issue-1996-06-27•Federal Register final rules — 1996-06-27
Federal Register final rules — 1996-06-27
issue-1996-06-27Federal Register final rules — 1996-06-27Regulation
Published Federal Register documents, not public-inspection drafts. The GPO XML/text rendition is a research aid; the linked complete official PDF retains the printed layout and all graphics. Graphics are retained in that PDF and are not independently reproduced in this text rendition. Publication does not establish that every provision remains legally in force.
FR Doc. 96-16490 Special Local Regulation: Fireworks Displays Within the First Coast Guard District
[Federal Register Volume 61, Number 125 (Thursday, June 27, 1996)]
[Rules and Regulations]
[Pages 33370-33372]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-16490]
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[[Page 33371]]
DEPARTMENT OF TRANSPORTATION
Coast Guard
33 CFR Part 100
[CGD01-96-057]
RIN 2115-AE46
Special Local Regulation: Fireworks Displays Within the First
Coast Guard District
AGENCY: Coast Guard, DOT.
ACTION: Notice of implementation.
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SUMMARY: This document provides notice of the dates and time of the
special local regulations contained in 33 CFR 100.114, ``Fireworks
Displays within the First Coast Guard District.'' All vessels will be
restricted from entering the area of navigable water within a 500 yard
radius of the fireworks launch platform for each of the events listed
in the table below. Implementation of these regulations is necessary to
control vessel traffic within the regulated area to ensure to safety of
spectators.
EFFECTIVE DATE: The regulations in 33 CFR 100.114 are effective from
one hour before the scheduled start of the event until thirty minutes
after the last firework is exploded for each event listed in the table
below. The events are listed alphabetically with their corresponding
number listed in Table 1 of the special local regulation, 33 CFR
100.114.
FOR FURTHER INFORMATION CONTACT:
Lieutenant Commander James B. Donovan, Office of Search and Rescue,
First Coast Guard District, (617) 223-8278.
Discussion of Notice
This notice implements the special local regulations in 33 CFR
100.114 (61 FR 32329; June 24, 1996). All vessels are prohibited from
entering a 500 yard radius of navigable water surrounding the launch
platform used in each fireworks display listed below.
Table 1--Fireworks Displays
3. Bangor Fireworks
Date: July 4, 1996
Time: 9:00 p.m. to 12:00 a.m.
Location: Bangor/Brewer waterfront, ME
4. Bar Harbor Fireworks
Date: July 4, 1996
Time: 9:00 p.m. to 12:00 a.m.
Location: Bar Harbor/Bar Island, ME
6. Belfast Fireworks
Date: July 20, 1996
Time: 9:00 p.m. to 11:00 p.m.
Location: Belfast Bay, ME
7. Boston Harborfest Fireworks
Date: July 3, 1996
Time: 9:30 p.m. to 11:00 p.m.
Location: Boston Inner Harbor, Boston, MA
8. Boys Harbor Fireworks Extravaganza, East Hampton, NY
Date: July 13, 1996
Time: 9:00 p.m. to 11:00 p.m.
Location:Three Mile Harbor, East Hampton, NY,
Lat: 41 deg.01'05'' N Long: 072 deg.11'55'' W (NAD 1983)
11. Bristol 4th of July Fireworks
Date: July 4, 1996
Time: 9:30 p.m. to 10:00 p.m.
Location: Bristol Harbor, Bristol, RI
13. City of New Bedford Fireworks
Date: July 7, 1996
Time: 9:00 p.m. to 10:00 p.m.
Location: New Bedford Harbor, New Bedford, MA
14. City of Norwalk Fireworks
Date: July 3, 1996
Time: 9:15 p.m. to 10:15 p.m.
Location: Calf Pasture Beach, Long Island Sound, Norwalk, CT
Lat: 41 deg.05'10'' N Long: 073 deg.23'20'' W (NAD 1983)
16. Devon Yacht Club Fireworks
Date: July 6, 1996
Rain Date: July 7, 1996
Time: 9:00 p.m. to 9:30 p.m.
Location: Devon Yacht Club, Amagansett, NY,
Lat: 40 deg.59'30'' N Long: 072 deg.06'00'' W (NAD 1983)
17. Edgartown Fireworks
Date: July 5, 1996
Time: 9:00 p.m. to 9:30 p.m.
Location: Edgartown Harbor, Edgartown, MA
18. Fairfield Aerial Fireworks
Date: July 6, 1996
Time: 9:00 p.m. to 10:30 p.m.
Location: Jennings Beach,Long Island Sound, Fairfield, CT
19. Fall River Celebrates America Fireworks
Date: August 10, 1996
Time: 9:15 p.m.to 10:00 p.m.
Location: Taunton River, vicinity of buoy #17, Fall River, MA
20. Falmouth Fireworks
Date: July 4, 1996
Time: 9:00 p.m. to 10:00 p.m.
Location: Falmouth Harbor, .25 nm east of buoy #16, Falmouth, MA
21. Fireworks on the Navesink
Date: July 3, 1996
Time: 9:00 p.m.to 10:00 p.m.
Location: Navesink River, 4 nm WSW Oceanic Bridge, Red Bank, NJ
26. Hartford Riverfront Regatta
Date: July 6, 1996
Time: 9:30 p.m. to 10:00 p.m.
Location: Connecticut River, Hartford, CT
Lat: 41 deg.45'24.6'' N Long: 072 deg.39'31.8'' W (NAD 1983)
27. Hempstead Fireworks
Date: July 7, 1996
Time: 9:00 p.m. to 10:00 p.m.
Location: Point Lookout, Hempstead, NY
28. Jones Beach State Park Fireworks
Date: July 4, 1996
Time: 9:30 p.m. to 10:00 p.m.
Location: Fishing Pier, Jones Beach State Park, Wantagh, NY
29. Koch Industries Fireworks
Date: September 2, 1996
Rain Date: September 3, 1996
Time: 9:15 p.m. to 10:00 p.m.
Location: Shinnecock Bay, South Hampton, NY, Lat: 40 deg.51'5'' N
Long: 072 deg.17'00'' W (NAD 1983)
30. Marion Fireworks
Date: July 4, 1996
Time: 8:00 p.m. to 10:00 p.m.
Location: Silver Shell Beach, Marion, MA
31. Middletown Fireworks
Date: July 4, 1996
Rain Date: July 5/6, 1996
Time: 9:15 p.m. to 10:00 p.m.
Location: Connecuticut River, Middletown, CT,
Lat: 41 deg.33'21.6'' N Long: 073 deg.38'18'' W (NAD 1983)
33. Norwich American Wharf Fireworks
Date: July 5, 1996
Rain Date: July 12, 1996
Time: 9:00 p.m. to 10:00 p.m.
Location: Norwich Harbor, Norwich, CT, Lat: 41 deg.30'16'' N
Long: 072 deg.05'45'' W (NAD 1983)
34. Norwich Harbor Day Fireworks
Date: July 5, 1996
Rain Date: July 12, 1996
Time: 9:00 p.m. to 10:00 p.m.
Location: Norwich Harbor, off American arf Marina, Norwich, Ct, Lat:
41 deg.31'22'' N Long: 072 deg.04'50'' W (NAD 1983)
35. Oaks Bluff Fireworks
Date: August 23, 1996
Time: 8:30 p.m. to 10:00 p.m.
Location: Oaks Bluff Beach, Oaks Bluff, MA
36. Old Lyme Fireworks, Old Lyme, CT
Date: July 6, 1996
Rain Date: July 7, 1996
Time: 9:00 p.m. to 10:00 p.m.
Location: Sound View Beach, Long Island Sound, Old Lyme, CT,
Lat: 41 deg.16'46'' N Long: 072 deg.16'25'' W (NAD 1983)
37. Onset Fireworks
Date: July 6, 1996
Time: 9:15 p.m. to 10:00 p.m.
Location: Onset Harbor, Onset, MA
38. Oyster Harbor Club Fourth of July Festival
Date: July 4, 1996
Time: 6:00 p.m. to 10:00 p.m.
Location: Tim's Cove, North Bay, Osterville, RI
39. Salute to Summer
Date: August 23, 1996
Time: 9:00 p.m. to 9:30 p.m.
Location: Narragansett Bay, East Passage, off Coasters
Harbor Island, Newport, RI
41. Staten Island's 4th of July
Date: July 4, 1996
Time: 8:30 p.m. to 9:30 p.m.
Location: Raritan Bay, vicinity of federal anchorages 44 and
45, Ward Point Bend, NY/NJ
42. Stamford Fireworks
Date: July 5, 1996
Rain Date: July 6, 1996
Time: 9:00 p.m. to 11:00 p.m.
Location: Westcott Cove, Stamford, CT, Lat: 41 deg.02'09'' N
Long: 073 deg.30'57'' W (NAD 1983)
[[Page 33372]]
43. Stratford Fireworks
Date: July 3, 1996
Time: 9:00 p.m. to 10:00 p.m.
Location: Short Beach, Stratford, CT, Lat: 41 deg.09'30'' N
Long: 073 deg.06'2'' W (NAD 1983)
44. Subfest Fireworks
Date: July 4, 1996
Rain Date: July 5, 1996
Time: 9:30 p.m. to 9:50 p.m.
Location: Thames River, Groton, CT, Lat: 41 deg.23'13'' N Long:
072 deg.05'15'' W (NAD 1983)
45. Summer Music Fireworks
Date: July 20, Aug 1, and Aug 24, 1996
Time: 10:00 p.m. to 11:00 p.m.
Location: Niantic River, Harkness Park, Waterford, CT, Lat:
41 deg.18'00'' N Long: 072 deg.06'40'' W (NAD 1983)
46. Taste of Italy
Date: September 7, 1996
Rain Date: September 8, 1996
Time: 8:00 p.m. to 9:00 p.m.
Location: Norwich Harbor, off Norwich Marina, Norwich, CT,
Lat: 41 deg.31'20'' N Long: 072 deg.04'83'' W (NAD 1983)
47. Thames River Fireworks
Date: July 13, 1996
Time: 9:30 p.m. to 10:30 p.m.
Location: Thames River, off Electric Boat, Groton, CT, Lat:
41 deg.21'00'' N Long: 072 deg.05'20'' W (NAD 1983)
48. Tiverton Waterfront Festival
Date: June 30, 1996
Time: 10:00 p.m. to 10:30 p.m.
Location: Grinnel's Beach, Sakonnet River, Tiverton, RI
49. Town of Babylon Fireworks
Date: July 4, 1996
Rain Date: July 5, 1996
Time: 9:00 p.m. to 9:30 p.m.
Location: Nezeras Island, Babylon, NY, Lat: 40 deg.40'30'' N
Long: 073 deg.19'30'' W (NAD 1983)
50. Town of Barnstable Fireworks
Date: July 4, 1996
Time: 9:00 p.m. to 10:00 p.m.
Location: Dunbar Point/Kalmus Beach, Barnstable, MA
52. Walsh's Fireworks
Date: July 4, 1996
Time: 9:00 p.m. to 11:00 p.m.
Location: Union River Bay, ME
53. Wellfleet Fireworks
Date: July 6, 1996
Time: 8:00 p.m. to 11:00 p.m.
Location: Indian Neck Jetty, Wellfleet, MA
54. Westport P.A.L. Fireworks, Westport, CT
Date: July 3, 1996
Rain Date: July 5, 1996
Time: 10:00 p.m. to 10:30 p.m.
Location: Compo Beach, Westport, CT
55. Weymouth 4th of July Fireworks
Date: July 3, 1996
Time: 8:00 p.m. to 11:00 p.m.
Location: Weymouth Fore River, Weymouth, MA
56. Yampol Family Fireworks
Date: July 6, 1996
Time: 8:00 p.m. to 11:00 p.m.
Location: Barons Cove, Sag Harbor, NY
Dated: June 21, 1996.
J.L. Linnon,
Rear Admiral, U.S. Coast Guard Commander, First Coast Guard District.
[FR Doc. 96-16490 Filed 6-26-96; 8:45 am]
BILLING CODE 4910-14-M
Complete official Federal Register PDF
FR Doc. 96-16435 Sea Turtle Conservation; Restrictions Applicable to Shrimp Trawling Activities; Additional Turtle Excluder Device Requirements Within Certain Fishery Statistical Zones
[Federal Register Volume 61, Number 125 (Thursday, June 27, 1996)]
[Rules and Regulations]
[Pages 33377-33382]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-16435]
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DEPARTMENT OF COMMERCE
National Oceanic and Atmospheric Administration
50 CFR Parts 217 and 227
[Docket No.950427119-6179-07; I.D. 061496A]
RIN 0648-AH98
Sea Turtle Conservation; Restrictions Applicable to Shrimp
Trawling Activities; Additional Turtle Excluder Device Requirements
Within Certain Fishery Statistical Zones
AGENCY: National Marine Fisheries Service (NMFS), National Oceanic and
Atmospheric Administration (NOAA), Commerce.
ACTION: Temporary additional restrictions on fishing by shrimp trawlers
in the nearshore waters off Georgia to protect sea turtles; request for
comments.
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SUMMARY: NMFS is imposing, for a 30-day period, additional restrictions
on shrimp trawlers fishing in the Atlantic Area in inshore waters and
offshore waters out to 10 nautical miles (nm)(18.5 km) from the COLREGS
line, between the Georgia-Florida border and the Georgia-South Carolina
border. This area includes inshore and nearshore waters in NMFS fishery
statistical Zone 31, a small part of the southern portion of
statistical Zone 32, and approximately 18 miles (29.0 km) of the
northern portion of statistical Zone 30.
The restrictions include prohibitions on the use of soft turtle
excluder devices (TEDs) and try nets with a headrope length greater
than 12 ft (3.6 m) or a footrope length greater than 15 ft (4.5 m),
unless the try nets are equipped with approved TEDs other than soft
TEDs. This action is necessary to ensure protection for sea turtles and
to prevent the continuation of high levels of mortality and strandings
of threatened and endangered sea turtles.
DATES: This action is effective June 24, 1996 through 11:59 p.m. (local
time) July 24, 1996.
Comments on this action must be submitted by July 24, 1996.
ADDRESSES: Comments on this action and requests for a copy of the
environmental assessment (EA) or biological opinion (BO) prepared for
this action should be addressed to the Chief, Endangered Species
Division, Office of Protected Resources, NMFS, 1315 East-West Highway,
Silver Spring, MD 20910.
FOR FURTHER INFORMATION CONTACT: Charles A. Oravetz, 813-570-5312, or
Therese A. Conant, 301-713-1401.
SUPPLEMENTARY INFORMATION:
Background
All sea turtles that occur in U.S. waters are listed as either
endangered or threatened under the Endangered Species Act of 1973
(ESA). The Kemp's ridley (Lepidochelys kempii), leatherback
(Dermochelys coriacea), and hawksbill (Eretmochelys imbricata) are
listed as endangered. Loggerhead (Caretta caretta) and green (Chelonia
mydas) turtles are listed as threatened, except for breeding
populations of green turtles in Florida and on the Pacific coast of
Mexico, which are listed as endangered.
The incidental take and mortality of sea turtles as a result of
shrimp trawling activities have been documented in the Gulf of Mexico
and along the Atlantic seaboard. Under the ESA and its implementing
regulations, taking sea turtles is prohibited, with exceptions set
forth at 50 CFR 227.72. The incidental taking of turtles during shrimp
trawling in the Gulf and Atlantic Areas (as defined in 50 CFR 217.12)
is excepted from the taking prohibition, if the sea turtle conservation
measures specified in the sea turtle conservation regulations (50 CFR
part 227, subpart D) are employed. The regulations require most shrimp
trawlers operating in the Gulf and Atlantic Areas to have a NMFS-
approved TED installed in each net rigged for fishing, year round.
The conservation regulations provide a mechanism to implement
further restrictions of fishing activities, if necessary to avoid
unauthorized takings of sea turtles that may be likely to jeopardize
the continued existence of listed species or that would violate the
terms and conditions of an incidental take statement (ITS) or
incidental take permit. Upon a determination that incidental takings of
sea turtles during fishing activities are not authorized, additional
restrictions may be imposed to conserve listed species and to avoid
unauthorized takings. Restrictions may be effective for a period of up
to 30 days and may be renewed for additional periods of up to 30 days
each (50 CFR 227.72(e)(6)).
Under NMFS' regulatory authority to implement further restrictions
to fishing activities in order to prevent
[[Page 33378]]
unauthorized takings, temporary additional restrictions were imposed on
shrimp fishing several times during 1995. Sea turtle stranding events
and related shrimping activities in 1995 are discussed in detail in the
temporary requirements implemented in nearshore waters along two
sections of the Texas and Louisiana coast on April 30, 1995 (60 FR
21741, May 3, 1995), along the Georgia coast on June 21, 1995 (60 FR
32121, June 20, 1995), along the entire Texas coast and the western
portion of Louisiana pursuant to a court order on August 3, 1995 (60 FR
44780, August 29, 1995), and along Georgia and the southern portion of
South Carolina on August 11, 1995 (60 FR 42809, August 17, 1995).
Descriptions of these rules, restrictions, and reasons therefor, are
provided in the preamble to the rules and are not repeated here.
On September 13, 1995 (60 FR 47544), NMFS published an Advance
Notice of Proposed Rulemaking (ANPR), which announced that it was
considering proposing regulations that would identify special sea
turtle management areas in the southeastern Atlantic and Gulf of Mexico
and impose additional conservation measures to protect sea turtles in
those areas. After reviewing over 900 comments, including two industry
proposals, NMFS published a proposed rule (61 FR 18102, April 24, 1996)
that would impose permanent measures to more effectively protect sea
turtles from incidental capture and mortality in the shrimp trawl
fishery. Measures contained in the proposed rule to strengthen the sea
turtle conservation measures are: Removing the approval of the use of
all soft turtle excluder devices (TEDs) effective December 31, 1996;
requiring by December 31, 1996, the use of NMFS-approved hard TEDs in
try nets with a headrope length greater than 12 ft (3.6 m) or a
footrope length greater than 15 ft (4.6 m); establishing Shrimp Fishery
Sea Turtle Conservation Areas (SFSTCAs) in the northwestern Gulf of
Mexico consisting of the offshore waters out to 10 nm(18.5 km) along
the coasts of Louisiana and Texas from the Mississippi River South Pass
(west of 89 deg.08.5' W. long.) to the U.S.-Mexican border, and in the
Atlantic consisting of the inshore waters and offshore waters out to 10
nm (18.5 km) along the coasts of Georgia and South Carolina from the
Georgia-Florida border to the North Carolina-South Carolina border;
and, within the SFSTCAs, removing the approval of the use of all soft
TEDs, imposing the new try net restrictions, and prohibiting the use of
bottom-opening hard TEDs, effective 30 days after publication of the
final rule. The comment period on the proposed rule originally extended
through June 10, 1996, during which time 10 public hearings were held
throughout the southeastern United States. In response to several
requests for an extension of the comment period, NMFS has reopened the
comment period on the proposed rule through July 15 to provide further
opportunity to submit comments and review additional analyses,
including the preliminary report scheduled to be submitted by June 28,
1996, by the sea turtle expert working group. The formation of this
group of scientists to analyze existing databases to determine sea
turtle population abundance, population trends, and sustainable take
levels was a requirement of the November 14, 1994, biological opinion.
Recent Events
Reports of increased turtle strandings in Georgia began during May
of 1996. By the end of the month, turtle strandings in Georgia had
risen to the highest levels for the month of May since 1987, when TEDs
were not required. In May 1996, 60 turtles were reported stranded in
Georgia. The level of reported turtle strandings in Georgia had been
averaging only 28 turtles during the month of May since the
implementation of TED requirements in 1988. Not only did the total of
60 stranded turtles in May 1996 more than double the previous average,
but 10 of the stranded animals were the highly endangered Kemp's ridley
sea turtle. High strandings have continued in Georgia in the beginning
of June, with a total of 15 strandings reported between June 1 and June
7.
Georgia state waters generally open to shrimping on June 1 each
year. Prior to the opening of state waters, shrimping only occurs in
the Federal waters beyond 3 nm (5.6 km) from shore. Early season shrimp
resource surveys conducted by the Georgia Department of Natural
Resources in 1996 revealed extremely low shrimp abundance in the sounds
north of St. Simon's Sound. The harsh winter was likely responsible for
the poor shrimp abundances in the north. The poor shrimp recruitment
rates have caused the opening of Georgia waters to be delayed until
June 24, to provide additional time for shrimp to mature. Shrimp
fishing effort off of the southern portion of Georgia has been high,
even before the opening of state waters, and effort has been
concentrated off of a few particular areas. Vessels from North and
South Carolina have also been fishing off of Georgia due to poor shrimp
abundances in their more northerly home states. Trawlers are
concentrated just outside state waters, generally in a narrow strip 3
to 4 nm (5.6 km to 7.4 km) from shore.
The overall level of fishing effort off Georgia has been steadily
increasing since late April, in concert with rising stranding levels. A
series of aerial surveys for natural resource purposes has documented
the increasing number of boats fishing in Federal waters off of Georgia
with the following boat counts: On April 4, 0 trawlers; on April 11, 0
trawlers; on April 23, 2 trawlers; on April 29, 13 trawlers; on May 7,
63 trawlers; On May 14, 99 trawlers; on May 21, 81 trawlers; on May 30,
84 trawlers; and on June 4, 158 trawlers. Most of the vessels seen were
concentrated off the openings of Georgia's southerly sounds: Cumberland
Sound, St. Simons Sound, and St. Andrew Sound. The turtle strandings in
May have also been concentrated on Georgia's southerly islands:
Cumberland, Little Cumberland, Jekyll, and St. Simons Islands. Onshore
winds have created favorable conditions for turtles to strand, even if
they may have died outside of state waters, and the strandings have
been distributed downwind of the shrimping concentrations.
NMFS is concerned that the opening of Georgia state waters to
shrimping on June 24 will result in very high levels of fishing effort
and pose a threat to sea turtles. Trawling along the beaches will
commence around the time of peak nesting for female loggerheads in
Georgia. The pulse of fishing effort immediately following the opening
will likely be very heavy. Not only Georgia-based fishers, but many
Florida, North Carolina, and South Carolina fishers will work Georgia
waters. The numbers of North and South Carolina boats operating in
Georgia this year may be greater than usual, because the shrimp
abundance will likely be better in Georgia than in their home state
waters. NMFS has held discussions with shrimp industry and managers in
Georgia and South Carolina regarding coordinating the opening dates of
each state's waters to shrimping, which would prevent successive pulses
of high effort in each state. Due to this year's shrimp stock status,
however, a coordinated date was not agreed upon. South Carolina state
waters opened to shrimping on June 6, 1996, and approximately 125 boats
were observed working in state and Federal waters off South Carolina on
June 7. This relatively low effort level is indicative of unfavorable
shrimping conditions in South Carolina and the probability for a large
shift of effort to Georgia when state waters open there.
[[Page 33379]]
Analysis of Other Factors
Examination of the strandings in Georgia does not indicate any
significant sources of mortality other than shrimp trawling. The
carcasses have primarily been coming ashore directly downwind of areas
in which shrimping effort has been concentrated. NMFS and state
personnel will continue to investigate factors other than shrimping
that may contribute to sea turtle mortality in Georgia, including other
fisheries and environmental factors.
Comments on the Proposed Rule
NMFS has been receiving comments on the proposed rule to revise the
sea turtle conservation requirements and has also held 10 public
hearings on the proposed rule. NMFS will make a complete response to
all of the comments received on the proposed rule when the comment
period closes and before taking any final action on the proposed rule.
Many of the comments received to date, and in particular the statements
presented at the public hearing in Brunswick, GA on May 24, 1996, are
germane to the recent events, the measures being taken in this action,
and the area and the shrimpers being affected by this action.
Therefore, NMFS believes it is useful to address briefly some of those
comments at this time as they relate to the present action. The
discussion that follows provides NMFS' preliminary views and responses
to the comments, and will be more fully addressed in the final decision
regarding the proposed rule.
The proposed reduction of the size of try nets that are exempt from
TED requirement drew numerous comments, ranging from total support to
total opposition. Most fishers who commented on this proposal indicated
that requiring TEDs in large try nets with 20 ft (6.1 m) headrope
lengths would not be inappropriate, but that the 12 ft (3.7 m) headrope
length and 15 ft (4.6 m) footrope length of the proposed rule was too
small. Many of these fishers indicated that they preferred to use try
nets of 15 or 16 ft (4.6 or 4.9 m) headrope lengths and that reducing
the size of TED-exempt try nets, but still allowing the use of 15 or 16
ft (4.6 or 4.9 m) try nets without TEDs, would be acceptable to them.
Objections to requirements for TEDs in try nets smaller than 15 ft (4.6
m) headrope length included alleged difficulty in handling the try net
with a TED installed, the need to use a large try net in order to
sample for white shrimp, and impossibility of installing TEDs in try
nets. Many of the comments revealed the misconception that the proposed
rule would completely prohibit the use of try nets greater than 12 ft
(3.7 m) headrope length or 15 ft (4.6 m) footrope length. Under the
proposed rule, fishers would be able to use any try net larger than 12
ft (3.7 m) headrope length or 15 ft (4.6 m) footrope length so long as
a TED was installed. Fishers who felt that a large try net--20 ft (6.1
m) headrope length, for example--was necessary for sampling white
shrimp could still use that try net, but a TED would have to be
installed to exclude any turtles captured by the try net.
NMFS gear experts have examined TED installations in various sizes
of try nets. Successful installations of NMFS-approved TEDs, were made
in try nets with headrope lengths of 20, 15, 12, and 10 ft (6.1, 4.6,
3.7, and 3.0 m). The effectiveness of the TEDs did not appear to be
reduced by installation in the try nets, when a small sample of
juvenile turtles were introduced into the TED-equipped try nets. All of
the try nets tested were bib trawls, a net type that opens high off the
bottom and is preferred for sampling white shrimp. The TED-equipped try
nets exhibited no problems with gear deployment or retrieval at any of
the tested try net sizes. The only observed problem with TED
installation in the try nets was a slight loss of net spread in the
smaller net sizes due to the restriction of net stretching at the
throat of the net where the TED is attached. The observed loss of net
spread could be compensated with the installation of slightly larger
trawl doors on the try net.
As discussed in the proposed rule, NMFS has conducted an additional
study to clarify the relationship between try net headrope length and
the rate of sea turtle captures. In March 1996, NMFS examined the sea
turtle capture rates of three sizes of try net (12, 15, and 20 ft (3.7,
4.6, 6.1 m) headrope length) in Canaveral Channel, FL, an area of high
sea turtle abundance. In 100 simultaneous, short-duration tows of the
three try nets, 35 turtles were caught: 17 in the 20 ft (6.1 m) net, 10
in the 15 ft (4.6 m) net, and 8 in the 12 ft (3.7 m) net. Thus, the
number of turtles captured increased as net size increased. The catch
per unit effort (CPUE), which standardizes catch rates by 100 ft (30.5
m) of headrope length hours fished for the three net sizes were 1.70,
1.33, and 1.33 for the 20 ft, 15 ft, and 12 ft (6.1, 4.6, 3.7 m)
headrope length try nets, respectively. These adjusted CPUEs were not
significantly different and indicate that all try nets capture turtles
at approximately the same rate, proportional to headrope length.
In summary, TEDs can be effectively installed in large and small
try nets, with very minor or no operational changes, and they should be
effective in excluding captured turtles. The TEDs are compatible with
large try nets and bib-type try nets that can be used for sampling
white shrimp. NMFS believes that allowing 15 or 16 ft (4.6 or 4.9 m)
headrope length try nets to remain exempt from TED requirements, as
proposed by some commenters, would result in sea turtles being provided
with little additional protection, as many shrimpers would continue to
use the larger try nets and to capture turtles at the same rate without
the possibility of escape through TEDs. The proposed exemption of try
nets with a 12 ft (3.7 m) headrope length and 15 ft (4.6 m) footrope
length or less would provide greater sea turtle protection, in that
fishers will be able to either use TEDs in larger try nets or use try
nets of a smaller size, that are readily commercially available and
that will reduce the rate of turtle capture due solely to its size.
Smaller size try nets also have only a small tail bag to accumulate
shrimp catch. Thus, there would be little incentive to use a small try
net longer than necessary to monitor shrimp catch rates.
The proposal to remove the approval of soft TEDs also drew numerous
comments, again ranging from opposition to support. Fishers and other
commenters from the Southeast Atlantic area generally concurred that
soft TEDs were not as effective as hard TEDs in excluding turtles. Many
commenters from this area believe that banning soft TEDs is a
reasonable measure to attempt to reduce sea turtle mortality and
strandings. Some commenters from the Gulf of Mexico shrimp fishery
objected to the removal of the approval of all soft TEDs, however.
While agreeing that the Morrison, Taylor, and Parrish soft TEDs may not
be effective and should be disapproved, many commenters stated that the
evidence regarding the performance of the Andrews soft TED was not
sufficient to justify disapproving it, and that the Andrews TED had
many positive qualities justifying its continued use. In response to
these comments, NMFS has undertaken additional studies, including
observations of Andrews TED performance versus hard TED performance on
the commercial shrimping grounds and is in the process of examining the
turtle exclusion abilities of commercially available Andrews soft TEDs.
NMFS will make a complete response, including the results of the
additional studies regarding the
[[Page 33380]]
Andrews soft TED, once all studies are completed and before taking any
final action on the proposed rule. The Andrews TED is believed to be
used only rarely in the Atlantic shrimping grounds, where the Morrison
is the preferred soft TED.
The measure of the proposed rule that was most vigorously and
frequently opposed by commenting fishers and other shrimp industry
representatives in the Southeastern Atlantic Area was the prohibition
on the use of bottom-opening hard TEDs in the proposed Atlantic SFSTCA.
One conservation organization--Earth Island Institute--and the state
departments of natural resources in both Georgia and South Carolina
also objected to the proposed bottom-opening TED ban. Commenters stated
that bottom-opening hard TEDs are necessary to exclude the large
amounts of bottom debris that occur in their fishing areas. They also
stated that top-opening hard TEDs are more likely than bottom-openers
to twist, which would lose shrimp and entangle turtles and also that
top-opening TEDs were likely to bog down and cause the entire TED and
tailbag to be torn off. Some commenters stated that the longer escape
times of turtles in bottom-opening hard TEDs versus top-opening hard
TEDs and prolonged submergences resulting from repeated captures were
not sufficiently convincing reasons for restricting the use of bottom-
opening hard TEDs. Many commenters asked that restrictions on the use
of bottom-opening TEDs not be implemented before other sea turtle
protective measures are implemented and evaluated for their
effectiveness.
NMFS has repeatedly tried to verify the reported problems of
twisting, clogging, and torn off top-opening TEDs but has generally
been unable to do so. The preference of Louisiana shrimpers for top-
opening hard TEDs in areas with extremely trashy bottoms does not
support a systematic operational problem with top-opening hard TEDs.
Nonetheless, NMFS recognizes that fishers in the Atlantic have
predominantly used bottom-opening hard TEDs, were among the first to
begin widespread use of TEDs, and have experience and a strong
preference for this gear type. NMFS remains concerned that bottom-
opening hard TEDs that are not properly floated or weighed down with
debris will prevent turtle escape because the escape opening is blocked
by the sea floor, and that bottom-opening hard TEDs are less efficient
than top-opening hard TEDs in releasing turtles, with turtles taking
approximately twice as long to escape, even under ideal conditions. In
controlled testing of TEDs, however, properly floated bottom-opening
hard TEDs have always shown excellent success at sea turtle exclusion,
albeit at a somewhat slower rate than for top-opening hard TEDs. NMFS
is currently conducting additional testing on the relative
effectiveness and advantages of top- and bottom-opening hard TEDs.
Pending the results of this testing, NMFS believes that capture in try
nets and ineffective soft TEDs poses a greater threat to sea turtles
than bottom-opening hard TEDs, due to a lesser likelihood of escape
from soft TEDs and the longer forced submergences in try nets. For this
reason, NMFS is not including restrictions on the use of bottom-opening
TEDs in this temporary rule, although it is a component of the proposed
rule. However, continued elevated strandings following the
implementation of the conservation measures in this action may result
in increased gear restrictions or area closures.
Some Georgia fishers offered a proposal that they felt would
address the problem of the adverse effects of heavy shrimping effort.
These fishers advocated a nighttime closure of Federal waters to
shrimping, at least during the early part of the shrimping season. The
recommended nighttime closure would be compatible with Georgia state
laws that prohibit trawling between 8 p.m. and 5 a.m. eastern standard
time. Enforcement of closures in state waters would be greatly enhanced
by cooperating Federal action and a coordinated state-Federal closure
may also be a boon to local, primarily daytime, shrimpers by reducing
the pressure to fish around the clock. Traditionally, white shrimp are
primarily caught during the day, while brown shrimp are primarily
pursued at night. Unfortunately commenters have not provided NMFS with
any data that would allow an assessment of the possible impacts of a
nighttime closure in Federal waters on shrimp catch, catch allocation,
or effort reduction and the possible benefits to sea turtles. If NMFS
can determine that the benefits to sea turtles from nighttime closures
of Federal waters off Georgia would be significant and would be
compatible with other resource management goals, nighttime closures may
be pursued through a future rulemaking action. NMFS requests the public
to submit any relevant information on the impacts of nighttime closures
of Federal waters off of Georgia.
Restrictions on Fishing by Shrimp Trawlers
Pursuant to 50 CFR 227.72(e)(6), the exemption for incidental
taking of sea turtles in 50 CFR 227.72(e)(1) does not authorize
incidental takings during fishing activities if the takings would
violate the restrictions, terms or conditions of an ITS or incidental
take permit, or may be likely to jeopardize the continued existence of
a species listed under the ESA. The June 11, 1996 biological opinion
includes a condition under the ITS that specifies that NMFS must
respond to stranding events the reach unacceptable levels based on
historical events. If investigations suggest that management action is
necessary in areas of high shrimping effort, temporary additional
restrictions will be required pursuant to 50 CFR 227.72(e)(6).
Historically, Georgia fishers have exhibited a high degree of
cooperation with existing regulations. Therefore, it does not appear
that the recent high level of strandings along the Georgia coast are a
result of non-compliance with existing sea turtle conservation
measures. Based on the foregoing analysis of relevant factors and the
biological opinion prepared in conjunction with this action pursuant to
Section 7 of the ESA, the AA has determined that continued takings of
sea turtles by shrimp fishing off Georgia are unauthorized, are likely
to continue if no action is taken, and would violate the terms and
conditions of the incidental take statement of the June 11, 1996
biological opinion and therefore takes this action.
The measures that NMFS is implementing include:
1. Prohibition of the use of soft TEDs; and
2. Prohibition of the use of try nets, with a headrope length
greater than 12 ft (3.7 m) or a footrope length greater than 15 ft (4.6
m), unless the try nets are equipped with NMFS-approved hard or special
hard TEDs.
These restrictions are being applied in inshore waters and offshore
waters seaward to 10 nm (18.5 km) along the Georgia coast, between the
Georgia-Florida border and the Georgia-South Carolina border. This area
includes inshore and nearshore waters in NMFS fishery statistical Zone
31, a small part of the southern portion of statistical Zone 32, and
approximately 18 miles (29.0 km) of the northern portion of statistical
Zone 30. Under 50 CFR 217.12, offshore waters are defined as marine and
tidal waters seaward of the 72 COLREGS demarcation line (International
Regulations for Preventing Collisions at Sea, 1972), as
[[Page 33381]]
depicted or noted on nautical charts published by NOAA (Coast Charts,
1:80,000 scale) and as described in 33 CFR part 80; inshore waters are
those marine and tidal waters shoreward of the COLREGS line. For the
purpose of this rule only, notwithstanding any other definitions that
may exist, the Georgia-South Carolina border in the Atlantic Ocean is
defined to be the line segment connecting the points 32 deg.02'30.6''
N. lat., 080 deg.51'03.0'' W. long. (the seaward tip of the jetty
protecting the north side of the mouth of the Savannah River) and
31 deg.58'46.8'' N. lat., 080 deg.38'21.0'' W. long.(a point exactly 10
nm (approximately 18.5 km) seaward of the nearest land at Tybee Island
and located on the line extending in a direction of 109 deg. from true
north from the previous point), and the Georgia-Florida border in the
Atlantic Ocean is defined as the line along 30 deg.42'45.6'' N. lat.
Pursuant to 50 CFR 227.72(e)(4)(iii) soft TEDs have been certified
and approved for use. However, the use of soft TEDs by the shrimping
fleet has been associated with elevated sea turtle strandings. Because
of the inherent properties of synthetic webbing, soft TEDs are
difficult to install properly and once installed, their actual in-water
configuration, shape, and performance cannot be determined even by
professional net makers. Furthermore, changes made by a trawler captain
to the fishing configuration of a net to match fishing conditions--such
as changing door sizes or angles, adding flotation to the headrope, or
adjusting center bridle tension on tongue or bib trawls--and the
accumulation of catch and debris in the trawl will all affect the shape
of the soft TED and thus its effectiveness at releasing turtles. A more
complete explanation for the prohibition of soft TEDs is provided in
the temporary rulemakings implemented by NMFS last year and in the
proposed rule, and is not repeated here.
Pursuant to 50 CFR 227.72(e)(2)(ii)(B)(1), try nets up to 20 ft
(6.1 m) headrope length have been exempted from the TED requirements,
because they are only intended for use in brief sampling tows not
likely to result in turtle mortality. Turtles are, however, caught in
try nets, and either through repeated captures or long tows, try nets
can contribute to the mortality of sea turtles. Takes of sea turtles in
try nets, including two mortalities, have been documented by NMFS, and
anecdotal accounts suggest multiple sea turtle captures in try nets are
occurring in Georgia waters. The original assumption by NMFS that try
nets are only towed for short periods of time now appears to be
invalid. In addition to numerous anecdotal reports from shrimpers to
this effect, NMFS gear specialists have observed shrimpers regularly
towing try nets for periods well over an hour. Since long try net tows
defeat the purpose of assessing catch rates, the apparent intention of
these long tows is to use the try nets as auxiliary nets to increase
the overall shrimp capture, using a TED-less net. Such use of try nets
may be seriously contributing to turtle capture, mortality, and
strandings.
Requirements
This action is authorized by 50 CFR 227.72(e)(6). The definitions
in 50 CFR 217.12 are applicable to this action, as well as all relevant
provisions in 50 CFR parts 217 and 227. For example, Sec. 227.71(b)(3)
provides that it is unlawful to fish for or possess fish or wildlife
contrary to a restriction specified or issued under Sec. 227.72(e)(3)
or (e)(6).
NMFS hereby notifies owners and operators of shrimp trawlers (as
defined in 50 CFR 217.12) that for a 30-day period, starting on June
24, 1996 through 11:59 p.m. (local time) July 24, 1996, fishing by
shrimp trawlers in inshore waters and offshore waters seaward to 10 nm
(18.5 km) from the COLREGS line along the coast of Georgia, between the
Georgia-South Carolina border and the Georgia-Florida border, is
prohibited unless the shrimp trawler is in compliance with all
applicable provisions in 50 CFR 227.72(e) and the following
prohibitions:
1. The use of soft TEDs described in 50 CFR 227.72(e)(4)(iii) is
prohibited.
2. The use of try nets with a headrope length greater than 12 ft
(3.7 m) or a footrope length greater than 15 ft (4.6 m) is prohibited
unless a NMFS-approved hard TED or special hard TED is installed when
the try nets are rigged for fishing. Try nets with a headrope length 12
ft (3.7 m) or less and a footrope length 15 ft (4.6 m) or less remain
exempt from the requirement to have a TED installed in accordance with
50 CFR 227.72(e)(2)(ii)(B)(1). For the purpose of this rule only,
notwithstanding any other definitions that may exist, the Georgia-South
Carolina border in the Atlantic Ocean is defined to be the line segment
connecting the points 32 deg.02'30.6'' N. lat., 080 deg.51'03.0'' W.
long. (the seaward tip of the jetty protecting the north side of the
mouth of the Savannah River) and 31 deg.58'46.8'' N. lat.,
080 deg.38'21.0'' W. long.(a point exactly 10 nm (approximately 18.5
km) seaward of the nearest land at Tybee Island and located on the line
extending in a direction of 109 deg. from true north from the previous
point), and the Georgia-Florida border in the Atlantic Ocean is defined
as the line along 30 deg.42'45.6'' N. lat.
All provisions in 50 CFR 227.72(e), including, but not limited to
50 CFR 227.72(e)(2)(ii)(B)(1) (use of try nets), and 50 CFR
227.72(e)(4)(iii) (Soft TEDs), that are inconsistent with these
prohibitions are hereby suspended for the duration of this action.
NMFS hereby notifies owners and operators of shrimp trawlers in the
area subject to restrictions that they are required to carry a NMFS-
approved observer aboard such vessel(s) if directed to do so by the
Regional Director, upon written notification sent to either the address
specified for the vessel registration for documentation purposes, or
otherwise served on the owner or operator of the vessel. Owners and
operators and their crew must comply with the terms and conditions
specified in such written notification.
Additional Conservation Measures
The AA may withdraw or modify a determination concerning
unauthorized takings or any restriction on shrimping activities if the
AA determines that such action is warranted. Notification of any
additional sea turtle conservation measures, including any extension of
this 30-day action, will be published in the Federal Register pursuant
to 50 CFR 227.72(e)(6).
NMFS will continue to monitor sea turtle strandings to gauge the
effectiveness of these conservation measures.
Classification
This action has been determined to be not significant for purposes
of E.O. 12866.
Because neither section 553 of the Administrative Procedure Act
(APA), nor any other law requires that general notice of proposed
rulemaking be published for this action, under section 603(b) of the
Regulatory Flexibility Act, an initial Regulatory Flexibility Analysis
is not required.
Pursuant to section 553(b)(B) of the APA, the AA finds that there
is good cause to waive prior notice and opportunity to comment on this
rule. It is impracticable and contrary to the public interest to
provide prior notice and opportunity for comment, because unusually
high levels of turtle strandings have been reported in shrimp fishery
statistical Zone 30 (northern portion) and 31, and continue to occur as
shrimping continues. Any delay in this action will likely result in
[[Page 33382]]
additional fatal takings of listed sea turtles. In addition, good cause
exists because NMFS has addressed comments or similar provisions in the
proposed rule in the context of this temporary action.
Pursuant to section 553(d) of the APA, the AA finds there is good
cause to waive the 30-day delay in effective date. In addition to the
immediate need to protect listed sea turtles, these restrictions are
expected to impose only a minor burden on shrimp fishers. The
predominant TED designs in use in the affected area are single-grid
hard TEDs, which will not require any modifications. Trawlers equipped
with only soft TEDs may be required to move out of the affected area,
or to equip their nets with hard TEDs. However, these trawlers are
expected to be few in number given that many may have already equipped
their nets with hard TEDs in response to the previous rules requiring
the use of such TEDs in waters off Georgia in 1995. For those trawlers
who have yet to equip their nets with hard TEDs, single-grid hard TEDs
are available for $75.00 to $350.00 and take only several hours to
install. While some fishers may not elect to equip their larger try
nets with hard grid TEDs, and thus, would be unable to monitor their
catch rate during long tows, they could monitor their catch rate with
smaller try nets not required to have an NMFS-approved hard TED
installed. The burden of this action on shrimp fishers is expected to
be minimized by the fact that fishers in most of the affected areas
have previously modified or acquired gear to comply with earlier
restrictions that were identical or more stringent than the present
action.
The AA prepared an EA for the final rule (57 FR 57348, December 4,
1992) requiring TED use in shrimp trawls and establishing the 30-day
notice procedures. An EA has been prepared for this action. Copies of
the EA are available (see ADDRESSES).
Dated: June 21, 1996.
Charles Karnella,
Acting Director, Office of Management Information, National Marine
Fisheries Service.
[FR Doc. 96-16435 Filed 6-24-96; 4:13 pm]
BILLING CODE 3510-22-F
Complete official Federal Register PDF
FR Doc. 96-16379 Fisheries of the Exclusive Economic Zone off Alaska; Allow Processing of Non-Individual Fishing Quota Species
[Federal Register Volume 61, Number 125 (Thursday, June 27, 1996)]
[Rules and Regulations]
[Pages 33382-33386]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-16379]
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DEPARTMENT OF COMMERCE
50 CFR Part 679
[Docket No. 960321089-6175-02; I.D. 031396B]
RIN 0648-AG41
Fisheries of the Exclusive Economic Zone off Alaska; Allow
Processing of Non-Individual Fishing Quota Species
AGENCY: National Marine Fisheries Service (NMFS), National Oceanic and
Atmospheric Administration (NOAA), Commerce.
[[Page 33383]]
ACTION: Final rule.
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SUMMARY: NMFS issues a final rule that implements Amendment 33 to the
Fishery Management Plan for the Groundfish Fishery of the Bering Sea
and Aleutian Islands Area and Amendment 37 to the Fishery Management
Plan for Groundfish of the Gulf of Alaska (GOA). These amendments and
this final implementing rule are necessary to allow fuller use of the
fishery resources in and off of Alaska. This action is intended to
allow persons authorized to harvest individual fishing quota (IFQ)
sablefish to process species other than IFQ halibut and IFQ sablefish.
EFFECTIVE DATE: July 26, 1996.
ADDRESSES: Copies of the Environmental Assessment/Regulatory Impact
Review (EA/RIR) for this action may be obtained from the Fisheries
Management Division, Alaska Region, NMFS, 709 W. 9th Street, Room 453,
Juneau, AK 99801, or P.O. Box 21668, Juneau, AK 99802, Attention: Lori
J. Gravel.
FOR FURTHER INFORMATION CONTACT: John Lepore, 907-586-7228.
SUPPLEMENTARY INFORMATION: As part of the President's Regulatory
Reform Initiative, NMFS issued a final rule (61 FR 31228, June 19,
1996) removing six parts in title 50 of the CFR (50 CFR parts 671,
672, 673, 675, 676, and 677) and consolidated the regulations
contained therein into one new part (50 CFR part 679). This
consolidated regulation provides the public with a single reference
source for the Federal fisheries regulations specific to the EEZ
off Alaska. The restructuring of the six parts results in one set
of regulations that is more concise, clearer, and easier to use
than the six separate parts. NMFS also identified duplicative and
obsolete provisions and removed those measures from the six parts.
No substantive changes were made to the regulations by the
consolidation or removal of duplicative and obsolete provisions.
The consolidated final rule will become effective July 1, 1996.
Amendments 33 and 37 allow persons authorized to harvest IFQ
sablefish, based on an annual allocation of IFQ assigned to vessel
categories B or C, to process species other than IFQ halibut and IFQ
sablefish. Additional information on this action may be found in the
preamble to the proposed rule.
Several changes to the regulations implementing the IFQ program are
necessary to implement Amendments 33 and 37. First, the definitions of
``freezer vessel'' and ``catcher vessel'' (as ``catcher vessel''
relates to the IFQ program) are removed.
Second, references to the removed definitions are replaced with
alternative language. Finally, a provision is added to allow the
processing of fish other than IFQ halibut and IFQ sablefish on board
vessels on which persons are harvesting IFQ sablefish based on an
annual allocation of IFQ assigned to vessel categories B and C. A
detailed explanation of these changes follows.
Removal of the ``Freezer Vessel'' and ``Catcher Vessel'' Definitions
After evaluating the effects that Amendments 33 and 37 would have
on the IFQ Program, NMFS determined that the definitions of ``freezer
vessel'' and ``catcher vessel'' at Sec. 679.2 (previously found in part
676, subparts B and C) were unnecessary and proposed their removal.
NMFS proposed to replace these definitions with the definition of
``processing,'' which can be found at Sec. 679.2 (previously found at
Secs. 672.2 and 675.2).
The definition of processing is important to the revised
specifications of vessel categories at Sec. 679.40(a)(5)(ii)
(previously found in Sec. 676.20(a)(2)). Vessel category A, which
currently is freezer vessels of any length, is changed to be vessels of
any length authorized to process IFQ species. Quota share (QS) and the
resulting IFQ is designated by IFQ species; therefore, a person can
only process the IFQ species designated on the IFQ permit (i.e., IFQ
halibut or IFQ sablefish). The authorization to process IFQ species is
an inherent characteristic of QS assigned to vessel category A. This
determination was made at initial issuance based on criteria found at
Sec. 679.40(a)(5) (previously found in Sec. 676.20(c)). The other
vessel categories found at Sec. 679.40(a)(5)(ii) (previously found in
Sec. 676.20(a)(2)) (i.e., vessel categories B, C, and D) also do not
refer to the removed definitions.
