RIAA ``question the treatment of voluntary licenses in the proposed rule.'' \161\ They said that ``[n]either the pre-termination nor post-termination copyright owner would be motivated to provide the required notice, when the effect of failing to give notice is that the DMP would in effect pay twice--once to the pre-termination copyright owner through the record company and once to the post-termination copyright owner through the MLC.'' \162\ They believed that ``[r]oyalty payments would more often be handled appropriately if the default assumption were that the [Exception] will apply to rights obtained by a record company under a voluntary license and passed through to a DMP.'' \163\ --------------------------------------------------------------------------- \159\ A2IM & RIAA SNPRM Initial Comments at 3. \160\ Id. \161\ Id. \162\ Id. at 4. \163\ Id. --------------------------------------------------------------------------- The Digital Licensee Coordinator (``DLC'') raised similar concerns about potentially paying twice, stating that ``in no event can DMPs be in the position of double-paying the royalties at issue, potentially being subject to late fees as a result of any delay in payment to the correct rightsholder.'' \164\ In the DLC's view, ``the most sensible approach'' to dealing with disputes over the application of the Exception to voluntary licenses ``would be to not require any payment from the DMP to the MLC until the dispute is resolved.'' \165\ --------------------------------------------------------------------------- \164\ DLC SNPRM Initial Comments at 3-4. \165\ Id. at 4. --------------------------------------------------------------------------- In subsequent comments, the DLC clarified that its ``concern arises with respect to the MLC's ability to demand payment when there is a dispute related to termination that involves one or more voluntary licensors.'' \166\ It explained that ``the circumstances where a voluntary license partner has a right to demand royalties notwithstanding who the MLC's records show is entitled to payment is ultimately a matter of private contract between the parties, and there is no industry standard approach to that issue.'' \167\ The DLC also said that it did not believe the statute requires the MLC to hold royalties pending the resolution of disputes over the application of the Exception to voluntary licenses because such disputes are not ownership disputes within the meaning of the statute.\168\ Based on these comments, the DLC does not appear to take issue with the possibility of double payments under the proposed rule where no dispute is initiated with the MLC. --------------------------------------------------------------------------- \166\ DLC Ex Parte Letter at 2 (Mar. 4, 2024). \167\ Id. \168\ Id. at 2-3. --------------------------------------------------------------------------- The Office does not believe that these comments warrant any substantive changes to the provision governing voluntary licenses. First, this provision does not embody a presumption or a default rule about the Exception as A2IM & RIAA suggested. Rather, it is a regulatory application of legal precedent establishing that the pre- termination copyright owner bears the burden of proving that the Exception applies.\169\ The Office continues to believe that ``it would not be prudent to attempt to craft a rule trying to account for how the Exception may or may not apply in every possible situation'' and that ``the MLC should not exercise independent judgment regarding the application of the Exception to a voluntary license or its underlying grant of authority.'' \170\ --------------------------------------------------------------------------- \169\ 88 FR 65908, 65912. \170\ Id. --------------------------------------------------------------------------- If the Office were to adopt the default assumption A2IM & RIAA requested, it would open the door to default assumptions in other voluntary license contexts. Moreover, doing so would require the MLC to determine, at minimum, whether the licenses at issue were indeed relied upon ``for the creation of either a first use recording or a cover.'' \171\ That is precisely the type of fact-finding and independent judgment the Office does not believe the MLC should be required to undertake in this context. --------------------------------------------------------------------------- \171\ See A2IM & RIAA SNPRM Initial Comments at 3-4. --------------------------------------------------------------------------- Second, given that the DLC does not appear to share A2IM & RIAA's concern about DMPs potentially double paying, the Office does not believe that any change to this aspect of the rule is warranted. The DLC made clear that this issue is one of private contract between the relevant parties.\172\ Even if that were [[Page 56596]] not the case, the possibility of making double payments in this context does not appear to be any different than in other contexts where a DMP may be caught in the middle of a dispute between purported copyright owners. Any time someone claims to be the owner of a copyright purportedly licensed to a DMP by someone else, it will need to decide which party to pay. Depending on the relevant contract's terms, the DMP may well decide to pay both parties to limit its potential liability for failing to pay the party who ultimately prevails in the dispute. Thus, the situation that could arise under the rule does not appear to be a special one necessitating a regulatory solution. --------------------------------------------------------------------------- \172\ DLC Ex Parte Letter at 2 (Mar. 4, 2024). --------------------------------------------------------------------------- With respect to the DLC's request that DMPs not be required to pay royalties to the MLC to be held pending the resolution of a dispute initiated with the MLC, the Office disagrees. As the Office explained in the SNPRM, even though ``a dispute as to the application of the Exception is not a dispute over ownership,'' ``a pre-termination copyright owner [should] be able to initiate a dispute with the MLC over the application of the Exception to a particular voluntary license or its underlying grant of authority, and . . . the MLC should hold applicable royalties pending resolution of such a dispute.'' \173\ --------------------------------------------------------------------------- \173\ 88 FR 65908, 65919. --------------------------------------------------------------------------- Even if such a royalty hold is not required by the statute, the Office nevertheless finds it to be a reasonable and prudent approach to the administration of such disputes, as it ensures that the relevant funds will be available upon the resolution of the dispute. As between allowing a DMP to hold the relevant royalties versus the MLC, the more appropriate approach is for them to be held by the MLC, rather than a DMP with whom the purported copyright owner may have no relationship. Moreover, even if the Office did not require this, a DMP would risk late fees, or even default and termination of its blanket license, if it declined to pay the applicable royalties to the MLC and the voluntary licensor does not prevail in the dispute. Thus, the final rule has been clarified to state that the MLC shall invoice the relevant DMP for the applicable royalties. The DLC asked that if the Office adopts this approach, we ``provide guidance on how any interest accrued by the MLC during the pendency of a termination dispute is handled.'' \174\ Specifically, it requested that ``where resolution of the dispute results in a service paying the voluntary licensor, the interest should be paid back to the service (with any requirement to pay that interest onto the voluntary licensor dictated by the terms of the voluntary license).'' \175\ The DLC further said that ``where resolution of the dispute results in payment being made by the MLC to a blanket licensor, then any interest earned should be used to offset the MLC's administrative costs.'' \176\ --------------------------------------------------------------------------- \174\ DLC Ex Parte Letter at 3 (Mar. 4, 2024). \175\ Id. at 3 n.10. \176\ Id. --------------------------------------------------------------------------- The Office had proposed that royalties held in connection with these kinds of disputes accrue interest, but did not elaborate further.\177\ Our intent was for the MLC to hold royalties in the same manner as any other held royalties under section 115(d)(3)(H)(ii).\178\ --------------------------------------------------------------------------- \177\ 88 FR 65908, 65926. \178\ 17 U.S.C. 115(d)(3)(H)(ii)(I). --------------------------------------------------------------------------- The final rule makes three clarifications regarding the funds held due to a termination-related dispute involving a voluntary license. First, the applicable funds shall be held by the MLC in the same manner and at the same interest rate as any other held funds. Second, where the resolution of the dispute results in payment being made by the MLC pursuant to a blanket license, that payment must include accrued interest. In that situation, the Office sees no reason why the MLC or DMPs (through an offsetting of the MLC's costs) should profit from the fact that there was a dispute. Third, where the resolution of the dispute results in a DMP paying royalties to a voluntary licensor, the MLC must promptly return the held funds, including accrued interest, to the DMP, who then may or may not be required to pass that interest on to the voluntary licensor depending on the terms of their agreement. The Office disagrees with the MLC that ``under the explicit language of [section 115(d)(3)(H)], interest earned . . . can only be for the benefit of copyright owners,'' such that ``such accrued interest cannot be transmitted to [DMPs] for their own benefit (or to be disposed of in their discretion), even where royalties are ultimately refunded to [DMPs] as associated with voluntary licenses.'' \179\ Section 115(d)(3)(H) does not apply in the context of funds held during disputes over the application of the Exception to voluntary licenses. --------------------------------------------------------------------------- \179\ MLC Ex Parte Letter at 5-6 (Mar. 22, 2024). --------------------------------------------------------------------------- First, section 115(d)(3)(H) provides requirements for the holding of royalties and accrual of interest with respect to ``unmatched'' works.\180\ As discussed above, disputes over the application of the Exception are not ownership disputes.\181\ Since ownership is not in question, and the owner would need to already be registered with the MLC for there to even be a dispute of this kind, the works at issue in such a dispute would not be ``unmatched'' within the meaning of the statute.\182\ --------------------------------------------------------------------------- \180\ See 17 U.S.C. 115(d)(3)(H). \181\ 88 FR 65908, 65919. \182\ See 17 U.S.C. 115(e)(35) (``The term `unmatched', as applied to a musical work (or share thereof), means that the copyright owner of such work (or share thereof) has not been identified or located.''). --------------------------------------------------------------------------- Second, section 115(d)(3)(H) does not apply through section 115(d)(3)(G)(i)(III)(bb), which provides that the MLC shall ``deposit into an interest-bearing account, as provided in subparagraph (H)(ii), royalties that cannot be distributed due to . . . a pending dispute before the dispute resolution committee of the [MLC].'' \183\ Such disputes are described in section 115(d)(3)(K)(i) as ``disputes relating to ownership interests in musical works licensed under this section.'' \184\ The Office reiterates that a dispute over the application of the Exception is not an ownership dispute. It is a dispute over the legal effect of a valid termination.\185\ --------------------------------------------------------------------------- \183\ See id. at 115(d)(3)(G)(i)(III)(bb). \184\ Id. at 115(d)(3)(K)(i). \185\ 88 FR 65908, 65919. --------------------------------------------------------------------------- For these reasons, the Office is regulating how the MLC should handle these types of disputes and the associated royalties and interest. With respect to the interest issue, we believe the most equitable approach is for the MLC to pay the interest along with the royalties, regardless of to whom such royalties are paid. The reason for requiring the accrual of interest is to make the applicable party whole for the time-value of money while the dispute is pending resolution. The Office is requiring the interest rate to be the same as for funds held under section 115(d)(3)(H)(ii) because that is a rate that Congress, by enacting it as part of the MMA, has found to be reasonable. Where there is a voluntary license at issue, whether the DMP or the voluntary licensor is to be made whole is up to the relevant agreement. Therefore, depending on the terms of the agreement, either the DMP will be permitted to retain the interest for itself or will be required to pay it through to the voluntary licensor. A voluntary licensor should not gain a benefit beyond the terms of its agreement simply because the Office is requiring the disputed funds to be held at the MLC rather than at the DMP. [[Page 56597]] B. The Copyright Owner at the Time of the Use Versus the Copyright Owner at the Time of the Payment In both the NPRM and SNPRM, the Office proposed that the copyright owner at the time of the use is legally entitled to royalty distributions from the MLC unless the MLC is directed otherwise. In response to the SNPRM, the Office received numerous comments from publishers, songwriters, and other industry stakeholders expressing concern with that approach. As discussed below, their concerns related to whether the Office's understanding of the law conflicted with current music industry royalty administration practices or would cause administrative challenges for the MLC. In this final rule, the Office is adopting our earlier proposal with some modifications to address these operational concerns. 1. Background In addressing whether the owner at the time of the use or the owner at the time of the payment is entitled to blanket license royalties, the NPRM stated that a copyright owner is entitled to blanket license royalties at the moment in time when the use of the relevant musical work by a DMP occurs.\186\ The Office refers to this understanding as the ``owner at the time of the use'' approach. --------------------------------------------------------------------------- \186\ 87 FR 64405, 64412. --------------------------------------------------------------------------- The SNPRM provided further analysis of this approach, concluding that ``it appears that, absent an agreement to the contrary, the copyright owner who can sue a DMP for infringement due to non-payment of royalties under the blanket license is the copyright owner at the time the infringement was committed--i.e., at the time of the use. It, therefore, seems reasonable to the Office for that owner to be the one to whom such royalties are paid by the MLC.'' \187\ The Office's conclusion that the owner at the time of the use is entitled to the royalty distribution was based on both the MMA and broader copyright law principles.\188\ The SNPRM proposed regulatory text identifying the owner at the time of the use as the legally entitled party. --------------------------------------------------------------------------- \187\ 88 FR 65908, 65913. \188\ See id. at 65912 (reflecting the Office's statutory analysis). --------------------------------------------------------------------------- The Office, recognizing the importance of giving effect to private contracts that may call for different payment arrangements, also proposed that the rule ``would only establish the owner at the time of the use as the default payee--i.e., the proper payee to whom the MLC must distribute royalties and any other related amounts under the blanket license in the absence of an agreement to the contrary.'' \189\ We then proposed additional provisions to govern notification of the MLC about alternative payee designations, such as through letters of direction, ``to accommodate and give effect to contractual payment arrangements that deviate from this default rule.'' \190\ --------------------------------------------------------------------------- \189\ Id. at 65913. \190\ Id. at 65913-14, 65916-17. --------------------------------------------------------------------------- Finally, the NPRM also proposed that the MLC should use the last day of the relevant monthly reporting period to identify the proper copyright owner for that month's royalty distribution. The Office suggested that doing so would be in line with the monthly reporting and royalty distribution process created by the MMA and our regulations and would make the rule reasonably administrable for the MLC, compared to requiring the MLC to identify the copyright owner entitled to royalties on a day-to-day basis.\191\ The Office sought comments on this proposed approach, including whether some other point in time might be appropriate.\192\ --------------------------------------------------------------------------- \191\ 87 FR 64405, 64412. \192\ Id. --------------------------------------------------------------------------- 2. Comments Comments from publishers, songwriters, and other industry stakeholders expressed concern with the owner at the time of the use approach.\193\ Many of these parties favored an approach where royalties would be distributed to the copyright owner identified in the MLC's records as of the date of each monthly royalty distribution. The Office refers to this as ``the owner at the time of the payment'' approach. --------------------------------------------------------------------------- \193\ See, e.g., MLC SNPRM Initial Comments at 1-16; NMPA SNPRM Initial Comments at 2-13; NMPA Ex Parte Letter at 1-2 (Jan. 24, 2024); AIMP SNPRM Initial Comments at 1-4; Combustion Music SNPRM Initial Comments; Endurance Music Grp. SNPRM Initial Comments at 1- 2; Farris, Self & Moore, LLC SNPRM Initial Comments at 1-2; Boom Music SNPRM Initial Comments; Jonas Grp. Publ'g SNPRM Initial Comments; Kobalt Music SNPRM Initial Comments at 2; Liz Rose Music SNPRM Initial Comments at 1-2; Big Machine Music SNPRM Initial Comments at 1-2; Legacyworks SNPRM Initial Comments; Me Gusta Music SNPRM Initial Comments at 1-2; Relative Music Grp. SNPRM Initial Comments at 1-2; Harding SNPRM Initial Comments; Moore SNPRM Initial Comments; North Music Grp. SNPRM Initial Comments at 2; NSAI SNPRM Initial Comments at 2-5; Big Yellow Dog SNPRM Initial Comments; Reservoir Media Mgmt. SNPRM Initial Comments at 1-2; SMACKSongs SNPRM Initial Comments; Sony Music Publ'g SNPRM Initial Comments at 1-5; Spirit Music Grp. SNPRM Initial Comments at 1-3; Turner SNPRM Initial Comments at 1-2; Wiatr & Assocs. SNPRM Initial Comments; Jody Williams Songs SNPRM Initial Comments at 1-2; Concord Music Publ'g SNPRM Initial Comments at 1-3; ClearBox Rights SNPRM Reply Comments at 4-5; Creative Nation SNPRM Reply Comments at 1-2; The Greenroom Resource SNPRM Reply Comments at 1; MAC et al. SNPRM Reply Comments at 2; Recording Academy SNPRM Reply Comments at 3; SONA SNPRM Reply Comments at 2-5; Universal Music Publ'g Grp. SNPRM Reply Comments at 1-5; Warner Chappell Music SNPRM Reply Comments at 3-8; DLC SNPRM Reply Comments at 2-4. --------------------------------------------------------------------------- At a high level, commenters' primary concerns with the owner at the time of the use approach were practical ones. Specifically, they asserted that this approach is not a standard practice in the music industry and is contrary to how industry contracts generally work, that it will be burdensome and disruptive across the industry (including to the MLC), and that it will result in inaccurate and delayed payments (including to songwriters).\194\ --------------------------------------------------------------------------- \194\ Examples of other issues raised by the comments include that: it may upset commercial expectations and cause problems with financial modeling and reporting; it may lead to an increase in fraudulent claims; implementation would require the development of new data and processing systems and new reporting formats and standards across the entire industry that will be costly and time- consuming to create; once a publisher's or administrator's rights period expires, they should not be burdened with the expense and liability of needing to ensure that any future income they receive flows through to the current owner to whom rights have been transferred; former publishers and administrators are not set up to distribute royalties to former songwriter partners, and practically would not have current contact or banking information available to make such distributions to their former songwriters; the choice of songwriters to change publishers or administrators should be honored, and they should not be forced to continue a relationship with their former representative with respect to these royalties that may be inefficient or lack transparency and accountability; it will lead to lower match rates and more unmatched royalties at the MLC, especially for pre-2021 periods. --------------------------------------------------------------------------- A few commenters supported the Office's legal conclusions regarding the proper copyright owner who is entitled to blanket license royalties.\195\ Others suggested a bifurcated approach to addressing the issue. For example, the Music Artists Coalition (``MAC'') said that, in the termination context, the payee should be the owner at the time of the use, but for everything else, it should be the owner at the time of the payment.\196\ Similarly, NMPA, as a ``compromise,'' proposed regulatory text based on the NPRM that ``applies a time of use rule solely in the termination context.'' \197\ It argued, however, ``that a rule providing for payment to the owner at the time of distribution in all contexts is the more appropriate one.'' \198\ --------------------------------------------------------------------------- \195\ See, e.g., Howard SNPRM Initial Comments at 1-2; King, Holmes, Paterno & Soriano LLP SNPRM Reply Comments. \196\ MAC Ex Parte Letter at 2 (Dec. 29, 2023). \197\ NMPA Ex Parte Letter at 2 (Jan. 24, 2024). \198\ Id. --------------------------------------------------------------------------- 3. Legal Entitlement to Blanket License Royalties Despite the lack of support from commenters, few addressed the [[Page 56598]] statutory text or the Office's legal analysis. Only NMPA and the MLC provided substantive arguments that the MMA's statutory language and legislative history support the MLC distributing royalties to the owner at the time of the payment.\199\ --------------------------------------------------------------------------- \199\ NMPA SNPRM Initial Comments at 11-13; MLC SNPRM Initial Comments at 4-11. NMPA also made an argument based on language used by the Office in the NPRM's analysis of the Exception which stated that the ``current copyright owner'' is entitled to blanket license royalties, that owner ``can change over time'' and, after such a change, ``the new owner becomes the proper payee.'' NMPA SNPRM Initial Comments at 11 (citing 87 FR 64405, 64411; 88 FR 65908, 65912). To clarify, the Office's use of the term ``current'' was intended to identify that the proper payee is the copyright owner concurrent with the time the work was used. While the last copyright owner in time may be the proper payee, we were not suggesting that this is necessarily always the case. --------------------------------------------------------------------------- NMPA conceded that the Office's proposal ``is not based on an unreasonable legal interpretation.'' At the same time, it asserted that ``unless the statute is clear, a legal interpretation of relevant statutory provisions should not cause disruption in a private, functioning market.'' \200\ It also disagreed with the Office's statutory analysis and proposed a different reading. NMPA's statutory arguments referred to sections 115(d)(3)(G)(i)(II) and 115(d)(3)(J)(i) (provisions governing royalty distributions), stating that they must be read together with sections 115(d)(3)(E)(i) and 115(d)(3)(E)(ii)(II)- (III) (provisions governing the MLC's ownership database). Relying on those provisions, NMPA stated: --------------------------------------------------------------------------- \200\ NMPA SNPRM Initial Comments at 11. The MLC is . . . not directed by statute to maintain . . . historical copyright ownership or chain of title information within its musical works database. Because the MLC does not maintain in the musical works database records that would enable it to identify the ``copyright owner'' at the precise time of use, and the ``copyright owner'' as identified in the musical works database is always the then-current copyright owner (and not the owner at the time of use or at some other prior time), the direction to pay ``copyright owners in accordance with . . . the ownership and other information contained in the records of [the MLC]'' should be read as a direction to pay the owner at the time of payment.\201\ --------------------------------------------------------------------------- \201\ Id. at 12 (second and third alterations in original). NMPA then referred to section 115(d)(3)(I), asserting that ``once a match is made, all the accrued royalties with respect to such previously unmatched work are paid to the then-current copyright owner to which the work has been matched. There is no requirement for the MLC to determine which portion of those royalties may relate to uses made at a time when a different (potentially not yet identified) copyright owner owned the work.'' \202\ NMPA concluded by stating that it ``does not believe that the sections referred to by the [Office] support a different conclusion,'' as those provisions ``do not address the issue of who has the statutory right to receive Blanket License royalty payments.'' \203\ --------------------------------------------------------------------------- \202\ Id. at 12-13. \203\ Id. at 13. --------------------------------------------------------------------------- The MLC made similar statutory arguments, referencing some of the MMA's same sections,\204\ as well as its legislative history.\205\ Similar to NMPA, the MLC asserted that ``[t]he MMA directive to distribute royalties based on the `information in [its] records' is most appropriately read to mean that The MLC is to distribute royalties to the copyright owners' current registered payee.'' \206\ --------------------------------------------------------------------------- \204\ MLC SNPRM Initial Comments at 4-7 (referencing 17 U.S.C. 115(d)(3)(G)(i)(II), 115(d)(3)(J)(i), 115(d)(3)(E)(i)-(ii), and 115(d)(3)(I)). \205\ Id. at 4-11. Regarding legislative history, the MLC primarily pointed to there being ``no mention or contemplation of the creation of a database that includes temporal histories of past ownership'' and that a description of the provisions concerning market share-based distributions of unclaimed royalties ``conveys an understanding that royalties would be paid to the entities that currently represent songwriters, not to an entity that may have represented the songwriter in the past but is no longer authorized to do so.'' Id. at 8-9 (citing H.R. Rep. No. 115-651, at 7-9, 13 and S. Rep. No. 115-339, at 8-9, 14). \206\ Id. at 5-6. --------------------------------------------------------------------------- The Office acknowledges the practical consequences of our analysis in the SNPRM. However, those practicalities do not create legal entitlements or change the terms of title 17, absent contractual or other arrangements. While sections 115(d)(3)(G)(i)(II) and 115(d)(3)(I) provide the ``copyright owner'' with legal entitlement to the royalties, neither they nor the other cited provisions speak to which copyright owner possesses such entitlement between the owner at the time of the use or the owner at the time of the payment.\207\ That is why the Office engaged in the analysis it did in the NPRM and SNPRM.\208\ --------------------------------------------------------------------------- \207\ Nor do these provisions necessarily require that there be only a single payee contained in the MLC's records for each work (or share). At best, these provisions are silent on that issue. The MLC's reliance on legislative history is similarly misplaced, as their cited references also do not appear to directly speak to this issue. In particular, market share-based distributions of unclaimed royalties are a unique feature of the MMA, and whatever the meaning of the specific provisions governing that special type of distribution--which is a matter beyond the scope of this proceeding--they do not speak to the legal entitlement to or distribution requirements for blanket license royalties that have not yet become ``unclaimed'' within the meaning of the statute. See 17 U.S.C. 115(d)(3)(J), (e)(34). \208\ 88 FR 65908, 65912 (explaining that the analysis regarding the owner at the time of the use versus the owner at the time of the payment issue concerned the Office's proposal ``[t]o codify its preliminary conclusion that the statute entitles the `current copyright owner' to the royalties under the blanket license''). --------------------------------------------------------------------------- The MMA's references to the MLC's records do not resolve this issue. They merely provide instructions as to how the MLC shall distribute royalties to legally entitled copyright owners. Such distributions must be made to such copyright owners ``in accordance with . . . the ownership and other information contained in the records of the [MLC].'' \209\ Those records contain important information about how to make the distribution, including contact, banking, and other information about the owner, as well as whether payment is to be made to an administrator or other representative or designee.\210\ --------------------------------------------------------------------------- \209\ See 17 U.S.C. 115(d)(3)(G)(i)(II). \210\ See, e.g., 37 CFR 210.31(b)(1)(iii), (b)(1)(v)(D). --------------------------------------------------------------------------- Of course, the statute's direction to the MLC to make distributions based on the information in its records does not resolve any underlying dispute regarding who is entitled to the royalty distribution. Clearly, the MLC can only distribute royalties based on known information. But what the MLC ``knows,'' based on its records, could turn out to be wrong, for example, if an imposter managed to successfully register a fraudulent ownership claim, or a legitimate copyright owner accidentally but erroneously claimed a work in good faith. If the statute is understood to confer entitlement to the royalties on whomever is identified in the MLC's records, it creates a conflict with the rest of the statutory text that confers this entitlement on the copyright owner. Moreover, such a reading would provide perverse incentives for parties to race to submit as many fraudulent claims to the MLC as possible in the hope of gaining such legal entitlement. Congress did not intend to create such an absurd scheme, whereby claimants who may be intentionally lying can obtain legal entitlement to royalties for uses of copyrighted works instead of the actual copyright owners. Thus, while the individual or entity legally entitled to the royalties and the individual or entity actually receiving the distribution from the MLC will, in most cases, be the same, this will not always be the case. If they are not the same, being identified in the MLC's records alone will not alter or prejudice the true copyright owner's legal entitlement to those royalties. The Office concludes that this is the only reasonable way to read the MMA's [[Page 56599]] instructions to the MLC regarding distributions. With respect to the Office's further analysis contained in the NPRM and SNPRM, to the extent NMPA or the MLC is suggesting that Congress meant to establish a special exception regarding copyright ownership or royalty entitlement in connection with the blanket license, the Office disagrees. As explained in the SNPRM, reading section 501(b) in conjunction with section 115(d)(4)(E)(ii)(II) (which directly references section 501), ``it appears that, absent an agreement to the contrary, the copyright owner who can sue a DMP for infringement due to non-payment of royalties under the blanket license is the copyright owner at the time the infringement was committed--i.e., at the time of the use.'' \211\ This is the best reading of the statute: that Congress expected the party who is legally entitled to the royalties and the party who is legally permitted to sue a DMP for infringement for the nonpayment of such royalties to be one and the same. That understanding is best reflected in section 115(d)(4)(E)(ii)(II)'s cross reference to section 501. If Congress had intended an exception to the operation of section 501(b) for infringement cases related to the blanket license, it would have articulated one. The Office recognizes that legal entitlements can be varied by contract, but that variation is not relevant to understanding how the statute works absent any such agreement's terms. --------------------------------------------------------------------------- \211\ 88 FR 65908, 65913. --------------------------------------------------------------------------- Some commenters suggested to the Office that potential concerns over the time of use approach are addressed through contract.\212\ But contract terms stating that acquiring publishers will be paid royalties for pre-acquisition uses of musical works imply agreement with the Office's conclusions about default royalty entitlement in the absence of a relevant agreement. Additionally, most of the comments addressing the time of use approach focused on concerns related to business practices (e.g., paperwork, royalty processing, data tracking) rather than the law. While such concerns are relevant to the practical administrability of the rule, and support certain changes the Office ultimately made to the final rule (which are discussed below), they have no bearing on the statutory analysis discussed above or in the NPRM or SNPRM. --------------------------------------------------------------------------- \212\ See, e.g., MLC SNPRM Initial Comments at 11; NMPA SNPRM Initial Comments at 4-5 & n.4, 10; Kobalt Music SNPRM Initial Comments at 2; Reservoir Media Mgmt. SNPRM Initial Comments at 1; Sony Music Publ'g SNPRM Initial Comments at 1-2; Spirit Music Grp. SNPRM Initial Comments at 1; Concord Music Publ'g SNPRM Initial Comments at 2; Universal Music Publ'g Grp. SNPRM Reply Comments at 2. --------------------------------------------------------------------------- Based on the foregoing, as well as the relevant discussion in the NPRM and SNPRM, the Office is adopting the owner at the time of the use rule as final, but only with respect to identifying who is legally entitled to blanket license royalties under the statute as a default matter. Unlike the SNPRM, the final rule does not mandate that the MLC may only make distributions to either the owner at the time of the use or an alternative payee specifically designated by such owner.\213\ Rather, it contains a new provision (detailed in the section below) governing how the MLC is to make royalty distributions based on the information in its records. --------------------------------------------------------------------------- \213\ Despite this change, the final rule still provides that the relevant owner is the owner as of the last day of the monthly reporting period in which the work is used pursuant to a blanket license. While the Office's original reasoning for that was partially based on concerns about requiring the MLC to manage day- to-day ownership changes occurring mid-month, it also rested on the fact that the MMA established a monthly-based reporting scheme for DMPs. 87 FR 64405, 64412. The Office relies on the latter in adopting the final rule. See 17 U.S.C. 115(d)(4)(A). --------------------------------------------------------------------------- As discussed above, the MLC's records are not determinative with respect to who is legally entitled to royalties. At the same time, the Office agrees with NMPA and the MLC that section 115(d)(3)(G)(i)(II) directs the MLC to make distributions in accordance with the information in its records.\214\ The Office has therefore decided to adopt two provisions--one that describes who is legally entitled to the royalties and another that directs to whom the MLC shall distribute royalties. The two provisions avoid confusion, making clear that the MLC's distribution does not mean that the recipient is legally entitled to those royalties, but instructing the MLC regarding the distributions that it should make. Adopting regulations directing the MLC to act, unaccompanied by regulations identifying who is legally entitled to the royalties, could create a misunderstanding regarding proper application of the law. But, as discussed below, aligning the legal entitlement with the directive to the MLC in all cases would be administratively infeasible. The new distribution provision instead enables the MLC to make royalty distributions to the owner at the time of the payment in accordance with the standard industry practice for which commenters expressed virtually universal support. --------------------------------------------------------------------------- \214\ 17 U.S.C. 115(d)(3)(G)(i)(II). --------------------------------------------------------------------------- Some commenters continued to voice concerns with the Office articulating who is legally entitled to the royalties as a default matter, even when coupled with the new distribution provision discussed below.\215\ The Office has considered these concerns, but declines to remove the entitlement provision from the final rule. Especially considering the new distribution provision discussed below, the Office believes it is important to provide a clear statement of the party who is legally entitled to blanket license royalties as a default matter. --------------------------------------------------------------------------- \215\ See NMPA Ex Parte Letter at 1-2 (Jan. 24, 2024); MLC Ex Parte Letter at 3 (Feb. 5, 2024); MAC & NSAI Ex Parte Letter at 1 (Feb. 12, 2024). --------------------------------------------------------------------------- First, the Office is always mindful of potential unintended consequences that may stem from its rules. To the extent the Office's legal conclusions may differ from the practices of certain industry participants, those differences seem to be based on expectations arising out of contracts or business norms, not title 17. Moreover, failure to explain that entitlement to royalties is based on the time of the use could lead to confusion and the mistaken impression that the MLC's royalty distributions, which are based on information in its records at the time of the payment--principally for administrative convenience--reflects a determination of entitlement. On balance, the best way to minimize confusion is for the Office to articulate our interpretation of the statute. Second, the Office disagrees with the argument that the rule is unnecessary because private agreements will govern anyway. That argument presupposes that every private agreement will speak to this issue. Nothing in the record indicates that this is universally true, indicating there is at least some subset of contracts as to which this provision will be applicable.\216\ Moreover, this argument presupposes that all transfers are contractual, which is incorrect. --------------------------------------------------------------------------- \216\ The Office, of course, does not mean to suggest that this provision should in any way override the intent of contracting parties if an agreement is ambiguous. If the parties disagree as to whether an agreement conveyed the entitlement to the applicable royalties, the usual standards under applicable state law for construing private contracts would still apply. The MLC should treat any such disagreement like an ownership dispute. --------------------------------------------------------------------------- Finally, the Office disagrees that the existence of non-contractual transfers, like intestate succession or bankruptcy, weigh against this rule, as their existence does not change the statutory analysis discussed above and in the SNPRM. The Office has, however, clarified in the final rule that the entitlement to royalties can be [[Page 56600]] transferred and that the default royalty entitlement provided for is subject to any such transfer. 4. The MLC's Distribution of Royalties Based on Its Records As mentioned above, the final rule includes a new provision to address the MLC's royalty distributions based on the information in its records, as required by section 115(d)(3)(G)(i)(II). The new regulation has four main parts summarized here. i. Default Royalty Distribution Practices Regarding Ownership and the MLC's Records The first part of the regulation provides that, when making a distribution, the MLC shall treat the individual or entity identified in its records as of the date of the payee snapshot used for the applicable distribution as legally authorized to receive the distribution (e.g., meaning that such party is the owner at the time of the use (or such owner's representative or designee) or a successor in interest to such owner's entitlement to the royalties (or such successor's representative or designee)). In other words, the MLC is to distribute royalties based on its records and to assume that whoever is in its records is legally entitled to the distribution, subject to the additional provisions below. By making royalty distributions to the owner reflected in the MLC's records on the date of the payee snapshot (i.e., at the time of the payment), the MLC will be acting in accordance with widespread industry practice without contravening the statute. One commenter called it ``an elegant solution.'' \217\ --------------------------------------------------------------------------- \217\ MAC & NSAI Ex Parte Letter at 1 (Feb. 12, 2024); see also MCNA et al. Ex Parte Letter at 1-2 (Mar. 15, 2024) (articulating qualified support for this solution in the termination context and subject to other various caveats, calling it ``a reasonable and practical solution that accounts for both business considerations and the protection of creators' rights under the law in termination rights situations''). --------------------------------------------------------------------------- This default distribution provision is both consistent with the language of the statute and responsive to the MLC's request for the ``inclusion of a provision confirming that [it] can distribute royalties for a musical work to the current payee registered in its database.'' \218\ The Office concludes that the new provision is a reasonable and appropriate approach which facilitates the MLC's administration of royalty distributions. Moreover, this result was overwhelmingly supported by commenters. The comments made clear that the party identified in the MLC's records at the time of the payee snapshot (or its representative or designee) will be the party who is legally entitled to the distribution in the vast majority of cases.\219\ Permitting the MLC to act on the information in its records will lead to accurate payments without overburdening copyright owners and the MLC with new, potentially significant, data, reporting, and payment requirements, which could result in a delay in royalty distributions.\220\ --------------------------------------------------------------------------- \218\ MLC Ex Parte Letter at 3-4 (Feb. 5, 2024); see also MLC Ex Parte Letter at 1 (Feb. 21, 2024); MLC Ex Parte Letter at 1 (Mar. 22, 2024); Warner Chappell Music SNPRM Reply Comments at 5-6 (``[I]n light of the undisputed comments to the SNPRM detailing how and why the U.S. and international music publishing industry is universally built on maintaining current information for--and paying--the then- current owner or administrator, Warner Chappell advocates for adopting that as a default rule.''); NMPA SNPRM Initial Comments at 10 (``[A] `default rule' should be the rule that applies in the vast majority of cases, and should not be the rule that applies only in exceptional cases.''). \219\ See, e.g., MLC SNPRM Initial Comments at 11 (``[I]n most industry agreements the current payee typically has the right to receive royalties for all periods (both prospective and historical). Thus, a default rule that provides for payments to be made to the current payee (a result that is consistent with most industry agreements) would produce more accurate results than a default rule that provides for payments to be made to a historical payee (a result that does not align with most industry agreements.''); NMPA SNPRM Initial Comments at 4-5 (``[T]he custom and practice in the music industry is for royalties to be paid to the owner of the copyright at the time of payment rather than at the time of use, unless a different arrangement is agreed to between that copyright owner and a different payee, e.g., the prior owner/assignor of the copyright. This custom and practice is memorialized in industry contracts and the royalty and administration systems of publishers, administrators, and CMOs are built around that custom and practice. In other words, the industry `default rule' is the opposite of the `default rule' proposed in the SNPRM.''); Kobalt Music SNPRM Initial Comments at 2 (``The administrator who is registered at the time of a distribution is nearly always the entity that all royalties should be paid to, and this is how industry contracts and CMOs generally operate. Any exceptions to this practice would be the distinct minority.''); Sony Music Publ'g SNPRM Initial Comments at 1-2 (``The Prior Owner Rule is inconsistent with the contracts around which the music publishing industry is built. . . . When music catalogues are bought and sold, the terms of the acquisition documents generally provide that the acquiring party has the right to collect all income after the date of sale.''); Universal Music Publ'g Grp. SNPRM Reply Comments at 2 (``Under industry contracts, where rights are transferred or revert, the right to receive royalties (including those previously earned but not yet paid) generally follows the rights. . . . The Time of Use Rule will therefore . . . usually result in payment to the wrong party under the relevant contractual arrangements.''); Warner Chappell Music SNPRM Reply Comments at 5 (``[A]ny rule that would establish the `default payee' as anyone other than the current rightsholder at the time of the payment will, by definition, carry a real and inherent risk of compelling payment to someone not entitled to received it. . . . [T]he U.S. and international music publishing industry is universally built on maintaining current information for--and paying--the then-current owner or administrator.''); Big Machine Music SNPRM Initial Comments at 2 (``I have never seen a copyright transfer that doesn't include a letter of direction to effectively set out the process for the new owner to receive all future income.''); Reservoir Media Mgmt. SNPRM Initial Comments at 2 (``There is nothing to gain from some of these changes beyond a mirage of accuracy that is not in alignment with actual collection rights.''); SONA SNPRM Reply Comments at 3 (``Songwriters, publishers, and other third parties acquiring and/or licensing publishing rights in the music industry transfer rights, including the right to administer and collect royalty income, as of a specific date of transfer so that the party that is newly entitled to administer, collect and receive income in connection with the particular works will do so as of that specific effective date regardless of when those monies were earned.''). Other commenters also noted that this practice is not completely universal, and that there may be exceptions. See, e.g., MLC SNPRM Initial Comments at 11; NMPA SNPRM Initial Comments at 4-5; Kobalt Music SNPRM Initial Comments at 2; Sony Music Publ'g SNPRM Initial Comments at 1-2; Universal Music Publ'g Grp. SNPRM Reply Comments at 2; Warner Chappell Music SNPRM Reply Comments at 6 (``In the rare instance where parties actually intend for someone other than the current owner or administrator to receive an MLC distribution, those parties are best positioned to so notify the MLC.''). \220\ The Office acknowledges that this default distribution provision could lead to the ``wrong'' result with respect to the narrow category of post-termination royalties paid for pre- termination uses. In such cases, the pre-termination copyright owner remains entitled to those royalties absent a contrary agreement because the reversion of the copyright by operation of law does not encompass the additional entitlement to those royalties. The Office nevertheless finds the default distribution provision to be reasonable in these cases in light of the reduced burden it places on the MLC, the various exceptions to the default distribution provision discussed below, as well as comments from publishers suggesting agreement with the end-result of having the MLC distribute post-termination royalties for pre-termination uses to the post-termination owner. See, e.g., NMPA NPRM Initial Comments at 6; CMPA NPRM Initial Comments at 2 (``Although it may not be in the financial interest of the pre-termination owner, . . . it would be CMPA's recommendation that any and all adjustments of this nature be paid to the current copyright owner (that being the post-termination owner) at the time of the payment, and not at the time when the usage was made.''); see also NMPA SNPRM Initial Comments at 5 (``[I]t is the custom and practice in the industry for the new owner or the songwriter to whom rights have been assigned or reverted to be paid all unpaid royalties regardless of when they were earned.''). Additionally, the comments suggested that at least some publishers do not wish to receive such royalties due to the administrative burdens involved in sharing those royalties with former songwriter partners. See, e.g., NMPA SNPRM Initial Comments at 8; Kobalt Music SNPRM Initial Comments at 3 (``In our experience, former administrators in general are not set up to distribute royalties to their former songwriters, and almost no one--not even the former administrators themselves--wants them to continue to receive those royalties once all rights periods expire.''); Big Machine Music SNPRM Initial Comments at 1-2 (``The collection and re-distribution of this income to the new owner creates an additional administrative burden for our company, taxes the human resources of my team and creates an unwanted liability for us without any benefit.''); Me Gusta Music SNPRM Initial Comments at 2; Relative Music Grp. SNPRM Initial Comments at 1. By including these royalties within the MLC's default distribution provision, it allows publishers to choose for themselves how they would like to handle these situations. They can do nothing, and the royalties will be distributed to the post-termination owner. Or, if they wish to assert their entitlement to the royalties, they can defeat the default distribution provision and obtain them by simply notifying the MLC, as discussed below. --------------------------------------------------------------------------- [[Page 56601]] However, the Office recognizes that there may be instances where the MLC's distribution of royalties to the owner at the time of the payment under the default distribution provision would result in an improper party being paid. Therefore, the Office has included clarifications and limitations. First, any distribution made by the MLC is not a determination of a party's legal entitlement to the royalties and does not prejudice any such party's legal claim. The purpose of the default distribution provision is to reduce burdens, gain efficiencies, and enhance accuracy by applying industry practice to the MLC's distributions. It does not alter anyone's underlying legal rights-- especially if the MLC, in relying on this provision, ends up distributing royalties to an individual or entity who is not legally entitled to them. The MLC specifically supported the inclusion of such a provision.\221\ --------------------------------------------------------------------------- \221\ MLC Ex Parte Letter at 2 (Feb. 21, 2024). --------------------------------------------------------------------------- Second, the default distribution provision does not apply where there is a dispute between parties or an investigation by the MLC covering the applicable works (or shares) or payees. The reference to an investigation is meant to include situations where the MLC may be looking into, for example, a potentially fraudulent registration or claim. The purpose is to make clear that where the MLC has knowledge that there is a cloud over the ownership of the relevant work (or share), it must continue holding royalties until that cloud has cleared. Third, the default distribution provision does not apply if the MLC has been ``notified otherwise.'' This language is meant to cover circumstances where the MLC receives information that would indicate to a reasonable person that the payee identified in its records is not in fact entitled to the royalty distribution. In enacting the statutory requirement for the MLC to distribute royalties pursuant to its records, Congress did not intend for the MLC to knowingly make inaccurate payments after being expressly informed otherwise.\222\ Whether particular information received is sufficient, or whether any such information is adequately substantiated, for the MLC to actually be ``notified'' is a matter the Office leaves to the MLC's reasonable discretion based on its experience, practices, and policies, subject to the Office's guidance.\223\ --------------------------------------------------------------------------- \222\ See H.R. Rep. No. 115-651, at 9 (referring to ``the efficient and accurate collection and distribution of royalties'' as the MLC's ``highest responsibility''); S. Rep. No. 115-339, at 9 (same); Conf. Rep. at 7 (same). \223\ While the MLC suggested that such notifications will always take the form of disputes, the Office cautions that this might not always be the case. See MLC Ex Parte Letter at 1-2 (Mar. 22, 2024). That is why the final rule provides separate explicit provisions for both disputes and where the MLC is notified otherwise. The notification provision is meant to be broader to encompass other possible scenarios outside of a formal dispute. While the degree of overlap between the two provisions may be substantial, it is not necessarily total. --------------------------------------------------------------------------- ii. The Default Distribution Provision Does Not Change the MLC's Duty To Verify the Accuracy of Royalty Distributions The next part of the provision states that despite the default distribution provision, the MLC must continue to engage in reasonable efforts to verify the information provided to it and to combat against fraudulent registrations and claims. This provision is not intended to require the MLC to engage in additional efforts beyond those it currently undertakes, but rather to ensure that it continues to engage in such efforts after the rule is enacted.\224\ An examination of the MLC's current such efforts and their sufficiency is beyond the scope of this proceeding. --------------------------------------------------------------------------- \224\ See MLC Ex Parte Letter at 5 (Feb. 21, 2024) (explaining that the MLC ``has substantial review processes in place to prevent fraudulent or improper claiming and diversion of royalties''); see also U.S. Copyright Office, Unclaimed Royalties: Best Practice Recommendations for the Mechanical Licensing Collective iii, 60 (2021), https://copyright.gov/policy/unclaimed-royalties/unclaimed-royalties-final-report.pdf (``[T]he MLC should have mechanisms in place to help review, verify, and quality-check information, and recognize problems like conflicts, inconsistencies, inaccuracies, and potential fraud.''). --------------------------------------------------------------------------- iii. The MLC Must Still Correct Its Own Errors The final part of the provision is meant to codify and clarify a point made in the SNPRM that ``[w]here the MLC distributes royalties to the wrong payee due to an error on the MLC's part . . . , the MLC must correct its error in a timely fashion.'' \225\ The regulation makes clear that the applicable type of error is one caused by the MLC's actions, as opposed to where the MLC acts in accordance with the default distribution provision or otherwise reasonably relies on information provided to it by others that turns out to be inaccurate.\226\ The reference to the MLC's actions encompasses the actions of its employees, but the Office also intends for it to cover actions of others acting on its behalf. --------------------------------------------------------------------------- \225\ 88 FR 65908, 65918 n.137. \226\ See MLC Ex Parte Letter at 2 (Mar. 22, 2024). --------------------------------------------------------------------------- C. Matched Historical Royalties Outside the context of the owner at the time of the use versus the owner at the time of the payment issue, the Office received few comments regarding our proposal that the MLC report and distribute matched historical royalties in the same manner and subject to the same requirements that apply to the reporting and distribution of blanket license royalties.\227\ Notably, the MLC supported this proposal by including it in its own regulatory proposal and no commenters appear to have objected.\228\ The Office is, therefore, adopting this portion of the SNPRM as final for the reasons stated in the SNPRM.\229\ --------------------------------------------------------------------------- \227\ See 88 FR 65908, 65914. \228\ See MLC SNPRM Reply Comments, App. A. at iii-iv. \229\ 88 FR 65908, 65914. --------------------------------------------------------------------------- D. Ownership Transfers and Royalty Payee Changes The final rule retains the overall framework and structure from the SNPRM with respect to the provisions governing notice to and implementation by the MLC of ownership transfers and other royalty payee changes.\230\ The Office, however, has made several changes from the SNPRM. --------------------------------------------------------------------------- \230\ See id. --------------------------------------------------------------------------- 1. Notice of a Change to the MLC The SNPRM contained detailed and tailored notice requirements based on the type of payee change at issue. It proposed such requirements for the following circumstances: (1) transfers of copyright ownership other than by will or operation of law; (2) transfers of copyright ownership by statutory termination; (3) other transfers of copyright ownership; and (4) designations of alternative royalty payees.\231\ --------------------------------------------------------------------------- \231\ Id. at 65914-17. --------------------------------------------------------------------------- In response to the SNPRM, several commenters criticized the non- termination-related notice requirements, including on the ground that the Office does not need to regulate standard operational processes, like those concerning contractual transfers and letters of direction, for which the MLC has well-functioning systems in place.\232\ Commenters also contended [[Page 56602]] that the SNPRM's requirements were unworkable or unduly burdensome.\233\ --------------------------------------------------------------------------- \232\ See e.g., Kobalt Music SNPRM Initial Comments at 3; Spirit Music Grp. SNPRM Initial Comments at 2; Reservoir Media Mgmt. SNPRM Initial Comments at 2; ClearBox Rights SNPRM Reply Comments at 10. \233\ See e.g., NMPA SNPRM Initial Comments at 4, 14-15; Spirit Music Grp. SNPRM Initial Comments at 2; Farris, Self & Moore, LLC SNPRM Initial Comments at 1; Warner Chappell Music SNPRM Reply Comments at 7-8; Universal Music Publ'g Grp. SNPRM Reply Comments at 2 n.1; Reservoir Media Mgmt. SNPRM Initial Comments at 2. --------------------------------------------------------------------------- The MLC echoed these comments and submitted a regulatory proposal that largely retained the Office's proposed requirements for termination-related transfers, but replaced the other notice requirements with a catch-all provision providing that such notice be made in accordance with requirements established by the MLC.\234\ Few commenters supported the Office's proposal with respect to non- termination-related notices.\235\ --------------------------------------------------------------------------- \234\ MLC SNPRM Reply Comments at 3-5, App. A at iv-xii; MLC SNPRM Initial Comments at 18-20; MLC Ex Parte Letter at 2 (Mar. 22, 2024) (explaining ``the need for flexibility to incorporate evolving industry practices into processes to effectuate the various types of transfers and payee changes that occur in the normal course of business for rightsholders''). \235\ See, e.g., Promopub SNPRM Initial Comments at 5. --------------------------------------------------------------------------- Based on these comments, the Office has scaled back the notice requirements, generally in line with the MLC's proposal. Outside of the termination context, it does not appear that regulation is currently necessary. Instead, the Office is issuing a rule directing the MLC to adopt a written policy reflecting its practices and requirements for non-termination-related notices. The Office will monitor this area and will consider potentially adopting regulations in the future if presented with a record reflecting a need to intervene. i. Non-Termination-Related Transfers of Copyright Ownership and Royalty Payee Changes As discussed above, the final rule omits the previously proposed requirements for non-termination-related notices and replaces them with a directive for the MLC to adopt and publish requirements for such notices. More specifically, the final rule provides that parties seeking to make payee changes outside the context of a termination must notify the MLC pursuant to such reasonable requirements as it establishes and makes publicly available on its website. To the extent the MLC does not already have such a policy on its website as of the date this final rule is published in the Federal Register, the MLC will have 60 days to adopt one and make it public, unless the Office permits an extension. Additionally, there is one aspect of the SNPRM regarding non- termination-related notices that the final rule retains. In response to the NPRM, the Songwriters Guild of America et al. (``SGA et al.'') proposed specific requirements to apply where the MLC is asked by the terminating party to implement an agreement directing it to pay post- termination royalties to the pre-termination copyright owner.\236\ SGA et al. was concerned about contractual overreach by publishers requiring the execution of anticipatory letters of direction as part of publishing deals.\237\ The Office included the proposal as part of the SNPRM, explaining that ``[b]ased on the current record, the proposal seems to be a reasonable safeguard, even if there is no such overreach at present.'' \238\ No commenter specifically opposed this proposal, and the MLC included it in its regulatory proposal.\239\ The Office has, thus, retained most of the proposal in the final rule with some minor conforming edits.\240\ --------------------------------------------------------------------------- \236\ 88 FR 65908, 65917. \237\ Id. \238\ Id. \239\ MLC SNPRM Reply Comments, App. A. at vi-vii. \240\ The final rule does not include the requirement that such a notice must include ``a clear statement stipulating that neither the notice nor the distribution of royalties by the mechanical licensing collective in accordance with the notice prejudices the rights of either party'' as such a requirement would be unnecessary, considering that the regulations also require the notice to be signed after the effective date of termination. --------------------------------------------------------------------------- ii. Transfers of Copyright Ownership by Statutory Termination In contrast to the Office's proposal on non-termination-related notices, commenters generally did not oppose the Office's proposal on notices to the MLC about payee changes resulting from statutory terminations. Indeed, multiple commenters affirmatively supported it.\241\ For example, MAC et al. said that they ``fully support the Office's proposal,'' calling it ``simple, practical and efficient.'' \242\ The MLC ``welcome[d] regulatory clarity from the Office'' on this topic \243\ and said that ``[m]uch of the provisions concerning termination procedure are consistent with MLC practice, or could be implemented.'' \244\ The MLC and other commenters, however, proposed modifications to the Office's proposal to address discrete concerns. --------------------------------------------------------------------------- \241\ See, e.g., MLC SNPRM Initial Comments at 20; MLC SNPRM Reply Comments at 3; MAC et al. SNPRM Initial Comments at 2-3; Promopub SNPRM Initial Comments at 5. Despite its general support, Promopub also expressed concern that ``[i]f the terminating party has already been subjected to a dispute process at the MLC, the pre- termination copyright owner/prior payee should not have another opportunity to add salt to the wound by way of the proposed Rule creating another notification and dispute cycle.'' Promopub SNPRM Initial Comments at 5. To clarify, these notice requirements and the dispute mechanism contained within them are only effective prospectively. This means that if a terminating party previously notified the MLC about an effective termination and the MLC acknowledged the sufficiency of that notice, then nothing in the final rule would require the terminating party to submit a new notice to the MLC. \242\ MAC et al. SNPRM Initial Comments at 2-3. \243\ MLC SNPRM Reply Comments at 3. \244\ MLC SNPRM Initial Comments at 20. --------------------------------------------------------------------------- Based on the comments and the discussion in the SNPRM, the Office is adopting as final the proposed notice requirements regarding payee changes resulting from statutory terminations with the modifications discussed below. a. Whether the Notice Requirements Should Be a Floor The Office disagrees with the MLC's proposal to turn the notice requirements into a floor.\245\ While the Office acknowledged in the SNPRM that the proposed information that must be submitted to the MLC might not provide sufficient information to process and implement the ownership change in some cases, the Office also proposed a means by which the MLC could obtain the minimum necessary information to implement the change.\246\ In doing so, the Office explained that ``[t]his may be a better approach than requiring terminating parties to provide additional information to the MLC at the outset that they may not readily have and which may not be needed to implement the change.'' \247\ --------------------------------------------------------------------------- \245\ See MLC SNPRM Reply Comments, App. A at v. \246\ 88 FR 65908, 65915-16. \247\ Id. at 65916. --------------------------------------------------------------------------- The Office continues to believe that this is the most appropriate approach. Turning the requirements into a floor would allow the MLC to request additional and potentially unnecessary information that may be challenging to produce up front, which was precisely the concern that led to the Office's proposal.\248\ As further discussed below, if the initial submission to the MLC lacks what it needs, the MLC can request additional information at that point. --------------------------------------------------------------------------- \248\ Id. at 65915-16. --------------------------------------------------------------------------- b. Treatment of Notices Containing Multiple Works The Office agrees with Linda Edell Howard that the rule should be clarified to recognize that a single notice--whether a change notice to the MLC or a statutory notice of termination submitted to the Office for recordation--may identify more than one musical [[Page 56603]] work, and that the relevant statuses of those works may be different.\249\ The final rule makes clear that, in such cases, any implication as to one work does not affect another listed in the same notice. Each work must be treated independently. This is clarified throughout the final rule, including in the notice, implementation, and dispute provisions. --------------------------------------------------------------------------- \249\ See Howard SNPRM Initial Comments at 4, 6, 8. --------------------------------------------------------------------------- For example, if there is a dispute as to one work, but not another in the same change notice submitted to the MLC, the MLC must still implement and give effect to the change with respect to the work that is not in dispute (assuming that there are no other issues). The same is true where the MLC has sufficient information to implement the change as to one work, but not for another from the same notice. As another example, if a notice of termination identifying multiple musical works is timely recorded in the Office as to some works but not others, assuming that there are no other issues, the MLC should implement the termination of those as to which the notice is timely recorded, even though the works with untimely recorded notices cannot be terminated. c. Requirement To Provide the Statutory Notice of Termination Linda Edell Howard asserted that it can sometimes be difficult or expensive to obtain a copy of the notice of termination submitted to the Office for recordation.\250\ She did not, however, make any alternative suggestions. The Office continues to believe that providing a copy of the actual notice of termination is reasonable and not unduly burdensome. --------------------------------------------------------------------------- \250\ Id. at 4. --------------------------------------------------------------------------- d. Requirement To Provide Proof of Recordation or Proof of Submission to the Office for Recordation The Office agrees with the MLC's proposal to clarify that the proof of submission of the statutory notice of termination to the Office must reflect that it was submitted before the effective date of termination.\251\ For a notice of termination to be timely recorded, it must be received by the Office before the effective date.\252\ --------------------------------------------------------------------------- \251\ See MLC SNPRM Reply Comments, App. A at v. \252\ See 37 CFR 201.10(f)(1)(ii)(A), (f)(3). --------------------------------------------------------------------------- The Office disagrees with ClearBox Rights that the proof of recordation requirement should be dropped because it is ``cumbersome and potentially not necessary.'' \253\ ClearBox Rights made three arguments to support its position. First, it contended that it ``would prove to be an administrative burden on the MLC to maintain a schedule of such notices to be delivered.'' \254\ This argument is unpersuasive given that the MLC did not object to this requirement and included it in its regulatory proposal.\255\ Moreover, the rule does not require the MLC to maintain any such schedule. --------------------------------------------------------------------------- \253\ See ClearBox Rights SNPRM Reply Comments at 9-10. \254\ Id. at 9. \255\ See MLC SNPRM Reply Comments, App. A at v. --------------------------------------------------------------------------- Second, ClearBox Rights asserted that ``there may be instances where the Copyright Office has not yet recorded such documents for various reasons, including that perhaps one copyright out of many on the notice is under review or possibly not valid.'' \256\ It argued that the ``lack of recordation or delay of recordation of one document with many copyrights because one or more copyrights is in question for further review should not negatively impact the other copyrights on that document.'' \257\ The Office does not believe that these concerns are grounds for eliminating the proof of recordation requirement. While the Office agrees, as discussed above, that the rule should accommodate notices identifying multiple works and that each work should be handled individually, timely recordation is still required by the statute ``as a condition to [the termination] taking effect.'' \258\ Thus, the MLC should not implement a change as to a particular work until proof of recordation of the relevant notice of termination for that work is delivered. --------------------------------------------------------------------------- \256\ ClearBox Rights SNPRM Reply Comments at 10. \257\ Id. \258\ See 17 U.S.C. 203(a)(4)(A), 304(c)(4)(A). --------------------------------------------------------------------------- Third, ClearBox Rights noted that ``recordation of the termination at the Office may never happen.'' \259\ It said that it has ``seen instances where a notice of termination was filed, and the pre- termination owner acknowledges the termination to be effective even though there was an issue in the notice filing or recordation.'' \260\ ClearBox Rights explained that ``[s]ometimes the pre-termination owner will simply overlook the technical issues of the termination process and grant the rights back to the post-termination party.'' \261\ Linda Edell Howard made similar statements, noting that sometimes the pre- termination copyright owner ``waives the recordation requirement.'' \262\ --------------------------------------------------------------------------- \259\ ClearBox Rights SNPRM Reply Comments at 10. \260\ Id. \261\ Id. \262\ Howard SNPRM Initial Comments at 4. --------------------------------------------------------------------------- The Office does not believe that these possible problems provide any basis to not require proof of recordation. As noted above, timely recordation is a statutory condition for the termination to be effective.\263\ If the termination is not effective, no rights change hands pursuant to section 203 or 304. To the extent the pre-termination copyright owner nevertheless acquiesces to the attempted termination, that may simply result in an ordinary transfer of copyright ownership from the pre-termination copyright owner to the terminating party. As such, it would be subject to the requirements for notifying the MLC about a non-termination-related change, rather than a termination- related change. --------------------------------------------------------------------------- \263\ 17 U.S.C. 203(a)(4)(A), 304(c)(4)(A). --------------------------------------------------------------------------- Based on the foregoing discussion, however, the Office concludes that the final rule should clarify that a termination-related payee change notice submitted to the MLC can be withdrawn or converted into a non-termination-related payee change notice pursuant to such reasonable requirements as the MLC establishes and makes publicly available on its website. The scenarios raised by the commenters demonstrate a need for flexibility. Regarding Ms. Howard's question about what proof will qualify if notices of termination are recorded with the Office though electronic means,\264\ the Office reiterates that ``[a]dequate proof of timely recordation could be demonstrated by either providing the MLC with a copy of the certificate of recordation or the record as reflected in the Office's online public catalog,'' and that ``[a]dequate proof of submission to the Office for recordation could take the form of courier tracking or a delivery confirmation, a return receipt from the Office, or some other communication from the Office confirming receipt.'' \265\ The eventual ability to submit notices of termination through the Office's online Recordation System will not impair the availability of adequate proof. For example, while courier tracking or delivery confirmation would not be available, the remitter would instead have such proof in the form of an electronic communication from the Office confirming receipt. --------------------------------------------------------------------------- \264\ Howard SNPRM Initial Comments at 4. \265\ 88 FR 65908, 65915. --------------------------------------------------------------------------- e. Requirement To Identify the Relevant Works The Office declines the MLC's proposal to add a requirement to [[Page 56604]] provide ``[a] satisfactory identification of all musical works subject to the notice of termination identified by appropriate unique identifiers.'' \266\ The MLC said that this is needed because it ``cannot implement a change in ownership of musical works without knowing which musical works are subject to the change in ownership.'' \267\ As the Office previously explained in the SNPRM, the regulations governing the content of statutory notices of termination (which must be submitted to the MLC as part of the change notice) already provide for an identification of each work.\268\ While the Office acknowledged in the SNPRM that such identification might not provide the MLC with sufficient information to process and implement the ownership change in some cases, the Office also proposed a means, further discussed below, by which the MLC could obtain the minimum necessary information.\269\ The Office agrees with other commenters ``that the default position should be to make it as easy as possible for a terminating songwriter to comply with processes to effect their right.'' \270\ Thus, we decline to include a requirement that unique identifiers for all musical works must be provided up front. As further discussed below, if the MLC ultimately needs them for certain works, it can request them after attempting to implement the change based on the information in the notice. --------------------------------------------------------------------------- \266\ MLC SNPRM Reply Comments, App. A at v. \267\ Id. at 3. \268\ 88 FR 65908, 65915 & n.112 (citing 37 CFR 201.10(b)(1)(iii), (b)(2)(iv)). \269\ Id. at 65915-16. \270\ MAC & NSAI Ex Parte Letter at 1 (Feb. 12, 2024). --------------------------------------------------------------------------- f. The MLC's Duty To Request Additional Necessary Information In the SNPRM, the Office proposed that where a compliant termination-related change notice does not provide the MLC with sufficient information to process and implement the ownership change, the MLC should engage in best efforts to identify the minimum necessary information, including through correspondence with both the terminating party and pre-termination copyright owner (or their respective representatives).\271\ The MLC expressed concern with this proposal, stating that it is ``not clear if this reference to `best efforts' is meant to imply a responsibility to make findings as to what works are subject to termination.'' \272\ The MLC said that the requirement to correspond with the relevant parties ``is a reasonable step'' and that it ``does not object to making reasonable efforts to reach out to parties where paperwork is incomplete.'' \273\ It said, however, that it ``cannot itself identify the `relevant musical works,' make decisions itself about what is contained in private contracts that may be subject to termination, or determine what works are, or are not, subject to termination in any particular disputed case.'' \274\ --------------------------------------------------------------------------- \271\ 88 FR 65908, 65915-16. \272\ MLC SNPRM Initial Comments at 20. \273\ Id. at 20-21. \274\ Id. at 21. --------------------------------------------------------------------------- The Office is clarifying this portion of the rule in light of the MLC's comments. To eliminate any confusion, the ``best efforts'' language has been eliminated in the final rule, while the requirement to correspond has been retained. In doing so, the Office emphasizes that the final rule's reference to information that is ``insufficient to enable the [MLC] to implement and give effect to the termination'' is meant to be interpreted narrowly. In some cases, submitted information can be sufficient to enable the MLC to act, even if it must undertake certain reasonable efforts. For example, even if the identification of the works in the notice of termination does not appear sufficient on its face, perhaps lacking unique identifiers, the information is nevertheless considered sufficient if the MLC can act on the information after undertaking reasonable efforts to attempt to match the works identified in the notice of termination with the corresponding works in its records. The Office is not mandating that the MLC engage in exhaustive efforts or do this in all cases, but in the termination context, it should provide assistance within reason. Additionally, Promopub noted that there is no time limit on the MLC in this provision and said that ``delay should be assiduously avoided.'' \275\ It proposed that ``the MLC give notice of receipt of an appropriately documented claim within 15 calendar days of receipt'' and that, ``[i]f more information is required to process the claim, that explanatory notice should be given within 30 calendar days of receipt.'' \276\ It also wanted the MLC to establish a ``hot line'' and dedicated web pages that terminating parties can access for assistance.\277\ The Office agrees that the MLC should have dedicated web pages and other member support for terminating parties, and strongly encourages it to provide such support as soon as reasonably possible. The final rule adds the word ``promptly'' to signal that the MLC should move expeditiously, since, as discussed above, the Office expects the MLC to undertake some reasonable efforts in addition to correspondence. Should the Office become aware of widespread unreasonable delays, we can reconsider a specific timing requirement at a later date. --------------------------------------------------------------------------- \275\ Promopub SNPRM Initial Comments at 5-6. \276\ Id. at 6. \277\ Id. --------------------------------------------------------------------------- Lastly, the Office understands that this approach may lead to longer lead times before the MLC ends up implementing a change than if additional information were required to be submitted at the outset. As discussed above and in the SNPRM,\278\ the Office continues to believe that this is the better approach. However, we wish to encourage terminating parties to voluntarily provide additional useful information to the MLC, such as unique identifiers, as part of their initial notice submission if it is possible to do so. To that end, in amending its form for submitting termination-related payee change notices based on the final rule, the MLC could include fields for additional information it believes would be helpful in implementing the change, provided that the form clearly identifies those non-required fields as being optional. --------------------------------------------------------------------------- \278\ 88 FR 65908, 65915-16. --------------------------------------------------------------------------- g. The Meaning of ``Terminating Party'' The final rule clarifies the definition of ``terminating party.'' Throughout the rule, this term is used to refer to parties entitled to royalties from the MLC based on an effective termination and who may notify the MLC of such entitlement. This term is not defined by reference to who singed and served the statutory notice of termination. The SNPRM defined the term as ``the new musical work copyright owner.'' \279\ That language did not, however, account for the fact that the termination may not yet be effective at the time the payee change notice is submitted to the MLC, meaning that the relevant party is not the new owner at that point in time. The SNPRM's definition also did not clearly provide that a successor in interest to a terminating author or heir (e.g., their new publisher or administrator) can also be a ``terminating party'' within the meaning of the rule. Including successors in interest is necessary because there may be times where the termination becomes effective and reverted rights are re-granted before the MLC is notified. The final rule makes these clarifications. --------------------------------------------------------------------------- \279\ Id. at 65924. --------------------------------------------------------------------------- The Office disagrees with Linda Edell Howard that the term ``terminating party'' ``should include only those who signed the notice of termination, not [[Page 56605]] those non-signatory heirs or authors,'' because ``[t]he non-signatory statutory heirs or authors are represented by those who signed and served the notice of termination.'' \280\ As noted above, this misunderstands the way the term ``terminating party'' is used throughout the rule. --------------------------------------------------------------------------- \280\ See Howard SNPRM Initial Comments at 6. --------------------------------------------------------------------------- The Office also disagrees that ``[i]nformation concerning non- signatories should not be required to implement a change in copyright ownership and payee status, or reduce the percentage to be paid out.'' \281\ Each terminating party must be treated independently, just like any other copyright owner when there is more than one. That is why the MLC is only required to implement a change as to those terminating parties whose information is provided in the notice of change. That being said, to the extent a particular terminating party is in fact represented by another terminating party, as Ms. Howard suggested, or by someone else, then the information provided to the MLC would be for that representative.\282\ --------------------------------------------------------------------------- \281\ See id. \282\ The Office further declines Ms. Howard's proposal to make the identification of the terminating party plural throughout the rule because ``[r]arely is the terminating party one individual.'' Howard SNPRM Initial Comments at 4. There are already specific provisions in the rule speaking to the case of multiple terminating parties (e.g., 37 CFR 210.30(c)(2)(v)), which means that the rest of the rule contemplates the possibility of there being more than one. Moreover, ``[i]n determining the meaning of any Act of Congress, unless the context indicates otherwise,'' ``words importing the singular include and apply to several persons, parties, or things.'' 1 U.S.C. 1. --------------------------------------------------------------------------- h. Verification Obligations In the SNPRM, the Office proposed that where the MLC has good reason to doubt the authenticity of the information submitted, such as the statutory notice of termination or proof of recordation, it should seek verification from the Office.\283\ The MLC proposed instead to require the submitter to seek verification from the Office and deliver documentation of such verification to the MLC.\284\ The MLC asserted that ``it would be inappropriate to shift to The MLC the role of monitoring and obtaining ownership documentation,'' and that ``[m]embers must remain primarily responsible for the completeness and accuracy of their works registrations and claims, and it would be inefficient to shift this task to The MLC.'' \285\ --------------------------------------------------------------------------- \283\ 88 FR 65908, 65915. \284\ MLC SNPRM Reply Comments at 3-4, App. A at v. \285\ Id. at 4. --------------------------------------------------------------------------- The Office agrees with the MLC's position. While we have endeavored to minimize the burden on a terminating party to have their termination implemented by the MLC, on reflection, it is more appropriate for the submitter to obtain whatever verification may be necessary. Therefore, the final rule provides that where authenticity is in doubt, the MLC shall either seek verification from the Office or request that the submitter provide such verification. i. Dispute-Related Issues In the SNPRM, the Office proposed that where the MLC receives a payee change notice from the terminating party, it must inform the pre- termination copyright owner within 15 days of receiving either the notice or the last piece of information necessary to implement the change, whichever is later.\286\ After being so notified, a pre- termination copyright owner who disputes the termination would have 30 days to initiate its dispute with the MLC before the MLC must implement the change.\287\ The Office agrees with Linda Edell Howard that the terminating party should be contemporaneously alerted when the MLC informs the pre-termination copyright owner.\288\ This way, the terminating party will know when the 30-day dispute period commences. We disagree, however, with Ms. Howard's proposal to shorten the 30-day period to 15 days.\289\ While the pre-termination copyright owner should already be on notice about the termination generally, the Office believes that 30 days is a reasonable amount of time after being notified that a change is being sought at the MLC, in case they wish to initiate a dispute, which requires providing specific documentation to the MLC that may take time to assemble. --------------------------------------------------------------------------- \286\ 88 FR 65908, 65916. \287\ Id. \288\ See Howard SNPRM Initial Comments at 5. \289\ See id. --------------------------------------------------------------------------- 2. Implementation of a Change by the MLC The SNPRM proposed various requirements to govern how the MLC implements and gives effect to a payee change, both in termination and non-termination contexts.\290\ Commenters generally did not oppose these requirements, though some raised discrete questions.\291\ The MLC generally supported the proposed requirements, including those for non- termination-related changes.\292\ Based on the comments and the discussion in the SNPRM, the Office is adopting the proposed implementation requirements as final with the modifications discussed below. --------------------------------------------------------------------------- \290\ 88 FR 65908, 65917-18. \291\ See, e.g., MAC et al. SNPRM Initial Comments at 3; Howard SNPRM Initial Comments at 8-9. \292\ MLC SNPRM Reply Comments at 5, App. A at vii-ix, xi-xii; MLC SNPRM Initial Comments at 18 n.25. --------------------------------------------------------------------------- i. Prospective Versus Retroactive Implementation In the SNPRM, the Office proposed that, where a relevant change is effective prior to the MLC's implementation, the MLC should be permitted, but not required, to implement it going back to its effective date, if requested in the notice to the MLC.\293\ In response, MAC et al. said that ``the MLC can and should implement payee changes going back to the date of the change, regardless of when implemented,'' and disagreed that it is too burdensome for the MLC to do so.\294\ Linda Edell Howard raised concerns about lag times in notifying the MLC in the termination context.\295\ The MLC ``welcome[d]'' the Office's proposal.\296\ --------------------------------------------------------------------------- \293\ 88 FR 65908, 65918. \294\ MAC et al. SNPRM Initial Comments at 3. \295\ Howard SNPRM Initial Comments at 9. \296\ MLC SNPRM Reply Comments at 5. --------------------------------------------------------------------------- The Office is not persuaded to alter the rule. In the SNPRM, the Office considered similar comments and weighed them against the MLC's concerns about such a requirement being overly burdensome.\297\ We were ``inclined to agree with the MLC that retroactive implementation may be too administratively burdensome to require for every payee change,'' and noted that our regulations require only prospective implementation by the MLC in processing DMP voluntary licenses.\298\ The Office also ``welcome[d] further comments on this issue,'' including on ``what is standard in the industry.'' \299\ The minimal comments received in response to the SNPRM do not meaningfully grow the record in a way that persuades the Office to impose this requirement on the MLC at this time. --------------------------------------------------------------------------- \297\ 88 FR 65908, 65918. \298\ Id. \299\ Id. --------------------------------------------------------------------------- ii. Timing In its regulatory proposal, the MLC proposed to soften the implementation deadlines the Office proposed, by replacing requirements to implement a change within a specified period of time with language requiring only ``reasonable efforts to'' do so.\300\ While the MLC's comments do not explain why they requested this change, [[Page 56606]] presumably it is to avoid technical violations of the regulations, such as due to circumstances beyond its control or where it inadvertently makes a mistake without realizing it (e.g., where an employee accidentally fails to enter the change into the system).\301\ --------------------------------------------------------------------------- \300\ MLC SNPRM Reply Comments, App. A at vii. \301\ If the MLC wanted more time for all implementations, the Office believes it would have made that request more specifically. Notably, the SNPRM proposed to give the MLC at least 30 days to implement all changes, which was in line with an earlier request from the MLC. See MLC NPRM Initial Comments at 10-11. The proposal was also in line with the Office's rules governing the MLC's processing of DMP voluntary licenses. See 37 CFR 210.24(f). --------------------------------------------------------------------------- The Office declines to adopt the MLC's proposal, but has modified the final rule to address this issue. The provision's purpose is to set expectations for how the MLC will act, and that entails meaningful deadlines that parties to a payee change can rely on in conducting their business. The Office has imposed deadlines on the MLC's actions in other contexts and sees no reason not to do so here. We are not opposed, however, to providing the MLC with some leeway if an implementation deadline is accidentally missed. Under the final rule, in such a situation, the MLC must implement the change as soon as reasonably practicable, but no later than the next regular monthly royalty distribution that occurs either: (1) after the original implementation deadline; or (2) at least 30 days after the date that the MLC learns that the change was not implemented on time-- whichever is later. The Office believes that this solution gives the MLC reasonable flexibility without being so open-ended that the parties to a change have no idea when their change will be implemented. Importantly, the rule further provides that if the MLC is late in implementing the change, it must do so retroactively to the date of the original implementation deadline. The rule does not provide a separate deadline for making any corrective royalty adjustment. Rather, the Office expects the MLC to make any such adjustments in accordance with its regular practices. Regardless of any associated burdens, we believe this is a fair burden to place on the MLC when it fails to meet the rule's deadlines, even if that failure is accidental. iii. Additional Provisions for Termination-Related Changes In the SNPRM, the Office proposed that where a compliant notice is accompanied by proof that the statutory notice of termination was submitted to the Office for recordation, but not proof that it was timely recorded, the MLC should hold applicable royalties pending receipt of proof of timely recordation.\302\ After the MLC receives proof of timely recordation, it would need to implement the change, which would include distributing the held funds to the terminating party.\303\ If, on the other hand, the Office refuses to record the notice or it is recorded on or after the effective date of termination, the MLC would need to release the funds to the pre-termination copyright owner.\304\ The Office further proposed that if proof of timely recordation is not received within 6 months, the MLC should contact the Office to confirm the status of the relevant recordation submission.\305\ --------------------------------------------------------------------------- \302\ 88 FR 65908, 65917-18. \303\ Id. at 65918. \304\ Id. \305\ Id. --------------------------------------------------------------------------- No commenter objected to this proposal, but the MLC took exception to the part requiring it to contact the Office to confirm the status of the recordation submission.\306\ For the same reasons discussed above in Part III.D.1.ii.h., it proposed instead that the submitter be required to check the status with the Office and provide the MLC with documentation of the confirmed status.\307\ The MLC proposed that if the submission still remains pending, the submitter should provide monthly updates to the MLC.\308\ It further proposed that if the submitter fails to provide a monthly status confirmation, the MLC must then act in accordance with the other implementation provisions.\309\ --------------------------------------------------------------------------- \306\ MLC SNPRM Reply Comments at 3-4, App. A. at viii-ix. \307\ Id. \308\ Id. at App. A at viii-ix. \309\ Id. --------------------------------------------------------------------------- On reflection, as with the provision discussed above in Part III.D.1.ii.h., the Office agrees with the MLC's general position that the obligation to confirm the status of the submission is more appropriately placed on the submitter. The Office, however, disagrees with the MLC's specific proposal. It would be unnecessary and overly burdensome for the terminating party to be required to contact the Office and provide the MLC with monthly updates. Instead, the final rule provides that the MLC may request periodic updates at its discretion. Additionally, the Office disagrees that if the terminating party fails to provide an update, the MLC should simply act in accordance with the rest of the implementation regulations. That would result in the funds being released to the pre-termination copyright owner. The Office does not believe the MLC should release the funds while the recordation status remains pending. Instead, the final rule provides that the MLC must hold the funds until it is informed of the notice of termination's final recordation status and then act accordingly. The rule purposefully does not specify who must provide that final status to the MLC. Where the result is a timely recordation, the terminating party will be incentivized to provide confirmation of the final status, but in other situations (e.g., where recordation is refused), the pre- termination copyright owner would be incentivized to provide it so that the royalties do not remain on hold. Additionally, nothing prevents the MLC from contacting the Office directly, if it chooses to. Though not raised by commenters, the final rule also clarifies that the royalty hold should be lifted where the recordation submission to the Office is withdrawn by the remitter. There is no reason to hold royalties pending recordation where the recordation submission has been resolved. The omission of that scenario from the SNPRM was an unintentional oversight. E. Disputes 1. Process and Documentation for Termination-Related Disputes The Office received few comments on our proposal for the handling of termination-related disputes. The MLC generally supported this aspect of the SNPRM.\310\ Another commenter, Linda Edell Howard took issue with the idea that the MLC could substantiate a dispute claim without hearing from the terminating party, and raised concerns about the power imbalance between the pre-termination copyright owner and terminating party in this context.\311\ While the Office appreciates these concerns, we decline to address these broader issues in the current proceeding for the reasons discussed in Part III.E.2. below. Moreover, some of Ms. Howard's concerns are connected to a subject of inquiry in a separate, open proceeding reviewing the MLC's statutory designation.\312\ --------------------------------------------------------------------------- \310\ Id. at 5, App. A at ix-x. \311\ Howard SNPRM Initial Comments at 5-6 & n.3, 8 (discussing, among other things, how there is a one-sided ability to hold up royalties in a dispute to give the pre-termination copyright owner leverage over the terminating party). \312\ See 89 FR 5940, 5943 (Jan. 30, 2024) (requesting ``information regarding: (1) any steps that the [MLC] is taking to protect against the incidence of fraudulent ownership claims and frivolous ownership disputes; and (2) whether these steps have been successful''). --------------------------------------------------------------------------- Based on the comments and the discussion in the SNPRM, the Office is adopting the proposed requirements [[Page 56607]] pertaining to termination-related disputes as final. In doing so, and as discussed above in Part III.A.3., we have added language to clarify the operation of the provision in the context of disputes concerning the application of the Exception to voluntary licenses. In adopting the final rule, the Office requests that the MLC's dispute resolution committee, which the MMA tasks with establishing the MLC's dispute policies, promptly establish a new policy for termination-related disputes that adheres to the requirements adopted in this final rule. The final rule sets certain key requirements based on the issues raised by commenters, but it is not a substitute for a comprehensive dispute policy. 2. Dispute Resolution The Office has decided to omit the proposed provisions about how disputes should be resolved from the final rule.\313\ Instead, unless and until the Office regulates in this area, disputes are to be resolved pursuant to the MLC's dispute policies. No one specifically supported the SNPRM proposal, and some commenters raised concerns with it.\314\ Other commenters raised other concerns and sought various regulations to address them. For example, North Music Group asked for the MLC to ``be prohibited from creating disputes on its own motion,'' or for there to at least be ``some process and constraints applicable to its actions.'' \315\ The record on these issues, however, is thin. --------------------------------------------------------------------------- \313\ See 88 FR 65908, 65919-20. \314\ See, e.g., MLC Ex Parte Letter at 5 (Feb. 5, 2024); Kobalt Music SNPRM Initial Comments at 3; Spirit Music Grp. SNPRM Initial Comments at 2; MAC et al. SNPRM Initial Comments at 3; Howard SNPRM Initial Comments at 8-9. \315\ North Music Grp. SNPRM Initial Comments at 3; see also, e.g., Howard SNPRM Initial Comments at 6, 8-9 (discussing concerns with power imbalances and how disputes could affect litigation with respect to ripeness and the statute of limitations). --------------------------------------------------------------------------- We do not take these dispute-related concerns lightly, but given the record of the proceeding, we decline to take up these issues at this time. The Office may, however, consider addressing them in a future proceeding where they can be more fully explored to determine whether any regulatory action may be needed. In the meantime, the Office requests that the MLC's dispute resolution committee consider the concerns raised by commenters, as well as the SNPRM's proposal to require ongoing active dispute resolution. In doing so, the Office asks the committee to: (1) examine whether such issues are arising in connection with disputes initiated with the MLC; (2) evaluate how these issues are addressed elsewhere in the industry; and (3) determine whether the MLC's dispute policies should be amended to address any of them. 3. Disclosure and Confidentiality In responding to the NPRM, the MLC asked for guidance about whether it ``should be required to disclose information about the royalties being held to the parties involved'' and stated that it ``typically does not disclose the amount of royalties on hold to the parties in a dispute pending agreement or resolution of a dispute.'' \316\ ClearBox Rights stated that the MLC should disclose the royalties on hold to parties involved in a dispute.\317\ --------------------------------------------------------------------------- \316\ MLC NPRM Initial Comments at 13-14. \317\ ClearBox Rights NPRM Reply Comments at 6. --------------------------------------------------------------------------- Based on these comments, the SNPRM proposed amending the Office's confidentiality regulations to require that the MLC ``disclose the amount being held and reason for the hold to any individual or entity with a bona fide legal claim to such funds or a portion thereof.'' \318\ The Office reasoned that this requirement would put the parties ``on equal footing in developing a strategy for resolving the dispute, including the negotiation of a settlement.'' \319\ The Office also proposed that the MLC ``provide the equivalent of monthly royalty statements for the amounts held along with monthly updates concerning the status of the hold.'' \320\ These proposed disclosure requirements were not exclusive to termination-related disputes. --------------------------------------------------------------------------- \318\ 88 FR 65908, 65919, 65927. \319\ Id. at 65919. \320\ Id. --------------------------------------------------------------------------- Commenters on this provision generally supported it, recognizing the value of disclosing the amount of royalties on hold to parties involved in the dispute.\321\ The MLC, however, voiced concerns over administrability and potential misuse. --------------------------------------------------------------------------- \321\ See Spirit Music Grp. SNPRM Initial Comments at 2 (``We do agree with the [Office's] position to disclose earnings and to provide royalty statements that are in suspense due to conflicts and disputes. We also agree the MLC portal should make this information visible.''); Promopub SNPRM Initial Comments at 7 (``In the context of a dispute, we agree with the Office that if royalties are being held, the MLC should disclose the held amounts to the parties and provide updates as necessary during the pendency of the dispute. This information may be valuable to the parties for purposes of resolving the dispute.''). --------------------------------------------------------------------------- The MLC stated that the proposed rule would be burdensome, involve significant manual processing, and divert resources from other duties.\322\ The MLC also stated that providing ``every party to a dispute'' with ``confidential information could . . . result in disclosure of confidential information to improper parties in some situations, and would be ripe for abuse,'' \323\ and that it had not received member complaints ``around such disclosures in the context of disputes or holds.'' \324\ Further, the MLC was concerned that the proposed regulation's use of the term ``bona fide legal claim'' was not a clear enough standard to administer, and that passing judgment on what is ``bona fide'' could expose it to liability.\325\ Finally, the MLC shared a general preference for prioritizing confidentiality and claimed that parties could obtain confidential information by agreement or via the legal process.\326\ --------------------------------------------------------------------------- \322\ MLC SNPRM Reply Comments at 8; MLC Ex Parte Letter at 4 (Feb. 21, 2024). But see MLC Ex Parte Letter at 4-5 (Feb. 21, 2024) (suggesting that the MLC regularly discloses total amounts of royalties on hold to interested parties). \323\ MLC SNPRM Reply Comments at 7. \324\ MLC Ex Parte Letter at 3 (Mar. 22, 2024). \325\ MLC SNPRM Reply Comments at 7-8. \326\ Id. at 6-7. --------------------------------------------------------------------------- The MLC later stated that, in the context of a termination-related dispute, it could ``provide summary-level information to both the pre- and post-termination copyright owners'' at ``the outset of a dispute.'' \327\ This information would ``identify the approximate amount of royalties to be distributed to a work in the first distribution occurring after the hold is requested and will be based upon information in the monthly reports of usage that The MLC received and processed at the time of the request.'' \328\ The MLC noted its preference that the Office not include provisions governing periodic (or initial) updates, including until it ``has time to scope and develop a workable, systematic way to provide this information.'' \329\ If the Office were to retain such a requirement, those updates ``should be limited to where a disclosure has been affirmatively requested and should not be more frequently than quarterly, to limit the burden and diversion of resources from critical path activities.'' \330\ --------------------------------------------------------------------------- \327\ MLC Ex Parte Letter at 2 (Mar. 22, 2024). The MLC previously stated that it could ``provide the total amount of royalties being held in connection with disputed works'' in certain ``discrete and low-volume'' circumstances, namely ``situations of agreement or legal process.'' MLC SNPRM Reply Comments at 8. \328\ MLC Ex Parte Letter at 2 (Mar. 22, 2024); see also MLC Ex Parte Letter at 4-5 (Feb. 21, 2024). Notwithstanding this offer, the MLC reiterated its concern that providing this information to parties for all disputes--i.e., not limited to parties in a termination-related dispute--would be burdensome. MLC Ex Parte Letter at 5 (Feb. 21, 2024). \329\ MLC Ex Parte Letter at 2 (Mar. 22, 2024). \330\ Id. --------------------------------------------------------------------------- Based on the foregoing, the Office is retaining a version of this rule, while [[Page 56608]] narrowing its scope to make it easier for the MLC to administer. The final rule only applies to termination-related disputes, and limits disclosure requirements to the total amount of royalties being held and not the more granular information that would be contained in a royalty statement. It also reduces the periodic update requirement to apply only when requested by either party and only once a quarter. As the final rule applies to royalties being held pursuant to a termination- related dispute, the phrase ``bona fide legal claim'' was eliminated from the regulatory text. F. Corrective Royalty Adjustment 1. Background In the NPRM, the Office proposed a corrective royalty adjustment that would have ``require[d] the MLC to adjust any royalties distributed under [its now-suspended Termination Policy], or distributed in a similar manner if not technically distributed pursuant to the [Termination Policy], within 90 days.'' \331\ At the outset, the Office notes that the MLC estimates the corrective adjustment to involve ``less than $2 million'' and the ``total amounts that would likely change hands'' to terminating songwriters ``would be less than $1 million.'' \332\ --------------------------------------------------------------------------- \331\ 87 FR 64405, 64412. \332\ MLC Ex Parte Letter at 4 (Feb. 21, 2024). --------------------------------------------------------------------------- The NPRM explained that the adjustment provision was intended ``to make copyright owners whole for any distributions the MLC made based on an erroneous understanding and application of current law.'' \333\ Responding to the NPRM, parties asked the Office for further guidance regarding ``how the proposed corrective royalty adjustment should work'' in practice.\334\ The SNPRM subsequently proposed ``a more detailed [regulation] that would lay out the operational procedures for the corrective royalty adjustment.'' \335\ --------------------------------------------------------------------------- \333\ 87 FR 64405, 64412. \334\ 88 FR 65908, 65920 (citing MLC NPRM Initial Comments at 6- 8; ClearBox Rights NPRM Reply Comments at 3-4; ClearBox Rights Ex Parte Letter at 2-4 (June 28, 2023); Howard NPRM Initial Comments at 6; Promopub NPRM Initial Comments at 2; Promopub NPRM Reply Comments at 3; North Music Grp. NPRM Reply Comments at 2). \335\ 88 FR 65908, 65920. --------------------------------------------------------------------------- The SNPRM proposed that ``the corrective adjustment would apply where the MLC's prior erroneous application of the Exception, whether or not through its [Termination Policy], affected: (1) the distribution of blanket license royalties or matched historical royalties; (2) the holding of such royalties; or (3) the deduction from a DMP's payable blanket license royalties made by matching usage to voluntary licenses or individual download licenses.'' \336\ For previously distributed overpayments made pursuant to the Termination Policy, the MLC would be required to notify the prior payee of the overpayment within thirty days, the prior payee would have thirty days to return the overpayment, and then the MLC would distribute those royalties to the proper payee with the next regular monthly royalty distribution. If the prior payee failed to repay the MLC, then the MLC would debit the prior payee's future royalties--up to 50% of payable royalties each month--until it recovered the overpayment.\337\ The SNPRM also proposed that the royalty recovery and distribution instructions would apply where the MLC matched usage to a voluntary licensee or individual download licensee who was not the proper payee under the rule.\338\ For royalties that were held by the MLC following the suspension of its Termination Policy, the SNPRM proposed that they would be paid to the proper payee no later than thirty days after the final rule's effective date.\339\ Finally, the SNPRM included a savings clause that would preserve the proper payee's right to recover the overpayment outside of the corrective adjustment process.\340\ --------------------------------------------------------------------------- \336\ Id. at 65921. \337\ Id. \338\ Id. at 65923. \339\ Id. \340\ Id. --------------------------------------------------------------------------- The SNPRM did not propose ``any specific procedures'' addressing circumstances where ``a publisher [e.g., a prior payee] has already distributed a portion of the applicable royalties to its songwriters'' because that ``is a possibility with any type of adjustment for an overpayment.'' \341\ The Office, however, expressly sought further comments on that issue, including on a commenter's proposal that the MLC only recoup the publisher's share of those royalties.\342\ --------------------------------------------------------------------------- \341\ Id. at 65921. \342\ Id. (citing ClearBox Rights Ex Parte Letter at 3-4 (June 28, 2023); ClearBox Rights NPRM Reply Comments at 3-4). --------------------------------------------------------------------------- 2. Comments Several commenters, including songwriters, publishers, and others, favored a rule that includes a corrective adjustment.\343\ Promopub suggested a relatively more aggressive approach to the corrective adjustment. First, where ``a prior payee's accrued royalties for a month exceed the full amount owed to the proper payee by at least twenty-five [percent],'' it would require the MLC ``to deduct the full amount owed to the proper payee from such monthly accrued royalties.'' \344\ It also proposed that, if the proper payee was not paid back in full within six months of the MLC's initial corrective adjustment payment, the Office ``should require the terminated publisher to repay the balance to the MLC within 30 calendar days for the MLC to, in-turn, distribute to the proper payee within 30 calendar days of receipt.'' \345\ --------------------------------------------------------------------------- \343\ See, e.g., BMG NPRM Initial Comments at 2 (``BMG fully supports . . . the requirement[] that . . . the MLC must pay post- termination royalties to those parties who own the U.S. copyrights in the works at issue and adjust these parties' accounts in order that they may receive every dollar previously paid in error to terminated publishers.''); BMG NPRM Reply Comments at 1; Christian Castle NPRM Reply Comments at 4-5 (``Any curative action required by the Office should, of course, be retroactive.''); Promopub NPRM Reply Comments at 1-2 (noting that it ``fully supports the proposed repeal of the [MLC's Termination] Policy and the corresponding proposed royalties adjustments'' and that ``other collecting organizations regularly employ retroactive royalty adjustments when music publishing royalties have been paid erroneously''); North Music Grp. NPRM Reply Comments at 2 (supporting the rule's corrective adjustment); Miller NPRM Initial Comments at 1 (supporting 90-day adjustment period for the MLC); NSAI SNPRM Initial Comments at 2 (supporting corrective adjustments made ``retroactively''); SONA et al. NPRM Reply Comments at 3 (supporting the rule's corrective adjustment); ClearBox Rights NPRM Reply Comments at 3-4 (supporting the rule's corrective adjustment provision and noting disagreement with NMPA and CMPA); McAnally & North Ex Parte Letter at 3-4 (Mar. 14, 2023) (voicing that these parties ``categorically disagree'' that the rule should not be ``retroactive''); MAC et al. SNPRM Initial Comments at 3-4; Howard SNPRM Initial Comments at 2; ClearBox Rights SNPRM Reply Comments at 8-9. \344\ Promopub SNPRM Initial Comments at 3. Promopub suggested these amendments, based on its concern that publishers may not return overpayments immediately and would ``instead rely on the piecemeal monthly process offered.'' Id. \345\ Id.; see also Spirit Music Grp. SNPRM Initial Comments at 3 (``[A]pplying 50% of the debt to the erroneous party, who may be earning only a few dollars, will result in never ending debt for the erroneously paid party. We realize the USCO is concerned with the financial impact to the incorrect party, but it is at the expense of the entitled party.''). --------------------------------------------------------------------------- Other commenters, however, disagreed that there should be a corrective adjustment, even though some of them supported post- termination copyright owners receiving post-termination royalties going forward.\346\ These commenters' concerns focused on the burdens associated with administering a corrective adjustment and the Office's authority to require such an adjustment. Regarding the Office's authority, NMPA had concerns that the corrective [[Page 56609]] adjustment would be an impermissible ``retroactive'' rule and may also be an unconstitutional ``taking.'' \347\ --------------------------------------------------------------------------- \346\ See, e.g., CMPA NPRM Initial Comments at 1-2; NMPA NPRM Initial Comments at 4-6; NMPA Ex Parte Letter at 2 (Feb. 6, 2023); NMPA SNPRM Initial Comments at 1-2 & n.2; NMPA Ex Parte Letter at 2 (Jan. 24, 2024); Warner Chappell Music SNPRM Reply Comments at 2-3. \347\ NMPA NPRM Initial Comments at 2, 4-6; see also NMPA Ex Parte Letter at 2 (Feb. 6, 2023); NMPA SNPRM Initial Comments at 2 n.2. --------------------------------------------------------------------------- Regarding songwriters' and publishers' ability to engage in a corrective adjustment, commenters stated that portions of these royalties would have already been distributed to songwriters and would be difficult to recover.\348\ Warner Chappell added that ``retroactive debits would wreak havoc where songwriter contracts are royalty- or recoupment-based, as when recoupment has triggered the end of a contract's term, or when a publisher has paid a contractually-due advance or bonus because the writer received a certain sum of royalties,'' and that ``[p]ublishers, songwriters, and others who'd received such payments would also bear tax and accounting obligations on income `wrongly' received and already spent.'' \349\ --------------------------------------------------------------------------- \348\ CMPA NPRM Initial Comments at 2; Warner Chappell Music SNPRM Reply Comments at 2-3; see also NMPA NPRM Initial Comments at 5; MLC Ex Parte Letter at 3 (Mar. 22, 2024). \349\ Warner Chappell Music SNPRM Reply Comments at 2-3. --------------------------------------------------------------------------- Commenters further suggested that it would also be administratively burdensome for the MLC to carry out a corrective adjustment.\350\ The MLC requested that the Office ``take into consideration the impact of its rule on [its] regular royalty processing operations and timelines,'' which are ``orders of magnitude larger than the total sums that would be involved in corrective adjustments for statutory terminations.'' \351\ The MLC suggested a ``more efficient'' solution that ``would avoid the problems associated with clawing back royalties from songwriters.'' \352\ This ``alternative approach'' would involve the MLC providing information to the prior payee and proper payee regarding the royalties distributed to the prior payee for post- termination periods.\353\ The parties would then voluntarily be able to make any corrective royalty adjustments themselves (a ``voluntary adjustment'').\354\ The MLC also said that a ``claw-back and redistribution approach'' could be used in combination with its proposal to incentivize compliance ``if a significant period elapsed without resolution by the parties.'' \355\ --------------------------------------------------------------------------- \350\ NMPA NPRM Initial Comments at 5 (noting that a corrective adjustment ``would create a significant administrative and financial burden on the MLC, as well as on publishers or other recipients of these royalty payments who likely already distributed some portion of those amounts pursuant to their contractual obligations with their songwriters''); CMPA NPRM Initial Comments at 2 (explaining that ``retroactive accounting might cause an undue hardship on The MLC as it would be well above its normal workload''); see also MLC Ex Parte Letter at 3-4 (Feb. 21, 2024); MLC Ex Parte Letter at 3-5 (Mar. 22, 2024). \351\ MLC SNPRM Reply Comments at 2-3. \352\ MLC Ex Parte Letter at 4 (Feb. 21, 2024). \353\ Id. \354\ Id. at 4-5. \355\ Id. at 5. --------------------------------------------------------------------------- 3. The Final Rule's Approach Having considered all comments on this issue, the Office is adopting a final rule with an approach to corrective royalty adjustments that is similar to the SNPRM's proposal for the reasons stated in the NPRM and SNPRM, but with certain modifications, as discussed below. Other corrective adjustment provisions proposed in the SNPRM are included in the final rule, with minor conforming adjustments. While the Office appreciates concerns regarding potential administrative burdens associated with a corrective adjustment, we continue to ``disagree with commenters suggesting that there should not be any corrective adjustment because of the potential burdens involved.'' \356\ As the Office previously explained, ``[c]orrective royalty adjustments are common in the music industry and explicitly contemplated by the statute and the Office's existing regulations.'' \357\ --------------------------------------------------------------------------- \356\ 88 FR 65908, 65920-21. \357\ Id. at 65921; see MAC et al. SNPRM Initial Comments at 3- 4; Howard SNPRM Initial Comments at 2 (agreeing with Office's position). --------------------------------------------------------------------------- The Office notes that the MLC already has guidelines to address the circumstances when it needs to make royalty distribution adjustments, including, for example: when there was ``an incorrect match of a sound recording to a [musical work] registration''; where there was an under- or overpayment ``attributable to a clerical or administrative error''; or in ``other situations that The MLC may determine from time to time in its discretion.'' \358\ --------------------------------------------------------------------------- \358\ The MLC, Guidelines for Adjustments secs. 2.1, 3.4 (Jan. 2022), https://f.hubspotusercontent40.net/hubfs/8718396/files/2022-02/MLC%20Guidelines%20for%20Adjustments.pdf. --------------------------------------------------------------------------- These guidelines allow the MLC to adjust royalty distributions for uses going back to the first date the blanket license was available (i.e., January 1, 2021).\359\ --------------------------------------------------------------------------- \359\ Id. at sec. 3.4. --------------------------------------------------------------------------- Moreover, the Office must consider not only the burdens to the MLC and publishers, but also fairness to terminating songwriters, and the comparative efficiency associated with the corrective adjustment. Without a corrective adjustment, proper payees could be forced to bring their terminated publishers to court to unwind the MLC's erroneous payments. This would lead to a multiplicity of lawsuits and associated unnecessary costs incurred by songwriters and publishers. It may also be illusory, as songwriters who were proper payees are less likely to sue to recover royalties that, in total, may be less than the cost of hiring an attorney to litigate the matter.\360\ --------------------------------------------------------------------------- \360\ See U.S. Copyright Office, Copyright Small Claims 1 (2013) (noting that ``federal litigation is expensive and time-consuming, and therefore out of reach for many copyright owners'' and that the problems of enforcement of modest claims ``appears to be especially acute for individual creators''); id. at 118 (noting that songwriters would benefit from an alternative to Federal court to enforce the Copyright Act's termination provisions (citing statement of Charles Sanders, SGA)); see also, e.g., Howard SNPRM Initial Comments at 6 (noting perceived power and sophistication imbalances between authors and publishers). --------------------------------------------------------------------------- i. Voluntary Adjustments The first modification adopts the MLC's suggestion to build in a voluntary process to reduce potential burdens on the parties or the MLC associated with any corrective adjustment. The initial step in this process is for the MLC to notify the relevant parties (i.e., the prior payee, proper payee, and any successors in interest) of the overpayment within 30 days of the final rule's effective date. Such notice must include: (1) a summary of the Office's conclusions regarding the Exception; (2) a description of the corrective adjustment process laid out in the final rule, including the option for the parties to engage in a voluntary adjustment in lieu of an MLC-administered adjustment; (3) for each musical work at issue, the amounts that were erroneously paid to the prior payee that are subject to being adjusted; and (4) the respective contact information for the parties contained in the MLC's records. With this information, the parties will have the opportunity to make the corrective adjustment themselves. The parties would notify the MLC within another 30 days regarding whether the parties are engaging in a voluntary adjustment, were unable to reach such an agreement, or are still attempting to do so. If the parties engaged in a voluntary adjustment, the MLC will not make any adjustments in connection with the overpayment, but will retain records related to the voluntary adjustment. If the parties do not elect the voluntary adjustment option or if the MLC does not receive the required notice from the parties, the MLC will commence implementing the adjustment process within 30 days of [[Page 56610]] the end of the voluntary adjustment period. If the parties notify the MLC that they are continuing efforts to reach an agreement, the MLC will not commence the corrective adjustment process unless and until it receives a subsequent notice that the parties were unable to reach an agreement. If such a subsequent notice is received more than 18 months after the effective date of the rule, the MLC may, but is not required to, adjust the overpayment. The Office believes that it is reasonable to give the prior and proper payees an opportunity to engage in the adjustment process themselves, but that option would be ineffective without also requiring the MLC to implement a corrective adjustment as an alternative. Further, even if one party was willing to engage in a voluntary adjustment, the other party may wish to have the MLC implement the corrective adjustment for tax or accounting purposes.\361\ --------------------------------------------------------------------------- \361\ See Warner Chappell Music SNPRM Reply Comments at 2-3. --------------------------------------------------------------------------- While parties should jointly be able to determine the method they want to pursue to complete the adjustment, the Office does not believe that decision should be unbounded in time. Parties must decide whether the MLC is going to engage in a corrective adjustment (and notify the MLC of that decision) within 18 months of this rule's effective date. After that time, the MLC will not be required to initiate the corrective adjustment process.\362\ The Office believes that the MLC should not be required to undertake the corrective adjustment indefinitely. --------------------------------------------------------------------------- \362\ As the final rule makes clear, the MLC will discontinue any recovery efforts if it is notified that the overpayment was recovered outside of the corrective adjustment process (e.g., where there was a subsequent agreement or settlement) or a legal proceeding was commenced seeking recovery of the overpayment. --------------------------------------------------------------------------- Finally, the Office is not adopting Promopub's repayment proposals for the corrective adjustment, as it wishes to first monitor how the adjustment process is working in practice, before making any significant amendments. We are, however, incorporating in the final rule Promopub's requested clarification that the MLC must provide royalty statements to proper payees when it makes a corrective adjustment.\363\ --------------------------------------------------------------------------- \363\ Promopub SNPRM Initial Comments at 3. --------------------------------------------------------------------------- ii. Limiting Recovery of the Overpayment to the Publisher's Share The Office did not receive significant comments directly responding to ClearBox Rights' proposal that the MLC may only recover the publisher's share of the overpayment to make the corrective adjustment.\364\ Consequently, that provision is not included as a requirement in the final rule. The Office, however, sees no reason why songwriters, publishers, and the MLC could not agree to this type of agreement as a type of voluntary solution. Nothing in this rule prohibits the prior payee, proper payee, and MLC from all agreeing to engage in a corrective adjustment that only recovers and distributes the publisher's share of the overpayment. --------------------------------------------------------------------------- \364\ 88 FR 65908, 65921. But see MAC et al. SNPRM Initial at 3- 4 (stating that `` `where a publisher has already distributed a portion of the applicable royalties to its songwriters,' we believe the Office's proposal regarding recovery of overpayment by the MLC is the proper course'' (quoting 88 FR 65908, 65921)). --------------------------------------------------------------------------- The Office notes that the MLC stated that the rule envisioned a process that ``requires a songwriter to pay back royalties to the pre- termination publisher'' before that publisher returns funds to the MLC.\365\ The MLC claimed that this could be problematic for songwriters as ``the process could lead to songwriters having to use funds to temporarily pay back royalties paid to them years ago, and then wait several months or more to get those funds back.'' \366\ It also noted that it does not ``know the terms of the private contracts between the parties or how much was paid to the songwriter out of the total initial distribution,'' \367\ making it problematic to recover only the publisher's share in any corrective adjustment procedure. --------------------------------------------------------------------------- \365\ MLC Ex Parte Letter at 4 (Feb. 21, 2024). \366\ Id. \367\ Id. --------------------------------------------------------------------------- The MLC's comments imply that the rule requires songwriters (or other downstream royalty payees) to repay the prior payee before that prior payee would need to remit royalties to the MLC for further processing and distribution to the proper payee. Such an initial songwriter-repayment procedure, however, was not a requirement of the proposed rule and is not included in the final rule. iii. Voluntary Licenses The final rule does not require the MLC to make a corrective adjustment with respect to any amounts deducted, or held pending deduction, in connection with voluntary licenses. As discussed in Part III.A.3. above, the Office believes that voluntary licenses should be treated differently than section 115 statutory licenses. 3. The Final Rule Is Not an Impermissible Retroactive Rule or an Unconstitutional Taking As an initial matter, the Office recognizes the unusual circumstances that led to this rule, namely that a government- designated collective adopted and distributed royalties pursuant to a policy that embodied a legal interpretation of the Exception, in conflict with the Office's prior guidance. While the MLC may have intended to ensure ``prompt and uninterrupted royalty payments'' with its actions,\368\ it is the Office (and not the MLC) that has authority to interpret the Copyright Act, including with respect to the Act's termination provisions in the context of the blanket license.\369\ As discussed at length above, the Office finds that the MLC's Termination Policy was based on an unreasonable reading of the Act, specifically regarding its understanding of the Exception. The final rule's corrective adjustment fixes that legal error.\370\ --------------------------------------------------------------------------- \368\ 87 FR 64405, 64407 (noting that ``[i]n meetings with the Office, the MLC described its policy as a middle ground and explained that the policy was intended, in part, to avoid circumstances where parties' disputes could cause blanket license royalty payments to be held, pending resolution of the dispute, to the disadvantage of both songwriters and publishers''). \369\ While the Office acknowledges that, in the notice of proposed rulemaking in the earlier rulemaking proceeding about DMP reporting obligations, we suggested that the ``MLC's interpretation of the [Exception] seems at least colorable,'' the Office's intention was to ``give interested persons an opportunity to participate in the rule making through submission of written data, views, or arguments,'' 5 U.S.C. 553(c), without prejudging the rulemaking's outcome, especially as termination was ``one of the more complicated [topics] in [that earlier] proceeding'' and parties had not provided much commentary on the MLC's theory. 85 FR 22518, 22532 n.210, 22533. \370\ See, e.g., Farmers Tel. Co. v. FCC, 184 F.3d 1241, 1250 (10th Cir. 1999) (holding that when the FCC established an organization to prepare and file access tariffs, whose board was comprised of industry participants, and that organization issued an interpretation of a regulation which was later overruled by the agency, the agency's interpretation did not implicate the prohibition on retroactive rulemaking, including because the organization had ``no authority to perform any adjudicatory or governmental functions''). --------------------------------------------------------------------------- With that background, the Office now turns to the NMPA's objection that promulgating the proposed corrective adjustment provision is outside the Office's authority. First, NMPA suggested that this provision ``may arguably be an unconstitutional taking in violation of the Fifth Amendment,'' as ``it effectively takes property interests that pre-termination copyright owners may have had and transfers them to the post-termination copyright owner.'' \371\ Second, it stated that a rule that required the MLC to make an [[Page 56611]] adjustment to previously distributed royalties would be an impermissibly ``retroactive'' rule because it would ``expressly undo royalty payments already made under the Blanket License pursuant to the MLC's [then-]current [Termination Policy].'' \372\ --------------------------------------------------------------------------- \371\ NMPA NPRM Initial Comments at 12. \372\ Id. at 5. NMPA also argued that directing the MLC to pay the copyright owner at the time of the use would ``impact all subsequent adjustments and accrued interest payments made based on usage not only prior to a valid termination, but also prior to any other type of ownership transfer.'' Id. This second point is discussed in depth in Part III.B. above. --------------------------------------------------------------------------- i. ``Takings'' Concerns The Constitution's Takings Clause prohibits the government from ``depriving private persons of vested property rights except for a `public use' and upon payment of `just compensation.' '' \373\ It is self-evident that, for there to be a taking, a party must possess (and then be deprived of) a vested property right. --------------------------------------------------------------------------- \373\ Landgraf v. USI Film Prods., 511 U.S. 244, 266 (1994) (referencing U.S. Const. Amend. V). --------------------------------------------------------------------------- That is not what the corrective adjustment does. It merely applies the law as it existed at the time the MLC made the royalty distributions at issue. As the Office's legal analysis in the NPRM, SNPRM, and Part III.A.1. above make clear, prior payees never had a vested property right to the post-termination royalties the MLC distributed to them. These royalties always belonged to the post- termination copyright owner. Because prior payees have no vested property right in the erroneous overpayments they received, recovering those amounts so they can be properly distributed in accordance with the law is not a ``taking'' within the meaning of the Takings Clause.\374\ --------------------------------------------------------------------------- \374\ See Lucas v. South Carolina Coastal Council, 505 U.S. 1003, 1027 (1992) (observing that, under a takings claim, compensation is not owed where the government is depriving a person of something that they were not entitled to in the first place). --------------------------------------------------------------------------- ii. ``Retroactivity'' Concerns The Office disagrees that the final rule's corrective adjustment process to remedy improper prior MLC distributions constitutes an impermissible retroactive rule. NMPA is correct that, generally, a ``statutory grant of legislative rulemaking authority will not . . . be understood to encompass the power to promulgate retroactive rules unless that power is conveyed by Congress in express terms.'' \375\ The Office is not, however, adopting a new retroactive rule regarding the effect of termination on section 115 statutory licenses. Instead, we are adopting a rule applying the law as it existed at the time that the improper royalty distributions were made, and implementing the law by requiring parties to act in accordance with their legal obligations. --------------------------------------------------------------------------- \375\ NMPA NPRM Initial Comments at 5, n.8 (quoting Bowen v. Georgetown Univ. Hosp., 488 U.S. 204, 208 (1988)). --------------------------------------------------------------------------- Promulgating the corrective adjustment process is the most efficient, reasonable, and least burdensome, means of fixing the MLC's legal error. Far from establishing new obligations, the Office is merely enforcing preexisting obligations to ensure that parties who should have received the applicable payments from the start can obtain them.\376\ --------------------------------------------------------------------------- \376\ Moreover, this rule does not alter any party's royalty entitlements. Although the Copyright Office is directing the MLC to adjust the amounts distributed to various entities, the MLC's distributions do not constitute a final determination of the amounts to which any entity is entitled. --------------------------------------------------------------------------- In promulgating this rule, the Office has considered any reasonable reliance interests and expectations of the prior payee and proper payee. We conclude that any disruption caused by the corrective adjustment process adopted in this rule is likely to be modest, and that any reliance interests or expectations are minimized by several factors. First, the MLC's interpretation of the law was in doubt no later than September 2020, when the Office warned that parties viewed its interpretation as being ``legally erroneous.'' \377\ Second, as the SNPRM noted, ``[c]orrective royalty adjustments are common in the music industry and explicitly contemplated by the statute[,] the Office's existing regulations,'' and the MLC's own guidelines.\378\ Third, the MLC only started distributing royalties in 2021, its Termination Policy reflects a September 2021 date,\379\ and it was suspended in November 2022.\380\ To the extent that the corrective adjustment is potentially burdensome to prior payees, as discussed in Part III.F.2. above, the Office has both weighed that burden against the proper payees' interests and taken steps to alleviate those burdens by adjusting the rule's regulatory language. We believe that the final rule's corrective adjustment provision embodies the most reasonable course of action, as it implements the law as it already existed, while accounting for various administrability concerns. --------------------------------------------------------------------------- \377\ 87 FR 64405, 64407. \378\ 88 FR 65908, 65921. \379\ The original version of the MLC's Termination Policy has a September 2021 date, The MLC, Notice and Dispute Policy: Statutory Terminations (Sept. 2021), https://www.themlc.com/hubfs/Marketing/website/Original.pdf, while the current version has an August 2022 date, The MLC, Notice and Dispute Policy: Statutory Terminations (Aug. 2022), https://www.themlc.com/hubfs/Marketing/website/MLC%20Statutory%20Terminations%20Policy%20v1.2.pdf. The Office is not aware when the MLC started making distributions based on an erroneous view of the Exception. \380\ The MLC, October Member Updates (Nov. 1, 2022) (on file with the Office) (noting that ``The MLC is immediately suspending its [Termination] Policy pending the outcome of the rulemaking proceeding initiated by the U.S. Copyright Office'' and that it would be placing all royalties associated with work shares previously subject to that policy on hold ``effective with the first distribution of blanket license royalties related to October 2022''). --------------------------------------------------------------------------- G. Effective Date and Compliance Deadline As is typical for many rules enacted by the Office, this final rule is effective 30 days after being published in the Federal Register. However, because the Office agrees with the MLC that it will need more than 30 days to update its processes and systems before it can reasonably be expected to implement most of the final rule,\381\ its compliance deadline is extended to the first distribution of royalties based on its first payee snapshot after the date that is 90 days after the rule is published in the Federal Register. This deadline is based on the timing requested by the MLC \382\ and is consistent with the Office's practice of providing reasonable transition periods where MMA- related rules necessitate significant process changes and system updates and development.\383\ --------------------------------------------------------------------------- \381\ See MLC Ex Parte Letter at 3-4 (Mar. 22, 2024) (``This estimated timeframe accounts for basic code development, testing phases, and the general integration of new processes into The MLC's end-to-end overlapping distribution cycle process. This estimate also recognizes that, particularly regarding the distribution of royalties from periods after the effective date, the rule as currently proposed requires The MLC to operationalize nuanced practices and processes including requirements that must be met before implementing a change, requirements for confirming receipt of appropriate notice of a change, and timelines for implementing a change (among others).''). \382\ Id. The Office does not believe the MLC needs the longer transition period it requested ``[i]f the final rule directs The MLC to distribute royalties to a pre-termination owner and/or a post- termination owner, depending on when corresponding usage occurred, regardless of which party is the current payee registered in The MLC database.'' See id. at 4. While that might be a possibility under the final rule going forward, it would appear to only arise in the context of adjustments, which the MLC is only required to make once annually. See 37 CFR 210.29(b)(2). Thus, the MLC has ample time to complete those particular updates. \383\ See, e.g., 37 CFR 210.27(e)(2)(i), (e)(3)(ii), (e)(5). --------------------------------------------------------------------------- This later compliance deadline does not apply to four sections of the final rule: (1) the provision embodying the Office's legal conclusions about how the Exception operates in connection with blanket licenses; (2) the provision embodying the Office's legal conclusions about how the Exception operates in connection with individual download licenses; (3) the corrective royalty adjustment remedying the MLC's previous misapplication of the [[Page 56612]] Exception; and (4) the provision requiring the MLC to adopt notice requirements for non-termination-related payee changes. The first two provisions are carved out because they state the accurate interpretation of the law with respect to the Exception and section 115 statutory licenses. Because the MLC has already suspended its Termination Policy and, to the best of the Office's knowledge, is not currently making distributions in a manner inconsistent with these provisions, it should not need any additional time to comply with the prohibitions they contain. The second two provisions are carved out because those provisions have their own separate timing requirements written into the regulatory text. With respect to the corrective adjustment, the MLC is required to send and receive certain notices sooner than the general compliance deadline, which the Office believes is reasonable to require given the relatively low burden involved. Additionally, the rule requires the MLC to distribute amounts currently on hold sooner than the general compliance deadline because it did not explain why it needed more time for that particular action and the equities weigh in favor of terminating parties obtaining their royalties in a timely manner. The Copyright Office may, upon the MLC's request, extend the compliance deadlines in our discretion by providing public notice through our website.\384\ --------------------------------------------------------------------------- \384\ Any extensions will be reflected on the Copyright Office's website at https://copyright.gov/rulemaking/mma-termination/. --------------------------------------------------------------------------- List of Subjects in 37 CFR Part 210 Copyright, Phonorecords, Recordings. Final Regulations For the reasons set forth in the preamble, the U.S. Copyright Office amends 37 CFR part 210 as follows: PART 210--COMPULSORY LICENSE FOR MAKING AND DISTRIBUTING PHYSICAL AND DIGITAL PHONORECORDS OF NONDRAMATIC MUSICAL WORKS 0 1. The authority citation for part 210 continues to read as follows: Authority: 17 U.S.C. 115, 702. 0 2. Amend Sec. 210.22 as follows: 0 a. Redesignate paragraphs (d), (e), (f), (g), (h), (i), and (j) as paragraphs (e), (g), (h), (i), (j), (n), and (p), respectively; and 0 b. Add new paragraphs (d) and (f) and paragraphs (k), (l), (m) and (o). The additions read as follows: Sec. 210.22 Definitions. * * * * * (d) The term derivative works exception means the limitations contained in 17 U.S.C. 203(b)(1) and 304(c)(6)(A). * * * * * (f) The term historical unmatched royalties means the accrued royalties transferred to the mechanical licensing collective by digital music providers pursuant to 17 U.S.C. 115(d)(10) and Sec. 210.10. * * * * * (k) The term matched historical royalties means historical unmatched royalties attributable to a musical work (or share thereof) matched after being transferred to the mechanical licensing collective. (l) The term payee snapshot means the royalty payee information in the mechanical licensing collective's records as of a particular date used for a particular monthly royalty distribution. (m) The term pre-termination copyright owner means the owner of the relevant copyright immediately prior to: (1) The effective date of termination for an effective termination under 17 U.S.C. 203 or 304; or (2) The purported effective date of termination for a claimed, disputed, or invalid termination under 17 U.S.C. 203 or 304. * * * * * (o) The term terminating party means: (1) A party entitled under 17 U.S.C. 203 or 304 to terminate a grant, who is seeking to terminate such a grant under such provisions; (2) A party who has effectuated termination of a grant under 17 U.S.C. 203 or 304; (3) A party to whom rights have reverted or are expected to revert pursuant to the effective termination of a grant under 17 U.S.C. 203 or 304; or (4) A successor in interest to a party identified in paragraph (o)(1), (2), or (3) of this section (e.g., a subsequent publisher or administrator). * * * * * 0 3. Amend Sec. 210.27 by redesignating paragraph (g)(2)(ii) as paragraph (g)(2)(ii)(A) and adding paragraph (g)(2)(ii)(B). The addition reads as follows: Sec. 210.27 Reports of usage and payment for blanket licensees. * * * * * (g) * * * (2) * * * (ii)(A) * * * (B) To the extent applicable to the mechanical licensing collective's efforts under paragraph (g)(2)(ii)(A) of this section: (1) The derivative works exception does not apply to any individual download license and no individual or entity may be construed as the copyright owner or royalty payee of a musical work (or share thereof) used pursuant to any such license based on the derivative works exception. (2) The derivative works exception does not apply to any voluntary license and no individual or entity may be construed as the copyright owner or royalty payee of a musical work (or share thereof) used pursuant to any such license based on the derivative works exception, unless and only to the extent that the mechanical licensing collective is directed otherwise pursuant to: (i) The resolution of a dispute regarding the application of the derivative works exception to a particular voluntary license or its underlying grant of authority; or (ii) A notice submitted under Sec. 210.30(c)(1). * * * * * 0 4. Amend Sec. 210.29 as follows: 0 a. In paragraph (a), remove ``reporting obligations'' and add in its place ``reporting and payment obligations'' and add two sentences at the end; and 0 b. Add paragraphs (b)(4), (j), and (k). The additions read as follows: Sec. 210.29 Reporting and distribution of royalties to copyright owners by the mechanical licensing collective. (a) * * * This section also prescribes reporting and payment obligations of the mechanical licensing collective to copyright owners for the distribution of matched historical royalties. This section does not apply to distributions of unclaimed accrued royalties under 17 U.S.C. 115(d)(3)(J). (b) * * * (4)(i)(A) The copyright owner of a musical work (or share thereof) as of the last day of a monthly reporting period in which such musical work is used pursuant to a blanket license is entitled to all royalty payments and other distributable amounts (e.g., accrued interest), including any subsequent adjustments, for the uses of that musical work occurring during that monthly reporting period, unless such entitlement has been transferred to another individual or entity. As used in the previous sentence, the term uses means all covered activities engaged in under blanket licenses as reported by blanket licensees to the mechanical licensing collective. (B)(1) For the purpose of making any distribution of royalties or other amounts (e.g., accrued interest), as a matter of reasonable administrability, the mechanical licensing collective, in [[Page 56613]] the absence of a dispute or investigation, shall treat the individual or entity identified in its records as of the date of the payee snapshot used by the mechanical licensing collective for the applicable distribution as legally authorized to receive such distribution, unless the mechanical licensing collective is notified otherwise. (2) Nothing in paragraph (b)(4)(i)(B)(1) of this section shall be construed as absolving the mechanical licensing collective of its responsibility to engage in reasonable verification and antifraud efforts in connection with the registration and claiming of musical works (or shares thereof). (3) No distribution made by the mechanical licensing collective shall alter or prejudice any party's legal entitlement to any of the distributed funds or such party's ability to collect such funds from someone other than the mechanical licensing collective if such funds were not distributed to such party by the mechanical licensing collective. (4) Notwithstanding any other provision of this section, where the mechanical licensing collective distributes royalties to the wrong party and that error is caused by the actions of the mechanical licensing collective, the mechanical licensing collective shall promptly correct its error upon learning of it. For purposes of this paragraph (b)(4)(i)(B)(4), an error is not caused by the mechanical licensing collective where it acts in accordance with paragraph (b)(4)(i)(B)(1) of this section or otherwise reasonably relies on information provided to it by others that turns out to be inaccurate. (C) The derivative works exception does not apply to any blanket license and no individual or entity may be construed as the copyright owner or royalty payee of a musical work (or share thereof) used pursuant to a blanket license based on the derivative works exception. (ii) Subject to the requirements of and except to the extent permitted by Sec. 210.30, the mechanical licensing collective shall not distribute royalties in a manner inconsistent with paragraph (b)(4)(i) of this section. * * * * * (j) Matched historical royalties. The mechanical licensing collective shall report and distribute matched historical royalties and related accrued interest and adjustments in the same manner and subject to the same requirements that apply to the reporting and distribution of royalties for musical works licensed under the blanket license, as if such matched historical royalties were royalties payable for musical works licensed under the blanket license, but subject to the following clarifications: (1) Matched historical royalties shall be treated as accrued royalties distributable under paragraph (b)(1)(ii) of this section and shall be separately identified in applicable royalty statements. (2) With respect to the requirements of paragraph (b)(2) of this section, royalty distributions based on adjustments to matched historical royalties reflected in cumulative statements of account delivered to the mechanical licensing collective by digital music providers pursuant to Sec. 210.10(b)(3)(i) shall be made by the mechanical licensing collective at least once annually, upon submission of one or more statements of adjustment delivered to the mechanical licensing collective by digital music providers pursuant to Sec. 210.10(k), to the extent any such statement of adjustment is delivered to the mechanical licensing collective during such annual period. (k) Corrective royalty adjustment. Any distribution under paragraph (b) of this section (including any distribution of matched historical royalties, or related accrued interest or adjustments) or deduction under Sec. 210.27(g)(2)(ii) (other than a deduction related to a voluntary license) made by the mechanical licensing collective before August 8, 2024 and based on an application of the derivative works exception that is inconsistent with paragraph (b)(4)(i)(C) of this section (including as such paragraph applies to matched historical royalties through paragraph (j) of this section) or Sec. 210.27(g)(2)(ii)(B)(1), as each of those provisions exist on August 8, 2024, shall be subject to adjustment by the mechanical licensing collective. Any amounts held by the mechanical licensing collective in connection with such application of the derivative works exception as of August 8, 2024 shall also be subject to adjustment. The adjustment process shall be as follows: (1)(i) To the extent required by this paragraph (k), where a royalty payee (the prior payee) received amounts from the mechanical licensing collective that such prior payee would not have received had the distribution been made in a manner consistent with the application of the derivative works exception embodied in paragraph (b)(4)(i)(C) of this section, the mechanical licensing collective shall, except as otherwise provided for by this paragraph (k), recover such overpayment from such prior payee and shall distribute it to the royalty payee (the proper payee) who is entitled to such funds under the application of the derivative works exception embodied in paragraph (b)(4)(i)(C) of this section. (ii) The mechanical licensing collective shall notify each prior payee and proper payee (collectively, the parties) of the overpayment no later than August 8, 2024. Such notice shall contain at least the following information: (A) A summary of the Copyright Office's conclusions embodied in paragraph (b)(4)(i)(C) of this section and Sec. 210.27(g)(2)(ii)(B); (B) A description of the adjustment process detailed in this paragraph (k), including the option for the parties to reach a voluntary agreement concerning the overpayment; (C) For each musical work (or share thereof) at issue, the amount of the overpayment; and (D) The respective contact information for each of the parties contained in the mechanical licensing collective's records. (iii) After receiving such notice, the parties may attempt to reach a voluntary agreement with respect to the overpayment. Before September 9, 2024, the parties shall notify the mechanical licensing collective that: (A) The parties reached a voluntary agreement with respect to the overpayment; (B) The parties are in the process of attempting to reach a voluntary agreement with respect to the overpayment; or (C) The parties did not reach a voluntary agreement with respect to the overpayment. (iv) The mechanical licensing collective shall act as follows in connection with such notice: (A) If the mechanical licensing collective receives notice that the parties reached a voluntary agreement with respect to the overpayment, it shall not make any adjustment in connection with the overpayment. (B) If the mechanical licensing collective receives notice that the parties are in the process of attempting to reach a voluntary agreement with respect to the overpayment, it shall not take any action unless and until it receives a subsequent notice. If the subsequent notice states that the parties reached a voluntary agreement with respect to the overpayment, the mechanical licensing collective shall not make any adjustment in connection with the overpayment. If the subsequent notice states that the parties did not reach a voluntary agreement with respect to the overpayment, the mechanical licensing collective shall commence the adjustment process described in paragraph (k)(1)(v) of this [[Page 56614]] section. If such a subsequent notice is received after August 8, 2024, the mechanical licensing collective shall not be required to make any adjustment in connection with the overpayment. (C) If the mechanical licensing collective receives notice that the parties did not reach a voluntary agreement with respect to the overpayment, it shall commence the adjustment process described in paragraph (k)(1)(v) of this section. (D) If the mechanical licensing collective does not receive a timely notice under paragraph (k)(1)(iii) of this section, it shall commence the adjustment process described in paragraph (k)(1)(v) of this section. (v) Where, pursuant to paragraph (k)(1)(iv) of this section, the mechanical licensing collective is required to commence an adjustment process with respect to the overpayment, the following requirements shall apply: (A) Not later than October 7, 2024 or 30 calendar days after receiving an applicable subsequent notice under paragraph (k)(1)(iv)(B) of this section, whichever is later, the mechanical licensing collective shall notify the prior payee that the adjustment process has commenced and request that the prior payee return the overpayment no later than November 6, 2024 or 30 calendar days after receiving the notice, whichever is later. Any returned amounts shall be distributed, accompanied by an appropriate royalty statement, to the proper payee with the next regular monthly royalty distribution to occur at least 30 calendar days after any such amounts are returned. (B) If such overpayment is not returned in full in accordance with paragraph (k)(1)(v)(A) of this section, then beginning with the first distribution of royalties to occur at least 30 calendar days after the deadline specified in that paragraph, 50 percent of any and all accrued royalties and other distributable amounts (e.g., accrued interest) that would otherwise be payable to the prior payee from the mechanical licensing collective each month, regardless of the associated work (or share), shall instead be distributed, accompanied by an appropriate royalty statement, to the proper payee until such time as the full amount of the overpayment is recovered. Where the amount to be recovered under this paragraph during a monthly royalty distribution constitutes less than 50 percent of the applicable accrued royalties and other distributable amounts, the mechanical licensing collective shall recover the full amount of the overpayment. Where more than one proper payee is entitled to a corrective royalty adjustment from the same prior payee for different musical works, any amounts recovered and distributed under this paragraph (k)(1)(v)(B) shall be apportioned equally among such proper payees. (2) Where, as of August 8, 2024, the mechanical licensing collective is holding amounts that would constitute an overpayment under paragraph (k)(1) of this section if such amounts had been distributed to the prior payee, such amounts shall be distributed, accompanied by an appropriate royalty statement, to the proper payee no later than the first distribution of royalties based on the first payee snapshot taken by the mechanical licensing collective at least 30 calendar days after August 8, 2024. (3) The recovery and distribution processes described in paragraphs (k)(1) and (2) of this section shall also apply, as applicable, to amounts deducted, or held pending deduction, by the mechanical licensing collective under Sec. 210.27(g)(2)(ii), other than with respect to amounts relating to voluntary licenses, where the proper payee is not the payee to whom the relevant usage was originally matched. For purposes of this paragraph (k)(3), the payee to whom the relevant usage was originally matched shall constitute the prior payee as that term is used elsewhere in this paragraph (k). (4) Nothing in this paragraph (k) shall be construed as prejudicing the proper payee's right or ability to otherwise recover such overpayment from the prior payee outside of the adjustment process detailed in this paragraph (k). Where the overpayment is recovered outside of such adjustment process or a legal proceeding is commenced seeking recovery of the overpayment, the mechanical licensing collective must be notified. Upon receipt of such notice, the mechanical licensing collective shall discontinue any recovery efforts engaged in under this paragraph (k). (5) Notwithstanding the adjustment process detailed in this paragraph (k), the parties and the mechanical licensing collective may voluntarily agree to an alternative adjustment process. 0 5. Revise Sec. 210.30 to read as follows: Sec. 210.30 Transfers of copyright ownership, royalty payee changes, and related disputes. (a) General. This section prescribes rules governing the mechanical licensing collective's administration of transfers of copyright ownership, other royalty payee changes, and related disputes. (b) Requirements for the mechanical licensing collective to implement a change. The mechanical licensing collective shall not take any action to implement or give effect to any transfer of copyright ownership (including a transfer resulting from an effective termination under 17 U.S.C. 203 or 304) or other change to a royalty payee, unless the requirements of paragraph (c) of this section are satisfied or the mechanical licensing collective is acting in connection with the resolution of a dispute. Where the requirements of paragraph (c) of this section are satisfied, the mechanical licensing collective shall implement and give effect to such transfer or other change in accordance with paragraph (d) of this section. (c) Notices of change. The mechanical licensing collective must be appropriately notified in writing with respect to any transfer or other change described in paragraph (b) of this section. Subject to the further requirements of this paragraph (c), such notice must comply with any reasonable formatting and submission requirements that the mechanical licensing collective establishes and makes publicly available on its website. No fee may be charged for submitting such a notice. Upon submitting such a notice, or any additional information related to such notice, the submitter shall be provided with a prompt response from the mechanical licensing collective confirming receipt of the notice, or any additional information related to such notice, and the date of receipt. (1)(i)(A) Subject to paragraph (c)(1)(ii) of this section, for any transfer or other payee change not addressed by paragraph (c)(2) of this section, the mechanical licensing collective shall be notified of such transfer or payee change in accordance with any reasonable requirements that the mechanical licensing collective establishes and makes publicly available on its website. (B) If such requirements are not publicly available on the mechanical licensing collective's website as of July 9, 2024, the mechanical licensing collective shall adopt such requirements and make them available as soon as reasonably practicable, but no later than September 9, 2024, unless the Copyright Office allows for an extension in its discretion. The mechanical licensing collective shall make such requirements publicly available on its website at least 30 calendar days before such requirements become effective. (C) The mechanical licensing collective shall make any amendment to such requirements publicly available on its website at least 30 calendar days [[Page 56615]] before such amendment becomes effective, unless the mechanical licensing collective can articulate good cause for not providing such advanced notice. In no case shall an amendment be effective before being published on the mechanical licensing collective's website. (ii) Notwithstanding paragraph (c)(1)(i) of this section, any notice seeking to change the royalty payee from a terminating party (or its designee) to a corresponding pre-termination copyright owner (or its designee) is subject to the following additional requirements: (A) The notice must be signed after the effective date of termination. (B) The notice must set forth in plain language an acknowledgement that the requested action alters the royalty payee from that established by Sec. 210.29(b)(4)(i). (2) Specific requirements for notices about transfers of copyright ownership resulting from an effective termination under 17 U.S.C. 203 or 304 are as follows: (i) The required notice shall include all of the following information: (A) A true, correct, complete, and legible copy of the signed and as-served notice of termination submitted to the Copyright Office for recordation pursuant to Sec. 201.10. (B) A true, correct, complete, and legible copy of the statement of service submitted to the Copyright Office for recordation pursuant to Sec. 201.10, if one was submitted. (C) Either: (1) Proof, as to a particular musical work, that the notice of termination was recorded in the Copyright Office before the effective date of termination. Where the notice of termination identifies more than one musical work, each musical work shall be treated independently; or (2) If the Copyright Office has not yet recorded the notice of termination, proof, as to a particular musical work, that the notice of termination was submitted to the Copyright Office for recordation before the effective date of termination, provided that proof, as to such musical work, that the notice of termination was recorded in the Copyright Office before the effective date of termination is delivered to the mechanical licensing collective at a later date. Where the notice of termination identifies more than one musical work, each musical work shall be treated independently. (D) The terminating party, identified by name and any known and appropriate unique identifiers, appropriate contact information for the terminating party or their administrator or other representative, and, if the terminating party is not already receiving royalty distributions from the mechanical licensing collective, any additional information that is necessary for the terminating party to receive royalty distributions from the mechanical licensing collective. (ii) With respect to the information required by paragraphs (c)(2)(i)(A) through (C) of this section, providing an official Copyright Office certification for any such information shall not be required. If the mechanical licensing collective has good cause to doubt the authenticity of any such information, the mechanical licensing collective shall either seek verification from the Copyright Office or request that such verification be provided to the mechanical licensing collective by the submitter. (iii) Where the information required by paragraph (c)(2)(i) of this section is insufficient to enable the mechanical licensing collective to implement and give effect to the termination with respect to a particular musical work, the mechanical licensing collective shall promptly correspond with the terminating party and the pre-termination copyright owner (or their respective representatives) to attempt to obtain the minimum necessary information. (iv) The required notice shall be submitted and signed by either the terminating party or the pre-termination copyright owner (or their respective duly authorized representatives). Such signature shall be accompanied by the name and title of the person signing the notice and the date of the signature. The notice may be signed electronically. The person signing the notice shall certify that they have appropriate authority to submit the notice to the mechanical licensing collective and that all information submitted as part of the notice is true, accurate, and complete to the best of the signer's knowledge, information, and belief, and is provided in good faith. If the notice is submitted by the terminating party, the following additional steps shall be required: (A) The mechanical licensing collective shall notify the pre- termination copyright owner about the terminating party's notice within 15 calendar days of receiving either the notice or the last piece of information necessary for the mechanical licensing collective to implement the change as to a particular musical work, whichever is later, and shall contemporaneously alert the terminating party that such notice was sent to the pre-termination copyright owner. (B) If the pre-termination copyright owner does not initiate a dispute with the mechanical licensing collective regarding the termination, in accordance with paragraph (e) of this section, within 30 calendar days of receiving such notice, the mechanical licensing collective shall implement and give effect to the transfer of copyright ownership resulting from the termination, in accordance with paragraph (d) of this section. Nothing in this paragraph (c)(2)(iv)(B) shall prevent the pre-termination copyright owner from disputing the termination with the mechanical licensing collective at a later date or challenging the termination in a legal proceeding. (v) Where there is more than one terminating party or pre- termination copyright owner, the required notice shall include a satisfactory identification of any applicable ownership shares for each musical work subject to the termination. Where there is more than one terminating party, the notice shall be effective only as to those terminating parties whose information is provided in accordance with paragraph (c)(2)(i)(D) of this section. Where there is more than one terminating party, a notice that is signed and certified by any one terminating party in accordance with paragraph (c)(2)(iv) of this section is sufficient as to all terminating parties. (vi)(A) A notice submitted to the mechanical licensing collective pursuant to this paragraph (c)(2) may be withdrawn in accordance with any reasonable requirements that the mechanical licensing collective establishes and makes publicly available on its website. (B) A notice submitted to the mechanical licensing collective pursuant to this paragraph (c)(2) may be converted into a notice under paragraph (c)(1) of this section in accordance with any reasonable requirements that the mechanical licensing collective establishes and makes publicly available on its website. (C) Such requirements shall comply with the requirements of paragraphs (c)(1)(i)(B) and (C) of this section. (d) Implementation of a change. Upon receiving a notice that complies with the requirements of paragraph (c) of this section, the mechanical licensing collective shall implement and give effect to the identified transfer or other payee change on a per work basis as follows: (1)(i) Except as provided by paragraph (d)(1)(ii) of this section, where the mechanical licensing collective receives the notice before the first day of the first monthly reporting period to commence [[Page 56616]] after the change is effective, the mechanical licensing collective shall implement and give effect to the change, on a prospective basis, beginning no later than the first distribution of royalties for such reporting period. (ii) Where the notice concerns a transfer of copyright ownership resulting from an effective termination under 17 U.S.C. 203 or 304 submitted by the terminating party under paragraph (c)(2) of this section, and the pre-termination copyright owner does not initiate a dispute as described in paragraph (c)(2)(iv)(B) of this section, where the mechanical licensing collective receives the notice at least 45 calendar days before the first day of the first monthly reporting period to commence after the change is effective, the mechanical licensing collective shall implement and give effect to the change, on a prospective basis, beginning no later than the first distribution of royalties for such reporting period. (2)(i) Except as provided by paragraph (d)(2)(ii) of this section, where the mechanical licensing collective receives the notice on or after the first day of the first monthly reporting period to commence after the change is effective, the mechanical licensing collective shall implement and give effect to the change, on a prospective basis, beginning no later than the first distribution of royalties based on the first payee snapshot taken by the mechanical licensing collective at least 30 calendar days after the mechanical licensing collective receives the notice. (ii) Where the notice concerns a transfer of copyright ownership resulting from an effective termination under 17 U.S.C. 203 or 304 submitted by the terminating party under paragraph (c)(2) of this section, and the pre-termination copyright owner does not initiate a dispute as described in paragraph (c)(2)(iv)(B) of this section, where the mechanical licensing collective receives the notice less than 45 calendar days before the first day of the first monthly reporting period to commence after the change is effective, the mechanical licensing collective shall implement and give effect to the change, on a prospective basis, beginning no later than the first distribution of royalties based on the first payee snapshot taken by the mechanical licensing collective at least 30 calendar days after the pre- termination copyright owner's deadline to dispute under paragraph (c)(2)(iv)(B) of this section. (3) Where additional information related to the notice is required to enable the mechanical licensing collective to implement and give effect to the change, and such information is received after receipt of the notice, the timing requirements described in paragraphs (d)(1) and (2) of this section shall be based on the date that the last piece of necessary information is received by the mechanical licensing collective. (4) Where the change is effective as to one or more monthly reporting periods for which the mechanical licensing collective distributed royalties before implementing and giving effect to the change, the mechanical licensing collective may, but is not required to, make a corrective royalty adjustment if the notice requests one. (5) If the mechanical licensing collective does not implement and give effect to the change in accordance with the deadlines prescribed by paragraphs (d)(1) through (3) of this section, the mechanical licensing collective shall implement and give effect to the change as soon as reasonably practicable, provided that the change is implemented and given effect by the mechanical licensing collective no later than the next regular monthly royalty distribution to occur either after the implementation deadline that originally applied under paragraphs (d)(1) through (3) of this section, as applicable, or at least 30 calendar days after the date that the mechanical licensing collective learns that the change was not implemented on time, whichever is later. In such cases, the mechanical licensing collective shall implement and give effect to the change as of the implementation deadline that originally applied under paragraphs (d)(1) through (3) of this section, as applicable, including by making any necessary corrective royalty adjustments. (6) No action or inaction by the mechanical licensing collective with respect to implementing and giving effect to a transfer or other payee change shall alter or prejudice any party's rights to royalties pursuant to such change or such party's right to collect such royalties from someone other than the mechanical licensing collective if such royalties were not distributed to such party by the mechanical licensing collective. (7) Where the notice concerns a transfer of copyright ownership resulting from an effective termination under 17 U.S.C. 203 or 304 submitted under paragraph (c)(2) of this section, and the notice is accompanied by proof that the notice of termination was submitted to the Copyright Office for recordation, but the notice is not accompanied by proof that it was recorded in the Copyright Office before the effective date of termination, the mechanical licensing collective shall act as follows: (i) Upon subsequent receipt of proof that the notice of termination was recorded in the Copyright Office before the effective date of termination, the mechanical licensing collective shall treat the proof of recordation as a type of additional information under paragraph (d)(3) of this section. The mechanical licensing collective shall not implement or give effect to any such termination unless and until such proof is received. (ii) Until receipt of the proof described in paragraph (d)(7)(ii)(B) or (C) of this section, as the case may be, and subject to paragraph (d)(7)(ii)(D) of this section the mechanical licensing collective shall hold applicable accrued royalties and accrued interest pending receipt of proof that the notice of termination was recorded in the Copyright Office before the effective date of termination as follows: (A) The mechanical licensing collective shall commence holding such amount no later than the implementation deadline that would apply under paragraphs (d)(1) through (3) of this section, as applicable, if proof of recordation had been provided with the notice. (B) After receiving proof that the notice of termination was recorded in the Copyright Office before the effective date of termination is received, the mechanical licensing collective shall implement and give effect to the termination as provided by paragraphs (d)(1) through (5) and (d)(7)(i) of this section, as applicable. (C) After receiving proof that the Copyright Office refused to record the notice of termination, the recordation submission was withdrawn, or the notice of termination was recorded on or after the effective date of termination, the mechanical licensing collective shall release the held funds to the pre-termination copyright owner. (D) If the mechanical licensing collective does not receive the proof described in either paragraph (d)(7)(ii)(B) or (C) of this section within 6 months after the mechanical licensing collective commences holding applicable accrued royalties and accrued interest, the mechanical licensing collective shall request that the terminating party provide an update about the status of the relevant recordation submission. If the submission remains pending at that time, the mechanical licensing collective may continue to request periodic updates from the terminating party in its discretion. Upon receiving the proof described in either paragraph [[Page 56617]] (d)(7)(ii)(B) or (C), the mechanical licensing collective shall act in accordance with paragraph (d)(7)(ii)(B) or (C), as the case may be. (iii) Where a notice of termination identifies more than one musical work, whether the notice is timely recorded in the Copyright Office shall be determined on a per work basis with respect to each musical work identified in the notice. (e) Termination disputes. The following requirements shall apply to any dispute initiated with the mechanical licensing collective regarding a termination under 17 U.S.C. 203 or 304: (1) Such a dispute must be with regard to the validity of the termination or the application of the derivative works exception to a particular voluntary license or its underlying grant of authority. (2) Only a pre-termination copyright owner (or its representative) may initiate such a dispute. (3)(i) If a pre-termination copyright owner (or its representative) initiates such a dispute and delivers the information required to substantiate the dispute to the mechanical licensing collective under paragraph (e)(4) of this section, the mechanical licensing collective shall hold applicable accrued royalties and accrued interest pending resolution of the dispute. (ii) With respect to any dispute concerning the application of the derivative works exception to a particular voluntary license or its underlying grant of authority: (A) The mechanical licensing collective shall, as needed and on an ongoing basis, invoice any applicable digital music provider for the royalties associated with the dispute. (B) The mechanical licensing collective shall hold such royalties in the same manner and at the same interest rate as any other funds held pursuant to 17 U.S.C. 115(d)(3)(H)(ii). (C) Where the resolution of the dispute results in payment being made by the mechanical licensing collective pursuant to a blanket license, the payment must include any accrued interest. Where the resolution of the dispute results in a digital music provider paying a voluntary licensor, the mechanical licensing collective must promptly return the held amount, including any accrued interest, to the digital music provider accompanied by notice that the dispute has been resolved in such manner. (4) The minimum information that must be delivered to the mechanical licensing collective to substantiate a termination-related dispute shall consist of the following: (i) A cognizable explanation of the grounds for the dispute, articulated with specificity. (ii) Documentation sufficient to support the grounds for the dispute, which shall consist of the following: (A) A true, correct, complete, and legible copy of each grant in dispute. (B) A true, correct, complete, and legible copy of any other agreement or document necessary to support the grounds for the dispute. (C) Such other documentation or substantiating information as the mechanical licensing collective may reasonably require pursuant to a dispute policy adopted under 17 U.S.C. 115(d)(3)(K). (iii) A satisfactory identification of each musical work in dispute. (iv) A certification that the submitter has appropriate authority to initiate the dispute with the mechanical licensing collective and that all information submitted in connection with the dispute is true, accurate, and complete to the best of the submitter's knowledge, information, and belief, and is provided in good faith. (v) The following additional information if the dispute concerns the application of the derivative works exception to a particular voluntary license or its underlying grant of authority: (A) A true, correct, complete, and legible copy of each voluntary license at issue. (B) A satisfactory identification of each relevant sound recording that constitutes a derivative work within the meaning of 17 U.S.C. 101 that was prepared pursuant to appropriate authority. (C) The date of preparation for each such sound recording, which must be before the effective date of termination. (5) Notwithstanding anything to the contrary that may be contained in Sec. 210.34, any and all documentation provided to the mechanical licensing collective pursuant to paragraph (e)(4) of this section shall be disclosed to all parties to the dispute. If a party to the dispute is not a party or successor to a party to an otherwise confidential document, such disclosure shall be subject to an appropriate written confidentiality agreement. (6) Any dispute initiated with the mechanical licensing collective under this paragraph (e) shall be limited to those musical works identified pursuant to paragraph (e)(4)(iii) of this section. The existence of such a dispute shall not affect the implementation of a change with respect to any other musical work identified in the same notice of change and that is not subject to a dispute. 0 6. Amend Sec. 210.34 as follows: 0 a. In paragraph (c)(5), remove ``to paragraph (c)(4) of'' and add in its place ``to paragraph (c)(4) or (6) of''; and 0 b. Add paragraph (c)(6). The addition reads as follows: Sec. 210.34 Treatment of confidential and other sensitive information. * * * * * (c) * * * (6) Notwithstanding paragraph (c)(1) of this section, where the mechanical licensing collective places any amount on hold pursuant to a dispute initiated under Sec. 210.30(e), the mechanical licensing collective shall promptly disclose the total amount held for each disputed work (or share thereof) to the parties to the dispute, which shall include an identification of the approximate amount of royalties expected to have been distributed for each disputed work (or share thereof) in the first monthly distribution to occur after the initiation of the hold. Upon the written request of any party to the dispute, the mechanical licensing collective shall provide an update about the amount held to all parties to the dispute within a reasonable period of time, except that the mechanical licensing collective is not required to provide such an update more frequently than once every three months. * * * * * Dated: June 25, 2024. Suzanne Wilson, General Counsel and Associate Register of Copyrights. Approved by: Carla D. Hayden, Librarian of Congress. [FR Doc. 2024-14609 Filed 7-8-24; 8:45 am] BILLING CODE 1410-30-P

usgpo

2024-10-08T13:27:03.706002

FR

FR-2024-07-09/2024-13982

Federal Register Volume 89 Issue 131 (July 9, 2024)

United States National Archives and Records Administration Office of the Federal Register

[Federal Register Volume 89, Number 131 (Tuesday, July 9, 2024)] [Rules and Regulations] [Pages 56620-56657] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 2024-13982] [[Page 56619]] Vol. 89 Tuesday, No. 131 July 9, 2024 Part IV Federal Deposit Insurance Corporation ----------------------------------------------------------------------- 12 CFR Part 360 ----------------------------------------------------------------------- Resolution Plans Required for Insured Depository Institutions With $100 Billion or More in Total Assets; Informational Filings Required for Insured Depository Institutions With at Least $50 Billion but Less Than $100 Billion in Total Assets; Final Rule Federal Register / Vol. 89 , No. 131 / Tuesday, July 9, 2024 / Rules and Regulations [[Page 56620]] ----------------------------------------------------------------------- FEDERAL DEPOSIT INSURANCE CORPORATION 12 CFR Part 360 RIN 3064-AF90 Resolution Plans Required for Insured Depository Institutions With $100 Billion or More in Total Assets; Informational Filings Required for Insured Depository Institutions With at Least $50 Billion but Less Than $100 Billion in Total Assets AGENCY: Federal Deposit Insurance Corporation (FDIC). ACTION: Final rule. ----------------------------------------------------------------------- SUMMARY: The FDIC is adopting this final rule to require the submission of resolution plans by insured depository institutions (IDIs) with $100 billion or more in total assets and informational filings by IDIs with at least $50 billion but less than $100 billion in total assets. The final rule modifies the current rule requirements regarding the content and timing of full resolution submissions, as well as interim supplements to those submissions provided to the FDIC, in order to support the FDIC's resolution readiness in the event of material distress and failure of these large IDIs. The final rule also enhances how the credibility of full resolution submissions will be assessed, expands expectations regarding engagement and capabilities testing, and explains expectations regarding the FDIC's review, feedback, and enforcement of IDIs' compliance with the rule. DATES: The rule is effective October 1, 2024. FOR FURTHER INFORMATION CONTACT: Kent R. Bergey, Associate Director, Division of Complex Institution Supervision and Resolution, 917-320- 2834, [email protected]; Laura Porfiris, Associate Director, Division of Complex Institution Supervision and Resolution, 212-657-9974, [email protected]; Elizabeth Falloon, Senior Advisor, Division of Complex Institution Supervision and Resolution, 202-898-6626, [email protected]; Mark Haley, Chief, Policy Analysis, Division of Complex Institution Supervision and Resolution, 917-320-2911, [email protected]; Dora Douglass Kochman, Senior CFI Policy Specialist, Division of Complex Institution Supervision and Resolution, 202-898- 3633, [email protected]; Audra Cast, Deputy Director, Division of Resolutions and Receiverships, 312-382-7577, [email protected]; Varanessa Marshall, Assistant Director, Division of Resolution and Receiverships, 678-916-2233, [email protected]; Benjamin M. DeMaria, Counsel, Legal Division, 202-898-7391, [email protected]; Vickie R. Olafson, Counsel, Legal Division, 703-489-5873, [email protected]; Esther Rabin, Counsel, Legal Division, 202-898-6860, [email protected]; F. Angus Tarpley, III, Counsel, Legal Division, 202-898-8521, [email protected]. SUPPLEMENTARY INFORMATION: Table of Contents I. Introduction A. Background B. Overview of the Proposed Rule II. Overview of Comments III. Final Rule A. Scope and Purpose B. Definitions C. Full Resolution Submissions Required D. Content of the Full Resolution Submissions for CIDIs E. Interim Supplement F. Credibility; Review of Full Resolution Submissions; Engagement and Capabilities Testing G. No Limiting Effect on FDIC H. Form of Full Resolution Submissions; Confidential Treatment of Full Resolution Submissions and Interim Supplements I. Extensions and exemptions J. Enforcement IV. Expected Effects A. Review of Comments B. Changes From the Proposed Rule to the Final Rule C. Marginal Effect of Changes Compared to the 2012 Rule D. Effects on Insured Deposits and the Deposit Insurance Fund E. Additional Economic Consideration and Effects F. Overall Effects V. Alternatives Considered VI. Regulatory Analysis and Procedures A. Paperwork Reduction Act B. Regulatory Flexibility Act C. Plain Language D. Riegle Community Development and Regulatory Improvement Act of 1994 E. Congressional Review Act I. Introduction The FDIC's regulation ``Resolution plans required for insured depository institutions with $50 billion or more in total assets,'' issued in 2012 \1\ (2012 rule), requires IDIs with $50 billion or more in total assets (CIDIs) to submit resolution plans periodically. This resolution plan requirement was established to facilitate the FDIC's readiness to resolve a CIDI under the Federal Deposit Insurance Act of 1950, as amended (FDI Act), in the event of its insolvency. --------------------------------------------------------------------------- \1\ 12 CFR 360.10. The 2012 rule was published as an interim final rule with an effective date of January 1, 2012, 76 FR 2011 (Sept. 11, 2011); the 2012 rule was effective April 1, 2012, 77 FR 3075 (Jan. 23, 2012). --------------------------------------------------------------------------- This final rulemaking to amend and restate the 2012 rule builds on the FDIC's more than a decade-long experience implementing the 2012 rule, providing guidance and feedback to CIDIs, and leveraging the content of submissions for the FDIC's development of resolution strategies. Through this process, the FDIC has gained a better understanding of the challenges of resolving CIDIs and the essential information needed in resolution plans and other related submissions to facilitate the FDIC's readiness in the event of a failure of one of these CIDIs. Therefore, this final rule supersedes all prior guidance, including the Statement (as defined below). Part of the challenge in resolving CIDIs arises from the wide range of business models and structures among these banks. While many of the CIDIs are engaged largely in traditional commercial and retail banking activities, with nearly all assets and activities conducted within the CIDI or its subsidiaries (the bank chain), others conduct significant non-banking activities. Many of the CIDIs have a broker-dealer subsidiary or affiliate that provides services to bank customers. The CIDIs also include banks primarily engaged in a particular business segment, such as credit card services, as well as U.S. IDIs that are part of large foreign banking organizations. There is no one-size-fits- all resolution approach for these institutions; rather, the FDIC must be prepared to execute a range of resolution options, recognizing the trade-offs among those options. The FDIC's development of resolution strategies--and its assessment of the options and trade-offs that inform them--benefit from the CIDI's knowledge of its own firm, an understanding of the CIDI's relevant capabilities, and an awareness of the impediments to executing an orderly resolution of the CIDI. Across the different CIDI business models and structures, there is a variety of factors that increases the challenges and complexity of resolution in the event of the failure of one of these large banks. Key factors include size, organizational complexity, and deposit profile, among others. The importance of advance resolution planning was recently underscored in the failures of three large banks--all over $100 billion in size \2\--in the spring [[Page 56621]] of 2023: Silicon Valley Bank (SVB), Signature Bank, and First Republic Bank (First Republic). --------------------------------------------------------------------------- \2\ The failure of Washington Mutual Bank in 2008 remains the largest bank failure in U.S. history. At the time of its failure, its assets totaled approximately $300 billion. First Republic, SVB, and Signature Bank, respectively, were the second, third, and fourth largest bank failures in history. --------------------------------------------------------------------------- The failures of SVB and Signature Bank on March 10 and 12, 2023, respectively, were triggered by illiquidity resulting from withdrawals by uninsured depositors at unprecedented speed and volumes. As a result of the sudden failures, there was no opportunity for pre-failure marketing. For both IDIs, the FDIC established a bridge depository institution (bridge bank) to continue bank operations post-failure to allow time to market the bank. Less than two months following those failures, First Republic was placed in receivership and sold. First Republic's failure was largely a result of contagion from the prior two failures and the bank was able to manage its liquidity for several weeks prior to failure, which allowed additional time to market the bank. The FDIC facilitated a transaction that resulted in transfer of all of the assets and liabilities to a single acquirer without establishing a bridge bank, although the FDIC stood ready to exercise the authority to form a bridge bank, if needed. The challenges associated with the rapidity of the failures were exacerbated because the FDIC lacked important resolution planning information to facilitate marketing for SVB and Signature Bank. While SVB and First Republic had filed resolution plans just a few months before their failures, the FDIC neither had completed review nor had the opportunity to provide feedback on those plans. Signature Bank had not yet filed any resolution plan at the time of its failure; its first submission would have been due in June 2023. Current and thorough resolution planning information would have facilitated the FDIC's preparations to effectively and efficiently market the failed IDIs. The size of an IDI can significantly impact the resolution options available to the FDIC under the FDI Act. In particular, as IDIs increase in size, the likelihood of a timely sale to a single acquirer diminishes. Currently, there are 45 CIDIs, of which 33 have total assets over $100 billion. As a group, these 45 CIDIs represent approximately $12.9 trillion in total deposits.\3\ While a closing weekend sale may be an option in some cases, its availability cannot be assumed in view of the size, complexity, and potential speed of failure of a CIDI. This is particularly true for the largest CIDIs with $100 billion or more in total assets because the pool of potential acquirers for these institutions is limited, and any possible transaction would be complex. While there is a larger pool of possible acquiring institutions for CIDIs in the $50 to $100 billion total asset range, some of these institutions engage in highly complex activities and pose similar levels of operational complexity as those over $100 billion in total assets. --------------------------------------------------------------------------- \3\ FDIC Consolidated Reports of Condition and Income data as of March 31, 2024. --------------------------------------------------------------------------- The CIDIs also tend to have a more significant proportion of uninsured deposits as compared to smaller banks. In the aggregate, more than 43.4 percent of deposits of IDIs with over $50 billion in total assets are uninsured.\4\ Under the FDI Act, any transaction using FDIC assistance--including where assistance is provided in connection with the establishment of a bridge bank--must meet the least-cost test, absent a systemic risk exception. Under the least-cost test, the cost to the deposit insurance fund (DIF) resulting from any resolution needs to be less than the cost to the DIF than all other alternatives. Where the proportion of insured deposits is very low, the potential cost to the DIF of a resolution in which only insured deposits are protected is more likely to be less costly than a resolution in which all deposits are protected. --------------------------------------------------------------------------- \4\ Id. --------------------------------------------------------------------------- These and other characteristics of large banks add to resolution challenges and increase the importance of robust and ongoing resolution planning for the CIDIs. The content of the full resolution submissions under this final rule will support planning for strategic options, including use of a bridge bank, and is important to the FDIC's readiness to resolve these banks. A. Background Since issuing the 2012 rule, the FDIC has provided guidance and feedback to CIDIs to assist in development of their resolution plans. In 2014, following the first submissions, the FDIC provided guidance and direction for the preparation of subsequent CIDI resolution plans with a focus on the discussion of failure scenario, resolution strategies, least-cost analysis, and identified obstacles. In addition, following each resolution plan submission cycle, the FDIC issued feedback letters to CIDIs with information for the subsequent plan submission. After several plan submission cycles, in 2018, the FDIC instituted a moratorium on the 2012 rule's requirements for all CIDIs pending completion of a new rulemaking. At the time the moratorium was adopted, the FDIC also published an advance notice of proposed rulemaking (ANPR),\5\ which requested comment on how to tailor and improve the 2012 rule, including how to reduce the burden associated with the least-cost test analysis and whether requirements should be tiered based on size or complexity factors of cohorts of CIDIs. The ANPR also requested comment on potential enhancement of engagement and capabilities testing. At that time, the FDIC extended the due date for future plan submissions pending completion of the rulemaking process. --------------------------------------------------------------------------- \5\ 84 FR 16620 (April 22, 2019). --------------------------------------------------------------------------- Following the issuance of the ANPR, the FDIC continued to develop its thinking regarding resolution planning for large IDIs, including how to maximize the FDIC's resolution readiness. In 2020 and 2021, the FDIC undertook targeted engagement with select CIDIs on their 2018 plan submissions, a step consistent with the enhanced emphasis on engagement and capabilities testing envisioned under the ANPR. In January 2021, the FDIC Board took action to lift the moratorium on the resolution plan requirement for CIDIs with $100 billion or more in assets and, in June 2021, the FDIC issued a policy statement (Statement) \6\ to describe how it planned to implement certain aspects of the 2012 rule. The Statement superseded all prior guidance and feedback. For CIDIs with total assets of at least $50 billion and less than $100 billion, the moratorium on submission of resolution plans remained in effect. CIDIs with $100 billion or more in total assets submitted resolution plans in accordance with a schedule established by the FDIC from December 1, 2022 through December 1, 2023. Consistent with the Statement, each of these CIDIs received exemptions from certain content requirements under the 2012 rule and could submit streamlined resolution plans for review. --------------------------------------------------------------------------- \6\ Statement on Resolution Plans for Insured Depository Institutions (June 25, 2021), https://www.fdic.gov/resources/resolutions/resolution-authority/idi-statement-06-25-2021.pdf. --------------------------------------------------------------------------- On September 19, 2023, the FDIC published for comment a Notice of Proposed Rulemaking, ``Resolution Plans Required for Insured Depository Institutions with $100 Billion or More in Total Assets; Informational Filings Required for Insured Depository Institutions with At Least $50 Billion but Less Than $100 Billion in Total Assets'' (NPR).\7\ The FDIC received and [[Page 56622]] considered 12 comment letters, which are discussed below.\8\ --------------------------------------------------------------------------- \7\ 88 FR 64579 (Sept. 19, 2023). \8\ FDIC staff also met with staff of two commenters. --------------------------------------------------------------------------- In addition to enacting and implementing the 2012 rule, the FDIC has instituted several rulemakings that support its mission as deposit insurer to make timely insured deposit payments and to resolve a failed IDI in the manner that is least costly to the DIF. These separate rulemakings address certain difficulties the FDIC could face in the closing of a large, complex IDI, and include Recordkeeping for Timely Deposit Insurance Determination (part 370) and Recordkeeping Requirements for Qualified Financial Contracts (part 371).\9\ Part 370 requires covered institutions, namely IDIs with two million or more deposit accounts, to put in place mechanisms to facilitate prompt deposit insurance determinations. Part 371 requires IDIs in a troubled condition to keep detailed records in a specified, standard format regarding their qualified financial contracts. This information would be used by the FDIC, were it appointed receiver, in making a determination of which qualified financial contracts entered into by the failed institution (if any) will be transferred within the brief statutory window. --------------------------------------------------------------------------- \9\ Codified at 12 CFR part 370 and 12 CFR part 371, respectively. --------------------------------------------------------------------------- Separate from the FDI Act and this rule's requirements, section 165(d) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, as amended (Dodd-Frank Act),\10\ and the related joint rulemaking published by the Board of Governors of the Federal Reserve System (FRB) and the FDIC in November 2019 (DFA rule) \11\ mandate that certain bank holding companies and nonbank financial companies (covered companies) submit resolution plans (DFA resolution plans) for the rapid and orderly resolution of the covered company under the U.S. Bankruptcy Code. --------------------------------------------------------------------------- \10\ 12 U.S.C. 5365(d). \11\ 84 FR 59194 (Nov. 1, 2019), codified at 12 CFR 381 (FDIC) and 243 (FRB). --------------------------------------------------------------------------- There are some noteworthy differences between the DFA rule requirements and this rule. First of all, Section 165(d) of the Dodd- Frank Act and the DFA rule focus on resolution of the organization by the organization itself under the U.S. Bankruptcy Code or other ordinary resolution regime. While some DFA resolution plans utilize a strategy where the IDI is resolved under the FDI Act, they must address resolution of the organization as a whole, including the holding company and non-bank affiliates. In addition, the statutory purpose of a DFA resolution plan is to reduce the likelihood that the financial distress or failure of a covered company would have serious adverse effects on financial stability in the United States by requiring covered companies to submit plans for rapid and orderly resolution without any assumptions of reliance on public support. By contrast, this rule focuses only on the CIDI itself, and the strategic analysis and information needed to support a resolution using the FDIC's traditional resolution tools under the FDI Act. Presently, all U.S. global systemically important banking organizations \12\ (U.S. GSIBs), which are the largest and most systemic and interconnected banking organizations in the United States, have developed DFA resolution plans that use a single-point-of-entry (SPOE) strategy. Under an SPOE strategy, the top tier holding company is placed into bankruptcy and generally all material operating subsidiaries, including any IDIs in the group, remain open and operating. In an SPOE resolution, the FDIC would not be called upon to resolve the IDI under the FDI Act. The SPOE approach may minimize disruption and preserve franchise value, as well as reduce systemic risk, particularly in a firm with a complex structure that includes multiple material operating entities outside of the bank chain. In contrast, most other banking organizations subject to the DFA resolution plan submission requirements currently utilize a strategy in which the top tier holding company is placed into bankruptcy and the IDI is resolved under the FDI Act. --------------------------------------------------------------------------- \12\ As defined by rules promulgated by the FRB, see 12 CFR 217.402 (Identification as a global systemically important BHC). --------------------------------------------------------------------------- Firms that have submitted DFA resolution plans adopting an SPOE strategy must have or develop the capabilities and may need to make improvements to their organizational structures to support implementation of that strategy. However, the FDIC still must be prepared to use its resolution authorities if necessary to achieve an orderly resolution of the firm, including its authority to resolve a CIDI under the FDI Act, or, if necessary, the extraordinary backup orderly resolution authorities provided in Title II of the Dodd-Frank Act. A resolution using Title II orderly liquidation authorities, which supports a group-wide SPOE approach, is a backup authority to be used, if necessary, to resolve a financial company whose resolution under the Bankruptcy Code would have serious adverse effects on U.S. financial stability. That extraordinary authority may not be called upon to resolve the firm, however, if the resolution of the IDI under the FDI Act would avoid the serious adverse effects of the firm's failure. By the same token, a resolution under the FDI Act is particularly likely for large regional banks with less significant non-bank activities, predominately domestic operations, and few or no systemically important identified critical operations. The requirements of the DFA rule and this rule support their respective differing purposes; at the same time, both rules serve the broader objective of facilitating orderly resolutions. Consistent with the proposal, this final rule specifically allows the incorporation of information from an affiliate's DFA resolution plan into a CIDI's full resolution submission or interim supplement. In providing feedback or making determinations with respect to any submission under this final rule, the FDIC will consider feedback and determinations provided with respect to DFA resolution plans with similar content, to promote consistency across the two planning requirements, and, where appropriate, taking into account the differences in the requirements of the two rules and the approaches to resolution strategy and regime. B. Overview of the Proposed Rule The proposal provided for two distinct groups of CIDIs based on size, with differing obligations for each group. The first group comprised those IDIs with $100 billion or more in total assets (group A CIDIs). The proposed rule would have required group A CIDIs to submit full resolution plans containing an identified strategy appropriate to the CIDI for its orderly and efficient resolution, as well as providing all other content elements described in the proposed rule. The second group comprised those IDIs with at least $50 billion but less than $100 billion in total assets (group B CIDIs). The proposed rule would have required full resolution submissions from group B CIDIs with more limited requirements, in the form of an informational filing. The proposal was intended to: Clarify and enhance requirements applicable to IDIs with $50 billion or more in total assets, including resolution plans submitted by group A CIDIs and informational filings submitted by group B CIDIs; Require each group A CIDI to provide an identified strategy for resolution that ensures timely access to [[Page 56623]] insured deposits, maximizes value from the sale or disposition of assets, minimizes any losses realized by creditors of the group A CIDI in resolution, and addresses potential risks of adverse effects on U.S. economic conditions or financial stability; Clarify requirements with respect to the assumptions for the failure scenario used by group A CIDIs in resolution plans and reserve the ability of the FDIC to provide additional parameters for the failure scenario for all group A CIDIs or specific individual group A CIDIs in future plan submission cycles; Strengthen full resolution submission content elements and associated requirements regarding capabilities to support optionality available to the FDIC and ensure that the FDIC's development of resolution strategies reflects considerations related to the characteristics of the individual CIDI and potential challenges that could be faced in resolution; Refine the requirements for group A CIDIs with respect to least-cost analysis and focus on ensuring that the FDIC has the building blocks and capabilities it needs to undertake the least-cost test in resolution in the event of failure of a group A CIDI; Establish an enhanced credibility standard for full resolution submissions and clarify the process for review and feedback to identify and address weaknesses in full resolution submissions and enforce the rule; Establish a requirement for informational filings to be submitted by group B CIDIs that is focused on information most important and appropriate for resolution of those CIDIs; Adjust the frequency of full resolution submissions to a two-year cycle for all CIDIs to accommodate engagement and capabilities testing as part of the resolution planning process, and establish periodic interim supplements containing specified resolution submission content items; and Codify certain aspects of guidance and feedback previously issued to IDIs subject to the 2012 rule. II. Overview of Comments The FDIC received 12 comment letters to the proposal from banking organizations, industry and trade groups representing the banking and financial services industry, a law firm, and consumer groups. The comments received generally were responsive to questions posed by the FDIC in the NPR. The majority of commenters suggested changes to reduce the costs of submission preparation for filers, including by adjusting the proposed submission cycle, narrowing the proposed scope and content requirements, and enhancing alignment with relevant resolution planning requirements of the DFA rule. Several commenters raised concerns about the enhanced credibility standard, and asked for greater clarity on engagement and capability testing. Three commenters offered broad support for the proposed rule as written. The comments received are summarized below. Scope of Rule Most commenters agreed with the overall scope of the rule. Two commenters suggested creating a new group of filers that would include only firms with $100 billion to $250 billion in total assets, and reducing requirements for that new group, as compared to the CIDIs with at least $250 billion in total assets. As for group B CIDIs, several commenters noted the content requirements of the informational filings varied in a limited manner from a full resolution plan and asserted that the FDIC should more significantly reduce the burden for group B CIDIs with further tailoring or elimination of requirements for group B CIDIs. Two other commenters recommended that group B CIDIs should be subject to the same requirements as group A CIDIs. Several commenters addressed the relationship between IDI resolution plans and DFA resolution plans. Two commenters supported changes to better harmonize these resolution planning efforts. One commenter suggested CIDIs with parent banking organizations that are biennial filers or triennial full filers of DFA resolution plans should be exempted from IDI resolution plan requirements. That commenter also argued for streamlining requirements if IDI resolution plans continue to be required for CIDIs in addition to the DFA resolution plans required of their parent banking organizations. Regarding consistency across these two programs, two commenters emphasized the need to use consistent definitions with regard to IDI resolution plans and DFA resolution plans, and cited the definition of ``material change'' as an example where there could be better alignment. Another commenter highlighted that the scope of the virtual data room capabilities requirement should be aligned with the equivalent requirement for DFA resolution plans. Additionally, two commenters emphasized the importance of consistency between credibility determinations on DFA resolution plans by the FDIC and FRB, and on IDI resolution plans by the FDIC, as well as any other feedback on common elements of these two submissions. Submission Cycle and Transition Period Two commenters broadly supported the cycle as proposed, while four argued to reduce the frequency of full resolution submissions. Commenters arguing for a longer submission cycle generally supported a three-year cycle, which they noted would take into account the cycle for certain DFA resolution plans, allow for adequate review and feedback by FDIC staff, and provide time for CIDIs to incorporate that feedback. However, one commenter noted that a two-year cycle with no interim supplements could be appropriate for CIDIs whose parent companies are biennial filers of DFA resolution plans. In terms of the dates of submissions, one commenter suggested July, while two others proposed December. With respect to the first full resolution submissions or interim supplements following the effective date of the final rule, five commenters suggested a period of 12 months or longer, rather than the proposed 270-day period. In particular, with respect to group B CIDIs, commenters suggested a transition period of 18 months, since none of these CIDIs has submitted a resolution plan under the 2012 rule since implementation of the moratorium. Regarding the interim supplements, three commenters recommended narrowing the scope of information required. Commenters recommended reducing or eliminating requirements for narrative or description, and to limit the required content to information that has materially changed. Another commenter suggested that narrative commentary in the interim supplement should be limited to a summary of material changes in the information provided in the prior full resolution submission. One commenter suggested that interim supplements, like full resolution submissions, should use data as of the end of the prior year, rather than the prior quarter. Several commenters emphasized the importance of the FDIC providing meaningful feedback to CIDIs and adequate time for that feedback to be incorporated into subsequent submissions, with one commenter recommending feedback be provided at least 12 months before the next submission is due and two others noting the need for the FDIC to build internal capacity and capabilities to support this. [[Page 56624]] Rule Requirements Commenters generally supported the FDIC's focus on increasing optionality available to it in preparing for resolution. Four agreed that a bridge bank may be helpful in this respect, to provide more time to sell all or parts of the institution, reduce reliance on strategies involving a single buyer, and expand the universe of potential acquirers. Two commenters supported the identified strategy requirement as proposed, with one noting it would be among the most critical pieces of information in a resolution plan and plans without this element would not likely be credible or effective. Three other commenters favored elimination or modification of the scenario and identified strategy requirement. One of these commenters suggested that some CIDIs with more than $100 billion but less than $250 billion in total assets may have less complex structures that make an FDIC-arranged sale feasible. They noted that, by requiring just one identified strategy, the proposal restricts CIDIs from presenting a full range of options for resolution. Another commenter argued that, based on the lessons learned from recent failures, the FDIC should be more focused on maximizing the likelihood of a resolution weekend sale, including by emphasizing real-time capability for IDIs to produce necessary information for potential buyers. A third commenter expressed concern that the proposed requirement for the identified strategy to have ``meaningful optionality'' is too vague. Two commenters addressed aspects of assumptions in the proposed failure scenario, with one arguing against the assumption that the CIDI's parent holding company enters bankruptcy, and the other supporting the assumption of continued Federal Home Loan Bank lending to a bridge bank. Regarding the proposed approach to valuation to facilitate the FDIC's assessment of least-costly resolution method, three commenters emphasized the importance of valuation to resolution planning and another expressed support for replacing the least-cost test requirement of the 2012 rule with the proposed valuation requirement. Three commenters suggested modifications to the approach; specifically, these commenters favored elimination of the requirement for quantitative valuation analysis. These commenters argued that such analysis would be overly burdensome, more expensive for CIDIs that do not maintain in- house expertise, and of little value to the FDIC in an actual resolution scenario. Engagement and Capabilities Testing Commenters were generally supportive of engagement and capabilities testing. One commenter suggested increasing the expected frequency of engagement, while another advocated for committing more resources toward engagement and capabilities testing while decreasing the emphasis on full resolution submission documentation. Four commenters suggested that the FDIC should provide advance notice of the timing for engagement and capabilities testing, and the process for the testing and feedback. Two of these commenters indicated the FDIC should provide CIDIs with a comprehensive list of capabilities it expects a CIDI to maintain, and suggested this should be done through a notice and comment period to enable input from the industry. One of these commenters also noted that CIDIs--especially, group B CIDIs--will need time to build, improve, and test capabilities prior to undergoing capabilities testing with the FDIC, and suggested capabilities testing should not occur during a CIDI's initial submission cycle under this Rule. Credibility Standard Two commenters expressed support for the proposed enhancement of the credibility standard. Three other commenters recommended eliminating the credibility determination, granting CIDIs latitude on the standard's application, or foregoing any enforcement action based on a credibility determination. They argued that the standard, particularly the first prong, is subjective and susceptible to being applied inconsistently over time. Another commenter observed that any credibility standard is necessarily subjective. Several commenters emphasized the importance of a collaborative approach to resolution planning, with one emphasizing the role communications can play to support this, including related to the timing and scope of capabilities testing. In addition, several commenters expressed concerns about any enforcement actions related to engagement and capabilities testing, with one commenter stressing that full resolution submissions should only be deemed non-credible due to fundamental resolvability issues and not because of issues with CIDIs' resolution capabilities that fall short. Expected Effects One commenter indicated that the proposal would substantially add to the time and resources required to prepare IDI resolution plans. Another two commenters argued that the analysis of the compliance burden understates the true cost of the burden. A fourth commenter suggested that the estimated time required to develop an IDI full resolution submission is not unreasonable and the cost of compliance would pale in comparison to the costs of potential bank failures and banking crises. III. Final Rule The FDIC considered all comments received and has adopted certain changes to the proposed rule as discussed below. In addition, the FDIC made certain technical, non-substantive changes throughout, including corrections to paragraph numbering and grammar, improving word choice for readability, and eliminating redundancy. A. Scope and Purpose The scope and purpose of the final rule are substantively unchanged from the proposal. This rule is intended to ensure that each group A CIDI develops a credible strategy to facilitate the FDIC's resolution of the institution across a range of possible scenarios and, with respect to each group A CIDI and each group B CIDI, that the FDIC has access to all of the material information and analysis it needs to efficiently resolve the CIDI in the event of its failure. Consistent with the 2012 rule and the proposal, the final rule applies to all IDIs with at least $50 billion in total assets based upon the average total assets reported over the previous four quarters. Like the proposal, the final rule will differentiate the requirements pertaining to group A CIDIs and group B CIDIs. Each group A CIDI is required to periodically submit a resolution plan to the FDIC, including an identified strategy for its resolution under the specified failure scenario. Each group B CIDI is required to periodically submit an informational filing to the FDIC that would consist of certain informational content, but would not be required to include an identified strategy or to develop capabilities necessary to produce valuations needed to support least-cost test analysis. Comments received by the FDIC included letters from two commenters who recommended that group B CIDIs should file resolution plans with no distinction between group A CIDIs and [[Page 56625]] group B CIDIs. Two other comment letters suggested that group A CIDIs should consist only of CIDIs with at least $250 billion in total assets and that there should be further tiering of requirements for CIDIs between $100-250 billion in total assets and those between $50-$100 billion in total assets. One commenter recommended that group B CIDIs not be required to make any full resolution submissions. The FDIC has retained the distinction between group A CIDIs and group B CIDIs, and the requirement that group B CIDIs provide informational filings. The FDIC believes that the approach taken for group B CIDIs appropriately recognizes the additional complexity and greater resolution challenges applicable to the group A CIDIs. The threshold of $100 billion in total assets, which is also used in the Dodd-Frank Act \13\ and other rulemakings as a basis for assessing a banking organization's financial stability and safety and soundness risks,\14\ is an appropriate threshold to distinguish full resolution submission requirements for group A CIDIs and group B CIDIs, and is retained in the final rule. --------------------------------------------------------------------------- \13\ See 12 U.S.C. 5365(a)(2)(C). The threshold for enhanced prudential standards under that provision was established through passage of the Economic Growth, Regulatory Relief, and Consumer Protection Act in 2018. \14\ See, e.g., 84 FR 59230 (Nov. 1, 2019) (codified at 12 CFR parts 3, 50, 217, 249, 324, 329). --------------------------------------------------------------------------- While all group A CIDIs have the same requirements for submission of full resolution plans, in response to comments discussed further below, the group A CIDIs are further divided into two filing categories: triennial and biennial filers. While most group A CIDIs will file on a triennial cycle under the final rule, those CIDIs that are part of the largest and most systemic and interconnected U.S. banking organizations--those affiliated with U.S. GSIBs--will file biennially. The FDIC considered comments proposing specific changes to the content of informational filings for group B CIDIs, which are addressed below. B. Definitions The proposal included definitions of terms used in the proposed rule, which are included without change in the final rule, except as noted below. Several comments were received with respect to certain defined terms. Two commenters emphasized the importance of consistency in the definitions of equivalent terms between the proposed rule and the DFA rule, and ``core business line'' and ``material change'' were cited as specific examples. Additionally, two comment letters argued that the proposed definition of ``material change'' was overly inclusive and used in a manner that might result in triggering the notice requirements contained in the proposal upon relatively minor events, noting a narrower approach to events triggering such a notice in the DFA rule. Accordingly, the definitions for ``core business lines'' and ``material change'' are revised in the final rule to be more consistent with similar concepts in the DFA rule. The definition of ``core business lines'' is revised to conform more closely to the DFA rule. The definition covers the CIDI's business lines whose failure would result in a material loss of the CIDI's revenue, profit, or franchise value. The definition of ``material change'' is revised to combine concepts from the definition in the proposed rule and from the definition in the DFA rule. As discussed in the preamble to the proposed rule, in administering the 2012 rule, the FDIC has observed that not all CIDIs have interpreted the material change concept similarly. Accordingly, the intent of revising the defined term is to use an approach similar to the DFA rule, while improving clarity as to how to apply the concept in the context of this rule. Given differences in the purpose and scope of the two rules, the final rule focuses on changes that are important for CIDIs. Thus, the definition of material change in the final rule focuses on events that relate to the requirements of the rule, such as changes to overall deposit structure, identification or de-identification of a franchise component, and acquisition or disposition of a material asset portfolio, among other things. The usage of the term ``material change'' was modified as well, to be more consistent with the approach taken under the DFA rule. As discussed below, the final rule uses the phrase ``extraordinary event,'' borrowed from the DFA rule, in the context of the notice requirement instead of the term ``material change.'' One commenter noted that the proposed definition of ``material entity'' is over-inclusive, which might be inconsistent with the goal of focusing on the material aspects of the organization, and noted that this approach diverges from the approach taken in the DFA rule. The FDIC agrees with the comment that including all entities that are material to franchise components may result in relatively insignificant entities being captured within the definition. Accordingly, the reference to franchise components is omitted from the definition in the final rule. However, including all IDIs as material entities, regardless of size, is important for FDIC's resolution planning, as it is likely that all may enter resolution under the FDI Act, due to statutory cross-guarantees. No change is being made to the inclusion of all IDIs as material entities. In the definition of ``franchise component,'' the term ``asset pool'' was replaced by the term ``material asset portfolio'' to utilize a defined term from the rule. A similar change was made to the definition of ``multiple acquirer exit'' in using the defined term ``material asset portfolios'' instead of ``asset portfolios.'' Throughout the final rule, the term ``resolution submission'' was replaced by the term ``full resolution submission'' and the term ``BDI'' was replaced by the term ``bridge depository institution'' for clarity. The definitions of ``group A CIDI'' and ``group B CIDI'' were revised to be more consistent with the approach used in the DFA rule for determining filing groups. The definition of United States was revised to be consistent with the definition under the FDI Act. New defined terms were added for clarity, including ``PCS service provider,'' ``DIF,'' ``biennial filer,'' and ``triennial filer.'' C. Full Resolution Submissions Required Biennial Filers and Triennial Filers Under the proposal, each CIDI would have been required to provide a full resolution submission to the FDIC every two years. The FDIC would have retained the discretion to alter the submission dates upon written notice to the CIDI. An interim supplement would have been required in any year in which the CIDI is not required to file a full resolution submission. Four commenters recommended a three-year submission cycle consistent with the Statement. Commenters supporting the three-year cycle emphasized the importance of receiving timely feedback and having sufficient time to incorporate improvements in the full resolution submissions with each cycle. These commenters also cited an increased cost in more frequent filings. Commenters flagged the importance of the coordination of filing resolution submissions, submission review, and engagement and capabilities testing, as well as filing interim supplements over the course of the cycle. Two commenters supported the proposed biennial submission. One commenter recommended that if the FDIC were to [[Page 56626]] move to a triennial submission cycle for most CIDIs, the biennial cycle should be retained for the CIDI affiliates of U.S. GSIBs, which are biennial filers under the DFA rule. The commenter suggested that this approach would be more efficient for the U.S. GSIBs and for the FDIC, as interim supplements would not be necessary because either a DFA resolution plan or a resolution plan under this rule would be submitted in alternating years. The final rule adopts the recommended three-year submission cycle for most CIDIs. The FDIC agrees with commenters that timely and fulsome feedback for each CIDI is an important priority, and ensuring time for engagement and capabilities testing between full resolution submissions is of significant value. In addition, the FDIC expects that key components of the full resolution submission will remain relatively constant over a three-year cycle, including the identified strategy for group A CIDIs. Important information that is more likely to change over that period will be updated annually through the interim supplement. In addition, the FDIC will receive notices of extraordinary events that will provide information of significant changes at the CIDI, such as through merger and acquisition or divestiture, and the FDIC would be in a position to request additional information if needed. With respect to the CIDI affiliates of U.S. GSIBs, the FDIC agrees with the commenter that a full resolution submission cycle that is complimentary with the DFA resolution plan cycle will improve efficiency, and will ensure timeliness of content needed for contingency planning for an FDI Act resolution. The biennial filing is appropriate for these CIDIs, which are part of the largest and most systemic and interconnected U.S. banking organizations. Accordingly, the final rule establishes a two-year cycle for CIDIs that are affiliates of U.S. GSIBs. Consistent with the proposal, the FDIC retains the discretion to change filing dates for any CIDI. The FDIC received several comments with respect to the preferred submission date. One commenter suggested July 1, while two commenters recommended December dates. One of these commenters suggested that CIDIs with parent banking organizations that are triennial filers of DFA resolution plans should submit full resolution submissions under this rule in December of the same year in which the DFA resolution plan is filed. The final rule does not specify a calendar date for submissions, to retain flexibility over the life of the rule. While July 1, January 1, and December 1 dates have been used in the past, the most suitable dates may be different for different cohorts of CIDIs and may change over time. The FDIC considers the annual cadence for information required by this rule to be provided by most CIDIs, including those with parent banking organizations that are triennial filers of DFA resolution plans--whether via full resolution submissions or interim supplements--to be appropriate from a resolution planning workflow perspective for both the FDIC and CIDIs. The FDIC also expects to establish a regular cadence of review, testing, and engagement across two cohorts of group B CIDIs, and may establish different calendar dates for submissions by those group B CIDI cohorts. With respect to the first full resolution submissions or interim supplements following the effective date of the final rule, five commenters suggested a period of 12 months or longer, rather than the proposed 270-day period. In particular, with respect to group B CIDIs, commenters suggested a transition period of 18 months, since none of these CIDIs have submitted a resolution plan under the 2012 rule since implementation of the moratorium. The FDIC will notify CIDIs of the date when their first full resolution submissions or interim supplements are due under the final rule. Consistent with the proposal, for group A CIDIs, that date will be at least 270 days from the effective date of the rule. The FDIC believes that 270 days following the effective date is sufficient time for group A CIDIs to prepare a resolution plan or interim supplement that conforms to the final rule. This timing reflects the urgency of resolution planning for these largest CIDIs, and supports the establishment of a regular cadence of full resolution submissions and interim supplements across three cohorts of group A CIDIs for purposes of full resolution submission review, horizontal capabilities testing, and firm-specific engagement. The text of the final rule will be publicly available following action by the FDIC Board of Directors, and will be published in the Federal Register well before the effective date, giving CIDIs notice of the final rule's requirements. For group B CIDIs, the initial submission due dates will be at least one year from the effective date of the final rule. This is appropriate because the group B CIDIs are generally new to the resolution planning process--or have not filed for an extended period due to the moratorium--and because the resolution challenges associated with the group B CIDIs are somewhat reduced. Full Resolution Submissions by New CIDIs Consistent with the proposal, the final rule indicates that an IDI that becomes a CIDI after the effective date of the final rule is required to provide its initial full resolution submission on or before the date specified in writing by the FDIC, which will be no earlier than 270 days after the IDI became a CIDI. As these firms are aware of such transition well in advance, 270 days after the change of status is an appropriate length of time to submit a new full resolution submission. As IDIs grow, whether through merger or business strategy or otherwise, it is important that the FDIC receive prompt and timely information for resolution planning. The 270-day period balances the urgency of resolution readiness against the time needed for a new CIDI to complete a thorough and responsive full resolution submission. The final rule adds language to address submissions subsequent to a CIDI transitioning between groups. A CIDI that transitions from group B to group A or from group A to group B, will file a full resolution submission or interim supplement, as applicable, pursuant to the requirements relevant to its new filing group on or before the date that its next full resolution submission or interim supplement is due, unless it receives written notice of a different date from the FDIC. The final rule contains language changes from the proposal for clarity and consistency by providing for full resolution submissions on or before the submission date, rather than on the submission date, for the biennial filers, the triennial filers, and the new filers. This is consistent with similar language in the DFA rule. Notice of Extraordinary Event The proposal would have required that a CIDI provide the FDIC with a notice and explanation of a material change no later than 45 days after certain events included in the proposed definition of ``material change.'' The proposal also would have allowed for an exemption from this requirement if the date on which the CIDI would be required to submit the notice would be within 90 days before the date on which the CIDI is required to provide a full resolution submission. Commenters suggested that the definition of material change was too broad and would give rise to notices that were not likely to significantly [[Page 56627]] impact the full resolution submission. Commenters suggested consideration of the approach taken in the DFA rule, which requires notice of a more limited set of ``extraordinary events.'' The FDIC considered those comments and adopted the concept of an ``extraordinary event'' as the basis for the 45-day notice, rather than a ``material change.'' The term ``material change'' remains in the final rule, but is no longer part of the notice requirement. This is similar to the approach taken for DFA resolution plans, with appropriate adjustments for the differences in the two rules. The FDIC expects that this approach will provide a focus on the events that are significant enough to warrant a notice, such as a merger, acquisition or disposition of assets, or fundamental change to the CIDI's organizational structure, core business lines, size, or complexity. The final rule retains the requirement of the notice within 45 days of the event, and the exemption from the requirement if the event occurs within 90 days of the date by which the next full resolution submission is due. The impact of the extraordinary event on resolution would be discussed in the discussion of material changes in the next submission, whether a full resolution submission or the interim supplement, and the FDIC would be in a position to request additional information if needed. A CIDI is not exempt from the requirement if the event occurs within 90 days of the date by which the next interim supplement is due because of the more limited content required in an interim supplement. Approval by the CIDI Board of Directors The final rule adopts without change the requirement that a CIDI's board of directors approve the full resolution submission, and that this approval be noted in the board's minutes. For an insured branch, the final rule allows a submission to be approved by a delegee acting under the express authority of the board, and requires such delegation of authority to be noted in the board's minutes. No comments were received on this proposed provision. This requirement does not apply to an interim supplement. Incorporation From Other Sources The proposal would have allowed the CIDI to incorporate certain information or analysis without seeking the authorization required under 12 CFR part 309 for disclosure of FDIC confidential information. The proposed rule included certain proposed requirements about the format and process for incorporation of information from other sources and would have required certification that the information or analysis remains accurate in all respects that are material to the CIDI's full resolution submission. The FDIC received no comments on this proposed provision and there were no substantive changes. However, the final rule has been modified from the proposal for consistency and clarity to state that a CIDI may incorporate information from other sources into its interim supplement and the ``confidential section'' of the full resolution submission and to allow information from a regulatory filing of a CIDI affiliate without seeking a separate waiver. D. Content of the Full Resolution Submissions for CIDIs The proposal would have required each group A CIDI to submit a resolution plan that includes all content specified in Sec. 360.10(d) of the proposed rule. The proposal would have required each group B CIDI to provide an informational filing, which would not include all of the content of a resolution plan. As proposed, the informational filing would not include the executive summary, identified strategy and failure scenario, or valuation to support least-cost test analysis content elements that are applicable to group A CIDI resolution plans. The FDIC received comments related to the content elements that would apply to an informational filing. Two commenters suggested that the requirement to describe franchise components be reduced or removed for group B CIDIs, because, the commenters argued, the proposed franchise component content element included information similar to resolution planning that should not be required in an informational filing. While the FDIC continues to believe that the identification of franchise components is critical for resolution preparation, particularly in situations where a whole bank sale may be difficult to achieve, the FDIC also agrees that some proposed aspects of the franchise components content element may inadvertently require discussion of resolution strategy by group B CIDIs. Accordingly, in response to these comments, the final rule exempts group B CIDIs from reporting the portions of the franchise component content element relating to marketing process and capabilities, key assumptions underpinning each divestiture, and obstacles to execution. All other proposed subparts of the franchise component content element are required for group B CIDIs in the final rule. Commenters also recommended the reduction, removal, or amendment of several other content elements for informational filings. Some commenters generally suggested changes to content elements that they viewed as requiring information that they did not believe to be as relevant or applicable for group B CIDIs as for group A CIDIs or to be available from other sources aside from the group B CIDIs, while one commenter was generally supportive of the proposed content element requirements. After reviewing these comments, the proposed content element requirements, the availability of the information for the proposed content elements, and the FDIC's resolution practices and experience, the FDIC has determined that all other informational filing content elements should be maintained as proposed. The content elements will provide critical information at a level of detail necessary for resolution planning and execution that, in the FDIC's estimation and experience, is not available in sufficient detail from other sources to meet the FDIC's needs in the resolution context. Under the final rule, a full resolution submission, whether a resolution plan for a group A CIDI, or an informational filing for a group B CIDI, must include a discussion of any material changes from the prior full resolution submission or interim supplement or an affirmation that no material change has occurred, and a discussion of changes to the CIDI's previous full resolution submission resulting from any change in law or regulation, guidance, or feedback from the FDIC. This requirement was proposed as part of the executive summary of the resolution plans submitted by the group A CIDIs, and while the group B CIDIs do not need to include an executive summary as part of their informational filings, the final rule requires that the information filing include a similar discussion of changes since the prior submission. As discussed above, the definition of material change has been modified in the final rule in response to comments, providing additional context to this requirement. The FDIC considered all comments related to the specific requirements of the content elements described in Sec. 360.10(d) of the proposed rule and discusses these content elements below. Identified Strategy The proposal would have required each group A CIDI to provide an identified strategy, which describes the resolution from the point of failure through the sale or disposition of the group A CIDI's franchise (including all [[Page 56628]] of its core business lines and all other business segments, branches, and assets that constitute the CIDI and its businesses as a whole) in a manner that meets the credibility standard. The proposal would have established the bridge bank approach as the default identified strategy, and indicated that a bridge bank strategy must provide for the establishment and stabilization of a bridge bank and an exit strategy from the bridge bank. Recognizing that the bridge bank approach may not be optimal for all group A CIDIs, the proposal would have permitted a different identified strategy if that different strategy best addressed the first prong of the credibility criteria, could reasonably be executed by the FDIC across a range of likely failure scenarios, and would be more appropriate for the size, complexity, and risk profile of the specific group A CIDI. However, the proposed rule would not have permitted the identified strategy to be based upon the sale of substantially all assets and liabilities over closing weekend. The proposal would have required that any identified strategy include meaningful optionality for execution across a range of failure scenarios. Two commenters recommended eliminating the requirement of a failure scenario-based identified strategy in any resolution plan. In addition, one comment letter suggested that this requirement should be based on factors other than size, such as whether more than 90 percent of the total consolidated assets are within the CIDI, the extent of cross- border activity, or the IDI's role as a financial utility or agent bank. Two commenters supported the proposed scope of the requirement; one commenter suggested that it should apply to group B CIDIs as well. Two commenters supported the identified strategy requirement as proposed, with one noting it would be among the most critical pieces of information in a resolution plan and plans without this element would not likely be credible or effective. Three other commenters favored elimination or modification of the failure scenario and identified strategy requirement. Several commenters supported the proposed rule's emphasis on a bridge bank approach as the default identified strategy. Two commenters recommended including a whole bank sale as a permitted identified strategy for group A CIDIs, suggesting that it is a possible option even for large banks, and its use may minimize losses to the DIF and other creditors. The FDIC considered the comments and concludes that there are certainly factors other than size that impact challenges in resolution and availability and likelihood of a closing weekend sale as a strategic option, however, the FDIC considers that size alone may present significant challenges and make a closing weekend sale less likely. While the FDIC will consider any feasible bid for the sale of the IDI franchise over closing weekend or as promptly as possible post- failure, it cannot rely on that option, and must have available other strategic options. As explained in the preamble to the proposal, the proposed requirements related to the identified strategy and failure scenario are intended to provide the FDIC with a strategic option that is adaptable under a wide range of potential scenarios, as the actual scenario is likely to be materially different from any hypothetical scenario construct. Further, the development of an identified strategy that takes into account a group A CIDI's organization, structure, business lines, and other characteristics provides significant insight into the obstacles that the FDIC might face in resolving the CIDI and possible mitigating actions that may be available to address those obstacles. Accordingly, the final rule retains the requirement that group A CIDIs develop an identified strategy based on a failure scenario. In addition, the final rule adopts the approach taken in the proposal with respect to the strategic options to be considered in each group A CIDI's identified strategy. The strategic option that the FDIC considers most useful for the group A CIDIs across the widest range of failure scenarios is the establishment of a bridge bank that can continue the operations of the CIDI. Generally, a bridge bank approach will support the preservation of franchise value and will also allow time for restructuring and marketing to facilitate the sale or disposition of the business lines and related assets, while providing insured depositors with prompt access to their accounts. Accordingly, the final rule establishes the bridge bank approach as the default identified strategy. A bridge bank strategy must provide for the establishment and stabilization of a bridge bank and an exit strategy from the bridge bank, such as a multiple acquirer exit involving the regional breakup of the group A CIDI or sale of business segments, an orderly wind down of certain business lines and asset sales, an exit via restructuring and subsequent initial public offering or other capital markets transaction, or another exit strategy appropriate to the size, structure, and complexity of the CIDI. If a multiple acquirer exit is included as part of the identified strategy, it may be appropriate for the resolution plan to address the time required for that exit option and any restructuring or other actions needed to address obstacles to separability of divestiture options. If the identified strategy assumes the sale of franchise components or a multiple acquirer exit, the resolution plan should take into account all issues surrounding the CIDI's ability to sell in market conditions present in the applicable economic condition at the time of sale. Consistent with the proposed rule, in addressing the establishment of the bridge bank, the final rule does not require that a resolution plan demonstrate that the identified strategy is the least-costly to the DIF of all available strategies; in particular, the resolution plan is not required to demonstrate that the identified strategy would be less costly to the DIF than liquidation. Similarly, the resolution plan is not required to include analysis discussing whether the conditions for chartering the bridge bank would be satisfied. Rather, each group A CIDI is required to support its estimation that the identified strategy in the resolution plan maximizes value and minimizes losses to the creditors of the group A CIDI. While commenters noted that this necessarily would be subjective and depend on a variety of factors, the CIDI's assessment of this item will be helpful to the FDIC in making its own assessment in the event of a failure. The valuation analysis discussed below supports the FDIC's ability to evaluate the strategy's impact on value and its potential costs to the DIF across a range of options. Recognizing that the bridge bank approach may not be optimal for all group A CIDIs, consistent with the proposal, the final rule permits a different identified strategy if it best addresses the first prong of the credibility standard (discussed in credibility criteria below), could reasonably be executed by the FDIC across a range of likely failure scenarios, and would be more appropriate for the size, complexity, and risk profile of the specific group A CIDI. Also consistent with the proposal, an alternative identified strategy under the final rule could include transferring some but not all business lines and assets to a bridge bank and liquidating others in a receivership. For some group A CIDIs, a payment of insured deposits \15\ and [[Page 56629]] liquidation of all business lines and assets in receivership may be the most appropriate identified strategy. --------------------------------------------------------------------------- \15\ This task could be accomplished through a Deposit Insurance National Bank established by the FDIC pursuant to 12 U.S.C. 1821(m). --------------------------------------------------------------------------- Consistent with the proposed rule, the final rule requires any identified strategy to include meaningful optionality for execution across a range of scenarios and provide the information and analysis to inform decisions and support optionality for the FDIC in undertaking a resolution of the CIDI following its material financial distress and failure. One commenter stated that meaningful optionality is a vague and difficult standard. As explained in the preamble to the proposal, meaningful optionality reflects an expectation that an identified strategy be flexible so that it can be adapted to a change in the failure scenario or an unexpected obstacle to its execution. The nature and extent of meaningful optionality will vary based upon the size and complexity of the CIDI. For instance, a relatively smaller and less complex CIDI with a focus on traditional banking may identify only a breakup between two business lines or the spinoff or sale of a separable business unit. For the largest or most complex CIDIs, meaningful optionality might include alternatives such as a breakup by business lines and a regional breakup, or by sale of one or more identified franchise components as options for a sale of the IDI franchise. The final rule retains the expectation of meaningful optionality as proposed. Failure Scenario The proposal would have required the identified strategy to be based on a failure scenario that demonstrates that the CIDI is experiencing material financial distress. The proposed rule would have required the failure scenario to assume and demonstrate that the CIDI experienced a deterioration of its asset base, and that its high quality assets have been depleted or pledged due to increased liquidity requirements from counterparties and deposit outflows. The proposal noted that, while the immediate cause of failure may be based on liquidity shortfalls, the failure scenario also must consider the likelihood of the depletion of capital and losses in the assets of the CIDI, which may include embedded losses that may not have been recognized by the CIDI for financial reporting purposes. The FDIC has learned that a submission is most valuable when it is based on the assumption that the CIDI has experienced material financial distress such that its failure is a result of the depletion of capital and/or liquidity. While the resolution strategy may be based on an idiosyncratic event or action, including a series of compounding events, the firm should justify all assumptions, consistent with the conditions of the economic scenario and the nature of the CIDI. These proposed provisions remain substantively unchanged in the final rule. Under the proposal, the failure scenario would have been required to assume that the U.S. parent holding company is in bankruptcy and is consistent with the approach taken in DFA resolution plans. One commenter objected to the assumption that the parent is in bankruptcy, stating that this assumption is not appropriate for all firm structures and may overlook potential sources of value in resolution and limit the information available to the FDIC. While the FDIC appreciates that the CIDI's parent and parent affiliates may not be in bankruptcy in all cases, experience shows that a bank failure frequently occurs with bankruptcy of the parent and parent affiliates. For that reason, an understanding of the impact of such a failure scenario on the resolution of the CIDI is important for the FDIC to prepare for that possibility and the FDIC believes that this baseline assumption is useful and appropriate. The full resolution submissions will contain information to support an evaluation of outcomes in the event that a coordinated, group-wide approach is feasible. For instance, consistent with the proposal, the final rule requires information on financial and operational interconnections between the IDI and the parent and parent affiliates that will be helpful to the FDIC in considering options should this baseline assumption prove not to be the case in an actual resolution scenario. For these reasons, the FDIC has made no change with respect to this assumption in the final rule. The FDIC made a clarifying change to the failure scenario by deleting the references to discount window borrowing before or in resolution. While assumptions regarding discount window borrowing are included in the scenarios described in prior DFA resolution plan guidance, these considerations are less important to the FDI Act resolution scenario because of the availability of the DIF for temporary liquidity in resolution. The preamble to the proposed rule noted that the identified strategy may assume continuation of Federal Home Loan Bank (FHLB) advances as well as the availability of short- term liquidity advances from the DIF to meet temporary liquidity needs in resolution, if the identified strategy provides for timely repayment of those funds, an assumption that was supported by one commenter. As the scenario specifically permits the use of DIF liquidity in resolution, provided that the identified strategy may not assume use of the DIF to avoid losses to creditors of the bridge bank, and may assume the availability of FHLB or other sources of liquidity on applicable terms, it is less significant whether the bridge bank borrows from the discount window. To the extent that the CIDI assumes that DIF funding is used during the resolution by a bridge bank, it must demonstrate the capacity for such borrowing on a fully secured basis and must demonstrate a source of timely repayment. In addition, the final rule retains the proposal without change to allow flexibility for the FDIC to devise specific failure scenario assumptions with respect to macroeconomic conditions or the precipitating cause of failure. One commenter stated that the FDIC should provide any changes to failure scenario assumptions at least 12 months before a full resolution submission is due. The FDIC will endeavor to provide a group A CIDI notice of additional or alternative parameters for the failure scenario at least one year before the applicable full resolution submission is due. Other comments suggesting that changes to the scenario must be public and apply equally to all group A CIDIs were not adopted. The FDIC has learned in past plan reviews and resolution experience that the path to failure is different for different firms and may depend on the particular business structure of an individual CIDI or cohort of CIDIs. Accordingly, the FDIC believes that it is appropriate to retain options for flexibility and confidentiality in the development of scenarios. Executive Summary The proposed rule would have required a group A CIDI to include an executive summary describing the key elements of its identified strategy. It also would have required a discussion of changes to the group A CIDI's previously submitted resolution plan resulting from any change in law or regulation, guidance or feedback from the FDIC, or any material change. Finally, the proposed rule would have required a discussion of any actions the group A CIDI had taken since submitting its most recent resolution plan to improve the resolution plan's information and analysis, or to improve its capabilities to develop and timely deliver that information and analysis. This provision of the final rule is adopted as proposed. As discussed above, the definition of material change [[Page 56630]] has been refined from the definition in the proposal. Organizational Structure: Legal Entities; Core Business Lines; and Branches The proposal would have required a full resolution submission to describe the CIDI's domestic and foreign branch organization and to provide addresses and asset size. The proposed rule would have also required the CIDI to identify and describe the core business lines of the CIDI, the parent company, and parent company affiliates. The proposed rule would have introduced the requirement to identify all regulated subsidiaries, as this information will assist the FDIC in identifying entities with capital, liquidity, and other requirements, and in assessing these entities' regulatory requirements when it is resolving a CIDI using a bridge bank. The proposed rule would have modified the mapping requirements to require that core business lines be mapped to material entities, franchise components, and regulated subsidiaries, to improve the utility of mapping and support the analysis of franchise components. One commenter objected to the level of informational detail required for regulated subsidiaries, and recommended that the final rule limit the requirements to material entities, as defined, or limit the information required with respect to regulated entities to a list of these subsidiaries and their respective jurisdictions, regulators, and asset sizes. The definition of ``regulated subsidiaries'' includes registered brokers and dealers, registered investment advisors, registered investment companies, insurance companies, futures commission merchants and other entities regulated by the Commodity Futures Trading Commission, and other, similar regulated entities. These entities, even if relatively small in asset size or income, present complexity in resolution, and it is important to the FDIC to understand their role in the banking organization and the capital and liquidity impacts of these entities if they are maintained by a bridge bank. Accordingly, the final rule adopts this requirement as proposed. The proposed rule would have required the full resolution submission to describe whether any core business line draws additional value from, or relies on, the operations of the parent company or a parent company affiliate, and identify whether any such operations are cross-border, to support and inform the FDIC's analysis of the impact of breakup of the CIDI from its parent company and parent company affiliates. This requirement is retained in the final rule. Methodology for Material Entity Designation The proposed rule would have required each CIDI to describe its methodology for identifying material entities, to afford each CIDI the flexibility to develop a methodology that is appropriate to the nature, size, complexity, and scope of its operations. The final rule adopts this proposed requirement without change. Separation From Parent; Potential Barriers or Material Obstacles to Orderly Resolution The proposed requirements with respect to actions needed to separate a CIDI from the organizational structure of its parent company and parent company affiliates, as well as how to separate the CIDI's subsidiaries from this structure, are adopted without substantive change. The final rule, consistent with the proposal, requires that a full resolution submission address the CIDI's ability to operate separately from the parent company's organization, and that the CIDI assume that its parent company and the parent company affiliates have filed for bankruptcy or are in resolution under another insolvency regime. It also requires addressing the impact on the bridge bank's value if the CIDI were separated from the parent company's organization. These requirements are intended to focus on whether the CIDI, and therefore a bridge bank, can be a viable stand-alone entity from the point of view of economic value and viability of business lines. Consistent with the proposed rule, the final rule requires identification of potential barriers or other material obstacles to an orderly resolution, the identification of how such barriers or obstacles could pose risks to a group A CIDI's identified strategy, and the identification of inter-connections and inter-dependencies that may hinder the timely and effective resolution of the CIDI. For clarification, the final rule qualifies the potential barriers or other material obstacles to an orderly resolution as those that may occur upon the CIDI's separation from the parent company's organization. Like the proposal, the final rule also provides for the CIDI to identify any remediation steps or mitigating responses necessary to eliminate or minimize these barriers or obstacles. Overall Deposit Activities Consistent with the proposal, the final rule requires a full resolution submission to include important information about deposit activities. One comment letter suggested that instead of requiring this information, the rule should focus on ensuring that the CIDI has the capabilities to provide the necessary information timely. The FDIC agrees that the capabilities to provide this information on a current basis would be important in resolution. The CIDIs' provision of the information required would be one way to demonstrate these capabilities. This information would give the FDIC a baseline view of the deposit activities of each CIDI and assist the FDIC in contingency planning activities for a potential failure of the CIDI, recognizing that updates would be needed in an actual resolution event. The final rule adopts the proposed requirements with respect to deposit activities, which include information about insured and uninsured deposits. While the proposal would have required information on commercial deposits by business line and unique aspects of the deposit base or underlying systems, the final rule provides clarification of that particular aspect of the requirement. The final rule specifies that the requirement is to identify ``particular deposit concentrations,'' in addition to other aspects of the deposit base or underlying systems that may increase complexity in resolution. The final rule retains the proposed requirement to describe how types or groups of deposits are related to a core business line, business segment, or franchise component and how they are identified in the CIDI's systems or records. As discussed in the preamble to the proposed rule, the deposits related to a particular franchise component must be readily identified to facilitate the separation and sale of the franchise component along with the associated liabilities. Similarly, in a multiple acquirer exit, which may involve regional breakup of the CIDI or a breakup of its business lines, it will be important to understand how to identify the deposits that would relate to the various divestiture options in such a breakup. Consistent with the proposal, the final rule requires a discussion of foreign deposits and identification of deposits dually payable in the U.S. The final rule also adopts the proposed requirements with respect to information about deposit sweep arrangements with affiliates and unaffiliated parties and the contracts governing those arrangements. The final rule clarifies the proposal by stating that the FDIC needs information about the CIDI's reporting capabilities to generate accurate and timely contact information for omnibus, deposit sweep, [[Page 56631]] and pass-through accounts. The FDIC intends this clarification to be a non-substantive change. The final rule adopts the proposed requirements with respect to identification of key depositors, which are defined as depositors that hold or control the largest deposits (whether in one account or in multiple accounts) that collectively are material to one or more business segments. Each key depositor must be identified by name, business segment, and amount of deposit, and the CIDI must identify other services it provides to that depositor. One commenter stated that the required information regarding deposit activities should be narrowed, but the commenter did not propose an alternative approach. The FDIC asked for feedback on the approach to identification of key depositors but did not receive feedback. Rather than providing for a prescriptive approach, the final rule simply requires a description of the approach used by the CIDI in identifying its key depositors. While in some cases providing information on the top 10 or 20 percent of deposits may be the best approach, in others it may be the top 50 or 400 depositors, or it may be that the nature of the relationship is a crucial identifying feature. Key depositors should include those depositors that the CIDI monitors most closely and may want to engage with in a stress event. Critical Services The final rule adopts the proposed requirements with respect to critical services without substantive change. This includes the requirement that the CIDI be able to demonstrate capabilities necessary to ensure continuity of critical services in resolution. Under the final rule, full resolution submissions are required to identify critical services and critical services support and include an explanation of the criteria by which critical services are identified in order to clarify for the FDIC the CIDI's approach to this content element. The final rule requires the identification of critical services and critical services support provided by the parent company or a parent company affiliate, as well as the physical locations and jurisdictions of critical service providers and critical services support that are located outside of the United States. The full resolution submission must map critical services support to legal entities that provide those services directly or indirectly through third parties. In addition, a full resolution submission must map critical services to the material entities, core business lines, and franchise components supported by those critical services. It also must include information about the critical services and critical services support that may be at risk of interruption if the CIDI fails and the process the CIDI used to make that determination. The full resolution submission must also discuss potential obstacles to maintaining critical services that could occur in the event of the CIDI's failure and steps that could be taken to remediate or otherwise mitigate the risk of interruption, describe the CIDI's approach for continuing critical services in the event of the CIDI's failure, and provide information about the contracts governing the provision of these services. Consistent with the proposal, the final rule requires a CIDI to provide information about its process for collecting and monitoring the contracts governing critical services and critical services support. As noted in the preamble to the proposed rule, providing information about the systems that store these contracts and how this information is stored (e.g., centrally, by business line or material entity, by business function, etc.) would provide the FDIC with valuable information when seeking to understand a CIDI's operations and business relationships. Key Personnel The final rule adopts without change the proposed requirements with respect to key personnel, including that a CIDI must identify key personnel and describe its methodology for identifying key personnel, and must furnish information regarding the identification of employee benefit programs provided to key personnel and any applicable collective bargaining agreements or similar arrangements. Key personnel are defined broadly in the rule, and should include personnel tasked with an essential role in support of a core business line, franchise component, or critical service, or having a function, responsibility, or knowledge that may be significant to the FDIC's resolution of the CIDI. Key personnel should include personnel that hold or maintain necessary licenses or permits for domestic or foreign operations at the CIDI or have been designated as key personnel to domestic or foreign authorities. Consistent with the proposal, the final rule requires a CIDI to provide a recommended approach for retaining key personnel during its resolution that, for example, may specify retention bonuses and other retention incentives. This approach should consider and address employees most at risk for leaving the CIDI promptly upon a failure event. Franchise Components The proposal included certain requirements with respect to the identification of franchise components and related capabilities. Under the proposal, a franchise component was defined as a business segment, regional branch network, major asset or asset pool, or other key component of the IDI franchise that could be separated and sold or divested. In response to comments, the final rule makes certain adjustments to the requirements with respect to franchise components. The proposed rule included the requirement that a CIDI must be able to demonstrate the capabilities to ensure that franchise components are separable and marketable in resolution. The final rule eliminates the word separable from this definition. Instead of referring to separability as a required capability of a CIDI, the emphasis of the final rule is on the identification of franchise components that are, in their current circumstances, separable. The final rule retains the requirement that a CIDI must be able to demonstrate the capabilities necessary to market the franchise components. In addition, the final rule makes an express reference to the IDI franchise in this sentence to make clear that this capability also must support the marketing of the IDI franchise as a whole or in conjunction with the marketing of its franchise components. Although the final rule does not permit a closing weekend sale as the identified strategy for the reasons discussed above, a sale of the IDI franchise, whether over closing weekend or following a bridge bank period, is an important option in resolution. It is therefore essential that CIDIs maintain the capabilities necessary to support marketing of their IDI franchises as well as their franchise components. The proposal included the requirement that the full resolution submission identify franchise components that are currently separable and marketable in a timely manner. The proposed rule received one comment with respect to this requirement. The commenter stated that there should not be a specified timing requirement for the sale of franchise components and that the imposition of a time period, especially a short one, such as 60 or 90 days, would not be appropriate or realistic. In particular, the commenter stated that it would not work for multiple acquirer exit strategies, which require months to execute. The final rule retains the proposed definition of the term ``franchise [[Page 56632]] component'' as discussed above and retains text of the proposed rule with respect to identification of franchise components that are currently separable and are marketable in a timely manner. The intent is to identify franchise components that can be marketed and sold in their current state, i.e., without significant obstacles or the need for restructuring. This will enhance optionality for the FDIC, creating the potential for marketing of the IDI franchise as a whole as quickly as possible following the failure of the CIDI. Thus, the phrase ``timely manner'' is retained. Although the FDIC did not propose and is not now including a specific time requirement, ``timely'' marketing capabilities should be measured in days or weeks, not months. The FDIC notes that the adopted approach to separability and marketability of franchise components is distinguishable from the proposed approach taken with respect to the identification of divestiture options to support a multiple acquirer exit from a bridge bank. The multiple acquirer exit is a possible element of an identified strategy, a requirement that applies only to group A CIDIs. Such an exit option may require restructuring and divestiture options that present greater obstacles and that may require a longer period than for a sale of the franchise components. For example, an identified franchise component might be a broker-dealer or mortgage servicing subsidiary within the bank chain, or a material asset portfolio, that is readily separable from the IDI and can be marketed as an option at the time of failure. On the other hand, divestiture options may be the result of a regional breakup of the CIDI or a breakup of business lines that require significant restructuring in order to market the regional or business line segments separately. The proposed rule would have required franchise components identified in a full resolution submission to be sufficient to implement the identified strategy (for group A CIDIs) and to provide meaningful optionality across a range of scenarios if the preferred approach is not available. The requirement to provide meaningful optionality across a range of scenarios is deleted from this paragraph as superfluous. That expectation is subsumed in the first prong of the credibility standard applicable to group A CIDIs, which is discussed above. Consistent with the proposed rule, the final rule sets forth basic informational elements required for each franchise component, including identification of responsible senior management and provision of metrics depicting each franchise component's size and significance. Useful metrics may include total revenue, net income, percentage market share, and, if applicable and available, total assets and liabilities. The full resolution submission must also include a description of the key assumptions for each franchise component divestiture and all significant impediments and obstacles to execution of a franchise component divestiture, including legal, regulatory, cross-border, or operational challenges. The final rule retains these paragraphs as proposed. The final rule makes no change to the proposed requirement that a full resolution submission must include a description of the CIDI's capabilities and processes to initiate marketing of the franchise component and provide a description of necessary actions and a timeline for the divestiture supported by a description of the key underlying assumptions. The final rule also adopts the requirement in the proposal that the CIDI describe the process it would use to identify prospective bidders for its franchise components. The FDIC makes every effort to market failed banks--and their assets and business segments--as widely as possible. A requirement that CIDIs provide analysis on identification of prospective bidders of franchise components supports that effort. In addition to describing the process for identification of prospective bidders, identifying those prospective bidders, either specifically or by industry or category, would also be helpful. The final rule incorporates the proposed requirements with respect to a virtual data room (VDR), which, among other things, must include information sufficient to permit a bidder to provide an initial bid on the IDI franchise or the CIDI's franchise components. One commenter stated that the VDR requirements should be aligned with the DFA rule expectations regarding due diligence rooms. The comment also stated that the FDIC should not require ongoing maintenance of a VDR and not establish a timeframe for setting up the VDR because time requirements may vary across CIDIs. It also stated that the FDIC should note that the list of VDR elements is merely indicative. The VDR requirements in the final rule are consistent with the expectations in the U.S. GSIB guidance \16\ issued in connection with the DFA rule that would apply to any divestiture option identified in a DFA resolution plan, which could include any subsidiary or component of the firm's global organization. Reflecting the different focus of this rule, it provides more detail than the U.S. GSIB guidance about the informational elements that would be appropriate for a VDR to be utilized in the sale of the IDI franchise and the CIDI's franchise components. The final rule, like the proposal, does not require the ongoing maintenance of a VDR; rather it is focused on the capabilities to establish a VDR in a timely manner. --------------------------------------------------------------------------- \16\ Guidance for section 165(d) Resolution Plan Submissions by Domestic Covered Companies applicable to the Eight Largest, Complex U.S. Banking Organizations, 84 FR 1438 (Feb. 4, 2019). --------------------------------------------------------------------------- The final rule is unchanged from the proposal with respect to the length of time during which a VDR must be able to be populated, in that it does not provide a prescriptive time. However, the capabilities should support a very short time frame to stand up a VDR and not rely upon a stabilized bridge bank to extend the time available to do so. The final rule requires a description of the length of time and any challenges or obstacles to providing complete and accurate information necessary to support a competitive bid, with an expectation that this time frame will be brief and measured in days. The list of content elements to be included in the VDR is indicative and not comprehensive; the specific information and data that would be appropriate and sufficiently detailed to support prompt and competitive bids will vary among CIDIs. For instance, deposit data and information elements might include a complete, current deposit trial balance reconciled to the general ledger, a description of the largest depositor relationships, information regarding sweeps and brokered deposits, and other data useful to inform a bid. Loan and lending operations information might include a loan tape or loan trial balance reconciled to the general ledger, loan portfolio file samplings, underwriting policies, information regarding real estate owned, and key lending relationships. Where the CIDI has non- traditional business lines, the information provided should be appropriate to the sale of those elements as franchise components or as part of the IDI franchise. The data and information as a whole should support a sale of the IDI franchise as a whole, while providing optionality for the sale of separable franchise components. The final rule was modified from the proposal to make clear that certain of the listed data elements may not apply in some cases, such as for the sale of a franchise component that is a material asset portfolio. [[Page 56633]] Finally, to effect a timely sale of a failed IDI, the FDIC must have access to and control of data in a VDR. Historically, the FDIC has established a VDR controlled by the FDIC and migrated the information into that VDR. As in the proposal, the final rule requires the full resolution submission to include information with respect to access protocols and requirements for the FDIC to use the VDR to carry out the sale of the IDI franchise or the CIDI's franchise components. It also must include a description as to how the CIDI could support that process, either through providing sufficient access and controls to the CIDI's virtual data room to the FDIC as receiver for the failed IDI, or by establishing a process to timely and securely migrate all data to an FDIC-controlled VDR, in a suitable format and file structure. Because many of the CIDIs have a broker-dealer subsidiary or parent company affiliate, the final rule also includes, without change, the proposed provision specifically addressing VDR content related to a broker-dealer. It is not the intent of that provision, however, to exclude or limit information related to other non-banking activities such as insurance or asset management. Material Asset Portfolios The proposed rule would have required CIDIs to include information about ``asset portfolios,'' including how the assets within the portfolio are valued and recorded in the CIDI's records. As proposed, a CIDI would have been required to identify and discuss impediments to the sale of each material asset portfolio and to provide a timeline for each material asset portfolio's disposition. A commenter noted that the concept of ``material asset portfolios'' appears to be included in the definition franchise components and therefore, a separate requirement regarding material asset portfolios is redundant and unnecessary. The final rule retains the proposed requirement and exclusively utilizes the defined term ``material asset portfolios.'' With respect to the definition of franchise components, the final rule utilizes the term ``material asset portfolio'' instead of ``asset pool'' for clarity and consistency. While a material asset portfolio may be identified as a franchise component, this paragraph requires identification of material asset portfolios whether or not they meet the definition of a franchise component and are identified as such in the full resolution submission. However, where there is overlap with material asset portfolios that are franchise components, the information can be provided once and cross- referenced, if appropriate. Valuation To Facilitate FDIC's Assessment of Least-Costly Resolution Method As explained in the preamble to the proposal, the requirement that each group A CIDI must provide valuation analysis and develop the related capabilities would support the FDIC's analysis in conducting valuations in any actual failure scenario, even where there are no bid prices available to establish value. The proposed rule would have required group A CIDIs to demonstrate the capabilities necessary to produce valuations that support the FDIC's analysis to determine whether a resolution strategy would be the least costly to the DIF in the event of failure. To demonstrate valuation capabilities, the proposed rule would have required a group A CIDI to describe its valuation process in its resolution plan and include a valuation analysis that includes a range of quantitative estimates of value as an appendix to its resolution plan. The proposed valuation analysis required that a group A CIDI provide a narrative description of how it values its franchise components and the CIDI as a whole. It also required qualitative and quantitative valuation analysis assuming both an all-deposits bridge bank and the transfer of insured deposits only to the bridge bank. In all cases, the proposed rule required that the resolution plan describe the CIDI's approach to gathering information needed to support its analysis and its ability to produce updated and timely valuation information. The FDIC received several comments to the proposal with respect to the proposed requirements for valuation analysis. Several commenters emphasized the importance of valuation to resolution planning. Three commenters supported the replacement of least-cost analysis with a valuation capabilities requirement, but disagreed with the proposed approach to quantitative analysis. One commenter argued that assumptions regarding depositor and potential acquirer behavior would be ``inherently subjective and likely to add little-to-no value to the FDIC.'' This commenter also stated that the quantitative analysis is not well adapted to CIDIs that lack experience with mergers and acquisitions or large mergers and acquisitions teams, and would require retention of third parties. The FDIC considered commenters' concerns regarding the requirement for quantitative analyses. The final rule partially retains the requirement for quantitative analysis, with some modifications. There is significant value in a group A CIDI demonstrating that it has the capability to value its deposit franchise, as well as the individual franchise components. The proposed valuation content requirements are not underpinned by an expectation that the resulting ranges of value will accurately anticipate sale proceeds actually received from a disposition at some undetermined future point. Instead, the utility of CIDIs' valuation analysis is in understanding the methodologies CIDIs determine to be appropriate for estimating the value of their franchise components and the CIDI as a whole, and the degree to which CIDIs would be able to furnish the information and analysis necessary for the FDIC to conduct its statutorily-required analyses in an actual resolution scenario. The evaluation of valuation analyses under the second prong of the credibility standard reflects a recognition of the inherent necessity for application of judgment in the analyses (e.g., selection of appropriate valuation approaches, assignment of weights to the various approaches). As required by the standard, the CIDI's judgment should be supported by observable and verifiable capabilities and data, as well as reasonable projections. Thus, the FDIC will not evaluate the analysis on the basis of a specific threshold or metric or the specific choices made regarding valuation approaches and methodology, but rather on the comprehensiveness of the analysis, the supportability of the data and capabilities required to conduct the analysis, the reasonableness of the CIDI's assumptions and selected approaches, and the group A CIDI's ability to refresh the analyses in a timely manner. The FDIC does not require or expect valuation analysis to be completed by a third-party expert; rather the analysis should be based upon the group A CIDI's understanding of the nature of its business and its relationships with its depositors. In response to comments, the final rule eliminates the requirement that valuation estimates reflect the ``net present value of proceeds estimated to be received'' in a sale of the IDI franchise as a whole or under a sum-of-the-parts analysis. This change recognizes that, while the required valuation analysis will result in a range of reasonable values, the actual proceeds realized in a given transaction will depend on, among other things, the facts and circumstances surrounding the [[Page 56634]] actual failure and the time for marketing and executing the transaction. In addition, in response to comments, the final rule modifies the proposed requirements to reflect a shift toward qualitative analysis only for Sec. 360.10(d)(12)(ii)(B), eliminating the quantitative analysis relating to the impact on value in the event that losses are imposed on uninsured depositors in connection with the resolution strategy adopted. The presence of unsecured debt on the balance sheet of the failed IDI serves to protect deposits in resolution, and increase the likelihood that an all-deposits bridge bank will meet the requirements of the least-cost test. However, even with the benefits of long-term debt positioned at the CIDI at the time of its failure, it cannot be assured that an all-deposits bridge bank will meet the requirements of the least-cost test in every case. Thus, the final rule, like the proposal, also requires analysis of the impact on value where only insured deposits are passed to the bridge bank. This analysis will assist the FDIC in understanding the impact on value in an insured-only bridge bank, which will assist in weighing whether that outcome is less costly than other available resolution options. While the proposal required quantitative as well as qualitative analysis in this area, in response to comments, the final rule requires a group A CIDI to provide only qualitative analysis of the impact on franchise value that may result from not transferring uninsured deposits to the bridge depository institution. The quantitative analysis provided with respect to an all-deposits bridge bank, together with robust qualitative analysis with respect to an insured-only bridge bank, will support the FDIC's least-cost determination under both scenarios. This qualitative analysis must include a description of options to mitigate that impact, such as an advance dividend payment to depositors, reflecting different levels of loss. As clarified in the final rule, such a qualitative analysis should reflect reasonable assumptions of customer behavior based upon the group A CIDI's overall depositor profile and the provision of overall lending and other services to such depositors. For example, insight into the holistic client relationships, including the lending, fee-based, and deposit-based businesses would provide insight into the value impact. Off-Balance Sheet Exposures The final rule incorporates the proposed requirement that a full resolution submission include a description of any material off- balance-sheet exposures, including unfunded commitments, guarantees, and contractual obligations, and that it map those exposures to franchise components, core business lines, and material asset portfolios. Qualified Financial Contracts The final rule includes the proposed requirements for information on qualified financial contracts (QFCs), which are intended to support and enhance information that may be provided under the FDIC's QFC recordkeeping rule, and would be useful in the event that the CIDI were not subject to the requirements of the QFC recordkeeping rule at the time of its failure.\17\ The focus of the information required is on the relationship of QFCs to the CIDI's core business lines and franchise components, and how these transactions are integrated with the CIDI's business activities and with other services provided to customers. Consistent with the proposal, the final rule also requires CIDIs to provide information about their booking models for risk, and how the CIDI uses QFCs to manage hedging or liquidity needs. This information will help the FDIC to make decisions with respect to transferring QFCs to a bridge bank, and to better understand the impact of any decision not to transfer certain QFCs. The final rule also includes certain revisions to the language of this paragraph, which are intended as clarifying changes. --------------------------------------------------------------------------- \17\ See generally 12 CFR part 371. --------------------------------------------------------------------------- Unconsolidated Balance Sheet; Material Entity and Regulated Subsidiary Financial Statements The final rule adopts the proposed requirement that a CIDI must provide an unconsolidated balance sheet and consolidating schedules for all material entities and regulated subsidiaries that are subject to consolidation with the CIDI. The final rule also adopts the provision permitting CIDIs to aggregate on the consolidating schedule amounts attributed to entities that are not material entities or regulated subsidiaries. The final rule includes clarifying changes intended to more clearly state that all of the requirements apply to regulated subsidiaries as well as material entities. Consistent with the proposal, the final rule requires audited financial statements where they are available. Payment, Clearing, and Settlement Services The final rule adopts, with clarifying changes, the proposed requirement that a full resolution submission provide information regarding each payment, clearing, and settlement (PCS) provider with which it has a direct relationship. The text was revised to make clear that payment, clearing, and settlement systems include services provided by financial market utilities and agent banks, and makes ``PCS service provider'' a new defined term. Consistent with the proposal, information is required for PCS service providers that are critical services or critical services support. Also consistent with the proposal, the final rule requires CIDIs to map PCS service providers to legal entities, core business lines, and franchise components, and to describe the services provided by these systems, including the value and volume of activities on a per-provider basis. The final rule also adopts the proposed requirement for a full resolution submission to describe PCS services provided by a CIDI and that are material in terms of revenue to or value of any franchise component or core business line of the CIDI. Capital Structure; Funding Sources The final rule adopts, with clarifying changes, the proposed requirements with respect to capital structure and funding sources. Two comments were supportive of the proposed approach. The final rule requires that a full resolution submission describe the current processes used to identify the funding, liquidity, and capital needs of and resources available to each CIDI subsidiary or foreign branch that is a material entity, and to describe the CIDI's capabilities to project and report its near-term funding and liquidity needs. It requires that the full resolution submission identify the composition of liabilities of the CIDI, as a clarification of the proposed requirement to describe them, and specifies the requisite information to be provided with respect to those liabilities. The final rule also requires a CIDI to identify material funding relationships and material inter-affiliate exposures between the CIDI and its subsidiaries or foreign branches that are material entities, instead of the proposed requirement to describe them. These changes are intended to clarify that the full resolution submission is expected to include quantitative information for these areas, and are complementary to the expectation that the interim supplement will not include any additional narrative apart from the description of material changes as described in Sec. 360.10(e)(2)(i) and (ii). [[Page 56635]] Parent and Parent Company Affiliate Funding, Transactions, Accounts, Exposures, and Concentrations The final rule adopts, with clarifying changes, the proposed requirements with respect to parent and parent company affiliate funding, transactions, accounts, exposures, and concentrations. The final rule requires that a CIDI's full resolution submission must identify material affiliate funding relationships and material inter- affiliate exposures that the CIDI or its subsidiaries have with the parent company or any parent company affiliate, instead of the proposed requirement to describe them. Similar to above, this clarifying language is intended to make clear that the full resolution submission is expected to include quantitative information and is complementary to the expectation that the interim supplement will not include any additional narrative apart from the description of material changes as described in Sec. 360.10(e)(2)(i) and (ii). The full resolution submission must identify the nature and extent to which the parent company or any parent company affiliate serves as a source of funding to the CIDI and CIDI subsidiaries. The final rule requires that the submission include the terms of any contractual arrangements, including any capital maintenance agreements, the location of related assets, funds or deposits, and the mechanisms for such inter-affiliate transfers, revised to include funds transferred from parent company affiliates. Economic Effects of Resolution The proposed rule would have required CIDIs to identify their activities that are material to a particular geographic area or region of the United States, a particular business sector or product line, or other financial institutions. It also would have required the full resolution submission to describe the potential disruptive impact of the termination of such activities on the geographic area, region, business sector, industry, or product line, or to the U.S. financial industry. The FDIC received several comments to the proposed approach with respect to the requirement that the full resolution submission describe disruptive impacts in resolution. Commenters objected to the proposed approach, arguing that it would require ``speculative'' assessment of impacts on third parties, that the information may be better available to supervisors with a wider vantage point on impacts, and that the proposal is too broad and vague and should be more clearly defined. The FDIC agrees that the assessment of the potential disruptive impacts on third parties may be difficult and possibly speculative, and would have limited value. Accordingly, the final rule eliminates that requirement and substitutes a narrower requirement: that the full resolution submission discuss whether the identified services or functions are readily substitutable by other providers and other mitigants to the potential impact of the termination of those activities in the event of failure of the CIDI. The CIDIs are the nation's largest banks, and the FDIC will seek to resolve a CIDI in a way that minimizes the disruptive impact of the resolution to the extent possible. It is therefore important that the FDIC is aware of the activities of the CIDI that are most likely to have significant disruptive effects if terminated in resolution, such as where a CIDI provides a unique function or is a dominant provider of a particular service. While the CIDI may not be able to fully measure or assess those impacts, a CIDI will be able to identify areas where it has a large market share of a particular business segment or geographic region, or where it provides significant services to other financial institutions, such as agent or correspondent banking services. A description of the impact of cessation of these services or functions, and information regarding whether there are other providers with the capacity to readily substitute for the activities of the CIDI or other mitigants to the impact of termination of these services are important to understanding the potential impacts and mitigating actions that may be useful in the FDIC's resolution planning. Non-Deposit Claims The final rule adopts without change the proposed requirement that a CIDI's full resolution submission identify and describe its capabilities to identify the non-depositor unsecured creditors of the CIDI and its subsidiaries that are material entities. Consistent with the proposal, the final rule also requires a description of how the CIDI would identify all non-depositor unsecured liabilities, including contingent liabilities like guarantees and letters of credit, as well as the location of the CIDI's related records and its recordkeeping practices. While related to the requirements in Sec. 360.10(d)(17) addressing capital structure and funding sources, the requirements in this paragraph are intended to provide information specifically helpful to the claims process, and would be in addition to the description of liabilities provided in Sec. 360.10(d)(17). Cross-Border Elements The final rule adopts with certain changes the proposed requirements with respect to cross-border elements in a full resolution submission. The FDIC received one comment on this proposed element, which supported the inclusion of the element as proposed. Consistent with the proposal, the final rule requires a full resolution submission to describe components of cross-border activities of the parent company or parent company affiliates that contribute to value, revenues, or operations of the CIDI. Where the CIDI has a significant interest (e.g., a controlling interest or a significant economic interest) in a foreign joint venture that contributes to revenue or operations of the CIDI, that information should be included. Entities with no meaningful function or contribution to the CIDI's operations, such as single purpose real estate holding companies, may be excluded. Consistent with the proposal, the final rule also requires that a full resolution submission identify regulatory or other impediments to divestiture, transfer, or continuation of foreign branches, subsidiaries, or offices while the CIDI is in resolution, including retention or termination of personnel and adding in the final rule, transfer or continuation of licenses or authorizations. Further, the final rule adds an express requirement that the full resolution submission must identify all authorities with regulatory or supervisory authority over cross-border operations. This information will assist the FDIC in coordinating with the requisite authorities in resolution. Management Information Systems; Software Licenses; Intellectual Property The final rule adopts without substantive change the proposed requirement that each CIDI's full resolution submission identify and describe each key management information system and application, and identify any core business line that uses it, and the key personnel needed to support and operate it. In the final rule, the term key personnel is used here instead of ``personnel by title and legal entity employer.'' Each full resolution submission also is required to identify each system's and application's use and function, which core business lines use it, and its physical location, if any, as well as any related third-party contracts or service-level agreements, any related software or systems licenses, and any other related intellectual property. Consistent with the proposal, the final rule also requires a full resolution [[Page 56636]] submission to specifically identify key systems or applications that the CIDI or its subsidiary does not own or license directly from the provider and to discuss how to maintain access to the system or application when the CIDI is in resolution. Like the proposal, the final rule requires a description of the capabilities of the CIDI's processes and systems to collect, maintain, and produce the information and other data underlying the full resolution submission; identification of all relevant systems and applications; and a description of how the information is managed and maintained. For example, the full resolution submission must describe whether the information is centralized, or organized by region or business line; whether it is automated or manual; and whether the applicable system or application is integrated with other of the CIDI's systems or applications. The final rule also provides for the CIDI to describe any deficiencies, gaps, or weaknesses in these capabilities and the actions the CIDI intends to take to address promptly any such deficiencies, gaps, or weaknesses, and the time frame for implementing these actions. Digital Services and Electronic Platforms The proposal included a new content element for inclusion in each CIDI's full resolution submission regarding digital services provided by a CIDI to its customers and the electronic platforms that support these systems. The FDIC received one comment, asserting that the requirement regarding digital services and electronic platforms is vague and potentially duplicative of other requirements, such as critical services, payment, clearing, and settlement, and management information systems. The final rule retains the requirement as proposed. While some of the requirements may overlap with other requirements in the rule, such as whether the services and platforms are provided by a CIDI subsidiary, a parent company affiliate, or a third-party and information on the related intellectual property rights, this paragraph is intended to capture information specific to digital services and electronic platforms. If the information is provided elsewhere, a cross-reference will suffice. The final rule uses the word ``customers'' instead of ``depositors'' in the first sentence of the paragraph, to clarify that retail and business customers may include depositors or other customers or clients of the CIDI. As noted in the preamble to the proposal, digital services provided to customers and their electronic platforms is a new and evolving area of banking. The language in the final rule is intended to be flexible enough to adapt to the changing environment, while focusing on the significance of these services to CIDI operations or customer relationships and their relationship to franchise value and depositor behavior. The information required will be helpful to the FDIC in understanding how such services are significant to customer loyalty and franchise value where they are unique, may rely on proprietary intellectual property with low substitutability, may have an impact on stickiness of retail or commercial deposits, or are important to a customer base that relies upon a certain platform or service. Communications Playbook The final rule adopts the proposed requirement that a full resolution submission must include a communications playbook describing the CIDI's current communications capabilities and how those capabilities could be used from the point of the CIDI's failure through its resolution. One commenter supported this requirement as proposed, while one commenter suggested elimination of this requirement as unnecessary. The final rule retains the requirement for a communications playbook and adds an express requirement that the playbook include the identification of key personnel responsible for the CIDI's crisis communications across key stakeholder categories and communications channels and the organizational structure for relevant communications activities. It also clarifies that the stakeholders should include any foreign regulatory authorities as well as domestic regulatory authorities. In a resolution, it is important for the FDIC to be able to quickly identify the right points of contact to assure timely, clear, and coordinated communications to all stakeholders. Corporate Governance The final rule adopts without change the proposed requirements for the governance of the CIDI's resolution planning processes and preparation and approval of full resolution submissions. CIDI's Assessment of the Full Resolution Submission The final rule adopts without change the proposal that a full resolution submission must include a description of any contingency planning or similar exercise that the CIDI has conducted since its most recently filed full resolution submission that assesses the viability of the identified strategy (if required) or improves any capabilities described in the full resolution submission. As noted in the preamble to the proposal, the requirement is limited to requiring CIDIs to describe contingency planning or exercises they have done or plan to do; it does not require CIDIs to conduct these types of activities. Any Other Material Factor The final rule requires a CIDI to identify and discuss any other material factor that may impede its resolution. This is unchanged from the proposal. E. Interim Supplement Under the proposal, each CIDI would be required to file interim supplements that address all or parts of certain content elements included in the CIDI's full resolution submission. The FDIC received comments to the proposed interim supplement requirements and made changes to the final rule in response to those comments. Several commenters argued for narrowing the content required in the interim supplement to focus on data and information that has materially changed since the most recent submission or has a material impact on the full resolution submission. One commenter suggested that any narrative in the interim supplement be limited to an explanation of material changes. Commenters expressed concern that the interim supplement, as proposed, would be burdensome for CIDIs. One commenter suggested that the interim supplement should be based on prior year-end data, rather than data as of the end of the most recent fiscal quarter. Two comment letters recommended that all or most group A CIDIs should move to a three-year cycle for full resolution submissions and interim supplements should be filed either 18 months after that submission, or in each year that a full resolution submission is not made. One of these comment letters recommended that CIDI affiliates of U.S. GSIBs, which are biennial filers under the DFA rule, make full resolution submissions every two years, alternating with DFA resolution plan submissions, and interim supplements would therefore be unnecessary and should not be required. The FDIC considered these comments and has concluded that the content requirements for the interim supplement are appropriate and that the information required will aid the FDIC with planning for and carrying out resolutions. As a result, the final rule [[Page 56637]] retains the proposal's content requirements for the interim supplement. With the final rule's shift to a three-year cycle for most CIDIs, the expected utility of the interim supplement is further increased. The FDIC believes the interim submission requirement strikes the right balance between providing the FDIC with valuable updated information to assist with resolution planning while limiting burden on the CIDIs in providing the updated information. The FDIC has focused the interim supplement content requirements on information that is most essential to its resolution planning, that can be readily produced, and that is relatively likely to change year over year. Under the final rule, the FDIC retains the proposed discretion to add or eliminate elements from the interim supplement to ensure that it remains useful, includes the most important information, and can evolve based on lessons learned. In response to comments, the final rule incorporates a requirement to describe all material changes resulting from an extraordinary event, and to describe each material changes applicable to interim supplement content since the CIDI's most recent full resolution submission or interim supplement (or to affirm that no such material change has occurred). The FDIC does not expect any additional narrative will need to be included in the interim supplement. Also in response to comments, the final rule provides that data in the interim supplement should be as of the most recent fiscal year-end for which the CIDI has financial statements or, if financial information from more recent financial statements would more accurately reflect the CIDI's operations as of the date of the interim supplement, financial information as of that more recent date. This is reflected in Sec. 360.10(g)(1), which has been revised to incorporate a reference to the interim supplement in additional to full resolution submissions. With this change, the proposal's Sec. 360.10(e)(2) has been eliminated as it is no longer necessary. Regarding the frequency of interim supplement filings, the final rule makes certain changes for clarity and consistency, and introduces an exception. The final rule retains the annual cadence of interim supplements, and requires an interim supplement on or before the anniversary of the prior full resolution submission or interim supplement, as the case may be, unless the FDIC provides written notice of a different date. Consistent with the proposal, no interim supplement is required in the calendar year in which a CIDI files a full resolution submission. In response to comments, the final rule provides that biennial filers, which are IDI affiliates of U.S. GSIBs, are not required to submit an interim supplement in the year in which they file a DFA resolution plan. This exception applies only to the biennial filers, given their higher frequency of submissions under this rule, and expected annual submission of resolution plans under this rule and by their parent companies under the DFA rule. In addition, particularly for CIDIs identified as material entities and divesture options in the DFA resolution plan, there is sufficient overlap in content to meet the needs of the interim supplement. The final rule makes clear that all CIDIs will receive a written notice specifying the date on which their initial full resolution submission or interim supplement is due. CIDIs that are not filing a full resolution submissions as their first submission following the effective date of the final rule are required to provide interim supplements in the years prior to the date their first full resolution submission is due. F. Credibility; Review of Full Resolution Submissions; Engagement; Capabilities Testing Credibility Criteria The proposal included a credibility standard consisting of two prongs for assessing the credibility of a full resolution submission. The first prong applies only to resolution plans submitted by group A CIDIs. Under this prong, a resolution plan could be found not credible if the identified strategy did not provide timely access to insured deposits, maximize value from the sale or disposition of assets, minimize any losses realized by creditors of the CIDI in resolution, and address potential risks of adverse effects on U.S. economic conditions or financial stability. The second prong applies to full resolution submissions by all CIDIs. Under the second prong, a full resolution submission could be found not credible if the information and analysis in the full resolution submission are not supported with observable and verifiable capabilities and data and reasonable projections, or the CIDI fails to comply in all material respects with the requirements of the rule. Because the interim supplement is simply an update of a subset of information required in a full resolution submission, it will not be separately assessed against the credibility standard. The FDIC considered all comments regarding the credibility standard, and the final rule retains the credibility standard as proposed. One commenter recommended that all full resolution submissions be subject to both credibility assessment prongs as part of a general recommendation to eliminate the distinction between group A CIDIs and group B CIDIs. As discussed above, the FDIC believes that the distinction between group A CIDIs and group B CIDIs is appropriate, and therefore the prong one standard would not be applicable to the informational filings. Another commenter suggested that the requirement that the identified strategy be effective in minimizing losses to creditors was in contradiction with the recent rulemaking proposal by the FDIC and other agencies to require certain large insured depository institutions to have outstanding a specified amount of eligible long-term debt.\18\ The FDIC believes that the goals of the proposed rulemaking and this final rule are strongly aligned. The long-term debt rule, if adopted, will help reduce losses to creditors and will support an orderly and efficient resolution of an IDI. --------------------------------------------------------------------------- \18\ See Long-Term Debt Requirements for Large Bank Holding Companies, Certain Intermediate Holding Companies of Foreign Banking Organizations, and Large Insured Depository Institutions, 88 FR 64524 (Sept. 19, 2023). --------------------------------------------------------------------------- The FDIC received three comments recommending that the credibility determination be eliminated, or that there should not be any enforcement action based on the credibility standard. These commenters argued that the standard's first prong would require speculation on conditions at the time of failure and would therefore be subjective and potentially inconsistently applied over time. The FDIC received one comment advocating for changes to the second prong of the credibility standard that would remove the qualifiers ``verifiable'' and ``observable'' for capabilities requirements. It is an important goal of the final rule to establish clear expectations with respect to the form and substance of resolution submissions, and a clear standard against which they are assessed for compliance with the rule. The FDIC has experience in evaluating resolution plans and generally expects to conduct horizontal reviews across full resolution submissions of CIDIs that have similar characteristics to gain a broader perspective as well as to assure consistent assessment of the full resolution submissions. [[Page 56638]] As described in the preamble to the proposal, the new standard expressly incorporates concepts from the 2012 rule, including the reference to observable and verifiable capabilities and data and reasonable projections. These elements of the credibility standard, which are incorporated into the second prong, have proved useful in past plan reviews and feedback. With respect to prong one of the standard, the FDIC considered comments suggesting that this standard may be subjective or imprecise. The FDIC appreciates the concern that the standard necessarily requires the exercise of judgment in understanding whether value is maximized or losses to creditors are minimized, for example, in a particular strategy under the specified scenario. The FDIC agrees that there is a necessary element of judgment in determining whether an identified strategy meets the goals of the rule as expressed in the first prong of the credibility standard. The application of judgment in the development of the identified strategy is appropriate given the diversity among the group A CIDIs. A well-reasoned and well-supported identified strategy prepared by a group A CIDI will provide the FDIC useful information in assessing its options when confronted with an actual failure scenario. One comment pointed to potential challenges in the element of the first prong that requires that the resolution plan address the potential risk of adverse effects on U.S. economic conditions or financial stability. Some CIDIs have critical operations that are important to financial stability identified in their affiliates' DFA resolution plans, may be highly interconnected with other financial institutions, may have dominant market share in certain geographic regions or market segments, or their resolution could be disruptive to the U.S. economy or financial stability in other ways. The requirement that the resolution plan address the potential risk of adverse effects on U.S. economic conditions or financial stability is intended to require that the identified strategy take into account the potential for risks to U.S. economic conditions or financial stability arising from the execution of the strategy. Those risks should be described in the resolution plan, and the identified strategy should include specified actions that would mitigate those risks. It is a critical resolution planning objective that the CIDI can be resolved without the need for extraordinary support from the DIF and without reliance on the systemic risk exception to the statutory least-cost requirement under the FDI Act. As discussed in the proposal, the FDIC has considered the particular challenges with respect to the requirement that the identified strategy address the potential for risks to U.S. economic conditions or financial stability for the CIDIs that are part of the largest and most systemic and interconnected U.S. banking organizations, specifically the group A CIDIs that are subsidiaries of U.S. GSIBs. This category of firms comprises the U.S. banking organizations that pose the greatest risk to U.S. financial stability. The FDIC is aware of progress made by the U.S. GSIBs in the development of DFA resolution plans, including their adoption of an SPOE strategy for the resolution of the firm pursuant to which any subsidiary U.S. IDI that is a material entity remains open and operating. Each of these firms has also made progress in increasing the range of scenarios in which that strategy may be actionable and effective through structural and operational changes. Moreover, certain enhanced prudential standards that support resolvability apply only to the U.S. GSIBs. Despite this progress, the availability or success of an SPOE strategy cannot be ensured in all circumstances, and the possibility of a resolution of a CIDI that is a subsidiary of a U.S. GSIB cannot be eliminated. The FDIC believes that it is appropriate to require group A CIDIs within these banking organizations to develop comprehensive resolution plans that include an identified strategy that meets the requirements of the first prong of the credibility standard to support the FDIC's resolution readiness in the event that such a CIDI should fail. While these CIDIs may have a particular challenge in addressing the risks their identified strategy may present to the U.S. economy and financial stability, where the DFA resolution plan of the CIDI's parent company contains relevant analysis and information with respect to the risk of potential adverse effects on U.S. financial stability arising from the failure of a subsidiary group A CIDI, the inclusion of that information by cross-reference is permitted under (c)(6). In addition, where the strategy for the rapid and orderly resolution of a U.S. GSIB in its DFA resolution plan does not include the resolution of the CIDI under the FDI Act, that strategy may reasonably be identified as a mitigant to the systemic risk, if any, posed by the failure of the CIDI under the FDI Act. Full Resolution Submission Review and Credibility Determination The proposal described a process for full resolution submission review and credibility assessment. Like the proposal, the final rule makes no change to the proposed rule with respect to coordination with supervisors related to the review process. The FDIC will review a full resolution submission in consultation with the appropriate Federal banking agency for the CIDI and for its parent company. If after consultation with any such appropriate Federal banking agency (or agencies), the FDIC determines that a CIDI's full resolution submission is not credible, the FDIC will notify the CIDI in writing of such determination. This written notice will include a description of the material weaknesses in the full resolution submission that resulted in the determination. With respect to the full resolution submission review and the credibility determination process, two commenters emphasized the importance of the FDIC providing timely, clear, and consistent feedback to CIDIs, with one noting that feedback should be provided at least 12 months before the next submission is due. This comment also suggested that the FDIC should institute an intermediate level of feedback between informal feedback and a formal weakness determination to precede a non-credibility finding. The FDIC agrees that timely and clear feedback is an important part of the review process. The extension of the submission cycle to three years for most CIDIs will provide additional assurance of sufficient time to incorporate feedback into the next full resolution submission. The FDIC anticipates that full resolution submissions will improve through an interactive and iterative process, and the FDIC recognizes that there should be multiple communications between the FDIC and the CIDIs to improve the full resolution submissions. While the final rule, like the proposal, does not establish a fixed timing requirement for the delivery of feedback to CIDIs, the FDIC will review full resolution submissions promptly and endeavor to give feedback identifying material weaknesses or significant findings within one year of the full resolution submission date. Any additional observations or other feedback, for instance following engagement, that would impact the next full resolution submission would be given at least 270 days before that submission is due. The FDIC received one comment recommending that any feedback on [[Page 56639]] resolution plans should be treated as confidential supervisory information, except to facilitate coordination between home and host country resolution planning, where applicable. The FDIC received another comment recommending that the FDIC should commit to publishing all future feedback letters, including any that describe weaknesses resulting in a non-credible determination, with confidential supervisory information redacted. In the past, the FDIC has not made public the feedback letters on resolution submissions under the 2012 rule, as these letters may have relied on or disclosed confidential supervisory information. The FDIC has also considered that redacted letters may be incomplete and misunderstood and has treated the letters in a confidential manner, similar to supervisory letters. Any decision with respect to disclosure of feedback letters in the future will consider the confidential nature of any information, as well as the public interest. The FDIC considered the comment recommending an intermediate level of feedback between informal feedback and a finding of a material weakness. The FDIC also considered the approach taken in reviews and feedback for DFA resolution plans, which includes an intermediate level of feedback. The FDIC believes that there is utility in providing feedback that requires correction with an appropriate level of urgency, but that does not trigger the immediate corrective actions spelled out in paragraph (f)(3). Consequently, the final rule establishes the concepts of material weaknesses and significant findings. A material weakness is an aspect of a CIDI's full resolution submission that the FDIC determines individually or in conjunction with other aspects fails to meet the credibility criteria described in Sec. 360.10(f)(1). The FDIC must identify one or more material weaknesses in determining a CIDI's full resolution submission is not credible. The final rule requires that within 90 days of receiving a notice by the FDIC pursuant to Sec. 360.10(f)(2) or such shorter or longer period as the FDIC may determine, the CIDI must resubmit a revised full resolution submission, or such other information or material as specified by the FDIC, that addresses any material weaknesses identified by the FDIC and discusses in detail the revisions made to address such material weaknesses. This is consistent with the proposal, with a clarification that in some cases, a full resolution submission may not be required and the FDIC may identify other information or material responsive to the material weakness. Under the final rule, a significant finding is a weakness or gap that raises questions about the credibility of a CIDI's full resolution submission but does not rise to the level of a material weakness. If a significant finding is not satisfactorily explained or addressed before or in the CIDI's next full resolution submission, it may be found to be a material weakness in the CIDI's next full resolution submission. To clarify how the CIDI intends to address the significant findings by the next full resolution submission, the FDIC may require a time-bound project plan from the CIDI that outlines the actions the CIDI will be taking in the interim period to assure that the significant finding is addressed in a timely manner. In some cases, project plans may also be used as a tool to clarify how the CIDI intends to address material weaknesses. The final rule makes clear that the FDIC may identify an aspect of a CIDI's full resolution submission as a material weakness even if such aspect was not identified as a significant finding in an earlier full resolution submission. The FDIC must notify the CIDI in writing of any significant findings that are identified in the full resolution submission. The difference between a material weakness and a significant finding is one of degree of severity. A material weakness is more likely to be a weakness in the full resolution submission that would significantly impact the FDIC's ability to undertake an efficient and effective resolution of the CIDI or would increase the risk of a disorderly and value-destructive resolution if not promptly corrected. A significant finding would more likely be feedback that goes to the completeness, sufficiency, and thoroughness of information provided or the adequacy of a capability demonstrated, that could affect the resolution of the CIDI and should be addressed, but is not of the same level of impact and urgency as a material weakness. Other observations that are not material weaknesses or significant findings may be included in the feedback letter or may be provided in other communications throughout the full resolution submission review, capabilities testing, and engagement cycle. Those observations are also intended to provide useful feedback to the CIDIs about areas of focus for further development of their full resolution submissions. The FDIC received two comments that suggested the FDIC should provide general guidance to CIDIs, with one noting that such guidance could cover common issues and best practices following each review cycle. Other commenters suggested additional guidance or specificity with respect to identification of expected capabilities. The final rule is intended to be comprehensive and supersedes the 2012 rule and all prior guidance. In the event the FDIC determines, based on review of full resolution submissions and engagement with the CIDIs, that additional general guidance may be helpful in addition to firm-specific feedback, the FDIC may consider providing such guidance at that time. Another comment suggested that the FDIC provide a list of identified strategies that are presumptively credible. That approach would be inconsistent with the goal of the rule to obtain the insight and analysis of each group A CIDI as to the approach to resolution that best fits with their organization and business structure. The FDIC expects to give appropriate feedback, if needed, on a CIDI's identified strategy, consistent with the interactive and iterative process described above to improve full resolution submissions and the FDIC's resolution readiness. Engagement and Capabilities Testing The final rule retains the proposed approach to engagement and capabilities testing, without substantive change, but with some modifications to the organization of the content intended to reflect that engagement and capabilities testing are complementary parts of the review and evaluation process. The changes also clarify the process and identify the communications relative to both engagement and capabilities testing. The FDIC received several comments with respect to engagement and capabilities testing. These comments generally focused on the process, the timing of notices, the scope of engagement and capabilities testing, and the approach to enforcement, including to ensure the FDIC's approach to resolution planning is sufficiently collaborative. One of these comments also noted that CIDIs--especially, group B CIDIs--will need time to build, improve, and test capabilities prior to undergoing capabilities testing with the FDIC, and suggested capabilities testing should not occur during a CIDI's initial submission cycle under the final rule. The final rule retains the proposed requirements with respect to engagement between the FDIC and a CIDI, including that each CIDI must provide the FDIC such information and access to personnel of the CIDI that have [[Page 56640]] sufficient expertise and responsibility to address the informational and data requirements of the engagement. The final rule makes clear that the FDIC will provide timely notification of the scope of any engagement. Because the appropriate advance notice of an engagement will depend on the parameters of the engagement, the final rule does not specify a time period for such a notification. In the past, the FDIC has provided four to eight weeks' advance notice of any engagement and has taken into account scheduling considerations for the CIDIs, such as other scheduled examinations and supervisory requirements, and expects to continue that practice. The final rule also makes clear that the FDIC will communicate with the CIDI after engagement. The form and content of that communication are not specified in the rule; in general, the FDIC expects to communicate observations from the engagement. In some cases, engagement will inform the review of the full resolution submission itself and engagement findings may support or address findings from the review process and be incorporated in the findings of weaknesses or non-credibility described above. Engagement may take place at any time to provide additional insights to the FDIC and to inform areas of interest for future full resolution submissions. It may also be the case that engagement takes place after the FDIC has provided the CIDI with written notice of its determination with respect to the credibility assessment described above. In some cases, for instance, where an IDI recently has become a CIDI or changed from a group A CIDI to a group B CIDI, engagement may take place before the initial full resolution submission, to provide information on particular resolution matters or areas of future submission content. The FDIC expects that engagement will be useful to the CIDIs by providing a better understanding of the areas of particular interest to the FDIC with respect to its resolution responsibilities, and will help the FDIC to better understand the information in the full resolution submissions and the resolution challenges for a specific CIDI as well as mitigants to those challenges. The final rule also adopts without change the proposed requirement that each CIDI may be required to demonstrate through capabilities testing that it can in fact perform the capabilities described in a full resolution submission, necessary for an identified strategy or required under the rule, and that these capabilities are adaptable to a range of scenarios. The FDIC expects capabilities testing to be an important part of its full resolution submission review process and will begin capabilities testing in the first review cycle. While in some cases time may be necessary to develop capabilities, early assessment is an important first step in that process. As with engagement, the final rule makes clear that the FDIC will provide timely notification of the scope of any capabilities testing. As with engagement, the final rule does not specify a time period for such a notification; in some cases, short notice of the capabilities test may an intended feature of the exercise. However, the FDIC will give notice that is appropriate to the nature of the capabilities testing, and, as with engagement, will take into account scheduling considerations for the CIDIs as noted above. As with engagement, after completion of the capabilities test the FDIC may communicate observations, or the information from the capabilities test may contribute to a letter with findings. Generally, the FDIC anticipates that capabilities testing will be conducted concurrently with the full resolution submission review process and will be conducted across a cohort of CIDIs. Two commenters indicated the FDIC should provide CIDIs with a comprehensive list of capabilities it expects a CIDI to maintain and a description of minimum standards expected for each capability. While the proposed rule was not prescriptive with respect to capabilities, it contained the express requirement that a CIDI's capabilities are sufficient to support key elements, namely, capabilities necessary to ensure continuity of critical services in resolution, the marketability of franchise components, and, with respect to group A CIDIs, the production of valuations needed in assessing the least-cost test. In addition, an identified strategy in a resolution plan for a group A CIDI must be supported with observable and verifiable capabilities, among the other requirements of the second prong of the credibility standard. The preamble to the proposal also provided additional context with respect to capability expectations for some or all CIDIs that can reasonably be inferred from the content requirements of the full resolution submission as described in the proposal. For example, a requirement to map information clearly implies expectation of a mapping capability; and requirements to identify key depositors, critical services support, or key personnel require the capabilities to support that identification. Examples of the capabilities that a CIDI could be required to demonstrate could include identification of key employees and critical services, as well as capabilities to meet requirements with respect to mapping, such as mapping critical services to material entities. The FDIC might also test capabilities that are necessary to key elements of the full resolution submission content, such as continuity of operations, or marketing of a franchise component or the IDI franchise. An example of such a capabilities test might be the establishment of a virtual data room for one or more franchise components or for the IDI franchise as a whole. The nature of this testing would be tailored to the requirements applicable to each CIDI. For example, while a group A CIDI may be asked to demonstrate its ability to execute capabilities necessary to its identified strategy, or demonstrate necessary capabilities for valuation, the focus for group B CIDIs would be more likely on informational requirements, such as the ability to produce informational items and referenced supporting documents within a specified timeframe. The final rule retains the provisions of the proposal with respect to capabilities with one change, addressed in the discussion of franchise components above. While the FDIC generally expects that engagement or capabilities testing with a particular CIDI would occur no more than once during the three-year or two-year submission cycle, as applicable, the FDIC also believes that it is important to preserve the flexibility to undertake engagement and capabilities testing with a CIDI as frequently as needed and whenever prudent, based on the circumstances of the particular CIDI. In some instances, no engagement or capabilities testing may be necessary during a submission cycle, while in other cases, such as after changes at the CIDI or as the result of varying economic conditions, more frequent engagement and capabilities testing may be warranted. Because informational filings by group B CIDIs do not include the development of an identified strategy and other elements of a resolution plan, the FDIC expects the engagement and capabilities testing with group B CIDIs will be a key component of its resolution planning for such firms and expects to conduct engagement and capabilities testing with most group B CIDIs in each cycle. In addition to engagement and capabilities testing, the FDIC could also have other interactions with CIDIs, such as questions during the full resolution submission review process or [[Page 56641]] conversations regarding changes to resolvability or updates to information. Finally, the final rule eliminates the specific reference to enforcement of the engagement and capabilities testing requirements that was included in this section as proposed. The FDIC received several comments expressing concern about implications of the specific reference to enforcement with respect to engagement and capabilities testing as proposed, and suggesting that further process is needed to challenge the specific enforcement powers relating to capabilities testing. The inclusion of enforcement language in this paragraph may have given the impression that engagement and capabilities testing might lead to specific enforcement actions that are separate from enforcement of compliance with the rule overall and from the application of the credibility standard to full resolution submissions. The FDIC agrees with commenters that the resolution planning process benefits from ongoing communication between the FDIC and CIDIs, and an interactive and iterative process to improve full resolution submissions and the FDIC's resolution readiness. The engagement and capabilities testing requirements are important components of the overall requirements of the rule to meet the goal of ensuring resolution readiness based on credible full resolution submissions, information, and analysis. Consequently, the FDIC has eliminated the specific reference to enforcement when addressing engagement and capabilities testing and will instead rely on the overall enforcement provision in Sec. 360.10(j) for all requirements of the rule. G. No Limiting Effect on FDIC The final rule retains the proposed provision that no full resolution submission provided pursuant to this section will be binding on the FDIC as supervisor, deposit insurer, or receiver for a CIDI, or otherwise require the FDIC to act in conformance with such full resolution submission. The final rule has been revised to make this provision applicable to interim supplements as well as full resolution submissions. Financial Information The final rule retains the proposed provision that requires a CIDI's full resolution submission use, to the greatest extent possible, financial information as of the most recent fiscal year-end for which the CIDI has financial statements or, if financial information from more recent financial statements would more accurately reflect the CIDI's operations as of the date of the submission, financial information as of that more recent date. As addressed in the discussion of interim supplements above, the final rule has been revised to make this provision applicable to interim supplements as well as full resolution submissions. Indexing of Information and Analysis to Full Resolution Submission and Interim Supplement Content Requirements The final rule adopts the proposed requirement that a CIDI's full resolution submission and interim supplement include an index of each content requirement required to be included in that full resolution submission or interim supplement to every instance of its location in the full resolution submission or interim supplement. Combined Full Resolution Submission or Interim Supplements by Affiliated CIDIs The final rule adopts without change the proposed provision to allow CIDIs that are affiliates to submit a single, combined full resolution submission or interim supplement, so long as all affiliated CIDIs submitting the combined submission or supplement are within the same CIDI group, whether group A or group B. The combined full resolution submission or interim supplement must satisfy the content requirements for each CIDI's separate full resolution submission or interim supplement, as applicable, and the CIDIs must ensure that the portions of a combined full resolution submission or interim supplement for each CIDI can be readily identified. H. Form of Full Resolution Submissions; Confidential Treatment of Full Resolution Submissions and Interim Supplements The final rule requires that each CIDI divide its full resolution submission into a public section and a confidential section and describes the required content of a public section. This section also provides the confidentiality provisions of the proposed rule. One commenter recommended that the FDIC generally increase the amount of information disclosed in the public portion of resolution submissions. The FDIC agrees that the public portions should be robust and should usefully address all of the required elements. The FDIC believes that the proposal included the appropriate required elements for the public portion and the paragraph was adopted as proposed with no material change. I. Extensions and Exemptions The final rule adopts without change the proposed provision that the FDIC, on its own initiative or upon written request, may extend, on a case-by-case basis, any of the rule time frames or deadlines and exempt a CIDI from one or more of the requirements of the rule. One commenter recommended including a process for a CIDI to request content exemptions where certain content elements were not important to that CIDI's resolution. One commenter requested that the FDIC expressly note that inapplicable content should be excluded. The final rule incorporates the requirements that the FDIC believes are appropriate to group A CIDIs and group B CIDIs. To the extent that certain elements are less significant to a CIDI because of its structure, organization, business strategy, or other factors, the CIDI can and should adjust its approach to those content elements. For instance, a CIDI with no cross- border activities would not provide any information other than the confirmation that there are no such activities with respect to that requirement. Accordingly, the FDIC did not incorporate a prescribed exemption process, but retained the flexibility to provide exemptions to one or more content elements of the rule, consistent with the proposal. J. Enforcement Consistent with the proposed rule, the final rule expressly provides that violating any provision of this section constitutes a violation of a regulation and may subject the CIDI to enforcement actions under 12 U.S.C. 1818, including Sec. 360.10(t) thereunder. IV. Expected Effects This final rule amends and restates the 2012 rule, as discussed in more detail above. It establishes two tiers of submission requirements to reflect the different sizes and complexity of CIDIs. Group A CIDIs are required to submit resolution plans that comply with all of the content requirements of the final rule, including the development of an identified strategy for the resolution of the CIDI, and to participate in engagement and capabilities testing. Group B CIDIs are required to submit an informational filing containing information on resolution planning and readiness, and to participate in engagement and capabilities testing. The following describes the expected costs and benefits of this final rule as it applies to the groups of CIDIs, and other economic impacts. As of the quarter ending March 31, 2024, the FDIC insured 4,577 depository [[Page 56642]] institutions. Of these, 33 are group A CIDIs that reported total average assets of $100 billion or more over their four most recent Consolidated Reports of Condition and Income, and 12 are group B CIDIs that reported total assets of at least $50 billion, but less than $100 billion, over their four most recent Consolidated Reports of Condition and Income. In the aggregate, these 45 CIDIs held a combined $17.951 trillion in total assets, accounting for about 74% of total U.S. banking industry assets.\19\ --------------------------------------------------------------------------- \19\ FDIC Consolidated Reports of Condition and Income data as of March 31, 2024. --------------------------------------------------------------------------- A. Review of Comments The FDIC received several comments related to its analysis of the expected effects of the NPR. One commenter indicated that the NPR would substantially add to the time and resources required to prepare IDI resolution plans. Another two commenters argued that the analysis of the compliance burden of the NPR significantly understates the cost of the burden, with one noting that the analysis understates the true cost since it only includes internal costs to the IDI and fails to include the costs of outside lawyers, accountants, and risk management specialists that may be involved with resolution planning. A fourth commenter suggested that the estimated time required to develop an IDI's full resolution submission is not unreasonable and the estimated cost of compliance would be substantially less than the costs of potential bank failures and banking crises. The FDIC has carefully reviewed the burden associated with the compliance requirements for each element in light of changes to the final rule and in consideration of the comments received. Recordkeeping, reporting, and disclosure requirements, like all compliance costs, may vary across institutions and the FDIC's compliance estimates associated with the Paperwork Reduction Act (PRA) are meant to be overall averages. The FDIC does not have the detailed data that would permit it to precisely estimate the quantitative effect of the final rule for every CIDI. The estimated labor hours needed to comply with certain aspects of the rule are based on the FDIC's extensive experience with resolution plan submissions and estimating associated burden. Absent any additional data, the FDIC believes the estimates of burden hours are reasonable, considering the recordkeeping, reporting, and disclosure requirements of the final rule. The FDIC received one comment relating to its estimate of the costs of switching from a three-year to a two-year submission cycle, which stated that the FDIC underestimates the costs associated with a two- year submission cycle when weighing the proposal's burdens and benefits. Upon further consideration, the FDIC is finalizing a three- year submission cycle for most group A CIDIs and the group B CIDIs, as discussed previously. Certain changes made to the final rule, as compared to the proposal, would result in a change to the economic effect. Those are described below. B. Changes From the Proposed Rule to the Final Rule Group A CIDIs Group A CIDIs in the final rule are defined as IDIs with $100 billion or more in total assets based upon the average of the institution's four most recent Consolidated Reports of Condition and Income. As of the quarter ending March 31, 2024, 33 IDIs reported total average assets of $100 billion or more over their four most recent Consolidated Reports of Condition and Income. Therefore, for the purposes of this analysis, the FDIC estimates that 33 FDIC-insured depository institutions would be classified as group A CIDIs under the final rule. In aggregate, these 33 group A CIDIs held a combined $17.10 trillion in total assets, accounting for about 71 percent of total U.S. banking industry assets.\20\ --------------------------------------------------------------------------- \20\ FDIC Consolidated Reports of Condition and Income data as of March 31, 2024. --------------------------------------------------------------------------- Key Changes to the Final Rule Affecting Group A CIDIs The final rule would make certain changes from the proposal which would materially affect the requirements of the rule with respect to group A CIDIs. First, most group A CIDIs would be required to file resolution plans on a triennial, rather than a biennial basis as proposed, with interim supplements expected each year where a resolution plan is not filed. This change means that these group A CIDIs will file fewer resolution plans over time and a greater number of interim supplements. Specifically, over a six-year period, each group A CIDI would have been expected to file three resolution plans and three interim supplements under the proposed rule and would be expected to file two resolution plans and four interim supplements under the final rule. This change would reduce the estimated economic effect of the final rule on the 24 group A CIDIs that are triennial filers. The final rule would retain the biennial filing cycle for the nine group A CIDIs that are affiliated with U.S. GSIBs, but would make a change that would impact the expected frequency of submission of interim supplements for these biennial filers. Under the final rule, the nine biennial filers would not be required to submit interim supplements in the calendar year in which they file resolution plans under the rule or in the calendar year in which their affiliates submit a DFA resolution plan. DFA resolution plans submitted by these banking organizations are also on a biennial cycle. Because resolution plans under the final rule and DFA resolution plans are expected to be submitted in alternating years, these nine CIDIs would not be expected to submit interim supplements under the final rule. This would reduce the estimated economic effect of the final rule for these biennial filers as compared to the proposal. In light of the changes in filing cycle frequency in the final rule, the FDIC expects to place a greater emphasis on engagement and capabilities testing for the group A CIDIs that are triennial filers. The FDIC estimates that this would result in a modest increase in compliance costs for the 24 group A CIDI triennial filers. Because the final rule does not change the submission cycle from the proposed rule for the nine biennial filers, there would be no change in the FDIC's expectation of engagement with those CIDIs, and therefore the FDIC's estimate compliance costs associated with resolution plan filings for these CIDIs would remain unchanged. Group B CIDIs Group B CIDIs are defined as IDIs with $50 billion or more in total assets but less than $100 billion in total assets, based upon the average of the institution's four most recent Consolidated Reports of Condition and Income. As of the quarter ending March 31, 2024, 12 IDIs reported total average assets of at least $50 billion, but less than $100 billion, over their four most recent Consolidated Reports of Condition and Income. Therefore, the FDIC estimates that 12 IDIs would be classified as group B CIDIs under the final rule. In aggregate, these 12 group B CIDIs held a combined $849 billion in total assets, accounting for about 3.51 percent of total U.S. banking industry assets.\21\ --------------------------------------------------------------------------- \21\ FDIC Consolidated Reports of Condition and Income data as of March 31, 2024. --------------------------------------------------------------------------- [[Page 56643]] Key Changes to the Final Rule Affecting Group B CIDIs Under the final rule, all group B CIDIs would be required to submit informational filings on a triennial, rather than on a biennial basis as proposed, with interim supplements expected each year where an informational filing is not submitted. This change means that group B CIDIs will file fewer informational filings over time and a greater number of interim supplements. Specifically, over a six-year period, each group B CIDI would have been expected to file three informational filings and three interim supplements under the proposed rule and would be expected to file two informational filings and four interim supplements under the final rule. This change would reduce the estimated economic effect of the final rule on the 12 group B CIDIs. Other Changes to the Proposal In addition to the specific changes discussed above, the final rule contains several changes to individual content elements to be included in full resolution submissions. These modifications to the proposal are discussed in detail above. They include changes that result in modest decreases in the required content, such as changes to the valuations element, the use of year-end data for interim supplements, the adoption of a change to the definition of material entity, and the reduction of certain content elements relative to franchise components for informational filings. The modifications also include changes that result in modest increases in the required content, such as the requirement for a description of material changes in interim supplements and informational filings, the identification of key communications personnel as part of the communications playbook, the requirement for a description of the methodology for the identification of key depositors, and the identification of regulators and other authorities with respect to cross-border activities. Taking into account these and other elements that both increase and decrease content requirements, the FDIC has determined that there is no net change in estimated compliance costs with respect to the development of resolution plans, informational filings, or interim supplements, other than those related to the changes to submission frequency discussed above. C. Marginal Effect of Changes Compared to the 2012 Rule The final rule would have four primary effects on CIDIs compared to the 2012 rule: (1) change in filing frequency for group A CIDIs affiliated with U.S. GSIBs; (2) the establishment of an interim supplement requirement; (3) changes in full resolution content requirements for group A CIDIs; and (4) changes in full resolution submission requirements for group B CIDIs. The FDIC analyzed expected filings by CIDIs over a six-year period beginning in 2025, the year in which the first submissions are expected to be made under the final rule, and assumes that the total assets reported by existing individual CIDIs for the quarter ending March 31, 2024 would remain constant throughout the period of analysis, notwithstanding assumptions made by the FDIC on the number of new group A CIDIs and group B CIDIs in each filing cycle (discussed below). For the purposes of this analysis, the FDIC generally assumes that compliance costs are directly proportional to the total consolidated assets of the CIDI. While asset size is not a direct measure of complexity, the FDIC believes that asset size is positively correlated with the amount of compliance time necessary for a CIDI to complete full resolution submissions and interim supplements under this final rule. The following discussion addresses each of these primary effects to illustrate their marginal contribution to the aggregate effect. Marginal Effect of Changes to the Biennial Filing Cycle for Group A CIDIs Affiliated With U.S. GSIBs As discussed above, the final rule would adjust the filing cycle for all group A CIDIs that are affiliated with U.S. GSIBs from the current triennial cycle to a biennial cycle. Of the 33 group A CIDIs identified above, nine are affiliated with U.S. GSIBs. To isolate the effect of the potential change from a triennial cycle to a biennial cycle on these CIDIs, the FDIC compared estimated reporting compliance costs of the current triennial cycle under the 2012 rule,\22\ to the costs of those same compliance requirements on a biennial basis for these nine CIDIs. Over the six-year period of analysis, the FDIC estimates that the labor hours expended by group A CIDIs that are affiliated with U.S. GSIBs would increase by an average of 107,000 hours annually in order to comply with a biennial cycle. Using a wage estimate of $118.14 an hour,\23\ the FDIC estimates that the change from a triennial cycle to a biennial cycle would result in average additional costs of approximately $12.6 million annually for the nine group A CIDIs affiliated with U.S. GSIBs. --------------------------------------------------------------------------- \22\ See https://www.reginfo.gov/public/do/PRAViewICR?ref_nbr=202111-3064-003. \23\ The FDIC's estimated allocations of labor associated with the reporting compliance burden for full resolution submissions in the final rule (for group A CIDIs and group B CIDIs) reflects an assumption that the majority will be attributable to financial analysts (including accountants and risk management specialists), with executives and managers, and legal occupations accounting for the remaining balance. The estimated weighted average hourly compensation cost of these employees are found by using the 75th percentile hourly wages reported by the Bureau of Labor Statistics (BLS) National Industry-Specific Occupational Employment and Wage Estimates for the relevant occupations in the Depository Credit Intermediation sector, as of May 2022. These wages are adjusted to account for inflation and non-monetary compensation rates for health and other benefits, as of March 2024, to provide a comprehensive estimate of overall compensation. --------------------------------------------------------------------------- Marginal Effect of the Introduction of the Interim Supplement Requirement The final rule introduces a requirement for group A CIDIs and group B CIDIs to submit an interim supplement in the years that they do not file a full resolution submission. As discussed above, the final rule exempts group A CIDIs that are biennial filers from this requirement in years where they file a DFA resolution plan. Because the FDIC assumes that submission dates for the DFA resolution plans and the full resolution submissions under the final rule will be in alternate years for the biennial filers, it is not expected that these nine CIDIs will file interim supplements. The FDIC estimates that the interim supplement will pose 24 labor hours per billion dollars in assets on group A CIDIs that are not affiliated with U.S. GSIBs and group B CIDIs. Using this estimate over the six-year period of analysis, the requirement for interim supplements would result in an estimated average annual increase of approximately 102,000 hours and 17,000 hours for group A CIDI triennial filers and group B CIDIs, respectively. Using a wage estimate of $118.14 an hour,\24\ the FDIC estimates that the increase in reporting burden hours for group A CIDI triennial filers and group B CIDIs submitting interim supplements will result in average additional annual costs of approximately $12.1 million annually and $2 million, respectively. Thus, the FDIC estimates the total average impact of this specific requirement to be approximately 119,000 hours annually, and about $14.1 million annually. --------------------------------------------------------------------------- \24\ See footnote 23. --------------------------------------------------------------------------- [[Page 56644]] Marginal Effect of Proposed Changes in Full Resolution Submission Content for All Group A CIDIs The FDIC's estimates of labor hours needed by group A CIDIs to comply with the reporting requirements of the final rule for first-time full resolution submissions remain unchanged at 16,000 hours. However, the FDIC has adjusted its estimate for subsequent full resolution submissions by group A CIDIs that are not affiliated with U.S. GSIBs to 73 hours per billion dollars in assets. For group A CIDIs that are affiliated with U.S. GSIBs, the FDIC estimates that they would incur 72 hours of burden per billion dollars in assets for subsequent full resolution submissions. To maintain consistency with the FDIC's estimates under the 2012 rule, the estimate of labor hours for both engagement and capabilities testing was included in the prior estimates of labor hours per billion in total assets for resolution plan content requirements of group A CIDIs. Thus, the difference in the burden estimate for group A CIDIs that are triennial filers is because in light of the change in submission cycle under the final rule for these CIDIs, the FDIC expects more engagement with these filers. Group A CIDIs that are affiliated with U.S. GSIBs, conversely, will file biennially under the final rule and will have somewhat less engagement between full resolution submissions. Over the six-year period of analysis, beginning in 2025, the FDIC assumes there will be three first-time group A CIDIs that will file full resolution submissions in each triennial filing cycle. This estimate is based on the FDIC's review of Consolidated Reports of Condition and Income data over the three-year period from 2021 through 2023.\25\ The FDIC analyzed the effect of changes in these other requirements for group A CIDIs by assuming the same filing frequency exists under the 2012 rule and the final rule, and then compared estimated compliance costs. As previously discussed, the final rule changes the filing frequency for group A CIDIs affiliated with U.S. GSIBs as well as the full resolution submission content and other requirements for group A CIDIs. The preceding subsection of this analysis presented the estimated effects of the final rule's amendments to the filing frequency for group A CIDIs affiliated with U.S. GSIBs; from triennial to biennial. To isolate the effects of the final rule's changes to the full resolution submission content and other requirements for group A CIDIs, the FDIC assumes that group A CIDIs affiliated with U.S. GSIBs file biennially, rather than triennially, and then calculate estimated compliance costs for group A CIDIs associated with the content requirements of the 2012 rule. The analysis then compares the estimated compliance costs for group A CIDIs associated with the content requirements of the 2012 rule with the estimated compliance costs associated with the content requirements established by the final rule. --------------------------------------------------------------------------- \25\ CIDIs that become group A CIDIs in subsequent filing cycles (i.e., the triennial filing cycle beginning in 2028) will have already filed full resolution submissions as group B CIDIs, and thus are not considered first-time filers for the purposes of estimating burden. --------------------------------------------------------------------------- For group A CIDIs filing full resolution submissions in the next and subsequent filing cycles, the FDIC estimates that, over the six- year period of analysis, the changes in the final rule relating to the full resolution submission content requirements will result in an average increase in labor hours to comply with associated reporting requirements of approximately 128,000 hours annually. Using a wage estimate of $118.14 an hour,\26\ the FDIC estimates that the increase in reporting burden hours for group A CIDIs due to changes to full resolution submission content requirements for group A CIDIs will result in average additional costs of approximately $15.1 million annually to all group A CIDIs. Approximately 63 percent of this increase in estimated annual compliance costs can be attributed to the nine group A CIDIs affiliated with U.S. GSIBs. --------------------------------------------------------------------------- \26\ See footnote 23. --------------------------------------------------------------------------- Marginal Effect of Proposed Changes in Full Resolution Submission Content for All Group B CIDIs The FDIC estimates that the labor hours needed by group B CIDIs to comply with the reporting requirements of the final rule, for both first-time full resolution submissions and subsequent submissions, would be 7,200 hours and 67 hours per billion dollars in assets, respectively. To maintain consistency with the FDIC's estimates under the 2012 rule, the estimate of labor hours for both engagement and capabilities testing was included in the estimate of 67 hours per billion in total assets for group B CIDIs. The analysis of the estimated compliance costs of the final rule on group B CIDIs is predicated on the assumption that all requirements under the final rule are new for the 12 group B CIDIs, resulting in relatively high initial compliance efforts. Most CIDIs that would be categorized as group B CIDIs under the final rule have not provided resolution submissions of any kind to the FDIC. For those CIDIs that have filed previously, the significant passage of time since that filing, taken together with the significant changes to the applicable requirements for group B CIDIs under the final rule, suggest that it is appropriate to consider them to be first-time filers for the purposes of assessing compliance costs in the first triennial cycle over the six-year period of analysis.\27\ Accordingly, the 12 group B CIDIs will be considered first-time filers for their initial full resolution submission under the final rule. In addition, over the six-year period of analysis, beginning in 2025, the FDIC assumes there will be five first-time group B CIDIs that will file full resolution submissions in each triennial cycle, based on the FDIC's review of Reports of Condition and Income data over the three-year period from 2021 through 2023. --------------------------------------------------------------------------- \27\ Of the 12 group B CIDIs identified, only three have submitted resolution plans under the 2012 rule (in either 2015 or 2018). --------------------------------------------------------------------------- The FDIC estimates that, over the six-year period of analysis, the final rule would result in an average increase in reporting burden hours of approximately 35,000 hours annually. Using a wage rate of $118.14 an hour,\28\ the FDIC estimates that the increase in reporting burden hours for group B CIDIs submitting informational filings will result in average additional costs of approximately $4.1 million annually. --------------------------------------------------------------------------- \28\ See footnote 23. --------------------------------------------------------------------------- Total Estimated Effect on Reporting Compliance Costs to CIDIs Taken together, the total estimated marginal effect of the change to a biennial cycle for group A CIDIs affiliated with U.S. GSIBs, submission content changes for all group A CIDIs and group B CIDIs, and requirements for interim supplements, over the six-year analysis period, would result in an average increase in reporting burden hours of approximately 389,000 annually. Using an estimated wage rate of $118.14 \29\ per hour, this would amount to total additional estimated reporting costs for all CIDIs of approximately $46 million annually. By comparison, total average annual estimated reporting compliance costs of $46 million are approximately 0.010 percent of total noninterest expenses across all CIDIs.\30\ --------------------------------------------------------------------------- \29\ See footnote 23. \30\ FDIC Consolidated Reports of Condition and Income data as of June 30, 2023 through March 31, 2024. --------------------------------------------------------------------------- [[Page 56645]] D. Effects on Insured Deposits and the Deposit Insurance Fund As previously discussed, the final rule would increase the amount of information CIDIs produce and furnish to the FDIC for the purposes of resolution planning. In the years since the adoption of the 2012 rule, the FDIC has learned which aspects of the resolution planning process are most valuable and gained a greater understanding of the resources that CIDIs expend in meeting the requirements and expectations to comply with the 2012 rule. The FDIC does not have the information necessary to quantify the benefits to the DIF associated with the increase in the amount of resolution planning information for CIDIs. However, the FDIC believes that requiring CIDIs to regularly submit more information on their resolution readiness capabilities would be expected to reduce the costs to the DIF in the event of a failure of such an institution because this information would help the FDIC be more prepared to resolve these CIDIs. E. Additional Economic Considerations and Effects Because some of the methodologies used to estimate reporting costs--for subsequent full resolution submissions and interim supplements--are based on the number of labor hours per billions of dollars in total assets, it is possible for a CIDI's estimated compliance cost to change solely due to fluctuations in asset size. The FDIC acknowledges that economic trends resulting in, or contributing to, changes in banking industry assets generally would have an impact on the estimates described above, but believes that these potential changes in compliance costs are likely to be modest relative to the size of the IDIs affected by the final rule. CIDIs would likely incur some regulatory costs, in addition to the reporting costs presented above, to transition their internal systems and processes in order to comply with the final rule. The FDIC does not have access to information that would enable it to estimate such costs. However, the FDIC believes that such costs are likely to be small relative to the size of the IDIs affected by the final rule. Finally, the FDIC does not believe that any additional costs incurred as a result of the final rule would have significant adverse impact on the provision of banking services such as originating and servicing loans, processing payments, or various financial market activities that the CIDIs may be involved in. This analysis illustrates that estimated reporting costs in future years only comprise approximately 0.010 percent of current noninterest expenses \31\ for all CIDIs. --------------------------------------------------------------------------- \31\ FDIC Consolidated Reports of Condition and Income data as of June 30, 2023 through March 31, 2024. --------------------------------------------------------------------------- F. Overall Effects In summary, the FDIC believes that the final rule would result in public benefits by improving the FDIC's ability to effect timely and cost-effective resolutions of large, complex insured institutions. The FDIC estimates the final rule would result in average annual compliance cost increases of approximately $46 million over the six-year analysis period--which spans two filing cycles (three for group A CIDIs affiliated with U.S. GSIBs) under the final rule. V. Alternatives Considered The FDIC considered several alternatives while developing the final rule. The FDIC first considered leaving the 2012 rule unchanged. The FDIC rejected this alternative because it believes the final rule improves the value of submissions and provides additional clarity to CIDIs regarding requirements by incorporating elements of prior guidance and taking into account the lessons learned from resolution planning under the 2012 rule. The final rule also provides a complete and clear set of requirements with respect to resolution planning submissions and the review and feedback process and bolsters and clarifies the FDIC's approach to engagement and capabilities testing in a manner useful to both the FDIC and CIDIs. Following review of comments on the proposed rule, the FDIC considered several alternatives in finalizing the rule. First, the FDIC considered finalizing the rule as proposed. Comments received identified certain areas where the rule could be strengthened and improved, particularly with respect to the process and timing of submissions and review of the full resolution submissions as discussed below. The FDIC considered several options with respect to the timing of submissions. First, it considered retaining without change the proposed biennial cycle for all CIDIs. It also considered adopting a triennial cycle for all CIDIs. Finally, it considered the approach adopted in this final rule by imposing a triennial cycle for most CIDIs, and biennial filings for the group A CIDIs affiliated with U.S. GSIBs. The FDIC believes that, for most CIDIs, a triennial cycle, with interim supplements in the off-years, would be an appropriate balance between the burden on CIDIs associated with more frequent filings and the public benefit in having timely and complete submissions. The final rule establishes a biennial cycle for group A CIDIs that are affiliated with U.S. GSIBs. The FDIC believes the biennial filing would be appropriate for these CIDIs, which are part of the largest and most systemic and interconnected U.S. banking organizations. The approach to the timing of submissions adopted in the final rule also has the benefit of allowing the FDIC to have additional time between submissions for engagement with the CIDIs that are triennial filers. The biennial filing schedule for all group A CIDIs resulted in an expectation that engagement with those CIDIs would be limited as a result of the increased time for preparation and review of full resolution submissions. The FDIC expects that the additional time for engagement will improve the FDIC's understanding of firm-specific resolution matters, and will provide additional opportunity for feedback and observations that may assist the CIDIs in improving their full resolution submission in successive filings. The FDIC considered several alternatives with respect to the timing of interim supplements. First, it considered retaining the proposed approach that would require an interim supplement in any year in which a full resolution submission is not required. Second, it considered not requiring an interim supplement for any CIDI that is an affiliate of a DFA resolution plan filer in a calendar year in which a DFA resolution plan is submitted. Finally, it considered the approach adopted in the final rule, which requires all CIDIs, except the biennial filers, to provide an interim supplement in any calendar year in which a full resolution submission is not submitted. For the biennial filers, the final rule does not require an interim supplement in a calendar year in which a DFA resolution plan from the affiliated banking organization is submitted. This [[Page 56646]] alternative is an appropriate balance of costs and benefits, taking into account biennial filers' higher frequency of submissions under this rule, and the expected annual submission of resolution plans alternating between submissions under this rule and the DFA rule. The FDIC considered other modifications to the proposal in response to comments, including changes to the identified strategy and other content elements. In each case, the FDIC weighed the proposed change against the alternative of adopting the proposal. The FDIC believes that the changes made, in the aggregate, do not have a significant impact on the cost of preparing the full resolution submissions and interim supplements, and have meaningful benefits in terms of improving the usefulness of the content of the submissions. VI. Regulatory Analysis and Procedures A. Paperwork Reduction Act In accordance with the requirements of the PRA,\32\ the FDIC may not conduct or sponsor, and the respondent is not required to respond to, an information collection unless it displays a currently valid Office of Management and Budget (OMB) control number. --------------------------------------------------------------------------- \32\ 44 U.S.C. 3501 et seq. --------------------------------------------------------------------------- Comments Received The FDIC received comments that appear to relate to the PRA. As stated above, the majority of commenters suggested changes to reduce the costs of submission preparation for filers, including by adjusting the proposed submission cycle, narrowing the proposed scope and content requirements, and enhancing alignment with relevant resolution planning requirements of the DFA rule. Additionally, one commenter raised questions about the FDIC's burden estimate. The comments received and their respective responses are summarized in the above analysis. The final rule modifies the current filing cycle cadence for group A CIDIs that are affiliated with U.S. GSIBs from triennial to biennial, which will result in these CIDIs sometimes filing multiple full resolution submissions across a given three-year PRA renewal cycle. On content, the final rule does not differ substantially from the proposed rule. The final rule retains the proposed rule's requirement for group A CIDIs and group B CIDIs to submit interim supplements to the FDIC in calendar years where they are not expected to file full resolution submissions, except in the case of the biennial filers who are also not expected to file in calendar years when they file DFA resolution plans. On engagement and capabilities testing, the final rule is broadly similar to the proposed rule. The change in submission cycle resulted in an increased expectation for engagement with group A CIDI triennial filers, as discussed above. Therefore, the estimate for subsequent full resolution submissions for group A CIDIs which are filing triennially has been increased from 72 hours per billion dollars in assets to 73 hours per billion dollars in assets, which would affect the estimates in Information Collection #2, described in table 1 below. For subsequent plan submissions for group A CIDIs which are filing biennially, the estimate remains at 72 hours per billion dollars in assets. The revisions for this Information Collection Renewal (``ICR'') in the final rule represent a decrease of 182,238 hours from the PRA estimates in the proposed rule (771,975 hours).\33\ This decrease is primarily due to the reversion to a triennial cycle for all CIDIs except for group A CIDIs that are affiliated with U.S. GSIBs, and the decision to exempt group A CIDIs that are affiliated with U.S. GSIBs from the interim supplement requirement in calendar years when they file DFA resolution plans. The FDIC will revise this information collection as follows: --------------------------------------------------------------------------- \33\ The revisions for this ICR in the final rule represent an increase of 300,074 estimated annual burden hours from the PRA estimates in the 2021 collection (289,663 hours), and an increase of 16,946 estimated annual burden hours from the PRA estimates in the 2018 collection (572,791 hours). \34\ For the PRA renewal cycle corresponding with the expected effective date of the final rule--from 2025 through 2027--there will be a total of nine biennial filers, with total assets (as of the quarter ending March 31, 2024) of approximately $11,152 billion. The FDIC estimates that these nine CIDIs would incur 72 hours per billion dollars in assets of reporting burden under this IC, and that these nine ICs would file once during this three-year period. Therefore, the total burden is 802,944 hours ($11,152 billion in assets * 72 hours per billion in assets = 802,944 hours) across this period, or 267,648 hours annually. At three respondents a year (9 biennial filers/3 years), this comes out to 89,216 hours per response. \35\ For the PRA renewal cycle corresponding with the expected effective date of the final rule--from 2025 through 2027--there will be a total of 24 triennial filers, with total assets (as of the quarter ending March 31, 2024) of approximately $5,951 billion. The FDIC estimates that these 24 CIDIs would incur 73 hours per billion dollars in assets of reporting burden under this IC, and that these 24 ICs would file once during this three-year period. Therefore, the total burden is 434,423 hours ($5,951 billion in assets * 73 hours per billion in assets = 434,423 hours) across this period, or approximately 144,807.67 hours annually. At 8 respondents a year (24 triennial filers/3 years), this comes out to 18,100.96 hours per response, or 18,100 hours and 58 minutes per response. --------------------------------------------------------------------------- Title: Resolution Plans and Periodic Engagement and Capabilities Testing Required. OMB Number: 3064-0185. Affected Public: Large and Highly Complex Depository Institutions. Table 1--Summary of Estimated Annual Burden [OMB No. 3064-0185] ---------------------------------------------------------------------------------------------------------------- Type of burden Number of Time per Information collection (IC) (frequency of Number of responses per response Annual burden (obligation to respond) response) respondents respondent (HH:MM) (hours) ---------------------------------------------------------------------------------------------------------------- 1. Resolution Plan update by Reporting 3 1 \34\ 89216:00 267,648 previous filer (biennial (Annual, 2 year filer, group A), 12 FR filing cycle). 360.10(c)(1); 12 FR 360.10(d) (Mandatory). 2. Resolution Plan update by Reporting 8 1 \35\ 18100:58 144,808 previous filer (triennial (Annual, 3 year filer, group A), 12 FR filing cycle). 360.10(c)(2); 12 FR 360.10(d) (Mandatory). 3. Resolution Plan by new Reporting 1 1 16000:00 16,000 filer (group A), 12 FR (Annual, 3-year 360.10(c)(3); 12 FR 360.10(d) filing cycle). (Mandatory). [[Page 56647]] 4. Informational Filing update Reporting 1 1 \36\ 00:00 0 by previous filer (group B), (Annual, 3-year 12 FR 360.10(c)(2); 12 FR filing cycle). 360.10(d) (Mandatory). 5. Informational Filing by New Reporting 6 1 7200:00 43,200 Filers (group B), 12 FR (Annual, 3-year 360.10(c)(3); 12 FR 360.10(d) filing cycle). (Mandatory). 6. Interim Supplement, 12 FR Reporting 30 1 3920:00 117,600 360.10(e) (Mandatory). (Annual, 3-year filing cycle). 7. Waiver Requests, 12 FR Reporting (On 1 1 01:00 1 360.10(i) (Required to obtain Occasion). or retain a benefit). 8. Notice of extraordinary Reporting (On 4 1 120:00 480 event, 12 FR 360.10(c)(4) Occasion). (Mandatory). Total Annual Burden ................ .............. .............. .............. 589,737 (Hours). ---------------------------------------------------------------------------------------------------------------- Source: FDIC. Note: The estimated annual IC time burden is the product, rounded to the nearest hour, of the estimated annual number of responses and the estimated time per response for a given IC. The estimated annual number of responses is the product, rounded to the nearest whole number, of the estimated annual number of respondents and the estimated annual number of responses per respondent. This methodology ensures the estimated annual burdens in the table are consistent with the values recorded in OMB's consolidated information system. B. Regulatory Flexibility Act The Regulatory Flexibility Act (RFA) generally requires an agency, in connection with a final rule, to prepare and make available for public comment a final regulatory flexibility analysis that describes the impact of the final rule on small entities.\37\ However, a final regulatory flexibility analysis is not required if the agency certifies that the final rule will not have a significant economic impact on a substantial number of small entities. The Small Business Administration (SBA) has defined ``small entities'' to include banking organizations with total assets of less than or equal to $850 million.\38\ Generally, the FDIC considers a significant economic impact to be a quantified effect in excess of 5 percent of total annual salaries and benefits or 2.5 percent of total noninterest expenses. The FDIC believes that effects in excess of one or more of these thresholds typically represent significant economic impacts for FDIC-supervised institutions. For the reasons described below and under section 605(b) of the RFA, the FDIC certifies that this rule will not have a significant economic impact on a substantial number of small entities. As of the quarter ending March 31, 2024, the FDIC insured 4,577 depository institutions, of which the FDIC identifies 3,272 as a ``small entity'' for purposes of the RFA.\39\ --------------------------------------------------------------------------- \36\ The estimated time per response for a group B CIDI that has filed previously under the final rule is 67 hours per billion dollars in total assets. However, for the PRA renewal cycle corresponding with the expected effective date of the final rule-- from 2025 through 2027--the FDIC estimates that 0 group B CIDIs will be subject to this requirement. For the purposes of estimating annual reporting compliance burden, all group B CIDIs in this period are considered ``new filers'' and thus will file under IC #5. The FDIC expects that the 17 group B CIDIs under IC #5 (rounded to six annually) would all file under IC #4 in the next three-year PRA renewal cycle, notwithstanding the number of group B CIDIs that may fail, merge with other CIDIs, or experience asset growth such that they no longer would be considered a group B CIDI at the time of their next filing. In recognition that, in future filing cycles, some group B CIDIs will incur burden under this IC, the FDIC uses a placeholder estimate of 0 respondents to retain this information collection. \37\ 5 U.S.C. 601 et seq. \38\ The SBA defines a small banking organization as having $850 million or less in assets, where an organization's ``assets are determined by averaging the assets reported on its four quarterly financial statements for the preceding year.'' See 13 CFR 121.201 (as amended by 87 FR 69118, effective December 19, 2022). In its determination, the ``SBA counts the receipts, employees, or other measure of size of the concern whose size is at issue and all of its domestic and foreign affiliates.'' See 13 CFR 121.103. Following these regulations, the FDIC uses an insured depository institution's affiliated and acquired assets, averaged over the preceding four quarters, to determine whether the insured depository institution is ``small'' for the purposes of RFA. \39\ FDIC Consolidated Reports of Condition and Income data as of December 31, 2023 and March 31, 2024. --------------------------------------------------------------------------- The final rule amends resolution submission requirements for IDIs with over $50 billion in total average assets. Therefore, the final rule would apply only to institutions with $50 billion or more in total average assets. As of the quarter ending March 31, 2024 there are no small, FDIC-insured institutions with $50 billion or more in total average assets.\40\ In light of the foregoing, the FDIC certifies that the final rule will not have a significant economic impact on a substantial number of small entities supervised. --------------------------------------------------------------------------- \40\ FDIC Consolidated Reports of Condition and Income data as of December 31, 2023 and March 31, 2024. --------------------------------------------------------------------------- C. Plain Language Section 722 of the Gramm-Leach-Bliley Act \41\ requires the Federal banking agencies to use plain language in all proposed and final rules published after January 1, 2000. The FDIC has sought to present the final rule in a simple and straightforward manner. The FDIC invited comments regarding the use of plain language in the proposed rule but did not receive any comments on this topic. --------------------------------------------------------------------------- \41\ Public Law 106-102, section 722, 113 Stat. 1338, 1471 (1999), 12 U.S.C. 4809. --------------------------------------------------------------------------- D. Riegle Community Development and Regulatory Improvements Act of 1994 Under section 302(a) of the Riegle Community Development and Regulatory Improvement Act (RCDRIA),\42\ in determining the effective date and administrative compliance requirements for new regulations that impose additional reporting, disclosure, or other requirements on IDIs, each FBA must consider, consistent with principles of safety and soundness and the public interest, any administrative burdens that such regulations would place on depository institutions, including small depository institutions, and customers of depository [[Page 56648]] institutions, as well as the benefits of such regulations. In addition, section 302(b) of the RCDRIA requires new regulations and amendments to regulations that impose additional reporting, disclosures, or other new requirements on IDIs generally to take effect on the first day of a calendar quarter that begins on or after the date on which the regulations are published in final form.\43\ --------------------------------------------------------------------------- \42\ 12 U.S.C. 4802(a). \43\ 12 U.S.C. 4802. --------------------------------------------------------------------------- E. Congressional Review Act For purposes of the Congressional Review Act (5 U.S.C. 801 et seq.), the OMB makes a determination as to whether a final rule constitutes a ``major rule.'' If a rule is deemed a ``major rule'' by the OMB, the Congressional Review Act generally provides that the rule may not take effect until at least 60 days following its publication. The Congressional Review Act defines a ``major rule'' as any rule that the Administrator of the Office of Information and Regulatory Affairs of the OMB finds has resulted in or is likely to result in--(1) an annual effect on the economy of $100 million or more; (2) a major increase in costs or prices for consumers, individual industries, Federal, State, or local government agencies or geographic regions; or (3) significant adverse effects on competition, employment, investment, productivity, innovation, or on the ability of United States-based enterprises to compete with foreign-based enterprises in domestic and export markets.\44\ The OMB has determined that the final rule is not a major rule for purposes of the Congressional Review Act and the FDIC will submit the final rule and other appropriate reports to Congress and the Government Accountability Office for review. --------------------------------------------------------------------------- \44\ See 5 U.S.C. 804(2). --------------------------------------------------------------------------- List of Subjects in 12 CFR Part 360 Bank deposit insurance, Banks, banking, Holding companies, National banks, Reporting and recordkeeping requirements, Savings associations. Authority and Issuance For the reasons stated in the preamble, the Federal Deposit Insurance Corporation amends 12 CFR part 360 as follows: PART 360--RESOLUTIONS AND RECEIVERSHIPS RULES 0 1. The authority citation for part 360 is revised to read as follows: Authority: 12 U.S.C. 1811 et seq., 1817(a)(2)(B), 1817(b), 1818(a)(2), 1818(t), 1819(a) Seventh, Eighth, Ninth, and Tenth, 1820(b)(3) and (4), 1820(g), 1821(d)(1), (4), (10)(C), and (11), 1821(e)(1) and (8)(D)(i), 1821(f)(1), 1823(c)(4), and 1823(e)(2). 0 2. Revise Sec. 360.10 to read as follows: Sec. 360.10 Resolution plans required for insured depository institutions with $100 billion or more in total assets; informational filings required for insured depository institutions with at least $50 billion but less than $100 billion in total assets. (a) Scope and purpose. This section applies to insured depository institutions with $50 billion or more in total assets. It requires a covered insured depository institution with $100 billion or more in total assets (a group A CIDI, as defined in paragraph (b) of this section) to submit a resolution plan that should enable the FDIC, as receiver, to resolve the institution under 12 U.S.C. 1821 and 1823 in a manner that provides depositors timely access to their insured deposits, maximizes the net present value return from the sale or disposition of assets and minimizes the amount of any loss realized by the creditors in the resolution, and addresses risks of adverse effects on U.S. economic conditions or economic stability. Other covered insured depository institutions (group B CIDIs, as defined in paragraph (b) of this section) are required under this section to submit to the FDIC an informational filing containing information relevant to the group B CIDI's resolution that will support the development of strategic options for resolution of the CIDI by the FDIC. This section also establishes the requirements regarding the submission of resolution plans and informational filings and their contents, as well as procedures for their review by the FDIC. This rule is intended to ensure that each group A CIDI develops a credible strategy to facilitate the FDIC's resolution of the institution across a range of possible scenarios and, with respect to each group A CIDI and each group B CIDI, the FDIC has access to all of the material information and analysis it needs to resolve efficiently the covered insured depository institution in the event of its failure. (b) Definitions. Affiliate has the same meaning as in 12 U.S.C. 1813(w)(6). Appropriate Federal banking agency has the same meaning as in 12 U.S.C. 1813(q). Biennial filer is defined in paragraph (c)(1) of this section. Bridge depository institution has the same meaning as in 12 U.S.C. 1813(i)(2). Capabilities testing is defined in paragraph (f)(7) of this section. CIDI or covered insured depository institution means a group A CIDI or a group B CIDI. Company has the same meaning as in 12 CFR 362.2(d). Control has the same meaning as in 12 U.S.C. 1813(w)(5). Core business lines means those business lines of the CIDI, including associated operations, services, functions, and support, that, in the view of the CIDI, upon failure would result in a material loss of revenue, profit, or franchise value of the CIDI. Critical services means services and operations, including shared and outsourced services, that are necessary to continue the day-to-day operations of the CIDI, and, in the case of a group A CIDI, to support the execution of the identified strategy, and includes all services and operations that are necessary to continue any critical operation conducted by the CIDI that has been included in the most recent DFA resolution plan of the CIDI's parent company. Critical services support means resources, including shared and outsourced resources, that are necessary to support the provision of critical services, including systems, technology infrastructure, data, key personnel, intellectual property, and facilities. DFA resolution plan means a resolution plan filed by a CIDI's parent company under 12 U.S.C. 5365(d). DIF means the deposit insurance fund established by 11 U.S.C. 1821(a)(4). Engagement is defined in paragraph (f)(6) of this section. Failure scenario means a scenario as described in paragraph (d)(2) of this section. Foreign-based company means any company that is not incorporated or organized under the laws of the United States. Franchise component means a business segment, regional branch network, major asset, material asset portfolio, or other key component of a CIDI's franchise that can be separated and sold or divested. Full resolution submission means a resolution plan for a group A CIDI, and an informational filing for a group B CIDI. Group A CIDI means an insured depository institution with $100 billion or more in total assets, as determined based upon the average of the institution's four most recent Consolidated Reports of Condition and Income. An insured depository institution that is a group A CIDI remains a group A CIDI until it has less than $100 billion in total assets for each of the institution's four most recent [[Page 56649]] Consolidated Reports of Condition and Income. In the event of a merger, acquisition of assets, combination, or similar transaction by an insured depository institution that causes it to exceed $100 billion in total assets, the FDIC may alternatively consider, in its discretion, to the extent and in the manner the FDIC considers to be appropriate, one or more of the four most recent Consolidated Reports of Condition and Income of the insured depository institutions that will become a group A CIDI effective as of the date of the consummation of such merger, acquisition, combination, or other transaction. Group B CIDI means an insured depository institution with at least $50 billion but less than $100 billion in total assets, as determined based upon the average of the institution's four most recent Consolidated Reports of Condition and Income. An insured depository institution that is a group B CIDI remains a group B CIDI until it is a group A CIDI or has less than $50 billion in total assets, in either case, for each of the institution's four most recent Consolidated Reports of Condition and Income. In the event of a merger, acquisition of assets, combination, or similar transaction by an insured depository institution that causes it to have at least $50 billion but less than $100 billion in total assets, the FDIC may alternatively consider, in its discretion, to the extent and in the manner the FDIC considers to be appropriate, one or more of the four most recent Consolidated Reports of Condition and Income of the insured depository institutions that will become a group B CIDI effective as of the date of the consummation of such merger, acquisition, combination, or other transaction. Identified strategy means the strategy chosen by a group A CIDI for its resolution plan as required pursuant to paragraph (d)(1) of this section, covering the time period from the point of failure to disposition of substantially all of the assets and operations of the group A CIDI through wind-down, liquidation, divestiture, or other return to the private sector. IDI franchise means all core business lines and all other business segments, branches, and assets that constitute the CIDI and its businesses as a whole. Informational filing means the full resolution submission submitted by a group B CIDI pursuant to this section. Insured depository institution has the same meaning as in 12 U.S.C. 1813(c)(2). Key depositors is defined in paragraph (d)(7)(v) of this section. Key personnel means personnel tasked with an essential role in support of a core business line, franchise component, or critical service, or having a function, responsibility, or knowledge that may be significant to the FDIC's resolution of the CIDI. Key personnel may be employed by the CIDI, a CIDI subsidiary, the parent company, a parent company affiliate, or a third party. Least-cost test means the process for determining the resolution strategy that is least costly to the DIF, as required under 12 U.S.C. 1823(c). Material asset portfolio means a pool or portfolio of assets, such as loans, securities, or other assets that may be sold in resolution by the bridge depository institution or the receivership and is significant in terms of income or value to the CIDI. Material change means a change in organization, operations, or strategic direction of the CIDI that results from an extraordinary event or other circumstance that could reasonably be foreseen to have a material effect on the resolvability of the CIDI. Such changes include, but are not limited to: (i) The identification of a new core business line; (ii) The identification of a new material entity or the de- identification of a material entity; (iii) Legal or functional organizational structure; (iv) Overall deposit structure; (v) Critical services or critical services support; (vi) The identification or de-identification of a franchise component; (vii) The acquisition or disposition of a material asset portfolio; or (viii) Cross-border elements. Material entity means a company, a domestic branch, or a foreign branch as defined in 12 U.S.C. 1813(o) that is significant to the activities of a critical service or core business line, and includes all IDIs that are subsidiaries or affiliates of the CIDI. Multiple-acquirer exit means an exit from a bridge depository institution through the sale of all or nearly all of the CIDI's IDI franchise to multiple acquirers, such as a regional breakup of the CIDI's IDI franchise or a sale of business segments to multiple acquirers, and may also include the wind-down or other disposition of franchise components, or material asset portfolios incidental to the divestitures of going concern elements, as applicable. Parent company means the company that controls, directly or indirectly, an insured depository institution. In a multi-tiered holding company structure, parent company means the top-tier of the multi-tiered holding company only. Parent company affiliate means any affiliate of the parent company other than the CIDI and the CIDI's subsidiaries. Payment, clearing, and settlement service provider (PCS service provider) is defined in paragraph (d)(16) of this section. Qualified financial contract has the same meaning as in 12 U.S.C. 1821(e)(8). Regulated subsidiary is defined in paragraph (d)(4)(v) of this section. Resolution plan means the full resolution submission submitted by a group A CIDI pursuant to this section. Subsidiary has the same meaning as in 12 U.S.C. 1813(w)(4). Total assets has the meaning given in the instructions for the filing of Reports of Condition and Income. Triennial filer is defined in paragraph (c)(2) of this section. United States has the same meaning as the term State as defined in 12 U.S.C. 1813(a)(3). Virtual data room means an online repository where information pertinent to a sale or disposition of a CIDI or its franchise components is maintained in a secure and confidential manner to facilitate, whether by the CIDI or the FDIC, such sale or disposition to one or more third party acquirers. (c) Full resolution submissions required--(1) Biennial filers--(i) Definition. Biennial filer means a CIDI affiliate of a biennial filer, as defined in Sec. 381.4(a)(1) of this chapter. (ii) Submission date. Each biennial filer must provide a full resolution submission to the FDIC on or before the date that is two years after the date of its most recent full resolution submission (or first business day thereafter), unless it has received written notice of a different date from the FDIC. All biennial filers will receive a written notice specifying the date on which their initial full resolution submission or interim supplement is due, which will be at least 270 days after October 1, 2024. (2) Triennial filers--(i) Definition. Triennial filer means all CIDIs that are not biennial filers. (ii) Submission date. Each triennial filer must provide a full resolution submission to the FDIC on or before the date that is three years after the date of its most recent full resolution submission (or first business day thereafter), unless it has received written notice of a different date from the FDIC. All triennial filers will receive a written notice specifying the date on which their initial full resolution [[Page 56650]] submission or interim supplement is due, which will be at least 270 days after October 1, 2024. (3) Full resolution submission by new CIDIs. An insured depository institution that becomes a CIDI after October 1, 2024, must submit its initial full resolution submission on or before the date specified in writing by the FDIC. Such date will occur no earlier than 270 days after the date on which the insured depository institution became a CIDI. A CIDI that transitions between groups will file a full resolution submission or interim supplement, as applicable, pursuant to the requirements applicable to its new filing group on or before the date that its next full resolution submission or interim supplement is due, unless it receives written notice of a different date from the FDIC. (4) Notice of extraordinary event. (i) Requirements. Each CIDI must provide the FDIC with a notice no later than 45 days after any material merger, acquisition or disposition of assets, or similar transaction or fundamental change to the CIDI's organizational structure, core business lines, size, or complexity. Such notice must describe the extraordinary event and explain how the event impacts the resolvability of the CIDI. The CIDI must address any material changes resulting from the extraordinary event with respect to which it has provided notice pursuant to this paragraph (c)(4)(i) in the subsequent full resolution submission or interim supplement submitted by the CIDI. (ii) Exception. A CIDI is not required to submit a notice under paragraph (c)(4)(i) of this section if the date by which the CIDI would be required to submit the notice under paragraph (c)(4)(i) of this section would be within 90 days before the date on which the CIDI is required to make a full resolution submission under this section. (5) Approval by the CIDI board of directors. The CIDI's board of directors or, in the case of an insured branch only, a delegee acting under the express authority of the CIDI's board of directors, must approve the full resolution submission. That approval or delegation of express authority must be noted in the minutes of the board of directors. (6) Incorporation from other sources--(i) Sources. A CIDI may incorporate information or analysis into the confidential section of its full resolution submission or its interim supplement from one or more of the following without seeking the authorization for disclosure of FDIC confidential information required under 12 CFR part 309: (A) The most recent full resolution submission submitted by the CIDI or an affiliate of the CIDI. (B) The most recent DFA resolution plan of a company that is a CIDI affiliate. (C) Any other regulatory filing by the CIDI or a CIDI affiliate with the FDIC. (ii) Requirements for incorporation from other sources. A CIDI may incorporate information from other sources only if: (A) The full resolution submission seeking to incorporate information or analysis from other sources clearly indicates the source and as-of date of the information or analysis the CIDI is incorporating, and the information or analysis required by this section is readily distinguishable from any extraneous parent company (or parent company affiliate) information or analysis, with a description of any material differences. (B) The CIDI certifies that the information or analysis the CIDI is incorporating from other sources remains accurate in all respects that are material to the CIDI's full resolution submission. (d) Content of the full resolution submissions for CIDIs. Each group A CIDI must submit a resolution plan that includes all content specified in this paragraph (d). Each group B CIDI must submit an informational filing that includes the content specified in paragraphs (d)(4) through (9), (d)(10)(i) through (iii) and (vii) through (viii), (d)(11), and (d)(13) through (27) of this section, inclusive; a description of each material change since the submission of its prior informational filing or, where relevant, interim supplement (or affirmation that no such material change has occurred); and a discussion of the changes to the CIDI's previously submitted informational filing resulting from any change in law or regulation, guidance, or feedback from the FDIC, or material change. (1) Identified strategy. (i) Each resolution plan must include an identified strategy for the resolution of the CIDI in the event of its failure that meets the credibility criteria in paragraph (f)(1) of this section. (ii) A CIDI must utilize as its identified strategy the formation and stabilization of a bridge depository institution that continues operation through the completion of the resolution and exit from the bridge depository institution unless the CIDI determines and demonstrates in its resolution plan why another strategy: (A) Would be more appropriate for the size, complexity, and risk profile of the CIDI; (B) Reasonably could be executed by the FDIC across a range of likely failure scenarios; and (C) Best addresses the credibility criteria described in paragraph (f)(1) of this section. (iii) The identified strategy must include meaningful optionality for execution across a range of scenarios. The exit from the bridge depository institution may be through a multiple acquirer exit, or any other exit strategy following the stabilization of the operations of the bridge depository institution. The identified strategy may not be based upon a sale or other disposition to one or more acquirers over resolution weekend. (2) Failure scenario. For the identified strategy, the CIDI must use a failure scenario that demonstrates that the CIDI is experiencing material financial distress, such that the quality of the CIDI's asset base has deteriorated and high-quality liquid assets have been depleted or pledged in the stress period before failure due to high, unexpected outflows of deposits and increased liquidity requirements from counterparties that would impact the CIDI's ability to pay its obligations in the normal course of business before the FDIC's appointment as receiver. Though the immediate failure event may be liquidity-related and associated with a lack of market confidence in the financial condition of the CIDI before the final recognition of losses, the identified strategy must also consider the depletion of capital before and at the time of the appointment of the FDIC as receiver. The CIDI may not assume any regulatory waivers in connection with the actions proposed to be taken before or in resolution. To the extent that the CIDI assumes that DIF funding is used during the resolution by a bridge depository institution, it must demonstrate the capacity for such borrowing on a fully secured basis and the source of repayment. The identified strategy must take into account that failure of the CIDI will occur under severely adverse economic conditions developed by the Board of Governors of the Federal Reserve System pursuant to 12 U.S.C. 5365(i)(1)(B), and must assume that the U.S. parent company (if any) is in resolution under 11 U.S.C. 101 et seq. or another applicable insolvency regime. The FDIC may provide a CIDI additional or alternative parameters for the failure scenario detailed in this paragraph (d)(2). The FDIC will endeavor to provide a CIDI notice of such additional or alternative [[Page 56651]] parameters for the failure scenario at least one year before the applicable resolution plan is due. Any such additional or alternative parameters: (i) May be applicable to all CIDIs or only specific individual CIDIs; and (ii) May include additional conditions, such as different macroeconomic stress scenario information or assumptions with respect to the cause of failure. If the FDIC provides such additional or alternative parameters, the CIDI must use the additional or alternative parameters rather than the conditions specified in paragraph (d)(2) of this section, to the extent inconsistent with the conditions specified in paragraph (d)(2) of this section. (3) Executive summary. A resolution plan must include an executive summary providing: (i) A description of the key elements of the identified strategy; (ii) An overview of the CIDI's core business lines and franchise components; (iii) A description of each material change since the prior resolution plan addressing the changed element (or affirmation that no such material change has occurred); (iv) A discussion of the changes to the CIDI's previously submitted resolution plan resulting from any change in law or regulation, guidance, or feedback from the FDIC, or material change; and (v) A discussion of any actions taken by the CIDI since the submission of its prior resolution plan to further develop the quality or comprehensiveness of the information and analysis included in the resolution plan, including the identified strategy, or to improve its capabilities to develop and timely deliver that information and analysis. (4) Organizational structure: legal entities; core business lines; and branches. A full resolution submission must: (i) Identify and describe the CIDI's, the parent company's, and the parent company affiliates' legal and functional structures, including all material entities. (ii) Identify and describe each of the CIDI's core business lines, including whether any core business line draws additional value from, or relies on the operations of, the parent company or a parent company affiliate, and identify any such operations that are cross-border. Provide information about the assets and annual revenue for each core business line, clearly identifying revenue to the CIDI. (iii) Map franchise components to core business lines, and franchise components and core business lines to material entities and regulated subsidiaries. (iv) Describe the CIDI's branch organization, both domestic and foreign, including the address and total domestic and foreign deposits of each branch. (v) Identify each CIDI subsidiary that is one of the following legal entities (each a ``regulated subsidiary''), and provide the address and asset size of each regulated subsidiary: (A) A broker or dealer that is registered under the Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.); (B) A registered investment adviser, properly registered by or on behalf of either the Securities and Exchange Commission or any State, with respect to the investment advisory activities of such investment adviser and activities incidental to such investment advisory activities; (C) An investment company that is registered under the Investment Company Act of 1940 (15 U.S.C. 80a-1 et seq.); (D) An insurance company, with respect to insurance activities of the insurance company and activities incidental to such insurance activities, that is subject to supervision by a State insurance regulator; (E) A legal entity that is subject to regulation by, or registration with, the Commodity Futures Trading Commission, with respect to activities conducted as a futures commission merchant, commodity trading adviser, commodity pool, commodity pool operator, swap execution facility, swap data repository, swap dealer, major swap participant, and activities that are incidental to such commodities and swaps activities; (F) A corporation organized under 12 U.S.C. 611 et seq. or a corporation having an agreement or undertaking with the Federal Reserve Board under 12 U.S.C. 601 et seq.; or (G) Any legal entity that is organized under the law of any jurisdiction other than the United States and that is authorized or supervised by a regulatory authority of such jurisdiction in a manner generally comparable to the U.S. legal entities and authorities described in paragraphs (d)(4)(v)(A) through (E) of this section, and includes any subsidiary that takes deposits or conducts the business of banking under the laws of such jurisdiction. (vi) Identify all of the CIDI's subsidiaries, offices, and agencies with cross-border operations associated with the operations of any core business line or franchise component. For each such subsidiary, office, or agency, provide metrics that appropriately depict its size and significance, and the location of each such subsidiary, office, and agency. (5) Methodology for material entity designation. A full resolution submission must describe the CIDI's methodology for identifying material entities. The methodology must be appropriate to the nature, size, complexity, and scope of the CIDI's operations. (6) Separation from parent; potential barriers or material obstacles to orderly resolution. The full resolution submission must address the CIDI's ability to operate separately from the parent company's organization, and any impact on maintaining economic viability and preservation of franchise value in a bridge depository institution, with the assumption that the parent company and parent company affiliates are in resolution under 11 U.S.C. 101 et seq. or another applicable insolvency regime. The full resolution submission must describe the actions necessary to separate the CIDI and its subsidiaries from the organizational structure of its parent company in a cost-effective and timely fashion. The full resolution submission must identify potential barriers or other material obstacles to an orderly resolution of the CIDI that may occur upon the CIDI's separation from the parent company's organization, as well as risks to the identified strategy (if required), and inter-connections and inter- dependencies that may hinder the timely and effective resolution of the CIDI, and include the remediation steps or mitigating responses necessary to eliminate or minimize such barriers or obstacles. (7) Overall deposit activities. A full resolution submission must: (i) Describe the CIDI's overall deposit activities, including, insured and uninsured deposits, and particular deposit concentrations or other aspects of the deposit base or underlying systems that may create operational complexity for the FDIC. Describe how any types or groups of deposits are related to a core business line, business segment, or franchise component, and if so, how those types or groups of deposits are identified on the records or systems of the CIDI. (ii) Identify the total amount of foreign deposits by jurisdiction and what percentage of foreign deposits is dually payable in the United States. Describe any relationship between foreign deposits and core business lines and any deposit sweep arrangements with foreign branches, subsidiaries, and affiliates. [[Page 56652]] (iii) Identify and describe deposit sweep arrangements, if any, that the CIDI has with the parent company, parent company affiliates, or third parties, and identify contracts governing such deposit sweep arrangements. Describe the CIDI's reporting capabilities on sweep deposits, including whether such reporting is automated and any data lag that affects the accuracy of such reports. If the CIDI receives significant amounts of deposits through such deposit sweep arrangements with the parent company or parent company affiliates, include a detailed discussion of such relationships and the business objectives of such deposit sweep arrangements. (iv) Identify all omnibus, deposit sweep, and pass-through accounts, and identify the accountholder, the location of relevant contracts, and the system on which the accounts are maintained. Provide a detailed discussion of the capabilities and timeliness of deposit reporting systems and capabilities to generate accurate and timely contact information with respect to any omnibus, deposit sweep, or pass-through accounts. (v) Provide a report regarding the CIDI's depositors that hold or control the largest deposits (whether in one account or multiple accounts) that collectively are material to one or more business segments (``key depositors''). The report must identify key depositors by name and business segment and the amount of deposit of each key depositor, and for each key depositor must identify other services provided by the CIDI to that depositor, such as lending, wealth management, brokerage services, or custody services. The full resolution submission must describe the CIDI's approach to identifying these key depositors and must describe how long it would take the CIDI to generate such a report and the timeliness of the information provided. (8) Critical services. A CIDI must be able to demonstrate capabilities necessary to ensure continuity of critical services in resolution. In order to support these capabilities, a full resolution submission must: (i) Identify and describe the CIDI's critical services and critical services support, including whether they are provided, in whole or in part, by or through: (A) The CIDI or a CIDI subsidiary or branch (and further indicate whether those critical services or critical services support are ultimately provided by a third party), or (B) The parent company or a parent company affiliate (and further indicate whether those critical services or critical services support are ultimately provided by a third party). (ii) Describe the CIDI's process for identifying critical services and critical services support. Describe the CIDI's process for collecting and monitoring the terms of contracts governing critical services and critical services support, and whether services provided pursuant to such contracts and associated costs can be segmented by the material entity, core business line, or franchise component that receives the critical service or critical service support. (iii) Map critical services support to the legal entities that own, contract for, or employ them, and map critical services to the material entities, core business lines, and franchise components that they support. (iv) Identify the physical locations and jurisdictions of critical service providers and critical services support that are located outside of the United States. (v) Identify the critical services and critical services support that may be at risk of interruption in the event of the CIDI's failure and describe the process used to make this determination. Describe the CIDI's approach for continuing critical services in the event of the CIDI's failure. Identify contracts for critical services that contain provisions that, upon the insolvency of the CIDI or the FDIC being appointed receiver of the CIDI, purport to permit the service provider to stop providing services, to alter pricing, or to alter other terms of service. Discuss potential obstacles to maintaining critical services that could occur in the event of the CIDI's failure and steps that could be taken to remediate or otherwise mitigate the risk of interruption, to include those critical services and critical services support provided by the parent company or a parent company affiliate and addressing: (A) Whether the CIDI and the parent company or parent company affiliate have entered into a written agreement and whether the written agreement has a cost plus or arms' length pricing rate, and the processes used by the CIDI to identify and project liquidity needs associated with those costs; and (B) The impact on continuity of critical services or critical services support provided by the parent company or a parent company affiliate if the parent company or parent company affiliate is in resolution under 11 U.S.C. 101 et seq. or other applicable insolvency regime. (9) Key personnel. A full resolution submission must: (i) Identify all key personnel by title, function, location, core business line, and employing legal entity. (ii) Describe the CIDI's methodology for identifying key personnel. (iii) Provide a recommended approach for retaining key personnel during the CIDI's resolution. (iv) Identify all employee benefit programs provided to key personnel, including health insurance, defined contribution and defined benefit retirement programs, and any other employee wellness programs, as well as any collective bargaining agreements or other similar arrangements. Identify the legal entity sponsor of each employee benefit program, and provide a description of and points of contact (by title) for such programs. (10) Franchise components. A CIDI must be able to demonstrate the capabilities necessary to ensure that franchise components and the IDI franchise are marketable in resolution. A full resolution submission must: (i) Identify franchise components that are currently separable, and are marketable in a timely manner in resolution. For a resolution plan of a group A CIDI, the franchise components identified must be sufficient to implement the identified strategy. (ii) Provide metrics that depict the size and significance of each franchise component. (iii) Identify by position the senior management officials of the CIDI who are primarily responsible for overseeing the business activities underlying the franchise component. (iv) Describe the CIDI's current capabilities and process to initiate marketing of franchise components to potential third party acquirers, and describe the process by which the CIDI would identify prospective bidders for such franchise components. (v) Describe the key assumptions (such as market conditions, available time to market assets, and anticipated client behaviors) underpinning each franchise component divestiture. (vi) Describe any significant impediments and obstacles to execution, including significant legal, regulatory, cross-border or operational challenges to the divestiture of each franchise component. This description must also address impediments and obstacles to maintaining internal operations (for example, shared services, information technology requirements, and human resources) and to maintaining access to financial market utilities. Identify the material actions that would be needed to facilitate the sale or disposition of each franchise component and, based on the [[Page 56653]] CIDI's current capabilities, describe the projected time frame to prepare for and execute the disposition of each franchise component. (vii) If a CIDI subsidiary or a parent company affiliate is a broker-dealer that provides services to the CIDI or customers of the CIDI, describe such services and the integration of the broker-dealer with the CIDI's business and operations. Provide an analysis discussing the challenges that could arise upon the discontinuation of services if the CIDI were separated from the broker-dealer, and actions to mitigate such challenges. (viii) Describe the CIDI's current capabilities and processes to establish a virtual data room promptly in the run-up to or upon failure of the CIDI that could be used to carry out sale of the IDI franchise as well as any or all of the CIDI's franchise components, including a description of the organizational structure of information within the virtual data room. Information in the virtual data room must support the ability of the FDIC to market and execute a timely sale or disposition of the IDI franchise or the CIDI's franchise components, be appropriate for a buyer to conduct due diligence for a timely sale or disposition of the IDI franchise or the CIDI's franchise components, and be sufficient to permit a bidder to provide a competitive bid on the IDI franchise or the CIDI's franchise components. A full resolution submission must also describe expected access protocols and requirements for the FDIC to use the virtual data room in order to carry out the sale of the IDI franchise or the CIDI's franchise components, including the FDIC's ability to facilitate bidder due diligence, and describe how information populated within the virtual data room could be transferred to a virtual data room hosted by the FDIC. The full resolution submission should identify the time required to capture all elements of information in the virtual data room, indicating number of days it would take to populate each category of information described below, and the process for each, including any potential obstacles or impediments in producing accurate, timely, and complete information in a useful format. The content of the virtual data room must include the following elements, or those that are applicable in the case of a sale of a franchise component: (A) Financial information, including annual and interim financial statements, including carve-out financial statements for franchise components, general ledger, and relevant financial information; (B) Deposit data and information; (C) Loan and lending operations information; (D) Securities information, including relevant information describing the CIDI's securities and investment portfolio; (E) Corporate organization information, including current organizational chart; (F) Employee information, including organization charts, compensation, and benefits; (G) Material contracts and critical services information, including key critical services agreements, leases, and bond indentures; and (H) Other information necessary to facilitate a rapid and effective due diligence process for the sale of the IDI franchise or the CIDI's franchise components. (11) Material asset portfolios. A full resolution submission must identify each material asset portfolio by size, and by category and classes of assets within such material asset portfolio, and include a breakdown of those assets within a material asset portfolio that are held by a foreign branch or regulated subsidiary. For each material asset portfolio, describe how the assets within the portfolio are valued and how they are maintained on the books and records of the CIDI. Identify and discuss impediments to the sale of each material asset portfolio identified and provide a timeline for such sale. (12) Valuation to facilitate FDIC's assessment of least-costly resolution method. A CIDI must be able to demonstrate the capabilities necessary to produce valuations needed in assessing the least-cost test. A resolution plan must: (i) Provide a detailed description of the approaches the CIDI would employ for determining the values of the franchise components and the IDI franchise as a whole, including the underlying assumptions and rationale. Describe the CIDI's approach to the development of the information needed to support valuation analysis, including a description of the CIDI's current ability to produce updated projections, timely if necessary, to support the FDIC's analysis to determine whether a resolution strategy would be the least costly to the Deposit Insurance Fund in the event of failure. (ii) Provide the following valuation analysis based upon the failure scenario assumed in the development of the identified strategy, with such adjustments to the scenario as may be necessary to demonstrate the analysis required under paragraph (d)(12)(ii)(B) of this section: (A) Valuation estimates of the IDI franchise, and where a multiple acquirer exit strategy is incorporated in the identified strategy, a sum-of-the-parts analysis. In determining these valuation estimates, the CIDI must consider appropriate valuation approaches, such as the income-based approach, asset-based approach, and market-based approach. In deriving a range of estimates of value, the CIDI must assess and provide a reasoned quantitative or qualitative analysis in support of whether the conclusion of value should reflect the results of one valuation approach and method, or a combination of the results of more than one valuation approach and method; as appropriate, the resolution plan must discuss the relevance and weight given to the different valuation approaches and methods used. (B) A qualitative analysis of the impact on franchise value that may result from not transferring any uninsured deposits to the bridge depository institution, including a narrative describing any options to mitigate franchise value destruction where there is not a transfer of all deposits to a bridge depository institution such as, an advance dividend payment to depositors that takes into account the expected loss to depositors, and the impact of such an advance dividend on depositor behavior and preservation of franchise value at different levels of loss. Such qualitative analysis should reflect reasonable assumptions of customer behavior based upon the CIDI's range of services provided to, and interconnections with, depositors. (iii) Provide all content responsive to paragraph (d)(12)(ii) of this section as an appendix to the resolution plan, including any analysis of liquidity and deposit runoff assumptions and factors underlying such runoff estimates. (13) Off-balance-sheet exposures. A full resolution submission must describe any material off-balance-sheet exposures (including the amount and nature of unfunded commitments, guarantees, and contractual obligations) of the CIDI and map those exposures to core business lines, franchise components, and material asset portfolios. (14) Qualified financial contracts. A full resolution submission must: (i) Describe the types of qualified financial contract transactions the CIDI is involved with in respect of its customers and business activities, the core business lines and franchise components with which such transactions are associated, and how the CIDI offsets position risk from such [[Page 56654]] transactions. Identify customers of the CIDI that are counterparties to qualified financial contracts transactions with the CIDI that are significant in terms of gross notional amounts or volumes of transactions. (ii) Describe the booking models for risk from derivative transactions, including whether customer-facing risk or other dealer- facing risk resides in the CIDI while the position risk hedging is performed by a parent company affiliate. Describe the CIDI's use of any ``global risk book,'' ``remote bookings,'' or ``back-to-backs'' booking model, identify the challenges these booking models present to the transfer or unwind of such related derivatives, and analyze approaches for addressing those challenges. (iii) Describe how the CIDI uses qualified financial contracts to manage its hedging or liquidity needs, including specifying the hedged items (including underlying risk, cash flow, assets or liability being hedged) and the applicable core business line, as well as the approach used to mitigate such risks. (iv) For each of paragraphs (d)(14)(i) through (iii) of this section, identify hedges that receive hedge accounting treatment, core business line-specific hedges, and reporting capabilities and practices for hedge accounting information and other end-user hedges. (15) Unconsolidated balance sheet; material entity and regulated subsidiary financial statements. A full resolution submission must provide an unconsolidated balance sheet for the CIDI and a consolidating schedule for all material entities and regulated subsidiaries that are subject to consolidation with the CIDI. Amounts attributed to legal entities that are not material entities or regulated subsidiaries may be aggregated on the consolidating schedule. Provide financial statements for each material entity and regulated subsidiary. When available, audited financial statements should be provided. (16) Payment, clearing, and settlement. A full resolution submission must identify each provider of payment, clearing, and settlement services, and agent banks, and other financial market utilities (each, a ``PCS service provider''), of which the CIDI directly is a member or has a direct relationship that is a critical service or a critical service support. For each such PCS service provider: (i) Map those PCS service providers to the CIDI's legal entities, core business lines, and franchise components; (ii) Describe the PCS services provided by such PCS service providers, including the value and volume of activities on a per- provider basis; and (iii) Describe the CIDI's role as a PCS service provider that is material in terms of revenue to, or value of, any franchise component or core business line. (17) Capital structure; funding sources. A full resolution submission must: (i) Provide descriptions of the current processes used by the CIDI to identify the funding, liquidity, and capital needs of and resources available to each material entity that is a CIDI subsidiary or foreign branch. Describe the current capabilities of the CIDI to project and report its funding and liquidity needs (e.g., next day, cumulative next five days, cumulative next 30 days). (ii) Identify the composition of the liabilities of the CIDI including the types and amounts of short-term and long-term liabilities by type and term to maturity, secured and unsecured liabilities, and subordinated liabilities. Such information must include whether such liabilities are held by affiliates, whether they are publicly issued, their maturity, any call rights provided, and, where applicable, the identity of their indenture trustees. (iii) Identify the material funding relationships and material inter-affiliate exposures between the CIDI and any CIDI subsidiary or foreign branch that is a material entity, including material inter- affiliate financial exposures, claims or liens, lending or borrowing lines and relationships, guaranties, deposits, and derivatives transactions. (18) Parent and parent company affiliate funding, transactions, accounts, exposures, and concentrations. A full resolution submission must: (i) Identify material affiliate funding relationships, and material inter-affiliate exposures, including terms, purpose, and duration, that the CIDI or any CIDI subsidiary has with the parent company or any parent company affiliate. Such information must include material affiliate financial exposures, claims or liens, lending or borrowing lines and relationships, guaranties, deposits, and derivatives transactions. (ii) Identify the nature and extent to which the parent company or any parent company affiliate serves as a source of funding to the CIDI and CIDI subsidiaries, the terms of any contractual arrangements, including any capital maintenance agreements, the location of related assets, funds, or deposits, and the mechanisms by which funds are transferred from the parent company or any parent company affiliate to the CIDI and CIDI subsidiaries. (19) Economic effects of resolution. A full resolution submission must identify any activities of the CIDI that provide a service or function that is material: (i) To a geographic area or region of the United States; (ii) To a business sector or product line in that geographic area or region, or nationally; or (iii) To other financial institutions. The full resolution submission must include a discussion of mitigants to the potential impact of termination of those activities in the event of failure of the CIDI, including whether the activity is readily substitutable. (20) Non-deposit claims. A full resolution submission must identify and describe the CIDI's systems and processes used to identify the unsecured creditors of the CIDI that are not depositors, as well as the unsecured creditors of each CIDI subsidiary that is a material entity. Such description must identify the location of the CIDI's records and recordkeeping practices regarding unsecured debt issued by the CIDI and any inter-creditor agreements for unsecured debt. The description must include a description of the CIDI's capabilities to identify each such unsecured creditor by name, address, nature of the liability, and amount owed by the CIDI and each CIDI subsidiary or, in the case of indentured securities, the identity of the indenture trustee. (21) Cross-border elements. A full resolution submission must describe all components of the parent company's and parent company affiliates' operations that are based or located outside the United States, including regulated subsidiaries, and foreign branches and offices that contribute to the value, revenues, or operations of the CIDI. A full resolution submission must also identify all authorities with regulatory or supervisory authority over these operations, and identify regulatory or other impediments to divestiture, transfer, or continuation of any of the CIDI's foreign branches, subsidiaries, and offices in resolution, including with respect to retention or termination of personnel and transfer or continuation of licenses or authorizations. (22) Management information systems; software licenses; intellectual property. A full resolution submission must: (i) Provide a detailed inventory and description of the key management information systems and applications, including systems and applications for risk management, accounting, and financial and regulatory reporting, as well as those used to provide the information required to be provided in the full resolution submission, used by [[Page 56655]] or for the benefit of the CIDI and CIDI subsidiaries. For each system or application the description must identify the legal owner or licensor, the key personnel needed to support and operate the system or application, the system or application's use and function, any core business line that uses the system or application, its physical location (if any), any related third party contracts or service-level agreements, any related software or systems licenses, and any other related intellectual property. (ii) For any key management information system or application for which the CIDI or CIDI subsidiary is not the owner or licensor, describe both any obstacles to maintaining access to such system or application when the CIDI is in resolution, and approaches for maintaining access to such system or application when the CIDI is in resolution, including the projected costs of maintaining access when the CIDI is in resolution. (iii) Describe the capabilities of the CIDI's processes and systems to collect, maintain, and produce the information and other data underlying the full resolution submission. Identify all relevant management information systems and applications, and describe how the information is managed and maintained. Describe any deficiencies, gaps, or weaknesses in such capabilities and the actions the CIDI intends to take to address promptly any such deficiencies, gaps, or weaknesses, and the time frame for implementing such actions. (23) Digital services and electronic platforms. A full resolution submission must: (i) Describe all digital services and electronic platforms offered to customers to support banking transactions for retail or business customers. (ii) Identify whether such services and platforms are provided by the CIDI, a CIDI subsidiary, a parent company affiliate, or a third party, and which of them owns the related intellectual property or is the licensee. (iii) Discuss how these services or platforms are significant to the operations or customer relationships of the CIDI, and their impact on franchise value and depositor behavior. (24) Communications playbook. A full resolution submission must include a communications playbook that describes the CIDI's current communication capabilities, including capabilities to communicate with personnel, customers, and counterparties, and how those capabilities could be used from the point of the CIDI's failure through the CIDI's resolution. The description must: (i) Identify categories of key stakeholders addressed in the CIDI's communications plans including, counterparties, domestic and foreign regulatory authorities, customers, and personnel. (ii) Identify communication channels for each key stakeholder category and describe the logistics and limitations of the use of each communication channel. (iii) Describe the procedures to generate contact lists for each key stakeholder category and estimate the time required to generate each list. (iv) Describe procedures for coordinating communications across key stakeholder categories and communications channels, including cross- border communications, if any. (v) Identify key personnel that are responsible for the CIDI's crisis communications across key stakeholder categories and communications channels and the functional and legal entity organization of relevant communications activities. (25) Corporate governance. A full resolution submission must include a detailed description of: how resolution planning is integrated into the corporate governance structure and processes of the CIDI; the CIDI's policies, procedures, and internal controls governing preparation and approval of the full resolution submission; and the identity and position of the senior management official of the CIDI who is primarily responsible and accountable for the development, maintenance, and filing of the full resolution submission, and for the CIDI's compliance with this section. (26) CIDI's assessment of the full resolution submission. A full resolution submission must describe the nature, extent, and results of any contingency planning or similar exercise conducted by the CIDI since the date of the most recently filed full resolution submission to assess the viability of the identified strategy (if required) or improve any capabilities described in the full resolution submission. (27) Any other material factor. A full resolution submission must identify and discuss any other material factor that may impede the resolution of the CIDI. (e) Interim supplement. Each CIDI must submit interim supplements containing current and accurate information regarding the specified full resolution submission content items in accordance with this paragraph (e). (1) Submission date. (i) Each interim supplement must be submitted to the FDIC on or before the anniversary date (or first business day thereafter) of its most recent full resolution submission, or its most recent interim supplement, unless the CIDI has received written notice of a different date from the FDIC. (ii) Notwithstanding paragraph (e)(1)(i) of this section, with respect to all CIDIs, no interim supplement is required in the calendar year in which a full resolution submission is made and, with respect to a biennial filer, no interim supplement is required in the calendar year in which it submits a DFA resolution plan. (2) Content items for interim supplement. Each CIDI must submit interim supplements that address each of the following content items: (i) A description of all material changes resulting from an extraordinary event; (ii) A description of each material change applicable to interim supplement content items since the submission of its prior full resolution submission (or affirmation that no such material change has occurred); (iii) The content required under paragraph (d)(4) of this section; (iv) From paragraph (d)(7) of this section, the content required under paragraph (d)(7)(i), the first sentence of paragraph (d)(7)(ii), the first sentence of paragraph (d)(7)(iii), the first sentence of paragraph (d)(7)(iv), and the first two sentences of paragraph (d)(7)(v) of this section; (v) From paragraph (d)(8) of this section, the content required under paragraphs (d)(8)(i) and (iv) of this section; (vi) From paragraph (d)(9) of this section, the content required under paragraph (d)(9)(i) of this section; (vii) From paragraph (d)(10) of this section, the content required under paragraphs (d)(10)(i) through (iii) of this section; (viii) From paragraph (d)(11) of this section, the content required under the first sentence of paragraph (d)(11) of this section; (ix) The content required under paragraph (d)(13) of this section, excluding the requirement to ``map those exposures to core business lines, franchise components and material asset portfolios''; (x) The content required under paragraph (d)(15) of this section; (xi) From paragraph (d)(16) of this section, the content required under the first sentence of paragraph (d)(16) of this section; (xii) From paragraph (d)(17) of this section, the content required under the first sentence of paragraph (d)(17)(ii) of this section; (xiii) The content required under paragraph (d)(21) of this section; [[Page 56656]] (xiv) From paragraph (d)(22) of this section, the content required under paragraph (d)(22)(i) of this section; and (xv) Any other content element expressly identified for the next interim supplement by the FDIC. (f) Credibility; review of full resolution submissions; engagement; capabilities testing--(1) Credibility criteria. Each full resolution submission must be credible. The FDIC may, at its sole discretion, determine that the full resolution submission is not credible if: (i) The identified strategy would not provide timely access to insured deposits, maximize value from the sale or disposition of assets, minimize any losses realized by creditors of the CIDI in resolution, and address potential risk of adverse effects on U.S. economic conditions or financial stability; or (ii) The information and analysis in the full resolution submission is not supported with observable and verifiable capabilities and data and reasonable projections or the CIDI fails to comply in any material respect with the requirements of paragraph (d) or (e) of this section. (2) Resolution submission review and credibility determination. The FDIC will review the full resolution submission in consultation with the appropriate Federal banking agency for the CIDI and its parent company. If, after consultation with the appropriate Federal banking agency for the CIDI, the FDIC determines that the full resolution submission of a CIDI is not credible pursuant to paragraph (f)(1) of this section, the FDIC must notify the CIDI in writing of such determination. Any notice provided under this paragraph (f)(2) must include a description of the material weaknesses in the full resolution submission identified by the FDIC that resulted in the determination that the full resolution submission is not credible. A material weakness is an aspect of a CIDI's full resolution submission that individually or in conjunction with other aspects fails to meet the credibility criteria described in paragraph (f)(1). (3) Resubmission of a full resolution submission. Within 90 days of receiving a notice issued by the FDIC pursuant to paragraph (f)(2) of this section that the full resolution submission is not credible based on identified material weaknesses, or such shorter or longer period as the FDIC may determine, a CIDI must submit a revised full resolution submission, or such other information or material specified by the FDIC, to the FDIC that addresses any material weaknesses identified by the FDIC and discusses in detail the revisions made to address such material weaknesses. (4) Failure regarding resubmission. If the CIDI fails to submit the revised full resolution submission within the required time-period under paragraph (f)(3) of this section or the FDIC determines that the revised full resolution submission fails to address adequately the material weaknesses identified in the notice issued by the FDIC, the FDIC may take enforcement action against the CIDI in accordance with paragraph (j) of this section. (5) Significant findings. The FDIC may also identify significant findings and other observations after review of a full resolution submission. A significant finding is a weakness or gap that raises questions about the credibility of a CIDI's full resolution submission but does not rise to the level of a material weakness. If a significant finding is not satisfactorily explained or addressed before or in the CIDI's next full resolution submission, it may be found to be a material weakness in the CIDI's next full resolution submission. The FDIC may require a project plan with identified milestones to assure that the significant finding is timely addressed. The FDIC may identify an aspect of a CIDI's full resolution submission as a material weakness even if such aspect was not identified as a significant finding in an earlier full resolution submission. The FDIC must notify the CIDI in writing of any significant findings that are identified in the full resolution submission. (6) Engagement. Each CIDI must provide the FDIC such information and access to such personnel of the CIDI as the FDIC in its discretion determines is relevant to any of the provisions of this section (``engagement''). Personnel made available must have sufficient expertise and responsibility to address the informational and data requirements of the engagement. Engagement between the CIDI and the FDIC may be required at any time. This engagement may include the FDIC requiring the CIDI to provide information or data to support the content items required by paragraph (d) or (e) of this section, other information related to a group A CIDI's identified strategy, or, for any CIDI, other resolution options being considered by the FDIC. The FDIC will provide the CIDI with timely notification of the scope of any engagement before such engagement begins and will notify the CIDI on the conclusion of the engagement. (7) Capabilities testing. At the discretion of the FDIC, the FDIC may require any CIDI to demonstrate the CIDI's capabilities described, or required to be described, in the full resolution submission, including the ability to provide the information, data and analysis underlying the full resolution submission (``capabilities testing''). The CIDI must perform such capabilities testing promptly, and provide the results in a time frame and format acceptable to the FDIC. Capabilities testing may be included in connection with full resolution submission review under paragraph (f)(2) of this section or any engagement under paragraph (f)(6) of this section. The FDIC will provide the CIDI with timely notification of the scope of any capabilities testing before such capabilities testing begins and will notify the CIDI on the conclusion of the capabilities testing. (g) No limiting effect on FDIC. No full resolution submission or interim supplement provided pursuant to this section will be binding on the FDIC as supervisor, deposit insurer, or receiver for a CIDI or otherwise require the FDIC to act in conformance with such full resolution submission or interim supplement. (1) Financial information. The full resolution submission or interim supplement must, to the greatest extent possible, use financial information as of the most recent fiscal year-end for which the CIDI has financial statements or, if the use of financial information as of a more recent date as of which the CIDI has financial statements would more accurately reflect the operations of the CIDI on the date of the submission, financial information as of that more recent date. (2) Indexing of information and analysis to full resolution submission and interim supplement content requirements. A full resolution submission or interim supplement must include an index of each content requirement in paragraph (d) or (e)(2) of this section, as applicable, required to be included in that full resolution submission or interim supplement, as applicable, to every instance of its location in the full resolution submission, or interim supplement, as applicable. (3) Combined full resolution submission or interim supplements by affiliated CIDIs. CIDIs that are affiliates may submit a single, combined full resolution submission or interim supplement, but only if all affiliated CIDIs submitting the combined full resolution submission or interim supplement are within the same CIDI group, whether group A or group B. The combined full resolution submission or interim supplement must satisfy the content requirements for each CIDI's full [[Page 56657]] resolution submission or interim supplement, as applicable, and the FDIC must be able to readily identify the portions of a combined full resolution submission or interim supplement that comprise each CIDI's full resolution submission or interim supplement. (h) Form of full resolution submissions; confidential treatment of full resolution submissions and interim supplements. (1) Each full resolution submission must be divided into a Public Section and a Confidential Section. Each CIDI must segregate and separately identify the Public Section from the Confidential Section. The Public Section must consist of a summary overview of the full resolution submission that describes the business of the CIDI. For each CIDI, the Public Section must include, to the extent material to the CIDI's full resolution submission: (i) The names of material entities; (ii) A description of core business lines; (iii) Consolidated financial information regarding assets, liabilities, capital and major funding sources; (iv) A description of derivative activities and hedging activities; (v) A list of PCS service providers; (vi) A description of foreign operations; (vii) The identities of material supervisory authorities; (viii) The identities of the principal officers; (ix) A description of the corporate governance structure and processes related to resolution planning; (x) A description of material management information systems; and (xi) For group A CIDIs only, a description, at a high level, of the CIDI's identified strategy. (2) The confidentiality of full resolution submissions and interim supplements must be determined in accordance with applicable exemptions under the Freedom of Information Act (5 U.S.C. 552(b)) and the FDIC's Disclosure of Information Rules (12 CFR part 309). (3) Any CIDI submitting a full resolution submission, interim supplement, or related materials pursuant to this section that desires confidential treatment of the information submitted pursuant to 5 U.S.C. 552(b)(4) and 12 CFR part 309 and related policies may file a request for confidential treatment in accordance with those rules. (4) To the extent permitted by law, information comprising the Confidential Section of a full resolution submission and the information comprising an interim supplement will be treated as confidential. (5) To the extent permitted by law, the submission of any non- publicly available data or information under this section will not constitute a waiver of, or otherwise affect, any privilege arising under Federal or State law (including the rules of any Federal or State court) to which the data or information is otherwise subject. Privileges that apply to full resolution submissions and related materials are protected pursuant to 12 U.S.C. 1828(x). (i) Extensions and exemptions--(1) Extension. Notwithstanding the general requirements of paragraph (c) of this section, on a case-by- case basis, the FDIC may extend, on its own initiative or upon written request, any time frame or deadline of this section. (2) Waiver. The FDIC may, on its own initiative or upon written request, exempt a CIDI from one or more of the requirements of this section. (j) Enforcement. Violating any provision of this section constitutes a violation of a regulation and may subject the CIDI to enforcement actions under 12 U.S.C. 1818, including paragraph (t) thereunder. Federal Deposit Insurance Corporation. By order of the Board of Directors. Dated at Washington, DC, on June 20, 2024. James P. Sheesley, Assistant Executive Secretary. [FR Doc. 2024-13982 Filed 7-8-24; 8:45 am] BILLING CODE 6714-01-P