Other Changes to the Regulations Due to the Removal of the ``Freezer
Vessel'' and ``Catcher Vessel'' Definitions
As explained above, Sec. 679.40(a)(5)(ii) (previously found at
Sec. 676.20(a)(2)) no longer refers to freezer vessels or catcher
vessels, but rather describes vessel categories in terms of: (1) Vessel
length; (2) specific species designations (i.e., vessel category D for
IFQ halibut only); and (3) authorization to process IFQ species.
Similarly, all other references in part 679, subpart D (previously
found in part 676 subparts B and C), to freezer vessels or catcher
vessels are removed.
For example, Sec. 679.7(f)(13) (previously found in Sec. 676.16(o))
prohibits persons from having processed and unprocessed IFQ species on
board a vessel during the same trip. This replaces the current
prohibition on operating as a catcher vessel and a freezer vessel
during the same trip. This change, along with the addition of
Sec. 679.7(f)(16), allows a person authorized to harvest IFQ sablefish,
based on an annual allocation of IFQ assigned to vessel categories B or
C, to process fish other than IFQ halibut or IFQ sablefish, a behavior
consistent with the intent of the North Pacific Fishery Management
Council (Council) in proposing Amendments 33 and 37. Other sections
from which references to freezer vessels and catcher vessels are
removed include: Sec. 679.41(g)(1) through (4) and (h) (previously
found in Sec. 676.21(f)(1) through (4), and (g)); and Sec. 679.42(i),
(i)(1), and (i)(2), (j), (j)(1), and (j)(4) (previously found in
Sec. 676.22(i), (i)(1), (i)(2), (j), (j)(1), and (j)(4)).
Processing Fish Other Than IFQ Halibut or IFQ Sablefish
A new paragraph, Sec. 679.42(k), is added to allow processing of
fish other than IFQ halibut or IFQ sablefish on board the harvesting
vessel by persons authorized to harvest IFQ sablefish based on an
annual allocation of IFQ assigned to vessel categories B or C. Without
this change, fish other than IFQ halibut or IFQ sablefish could not be
processed on board the harvesting vessel if, along with that fish, IFQ
sablefish were harvested by a person authorized to harvest IFQ
sablefish based on an annual allocation of IFQ assigned to vessel
categories B and C. Prohibiting the processing of fish other than IFQ
halibut or IFQ sablefish on category B or C vessels resulted in the
unanticipated waste of fish caught incidentally with IFQ sablefish,
because sablefish can be preserved longer on ice than some
incidentally-caught fish (e.g., Pacific cod). The longer ``shelf life''
of fresh sablefish allowed a typical sablefish longline trip to exceed
the time period in which fish other than IFQ halibut or IFQ sablefish
maintain sufficient quality to market as fresh fish. This often
resulted in the discard of some or all incidentally caught fish. Also,
persons are required to retain Pacific cod and rockfish caught
incidentally to IFQ sablefish. This forces persons authorized to
harvest IFQ sablefish, based on an annual allocation of IFQ assigned to
vessel categories B and C, to keep Pacific cod and rockfish caught
incidentally with IFQ sablefish, even though the value of the Pacific
cod and rockfish is diminished during a long sablefish trip. Amendments
33 and 37 will eliminate the lost revenue of
[[Page 33384]]
discarding, or landing poor quality, fish other than IFQ halibut and
IFQ sablefish due to the repealed prohibition on processing fish other
than IFQ halibut and IFQ sablefish.
Section Sec. 679.42(i)(2) (previously found in Sec. 676.22(i)(3))
was unnecessary with the addition of Sec. 679.42(k) and the removal of
the definitions of ``freezer vessel'' and ``catcher vessel'' (as the
term ``catcher vessel'' applies to the IFQ program). Furthermore, some
of the provisions in Sec. 679.42(i)(2) (previously found in
Sec. 676.22(i)(3)) were contrary to the purposes of Amendments 33 and
37. For example, a person could not harvest IFQ sablefish with IFQ
assigned to vessel categories B or C if ``frozen or otherwise processed
fish products'' were on the vessel, regardless of whether the frozen or
otherwise processed fish were IFQ halibut or IFQ sablefish, or fish
other than those species. The intent of this action is to allow persons
to harvest IFQ sablefish with IFQ assigned to vessel categories B or C
even if frozen or otherwise processed fish other than IFQ halibut or
IFQ sablefish are on board the harvesting vessel.
The authorization to process fish other than IFQ halibut or IFQ
sablefish does not extend to persons authorized to harvest IFQ halibut
based on an annual allocation of IFQ assigned to vessel categories B,
C, or D. The Council declined to extend the IFQ sablefish exemption to
IFQ halibut due to the socio-economic differences between the
fisheries. The halibut fishery characteristically is prosecuted by
local vessels that do not have on-board processing capabilities.
Amendments 33 and 37 are not intended to change this characteristic of
the halibut fishery. Also, not extending the authorization to process
fish other than IFQ sablefish and IFQ halibut to persons authorized to
harvest IFQ halibut based on an annual allocation of IFQ assigned to
vessel categories B, C, or D is consistent with one of the objectives
of the IFQ program (i.e., to maintain a diverse fleet where all
segments continue to exist along with the social structures associated
with those segments). The prohibition on processing on board the
harvesting vessel by persons harvesting IFQ species with IFQ assigned
to specific vessel categories is one method of accomplishing that
objective. The Council expressed concern that, if the owners of large,
industrial-type vessels that process their catch could harvest IFQ
species with IFQ assigned to vessel categories B, C, or D while
processed fish are on board, these owners would acquire the majority of
the ``catcher vessel'' QS. The result would be an increase in
harvesting of IFQ species on large, industrial-type vessels that
process their catch and a decrease in harvesting of IFQ species on
small vessels that do not have processing capabilities. These small
vessels, which do not have processing capabilities, are more likely to
make landings at local coastal communities. The Council determined that
phasing out small vessels that do not have processing capabilities and
that would not be able to compete with the large, industrial-type
vessels that process their catch for available IFQ would have
detrimental socio-economic impacts on coastal communities. This was
especially true for halibut IFQ. Many coastal communities rely on the
delivery of halibut harvested by persons operating small vessels that
do not have processing capabilities as a source of revenue.
Response to Comments
A comment was received from the Office of the Chief Counsel for
Advocacy, Small Business Administration, regarding the analysis for the
Regulatory Flexibility Act (RFA) that is contained in the EA/RIR. The
comment concluded that the agency's language in section 4.1, Economic
Impact on Small Entities, was ambiguous because the language stated
that the action would positively affect sablefish catcher vessel QS
holders. The Office of the Chief Counsel concluded that this ambiguity
made it difficult for a reader of the analysis to determine whether the
action would have a significant impact on a substantial number of small
entities.
NMFS's determination was that this action will not have a
significant impact on a substantial number of small entities. Actions
can have an adverse economic impact, a positive economic impact, or a
neutral economic impact on small entities. In this case, the action
will have a positive impact. However, the positive economic effects of
this action mentioned in section 4.1 will not have a significant impact
on a substantial number of small entities.
Also, a comment was received from the U.S. Coast Guard stating that
all enforcement and safety concerns with these amendments were
addressed by the proposed rule.
Changes to the Proposed Rule
The proposed rule to implement Amendments 33 and 37 was published
in the Federal Register on April 2, 1996 (61 FR 14547) as a proposed
amendment to 50 CFR part 676 (Limited Access Management of Federal
Fisheries In and Off of Alaska). Effective July 1, part 676 will be
integrated with part 679. The final rule implementing Amendments 33 and
37 will become effective July 26, 1996; and consequently after 50 CFR
part 676 has been integrated with 50 CFR part 679. Accordingly, the
final rule to implement Amendments 33 and 37 has been revised to make
the appropriate amendments to 50 CFR part 679 instead of 50 CFR part
676.
A new paragraph (f)(16) was added to Sec. 679.7 to specifically
prohibit the processing of fish on board a vessel using IFQ assigned to
vessel categories B, C, or D, except as provided in new Sec. 679.42(k).
New section 679.42(k) authorizes limited processing of species other
than IFQ sablefish and IFQ halibut. The addition of paragraph (f)(16)
will eliminate any confusion caused by removing Sec. 676.42(i)(2)
(previously found in Sec. 676.22(i)(3)).
A cite to Sec. 676.22(i)(3) has been eliminated from proposed
Sec. 676.22(a) (now Sec. 679.42(a)) because Sec. 676.22(i)(3) itself is
eliminated by the new rule.
Classification
An EA/RIR was prepared for this rule that describes the management
background, the purpose and need for action, the management action
alternatives, and the social impacts of the alternatives. The EA/RIR
estimates the total number of small entities affected by this action,
and analyzes the economic impact on those small entities. Based on the
analysis, it was determined that this rule does not have a significant
economic impact on a substantial number of small entities. Copies of
the EA/RIR can be obtained from NMFS (see ADDRESSES).
This rule has been determined to be not significant for purposes of
E.O. 12866.
List of Subjects in 50 CFR Part 679
Fisheries, Reporting and recordkeeping requirements.
Dated: June 20, 1996.
Henry R. Beasley,
Acting Assistant Administrator for Fisheries, National Marine Fisheries
Service.
For the reasons set out in the preamble, 50 CFR part 679 is amended
as follows:
PART 679--FISHERIES OF THE EXCLUSIVE ECONOMIC ZONE OFF ALASKA
1. The authority citation for 50 CFR part 679 continues to read as
follows:
Authority: 16 U.S.C. 773 et seq. and 1801 et seq.
2. In Sec. 679.2, the definition of ``Freezer vessel'' is removed,
and paragraph (3) under the definition of
[[Page 33385]]
``Catcher vessel'' is removed and paragraph (3) is reserved.
3. In Sec. 679.7, paragraph (f)(13) is revised and a new paragraph
(f)(16) is added to read as follows:
Sec. 679.7 General prohibitions.
* * * * *
(13) Possess processed and unprocessed IFQ species on board a
vessel during the same trip except when fishing exclusively with IFQ
derived from vessel category A QS;
* * * * *
(16) Process fish on board a vessel on which a person aboard has
unused IFQ derived from QS issued to vessel categories B, C, or D,
except as provided in Sec. 679.42(k) of this part;
* * * * *
4. In Sec. 679.40, paragraph (a)(5)(ii) is revised to read as
follows:
Sec. 679.40 Sablefish and halibut QS.
* * * * *
(a) * * *
(5) * * *
(ii) Vessel categories. Quota share assigned to vessel categories
include:
(A) Category A quota share, which authorizes an IFQ cardholder to
catch and process IFQ species on a vessel of any length.
(B) Category B quota share, which authorizes an IFQ cardholder to
catch IFQ species on a vessel greater than 60 ft (18.3 m) in length
overall.
(C) Category C quota share, which authorizes an IFQ cardholder to
catch IFQ sablefish on a vessel less than or equal to 60 ft (18.3 m) in
length overall, or which authorizes an IFQ cardholder to catch IFQ
halibut on a vessel greater than 35 ft (10.7 m) but less than or equal
to 60 ft (18.3 m) in length overall; and
(D) Category D quota share, which authorizes an IFQ cardholder to
catch IFQ halibut on a vessel less than or equal to 35 ft (10.7 m) in
length overall.
* * * * *
5. In Sec. 679.41, paragraphs (g) and (h) are revised to read as
follows:
Sec. 679.41 Transfer of QS and IFQ.
* * * * *
(g) Transfer restrictions, catcher vessel QS. (1) Except as
provided in paragraph (f) or paragraph (g)(2) of this section, only
persons who are IFQ crew members, or that were initially assigned QS
assigned to vessel categories B, C, or D, and meet the other
requirements in this section may receive QS assigned to vessel
categories B, C, or D.
(2) Except as provided in paragraph (g)(3) of this section, only
persons who are IFQ crew members may receive QS assigned to vessel
categories B, C, or D in IFQ regulatory area 2C for halibut or in the
IFQ regulatory area east of 140 deg. W. long. for sablefish.
(3) Individuals who were initially issued QS assigned to vessel
categories B, C, or D may transfer that QS to a corporation that is
solely owned by the same individual. Such transfers of QS assigned to
vessel categories B, C, or D in IFQ regulatory area 2C for halibut or
in the IFQ regulatory area east of 140 deg. W. long. for sablefish will
be governed by the use provisions of Sec. 679.42(i); the use provisions
pertaining to corporations at Sec. 679.42(j) shall not apply.
(4) The Regional Director will not approve an Application for
Transfer of QS assigned to vessel categories B, C, or D subject to a
lease or any other condition of repossession or resale by the person
transferring QS, except as provided in paragraph (h) of this section,
or by court order, operation of law, or as part of a security
agreement. The Regional Director may request a copy of the sales
contract or other terms and conditions of transfer between two persons
as supplementary information to the transfer application.
(h) Leasing QS (applicable until January 2, 1998). A person may not
use IFQ resulting from a QS lease for harvesting halibut or sablefish
until an Application for Transfer complying with the requirements of
paragraph (b) of this section and the lease agreement are approved by
the Regional Director. A person may lease no more than 10 percent of
that person's total QS assigned to vessel categories B, C, or D for any
IFQ species in any IFQ regulatory area to one or more persons for any
fishing year. After approving the Application for Transfer, the
Regional Director shall change any IFQ accounts affected by an approved
QS lease and issue all necessary IFQ permits. QS leases must comply
with all transfer requirements specified in this section. All leases
will expire on December 31 of the calendar year for which they are
approved.
* * * * *
6. In Sec. 679.42, paragraphs (a), (i), and (j) introductory text,
(j)(1), and (j)(4), are revised and paragraph (k) is added to read as
follows:
Sec. 679.42 Limitations on use of QS and IFQ.
(a) IFQ regulatory area. The QS or IFQ specified for one IFQ
regulatory area and vessel category must not be used in a different IFQ
regulatory area or vessel category except as provided in
Sec. 679.41(i)(1).
* * * * *
(i) Use of IFQ resulting from QS assigned to vessel categories B,
C, or D by individuals. In addition to the requirements of paragraph
(c) of this section, IFQ cards issued for IFQ resulting from QS
assigned to vessel categories B, C, or D must be used only by the
individual who holds the QS from which the associated IFQ is derived,
except as provided in paragraph (i)(1) of this section.
(1) An individual who receives an initial allocation of QS assigned
to vessel categories B, C, or D does not have to be on board and sign
IFQ landing reports if that individual owns the vessel on which IFQ
sablefish or halibut are harvested, and is represented on the vessel by
a master employed by the individual who received the initial allocation
of QS.
(2) The exemption provided in paragraph (i)(1) of this section does
not apply to individuals who receive an initial allocation of QS
assigned to vessel categories B, C, or D for halibut in IFQ regulatory
area 2C or for sablefish QS in the IFQ regulatory area east of 140 deg.
W. long., and this exemption is not transferrable.
(j) Use of IFQ resulting from QS assigned to vessel categories B,
C, or D by corporations and partnerships. A corporation or partnership
that receives an initial allocation of QS assigned to vessel categories
B, C, or D may use the IFQ resulting from that QS and any additional QS
acquired within the limitations of this section provided the
corporation or partnership owns the vessel on which its IFQ is used,
and it is represented on the vessel by a master employed by the
corporation or partnership that received the initial allocation of QS.
This provision is not transferrable and does not apply to QS assigned
to vessel categories B, C, or D for halibut in IFQ regulatory area 2C
or for sablefish in the IFQ regulatory area east of 140 deg. W. long.
that is transferred to a corporation or partnership. Such transfers of
additional QS within these areas must be to an individual pursuant to
Sec. 676.41(c) of this part and be used pursuant to paragraphs (c) and
(i) of this section.
(1) A corporation or partnership, except for a publicly-held
corporation, that receives an initial allocation of QS assigned to
vessel categories B, C, or D loses the exemption provided under
paragraph (j) of this section on the effective date of a change in the
corporation or partnership from that which existed at the time of
initial allocation.
* * * * *
(4) QS assigned to vessel categories B, C, or D and IFQ resulting
from that QS held in the name of a corporation or
[[Page 33386]]
partnership that changes, as defined in this paragraph, must be
transferred to an individual, as prescribed in Sec. 679.41 of this
part, before it may be used at any time after the effective date of the
change.
(k) Processing of fish other than IFQ halibut and IFQ sablefish.
Fish other than IFQ halibut or IFQ sablefish may be processed on a
vessel on which persons:
(1) Are authorized to harvest IFQ halibut or IFQ sablefish based on
allocations of IFQ resulting from QS assigned to vessel category A; or
(2) Are authorized to harvest IFQ sablefish based on allocations of
IFQ resulting from QS assigned to vessel categories B or C unless any
person aboard the vessel is authorized to harvest IFQ halibut based on
allocations of IFQ resulting from QS assigned to vessel categories B,
C, or D.
[FR Doc. 96-16379 Filed 6-26-96; 8:45 am]
BILLING CODE 3510-22-W
Complete official Federal Register PDF
FR Doc. 96-16376 Extensions of Time to Make Elections
[Federal Register Volume 61, Number 125 (Thursday, June 27, 1996)]
[Rules and Regulations]
[Pages 33365-33370]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-16376]
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DEPARTMENT OF THE TREASURY
26 CFR Parts 301 and 602
[TD 8680]
RIN 1545-AU41
Extensions of Time to Make Elections
AGENCY: Internal Revenue Service (IRS), Treasury.
[[Page 33366]]
ACTION: Temporary regulations.
-----------------------------------------------------------------------
SUMMARY: This document contains temporary regulations concerning
extensions of time for making certain elections under the Internal
Revenue Code (Code). The regulations provide the standards that the
Commissioner will use to grant taxpayers extensions of time for making
these elections. The text of these temporary regulations also serves as
the text of the proposed regulations set forth in the notice of
proposed rulemaking on this subject in the Proposed Rules section of
this issue of the Federal Register.
DATES: These regulations are effective June 27, 1996.
For dates of applicability, see Sec. 301.9100-1T(h) of these
regulations.
FOR FURTHER INFORMATION CONTACT: Robert A. Testoff at (202) 622-4960
(not a toll-free number).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
These regulations are being issued without prior notice and public
procedure pursuant to the Administrative Procedure Act (5 U.S.C. 553).
For this reason, the collection of information contained in these
regulations has been reviewed and, pending receipt and evaluation of
public comments, approved by the Office of Management and Budget under
control number 1545-1488. Responses to this collection of information
are required to obtain an extension of time for making an election.
An agency may not conduct or sponsor, and a person is not required
to respond to, a collection of information unless the collection of
information displays a valid control number.
For further information concerning this collection of information,
where to submit comments on the collection of information and the
accuracy of the estimated burden, and suggestions for reducing this
burden, please refer to the preamble to the cross-referencing notice of
proposed rulemaking published in the Proposed Rules section of this
issue of the Federal Register.
Books or records relating to a collection of information must be
retained as long as their contents may become material in the
administration of any internal revenue law. Generally, tax returns and
tax return information are confidential, as required by 26 U.S.C. 6103.
Background
This document contains temporary regulations amending the
Regulations on Procedure and Administration (26 CFR part 301)
concerning extensions of time for making certain elections. The
regulations provide the standards that the Commissioner will use to
grant taxpayers extensions of time for making these elections. These
standards provide relief to taxpayers who reasonably and in good faith
fail to make a timely election when granting relief will not prejudice
the interests of the government. The regulations provide a means by
which taxpayers can be in the same position they would have been in had
they made their elections in a timely fashion.
Explanation of Provisions
These temporary regulations provide the standards the Commissioner
will use to determine whether to grant an extension of time to make an
election when the deadline for making the election is prescribed by
regulation, revenue ruling, revenue procedure, notice, or announcement
published in the Federal Register or the Internal Revenue Bulletin
(regulatory election). Under section 6081(a), these regulations also
provide an automatic extension of time to make an election when the
deadline for making the election is prescribed by statute (statutory
election) and the deadline for making the election is the due date of
the return or the due date of the return including extensions. These
regulations adopt and revise the standards for relief provided in Rev.
Proc. 92-85, 1992-2 C.B. 490.
Automatic Extensions
Rev. Proc. 92-85 provides an automatic 12-month extension for
certain regulatory elections listed in Appendix A of that revenue
procedure. The temporary regulations continue the automatic 12-month
extension and update the list of eligible regulatory elections.
Rev. Proc. 92-85 also provides an automatic 6-month extension for
statutory elections when the deadline for making the election is
prescribed as the due date of the return or the due date of the return
including extensions. The temporary regulations expand the automatic 6-
month extension to include regulatory elections.
Other Extensions
Rev. Proc. 92-85 provides relief for certain regulatory elections
that do not qualify for relief under the automatic extensions. Rev.
Proc. 92-85 requires a taxpayer to demonstrate that (1) it acted
reasonably and in good faith and (2) granting relief will not prejudice
the interests of the government. The temporary regulations continue to
provide extensions for such regulatory elections upon a showing of
reasonable action and good faith and no prejudice to the interests of
the government.
The temporary regulations adopt the standards for reasonable action
and good faith in Rev. Proc. 92-85. The regulations provide that a
taxpayer is deemed to have acted reasonably and in good faith if: (1)
the taxpayer applies for relief before the failure to make the
regulatory election is discovered by the IRS; (2) the taxpayer
inadvertently failed to make the election because of intervening events
beyond its control; (3) the taxpayer failed to make the election
because after exercising reasonable diligence the taxpayer was unaware
of the necessity for the election; (4) the taxpayer reasonably relied
on written advice of the IRS; or (5) the taxpayer relied on a qualified
tax professional, including a professional employed by the taxpayer,
and the professional failed to make or advise the taxpayer to make the
election. However, a taxpayer is deemed to have not acted reasonably
and in good faith if: (1) the taxpayer is requesting relief for an
election to alter a return position for which an accuracy-related
penalty could have been imposed under section 6662; (2) the taxpayer
was fully informed of the required election and related tax
consequences and chose not to file the election; or (3) the taxpayer
uses hindsight in requesting relief.
The temporary regulations adopt the standards for prejudice to the
interests of the government in Rev. Proc. 92-85. The regulations
provide that the interests of the government are deemed to be
prejudiced if granting relief would result in a taxpayer having a lower
tax liability than the taxpayer would have had if the regulatory
election had been timely made. In addition, the interests of the
government are ordinarily deemed to be prejudiced if the tax year in
which the election should have been made or any affected tax years are
closed by the statute of limitations.
Accounting Method and Period Elections
Rev. Proc. 92-85 provides limited relief (ordinarily not to exceed
90 days from the deadline for filing Form 3115, Application for Change
in Accounting Method) for requests to change an accounting method
subject to the procedure described in Sec. 1.446-1(e)(3)(i) (requiring
the advance written consent of the Commissioner). The temporary
regulations continue this limited relief. Rev. Proc. 92-85 provides an
automatic 12-month extension for the election to use the last-in,
first-out (LIFO) inventory method under section 472 and also provides
relief for the section 472
[[Page 33367]]
election beyond the automatic 12-month extension. Rev. Proc. 92-85 is
otherwise inapplicable to accounting method regulatory elections,
except for three specific elections listed in Appendix B of that
revenue procedure.
The temporary regulations provide relief for all accounting method
regulatory elections. For example, relief will now be available for
elections under sections 197 (amortization of goodwill and certain
other intangibles) and 468A (special rules for nuclear decommissioning
costs).
The temporary regulations provide additional rules regarding what
constitutes prejudice to the interests of the government for accounting
method regulatory elections. The temporary regulations provide that the
interests of the government are deemed to be prejudiced except in
unusual and compelling circumstances if: (1) the election requires an
adjustment under section 481(a); (2) the taxpayer is under examination,
requests relief to change from an impermissible method of accounting,
and granting relief will provide the taxpayer a more favorable method
of accounting or more favorable terms and conditions than the taxpayer
would receive if the change is made as part of the examination; or (3)
the election provides a more favorable method of accounting or more
favorable terms and conditions if the election is made by a certain
date or taxable year.
Rev. Proc. 92-85 provides an automatic 12-month extension for
elections to use other than the required taxable year under section
444. Rev. Proc. 92-85 also provides limited relief (ordinarily not to
exceed 90 days from the deadline for filing Form 1128, Application to
Adopt, Change, or Retain a Tax Year) for accounting period regulatory
elections subject to Rev. Proc. 87-32, 1987-2 C.B. 396. Rev. Proc. 92-
85 is otherwise inapplicable to accounting period regulatory elections.
The temporary regulations extend the limited relief for elections
subject to Rev. Proc. 87-32 to all other accounting period regulatory
elections except for the section 444 election, and provide relief for
the section 444 election beyond the automatic 12-month extension.
Effect on Other Documents
Rev. Proc. 92-85, 1992-2 C.B. 490, as modified and clarified by
Rev. Proc. 93-28, 1993-2 C.B. 344, is obsolete as of June 27, 1996.
Rev. Proc. 92-20, 1992-1 C.B. 685, is modified as of June 27, 1996
to the extent that the provisions of this regulation apply to
applications for relief with respect to requests to change an
accounting method subject to the procedures of Rev. Proc. 92-20.
Rev. Proc. 87-32, 1987-2 C.B. 396, is modified as of June 27, 1996
to the extent that the provisions of this regulation apply to
applications for relief with respect to requests to change an
accounting period subject to the procedures of Rev. Proc. 87-32.
Special Analyses
It has been determined that this Treasury decision is not a
significant regulatory action as defined in EO 12866. Therefore, a
regulatory assessment is not required. It has also been determined that
section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5)
and the Regulatory Flexibility Act (5 U.S.C. chapter 6) do not apply to
these regulations, and, therefore, a Regulatory Flexibility Analysis is
not required. Pursuant to section 7805(f) of the Internal Revenue Code,
these temporary regulations will be submitted to the Chief Counsel for
Advocacy of the Small Business Administration for comment on their
impact on small businesses.
Drafting Information
The principal author of these regulations is Robert A. Testoff of
the Office of Assistant Chief Counsel (Income Tax and Accounting).
However, other personnel from the IRS and Treasury Department
participated in their development.
List of Subjects
26 CFR Part 301
Employment taxes, Estate taxes, Excise taxes, Gift taxes, Income
taxes, Penalties, Reporting and recordkeeping requirements.
26 CFR Part 602
Reporting and recordkeeping requirements.
Adoption of Amendments to the Regulations
Accordingly, 26 CFR parts 301 and 602 are amended as follows:
PART 301--PROCEDURE AND ADMINISTRATION
Paragraph 1. The authority citation for part 301 is amended by
adding entries in numerical order to read as follows:
Authority: 26 U.S.C. 7805 * * *
Section 301.9100-1T also issued under 26 U.S.C. 6081;
Section 301.9100-2T also issued under 26 U.S.C. 6081;
Section 301.9100-3T also issued under 26 U.S.C. 6081; * * *
Par. 2. Sections 301.9100-1T through 301.9100-3T are added to read
as follows:
Sec. 301.9100-1T Extensions of time to make elections (temporary).
(a)-(c) [Reserved].
(d) Introduction. The regulations under this section and
Secs. 301.9100-2T through 301.9100-3T provide the standards the
Commissioner will use to determine whether to grant an extension of
time to make a regulatory election. The regulations under this section
and Secs. 301.9100-2T through 301.9100-3T also provide an automatic
extension of time to make certain statutory elections. An extension of
time is available for elections that a taxpayer is otherwise eligible
to make and the granting of an extension of time is not a determination
that the taxpayer is otherwise eligible to make the election. Section
301.9100-2T provides automatic extensions of time for making regulatory
and statutory elections when the deadline for making the election is
the due date of the return or the due date of the return including
extensions. Section 301.9100-3T provides extensions of time for making
regulatory elections that do not meet the requirements of
Sec. 301.9100-2T.
(e) Terms. The following terms have the meanings provided below:
Election includes an application for relief in respect of tax; a
request to adopt, change, or retain an accounting method or accounting
period; but does not include an application for an extension of time
for filing a return under section 6081.
Regulatory election means an election whose deadline is prescribed
by a regulation published in the Federal Register, or a revenue ruling,
revenue procedure, notice, or announcement published in the Internal
Revenue Bulletin.
Statutory election means an election whose deadline is prescribed
by statute.
Taxpayer means any person within the meaning of section 7701(a)(1).
(f) General standards for relief. The Commissioner in the
Commissioner's discretion may grant a reasonable extension of time to
make a regulatory election, or a statutory election (but no more than 6
months except in the case of a taxpayer who is abroad), under all
subtitles of the Internal Revenue Code except subtitles E, G, H, and I,
provided the taxpayer demonstrates to the satisfaction of the
Commissioner that----
(1) The taxpayer acted reasonably and in good faith; and
(2) Granting relief will not prejudice the interests of the
government.
[[Page 33368]]
(g) Exceptions. Notwithstanding the provisions of paragraph (f) of
this section, an extension of time will not be granted--
(1) For elections under section 4980A(f)(5);
(2) For elections required to be made prior to November 20, 1970,
in the case of an election----
(i) Required to be made in or with the taxpayer's original income
tax return;
(ii) Required to be exercised by filing a claim for credit or
refund, unless the election is required to be exercised on or before a
date that precedes the date of expiration of the period of limitations
provided in section 6511;
(iii) Required to be filed in a petition to the Tax Court;
(iv) To change a previous election;
(v) To change an accounting method as described in Secs. 1.77-1 of
this chapter and 1.446-1 of this chapter;
(vi) To change an accounting period as described in Sec. 1.442-1 of
this chapter; or
(vii) To change the method of treating bad debts as described in
Sec. 1.166-1 of this chapter; or
(3) For elections that are expressly excepted from relief or where
alternative relief is provided by a statute, a regulation published in
the Federal Register, or a revenue ruling, revenue procedure, notice,
or announcement published in the Internal Revenue Bulletin.
(h) Effective dates. In general, this section and Secs. 301.9100-2T
through 301.9100-3T are effective for all requests for relief being
considered by the IRS on June 27, 1996 and for all requests for relief
submitted on or after June 27, 1996. However, the automatic 12-month
extension and the automatic 6-month extension provided in
Sec. 301.9100-2T are effective for elections whose due dates are on or
after June 27, 1996.
Sec. 301.9100-2T Automatic extensions (temporary).
(a) Automatic 12-month extension--(1) In general. An automatic
extension of 12 months from the original deadline for making a
regulatory election is granted to make elections described in paragraph
(a)(2) of this section provided the taxpayer takes corrective action as
defined in paragraph (c) of this section within that 12-month extension
period.
(2) Elections eligible for automatic 12-month extension. The
following regulatory elections are eligible for the automatic 12-month
extension described in paragraph (a)(1) of this section----
(i) The election to use other than the required taxable year under
section 444;
(ii) The election to use the last-in, first-out (LIFO) inventory
method under section 472;
(iii) The 15-month rule for filing an exemption application for a
section 501(c)(9), 501(c)(17), or 501(c)(20) organization under section
505;
(iv) The 15-month rule for filing an exemption application for a
section 501(c)(3) organization under section 508;
(v) The election to be treated as a homeowners association under
section 528;
(vi) The election to adjust basis on partnership transfers and
distributions under section 754;
(vii) The estate tax election to specially value qualified real
property (where the IRS has not yet begun an examination of the filed
return) under section 2032A(d)(1);
(viii) The chapter 14 gift tax election to treat a qualified
payment right as other than a qualified payment under section
2701(c)(3)(C)(i); and
(ix) The chapter 14 gift tax election to treat any distribution
right as a qualified payment under section 2701(c)(3)(C)(ii).
(b) Automatic 6-month extension. An automatic extension of 6 months
from the due date of a return excluding extensions is granted to make
regulatory or statutory elections whose deadlines are prescribed as the
due date of the return or the due date of the return including
extensions in the case of a taxpayer that timely filed its return for
the year the election should have been made, provided the taxpayer
takes corrective action as defined in paragraph (c) of this section
within that 6-month extension period. This extension does not apply,
however, to regulatory or statutory elections that must be made by the
due date of the return excluding extensions.
(c) Corrective action. For purposes of this section, corrective
action means filing an original or an amended return for the year the
regulatory or statutory election should have been made and attaching
the appropriate form or statement for making the election. For those
elections not required to be filed with a return, corrective action
means taking the steps required to file the election in accordance with
the statute, the regulation published in the Federal Register, or the
revenue ruling, revenue procedure, notice, or announcement published in
the Internal Revenue Bulletin. Taxpayers who make an election under an
automatic extension (and all taxpayers whose tax liability would be
affected by the election) must report their income in a manner that is
consistent with the election and comply with all other requirements for
making the election for the year the election should have been made and
for all affected years; otherwise, the Service may invalidate the
election.
(d) Procedural requirements. Any return, statement of election, or
other form of filing that must be made to obtain an automatic extension
must provide the following statement at the top of the document:
``FILED PURSUANT TO Sec. 301.9100-2T''. Any filing made to obtain an
automatic extension must be sent to the same address that the filing to
make the election would have been sent had the filing been timely made.
No request for a letter ruling is required to obtain an automatic
extension. Accordingly, user fees do not apply to taxpayers taking
corrective action to obtain an automatic extension.
(e) The following example illustrates the rules of this section:
Example. Taxpayer A fails to make a certain election when filing
A's 1996 income tax return on March 17, 1997, the due date of the
return. This election does not affect the tax liability of any other
taxpayer. The applicable regulation requires that the election be
made by attaching the appropriate form to a timely filed return
including extensions. In accordance with paragraphs (b) and (c) of
this section, A may make the regulatory election by filing an
amended return with the appropriate form by September 15, 1997 (6
months from the March 17, 1997, due date).
Sec. 301.9100-3T Other extensions (temporary).
(a) In general. Requests for extensions of time for regulatory
elections that do not meet the requirements of Sec. 301.9100-2T must be
made under the rules of this section. Requests for relief subject to
this section will be granted when the taxpayer provides the evidence
(including affidavits described in paragraph (e) of this section) to
establish that the taxpayer acted reasonably and in good faith, and
granting relief will not prejudice the interests of the government.
(b) Reasonable action and good faith--(1) In general. Except as
provided in paragraphs (b)(3)(i) through (iii) of this section, a
taxpayer is deemed to have acted reasonably and in good faith if the
taxpayer--
(i) Requests relief under this section before the failure to make
the regulatory election is discovered by the IRS;
(ii) Inadvertently failed to make the election because of
intervening events beyond the taxpayer's control;
(iii) Failed to make the election because, after exercising
reasonable diligence (taking into account the taxpayer's experience and
the complexity of the return or issue), the
[[Page 33369]]
taxpayer was unaware of the necessity for the election;
(iv) Reasonably relied on the written advice of the IRS; or
(v) Reasonably relied on a qualified tax professional, including a
tax professional employed by the taxpayer, and the tax professional
failed to make, or advise the taxpayer to make, the election.
(2) Reasonable reliance on a qualified tax professional. For
purposes of this paragraph (b), a taxpayer will not be considered to
have reasonably relied on a qualified tax professional if the taxpayer
knew or should have known that the professional was not--
(i) Competent to render advice on the regulatory election; or
(ii) Aware of all relevant facts.
(3) Taxpayer deemed to have not acted reasonably or in good faith.
For purposes of this paragraph (b), a taxpayer is deemed to have not
acted reasonably and in good faith if the taxpayer--
(i) Seeks to alter a return position for which an accuracy-related
penalty has been or could be imposed under section 6662 at the time the
taxpayer requests relief (taking into account any qualified amended
return filed within the meaning of Sec. 1.6664-2(c)(3)) of this chapter
and the new position requires or permits a regulatory election for
which relief is requested;
(ii) Was fully informed of the required election and related tax
consequences, but chose not to file the election; or
(iii) Uses hindsight in requesting relief. If specific facts have
changed since the original deadline for making the election that make
the election advantageous to a taxpayer, the IRS will not ordinarily
grant relief. In such a case, the IRS will grant relief only when the
taxpayer provides strong proof that the taxpayer's decision to seek
relief did not involve hindsight.
(c) Prejudice to the interests of the government--(1) In general--
(i) Lower tax liability. The interests of the government are prejudiced
if granting relief would result in a taxpayer having a lower tax
liability in the aggregate for all years to which the regulatory
election applies than the taxpayer would have had if the election had
been timely made (taking into account the time value of money).
Similarly, if the tax consequences of more than one taxpayer are
affected by the election, the government's interests are prejudiced if
extending the time for making the election may result in the affected
taxpayers, in the aggregate, having a lower tax liability than if the
election had been timely made.
(ii) Closed years. The interests of the government are ordinarily
prejudiced if the tax year in which the regulatory election should have
been made or any tax years that would have been affected by the
election had it been timely made are closed by the period of
limitations on assessment under section 6501(a) before the taxpayer's
receipt of a ruling granting relief under this section. The IRS may
condition a grant of relief on the taxpayer providing the IRS with a
statement from an independent auditor (other than an auditor providing
an affidavit pursuant to paragraph (e)(3) of this section) certifying
that the requirements of paragraph (c)(1)(i) of this section are
satisfied.
(2) Special rules for accounting method regulatory elections. The
interests of the government are deemed to be prejudiced except in
unusual and compelling circumstances if the accounting method
regulatory election is--
(i) Subject to the procedure described in Sec. 1.446-1(e)(3)(i) of
this chapter (requiring the advance written consent of the
Commissioner), and the request for relief under this section is filed
more than 90 days after the deadline for filing the Form 3115,
Application for Change in Accounting Method;
(ii) Not an election described in paragraph (c)(2)(i) of this
section and requires an adjustment under section 481(a) (or would
require an adjustment under section 481(a) if the taxpayer changed to
the method of accounting for which relief is requested in a taxable
year subsequent to the taxable year the election should have been
made);
(iii) Not an election described in paragraph (c)(2)(i) of this
section, the taxpayer is under examination and requests relief under
this section to change from an impermissible method of accounting, and
granting relief will provide the taxpayer a more favorable method of
accounting or more favorable terms and conditions than the taxpayer
would receive if the change from the impermissible method is made as
part of the examination; or
(iv) Not an election described in paragraph (c)(2)(i) of this
section and the election provides a more favorable method of accounting
or more favorable terms and conditions if the election is made by a
certain date or taxable year.
(3) Special rules for accounting period regulatory elections. The
interests of the government are deemed to be prejudiced except in
unusual and compelling circumstances if an election is an accounting
period regulatory election (other than the election to use other than
the required taxable year under section 444) and the request for relief
is filed more than 90 days after the deadline for filing the Form 1128,
Application to Adopt, Change, or Retain a Tax Year (or other required
statement).
(d) Effect of amended returns--(1) Second examination under section
7605(b). Taxpayers requesting and receiving an extension of time under
this section waive any objections to a second examination under section
7605(b) for the issue(s) that is the subject of the relief request and
any correlative adjustments.
(2) Suspension of the period of limitations under section 6501(a).
A request for relief under this section does not suspend the period of
limitations on assessment under section 6501(a). Thus, for relief to be
granted, the IRS may require the taxpayer to consent under section
6501(c)(4) to an extension of the period of limitations on assessment
for the tax year in which the regulatory election should have been made
and any tax years that would have been affected by the election had it
been timely made.
(e) Procedural requirements--(1) In general. Requests for relief
under this section must provide evidence that satisfies the
requirements in paragraphs (b) and (c) of this section, and must
provide additional information as required by this paragraph (e).
(2) Affidavit and declaration from taxpayer. The taxpayer, or the
individual who acts on behalf of the taxpayer with respect to tax
matters, must submit a detailed affidavit describing the events that
led to the failure to make a valid regulatory election and to the
discovery of the failure. When the taxpayer relied on a qualified tax
professional for advice, the taxpayer's affidavit must describe the
engagement and responsibilities of the professional as well as the
extent to which the taxpayer relied on the professional. The affidavit
must be accompanied by a dated declaration, signed by the taxpayer,
which states: ``Under penalties of perjury, I declare that, to the best
of my knowledge and belief, the facts presented herein are true,
correct, and complete.'' The individual who signs for an entity must
have personal knowledge of the facts and circumstances at issue.
(3) Affidavits and declarations from other parties. The taxpayer
must submit detailed affidavits from the individuals having knowledge
or information about the events that led to the failure to make a valid
regulatory election and to the discovery of the failure. These
individuals must include the taxpayer's income tax return preparer, any
individual (including an employee of the taxpayer) who made a
substantial
[[Page 33370]]
contribution to the preparation of the return, and any accountant or
attorney, knowledgeable in tax matters, who advised the taxpayer with
regard to the election. An affidavit must describe the engagement and
responsibilities of the individual as well as the advice that the
individual provided to the taxpayer. Each affidavit must include the
name, current address, and taxpayer identification number of the
individual, and be accompanied by a dated declaration, signed by the
individual, which states: ``Under penalties of perjury, I declare that,
to the best of my knowledge and belief, the facts presented herein are
true, correct, and complete.''
(4) Other Information. The request for relief filed under this
section must also contain the following information--
(i) The taxpayer must state whether the taxpayer's return(s) for
the tax year in which the regulatory election should have been made or
any tax years that would have been affected by the election had it been
timely made is being examined by a district director, or is being
considered by an appeals office or a federal court. The taxpayer must
notify the IRS office considering the request for relief if the IRS
starts an examination of any such return while the taxpayer's request
for relief is pending;
(ii) The taxpayer must state when the applicable return, form, or
statement used to make the election was required to be filed and when
it was actually filed;
(iii) The taxpayer must submit a copy of any documents that refer
to the election;
(iv) When requested, the taxpayer must submit a copy of the
taxpayer's income tax return for any taxable year for which the
taxpayer requests an extension and any return affected by the election;
and
(v) When applicable, the taxpayer must submit a copy of the income
tax returns of other taxpayers affected by the election.
(5) Filing instructions. A request for relief under this section is
a request for a letter ruling. Requests for relief should be submitted
in accordance with the applicable procedures for requests for a letter
ruling and must be accompanied by the applicable user fee.
(f) Examples. The following examples illustrate the provisions of
this section:
Example 1. Taxpayer discovers own error. Taxpayer A prepares A's
1996 income tax return. A is unaware that a particular regulatory
election is available to report a transaction in a particular
manner. A files the 1996 return without making the election and
reporting the transaction in a different manner. In 1998, A hires a
qualified tax professional to prepare A's 1998 return. The
professional discovers that A did not make the election. A promptly
files for relief in accordance with this section. Assuming
paragraphs (b)(3)(i) through (iii) of this section do not apply, A
is deemed to have acted reasonably and in good faith.
Example 2. Reliance on qualified tax professional. Taxpayer B
hires a qualified tax professional to advise B on preparing B's 1996
income tax return and provides the professional with all the
information requested. The professional fails to advise B that a
regulatory election is necessary in order for B to report income on
B's 1996 return in a particular manner. Nevertheless, B reports this
income in a manner that is consistent with having made the election.
In 1999, during the examination of the 1996 return by the IRS, the
examining agent discovers that the election has not been filed. B
promptly files for relief in accordance with this section, including
attaching an affidavit from B's professional stating that the
professional failed to advise B that the election was necessary.
Assuming paragraphs (b)(3)(i) through (iii) of this section do not
apply, B is deemed to have acted reasonably and in good faith.
Example 3. Accuracy-related penalty. Taxpayer C reports income
on its 1996 income tax return in a manner that contravenes a
statutory provision. C was aware of the statutory provision that
prohibited the manner in which C reported this income, but did not
provide adequate disclosure of the return position within the
meaning of Sec. 1.6662-3(c) of this chapter. In 1999, during the
examination of the 1996 return, the IRS raises an issue regarding
the reporting of this income on C's return. C requests relief under
this section to elect an alternative method of reporting the income.
Under paragraph (b)(3)(i) of this section, C is deemed to have not
acted reasonably and in good faith because C seeks to alter a return
position for which an accuracy-related penalty could be imposed
under section 6662.
Example 4. Election not requiring adjustment under section
481(a). Taxpayer D prepares D's 1996 income tax return. D is unaware
that a particular accounting method regulatory election is
available. D files the 1996 return using another method of
accounting. In 1998, D hires a qualified tax professional to prepare
D's 1998 return. The professional discovers that D did not make the
election. D promptly files for relief in accordance with this
section. Assume the applicable regulation provides that the election
does not require an adjustment under section 481(a) and the election
is not subject to the procedure described in Sec. 1.446-1(e)(3)(i)
of this chapter. Further assume that if D were granted an extension
of time to make the election, D would pay no less tax than if the
election had been timely made. Under paragraph (c) of this section,
the interests of the government are not deemed to be prejudiced.
Example 5. Election requiring adjustment under section 481(a).
The facts are the same as in Example 4 of this paragraph (f) except
that the applicable regulation provides that the election requires
an adjustment under section 481(a). Under paragraph (c)(2)(ii) of
this section, the interests of the government are deemed to be
prejudiced except in unusual or compelling circumstances.
Example 6. Under examination. A regulation permits an automatic
change from an impermissible method of accounting on a cut-off
basis. Any change to this method made as part of an examination is
made with a section 481(a) adjustment. Taxpayer E reports income on
E's 1996 income tax return using the impermissible method of
accounting. In 1999, during the examination of the 1996 return by
the IRS, the examining agent questions the propriety of E's method
of accounting. E requests relief under this section to make the
change pursuant to the regulation for 1996. E will receive less
favorable terms and conditions if the change in method of accounting
is made with a section 481(a) adjustment by the examining agent than
if the change is made on a cut-off basis pursuant to the regulation.
Under paragraph (c)(2)(iii) of this section, the interests of the
government are deemed to be prejudiced except in unusual and
compelling circumstances
PART 602--OMB CONTROL NUMBERS UNDER THE PAPERWORK REDUCTION ACT
Par. 3. The authority citation for part 602 continues to read as
follows:
Authority: 26 U.S.C. 7805.
Par. 4. Section 602.101(c) is amended by adding the following
entries in numerical order to the table:
Sec. 602.101 OMB Control numbers
* * * * *
(c) * * *
------------------------------------------------------------------------
Current OMB
CFR part or section where identified and described control
number
------------------------------------------------------------------------
* * * * *
Sec. 301.9100-2T.......................................... 1545-1488
Sec. 301.9100-3T.......................................... 1545-1488
* * * * *
------------------------------------------------------------------------
Margaret Milner Richardson,
Commissioner of Internal Revenue.
Approved:
Donald C. Lubick,
Assistant Secretary of the Treasury.
[FR Doc. 96-16376 Filed 6-26-96; 8:45 am]
BILLING CODE 4830-01-U
Complete official Federal Register PDF
FR Doc. 96-16375 Groundfish of the Gulf of Alaska; Atka Mackerel in the Western Regulatory Area
[Federal Register Volume 61, Number 125 (Thursday, June 27, 1996)]
[Rules and Regulations]
[Pages 33386-33387]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-16375]
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[[Page 33387]]
DEPARTMENT OF COMMERCE
50 CFR Part 679
[Docket No. 960129018-6018-01; I.D. 061996A]
Groundfish of the Gulf of Alaska; Atka Mackerel in the Western
Regulatory Area
AGENCY: National Marine Fisheries Service (NMFS), National Oceanic and
Atmospheric Administration (NOAA), Commerce.
ACTION: Modification of a closure.
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SUMMARY: NMFS is opening the directed fishery for Atka mackerel in the
Western Regulatory Area of the Gulf of Alaska (GOA) to allow a 24-hour
directed fishery. This action is necessary to fully utilize the total
allowable catch (TAC) of Atka mackerel in that area.
EFFECTIVE DATES: 12 noon, Alaska local time (A.l.t.), July 1, 1996,
until 12 noon, A.l.t., July 2, 1996, the directed fishery for Atka
mackerel in the Western Regulatory Area of the GOA is open; and
effective 12 noon A.l.t. July 2, 1996, until 12 midnight, A.l.t.
December 31, 1996, the directed fishery for Atka mackerel in the
Western Regulatory Area of the GOA is closed.
FOR FURTHER INFORMATION CONTACT: Mary Furuness, 907-586-7228.
SUPPLEMENTARY INFORMATION: The groundfish fishery in the GOA exclusive
economic zone is managed by NMFS according to the Fishery Management
Plan for Groundfish of the Gulf of Alaska (FMP) prepared by the North
Pacific Fishery Management Council under authority of the Magnuson
Fishery Conservation and Management Act. Fishing by U.S. vessels is
governed by regulations implementing the FMP at Subpart H of 50 CFR
part 600 and 50 CFR part 679.
In accordance with Sec. 679.20 (c)(3)(ii), the annual TAC for Atka
mackerel in the Western Regulatory Area of the GOA, was established by
the Final 1996 Harvest Specifications of Groundfish (61 FR 4304,
February 5, 1996) as 2,310 metric tons (mt). The Final 1996 Harvest
Specifications of Groundfish also closed the directed fishery for Atka
mackerel in the Western Regulatory Area of the GOA. See
Sec. 679.20(a)(8).