usgpo

2024-10-08T13:27:03.748397

FR

FR-2024-07-09/FR-2024-07-09-ReaderAids

Federal Register Volume 89 Issue 131 (July 9, 2024)

United States National Archives and Records Administration Office of the Federal Register

[Federal Register Volume 89, Number 131 (Tuesday, July 9, 2024)] [Reader Aids] [Pages i-iii] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] ___________________________________________________________ FEDERAL REGISTER Federal Register / Vol. 89, No. 131 / Tuesday, July 9, 2024 [[Page i]] Tuesday, July 9, 2024 Pages 56189-56658 OFFICE OF THE FEDERAL REGISTER 9 [[Page ii]] The FEDERAL REGISTER (ISSN 0097-6326) is published daily, Monday through Friday, except official holidays, by the Office of the Federal Register, National Archives and Records Administration, under the Federal Register Act (44 U.S.C. Ch. 15) and the regulations of the Administrative Committee of the Federal Register (1 CFR Ch. I). The Superintendent of Documents, U.S. Government Publishing Office, is the exclusive distributor of the official edition. Periodicals postage is paid at Washington, DC. The FEDERAL REGISTER provides a uniform system for making available to the public regulations and legal notices issued by Federal agencies. These include Presidential proclamations and Executive Orders, Federal agency documents having general applicability and legal effect, documents required to be published by act of Congress, and other Federal agency documents of public interest. Documents are on file for public inspection in the Office of the Federal Register the day before they are published, unless the issuing agency requests earlier filing. For a list of documents currently on file for public inspection, see www.federalregister.gov. The seal of the National Archives and Records Administration authenticates the Federal Register as the official serial publication established under the Federal Register Act. Under 44 U.S.C. 1507, the contents of the Federal Register shall be judicially noticed. The Federal Register is published in paper and on 24x microfiche. 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We cannot respond to specific inquiries. Reference questions. Send questions and comments about the Federal Register system to: [email protected] The Federal Register staff cannot interpret specific documents or regulations. ========================================================== FEDERAL REGISTER PAGES AND DATE, JULY ---------------------------------------------------------- 54329-54718............................................. 1 54719-55016............................................. 2 55017-55494............................................. 3 55495-55882............................................. 5 55883-56188............................................. 8 56189-56658............................................. 9 ---------------------------------------------------------- CFR PARTS AFFECTED DURING JULY ---------------------------------------------------------- At the end of each month the Office of the Federal Register publishes separately a List of CFR Sections Affected (LSA), which lists parts and sections affected by documents published since the revision date of each title. 2 CFR Proposed Rules: Ch. IV........................................54372, 55114 602..................................................54369 3 CFR Proclamations: 10780................................................54329 10781................................................55883 Administrative Orders: Memorandums: Memorandum of June 28, 2024..........................55017 7 CFR 966..................................................55021 1416.................................................54331 Proposed Rules: 1210.................................................56234 9 CFR 500..................................................55023 10 CFR Ch. I................................................55885 612..................................................54336 Proposed Rules: 51...................................................54727 12 CFR 360..................................................56620 1002.................................................55024 1092.................................................56028 Proposed Rules: 30...................................................55114 14 CFR 39.........56189, 56191, 56193, 56195, 56198, 56203, 56205 71..............................54339, 55495, 55497, 56207 91...................................................55500 97............................................54340, 54342 Proposed Rules: 39.........54393, 54737, 55120, 55123, 55126, 55128, 55525 71............................................54739, 54741 15 CFR 744...........................................55033, 55036 17 CFR Proposed Rules: 40...................................................55528 18 CFR Proposed Rules: 39...................................................55529 21 CFR 180..................................................55039 26 CFR 1....................................................56480 31...................................................56480 40...................................................55507 47...................................................55507 58...................................................55044 301..................................................56480 Proposed Rules: 31...................................................54742 301..................................................54746 28 CFR 15...................................................55511 20...................................................54344 29 CFR 1630.................................................55520 29 CFR 4044.................................................54347 31 CFR 1010.................................................55050 Proposed Rules: 850..................................................55846 1010.................................................55428 1020.................................................55428 1021.................................................55428 1022.................................................55428 1023.................................................55428 1024.................................................55428 1025.................................................55428 1026.................................................55428 1027.................................................55428 1028.................................................55428 1029.................................................55428 1030.................................................55428 33 CFR 100...........................................55885, 56207 117..................................................54719 165.......54348, 54350, 54351, 54353, 54355, 54356, 54720, 55058, 55886 Proposed Rules: 100...........................................55131, 55133 34 CFR Ch. III.......................................56211, 56217 36 CFR 13...................................................55059 37 CFR 210..................................................56586 40 CFR 52................54358, 54362, 55888, 55891, 56222, 56231 60............................................55521, 55522 63............................................55522, 55684 180..................................................54721 [[Page ii]] Proposed Rules: 52........54396, 54748, 54753, 55136, 55140, 55896, 55901, 56237 180..................................................54398 41 CFR 102-76...............................................55071 42 CFR 414..................................................54662 425..................................................54662 495..................................................54662 Proposed Rules: 410..................................................55760 413..................................................55760 424..................................................55312 425..................................................55168 483..................................................55312 484..................................................55312 494..................................................55760 512..................................................55760 43 CFR 3830.................................................54364 44 CFR Proposed Rules: 206..................................................54966 45 CFR 171..................................................54662 47 CFR 73...................................................55078 Proposed Rules: 2.............................................54402, 55530 4....................................................55180 54...................................................55542 73............................................55911, 56250 48 CFR 502..................................................55523 512..................................................55084 527..................................................55084 532...........................................55084, 55086 536..................................................55084 541..................................................55084 552...........................................55084, 55086 Proposed Rules: 604..................................................54369 652..................................................54369 49 CFR 23...................................................55087 26...................................................55087 Proposed Rules: 572..................................................56251 50 CFR 17...................................................55090 229..................................................55523 300..................................................54724 Proposed Rules: 17............................................54758, 56253 217..................................................55180 [[Page iii]] __________________________________________________________ LIST OF PUBLIC LAWS __________________________________________________________ Note: No public bills which have become law were received by the Office of the Federal Register for inclusion in today's List of Public Laws. Last List July 5, 2024 __________________________________________________________ Public Laws Electronic Notification Service (PENS) __________________________________________________________ PENS is a free email notification service of newly enacted public laws. To subscribe, go to https:// portalguard.gsa.gov/_layouts/PG/register.aspx. Note: This service is strictly for email notification of new laws. The text of laws is not available through this service. PENS cannot respond to specific inquiries sent to this address.

usgpo

2024-10-08T13:27:03.762116

FR

FR-2024-08-16/FR-2024-08-16-FrontMatter

Federal Register Volume 89 Issue 159 (August 16, 2024)

United States National Archives and Records Administration Office of the Federal Register

[Federal Register Volume 89, Number 159 (Friday, August 16, 2024)] [Contents] [Pages III-IX] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] CONTENTS Federal Register / Vol. 89, No. 159 / Friday, August 16, 2024 / Contents [[Page iii]] Agency for Toxic Substances and Disease Registry NOTICES Agency Information Collection Activities; Proposals, Submissions, and Approvals, 66722-66723 Agricultural Marketing Service PROPOSED RULES Increased Assessment Rate: Walnuts Grown in California, 66639-66641 Agriculture Department See Agricultural Marketing Service See Animal and Plant Health Inspection Service See Food Safety and Inspection Service See Forest Service See Natural Resources Conservation Service PROPOSED RULES Regulatory Agenda: Semiannual Regulatory Agenda, 66772-66777 Air Force Department NOTICES Agency Information Collection Activities; Proposals, Submissions, and Approvals, 66698-66699 Animal and Plant Health Inspection Service RULES User Fees for Agricultural Quarantine and Inspection Services; Correction, 66543 NOTICES Environmental Impact Statements; Availability, etc.: Outbreak Response Activities for Highly Pathogenic Avian Influenza Outbreaks in Poultry in the United States and U.S. Territories, 66668-66669 Army Department NOTICES Agency Information Collection Activities; Proposals, Submissions, and Approvals, 66700 Record of Decision: Legislative Environmental Impact Statement Regarding Training and Public Land Withdrawal Extension, Fort Irwin, CA, 66699- 66700 Bureau of Consumer Financial Protection PROPOSED RULES Regulatory Agenda: Semiannual Regulatory Agenda, 66900-66901 Bureau of the Fiscal Service NOTICES Agency Information Collection Activities; Proposals, Submissions, and Approvals: Subscription for Purchase and Issue of U.S. Treasury Securities-- State and Local Government Series, 66760 Centers for Disease Control and Prevention NOTICES Agency Information Collection Activities; Proposals, Submissions, and Approvals, 66723-66727 Hearings, Meetings, Proceedings, etc., 66727 Commerce Department See Industry and Security Bureau See International Trade Administration See National Oceanic and Atmospheric Administration PROPOSED RULES Regulatory Agenda: Semiannual Regulatory Agenda, 66780-66794 Committee for Purchase From People Who Are Blind or Severely Disabled NOTICES Procurement List; Additions and Deletions, 66697-66698 Commodity Futures Trading Commission PROPOSED RULES Regulatory Agenda: Semiannual Regulatory Agenda, 66898 NOTICES Meetings; Sunshine Act, 66698 Consumer Product Safety Commission PROPOSED RULES Regulatory Agenda: Semiannual Regulatory Agenda, 66904-66910 NOTICES Meetings; Sunshine Act, 66698 Corporation for National and Community Service RULES AmeriCorps State and National Updates; Correction, 66614-66615 Defense Department See Air Force Department See Army Department PROPOSED RULES Regulatory Agenda: Semiannual Regulatory Agenda, 66796-66797, 66892-66895 NOTICES Agency Information Collection Activities; Proposals, Submissions, and Approvals, 66700-66703 Education Department NOTICES Privacy Act; Systems of Records, 66704-66707 Employment and Training Administration NOTICES Agency Information Collection Activities; Proposals, Submissions, and Approvals: Short-Time Compensation Grants, 66740-66741 Standard Job Corps Contractor Information Gathering, 66741-66742 Energy Department PROPOSED RULES Regulatory Agenda: Semiannual Regulatory Agenda, 66800-66804 NOTICES Hearings, Meetings, Proceedings, etc.: Environmental Management Site-Specific Advisory Board, Nevada, 66707-66708 [[Page iv]] Environmental Protection Agency RULES Air Quality State Implementation Plans; Approvals and Promulgations: Findings of Failure to Submit State Implementation Plan Revisions for Nonattainment Areas for the 2010 1-Hour Primary Sulfur Dioxide NAAQS, 66603-66607 Indiana; Ozone SIP Modifications due to the Municipal Solid Waste Landfill Update, 66607-66609 Nebraska; Revisions to Title 129 of the Nebraska Administrative Code; Nebraska Air Quality Regulations, 66609-66612 Pennsylvania; Reasonably Available Control Technology for Volatile Organic Compounds under the 2008 Ozone NAAQS, 66599-66603 National Priorities List: Deletion, 66612-66614 PROPOSED RULES Air Plan Approval: West Virginia; Revision to the State Operating Permits Program under Title V of the Clean Air Act to Revise 45 Code of State Rules 33; Acid Rain Provisions and Permits, 66662- 66665 Air Quality State Implementation Plans; Approvals and Promulgations: Delaware; 2022 Amendments to the Delaware's Ambient Air Quality Standards, 66659-66661 Indiana; Ozone SIP Modifications Due to the Municipal Solid Waste Landfill Update, 66659 Indiana; Update to Code of Federal Regulations References, 66661- 66662 National Priorities List: Deletion, 66665-66667 Regulatory Agenda: Semiannual Regulatory Agenda, 66866-66875 NOTICES Agency Information Collection Activities; Proposals, Submissions, and Approvals: Pollution Prevention Recognition Program, 66708 Class Determination 1-24: Confidentiality of Certain Business Information Concerning Contractors, Prospective Contractors, and Subcontractors, 66709-66710 Environmental Impact Statements; Availability, etc., 66710-66711 Hearings, Meetings, Proceedings, etc.: Good Neighbor Environmental Board, 66710 Proposed Settlement Agreement, Stipulation, Order, and Judgment, etc.: Endangered Species Act and Administrative Procedure Act Claims, 66712-66713 Requests for Nominations: 2025 Clean Air Excellence Awards Program, 66712 Office of Research and Development's Board of Scientific Counselors Advisory Committee, 66711-66712 Equal Employment Opportunity Commission PROPOSED RULES Official Time in the Federal Equal Employment Opportunity Process; Withdrawal, 66656-66658 NOTICES Agency Information Collection Activities; Proposals, Submissions, and Approvals, 66714-66718 Export-Import Bank NOTICES Agency Information Collection Activities; Proposals, Submissions, and Approvals: Application for Short-Term Letter of Credit Export Credit Insurance Policy, 66719 Co-Financing with Foreign Export Credit Agency, 66720 Notice of Claim Proof of Loss Medium-Term Insurance, 66718-66719 Notice of Claim Proof of Loss Short-Term Insurance, 66720 Federal Aviation Administration RULES Airspace Designations and Reporting Points: Fort Liberty, NC; Correction, 66545-66546 International Aviation Safety Assessment Program, 66546 Special Condition: Textron Aviation Inc. (Textron) Model 560XL Airplane; Hydrophobic Windshield Coatings, 66543-66545 PROPOSED RULES Airworthiness Directives: Embraer S.A. Airplanes, 66642-66645 International Aviation Safety Assessment Program, 66645-66647 Federal Communications Commission RULES Direct Broadcast Satellite, Satellite Services, and 17 GHz: Updates to Forms 312 and 312-R for the International Communications Filing System; Corrections to 17 GHz Report and Order; Correction, 66615-66616 PROPOSED RULES Regulatory Agenda: Semiannual Regulatory Agenda, 66912-66960 Federal Election Commission NOTICES Meetings; Sunshine Act, 66720-66721 Federal Maritime Commission NOTICES Complaint: Triple L Global, LLC, Complainant v. SLI, Inc. d/b/a Sealink International, Respondent, 66721 Federal Reserve System PROPOSED RULES Regulatory Agenda: Semiannual Regulatory Agenda, 66962-66963 Federal Trade Commission RULES Horseracing Integrity and Safety Authority Oversight, 66546-66552 PROPOSED RULES Regulatory Agenda: Semiannual Regulatory Agenda, 66966-66967 Fish and Wildlife Service NOTICES Permits; Applications, Issuances, etc.: Foreign Endangered Species, 66734-66735 [[Page v]] Food and Drug Administration RULES Medical Devices: General Hospital and Personal Use Devices; Classification of the Intravenous Catheter Force-Activated Separation Device, 66558-66560 Immunology and Microbiology Devices; Classification of the Device To Detect and Identify Nucleic Acid Targets Including SARS- CoV-2 in Respiratory Specimens, 66552-66556 Immunology and Microbiology Devices; Classification of the Device to Detect and Identify Selected Microbial Agents That Cause Acute Febrile Illness, 66556-66558 PROPOSED RULES Submission of Import Data in the Automated Commercial Environment for Certain Tobacco Products, 66647-66655 NOTICES Guidance: Voluntary Sodium Reduction Goals: Target Mean and Upper Bound Concentrations for Sodium in Commercially Processed, Packaged, and Prepared Foods (Edition 2), 66727-66729 Food Safety and Inspection Service NOTICES Hearings, Meetings, Proceedings, etc.: National Advisory Committee on Meat and Poultry Inspection, 66669- 66671 Forest Service NOTICES Forest Service Manual 2470, Silvicultural Practices, 66671-66672 Newspapers Used for Publication of Legal Notices: Malheur National Forest, Pacific Northwest Region, Oregon, 66672 General Services Administration PROPOSED RULES Regulatory Agenda: Semiannual Regulatory Agenda, 66878-66882, 66892-66895 Gulf Coast Ecosystem Restoration Council NOTICES Proposed Subaward under a Council-Selected Restoration Component Award, 66721-66722 Health and Human Services Department See Agency for Toxic Substances and Disease Registry See Centers for Disease Control and Prevention See Food and Drug Administration See Health Resources and Services Administration See National Institutes of Health PROPOSED RULES Regulatory Agenda: Semiannual Regulatory Agenda, 66806-66819 Health Resources and Services Administration NOTICES Hearings, Meetings, Proceedings, etc.: National Advisory Committee on Rural Health and Human Services, 66729-66730 Homeland Security Department See U.S. Citizenship and Immigration Services PROPOSED RULES Regulatory Agenda: Semiannual Regulatory Agenda, 66822-66829 Indian Affairs Bureau PROPOSED RULES Hearings, Meetings, Proceedings, etc.: Self-Governance PROGRESS Act Negotiated Rulemaking Committee, 66655-66656 NOTICES Helping Expedite and Advance Responsible Tribal Homeownership Act Approval: Forest County Potawatomi Community, WI Leasing Ordinance, 66737- 66738 Liquor Control Ordinance: Tejon Indian Tribe, 66735-66737 Industry and Security Bureau NOTICES Denial of Export Privileges: Kenan L'Homme, 66674-66675 Marco Antonio Peralta-Vega, 66675-66676 Nicolas Ayala, 66676-66677 Rami Najm Ghanem, 66677-66678 Yi-Chi Shih, 66676 Interior Department See Fish and Wildlife Service See Indian Affairs Bureau See Surface Mining Reclamation and Enforcement Office PROPOSED RULES Regulatory Agenda: Semiannual Regulatory Agenda, 66832-66834 Internal Revenue Service RULES Elective Payment of Applicable Credits; Correction, 66562-66563 Gross Proceeds and Basis Reporting by Brokers and Determination of Amount Realized and Basis for Digital Asset Transactions; Correction, 66563 Increased Amounts of Credit or Deduction for Satisfying Certain Prevailing Wage and Registered Apprenticeship Requirements; Correction, 66560-66562 International Trade Administration NOTICES Antidumping or Countervailing Duty Investigations, Orders, or Reviews: Certain Uncoated Paper from Brazil, 66680-66681 Forged Steel Fluid End Blocks from Italy, 66678-66683 Stainless Steel Sheet and Strip in Coils from Taiwan, 66683-66686 Sales at Less Than Fair Value; Determinations, Investigations, etc.: Ferrosilicon from Brazil, Kazakhstan, and Malaysia, 66678 International Trade Commission NOTICES Antidumping or Countervailing Duty Investigations, Orders, or Reviews: Brass Rod from Israel, 66738-66739 Investigations; Determinations, Modifications, and Rulings, etc.: Aluminum Extrusions from China, Colombia, et al., 66738 [[Page vi]] Justice Department PROPOSED RULES Regulatory Agenda: Semiannual Regulatory Agenda, 66836 NOTICES Agency Information Collection Activities; Proposals, Submissions, and Approvals, 66739-66740 Labor Department See Employment and Training Administration RULES Acquisition Regulation, 66616-66629 PROPOSED RULES Regulatory Agenda: Semiannual Regulatory Agenda, 66838-66845 NOTICES Agency Information Collection Activities; Proposals, Submissions, and Approvals: Pension Benefit Statement, 66742-66743 Tax Performance System, 66743 Maritime Administration NOTICES Environmental Impact Statements; Availability, etc.: Texas GulfLink LLC, Deepwater Port License Application, 66757-66760 National Aeronautics and Space Administration PROPOSED RULES Regulatory Agenda: Semiannual Regulatory Agenda, 66884-66885, 66892-66895 National Archives and Records Administration NOTICES Records Management: General Records Schedule; Transmittal 36, 66743-66744 National Highway Traffic Safety Administration RULES Record Retention Requirement, 66629-66633 National Institutes of Health NOTICES Hearings, Meetings, Proceedings, etc.: Center for Scientific Review, 66731 Eunice Kennedy Shriver National Institute of Child Health and Human Development, 66730 National Institute of Allergy and Infectious Diseases, 66730 National Institute of Dental and Craniofacial Research, 66731-66732 Licenses; Exemptions, Applications, Amendments, etc.: Dimethyl Synaptamide for the Treatment of Autoimmune Disorders and Inflammatory Diseases, 66730-66731 National Oceanic and Atmospheric Administration RULES Fisheries of the Exclusive Economic Zone off Alaska: Amendment 113 to the Fishery Management Plan for the Groundfish of the Gulf of Alaska; Central Gulf of Alaska Rockfish Program Adjustments, 66633-66638 NOTICES Agency Information Collection Activities; Proposals, Submissions, and Approvals: Application for Commercial Fisheries Authorization under of the Marine Mammal Protection Act, 66689 Coastal Ocean Program Grants Proposal Application Package, 66688- 66689 Coral Reef Conservation Program, 66695-66696 Environmental Compliance Questionnaire for Federal Funding Opportunity Applicants, 66692-66693 Socioeconomics of Coral Reef Conservation, U.S. Virgin Islands 2025 Survey, 66686-66687 Southeast Region Logbook Family of Forms, 66693-66694 Final Management Plan: Apalachicola National Estuarine Research Reserve, 66687-66688 Hearings, Meetings, Proceedings, etc.: New England Fishery Management Council, 66694-66695 Pacific Fishery Management Council, 66696 Modification to the Special Use Permit Category for the Continued Presence of Commercial Submarine Cables within the National Marine Sanctuary System, 66689-66692 Permits; Applications, Issuances, etc.: Marine Mammals and Endangered Species, 66696-66697 Natural Resources Conservation Service NOTICES Request for Information: Sustainability Targets in Agriculture to Incentivize Natural Solutions Act, 66672-66674 Nuclear Regulatory Commission PROPOSED RULES Regulatory Agenda: Semiannual Regulatory Agenda, 66970-66973 NOTICES Meetings; Sunshine Act, 66744-66745 Postal Regulatory Commission NOTICES New Postal Products, 66745-66746 Postal Service RULES Parcel Processing Categories Simplification, 66580-66599 Rules of Procedure before the Judicial Officer; Correction, 66599 Regulatory Information Service Center PROPOSED RULES Regulatory Agenda: Semiannual Regulatory Agenda; Regulatory Plan, 66764-66769 Securities and Exchange Commission PROPOSED RULES Regulatory Agenda: Semiannual Regulatory Agenda, 66976-66983 NOTICES Meetings; Sunshine Act, 66746 Self-Regulatory Organizations; Proposed Rule Changes: Cboe BZX Exchange, Inc., 66746-66748 Cboe EDGX Exchange, Inc., 66748-66750 Fixed Income Clearing Corp., 66746 Selective Service System RULES Freedom of Information Act, 66568-66579 Small Business Administration PROPOSED RULES Regulatory Agenda: Semiannual Regulatory Agenda, 66888-66890 [[Page vii]] NOTICES Disaster Declaration: Arkansas, 66753 Florida, 66752 Iowa; Public Assistance Only, 66752 Texas; Public Assistance Only, 66752-66753 Secondary Market Program, 66750-66751 Small Business Investment Company Licensing and Examination Fees Inflation Adjustment, 66751-66752 State Department NOTICES Agency Information Collection Activities; Proposals, Submissions, and Approvals: Student and Exchange Visitor Information System, 66753-66754 Hearings, Meetings, Proceedings, etc.: Industry Advisory Group, 66754 Surface Mining Reclamation and Enforcement Office RULES Pennsylvania Abandoned Mine Land Reclamation Program, 66563-66567 Surface Transportation Board PROPOSED RULES Regulatory Agenda: Semiannual Regulatory Agenda, 66986 NOTICES Hearings, Meetings, Proceedings, etc.: Passenger Rail Advisory Committee, 66754 Trade Representative, Office of United States NOTICES 2024 Review of Notorious Markets for Counterfeiting and Piracy, 66754- 66756 Transportation Department See Federal Aviation Administration See Maritime Administration See National Highway Traffic Safety Administration PROPOSED RULES Regulatory Agenda: Semiannual Regulatory Agenda, 66848-66855 Treasury Department See Bureau of the Fiscal Service See Internal Revenue Service See United States Mint PROPOSED RULES Regulatory Agenda: Semiannual Regulatory Agenda, 66858-66864 U.S. Citizenship and Immigration Services NOTICES Agency Information Collection Activities; Proposals, Submissions, and Approvals: Change of Address, 66733-66734 Petition for Amerasian, Widow(er), or Special Immigrant, 66732- 66733 United States Mint NOTICES Hearings, Meetings, Proceedings, etc.: Citizens Coinage Advisory Committee, 66761 Request for Membership Application: Citizens Coinage Advisory Committee, 66760-66761 Veterans Affairs Department RULES Veteran Readiness and Employment Program: Delegation of Concurrence for Entitlement Extensions, 66579-66580 ----------------------------------------------------------------------- Separate Parts In This Issue Part II Regulatory Information Service Center, 66764-66769 Part III Agriculture Department, 66772-66777 Part IV Commerce Department, 66780-66794 Part V Defense Department, 66796-66797 Part VI Energy Department, 66800-66804 Part VII Health and Human Services Department, 66806-66819 Part VIII Homeland Security Department, 66822-66829 Part IX Interior Department, 66832-66834 Part X Justice Department, 66836 Part XI Labor Department, 66838-66845 Part XII Transportation Department, 66848-66855 Part XIII Treasury Department, 66858-66864 Part XIV Environmental Protection Agency, 66866-66875 Part XV General Services Administration, 66878-66882 Part XVI National Aeronautics and Space Administration, 66884-66885 Part XVII Small Business Administration, 66888-66890 Part XVIII Defense Department, 66892-66895 General Services Administration, 66892-66895 National Aeronautics and Space Administration, 66892-66895 Part XIX Commodity Futures Trading Commission, 66898 Part XX Bureau of Consumer Financial Protection, 66900-66901 [[Page viii]] ----------------------------------------------------------------------- Reader Aids Consult the Reader Aids section at the end of this issue for phone numbers, online resources, finding aids, and notice of recently enacted public laws. To subscribe to the Federal Register Table of Contents electronic mailing list, go to https://public.govdelivery.com/accounts/USGPOOFR/subscriber/ new, enter your e-mail address, then follow the instructions to join, leave, or manage your subscription. CFR PARTS AFFECTED IN THIS ISSUE __________________________________________________________ A cumulative list of the parts affected this month can be found in the Reader Aids section at the end of this issue. Federal Register / Vol. 89, No. 159 / Friday, August 16, 2024 / Contents Federal Register / Vol. 89, No. 159 / Friday, August 16, 2024 / Contents Federal Register / Vol. 89, No. 159 / Friday, August 16, 2024 / Contents [[Page ix]] 7 CFR 354..................................................66543 Proposed Rules: 984..................................................66639 14 CFR 25...................................................66543 71...................................................66545 129..................................................66546 Proposed Rules: 39...................................................66642 129..................................................66645 16 CFR 1....................................................66546 21 CFR 866 (2 documents).............................66552, 66556 880..................................................66558 Proposed Rules: 1....................................................66647 25 CFR Proposed Rules: 1000.................................................66655 26 CFR 1 (3 documents)........................66560, 66562, 66563 31...................................................66563 301 (2 documents).............................66562, 66563 29 CFR Proposed Rules: 1614.................................................66656 30 CFR 938..................................................66563 32 CFR 1662.................................................66568 38 CFR 21...................................................66579 39 CFR 111..................................................66580 966..................................................66599 40 CFR 52 (4 documents)................66599, 66603, 66607, 66609 70...................................................66609 300..................................................66612 Proposed Rules: 52 (3 documents)..............................66659, 66661 70...................................................66662 300..................................................66665 45 CFR 2520.................................................66614 2521.................................................66614 2522.................................................66614 47 CFR 25...................................................66615 48 CFR Ch. 29...............................................66616 49 CFR 576..................................................66629 50 CFR 679..................................................66633

usgpo

2024-10-08T13:26:23.087027

FR

FR-2024-08-16/2024-18206

Federal Register Volume 89 Issue 159 (August 16, 2024)

United States National Archives and Records Administration Office of the Federal Register

[Federal Register Volume 89, Number 159 (Friday, August 16, 2024)] [Rules and Regulations] [Page 66543] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 2024-18206] ======================================================================== Rules and Regulations Federal Register ________________________________________________________________________ This section of the FEDERAL REGISTER contains regulatory documents having general applicability and legal effect, most of which are keyed to and codified in the Code of Federal Regulations, which is published under 50 titles pursuant to 44 U.S.C. 1510. The Code of Federal Regulations is sold by the Superintendent of Documents. ======================================================================== Federal Register / Vol. 89, No. 159 / Friday, August 16, 2024 / Rules and Regulations [[Page 66543]] ----------------------------------------------------------------------- DEPARTMENT OF AGRICULTURE Animal and Plant Health Inspection Service 7 CFR Part 354 [Docket No. APHIS-2022-0023] RIN 0579-AE71 User Fees for Agricultural Quarantine and Inspection Services; Correction AGENCY: Animal and Plant Health Inspection Service, USDA.5 ACTION: Final rule; correction. ----------------------------------------------------------------------- SUMMARY: This document corrects a typographical error in the final rule entitled ``User Fees for Agricultural Quarantine and Inspection Services,'' which was published in the Federal Register on May 7, 2024, and has an effective date of October 1, 2024. DATES: This document is effective on October 1, 2024. FOR FURTHER INFORMATION CONTACT: Mr. George Balady, Senior Regulatory Policy Specialist, PPQ, APHIS, 4700 River Road, Unit 36, Riverdale, MD 20737; (301) 851-2338; [email protected]. SUPPLEMENTARY INFORMATION: In the Federal Register of May 7, 2024 (89 FR 38596-38644), we published a final rule entitled ``User Fees for Agricultural Quarantine'' that listed the designation for paragraph (h)(1) twice in 7 CFR 354.3. This document corrects that error. Correction In FR Doc. 2024-09348, appearing on pages 38596-38644 in the Federal Register of Tuesday, May 7, 2024, the following correction is made: Sec. 354.3 [Corrected] 0 On page 38643, in the second column, in Sec. 354.3, paragraph (h)(1), the first sentence after the paragraph heading ``(1) Each importer of a consignment of articles that require treatment upon arrival from a place outside of the customs territory of the United States, either as a preassigned condition of entry or as a remedial measure ordered following the inspection of the consignment, must pay an AQI user fee.'' is corrected to read ``Each importer of a consignment of articles that require treatment upon arrival from a place outside of the customs territory of the United States, either as a preassigned condition of entry or as a remedial measure ordered following the inspection of the consignment, must pay an AQI user fee.''. Done in Washington, DC, this 26th day of July 2024. Jennifer Moffitt, Under Secretary for Marketing and Regulatory Programs. [FR Doc. 2024-18206 Filed 8-15-24; 8:45 am] BILLING CODE 3410-34-P

usgpo

2024-10-08T13:26:23.166426

FR

FR-2024-08-16/2024-18425

Federal Register Volume 89 Issue 159 (August 16, 2024)

United States National Archives and Records Administration Office of the Federal Register

[Federal Register Volume 89, Number 159 (Friday, August 16, 2024)] [Rules and Regulations] [Pages 66543-66545] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 2024-18425] ======================================================================= ----------------------------------------------------------------------- DEPARTMENT OF TRANSPORTATION Federal Aviation Administration 14 CFR Part 25 [Docket No. FAA-2024-1626; Special Conditions No. 25-867-SC] Special Conditions: Textron Aviation Inc. (Textron) Model 560XL Airplane; Hydrophobic Windshield Coatings AGENCY: Federal Aviation Administration (FAA), DOT. ACTION: Final special conditions; request for comments. ----------------------------------------------------------------------- SUMMARY: These special conditions are issued for the Textron Model 560XL airplane. This airplane will have a novel or unusual design feature when compared to the state of technology envisioned in the airworthiness standards for transport-category airplanes. This design feature is hydrophobic windshield coatings to maintain a clear view. The applicable airworthiness regulations do not contain adequate or appropriate safety standards for this design feature. These special conditions contain the additional safety standards that the Administrator considers necessary to establish a level of safety equivalent to that established by the existing airworthiness standards. DATES: This action is effective on Textron on August 16, 2024. Send comments on or before September 30, 2024. ADDRESSES: Send comments identified by Docket No. FAA-2024-1626 using any of the following methods: Federal eRegulations Portal: Go to www.regulations.gov and follow the online instructions for sending your comments electronically. Mail: Send comments to Docket Operations, M-30, U.S. Department of Transportation (DOT), 1200 New Jersey Avenue SE, Room W12-140, West Building Ground Floor, Washington, DC 20590-0001. Hand Delivery or Courier: Take comments to Docket Operations in Room W12-140 of the West Building Ground Floor at 1200 New Jersey Avenue SE, Washington, DC, between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays. Fax: Fax comments to Docket Operations at 202-493-2251. Docket: Background documents or comments received may be read at www.regulations.gov at any time. Follow the online instructions for accessing the docket or go to Docket Operations in Room W12-140 of the West Building Ground Floor at 1200 New Jersey Avenue SE, Washington, DC, between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays. FOR FURTHER INFORMATION CONTACT: Eric Brown, Flight Test and Human Factors, AIR-621A, Technical Policy Branch, Policy and Standards Division, Aircraft Certification Service, Federal Aviation Administration, 2200 S 216th Street, Des Moines, Washington 98198, telephone and (206) 231-3563; email [email protected]. SUPPLEMENTARY INFORMATION: The substance of these special conditions has been published in the Federal Register for public comment in several prior instances with no substantive comments received. Therefore, the FAA finds, pursuant to 14 CFR 11.38(b), that new comments are unlikely, and notice and comment prior to this publication are unnecessary. Privacy Except for Confidential Business Information (CBI) as described in the following paragraph, and other information as described in title 14, Code of Federal Regulations (14 CFR) 11.35, the FAA will post all comments received without change to www.regulations.gov, including any personal information you provide. The [[Page 66544]] FAA will also post a report summarizing each substantive verbal contact received about these special conditions. Confidential Business Information Confidential Business Information (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 these special conditions contain commercial or financial information that is customarily treated as private, that you actually treat as private, and that is relevant or responsive to these special conditions, 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 the indicated comments will not be placed in the public docket of these proposed special conditions. Send submissions containing CBI to the individual listed in the For Further Information Contact section above. Comments the FAA receives, which are not specifically designated as CBI, will be placed in the public docket for these proposed special conditions. Comments Invited The FAA invites interested people to take part in this rulemaking by sending written comments, data, or views. The most helpful comments reference a specific portion of the special conditions, explain the reason for any recommended change, and include supporting data. The FAA will consider all comments received by the closing date for comments. The FAA may change these special conditions based on the comments received. Background On June 30, 2021, Textron applied for a change to Type Certificate No. A22CE for hydrophobic coatings in lieu of windshield wipers on the Model 560XL. The Textron Model 560XL airplane is a derivative of the Model 560XLS+ and is currently approved under Type Certificate No. A22CE. The Model 560XL is a twin-engine business jet, with a maximum seating capacity for 12 passengers, and a maximum take-off weight of 20,330 pounds. Type Certification Basis Under the provisions of title 14, Code of Federal Regulations (14 CFR) 21.101, Textron must show that the Textron Aviation Inc. Model 560XL airplane, as changed, continues to meet the applicable provisions of the regulations listed in Type Certificate No. A22CE or the applicable regulations in effect on the date of application for the change, except for earlier amendments as agreed upon by the FAA. If the Administrator finds that the applicable airworthiness regulations (e.g., 14 CFR part 25) do not contain adequate or appropriate safety standards for the Textron Model 560XL airplane because of a novel or unusual design feature, special conditions are prescribed under the provisions of Sec. 21.16. Special conditions are initially applicable to the model for which they are issued. Should the type certificate for that model be amended later to include any other model that incorporates the same novel or unusual design feature, or should any other model already included on the same type certificate be modified to incorporate the same novel or unusual design feature, these special conditions would also apply to the other model under Sec. 21.101. In addition to the applicable airworthiness regulations and special conditions, the Textron Model 560XL airplane must comply with the exhaust-emission requirements of 14 CFR part 34, and the noise- certification requirements of 14 CFR part 36. The FAA issues special conditions, as defined in 14 CFR 11.19, in accordance with Sec. 11.38, and they become part of the type certification basis under Sec. 21.101. Novel or Unusual Design Features The modified Textron Model 560XL series airplane will incorporate the following novel or unusual design feature: Hydrophobic windshield coatings to maintain a clear view. The airplane flightdeck design incorporates hydrophobic windshield coating that, during precipitation, provides an adequate outside view from the pilot compartment. Sole reliance on such coating, without windshield wipers, constitutes a novel or unusual design feature for which the applicable airworthiness regulations do not contain adequate or appropriate safety standards. Therefore, special conditions are required to provide a level of safety equivalent to that established by the regulations. Discussion Title 14 CFR 25.773(b)(1) requires a means to maintain a clear portion of the windshield for both pilots to have a sufficiently extensive view along the flight path during precipitation conditions. The regulations require this means to maintain such an area during precipitation in heavy rain at speeds up to 1.5 VSR1. Effective December 26, 2002, amendment 25-108 changed the speed for effectiveness of the means to maintain an area of clear vision from up to 1.6 VS1 to 1.5 VSR1 to accommodate the redefinition of the reference stall speed from the minimum speed in the stall, VS1, to greater than or equal to the 1g stall speed, VSR1. As noted in the preamble to the final rule for that amendment, the reduced factor of 1.5 on VSR1 is to maintain approximately the same speed as the 1.6 factor on VS1. Textron was granted an Equivalent Level of Safety (ELOS) to Sec. 25.773(b)(1)(i) amendment 25-136 to use 1.6 Vs1 instead of 1.5 VSR1 as documented in ELOS Memorandum No. TXTAV-18571- SM-03, dated December 6, 2023. The requirement that the means to maintain a clear area of forward vision must function at high speeds and high precipitation rates is based on the use of windshield wipers as the means to maintain an adequate area of clear vision in precipitation conditions. The effectiveness of windshield wipers to maintain an area of clear vision normally degrades as airspeed and precipitation rates increase. It is assumed that because high speeds and high precipitation rates represent limiting conditions for windshield wipers, they will also be effective at lower speeds and precipitation levels. Accordingly, Sec. 25.773(b)(1)(i) does not require maintenance of a clear area of forward vision at lower speeds or lower precipitation rates. A forced airflow blown directly over the windshield has also been used to maintain an area of clear vision in precipitation. The limiting conditions for this technology are comparable to those for windshield wipers. Accordingly, introduction of this technology did not present a need for special conditions to maintain the level of safety embodied in the existing regulations. Hydrophobic windshield coatings may depend to some degree on airflow to maintain a clear vision area. The heavy rain and high-speed conditions specified in the current rule do not necessarily represent the limiting condition for this new technology. For example, airflow over the windshield, which may be necessary to remove moisture from the windshield, may not be adequate to maintain a sufficiently clear area of the windshield in low- [[Page 66545]] speed flight or during surface operations. Alternatively, airflow over the windshield may be disturbed during such critical times as the approach to land, where the airplane is at a higher-than-normal pitch attitude. In these cases, areas of airflow disturbance or separation on the windshield could cause failure to maintain a clear vision area on the windshield. In addition to potentially depending on airflow to function effectively, hydrophobic coatings may also be dependent on water- droplet size for effective precipitation removal. For example, precipitation in the form of a light mist may not be sufficient for the coating's properties to result in maintaining a clear area of vision. The current regulations identify speed and precipitation rate requirements that represent limiting conditions for windshield wipers and blowers, but not for hydrophobic coatings. Likewise, it is necessary to issue special conditions to maintain the level of safety represented by the current regulations. These special conditions provide an appropriate safety standard for the hydrophobic-coating technology as the means to maintain a clear area of vision by requiring coating to be effective at low speeds and low precipitation rates, as well as at the higher speeds and precipitation rates identified in the current regulation. These special conditions contain the additional safety standards that the Administrator considers necessary to establish a level of safety equivalent to that established by the existing airworthiness standards. Applicability As discussed above, these special conditions are applicable to the Textron Model 560XL airplane. Should Textron apply at a later date for a change to the type certificate to include another model incorporating the same novel or unusual design feature, these special conditions would apply to that model as well. Conclusion This action affects only a certain novel or unusual design feature on the Textron Model 560XL airplane. It is not a rule of general applicability. List of Subjects in 14 CFR Part 25 Aircraft, Aviation safety, Reporting and recordkeeping requirements. Authority Citation The authority citation for these special conditions is as follows: Authority: 49 U.S.C. 106(f), 106(g), 40113, 44701, 44702, and 44704. The Special Conditions Accordingly, pursuant to the authority delegated to me by the Administrator, the following special conditions are issued as part of the type certification basis for Textron Model 560XL. The airplane must have a means to maintain a clear portion of the windshield, during precipitation conditions, enough for both pilots to have a sufficiently extensive view along the ground or flight path in normal taxi and flight altitudes of the airplane. This means must be designed to function, without continuous attention on the part of the crew, in conditions from light misting precipitation to heavy rain, at speeds from fully stopped in still air, to 1.6 VS with lift and drag devices retracted. Issued in Kansas City, Missouri, on August 8, 2024. Patrick R. Mullen, Manager, Technical Policy Branch, Policy and Standards Division, Aircraft Certification Service. [FR Doc. 2024-18425 Filed 8-15-24; 8:45 am] BILLING CODE 4910-13-P

usgpo

2024-10-08T13:26:23.347735

FR

FR-2024-08-16/2024-18298

Federal Register Volume 89 Issue 159 (August 16, 2024)

United States National Archives and Records Administration Office of the Federal Register

[Federal Register Volume 89, Number 159 (Friday, August 16, 2024)] [Rules and Regulations] [Pages 66545-66546] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 2024-18298] ----------------------------------------------------------------------- DEPARTMENT OF TRANSPORTATION Federal Aviation Administration 14 CFR Part 71 [Docket No. FAA-2024-0383; Airspace Docket No. 24-ASO-2] RIN 2120-AA66 Amendment of Class D Airspace; Fort Liberty, NC; Correction AGENCY: Federal Aviation Administration (FAA), DOT. ACTION: Final rule; correction. ----------------------------------------------------------------------- SUMMARY: The FAA is correcting a final rule that was published in the Federal Register on July 18, 2024. The final rule amended Class D airspace extending upward from the surface for Fort Liberty, NC. This action corrects errors in the Class D legal description. DATES: Effective 0901 UTC, October 31, 2024. The Director of the Federal Register approves this incorporation by reference action under 1 CFR part 51, subject to the annual revision of FAA Order JO 7400.11 and publication of conforming amendments. ADDRESSES: FAA Order JO 7400.11H, Airspace Designations, and Reporting Points, and subsequent amendments can be viewed online at https://www.faa.gov/air_traffic/publications/. For further information, you can contact the Rules and Regulations Group, Federal Aviation Administration, 800 Independence Avenue SW, Washington, DC 20591; telephone: (202) 267-8783. FOR FURTHER INFORMATION CONTACT: Justin T. Rhodes, Operations Support Group, Eastern Service Center, Federal Aviation Administration, 1701 Columbia Avenue, College Park, GA 30337; telephone: (404) 305-5478. SUPPLEMENTARY INFORMATION: History The FAA published a final rule in the Federal Register on July 18, 2024 (89 FR 58262) for Docket No. FAA-2024-0383, updating the Class D airspace for Fort Liberty, NC, by excluding 1,400 feet MSL from the vertical limits (previously ``including''), updating the airport's geographic coordinates, replacing ``Notice to Airmen'' with ``Notice to Air Missions'' in the description, and updating the reference to ``Chart Supplement'' (previously ``Airport Facility Directory''). After publication, the FAA found updates to the FAA's database rendering the Airport Reference Point (ARP) data incorrect, which, as dependent upon the ARP, rendered other airspace description information incorrect. This action corrects these errors. Correction to the Final Rule In FR Doc 2024-15483 at 58262, published in the Federal Register on July 18, 2024, the FAA makes the following corrections: On page 58263, in the second column, correct the ASO NC D description for Fort Liberty, NC, to read as follows: * * * * * ASO NC D Simmons AAF, NC [Corrected] Simmons AAF, NC (Lat. 35[deg]07'56'' N, long. 78[deg]56'07'' W) That airspace extending upward from the surface to but not including 1,400 feet MSL within a 3.9-mile radius of Simmons AAF, excluding the portion northwest of a line extending from lat. 35[deg]11'48'' N, long. 78[deg]55'35'' W; to lat. 35[deg]06'19'' N, long. 79[deg]00'27'' W, excluding the portion within the Fayetteville, NC, Class C airspace area. This Class D airspace area is effective during the specific dates and times established in advance by a Notice to Air Missions. The effective date and time will thereafter be continuously published in the Chart Supplement. * * * * * [[Page 66546]] Issued in College Park, Georgia, on August 12, 2024 Andreese C. Davis, Manager, Airspace & Procedures Team South, Eastern Service Center, Air Traffic Organization. [FR Doc. 2024-18298 Filed 8-15-24; 8:45 am] BILLING CODE 4910-13-P

usgpo

2024-10-08T13:26:23.449605

FR

FR-2024-08-16/2024-16954

Federal Register Volume 89 Issue 159 (August 16, 2024)

United States National Archives and Records Administration Office of the Federal Register

[Federal Register Volume 89, Number 159 (Friday, August 16, 2024)] [Rules and Regulations] [Page 66546] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 2024-16954] ----------------------------------------------------------------------- DEPARTMENT OF TRANSPORTATION Federal Aviation Administration 14 CFR Part 129 International Aviation Safety Assessment (IASA) Program AGENCY: Federal Aviation Administration (FAA), Department of Transportation (DOT). ACTION: Suspension of policy statement. ----------------------------------------------------------------------- SUMMARY: On September 28, 2022, the FAA published a Policy Statement in the Federal Register that described policy changes to the FAA's International Aviation Safety Assessment (IASA) program as well as clarification or restatement of prior policy to ``enhance engagement with civil aviation authorities (CAAs) through pre- and post-IASA assessment and to promote greater transparency.'' After receiving inquiries and questions about the changes described in that policy statement, the FAA is suspending implementation of the September 28, 2022, Policy Statement while the agency reassesses the policy. The policy statement published March 8, 2013, remains active. DATES: The policy statement published at 87 FR 58725 (September 28, 2022) is suspended as of August 16, 2024. FOR FURTHER INFORMATION CONTACT: Rolandos Lazaris, Division Manager, International Program Division (AFS-50), Flight Standards Service, Federal Aviation Administration, 800 Independence Avenue SW, Washington, DC 20591; (202) 267-3719. SUPPLEMENTARY INFORMATION: Background The IASA program is the means by which the FAA determines whether another country's oversight of its air carriers that (1) operate, or seek to operate, services to/from the United States using their own aircraft and crews, or (2) seek to display the code of a U.S. air carrier on any services, complies with safety standards established by the International Civil Aviation Organization (ICAO). The published IASA results of a country's placement in Category 1 or Category 2 is the notification to the U.S. traveling public as to whether a foreign air carrier's homeland civil aviation authority meets ICAO safety standards. A Category 1 rating indicates that the civil aviation authority meets ICAO safety standards for these operations, and a Category 2 rating indicates that the civil aviation authority does not meet ICAO safety standards. The IASA program was established by a document published in the Federal Register in 1992. Subsequent published documents in the Federal Register notified of the program's evolution. These Federal Register documents are as follows: August 24, 1992--Established the FAA Procedures for Examining and Monitoring Foreign Air Carriers (57 FR 38342). September 8, 1994--Established the Public Disclosure of the Results of Foreign Civil Aviation Authority Assessments, through a three-category numbered rating system (59 FR 46332). October 31, 1995--DOT Notice Clarification Concerning Examination of Foreign Carriers' Request for Expanded Economic Authority, clarified the Department's licensing policy regarding requests for expanded economic authority from foreign air carriers whose CAA's safety oversight capability has been assessed by the FAA as conditional (Category II) or unacceptable (Category III) (60 FR 55408). May 25, 2000--Changes to the International Aviation Safety Assessment program removed the Category 3 rating and combined it with Category 2 (65 FR 33751). March 8, 2013--Changes to the International Aviation Safety Assessment program removed inactive countries (countries with no air carrier operations to the United States or code-shares with U.S. air carrier for four years and no significant interaction between the country's CAA and the FAA) from the IASA Category list (78 FR 14912). Through the IASA program, the FAA seeks continuous improvement to global aviation safety. As noted in the above-referenced policy statement of September 8, 1994, initial IASA assessments found that two-thirds of the assessed CAAs were deficient in meeting their safety oversight obligations under the Convention on International Civil Aviation. The September 28, 2022, Policy Statement (87 FR 58725) (now suspended) announced certain changes to the IASA program and provided clarification to other aspects of the IASA policy. Since that publication, the FAA and DOT have received inquiries and questions that warrant reassessment of those changes and clarifications, and an opportunity for public comment before they are adopted permanently. As noted above, the FAA is suspending implementation of the September 28, 2022, Policy Statement while the agency reassesses the policy and considers public comments. Public comment is invited on the matters and issues described in the companion document published elsewhere in this issue of the Federal Register. Issued in Washington, DC. Jodi L. Baker, Deputy Administrator for Aviation Safety. [FR Doc. 2024-16954 Filed 8-15-24; 8:45 am] BILLING CODE 4910-13-P

usgpo

2024-10-08T13:26:23.511634

FR

FR-2024-08-16/2024-18245

Federal Register Volume 89 Issue 159 (August 16, 2024)

United States National Archives and Records Administration Office of the Federal Register

[Federal Register Volume 89, Number 159 (Friday, August 16, 2024)] [Rules and Regulations] [Pages 66546-66552] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 2024-18245] ======================================================================= ----------------------------------------------------------------------- FEDERAL TRADE COMMISSION 16 CFR Part 1 RIN 3084-AB79 Horseracing Integrity and Safety Authority Oversight AGENCY: Federal Trade Commission. ACTION: Final rule. ----------------------------------------------------------------------- SUMMARY: The Federal Trade Commission (``FTC'' or ``Commission'') is issuing a final rule (``Final Rule'') regarding oversight of the Horseracing Integrity and Safety Authority (``Authority''). The Final Rule includes new oversight provisions to ensure that the Authority remains publicly accountable and operates in a fiscally prudent, safe, and effective manner. DATES: This rule is effective on September 16, 2024. FOR FURTHER INFORMATION CONTACT: Sarah Botha, (202) 326-2036, [email protected], Office of the Executive Director, Federal Trade Commission. SUPPLEMENTARY INFORMATION: This document states the basis and purpose for the Commission's decision to adopt the Final Rule addressing the Commission's oversight of the Authority. The new oversight provisions were proposed and published for public comment in the Federal Register on February 8, 2024, in a notice of proposed rulemaking (``NPRM'').\1\ After careful review and consideration of the entire record on the issues presented in this rulemaking proceeding, including 10 comments submitted by interested parties, the Commission has decided to adopt, with a few modifications, the proposed new oversight rule. --------------------------------------------------------------------------- \1\ FTC, Horseracing Integrity and Safety Authority Oversight, Proposed Rule, 89 FR 8578 (Feb. 8, 2024). --------------------------------------------------------------------------- [[Page 66547]] I. Background The Horseracing Integrity and Safety Act of 2020 (``HISA'' or ``the Act''), Public Law 116-260, Title XII, 134 Stat. 1182, 3252 (2020) (codified as amended at 15 U.S.C. 3051-3060), recognizes the Authority as a self-regulatory nonprofit organization charged with developing and enforcing rules relating to racetrack safety, anti-doping, and medication control. See 15 U.S.C. 3052. The Act expressly provides for Commission oversight of several aspects of the Authority's operations. For example, the Commission must approve any proposed rule or rule modification by the Authority relating to the Authority's bylaws, racetrack safety standards, anti-doping and medication control, and the formula or methodology for determining assessments. See 15 U.S.C. 3053. In December 2022, Congress amended HISA to expand the Commission's oversight role over the Authority. See Consolidated Appropriations Act, 2023, Public Law 117-328, sec. 701, 136 Stat. 4459, 5231 (2022). As amended, the Act gives the Commission the power to issue rules under the procedures set forth in the Administrative Procedure Act, 5 U.S.C. 553, ``as the Commission finds necessary or appropriate to ensure the fair administration of the Authority . . . or otherwise in furtherance of the purposes of this Act.'' 15 U.S.C. 3053(e). II. Overview of the Proposed Oversight Rule In light of the Commission's experience in overseeing the Authority's operations to date, the Commission proposed several new rule provisions to ensure effective Commission oversight over the Authority. The proposed provisions were designed to ensure that the Authority is promoting transparency and integrity in its operations. For example, the proposed new rule sections would require the Authority to submit and publish annual and midyear reports about its performance and financial position. The proposed new rules would also require the Authority to develop, maintain, and publish a multiyear strategic plan, after taking public comments on a draft plan. The proposed rules would require the Authority to effectively manage risk and take steps to prevent conflicts of interest, waste, fraud, embezzlement, and abuse. The proposed rules would also mandate other operational requirements and identify best practices for the Authority to follow. Section-by-Section Analysis Section 1.153 Submission of the Authority's annual reports, midyear reports, and strategic plans. This proposed new section would impose certain requirements on the Authority to report on its finances for the preceding calendar year by May 15. This would include a complete accounting of the Authority's budget (as audited by a qualified, independent, registered public accounting firm and in accordance with Generally Accepted Accounting Principles), a discussion of budgetary line items, a summary of travel expenses, and a summary of any new or continuing risks or issues raised by audits or other reviews. The proposed section also would impose certain requirements on the Authority to report by March 31 on its performance for the prior calendar year. The report would include efforts made to carry out the requirements of the Act, a description of the cooperation with the States as set forth in 15 U.S.C. 3060(b), a summary of final civil sanctions, an assessment of the Authority's progress in meeting or not meeting its performance measures contained in its strategic plan per Sec. 1.153(d), and a summary of Board of Directors committee recommendations and activities. It would also include information about any changes in the composition of the Authority's Board of Directors or standing committees, information about the relationship between the Authority and the anti-doping and medication control enforcement agency, a summary of all litigation to which the Authority is a party (including actions commenced by the Authority under 15 U.S.C. 3054(j)), a summary of all subpoenas issued by the Authority under 15 U.S.C. 3054(c), a description of any areas in which the Authority believes improvements to its operations are warranted, and the Authority's plans to achieve those improvements. The proposed section would also require the Authority to submit to the FTC by August 15 a same-year midyear report covering January to June that describes spending and staffing levels and budgetary information. This midyear report would provide operational insight about the Authority's budget execution and risk management activities. The proposed section would have also required the Authority to develop and publish for public comment a multiyear strategic plan by June 30, 2024. The Authority would be required to re- evaluate its strategic plan no less frequently than every five years. The strategic plan must align with the Authority's annual budget, discuss its priority initiatives, and set forth a set of performance measures. The Authority would be required publish its annual financial reports, annual performance reports, and strategic plans on its website. Section 1.154 Enterprise risk management. This proposed new section would impose certain requirements on the Authority to ensure that it effectively manages risk to prevent conflicts of interest, waste, fraud, embezzlement, or abuse. Paragraph (a) sets forth guiding principles around separation of duties and corrective action plans, and noted that risk management activities must ensure compliance, the avoidance of conflicts of interest or the appearance thereof, and the appropriate handling of funds received and expended by the Authority. Given the confidential nature of much of the Authority's work and the data that it collects, Paragraph (b) would require the Authority to ensure the privacy and security of its data in its systems, including those operated by third-party contractors, and require a complete annual evaluation of the status of its overall information technology program and practices as audited by a qualified, independent, third- party auditor. Given that the Authority leverages contractor resources in its operations, Paragraph (c) would require the Authority to document its market research for any action estimated at over $10,000 to ensure the lowest cost or best value for goods and services to be provided, and to develop policies and procedures covering procurement activities. Given the FTC's need for regular communication and awareness of the Authority's activities, Paragraph (d) would require the Authority to provide advance notice to Commission staff of all significant Authority-planned events (e.g., press conferences, media events, summits, etc.) via a calendar, list, email, or other reasonable means, to summarize key aspects of all such events on its website, and to give Commission staff prompt notice after significant adverse events in the horseracing industry that might reasonably lead to sanctions or track closures. Section 1.155 Other best practices. This proposed new section included a set of best practices to promote accountability, transparency of operations, and effective resource stewardship of the Authority. These proposals included holding regular monitoring meetings with the FTC; recommendations for how the Authority may maintain its records and information; recommendations for how the Authority should treat confidential information; a standing data request from the FTC for the Authority's Board of Directors minutes; recommendations [[Page 66548]] about the Authority's personnel and compensation policies and practices; recommendations about the Authority's customer service program (and the development of associated metrics); and recommendations regarding the Authority's travel policies. Section 1.156 Severability. This proposed new section noted that provisions of this subpart are separate and severable from one another. If any provision is stayed or determined to be invalid, it is the Commission's intention that the remaining provisions would continue in effect. III. Overview of Public Comments Received in Response to the NPRM The Commission received 10 comments in response to the NPRM,\2\ representing the views of an industry trade group, individuals and groups concerned with animal welfare issues, attorneys who have represented clients in Authority enforcement actions, and individuals with an interest in the horseracing industry. The Authority also submitted a comment in which it responded to the comments filed in response to the NPRM and shared its views regarding the proposed rule. --------------------------------------------------------------------------- \2\ All comments submitted can be found at www.regulations.gov under Docket ID FTC-2024-0012. We cite public comments by name of the commenting organization or individual and the comment number. --------------------------------------------------------------------------- The majority of the comments focused on the FTC's proposed oversight rule, but three comments addressed topics related to the Authority's rules or suggested other areas that the Commission should consider for rulemaking.\3\ The remaining comments expressed support for the proposed rule,\4\ but some comments also submitted suggestions for additional or amended rule provisions. --------------------------------------------------------------------------- \3\ See Anonymous 5 (seeking the expansion of rules and regulations for animal welfare, cruelty and abuse); Lange 6 (requesting a change in the Authority's rules addressing eligibility requirements for Covered Horses); WhoPoo App 9 (asking the FTC to mandate that all horseracing venues include a horse/equine rescue allotment and fund). \4\ See, e.g., Bell 2 (expressing support for actions to improve the integrity of the governing of horseracing, and opining that Congress authorized the FTC to engage in this rulemaking); Humane Society of the United States and Humane Society Legislative Fund 12 (noting that ``increased transparency will be integral to ensuring the safety and welfare of horses and jockeys, and key to monitoring effective enforcement of the Horseracing Integrity and Safety Act''). --------------------------------------------------------------------------- One comment, submitted by two attorneys who have represented Covered Persons in enforcement actions brought under the Authority's rules, stated that increased scrutiny of the Authority by the FTC is needed and welcomed, but urged the Commission to include additional requirements for the Authority, such as public disclosure of all contracts, travel expenses, and line item costs for hearings.\5\ The Commission appreciates the commenters' suggestions but believes the proposed rule strikes the right balance between mandating the disclosure of information to bring greater transparency and accountability to the Authority's operations without depleting limited resources with overly burdensome disclosure requirements. The rule will require the Authority to publish on its website annual financial and performance reports providing significant details regarding the Authority's expenditures and operations, along with a multiyear strategic plan that is developed with public input. Existing Commission rules require further information to be submitted annually during the budget review process, which the Commission publishes in the Federal Register, and the Commission can seek additional information through its process of reviewing and approving the Authority's budget.\6\ --------------------------------------------------------------------------- \5\ Fisco 7. The commenters also opined on several existing rules of the Authority, which are beyond the scope of this rulemaking. \6\ See 16 CFR 1.151(a). --------------------------------------------------------------------------- Another commenter expressed support for the proposed rule, but opined that the rule provisions fall short in the area of enforcement.\7\ The commenter seems to be under the impression that the Authority has exempted sales companies and breeders from the application of 15 U.S.C. 3059. That statutory provision says that in connection with the sale of Covered Horses (or horses anticipated to be covered), it is a violation of section 5 of the FTC Act, 15 U.S.C. 45, to fail to make certain disclosures. See 15 U.S.C. 45(a) (prohibiting ``unfair or deceptive acts or practices in or affecting commerce''). Section 5, however, is enforced only by the FTC, not the Authority. Another section of HISA does permit the Authority to refer matters to the Commission and recommend that the Commission pursue an enforcement action under 15 U.S.C. 3059. See 15 U.S.C. 3054(c)(2). The discretion to pursue such an action, however, rests solely with the Commission. --------------------------------------------------------------------------- \7\ Roberts 4. The commenter also opined on several existing rules of the Authority, which are beyond the scope of this rulemaking. --------------------------------------------------------------------------- Another commenter believed that the proposed rule would be greatly beneficial to the horseracing industry but opined that the rule was ``lacking in the enforcement of best practices'' and should include penalties for violations of the rule in order to incentivize compliance.\8\ The Commission fully expects that the Authority will comply with the Final Rule, and that the Authority would seek a modification from the Commission if there were any provisions in the rule that the Authority anticipated would present compliance difficulties. In fact, the Authority has filed a comment expressing its thoughts on the proposed rule and requesting some minor changes to the rule, as discussed below. To date, the Authority has complied with the rules the Commission has promulgated addressing submissions to the FTC under the Act,\9\ review of final civil sanctions,\10\ and review of the Authority's annual budget.\11\ The Commission fully anticipates that the Authority will comply with the Final Rule. --------------------------------------------------------------------------- \8\ Newcomer 11. The commenter also criticized the rule for failing to address the treatment of horses by parties involved in horseracing. This falls outside the scope of this rulemaking. The Authority, however, has rules that address the topics raised by the commenter, including the humane treatment of equine athletes and bans on performance-enhancing drugs, and all of the commenters are encouraged to file comments on those rules when proposed modifications are published by the Authority or by the Commission. See, e.g., FTC, Horseracing Integrity and Safety Authority Anti- Doping and Medication Control Rule Modification, proposed rule modification, 88 FR 65683 (Sept. 25, 2023); FTC, Horseracing Integrity and Safety Authority Racetrack Safety Rule Modification, proposed rule modification, 89 FR 24574 (Apr. 8, 2024). \9\ 16 CFR 1.140 through 1.144. \10\ 16 CFR 1.145 through 1.149. \11\ 16 CFR 1.150 through 1.152. --------------------------------------------------------------------------- A comment from the National Horsemen's Benevolent & Protective Association (``NHBPA'') supported the Commission's goal to bring transparency to the Authority's operations, but opined that the proposed rule is not authorized by the Act.\12\ Specifically, the NHBPA posited that 15 U.S.C. 3053(e) allows the FTC to initiate rules to ``abrogate, add to, [or] modify the rules of the Authority promulgated in accordance with [HISA],'' but that the proposed rule does not abrogate, add to, or modify the Authority's rules and is therefore unauthorized by the Act.\13\ The Commission disagrees that it lacks statutory authority to promulgate the proposed rule. --------------------------------------------------------------------------- \12\ NHBPA 8. \13\ Id. --------------------------------------------------------------------------- The proposed rule is in accordance with 15 U.S.C. 3053(e). Congress provided there that ``[t]he Commission, by rule in accordance with'' the Administrative Procedure Act, ``may . . . add to . . . the rules of the Authority promulgated in accordance with'' HISA ``as the Commission finds necessary or appropriate to ensure the [[Page 66549]] fair administration of the Authority . . . or otherwise in furtherance of the purposes of [the Act].'' 15 U.S.C. 3053(e). The proposed rule ``add[s] to'' the rules that the Authority has promulgated in accordance with the Act and does so ``to ensure the fair administration of the Authority . . . or otherwise in furtherance of the purposes of [the Act].'' Id. The plain text of HISA thus authorizes the Commission to promulgate the proposed rule.\14\ --------------------------------------------------------------------------- \14\ The NHBPA opined that the Act prohibits the FTC from promulgating a proposed rule unless the Authority has ``already adopted a rule on the topic.'' Id. (emphasis added). That supposed limitation on the Commission's authority is nowhere in the plain text of the statute. --------------------------------------------------------------------------- Apart from its belief that Congress would be the appropriate entity to promulgate the proposed rule, the NHBPA stated that it ``supports the substance behind'' proposed Sec. Sec. 1.153, 1.154, and 1.155, including the requirements for an annual financial report with an independent audit, an annual performance report with summaries of the Authority's enforcement activities, a multiyear strategic plan, and enterprise risk management activities.\15\ --------------------------------------------------------------------------- \15\ NHBPA 8. --------------------------------------------------------------------------- Finally, the Authority submitted a comment in which it responded to some of the public comments submitted in response to the NPRM and suggested some modifications to the rule as proposed.\16\ Specifically, the Authority requested that the deadline for submitting the first annual financial report under Sec. 1.153(a) be changed from May 15, 2024, to June 17, 2024. This request is now moot. --------------------------------------------------------------------------- \16\ Horseracing Integrity and Safety Authority 10. --------------------------------------------------------------------------- The Authority also requested that the annual deadline for submitting a same-year midyear report under Sec. 1.153(c) be changed from August 15 to August 30, to ``provide adequate time for the CFO to complete this report after the proposed budget is submitted to the Commission.'' \17\ Under the FTC's Rules, the Authority's proposed annual budget for the following year must be submitted to the Commission by August 1 each year,\18\ and the Commission must approve or disapprove the proposed budget by November 1, or as soon thereafter as practicable, after publishing the proposed budget for public comment.\19\ The Commission believes that the midyear report required under Sec. 1.153(c) will inform the Commission's consideration of the Authority's proposed budget for the following year and that delaying the submission of the midyear report would hinder the Commission's ability to fully consider the report prior to voting on the proposed budget. The Commission's need for the midyear report outweighs the Authority's need for an extension and, for this reason, the Authority's request is denied and the proposed reporting deadline of August 15 is retained in the Final Rule. --------------------------------------------------------------------------- \17\ Id. \18\ See 16 CFR 1.150(a). \19\ See 16 CFR 1.150(d) and 1.151(a). --------------------------------------------------------------------------- The Authority requested that the submission deadline for the initial multiyear strategic plan under Sec. 1.153(d) be changed from June 30, 2024, to August 30, 2024.\20\ In order to permit the Authority sufficient time to publish its draft strategic plan for public comment and finalize the plan subsequent to the effective date of the Final Rule, the Commission has changed the deadline for submission of the initial multiyear strategic plan to October 15, 2024. --------------------------------------------------------------------------- \20\ Horseracing Integrity and Safety Authority 10. --------------------------------------------------------------------------- The Authority requested that the documented market research requirement for procurement actions required under Sec. 1.154(c) be applicable to procurement actions estimated at over $50,000, rather than (as proposed) procurement actions estimated at over $10,000.\21\ The Commission does not believe that documenting market research for procurement actions estimated at over $10,000 will be unreasonably burdensome, so it declines this request. --------------------------------------------------------------------------- \21\ Id. --------------------------------------------------------------------------- The Authority requested that the recommendation of Sec. 1.155(d) for the Authority to submit Board of Directors minutes to the Commission's Office of the Secretary be changed from within 15 days following each Board meeting to within 30 days following each Board meeting, to provide adequate time for the Board minutes to be prepared and approved by the Board.\22\ The Commission finds this request to be reasonable and has changed the recommended submission deadline in the Final Rule to within 30 days following each Board meeting. --------------------------------------------------------------------------- \22\ Id. --------------------------------------------------------------------------- Finally, regarding the recommendation in Sec. 1.155(g) that the Authority ``use standard, GSA [General Services Administration]- established, published per diem rates when determining how much a person may spend on lodging, meals, and incidental expenses,'' the Authority commented that it ``does not receive government lodging rates and therefore, the Authority does not believe that the use of standard GSA-established, published per diem rates will be practical.'' \23\ The Commission believes that the travel policy recommendation in the proposed rule is reasonable, and has retained it in the Final Rule.\24\ The Commission notes that the recommendation also states, ``Nevertheless, actual subsistence expenses may be authorized under unusual circumstances with justification and prior approval from the appropriate approving official.'' This recommendation is similar to GSA regulations that apply to Federal agencies.\25\ The Authority's travel policy should specify what rate it will use when authorizing travel, and the Final Rule recommends that rate should be based upon standard, GSA-established, published per diem rates. The Authority could, however, establish a policy whereby it authorizes the standard, GSA- established, published per diem rates for mileage reimbursement and for meals and incidental expenses, while basing its rate for lodging on the GSA rate with allowances for deviations from that rate within a certain range. For example, the Authority could require that lodging be within the GSA-established rate but, if an employee cannot find a room within that rate, the Authority could allow lodging to exceed the GSA- established rate by up to 300 percent, as necessary and with approval from a designated official. --------------------------------------------------------------------------- \23\ Id. \24\ Government per diem rates are updated annually at https://www.gsa.gov/travel, and available to Authority staff to refer to. \25\ See 41 CFR 301-11.30 (``What is my option if the Government lodging rate exceeds my lodging reimbursement? . . . You may request reimbursement on an actual expense basis, not to exceed 300 percent of the maximum per diem allowance.''). --------------------------------------------------------------------------- IV. The Final Rule In this document, the Commission adopts the proposed new provisions as final, with the two minor changes discussed above. The Final Rule also adds references in Sec. 1.153(c) and (d) to following the procedures in Sec. 1.143 for submissions to the Commission and, in this way, mirrors Sec. 1.153(a) and (b) and clarifies the applicable submissions requirements. The Final Rule also clarifies that the midyear reporting requirement in Sec. 1.153(c) is an annual one. The Commission is adding the Final Rule as 16 CFR 1.153 through 1.156 in subpart U of part 1 of its Rules of Practice. Subpart U is therefore renamed ``Oversight of the Horseracing Integrity and Safety Authority'' to more accurately reflect the content of the amended subpart. V. Paperwork Reduction Act The Paperwork Reduction Act (``PRA''), 44 U.S.C. chapter 35, requires [[Page 66550]] Federal agencies to seek and obtain Office of Management and Budget approval before undertaking a collection of information directed to ten or more persons. Under the PRA, a rule creates a ``collection of information'' when ten or more persons are asked to report, provide, disclose, or record information in response to ``identical questions.'' \26\ The Commission concludes that the PRA does not apply to the amendments because they only apply to one ``person,'' the Authority. --------------------------------------------------------------------------- \26\ 44 U.S.C. 3502(3)(A). --------------------------------------------------------------------------- VI. Regulatory Flexibility Act The Regulatory Flexibility Act (``RFA''), as amended by the Small Business Regulatory Enforcement Fairness Act of 1996, requires an agency to either provide a Final Regulatory Flexibility Analysis with a final rule, or certify that the rule will not have a significant impact on a substantial number of small entities.\27\ The RFA defines a ``small entity'' as a small business, a small governmental jurisdiction, or a small not-for-profit organization. See 5 U.S.C. 601(6). --------------------------------------------------------------------------- \27\ 5 U.S.C. 603-605. --------------------------------------------------------------------------- The Final Rule applies only to the Authority, and the Authority is not a small business or a small governmental jurisdiction. While the Authority is a nonprofit entity, it is not a small not-for-profit organization, defined in the RFA as ``any not-for-profit enterprise which is independently owned and operated and is not dominant in its field.'' Id. 601(5). The Authority is not ``independently owned and operated,'' and it is dominant in its field. The Commission therefore certifies under the RFA that the Final Rule will not have a significant economic impact on a substantial number of small entities, and hereby provides notice of that certification to the Small Business Administration. VII. Congressional Review Act Pursuant to the Congressional Review Act (5 U.S.C. 801 et seq.), the Office of Information and Regulatory Affairs designated this rule as not a ``major rule,'' as defined by 5 U.S.C. 804(2). List of Subjects in 16 CFR Part 1 Administrative practice and procedure, Animal drugs, Animal welfare. For the reasons set forth in the preamble, the Federal Trade Commission amends title 16, chapter I, subchapter A of the Code of Federal Regulations as follows: PART 1--GENERAL PROCEDURES Subpart U--Oversight of the Horseracing Integrity and Safety Authority 0 1. The authority citation for part 1, subpart U, continues to read as follows: Authority: 15 U.S.C. 3053(e). 0 2. Revise the heading for subpart U to read as set forth above. 0 3. Add Sec. Sec. 1.153 through 1.156 to subpart U to read as follows: * * * * * Sec. 1.153 Submission of the Authority's annual reports, midyear reports, and strategic plans. 1.154 Enterprise risk management. 1.155 Other best practices. 1.156 Severability. * * * * * Sec. 1.153 Submission of the Authority's annual reports, midyear reports, and strategic plans. (a) Annual financial report. Every year, by May 15, the Authority must follow the procedures in Sec. 1.143 to submit an annual financial report to the Commission, detailing the items listed in paragraphs (a)(1) through (9) of this section for the previous calendar year. The Authority must also publish this report on its website. The report must contain: (1) A complete accounting of the Authority's budget, as audited by a qualified, independent, registered public accounting firm and in accordance with Generally Accepted Accounting Principles (including a statement from the auditor attesting to the auditor's independence and its opinion regarding the financial statements presented in the annual financial report); (2) Line-item comparisons between the approved budget's revenues and expenditures for the previous year and the actual revenues and expenditures for the previous year; (3) An explanation of how the Authority has considered the relative costs and benefits in formulating the programs, projects, and activities described in the budget; (4) A description and accounting of the Authority's insurance coverage; (5) A description and accounting of any budgetary reserves; (6) Summaries of contracts or other liabilities that the Authority has entered into or may potentially incur; (7) A summary of travel expenses, including an itemized list of any first-class travel (defined as the highest and most expensive class of service); (8) Any new or continuing material or significant risks or issues raised by the audit, internal quality or control reviews, other inspections or peer reviews of the Authority, or any inquiry or investigation by governmental or professional authorities, along with any steps taken (e.g., corrective actions) to deal with any such issues, consistent with Sec. 1.154; and (9) Any other information requested by Commission staff. (b) Annual performance report. Every year, by March 31, the Authority must follow the procedures in Sec. 1.143 to submit an annual performance report to the Commission, detailing the items listed in paragraphs (b)(1) through (11) of this section for the previous calendar year. The Authority must also publish this report on its website. The report must contain: (1) Narrative summaries of all the major efforts by the Authority to carry out the requirements of the Act, including the status or results of any publicly announced investigations conducted by the Authority; (2) Information about the Authority's cooperation with the States as set forth in 15 U.S.C. 3060(b), including whether each State has covered horseraces, elects to remit fees, or has entered into an agreement under 15 U.S.C. 3060(a)(1) to implement a component of the programs on racetrack safety or anti-doping and medication control; (3) A summary of all final civil sanctions imposed by the Authority in the previous year, in a tabular format. At a minimum, the summary should be broken down by violation category (e.g., racetrack safety program, anti-doping and controlled medication protocol rules, etc.) and should include the total number of alleged violations by category, the number of times the violations were admitted and resolved without adjudication, the number of times any violations were contested and adjudicated, the number of times any sanctions were imposed, the number of times that no sanctions were imposed, the number of civil sanction notices that needed to be reissued or corrected, the total fines imposed, the total amount of purses forfeited, and the number of times the sanctions were appealed to the Commission's Administrative Law Judge; (4) An assessment of the Authority's progress in meeting or not meeting its performance measures contained in its strategic plan per paragraph (d) of this section; (5) A statement from each Board of Directors committee summarizing its work in the previous year and all [[Page 66551]] recommendations each such committee has made to the Board; (6) Information about any changes in the composition of the Authority's Board of Directors or standing committees; (7) Information about the relationship between the Authority and the anti-doping and medication control enforcement agency, including how the enforcement agency is performing under its contract with the Authority and how many years remain under the contract; (8) A summary of all litigation to which the Authority is a party, including actions commenced by the Authority under 15 U.S.C. 3054(j); (9) A summary of all subpoenas issued by the Authority under 15 U.S.C. 3054(c); (10) Descriptions of any areas in which the Authority believes that improvements to its operations are warranted, together with the Authority's plans to achieve those improvements. Forward-looking information should reflect known and anticipated risks, uncertainties, future events or conditions, and trends that could significantly affect the Authority's future financial position, condition, or operating performance, as well as Authority actions that have been planned or taken to address those challenges; and (11) Any other information requested by Commission staff. (c) Midyear reporting. Every year, by August 15, the Authority must follow the procedures in Sec. 1.143 to furnish to the Commission a same-year midyear report covering January through June, to include: (1) Spending and staffing levels for the quarter ending June 30, compared to the levels in the Commission-approved budget; (2) A summary of travel expenses, including an itemized list of any first-class travel (defined as the highest and most expensive class of service); (3) The status of outstanding and completed corrective actions; and (4) Any other information requested by Commission staff. (d) Strategic plan. The Authority must develop and maintain a multiyear strategic plan. The Authority must follow the procedures in Sec. 1.143 to submit its first strategic plan to the Commission on or before October 15, 2024. The Authority must reevaluate the strategic plan no less frequently than every five years. The Authority's annual budget must align with, and link spending to, the strategic goals. The strategic plan must include items such as a description of its State- by-State relationships and a discussion of planned rulemaking activities. The Authority must: (1) Post its draft strategic plan on its website for a public comment period of at least 14 days; (2) Present its final strategic plan to the Commission, along with a summary of its responses to public comments; and (3) Publish its final strategic plan on its website. (e) Further guidance on strategic plan. The Authority's strategic plan should include forecasts of the Authority's industry environment and its priority initiatives for the current and subsequent years. The strategic plan should also consider the impact that program levels and changes in methods of program delivery, including advances in technology, could have on program operations and administration. The strategic plan should identify several strategic goals aligned with the Authority's mission statement. Each strategic goal should have accompanying objectives, strategies, and performance measures. As guiding principles, performance measures should: (1) Be limited to the vital few and demonstrate results; (2) Cover multiple priorities; (3) Provide useful information for decision-making; (4) Be clear, measurable, objective, and reliable; and (5) Focus on core program activities and priorities. Sec. 1.154 Enterprise risk management. (a) Guiding principles. The Authority must effectively manage risk to prevent conflicts of interest, waste, fraud, embezzlement, and abuse. To manage risk, the Authority must align the enterprise risk- management process to the goals and objectives noted in the Authority's strategic plan. The Authority must assess risks, select risk responses, monitor whether responses are successful, and communicate and report on risks, consistent with Sec. 1.153. The Authority must ensure that all internal controls have appropriate separation of duties (e.g., requester, approver, recorder). In addition, the Authority must develop corrective action plans no later than 90 days after receiving a notice of finding from its auditors or other internal assessments. The Board of Directors (or one of the Authority's standing committees) must review and evaluate identified risks and proposed corrective action plans. The Authority must review regularly its corrective actions identified from all audits and internal assessments and should develop criteria by which to prioritize its response activities. The Authority must ensure that its risk management activities encompass: (1) Compliance with applicable laws, rules, and regulations; (2) The avoidance of conflicts of interest, or the appearance thereof, in all aspects of the Authority's operations, including investigation and enforcement, vendor selection, personnel assignments and responsibilities, and actions by the Board of Directors or management; and (3) Handling funds received and expended by the Authority, including revenue/expense policies, fundraising practices, contracting policies, travel policies, and real and personal property agreements and expenses. (b) Data security and privacy. The Authority must ensure the privacy and security of data, including all reasonable measures to protect the confidentiality of any sensitive health information (SHI), personally identifiable Information (PII), and sensitive PII (SPII) stored in its systems, including those operated by the anti-doping and medication control program, the Horseracing Integrity and Welfare Unit, and the Authority's third-party contractors. The Authority must ensure a complete annual evaluation of the status of its overall information technology security program and practices, as audited by a qualified, independent, third-party auditor. The Authority must also ensure that it has policies, programs, and practices in place to protect SHI, PII, and SPII. The Authority must send a copy of the annual evaluation to Commission staff. (c) Vendor selection. Procurement actions estimated at over $10,000 must be accompanied by documented market research (e.g., comparing the prices and other terms offered by the selected vendor against the prices and other terms offered by at least two other vendors) to ensure lowest cost or best value for goods or services to be provided. The Authority should also develop policies and procedures covering procurement activities. (d) Notice. The Authority must provide advance notice to Commission staff of all significant Authority-planned events (e.g., press conferences, media events, summits, etc.) via a calendar, a list, email, or some other reasonable means. The Authority must also summarize key aspects of all such events on its website within a reasonable timeframe. The Authority must also give Commission staff prompt notice after it has been alerted to significant, adverse events in the horseracing industry (e.g., adverse safety [[Page 66552]] or medical events that might reasonably lead to sanctions, track closures, etc.). Sec. 1.155 Other best practices. (a) Regular monitoring meetings. The Commission recommends that the Authority hold regular meetings with Commission staff to discuss upcoming or potential risks, challenges, and opportunities for improvement. (b) Records and information management. The Commission recommends that the Authority maintain records and information in sufficient detail to support the Authority's programs and operations, as well as any records relating to its information management policies or procedures. The Commission expects that the Authority will make any of these records available to Commission staff upon request, to allow the Commission to carry out its statutorily mandated oversight. (c) Treatment of confidential information. The Commission recommends that the Authority's submissions to the Commission not include any SHI, PII, or SPII, such as a Social Security number; date of birth; driver's license number or other State identification number, or foreign country equivalent; passport number; financial account number; or credit or debit card number. If the Authority submits documents to the Commission containing confidential commercial or financial information, it should so designate that material and request confidential treatment pursuant to Sec. 4.10(g) of this chapter. (d) Standing data requests. The Commission recommends that the Authority submit Board of Directors minutes to the Commission's Office of the Secretary within 30 days following each Board meeting. (e) Personnel and compensation. The Commission recommends that the Authority develop compensation policies and practices with the primary objective of attracting, developing, and retaining high-performing individuals capable of achieving the Authority's mission. The Authority should strive to recruit a diverse team of industry leaders whose unique backgrounds, education, cultures, and perspectives help position the Authority as an effective and innovative self-regulatory organization. The Commission also recommends that the Authority conduct periodic salary benchmarks to ensure that employee compensation is in line with other like organizations. (f) Customer service. The Commission recommends that the Authority maintain publicly accessible points of contact (e.g., email addresses, phone numbers) and monitor the timeliness with which it responds to inquiries. In this regard, the Commission urges the Authority to develop a policy and associated metrics covering its customer service activities, to be incorporated into its strategic plan and its regular reporting to the Commission. (g) Travel. The Commission recommends that the Authority use standard, General Services Administration (GSA)-established, published per diem rates when determining how much a person may spend on lodging, meals, and incidental expenses. Nevertheless, actual subsistence expenses may be authorized under unusual circumstances with justification and prior approval from the appropriate approving official. The Commission urges the Authority to prohibit the use of first-class travel (defined as the highest and most expensive class of service) by employees, except when no other option is available or when a disability or exceptional security conditions require it. The Commission also recommends that the Authority not reimburse its contractors for first-class travel unless exceptional circumstances warrant. Sec. 1.156 Severability. The provisions of this subpart are separate and severable from one another. If any provision is stayed or determined to be invalid, it is the Commission's intention that the remaining provisions shall continue in effect. By direction of the Commission. April J. Tabor, Secretary. [FR Doc. 2024-18245 Filed 8-15-24; 8:45 am] BILLING CODE 6750-01-P

usgpo

2024-10-08T13:26:23.564303

FR

FR-2024-08-16/2024-18266

Federal Register Volume 89 Issue 159 (August 16, 2024)

United States National Archives and Records Administration Office of the Federal Register

[Federal Register Volume 89, Number 159 (Friday, August 16, 2024)] [Rules and Regulations] [Pages 66552-66556] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 2024-18266] ======================================================================= ----------------------------------------------------------------------- DEPARTMENT OF HEALTH AND HUMAN SERVICES Food and Drug Administration 21 CFR Part 866 [Docket No. FDA-2024-N-3655] Medical Devices; Immunology and Microbiology Devices; Classification of the Device To Detect and Identify Nucleic Acid Targets Including SARS-CoV-2 in Respiratory Specimens AGENCY: Food and Drug Administration, HHS. ACTION: Final amendment; final order. ----------------------------------------------------------------------- SUMMARY: The Food and Drug Administration (FDA, Agency, or we) is classifying the device to detect and identify nucleic acid targets in respiratory specimens from microbial agents that cause the SARS-CoV-2 respiratory infection and other microbial agents when in a multi-target test into class II (special controls). The special controls that apply to the device type are identified in this order and will be part of the codified language for the device to detect and identify nucleic acid targets in respiratory specimens from microbial agents that cause the SARS-CoV-2 respiratory infection and other microbial agents when in a multi-target test's classification. We are taking this action because we have determined that classifying the device into class II (special controls) will provide a reasonable assurance of safety and effectiveness of the device. We believe this action will also enhance patients' access to beneficial innovative devices. DATES: This order is effective August 16, 2024. The classification was applicable on March 17, 2021. FOR FURTHER INFORMATION CONTACT: Uwe Scherf, Center for Devices and Radiological Health, Food and Drug Administration, 10903 New Hampshire Ave., Bldg. 66, Rm. 3110, Silver Spring, MD 20993-0002, 301-796-5456, [email protected]. SUPPLEMENTARY INFORMATION: I. Background Upon request, FDA has classified the device to detect and identify nucleic acid targets in respiratory specimens from microbial agents that cause the SARS-CoV-2 respiratory infection and other microbial agents when in a multi-target test as class II (special controls), which we have determined will provide a reasonable assurance of safety and effectiveness. In addition, we believe this action will enhance patients' access to beneficial innovation, in part by placing the device into a lower device class than the automatic class III assignment. The automatic assignment of class III occurs by operation of law and without any action by FDA, regardless of the level of risk posed by the new device. Any device that was not in commercial distribution before May 28, 1976, is automatically classified as, and remains within, class III and requires premarket approval unless and until FDA takes an action to classify or reclassify the device (see 21 U.S.C. 360c(f)(1)). We refer to these devices as ``postamendments devices'' because they were not in commercial distribution prior to the date of enactment of the Medical Device Amendments of 1976, which amended the Federal Food, Drug, and Cosmetic Act (FD&C Act). [[Page 66553]] FDA may take a variety of actions in appropriate circumstances to classify or reclassify a device into class I or II. We may issue an order finding a new device to be substantially equivalent under section 513(i) of the FD&C Act (see 21 U.S.C. 360c(i)) to a predicate device that does not require premarket approval. We determine whether a new device is substantially equivalent to a predicate device by means of the procedures for premarket notification under section 510(k) of the FD&C Act (21 U.S.C. 360(k)) and part 807 (21 CFR part 807). FDA may also classify a device through ``De Novo'' classification, a common name for the process authorized under section 513(f)(2) of the FD&C Act. Section 207 of the Food and Drug Administration Modernization Act of 1997 (Pub. L. 105-115) established the first procedure for De Novo classification. Section 607 of the Food and Drug Administration Safety and Innovation Act (Pub. L. 112-144) modified the De Novo application process by adding a second procedure. A device sponsor may utilize either procedure for De Novo classification. Under the first procedure, the person submits a 510(k) for a device that has not previously been classified. After receiving an order from FDA classifying the device into class III under section 513(f)(1) of the FD&C Act, the person then requests a classification under section 513(f)(2) of the FD&C Act. Under the second procedure, rather than first submitting a 510(k) and then a request for classification, if the person determines that there is no legally marketed device upon which to base a determination of substantial equivalence, that person requests a classification under section 513(f)(2) of the FD&C Act. Under either procedure for De Novo classification, FDA is required to classify the device by written order within 120 days. The classification will be according to the criteria under section 513(a)(1) of the FD&C Act. Although the device was automatically placed within class III, the De Novo classification is considered to be the initial classification of the device. When FDA classifies a device into class I or II via the De Novo process, the device can serve as a predicate for future devices of that type, including for 510(k)s (see section 513(f)(2)(B)(i) of the FD&C Act). As a result, other device sponsors do not have to submit a De Novo request or premarket approval application to market a substantially equivalent device (see section 513(i) of the FD&C Act, defining ``substantial equivalence''). Instead, sponsors can use the less-burdensome 510(k) process, when necessary, to market their device. II. De Novo Classification On May 19, 2020, FDA received Biofire Diagnostics, LLC's request for De Novo classification of the BioFire Respiratory Panel 2.1 (RP2.1) device. FDA reviewed the request in order to classify the device under the criteria for classification set forth in section 513(a)(1) of the FD&C Act. We classify devices into class II if general controls by themselves are insufficient to provide reasonable assurance of safety and effectiveness, but there is sufficient information to establish special controls that, in combination with the general controls, provide reasonable assurance of the safety and effectiveness of the device for its intended use (see 21 U.S.C. 360c(a)(1)(B)). After review of the information submitted in the request, we determined that the device can be classified into class II with the establishment of special controls. FDA has determined that these special controls, in addition to the general controls, will provide reasonable assurance of the safety and effectiveness of the device. Therefore, on March 17, 2021, FDA issued an order to the requester classifying the device into class II. In this final order, FDA is codifying the classification of the device by adding 21 CFR 866.3981.\1\ We have named the generic type of device as device to detect and identify nucleic acid targets in respiratory specimens from microbial agents that cause the SARS-CoV-2 respiratory infection and other microbial agents when in a multi-target test, and it is identified as an in vitro diagnostic device intended for the detection and identification of SARS-CoV-2 and other microbial agents when in a multi-target test in human clinical respiratory specimens from patients suspected of respiratory infection who are at risk for exposure or who may have been exposed to these agents. The device is intended to aid in the diagnosis of respiratory infection in conjunction with other clinical, epidemiologic, and laboratory data or other risk factors. --------------------------------------------------------------------------- \1\ FDA notes that the ``ACTION'' caption for this final order is styled as ``Final amendment; final order,'' rather than ``Final order.'' In December 2019, FDA began adding the term ``Final amendment'' to the ``ACTION'' caption for these documents, typically styled ``Final order,'' to indicate an amendment to the Code of Federal Regulations. This editorial change was made in accordance with the Office of Federal Register's (OFR) interpretations of the Federal Register Act (44 U.S.C. chapter 15), its implementing regulations (1 CFR 5.9 and parts 21 and 22), and the Document Drafting Handbook. --------------------------------------------------------------------------- FDA has identified the following risks to health associated specifically with this type of device and the measures required to mitigate these risks in table 1. Table 1--Device To Detect and Identify Nucleic Acid Targets in Respiratory Specimens From Microbial Agents That Cause the SARS-CoV-2 Respiratory Infection and Other Microbial Agents When in a Multi-Target Test Risks and Mitigation Measures ------------------------------------------------------------------------ Identified risks Mitigation measures ------------------------------------------------------------------------ Risk of an inaccurate test result Certain labeling information, (false positive or false negative including limitations, warnings, result) leading to improper device descriptions, explanation of patient management. procedures, and performance information identified in special controls (1), (3), (5), and (6); Use of certain specimen collection devices identified in special control (2); Certain design verification and validation, documentation of certain analytical studies and clinical studies, risk analysis strategies, and device descriptions identified in special control (4); and Testing of characterized viral samples and labeling information identified in special control (7). Misinterpretation of test results Certain labeling information, leading to misdiagnosis and including limitations, warnings, associated risk of false test device descriptions, explanation of results. procedures, results interpretation information, and performance information identified in special controls (1), (3), and (5); Certain design verification and validation, documentation of certain analytical studies and clinical studies, risk analysis strategies, and device descriptions identified in special control (4). [[Page 66554]] Failure to correctly operate the Certain labeling information, device leading to inaccurate test including limitations, warnings, results. device descriptions, explanation of procedures, and performance information identified in special controls (1), (3), (5), and (6); Use of certain specimen collection devices identified in special control (2); and Certain design verification and validation, documentation of certain analytical studies and clinical studies, risk analysis strategies, and device descriptions identified in special control (4). ------------------------------------------------------------------------ FDA has determined that special controls, in combination with the general controls, address these risks to health and provide reasonable assurance of safety and effectiveness. In order for a device to fall within this classification, and thus avoid automatic classification in class III, it would have to comply with the special controls named in this final order. The necessary special controls appear in the regulation codified by this order. This device is subject to premarket notification requirements under section 510(k) of the FD&C Act. III. Analysis of Environmental Impact The Agency has determined under 21 CFR 25.34(b) that this action is of a type that does not individually or cumulatively have a significant effect on the human environment. Therefore, neither an environmental assessment nor an environmental impact statement is required. IV. Paperwork Reduction Act of 1995 This final order establishes special controls that refer to previously approved collections of information found in other FDA regulations and guidance. These collections of information are subject to review by the Office of Management and Budget (OMB) under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3521). The collections of information in 21 CFR part 860, subpart D, regarding De Novo classification have been approved under OMB control number 0910-0844; the collections of information in 21 CFR part 814, subparts A through E, regarding premarket approval, have been approved under OMB control number 0910-0231; the collections of information in part 807, subpart E, regarding premarket notification submissions, have been approved under OMB control number 0910-0120; the collections of information in 21 CFR part 820, regarding quality system regulation, have been approved under OMB control number 0910-0073; and the collections of information in 21 CFR parts 801and 809, regarding labeling, have been approved under OMB control number 0910-0485. List of Subjects in 21 CFR Part 866 Biologics, Laboratories, Medical devices. Therefore, under the Federal Food, Drug, and Cosmetic Act and under authority delegated to the Commissioner of Food and Drugs, 21 CFR part 866 is amended as follows: PART 866--IMMUNOLOGY AND MICROBIOLOGY DEVICES 0 1. The authority citation for part 866 continues to read as follows: Authority: 21 U.S.C. 351, 360, 360c, 360e, 360j, 360l, 371. 0 2. Add Sec. 866.3981 to read as follows: Sec. 866.3981 Device to detect and identify nucleic acid targets in respiratory specimens from microbial agents that cause the SARS-CoV-2 respiratory infection and other microbial agents when in a multi-target test. (a) Identification. A device to detect and identify nucleic acid targets in respiratory specimens from microbial agents that cause the SARS-CoV-2 respiratory infection and other microbial agents when in a multi-target test is an in vitro diagnostic device intended for the detection and identification of SARS-CoV-2 and other microbial agents when in a multi-target test in human clinical respiratory specimens from patients suspected of respiratory infection who are at risk for exposure or who may have been exposed to these agents. The device is intended to aid in the diagnosis of respiratory infection in conjunction with other clinical, epidemiologic, and laboratory data or other risk factors. (b) Classification. Class II (special controls). The special controls for this device are: (1) The intended use in the labeling required under Sec. 809.10 of this chapter must include a description of the following: Analytes and targets the device detects and identifies, the specimen types tested, the results provided to the user, the clinical indications for which the test is to be used, the specific intended population(s), the intended use locations including testing location(s) where the device is to be used (if applicable), and other conditions of use as appropriate. (2) Any sample collection device used must be FDA-cleared, - approved, or -classified as 510(k) exempt (standalone or as part of a test system) for the collection of specimen types claimed by this device; alternatively, the sample collection device must be cleared in a premarket submission as a part of this device. (3) The labeling required under Sec. 809.10(b) of this chapter must include: (i) A detailed device description, including reagents, instruments, ancillary materials, all control elements, and a detailed explanation of the methodology, including all pre-analytical methods for processing of specimens; (ii) Detailed descriptions of the performance characteristics of the device for each specimen type claimed in the intended use based on analytical studies including the following, as applicable: Limit of Detection, inclusivity, cross-reactivity, interfering substances, competitive inhibition, carryover/cross contamination, specimen stability, precision, reproducibility, and clinical studies; (iii) Detailed descriptions of the test procedure(s), the interpretation of test results for clinical specimens, and acceptance criteria for any quality control testing; (iv) A warning statement that viral culture should not be attempted in cases of positive results for SARS-CoV-2 and/or any similar microbial agents unless a facility with an appropriate level of laboratory biosafety (e.g., BSL 3 and BSL 3+, etc.) is available to receive and culture specimens; and (v) A prominent statement that device performance has not been established for specimens collected from individuals not identified in the intended use population (e.g., when applicable, that device performance has not been established in individuals [[Page 66555]] without signs or symptoms of respiratory infection). (vi) Limiting statements that indicate that: (A) A negative test result does not preclude the possibility of infection; (B) The test results should be interpreted in conjunction with other clinical and laboratory data available to the clinician; (C) There is a risk of incorrect results due to the presence of nucleic acid sequence variants in the targeted pathogens; (D) That positive and negative predictive values are highly dependent on prevalence; (E) Accurate results are dependent on adequate specimen collection, transport, storage, and processing. Failure to observe proper procedures in any one of these steps can lead to incorrect results; and (F) When applicable (e.g., recommended by the Centers for Disease Control and Prevention, by current well-accepted clinical guidelines, or by published peer-reviewed literature), that the clinical performance may be affected by testing a specific clinical subpopulation or for a specific claimed specimen type. (4) Design verification and validation must include: (i) Detailed documentation, including performance results, from a clinical study that includes prospective (sequential) samples for each claimed specimen type and, as appropriate, additional characterized clinical samples. The clinical study must be performed on a study population consistent with the intended use population and compare the device performance to results obtained using a comparator that FDA has determined is appropriate. Detailed documentation must include the clinical study protocol (including a predefined statistical analysis plan), study report, testing results, and results of all statistical analyses. (ii) Risk analysis and documentation demonstrating how risk control measures are implemented to address device system hazards, such as Failure Modes Effects Analysis and/or Hazard Analysis. This documentation must include a detailed description of a protocol (including all procedures and methods) for the continuous monitoring, identification, and handling of genetic mutations and/or novel respiratory pathogen isolates or strains (e.g., regular review of published literature and periodic in silico analysis of target sequences to detect possible mismatches). All results of this protocol, including any findings, must be documented and must include any additional data analysis that is requested by FDA in response to any performance concerns identified under this section or identified by FDA during routine evaluation. Additionally, if requested by FDA, these evaluations must be submitted to FDA for FDA review within 48 hours of the request. Results that are reasonably interpreted to support the conclusion that novel respiratory pathogen strains or isolates impact the stated expected performance of the device must be sent to FDA immediately. (iii) A detailed description of the identity, phylogenetic relationship, and other recognized characterization of the respiratory pathogen(s) that the device is designed to detect. In addition, detailed documentation describing how to interpret the device results and other measures that might be needed for a laboratory diagnosis of respiratory infection. (iv) A detailed device description, including device components, ancillary reagents required but not provided, and a detailed explanation of the methodology, including molecular target(s) for each analyte, design of target detection reagents, rationale for target selection, limiting factors of the device (e.g., saturation level of hybridization and maximum amplification and detection cycle number, etc.), internal and external controls, and computational path from collected raw data to reported result (e.g., how collected raw signals are converted into a reported signal and result), as applicable. (v) A detailed description of device software, including software applications and hardware-based devices that incorporate software. The detailed description must include documentation of verification, validation, and hazard analysis and risk assessment activities, including an assessment of the impact of threats and vulnerabilities on device functionality and end users/patients as part of cybersecurity review. (vi) For devices intended for the detection and identification of microbial agents for which an FDA recommended reference panel is available, design verification and validation must include the performance results of an analytical study testing the FDA recommended reference panel of characterized samples. Detailed documentation must be kept of that study and its results, including the study protocol, study report for the proposed intended use, testing results, and results of all statistical analyses. (vii) For devices with an intended use that includes detection of Influenza A and Influenza B viruses and/or detection and differentiation between the Influenza A virus subtypes in human clinical specimens, the design verification and validation must include a detailed description of the identity, phylogenetic relationship, or other recognized characterization of the Influenza A and B viruses that the device is designed to detect, a description of how the device results might be used in a diagnostic algorithm and other measures that might be needed for a laboratory identification of Influenza A or B virus and of specific Influenza A virus subtypes, and a description of the clinical and epidemiological parameters that are relevant to a patient case diagnosis of Influenza A or B and of specific Influenza A virus subtypes. An evaluation of the device compared to a currently appropriate and FDA accepted comparator method. Detailed documentation must be kept of that study and its results, including the study protocol, study report for the proposed intended use, testing results, and results of all statistical analyses. (5) When applicable, performance results of the analytical study testing the FDA recommended reference panel described in paragraph (b)(4)(vi) of this section must be included in the device's labeling under Sec. 809.10(b) of this chapter. (6) For devices with an intended use that includes detection of Influenza A and Influenza B viruses and/or detection and differentiation between the Influenza A virus subtypes in human clinical specimens in addition to detection of SARS-CoV-2 and similar microbial agents, the required labeling under Sec. 809.10(b) of this chapter must include the following: (i) Where applicable, a limiting statement that performance characteristics for Influenza A were established when Influenza A/H3 and A/H1-2009 (or other pertinent Influenza A subtypes) were the predominant Influenza A viruses in circulation. (ii) Where applicable, a warning statement that reads if infection with a novel Influenza A virus is suspected based on current clinical and epidemiological screening criteria recommended by public health authorities, specimens should be collected with appropriate infection control precautions for novel virulent influenza viruses and sent to State or local health departments for testing. Viral culture should not be attempted in these cases unless a BSL 3+ facility is [[Page 66556]] available to receive and culture specimens. (iii) Where the device results interpretation involves combining the outputs of several targets to get the final results, such as a device that both detects Influenza A and differentiates all known Influenza A subtypes that are currently circulating, the device's labeling must include a clear interpretation instruction for all valid and invalid output combinations, and recommendations for any required followup actions or retesting in the case of an unusual or unexpected device result. (iv) A limiting statement that if a specimen yields a positive result for Influenza A, but produces negative test results for all specific influenza A subtypes intended to be differentiated (i.e., H1- 2009 and H3), this result requires notification of appropriate local, State, or Federal public health authorities to determine necessary measures for verification and to further determine whether the specimen represents a novel strain of Influenza A. (7) If one of the actions listed at section 564(b)(1)(A) through (D) of the Federal Food, Drug, and Cosmetic Act occurs with respect to an influenza viral strain, or if the Secretary of Health and Human Services determines, under section 319(a) of the Public Health Service Act, that a disease or disorder presents a public health emergency, or that a public health emergency otherwise exists, with respect to an influenza viral strain: (i) Within 30 days from the date that FDA notifies manufacturers that characterized viral samples are available for test evaluation, the manufacturer must have testing performed on the device with those influenza viral samples in accordance with a standardized protocol considered and determined by FDA to be acceptable and appropriate. (ii) Within 60 days from the date that FDA notifies manufacturers that characterized influenza viral samples are available for test evaluation and continuing until 3 years from that date, the results of the influenza emergency analytical reactivity testing, including the detailed information for the virus tested as described in the certificate of authentication, must be included as part of the device's labeling in a tabular format, either by: (A) Placing the results directly in the device's labeling required under Sec. 809.10(b) of this chapter that accompanies the device in a separate section of the labeling where analytical reactivity testing data can be found, but separate from the annual analytical reactivity testing results; or (B) In a section of the device's label or in other labeling that accompanies the device, prominently providing a hyperlink to the manufacturer's public website where the analytical reactivity testing data can be found. The manufacturer's website, as well as the primary part of the manufacturer's website that discusses the device, must provide a prominently placed hyperlink to the website containing this information and must allow unrestricted viewing access. Dated: August 12, 2024. Lauren K. Roth, Associate Commissioner for Policy. [FR Doc. 2024-18266 Filed 8-15-24; 8:45 am] BILLING CODE 4164-01-P

usgpo

2024-10-08T13:26:23.614481

FR

FR-2024-08-16/2024-18264

Federal Register Volume 89 Issue 159 (August 16, 2024)

United States National Archives and Records Administration Office of the Federal Register

[Federal Register Volume 89, Number 159 (Friday, August 16, 2024)] [Rules and Regulations] [Pages 66556-66558] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 2024-18264] ----------------------------------------------------------------------- DEPARTMENT OF HEALTH AND HUMAN SERVICES Food and Drug Administration 21 CFR Part 866 [Docket No. FDA-2024-N-3358] Medical Devices; Immunology and Microbiology Devices; Classification of the Device To Detect and Identify Selected Microbial Agents That Cause Acute Febrile Illness AGENCY: Food and Drug Administration, HHS. ACTION: Final amendment; final order. ----------------------------------------------------------------------- SUMMARY: The Food and Drug Administration (FDA, Agency, or we) is classifying the device to detect and identify selected microbial agents that cause acute febrile illness into class II (special controls). The special controls that apply to the device type are identified in this order and will be part of the codified language for the device to detect and identify selected microbial agents that cause acute febrile illness's classification. We are taking this action because we have determined that classifying the device into class II (special controls) will provide a reasonable assurance of safety and effectiveness of the device. We believe this action will also enhance patients' access to beneficial innovative devices. DATES: This order is effective August 16, 2024. The classification was applicable on November 20, 2020. FOR FURTHER INFORMATION CONTACT: Bryan Grabias, Center for Devices and Radiological Health, Food and Drug Administration, 10903 New Hampshire Ave., Bldg. 66, Rm. 3260, Silver Spring, MD 20993-0002, 240-402-9563, [email protected]. SUPPLEMENTARY INFORMATION: I. Background Upon request, FDA has classified the device to detect and identify selected microbial agents that cause acute febrile illness as class II (special controls), which we have determined will provide a reasonable assurance of safety and effectiveness. In addition, we believe this action will enhance patients' access to beneficial innovation, in part by placing the device into a lower device class than the automatic class III assignment. The automatic assignment of class III occurs by operation of law and without any action by FDA, regardless of the level of risk posed by the new device. Any device that was not in commercial distribution before May 28, 1976, is automatically classified as, and remains within, class III and requires premarket approval unless and until FDA takes an action to classify or reclassify the device (see 21 U.S.C. 360c(f)(1)). We refer to these devices as ``postamendments devices'' because they were not in commercial distribution prior to the date of enactment of the Medical Device Amendments of 1976, which amended the Federal Food, Drug, and Cosmetic Act (FD&C Act). FDA may take a variety of actions in appropriate circumstances to classify or reclassify a device into class I or II. We may issue an order finding a new device to be substantially equivalent under section 513(i) of the FD&C Act (see 21 U.S.C. 360c(i)) to a predicate device that does not require premarket approval. We determine whether a new device is substantially equivalent to a predicate device by means of the procedures for premarket notification under section 510(k) of the FD&C Act (21 U.S.C. 360(k)) and part 807 (21 CFR part 807). FDA may also classify a device through ``De Novo'' classification, a common name for the process authorized under section 513(f)(2) of the FD&C Act (see also 21 CFR part 860, subpart D). Section 207 of the Food and Drug Administration Modernization Act of 1997 (Pub. L. 105-115) established the first procedure for De Novo classification. Section 607 of the Food and Drug Administration Safety and Innovation Act (Pub. L. 112-144) modified the De Novo application process by adding a second procedure. A device sponsor may utilize either procedure for De Novo classification. Under the first procedure, the person submits a 510(k) for a device that has not previously been classified. After receiving an order from FDA classifying [[Page 66557]] the device into class III under section 513(f)(1) of the FD&C Act, the person then requests a classification under section 513(f)(2). Under the second procedure, rather than first submitting a 510(k) and then a request for classification, if the person determines that there is no legally marketed device upon which to base a determination of substantial equivalence, that person requests a classification under section 513(f)(2) of the FD&C Act. Under either procedure for De Novo classification, FDA is required to classify the device by written order within 120 days. The classification will be according to the criteria under section 513(a)(1) of the FD&C Act. Although the device was automatically placed within class III, the De Novo classification is considered to be the initial classification of the device. When FDA classifies a device into class I or II via the De Novo process, the device can serve as a predicate for future devices of that type, including for 510(k)s (see section 513(f)(2)(B)(i) of the FD&C Act). As a result, other device sponsors do not have to submit a De Novo request or premarket approval application to market a substantially equivalent device (see section 513(i) of the FD&C Act, defining ``substantial equivalence''). Instead, sponsors can use the less-burdensome 510(k) process, when necessary, to market their device. II. De Novo Classification On June 26, 2020, FDA received BioFire Defense, LLC's request for De Novo classification of the FilmArray Global Fever Panel. FDA reviewed the request in order to classify the device under the criteria for classification set forth in section 513(a)(1) of the FD&C Act. We classify devices into class II if general controls by themselves are insufficient to provide reasonable assurance of safety and effectiveness, but there is sufficient information to establish special controls that, in combination with the general controls, provide reasonable assurance of the safety and effectiveness of the device for its intended use (see 21 U.S.C. 360c(a)(1)(B)). After review of the information submitted in the request, we determined that the device can be classified into class II with the establishment of special controls. FDA has determined that these special controls, in addition to the general controls, will provide reasonable assurance of the safety and effectiveness of the device. Therefore, on November 20, 2020, FDA issued an order to the requester classifying the device into class II. In this final order, FDA is codifying the classification of the device by adding 21 CFR 866.3966.\1\ We have named the generic type of device as a device to detect and identify selected microbial agents that cause acute febrile illness, and it is identified as an in vitro device intended for the detection and identification of microbial agents in human clinical specimens from patients with signs and symptoms of acute febrile illness who are at risk for exposure or who may have been exposed to these agents. It is intended to aid in the diagnosis of acute febrile illness in conjunction with other clinical, epidemiologic, and laboratory data, including patient travel, pathogen endemicity, or other risk factors. --------------------------------------------------------------------------- \1\ FDA notes that the ``ACTION'' caption for this final order is styled as ``Final amendment; final order,'' rather than ``Final order.'' Beginning in December 2019, this editorial change was made to indicate that the document ``amends'' the Code of Federal Regulations. The change was made in accordance with the Office of Federal Register's (OFR) interpretations of the Federal Register Act (44 U.S.C. chapter 15), its implementing regulations (1 CFR 5.9 and parts 21 and 22), and the Document Drafting Handbook. --------------------------------------------------------------------------- FDA has identified the following risks to health associated specifically with this type of device and the measures required to mitigate these risks in table 1. Table 1--Device To Detect and Identify Selected Microbial Agents That Cause Acute Febrile Illness Risks and Mitigation Measures ------------------------------------------------------------------------ Identified risks Mitigation measures ------------------------------------------------------------------------ Risk of an inaccurate test result Certain labeling information, (false positive or false negative including certain limiting result) leading to improper patient statements and performance management. information; Certain design verification and validation, including certain analytical studies and clinical studies; and Use of certain specimen collection devices. Misinterpretation of test results Certain labeling information, leading to misdiagnosis and associated including certain limiting risk of false test results. statements and performance information; and Certain design verification and validation, including certain analytical studies and clinical studies. Failure to correctly operate the device Certain labeling information, leading to inaccurate test results. including certain limiting statements and performance information; Certain design verification and validation, including certain analytical studies and clinical studies; and Use of certain specimen collection devices. ------------------------------------------------------------------------ FDA has determined that special controls, in combination with the general controls, address these risks to health and provide reasonable assurance of safety and effectiveness. In order for a device to fall within this classification, and thus avoid automatic classification in class III, it would have to comply with the special controls named in this final order. The necessary special controls appear in the regulation codified by this order. This device is subject to premarket notification requirements under section 510(k) of the FD&C Act. III. Analysis of Environmental Impact The Agency has determined under 21 CFR 25.34(b) that this action is of a type that does not individually or cumulatively have a significant effect on the human environment. Therefore, neither an environmental assessment nor an environmental impact statement is required. IV. Paperwork Reduction Act of 1995 This final order establishes special controls that refer to previously approved collections of information found in other FDA regulations and guidance. These collections of information are subject to review by the Office of Management and Budget (OMB) under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3521). The collections of information in part 860, subpart D, regarding De Novo classification have been approved under OMB control number 0910-0844; the [[Page 66558]] collections of information in 21 CFR part 814, subparts A through E, regarding premarket approval, have been approved under OMB control number 0910-0231; the collections of information in part 807, subpart E, regarding premarket notification submissions, have been approved under OMB control number 0910-0120; the collections of information in 21 CFR part 820, regarding quality system regulation, have been approved under OMB control number 0910-0073; and the collections of information in 21 CFR parts 801 and 809, regarding labeling, have been approved under OMB control number 0910-0485. List of Subjects in 21 CFR Part 866 Biologics, Laboratories, Medical devices. Therefore, under the Federal Food, Drug, and Cosmetic Act and under authority delegated to the Commissioner of Food and Drugs, 21 CFR part 866 is amended as follows: PART 866--IMMUNOLOGY AND MICROBIOLOGY DEVICES 0 1. The authority citation for part 866 continues to read as follows: Authority: 21 U.S.C. 351, 360, 360c, 360e, 360j, 360l, 371. 0 2. Add Sec. 866.3966 to read as follows: Sec. 866.3966 Device to detect and identify selected microbial agents that cause acute febrile illness. (a) Identification. A device to detect and identify selected microbial agents that cause acute febrile illness is identified as an in vitro device intended for the detection and identification of microbial agents in human clinical specimens from patients with signs and symptoms of acute febrile illness who are at risk for exposure or who may have been exposed to these agents. It is intended to aid in the diagnosis of acute febrile illness in conjunction with other clinical, epidemiologic, and laboratory data, including patient travel, pathogen endemicity, or other risk factors. (b) Classification. Class II (special controls). The special controls for this device are: (1) Any sample collection device used must be FDA-cleared, - approved, or -classified as 510(k) exempt (standalone or as part of a test system) for the collection of specimen types claimed by this device; alternatively, the sample collection device must be cleared in a premarket submission as a part of this device. (2) The labeling required under Sec. 809.10(b) of this chapter must include: (i) An intended use that includes a detailed description of targets the device detects and measures, the results provided to the user, the clinical indications appropriate for test use, and the specific population(s) for which the device is intended. (ii) Limiting statements indicating: (A) Not all pathogens that cause febrile illness are detected by this test and negative results do not rule out the presence of other infections; (B) Evaluation of more common causes of acute febrile illness should be considered prior to evaluation with this test; (C) Test results are to be interpreted in conjunction with other clinical, epidemiologic, and laboratory data available to the clinician; and (D) When using this test, consider patient travel history and exposure risk, as some pathogens are more common in certain geographical locations. (iii) A detailed device description, including reagents, instruments, ancillary materials, all control elements, and a detailed explanation of the methodology, including all pre-analytical methods for processing of specimens. (iv) Detailed discussion of the performance characteristics of the device for all claimed specimen types as shown by the analytical and clinical studies required under paragraphs (b)(3)(ii) and (iii) of this section, except specimen stability performance characteristics. (v) A statement that nationally notifiable results are to be reported to public health authorities in accordance with local, state, and federal law. (3) Design verification and validation must include: (i) A detailed device description (e.g., all device parts, control elements incorporated into the test procedure, reagents required but not provided, the principle of device operation and test methodology), and the computational path from collected raw data to reported result (e.g., how collected raw signals are converted into a reported result). (ii) Detailed documentation of analytical studies, including those demonstrating Limit of Detection (LoD), inclusivity, cross-reactivity, microbial interference, interfering substances, competitive inhibition, carryover/cross contamination, specimen stability, within lab precision, and reproducibility, as appropriate. (iii) Detailed documentation and performance results from a clinical study that includes prospective (sequentially collected) samples for each claimed specimen type and, when determined to be appropriate by FDA, additional characterized clinical samples. The study must be performed on a study population consistent with the intended use population and compare the device performance to results obtained from FDA-accepted comparator methods. Documentation from the clinical studies must include the clinical study protocol (including a predefined statistical analysis plan), study report, testing results, and results of all statistical analyses. (iv) A detailed description of the impact of any software, including software applications and hardware-based devices that incorporate software, on the device's functions. Dated: August 12, 2024. Lauren K. Roth, Associate Commissioner for Policy. [FR Doc. 2024-18264 Filed 8-15-24; 8:45 am] BILLING CODE 4164-01-P

usgpo

2024-10-08T13:26:23.636490

FR

FR-2024-08-16/2024-18267

Federal Register Volume 89 Issue 159 (August 16, 2024)

United States National Archives and Records Administration Office of the Federal Register

[Federal Register Volume 89, Number 159 (Friday, August 16, 2024)] [Rules and Regulations] [Pages 66558-66560] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 2024-18267] ----------------------------------------------------------------------- DEPARTMENT OF HEALTH AND HUMAN SERVICES Food and Drug Administration 21 CFR Part 880 [Docket No. FDA-2024-N-3356] Medical Devices; General Hospital and Personal Use Devices; Classification of the Intravenous Catheter Force-Activated Separation Device AGENCY: Food and Drug Administration, HHS. ACTION: Final amendment; final order. ----------------------------------------------------------------------- SUMMARY: The Food and Drug Administration (FDA, Agency, or we) is classifying the intravenous catheter force-activated separation device into class II (special controls). The special controls that apply to the device type are identified in this order and will be part of the codified language for the intravenous catheter force-activated separation device's classification. We are taking this action because we have determined that classifying the device into class II (special controls) will provide a reasonable assurance of safety and effectiveness of the device. We believe this action will also enhance patients' access to beneficial innovative devices. DATES: This order is effective August 16, 2024. The classification was applicable on May 27, 2021. FOR FURTHER INFORMATION CONTACT: Florencia Wilson, Center for Devices and Radiological Health, Food and Drug Administration, 10903 New Hampshire Ave., Bldg. 66, Rm. 2458, Silver Spring, [[Page 66559]] MD 20993-0002, 240-402-9978, [email protected]. SUPPLEMENTARY INFORMATION: I. Background Upon request, FDA has classified the intravenous catheter force- activated separation device as class II (special controls), which we have determined will provide a reasonable assurance of safety and effectiveness. In addition, we believe this action will enhance patients' access to beneficial innovation, in part by placing the device into a lower device class than the automatic class III assignment. The automatic assignment of class III occurs by operation of law and without any action by FDA, regardless of the level of risk posed by the new device. Any device that was not in commercial distribution before May 28, 1976, is automatically classified as, and remains within, class III and requires premarket approval unless and until FDA takes an action to classify or reclassify the device (see 21 U.S.C. 360c(f)(1)). We refer to these devices as ``postamendments devices'' because they were not in commercial distribution prior to the date of enactment of the Medical Device Amendments of 1976, which amended the Federal Food, Drug, and Cosmetic Act (FD&C Act). FDA may take a variety of actions in appropriate circumstances to classify or reclassify a device into class I or II. We may issue an order finding a new device to be substantially equivalent under section 513(i) of the FD&C Act (see 21 U.S.C. 360c(i)) to a predicate device that does not require premarket approval. We determine whether a new device is substantially equivalent to a predicate device by means of the procedures for premarket notification under section 510(k) of the FD&C Act (21 U.S.C. 360(k)) and part 807 (21 CFR part 807). FDA may also classify a device through ``De Novo'' classification, a common name for the process authorized under section 513(f)(2) of the FD&C Act. Section 207 of the Food and Drug Administration Modernization Act of 1997 (Pub. L. 105-115) established the first procedure for De Novo classification. Section 607 of the Food and Drug Administration Safety and Innovation Act (Pub. L. 112-144) modified the De Novo application process by adding a second procedure. A device sponsor may utilize either procedure for De Novo classification. Under the first procedure, the person submits a 510(k) for a device that has not previously been classified. After receiving an order from FDA classifying the device into class III under section 513(f)(1) of the FD&C Act, the person then requests a classification under section 513(f)(2). Under the second procedure, rather than first submitting a 510(k) and then a request for classification, if the person determines that there is no legally marketed device upon which to base a determination of substantial equivalence, that person requests a classification under section 513(f)(2) of the FD&C Act. Under either procedure for De Novo classification, FDA is required to classify the device by written order within 120 days. The classification will be according to the criteria under section 513(a)(1) of the FD&C Act. Although the device was automatically placed within class III, the De Novo classification is considered to be the initial classification of the device. When FDA classifies a device into class I or II via the De Novo process, the device can serve as a predicate for future devices of that type, including for 510(k)s (see section 513(f)(2)(B)(i) of the FD&C Act). As a result, other device sponsors do not have to submit a De Novo request or premarket approval application to market a substantially equivalent device (see section 513(i) of the FD&C Act, defining ``substantial equivalence''). Instead, sponsors can use the less-burdensome 510(k) process, when necessary, to market their device. II. De Novo Classification On September 18, 2019, FDA received Site Saver, Inc. d/b/a Lineus Medical's request for De Novo classification of the SafeBreak Vascular. FDA reviewed the request to classify the device under the criteria for classification set forth in section 513(a)(1) of the FD&C Act. We classify devices into class II if general controls by themselves are insufficient to provide reasonable assurance of safety and effectiveness, but there is sufficient information to establish special controls that, in combination with the general controls, provide reasonable assurance of the safety and effectiveness of the device for its intended use (see 21 U.S.C. 360c(a)(1)(B)). After review of the information submitted in the request, we determined that the device can be classified into class II with the establishment of special controls. FDA has determined that these special controls, in addition to the general controls, will provide reasonable assurance of the safety and effectiveness of the device. Therefore, on May 27, 2021, FDA issued an order to the requester classifying the device into class II. In this final order, FDA is codifying the classification of the device by adding 21 CFR 880.5220.\1\ We have named the generic type of device intravenous catheter force-activated separation device and it is identified as a device placed in-line with an intravenous (IV) catheter and an intravascular administration set, including any administration set accessories. It separates into two parts when a specified force is applied. The device is intended to reduce the risk of IV catheter failure(s) requiring IV catheter replacement. --------------------------------------------------------------------------- \1\ FDA notes that the ``ACTION'' caption for this final order is styled as ``Final amendment; final order,'' rather than ``Final order.'' Beginning in December 2019, this editorial change was made to indicate that the document ``amends'' the Code of Federal Regulations. The change was made in accordance with the Office of Federal Register's (OFR) interpretations of the Federal Register Act (44 U.S.C. chapter 15), its implementing regulations (1 CFR 5.9 and parts 21 and 22), and the Document Drafting Handbook. --------------------------------------------------------------------------- FDA has identified the following risks to health associated specifically with this type of device and the measures required to mitigate these risks in table 1. Table 1--Intravenous Catheter Force-Activated Separation Device Risks and Mitigation Measures ------------------------------------------------------------------------ Identified risks to health Mitigation measures ------------------------------------------------------------------------ Delays of therapy due to failure of Performance data, Non-clinical device to function as expected (e.g., performance testing, and if separation force too low). Labeling. Mechanical complications (e.g., IV Performance data, Non-clinical dislodgement, IV infiltration, performance testing, and occlusion, and phlebitis events Labeling. requiring IV replacement) due to failure of device to function as expected (e.g., if separation force too high). Infection.............................. Sterilization validation, Shelf life testing, Non-clinical performance testing, and Labeling. Air embolism........................... Non-clinical performance testing, and Labeling. [[Page 66560]] Adverse tissue reaction................ Biocompatibility evaluation, Pyrogenicity testing, and Non- clinical performance testing. ------------------------------------------------------------------------ FDA has determined that special controls, in combination with the general controls, address these risks to health and provide reasonable assurance of safety and effectiveness. For a device to fall within this classification, and thus avoid automatic classification in class III, it would have to comply with the special controls named in this final order. The necessary special controls appear in the regulation codified by this order. This device is subject to premarket notification requirements under section 510(k) of the FD&C Act. III. Analysis of Environmental Impact The Agency has determined under 21 CFR 25.34(b) that this action is of a type that does not individually or cumulatively have a significant effect on the human environment. Therefore, neither an environmental assessment nor an environmental impact statement is required. IV. Paperwork Reduction Act of 1995 This final order establishes special controls that refer to previously approved collections of information found in other FDA regulations and guidance. These collections of information are subject to review by the Office of Management and Budget (OMB) under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3521). The collections of information in 21 CFR part 860, subpart D, regarding De Novo classification have been approved under OMB control number 0910-0844; the collections of information in 21 CFR part 814, subparts A through E, regarding premarket approval, have been approved under OMB control number 0910-0231; the collections of information in part 807, subpart E, regarding premarket notification submissions, have been approved under OMB control number 0910-0120; the collections of information in 21 CFR part 820, regarding quality system regulation, have been approved under OMB control number 0910-0073; and the collections of information in 21 CFR part 801, regarding labeling, have been approved under OMB control number 0910-0485. List of Subjects in 21 CFR Part 880 Medical devices. Therefore, under the Federal Food, Drug, and Cosmetic Act and under authority delegated to the Commissioner of Food and Drugs, 21 CFR part 880 is amended as follows: PART 880--GENERAL HOSPITAL AND PERSONAL USE DEVICES 0 1. The authority citation for part 880 continues to read as follows: Authority: 21 U.S.C. 351, 360, 360c, 360e, 360j, 360l, 371. 0 2. Add Sec. 880.5220 to read as follows: Sec. 880.5220 Intravenous catheter force-activated separation device. (a) Identification. An intravenous catheter force-activated separation device is placed in-line with an intravenous (IV) catheter and an intravascular administration set, including any administration set accessories. It separates into two parts when a specified force is applied. The device is intended to reduce the risk of IV catheter failure(s) requiring IV catheter replacement. (b) Classification. Class II (special controls). The special controls for this device are: (1) Performance data must be provided to demonstrate clinically acceptable performance for the intended use of the device. (2) Non-clinical performance testing must demonstrate that the device performs as intended under anticipated conditions of use. The following performance characteristics must be tested: (i) Separation force testing; (ii) Validation of anti-reconnect features; (iii) Air and liquid leakage testing, both before and after separation; (iv) Luer connection testing; (v) Flow rate testing; (vi) Particulate testing; and (vii) Microbial ingress testing. (3) The device must be demonstrated to be biocompatible. (4) Performance testing must demonstrate that the device is sterile and non-pyrogenic. (5) Performance testing must support the shelf life of the device by demonstrating continued sterility and device functionality over the identified shelf life. (6) Device labeling must include: (i) Instructions for use; and (ii) A discussion of catheter dressings intended to be used with the device. Dated: August 12, 2024. Lauren K. Roth, Associate Commissioner for Policy. [FR Doc. 2024-18267 Filed 8-15-24; 8:45 am] BILLING CODE 4164-01-P

usgpo

2024-10-08T13:26:23.689379

FR

FR-2024-08-16/2024-17143

Federal Register Volume 89 Issue 159 (August 16, 2024)

United States National Archives and Records Administration Office of the Federal Register

[Federal Register Volume 89, Number 159 (Friday, August 16, 2024)] [Rules and Regulations] [Pages 66560-66562] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 2024-17143] ======================================================================= ----------------------------------------------------------------------- DEPARTMENT OF THE TREASURY Internal Revenue Service 26 CFR Part 1 [TD 9998] RIN 1545-BQ62 Increased Amounts of Credit or Deduction for Satisfying Certain Prevailing Wage and Registered Apprenticeship Requirements; Correction AGENCY: Internal Revenue Service (IRS), Treasury. ACTION: Final rule; correction. ----------------------------------------------------------------------- SUMMARY: This document contains corrections to Treasury Decision 9998 published in the Federal Register on Tuesday, June 25, 2024. Treasury Decision 9998 sets forth final regulations regarding the increased credit amounts or the increased deduction amount available for taxpayers satisfying prevailing wage and registered apprenticeship (collectively, PWA) requirements established by the Inflation Reduction Act of 2022. DATES: Effective date: These corrections are effective on August 26, 2024. Applicability date: For date of applicability, see Sec. Sec. 1.30C-3(c), 1.45-6(d), 1.45-7(e), 1.45-8(h), 1.45-12(f), 1.45L-3(c), 1.45Q-6(c), 1.45U-3(c), 1.45V-3(c), 1.45Y-3(c), 1.45Z-3(c), 1.48C-3(b), 1.179D-3(c). FOR FURTHER INFORMATION CONTACT: Concerning these final regulations, Barbara Campbell or Nicole Cimino of the Office of the Associate Chief Counsel (Passthroughs & Special Industries) at (202) 317-6853 (not a toll-free number). SUPPLEMENTARY INFORMATION: [[Page 66561]] Background The final regulations (TD 9998) subject to these corrections are issued under sections 30C, 45, 45L, 45Q, 45U, 45V, 45Y, 45Z, 48C, and 179D of the Internal Revenue Code. Correction of Publication Accordingly, the final regulations (TD 9998) that are the subject of FR Doc. 2024-13331, published on Tuesday, June 25, 2024, at 89 FR 53184 are corrected as follows: 1. On page 53184, in the second column, in the third line of the second full paragraph, the language ``credits'' is corrected to read ``credit''. 2. On page 53187, in the first column, under the heading ``IV. Prior Guidance'', in the fifth line from the top of the paragraph, the language ``credits'' is corrected to read ``credit''. 3. On page 53188, in the first column, in the second line from the bottom of the column, the language ``grammatical or stylistic'' is corrected to read ``grammatical and stylistic''. 4. On page 53193, in the second column, in the eleventh line from the top of the column, the language ``appliable'' is corrected to read ``applicable''. 5. On page 53196, in the first column, the sixth line from the top of the column is corrected to read ``equivalent under the DBA, looks solely at''. 6. On page 53196, in the third column, the sixth line from the bottom of the column is corrected to read ``definition of a qualified facility under''. 7. On page 53199, in the third column, the thirteenth line from the bottom of the column is corrected to read ``laborer or mechanic''. 8. On page 53200, in the first column, the fourteenth line from the bottom of the column is corrected to read ``but not all of the requests for qualified''. 9. On page 53204, in the first column, in the nineteenth line from the bottom of the column, the language ``a'' is removed. 10. On page 53204, in the first column, the third line from the bottom of the column is corrected to read ``prevailing rates in accordance with''. 11. On page 53205, in the third column, the last line of the footnote is corrected to read ``of section 179D(f); and in each case including any''. 12. On page 53209, in the first column, the tenth line from the top of the column is corrected to read ``determinations is https://www.sam.gov.''. 13. On page 53210, in the third column, the fifth line of the first full paragraph is corrected to read ``the greatest number of laborers or''. 14. On page 53213, in the third column, in the fifth line of the first full paragraph, the language ``apprenticeships'' is corrected to read ``apprentices''. 15. On page 53222, in the first column, in the fifth line from the top of the first full paragraph, the language ``and amount'' is removed. 16. On page 53225, in the first column, in the first line of the column, the language ``applies'' is corrected to read ``apply''. 17. On page 53228, in the third column, the fourth line from the bottom of the second full paragraph is corrected to read ``apprenticeship agency pursuant to 29 CFR''. 18. On page 53233, in the third column, in the second line of the footnote, the language ``an NPRM'' is corrected to read ``a notice of proposed rulemaking''. 19. On page 53235, in the first column, the fourth line of last partial paragraph is corrected to read ``programs. Under section 45(b)(8)(D)(ii), to''. 20. On page 53238, in the first column, the fourth line from the bottom of the partial paragraph is corrected to read ``Under section 30C(c)(g)(3), rules similar''. 21. On page 53242, in the third column, in the sixth line of the second full paragraph, the language ``48C(c)(2)'' is corrected to read ``section 48C(c)(2)''. 22. On page 53243, in the first column, in third line from the bottom of the first partial paragraph, the language ``179D(b)'' is corrected to read ``section 179D(b)''. 23. On page 53244, in the second column, the fourth line of the last partial paragraph is corrected to read ``suggested that the final regulations''. 24. On page 53246, in the third column, the fifth line from the second full paragraph is corrected to read ``as it applies to facilities, property, projects,''. 25. On page 53247, in the third column, the sixth line of the second full paragraph is corrected to read ``preamble to the notice of proposed rulemaking estimated these''. 26. On page 53248, in the second column, in the sixth line of the third paragraph, the language ``paying'' is removed. 27. On page 53248, in the second column, in the seventh line of the third paragraph, the language ``qualified'' is corrected to read ``of qualified''. 28. On page 53248, in the third column, in the third line from the top of the column, the language ``be'' is removed. 29. On page 53249, in the second column, the nineth line of the second full paragraph is corrected to read ``data includes approximately 18 million''. 30. On page 53249, in the second column, the eleventh line of the second full paragraph is corrected to read ``the tax data includes more small''. 31. On page 53249, in the second column, the thirteenth line of the second full paragraph is corrected to read ``one employee. Tax data provides a more''. 32. On page 53249, in the second column, the sixteenth line of the second full paragraph is corrected to read ``tax data is an appropriate resource for''. 33. On page 53250, in the third column, the seventh line from the bottom of the first full paragraph is corrected to read ``rates. Commenters suggested that the''. 34. On page 53251, in the first column, the fourth line from the bottom of the first full paragraph is corrected to read ``processes for setting standards are''. PART 1 [Corrected] 0 35. On page 53251, in the third column, in amendatory instruction 1 for part 1, ``Sec. 1.48C-3,'' is removed. Sec. Sec. 1.45-9--1.45-12 [Corrected] 0 36. On page 53252, in the first column, in amendatory instruction 3 for Sec. Sec. 1.45-9 through 1.45-12, in the table of contents for the sections, the text ``1.45-9--1.45.11 [Reserved]'' is corrected to read ``1.45-9--1.45-11 [Reserved]''. Sec. 1.45-7 [Corrected] 0 37. In amendatory instruction 3, in Sec. 1.45-7: 0 i. On page 53255, in the first column, the fourteenth line from the bottom of paragraph (b)(5) is corrected to read ``repair starts within 180 days of''. 0 ii. On page 53255, in the third column, the fifth line from the bottom of paragraph (b)(7)(i) is corrected to read ``Wage Requirements by paying''. 0 iii. On page 53257, in the first column, the tenth line of paragraph (c)(1)(vi)(C) is corrected to read ``facility for 22 weeks in 2023 and was paid''. 0 iv. On page 53257, in the second column, the seventh line of paragraph (c)(3)(i) introductory text is corrected to read ``the requirements-- ''. 0 v. On page 53258, in the first column, the ninth line from the bottom of paragraph (c)(3)(i)(J) is corrected to read ``action, and whether the taxpayer''. 0 vi. On page 53258, in the second column, the seventeenth line from the bottom of paragraph (c)(3)(iv)(A) is [[Page 66562]] corrected to read ``wages paid to any laborers and''. 0 vii. On page 53260, in the third column, the sixth line from the bottom of paragraph (c)(6)(iv)(E) is corrected to read ``period of August 1, 2023, to September''. Sec. 1.45-8 [Corrected] 0 38. In amendatory instruction 3, in Sec. 1.45-8: 0 i. On page 53262, in the third column, the third line from the bottom of paragraph (b)(1) is corrected to read ``dividing the total hours worked by all''. 0 ii. On page 53265, in the third column, the third line of paragraph (f)(2)(i)(A) is corrected to read ``failures to meet the percentage of the total''. 0 iii. On page 53266, in the first column, last line of the partial paragraph (f)(2)(i)(A) is corrected to read ``Exception.''. 0 iv. On page 53266, in the third column, the sixth line from bottom of paragraph (f)(2)(i)(D)(2) is corrected to read ``(5) on the construction of the''. 0 v. On page 53267, in the third column, the fourth line of paragraph (f)(2)(ii)(C)(13) is corrected to read ``Apprenticeship Requirements for''. 0 vi. On page 53268, in the first column, the sixth line of paragraph (f)(2)(ii)(D)(1) is corrected to read ``include contract provisions that require''. Sec. 1.45U-3 [Corrected] 0 39. On page 53271, in the second column, in amendatory instruction 6, in Sec. 1.45U-3, the second line of paragraph (b)(1) is corrected to read ``agreement with one or more labor''. Regina L. Johnson, Federal Register Liaison, Publications and Regulations Section, Associate Chief Counsel, (Procedure and Administration). [FR Doc. 2024-17143 Filed 8-15-24; 8:45 am] BILLING CODE 4830-01-P

usgpo

2024-10-08T13:26:23.704295

FR

FR-2024-08-16/2024-17945

Federal Register Volume 89 Issue 159 (August 16, 2024)

United States National Archives and Records Administration Office of the Federal Register

[Federal Register Volume 89, Number 159 (Friday, August 16, 2024)] [Rules and Regulations] [Pages 66562-66563] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 2024-17945] ----------------------------------------------------------------------- DEPARTMENT OF THE TREASURY Internal Revenue Service 26 CFR Parts 1 and 301 [TD 9988] RIN 1545-BQ63 Elective Payment of Applicable Credits; Correction AGENCY: Internal Revenue Service (IRS), Treasury. ACTION: Final rule; correction and correcting amendments. ----------------------------------------------------------------------- SUMMARY: This document contains corrections to Treasury Decision 9988, which was published in the Federal Register for Monday, March 11, 2024. Treasury Decision 9988 issued final regulations concerning the election under the Inflation Reduction Act of 2022 to treat the amount of certain tax credits as a payment of Federal income tax. DATES: These corrections are effective on August 16, 2024 and for dates of applicability see Sec. Sec. 1.6417-1(q), 1.6417-2(f), 1.6417-3(f), 1.6417-4(f), 1.6417-5(d), 1.6417-6(e), 301.6241-1(b)(1), and 301.6241- 7(k)(3). FOR FURTHER INFORMATION CONTACT: Concerning these final regulations, Jeremy Milton at (202) 317-5665 and James Holmes at (202) 317-5114 (not toll-free numbers). SUPPLEMENTARY INFORMATION: Background The final regulations (TD 9988) that are the subject of this correction are under section 6417 of the Code. Corrections to Publication Accordingly, the final regulations (TD 9988) that are the subject of FR Doc. 2024-04604, published on March 11, 2024, are corrected to read: 1. On page 17550, in the first column, in the fourth line from the top of the first full paragraph, the language ``designed'' is corrected to read ``designated''. 2. On page 17552, in the third column, in the eighth line from the bottom of the first full paragraph, the language ``cert denied'' is corrected to read ``cert. denied''. 3. On page 17559, in the third column, in the twelfth line from the top of the first partial paragraph, the language ``[ ]'' is corrected to read ``...''. 4. On page 17560, in the first column, in the tenth line from the top of the first partial paragraph, the language ``book'' is corrected to read ``books''. 5. On page 17561, in the second column, in the eighth line from the bottom of the last partial paragraph, the language ``tax-exempt'' is corrected to read, ``tax exempt''. 6. On page 17561, in the third column, in the fifteenth line from the top of the first partial paragraph, the language ``tax-exempt'' is corrected to read ``tax exempt''. 7. On page 17562, in the second column, the third line from the bottom of the second full paragraph is corrected to read, ``so as not to incur an addition to tax due''. 8. On page 17575, in the first column, in the tenth line from the top of the first partial paragraph, the language ``tax-exempt'' is corrected to read ``tax exempt''. 9. On page 17577, in the second column, in the tenth line from the top of the first full paragraph, the language ``Section'' is corrected to read ``part''. 10. On page 17581, in the third column, the second line from the bottom of the last partial paragraph the language ``Section'' is corrected to read ``section''. 11. On page 17582, in the third column, the last sentence of the first full paragraph is corrected to read, ``Although there is uncertainty as to the exact number of small businesses within this group, the current estimated number of respondents to these final rules is 20,000 taxpayers.''. 12. On page 17583, in the first column, in the fourth line the from the bottom of the second full paragraph, the column is corrected to read, ``verified or have received registration''. List of Subjects in 26 CFR Part 1 Income taxes, Reporting and recordkeeping requirements. Corrections to the Regulations Accordingly, 26 CFR part 1 is corrected by making the following correcting amendments: PART 1--INCOME TAXES 0 Paragraph 1. The authority citation for part 1 is amended by adding the entries for Sections 1.6417-0 through 1.6417-6 in numerical order and removing the entry for section 1.6417-5T to read in part as follows: Authority: 26 U.S.C. 7805 * * * * * * * * Section 1.6417-0 also issued under 26 U.S.C. 6417(h). Section 1.6417-1 also issued under 26 U.S.C. 6417(h). Section 1.6417-2 also issued under 26 U.S.C. 6417(h). Section 1.6417-3 also issued under 26 U.S.C. 6417(h). Section 1.6417-4 also issued under 26 U.S.C. 6417(h). Section 1.6417-5 also issued under 26 U.S.C. 6417(h). Section 1.6417-6 also issued under 26 U.S.C. 6417(h). * * * * * 0 Par. 2. Section 1.6417-0 is amended by revising the entry for Sec. 1.6417-1(b) to read as follows: Sec. 1.6417-0 Table of contents. * * * * * Sec. 1.6417-1 Elective payment election of applicable credits. * * * * * (b) Annual tax return. * * * * * [[Page 66563]] Sec. 1.6417-2 [Corrected] 0 Par. 3. Section 1.6417-2 is amended by removing the language ``book and records'' in the second sentence of paragraph (b)(3)(i) and adding the language ``books and records'' in its place. Sec. 1.6417-4 [Corrected] 0 Par. 4. Section 1.6417-4 is amended by removing the language ``corporation. (such as, for investment'' in paragraph (c)(1)(vi) and adding the language ``corporation (such as, for investment'' in its place. Oluwafunmilayo A. Taylor, Section Chief, Publications & Regulations Section, Associate Chief Counsel, (Procedure and Administration). [FR Doc. 2024-17945 Filed 8-15-24; 8:45 am] BILLING CODE 4830-01-P

usgpo

2024-10-08T13:26:23.730457

FR

FR-2024-08-16/2024-17946

Federal Register Volume 89 Issue 159 (August 16, 2024)

United States National Archives and Records Administration Office of the Federal Register

[Federal Register Volume 89, Number 159 (Friday, August 16, 2024)] [Rules and Regulations] [Page 66563] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 2024-17946] ----------------------------------------------------------------------- DEPARTMENT OF THE TREASURY Internal Revenue Service 26 CFR Parts 1, 31, and 301 [TD 10000] RIN 1545-BP71 Gross Proceeds and Basis Reporting by Brokers and Determination of Amount Realized and Basis for Digital Asset Transactions; Correction AGENCY: Internal Revenue Service (IRS), Treasury. ACTION: Final rule; correction. ----------------------------------------------------------------------- SUMMARY: This document includes corrections to the final regulations (Treasury Decision 10000) published in the Federal Register on Tuesday, July 9, 2024, regarding information reporting and the determination of amount realized and basis for certain digital asset sales and exchanges. DATES: These corrections are effective on September 9, 2024. FOR FURTHER INFORMATION CONTACT: Concerning the final regulations under sections 1001 and 1012, Alexa Dubert or Kyle Walker of the Office of the Associate Chief Counsel (Income Tax and Accounting) at (202) 317- 4718; concerning the international sections of the final regulations under sections 3406 and 6045, John Sweeney or Alan Williams of the Office of the Associate Chief Counsel (International) at (202) 317- 6933; and concerning the remainder of the final regulations under sections 3406, 6045, 6045A, 6045B, 6050W, 6721, and 6722, Roseann Cutrone of the Office of the Associate Chief Counsel (Procedure and Administration) at (202) 317-5436 (not toll-free numbers). SUPPLEMENTARY INFORMATION: Background The final regulations (TD 10000) subject to these corrections are issued under sections 1001, 1012, 3406, 6045, 6045A, 6045B, 6050W, 6721, and 6722 of the Internal Revenue Code. Corrections of Publication Accordingly, FR Doc. 2024-14004 (TD 10000), appearing on page 56480 in the Federal Register of Tuesday, July 9, 2024, is corrected as follows: 1. On page 56488, in the second column, the eighth line from the bottom of the column, is corrected to read ``B) and not as a digital asset sale described''; 2. On page 56489, in the first column, the eighth line from the bottom of the first full paragraph is corrected to read ``(and not by any customers or investors)''; 3. On page 56490, in the third column, the fourteenth line from the top is corrected to read ``these final regulations, provides that''; 4. On page 56499, in the first column, in the eleventh line from the bottom, the word ``consequence'' is corrected to read ``consequences''; 5. On page 56502, in the third column, the nineteenth line from the bottom, is corrected to read ``returns under section 6045 is March 31 of the''; 6. On page 56502, in the third column, the tenth line from the bottom, is corrected to read ``before the statute of limitations''; 7. On page 56504, in the third column, in the twenty-fourth line of the first full paragraph, the word ``stablecoins'' is corrected to read, ``stablecoin''; 8. On page 56508, in the first column, the fourth line of the continuing paragraph is corrected to read, ``According to comments, the average''; 9. On page 56508, in the first column, in the tenth line of the continuing paragraph the word ``comment'' is corrected to read ``comments''; 10. On page 56508, in the first column, the first line of footnote 3 is corrected to read ``One comment cited an article that referenced a report from''; 11. On page 56508, in the first column, the fourth and fifth sentences of footnote 3 are corrected to read ``Another said: ``The data sets underlying these estimates consist of public blockchain data regarding NFT volume, centralized exchange volume, and decentralized exchange volume. See Dune Analytics, https://dune.com/browse/dashboards (last visited October 30, 2023); Dune Analytics, https://github.com/duneanalytics/spellbook/tree/main (last visited October 30, 2023); The Block, https://www.theblock.co/data/cryptomarkets/spot/cryptocurrency-exchange-volumemonthly (last visited Oct. 30, 2023).'' ``; 12. On page 56508, in the first column, the first line of footnote 4 is corrected to read ``One comment referenced data''; 13. On page 56516, in the third column, the third line of the continuing paragraph, ``non-U.S. digital asset broker, a'', is removed; 14. On page 56517, in the first column, the twelfth line from the bottom of the continuing paragraph is corrected to read ``activities as an MSB was permitted''; 15. On page 56521, in the third column, in the fifth line of the first full paragraph the language ``Am.'' is corrected to read ``Amend''; 16. On page 56536, in the third column, in the eighth line from the bottom of the first full paragraph, the word ``stablecoins'' is corrected to read ``stablecoin''; and 17. On page 56542, in the first column, the sixth sentence of the second full paragraph is corrected to read, ``Based on tax return data, only 200 of the 9,700 firms identified as impacted issuers in the upper bound estimate exceed the $41.5 million threshold.''. Oluwafunmilayo A. Taylor, Section Chief, Publications and Regulations Section, Associate Chief Counsel, (Procedure and Administration). [FR Doc. 2024-17946 Filed 8-15-24; 8:45 am] BILLING CODE 4830-01-P

usgpo

2024-10-08T13:26:23.793230

FR

FR-2024-08-16/2024-18260

Federal Register Volume 89 Issue 159 (August 16, 2024)

United States National Archives and Records Administration Office of the Federal Register

[Federal Register Volume 89, Number 159 (Friday, August 16, 2024)] [Rules and Regulations] [Pages 66563-66567] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 2024-18260] ======================================================================= ----------------------------------------------------------------------- DEPARTMENT OF THE INTERIOR Office of Surface Mining Reclamation and Enforcement 30 CFR Part 938 [SATS No. PA-165-FOR; Docket ID: OSM-2016-0013; S1D1S SS08011000 SX064A000 245S180110; S2D2S SS08011000 SX064A000 24XS501520] Pennsylvania Abandoned Mine Land Reclamation Program AGENCY: Office of Surface Mining Reclamation and Enforcement, Interior. ACTION: Final rule. ----------------------------------------------------------------------- SUMMARY: We, the Office of Surface Mining Reclamation and Enforcement (OSMRE), are approving an amendment to the Pennsylvania Abandoned Mine [[Page 66564]] Land Reclamation Plan (Pennsylvania Plan or Plan) under the Surface Mining Control and Reclamation Act of 1977 (SMCRA or the Act). Pennsylvania proposed to modify its Plan by adding Reclamation Plan Amendment No. 3 to allow the Pennsylvania Department of Environmental Protection (PADEP) to administer a State Emergency Abandoned Mine Land Reclamation Program (Program). The amendment to the Pennsylvania Plan covers coordination of emergency reclamation work between Pennsylvania and OSMRE as well as procedures for implementing the National Environmental Policy Act and other Pennsylvania procedures. DATES: This rule is effective September 16, 2024. FOR FURTHER INFORMATION CONTACT: Mr. Ben Owens, Acting, Chief, Pittsburgh Field Office, Office of Surface Mining Reclamation and Enforcement, 3 Parkway Center, Pittsburgh, PA 15220, Telephone: (412) 937-2827, Email: [email protected]. SUPPLEMENTARY INFORMATION: I. Background on the Pennsylvania Plan II. Submission of the Amendment III. OSMRE's Findings IV. Summary and Disposition of Comments V. OSMRE's Decision VI. Procedural Determinations I. Background on the Pennsylvania Plan The Abandoned Mine Land (AML) Reclamation Program was established by title IV of SMCRA (30 U.S.C. 1231-1245) in response to concerns over threats to the health and safety of the public and environmental damage caused by coal mining activities conducted before the enactment of the Act. The program is funded primarily by a reclamation fee collected on each ton of coal that is produced. The money collected is used to finance the reclamation of abandoned coal mines and other authorized activities. Section 405 of the Act allows States and Tribes to assume exclusive responsibility for reclamation activity within the State or on Indian lands if they develop and submit to the Secretary of the Interior (Secretary) for approval a program (often referred to as a plan) for the reclamation of abandoned coal mines within their jurisdiction. On July 31, 1982, the Secretary approved the Pennsylvania Plan. You can find background information on the Plan, including the Secretary's findings, the disposition of comments, and the approval of the Plan in the July 30, 1982, Federal Register (47 FR 33081). You can find later actions concerning the Pennsylvania Plan and amendments to the Plan at 30 CFR 938.25. II. Submission of the Amendment By letter dated November 22, 2016 (Administrative Record No. PA 898.00), Pennsylvania sent us an amendment to its Plan under SMCRA at its own initiative. Within the proposed amendment, Pennsylvania requested to modify its Plan to allow PADEP to administer an Emergency AML Reclamation Program under title IV of SMCRA (30 U.S.C. 1231-1245). We announced receipt of the proposed amendment in the May 16, 2018, Federal Register (83 FR 22607). In the same document, we opened the public comment period and provided an opportunity for a public hearing or meeting on the adequacy of the amendment. We did not receive any public comments and did not hold a public hearing or meeting because none was requested. The public comment period ended on June 11, 2018. III. OSMRE's Findings We have made the following findings concerning the amendment under SMCRA and the Federal regulations at 30 CFR 884.14 and 884.15. We are approving the amendment as described below. Any revisions that are not specifically discussed below concerning non-substantive wording or editorial changes can be found in the full text of the program amendment available at www.regulations.gov. The proposed amendment consists of new Part G, The Pennsylvania Emergency Response Reclamation Program, to be added to the Pennsylvania Plan. Section 410 of SMCRA (30 U.S.C. 1240) authorizes the Secretary to use funds under the AML Reclamation Program to abate or control emergency situations in which adverse effects of past coal mining pose an immediate danger to public health, safety, or general welfare. On September 29, 1982, OSMRE proposed delegating States and Tribes the authority to undertake emergency reclamation projects on behalf of the Secretary. States and Tribes were invited to amend their AML Reclamation Plans and demonstrate that they: (1) have the statutory authority to undertake emergencies; (2) the technical capability to design and supervise the emergency work; (3) the administrative mechanisms to quickly respond to emergencies either directly or through contractors; (4) have the staff qualified to make the findings of fact described in section 410 that emergency projects to be funded meet the definition of ``emergency'' under 30 CFR 700.5; and (5) that the scope of the work undertaken to reduce the emergency will be established by qualified staff, will not exceed the activities necessary to stabilize the life-threatening situation, and should allow remaining reclamation work to be undertaken later as a lower priority project. See 47 FR 42729 (Sept. 29, 1982). On May 28, 2010, OSMRE notified the States with approved AML Reclamation Plans that due to Federal budgetary constraints, as of Fiscal Year 2011, States would assume the responsibility for funding of the AML emergency programs from their title IV AML grants. 1. Statutory Authority Part G of the Pennsylvania Plan includes a copy of the letter dated November 1, 1978, that Pennsylvania included in its original Plan submission, wherein the Governor of Pennsylvania designated the Pennsylvania Department of Environmental Resources (PADER) as the State agency responsible for the AML Program in Pennsylvania. According to additional information provided in Part G, on July 1, 1995, DER was split into the Department of Conservation and Natural Resources and PADEP, the latter of which administers Pennsylvania's Plan. The Pennsylvania Plan also includes: (1) the 1978 legal opinion of the Pennsylvania Attorney General that PADER (now PADEP) is authorized by Pennsylvania law to administer the Plan; and (2) a 2016 memorandum from PADEP's Office of Chief Counsel specifying PADEP's statutory authority to administer an Emergency AML Reclamation Program as part of its Plan. OSMRE Findings: In addition to the general police power granted to PADEP to conduct reclamation work under the Clean Streams Law (35 P.S. 691.1 et seq.) and the Administrative Code of 1929 (71 P.S. 510-15), section 16 of the Land and Water Conservation and Reclamation Act (32 P.S. 5116) and the Mine Fire and Subsidence Remedial Project Indemnification Law (52 P.S. 30.201-30.206) provide for the right of entry on any land where an emergency exists, and any other land to have access to the land where the emergency exists, with requirements to attempt to notify appropriate landowners and the option, at the agency's discretion, to recoup costs from the improved value of the land. Based on our review of Pennsylvania's relevant statutory provisions, and the inclusion of the 1978 legal opinion and the 2016 memorandum, we have determined that Pennsylvania has the statutory authority to undertake emergencies in compliance [[Page 66565]] with SMCRA and all other applicable State and Federal laws and regulations. 2. Technical Capability On October 1, 2010, OSMRE ceased implementing the Emergency AML Reclamation Program in Pennsylvania and transferred emergency AML reclamation responsibilities to PADEP. Pennsylvania subsequently created an Accelerated Response Program (ARP) in 2010, which was administered by the PADEP's Bureau of Abandoned Mine Reclamation (BAMR), to address AML emergencies that have occurred throughout Pennsylvania's eligible coalfields. As of the end of evaluation year 2022, Pennsylvania has reclaimed a total of 1,574,786 feet of dangerous highwalls, 2,016 acres of dangerous spoil piles and embankments, 47 dangerous impoundments, 153 hazardous water bodies, 1,601 vertical openings, and 771 miles of sediment-clogged streams. In its submission, Pennsylvania states that these are the same types of abandoned mine land features that the State will likely continue to encounter in emergency reclamation projects, and the technical capabilities used for emergency reclamation projects are generally the same as those used for normal, high priority reclamation projects, but with a potentially accelerated project schedule. In addition, Pennsylvania indicated that current staffing levels should be sufficient for the implementation of the emergency program, but PADEP may adjust the personnel structure as needed to accommodate the program in the future. Pennsylvania states that BAMR maintains two field offices: one in eastern Pennsylvania (Anthracite Region) in Wilkes-Barre and one in western Pennsylvania (Bituminous Region) in Ebensburg, both of which have the capability to address emergency AML problems with both in- house staff and outside contractors. Pennsylvania indicates that both field offices maintain in-house construction crews with significant equipment available to respond to and address many small AML emergencies such as pothole (or cavehole) subsidences and mine drainage breakouts. Pennsylvania provides that emergency project development, design, realty, construction inspection, and administration are performed by BAMR staff or outside consultants. Pennsylvania indicates that approximately eighty percent of emergency projects have been constructed by PADEP's in-house crews between 2010 and 2020. In addition, Pennsylvania states that for larger AML emergencies, such as subsidence events causing structural damage to homes, businesses, and roads; mine fires; coal refuse fires; landslides; or other large-scale or complex AML problems, projects are completed by outside contractors awarded contracts using Pennsylvania's emergency contracting procedures. OSMRE Findings: We have found that Pennsylvania has run ARP since 2010 in a cost efficient and professional manner. For example, having the in-house construction crews affords Pennsylvania a major time and cost saving advantage. We have found the in-house constructed projects require minimal design or construction management resources because the construction staff is proficient and experienced, and requires minimal, if any, construction inspection or oversight. In addition, throughout the years, PADEP, through its partnership with OSMRE, has assembled the necessary funding, staff resources, expertise, and implementation measures to effectively address and mitigate suddenly occurring, dangerous abandoned mine land problems. OSMRE has recognized 18 Pennsylvania projects since 1993 with regional and national awards for going beyond standard reclamation requirements to achieve superior results in returning a site to productive use after completion of mining. Based on Pennsylvania's demonstrated historical success in executing their Plan, the proficiency of ARP since 2010, and the description of its technical staff and processes described in section III of its submission, we have determined that Pennsylvania has the technical capability to design and supervise emergency work. 3. Administrative Mechanisms Pennsylvania explains in its submission that the organizational and management structure to be used for the proposed emergency program will be similar to that used for ARP. Pennsylvania states that key elements of the State's proposed program that provide essential flexibility to address emergency conditions include: access to accelerated contracting procedures provided within Pennsylvania's Procurement Code; use of multiple staff with the necessary technical skills working in parallel to advance reclamation quickly; and supplementary technical, legal, contracting, and administrative services from respective sections of PADEP as needed. OSMRE Findings: PADEP has been operating ARP since OSMRE ceased implementing the Emergency AML Reclamation Program in 2010 in Pennsylvania. We find that Pennsylvania has run ARP in a cost efficient and professional manner. Many of the administrative processes required to implement the proposed emergency program are the same as those already in place for ARP and the Pennsylvania Plan, which has run successfully since approval in 1982. Based on Pennsylvania's description of its administrative and managerial structure in section IV of its submission, we have determined that Pennsylvania has the administrative mechanisms in place to manage and implement an emergency program. 4. Finding of Fact In its submission, Pennsylvania provides that it will perform the investigations and eligibility findings for the proposed emergency projects under title IV of SMCRA. Pennsylvania indicates that it will then submit this information to the OSMRE official with delegated authority to make the requisite Finding of Fact and emergency declarations as required under section 410 of SMCRA. Moreover, Pennsylvania states that PADEP will follow the approved procedures contained in the OSMRE Federal Assistance Manual (FAM) chapter 4-120, which includes the Finding of Fact requirements. OSMRE Findings: Given Pennsylvania's description of how PADEP will coordinate with OSMRE in establishing the Finding of Fact and emergency declaration, including the appropriate OSMRE official finding whether the problem meets the definition of ``emergency'' under 30 CFR 700.5, we have determined that Pennsylvania has the necessary procedures in place to make a Finding of Fact determination consistent with section 410 of SMCRA. 5. Scope of Work In its submission, Pennsylvania indicates that it will coordinate its emergency reclamation projects with OSMRE, including following the procedures found in FAM chapter 4-120. FAM 4-120 provides procedures for OSMRE to define the scope of work necessary to abate the emergency. In addition, FAM 4-120 provides information on how the State must determine the extent and scope of non-emergency work. OSMRE Findings: Based on Pennsylvania's description of how it intends to coordinate with OSMRE on its emergency projects consistent with [[Page 66566]] the FAM, we have determined that Pennsylvania has sufficient procedures, consistent with OSMRE guidelines, in place to ensure the scope of work for emergency projects will be established by qualified staff, is limited to that necessary to eliminate the life threatening situation, and will allow remaining reclamation work to be undertaken later as a lower priority project. In accordance with section 405 of SMCRA and 30 CFR 884.14, Pennsylvania has submitted an amendment to its Plan, and we have determined that: (1) The public has been given adequate notice and opportunity to comment, and the record does not reflect major unresolved controversies. (2) Views of other Federal agencies have been solicited and considered. (3) The State has the legal authority, policies, and administrative structure necessary to implement the amendment. (4) The proposed plan amendment meets all requirements of the Federal AML Reclamation program regulations at 30 CFR chapter VII, subchapter R. (5) The State has an approved State Regulatory Program. (6) The amendment is in compliance with all applicable State and Federal laws and regulations. Therefore, we find that the proposed Pennsylvania plan amendment allowing the State to assume responsibility for an Emergency AML Reclamation Program on behalf of OSMRE is in compliance with SMCRA and meets the requirements of Federal regulations. We are approving Pennsylvania's assumption of the Program. IV. Summary and Disposition of Comments Public Comments In the May 16, 2018, Federal Register notice announcing our receipt of this amendment, OSMRE asked for public comments (Administrative Record No. PA-898.08). No requests for public meetings or hearings were received. OSMRE did not receive any comments. Federal Agency Comments On November 30, 2016, under 30 CFR 884.14(a)(2) and 884.15(a), OSMRE requested comments on the amendment from various Federal agencies with an actual or potential interest in the Pennsylvania program (Administrative Record No. PA 898.01). OSMRE did not receive any comments. Environmental Protection Agency (EPA) Concurrence and Comments On November 30, 2016, under 30 CFR 884.14(a)(6), OSMRE requested comments from the EPA on the amendment (Administrative Record No. PA 898.01). The EPA responded with a letter dated January 6, 2017 (Administrative Record PA 898.03) that it has reviewed the proposed amendment and would not be providing comment. State Historical Preservation Officer (SHPO) and the Advisory Council on Historic Preservation (ACHP) Under 30 CFR 884.14(a)(6), OSMRE is required to request comments from the SHPO and ACHP on amendments that may have an effect on historic properties. On November 30, 2016, OSMRE requested comments on the Pennsylvania amendment (Administrative Record No. 898.01). OSMRE did not receive any comments. V. OSMRE's Decision Based on the above findings, OSMRE is approving the Pennsylvania amendment sent on November 22, 2016 (Administrative Record No. PA 898.00). To implement this decision, we are amending the Federal regulations at 30 CFR part 938 that codify decisions concerning the Pennsylvania program. In accordance with the Administrative Procedure Act, this rule will take effect 30 days after the date of publication. VI. Statutory and Executive Order Reviews Executive Order 12630--Governmental Actions and Interference With Constitutionally Protected Property Rights This rule would not affect a taking of private property or otherwise have taking implications that would result in private property being taken for government use without just compensation under the law. Therefore, a takings implication assessment is not required. This determination is based on an analysis of the corresponding Federal regulations. Executive Orders 12866--Regulatory Planning and Review, 13563-- Improving Regulation and Regulatory Review, and 14094--Modernizing Regulatory Review Executive Order 12866, as amended by Executive Order 14094, provides that the Office of Information and Regulatory Affairs in the Office of Management and Budget (OMB) will review all significant rules. Pursuant to OMB guidance, dated October 12, 1993 (OMB Memo M-94- 3), the approval of State program and/or plan amendments is exempted from OMB review under Executive Order 12866, as amended by Executive Order 14094. Executive Order 13563, which reaffirms and supplements Executive Order 12866, retains this exemption. Executive Order 12988--Civil Justice Reform The Department of the Interior has reviewed this rule as required by section 3 of Executive Order 12988. The Department determined that this Federal Register document meets the criteria of section 3 of Executive Order 12988, which is intended to ensure that the agency review its legislation and proposed regulations to eliminate drafting errors and ambiguity; that the agency write its legislation and regulations to minimize litigation; and that the agency's legislation and regulations provide a clear legal standard for affected conduct rather than a general standard, and promote simplification and burden reduction. Because section 3 focuses on the quality of Federal legislation and regulations, the Department limited its review under this Executive order to the quality of this Federal Register document and to changes to the Federal regulations. The review under this Executive order did not extend to the language of the plan amendment that Pennsylvania drafted. Executive Order 13132--Federalism This rule has potential Federalism implications as defined under section 1(a) of Executive Order 13132. Executive Order 13132 directs agencies to ``grant the States the maximum administrative discretion possible'' with respect to Federal statutes and regulations administered by the States. Pennsylvania, through its approved reclamation program, implements and administers SMCRA and its implementing regulations at the State level. This rule approves an amendment to the Pennsylvania Plan submitted and drafted by the State and, thus, is consistent with the direction to provide maximum administrative discretion to States. Executive Order 13175--Consultation and Coordination With Indian Tribal Governments The Department of the Interior strives to strengthen its government-to-government relationship with Tribes through a commitment to consultation with Tribes and recognition of their right to self- governance and Tribal sovereignty. We have evaluated this rule under the Department's consultation policy and under the criteria in Executive Order 13175, and have determined that it has no substantial direct effects on the distribution of power and responsibilities between the Federal government and Tribes. The [[Page 66567]] basis for this determination is that our decision is on the Pennsylvania program and plan that does not include Indian lands, as defined by SMCRA, or regulation of activities on Indian lands. Indian lands are regulated independently under the applicable, approved Federal program. The Department's consultation policy also acknowledges that our rules may have Tribal implications where the State proposing the amendment encompasses ancestral lands in areas with mineable coal. We are currently working to identify and engage appropriate Tribal stakeholders to devise a constructive approach for consulting on these amendments. Executive Order 13211--Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use Executive Order 13211 requires agencies to prepare a Statement of Energy Effects for a rulemaking that is (1) considered significant under Executive Order 12866, and (2) likely to have a significant adverse effect on the supply, distribution, or use of energy. Because this rule is exempt from review under Executive Order 12866 and is not a significant energy action under the definition in Executive Order 13211, a Statement of Energy Effects is not required. National Environmental Policy Act This rule does not constitute a major Federal action significantly affecting the quality of the human environment. We are not required to provide a detailed statement under the National Environmental Policy Act of 1969 because this rule qualifies for a categorical exclusion under the U.S. Department of the Interior Departmental Manual, part 516, section 13.5(B)(29). National Technology Transfer and Advancement Act Section 12(d) of the National Technology Transfer and Advancement Act (NTTAA) (15 U.S.C. 3701 et seq.) directs OSMRE to use voluntary consensus standards in its regulatory activities unless to do so would be inconsistent with applicable law or otherwise impractical. (OMB Circular A-119 at p. 14). This action is not subject to the requirements of section 12(d) of the NTTAA because application of those requirements would be inconsistent with SMCRA. Paperwork Reduction Act This rule does not include requests and requirements of an individual, partnership, or corporation to obtain information and report it to a Federal agency. As this rule does not contain information collection requirements, a submission to the Office of Management and Budget under the Paperwork Reduction Act (44 U.S.C. 3501 et seq.) is not required. Regulatory Flexibility Act This rule will not have a significant economic impact on a substantial number of small entities under the Regulatory Flexibility Act (5 U.S.C. 601 et seq.). The State submittal, which is the subject of this rule, is based upon corresponding Federal regulations for which an economic analysis was prepared and certification made that such regulations would not have a significant economic effect upon a substantial number of small entities. In making the determination as to whether this rule would have a significant economic impact, the Department relied upon the data and assumptions for the corresponding Federal regulations. Small Business Regulatory Enforcement Fairness Act This rule is not a major rule under 5 U.S.C. 804(2), the Small Business Regulatory Enforcement Fairness Act. This rule: (a) does not have an annual effect on the economy of $100 million; (b) will not cause a major increase in costs or prices for consumers, individual industries, Federal, State, or local government agencies, or geographic regions; and (c) does not have significant adverse effects on competition, employment, investment, productivity, innovation, or the ability of U.S.-based enterprises to compete with foreign-based enterprises. This determination is based on an analysis of the corresponding Federal regulations, which were determined not to constitute a major rule. Unfunded Mandates Reform Act This rule does not impose an unfunded mandate on State, local, or Tribal governments or the private sector of more than $100 million per year. The rule does not have a significant or unique effect on State, local, or Tribal governments or the private sector. This determination is based on an analysis of the corresponding Federal regulations, which were determined not to impose an unfunded mandate. Therefore, a statement containing the information required by the Unfunded Mandates Reform Act (2 U.S.C. 1531 et seq.) is not required. List of Subjects in 30 CFR Part 938 Intergovernmental relations, Surface mining, Underground mining. Thomas D. Shope, Regional Director, North Atlantic-Appalachian Region. For the reasons set out in the preamble, 30 CFR part 938 is amended as follows: PART 938--PENNSYLVANIA 0 1. The authority citation for part 938 continues to read as follows: Authority: 30 U.S.C. 1201 et seq.Inserting required closing tag for E. 0 2. In Sec. 938.25, amend the table by adding a new entry in chronological order by ``Date of final publication'' to read as follows: Sec. 938.25 Approval of Pennsylvania abandoned mine land reclamation plan amendments. * * * * * ---------------------------------------------------------------------------------------------------------------- Date of final Original amendment submission date publication Citation/description ---------------------------------------------------------------------------------------------------------------- * * * * * * * November 22. 2016............................. 8/16/2024 Part G--The Pennsylvania Emergency Response Reclamation Program. ---------------------------------------------------------------------------------------------------------------- [FR Doc. 2024-18260 Filed 8-15-24; 8:45 am] BILLING CODE 4310-05-P

usgpo

2024-10-08T13:26:23.846902

FR

FR-2024-08-16/2024-18391

Federal Register Volume 89 Issue 159 (August 16, 2024)

United States National Archives and Records Administration Office of the Federal Register

[Federal Register Volume 89, Number 159 (Friday, August 16, 2024)] [Rules and Regulations] [Pages 66568-66579] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 2024-18391] [[Page 66568]] ======================================================================= ----------------------------------------------------------------------- SELECTIVE SERVICE SYSTEM 32 CFR Part 1662 RIN 3240-AA03 Freedom of Information Act Regulations AGENCY: United States Selective Service System. ACTION: Final rule. ----------------------------------------------------------------------- SUMMARY: The Selective Service System (SSS) is finalizing revisions to its Freedom of Information Act (FOIA) regulations to meet the requirements set forth in the Electronic Freedom of Information Act Amendments of 1996 (E-FOIA); the Openness Promotes Effectiveness requirement in the National Government Act of 2007 (the OPEN Government Act); and the FOIA Improvement Act of 2016 (FOIA Improvement Act). This final rule comprehensively updates the Agency's FOIA regulations. DATES: This rule is effective September 16, 2024. FOR FURTHER INFORMATION CONTACT: Mr. Daniel A. Lauretano, Sr., General Counsel, 703-605-4012, [email protected]. SUPPLEMENTARY INFORMATION: SSS published a proposed rule on February 6, 2024 (89 FR 8112). Public comments were received and were considered. Based on public comments, SSS is finalizing this rule with a few changes. Specifically, proposed subsection (a) and (b) were deleted from the proposed Sec. 1662.23 (FOIA Exemption 6) and it now reads, ``The FOIA exempts from disclosure records about individuals if disclosure would constitute a clearly unwarranted invasion of their personal privacy.'' Additionally, minor edits were made to proposed Sec. 1662.6 (c) (Requirements of a FOIA request) and it now reads, ``The FOIA requires an Agency to provide the record in any form or format requested by the person if the record is readily reproducible by the Agency in that form or format. SSS will not search or produce records in response to a FOIA request that the FOIA Officer determines would be unduly burdensome (as defined in case law) to process. FOIA requests are unreasonably burdensome when it is a broad, sweeping request that lacks specificity.'' I. Background & Legal Basis for This Rule A. The Housekeeping Statute The Housekeeping Statute, 5 U.S.C. 301, authorizes agency heads to promulgate regulations governing ``the custody, use, and preservation of its records, papers, and property.'' The FOIA is a Federal statute that allows the public to request records from the Federal government. The FOIA provides that any person has a right, enforceable in court, to obtain access to Federal agency records subject to the FOIA, except to the extent that any portions of such records are protected from public disclosure by one of nine exemptions or other law. Additionally, under the FOIA, agencies must make records specified in 5 U.S.C. 552(a)(2) (e.g., instructional manuals issued to employees, general statements of policy, etc.) available for public inspection in an electronic format. The FOIA also statutorily requires Federal agencies to annually report on numerous and various metrics to the Department of Justice (DOJ). Since the most recent update to 32 CFR part 1662, the E-FOIA, the OPEN Government Act, and the FOIA Improvement Act have been enacted. These laws provide guidance to agencies for the implementation of the FOIA requirements. This final rule updates and revises part 1662 consistent with these laws. The final rule will better streamline the process for the Agency's FOIA policies and procedures. These updates are consistent with the Plain Writing Act of 2010 which requires Federal agencies to use clear communications that the public can understand and use. They underscore the FOIA guidelines issued by Attorney General Merrick Garland in his March 15, 2022, Memorandum for Heads of Executive Departments and Agencies. The Memorandum directs the heads of all executive branch departments and agencies to apply a presumption of openness in administering the FOIA, instructs agencies to remove barriers to access, and asks agencies to help requesters understand the FOIA process. B. The E-FOIA The E-FOIA requires agencies to make certain types of records, created by the Agency on or after November 1, 1996, available electronically. It requires agencies to make available for public inspection, via an electronic reading room, ``copies of all records, regardless of form or format that have been released to any person [under the FOIA] and which, because of the nature of their subject matter, the Agency determines have become or are likely to become the subject of subsequent requests for substantially the same records.'' The final rule complies with this requirement. C. The OPEN Government Act The OPEN Government Act amended the FOIA by providing new procedural and reporting requirements agencies must implement in their administration of the FOIA. It requires that (1) all FOIA requests that will take longer than ten days to process must be assigned an individualized tracking number and (2) agencies must provide requesters with a telephone line or internet service from which requesters can receive the status of their request(s). The statute established the Office of Government Information Services (OGIS) within the National Archives and Records Administration that, among other duties, offers mediation services between FOIA requesters and Federal agencies as an alternative to litigation. It further directs agencies to designate a Chief FOIA Officer, who: (1) has responsibility for FOIA compliance; (2) monitors FOIA implementation; (3) makes recommendations to the Agency head concerning improvements to FOIA implementation; (4) reports to the Attorney General (through the Agency Head), as requested, on the Agency's FOIA implementation; (5) facilitates public understanding of the purposes of FOIA's statutory exemptions; and (6) designates one or more FOIA Public Liaisons. The FOIA Public Liaison serves as an official to whom a FOIA requester can raise concerns about service and is responsible for assisting in reducing delays in FOIA request processing, helping resolve disputes, and helping requesters understand the status of their requests. The OPEN Government Act also revised annual reporting obligations, mandating reports on agency compliance with the FOIA to include information on: (1) FOIA denials based upon particular statutes; (2) response times; and (3) compliance by the agency and by each principal component thereof. Regarding FOIA request processing, the OPEN Government Act: (1) modifies and specifies the time limits for an agency to determine whether to comply with a FOIA request; (2) establishes limitations on the circumstances under which the statutory time period may be ``tolled''; and (3) prohibits an agency from assessing search or duplication fees under the FOIA if it fails to comply with time limits, provided that no unusual or exceptional circumstances apply. Lastly, the OPEN Government Act provides for the definition of ``representative of the news media'' and amends the definition of ``record'' to include any information maintained by [[Page 66569]] an agency contractor ``for the purposes of record management.'' This final rule conforms with the requirements of the OPEN Government Act. D. The FOIA Improvement Act The FOIA Improvement Act took effect on June 30, 2016, and applies to any FOIA request made after the date of enactment. Its intent is to improve Agency transparency and responsiveness in processing FOIA requests. The statute codifies the ``foreseeable harm'' standard, establishing that agencies may only withhold information if the Agency reasonably foresees that disclosure would harm an interest protected by a statutory exemption, or if disclosure is prohibited by existing law. Unless the record is prohibited from disclosure by law, asserting a FOIA exemption alone is not sufficient; an agency must also determine that release of the record would cause foreseeable harm to others/ interests protected under the exemption. The FOIA Improvement Act also imposes numerous administrative and procedural requirements upon Federal agencies. It adds new elements to the annual reports that capture the number of record denials and the number of records of general interest or use to the public that are made available for public inspection. It also creates new duties for the Chief FOIA Officer, requiring the Chief FOIA Officer to (1) serve as the primary liaison between OGIS and the Office of Information Policy at DOJ and (2) offer training to staff regarding their FOIA responsibilities. It also creates a council of Chief FOIA Officers whose purpose is to improve an agency's administration of the FOIA. Within the Agency's final revisions to part 1662, it is not addressing the additional reporting requirements provided in the FOIA Improvement Act, as they do not affect its day-to-day administration of the FOIA. This law also requires agencies to offer the services of the FOIA Public Liaison and OGIS in all decision letters. It further increases the time for appeals, now allowing requesters at least 90 days to file an administrative appeal of an adverse determination. Additionally, it codifies the ``rule of three,'' which requires agencies to make available for public inspection, in an electronic format, records that are of general interest or have been requested three or more times and released to any person. Further, it prohibits an agency from charging search and/or duplication fees under the FOIA for providing records if the agency misses a deadline for complying with a FOIA request, unless unusual circumstances exist, and the agency takes certain action to notify the requester. Additionally, it amends one of the privileges recognized under the FOIA Exemption 5, the deliberative process privilege, by providing that this privilege cannot be applied to records that are 25 years or older at the time of the FOIA request. Finally, the FOIA Improvement Act requires the head of each agency to (1) review agency regulations and issue regulations on procedures for disclosure of records in accordance with the amendments made by the bill and (2) include in such regulations procedures for engaging in dispute resolution through the FOIA Public Liaison and OGIS. This final rule conforms with the requirements of the FOIA Improvement Act. II. The FOIA Process at SSS This final rule ensures the SSS FOIA program is easier for the public to navigate. Under this final rule, the Chief FOIA Officer conducts a thorough review to ensure proper disclosure. The Agency's Chief FOIA Officer makes the final determination on the release of records in response to initial requests and the Director of Selective Service is designated the final authority on appeal determinations. SSS also makes available for public inspection, in an electronic format, records that have been requested and released three or more times and other specified records described in revised Sec. 1662.26, available at www.sss.gov/foia. III. Regulatory Procedures A. Expected Impact of the Final Rule The Agency does not anticipate any additional costs associated with promulgations of the regulations contained herein. The Agency anticipates qualitative benefits from the final rule which includes revisions to the FOIA regulations from streamlined and codified FOIA policies and procedures. SSS expects the codified regulations will benefit both the Agency and the public because the administration of the FOIA will be better organized and user friendly for requesters. The purpose of the FOIA is to provide the public with access to government records, and administrative transparency is paramount to a successful FOIA program. Clear policies generate efficient and effective processing of FOIA requests. B. Executive Order (E.O.) 12866, ``Regulatory Planning and Review,'' E.O. 13563, Improving Regulation and Regulatory Review,'' and Congressional Review Act (5 U.S.C. 801-08) E.O.s 12866 and 13563 direct agencies to assess all costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts, and equity). E.O. 13563 emphasizes the importance of quantifying both costs and benefits, of reducing costs, of harmonizing rules, and of promoting flexibility. Following the requirements of these E.O.s, the Office of Management and Budget (OMB) has determined that this final rule is not a significant regulatory action under section 3(f) of E.O. 12866 nor a ``major rule'' as defined by 5 U.S.C. 804(2). C. Public Law 96-354, ``Regulatory Flexibility Act'' (5 U.S.C. 601) SSS certifies that this final rule is not subject to the Regulatory Flexibility Act, 5 U.S.C. 601, because it would not have a significant economic impact on a substantial number of small entities. Therefore, the Regulatory Flexibility Act, as amended, does not require SSS to prepare a regulatory flexibility analysis. D. Section 202 of Public Law 104-4, ``Unfunded Mandates Reform Act'' (2 U.S.C. 1532) Section 202 of the Unfunded Mandates Reform Act of 1995, 2 U.S.C. 1532, requires agencies to assess anticipated costs and benefits before issuing any rule whose mandates require the expenditure of $100 million or more (in 1995 dollars, adjusted annually for inflation) in any one year. This final rule will not mandate any requirements for state, local, or tribal governments, nor will it affect private sector costs. E. Public Law 96-511, ``Paperwork Reduction Act'' (44 U.S.C. Chapter 35) This final rule does not impose reporting or recordkeeping requirements under the Paperwork Reduction Act. F. E.O. 13132, ``Federalism'' E.O. 13132 establishes certain requirements that an agency must meet when it promulgates a proposed rule (and subsequent final rule) that imposes substantial direct requirement costs on state and local governments, preempts state law, or otherwise has federalism implications. This final rule will not [[Page 66570]] have a substantial effect on state and local governments. G. E.O. 11623, Delegation of Authority & Coordination Requirements In E.O. 11623, the President delegated to the Director of Selective Service the authority to prescribe the necessary rules and regulations to carry out the provisions of the Military Selective Service Act. In carrying out the provisions of E.O. 11623, as amended by E.O. 13286, the Director shall request the views of the Secretary of Defense; the Attorney General; the Secretary of Labor; the Secretary of Health and Human Services; the Secretary of Homeland Security (when the Coast Guard is serving under the Department of Homeland Security); the Director of the Office of Emergency Preparedness; and the Chairman of the National Selective Service Appeal Board with regard to such proposed rule or regulation, and shall allow not less than 10 days for the submission of such views before publication of the proposed rule or regulation. On January 24, 2024, SSS completed its coordination requirements, and the Director certifies that he has requested the views of the officials required to be consulted pursuant to subsection (a) of E.O. 11623, considered those views and as appropriate incorporated those views in these regulations, and that none of these officials has requested that the matter be referred to the President for decision. This final rule was reviewed and approved by Joel C. Spangenberg, Acting Director of Selective Service. List of Subjects in 32 CFR Part 1662 Freedom of information. 0 For the reasons stated in the preamble, the Selective Service System revises 32 CFR part 1662 to read as follows: PART 1662--FREEDOM OF INFORMATION ACT (FOIA) PROCEDURES Sec. 1662.1 Scope and purpose of this part. 1662.2 Definitions. 1662.3 SSS's FOIA policy. 1662.4 Relationship between the FOIA and the Privacy Act of 1974. 1662.5 Who can file a FOIA request? 1662.6 Requirements of a FOIA request. 1662.7 Where to submit a FOIA request. 1662.8 Requests not processed under the FOIA. 1662.9 Chief FOIA Officer's authority. 1662.10 Responsibility for responding to requests. 1662.11 How does SSS process FOIA requests? 1662.12 Expedited processing. 1662.13 Fees associated with processing FOIA requests. 1662.14 Release of records. 1662.15 FOIA Public Liaison and the Office of Government Information Services. 1662.16 Appeals of the Chief FOIA Officer's determination. 1662.17 U.S. District Court action. 1662.18 The FOIA Exemption 1: National defense and foreign policy. 1662.19 The FOIA Exemption 2: Internal personnel rules and practices. 1662.20 The FOIA Exemption 3: Records exempted by other statutes. 1662.21 The FOIA Exemption 4: Trade secrets and confidential commercial or financial information. 1662.22 The FOIA Exemption 5: Internal documents. 1662.23 The FOIA Exemption 6: Clearly unwarranted invasion of personal privacy. 1662.24 The FOIA Exemption 7: Law enforcement. 1662.25 The FOIA Exemptions 8 and 9: Records on financial institutions; records on wells. 1662.26 Records available for public inspection. 1662.27 Where records are published. 1662.28 Publications for sale through the Government Publishing Office. Authority: 5 U.S.C. 301; 50 U.S.C. 3809; 5 U.S.C. 552 and 552a; 18 U.S.C. 1905; 31 U.S.C. 9701; & E.O. 11623, as amended by E.O. 13286, Feb 28, 2003. Sec. 1662.1 Scope and purpose of this part. (a) The purpose of this part is to describe the Selective Service System's (SSS) policies and procedures for implementing the requirements of the Freedom of Information Act (FOIA) as set forth at 5 U.S.C. 552. The FOIA mandates disclosure to the public of Federal agency records unless specific exemptions apply. The FOIA also requires an agency to proactively disclose records and make certain records available for public inspection. (b) The rules in this part describe how SSS makes records available to the public, including: (1) What constitutes a proper request for records; (2) How to make a FOIA request; (3) Who has the authority to release and withhold records; (4) What fees may be charged to process a request for records; (5) The timing of determinations regarding release; (6) The exemptions that permit the withholding of records; (7) A requester's right to seek assistance from the FOIA Public Liaison; (8) A requester's right to appeal the Agency's FOIA determination; (9) A requester's right to seek assistance from the Office of Government Information Services (OGIS) and then go to court if they still disagree with the Agency's release determination; and (10) The records available for public inspection. (c) The rules in this part do not revoke, modify, or supersede the SSS regulations relating to disclosure of information in parts 1660 or 1665 of this chapter. Sec. 1662.2 Definitions. As used in this part: Agency means the Selective Service System. Agency may also refer to any executive department, military department, government corporation, government-controlled corporation, or other establishment in the executive branch of the Federal Government, or any independent regulatory agency. A private organization is not an agency even if it is performing work under contract with the Government or is receiving Federal financial assistance. Chief FOIA Officer means a senior official of SSS who has an Agency-wide responsibility for ensuring efficient and appropriate compliance with the FOIA, monitoring implementation of the FOIA throughout SSS, and making recommendations to the Director of Selective Service to improve SSS's implementation of the FOIA. The Director of Selective Service designates a Chief FOIA Officer for the Agency. The Director of Selective Service makes final decisions in response to appeals of the Chief FOIA Officer's determinations. Commercial interest includes interests relating to business, trade, and profit, as well as non-profit corporations, individuals, unions, and other associations. The interest of a representative of the news media in using the information for news dissemination purposes will not be considered a commercial interest. Component consists of the Office of the Director, National Headquarters Directorates and Offices, Data Management Center, Region Offices, and all other organizational entities within SSS that may maintain Agency records subject to a request under the FOIA. Duplication means the process of reproducing a copy of a record, or of the information contained in it, to the extent necessary to respond to a request. Copies include paper, electronic records, audiovisual materials, and other formats of Agency records. Educational institution means a preschool, elementary or secondary school, institution of undergraduate or graduate higher education, or institution of professional or vocational education, which operates a program of scholarly research. To qualify for this category, a [[Page 66571]] requester must show that the FOIA request is authorized by, and is made under the auspices of, a qualifying institution and that the records are sought to further a scholarly research goal of the institution, and not for a commercial use or purpose, or for individual use or benefit. Exemption means one of the nine exemptions to the mandatory disclosure of records permitted under section 552(b) of the FOIA. Expedited processing means the process set forth in the FOIA that allows requesters to request faster processing of their FOIA request if they meet specific criteria noted in Sec. 1662.12. Fee category means one of the three categories established by the FOIA to determine whether a requester will be charged fees under FOIA for search, review, and duplication. The categories are: commercial use requests; non-commercial scientific or educational institutions and news media requests; and all other requests. Fee waiver means the waiver or reduction of fees if a requester meets the requirements set forth in Sec. 1662.13. FOIA Officer means an SSS official whom the Director of Selective Service has delegated the authority to assist the Chief FOIA Officer in releasing or withholding records; assessing, waiving, or reducing fees in response to FOIA requests; and all other determinations regarding the processing of a FOIA request. In this capacity, the FOIA Officer is authorized to request and receive responsive records that may be maintained by other Agency components. Except for records subject to proactive disclosure pursuant to section (a)(2) of the FOIA, only the Chief FOIA Officer has the authority to release or withhold records or to waive fees in response to a FOIA request. FOIA Public Liaison means an Agency official who reports to the Agency Chief FOIA Officer and serves as a supervisory official to whom a requester can raise concerns about the service the requester received concerning the processing of the FOIA request. This individual is responsible for increasing transparency in the Agency's FOIA business process, helping requesters understand the status of requests, and assisting in the resolution of disputes. The FOIA Public Liaison may be contacted via email at [email protected]. FOIA request means a written request that meets the criteria in Sec. 1662.6. Freedom of Information Act or FOIA means the law codified at 5 U.S.C. 552 that provides the public with the right to request Agency records from Federal executive branch agencies. News means information that is about current events or that would be of current interest to the public. Examples of news media entities include television or radio stations that broadcast news to the public at large and publishers of periodicals, including print and online publications that disseminate news and make their products available through a variety of means to the public. SSS does not consider FOIA requests for records that support the news dissemination function of the requester to be commercial use. SSS considers ``freelance'' journalists who demonstrate a solid basis for expecting publication through a news media entity as working for that entity. A publishing contract provides the clearest evidence that a journalist expects publication; however, SSS also considers a requester's past publication record. Non-commercial scientific institution means an institution that does not further the commercial, trade, or profit interests of any person or entity and is operated for the purpose of conducting scientific research whose results are not intended to promote any particular product or industry. Online FOIA portal means the electronic application that SSS uses to process FOIA requests. The public may also submit requests directly to SSS via the online FOIA.gov--Freedom of Information Act. Other requester means any individual or organization whose FOIA request does not qualify as a commercial-use request, representative of the news media request (including a request made by a freelance journalist), or an educational or non-commercial scientific institution request. Production means the process of preparing the records for duplication, including the time spent in preparing the records for duplication (i.e., materials used, records/database retrieval, employee, and contractor time, as well as systems processing time). Reading room means an electronic location(s) that SSS uses to post records that are made available to the public without a specific request. SSS makes reading room records electronically available to the public through the SSS website, https://www.sss.gov/, including at https://www.sss.gov/foia/. Record(s) means any information maintained by an Agency, regardless of format, that is made or received in connection with official Agency business that is under the Agency's control at the time of the FOIA request. Record(s) includes any information maintained for an Agency by a third party. Record(s) does not include personal records of an employee, or other information in formally organized and officially designated SSS libraries and reading rooms, where such materials are available under the rules of the particular library. Redact means delete or mark over. Representative of the news media means any person or entity that gathers information of potential interest to a segment of the public, uses its editorial skills to turn raw materials into a distinct work, and distributes that work to an audience. Request means asking for records, whether or not the requester refers specifically to the FOIA. Requests from federal agencies, subpoenas, and court orders for documents are not included within this definition. Review, unless otherwise specifically defined in this part, means examining records responsive to a request to determine whether any portions are exempt from disclosure. Review time includes processing a record for disclosure (i.e., doing all that is necessary to prepare the record for disclosure), including redacting the record and marking the appropriate FOIA exemptions. It does not include the process of resolving general legal or policy issues regarding exemptions. Search means the process of identifying, locating, and retrieving records responsive to a request, whether in hard copy or in electronic form or format, or by manual or automated/electronic means. Special services mean performing additional services outside of those required under the FOIA to respond to a request. Examples include using an overnight mail service to send the Agency's response to a FOIA request. SSS means the Selective Service System. Submitter means any person or entity that provides trade secrets or commercial or financial information to the Agency, and includes individuals, corporations, other organizational entities, and state and foreign governments. Tolling means temporarily stopping the running of a time limit. SSS may toll a FOIA request to seek clarification from the requester or to address fee issues, as further described in Sec. 1662.11. Trade secrets and commercial or financial information means trade secrets and commercial or financial information that are confidential, and are obtained by the Agency from a submitter, such that it may be protected from disclosure under Exemption 4 of the FOIA, 5 U.S.C. 552(b)(4). [[Page 66572]] Sec. 1662.3 SSS's FOIA policy. (a) Presumption of openness. The Agency will withhold information only if the Chief FOIA Officer reasonably foresees that disclosure would harm an interest protected by a FOIA exemption or if disclosure is prohibited by law. (b) Authority to release and withhold records. As described in Sec. 1662.9, the Agency's Chief FOIA Officer has the authority to: (1) Release or withhold records in response to initial requests; (2) Grant or deny expedited processing; and (3) Reduce or waive fees. (c) Records publicly available. The Agency makes available for public inspection, in an electronic format, records that have been requested and released three or more times and other specified records described in Sec. 1662.26. (d) Required record production. The FOIA does not require an Agency to give opinions, conduct research, answer questions, or create records. Sec. 1662.4 Relationship between the FOIA and the Privacy Act of 1974. (a) Coverage. The FOIA and the rules in this part apply to all SSS records. The Privacy Act, 5 U.S.C. 552a, applies to records that are about individuals, but only if the records are in a system of records. (b) Requesting your own records. If you have filed a FOIA request and are an individual requesting your own records that are maintained in a system of records, or if you are a parent or legal guardian authorized to act on behalf of a minor or custodian who is seeking the records about a minor or individual who has been declared incompetent, the Agency will handle your request under the Privacy Act. Sec. 1662.5 Who can file a FOIA request? Any member of the public may submit a FOIA request to SSS. Under the FOIA, ``member of the public'' includes requests from individuals, corporations, state, and local agencies, as well as foreign entities. Requests from Federal agencies and Federal or state courts are not covered by the FOIA. Sec. 1662.6 Requirements of a FOIA request. (a) To be considered a FOIA request under this part, the following must occur: (1) The request must be written (either by hand or electronically); (2) The request must be submitted in accordance with Sec. 1662.7; (3) The requester must provide the following required contact information: requester's name, U.S. or foreign postal address, description of records sought, and fee willing to pay. While not required, the Agency encourages requesters to provide us with their email address and phone number; and (4) The request must clearly state and reasonably describe what SSS records are requested. Broad, sweeping requests and vague requests are not reasonably described. The requester must describe the records sought in sufficient detail to enable the Agency to locate the records within a reasonable amount of effort. When known, requests should identify the records sought by providing the name/title of the record, applicable date range, subject matter, offices, or employees involved, and record type. If the request is for electronic communications, such as email records, it would assist SSS if the requestor could provide as much information as possible, such as the names, position titles, or other identifying information about the Agency employees involved, as well as the applicable timeframe. Absent sufficient details, the Agency may be unable to search for or locate the records sought. The greater the date range, the longer it may take to process the request and the greater amount of fees that may be charged. (b) Requests that do not meet the required criteria above are not considered proper FOIA requests. (c) The FOIA requires an Agency to provide the record in any form or format requested by the person if the record is readily reproducible by the Agency in that form or format. SSS will not search or produce records in response to a FOIA request that the FOIA Officer determines would be unduly burdensome (as defined in case law) to process. FOIA requests are unreasonably burdensome when it is a broad, sweeping request that lacks specificity. Sec. 1662.7 Where to submit a FOIA request. Submission of requests. Requesters must submit FOIA requests in writing to the Agency through one of the following options: (a) Online FOIA portal: link available from the Agency's www.sss.gov/foia website. (b) Email: [email protected]. (c) Mail: SSS, ATTN: Freedom of Information Act Officer, 1501 Wilson Boulevard, Suite 700, Arlington, VA 22209. Sec. 1662.8 Requests not processed under the FOIA. (a) The Chief FOIA Officer will not process a request under the FOIA and the regulations in this part to the extent it asks for records that are currently publicly available, either from SSS or from another part of the Federal Government, unless the requester does not have access to the internet and cannot retrieve records online. See Sec. 1662.26. (b) The Chief FOIA Officer will not process a request under the FOIA and the regulations in this part if the records sought are distributed by the Agency as part of its regular program activity, for example, public information leaflets distributed by SSS. See Sec. Sec. 1662.26 through 1662.28. (c) The Chief FOIA Officer will not process a request under the FOIA that does not meet the requirements of a FOIA request as defined in Sec. 1662.21. When a request under FOIA does not meet the requirements of Sec. 1662.21, the Chief FOIA Officer will send written correspondence to the requester: (1) Providing instructions for how to submit a proper FOIA request; or (2) Asking for additional information to make the request a proper FOIA request. Sec. 1662.9 Chief FOIA Officer's authority. (a) Release determination. The Chief FOIA Officer is authorized to make determinations about: (1) Release or withholding of records; (2) Expedited processing; (3) Charging or waiver of fees; and (4) Other matters relating to processing a request for records under this part. (b) Determination provided in writing. The Chief FOIA Officer's determination is provided in writing to the requester via emailed communication or, in the absence of the requester's email address, via U.S. postal mail. If the requester disagrees with the FOIA Officer's determination in response to items identified in paragraph (a) of this section, the requester may appeal the determination to the Director of Selective Service, as described in Sec. 1662.16. Sec. 1662.10 Responsibility for responding to requests. (a) In general. When the Chief FOIA Officer first receives a request for a record and SSS maintains that record, it is the responsibility of SSS to respond to the request. In determining which records are responsive to a request, SSS ordinarily will include only records in its possession as of the date that it begins its search. If any other date is used, SSS will inform the requester of that date. A record that is excluded from the requirements of the FOIA pursuant to 5 U.S.C. 552(c), is not considered responsive to a request. (b) Authority to grant or deny requests. The Chief FOIA Officer is authorized to grant or to deny any [[Page 66573]] requests for records that are maintained by SSS. Denials may be appealed to the Director of the Selective Service. (c) Consultation, referral, and coordination. When reviewing records located by SSS in response to a request, the Chief FOIA Officer will determine whether another agency of the Federal Government is better able to determine whether the record is exempt from disclosure under the FOIA. As to any such record, the Agency must proceed in one of the following ways: (1) Consultation. When records originated with SSS but contain within them information of interest to another agency or other Federal Government office, SSS will consult with that other entity prior to making a release determination. (2) Referral. (i) When the Chief FOIA Officer believes that a different agency or component is best able to determine whether to disclose the record, the Chief FOIA Officer will refer the responsibility for responding to the request regarding that record to that agency. Ordinarily, the agency that originated the record is presumed to be the best agency to make the disclosure determination. However, if the Chief FOIA Officer and the originating agency jointly agree that SSS is in the best position to respond regarding the record, then the record may be handled as a consultation. (ii) Whenever the Chief FOIA Officer refers any part of the responsibility for responding to a request to another agency, it will document the referral, maintain a copy of the record that it refers, and notify the requester of the referral, informing the requester of the name(s) of the agency to which the record was referred, including that Agency's FOIA contact information. (3) Coordination. The standard referral procedure is not appropriate where disclosure of the identity of the agency to which the referral would be made could harm an interest protected by an applicable exemption, such as the exemptions that protect personal privacy or national security interests. For example, if a non-law enforcement agency responding to a request for records on a living third party locates within its file's records originating with a law enforcement agency, and if the existence of that law enforcement interest in the third party was not publicly known, then to disclose that law enforcement interest could cause an unwarranted invasion of the personal privacy of the third party. Similarly, if the Chief FOIA Officer locates within its files material originating from an Intelligence Community agency, and the involvement of that agency in the matter is classified and not publicly acknowledged, then to disclose or give attribution to the involvement of that Intelligence Community agency could cause national security harms. In such instances, in order to avoid harm to an interest protected by an applicable exemption, the Chief FOIA Officer will coordinate with the originating agency to seek its views on whether the record may be disclosed. The release determination for the record that is the subject of the coordination will then be conveyed to the requester by the Chief FOIA Officer. (d) Classified information. On receipt of any request involving classified information, the Chief FOIA Officer must determine whether the information is currently and properly classified in accordance with applicable classification rules. Whenever a request involves a record containing information that has been classified or may be appropriate for classification by another agency under any applicable executive order concerning the classification of records, the Chief FOIA Officer will refer the responsibility for responding to the request regarding that information to the agency that classified the information, or that should consider the information for classification. Whenever the record of SSS contains information that has been derivatively classified (for example, when it contains information classified by another agency), the Chief FOIA Officer will refer the responsibility for responding to that portion of the request to the agency that classified the underlying information. (e) Timing of responses to consultations and referrals. All consultations and referrals received by the Chief FOIA Officer will be handled according to the date that SSS received the perfected FOIA request. (f) Agreements regarding consultations and referrals. The Chief FOIA Officer may establish agreements with other agencies to eliminate the need for consultations or referrals with respect to particular types of records. Sec. 1662.11 How does SSS process FOIA requests? (a) Acknowledgement. (1) The Chief FOIA Officer acknowledges all FOIA requests in writing within ten business days after the Agency's receipt of the request. The acknowledgement email or letter restates the FOIA request and provides the requester with the request's tracking number. (2) If the Chief FOIA Officer requires clarification to process the FOIA request, the Chief FOIA Officer will contact the requester either via email, U.S. postal mail, or phone call. The Chief FOIA Officer will attempt to contact requesters twice. If the Chief FOIA Officer does not receive a response to their clarification attempts within 30 calendar days from the date of the first contact to the requester, the Chief FOIA Officer will close the FOIA request due to insufficient information. (b) Perfected requests. FOIA requests are considered ``perfected,'' i.e., the 20-business day statutory time begins, when the request meets the requirements of the proper FOIA request listed in Sec. 1662.6. There may be times that the Chief FOIA Officer requires more information from the requester after perfecting a request. The 20- business day period may be extended in unusual circumstances by written notice to the requester. See paragraph (e) of this section. (c) Expedited processing. Unless granted expedited processing, the Chief FOIA Officer processes FOIA requests according to a first-in, first-out basis. See Sec. 1662.12 for information on expedited processing. (d) Multi-tracking procedures. FOIA requests are categorized as either simple or complex, depending on the nature of the request and the estimated processing time: (1) Simple. For most non-expedited requests, the Chief FOIA Officer makes a determination about release of the record(s) requested within 20 business days. (2) Complex. The Chief FOIA Officer will place into a complex processing queue any request that cannot be completed within 20 business days due to unusual circumstances. The Chief FOIA Officer notifies requesters in writing if it is necessary for SSS to take additional time to process a request and of the requester's right to seek dispute resolution services with the OGIS. See Sec. 1662.15. (e) Unusual circumstances. (1) Unusual circumstances exist when there is a need to: (i) Search for and collect records from SSS components or locations that are separate from National Headquarters; (ii) Search for, collect, and review a voluminous number of records that are part of a single request; and/or (iii) Consult with two or more SSS components or another agency having substantial interest in the request before releasing the records. (2) Within the unusual circumstances letter to the requester, the Chief FOIA Officer will provide an estimated date that they will contact the requester with the applicable fee notice and/or further correspondence. The Chief FOIA Officer will also advise the requester that they [[Page 66574]] may modify or narrow the scope of their request. (f) Fee notice. FOIA requesters are issued a fee notice from the Chief FOIA Officer that informs them of the estimated search and review time associated with processing their FOIA request. For more information on fees, see Sec. 1662.13. (g) Tolling. (1) The Chief FOIA Officer may stop or toll the 20 business days in two circumstances: (i) The Chief FOIA Officer may stop the clock one time if they require additional information regarding the specifics of the request; and (ii) The Chief FOIA Officer may stop the clock as many times as needed regarding fee assessments. (2) The processing time will resume upon the Chief FOIA Officer's receipt of the requester's response. There may be instances when the Chief FOIA Officer requires multiple clarifications on a FOIA request. After the first request for clarification, any additional clarifications are performed without tolling the clock. Should the requester not respond to any correspondence wherein the Chief FOIA Officer requests clarification, or should the correspondence be returned as undeliverable, the Agency reserves the right to administratively close the FOIA request if the Chief FOIA Officer does not receive a response within 30 business days of the date of their correspondence requesting clarification. (h) Retrieving records. The Agency is required to furnish copies of records only when they are in the Agency's possession or SSS can retrieve them from storage. The Federal government follows National Archives and Records Administration (NARA) rules on record retention. Records are retained or destroyed under the guidelines of the Federal Records Act. (i) Unproductive searches. SSS will search for records to satisfy a request using methods that can be reasonably expected to produce the requested records. Nevertheless, the Agency may not be able to find the records requested using the information provided by the requester, or they may not exist. If the Chief FOIA Officer advises that SSS is unable to find the records despite a diligent search, the requester may appeal the no records determination to the Director of Selective Service, as described in Sec. 1662.16. (j) Furnishing records. The Chief FOIA Officer will provide the requester with the record(s) requested unless disclosure would harm an interest protected by a FOIA exemption or disclosure is prohibited by law. When information within a responsive record(s) is exempt from disclosure, the information is redacted and the applicable FOIA exemption(s) are noted within the redacted cell. The Chief FOIA Officer will make reasonable efforts to provide the records in the form or format requested if the record is readily reproducible in that form or format. The Chief FOIA Officer may provide individual records as the Agency processes them on a rolling basis, or the Chief FOIA Officer may release all responsive records once the request is completed. See Sec. 1662.14 for more information on the release of records by SSS. Sec. 1662.12 Expedited processing. (a) Expedited processing must be requested at the same time as the FOIA request. The Chief FOIA Officer provides expedited processing when the requester can demonstrate a ``compelling need'' for the requested information, such as: (1) When there is an imminent threat to the life or safety of a person; (2) When the request is from the media, or others primarily engaged in disseminating information, and shows an immediate urgency to inform the public about actual or alleged government activities; or (3) When the requester can show, in detail and to the Chief FOIA Officer's satisfaction, that a prompt response is needed because the requester may be denied a legal right, benefit, or remedy without the requested information, and that it cannot be obtained elsewhere in a reasonable amount of time. (b) Only the Chief FOIA Officer may make the decision to grant or deny expedited processing. Requests that do not meet the ``compelling need'' criteria will be processed normally. If the Chief FOIA Officer does not grant the request for expedited processing, the requester may appeal the denial to the Director of Selective Service. In the appeal letter, the requester should explain why they believe their request demonstrates a ``compelling need,'' such as describing how the request meets the criteria in paragraphs (a)(1) through (3) of this section. The process described in Sec. 1662.16 will apply to these appeals. Sec. 1662.13 Fees associated with processing FOIA requests. (a) Charging fees. In responding to FOIA requests, the Chief FOIA Officer shall charge the following fees unless a waiver or reduction of fees has been granted under paragraph (i) of this section. Because the fee amounts provided below already account for the direct costs associated with a given fee type, the Chief FOIA Officer should not add any additional costs to charges calculated under this section. (1) Search. (i) Requests made by educational institutions, non- commercial scientific institutions, or representatives of the news media are not subject to search fees. Search fees shall be charged for all other requesters, subject to the restrictions of paragraph (b) of this section. The Chief FOIA Officer may properly charge for time spent searching even if the Agency does not locate any responsive records or if the Chief FOIA Officer determines that the records are entirely exempt from disclosure. (ii) For each quarter hour spent by personnel searching for requested records, including electronic searches that do not require new programming, the fees shall be as follows: professional--$10.00; and clerical/administrative--$4.75. (iii) Requesters shall be charged the direct costs associated with conducting any search that requires the creation of a new computer program to locate the requested records. Requesters shall be notified by the Chief FOIA Officer of the costs associated with creating such a program and must agree to pay the associated costs before the costs may be incurred. (iv) For requests that require the retrieval of records stored by the Agency at a Federal records center operated by NARA, additional costs shall be charged in accordance with the Transactional Billing Rate Schedule established by NARA. (2) Duplication. Duplication fees shall be charged to all requesters, subject to the restrictions of paragraph (b) of this section. The Chief FOIA Officer shall honor a requester's preference for receiving a record in a particular form or format where it is readily reproducible in the form or format requested. Where photocopies are supplied, the Chief FOIA Officer shall provide one copy per request at a cost of five cents per page. For copies of records produced on tapes, disks, or other media, components shall charge the direct costs of producing the copy, including operator time. Where paper documents must be scanned to comply with a requester's preference to receive the records in an electronic format, the requester shall pay the direct costs associated with scanning those materials. For other forms of duplication, the Chief FOIA Officer shall charge the direct costs. (3) Review. Review fees shall be charged to requesters who make commercial use requests. Review fees shall be assessed in connection with the initial review of the record, i.e., the [[Page 66575]] review conducted by the Chief FOIA Officer to determine whether an exemption applies to a particular record or portion of a record. No charge will be made for review at the administrative appeal stage of exemptions applied at the initial review stage. However, if a particular exemption is deemed to no longer apply, any costs associated with the Agency's re-review of the records in order to consider the use of other exemptions may be assessed as review fees. Review fees shall be charged at the same rates as those charged for a search under paragraph (a)(1)(ii) of this section. (b) Restrictions on charging fees. (1) No search fees will be charged for requests by educational institutions (unless the records are sought for commercial use), non-commercial scientific institutions, or representatives of the news media. (2) If the Agency fails to comply with the FOIA's time limits in which to respond to a request, the Chief FOIA Officer may not charge search fees, or, in the instances of requests from requesters described in paragraph (b)(1) of this section, may not charge duplication fees, except as described in paragraphs (b)(2)(i) through (iii) of this section. (i) If the Chief FOIA Officer has determined that unusual circumstances as defined by the FOIA apply and they provided timely written notice to the requester in accordance with the FOIA, a failure to comply with the time limit shall be excused for an additional 10 days. (ii) If the Chief FOIA Officer has determined that unusual circumstances as defined by the FOIA apply, and more than 5,000 pages are necessary to respond to the request, the Chief FOIA Officer may charge search fees, or, in the case of requesters described in paragraph (b)(1) of this section, may charge duplication fees if the following steps are taken. The Chief FOIA Officer must have provided timely written notice of unusual circumstances to the requester in accordance with the FOIA and the Chief FOIA Officer must have discussed with the requester via written mail, email, or telephone (or made not less than three good faith attempts to do so) how the requester could effectively limit the scope of the request in accordance with 5 U.S.C. 552(a)(6)(B)(ii). If this exception is satisfied, the Chief FOIA Officer may charge all applicable fees incurred in the processing of the request. (iii) If a court has determined that exceptional circumstances exist as defined by the FOIA, a failure to comply with the time limits shall be excused for the length of time provided by the court order. (3) No search or review fees will be charged for a quarter-hour period unless more than half of that period is required for search or review. (4) Except for requesters seeking records for a commercial use, the Chief FOIA Officer shall provide without charge: (i) The first 100 pages of duplication (or the cost equivalent for other media); and (ii) The first two hours of search. (5) When, after first deducting the 100 free pages (or its cost equivalent) and the first two hours of search, a total fee calculated under paragraph (a) of this section is $25.00 or less for any request, no fee will be charged. (c) Notice of anticipated fees in excess of $25.00. (1) When the Chief FOIA Officer determines or estimates that the fees to be assessed in accordance with this section will exceed $25.00, the Chief FOIA Officer shall notify the requester of the actual or estimated amount of the fees, including a breakdown of the fees for search, review, or duplication, unless the requester has indicated a willingness to pay fees as high as those anticipated. If only a portion of the fee can be estimated readily, the Chief FOIA Officer shall advise the requester accordingly. If the requester is a non-commercial use requester, the notice shall specify that the requester is entitled to the statutory entitlements of 100 pages of duplication at no charge and, if the requester is charged search fees, two hours of search time at no charge, and shall advise the requester whether those entitlements have been provided. (2) In cases in which a requester has been notified that the actual or estimated fees are in excess of $25.00, the request shall not be considered received and further work will not be completed until the requester commits in writing to pay the actual or estimated total fee, or designates some amount of fees the requester is willing to pay, or in the case of a non-commercial use requester who has not yet been provided with the requester's statutory entitlements, designates that the requester seeks only that which can be provided by the statutory entitlements. The requester must provide the commitment or designation in writing to the Chief FOIA Officer, and must, when applicable, designate an exact dollar amount the requester is willing to pay. The Agency is not required to accept payments in installments. (3) If the requester has indicated a willingness to pay some designated amount of fees, but the Chief FOIA Officer estimates that the total fee will exceed that amount, they shall toll the processing of the request when they notify the requester of the estimated fees more than the amount the requester has indicated a willingness to pay. The Chief FOIA Officer shall inquire whether the requester wishes to revise the amount of fees the requester is willing to pay or modify the request. Once the requester responds, the time to respond will resume from where it was at the date of the notification. (4) The Agency shall make available the FOIA Public Liaison or other FOIA professional to assist any requester in reformulating a request to meet the requester's needs at a lower cost. (d) Charges for other services. Although not required to provide special services, if the Chief FOIA Officer chooses to do so as a matter of administrative discretion, the direct costs of providing the service shall be charged. Examples of such services include certifying that records are true copies, providing multiple copies of the same document, or sending records by means other than first class mail. (e) Charging interest. The Chief FOIA Officer may charge interest on any unpaid bill starting on the 31st day following the date of billing the requester. Interest charges shall be assessed at the rate provided in 31 U.S.C. 3717 and will accrue from the billing date until payment is received by the Chief FOIA Officer. The Chief FOIA Officer shall follow the provisions of the Debt Collection Act of 1982 (Pub. L. 97-365, 96 Stat. 1749), as amended, and its administrative procedures, including the use of consumer reporting agencies, collection agencies, and offset. (f) Aggregating requests. When the Chief FOIA Officer reasonably believes that a requester or a group of requesters acting in concert is attempting to divide a single request into a series of requests for the purpose of avoiding fees, the Chief FOIA Officer may aggregate those requests and charge accordingly. The Chief FOIA Officer may presume that multiple requests of this type made within a 30-day period have been made to avoid fees. For requests separated by a longer period, the Chief FOIA Officer will aggregate them only where there is a reasonable basis for determining that aggregation is warranted in view of all the circumstances involved. Multiple requests involving unrelated matters shall not be aggregated. (g) Advance payments. (1) For requests other than those described in paragraph (g)(2) or (g)(3) of this section, the Chief FOIA Officer shall not require the requester to make an advance [[Page 66576]] payment before work on a request is commenced or continued. Payment owed for work already completed (i.e., payment before copies are sent to a requester) is not an advance payment. (2) When the Chief FOIA Officer determines or estimates that a total fee to be charged under this section will exceed $250.00, they may require that the requester make an advance payment up to the amount of the entire anticipated fee before beginning to process the request. The Chief FOIA Officer may elect to process the request prior to collecting fees when they receive a satisfactory assurance of full payment from a requester with a history of prompt payment. (3) Where a requester has previously failed to pay a properly charged FOIA fee to the Agency within 30 calendar days of the billing date, the Chief FOIA Officer may require that the requester pay the full amount due, plus any applicable interest on that prior request, and the Chief FOIA Officer may require that the requester make an advance payment of the full amount of any anticipated fee before the FOIA Officer begins to process a new request or continues to process a pending request or any pending appeal. Where the Chief FOIA Officer has a reasonable basis to believe that a requester has misrepresented the requester's identity to avoid paying outstanding fees, it may require that the requester provide proof of identity. (4) In cases in which the Chief FOIA Officer requires advance payment, the request shall not be considered received and further work will not be completed until the required payment is received. If the requester does not pay the advance payment within 30 calendar days after the date of the Chief FOIA Officer's fee determination, the request will be closed. (h) Other statutes specifically providing for fees. The fee schedule of this section does not apply to fees charged under any statute that specifically requires an agency to set and collect fees for particular types of records. In instances where records responsive to a request are subject to a statutorily based fee schedule program, the Chief FOIA Officer shall inform the requester of the contact information for that program. (i) Requirements for waiver or reduction of fees. (1) Requesters may seek a waiver of fees by submitting a written application demonstrating how disclosure of the requested information is in the public interest because it is likely to contribute significantly to public understanding of the operations or activities of the government and is not primarily in the commercial interest of the requester. (2) The Chief FOIA Officer must furnish records responsive to a request without charge or at a reduced rate when they determine, based on all available information, that disclosure of the requested information is in the public interest because it is likely to contribute significantly to public understanding of the operations or activities of the government and is not primarily in the commercial interest of the requester. In deciding whether this standard is satisfied the component must consider the factors described in paragraphs (i)(2)(i) through (iii) of this section: (i) Disclosure of the requested information would shed light on the operations or activities of the government. The subject of the request must concern identifiable operations or activities of the Federal government with a connection that is direct and clear, not remote or attenuated. (ii) Disclosure of the requested information would be likely to contribute significantly to public understanding of those operations or activities. This factor is satisfied when the following criteria are met: (A) Disclosure of the requested records must be meaningfully informative about government operations or activities. The disclosure of information that already is in the public domain, in either the same or a substantially identical form, would not be meaningfully informative if nothing new would be added to the public's understanding. (B) The disclosure must contribute to the understanding of a reasonably broad audience of persons interested in the subject, as opposed to the individual understanding of the requester. A requester's expertise in the subject area as well as the requester's ability and intention to effectively convey information to the public must be considered. The Chief FOIA Officer will presume that a representative of the news media will satisfy this consideration. (iii) The disclosure must not be primarily in the commercial interest of the requester. To determine whether disclosure of the requested information is primarily in the commercial interest of the requester, the Chief FOIA Officer will consider the following criteria: (A) FOIA requires an Agency requester has any commercial interest that would be furthered by the requested disclosure. A commercial interest includes any commercial, trade, or profit interest. Requesters must be given an opportunity to provide explanatory information regarding this consideration. (B) If there is an identified commercial interest, the Chief FOIA Officer must determine whether that is the primary interest furthered by the request. A waiver or reduction of fees is justified when the requirements of paragraphs (i)(2)(i) and (ii) of this section are satisfied and any commercial interest is not the primary interest furthered by the request. The Chief FOIA Officer ordinarily will presume that when a news media requester has satisfied the requirements of paragraphs (i)(2)(i) and (ii) of this section, the request is not primarily in the commercial interest of the requester. Disclosure to data brokers or others who merely compile and market government information for direct economic return will not be presumed to primarily serve the public interest. (3) Where only some of the records to be released satisfy the requirements for a waiver of fees, a waiver shall be granted for those records. (4) Requests for a waiver or reduction of fees should be made when the request is first submitted to the Chief FOIA Officer and should address the criteria referenced above. A requester may submit a fee waiver request later so long as the underlying record request is pending or on administrative appeal. When a requester who has committed to pay fees subsequently asks for a waiver of those fees and that waiver is denied, the requester shall be required to pay any costs incurred up to the date the fee waiver request was received. Sec. 1662.14 Release of records. (a) Records previously released. If the Agency has released a record, or a part of a record, to others in the past, the Chief FOIA Officer will ordinarily release it to the requester, as well. However, the Chief FOIA Officer will not release it to a requester if a statute forbids this disclosure; an exemption applies that was not previously applicable; or if the previous release was unauthorized. (b) Withholding records. Section 552(b) of the FOIA explains the nine exemptions under which the Chief FOIA Officer may withhold records requested under the FOIA. Within Sec. Sec. 1662.18 through 1662.25, the Agency describes the FOIA exemptions and explain how the Chief FOIA Officer applies them to disclosure determinations. In some cases, more than one exemption may apply to the same document. Section 552(b) of the FOIA, while providing nine exemptions from mandatory disclosure, does not [[Page 66577]] itself provide any assurance of confidentiality by the Agency. (c) Reading room. If the record(s) requested are already publicly available, either in the SSS electronic reading room or elsewhere online, such as at www.sss.gov, SSS will direct the requester to the publicly available record(s), unless the requester does not have access to the internet. (d) Poor copy. If the Chief FOIA Officer cannot make a legible copy of a record to be released, they do not attempt to reconstruct it. Instead, the Chief FOIA Officer will furnish the best copy possible and note its poor quality in their reply. Sec. 1662.15 FOIA Public Liaison and the Office of Government Information Services. The Chief FOIA Officer notifies requesters of their right to seek dispute resolution from the FOIA Public Liaison or OGIS within the SSS fee notices, responses to determinations identified in Sec. 1662.9(a), and responses to appeals. (a) FOIA Public Liaison. If requesters have questions about the response to their request or wish to seek dispute resolutions services within SSS, the requester may contact the FOIA Public Liaison via email to [email protected]. (b) OGIS. OGIS is an entity outside of SSS that offers mediation services to resolve disputes between FOIA requesters and Federal agencies as a non-exclusive alternative to litigation. OGIS' contact information will be provided in any decision letter issued by the Chief FOIA Officer and Director of Selective Service. Sec. 1662.16 Appeals of the Chief FOIA Officer's determination. (a) Appeal requirements. If a requester disagrees with the Chief FOIA Officer's determination in response to items specified in Sec. 1662.9, the requester may appeal the decision to the Director of Selective Service. The appeal must meet the following requirements: (1) Be submitted in writing via the avenues identified in Sec. 1662.7; (2) Be received within 90 days from the date of the determination the requester is appealing; and (3) Explain what the requester is appealing and include additional information to support the appeal. (b) Acknowledgement. The Director of Selective Service acknowledges all appeals in writing within 10 business days after their receipt of the appeal. The acknowledgement is provided via email or, when the requester does not provide an email address, via U.S. postal mail. The acknowledgement email or letter restates the FOIA appeal and provides the requester with the appeal's tracking number. (c) Processing timeframe. FOIA appeals are categorized as either simple or complex, based on the designation of the initial request. (1) Simple. Generally, the Director of Selective Service makes a determination about release of the requested record(s) within 20 business days. (2) Complex. Appeals of complex requests cannot be completed within 20 business days due to unusual circumstances. During the Director of Selective Service's processing of the appeal, they will need to consult with appropriate SSS component(s), including legal counsel; therefore, the Director of Selective Service generally requires more than 20 business days to issue a final decision on the appeal. (d) Final decision. The Director of Selective Service makes decisions on appeals of the Chief FOIA Officer's determinations. (1) The Director of Selective Service's final decision is provided in writing to the requester via email or, in the absence of the requester's email address, via U.S. postal mail. (2) The final decision letter will explain the basis of the decision (for example, the reasons why an exemption applies). (e) Disagreement with final decision. If a requester disagrees with the final decision issued by the Director of Selective Service, they may seek assistance from OGIS, as described in Sec. 1662.15. Requesters may also ask a U.S. District Court to review the Director of Selective Service's final decision. See 5 U.S.C. 552(a)(4)(B). Sec. 1662.17 U.S. District Court action. If the Director of Selective Service, upon review, affirms the denial of the Chief FOIA Officer's determination of items specified in Sec. 1662.9(a), requesters may ask a U.S. District Court to review that denial. See 5 U.S.C. 552(a)(4)(B). Sec. 1662.18 The FOIA Exemption 1: National defense and foreign policy. The FOIA exempts from disclosure records that are specifically authorized under criteria established by an executive order to be kept secret in the interest of national defense or foreign policy and are in fact properly classified pursuant to such executive order. Sec. 1662.19 The FOIA Exemption 2: Internal personnel rules and practices. The FOIA exempts from disclosure records that are related solely to the internal personnel rules and practices of an agency. Sec. 1662.20 The FOIA Exemption 3: Records exempted by other statutes. The FOIA exempts from disclosure records if another statute specifically allows or requires the agency to withhold them. The Chief FOIA Officer may use another statute to justify withholding only if it prohibits disclosure; it sets forth criteria to guide the Chief FOIA Officer's decision on releasing; or identifies types of material to be withheld. Sec. 1662.21 The FOIA Exemption 4: Trade secrets and confidential commercial or financial information. The FOIA exempts from disclosure trade secrets as well as commercial or financial information that is obtained from a person that is either privileged or confidential. SSS will allow submitters to designate information as trade secrets and confidential commercial or financial information at the time of submission or within a reasonable time thereafter. Submitters must use good faith efforts to designate, by appropriate markings, any portion of its submission that it considers to be protected from disclosure under the FOIA exemptions. These designations expire ten years after the due date of the submission unless the submitter requests a longer designation period. (a) Steps of submitters notice--(1) The submitter's notice. When trade secrets or confidential commercial or financial information is requested under the FOIA, the Chief FOIA Officer will provide written submitter's notice if they have substantial reason to believe that information in the records could reasonably be considered exempt under the FOIA Exemption 4. The submitter's notice will describe and include a copy of the trade secret, or commercial or financial information requested. In cases involving many submitters, SSS may publish a submitter's notice to inform the submitters of the proposed disclosure instead of sending individual notifications. The submitter's notice requirements of this section do not apply if: (i) The Chief FOIA Officer determines the information is fully exempt under the FOIA, and therefore will not be disclosed; (ii) The information has been previously published or made generally available; or (iii) Disclosure of the information is required by statute other than the FOIA. (2) Submitter's opportunity to object to disclosure. (i) The submitter must respond to the notice within five business days of the Chief FOIA Officer issuing the submitter's notice or the information may be released in [[Page 66578]] accordance with these regulations and the FOIA. A submitter who fails to respond within five business days will be considered to have no objection to the disclosure of the information. The Chief FOIA Officer is not required to consider any information received after the date of any disclosure decision. Any information provided by a submitter under this subpart may itself be subject to disclosure under the FOIA. (ii) If a submitter objects to disclosure, the submitter should provide the Chief FOIA Officer with a detailed written statement that specifies all grounds for withholding the particular information under any exemption of the FOIA. To rely on Exemption 4 as basis for nondisclosure, the submitter must explain why the information constitutes a trade secret or commercial or financial information that is confidential. (iii) The Chief FOIA Officer will consider a submitter's timely made objections and specific grounds for nondisclosure in deciding whether to disclose the requested information. (3) Notice of intent to disclose. Whenever the Chief FOIA Officer decides to disclose information over the objection of a submitter, they must provide the following to the submitter: (i) A Release Over Objection letter explaining the reasons why each of the submitter's disclosure objections did not meet the requirements for withholding under the FOIA; (ii) A copy of the information as SSS intends to release it; and (iii) A statement of the Chief FOIA Officer's intent to disclose the information five business days from the date on the Release Over Objection letter unless the submitter files an action in a U.S. District Court to prevent the release. (b) Notice of FOIA lawsuit. When a submitter's notice is issued for a request that is the subject of a lawsuit, the Chief FOIA Officer shall notify the submitter of the lawsuit within the notice. (c) Requester notification. To the extent the Chief FOIA Officer expects substantial delays in the processing of FOIA requests due to the Agency's communications with the submitter, they will notify the requester in writing via email, or when the requester's email is not provided, via U.S. postal mail. Sec. 1662.22 The FOIA Exemption 5: Internal documents. This exemption covers inter-agency or intra-agency government documents that fall within an evidentiary privilege recognized in civil discovery. Such internal government communications include an agency's communications with an outside consultant or other outside person, with a court, or with Congress, when those communications are for a purpose similar to the purpose of privileged intra-agency communications. Some of the most commonly applicable privileges are described in the following paragraphs: (a) Deliberative process privilege. This privilege protects the decision-making processes of government agencies. Information is protected under this privilege if it is pre-decisional and deliberative. The purpose of the privilege is to prevent injury to the quality of the agency decision-making process by encouraging open and frank internal discussions, by avoiding premature disclosure of decisions not yet adopted, and by avoiding the public confusion that might result from disclosing reasons that were not in fact the ultimate grounds for an agency's decision. Purely factual material in a deliberative document is within this privilege only if it is inextricably intertwined with the deliberative portions so that it cannot reasonably be segregated, if it would reveal the nature of the deliberative portions, or if its disclosure would in some other way make possible an intrusion into the decision-making process. The privilege continues to protect pre-decisional documents even after a decision is made; however, the Chief FOIA Officer will release pre- decisional deliberative communications that were created 25 years or more before the date on which the records are requested, unless disclosure is otherwise prohibited by law. (b) Attorney work product privilege. This privilege protects records prepared by or for an attorney in anticipation of or for litigation. It includes documents prepared for purposes of administrative and court proceedings. This privilege extends to information directly prepared by an attorney, as well as materials prepared by non-attorneys working for an attorney. (c) Attorney-client communication privilege. This privilege protects confidential communications between an attorney and the attorney's client where legal advice is sought or provided. Sec. 1662.23 The FOIA Exemption 6: Clearly unwarranted invasion of personal privacy. The FOIA exempts from disclosure records about individuals if disclosure would constitute a clearly unwarranted invasion of their personal privacy. Sec. 1662.24 The FOIA Exemption 7: Law enforcement. The FOIA exempts from disclosure information or records that the government has compiled for law enforcement purposes. The records may apply to actual or potential violations of either criminal or civil laws or regulations. The Agency can withhold these records only to the extent that releasing them would cause harm in at least one of the following situations: (a) Enforcement proceedings. Pursuant to the FOIA Exemption 7(A) (5 U.S.C. 552(b)(7)(a)), the Chief FOIA Officer may withhold information whose release could reasonably be expected to interfere with prospective or ongoing law enforcement proceedings. Investigations of fraud and mismanagement, employee misconduct, and civil rights violations may fall into this category. (b) Fair trial or impartial adjudication. Under the FOIA Exemption 7(B) (5 U.S.C. 552(b)(7)(b)), the FOIA exempts from disclosure records whose release would deprive a person of a fair trial or an impartial adjudication because of prejudicial publicity. (c) Personal privacy. Under the FOIA Exemption 7(C) (5 U.S.C. 552(b)(7)(c)), the FOIA exempts from disclosure personally identifiable information of individuals when the disclosure could reasonably be expected to constitute an unwarranted invasion of personal privacy. (d) Confidential sources and information. Pursuant to the FOIA Exemption 7(D) (5 U.S.C. 552(b)(7)(d)), the FOIA exempts from disclosure the identity of confidential sources, as well as the records obtained from the confidential sources in criminal investigations or by an agency conducting a lawful national security investigation. A confidential source may be an individual; a state, local, or foreign government agency; or any private organization. The exemption applies whether the source provides information under an express promise of confidentiality or under circumstances from which such an assurance could be reasonably inferred; however, inferred confidentiality is determined in a case-by-case analysis. Also protected from mandatory disclosure is any information which, if disclosed, could reasonably be expected to jeopardize the system of confidentiality that assures a flow of information from sources to investigatory agencies. (e) Techniques and procedures. Under the FOIA Exemption 7(E) (5 U.S.C. 552(b)(7)(e)), the FOIA exempts from disclosure records reflecting special techniques or procedures of investigation or prosecution, not otherwise generally known to the [[Page 66579]] public. In some cases, it is not possible to describe even in general terms those techniques without disclosing the very material to be withheld. The Chief FOIA Officer may also withhold records whose release would disclose guidelines for law enforcement investigations or prosecutions if this disclosure could reasonably be expected to create a risk that someone could circumvent requirements of law or of regulation. (f) Life and physical safety. Under the FOIA Exemption 7(F) (5 U.S.C. 552(b)(7)(f)), the Chief FOIA Officer may withhold records whose disclosure could reasonably be expected to endanger the life or physical safety of any individual. This protection extends to threats and harassment, as well as to physical violence. Sec. 1662.25 The FOIA Exemptions 8 and 9: Records on financial institutions; records on wells. Exemption 8 exempts from disclosure records about regulation or supervision of financial institutions. Exemption 9 exempts from disclosure geological and geophysical information and data, including maps, concerning wells. Sec. 1662.26 Records available for public inspection. Under the FOIA, SSS is required to make available for public inspection in an electronic format: (a) Final opinions, including concurring and dissenting opinions, as well as orders, made in the adjudication of cases; (b) The Agency's statements and interpretations of policy that have been adopted but are not published in the Federal Register; (c) Administrative staff manuals and instructions that affect the public; and (d) Copies of records, regardless of form or format, that an agency determines will likely become the subject of subsequent requests, as well as records that have been requested and released three or more times, unless said materials are published and copies are offered to sale. Sec. 1662.27 Where records are published. Materials SSS is required to publish pursuant to the provisions of 5 U.S.C. 552(a)(1) and (a)(2) are published in one of the following ways: (a) By publication in the Federal Register of Selective Service System regulations, and by their subsequent inclusion in the Code of Federal Regulations; (b) By publication in the Federal Register of appropriate general notices; and/or (c) By other forms of publication, when incorporated by reference in the Federal Register with the approval of the Director of the Federal Register. Sec. 1662.28 Publications for sale through the Government Publishing Office. The public may purchase publications containing information pertaining to the program, organization, functions, and procedures of SSS from the electronic U.S. Government Bookstore maintained by the Government Publishing Office. The publications for sale include but are not limited to: (a) Title 50, Chapter 49, of the United States Code (the Military Selective Service Act); (b) Title 32, Subtitle B, Chapter XVI, of the Code of Federal Regulations (Selective Service System Regulations); (c) Federal Register issues; and (d) Legal Aspects of the Selective Service System. Daniel A. Lauretano, Sr., General Counsel. [FR Doc. 2024-18391 Filed 8-15-24; 8:45 am] BILLING CODE 8015-01-P

usgpo

2024-10-08T13:26:24.004515

FR

FR-2024-08-16/2024-18419

Federal Register Volume 89 Issue 159 (August 16, 2024)

United States National Archives and Records Administration Office of the Federal Register

[Federal Register Volume 89, Number 159 (Friday, August 16, 2024)] [Rules and Regulations] [Pages 66579-66580] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 2024-18419] ======================================================================= ----------------------------------------------------------------------- DEPARTMENT OF VETERANS AFFAIRS 38 CFR Part 21 RIN 2900-AS14 Veteran Readiness and Employment Program: Delegation of Concurrence for Entitlement Extensions AGENCY: Department of Veterans Affairs. ACTION: Final rule. ----------------------------------------------------------------------- SUMMARY: The Department of Veterans Affairs (VA) is amending its regulations to authorize VA Regional Office (RO) Veteran Readiness and Employment Officers (VREO) to delegate their concurrence authority to extend a Veteran's entitlement to a rehabilitation program. The inability to delegate can delay the delivery of services if a VREO is unexpectedly out of the office for an extended period. A delegation of authority for entitlement extensions would follow other established procedures that allow for delegation of authority to a designee. DATES: This rule is effective August 16, 2024. FOR FURTHER INFORMATION CONTACT: Loraine Spangler, Policy Analyst, Veteran Readiness and Employment Services (28), 810 Vermont Avenue NW, Washington, DC 20420, [email protected], 202-461-9600. (This is not a toll-free telephone number.) SUPPLEMENTARY INFORMATION: VA is amending 38 CFR 21.78(d) to authorize VREOs to delegate their concurrence authority to extend a Veteran's entitlement to a rehabilitation program. The lack of authority to delegate can delay the delivery of services if a VREO is out of the office for an extended period. A delegation of authority for entitlement extensions would follow other established procedures that allow for delegation of authority to a designee. The total period a Veteran may participate in a Veteran Readiness and Employment rehabilitation program under chapter 31 alone may not exceed 48 months; however, there are situations when VA may extend a Veteran's entitlement to meet their individual needs. This is not automatically granted, and the Veteran must meet established criteria. Currently, only a VREO can provide the required concurrence for an extension that will exceed the 48-month limitation. VA has general delegation authority under 38 U.S.C. 512(a). This amendment aligns with 38 U.S.C. 3105(b), will decrease approval times for entitlement extensions, and will allow for more timely services to Veterans. Administrative Procedure Act The Secretary of Veterans Affairs finds that there is good cause under the Administrative Procedure Act (APA) to publish this rule without prior opportunity for public comment and with an immediate effective date. Pursuant to 5 U.S.C. 553(b)(B), general notice and opportunity for public comment are not required with respect to a rulemaking when an ``agency for good cause finds (and incorporates the finding and a brief statement of reasons therefor in the rules issued) that notice and public procedure thereon are impracticable, unnecessary, or contrary to the public interest.'' The Secretary finds that it is unnecessary to delay issuance of this rule for the purpose of soliciting prior public comment. This final rule will neither amend the substantive content of the regulation cited nor have a substantive impact on the public. Rather, the delegation of authority in 38 CFR 21.78(d) is procedural in nature and within VA's general delegation authority under 38 U.S.C. 512(a). Consequently, this rule is exempt from the notice-and-comment requirement as a rule of agency organization, procedure, or practice pursuant to 5 U.S.C. 553(b)(A). The APA also requires a 30-day delayed effective date, except for ``(1) a substantive rule which grants or recognizes an exemption or relieves a restriction; (2) interpretative rules and statements of policy; or (3) as otherwise [[Page 66580]] provided by the agency for good cause found and published with the rule.'' 5 U.S.C. 553(d). For the reasons stated above, the Secretary finds that there is also good cause for this rule to be effective immediately upon publication. Any delay in implementation would be unnecessary for purposes of 5 U.S.C. 553(d)(3). Executive Orders 12866, 13563, and 14094 Executive Order 12866 (Regulatory Planning and Review) directs agencies to assess the costs and benefits of available regulatory alternatives and, when regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, and other advantages; distributive impacts; and equity). Executive Order 13563 (Improving Regulation and Regulatory Review) emphasizes the importance of quantifying both costs and benefits, reducing costs, harmonizing rules, and promoting flexibility. Executive Order 14094 (Executive Order on Modernizing Regulatory Review) supplements and reaffirms the principles, structures, and definitions governing contemporary regulatory review established in Executive Order 12866 of September 30, 1993 (Regulatory Planning and Review), and Executive Order 13563 of January 18, 2011 (Improving Regulation and Regulatory Review). The Office of Information and Regulatory Affairs has determined that this rulemaking is not a significant regulatory action under Executive Order 12866, as amended by Executive Order 14094. The Regulatory Impact Analysis associated with this rulemaking can be found as a supporting document at www.regulations.gov. Regulatory Flexibility Act The Regulatory Flexibility Act, 5 U.S.C. 601-612, is not applicable to this rulemaking because notice of proposed rulemaking is not required. 5 U.S.C. 601(2), 603(a), 604(a). Unfunded Mandates The Unfunded Mandates Reform Act of 1995 requires, at 2 U.S.C. 1532, that agencies prepare an assessment of anticipated costs and benefits before issuing any rule that may result in the expenditure by state, local, and tribal governments, in the aggregate, or by the private sector, of $100 million or more (adjusted annually for inflation) in any one year. This final rule will have no such effect on state, local, and tribal governments, or on the private sector. Paperwork Reduction Act This final rule contains no provisions constituting a collection of information under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501- 3521). Congressional Review Act Pursuant to subtitle E of the Small Business Regulatory Enforcement Fairness Act of 1996 (known as the Congressional Review Act) (5 U.S.C. 801 et seq.), the Office of Information and Regulatory Affairs designated this rule as not satisfying the criteria under 5 U.S.C. 804(2). List of Subjects in 38 CFR Part 21 Administrative practice and procedure, Armed forces, Civil rights, Claims, Colleges and universities, Conflict of interests, Defense Department, Education, Employment, Grant programs--education, Grant programs--Veterans, Health care, Loan programs--education, Loan programs--Veterans, Manpower training programs, Reporting and recordkeeping requirements, Schools, Travel and transportation expenses, Veterans, Vocational education, Veteran readiness. Signing Authority Denis McDonough, Secretary of Veterans Affairs, approved this document on August 13, 2024, and authorized the undersigned to sign and submit the document to the Office of the Federal Register for publication electronically as an official document of the Department of Veterans Affairs. Luvenia Potts, Regulations Development Coordinator, Office of Regulation Policy & Management, Office of General Counsel, Department of Veterans Affairs. For the reasons stated in the preamble, the Department of Veterans Affairs is amending 38 CFR part 21 as set forth below: PART 21--VETERAN READINESS AND EMPLOYMENT AND EDUCATION Subpart A--Veteran Readiness and Employment 0 1. The authority citation for part 21, subpart A continues to read as follows: Authority: 38 U.S.C. 501(a), chs. 18, 31, and as noted in specific sections. Sec. 21.78 [Amended] 0 2. Amend Sec. 21.78, in paragraph (d), by adding in the first sentence, after the word ``Officer'', the words ``or designee''. [FR Doc. 2024-18419 Filed 8-15-24; 8:45 am] BILLING CODE 8320-01-P

usgpo

2024-10-08T13:26:24.077146

FR

FR-2024-08-16/2024-18276

Federal Register Volume 89 Issue 159 (August 16, 2024)

United States National Archives and Records Administration Office of the Federal Register