The Director, Alaska Region, NMFS (Regional Director), in
accordance with Sec. 679.20(d)(1), has determined that the TAC of Atka
mackerel in the Western Regulatory Area of the GOA is sufficient to
allow a directed fishery. Therefore, NMFS is opening the directed
fishery for Atka mackerel in the Western Regulatory Area of the GOA at
12 noon, A.l.t., July 1, 1996. A directed fishing allowance of 2,110 mt
is established with consideration that 200 mt will be taken as
incidental catch in directed fishing for other species in the Western
Regulatory Area
In accordance with Sec. 679.20 (d)(1)(iii), the Regional Director
has determined that the directed fishing allowance for Atka mackerel in
the Western Regulatory Area will be reached within a 24-hour directed
fishery for Atka mackerel. Consequently, NMFS is prohibiting directed
fishing for Atka mackerel in the Western Regulatory Area of the GOA at
12 noon, A.l.t., July 2, 1996.
Maximum retainable bycatch amounts for applicable gear types may be
found in the regulations at Sec. 679.20(e).
Classification
This action is taken under Sec. 679.20 and is exempt from review
under E.O. 12866.
Authority: 16 U.S.C. 1801 et seq.
Dated: June 21, 1996.
Donald J. Leedy,
Acting Director, Office of Fisheries Conservation and Management,
National Marine Fisheries Service.
[FR Doc. 96-16375 Filed 6-26-96; 8:45 am]
BILLING CODE 3510-22-F
Complete official Federal Register PDF
FR Doc. 96-16373 Groundfish of the Bering Sea and Aleutian Islands Area; Pacific Cod by Vessels Using Trawl Gear
[Federal Register Volume 61, Number 125 (Thursday, June 27, 1996)]
[Rules and Regulations]
[Page 33386]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-16373]
-----------------------------------------------------------------------
DEPARTMENT OF COMMERCE
50 CFR Part 679
[Docket No. 960129019-6019-01, I.D. 062196C]
Groundfish of the Bering Sea and Aleutian Islands Area; Pacific
Cod by Vessels Using Trawl Gear
AGENCY: National Marine Fisheries Service (NMFS), National Oceanic and
Atmospheric Administration, Commerce.
ACTION: Closure.
-----------------------------------------------------------------------
SUMMARY: NMFS is closing the directed fishery for Pacific cod by
vessels using trawl gear in the Bering Sea and Aleutian Islands
management area (BSAI). This action is necessary to prevent exceeding
the first seasonal bycatch allowance of Pacific halibut apportioned to
the trawl Pacific cod fishery in the BSAI.
EFFECTIVE DATE: 12 noon, Alaska local time (A.l.t.), June 23, 1996,
until 12 noon, A.l.t., October 25, 1996.
FOR FURTHER INFORMATION CONTACT: Mary Furuness, 907-586-7228.
SUPPLEMENTARY INFORMATION: The groundfish fishery in the BSAI exclusive
economic zone is managed by NMFS according to the Fishery Management
Plan for the Groundfish Fishery of the Bering Sea and Aleutian Islands
Area (FMP) prepared by the North Pacific Fishery Management Council
under authority of the Magnuson Fishery Conservation and Management
Act. Fishing by U.S. vessels is governed by regulations implementing
the FMP at subpart H of 50 CFR parts 600 and 679.
The first seasonal bycatch allowance of Pacific halibut for the
BSAI trawl Pacific cod fishery category, which is defined at
Sec. 675.21(b)(1)(iii)(E), was established by the Final 1996 Harvest
Specifications of Groundfish (61 FR 4311, February 5, 1996) as 1,585
metric tons (mt). This fishery was previously closed on May 14, 1996,
with the expectation that the first seasonal allocation had been taken
(61 FR 24730, May 16, 1996). The fishery was subsequently opened on
June 14, 1996, when NMFS determined that 89 mt of halibut mortality
remained in the allocation (61 30544, June 17, 1996).
The Director, Alaska Region, NMFS, has determined, in accordance
with Sec. 679.21(e)(1)(iv), that the first seasonal bycatch allowance
of Pacific halibut apportioned to the trawl Pacific cod fishery in the
BSAI has been caught. Therefore, NMFS is prohibiting the directed
fishery for Pacific cod by vessels using trawl gear in the BSAI.
Maximim retainable bycatch amounts for applicable gear types may be
found in the regulations at Sec. 679.20(e).
Classification
This action is taken under 50 CFR 679.20 and is exempt from review
under E.O. 12866.
Authority: 16 U.S.C. 1801 et seq.
Dated: June 21, 1996.
Donald J. Leedy,
Acting Director, Office of Fisheries Conservation and Management,
National Marine Fisheries Service.
[FR Doc. 96-16373 Filed 6-21-96; 4:33 pm]
BILLING CODE 3510-22-M
Complete official Federal Register PDF
FR Doc. 96-16372 Summer Flounder Fishery; Extension of Scup Fishery Emergency
[Federal Register Volume 61, Number 125 (Thursday, June 27, 1996)]
[Rules and Regulations]
[Page 33382]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-16372]
-----------------------------------------------------------------------
DEPARTMENT OF COMMERCE
50 CFR Part 625
[Docket No. 960314074-6074-01; I.D. 061896B]
Summer Flounder Fishery; Extension of Scup Fishery Emergency
AGENCY: National Marine Fisheries Service (NMFS), National Oceanic and
Atmospheric Administration (NOAA), Commerce.
ACTION: Emergency interim rule; extension.
-----------------------------------------------------------------------
SUMMARY: NMFS issues an extension to an emergency interim rule that
implements minimum fish size and minimum mesh requirements for the scup
fishery north of Cape Hatteras. Emergency implementation of the
measures is necessary because of the overexploited status of the stock.
The emergency interim rule for scup that is effective from March 22,
1996, through June 25, 1996, is extended another 90 days by this
action.
EFFECTIVE DATE: The emergency interim rule published on March 27, 1996
at 61 FR 13452 is extended through September 23, 1996.
FOR FURTHER INFORMATION CONTACT: Regina Spallone, Fishery Policy
Analyst,(508) 281-9221.
SUPPLEMENTARY INFORMATION: In November 1995, the Mid-Atlantic Fishery
Management Council (Council) initially requested emergency action to
implement management measures for the scup fishery, which include a
minimum fish size of 9 inches (22.9 cm) total length (TL) for the
commercial scup fishery and 7 inches (17.8 cm) TL for the recreational
fishery, and a mesh restriction for any vessel fishing in the Exclusive
Economic Zone (EEZ) and possessing 4,000 lb (1,814 kg) or more of scup.
An emergency rule to implement immediately these measures was published
in the Federal Register on March 27, 1996 (61 FR 13452), with effective
dates of March 22, 1996, through June 25, 1996. A full discussion of
the status of the scup stock and the need for emergency action is found
in the preamble to that emergency interim rule and is not repeated
here.
In November 1995, the Council adopted the same measures contained
in the emergency rule in Amendment 8 to the Fishery Management Plan for
the Summer Flounder Fishery (FMP), which it has submitted for
Secretarial review. Amendment 8 also contains many additional
provisions not contained in the emergency rule. A proposed rule to
implement Amendment 8 to the FMP was published in the Federal Register
on June 3, 1996 (61 FR 27851), with an ending date for public comments
of July 18, 1996. Therefore, if Amendment 8 is approved, the final rule
to implement it will not be published prior to end of the first 90-day
effective period of this emergency rule (June 25, 1996), thus leaving a
gap between the ending date of the emergency interim rule and the final
rule implementing Amendment 8. This would leave the already overfished
scup stock unprotected from increased exploitation. Therefore, an
extension to the emergency rule is needed. The Council, at its April
1996 meeting requested an extension of the emergency interim rule
implementing management measures for the scup fishery. This extension
of the emergency rule is in effect from June 26, 1996, through
September 23, 1996, or until regulations implementing Amendment 8
become effective.
Classification
The Assistant Administrator for Fisheries (AA) has determined that
this rule is necessary to respond to an emergency situation and is
consistent with the Magnuson Fishery Conservation and Management Act
(Magnuson Act) and other applicable law.
Extension of the emergency rule is intended to prevent the possible
collapse of the scup fishery. The AA finds good cause to extend the
emergency rule in accordance with section 305(c)(3)(B) of the Magnuson
Act. It would be contrary to the public interest to provide notice and
opportunity for comment, or to delay for 30 days the effective date of
this emergency rule under the provisions of sections 553(b) and (d) of
the Administrative Procedure Act. Failure to implement an extension of
the emergency measures would leave the overfished scup stock
unprotected.
This rule has been determined to be not significant for purposes of
E.O. 12866.
This rule is exempt from the procedures of the Regulatory
Flexibility Act because the rule is issued without opportunity for
prior public comment.
Authority: 16 U.S.C. 1801 et seq.
Dated: June 20, 1996.
Henry R. Beasley,
Acting Assistant Administrator for Fisheries, National Marine Fisheries
Service.
[FR Doc. 96-16372 Filed 6-24-96; 4:13 pm]
BILLING CODE 3510-22-F
Complete official Federal Register PDF
FR Doc. 96-16360 Amendment to the List of Proscribed Destinations
[Federal Register Volume 61, Number 125 (Thursday, June 27, 1996)]
[Rules and Regulations]
[Page 33313]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-16360]
=======================================================================
-----------------------------------------------------------------------
DEPARTMENT OF STATE
Bureau of Political-Military Affairs
22 CFR Part 126
[Public Notice 2386]
Amendment to the List of Proscribed Destinations
AGENCY: Department of State.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: The Department of State is amending the International Traffic
in Arms Regulations (ITAR) to reflect that it is the policy of the
United States to deny licenses, other approvals, exports and imports of
defense articles and defense services, destined for or originating in
Afghanistan. This amendment formalizes a policy the U.S. has had in
place since 1992 to deny import and export licenses for articles and
services originating in or destined for Afghanistan due to the ongoing
civil war in that country.
EFFECTIVE DATE: June 14, 1996.
FOR FURTHER INFORMATION CONTACT:
Joseph L. Novak, Office of Arms Transfer and Export Control Policy,
Bureau of Political-Military Affairs, Department of State (202-736-
7996).
SUPPLEMENTARY INFORMATION: The Department of State is amending the ITAR
to reflect that it is the policy of the United States, pursuant to
Sec. 126.1, to deny licenses, other approvals, exports and imports of
defense articles and defense services, destined for or originating in
Afghanistan. Requests for licenses or other approvals for Afghanistan
involving items covered by the Munitions List (22 CFR part 121) will be
reviewed with a presumption of disapproval.
This amendment to the ITAR involves a foreign affairs function of
the United States and thus is excluded from the major rule procedure of
Executive Order 12291 (46 FR 13193) and the procedures of 5 U.S.C. 553
and 554. This final rule does not contain a new or amended information
requirement subject to the Paperwork Reduction Act (44 U.S.C. 3501 et
seq.).
List of Subjects in 22 CFR Part 126
Arms and munitions, Exports.
Accordingly, under the authority of Section 38 of the Arms Export
Control Act (22 U.S.C. 2778) and Executive Order 11958, as amended, 22
CFR subchapter M is amended as follows:
PART 126--[AMENDED]
1. The authority citation for part 126 continues to read as
follows:
Authority: Secs. 2, 38, 40, 42, and 71, Arms Export Control Act,
Pub. L. 90-629, 90 Stat. 744 (22 U.S.C. 2752, 2778, 2780, 2791, and
2797); E.O. 11958, 41 FR 4311; E.O. 11322, 32 FR 119; 22 U.S.C.
2658; 22 U.S.C. 287c; E.O. 12918, 59 FR 28206.
Sec. 126.1 [Amended]
2. Section 126.1 is amended by adding ``Afghanistan,'' immediately
prior to ``Armenia'' in paragraph (a).
Dated: June 10, 1996.
Lynn E. Davis,
Under Secretary of State for Arms Control and International Security
Affairs.
[FR Doc. 96-16360 Filed 6-26-96; 8:45 am]
BILLING CODE 4710-25-M
Complete official Federal Register PDF
FR Doc. 96-16355 TobaccoTobacco Loan Program
[Federal Register Volume 61, Number 125 (Thursday, June 27, 1996)]
[Rules and Regulations]
[Pages 33303-33304]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-16355]
========================================================================
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.
Prices of new books are listed in the first FEDERAL REGISTER issue of each
week.
========================================================================
Federal Register / Vol. 61, No. 125 / Thursday, June 27, 1996 / Rules
and Regulations
[[Page 33303]]
DEPARTMENT OF AGRICULTURE
Commodity Credit Corporation
7 CFR Part 1464
RIN 0560-AE41
Tobacco--Tobacco Loan Program
AGENCY: Commodity Credit Corporation, USDA.
ACTION: Final rule.
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SUMMARY: This final rule clarifies the regulations for price support
loans for tobacco to specify that a refund will be due on ``nested''
tobacco whether or not the producer knew the tobacco was nested. This
modification is intended to insure that producers take responsibility
for, and are the insurers of, the quality of the tobacco placed for
price support and that price support is limited to normal, non-
adulterated lots based on true weights. This final rule adopts, the
proposed rule published in the Federal Register on February 12, 1996.
EFFECTIVE DATE: June 27, 1996.
FOR FURTHER INFORMATION CONTACT: David W. Anderson, Assistant to the
Director, Tobacco and Peanuts Division, Farm Services Agency (FSA),
United States Department of Agriculture (USDA) AG Code 0514, PO Box
2415, Washington, DC., telephone (202) 690-2518.
SUPPLEMENTARY INFORMATION
Executive Order 12866
This final rule has been determined to be not significant for
purposes of Executive Order 12866 and therefore has not been reviewed
by the Office of Management and Budget (OMB).
Regulatory Flexibility Act
It has been determined that the Regulatory Flexibility Act is not
applicable to this rule since the Commodity Credit Corporation (CCC) is
not required by 5 USC 553 or any other provision of law to publish a
notice of proposed rulemaking with respect to the subject matter of
this rule.
Federal Assistance Program
The title and number of the Federal Assistance Program, as found in
the Catalog of Federal Domestic Assistance, to which this rule applies
are: Commodity Loans and Purchases--10.051.
Environmental Evaluation
It has been determined by an environmental evaluation that this
action will have no significant impact on the quality of the human
environment. Therefore, neither an environmental assessment nor
environment impact statement is needed.
Executive Order 12372
This program/activity is not subject to the provisions of Executive
Order 12372, which requires intergovernmental consultation with State
and local officials. See the notice related to 7 CFR part 3015, subpart
V published at 48 FR 2915 (June 24, 1983).
Executive Order 12778
This final rule has been reviewed in accordance with Executive
Order 12778. The provisions of this final rule are not retroactive and
preempt State laws to the extent that such laws are inconsistent with
the provisions of this final rule. Before any legal action is brought
regarding determinations made under provision of 7 CFR part 1464, the
administrative appeal provisions set forth at 7 CFR part 780 must be
exhausted.
Paperwork Reduction Act
This final rule does not change the information collection
requirements that have been approved by OMB and assigned control number
0560-0058.
Background
Nested tobacco is tobacco in a lot containing a ``nest'' of
inferior tobacco or foreign material, presumably, to increase the
payment or loan weight of the lot. A formal definition of nesting is
found in regulations codified at 7 CFR part 29 and that definition is
incorporated in the rules for the tobacco price support program found
at 7 CFR part 1464.
In a proposed rule published on February 12, 1996, it was proposed
that the regulations in part 1464 be clarified to make explicit that a
refund will be due from support loan recipients on individual nested
lot in all cases of nesting, whether the nesting was ``knowingly'' done
or not by the loan recipient. However, the proposal would have allowed
the FSA county committee, with the concurrence of the FSA State
committee, to reduce the amount of the refund demanded, in accordance
with guidelines of the FSA's Deputy Administrator for Farm Programs.
This allowance was proposed to permit adjustments to avoid undue
hardship to producers. The proposal did not adjust the terms under
which a producer could lose eligibility for loans for an entire crop
year due to nesting. That loss could still require that a violation be
``knowingly'' committed by a loan recipient.
Discussion of Comments
Five public comments were received, three in favor of the proposed
rule and two opposed. One of the negative comments suggested that the
grading of tobacco was a subjective matter and that a mistake on the
part of the producer could be construed to be nesting. The other
negative comment indicated that with increased size of operations that
laborers might mix some tobacco, thus causing nesting to take place and
that producers should be forgiven and not be held as being the
responsible party. The other comments received supported the proposed
rule as written, with one respondent suggesting that a penalty be
established only on the nest and that the rate of penalty be higher
than set out in current regulations.
After consideration of all comments received, CCC has determined
that the proposed rule which was published at 7 CFR part 1464 on
February 12, 1996, should be adopted as a final rule without change.
While some producers may have more difficulty than others in
controlling their operations, it still is the responsibility of the
producer to make grade on tobacco offered for prrice support. The price
support program is not an insurance program. If a full refund is not
warranted, then an accommodation can be considered under the relief
provisions of the rule. The rule is not intended to serve as a penalty,
but only to insure that only
[[Page 33304]]
marketable tobacco is offered for price support and to insure that the
amount of support made available is not excessive.
List of Subjects in 7 CFR Part 1464
Agriculture, Assessments, Loan program, Price support program,
Tobacco, Warehouses.
Accordingly, 7 CFR Part 1464 is amended as follows:
PART 1464--TOBACCO
1. The authority citation for part 1464 continues to read as
follows:
Authority: 7 U.S.C. 1421, 1423, 1441, 1445, 1445-1 and 1445-2;
15 U.S.C. 714b, 714c.
2. Section 1464.8 is amended by revising the introductory text to
read as follows:
Sec. 1464.8 Eligible tobacco.
Eligible tobacco for the purpose of pledging such tobacco as
collateral for a price support loan is any tobacco of a kind for which
price support is available, as provided in Sec. 1464.2, that is in
sound and merchantable condition, is not nested as defined in 7 CFR
part 29, and:
* * * * *
3. Section 1464.9 is amended by revising paragraph (a) to read as
follows:
Sec. 1464.9 Refund of price support advance.
* * * * *
(a) Received a price support advance on tobacco that was nested, as
defined in part 29 of this title or otherwise not eligible for price
support. The county committee, with concurrence of a State Committee
Representative, may reduce the refund with respect to tobacco otherwise
required in this part, in accordance with guidelines issued by the
Deputy Administrator.
* * * * *
Signed at Washington, DC on June 20, 1996.
Bruce R. Weber,
Acting Executive Vice President, Commodity Credit Corporation.
[FR Doc. 96-16355 Filed 6-26-96; 8:45 am]
BILLING CODE 3410-05-P
Complete official Federal Register PDF
FR Doc. 96-16347 Priority Dates for Employment-Based Petitions
[Federal Register Volume 61, Number 125 (Thursday, June 27, 1996)]
[Rules and Regulations]
[Pages 33304-33305]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-16347]
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DEPARTMENT OF JUSTICE
Immigration and Naturalization Service
8 CFR Part 204
[INS No. 1647-95]
RIN 1115-AE24
Priority Dates for Employment-Based Petitions
AGENCY: Immigration and Naturalization Service, Justice.
ACTION: Interim rule with request for comments.
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SUMMARY: This interim rule amends the Immigration and Naturalization
Service (Service) regulations by eliminating the requirement that an
application for labor certification filed with a state employment
office before October 1, 1991, must be filed with the Service in
connection with a petition filed under section 203(b) of the
Immigration and Nationality Act (Act) before October 1, 1993, in order
to maintain a pre-October 1, 1991, priority date. This rule implements
section 218 of the Immigration and Nationality Technical Corrections
Act of 1994 (INTCA), which amended section 161(c)(1) of the Immigration
Act of 1990 (IMMACT). This rule is necessary to implement a statutory
change.
EFFECTIVE DATE: June 27, 1996. Written comments must be submitted on or
before August 26, 1996.
ADDRESSES: Please submit written comments, in triplicate, to the
Director, Policy Directives and Instructions Branch, Immigration and
Naturalization Service, 425 I Street NW, Room 5307, Washington, DC
20536. To ensure proper handling please reference INS No. 1647-95 on
your correspondence. Comments are available for public inspection at
the above address by calling (202) 514-3048 to arrange for an
appointment.
FOR FURTHER INFORMATION CONTACT:
Michael W. Straus, Senior Adjudications Officer, Adjudications
Division, Immigration and Naturalization Service, 425 I Street, NW.,
Room 3214, Washington, DC 20536, telephone (202) 514-3228.
SUPPLEMENTARY INFORMATION: On November 29, 1991, the Service published
a final rule implementing the new employment-based immigrant categories
created by the Immigration Act of 1990 (IMMACT), Pub. L. 101-649. See
56 FR 60897-913. The final rule provided that the priority date for an
employment-based petition accompanied by a labor certification shall be
the date on which any office within the employment service system of
the Department of Labor accepted the request for labor certification.
See 8 CFR 204.5(d). A priority date determines when an alien, who has
had an immigrant visa petition approved on his or her behalf, may
submit his or her application for permanent resident status or an
immigrant visa.
Subsequent to the promulgation of the November 29, 1991,
regulation, the President signed into law the Miscellaneous and
Technical Immigration and Naturalization Amendments of 1991 (MTINA),
Pub. L. 102-232, dated December 12, 1991. Section 302(e)(2) of the
MTINA, which amended section 161(c)(1) of IMMACT addressed, among other
things, the transition of labor certifications filed before October 1,
1991, into the new employment-based immigrant visa categories created
by IMMACT. In this regard, section 302(e)(2) of MTINA provides that, in
order to maintain the priority date of a labor certification
application filed in connection with an employment-based petition which
was submitted to a state employment office before October 1, 1991, the
employer must file an employment-based petition before October 1, 1993.
Section 302(e)(2) of MTINA further provides that if the Department of
Labor approves a pre-October 1, 1991, labor certification application
subsequent to October 1, 1993, the employer must file a petition under
section 203(b) of the Act within 60 days of the date of certification
to maintain the pre-October 1, 1991, priority date.
To implement section 302(e)(2) of MTINA, the Service issued an
interim rule with request for comments on January 5, 1994, at 59 FR
501-502. This interim rule provided that in the case of labor
certifications accepted for processing by any office within the
employment service system of the Department of Labor before October 1,
1991, the sponsoring employer must file a petition under section 203(b)
of the Act before October 1, 1993, or within 60 days after the date of
certification by the Department of Labor, whichever is later, in order
to maintain the pre-October 1, 1991, priority date. On October 11,
1994, the Service issued a final rule which adopted the interim rule as
final. See 59 FR 51358-60.
On October 25, 1994, the President signed into law the Immigration
and Nationality Technical Corrections Act of 1994 (INTCA), Pub. L. 103-
416. Section 218 of INTCA further amends section 161(c)(1) of IMMACT by
removing the reference to priority dates for pre-October 1, 1991, labor
certifications. This section effectively repealed section
[[Page 33305]]
302(e)(2) of MITINA and, therefore, the recent changes to 8 CFR
204.5(d). The effect of this legislation is that the priority date for
all employment-based petitions, regardless of when they are filed,
shall be the date on which the state employment office accepted the
labor certification application. In light of the above, 8 CFR 204.5(d)
will be amended by removing the sentence which refers to labor
certifications filed before October 1, 1991.
The Service's implementation of this rule as an interim rule, with
provision for post-promulgation public comment, is based on the ``good
cause'' exceptions found at 5 U.S.C. 553 (b)(3)(B), (d)(3). The reason
and necessity for immediate implementation of this interim rule is as
follows: This rule implements section 218 of INTCA, which became
effective upon enactment, by removing a sentence in the regulations
which is inconsistent with that section. Immediate promulgation of this
rule is necessary to ensure that beneficiaries of employment-based
petitions may avail themselves of a pre-October 1, 1991 priority date.
As this rule benefits a very limited number of beneficiaries, it should
have no adverse impact on other beneficiaries of employment-based
petitions.
Regulatory Flexibility Act
The Commissioner of the Immigration and Naturalization Service, in
accordance with the Regulatory Flexibility Act (5 U.S.C. 605(b)), has
reviewed this regulation and, by approving it, certifies that this rule
will not have a significant economic impact on a substantial number of
small entities. This rule affects only a very limited number of
petitioners and aliens who filed requests for labor certifications
prior to October 1, 1991.
Executive Order 12866
This rule is not considered by the Department of Justice,
Immigration and Naturalization Service, to be a ``significant
regulatory action'' under Executive Order 12866, section 3(f),
Regulatory Planning and Review, and the Office of Management and Budget
has waived its review process under section 6(a)(3)(A).
Executive Order 12612
The regulation will not have substantial direct effects on the
States, on the relationship between the National Government and the
States, or on the distribution of power and responsibilities among the
various levels of government. Therefore, in accordance with Executive
Order 12612, it is determined that this rule does not have sufficient
Federalism implications to warrant the preparation of a Federalism
Assessment.
List of Subjects in 8 CFR Part 204
Administrative practice and procedure, Aliens, Employment,
Immigration, Petitions.
Accordingly, part 204 of chapter I of title 8 of the Code of
Federal Regulations is amended as follows:
PART 204--IMMIGRANT PETITIONS
1. The authority citation for part 204 continues to read as
follows:
Authority: 8 U.S.C. 1101, 1103, 1151, 1153, 1154, 1182, 1186a,
1255; 8 CFR part 2.
Sec. 204.5 [Amended]
2. In Sec. 204.5, paragraph (d) is amended by removing the second
sentence.
Dated: June 13, 1996.
Doris Meissner,
Commissioner, Immigration and Naturalization Service.
[FR Doc. 96-16347 Filed 6-26-96; 8:45 am]
BILLING CODE 4410-10-M
Complete official Federal Register PDF
FR Doc. 96-16345 Radio Broadcasting Services; Dearing, KS
[Federal Register Volume 61, Number 125 (Thursday, June 27, 1996)]
[Rules and Regulations]
[Pages 33376-33377]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-16345]
=======================================================================
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[[Page 33377]]
FEDERAL COMMUNICATIONS COMMISSION
47 CFR Part 73
[MM Docket No. 95-121; RM-8660]
Radio Broadcasting Services; Dearing, KS
AGENCY: Federal Communications Commission.
ACTION: Final rule.
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SUMMARY: The Commission, at the request of William Bruce Wachter,
allots Channel 251A to Dearing, Kansas, as the community's first local
aural transmission service. See 60 FR 38785, July 28, 1995. Channel
251A can be allotted to Dearing in compliance with the Commission's
minimum distance separation requirements without the imposition of a
site restriction. The coordinates for Channel 251A at Dearing are 37-
03-31 and 95-42-47. With this action, this proceeding is terminated.
DATES: Effective August 3, 1996. The window period for filing
applications will open on August 3, 1996, and close on September 3,
1996.
FOR FURTHER INFORMATION CONTACT: Pam Blumenthal, Mass Media Bureau,
(202) 418-2180.
SUPPLEMENTARY INFORMATION: This is a synopsis of the Commission's
Report and Order, MM Docket No. 95-121, adopted May 9, 1996, and
released June 19, 1996. The full text of this Commission decision is
available for inspection and copying during normal business hours in
the FCC Reference Center (Room 239), 1919 M Street, NW., Washington,
DC. The complete text of this decision may also be purchased from the
Commission's copy contractor, ITS, Inc., (202) 857-3800, 2100 M Street,
NW., Suite 140, Washington, DC 20037.
List of Subjects in 47 CFR Part 73
Radio broadcasting.
Part 73 of title 47 of the Code of Federal Regulations is amended
as follows:
PART 73--[AMENDED]
1. The authority citation for part 73 continues to read as follows:
Authority: Secs. 303, 48 Stat., as amended, 1082; 47 U.S.C. 154,
as amended.
Sec. 73.202 [Amended]
2. Section 73.202(b), the Table of FM Allotments under Kansas, is
amended by adding Dearing Channel 251A.
Federal Communications Commission.
John A. Karousos,
Chief, Allocations Branch, Policy and Rules Division, Mass Media
Bureau.
[FR Doc. 96-16345 Filed 6-26-96; 8:45 am]
BILLING CODE 6712-01-F
Complete official Federal Register PDF
FR Doc. 96-16343 Approval and Promulgation of Implementation Plans; Approval of Revisions to the State Implementation Plan; Georgia
[Federal Register Volume 61, Number 125 (Thursday, June 27, 1996)]
[Rules and Regulations]
[Pages 33372-33373]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-16343]
=======================================================================
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ENVIRONMENTAL PROTECTION AGENCY
40 CFR Part 52
[GA-30-3-9615a; FRL-5519-2]
Approval and Promulgation of Implementation Plans; Approval of
Revisions to the State Implementation Plan; Georgia
AGENCY: Environmental Protection Agency (EPA).
ACTION: Direct final rule.
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SUMMARY: This action approves a revision to the Georgia State
Implementation Plan (SIP) submitted by the Georgia Department of
Natural Resources, Environmental Protection Division (GA EPD) on
November 15, 1994, for the purpose of deleting the volatile organic
compound (VOC) reasonably available control technology (RACT) rule for
Perchloroethylene Dry Cleaners. This SIP revision is consistent with
requirements of the Clean Air Act as amended in 1990 (CAA).
DATES: This final rule is effective August 26, 1996 unless adverse or
critical comments are received by July 29, 1996. If the effective date
is delayed, timely notice will be published in the Federal Register.
ADDRESSES: Written comments on this action should be addressed to Scott
M. Martin at the EPA Regional Office listed below.
Copies of the documents relative to this action are available for
public inspection during normal business hours at the following
locations. The interested persons wanting to examine these documents
should make an appointment with the appropriate office at least 24
hours before the visiting day.
Air and Radiation Docket and Information Center (Air Docket 6102), U.S.
Environmental Protection Agency, 401 M Street, SW, Washington, DC
20460.
Environmental Protection Agency, Region 4 Air Programs Branch, 345
Courtland Street, NE, Atlanta, Georgia 30365.
Air Protection Branch, Georgia Environmental Protection Division,
Georgia Department of Natural Resources, 4244 International Parkway,
Suite 120, Atlanta, Georgia 30354.
FOR FURTHER INFORMATION CONTACT: Scott M. Martin, Regulatory Planning
and Development Section, Air Programs Branch, Air, Pesticides & Toxics
Management Division, Region 4 Environmental Protection Agency, 345
Courtland Street, NE, Atlanta, Georgia 30365. The telephone number is
404/347-3555, X4216. Reference file GA-30-3-9615.
SUPPLEMENTARY INFORMATION: On November 15, 1994, the State of Georgia
through the Georgia Environmental Protection Division submitted SIP
revisions to EPA Region 4. This submittal contains changes pursuant to
requirements of part D of Title I of the CAA with regard to
nonattainment areas.
Specifically, Georgia submitted, and EPA is approving, the deletion
of Subsection 391-3-1-.02(2)(ww), Perchloroethylene Dry Cleaners, in
its entirety.
This revision is pursuant to the publication of a Federal Register
notice on February 7, 1996, (61 FR 4588) in which EPA adds
perchloroethylene, also known as tetrachloroethylene, to the list of
compounds excluded from the definition of VOC. The effective date of
this rule is March 8, 1996.
Perchloroethylene is a solvent commonly used in dry cleaning,
maskant operations, and degreasing operations. This rule results in a
more accurate assessment of ozone formation potential and will assist
States in avoiding exceedances for the ozone health standard. The rule
does this by causing control efforts to focus on compounds which are
actual ozone precursors, rather than giving credit for control of a
compound which has negligible photochemical reactivity.
Perchloroethylene will continue to be regulated as a hazardous air
pollutant (HAP) under Section 112 of the CAA.
Final Action
EPA is approving the above referenced revision to the Georgia SIP.
The EPA is publishing this action without a prior proposal for approval
because the Agency views this as a noncontroversial amendment and
anticipates no adverse comments. However, in a separate document in
this Federal Register publication, the EPA is proposing to approve the
SIP revisions should adverse or critical comments be filed. This action
will be effective on August 26, 1996 unless, by July 29, 1996, adverse
or critical comments are received.
If the EPA receives such comments, this action will be withdrawn
before the effective date by publishing a subsequent document that will
[[Page 33373]]
withdraw the final action. All public comments received will then be
addressed in a subsequent final rule based on the separate proposed
rule. The EPA will not institute a second comment period on this
action. Any parties interested in commenting on this action should do
so at this time. If no such comments are received, the public is
advised that this action will be effective August 26, 1996.
Under Section 307(b)(1) of the CAA, 42 U.S.C. 7607(b)(1), petitions
for judicial review of this action must be filed in the United States
Court of Appeals for the appropriate circuit by August 26, 1996. Filing
a petition for reconsideration by the Administrator of this final rule
does not affect the finality of this rule for 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) of the CAA, 42
U.S.C. 7607(b)(2)).
This action has been classified as a Table 3 action for signature
by the Regional Administrator under the procedures published in the
Federal Register on January 19, 1989 (54 FR 2214-2225), as revised by a
July 10, 1995, memorandum from Mary Nichols, Assistant Administrator
for Air and Radiation. The Office of Management and Budget (OMB) has
exempted this regulatory action from E.O. 12866 review.
Nothing in this action shall be construed as permitting or allowing
or establishing a precedent for any future request for a revision to
any state implementation plan. Each request for revision to the state
implementation plan shall be considered separately in light of specific
technical, economic, and environmental factors and in relation to
relevant statutory and regulatory requirements.
Under the Regulatory Flexibility Act, 5 U.S.C. 600 et seq., EPA
must prepare a regulatory flexibility analysis assessing the impact of
any proposed or final rule on small entities. 5 U.S.C. 603 and 604.
Alternatively, EPA may certify that the rule will not have a
significant impact on a substantial number of small entities. Small
entities include small businesses, small not-for-profit enterprises,
and government entities with jurisdiction over populations of less than
50,000.
SIP approvals under Section 110 and subchapter I, part D of the CAA
do not create any new requirements, but simply approve requirements
that the State is already imposing. Therefore, because the Federal SIP-
approval does not impose any new requirements, I certify that it does
not have a significant impact on any small entities affected. Moreover,
due to the nature of the Federal-state relationship under the CAA,
preparation of a regulatory flexibility analysis would constitute
Federal inquiry into the economic reasonableness of state action. The
CAA forbids EPA to base its actions concerning SIPs on such grounds.
Union Electric Co. v. U.S. E.P.A., 427 U.S. 246, 256-66 (S.Ct. 1976);
42 U.S.C. 7410(a)(2) and 7410(k)(3).
Under Sections 202, 203, and 205 of the Unfunded Mandates Reform
Act of 1995 (``Unfunded Mandates Act''), signed into law on March 22,
1995, EPA must undertake various actions in association with proposed
or final rules that include a Federal mandate that may result in
estimated costs of $100 million or more to the private sector, or to
State, local, or tribal governments in the aggregate.
Through submission of this state implementation plan or plan
revision, the State and any affected local or tribal governments have
elected to adopt the revisions provided for under part D of Title I of
the CAA. These rules may bind State, local and tribal governments to
perform certain actions and also require the private sector to perform
certain duties. To the extent that the rules being approved by this
action will impose no new requirements, since such sources are already
subject to these regulations under State law. Accordingly, no
additional costs to State, local, or tribal governments, or to the
private sector, result from this action, and therefore there will be no
significant impact on a substantial number of small entities. EPA has
also determined that this final action does not include a mandate that
may result in estimated costs of $100 million or more to State, local,
or tribal governments in the aggregate or to the private sector.
List of Subjects in 40 CFR Part 52
Environmental protection, Air pollution control, Hydrocarbons,
Incorporation by reference, Intergovernmental relations, Ozone,
Reporting and recordkeeping requirements.
Dated: April 19, 1996.
A. Stanley Meiburg,
Acting Regional Administrator.
Part 52 of chapter I, title 40, Code of Federal Regulations, is
amended as follows:
PART 52--[AMENDED]
1. The authority citation for part 52 continues to read as follows:
Authority: 42.U.S.C. 7401-7671(q).
Subpart L--Georgia
2. Section 52.570 is amended by revising subparagraph (c)(37)(i)(A)
to read as follows:
Sec. 52.570 Identification of plan.
* * * * *
(c) * * *
(37) * * *
(i) * * *
(A) The following Rules of the Georgia Department of Natural
Resources, Chapter 391-3-1, Air Quality Control, became State effective
on January 9, 1991.
391-3-1-.01(jjj);
391-3-1-.02(2)(a)4.;
391-3-1-.02(2)(t);
391-3-1-.02(2)(u)2.(i) and (iii);
391-3-1-.02(2)(v)2.(i) and (iii);
391-3-1-.02(2)(w)2.(i) and (iii);
391-3-1-.02(2)(x)2.(i), (iii), and (x)3.(v);
391-3-1-.02(2)(y)2.(i) and (iii);
391-3-1-.02(2)(z)2.(i) and (iii);
391-3-1-.02(2)(aa)2.(i) and (iii);
391-3-1-.02(2)(bb)1.(ii);
391-3-1-.02(2)(cc);
391-3-1-.02(2)(ee)1.(iii);
391-3-1-.02(2)(ff)2.(ii)(V) and 3.(iii)(III);
391-3-1-.02(2)(ii)4.(i) and (iii);
391-3-1-.02(2)(jj)2.(i) and (iii);
391-3-1-.02(2)(mm)1.(i), (ii), and (iii);
391-3-1-.02(2)(pp);
391-3-1-.02(2)(qq);
391-3-1-.0292)(rr);
391-3-1-.02(2)(ss);
391-3-1-.02(3)(a);
391-3-1-.02(6)(a)3.
* * * * *
[FR Doc. 96-16343 Filed 6-26-96; 8:45 am]
BILLING CODE 6560-50-P
Complete official Federal Register PDF
FR Doc. 96-16337 Cyclohexanecarbonitrile, 1,3,3-trimethyl-5-oxo-; Revocation of a Significant New Use Rule
[Federal Register Volume 61, Number 125 (Thursday, June 27, 1996)]
[Rules and Regulations]
[Pages 33373-33374]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-16337]
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ENVIRONMENTAL PROTECTION AGENCY
40 CFR Part 721
[OPPTS-50601H; FRL-5371-7]
Cyclohexanecarbonitrile, 1,3,3-trimethyl-5-oxo-; Revocation of a
Significant New Use Rule
AGENCY: Environmental Protection Agency (EPA).
ACTION: Final rule.
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SUMMARY: EPA is revoking a significant new use rule (SNUR) promulgated
under section 5(a)(2) of the Toxic Substances Control Act (TSCA) for
cyclohexanecarbonitrile, 1,3,3-trimethyl-5-oxo- based on receipt of new
data. Based on the data the Agency determined that it could not support
a
[[Page 33374]]
finding that activities described in the PMN may result in a
significant risk.
EFFECTIVE DATE: The effective date of this rule is July 29, 1996.
FOR FURTHER INFORMATION CONTACT: Susan B. Hazen, Director,
Environmental Assistance Division (7408), Office of Pollution
Prevention and Toxics, Environmental Protection Agency, Rm. E-543A, 401
M St., SW., Washington, DC 20460, Telephone: (202) 554-1404, TDD: (202)
554-0551; e-mail: TSCA-H[email protected].
SUPPLEMENTARY INFORMATION: In the Federal Register of September 23,
1992 (57 FR 44050), EPA issued a SNUR (FRL-4001-2) establishing
significant new uses for cyclohexanecarbonitrile, 1,3,3-trimethyl-5-
oxo-. Because of additional data EPA has received for this substance,
EPA is revoking this SNUR.
I. Background
The Agency proposed the revocation of the SNUR for this substance
in the Federal Register of September 13, 1995 (60 FR 47531) (FRL-4926-
1). The background and reasons for the revocation of the SNUR are set
forth in the preamble to the proposed revocation. The Agency received
no public comment concerning the proposed revocation. As a result EPA
is revoking this SNUR.
II. Background and Rationale for Final SNUR Revocation of the Rule
During review of the premanufacture notice (PMN) submitted for the
chemical substance that is the subject of this final SNUR revocation,
EPA concluded that regulation was warranted under section 5(e) of TSCA
pending the development of information sufficient to make a reasoned
evaluation of the environmental effects of the substance, and that the
substance is expected to be produced in substantial quantities and
there may be significant or substantial human exposure. EPA identified
the tests necessary to make a reasoned evaluation of the risks posed by
the substance to the human health. Based on these findings, a section
5(e) consent order was negotiated with the PMN submitter and a SNUR was
promulgated.
EPA reviewed testing conducted by the PMN submitter pursuant to the
consent order for the substance and determined that the information
available was sufficient to make a reasoned evaluation of the health
effects of the substance. EPA has determined that it could not support
a finding that activities described in the PMN may result in a
significant risk. The final revocation of SNUR provisions for the
substance designated herein is consistent with the revocation of the
section 5(e) order.
In light of the above, EPA is finalizing a revocation of SNUR
provisions for this chemical substance. When this revocation becomes
final, EPA will no longer require notice of any company's intent to
manufacture, import, or process this substance. In addition, export
notification under section 12(b) of TSCA will no longer be required.
III. Rulemaking Record
The record for the rule which EPA is revoking was established at
OPPTS-50601 (P-90-1358). This record includes information considered by
the Agency in developing the rule and includes the test data that
formed the basis for this finalization.
A public version of the record, without any Confidential Business
Information, is available in the OPPT Non-Confidential Information
Center (NCIC) from 12 p.m. to 4 p.m., Monday through Friday, except
legal holidays. The TSCA NCIC is located in the Northeast Mall Basement
Rm. B-607, 401 M St., SW., Washington, DC.
IV. Regulatory Assessment Requirements
EPA is revoking the requirements of the rule. Any costs or burdens
associated with the rule will also be eliminated when the rule is
revoked. Therefore, EPA finds that no costs or burdens must be assessed
under Executive Order 12866, the Regulatory Flexibility Act (5 U.S.C.
605(b)), or the Paperwork Reduction Act (44 U.S.C. 3501 et seq.).
List of Subjects in 40 CFR Part 721
Environmental protection, Chemicals, Hazardous materials, Reporting
and recordkeeping requirements, Significant new uses.
Dated: June 18, 1996.
Charles M. Auer,
Director, Chemical Control Division, Office of Pollution Prevention and
Toxics.
Therefore, 40 CFR part 721 is amended to read as follows:
PART 721--[AMENDED]
1. The authority citation for part 721 continues to read as
follows:
Authority: 15 U.S.C. 2604, 2607, and 2625(c).
Sec. 721.2225 [Removed]
2. By removing Sec. 721.2225.
[FR Doc. 96-16337 Filed 6-26-96; 8:45 am]
BILLING CODE 6560-50-F
Complete official Federal Register PDF
FR Doc. 96-16336 Ethane, 1,1,1 Trifluoro-; Revocation of a Significant New Use Rule
[Federal Register Volume 61, Number 125 (Thursday, June 27, 1996)]
[Rules and Regulations]
[Pages 33374-33375]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-16336]
-----------------------------------------------------------------------
ENVIRONMENTAL PROTECTION AGENCY
40 CFR Part 721
[OPPTS-50608D; FRL-5372-1]
Ethane, 1,1,1 Trifluoro-; Revocation of a Significant New Use
Rule
AGENCY: Environmental Protection Agency (EPA).
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: EPA is revoking a significant new use rule (SNUR) promulgated
under section 5(a)(2) of the Toxic Substances Control Act (TSCA) for
ethane, 1,1,1 trifluoro, based on receipt of new data. Based on the
data the Agency determined that it could not support a finding that
activities described in the PMN may result in a significant risk.
EFFECTIVE DATE: The effective date of this rule is July 29, 1996.
FOR FURTHER INFORMATION CONTACT: Susan B. Hazen, Director,
Environmental Assistance Division (7408), Office of Pollution
Prevention and Toxics, Environmental Protection Agency, Rm. E-543A, 401
M St., SW., Washington, DC 20460, Telephone: (202) 554-1404, TDD: (202)
554-0551; e-mail: TSCA-H[email protected].
SUPPLEMENTARY INFORMATION: In the Federal Register of June 8, 1993 (58
FR 32228), EPA issued a SNUR (FRL-4172-3) establishing significant new
uses for ethane, 1,1,1 trifluoro-. Because of additional data EPA has
received for this substance, EPA is revoking this SNUR.
I. Background
The Agency proposed the revocation of the SNUR for this substance
in the Federal Register of September 13, 1995 (60 FR 47533) (FRL-4911-
5). The background and reasons for the revocation of the SNUR are set
forth in the preamble to the proposed revocation. The Agency received
no public comment concerning the proposed revocation. As a result EPA
is revoking this SNUR.
II. Background and Rationale for Final SNUR Revocation of the Rule
During review of the premanufacture notice (PMN) submitted for the
chemical substance that is the subject of this final SNUR revocation,
EPA concluded that regulation was warranted under section 5(e) of TSCA
pending the development of information sufficient to make a reasoned
evaluation of the health effects of the substance, and that the
substance is expected to be produced in substantial quantities and
there may be significant or substantial human exposure. EPA identified
the
[[Page 33375]]
tests necessary to make a reasoned evaluation of the risks posed by the
substance to the human health. Based on these findings, a section 5(e)
consent order was negotiated with the PMN submitter and a SNUR was
promulgated. EPA reviewed testing conducted by the PMN submitter
pursuant to the consent order for the substance and determined that the
information available was sufficient to make a reasoned evaluation of
the health effects of the substance. EPA has determined that it could
not support a finding that activities described in the PMN may result
in a significant risk. The final revocation of SNUR provisions for the
substance designated herein is consistent with the revocation of the
section 5(e) order.
In light of the above, EPA is finalizing a revocation of SNUR
provisions for this chemical substance. When this revocation becomes
final, EPA will no longer require notice of any person's intent to
manufacture, import, or process this substance. In addition, export
notification under section 12(b) of TSCA will no longer be required.
III. Rulemaking Record
The record for the rule which EPA is revoking was established at
OPPTS-50608 (P-92-341). This record includes information considered by
the Agency in developing the rule and includes the test data that
formed the basis for this finalization.
A public version of the record, without any Confidential Business
Information, is available in the OPPT Non-Confidential Information
Center (NCIC) from 12 p.m. to 4 p.m., Monday through Friday, except
legal holidays. The TSCA NCIC is located in the Northeast Mall Basement
Rm. B-607, 401 M St. SW., Washington, DC.
IV. Regulatory Assessment Requirements
EPA is revoking the requirements of the rule. Any costs or burdens
associated with the rule will also be eliminated when the rule is
revoked. Therefore, EPA finds that no costs or burdens must be assessed
under Executive Order 12866, the Regulatory Flexibility Act (5 U.S.C.
605(b)), or the Paperwork Reduction Act (44 U.S.C. 3501 et seq.).
List of Subjects in 40 CFR Part 721
Environmental protection, Chemicals, Hazardous materials, Reporting
and recordkeeping requirements, Significant new uses.
Dated: June 18, 1996.
Charles M. Auer,
Director, Chemical Control Division, Office of Pollution Prevention and
Toxics.
Therefore, 40 CFR part 721 is amended to read as follows:
PART 721--[AMENDED]
1. The authority citation for part 721 continues to read as
follows:
Authority: 15 U.S.C. 2604, 2607, and 2625(c).
Sec. 721.3254 [Removed]
2. By removing Sec. 721.3254.
[FR Doc. 96-16336 Filed 6-26-96; 8:45 am]
BILLING CODE 6560-50-F
Complete official Federal Register PDF
FR Doc. 96-16332 Withdrawal of Final Test Rule for Mesityl Oxide
[Federal Register Volume 61, Number 125 (Thursday, June 27, 1996)]
[Rules and Regulations]
[Pages 33375-33376]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-16332]
-----------------------------------------------------------------------
ENVIRONMENTAL PROTECTION AGENCY
40 CFR Part 799
[OPPT-42030K; FRL-5363-2]
Withdrawal of Final Test Rule for Mesityl Oxide
AGENCY: Environmental Protection Agency (EPA).
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: EPA is withdrawing the final test rule for mesityl oxide (MO;
CAS No. 141-79-7). EPA has determined that, since testing of MO has
been completed according to the terms of an enforceable consent
agreement, testing required under the test rule would be duplicative
and therefore, the test rule is no longer needed.
EFFECTIVE DATE: This final rule shall take effect on June 27, 1996.
FOR FURTHER INFORMATION CONTACT: Susan B. Hazen, Director,
Environmental Assistance Division (7408), Office of Pollution
Prevention and Toxics, U.S. Environmental Protection Agency, 401 M St.,
SW., Washington, DC 20460; telephone: (202) 554-1404, TDD: (202) 554-
0551. Internet address: TSCA-H[email protected].
SUPPLEMENTARY INFORMATION:
I. Background and Basis for this Action
In response to the Toxic Substances Control Act Interagency Testing
Committee's designation of mesityl oxide (MO; CAS No. 141-79-7) as a
priority chemical in its Fourth Report (44 FR 13866, June 1, 1979), EPA
issued a two-phase final test rule (50 FR 51857, December 20, 1985 and
52 FR 19088, May 20, 1987), under section 4 of the Toxic Substances
Control Act (TSCA) requiring certain health effects testing to be
conducted on MO. This test rule appears at 40 CFR 799.2500. Several
manufacturers of MO obtained judicial review of the rule.
On August 19, 1987, the U.S. Court of Appeals for the Fifth Circuit
remanded the rule to EPA for reconsideration in light of additional,
post-promulgation developments (Shell Chemical Co. v. EPA, 826 F.2d 295
(5th Cir. 1987)). The Court stayed the test rule pending EPA's
reconsideration on remand. In August 1991, EPA entered into an
enforceable consent agreement (ECA) with four manufacturers of MO that
required those manufacturers to perform certain health effects tests on
MO. A notice was published in the Federal Register of September 5, 1991
(56 FR 43878) announcing the conclusion of the ECA and describing the
testing required by the consent agreement. The current notice
references previous Federal Register notices (56 FR 43878, September 5,
1991; 52 FR 19088, May 20, 1987; and 50 FR 51857, December 20, 1985),
that describe the known health effects of MO and the uses and exposures
associated with this chemical substance.
The ECA contains a three-test battery that screens MO for
mutagenic, subchronic, developmental and reproductive effects. The
protocols used to conduct testing under the ECA are modeled on the
generic protocols developed by the Organization for Economic
Cooperation and Development (OECD) for the Screening Information Data
Set (SIDS) testing program. The OECD SIDS program is an international
cooperative program for identifying and developing the test data needed
to screen and set priorities for chemical substances and mixtures
having a high production volume (HPV) worldwide. The SIDS/HPV list
includes chemicals, such as MO, for which few health or environmental
effects test data are available.
Testing of MO under these protocols has been completed. The test
results are currently being reviewed by the Risk Management Program
within EPA's Office of Pollution Prevention and Toxics, and by the
OECD.
Concurrently with the publication of the notice of the ECA, EPA
proposed a revocation of the mesityl oxide final test rule (56 FR
43897, September 5, 1991) since the needed testing would be carried out
under the ECA. No comments were received in response to this proposal.
Since the needed testing has been completed in accordance with the
terms of the ECA, by this action, EPA is withdrawing the final test
rule for MO, by removing the rule from the Code of Federal Regulations
(40 CFR 799.2500).
[[Page 33376]]
II. Rulemaking Record
EPA has established a record for this rulemaking under docket
number OPPTS-42030K. This record contains the basic information that
EPA considered in developing this final rule, and includes the
following:
(1) Testing consent order for mesityl oxide with incorporated
enforceable consent agreement and associated testing protocols attached
as appendices.
(2) Federal Register notices pertaining to this final rule and the
testing consent order and enforceable consent agreement consisting of:
(a) Fourth Report of the TSCA Interagency Testing Committee (44 FR
31866, June 1, 1979).
(b) First-phase final test rule for mesityl oxide (establishing
testing requirements) ( 50 FR 51857, December 20, 1985).
(c) Second-phase final test rule for mesityl oxide (establishing
test standards and reporting requirements) ( 52 FR 19088, May 20,
1987).
(d) Notice of enforceable consent agreement for mesityl oxide (56
FR 43878, September 5, 1991).
(e) Proposed rule to withdraw mesityl oxide final test rule (56 FR
43897, September 5, 1991).
A public version of this record which does not include any
information claimed as confidential business information (CBI) is
available for public inspection from Noon to 4 p.m., Monday through
Friday, excluding legal holidays. The public record is located in the
TSCA Nonconfidential Information Center, Rm. NE B-607, USEPA, 401 M
St., SW., Washington, DC 20460.
III. Economic Analysis
Withdrawal of the MO test rule and the consequent elimination of
the testing requirements contained in the rule will reduce testing
costs. Therefore, this action should not cause adverse economic impact.
IV. Regulatory Assessment Requirements
A. Executive Order 12866
Under Executive Order 12866 (58 FR 51735, October 4, 1993), the
Agency must determine whether a regulatory action is ``significant''
and therefore subject to review by the Office of Management and Budget
(OMB) and subject to the requirements of the Executive Order. Section
3(f) of the Order defines a ``significant regulatory action'' as an
action that is likely to result in a rule (1) having an annual effect
on the economy of $100 million or more, or adversely and materially
affecting a sector of the economy, productivity, competition, jobs, the
environment, public health or safety, or State, local, or tribal
governments or communities (also referred to as ``economically
significant''); (2) creating a serious inconsistency or otherwise
interfering with an action taken or planned by another agency; (3)
materially altering the budgetary impacts of entitlements, grants, user
fees, or loan programs or the rights and obligations of recipients
thereof; or (4) raising novel legal or policy issues arising out of
legal mandates, the President's priorities or the principles set forth
in the Executive Order.
Pursuant to the terms of Executive Order 12866, it has been
determined that this rule is not ``significant'' and is therefore not
subject to OMB review.
B. Regulatory Flexibility Act
Under the Regulatory Flexibility Act (5 U.S.C. 601 et seq.), I
certify that this test rule will not have a significant impact on a
substantial number of small businesses because the action will relieve
the regulatory obligation to conduct chemical testing.
C. Unfunded Mandates Reform Act
Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), Pub.
L. 104-4, establishes requirements for Federal agencies to assess the
effects of their regulatory actions on State, local, and tribal
governments and the private sector. Under section 202 of the UMRA, EPA
generally must prepare a written statement, including a cost-benefit
analysis, for proposed and final rules with ``Federal mandates'' that
may result in expenditures to State, local and tribal governments, in
the aggregate, or to the private sector, of $100 million or more in any
1 year. Before promulgating an EPA rule for which a written statement
is needed, section 205 of the UMRA generally requires EPA to identify
and consider a reasonable number of regulatory alternatives and to
adopt the least costly, most cost-effective or least burdensome
alternative that achieves the objectives of the rule. The provisions of
section 205 do not apply when they are inconsistent with applicable
law. Moreover, section 205 allows EPA to adopt an alternative other
than the least costly, most cost-effective or least burdensome
alternative if the Administrator publishes with the final rule an
explanation why that alternative was not adopted. Before EPA
establishes any regulatory requirements that may significantly or
uniquely affect small governments, including tribal governments, it
must have developed under section 203 of the UMRA a small government
agency plan. The plan must provide for notifying potentially affected
small governments, enabling officials of affected small governments to
have meaningful and timely input in the development of EPA regulatory
proposals with significant Federal intergovernmental mandates, and
informing, educating and advising small governments on compliance with
the regulatory requirements.
Today's rule contains no Federal mandates (under the regulatory
provisions of Title II of the UMRA) for State, local, or tribal
governments or the private sector. This rule reduces enforceable duties
on the private sector by withdrawing a rule that requires chemical
testing.
D. Paperwork Reduction Act
OMB has approved the information collection requirements contained
in the final test rule under the provisions of the Paperwork Reduction
Act of 1980, 44 U.S.C. 3501 et seq., and has assigned OMB Control
Number 2070-0033 (EPA ICR No. 1139). This rule reduces the public
reporting burden associated with the testing requirements under the
final test rule. A complete discussion of the reporting burden is
contained at 50 FR 51857, December 20, 1985.
List of Subjects in 40 CFR Part 799
Chemicals, Chemical export, Environmental protection, Hazardous
substances, Health effects, Laboratories, Reporting and recordkeeping
requirements, Testing.
Dated: June 20, 1996.
Susan H. Wayland,
Acting Assistant Administrator for Prevention, Pesticides, and Toxic
Substances.
Therefore, title 40 of the Code of Federal Regulations, chapter I,
subchapter R, part 799 is amended as follows:
PART 799--[AMENDED]
1. The authority citation for part 799 continues to read as
follows:
Authority: 15 U.S.C. 2603, 2611, 2625.
Sec. 799.2500 [Removed]
2. By removing Sec. 799.2500.
[FR Doc. 96-16332 Filed 6-26-96; 8:45 am]
BILLING CODE 6560-50-F
Complete official Federal Register PDF
FR Doc. 96-16321 Distance Learning and Telemedicine Grant Program
[Federal Register Volume 61, Number 125 (Thursday, June 27, 1996)]
[Rules and Regulations]
[Pages 33622-33638]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-16321]
[[Page 33621]]
_______________________________________________________________________
Part III
Department of Agriculture
_______________________________________________________________________
Rural Utilities Service
_______________________________________________________________________
7 CFR Part 1703
Distance Learning and Telemedicine Grant Program; Final Rule and Notice
Federal Register / Vol. 61, No. 125 / Thursday, June 27, 1996 / Rules
and Regulations
[[Page 33622]]
DEPARTMENT OF AGRICULTURE
Rural Utilities Service
7 CFR Part 1703
RIN 0572-AB22
Distance Learning and Telemedicine Grant Program
AGENCY: Rural Utilities Service, USDA.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: The Rural Utilities Service hereby amends its regulations on
the distance learning and telemedicine grant program that provides
grants for distance learning and telemedicine projects benefiting rural
areas. The regulation revises RUS's method in which applications will
be reviewed by RUS and scored. This final rule will make it easier for
rural community facilities to apply for a grant.
DATES: This regulation is effective on June 27, 1996.
FOR FURTHER INFORMATION CONTACT: Barbara L. Eddy, Deputy Assistant
Administrator, Telecommunications Program, Rural Utilities Service,
room 4056-S, AG Box 1590, U.S. Department of Agriculture, Washington,
DC 20250, telephone number (202) 720-9549.
SUPPLEMENTARY INFORMATION:
Executive Order 12866
This final rule has been determined to be significant and was
reviewed by the Office of Management and Budget (OMB) under Executive
Order 12866.
Executive Order 12778
This final rule has been reviewed under Executive Order 12778,
Civil Justice Reform. This final rule will not: (1) Preempt any State
or local laws, regulations, or policies, unless they present an
irreconcilable conflict with this rule; (2) Have any retroactive
effect; and (3) Require administrative proceedings before parties may
file suit challenging the provisions of this rule.
Regulatory Flexibility Act Certification
RUS has determined that this final rule will not have a significant
economic impact on a substantial number of small entities, as defined
in the Regulatory Flexibility Act (5 U.S.C. 601 et seq.).
Information Collection and Recordkeeping Requirements
The reporting and recordkeeping requirements contained in the final
rule have been approved by the Office of Management and Budget (OMB)
pursuant to the Paperwork Reduction Act of 1995 (44 U.S.C. Chapter 35,
as amended) under OMB control number 0572-0096. Send questions or
comments regarding this burden or any other aspect of these collections
of information, including suggestions for reducing the burden, to: F.
Lamont Heppe, Jr., Director, Program Support and Regulatory Analysis,
Rural Utilities Service, U.S. Department of Agriculture, AG Box 1522,
Washington, DC 20250.
National Environmental Policy Act Certification
The Administrator of RUS has determined that this final rule will
not significantly affect the quality of the human environment as
defined by the National Environmental Policy Act of 1969 (42 U.S.C.
4321 et seq.). Therefore, this action does not require an environmental
impact statement or assessment.
Catalog of Federal Domestic Assistance
The program described by this final rule is listed in the Catalog
of Federal Domestic Assistance programs under number 10.855, Distance
Learning and Medical Link Grants. This catalog is available on a
subscription basis from the Superintendent of Documents, the United
States Government Printing Office, Washington, DC 20402.
Executive Order 12372
This program is subject to the provisions of Executive Order 12372
that requires intergovernmental consultation with State and local
officials.
Unfunded Mandate
This rule contains no Federal mandates (under the regulatory
provisions of Title II of the Unfunded Mandate Reform Act of 1995) for
State, local, and tribal governments or the private sector. Thus, this
rule is not subject to the requirements of sections 202 and 205 of the
Unfunded Mandate Reform Act of 1995.
Background
This final regulation is being published in whole rather than just
noting where changes were made. Nearly all the changes concern
obtaining a grant, rather than in requirements that apply after a grant
is awarded.
The major change is the method in which applicants will be reviewed
by RUS and scored. Additionally, several sections of the regulation
were moved or restructed to make it more understandable.
RUS has incorporated into this final rule changes in the Distance
Learning and Telemedicine grant program as a result of the Federal
Agriculture Improvement and Reform Act of 1996; however, this
regulation does not address the new loan program inasmuch as funding is
not available for a Distance Learning and Telemedicine loan program for
fiscal year 1996. In addition, the appeal procedures outlined in
Section 1703.118 are for the purposes of fiscal year 1996 funding.
On April 16, 1996, RUS published proposed rule 7 CFR 1703, Distance
Learning and Telemedicine Grant Program in the Federal Register and
requested comment from interested parties regarding the proposed rule
by May 16, 1996. The comments received were considered in this final
rule. A list of the comenters and comment summaries and responses
follows.
1. Alamo Navajo School Board, Inc., Magdalena, NM
2. Joint Comments Submitted by:
Mississippi Band of Choctaw Indians, Philadelphia, MS
Rock Point Community School, Rock Point, AZ
Black Mesa School, Chinle, AZ
Northwest Portland Indian Health Board, Portland, OR
Three Affiliated Tribes, New Town, ND
Skokomish Indian Tribe, Shelton, WA
United Tribes Technical College, Bismark, ND
3. Deubrook Area Schools District No. 5-6, White, SD
4. Gershowitz Grant & Evaluation Services, Des Moines IA
5. Rural Economic Development Initiative, Tallahassee, FL
6. Florida State Rural Development Council, Tallahassee, FL
7. Republic County Unified School District No. 427, Belleville, KS
8. Winnebago Cooperative Telephone Association, Lake Mills, IA
9. Brookings School District No. 5-1, Brookings, SD
10. Congressman Pat Roberts, Kansas
11. North Central Kansas Educational Service Center, Concordia, KS
12. Lancaster and Associates, Washington, DC
13. Randy Baines, NHPF, Washington, DC
14. Office of the Inspector General, Washington, DC
Comment Summary (Sec. 1703.101(b)(Policy). One commenter stated
that the second sentence of Sec. 1703.101(b), which discusses
leveraging, seems a little out of place following after a discussion of
rural areas and greatest need. It was suggested that this idea be moved
to the scoring criteria discussion Sec. 1703.117, which awards points
for non-federal supplemental funds and local involvement in the
project.
Response. RUS believes this is an important statement of policy and
should remain in the policy section. The
[[Page 33623]]
methods and mechanisms for evaluating the leveraging of grant funds are
discussed in detail in Sec. 1703.117.
Comment Summary (Sec. 1703.101(c) Policy.). The rules provide for
the use of technology that would incidentally allow other providers of
developers to purchase the elemental functions or access to those
functions so other users, in addition to educational and medical users,
many benefit from any transmission facilities receiving funding under
this subpart. The regulations should define who the other users are and
the criteria for determining their eligibility for accessing the
technology.
Response. The primary focus of this paragraph was to indicate that
RUS policy is technology neutral. The statement relating to using
technology that would allow others to utilize some of the excess
capacity of the transmission facilities reflects the current practices
in the telecommunications industry. For example, a fiber optic cable
may have the capacity to serve hundreds of users without affecting
service to any one individual or group of individuals. This allows each
subscriber to share in the costs of the facilities.
Comment Summary (Sec. 1703.101(d) Policy.). One commenter suggested
that paragraph (d) of Sec. 1703.101 be deleted and that the regulation
consistently reference the six major criteria in Sec. 1703.117 rather
than add other factors throughout the regulation. The commenter
believes that including paragraph (d) causes confusion as to what RUS
will use to select the application and that applicants may not know the
basis for RUS' selection: whether the scoring criteria are the key or
other factors mentioned throughout are the key to a successful
application. It was therefore suggested that RUS be clear in adhering
only to its existing six scoring criteria in Sec. 1703.117 and not have
other factors mentioned elsewhere in the regulation. Additionally,
since there is an appeal process, clarification may remove any issues
for contention.
Response. The requirements in Sec. 1703.101(d) state the what,
where, how, and why of the application and must be supplied for the
application to be complete. Section 1703.117 lists the scoring criteria
used to rank applications. All of the scoring criteria need not be
addressed, however, the more points earned, the more likely an
applicant will be successful in obtaining a grant.
Comment Summary (Sec. 1703.101(g) Policy.). The rule states that
applicants must consult with the Rural Development State Director,
USDA, before submitting the application to the RUS in order to explore
any funding sources that may be available at the State or local level.
The regulations should explicitly describe what the State Director is
suppose to do and how it should be documented.
Response. Instructions for State Directors are internal operating
procedures that do not affect the application process and could confuse
applicants if included in this rule. The instructions will be prepared
in the form of a USDA Staff Instruction to the State Directors.
Comment Summary (Sec. 1703.103(a)(1) Applicant eligibility.). The
Indian Nations and Indian organizations requested that the organization
requirement for meeting applicant eligibility in Sec. 1703.101 be
modified to include Indian tribes and tribal organizations as defined
in 25 U.S.C. 450b (b) and (c).
Response. RUS intended to extend applicant eligibility to Indian
organizations. This section has been revised to clarify that Indian
Nations and Tribal Organizations are eligible to apply.
Comment Summary (Sec. 1703.103(a)(1) Applicant eligibility). One
commenter stated that the rule, in defining a state government to be an
eligible applicant, should be clarified to specify which state
government-operated rural facilities are eligible to participate in the
program.
Response. Section 1703.103(a)(1) states a state government, other
than a state government entity that operates a rural community
facility, is not considered an eligible applicant. Rural community
facility is defined in Sec. 1703.102. Therefore, any state government
that does operate a rural community facility, as defined in
Sec. 1703.102, may be eligible.
Comment Summary (Sec. 1703.104(a) Allowable grant funding
percentage, grant purposes, and in-kind matching provisions). One
commenter recommended deleting the use of 42.85 percent to discuss the
match funding required, stating that this wording may be confusing to
applicants.
Response. As stated in the rule, 42.85 percent is 30 percent of the
maximum funding percentage provided by RUS, or the minimum amount the
applicant must match. RUS believes the use of 42.85 percent is
appropriate and that the parenthetical reference in paragraph (a)
further clarifies the minimum match funding required.
Comment Summary (Sec. 1703.104(f) Allowable grant funding
percentage, grant purposes, and in-kind matching provisions). One
commenter, stating that the rule provides that in kind contributions
shall not consist of eligible equipment which has been subject to
depreciation, suggested that this wording be changed to clarify that
the equipment must be new, as described in paragraph (c).
Response. This paragraph has been revised to clarify that the
eligible equipment must not be used and must have market value.
Comment Summary (Sec. 1703.106 Maximum and minimum sizes of a
grant). One commenter stated that the regulation establishes the
maximum grant amount as a percentage of the total grant funds instead
of a maximum set at a specific dollar limit. To assist the applicant in
planning, the regulations should explain how an applicant can obtain
the maximum amount for its grant request.
Response. Annual maximum grant amounts will be published in the
Federal Register Notice indicating deadlines for application
submissions and the amount of grant funds available, as stated in
Sec. 1703.113.
Comment Summary (Sec. 1703.107 The grant application). One
commenter believed that in this section, Sec. 1703.107, there appears
to be many selection factors mentioned that an applicant should
consider rather than simply asking the applicant to address the factors
that are listed as the scoring criteria. These appear primarily in the
``Executive summary'' section. Placing additional factors in the form
of areas the applicant must address or detail does not clarify the
process. Rather than use new factors or a different method of phrasing
an idea, RUS should refer to the language used in discussing the
scoring criteria. The commenter suggested that the regulation would be
both clearer and simpler if Sec. 1703.107(c)(2) (i) through (iv) were
removed, and perhaps even paragraph (c)(6), and instead use the
``Executive summary'' for addressing the criteria in Sec. 1703.117.
Additionally, for the executive summary, paragraph (c)(3) should only
address the economic and demographic description and types of services
offered, information not requested elsewhere, because the benefits will
be addressed under criterion Sec. 1703.117(d), the ``need for
services.'' As proposed, the applicant has to discuss very similar
issues described in different phraseology, once in the executive
summary and then later under Sec. 1703.107(d). It would seem preferable
to require a discussion of these issues in an executive summary by a
simple and straightforward reference that he applicant must summarize
each criterion in the scoring criteria Sec. 1703.117.
[[Page 33624]]
Response. Section 1703.107 describes for the applicant all of the
information needed in support of their application. This section sets
forth the items which comprise the required material that must be
submitted to RUS for a grant request. It does not, as does
Sec. 1703.117 (Criteria for scoring applications), describe the methods
used by RUS in evaluating grant applications. RUS does not believe
these two sections are redundant, nor ambiguous, and therefore has not
made the recommended change.
Comment Summary (Sec. 1703.107(e)(2) Financial information). One
commenter suggested this section could be made more specific and more
precise by combining two sentences as follows: ``A pro-forma income and
expense statement for each participating hub and end user site for the
project covered by the application. The pro-forma statements must cover
a minimum of 5 years after completion of the project and provide that
the income and expense statements reflect sufficient income to pay cash
operating expenses including telecommunications access and/or toll
charges, system maintenance, salaries, training, and any other general
operating expenses; . . .''.
Response. RUS has reworded this paragraph for clarity.
Comment Summary (Sec. 1703.107(e) (1), (2), (3), and (4) Financial
information). Several respondents commented that the proposed rule
includes a new requirement that applicant submit (1) a current balance
sheet for each member of the consortium; (2) a pro forma income and
expense statement for each participating hub and end user site covering
a minimum of five years after completion of the project; (3) evidence
of sources of revenue for each hub and end-user site; and (4) an
explanation of the economic analysis justifying the rate structure. The
commenters objected to the change in the financial reporting
regulations stating it would be difficult and expensive to fulfill.
Commenters understood the legitimacy of RUS' concern that grant
recipients be financially stable and that projects be sustainable, but
they also did not believe that the proposed financial information
requirements are the best way to determine this, especially for
educational applicants. The health care field has been in a state of
flux as the result of the trend toward managed care. Therefore,
requiring detailed financial information from these applicants is
prudent. However, local education is far more stable and does not
present the same concern. Moreover, the costs of assembling the
required information may deter some needy applicants from proceeding
with their grant proposals. It was suggested that school districts be
allowed to submit an audit statement as in the past (or State approved
audit report) or at least provide an exclusion for public school
districts so that they are not required to comply with financial
accounting procedures which are not otherwise appropriate for those
school districts. It was also suggested that educational applicants be
permitted to substantiate claims of sustainability in the main
narrative using evidence of their own selection.
One commenter also recommended that, if the reporting requirements
are not reduced, RUS should extend the application deadline to at least
October 15, 1996; this would allow schools a few weeks during a period
when they are fully staffed to respond.
Response. RUS agrees that the financial reporting requirements,
particularly for educational institutions, may prove burdensome as it
was stated in the proposed rule. RUS has therefore made audited
financial statements optional instead of compulsory. With regard to
delaying awards, RUS has committed to its customers that it will award
the FY 1996 grants in FY 1996 and will not delay its FY 1996
obligations.
Comment Summary (Sec. 1703.107(e)(1) Financial information). One
commenter stated that the regulations should require applicants to
provide audited or certified financial information to support requests
for grant funds to provide added assurance that the information is
accurate.
Response. RUS believes that requiring audited or certified
financial statements during the application phase would be
unnecessarily burdensome on the applicants. RUS is confident that the
financial information obtained after grant selections are made is
sufficient assurance of financial stability.
Comment summary (Sec. 1703.107(o) Supplemental information). One
commenter believed that paragraph (o) of this section was unclear as to
whether the applicant has to prepare the Technical Questionnaire (RUS
Form 479-A) and to what extent it was considered in determining the
selection. The proposed rule indicates that it is desired, will be
used, and implies that it may increase an applicant's chance of
selection. It was therefore suggested that the Technical Questionnaire
should be made a part of the application requirement.
Response. RUS Form 479-A will only be required from recipients of
grant funding. This section has been amended and the requirement to
submit RUS Form 479-A has been addressed in Sec. 1703.122, Further
processing of selected applications.
Comment Summary (Sec. 1703.109 Determining what is rural). Two
commenters expressed concern with the use of counties as a determining
factor for rural. They noted that rural areas that contain high levels
of unemployment and extreme levels of people on public assistance are
sometimes located in urban counties. These rural areas would benefit
greatly from the availability of telemedicine and distance learning
technology. Yet, because of a rurality score of the county, which is a
two or urban, these areas of need are effectively prevented from
competing for these programs. The commenters suggested RUS use the same
definition utilized by the USDA's infrastructure and business programs.
These programs define rural to include unincorporated areas, open
county, and cities and towns with populations up to 10,000 or 50,000
depending on the particular program.
Response. RUS believes that Sec. 1703.109 fairly accomplishes a
rural test and meets the intent of providing assistance in
predominately rural areas. In addition, paragraph (d) of this section
allows an applicant to appeal a ruling made under this section which
results in a denial of an application.
Comment Summary (Sec. 1703.117(d)(1) Financial consideration of a
project). Commenters believe that awarding increasing numbers of bonus
points for matches up to 300% defeats RUS' intention to direct funding
toward the least affluent communities. It was suggested that the rules
regarding matching funds remain the same, or consider truncating the
bonus points at a dollar for dollar match, rather than a 300% match, or
that the bonus point schedule have an upper limit of 100% rather than
300%.
Response. The intent of paragraph (d)(1) is to maximize the
benefits of a limited source of grant finding by encouraging applicants
to seek additional sources (whether local or not) of funding to
leverage their proposed projects. Paragraph (d)(2) further rewards
applicants with a limited number of bonus points for local community
funding. And in paragraph (c), the financial needs of a community are
assessed on a per capita income basis, awarding more points for poorer
communities. RUS believes that all communities, including least
affluent, are represented fairly when being scored based on financial
consideration of a project and that awarding higher points for non-
Federal matching up to 300 percent does not disadvantage one community
over another.
[[Page 33625]]
Comment Summary (Sec. 1703.117(d)(2) Criteria for scoring
applications). One commenter stated that RUS should reconsider extra
priority given to local funding sources because the Farm Bill revision
mentions the portion of total funds provided by applicants and non-
federal sources, with no mention of local financing.
Response. Paragraph (d)(2) awards bonus points applicants for a
given level of local community involvement. While the maximum number of
bonus points possible is relatively small, RUS believes that local
community involvement in the funding process is an important indicator
of community strength and may increase the overall benefits of the
project to the community's residents.
Comment Summary (Sec. 1703.117(e) The Comparative Rurality of the
Proposed Project Service Area). Several commenters stated that under
the previous rule, rurality was calculated according to the number of
end user sites and that the proposed rule substitutes the number of end
users rather than the number of sites. The commenters believe that this
approach defeats the objective of giving greater priority to the most
rural areas, and also lends itself to manipulation of data. Enrollments
in the most rural communities are likely to be smaller than elsewhere,
therefore the proposed method of calculation penalizes them for their
low enrollments. In addition, using individuals rather than sites as
the basis of calculations may encourage applicants to manipulate data
in self-serving ways. The commenters suggested this section be changed
or returned to the prior method of calculating.
Response. RUS agrees that there may be room for some manipulation
under the calculation for rurality as contained in the proposed rule.
This section has been amended by reinstating the rurality calculation
as it was described in the original rule and Appendix B has been
removed.
Comment Summary (Sec. 1703.117(f)(2) Criteria for scoring
applications). One commenter suggested this section be revised
slightly. Paragraph (f)(2)(ii), which discusses the ``desires'' of
rural residents is not only different from the language of the law but
appears to express the same thought as (f)(2)(i) in different terms.
Needs and desires seem to be the same idea within the context of this
program. ``Needs'' that are not ``desired'' by the beneficiaries cannot
be considered needs. In addition, ``willingness to pay'' discussed in
(f)(2)(ii) extends beyond the language and overall ideas expressed in
the language of the revised law. Paragraph (iii) should be retained
because it is consistent with the language of the revised law.
Paragraph (iv) should be deleted because outcomes are really benefits
and these are already discussed under (f)(2)(i). Paragraph (f)(2)(v)
should be retained since it is obviously a priority factor in the
revised law.
Response. RUS does not agree. Paragraph (ii) describes, from the
community standpoint, the willingness of its residents to participate
and use the proposed services if they were available. In paragraph (i),
the applicant is providing justification for specific types of services
to be provided, without regard, necessarily, to usership, but rather
based on the needs of the community as a whole. With regard to
paragraph (iv), RUS believes that obtaining information regarding a
projects expected outcomes, or end results, is necessary in order to
complete the picture of the project under evaluation.
Comment Summary (Sec. 1703.117 Criteria for scoring applications).
One commenter stated that where only a portion of the scoring criteria
is satisfied, the regulations should establish a minimum cutoff score
for funding applications.
Response. At this time, RUS does not believe a minimum scoring
level is needed or desirable.
Comment Summary (Sec. 1703.118 Other application selection and
appeals provisions). One commenter suggested that applicants be able to
appeal denial of their application for any reason rather than just an
appeal of the numerical scoring. Further, the regulation should provide
for appeals to be made to a party outside of RUS, since RUS would be
reviewing its own decision. The commenter suggested that the applicant
be allowed to review RUS' comments made in support of the score of the
application received or the determination for denial for other reasons.
In addition, the commenter suggests that time frames set forth for the
appeals process is too short, particularly if funding authorization for
FY 1996 does not expire at the end of FY 1996.
Response. All applications, submitted in accordance with the
application and eligibility provisions of the rule, will be scored by
RUS. Denial of an eligible application will be based on the
applications score, hence appeal of the score is appropriate. With
regard to appeals made to persons outside of RUS, appeals are made to
the Secretary of Agriculture, not RUS agency personnel. And because the
RUS has committed to award FY 1996 grants in FY 1996, RUS is unable to
lengthen the appeals time frames past the end of the fiscal year and
individual responses to applicants which appeal in FY 1996 would not be
feasible given the time frame that RUS must work with for approving
grants this fiscal year.
Comment Summary (Sec. 1703.118(b) Other application selection and
appeal provisions). One commenter suggested that paragraph (b) be
revised and condensed for clarity. In particular, by adapting language
found later in Sec. 1703.118(c) and replacing (b) (1) through (3) with
the following: ``The Administrator will not approve a grant application
if he/she determines that the applicant's proposal does not show
financial feasibility in accordance with Sec. 1703.107(e) or cannot
meet the program purposes in Sec. 1703.100.''
Response. RUS believes that the length and detail of this section
is necessary to adequately inform the public of the rights reserved by
the Administrator for application selection and the rights reserved for
the applicants to appeal the selection process.
Comment Summary (Sec. 1703.118(a) Other application selection and
appeal provisions). One commenter noted that the regulations permit the
Administrator to defer funding an eligible higher scoring application
in favor of funding for a lower scoring application. When this occurs,
the regulations should describe the procedure for processing these
higher scoring applications.
Response. This provision allows the Administrator to approve a
lesser scoring application over a higher scoring application of a
greater dollar amount when there are insufficient funds to provide full
funding for the higher scoring application and the higher scoring
applicant does not desire a lesser grant amount, or the project is not
feasible with the lesser amount. In this event, the higher scoring
applicant would need to wait until additional funding becomes available
and resubmit its application for consideration at that time.
Comment Summary (Sec. 1703.140 Expedited telecommunications
loans.). One commenter noted that, in the background section, it is
stated that these proposed rules do not address the new DLT loan
program for FY 1996 because no funding is available. However, this
section appears to contradict that statement by describing procedures
for obtaining expedited telecommunications loans.
Response. Expedited telecommunications loans and the DLT loan
program are not the same. The reference to expedited loans refers to
[[Page 33626]]
loans made by the RUS' telecommunications loan program, not loans to be
made under the new DLT loan program. Section 1703.140 covers the
process for expedition of RUS telecommunications loans.
Comment Summary (General). One commenter, noting that the
requirements for preparation of the application and supporting
documentation are extensive and will entail a considerable amount of
time, technical expertise, and financial resources, suggested that a
preapplication approval or preproposal process may be needed to screen
applications with the greatest potential for funding before the entire
application process is completed. Because of this significant initial
investment, the procedures may favor more affluent areas or neglect
areas where the need is the greatest but resources are not available to
compile the information required by the regulations.
Response. RUS believes that a ``double'' filing on behalf of
interested applicants would be overly burdensome, cost prohibitive for
some, and inefficient.
RUS has determined that unless this rule is effective upon
publication in the Federal Register, it is unlikely that much if any of
the Fiscal Year 1996 authorization for the Distance Learning and
Telemedicine Grant Program will be available for use by grantees before
the authorization lapses.
List of Subjects in 7 CFR Part 1703
Community development, Grant programs-education, grant programs-
health care, Grant programs-housing and community development,
Reporting and recordkeeping requirements, Rural areas.
For the reasons set forth in the preamble, chapter XVII of title 7
of the Code of Federal Regulations is amended as follows:
PART 1703--RURAL DEVELOPMENT
1. The authority citation for part 1703 continues to read as
follows:
Authority: 7 U.S.C. 901 et seq. and 950aaa et seq., Pub. L. 103-
354, 108 Stat 3178 (7 U.S.C. 6941 et seq.).
2. Subpart D of part 1703 is revised to read as follows:
Subpart D--Distance Learning and Telemedicine Grant Program
Sec.
1703.100 Purpose.
1703.101 Policy.
1703.102 Definitions.
1703.103 Applicant eligibility.
1703.104 Allowable grant funding percentage, grant purposes, and
in-kind matching provisions.
1703.105 Ineligible grant purposes.
1703.106 Maximum and minimum sizes of a grant.
1703.107 The grant application.
1703.108 Conflict of interest.
1708.109 Determining what is rural.
1703.110-1703.112 [Reserved]
1703.113 Application filing dates, location, processing, and public
notification.
1703.114-1703.116 [Reserved]
1703.117 Criteria for scoring applications.
1703.118 Other application selection and appeal provisions.
1703.119-121 [Reserved]
1703.122 Further processing of selected applications.
1703.123-1703.125 [Reserved]
1703.126 Disbursement of grant funds.
1703.127 Reporting and oversight requirements.
1703.128 Audit requirements.
1703.129-1703.134 [Reserved]
1703.135 Grant administration.
1703.136 Changes in project objectives or scope.
1703.137 Grant termination provisions.
1703.138-139 [Reserved]
1703.140 Expedited telecommunications loans.
Apprendix A to Subpart D of Part 1703--ERS Rural--Urban Continuum
Scale.
Appendix B to Subpart D of Part 1703--Environmental Questionnaire.
Subpart D--Distance Learning and Telemedicine Grant Program
Sec. 1703.100 Purpose.
The grants provided under this subpart D are to encourage, improve,
and make affordable the use of advanced telecommunications, computer
networks, and related advanced technologies to provide educational and
medical benefits through distance learning and telemedicine projects to
people living in rural areas and to improve rural opportunities.
Sec. 1703.101 Policy.
(a) RUS recognizes that the transmission of communications and
information is a vital component of the infrastructure of rural areas
and is necessary to promote rural development. Enhancing communication
and information transmission by making affordable advanced
telecommunications, computer networks, and related advanced
technologies more widely available in rural areas will improve rural
opportunities, promote rural economic growth, and enhance the quality
of life of rural residents. To further this objective, RUS will award
grants under this subpart to distance learning and telemedicine
projects that will improve the access of people residing in rural areas
to improved educational, training, and medical services, and to
opportunities that rely on advanced communication and information
technologies to provide such services.
(b) In providing assistance under this subpart, RUS will give
priority to rural areas that it believes have the greatest need of
enhanced communications. RUS believes that generally the need is
greatest: in the most sparsely populated rural areas; and in rural
areas that are experiencing economic hardship. RUS will take into
consideration the community's involvement in the project and the
applicant's ability to leverage grant funds based on its access to
capital.
(c) RUS believes that the residents of rural areas and their local
institutions which service them can best determine what are the most
appropriate communications or information systems for use in their
respective communities. Therefore, in administering this subpart, RUS
will not favor or mandate the use of one particular technology over
another. RUS does believe that it is generally desirable to use
technology that would incidentally allow other providers or developers
to purchase the elemental functions or access so other users, in
addition to educational and medical users, may benefit from any
transmission facilities receiving funding under this subpart. In
addition, RUS believes it is generally desirable for the project to use
products and technologies that are considered open systems. Further,
RUS believes that it is desirable to use products and technologies that
employ or adhere to nationally recognized standards that will permit
equipment from various companies to be connected to the system, and
permit the system to be connected to other systems or networks.
(d) Applicants, if they are to be successful in obtaining grant
funds must:
(1) Explain the problem that the applicant is intending to solve
using grant funds;
(2) Explain how the applicant will use the grant as well as other
funds to solve the problem and why this is the best solution;
(3) Explain why RUS grant funds are needed for the project to be
successful;
(4) Explain how the grant will be leveraged using funds from the
applicant, and local and non-Federal sources;
(5) Show that rural areas are the primary beneficiaries; and,
(6) Show that the project will be sustainable without additional
grant funds.
[[Page 33627]]
(e) RUS electric and telecommunications borrowers are encouraged to
cooperate with each other and with applicants and end users in
promoting the program being implemented under this subpart.
(f) RUS staff will make diligent efforts to inform potential
applicants in rural areas of the program being implemented under this
subpart.
(g) The applicant must check with the Rural Development State
Director, U.S. Department of Agriculture, before submitting the
application to RUS in order to explore any funding sources that may be
available at the state or local level. Evidence of this consultation is
a requirement of the grant application.
Sec. 1703.102 Definitions.
Act means Title XXIII, subtitle D, chapter 1, of the Rural Economic
Development Act of 1990 (7 U.S.C. 950aaa through 950aaa-4).
Administrator means the Administrator of the Rural Utilities
Service or his or her designee.
Applicant means an eligible organization which applies for a grant
under this subpart.
Approved purpose means a purpose that RUS has specifically approved
in the letter of agreement and scope of work covering the use of RUS
grant funds provided to the grantee.
Borrower means any organization which has an outstanding loan made
by RUS or RTB, or guaranteed by RUS, or which is seeking such
financing.
Communication satellite ground station complex means transmitters,
receivers, and communications antennas at the earth station site
together with the interconnecting terrestrial transmission facilities
(cables, line, or microwave facilities) and modulating and demodulating
equipment necessary for processing traffic received from the
terrestrial distribution system prior to transmission via satellite and
the traffic received from the satellite prior to transfer to
terrestrial distribution systems.
Comprehensive rural telecommunications plan means the plan
submitted by an applicant in accordance with Sec. 1703.107(a).
Computer networks means computer hardware and software, terminals,
signal conversion equipment including both modulators and demodulators,
or related devices, used to communicate with other computers to process
and exchange data through a telecommunication network in which signals
are generated, modified, or prepared for transmission, or received, via
telecommunications terminal equipment and telecommunications
transmission facilities.
Consortium means a combination or group of eligible entities formed
to undertake the purpose of which the distance learning and
telemedicine grant is provided. Each consortium shall be composed of
the following:
(1) A tertiary care facility, rural referral center, medical
teaching institution, or educational institution accredited by the
State;
(2) Any number of institutions that provide health care services or
educational services; and,
(3) Not less than three rural hospitals, clinics, community health
centers, migrant health centers, local health departments, or similar
facilities, or not less than three educational institutions accredited
by the State.
Construct means to construct, acquire, install, improve, or extend
a facility or system.
Data terminal equipment means equipment that converts user
information into data signals for transmission, or reconverts the
received data signals into user information, and is normally found on
the terminal of a circuit and on the premises of the end user.
Distance learning means a telecommunications link to an end user
through the use of eligible equipment to:
(1) Provide educational programs, instruction, or information
originating in nonrural areas to students and teachers who are located
in rural areas; or
(2) Connect teachers and/or students, located in one rural area
with teachers and/or students that are located in a different rural
area.
Eligible equipment means a communication satellite ground station
complex, computer networks, data terminal equipment, fiber-optic cable,
interactive video equipment, microwave transmission equipment,
telecommunications transmission facilities, and telecommunications
terminal equipment.
Eligible organization means an incorporated entity that meets the
requirements of Sec. 1703.103.
End user means either or both of the following:
(1) Rural elementary or secondary schools or other educational
institutions, such as institutions of higher education, county
extension services, vocational and adult training and education
centers, and teacher training centers, and students, teachers and
instructors using such rural educational facilities, that participate
in a rural distance learning telecommunications program through a
project funded under this subpart;
(2) Rural hospitals, primary care centers or facilities, such as
medical centers and clinics, and physicians and staff using such rural
medical facilities, that participate in a telemedicine
telecommunications program through a project funded under this subpart.
End user site means a facility located in a rural area that is part
of a network or telecommunications system that is utilized by end
users.
ERS means the Economic Research Service, an agency of the United
States Department of Agriculture.
Grantee means a recipient of a grant from RUS to carry out the
purposes of this subpart.
Hub means originating source of a network or telecommunications
system.
Instructional programming means educational programming, including
computer software, which would be used for tutorial purposes in
connection with eligible equipment.
Interactive video equipment means equipment used to produce and
prepare for transmission audio and visual signals from at least two
distant locations such that individuals at such locations can verbally
and visually communicate with each other. Such equipment includes
monitors, other display devices, cameras or other recording devices,
audio pickup devices, and other related equipment.
Letter of agreement means a legal document executed by RUS and the
grantee that contains specific terms, conditions, requirements, and
understandings applicable to a particular grant.
Local exchange carrier means a commercial, cooperative or mutual-
type association, or public body that provides telecommunications
service, through a local central switching office, to the subscribers
within its designated service area, and between the local subscribers
and the toll network.
Project means an undertaking to provide or improve distance
learning or telemedicine by using financial assistance from RUS under
this subpart.
Project service area means the area in which at least 90 percent of
the persons to be served by the project are likely to reside.
RE Act means the Rural Electrification Act of 1936, as amended (7
U.S.C. 901 et seq.).
REA means the Rural Electrification Administration, formerly an
agency of the United States Department of Agriculture, and predecessor
agency to RUS with respect to administering certain electric and
telecommunications loan programs.
[[Page 33628]]
Rural means any area of the country that meets the determining
criteria in Sec. 1703.109.
Rural community facilities means facilities such as schools,
libraries, hospitals, medical centers, or similar facilities, located
in rural areas, or primarily used by residents of rural areas, that
will use a telecommunications, computer network, or related advanced
technology system to provide educational and/or medical benefits
primarily to residents of rural areas.
RUS means the Rural Utilities Service, an agency of the United
States Department of Agriculture established pursuant to Section 232 of
the Federal Crop Insurance Reform and Department of Agriculture
Reorganization Act of 1994 (Public Law 103-354, 108 Stat. 3178),
successor to REA with respect to administering certain electric and
telecommunications programs. See 7 CFR 1700.1.
Scope of work means a detailed plan of work that has been approved
by the Administrator and that will be performed by the applicant using
funds provided under the grant.
Secretary means the Secretary of Agriculture.
Technical assistance means
(1) Assistance in learning to operate equipment or systems; and
(2) Studies, analyses, designs, reports, manuals, guides,
literature, or other forms of creating, acquiring, and/or disseminating
information.
Telecommunications terminal equipment means the assembly of
telecommunications equipment at the end of a circuit or path of a
signal, including but not limited to over the air broadcast, satellite,
and microwave, normally located on the premises of the end user, that
interfaces with telecommunications transmission facilities, and that is
used to modify, convert, encode, or otherwise prepare signals to be
transmitted via such telecommunications facilities, or that is used to
modify, reconvert, or carry signals received from such facilities, the
purpose of which is to accomplish the goal for which the circuit or
signal was established.
Telecommunications transmission facilities means facilities that
transmit, receive, or carry data between the telecommunications
terminal equipment at each end of the telecommunications circuit or
path. Such facilities include microwave antennae, relay stations and
towers, other telecommunications antennae, fiber-optic cables and
repeaters, coaxial cables, communication satellite ground station
complexes, copper cable electronic equipment associated with
telecommunications transmissions, and similar items.
Telemedicine means a telecommunications link to an end user through
the use of eligible equipment which electronically links medical
professionals at separate sites in order to exchange medical
information in audio, video, graphic, or other format for the purpose
of providing improved health care services primarily to residents of
rural areas.
Sec. 1703.103 Applicant eligibility.
(a) To be eligible to receive a grant under this subpart, the
applicant must be organized in one of the following corporate
structures:
(1) An incorporated organization, partnership, Indian tribes and
tribal organizations as defined in 25 U.S.C. 450b (b) and (c), or other
legal entity which operates, or will operate, a school, college,
vocational training facility, or other educational institution,
including a regional educational laboratory, library, hospital, medical
center, medical clinic or other rural community facility. A state
government, other than a state government entity that operates a rural
community facility, is not considered an eligible applicant. The
applicant may be a private or municipal corporation organized on a for-
profit or not-for-profit basis, or
(2) A consortium, as defined in Sec. 1703.102. A consortium which
includes a state government entity is only eligible if the state
government entity operates a rural community facility.
(3) An incorporated organization, partnership, or other legal
entity which is providing or proposes to provide telemedicine service
or distance learning service to other legal entities or consortia at
rates calculated to ensure that the economic value and other benefits
of the distance learning or telemedicine grant is passed through to
such other legal entities or consortia.
(b) At least one of the entities of a partnership or consortium
must be eligible individually, and the partnership or consortium must
provide written evidence of its legal capacity to contract with RUS. If
a partnership or consortium lacks the capacity to contract, each
individual entity must contract with RUS on its own behalf.
Sec. 1703.104 Allowable grant funding percentage, grant purposes, and
in-kind matching provisions.
(a) Grants may be used by eligible organizations for distance
learning and telemedicine projects to finance up to 70 percent of the
cost of allowable grant purposes outlined in paragraph (b) of this
section. The applicant will, therefore, provide matching funding in an
amount no less than 42.85 percent of the RUS grant. (If the grant
covers 70 percent of total project costs, the applicant provides the
other 30 percent of the project costs. Thirty percent of the project
costs is 42.85 percent of the 70 percent, i.e., the minimum amount of
the match.)
(b) Grants for purposes outlined in paragraphs (b)(2) through
(b)(6) of this section shall be limited to costs associated with
initial capital expenses for establishing the project. The following
are allowable grant purposes:
(1) Acquiring, by lease or purchase, eligible equipment as defined
in Sec. 1703.102;
(2) Acquiring, by lease or purchase, software to operate eligible
equipment, including any related software;
(3) Acquiring or developing instructional programming;
(4) Providing technical assistance and instruction for using
eligible equipment, including any related software;
(5) Engineering or environmental studies relating to the
establishment or expansion of the phase of the project that is being
financed with the RUS grant; and
(6) Facilities, equipment, or activities and non-recurring service
charges that are described in a comprehensive rural telecommunications
plan which has been approved by the Administrator.
(c) In kind matching--the applicant's minimum 30 percent funding
contribution for allowable grant purposes, i.e., 42.85 percent matching
of the RUS grant, generally is required in the form of cash. However,
certain in-kind contributions may be substituted for cash as follows:
(1) Equipment, activities and facilities as set forth in
Sec. 1703.104(b);
(2) Improvements made to real property necessary to accommodate
eligible equipment;
(3) Facilities constructed to accommodate eligible equipment, such
as buildings in which terminal equipment and/or transmission facilities
would be located;
(4) Real property purchased or acquired for the sole purpose of
accommodating distance learning and telemedicine facilities; or
(5) The present value of long term leases of eligible equipment,
with duration according to recognized industry standards and compatible
with the type of equipment leased.
(d) In kind items furnished in paragraph (c)(1) of this section
must be non-depreciated or new assets with established monetary value
by industry
[[Page 33629]]
standards. The value of improvements of construction paragraphs (c)(2)
and (c)(3) of this section must be established by a qualified
independent real property appraiser based on the actual cost of those
improvements. The value of land in paragraph (c)(4) of this section
must be established by a qualified independent real property appraiser
based on a market value appraisal.
(e) In kind contributions can be an integral component of an
approved comprehensive rural telecommunications plan as set forth in
Sec. 1703.107(a).
(f) In kind contributions shall not consist of eligible equipment
which has been subject to depreciation (used equipment), or for
equipment, services and labor not eligible for grant funding as set
forth in Sec. 1703.105.
(g) Funding may be provided for end user sites. Funding may also be
provided for hubs located in rural an non-rural areas, if they are
necessary to provide distance learning and/or telemedicine services to
rural residents at end user sites. However, funding will not be
provided for sites proposed as hubs if it is not demonstrated that they
are an integral part of the proposed network and are necessary to
transmit distance learning and/or telemedicine services to end users.
Sec. 1703.105 Ineligible grant purposes.