[Federal Register Volume 89, Number 159 (Friday, August 16, 2024)] [Rules and Regulations] [Pages 66580-66599] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 2024-18276] ======================================================================= ----------------------------------------------------------------------- POSTAL SERVICE 39 CFR Part 111 Parcel Processing Categories Simplification AGENCY: Postal ServiceTM. ACTION: Final rule. ----------------------------------------------------------------------- SUMMARY: The Postal Service is amending Mailing Standards of the United States Postal Service, Domestic Mail Manual (DMM[supreg]) to simplify the parcel processing categories. DATES: Effective November 4, 2024. FOR FURTHER INFORMATION CONTACT: Steven Jarboe at (202) 268-7690, or Garry Rodriguez at (202) 268-7281. SUPPLEMENTARY INFORMATION: On June 28, 2024, the Postal Service published a notice of proposed rulemaking (89 FR 53914-53932) to simplify the parcel processing categories by making revisions to the physical standards of the machinable processing category, and consolidating the irregular and nonmachinable processing categories and renaming it ``Nonstandard Parcels.'' In response to the proposed rule, the Postal Service received three formal responses each containing several comments as follows: Comment: One comment questioned whether the Postal Service intended to reduce the maximum height from 18 inches to 15 inches, and increase the maximum thickness/width from 15 inches to 18 inches? Response: No, the Postal Service is just expressing the industry wide terms of length, width, and height for consistency within the DMM. The Postal Service will also revise the renumbered DMM Exhibit 201.7.5 and USPS Marketing Mail DMM subsection 201.8.4.2a to reflect width and height. Comment: One comment provided that the proposal eliminates the minimum weight for Bound Printed Matter machinable parcels and given that change it appears there is very little Bound Printed Matter that would be nonstandard, except perhaps nonrectangular containers such as mailing tubes, which are rarely used for BPM. Any BPM that is nonstandard would be difficult and likely unproductive to bundle, due to its shape. As a result, it was requested that the Postal Service consider removing the bundling requirement for BPM [[Page 66581]] nonstandard parcels weighing less than ten pounds, currently in DMM 245.8.2. Response: The Postal Service agrees with the request and will remove DMM subsection 245.8.2 and will revise DMM 245.8.3 as the general requirement for mailing nonstandard parcels regardless of weight. Comment: One comment provided that DMM subsection 255.4.4.3 currently requires DNDC nonmachinable parcels that each weigh 25 pounds or less must be sacked under DMM section 5.0, Preparing Machinable Parcels, and that line 2 of the sack labels be marked as MACH, rather than NONSTD. Response: The issue is beyond the scope of this notice, however, the Postal Service will take this into consideration for a future revision. Comment: One comment provided that DMM subsection 255.4.3.3f requires the use of PSCV PARCELS SCF for DSCF SCF sacks. However, there is no CIN code in 204 Exhibit 3.2.4 that matches the human readable line PSCV PARCELS SCF. We suggest that the human readable line should instead be PSVC MACH SCF (which does have a listed CIN code), since only machinable parcels are sacked at the SCF level. (Nonstandard parcels are required to be sacked at the 3D level, before reaching the SCF level.) Response: While the comment is beyond the scope of this FRN, the Postal Service has reviewed the request and will revise the CIN code in DMM Exhibit 204.3.2.4 to read as PSVC MACH SCF. Comment: Two comments stated the proposed November implementation date does not realistically reflect the effort required to execute necessary changes irrespective of whenever the Postal Service publishes a final rule. Response: The Postal Service realized the needs of mailers and as a result the proposed rule provided that while the effective date was November 1, 2024, implementation was not expected until January 19, 2025. Comment: One comment provided that parallel regulatory developments could affect the regulatory categorization of lightweight packages. For example, were the Postal Regulatory Commission to determine that Parcel Select--whole or in part--would be more properly categorized as a Market Dominant product, further development efforts would then be required. Response: The revisions in the proposed rule address current products as they exist today. Comment: One comment stated the DMM references included in the Notice are inconsistent regarding whether the term Nonstandard will be used for all retail parcels, all commercial parcels, or all parcels. Response: Retail parcels are not categorized by processing categories. The proposed rule outlined what products would not be affected and the products that would be affected along with the applicable revisions. Comment: One comment stated any package weighing less than 3.5 ounces, or in which contents may shift within a container, would be subject to an additional fee. Such a broad proposal could significantly impact certain categories such as clothing and pharmaceuticals. These categories often utilize standard fulfillment practices making use of poly bagging because it allows greater flexibility. Many users in these categories are price sensitive and imposition of a fee could put substantial volumes at risk by obviating the Postal Service's cost advantages with shipments that fit inside a mailbox. Response: Nonstandard fees only to apply to packages that exceed set limits. Packages under 3.5 ounces would not be charged non-standard fees unless they exhibited a length over 22'', over 30'', or over 2 cubic feet in volume. Comment: One comment provided the minimum size requirement warrants further clarification as the proposed rule implies that packages smaller than 4 inches x 6 inches may be non-mailable. Our concern is that this could force shippers into larger containers to avoid a fee and thereby increase postal handling costs. Response: There is no dimensional requirement in the proposed rule for a package to be 4 inches x 6 inches. The only requirement is for a properly prepared label to be placed on a single optical plane without bending, folding, or overlapping. The ``Parcel Labeling Guide'' provides further information on label requirements. The Postal Service is revising the ``machinable'' processing category by removing the minimum size dimensions requirement and, except for USPS Marketing Mail parcels, the minimum weight requirement. Except for cylindrical tubes and rolls or similar shaped pieces, and for labeling requirements in Publication 52, Hazardous, Restricted, and Perishable Mail, the minimum size of a machinable parcel will be determined by if it is large enough to hold the required delivery address, return address, mailing labels, postage, barcode, endorsements, and other mail markings on a single optical plane without bending, folding, or overlapping. All labels and markings must meet the applicable specifications (e.g., DMM, Publication 199, Parcel Labeling Guide). A parcel that does not meet this requirement will be considered nonmailable. Except for USPS Marketing Mail parcels, which will continue to have the 3.5 ounce minimum to be a machinable parcel, the minimum weight requirement for other parcels will no longer be a factor in determining machinability. The ``Nonstandard Parcels'' processing category will continue to have a size and weight component that will consist of parcels that exceed the maximum dimensions of a machinable parcel, parcels that weigh less than the 3.5 ounce minimum weight for USPS Marketing Mail parcels only, and parcels that exceed the 25 pound maximum weight for a machinable parcel. The ``Nonstandard Parcels'' processing category will also have a ``Characteristics'' component that will define the criteria that will be used to determine if a parcel is nonstandard (e.g., cylindrical tubes and rolls, packaging). The ``Characteristics'' component of ``Nonstandard Parcels'' will be supported by DMM sections 601.3.0, Packaging, and 601.4.0, Acceptable Mailing Containers. The packaging criteria in DMM section 601.7.0, Packaging Standards for Mail Processed at Network Distribution Centers, will be consolidated into DMM section 601.3.0. The Postal Service is also revising the packaging standards under DMM section 601.3.0 to include that except for hazardous, restricted, and perishable items as provided in Publication 52, all other parcel priced pieces must be packaged in a box or other acceptable container that meets the applicable standards under DMM sections 601.3.0 and 601.4.0. The revisions to parcel processing categories will not affect the Priority Mail Express[supreg], Priority Mail[supreg], USPS Ground Advantage[supreg], or USPS Connect[supreg] Local, products. The revisions will result in no minimum size dimensions requirement, except for USPS Marketing Mail no minimum weight requirements, and a nomenclature change, for parcel preparation under the Parcel Select[supreg] Destination Entry, Library Mail, Media Mail[supreg], Bound Printed Matter, Periodicals, and USPS Marketing Mail parcels (regular and nonprofit) products. Based on a request in the comments above, the Postal Service will revise the nonstandard Bound Printed Matter preparation standards. In addition, the Postal Service is making minor revisions to the ``Additional Physical Standards'' subsections under DMM 101 and 201 to remove redundancy. The Postal Service intends to notify the Postal Regulatory Commission (PRC) [[Page 66582]] of these revisions for updates to the Mail Classification Schedule in a future filing. The Postal Service also intends to revise all collateral material (e.g., Notice 123, Price List) in a future update. Effective Date While the effective date is November 4, 2024, sack, tray, and pallet, label compliance will not be required until January 19, 2025. We believe these revisions will simplify the parcel processing categories providing mailers with a more efficient process for shipping. The Postal Service adopts the described changes to Mailing Standards of the United States Postal Service, Domestic Mail Manual (DMM), incorporated by reference in the Code of Federal Regulations. We will publish an appropriate amendment to 39 CFR part 111 to reflect these changes. List of Subjects in 39 CFR Part 111 Administrative practice and procedure, Postal Service. Accordingly, 39 CFR part 111 is amended as follows: PART 111--[AMENDED] 0 1. The authority citation for 39 CFR part 111 continues to read as follows: Authority: 5 U.S.C. 552(a); 13 U.S.C. 301-307; 18 U.S.C. 1692- 1737; 39 U.S.C. 101, 401-404, 414, 416, 3001-3018, 3201-3220, 3401- 3406, 3621, 3622, 3626, 3629, 3631-3633, 3641, 3681-3685, and 5001. 0 2. Revise Mailing Standards of the United States Postal Service, Domestic Mail Manual (DMM) as follows: Mailing Standards of the United States Postal Service, Domestic Mail Manual (DMM) * * * * * 100 Retail Mail Letters, Cards, Flats, and Parcels 101 Physical Standards * * * * * 3.0 Physical Standards for Parcels 3.1 Processing Categories [Revise the text of 3.1 to read as follows:] USPS categorizes parcels into one of two mail processing categories: machinable or nonstandard parcel. These categories are based on the physical dimensions of the parcel, and the placement of the delivery address and all required labels on the parcel (see 601.1.1.5 for mailabilty). For additional information on the machinable and nonstandard processing categories see 201.7.0. [Revise the heading and text of 3.2 to read as follows:] 3.2 Size and Weight 3.2.1 Size Parcel sizes are as follows: a. Minimum size: Except for cylindrical tubes and rolls or similar shaped pieces and labeling exceptions in Publication 52, all parcels must be large enough to hold the required delivery address, return address, mailing labels, postage, barcode, endorsements, and other mail markings on a single optical plane without bending, folding, or overlapping (see 601.1.1.5). All labels and markings must meet the applicable specifications (e.g., DMM, Publication 199, Parcel Labeling Guide). b. Maximum size: Except for USPS Ground Advantage--Retail, which may not measure more than 130 inches in length and girth combined, no mailpiece may measure more than 108 inches in length and girth combined. For parcels, length is the distance of the longest dimension and girth is the distance around the thickest part. 3.2.2 Weight Except as provided under 4.0 through 7.0, no mailpiece may weigh more than 70 pounds. * * * * * 4.0 Additional Physical Standards for Priority Mail Express [Revise the text of 4.0 to read as follows:] Lower size and weight standards than provided under 3.2 may apply to Priority Mail Express addressed to certain APO/FPO and DPO mail subject to 703.2.0, and 703.4.0, and for Department of State mail subject to 703.3.0. 5.0 Additional Physical Standards for Priority Mail [Revise the text of 5.0 to read as follows:] Lower size and weight standards than provided under 3.2 may apply to Priority Mail addressed to certain APO/FPO and DPO mail subject to 703.2.0, and 703.4.0, and for Department of State mail subject to 703.3.0. 6.0 Additional Physical Standards for First-Class Mail and USPS Ground Advantage--Retail 6.1 Maximum Weight [Delete the heading 6.1.1 and move revised text under 6.1 to read as follows:] First-Class Mail (letters and flats{time} must not exceed 13 ounces. [Delete 6.1.2, USPS Ground Advantage--Retail, in its entirety.] * * * * * 6.4 Parcels [Revise the introductory text of 6.4 to read as follows;] A USPS Ground Advantage--Retail parcel is the following: * * * * * [Delete item d in its entirety.] 7.0 Additional Physical Standards for Media Mail and Library Mail [Delete the introductory text and items a and b. Move the text of item c under 7.0 and revise as follows:] Lower size and weight standards than provided under 3.2 may apply to Library Mail and Media Mail addressed to certain APOs and FPOs, subject to 703.2.0 and 703.4.0 and for Department of State mail, subject to 703.3.0. * * * * * 120 Retail Mail Priority Mail 123 Prices and Eligibility * * * * * 2.0 Basic Eligibility Standards for Priority Mail 2.1 Description of Service [Revise the last sentence of 2.1 to read as follows:] * * * Certain Priority Mail mailpieces, such as pieces containing hazardous material or considered nonstandard (e.g., oversized priced pieces and nonstandard fee-priced pieces), may receive deferred handling. * * * * * 130 Retail Mail First-Class Mail and USPS Ground Advantage--Retail 133 Prices and Eligibility * * * * * 2.0 Basic Eligibility Standards for First-Class Mail and USPS Ground Advantage--Retail 2.1 Description of Service [Revise the last sentence of 2.1 to read as follows:] * * * Certain USPS Ground Advantage--Retail mailpieces, such as pieces containing hazardous material or considered nonstandard (e.g., oversized priced pieces and nonstandard fee-priced pieces), may receive deferred handling. * * * * * 200 Commercial Letters, Cards, Flats, and Parcels 201 Physical Standards * * * * * [[Page 66583]] 7.0 Physical Standards for Parcels 7.1 Processing Categories [Revise the text of 7.1 to read as follows:] USPS categorizes parcels into one of two mail processing categories: machinable or nonstandard. These categories are based on the physical dimensions of the piece, and the placement of the delivery address and other required labels on the piece (see 601.1.1.5 for mailability). 7.2 Minimum Size [Revise the text of 7.2 to read as follows:] Pieces are subject to the minimum standards in 7.5, and may be subject to other minimum dimensions, based on the standards for specific prices. Except for cylindrical tubes and rolls or similar shaped pieces and labeling exceptions in Publication 52, generally the minimum size of a parcel is any piece that is not a letter or a flat and must be large enough to hold the required delivery address, return address, mailing labels, postage, barcode, endorsements, and other mail markings on a single optical plane without bending, folding, or overlapping (see 601.1.1.5). All labels and markings must meet the applicable specifications (e.g., DMM, Publication 199, Parcel Labeling Guide). 7.3 Maximum Weight and Size 7.3.1 Maximum Weight [Revise the text of 7.3.1 to read as follows:] Except as provided under 8.0, no mailpiece may weigh more than 70 pounds. * * * * * 7.5 Machinable Parcels 7.5.1 Criteria [Delete the heading 7.5.1, Criteria, and move the text under 7.5. Revise the text of renumbered 7.5 to read as follows:] A machinable parcel is any piece that is not a letter or a flat and that meets the size and weight standards as follows: a. Minimum size: Except for cylindrical tubes and rolls or similar shaped pieces and labeling exceptions in Publication 52, a piece must be large enough to hold the required delivery address, return address, mailing labels, postage, barcode, endorsements, and other mail markings on a single optical plane without bending, folding, or overlapping (see 601.1.1.5). All labels and markings must meet the applicable specifications. b. Maximum size: Not more than, 22 inches long, or 18 inches wide, or 15 inches high (see Exhibit 7.5.1b). c. Minimum Weight: USPS Marketing Mail parcels must weigh 3.5 ounces, all other parcel products no minimum weight. d. Maximum weight: Not more than 25 pounds. [Revise Exhibit 7.5.1b reference number to read as follows:] Exhibit 7.5 Machinable Parcel Dimensions [Revise the graphic in renumbered Exhibit 7.5 by changing the width to be 18 inches and the height to be 15 inches and removing the image of the minimum size parcel.] [Delete 7.5.2, Criteria for Lightweight Machinable Parcels, 7.5.3, Soft Goods and Enveloped Printed Matter, and 7.5.4, Exception, in their entirety.] * * * * * [Revise the heading and text of 7.6 to read as follows:] 7.6 Nonstandard Parcels 7.6.1 Dimensions and Weight A parcel is considered nonstandard by dimensions or weight as follows: a. Dimensions: A parcel that measures more than 22 inches in length or 18 inches in width or 15 inches in height. b. Weight: A USPS Marketing Mail parcel that weighs less than 3.5 ounces or any parcel that weighs more than 25 pounds. 7.6.2 Characteristics A parcel is considered nonstandard by the following characteristics: a. Cylindrical tubes or rolls. b. A can, or wood or metal box. c. A parcel containing more than 24 ounces of liquid in glass containers, or 1 gallon or more of liquid in metal or plastic containers (see 601.3.4). d. An insecurely wrapped or inadequately prepared parcel as provided under 601.3.0 and 601.4.0. [Delete 7.7, Nonmachinable Parcel, in its entirety.] * * * * * 8.0 Additional Physical Standards by Class of Mail [Revise the text of 8.1 and 8.2 to read as follows:] 8.1 Priority Mail Express Lower size and weight standards than provided under 7.3 may apply to Priority Mail Express addressed to certain APO/FPO and DPO mail subject to 703.2.0 and 703.4.0, and for Department of State mail subject to 703.3.0. 8.2 Priority Mail [Revise the text of 8.2 to read as follows:] 8.2.1 Weight and Size Lower weight and size standards than provided under 7.3 may apply to Priority Mail addressed to certain APO/FPO and DPO mail subject to 703.2.0 and 703.4.0, and for Department of State mail subject to 703.3.0. 8.2.2 Priority Mail Cubic Priority Mail Cubic must not weigh more than 20 pounds. See 223.1.3 for additional information on size and characteristics. 8.3 USPS Ground Advantage--Commercial Parcels [Delete 8.3.1, Weight, in its entirety and renumber 8.3.2 as 8.3.1.] 8.3.1 Size [Revise the text of renumbered 8.3.1 to read as follows:] A USPS Ground Advantage--Commercial parcel is: * * * * * [Delete item d in its entirety.] [Add new 8.3.2 to read as follows:] 8.3.2 USPS Ground Advantage Commercial Cubic USPS Ground Advantage Commercial Cubic must not weigh more than 20 pounds. See 285.1.3 for additional information on size and characteristics. 8.4 USPS Marketing Mail Parcels * * * * * 8.4.2 Size USPS Marketing Mail, parcel dimensions are as follows: a. Regular Marketing Parcels and Nonprofit Marketing Parcels do not meet flat-size physical standards and have the following characteristics: * * * * * [Revise the text of items a1 through a3 to read as follows:] 1. Length: Not more than 12 inches. 2. Width not more than 9 inches high. 3. Height not more than 2 inches. * * * * * [Revise the introductory text of item b to read as follows:] b. Nonprofit Machinable Parcels and Nonprofit Nonstandard Parcels dimensions are as follows: * * * * * [Revise the text of item b3 to read as follows:] 3. A Nonprofit Nonstandard Parcel is a parcel not meeting the criteria for machinable parcels as provided under 7.6. [[Page 66584]] 8.5 Parcel Select [Delete 8.5.1 and 8.5.2 and renumber 8.5.3 as 8.5.1.] 8.5.1 USPS Connect Local [Revise the text of renumbered 8.5.1 to read as follows:] Pieces mailed at USPS Connect Local prices may not weigh more than 25 pounds. * * * * * 203 Basic Postage Statement, Documentation, and Preparation Standards * * * * * 3.0 Standardized Documentation for First-Class Mail, Periodicals, USPS Marketing Mail, and Flat-Size Bound Printed Matter * * * * * 3.3 Price Level Column Headings The actual name of the price level (or abbreviation) is used for column headings required by 3.2 and shown below: * * * * * [Revise the introductory text of item b to read as follows:] b. Presorted First-Class Mail, barcoded and nonbarcoded Periodicals flats, nonbarcoded Periodicals letters, and machinable, nonmachinable, and nonstandard, USPS Marketing Mail: PRICE ABBREVIATION * * * * * [Revise the ``ADC'' line item in the ``Price'' column under item b to read as follows:] ADC/RP&DC [USPS Marketing Mail nonmachinable letters, flats, and nonstandard parcels, and all Periodicals] * * * * * [Revise the ``Mixed ADC'' line item in the ``Price'' column under item b to read as follows:] Mixed ADC [USPS Marketing Mail nonmachinable letters, flats, nonstandard parcels; and all Periodicals] * * * * * c. Carrier Route Periodicals and Enhanced Carrier Route USPS Marketing Mail: PRICE ABBREVIATION * * * * * [Revise the ``Saturation'' and ``High Density'' line items to read as follows:] Saturation [letters, flats, and nonstandard parcels] High Density [letters, flats, and nonstandard parcels] * * * * * [Revise the ``Basic'' line item to read as follows:] Basic [letters, flats, and nonstandard parcels] * * * * * 3.4 Sortation Level The actual sortation level (or corresponding abbreviation) is used for the bundle, tray, sack, or pallet levels required by 3.2 and shown below: PRICE ABBREVIATION * * * * * [Revise the ``5-Digit Scheme Carrier Routes'' line item to read as follows:] 5-Digit Scheme Carrier Routes [sacks/flat trays and pallets (Periodicals and USPS Marketing Mail flats); sacks and pallets (nonstandard parcels)] * * * * * [Revise the ``5-Digit Scheme Carrier Routes'' line item to read as follows:] 5-Digit Scheme [pallets, Periodicals flats and nonstandard parcels, USPS Marketing Mail flats, Bound Printed Matter flats] * * * * * [Revise the ``Merged 5-Digit Scheme'' line item to read as follows:] Merged 5-Digit Scheme [flat trays and pallets (Periodicals and USPS Marketing Mail flats); sacks and pallets (nonstandard parcels)] * * * * * [Revise the ``Merged 3-Digit'' line item to read as follows:] Merged 3-Digit [flat trays (Periodicals flats); sacks (nonstandard parcels)] * * * * * [Revise the ``SCF'' line item to read as follows:] SCF [flat trays and pallets (Periodicals flats and USPS Marketing Mail); sacks and pallets (Bound Printed Matter and nonstandard parcels)] * * * * * 4.0 Bundles * * * * * 4.10 Additional Standards for Unsacked/Untrayed Bundles Entered at DDU or S&DC Facilities [Revise the introductory text of 4.10 to read as follows:] Mailers may enter unsacked, untrayed, or nonpalletized bundles of carrier route, Periodicals, or USPS Marketing Mail flats and unsacked Bound Printed Matter (BPM) flats or nonstandard parcels (BPM only) at destination delivery units (DDUs) or sorting and delivery centers (DS&DC) if all the following conditions are met: * * * * * 5.0 Letter and Flat Trays * * * * * 5.12 Line 2 (Content Line) Line 2 (content line) must meet these standards: * * * * * b. Codes: The codes shown below must be used as appropriate on Line 2 of tray, sack, and pallet labels. CONTENT TYPE CODE * * * * * [Delete the ``Irregular Parcels'' line item.] * * * * * [Revise the ``Mixed Machinable and Irregular Parcels'' line item to read as follows:] Mixed Machinable and Nonstandard Parcels MACH & NONSTD [Revise the ``Nonmachinable'' line item to read as follows:] Nonstandard NONSTD * * * * * 7.0 Optional Endorsement Lines (OELs) * * * * * 7.2.5 ZIP Code Information * * * * * Exhibit 7.2.5 OEL Labeling Lists PROCESSING CATEGORY AND PRESORT TYPE * * * * * Periodicals 1 * * * * * [Revise the ``Irregular parcels'' line item under ``Periodicals'' in the ``Processing Category and Presort Type'' column to read as follows:] Nonstandard parcels * * * * * Bound Printed Matter 1 * * * * * [Revise the ``Irregular parcels'' line item under ``Bound Printed Matter'' in the ``Processing Category and Presort Type'' column to read as follows:] Nonstandard parcels Media Mail * * * * * [Revise the ``Irregular parcels'' line item in the ``Processing Category and Presort Type'' column under ``Media Mail'' to read as follows:] Nonstandard parcels Library Mail * * * * * [Revise the ``Irregular parcels'' line item in the ``Processing Category and Presort Type'' column under ``Media Mail'' to read as follows:] Nonstandard parcels * * * * * [[Page 66585]] 204 Barcode Standards * * * * * 3.2.4 3-Digit Content Identifier Numbers * * * * * Exhibit 3.2.4 [1-21-24] 3-Digit Content Identifier Numbers CLASS AND MAILING.............. CIN HUMAN-READABLE CONTENT LINE * * * * * PRIORITY MAIL OPEN AND DISTRIBUTE * * * * * All Other Classes, Parcels * * * * * [Revise the ``ASF/NDC/RPDC irregular parcels'' line item under ``All other Classes, Parcels, to read as follows:] ASF/NDC nonstandard parcels.... 034 PMOD NONSTD NDC * * * * * [Revise the heading of ``PER Irregular Parcels . . .'' to read as follows:] PER Nonstandard Parcels--Merged Carrier Route and Presorted [Revise the text in the ``Human-Readable Content Line'' column to read as follows:] merged 5-digit sacks........... 340 PER NONSTD CR/5D merged 3-digit sacks........... 354 PER NONSTD CR/5D/3D merged 5-digit scheme sacks.... 365 PER NONSTD CR/5D SCH [Revise the heading of ``PER Irregular Parcels--Carrier Route'' to read as follows:] PER Nonstandard Parcels--Carrier Route [Revise the text in the ``Human-Readable Content Line'' column to read as follows:] saturation price sacks......... 397 PER NONSTD WSS \1\ high density price sacks....... 398 PER NONSTD WSH \1\ basic price sacks.............. 395 PER NONSTD CR \1\ 5-digit carrier routes sacks... 396 PER NONSTD 5D CR-RTS 5-digit scheme car. rts. sacks. 399 PER NONSTD CR-RTS SCH 3-digit carrier routes sacks... 355 PER NONSTD 3D CR-RTS [Revise the heading of ``PER Irregular Parcels--Presorted'' to read as follows:] PER Nonstandard Parcels--Presorted [Revise the text in the ``Human-Readable Content Line'' column to read as follows:] 5-digit sacks.................. 389 PER NONSTD 5D 3-digit sacks.................. 390 PER NONSTD 3D SCF sacks...................... 394 PER NONSTD SCF ADC sacks or trays............. 391 PER NONSTD ADC mixed ADC sacks or trays....... 392 PER NONSTD WKG origin mixed ADC sacks or trays 363 PER NONSTD WKG W FCM * * * * * [Revise the heading of ``NEWS Irregular Parcels . . .'' to read as follows:] NEWS Nonstandard Parcels--Merged Carrier Route and Presorted [Revise the text in the ``Human-Readable Content Line'' column to read as follows:] merged 5-digit................. 440 NEWS NONSTD CR/5D merged 5-digit scheme.......... 465 NEWS NONSTD CR/5D SCH merged 3-digit sacks........... 454 NEWS NONSTD CR/5D/3D [[Page 66586]] [Revise the heading of ``NEWS Irregular Parcels--Carrier Route'' to read as follows:] NEWS Nonstandard Parcels--Carrier Route [Revise the text in the ``Human-Readable Content Line'' column to read as follows:] saturation price sacks......... 497 NEWS NONSTD WSS \1\ high density price sacks....... 498 NEWS NONSTD WSH \1\ basic price sacks.............. 495 NEWS NONSTD CR \1\ 5-digit carrier routes sacks... 496 NEWS NONSTD 5D CR-RTS 5-digit scheme car. rts. sacks. 499 NEWS NONSTD CR-RTS SCH 3-digit carrier routes sacks... 455 NEWS NONSTD 3D CR-RTS [Revise the heading of ``NEWS Irregular Parcels--Carrier Route'' to read as follows:] NEWS Nonstandard Parcels--Presorted [Revise the text in the ``Human-Readable Content Line'' column to read as follows:] 5-digit sacks.................. 489 NEWS NONSTD 5D 3-digit sacks.................. 490 NEWS NONSTD 3D SCF sacks...................... 494 NEWS NONSTD SCF ADC sacks or trays............. 491 NEWS NONSTD ADC mixed ADC sacks or trays....... 492 NEWS NONSTD WKG origin mixed ADC sacks or trays 463 NEWS NONSTD WKG W FCM * * * * * [Revise the heading of ``MKT Marketing Parcels less than 6 oz. and Irregular Parcels'' to read as follows:] MKT Marketing Parcels (Nonstandard) and Nonprofit Nonstandard Priced Parcels [Revise the text in the ``Human-Readable Content Line'' column to read as follows:] 5-digit scheme sacks........... 590 MKT NONSTD 5D SCH 5-digit sacks.................. 590 MKT NONSTD 5D SCF sacks...................... 596 MKT NONSTD SCF ASF sacks...................... 571 MKT NONSTD ASF NDC sacks...................... 570 MKT NONSTD NDC mixed NDC sacks [Revise the heading of ``MKT Marketing Parcels 6 oz. or more and ``Machinable Parcels'' to read as follows:] MKT Marketing Parcels (Machinable) and Nonprofit Machinable Priced Parcels * * * * * [Revise the heading of ``MKT Machinable and Irregular Parcels-- Presorted'' to read as follows:] MKT Machinable and Nonstandard Parcels--Presorted [Revise the text in the ``Human-Readable Content Line'' column to read as follows:] 5-digit sacks.................. 603 MKT MACH-NONSTD 5D 5-digit scheme sacks........... 603 MKT MACH-NONSTD 5D SCH * * * * * [Revise the heading of ``Carrier Route BPM--Irregular Parcels'' to read as follows:] Carrier Route BPM--Nonstandard Parcels [Revise the text in the ``Human-Readable Content Line'' column to read as follows:] carrier route sacks............ 697 PSVC NONSTD CR \1\ 5-digit carrier routes sacks... 698 PSVC NONSTD CR-RTS 5-digit scheme car. rt. Sacks.. 698 PSVC NONSTD CR-RTS SCH [Revise the heading of ``Presorted BPM--Irregular Parcels'' to read as follows:] Presorted BPM--Nonstandard Parcels [Revise the text in the ``Human-Readable Content Line'' column to read as follows:] [[Page 66587]] 5-digit sacks.................. 690 PSVC NONSTD 5D 5-digit scheme sacks........... 690 PSVC NONSTD 5D SCH 3-digit sacks.................. 691 PSVC NONSTD 3D SCF sacks...................... 696 PSVC NONSTD SCF ADC sacks...................... 692 PSVC NONSTD ADC mixed ADC sacks................ 694 PSVC NONSTD WKG * * * * * [Revise the heading of ``Media Mail and Library Mail Irregular Parcels--Presorted'' to read as follows:] Media Mail and Library Mail Nonstandard Parcels--Presorted [Revise the text in the ``Human-Readable Content Line'' column to read as follows:] 5-digit scheme sacks........... 690 PSVC NONSTD 5D SCH 5-digit sacks.................. 690 PSVC NONSTD 5D 3-digit sacks.................. 691 PSVC NONSTD 3D ADC sacks...................... 692 PSVC NONSTD ADC mixed ADC sacks................ 694 PSVC NONSTD WKG * * * * * Parcel Select * * * * * [Revise the heading of ``Parcel Select Irregular (Nonmachinable) Parcels--Presorted'' to read as follows:] Parcel Select--Nonstandard Parcels [Revise the text in the ``Human-Readable Content Line'' column to read as follows:] 3-digit sacks.................. 691 PSVC NONSTD 3D * * * * * [Revise the of Combined PSVC & MKT--Irregular Parcels less than 2 oz, and tubes and rolls (not APPS--machinable) to read as follows:] Combined PSVC & MKT--Nonstandard Parcels cylindrical tubes and rolls [Revise the text in the ``Human-Readable Content Line'' column to read as follows:] 3-digit sacks.................. 591 MKT/PSVC NONSTD 3D ADC sacks...................... 592 MKT/PSVC NONSTD ADC Mixed ADC sacks................ 594 MKT/PSVC NONSTD WKG * * * * * 207 Periodicals * * * * * 22.0 Preparing Nonbarcoded (Presorted) Periodicals * * * * * 22.6 Sack Preparation * * * For other mailing jobs, preparation sequence, sack size, and labeling: a. 5-digit, required at 72 pieces, optional at 24 pieces minimum. * * * * * [Revise the text of item a2 to read as follows:] 2. Line 2: use ``PER'' or NEWS'' as applicable; followed by ``FLTS'' or ``NONSTD'' as applicable; followed by ``5D''. b. 3-digit, required at 72 pieces, optional at 24 pieces minimum. * * * * * [Revise the text of item b2 to read as follows:] 2. Line 2: use ``PER'' or ``NEWS'' as applicable; followed by ``FLTS'' or ``NONSTD'' as applicable; followed by ``3D''; followed by ``NON BC'' for flats. c. SCF, required at 72 pieces, optional at 24 pieces minimum. * * * * * [Revise the text of item c2 to read as follows:] 2. Line 2: ``PER'' or ``NEWS'' as applicable; followed by ``FLTS'' or ``NONSTD'' as applicable; followed by ``SCF''; followed by ``NON BC'' for flats. d. Origin/entry SCF, required for the SCF of the origin (verification) office, optional for the SCF of an entry office other than the origin office, (no minimum). * * * * * [Revise the text of item d2 to read as follows:] 2. Line 2: usen ``PER'' or ``NEWS'' as applicable; followed by ``FLTS'' or ``NONSTD'' as applicable; followed by ``SCF''; followed by ``NON BC'' for flats. e. ADC, required at 72 pieces, optional at 24 pieces minimum. * * * * * [Revise the text of item e2 to read as follows:] 2. Line 2: ``PER'' or ``NEWS'' as applicable; followed by ``NONSTD'' as applicable; followed by ``ADC''. f. Origin mixed ADC, required; no minimum; for any remaining bundles for destinations in L201, Column B, corresponding to the origin ZIP Code in Column A. * * * * * [Revise the text of item f2 to read as follows:] 2. Line 2: ``PER'' or ``NEWS'' as applicable, followed by ``NONSTD'' as applicable, followed by ``WKG W FCM.'' g. Mixed ADC, required (no minimum). * * * * * [Revise the text of item g2 to read as follows:] 2. Line 2: ``PER'' or ``NEWS'' as applicable; followed by ``NONSTD'' as applicable; followed by ``WKG'' for nonstandard parcels. * * * * * [Revise the heading of 23.4 to read as follows:] [[Page 66588]] 23.4 Preparation--Flat-Size Pieces and Nonstandard Parcels 23.4.1 Flat Tray and Sacking Preparation and Labeling * * * Preparation sequence, sack/tray size, and labeling: a. Carrier route, required at 72 pieces, optional at 24 pieces, fewer pieces not permitted. * * * * * [Revise the text of item a2 to read as follows:] 2. Line 2: ``PER'' or ``NEWS'' as applicable; followed by ``FLTS'' or ``NONSTD'' as applicable; followed by ``WSS'' for saturation price mail, or ``WSH'' for high density price mail, or ``CR'' for basic price mail; followed by the route type and number. b. 5-digit scheme carrier routes, required at 72 pieces, optional at 24 pieces, fewer pieces not permitted. * * * * * [Revise the text of item b2 to read as follows:] 2. Line 2: ``PER'' or ``NEWS'' as applicable; followed by ``FLTS'' or ``NONSTD'' as applicable; followed by ``CR-RTS SCH.'' c. 5-digit carrier routes, required at 72 pieces, optional at 24 pieces, fewer pieces not permitted. * * * * * [Revise the text of item c2 to read as follows:] 2. Line 2: ``PER'' or ``NEWS'' as applicable; followed by ``FLTS'' or ``NONSTD'' as applicable; followed by ``CR-RTS.'' d. 3-digit carrier routes, required with one 6-piece bundle. Flat- sized pieces must be prepared in flat trays (see 203.5.6). * * * * * [Revise the text of item d2 to read as follows:] 2. Line 2: ``PER'' or ``NEWS'' as applicable, followed by ``FLTS 3D'' or ``NONSTD 3D'' as applicable, followed by ``CR-RTS.'' * * * * * 240 Commercial Mail USPS Marketing Mail 243 Prices and Eligibility 1.0 Prices and Fees * * * * * 1.2 USPS Marketing Mail Prices USPS Marketing Mail prices are applied as follows: * * * * * [Revise the text of item b to read as follows:] b. A price determined by adding the per piece charge and the corresponding per pound charge applies to any USPS Marketing Mail piece that weighs more than the following: Nonmachinable letters and flats that weigh more than 4.0 ounces, presorted Marketing Parcels, Nonprofit Machinable and Nonprofit Nonstandard parcels that weigh more than 3.3 ounces and machinable parcels 3.5 ounces or more. * * * * * 3.0 Basic Eligibility Standards for USPS Marketing Mail * * * * * 3.2 Defining Characteristics * * * * * [Revise the heading and text of 3.2.3 to read as follows:] 3.2.3 Nonprofit USPS Marketing Mail Machinable and Nonstandard Parcels Nonprofit USPS Marketing Mail parcels that do not qualify as Marketing parcels may be prepared and mailed as machinable or nonstandard parcels. * * * * * 3.3 Additional Basic Standards for USPS Marketing Mail Each USPS Marketing Mail mailing is subject to these general standards: [Revise the text of item a to read as follows:] a. All pieces in a mailing must be of the same processing category, except that nonstandard and machinable parcels may be combined in 5- digit scheme and 5-digit sacks or on 5-digit scheme and 5-digit pallets. * * * * * [Revise the last sentence of item f to read as follows:] f. * * * Nonprofit USPS Marketing Mail machinable or nonstandard parcels must bear the addressee`s name and complete delivery address, or may use an alternative addressing format. DALS or DMLs may be used subject to 602.4.0. * * * * * 4.0 Price Eligibility for USPS Marketing Mail * * * * * 4.2 Minimum Per Piece Prices The minimum per piece prices (the minimum postage that must be paid for each piece) apply as follows: * * * * * [Revise the fifth sentence of item c to read as follows:] c. Individual prices. * * * There are also separate prices for Marketing Parcels, Nonprofit Machinable priced parcels, and Nonprofit Nonstandard priced parcels. * * * * * * * * 5.0 Additional Eligibility Standards for Nonautomation USPS Marketing Mail Letters, Flats, and Presorted USPS Marketing Mail Parcels * * * * * 5.3 Price Application [Revise the second sentence of 5.3 to read as follows:] * * * Prices for Nonprofit parcels not qualifying as Marketing Parcels apply separately to Nonprofit Machinable parcels and Nonprofit Nonstandard parcels. * * * * * * * * [Revise the heading of 5.8 to read as follows:] 5.8 Prices for Nonstandard Parcels and Marketing Parcels 5.8.1 5-Digit Price [Revise the introductory text of 5.8.1 to read as follows:] 5-digit prices apply to nonstandard parcels and to Marketing parcels that are dropshipped to a DNDC/RPDC (or ASF/RPDC when claiming DNDC prices), DSCF/DRPDC, or DDU or DS&DC and presented: * * * * * 5.8.2 SCF Price [Revise the introductory text of 5.8.2 to read as follows:] SCF prices apply to nonstandard parcels and to Marketing parcels that are dropshipped and presented to a DSCF/DRPDC or DNDC/DRPDC: * * * * * 5.8.3 NDC Price [Revise the introductory text of 5.8.3 to read as follows:] NDC prices apply to nonstandard parcels and to Marketing parcels as follows under either of the following conditions: * * * * * 5.8.4 Mixed NDC Price [Revise the first sentence of 5.8.4 to read as follows:] Mixed NDC prices apply to nonstandard parcels and to Marketing parcels in origin NDC/RPDC or mixed NDC/RPDC containers that are not eligible for 5-digit, SCF, or NDC prices. * * * * * * * * 245 Mail Preparation 1.0 General Information for Mail Preparation * * * * * 1.2 Definition of Mailings Mailings are defined as: * * * * * [[Page 66589]] b. USPS Marketing Mail. Except as provided in 243.3.6, the types of USPS Marketing Mail listed below may not be part of the same mailing. * * * * * [Revise the text of item b6 to read as follows:] 6. Machinable and nonmachinable or nonstandard pieces. * * * * * 1.4 Preparation Definitions and Instructions For purposes of preparing mail: * * * * * [Revise the fifth sentence of item j to read as follows:] j. * * * The 5-digit scheme sort may not be used for other mail prepared on pallets, except for 5-digit bundles of USPS Marketing Mail nonstandard parcels that are part of a mailing job that is prepared in part as palletized flats at automation prices. * * * * * * * * 11.0 Preparing Presorted Parcels 11.1 Basic Standards All mailings and all pieces in each mailing at USPS Marketing Mail and Nonprofit USPS Marketing Mail parcel prices are subject to preparation standards in 11.3 or 11.4, and to these general standards: * * * * * [Revise the text of item b to read as follows:] b. Marketing Parcels, Nonprofit Machinable priced parcels, and Nonprofit Nonstandard priced parcels must each be prepared as separate mailings, except under 11.3.1. * * * * * [Revise the heading of 11.3 to read as follows:] 11.3 Preparing Marketing Parcels (6 Ounces or More) and Nonprofit Machinable Parcels 11.3.1 Sacking [Revise the text of 11.3.1 to read as follows:] Prepare mailings of machinable Marketing Parcels weighing 6 ounces or more and mailings of Nonprofit Machinable priced parcels under 11.3. Prepare 5-digit sacks only for parcels dropshipped to a DNDC/RPDC (or ASF/RPDC when claiming DNDC prices), DSCF/DSCF, or DDU or DS&DC. Prepare ASF/RPDC or NDC/RPDC sacks only for parcels dropshipped to a DNDC/RPDC (or ASF/RPDC when claiming DNDC prices). There is no minimum for parcels in 5-digit/scheme sacks entered at a DDU or DS&DC. Mailers combining nonstandard parcels with machinable parcels placed in 5- digit/scheme sacks must prepare those sacks under 11.3.2a. Mailers combining machinable Marketing Parcels weighing 6 ounces or more with Nonprofit Machinable priced parcels placed in ASF/RPDC, NDC/RPDC, or mixed NDC/RPDC sacks must prepare the sacks under 11.3.2. * * * * * [Revise the heading of 11.4 to read as follows:] 11.4 Preparing Marketing Parcels (Less Than 6 Ounces) and Nonprofit Nonstandard Parcels * * * * * 11.4.2 Sacking [Revise the text of 11.4.2 to read as follows:] Prepare mailings of nonstandard Marketing Parcels weighing less than 6 ounces and mailings of Nonprofit Nonstandard priced parcels under 11.4. Prepare 5-digit sacks only for parcels dropshipped to a DNDC/RP&DC (or ASF/RP&DC when claiming DNDC prices), DSCF/RP&DC, or DDU or S&DC. See 11.4.3 for restrictions on SCF/RP&DC, ASF/RP&DC, and NDC/ RP&DC sacks. Mailers must prepare a sack when the mail for a required presort destination reaches 10 pounds of pieces. There is no minimum for parcels prepared in 5-digit/scheme sacks entered at a DDU or S&DC. Mailers combining Nonprofit Nonstandard priced parcels with Nonprofit Machinable priced parcels and machinable Marketing Parcels weighing 6 ounces or more in 5-digit/scheme sacks must prepare those sacks under 11.3.2. Mailers may not prepare sacks containing nonstandard and machinable parcels to other presort levels. Mailers may combine Nonprofit Nonstandard priced parcels with nonstandard Marketing Parcels in sacks under 11.4.3. 11.4.3 Sacking and Labeling Preparation sequence, sack size, and labeling: a. * * * Sacks must contain a 10-pound minimum except at DDU or S&DC entry which has no minimum; labeling: * * * * * [Revise the text of item a2 to read as follows:] 2. Line 2: For 5-digit scheme sacks, ``STD NONSTD 5D SCH.'' For 5- digit sacks, ``STD NONSTD 5D.'' b. SCF/RP&DC, allowed only for mail deposited at a DSCF/RP&DC or a DNDC/RP&DC to claim SCF price; 10-pound minimum; labeling: * * * * * [Revise the text of item b2 to read as follows:] 2. For Line 2, ``STD NONSTD SCF.'' c. ASF/RP&DC (optional), allowed only for mail deposited at an ASF/ RP&DC to claim DNDC price; 10-pound minimum; labeling: * * * * * [Revise the text of item c2 to read as follows:] 2. Line 2: ``STD NONSTD ASF.'' d. NDC/RP&DC, allowed only for mail deposited at a DNDC/RP&DC to claim the NDC price; 10-pound minimum; labeling: * * * * * [Revise the text of item d2 to read as follows:] 2. Line 2: ``STD NONSTD NDC.'' e. Origin NDC/RPDC (required); no minimum; labeling: * * * * * [Revise the text of item e2 to read as follows:] 2. Line 2: ``STD NONSTD NDC.'' f. Mixed NDC/RP&DC (required); no minimum; labeling: * * * * * [Revise the text of item f2 to read as follows:] 2. Line 2: ``STD NONSTD WKG.'' * * * * * 250 Commercial Mail Parcel Select * * * * * 255 Mail Preparation * * * * * 4.0 Preparing Destination Entry Parcel Select 4.1 Preparing Destination Delivery Unit (DDU) or Sorting and Delivery Center (S&DC) Parcel Select * * * * * 4.1.3 Sacking and Labeling [Revise the last sentence of 4.1.3 to read as follows:] * * * Machinable and nonstandard pieces may be combined in the same sack or on the same pallet (including pallet boxes on pallets). * * * * * 4.2 Preparing Destination Hub (DHub) Parcel Select * * * * * 4.2.3 Sacking and Labeling Sacking requirements for DHub entry include the following: * * * * * [Revise the second sentence of item b to read as follows:] b. * * * Machinable and nonstandard pieces may be combined in the same sack to meet this requirement. * * * * * * * * [[Page 66590]] 4.3 Preparing Destination SCF (DSCF)/RP&DC (DRP&DC) Parcel Select * * * * * 4.3.2 Basic Standards Pieces must meet the applicable standards in 4.0 and the following criteria: * * * * * [Revise the first sentence of item d to read as follows:] d. Any remaining nonstandard parcels (as defined in 201.7.6) sorted to 3-digit ZIP Code prefixes in L002, Column C.* * * 4.3.3 Sacking and Labeling Sacking requirements for DSCF/DRP&DC entry: * * * * * [Revise the second sentence of item b to read as follows:] b. * * * Machinable and nonstandard pieces may be combined in the same sack to meet this requirement. * * * * * * * * [Revise the text of items f through h to read as follows:] f. SCF sack labeling: Line 1, use L051; for Line 2, ``PSVC MACH SCF.'' g. 3-digit nonstandard sack labeling: Line 1, use L051; for Line 2, ``PSVC NONSTD 3D.'' h. See 705.8.0 for option to place 5-digit scheme and 5-digit DSCF/ DRP&DC sacks, SCF/RP&DC sacks, and 3-digit nonstandard sacks on an SCF/ RP&DC pallet. 4.4 Preparing Destination NDC (DNDC)/RP&DC (DRP&DC) Parcel Select * * * * * 4.4.3 Sacking and Labeling DNDC/DRP&DC mailing (if not bedloaded), must be prepared as follows: * * * * * [Revise the text of item b to read as follows:] b. DNDC/DRP&DC nonstandard parcels that each weigh 25 pounds or less must be sacked under 5.0 if the parcels do not contain perishables and the size of the parcels allows a sack to hold at least two pieces. DNDC/DRP&DC nonstandard parcels that cannot be sacked in this manner or that weigh more than 25 pounds must be transported as outside (unsacked) pieces. If authorized in advance by the USPS, DNDC/DRP&DC nonstandard parcels may be palletized. * * * * * 256 Enter and Deposit * * * * * 2.0 Deposit * * * * * 2.2 Containers DNDC/DRP&DC mailings (if not bedloaded), DDU or S&DC mailings (if not bedloaded), and all DHub, and DSCF/DRP&DC mailings must be prepared as follows: * * * * * [Revise the text of item b to read as follows:] b. For DNDC price, nonstandard parcels that each weigh 25 pounds or less must be sacked under 255.4.0 if the parcels do not contain perishables and the size of the parcels allows a sack to hold at least two pieces. DNDC/DRPDC nonstandard parcels that cannot be sacked in this manner or that weigh more than 25 pounds must be transported as outside (unsacked) pieces. If authorized in advance by the USPS, DNDC/ DRPDC nonstandard parcels may be palletized. [Revise the last sentence of item c to read as follows:] c. * * * Machinable and nonstandard pieces may be included in the same sack. * * * * * [Revise the text of item e to read as follows:] e. For DSCF/DRP&DC and DDU or DS&DC, nonstandard parcels may be palletized (including pallet boxes on pallets). Nonstandard parcels may be combined with machinable parcels on 5-digit scheme, 5-digit, and 3- digit pallets (including pallet boxes on pallets) claimed at DSCF or DDU prices under 705.8.0. [Revise the last sentence of item f to read as follows:] f. * * * Machinable and nonstandard pieces may be combined in 5- digit scheme and 5-digit sacks or on 5-digit scheme and 5-digit pallets (including pallet boxes). * * * * * 2.17 DNDC/DRP&DC Parcel Select--Acceptance at Designated SCF/RP&DC-USPS Benefit A mailing that is otherwise eligible for DNDC prices may be deposited, and accepted, at an SCF/RP&DC designated by the USPS when it benefits the USPS and: [Revise the text of item a to read as follows:] a. The mailing contains only machinable parcels prepared in 5-digit scheme and 5-digit sacks, pallets, or containers and nonstandard parcels prepared under 2.2. * * * * * 260 Commercial Mail Bound Printed Matter * * * * * 265 Mail Preparation * * * * * 2.0 Bundles * * * * * [Revise the heading and text of 2.4 to read as follows:] 2.4 Bundle Sizes for Nonstandard Parcels Mailers must prepare unsacked, nonpalletized bundles of nonstandard parcels for DDU or DS&DC entry according to 203.4.10, and as follows: a. For Presorted nonstandard parcels, under 8.2 for parcels weighing less than 10 pounds and 8.3 for parcels weighing 10 pounds or more. b. For carrier route nonstandard parcels, under 9.2 for parcels weighing less than 10 pounds and 9.3 for parcels weighing 10 pounds or more. * * * * * 8.0 Preparing Presorted Parcels 8.1 Basic Standards All mailings of Presorted Bound Printed Matter (BPM) are subject to the standards in 5.2, and 5.3, and to these general standards: * * * * * [Revise the second sentence of item b to read as follows:] b. * * * See 201.7.0 for definitions of machinable and nonstandard parcels. * * * * * [Delete 8.2, Preparing Nonstandard Parcels Weighing Less than 10 Pounds, in its entirety and renumber 8.3 through 8.5 as 8.2 through 8.4.] * * * * * [Revise the heading of renumbered 8.2 to read as follows:] 8.2 Preparing Nonstandard Parcels [Revise the text of renumbered 8.2.1 and 8.2.2 to read as follows:] 8.2.1 Piece Preparation [Revise the last sentence of renumbered 8.2.1 to read as follows:] * * * Bundling is not permitted. 8.2.2 Required Sacking [Revise the text of renumbered 8.2.2 by deleting the fifth and last sentence.] * * * * * 8.2.3 Sacking and Labeling Preparation sequence and labeling: a. 5-digit/scheme (required); labeling: * * * * * [Revise the text of item a2 to read as follows:] [[Page 66591]] 2. Line 2: For 5-digit scheme sacks, ``PSVC NONSTD 5D SCH.'' For 5- digit sacks, ``PSVC NONSTD 5D.'' b. 3-digit (required); labeling: * * * * * [Revise the text of item b2 to read as follows:] 2. Line 2: ``PSVC NONSTD 3D.'' c. SCF/RPDC (optional); labeling: [Revise the text of item c2 to read as follows:] 2. Line 2: ``PSVC NONSTD SCF.'' d. ADC (required); labeling: [Revise the text of item d2 to read as follows:] 2. Line 2: ``PSVC NONSTD ADC.'' e. Mixed ADC/RPDC (required); labeling: [Revise the text of item e2 to read as follows:] 2. Line 2: ``PSVC NONSTD WKG.'' * * * * * 9.0 Preparing Carrier Route Parcels 9.1 Basic Standards 9.1.1 General Standards for Carrier Route Preparation All mailings of Carrier Route Bound Printed Matter (BPM) are subject to the standards in 9.2 through 9.4 and to these general standards: * * * * * [Revise the second and last sentence of item b to read as follows:] b. * * * A BPM nonstandard parcel is a piece that is not a machinable parcel as defined in 201.7.5.1. Nonstandard parcels also are pieces that meet the size and weight standards for a machinable parcel but are not individually boxed or packaged to withstand processing on parcel sorters under 601.3.0 and 601.4.0. * * * * * [Revise the heading of 9.2 to read as follows:] 9.2 Preparing Nonstandard Parcels Weighing Less Than 10 Pounds * * * * * 9.2.2 Required Sacking [Revise the first sentence in the introductory text of 9.2.2 to read as follows:] Mailers may prepare nonstandard parcels as unsacked bundles under 203.4.10 or in bundles on pallets. * * * * * * * * 9.2.4 Sack Label Line 2 Line 2 information: [Revise the text of items a through c to read as follows:] a. Carrier route: ``PSVC NONSTD CR,'' followed by the route type and number. b. 5-digit scheme carrier routes: ``PSVC NONSTD CR-RTS SCH.'' c. 5-digit carrier routes: ``PSVC NONSTD CR-RTS.'' [Revise the heading of 9.3 to read as follows:] 9.3 Preparing Nonstandard Parcels Weighing 10 Pounds or More [Revise the first and second sentence in the introductory text of 9.3 to read as follows:] Mailers may prepare nonstandard parcels as unsacked bundles under 2.2 or in bundles on pallets. When preparing nonstandard parcels in sacks, place parcels only in direct carrier route sacks. * * * * * * Required preparation: * * * * * [Revise the text of item b to read as follows:] b. Line 2: ``PSVC NONSTD CR,'' followed by the route type and number. * * * * * 266 Enter and Deposit * * * * * 3.0 Destination Entry * * * * * 3.6 Mailings of Unsacked Bundles [Revise the first sentence of 3.6 to read as follows:] Mailers may present unsacked, nonpalletized bundles of BPM flats or nonstandard parcels that are properly prepared for and entered at DDU prices and unloaded according to standards in 3.8.9. * * * * * * * * 4.0 Destination Network Distribution Center (DNDC)/Regional Processing and Distribution Center (DRP&DC) Entry * * * * * [Revise the heading of 4.5 to read as follows:] 4.5 Presorted Nonstandard Parcels [Revise the first sentence of 4.5 to read as follows:] Presorted nonstandard parcels in sacks or on pallets at all sort levels may claim DNDC prices. * * * * * * * * [Revise the heading of 4.7 to read as follows:] 4.7 Carrier Route Nonstandard Parcels [Revise the first sentence of 4.7 to read as follows:] Carrier Route nonstandard parcels in sacks at all sort levels or on pallets at all sort levels may claim DNDC prices. * * * * * * * * 6.0 Destination Delivery Unit (DDU) or Sorting and Delivery Center (DS&DC) Entry * * * * * [Revise the heading of 6,5 to read as follows:] 6.5 Presorted Nonstandard Parcels [Revise the first sentence of 6.5 to read as follows:] Presorted nonstandard parcels in 5-digit scheme sacks and 5-digit sacks, on 5-digit scheme or 5-digit pallets, or prepared as unsacked 5- digit bundles may claim DDU prices. * * * * * * * * [Revise the heading of 6.7 to read as follows:] 6.7 Carrier Route Nonstandard Parcels [Revise the first sentence of 6.7 to read as follows:] Carrier Route nonstandard parcels in sacks, on 5-digit scheme and 5-digit pallets, or prepared as unsacked carrier route bundles may claim DDU prices. * * * * * * * * 270 Commercial Mail Media Mail and Library Mail 273 Prices and Eligibility * * * * * 7.0 Price Eligibility for Media Mail and Library Mail * * * * * 7.3 Price Categories for Media Mail and Library Mail * * * * * 7.3.2 Parcels The price categories for parcels are as follows: [Revise the last sentence of item a to read as follows:] a. * * * Nonstandard parcels may qualify for the 5-digit price if prepared to preserve sortation by 5-digit ZIP Code as prescribed by the postmaster of the mailing office. [Revise the last sentence of item b to read as follows:] b. * * * Nonstandard parcels may qualify for the basic price if prepared to preserve sortation by NDC/RP&DC as prescribed by the postmaster of the mailing office. * * * * * 275 Mail Preparation * * * * * [[Page 66592]] 4.0 Basic Standards for Preparing Media Mail and Library Mail All mailings of Presorted Media Mail and Presorted Library Mail are subject to these general requirements: * * * * * [Revise the last sentence of item d to read as follows:] d. * * * See 201.7.0 for definitions of machinable and nonstandard parcels. * * * * * 6.0 Preparing Media Mail and Library Mail Parcels 6.1 Basic Standards All mailings of Presorted Media Mail and Presorted Library Mail parcels are subject to these general requirements: * * * * * [Revise the text of item b to read as follows:] b. All parcels in a mailing must be within the same processing category. See 201.7.0 for definitions of machinable and nonmachinable parcels. * * * * * [Revise the heading of 6.3 to read as follows:] 6.3 Preparing Nonstandard Parcels * * * * * 6.3.4 Sacking and Labeling Preparation sequence and labeling: a. 5-digit/scheme (optional, but required for 5-digit price); labeling: * * * * * [Revise the text of item a2 to read as follows:] 2. Line 2: For 5-digit scheme sacks, ``PSVC NONSTD 5D SCH.'' For 5- digit sacks, ``PSVC NONSTD 5D.'' b. 3-digit: required. * * * * * [Revise the text of item b2 to read as follows:] 2. Line 2: ``PSVC NONSTD 3D.'' c. ADC/RPDC: required. * * * * * [Revise the text of item c2 to read as follows:] 2. Line 2: ``PSVC NONSTD ADC.'' d. Mixed ADC/RPDC: required (no minimum). * * * * * [Revise the text of item d2 to read as follows:] 2. Line 2: ``PSVC NONSTD WKG.'' * * * * * 500 Additional Mailing Services * * * * * 1.4.1 Eligibility--Domestic Mail * * * * * Exhibit 1.4.1 Eligibility--Domestic Mail * * * * * [Revise footnote 7 to read as follows:] 7. USPS Marketing Mail, Nonprofit Machinable and Nonprofit Nonstandard priced parcels only. * * * * * 600 Basic Standards for All Mailing Services 601 Mailability 1.0 General Standards 1.1 Determining Mail Processing Categories 1.1.1 Processing Categories [Revise the first sentence of 1.1.1 to read as follows:] There are four mail processing categories for mailpieces: letter, flat, machinable parcel, and nonstandard parcel. * * * * * * * * [Revise the text of 1.0 by adding a new 1.1.5 to read as follows:] 1.1.5 Nonmailable Placement of Address on Parcel-Size Pieces The placement of the address on a parcel-size mailpiece may render a piece nonmailable. Except for cylindrical tubes or similar shaped pieces and labeling exceptions in Publication 52, if the address, return address, mailing labels, postage, barcode, endorsements, and other mail markings are not all placed on a single optical plane without bending, folding, or overlapping, it is nonmailable. * * * * * 3.0 Packaging [Renumber 3.1 as 3.1.1 and add new 3.1.1 heading to read as follows:] 3.1.1 Basic Standards * * * * * [Add new 3.1.2 to read as follows:] 3.1.2 Parcels In addition to 3.1.1, except for hazardous, restricted, and perishable items as provided in Publication 52, all other parcel priced pieces must be packaged in a box or other acceptable container that meet the applicable standards under 3.0 and 4.0. * * * * * 3.7 High-Density Items [Revise the text of 3.7 to read as follows:] High-density items (such as tools, hardware, and machine and auto parts) weighing from 20 to 45 pounds must be packaged in fiberboard boxes constructed of a minimum 200-pound test board or equivalent wood, metal, or plastic containers. Plastic, metal, and similar hard containers must be packaged, treated, or otherwise prepared so that their coefficient of friction or ability to slide on a smooth, hard surface is similar to that of a domestic-class fiberboard box of the same approximate size and weight. Closure must be done by staples, heat-shrinking, adhesives, or tape. Boxes without inner packing or containing loose material must be reinforced or banded with reinforced paper or plastic tape, pressure-sensitive filament tape, or firmly applied nonmetallic banding. Internal blocking and bracing, including the use of interior containers, cut forms, partitions, dunnage, and liners, must be used as required so that packages are capable of maintaining their integrity without damage to the contents if dropped once on one of their smallest sides on a solid surface from a height of 3 feet. These items from 45 to 70 pounds must be similarly packaged, closed, and reinforced, except that exterior containers must be a minimum of 275-pound test fiberboard or equivalent. [Revise the heading and text of 3.8 to read as follows:] 3.8 Books Books and similarly produced printed matter (such as catalogs) fastened together along one edge between hardback, paperback, or self- covers, that are more than one inch thick or one pound must not be accepted in letter-style non-reinforced flat envelopes or without packaging. Envelopes or other appropriate packaging must meet the standards in 3.0. Void spaces within containers must be filled with dunnage, or otherwise stabilized to prevent shifting or damage to the contents or container. Shipments are packaged according to the following weight categories: a. Up to five pounds, sealing must be by multiple friction closures, completely clinched staples, heat-sealing, adhesives, tape, or nonmetallic banding. Although shrinkwrap is not acceptable as the only packaging for hardback books and similarly produced printed matter exceeding one pound or one inch thick, it may be used on the exterior of otherwise acceptable containers. Shrinkwrap (under 3.6) may be used as the only method of packaging for paperback books and similarly produced printed matter up to three pounds. b. From 5 to 10 pounds, closure must be by tape, nonmetallic banding, or adhesives. Reinforced tape or nonmetallic banding is adequate for [[Page 66593]] both closure and reinforcement. Nonmetallic banding must be firmly applied to the point that the straps must be tightened until they depress the carton at the edges. c. From 10 to 25 pounds, reinforced tape or nonmetallic banding is adequate for closure and reinforcement. Nonmetallic banding must be firmly applied to the point that the straps tighten until they depress the carton at the edges. d. From 25 to 50 pounds, hardbound books and similarly produced printed matter must be packaged in 275-pound test fiberboard boxes and paperback books and similarly produced printed matter must be packaged in 200-pound test fiberboard boxes. e. From 50 to 70 pounds, hardbound books and similarly produced printed matter must be packaged in 350-pound test fiberboard boxes and paperback books and similarly produced printed matter must be packaged in 275-pound test fiberboard boxes. [Renumber 3.9 through 3.13 as 3.13 through 3.17 and add new 3.9 through 3.12 to read as follows:] 3.9 Soft Goods Boxes containing soft goods (e.g., textiles, clothing, linens, or draperies) weighing up to 5 pounds must be filled to capacity. Soft goods between the weight range of 5 to 20 pounds must be packaged in material with a minimum 70-pound outer ply basis weight. Closure of bags must be by completely clinched staples, heat-sealing, adhesives, sewing, or tape. Improperly clinched staples must be removed. Shrinkwrapping is not acceptable as the only packaging. Fiberboard containers must be made of at least 200-pound test board for soft goods weighing from 20 to 45 pounds and at least 275-pound test board for soft goods weighing from 45 to 70 pounds. 3.10 Sound Recordings Shipments of recordings (e.g., records and CDs in paper sleeves, paperboard, or chipboard shells) weighing up to 10 pounds must be packed in 70-pound basis weight envelopes for weights up to 3 pounds, or outer corrugated, fiberboard containers for weights up to 10 pounds. When shipments weigh from 20 to 40 pounds, multiple shell containers must be packaged in 175-pound test fiberboard containers or equivalent and closed and reinforced by adhesives, kraft paper tape, equivalent plastic tape, or staples. When shipments weigh from 40 to 65 pounds, multiple shell containers up to 65 pounds must be packaged in 200-pound test fiberboard containers or equivalent and closed and reinforced as described for 20- to 40-pound containers, except that containers must be reinforced about every 8 inches around the package. Shipments weighing more than 65 pounds must be packaged in 275-pound test fiberboard containers or equivalent. 3.11 Film Cases A film case weighing more than 5 pounds or with strap-type closures, except any film case the USPS authorizes to be entered as a machinable parcel under 201.7.0 and to be identified by the words ``Machinable in United States Postal Service Equipment'' permanently attached as a nontransferable decal in the lower right corner of the case. 3.12 Coefficient of Friction All parcels must have the coefficient of friction or ability to slide on a smooth, hard surface, similar to that of a domestic-class fiberboard box of the same approximate size and weight. * * * * * 4.0 Acceptable Mailing Containers * * * * * 4.2 Boxes Boxes are acceptable, subject to these standards: [Revise the text of items a through c to read as follows:] a. Paperboard boxes may be used for loads to 10 pounds. b. Metal-stayed paperboard boxes may be used for loads to 20 pounds. c. Solid and corrugated fiberboard boxes may be used for loads to 70 pounds or according to the limits in 3.0. [Delete the table under item c in its entirety.] * * * * * [Delete item g in its entirety.] * * * * * [Revise the text of 4.4 and 4.5 to read as follows:] 4.4 Paper Bags and Wraps For loads of up to 5 pounds, paper bags and wraps are acceptable when at least of a 50-pound basis weight (the strength of an average large grocery bag) and the items are immune from impact or pressure damage. A combination of plies adding up to or exceeding 50-pound basis weight is not acceptable. For loads of up to 20 pounds, reinforced bags or bags with a minimum of 70-pound basis weight are acceptable. Nonreinforced loose-fill padded bags are not acceptable as exterior containers, unless the exterior ply is at least 60-pound basis weight. 4.5 Plastic Bags Plastic bags must be at least 2 mil thick polyethylene or equivalent for loads up to 5 pounds; 4 mil thick for loads up to 10 pounds. 4.6 Plastic Film Heat-shrinkable plastic film--either irradiated polyethylene, linear low-density polyolefin, or copolymer--may be used as packaging for mailpieces under the following conditions only: [Delete item a and renumber items b and c as items a and b. Revise the text of renumbered items a and b to read as follows:] a. Film must be at least 1\1/4\ (1.25) mil thick for a load up to 5 pounds. b. Film must be at least 1\1/2\ (1.5) mil thick for a load up to 10 pounds, only when mailers prepare the parcels on 5-digit/scheme, merged 5-digit/scheme, or finer level pallets. * * * * * [Revise the heading of 7.0 and delete the text in its entirety to read as follows:] 7.0 Reserved * * * * * 602 Addressing * * * * * 3.0 Use of Alternative Addressing * * * * * 3.2 Simplified Address 3.2.1 Conditions for General Use The following conditions must be met when using a simplified address on commercial mailpieces: * * * * * [Revise the introductory text of item b to read as follows:] b. USPS Marketing Mail, Periodicals, and Bound Printed Matter flat- size mailpieces (including USPS Marketing Mail pieces allowed as flats under 3.2.1c), and Periodicals nonstandard parcels for distribution to a city route or to Post Office boxes in offices with city carrier service may bear a simplified address, but only when complete distribution is made under the following conditions: * * * * * 3.2.3 Mail Preparation [Revise the third sentence in the introductory text of 3.2.3 to read as follows:] * * * Mailers must prepare nonstandard parcels in carrier route bundles in sacks or directly on pallets. * * * * * * * * [[Page 66594]] 604 Postage Payment Methods and Refunds * * * * * 5.0 Permit Imprint (Indicia) * * * * * 5.3 Indicia Design, Placement, and Content * * * * * 5.3.9 Use of a Company Permit Imprint * * * The following standards apply: [Revise the last sentence of item a to read as follows:] a. * * * Sample pieces are not required for nonidentical-piece USPS Marketing Mail and Package Services machinable or nonstandard parcel mailings (e.g., merchandise and other fulfillment mailings). * * * * * 700 Special Standards * * * * * 705 Advanced Preparation and Special Postage Payment Systems * * * * * 6.0 Combining Mailings of USPS Marketing Mail, Package Services, and Parcel Select Parcels * * * * * 6.4 Combining Package Services, Parcel Select, and USPS Marketing Mail--Optional 3-Digit SCF Entry * * * * * 6.4.2 Qualification and Preparation Parcel Select and Bound Printed Matter machinable parcels, and USPS Marketing Mail parcels may be prepared for entry at designated SCFs under these standards: * * * * * [Revise the text of item d to read as follows:] d. USPS Marketing Mail, machinable Marketing Parcels (regular and nonprofit) and Nonprofit Machinable priced parcels are eligible for the NDC/RPDC presort-level DNDC price. USPS Marketing Mail, nonstandard Marketing Parcels (regular and nonprofit) and Nonprofit Nonstandard priced parcels are eligible for the 3-digit presort-level DSCF price. * * * * * 7.0 Combining Package Services and Parcel Select Parcels for Destination Entry 7.1 Combining Parcels--DSCF/RP&DC and DDU or S&DC Entry * * * * * 7.1.2 Basic Standards [Revise the introductory text of 7.1.2 to read as follows:] Package Services and Parcel Select parcels that qualify as machinable and nonstandard under 201 and meet the following conditions may be combined in 5-digit scheme and 5-digit sacks or 5-digit scheme and 5-digit pallets under these conditions: * * * * * 8.0 Preparing Pallets * * * * * 8.5 General Preparation 8.5.1 Presort [Revise the seventh sentence of 8.5.1 to read as follows:] * * * These standards may result in some bundles of Periodicals flats and nonstandard parcels and USPS Marketing Mail flats that are part of a mailing job prepared in part as palletized flats at automation prices not being placed on the finest level of pallet possible. * * * * * * * * 8.5.2 Required Preparation The following standards apply to Periodicals, USPS Marketing Mail, Parcel Select, and Package Services, except Parcel Select mailed at DSCF and DDU prices: * * * * * [Revise the first sentence of item b to read as follows:] b. For bundles of flat-size mailpieces or bundles of nonstandard parcels on pallets, after preparing all possible pallets under 8.5.2a, when 250 or more pounds of bundles remain for an ADC/RPDC (Periodicals) or for a NDC/ASF/RPDC (USPS Marketing Mail, Parcel Select, and Package Services), mailers must prepare the ADC/RPDC or NDC/ASF/RPDC pallet, as applicable for the class of mail. * * * * * * * * 8.5.4 Minimum Height of Mail The definitions of the minimum height of mail used to qualify for DSCF/DRPDC Parcel Select prices are as follows: * * * * * [Revise the first sentence of item b to read as follows:] b. Nonstandard parcels. * * * * * * * * 8.5.6 Mail on Pallets These standards apply to mail on pallets: * * * * * [Revise the text of items a and b to read as follows:] a. For Bound Printed Matter nonstandard parcels, Presorted and Carrier Route price mail may be combined on all levels of pallet. For Bound Printed Matter flats, Presorted and Carrier Route price mail may be combined on all levels of pallet except as provided in 8.5.6g. b. For sacks or flat trays of Periodicals, USPS Marketing Mail, and Bound Printed Matter flats or nonstandard parcels, carrier route price mail must be prepared on separate 5-digit pallets from automation price and/or presorted price mail. * * * * * 8.6.5 Line 2 (Content Line) Line 2 (content line) must meet these standards: * * * * * b. Codes. The codes shown below must be used as appropriate on Line 2 of sack, tray, and pallet labels. CONTENT TYPE CODE * * * * * [Delete the ``Irregular Parcels'' line item in its entirety.] * * * * * [Revise the ``Content Type'' text of the ``Mixed Machinable and Irregular'' line item to read as follows:] Mixed Machinable and Nonstandard Parcels MACH & NONSTD (USPS Marketing Mail only) * * * * * [Revise the ``Content Type'' text of the ``Nonmachinable Parcels'' line item to read as follows:] Nonstandard Parcels NONSTD * * * * * 8.8 Basic Uses These types of mail may be palletized: * * * * * [Revise the text of item d to read as follows:] d. Machinable or nonstandard parcels. * * * * * 8.9 Bundles on Pallets 8.9.1 Applicability [Revise the first sentence of 8.9.1 to read as follows:] Presort destination bundles of Periodicals, USPS Marketing Mail, and Package Services flats and nonstandard parcels may be placed directly on pallets under 8.9.2 through 8.9.5 and 8.10. * * * * * * * * 8.9.5 Bound Printed Matter Bound Printed Matter on pallets must be bundled as follows: * * * * * b. Presorted and Carrier Route Bound Printed Matter: [[Page 66595]] [Revise the first sentence of item b1 to read as follows:] 1. Only individual pieces of flats or nonstandard parcels that weigh less than 10 pounds each may be prepared as bundles on pallets. * * * * * * * * 8.10.2 Periodicals--Bundles, Sacks, Letter or Flat Trays [Revise the seventh sentence in the introductory text of 8.10.2 to read as follows:] * * * Bundles of Periodicals flats and nonstandard parcels may also be palletized under 10.0, 12.0, or 13.0. * * * * * * * * [Revise the third sentence in the introductory text of item b to read as follows:] b. * * * Required for bundles containing all other flats or nonstandard parcels. * * * * * * * * [Revise the third sentence in the introductory text of item c to read as follows:] c. * * * Required for bundles containing all other flats and nonstandard parcels. * * * * * * * * [Revise the third sentence in the introductory text of item e to read as follows:] e. * * * Required for bundles containing all other flats or nonstandard parcels. * * * * * * * * [Revise the first sentence in the introductory text of item f to read as follows:] f. 5-digit, required, except for letter trays; permitted for bundles, trays, and sacks (nonstandard parcels only). * * * * * * * * [Revise the introductory text of item h to read as follows:] h. SCF, required, permitted for bundles, trays, and sacks (nonstandard parcels only). The pallet may contain carrier route, automation price, and/or Presorted price mail for the 3-digit ZIP Code groups in L005. Mailers may place origin mixed ADC (OMX) sacks (nonstandard parcels only) or flat trays on origin SCF pallets. Labeling: * * * * * [Revise the first sentence in the introductory text of item i to read as follows:] i. ADC, required, permitted for bundles, trays, and sacks (nonstandard parcels only). * * * * * * * * 8.10.3 USPS Marketing Mail--Bundles, Sacks, or Trays [Revise the fifth and sixth sentence of the introductory text of 8.10.3 to read as follows:] * * * For parcels, use this preparation only for nonstandard parcels in sacks. Palletize unbundled or unsacked nonstandard parcels under 8.10.8. * * * * * * * * d. 5-digit, required except for trays, permitted for bundles, trays, and sacks (when applicable). * * * * * * Labeling: * * * * * [Revise the first sentence of item d2 to read as follows:] 2. Line 2: For flats and nonstandard parcels, use ``STD'' followed by ``FLTS'' or ``NONSTD,'' as applicable; followed by ``5D'' followed by ``BARCODED'' (or ``BC'') if the pallet contains automation-price mail; followed by ``NONBARCODED'' (or ``NBC'') if the pallet contains Presorted-price mail. * * * * * * * * [Revise the first sentence in the introductory text of item f to read as follows:] f. SCF, required, permitted for bundles, trays, and sacks (nonstandard parcels only). * * * * * * * * [Revise the first sentence in the text of item f2 to read as follows:] 2. Line 2: For flats and nonstandard parcels, ``STD'' followed by ``FLTS'' or ``NONSTD,'' as applicable; followed by ``SCF''; followed by ``BARCODED'' (or ``BC'') if pallet contains automation price mail; followed by ``NONBARCODED'' (or ``NBC'') if pallet contains carrier route and/or Presorted price mail. * * * g. ASF, required unless bundle reallocation is used under 8.13, permitted for bundles, trays, and sacks (nonstandard parcels only). * * * * * * Labeling: * * * * * [Revise the first sentence in the text of item g2 to read as follows:] 2. Line 2: For flats and nonstandard parcels, ``STD'' followed by ``FLTS'' or ``NONSTD,'' as applicable; followed by ``ASF''; followed by ``BARCODED'' (or ``BC'') if pallet contains automation price mail; followed by ``NONBARCODED'' (or ``NBC'') if pallet contains carrier route and/or Presorted price mail. * * * [Revise the first sentence in the introductory text of item h to read as follows:] h. NDC, required, permitted for bundles, trays, and sacks (nonstandard parcels only). * * * * * * * * [Revise the first sentence in the text of item h2 to read as follows:] 2. Line 2: For flats and nonstandard parcels, ``STD'' followed by ``FLTS'' or ``NONSTD,'' as applicable; followed by ``NDC''; followed by ``BARCODED'' (or ``BC'') if pallet contains automation price mail; followed by ``NONBARCODED'' (or ``NBC'') if pallet contains carrier route and/or Presorted price mail. * * * [Revise the introductory text of item i to read as follows:] i. Mixed NDC, optional, permitted for bundles, trays, and sacks (nonstandard parcels only); allowed with no minimum and required at 100 pounds of mail for bundles of flats. Bundles of flats totaling less than 100 pounds in weight must be trayed if not palletized. The pallet may contain carrier route, automation, and/or Presorted mail. Mailers must place trays and sacks (nonstandard parcels only) containing pieces paid at the single-piece price on the mixed NDC pallet (unless required to be presented separately by special postage payment authorization). Labeling: * * * * * [Revise the first sentence in the text of item i2 to read as follows:] 2. Line 2: For flats and nonstandard parcels, ``STD'' followed by ``FLTS'' or ``NONSTD,'' as applicable; followed by ``BARCODED'' (or ``BC'') if pallet contains automation price mail; followed by ``NONBARCODED'' (or ``NBC'') if pallet contains carrier route and/or Presorted price mail; followed by ``WKG.'' * * * * * * * * [Revise the heading of 8.10.5 to read as follows:] 8.10.5 Package Services Nonstandard Parcels--Bundles and Sacks [Revise the fifth sentence of 8.10.5 to read as follows:] * * * At the mailer's option, all Package Services nonstandard parcels also may be prepared for destination entry (see 7.0). * * * a. Merged 5-digit scheme, required, permitted for bundles only. * * * * * * Labeling: * * * * * [Revise the text of item a2 to read as follows:] 2. Line 2: ``PSVC NONSTD CR/5D''; followed by ``SCHEME'' (or ``SCH''). [[Page 66596]] b. 5-digit scheme carrier routes, required, permitted for bundles only. * * * * * * Labeling: * * * * * [Revise the text of item b2 to read as follows:] 2. Line 2: ``PSVC NONSTD''; followed by ``CARRIER ROUTES'' (or ``CR-RTS''); followed by ``SCHEME'' (or ``SCH''). c. 5-digit scheme, required, permitted for bundles only. * * * * * * Labeling: * * * * * [Revise the text of item c2 to read as follows:] 2. Line 2: ``PSVC NONSTD 5D''; followed by ``SCHEME'' (or ``SCH''). d. Merged 5-digit, required, permitted for bundles only. * * * * * * Labeling: * * * * * [Revise the text of item d2 to read as follows:] 2. Line 2: ``PSVC NONSTD CR/5D.'' e. 5-digit carrier routes, required, permitted for bundles and sacks. * * * * * * Labeling: * * * * * [Revise the text of item e2 to read as follows:] 2. Line 2: ``PSVC NONSTD''; followed by ``CARRIER ROUTES'' (or ``CR-RTS''). f. 5-digit, required, permitted for bundles and sacks. * * * * * * Labeling: * * * * * [Revise the text of item f2 to read as follows:] 2. Line 2: ``PSVC NONSTD 5D.'' g. 3-digit, optional, option not available for bundles for 3-digit ZIP Code prefixes marked ``N'' in L002. * * * * * * Labeling: * * * * * [Revise the text of item g2 to read as follows:] 2. Line 2: ``PSVC NONSTD 3D.'' h. SCF, required, permitted for bundles and sacks. * * * * * * Labeling: * * * * * [Revise the text of item h2 to read as follows:] 2. Line 2: ``PSVC NONSTD SCF.'' i. ASF, required, permitted for bundles and sacks. * * * * * * Labeling: * * * * * [Revise the text of item i2 to read as follows:] 2. Line 2: ``PSVC NONSTD ASF.'' j. NDC, required, permitted for bundles and sacks. * * * * * * Labeling: * * * * * [Revise the text of item j2 to read as follows:] 2. Line 2: ``PSVC NONSTD NDC.'' k. Mixed NDC, optional, permitted for sacks only. * * * * * * Labeling: * * * * * [Revise the text of item k2 to read as follows:] 2. Line 2: ``PSVC NONSTD WKG.'' * * * * * [Revise the heading and introductory text of 8.10.8 to read as follows:] 8.10.8 Nonstandard Parcels Weighing 2 Ounces or More--USPS Marketing Mail, Including Marketing Parcels Mailers who palletize unbundled or unsacked nonstandard parcels must make pallets or pallet boxes when there are 250 pounds or more for the destination levels below for DNDC, DSCF, or DDU prices. When prepared at origin, a 200 pound minimum is required for the NDC price. Prepare pallets or pallet boxes of nonstandard parcels (except tubes, rolls, and similar pieces) weighing 2 ounces or more under 8.0 and in the sequence listed below. Label pallets or pallet boxes according to the Line 1 and Line 2 information listed below and under 8.6. Mailers may not prepare tubes, rolls, and similar pieces or pieces that weigh less than 2 ounces on pallets or in pallet boxes, except for pieces in carrier route bundles or in sacks under 8.10.3. Preparation sequence and labeling: a. 5-digit scheme, required. * * * * * * Labeling: * * * * * [Revise the text of item a2 to read as follows:] 2. Line 2: ``STD NONSTD 5D''; followed by ``SCHEME'' (or ``SCH''). b. 5-digit, required. * * * * * * Labeling: * * * * * [Revise the text of item b2 to read as follows:] 2. Line 2: ``STD NONSTD 5D.'' c. SCF, required. Allowed only for mail deposited at a DSCF to claim SCF price; labeling: * * * * * [Revise the text of item c2 to read as follows:] 2. Line 2: Use ``STD NONSTD SCF.'' d. ASF, optional, but required for DNDC prices. * * * * * * Labeling: * * * * * [Revise the text of item d2 to read as follows:] 2. Line 2: ``STD NONSTD ASF.'' e. NDC, required. * * * * * * Labeling: * * * * * [Revise the text of item e2 to read as follows:] 2. Line 2: ``STD NONSTD NDC.'' f. Origin NDC (required); no minimum; labeling: * * * * * [Revise the text of item f2 to read as follows:] 2. Line 2: ``STD NONSTD NDC.'' g. Mixed NDC, optional. Labeling: * * * * * [Revise the text of item g2 to read as follows:] 2. Line 2: ``STD NONSTD WKG.'' [Revise the heading of 8.11 to read as follows:] 8.11 Bundle Reallocation To Protect SCF Pallet for Periodicals Flats and Nonstandard Parcels and USPS Marketing Mail Flats on Pallets * * * * * 8.11.3 Reallocation of Bundles If Optional 3-Digit Pallets Are Prepared Reallocation rules are as follows: * * * * * [Revise the last sentence of item d to read as follows:] d. * * * Mail that falls beyond the SCF/RPDC pallet level must be placed on the next appropriate pallet (ADC/RPDC, ASF/RPDC, NDC/RPDC or MNDC/MRPDC) or in the next appropriate sack (nonstandard parcels) or flat tray. 8.11.4 Reallocation of Bundles If Optional 3-Digit Pallets Are Not Prepared Reallocation rules are as follows: * * * * * [Revise the last sentence of item b to read as follows:] b. * * * Mail that falls beyond the SCF/RPDC pallet level must be placed on the next appropriate pallet (ADC/RPDC, ASF/RPDC, NDC/RPDC, or MNDC/MRPDC) or in the next appropriate sack (nonstandard parcels) or flat tray. * * * * * [Revise the heading of 8.12 to read as follows:] 8.12 Bundle Reallocation to Protect ADC Pallet for Periodicals Flats and Nonstandard Parcels on Pallets * * * * * 8.14 Pallets of Bundles, Sacks, and Trays * * * * * 8.14.2 USPS Marketing Mail Additional pallet preparation: [Revise the last sentence of item a to read as follows:] a. Combined mailings. * * * * * * Mailers may include machinable parcels [[Page 66597]] and nonstandard parcels on 5-digit pallets. * * * * * 8.18 Parcel Select DSCF Prices--Parcels on Pallets 8.18.1 Basic Preparation, Parcels on Pallets Unless prepared under 8.18.2, or in sacks, mail must be prepared for the DSCF price as follows: [Revise the fourth sentence of item a to read as follows:] a. General. * * * Machinable and nonstandard pieces may be combined on the same pallet or in the same overflow sack when sorted to 5-digit scheme or 5-digit destinations. * * * * * * * * 8.18.2 Alternate Preparation, Parcels on Pallets DSCF price mailings not prepared under 8.18.1 may be prepared as follows: [Revise the first and last sentence of item a to read as follows:] a. General. All DSCF price mail in the mailing must be sorted to 5- digit scheme, 5-digit, SCF (machinable parcels only), or 3-digit (nonstandard) destinations under 8.18.2 (i.e., mail prepared under 8.18.1 and mail sacked under 255.4.2 must not be included in a mailing prepared under 8.18.2). * * * * * * Machinable and nonstandard pieces may be combined on the same pallet. Double-stacking is permitted if the requirements of 8.3 are met. * * * * * 8.20 Parcel Select and Bound Printed Matter DDU Prices [Revise the fourth sentence in the introductory text of 8.20 to read as follows:] * * * Machinable and nonstandard pieces may be combined. * * * * * * * * 9.0 Combining Bundles of Automation and Nonautomation Flats in Flat Trays and Sacks * * * * * 9.2 Periodicals * * * * * 9.2.4 Optional Sack Preparation and Labeling [Revise the fifth sentence in the introductory text of 9.2.4 to read as follows:] * * * If, due to the physical size of the mailpieces, the machinable barcoded price pieces are considered flat-size under 201.6.0 and the machinable nonbarcoded price pieces are considered nonstandard parcels under 201.7.6, the processing category shown on the sack label must show ``FLTS.'' * * * * * * * * 10.0 Merging Bundles of Flats Using the City State Product * * * * * 10.1.4 Sack and Flat-Tray Preparation and Labeling [Revise the introductory text of 10.1.4 to read as follows:] All carrier route bundles must be placed in sacks/flat trays under 10.1.4a through 10.1.4e and 10.1.4h as described below. When sorting is performed under this section, mailers must prepare merged 5-digit scheme sacks (nonstandard parcels) or flat trays, 5-digit scheme carrier routes sacks/flat trays, and merged 5-digit sacks (nonstandard parcels) or flat trays for all possible 5-digit schemes or 5-digit ZIP Codes as applicable, using L001 (merged 5-digit scheme and 5-digit scheme carrier routes sort only) and the Carrier Route Indicators field in the City State Product when there is enough volume for the 5-digit scheme or 5-digit ZIP Code to prepare such sacks (nonstandard parcels) or flat trays under 10.1.4. Mailers must label sacks/flat trays according to the Line 1 and Line 2 information listed below and under 207.20.1. If, due to the physical size of the mailpieces, the barcoded pieces are considered flat-size under 207.26.0, and the carrier route pieces and nonbarcoded pieces are considered nonstandard parcels under 201.7.6, ``FLTS'' must be shown as the processing category on the sack/ tray label. If a mailing job does not contain barcoded price pieces and the carrier route pieces and the nonbarcoded pieces are nonstandard parcel shaped, use ``NONSTD'' for the processing category on the contents line of the label. Mailers must prepare sacks containing carrier route and 5-digit bundles from the carrier route, barcoded, and nonbarcoded mailings in the mailing job in the following manner and sequence: * * * * * [Revise the text of item h to read as follows:] h. Merged 3-digit. Required for carrier route, 5-digit, and 5-digit scheme bundles remaining after preparing sacks (nonstandard parcels only) or flat trays under 10.1.4a through 10.1.4g, and any 3-digit and 3-digit scheme bundles with a minimum of 24 pieces for a 3-digit area. Labeling: * * * * * 12.0 Merging Bundles of Flats on Pallets Using a 5 Percent Threshold * * * * * 12.1.5 Pallet Preparation and Labeling [Revise the text in the fourth and last sentence of 12.1.5 to read as follows:] * * * If, due to the physical size of the mailpieces, the barcoded price pieces are considered flat-size under 201.6.0 and the carrier route sorted pieces and nonbarcoded price pieces are considered nonstandard parcels under 201.7.6, ``FLTS'' must be shown as the processing category on the pallet label. If a mailing contains no barcoded price pieces and the carrier route pieces and the nonbarcoded pieces are nonstandard parcels, use ``NONSTD for the processing category on the contents line of the pallet label. Prepare and label pallets as follows: * * * * * [Revise the second sentence of item c to read as follows:] c. * * * Required for all other flats and nonstandard parcels. * * * * * * * * 13.0 Merging Bundles of Flats on Pallets Using the City State Product and a 5 Percent Threshold * * * * * 13.1.5 Pallet Preparation and Labeling [Revise the fourth and last sentence of 13.1.5 to read as follows:] * * * If, due to the physical size of the mailpieces, the barcoded price pieces are considered flat-size under 201.6.0 and the carrier route sorted pieces and nonbarcoded price pieces are considered nonstandard parcels under 201.7.6, ``FLTS'' must be shown as the processing category on the pallet label. If a mailing contains no barcoded price pieces and the carrier route pieces and the nonbarcoded of pieces are nonstandard parcels, use ``NONSTD'' for the processing category on the contents line of the pallet label. Prepare and label pallets as follows: * * * * * 21.0 Optional Combined Parcel Mailings * * * * * 21.3 Mail Preparation 21.3.1 Basic Standards Prepare combined mailings as follows: [[Page 66598]] a. Different parcel types must be prepared separately for combined parcel mailings as indicated below: * * * * * [Revise the text of items a2 and a3 to read as follows:] 2. USPS Marketing Mail, Parcel Select, and Package Services nonstandard parcels, except for tubes, rolls, triangles, and other similarly nonstandard-shaped pieces: Use ``STD/PSVC'' for line 2 content labeling. 3. USPS Marketing Mail, Parcel Select, and Package Services tubes, rolls, triangles, and similarly nonstandard-shaped parcels: Use ``STD/ PSVC NONSTD'' for line 2 content labeling. * * * * * 21.3.3 Combining USPS Marketing Mail, Parcel Select, and Package Services APPS-Machinable Parcels [Revise the text of 21.3.3 to read as follows:] Prepare and enter USPS Marketing Mail, Parcel Select, and Package Services nonstandard parcels, that are not tubes, rolls, triangles, or similarly nonstandard-shaped parcels) as combined APPS-machinable parcels as shown in the table below. * * * * * Index * * * * * B * * * * * Bound Printed Matter, Commercial Parcels * * * * * [Revise the ``carrier route irregular parcels'' line item under ``Bound Printed Matter, Commercial Parcels'' to read as follows:] carrier route nonstandard parcels, 265.9.2, 265.9.3 * * * * * [Revise the ``presorted irregular parcels'' line item under ``Bound Printed Matter, Commercial Parcels'' to read as follows:] presorted nonstandard parcels, 265.8.2, 265.8.3 * * * * * [Revise the ``nonmachinable parcels'' line item under ``Bound Printed Matter, Commercial Parcels'' to read as follows:] nonstandard parcels, 201.7.6 * * * * * [Revise the ``bundles of irregular parcels on pallets'' line item under ``Bound Printed Matter, Commercial Parcels'' to read as follows:] bundles of nonstandard parcels on pallets, 705.8.10.5 * * * * * [Revise the ``carrier route irregular parcels'' line item under ``Bound Printed Matter, Commercial Parcels'' to read as follows:] carrier route nonstandard parcels, 265.9.2, 265.9.3 * * * * * [Revise the ``presorted irregular parcels'' line item under ``Bound Printed Matter, Commercial Parcels'' to read as follows:] presorted nonstandard parcels, 265.8.2, 265.8.3 * * * * * [Revise the ``sacks of irregular parcels on pallets'' line item under ``Bound Printed Matter, Commercial Parcels'' to read as follows:] sacks of nonstandard parcels on pallets, 705.8.10.5 * * * * * I * * * * * [Delete the ``Irregular parcels'' line item under ``I''.] * * * * * L * * * * * Library Mail, Commercial Parcels * * * * * [Revise the ``irregular parcels'' and ``irregular parcels on pallets'' line items under ``Library Mail, Commercial Parcels'' to read as follows:] nonstandard parcels, 275.6.3 nonstandard parcels on pallets, 705.8.10.5 * * * * * [Delete the second duplicated line item ``irregular parcels'' after the ``bundles'' line item.] * * * * * [Revise the ``nonmachinable parcels'' line item under ``Library Mail, Commercial Parcels'' to read as follows:] nonstandard parcels, 201.7.6 * * * * * M * * * * * Media Mail, commercial parcels * * * * * [Revise the ``irregular parcels'' and ``irregular parcels on pallets'' line items under ``Media Mail, Commercial Parcels'' to read as follows:] nonstandard parcels, 275.6.3 nonstandard parcels on pallets, 705.8.10.5 * * * * * [Revise the ``nonmachinable parcels'' line item under ``Media Mail, Commercial Parcels'' to read as follows:] nonstandard parcels, 201.7.6 * * * * * N * * * * * [Revise the ``nonmachinable'' line item under ``N'' to read as follows:] Nonstandard * * * * * [Revise the ``Parcel Select'' line item under the renamed ``nonstandard'' to read as follows:] Parcel Select, 201.7.6 * * * * * P * * * * * Parcel Select * * * * * [Revise the ``irregular parcels on pallets'' line item under ``Parcel Select'' to read as follows:] nonstandard parcels on pallets, 705.8.10.5 * * * * * [Revise the ``nonmachinable parcels on pallets'' line item under ``Parcel Select'' to read as follows:] nonstandard parcels on pallets, 705.8.18.2 * * * * * [Revise the ``nonmachinable parcels'' line item under ``Parcel Select'' to read as follows:] nonstandard parcels, 201.7.6 * * * * * Parcels [Revise the ``nonmachinable criteria'' heading under ``parcels'' to read as follows:] nonstandard criteria [Revise the ``commercial mail'' line item under renamed ``nonstandard criteria'' to read as follows:] commercial mail, 201.7.6 * * * * * Periodicals * * * * * [Revise the ``carrier route irregular parcels in sacks'' line item under ``Periodicals'' to read as follows:] carrier route nonstandard parcels in sacks, 207.23.4 * * * * * [Revise the ``irregular parcels in sacks'' line item under ``Periodicals'' to read as follows:] nonstandard parcels in sacks, 207.22.6 * * * * * [[Page 66599]] S * * * * * size * * * * * [Revise the ``nonmachinable parcels'' line item under ``Size'' to read as follows:] nonstandard parcels, 101.3.0, 201.7.0 * * * * * U * * * * * USPS Marketing Mail, Parcels * * * * * [Revise the ``bundling for irregular parcels'' line item under ``USPS Marketing Mail, parcels'' to read as follows:] bundling for nonstandard parcels, 245.11.4, 245.12.5 * * * * * [Revise the ``presorted irregular parcels'' line item under ``USPS Marketing Mail, parcels'' to read as follows:] presorted nonstandard parcels, 245.11.4 * * * * * Christopher Doyle, Attorney, Ethics & Legal Compliance. [FR Doc. 2024-18276 Filed 8-15-24; 8:45 am] BILLING CODE P

usgpo

2024-10-08T13:26:24.142625

FR

FR-2024-08-16/2024-18440

Federal Register Volume 89 Issue 159 (August 16, 2024)

United States National Archives and Records Administration Office of the Federal Register

[Federal Register Volume 89, Number 159 (Friday, August 16, 2024)] [Rules and Regulations] [Page 66599] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 2024-18440] ----------------------------------------------------------------------- POSTAL SERVICE 39 CFR Part 966 Rules of Procedure Before the Judicial Officer; Correction AGENCY: Postal ServiceTM. ACTION: Final rule; technical correction. ----------------------------------------------------------------------- SUMMARY: This updates the Judicial Office website address and corrects an error issued during a previous filing. DATES: Effective August 16, 2024. FOR FURTHER INFORMATION CONTACT: Staff Counsel Zahava Colicelli at (708) 812-1927. SUPPLEMENTARY INFORMATION: A. Background The Judicial Officer Department recently issued a final rule revising its rules of practice with an updated internet address for its home page. This final rule is necessary to correct an error made in the previous filing. B. Explanation of Changes Amendment to 39 CFR Part 966 Section 966.3(j) is amended to update the internet address for the Judicial Officer website and contact information for the Recorder. List of Subjects in 39 CFR Part 966 Administrative practice and procedure, Claims, Government employees, Wages. Accordingly, the Postal Service amends 39 CFR part 966 as follows: PART 966--[AMENDED] 0 1. The authority citation for part 966 continues to read as follows: Authority: 31 U.S.C. 3716; 39 U.S.C. 204, 401, 2601. 0 2. In Sec. 966.3, paragraph (j) is revised to read as follows: Sec. 966.3 Definitions. * * * * * (j) Recorder refers to the Recorder, Judicial Officer Department, United States Postal Service, 2101 Wilson Boulevard, Suite 600, Arlington, VA 22201-3078. The recorder's telephone number is (703) 812- 1900, and the Judicial Officer's website is https://about.usps.com/who/judicial/. The fax number is (703) 812-1901. * * * * * Colleen Hibbert-Kapler, Attorney, Ethics and Legal Compliance. [FR Doc. 2024-18440 Filed 8-15-24; 8:45 am] BILLING CODE 7710-12-P

usgpo

2024-10-08T13:26:24.437851

FR

FR-2024-08-16/2024-18162

Federal Register Volume 89 Issue 159 (August 16, 2024)

United States National Archives and Records Administration Office of the Federal Register

[Federal Register Volume 89, Number 159 (Friday, August 16, 2024)] [Rules and Regulations] [Pages 66599-66603] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 2024-18162] ======================================================================= ----------------------------------------------------------------------- ENVIRONMENTAL PROTECTION AGENCY 40 CFR Part 52 [EPA-R03-OAR-2019-0562; FRL-11960-02-R3] Air Plan Approval and Disapproval; Pennsylvania; Reasonably Available Control Technology (RACT) for Volatile Organic Compounds (VOC) Under the 2008 Ozone National Ambient Air Quality Standards (NAAQS) AGENCY: Environmental Protection Agency (EPA). ACTION: Final rule. ----------------------------------------------------------------------- SUMMARY: The Environmental Protection Agency (EPA) is revising our December 14, 2020 action that fully approved two state implementation plan (SIP) revisions, both submitted to EPA on August 13, 2018 by the Commonwealth of Pennsylvania, through the Pennsylvania Department of Environmental Protection (PADEP). Those SIP revisions addressed reasonably available control technology (RACT) requirements for the 2008 ozone national ambient air quality standards (NAAQS), including those related to control techniques guidelines (CTGs) for volatile organic compounds (VOC) and the addition of regulations controlling VOC emissions from industrial cleaning solvents. The SIP revisions also included certain clarifying amendments to Pennsylvania code related to major source RACT regulations. Upon reconsideration, EPA is revising our prior action to partially approve and partially disapprove the August 13, 2018 submittals. Specifically, EPA is approving certain clarifying amendments as well as a negative declaration submitted by PADEP. EPA is disapproving the remainder of both SIP submittals related to CTGs and control of VOC emissions from industrial cleaning solvents. This action is being taken under the Clean Air Act (CAA). DATES: This final rule is effective on September 16, 2024. ADDRESSES: EPA has established a docket for this action under Docket ID Number EPA-R03-OAR-2019-0562. All documents in the docket are listed on the www.regulations.gov website. Although listed in the index, some information is not publicly available, e.g., confidential business information (CBI) or other information whose disclosure is restricted by statute. Certain other material, such as copyrighted material, is not placed on the internet and will be publicly available only in hard copy form. Publicly available docket materials are available through www.regulations.gov, or please contact the person identified in the FOR FURTHER INFORMATION CONTACT section for additional availability information. FOR FURTHER INFORMATION CONTACT: Ellen Schmitt, Planning & Implementation Branch (3AD30), Air & Radiation Division, U.S. Environmental Protection Agency, Region III, 1600 John F. Kennedy Boulevard, Philadelphia, Pennsylvania 19103. The telephone number is (215) 814-5787. Ms. Schmitt can also be reached via electronic mail at [email protected]. SUPPLEMENTARY INFORMATION: I. Background On August 13, 2018, PADEP submitted to EPA two SIP revisions to satisfy certain RACT requirements for sources of VOC emissions required by sections 182(b)(2) and 184(b)(l)(B) of the CAA and the implementing regulations for the 2008 8-hour ozone NAAQS (80 FR 12264, March 6, 2015; 40 Code of Federal Regulations (CFR) part 51, subpart AA). On December 14, 2020 (85 FR 80616), EPA published a full approval of [[Page 66600]] PADEP's two August 13, 2018 SIP submittals. The approval was challenged in the U.S. Court of Appeals for the Third Circuit, and on September 3, 2021, that court granted EPA's request for remand without vacatur of the Agency's final full approval.\1\ Subsequently, a petitioner filed litigation in the Eastern District of Pennsylvania on May 16, 2023, arguing that EPA had unreasonably delayed in our reconsideration of the final approval of the August 13, 2018 SIP submittals. On December 15, 2023, the court filed a consent decree requiring that EPA complete our reconsideration of the December 14, 2020 final rule by November 15, 2024.\2\ --------------------------------------------------------------------------- \1\ A copy of the court order is located in the docket for this action. Docket Id. EPA-R03-OAR-2019-0562 in regulations.gov. \2\ A copy of the court order is located in the docket for this action. Docket Id. EPA-R03-OAR-2019-0562 in regulations.gov. --------------------------------------------------------------------------- After reconsidering this full approval, EPA proposed to revise our prior action and in a notice of proposed rulemaking (NPRM) (May 17, 2024, 89 FR 43359), the Agency proposed to partially approve and partially disapprove parts of the August 13, 2018 SIP submittals. In the May 2024 NPRM, EPA proposed approval of certain clarifying amendments as well as a negative declaration submitted by PADEP. EPA proposed disapproval of the remainder of both SIP submittals related to CTGs and control of VOC emissions from industrial cleaning solvents. II. Summary of SIP Revisions and EPA Analysis PADEP submitted two SIP submittals to EPA on August 13, 2018. The first of these submittals is entitled ``Certification of Reasonably Available Control Technology for Control Techniques Guidelines Under the 2008 Ozone National Ambient Air Quality Standards and Incorporation of 25 Pa Code Chapter 122 (Relating to National Standards of Performance for New Stationary Sources) into the Commonwealth's State Implementation Plan.'' PADEP submitted this SIP revision for the purposes of meeting the RACT requirements under CAA sections 182(b)(2) and 184(b)(1)(B) and implementing the regulations for the 2008 8-hour ozone NAAQS. Specifically, this submittal: (1) certifies that PADEP's adoption and implementation of regulations to control VOC emissions is consistent with EPA's CTGs and represents RACT for these covered CTG sources for the 2008 ozone standard; (2) incorporates 25 Pa. Code Chapter 122 (relating to national standards of performance for new stationary sources) into the Pennsylvania SIP and certifies that those provisions continue to represent RACT for facilities subject to such standards of performance; and (3) incorporates specific permit conditions from certain facilities for the purpose of establishing source-specific RACT-level controls for those facilities. The second August 13, 2018 SIP submittal, entitled ``Control of Volatile Organic Compound Emissions from Industrial Cleaning Solvents; General Provisions; Aerospace Manufacturing and Rework; Additional RACT Requirements for Major Sources of NOX and VOCs,'' includes: (1) the addition of 25 Pa. Code 129.63a (relating to the control of VOC from industrial cleaning solvents (ICS)); (2) amendments to 25 Pa. Code sections 121.1 and 129.51 (definitions and ``general'' provisions, respectively) in order to support the addition and implementation of 25 Pa. Code section 129.63a; (3) an administrative numbering correction a number correction to the VOC emission limit table in 25 Pa. Code section 129.73 (relating to aerospace manufacturing and re-work); and (4) amendments to 25 Pa. Code sections 129.96, 129.97, 129.99, and 129.100 to clarify certain requirements and to update the list of exemptions. After reconsideration, EPA, in our 89 FR 43359, May 17, 2024 NPRM, proposed a partial disapproval and partial approval of the August 13, 2018 SIP submittals. In the NPRM associated with this action, EPA proposed to determine that the Agency erred in previously approving: the CTG portion of PADEP's RACT certification SIP, PADEP's determination that NSPS provisions meet CTG requirements and therefore are sufficient to implement RACT,\3\ PADEP's determination that particular emission limitations in certain permits constitute RACT, and PADEP's determination that the 2006 ICS CTG is equal to RACT for the 2008 8-hour ozone NAAQs.\4\ As explained in greater detail in our May 17, 2024 NPRM, PADEP failed in their August 13, 2018 SIP submittals to provide a sufficiently robust and well-developed record for their RACT determinations. --------------------------------------------------------------------------- \3\ While EPA proposed to disapprove PADEP's determination that NSPS provisions meet RACT requirements, the Agency did not propose to disapprove PADEP's request to incorporate by reference the NSPS requirements on their own. \4\ EPA also proposed to disapprove PADEP's amendments to 25 Pa. Code sections 121.1 and 129.51 as they support the addition and implementation of section 129.63a, which EPA proposed to disapprove. --------------------------------------------------------------------------- The May 2024 NPRM proposed to retain our approval of PADEP's negative declaration for one CTG source category, ``Control of Volatile Organic Compound Emissions from Large Petroleum Dry Cleaners,'' \5\ as there are no sources in Pennsylvania (excluding Philadelphia County and Allegheny County).\6\ In our May 17, 2024 NPRM, we also proposed to retain our approval of PADEP's amendments to 25 Pa. Code sections 122.1, 122.2, 122.3, 129.73, 129.96, 129.97, 129.99, and 129.100, as these amendments do not impact how PADEP determined that RACT was met by certain sources. --------------------------------------------------------------------------- \5\ EPA-450/3-82-009; September 1982. \6\ The record in our original action in support of this negative declaration, as discussed in that action (85 FR at 80617, December 14, 2020, and the associated technical support document (TSD)), was sufficiently robust and well-developed. --------------------------------------------------------------------------- III. EPA's Response to Comments Received Comments: EPA received comments from one commenter, PADEP. In their comments, PADEP states that the Department ``continues to certify that their current VOC CTG based rules continue to represent RACT in Pennsylvania.'' PADEP asserts that the ``control measures, rules, and regulations'' that they have in place have been sufficient to reach ``monitored attainment of the 2008 ozone NAAQS across the Commonwealth of Pennsylvania.'' PADEP requests that EPA consider that the control measures in place in 2017 were sufficient for Pennsylvania to monitor compliance with the 2008 ozone NAAQS and therefore additional emissions reductions are unnecessary. To support its certification that Pennsylvania's existing CTG RACT rules meet RACT for the 2008 ozone NAAQS, PADEP also submitted, as part of their comments, additional documentation of their review of their CTG rules and regulations. Response: PADEP argues that additional emissions reductions are not needed through RACT because the control measures, rules, and regulations in place in the Commonwealth have been sufficient to reach monitored attainment of the 2008 ozone NAAQS across Pennsylvania. However, this fact does not change the standard by which EPA must review these SIPs. As explained in our May 2024 NPRM, Pennsylvania's RACT requirements stem from CAA section 184(b), which provides that states in Ozone Transport Region (OTR) must follow moderate nonattainment area RACT requirements of section 182(b)(2), regardless of the attainment status in the state. Therefore, PADEP's RACT responsibilities do not [[Page 66601]] change based on the attainment status or ozone monitor design values. In both the OTR and nonattainment areas, EPA disagrees that monitored air quality alters a state's obligation to assess and adopt RACT for CTG-covered sources and major sources of VOC and nitrogen oxides (NOX). EPA has defined RACT as the most stringent emission limitation that a particular source is capable of meeting by the application of control technology that is reasonably available considering technological and economic feasibility. EPA has long taken the position that the statutory requirement for states to assess and adopt RACT for sources exist independently from the attainment demonstration for such areas.\7\ --------------------------------------------------------------------------- \7\ See Memo from John Seitz, ``Reasonable Further Progress, Attainment Demonstration, and Related Requirements for Ozone Nonattainment Areas Meeting the Ozone National Ambient Air Quality Standard'' (1995), at 5 (explaining that Subpart 2 requirements linked to the attainment demonstration are suspended by a finding that a nonattainment area is attaining but that requirements such as RACT and vehicle inspection and maintenance must be met whether or not an area has attained the standard); see also 40 CFR 51.1318 (suspending attainment demonstrations, reasonably available control measures, reasonable further progress, contingency measures, and other attainment planning SIPs with a finding of attainment). --------------------------------------------------------------------------- PADEP submitted its comments and additional supporting documentation to establish that Pennsylvania's CTG based rules and controls meet RACT for the 2008 ozone NAAQS and should not be disapproved. PADEP requests that EPA approve Pennsylvania CTG RACT certification. EPA disagrees that PADEP's submitted comments and accompanying documentation constitute a part of the rulemaking record upon which EPA can now approve Pennsylvania's CTG RACT certification. As stated in EPA's implementation rules for the ozone NAAQS, an air agency choosing to provide a written certification in lieu of submitting a new or revised regulation must provide the certification to EPA qualifying as a SIP revision in accordance with CAA section 110 and 40 CFR 51.102, 103 and part 51 appendix V.\8\ EPA made clear in the 2015 ozone NAAQS implementation rule that ``(t)hese written statements must be treated in the same manner as any other SIP submission and must be provided to EPA in accordance with applicable SIP submission requirements and deadlines.'' \9\ A fundamental requirement of the SIP revision process is providing for public notice and comment, and opportunity for public hearing at the state level. PADEP did not satisfy this requirement with its comment submittal and would need to submit this kind of supporting documentation as part of a SIP revision following state level notice and comment. For this reason alone, PADEP's submitted comments and accompanying documentation do not comprise any part of the record for this rulemaking and so as such were not considered by EPA, and do not alter our proposed disapproval of Pennsylvania's CTG RACT certification. --------------------------------------------------------------------------- \8\ See 83 FR 62998, 63002 (December 6, 2018). \9\ Id. --------------------------------------------------------------------------- IV. Final Action EPA is amending our prior full approval of PADEP's August 13, 2018 SIP submittals to a partial approval and partial disapproval. Specifically: For the August 13, 2018 SIP submittal titled ``Certification of Reasonably Available Control Technology for Control Techniques Guidelines Under the 2008 Ozone National Ambient Air Quality Standards and Incorporation of 25 Pa Code Chapter 122 (Relating to National Standards of Performance for New Stationary Sources) into the Commonwealth's State Implementation Plan.'' [ssquf] EPA is disapproving the PADEP's certification that their adoption and implementation of regulations to control VOC emissions is consistent with EPA's CTGs and represents RACT for these covered CTG sources for the 2008 ozone standard; [ssquf] EPA is approving the incorporation of 25 Pa. Code Chapter 122 (relating to national standards of performance for new stationary sources) into the Pennsylvania SIP; [ssquf] EPA is disapproving PADEP's certification that 25 Pa. Code Chapter 122 continues to represent RACT for facilities subject to such standards of performance; and [ssquf] EPA is disapproving PADEP's incorporation of specific permit conditions from certain facilities for the purpose of establishing source-specific RACT-level controls for those facilities. For the August 13, 2018 SIP submittal, titled ``Control of Volatile Organic Compound Emissions from Industrial Cleaning Solvents; General Provisions; Aerospace Manufacturing and Rework; Additional RACT Requirements for Major Sources of NOX and VOCs.'' [ssquf] EPA is disapproving the addition of 25 Pa. Code 129.63a (relating to the control of VOC from industrial cleaning solvents (ICS)). [ssquf] EPA is disapproving the amendments to 25 Pa. Code sections 121.1 and 129.51. [ssquf] EPA is approving an administrative numbering correction to the VOC emission limit table in 25 Pa. Code section 129.73; and [ssquf] EPA is approving the amendments to 25 Pa. Code sections 129.96, 129.97, 129.99, and 129.100. In finalizing the disapproval, a sanctions clock under CAA section 179 begins. If EPA has not fully approved a revised plan within 18 months after this final disapproval, emission offset sanctions for new or modified sources will begin. If EPA has not approved a revised plan within six months thereafter, highway funding sanctions will apply in affected nonattainment areas.\10\ The sanctions clock can be stopped only if the conditions of EPA's regulations at 40 CFR 52.31 are met. Pursuant to CAA section 110(c)(1)(B), this final disapproval also initiates an obligation for EPA to promulgate a Federal implementation plan (FIP) within 24 months unless PADEP has submitted, and EPA has approved, a plan addressing the applicable RACT requirements. --------------------------------------------------------------------------- \10\ For the OTR states, such highway sanctions would only apply in nonattainment areas. If the OTR state does not contain any nonattainment areas, then the highway sanctions would not apply in that state. --------------------------------------------------------------------------- V. Incorporation by Reference In this document, EPA is finalizing regulatory text that includes incorporation by reference. In accordance with requirements of 1 CFR 51.5, and as discussed in sections II and IV of the preamble, EPA is reaffirming our prior final action for the incorporation by reference of 25 Pa. Code sections 122.1, 122.2, 122.3, 129.73, 129.96, 129.97, 129.99, and 129.100. These measures had been incorporated by reference into the SIP under a previous approval (85 FR 80625, December 14, 2020) and the Agency will retain them. EPA has made, and will continue to make, these materials generally available through www.regulations.gov and at EPA Region III Office (please contact the person identified in the FOR FURTHER INFORMATION CONTACT section of this preamble for more information). V. Statutory and Executive Order Reviews General Requirements Under the CAA, the Administrator is required to approve a SIP submission that complies with the provisions of the CAA and applicable Federal regulations. 42 U.S.C. 7410(k); 40 CFR 52.02(a). Thus, in reviewing SIP submissions, EPA's role is to approve state choices, [[Page 66602]] provided that they meet the criteria of the CAA. Accordingly, this final action partially disapproves state law as meeting Federal requirements and does not impose additional requirements beyond those imposed by state law. Additional information about these statutes and Executive Orders can be found at www.epa.gov/laws-regulations/laws-and-executive-orders. Executive Order 12898: Federal Actions To Address Environmental Justice in Minority Populations and Low-Income Population Executive Order 12898 (59 FR 7629, February 16, 1994) directs Federal agencies to identify and address ``disproportionately high and adverse human health or environmental effects'' of their actions on minority populations and low-income populations to the greatest extent practicable and permitted by law. EPA defines environmental justice (EJ) as ``the fair treatment and meaningful involvement of all people regardless of race, color, national origin, or income with respect to the development, implementation, and enforcement of environmental laws, regulations, and policies.'' EPA further defines the term fair treatment to mean that ``no group of people should bear a disproportionate burden of environmental harms and risks, including those resulting from the negative environmental consequences of industrial, governmental, and commercial operations or programs and policies.'' PADEP did not evaluate environmental justice considerations as part of their SIP submittals; the CAA and applicable implementing regulations neither prohibit nor require such an evaluation. EPA did not perform an EJ analysis and did not consider EJ in this action. Consideration of EJ is not required as part of this action, and there is no information in the record inconsistent with the stated goals of E.O. 12898 of achieving environmental justice for people of color, low- income populations, and indigenous peoples. Congressional Review Act (CRA) This action is subject to the CRA, and EPA will submit a rule report to each House of the Congress and to the Comptroller General of the United States. This action is not a ``major rule'' as defined by 5 U.S.C. 804(2). Petitions for Judicial Review Under section 307(b)(1) of the CAA, petitions for judicial review of this action must be filed in the United States Court of Appeals for the appropriate circuit by October 15, 2024. Filing a petition for reconsideration by the Administrator of this final rule does not affect the finality of this action for the purposes of judicial review nor does it extend the time within which a petition for judicial review may be filed, and shall not postpone the effectiveness of such rule or action. This partial approval and partial disapproval may not be challenged later in proceedings to enforce its requirements. (See section 307(b)(2).) List of Subjects in 40 CFR Part 52 Environmental protection, Air pollution control, Incorporation by reference, Intergovernmental relations, Nitrogen dioxide, Ozone, Reporting and recordkeeping requirements, Volatile organic compounds. Adam Ortiz, Regional Administrator, Region III. For the reasons stated in the preamble, EPA amends 40 CFR part 52 as follows: PART 52--APPROVAL AND PROMULGATION OF IMPLEMENTATION PLANS 0 1. The authority citation for part 52 continues to read as follows: Authority: 42 U.S.C. 7401 et seq. Subpart NN--Pennsylvania 0 2. In Sec. 52.2020: 0 a. The table in paragraph (c)(1) is amended: 0 i. Under ``Chapter 121--General Provisions'', by removing the third entry for ``Section 121.1''; 0 ii. Under ``Chapter 129--Standards for Sources'' by: 0 i. Revising the entry ``Section 129.51''; and 0 ii. Removing the entry ``Section 129.63a''; 0 b. The table in paragraph (d)(1) is amended by removing the entries for ``Donjon Shipbuilding'', ``Heartland Fabrication, LLC'', and ``Geo Speciality Chem Trimet Div''; and 0 c. The table in paragraph (e)(1) is amended by revising the entry ``Reasonably Available Control Technology (RACT) for the 2008 ozone national ambient air quality standard (NAAQS)''. The revisions read as follows: Sec. 52.2020 Identification of plan. * * * * * (c) * * * (1) * * * ---------------------------------------------------------------------------------------------------------------- State Additional State citation Title/subject effective EPA approval date explanation/Sec. date 52.20630 citation ---------------------------------------------------------------------------------------------------------------- Title 25--Environmental Protection Article III--Air Resources ---------------------------------------------------------------------------------------------------------------- * * * * * * * ---------------------------------------------------------------------------------------------------------------- Chapter 129--Standards for Sources ---------------------------------------------------------------------------------------------------------------- * * * * * * * Section 129.51.................. General................. 8/11/18 8/16/2024, [INSERT After FEDERAL REGISTER reconsideration CITATION]. of previous approval, removing references to Section 129.63a. * * * * * * * ---------------------------------------------------------------------------------------------------------------- * * * * * (e) * * * (1) * * * [[Page 66603]] ---------------------------------------------------------------------------------------------------------------- State Name of non-regulatory SIP Applicable geographic submittal EPA approval date Additional revision area date explanation ---------------------------------------------------------------------------------------------------------------- * * * * * * * Reasonably Available Control Statewide............... 8/13/18 8/16/2024, [INSERT After Technology (RACT) for the 2008 FEDERAL REGISTER reconsideration ozone national ambient air CITATION]. of previous quality standard (NAAQS). approval of CTG portion, EPA is now disapproving, with the exception of one negative declaration. * * * * * * * ---------------------------------------------------------------------------------------------------------------- * * * * * [FR Doc. 2024-18162 Filed 8-15-24; 8:45 am] BILLING CODE 6560-50-P

usgpo

2024-10-08T13:26:24.543638

FR

FR-2024-08-16/2024-17328

Federal Register Volume 89 Issue 159 (August 16, 2024)

United States National Archives and Records Administration Office of the Federal Register

[Federal Register Volume 89, Number 159 (Friday, August 16, 2024)] [Rules and Regulations] [Pages 66603-66607] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 2024-17328] ----------------------------------------------------------------------- ENVIRONMENTAL PROTECTION AGENCY 40 CFR Part 52 [EPA-HQ-OAR-2024-0168; FRL-11815-01-OAR] Findings of Failure To Submit State Implementation Plan Revisions for Nonattainment Areas for the 2010 1-Hour Primary Sulfur Dioxide National Ambient Air Quality Standard AGENCY: Environmental Protection Agency (EPA). ACTION: Final action. ----------------------------------------------------------------------- SUMMARY: The Environmental Protection Agency (EPA) is taking final action to find that four States failed to submit State Implementation Plan (SIP) revisions required by the Clean Air Act (CAA) in a timely manner for certain nonattainment areas for the 2010 1-hour sulfur dioxide (SO2) National Ambient Air Quality Standard (NAAQS). The States that failed to submit the required SIP revisions are Arizona, Louisiana, New York, and Virginia. This action triggers certain CAA deadlines for the imposition of sanctions if a State does not submit a complete SIP addressing the outstanding requirements and for the EPA to promulgate a Federal Implementation Plan (FIP) if the EPA does not approve the State's SIP revision addressing the outstanding requirements. DATES: This final action is effective on September 16, 2024. ADDRESSES: The EPA has established a docket for this action under Docket ID Number EPA-HQ-OAR-2024-0168. All documents in the docket are listed on the https://www.regulations.gov website. Although listed in the index, some information is not publicly available, e.g., confidential business information (CBI) or other information whose disclosure is restricted by statute. Certain other material, such as copyrighted material, is not placed on the internet and will be publicly available only in hard copy form. Publicly available docket materials are available electronically through https://www.regulations.gov. FOR FURTHER INFORMATION CONTACT: Angelina Brashear, Office of Air Quality Planning and Standards, Air Quality Policy Division (C539-01), U.S. Environmental Protection Agency, Research Triangle Park, NC; telephone number: (919) 541-4746; email address: [email protected]. SUPPLEMENTARY INFORMATION: I. General Information A. How is this Federal Register document organized? The information presented in this preamble is organized as follows: I. General Information A. How is this Federal Register document organized? B. Notice and Comment Under the Administrative Procedure Act (APA) C. Where can I get a copy of this document and other related information? D. Where do I go if I have specific State questions? II. Background III. Consequences of Findings of Failure To Submit IV. Findings of Failure To Submit for States That Failed To Make a Nonattainment Area SIP Submittal V. Statutory and Executive Order Reviews A. Executive Order 12866: Regulatory Planning and Review, Executive Order 13563: Improving Regulation and Regulatory Review, and Executive Order 14094: Modernizing Regulatory Review B. Paperwork Reduction Act (PRA) C. Regulatory Flexibility Act (RFA) D. Unfunded Mandates Reform Act of 1995 (UMRA) E. Executive Order 13132: Federalism F. Executive Order 13175: Consultation and Coordination With Indian Tribal Governments G. Executive Order 13045: Protection of Children From Environmental Health and Safety Risks H. Executive Order 13211: Actions That Significantly Affect Energy Supply, Distribution or Use I. National Technology Transfer and Advancement Act (NTTAA) J. Executive Order 12898: Federal Actions To Address Environmental Justice in Minority and Low Income Populations and Executive Order 14096: Revitalizing Our Nation's Commitment to Environmental Justice for All K. Congressional Review Act (CRA) L. Judicial Review B. Notice and Comment Under the Administrative Procedure Act (APA) Section 553 of the APA, 5 U.S.C. 553(b)(4)(B), provides that, when an agency for good cause finds that notice and public procedures are impracticable, unnecessary, or contrary to the public interest, the agency may issue a rule without providing notice and an opportunity for public comment. The EPA has determined that there is good cause for making this final agency action without prior proposal and opportunity for comment because no significant EPA judgment is involved in making findings of failure to submit SIPs, or elements of SIPs, required by the CAA, where States have made no submissions to meet the requirement. Thus, notice and public procedures are unnecessary to take this action. The EPA finds that this constitutes good cause under 5 U.S.C. 553(b)(4)(B). C. Where can I get a copy of this document and other related information? In addition to being available in the docket, an electronic copy of this Federal Register document will be posted at https://www.epa.gov/so2-pollution/2010-sulfur-dioxide-national-ambient-air-quality-standards-implementation-actions. D. Where do I go if I have specific State questions? For questions related to specific States mentioned in this document, please contact the appropriate EPA Regional office: [[Page 66604]] ------------------------------------------------------------------------ Regional offices States ------------------------------------------------------------------------ EPA Region 2: Mr. Kirk Wieber, Manager, Air New York. Program Branch, EPA Region 2, 290 Broadway, New York, New York 10007. [email protected]. EPA Region 3: Mr. David Talley, Acting Chief, Virginia. Planning and Implementation Branch, EPA Region 3, 1600 JFK Boulevard, Philadelphia, Pennsylvania 19103. [email protected]. EPA Region 6: Mr. Guy Donaldson, Manager, Louisiana. State Planning and Implementation Branch, EPA Region 6, 1201 Elm Street, Suite 500, Dallas, Texas 75270. [email protected]. EPA Region 9: Ms. Idalia Perez, Manager, Air Arizona. Planning Section, EPA Region 9, 75 Hawthorne Street, San Francisco, California 94105. [email protected]. ------------------------------------------------------------------------ II. Background In June 2010, the EPA (Environmental Protection Agency) promulgated a new 1-hour primary SO2 NAAQS of 75 parts per billion (ppb), which is met when the 3-year average of the annual 99th percentile of daily maximum 1-hour average concentrations does not exceed 75 ppb.\1\ Following promulgation of a new or revised NAAQS, the EPA is required to designate all areas of the country as either ``attainment,'' ``nonattainment,'' or ``unclassifiable'' (CAA section 107(d)(1)). In multiple separate rules,\2\ the EPA cumulatively designated 51 areas within 23 States and territories as nonattainment for the 2010 1-hour primary SO2 NAAQS. --------------------------------------------------------------------------- \1\ On June 2, 2010, the EPA signed the final rule title, ``Primary National Ambient Air Quality Standard for Sulfur Dioxide.'' 75 FR 35520 (June 22, 2010), codified at 40 CFR part 50.17. \2\ A series of rules designated nonattainment areas of the country for the 2010 SO2 NAAQS: Round 1 (78 FR 47191) on August 5, 2013; Round 2 (81 FR 45039) on July 12, 2016; Round 2 Supplement (81 FR 89870) on December 13, 2016; Round 3 (83 FR 1098) on January 9, 2018; Round 3 Supplement (83 FR 14597) on April 5, 2018; and Round 4 (86 FR 16055) on March 26, 2021. --------------------------------------------------------------------------- The CAA directs States containing an area designated nonattainment for the 2010 SO2 1-hour primary NAAQS to develop and submit a nonattainment area (NAA) SIP to the EPA within 18 months of the effective date of an area's designation as nonattainment. The nonattainment (NAA) SIP (also referred to as an attainment plan) must meet the requirements of subparts l and 5 of part D of Title I of the CAA, and provide for attainment of the NAAQS by the applicable statutory attainment date. All components of the SO2 part D NAA SIP, including the emissions inventory, attainment demonstration, reasonably available control measures (RACM) including reasonably available control technology (RACT), enforceable emission limitations and control measures, reasonable further progress (RFP) plan, nonattainment new source review (NNSR), and contingency measures, are due under CAA section 191(a) to the EPA within 18 months of the effective date of designation of an area. Under CAA section 192(a), these NAA SIPs must provide for attainment of the NAAQS as expeditiously as practicable, but no later than 3 years from the effective date of the nonattainment designation. Responsible State air agencies were required to prepare and submit to the EPA a NAA SIP revision within 18 months of the effective date of the nonattainment designation to bring the NAAs into attainment by the relevant attainment date. Pursuant to CAA section 110(k)(1)(B), the EPA must determine no later than 6 months after the date by which a State is required to submit a SIP whether a State has made a submission that meets the minimum completeness criteria established pursuant to CAA section 110(k)(1)(A). These criteria are set forth at 40 CFR part 51, appendix V. For those States that have not yet made a submittal that was complete with respect to the minimum completeness criteria for the 2010 1-hour primary SO2 NAAQS, the EPA is making a finding of failure to submit a complete SIP. On August 5, 2013, the EPA finalized its first-round designation of 29 areas as nonattainment for the 2010 SO2 NAAQS, effective October 4, 2013.\3\ This designation was based on air quality monitoring data from 2009-2011 and included the Miami, Arizona and St. Bernard Parish, Louisiana NAAs. Pursuant to CAA section 192(a), the Miami and St. Bernard Parish NAAs had until October 4, 2018--5 years after the effective date of the final action--to demonstrate attainment of the 2010 SO2 NAAQS. Both NAAs failed to attain the standard by this statutory deadline and as such, under CAA section 179(c) the EPA issued findings of failure to attain (FFA) for Miami, Arizona on January 31, 2022 \4\ and for St. Bernard Parish, Louisiana on October 5, 2022.\5\ These FFAs set a deadline for the responsible States to submit a revised SIP to the EPA within 1 year, under CAA section 179(d). The deadlines for the revised SIPs were January 31, 2023, for Miami, Arizona and October 5, 2023, for St. Bernard Parish, Louisiana. Neither Arizona nor Louisiana submitted a complete revised SIP addressing these areas by the appropriate deadline. --------------------------------------------------------------------------- \3\ 78 FR 47191. \4\ 87 FR 4805. \5\ 87 FR 60273. --------------------------------------------------------------------------- On March 26, 2021, the EPA finalized its fourth-round designation of 9 areas as nonattainment for the 2010 SO2 NAAQS, effective April 30, 2021.\6\ This Round 4 designation included St. Lawrence County (part), New York and Giles County (part), Virginia. Section 191 of the CAA directs States to submit SIPs for areas designated as nonattainment for the SO2 NAAQS to the EPA within 18 months of the effective date of the nonattainment designation, i.e., by no later than October 30, 2022, in this case. New York and Virginia failed to submit complete revised SIPs by this deadline. --------------------------------------------------------------------------- \6\ 86 FR 16055. --------------------------------------------------------------------------- Based on a review of SIP submittals received and deemed complete as of the date of this final action, the EPA is finding that the States listed in Table 1 have failed to submit specific required SIP elements. [[Page 66605]] Table 1--Findings of Failure To Submit Certain Required SIP Elements for the 2010 Sulfur Dioxide NAAQS ---------------------------------------------------------------------------------------------------------------- Required SIP Region State Area name elements * SIP revision due date ---------------------------------------------------------------------------------------------------------------- 2....................... NY St. Lawrence County Emissions October 30, 2022. (part) * *. Inventory. Attainment Demonstration.. RACM/RACT......... RFP............... NNSR.............. Contingency Measures.. 3....................... VA Giles County (part) Emissions October 30, 2022. **. Inventory. Attainment Demonstration.*** *. RACM/RACT......... RFP............... NNSR.............. Contingency Measures.. 6....................... LA St. Bernard Parish. Emissions October 5, 2023. Inventory. Attainment Demonstration.. RACM/RACT......... RFP............... NNSR.............. Contingency Measures.. 9....................... AZ Miami ***.......... Emissions January 31, 2023. Inventory. Attainment Demonstration.. RACM/RACT......... RFP............... NNSR.............. Contingency Measures.. ---------------------------------------------------------------------------------------------------------------- * Listed SIP elements are requirements of subparts l and 5 of part D, of Title I of the CAA, and provide for attainment of the NAAQS. Components of the SO2 part D NAA SIP include the emissions inventory, attainment demonstration, reasonably available control measures (RACM) including reasonably available control technology (RACT), enforceable emission limitations and control measures, reasonable further progress (RFP) plan, nonattainment new source review (NNSR), and contingency measures. ** The term ``part'' is used to indicate that only a portion of the county or counties is designated nonattainment. Area boundaries are described in 86 FR 16055 and codified at 40 CFR 81.333, 81.347, and 81.318 respectively for St. Lawrence County and Giles County *** Area boundaries are described in 78 FR at 47198 and codified at 40 CFR 81.303. **** The EPA's State Planning Electronic Collaboration System (SPeCS) incorrectly indicated that Virginia had submitted the attainment demonstration component of the attainment plan for the SO2 Giles County NAA. The EPA corrected the error on March 12, 2024, and SPeCS now shows that Virginia has not yet submitted any component of the attainment plan III. Consequences of Findings of Failure To Submit If the EPA finds that a State has failed to make the required SIP submittal or that a submitted SIP is incomplete, then CAA section 179(a) establishes specific consequences, after a period of time, including the imposition of mandatory sanctions for the affected area. Additionally, such a finding also triggers an obligation under CAA section 110(c) for the EPA to promulgate a FIP no later than 2 years after the finding of failure to submit if the affected State has not submitted, and the EPA has not approved, the required SIP submittal. If the EPA has not affirmatively determined that a State has made the required complete SIP submittal for an area within 18 months of the effective date of this action, then, pursuant to CAA section 179(a) and (b) and 40 CFR 52.31, the offset sanction identified in CAA section 179(b)(2) will apply in the affected nonattainment area. If the EPA has not affirmatively determined that the State has made a complete submission within 6 months after the offset sanction is imposed, then the highway funding sanction will apply in the affected nonattainment area, in accordance with CAA section 179(b)(1) and 40 CFR 52.31. The sanctions will not take effect if, within 18 months after the date of these findings, the EPA affirmatively determines that the affected State has made a complete SIP submittal addressing the deficiency for which the finding was made. Additionally, if the State makes the required SIP submittal and the EPA takes final action to approve the submittal within 2 years of the effective date of these findings, the EPA is not required to promulgate a FIP for the affected nonattainment area. IV. Findings of Failure To Submit for States That Failed To Make a Nonattainment Area SIP Submittal Based on a review of SIP submittals received and deemed complete as of the date of signature of this action, the EPA finds that the States listed in Table 1 failed to submit the indicated SIP elements required under part D of Title I of the CAA within 18 months of their associated effective dates of designation. The EPA is, therefore, issuing a finding of failure to submit for the required SIP elements listed in Table 1 of this action. The effective date of this finding starts the 18-month emission offset sanctions clock, the 24-month highway funding sanctions clock, and a 24-month clock for the EPA to promulgate a FIP. V. Statutory and Executive Order Reviews Additional information about these statutes and Executive Orders (``E.O.'') can be found at https://www.epa.gov/laws-regulations/laws-and-executive-orders. A. Executive Order 12866: Regulatory Planning and Review, Executive Order 13563: Improving Regulation and Regulatory Review, and Executive Order 14094: Modernizing Regulatory Review This action is not a significant regulatory action as defined in Executive Order 12866, as amended by Executive Order 14094, and was therefore not subject to a requirement for Executive Order 12866 review. B. Paperwork Reduction Act (PRA) This action does not impose an information collection burden under the provisions of the Paperwork Reduction Act (44 U.S.C. 3501 et seq.). This final rule does not establish any new information collection requirement [[Page 66606]] apart from what is already required by law. This action relates to the requirement in the CAA for States to submit SIPs under CAA sections 172, 191, and 192 that address the requirements that apply to areas designated as nonattainment for the SO2 NAAQS. C. Regulatory Flexibility Act (RFA) I certify that this action will not have a significant economic impact on a substantial number of small entities under the RFA. This action will not impose any requirements on small entities. This action is a finding that the named States have not made the necessary SIP submissions for certain nonattainment areas to meet the requirements of part D of Title I of the CAA. D. Unfunded Mandates Reform Act of 1995 (UMRA) This action does not contain an unfunded mandate of $100 million or more as described in UMRA (2 U.S.C. 1531-1538) and does not significantly or uniquely affect small governments. The action imposes no new enforceable duty on any State, local, or Tribal governments or the private sector. E. Executive Order 13132: Federalism This action does not have federalism implications. It 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. F. Executive Order 13175: Consultation and Coordination With Indian Tribal Governments This action does not have Tribal implications as specified in Executive Order 13175. This action finds that several States failed to submit SIP revisions that satisfy the nonattainment area planning requirements under sections 172, 191, and 192 of the CAA. No Tribe is subject to the requirement to submit an implementation plan under section 172, 191, and 192 of the CAA. Thus, Executive Order 13175 does not apply to this action. G. Executive Order 13045: Protection of Children From Environmental Health Risks and Safety Risks The EPA interprets Executive Order 13045 as applying only to those regulatory actions that concern health or safety risks that the EPA has reason to believe may disproportionately affect children, per the definition of ``covered regulatory action'' in section 2-202 of the Executive order. This action is not subject to Executive Order 13045 because it is a finding that several States failed to submit required SIP revisions that satisfy the nonattainment area planning requirements under sections 172, 191, and 192 of the CAA and does not concern an environmental health risk or safety risk. H. Executive Order 13211: Actions That Significantly Affect Energy Supply, Distribution or Use This action is not subject to Executive Order 13211 because it is not a significant regulatory action under Executive Order 12866. I. National Technology Transfer and Advancement Act (NTTAA) This action does not involve technical standards. J. Executive Order 12898: Federal Actions To Address Environmental Justice in Minority Populations and Low-Income Populations and Executive Order 14096: Revitalizing Our Nation's Commitment to Environmental Justice for All Executive Order 12898 (59 FR 7629, Feb. 16, 1994) directs Federal agencies to identify and address ``disproportionately high and adverse human health or environmental effects'' of their actions on minority populations and low-income populations to the greatest extent practicable and permitted by law. Executive Order 14096 (88 FR 25251, April 26, 2023) directs the Federal Government to build upon and strengthen its commitment to deliver environmental justice to all communities across the country through an approach that is informed by scientific research, high-quality data, and meaningful Federal engagement with communities experiencing environmental justice concerns. The EPA believes that the human health or environmental conditions that exist prior to this action have the potential to result in disproportionate and adverse human health or environmental effects on communities with environmental justice concerns. The EPA believes that this action is not likely to change existing disproportionate and adverse effects on communities with environmental justice concerns. The areas impacted by this action are designated as nonattainment for the 2010 1-hour primary SO2 NAAQS and this action is intended to comply with the CAA program to ensure attainment and maintenance of the NAAQS. From a programmatic perspective, this action is intended to ensure that affected air agencies comply with CAA obligations for the applicable nonattainment areas. The EPA did not perform an EJ analysis and did not consider EJ in this action. In this action, the EPA is performing a nondiscretionary duty to find that required State submissions were not timely. There is not an alternative action that can be taken by the EPA to this action and thus, these determinations are not informed by additional EJ related analyses. Further, there is no information in the record inconsistent with the stated goals of Executive Orders 12898 or 14096 of achieving environmental justice for people of color, low-income populations, and indigenous peoples. K. Congressional Review Act (CRA) This action is subject to the CRA, and the EPA will submit a rule report to each House of the Congress and to the Comptroller General of the United States. This action is not a ``major rule'' as defined by 5 U.S.C. 804(2). L. Determinations Under CAA Section 307(b)(1) Section 307(b)(1) of the CAA governs judicial review of final actions by the EPA. This section provides, in part, that petitions for review must be filed in the United States Court of Appeals for the District of Columbia Circuit if (i) the agency action consists of ``nationally applicable regulations promulgated, or final action taken, by the Administrator,'' or (ii) such action is locally or regionally applicable, but ``such action is based on a determination of nationwide scope or effect and if in taking such action the Administrator finds and publishes that such action is based on such a determination.'' This final action is ``nationally applicable'' within the meaning of CAA section 307(b)(1). This final action consists of findings of failure to submit required SIPs for four areas designated nonattainment for the 2010 primary 1-hour SO2 NAAQS, which are located in four States in four of the 10 EPA Regions and in four different federal judicial circuits. This final action is also based on a common core of factual findings concerning the receipt and completeness of the relevant SIP submittals. Accordingly, under section 307(b)(1) of the CAA, petitions for judicial review of this action must be filed in the United States Court of Appeals for the District of Columbia Circuit by October 15, 2024. [[Page 66607]] List of Subjects in 40 CFR Part 52 Environmental protection, Administrative practice and procedures, Air pollution control, Approval and promulgation of implementation plans, Incorporation by reference, Intergovernmental relations, Reporting and recordkeeping requirements, Sulfur Oxides. Joseph Goffman, Assistant Administrator. [FR Doc. 2024-17328 Filed 8-15-24; 8:45 am] BILLING CODE 6560-50-P

usgpo

2024-10-08T13:26:24.597017

FR

FR-2024-08-16/2024-17991

Federal Register Volume 89 Issue 159 (August 16, 2024)

United States National Archives and Records Administration Office of the Federal Register

[Federal Register Volume 89, Number 159 (Friday, August 16, 2024)] [Rules and Regulations] [Pages 66607-66609] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 2024-17991] ----------------------------------------------------------------------- ENVIRONMENTAL PROTECTION AGENCY 40 CFR Part 52 [EPA-R05-OAR-2023-0190; FRL-12117-02-R5] Air Plan Approval; Indiana; Ozone SIP Modifications Due to the Municipal Solid Waste Landfill Update AGENCY: Environmental Protection Agency (EPA). ACTION: Direct final rule. ----------------------------------------------------------------------- SUMMARY: The Environmental Protection Agency (EPA) is approving the Indiana Department of Environmental Management's (IDEM) request to repeal and replace portions of the Indiana Administrative Code (IAC) for Lake, Porter, Clark, and Floyd Counties in Indiana. This new regulation includes Federal updates to municipal solid waste landfill rules with the incorporation by reference of the Federal plan for Municipal Solid Waste Landfills. EPA finds that this action is approvable because it is consistent with the EPA's Emission Guidelines for Municipal Solid Waste Landfills and is a SIP strengthening measure. DATES: This direct final rule will be effective October 15, 2024, unless EPA receives adverse comments by September 16, 2024. If adverse comments are received, EPA will publish a timely withdrawal of the direct final rule in the Federal Register informing the public that the rule will not take effect. ADDRESSES: Submit your comments, identified by Docket ID No. EPA-R05- OAR-2023-0190 at https://www.regulations.gov, or via email to [email protected]. For comments submitted at https://www.regulations.gov, follow the online instructions for submitting comments. Once submitted, comments cannot be edited or removed from the docket. EPA may publish any comment received to its public docket. Do not submit electronically any information you consider to be Confidential Business Information (CBI), Proprietary Business Information (PBI), or other information whose disclosure is restricted by statute. Multimedia submissions (audio, video, etc.) must be accompanied by a written comment. The written comment is considered the official comment and should include discussion of all points you wish to make. EPA will generally not consider comments or comment contents located outside of the primary submission (i.e. on the web, cloud, or other file sharing system). For additional submission methods, please contact the person identified in the FOR FURTHER INFORMATION CONTACT section. For the full EPA public comment policy, information about CBI, PBI, or multimedia submissions, and general guidance on making effective comments, please visit https://www.epa.gov/dockets/commenting-epa-dockets. FOR FURTHER INFORMATION CONTACT: Katie Mullen, Air and Radiation Division (AR18J), Environmental Protection Agency, Region 5, 77 West Jackson Boulevard, Chicago, Illinois 60604, (312) 353-3490, [email protected]. The EPA Region 5 office is open from 8:30 a.m. to 4:30 p.m., Monday through Friday, excluding Federal holidays. SUPPLEMENTARY INFORMATION: Throughout this document whenever ``we,'' ``us,'' or ``our'' is used, we mean EPA. I. What is the background of this SIP submission? Municipal solid waste landfills (MSWLFs) are discrete areas of land or excavation that receive household waste or other types of nonhazardous wastes such as commercial solid waste, nonhazardous sludge, and industrial nonhazardous solid waste. The original New Source Performance Standards (NSPS) (40 CFR part 60, subpart WWW) for MSWLFs and Emission Guidelines (40 CFR part 60, subpart Cc) for existing MSWLFs were promulgated by EPA on March 12, 1996 (61 FR 9905), based on the determination that MSWLFs cause or significantly contribute to air pollution that is considered to endanger public health and welfare. 326 IAC 8-8 implements the Federal 1996 Emission Guidelines and applies to landfills located in Lake, Porter, Clark, and Floyd counties. On January 17, 1997, EPA approved 326 IAC 8-8 into Indiana's SIP to address volatile organic compound (VOC) emission reductions for the nonattainment counties under the 1-hour ozone National Ambient Air Quality Standard (NAAQS). Specifically, 326 IAC 8-8 addresses Indiana's 15% Rate of Progress Plan to control VOC emissions in Clark and Floyd Counties and is included in the VOC contingency plans for Lake and Porter Counties (January 17, 1997, 62 FR 2591). On August 29, 2016, EPA revised the MSWLF NSPS and Emission Guidelines in 40 CFR part 60, subparts XXX and Cf, respectively (81 FR 59332; 81 FR 59276). The 2016 Emission Guidelines revision updates the control requirements and monitoring, reporting, and recordkeeping provisions for existing MSWLF sources. In particular, the 2016 Emissions Guidelines implement changes to existing landfills that lower the emissions threshold of non-methane organic compounds (which include VOCs), at which an operator must install controls. On May 21, 2021, EPA promulgated 40 CFR part 62, subpart OOO as the Federal plan for existing landfills (86 FR 27770). Indiana promulgated 326 IAC 8-8.2 to incorporate by reference the Federal plan to use as the underlying rule which implements and enforces the applicable provisions under the MSWLF 2016 Emission Guidelines in 40 CFR part 60, subpart Cf. Consequently, MSWLFs in Indiana are subject to both 326 IAC 8-8 and the Federal plan for existing landfills if EPA does not repeal 326 IAC 8-8 and replace it with rule 326 IAC 8-8.2. II. What is EPA's analysis of the SIP revision 326 IAC 8-8.2 includes Federal updates to MSWLF rules with the incorporation by reference of the Federal plan for MSWLFs at 40 CFR part 62, subpart OOO. The Federal plan implements and enforces the 2016 MSWLF Emission Guidelines, codified in 40 CFR part 60, subpart Cf. The updated 2016 Emission Guidelines apply to landfills constructed, modified, or reconstructed on or before July 17, 2014. These Emission Guidelines achieve additional emissions reductions of landfill gas and its components, including VOCs, by lowering the emissions threshold at which a landfill must install controls. In particular, the 2016 Emission Guidelines are more stringent since they require affected landfills to install and operate gas collection control systems within 30 months after landfill gas emissions reach a new, lower threshold of 34 metric tons of non-methane organic compounds, which includes VOCs, or more per year. This threshold previously was higher at 50 metric tons per year in the 1996 Emission [[Page 66608]] Guidelines, which is incorporated in 326 IAC 8-8. In addition, the 2016 Emission Guidelines address other regulatory issues, including surface emissions monitoring, wellhead monitoring, and the definition of landfill gas treatment system. Since 326 IAC 8-8.2 is more stringent than 326 IAC 8-8 and reflects EPA's most recent Federal rulemaking on MSWLFs, EPA approves this regulation to replace 326 IAC 8-8. III. What action is EPA taking? EPA is approving 326 IAC 8-8.2 for Lake, Porter, Clark, and Floyd Counties in Indiana and the repeal of 326 IAC 8-8 for those same counties. EPA is approving 326 IAC 8-8.2 as a VOC SIP strengthening measure. We are publishing this action without prior proposal because we view this as a noncontroversial amendment and anticipate no adverse comments. However, in the proposed rules section of this Federal Register publication, we are publishing a separate document that will serve as the proposal to approve the State plan if relevant adverse written comments are filed. This rule will be effective October 15, 2024 without further notice unless we receive relevant adverse written comments by September 16, 2024. If we receive such comments, we will withdraw this action before the effective date by publishing a subsequent document that will withdraw the final action. All public comments received will then be addressed in a subsequent final rule based on the proposed action. EPA will not institute a second comment period. Any parties interested in commenting on this action should do so at this time. Please note that if EPA receives adverse comment on an amendment, paragraph, or section of this rule and if that provision may be severed from the remainder of the rule, EPA may adopt as final those provisions of the rule that are not the subject of an adverse comment. If we do not receive any comments, this action will be effective October 15, 2024. IV. Incorporation by Reference In this rule, EPA is finalizing regulatory text that includes incorporation by reference. In accordance with requirements of 1 CFR 51.5, EPA is finalizing the incorporation by reference of the Indiana Regulations 326 IAC 8-8.2 effective March 10, 2023, described in section II of this preamble and set forth in the amendments to 40 CFR part 52 below. EPA has made, and will continue to make, these documents generally available through www.regulations.gov and at the EPA Region 5 Office (please contact the person identified in the FOR FURTHER INFORMATION CONTACT section of this preamble for more information). Therefore, these materials have been approved by EPA for inclusion in the SIP, have been incorporated by reference by EPA into that plan, are fully federally enforceable under sections 110 and 113 of the CAA as of the effective date of the final rulemaking of EPA's approval, and will be incorporated by reference in the next update to the SIP compilation.\1\ Also in this document, as described in Section II of this preamble and the amendments to 40 CFR part 52 set forth below, EPA is removing provisions of the EPA-Approved Indiana Regulations from the Indiana SIP, which is incorporated by reference in accordance with the requirements of 1 CFR part 51. V. Statutory and Executive Order Reviews Under the Clean Air Act, the Administrator is required to approve a SIP submission that complies with the provisions of the Clean Air Act and applicable Federal regulations. 42 U.S.C. 7410(k); 40 CFR 52.02(a). Thus, in reviewing SIP submissions, EPA's role is to approve State choices, provided that they meet the criteria of the Clean Air Act. Accordingly, this action merely approves State law as meeting Federal requirements and does not impose additional requirements beyond those imposed by State law. For that reason, this action: Is not a significant regulatory action subject to review by the Office of Management and Budget under Executive Orders 12866 (58 FR 51735, October 4, 1993), and 14094 (88 FR 21879, April 11, 2023); Does not impose an information collection burden under the provisions of the Paperwork Reduction Act (44 U.S.C. 3501 et seq.); Is certified as not having a significant economic impact on a substantial number of small entities under the Regulatory Flexibility Act (5 U.S.C. 601 et seq.); Does not contain any unfunded mandate or significantly or uniquely affect small governments, as described in the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4); Does not have federalism implications as specified in Executive Order 13132 (64 FR 43255, August 10, 1999); Is not subject to Executive Order 13045 (62 FR 19885, April 23, 1997) because it approves a State program; Is not a significant regulatory action subject to Executive Order 13211 (66 FR 28355, May 22, 2001); and Is not subject to requirements of section 12(d) of the National Technology Transfer and Advancement Act of 1995 (15 U.S.C. 272 note) because application of those requirements would be inconsistent with the Clean Air Act. In addition, the SIP is not approved to apply on any Indian reservation land or in any other area where EPA or an Indian Tribe has demonstrated that a Tribe has jurisdiction. In those areas of Indian country, the rule does not have Tribal implications and will not impose substantial direct costs on Tribal governments or preempt Tribal law as specified by Executive Order 13175 (65 FR 67249, November 9, 2000). Executive Order 12898 (Federal Actions to Address Environmental Justice in Minority Populations and Low-Income Populations, 59 FR 7629, February 16, 1994) directs Federal agencies to identify and address ``disproportionately high and adverse human health or environmental effects'' of their actions on minority populations and low-income populations to the greatest extent practicable and permitted by law. EPA defines environmental justice (EJ) as ``the fair treatment and meaningful involvement of all people regardless of race, color, national origin, or income with respect to the development, implementation, and enforcement of environmental laws, regulations, and policies.'' EPA further defines the term fair treatment to mean that ``no group of people should bear a disproportionate burden of environmental harms and risks, including those resulting from the negative environmental consequences of industrial, governmental, and commercial operations or programs and policies.'' IDEM did not evaluate EJ considerations as part of its SIP submittal; the CAA and applicable implementing regulations neither prohibit nor require such an evaluation. EPA did not perform an EJ analysis and did not consider EJ in this action. Due to the nature of the action being taken here, this action is expected to have a neutral to positive impact on the air quality of the affected area. Consideration of EJ is not required as part of this action, and there is no information in the record inconsistent with the stated goal of E.O. 12898 of achieving EJ for people of color, low-income populations, and Indigenous peoples. [[Page 66609]] List of Subjects in 40 CFR Part 52 Environmental protection, Air pollution control, Incorporation by reference, Intergovernmental relations, Ozone, Volatile organic compounds. Dated: August 7, 2024. Debra Shore, Regional Administrator, Region 5. For the reasons stated in the preamble, title 40 CFR part 52 is amended as follows: PART 52--APPROVAL AND PROMULGATION OF IMPLEMENTATION PLANS 0 1. The authority citation for part 52 continues to read as follows: Authority: 42 U.S.C. 7401 et seq. 0 2. In Sec. 52.770, the table in paragraph (c) is amended under ``Article 8. Volatile Organic Compound Rules'' by removing the entry ``Rule 8. Municipal Solid Waste Landfills Located in Clark, Floyd, Lake, and Porter Counties:'' and adding in numerical order the entry ``Rule 8.2. Federal Standards Applicable to Certain Municipal Solid Waste Landfills'' to read as follows: Sec. 52.770 Identification of plan. * * * * * (c) * * * EPA Approved Indiana Regulations ---------------------------------------------------------------------------------------------------------------- Indiana Indiana citation Subject effective EPA approval date Notes date ---------------------------------------------------------------------------------------------------------------- * * * * * * * ---------------------------------------------------------------------------------------------------------------- Article 8. Volatile Organic Compound Rules ---------------------------------------------------------------------------------------------------------------- * * * * * * * ---------------------------------------------------------------------------------------------------------------- Rule 8.2. Federal Standards Applicable to Certain Municipal Solid Waste Landfill ---------------------------------------------------------------------------------------------------------------- 8-8.2...................... Adoption of federal 12/8/2021 8/16/2024, [INSERT FIRST .................. standards applicable to PAGE OF FEDERAL certain municipal solid REGISTER CITATION]. waste landfills. * * * * * * * ---------------------------------------------------------------------------------------------------------------- * * * * * [FR Doc. 2024-17991 Filed 8-15-24; 8:45 am] BILLING CODE 6560-50-P

usgpo

2024-10-08T13:26:24.642462

FR

FR-2024-08-16/2024-17672

Federal Register Volume 89 Issue 159 (August 16, 2024)