(a) Grants must not be used;
(1) To fund more than 70 percent of the eligible costs of a project
under this subpart;
(2) To cover the costs of installing or constructing
telecommunications transmission facilities, except as provided in
paragraph (c) of this section;
(3) To pay for medical equipment except medical equipment primarily
used for encoding and decoding data, such as images, for transmission
over a telecommunications or computer network;
(4) To pay salaries, wages, or employee benefits to medical or
educational personnel;
(5) To pay for the salaries or administrative expenses of the
applicant;
(6) To purchase equipment that will be owned by the local exchange
carrier or another telecommunications service provider;
(7) To duplicate services in place on the date the completed
application is received by RUS, or to reimburse the applicant or others
for costs incurred prior to RUS's receipt of the completed application;
(8) To pay costs of preparing the application package for funding
under this program;
(9) To refinance indebtedness incurred prior to receipt of the
completed application by RUS;
(10) For projects whose sole objective is to provide links between
teachers and students or medical professionals who are located at the
same facility;
(11) For site development, the destruction of alteration of
building, or other activities that might adversely affect the
environment or limit the choice of reasonable alternatives unless and
until the requirements of Sec. 1703.107(j) have been satisfied;
(12) For projects located in areas covered by the Coastal Barrier
Resources Act (16 U.S.C. 3501 et seq.); or
(13) For any purpose that the Administrator has not specifically
approved.
(b) Except as otherwise provided in Sec. 1703.140, funds shall not
be used to finance a project in part when success of the project is
dependent upon the receipt of additional funding under this subpart D
or is dependent upon the receipt of other funding that is not assured.
(c) Grants must not be used to cover the costs of
telecommunications transmission facilities if the local exchange
carrier for the project area will install such facilities through the
use of the expedited telecommunications loans made under the RE Act or
through other financing procedures within a reasonable time period and
at a cost that does not destroy the feasibility of the project, as
determined by the Administrator.
(d) Except for leases provided in Sec. 1703.104(b) (1) and (2),
grants must not be used to pay the cost of recurring or operating
expenses for the project.
Sec. 1703.106 Maximum and minimum sizes of a grant.
Applications for grants to be considered under this subpart will be
subject to limitations on the proposed amount of funding. The maximum
grant amount that will be awarded for any one project in any given
fiscal year will not exceed 10 percent of the appropriated funds
available for all grants during the fiscal year in which the
application for such project is selected. The Administrator may publish
notice of the annual maximum grant amount in the Federal Register. An
applicant submitting an application which exceeds the maximum will be
notified to that effect by RUS and given the opportunity to revise the
application. The minimum size of a grant is $50,000.
Sec. 1703.107 The grant application.
The following items comprise the required material that must be
submitted to RUS in support of the grant request:
(a) Comprehensive Rural Telecommunications Plan. A Comprehensive
Rural Telecommunications Plan, consisting of the following is required
only when the applicant is requesting grant funds for
telecommunications transmission facilities:
(1) A detailed explanation of the proposed rural telecommunications
system, how such system is to be funded, and a description of the
intended uses for a grant received under this subpart.
(2) The capabilities of the telecommunications transmission
facilities, including bandwidth, networking topology, switching,
multiplexing, standards and protocols for intra-networking and open
systems architecture (the ability to effectively communicate with other
networks). In addition, the applicant must explain the manner in which
the transmission facilities will deliver the proposed services. For
example, for medical diagnostics, the applicant might indicate whether
or not a guest or other diagnosticians can join the network from
locations off the network. For educational services, indicate whether
or not all hub and end-user sites are able to simultaneously hear in
real-time and see each other or the instructional material in real-
time. The applicant must include detailed cost estimates for operating
and maintaining the network, and include evidence that alternative
delivery methods and systems were evaluated.
Note: if a local exchange carrier is providing the transmission
facilities, the requirements of this paragraph may be omitted form
the Comprehensive Rural Telecommunications Plan.
(3) The capabilities of the telecommunications terminal equipment,
including a description of the specific equipment which will be used to
deliver the proposed service. The applicant must document discussions
with various technical sources which could include consultants,
engineers, product vendors, or internal technical experts, provide
detailed cost estimates for operating and maintaining the end user
equipment and provide evidence that alternative equipment and
technologies were evaluated.
(4) A listing of the proposed purchases or leases of
telecommunications terminal
[[Page 33630]]
equipment, telecommunications transmission facilities, data terminal
equipment, interactive video equipment, computer hardware and software
systems, and components that process data for transmission via
telecommunications, computer network components, communication
satellite ground station equipment, or any other elements of the
telecommunications system designed to further the purposes of this
subpart, that the applicant intends to build or fund using the grant
funds.
(5) An explanation of the special financial or other needs of the
affected rural communities and of the applicant for such grant
assistance.
(6) An analysis of the relative costs and benefits of proposals for
leasing or purchasing of facilities, equipment, components, hardware
and software, or other items.
(7) A description of the consultations with the appropriate local
exchange carrier or carriers and with a wide variety of additional
telecommunications service providers (including other interexchange
carriers, cable television operators, enhanced service providers,
providers of satellite services and telecommunications equipment
manufacturers and distributors) and the anticipated role of such
providers in the proposed telecommunications system.
(b) Proposed scope of work of the project. The proposed scope of
work of the project which includes, at a minimum:
(1) The specific activities to be performed under the project;
(2) Who will carry out the activities;
(3) The time-frames for accomplishing the project objectives and
activities;
(4) A budget for capital expenditures reflecting the line item
costs for both the grant funds and other sources of funds for the
project;
(5) Information indicating the ability of the applicant to reduce
the size or scope of the project in the event RUS funding, or other
projected sources of funding, were reduced or delayed. The applicant
must indicate the respective components of the project that would
receive the highest priority of funding; and
(6) Information about the potential of the proposed network to
expand its size or scope if additional funding was available.
(c) Executive summary for the project. The applicant must provide
RUS a general project overview, verification of compliance with the
general requirements of this subpart, and documentation of eligibility.
The executive summary should not exceed eight one-sided double spaced
pages, size 8.5'' x 11'', with a minimum font size of 12 points. The
executive summary shall contain the following 10 categories:
(1) A description of the applicant, documenting eligibility with
Sec. 1703.103.
(2) An explanation of:
(i) The problem the applicant is intending to solve;
(ii) How the applicant will use the grant funds to solve the
problem;
(iii) The amount of RUS grant funds required and why such grant
funds are needed; and
(iv) How the RUS grant funds will be leveraged, including both
amount and source of these additional funds.
(3) A brief economic and demographic description of the proposed
service area, the types of educational and/or medical services to be
offered by the project, and the benefits to the rural residents.
(4) A physical description of the project service area. The
applicant should include information regarding topography and available
transportation and telecommunications infrastructure.
(5) A description of the project as distance learning or
telemedicine facility as defined in Sec. 1703.102. If the project
provides both distance learning and telemedicine services, the
applicant must identify the predominant use of the system.
(6) A list of expected outcomes, benefits or services to be
provided by the project. Some examples include, but are not limited to:
(i) Improved education opportunities for a specified number of
students;
(ii) Travel time and money saved by telemedicine diagnosis;
(iii) Number of doctors retained in rural areas;
(iv) Number of additional students electing to attend higher
education institutions,
(v) Lives saved due to prompt medical diagnosis and treatment;
(vi) New education courses offered, including college level
courses; and
(vii) Expanded use of educational facilities such as night
training.
(7) A general overview of the telecommunications system to be
developed, including the types of equipment, technologies, and
facilities used.
(8) A description of the participating hubs and end user sites and
the number of rural residents which will be served by the proposed
project at each end user site.
(9) A brief narrative describing the project service area to allow
a determination of rural eligibility in accordance with Sec. 1703.109.
The applicant must list all counties located in the proposed service
area, and the Economic Research Service's Rural--Urban Continuum
Category for each county. These categories may be obtained from RUS,
any USDA Rural Development state office or from State Land Grant
University Cooperative Extension Offices.
(10) The applicant must indicate whether or not it is willing to
have its grant application forwarded to other agencies within USDA for
consideration in the event the application is not selected for funding
under this subpart.
(d) A section on compliance with scoring criteria. The applicant
must provide a justification for the number of points the proposed
project will obtain for each of the criteria for scoring applications
set forth in Sec. 1703.117.
(e) Financial information. The applicant must provide financial
information to support the need for the grant funds for the project,
show its financial capacity to carry out the proposed work, and show
project feasibility. The financial information must include the
following:
(1) A current balance sheet from the applicant reflecting its
financial condition. When the applicant is a partnership, company,
corporation or other entity, current balance sheets are needed from
each of the entities that has at least a 20 percent interest in such
partnership, company, corporation or other entity. When the applicant
is a consortium, a current balance sheet is needed from each member of
the consortium and from each of the entities that has at least a 20
percent interest in such member of the consortium. While not required,
an audit report is preferable and must be for a period which ended no
earlier than 12 months preceding the date of the application; and
(2) A pro-forma income and expense statement for each participating
hub and end user site for the project covered by the application. The
pro-forma statements must cover a minimum of 5 years after completion
of the project and reflect that the project is feasible and sustainable
in order to be considered for grant funds by showing sufficient income
to pay cash operating expenses including telecommunications access and/
or toll charges, system maintenance, salaries, training, and any other
general operating expenses; and provide for replacement of depreciable
items. Depreciation shall be based on Internal Revenue Service
depreciation rules, or other recognized telecommunications industry
guidelines. The applicant shall provide sufficient documentation to
substantiate any depreciation projections.
[[Page 33631]]
(3) For each hub and end user site, the applicant must identify and
provide reasonable evidence of each source of revenue. If the
projection relies on cost sharing arrangements among hub and end user
sites, the applicant must provide evidence of agreements made among
project participants.
(4) For applicants eligible under Sec. 1703.103(a)(3), and
explanation of the economic analysis justifying the rate structure to
ensure that the benefit of the financial assistance is passed through
to the other persons receiving telemedicine or distance learning
services.
(5) Exception. An exception is granted for K to 12 school in
meeting the requirements of paragraphs (e)(1) through (e)(4) of this
section. In lieu of submitting the financial data required in
paragraphs (e)(1) through (e)(4) of this section, RUS will accept the
current financial statements in a form currently acceptable to the
applicant school system's county or State authority.
(f) A statement of experience. The applicant must provide a written
narrative (not exceeding three single spaced pages) describing its
demonstrated capability and experience, if any, in operating an
education or health care endeavor and any project similar to the
proposed project. Experience in a similar project is desirable but not
required.
(g) Funding commitment from other sources. The applicant must
provide evidence of the commitment of funds for the project in addition
to the funds requested under this subpart. Evidence should be from an
authorized representative of the source organization that the funds are
available and will be used for the purposed project.
(h) Proposed evaluation methodology. The applicant must provide a
proposed method of evaluating the success of the project in meeting the
objectives of the program as set forth in Secs. 1703.100 and 1703.101
and the proposed scope of work.
(i) Compliance with other Federal statutes and regulations. The
applicant is required to submit evidence that it is in compliance with
other Federal statutes and regulations, as detailed in Sec. 1703.33 as
follows:
(1) Equal opportunity and nondiscrimination requirements;
(2) Architectural barriers;
(3) Flood hazard area precautions;
(4) Uniform Relocation Assistance and Real Property Acquisition for
Federal and Federally Assisted Programs;
(5) Drug-free workplace;
(6) ``Certification Regarding Debarment, Suspension and Other
Responsibility Matters--Primary Covered Transaction (See 7 CFR
3017.510);
(7) Intergovernmental review of Federal programs; and
(8) Restrictions on lobbying. For an application for a grant in
excess of $100,000, a certification statement, ``Certification
Regarding Lobbying:'' is required. If the applicant is engaged in
lobbying activities, the applicant must submit a completed disclosure
form, ``Disclosure of Lobbying Activities'' (see 7 CFR part 3018).
(j) Environmental impact and historic preservation. The applicant
must provide details of the project's impact on the environment and
historic preservation. Grants made under this part are subject to part
1794 of this chapter which contains the policies and procedures of RUS
for implementing a variety of Federal statutes, regulations and
executive orders generally pertaining to protection of the quality of
the human environment that are listed in Sec. 1794.1 of this chapter.
The application shall contain a separate section entitled
``Environmental Impact of the Project.''
(1) Environmental information. An ``Environmental Questionnaire,''
appendix B to this subpart, may be used by applicants to assist in
complying with the requirements of this section. Copies of the
Environmental Questionnaire are available for RUS.
(2) Grants for technical assistance projects. For a proposal to
fund a technical assistance project, the only environmental information
normally required is whether or not the proposed project being studied
or analyzed will be located within an area protected under the Coastal
Barrier Resources Act (16 U.S.C. 3501 et seq.). Generally, the use of
Federal funds to promote development on coastal barriers is strictly
limited by the Coastal Barrier Resources Act.
(3) Grants for all other projects. Applications for a grant to fund
a project that is not subject to paragraph (j)(2) of this section must
be accompanied by the information described in this paragraph. The
Administrator will review supporting materials in the application and
initiate an environmental review process pursuant to part 1794 of this
chapter. This process will focus on any environmental concerns or
problems that are associated with the project. The level and scope of
the environmental review will be determined in accordance with the
National Environmental Policy Act of 1969 (NEPA), as amended, (42
U.S.C. 4321 et seq.), the Council on Environmental Policy for
Implementing the Procedural Provisions of NEPA (40 CFR parts 1500
through 1508), RUS's Environmental Policies and Procedures (part 1794
of this chapter) and other relevant Federal environmental laws,
regulations and Executive orders. Activity related to the project that
may adversely affect the environment or limit the choice of reasonable
alternatives shall not be undertaken prior to completion of RUS's
environmental review process.
(4) For a proposed project that only involves internal
modifications or equipment additions to buildings or other structures
(for example, relocating interior walls or adding computer facilities)
and/or external changes or additions to existing buildings, structures
or facilities requiring physical disturbance of less than 0.4 hectare
(0.99 acre) the environmental information normally required is: a
description of the internal modifications or equipment additions, and
the external changes or additions to existing buildings, structures or
facilities being proposed, the size of the site in hectares, and the
general nature of the proposed use of the facilities once the project
is completed, including any hazardous materials to be used, created or
discharged, any substantial amount of air emissions, wastewater
discharge, or solid waste that will be generated.
(k) A completed Standard Form 424 ``Application for Federal
Assistance,'' along with a board of directors resolution authorizing
the grant request.
(l) Evidence of the applicant's legal existence and authority to
enter into a grant agreement with RUS and perform activities proposed
under the grant application.
(m) Evidence that the applicant is not delinquent on any obligation
owed to the Federal government (7 CFR parts 3015 and 3016).
(n) Evidence that the applicant has consulted with the USDA State
Director, Rural Development, concerning the availability of other
sources of funding available at the state or local level.
(o) Supplemental information. The applicant should provide any
additional information it considers relevant to the project and likely
to be helpful in determining the extent to which the proposed project
would further the purposes of this subpart.
(p) Additional information requested by RUS. The applicant must
provide any additional information the Administrator may consider
relevant to the application and necessary to adequately evaluate the
application and make grant decisions. The Administrator may also
request modifications or changes, including
[[Page 33632]]
changes in the amount of funds requested, in any proposal described in
a grant application submitted under this part.
Sec. 1703.108 Conflict of interest.
At any time prior to the disbursement of a grant awarded under this
subpart, the Administrator may disqualify an otherwise eligible project
whenever, in the judgment of the Administrator, the project would
create a conflict of interest or the appearance of a conflict of
interest. The Administrator will notify the applicant in writing of
his/her intention to disqualify the project under this section and set
forth the basis for his/her determination that a conflict of interest
or appearance exists. Thereafter, the applicant will have 30 days from
the date of such notice to file a written response with the
Administrator. If the Administrator receives the applicant's response
within the 30-day period, the Administrator will consider the
information contained therein before making a final determination
whether to disqualify the project. The Administrator will promptly
notify the applicant of the final determination whether a conflict of
interest or appearance of a conflict exists. If the determination is
affirmative, the notice will also advise the applicant whether the
project is disqualified or conditionally disqualified. If the project
is conditionally disqualified, the notice will state under what
circumstances the project may continue to be
FR Doc. 96-16321 Distance Learning and Telemedicine Grant Program
eligible for assistance
under this subpart. The Administrator's decision under this section
will be final.
Sec. 1703.109 Determining what is rural.
The RUS Administrator shall determine whether a project service
area possesses sufficient characteristics to be considered a rural area
for purposes of this subpart. The Administrator shall make such
determination on the following basis:
(a) The project service area is located within nonmetropolitan
counties included in one of the lowest four categories (6-9) of the ERS
Rural--Urban Continuum Scale (rural--urban continuum) as set forth in
appendix A to this subpart. Those categories are as follows:
(1) Aggregate urban population (sum of cities, towns, villages or
other incorporated communities of 2,500 or more) of less than 20,000,
adjacent to a metropolitan area (category 6);
(2) Urban population of less than 20,000, not adjacent to a
metropolitan area (category 7);
(3) Completely rural (no cities, towns, villages or other
incorporated areas of 2,500 or greater) adjacent to a metropolitan area
(category 8);
(4) Completely rural, not adjacent to a metropolitan area (category
9).
(b) In the case of project service areas not categorized as rural
areas under paragraph ( a) of this section, consideration will be given
to the degree of rurality the area possesses taking into account such
factors as:
(1) Whether the project service area is located within the
boundaries of an incorporated community of 2,500 persons or more as
determined by the U.S. Census Bureau;
(2) Where the county or counties in which the project service area
is located rank on the rural--urban continuum;
(3) Whether natural geographic barriers or an absence of roads may
impede access from the project service area to metropolitan areas;
(4) Whether the county is a spatially large county and the project
service area is not within the commuting area of an urbanized area; and
(5) Whether the economy of the project service area centers on
natural resource-based activities such as farming, ranching, mining, or
timber production, or is highly specialized.
(c) In the case of a project that will serve end users located in
more than one county, at least one of which is not categorized as rural
under paragraph (a) of this section, RUS will determine the rurality of
the project service area case-by-case using factors such as those
identified in paragraph (b) of this section. To the extent practicable,
in the case of a project that is expected to benefit residents of urban
areas as well as residents of rural areas, instead of rejecting an
application because it benefits areas they are not rural, RUS may
allocate the grant accordingly to assure that grant funds primarily
benefit only residents of rural areas.
(d) If a determination made under this section results in the
denial of an application, the applicant may appeal such determination
to the Administrator in writing setting forth the reasons why it
disagrees. Thereafter, the Administrator will review the determination
and decide in writing whether to sustain, reverse or modify the
original determination. The Administrator's determination will be
final. A copy of the Administrator's decision will be furnished
promptly to the applicant.
Secs. 1703.110-1703.112 [Reserved]
Sec. 1703.113 Application filing dates, location, processing, and
public notification.
(a) Applications for funding under this subpart shall be submitted
to the Administrator, Rural Utilities Service, U.S. Department of
Agriculture, 14th and Independence Avenue, SW., Washington, DC 20250-
1500. Applications should be marked ``Attention: Assistant
Administrator, Telecommunications Program''.
(b) Applications will be reviewed for eligibility and considered
for funding on a quarterly or annual basis. The Administrator will
publish a notice in the Federal Register indicating the deadline(s) for
application submissions and the amount of available grant funds.
(c) RUS will review each application for completeness in accordance
with Sec. 1703.107, and notify the applicant, within 15 working days of
the receipt of the application, of the results of this review, citing
any information which is incomplete. To be considered, the applicant
must submit the remaining information postmarked no later than the
application filing deadline set forth in paragraph (b) of this section,
or 15 working days from the receipt of RUS's letter, whichever is the
later date. If the applicant fails to submit such information to
complete the application in accordance with Sec. 1703.107, the
application shall be denied and returned to the applicant.
(d) After receipt of all completed applications, the Administrator
will publish notice in the Federal Register of all completed
applications received for funding under this subpart. The Administrator
will also make those applications available for public inspection at
the U.S. Department of Agriculture, 14th and Independence Avenue, SW.,
Washington, DC. For purposes of this paragraph, applications include
any information not protected by the Privacy Act of 1974, 5 U.S.C.
552a, and any other information that has not been designated as
proprietary information by the applicant.
(e) For instances where multiple applicants are necessary to carry
out a project due to project feasibility or applicant authorities,
multiple applications may be submitted jointly by the applicants. The
applicants must clearly mark or otherwise identify any information in
the application it deems proprietary.
(f) The applicant must submit an original and three copies of a
completed application. The applicant must also submit a copy of the
application to the State government point of contact at the same time
it submits an application to RUS. All applications must include the
information described in Sec. 1703.107.
[[Page 33633]]
Secs. 1703.114-1703.116 [Reserved]
Sec. 1703.117 Criteria for scoring applications.
(a) Criteria. The criteria in this section will be used by the
Administrator to score applications that have been determined to be in
compliance with the requirements of this subpart. There are six general
criteria for scoring applications:
(1) The financial need of the community and the project;
(2) The financial composition of the project;
(3) The comparative rurality of the proposed project service area;
(4) The documented need for services;
(5) Connectivity with outside networks; and
(6) The cost effectiveness of the design.
(b) Selection. Applications will be selected for funding based on
scores, availability of funds, and the provisions of Sec. 1703.118. The
Administrator will make determinations regarding the reasonableness of
all numbers; dollar levels; rates; the nature of the project; cost;
location; and other characteristics of the application and the proposed
project to determine the number of points assigned to an application
for all selection criteria. Joint applications submitted by multiple
applicants as set forth in Sec. 1703.113 will be rated as a single
application.
(c) Financial need of community and project. A comparison of the
per capita personal income in the county or counties where the project
of the beneficiaries are located to the national per capita personal
income levels--up to 80 points.
(1) If the per capita personal income level in the county where the
grant beneficiaries will be located:
(i) Is less than equal to 80 percent of the national per capita
personal income level, 80 points, the maximum number of points;
(ii) Is greater than 80 percent and less than or equal to 90
percent of the national per capita personal income level--60 points;
(iii) Is greater than 90 percent and less than or equal to 100
percent of the national per capita personal income level--30 points;
(iv) Is greater than 100 percent and less than or equal to 110
percent of the national per capita personal income level--5 points;
(v) Exceeds 100 percent of the national per capita personal income
level--0 points.
(2) If the project will serve grant beneficiaries in several
counties, the Administrator will use an unweighted mean of the counties
for the comparison.
(3) RUS will use the most recent annual per capita personal income
levels it has obtained from the Bureau of Economic Analysis, U.S.
Department of Commerce, or other government sources and processed into
a suitable format.
(d) Financial composition of project. A comparison of the ability
of the applicant to contribute financially to the project, and to
secure other non-Federal sources of funding. Criteria include:
(1) Evidence of additional financial support for the project from
non-Federal sources above the applicant's required 42.85 percent
matching of the RUS grant as set forth in Sec. 1703.104; the applicant
must include evidence from authorized representatives of the sources
that the funds are available and will be used for the proposed
project--up to 60 points.
(i) Matching for allowable grant purposes less than nor equal to 50
percent of the RUS grant--0 points;
(ii) Matching for allowable grant purposes greater than 50 percent,
but less than or equal to 100 percent of the RUS grant--10 points;
(iii) Matching for allowable grant purposes greater than 100
percent, but less than or equal to 150 percent of the RUS grant--20
points;
(iv) Matching for allowable grant purposes greater than 150
percent, but less than or equal to 200 percent of the RUS grant--30
points;
(v) Matching for allowable grant purposes greater than 200 percent,
but less than or equal to 250 percent of the RUS grant--40 points;
(vi) Matching for allowable grant purposes greater than 250
percent, but less than or equal to 300 percent of the RUS grant--50
points;
(vii) Matching for allowable grant purposes greater than 300
percent of the RUS grant--60 points;
(2) Bonus Points For Community Involvement. In addition to the
points allocated under Sec. 1703.117(d)(1), bonus points will be scored
for funding supplied by local sources. Criteria include:
(i) Proportion of non-Federal sources of funding supplied by local
sources above the applicant's required 42.85 percent matching of the
RUS grant. For purposes of this paragraph, local funding sources shall
constitute any for-profit or non-profit entity or entities which derive
income from the area to be served by the proposed project, and any
village, town, county, regional, or other local governmental or public
entity whose jurisdiction includes at least part of the proposed
project service area. A local funding source shall not include a state
or Federal governmental entity. The applicant shall provide evidence
from authorized local representatives that the funds are available and
will be used for the proposed project--up to 20 points.
(A) Less than or equal to 50 percent to the RUS grant supplied by
local funding sources--0 points;
(B) Greater than 50 percent, but less than or equal to 100 percent
of the RUS grant supplied by local funding sources--5 points;
(C) Grater than 100 percent, but less than or equal to 150 percent
of the RUS grant suppled by local funding sources--10 points;
(D) Greater than 150 percent, but less than or equal to 200 percent
of the RUS grant supplied by local funding sources--15 points;
(E) Greater than 200 percent of the RUS grant supplied by local
funding sources--20 points, the maximum number of points;
(ii) Reserved
(e) The Comparative Rurality of the Proposed Project Service Area.
(1) This criterion is used after a project service area has been
determined eligible in accordance with Sec. 1703.109. The methodology
contained in the section is used to evaluate the relative rurality
(i.e., population and isolation) of service areas for various projects.
Under this system, the end user sites and hubs (as defined in
Sec. 1703.102) contained within the proposed project service area are
identified. Then, that service area is given a score according to the
characteristics for the county(ies) in which the end user sites are
located. Evaluation is based on the population of the county or
counties, and the location of the county or counties relative to
metropolitan statistical areas. This system incorporates a framework
based on the classification of nonmetropolitan counties by urbanization
and proximity to metropolitan areas, developed by analysts and
demographers at the USDA Economic Research Service (ERS), as set forth
in appendix A to this subpart.
(2) The following definitions are used in the evaluation of
rurality:
(i) Metropolitan statistical area (MSA)--as defined by the Office
of Management and Budget (OMB), and MSA includes core counties
containing a city of 50,000 or greater population or containing several
smaller cities totaling 50,000 or greater population and a total
population of at least 100,000. Additional contiguous counties are
included in the MSA if they are economically and socially integrated
with the core county.
(ii) Metropolitan County--as defined by OMB, a metropolitan county
is part
[[Page 33634]]
of an MSA and contains a place, or two adjoining places, totaling at
least 50,000 in population, and has residents who are economically and
socially integrated with a metropolitan core.
(iii) Adjacency to Metropolitan area--the proximity of a county to
an MSA measured by a shared boundary with an MSA, and having at least 2
percent of employed county residents commuting to MSA's for employment.
(3) If the end user site(s) for the project are located in a
nonmetropolitan county or counties (ERS Rural--Urban Continuum Scale
categories 4-9 as set forth in Appendix A to this subpart), the
applicant will receive points as follows:
(i) With an ERS category of 9--60 points, the maximum number of
points;
(ii) With an ERS category of 8--55 points;
(iii) With an ERS category of 7--40 points;
(iv) With an ERS category of 6--35 points;
(v) With an ERS category of 5--20 points;
(vi) With an ERS category of 4-15 points; or
(vii) With an ERS category of 0 through 3 (metropolitan counties)--
0 points.
(4) Applicants having proposed end users sites located in a
nonmetropolitan county or counties which are adjacent to a metropolitan
area, may receive an adjustment of up to 5 additional points, as
determined by the Administrator. Applicants must document that the end
users are isolated from urban centers by virtue of available mass
transportation, highway infrastructure, or geography.
(5) Applicants having proposed user sites located in a metropolitan
county or counties (ERS categories 0-3) may receive 10 points if the
population density of the county or counties is no greater than 110
percent of the adjoining nonmetropolitan county with the lowest
population density.
(6) If all the end user sites in a proposed network or system are
located in a single county or in multiple counties which have the same
characteristics, a score will be assigned directly from one of the
categories set forth in Sec. 1703.117(e)(3).
(7) If end users sites are located in multiple counties with
different characteristics, a weighted average will be calculated using
the following:
(i) The total number of end user sites located in rural areas will
be determined and be assigned a uniform percentage to be used in a
weighted average formula (e.g., with 5 sites, each site would be
weighted 20%). A hub will not be counted in a weighted average unless
the hub is also utilized as an end user site. For purposes of ranking,
if a hub also is utilized as an end user site, the hub will be
considered as an end user site.
(ii) The counties which contain end user sites will be identified.
(iii) Each end user site will be assigned a number of points
according to the classification system for the county in which it is
located.
(iv) The percentage value for each site determined in step 1 will
be multiplied by the number of points scored from the site's county
classification.
(v) The total points for each end user site, obtained from the
calculations in step 4, will be added to reach a final weighted average
for the project.
(8) The following example illustrates the provision of paragraph
(e)(7) of this section.
Example Calculation. Greenbriar Valley Development Authority has
submitted an application for an interactive classroom network which
includes a hub in a metropolitan area and 3 end user sites, located
in 3 rural counties. The hub is located in a large city and is not
utilized as an end user site, so the hub will not be considered part
of the network or system.
The first end user site is located in the town of Midway, in
Greenbriar County, less than 20,000 adjacent to a metropolitan area.
Thus, it has a category of 6 on the ERS Rural--Urban Continuum
Scale.
The second end user site is in Lewistown, in Lewis County, which
has an aggregate urban population of less than 20,000, not adjacent
to a metropolitan area. Thus, it has a category of 7 on the ERS
Rural--Urban Continuum Scale.
The third end user site is in the town of Rocky Creek, in
Fayette County, which has an aggregate urban population of 20,000 or
more, but not adjacent to a metropolitan area. Thus, it has a
category of 5 on the ERS Rural--Continuum Scale.
Step (1) The total number of end user sites = 3; thus each end
user site receives 33% weight in the formula.
Step (2) The counties identified are Greenbriar, Lewis and
Fayette.
Step (3) Greenbriar County, ERS Rural--Urban Continuum Scale
category 6 = 30 points;
Lewis County, ERS Rural--Urban Continuum Scale category 7 = 35
points;
Fayette County, ERS Rural Urban Continuum Scale category 5 = 10
points.
Step (4) Midway site--30 points x 33% = 9.9 points Lewistown
site--35 points x 33% = 11.6 points
Rocky Creek site--10 points x 33% = 3.3 points
Step (5) 9.9 + 11.6 + 3.3 = 24.8 total weighted average score.
(f) Documented need for services (1) This criterion will be used by
the Administrator to score applications based on the documentation
submitted in the support of the grant application that reflects the
need for the services proposed by the project. The applicant should
indicate whether or not the proposed services could be provided if RUS
grant funds were not available. Up to 60 points can be assigned to this
criterion.
(2) The Administrator will consider the extent to which the need
for improved educational or medical services in the proposed rural area
compares to other regions. RUS will also consider any support by
recognized experts in the related educational or medical field, and
documentation substantiating the educationally and/or medically
underserved nature of the applicant's proposed service area. The
Administrator will consider the extent of the applicant's documentation
showing:
(i) The justification for specific educational and/or medical
services which are needed and will provide direct benefits to rural
residents;
(ii) That rural residents, and other beneficiaries, desire the
educational and/or medical services to be provided by the project (a
strong indication of need is the willingness of local end users or
institutions to pay, to the extent possible, for proposed services);
(iii) The applicant's inability to pay for the proposed project
without grant funds, given the financial strength of the applicant, its
partners, or subsidiaries, as described in Sec. 1703.107(e)(1);
(iv) The project's development and support based on input from the
local residents and institutions.
(v) The extent to which the application is consistent with the
State strategic plan prepared by the Rural Development State Director
of the United States Department of Agriculture.
(3) Examples of the need for medical services could include rural
physicians and medical professionals inability to access support
functions, such as consulting with others on a diagnosis or access to
the latest recommendations in treatment procedures and techniques, up-
to-date health-care research, or continuing medical studies. Other
medical needs could be to retain more patients at the local hospital or
medical facility in order to prevent the closure of the rural hospital
or medical facility.
(g) Connectivity with outside networks. (1) This criterion will be
used by the Administrator to score applications based on the
documentation submitted in support of the grant application that
reflects the connectivity of the proposed projects with other
educational and/or medical networks. Up to 25 points can be assigned to
this criterion.
[[Page 33635]]
(2) Consideration will be given to the extent that the proposed
project will interconnect with other existing networks at the regional,
statewide or national levels. RUS believes that to the extent possible,
educational and medical networks should be designed to connect to the
widest practicable number of other networks that expand the
capabilities of the proposed project, thereby affording rural residents
opportunities that may not be available at the local level.
(3) Consideration will also be given to the extent that facilities
constructed with federal financial assistance, particularly financial
assistance under this chapter provided to entities other than the
applicant, will be utilized to extend or enhance the benefits of the
proposed project.
(h) Cost effective design. (1) This criterion will be used by the
Administrator to score applications based on the documentation
submitted in the support of the grant application that reflects the
cost efficiency of the project design. Up to 15 points can be assigned
to this criterion.
(2) Consideration will be given to the extent that the proposed
technology or technologies for delivering the proposed educational and/
or medical services for the project service area are the most cost
effective for the type of project proposed, including utilizing the
transmission facilities of the local telecommunications provider. The
Administrator will consider the applicant's documentation comparing
various systems and technologies, and the choice of the applicant's
system as being the most cost-effective system. The Administrator will
also consider the applicant's documentation relating to buying or
leasing options for specific equipment. The application must contain
information necessary for the Administrator to use accepted analytical
and financial methodologies to determine whether the applicant is
proposing the most cost-effective option.
Sec. 1703.118 Other application selection and appeal provisions.
(a) Regardless of the number of points an application receives in
accordance with Sec. 1703.117, the Administrator may, based on his/her
review of the applications in accordance with the requirements of this
part:
(1) Limit the number of applications selected for projects located
in any one state during a fiscal year;
(2) Limit the number of selected applications for a particular
project; and
(3) Select an application receiving fewer points than another
higher scoring application if there are insufficient funds during a
particular funding period to select the higher scoring application;
provided, however, the Administrator may ask the applicant of the
higher scoring application if it desires to reduce the amount of its
application to the amount of funds available if, notwithstanding the
lower grant amount, the Administrator determines the project is
financially feasible in accordance with Sec. 1703.107(h) at the lower
amount.
(b) The Administrator will not approve a grant application if he/
she determines that:
(1) The applicant's proposal does not indicate financial
feasibility or is not sustainable in accordance with the requirements
of Sec. 1703.107(e) (1) and (2);
(2) The applicant's proposal indicates technical flaws, which, in
the opinion of the Administrator, would prevent successful
implementation, operation, or sustainability of the proposed project;
or
(3) Any other aspect of the applicant's proposal fails to
adequately address any requirements of this subpart or contains
inadequacies which would, in the opinion of the Administrator,
undermine the ability of the project to meet the general purpose of
this part or comply with policies of the Distance Learning and
Telemedicine Grant Program set forth in Sec. 1703.101.
(c) The Administrator may reduce the amount of the applicant's
grant award based on insufficient program funding for the fiscal year
in which the project is reviewed if the Administrator determines that,
notwithstanding a lower grant award, the project will show financial
feasibility in accordance with Sec. 1703.107(e), and the program
purposes set forth in Sec. 1703.100 can be met. RUS will discuss its
findings informally with the applicant and make every effort to reach a
mutually acceptable agreement with the applicant. Any discussions with
the applicant and agreements made with regard to a reduced grant amount
will be confirmed in writing, and these actions shall be deemed to have
met the notification requirements set forth in paragraph (d) of this
section.
(d) The Administrator will provide the applicant an explanation of
any determinations made with regard to paragraphs (b)(1) through (b)(3)
of this section prior to making final project funding selections for
the year. The applicant will be provided 15 days from the date of the
Administrator's letter to respond, provide clarification, or make any
adjustments or corrections to the project. If, in the opinion of the
Administrator, the applicant fails to adequately respond to any
determinations or other findings made by the Administrator, the project
will not be funded, and the applicant will be notified of this
determination.
(e) For Fiscal Year 1996 grant applications, RUS will notify all
grant applicants of the numerical scoring each complete grant
application received and the cutoff points needed to receive funding
for Fiscal Year 1996. If the grant application numerical scoring is
below the score necessary to obtain funding, the applicant may appeal
the numerical scoring to the Secretary in writing not later than 10
days after the applicant is notified of the scoring level. The
applicant must state the reason it is appealing the numerical scoring
and submit the reasons the application should be reconsidered. RUS will
allow 14 days after the close of the appeal period to make the final
grant selections for Fiscal Year 1996.
(f) RUS reserves the right to use other data it considers most
appropriate if ``county'' data is unavailable for a particular area. In
those cases, the Administrator will use data compiled on a basis of the
equivalent of a county in the state, such as a parish, or on another
basis that most approximates ``county'' level data.
Secs. 1703.119-1703.121 [Reserved]
Sec. 1703.122 Further processing of selected applications.
(a) During the period between the selection of the application and
the execution of implementing documents, the applicant must inform the
Administrator if the project is no longer viable or the applicant no
longer desires a grant for the project. If the applicant so informs the
Administrator, the selection will be rescinded and written notice to
that effect shall be sent promptly to the applicant.
(b) If an application has been selected and the nature of the
project changes, the applicant may be required to submit a new
application to the Administrator for consideration depending on the
degree of change. A new application will be subject to review in
accordance with this subpart. The selection may not be transferred to
another project.
(c) If state or local governments raise objections to a proposed
project under the intergovernmental review process that are not
resolved within 3 months of the Administrator's selection of the
application, the Administrator may rescind the selection and written
notice to that effect will be sent promptly to the applicant.
(d) Recipients of grants will be required to submit RUS Form 479-A,
[[Page 33636]]
``Distance Learning and Telemedicine Technical Questionnaire.''
(e) After an applicant has submitted such additional information,
if any, the Administrator determines is necessary for completing the
grant documents, the Administrator will send the documents to the
applicant to execute and return to RUS.
(1) The grant documents will include a letter of agreement and any
other legal documents the Administrator deems appropriate, including
suggested forms of certifications and legal opinions.
(2) The letter of agreement will, among other things, constitute
the Administrator's approval of funds for the project subject to
certain terms and conditions and include at a minimum, a project
description, approved purposes of the grant, the maximum amount of the
grant, supplemental funds to be provided to the project and certain
agreements or commitments the applicant may have proposed in its
application.
(f) Until the letter of agreement has been executed and delivered
by RUS and by the applicant, the Administrator reserves the right to
require any changes in the project or legal documents covering the
project to protect the integrity of the program and the interests of
the United States Government.
(g) If the applicant fails to submit, within 120 calendar days from
the date of the Administrator's selection of an application, all of the
information that the Administrator determines to be necessary to
prepare legal documents and satisfy other requirements of this subpart,
the Administrator may rescind the selection of the application and
written notice to that effect will be sent promptly to the applicant.
Secs. 1703.123-1703.125 [Reserved]
Sec. 1703.126 Disbursement of grant funds.
(a) For grants of $100,000 or greater, prior to the disbursement of
funds, the grantee, if it is not a unit of government, will provide
evidence of fidelity bond coverage as required by Sec. 3015.17 of this
title.
(b) Grant funds will be disbursed to grantees on a reimbursement
basis, or with unpaid invoices for the eligible purposes set forth in
this subpart, by the following process:
(a) An SF 270, ``Request for Advance or Reimbursement,'' will be
completed by the applicant and submitted to RUS not more frequently
than once a month; and
(2) After receipt of a properly completed SF 270, payment will
ordinarily be made within 30 days.
(c) The grantee's share in the cost of the project will be
disbursed in advance of grant funds, or if the grantee agrees, on a pro
rata distribution basis with grant funds during the disbursement
period. Grantee will not be permitted to provide its contribution at
the end of the project.
Sec. 1703.127 Reporting and oversight requirements.
(a) A project performance activity report will be required of all
grantees on a semi-annual basis.
(b) A final project performance report will be required. It must
provide an evaluation of the success of the project in meeting the
objectives of the program. The final report may serve as the last semi-
annual report.
(c) RUS will monitor grant recipients as necessary to assure that
projects are completed in accordance with the approved scope of work
and that funds are expended for approved purposes. Grants made under
this part will be administered under, and are subject to parts 3015
through 3018 of this title.
(d) Grantees shall diligently monitor performance to ensure that
time schedules are being met, projected work by time periods is being
accomplished, and other performance objectives are being achieved.
Grantees are to submit an original and one copy of each report to RUS.
The project performance reports shall include, but not be limited to,
the following:
(1) A comparison of actual accomplishments to the objectives
established for that period;
(2) Reasons why established objectives were not met;
(3) A description of any problems, delays, or adverse conditions
which have occurred, or are anticipated, and which may affect the
attainment of overall project objectives, prevent the meeting of time
schedules or objectives, or preclude the attainment of particular
project work elements during established time periods. This disclosure
shall be accompanied by a statement of the action taken or planned to
resolve the situation; and
(4) Objectives and timetable established for the next reporting
period.
Sec. 1703.128 Audit requirements.
The grantee will provide an audit report in accordance with part
3015, subpart I, of this title. The audit requirements only apply to
the year(s) in which grant funds are received. Audits must be prepared
in accordance with generally accepted government auditing standards
(GAGAS) using publication, ``Standards for Audit of Governmental
Organization, Program, Activities and Functions.''
Secs. 1703.129-1703.134 [Reserved]
Sec. 1703.135 Grant administration.
(a) The Administrator will review grantees, as necessary, to
determine whether funds were expended for approved purposes. The
grantee is responsible for ensuring that the project complies with all
applicable regulations, and that the grant funds are expended only for
approved purposes. The grantee is responsible for ensuring that
disbursements and expenditures of funds are properly supported by
invoices, contracts, bills of sale, canceled checks, or other
appropriate forms of evidence, and that such supporting material is
provided to the Administrator, upon request, and is otherwise made
available, at the grantee's premises, for review by the RUS
representatives, grantee's certified public accountant, the Office of
Inspector General, U.S. Department of Agriculture, the General
Accounting Office and any other officials conducting an audit of the
grantee's financial statements or records, and program performance
under the grant awarded under this subpart. Grantees will be required
to permit RUS to inspect and copy any records and documents that
pertain to the project.
(b) Grants provided under this program will be administered under,
and are subject to parts 3015 and 3016 of this title, as appropriate.
Parts 3015 and 3016 of this title subject grantees to a number of
requirements which cover, among other things, financial reporting,
accounting records, budget controls, record retention and audits,
bonding and insurance, cash depositories for grant funds, grant related
income, use and disposition of real property and/or equipment purchased
with grant funds, procurement standards, allowable costs for grant
related activities, and grant close-out procedures.
Sec. 1703.136 Changes in project objectives or scope.
The grantee will obtain prior approval for any material change to
the scope or objectives of the approved project, including changes to
the scope of work or budget. Failure to obtain prior approval of
changes can result in suspension or termination of grant funds.
Sec. 1703.137 Grant termination provisions.
(a) Termination for cause. The Administrator may terminate any
grant in whole, or in part, at any time before the date of completion
of grant disbursement, whenever it is
[[Page 33637]]
determined that the grantee has failed to comply with the conditions of
the grant. The Administrator will promptly notify the grantee in
writing of the determination and the reasons for the termination,
together with the effective date.
(b) Termination for convenience. The Administrator or the grantee
may terminate a grant in whole, or in part, when both parties agree
that the continuation of the project would not produce beneficial
results commensurate with further expenditure of funds. The two parties
will agree upon termination conditions, including the effective date,
and in the case of partial terminations, the portion to be terminated.
The grantee will not incur new obligations for the terminated portion
after the effective date, and will cancel as many outstanding
obligations as possible. The Administrator will allow full credit to
the grantee for the Federal share of the noncancelable obligations,
properly incurred by the grantee prior to termination.
Secs. 1703.138-1703.139 [Reserved]
Sec. 1703.140 Expedited telecommunication loans
(a) General. (1) The Administrator will afford expedited
consideration and determination to an application for a loan or a
request for advance of funds submitted by a local exchange carrier
pursuant to section 2334(h) of the Act (7 U.S.C. 950aaa et seq.).
(2) Funds obtained through the expedited procedures established by
this section must be used primarily to provide advanced
telecommunication services in rural areas using a telecommunications
project that the Administrator has approved under this subpart.
(3) Only those elements of a telecommunications project that have
not been funded in whole, or in part, with a grant made under this
subpart are eligible for expedited consideration or determination under
this section.
(b) Expeditied loan applications. (1) In order to qualify for
expedited consideration or determination under paragraph(a)(1) of this
section, the loan application must:
(i) Be from a local exchange carrier that will use the requested
funds for the purpose set forth in paragraph(a)(2) of this section;
(ii) Be a completed one that complies with the requirements of part
1737, subpart C, of this chapter; and
(iii) Be received concurrently with the related grant application
or within 14 days of the date notice of such application is published
in the Federal Register as set forth in Sec. 1703.113(d).
(2) Expedited consideration and determination of a qualifying
application for a loan under this section means that within 45 days of
receipt or 45 days of selection of the related grant application,
whichever occurs later, the Administrator will:
(i) Issue a characteristics letter, as set forth in part 1737,
subpart I, of this chapter, to the loan applicant; or
(ii) Inform the loan applicant that its application for a loan has
been denied.
(c) Expedited advances. (1) In order to qualify for expedited
consideration or determination under paragraph(a)(1) of this section,
the request for advance of funds must:
(i) Be from a local exchange carrier that will use the funds for
the purpose set forth in paragraph(a)(2) of this section;
(ii) Be for all or part of a loan which has received release
approval pursuant to part 1737, subpart K, of this chapter; and
(iii) Be in compliance with the requirements of part 1744 of this
chapter.
(2) Expedited consideration and determination of a qualifying
request for advance of loan funds under this section means that the
Administrator will advance funds to the borrower within 45 days of
receiving a request which complies with the provision of this section.
Appendix A to Subpart D of Part 1703--ERS Rural--Urban Continuum
Scale
ERS Rural--Urban Continuum Codes:
Metropolitan Counties:
0--Central counties of metropolitan areas of 1 million
population or more.
1--Fringe counties of metropolitan areas of 1 million population
or more.
2--Counties in metropolitan areas of 250 thousand to 1 million
population.
3--Counties in metropolitan areas of less than 250 thousand
population.
Nonmetropolitan Counties:
4--Aggregate urban population (sum of cities, towns, villages or
other incorporated communities of 2,500 or more) of 20,000 or more,
adjacent to metropolitan area.
5--Aggregate urban population of 20,000 or more, not adjacent to
a metropolitan area.
6--Aggregate urban population of 2,500 of 19,999, adjacent to a
metropolitan area.
7--Aggregate urban population of 2,500 to 19,999, not adjacent
to a metropolitan area.
8--Completely rural (no cities, towns, villages or other
incorporated areas of 2,500 or greater) adjacent to a metropolitan
area.
9--Completely rural, not adjacent to a metropolitan area.
Notes: Metropolitan status is that announced by the Office of
Management and Budget in June 1993, when the current population
criteria were first applied to results of the 1990 Census. Adjacency
was determined by physical boundary adjacency and a finding that at
least 2 percent of the employed labor force in the nonmetropolitan
county commuted to metropolitan central counties.
Codes prepared in Rural Economy Division, Economic Research
Service, USDA. A listing of counties and corresponding codes are
available from ERS at the following address:
Room 337, 1301 New York Avenue, NW, Washington, DC 20005-4788,
Phone: (202) 219-0534
or through the Internet via the ERS Home Page or directly at the
following Internet address:
gopher://usda.mannlib.cornell.edu:70/11data-sets/rural/89021
Appendix B to Subpart D of Part 1703--Environmental Questionnaire
Note: It is extremely important to respond to all questions
completely to ensure expeditious processing of the Distance Learning
and Telemedicine grant. The information herein is required by
Federal law.
Important: Any activity related to the project that may
adversely affect the environment or limit the choice of reasonable
development alternatives shall not be undertaken prior to the
completion of Rural Utilities Service's environmental review
process.
Legal Name of Applicant------------------------------------------------
Signature
(Type/Sign/Date)-------------------------------------------------------
The applicant's representative certifies, to the best of his/her
knowledge and belief, that the information contained herein is
accurate. Any false information may result in disqualification for
consideration of the grant or rescission of the grant.
I. Project Description--Detailing construction, including, but
not limited to, internal or external modifications of existing
structures, new building construction, and/or installation of
telecommunications transmission facilities (defined in 7 CFR
1703.102), including satellite uplinks or downlinks, microwave
transmission towers, and cabling.
1. Describe the portion of the project, and site locations
(including legal ownership of real property), involving internal
modifications, or equipment additions to buildings or other
structures (e.g., relocating interior walls or adding computer
facilities) for each site.
2. Describe the portion of the project, and site locations
(including legal ownership or real property) involving external
changes or additions to existing buildings, structures or facilities
requiring physical disturbance of less than .99 acres. List the size
of each individual site in acres and attach a diagram showing the
general layout of the proposed facilities for each site.
3. Describe the portion of the project, and site locations
(including legal ownership or real property), involving construction
of transmission facilities, including cabling, microwave towers,
satellite dishes; or, new construction of buildings; or, disturbance
of
[[Page 33638]]
property of .99 acres or greater for each project site.
4. Describe the nature of the proposed use of the facilities,
and whether any hazardous materials, air emissions, wastewater
discharge or solid waste will result.
5. State whether or not any project site(s) contain or are near
properties listed or eligible for listing in the National Register
of Historic Places, and identify any historic properties (The
grantee must supply evidence that the State Historic Preservation
Officer (SHPO) has cleared development regarding any historical
properties).
6. Provide information whether or not any facility(ies) or
site(s) are located in a 100-year floodplain. A National Flood
Insurance Map should be included reflecting the location of the
project site(s).
II. For projects which involve construction of transmission
facilities, including cabling, microwave towers, satellite dishes,
new construction of buildings, or physical disturbance of real
property of .99 acres or greater, the following information must be
submitted (7 CFR 1703.107(j)(3))
1. A map (preferably a U.S. Geological Survey map) of the area
for each site affected by construction (include as an attachment).
2. A description of the amount of property to be cleared,
excavated, fenced or otherwise disturbed by the project and a
description of the current land use and zoning and any vegetation
for each project site affected by construction.
3. A description of buildings or other structures (i.e.,
transmission facilities), including dimensions, to be constructed or
modified.
4. A description of the presence of wetlands or existing
agricultural operations and/or threatened or endangered species or
critical habitats on or near the project site(s) affected by
construction.
5. Describe any actions taken to mitigate any environmental
impacts resulting from the proposed project (use attachment if
necessary).
Note: The applicant may submit a copy of any environmental
review, study, assessment, report or other document that has been
prepared in connection with obtaining permits, approvals or other
financing for the proposed project from State, local or other
Federal bodies. Such material, to the extent relevant, may be used
to meet the requirements herein.
Dated: June 21, 1996.
Jill Long Thompson,
Under Secretary, Rural Development.
[FR Doc. 96-16321 Filed 6-26-96; 8:45 am]
BILLING CODE 3410-15-M
Complete official Federal Register PDF
FR Doc. 96-16301 Trade Regulation Rule Concerning the Incandescent Lamp (Light Bulb) Industry
[Federal Register Volume 61, Number 125 (Thursday, June 27, 1996)]
[Rules and Regulations]
[Pages 33308-33313]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-16301]
=======================================================================
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FEDERAL TRADE COMMISSION
16 CFR Part 409
Trade Regulation Rule Concerning the Incandescent Lamp (Light
Bulb) Industry
AGENCY: Federal Trade Commission.
ACTION: Repeal of rule.
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SUMMARY: The Federal Trade Commission (``Commission'' or ``FTC'')
announces the repeal of the Trade Regulation Rule Concerning the
Incandescent Lamp (Light Bulb) Industry (``Light Bulb Rule'' or
``Rule''). The Commission has reviewed the rulemaking record and
determined that, because of more comprehensive lamp labeling rules that
the Commission promulgated in 1994 under the Energy Policy and
Conservation Act, as amended by the Energy Policy Act of 1992, and
current industry light bulb marking practices, the Light Bulb Rule is
no longer necessary or in the public interest. This notice contains a
Statement of Basis and Purpose for repealing the Light Bulb Rule.
EFFECTIVE DATE: June 27, 1996.
FOR FURTHER INFORMATION CONTACT: Kent C. Howerton, Attorney, Federal
Trade Commission, Bureau of Consumer Protection, Division of
Enforcement, Room S-4302, 601 Pennsylvania Avenue, NW, Washington, DC
20580, telephone (202) 326-3013.
SUPPLEMENTARY INFORMATION:
Statement of Basis and Purpose
I. Background
The Commission undertook this rulemaking proceeding as part of the
Commission's ongoing program of evaluating rules and guides to
determine their effectiveness, impact, cost, and need. This proceeding
also responds to President Clinton's National Regulatory Reinvention
Initiative, which, among other things, urges agencies to eliminate
obsolete or unnecessary regulations.
A. Light Bulb Rule
The Commission promulgated the Light Bulb Rule on July 23, 1970,
following a public rulemaking proceeding.1 The Light Bulb Rule
became effective on January 25, 1971. It applies only to non-reflector
general service incandescent electric lamps (commonly referred to as
``light bulbs'').2
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\1\ Final Rule and Statement of Basis and Purpose (``Light Bulb
Rule SBP''), 35 FR 11784 (1970).
\2\ The Light Bulb Rule defines ``general service incandescent
lamps'' as all medium screw base incandescent electric lamps, 15-
watt through 150-watt, 115-volt through 130-volt. The term includes
lamps in the customary ``A'' type and other bulb shapes included in
Interim Federal Specification W-L-00101G, and lamps that are
produced in generally comparable bulb shapes for sale in competition
with other general service incandescent lamps. The rule specifically
excludes lamps designed and promoted primarily for decorative
applications, appliances, traffic signals, showcases, projectors,
airport equipment, trains, and lamps such as color, flood,
reflector, rough service, and vibration service. 16 CFR 409.1 note 3
(1996). The lamp products covered by the Light Bulb Rule commonly
are referred to as ``light bulbs.'' The term ``lamp products,'' on
the other hand, refers more broadly to lighting products in general.
In this notice, the term ``light bulb'' refers only to those lamp
products covered by the Light Bulb Rule.
---------------------------------------------------------------------------
In summary, the Light Bulb Rule declares it is an unfair method of
competition and an unfair and deceptive act or practice, in connection
with the sale of general service incandescent light bulbs, to:
(1) fail to disclose clearly and conspicuously on the containers
of such light bulbs (or, if there are no containers, on the bulbs
themselves) their average initial wattage, average initial lumens,
and average laboratory life, 16 CFR 409.1(a)-(b) (1996);
(2) fail to disclose clearly and conspicuously on the bulbs
themselves their average initial wattage and design voltage, Id. at
409.1(b) (1996); 3
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\3\ In the Light Bulb Rule SBP, the Commission explained that
industry stressed the need to maintain a prominent wattage
disclosure on incandescent light bulbs because the use of excess
wattage in fixtures is unsafe and because consumers were accustomed
to buying on the basis of wattage. 35 FR at 11786.
---------------------------------------------------------------------------
(3) represent or imply that savings in light bulb cost or the
cost of light output will result from the use of a particular light
bulb product because of the bulb's life or light output unless, in
computing such savings, the following factors are taken into account
and disclosed clearly and conspicuously for the light bulb being
sold and the bulb with
[[Page 33309]]
which the comparison is being made: light bulb cost, electrical
power cost, labor cost for bulb replacement (if any), actual light
output in average initial lumens, and average laboratory life in
hours, Id. at 409.1(c) (1996); and
(4) represent or imply that a light bulb will give more light,
maintain brightness longer, or furnish longer life without clearly
and conspicuously disclosing, for both the light bulb being sold and
the light bulb with which the comparison is being made: the average
initial light output in lumens, the average initial wattage, the
laboratory life in hours, and, if there is a claim that the light
bulb maintains brightness longer, the light output in lumens at 70%
of the bulbs' rated lives (``maintained average lumens''), Id. at
409.1(d) (1996).
Four notes at the end of the rule define terms used in the rule or
require certain procedures or tests to be used in making disclosures
required by the rule.
B. Appliance Labeling Rule
In 1994, pursuant to a directive of the Energy Policy Act of 1992
(``EPA 92''),4 the Commission amended its Rule Concerning
Disclosures Regarding Energy Consumption and Water Use of Certain Home
Appliances and Other Products Required Under the Energy Policy and
Conservation Act (``Appliance Labeling Rule''), 16 CFR 305 (1996), to
specify new labeling requirements for lamp products.5 EPA 92
directed the Commission to prescribe rules requiring that certain types
of lamp products be labeled with ``such information as the Commission
deems necessary to enable consumers to select the most energy efficient
lamps which meet their requirements.'' 42 U.S.C. 6294(a)(2)(C)(i).
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\4\ Pub. L. No. 102-486, 106 Stat. 2776, 2817-2832 (Oct. 24,
1992) (codified in 42 U.S.C. 6201, 6291-6309). EPA 92 amended in
several respects the Energy Policy and Conservation Act of 1975
(``EPCA''), which requires the Commission to prescribe labeling
rules for certain major household appliances and other products.
\5\ Final Rule and Statement of Basis and Purpose (``Appliance
Labeling Rule/Lamps SBP''), 59 FR 25176 (May 13, 1994). The lamp
labeling requirements of the Appliance Labeling Rule became
effective on May 15, 1995. In response to a petition from the Lamp
Section of the National Electrical Manufacturers Association
(``NEMA''), and because of apparent uncertainties among incandescent
lamp manufacturers regarding their compliance responsibilities under
the combined requirements of the Appliance Labeling Rule and the
Light Bulb Rule, the Commission determined that it would not take
law enforcement actions until December 1, 1995, against
manufacturers of incandescent lamp products not in compliance with
the Appliance Labeling Rule. 60 FR 15198 (March 22, 1995).
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In addition to incandescent light bulbs, the Appliance Labeling
Rule applies to incandescent reflector lamps, 16 CFR 305.03(m) (1996),
medium screw base compact fluorescent lamps, Id. at 305.03(l) (1996),
and general service fluorescent lamps, Id. at 305.03(k) (1996).
Although there are no direct conflicts between the Light Bulb Rule and
the Appliance Labeling Rule, there are overlapping requirements for the
light bulbs that are covered by both rules. The discussion in this
notice summarizes only the requirements of the two rules that apply to
these light bulbs.
Like the Light Bulb Rule, the Appliance Labeling Rule requires
disclosures on package labels of light output, wattage, and life
ratings. 16 CFR 305.11(e)(1)(i)-(ii) (1996). As required by EPCA, 42
U.S.C. 6294(a)(2)(C)(i), the Appliance Labeling Rule requires that
these disclosures be based on performance at 120 volts input,
regardless of the rated lamp voltage (design voltage). 16 CFR
305.11(e)(1)(iii) (1996). The Appliance Labeling Rule, however, allows
manufacturers the option of adding disclosures on lamp packages based
on the lamp's performance at a different design voltage of 125 volts or
130 volts, if the applicable voltage (i.e., 120, 125, or 130) is
disclosed on the label along with each disclosure of light output,
wattage, and life. Manufacturers may choose to place the performance
information at a design voltage of 125 volts or 130 volts on the
primary display panel of the package and place the performance
information at 120 volts elsewhere on the package. If they do so, they
must add a specific disclosure on the primary display panel that
describes the effect on performance of the difference in voltage and
where on the package the performance information at 120 volts may be
found.6
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\6\ Id. The specific disclosure is: ``This product is designed
for [125/130] volts. When used on the normal line voltage of 120
volts, the light output and energy efficiency are noticeably
reduced. See [side/back] panel for 120 volt ratings.''
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The Appliance Labeling Rule requires that these disclosures appear
together in a specified order and be worded in a certain way (i.e., as
``Light Output: XX Lumens; Energy Used: XX Watts; Life: XX Hours'') on
the label's principal display panel. 16 CFR 305.11(e)(1)(ii) (1996).
The Light Bulb Rule, on the other hand, does not specify any order or
wording for its required disclosures. It simply specifies that the
three ratings be disclosed in terms of lumens, watts, and hours, and
appear together on at least two panels of the label, and on any other
panel on which a lumen, wattage, or hours of life claim is made. 16 CFR
409.1(a), 409.1 note 4 (1996).
The Appliance Labeling Rule requires that the disclosures of light
output, energy used, and life appear with equal clarity and
conspicuousness. 16 CFR 305.11(e)(ii) (1996). It does not specify any
particular type style or type size, but it requires that certain
disclosures be made in the same size print, and that other disclosures
be approximately 50% as large. The Light Bulb Rule specifies that both
the lumens and hours rating disclosures be in a medium-face or bold-
face type that is at least two-fifths the height of the wattage rating
figure on the same panel or three-sixteenths of an inch in height,
whichever is larger. 16 CFR 409.1 note 4 (1996). The Light Bulb Rule
also includes similar type size and style requirements for the
disclosures for multiple filament (three-way) light bulbs. Id.
The Appliance Labeling Rule specifies two additional disclosures
that are not required by the Light Bulb Rule. First, the following
advisory statement must appear on the principal display panel of the
package label: ``To save energy costs, find the bulbs with the light
output you need, then choose the one with the lowest watts.'' 7 16
CFR 305.11(e)(1)(vi) (1996). Second, all cartons of covered lamps that
are shipped within or imported into the United States must be marked
with the following statement: ``These lamps comply with Federal energy
efficiency labeling requirements.'' Id. at 305.11(e)(4) (1996).
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\7\ Manufacturers of incandescent reflector lamps may use the
following alternative advisory disclosure: ``To save energy costs,
find the bulbs with the beam spread and light output you need, then
choose the one with the lowest watts.''
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The Light Bulb Rule requires that the disclosures of light output,
wattage, and life be determined in accordance with a specific Federal
purchase specification and be based upon generally accepted and
approved test methods and specifications, at the lamp product's design
voltage.8 The Appliance Labeling Rule requires that disclosures of
design voltage, wattage, light output or life be based upon a
reasonable basis consisting of competent and reliable scientific tests
that substantiate the disclosures. Under the Appliance
[[Page 33310]]
Labeling Rule, for light output and life ratings the Commission will
accept, but does not require, tests conducted according to specific
test protocols issued by IES,9 or testing in accordance with final
test procedures issued by the U.S. Department of Energy.10
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\8\ 16 CFR 409.1 note 1 (1996). The Light Bulb Rule states that,
for light bulbs covered by that rule, the ``average initial wattage,
average initial lumen, and average laboratory life disclosures
required by this section shall be in accordance with the
requirements of interim Federal Specification, Lamp, Incandescent
(Electric, Large, Tungsten-Filament) W-L-00101 G and shall be based
upon generally accepted and approved test methods and procedures.''
In 1977, that specification ceased being interim and is now known as
Federal Specification, Lamp, Incandescent (Electric, Large,
Tungsten-Filament) W-L-101H/GEN. This specification refers to
pertinent American National Standards Institute (``ANSI'') test
protocols, which are consistent with the Illuminating Engineering
Society of North America (``IES'') protocols that are cited in the
Appliance Labeling Rule, 16 CFR 305.5(b) (1996), as an acceptable
reasonable basis for determining the light output and life of
incandescent light bulbs. 59 FR at 25200 n.251.
\9\ 16 CFR 305.5(b) (1996). See also, supra note 8.
\10\ 59 FR at 25200.
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Both the Light Bulb Rule and the Appliance Labeling Rule contain
provisions concerning certain affirmative claims about lamp products.
The Appliance Labeling Rule requires that any label, printed material
prepared for display or distribution at the point of sale, or catalog
from which a covered lamp product may be ordered that contains an
operating cost claim clearly and conspicuously disclose, in close
proximity to the claim, the assumptions upon which the claim is based,
including, e.g., purchase price, unit cost of electricity, hours of
use, patterns of use. 16 CFR 305.11(e)(3), 305.13(a)(3), 305.14(c)(2)
(1996). These Appliance Labeling Rule disclosure requirements do not
apply to such claims made in other promotional materials, such as
advertisements.
The Light Bulb Rule covers claims that savings in either light bulb
cost or cost of light will result from the use of a particular light
bulb because of the bulb's life or light output. It also covers
comparative brightness, light bulb life, and light output claims. The
Light Bulb Rule specifies factors (e.g., labor costs for replacement,
light output, life) that, depending on the particular claim being made,
must be taken into consideration and clearly and conspicuously
disclosed, for both the light bulb being offered for sale and the
bulb(s) with which the comparison is being made. 16 CFR 409.1(c)
(1996). The Light Bulb Rule's requirements apply to such claims in all
types of advertising, as well as on labels, point-of-sale printed
materials, and catalogs. The Appliance Labeling Rule does not include
disclosure requirements concerning these comparative claims.
The Light Bulb Rule requires that light bulbs themselves be marked
clearly and conspicuously with wattage and design voltage. 16 CFR
409.1(b) (1996). The Appliance Labeling Rule does not require that lamp
products be marked with such information.
II. Proceeding To Consider Repeal of Light Bulb Rule
When the Commission issued the lamp labeling amendments to the
Appliance Labeling Rule, it announced that, although there were no
conflicts between the two rules, it would decide following that
amendment proceeding what further action, if any, it should take
concerning the Light Bulb Rule. 59 FR at 25177.
A. Advance Notice of Proposed Rulemaking
Accordingly, on April 6, 1995, the Commission published a notice
(``Advance Notice of Proposed Rulemaking'' or ``ANPR'') 11
requesting comments concerning the current need for the Light Bulb Rule
as part of the Commission's regulatory review program for all of its
rules and guides, and in light of the new lamp labeling rules under the
Appliance Labeling Rule.12 The ANPR solicited comments about the
benefits and burdens of the Light Bulb Rule to consumers and industry,
and whether a need still exists for the Light Bulb Rule.
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\11\ Under section 18(b)(2) of the Federal Trade Commission Act
(``FTC Act''), 15 U.S.C. 57a(b)(2), the Commission must publish an
ANPR prior to initiating a proceeding to promulgate, amend, or
repeal a trade regulation rule. The Commission determined to treat
the April 6, 1995, request for comments as an ANPR because it
contained all the elements that section 18(b)(2) requires in an
ANPR. To comply with section 18, the Commission submitted the notice
to the Chairman of the Committee on Commerce, Science, and
Transportation, United States Senate and the Chairman of the
Subcommittee on Commerce, Trade and Hazardous Materials, United
States House of Representatives.
\12\ 60 FR 17491. See supra note 11. The comment period for this
notice was scheduled to end on June 6, 1995, but was extended until
August 7, 1995, at the request of industry members.
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The Commission received nine comments in response to the
ANPR.13 Four comments were submitted by individual consumers, one
by an organization that purchases and uses light bulbs (``organization/
user comment''), three by lamp product manufacturers, and one by a
trade association that represents lamp product manufacturers.14
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\13\ Anderson, #B17240700001; Raeth, #B17240700002; Bowe,
#B17240700003; McGarry, #B17240700004; Hytron Electric Products, a
division of Trojan Inc. (``Hytron''), #B17240700005; Delta Phi
Epsilon, Washington, DC, #B17240700006 (``DPE''); Philips Lighting,
Philips Elmet, a division of North American Philips Corp.
(``Philips''), #B17240700007; GE Lighting, General Electric Co.
(``GE''), #B17240700008; and Lamp Section, NEMA, #B17240700009. The
ANPR is filed as document number B172407. The comments submitted in
response to the ANPR are filed as documents #B17240700001,
#B17240700002, etc.
\14\ The trade association, NEMA, is the largest U.S. trade
association representing manufacturers of products used in the
generation, transmission, distribution, control, and end-use of
electricity. Member companies in the Lamp Section of NEMA produce
more than 90% of general service incandescent and fluorescent lamp
products sold in the United States. NEMA Lamp Section members
include General Electric Lighting, Osram Sylvania, Inc., Philips
Lighting Co., Supreme Corp., Venture Lighting Internat'l, Duro-Test
Corp. and EYE Lighting International. NEMA, #B17240700009.
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The four individual consumer comments state that the Light Bulb
Rule is still needed because the disclosures required by the rule help
consumers make informed purchasing decisions.15 They want labels
to continue to disclose light output, wattage, and life information.
These comments do not address whether the overlapping requirements of
the Appliance Labeling Rule will ensure that labels provide consumers
with this information. The organization/user comment also opposes the
elimination of the Light Bulb Rule. It contends consumers would lose
valuable consumer protections that are only contained in the Light Bulb
Rule.16
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\15\ Anderson, #B17240700001 (rule very valuable to him as a
consumer; reads labels very closely, particularly as to lumens and
voltage; label information can be a safety factor since many
enclosed fixtures are rated for up to 60W but 75+W bulbs will fit
the same sockets); Raeth, #B17240700002 (eliminating the rule would
be a great disservice to the consumer, who would not know the value
of what he or she was purchasing); Bowe, #B17240700003 (maintain
rule requiring packages to show wattage, lumens, and bulb life;
consumers have a right to know what they are buying); and McGarry,
#B17240700004 (do not weaken the labeling requirements; uses
information to make comparative decisions when purchasing).
\16\ DPE, #B17240700006.
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Hytron, a manufacturer of extended-service, long-life incandescent
lamp products, including incandescent reflector lamps and traffic
signal lamps, supports keeping the Light Bulb Rule, and, instead,
eliminating the lamp labeling requirements of the Appliance Labeling
Rule.17 It appears that Hytron primarily objects to the Appliance
Labeling Rule because it requires labeling disclosures of incandescent
lamps at 120 volts regardless of the lamp's design voltage, and because
it requires the labeling of incandescent reflector lamps.18
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\17\ Hytron, #B17240700005.
\18\ The Commission does not have the authority to eliminate
these requirements from the Appliance Labeling Rule. EPCA requires
that labeling information for incandescent lamps under the Appliance
Labeling Rule be based on operation at 120 volts. 42 U.S.C.
6294(a)(2)(C)(i). EPCA also defines the lamp products, including
incandescent reflector lamps, that are to be covered by the lamp
labeling rules under the Appliance Labeling Rule. 42 U.S.C.
6291(30), 6294(a)(2)(C)(i).
---------------------------------------------------------------------------
The comments from two manufacturers (Philips and GE) and the trade
association (NEMA) state that the Light Bulb Rule's disclosure
requirements of light output, wattage, and life for general service
incandescent light bulbs are unnecessary because of the uniform
disclosure requirements for various types of competing lamp products in
the Appliance Labeling Rule.19 They recommend that the
[[Page 33311]]
Commission repeal all or most of the Light Bulb Rule to avoid
conflicts, multiple and overlapping requirements, and inconsistencies
with the disclosure requirements of the Appliance Labeling Rule.
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\19\ Philips, #B17240700007; GE, #B17240700008; and NEMA,
#B17240700009.
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GE recommends that the Commission repeal the entire Light Bulb
Rule.20 It believes the Appliance Labeling Rule's requirements are
better for today's modern products and consumers' information needs,
and for advancing the energy efficiency goals of our modern day
workplace. According to GE, retaining the Light Bulb Rule, in addition
to the Appliance Labeling Rule, is inefficient and exposes
manufacturers to a significant risk that they may fail to comply with
both rules. Further, although the Light Bulb Rule requires that light
bulbs be marked clearly and conspicuously with wattage and design
voltage and the Appliance Labeling Rule does not, GE believes that such
marking is a common industry practice that would not be affected by the
rescission of the Light Bulb Rule. It states that this is a ``sound
business practice that reduces liability and gives consumers important
information.'' Accordingly, GE marks many products that are not covered
by the Light Bulb Rule with wattage, and, as appropriate, with design
voltage.
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\20\ GE, #B17240700008.
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NEMA states that lamp product manufacturers should be subject to
only one set of lamp labeling and disclosure regulations, which would
ensure uniform disclosures of lamp product performance information to
consumers. NEMA believes that the Appliance Labeling Rule represents
the more comprehensive and modern approach to lamp labeling and that
the disclosures required under the Appliance Labeling Rule fully and
fairly inform consumers about lamp product performance.21 It
believes that the objectives of the Light Bulb Rule are fully served by
the disclosures required by the Appliance Labeling Rule. For these
reasons, NEMA recommends that the Commission repeal the Light Bulb Rule
and retain the Appliance Labeling Rule as the sole federal labeling and
disclosure requirements for lamp products.
---------------------------------------------------------------------------
\21\ NEMA, #B17240700009.
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NEMA also believes that repealing the Light Bulb Rule would not
induce manufacturers to abandon their practice of inscribing wattage
and design voltage on incandescent lamps and wattage on fluorescent
lamps. NEMA states that manufacturers routinely mark their general
service incandescent and fluorescent lamps, even those for which such
marking is not required under federal labeling rules. Further, NEMA
states that an international safety standard issued by the
International Electrotechnical Commission (``IEC'') (IEC 432-1, 1993)
requires marking of wattage and voltage on general service incandescent
lamps. NEMA, therefore, believes that manufacturers generally would
continue the marking practices required by the Light Bulb Rule, even if
the Commission repealed the rule.
Philips strongly supports NEMA's position. Philips, however, also
states that the best alternative would be for the Commission to repeal
the Light Bulb Rule, and to modify the Appliance Labeling Rule to
include some of the disclosure requirements of Section 409.1(c) (which
requires disclosures in connection with product comparison claims about
lamp cost or cost of light), and Section 409.1(d) (which requires
disclosures in connection with claims that a light bulb will give more
light, maintain brightness longer or furnish longer life) of the Light
Bulb Rule.22 Philips believes that adding these disclosure
requirements would strengthen the Appliance Labeling Rule.
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\22\ Philips, #B17240700007.
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B. Notice of Proposed Rulemaking
The Commission compared the requirements of the Light Bulb Rule and
the Appliance Labeling Rule, analyzed the bases for both rules
explained in the Light Bulb Rule SBP and the Appliance Labeling Rule/
Lamps SBP, and reviewed the comments filed in response to the Light
Bulb Rule ANPR. Based on that comparison and review, the Commission
solicited comments in a Notice of Proposed Rulemaking (``NPR'') that
proposed repealing the Light Bulb Rule.23 In the NPR, the
Commission explained that the requirements of the two rules fall into
three categories: (1) basic disclosures of performance information
(e.g., light output, watts, and life); (2) substantiation testing for
these disclosures; and (3) additional disclosures that must be made in
conjunction with certain performance claims. The Commission also
summarized the comments submitted in response to the ANPR and explained
why the Commission believed there may not be a continuing need for the
Light Bulb Rule's requirements.
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\23\ 61 FR 4382 (Feb. 6, 1996). The NPR is filed as document
number B193867. The comments submitted in response to the NPR are
filed as documents #B19386700001, #B19386700002, etc. The comment
period closed on March 7, 1996.
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The Commission received five comments in response to the NPR (two
from manufacturers, two from distributors, and an additional comment
from NEMA).24 Four comments support repealing the Light Bulb
Rule.25 One comment recommends that the Commission repeal the lamp
labeling rules under the Appliance Labeling Rule.26
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\24\ In the NPR, the Commission indicated it would hold a
hearing to allow for the presentation of testimony on the issues, if
there was interest in a hearing. NEMA and GE requested an
opportunity to testify, but only if the Commission scheduled a
hearing because other parties requested one. NEMA, #B19386700004;
GE, #B191281, letters of March 7 and 14, 1996. Following the end of
the comment period, both NEMA and GE informed the Commission's staff
that they did not wish to testify because no additional parties
requested that the Commission conduct a hearing.
\25\ Supreme, #B19386700001; Robert M. Stone, Regosin, Edwards,
Stone & Feder (``Stone''), #B19386700002; Marvel Lighting Corp.
(``Marvel''), #B19386700003; NEMA, #B19386700004.
\26\ Sigmatron Biological Systems (``Sigmatron''),
#B19386700005. Because EPCA required the Commission to promulgate
the lamp labeling rules it adopted in the Appliance Labeling Rule,
the Commission does not have the authority to repeal those
requirements in favor of retaining the Light Bulb Rule. See also,
supra note 18.
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Supreme states that the new lamp labeling rules under the Appliance
Labeling Rule will provide users with the information they need to
understand what type of light bulb is in the package they are
purchasing. Supreme also states that its distributors are confused by
the amount of information on packages due to the requirements of both
rules and that it continuously must seek expensive legal advice about
how to prepare artwork and design to comply with both rules.27
Stone and Marvel request that the Commission repeal the Light Bulb Rule
because the overlapping requirements create confusion and
duplication.28
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\27\ Supreme, #B19386700001.
\28\ Stone, #B19386700002; Marvel, #B19386700003.
---------------------------------------------------------------------------
NEMA states it supports repeal of the Light Bulb Rule and believes
that consumers' need for information is fully served by the disclosure
and substantiation requirements of the Appliance Labeling Rule.29
NEMA also addresses several specific issues the Commission raised in
the NPR. First, NEMA believes that because of the importance of safety
information to consumers (and to minimize their product liability)
manufacturers will continue marking wattage and design voltage on lamps
notwithstanding the repeal of the Light Bulb Rule. Second, NEMA
believes that the Light Bulb Rule's required disclosures relating to a
lamp's brightness are unnecessary because the Appliance Labeling Rule's
standardized, side-by-side disclosures of light output and life nullify
any attempts to mislead consumers about a
[[Page 33312]]
product's maintaining brightness better than competing products. Third,
NEMA believes that the Appliance Labeling Rule's standardized labeling
disclosure requirements, along with its requirement that packaging
representations about the cost of operating a lamp be based on
assumptions that are clearly and conspicuously disclosed, provide
adequate information for consumers to evaluate comparative performance
claims.30 NEMA also states that repealing the Light Bulb Rule, and
relying exclusively on the Appliance Labeling Rule, will eliminate
overlaps and inconsistencies, confer benefits on consumers through
standardized package disclosures, and result in significant cost
savings for both manufacturers and consumers.
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\29\ NEMA, #B19386700004.
\30\ Further, NEMA states that the Appliance Labeling Rule's
labeling disclosures for competing lamp products make identification
of a comparison lamp under the Light Bulb Rule superfluous, and make
it unrealistic for a manufacturer or marketer to misrepresent or
distort a lamp's comparative performance in advertising and other
media, as well as on labels, point-of-sale promotional materials,
and catalogs. Id.
---------------------------------------------------------------------------
III. Basis for Repeal of the Light Bulb Rule
The Commission has compared the requirements of the Light Bulb Rule
and the Appliance Labeling Rule and reviewed the comments filed in
response to the Light Bulb Rule ANPR and NPR. For the reasons explained
below, the Commission concludes that the Light Bulb Rule is no longer
necessary or in the public interest.
First, the requirements in the Light Bulb Rule that the basic
disclosures of light output, watts, and life be made on package labels
are unnecessary because they are duplicated by the Appliance Labeling
Rule. The Appliance Labeling Rule requires that this information also
be disclosed in catalogs from which the products can be ordered.
Further, it requires that these disclosures be made on labels and in
catalogs for competing medium screw base compact fluorescent lamps and
incandescent reflector lamps, as well as for light bulbs covered by the
Light Bulb Rule. These disclosures, in conjunction with the required
advisory statement about how consumers can select the most energy-
efficient lamp that meets their needs, give consumers the information
they need at the point of sale to select the appropriate lamp
product.31
---------------------------------------------------------------------------
\31\ In addition, the Appliance Labeling Rule's format
requirements for the disclosure of basic performance data on labels
and in catalogs, 16 CFR 305.11(e)(1)(ii), 305.14(c)(1) (1996),
obviate the need for the specific type size and placement
requirements of the Light Bulb Rule for package labels, 16 CFR
409.1(a), 409.1 note 4 (1996).
---------------------------------------------------------------------------
Second, the requirement in the Light Bulb Rule that manufacturers
mark bulbs with wattage and voltage information is unnecessary.
According to the comments, manufacturers currently mark various types
of lamp products voluntarily with wattage and design voltage
information so that consumers can use these lamp products safely. The
Commission believes that the marketplace will provide incentives for
manufacturers to continue marking this information on lamp products,
even after the Commission has repealed the Light Bulb Rule.
Third, the Light Bulb Rule's substantiation requirements are
unnecessary because these requirements are duplicated in the Appliance
Labeling Rule. The requirement in the Appliance Labeling Rule that the
basic disclosures be based on ``a reasonable basis consisting of
competent and reliable scientific tests substantiating the
representation'' is sufficient to ensure the accuracy and uniformity of
the disclosures for competing lamp products. Further, based on the
evidence in the rulemaking proceeding for the Appliance Labeling Rule,
it appears that the test protocols required by the Light Bulb Rule are
consistent with IES test protocols that the Appliance Labeling Rule
recognizes as sufficient to satisfy its reasonable basis standard for
the disclosures of light output and life.32 However, the Appliance
Labeling Rule provides manufacturers flexibility to use other
scientific test protocols if they are competent and reliable.
---------------------------------------------------------------------------
\32\ 59 FR 25200.
---------------------------------------------------------------------------
Fourth, the Light Bulb Rule's disclosure requirements for
comparison claims about savings in light bulb cost or cost of
operation, or claims that a light bulb will give more light, maintain
brightness longer, or furnish longer life are unnecessary. Through
different disclosure requirements the Appliance Labeling Rule allows
consumers to make informed, comparative decisions relating to costs.
Specifically:
(1) The Appliance Labeling Rule requires disclosure of light output
and life information in labels and catalogs. It requires that labels
and catalogs for incandescent ``A'' type bulbs, as well as for
competing medium screw base compact fluorescent lamps and incandescent
reflector lamps, disclose light output, wattage, and life, along with
an advisory statement about how the consumer can select the lamp
product that will cost the least to operate for a specific light
output. This information enables consumers to evaluate comparison light
output and lifetime claims for competing products at the point of sale
and to select the appropriate lamp that meets their needs.
(2) Under the Appliance Labeling Rule, claims about cost of
operation of a covered lamp product in labels, point-of-sale printed
materials, and catalogs must be accompanied by disclosures of the
assumptions on which the claims are based (e.g., purchase price, unit
cost of electricity, hours of use, patterns of use). These disclosures,
along with the advisory statement and the disclosures of light output,
wattage, and life, for competing lamp products on product labels and in
catalogs give consumers the information they need at the point of
purchase to evaluate comparison claims about savings in cost of
operation.
(3) Purchase price information is readily available to consumers at
the point of sale (both in retail stores and in catalogs). Thus,
consumers have information at the point of sale to evaluate comparison
claims about lamp product purchase costs.
(4) Unit electrical cost information is readily available to
consumers on their monthly electric utility bills or from their
electrical utility companies. Consumers can use this information, along
with the advisory statement and the disclosures of basic performance
information on packages and catalogs, to evaluate any comparison
operating cost claims.
Although the Appliance Labeling Rule does not contain disclosure
requirements similar to the Light Bulb Rule covering comparative claims
about brightness, length of life, or amount of light, the Commission
concludes that the Appliance Labeling Rule's requirements provide
consumers comparable information. The Appliance Labeling Rule's
requirements that labels disclose light output, energy used, and life,
and that labels, point-of-sale promotional materials, and catalogs that
contain a claim regarding cost of operation clearly and conspicuously
disclose the assumptions upon which the claim is based, provide
consumers comparable information they need to evaluate such claims and
make informed purchasing decisions. Further, the Commission can address
any significant problems that might arise in the future concerning
specific performance claims or a failure to disclose material purchase
information not covered by the Appliance Labeling Rule on a case-by-
case basis, administratively, under Section 5 of the FTC Act, 15 U.S.C.
45, or through Section 13(b) actions, 15 U.S.C. 53(b), filed in federal
district court. Prosecuting serious misrepresentations
[[Page 33313]]
and the failure to disclose material information in district court
allows the Commission to obtain injunctive relief as well as equitable
remedies, such as redress or disgorgement.
IV. Regulatory Flexibility Act
The Regulatory Flexibility Act (``RFA''), 5 U.S.C. 601-11, requires
an analysis of the anticipated impact of the repeal of the Light Bulb
Rule on small businesses. The reasons for repeal of the rule have been
explained in this notice. Repeal of the Light Bulb Rule would appear to
have little or no effect on small businesses. Moreover, the Commission
is not aware of any existing federal laws or regulations that would
conflict with repeal of the Light Bulb Rule. Further, no comments
suggested any adverse effect on small business from repeal. For these
reasons, the Commission certifies, pursuant to Section 605 of the RFA,
5 U.S.C. 605, that this action will not have a significant economic
impact on a substantial number of small entities.
V. Paperwork Reduction Act
The Light Bulb Rule imposes third-party disclosure requirements
that constitute ``information collection requirements'' under the
Paperwork Reduction Act, 44 U.S.C. 3501 et seq. Accordingly, repeal of
the Light Bulb Rule will eliminate any burdens imposed by these
disclosure requirements.
List of Subjects in 16 CFR Part 409
Advertising, Consumer protection, Energy conservation, Labeling,
Lamp products, Trade practices.
PART 409--[REMOVED]
The Commission, under authority of Section 18 of the Federal Trade
Commission Act, 15 U.S.C. 57a, amends chapter I of Title 16 of the Code
of Federal Regulations by removing Part 409.
By direction of the Commission.
Donald S. Clark,
Secretary.
[FR Doc. 96-16301 Filed 6-26-96; 8:45 am]
BILLING CODE 6750-01-P
Complete official Federal Register PDF
FR Doc. 96-16242 Airworthiness Directives; Fokker Model F28 Mark 0100 and 0070 Series Airplanes
[Federal Register Volume 61, Number 125 (Thursday, June 27, 1996)]
[Rules and Regulations]
[Pages 33305-33308]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-16242]
=======================================================================
-----------------------------------------------------------------------
DEPARTMENT OF TRANSPORTATION
Federal Aviation Administration
14 CFR Part 39
[Docket No. 95-NM-224-AD; Amendment 39-9682; AD 96-13-13]
RIN 2120-AA64
Airworthiness Directives; Fokker Model F28 Mark 0100 and 0070
Series Airplanes
AGENCY: Federal Aviation Administration, DOT.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: This amendment supersedes an existing airworthiness directive
(AD), applicable to certain Fokker Model F28 Mark 0100 series
airplanes, that currently requires certain maximum brake wear limits to
be incorporated into the FAA-approved maintenance inspection program.
That AD also currently requires that the Airplane Flight Manual (AFM)
be revised to include certain procedures concerning operations in the
event of a rejected takeoff (RTO). This amendment requires the
incorporation of new maximum brake wear limits for additional brake
units into the FAA-approved maintenance program. This action also
deletes the previous requirement for the AFM revision. This amendment
is prompted by the determination of the maximum allowable brake wear
limits for additional brake unit part numbers. The actions specified by
the AD are intended to prevent the loss of brake effectiveness during a
high energy RTO.
EFFECTIVE DATE: August 1, 1996.
ADDRESSES: Information pertaining to this rulemaking action may be
examined at the Federal Aviation Administration (FAA), Transport
Airplane Directorate, Rules Docket, 1601 Lind Avenue, SW., Renton,
Washington.
FOR FURTHER INFORMATION CONTACT: Ruth Harder, Aerospace Engineer,
Standardization Branch, ANM-113, FAA, Transport Airplane Directorate,
1601 Lind Avenue, SW., Renton, Washington 98055-4056; telephone (206)
227-1721; fax (206) 227-1149.
SUPPLEMENTARY INFORMATION: A proposal to amend part 39 of the Federal
Aviation Regulations (14 CFR part 39) by superseding AD 94-06-06,
amendment 39-8854 (59 FR 11713, March 14, 1994), which is applicable to
certain Fokker Model F28 Mark 0100 series airplanes, was published in
the Federal Register on February 12, 1996 (61 FR 5331). The action
proposed to require the incorporation of new maximum brake wear limits
for additional brake units into the FAA-approved maintenance program.
The action also proposed to delete a previous requirement for a
revision to the Airplane Flight Manual (AFM) that pertained to
reporting certain rejected takeoff conditions to maintenance.
Interested persons have been afforded an opportunity to participate
in the making of this amendment. Due consideration has been given to
the comments received.
Request To Extend Compliance Time
One commenter requests that the proposed compliance time of 180
days for incorporating the maximum brake wear pin limits into the
maintenance program be extended to 360 days. This commenter, a U.S.
operator, requests this extension in order to ensure that the new
information provided in the AD can be inserted in its fleet's required
manuals during a normal revision cycle. This would avoid the costs and
time associated with having to issue a temporary partial revision and/
or supplement.
The FAA does not concur. In developing an appropriate compliance
time for this action, the FAA considered not only the degree of urgency
associated with addressing the subject unsafe condition, but the
practical aspect of incorporating and implementing the required
maintenance program change within a reasonable
[[Page 33306]]
period of time for the majority of affected operators. Additionally,
the FAA has issued numerous other AD's, applicable to transport
category airplanes, with requirements and compliance times similar to
this one [for example, reference AD 94-09-03, amendment 39-8891 (59 FR
18713, April 20, 1994), pertaining to British Aerospace Model BAe 146
series airplanes; AD 94-11-07, amendment 39-8923 (59 FR 28475, June 2,
1994), pertaining to British Aerospace Model BAC 1-11 series airplanes;
and AD 94-26-05, amendment 39-9101, (60 FR 3, January 3, 1995),
pertaining to Airbus Model A300, A310, and A320 series airplanes]. The
180-day compliance time specified in each of the previously issued AD's
apparently has posed no problem in implementation for operators that
are subject to those AD's. The FAA considers that the brake wear limits
should be followed as soon as this information can reasonably be
incorporated into an affected operator's maintenance program. Since the
issuance of temporary manual revisions is a common practice among
operators, the FAA cannot find that the incorporation of information
required by this AD within the 180-day time period would be an undue
burden on any operator.
Request To Clarify Service Information
This same commenter requests clarification as to the appropriate
manual that should be used to determine the limits for refurbished
brakes. The commenter points out an apparent discrepancy in the
proposed AD between Note 5 in proposed paragraph (a)(l) and Table 4:
Both reference the Aircraft Braking Systems (ABS) Component Maintenance
Manual with Illustrated Parts List, but one specifies the document
number as ``AP-652,'' while the other specifies ``AP-625.''
The FAA notes this typographical error. The correct document number
is AP-652, which was shown correctly in Note 5 of the proposal. The FAA
has revised Table 4 of the final rule to indicate this correct document
number.
Conclusion
After careful review of the available data, including the comments
noted above, the FAA has determined that air safety and the public
interest require the adoption of the rule with the changes previously
described. The FAA has determined that these changes will neither
increase the economic burden on any operator nor increase the scope of
the AD.
Cost Impact
There are approximately 124 Model F28 Mark 0100 and 0070 series
airplanes of U.S. registry and 5 U.S. operators that will be affected
by this AD.
The actions that are currently required by AD 94-06-06 take
approximately 20 work hours per operator to accomplish, at an average
labor rate of $60 per work hour. Based on these figures, the cost
impact on U.S. operators of the actions currently required is estimated
to be $6,000, or $1,200 per operator.
The new actions that are required by this AD action will take
approximately 20 work hours per operator to accomplish, at an average
labor rate of $60 per work hour. Based on these figures, the cost
impact on U.S. operators of the new requirements of this AD is
estimated to be $6,000, or $1,200 per operator.
The cost impact figures discussed above are based on assumptions
that no operator has yet accomplished any of the requirements of this
AD action, and that no operator would accomplish those actions in the
future if this AD were not adopted.
Regulatory Impact
The regulations adopted herein will not have substantial direct
effects on the States, on the relationship between the national
government and the States, or on the distribution of power and
responsibilities among the various levels of government. Therefore, in
accordance with Executive Order 12612, it is determined that this final
rule does not have sufficient federalism implications to warrant the
preparation of a Federalism Assessment.
For the reasons discussed above, I certify that this action (1) is
not a ``significant regulatory action'' under Executive Order 12866;
(2) is not a ``significant rule'' under DOT Regulatory Policies and
Procedures (44 FR 11034, February 26, 1979); and (3) will not have a
significant economic impact, positive or negative, on a substantial
number of small entities under the criteria of the Regulatory
Flexibility Act. A final evaluation has been prepared for this action
and it is contained in the Rules Docket. A copy of it may be obtained
from the Rules Docket at the location provided under the caption
ADDRESSES.
List of Subjects in 14 CFR Part 39
Air transportation, Aircraft, Aviation safety, Safety.
Adoption of the Amendment
Accordingly, pursuant to the authority delegated to me by the
Administrator, the Federal Aviation Administration amends part 39 of
the Federal Aviation Regulations (14 CFR part 39) as follows:
PART 39--AIRWORTHINESS DIRECTIVES
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]
2. Section 39.13 is amended by removing amendment 39-8854 (59 FR
11713, March 14, 1994), and by adding a new airworthiness directive
(AD), amendment 39-9682, to read as follows:
96-13-13 Fokker: Amendment 39-9682. Docket 95-NM-224-AD. Supersedes
AD 94-06-06, Amendment 39-8854.
Applicability: Model F28 Mark 0100 and F28 Mark 0070 series
airplanes, equipped with Aircraft Braking Systems Corp. brakes
having part number (P/N) 5008132-2, -3, -4, -5, -6, -7, -8, or
5011809; certificated in any category.
Note 1: This AD applies to each airplane identified in the
preceding applicability provision, regardless of whether it has been
otherwise modified, altered, or repaired in the area subject to the
requirements of this AD. For airplanes that have been modified,
altered, or repaired so that the performance of the requirements of
this AD is affected, the owner/operator must request approval for an
alternative method of compliance in accordance with paragraph (c) of
this AD. The request should include an assessment of the effect of
the modification, alteration, or repair on the unsafe condition
addressed by this AD; and, if the unsafe condition has not been
eliminated, the request should include specific proposed actions to
address it.
Compliance: Required as indicated, unless accomplished
previously.
To prevent loss of brake effectiveness during a high energy
rejected take off (RTO), accomplish the following:
Note 2: An alternate wear measurement (AWM) is a measurement of
the brake stack that determines stack wear. This measurement is used
for any brake assembly without a wear indicator pin, or any brake
assembly having a damaged wear indicator pin. The brake wear can be
determined by measuring the distance from the back of the pressure
plate subassembly to the inboard face of the brake housing at the
wear indicator location.
(a) For Model F28 Mark 0100 series airplanes: Within 180 days
after April 13, 1994 (the effective date of AD 94-06-06, amendment
39-8854), accomplish the requirements of paragraphs (a)(1) and
(a)(2) of this AD:
(1) Incorporate the maximum brake wear limits specified in the
following tables into the FAA-approved maintenance inspection
[[Page 33307]]
program and comply with these measurements thereafter.
Table 1.--Brake Manufacturer: Aircraft Braking Systems Corporation (ABS)
----------------------------------------------------------------------------------------------------------------
Maximum settings--non refurbished brakes
-------------------------------------------------------------------------
Brake P/N- Maximum wear pin measurement- (inch/ Alternate wear measurement (inch/
mm) mm)
----------------------------------------------------------------------------------------------------------------
5008132-2-............................ 1.85'' (47 mm) 4.00'' (101.6 mm)
5008132-3-............................ 1.85'' (47 mm) 4.00'' (101.6 mm)
5008132-4-............................ 2.10'' (53.3 mm) 4.25'' (107.9 mm)
5008132-5-............................ 2.10'' (53.3 mm) 4.25'' (107.9 mm)
5008132-6-............................ 2.10'' (53.3 mm) 4.25'' (107.9 mm)
5008132-7-............................ 2.10'' (53.3 mm) 4.25'' (107.9 mm)
----------------------------------------------------------------------------------------------------------------
Note 3: Measuring instructions for non refurbished brakes can be
found in the ABS Component Maintenance Manual with Illustrated Parts
List AP-652 (Fokker Manual No. 32-43-77) or in ABS Service Bulletin
Fo100-32-35. ABS Service Bulletin Fo100-32-35 does not contain
measurement information relative to brake P/N's 5008132-2 and -3.
Table 2
----------------------------------------------------------------------------------------------------------------
Maximum settings--refurbished brakes
-------------------------------------------------------------------------
Brake P/N Maximum wear-pin measurement- (inch/ Alternate wear measurement (inch/
mm) mm)
----------------------------------------------------------------------------------------------------------------
5008132-2............................. 1.85'' (47 mm) 4.00'' (101.6 mm)
5008132-3............................. 1.85'' (47 mm) 4.00'' (101.6 mm)
5008132-4............................. 2.20'' (55.9 mm) 4.35'' (110.5 mm)
5008132-5............................. 2.20'' (55.9 mm) 4.35'' (110.5 mm)
5008132-6............................. 2.20'' (55.9 mm) 4.35'' (110.5 mm)
5008132-7............................. 2.20'' (55.9 mm) 4.35'' (110.5 mm)
----------------------------------------------------------------------------------------------------------------
Note 4: Refurbished brakes will have ``R11-3'' etched on the
brake housing adjacent to the shuttle valve.
Note 5: Measuring instructions for refurbished brakes can be
found in the ABS Component Maintenance Manual with Illustrated Parts
List AP-652 (Fokker Manual No. 32-43-77) or in ABS Service Bulletin
Fo100-32-38.