United States National Archives and Records Administration Office of the Federal Register

[Federal Register Volume 89, Number 159 (Friday, August 16, 2024)] [Rules and Regulations] [Pages 66609-66612] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 2024-17672] ----------------------------------------------------------------------- ENVIRONMENTAL PROTECTION AGENCY 40 CFR Parts 52 and 70 [EPA-R07-OAR-2024-0025; FRL-11676-02-R7] Air Plan Approval; Nebraska; Revisions to Title 129 of the Nebraska Administrative Code; Nebraska Air Quality Regulations AGENCY: Environmental Protection Agency (EPA). ACTION: Final rule. ----------------------------------------------------------------------- SUMMARY: The Environmental Protection Agency (EPA) is taking final action to approve a revision to the State Implementation Plan (SIP), Operating Permits Program, and 112(l) Plan for the State of Nebraska. This final action will amend the SIP to revise Nebraska air quality regulations and will add specific definitions from a Nebraska statute. These changes include new and renumbered rules, the consolidation of 43 chapters into 16 chapters, replacement of duplicative language with references to state statute and federal regulation, revisions to reflect changes to state and federal law, and other changes to state regulations. The EPA's approval of this rule revision is in accordance with the requirements of the Clean Air Act (CAA). DATES: This final rule is effective on September 16, 2024. ADDRESSES: The EPA has established a docket for this action under Docket ID No. EPA-R07-OAR-2024-0025. All documents in the docket are listed on the https://www.regulations.gov website. Although listed in the index, some information is not publicly available, i.e., Confidential Business Information (CBI) or other information whose disclosure is restricted by statute. Certain other material, such as copyrighted material, is not placed on the internet and will be publicly available only in hard copy form. Publicly available docket materials are available through https://www.regulations.gov or please contact the person identified in the FOR FURTHER INFORMATION CONTACT section for additional information. FOR FURTHER INFORMATION CONTACT: William Stone, Environmental Protection Agency, Region 7 Office, Air Permitting and Planning Branch, 11201 Renner Boulevard, Lenexa, Kansas 66219; telephone number: (913) 551-7714; email address: [email protected]. SUPPLEMENTARY INFORMATION: Throughout this document ``we,'' ``us,'' and ``our'' refer to EPA. Table of Contents I. What is being addressed in this document? II. Have the requirements for approval of a SIP revision been met? III. The EPA's Response to Comments IV. What action is the EPA taking? V. Incorporation by Reference VI. Statutory and Executive Order Reviews I. What is being addressed in this document? The EPA is amending Nebraska's SIP and Operating Permits Program to include revisions to title 129 of the Nebraska Administrative Code and to add specific definitions from Nebraska Revised Statute 81-1502. The EPA is approving revisions to the Nebraska SIP received on December 2, 2022. The revisions are to Title 129--Nebraska Air Quality Regulations and include specific definitions from Nebraska Revised Statute 81-1502. These changes include new and renumbered rules, the consolidation of 43 chapters into 16 chapters, replacement of duplicative language with references to state statute and federal regulation, approval of specific definitions in state statute, revisions to reflect changes to state and federal law, and other changes to state regulations. [[Page 66610]] II. Have the requirements for approval of a SIP revision been met? The State's submission has met the public notice requirements for SIP submissions in accordance with 40 CFR 51.102. The submission also satisfied the completeness criteria of 40 CFR part 51, appendix V. The State provided public notice on this SIP revision from February 23, 2022 to March 29, 2022, and held a public hearing on March 30, 2022 and received no comments. In addition, as explained above and in more detail in the TSD which is part of this docket, the revision meets the substantive SIP requirements of the CAA, including CAA section 110 and implementing regulations. III. The EPA's Response to Comments The public comment period on the EPA's proposed rule opened June 3, 2024, the date of its publication in the Federal Register, and closed on July 3, 2024 (89 FR 47504). During this period, EPA received one comment. The comment did not identify a specific issue that was germane to our proposed rule. The comment can be found in the docket for this action. IV. What action is the EPA taking? We are amending the Nebraska SIP and Operating Permit Program by approving the State's request to revise Title 129--Nebraska Air Quality Regulations and certain definitions in Nebraska Revised Statute 81- 1502. V. Incorporation by Reference In this document, the EPA is finalizing regulatory text that includes incorporation by reference. In accordance with requirements of 1 CFR 51.5, the EPA is finalizing the incorporation by reference of the Nebraska rules: Chapter 1--General Provisions; Definitions, which provides general provisions and definitions for air quality regulations; Chapter 2--Nebraska Air Quality Standards, which lists the ambient air quality standards; Chapter 3--Construction Permits, which regulates air construction permitting in Nebraska; Chapter 4--Prevention Of Significant Deterioration of Air Quality (PSD) which regulates PSD permitting in Nebraska; Chapter 6--Operating Permits which regulates air operating permitting in Nebraska; Chapter 7--General Permits which regulates air general permitting in Nebraska; Chapter 8--Permits-By-Rule which regulates air permit-by- rule permitting in Nebraska; Chapter 9--Permit Revisions; Reopening For Cause which regulates air permit revisions in Nebraska; Chapter 10--Permits--Public Participation which regulates public notice requirements for air permitting in Nebraska; Chapter 11--Emissions Reporting, When Required which regulates air emissions inventory in Nebraska; Chapter 14--Incinerators, Emission Standards which regulates emissions from incinerators in Nebraska; Chapter 15--Compliance which regulates compliance with air regulations in Nebraska; Chapter 16--Sulfur Compound and Nitrogen Oxides Emissions Standards which regulates emissions of sulfur dioxide and nitrogen oxides in Nebraska; Appendix I--Hazardous Air Pollutants Sorted by CAS Number which lists the hazardous air pollutants; Appendix II--Air Pollution Emergency Episodes which explains Nebraska's emergency episode procedures; and Nebraska Revised Statute 81-1502--Terms, Defined which contains definitions for Nebraska's air quality regulations. The state effective date of these rules is September 28, 2022. The state effective date of Nebraska Revised Statute 81-1502 is March 21, 2019. The EPA has made, and will continue to make, these materials generally available through https://www.regulations.gov and at the EPA Region 7 Office (please contact the person identified in the FOR FURTHER INFORMATION CONTACT section of this preamble for more information). Also, in this document, as described in the amendments to 40 CFR part 52 set forth below, EPA is removing provisions of the EPA-Approved Nebraska Regulations and Statutes from the Nebraska State Implementation Plan, which is incorporated by reference in accordance with the requirements of 1 CFR part 51. VI. Statutory and Executive Order Reviews Under the CAA, the Administrator is required to approve a SIP submission that complies with the provisions of the CAA and applicable Federal regulations. 42 U.S.C. 7410(k); 40 CFR 52.02(a). Thus, in reviewing SIP submissions, EPA's role is to approve state choices, provided that they meet the criteria of the CAA. Accordingly, this action merely approves state law as meeting Federal requirements and does not impose additional requirements beyond those imposed by state law. For that reason, this action: Is not a significant regulatory action subject to review by the Office of Management and Budget under Executive Orders 12866 (58 FR 51735, October 4, 1993) and 14094 (88 FR 21879, April 11, 2023); Does not impose an information collection burden under the provisions of the Paperwork Reduction Act (44 U.S.C. 3501 et seq.); Is certified as not having a significant economic impact on a substantial number of small entities under the Regulatory Flexibility Act (5 U.S.C. 601 et seq.); Does not contain any unfunded mandate or significantly or uniquely affect small governments, as described in the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4); Does not have federalism implications as specified in Executive Order 13132 (64 FR 43255, August 10, 1999); Is not subject to Executive Order 13045 (62 FR 19885, April 23, 1997) because it approves a state program; Is not a significant regulatory action subject to Executive Order 13211 (66 FR 28355, May 22, 2001); and Is not subject to requirements of section 12(d) of the National Technology Transfer and Advancement Act of 1995 (15 U.S.C. 272 note) because application of those requirements would be inconsistent with the CAA. In addition, the SIP is not approved to apply on any Indian reservation land or in any other area where EPA or an Indian tribe has demonstrated that a tribe has jurisdiction. In those areas of Indian country, the rule does not have tribal implications and will not impose substantial direct costs on tribal governments or preempt tribal law as specified by Executive Order 13175 (65 FR 67249, November 9, 2000). Executive Order 12898 (Federal Actions To Address Environmental Justice in Minority Populations and Low-Income Populations, 59 FR 7629, February 16, 1994) directs Federal agencies to identify and address ``disproportionately high and adverse human health or environmental effects'' of their actions on minority populations and low-income populations to the greatest extent practicable and permitted by law. EPA defines environmental justice (EJ) as ``the fair treatment and meaningful involvement of all people regardless of race, color, national origin, or income with respect to the development, implementation, and enforcement of environmental laws, [[Page 66611]] regulations, and policies.'' EPA further defines the term fair treatment to mean that ``no group of people should bear a disproportionate burden of environmental harms and risks, including those resulting from the negative environmental consequences of industrial, governmental, and commercial operations or programs and policies.'' The Department of Environment and Energy did not evaluate environmental justice considerations as part of its SIP submittal; the CAA and applicable implementing regulations neither prohibit nor require such an evaluation. EPA did not perform an EJ analysis and did not consider EJ in this action. Consideration of EJ is not required as part of this action, and there is no information in the record inconsistent with the stated goal of E.O. 12898 of achieving environmental justice for people of color, low-income populations, and Indigenous peoples. This action is subject to the Congressional Review Act, and EPA will submit a rule report to each House of the Congress and to the Comptroller General of the United States. This action is not a ``major rule'' as defined by 5 U.S.C. 804(2). Under section 307(b)(1) of the CAA, petitions for judicial review of this action must be filed in the United States Court of Appeals for the appropriate circuit by October 15, 2024. Filing a petition for reconsideration by the Administrator of this final rule does not affect the finality of this action for the purposes of judicial review nor does it extend the time within which a petition for judicial review may be filed, and shall not postpone the effectiveness of such rule or action. This action may not be challenged later in proceedings to enforce its requirements (see section 307(b)(2)). List of Subjects 40 CFR Part 52 Environmental protection, Air pollution control, Incorporation by reference, Intergovernmental relations, Particulate matter, Reporting and recordkeeping requirements, Volatile organic compounds. 40 CFR Part 70 Environmental protection, Administrative practice and procedure, Air pollution control, Intergovernmental relations, Operating permits, Reporting and recordkeeping requirements. Dated: August 5, 2024. Meghan A. McCollister, Regional Administrator, Region 7. For the reasons stated in the preamble, the EPA amends 40 CFR parts 52 and 70 as set forth below: PART 52--APPROVAL AND PROMULGATION OF IMPLEMENTATION PLANS 0 1. The authority citation for part 52 continues to read as follows: Authority: 42 U.S.C. 7401 et seq. Subpart CC--Nebraska 0 2. In Sec. 52.1420, in the table in paragraph (c): 0 a. Revise the center heading ``Department of Environmental Quality'' to read ``Department of Environment and Energy''. 0 b. Revise the entries ``129-1'', ``129-2'', ``129-3'', and ``129-4''; 0 c. Remove the entry ``129-5''; 0 d. Revise the entries ``129-6'', ``129-7'', ``129-8'', ``129-9'', ``129-10'', and ``129-11''; 0 e. Remove the entries ``129-12'' and ``129-13''; 0 f. Revise the entries ``129-14'', ``129-15'', and ``129-16''; 0 g. Remove the entries ``129-17'', ``129-19'', ``129-20'', ``129-21'', ``129-22'', ``129-24'', ``129-25'', ``129-30'', ``129-32'', ``129-33'', ``129-34'', ``129-35'', ``129-36'', ``129-37'', ``129-38'', ``129-41'', ``129-42'', ``129-43'', and ``129-44''; 0 h. Revise the entries ``Appendix I'' and ``Appendix II''; and i. Add the center heading ``Nebraska Revised Statute 81-1502 Terms Defined'' and the entry ``1502'' after the entry ``115-3''. The revisions and additions read as follows: Sec. 52.1420 Identification of plan. * * * * * (c) * * * EPA-Approved Nebraska Regulations ---------------------------------------------------------------------------------------------------------------- State Nebraska citation Title effective EPA approval date Explanation date ---------------------------------------------------------------------------------------------------------------- STATE OF NEBRASKA ---------------------------------------------------------------------------------------------------------------- Department of Environment and Energy Title 129--Nebraska Air Quality Regulations ---------------------------------------------------------------------------------------------------------------- 129-1......................... General Provisions; 9/28/2022 8/16/2024, [insert Definitions. Federal Register citation]. 129-2......................... Nebraska Air Quality 9/28/2022 8/16/2024, [insert Section 002 total Standards. Federal Register reduced sulfur (TRS) citation]. is not approved into the SIP. 129-3......................... Construction Permits. 9/28/2022 8/16/2024, [insert Federal Register citation]. 129-4......................... Prevention of 9/28/2022 8/16/2024, [insert Significant Federal Register Deterioration (PSD). citation]. 129-6......................... Operating Permits.... 9/28/2022 8/16/2024, [insert Federal Register citation]. 129-7......................... General Permits...... 9/28/2022 8/16/2024, [insert Federal Register citation]. 129-8......................... Permits-By-Rule...... 9/28/2022 8/16/2024, [insert Federal Register citation]. 129-9......................... Permit Revisions; 9/28/2022 8/16/2024, [insert Reopening For Cause. Federal Register citation]. 129-10........................ Permits--Public 9/28/2022 8/16/2024, [insert Participation. Federal Register citation]. 129-11........................ Emissions Reporting, 9/28/2022 8/16/2024, [insert When Required. Federal Register citation]. [[Page 66612]] 129-14........................ Incinerators, 9/28/2022 8/16/2024, [insert Emission Standards. Federal Register citation]. 129-15........................ Compliance........... 9/28/2022 8/16/2024, [insert Federal Register citation]. 129-16........................ Sulfur Compound and 9/28/2022 8/16/2024, [insert Nitrogen Dioxides Federal Register Emissions Standards. citation]. Appendix I.................... Hazardous Air 9/28/2022 8/16/2024, [insert Pollutants Sorted by Federal Register CAS Number. citation]. Appendix II................... Air Pollution 9/28/2022 8/16/2024, [insert Emergency Episodes. Federal Register citation]. * * * * * * * ---------------------------------------------------------------------------------------------------------------- Nebraska Revised Statute 81-1502 Terms Defined ---------------------------------------------------------------------------------------------------------------- 1502.......................... Terms Defined........ 3/21/2019 8/16/2024, [insert The following Federal Register paragraphs of citation]. Nebraska Revised Statute 81-1502 are approved into the SIP: (2) Air pollution; (3) Chairperson; and (10) Person. * * * * * * * ---------------------------------------------------------------------------------------------------------------- * * * * * PART 70--STATE OPERATING PERMIT PROGRAMS 0 3. The authority citation for part 70 continues to read as follows: Authority: 42 U.S.C. 7401, et seq. 0 4. Appendix A to part 70 is amended by adding paragraph (r) under ``Nebraska; City of Omaha; Lincoln-Lancaster County Health Department'' to read as follows: Appendix A to Part 70--Approval Status of State and Local Operating Permits Programs * * * * * Nebraska; City of Omaha; Lincoln-Lancaster County Health Department * * * * * (r) The Nebraska Department of Environment and Energy submitted for program approval revisions to the Nebraska Administrative Code, title 129, chapters 1, 6, 7, 9, 10, 11, and appendix I on December 2, 2022. Title 129 Chapter 8 ``Operating Permit Content'' has been renumbered and renamed Chapter 6 ``Operating Permits'' and Chapter 8 is no longer part 70 approved. Appendix III has been repealed and is no longer part 70 approved. The state effective date is September 28, 2022. This revision is effective September 16, 2024. * * * * * [FR Doc. 2024-17672 Filed 8-15-24; 8:45 am] BILLING CODE 6560-50-P

usgpo

2024-10-08T13:26:24.670056

FR

FR-2024-08-16/2024-17933

Federal Register Volume 89 Issue 159 (August 16, 2024)

United States National Archives and Records Administration Office of the Federal Register

[Federal Register Volume 89, Number 159 (Friday, August 16, 2024)] [Rules and Regulations] [Pages 66612-66614] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 2024-17933] ----------------------------------------------------------------------- ENVIRONMENTAL PROTECTION AGENCY 40 CFR Part 300 [EPA-HQ-OLEM-2023-0470; EPA-HQ-OLEM-2023-0471; EPA-HQ-OLEM-2023-0571; EPA-HQ-OLEM-2023-0594; EPA-HQ-OLEM-2024-0014; FRL-11693-02-OLEM] Deletion From the National Priorities List AGENCY: Environmental Protection Agency (EPA). ACTION: Final rule. ----------------------------------------------------------------------- SUMMARY: The Environmental Protection Agency (EPA) announces the deletion of one site and partial deletion of four sites from the Superfund National Priorities List (NPL). The NPL, created under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) of 1980, as amended, is an appendix of the National Oil and Hazardous Substances Pollution Contingency Plan (NCP). The EPA and the States, through their designated State agencies, have determined that all appropriate response actions under CERCLA have been completed. However, this deletion does not preclude future actions under Superfund. DATES: The document is effective August 16, 2024. ADDRESSES: Docket: EPA has established a docket for this action under the Docket Identification included in table 1 in the SUPPLEMENTARY INFORMATION section of this document. All documents in the docket are listed on the https://www.regulations.gov website. The Final Close-Out Report (FCOR, for a full site deletion) or the Partial Deletion Justification (PDJ, for a partial site deletion) is the primary document which summarizes site information to support the deletion. It is typically written for a broad, non-technical audience and this document is included in the deletion docket for each of the sites in this rulemaking. Although listed in the index, some information is not publicly available, i.e., Confidential Business Information or other information whose disclosure is restricted by statute. Certain other material, such as copyrighted material, is not placed on the internet and will be publicly available only in hard copy form. Docket materials are available through https://www.regulations.gov or at the corresponding Regional Records Centers. Locations, addresses, and phone numbers-of the Regional Records Center follows. Region 2 (NJ, NY, PR, VI), U.S. EPA, 290 Broadway, New York, NY 10007- 1866; 212/637-4308. Region 4 (AL, FL, GA, KY, MS, NC, SC, TN), U.S. EPA, 61 Forsyth Street SW, Mail code 9T25, Atlanta, GA 30303. Region 5 (IL, IN, MI, MN, OH, WI), U.S. EPA Superfund Division Records Manager, Mail code SRC-7J, Metcalfe Federal Building, 7th Floor South, 77 West Jackson Boulevard, Chicago, IL 60604, 312/886- 4465. [[Page 66613]] Region 8 (CO, MT, ND, SD, UT, WY), U.S. EPA, 1595 Wynkoop Street, Mail code Records Center, Denver, CO 80202-1129; 303/312-7273. EPA Headquarters Docket Center Reading Room (deletion dockets for all States), William Jefferson Clinton (WJC) West Building, Room 3334, 1301 Constitution Avenue NW, Washington, DC 20004, (202) 566-1744. EPA staff listed below in the FOR FURTHER INFORMATION CONTACT section may assist the public in answering inquiries about deleted sites, accessing deletion support documentation, and determining whether there are additional physical deletion dockets available. FOR FURTHER INFORMATION CONTACT: Mabel Garcia, U.S. EPA Region 2 (NJ, NY, PR, VI), [email protected], 212/637-4356. Alayna Famble, U.S. EPA Region 4 (AL, FL, GA, KY, MS, NC, SC, TN), [email protected], 470/445-0744. Karen Cibulskis, U.S. EPA Region 5 (IL, IN, MI, MN, OH, WI), [email protected], 312/886-1843. Linda Kiefer, U.S. EPA Region 8 (CO, MT, ND, SD, UT, WY), [email protected], 303/312-6689. Charles Sands, U.S. EPA Headquarters, [email protected], 202/566-1142. SUPPLEMENTARY INFORMATION: The NPL, created under section 105 of CERCLA, as amended, is an appendix of the NCP. 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. Partial deletion of sites is 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). The sites to be deleted are listed in table 1, including docket information containing reference documents with the rationale and data principally relied upon by the EPA to determine that the Superfund response is complete. 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 are entered in table 1 in this SUPPLEMENTARY INFORMATION section, if applicable, under Footnote such that; 1 = site has continued operation and maintenance of the remedy, 2 = site receives continued monitoring, and 3 = site five-year reviews are conducted. 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. Table 1 ---------------------------------------------------------------------------------------------------------------- Site name City/county, state Type Docket No. Footnote ---------------------------------------------------------------------------------------------------------------- Allied Paper/Portage Ck/ Kalamazoo, MI...... Partial............ EPA-HQ-OLEM-2023-04 1, 2, 3 Kalamazoo River. 70. South Minneapolis Residential Minneapolis, MN.... Partial............ EPA-HQ-OLEM-2023-04 ............... Soil Contamination. 71. Libby Asbestos.................. Libby, MT.......... Partial............ EPA-HQ-OLEM-2023-05 1, 3 71. Lipari Landfill................. Pitman, NJ......... Full............... EPA-HQ-OLEM-2023-05 1, 2, 3 94. Sapp Battery Salvage............ Cottondale, FL..... Partial............ EPA-HQ-OLEM-2024-00 1, 3 14. ---------------------------------------------------------------------------------------------------------------- Information concerning the sites to be deleted and partially deleted from the NPL, and the proposed rule for the deletion and partial deletion of the sites, are included in table 2. Table 2 -------------------------------------------------------------------------------------------------------------------------------------------------------- Full site deletion Date, proposed (full) or media/ Site name rule FR citation Public comment Responsiveness summary parcels/description for partial deletion -------------------------------------------------------------------------------------------------------------------------------------------------------- Allied Paper/Portage Ck/Kalamazoo 2/16/2024 89 FR 12293 No........................ No........................ A portion of land/ River. soil from OU 2, the Area East of Davis Creek and the Non- Easement Portion of the Area East of Davis Creek Extension Area of the Willow Boulevard/ A-Site (WB/A-Site). South Minneapolis Residential Soil 2/16/2024 89 FR 12293 No........................ No........................ Three residential Contamination. properties. Libby Asbestos.................... 2/16/2024 89 FR 12293 Yes....................... No........................ 400-acre industrial park OU 5. Lipari Landfill................... 2/16/2024 89 FR 12293 Yes....................... Yes....................... Full. Sapp Battery Salvage.............. 2/16/2024 89 FR 12293 Yes....................... No........................ Soils, sediments and surface water portions of OU 1 and OU 3. -------------------------------------------------------------------------------------------------------------------------------------------------------- [[Page 66614]] For the sites proposed for deletion, the closing date for comments in the proposed rule was March 18, 2024. The EPA received one public comment for the Lipari Landfill site, one public comment for the Sapp Battery Salvage site and one public comment for the Libby Asbestos site in this final rule. The EPA received no public comments for any of the other two sites in this final rule. EPA placed the comments, and a Responsiveness Summary, if prepared, in the docket specified in table 1, on https://www.regulations.gov, and in the appropriate Regional Records Center listed in the ADDRESSES section. The commenter for the Lipari Landfill site was unclear why the site was being removed from the NPL but noted appreciation for taking action and deletion from the NPL of sites affected by pollution and acknowledged favorably the EPA conducting five-year reviews. As detailed in the FCOR, multiple activities were undertaken to address contamination at the Lipari Landfill site, including among others: capping of the former landfill, collection and treatment of contaminated groundwater, and regular monitoring of the site to ensure these actions remain protective. The Lipari Landfill FCOR was included as part of the docket and EPA provided information on how to access the docket to access the FCOR. Thus, EPA concluded the deletion criteria for the Site have been documented and met as detailed in the FCOR and docket and that the site can be deleted from the NPL. One public comment was received for the Sapp Battery Salvage site, but EPA did not consider the submission to be an adverse public comment and no Responsiveness Summary was prepared. One public comment was received for the Libby Asbestos site supportive of the proposed partial deletion and no Responsiveness Summary was prepared. 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. List of Subjects in 40 CFR Part 300 Environmental protection, Air pollution control, Chemicals, Hazardous substances, Hazardous waste, Intergovernmental relations, Natural resources, Oil pollution, Penalties, Reporting and recordkeeping requirements, Superfund, Water pollution control, Water supply. Larry Douchand, Office Director, Office of Superfund Remediation and Technology Innovation. For reasons set out in the preamble, the EPA amends 40 CFR part 300 as follows: PART 300--NATIONAL OIL AND HAZARDOUS SUBSTANCES POLLUTION CONTINGENCY PLAN 0 1. The authority citation for part 300 continues to read as follows: Authority: 33 U.S.C. 1251 et seq.; 42 U.S.C. 9601-9657; E.O. 13626, 77 FR 56749, 3 CFR, 2013 Comp., p. 306; E.O. 12777, 56 FR 54757, 3 CFR, 1991 Comp., p. 351; E.O. 12580, 52 FR 2923, 3 CFR, 1987 Comp., p. 193. 0 2. In Appendix B to part 300 amend Table 1 by: 0 a. Revising the entry for ``FL'', ``Sapp Battery Salvage'', ``Cottondale''. 0 b. Revising the entry for ``MI'', ``Allied Paper/Portage Ck/Kalamazoo River'', ``Kalamazoo''. 0 c. Removing the entry for ``NJ'', ``Lipari Landfill'', ``Pitman''. The revisions read as follows: Appendix B to Part 300--National Priorities List Table 1--General Superfund Section ---------------------------------------------------------------------------------------------------------------- State Site name City/county Notes * ---------------------------------------------------------------------------------------------------------------- * * * * * * FL..................................... Sapp Battery Salvage...... Cottondale................ P * * * * * * MI..................................... Allied Paper/Portage Ck/ Kalamazoo................. P Kalamazoo River. * * * * * * ---------------------------------------------------------------------------------------------------------------- * P = Sites with partial deletion(s). [FR Doc. 2024-17933 Filed 8-15-24; 8:45 am] BILLING CODE 6560-50-P

usgpo

2024-10-08T13:26:24.786927

FR

FR-2024-08-16/2024-18125

Federal Register Volume 89 Issue 159 (August 16, 2024)

United States National Archives and Records Administration Office of the Federal Register

[Federal Register Volume 89, Number 159 (Friday, August 16, 2024)] [Rules and Regulations] [Pages 66614-66615] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 2024-18125] ======================================================================= ----------------------------------------------------------------------- CORPORATION FOR NATIONAL AND COMMUNITY SERVICE 45 CFR Parts 2520, 2521, and 2522 RIN 3045-AA84 AmeriCorps State and National Updates; Correction AGENCY: Corporation for National and Community Service. ACTION: Final rule; correction. ----------------------------------------------------------------------- SUMMARY: The Corporation for National and Community Service (operating as AmeriCorps) is correcting a final rule that appeared in the Federal Register on May 28, 2024. These corrections do not include any substantive changes to the final rule. The final rule updated regulations governing the AmeriCorps State and National program to provide programmatic and grantmaking flexibilities while protecting program integrity and safeguarding taxpayer funds. DATES: Effective on October 1, 2024. FOR FURTHER INFORMATION CONTACT: Jennifer Bastress-Tahmasebi, Deputy Director, AmeriCorps State and National at [email protected], (202) 606-6667; or Elizabeth Appel, Associate General Counsel, at [email protected], (202) 967-5070. SUPPLEMENTARY INFORMATION: In FR Doc. 2024-11538 beginning on page 46024 in the Federal Register of Tuesday, May 28, 2024, the following corrections are made: Sec. Sec. 2520.10 through 2520.65 [Corrected] 0 1. On page 46033, in the second column, in part 2520, in amendment 3, the instruction is corrected to read: ``In Sec. Sec. 2520.10 through 2520.65: 0 a. Remove the words ``the Corporation'' wherever they appear and add in their place the word ``AmeriCorps''; [[Page 66615]] 0 b. Remove the word ``Corporation'' and add in its place the word ``AmeriCorps''; 0 c. Remove the word ``Corporation-approved'' and add in its place the word ``AmeriCorps-approved''; and 0 d. Remove the word ``non-Corporation'' and add in its place the word ``non-AmeriCorps''. Sec. Sec. 2521.10 through 2521.95 [Corrected] 0 2. On page 46033, in the third column, in part 2521, in amendment 7, the instruction is corrected to read: ``In Sec. Sec. 2521.10 through 2521.95: 0 a. Remove the words ``the Corporation'' and add in their place the word ``AmeriCorps''; 0 b. Remove the words ``The Corporation'' and add in their place the word ``AmeriCorps''; 0 c. Remove the words ``The Corporation's'' and add in their place the word ``AmeriCorps' ''; 0 d. Remove the words ``the Corporation's'' and add in their place the word ``AmeriCorps' ''; and 0 e. Remove the word ``Corporation'' and add in its place the word ``AmeriCorps''. Sec. 2521.45 [Corrected] 0 3. On page 46033, in the third column, in part 2521, in amendment 8, the instruction and accompanying regulatory text are corrected to read: ``Revise and republish Sec. 2521.45 to read as follows: Sec. 2521.45 What are the limitations on the Federal Government's share of program costs? The limitations on the Federal Government's share are different--in type and amount--for member support costs and program operating costs. (a) Member support: The Federal share, including AmeriCorps and other Federal funds, of member support costs, which include the living allowance required under Sec. 2522.240(b)(1) of this chapter, FICA, unemployment insurance (if required under State law), and worker's compensation (if required under State law), is limited as follows: (1) If you are a professional corps described in Sec. 2522.240(b)(2)(i) of this chapter, you may not use AmeriCorps funds for the living allowance. (2) Your share of member support costs must be non-Federal cash. (3) AmeriCorps's share of health care costs may not exceed 85 percent. (b) Program operating costs. The AmeriCorps share of program operating costs may not exceed 67 percent. These costs include expenditures (other than member support costs described in paragraph (a) of this section) such as staff, operating expenses, internal evaluation, and administration costs. (1) You may provide your share of program operating costs with cash, including other Federal funds (as long as the other Federal agency permits its funds to be used as match), or third-party in-kind contributions. (2) Contributions, including third party in-kind must: (i) Be verifiable from your records; (ii) Not be included as contributions for any other Federally assisted program; (iii) Be necessary and reasonable for the proper and efficient accomplishment of your program's objectives; and (iv) Be allowable under applicable Office of Management and Budget (OMB) cost principles. (3) You may not include the value of direct community service performed by volunteers, but you may include the value of services contributed by volunteers to your organizations for organizational functions such as accounting, audit, and training of staff and AmeriCorps programs.'' Sec. Sec. 2522.100 through 2522.950 [Corrected] 0 4. On page 46034, in the second column, in part 2522, in amendment 13, the instruction is corrected to read: ``In Sec. Sec. 2522.100 through 2522.950: 0 a. Remove the words ``the Corporation's AmeriCorps'' and add in their place the word ``AmeriCorps' ''; 0 b. Remove the words ``Corporation AmeriCorps'' and add in their place the word ``AmeriCorps''; 0 c. Remove the words ``The Corporation'' and add in their place the word ``AmeriCorps''; 0 d. Remove the words ``the Corporation'' and ``the corporation'' and add in their places the word ``AmeriCorps''; 0 e. Remove the words ``a Corporation'' and add in their place the words ``an AmeriCorps''; and 0 f. Remove the word ``Corporation-assessment'' and add in its place the word ``AmeriCorps-assessment''; 0 g. Remove the word ``Corporation-sponsored'' and add in its place the word ``AmeriCorps-sponsored''; 0 h. Remove the words ``the Corporation's'' and add in their place the word ``AmeriCorps' ''; and 0 i. Remove the words ``Corporation'' and add in its place the word ``AmeriCorps'' Andrea Grill, Acting General Counsel. [FR Doc. 2024-18125 Filed 8-15-24; 8:45 am] BILLING CODE 6050-28-P

usgpo

2024-10-08T13:26:24.825613

FR

FR-2024-08-16/2024-17205

Federal Register Volume 89 Issue 159 (August 16, 2024)

United States National Archives and Records Administration Office of the Federal Register

[Federal Register Volume 89, Number 159 (Friday, August 16, 2024)] [Rules and Regulations] [Pages 66615-66616] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 2024-17205] ======================================================================= ----------------------------------------------------------------------- FEDERAL COMMUNICATIONS COMMISSION 47 CFR Part 25 [IB Docket Nos. 06-160, 18-314, 20-330, 22-273; FCC 19-93, FCC 20-159, FCC 22-63, DA 24-271; FR ID 235519] Amendments to Rules for Direct Broadcast Satellite, Satellite Services, and 17 GHz; Updates to Forms 312 and 312-R for the International Communications Filing System; Corrections to 17 GHz Report and Order; Correction AGENCY: Federal Communications Commission. ACTION: Final rule; announcement of effective date and correcting amendments; correction. ----------------------------------------------------------------------- SUMMARY: The Federal Communications Commission published a document in the Federal Register of July 17, 2024, announcing that the Office of Management and Budget has approved, the information collections associated with the rules adopted in three rulemakings--a Report and Order, FCC 19-93, in IB Docket No. 06-160 (DBS Licensing Report and Order); a Report and Order, FCC 20-159, in IB Docket No. 18-314 (Satellite Services Report and Order); and a Report and Order, FCC 22- 63, in IB Docket Nos. 20-330 and 22-273, (17 GHz Report and Order)--and with updates to the Form 312, including Schedules A, B, and S, and Form 312-R. The document contained two errors in the Dates section. FOR FURTHER INFORMATION CONTACT: Scott Mackoul, Space Bureau, at (202) 418-7498 or [email protected]. SUPPLEMENTARY INFORMATION: Correction In the Federal Register of July 17, 2024, in FR Doc. 2024-15465, on page 58072, in the second column, correct the Dates caption to read: The following are effective August 16, 2024: (1) The amendments to 47 CFR 25.108(c)(5) and (c)(6), 25.114(a)(3), and 25.140(b)(6), published at 86 FR 49484 on September 3, 2021; (2) The amendments to 47 CFR 25.114(d)(7), (15), and (18), 25.115(e), (g) and (k), 25.117(d)(2)(v), 25.140(a)(2) and (a)(3)(iii), (b)(3) through (7), and (d), 25.203 and 25.264, published at 87 FR 72388 on November 25, 2022; (3) The corrections to 47 CFR 25.140 and 25.264; and (4) The revisions to FCC Form 312 (including Schedules A, B, and C) and FCC Form 312R (used as required by [[Page 66616]] part 25), published at 89 FR 32427 on April 26, 2024. Federal Communications Commission. Katura Jackson, Federal Register Liaison Officer. [FR Doc. 2024-17205 Filed 8-15-24; 8:45 am] BILLING CODE 6712-01-P

usgpo

2024-10-08T13:26:24.888626

FR

FR-2024-08-16/2024-17141

Federal Register Volume 89 Issue 159 (August 16, 2024)

United States National Archives and Records Administration Office of the Federal Register

[Federal Register Volume 89, Number 159 (Friday, August 16, 2024)] [Rules and Regulations] [Pages 66616-66629] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 2024-17141] ======================================================================= ----------------------------------------------------------------------- DEPARTMENT OF LABOR 48 CFR Chapter 29 [Docket No. DOL-2023-0007] RIN 1291-AA43 DOL Acquisition Regulation: Department of Labor Acquisition Regulation System AGENCY: Office of the Assistant Secretary for Administration and Management, Department of Labor. ACTION: Final rule. ----------------------------------------------------------------------- SUMMARY: With this final rule, the Department of Labor (DOL) is revising the Department of Labor Acquisition Regulation (DOLAR) to remove provisions from the regulation that were redundant or obsolete. The final rule also codifies the use of certain contractual provisions that DOL has developed and deployed in recent years. Those newly codified contractual provisions address a range of matters, including government property, continuity of operations, system requirements, records management, telework policy for contractor personnel, submission of invoices, mandatory training for contractors, organizational conflicts of interest, and notification of changes to the scope of a contract. The final rule also includes revisions intended for greater clarity. Finally, the final rule removes provisions from the prior regulation that were DOL internal operating procedures. DATES: This final rule is effective September 16, 2024. FOR FURTHER INFORMATION CONTACT: Carl Campbell, Senior Procurement Executive, Office of the Assistant Secretary for Administration and Management, U.S. Department of Labor, 200 Constitution Avenue NW, Room N-2445, Washington, DC 20210, Telephone: 1-202-693-7246 (voice) (this is not a toll-free number). SUPPLEMENTARY INFORMATION: I. Discussion A. Background--The FAR, the OFPP Act, and the DOLAR The DOLAR is part of the Federal Acquisition Regulations System, which consists of the Federal Acquisition Regulation (FAR), chapter 1 of title 48 of the CFR, and various agency acquisition regulations that implement or supplement the FAR. 48 CFR 1.101. The DOLAR is DOL's acquisition regulation implementing and supplementing the FAR, and addresses matters specific to DOL's procurement of goods and services. This rulemaking is issued under the authority of the Office of Federal Procurement Policy (OFPP) Act and implementing regulations which authorize the heads of Federal executive agencies to issue agency acquisition regulations that implement or supplement the FAR. 41 U.S.C. 1707 and FAR 1.301(b), 1.303(b). The DOLAR uses the regulatory structure and arrangement of the FAR, and headings and subject areas are consistent with FAR content. The DOLAR is divided into subchapters, parts (each of which covers a separate aspect of acquisition), subparts, and sections. B. Relation of the FAR to the DOLAR The FAR contains many provisions and clauses applicable to DOL procurements which need not be, and are not, repeated in the new DOLAR. If the DOLAR does not include provisions supplementing the FAR under the corresponding part or subpart, it is because the FAR language is considered sufficient. Where the DOLAR does not address a FAR subject, the FAR guidance is to be followed. The DOLAR is not by itself a complete document, as it must be read in conjunction with the FAR. C. Purpose of the Regulatory Action The DOLAR was last revised effective May 27, 2004, 69 FR 22990 (April 27, 2004). The final rule codifies internal departmental guidance to align with the FAR, removes outdated and duplicative requirements, streamlines sections, and removes information that applies only to DOL's internal operating procedures. With this final rule, DOL adopts a more efficient and straightforward approach to procurement regulations. The final DOLAR supersedes the prior regulation in its entirety. D. Summary of Changes From NPRM to Final Rule On September 5, 2023, DOL published a notice of proposed rulemaking (NPRM), including the proposed text of the new DOLAR, in the Federal Register. 88 FR 60612. After reviewing and considering the comments received, DOL made no changes to the text of the rule as published in the NPRM, except to correct some typographical errors. This final rule is in substance the same as the proposed rule. As DOL explained in the NPRM, DOL is revising the DOLAR in its entirety to update and streamline agency procurement regulations consistent with the Federal Acquisition Reform Act and the Federal Acquisition Streamlining Act. The DOLAR final rule removes provisions that are redundant or obsolete and codifies provisions addressing a range of matters, including government property, continuity of operations, system requirements, records management, telework policy for contractor personnel, submission of invoices, mandatory training for contractors, organizational conflicts of interest, and changing the scope of a contract. The final rule also makes updates to existing language for clarity and streamlining purposes. Finally, the final rule removes provisions in the previous DOLAR that are DOL internal operating procedures, which need not be published in the CFR for them to take effect, per 41 U.S.C. 1707 and FAR 1.301(b), 1.303(b). Additionally, as noted in the NPRM, an appendix included in the NPRM (a table listing sections in the prior regulation and the corresponding section in the NPRM) will not appear in the CFR. Accordingly, that appendix has been removed and does not appear in the final rule. In the NPRM, DOL explained all the revisions being made to the DOLAR from the prior regulation. To reiterate, the final rule removes parts that contain internal DOL policy and operating procedures, as well as parts that duplicate or adopt the FAR by reference; adds parts which codify clauses that are currently prescribed for incorporation in DOL contracts, when appropriate; and renames and renumbers sections to streamline the DOLAR. Additionally, this final rule removes the following parts of the DOLAR because they relate to internal operating procedures of DOL and need not be published in the Federal Register (per 41 U.S.C. 1707 and FAR 1.301(b) and 1.303(b)): Parts 2906 (Competition Requirements); 2908 (Required Sources of Supplies and Services); 2922 (Application of Labor Laws to Government Acquisitions); 2923 (Environment, Energy and Water Efficiency, Renewable Energy Technologies, Occupational Safety, and Drug-Free Workplace); 2929 (Taxes); 2931 (Contract Cost Principles and Procedures); and 2953 (Forms). Further, this final rule removes the following parts of the DOLAR because they are duplicative of the FAR, or merely adopt it by reference: Part 2910 [[Page 66617]] (Market Research) is duplicative of FAR 6.302-1(c) and 10.002(b); part 2912 (Acquisition of Commercial Items) is duplicative of FAR 12.302(c); part 2913 (Simplified Acquisition Procedures) is duplicative of FAR 13.106-3(b) and 13.307; part 2914 (Sealed Bidding) is duplicative of FAR 14.404-1(c) and (f), 14.407-3(e) and (i), and 14.408-1; part 2916 (Contract Types) is duplicative of FAR 16.505(b)(5) and 16.603-2(c); part 2917 (Special Contracting Methods) duplicates and adopts by reference FAR 17.203(g)(2), 17.205(a), 17.207(f), and 17.503; part 2930 (Cost Accounting Standards Administration) adopts by reference FAR 30.201-5; part 2936 (Construction and Architect-Engineer Contracts) adopts by reference FAR 36.201, 36.209, 36.516, 36.602-1(b), 36.602-2, 36.602-3(d), 36.602-1, 36.602-5(b), 36.603, 36.604, and 36.702(c); part 2944 (Subcontracting Policies and Procedures) duplicates FAR 44.201- 1(b) or 44.201-2 and adopts by reference FAR 44.202-2(a), 44.203, and 44.302(a). This final rule codifies the following 15 standard contract clauses at part 2952, which are currently used in DOL contracts, when appropriate, but are new additions to the DOLAR: Clause 2952.201-70, Contracting Officer's Representative (COR) Clause; clause 2952.204-70, Records Management Requirements; clause 2952.207-70, Contractor Personnel Telework; clause 2952.209-70, Organizational Conflict of Interest Clause--OCI-1 Exclusion From Future Agency Contracts; clause at 2952.211-70, internet Protocol Version 6 (IPv6); clause 2952.224-70, Privacy Breach Notification Requirements; clause 2952.232-70, Limitation of Government's Obligation (LoGO); clause 2952.232-71 Submission of Invoices; clause 2952.237-70, Emergency Continuation of Essential Services; clause 2952.242-70, Access to Contractor Business Systems; clause 2952.242-71, DOL Mandatory Training Requirements; clause 2952.243-70, Contractor's Obligation to Notify the Contracting Officer of a Request to Change the Contract Scope (Contractor's Obligation Clause); clause 2952.245-70, Contractor Responsibility to Report Theft of Government Property; and clause 2952.245-71, Asset Reporting Requirements. In addition to being codified at section 2952.39-70, the clause covering Section 508 Requirements is being revised to avoid duplication with the FAR 508 provisions and to replace a generic ``508'' reference with the exact CFR reference. This final rule also adds the following two new parts to the DOLAR for the sole purpose of prescribing certain of the contractual clauses described above: parts 2924 (Protection of Privacy and Freedom of Information) and 2939 (Acquisition of Information Technology). Finally, nonsubstantive changes have been made to the final regulatory text to correct numbering and for gender neutrality and plain language. E. Public Comments Received on the Proposed Rule The NPRM invited the public to submit written comments concerning the proposed rule no later than November 6, 2023. No one requested an extension of the comment period. The Department received four comments in response to the NPRM. The comments received may be viewed by entering docket number DOL-2023-0007 at https://www.regulations.gov. Of the four comments received, three were outside the scope of the rulemaking. The single relevant comment received was supportive of DOL's approach to updating the DOLAR. The commenter noted that the revised DOLAR could foster increased competition and improve value for money in government procurement. The commenter cited elements outlined by the FAR and, where appropriate, the DOLAR, that are considered, in the commenter's view, best practices in government procurement. The commenter did not suggest any changes to the proposed rule. The Department appreciates the commenter's positive view and supportive opinion of the proposed rulemaking. DOL does not believe that any change to the proposed rule was required in response to this comment and DOL has made no substantive change to the proposed rule in this final regulation. II. Executive Orders 12866 (Regulatory Planning and Review) and 13563 (Improving Regulation and Regulatory Review) This regulation has been drafted and reviewed in accordance with Executive Orders 12866 and 13563. This rule is primarily limited to agency organization, management, and personnel as described by E.O. 12866, section 3(d)(3) and, thus, is not a ``regulation'' as defined by that Executive order. Executive Orders 12866 and 13563 direct agencies to assess all costs and benefits of available regulatory alternatives. DOL has examined the economic, budgetary, and policy implications of its regulatory action, and has determined that the impact on the public is minimal. The regulation mainly relates to internal DOL policies and procedures that do not impact the public, and otherwise addresses certain rules governing private entities doing business with DOL that likewise do not materially impact the public. III. Final Regulatory Flexibility Act/Small Business Regulatory Enforcement Fairness Act The Regulatory Flexibility Act (RFA), at 5 U.S.C. 603(a), requires agencies to prepare and make available for public comment an initial regulatory flexibility analysis, which describes the impact of the rule on small entities. Section 605 of the RFA allows an agency to certify a rule, in lieu of preparing an analysis, if the proposed rulemaking is not expected to have a significant economic impact on a substantial number of small entities. This rule streamlines DOL's procurement regulation by removing obsolete provisions, codifying currently in use clauses, removing provisions that are internal policy or in the FAR, and making edits that do not have a substantive impact on the regulation. Therefore, it will not have a significant economic impact on a substantial number of small entities. As a result, no regulatory flexibility analysis was required here. IV. Paperwork Reduction Act The Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)) requires that DOL consider the impact of paperwork and other information collection burdens imposed on the public. DOL has determined that this rule does not alter any information collection burdens. V. Executive Order 13132 (Federalism) Section 6 of E.O. 13132 requires Federal agencies to consult with State entities when a regulation or policy may have a substantial direct effect on the States, the relationship between the National Government and the States, or the distribution of power and responsibilities among the various levels of government, within the meaning of the E.O. Section 3(b) of the E.O. further provides that Federal agencies must implement regulations that have a substantial direct effect only if statutory authority permits the regulation and it is of national significance. This rulemaking revises the DOLAR which is DOL's regulation to implement the FAR and to supplement the FAR when coverage is needed for subject matter not covered in the FAR. Because the DOLAR primarily addresses internal operating procedure, it does not have sufficient federalism implications to [[Page 66618]] warrant the preparation of a Federalism Assessment, as set forth in E.O. 13132. VI. Unfunded Mandates Reform Act of 1995 This regulatory action has been reviewed in accordance with the Unfunded Mandates Reform Act of 1995 (the Reform Act). Under the Reform Act, a Federal agency must determine whether a regulation proposes a Federal mandate that would result in the increased expenditures by State, local, or tribal governments, in the aggregate, or by the private sector, of $100 million or more in any single year. This rule primarily makes administrative changes with respect to federal procurement administration. The requirements of title II of the Act, therefore, do not apply, and DOL did not prepare a statement under the Act. VII. Executive Order 13175 (Indian Tribal Governments) DOL reviewed the NPRM under the terms of E.O. 13175 and DOL's Tribal Consultation Policy and concluded that the changes to regulatory text would not have tribal implications, as these changes do not have substantial direct effects on one or more Indian tribes, the relationship between the Federal Government and Indian tribes, nor the distribution of power and responsibilities between the Federal Government and Indian tribes. Therefore, no consultations with tribal governments, officials, or other tribal institutions were necessary. List of Subjects 48 CFR Parts 2901, 2902, 2905, 2907, 2909, 2911, 2915, 2932, 2937, 2942, and 2943 Government contracts, Government procurement. 48 CFR Part 2903 Conflicts of interest, Government contracts, Government procurement. 48 CFR Part 2904 Government contracts, Government procurement, Reporting and recordkeeping requirements. 48 CFR Part 2919 Government contracts, Government procurement, Minority businesses, Small businesses. 48 CFR Part 2924 Administrative practice and procedure, Freedom of information, Government contracts, Government procurement, Privacy. 48 CFR Part 2928 Bonds, Government contracts, Government procurement, Insurance, Surety bonds. 48 CFR Part 2933 Administrative practice and procedures, Claims, Government contracts, Government procurement. 48 CFR Part 2939 Computer technology, Government contracts, Government procurement. 48 CFR Part 2945 Government contracts, Government procurement, Government property, Government property management. 48 CFR Part 2952 Administrative practice and procedure, Conflict of interests, Government contracts, Government procurement, Government property, Individuals with disabilities, internet, Privacy, Reporting and recordkeeping requirements, Telecommunications, Telework. 0 For the reasons discussed in the preamble, DOL revises 48 CFR chapter 29 to read as follows: CHAPTER 29--DEPARTMENT OF LABOR SUBCHAPTER A--GENERAL PART 2901--DEPARTMENT OF LABOR ACQUISITION REGULATIONS SYSTEM PART 2902--DEFINITIONS OF WORDS AND TERMS PART 2903--IMPROPER BUSINESS PRACTICES AND PERSONAL CONFLICTS OF INTEREST PART 2904--ADMINISTRATIVE AND INFORMATION MATTERS SUBCHAPTER B--ACQUISITION PLANNING PART 2905--PUBLICIZING CONTRACT ACTIONS PART 2906 [RESERVED] PART 2907--ACQUISITION PLANNING PART 2908 [RESERVED] PART 2909--CONTRACTOR QUALIFICATIONS PART 2910 [RESERVED] PART 2911--DESCRIBING AGENCY NEEDS PART 2912 [RESERVED] SUBCHAPTER C--CONTRACTING METHODS AND CONTRACT TYPES PARTS 2913-2914 [RESERVED] PART 2915--CONTRACTING BY NEGOTIATION PARTS 2916-2918 [RESERVED] SUBCHAPTER D--SOCIOECONOMIC PROGRAMS PART 2919--SMALL BUSINESS PROGRAMS PARTS 2920-2923 [RESERVED] PART 2924--PROTECTION OF PRIVACY AND FREEDOM OF INFORMATION PARTS 2925-2926 [RESERVED] SUBCHAPTER E--GENERAL CONTRACTING REQUIREMENTS PART 2927 [RESERVED] PART 2928--BONDS AND INSURANCE PARTS 2929-2931 [RESERVED] PART 2932--CONTRACT FINANCING PART 2933--PROTESTS, DISPUTES, AND APPEALS SUBCHAPTER F--SPECIAL CATEGORIES OF CONTRACTING PARTS 2934-2936 [RESERVED] PART 2937--SERVICE CONTRACTING PART 2938 [RESERVED] PART 2939--ACQUISITION OF INFORMATION TECHNOLOGY PARTS 2940-2941 [RESERVED] SUBCHAPTER G--CONTRACT MANAGEMENT PART 2942--CONTRACT ADMINISTRATION AND AUDIT SERVICES PART 2943--CONTRACT MODIFICATIONS PART 2944 [RESERVED] PART 2945--GOVERNMENT PROPERTY PARTS 2946-2951 [RESERVED] SUBCHAPTER H--CLAUSE AND FORMS PART 2952--SOLICITATION PROVISIONS AND CONTRACT CLAUSES PARTS 2953-2999 [RESERVED] SUBCHAPTER A--GENERAL PART 2901--DEPARTMENT OF LABOR ACQUISITION REGULATION SYSTEM Sec. 2901.000 Scope of part. Subpart 2901.1--Purpose, Authority, Issuance 2901.101 Purpose. 2901.103 Authority. 2901.105 Issuance. 2901.105-1 Publication and code arrangement. 2901.105-2 Arrangement of regulations. 2901.105-3 Copies. Subpart 2901.3--Agency Acquisition Regulations 2901.304 Agency control and compliance procedures. Subpart 2901.4--Deviations From the FAR and DOLAR 2901.403 Individual deviations. 2901.404 Class deviations. Subpart 2901.6--Career Development, Contracting Authority, and Responsibilities 2901.602 Contracting officers. 2901.602-1 Authority. 2901.602-70 Contract clause. Subpart 2901.7--Determinations and Findings 2901.707 Signatory authority. Authority: 5 U.S.C. 301; 40 U.S.C. 486(c). 2901.000 Scope of part. This chapter may be referred to as the Department of Labor Acquisition Regulation or the DOLAR. This part sets forth introductory information about the [[Page 66619]] DOLAR. This part explains the relationship of the DOLAR to the Federal Acquisition Regulation (FAR) and explains the DOLAR's purpose, authority, applicability, exclusions, and issuance. Subpart 2901.1--Purpose, Authority, Issuance 2901.101 Purpose. (a) This chapter contains the DOLAR. The DOLAR is established within the FAR System, at title 48 of the Code of Federal Regulations (CFR). (b) The purpose of the DOLAR is to implement and supplement the FAR in accordance with FAR subpart 1.3 and authorities cited therein. The DOLAR is not by itself a complete document, as it must be used in conjunction with the FAR. 2901.103 Authority. The DOLAR is issued pursuant to the authority of the Secretary of Labor under 5 U.S.C. 301 and 40 U.S.C. 486(c). This authority has been delegated to the Assistant Secretary for Administration and Management in accordance with FAR 1.301(d)(3). 2901.105 Issuance. 2901.105-1 Publication and code arrangement. The DOLAR is published in the CFR, as chapter 29 of title 48. 2901.105-2 Arrangement of regulations. (a) Where the DOLAR implements the FAR, the implementing part, subpart, section, or subsection of the DOLAR is numbered and captioned, to the extent feasible, the same as the FAR part, subpart, section, or subsection being implemented, except that the section or subsection being implemented is preceded with a ``29'' or a ``290'' such that there will always be four numbers to the left of the first decimal. For example, the DOLAR implementation of FAR 2.101 is 2902.101. The DOLAR may have gaps in its numbering scheme because a FAR rule may not require DOLAR implementation. 2901.105-3 Copies. Copies of the DOLAR published in the Federal Register or the CFR may be purchased from the Superintendent of Documents, Government Printing Office, Washington, DC 20402. Requests should reference the DOLAR as chapter 29 of title 48. The DOLAR is also available electronically at the Government Printing Office web page, https://www.ecfr.gov/. The CFR is printed in paperback edition with updates as needed. Subpart 2901.3--Agency Acquisition Regulations 2901.304 Agency control and compliance procedures. The DOLAR is under the direct oversight of the Department of Labor's (DOL) Senior Procurement Executive (SPE) or designee. Subpart 2901.4--Deviations From the FAR and DOLAR 2901.403 Individual deviations. Individual deviations affect only one contract action. Except for individual deviations referenced in FAR 1.405(e), the SPE is authorized to approve individual deviations from FAR provisions (see FAR 1.403) or from DOLAR provisions. 2901.404 Class deviations. (a) Class deviations affect more than one contract action. If DOL believes that it will require a class deviation on a permanent basis, it will propose a FAR revision per FAR 1.404. (b) The SPE is authorized to approve and process class deviations from the FAR or the DOLAR, unless FAR 1.405(e) is applicable. Subpart 2901.6--Career Development, Contracting Authority, and Responsibilities 2901.602 Contracting officers. 2901.602-1 Authority. Only DOL contracting officers have the authority to enter into, administer, or terminate contracts and to make related determinations and findings. DOL contracting officers may bind DOL to obligations under contracts only to the extent of the authority delegated to them. 2901.602-70 Contract clause. Contracting officers shall insert clause 2952.201-70, Contracting Officer's Representative, in all solicitations and awards. Subpart 2901.7--Determinations and Findings 2901.707 Signatory authority. Except as shown in the applicable FAR or DOLAR, or where prohibited by statute, the authority to sign or delegate signatory authority for the various determinations and findings (D&Fs) resides with the SPE, or their designee. PART 2902--DEFINITIONS OF WORDS AND TERMS Subpart 2902.1--Definitions Sec. 2902.101 Definitions. Authority: 5 U.S.C. 301; 40 U.S.C. 486(c). Subpart 2902.1--Definitions 2902.101 Definitions. The following words and terms are used as defined in this subpart unless the context in which they are used clearly requires a different meaning, or a different definition is prescribed for a particular part or portion of a part: Head of Agency (also called agency head) means the Assistant Secretary for Administration and Management, except that the Secretary of Labor is the Head of Agency for acquisition actions, which by the terms of a statute or delegation must be performed specifically by the Secretary of Labor; the Inspector General is the Head of Agency in all cases for the Office of the Inspector General. Head of Contracting Activity (HCA) means the official who has overall responsibility for managing the Contracting Activity, as defined at FAR 2.101, when the Contracting Activity has more than one person duly appointed as Contracting Officers by the Senior Procurement Executive or, in the case of the Office of the Inspector General, issued by the Inspector General or their designee. Each Head of Agency may designate HCA(s) as appropriate to be responsible for managing Contracting Activities within their respective Agency. Senior Procurement Executive (SPE), as defined in the FAR, means the individual appointed pursuant to 41 U.S.C. 1702(c) who is responsible for management direction of the acquisition system of the executive agency, including implementation of the unique acquisition policies, regulations, and standards of the executive agency. At DOL, the SPE is also the Chief Procurement Officer and DOL's Suspending and Debarment Official and is the Principal Executive responsible for the Office of the Senior Procurement Executive (OSPE). PART 2903--IMPROPER BUSINESS PRACTICES AND PERSONAL CONFLICTS OF INTEREST Subpart 2903.1--Safeguards Sec. 2903.104 Procurement integrity. 2903.104-1 Definitions. Subpart 2903.2--Contractor Gratuities to Government Personnel 2903.203 Reporting suspected violations of the Gratuities clause. 2903.204 Treatment of violations. [[Page 66620]] Subpart 2903.7--Voiding and Rescinding Contracts 2903.703 Authority. Authority: 5 U.S.C. 301; 40 U.S.C. 486(c). Subpart 2903.1--Safeguards 2903.104 Procurement integrity. 2903.104-1 Definitions. Agency ethics official means the Solicitor of Labor or the Associate Solicitor for Legal Counsel or other official as designated by the Solicitor of Labor. Subpart 2903.2--Contractor Gratuities to Government Personnel 2903.203 Reporting suspected violations of the Gratuities clause. Contractor gratuities offered to Government personnel are subject to the restriction under 5 CFR part 2635. 2903.204 Treatment of violations. Any suspected violations of FAR subpart 3.2 and the clause at FAR 52.203-3, Gratuities, must be reported to the Office of the Inspector General. The authority to determine whether a violation of the Gratuities clause by the contractor, its agent, or another representative has occurred, and the appropriate remedies, are delegated to the HCA. Subpart 2903.7--Voiding and Rescinding Contracts 2903.703 Authority. Pursuant to FAR 3.703 and 3.705(b), the authority to void or rescind contracts is delegated to the SPE. PART 2904--ADMINISTRATIVE AND INFORMATION MATTERS Subpart 2904.7--Contractor Records Retention Sec. 2904.703 Policy. 2904.703-70 Contract clause. Authority: 5 U.S.C. 301, 40 U.S.C. 486(c). Subpart 2904.7--Contractor Records Retention 2904.703 Policy. 2904.703-70 Contract clause. The contracting officer shall insert the clause at DOLAR 2952.204- 70, Records Management Requirements, in all solicitations and contracts in which the contractor creates, works with, or otherwise handles federal records, as defined in subsection (a) of the clause at DOLAR 2952.204-70, regardless of the medium in which the record exists. SUBCHAPTER B--ACQUISITION PLANNING PART 2905--PUBLICIZING CONTRACT ACTIONS Subpart 2905.2--Synopses of Proposed Contract Actions Sec. 2905.202 Exceptions. Authority: 5 U.S.C. 301; 40 U.S.C. 486(c). Subpart 2905.2--Synopses of Proposed Contract Actions 2905.202 Exceptions. The Assistant Secretary for Administration and Management is authorized to make the determination prescribed in FAR 5.202(b), subject to the consultation requirements therein. PART 2906 [RESERVED] PART 2907--ACQUISITION PLANNING Subpart 2907.1--Acquisition Plans Sec. 2907.107-2 Consolidation. 2907.108 Additional requirements for telecommuting. 2907.108-70 Contract clause. Authority: 5 U.S.C. 301; 40 U.S.C. 486(c). Subpart 2907.1--Acquisition Plans 2907.107-2 Consolidation. The SPE shall make the determination to approve consolidation per FAR 7.107-2. 2907.108 Additional requirements for telecommuting. 2907.108-70 Contract clause. Contracting officers shall insert the clause at DOLAR 2952.207-70, Contractor Personnel Telework, in all solicitations and contracts for services, including construction services. PART 2908 [RESERVED] PART 2909--CONTRACTOR QUALIFICATIONS Subpart 2909.3--First Article Testing and Approval Sec. 2909.301 Definitions. Subpart 2909.5--Organizational and Consultant Conflicts of Interest 2909.503 Waiver. 2909.507-70 Contract clause. Authority: 5 U.S.C. 301; 40 U.S.C. 486(c). Subpart 2909.3--First Article Testing and Approval 2909.301 Definitions. At DOL, the debarring official is the SPE. At DOL, the suspending official is the SPE. Subpart 2909.5--Organizational and Consultant Conflicts of Interest 2909.503 Waiver. (a) The Secretary of Labor delegates to the SPE the authority to waive any general rule or procedure in FAR subpart 9.5 when its application in a particular situation would not be in the Government's best interest. In making determinations under this subpart the SPE shall consult with the Office of the Solicitor. (b) The relevant HCA must make the request for such a waiver in writing to the SPE who will consult with the Agency Head with respect to each waiver request. Each request must include: (1) An analysis of the facts involving the potential or actual conflict, the nature and extent of the conflict, including benefits and costs to the Government and prospective contractors of granting the request; (2) An explanation of the measures taken to avoid, neutralize, and mitigate the conflict, if any; and (3) Identification of the provision(s) in FAR subpart 9.5 to be waived. 2909.507-70 Contract clause. Contracting officers shall insert the clause at DOLAR 2952.209-70, Organizational Conflict of Interest Clause--OCI-1 Exclusion from Future Agency Contracts, in all solicitations and contracts for services, including construction services and architectural and engineering services, and any other contract to which the Contractor Officer deems the clause to be applicable. PART 2910 [RESERVED] PART 2911--DESCRIBING AGENCY NEEDS Sec. 2911.002 Policy. 2911.002-70 Contract clause. Authority: 5 U.S.C. 301; 40 U.S.C. 486(c). 2911.002 Policy. 2911.002-70 Contract clause. In accordance with FAR 11.002(g), 12.202(e), and 39.101(d), the contracting officer shall insert the clause at DOLAR 2952.211-70, Internet Protocol Version 6 (IPv6) Clause, in all solicitations/awards when acquiring information technology products or services that are expected to exceed the micro-purchase threshold. [[Page 66621]] PART 2912 [RESERVED] SUBCHAPTER C--CONTRACTING METHODS AND CONTRACT TYPES PART 2913-2914 [RESERVED] PART 2915--CONTRACTING BY NEGOTIATION Subpart 2915.6--Unsolicited Proposals Sec. 2915.604 Agency points of contact. 2915.605 Content of unsolicited proposals. Authority: 5 U.S.C. 301; 40 U.S.C. 486(c). Subpart 2915.6--Unsolicited Proposals 2915.604 Agency points of contact. (a) The Director of Strategy and Administration (S&A) within the OSPE will be the point of contact for receipt of unsolicited proposals. This responsibility may be delegated by the Director of S&A. Only the cognizant contracting officer has the authority to bind the Government by accepting an unsolicited proposal. (b) The OSPE Director of Strategy and Administration is responsible for handling unsolicited proposals to ensure that unsolicited proposals are controlled, evaluated, safeguarded, and disposed of in accordance with FAR subpart 15.6. (c) The OSPE Director of Strategy and Administration may not consider an unsolicited proposal if the proposal resembles an upcoming solicitation or a procurement identified in the current annual acquisition plan. 2915.605 Content of unsolicited proposals. In addition to the contents required by FAR 15.605, unsolicited proposals for research should contain a commitment by the offeror to include cost-sharing or should represent a significant cost savings to DOL. PARTS 2916-2918 [RESERVED] SUBCHAPTER D--SOCIOECONOMIC PROGRAMS PART 2919--SMALL BUSINESS PROGRAMS Subpart 2919.2--Policies Sec. 2919.201 General policy. Authority: 5 U.S.C. 301; 40 U.S.C. 486(c). Subpart 2919.2--Policies 2919.201 General policy. The management of small and disadvantaged business utilization programs at DOL is the responsibility of the Program Manager of the Office of Small and Disadvantaged Business Utilization (OSDBU), within the OSPE. All DOL acquisition officials are responsible for providing opportunities to small businesses and small disadvantaged businesses in DOL acquisitions, in compliance with law, directives, and the FAR. Further information can be found at the OSDBU website, currently accessible at https://www.dol.gov/agencies/oasam/centers-offices/office-of-the-senior-procurement-executive/office-of-small-and-disadvantaged-business-utilization, or a successor website. PARTS 2920-2923 [RESERVED] PART 2924--PROTECTION OF PRIVACY AND FREEDOM OF INFORMATION Subpart 2924.1--Protection of Individual Privacy Sec. 2924.103 Procedures. 2924.103-70 Contract clause. Authority: 5 U.S.C. 301; 40 U.S.C. 486(c). Subpart 2924.1--Protection of Individual Privacy 2924.103 Procedures. 2924.103-70 Contract clause. Contracting officers shall insert the clause at DOLAR 2952.224-70, Privacy Breach Notification Requirements, in all solicitations and contracts except solicitations and contracts that are solely for the acquisition of commercially available off-the-shelf items. PARTS 2925-2926 [RESERVED] SUBCHAPTER E--GENERAL CONTRACTING REQUIREMENTS PART 2927 [RESERVED] PART 2928--BONDS AND INSURANCE Subpart 2928.1--Bonds and Other Financial Protections Sec. 2928.106-6 Furnishing information. Subpart 2928.2--Sureties and Other Security for Bonds 2928.203 Individual sureties. Authority: 5 U.S.C. 301; 40 U.S.C. 486(c). Subpart 2928.1--Bonds and Other Financial Protections 2928.106-6 Furnishing information. The HCA or designee performs the functions outlined in FAR 28.106- 6(c). Subpart 2928.2--Sureties and Other Security for Bonds 2928.203 Individual sureties. Contracting officers must refer evidence of possible criminal or fraudulent activities by an individual surety to the Office of Inspector General. PARTS 2929-2931 [RESERVED] PART 2932--CONTRACT FINANCING Subpart 2932.4--Advance Payments for Other Than Commercial Acquisitions Sec. 2932.408 Application for advance payments. Subpart 2932.5--Progress Payments Based on Costs 2932.501-2 Unusual progress payments. 2932.503-6 Suspension or reduction of payments. Subpart 2932.7--Contract Funding 2932.703 Contract funding requirements. 2932.703-70 Contract clause. Subpart 2932.9--Prompt Payment 2932.908 Contract clauses. Authority: 5 U.S.C. 301; 40 U.S.C. 486(c). Subpart 2932.4--Advance Payments for Other Than Commercial Acquisitions 2932.408 Application for advance payments. After consulting with the SPE, the HCA may authorize advance payments without interest pursuant to FAR 32.408. Subpart 2932.5--Progress Payments Based on Costs 2932.501-2 Unusual progress payments. After consulting with the SPE, the HCA may approve requests for ``unusual'' progress payments. 2932.503-6 Suspension or reduction of payments. Any action of a contracting officer under FAR 32.503-6 requires approval in advance from the HCA. Upon receipt of approval from the HCA, the contracting officer shall request the contract finance office to suspend or reduce payments. Subpart 2932.7--Contract Funding 2932.703 Contract funding requirements. 2932.703-70 Contract clause. Contracting officers shall insert the clause at DOLAR 2952.232-70, Limitation of Government's Obligation (LoGO), in all solicitations and contracts for severable services. [[Page 66622]] Subpart 2932.9--Prompt Payment 2932.908 Contract clauses. Contracting Officers shall insert the clause at DOLAR 2952.232-71, Submission of Invoices, in all solicitations and contracts. PART 2933--PROTESTS, DISPUTES, AND APPEALS Subpart 2933.1--Protests Sec. 2933.102 General. 2933.103 Protests to the agency. 2933.104 Protests to GAO. Subpart 2933.2--Disputes and Appeals 2933.203 Applicability. 2933.209 Suspected fraudulent claims. 2933.212 Contracting officer's duties upon appeal. Authority: 5 U.S.C. 301; 40 U.S.C. 486(c); E.O. 12979, 60 FR 55171, 3 CFR, 1995 Comp., p. 417. Subpart 2933.1--Protests 2933.102 General. (c)(1) The relevant contracting officer coordinates DOL's response to procurement protests filed with the U.S. Government Accountability Office (GAO), in consultation with DOL legal counsel at the Office of the Solicitor. (2) The authority of the Agency Head under FAR 33.102(b) to determine that a solicitation, proposed award, or award does not comply with the requirements of law or regulation is delegated to the HCA. 2933.103 Protests to the agency. (a) The relevant contracting officer will be the point of contact for agency-level protests. Upon receipt of an agency level protest, the contracting officer immediately notifies the Director of Strategy and Administration within the OSPE and the Office of the Solicitor of the protest. (b) OSPE's Director of Strategy and Administration is the Agency Protest Official. 2933.104 Protests to GAO. (a) Protests before award. The authority of the relevant HCA under FAR 33.104(b) to authorize a contract award when the agency has received notice from the GAO of a protest filed directly with the GAO is nondelegable. In coordination with the Office of the Solicitor, the HCA prepares the written finding with the information required by FAR 33.104(b)(1). (b) Protests after award. The authority of the HCA under FAR 33.104(c) to authorize contract performance when the agency has received notice from the GAO of a protest filed directly with the GAO is nondelegable. In coordination with the Office of the Solicitor, the HCA prepares and provides to the GAO the written finding with the information required by FAR 33.104(c)(2). (c) Notice to the GAO. The authority of the HCA under FAR 33.104(g), to report to the GAO the failure to fully implement the GAO recommendations with respect to a solicitation for a contract or an award or a proposed award of a contract within 60 days of receiving the GAO recommendations, is nondelegable. The written notice must be coordinated with the Office of the Solicitor. Subpart 2933.2--Disputes and Appeals 2933.203 Applicability. The authority of the Agency Head for action under FAR subpart 33.2 is delegated to the SPE. 2933.209 Suspected fraudulent claims. The contracting officer must refer all matters relating to suspected fraudulent claims by a contractor under the conditions in FAR 33.209 to the Office of the Inspector General for further action or investigation. 2933.212 Contracting officer's duties upon appeal. (a) When a notice of appeal to the Civilian Board of Contract Appeals has been received, the contracting officer must record the date of mailing (or the date of receipt if the notice was not mailed). The contracting officer must also immediately notify the Office of the Solicitor of the appeal. (b) The contracting officer should prepare and transmit the administrative file to the Office of the Solicitor and assist the Office of the Solicitor in the defense of the appeal and related matters. SUBCHAPTER F--SPECIAL CATEGORIES OF CONTRACTING PARTS 2934-2936 [RESERVED] PART 2937--SERVICE CONTRACTING Subpart 2937.1--Service Contracts-General Sec. 2937.110 Solicitation provisions and contract clauses. Authority: 5 U.S.C. 301; 40 U.S.C. 486(c). Subpart 2937.1--Service Contracts-General 2937.110 Solicitation provisions and contract clauses. Contracting officers shall insert the clause at DOLAR 2952.237-70, Emergency Continuation of Essential Services, in all solicitations and contracts that support essential functions identified in agency continuity plans. PART 2938 [RESERVED] PART 2939--ACQUISITION OF INFORMATION TECHNOLOGY Subpart 2939.2--Information and Communication Technology Sec. 2939.270 Contract clause. Authority: 29 U.S.C. 794; 36 CFR 1194.1. Subpart 2939.2--Information and Communication Technology 2939.270 Contract clause. Contracting officers shall insert the clause at DOLAR 2952.239-70, Section 508 Requirements, in all solicitations and contracts for the acquisition of Information and Communication Technology (ICT) to be used by the DOL. PARTS 2940-2941 [RESERVED] SUBCHAPTER G--CONTRACT MANAGEMENT PART 2942--CONTRACT ADMINISTRATION AND AUDIT SERVICES Subpart 2942.1--Contract Audit Services Sec. 2942.101 Contract audit responsibilities. 2942.101-70 Contract clause. Authority: 5 U.S.C. 301; 40 U.S.C. 486(c). Subpart 2942.1--Contract Audit Services 2942.101 Contract audit responsibilities. Contracting officers shall insert the clause at DOLAR 2952.242-70, Access to Contractor Business Systems, in all solicitations and contracts that include a covered contractor system, which is a system that is owned by, or operated by or for, a contractor that processes, stores, or transmits Federal information. 2942.101-70 Contract clause. Contracting officers shall insert the clause at DOLAR 2952.242-71, DOL Mandatory Training Requirements for Contractor Employees, in all solicitations and contracts for services, including construction services. PART 2943--CONTRACT MODIFICATIONS Subpart 2943.1--General Sec. 2943.104 Notification of contract changes. 2943.104-70 Contract clause. Authority: 5 U.S.C. 301; 40 U.S.C. 486(c). [[Page 66623]] Subpart 2943.1--General 2943.104 Notification of contract changes. 2943.104-70 Contract clause. Contracting officers shall insert the clause at DOLAR 2952.243-70, Contractor's Obligation to Notify the Contracting Officer of a Request to Change the Contract Scope (Contractor's Obligation Clause), in all solicitations and contracts. PART 2944 [RESERVED] PART 2945--GOVERNMENT PROPERTY Subpart 2945.1--General Sec. 2945.104 Responsibility and liability for Government property. 2945.104-70 Contract clause. 2945.105 Contractors' property management system compliance. 2945.105-70 Contract clause. Authority: 5 U.S.C. 301; 40 U.S.C. 486(c). Subpart 2945.1--General 2045.104 Responsibility and liability for Government property. 2945.104-70 Contract clause. Contracting officers shall insert the clause at DOLAR 2952.245-70, Contractor Responsibility to Report Theft of Government Property, in all solicitations and contracts that contain FAR clause 52.245-1, Government Property. 2945.105 Contractors' property management system compliance. 2945.105-70 Contract clause. Contracting officers shall insert the clause at DOLAR 2952.245-71, Asset Reporting Requirements, in all solicitations and contracts for the acquisition of Accountable Property to increase the management and tracking of high-value government assets. PARTS 2946-2951 [RESERVED] SUBCHAPTER H--CLAUSE AND FORMS PART 2952--SOLICITATION PROVISIONS AND CONTRACT CLAUSES Subpart 2952.2--Text of Provisions and Clauses Sec. 2952.201-70 Contracting Officer's Representative (COR) Clause. 2952.204-70 Records Management Requirements. 2952.207-70 Contractor Personnel Telework. 2952.209-70 Organizational Conflict of Interest Clause--OCI-1 Exclusion From Future Agency Contracts. 2952.211-70 Internet Protocol Version 6 (IPv6) Clause. 2952.224-70 Privacy Breach Notification Requirements. 2952.232-70 Limitation of Government's Obligation (LoGO). 2952.232-71 Submission of Invoices. 2952.237-70 Emergency Continuation of Essential Services. 2952.239-70 Section 508 Requirements. 2952.242-70 Access to Contractor Business Systems. 2952.242-71 DOL Mandatory Training Requirements for Contractor Employees. 2952.243-70 Contractor's Obligation to Notify the Contracting Officer of a Request to Change the Contract Scope (Contractor's Obligation Clause). 2952.245-70 Contractor Responsibility to Report Theft of Government Property. 2952.245-71 Asset Reporting Requirements. Authority: 5 U.S.C. 301; 40 U.S.C. 486(c). Subpart 2952.2--Text of Provisions and Clauses 2952.201-70 Contracting Officer's Representative (COR) Clause. As prescribed in 2901.602-70, insert the following clause: Contracting Officer's Representative (COR) Clause (SEP 2014) (a) A Contracting Officer's Representative (COR) will be delegated upon award. A copy of the delegation memorandum will be provided to the COR and a delegation letter sent to the vendor. (b) The COR is responsible as applicable for receiving all deliverables; inspecting and accepting the supplies or services provided hereunder in accordance with the terms and conditions of this contract; providing direction to the contractor which clarifies the contract effort, fills in details or otherwise serves to accomplish the contractual scope of work; evaluating performance; and certifying all invoices/vouchers for acceptance of the supplies or services furnished for payment. (c) The COR does not have the authority to alter the contractor's obligations under the contract, and/or modify any of the expressed terms, conditions, specifications, or cost of the agreement. If, as a result of technical discussions, it is desirable to alter/change contractual obligations or the scope of work, the contracting officer must issue such changes. (End of Clause) 2952.204-70 Records Management Requirements. As prescribed in 2904.703-70, insert the following clause: Records Management Requirements (AUG 2018) A. Definitions ``Federal record,'' as defined in 44 U.S.C. 3301, includes all recorded information, regardless of form or characteristics, made or received by a federal agency under federal law or in connection with the transaction of public business and preserved or appropriate for preservation by that agency or its legitimate successor as evidence of the organization, functions, policies, decisions, procedures, operations, or other activities of the United States Government or because of the informational value of data in them. The term federal record: (a) Includes DOL records. (b) Does not include personal materials. (c) Applies to records created, received, or maintained by contractors pursuant to their DOL contract. (d) May include deliverables and documentation associated with deliverables. B. Requirements (a) Contractor shall comply with all applicable records management laws and regulations, as well as National Archives and Records Administration (NARA) records policies, including but not limited to, the Federal Records Act (44 U.S.C. chs. 21, 29, 31, 33), NARA regulations at 36 CFR chapter XII, subchapter B, and those policies associated with the safeguarding of records covered by the Privacy Act of 1974 (5 U.S.C. 552a). These policies include the preservation of all records, regardless of form or characteristics, mode of transmission, or state of completion. (b) In accordance with 36 CFR 1222.32(b), all data created for Government use and delivered to, or falling under the legal control of, the Government are federal records subject to the provisions of 44 U.S.C. chapters 21, 29, 31, and 33, the Freedom of Information Act (FOIA) (5 U.S.C. 552), as amended, and the Privacy Act of 1974 (5 U.S.C. 552a), as amended and must be managed and scheduled for disposition only as permitted by statute or regulation. (c) In accordance with 36 CFR 1222.32, contractor shall maintain all records created for government use or created in the course of performing the contract and/or delivered to, or under the legal control of, the Government and must be managed in accordance with federal law. Electronic records and associated metadata must be accompanied by sufficient technical documentation to permit understanding and use of the records and data. (d) DOL and its contractors prevent the alienation or unauthorized destruction of records, including all forms of mutilation. Records may not be removed from the legal custody of DOL or destroyed except for in accordance with the provisions of the applicable agency schedules and with the written concurrence of the Head of the Contracting Activity in consultation with the Agency Records Officer. Willful and unlawful destruction, removal, damage, or alienation of federal records is subject to the fines and penalties imposed by 18 U.S.C. 2701. In the event of any unlawful or accidental removal, defacing, alteration, or destruction of records, the contractor must report the event to DOL. The agency must report the incident directly to their Agency Records Officer. The Agency Records Officer will engage the Departmental Records Officer who will follow procedures promptly to report to NARA in accordance with 36 CFR part 1230. (e) The contractor shall immediately notify the appropriate contracting officer upon [[Page 66624]] discovery of any inadvertent or unauthorized disclosures of information, data, documentary materials, records, or equipment. Disclosure of non-public information is limited to authorized personnel with a need-to-know as described in the contract. The contractor shall ensure that the appropriate personnel, administrative, technical, and physical safeguards are established to ensure the security and confidentiality of this information, data, documentary material, records and/or equipment is properly protected. The contractor shall not remove material from government facilities or systems, or facilities or systems operated or maintained on the Government's behalf, without the express written permission of the Head of the Contracting Activity. When information, data, documentary material, records, and/or equipment is no longer required, it shall be returned to DOL's control, or the contractor must hold it until otherwise directed. Items returned to the Government shall be hand carried, mailed, emailed, or securely electronically transmitted to the contracting officer or address prescribed in the contract. Destruction of records is EXPRESSLY PROHIBITED unless in accordance with paragraph (d) of this clause. (f) The contractor is required to obtain the contracting officer's approval prior to engaging in any contractual relationship (sub-contractor) in support of this contract requiring the disclosure of information, documentary material, and/or records generated under, or relating to, contracts. The contractor (and any sub-contractor) is required to abide by government and DOL guidance for protecting sensitive, proprietary information, classified, and controlled unclassified information. (g) The contractor shall only use government IT equipment for purposes specifically tied to or authorized by the contract and in accordance with DOL policy. (h) The contractor shall not create or maintain any records containing any non-public DOL information that are not specifically tied to or authorized by the contract. (i) The contractor shall not retain, use, sell, or disseminate copies of any deliverable that contains information covered by the Privacy Act of 1974 or that which is generally protected from public disclosure by an exemption to the Freedom of Information Act. (j) [Insert the following if no other data rights clause has been included in the contract] The DOL owns the rights to all data and records produced as part of this contract. All deliverables under the contract are the property of the U.S. Government for which DOL shall have unlimited rights to use, dispose of, or disclose such data contained therein as it determines to be in the public interest. Any contractor rights in the data or deliverables must be identified as required by FAR 52.227-11 through 52.227-20. (k) Training. All contractor employees assigned to this contract who create, work with, or otherwise handle records are required to take the annual mandatory records management training, provided by DOL, as directed by the Contracting Officer's Representative (COR). The training shall be completed in a timeframe specified by the COR. The contractor confirms training has been completed according to agency policies, including initial training and any annual or refresher training. C. Flow Down of Requirements to Subcontractors (a) The contractor shall incorporate the substance of this clause, its terms, and requirements, including this paragraph, in all subcontracts under this contract and require written subcontractor acknowledgment of same. (b) Violation by a subcontractor of any provision set forth in this clause will be attributed to the contractor. (End of Clause) 2952.207-70 Contractor Personnel Telework. As prescribed in 2907.108-70, insert the following clause: Contractor Personnel Telework (OCT 2021) The Government shall not provide or reimburse contractor personnel for internet connectivity. (End of Clause) 2952.209-70 Organizational Conflict of Interest Clause--OCI-1 Exclusion From Future Agency Contracts. As prescribed in 2909.507-70, insert the following clause: Organizational Conflict of Interest Clause--OCI-1 Exclusion From Future Agency Contracts (DEC 2012) This clause supplements the FAR provisions on organizational conflicts of interest, located at FAR subpart 9.5 and should be read in conjunction with these provisions. To the extent there is any inconsistency or confusion between the two provisions, the FAR provision controls. (a) Work under this contract may create a future organizational conflict of interest (OCI) that could prohibit the contractor from competing for, or being awarded, future government contracts. The following examples illustrate situations in which organizational conflicts of interest may arise. They are not all inclusive, but will be used by the contracting officer as general guidance in individual contract situations: (1) Unequal Access to Information. The performance of this contract may provide access to ``nonpublic information,'' which could provide the contractor an unfair competitive advantage in later solicitations or competitions for other DOL contracts. Such an advantage could be perceived as unfair by a competing vendor who is not given similar access to the same nonpublic information that is related to the future procurement action. If you, as a contractor, in performing this contract, obtain nonpublic information that is relevant to a future procurement action, you may be required to submit and negotiate an acceptable mitigation plan prior to being deemed eligible to compete on the future action. Alternatively, the ``nonpublic information'' may be provided to all offerors. (2) Biased Ground Rules. Your contract with DOL may have, in some fashion, established important ``ground rules'' for another DOL procurement, in which you may desire to be a competitor. For example, this contract may involve you drafting the statement of work, specifications, or evaluation criteria for a future DOL procurement. The primary concern, in any such situation, is that any such firm could skew the competition, whether intentionally or not, or be perceived as having skewed the competition, in its own favor. If the requirements of this DOL contract anticipate the contractor may be placed in a position to establish important ground rules, including but not limited to those described herein, the contractor may be precluded from competing in the related action or, if possible, may be required to submit and negotiate an acceptable mitigation plan. (3) Impaired Objectivity. The performance of this contract may result in the contractor being placed in a situation where it is able, or required, to provide assessment and evaluation findings concerning itself, another business division, a subsidiary or affiliate, or other entity with which it has a significant financial relationship. The concern in this case is that the contractor's ability to render impartial advice to DOL could appear to be undermined by the contractor's financial or other business relationship to the entity whose work product is being assessed or evaluated. In these situations, a ``walling off'' of lines of communication between entities or divisions may be acceptable, but it also may not be sufficient to remove the perception that the objectivity of the contractor has been tainted. If the requirements of the DOL procurement indicate that a contractor may be placed in a position to provide evaluations and assessments of itself or other entities with which it has a significant financial relationship, the affected contractor should notify DOL immediately. The contractor may also be required to provide a mitigation plan that includes recusal by the contractor from one of the affected contracts. Such recusal might include divestiture of the work to a third party. (b) To prevent a future OCI of any kind, the contractor shall be subject to the following restrictions: (1) The contractor may be excluded from competition for, or award of, any government contracts as to which, in the course of performing another contract, the contractor has received nonpublic and competitively relevant information before such information has been made generally available to other persons or firms. (2) The contractor may be excluded from competition for, or award of, any government contract for which the contractor actually assisted or participated in the development of specifications or statements of work. (3) The contractor may be excluded from competition for, or award of, any government contract which calls for it to evaluate itself, any affiliate, or any products or services produced or performed thereby. (4) The contractor may be excluded from competition for, or award of, any government [[Page 66625]] contract calling for the production or performance of any product or service for which the contractor participated in the development of requirements or definitions pursuant to another contract. (c) This clause shall not exclude the contractor from performing work under any modification to this contract or from competing for award of any future contract for work that is the same or similar to work performed under this contract, so long as the conditions above are not present. This clause does not prohibit an incumbent from competing on a follow-on competition, but the contracting officer may require a mitigation plan or other steps as needed to ensure that there has not been an unequal access to nonpublic competitively sensitive information. (d) The term ``contractor'' as used in this clause, includes any person, firm, or corporation that owns or controls, or is owned or controlled by, the contractor. The term also includes the corporate officers of the contractor. (e) The agency may, in its sole discretion, waive any provisions of this clause if deemed in the best interest of the Government. The exclusions contained in this clause shall apply for the duration of this contract and for three (3) years after completion and acceptance of all work performed hereunder, or such other period as the contracting officer shall direct. (f) If any provision of this clause excludes the contractor from competition for, or award of any contract, the contractor shall not be permitted to serve as a subcontractor, at any tier, on such contract. This clause shall be incorporated into any subcontracts or consultant agreements awarded under this contract unless the contracting officer determines otherwise. (End of Clause) 2952.211-70 Internet Protocol Version 6 (IPv6) Clause. As prescribed in 2911.002-70, insert the following clause: Internet Protocol Version 6 (IPv6) Clause (MAY 2015) (a) Any system or product that includes: hardware, software, firmware, and/or networked components, including but not limited to, voice, video, or data that is developed, procured, or acquired in support and/or performance of this requirement shall be capable of transmitting, receiving, processing, or forwarding digital information across system boundaries that are formatted in accordance with commercial standards of Internet Protocol (IP) version 6 (IPv6) as set forth in the USGv6 Profile (NIST Special Publication 500-267) and corresponding declarations of conformance defined in the USGv6 Test Program. (b) This IPv6 capable system or product shall maintain interoperability with IPv4 systems and provide the same level of performance and reliability capabilities of IPv4 systems. (c) This IPv6 capable system or product shall have available IPv4 and IPv6 technical support for development, implementation, and troubleshooting of the system. (d) This IPv6 capable system or product can be upgraded, or the vendor will provide an appropriate migration path for industry- required changes to IPv6 as the technology evolves, at no additional cost to the Government. (e) This IPv6 capable system or product must be able to operate on networks supporting IPv4 & IPv6, as well as networks that support both. (f) Any system or product whose IPv6 non-compliance is discovered and made known to the vendor/contractor within 12 months of the start of performance shall be upgraded, modified, replaced, or brought into compliance at no additional cost to the Federal Government. (End of Clause) 2952.224-70 Privacy Breach Notification Requirements. As prescribed in 2924.103-70, insert the following clause: Privacy Breach Notification Requirements (APR 2018) A. Definitions ``Breach'' is defined as the loss of control, compromise, unauthorized disclosure, unauthorized acquisition, or any similar occurrence where-- (a) A person other than an authorized user accesses or potentially accesses Personally Identifiable Information (PII); or (b) An authorized user accesses or potentially accesses PII for an unauthorized purpose. ``Information'' is defined as any communication or representation of knowledge such as facts, data, or opinions in any medium or form, including textual, numerical, graphic, cartographic, narrative, electronic, or audiovisual forms (see Office of Management and Budget (OMB) Circular No. A-130, Managing Federal Information as a Strategic Resource). ``Information System'' is defined as a discrete set of information resources organized for the collection, processing, maintenance, use, sharing, dissemination, or disposition of information (44 U.S.C. 3502). ``Personally Identifiable Information'' is defined as information that can be used to distinguish or trace an individual's identity, either alone or when combined with other information that is linked or linkable to a specific individual (see OMB Circular No. A-130, Managing Federal Information as a Strategic Resource). B. Requirements (a) Contractors and subcontractors that collects or maintains federal information on behalf of the agency or uses or operates an information system on behalf of the agency shall comply with federal law e.g., FISMA 2014, E-Government Act and the Privacy Act. Additionally, the contractor shall meet OMB directives and National Institute of Standards and Technology Standards to ensure processing of PII is adequately managed. (b) The contractor shall: (1) Properly encrypt PII in accordance with appropriate laws, regulations, directives, standards, or guidelines; (2) Report to DOL any suspected or confirmed breach in any medium or form, including paper, oral, and electronic within one hour of discovery; (3) Cooperate with and exchange information with DOL (contracting officer and Contracting Officer's Representative) as well as allow for an inspection, investigation, forensic analysis, as determined necessary by the DOL, to effectively report and manage a suspected or confirmed breach; (4) Maintain capabilities to determine what DOL information was or could have been compromised and by whom, construct a timeline of user activity, determine methods and techniques used to access federal information, and identify the initial attack vector; (5) Ensure staff who have access to DOL systems or information are regularly trained to identify and report a security incident. This includes the completion of any DOL mandatory training for contractors; (6) Take steps to address security issues that have been identified, including steps to minimize further security risks to those individuals whose PII was lost, compromised, or potentially compromised. (7) Report incidents per DOL incident management policy and US- CERT notification guidelines. (c) Remedy: (1) A report of a breach shall not, by itself, be interpreted as evidence that the contractor or its subcontractor (at any tier) failed to provide adequate safeguards for PII. If the contractor is determined to be at fault for the breach, the contractor may be financially liable for government costs incurred in the course of breach response and mitigation efforts; (2) The contractor shall take steps to address security issues that have been identified, including steps to minimize further security risks to those individuals whose PII was lost, compromised, or potentially compromised. Additionally, the individual or individuals directly responsible for the data breach shall be removed from the contract within 45 days of the breach of data; and (3) The Government reserves the right to exercise all available contract remedies including, but not limited to, a stop-work order on a temporary or permanent basis to address a breach or upon discovery of a contractor's failure to report a breach as required by this clause. If the contractor is determined to be at fault for a breach, the contractor shall provide credit monitoring and privacy protection services for one year to any individual whose private information was accessed or disclosed. The individual shall be given the option, but the decision is theirs. Those services will be provided solely at the expense of the contractor and will not be reimbursed by the Federal Government. (End of Clause) 2952.232-70 Limitation of Government's Obligation (LoGO). As prescribed in 2932.703-70, insert the following clause: [[Page 66626]] Limitation of Government's Obligation (LoGO) (JUL 2014) (a) Contract line item(s) ($ to be determined at the exercise of each option) through ($ to be determined at the exercise of each option) are incrementally funded. For these item(s), the sum of ($ to be determined at the exercise of each option) of the total price is presently available for payment and allotted to this contract. An allotment schedule is set forth in paragraph (j) of this clause. (b) For item(s) identified in paragraph (a) of this clause, the contractor agrees to perform up to the point at which the total amount payable by the Government, including reimbursement in the event of termination of those item(s) for the Government's convenience, approximates the total amount currently allotted to the contract. The contractor is not authorized to continue work on those item(s) beyond that point. The Government will not be obligated in any event to reimburse the contractor in excess of the amount allotted to the contract for those item(s) regardless of anything to the contrary in the clause entitled ``Termination for Convenience of the Government.'' As used in this clause, the total amount payable by the Government in the event of termination of applicable contract line item(s) for convenience includes costs, profit, and estimated termination settlement costs for those item(s). (c) Notwithstanding the dates specified in the allotment schedule in paragraph (j) of this clause, the contractor will notify the contracting officer in writing at least thirty days prior to the date when, in the contractor's best judgment, the work will reach the point at which the total amount payable by the Government, including any cost for termination for convenience, will approximate 80 percent of the total amount presently allotted to the contract for performance of the applicable item(s). The notification will state (1) the estimated date when that point will be reached and (2) an estimate of additional funding, if any, needed to continue performance of applicable line items up to the next scheduled date for allotment of funds identified in paragraph (j) of this clause, or to a mutually agreed upon substitute date. The notification will also advise the contracting officer of the estimated amount of additional funds that will be required for the timely performance of the item(s) funded pursuant to this clause, for a subsequent period as may be specified in the allotment schedule in paragraph (j) of this clause or otherwise agreed to by the parties. If after such notification additional funds are not allotted by the date identified in the contractor's notification, or by an agreed substitute date, the contracting officer will terminate any item(s) for which additional funds have not been allotted, pursuant to the clause of this contract entitled ``Termination for Convenience of the Government.'' (d) When additional funds are allotted for continued performance of the contract line item(s) identified in paragraph (a) of this clause, the parties will agree as to the period of contract performance, which will be covered by the funds. The provisions of paragraphs (b) through (d) of this clause will apply in like manner to the additional allotted funds and agreed substitute date, and the contract will be modified accordingly. (e) If, solely by reason of failure of the Government to allot additional funds, by the dates indicated below, in amounts sufficient for timely performance of the contract line item(s) identified in paragraph (a) of this clause, the contractor incurs additional costs or is delayed in the performance of the work under this contract and if additional funds are allotted, an equitable adjustment will be made in the price or prices (including appropriate target, billing, and ceiling prices where applicable) of the item(s), or in the time of delivery, or both. Failure to agree to any such equitable adjustment hereunder will be a dispute concerning a question of fact within the meaning of the clause entitled ``Disputes.'' In no event shall the equitable adjustment be more than the contract line item(s) price(s) in question. (f) The Government may at any time prior to termination allot additional funds for the performance of the contract line item(s) identified in paragraph (a) of this clause. (g) The termination provisions of this clause do not limit the rights of the Government under the clause entitled ``Default.'' The provisions of this clause are limited to the work and allotment of funds for the contract line item(s) set forth in paragraph (a) of this clause. This clause no longer applies once the contract is fully funded except with regard to the rights or obligations of the parties concerning equitable adjustments negotiated under paragraphs (d) and (e) of this clause. (h) Nothing in this clause affects the right of the Government to terminate this contract pursuant to the clause of this contract entitled ``Termination for Convenience of the Government.'' (i) Nothing in this clause shall be construed as authorization of voluntary services whose acceptance is otherwise prohibited under 31 U.S.C. 1342. (j) The parties contemplate that the Government will allot funds to this contract in accordance with the following schedule: On execution of contract $ __ * (month) (day), (year) $ __ * (month) (day), (year) $ __ * (month) (day), (year) $ __ * * To be inserted after negotiation. (End of Clause) Alternate I (JUL 2014). If only one line item will be incrementally funded, substitute the following paragraph (a) for paragraph (a) of the basic clause: (a) Contract line item __ is incrementally funded. The sum of $ * is presently available for payment and allotted to this contract. An allotment schedule is contained in paragraph (j) of this clause. * To be inserted after negotiation. 2952.232-71 Submission of Invoices. As prescribed in 2932.908, insert the following clause: Submission of Invoices (AUG 2019) (a) Electronic Invoice Submittal Invoices for the services/goods provided under this award shall be submitted through the Department of Treasury's Invoice Processing Platform (IPP) or through the DOL Quickpay email system, as directed by the Contracting Officer. IPP is a Federal Government owned and operated website accessible to contractors free of charge. Information about IPP, including enrollment instructions, are available and should be obtained by the enrolled contractors directly from the Department of Treasury after award at https://www.ipp.gov. (1) The following instructions apply to Invoices submitted through IPP.Gov or the DOL Quickpay email system: (i) IPP invoice attachments SHALL NOT exceed the size limit of 10 megabytes (MB) each. However, you may submit multiple attachments of less than 10MB each with the invoices. (ii) DO NOT submit an invoice or attachment that uses shading or color. (b) An emailed Portable Document Format (PDF) image cannot have any text that has a background with any color other than white. If the image has a shaded background, it will be converted to black, and the text will be illegible. (c) An emailed Tagged Image File Format (TIFF) image must be black and white. (1) Quickpay users SHALL provide a copy of the invoice and any attachments via email to the Contracting Officer's Representative (COR, at the address specified in the contract. (2) Quickpay users SHALL NOT submit more than one attachment per invoice and the attachment shall not exceed 10MB. Any additional attachments will not be recognized. (3) DO NOT submit more than one invoice at a time. (4) DO NOT attempt to use the ``Recall'' or ``Resend'' email message features. (d) Electronic invoices shall be in PDF or TIFF format. (e) Paper Invoices shall be submitted via fax or U.S. mail Paper invoices may be sent via fax to: (202) 693-2862. Mail paper invoices to: U.S. Department of Labor, Office of Financial Management Operations Division of Client Accounting, Services Room S-5526, 200 Constitution Avenue NW, Washington, DC 20210. (f) General Information. Payment due date is to be calculated from the date the invoice is received in accordance with FAR 32.905 and the instructions above. Inquiries regarding invoices must be emailed to [email protected]. The relevant invoice must be attached to the inquiry email and the subject line of the email must state ``INQUIRY'', as shown in the following example: INQUIRY: Contractor Name, DOL Agency, Contract Number, BPA Call or Order Number, Invoice Number, Invoice Amount The contractor SHALL NOT use the DOL electronic invoicing email address for inquiries about any invoice. Questions: All questions regarding Electronic Invoicing shall be sent to the DOL Office of the Chief Financial Officer (OCFO) at [email protected]. [[Page 66627]] (End of Clause) 2952.237-70 Emergency Continuation of Essential Services. As prescribed in 2937.110, insert the following clause: Emergency Continuation of Essential Services (MAR 2014) (a) Essential Services. DOL has identified certain services under this agreement (contract, BPA, BOA, task/delivery order, or other vehicle, hereinafter ``requirement'') as being essential to the DOL's missions and operations. Such essential services must continue to be performed, even if an event occurs (or is threatened to occur) that would disrupt or interfere with operations at, or with access to, facilities where services ordinarily take place. Such an event may include, but is not limited to, emergencies that may be natural (e.g., earthquake; flood; hurricane; tornado; public health emergencies, including pandemic influenza), man-made (e.g., civil unrest, chemical spill, cyber or terrorist threats or attacks), or technological (e.g., building fire, utility outage), and which may affect one or more facilities or locations, including federal facilities, where the contractor normally performs services hereunder. (b) Contingency Plans. Unless already included in the requirement, within 30 days of the commencement of performance (or the bi-lateral incorporation of this clause), the contractor shall submit the following contingency plans to the contracting officer (CO) and the Contracting Officer's Representative (COR): (1) A contingency plan to continue performance off-site for a period of between 1 and 30 days; and (2) A contingency plan to continue performance off-site for more than 30 days, until the event described above is resolved. (3) Such contingency plans will become an obligation of the contractor under the requirement. (c) Contents of the Contingency Plans. The contingency plans referenced in paragraph above shall, at a minimum, address: (1) How the contractor plans to continue performance of essential services for the duration of an event, including identifying and securing suitable off-site workplaces, personnel, and resources; (2) The contractor's use of off-site facilities, including allowing its essential personnel to work from an alternative site or other remote locations to perform essential services; (3) Alert and notification procedures for mobilizing and communicating with DOL and with essential personnel, and for communicating expectations to its personnel regarding their roles and responsibilities during the event; (4) A list of telephone numbers and email addresses (with alternates if available) for all managers currently performing under the requirement; and (5) Processes and requirements for the identification, training, and preparedness of essential personnel who would be capable of relocating to alternate facilities or performing work from home. (d) Approval of the Contingency Plans. The CO, in consultation as appropriate with the COR, shall review both contingency plans within 14 days of receipt, or as agreed, and shall either accept them or advise the contractor of any reason for disapproval. If either plan is not accepted by the CO, the contractor shall resubmit a revised plan within 7 days, or as agreed. (e) Activation of a Contingency Plan. The Agency Head, CO, COR, or other authorized agency official may activate the contractor's Contingency Plan by notifying the contractor either orally or in writing. In the event of an oral instruction, a written confirmation of the activation will follow shortly after the resumption of normal activities. Once a contingency plan has been activated, services hereunder shall continue without delay or interruption, notwithstanding the ``Excusable Delay'' Clause, or any other provision of the contract (or requirement if this contract vehicle is BPA, BOA, or similar vehicle). (f) Failure to Execute a Plan. In the event the contractor is unable or unwilling to perform the essential services identified under the requirement, as determined by DOL in its sole discretion, DOL reserves the right, in addition to any other right it may have, to use federal employees or other contract support, either from existing contracts or new contracts, to continue those critical services. DOL may view the contractor's failure to implement the Contingency Plan as not performing a contractual requirement and reserves all rights to seek remedies associated with any such nonperformance. Any new contracting efforts would be conducted in accordance with the FAR, OFPP's January 14, 2011 Emergency Acquisition Guide, or any other subsequent emergency guidance that may be issued. (End of Clause) 2952.239-70 Section 508 Requirements. As prescribed in 2939.270, insert the following clause: Section 508 Requirements (AUG 2024) A. Definition The term ``Information and Communication Technology (ICT)'' in this contract is used as defined at FAR 2.101. B. Requirements Section 508 of the Rehabilitation Act, as amended (29 U.S.C. 794d), applies to federal departments, such as DOL, and the contractors providing support on behalf of such federal departments. The contractor is required to provide Section 508 compliant systems and components of ICT when federal agencies develop, procure, maintain, or use ICT. The contractor shall ensure that its system and components allow federal employees and members of the public with disabilities access to, and use of, information and data that is comparable to the access afforded federal employees and members of the public without disabilities. Products, platforms, and services delivered as part of this contract action that are ICT, or contain ICT, shall conform to the Revised Section 508 Standards, which are located at 36 CFR part 1194, appendices A and C. Please insert the clause(s) below which meet the parameters of the contract being awarded. (a) Requirements by service/contract type are as follows: (1) Custom ICT Development Services: When the contractor provides custom ICT development services and/or Commercially Available Off-the-Shelf (COTS) products, pursuant to the requirements, the contractor shall ensure the ICT fully conforms to the Revised 508 Standards (36 CFR part 1194, appendices A and C) prior to delivery and before final Acceptance. (2) Installation, Configuration, & Integration Services: When the contractor provides installation, configuration, or integration services for equipment or software pursuant to the requirement, the contractor shall not install, configure, or integrate the equipment or software in a way that reduces the level of conformance with the Revised 508 Standards (36 CFR part 1194, appendices A and C). (3) Maintenance Upgrades & Replacements: The contractor shall ensure maintenance upgrades, substitutions, and replacements to equipment and software pursuant to this award do not reduce the approved level of conformance with the Revised 508 Standards (36 CFR part 1194, appendices A and C) at the time of award. Additionally, an updated Accessibility Conformance Report (ACR) shall be submitted for the ICT, and the ACR shall be completed according to the instructions provided by the Information Technology Industry Council (ITI) to be considered for each option year exercised. (4) Contractor Processes: The contractor shall ensure that its processes are at a maturity level at least equivalent to the DHS Trusted Tester methodology; that its personnel have the knowledge, skills, and ability necessary to make ICT under this contract conform to the Revised 508 Standards (36 CFR part 1194, appendices A and C); and that it provides conformant Section 508 supporting documentation upon request. (5) Hosting Services: The contractor shall not implement hosting services in a manner that reduces the existing level of conformance of the electronic content with the Revised 508 Standards (36 CFR part 1194, appendices A and C), when providing hosting services for electronic content to the agency. Throughout the life of the award, the agency reserves the right to perform Independent third-party testing on a vendor or contractor's hosted solution to verify conformance. (b) Validation for ICT: The contractor shall test and validate the ICT for conformance to the Revised 508 Standards (36 CFR part 1194, appendices A and C), in accordance with the required testing methods and provide test results to verify conformance of the Voluntary Product Assessment Template (VPAT). (1) For web and software, WCAG 2.0 Level A and AA Conformance test results shall be based on the Accessibility Tests for Software and Web, Harmonized Testing Process for Section 508 Compliance from the DHS Trusted Tester program. [[Page 66628]] (2) For Microsoft Office and PDF documents, WCAG 2.0 Level A, and AA Conformance test results shall be based on the Harmonized Testing Guidance from the Accessible Electronic Documents Community of Practice. (3) For ICT that are not electronic content, the contractor shall validate conformance to the Revised 508 Standards (36 CFR part 1194, appendices A and C) using a defined testing process. The contractor shall describe the test process and provide the testing results to the agency. (c) Conformance Reporting: For ICT that are developed, updated, or configured for the agency, and when product substitutions are offered: (1) Before Acceptance, the contractor shall provide an Accessibility Conformance Report (ACR) for the ICT that is developed, updated, configured for the agency, and when product substitutions are offered. The ACR should be based on the most recent version of the Voluntary Product Assessment Template (VPAT) provided by the Information Technology Industry Council (ITI). An ACR shall be submitted for each ICT and shall be completed according to the instructions provided by ITI to be considered for Acceptance. (2) Before Acceptance, when the contractor is required to perform testing to validate conformance to the agency's accessibility requirements, the vendor shall provide a supplemental accessibility report that contains the following information: i Accessibility test results based on the required test methods. ii Documentation of features provided to help achieve accessibility and usability for people with disabilities. iii Documentation of core functions that cannot be accessed by persons with disabilities. iv Documentation on how to configure and install the ICT to support accessibility. v. When ICT is an authoring tool that generates content (including documents, reports, training, videos, multimedia productions, web content, etc.), provide information on how the ICT enables the creation of accessible electronic content that conforms to the Revised 508 Standards (36 CFR part 1194, appendices A and C), including the range of accessible user interface elements the tool can create. vi. Before final Acceptance, the contractor shall provide a fully working demonstration of the completed ICT to demonstrate conformance to the agency's accessibility requirements. The demonstration shall expose where such conformance is and is not achieved. (3) At any time, DOL reserves the right to perform Independent third-party testing to validate the ICT provided by the contractor, conforms to the Revised 508 Standards (36 CFR part 1194, appendices A and C). (d) Non-Compliance: Before final Acceptance of ICT, including updates and replacements, DOL shall determine that the furnished ICT is in compliance with the Revised 508 Standards (36 CFR part 1194, appendices A and C). If the furnished ICT is determined to be non- compliant, the contracting officer shall notify the contractor of this determination, within 15 business days of determination of non- compliance. The contractor shall, at no cost to DOL, repair or replace the non-compliant products or services within the period specified by the contracting officer. The contracting officer makes the final decision to accept or not accept a contractor's ICT that does not meet the Revised 508 Standards (36 CFR part 1194, appendices A and C). (End of Clause) 2952.242-70 Access to Contractor Business Systems. As prescribed in 2942.101, insert the following clause: Access to Contractor Business Systems (APR 2019) The contractor shall, upon request, provide to the Government, access to covered contractor systems associated with the execution and performance of this requirement to meet audits, reviews, security requirements, and Office of Inspector General requests. (End of Clause) 2952.242-71 DOL Mandatory Training Requirements for Contractor Employees. As prescribed in 2942.101-70, insert the following clause: DOL Mandatory Training Requirements for Contractor Employees (AUG 2018) (a) Where required and applicable, contractor employees, including employees of subcontractors at any tier, shall complete any DOL designated and hosted training that the Contracting Officer's Representative (COR) identifies as mandatory. Training shall be completed in a timeframe specified by the COR. (b) Time spent on training shall be counted as regular hours worked. (c) The contractor shall ensure this clause is incorporated in all subcontracts, at any tier. (End of Clause) 2952.243-70 Contractor's Obligation To Notify the Contracting Officer of a Request to Change the Contract Scope (Contractor's Obligation Clause). As prescribed in 2943.104-70, insert the following clause: Contractor's Obligation To Notify the Contracting Officer of a Request To Change the Contract Scope (Contractor's Obligation Clause) (JAN 2012) (a) Except for changes identified in writing and signed by the contracting officer, the contractor is required to notify, within 5 working days of receipt or knowledge, any request for changes to this contract (including actions, inactions, and written or oral communications) that the contractor regards as exceeding the scope of the contract. On the basis of the most accurate information available to the contractor, the notice shall state: (1) The date, nature, and circumstances of the conduct regarded as a change in scope; (2) The name, function, and activity of each Government employee and contractor official or employee involved in, or knowledgeable about, such conduct; and (3) The identification of any documents and substance of any oral communication involved in such conduct. (b) Following submission of this notice, the contractor shall continue performance in accordance with the contract terms and conditions, unless notified otherwise by the contracting officer. (c) The contracting officer shall promptly, within 5 business days after receipt of notice from the contractor, respond to the notice in writing. In responding, the contracting officer shall either: (1) Confirm that the contractor's notice identifies a change in the scope of the contract and directs the contractor to stop work, completely or in part, in accordance with the Stop Work provisions of the contract; (2) Deny that the contractor's notice identifies a change in scope and instruct the contractor to continue performance under the contract; or (3) In the event the contractor's notice does not provide sufficient information to make a decision, advise the contractor what additional information is required, and establish the date by which it should be furnished and the date thereafter by which the Government will respond. (End of Clause) 2952.245-70 Contractor Responsibility to Report Theft of Government Property. As prescribed in 2945.104-70, insert the following clause: Contractor Responsibility To Report Theft of Government Property (FEB 2020) Upon the contractor becoming aware of theft of government property by its employee(s), including theft that occurs at subcontractor or alternate site locations, the contractor shall report the theft of government property to the Contracting Officer's Representative or CO of record. (End of Clause) 2952.245-71 Asset Reporting Requirements. As prescribed in 2945.105-70, insert the following clause: Asset Reporting Requirements (JUL 2019) (A) Definitions ``Accountable Property'' is a term to identify property that is essential to DOL operations for which it is in the best interest of the Government to assign and record accountability to assure proper use, maintenance, and disposal. This includes items purchased and obtained through a ``lease-to-own'' program. The following items are DOL Accountable Property: (1) DOL-owned or DOL-leased serialized items (i.e., items with a manufacturer's serial number) with an acquisition unit cost above $3,000. (2) DOL-owned or DOL-leased ``sensitive items.'' [[Page 66629]] (3) DOL-owned or DOL-leased furniture with an acquisition unit cost above $10,000. Items with an acquisition unit cost less than $10,000 are not applicable. ``Sensitive Items'' are defined as items, regardless of value, that have appeal to others and may therefore be subject to theft or to security concerns, or that are considered mission critical. The following are considered sensitive items, as well as any other items identified as sensitive by the Contracting Officer's Representative (COR): (1) Desktops and Laptops, including docking stations and connectable monitors. (2) PDAs/iPads/SurfacePros/Tablets. (3) Printers and Copiers. (4) Software Licenses, including media. (5) Mobile Devices. (6) Firearms. (7) Communication Equipment (e.g. telephone base and handsets, mobile radio equipment, etc.). (8) Conference/Audio-Visual Equipment. (9) Power/Specialty Tools (e.g. lab equipment, postage meters, etc.). (B) Requirements The contractor shall submit a DOL Asset Report at time of delivery for both Accountable Property and Sensitive Items. The DOL Asset Report shall be delivered electronically to the COR. DOL Asset Reports shall include Accountable Property and Sensitive Items that have been delivered. The report shall be formatted as an Office Open XML Spreadsheet (.XLSX) document, and adhere to following DOL Asset Report Requirements: (a) Award/Purchase Number. The award number issued by the Government. (b) Date Shipped. The date the item was shipped to the Government. (c) Asset Type. The contract Line-Item Description. (d) Manufacturer. The manufacturer of the item. (e) Model. The model (name and/or number) of the item. (f) Serial Number. The serial number of the item. (g) DOL Asset Number. The number of the barcode applied before shipping (if barcoding is required by the award). (h) Government Shipping Street Address. The shipping street address of where the item was delivered. (i) Warrantied Item. Indicates whether an item is warrantied (Y or N). (j) Warranty Time frame. The start and end date of the warranty (if applicable). (k) Cost. Acquisition cost per unit and total cost of purchase. (End of Clause) PARTS 2953-2999 [RESERVED] Signed this 30 day of July, 2024. Carolyn Angus-Hornbuckle, Assistant Secretary for Administration and Management. [FR Doc. 2024-17141 Filed 8-15-24; 8:45 am] BILLING CODE 4510-04-P

usgpo

2024-10-08T13:26:24.945772

FR

FR-2024-08-16/2024-18112

Federal Register Volume 89 Issue 159 (August 16, 2024)

United States National Archives and Records Administration Office of the Federal Register

[Federal Register Volume 89, Number 159 (Friday, August 16, 2024)] [Rules and Regulations] [Pages 66629-66633] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 2024-18112] ======================================================================= ----------------------------------------------------------------------- DEPARTMENT OF TRANSPORTATION National Highway Traffic Safety Administration 49 CFR Part 576 [Docket No. NHTSA-2019-0035] RIN 2127-AL81 Record Retention Requirement AGENCY: National Highway Traffic Safety Administration (NHTSA), Department of Transportation (DOT). ACTION: Final rule. ----------------------------------------------------------------------- SUMMARY: This rule is being issued pursuant to the Fixing America's Surface Transportation (FAST) Act, which requires the Secretary of Transportation (Secretary) to extend the period of time manufacturers of motor vehicles, child restraint systems, and tires must retain records concerning malfunctions that may be related to motor vehicle safety under the National Traffic and Motor Vehicle Safety Act (Safety Act). Section 24403 of the FAST Act directs the Secretary to issue a rule increasing the record retention period to not less than 10 years, instead of 5 years, as presently required under the regulatory provisions. Pursuant to its delegated authority, NHTSA is updating its regulations in accordance with this mandate to extend the time that manufacturers are required to retain certain records that may be related to motor vehicle safety to 10 years. DATES: Effective date: This rule is effective October 15, 2024. Petitions for reconsideration: Petitions for reconsideration of this final rule must be received not later than September 30, 2024. ADDRESSES: Any petitions for reconsideration should refer to the docket number of this document and be submitted to: Administrator, National Highway Traffic Safety Administration, 1200 New Jersey Avenue SE, West Building, Fourth Floor, Washington, DC 20590. FOR FURTHER INFORMATION CONTACT: Michael Kuppersmith, Trial Attorney, Office of the Chief Counsel, National Highway Traffic Safety Administration, 1200 New Jersey Avenue SE, Washington, DC 20590 (telephone: (202) 366-2992). SUPPLEMENTARY INFORMATION: Table of Contents I. Executive Summary II. Record Retention Requirements Under the Safety Act Prior to the FAST Act III. The Notice of Proposed Rulemaking IV. The Final Rule V. Regulatory Analyses and Notices I. Executive Summary The FAST Act was signed into law on December 4, 2015. Public Law 114-94. Section 24403 of the FAST Act directs the Secretary of Transportation to increase the amount of time manufacturers of motor vehicles, child restraint systems, and tires are required to maintain records that contain information concerning malfunctions that may be related to motor vehicle safety. In the final rule, the Secretary must lengthen the time that manufacturers must maintain these records to not less than 10 years from the date the records were generated or acquired. Public Law 114-94, sec. 24403(a). In May 2019, NHTSA proposed amending its regulation to increase the retention period to 10 years and is now finalizing that proposal. Based on NHTSA's experience investigating potential defects, overseeing recalls, and our consideration of the comments, we have determined that finalizing the proposed 10-year records retention requirement would help address the agency's investigative needs while minimizing the burden to manufacturers of motor vehicles and equipment. Thus, this final rule extends the record retention requirement for records required to be maintained under 49 CFR 576.6 to 10 years. NHTSA may consider further extending the retention period in the future. This final rule does not require manufacturers to retain any new information; it merely requires manufacturers to retain information they are already required to retain under 49 CFR part 576 for a longer period of time. This final rule also does not extend the time period that manufacturers of motor vehicles and motor equipment are required to retain records underlying information reported under 49 CFR part 579. In accordance with the FAST Act, the extended time period applies to records in manufacturers' possession on the effective date of this rule and records generated or acquired in the future. Public Law 114- 94, sec. 24403(b). II. Record Retention Requirements Under the Safety Act Prior to the FAST Act Part 576 requires manufacturers of motor vehicles, child restraint systems, and tires to retain ``all documentary materials, films, tapes, and other information-storing media that contain information concerning malfunctions that may be related to motor vehicle [[Page 66630]] safety.'' 49 CFR 576.6; see 49 CFR 576.5(a). These records must be maintained for use in the investigation and disposition of possible defects related to motor vehicle safety or noncompliance with safety standards and associated regulations. 49 CFR 576.2. Manufacturers of motor vehicles, child restraint systems, and tires must currently keep the records required to be maintained by 49 CFR 576.6 for 5 years after they are generated or acquired. 49 CFR 576.5(a). Manufacturers of motor vehicles and all manufacturers of motor vehicle equipment must also keep documents underlying reporting required by 49 CFR part 579 for 5 years after they are generated or acquired. 49 CFR 576.5(b). However, according to 49 CFR 576.5(c), manufacturers of motor vehicles and motor vehicle equipment are not required to keep copies of documents reported to NHTSA as required by 49 CFR parts 573, 577, and 579. No manufacturer is required to keep duplicates according to 49 CFR 576.7. III. The Notice of Proposed Rulemaking In the notice of proposed rulemaking (NPRM), published May 15, 2019,\1\ NHTSA proposed that manufacturers of motor vehicles, child restraint systems, and tires be required to retain records concerning malfunctions that may be related to motor vehicle safety for 10 years. The NPRM stated that the proposal was based on NHTSA's experience with the increasing age of motor vehicles and motor vehicle equipment and the importance of records from manufacturers, balanced against the agency's desire to avoid unnecessarily burdening manufacturers of motor vehicles and motor vehicle equipment. The NPRM stated that it was NHTSA's belief that a records retention period of 10 years would ensure that manufacturers would preserve records that NHTSA needs to conduct defect investigations without imposing an undue record retention burden on manufacturers. --------------------------------------------------------------------------- \1\ 84 FR 21741. --------------------------------------------------------------------------- The NPRM requested comment on manufacturers' current records retention practices; the burden of increasing the records retention period for records required to be maintained by 49 CFR 576.6 to 15, 20, or 25 years; costs that might be associated with storage of electronic records; and the total volume of records retained pursuant to part 576 by a manufacturer. The NPRM noted that while the average age of the vehicle fleet was 11.6 years in 2016,\2\ a 10-year long records retention period is of significant length when compared to records retention periods of similar scope of other operating administrations within the United States Department of Transportation and other federal agencies that regulate motor vehicles and child products.\3\ The NPRM recognized that, as the length of time that vehicles remain on the road has increased in recent years, the amount of information generated and retained by vehicle manufacturers has also increased. Thus, extending the records retention requirement increases the total volume of information that must be stored. --------------------------------------------------------------------------- \2\ 84 FR 21742. \3\ Id. (citing Federal Railroad Administration, Federal Motor Carrier Safety Administration, Consumer Product Safety Commission, and Environmental Protection Agency requirements). --------------------------------------------------------------------------- The NPRM also noted that manufacturers of child restraint systems and tires would also be bound by a lengthened retention period in part 576 even though the free remedy period for tires is 5 years and the useful life of tires and child restraint systems is often less than 10 years. The NPRM also discussed the several instances in which NHTSA has declined to extend the records retention period in part 576 to correspond to the free remedy period for recalls in 49 U.S.C. 30120. The NPRM stated that, based on NHTSA's experience investigating potential defects and overseeing recalls, many manufacturers of motor vehicles and equipment already retain some of the records subject to this rule for periods of time longer than the current 5-year minimum. In response to the NPRM, NHTSA received comments from the U.S. Tire Manufacturers Association (USTMA), the Center for Auto Safety, and the Motor and Equipment Manufacturers Association (MEMA). USTMA stated that it opposed any recordkeeping requirement applicable to tire manufacturers of a period longer than 10 years. USTMA stated that use cases for tires and the typical life span of tire models demonstrates that there is not sufficient justification to extend the records retention requirement longer than 10 years. USTMA further stated that an estimated 80 percent of tires are removed from service on a vehicle within 6 years of manufacture and more than 60 percent of tires are removed from service in fewer than 4 years after their manufacture. USTMA states that while the age of the U.S. vehicle fleet has increased, tire replacement rates have remained static despite improved tire technology because of increases in the total number of vehicle miles traveled per year in the U.S. USTMA pointed to prior instances in which NHTSA had found it was not cost beneficial to extend the records retention requirements in part 576 as evidence that it may not be cost beneficial in the current instance to extend the records retention requirements beyond 10 years. The Center for Auto Safety stated that a 10-year period was insufficient to ensure that information relevant to safety defects is preserved for review by NHTSA investigators. The Center for Auto Safety further stated that by limiting the records retention requirements in part 576 to 10 years, NHTSA would be limiting the purview of NHTSA's Office of Defect Investigation (ODI) for vehicles older than 5 years to the post-design stage. The Center for Auto Safety maintained that this requirement would limit ODI's ability to investigate design defects. The Center for Auto Safety maintained that often NHTSA's ability to make a defect determination hinges on evidence of a design or manufacturing defect of which relevant documents may have been produced years before vehicles or equipment is manufactured and sold to the public. Thus, a shorter retention period could limit access to these types of records. The Center for Auto Safety noted that at the time of the NPRM, 44 percent of the 43 active Defect Petitions and Preliminary Evaluations and Engineering Analysis investigations involved vehicles or equipment that began production more than 10 years earlier. The Center for Auto Safety asserted that without knowing motor vehicle and equipment manufacturers' current records retention practices, NHTSA has no basis for asserting that extending the records retention period beyond 10 years will burden manufacturers because manufacturers are likely already retaining the records. The Center for Auto Safety specifically called on NHTSA to extend the record retention period to a minimum of 20 years to ensure the agency can effectively evaluate safety defects in both new and older vehicles and to support the agency's recall and enforcement authorities. MEMA's comments applauded NHTSA for recognizing the differences in record retention burdens between manufacturers of vehicles and those of manufacturers of tires and child restraints. MEMA supported NHTSA's decision to propose only extending the records retention period in 49 CFR 576.6 as well as the decision not to propose extending retention requirements for manufacturers of motor vehicle equipment other than child [[Page 66631]] restraints and tires. MEMA also supported the comments of USTMA. The commenters did not provide information on vehicle or equipment manufacturers' current retention practices or the costs of electronic records storage. IV. The Final Rule After considering all available information, including the comments, NHTSA has decided to adopt the changes to the regulation proposed in the NPRM without modification. In the NPRM the agency stated, that based on its experience investigating potential defects and overseeing recalls, many manufacturers of motor vehicles and equipment currently retain records subject to this rule for periods of time longer than currently required. NHTSA also stated a belief that the cost of electronic storage is low and nothing contained in the comments has led NHTSA to change that view. Thus, this final rule will require manufacturers to maintain records for the minimum 10-year period specified in the FAST Act and NHTSA will consider further extending this requirement in the future. NHTSA acknowledges, as mentioned by the Center for Auto Safety, that in many cases manufacturers of motor vehicles and equipment are currently retaining records for their own business purposes for a period of time longer than 10 years. In its investigations, ODI has been able to receive relevant records from the motor vehicle or equipment manufacturer, even in many instances in which the records are far older than those required to be retained. In response to the Center for Auto Safety's assertion that the age of the vehicles and equipment that are the subject of open investigations and Defect Petitions demonstrate that a 10-year records retention period is insufficient, NHTSA notes that the manufacturers' general practices of retaining records longer than the required period has enabled the agency to obtain relevant records when necessary. While the burden of extending the records retention requirement in part 576 longer than 10 years may be minimal, the agency has decided that finalizing a 10-year requirement now is appropriate. That action will ensure that records are retained for that longer retention period immediately upon the effective date of this rule and will not foreclose the agency from further consideration of a longer retention period, which could serve as a backstop to ensure that manufacturers continue to retain older records that the agency often considers in its work. NHTSA must also consider the burden of extending the records retention requirements in 49 CFR 576.6 to manufacturers of tires and child restraints, which may not retain records for as long as motor vehicle manufacturers. Furthermore, ODI needs records older than 10 years old from child restraint system and tire manufacturers less often than from vehicle manufacturers. Thus, in the future, NHTSA may consider different retention periods tailored to its needs. The Center for Auto Safety further asserted that a records retention period of 10 years will limit ODI's oversight of manufacturing and design defects. As noted above, it is ODI's experience that in most cases records are available past the period for which manufacturers are required to keep them. Furthermore, while design and manufacturing records can be helpful to demonstrating the existence of a defect, NHTSA can prove a defect based on performance alone. See 49 U.S.C. 30120(a)(3) (defining ``defect'' as including a defect in performance); U.S. v. Gen. Motors, 518 F.2d 420, 438 (D.C. Cir. 1975). While we are declining at this time to extend the records retention requirement for records covered by 49 CFR 576.6 for a period longer than 10 years, we do note that the average age of the U.S. on-road vehicle fleet has increased since the NPRM.\4\ Finalizing the proposed retention period now ensures that manufacturers retain records for the minimum 10-year period, in accordance with the FAST Act mandate. The agency will consider a further extension of the requirement in the future. --------------------------------------------------------------------------- \4\ The average age of the U.S. light vehicle fleet was 12.6 years in 2024. See Average Age of Vehicles in the US Continues to Rise: 12.6 Years in 2024, According to S&P Mobility (May 22. 2024), available https://www.spglobal.com/mobility/en/research-analysis/average-age-vehicles-united-states-2024.html (last visited June 13, 2024). --------------------------------------------------------------------------- V. Regulatory Analyses and Notices A. Executive Order (E.O.) 12866, E.O. 13563, E.O. 14094, and DOT Regulatory Policies and Procedures NHTSA has considered the impact of this rulemaking action under E.O. 12866, E.O. 13563, E.O. 14094, and DOT's regulatory policies and procedures. This final rule is nonsignificant under E.O. 12866 and E.O. 14094 and was not reviewed by the Office of Management and Budget (OMB). It is also not considered ``of special note to the Department'' under DOT Order 2100.6A, Rulemaking and Guidance Procedures. This rule amends 49 CFR part 576 to require motor vehicle, child restraint system, and tire manufacturers to maintain records for a longer period than the currently required 5-year time period. This rule does not require manufacturers to maintain any records they are not already required to maintain, but instead is designed to lengthen the time manufacturers retain certain records. Extending the period of time to 10 years is expected to lead to various unquantifiable benefits such as formalizing manufacturers' records retention practices and ensuring that, in all instances, records that must be retained under section 576.6 are available in the case of a NHTSA investigation for a minimum of 10 years. Based on NHTSA's experience conducting investigations and overseeing recalls, NHTSA believes that most manufacturers of motor vehicles subject to this rule already retain records for a longer period than currently specified in part 576. It is NHTSA's position that those manufacturers of motor vehicles or equipment who do currently retain records for longer than 10 years would be able to adjust their record retention systems in response to this rulemaking with minimal cost. Because we expect any costs, benefits, or savings associated with this rulemaking to be minimal, we have not prepared a separate economic analysis for this rulemaking. B. Regulatory Flexibility Act In compliance with the Regulatory Flexibility Act, 5 U.S.C. 601, et seq., NHTSA has evaluated the effects of this action on small entities. I hereby certify that this final rule would not have a significant impact on a substantial number of small entities. The rule affects manufacturers of motor vehicles, child restraint systems, and tires, a few of which may qualify as small entities. Such manufacturers are expected to have fewer records, because they produce fewer motor vehicles, child restraint systems, and tires than larger manufacturers. Accordingly, the burden imposed on smaller manufacturers to retain these records should be small. Additionally, this rule will merely extend how long manufacturers keep records that they are already required to maintain under current regulations, amounting to a minimal impact on small businesses. Thus, NHTSA believes that the regulation does not impose a significant burden on small manufacturers. C. Executive Order 13132 (Federalism) NHTSA has examined today's rule pursuant to E.O. 13132 (64 FR 43255, Aug. 10, 1999) and concluded that no additional consultation with states, [[Page 66632]] local governments, or their representatives is mandated beyond the rulemaking process. The agency has determined that the rulemaking would not have sufficient federalism implications to warrant consultation with state and local officials or the preparation of a federalism summary impact statement. The rule would apply to manufacturers of motor vehicles and motor vehicle equipment and 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. Thus, E.O. 13132 is not implicated and consultation with state and local officials is not required. D. National Environmental Policy Act NHTSA has analyzed this rule for the purposes of the National Environmental Policy Act. The agency has determined that the implementation of this action will not have any significant impact on the quality of the human environment. E. Congressional Review Act The Congressional Review Act, 5 U.S.C. 801 et seq., generally provides that before a rule may take effect, the agency promulgating the rule must submit a rule report, which includes a copy of the rule, to each House of the Congress and to the Comptroller General of the United States. NHTSA will submit a report containing this rule and other required information to the U.S. Senate, the U.S. House of Representatives, and the Comptroller General of the United States prior to publication of the rule in the Federal Register. This rule does not meet the criteria in 5 U.S.C. 804(2) to be considered a major rule. F. Paperwork Reduction Act Under the procedures established by the Paperwork Reduction Act of 1995 (PRA) (44 U.S.C. 3501, et seq.), federal agencies must obtain approval from the OMB for each collection of information they conduct, sponsor, or require through regulations. A person is not required to respond to a collection of information by a federal agency unless the collection displays a valid OMB clearance number. In compliance with these requirements, NHTSA is submitting an information collection requestion (ICR) to OMB for modifications to a currently approved information collection titled ``Record Retention--49 CFR part 576'' (OMB Control No. 2127-0042, Current Expiration Date: 4/30/2026). The final rule amends 49 CFR part 576 to extend the time manufacturers must retain certain information, which is considered to be an information collection requirement, as that term is defined by the OMB in 5 CFR part 1320. NHTSA sought comment on this change in the NPRM published on May 15, 2019.\5\ NHTSA's responses to the comments are discussed in section III above. As discussed, NHTSA is adopting the proposal without modification. --------------------------------------------------------------------------- \5\ 84 FR 21741. --------------------------------------------------------------------------- In accordance with the requirements of the PRA, NHTSA is resubmitting the ICR for this final rule. While NHTSA has not made any substantial modifications to the ICR since publishing the NPRM, NHTSA has revised the estimates for the total burden of this collection due to changes in the number of respondents since the NPRM was issued. NHTSA estimates the total burden of this information collection to be 40,225 hours and $0, which is the same burden estimate provided for the currently approved information collection. NHTSA does not believe the modification will increase burden to manufacturers. However, this estimate is higher than what we estimated in the May 15, 2019 NPRM, in which we as estimated that the burden would be 40,020 hours and $0. The adjustment is a result of an increase in the estimated number of the manufacturers required to maintain the records (an increase of five manufacturers each incurring an estimated 40 burden hours each year and an additional five manufacturers incurring an estimated 1 burden hour each year). NHTSA continues to estimate that there are no additional costs associated with this information collection. In compliance with the requirement at 5 CFR 1320.9(g), NHTSA is providing the following information to potential respondents to the information collections for part 576--Record Retention: Paperwork Reduction Act Statement: A federal agency may not conduct or sponsor, and a person is not required to respond to, nor shall a person be subject to a penalty for failure to comply with, a collection of information subject to the requirements of the Paperwork Reduction Act unless that collection of information displays a current valid OMB Control Number. The OMB Control Number for this information collection is 2127-0042. The information collected is necessary to increase the effectiveness of NHTSA's investigations into potential safety related defects. The records that are required to be retained per 49 CFR part 576 are used to promptly identify potential safety-related defects in motor vehicles and motor vehicle equipment in the United States. When a trend in incidents arising from a potentially safety-related defect is discovered, NHTSA relies on this information, along with other agency data, to determine whether or not to open a formal defect investigation (as authorized by Title 49 U.S.C. Chapter 301--Motor Vehicle Safety). The record retention requirements are mandatory and NHTSA estimates that the annual burden associated with these record retention requirements is approximately 40 hours per manufacturer for vehicle and equipment manufacturers and 1 hour per manufacturer for record retention for death reports. Send comments regarding this burden estimate or any other aspect of this collection of information, including suggestions for reducing this burden to: Information Collection Clearance Officer, National Highway Traffic Safety Administration, 1200 New Jersey Ave. SE, Room W45-205, Washington, DC 20590. G. National Technology Transfer and Advancement Act Under the National Technology Transfer and Advancement Act of 1995 (Pub. L. 104-113), ``all Federal agencies and departments shall use technical standards that are developed or adopted by voluntary consensus standards bodies, using such technical standards as a means to carry out policy objectives or activities determined by the agencies and departments.'' The amendment in today's final rule extends the time manufacturers retain records, and does not involve any voluntary consensus standards as it relates to NHTSA or this rulemaking. H. Executive Order 12988 (Civil Justice Reform) With respect to the review of the promulgation of a new regulation, section 3(b) of E.O. 12988, ``Civil Justice Reform'' (61 FR 4729, Feb. 7, 1996), requires that Executive agencies make every reasonable effort to ensure that the regulation: (1) clearly specifies the preemptive effect; (2) clearly specifies the effect on existing federal law or regulation including all provisions repealed, circumscribed, displaced, impaired, or modified; (3) provides a clear legal standard for affected conduct rather than a general standard, while promoting simplification and burden reduction; (4) clearly specifies the retroactive effect, if any; (5) specifies whether administrative proceedings are to be required before parties may file suit in court; (6) adequately defines key terms; and (7) addresses other important issues affecting clarity and general draftsmanship under any guidelines issued by the Attorney General. This document is consistent with that requirement. Pursuant to this Order, NHTSA has considered these issues and determined [[Page 66633]] that this rule does not have any retroactive or preemptive effect. The rule only applies to documents in manufacturers' possession at the time the rule goes into effect and documents generated or acquired by manufacturers in the future. NHTSA notes further that there is no requirement associated with this rule that individuals submit a petition for reconsideration or pursue other administrative proceeding before they may file suit in court. I. Unfunded Mandates Reform Act The Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4) requires agencies to prepare a written assessment of the costs, benefits, and other effects of proposed or final rules that include a federal mandate likely to result in the expenditure by state, local, or tribal governments, in the aggregate, or by the private sector, of more than $100 million annually (adjusted for inflation with base year of 1995). This rule would not result in expenditures by state, local, or tribal governments, in the aggregate, or by the private sector in excess of $100 million annually (adjusted for inflation with base year of 1995). J. Executive Order 13211 E.O. 13211 (66 FR 28355, May 18, 2001) applies to any rulemaking that: (1) is determined to be economically significant as defined under E.O. 12866, and is likely to have a significantly adverse effect on the supply of, distribution of, or use of energy; or (2) that is designated by the Administrator of the Office of Information and Regulatory Affairs as a significant energy action. This rulemaking is not subject to E.O. 13211. K. Regulation Identifier Number The DOT assigns a regulation identifier number (RIN) to each regulatory action listed in the Unified Agenda of Federal Regulations. The Regulatory Information Service Center publishes the Unified Agenda in April and October of each year. You may use the RIN contained in the heading at the beginning of this document to find this action in the Unified Agenda. List of Subjects in 49 CFR Part 576 Motor vehicle safety, Tires, Reporting and recordkeeping requirements. For the reasons discussed in the preamble, NHTSA amends 49 CFR part 576 as follows: PART 576--RECORD RETENTION 0 1. The authority citation for part 576 is revised to read as follows: Authority: 49 U.S.C. 322(a), 30117, 30120(g), 30141-30147; delegation of authority at 49 CFR 1.95. 0 2. Amend Sec. 576.5 to revise paragraph (a) to read as follows: Sec. 576.5 Basic requirements. (a) Each manufacturer of motor vehicles, child restraint systems, and tires shall retain, as specified in Sec. 576.7 of this part, all records described in Sec. 576.6 of this part for a period of 10 calendar years from the date on which they were generated or acquired by the manufacturer. * * * * * Issued in Washington, DC, under authority delegated in 49 CFR 1.95 and 501.5. Sophie Shulman, Deputy Administrator. [FR Doc. 2024-18112 Filed 8-15-24; 8:45 am] BILLING CODE 4910-59-P

usgpo

2024-10-08T13:26:24.985668

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FR-2024-08-16/2024-18053

Federal Register Volume 89 Issue 159 (August 16, 2024)

United States National Archives and Records Administration Office of the Federal Register