(2) For brakes on which a heat stack kit having an ``R'' after
the part number (i.e., 5010322-2R; also called ``short stacks'')
have been installed: Operators must use the maximum wear pin length
which is based on the measured wear of the thinnest disk in the
stack and is specified on the Airworthiness Tag that accompanies
each heat stack kit (i.e., for airplanes equipped with brakes having
short stacks installed, do not use either the standard maximum wear
pin measurements or the alternate brake wear measurements specified
in either Table 1 or Table 2 of this AD to determine brake wear.)
(b) Within 180 days after the effective date of this AD,
incorporate the maximum brake wear pin limits specified in
paragraphs (b)(1) and (b)(2) of this AD, as applicable, into the
FAA-approved maintenance program and comply with these measurements
thereafter. If any brake has measured wear beyond the maximum wear
limits specified in those paragraphs, prior to further flight,
replace it with a brake that is within the wear limits specified in
the applicable paragraph.
(1) For Model F28 Mark 0100 and 0070 series airplanes:
Table 3
--------------------------------------------------------------------------------------------------------------------------------------------------------
Maximum settings--non-refurbished brakes (original equipment manufacturer)
---------------------------------------------------------------------------------------------------------------------
Brake unit part No.- Measure in accordance with aircraft braking
Maximum wear pin measurement- Alternate brake wear systems (ABS) component maintenance manual with
measurement illustrated parts list (CMM w/IPL) number
--------------------------------------------------------------------------------------------------------------------------------------------------------
5008132-2......................... 1.85'' (47 mm) 4.00'' (101.6 mm) CMM w/IPL AP-652 (32-43-77)
5008132-3......................... 1.85'' (47 mm) 4.00'' (101.6 mm) CMM w/IPL AP-652 (32-43-77)
5008132-4......................... 2.10'' (53.3 mm) 4.25'' (107.9 mm) CMM w/IPL AP-652 (32-43-77)
5008132-5......................... 2.10'' (53.3 mm) 4.25'' (107.9 mm) CMM w/IPL AP-652 (32-43-77)
5008132-6......................... 2.10'' (53.3 mm) 4.25'' (107.9 mm) CMM w/IPL AP-652 (32-43-77)
5008132-7......................... 2.10'' (53.3 mm) 4.25'' (107.9 mm) CMM w/IPL AP-652 (32-43-77)
5008132-8......................... 2.20'' (55.9 mm) 4.35'' (110.5 mm) CMM w/IPL AP-652 (32-43-77)
--------------------------------------------------------------------------------------------------------------------------------------------------------
[[Page 33308]]
Table 4
--------------------------------------------------------------------------------------------------------------------------------------------------------
Maximum settings--refurbished brakes (R11-3 on brake housing)
---------------------------------------------------------------------------------------------------------------------
Brake unit part number Measure in accordance with aircraft braking
Maximum wear pin measurement Alternate brake wear systems (ABS) component maintenance manual with
measurement illustrated parts list (CMM w/IPL) number
--------------------------------------------------------------------------------------------------------------------------------------------------------
5008132-2......................... 1.85'' (47 mm) 4.00'' (101.6 mm) CMM w/IPL AP-652(32-43-77)
5008132-3-........................ 1.85'' (47 mm) 4.00'' (101.6 mm) CMM w/IPL AP-652 (32-43-77)
5008132-4-........................ 2.20'' (55.9 mm) 4.35'' (110.5 mm) CMM w/IPL AP-652 (32-43-77)
5008132-5-........................ 2.20'' (55.9 mm) 4.35'' (110.5 mm)- CMM w/IPL AP-652 (32-43-77)
5008132-6-........................ 2.20'' (55.9 mm) 4.35'' (110.5 mm)- CMM w/IPL AP-652 (32-43-77)
5008132-7-........................ 2.20'' (55.9 mm) 4.35'' (110.5 mm)- CMM w/IPL AP-652 (32-43-77)
5008132-8-........................ 2.20'' (55.9 mm) 4.35'' (110.5 mm)- CMM w/IPL AP-652 (32-43-77)
--------------------------------------------------------------------------------------------------------------------------------------------------------
(2) For Model F28 Mark 0100 and 0070 series airplanes equipped a
brake unit having P/N 5011809, A5011809, or B5011809: The maximum
wear pin measurement is 2.50'' (63.5 mm), with an alternate brake
wear measurement of 4.35'' (110.5 mm). The measurement shall be done
in accordance with Aircraft Braking Systems (ABS) Component
Maintenance Manual (CMM) with Illustrated Parts List (IPL) AP-747
(32-43-65).
(c) An alternative method of compliance or adjustment of the
compliance time that provides an acceptable level of safety may be
used if approved by the Manager, Standardization Branch, ANM-113,
FAA, Transport Airplane Directorate. Operators shall submit their
requests through an appropriate FAA Principal Maintenance Inspector,
who may add comments and then send it to the Manager,
Standardization Branch, ANM-113.
Note 6: Information concerning the existence of approved
alternative methods of compliance with this AD, if any, may be
obtained from the Standardization Branch, ANM-113.
(d) Special flight permits may be issued in accordance with
sections 21.197 and 21.199 of the Federal Aviation Regulations (14
CFR 21.197 and 21.199) to operate the airplane to a location where
the requirements of this AD can be accomplished.
(e) This amendment becomes effective on August 1, 1996.
Issued in Renton, Washington, on June 19, 1996.
Darrell M. Pederson,
Acting Manager, Transport Airplane Directorate, Aircraft Certification
Service. -
[FR Doc. 96-16242 Filed 6-26-96; 8:45 am]
BILLING CODE 4910-13-U
Complete official Federal Register PDF
FR Doc. 96-15825 Regulations Under Section 382 of the Internal Revenue Code of 1986; Application of Section 382 in Short Taxable Years and With Respect to Controlled Groups
[Federal Register Volume 61, Number 125 (Thursday, June 27, 1996)]
[Rules and Regulations]
[Pages 33313-33321]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-15825]
=======================================================================
-----------------------------------------------------------------------
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 1 and 602
[TD 8679]
RIN 1545-AU37
Regulations Under Section 382 of the Internal Revenue Code of
1986; Application of Section 382 in Short Taxable Years and With
Respect to Controlled Groups
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Final and temporary regulations.
-----------------------------------------------------------------------
SUMMARY: This document contains final and temporary regulations
relating to limitations on net operating loss carryforwards and certain
built-in losses following an ownership change and comply with the
statutory direction under section 382(m) of the Internal Revenue Code
to prescribe regulations concerning short taxable years and controlled
groups. This document also contains amendments relating to the end of
separate tracking of the stock ownership of loss corporations that
cease to exist following a merger or similar transaction. The text of
these temporary regulations also serves as the text of the proposed
regulations set forth in the notice of proposed rulemaking on this
subject in the Proposed Rules section of this issue of the Federal
Register.
DATES: These regulations are effective June 27, 1996.
For dates of application and special transition rules, see
Effective Dates under SUPPLEMENTARY INFORMATION.
FOR FURTHER INFORMATION CONTACT: David B. Friedel at (202) 622-7550
(not a toll-free number).
[[Page 33314]]
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collection of information contained in these temporary
regulations has been reviewed and approved by the Office of Management
and Budget in accordance with the Paperwork Reduction Act (44 U.S.C.
3507) under the control number 1545-1434. Section 1.382-8T(h) requires
a response from certain corporations that are members of controlled
groups. The IRS requires this information to assure compliance with
section 382(m)(5) so that the value of a loss corporation that is a
member of a controlled group is not taken into account more than once
in computing a section 382 limitation. Responses to this collection of
information are required to obtain a benefit (relating to the
restoration of value for section 382 purposes).
An agency may not conduct or sponsor, and a person is not required
to respond to, a collection of information unless the collection of
information displays a valid control number.
For further information concerning this collection of information,
and where to submit comments on the collection of information and the
accuracy of the estimated burden, and suggestions for reducing this
burden, please refer to the preamble to the cross-referencing notice of
proposed rulemaking published in the Proposed Rules section of this
issue of the Federal Register.
Books or records relating to a collection of information must be
retained as long as their contents may become material in the
administration of any Internal Revenue law. Generally, tax returns and
tax return information are confidential, as required by 26 U.S.C. 6103.
Background and Explanation of Provisions
On February 4, 1991, the IRS and Treasury issued three notices of
proposed rulemaking, CO-132-87 (56 FR 4194), CO-077-90 (56 FR 4183),
and CO-078-90 (56 FR 4228), setting forth rules regarding the
application of sections 382 and 383 by consolidated groups and by
controlled groups, and the carryover and carryback of losses to
consolidated and separate return years.
For reasons explained in the preamble to TD 8678 (published
elsewhere in this issue of the Federal Register), the IRS and Treasury
are issuing temporary amendments concerning the limitations on net
operating loss carryforwards and certain built-in losses and credits
following an ownership change of a consolidated group. The temporary
regulations contained in this Treasury decision complement those other
temporary regulations. They assure that the members of a controlled
group cannot duplicate value in computing their respective section 382
limitations, a result not permitted to members of a group filing
consolidated returns. See Sec. 1.1502-93T.
These temporary regulations are substantially identical to the
rules proposed on January 29, 1991. One provision (relating to the
effects of successive ownership changes) was moved from the
consolidated return regulations to the section 382 regulations to
clarify that it is applicable to all corporations. These temporary
amendments do not address the numerous comments on the proposed
regulations. Many of these comments are still under consideration.
Effective Dates
The temporary amendments are generally effective as of January 1,
1997. The final rules relating to the value of stock added to
Sec. 1.382-2(a)(3)(i) and the temporary rules in Sec. 1.382-
2T(f)(1)(ii) (relating to the end of separate tracking of certain loss
corporations) are generally effective as of January 29, 1991. The
temporary rules in Sec. 1.382-5T (relating generally to short taxable
years and successive ownership changes) generally apply to loss
corporations that have an ownership change to which section 382(a), as
amended by the Tax Reform Act of 1986, applies.
Special Analysis
It has been determined that this Treasury decision is not a
significant regulatory action as defined in EO 12866. Therefore, a
regulatory assessment is not required. It has also been determined that
section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5)
and the Regulatory Flexibility Act (5 U.S.C. chapter 6) do not apply to
these regulations, and, therefore, a Regulatory Flexibility Analysis is
not required. Pursuant to section 7805(f) of the Internal Revenue Code,
the notice of proposed rulemaking preceding these regulations were sent
to the Small Business Administration for comment on their impact on
small business.
Drafting Information: The principal author of the temporary
regulations is David B. Friedel of the Office of Assistant Chief
Counsel (Corporate), IRS. Other personnel from the IRS and Treasury
participated in their development.
Adoption of Amendments to the Regulations
Accordingly, 26 CFR parts 1 and 602 are amended as follows:
PART 1--INCOME TAXES
Paragraph 1. The authority citation for Part 1 is amended by
removing the entries for ``1.382-2'' and ``1.382-2T'' and adding
entries in numerical order to read as follows:
Authority: 26 U.S.C. 7805 * * *
Section 1.382-2 also issued under 26 U.S.C. 382(k)(1), (l)(3),
(m), and 26 U.S.C. 383.
Section 1.382-2T also issued under 26 U.S.C. 382(g)(4)(C), (i),
(k)(1) and (6), (l)(3), (m), and 26 U.S.C. 383.* * *
Section 1.382-5T also issued under 26 U.S.C. 382(m).* * *
Section 1.382-8T also issued under 26 U.S.C. 382(m).* * *
Par. 2. Section 1.382-1 is amended by:
a. Adding an entry for Sec. 1.382-2, paragraph (a)(1)(iv).
b. Revising the entry for Sec. 1.382-2, paragraph (a)(3)(i).
c. Adding entries for Sec. 1.382-2T, paragraphs (f)(1)(i) through
(f)(1)(iii).
d.- Adding entries for Secs. 1.382-5T and 1.382-8T.
Sec. 1.382-1 Table of contents.
* * * * *
Sec. 1.382-2 General rules for ownership change.
(a) * * *
(1) * * *
(iv) End of separate accounting for losses and credits of
distributor or transferor loss corporation.
* * * * *
Sec. 1.382-2T Definition of ownership change under section 382, as
amended by the Tax Reform Act of 1986 (temporary).
* * * * *
(f) * * *
(1) * * *
(i) In general.
(ii) End of separate accounting for losses and credits of
distributor or transferor loss corporation.
(iii) Application to other successor corporations.
* * * * *
Sec. 1.382-5T Section 382 limitation (temporary).
(a) Scope.
(b) Computation of value.
(c) Short taxable year.
(d) Successive ownership changes and absorption of a section 382
limitation.
(1) In general.
(2) Recognized built-in gains and losses.
[[Page 33315]]
(3) Effective date.
(e) Controlled groups.
(f) Effective date.
* * * * *
Sec. 1.382-8T Controlled groups (temporary).
(a) Introduction.
(b) Controlled group loss and controlled group with respect to a
controlled group loss.
(c) Computation of value.
(1) Reduction in value.
(2) Restoration of value.
(3) Reduction in value by the amount restored.
(4) Appropriate adjustments.
(5) Certain reductions in the value of members of a controlled
group.
(d) No double reduction.
(e) Definitions and nomenclature.
(1) Definitions in Section 382 and the regulations thereunder.
(2) Controlled group.
(3) Component member.
(4) Predecessor and successor corporation.
(f) Coordination between consolidated groups and controlled groups.
(g) Examples.
(h) Time and manner of filing election to restore.
(1) Statement required.
(2) Revocation of election.
(3) Filing by component member.
(i) [Reserved]
(j) Effective date.
(1) In general.
(2) Transition rule.
(i) In general.
(ii) Special transition rules for controlled groups that had
ownership changes before January 29, 1991.
(3) Amended returns.
Par. 3. Section 1.382-2 is amended as follows:
(a) The first sentence of paragraph (a)(1)(iii) is amended by
removing the language ``Pre-change losses'' and adding ``Except as
provided in Sec. 1.382-2T(f)(1)(ii), pre-change losses'' in its place.
(b) Paragraph (a)(1)(iv) is added.
(c) The text of Sec. 1.382-2T(f)(18)(i) is redesignated as the text
of Sec. 1.382-2(a)(3)(i).
(d) Newly designated paragraph (a)(3)(i) is amended by adding three
sentences at the end.
The additions read as follows:
Sec. 1.382-2 General rules for ownership change.
(a) * * *
(1) * * *
(iv) End of separate accounting for losses and credits of
distributor or transferor loss corporation. For further guidance, see
Sec. 1.382-2T(f)(1)(ii).
* * * * *
(3) * * * (i) * * * Solely for purposes of determining the
percentage of stock owned by a person, each share of all the
outstanding shares of stock that have the same material terms is
treated as having the same value. Thus, for example, a control premium
or blockage discount is disregarded in determining the percentage of
stock owned by any person. The previous two sentences of this paragraph
(a)(3)(i) apply to any testing date occurring on or after January 29,
1991.
* * * * *
Par. 4. Section 1.382-2T is amended as follows:
(a) Paragraph (e)(2)(iv) Example (1) is amended by removing the
last sentence.
(b) Paragraph (e)(2)(iv) Example (2)(ii) is amended by adding a
sentence at the end.
(c) Paragraph (e)(2)(iv) Example (2)(iii) is amended by removing
the language ``, but must be separately accounted for under Sec. 1.382-
2(a)(1)(iii) of this section'' from the last sentence.
(d) The text following the heading of paragraph (f)(1) is
designated as paragraph (f)(1)(i) and a heading for newly designated
paragraph (f)(1)(i) is added.
(e) Paragraphs (f)(1)(ii) and (f)(1)(iii) are added.
(f) Paragraph (f)(4) is amended by removing the word ``loss'' and
by adding two sentences at the end.
(g) Paragraph (f)(5) is amended by adding two sentences at the end.
(h) A sentence is added after the heading of paragraph (f)(18)(i).
(i) Paragraph (h)(2)(i)(A) is amended by adding the language ``and
solely for the purposes of determining whether a loss corporation has
an ownership change'' immediately after ``except as otherwise provided
in this section,''.
The additions read as follows:
Sec. 1.382-2T Definitions of ownership change under section 382, as
amended by the Tax Reform Act of 1986 (temporary).
* * * * *
(e) * * *
(2) * * *
(iv) * * *
Example (2) * * *
(ii) * * * See paragraph (f)(1)(ii) of this section for rules that
end separate accounting for L1's pre-change losses on any testing
date occurring on or after January 29, 1991.
(f) * * *
(1) * * *
(i) In general. * * *
(ii) End of separate accounting for losses and credits of
distributor or transferor loss corporation. The separate tracking of
owner shifts of the stock of an acquiring corporation required by
Sec. 1.382-2(a)(1)(iii) with respect to the net operating loss
carryovers and other attributes described in Sec. 1.382-2(a)(1)(ii)
ends when a fold-in event occurs. A fold-in event is either an
ownership change of the distributor or transferor corporation in
connection with, or after, the transaction to which section 381(a)
applies, or a period of 5 consecutive years following the section
381(a) transaction during which the distributor or transferor
corporation has not had an ownership change. Starting on the day after
the earlier of the change date (but not earlier than the day of the
section 381(a) transaction) or the last day of the 5 consecutive year
period, the losses and other attributes of the distributor or
transferor corporation are treated as losses and attributes of the
acquiring corporation for purposes of determining whether an ownership
change occurs with respect to such losses. Also, for purposes of
determining the beginning of the acquiring corporation's testing
period, such losses are considered to arise either in a taxable year
that begins not earlier than the later of the day following the change
date or the day of the section 381(a) transaction, or in a taxable year
that begins 3 years before the end of the 5 consecutive year period.
Pre-change losses of a distributor or transferor corporation that are
subject to a limitation under section 382 continue to be subject to the
limitation notwithstanding the occurrence of a fold-in event. Any
ownership change that occurs in connection with, or subsequent to, the
section 381 transaction may result in an additional, lesser limitation
with respect to such pre-change losses. This paragraph (f)(1)(ii)
applies to any testing date occurring on or after January 29, 1991.
(iii) Application to other successor corporations. Section 1.382-
2(a)(1) (relating to the definition of loss corporation) and this
paragraph (f)(1) also apply, as the context may require, to successor
corporations other than successors in section 381(a) transactions. For
example, if a corporation receives assets from the loss corporation
that have basis in excess of value, the recipient corporation's basis
for the assets is determined, directly or indirectly, in whole or in
part, by reference to the loss corporation's basis, and the amount by
which basis exceeds value is material, the recipient corporation is a
successor corporation subject to Sec. 1.382-2(a)(1) and this paragraph
(f)(1). This paragraph (f)(1)(iii) applies to any testing date
occurring on or after January 1, 1997.
* * * * *
[[Page 33316]]
(4) Successor corporation. * * * A successor corporation also
includes, as the context may require, a corporation which receives an
asset or assets from another corporation if the corporation's basis for
the asset(s) is determined, directly or indirectly, in whole or in
part, by reference to the other corporation's basis and the amount by
which basis differs from value is, in the aggregate, material. The
previous sentence of this paragraph (f)(4) applies to any testing date
occurring on or after January 1, 1997.
(5) Predecessor corporation. * * * A predecessor corporation also
includes, as the context may require, a corporation which transfers an
asset or assets to another corporation if the transferee's basis for
the asset(s) is determined, directly or indirectly, in whole or in
part, by reference to the corporation's basis and the amount by which
basis differs from value is, in the aggregate, material. The previous
sentence of this paragraph (f)(5) applies to any testing date occurring
on or after January 1, 1997.
* * * * *
(18) * * * (i) * * * For further guidance, see Sec. 1.382-
2(a)(3)(i).
* * * * *
Par. 5. Sections 1.382-5T and 1.382-8T are added to read as
follows:
Sec. 1.382-5T Section 382 limitation (temporary).
(a) Scope. Following an ownership change, the section 382
limitation for any post-change year is an amount equal to the value of
the loss corporation multiplied by the long-term tax-exempt rate that
applies with respect to the ownership change, and adjusted as required
by section 382 and the regulations thereunder. See, for example,
section 382(b)(2) (relating to the carryforward of unused section 382
limitation), section 382(b)(3)(B) (relating to the section 382
limitation for the post-change year that includes the change date),
section 382(m)(2) (relating to short taxable years), and section 382(h)
(relating to recognized built-in gains and section 338 gains).
(b) Computation of value. [Reserved]
(c) Short taxable year. The section 382 limitation for any post-
change year that is less than 365 days is the amount that bears the
same ratio to the section 382 limitation determined under section
382(b)(1) as the number of days in the post-change year bears to 365.
The section 382 limitation, as so determined, is adjusted as required
by section 382 and the regulations thereunder. This paragraph (c) does
not apply to a 52-53 week taxable year that is less than 365 days
unless a return is required under section 443 (relating to short
periods) for such year.
(d) Successive ownership changes and absorption of a section 382
limitation--(1) In general. If a loss corporation has two (or more)
ownership changes, any losses attributable to the period preceding the
earlier ownership change are treated as pre-change losses with respect
to both ownership changes. Thus, the later ownership change may result
in a lesser (but never in a greater) section 382 limitation with
respect to such losses. In any case, the amount of taxable income for
any post-change year that can be offset by pre-change losses may not
exceed the section 382 limitation for such ownership change, reduced by
the amount of taxable income offset by pre-change losses subject to any
earlier ownership change(s).
(2) Recognized built-in gains and losses. [Reserved]
(3) Effective date. This paragraph (d) applies to taxable years of
a loss corporation beginning on or after January 1, 1997.
(e) Controlled groups. See Sec. 1.382-8T for rules for determining
the value of a loss corporation that is a member of a controlled group.
(f) Effective date. Except as otherwise provided, this section
applies to a loss corporation that has an ownership change to which
section 382(a), as amended by the Tax Reform Act of 1986, applies.
Sec. 1.382-8T Controlled groups (temporary).
(a) Introduction. This section provides rules to adjust the value
of a loss corporation that is a member of a controlled group of
corporations on a change date so that the same value is not included
more than once in computing the limitations under section 382 for the
loss corporations that are members of the controlled group. In general,
the adjustment is made under paragraph (c) of this section by reducing
the value of the loss corporation by the value of the stock of each
component member of the controlled group that the loss corporation owns
immediately after the ownership change. The loss corporation's value
may, however, be increased under paragraph (c) of this section by any
amount of value that the other member elects to restore to the loss
corporation.
(b) Controlled group loss and controlled group with respect to a
controlled group loss. A controlled group loss is a pre-change loss (or
a net unrealized built-in loss) of a loss corporation that is
attributable to a taxable year of the corporation with respect to which
the corporation is a component member of a controlled group (as defined
by paragraphs (e) (2) and (3) of this section). The controlled group
with respect to each controlled group loss is composed of the loss
corporation and each other corporation that is a component member of a
controlled group that includes the loss corporation both--
(1) With respect to the taxable year to which the controlled group
loss is attributable; and
(2) On the date the loss corporation has an ownership change.
(c) Computation of value. For purposes of computing the limitation
under section 382 with respect to each controlled group loss, the value
of the stock of each component member of the controlled group with
respect to that loss is determined immediately before the ownership
change, and is adjusted by applying the following rules:
(1) Reduction in value. The value of the stock of each component
member is reduced by the value (immediately before the ownership change
and without regard to any restoration of value or other adjustment
under this section) of the stock of any other component member directly
owned by the component member immediately after the ownership change.
(2) Restoration of value. After the value of the stock of each
component member is reduced pursuant to paragraph (c)(1) of this
section, the value of the stock of each component member is increased
by the amount of value, if any, restored to the component member by
another component member (the electing member) pursuant to this
paragraph (c)(2). The electing member may elect to restore value to
another component member in an amount that does not exceed the lesser
of--
(i) The sum of--
(A) The value, determined immediately before the ownership change,
of the electing member's stock (after adjustment under paragraph (c)(1)
of this section and before any restoration of value under this
paragraph (c)(2)); plus
(B) Any amount of value restored to the electing member by another
component member under this paragraph (c)(2); or
(ii) The value, determined immediately before the ownership change,
of the electing member's stock (without regard to any adjustment under
this section) that is directly owned by the other component member
immediately after the ownership change.
(3) Reduction in value by the amount restored. The value of the
stock of the electing member is reduced by any
[[Page 33317]]
amount of value that the electing member elects to restore under
paragraph (c)(2) of this section to another component member.
(4) Appropriate adjustments. Appropriate additional adjustments
consistent with paragraphs (c)(1), (2), and (3) of this section must be
made to prevent any duplication of value. Thus, for example,
adjustments must be made to reflect--
(i) Any indirect ownership interest in another component member;
(ii) Any cross ownership of stock by component members of the
controlled group with respect to the controlled group loss; and
(iii) Any value used to determine a limitation under section 382
with respect to controlled group losses from the same period.
(5) Certain reductions in the value of members of a controlled
group. A loss corporation that has an ownership change is required to
make adjustments consistent with this paragraph (c) with respect to its
stock if the stock of another corporation in which it had a direct or
indirect ownership interest was disposed of before the ownership
change, and;
(i) Both corporations were component members of a controlled
group--
(A) With respect to a taxable year to which a controlled group loss
of the loss corporation is attributable; and
(B) At any time during the 2 year period before the ownership
change; and
(ii) Both corporations are component members of a controlled group
at any time during the 2 year period following the ownership change.
(d) No double reduction. To the extent consistent with the purposes
of this section, section 382 and this section shall not be applied to
duplicate a reduction in the value of a loss corporation. Thus, for
example, if the value of a loss corporation is reduced under section
382(l)(1) to reflect a capital contribution of stock of a component
member, it is not again reduced by such amount under paragraph (c)(1)
of this section. If this paragraph (d) applies to prevent a reduction
in value from being duplicated, the application of the other rules of
this section, such as those relating to the restoration of value, is
correspondingly limited in a manner consistent with the principles of
this section.
(e) Definitions and nomenclature--(1) Definitions in section 382
and the regulations thereunder. Except as otherwise provided, the
definitions and nomenclature contained in section 382 and the
regulations thereunder apply to this section.
(2) Controlled group. Controlled group has the same meaning as in
section 1563(a), determined by substituting ``50 percent'' for ``80
percent'' each place that it appears, and without regard to section
1563(a)(4).
(3) Component member. Component member has the same meaning as in
section 1563(b), determined by substituting ``December 31 (or the
change date, if earlier)'' for ``December 31'' each place it appears,
and without regard to section 1563 (b)(2), (b)(3)(C), and (b)(4).
(4) Predecessor and successor corporation. As the context may
require, a reference to a corporation, or component member includes a
reference to a predecessor or successor corporation.
(f) Coordination between consolidated groups and controlled groups.
Some or all of the component members of a controlled group may also be
members of a consolidated group, and a controlled group loss may be
subject to a consolidated section 382 limitation or subgroup section
382 limitation determined under Sec. 1.1502-93T. Except as otherwise
provided in this paragraph (f) and Secs. 1.1502-91T through 1.1502-99T,
Sec. 1.1502-93T applies instead of this section when both sections, by
their terms, are otherwise applicable. This section is applicable and
may require an adjustment to value if a member of a consolidated group,
a loss group, or a loss subgroup (as those terms are defined in
Secs. 1.1502-1(h) and 1.1502-91T) is also a component member of a
controlled group with respect to a controlled group loss. Solely for
purposes of applying this section, a consolidated group, loss group, or
loss subgroup is treated as a single corporation. Thus to determine the
limitation with respect to any portion of the pre-change consolidated
attributes or pre-change subgroup attributes of the loss group or loss
subgroup that is a controlled group loss, the consolidated section 382
limitation or subgroup section 382 limitation is computed by treating
the loss group or the loss subgroup as a single corporation, and
adjusting value in accordance with paragraph (c) of this section. See
paragraph (g) Example 4 of this section.
(g) Examples. For purposes of the examples in this section, unless
otherwise stated, the nomenclature and assumptions of the examples in
Sec. 1.382-2T(b) apply, all corporations file separate income tax
returns on a calendar year basis, the only 5-percent shareholder of a
corporation is a public group, and the facts set forth the only owner
shifts with respect to the corporations during the testing period.
-Example 1. Controlled group with respect to a controlled group
loss. (a) Public L owns all of the L stock, L and Public L1 own 30
percent and 70 percent, respectively, of the L1 stock, and L1 owns
all of the corporation T stock. L1 has a net operating loss arising
in Year 1 that is carried over to Year 4. L has a net operating loss
arising in Year 2 that is carried over to Year 4. On August 1, Year
3, L acquires 30 percent of the stock of L1, thereby increasing its
percentage ownership interest in L1 to 60 percent. On December 1,
Year 3, L1 purchases all of the stock of corporation S from Public
S. On November 1, Year 4, P acquires all of the L stock. The
acquisition by P of all of the L stock on November 1, Year 4, causes
ownership changes of both L and L1 under the rules of Sec. 1.382-2T.
The following is a graphic illustration of these facts.
BILLING CODE 4830-01-U
[[Page 33318]]
[GRAPHIC] [TIFF OMITTED] TR27JN96.000
BILLING CODE 4830-01-C
[[Page 33319]]
(b)(1) Under paragraph (b) of this section, the Year 1 net
operating loss carryover of L1 is a controlled group loss because L1
is a component member of a controlled group with respect to Year 1,
the year to which the loss is attributable. L1 and T compose a
controlled group with respect to the net operating loss carryover
because L1 and T are component members of a controlled group both--
(A) With respect to the taxable year to which L1's net operating
loss carryover is attributable (i.e., Year 1); and
(B) On November 1, Year 4, L1's change date. Although L and S
are component members of L1's controlled group on L1's change date,
they are not component members of the controlled group with respect
to the Year 1 net operating loss carryover because they were not
component members with respect to the year to which the net
operating loss carryover is attributable.
(2) The value of L1's stock must therefore be adjusted in
accordance with paragraph (c) of this section to take into account
an adjustment with respect to the T stock (but not the S stock) in
computing L1's limitation under section 382 with respect to its net
operating loss carryover.
(c) Although L is a member of a controlled group composed of L,
L1, S, and T on November 1, Year 4, L's change date, it is not a
component member of a controlled group with respect to Year 2, the
taxable year to which its net operating loss carryover is
attributable. Therefore, L's Year 2 net operating loss carryover is
not a controlled group loss under paragraph (b) of this section and
the value of L's stock is not adjusted in accordance with paragraph
(c) of this section to compute L's limitation under section 382 with
respect to the Year 2 net operating loss carryover.
Example 2. Adjustments to value of the controlled group members.
(a) Since Year 1, A has owned all of the stock of L, L and B have
owned 80 percent and 20 percent, respectively, of the stock of
corporation P, and P and C have owned 75 percent and 25 percent,
respectively, of the stock of L1. L and L1 each has a net operating
loss for the Year 6 taxable year that is carried over to its
respective Year 7 taxable year. On December 1, Year 7, A sells all
of the L stock to D. The sale results in ownership changes of both L
and L1. Immediately before the ownership changes, the total value of
the L1 stock is $40, the total value of the P stock (including the
value of its L1 stock) is $100, and the total value of the L stock
(including the value of the P stock) is $200. The following is a
graphic illustration of these facts.
BILLING CODE 4830-01-U
[GRAPHIC] [TIFF OMITTED] TR27JN96.001
BILLING CODE 4830-01-C
(b) Under paragraph (b) of this section, the Year 6 net
operating loss carryovers of each of L and L1 are controlled group
losses because each of L and L1 is a component member of a
controlled group with respect to Year 6, the year to which the
losses are attributable. L, P, and L1 compose controlled groups with
respect to both Year 6 net operating loss carryovers because L, P,
and L1 are component members of a controlled group both-- -
(1) With respect to the taxable years to which the net operating
loss carryovers are attributable (i.e., Year 6); and
(2) On December 1, Year 7, the change date.
(c) The value of the stock of L1 for purposes of determining its
limitation under section 382 with respect to its net operating loss
carryover from Year 6 is $40. L1 does not elect to restore any value
to P under paragraph (c)(2) of this section.
(d) The value of the stock of P ($100) is reduced under
paragraph (c)(1) of this section by the value of the stock of L1
that it directly owns, $30 (75% x $40). Following the adjustment,
the value of the stock of P is $70. P elects to restore this entire
$70 of value to L.
(e) The value of the stock of L, $200, is reduced under
paragraph (c)(1) of this section by the value of the stock of P it
directly owns, i.e., $80 (80% x $100), and increased under paragraph
(c)(2) of this section by the amount P elects to restore to L, i.e.,
$70. Thus, the value of the L stock for purposes of determining L's
limitation under section 382 with respect to its net operating loss
carryover from Year 6 is $190 ($200-$80+$70).
Example 3. Limitation on restoration of value. (a) The facts are
the same as in Example 2, except that L1 elects to restore $20 to P.
For purposes of determining L1's limitation under section 382 with
respect to the Year 6 net operating loss carryover, the value of the
stock of L1 is $20 ($40-$20) because the value of its stock is
reduced under paragraph (c)(3) of this section by the $20 of value
it elects to restore to P.
(b) The value of the stock of P ($100) is reduced under
paragraph (c)(1) of this section by the value of the L1 stock it
directly owns ($30), and is increased under paragraph (c)(2) of this
section by the value that L1 elects to restore to P ($20). Thus, the
value of the P stock is $90 ($100-$30+$20).
(c)(1) P elects to restore to L the maximum value permitted
under this section. The value of the stock of L, $200, is reduced
under paragraph (c)(1) of this section by the value of the P stock
it directly owns ($80), and is increased by the value that P elects
to restore to L. P may elect to restore to L the lesser of--
(A) The sum of the value of its stock immediately after
adjustment under paragraph (c)(1) of this section (i.e., $70) plus
the value restored to it by L1 (i.e., $20) (a total of $90); or
(B) The value of the P stock (without regard to the adjustment
required by paragraphs (c) (1) and (2) of this section) that is
directly owned by L immediately before the ownership change (i.e.,
$80).
(2) Thus, $80 is the maximum amount that P may elect to restore
to L. Following the restoration of value by P, the value of the L
stock for purposes of determining L's limitation under section 382
is $200 ($200 -$80 + $80).
Example 4. Coordination with consolidated return regulations.
(a) P and its wholly owned subsidiary L file a consolidated return.
L owns 79 percent of the outstanding
[[Page 33320]]
stock of L1. P acquired the stock of L in Year 1 and L acquired the
stock of L1 in Year 2. The P consolidated group has a consolidated
net operating loss arising in the Year 6 consolidated return year
that is carried over to Year 8. L1 has a net operating loss arising
in its Year 6 taxable year that is also carried over to Year 8. On
January 1, Year 8, the P consolidated group has an ownership change
under Sec. 1.1502-92T(b)(1)(i) and L1 has an ownership change under
Sec. 1.382-2T.
(b)(1) Under paragraph (b) of this section, the Year 6 net
operating loss carryover of the P group is a controlled group loss
because P, L, and L1 are component members of a controlled group
with respect to Year 6, the year to which the loss is attributable.
P, L, and L1 compose a controlled group with respect to the Year 6
net operating loss carryover of the P loss group because they are
component members of a controlled group both--
(A) With respect to the taxable years to which the net operating
loss carryover is attributable (i.e., Year 6); and -
(B) On January 1, Year 8, the P group's change date.
(2) Because P and L compose a loss group (within the meaning of
Sec. 1.1502-91T(c)) with respect to its Year 6 net operating loss
carryover, the P loss group must compute a consolidated section 382
limitation with respect to its Year 6 net operating loss carryover
as a result of the ownership change.
(c) In computing the consolidated section 382 limitation under
Sec. 1.1502-93T with respect to the Year 6 net operating loss
carryover, the value of the P stock immediately before the ownership
change is reduced under paragraphs (c)(1) and (f) of this section by
the value immediately before the ownership change of the L1 stock
directly owned by L immediately after the ownership change. L1 may,
however, elect to restore such value to the P consolidated group to
the extent permitted under paragraph (c)(2) of this section.
Example 5. Appropriate adjustments for indirect ownership
interest. (a) Individual A owns all of the stock of L, L owns an 80
percent interest in the capital and profits of partnership PS, and
PS owns 75 percent of the stock of L1. Both L and L1 have net
operating losses for the Year 1 taxable year that are carried over
to their respective Year 2 taxable years. On December 19, Year 2, A
sells all of the L stock to an unrelated individual. The sale
results in an ownership change of L and L1.
(b) Under paragraph (b) of this section, the Year 1 net
operating loss carryovers of each of L and L1 are controlled group
losses because each of L and L1 is a component member of a
controlled group with respect to Year 1, the year to which the
losses are attributable. L and L1 compose controlled groups with
respect to each corporation's net operating loss carryovers because
L and L1 are component members of a controlled group both--
(1) With respect to the taxable years to which the net operating
loss carryovers are attributable (i.e., Year 1); and
(2) On December 19, Year 2, the change date.
(c) L has an indirect ownership interest in L1 which, under
paragraph (c)(4) of this section, must be taken into account in
applying this section. As a result, the value of the L stock for
purposes of determining its limitation under section 382 with
respect to the Year 1 net operating loss carryover must be reduced
by the value of L's indirect ownership interest in the L1 stock (60
percent) that it owns through PS immediately before the ownership
change, and is increased by the amount (if any) that L1 elects to
restore to L under paragraph (c)(2) of this section. The value of L1
is reduced under paragraph (c)(3) of this section to the extent that
L1 elects to restore value to L.
(h) Time and manner of filing election to restore--(1) Statement
required. The election to restore value described in paragraph (c)(2)
of this section must be in the form set forth below. It must be signed
on behalf of both the electing member and the corporation to which such
value is restored by persons authorized to sign their respective income
tax returns. (The common parent of a consolidated group must make the
election on behalf of the group.) It must be filed by the loss
corporation with its income tax return for the taxable year in which
the ownership change occurs (or with an amended return for such year
filed on or before the due date (including extensions) of the income
tax return of any component member with respect to the taxable year in
which the ownership change occurs). The statement must provide that:
``THIS IS AN ELECTION UNDER Sec. 1.382-8T OF THE INCOME TAX REGULATIONS
TO RESTORE ALL OR PART OF THE VALUE OF [insert name and E.I.N. of the
electing member] TO [insert name and E.I.N. of the corporation to which
value is restored]. The statement must also--
(i) Identify the change date for the loss corporation in connection
with which the election is made;
(ii) State the value of the electing member's stock (without regard
to any adjustment under paragraph (c) of this section) immediately
before the ownership change;
(iii) State the amount of any reduction required under paragraph
(c)(1) of this section with respect to stock of the electing member
that is owned directly or indirectly by the corporation to which value
is restored;
(iv) State the amount of value that the electing member elects to
restore to the corporation; and
(v) State whether the value of either component member's stock was
adjusted pursuant to paragraph (c)(4) of this section.
(2) Revocation of election. An election made under this section is
revocable only with the consent of the Commissioner.
(3) Filing by component member. An electing member must attach a
copy of the statement described in paragraph (h)(1) of this section to
its income tax return (or amended return) for the taxable year which
includes the change date in connection with which the election is made.
(i) [Reserved] -
(j) Effective date--(1) In general. This section applies to a loss
corporation that has an ownership change with respect to a controlled
group loss on or after January 1, 1997.
(2) Transition rule--(i) In general. The members of a controlled
group on January 1, 1997, that have had an ownership change with
respect to a controlled group loss before January 1, 1997, must
determine the limitations under section 382 for any post-change year
with respect to controlled group losses by using a reasonable method to
preclude the value of stock of a component member that was owned
directly or indirectly by another member immediately after an ownership
change from being taken into account more than once in determining the
limitations under section 382 with respect to controlled group losses.
If such a reasonable method was not used for a post-change year,
subject to the exception in paragraph (j)(3) of this section, the
members of the controlled group described in the preceding sentence
must reduce their limitations under section 382 for post-change years
for which the income tax return is filed after January 1, 1997, to
recapture, as quickly as possible, any limitation that members took
into account in excess of the amount that would be allowable under this
section.
(ii) Special transition rule for controlled groups that had
ownership changes before January 29, 1991. For purposes of this
section, in the case of an ownership change occurring before January
29, 1991, the controlled group with respect to a controlled group loss
does not include a corporation that is not a component member of the
controlled group on January 29, 1991. Thus, in the case of an ownership
change occurring before January 29, 1991, paragraph (c) of this section
does not require that a loss corporation that is a component member of
a controlled group to disregard the value of stock of another
corporation directly owned immediately after the ownership change in
determining the value of its own stock unless the other corporation is
a component member of the controlled group on January 29, 1991.
[[Page 33321]]
(3) Amended returns. A taxpayer that has had an ownership change
before January 1, 1997, may file an amended return for any taxable year
to modify the amount of a limitation under section 382 with respect to
a controlled group loss only if--
(i) The modification complies with the rules contained in this
section for computing a limitation under section 382;
(ii) Any other component member of the controlled group with
respect to the controlled group loss who elects to restore value and
whose taxable income is affected by the election to restore value also
files amended returns that comply with such rules; and
(iii) Corresponding adjustments are made in amended returns for all
taxable years ending after December 31, 1986.
PART 602--OMB CONTROL NUMBERS UNDER THE PAPERWORK REDUCTION ACT
Par. 6. The authority citation for part 602 continues to read as
follows:
Authority: 26 U.S.C. 7805.
Par. 7. In Sec. 602.101, paragraph (c) is amended by adding an
entry in numerical order to the table to read as follows:
Sec. 602.101 OMB Control numbers.
* * * * *
(c) * * *
------------------------------------------------------------------------
Current OMB
CFR part or section where identified or described control No.
------------------------------------------------------------------------
* * * * *
1.382.8T................................................... 1545-1434
* * * * *
------------------------------------------------------------------------
Margaret Milner Richardson,
Commissioner of Internal Revenue.
Approved: May 31, 1996.
Leslie Samuels,
Assistant Secretary of the Treasury.
[FR Doc. 96-15825 Filed 6-26-96; 8:45 am]
BILLING CODE 4830-01-U
Complete official Federal Register PDF
FR Doc. 96-15824 Regulations Under Section 1502 of the Internal Revenue Code of 1986; Limitations on Net Operating Loss Carryforwards and Certain Built-in Losses and Credits Following an Ownership Change of a Consolidated Group
[Federal Register Volume 61, Number 125 (Thursday, June 27, 1996)]
[Rules and Regulations]
[Pages 33335-33365]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-15824]
-----------------------------------------------------------------------
DEPARTMENT OF THE TREASURY
26 CFR Parts 1 and 602
[TD 8678]
RIN 1545-AU36
Regulations Under Section 1502 of the Internal Revenue Code of
1986; Limitations on Net Operating Loss Carryforwards and Certain
Built-in Losses and Credits Following an Ownership Change of a
Consolidated Group
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Temporary regulations.
-----------------------------------------------------------------------
SUMMARY: This document contains temporary regulations regarding the
operation of sections 382 and 383 of the Internal Revenue Code of 1986
(relating to limitations on net operating loss carryforwards and
certain built-in losses and credits following an ownership change) with
respect to consolidated groups. The regulations include rules for
determining whether a loss group or a loss subgroup has an ownership
change, for computing a consolidated section 382 limitation or subgroup
section 382 limitation, and for applying sections 382 and 383 to
corporations that join or leave a group. The rules are necessary to
provide guidance to such groups on the use of certain of their tax
attributes. The text of these temporary regulations also serves as the
text of the proposed regulations set forth in the notice of proposed
rulemaking on this subject in the Proposed Rules section of this issue
of the Federal Register.
DATES: These regulations are effective June 27, 1996.
For dates of application and special transition rules, see
Effective Dates under SUPPLEMENTARY INFORMATION.
FOR FURTHER INFORMATION CONTACT: David B. Friedel at (202) 622-7550
(not a toll-free number).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collection of information contained in the temporary
regulations has been reviewed and approved by the Office of Management
and Budget in accordance with the Paperwork Reduction Act (44 U.S.C.
3507) under the control number 1545-1218. The collection requires a
response from certain consolidated groups. The IRS requires the
information described in Sec. 1.1502-95T(e) to assure that a section
382 limitation is properly determined in cases of corporations that
cease to be members of a group. Responses to this collection of
information are required to obtain a benefit (relating to the section
382 limition applicable to the departing member(s)).
An agency may not conduct or sponsor, and a person is not required
to respond to, a collection of information unless the collection of
information displays a valid control number.
For further information concerning this collection of information,
and where to submit comments on the collection of information and the
accuracy of the estimated burden, and suggestions for reducing this
burden, please refer to the preamble to the cross-referencing notice of
proposed rulemaking published in the Proposed Rules section of this
issue of the Federal Register.
Books or records relating to a collection of information must be
retained as long as their contents may become material in the
administration of any Internal Revenue law. Generally, tax returns and
tax return information are confidential, as required by 26 U.S.C. 6103.
Background and Explanation of Provisions
On February 4, 1991, the IRS and Treasury issued three notices of
proposed rulemaking, CO-132-87 (56 FR 4194), CO-077-90 (56 FR 4183),
and CO-078-90 (56 FR 4228), setting forth rules regarding the
application of sections 382 and 383 by consolidated groups and by
controlled groups, and regarding the use of built-in deductions and net
operating losses and capital losses, including the carryover and
carryback of separate return limitation year (SRLY) losses of members
of consolidated groups. The preambles to the three proposed regulations
explain their rules in detail. The IRS and Treasury also published
Notice 91-27 (1991-2 C.B. 629) to advise of intended modifications to
the proposed regulations.
For reasons explained in the preamble to TD 8677 (published
elsewhere in this issue of the Federal Register), the IRS and Treasury
are issuing temporary amendments concerning the use of built-in
deductions and net operating losses and capital losses of members of
consolidated groups. Some of the rules in those temporary amendments
are closely related to rules regarding the application of section 382
to members of consolidated groups (for example, rules relating to
built-in deductions and subgroups). Because of the close relationship,
and in order to give consolidated groups immediate guidance on the
application of sections 382 and 383, the IRS and Treasury are issuing
these temporary amendments. The temporary amendments are substantially
identical to the rules proposed on January 29, 1991.
These temporary amendments do not address the comments on the
proposed amendments. Many of these comments are still under
consideration.
As a companion to this Treasury decision, the IRS and Treasury are
also issuing temporary regulations relating to the application of
sections 382 and 383 by members of controlled groups. See TD 8679
published elsewhere in this issue of the Federal Register.
Effective Dates
The temporary regulations are generally effective for testing dates
that occur on or after January 1, 1997. Transition rules contained in
the proposed amendments are retained and made applicable to testing
dates before January 1, 1997.
[[Page 33336]]
Special Analysis
It has been determined that this Treasury decision is not a
significant regulatory action as defined in EO 12866. Therefore, a
regulatory assessment is not required. It is hereby certified that
these regulations do not have a significant economic impact on a
substantial number of small entities. This certification is based on
the fact that these regulations will primarily affect affiliated groups
of corporations that have elected to file consolidated returns, which
tend to be larger businesses. Therefore, a Regulatory Flexibility
Analysis under the Regulatory Flexibility Act (5 U.S.C. chapter 6) is
not required. Pursuant to section 7805(f) of the Internal Revenue Code,
the notice of proposed rulemaking preceding these regulations were sent
to the Small Business Administration for comment on their impact on
small business.
Drafting Information
The principal author of the temporary regulations is David B.
Friedel of the Office of Assistant Chief Counsel (Corporate), IRS.
Other personnel from the IRS and Treasury participated in their
development.
List of Subjects
26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
26 CFR Part 602
Reporting and recordkeeping requirements.
Adoption of Amendments to the Regulations
Accordingly, 26 CFR parts 1 and 602 are amended as follows:
PART 1--INCOME TAXES
Paragraph 1. The authority citation for part 1 is amended by adding
entries in numerical order to read as follows:
Authority: 26 U.S.C. 7805 * * *
Section 1.1502-91T also issued under 26 U.S.C. 382(m) and 26
U.S.C. 1502.
Section 1.1502-92T also issued under 26 U.S.C. 382(m) and 26
U.S.C. 1502.
Section 1.1502-93T also issued under 26 U.S.C. 382(m) and 26
U.S.C. 1502.
Section 1.1502-94T also issued under 26 U.S.C. 382(m) and 26
U.S.C. 1502.
Section 1.1502-95T also issued under 26 U.S.C. 382(m) and 26
U.S.C. 1502.
Section 1.1502-96T also issued under 26 U.S.C. 382(m) and 26
U.S.C. 1502.
Section 1.1502-98T also issued under 26 U.S.C. 382(m) and 26
U.S.C. 1502.
Section 1.1502-99T also issued under 26 U.S.C. 382(m) and 26
U.S.C. 1502. * * *
Par. 2. Sections 1.1502-90T through 1.1502-99T are added to read as
follows:
Sec. 1.1502-90T Table of contents (temporary).
The following table contains the major headings in Secs. 1.1502-91T
through 1.1502-99T.