[Federal Register Volume 89, Number 159 (Friday, August 16, 2024)] [Rules and Regulations] [Pages 66633-66638] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 2024-18053] ======================================================================= ----------------------------------------------------------------------- DEPARTMENT OF COMMERCE National Oceanic and Atmospheric Administration 50 CFR Part 679 [Docket No. 240808-0216] RIN 0648-BM69 Fisheries of the Exclusive Economic Zone Off Alaska; Amendment 113 to the Fishery Management Plan for the Groundfish of the Gulf of Alaska; Central Gulf of Alaska Rockfish Program Adjustments AGENCY: National Marine Fisheries Service (NMFS), National Oceanic and Atmospheric Administration (NOAA), Commerce. ACTION: Final rule. ----------------------------------------------------------------------- SUMMARY: NMFS issues this final rule to implement amendment 113 to the Fishery Management Plan (FMP) for the Groundfish of the Gulf of Alaska (GOA). This final rule modifies specific provisions of the Central Gulf of Alaska (CGOA) Rockfish Program (RP) to change the season start date, remove the catcher vessel (CV) cooperative quota (CQ) cap, and revise the processing and harvesting caps. This final rule is necessary to provide increased flexibility and efficiency and to help ensure the rockfish total allowable catch (TAC) is fully harvested and landed in Kodiak while maintaining the intent of the RP. This action is intended to promote the goals and objectives of the Magnuson-Stevens Fishery Conservation and Management Act (Magnuson-Stevens Act), the GOA FMP, and other applicable laws. DATES: Effective September 16, 2024. ADDRESSES: Electronic copies of amendment 113 to the GOA FMP, the Environmental Assessment/Regulatory Impact Review prepared for this action (the analysis), and the Finding of No Significant Impact prepared for this action may be obtained from https://www.regulations.gov and the NMFS Alaska Region website at https://www.fisheries.noaa.gov/region/alaska. Written comments regarding the burden-hour estimates or other aspects of the collection-of-information requirements contained in this final rule may be submitted to NMFS Alaska Region, P.O. Box 21668, Juneau, AK 99802-1668, Attn: Gretchen Harrington; and to www.reginfo.gov/public/do/PRAMain. Find this particular information collection by selecting ``Currently under Review--Open for Public Comments'' or by using the search function. FOR FURTHER INFORMATION CONTACT: Joel Kraski, 907-586-7228, [email protected]. SUPPLEMENTARY INFORMATION: This final rule implements amendment 113 to the GOA FMP. A notice of availability (NOA) for amendment 113 was published by NMFS in the Federal Register on April 4, 2024 (89 FR 23535), with public comments invited through June 3, 2024. NMFS published a proposed rule to implement amendment 113 in the Federal Register on May 10, 2024 (89 FR 40449), with public comments invited through June 10, 2024. The Secretary of Commerce approved amendment 113 on June 27, 2024 after considering information from the public and determining that amendment 113 is consistent with the GOA FMP, the Magnuson-Stevens Act, and other applicable laws. NMFS received 3 relevant written comments in response to requests for public comment, that were either directed to the NOA for the FMP amendments, the proposed rule, or both, in association with Secretarial approval of the amendment or the proposed rule. A summary of the comments and NMFS' responses are provided under the heading Comments and Responses section below. Background The Rockfish Program The RP was developed to enhance resource conservation and improve economic efficiency in the CGOA rockfish fisheries. A detailed description of the RP and its development is provided in the preambles to the proposed and final [[Page 66634]] rules implementing the RP (76 FR 52147, August 19, 2011; 76 FR 81248, December 27, 2011). The RP, which includes the CGOA rockfish species of Pacific ocean perch, northern rockfish, and pelagic shelf rockfish, is based on the recognition of historical participation of fishing vessels and processors in the CGOA rockfish fisheries from 1996 to 2002. The rockfish primary species are northern rockfish, Pacific ocean perch, and dusky rockfish. The rockfish secondary species are Pacific cod, rougheye rockfish, shortraker rockfish, and sablefish. The RP provides catch limits for non-rockfish species and non-target rockfish species harvested with the CGOA rockfish species, based upon historical harvest levels of these incidentally caught species, and sets aside up to 5 percent of the TAC of the CGOA rockfish fisheries for CVs that are not eligible to participate in the program. The RP apportions TAC to cooperatives formed by individuals holding a License Limitation Program (LLP) license with rockfish quota share (QS). Fishing under cooperative management resulted in a slower-paced fishery that allowed harvesters to choose when to fish and provided greater stability for processors by spreading out production over a longer period of time. Final Rule Amendment 113 and this final rule address changes in, and potentially resolve associated commercial fish market impacts to, the RP fishery since the RP was reauthorized in 2021. A detailed description of this action and its development is provided in the preamble to the proposed rule and in the Analysis. This final rule changes the regulations to improve the likelihood that the TACs for the rockfish species are fully harvested and landed in Kodiak. This final rule provides additional flexibility for trawl vessels to participate in the RP during April each year, and keep rockfish processors fully operational, thus mitigating impacts from changes in market conditions. This final rule also implements changes to three of the RP use caps to remove constraints on the amount of CQ that can be caught or processed by participants, while still maintaining RP's original intent to limit consolidation while allowing this fishery to be prosecuted in a sustainable and functional manner. The term ``use cap'' or ``cap'' is the limit on the quota that can be caught or processed by participants in the RP. Change in Rockfish Program Season Start Date This final rule changes the start date for this fishery from May 1 to April 1, specified at 50 CFR 679.80(a)(3)(ii) for a rockfish cooperative, to enhance flexibility for processing plants and vessel operators participating in the RP. This change in season start date helps maintain processing capacity for other non-trawl fisheries through workforce stability. This final rule changes associated references to RP season start dates in Sec. Sec. 679.5(r)(10), 679.7(n)(3)(i), 679.7(n)(6)(vi), 679.51(a)(2)(vi)(D)(1), 679.81(i)(3), 679.84(g)(1), and 679.84(g)(2). The changes in Sec. 679.5(r)(10) add April to the reporting period of the Rockfish Ex-vessel Volume and Value Report. The changes in Sec. 679.7(n)(3)(i) and (n)(6)(vi) extend the requirement to use a Vessel Monitoring System (VMS) during the month of April while operating in the RP fishery. The changes in Sec. 679.51(a)(2)(vi)(D)(1) extend the observer requirements for RP from May to the month of April. The changes in Sec. Sec. 679.81(i)(3), 679.84(g)(1), and 679.84(g)(2) extend when catch of the rockfish primary species and rockfish secondary species are deducted from CQ from May to the month of April. These provisions all reference the season start date for RP and the changes in this final rule make the regulations consistent with the change to the season start date and eliminate references to the prior start date of May 1. Remove the Catcher Vessel Cooperative Rockfish CQ Use Cap This final rule removes Sec. 679.82(a)(3), thereby eliminating the CV cooperative rockfish CQ use cap that prevents a CV rockfish cooperative from holding or using an amount of rockfish primary species CQ during a calendar year that is greater than an amount resulting from 30.0 percent of the aggregate rockfish primary species QS initially assigned to the CV sector. Therefore, this final rule relieves the unnecessary administrative burden caused by the CQ use cap preventing RP CVs from joining together into larger cooperatives, providing more flexibility within the RP fishery for CVs. Increase the Use Caps for Rockfish Processors This final rule revises 50 CFR 679.82(a)(5) to increase the use cap for rockfish processors from 30 percent to 40 percent of the CV QS pool for rockfish primary species, Pacific cod, and sablefish, which ensures that a minimum of three Kodiak processors are necessary to process all the RP CQ. Revise CV Aggregated Rockfish Harvesting Cap This final rule revises 50 CFR 679.82(a)(4) by removing dusky rockfish and northern rockfish from the calculation of the 8 percent harvest vessel use cap for CVs. This final rule does not change the harvest vessel use cap for catcher/processor vessels. This change removes the phrases ``rockfish primary species'' and ``aggregate rockfish primary species'' in paragraph (4) and replaces them with the phrase ``Pacific ocean perch.'' This effectively removes dusky rockfish and northern rockfish from the calculation of the 8 percent harvest vessel use cap, so that the cap now applies only to a CV's harvest of Pacific ocean perch. This may improve the likelihood that the TACs for the rockfish primary species and the rockfish secondary species are fully harvested and landed in Kodiak. Other Regulatory Changes In addition to the regulatory changes necessary to implement amendment 113, NMFS revises the following regulations for clarity, efficiency, and technical consistency: Replace all relevant instances of ``pelagic shelf rockfish'' with ``dusky rockfish'' in 50 CFR 679.7(n)(4), 679.7(n)(6)(vi), and table 37 in part 679. This change clarifies that the regulations apply only to one species: dusky rockfish. This resolves an incorrect species grouping reference that was not completely resolved with the final rule to implement amendment 111 to the GOA FMP (86 FR 11895, March 1, 2021); Revise 50 CFR 679.5(r)(8)(i)(A) and (B) to allow vessel operators to submit the check in/out reports on behalf of the rockfish cooperative for additional flexibility; Remove the website address for the NMFS Alaska Region website in 50 CFR 679.5(r)(10)(v); Revise 50 CFR 679.81(f)(4) by removing the requirement to submit all listed documents for the Annual Application for the RP. Thus, all documents are required to be submitted with an initial application, while applicants are required to resubmit only those documents from the initial application that contain new or changed information; and Revise 50 CFR 679.81(g)(2)(i) and (ii) by removing ``Transfer Key'' from the application for inter-cooperative transfer of cooperative quota, as Transfer Keys are no longer used by the RP. [[Page 66635]] Comments and Responses NMFS received three comment letters on the Notice of Availability and the proposed rule. NMFS summarized and responded to the three unique comments below. The comments were from individuals and industry participants. One comment was outside the scope of this action. Comment 1: The fishery is under extreme stress due to global and domestic seafood market conditions across all species and sectors. These adjustments help alleviate some of these challenges and stressors. Response: NMFS acknowledges the comment. Comment 2: The current practice of having the cooperative's designated representative perform all the check ins and check outs has worked well to date and a regulatory change is not warranted for catcher vessels. The provision allowing vessel operators to check vessels in and out of the fishery should be limited to the Catcher Processor sector. Response: This provision requires that the designated representative authorizes a vessel operator to complete vessel check- ins and check-outs. This is a voluntary action and the designated representative may opt to complete all vessel check-ins and check-outs for the CV sector. Changes From Proposed to Final Rule NMFS made no changes from the proposed to final rule. Classification NMFS is issuing this final rule pursuant to sections 304(b) and 305(d) of the Magnuson-Stevens Act, which provide the specific authority for implementing this action. Pursuant to sections 304(b) and 305(d) of the Magnuson-Stevens Act, this action is necessary to carry out amendment 113 to the GOA FMP, other provisions of the Magnuson- Stevens Act, and other applicable law, and to revise regulations associated with the RP for clarity and technical consistency. Section 305(d), in particular, grants the authority to make technical changes to existing regulations, updating cross-references, and clarifications to facilitate pre-planned efficiencies. The NMFS Assistant Administrator has determined that this final rule is consistent with the FMP, other provisions of the Magnuson-Stevens Act, and other applicable law. This final rule has been determined to be not significant for the purposes of Executive Order 12866. Final Regulatory Flexibility Analysis (FRFA) This FRFA incorporates the initial regulatory flexibility analysis (IRFA), a summary of the significant issues raised by the public comments in response to the IRFA, NMFS's responses to those comments, and a summary of the analyses completed to support this action. Section 604 of the Regulatory Flexibility Act (RFA) requires that, when an agency promulgates a final rule under section 553 of Title 5 of the U.S. Code, after being required by that section or any other law to publish a general notice of proposed rulemaking, the agency shall prepare a FRFA. Section 604 describes the required contents of a FRFA: (1) a statement of the need for and objectives for this rule; (2) a statement of the significant issues raised by the public comments in response to the IRFA, a statement of the assessment of the agency of such issues, and a statement of any changes made to the proposed rule as a result of such comments; (3) the response of the agency to any comments filed by the Chief Counsel for Advocacy of the Small Business Administration (SBA) in response to the proposed rule, and a detailed statement of any change made to the proposed rule in this final rule as a result of the comments; (4) a description of and an estimate of the number of small entities to which the rule will apply or an explanation of why no such estimate is available); (5) a description of the projected reporting, recordkeeping, and other compliance requirements of the rule, including an estimate of the classes of small entities that will be subject to the requirement and the type of professional skills necessary for preparation of the report or record; and (6) a description of the steps the agency has taken to minimize the significant economic impact on small entities consistent with the stated objectives of applicable statutes including a statement of the factual, policy, and legal reasons for selecting the alternative adopted in this final rule and why each one of the other significant alternatives to the rule considered by the agency which affect the impact on small entities was rejected. A description of this final rule and the need for and objectives of this rule are contained in the preamble to this final rule and the preamble to the proposed rule and are not repeated here (89 FR 40449, May 10, 2024). Public and Chief Counsel for Advocacy Comments on the Proposed Rule NMFS published the proposed rule on May 10, 2024 (89 FR 40449). An IRFA was prepared and summarized in the ``Classification'' section of the preamble to the proposed rule. The comment period closed on June 10, 2024. NMFS received three letters of public comment on the proposed rule and amendment 113. The Chief Counsel for Advocacy of the SBA did not file any comments on the proposed rule. Summary of Significant Issues Raised During Public Comment NMFS received no comments on the IRFA. Number and Description of Small Entities Regulated by This Final Action This final rule directly regulates the owners and operators of CVs and catcher/processor vessels eligible to participate in the CGOA RP. In 2022 (i.e., the most recent year of complete data), 57 vessels participated in the RP, 26 of which are considered small entities based on the $11 million threshold. None of the nine catcher/processor vessels that participate in the RP are classified as small entities because their combined gross income through affiliation with the amendment 80 cooperative exceeds the $11 million first wholesale value threshold for combined annual receipts for all affiliated operations worldwide. Additional detail is included in sections 2.9 in the Analysis prepared for this rule (see ADDRESSES). Recordkeeping, Reporting, and Other Compliance Requirements This final rule modifies recordkeeping and reporting requirements under the RP to: (1) add the month of April to the Rockfish Ex-vessel Volume and Value Report; (2) modify cooperative check-in/out procedures to allow vessel operators to perform the check-in/out; (3) prohibit operation of a vessel that is assigned to a rockfish cooperative and fail to use functioning VMS equipment at all times when operating in a reporting area off Alaska for the month of April; and (4) require documentation for the Annual Application for the RP on the initial application, while subsequently requiring less documentation. Subsequent applications will only be required to resubmit documents for the application if information has changed. These recordkeeping and reporting changes clarify existing provisions of the RP and remove unnecessary reporting requirements, with the result of slightly reducing the reporting burden for all directly regulated entities [[Page 66636]] including small entities. The impact of these changes is described in more detail in section 2.8.2 of the Analysis prepared for this final rule (See ADDRESSES). Description of Significant Alternatives That Minimize Adverse Impacts on Small Entities In recommending amendment 113 and this rule, the Council considered two alternatives, with multiple elements, including the ``no action'' alternative (Alternative 1) and an action alternative (Alternative 2) to modify the RP with four options to address a suite of potential management revisions. Those options, which are described (along with a description of the benefits of each option) above in the section entitled, ``Final Rule,'' are to: (1) change the season start date from May 1 to April 1; (2) remove the CV cooperative rockfish CQ use cap; (3) increase the use caps for rockfish processors; and (4) revise the CV aggregated rockfish harvesting cap. As described above in the ``Final Rule'' section, these options enhance flexibility (options 1, 2 and 3), relieve unnecessary administrative burdens for participants in the RP (option 2), and provide increased opportunities to harvest a larger portion of the dusky rockfish and northern rockfish CQ (option 4). The option to increase the processor use cap from 30 to 40 percent could allow consolidation of RP processing activity to three rockfish processors in Kodiak. This allows for the reduction of the number of operating rockfish processors from four to three. The expected result of this option to increase the processing cap would be continued limiting of processor consolidation while also allowing for additional flexibility compared to the status quo. These adjustments to the current CGOA RP allow additional flexibility to adapt to changing market and environmental conditions, both on the water and in processing capacity within the community, as discussed in the ``Final Rule'' section. The Council selected, and this final rule implements, Alternative 2, and all four options under that alternative, which would increase net benefits to the nation in comparison to the status quo. The final action meets the overall goals of prosecuting this fishery in a sustainable and functional manner and better ensuring that the TACs for the primary rockfish species and other allocated species are fully harvested and landed in Kodiak. As noted by the Council in its purpose and need statement, this final action includes relatively small changes to the regulations but these changes could have a meaningful impact on the fishery and the Kodiak community. Based upon the best available scientific data, and in consideration of the Council's and NMFS's objectives of this action, there are no significant alternatives to Alternative 2, which would be implemented by this final rule, that have the potential to accomplish the stated objectives of the Magnuson-Stevens Act and any other applicable statutes, and that have the potential to minimize any significant adverse economic impact of this final rule on small entities. After consideration of input from the public, the Council and NMFS concluded that the final action best accomplishes the stated objectives articulated above in the SUPPLEMENTARY INFORMATION section of this final rule, and in applicable statutes, and would minimize any significant economic impact of the proposed rule on small entities. Small Entity Compliance Guide Section 212 of the Small Business Regulatory Enforcement Fairness Act of 1996 states that, for each rule or group of related rules for which an agency is required to prepare a final regulatory flexibility analysis, the agency shall publish one or more guides to assist small entities in complying with the rule and shall designate such publications as ``small entity compliance guides.'' The agency shall explain the actions a small entity is required to take to comply with a rule or group of rules. The preambles to the proposed rule and this final rule include a detailed description of the actions necessary to comply with this rule. This action does not require any additional compliance from small entities that is not described in the preambles to the proposed rule and this final rule. Copies of the proposed rule and this final rule are available from the NMFS website at https://www.fisheries.noaa.gov/region/alaska. Collection-of-Information Requirements Under the Paperwork Reduction Act (PRA) of 1995, two collections of information (and the requirements therein) would continue to apply with no changes: Office of Management and Budget (OMB) Control Number 0648- 0445, NMFS Alaska Region VMS Program; and OMB Control Number 0648-0711, Alaska Cost Recovery and Fee Programs. This final rule does not contain a change to the requirements contained in these two collections. This final rule contains collection-of-information requirements subject to review and approval by the OMB under the PRA. This final rule revises existing requirements for the collection of information OMB Control Number 0648-0545, entitled ``Central Gulf of Alaska Rockfish Program: Permits and Reports.'' As described below, the revisions made by this final rule to OMB Control Number 0648-0545 will not result in a change in estimated burden hours. Because of a concurrent action (submitted for three-year renewal) for 0648-0545, the revision to that collection of information for this rule will be assigned a temporary control number, OMB Control Number 0648-0826, that will later be merged into 0648-0545. Specifically, this final rule revises the requirements for the Application for Rockfish Cooperative Fishing Quota to require the documents listed at 50 CFR 679.81(f)(4)(i) to be submitted only with the initial application. In subsequent applications, applicants would need to resubmit these documents only if information has changed. This will not modify the respondents, responses, or the burden related to this application. This final rule also allows vessel operators to conduct the check-in and check-out process for the rockfish cooperative vessel check-in and check-out reports. Currently this can only be done by the RP cooperative representative. This revision adds 10 vessel operators as new respondents for the rockfish check-in and check-out reports but does not change the number of responses or the burden. The public reporting burden for the Application for Rockfish Cooperative Fishing Quota is estimated to average two hours and the check-in and check-out reports are estimated to average 10 minutes each. These burden estimates include the time for reviewing instructions, searching existing data sources, gathering and maintaining the data needed, and completing and reviewing the collection of information. We invite the general public and other Federal agencies to comment on proposed and continuing information collections, which helps us assess the impact of our information collection requirements and minimize the public's reporting burden. Written comments and recommendations for this information collection should be submitted at www.reginfo.gov/public/do/PRAMain. Find these particular information collections by selecting ``Currently under Review'' or by using the search function and entering the title of the collection or the OMB Control Number. Notwithstanding any other provision of the law, no person is required to respond to, nor shall any person be subject to a penalty for failure to comply [[Page 66637]] with, a collection of information subject to the requirements of the PRA, unless that collection of information displays a currently valid OMB Control Number. List of Subjects in 50 CFR Part 679 Alaska, Fisheries, Reporting and recordkeeping requirements. Dated: August 8, 2024. Samuel D. Rauch III, Deputy Assistant Administrator for Regulatory Programs, National Marine Fisheries Service. For the reasons set out in the preamble, NMFS proposes to amend 50 CFR part 679 as follows: PART 679--FISHERIES OF THE EXCLUSIVE ECONOMIC ZONE OFF ALASKA 0 1. The authority citation for part 679 continues to read as follows: Authority: 16 U.S.C. 773 et seq.; 1801 et seq.; 3631 et seq.; Pub. L. 108-447; Pub. L. 111-281. 0 2. In Sec. 679.5, revise paragraphs (r)(8)(i)(A) introductory text, (r)(8)(i)(B) introductory text, (r)(8)(ii), and (r)(10)(ii) and (v) to read as follows: Sec. 679.5 Recordkeeping and reporting (R&R). * * * * * (r) * * * (8) * * * (i) * * * (A) Vessel check-in. The designated representative of a rockfish cooperative must designate any vessel that is authorized to fish under the rockfish cooperative's CQ permit, or, if authorized by the rockfish cooperative, the operator of a vessel must do so, before that vessel may fish under that CQ permit through a check-in procedure. The designated representative for a rockfish cooperative or operator of the vessel must submit to NMFS, in accordance with paragraph (r)(8)(ii) of this section, a check-in designation for a vessel: * * * * * (B) Vessel check-out. The designated representative of a rockfish cooperative must designate any vessel that is no longer fishing under a CQ permit for that rockfish cooperative, or, if authorized by the rockfish cooperative, the operator of the vessel must do so, through a check-out procedure. A check-out report must be submitted to NMFS, in accordance with (r)(8)(ii) of this section, within 6 hours after the effective date and time the rockfish cooperative ends the vessel's authority to fish under the CQ permit. * * * * * (ii) Submittal. The designated representative of the rockfish cooperative or, if authorized by the rockfish cooperative, the operator of a vessel must submit a vessel check-in or check-out report electronically. The rockfish cooperative's designated representative or vessel operator must log into the online system and create a vessel check-in or vessel check-out request as indicated on the computer screen. By using the NMFS ID password and submitting the transfer request, the designated representative or vessel operator certifies that all information is true, correct, and complete. * * * * * (10) * * * (ii) Reporting period. The reporting period of the Rockfish Ex- vessel Volume and Value Report shall extend from April 1 through November 15 of each year. * * * * * (v) Submittal. The rockfish processor must complete and submit online by electronic submission to NMFS the Rockfish Ex-vessel Volume and Value Report available at the Alaska Region website. * * * * * 0 3. Amend Sec. 679.7 by: 0 a. Revising paragraph (n)(3)(i) introductory text; and 0 b. Removing in paragraphs (n)(4) and (n)(6)(vi) the phrase ``pelagic shelf rockfish'' and adding, in its place, the phrase ``dusky rockfish''. The revision reads as follows: Sec. 679.7 Prohibitions. * * * * * (n) * * * (3) * * * (i) Operate a vessel that is assigned to a rockfish cooperative and fail to use functioning VMS equipment as described at Sec. 679.28(f) at all times when operating in a reporting area off Alaska from April 1: * * * * * 0 4. In Sec. 679.51, revise paragraph (a)(2)(vi)(D)(1) to read as follows: Sec. 679.51 Observer and Electronic Monitoring System requirements for vessels and plants. (a) * * * (2) * * * (vi) * * * (D) * * * (1) Rockfish cooperative. A catcher/processor that is named on an LLP license that is assigned to a rockfish cooperative and is fishing under a CQ permit must have at least two observers aboard for each day that the vessel is used to catch or process fish in the Central GOA from April 1 through the earlier of November 15 or the effective date and time of an approved rockfish cooperative termination of fishing declaration. At least one observer must be endorsed as a lead level 2 observer. More than two observers must be aboard if the observer workload restriction would otherwise preclude sampling as required. * * * * * 0 5. In Sec. 679.80, revise paragraph (a)(3)(ii) to read as follows: Sec. 679.80 Allocation and transfer of rockfish QS. * * * * * (a) * * * (3) * * * (ii) Rockfish cooperative. Fishing by vessels participating in a rockfish cooperative is authorized from 1200 hours, A.l.t., April 1 through 1200 hours, A.l.t., November 15. * * * * * 0 6. In Sec. 679.81, revise paragraphs (f)(4) introductory text, (f)(4)(i) introductory text, (g)(2)(i) and (ii), and (i)(3)(viii) and (xxii) read as follows: Sec. 679.81 Rockfish Program annual harvester privileges. * * * * * (f) * * * (4) Contents of the Application. A completed application must contain the information specified on the Application for Rockfish Cooperative Fishing Quota identifying the rockfish cooperative, members of the cooperative, and processor associate of a catcher vessel rockfish cooperative, with all applicable fields accurately filled-in and all required documentation attached. The initial application must contain all documents specified in paragraph (f)(4)(i) of this section. Subsequent applications will only be required to resubmit documents specified at paragraph (f)(4)(i) of this section if the information they contain has changed. (i) Additional documentation. For the cooperative application to be considered complete, the following documents must be attached to the initial application: * * * * * (g) * * * (2) * * * (i) The transferor's designated representative must log into NMFS' online system and create a transfer request as indicated on the computer screen. By using the transferor's NMFS ID and password, and submitting the transfer request, the designated representative certifies that all [[Page 66638]] information is true, correct, and complete. (ii) The transferee's designated representative must log into the online system and accept the transfer request. By using the transferee's NMFS ID and password, the designated representative certifies that all information is true, correct, and complete. * * * * * (i) * * * (3) * * * ------------------------------------------------------------------------ Catcher vessel Catcher/processor Requirement sector sector ------------------------------------------------------------------------ * * * * * * * (viii) Is there a season Yes, any vessel designated to catch CQ for during which designated a rockfish cooperative is limited to vessels may catch CQ?. catching CQ during the season beginning on 1200 hours, A.l.t., on April 1 through 1200 hours, A.l.t., on November 15. * * * * * * * (xxii) When does catch count Any vessel fishing checked-in (and against my CQ permit?. therefore fishing under the authority of a CQ permit must count any catch of rockfish primary species, rockfish secondary species, or rockfish halibut PSC against that rockfish cooperative's CQ from April 1 until November 15, or until the effective date of a rockfish cooperative termination of fishing declaration that has been approved by NMFS). * * * * * * * ------------------------------------------------------------------------ * * * * * 0 7. In Sec. 679.82, remove and reserve paragraph (a)(3) and revise paragraphs (a)(4)(i) and (a)(5) to read as follows: Sec. 679.82 Rockfish Program use caps and sideboard limits. (a) * * * (4) * * * (i) A catcher vessel may not harvest an amount of Pacific ocean perch CQ greater than 8.0 percent of the Pacific ocean perch CQ issued to the catcher vessel sector during a calendar year. * * * * * (5) Use cap for rockfish processors. (i) A rockfish processor may not receive or process an amount of rockfish primary species harvested with CQ assigned to the catcher vessel sector greater than 40.0 percent of the aggregate rockfish primary species CQ assigned to the catcher vessel sector during a calendar year. (ii) A rockfish processor may not receive or process an amount of Pacific cod harvested with CQ assigned to the catcher vessel sector greater than 40.0 percent of Pacific cod CQ issued to the catcher vessel sector during a calendar year. (iii) A rockfish processor may not receive or process an amount of sablefish harvested with CQ assigned to the catcher vessel sector greater than 40.0 percent of sablefish CQ issued to the catcher vessel sector during a calendar year. * * * * * Sec. 679.84 [Amended] 0 8. Amend Sec. 679.84 by removing in paragraphs (g)(1) and (2) the word ``May'' and add, in its place, the word ``April''. 0 9. Revise table 37 to Sec. 679 to read as follows. Table 37 to Part 679--GOA Amendment 80 Sideboard Limit for Groundfish for the Amendment 80 Sector ------------------------------------------------------------------------ In the following management areas in the GOA and in adjacent waters open by the State of The sideboard Is . . . Alaska for which it adopts a limit for . . . Federal fishing season . . . ------------------------------------------------------------------------ Area 610........................ Pollock........... 0.3% of the TAC. Area 620........................ Pollock........... 0.2% of the TAC. Area 630........................ Pollock........... 0.2% of the TAC. Area 640........................ Pollock........... 0.2% of the TAC. West Yakutat District........... Pacific cod....... 3.4% of the TAC. Pacific ocean 96.1% of the TAC. perch. Dusky rockfish.... 89.6% of the TAC. Central GOA..................... Pacific cod....... 4.4% of the TAC. Pacific ocean Subject to perch. regulations in subpart G to this part. Dusky rockfish.... Subject to regulations in subpart G to this part. Northern rockfish. Subject to regulations in subpart G to this part. Western GOA..................... Pacific cod....... 2.0% of the TAC. Pacific ocean 99.4% of the TAC. perch. Dusky rockfish.... 76.4% of the TAC. Northern rockfish. 100% of the TAC. ------------------------------------------------------------------------ [FR Doc. 2024-18053 Filed 8-15-24; 8:45 am] BILLING CODE 3510-22-P

usgpo

2024-10-08T13:26:25.058640

FR

FR-2024-08-16/2024-18287

Federal Register Volume 89 Issue 159 (August 16, 2024)

United States National Archives and Records Administration Office of the Federal Register

[Federal Register Volume 89, Number 159 (Friday, August 16, 2024)] [Proposed Rules] [Pages 66639-66641] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 2024-18287] ======================================================================== Proposed Rules Federal Register ________________________________________________________________________ This section of the FEDERAL REGISTER contains notices to the public of the proposed issuance of rules and regulations. The purpose of these notices is to give interested persons an opportunity to participate in the rule making prior to the adoption of the final rules. ======================================================================== Federal Register / Vol. 89, No. 159 / Friday, August 16, 2024 / Proposed Rules [[Page 66639]] DEPARTMENT OF AGRICULTURE Agricultural Marketing Service 7 CFR Part 984 [Doc. No. AMS-SC-24-0039] Walnuts Grown in California; Increased Assessment Rate AGENCY: Agricultural Marketing Service, Department of Agriculture (USDA). ACTION: Proposed rule. ----------------------------------------------------------------------- SUMMARY: This proposed rulemaking would implement a recommendation from the California Walnut Board (Board) to increase the assessment rate established for the 2024-2025 and subsequent marketing years from $0.011 to $0.0125 per inshell pound of California walnuts. The proposed assessment rate would remain in effect indefinitely unless modified, suspended, or terminated. DATES: Comments must be received by September 16, 2024. ADDRESSES: Interested persons are invited to submit written comments concerning this proposed rulemaking. Comments can be sent to the Docket Clerk, Market Development Division, Specialty Crops Program, AMS, USDA, 1400 Independence Avenue SW, STOP 0237, Washington, DC 20250-0237. Comments can also be sent to the Docket Clerk electronically by Email: [email protected] or via the internet at: https://www.regulations.gov. Comments should reference the document number and the date and page number of this issue of the Federal Register. Comments submitted in response to this proposed rulemaking will be included in the record, will be made available to the public, and can be viewed at: https://www.regulations.gov. Please be advised that the identity of the individuals or entities submitting the comments will be made public on the internet at the address provided above. FOR FURTHER INFORMATION CONTACT: Joshua R. Wilde, Marketing Specialist, or Barry Broadbent, Chief, Northwest Region Branch, Market Development Division, Specialty Crops Program, AMS, USDA; Telephone: (503) 326- 2724, or Email: [email protected] or [email protected]. Small businesses may request information on complying with this regulation by contacting Richard Lower, Market Development Division, Specialty Crops Program, AMS, USDA, 1400 Independence Avenue SW, STOP 0237, Washington, DC 20250-0237; Telephone: (202) 720-8085, or Email: [email protected]. SUPPLEMENTARY INFORMATION: This action, pursuant to 5 U.S.C. 553, proposes to amend regulations issued to carry out a marketing order as defined in 7 CFR 900.2(j). This proposed rulemaking is issued under Marketing Order No. 984, as amended (7 CFR part 984), regulating the handling of walnuts grown in California. Part 984 (referred to as the ``Order'') is effective under the Agricultural Marketing Agreement Act of 1937, as amended (7 U.S.C. 601-674), hereinafter referred to as the ``Act.'' The Board locally administers the Order and comprises growers and handlers of California walnuts operating within the area of production, and a public member. The Agricultural Marketing Service (AMS) is issuing this proposed rulemaking in conformance with Executive Orders 12866, 13563, and 14094. Executive Orders 12866 and 13563 direct agencies to assess all costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts and equity). Executive Order 13563 emphasizes the importance of quantifying both costs and benefits, reducing costs, harmonizing rules, and promoting flexibility. Executive Order 14094 reaffirms, supplements, and updates Executive Orders 12866 and further directs agencies to solicit and consider input from a wide range of affected and interested parties through a variety of means. This proposed action falls within a category of regulatory actions that the Office of Management and Budget (OMB) exempted from Executive Order 12866 review. This proposed rulemaking has been reviewed under Executive Order 13175--Consultation and Coordination with Indian Tribal Governments, which requires Federal agencies to consider whether their rulemaking actions would have Tribal implications. AMS has determined that this proposed rulemaking is unlikely to 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. This proposed rulemaking has been reviewed under Executive Order 12988--Civil Justice Reform. Under the Order now in effect, California walnut handlers are subject to assessments. Funds to administer the Order are derived from such assessments. It is intended that the assessment rate would be applicable to all assessable California walnuts for the 2024-2025 marketing year, and continue until amended, suspended, or terminated. The Act provides that administrative proceedings must be exhausted before parties may file suit in court. Under section 608c(15)(A) of the Act, any handler subject to an order may file with USDA a petition stating that the order, any provision of the order, or any obligation imposed in connection with the order is not in accordance with law and request a modification of the order or to be exempted therefrom. Such handler is afforded the opportunity for a hearing on the petition. After the hearing, USDA would rule on the petition. The Act provides that the district court of the United States in any district in which the handler is an inhabitant, or has his or her principal place of business, has jurisdiction to review USDA's ruling on the petition, provided an action is filed not later than 20 days after the date of the entry of the ruling. This proposed rulemaking would increase the assessment rate for California walnuts handled under the Order from $0.011 per inshell pound, the rate that was established for the 2023-2024 and subsequent marketing years, to $0.0125 per inshell pound for the 2024-2025 and subsequent marketing years. Sections 984.68 and 984.69 authorize the Board, with the approval of AMS, to formulate an annual budget of expenses [[Page 66640]] and collect assessments from handlers to administer the program. The members of the Board are familiar with the Board's needs and with the costs of goods and services in their local area and are able to formulate an appropriate budget and assessment rate. The assessment rate is formulated and discussed in a public meeting, and all directly affected persons have an opportunity to participate and provide input. For the 2023-2024 and subsequent marketing years, the Board recommended, and AMS approved, an assessment rate of $0.011 per inshell pound of California walnuts within the production area. That rate continues in effect from marketing year to marketing year until modified, suspended, or terminated by AMS upon recommendation and information submitted by the Board or other information available to AMS. The Board met on May 15, 2024, and unanimously recommended 2024- 2025 marketing year expenditures of $19,886,800 and an assessment rate of $0.0125 per inshell pound of California walnuts for the 2024-2025 marketing year. In comparison, last year's budgeted expenditures were $16,811,250. The proposed assessment rate of $0.0125 per inshell pound is $0.0015 higher than the rate currently in effect. The Board recommended increasing the assessment rate to better align assessment revenue with budgeted expenses, due in part to a smaller estimated crop. The Board projects handler receipts of 730,000 tons (equivalent to 1.46 billion pounds) of assessable California walnuts for the 2024- 2025 marketing year, down from the approximately 820,000 tons (1.64 billion pounds) handled during the 2023-2024 marketing year. The major expenditures recommended by the Board for the 2024-2025 marketing year include $13,330,200 for domestic marketing, $2,838,600 for employee expenses, $2,425,000 for production and post-harvest research, $435,000 for office expenses, $473,000 for travel and other operating expenses, and $385,000 for crop and acreage reporting. For comparison, budgeted expenses for these items during the 2023-2024 marketing year were $10,588,750, $2,472,500, $2,425,000, $350,000, $390,000, and $585,000, respectively. The Board derived the recommended assessment rate by considering anticipated expenses, the estimated volume of assessable walnuts, and the amount of funds available in the authorized reserve. The expected 730,000 tons (1.46 billion pounds) of California walnuts from the 2024- 2025 marketing year crop would generate $18,250,000 in assessment revenue at the proposed assessment rate (1.46 billion pounds multiplied by the $0.0125 assessment rate). The remaining $1,636,800 needed to cover budgeted expenditures would come from an approved administrative services agreement with the California Walnut Commission, which shares staff and office expenses with the Board. The income generated from assessments, along with non-assessment revenue, should be sufficient to meet the Board's estimated program expenditures of $19,886,800. Funds available in the financial reserve (currently about $14,665,274) would be kept within the maximum permitted by the Order (approximately two years' budgeted expenses as authorized in Sec. 984.69). The proposed assessment rate would continue in effect indefinitely unless modified, suspended, or terminated by AMS upon recommendation and information submitted by the Board or other available information. Although this assessment rate would be in effect for an indefinite period, the Board will continue to meet prior to or during each marketing year to recommend a budget of expenses and consider recommendations for modification of the assessment rate. The dates and times of Board meetings are available from the Board or AMS. Board meetings are open to the public and interested persons may express their views at these meetings. AMS would evaluate Board recommendations and other available information to determine whether modification of the assessment rate is needed. Further rulemaking would be undertaken as necessary. The Board's 2024-2025 marketing year budget, and those for subsequent marketing years, will be reviewed and, as appropriate, approved by AMS. Initial Regulatory Flexibility Analysis Pursuant to requirements set forth in the Regulatory Flexibility Act (RFA) (5 U.S.C. 601-612), AMS has considered the economic impact of this proposed rulemaking on small entities. Accordingly, AMS has prepared this initial regulatory flexibility analysis. The purpose of the RFA is to fit regulatory actions to the scale of businesses subject to such actions in order that small businesses will not be unduly or disproportionately burdened. Marketing orders issued pursuant to the Act, and the rules issued thereunder, are unique in that they are brought about through group action of essentially small entities acting on their own behalf. There are approximately 68 handlers subject to regulation under the Order and approximately 4,500 growers of California walnuts in the production area. At the time this analysis was prepared, the Small Business Administration (SBA) defined small agricultural service firms as those having annual receipts of less than $34,000,000 (North American Industry Classification System (NAICS) code 115114, Postharvest Crop Activities), and small agricultural producers of walnuts as those having annual receipts of less than $3,750,000 (NAICS code 111335, Tree Nut Farming) (13 CFR 121.201). Data from USDA's National Agricultural Statistics Service (NASS), indicate a three-year average value of utilized walnut production of $828.2 million for the most recent seasons for which data is available (2020-2021 through 2022-2023 marketing years). Dividing that figure by the number of walnut growers (4,500) yields an average annual crop value per grower of approximately $184,000. This figure is well below the SBA small agricultural producer threshold of $3,750,000 in annual sales. Assuming a normal distribution, this provides evidence that a large majority of walnut growers would likely be considered small agricultural producers according to the SBA definition. Additionally, data from NASS's 2017 Agricultural Census show that 86 percent of California farms growing walnuts at the time had walnut sales of less than $1 million. Based on information from the Board, approximately 78 percent of California's walnut handlers shipped assessable walnuts valued under $34 million during the 2023-2024 marketing year and would, therefore, be considered small handlers according to the SBA definition. Considering the abovementioned, it is reasonable to conclude that a substantial majority of both walnut growers and handlers would be considered small business entities according to current SBA definitions. This proposal would increase the assessment rate collected from handlers for the 2024-2025 and subsequent marketing years from $0.011 to $0.0125 per inshell pound of California walnuts. The Board unanimously recommended 2024-2025 marketing year expenditures of $19,886,800 and an assessment rate of $0.0125 per inshell pound of California walnuts. The proposed assessment rate of $0.0125 is $0.0015 higher than the rate currently in effect. The Board expects the industry to handle 730,000 tons (1.46 billion pounds) of California walnuts during the 2024-2025 [[Page 66641]] marketing year. Thus, the $0.0125 per inshell pound assessment rate should provide $18,250,000 in assessment income (1.4 billion pounds multiplied by $0.0125). The Board also expects to receive $1,636,800 from an administrative services agreement with the California Walnut Commission. Income derived from these sources should be adequate to meet budgeted expenditures for the 2024-2025 marketing year. The major expenditures recommended by the Board for the 2024-2025 marketing year include $13,330,200 for domestic marketing, $2,838,600 for employee expenses, $2,425,000 for production and post-harvest research, $435,000 for office expenses, $473,000 for travel and other operating expenses, and $385,000 for crop and acreage reporting. For comparison, budgeted expenses for these items during the 2023-2024 marketing year were $10,588,750, $2,472,500, $2,425,000, $350,000, $390,000, and $585,000, respectively. The Board recommended increasing the assessment rate to meet necessary expenses, due in part to a smaller estimated crop for the 2024-2025 marketing year. The Board estimates shipments for the 2024- 2025 marketing year to be approximately 730,000 tons (equivalent to 1.46 billion pounds). Given the Board's estimate for 2024-2025 marketing year walnut shipments, the current assessment rate of $0.011 would generate $16,060,000 in assessment income (1.46 billion pounds multiplied by $0.011 assessment rate), which would not cover budgeted expenses. By increasing the assessment rate to $0.0125, assessment income would be $18,250,000 (1.46 billion pounds multiplied by $0.0125 assessment rate). This amount should provide sufficient funds to meet anticipated 2024-2025 marketing year expenses without needing to draw from the Board's financial reserve. Prior to arriving at this budget and assessment rate recommendation, the Board considered information from various sources, such as the Board's Executive Committee, and discussed various alternatives, including maintaining the current assessment rate of $0.011 per inshell pound of assessable walnuts and increasing the assessment rate by a different amount. However, the Board determined that the recommended assessment rate would be necessary to effectively achieve the Board's goals of covering budgeted expenses for the 2024- 2025 marketing year and maintaining adequate funds in its financial reserve. Consequently, these alternative assessment rates were rejected. Based upon information from the National Agricultural Statistics Service (NASS), the average grower price reported for walnuts over the past three crop years (2020-2023) was approximate $1,093 per ton ($0.547 per pound). In order to determine the estimated assessment revenue as a percentage of the total grower revenue, we calculate the assessment rate ($0.0125 per inshell pound) divided by the grower price ($0.547 per pound) and multiply that number by 100. Therefore, estimated assessment revenue as a percentage of total grower revenue for the 2024-2025 marketing year would be about 2.3 percent (0.0125/ 0.547 * 100 = 2.29) This proposed action would increase the assessment obligation imposed on handlers. Assessments are applied uniformly on all handlers, and some of the costs may be passed on to growers. However, these costs are expected to be offset by the benefits derived by the operation of the Order. The Board's meetings are widely publicized throughout the California walnut industry and all interested persons are invited to attend the meetings and participate in Board deliberations on all issues. Like all Board meetings, the May 15, 2024, meeting was a public meeting and all entities, both large and small, were able to express views on this issue. Finally, interested persons are invited to submit comments on this proposed rulemaking, including the regulatory and information collection impacts of this action on small businesses. In accordance with the Paperwork Reduction Act of 1995, (44 U.S.C. chapter 35), the Order's information collection requirements have been previously approved by OMB and assigned OMB No. 0581-0178, Vegetable and Specialty Crops. No changes in those requirements would be necessary as a result of this proposed rulemaking. Should any changes become necessary, they would be submitted to OMB for approval. This proposed rulemaking would not impose any additional reporting or recordkeeping requirements on either small or large California walnut handlers. As with all Federal marketing order programs, reports and forms are periodically reviewed to reduce information requirements and duplication by industry and public sector agencies. AMS is committed to complying with the E-Government Act, to promote the use of the internet and other information technologies to provide increased opportunities for citizen access to Government information and services, and for other purposes. AMS has not identified any relevant Federal rules that duplicate, overlap, or conflict with this proposed rulemaking. A small business guide on complying with fruit, vegetable, and specialty crop marketing agreements and orders may be viewed at: https://www.ams.usda.gov/rules-regulations/moa/small-businesses. Any questions about the compliance guide should be sent to Richard Lower at the previously mentioned address in the FOR FURTHER INFORMATION CONTACT section. After consideration of all relevant material presented, including the information and recommendations submitted by the Committee and other available information, AMS has determined that this proposed rulemaking is consistent with and would effectuate the purposes of the Act. A 30-day comment period is provided to allow interested persons to respond to this proposed rulemaking. All written comments timely received will be considered before a final determination is made on this rulemaking. List of Subjects in 7 CFR Part 984 Marketing agreements, Reporting and recordkeeping requirements, and Walnuts. For the reasons set forth in the preamble, the Agricultural Marketing Service proposes to amend 7 CFR part 984 as follows: PART 984--WALNUTS GROWN IN CALIFORNIA 0 1. The authority citation for part 984 continues to read as follows: Authority: 7 U.S.C. 601-674. 0 2. Section 984.347 is revised to read as follows: Sec. 984.347 Assessment rate. On and after September 1, 2024, an assessment rate of $0.0125 per inshell pound is established for California walnuts. Erin Morris, Associate Administrator, Agricultural Marketing Service. [FR Doc. 2024-18287 Filed 8-15-24; 8:45 am] BILLING CODE P

usgpo

2024-10-08T13:26:25.155954

FR

FR-2024-08-16/2024-18046

Federal Register Volume 89 Issue 159 (August 16, 2024)

United States National Archives and Records Administration Office of the Federal Register

[Federal Register Volume 89, Number 159 (Friday, August 16, 2024)] [Proposed Rules] [Pages 66642-66645] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 2024-18046] [[Page 66642]] ======================================================================= ----------------------------------------------------------------------- DEPARTMENT OF TRANSPORTATION Federal Aviation Administration 14 CFR Part 39 [Docket No. FAA-2024-2020; Project Identifier MCAI-2024-00303-A] RIN 2120-AA64 Airworthiness Directives; Embraer S.A. Airplanes AGENCY: Federal Aviation Administration (FAA), DOT. ACTION: Notice of proposed rulemaking (NPRM). ----------------------------------------------------------------------- SUMMARY: The FAA proposes to supersede Airworthiness Directive (AD) 2023-21-06, which applies to certain Embraer S.A. (Embraer) Model EMB- 505 airplanes. AD 2023-21-06 requires installing structural reinforcements on certain monuments and replacing certain floor support rivets. Since the FAA issued AD 2023-21-06, the FAA has determined that certain airplanes need to be re-assigned to a different group and certain re-identified floor support part numbers need to be corrected. This proposed AD would require installing structural reinforcements on monuments and replacing fasteners on the floor support, as specified in an Ag[ecirc]ncia Nacional de Avia[ccedil][atilde]o Civil (ANAC) AD, which is proposed for incorporation by reference. The FAA is proposing this AD to address the unsafe condition on these products. DATES: The FAA must receive comments on this NPRM by September 30, 2024. ADDRESSES: You may send comments, using the procedures found in 14 CFR 11.43 and 11.45, by any of the following methods: Federal eRulemaking Portal: Go to regulations.gov. Follow the instructions for submitting comments. Fax: (202) 493-2251. Mail: U.S. Department of Transportation, Docket Operations, M-30, West Building Ground Floor, Room W12-140, 1200 New Jersey Avenue SE, Washington, DC 20590. Hand Delivery: Deliver to Mail address above between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays. AD Docket: You may examine the AD docket at regulations.gov under Docket No. FAA-2024-2020; or in person at Docket Operations between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays. The AD docket contains this NPRM, the mandatory continuing airworthiness information (MCAI), any comments received, and other information. The street address for Docket Operations is listed above. Material Incorporated by Reference: For ANAC material identified in this proposed AD, contact ANAC, Continuing Airworthiness Technical Branch (GTAC), Rua Doutor Orlando Feirabend Filho, 230--Centro Empresarial Aquarius--Torre B-- Andares 14 a 18, Parque Residencial Aquarius, CEP 12.246-190-- S[atilde]o Jos[eacute] dos Campos--SP, Brazil; phone: 55 (12) 3203- 6600; email: anac.gov.br">[email protected]; website: anac.gov.br/en/. You may find this material on the ANAC website at sistemas.anac.gov.br/certificacao/ DA/DAE.asp. It is also available at regulations.gov under Docket No. FAA-2024-2020. You may view this material at the FAA, Airworthiness Products Section, Operational Safety Branch, 901 Locust, Kansas City, MO 64106. For information on the availability of this material at the FAA, call (817) 222-5110. FOR FURTHER INFORMATION CONTACT: Jim Rutherford, Aviation Safety Engineer, FAA, 1600 Stewart Avenue, Suite 410, Westbury, NY 11590; phone: (816) 329-4165; email: [email protected]. SUPPLEMENTARY INFORMATION: Comments Invited The FAA invites you to send any written relevant data, views, or arguments about this proposal. Send your comments to an address listed under ADDRESSES. Include ``Docket No. FAA-2024-2020; Project Identifier MCAI-2024-00303-A'' 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. Confidential Business Information 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 Jim Rutherford, Aviation Safety Engineer, FAA, 1600 Stewart Avenue, Suite 410, Westbury, NY 11590. Any commentary that the FAA receives which is not specifically designated as CBI will be placed in the public docket for this rulemaking. Background The FAA issued AD 2023-21-06, Amendment 39-22578 (88 FR 85093, December 7, 2023) (AD 2023-21-06), for certain serial-numbered Embraer Model EMB-505 airplanes. AD 2023-21-06 was prompted by an MCAI originated by ANAC, which is the aviation authority for Brazil. ANAC issued ANAC AD 2023-05-03, effective June 2, 2023 (ANAC AD 2023-05-03) to correct an unsafe condition. AD 2023-21-06 requires installing structural reinforcements on certain monuments and replacing certain floor support rivets. The FAA issued AD 2023-21-06 to address certain monuments (the right-hand refreshment center and left-hand forward cabinet) that might not withstand the loads expected for specific emergency landing conditions, which may cause the detachment of mass items and result in injuries to the airplane occupants. Actions Since AD 2023-21-06 Was Issued Since the FAA issued AD 2023-21-06, ANAC superseded ANAC AD 2023- 05-03 and issued ANAC AD 2023-05-03R01, effective March 8, 2024 (ANAC AD 2023-05-03R01) for certain serial-numbered Embraer Model EMB-505 airplanes. ANAC AD 2023-05-03R01 states it was issued to incorporate Embraer Service Bulletin SB505-25-0046, Revision 02, dated February 19, 2024, which updates effectivity information, compliance information, and part number information. ANAC superseded ANAC AD 2023-05-03R01 and issued ANAC AD 2023-05- 03R02, effective May 17, 2024 (ANAC AD 2023-05-03R02) (also referred to as the MCAI) for certain serial-numbered Embraer Model EMB-505 airplanes. The MCAI states it was issued to incorporate Embraer Service [[Page 66643]] Bulletin SB505-25-0046, Revision 03, dated May 6, 2024 (actual date May 7, 2024), which includes additional actions for certain airplane groups that had complied with the requirements of ANAC AD 2023-05-03R01 but had not yet installed part number (P/N) 506-66837-001 and updates the effectivity information, compliance information, and part number information. The FAA is issuing this AD to address certain monuments that might not withstand the loads expected for specific emergency landing conditions, which may cause the detachment of mass items and result in injuries to the airplane occupants. You may examine the MCAI in the AD docket at regulations.gov under Docket No. FAA-2024-2020. Material Incorporated by Reference Under 1 CFR Part 51 The FAA reviewed ANAC AD 2023-05-03R02, which specifies procedures for installing structural reinforcements on certain monuments and replacing certain fasteners on the floor support. 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 ADDRESSES. FAA's Determination These products have been approved by the 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, it 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. Proposed AD Requirements in This NPRM This proposed AD would require accomplishing the actions specified in ANAC AD 2023-05-03R02 described previously, except for any differences identified as exceptions in the regulatory text of this proposed AD and except as discussed under ``Differences Between this Proposed AD and the MCAI.'' Differences Between This Proposed AD and the MCAI The material specified in ANAC AD 2023-05-03R02 allows the use of alternative or similar parts in place of the ones specified in the kits, provided these alternative or similar parts are approved by Embraer, but this proposed AD would require approval from either the Manager, International Validation Branch, FAA; ANAC; or ANAC's authorized Designee. If approved by the ANAC Designee, the approval must include the Designee's authorized signature. Explanation of Required Compliance Information 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 ANAC AD 2023-05-03R02 by reference in the FAA final rule. This proposed AD would, therefore, require compliance with ANAC AD 2023-05-03R02 in its entirety through that incorporation, except for any differences identified as exceptions in the regulatory text of this proposed AD. Material required by ANAC AD 2023-05-03R02 for compliance will be available at regulations.gov under Docket No. FAA-2024-2020 after the FAA final rule is published. Costs of Compliance The FAA estimates that this AD, if adopted as proposed, would affect 208 airplanes of U.S. registry. The FAA estimates the following costs to comply with this proposed AD: Estimated Costs ---------------------------------------------------------------------------------------------------------------- Cost per Cost on U.S. Action Labor cost Parts cost product operators ---------------------------------------------------------------------------------------------------------------- Airplane groups 1 and 2--install 22 work-hours x $85 $1,600 $3,470 $242,900 (70 structural reinforcements. per hour = $1,870. airplanes). Airplane groups 3, 4, and 5-- 14 work-hours x $85 600 1,790 $200,480 (112 install structural reinforcements per hour = $1,190. airplanes). and replace floor fasteners. Airplane groups 6 and 8--install 26 work-hours x $85 2,000 4,210 $84,200 (20 structural reinforcements and per hour = $2,210. airplanes). replace floor fasteners. Airplane group 7--install 20 work-hours x $85 1,600 3,300 $16,500 (5 structural reinforcements. per hour = $1,700. airplanes). Airplane group 9--install 14 work-hours x $85 1,600 2,790 $2,790 (1 airplane). structural reinforcements. per hour = $1,190. ---------------------------------------------------------------------------------------------------------------- The FAA estimates the following costs for the additional work that operators would be required to do for compliance with this proposed AD if they completed the actions in the original version of Embraer Service Bulletin SB505-25-0046, dated March 31, 2021; Service Bulletin SB505-25-0046, Revision 01, dated May 8, 2023; or Service Bulletin SB505-25-0046, Revision 02, dated February 19, 2024. The agency has no way of determining the number of airplanes that might need these actions: Estimated Costs ---------------------------------------------------------------------------------------------------------------- Cost per Action Labor cost Parts cost product ---------------------------------------------------------------------------------------------------------------- Inspect floor fasteners....................... 9 work-hours x $85 per hour = $50 $815 $765. Replace floor fasteners....................... 1 work-hour x $85 per hour = $85 50 135 [[Page 66644]] Airplane groups 1 and 2 install reinforcement 2 work-hours x $85 per hour = 200 370 support on left-hand forward cabinet. $170. ---------------------------------------------------------------------------------------------------------------- The FAA has included all known costs in its cost estimate. According to the manufacturer, however, all of the costs of this proposed AD may be covered under warranty, thereby reducing the cost impact on affected operators. Authority for This Rulemaking 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. Regulatory Findings 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. List of Subjects in 14 CFR Part 39 Air transportation, Aircraft, Aviation safety, Incorporation by reference, Safety. The Proposed Amendment Accordingly, under the authority delegated to me by the Administrator, the FAA proposes to amend 14 CFR part 39 as follows: PART 39--AIRWORTHINESS DIRECTIVES 0 1. The authority citation for part 39 continues to read as follows: Authority: 49 U.S.C. 106(g), 40113, 44701. Sec. 39.13 [Amended] 0 2. The FAA amends Sec. 39.13 by: 0 a. Removing Airworthiness Directive 2023-21-06, Amendment 39-22578 (88 FR 85093, December 7, 2023); and 0 b. Adding the following new airworthiness directive: Embraer S.A.: Docket No. FAA-2024-2020; Project Identifier MCAI- 2024-00303-A. (a) Comments Due Date The FAA must receive comments on this airworthiness directive (AD) by September 30, 2024. (b) Affected ADs This AD replaces AD 2023-21-06, Amendment 39-22578 (88 FR 85093, December 7, 2023). (c) Applicability This AD applies to Embraer S.A. Model EMB-505 airplanes, certificated in any category, as identified in Ag[ecirc]ncia Nacional de Avia[ccedil][atilde]o Civil (ANAC) AD 2023-05-03R02, effective May 17, 2024 (ANAC AD 2023-05-03R02). (d) Subject Joint Aircraft System Component (JASC) Code 2500, Cabin Equipment/Furnishings. (e) Unsafe Condition This AD was prompted by the analysis of certain monuments (the right-hand refreshment center and left-hand forward cabinet) that identified the need for installing structural reinforcements and replacing applicable floor support rivets. The FAA is issuing this AD to address the unsafe condition. The unsafe condition, if not addressed, could result in a monument not withstanding the loads expected for specific emergency landing conditions, which may cause the detachment of mass items and result in injuries to the airplane occupants. (f) Compliance Comply with this AD within the compliance times specified, unless already done. (g) Required Actions Except as specified in paragraphs (h) and (i) of this AD: Comply with all required actions and compliance times specified in, and in accordance with, ANAC AD 2023-05-03R02. (h) Exceptions to ANAC AD 2023-05-03R02 (1) Where ANAC AD 2023-05-03R02 refers to its effective date, this AD requires using the effective date of this AD. (2) Where ANAC AD 2023-05-03R02 refers to Embraer Service Bulletin SB505-25-0046, Revision 03, as dated ``May 6, 2024,'' replace that text with ``May 7, 2024.'' (3) Where paragraph (b) of ANAC AD 2023-05-03R02 refers to ``June 2, 2023, the effective date of AD 2023-05-03, original revision,'' replace that text with ``December 11, 2023, the effective date of AD 2023-21-06.'' (4) Although the material referenced in ANAC AD 2023-05-03R02 allows the use of alternative or similar parts in place of the ones specified in the kits provided, this AD requires that alternative or similar parts be approved by the Manager, International Validation Branch, FAA; ANAC; or ANAC's authorized Designee. If approved by the ANAC Designee, the approval must include the Designee's authorized signature. (5) Where the material referenced in ANAC AD 2023-05-03R02 specifies to ``discard'' certain parts, replace that text with ``remove from service.'' (6) This AD does not adopt paragraph (d)(1) of ANAC AD 2023-05- 03R02. (i) No Reporting Requirement Although the material referenced in ANAC AD 2023-05-03R02 specifies to submit certain information to the manufacturer, this AD does not include that requirement. (j) Alternative Methods of Compliance (AMOCs) The Manager, International Validation Branch, FAA, has the authority to approve AMOCs for this AD, if requested using the procedures found in 14 CFR 39.19. In accordance with 14 CFR 39.19, send your request to your principal inspector or local Flight Standards District Office, as appropriate. If sending information directly to the manager of the International Validation Branch, mail it to the address identified in paragraph (k) of this AD or email to: [email protected]. If mailing information, also submit information by email. Before using any approved AMOC, notify your appropriate principal inspector, or lacking a principal inspector, the manager of the local flight standards district office/certificate holding district office. [[Page 66645]] (k) Additional Information For more information about this AD, contact Jim Rutherford, Aviation Safety Engineer, FAA, 1600 Stewart Avenue, Suite 410, Westbury, NY 11590; phone: (816) 329-4165; email: [email protected]. (l) Material Incorporated by Reference (1) The Director of the Federal Register approved the incorporation by reference (IBR) of the material listed in this paragraph under 5 U.S.C. 552(a) and 1 CFR part 51. (2) You must use this material as applicable to do the actions required by this AD, unless the AD specifies otherwise. (i) Ag[ecirc]ncia Nacional de Avia[ccedil][atilde]o Civil (ANAC) AD 2023-05-03R02, effective May 17, 2024. (ii) [Reserved] (3) For ANAC material identified in this AD, contact ANAC, Continuing Airworthiness Technical Branch (GTAC), Rua Doutor Orlando Feirabend Filho, 230--Centro Empresarial Aquarius--Torre B--Andares 14 a 18, Parque Residencial Aquarius, CEP 12.246-190--S[atilde]o Jos[eacute] dos Campos--SP, Brazil; phone: 55 (12) 3203-6600; email: anac.gov.br">[email protected]; website: anac.gov.br/en/. You may find this material on the ANAC website at sistemas.anac.gov.br/certificacao/ DA/DAE.asp. (4) You may view this material at the FAA, Airworthiness Products Section, Operational Safety Branch, 901 Locust, Kansas City, MO 64106. For information on the availability of this material at the FAA, call (817) 222-5110. (5) You may view this material at the National Archives and Records Administration (NARA). For information on the availability of this material at NARA, visit www.archives.gov/federal-register/cfr/ibr-locations or email [email protected]. Issued on August 8, 2024. Victor Wicklund, Deputy Director, Compliance & Airworthiness Division, Aircraft Certification Service. [FR Doc. 2024-18046 Filed 8-15-24; 8:45 am] BILLING CODE 4910-13-P

usgpo

2024-10-08T13:26:25.208537

FR

FR-2024-08-16/2024-18327

Federal Register Volume 89 Issue 159 (August 16, 2024)

United States National Archives and Records Administration Office of the Federal Register

[Federal Register Volume 89, Number 159 (Friday, August 16, 2024)] [Proposed Rules] [Pages 66645-66647] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 2024-18327] ----------------------------------------------------------------------- DEPARTMENT OF TRANSPORTATION Federal Aviation Administration 14 CFR Part 129 International Aviation Safety Assessment (IASA) Program AGENCY: Federal Aviation Administration (FAA), Department of Transportation (DOT). ACTION: Request for comments on proposed changes to the IASA Program. ----------------------------------------------------------------------- SUMMARY: On September 28, 2022, the FAA published a Policy Statement in the Federal Register that described policy changes to the FAA's International Aviation Safety Assessment (IASA) program as well as clarification or restatement of prior policy to ``enhance engagement with civil aviation authorities (CAAs) through pre- and post-IASA assessment and to promote greater transparency.'' After receiving inquiries and questions about the changes described in that policy statement, the FAA is, elsewhere in this issue of the Federal Register, suspending implementation of the September 28, 2022, Policy Statement while the agency reassesses the policy, and invites public comments on proposed changes to the FAA IASA program policy contained herein. The policy statement of March 8, 2013, remains active. DATES: The FAA must receive comments by September 16, 2024. ADDRESSES: You may send comments identified by docket number FAA-2024- 2058 using any of the following methods: Federal eRulemaking Portal: Go to https://www.regulations.gov and follow the online instructions for sending your comments electronically. Mail: Send comments to Docket Operations, M-30; U.S. Department of Transportation, 1200 New Jersey Avenue SE, Room W12-140, West Building Ground Floor, Washington, DC 20590-0001. Hand Delivery or Courier: Take comments to Docket Operations in Room W12-140 of the West Building Ground Floor at 1200 New Jersey Avenue SE, Washington, DC 20590-0001, between 9:00 a.m. and 5:00 p.m., Monday through Friday, except Federal holidays. Fax: Fax comments to Docket Operations at (202) 493-2251. FOR FURTHER INFORMATION CONTACT: Rolandos Lazaris, Division Manager, International Program Division (AFS-50), Flight Standards Service, Federal Aviation Administration, 800 Independence Avenue SW, Washington, DC 20591; (202) 267-3719. SUPPLEMENTARY INFORMATION: Background The IASA program is the means by which the FAA determines whether another country's oversight of its air carriers that (1) operate, or seek to operate, services to/from the United States using their own aircraft and crews, or (2) seek to display the code of a U.S. air carrier on any services, complies with safety standards established by the International Civil Aviation Organization (ICAO). The published IASA results of a country's placement in Category 1 or Category 2 is the notification to the U.S. traveling public as to whether a foreign air carrier's homeland civil aviation authority meets ICAO safety standards. A Category 1 rating indicates that the civil aviation authority meets ICAO safety standards for these operations, and a Category 2 rating indicates that the civil aviation authority does not meet ICAO safety standards. The IASA program was established by a document published in the Federal Register in 1992. Subsequent published documents in the Federal Register notified of the program's evolution. These Federal Register documents are as follows: August 24, 1992--Established the FAA Procedures for Examining and Monitoring Foreign Air Carriers (57 FR 38342). September 8, 1994--Established the Public Disclosure of the Results of Foreign Civil Aviation Authority Assessments, through a three-category numbered rating system (59 FR 46332). October 31, 1995--DOT Notice Clarification Concerning Examination of Foreign Carriers' Request for Expanded Economic Authority, clarified the Department's licensing policy regarding requests for expanded economic authority from foreign air carriers whose CAA's safety oversight capability has been assessed by the FAA as conditional (Category II) or unacceptable (Category III) (60 FR 55408). May 25, 2000--Changes to the International Aviation Safety Assessment program removed the Category 3 rating and combined it with Category 2 (65 FR 33751). March 8, 2013--Changes to the International Aviation Safety Assessment program removed inactive countries (countries with no air carrier operations to the United States or code-shares with U.S. air carrier for four years and no significant interaction between the country's CAA and the FAA) from the IASA Category list (78 FR 14912). Through the IASA program, the FAA seeks continuous improvement to global aviation safety. As noted in the above-referenced policy statement of September 8, 1994, initial IASA assessments found that two-thirds of the assessed CAAs were deficient in meeting their safety oversight obligations under the Convention on International Civil Aviation. The September 28, 2022, Policy Statement (87 FR 58725) (now suspended) announced certain changes to the IASA program and provided clarification to other aspects of the IASA policy. Since that publication, the FAA and DOT have received inquiries and questions that warrant reassessment of those changes and clarifications, and an opportunity for public comment before they are adopted permanently. As noted above, the FAA is suspending [[Page 66646]] implementation of the September 28, 2022, Policy Statement while the agency reassesses the policy and considers public comments. Public comment is invited on the matters and issues described below. IASA Program Policy Changes, Clarification, or Restatement The following paragraphs describe proposed policy changes, clarification, or restatement to the FAA's IASA program to enhance engagement with CAAs through pre- and post-IASA assessment and to promote greater transparency. Proposed Changes to the Definition of the IASA Categories The FAA is proposing to modify the scope of the IASA Category definitions to align them with the types of operations that require an IASA Category rating. The March 8, 2013, IASA policy statement describes two possible IASA Categories in which the FAA places countries: [cir] Category 1, Meets ICAO Standards: The FAA has found that the country meets ICAO standards for safety oversight of civil aviation. When a country is in Category 1, its foreign air carriers may provide service to the United States with their own aircraft/crews under 14 CFR part 129 and 14 CFR 375.42 and 375.70 or may, with the DOT's Office of the Secretary (OST) and FAA approval, engage in code-sharing partnerships with U.S. air carriers where a U.S. air carrier places its code on flights operated by a foreign air carrier(s). Category 2, Does Not Meet ICAO Standards: The FAA has found that the country does not meet ICAO standards for safety oversight of civil aviation. In addition, the May 25, 2000, policy statement introduced the Category 2* designation for those countries not serving the U.S. at the time of their IASA assessment. The 2013 policy statement further states that ``the IASA category rating applies only to services to and from the United States and to codeshare operations when the code of a U.S. air carrier is placed on a foreign carrier flight. . . . The [FAA] assessment team looks at [a foreign carrier's domestic flights or flights by that carrier between its homeland and a third country] only to the extent that they reflect on the country's oversight of operations to and from the United States and to codeshare operations where a U.S. air carrier code is placed on a flight conducted by a foreign air operator.'' The FAA highlights this explanation in this document to address any mistaken perception that the IASA program evaluates the oversight of all operations of foreign air carriers of a particular country. The FAA exercises oversight authority of foreign air carriers with service to the United States through issuance and oversight of operations specifications (OpSpecs) issued under 14 CFR part 129 to foreign air carriers that operate services to/from the United States with their own aircraft and crews. This requires the FAA to engage in regular contact with the relevant foreign CAA as to various aspects of these operations. When a U.S. air carrier places its code on a foreign air carrier's flight that is conducted by the foreign carrier entirely outside the United States, part 129 OpSpecs are not required, but those code-share arrangements are subject to regular audits conducted by the FAA under the U.S. Department of Transportation Office of the Secretary (OST)/FAA Code- Share Safety Program Guidelines. In addition, as part of its standard foreign carrier licensing process, the DOT requests that the FAA determine if foreign charters requesting service to the U.S. under 14 CFR 375.42 and 375.70 are receiving ICAO-compliant safety oversight from their CAA. In some instances, these part 375 applications have resulted in the FAA extending the IASA program to countries with only part 375 operators and no part 129 operators. Foreign civil aircraft operators authorized by OST to conduct charters to/from the United States under part 375 do not hold operations specifications from the FAA, nor are they allowed to carry the code of a U.S. operator. Remove Category 2 * The FAA proposes to remove the 2 * designation. The FAA has used the 2 * category for those countries not serving the U.S. at the time of their IASA assessment. This distinction is no longer relevant, and the FAA will simply categorize any country that does not meet ICAO standards with a Category 2 rating. New Category 1 * In order to better address the safety awareness and expectations of the U.S. traveling public, and to advise the U.S. traveling public, once a Category 1 country has been notified through official channels for a reassessment based on identified risks of possible noncompliance with ICAO standards pursuant to the FAA's risk assessment process, the FAA proposes that it would adjust the Category 1 rating of the country to a rating of Category 1 *. [cir] Category 1 *: The FAA will add an asterisk ``*'' to a country's Category 1 rating once that country has been notified through official channels for a reassessment based on identified risks of possible noncompliance with ICAO standards. The 1 * category designation does not indicate that the FAA has determined that safety risks have been conclusively found or that a country's air operations are being modified at this time, but rather only serves as notice that the FAA initiated the IASA reassessment. The asterisk ``*'' will be removed once a reassessment is complete and the country either retains its Category 1, or the country is assessed as not meeting ICAO standards and is subsequently assigned a Category 2 rating. Change in the Timeframe for Country Removal From the IASA Category List Due to Inactivity, and Clarification on ``Significant Activity'' Under the March 8, 2013, policy statement, a country can be removed from the IASA category list after four years of inactivity. The three criteria that must be met for the FAA to remove the country from the IASA category list are: the country has no air carrier providing air transport service to the United States; the country has no air carrier that participates in a code-share arrangement with U.S. air carriers; and the CAA does not ``interact significantly with the FAA.'' The FAA's experience and analysis indicates that IASA information is not reliable after an initial assessment or reassessment without significant safety oversight interaction between the FAA and foreign CAA. Such interaction includes when a foreign air carrier is conducting services to/from the United States with its own aircraft/crews and holds FAA OpSpecs under part 129, operating under Sec. Sec. 375.42 and 375.70, and/or when a U.S. air carrier places its code on any of a foreign air carrier's flight as authorized under the OST/FAA Code-Share Safety Program Guidelines. The FAA seeks to amend the criteria for removal as follows: the country has no foreign operators holding OpSpecs under part 129, or operating under Sec. Sec. 375.42 and 375.70 with service to the United States nor foreign operators carrying the code of a U.S. operator as authorized under the OST/FAA Code-Share Safety Program Guidelines, and the country has not received technical assistance from the FAA for identified ICAO safety oversight deficiencies within the prior two-year period. The FAA seeks comment on these proposed additional or clarifying criteria for [[Page 66647]] removal of a country from the IASA category list. In addition, the FAA proposes to reduce the time for removal from the IASA list from four years to two years. The removal criteria published in 2013 no longer meet the need for timeliness and accuracy of information on the IASA Category Rating list. The 2013 criteria leave Category 1 countries on the list for an extended period of time and may give the U.S. traveling public a false sense of safety. Also, leaving Category 2 countries on the list for an extended period of time can be perceived as unfairly penalizing those countries when there has been no activity since the Category 2 rating was issued. As a result, the FAA proposes to reduce the removal benchmark from four years to two years absent the interaction described above. The FAA seeks comment on the proposed change from four years to two years, or whether any other timeframe would be appropriate. Clarification as to When an IASA Will Be Performed in a Country With No IASA Category Rating The FAA will perform an IASA of a country with no IASA Category rating after an operator from that country files an application with OST for economic authority to conduct (1) services to/from the United States with its own aircraft/crews, and/or (2) code-share operations that involve the foreign air carrier displaying the code of a U.S. air carrier on any services operated by the foreign air carrier. This would ensure that an initial IASA is used to assess whether the CAA and its operator(s) have each taken the necessary measures to manage and oversee operations in accordance with ICAO standards. Clarification of FAA and CAA Development of a Corrective Action Plan Upon Notification of an IASA Category 2 Rating If the FAA finds, as a result of an assessment, that a foreign CAA is not overseeing aviation safety in accordance with ICAO standards, the FAA will, prior to the conclusion of an assessment, state its findings in an oral briefing to that foreign CAA. The FAA will also deliver to the foreign CAA a written record of FAA findings and will schedule a follow-up final discussion with the foreign CAA. The final discussion shall take place no earlier than 15 calendar days following the delivery of the written record of findings. In any case in which the assessment finds an instance of non-compliance, the FAA will notify the foreign CAA that is the subject of such finding. Within 90 days after the transmission of such notification, the FAA will request and initiate final discussions with the foreign country to recommend actions by which the foreign country can mitigate the noncompliance. If the FAA determines that the foreign CAA has not corrected its oversight deficiencies after the conclusion of the final discussion, the country will, upon formal communication from the United States Government, receive an official determination of Category 2 status, and be subject to restrictions on the operations of its air carriers to the United States and on the placement of U.S. carrier codes on flights operated by its carriers. For additional communication and support for a country assigned an IASA Category 2 rating, the FAA may conduct a virtual meeting with the CAA to discuss the IASA findings. The FAA proposes to provide the CAA with a Corrective Action Plan outline for the CAA to use to document the actions needed to resolve safety deficiencies and the timelines for resolution. This would allow the CAA to begin work to address its safety oversight findings from the IASA in a timely manner. Upon CAA request, the FAA may, under a technical assistance agreement, assist the CAA in developing a Corrective Action Plan to address its safety oversight deficiencies and timelines for completion. FAA Actions To Address Safety Concerns Outside of the IASA Process The FAA retains its authority to take action to address a known safety concern to prevent further non-compliance or unsafe operation of an aircraft by an air carrier, including limiting operations to/from the United States by foreign air carriers with their own aircraft/ crews; placing limits on code share arrangements involving the display of a U.S. air carrier code by foreign air carriers from countries for which the FAA has identified safety oversight concerns and initiating immediate IASA category changes when justified based on available safety information. The FAA may also communicate with a CAA about safety concerns the FAA may be aware of so that the CAA can immediately take its own mitigating action. The FAA believes that immediate action that results in the resolution of a safety concern or provides the avenue for clarifying information from the CAA is in the best interest of public safety. Comments Invited The FAA invites public comments on the proposed IASA policy modifications and clarifications. The FAA will consider the public comments submitted during this comment period in finalizing the IASA policy. Issued in Washington, DC. Jodi L. Baker, Deputy Administrator for Aviation Safety. [FR Doc. 2024-18327 Filed 8-15-24; 8:45 am] BILLING CODE 4910-13-P

usgpo

2024-10-08T13:26:25.231135

FR

FR-2024-08-16/2024-18343

Federal Register Volume 89 Issue 159 (August 16, 2024)

United States National Archives and Records Administration Office of the Federal Register

[Federal Register Volume 89, Number 159 (Friday, August 16, 2024)] [Proposed Rules] [Pages 66647-66655] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 2024-18343] ======================================================================= ----------------------------------------------------------------------- DEPARTMENT OF HEALTH AND HUMAN SERVICES Food and Drug Administration 21 CFR Part 1 [Docket No. FDA-2024-N-1111] RIN 0910-AI64 Submission of Food and Drug Administration Import Data in the Automated Commercial Environment for Certain Tobacco Products AGENCY: Food and Drug Administration, HHS. ACTION: Proposed rule. ----------------------------------------------------------------------- SUMMARY: The Food and Drug Administration, with the Department of the Treasury's concurrence, proposes amending its regulations to require that the Submission Tracking Number for Electronic Nicotine Delivery System tobacco products that are being imported or offered for import be submitted in the Automated Commercial Environment or any other electronic data interchange system authorized by U.S. Customs and Border Protection, at the time of entry. DATES: Either electronic or written comments on the proposed rule must be submitted by October 15, 2024. Submit written comments (including recommendations) on the collection of information under the Paperwork Reduction Act of 1995 by October 15, 2024. ADDRESSES: You may submit comments as follows. Please note that late, untimely filed comments will not be considered. The https://www.regulations.gov electronic filing system will accept comments until 11:59 p.m. Eastern Time at the end of October 15, 2024. Comments received by mail/hand delivery/courier (for written/paper submissions) will be considered timely if they are received on or before that date. [[Page 66648]] Electronic Submissions Submit electronic comments in the following way: Federal eRulemaking Portal: https://www.regulations.gov. Follow the instructions for submitting comments. Comments submitted electronically, including attachments, to https://www.regulations.gov will be posted to the docket unchanged. Because your comment will be made public, you are solely responsible for ensuring that your comment does not include any confidential information that you or a third party may not wish to be posted, such as medical information, your or anyone else's Social Security number, or confidential business information, such as a manufacturing process. Please note that if you include your name, contact information, or other information that identifies you in the body of your comments, that information will be posted on https://www.regulations.gov. If you want to submit a comment with confidential information that you do not wish to be made available to the public, submit the comment as a written/paper submission and in the manner detailed (see ``Written/Paper Submissions'' and ``Instructions''). Written/Paper Submissions Submit written/paper submissions as follows: Mail/Hand Delivery/Courier (for written/paper submissions): Dockets Management Staff (HFA-305), Food and Drug Administration, 5630 Fishers Lane, Rm. 1061, Rockville, MD 20852. For written/paper comments submitted to the Dockets Management Staff, FDA will post your comment, as well as any attachments, except for information submitted, marked and identified, as confidential, if submitted as detailed in ``Instructions.'' Instructions: All submissions received must include the Docket No. FDA-2024-N-1111 for ``Submission of Food and Drug Administration Import Data in the Automated Commercial Environment for Certain Tobacco Products.'' Received comments, those filed in a timely manner (see ADDRESSES), will be placed in the docket and, except for those submitted as ``Confidential Submissions,'' publicly viewable at https://www.regulations.gov or at the Dockets Management Staff between 9 a.m. and 4 p.m., Monday through Friday, 240-402-7500. Confidential Submissions--To submit a comment with confidential information that you do not wish to be made publicly available, submit your comments only as a written/paper submission. You should submit two copies total. One copy will include the information you claim to be confidential with a heading or cover note that states ``THIS DOCUMENT CONTAINS CONFIDENTIAL INFORMATION.'' The Agency will review this copy, including the claimed confidential information, in its consideration of comments. The second copy, which will have the claimed confidential information redacted/blacked out, will be available for public viewing and posted on https://www.regulations.gov. Submit both copies to the Dockets Management Staff. If you do not wish your name and contact information to be made publicly available, you can provide this information on the cover sheet and not in the body of your comments and you must identify this information as ``confidential.'' Any information marked as ``confidential'' will not be disclosed except in accordance with 21 CFR 10.20 and other applicable disclosure law. For more information about FDA's posting of comments to public dockets, see 80 FR 56469, September 18, 2015, or access the information at: https://www.govinfo.gov/content/pkg/FR-2015-09-18/pdf/2015-23389.pdf. Docket: For access to the docket to read background documents, the plain language summary of the proposed rule of not more than 100 words as required by the ``Providing Accountability Through Transparency Act,'' or the electronic and written/paper comments received, go to https://www.regulations.gov and insert the docket number, found in brackets in the heading of this document, into the ``Search'' box and follow the prompts and/or go to the Dockets Management Staff, 5630 Fishers Lane, Rm. 1061, Rockville, MD 20852, 240-402-7500. Submit comments on information collection under the Paperwork Reduction Act of 1995 to the Office of Management and Budget (OMB) at https://www.reginfo.gov/public/do/PRAMain. Find this particular information collection by selecting ``Currently Under Review--Open for Public Comments'' or by using the search function. The title of this proposed collection is ``Importer's Entry Notice--OMB Control Number 0910-0046--Revision.'' FOR FURTHER INFORMATION CONTACT: With regard to the proposed rule: Ann M. Metayer, Office of Regulatory Affairs, Food and Drug Administration, 10903 New Hampshire Ave., Bldg. 32, Rm. 4375, Silver Spring, MD 20993- 0002, 301-796-3324. With regard to the information collection: JonnaLynn Capezzuto, Office of Operations, Food and Drug Administration, Three White Flint North, 10A-12M, 11601 Landsdown St., North Bethesda, MD 20852, 301-796- 3794, [email protected]. SUPPLEMENTARY INFORMATION: Table of Contents I. Executive Summary A. Purpose of the Proposed Rule B. Summary of the Major Provisions of the Proposed Rule C. Legal Authority D. Costs and Benefits II. Table of Abbreviations/Commonly Used Acronyms in This Document III. Background A. Introduction/History of This Rulemaking B. Need for the Regulation C. FDA's Current Regulatory Framework IV. Legal Authority V. Description of the Proposed Rule VI. Proposed Effective Date VII. Preliminary Economic Analysis of Impacts VIII. Analysis of Environmental Impact IX. Paperwork Reduction Act of 1995 X. Federalism XI. Consultation and Coordination With Indian Tribal Governments XII. Reference I. Executive Summary A. Purpose of the Proposed Rule The proposed rule would require that the Submission Tracking Number (STN) for tobacco products, as defined in 21 CFR 1114.3, be submitted for any entry containing an Electronic Nicotine Delivery System (ENDS) tobacco product(s) at the time of entry in the Automated Commercial Environment (ACE) or any other electronic data interchange (EDI) system authorized by U.S. Customs and Border Protection (CBP). The purpose of the rulemaking is to assist the Food and Drug Administration (FDA, the Agency, or we) in making decisions on admissibility for ENDS products by facilitating FDA's automated review process. The proposed rule, if finalized, would result in a more effective and efficient import admissibility review process by lowering instances of manual review by FDA of entries containing ENDS products, which will protect the public health by conserving Agency resources and more quickly identifying ENDS products that do not have marketing authorization and which may be associated with a greater public health risk. The automated review compares the STN submitted by the ACE filer, as defined in 21 CFR 1.71, to information in FDA's internal databases to determine if a ``May Proceed'' is appropriate. An automated ``May Proceed'' does not constitute a determination by FDA about the [[Page 66649]] article's compliance status, and it does not preclude FDA action at a later time. B. Summary of the Major Provisions of the Proposed Rule FDA proposes to revise part 1, subpart D of 21 CFR chapter I (21 CFR part 1, subpart D), added by a final rule issued by the Agency on November 29, 2016 (81 FR 85854), which established requirements for the electronic filing of certain data elements for FDA-regulated products in ACE, or any other EDI system authorized by CBP, at the time of entry. That final rule took effect on December 29, 2016. The proposed rule would require an ACE filer to submit in ACE at the time of entry the Affirmation of Compliance for Tobacco Submission Tracking (code TST) for ENDS products. Specifically, TST requires the STN for the premarket application for an entry containing an ENDS product to be submitted in ACE at the time of entry. The STN is assigned by the Agency to the application for premarket review for an ENDS product under section 910 of the Federal Food, Drug and Cosmetic Act (FD&C Act) (21 U.S.C. 387j). Currently, the submission of the STN in ACE is optional. Requiring submission of the STN in ACE at the time of entry would help FDA to more effectively and efficiently make admissibility decisions for ENDS products being imported or offered for import into the United States by increasing the opportunity for automated admissibility review of these entries by FDA's import systems. C. Legal Authority The legal authority for this proposed rule includes sections 301, 701, 801, and 910 of the FD&C Act (21 U.S.C. 331, 371, 381 and 387j, respectively). D. Costs and Benefits This proposed rule, if finalized, would require an ACE filer to submit the STN for tobacco products for any entry containing ENDS tobacco product(s) at the time of entry in ACE or any other EDI system authorized by CBP. Benefits of the rule would be cost savings for the Federal Government and industry from reducing FDA's time spent on obtaining the STN of each ENDS product contained in the entry. We discuss these benefits qualitatively. We quantify costs to ACE filers of import entries containing ENDS products from reading and understanding the rule as well as obtaining and submitting the STN for these ENDS product(s). We estimate that the present value of costs of the rule over 10 years would range from $0.021 million to $0.061 million at a 2 percent discount rate, with a primary estimate of $0.041 million. The annualized costs would range from $0.002 million to $0.007 million, with a primary estimate of $0.005 million. II. Table of Abbreviations/Commonly Used Acronyms in This Document ---------------------------------------------------------------------------------------------------------------- Abbreviation/acronym What it means ---------------------------------------------------------------------------------------------------------------- ACE................................................. Automated Commercial Environment or any other CBP- authorized EDI system. ACE filer........................................... The person who is authorized by CBP to submit an electronic import entry for an FDA-regulated product in ACE, as defined in 21 CFR 1.71. APPH................................................ Appropriate for the protection of the public health. CBP................................................. U.S. Customs and Border Protection. EDI................................................. Electronic Data Interchange. ENDS................................................ Electronic Nicotine Delivery System. FDA generally considers ``ENDS'' to be electronic nicotine delivery systems that deliver aerosolized e-liquid when inhaled, including components and/or parts of ENDS (e.g., e- liquids, cartridges/pods, tanks). FDA................................................. U.S. Food and Drug Administration. FD&C Act............................................ Federal Food, Drug and Cosmetic Act. ITDS................................................ International Trade Data System. MGO................................................. A marketing granted order is the order described in section 910(c)(1)(A)(i) of the FD&C Act stating that the new tobacco product may be introduced or delivered for introduction into interstate commerce. PMTA................................................ Premarket Tobacco Product Application. PRIA................................................ Preliminary Regulatory Impact Analysis. PRA................................................. Paperwork Reduction Act of 1995. STN................................................. Submission Tracking Number for ENDS tobacco products (the application number that FDA assigns to submissions such as a PMTA, supplemental PMTA, Substantial Equivalence (SE) report, or Exemption from substantial Equivalence Request (EX REQ) for ENDS tobacco products), as defined in 21 CFR 1114.3. TST................................................. Tobacco Submission Tracking. Affirmation of Compliance Code in ACE for the Submission Tracking Number for tobacco products. Unique ENDS product................................. A particular combination of manufacturer, product code, and ACE filer for an ENDS product. ---------------------------------------------------------------------------------------------------------------- III. Background A. Introduction/History of This Rulemaking ACE is a commercial trade processing system operated by CBP that is designed to implement the International Trade Data System (ITDS), automate import and export processing, eliminate redundant information requirements, and allow the effective enforcement of laws and regulations related to international trade. FDA is a Partner Government Agency for purposes of import data submitted in ACE. As of July 23, 2016, ACE became the sole EDI system authorized by CBP for entry of FDA-regulated products into the United States (see 81 FR 32339). FDA issued a final rule effective December 29, 2016, entitled ``Submission of Food and Drug Administration Import Data in the Automated Commercial Environment'' which added subpart D to part 1 of 21 CFR chapter I to require that certain data elements important to our import admissibility review be submitted in ACE at the time of entry. This proposed rule would add a requirement to submit in ACE, at the time of entry, the STN for an ENDS product to Sec. 1.79. The Family Smoking Prevention and Tobacco Control Act (Tobacco Control Act) (Pub. L. 111-31) enacted on June 22, 2009, provided FDA with the authority to regulate tobacco products by recognizing the Agency as the primary Federal regulatory authority with respect to the manufacture, marketing, and distribution of cigarettes, cigarette tobacco, roll-your-own tobacco, and smokeless tobacco, and any other tobacco products that the Agency by regulation deems to be subject to the law. Section 201(rr)(1) of the FD&C Act (21 U.S.C. 321(rr)(1)), defines ``tobacco product'' as ``any product made or derived from tobacco, or containing nicotine from any source, that is intended for human consumption, [[Page 66650]] including any component, part, or accessory of a tobacco product (except for raw materials other than tobacco used in manufacturing a component, part, or accessory of a tobacco product).'' The term ``tobacco product'' does not mean an article that is: a drug (section 201(g)(1)), a device (section 201(h)), a combination product (section 503(g) of the FD&C Act (21 U.S.C. 353(g))). It also does not mean an article that is a food (section 201(f)), if such article contains no nicotine, or no more than trace amounts of naturally occurring nicotine. Component or part means any software or assembly of materials intended or reasonably expected: (1) to alter or affect the tobacco product's performance, composition, constituents, or characteristics or (2) to be used with or for the human consumption of a tobacco product. Component or part excludes anything that is an accessory of a tobacco product (21 CFR parts 1100, 1140, and 1143). The FD&C Act requires manufacturers of new tobacco products to receive marketing authorization before entering the market. Section 910(a) of the FD&C Act defines a ``new tobacco product'' as any tobacco product (including those products in test markets) that was not commercially marketed in the United States as of February 15, 2007, or any modification (including a change in design, any component, any part, or any constituent, including a smoke constituent, or in the content, delivery, or form of nicotine, or any other additive or ingredient) of a tobacco product where the modified product was commercially marketed in the United States after February 15, 2007. The Deeming rule (81 FR 28973), which published in the Federal Register on May 10, 2016, and took effect on August 8, 2016, extended FDA's authority to regulate products that meet the statutory definition of ``tobacco product'' in the FD&C Act (including components and parts but excluding accessories of such newly deemed tobacco products). Deemed products include ENDS, and their components and parts, but not their accessories. Examples of ENDS products that were deemed include vapes or vape pens, e-liquids, e-cigarettes, cigalikes, e-pens, e- hookahs, e-cigars, and e-pipes. The Consolidated Appropriations Act of 2022 (the Appropriations Act) (Pub. L. 117-103), enacted on March 15, 2022, expanded the definition of the term ``tobacco product'' in section 201(rr) of the FD&C Act to include products that contain nicotine from any source. The Appropriations Act also amended section 901(b) of the FD&C Act to apply chapter IX of the FD&C Act to any tobacco product containing nicotine that is not made or derived from tobacco. As a result, ENDS products that contain non-tobacco nicotine, including synthetic nicotine, are now subject to the provisions in chapter IX of the FD&C Act (21 U.S.C. 387 to 387t). To legally market and distribute a new tobacco product in the United States, an applicant may seek authorization under the following three pathways: Premarket Tobacco Product Application (PMTA), Substantial Equivalence (SE), and Exemption from Substantial Equivalence (EX REQ). Generally, for a new tobacco product, a marketing granted order (MGO) under section 910(c)(1)(A)(i) of the FD&C Act is required unless: (1) the manufacturer of the product submits a report under section 905(j) of the FD&C Act (21 U.S.C. 387e(j)) and FDA issues an order finding the product substantially equivalent to a predicate tobacco product (section 910(a)(2)(A) of the FD&C Act) or (2) the manufacturer submits a report under section 905(j)(1)(A)(ii) of the FD&C Act and all modifications are covered by exemptions from the requirements of substantial equivalence granted by FDA under section 905(j)(3) of the FD&C Act. A tobacco product manufacturer includes any person, including any repacker or relabeler, who imports a finished tobacco product for sale or distribution in the United States. See section 900(20) (21 U.S.C. 387(20)) of the FD&C Act. We expect the vast majority of premarket applications for ENDS products to be submitted through the PMTA pathway. A new tobacco product that does not have an MGO in effect under section 910(c)(1)(A)(i) of the FD&C Act and is not otherwise exempt from the premarket review requirement is adulterated pursuant to section 902(6)(A) of the FD&C Act (21 U.S.C. 387b(6)(A)). In addition, a new tobacco product is misbranded under section 903(a)(6) of the FD&C Act (21 U.S.C. 387c(a)(6)) if a notice or other information respecting the product was not provided as required by section 905(j) of the FD&C Act. The premarket review requirements of chapter IX of the FD&C Act apply to all new tobacco products, including ENDS products (e.g., electronic cigarettes and e-liquids). B. Need for the Regulation Manufacturers, importers, retailers, and distributors of ENDS products are responsible for ensuring that these tobacco products are compliant with the FD&C Act requirements and implementing regulations, including premarket authorization requirements. Any tobacco product imported or offered for import into the United States that appears to be adulterated and/or misbranded is subject to refusal under section 801(a)(3) of the FD&C Act. We have determined that the STN for an ENDS product contained in an entry is a data element that is important for our import admissibility review of that ENDS product. Currently, this information is an optional submission in ACE for ENDS products and is not currently being submitted by ACE filers at the time of entry. Submission of a complete and accurate STN in ACE at the time of entry will facilitate FDA's review process by electronically comparing the STN to information in FDA's internal databases. This will help to expedite FDA's import review process and increase the likelihood of an entry of an ENDS product with a currently effective marketing authorization receiving an automated ``May Proceed.'' Facilitating the use of automated review for admissibility of ENDS products would allow the Agency to conserve our resources by reducing the instances of manual admissibility review and to more effectively and efficiently make admissibility decisions. FDA generally considers ENDS to be electronic nicotine delivery systems that deliver aerosolized e-liquid when inhaled, to include components, and/or parts (e.g., e-liquids, cartridges/pods, tanks) of ENDS. FDA conducts a science-based evaluation to determine whether a new tobacco product meets the applicable statutory standard for marketing authorization--such as, whether the product would be appropriate for the protection of the public health (APPH) with respect to the risks and benefits to the population as a whole, including both users and nonusers, and taking into account the increased or decreased likelihood that existing users of tobacco products will stop using such products; and the increased or decreased likelihood that those who do not use tobacco products will start using them. Public health risks can include, for example, ENDS batteries that overheat, cause fires, or explode; ENDS packaging that allows for young children to be accidentally exposed to the product and poisoned; and youth initiation and use of ENDS products. In making the APPH assessment for a tobacco product such as an ENDS product, for example, FDA weighs, among other things, the negative public health impact stemming from youth initiation and use of the product against the potential positive public health impact stemming from [[Page 66651]] adult cigarette smokers transitioning away from combusted cigarettes to the ENDS product. C. FDA's Current Regulatory Framework ACE electronically transmits the entry data submitted by an ACE filer at the time of entry to FDA via an electronic interface. The Affirmation of Compliance for STN in ACE for tobacco products is currently an optional submission. When FDA's import systems receive entry data from ACE, the data is initially screened using FDA's Predictive Risk-based Evaluation for Dynamic Import Compliance Targeting (PREDICT), a risk-based electronic screening tool, to determine if manual review of the entry is required. A manual review means that FDA personnel will review the entry information submitted by the ACE filer and may request additional information to make an admissibility determination and/or may direct that the FDA-regulated product be examined or sampled by FDA before admissibility is determined. By requiring the STN to be submitted in ACE at the time of entry for ENDS products being imported or offered for import into the United States, FDA would be able to more effectively and efficiently determine the marketing authorization status of these products. Accurate and complete information submitted by an ACE filer increases the likelihood that an entry line containing an ENDS product that has a currently effective MGO will be given an automated ``May Proceed'' by FDA. We have found that ACE filers are not submitting the STN for an ENDS product in ACE at the time of entry. The proposed rule would preserve Agency resources by decreasing the amount of manual reviews, which may involve document requests and communication with ACE filers or importers because the STN and marketing status of the ENDS product will be able to be verified electronically using FDA's internal databases. A ``May Proceed'' does not constitute a determination by FDA that the product complies with all provisions of the FD&C Act and FDA regulations, and it does not preclude FDA action later. We believe that submission of the STN for all entries containing ENDS products would increase the opportunity for issuing a ``May Proceed'' without manual review of ENDS products that have a currently effective MGO. This would result in a much faster and effective admissibility review process for both FDA and trade than a manual review. IV. Legal Authority FDA has the legal authority under the FD&C Act to regulate the importation of ENDS products into the United States (sections 701 and 801 of the FD&C Act). Section 701(a) of the FD&C Act authorizes the Agency to issue regulations for the efficient enforcement of the FD&C Act, while section 701(b) of the FD&C Act authorizes FDA and the Department of the Treasury to jointly prescribe regulations for the efficient enforcement of section 801 of the FD&C Act. This proposed rule is being jointly prescribed by FDA and the Department of the Treasury. Section 801(a) of the FD&C Act provides authority for FDA to refuse admission to a tobacco product being imported or offered for import if such product appears adulterated or misbranded. A new tobacco product that does not have an FDA marketing order in effect pursuant to section 910(c)(1)(A) is adulterated pursuant to section 902(6)(A) of the FD&C Act. In addition, a new tobacco product is misbranded under section 903(a)(6) of the FD&C Act if a notice or other information respecting the product was not provided as required by section 905(j) of the FD&C Act. Under section 301(a) of the FD&C Act, it is a prohibited act to introduce or deliver for introduction into interstate commerce a tobacco product that is adulterated or misbranded. V. Description of the Proposed Rule We propose to revise to part 1 of 21 CFR chapter I to require submission of the STN in ACE or any other CBP-authorized EDI system, at the time the electronic entry is filed. The STN is currently an optional submission in ACE for ENDS products. This information is important data for FDA to efficiently verify premarket authorization for the ENDS product in the entry. Under this proposed rule, if finalized, if an ACE filer fails to submit the STN as required in proposed Sec. 1.79(b), the ACE system would not process the entry. If the complete STN is submitted in ACE in the correct syntax and the provided entry information matches the information in FDA's databases for that STN, the entry of that ENDS product may be eligible for a ``May Proceed'' using an automated admissibility review by FDA. If the STN submitted in ACE does not correspond with the information in FDA's data systems for that ENDS product, FDA would need to conduct a manual review to verify the STN. Conducting a manual review slows FDA's review by creating inefficiencies in the review process and could create delays for the importer and other parties to the shipment. As discussed earlier, FDA could issue an automated ``May Proceed'' if the ACE filer submits a complete STN, in the correct syntax, in ACE at the time of entry and the provided entry information matches the information in FDA's databases for that STN. Currently, due to FDA's import program's limited resources, the automated look up validation process (the part of FDA's import systems that matches the STN with information in our databases) is only programmed for STNs for ENDS products. Thus, this proposed rule is limited to ENDS products because, at this time, the FDA automated look up validation process can only perform electronic verification of the STN for ENDS products. VI. Proposed Effective Date We propose that any final rule based on this proposal become effective 30 days after the date of publication of the final rule in the Federal Register. VII. Preliminary Economic Analysis of Impacts We have examined the impacts of the proposed rule under Executive Order 12866, Executive Order 13563, Executive Order 14094, the Regulatory Flexibility Act (5 U.S.C. 601-612), and the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4). Executive Orders 12866, 13563, and 14094 direct us to assess all benefits, costs, and transfers of available regulatory alternatives and, when regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety, and other advantages; distributive impacts; and equity). Rules are ``significant'' under Executive Order 12866 Section 3(f)(1) (as amended by Executive Order 14094) if they ``have an annual effect on the economy of $200 million or more (adjusted every 3 years by the Administrator of OIRA [the Office of Information and Regulatory Affairs] for changes in gross domestic product); or adversely affect in a material way the economy, a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or State, local, territorial, or tribal governments or communities.'' OIRA has determined that this proposed rule is not a significant regulatory action under Executive Order 12866 Section 3(f)(1). The Regulatory Flexibility Act requires us to analyze regulatory options that would minimize any significant impact of a rule on small entities. Small [[Page 66652]] businesses would be affected by the rule in the same way as non-small businesses. Small businesses would bear the costs of the rule, if finalized, but would also enjoy most of the benefits. Because small entities would face minor one-time costs relative to firm revenue to read the rule and to submit the required data, we propose to certify that the proposed rule will not have a significant economic impact on a substantial number of small entities. The Unfunded Mandates Reform Act of 1995 (section 202(a)) requires us to prepare a written statement, which includes an assessment of anticipated costs and benefits, before proposing ``any rule that includes any Federal mandate that may result in the expenditure by State, local, and tribal governments, in the aggregate, or by the private sector, of $100,000,000 or more (adjusted annually for inflation) in any one year.'' The current threshold after adjustment for inflation is $183 million, using the most current (2023) Implicit Price Deflator for the Gross Domestic Product. This proposed rule would not result in an expenditure in any year that meets or exceeds this amount. This proposed rule, if finalized, would require an ACE filer to submit the STN for tobacco products submitted for any import entry containing ENDS tobacco product(s) at the time of entry in ACE or any other EDI system authorized by CBP. This information is important data for FDA to efficiently verify premarket authorization for the ENDS product in the entry. If the STN is not voluntarily submitted in ACE at the time of entry, FDA needs to conduct a manual review, which includes contacting the ACE filer or importer to obtain the STN of each ENDS product contained in the entry. The manual admissibility review slows FDA import admissibility decisions. Thus, by reducing FDA's time spent on obtaining the STN of each ENDS product contained in the entry, we expect this rulemaking to generate benefits in the form of cost savings for the Federal Government and industry. The proposed rule, if finalized, would result in a more effective and efficient admissibility review by FDA of those entry lines containing an ENDS product. Industry may benefit from the reduced time spent by FDA in making admissibility determinations on ENDS products contained in an entry. ACE filers of import entries containing ENDS products would face costs to read and understand the rule as well as to obtain and submit the STN for ENDS product(s) imported or offered for import. These costs would occur only once for each unique entity and ENDS product combination as a requirement upon initial submission of the STN, as explained in the Preliminary Regulatory Impact Analysis (PRIA). Table 1 summarizes the estimated benefits and costs of this proposed rule, if finalized. Because we lack information to quantify expected benefits of the rule, table 1 presents them qualitatively. We expect that the rule would result in cost savings to both industry and FDA from more efficient and effective import admissibility review. We estimate that the present value of costs of the rule over 10 years would range from $0.021 million to $0.061 million at a 2 percent discount rate, with a primary estimate of $0.041 million. The estimated annualized costs of this rulemaking over a 10-year period would range from $0.002 million to $0.007 million at a 2 percent discount rate, with a primary estimate of $0.005 million. Table 1--Summary of Benefits, Costs and Distributional Effects of Proposed Rule [Millions of 2022 dollars] -------------------------------------------------------------------------------------------------------------------------------------------------------- Notes (e.g., risk assumptions; source citations; whether Category Primary Low estimate High estimate Dollar year Discount rate Time horizon inclusion of capital estimate effects differs across low, primary, high estimates; etc.) -------------------------------------------------------------------------------------------------------------------------------------------------------- Benefits: Annualized monetized .............. .............. .............. .............. 2% .............. ....................... benefits. Annualized quantified, but .............. .............. .............. .............. .............. .............. ....................... non-monetized, benefits. ------------------------------------------------ Unquantified benefits...... Cost savings to Federal Government and .............. .............. .............. Cost savings. industry from more efficient and effective import review. ------------------------------------------------ Costs: Annualized monetized costs. $0.005 $0.002 $0.007 2022 2% 10 ....................... Annualized quantified, but .............. .............. .............. .............. .............. .............. ....................... non-monetized, costs. Unquantified costs......... .............. .............. .............. .............. .............. .............. ....................... Transfers: [[Page 66653]] Annualized monetized .............. .............. .............. .............. 2% .............. ....................... Federal budgetary transfers. Bearers of transfer gain .............. .............. .............. .............. .............. .............. ....................... and loss? Other annualized monetized .............. .............. .............. .............. 2% .............. ....................... transfers. Bearers of transfer gain .............. .............. .............. .............. .............. .............. ....................... and loss? Net Benefits: Annualized monetized net .............. .............. .............. .............. 2% .............. ....................... benefits. -------------------------------------------------------------------------------------------------------------------------------------------------------- Category Effects Notes -------------------------------------------------------------------------------------------------------------------------------------------------------- Effects on State, local, or None. Tribal governments. Effects on small businesses None. Effects on wages........... None. Effects on growth.......... None. -------------------------------------------------------------------------------------------------------------------------------------------------------- We have developed a comprehensive Preliminary Economic Analysis of Impacts that assesses the impacts of the proposed rule. The full preliminary analysis economic of impacts is available in the docket for this proposed rule (Ref. 1) and at https://www.fda.gov/about-fda/reports/economic-impact-analyses-fda-regulations. VIII. Analysis of Environmental Impact We have determined under 21 CFR 25.30(h) that this action is of a type that does not individually or cumulatively have a significant effect on the human environment. Therefore, neither an environmental assessment nor an environmental impact statement is required. IX. Paperwork Reduction Act of 1995 This proposed rule contains information collection provisions that are subject to review by the Office of Management and Budget (OMB) under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3521). A description of these provisions is given in the Description of the Proposed Rule section of this document. Included in our estimate of the annual reporting and recordkeeping burden is the time for reviewing instructions, searching existing data sources, gathering and maintaining the data needed, and completing and reviewing each collection of information. FDA invites comments on these topics: (1) whether the proposed collection of information is necessary for the proper performance of FDA's functions, including whether the information will have practical utility; (2) the accuracy of FDA's estimate of the burden of the proposed collection of information, including the validity of the methodology and assumptions used; (3) ways to enhance the quality, utility, and clarity of the information to be collected; and (4) ways to minimize the burden of the collection of information on respondents, including through the use of automated collection techniques, when appropriate, and other forms of information technology. Title: Importer's Entry Notice--OMB Control Number 0910-0046-- Revision. Description: This proposed rule would require the submission of the STN for tobacco products for ENDS products being imported or offered for import into the United States via ACE or any other electronic data interchange system authorized by CBP. The purpose of the rule is to facilitate FDA's review of imported ENDS products. This will allow the Agency to focus our resources on those FDA-regulated products that may be associated with a greater public health risk. Description of Respondents: Respondents to the information collection provisions of the proposed rule are importers, and licensed customs brokers hired by an importer to file the entry in ACE, who offer products for importation that are finished ENDS products, including components and parts of ENDS products, sealed in final packaging or in the final form in which [[Page 66654]] they are intended to be sold to consumers. The proposed rule would add the STN, assigned to the premarket application for an ENDS product under section 910 of the FD&C Act, to the data elements required for entries containing FDA-regulated tobacco products in Sec. 1.79 that must be submitted in ACE at the time of entry. Currently, this is an optional submission. Requiring the STN to be submitted in ACE at the time of entry for finished ENDS products would help facilitate FDA's import review. FDA's burden estimates are based on data discussed in the PRIA. For the analysis of the information collection, we calculate the submission of the STN in the ACE system as an initial first-year burden and subsequent recurring years. We anticipate these data retrieval and entry times to occur in the first year the rule becomes effective for all ENDS products imported or offered for import as a requirement upon initial submission of import information for unique entities and ENDS products combinations. In each subsequent year, any additional time spent on obtaining and submitting the required information would depend on the number of new Unique ENDS products imported or offered for import. As discussed in the PRIA, we assessed the baseline procedure for verifying marketing status. Currently, entries received without the optional STN data element trigger a manual admissibility review process by FDA to determine their premarket review status. From January 1, 2021, through June 27, 2023, there were no entries containing ENDS products where a filer voluntarily submitted a STN in ACE at the time of entry. We therefore assume that no ACE filers are submitting this information at baseline. For each Unique ENDS product, we assume time would be spent by an administrative worker on locating the sources of the data; obtaining the required information for submission to ACE, including reaching out to manufacturers if necessary; logging into the system; entering the required information or updating the already existing information in that firm's internal database(s). Once this information is gathered and entered into a firm's internal database(s), we foresee that it does not need to be gathered again for a subsequent shipment of the same Unique ENDS product. As part of this proposed rulemaking, we are revising the currently approved collection of information for the ACE system under OMB control number 0910-0046. FDA estimates the burden of this collection of information as follows: Table 2--Estimated First-Year Reporting Burden \1\ -------------------------------------------------------------------------------------------------------------------------------------------------------- Number of 21 CFR 1.79(b); Activity Number of responses per Total annual Average burden per response Total hours respondents respondent responses -------------------------------------------------------------------------------------------------------------------------------------------------------- Gathering and Entering STN into an ACE 177 60.825 10,766 0.033 (2 minutes)......................... 355 Filer's internal database(s). -------------------------------------------------------------------------------------------------------------------------------------------------------- \1\ There are no capital costs or operating and maintenance costs associated with this collection of information. Table 2 displays the estimated first year reporting burden associated with gathering and entering the required STN for ENDS products into the ACE filer's software program. Our burden estimates are consistent with estimates from table 5 in the PRIA, which summarizes the number of import lines, ACE filers, and unique ENDS products expected to be affected by the rule. As we stated previously, we identify Unique ENDS products through a particular combination of manufacturer, product code, and ACE filer. Table 5 in the PRIA presents low and high estimates. For PRA purposes, we have utilized the midpoint of these low and high values. We estimate that 177 respondents (number of ACE filers) will submit 10,766 annual responses (number of unique ENDS products) in the first year that the proposed rule is finalized. The 2016 ACE final rule assumed that preparing data elements for the first time could range from a few seconds to several minutes, depending on the complexity and location of the information. We assume that ACE filers have the required information readily available and that they will not need to contact manufacturers or other entities to obtain this data element. Likewise, we assume that importers would provide the necessary information to any licensed customs brokers they hire to complete these tasks. Finally, we assume that this time includes quality checks to ensure the accuracy of the information submitted in ACE. Some of this verification may be manual verification by staff or messaging from ACE or FDA that identifies incorrect information. To calculate the average burden per response we utilized assumptions in the 2016 ACE final rule, and we assume the time needed to locate, prepare, enter, and quality check the required information would range from 1 to 3 minutes per Unique ENDS product. For PRA estimates we have used the midpoint of 2 minutes (0.033 hours) per response. Our total first year burden is estimated to be 355 hours. Table 3--Estimated Subsequent Years Reporting Burden \1\ -------------------------------------------------------------------------------------------------------------------------------------------------------- Number of 21 CFR 1.79(b); Activity Number of responses per Total annual Average burden per response Total hours respondents respondent responses -------------------------------------------------------------------------------------------------------------------------------------------------------- Gathering and Entering the Submission 8 56.5 452 0.033 (2 minutes)......................... 15 Tracking Number into Filer's Internal Database. -------------------------------------------------------------------------------------------------------------------------------------------------------- \1\ There are no capital costs or operating and maintenance costs associated with this collection of information. Table 3 displays the estimated subsequent years burden associated with gathering and entering the required STN for ENDS products into the ACE filer's internal database. In each subsequent year after year one, any additional time spent preparing the required information would depend on the number of new Unique ENDS products imported or offered for import. As with the estimate for first year burden, our estimates for subsequent year burden are based on the midpoint of low and high estimates from table 5 in the PRIA. We estimate recurring [[Page 66655]] burden by averaging years 2-3 based on a 3-year OMB approval timeframe, which equaled to 8.25 respondents (number of ACE filers) and rounded to 8. For the number of annual responses, we used the average of years 2-3 which equaled to 452 annual responses (number of Unique ENDS products). We estimate the same estimate of 2 minutes (0.033 hours) per response as in table 2, and our total recurring burden is estimated to be a rounded 15 hours. If this proposed rule is finalized, we estimate that ENDS tobacco product importers submitting the required STN will increase the burden under OMB control number 0910-0046 by 370 hours (355 first year burden hours + 15 subsequent (years 2-3) recurring hours). To ensure that comments on information collection are received, OMB recommends that written comments be submitted through https://www.regulations.gov (see ADDRESSES). All comments should be identified with the title of the information collection. In compliance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3407(d)), we have submitted the information collection provisions of this proposed rule to OMB for review. These information collection requirements will not be effective until FDA publishes a final rule, OMB approves the information collection requirements, and the rule goes into effect. FDA will announce OMB approval of these requirements in the Federal Register. X. Federalism We have analyzed this proposed rule in accordance with the principles set forth in Executive Order 13132. We have determined that the proposed rule does not contain policies that 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. Accordingly, we conclude that this proposed rule does not contain policies that have federalism implications as defined in the Executive order and, consequently, a federalism summary impact statement is not required. XI. Consultation and Coordination With Indian Tribal Governments We have analyzed this proposed rule in accordance with the principles set forth in Executive Order 13175. We have tentatively determined that the proposed rule does not contain policies that would have a substantial direct effect on one or more Indian Tribes, on the relationship between the Federal Government and Indian Tribes, or on the distribution of power and responsibilities between the Federal Government and Indian Tribes. XII. Reference The following reference is on display at the Dockets Management Staff (see ADDRESSES) and is available for viewing by interested persons between 9 a.m. and 4 p.m., Monday through Friday; it is also available electronically at https://www.regulations.gov. Although FDA verified the website addresses in this document, please note that websites are subject to change over time. 1. FDA, Submission of Food and Drug Administration Import Data in the Automated Commercial Environment (Proposed Rule) Preliminary Regulatory Impact Analysis. Economic Impact Analyses of FDA Regulations. List of Subjects in 21 CFR Part 1 Cosmetics, Drugs, Exports, Food labeling, Imports, Labeling, Reporting and recordkeeping requirements. Therefore, under the Federal Food, Drug, and Cosmetic Act and under authority delegated to the Commissioner of Food and Drugs, FDA proposes to amend 21 CFR part 1 as follows: PART 1--GENERAL ENFORCEMENT REGULATIONS 0 1. The authority citation for part 1 continues to read as follows: Authority: 15 U.S.C. 1333, 1453, 1454, 1455, 4402; 19 U.S.C. 1490, 1491; 21 U.S.C. 321, 331, 332, 333, 334, 335a, 342, 343, 350c, 350d, 350j, 352, 355, 360b, 360ccc, 360ccc-1, 360ccc-2, 362, 371, 374, 381, 382, 384a, 387, 387a, 387c, 393, and 2223; 42 U.S.C. 216, 241, 243, 262, 264, 271. 0 2. In Sec. 1.79, add paragraph (b) to read as follows: Sec. 1.79 Tobacco products. * * * * * (b) Submission tracking number assigned to an application for market authorization submitted for an electronic nicotine delivery system product, such as a premarket tobacco product application (PMTA) or a supplemental PMTA. Dated: August 12, 2024. Robert M. Califf, Commissioner of Food and Drugs. In concurrence with FDA. Dated: August 12, 2024. Aviva R. Aron-Dine, Acting Assistant Secretary of the Treasury for Tax Policy. [FR Doc. 2024-18343 Filed 8-15-24; 8:45 am] BILLING CODE 4164-01-P

usgpo

2024-10-08T13:26:25.299677

FR

FR-2024-08-16/2024-18382

Federal Register Volume 89 Issue 159 (August 16, 2024)

United States National Archives and Records Administration Office of the Federal Register

[Federal Register Volume 89, Number 159 (Friday, August 16, 2024)] [Proposed Rules] [Pages 66655-66656] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 2024-18382] ======================================================================= ----------------------------------------------------------------------- DEPARTMENT OF THE INTERIOR Bureau of Indian Affairs 25 CFR Part 1000 [245A2100DD/AAKC001030/A0A501010.999900] Self-Governance PROGRESS Act Negotiated Rulemaking Committee; Notice of Meeting AGENCY: Bureau of Indian Affairs, Interior. ACTION: Proposed rule; public meetings. ----------------------------------------------------------------------- SUMMARY: In accordance with the Federal Advisory Committee Act, the Self-Governance PROGRESS Act Negotiated Rulemaking Committee (Committee), will hold public meetings to negotiate and advise the Secretary of the Interior (Secretary) on a proposed rule to implement the Practical Reforms and Other Goals To Reinforce the Effectiveness of Self-Governance and Self-Determination for Indian Tribes Act of 2019 (PROGRESS Act). DATES: The meetings are open to the public and will be held: Thursday, September 12, 2024, and Thursday, September 19, 2024. ADDRESSES: The meeting will be held in the John Muir Room of the Department of the Interior Building, 1849 C Street NW, Washington, DC. Members of the public may attend the meeting in-person or participate virtually. Send your comments, within 30 days following the meeting, to the Designated Federal Officer, Vickie Hanvey, using the following methods: Preferred method: Email to [email protected] with ``PROGRESS Act'' in subject line. Alternate methods: Mail, hand-carry or use an overnight courier service to the Designated Federal Officer, Ms. Vickie Hanvey, Office of Self-Governance, Office of the Assistant Secretary--Indian Affairs, 1849 C Street NW, Mail Stop 3624, Washington, DC 20240. FOR FURTHER INFORMATION CONTACT: Vickie Hanvey, Designated Federal Officer, [email protected], (918) 931-0745. Individuals in the United States who are deaf, blind, hard of hearing, or have a speech disability may dial 711 (TTY, TDD, or TeleBraille) to access telecommunications relay services. Individuals outside the United States should use the relay services offered within their country to make international calls to the point-of-contact in the United States. Please make requests in advance for sign language interpreter services, [[Page 66656]] assistive listening devices, language translation services, or other reasonable accommodations. We ask that you contact the person listed in the FOR FURTHER INFORMATION CONTACT section of this document at least seven (7) business days prior to the meeting to give the Department of the Interior sufficient time to process your request. All reasonable accommodation requests are managed on a case-by-case basis. SUPPLEMENTARY INFORMATION: These meetings will be held under the authority of the PROGRESS Act (Pub. L. 116-180), the Negotiated Rulemaking Act (5 U.S.C. 561 et seq.), and the Federal Advisory Committee Act (5 U.S.C. Ch. 10). The Committee is to negotiate and reach consensus on recommendations for a proposed rule that will replace the existing regulations at 25 CFR part 1000. The Committee is charged with developing proposed regulations for the Secretary's implementation of the PROGRESS Act's provisions regarding the Department of the Interior's (DOI) Self-Governance Program. The PROGRESS Act amends subchapter I of the Indian Self- Determination and Education Assistance Act (ISDEAA), 25 U.S.C. 5301 et seq., which addresses Indian Self-Determination, and subchapter IV of the ISDEAA, which addresses DOI's Tribal Self-Governance Program. The PROGRESS Act also authorizes the Secretary to adapt negotiated rulemaking procedures to the unique context of self-governance and the government-to-government relationship between the United States and Indian Tribes. The Federal Register (87 FR 30256) notice published on May 18, 2022, discussed the issues to be negotiated and the members of the Committee. Meeting Agenda These meetings are open to the public. Detailed information about the Committee, including meeting agendas can be accessed at https://www.bia.gov/service/progress-act. Topics for these meetings will include Committee priority setting, subcommittee reports on comments received from Tribal consultations, review and approval of draft final rule documents, Committee caucus, and public comment. For in-person meetings, members of the public are required to present a valid government-issued photo ID to enter the building; and are subject to security screening, including bag and parcel checks. Plenary Meeting (Number 16) Meeting date: September 12, 2024. Meeting time: 1 to 5 p.m. ET. Meeting location: Hybrid (in-person and virtual). In-person meeting room: John Muir Room. Address: Department of the Interior, 1849 C Street NW, Washington, DC 20240. Virtual link: https://teams.microsoft.com/l/meetup-join/19%3ameeting_MTJjZDA1M2YtNmM5MC00NGFhLWFlOTItNjQ1NTZmZWQ4Nzll%40thread.v2/0?context=%7B%22Tid%22%3A%220693b5ba-4b18-4d7b-9341-f32f400a5494%22%2C%22Oid%22%3A%2213321130-a12b-4290-8bcf-30387057bd7b%22%2C%22IsBroadcastMeeting%22%3Atrue%2C%22role%22%3A%22a%22%7D&btype=a&role=a. Comments: Submit by October 10, 2024. Plenary Meeting (Number 17) Meeting date: September 19, 2024. Meeting time: 1 to 5 p.m. ET. Meeting location: Hybrid (in-person and virtual). In-person meeting room: John Muir Room. Address: Department of the Interior, 1849 C Street NW, Washington, DC 20240. Virtual link: https://teams.microsoft.com/l/meetup-join/19%3ameeting_OTNhMTFmNTUtZGE3My00YmViLTgwNzQtZDliYjVhNTEyYjkz%40thread.v2/0?context=%7B%22Tid%22%3A%220693b5ba-4b18-4d7b-9341-f32f400a5494%22%2C%22Oid%22%3A%2213321130-a12b-4290-8bcf-30387057bd7b%22%2C%22IsBroadcastMeeting%22%3Atrue%2C%22role%22%3A%22a%22%7D&btype=a&role=a. Comments: Submit by October 17, 2024. Public Comments Depending on the number of people who want to comment and the time available, the amount of time for individual oral comments may be limited. Requests to address the Committee during the meeting will be accommodated in the order the requests are received. Individuals who wish to expand upon their oral statements, or those who had wished to speak but could not be accommodated on the agenda, may submit written comments to the Designated Federal Officer up to 30 days following the meeting. Written comments may be sent to Vickie Hanvey listed in the ADDRESSES section above. Before including your address, phone number, email address, or other personal identifying information in your comment, you should be aware that your entire comment--including your personal identifying information--may be made publicly available at any time. While you can ask us in your comment to withhold your personal identifying information from public review, we cannot guarantee that we will be able to do so. (Authority: 5 U.S.C. Ch. 10) Bryan Newland, Assistant Secretary--Indian Affairs. [FR Doc. 2024-18382 Filed 8-15-24; 8:45 am] BILLING CODE 4337-15-P

usgpo

2024-10-08T13:26:25.329352

FR

FR-2024-08-16/2024-18238

Federal Register Volume 89 Issue 159 (August 16, 2024)

United States National Archives and Records Administration Office of the Federal Register

[Federal Register Volume 89, Number 159 (Friday, August 16, 2024)] [Proposed Rules] [Pages 66656-66658] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 2024-18238] ======================================================================= ----------------------------------------------------------------------- EQUAL EMPLOYMENT OPPORTUNITY COMMISSION 29 CFR Part 1614 RIN 3046-AB00 Withdrawal of NPRM Addressing Official Time in the Federal Equal Employment Opportunity Process AGENCY: Equal Employment Opportunity Commission. ACTION: Withdrawal of rulemaking. ----------------------------------------------------------------------- SUMMARY: The Equal Employment Opportunity Commission (``EEOC'' or ``Commission'') is withdrawing its Notice of Proposed Rulemaking (``NPRM'') to amend its regulation addressing official time for Federal agency employees who represent co-workers during the EEO complaint process. DATES: August 16, 2024. FOR FURTHER INFORMATION CONTACT: Kathleen Oram, Assistant Legal Counsel, at (202) 921-2665 or [email protected], or Gary J. Hozempa, Senior Staff Attorney, at (202) 921-2672 or [email protected], Office of Legal Counsel, U.S. Equal Employment Opportunity Commission. Requests for this document in an alternative format should be made to the EEOC's Office of Communications and Legislative Affairs at (202) 921-3191 (voice), 1-800-669-6820 (TTY), or 1-844-234-5122 (ASL video phone). SUPPLEMENTARY INFORMATION: On December 11, 2019, the EEOC published in the Federal Register a Notice of Proposed Rulemaking (NPRM) announcing its intention to amend 29 CFR 1614.605(b) to state that union officers and stewards are excluded from that section's grant of reasonable official time for representational services during EEO administrative proceedings. See NPRM, Official Time in Federal Sector Cases Before the Commission, 84 FR [[Page 66657]] 67683. That publication generated over 1800 comments, almost all of which opposed the proposed change. In order to give ``all interested stakeholders ample opportunity to comment,'' the Commission reopened the comment period for another 60 days. See 85 FR 33049 (June 1, 2020). During the second comment period, over 5,700 individuals and organizations submitted comments. Again, the vast majority of commenters opposed the proposed amendment. On January 12, 2021, the EEOC submitted to the Federal Register a draft final rule amending section 1614.605(b) as proposed in the NPRM. On January 21, 2021, the EEOC withdrew the draft rule before it was published, pursuant to the ``Memorandum for the Heads of Executive Departments and Agencies,'' from Ronald A. Klain, Assistant to the President and Chief of Staff (January 20, 2021). For the reasons stated below, the Commission has decided to withdraw this rulemaking. Background--29 CFR 1614.605(a) Pursuant to the EEOC's Federal sector complaint processing regulations, ``[a]t any stage in the processing of a complaint,'' a complainant is entitled ``to be accompanied, represented, and advised by a representative of complainant's choice.'' 29 CFR 1614.605(a). If the representative is an employee of the complainant's agency, ``the representative shall have a reasonable amount of time, if otherwise on duty,'' to provide representational services. 29 CFR 1614.605(b). The Proposed Rule To Amend 29 CFR 1614.605(b) The NPRM proposed amending section 1614.605(b) to state that the entitlement to official time to represent a same-agency employee in an EEO matter does not apply to a representative who serves in an official capacity in a labor organization that is an exclusive representative of employees of the agency. Instead, whether the union representative is entitled to official time would depend on a bargaining agreement between the agency and labor organization. The NPRM asserted that whether a union official should receive official time for EEO representational duties was best determined by the relevant labor relations statute--the Federal Service Labor- Management Relations Statute (``FSLMRS''), as the FSLMRS was ``specifically designed to address the unique relationship between labor organizations and federal agencies.'' 84 FR at 67684. The NPRM reasoned that, because the EEOC's basic approach to official time stems from regulations predating enactment of the FSLMRS, and the EEOC never reconsidered its approach in light of the FSLMRS, the EEOC has caused stakeholder confusion. See id. In consideration of the FSLMRS, the NPRM concluded that the best policy choice would be to amend the EEOC's official time rule to exclude union officials so that an agency and a union could bargain over the availability of official time. The Public Comments on the Proposed Rule Most commenters objected to the proposed rule, although a small number endorsed the proposal and the rationale provided in the NPRM. Comments in Support of the Proposed Rule Those favoring the proposed rule primarily did so because it differentiated between the EEOC's authority over the Federal sector complaint process pursuant to section 717 of Title VII of the Civil Rights Act of 1964, as amended, 42 U.S.C. 2000e-16 (``Title VII'') and the authority of the Federal Labor Relations Authority (``FLRA'') under the FSLMRS. Commenters stated that the proposed rule correctly placed the issue of official time for union representatives under 5 U.S.C. 7131 (Official Time) of the FSLMRS. In the opinion of these commenters, official time for union representatives should not be administered or governed by the EEOC because the EEOC lacks authority over the issue, whereas the FLRA possesses such authority. Comments Opposed to the Proposed Rule Commenters objecting to the NPRM stated that the proposed rule was erroneously predicated upon the FSLMRS, rather than the Congressional intent expressed in Title VII, and unfairly targeted only those Federal employees who also happen to serve as union officials. Commenters further argued that the EEOC had not presented empirical evidence--such as reports, studies, statistics, data, surveys, or anecdotes--to demonstrate that, since the inception of the EEOC's official time rule in 1987, agencies or unions had in fact expressed confusion regarding bargaining obligations about official time or requested clarification on the matter of official time and its relationship to the FSLMRS. These commenters concluded that the EEOC was creating a solution for a non-existent problem. Other commenters argued that the Commission failed to show that its policy choice would lead to better EEO complaint processing or outcomes consistent with the EEOC's mission. Some of these commenters asserted that the NPRM had not considered whether the proposal would have a negative impact on a complainant's right to a representative of their choice. For example, it was noted that union representatives often are knowledgeable of, and experienced in, the EEO process. These commenters stated that, if the only Federal employees not granted official time to represent their coworkers were those employees most experienced in these types of cases, the proposed rule would hinder Federal employees challenging discrimination. It further was asserted that the proposed amendment threatened to arbitrarily and capriciously except union representatives--and only union representatives--from the class of employees a complainant can choose as a representative. Commenters stated that a union official representative could assist complainants in distinguishing between prohibited discrimination and non-actionable workplace behavior, which would lead to more constructive outcomes for complainants and agencies, and a more efficient EEO process. If union officials could not use official time, commenters stated, complainants would be deprived of the effective assistance that union officials can provide, and employees who have experienced prohibited discrimination would be less likely to initiate complaints and follow them through to resolution. Other commenters opposing the NPRM noted that the EEOC's proposal to leave the determination of official time to negotiations between employers and labor organizations would most likely diminish a Federal employee's right to choose a union official as their representative of choice. They argued that the likely result of the proposed change-- requiring union officials to take leave without pay for performing representational services--would discourage them from representing their coworkers in the EEO complaint process. They further maintained that the proposed rule would send a message that the EEOC wants complainants to have inferior representation or representation that is cost-prohibitive to many; it would cause many complainants to proceed pro se or with coworker-representatives who are unfamiliar with the EEO complaint process. Thus, they concluded, the proposed rule would prevent many complainants from obtaining competent representation and could thwart Federal [[Page 66658]] workers from successfully challenging and addressing workplace harassment and discrimination. The Commission's Decision To Withdraw the Rulemaking The NPRM proposed amending the official time rule because it ``believe[d] that the best policy approach is to leave the determination of whether a union official receives official time to the provisions of the FSLMRS.'' 84 FR at 67684. However, the NPRM did not take into account that the FSLMRS does not require an agency and union to bargain over the use of official time for representational services when provided in forums unrelated to labor-management relations activities, such as the 29 CFR part 1614 EEO complaint process. See National Archives and Records Administration (Agency) and American Federation of Government Employees, Council 236, Local 2928 (Union), 24 F.L.R.A. 245, 247, FLRA Rep. No. 407, 24 FLRA No. 29, 1986 WL 54527, *3 (November 26, 1986) (holding that ``official time negotiated under [the FSLMRS] is to be used for labor management relations activity''); American Federation of Government Employees National Council of Field Labor Locals (Union) and U.S. Department of Labor Mine Safety and Health Administration Denver, Colorado (Agency), 39 F.L.R.A. 546, 553, FLRA Rep. No. 672, 39 FLRA No. 44, 1991 WL 32963, *6 (February 13, 1991) (stating that ``[the FSLMRS] relates only to the granting of official time in connection with labor-management relations activities''). Additionally, the FSLMRS does not address the Federal sector EEO complaint process and, in the absence of such a statutory command, commenters in favor of the proposed rule did not explain why the best policy choice for the EEOC would be to follow the FSLMRS when determining which EEO-related representational activities warrant the use of official time. As commenters acknowledged, the EEOC and the FLRA have authority to administer different laws, each with its own standards. Just as the EEOC does not have the authority to impose official time rules in the labor-management relations arena, the FLRA does not have the authority to impose its rules in the EEO complaint forum. Deferring to the FSLMRS regarding whether union officials are entitled to official time when representing a same-agency Federal co- worker in an EEO complaint would interfere with EEOC's authority and responsibilities under Title VII. Part of the mission of the EEOC is to ensure that laws that protect Federal employees from workplace discrimination are fully enforced. This includes the guarantee that a Federal EEO complainant is entitled to a representative of their choice and that both the complainant and the representative, if a co-worker, are authorized to use official time when pursuing the complaint. Singling out union representatives as the only Federal employees ineligible for using official time to assist EEO complainants undermines this mission. It creates an obstacle to securing competent representation, making it harder for complainants to effectively pursue their EEO complaints. As a number of commenters stated, if a complainant is dissuaded from securing a union representative because the representative is not entitled to official time, the complainant may decide not to challenge alleged employment discrimination. When a Federal sector complainant is reluctant to proceed, it diminishes the EEOC's fundamental ability to eliminate employment discrimination within the Federal government. Since the purpose of the EEOC is to ensure that employees have equal employment opportunities, it must promote effective representation by providing employees with choices on who represents them, including being represented by co-worker union officials. Moreover, Congress intended for both Title VII and the Commission to serve a broad remedial function in the Federal sector and for actions accordingly to be remedial in nature. See 42 U.S.C. 2000e-16(b) (the EEOC ``shall have the authority to enforce [the federal sector prohibition against discrimination in Title VII] through appropriate remedies. . . .''). The change proposed in this NPRM, however, is contrary to this Congressional directive and will harm Federal employees. It restricts a complainant's choice of representative by excluding, for the first time, any representative who ``serves in an official capacity in a labor organization'' from eligibility. Union representatives in the EEO process often are the only representatives available to Federal employees at no cost to those alleging discrimination. Without access to such representation, complainants would have to choose between finding and paying an attorney, proceeding without a representative, or dropping the complaint. None of these options is consistent with the EEOC's mandate under Title VII. The Commission also agrees with commenters' arguments that there is no guarantee that all agencies and unions would bargain for affording official time to union officials when representing EEO complainants. Under the proposed rule, the result of bargaining would be that union officials at some agencies would be entitled to use official time whereas at other agencies they would not. Complainants who would file EEO complaints against agencies in the latter group likely would be foreclosed from choosing a union official as a representative, and many would be deprived of their chosen representative in the Title VII administrative EEO forum. Thus, it is likely that, if the proposed rule were adopted, a knowledgeable corps of union representatives committed to strongly advocating for Federal workers in workplace disputes would be excluded from representing EEO complainants in direct contradiction to EEOC's overall goal, to the detriment of Federal employees. The EEOC, as the lead Federal EEO agency, is charged with full enforcement of the Federal EEO laws. Pursuant to 42 U.S.C. 2000e-16(b), the EEOC ``shall have authority to . . . issue such rules, regulations, orders and instructions as it deems necessary and appropriate to carry out its responsibilities under this section.'' Using this authority, the EEOC adopted a rule that provides that a same-agency co-worker shall have a reasonable amount of time to represent a same-agency EEO complainant. See 29 CFR 1614.605(a). Nothing in Title VII or the current rule restricts the type of co-worker representative who can receive official time. The co-worker can be a subordinate, a peer, a management official, or a union steward or officer. The changes proposed in this NPRM would, for the reasons stated above, weaken rather than strengthen EEO enforcement in Federal agencies. Therefore, the EEOC concludes that the proposal that official time for union officials in the EEO complaint process be governed by the FSLMRS is not consistent with the EEOC's statutory mandate. Given that the Commission has determined that amending the current official time rule is not in the best interests of EEO complainants and their co-worker representatives under the laws enforced by the Commission, the Commission is withdrawing this rulemaking. Charlotte A. Burrows, Chair. [FR Doc. 2024-18238 Filed 8-15-24; 8:45 am] BILLING CODE 6570-01-P

usgpo

2024-10-08T13:26:25.380170

FR

FR-2024-08-16/2024-17990

Federal Register Volume 89 Issue 159 (August 16, 2024)

United States National Archives and Records Administration Office of the Federal Register

[Federal Register Volume 89, Number 159 (Friday, August 16, 2024)] [Proposed Rules] [Page 66659] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 2024-17990] [[Page 66659]] ======================================================================= ----------------------------------------------------------------------- ENVIRONMENTAL PROTECTION AGENCY 40 CFR Part 52 [EPA-R05-OAR-2023-0190; FRL-12117-01-R5] Air Plan Approval; Indiana; Ozone SIP Modifications Due to the Municipal Solid Waste Landfill Update AGENCY: Environmental Protection Agency (EPA). ACTION: Proposed rule. ----------------------------------------------------------------------- SUMMARY: The Environmental Protection Agency (EPA) is proposing to approve the Indiana Department of Environmental Management's request to repeal and replace portions of the Indiana Administrative Code (IAC) for Lake, Porter, Clark, and Floyd Counties in Indiana. This new regulation includes Federal updates to municipal solid waste landfill rules with the incorporation by reference of the Federal plan for Municipal Solid Waste Landfills. EPA is proposing that this action is approvable because it is consistent with the EPA's Emission Guidelines for Municipal Solid Waste Landfills and is a SIP strengthening measure. DATES: Comments must be received on or before September 16, 2024. ADDRESSES: Submit your comments, identified by Docket ID No. EPA-R05- OAR-2023-0190 at https://www.regulations.gov or via email to [email protected]. For comments submitted at https://www.regulations.gov, follow the online instructions for submitting comments. Once submitted, comments cannot be edited or removed from the docket. EPA may publish any comment received to its public docket. Do not submit electronically any information you consider to be Confidential Business Information (CBI), Proprietary Business Information (PBI), or other information whose disclosure is restricted by statute. Multimedia submissions (audio, video, etc.) must be accompanied by a written comment. The written comment is considered the official comment and should include discussion of all points you wish to make. EPA will generally not consider comments or comment contents located outside of the primary submission (i.e. on the web, cloud, or other file sharing system). For additional submission methods, please contact the person identified in the FOR FURTHER INFORMATION CONTACT section. For the full EPA public comment policy, information about CBI, PBI, or multimedia submissions, and general guidance on making effective comments, please visit https://wwww.epa.gov/dockets/commenting-epa-dockets. FOR FURTHER INFORMATION CONTACT: Katie Mullen, Air and Radiation Division (AR-18J), Environmental Protection Agency, Region 5, 77 West Jackson Boulevard, Chicago, Illinois 60604, (312) 353-3490, [email protected]. The EPA Region 5 office is open from 8:30 a.m. to 4:30 p.m., Monday through Friday, excluding Federal holidays. SUPPLEMENTARY INFORMATION: The Environmental Protection Agency (EPA) is proposing to approve the Indiana Department of Environmental Management's request to repeal 326 Indiana Administrative Code (IAC) 8- 8 for Lake, Porter, Clark, and Floyd Counties in Indiana, and replace it with 326 IAC 8-8.2. In the ``Rules and Regulations'' section of this Federal Register, EPA is approving the State's SIP submittal as a direct final rule without prior proposal because the Agency views this as a noncontroversial submittal and anticipates no adverse comments. A detailed rationale for the approval is set forth in the direct final rule. If no relevant adverse comments are received in response to this rule, no further activity is contemplated. If EPA receives such comments, the direct final rule will be withdrawn and all public comments received will be addressed in a subsequent final rule based on this proposed rule. EPA will not institute a second comment period. Any parties interested in commenting on this action should do so at this time. Please note that if EPA receives adverse comment on an amendment, paragraph, or section of this rule and if that provision may be severed from the remainder of the rule, EPA may adopt as final those provisions of the rule that are not the subject of an adverse comment. For additional information, see the direct final rule which is located in the Rules section of this Federal Register. Dated: August 7, 2024. Debra Shore, Regional Administrator, Region 5. [FR Doc. 2024-17990 Filed 8-15-24; 8:45 am] BILLING CODE 6560-50-P

usgpo

2024-10-08T13:26:25.464150

FR

FR-2024-08-16/2024-18160

Federal Register Volume 89 Issue 159 (August 16, 2024)

United States National Archives and Records Administration Office of the Federal Register

[Federal Register Volume 89, Number 159 (Friday, August 16, 2024)] [Proposed Rules] [Pages 66659-66661] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 2024-18160] ----------------------------------------------------------------------- ENVIRONMENTAL PROTECTION AGENCY 40 CFR Part 52 [EPA-R03-OAR-2023-0444; FRL-10461-01-R3] Air Plan Approval; Delaware; 2022 Amendments to the Delaware's Ambient Air Quality Standards AGENCY: Environmental Protection Agency (EPA). ACTION: Proposed rule. ----------------------------------------------------------------------- SUMMARY: The Environmental Protection Agency (EPA) is proposing to approve a state implementation plan (SIP) revision submitted by the State of Delaware. This SIP revision consists of Delaware's amendments to its ambient air quality standards for ground level ozone, amendments to citations to the Code of Federal Regulation (CFR) dates for all ambient air quality standards in Delaware's regulations, and Delaware's amendment removing the sulfur dioxide (SO2) 24-hour and annual primary standards that have been revoked by EPA. This action is being taken under the Clean Air Act (CAA). DATES: Written comments must be received on or before September 16, 2024. ADDRESSES: Submit your comments, identified by Docket ID No. EPA-R03- OAR-2023-0444 at www.regulations.gov, or via email to [email protected]. For comments submitted at Regulations.gov, follow the online instructions for submitting comments. Once submitted, comments cannot be edited or removed from Regulations.gov. For either manner of submission, EPA may publish any comment received to its public docket. Do not submit electronically any information you consider to be confidential business information (CBI) or other information whose disclosure is restricted by statute. Multimedia submissions (audio, video, etc.) must be accompanied by a written comment. The written comment is considered the official comment and should include discussion of all points you wish to make. EPA will generally not consider comments or comment contents located outside of the primary submission (i.e., on the web, cloud, or other file sharing system). For additional submission methods, please contact the person identified in the FOR FURTHER INFORMATION CONTACT section. For the full EPA public comment policy, information about CBI or multimedia submissions, and general guidance on making effective comments, please visit [[Page 66660]] www.epa.gov/dockets/commenting-epa-dockets. FOR FURTHER INFORMATION CONTACT: Erin Malone, Planning & Implementation Branch (3AD30), Air & Radiation Division, U.S. Environmental Protection Agency, Region III, Four Penn Center, 1600 John F. Kennedy Boulevard, Philadelphia, Pennsylvania 19103. The telephone number is (215) 814- 2190. Ms. Malone can also be reached via electronic mail at [email protected]. SUPPLEMENTARY INFORMATION: On November 15, 2022, the Delaware Department of Natural Resources and Environmental Control (DNREC) submitted to EPA a revision to its SIP that consists of amendments to Title 7 of the Delaware Administrative Code (7 DE Admin Code). Specifically, the amendments are to 7 DE Admin 1103 Ambient Air Quality Standards (DE 1103). DNREC's amendments to DE 1103 aligned the language of that regulation to be consistent with existing Federal regulatory standards. Specifically, DNREC revised DE 1103 to reflect: the most current national ambient air quality standards (NAAQS) for ground level ozone; amendments to update citations in DE 1103 to include the CFR dates in effect at the time DNREC amended DE 1103 for all NAAQS; and amendments to remove the SO2 24-hour and annual primary standards. On May 14, 2024, DNREC submitted a withdrawal letter to remove an update to section 1.6.5 of DE 1103 in Delaware's SIP. Delaware withdrew its revision to Section 1.6.5 because that regulation erroneously cites to an EPA analytical method that was revoked by EPA. I. Background The CAA mandates that EPA set NAAQS for criteria pollutants, which are ozone and related photochemical oxidants, carbon monoxide, lead, nitrogen oxides, particulate matter, and sulfur oxides. The CAA also requires EPA to periodically review the relevant scientific information and the standards and revise them, if appropriate, to ensure that the standards provide the requisite protection for public health and the environment. The CAA also requires states to develop a general plan to attain and maintain the standards in all areas of the country and a specific plan to attain the standards for each area designated nonattainment. The NAAQS for ground-level ozone were updated on October 1, 2015, to strengthen the NAAQS for ground-level ozone to 0.070 parts per million (ppm). See 80 FR 65291.\1\ The primary and secondary standards established in 2015 are determined by the fourth-highest daily maximum 8-hour concentration, averaged over three consecutive years. In December 2020, EPA retained the 2015 standards without revision. See 85 FR 87256, December 31, 2020.\2\ --------------------------------------------------------------------------- \1\ 2015 National Ambient Air Quality Standards for Ozone available at www.federalregister.gov/documents/2015/10/26/2015-26594/national-ambient-air-quality-standards-for-ozone. \2\ 2020 Review of the Ozone National Ambient Air Quality Standards available at www.federalregister.gov/documents/2020/12/31/2020-28871/review-of-the-ozone-national-ambient-air-quality-standards. --------------------------------------------------------------------------- On June 2, 2010, EPA revised the primary SO2 NAAQS based on its review of the air quality criteria for oxides of sulfur and the primary NAAQS for oxides of sulfur as measured by SO2.\3\ See 75 FR 35520. The 1-hour SO2 standard was set at a level of 0.075 ppm, based on the 3-year average of the annual 99th percentile of 1-hour daily maximum concentrations. EPA also revoked both the existing 24-hour and annual primary SO2 standards. --------------------------------------------------------------------------- \3\ 40 CFR parts 50, 53, and 58 Primary National Ambient Air Quality Standard for Sulfur Dioxide; Final Rule available at www3.epa.gov/ttn/naaqs/standards/so2/fr/20100622.pdf. --------------------------------------------------------------------------- II. Summary of SIP Revision and EPA Analysis Delaware's November 15, 2022 SIP submission consists of: (1) amendments to its ambient air quality standards in DE 1103 to reflect the current NAAQS for ground level ozone; (2) amendments to its regulatory citations to the CFR dates for the EPA sampling and analytical procedures and techniques for the various NAAQS that Delaware incorporates into its regulations, and (3) amendments to remove from DE 1103 the SO2 24-hour and annual primary standards that have been revoked by EPA. Delaware's regulatory amendments aligned DE 1103 with current EPA's NAAQS regulations. By including these revisions to DE 1103 in the Delaware SIP, the SIP will also align with EPA's current NAAQS regulations. The Delaware SIP's current primary and secondary ozone NAAQS standards are outdated at 0.075 ppm. DNREC's revision to DE 1103 updated the primary and secondary ozone standards in Section 6.0 of DE 1103 to reflect the 2015 Ozone NAAQS of 0.070 ppm. If approved, Delaware's SIP submittal will make the SIP consistent with EPA's current ozone NAAQS. DNREC has also amended DE 1103 to update its references for the dates for EPA's sampling and analytical procedures and techniques for the various NAAQS, that Delaware incorporates by reference into DE 1103. The dates, for all sections except 1.6.5, will be updated to July 1, 2019, which was the most current version of the CFR as of the time that DNREC revised DE 1103. If approved, Delaware's SIP will incorporate the NAAQS monitoring methodologies as codified in the 2019 CFR, which was the most recent version of the CFR at the time Delaware revised DE 1103. Updating these references will strengthen the Delaware SIP. Additionally, Delaware removed subsections 4.2 and 4.3 from DE 1103. These subsections had set forth Delaware's SO2 24-hour primary standard and SO2 annual primary standard, which corresponded to the EPA's revoked SO2 24-hour primary standard and SO2 annual primary standard. This amendment to DE 1103 conforms the Delaware SO2 ambient air quality standard with EPA's current Federal regulations. If this revision to DE 1103 is approved into the Delaware SIP, the SIP will align with EPA's current SO2 NAAQS, at 40 CFR 50.17. III. Proposed Action EPA is proposing to approve Delaware's submittal of November 15, 2022, consisting of the changes to 7 DE Admin Code 1103, Ambient Air Quality Standards, as described in sections I and II of the preamble. This revision to the Delaware SIP will align the SIP to be consistent with Federal requirements by updating the SIP to be consistent with EPA's 2015 ozone NAAQS; updating the citations in the SIP to the 2019 CFR dates for all NAAQS; and by removing from the SIP the current reference to the revoked the SO2 24-hour and annual primary standards. EPA is soliciting public comments on the proposed rulemaking for the next 30 days. Relevant comments will be considered before taking the final action. IV. Incorporation by Reference In this document, EPA is proposing to include in a final EPA rule regulatory text that includes incorporation by reference. In accordance with requirements of 1 CFR 51.5, EPA is proposing to incorporate by reference DE regulation 1103, as effective on July 1, 2019, excluding updates to section 1.6.5, as discussed in sections I and II of the preamble. EPA has made, and will continue to make, these materials generally available through www.regulations.gov and at the EPA Region III Office (please contact the person identified in the FOR FURTHER INFORMATION CONTACT section of this preamble for more information). [[Page 66661]] V. Statutory and Executive Order Reviews Under the CAA, the Administrator is required to approve a SIP submission that complies with the provisions of the CAA and applicable Federal regulations. 42 U.S.C. 7410(k); 40 CFR 52.02(a). Thus, in reviewing SIP submissions, EPA's role is to approve state choices, provided that they meet the criteria of the CAA. Accordingly, this action merely approves state law as meeting Federal requirements and does not impose additional requirements beyond those imposed by state law. For that reason, this proposed action: Is not a ``significant regulatory action'' subject to review by the Office of Management and Budget under Executive Orders 12866 (58 FR 51735, October 4, 1993) and 13563 (76 FR 3821, January 21, 2011); Does not impose an information collection burden under the provisions of the Paperwork Reduction Act (44 U.S.C. 3501 et seq.); Is certified as not having a significant economic impact on a substantial number of small entities under the Regulatory Flexibility Act (5 U.S.C. 601 et seq.); Does not contain any unfunded mandate or significantly or uniquely affect small governments, as described in the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4); Does not have Federalism implications as specified in Executive Order 13132 (64 FR 43255, August 10, 1999); Is not an economically significant regulatory action based on health or safety risks subject to Executive Order 13045 (62 FR 19885, April 23, 1997); Is not a significant regulatory action subject to Executive Order 13211 (66 FR 28355, May 22, 2001); and Is not subject to requirements of section 12(d) of the National Technology Transfer and Advancement Act of 1995 (15 U.S.C. 272 note) because application of those requirements would be inconsistent with the CAA. Executive Order 12898 (Federal Actions to Address Environmental Justice in Minority Populations and Low-Income Populations, 59 FR 7629, February 16, 1994) directs Federal agencies to identify and address ``disproportionately high and adverse human health or environmental effects'' of their actions on minority populations and low-income populations to the greatest extent practicable and permitted by law. EPA defines environmental justice (E.J.) as ``the fair treatment and meaningful involvement of all people regardless of race, color, national origin, or income with respect to the development, implementation, and enforcement of environmental laws, regulations, and policies.'' EPA further defines the term fair treatment to mean that ``no group of people should bear a disproportionate burden of environmental harms and risks, including those resulting from the negative environmental consequences of industrial, governmental, and commercial operations or programs and policies.'' DNREC did not evaluate environmental justice considerations as part of its SIP submittal; the CAA and applicable implementing regulations neither prohibit nor require such an evaluation. EPA did not perform an E.J. analysis and did not consider E.J. in this proposed rulemaking. Due to the nature of the proposed action being taken here, this proposed rulemaking is expected to have a neutral to positive impact on the air quality of the affected area. In addition, this proposed rule, regarding Delaware's amendments to 7 DE Admin. Code 1103, does not have tribal implications as specified by Executive Order 13175 (65 FR 67249, November 9, 2000), because the SIP is not approved to apply in Indian country located in the State, and EPA notes that it will not impose substantial direct costs on tribal governments or preempt tribal law. List of Subjects in 40 CFR Part 52 Environmental protection, Air pollution control, Incorporation by reference, Intergovernmental relations, Nitrogen dioxide, Ozone, Reporting and recordkeeping requirements, Sulfur oxides, Volatile organic compounds. Adam Ortiz, Regional Administrator, Region III. [FR Doc. 2024-18160 Filed 8-15-24; 8:45 am] BILLING CODE 6560-50-P

usgpo

2024-10-08T13:26:25.512469

FR

FR-2024-08-16/2024-17913

Federal Register Volume 89 Issue 159 (August 16, 2024)

United States National Archives and Records Administration Office of the Federal Register

[Federal Register Volume 89, Number 159 (Friday, August 16, 2024)] [Proposed Rules] [Pages 66661-66662] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 2024-17913] ----------------------------------------------------------------------- ENVIRONMENTAL PROTECTION AGENCY 40 CFR Part 52 [EPA-R05-OAR-2023-0633; FRL-11928-01-R5] Air Plan Approval; Indiana; Update to CFR References AGENCY: Environmental Protection Agency (EPA). ACTION: Proposed rule. ----------------------------------------------------------------------- SUMMARY: The Environmental Protection Agency (EPA) is proposing to approve a request submitted by the Indiana Department of Environmental Management (IDEM) on December 14, 2023, to revise the Indiana State Implementation Plan (SIP). The submission revises and updates the Indiana Administrative Code (IAC) definition of ``References to the Code of Federal Regulations,'' from the 2018 edition to the 2022 edition. DATES: Comments must be received on or before September 16, 2024. ADDRESSES: Submit your comments, identified by Docket ID No. EPA-R05- OAR-2023-0633 at https://www.regulations.gov, or via email to [email protected]. For comments submitted at Regulations.gov, follow the online instructions for submitting comments. Once submitted, comments cannot be edited or removed from the docket. EPA may publish any comment received to its public docket. Do not submit electronically any information you consider to be Confidential Business Information (CBI), Proprietary Business Information (PBI), or other information whose disclosure is restricted by statute. Multimedia submissions (audio, video, etc.) must be accompanied by a written comment. The written comment is considered the official comment and should include discussion of all points you wish to make. EPA will generally not consider comments or comment contents located outside of the primary submission (i.e., on the web, cloud, or other file sharing system). For additional submission methods, please contact the person identified in the FOR FURTHER INFORMATION CONTACT section. For the full EPA public comment policy, information about CBI, PBI, or multimedia submissions, and general guidance on making effective comments, please visit https://www.epa.gov/dockets/commenting-epa-dockets. FOR FURTHER INFORMATION CONTACT: Nicole Naber, Air and Radiation Division (AR18J), Environmental Protection Agency, Region 5, 77 West Jackson Boulevard, Chicago, Illinois 60604, (312) 886-6609, [email protected]. The EPA Region 5 office is open from 8:30 a.m. to 4:30 p.m., Monday through Friday, excluding Federal holidays. SUPPLEMENTARY INFORMATION: Throughout this document whenever ``we,'' ``us,'' or ``our'' is used, we mean EPA. I. What is the background of these SIP submissions? On December 14, 2023, IDEM submitted a request to revise the definition of ``References to the Code of Federal Regulations'' in SIP rules 326 [[Page 66662]] IAC 1-1-3 to mean the 2022 edition of the Code of Federal Regulations (CFR). IDEM's public review process began on January 24, 2023, when it published a ``Notice of Public Information'' providing a 30-day public comment period on the proposed revision to its SIP concerning an update to the definition of ``References to the Code of Federal Regulations.'' A public hearing was held on June 24, 2023. IDEM did not receive any comments. II. What revision did the State request be incorporated into the SIP? IDEM has requested that EPA approve revisions to 326 IAC 1-1-3, definition of ``References to Code of Federal Regulations.'' IDEM updated the reference to the CFR in 326 IAC 1-1-3 from the 2018 edition to the 2022 edition. This is an administrative change that allows Indiana to reference a more current version of the CFR. By amending 326 IAC 1-1-3 to reference the 2022 version of the CFR, the provision in title 326 of the IAC will be consistent with the applicable CFR regulations. Because this action updates Indiana rules to be more consistent with EPA's current regulations, EPA is proposing to approve these revisions. III. What action is EPA taking? EPA is proposing to approve the December 14, 2023, submission as a revision to the Indiana SIP. Specifically, EPA is updating 326 IAC 1-1- 3. IV. Incorporation by Reference In this rulemaking, EPA is proposing to include in a final EPA rule regulatory text that includes incorporation by reference. In accordance with requirements of 1 CFR 51.5, EPA is proposing to incorporate by reference Indiana rules 326 IAC 1-1-3, effective October 20, 2023, discussed in section II of this preamble. EPA has made, and will continue to make, these documents generally available through www.regulations.gov and at the EPA Region 5 Office (please contact the person identified in the FOR FURTHER INFORMATION CONTACT section of this preamble for more information). V. Statutory and Executive Order Reviews Under the Clean Air Act, the Administrator is required to approve a SIP submission that complies with the provisions of the Clean Air Act and applicable Federal regulations. 42 U.S.C. 7410(k); 40 CFR 52.02(a). Thus, in reviewing SIP submissions, EPA's role is to approve State choices, provided that they meet the criteria of the Clean Air Act. Accordingly, this action merely approves State law as meeting Federal requirements and does not impose additional requirements beyond those imposed by State law. For that reason, this action: Is not a significant regulatory action subject to review by the Office of Management and Budget under Executive Orders 12866 (58 FR 51735, October 4, 1993), and 14094 (88 FR 21879, April 11, 2023); Does not impose an information collection burden under the provisions of the Paperwork Reduction Act (44 U.S.C. 3501 et seq.); Is certified as not having a significant economic impact on a substantial number of small entities under the Regulatory Flexibility Act (5 U.S.C. 601 et seq.); Does not contain any unfunded mandate or significantly or uniquely affect small governments, as described in the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4); Does not have federalism implications as specified in Executive Order 13132 (64 FR 43255, August 10, 1999); Is not subject to Executive Order 13045 (62 FR 19885, April 23, 1997) because it approves a State program; Is not a significant regulatory action subject to Executive Order 13211 (66 FR 28355, May 22, 2001); and Is not subject to requirements of section 12(d) of the National Technology Transfer and Advancement Act of 1995 (15 U.S.C. 272 note) because application of those requirements would be inconsistent with the Clean Air Act. In addition, the SIP is not approved to apply on any Indian reservation land or in any other area where EPA or an Indian Tribe has demonstrated that a Tribe has jurisdiction. In those areas of Indian country, the rulemaking does not have Tribal implications and will not impose substantial direct costs on Tribal governments or preempt Tribal law as specified by Executive Order 13175 (65 FR 67249, November 9, 2000). Executive Order 12898 (Federal Actions to Address Environmental Justice in Minority Populations and Low-Income Populations, 59 FR 7629, February 16, 1994) directs Federal agencies to identify and address ``disproportionately high and adverse human health or environmental effects'' of their actions on minority populations and low-income populations to the greatest extent practicable and permitted by law. EPA defines environmental justice (EJ) as ``the fair treatment and meaningful involvement of all people regardless of race, color, national origin, or income with respect to the development, implementation, and enforcement of environmental laws, regulations, and policies.'' EPA further defines the term fair treatment to mean that ``no group of people should bear a disproportionate burden of environmental harms and risks, including those resulting from the negative environmental consequences of industrial, governmental, and commercial operations or programs and policies.'' IDEM did not evaluate EJ considerations as part of its SIP submittal; the CAA and applicable implementing regulations neither prohibit nor require such an evaluation. EPA did not perform an EJ analysis and did not consider EJ in this action. As this is an administrative SIP, consideration of EJ is not required as part of this action, and there is no information in the record inconsistent with the stated goal of E.O. 12898 of achieving EJ for people of color, low- income populations, and Indigenous peoples. List of Subjects in 40 CFR Part 52 Environmental protection, Air pollution control, Carbon monoxide, Incorporation by reference, Intergovernmental relations, Lead, Nitrogen dioxide, Ozone, Particulate matter, Reporting and recordkeeping requirements, Sulfur oxides, Volatile organic compounds. Dated: August 7, 2024. Debra Shore, Regional Administrator, Region 5. [FR Doc. 2024-17913 Filed 8-15-24; 8:45 am] BILLING CODE 6560-50-P

usgpo

2024-10-08T13:26:25.553566

FR

FR-2024-08-16/2024-18161

Federal Register Volume 89 Issue 159 (August 16, 2024)

United States National Archives and Records Administration Office of the Federal Register

[Federal Register Volume 89, Number 159 (Friday, August 16, 2024)] [Proposed Rules] [Pages 66662-66665] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 2024-18161] ----------------------------------------------------------------------- ENVIRONMENTAL PROTECTION AGENCY 40 CFR Part 70 [EPA-R03-OAR-2023-0026; FRL-11859-01-R3] Air Plan Approval; West Virginia; Revision to the State Operating Permits Program Under Title V of the Clean Air Act To Revise 45 Code of State Rules 33; Acid Rain Provisions and Permits AGENCY: Environmental Protection Agency (EPA). ACTION: Proposed rule. ----------------------------------------------------------------------- SUMMARY: The Environmental Protection Agency (EPA) is proposing to approve a Title V operating permits program revision submitted by the West Virginia Department of Environmental Protection (WVDEP) on behalf of the State of West Virginia. The revision incorporated by reference final rules promulgated by [[Page 66663]] EPA, effective June 1, 2020, into West Virginia's Title V operating permits program. In addition, the revision includes other minor amendments. DATES: Written comments must be received on or before September 16, 2024. ADDRESSES: Submit your comments, identified by Docket ID No. EPA-R03- OAR-2023-0026 at www.regulations.gov. For comments submitted at Regulations.gov, follow the online instructions for submitting comments. Once submitted, comments cannot be edited or removed from Regulations.gov. For either manner of submission, EPA may publish any comment received to its public docket. Do not submit electronically any information you consider to be confidential business information (CBI) or other information whose disclosure is restricted by statute. Multimedia submissions (audio, video, etc.) must be accompanied by a written comment. The written comment is considered the official comment and should include discussion of all points you wish to make. EPA will generally not consider comments or comment contents located outside of the primary submission (i.e., on the web, cloud, or other file sharing system). For additional submission methods, please contact the person identified in the FOR FURTHER INFORMATION CONTACT section. For the full EPA public comment policy, information about CBI or multimedia submissions, and general guidance on making effective comments, please visit www.epa.gov/dockets/commenting-epa-dockets. FOR FURTHER INFORMATION CONTACT: Paul Entwistle, Permits Branch (3AD10), Air & Radiation Division, U.S. Environmental Protection Agency, Region III, Four Penn Center, 1600 John F. Kennedy Boulevard, Philadelphia, Pennsylvania 19103. The telephone number is (215) 814- 2343. Mr. Entwistle can also be reached via electronic mail at [email protected]. SUPPLEMENTARY INFORMATION: I. Background On May 10, 2021, WVDEP submitted to EPA amendments that West Virginia made to 45 Code of State Rules (CSR) 33, Acid Rain Provisions and Permits. WVDEP amended 45 CSR 33-1.3, 45 CSR 33-1.4, 45 CSR 33-1.5, 45 CSR 33-1.6, 45 CSR 33-2.2, and 45 CSR 33-4.1. The amendment to 45 CSR 33-4.1 incorporated by reference final regulations promulgated by EPA and codified in 40 Code of Federal Regulations (CFR) parts 72, 74, 75, 76, and 77 under the Clean Air Act (CAA) Title IV Acid Rain program. West Virginia has requested that EPA approve the submitted amendments to revise the West Virginia Title V operating program approved at 40 CFR part 70, appendix A. West Virginia indicates that this revision to its approved 40 CFR part 70 program is necessary to ensure that 45 CSR 33 stays up-to-date with its Federal counterpart regulations, consistent with section 22-1-3(c) of the West Virginia Code. The CAA requires all State and local permitting authorities to develop operating permits programs that meet the requirements of Title V of the CAA, 42 U.S.C. 7661-7661(f), and its implementing regulations, 40 CFR part 70. The West Virginia State Operating Permits Program under Title V of the CAA is codified in 45 CSR 30 of the West Virginia Code of State Rules. The documents associated with the West Virginia submittal can be found at www.regulations.gov, Docket ID No. EPA-R03- OAR-2023-0026. II. Summary of Title V Operating Permits Program Revision and EPA Analysis EPA is proposing to approve as a revision to EPA's approved Title V program for West Virginia the following amendments that the State made to 45 CSR 33-1.3, 45 CSR 33-1.4, 45 CSR 33-1.5, 45 CSR 33-1.6, 45 CSR 33-2.2, and 45 CSR 33-4.1. The amendment to 45 CSR 33-4.1 adopted and incorporated by reference the following Federal regulations: 40 CFR part 72, ``Permits Regulation;'' 40 CFR part 74, ``Sulfur Dioxide Opt- Ins;'' 40 CFR part 75, ``Continuous Emission Monitoring;'' 40 CFR part 76, ``Acid Rain Nitrogen Oxides Emission Reduction Program;'' and 40 CFR part 77, ``Excess Emissions.'' The amendment to 45 CSR 33-4.1 incorporated by reference these Federal regulations as they existed on June 1, 2020.\1\ The State also removed the previous version of 45 CSR 33-1.6 and replaced it with new language. Previously 45 CSR 33-1.6 specified that the version of 45 CSR 33 filed in 2010 served to replace the version of 45 CSR 33 filed in 2006. The current 45 CSR 33-1.6 specifies that the date of the version of the Federal counterpart to the WVDEP regulations that the WVDEP secretary recommended be incorporated by reference was June 1, 2020. --------------------------------------------------------------------------- \1\ June 1, 2020, is the date chosen by West Virginia as the point in time at which the State incorporated by reference the previously listed Federal regulations. This, notably, is after the date that time-limited changes to these Federal regulations, relating to the Covid-19 national emergency, became effective on April 22, 2020. See 85 FR 22362 (April 22, 2020). The time limited changes were therefore included in the June 1, 2020, incorporation by reference. --------------------------------------------------------------------------- In the Federal regulations which West Virginia incorporated by reference through the amendment to 45 CSR 33-4.1, EPA promulgated time- limited changes to the emissions reporting regulations applicable to sources that monitor and report emissions under the Acid Rain Program, the Cross-State Air Pollution Rule (CSAPR), and/or the Nitrogen Oxides (NOX) State Implementation Plan (SIP) Call. These Federal regulations provided that if an affected unit failed to complete a required quality-assurance, certification or recertification, fuel analysis, or emission rate test by the applicable deadline under the regulations because of travel, plant access, or other safety restrictions implemented to address the then current COVID-19 national emergency and if the unit's actual monitored data would have been considered valid if not for the delayed test, then the unit may have temporarily continued to report actual monitored data instead of substitute data. Sources were required to maintain documentation, notify EPA when a test was delayed and later completed, and certify to EPA that they met the criteria for using the amended reporting procedures. Substitute data was required to be reported if those criteria were not met or if monitored data were missing or were invalid for any non-emergency-related reason. Units were required to complete any delayed tests as soon as practicable after relevant emergency- related restrictions no longer applied, and the emergency period for which a unit could have reported valid data under the time-limited changes to the Federal regulations was limited to the duration of the COVID-19 national emergency plus a grace period of 60 days to complete delayed tests, but no later than the date of expiration of the time- limited changes to the Federal regulations, which was October 19, 2020. These Federal regulations were necessary during the COVID-19 national emergency to protect on-site power plant operators and other essential personnel from unnecessary risk of exposure to the coronavirus. The Federal regulations did not suspend emissions monitoring or reporting requirements or alter emissions standards under any program, and so should not have caused any change in emissions levels or resulted in any harm to public health or the environment. The time-limited changes to the Federal regulations became effective April 22, 2020, and as noted, expired on October [[Page 66664]] 19, 2020. See 85 FR 22362 (April 22, 2020). In addition to the amendments to 45 CSR 33-4.1 which incorporated by reference the previously mentioned Federal regulations, and 45 CSR 33-1.6 which updated the date to match that of the counterpart Federal regulations, West Virginia also amended 45 CSR 33-1.3, 45 CSR 33-1.4, 45 CSR 33-1.5, and 45 CSR 33-2.2. The amendments to 45 CSR 33-1.3 and 45 CSR 33-1.4 updated the filing date and effective date for 45 CSR 33 to April 28, 2021 and June 1, 2021, respectively. The amendment to 45 CSR 33-1.5 created a reference to West Virginia's Sunset Provision, as described in the West Virginia Code at section 29A-3-19. Importantly, the Sunset Provision does not apply to rules promulgated by WVDEP, such as 45 CSR 33. See W. Va. Code section 29A-3-19(b). The amendment to 45 CSR 33-1.5 also made clear that the Sunset Provision does not apply to 45 CSR 33. As such, these regulations will not sunset. 45 CSR 33-2.2 defines the meaning of the ``Clean Air Act'' and was amended to include language specifying that the provision refers to the Federal Clean Air Act, while also acknowledging that the Act has been amended. Apart from these minor changes, the effect of the amendments to 45 CSR 33 is to update the incorporation by reference of the aforementioned Federal regulations, incorporating the time-limited changes created in response to the COVID-19 national emergency. These time-limited changes to the Federal regulations were only in effect through October 19, 2020, 180 days after their effective date of April 22, 2020. West Virginia is now requesting in its submittal that EPA approve the State's amended regulations to its Acid Rain Provisions. West Virginia's submittal requests that EPA approve only these changes to its Title V program.\2\ EPA finds that the May 10, 2021 submittal has met the requirements of CAA section 502, and is consistent with applicable EPA requirements in the Title V operating permits program of the CAA and 40 CFR part 70. This rulemaking proposes to approve the amendments to 45 CSR 33-1.3, 45 CSR 33-1.4, 45 CSR 33-1.5, 45 CSR 33- 1.6, 45 CSR 33-2.2, and 45 CSR 33-4.1 contained in the West Virginia submittal as a revision to EPA's approved Title V program for West Virginia by adding a paragraph (h) into 40 CFR part 70, appendix A under West Virginia. This new paragraph will indicate EPA's approval of the revision. --------------------------------------------------------------------------- \2\ Because West Virginia's typical legislative rulemaking process involves a 1-year cycle, the update to 45 CSR 33 was not finalized until after the original EPA time-limited changes had already expired. The purpose of the update to 45 CSR 33 then, and West Virginia's submittal to EPA, was not to independently create or remove requirements under West Virginia's Acid Rain or Title V program, but to incorporate already existing time-limited changes promulgated by EPA. The update ensured that West Virginia sources which utilized the provisions granted by EPA's Covid emergency related time-limited changes would not later become subject to retroactive State enforcement. The update also served to maintain consistency between West Virginia State and Federal regulations, as required by the CAA. --------------------------------------------------------------------------- III. Proposed Action Pursuant to CAA 502(d), EPA is proposing to approve the West Virginia Title V operating permits program revision submitted on May 10, 2021. The revision meets the requirements in 40 CFR part 70. EPA is soliciting public comments on the Title V operating permits program revision discussed in this document. These comments will be considered before taking final action. IV. Statutory and Executive Order Reviews A. General Requirements Under the CAA, the Administrator approves Title V operating permits program revisions that comply with the CAA and applicable Federal regulations. See 42 U.S.C. 7661a(d). Thus, in reviewing Title V operating permits program submissions, EPA's role is to approve State choices, provided that they meet the criteria of the CAA. This action merely approves State law as meeting Federal requirements and does not impose additional requirements beyond those imposed by State law. For that reason, this action: Is not a ``significant regulatory action'' subject to review by the Office of Management and Budget under Executive Orders 12866 (58 FR 51735, October 4, 1993) and 13563 (76 FR 3821, January 21, 2011); Does not impose an information collection burden under the provisions of the Paperwork Reduction Act (44 U.S.C. 3501 et seq.); Is certified as not having a significant economic impact on a substantial number of small entities under the Regulatory Flexibility Act (5 U.S.C. 601 et seq.); Does not contain any unfunded mandate or significantly or uniquely affect small governments, as described in the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4); Does not have federalism implications as specified in Executive Order 13132 (64 FR 43255, August 10, 1999); Is not an economically significant regulatory action based on health or safety risks subject to Executive Order 13045 (62 FR 19885, April 23, 1997); Is not a significant regulatory action subject to Executive Order 13211 (66 FR 28355, May 22, 2001); Is not subject to requirements of section 12(d) of the National Technology Transfer and Advancement Act of 1995 (15 U.S.C. 272 note) because application of those requirements would be inconsistent with the CAA; and Executive Order 12898 directs Federal agencies, to the greatest extent practicable and permitted by law, to make environmental justice part of their mission by identifying and addressing, as appropriate, disproportionately high and adverse human health or environmental effects of their programs, policies, and activities on minority populations (people of color and/or Indigenous peoples) and low-income populations. EPA believes that this specific Title V action does not concern human health or environmental conditions and therefore cannot be evaluated with respect to potentially disproportionate and adverse effects on people of color, low-income populations and/or Indigenous peoples. This action merely approves into West Virginia's 40 CFR part 70 operating permit program revisions to State regulations that incorporated by reference relevant Federal regulations and provided ministerial updates, such as updating relevant effective dates, clarifying language to ensure regulatory consistency, and making clear that the sunset provision is inapplicable (as it is with all WVDEP regulations). This Title V action therefore does not directly address emission limits or otherwise directly affect any human health or environmental conditions in the State of West Virginia. In addition, EPA is providing meaningful involvement on this rulemaking through the notice and comment process and is in addition to the State-level notice and comment process held by West Virginia. In addition, this rulemaking does not have Tribal implications as specified by Executive Order 13175 (65 FR 67249, November 9, 2000), because the SIP is not approved to apply in Indian country located in the State, and EPA notes that it will not impose substantial direct costs on Tribal governments or preempt Tribal law. List of Subjects in 40 CFR Part 70 Environmental protection, Acid rain, Administrative practice and procedure, Air pollution control, Intergovernmental relations, Lead, Nitrogen dioxide, Operating permits, Ozone, Particulate matter, Reporting and recordkeeping [[Page 66665]] requirements, Sulfur oxides, Volatile organic compounds. Adam Ortiz, Regional Administrator, Region III. [FR Doc. 2024-18161 Filed 8-15-24; 8:45 am] BILLING CODE 6560-50-P

usgpo

2024-10-08T13:26:25.611895

FR

FR-2024-08-16/2024-17934

Federal Register Volume 89 Issue 159 (August 16, 2024)

United States National Archives and Records Administration Office of the Federal Register

[Federal Register Volume 89, Number 159 (Friday, August 16, 2024)] [Proposed Rules] [Pages 66665-66667] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 2024-17934] ----------------------------------------------------------------------- ENVIRONMENTAL PROTECTION AGENCY 40 CFR Part 300 [EPA-HQ-OLEM-2022-0733; EPA-HQ-OLEM-2023-0602; EPA-HQ-OLEM-2024-0294; EPA-HQ-OLEM-2024-0326; FRL-12112-01-OLEM] Proposed Deletion From the National Priorities List AGENCY: Environmental Protection Agency (EPA). ACTION: Proposed rule; notice of intent. ----------------------------------------------------------------------- SUMMARY: The Environmental Protection Agency (EPA) is issuing a Notice of Intent to delete one site and partially delete three sites from the National Priorities List (NPL) and requests public comments on this proposed action. The NPL, promulgated pursuant to the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) of 1980, as amended, is an appendix of the National Oil and Hazardous Substances Pollution Contingency Plan (NCP). The EPA and the States, through their designated State agency, have determined that all appropriate response actions under CERCLA have been completed. However, this deletion does not preclude future actions under Superfund. DATES: Comments regarding this proposed action must be submitted on or before September 16, 2024. ADDRESSES: EPA has established a docket for this action under the Docket Identification numbers included in Table 1 in the SUPPLEMENTARY INFORMATION section of this document. Submit your comments, identified by the appropriate Docket ID number, by one of the following methods: https://www.regulations.gov. Follow on-line instructions for submitting comments. Once submitted, comments cannot be edited or removed from Regulations.gov. The EPA may publish any comment received to its public docket. Do not submit electronically any information you consider to be Confidential Business Information (CBI) or other information whose disclosure is restricted by statute. Multimedia submissions (audio, video, etc.) must be accompanied by a written comment. The written comment is considered the official comment and should include discussion of all points you wish to make. The EPA will generally not consider comments or comment contents located outside of the primary submission (i.e. on the web, cloud, or other file sharing system). For additional submission methods, the full EPA public comment policy, information about CBI or multimedia submissions, and general guidance on making effective comments, please visit http://www2.epa.gov/dockets/commenting-epa-dockets. Email: Table 2 in the SUPPLEMENTARY INFORMATION section of this document provides an email address to submit public comments for the proposed deletion action. Instructions: Direct your comments to the Docket Identification number included in Table 1 in the SUPPLEMENTARY INFORMATION section of this document. EPA's policy is that all comments received will be included in the public docket without change and may be made available online at https://www.regulations.gov, including any personal information provided, unless the comment includes information claimed to be Confidential Business Information (CBI) or other information whose disclosure is restricted by statute. Do not submit information that you consider to be CBI or otherwise protected through https://www.regulations.gov or email. The https://www.regulations.gov website is an ``anonymous access'' system, which means EPA will not know your identity or contact information unless you provide it in the body of your comment. If you send an email comment directly to EPA without going through https://www.regulations.gov, your email address will be automatically captured and included as part of the comment that is placed in the public docket and made available on the internet. If you submit an electronic comment, EPA recommends that you include your name and other contact information in the body of your comment and with any disk or CD-ROM you submit. If EPA cannot read your comment due to technical difficulties and cannot contact you for clarification, EPA may not be able to consider your comment. Electronic files should avoid the use of special characters, any form of encryption, and be free of any defects or viruses. Docket: EPA has established a docket for this action under the Docket Identification included in Table 1 in the SUPPLEMENTARY INFORMATION section of this document. All documents in the docket are listed on the https://www.regulations.gov website. The Final Close-Out Report (FCOR, for a full site deletion) or the Partial Deletion Justification (PDJ, for a partial site deletion) is the primary document which summarizes site information to support the deletion. It is typically written for a broad, non-technical audience and this document is included in the deletion docket for each of the sites in this rulemaking. Although listed in the index, some information is not publicly available, i.e., Confidential Business Information or other information whose disclosure is restricted by statute. Certain other material, such as copyrighted material, is not placed on the internet and will be publicly available only in hard copy form. Docket materials are available through https://www.regulations.gov or at the corresponding Regional Records Center. Location, address, and phone number of the Regional Records Centers follows. Regional Records Center: Region 2 (NJ, NY, PR, VI), U.S. EPA, 290 Broadway, New York, NY 10007- 1866; 212/637-4308. Region 4 (AL, FL, GA, KY, MS, NC, SC, TN), U.S. EPA, 61 Forsyth Street SW, Mail code 9T25, Atlanta, GA 30303. Region 9 (AZ, CA, HI, NV, GU, AS, MP), U.S. EPA, 75 Hawthorne Street, San Francisco, CA 94105; 415/947-8000. EPA Headquarters Docket Center Reading Room (deletion dockets for all States), William Jefferson Clinton (WJC) West Building, Room 3334, 1301 Constitution Avenue NW, Washington, DC 20004, 202/566- 1744. EPA staff listed below in the FOR FURTHER INFORMATION CONTACT section may assist the public in answering inquiries about deleted sites, accessing deletion support documentation, and determining whether there are additional physical deletion dockets available. FOR FURTHER INFORMATION CONTACT: Mabel Garcia, U.S. EPA Region 2 (NJ, NY, PR, VI), [email protected], 212/637-4356. Alayna Famble, U.S. EPA Region 4 (AL, FL, GA, KY, MS, NC, SC, TN), [email protected], 404/562-8768. Yarissa Martinez Leon, U.S. EPA Region 9 (AZ, CA, HI, NV, GU, AS, MP), [email protected], 415/972-3932. Charles Sands, U.S. EPA Headquarters, [email protected], 202/566-1142. SUPPLEMENTARY INFORMATION: Table of Contents I. Introduction [[Page 66666]] II. NPL Deletion Criteria III. Deletion Procedures IV. Basis for Intended Full Site or Partial Site Deletion I. Introduction EPA is issuing a proposed rule to delete one site and partially delete three sites from the NPL and requests public comments on this proposed action. 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. II. NPL Deletion Criteria 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. III. Deletion Procedures 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 published in a major local newspaper of general circulation near the site. The newspaper announces the 30-day public comment period concerning the proposed action for deletion. (6) The EPA placed copies of documents supporting the proposed deletion in the deletion docket, 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 evaluate and respond accordingly to the comments 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. IV. Basis for Full Site or Partial Site Deletion The site 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 are entered in Table 1, if applicable, under Footnote such that; 1 = site has continued operation and maintenance of the remedy, 2 = site receives continued monitoring, and 3 = site five-year reviews are conducted. Table 1 ---------------------------------------------------------------------------------------------------------------- Site name City/county, state Type Docket No. Footnote ---------------------------------------------------------------------------------------------------------------- Del Amo......................... Los Angeles, CA.... Partial............ EPA-HQ-OLEM-2022-07 1, 3 33. Mercury Refining, Inc........... Colonie, NY........ Full............... EPA-HQ-OLEM-2023-06 1, 2, 3 02. [[Page 66667]] Lawrence Aviation Industries, Port Jefferson Partial............ EPA-HQ-OLEM-2024-02 1, 2, 3 Inc. Station, NY. 94. Redstone Arsenal (USARMY/NASA).. Huntsville, AL..... Partial............ EPA-HQ-OLEM-2024-03 1, 3 26. ---------------------------------------------------------------------------------------------------------------- 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, and an email address to which public comments may be submitted if the commenter does not comment using https://www.regulations.gov. Table 2 ------------------------------------------------------------------------ Full site deletion (full) or media/ E-mail address for Site Name parcels/ description public comments for partial deletion ------------------------------------------------------------------------ Del Amo..................... Ten parcels and one martinez.yarissa@epa road section .gov. located in Operable Unit 1. Mercury Refining, Inc....... Full................ [email protected]. Lawrence Aviation 125-acre land/soils [email protected]. Industries, Inc. portion of the Site and all groundwater not included in Figure 2 of the PDJ, which shows the remaining groundwater plume. Redstone Arsenal (USARMY/ Soils and sediments [email protected] NASA). from Operable Unit ov. 8. ------------------------------------------------------------------------ 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. List of Subjects in 40 CFR Part 300 Environmental protection, Air pollution control, Chemicals, Hazardous substances, Hazardous waste, Intergovernmental relations, Natural resources, Oil pollution, Penalties, Reporting and recordkeeping requirements, Superfund, Water pollution control, Water supply. Authority: 33 U.S.C. 1251 et seq.; 42 U.S.C. 9601-9657; E.O. 13626, 77 FR 56749, 3 CFR, 2013 Comp., p. 306; E.O. 12777, 56 FR 54757, 3 CFR, 1991 Comp., p. 351; E.O. 12580, 52 FR 2923, 3 CFR, 1987 Comp., p. 193. Larry Douchand, Office Director, Office of Superfund Remediation and Technology Innovation. [FR Doc. 2024-17934 Filed 8-15-24; 8:45 am] BILLING CODE 6560-50-P

usgpo

2024-10-08T13:26:25.675042

FR

FR-2024-08-16/2024-18156

Federal Register Volume 89 Issue 159 (August 16, 2024)

United States National Archives and Records Administration Office of the Federal Register

[Federal Register Volume 89, Number 159 (Friday, August 16, 2024)] [Notices] [Pages 66668-66669] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 2024-18156] ======================================================================== Notices Federal Register ________________________________________________________________________ This section of the FEDERAL REGISTER contains documents other than rules or proposed rules that are applicable to the public. Notices of hearings and investigations, committee meetings, agency decisions and rulings, delegations of authority, filing of petitions and applications and agency statements of organization and functions are examples of documents appearing in this section. ======================================================================== Federal Register / Vol. 89, No. 159 / Friday, August 16, 2024 / Notices [[Page 66668]] DEPARTMENT OF AGRICULTURE Animal and Plant Health Inspection Service [Docket No. APHIS-2022-0055] Notice of Availability of a Draft Programmatic Environmental Impact Statement for Outbreak Response Activities for Highly Pathogenic Avian Influenza Outbreaks in Poultry in the United States and U.S. Territories AGENCY: Animal and Plant Health Inspection Service, USDA. ACTION: Notice of availability. ----------------------------------------------------------------------- SUMMARY: We are advising the public that a draft programmatic environmental impact statement (EIS) has been prepared by the Animal and Plant Health Inspection Service relative to our response activities to highly pathogenic avian influenza (HPAI) outbreaks in commercial and backyard poultry operations located throughout the United States, including the U.S. territories. The draft EIS analyzes and compares the potential environmental effects of using three action alternatives during an HPAI outbreak. We are making this draft programmatic EIS available to the public for review and comment. DATES: We will consider all comments that we receive on or before September 30, 2024. ADDRESSES: You may submit comments by either of the following methods: Federal eRulemaking Portal: Go to www.regulations.gov. Enter APHIS-2022-0055 in the Search field. Select the Documents tab, then select the Comment button in the list of documents. Postal Mail/Commercial Delivery: Send your comment to Docket No. APHIS-2022-0055, Regulatory Analysis and Development, PPD, APHIS, Station 3A-03.8, 4700 River Road, Unit 118, Riverdale, MD 20737- 1238. The draft programmatic EIS and any comments we receive on this docket may be viewed at www.regulations.gov or in our reading room, located in Room 1620 of the USDA South Building, 14th Street and Independence Avenue SW, Washington, DC 20250. Normal reading room hours are 8 a.m. to 4:30 p.m., Monday through Friday, except holidays. To be sure someone is there to help you, please call (202) 799-7039 before coming. FOR FURTHER INFORMATION CONTACT: Ms. Chelsea Bare, Chief of Staff, Veterinary Services, APHIS, U.S. Department of Agriculture, 1400 Independence Avenue SW, Whitten Building Room 318-E, Washington, DC 20250; [email protected]; (515) 337-6128. SUPPLEMENTARY INFORMATION: The Secretary of Agriculture is authorized to protect the health of livestock, including poultry, in the United States by preventing the introduction and interstate spread of serious diseases and pests of livestock, and for eradicating such diseases within the United States when feasible (7 U.S.C. 8301-8322). This authority has been delegated to the United States Department of Agriculture (USDA), Animal and Plant Health Inspection Service (APHIS), Veterinary Services (VS). Highly pathogenic avian influenza (HPAI) is one such serious disease of livestock. In February of 2004, the first outbreak of HPAI in the United States in 20 years occurred in Texas. Since then, HPAI outbreaks in poultry have continued to occur across the United States and impact commercial poultry facilities and backyard flocks. USDA APHIS VS works closely with States, Tribes, and the poultry industry to prevent HPAI from becoming established in the U.S. poultry population. Once established, HPAI rapidly spreads within and between flocks and can cause severe, painful conditions, including hemorrhaging and neurologic conditions, widespread organ failure, and high mortality. Keeping our nation's poultry operations free from HPAI helps protect the poultry industry, farmers' livelihoods, the availability of poultry for U.S. consumers, international trade, the health of wild birds, and the health of people who are in close, regular contact with poultry. While HPAI is extremely infectious and fatal in poultry, the risks from HPAI infections to humans are low. USDA APHIS VS has prepared a programmatic environmental impact statement (EIS) to analyze the potential environmental impacts associated with action alternatives taken during an HPAI outbreak in poultry. The chosen alternative must (1) detect, control, and contain HPAI in poultry as quickly as possible; (2) eradicate the HPAI virus using strategies that protect public health and the environment, and stabilize animal agriculture, the food supply, and the economy; and (3) provide science- and risk-based approaches and systems to facilitate continuity of business for non-infected animals and non-contaminated animal products. The findings of the programmatic EIS will be used to support HPAI planning and decision making and enhance the decisionmakers' ability to protect the environment and human health. USDA APHIS VS may use information presented in this EIS to promptly fulfill its National Environmental Policy Act (NEPA) obligations. The EIS also informs the public about the potential environmental effects of HPAI outbreak response activities. The draft programmatic EIS presents the purpose and need for the action, a description of the affected environment, and an analysis of potential environmental impacts of three alternative actions: (1) No Federal Operational Assistance Alternative; (2) Federal Operational Assistance (No Action) Alternative; and (3) Federal Operational Assistance with Biosecurity Incentive Alternative (Preferred Alternative). The three alternatives considered in the programmatic EIS have been determined reasonable for USDA APHIS VS to carry out its mission to eradicate HPAI. Under the No Federal Operational Assistance Alternative, State and local authorities, Tribes, and poultry owners and producers would be responsible for depopulating HPAI-infected flocks, disposing of carcasses and other potentially HPAI-contaminated materials, and managing any necessary transportation, cleanup and disinfection. USDA APHIS VS would not be involved in managing, overseeing, and/or actively implementing any of these operational activities. Upon request from the States, [[Page 66669]] Tribes, or poultry owners and producers, USDA APHIS VS would provide technical guidance (e.g., recommendations, issuance of guidance documents) about surveillance testing to owners and producers of commercial and backyard flocks that are not experiencing signs of clinical illness to determine if infections of the virus have occurred. USDA APHIS VS may provide indemnity and/or financial compensation. Under the Federal Operational Assistance Alternative, USDA APHIS VS would conduct all activities as described under the No Federal Operational Assistance Alternative. In addition, upon request from State, local, or Tribal authorities, USDA APHIS VS would provide operational assistance through managing, overseeing, and/or actively participating in depopulation, carcass disposal, and transportation. Cleaning and disinfection would be the responsibility of States, Tribes, and poultry owners and producers, as USDA APHIS VS does not perform these activities. USDA APHIS VS would also provide tools upon request, such as machinery and contracted operators, for depopulation and disposal activities. The level of assistance USDA APHIS VS would provide will depend on the needs of the impacted State. Under the Federal Operational Assistance with Biosecurity Incentive Alternative (Preferred Alternative), USDA APHIS VS would provide all the same support and assistance described under the Federal Operational Assistance Alternative. In addition, USDA APHIS VS may choose to incentivize poultry owners and producers, via qualifying their eligibility for indemnity or compensation, to implement biosecurity measures that may mitigate the risk of HPAI infection and reinfection on poultry premises within an outbreak Control Area. This alternative would incentivize compliance with the written biosecurity plan for all commercial poultry producers. Under this alternative, USDA APHIS VS may require various types of in-person or virtual audits to verify that appropriate biosecurity plans are in place as conditions for indemnity and/or compensation for HPAI. The potential environmental impacts on the following resources are considered in the draft EIS: Soil, air, and water quality; vegetation health; humans (including effects on health and safety, the economy, equity and environmental justice, cultural and historic resources, children's health, and Tribes); wildlife health, including birds of conservation concern, eagles, and threatened and endangered species. The draft programmatic EIS also considers the impacts of HPAI outbreak response activities on climate change, the impacts of climate change on HPAI outbreak response activities, and the cumulative impacts from other past, present, and reasonably foreseeable future related actions. The primary HPAI outbreak response activities that will be the focus of the impacts section under each alternative are depopulation and disposal, as well as some discussion concerning transportation and cleaning and disinfection. In general, the potential environmental impacts from the Federal Operational Assistance and Biosecurity Incentive Alternative are expected to result in similar or less environmental impacts than impacts under the No Federal Operational Assistance Alternative. Direct assistance from USDA APHIS VS would mean an additional level of expertise when making decisions and implementing actions. With Federal, State, and local authorities, Tribes, and poultry owners and producers all working together, it is more likely that the disease will be eradicated as rapidly as possible. A rigorous Federal response should incentivize the rapid reporting of HPAI incidents because it achieves disease eradication while providing relief to the poultry owners and producers, States and Tribes that may lack the resources to deal with the outbreaks in a timely manner. The benefit of completing HPAI virus eradication activities as fast as possible is that it would decrease the risk of HPAI spreading to nearby premises or to wild birds that may infect other flocks thereby thus preventing additional environmental impacts from future HPAI outbreaks and HPAI outbreak responses. Under the Federal Operational Assistance and Biosecurity Incentive Alternative, poultry suffering from HPAI should be minimized due to effective and efficient depopulation procedures being implemented with USDA APHIS VS assistance. Additionally, the assistance of USDA APHIS VS under the Federal Operational Assistance and Biosecurity Incentive Alternative is also expected to allow poultry owners and producers to resume business as rapidly as possible and likely more rapidly than under the No Federal Operational Assistance Alternative. Impacts under the Federal Operational Assistance and Biosecurity Incentive Alternative may see the greatest reduction in impacts of all the alternatives. Requiring certain biosecurity measures as part of the outbreak response in order to receive indemnity and/or compensation may increase the chance of biosecurity measures being implemented by commercial poultry owners and producers. Under this alternative, increased biosecurity measures could decrease the chance of reinfections at the outbreak site or at surrounding premises resulting in a decrease in future HPAI outbreak response activities and their potential impacts over time. Based on the draft programmatic EIS, USDA APHIS VS has concluded that the three alternatives will have minor impacts on soil, air, water quality, wildlife, and vegetation health if all appropriate Federal, State, and local laws and guidance are followed. Risk of HPAI infections to humans is low, with risks of injuries and psychological trauma to workers being a concern that is minimized by following appropriate guidelines. Under all alternatives, impacts to climate change would be relative to the biomass of poultry depopulated and carcasses disposed of, and the particular depopulation, disposal, and sanitation methods used. After the public comment period ends, we will consider all comments received, revise the draft programmatic EIS to address these comments, as appropriate, and publish a notice of availability of the final programmatic EIS in the Federal Register. The draft programmatic EIS was prepared in accordance with: (1) the National Environmental Policy Act (NEPA) of 1969, as amended (42 U.S.C. 4321 et seq.), (2) the Council on Environmental Quality's NEPA- implementing regulations (40 CFR parts 1500-1508), compliant with the July 2020 regulations, (3) USDA's NEPA-implementing regulations (7 CFR part 1b), and (4) USDA APHIS' NEPA-Implementing Procedures (7 CFR part 372). Done in Washington, DC, this 5th day of August 2024. Michael Watson, Administrator, Animal and Plant Health Inspection Service. [FR Doc. 2024-18156 Filed 8-15-24; 8:45 am] BILLING CODE 3410-34-P

usgpo

2024-10-08T13:26:25.780284

FR

FR-2024-08-16/2024-18326

Federal Register Volume 89 Issue 159 (August 16, 2024)

United States National Archives and Records Administration Office of the Federal Register

[Federal Register Volume 89, Number 159 (Friday, August 16, 2024)] [Notices] [Pages 66669-66671] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 2024-18326] ----------------------------------------------------------------------- DEPARTMENT OF AGRICULTURE Food Safety and Inspection Service [Docket No. FSIS-2024-0019] National Advisory Committee on Meat and Poultry Inspection AGENCY: Food Safety and Inspection Service (FSIS), Department of Agriculture (USDA). ACTION: Notification of public meeting. ----------------------------------------------------------------------- [[Page 66670]] SUMMARY: Pursuant to the provisions of the rules and regulations of the Department of Agriculture and the Federal Advisory Committee Act (FACA), FSIS is announcing a virtual meeting of the National Advisory Committee on Meat and Poultry Inspection (NACMPI). The purpose of the Committee is to advise the Secretary of Agriculture on State and Federal meat and poultry inspection programs, food safety, and other matters that fall within the scope of the Federal Meat Inspection Act (FMIA) and the Poultry Products Inspection Act (PPIA). The committee will convene virtually on September 16 and 17, 2024. The Committee will review and advise FSIS on whether the Agency should change its definitions for establishment sizes to better assess and describe current business operations. The Committee will also offer input on ways technology could enhance FSIS' inspection activities. DATES: The public meeting is from 10 a.m. to 4 p.m. EDT on September 16 and 17, 2024. ADDRESSES: The meeting is virtual and will be viewable via a link provided by email when you register for the meeting. Attendees must pre-register for the meeting. See the pre-registration instructions under ``Registration and Meeting Materials.'' Public Comments: FSIS invites interested persons to submit comments on this meeting by September 16, 2024. Comments may be submitted by any of the following methods: Federal eRulemaking Portal: This website provides the ability to type short comments directly into the comment field on this web page or attach a file for lengthier comments. Go to https://www.regulations.gov. Follow the on-line instructions at that site for submitting comments. Mail: Send to Docket Clerk, U.S. Department of Agriculture, Food Safety and Inspection Service, 1400 Independence Avenue SW, Mailstop 3758, Washington, DC 20250-3700. Hand- or Courier-Delivered Submittals: Deliver to 1400 Independence Avenue SW, Jamie L. Whitten Building, Room 350-E, Washington, DC 20250-3700. Instructions: All items submitted by mail or electronic mail must include the Agency name and docket number FSIS-2024-0019. Comments received in response to this docket will be made available for public inspection and posted without change, including any personal information, to https://www.regulations.gov. Docket: For access to background documents or comments received, call 202-720-5046 to schedule a time to visit the FSIS Docket Room at 1400 Independence Avenue SW, Washington, DC 20250-3700. FOR FURTHER INFORMATION CONTACT: Katrina Green, Director, Resource and Administrative Management Staff--Designated Federal Officer, Office of Policy and Program Development, by email at [email protected] or telephone at 202-205-0495 regarding specific questions about the Committee or this meeting. General information about the Committee can also be found at: https://www.fsis.usda.gov/nacmpi. For the hearing impaired, contact the Federal Information Relay Service: https://www.federalrelay.us/ or 800-877-0996 (Voice, TTY, ASCII or Spanish). SUPPLEMENTARY INFORMATION: Background The NACMPI was established in 1971 and is authorized under section 301(a)(4) of the FMIA (21 U.S.C. 661(a)(4)) to carry out the responsibilities imposed by 21 U.S.C. 607(c), 624, 645, 661(a)(3), and 661(c), and authorized under 21 U.S.C. 454(a)(4) of the PPIA, to carry out the responsibilities imposed by 21 U.S.C. 454(a)(3), 454(c), 457(b), and 460(e). The purpose of the Committee is to provide advice to the Secretary on meat and poultry inspection programs, food safety, and other matters that fall within the scope of the FMIA and PPIA. The current charter and other information about NACMPI can be found at https://www.fsis.usda.gov/policy/advisory-committees/national-advisory-committee-meat-and-poultry-inspection-nacmpi. Membership of NACMPI is drawn from consumers; public health and academic communities; state and local governments; and industry. On September 16 and 17, 2024, NACMPI will review and advise FSIS on whether the Agency should change its definitions for establishment size categories (i.e., large, small, and very small) to better assess and describe current business operations as well as to better determine the impact of FSIS policies on different size establishments.\1\ The Committee will also offer input on ways technology could enhance FSIS' inspection activities. The two issues will be presented to the full Committee. The Committee will then divide into two subcommittees to discuss the issues. Each subcommittee will provide a report of their comments and recommendations to the full Committee before the meeting concludes on September 17, 2024. --------------------------------------------------------------------------- \1\ FSIS categorizes establishments using the following criteria: large establishments have 500 or more employees; small establishments have 10 or more employees, but fewer than 500; and very small establishments have fewer than 10 employees or annual sales of less than $2.5 million (see 61 FR 38806). --------------------------------------------------------------------------- An agenda will be published online before the public meeting. FSIS will finalize the agenda on or before the meeting dates and post it on the FSIS website at: http://www.fsis.usda.gov/meetings. Registration and Meeting Materials There is no fee to register for the public meeting, but pre- registration is mandatory for participants attending. All attendees must register online at https://www.fsis.usda.gov/policy/advisory-committees/nacmpi/meeting-registration. Public Comments and Participation in Meetings Stakeholders will have an opportunity to provide oral comments during the public meeting. Stakeholders must notify FSIS during registration of their wish to speak at the meeting. Stakeholders who do not notify FSIS during registration of their wish to speak will not have the opportunity to comment on the day of the public meeting. Due to the anticipated high level of interest in the opportunity to make public comments and the limited time available to do so, FSIS will do its best to accommodate all persons who registered and requested to provide oral comments and will limit all speakers to three minutes. FSIS encourages persons and groups who have similar interests to consolidate their information for presentation by a single representative. Transcripts As soon as the meeting transcripts are available, they will be accessible on the FSIS website at: https://www.fsis.usda.gov/policy/advisory-committees/national-advisory-committee-meat-and-poultry-inspection-nacmpi. The transcripts may also be viewed at the FSIS Docket Room at the address listed above. Additional Public Notification Public awareness of all segments of rulemaking and policy development is important. Consequently, FSIS will announce this Federal Register publication on-line through the FSIS web page located at: https://www.fsis.usda.gov/federal-register. FSIS will also announce and provide a link to this Federal Register publication through the FSIS Constituent Update, which is used to [[Page 66671]] provide information regarding FSIS policies, procedures, regulations, Federal Register notices, FSIS public meetings, and other types of information that could affect or would be of interest to our constituents and stakeholders. The Constituent Update is available on the FSIS web page. Through the web page, FSIS can provide information to a much broader, more diverse audience. In addition, FSIS offers an email subscription service which provides automatic and customized access to selected food safety news and information. This service is available at: https://www.fsis.usda.gov/subscribe. Options range from recalls to export information, regulations, directives, and notices. Customers can add or delete subscriptions themselves and have the option to password protect their accounts. USDA Non-Discrimination Statement In accordance with Federal civil rights law and USDA civil rights regulations and policies, the USDA, its Agencies, offices, and employees, and institutions participating in or administering USDA programs are prohibited from discriminating based on race, color, national origin, religion, sex, gender identity (including gender expression), sexual orientation, disability, age, marital status, family/parental status, income derived from a public assistance program, political beliefs, or reprisal or retaliation for prior civil rights activity, in any program or activity conducted or funded by USDA (not all bases apply to all programs). Remedies and complaint filing deadlines vary by program or incident. Persons with disabilities who require alternative means of communication for program information (e.g., Braille, large print, audiotape, American Sign Language, etc.) should contact the responsible Agency or USDA's TARGET Center at (202) 720-2600 (voice and TTY) or contact USDA through the Federal Relay Service at (800) 877-8339. Additionally, program information may be made available in languages other than English. To file a program discrimination complaint, complete the USDA Program Discrimination Complaint Form, AD-3027, found online at https://www.usda.gov/forms/electronic-forms and at any USDA office or write a letter addressed to USDA and provide in the letter all of the information requested in the form. To request a copy of the complaint form, call (866) 632-9992. Submit your completed form or letter to USDA by: (1) Mail: U.S. Department of Agriculture, Office of the Assistant Secretary for Civil Rights, 1400 Independence Avenue SW, Washington, DC 20250-9410; (2) Fax: (202) 690-7442; or (3) Email: [email protected]. USDA is an equal opportunity provider, employer, and lender. Equal opportunity practices in accordance with USDA's policies will be followed in all member appointments to the committee. To ensure that the recommendations of the committee consider the needs of the diverse groups served by USDA, membership shall include, to the extent practicable, individuals with demonstrated ability to represent the many communities, identities, races, ethnicities, backgrounds, abilities, cultures, and beliefs of the American people, including underserved communities. Dated: August 12, 2024. Cikena Reid, USDA Committee Management Officer. [FR Doc. 2024-18326 Filed 8-15-24; 8:45 am] BILLING CODE 3410-DM-P

usgpo

2024-10-08T13:26:25.840788

FR

FR-2024-08-16/2024-18353

Federal Register Volume 89 Issue 159 (August 16, 2024)

United States National Archives and Records Administration Office of the Federal Register

[Federal Register Volume 89, Number 159 (Friday, August 16, 2024)] [Notices] [Pages 66671-66672] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 2024-18353] ----------------------------------------------------------------------- DEPARTMENT OF AGRICULTURE Forest Service Forest Service Manual 2470, Silvicultural Practices AGENCY: Forest Service, Agriculture (USDA). ACTION: Notice of availability for public comment. ----------------------------------------------------------------------- SUMMARY: The United States Department of Agriculture, Forest Service (Agency), is revising its directive related to silvicultural practices on National Forest System lands. The proposed directive updates Forest Service Manual 2470, ``Silvicultural Practices.'' This directive sets forth policy, responsibilities, and direction for several aspects of management and moves the agency closer to its goal of providing more current direction. DATES: Comments must be received in writing by October 15, 2024. ADDRESSES: Comments may be submitted electronically to https://cara.fs2c.usda.gov/Project/Details/4178. Written comments may be mailed to Stephanie Miller, Assistant Director for Future Forest, Denver Federal Center, Building 40, Lakewood, CO 80215. All timely received comments, including names and addresses, will be placed in the record and will be available for public inspection and copying. The public may inspect comments received at https://cara.fs2c.usda.gov/Project/Details/4178. FOR FURTHER INFORMATION CONTACT: Stephanie Miller, Assistant Director for Future Forest, by phone at 720-354-6454 or by email to [email protected]. Individuals who use telecommunications devices for the hearing impaired may call 711 to reach the Telecommunications Relay Service, 24 hours a day, every day of the year, including holidays. SUPPLEMENTARY INFORMATION: The proposed directive reorganizes and eliminates redundant policies and procedures, deletes obsolete references, and updates agency policies and procedures. The intent of the updates is to amend the directive to reflect new authorities and more closely align with current and future forest restoration needs. An analysis of existing agency policy in Forest Service Handbooks and Manuals was conducted to identify revisions needed to support this initiative. The Forest Service has determined that the changes to the manual formulate standards, criteria, or guidelines applicable to a Forest Service program and it is therefore publishing the proposed directive for public comment in accordance with 36 CFR part 216. The Forest Service is seeking public comment on the proposed directive, including the sufficiency of the proposed directive in meeting the stated objectives, ways to enhance the utility and clarity of information within the directive, or ways to streamline processes outlined. Forest Service National Environmental Policy Act procedures exclude from documentation in an environmental assessment or impact statement ``rules, regulations, or policies to establish servicewide administrative procedures, program processes, or instructions.'' 36 CFR 220.6(d)(2). The Agency's conclusion is that the proposed directive falls within this category of actions and that no extraordinary circumstances exist as currently defined that require preparation of an environmental assessment or an environmental impact statement. After the public comment period closes, the Forest Service will consider timely comments that are within the scope of the proposed directive in the development of the final directive. A notice of the final directive, including a response to timely comments, will be posted on the Forest Service's web page at https://www.fs.usda.gov/ about- [[Page 66672]] agency/regulations-policies/comment-on-directives. Christopher French, Deputy Chief, National Forest System. [FR Doc. 2024-18353 Filed 8-15-24; 8:45 am] BILLING CODE 3411-15-P

usgpo

2024-10-08T13:26:25.872531

FR

FR-2024-08-16/2024-18405

Federal Register Volume 89 Issue 159 (August 16, 2024)

United States National Archives and Records Administration Office of the Federal Register

[Federal Register Volume 89, Number 159 (Friday, August 16, 2024)] [Notices] [Page 66672] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 2024-18405] ----------------------------------------------------------------------- DEPARTMENT OF AGRICULTURE Forest Service Newspapers Used for Publication of Legal Notices by the Malheur National Forest, Pacific Northwest Region, Oregon AGENCY: Forest Service, Agriculture (USDA). ACTION: Notice of newspapers of record. ----------------------------------------------------------------------- SUMMARY: This notice updates the newspapers that will be used by the Malheur National Forest of the Pacific Northwest Region to publish legal notices required under the Code of Federal Regulations (CFR). The newspaper of record for Malheur National Forest Supervisor, Blue Mountain District Ranger, and Prairie City District Ranger decisions will be changed from the Blue Mountain Eagle to the East Oregonian. The intended effect of this action is to inform interested members of the public which newspaper the Forest Service will use to publish notices of proposed actions and notices of decision. This will provide the public with constructive notice of Forest Service proposals and decisions, provide information on the procedures to comment, object or appeal, and establish the date that the Forest Service will use to determine if comments or appeals/objections were timely. DATES: The list of newspapers will remain in effect for one year from the date of publication, when another notice will be published in the Federal Register. ADDRESSES: Sasha Bertel, Regional Environmental Coordinator, Pacific Northwest Region, 1220 Southwest Third Avenue, Portland, Oregon 97204. FOR FURTHER INFORMATION CONTACT: Laurie Montgomery, Forest Environmental Coordinator, Malheur National Forest, by email at [email protected] or by phone at 541-820-3800. SUPPLEMENTARY INFORMATION: The administrative procedures at 36 CFR 214, 218, and 219 require the Forest Service to publish notices in a newspaper of general circulation. The content of the notices is specified in 36 CFR 214, 218, and 219. In general, the notices will identify the decision or project, by title or subject matter; the name and title of the official making the decision; how to obtain additional information; and where and how to file comments or appeals/objections. The date the notice is published will be used to establish the official date for the beginning of the comment or appeal/objection period. The newspapers to be used are as follows: Malheur National Forest Malheur National Forest Supervisor, Blue Mountain District Ranger, and Prairie City District Ranger decisions: East Oregonian. Emigrant Creek District Ranger decisions: Burns Times Herald. Dated: August 13, 2024. Jacqueline Emanuel, Associate Deputy Chief, National Forest System. [FR Doc. 2024-18405 Filed 8-15-24; 8:45 am] BILLING CODE 3411-15-P

usgpo

2024-10-08T13:26:26.045835

FR

FR-2024-08-16/2024-18348

Federal Register Volume 89 Issue 159 (August 16, 2024)

United States National Archives and Records Administration Office of the Federal Register

[Federal Register Volume 89, Number 159 (Friday, August 16, 2024)] [Notices] [Pages 66672-66674] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 2024-18348] ----------------------------------------------------------------------- DEPARTMENT OF AGRICULTURE Natural Resources Conservation Service [Docket ID NRCS-2024-0014] Request for Public Input About Implementation of the Sustainability Targets in Agriculture to Incentivize Natural Solutions Act AGENCY: Natural Resources Conservation Service, USDA. ACTION: Request for information. ----------------------------------------------------------------------- SUMMARY: The Natural Resources Conservation Service (NRCS) requests public input for USDA to use all available tools to support climate- smart agriculture and forestry and advance conservation priorities on working lands. The Sponsoring USDA Sustainability Targets in Agriculture to Incentivize Natural Solutions Act of 2021 (the SUSTAINS Act) was signed into law as part of the Consolidated Appropriations Act of 2023. The SUSTAINS Act expands USDA's authority to accept contributions of private funds to support existing conservation programs and provides additional guidelines for those contributions. Specifically, the SUSTAINS Act provides an opportunity for the private sector to partner with USDA in engaging farmers and ranchers in conservation initiatives, including expanding conservation practices to sequester carbon, improve wildlife habitat, protect sources of drinking water, and address other natural resource priorities. DATES: We will consider comments that we receive by September 16, 2024. Comments received after that date will be considered to the extent possible. ADDRESSES: We invite you to send comments in response to this notice. You may send comments through the method below: Federal eRulemaking Portal: Go to http://www.regulations.gov and search for Docket ID NRCS-2024-0014. Follow the online instructions for submitting comments. All comments received, including those received by mail, will be posted without change and will be publicly available on http://www.regulations.gov. FOR FURTHER INFORMATION CONTACT: Lisa Bertelson, telephone: (253) 778- 2409; email: [email protected]. Individuals who require alternative means for communication should contact the U.S. Department of Agriculture (USDA) Target Center at (202) 720-2600 (voice and text telephone (TTY)) or dial 711 for Telecommunications Relay service (both voice and text telephone users can initiate this call from any telephone). SUPPLEMENTARY INFORMATION: Background In Title I of Division HH of the Consolidated Appropriations Act, 2023 (Pub. L. 117-328), section 202, (the SUSTAINS Act amended section 1241(f) of the Food Security Act of 1985 (16 U.S.C. 3841(f))). The SUSTAINS Act authorized NRCS to accept contributions of non-Federal funds (contribution account authority) to support a range of covered existing conservation programs, as detailed below. The original authority for the contribution account was enacted as part of the Food, Conservation, and Energy Act of 2008, and included all programs authorized under subtitle D of title XII of the Food Security Act of 1985 except the Conservation Reserve Program. Due to changes under the Agricultural Act of 2014, the authority of the contribution account became limited to supporting only the Environmental Quality Incentives Program and the Conservation Stewardship Program. The SUSTAINS Act expanded the authority to include other conservation programs, including: the Agricultural Conservation Easement Program; the Regional Conservation Partnership Program; the Emergency Watersheds Protection Program; the Healthy Forests Reserve Program; and [[Page 66673]] the Watersheds Protection and Flood Prevention Act programs (excluding the Watershed Rehabilitation Program). Both new and existing covered programs assist agricultural producers, landowners, and others with addressing natural resource concerns. The SUSTAINS Act also made changes to the administration of contributed funds, which allows NRCS the option to match contributions with program funds and permits contributors to designate funds for use in a specific program or geographic area. In addition, the SUSTAINS Act includes provisions that allow contributing entities to prescribe the terms for owning the entity's share of environmental service benefits that result from funded activities, subject to the approval of the Secretary. In implementing the SUSTAINS Act, NRCS is interested in improving program delivery by effectively dedicating the additional funds to increase outreach and expand access to underserved producers. NRCS is requesting comments and recommendations from the public to determine how to best allocate private funds to target specific natural resource concerns associated with agricultural production. NRCS will consider the comments provided in response to this request when determining the next steps for implementing the SUSTAINS Act, which could include a proposed rule. List of Questions for Commenters The following list of questions is not exhaustive and serves only to assist members of the public in formulating comments on some of the most important issues that NRCS is considering. Members may provide feedback about the SUSTAINS Act that is outside the parameters of the provided questions. The questions are not intended to restrict or limit feedback that members of the public may provide. Program Prioritization and Initial Implementation 1. Should USDA actively solicit the contribution of funds, and if so, how? 2. The SUSTAINS Act identifies several objectives that can be addressed through this provision (such as changing climate, sequestering carbon, improving wildlife habitat, protecting sources of drinking water, and addressing other natural resource priorities identified by the Secretary). Should USDA initially prioritize requesting contributions for specific natural resource priorities? If so, which natural resource priorities? 3. Should USDA initially launch a pilot program to use contributed funds? If so, what might that pilot program look like? 4. Are there certain covered programs that USDA should dedicate contributions or pilot the program first? Program Administration 1. The SUSTAINS Act provides criteria that the Secretary should consider when determining whether to accept private funds, such as the source of funds; any natural resource concerns to be addressed; consistency with the Secretary's priorities; and ``other factors determined by the Secretary to be relevant'' (16 U.S.C. 3841(f)(3)). What other criteria or issues should the Secretary consider in determining whether to accept a contribution of private funds? 2. What processes should USDA establish to document contributions? 3. How should USDA ensure that there is no conflict of interest or appearance of impropriety associated with accepting funds from certain sources? Environmental Benefit Accounting 1. How should the environmental service benefits generated through the SUSTAINS Act be defined? Specifically, what type of parameters would need to be in place? 2. Should the environmental service benefits be consistently quantified, and if so, by which methods or protocols? 3. Would you be interested in supporting NRCS conservation programs as a contributing entity through the SUSTAINS Act? If yes, would you also want to acquire environmental credits through the projects you support? If so, what type of credits (for example, carbon credits, water quality credits, etc.)? Interest and Participation 1. What steps should USDA take to address any potential barriers to producer participation? What steps should USDA take to address challenges that a private entity may face when considering contributing funds? 2. What steps should USDA take to make this program attractive to both producers and potential contributing entities? 3. What type of protections should USDA adopt to ensure that producers receiving contributed funds are treated equitably to other conservation program applicants and participants that do not receive contributed funds? 4. What mechanisms should USDA adopt to ensure that producers who receive contributed funds are sufficiently aware of the conditions for those funds? 5. How should potential contributing entities best use this program to meet their goals? What might potential outcomes be? 6. When evaluating options for implementing the SUSTAINS Act, how should USDA ensure the program is equitable and beneficial to farmers, ranchers, and rural communities, while still advancing maximum conservation benefits? Maximizing the Value of Public Feedback NRCS plans to use the answers provided by the public to inform its approach to delivering the funds contributed under and covered by the SUSTAINS Act. NRCS encourages public comment on these questions and requests any additional information that commenters believe is relevant. NRCS is particularly interested in feedback that identifies specific data, policies, procedures, or processes and includes actionable information, data, or viable alternatives that would assist in implementing programmatic goals and requirements. You may contact us by sending an email to: [email protected] if you have questions or concerns. Please specify the Docket ID: NRCS-2024-0014 in the subject line. Review of Public Feedback NRCS will use the input from the public comments to improve our program delivery for any funds made available. This document is issued solely for informational and program- planning purposes. Public comments provided in response to this document will not bind NRCS to any further actions, including publication of any formal response or agreement to initiate a recommended change. NRCS will consider the feedback in the public comments and make changes or consider improvements at our sole discretion. Finally, comments submitted in response to this document will not be considered as petitions for rulemaking as specified in the Administrative Procedure Act (5 U.S.C. 553(e)). USDA Non-Discrimination Policy In accordance with Federal civil rights law and USDA civil rights regulations and policies, USDA, its Agencies, offices, and employees, and institutions participating in or administering USDA programs are prohibited from discriminating based on race, color, national origin, religion, sex, gender identity (including gender expression), sexual orientation, disability, age, marital status, family or [[Page 66674]] parental status, income derived from a public assistance program, political beliefs, or reprisal or retaliation for prior civil rights activity, in any program or activity conducted or funded by USDA (not all bases apply to all programs). Remedies and complaint filing deadlines vary by program or incident. Individuals who require alternative means of communication for program information (for example, braille, large print, audiotape, American Sign Language, etc.) should contact the responsible agency or USDA TARGET Center at (202) 720-2600 (voice and text telephone (TTY)) or dial 711 for Telecommunications Relay Service (both voice and text telephone users can initiate this call from any telephone). Additionally, program information may be made available in languages other than English. To file a program discrimination complaint, complete the USDA Program Discrimination Complaint Form, AD- 3027, found online at: https://www.usda.gov/oascr/how-to-file-a-program-discrimination-complaint and at any USDA office or write a letter addressed to USDA and provide in the letter all the information requested in the form. To request a copy of the complaint form, call (866) 632-9992. Submit your completed form or letter to USDA by: (1) mail to: U.S. Department of Agriculture, Office of the Assistant Secretary for Civil Rights, 1400 Independence Avenue SW, Washington, DC 20250-9410; (2) Fax: (202) 690- 7442; or (3) email: [email protected]. USDA is an equal opportunity provider, employer, and lender. Terry Cosby, Chief, Natural Resources Conservation Service. [FR Doc. 2024-18348 Filed 8-15-24; 8:45 am] BILLING CODE 3410-16-P

usgpo

2024-10-08T13:26:26.131037

FR

FR-2024-08-16/2024-18401

Federal Register Volume 89 Issue 159 (August 16, 2024)

United States National Archives and Records Administration Office of the Federal Register

[Federal Register Volume 89, Number 159 (Friday, August 16, 2024)] [Notices] [Pages 66674-66675] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 2024-18401] ======================================================================= ----------------------------------------------------------------------- DEPARTMENT OF COMMERCE Bureau of Industry and Security Order Denying Export Privileges; In the Matter of: Kenan L'Homme, 67 Chastain Circle, Newman, GA 30263 On November 28, 2022, in the U.S. District Court for the Northern District of Georgia, Kenan L'Homme (``L'Homme'') was convicted of violating 18 U.S.C. 554(a). Specifically, L'Homme pleaded guilty to willfully and knowingly attempting to export from the United States the following eleven (11) items: one (1) Smith & Wesson model M&P pistol; one (1) CZ P-10F pistol; one (1) Taurus revolver; one (1) Glock model 26 pistol; one (1) Glock model 43 pistol; one (1) Glock model 30s pistol; one (1) Anderson AR-15 lower unit; one (1) Aero Precision AR-15 lower unit; and three (3) Glock model 23s pistols. As a result of his conviction, the Court sentenced him to 36 months in prison, and a $200 special assessment. Pursuant to Section 1760(e) of the Export Control Reform Act (``ECRA''),\1\ the export privileges of any person who has been convicted of certain offenses, including, but not limited to 18 U.S.C. 554(a), may be denied for a period of up to ten (10) years from the date of his/her conviction. 50 U.S.C. 4819(e). In addition, any Bureau of Industry and Security (``BIS'') licenses or other authorizations issued under ECRA, in which the person had an interest at the time of the conviction, may be revoked. Id. --------------------------------------------------------------------------- \1\ ECRA was enacted on August 13, 2018, as part of the John S. McCain National Defense Authorization Act for Fiscal Year 2019, and as amended is codified at 50 U.S.C. 4801-4852. --------------------------------------------------------------------------- BIS received notice of L'Homme's conviction for violating 18 U.S.C. 554(a). As provided in section 766.25 of the Export Administration Regulations (``EAR'' or the ``Regulations''), BIS provided notice and opportunity for L'Homme to make a written submission to BIS. 15 CFR 766.25.\2\ BIS has not received a written submission from L'Homme. --------------------------------------------------------------------------- \2\ The Regulations are currently codified in the Code of Federal Regulations at 15 CFR parts 730-774 (2024). --------------------------------------------------------------------------- Based upon my review of the record and consultations with BIS's Office of Exporter Services, including its Director, and the facts available to BIS, I have decided to deny L'Homme's export privileges under the Regulations for a period of 6 years from the date of L'Homme's conviction. The Office of Exporter Services has also decided to revoke any BIS-issued licenses in which L'Homme had an interest at the time of his conviction.\3\ --------------------------------------------------------------------------- \3\ The Director, Office of Export Enforcement, is the authorizing official for issuance of denial orders pursuant to amendments to the Regulations (85 FR 73411, November 18, 2020). --------------------------------------------------------------------------- Accordingly, it is hereby Ordered: First, from the date of this Order until November 28, 2028, Kenan L'Homme, with a last known address of: 67 Chastain Circle, Newman, GA 30263, and when acting for or on his behalf, his successors, assigns, employees, agents or representatives (``the Denied Person''), may not directly or indirectly participate in any way in any transaction involving any commodity, software or technology (hereinafter collectively referred to as ``item'') exported or to be exported from the United States that is subject to the Regulations, including, but not limited to: A. Applying for, obtaining, or using any license, license exception, or export control document; B. Carrying on negotiations concerning, or ordering, buying, receiving, using, selling, delivering, storing, disposing of, forwarding, transporting, financing, or otherwise servicing in any way, any transaction involving any item exported or to be exported from the United States that is subject to the Regulations, or engaging in any other activity subject to the Regulations; or C. Benefitting in any way from any transaction involving any item exported or to be exported from the United States that is subject to the Regulations, or from any other activity subject to the Regulations. Second, no person may, directly or indirectly, do any of the following: A. Export, reexport, or transfer (in-country) to or on behalf of the Denied Person any item subject to the Regulations; B. Take any action that facilitates the acquisition or attempted acquisition by the Denied Person of the ownership, possession, or control of any item subject to the Regulations that has been or will be exported from the United States, including financing or other support activities related to a transaction whereby the Denied Person acquires or attempts to acquire such ownership, possession or control; C. Take any action to acquire from or to facilitate the acquisition or attempted acquisition from the Denied Person of any item subject to the Regulations that has been exported from the United States; D. Obtain from the Denied Person in the United States any item subject to the Regulations with knowledge or reason to know that the item will be, or is intended to be, exported from the United States; or E. Engage in any transaction to service any item subject to the Regulations that has been or will be exported from the United States and which is owned, possessed or controlled by the Denied Person, or service any item, of whatever origin, that is owned, possessed or controlled by the Denied Person if such service involves the use of any item subject to the Regulations that has been or will be exported from the United States. For purposes of this paragraph, servicing means installation, maintenance, repair, modification or testing. Third, pursuant to section 1760(e) of ECRA and sections 766.23 and 766.25 of the Regulations, any other person, firm, [[Page 66675]] corporation, or business organization related to L'Homme by ownership, control, position of responsibility, affiliation, or other connection in the conduct of trade or business may also be made subject to the provisions of this Order in order to prevent evasion of this Order. Fourth, in accordance with part 756 of the Regulations, L'Homme may file an appeal of this Order with the Under Secretary of Commerce for Industry and Security. The appeal must be filed within 45 days from the date of this Order and must comply with the provisions of part 756 of the Regulations. Fifth, a copy of this Order shall be delivered to L'Homme and shall be published in the Federal Register. Sixth, this Order is effective immediately and shall remain in effect until November 28, 2028. John Sonderman, Director, Office of Export Enforcement. [FR Doc. 2024-18401 Filed 8-15-24; 8:45 am] BILLING CODE 3510-DT-P

usgpo

2024-10-08T13:26:26.186099

FR

FR-2024-08-16/2024-18399

Federal Register Volume 89 Issue 159 (August 16, 2024)

United States National Archives and Records Administration Office of the Federal Register

[Federal Register Volume 89, Number 159 (Friday, August 16, 2024)] [Notices] [Pages 66675-66676] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 2024-18399] ----------------------------------------------------------------------- DEPARTMENT OF COMMERCE Bureau of Industry and Security Order Denying Export Privileges; In the Matter of: Marco Antonio Peralta-Vega, 1537 E Bristol Dr, Nogales, AZ 85621 On August 18, 2021, in the U.S. District Court for the District of Arizona, Marco Antonio Peralta-Vega (``Peralta-Vega'') was convicted of violating 18 U.S.C. 554(a). Specifically, Peralta-Vega was convicted of smuggling various firearms and ammunition from the United States to Mexico. As a result of his conviction, the Court sentenced him to 36 months in prison with credit for time served, three years of supervised release, and a $100 special assessment. Pursuant to Section 1760(e) of the Export Control Reform Act (``ECRA''),\1\ the export privileges of any person who has been convicted of certain offenses, including, but not limited to 18 U.S.C. 554(a), may be denied for a period of up to ten (10) years from the date of his/her conviction. 50 U.S.C. 4819(e). In addition, any Bureau of Industry and Security (``BIS'') licenses or other authorizations issued under ECRA, in which the person had an interest at the time of the conviction, may be revoked. Id. --------------------------------------------------------------------------- \1\ ECRA was enacted on August 13, 2018, as part of the John S. McCain National Defense Authorization Act for Fiscal Year 2019, and as amended is codified at 50 U.S.C. 4801-4852. --------------------------------------------------------------------------- BIS received notice of Peralta-Vega's conviction for violating 18 U.S.C. 554(a). As provided in Section 766.25 of the Export Administration Regulations (``EAR'' or the ``Regulations''), BIS provided notice and opportunity for Peralta-Vega to make a written submission to BIS. 15 CFR 766.25.\2\ BIS has not received a written submission from Peralta-Vega. --------------------------------------------------------------------------- \2\ The Regulations are currently codified in the Code of Federal Regulations at 15 CFR parts 730-774 (2024). --------------------------------------------------------------------------- Based upon my review of the record and consultations with BIS's Office of Exporter Services, including its Director, and the facts available to BIS, I have decided to deny Peralta-Vega's export privileges under the Regulations for a period of 10 years from the date of Peralta-Vega's conviction. The Office of Exporter Services has also decided to revoke any BIS-issued licenses in which Peralta-Vega had an interest at the time of his conviction.\3\ --------------------------------------------------------------------------- \3\ The Director, Office of Export Enforcement, is the authorizing official for issuance of denial orders pursuant to amendments to the Regulations (85 FR 73411, November 18, 2020). --------------------------------------------------------------------------- Accordingly, it is hereby Ordered: First, from the date of this Order until August 18, 2031, Marco Antonio Peralta-Vega, with a last known address of: 1537 E Bristol Dr, Nogales, AZ 85621, and when acting for or on his behalf, his successors, assigns, employees, agents or representatives (``the Denied Person''), may not directly or indirectly participate in any way in any transaction involving any commodity, software or technology (hereinafter collectively referred to as ``item'') exported or to be exported from the United States that is subject to the Regulations, including, but not limited to: A. Applying for, obtaining, or using any license, license exception, or export control document; B. Carrying on negotiations concerning, or ordering, buying, receiving, using, selling, delivering, storing, disposing of, forwarding, transporting, financing, or otherwise servicing in any way, any transaction involving any item exported or to be exported from the United States that is subject to the Regulations, or engaging in any other activity subject to the Regulations; or C. Benefitting in any way from any transaction involving any item exported or to be exported from the United States that is subject to the Regulations, or from any other activity subject to the Regulations. Second, no person may, directly or indirectly, do any of the following: A. Export, reexport, or transfer (in-country) to or on behalf of the Denied Person any item subject to the Regulations; B. Take any action that facilitates the acquisition or attempted acquisition by the Denied Person of the ownership, possession, or control of any item subject to the Regulations that has been or will be exported from the United States, including financing or other support activities related to a transaction whereby the Denied Person acquires or attempts to acquire such ownership, possession or control; C. Take any action to acquire from or to facilitate the acquisition or attempted acquisition from the Denied Person of any item subject to the Regulations that has been exported from the United States; D. Obtain from the Denied Person in the United States any item subject to the Regulations with knowledge or reason to know that the item will be, or is intended to be, exported from the United States; or E. Engage in any transaction to service any item subject to the Regulations that has been or will be exported from the United States and which is owned, possessed or controlled by the Denied Person, or service any item, of whatever origin, that is owned, possessed or controlled by the Denied Person if such service involves the use of any item subject to the Regulations that has been or will be exported from the United States. For purposes of this paragraph, servicing means installation, maintenance, repair, modification or testing. Third, pursuant to section 1760(e) of ECRA and sections 766.23 and 766.25 of the Regulations, any other person, firm, corporation, or business organization related to Peralta-Vega by ownership, control, position of responsibility, affiliation, or other connection in the conduct of trade or business may also be made subject to the provisions of this Order in order to prevent evasion of this Order. Fourth, in accordance with part 756 of the Regulations, Peralta- Vega may file an appeal of this Order with the Under Secretary of Commerce for Industry and Security. The appeal must be filed within 45 days from the date of this Order and must comply with the provisions of part 756 of the Regulations. Fifth, a copy of this Order shall be delivered to Peralta-Vega and shall be published in the Federal Register. [[Page 66676]] Sixth, this Order is effective immediately and shall remain in effect until August 18 2031. John Sonderman, Director, Office of Export Enforcement. [FR Doc. 2024-18399 Filed 8-15-24; 8:45 am] BILLING CODE 3510-DT-P

usgpo

2024-10-08T13:26:26.244527

FR

FR-2024-08-16/2024-18400

Federal Register Volume 89 Issue 159 (August 16, 2024)

United States National Archives and Records Administration Office of the Federal Register

[Federal Register Volume 89, Number 159 (Friday, August 16, 2024)] [Notices] [Page 66676] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 2024-18400] ----------------------------------------------------------------------- DEPARTMENT OF COMMERCE Bureau of Industry and Security Order Denying Export Privileges; In the Matter of: Yi-Chi Shih, Currently Incarcerated at: Inmate Number: 75830-112, FCI Lompoc, 3600 Guard Road, Lompoc, CA 93436 and With an Address at: 3040 Beckman Road, Los Angeles, CA 90068 On November 17, 2023, the U.S. District Court for the Central District of California entered judgment against Yi-Chi Shih (``Shih'') for violating (among other statutes) 50 U.S.C. 1705 (``IEEPA'') and 18 U.S.C. 1001. Specifically, Shih was convicted of knowingly and willfully exporting Monolithic Microwave Integrated Circuits (MMIC) from the United States to China without the required licenses. He was also found to have made false statements to federal agents. Pursuant to section 1760(e) of the Export Control Reform Act (``ECRA''),\1\ the export privileges of any person who has been convicted of certain offenses, including, but not limited to, 50 U.S.C. 1705 and 18 U.S.C. 1001, may be denied for a period of up to ten (10) years from the date of his/her conviction. 50 U.S.C. 4819(e). In addition, any Bureau of Industry and Security (``BIS'') licenses or other authorizations issued under ECRA, in which the person had an interest at the time of the conviction, may be revoked. Id. --------------------------------------------------------------------------- \1\ ECRA was enacted on August 13, 2018, as part of the John S. McCain National Defense Authorization Act for Fiscal Year 2019, and as amended is codified at 50 U.S.C. 4801-4852. --------------------------------------------------------------------------- BIS received notice of Shih's conviction for violating 50 U.S.C. 1705 and 18 U.S.C. 1001. As provided in section 766.25 of the Export Administration Regulations (``EAR'' or the ``Regulations''), BIS provided notice and opportunity for Shih to make a written submission to BIS. 15 CFR 766.25.\2\ BIS has not received a written submission from Shih. --------------------------------------------------------------------------- \2\ The Regulations are currently codified in the Code of Federal Regulations at 15 CFR parts 730-774 (2024). --------------------------------------------------------------------------- Based upon my review of the record and consultations with BIS's Office of Exporter Services, including its Director, and the facts available to BIS, I have decided to deny Shih's export privileges under the Regulations for a period of 10 years from the date of Shih's conviction. The Office of Exporter Services has also decided to revoke any BIS-issued licenses in which Shih had an interest at the time of his conviction.\3\ --------------------------------------------------------------------------- \3\ The Director, Office of Export Enforcement, is the authorizing official for issuance of denial orders pursuant to amendments to the Regulations (85 FR 73411, November 18, 2020). --------------------------------------------------------------------------- Accordingly, it is hereby Ordered: First, from the date of this Order until November 17, 2033,Yi-Chi Shih, with last known addresses of: currently incarcerated at: Inmate Number: 75830-112, FCI Lompoc, 3600 Guard Road, Lompoc, CA 93436, and with an address at: 3040 Beckman Road, Los Angeles, CA 90068, and when acting for or on his behalf, his successors, assigns, employees, agents or representatives (``the Denied Person''), may not directly or indirectly participate in any way in any transaction involving any commodity, software or technology (hereinafter collectively referred to as ``item'') exported or to be exported from the United States that is subject to the Regulations, including, but not limited to: A. Applying for, obtaining, or using any license, license exception, or export control document; B. Carrying on negotiations concerning, or ordering, buying, receiving, using, selling, delivering, storing, disposing of, forwarding, transporting, financing, or otherwise servicing in any way, any transaction involving any item exported or to be exported from the United States that is subject to the Regulations, or engaging in any other activity subject to the Regulations; or C. Benefitting in any way from any transaction involving any item exported or to be exported from the United States that is subject to the Regulations, or from any other activity subject to the Regulations. Second, no person may, directly or indirectly, do any of the following: A. Export, reexport, or transfer (in-country) to or on behalf of the Denied Person any item subject to the Regulations; B. Take any action that facilitates the acquisition or attempted acquisition by the Denied Person of the ownership, possession, or control of any item subject to the Regulations that has been or will be exported from the United States, including financing or other support activities related to a transaction whereby the Denied Person acquires or attempts to acquire such ownership, possession or control; C. Take any action to acquire from or to facilitate the acquisition or attempted acquisition from the Denied Person of any item subject to the Regulations that has been exported from the United States; D. Obtain from the Denied Person in the United States any item subject to the Regulations with knowledge or reason to know that the item will be, or is intended to be, exported from the United States; or E. Engage in any transaction to service any item subject to the Regulations that has been or will be exported from the United States and which is owned, possessed or controlled by the Denied Person, or service any item, of whatever origin, that is owned, possessed or controlled by the Denied Person if such service involves the use of any item subject to the Regulations that has been or will be exported from the United States. For purposes of this paragraph, servicing means installation, maintenance, repair, modification or testing. Third, pursuant to section 1760(e) of ECRA and sections 766.23 and 766.25 of the Regulations, any other person, firm, corporation, or business organization related to Shih by ownership, control, position of responsibility, affiliation, or other connection in the conduct of trade or business may also be made subject to the provisions of this Order in order to prevent evasion of this Order. Fourth, in accordance with part 756 of the Regulations, Shih may file an appeal of this Order with the Under Secretary of Commerce for Industry and Security. The appeal must be filed within 45 days from the date of this Order and must comply with the provisions of part 756 of the Regulations. Fifth, a copy of this Order shall be delivered to Shih and shall be published in the Federal Register. Sixth, this Order is effective immediately and shall remain in effect until November 17, 2033. John Sonderman, Director, Office of Export Enforcement. [FR Doc. 2024-18400 Filed 8-15-24; 8:45 am] BILLING CODE 3510-DT-P

usgpo

2024-10-08T13:26:26.281147

FR

FR-2024-08-16/2024-18398

Federal Register Volume 89 Issue 159 (August 16, 2024)

United States National Archives and Records Administration Office of the Federal Register

[Federal Register Volume 89, Number 159 (Friday, August 16, 2024)] [Notices] [Pages 66676-66677] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 2024-18398] ----------------------------------------------------------------------- DEPARTMENT OF COMMERCE Bureau of Industry and Security Order; In the Matter of: Nicolas Ayala, 25 NE Fifth Street Apt 1720, Miami, FL 33132 On September 6, 2023, I issued an Order \1\ denying Nicholas Ayala [[Page 66677]] (``Ayala'') all U.S. export privileges until November 16, 2032, pursuant to section 1760(e) of the Export Control Reform Act (``ECRA''),\2\ and section 766.25 of the Export Administration Regulations,\3\ and based on a criminal conviction of violating 18 U.S.C. 371 and 18 U.S.C. 554. --------------------------------------------------------------------------- \1\ 88 FR 62536 (Sept. 12, 2023). \2\ ECRA was enacted on August 13, 2018, as part of the John S. McCain National Defense Authorization Act for Fiscal Year 2019, and as amended is codified at 50 U.S.C. 4801-4852. \3\ The Regulations are currently codified in the Code of Federal Regulations at 15 CFR parts 730-774 (2024). --------------------------------------------------------------------------- Whereas, in the September 6, 2023 Order, Ayala's first name was misspelled in the caption and the text of the Order. The correct spelling should be ``Nicolas Ayala'' instead of ``Nicholas Ayala''; Whereas, the September 6, 2023 Order identified Ayala's address as ``Inmate Number: 97331-509, FCI Edgefield, P.O. Box 725, Edgefield, SC 29824''; Whereas, the Office of Export Enforcement, Bureau of Industry and Security, U.S. Department of Commerce (``Department''), has confirmed that the address is no longer correct, and that Ayala's current last known address is ``25 NE Fifth Street Apt 1720, Miami, FL 33132''. Accordingly, it is hereby ordered: First, the September 6, 2023 Order denying all U.S. export privileges to Ayala is amended by correcting the spelling of the Respondent's name to Nicolas Ayala in the caption and text of the Order. Second, the September 6, 2023 Order denying all U.S. export privileges to Ayala is amended by deleting the address ``Inmate Number: 97331-509, FCI Edgefield, P.O. Box 725, Edgefield, SC 29824'' and by adding the address ``25 NE Fifth Street Apt 1720, Miami, FL 33132''. In all other aspects, the September 6, 2023 Order remains in full force and effect. This Order, which is effective immediately, shall be published in the Federal Register. John Sonderman, Director, Office of Exporter Services. [FR Doc. 2024-18398 Filed 8-15-24; 8:45 am] BILLING CODE 3510-DT-P

usgpo

2024-10-08T13:26:26.321534

FR

FR-2024-08-16/2024-18397

Federal Register Volume 89 Issue 159 (August 16, 2024)

United States National Archives and Records Administration Office of the Federal Register

[Federal Register Volume 89, Number 159 (Friday, August 16, 2024)] [Notices] [Pages 66677-66678] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 2024-18397] ----------------------------------------------------------------------- DEPARTMENT OF COMMERCE Bureau of Industry and Security Order Denying Export Privileges; In the Matter of: Rami Najm Ghanem, Inmate Number: 73420-112, MCFP Springfield, Federal Medical Center, P.O. Box 4000, Springfield, MO 65801 On October 31, 2022, in the U.S. District Court for the Central District of California, Rami Najm Ghanem (``Ghanem'') was convicted of violating 18 U.S.C. 371, 18 U.S.C. 554 and section 38 of the Arms Export Control Act (22 U.S.C 2778) (``AECA''). Specifically, Ghanem was convicted of having knowingly and willfully engaged in the business of weapons brokering activities without the required licenses, and of having engaged in negotiating and arranging contracts, purchases, sales, and transfers of defense articles, foreign defense articles, defense services, and foreign defense services, including for machine guns. Pursuant to section 1760(e) of the Export Control Reform Act (``ECRA''), the export privileges of any person who has been convicted of certain offenses, including, but not limited to, 18 U.S.C. 371, 18 U.S.C. 554 and section 38 of the AECA, may be denied for a period of up to ten (10) years from the date of his/her conviction. See 50 U.S.C. 4819(e). In addition, any Bureau of Industry and Security (``BIS'') licenses or other authorizations issued under ECRA, in which the person had an interest at the time of the conviction, may be revoked. Id. BIS received notice of Ghanem's convictions for violating 18 U.S.C. 371, 18 U.S.C. 554 and section 38 of the AECA. BIS provided notice and opportunity for Ghanem to make a written submission to BIS, as provided in section 766.25 of the Export Administration Regulations (``EAR'' or the ``Regulations''). 15 CFR 766.25.\2\ BIS has not received a written submission from Ghanem. --------------------------------------------------------------------------- \2\ The Regulations are currently codified in the Code of Federal Regulations at 15 CFR parts 730-774 (2024). --------------------------------------------------------------------------- Based upon my review of the record and consultations with BIS's Office of Exporter Services, including its Director, and the facts available to BIS, I have decided to deny Ghanem's export privileges under the Regulations for a period of 10 years from the date of Ghanem's conviction. The Office of Exporter Services has also decided to revoke any BIS-issued licenses in which Ghanem had an interest at the time of his conviction.\3\ --------------------------------------------------------------------------- \3\ The Director, Office of Export Enforcement, is the authorizing official for issuance of denial orders, pursuant to amendments to the Regulations (85 FR 73411, November 18, 2020). --------------------------------------------------------------------------- Accordingly, it is hereby Ordered: First, from the date of this Order until October 31, 2032, Rami Najm Ghanem, with a last known address of Inmate Number: 73420-112, MCFP Springfield, Federal Medical Center, P.O. Box 4000, Springfield, MO 65801, and when acting for or on his behalf, his successors, assigns, employees, agents or representatives (``the Denied Person''), may not directly or indirectly participate in any way in any transaction involving any commodity, software or technology (hereinafter collectively referred to as ``item'') exported or to be exported from the United States that is subject to the Regulations, including, but not limited to: A. Applying for, obtaining, or using any license, license exception, or export control document; B. Carrying on negotiations concerning, or ordering, buying, receiving, using, selling, delivering, storing, disposing of, forwarding, transporting, financing, or otherwise servicing in any way, any transaction involving any item exported or to be exported from the United States that is subject to the Regulations, or engaging in any other activity subject to the Regulations; or C. Benefitting in any way from any transaction involving any item exported or to be exported from the United States that is subject to the Regulations, or from any other activity subject to the Regulations. Second, no person may, directly or indirectly, do any of the following: A. Export, reexport, or transfer (in-country) to or on behalf of the Denied Person any item subject to the Regulations; B. Take any action that facilitates the acquisition or attempted acquisition by the Denied Person of the ownership, possession, or control of any item subject to the Regulations that has been or will be exported from the United States, including financing or other support activities related to a transaction whereby the Denied Person acquires or attempts to acquire such ownership, possession or control; C. Take any action to acquire from or to facilitate the acquisition or attempted acquisition from the Denied Person of any item subject to the Regulations that has been exported from the United States; [[Page 66678]] D. Obtain from the Denied Person in the United States any item subject to the Regulations with knowledge or reason to know that the item will be, or is intended to be, exported from the United States; or E. Engage in any transaction to service any item subject to the Regulations that has been or will be exported from the United States and which is owned, possessed or controlled by the Denied Person, or service any item, of whatever origin, that is owned, possessed or controlled by the Denied Person if such service involves the use of any item subject to the Regulations that has been or will be exported from the United States. For purposes of this paragraph, servicing means installation, maintenance, repair, modification or testing. Third, pursuant to section 1760(e) of ECRA (50 U.S.C. 4819(e)) and sections 766.23 and 766.25 of the Regulations, any other person, firm, corporation, or business organization related to Ghanem by ownership, control, position of responsibility, affiliation, or other connection in the conduct of trade or business may also be made subject to the provisions of this Order in order to prevent evasion of this Order. Fourth, in accordance with part 756 of the Regulations, Ghanem may file an appeal of this Order with the Under Secretary of Commerce for Industry and Security. The appeal must be filed within 45 days from the date of this Order and must comply with the provisions of part 756 of the Regulations. Fifth, a copy of this Order shall be delivered to Ghanem and shall be published in the Federal Register. Sixth, this Order is effective immediately and shall remain in effect until October 31, 2032. John Sonderman, Director, Office of Export Enforcement. [FR Doc. 2024-18397 Filed 8-15-24; 8:45 am] BILLING CODE 3510-DT-P

usgpo

2024-10-08T13:26:26.374150

FR

FR-2024-08-16/2024-18384

Federal Register Volume 89 Issue 159 (August 16, 2024)

United States National Archives and Records Administration Office of the Federal Register

[Federal Register Volume 89, Number 159 (Friday, August 16, 2024)] [Notices] [Page 66678] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 2024-18384] ----------------------------------------------------------------------- DEPARTMENT OF COMMERCE International Trade Administration [A-351-860, A-834-812, A-557-828] Ferrosilicon From Brazil, Kazakhstan, and Malaysia: Postponement of Preliminary Determinations in the Less-Than-Fair-Value Investigations AGENCY: Enforcement and Compliance, International Trade Administration, Department of Commerce. DATES: Applicable August 16, 2024. FOR FURTHER INFORMATION CONTACT: Jaron Moore (Brazil) at (202) 482- 3640; Samantha Kinney (Kazakhstan) at (202) 482-2285; Peter Farrell (Malaysia) at (202) 482-2104, AD/CVD Operations, Enforcement and Compliance, International Trade Administration, U.S. Department of Commerce, 1401 Constitution Avenue NW, Washington, DC 20230. SUPPLEMENTARY INFORMATION: Background On April 17, 2024, the U.S. Department of Commerce (Commerce) initiated less-than-fair-value (LTFV) investigations on imports of ferrosilicon from Brazil, Kazakhstan, and Malaysia.\1\ On July 22, 2024, Commerce tolled certain deadlines in these administrative proceedings by seven days.\2\ The deadline for the preliminary determinations is now September 11, 2024. --------------------------------------------------------------------------- \1\ See Ferrosilicon from Brazil, Kazakhstan, Malaysia, and the Russian Federation: Initiation of Less-Than-Fair-Value Investigations, 89 FR 31137 (April 24, 2024). \2\ See Memorandum, ``Tolling of Deadlines for Antidumping and Countervailing Duty Proceedings,'' dated July 22, 2024. --------------------------------------------------------------------------- Postponement of Preliminary Determinations Section 733(b)(1)(A) of the Tariff Act of 1930, as amended (the Act), requires Commerce to issue the preliminary determination in an LTFV investigation within 140 days after the date on which Commerce initiated the investigation. However, section 733(c)(1)(A)(b)(1) of the Act permits Commerce to postpone the preliminary determination until no later than 190 days after the date on which Commerce initiated the investigation if: (A) the petitioner makes a timely request for a postponement; or (B) Commerce concludes that the parties concerned are cooperating, that the investigation is extraordinarily complicated, and that additional time is necessary to make a preliminary determination. Under 19 CFR 351.205(e), the petitioner must submit a request for postponement 25 days or more before the scheduled date of the preliminary determination and must state the reasons for the request. Commerce will grant the request unless it finds compelling reasons to deny the request. Brazil, Kazakhstan, and Malaysia On July 31, 2024, the petitioners \3\ submitted a timely request that Commerce postpone the preliminary determinations in the LTFV investigations.\4\ The petitioners stated that they requested the postponement because Commerce either has not yet received, or has only just recently received, full initial questionnaire responses from the mandatory respondents in all three investigations and additional time is necessary to allow Commerce and petitioners ``to fully develop the record, and to review and comment upon the original and any supplemental responses.'' \5\ --------------------------------------------------------------------------- \3\ The petitioners are CC Metals and Alloys, LLC and Ferroglobe USA, Inc. \4\ See Petitioners' Letter, ``Petitioners' Request to Postpone Preliminary Antidumping Duty Determinations,'' dated July 31, 2024. \5\ Id. --------------------------------------------------------------------------- For the reason stated above and because there are no compelling reasons to deny the request, Commerce, in accordance with section 733(c)(1)(A) of the Act, is postponing the deadline for the preliminary determinations by 50 days (i.e., 190 days after the date on which these investigations were initiated). As a result, Commerce will issue its preliminary determinations no later than October 31, 2024.\6\ In accordance with section 735(a)(1) of the Act and 19 CFR 351.210(b)(1), the deadline for the final determinations of these investigations will continue to be 75 days after the date of the preliminary determinations, unless postponed at a later date. --------------------------------------------------------------------------- \6\ This deadline has been tolled by seven days. See footnote 2, supra. --------------------------------------------------------------------------- This notice is issued and published pursuant to section 733(c)(2) of the Act and 19 CFR 351.205(f)(1). Dated: August 12, 2024. Ryan Majerus, Deputy Assistant Secretary for Policy and Negotiations, performing the non-exclusive functions and duties of the Assistant Secretary for Enforcement and Compliance. [FR Doc. 2024-18384 Filed 8-15-24; 8:45 am] BILLING CODE 3510-DS-P

usgpo

2024-10-08T13:26:26.431342

FR

FR-2024-08-16/2024-18417

Federal Register Volume 89 Issue 159 (August 16, 2024)

United States National Archives and Records Administration Office of the Federal Register

[Federal Register Volume 89, Number 159 (Friday, August 16, 2024)] [Notices] [Pages 66678-66680] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 2024-18417] ----------------------------------------------------------------------- DEPARTMENT OF COMMERCE International Trade Administration [C-475-841] Forged Steel Fluid End Blocks From Italy: Final Results of Countervailing Duty Administrative Review; 2022 AGENCY: Enforcement and Compliance, International Trade Administration, Department of Commerce. SUMMARY: The U.S. Department of Commerce (Commerce) determines that certain producers and exporters of forged steel fluid end blocks (fluid end blocks) from Italy received countervailable subsidies during the period of review (POR) January 1, 2022, through December 31, 2022. [[Page 66679]] DATES: Applicable August 16, 2024. FOR FURTHER INFORMATION CONTACT: Nicholas Czajkowski or Claudia Cott, AD/CVD Operations, Office I, Enforcement and Compliance, International Trade Administration, U.S. Department of Commerce, 1401 Constitution Avenue NW, Washington, DC 20230; telephone: (202) 482-1395 or (202) 482-4270, respectively. SUPPLEMENTARY INFORMATION: Background On February 6, 2024, Commerce published in the Federal Register the Preliminary Results of this administrative review and invited comments from interested parties.\1\ For a detailed description of the events that occurred since the Preliminary Results, see the Issues and Decision Memorandum.\2\ On May 3, 2024, in accordance with section 751(a)(3)(A) of the Tariff Act of 1930, as amended (the Act), Commerce extended the deadline for issuing the final results until August 2, 2024.\3\ On July 22, 2024, Commerce tolled certain deadlines in this administrative review by seven days.\4\ The deadline for the final results of review is now August 9, 2024. --------------------------------------------------------------------------- \1\ See Forged Steel Fluid End Blocks from Italy: Preliminary Results of Countervailing Duty Administrative Review and Rescission of Administrative Review, in Part; 2022, 89 FR 8145 (February 6, 2024) (Preliminary Results), and accompanying Preliminary Decision Memorandum (PDM). \2\ See Memorandum, ``Decision Memorandum for the Final Results of the Countervailing Duty Administrative Review of Forged Steel Fluid End Blocks from Italy; 2022,'' dated concurrently with, and hereby adopted by, this notice (Issues and Decision Memorandum). \3\ See Memorandum, ``Extension of Deadline for Final Results of Countervailing Duty Administrative Review,'' dated May 3, 2024. \4\ See Memorandum, ``Tolling of Deadlines for Antidumping and Countervailing Duty Proceedings,'' dated July 22, 2024. --------------------------------------------------------------------------- Scope of the Order 5 --------------------------------------------------------------------------- \5\ See Forged Steel Fluid End Blocks from the People's Republic of China, the Federal Republic of Germany, India, and Italy: Countervailing Duty Orders, and Amended Final Affirmative Countervailing Duty Determination for the People's Republic of China, 86 FR 7535 (January 29, 2021); see also Forged Steel Fluid End Blocks from the People's Republic of China, the Federal Republic of Germany, India, and Italy: Correction to Countervailing Duty Orders, 86 FR 10244 (February 19, 2021) (Order). --------------------------------------------------------------------------- The products covered by the scope of the Order are forged steel fluid end blocks from Italy. For a full description of the scope of the Order, see the Issues and Decision Memorandum. Analysis of Comments Received All issues raised in the case and rebuttal briefs submitted by interested parties in this review are addressed in the Issues and Decision Memorandum. The topics discussed and the issues raised by interested parties to which we responded in the Issues and Decision Memorandum are listed in the appendix to this notice. The Issues and Decision Memorandum is a public document and is on file electronically via Enforcement and Compliance's Antidumping and Countervailing Duty Centralized Electronic Service System (ACCESS). ACCESS is available to registered users at https://access.trade.gov. In addition, a complete version of the Issues and Decision Memorandum can be accessed directly at https://access.trade.gov/public/FRNoticesListLayout.aspx. Changes Since the Preliminary Results Based on comments received from interested parties, we revised the calculation of the net countervailable subsidy rates for Lucchini Mame Forge S.p.A. (Lucchini) and Metalcam S.p.A. (Metalcam). For a discussion of these changes, see the Issues and Decision Memorandum. Methodology Commerce conducted this administrative review in accordance with section 751(a)(1)(A) of the Act. For each of the subsidy programs found to be countervailable, we determine that there is a subsidy, i.e., a government-provided financial contribution that gives rise to a benefit to the recipient, and that the subsidy is specific.\6\ For a complete description of the methodology underlying all of Commerce's conclusions, including our reliance, in part, on facts otherwise available, including adverse facts available, pursuant to sections 776(a) and (b) of the Act, see the Issues and Decision Memorandum. --------------------------------------------------------------------------- \6\ See sections 771(5)(B) and (D) of the Act regarding financial contribution; section 771(5)(E) of the Act regarding benefit; and section 771(5A) of the Act regarding specificity. --------------------------------------------------------------------------- Companies Not Selected for Individual Review The statute and Commerce's regulations do not address the establishment of a rate to be applied to companies not selected for individual examination when Commerce limits its examination in an administrative review pursuant to section 777A(e)(2) of the Act. However, Commerce normally determines the rates for non-selected companies in reviews in a manner that is consistent with section 705(c)(5) of the Act, which provides the basis for calculating the all- others rate in an investigation. Section 705(c)(5)(A)(i) of the Act instructs Commerce, as a general rule, to calculate the all-others rate equal to the weighted average of the countervailable subsidy rates established for exporters and producers individually investigated, excluding any zero or de minimis countervailable subsidy rates, and any rates determined entirely on the basis of facts available. There are two companies (i.e., Officine Meccaniche Roselli S.r.l. and Cogne Acciai Speciali S.p.A.) for which a review was requested and not rescinded, and which were not selected as mandatory respondents or found to be cross-owned with a mandatory respondent. In this review, the rates for Lucchini and Metalcam were above de minimis and not based entirely on facts available. Therefore, we are applying to the non- selected companies the average of the net subsidy rates calculated for Lucchini and Metalcam in these final results, which we calculated using the publicly-ranged sales data submitted by Lucchini and Metalcam.\7\ --------------------------------------------------------------------------- \7\ With two respondents under examination, Commerce normally calculates: (A) a weighted-average of the estimated subsidy rates calculated for the examined respondents; (B) a simple average of the estimated subsidy rates calculated for the examined respondents; and (C) a weighted average of the estimated subsidy rates calculated for the examined respondents using each company's publicly-ranged U.S. sale quantities for the merchandise under consideration. Commerce then compares (B) and (C) to (A) and selects the rate closest to (A) as the most appropriate rate for all other producers and exporters. See, e.g., Ball Bearings and Parts Thereof from France, Germany, Italy, Japan, and the United Kingdom: Final Results of Antidumping Duty Administrative Reviews, Final Results of Changed-Circumstances Review, and Revocation of an Order in Part, 75 FR 53661, 53663 (September 1, 2010). \8\ Commerce finds the following companies to be cross-owned with Lucchini: Lucchini RS S.p.A.; Lucchini Industries Srl; and Bicomet S.p.A. \9\ Commerce finds the following companies to be cross-owned with Metalcam: Adamello Meccanica S.r.l.; and B.S. S.r.l. --------------------------------------------------------------------------- Final Results of the Administrative Review We find the following net countervailable subsidy rates exist for the period January 1, 2022, through December 31, 2022: ------------------------------------------------------------------------ Subsidy rate Company (percent ad >valorem) ------------------------------------------------------------------------ Lucchini Mame Forge S.p.A.\8\............................... 6.80 Metalcam S.p.A.\9\.......................................... 3.28 Review-Specific Average Rate Applicable to the Following Companies: Officine Meccaniche Roselli S.r.l......................... 5.04 Cogne Acciai Speciali S.p.A............................... 5.04 ------------------------------------------------------------------------ [[Page 66680]] Disclosure Commerce intends to disclose calculations and analysis performed for these final results of review within five days after the date of publication of this notice in the Federal Register in accordance with 19 CFR 351.224(b). Assessment Requirements In accordance with section 751(a)(2)(C) of the Act and 19 CFR 351.212(b)(2), Commerce has determined, and U.S. Customs and Border Protection (CBP) shall assess, countervailing duties on all appropriate entries covered by this review. Commerce intends to issue assessment instructions to CBP no earlier than 35 days after publication of the final results of this review in the Federal Register. If a timely summons is filed at the U.S. Court of International Trade, the assessment instructions will direct CBP not to liquidate relevant entries until the time for parties to file a request for a statutory injunction has expired (i.e., within 90 days of publication). Cash Deposit Requirements In accordance with section 751(a)(1) of the Act, Commerce also intends to instruct CBP to collect cash deposits of estimated countervailing duties in the amounts shown for the companies listed above for shipments of subject merchandise entered, or withdrawn from warehouse, for consumption on or after the date of publication of these final results of this administrative review. For all non-reviewed firms, we will instruct CBP to continue to collect cash deposits of estimated countervailing duties at the all-others rate or the most recent company-specific rate applicable to the company, as appropriate. These cash deposit requirements, when imposed, shall remain in effect until further notice. Administrative Protective Order This notice also serves as a final reminder to parties subject to an administrative protective order (APO) of their responsibility concerning the disposition of proprietary information disclosed under APO in accordance with 19 CFR 351.305(a)(3). Timely written notification of the return or destruction of APO materials or conversion to judicial protective order, is hereby requested. Failure to comply with the regulations and terms of an APO is a violation subject to sanction. Notification to Interested Parties The final results are issued and published in accordance with sections 751(a)(1) and 777(i)(1) of the Act and 19 CFR 351.221(b)(5). Dated: August 9, 2024. Ryan Majerus, Deputy Assistant Secretary for Policy and Negotiations, performing the non-exclusive functions and duties of the Assistant Secretary for Enforcement and Compliance. Appendix List of Topics Discussed in the Issues and Decision Memorandum I. Summary II. Background III. Scope of the Order IV. Non-Selected Rate V. Subsidies Valuation VI. Use of Facts Otherwise Available and Adverse Inferences VII. Analysis of Programs VIII. Discussion of the Issues Comment 1: Whether to Adjust Lucchini's Benefits Under the Electricity Purchases Through the Interconnector Program Comment 2: Whether Commerce Should Calculate Lucchini's Benefit Amount for the Gas Interruptibility Program on an Entity-Specific Basis Comment 3: Whether Commerce Correctly Calculated Lucchini's Benefits Under the Free Allocation of European Union Emissions Trading System Program Comment 4: Whether Commerce Should Countervail Certain Additional Energy Subsidies in this Review Comment 5: Whether Respondents Received Benefits Under the Industrial Exemptions for General Electricity Network Costs (Energivori) Program Comment 6: Whether Commerce Should Adjust Lucchini's Denominator Comment 7: Whether Commerce Should Countervail the Energy Interruptibility Contracts Program Comment 8: Whether the Aid for Economic Growth Program is Specific Comment 9: Whether Commerce Should Countervail the Super- Ammortamento, Iper-Ammortamento and Patent Box Deductions Programs Comment 10: Whether Commerce Should Countervail Certain Sgravi Programs IX. Recommendation [FR Doc. 2024-18417 Filed 8-15-24; 8:45 am] BILLING CODE 3510-DS-P

usgpo

2024-10-08T13:26:26.453831

FR

FR-2024-08-16/2024-18383

Federal Register Volume 89 Issue 159 (August 16, 2024)

United States National Archives and Records Administration Office of the Federal Register

[Federal Register Volume 89, Number 159 (Friday, August 16, 2024)] [Notices] [Pages 66680-66681] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 2024-18383] ----------------------------------------------------------------------- DEPARTMENT OF COMMERCE International Trade Administration [A-351-842] Certain Uncoated Paper From Brazil: Final Results of Antidumping Duty Administrative Review; 2022-2023 AGENCY: Enforcement and Compliance, International Trade Administration, Department of Commerce. SUMMARY: The U.S. Department of Commerce (Commerce) determines that Suzano S.A. (Suzano) made sales of subject merchandise at prices below normal value (NV) during the period of review (POR) March 1, 2022, through February 28, 2023. Commerce also determines that Sylvamo do Brasil Ltda. and Sylvamo Exports Ltda. (collectively, Sylvamo) did not make sales of subject merchandise at prices below normal NV the POR. DATES: Applicable August 16, 2024. FOR FURTHER INFORMATION CONTACT: Christopher Maciuba or Nathan James, AD/CVD Operations, Office V, Enforcement and Compliance, International Trade Administration, Department of Commerce, 1401 Constitution Avenue NW, Washington, DC 20230; telephone (202) 482-0413 or (202) 482-5305, respectively. SUPPLEMENTARY INFORMATION: Background On April 5, 2024, Commerce published the Preliminary Results.\1\ On May 6, 2024, Commerce issued a questionnaire to which Suzano timely responded on May 23, 2024.\2\ On June 6, 2024, Commerce notified interested parties of the deadline for the submission of case and rebuttal briefs.\3\ No interested party submitted comments on the Preliminary Results. Commerce conducted this review in accordance with section 751 of the Tariff Act of 1930, as amended (the Act). Commerce made no changes from the Preliminary Results, which are herein adopted as the final results of review. Additionally, because these final results remain unchanged from the Preliminary Results, no memorandum accompanies this notice. --------------------------------------------------------------------------- \1\ See Certain Uncoated Paper from Brazil: Preliminary Results of Antidumping Duty Administrative Review; 2022-2023, 89 FR 23971 (April 5, 2024) (Preliminary Results), and accompanying Preliminary Decision Memorandum (PDM). \2\ See Suzano's Letter, ``Suzano's Supplemental Questionnaire Response,'' dated May 23, 2024. \3\ See Memorandum, ``Briefing Schedule for the Final Results,'' dated June 6, 2024. --------------------------------------------------------------------------- Scope of the Order 4 --------------------------------------------------------------------------- \4\ See Certain Uncoated Paper from Australia, Brazil, Indonesia, the People's Republic of China, and Portugal: Amended Final Affirmative Antidumping Determinations for Brazil and Indonesia and Antidumping Duty Orders, 81 FR 11174 (March 3, 2016) (Order). --------------------------------------------------------------------------- The merchandise covered by the Order is uncoated paper from Brazil. For a complete description of the scope of the Order, see the Preliminary Results PDM. Final Results of Review We determine that the following estimated weighted-average dumping margins exist for the POR, March 1, 2022, through February 28, 2023: [[Page 66681]] ------------------------------------------------------------------------ Weighted- average Exporter/producer dumping margin (percent) ------------------------------------------------------------------------ Suzano S.A.................................................. 3.49 Sylvamo do Brasil Ltda/Sylvamo Exports Ltda................. 0.00 ------------------------------------------------------------------------ Disclosure Because we made no changes to the calculations performed in connection with the Preliminary Results, there are no new calculations to disclose, in accordance with 19 CFR 351.224(b), for these final results. Assessment Rates Pursuant to section 751(a)(2)(C) of the Act, and 19 CFR 351.212(b)(1), Commerce has determined, and U.S. Customs and Border Protection (CBP) shall assess, antidumping duties on all appropriate entries covered by this review. Because Suzano's weighted-average dumping margin is not zero or de minimis (i.e., less than 0.5 percent), we calculated importer-specific ad valorem assessment rates based on the ratio of the total amount of dumping calculated for the examined sales to the total entered value of the sales. Where an importer-specific assessment rate is zero or de minimis, we will instruct CBP to liquidate the appropriate entries without regard to antidumping duties. For Sylvamo, because its weighted-average dumping margin is zero, we will instruct CBP to liquidate entries reported in this review without regard to antidumping duties. Consistent with Commerce's assessment practice, for entries of subject merchandise during the POR produced by Suzano or Sylvamo for which they did not know their merchandise was destined for the United States, we will instruct CBP to liquidate unreviewed entries at the all-others rate if there is no rate for the intermediate company(ies) involved in the transaction.\5\ --------------------------------------------------------------------------- \5\ For a full discussion of this practice, see Antidumping and Countervailing Duty Proceedings: Assessment of Antidumping Duties, 68 FR 23954 (May 6, 2003). --------------------------------------------------------------------------- Commerce intends to issue assessment instructions to CBP no earlier than 35 days after the date of publication of the final results of this review in the Federal Register. If a timely summons is filed at the U.S. Court of International Trade, the assessment instructions will direct CBP not to liquidate relevant entries until the time for parties to file a request for a statutory injunction has expired (i.e., within 90 days of publication). Cash Deposit Requirements The following cash deposit requirements will be effective for all shipments of the subject merchandise entered, or withdrawn from warehouse, for consumption on or after the publication date of the final results of this administrative review, as provided by section 751(a)(2)(C) of the Act: (1) the cash deposit rates for Suzano and Sylvamo will be the rates established in the final results of this administrative review; (2) for previously reviewed or investigated companies not listed above, the cash deposit rate will continue to be the company-specific rate published for the most recently completed segment of this proceeding; (3) if the exporter is not a firm covered in this review, a prior review, or the original less-than-fair-value (LTFV) investigation, but the producer is, the cash deposit rate will be the rate established for the most recently completed segment of this proceeding for the producer of the subject merchandise; and (4) the cash deposit rate for all other manufacturers or exporters will continue to be 27.11 percent, the all-others rate established in the LTFV investigation.\6\ These cash deposit requirements, when imposed, shall remain in effect until further notice. --------------------------------------------------------------------------- \6\ See Order. --------------------------------------------------------------------------- Notification to Importers This notice also serves as a final reminder to importers of their responsibility under 19 CFR 351.402(f)(2) to file a certificate regarding the reimbursement of antidumping duties prior to liquidation of the relevant entries during this POR. Failure to comply with this requirement could result in Commerce's presumption that reimbursement of antidumping duties occurred and the subsequent assessment of double antidumping duties. Administrative Protective Order This notice also serves as a final reminder to parties subject to an administrative protective order (APO) of their responsibility concerning the disposition of proprietary information disclosed under APO in accordance with 19 CFR 351.305(a)(3), which continues to govern business proprietary information in this segment of the proceeding. Timely written notification of the return/destruction of APO materials, or conversion to judicial protective order, is hereby requested. Failure to comply with the regulations and terms of an APO is a violation which is subject to sanction. Notification to Interested Parties We are issuing and publishing this notice in accordance with sections 751(a)(1) and 777(i) of the Act, and 19 CFR 351.221(b)(5). Dated: August 9, 2024. Ryan Majerus, Deputy Assistant Secretary for Policy and Negotiations, performing the non-exclusive functions and duties of the Assistant Secretary for Enforcement and Compliance. [FR Doc. 2024-18383 Filed 8-15-24; 8:45 am] BILLING CODE 3510-DS-P

usgpo

2024-10-08T13:26:26.480327

FR

FR-2024-08-16/2024-18416

Federal Register Volume 89 Issue 159 (August 16, 2024)

United States National Archives and Records Administration Office of the Federal Register

[Federal Register Volume 89, Number 159 (Friday, August 16, 2024)] [Notices] [Pages 66681-66683] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 2024-18416] ----------------------------------------------------------------------- DEPARTMENT OF COMMERCE International Trade Administration [A-475-840] Forged Steel Fluid End Blocks From Italy: Final Results of the Antidumping Duty Administrative Review; 2022 AGENCY: Enforcement and Compliance, International Trade Administration, Department of Commerce. SUMMARY: The U.S. Department of Commerce (Commerce) determines that certain producers/exporters subject to this administrative review made sales of forged steel fluid end blocks (fluid end blocks) from Italy at less than normal value during the period of review (POR) January 1, 2022, through December 31, 2022. DATES: Applicable August 16, 2024. FOR FURTHER INFORMATION CONTACT: Allison Hollander or Claudia Cott, AD/ CVD Operations, Office I, Enforcement and Compliance, International Trade Administration, U.S. Department of Commerce, 1401 Constitution Avenue NW, Washington, DC 20230; telephone: (202) 482-2805 or (202) 482-4270. SUPPLEMENTARY INFORMATION: Background On February 6, 2023, Commerce published in the Federal Register the preliminary results of this administrative review of the antidumping duty order \1\ on fluid end blocks from Italy and invited comments from interested parties.\2\ A summary of [[Page 66682]] the events that occurred since Commerce published the Preliminary Results, as well as a full discussion of the issues raised by parties for these final results, are discussed in the Issues and Decision Memorandum.\3\ On July 22, 2024, Commerce tolled certain deadlines in this administrative proceeding by seven days. The deadline for the final results of this administrative review is now August 9, 2024.\4\ Commerce conducted this review in accordance with section 751(a)(1)(B) of the Tariff Act of 1930, as amended (the Act). --------------------------------------------------------------------------- \1\ See Forged Steel Fluid End Blocks from the Federal Republic of Germany and Italy: Amended Final Antidumping Duty Determination for the Federal Republic of Germany and Antidumping Duty Orders, 86 FR 7528 (January 29, 2021) (Order). \2\ See Forged Steel Fluid End Blocks from Italy: Preliminary Results and Rescission in Part of Antidumping Duty Administrative Review; 2022, 89 FR 8157 (February 6, 2024) (Preliminary Results), and accompanying Preliminary Decision Memorandum (PDM). \3\ See Memorandum, ``Decision Memorandum for the Final Results of the Antidumping Duty Administrative Review of Forged Steel Fluid End Blocks from Italy; 2022,'' dated concurrently with, and hereby adopted by, this notice (Issues and Decision Memorandum). \4\ See Memorandum, ``Tolling of Deadlines for Antidumping and Countervailing Duty Proceedings,'' dated July 22, 2024. --------------------------------------------------------------------------- Scope of the Order The merchandise subject to the Order are fluid end blocks from Italy. For a complete description of the scope of the Order, see the Issues and Decision Memorandum. Analysis of Comments Received All issues raised in the case and rebuttal briefs filed by parties in this review are listed as an appendix to this notice and addressed in the Issues and Decision Memorandum. The Issues and Decision Memorandum is a public document and is on file electronically via Enforcement and Compliance's Antidumping and Countervailing Duty Centralized Electronic Service System (ACCESS). ACCESS is available to registered users at https://access.trade.gov. In addition, a complete version of the Issues and Decision Memorandum can be accessed directly at https://access.trade.gov/public/FRNoticesListLayout.aspx. Changes Since the Preliminary Results Commerce evaluated the comments in the case and rebuttal briefs and record evidence and made no changes from the Preliminary Results. For a discussion of the comments, see the Issues and Decision Memorandum. Rate for Non-Examined Company The statute and Commerce's regulations do not address the establishment of a rate to be applied to companies not selected for individual examination when Commerce limits its examination in an administrative review pursuant to section 777A(c)(2) of the Act. Generally, Commerce looks to section 735(c)(5) of the Act, which provides instructions for calculating the all-others rate in an investigation of sales at less than fair value (LTFV), for guidance when calculating the weighted-average dumping margin for companies which were not selected for individual examination in an administrative review. Under section 735(c)(5)(A) of the Act, the all-others rate is normally ``an amount equal to the weighted average of the estimated weighted-average dumping margins established for exporters and producers individually investigated, excluding any zero or de minimis margins, and any margins determined entirely {on the basis of facts available{time} .'' We calculated a dumping margin for Lucchini Mam[eacute] Forge S.p.A., Lucchini Industries S.r.l., and Lucchini RS S.p.A (collectively Lucchini) \5\ that is not zero, de minimis, or determined entirely on the basis of facts available. Accordingly, we assigned a margin of 1.41 percent based on Lucchini's calculated weighted-average dumping margin to the sole non-selected respondent, Officine Meccaniche Roselli S.r.l. --------------------------------------------------------------------------- \5\ In the Preliminary Results, we collapsed these three companies into a single entity. See Preliminary Results, 89 FR at 8157, n.3, and Preliminary Results PDM at 5-7. For the final results, we continue to find that these three companies comprise a single entity. --------------------------------------------------------------------------- Final Results of Administrative Review Commerce determines that the following estimated weighted-average dumping margins exist for the period January 1, 2022, through December 31, 2022: ------------------------------------------------------------------------ Weighted- average Producer/exporter dumping margin (percent) ------------------------------------------------------------------------ Lucchini Mam[eacute] Forge S.p.A.; Lucchini Industries 1.41 S.r.l.; Lucchini RS S.p.A.................................. Cogne Acciai Speciali S.p.A................................. 0.00 Officine Meccaniche Roselli S.r.l........................... 1.41 ------------------------------------------------------------------------ Disclosure Normally, Commerce will disclose the calculations performed in connection with the final results to parties in this proceeding within five days of the date of public announcement or, if there is no public announcement, within five days of the date of publication of the final results in the Federal Register, in accordance with 19 CFR 351.224(b). However, because we have made no changes from the Preliminary Results, there are no new calculations to disclose. Assessment Rates Pursuant to section 751(a)(2)(C) of the Act and 19 CFR 351.212(b), Commerce shall determine, and CBP shall assess, antidumping duties on all appropriate entries of subject merchandise in accordance with the final results of this review. For any individually examined respondents whose weighted-average dumping margin is above de minimis, we calculated importer-specific ad valorem duty assessment rates based on the ratio of the total amount of antidumping duties calculated for the examined sales to the total entered value of the examined sales to that importer. If the respondent's weighted-average dumping margin is zero or de minimis within the meaning of 19 CFR 351.106(c)(1) or an importer-specific assessment rate is zero or de minimis, we will instruct CBP to liquidate the appropriate entries without regard to antidumping duties. For entries of subject merchandise during the POR produced by either of the individually examined respondents for which it did not know that the merchandise was destined to the United States, we will instruct CBP to liquidate those entries at the all-others rate (i.e., 7.33 percent) \6\ if there is no rate for the intermediate company(ies) involved in the transaction.\7\ --------------------------------------------------------------------------- \6\ See Order, 86 FR at 7530. \7\ See Antidumping and Countervailing Duty Proceedings: Assessment of Antidumping Duties, 68 FR 23954 (May 6, 2003). --------------------------------------------------------------------------- For Officine Meccaniche Roselli S.r.l., who was not selected for individual examination, we will instruct CBP to assess antidumping duties at a rate equal to the weighted-average dumping margin established in the final results of review. Commerce intends to issue assessment instructions to CBP no earlier than 35 days after the date of publication of the final results of this review in the Federal Register. If a timely summons is filed at the U.S. Court of International Trade, the assessment instructions will direct CBP not to liquidate relevant entries until the time for parties to file a request for a statutory injunction has expired (i.e., within 90 days of publication). Cash Deposit Requirements The following cash deposit requirements will be effective for all shipments of the subject merchandise entered, or withdrawn from warehouse, for consumption on or after the publication date of the final results of this administrative review, as provided by section 751(a)(2)(C) of the Act: (1) the cash deposit rate for the companies [[Page 66683]] listed above will be that established in the final results of this review, except if the rate is less than 0.50 percent and, therefore, de minimis within the meaning of 19 CFR 351.106(c)(1), in which case the cash deposit rate will be zero; (2) for previously investigated or reviewed companies not covered in this review, the cash deposit rate will continue to be the company-specific cash deposit rate published for the most recently completed segment of this proceeding in which the company participated; (3) if the exporter is not a firm covered in this review, a prior review, or the investigation of sales at LTFV, but the producer is, then the cash deposit rate will be the rate established for the most recently completed segment of this proceeding for the producer of the merchandise; and (4) the cash deposit rate for all other producers or exporters will continue to be 7.33 percent, the all- others rate established in the LTFV investigation.\8\ These cash deposit requirements, when imposed, shall remain in effect until further notice. --------------------------------------------------------------------------- \8\ See Order, 86 FR at 7530. --------------------------------------------------------------------------- Notification to Importers This notice serves as a final reminder to importers of their responsibility under 19 CFR 351.402(f)(2) to file a certificate regarding the reimbursement of antidumping and/or countervailing duties prior to liquidation of the relevant entries during this POR. Failure to comply with this requirement could result in Commerce's presumption that reimbursement of antidumping and/or countervailing duties has occurred and the subsequent assessment of double antidumping duties, and/or an increase in the amount of antidumping duties by the amount of countervailing duties. Notification Regarding Administrative Protective Order This notice also serves as a reminder to parties subject to administrative protective order (APO) of their responsibility concerning the return or destruction of proprietary information disclosed under APO in accordance with 19 CFR 351.305(a)(3), which continues to govern business proprietary information in this segment of the proceeding. Timely written notification of the return or destruction of APO materials or conversion to judicial protective order is hereby requested. Failure to comply with the regulations and the terms of an APO is a sanctionable violation. Notification to Interested Parties We are issuing and publishing this notice in accordance with sections 751(a)(1) and 777(i)(1) of the Act, and 19 CFR 351.221(b)(5). Dated: August 9, 2024. Ryan Majerus, Deputy Assistant Secretary for Policy and Negotiations, performing the non-exclusive functions and duties of the Assistant Secretary for Enforcement and Compliance. Appendix List of Topics Discussed in the Issues and Decision Memorandum I. Summary II. Background III. Scope of the Order IV. Rate for Non-Selected Respondent V. Changes from the Preliminary Results VI. Discussion of the Issues Comment 1: Lucchini's ``Channel 1'' Sales to the United States Comment 2: Reconciliation of LIND's Reported Costs Comment 3: Roselli's Status as a Non-Selected Respondent VII. Recommendation [FR Doc. 2024-18416 Filed 8-15-24; 8:45 am] BILLING CODE 3510-DS-P

usgpo

2024-10-08T13:26:26.526639

FR

FR-2024-08-16/2024-18411

Federal Register Volume 89 Issue 159 (August 16, 2024)

United States National Archives and Records Administration Office of the Federal Register

[Federal Register Volume 89, Number 159 (Friday, August 16, 2024)] [Notices] [Pages 66683-66686] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 2024-18411] ----------------------------------------------------------------------- DEPARTMENT OF COMMERCE International Trade Administration [A-583-831] Stainless Steel Sheet and Strip in Coils From Taiwan: Preliminary Results, Preliminary Determination of No Shipments, and Rescission, in Part, of Antidumping Duty Administrative Review; 2022-2023 AGENCY: Enforcement and Compliance, International Trade Administration, Department of Commerce. SUMMARY: The U.S. Department of Commerce (Commerce) preliminarily determines that sales of stainless steel sheet and strip in coils (SSSSC) from Taiwan were sold at less than normal value during the period of review (POR), July 1, 2022, through June 30, 2023. Additionally, Commerce is rescinding this review, in part, with respect to certain companies. Commerce also preliminarily determines that certain companies for which we initiated a review had no shipments during the POR. We invite interested parties to comment on these preliminary results. DATES: Applicable August 16, 2024. FOR FURTHER INFORMATION CONTACT: Genevieve Coen, AD/CVD Operations, Office II, Enforcement and Compliance, International Trade Administration, U.S. Department of Commerce, 1401 Constitution Avenue NW, Washington, DC 20230; telephone: (202) 482-3251. SUPPLEMENTARY INFORMATION: Background On July 27, 1999, Commerce published in the Federal Register the antidumping duty (AD) order on SSSSC from Taiwan.\1\ On July 7, 2023, Commerce published in the Federal Register a notice of opportunity to request an administrative review of the Order.\2\ On September 11, 2023, based on a timely request for review, in accordance with 19 CFR 351.221(c)(1)(i), we initiated an administrative review.\3\ This review covers 61 producers and/or exporters of the subject merchandise.\4\ Commerce selected Tung Mung Development Co Ltd. (Tung Mung) and Yieh Trading Corporation (Yieh Corporation) for individual examination.\5\ The producers and/or exporters not selected for individual examination are listed in the ``Preliminary Results of the Review'' section of this notice. --------------------------------------------------------------------------- \1\ See Notice of Antidumping Duty Order; Stainless Steel Sheet and Strip in Coils from United Kingdom, Taiwan, and South Korea, 64 FR 40555 (July 27, 1999) (Order). \2\ See Antidumping or Countervailing Duty Order, Finding, or Suspended Investigation; Opportunity to Request Administrative Review and Join Annual Service List, 88 FR 42693 (July 7, 2023). \3\ See Initiation of Antidumping and Countervailing Duty Administrative Reviews, 88 FR 62322 (September 11, 2023) (Initiation Notice). \4\ Id. \5\ See Memorandum, ``Respondent Selection,'' dated March 4, 2023. --------------------------------------------------------------------------- On July 22, 2024, Commerce tolled certain deadlines in this administrative proceeding by seven days.\6\ The deadline for the preliminary results is now August 6, 2024. For a complete description of the events that followed the initiation of this review, see the Preliminary Decision Memorandum.\7\ --------------------------------------------------------------------------- \6\ See Memorandum, ``Tolling of Deadlines for Antidumping and Countervailing Duty Proceedings,'' dated July 22, 2024. \7\ See Memorandum, ``Decision Memorandum for the Preliminary Results Administrative Review of the Antidumping Duty Order on Stainless Steel Sheet and Strip in Coils from Taiwan; 2022-2023,'' dated concurrently with, and hereby adopted by, this notice (Preliminary Decision Memorandum). --------------------------------------------------------------------------- Scope of the Order The merchandise subject to the Order is certain stainless steel sheet and strip in coils. For a complete description of the scope of the Order see Preliminary Decision Memorandum. Methodology Commerce is conducting this review in accordance with sections 751(a)(1)(B) and (2) of the Tariff Act of 1930, as amended (the Act). Pursuant to sections 776(a) and (b) of the Act, Commerce [[Page 66684]] preliminarily relied entirely upon facts otherwise available with adverse inferences for Yieh Corporation. For a complete description of the methodology underlying our conclusions, see the Preliminary Decision Memorandum. A list of the topics discussed in the Preliminary Decision Memorandum is attached as Appendix I to this notice. The Preliminary Decision Memorandum is a public document and is on file electronically via Enforcement and Compliance's Antidumping and Countervailing Duty Centralized Electronic Service System (ACCESS). ACCESS is available to registered users at https://access.trade.gov. In addition, a complete version of the Preliminary Decision Memorandum can be accessed directly at https://access.trade.gov/public/FRNoticesListLayout.aspx. Rescission of Administrative Review, in Part Pursuant to 19 CFR 351.213(d)(3), it is Commerce's practice to rescind an administrative review of an AD order when there are no suspended entries of subject merchandise during the POR.\8\ Normally, upon completion of an administrative review, the suspended entries are liquidated at the AD assessment rate calculated for the review period.\9\ Therefore, for an administrative review to be conducted, there must be a suspended entry that Commerce can instruct CBP to liquidate at the AD assessment rate calculated for the review period.\10\ --------------------------------------------------------------------------- \8\ See, e.g., Dioctyl Terephthalate from the Republic of Korea: Rescission of Antidumping Administrative Review; 2021-2022, 88 FR 24758 (April 24, 2023); see also Certain Carbon and Alloy Steel Cut- to-Length Plate from the Federal Republic of Germany: Recission of Antidumping Administrative Review; 2020-2021, 88 FR 4154 (January 24, 2023). \9\ See 19 CFR 351.212(b)(1). \10\ See 19 CFR 351.213(d)(3). --------------------------------------------------------------------------- There were no suspended entries of subject merchandise during the POR for the 52 companies listed in Appendix II.\11\ On December 11, 2023, Commerce notified all interested parties of its intent to rescind the administrative review in part with respect to these companies, because there were no suspended entries of subject merchandise during the POR and invited interested parties to comment.\12\ No interested party submitted comments in response to this notice. Accordingly, in the absence of suspended entries of subject merchandise during the POR for these companies for which this review was initiated, we are, hereby, rescinding this administrative review, in part, with respect to these 52 companies, in accordance with 19 CFR 351.213(d)(3). --------------------------------------------------------------------------- \11\ This list includes two companies, Yieh Mau Corporation (Yieh Mau) and Yieh Phui Enterprise Co., Ltd. (Yieh Phui) which submitted no shipment certifications but did not have suspended entries of subject merchandise during the POR. \12\ See Memorandum, ``Notice of Intent to Rescind Review, In Part,'' dated December 11, 2024. --------------------------------------------------------------------------- Pursuant to 19 CFR 351.213(d)(1), Commerce will rescind an administrative review, in whole or in part, if a party who requested the review withdraws the request within 90 days of the date of publication of the notice of initiation of the requested review. On December 11, 2023, North American Stainless and Outokumpu Stainless USA, LLC, (collectively, the domestic interested parties) timely withdrew their request for an administrative review with respect to Lien Kuo Metal Industries Co., Ltd. and S More Steel Materials Co., Ltd.\13\ Because no other parties requested a review of these two companies, we are rescinding the administrative review in part, with respect to these two companies, as noted in Appendix II. --------------------------------------------------------------------------- \13\ See Domestic Interested Parties' Letter, ``Domestic Interested Parties' Partial Withdrawal of Request for Administrative Review,'' dated December 11, 2023. --------------------------------------------------------------------------- Preliminary Determination of No Shipments Yieh United Steel Corporation (YUSCO) reported that it made no sales or exports of subject merchandise to the United States during the POR.\14\ Additionally, Tung Mung reported that it had no sales of subject merchandise to the United States during the POR.\15\ CBP data indicated that entries of subject merchandise were made under the CBP 10-digit case reference file numbers for YUSCO and Tung Mung. We requested additional information from CBP including entry summary documents for certain POR entries attributed to Tung Mung and YUSCO, respectively.\16\ Based on an analysis of information on the record, we preliminary determine that Tung Mung and YUSCO made no shipments of subject merchandise to the United States during the POR. Further, consistent with Commerce's practice, we find that it is not appropriate to rescind the review with respect to Tung Mung and YUSCO, but rather to complete the review and issue appropriate assessment instructions to CBP based on the final results of review.\17\ --------------------------------------------------------------------------- \14\ See YUSCO's Letter, ``No Shipment Certification,'' dated October 11, 2023. \15\ See Tung Mung's Letters, ``Aluminum Extrusions from China {sic{time} ,'' dated April 1, 2024; ``Stainless Steel Sheet and Strip in Coils (SSSSC) from Taiwan,'' dated April 17, 2024. \16\ See Memorandum, ``Release of U.S. Customs and Border Protection Information,'' dated May 3, 2024; see also Memorandum, ``Release of U.S. Customs and Border Protection Information,'' dated July 17, 2024. \17\ See Antidumping and Countervailing Duty Proceedings: Assessment of Antidumping Duties, 68 FR 23954 (May 6, 2003). --------------------------------------------------------------------------- Rate for Non-Selected Companies The Act and Commerce's regulations do not address the rate to be applied to companies not selected for individual examination when Commerce limits its examination in an administrative review pursuant to section 777A(c)(2) of the Act. Generally, Commerce looks to section 735(c)(5) of the Act, which provides instructions for calculating the all-others rate in a market economy investigation, for guidance when calculating the rate for companies that were not selected for individual examination in an administrative review. Under section 735(c)(5)(A) of the Act, the all-others rate is normally ``an amount equal to the weighted average of the estimated weighted-average dumping margins established for exporters and producers individually investigated, excluding any zero or de minimis margins, and any margins determined entirely {on the basis of facts available{time} .'' Section 735(c)(5)(B) further provides if the estimated weighted average dumping margins established for all exporters and producers individually investigated are zero, de minimis, or are determined entirely by application of facts available, Commerce may use any reasonable method to establish the estimated all-others rate for exporters and producers not individually investigated, including averaging the estimated weighted average dumping margins determined for the exporters and producers individually investigated. We preliminarily based the weighted-average dumping margins for Yieh Corporation, a mandatory respondent in this review, entirely on adverse facts available (AFA), as discussed in the Preliminary Decision Memorandum. Further, we preliminarily find that the mandatory respondent's total AFA dumping margin of 21.10 percent is reasonably reflective of the non-selected companies' potential dumping margins during the POR. Therefore, we preliminarily assigned the margin of 21.10 percent to the four companies not individually examined. For further discussion, see the Preliminary Decision Memorandum. [[Page 66685]] Preliminary Results of Review We preliminarily determine that the following estimated weighted- average dumping margins exist for the period July 1, 2022, through June 30, 2023: ------------------------------------------------------------------------ Estimated weighted- average Exporter or producer dumping margin (percent) ------------------------------------------------------------------------ Yieh Trading Corporation.................................... 21.10 Review-Specific Average Rate Applicable to the Following Companies: Chia Far Industrial Factory Co., Ltd...................... 21.10 Ta Chen Stainless Pipe Company Ltd........................ 21.10 Tang Eng Iron Works Company, Ltd.......................... 21.10 Yu Ting Industries Co., Ltd............................... 21.10 ------------------------------------------------------------------------ Disclosure Normally, Commerce discloses to interested parties the calculations performed in connection with a preliminary determination within five days of any public announcement or, if there is no public announcement, within five days of the date of publication of the notice of preliminary determination in the Federal Register, in accordance with 19 CFR 351.224(b). However, because Commerce preliminarily applied total AFA to the individually examined company, Yieh Corporation, in this administrative review, and the applied AFA rate is based on a rate calculated for a respondent in a prior segment of this proceeding, there are no calculations to disclose. Public Comment Interested parties may submit case briefs or other written comments to Commerce no later than 30 days after the date of publication of this notice.\18 \ Rebuttal briefs, limited to issues raised in the case briefs, may be filed no later than five days after the time limit for filing case briefs.\19\ Parties who submit case briefs or rebuttal briefs in this proceeding are encouraged to submit with each argument: (1) a statement of the issue; (2) a brief summary of the argument; and (3) a table of authorities.\20\ As provided under 19 CFR 351.309(c)(2) and (d)(2), in prior proceedings, we have encouraged interested parties to provide an executive summary of their brief that should be limited to five pages total, including footnotes. In this review, we instead request that interested parties provide, at the beginning of their briefs, a public executive summary for each issue raised in their briefs.\21\ Further, we request that interested parties limit their public executive summary of each issue to no more than 450 words, no including citations. We intend to use the public executive summaries as the basis of the comment summaries included in the issues and decision memorandum that will accompany the final results in this administrative review. We request that interested parties include footnotes for relevant citations in the public executive summary of each issue. Note that Commerce has amended certain of its requirements pertaining to the service of documents in 19 CFR 351.303(f).\22\ --------------------------------------------------------------------------- \18\ See 19 CFR 351.309(c). \19\ See 19 CFR 351.309(d); see also Administrative Protective Order, Service, and Other Procedures in Antidumping and Countervailing Duty Proceedings; Final Rule, 88 FR 67069 (September 29, 2023) (APO and Service Final Rule). \20\ See 19 CFR 351.309(c)(2) and (d)(2). \21\ We use the term ``issue'' here to describe an argument that Commerce would normally address in a comment of the Issues and Decision Memorandum. \22\ See APO and Service Final Rule. --------------------------------------------------------------------------- Pursuant to 19 CFR 351.310(c), interested parties who wish to request a hearing must submit a written request to the Acting Assistant Secretary for Enforcement and Compliance, U.S. Department of Commerce, filed electronically via ACCESS. Hearing requests should contain: (1) the party's name, address, and telephone number; (2) the number of participants; and (3) a list of issues to be discussed. Issues raised in the hearing will be limited to issues raised in the respective case briefs. If a request for a hearing is made, Commerce intends to hold the hearing at a date and time to be determined and will notify the parties through ACCESS.\23\ Parties should confirm the date, time, and location of the hearing two days before the scheduled date. --------------------------------------------------------------------------- \23\ See 19 CFR 351.310(d). --------------------------------------------------------------------------- All submissions, including case and rebuttal briefs, as well as hearing requests, should be filed using ACCESS. An electronically-filed document must be received successfully in its entirety by ACCESS by 5:00 p.m. Eastern Time on the established deadline. Assessment Rates Pursuant to section 751(a)(2)(A) of the Act, upon completion of the administrative review, Commerce shall determine, and CBP shall assess, antidumping duties on all appropriate entries covered by this review.\24\ --------------------------------------------------------------------------- \24\ See 19 CFR 351.212(b). --------------------------------------------------------------------------- For the companies that were not selected for individual review, we intend to assign an assessment rate based on the methodology described in the ``Rate for Non-Selected Companies'' section, above. The final results of this review shall be the basis for the assessment of antidumping duties on entries of merchandise covered by the final results of this review and for future deposits of estimated duties, where applicable.\25\ --------------------------------------------------------------------------- \25\ See section 751(a)(2)(C) of the Act. --------------------------------------------------------------------------- Commerce's ``automatic assessment'' practice will apply to entries of subject merchandise during the POR produced by companies included in these final results of review for which the reviewed companies did not know that the merchandise they sold to the intermediary (e.g., a reseller, trading company, or exporter) was destined for the United States. In such instances, we will instruct CBP to liquidate unreviewed entries at the all-others rate if there is no rate for the intermediate company(ies) involved in the transaction.\26\ --------------------------------------------------------------------------- \26\ For a full discussion of this practice, see Antidumping and Countervailing Duty Proceedings: Assessment of Antidumping Duties, 68 FR 23954 (May 6, 2003). --------------------------------------------------------------------------- Further, if we continue to find in the final results that Tung Mung and YUSCO had no shipments of subject merchandise during the POR, we will instruct CBP to liquidate any suspended entries that entered under their AD case number (i.e., at that exporter's rate) at the all-others rate if there is no rate for the intermediate company(ies) involved in the transaction. Commerce intends to issue assessment instructions to CBP no earlier than 35 days after the date of publication of the final results of this review in the Federal Register. If a timely summons is filed at the U.S. Court of International Trade, the assessment instructions will direct CBP not to liquidate relevant entries until the time for parties to file a request for a statutory injunction has expired (i.e., within 90 days of publication). Cash Deposit Requirements The following deposit requirements will be effective for all shipments of subject merchandise entered, or withdrawn from warehouse, for consumption on or after the publication date of the final results of this administrative review, as provided by section 751(a)(2)(C) of the Act: (1) the cash deposit rate for the exporters listed above will be that established in the final results of this review, except if the rate is less than 0.50 percent and, therefore, de minimis within the meaning of 19 CFR 351.106(c)(1), in which case the cash deposit rate will be zero; (2) for previously reviewed or [[Page 66686]] investigated companies not participating in this review, the cash deposit rate will continue to be the company-specific rate published for the most recently-completed segment of this proceeding in which the company was reviewed; (3) if the exporter is not a firm covered in this review or previous segment, but the manufacturer is, then the cash deposit rate will be the rate established for the most recently- completed segment for the manufacturer of the subject merchandise; and (4) the cash deposit rate for all other producers or exporters will continue to be 12.61 percent, the all-others rate established in the less-than-fair-value investigation.\27\ These deposit requirements, when imposed, shall remain in effect until further notice. --------------------------------------------------------------------------- \27\ See Order. --------------------------------------------------------------------------- Final Results of Review Commerce intends to issue the final results of this administrative review, including the results of its analysis raised in any written briefs, not later than 120 days after the publication date of this notice, pursuant to section 751(a)(3)(A) of the Act and 19 CFR 351.213(h)(1), unless otherwise extended.\28\ --------------------------------------------------------------------------- \28\ See section 751(a)(3)(A) of the Act. --------------------------------------------------------------------------- Notification to Importers This notice serves as a reminder to importers of their responsibility under 19 CFR 351.402(f) to file a certificate regarding the reimbursement of antidumping duties prior to liquidation of the relevant entries during this review period. Failure to comply with this requirement could result in Commerce's presumption that reimbursement of antidumping duties occurred and the subsequent assessment of double antidumping duties. Notification to Interested Parties We are issuing and publishing these results in accordance with sections 751(a)(1) and 777(i)(1) of the Act, and 19 CFR 351.221(b)(4). Dated: August 5, 2024. Scot Fullerton, Acting Deputy Assistant Secretary for Antidumping and Countervailing Duty Operations. Appendix I List of Topics Discussed in the Preliminary Decision Memorandum I. Summary II. Background III. Scope of the Order IV. Rescission of Review, In Part V. Preliminary Determination of No Shipments VI. Companies Not Selected for Individual Examination VII. Discussion of the Methodology: Application of Facts Available and Use of Adverse Inferences VIII. Recommendation Appendix II Companies Rescinded From Review Companies With No Suspended Entries 1. Broad International Resources Ltd. 2. Chain Chon Industrial Co., Ltd. 3. Cheng Feng Plastic Co., Ltd. 4. Chien Shing Stainless Co. 5. China Steel Corporation 6. Chung Hung Steel Corp 7. Chyang Dah Stainless Co., Ltd. 8. Dah Shi Metal Industrial Co., Ltd. 9. Da-Tsai Stainless Steel Co., Ltd. 10. DB Schenker (HK) Ltd. Taiwan Branch. 11. DHV Technical Information Co., Ltd. 12. Froch Enterprises Co., Ltd. 13. Gang Jou Enterprise Co., Ltd. 14. Genn Hann Stainless Steel Enterprise Co., Ltd. 15. Goang Jau Shing Enterprise Co., Ltd. 16. Goldioceans International Co., Ltd. 17. Gotosteel Ltd. 18. Grace Alloy Corp. 19. Hung Shuh Enterprises Co., Ltd. 20. Hwang Dah Steel Inc. 21. Jie Jin Stainless Steel Industry Co., Ltd. 22. JJSE Co., Ltd. 23. KNS Enterprise Co., Ltd. 24. Lancer Ent. Co., Ltd. 25. Lien Chy Laminated Metal Co., Ltd. 26. Lih Chan Steel Co., Ltd. 27. Lung An Stainless Steel Ind. Co., Ltd. 28. Master United Corp. 29. Maytun International Corp. 30. NKS Steel Ind. Ltd. 31. PFP Taiwan Co., Ltd. 32. Po Chwen Metal. 33. Prime Rocks Co., Ltd. 34. Shih Yuan Stainless Steel Enterprise Co., Ltd. 35. Silineal Enterprises Co., Ltd. 36. Stanch Stainless Steel Co., Ltd. 37. Tah Lee Special Steel Co., Ltd. 38. Taiwan Nippon Steel Stainless 39. Teng Yao Hardware Industrial Co., Ltd. 40. Tibest International Inc. 41. Ton Yi Industrial Corp 42. Tsai See Enterprise Co., Ltd. 43. Vasteel Enterprises Co., Ltd. 44. Vulcan Industrial Corporation 45. Wuu Jing Enterprise Co., Ltd. 46. Yc Inox Co., Ltd. 47. Yes Stainless International Co., Ltd. 48. Yieh Mau Corporation 49. Yieh Phui Enterprise Co., Ltd. 50. Yue Seng Industrial Co., Ltd. 51. Yuen Chang Stainless Steel Co., Ltd. 52. Yung Fa Steel & Iron Industry Co., Ltd. Companies for Which Review Requests Were Withdrawn 1. Lien Kuo Metal Industries Co., Ltd. 2. S More Steel Materials Co., Ltd. [FR Doc. 2024-18411 Filed 8-15-24; 8:45 am] BILLING CODE 3510-DS-P

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FR

FR-2024-08-16/2024-18396

Federal Register Volume 89 Issue 159 (August 16, 2024)

United States National Archives and Records Administration Office of the Federal Register

[Federal Register Volume 89, Number 159 (Friday, August 16, 2024)] [Notices] [Pages 66686-66687] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 2024-18396] ----------------------------------------------------------------------- DEPARTMENT OF COMMERCE National Oceanic and Atmospheric Administration Agency Information Collection Activities; Submission to the Office of Management and Budget (OMB) for Review and Approval; Comment Request; Socioeconomics of Coral Reef Conservation, U.S. Virgin Islands 2025 Survey The Department of Commerce will submit the following information collection request to the Office of Management and Budget (OMB) for review and clearance in accordance with the Paperwork Reduction Act of 1995, on or after the date of publication of this notice. We invite the general public and other Federal agencies to comment on proposed, and continuing information collections, which helps us assess the impact of our information collection requirements and minimize the public's reporting burden. This notice pertains to an individual survey under the approved collection of information for Socioeconomics of Coral Reef Conservation. Public comments were previously requested via the Federal Register on January 5, 2024 during a 60-day comment period and on April 15, 2024 during an additional 30-day comment period. This notice allows for an additional 30 days for public comments with respect to the U.S. Virgin Islands survey. Agency: National Oceanic & Atmospheric Administration (NOAA), Commerce. Title: Socioeconomics of Coral Reef Conservation, U.S. Virgin Islands 2025 Survey. OMB Control Number: 0648-0646. Form Number(s): None. Type of Request: Regular [This is a request for revision and extension.] Number of Respondents: 1,125. Average Hours per Response: 20 minutes (0.33 hours). Total Annual Burden Hours: 375 hours. Needs and Uses: This request is for a revision and extension to an approved collection of information, OMB Control Number 0648-0646, under the Paperwork Reduction Act, 44 U.S.C. 3501 et seq., and implementing regulations at 5 CFR part 1320. This previously-approved information collection assists NOAA in the administration of the National Coral Reef Monitoring Program (NCRMP), which was established by the NOAA Coral Reef Conservation Program (CRCP) under the authority of the Coral Reef Conservation Act of 2000, 16 [[Page 66687]] U.S.C. 6401 et seq. This act authorizes CRCP to, among other things, conserve and restore the condition of United States coral reef ecosystems and enhance public awareness, understanding, and appreciation of coral reefs and coral reef ecosystems and their ecological and socioeconomic value. In accordance with its mission goals, NOAA developed a survey to track relevant information regarding each jurisdiction's population, social and economic structure, the benefits of coral reefs and related habitats, the impacts of society on coral reefs, and the impacts of coral management on communities. The survey is repeated in each jurisdiction every five to seven years in order to provide longitudinal data and information for managers to effectively conserve coral reefs for current and future generations. The purpose of this information collection is to obtain human dimensions information from residents in the U.S. Virgin Islands. Specifically, NOAA is seeking information on the behaviors and activities related to coral reefs, as well as information on perceptions of coral reef conditions and attitudes toward specific reef conservation activities. The survey has a core set of questions that are asked across all jurisdictions to allow for information to be tracked over time and across jurisdictions. To account for geographical, cultural and linguistic differences between jurisdictions, the survey questions include items that are specific to the local context and developed based on jurisdictional partner feedback. We intend to use the information collected through this instrument for research purposes, as well as for measuring and improving the results of our reef protection programs. Because many of our efforts to protect reefs rely on education and changing attitudes toward reef protection, the information collected will allow CRCP to ensure that programs are designed appropriately at the start, future program evaluation efforts are as successful as possible, and outreach efforts are targeting the intended recipients with useful information. Affected Public: Individuals or households. Frequency: Every 5-7 years. Respondent's Obligation: Voluntary. Legal Authority: Coral Reef Conservation Act of 2000. This information collection request may be viewed at www.reginfo.gov. Follow the instructions to view the Department of Commerce collections currently under review by OMB. Written comments and recommendations for the proposed information collection should be submitted within 30 days of the publication of this notice on the following website www.reginfo.gov/public/do/PRAMain. Find this particular information collection by selecting ``Currently under 30-day Review--Open for Public Comments'' or by using the search function and entering either the title of the collection or the OMB Control Number 0648-0646. Sheleen Dumas, Department PRA Clearance Officer, Office of the Under Secretary for Economic Affairs, Commerce Department. [FR Doc. 2024-18396 Filed 8-15-24; 8:45 am] BILLING CODE 3510-08-P

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