Sec. 1.1502-91T Application of section 382 with respect to a
consolidated group (temporary).
(a) Determination and effect of an ownership change.
(1) In general.
(2) Special rule for post-change year that includes the change date.
(3) Cross reference.
(b) Definitions and nomenclature.
(c) Loss group.
(1) Defined.
(2) Coordination with rule that ends separate tracking.
(3) Example.
(d) Loss subgroup.
(1) Net operating loss carryovers.
(2) Net unrealized built-in loss.
(3) Loss subgroup parent.
(4) Principal purpose of avoiding a limitation.
(5) Special rules.
(6) Examples.
(e) Pre-change consolidated attribute.
(1) Defined.
(2) Example.
(f) Pre-change subgroup attribute.
(1) Defined.
(2) Example.
(g) Net unrealized built-in gain and loss.
(1) In general.
(2) Members included.
(i) Consolidated group.
(ii) Loss subgroup.
(3) Acquisitions of built-in gain or loss assets.
(4) Indirect ownership.
(h) Recognized built-in gain or loss.
(1) In general. [Reserved]
(2) Disposition of stock or an intercompany obligation of a member.
(3) Deferred gain or loss.
(4) Exchanged basis property.
(i) [Reserved]
(j) Predecessor and successor corporations.
Sec. 1.1502-92T Ownership change of a loss group or a loss
subgroup (temporary).
(a) Scope.
(b) Determination of an ownership change.
(1) Parent change method.
(i) Loss group.
(ii) Loss subgroup.
(2) Examples.
(3) Special adjustments.
(i) Common parent succeeded by a new common parent.
(ii) Newly created loss subgroup parent.
(iii) Examples.
(4) End of separate tracking of certain losses.
(c) Supplemental rules for determining ownership change.
(1) Scope.
(2) Cause for applying supplemental rule.
(3) Operating rules.
(4) Supplemental ownership change rules.
(i) Additional testing dates for the common parent (or loss subgroup
parent).
(ii) Treatment of subsidiary stock as stock of the common parent (or
loss subgroup parent).
(iii) 5-percent shareholder of the common parent (or loss subgroup
parent).
(5) Examples.
(d) Testing period following ownership change under this section.
(e) Information statements.
(1) Common parent of a loss group.
(2) Abbreviated statement with respect to loss subgroups.
Sec. 1.1502-93T Consolidated section 382 limitation (or
subgroup section 382 limitation) (temporary).
(a) Determination of the consolidated section 382 limitation (or
subgroup section 382 limitation).
(1) In general.
(2) Coordination with apportionment rule.
(b) Value of the loss group (or loss subgroup).
(1) Stock value immediately before ownership change.
(2) Adjustment to value.
(3) Examples.
(c) Recognized built-in gain of a loss group or loss subgroup.
(d) Continuity of business.
(1) In general.
(2) Example.
(e) Limitations of losses under other rules.
Sec. 1.1502-94T Coordination with section 382 and the
regulations thereunder when a corporation becomes a member of a
consolidated group (temporary).
(a) Scope.
(1) In general.
(2) Successor corporation as new loss member.
(3) Coordination in the case of a loss subgroup.
(4) End of separate tracking of certain losses.
(5) Cross-reference.
(b) Application of section 382 to a new loss member.
(1) In general.
(2) Adjustment to value.
(3) Pre-change separate attribute defined.
(4) Examples.
(c) Built-in gains and losses.
(d) Information statements.
Sec. 1.1502-95T Rules on ceasing to be a member of a
consolidated group (or loss subgroup) (temporary).
(a) In general.
(1) Consolidated group.
(2) Election by common parent.
(3) Coordination with Secs. 1.1502-91T through 1.1502-93T.
(b) Separate application of section 382 when a member leaves a
consolidated group.
(1) In general.
(2) Effect of a prior ownership change of the group.
(3) Application in the case of a loss subgroup.
(4) Examples.
(c) Apportionment of a consolidated section 382 limitation.
(1) In general.
(2) Amount of apportionment.
(3) Effect of apportionment on the consolidated section 382
limitation.
(4) Effect on corporations to which the consolidated section 382
limitation is apportioned.
[[Page 33337]]
(5) Deemed apportionment when loss group terminates.
(6) Appropriate adjustments when former member leaves during the
year.
(7) Examples.
(d) Rules pertaining to ceasing to be a member of a loss subgroup.
(1) In general.
(2) Examples.
(e) Filing the election to apportion.
(1) Form of the election to apportion.
(2) Signing of the election.
(3) Filing of the election.
(4) Revocation of election.
Sec. 1.1502-96T Miscellaneous rules (temporary).
(a) End of separate tracking of losses.
(1) Application.
(2) Effect of end of separate tracking.
(3) Continuing effect of end of separate tracking.
(4) Special rule for testing period.
(5) Limits on effects of end of separate tracking.
(b) Ownership change of subsidiary.
(1) Ownership change of a subsidiary because of options or plan or
arrangement.
(2) Effect of the ownership change.
(i) In general.
(ii) Pre-change losses.
(3) Coordination with Secs. 1.1502-91T, 1.1502-92T, and 1.1502-94T.
(4) Example.
(c) Continuing effect of an ownership change.
Sec. 1.1502-97T Special rules under section 382 for members
under the jurisdiction of a court in a title 11 or similar case
(temporary). [Reserved]
Sec. 1.1502-98T Coordination with section 383 (temporary).
Sec. 1.1502-99T Effective dates (temporary).
(a) Effective date.
(b) Testing period may include a period beginning before January 1,
1997.
(c) Transition rules.
(1) Methods permitted.
(i) In general.
(ii) Adjustments to offset excess limitation.
(iii) Coordination with effective date.
(2) Permitted methods.
(d) Amended returns.
(e) Section 383.
Sec. 1.1502-91T Application of section 382 with respect to a
consolidated group (temporary).
(a) Determination and effect of an ownership change--(1) In
general. This section and Secs. 1.1502-92T and 1.1502-93T set forth the
rules for determining an ownership change under section 382 for members
of consolidated groups and the section 382 limitations with respect to
attributes described in paragraphs (e) and (f) of this section. These
rules generally provide that an ownership change and the section 382
limitation are determined with respect to these attributes for the
group (or loss subgroup) on a single entity basis and not for its
members separately. Following an ownership change of a loss group (or a
loss subgroup) under Sec. 1.1502-92T, the amount of consolidated
taxable income for any post-change year which may be offset by pre-
change consolidated attributes (or pre-change subgroup attributes)
shall not exceed the consolidated section 382 limitation (or subgroup
section 382 limitation) for such year as determined under Sec. 1.1502-
93T.
(2) Special rule for post-change year that includes the change
date. If the post-change year includes the change date, section
382(b)(3)(A) is applied so that the consolidated section 382 limitation
(or subgroup section 382 limitation) does not apply to the portion of
consolidated taxable income that is allocable to the period in the year
on or before the change date. See generally Sec. 1.382-6 (relating to
the allocation of income and loss). The allocation of consolidated
taxable income for the post-change year that includes the change date
must be made before taking into account any consolidated net operating
loss deduction (as defined in Sec. 1.1502-21T(a)).
(3) Cross reference. See Secs. 1.1502-94T and 1.1502-95T for rules
that apply section 382 to a corporation that becomes or ceases to be a
member of a group or loss subgroup.
(b) Definitions and nomenclature. For purposes of this section and
Secs. 1.1502-92T through 1.1502-99T, unless otherwise stated:
(1) The definitions and nomenclature contained in section 382 and
the regulations thereunder (including the nomenclature and assumptions
relating to the examples in Sec. 1.382-2T(b)) and this section and
Secs. 1.1502-92T through 1.1502-99T apply; and
(2) In all examples, all groups file consolidated returns, all
corporations file their income tax returns on a calendar year basis,
the only 5-percent shareholder of a corporation is a public group, the
facts set forth the only owner shifts during the testing period, and
each asset of a corporation has a value equal to its adjusted basis.
(c) Loss group--(1) Defined. A loss group is a consolidated group
that:
(i) Is entitled to use a net operating loss carryover to the
taxable year that did not arise (and is not treated under Sec. 1.1502-
21T(c) as arising) in a SRLY;
(ii) Has a consolidated net operating loss for the taxable year in
which a testing date of the common parent occurs (determined by
treating the common parent as a loss corporation); or
(iii) Has a net unrealized built-in loss (determined under
paragraph (g) of this section by treating the date on which the
determination is made as though it were a change date).
(2) Coordination with rule that ends separate tracking. A
consolidated group may be a loss group because a member's losses that
arose in (or are treated as arising in) a SRLY are treated as described
in paragraph (c)(1)(i) of this section. See Sec. 1.1502-96T(a).
(3) Example. The following example illustrates the principles of
this paragraph (c).
Example. Loss group. (a) L and L1 file separate returns and each
has a net operating loss carryover arising in Year 1 that is carried
over to Year 2. A owns 40 shares and L owns 60 shares of the 100
outstanding shares of L1 stock. At the close of Year 1, L buys the
40 shares of L1 stock from A. For Year 2, L and L1 file a
consolidated return. The following is a graphic illustration of
these facts:
BILLING CODE 4830-01-U
[[Page 33338]]
[GRAPHIC] [TIFF OMITTED] TR27JN96.002
(b) L and L1 become a loss group at the beginning of Year 2
because the group is entitled to use the Year 1 net operating loss
carryover of L, the common parent, which did not arise (and is not
treated under Sec. 1.1502-21T(c) as arising) in a SRLY. See
Sec. 1.1502-94T for rules relating to the application of section 382
with respect to L1's net operating loss carryover from Year 1 which
did arise in a SRLY.
(d) Loss subgroup--(1) Net operating loss carryovers. Two or more
corporations that become members of a consolidated group (the current
group) compose a loss subgroup if:
(i) They were affiliated with each other in another group (the
former group), whether or not the group was a consolidated group;
(ii) They bear the relationship described in section 1504(a)(1) to
each other through a loss subgroup parent immediately after they become
members of the current group; and
(iii) At least one of the members carries over a net operating loss
that did not arise (and is not treated under Sec. 1.1502-21T(c) as
arising) in a SRLY with respect to the former group.
(2) Net unrealized built-in loss. Two or more corporations that
become members of a consolidated group compose a loss subgroup if they:
(i) Have been continuously affiliated with each other for the 5
consecutive year period ending immediately before they become members
of the group;
(ii) Bear the relationship described in section 1504(a)(1) to each
other through a loss subgroup parent immediately after they become
members of the current group; and
(iii) Have a net unrealized built-in loss (determined under
paragraph (g) of this section on the day they become members of the
group by treating that day as though it were a change date).
(3) Loss subgroup parent. A loss subgroup parent is the corporation
that bears the same relationship to the other members of the loss
subgroup as a common parent bears to the members of a group.
(4) Principal purpose of avoiding a limitation. The corporations
described in paragraph (d)(1) or (2) of this section do not compose a
loss subgroup if any one of them is formed, acquired, or availed of
with a principal purpose of avoiding the application of, or increasing
any limitation under, section 382. Instead, Sec. 1.1502-94T applies
with respect to the attributes of each such corporation. This paragraph
(d)(4) does not apply solely because, in connection with becoming
members of the group, the members of a group (or loss subgroup) are
rearranged to bear a relationship to the other members described in
section 1504(a)(1).
[[Page 33339]]
(5) Special rules. See Sec. 1.1502-95T(d) for rules concerning when
a corporation ceases to be a member of a loss subgroup. See also
Sec. 1.1502-96T(a) for a special rule regarding the end of separate
tracking of SRLY losses of a member that has an ownership change or
that has been a member of a group for at least 5 consecutive years.
(6) Examples. The following examples illustrate the principles of
this paragraph (d).
Example 1. Loss subgroup. (a) P owns all the L stock and L owns
all the L1 stock. The P group has a consolidated net operating loss
arising in Year 1 that is carried to Year 2. On May 2, Year 2, P
sells all the stock of L to A, and L and L1 thereafter file
consolidated returns. A portion of the Year 1 consolidated net
operating loss is apportioned under Sec. 1.1502-21T(b) to each of L
and L1, which they carry over to Year 2. The following is a graphic
illustration of these facts:
[GRAPHIC] [TIFF OMITTED] TR27JN96.003
(b) (1) L and L1 compose a loss subgroup within the meaning of
paragraph (d)(1) of this section because--
(i) They were affiliated with each other in the P group (the
former group);
(ii) They bear a relationship described in section 1504(a)(1) to
each other through a loss subgroup parent (L) immediately after they
became members of the L group; and
(iii) At least one of the members (here, both L and L1) carries
over a net operating loss to the L group (the current group) that
did not arise in a SRLY with respect to the P group.
(2) Under paragraph (d)(3) of this section, L is the loss
subgroup parent of the L loss subgroup.
Example 2. Loss subgroup--section 1504(a)(1) relationship. (a) P
owns all the stock of L and L1. L owns all the stock of L2. L1 and
L2 own 40 percent and 60 percent of the stock of L3, respectively.
The P group has a consolidated net operating loss arising in Year 1
that is carried over to Year 2. On May 22, Year 2, P sells all the
stock of L and L1 to P1, the common parent of another consolidated
group. The Year 1 consolidated net operating loss is apportioned
under Sec. 1.1502-21T(b), and each of L, L1, L2, and L3 carries over
a portion of such loss to the first consolidated return year of the
P1 group ending after the acquisition. The following is a graphic
illustration of these facts:
[[Page 33340]]
[GRAPHIC] [TIFF OMITTED] TR27JN96.004
BILLING CODE 4830-01-C
(b) L and L2 compose a loss subgroup within the meaning of
paragraph (d)(1) of this section. Neither L1 nor L3 is included in a
loss subgroup because neither bears a relationship described in
section 1504(a)(1) through a loss subgroup parent to any other
member of the former group immediately after becoming members of the
P1 group.
Example 3. Loss subgroup--section 1504(a)(1) relationship. The
facts are the same as in Example 2, except that the stock of L1 is
transferred to L in connection with the sale of the L stock to P1.
L, L1, L2, and L3 compose a loss subgroup within the meaning of
paragraph (d)(1) of this section because--
(1) They were affiliated with each other in the P group (the
former group);
(2) They bear a relationship described in section 1504(a)(1) to
each other through a loss subgroup parent (L) immediately after they
become members of the P1 group; and
(3) At least one of the members (here, each of L, L1, L2, and
L3) carries over to the P1 group (the current group) a net operating
loss that did not arise in a SRLY with respect to the P group (the
former group).
(e) Pre-change consolidated attribute--(1) Defined. A pre-change
consolidated attribute of a loss group is--
(i) Any loss described in paragraph (c)(1) (i) or (ii) of this
section (relating to the definition of loss group) that is allocable to
the period ending on or before the change date; and
(ii) Any recognized built-in loss of the loss group.
(2) Example. The following example illustrates the principle of
this paragraph (e).
Example. Pre-change consolidated attribute. (a) The L group has
a consolidated net operating loss arising in Year 1 that is carried
over to Year 2. The L loss group has an ownership change at the
beginning of Year 2.
(b) The net operating loss carryover of the L loss group from
Year 1 is a pre-change consolidated attribute because the L group
was entitled to use the loss in Year 2, the loss did not arise in a
SRLY with respect to the L group, and therefore the loss was
described in paragraph (c)(1)(i) of this section. Under paragraph
(a) of this section, the amount of consolidated taxable income of
the L group for Year 2 that may be offset by this loss carryover may
not exceed the consolidated section 382 limitation of the L group
for that year. See Sec. 1.1502-93T for rules relating to the
computation of the consolidated section 382 limitation.
(f) Pre-change subgroup attribute--(1) Defined. A pre-change
subgroup attribute of a loss subgroup is--
[[Page 33341]]
(i) Any net operating loss carryover described in paragraph
(d)(1)(iii) of this section (relating to the definition of loss
subgroup); and
(ii) Any recognized built-in loss of the loss subgroup.
(2) Example. The following example illustrates the principle of
this paragraph (f).
Example. Pre-change subgroup attribute. (a) P is the common
parent of a consolidated group. P owns all the stock of L, and L
owns all the stock of L1. L2 is not a member of an affiliated group,
and has a net operating loss arising in Year 1 that is carried over
to Year 2. On December 11, Year 2, L1 acquires all the stock of L2,
causing an ownership change of L2. During Year 2, the P group has a
consolidated net operating loss that is carried over to Year 3. On
November 2, Year 3, M acquires all the L stock from P. M, L, L1, and
L2 thereafter file consolidated returns. All of the P group Year 2
consolidated net operating loss is apportioned under Sec. 1.1502-
21T(b) to L and L2, which they carry over to the M group.
(b)(1) L, L1, and L2 compose a loss subgroup because--
(i) They were affiliated with each other in the P group (the
former group);
(ii) They bore a relationship described in section 1504(a)(1) to
each other through a loss subgroup parent (L) immediately after they
became members of the L group; and
(iii) At least one of the members (here, both L and L2) carries
over a net operating loss to the M group (the current group) that is
described in paragraph (d)(1)(iii) of this section.
(2) For this purpose, L2's loss from Year 1 that was a SRLY loss
with respect to the P group (the former group) is treated as
described in paragraph (d)(1)(iii) of this section because of the
application of the principles of Sec. 1.1502-96T(a). See paragraph
(d)(5) of this section. M's acquisition results in an ownership
change of L, and therefore the L loss subgroup under Sec. 1.1502-
92T(a)(2). See Sec. 1.1502-93T for rules governing the computation
of the subgroup section 382 limitation.
(c) In the M group, L2's Year 1 loss continues to be subject to
a section 382 limitation resulting from the ownership change that
occurred on December 11, Year 2. See Sec. 1.1502-96T(c).
(g) Net unrealized built-in gain and loss--(1) In general. The
determination whether a consolidated group (or loss subgroup) has a net
unrealized built-in gain or loss under section 382(h)(3) is based on
the aggregate amount of the separately computed net unrealized built-in
gains or losses of each member that is included in the group (or loss
subgroup) under paragraph (g)(2) of this section, including items of
built-in income and deduction described in section 382(h)(6). Thus, for
example, amounts deferred under section 267, or under Sec. 1.1502-13
(other than amounts deferred with respect to the stock of a member (or
an intercompany obligation) included in the group (or loss subgroup)
under paragraph (g)(2) of this section) are built-in items. The
threshold requirement under section 382(h)(3)(B) applies on an
aggregate basis and not on a member-by-member basis. The separately
computed amount of a member included in a group or loss subgroup does
not include any unrealized built-in gain or loss on stock (including
stock described in section 1504(a)(4) and Sec. 1.382-2T(f)(18)(ii) and
(iii)) of another member included in the group or loss subgroup (or on
an intercompany obligation). However, a member of a group or loss
subgroup includes in its separately computed amount the unrealized
built-in gain or loss on stock of another member (or on an intercompany
obligation) not included in the group or loss subgroup. If a member is
not included in a group (or loss subgroup) under paragraph (g)(2) of
this section, the determination of whether the member has a net
unrealized built-in gain or loss under section 382(h)(3) is made on a
separate entity basis. See Sec. 1.1502-94(c) (relating to built-in gain
or loss of a new loss member) and Sec. 1.1502-96(a) (relating to the
end of separate tracking of certain losses).
(2) Members included--(i) Consolidated group. The members included
in the determination whether a consolidated group has a net unrealized
built-in gain or loss are all members of the group on the day that the
determination is made other than--
(A) A new loss member with a net unrealized built-in loss described
in Sec. 1.1502-94T(a)(1)(ii); and
(B) Members included in a loss subgroup described in Sec. 1.1502-
91T(d)(2).
(ii) Loss subgroup. The members included in the determination
whether a loss subgroup has a net unrealized built-in gain or loss are
those members described in paragraphs (d)(2)(i) and (ii) of this
section.
(3) Acquisitions of built-in gain or loss assets. A member of a
consolidated group (or loss subgroup) may not, in determining its
separately computed net unrealized built-in gain or loss, include any
gain or loss with respect to assets acquired with a principal purpose
to affect the amount of its net unrealized built-in gain or loss. A
group (or loss subgroup) may not, in determining its net unrealized
built-in gain or loss, include any gain or loss of a member acquired
with a principal purpose to affect the amount of its net unrealized
built-in gain or loss.
(4) Indirect ownership. A member's separately computed net
unrealized built-in gain or loss is adjusted to the extent necessary to
prevent any duplication of unrealized gain or loss attributable to the
member's indirect ownership interest in another member through a
nonmember if the member has a 5-percent or greater ownership interest
in the nonmember.
(h) Recognized built-in gain or loss--(1) In general. [Reserved]
(2) Disposition of stock or an intercompany obligation of a member.
Gain or loss recognized by a member on the disposition of stock
(including stock described in section 1504(a)(4) and Sec. 1.382-
2T(f)(18)(ii) and (iii)) of another member or an intercompany
obligation is treated as a recognized built-in gain or loss under
section 382(h)(2) (unless disallowed under Sec. 1.1502-20 or
otherwise), even though gain or loss on such stock or obligation was
not included in the determination of a net unrealized built-in gain or
loss under paragraph (g)(1) of this section.
(3) Deferred gain or loss. Gain or loss that is deferred under
provisions such as section 267 and Sec. 1.1502-13 is treated as
recognized built-in gain or loss only to the extent taken into account
by the group during the recognition period.
(4) Exchanged basis property. If the adjusted basis of any asset is
determined, directly or indirectly, in whole or in part, by reference
to the adjusted basis of another asset held by the member at the
beginning of the recognition period, the asset is treated, with
appropriate adjustments, as held by the member at the beginning of the
recognition period.
(i) [Reserved]
(j) Predecessor and successor corporations. A reference in this
section and Secs. 1.1502-92T through 1.1502-99T to a corporation,
member, common parent, loss subgroup parent, or subsidiary includes, as
the context may require, a reference to a predecessor or successor
corporation. For example, the determination whether a successor
satisfies the continuous affiliation requirement of paragraph (d)(2)(i)
of this section is made by reference to its predecessor.
Sec. 1.1502-92T Ownership change of a loss group or a loss subgroup
(temporary).
(a) Scope. This section provides rules for determining if there is
an ownership change for purposes of section 382 with respect to a loss
group or a loss subgroup. See Sec. 1.1502-94T for special rules for
determining if there is an ownership change with respect to a new loss
member and Sec. 1.1502-96T(b) for special rules for determining if
there is an ownership change of a subsidiary.
(b) Determination of an ownership change--(1) Parent change
method--(i)
[[Page 33342]]
Loss group. A loss group has an ownership change if the loss group's
common parent has an ownership change under section 382 and the
regulations thereunder. Solely for purposes of determining whether the
common parent has an ownership change--
(A) The losses described in Sec. 1.1502-91T(c) are treated as net
operating losses (or a net unrealized built-in loss) of the common
parent; and
(B) The common parent determines the earliest day that its testing
period can begin by reference to only the attributes that make the
group a loss group under Sec. 1.1502-91T(c).
(ii) Loss subgroup. A loss subgroup has an ownership change if the
loss subgroup parent has an ownership change under section 382 and the
regulations thereunder. The principles of Sec. 1.1502-95T(b) (relating
to ceasing to be a member of a consolidated group) apply in determining
whether the loss subgroup parent has an ownership change. Solely for
purposes of determining whether the loss subgroup parent has an
ownership change--
(A) The losses described in Sec. 1.1502-91T(d) are treated as net
operating losses (or a net unrealized built-in loss) of the loss
subgroup parent;
(B) The day that the members of the loss subgroup become members of
the group (or a loss subgroup) is treated as a testing date within the
meaning of Sec. 1.382-2(a)(4); and
(C) The loss subgroup parent determines the earliest day that its
testing period can begin under Sec. 1.382-2T(d)(3) by reference to only
the attributes that make the members a loss subgroup under Sec. 1.1502-
91T(d).
(2) Examples. The following examples illustrate the principles of
this paragraph (b).
Example 1. Loss group--ownership change of the common parent.
(a) A owns all the L stock. L owns 80 percent and B owns 20 percent
of the L1 stock. For Year 1, the L group has a consolidated net
operating loss that resulted from the operations of L1 and that is
carried over to Year 2. The value of the L stock is $1000. The total
value of the L1 stock is $600 and the value of the L1 stock held by
B is $120. The L group is a loss group under Sec. 1.1502-91T(c)(1)
because it is entitled to use its net operating loss carryover from
Year 1. On August 15, Year 2, A sells 51 percent of the L stock to
C. The following is a graphic illustration of these facts:
BILLING CODE 4830-01-U
[GRAPHIC] [TIFF OMITTED] TR27JN96.005
(b) Under paragraph (b)(1)(i) of this section, section 382 and
the regulations thereunder are applied to L to determine whether it
(and therefore the L loss group) has an ownership change with
respect to its net operating loss carryover from Year 1 attributable
to L1 on August 15, Year 2. The sale of the L stock to C causes an
ownership change of L under Sec. 1.382-2T and of the L loss group
under paragraph (b)(1)(i) of this section. The amount of
consolidated taxable income of the L loss group for any post-change
taxable year that may be offset by its pre-change consolidated
attributes (that is, the net operating loss carryover from Year 1
attributable to L1) may not exceed the consolidated section 382
limitation for the L loss group for the taxable year.
Example 2. Loss group--owner shifts of subsidiaries disregarded.
(a) The facts are the same as in Example 1, except that on August
15, Year 2, A sells only 49 percent of the L stock to C and, on
December 12, Year 3, in an unrelated transaction, B sells the 20
percent of the L1 stock to D. A's sale of the L stock to C does not
cause an ownership change of L under Sec. 1.382-2T nor of the L loss
group under paragraph (b)(1)(i) of this section. The following is a
graphic illustration of these facts:
[[Page 33343]]
[GRAPHIC] [TIFF OMITTED] TR27JN96.006
(b) B's subsequent sale of L1 stock is not taken into account
for purposes of determining whether the L loss group has an
ownership change under paragraph (b)(1)(i) of this section, and,
accordingly, there is no ownership change of the L loss group. See
paragraph (c) of this section, however, for a supplemental ownership
change method that would apply to cause an ownership change if the
purchases by C and D were pursuant to a plan or arrangement.
Example 3. Loss subgroup--ownership change of loss subgroup
parent controls. (a) P owns all the L stock. L owns 80 percent and A
owns 20 percent of the L1 stock. The P group has a consolidated net
operating loss arising in Year 1 that is carried over to Year 2. On
September 9, Year 2, P sells 51 percent of the L stock to B, and L1
is apportioned a portion of the Year 1 consolidated net operating
loss under Sec. 1.1502-21T(b), which it carries over to its next
taxable year. L and L1 file a consolidated return for their first
taxable year ending after the sale to B. The following is a graphic
illustration of these facts:
[[Page 33344]]
[GRAPHIC] [TIFF OMITTED] TR27JN96.007
(b) Under Sec. 1.1502-91T(d)(1), L and L1 compose a loss
subgroup on September 9, Year 2, the day that they become members of
the L group. Under paragraph (b)(1)(ii) of this section, section 382
and the regulations thereunder are applied to L to determine whether
it (and therefore the L loss subgroup) has an ownership change with
respect to the portion of the Year 1 consolidated net operating loss
that is apportioned to L1 on September 9, Year 2. L has an ownership
change resulting from P's sale of 51 percent of the L stock to A.
Therefore, the L loss subgroup has an ownership change with respect
to that loss.
Example 4. Loss group and loss subgroup--contemporaneous
ownership changes. (a) A owns all the stock of corporation M, M owns
35 percent and B owns 65 percent of the L stock, and L owns all the
L1 stock. The L group has a consolidated net operating loss arising
in Year 1 that is carried over to Year 2. On May 19, Year 2, B sells
45 percent of the L stock to M for cash. M, L, and L1 thereafter
file consolidated returns. L and L1 are each apportioned a portion
of the Year 1 consolidated net operating loss, which they carry over
to the M group's Year 2 and Year 3 consolidated return years. The M
group has a consolidated net operating loss arising in Year 2 that
is carried over to Year 3. On June 9, Year 3, A sells 70 percent of
the M stock to C. The following is a graphic illustration of these
facts:
[[Page 33345]]
[GRAPHIC] [TIFF OMITTED] TR27JN96.008
(b) Under Sec. 1.1502-91T(d)(1), L and L1 compose a loss
subgroup on May 19, Year 2, the day they become members of the M
group. Under paragraph (b)(1)(ii) of this section, section 382 and
the regulations thereunder are applied to L to determine whether L
(and therefore the L loss subgroup) has an ownership change with
respect to the loss carryovers from Year 1 on May 19, Year 2, a
testing date because of B's sale of L stock to M. The sale of L
stock to M results in only a 45 percentage point increase in A's
ownership of L stock. Thus, there is no ownership change of L (or
the L loss subgroup) with respect to those loss carryovers under
paragraph (b)(1)(ii) of this section on that day.
(c) June 9, Year 3, is also a testing date with respect to the L
loss subgroup because of A's sale of M stock to C. The sale results
in a 56 percentage point increase in C's ownership of L stock, and L
has an ownership change. Therefore, the L loss subgroup has an
ownership change on that day with respect to the loss carryovers
from Year 1.
(d) Paragraph (b)(1)(i) of this section requires that section
382 and the regulations thereunder be applied to M to determine
whether M (and therefore the M loss group) has an ownership change
with respect to the net operating loss carryover from Year 2 on June
9, Year 3, a testing date because of A's sale of M stock to C. The
sale results in a 70 percentage point increase in C's ownership of M
stock, and M has an ownership change. Therefore, the M loss group
has an ownership change on that day with respect to that loss
carryover.
(3) Special adjustments--(i) Common parent succeeded by a new
common parent. For purposes of determining if a loss group has an
ownership change, if the common parent of a loss group is succeeded or
acquired by a new common parent and the loss group remains in
existence, the new common parent is treated as a continuation of the
former common parent with appropriate adjustments to take into account
shifts in ownership of the former common parent during the testing
period (including shifts that occur incident to the common parent's
becoming the former common parent).
(ii) Newly created loss subgroup parent. For purposes of
determining if a loss subgroup has an ownership change, if the member
that is the loss subgroup parent has not been the loss subgroup parent
for at least 3 years as of a testing date, appropriate adjustments must
be made to take into account owner shifts of members of the loss
subgroup so that the structure of the loss subgroup does not have the
effect of avoiding an ownership change under section 382. (See
paragraph (b)(3)(iii) Example 3 of this section.)
(iii) Examples. The following examples illustrate the principles of
this paragraph (b)(3).
Example 1. New common parent acquires old common parent. (a) A,
who owns all the L stock, sells 30 percent of the L stock to B on
August 26, Year 1. L owns all the L1 stock. The L group has a
consolidated net operating loss arising in Year 1 that is carried
over to Year 3. On July 16, Year 2, A and B transfer their L stock
to a newly created holding company, HC, in exchange for 70 percent
and 30 percent, respectively, of the HC stock. HC, L, and L1
thereafter file consolidated returns. Under the principles of
Sec. 1.1502-75(d), the L loss group is treated as remaining in
existence, with HC taking the place of L as the new common parent of
the loss group. The following is a graphic illustration of these
facts:
BILLING CODE 4830-01-U
[[Page 33346]]
[GRAPHIC] [TIFF OMITTED] TR27JN96.009
BILLING CODE 4830-01-C
[[Page 33347]]
(b) On November 11, Year 3, A sells 25 percent of the HC stock
to B. For purposes of determining if the L loss group has an
ownership change under paragraph (b)(1)(i) of this section on
November 11, Year 3, HC is treated as a continuation of L under
paragraph (b)(3)(i) of this section because it acquired L and became
the common parent without terminating the L loss group. Accordingly,
HC's testing period commences on January 1, Year 1, the first day of
the taxable year of the L loss group in which the consolidated net
operating loss that is carried over to Year 3 arose (see Sec. 1.382-
2T(d)(3)(i)). Immediately after the close of November 11, Year 3,
B's percentage ownership interest in the common parent of the loss
group (HC) has increased by 55 percentage points over its lowest
percentage ownership during the testing period (zero percent).
Accordingly, HC and the L loss group have an ownership change on
that day.
Example 2. New common parent in case in which common parent
ceases to exist. (a) A, B, and C each own one-third of the L stock.
L owns all the L1 stock. The L group has a consolidated net
operating loss arising in Year 2 that is carried over to Year 3. On
November 22, Year 3, L is merged into P, a corporation owned by D,
and L1 thereafter files consolidated returns with P. A, B, and C, as
a result of owning stock of L, own 90 percent of P's stock after the
merger. D owns the remaining 10 percent of P's stock. The merger of
L into P qualifies as a reverse acquisition of the L group under
Sec. 1.1502-75(d)(3)(i), and the L loss group is treated as
remaining in existence, with P taking the place of L as the new
common parent of the L group. The following is a graphic
illustration of these facts:
BILLING CODE 4830-01-U
[GRAPHIC] [TIFF OMITTED] TR27JN96.010
(b) For purposes of determining if the L loss group has an
ownership change on November 22, Year 3, the day of the merger, P is
treated as a continuation of L so that the testing period for P
begins on January 1, Year 2, the first day of the taxable year of
the L loss group in which the consolidated net operating loss that
is carried over to Year 3 arose. Immediately after the close of
November 22, Year 3, D is the only 5-percent shareholder that has
increased his ownership interest in P during the testing period
(from zero to 10 percentage points).
(c) The facts are the same as in paragraph (a) of this Example
2, except that A has held 23\1/3\ shares (23\1/3\ percent) of L's
stock for five years, and A purchased an additional 10 shares of L
stock from E two years before the merger. Immediately after the
close of the day of the merger (a testing date), A's ownership
interest in P, the common parent of the L loss group, has increased
by 6\2/3\ percentage points over her lowest percentage ownership
during the testing period (23\1/3\ percent to 30 percent).
(d) The facts are the same as in (a) of this Example 2, except
that P has a net operating loss arising in Year 1 that is carried to
the first consolidated return year ending after the day of the
merger. Solely for purposes of determining whether the L loss group
has an ownership change under paragraph (b)(1)(i) of this section,
the testing period for P
[[Page 33348]]
commences on January 1, Year 2. P does not determine the earliest
day for its testing period by reference to its net operating loss
carryover from Year 1, which Secs. 1502-1(f)(3) and 1.1502-
75(d)(3)(i) treat as arising in a SRLY. See Sec. 1.1502-94T to
determine the application of section 382 with respect to P's net
operating loss carryover.
Example 3. Newly acquired loss subgroup parent. (a) P owns all
the L stock and L owns all the L1 stock. The P group has a
consolidated net operating loss arising in Year 1 that is carried
over to Year 3. On January 19, Year 2, L issues a 20 percent stock
interest to B. On February 5, Year 3, P contributes its L stock to a
newly formed subsidiary, HC, in exchange for all the HC stock, and
distributes the HC stock to its sole shareholder A. HC, L, and L1
thereafter file consolidated returns. A portion of the P group's
Year 1 consolidated net operating loss is apportioned to L and L1
under Sec. 1.1502-21T(b) and is carried over to the HC group's year
ending after February 5, Year 3. HC, L, and L1 compose a loss
subgroup within the meaning of Sec. 1.1502-91T(d) with respect to
the net operating loss carryovers from Year 1. The following is a
graphic illustration of these facts:
[GRAPHIC] [TIFF OMITTED] TR27JN96.011
BILLING CODE 4830-01-C
(b) February 5, Year 3, is a testing date for HC as the loss
subgroup parent with respect to the net operating loss carryovers of
L and L1 from Year 1. See paragraph (b)(1)(ii)(B) of this section.
For purposes of determining whether HC has an ownership change on
the testing date, appropriate adjustments must be made with respect
to the changes in the percentage ownership of the stock of HC
because HC was not the loss subgroup parent for at least 3 years
prior to the day on which it became a member of the HC loss subgroup
(a testing date). The appropriate adjustments include adjustments so
that HC succeeds to the owner shifts of other members of the former
group. Thus, HC succeeds to the owner shift of L that resulted from
the sale of the 20 percent interest to B in determining whether the
HC loss subgroup has an ownership change on February 5, Year 3, and
on any subsequent testing date that includes January 19, Year 2.
(4) End of separate tracking of certain losses. If Sec. 1.1502-
96T(a) (relating to the end of separate tracking of attributes) applies
to a loss subgroup, then, while one or more members that were included
in the loss subgroup remain members of the consolidated group, there is
an ownership change with respect to their attributes described in
Sec. 1.1502-96T(a)(2) only if the consolidated group is a loss group
and has an ownership change under paragraph (b)(1)(i) of this section
(or such a member has an ownership change under Sec. 1.1502-96T(b)
(relating to ownership changes of subsidiaries)). If, however, the loss
subgroup has had
[[Page 33349]]
an ownership change before Sec. 1.1502-96T(a) applies, see Sec. 1.1502-
96T(c) for the continuing application of the subgroup's section 382
limitation with respect to its pre-change subgroup attributes.
(c) Supplemental rules for determining ownership change--(1) Scope.
This paragraph (c) contains a supplemental rule for determining whether
there is an ownership change of a loss group (or loss subgroup). It
applies in addition to, and not instead of, the rules of paragraph (b)
of this section. Thus, for example, if the common parent of the loss
group has an ownership change under paragraph (b) of this section, the
loss group has an ownership change even if, by applying this paragraph
(c), the common parent would not have an ownership change.
(2) Cause for applying supplemental rule. This paragraph (c)
applies to a loss group (or loss subgroup) if--
(i) Any 5-percent shareholder of the common parent (or loss
subgroup parent) increases its percentage ownership interest in the
stock of both--
(A) A subsidiary of the loss group (or loss subgroup) other than by
a direct or indirect acquisition of stock of the common parent (or loss
subgroup parent); and
(B) The common parent (or loss subgroup parent); and
(ii) Those increases occur within a 3 year period ending on any day
of a consolidated return year or, if shorter, the period beginning on
the first day following the most recent ownership change of the loss
group (or loss subgroup).
(3) Operating rules. Solely for purposes of this paragraph (c)--
(i) A 5-percent shareholder of the common parent (or loss subgroup
parent) is treated as increasing its percentage ownership interest in
the common parent (or loss subgroup parent) or a subsidiary to the
extent, if any, that any person acting pursuant to a plan or
arrangement with the 5-percent shareholder increases its percentage
ownership interest in the stock of that entity;
(ii) The rules in section 382(l)(3) and Secs. 1.382-2T(h) and
1.382-4(d) (relating to constructive ownership) apply with respect to
the stock of the subsidiary by treating such stock as stock of a loss
corporation; and
(iii) In the case of a loss subgroup, a subsidiary includes any
member of the loss subgroup other than the loss subgroup parent. (The
loss subgroup parent is, however, a subsidiary of the loss group of
which it is a member.)
(4) Supplemental ownership change rules. The determination whether
the common parent (or loss subgroup parent) has an ownership change is
made by applying paragraph (b)(1) of this section as modified by the
following additional rules--
(i) Additional testing dates for the common parent (or loss
subgroup parent). A testing date for the common parent (or loss
subgroup parent) also includes--
(A) Each day on which there is an increase in the percentage
ownership of stock of a subsidiary as described in paragraph (c)(2) of
this section; and
(B) The first day of the first consolidated return year for which
the group is a loss group (or the members compose a loss subgroup);
(ii) Treatment of subsidiary stock as stock of the common parent
(or loss subgroup parent). The common parent (or loss subgroup parent)
is treated as though it had issued to the person acquiring (or deemed
to acquire) the subsidiary stock an amount of its own stock (by value)
that equals the value of the subsidiary stock represented by the
percentage increase in that person's ownership of the subsidiary
(determined on a separate entity basis). A similar principle applies if
the increase in percentage ownership interest is effected by a
redemption or similar transaction; and
(iii) 5-percent shareholder of the common parent (or loss subgroup
parent). Any person described in paragraph (c)(3)(i) of this section
who is acting pursuant to the plan or arrangement is treated as a 5-
percent shareholder of the common parent (or loss subgroup parent).
(5) Examples. The following examples illustrate the principles of
this paragraph (c).
Example 1. Stock of the common parent under supplemental rules.
(a) A owns all the L stock. L is not a member of an affiliated group
and has a net operating loss carryover arising in Year 1 that is
carried over to Year 6. On September 20, Year 6, L transfers all of
its assets and liabilities to a newly created subsidiary, S, in
exchange for S stock. L and S thereafter file consolidated returns.
On November 23, Year 6, B contributes cash to L in exchange for a 45
percent ownership interest in L and contributes cash to S for a 20
percent ownership interest in S.
(b) B is a 5-percent shareholder of L who increases his
percentage ownership interest in L and S during the 3 year period
ending on November 23, Year 6. Under paragraph (c)(4)(ii) of this
section, the determination whether L (the common parent of a loss
group) has an ownership change on November 23, Year 6 (or on any
testing date in the testing period which includes November 23, Year
6), is made by applying paragraph (b)(1)(i) of this section and by
treating the value of B's 20 percent ownership interest in S as if
it were L stock issued to B.
Example 2. Plan or arrangement--public offering of subsidiary
stock. (a) A owns all the stock of L and L owns all the stock of L1.
The L group has a consolidated net operating loss arising in Year 1
that resulted from the operations of L1 and that is carried over to
Year 2. As part of a plan, A sells 49 percent of the L stock to B on
October 7, Year 2, and L1 issues new stock representing a 20 percent
ownership interest in L1 to the public on November 6, Year 2. The
following is a graphic illustration of these facts:
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(b) A's sale of the L stock to B does not cause an ownership
change of the L loss group on October 7, Year 2, under the rules of
Sec. 1.382-2T and paragraph (b)(1)(i) of this section.
(c) Because the issuance of L1 stock to the public occurs in
connection with B's acquisition of L stock pursuant to a plan,
paragraph (c)(4) of this section applies to determine whether the L
loss group has an ownership change on November 6, Year 2 (or on any
testing date for which the testing period includes November 6, Year
2).
(d) Testing period following ownership change under this section.
If a loss group (or a loss subgroup) has had an ownership change under
this section, the testing period for determining a subsequent ownership
change with respect to pre-change consolidated attributes (or pre-
change subgroup attributes) begins no earlier than the first day
following the loss group's (or loss subgroup's) most recent change
date.
(e) Information statements.--(1) Common parent of a loss group. The
common parent of a loss group must file the information statement
required by Sec. 1.382-2T(a)(2)(ii) for a consolidated return year
because of any owner shift, equity structure shift, or the issuance or
transfer of an option--
(i) With respect to the common parent and with respect to any
subsidiary stock subject to paragraph (c) of this section; and
(ii) With respect to an ownership change described in Sec. 1.1502-
96T(b) (relating to ownership changes of subsidiaries).
(2) Abbreviated statement with respect to loss subgroups. The
common parent of a consolidated group that has a loss subgroup during a
consolidated return year must file the information statement required
by Sec. 1.382-2T(a)(2)(ii) because of any owner shift, equity structure
shift, or issuance or transfer of an option with respect to the loss
subgroup parent and with respect to any subsidiary stock subject to
paragraph (c) of this section. Instead of filing a separate statement
for each loss subgroup parent, the common parent (which is treated as a
loss corporation) may file the single statement described in paragraph
(e)(1) of this section. In addition to the information concerning stock
ownership of the common parent, the single statement must identify each
loss subgroup parent and state which loss subgroups, if any, have had
ownership changes during the consolidated return year. The loss
subgroup parent is, however, still required to maintain the records
necessary to determine if the loss subgroup has an ownership change.
[[Page 33351]]
This paragraph (e)(2) applies with respect to the attributes of a loss
subgroup until, under Sec. 1.1502-96T(a), the attributes are no longer
treated as described in Sec. 1.1502-91T(d) (relating to the definition
of loss subgroup). After that time, the information statement described
in paragraph (e)(1) of this section must be filed with respect to those
attributes.
Sec. 1.1502-93T Consolidated section 382 limitation (or subgroup
section 382 limitation) (temporary).
(a) Determination of the consolidated section 382 limitation (or
subgroup section 382 limitation)--(1) In general. Following an
ownership change, the consolidated section 382 limitation (or subgroup
section 382 limitation) for any post-change year is an amount equal to
the value of the loss group (or loss subgroup), as defined in paragraph
(b) of this section, multiplied by the long-term tax-exempt rate that
applies with respect to the ownership change, and adjusted as required
by section 382 and the regulations thereunder. See, for example,
section 382(b)(2) (relating to the carryforward of unused section 382
limitation), section 382(b)(3)(B) (relating to the section 382
limitation for the post-change year that includes the change date),
section 382(m)(2) (relating to short taxable years), and section 382(h)
(relating to recognized built-in gains and section 338 gains).
(2) Coordination with apportionment rule. For special rules
relating to apportionment of a consolidated section 382 limitation (or
a subgroup section 382 limitation) when one or more corporations cease
to be members of a loss group (or a loss subgroup) and to aggregation
of amounts so apportioned, see Sec. 1.1502-95T(c).
(b) Value of the loss group (or loss subgroup)--(1) Stock value
immediately before ownership change. Subject to any adjustment under
paragraph (b)(2) of this section, the value of the loss group (or loss
subgroup) is the value, immediately before the ownership change, of the
stock of each member, other than stock that is owned directly or
indirectly by another member. For this purpose--
(i) Ownership is determined under Sec. 1.382-2T;
(ii) A member is considered to indirectly own stock of another
member through a nonmember only if the member has a 5-percent or
greater ownership interest in the nonmember; and
(iii) Stock includes stock described in section 1504(a)(4) and
Sec. 1.382-2T(f)(18)(ii) and (iii).
(2) Adjustment to value. The value of the loss group (or loss
subgroup), as determined under paragraph (b)(1) of this section, is
adjusted under any rule in section 382 or the regulations thereunder
requiring an adjustment to such value for purposes of computing the
amount of the section 382 limitation. See, for example, section
382(e)(2) (redemptions and corporate contractions), section 382(l)(1)
(certain capital contributions) and section 382(l)(4) (ownership of
substantial nonbusiness assets). The value of the loss group (or loss
subgroup) determined under this paragraph (b) is also adjusted to the
extent necessary to prevent any duplication of the value of the stock
of a member. For example, the principles of Sec. 1.382-8T (relating to
controlled groups of corporations) apply in determining the value of a
loss group (or loss subgroup) if, under Sec. 1.1502-91T(g)(2), members
are not included in the determination whether the group (or loss
subgroup) has a net unrealized built-in loss.
(3) Examples. The following examples illustrate the principles of
this paragraph (b).
Example 1. Basic case. (a) L, L1, and L2 compose a loss group. L
has outstanding common stock, the value of which is $100. L1 has
outstanding common stock and preferred stock that is described in
section 1504(a)(4). L owns 90 percent of the L1 common stock, and A
owns the remaining 10 percent of the L1 common stock plus all the
preferred stock. The value of the L1 common stock is $40, and the
value of the L1 preferred stock is $30. L2 has outstanding common
stock, 50 percent of which is owned by L and 50 percent by L1. The L
group has an ownership change. The following is a graphic
illustration of these facts:
BILLING CODE 4830-01-U
[GRAPHIC] [TIFF OMITTED] TR27JN96.013
(b) Under paragraph (b)(1) of this section, the L group does not
include the value of the stock of any member that is owned directly
or indirectly by another member in computing its consolidated
section 382 limitation. Accordingly, the value of the stock of the
loss group is $134, the sum of the value of--
(1) The common stock of L ($100);
(2) the 10 percent of the L1 common stock ($4) owned by A; and
(3) The L1 preferred stock ($30) owned by A.
Example 2. Indirect ownership. (a) L and L1 compose a
consolidated group. L's stock has a value of $100. L owns 80 shares
(worth $80) and corporation M owns 20 shares (worth $20) of the L1
stock. L also owns 79 percent of the stock of corporation M. The L
group has an ownership change. The following is a graphic
illustration of these facts:
[[Page 33352]]
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BILLING CODE 4830-01-C
(b) Under paragraph (b)(1) of this section, because of L's more
than 5 percent ownership interest in M, a nonmember, L is considered
to indirectly own 15.8 shares of the L1 stock held by M (79% x 20
shares). The value of the L loss group is $104.20, the sum of the
values of--
(1) The L stock ($100); and
(2) The L1 stock not owned directly or indirectly by L (21% x
$20, or $4.20).
(c) Recognized built-in gain of a loss group or loss subgroup. If a
loss group (or loss subgroup) has a net unrealized built-in gain, any
recognized built-in gain of the loss group (or loss subgroup) is taken
into account under section 382(h) in determining the consolidated
section 382 limitation (or subgroup section 382 limitation).
(d) Continuity of business--(1) In general. A loss group (or a loss
subgroup) is treated as a single entity for purposes of determining
whether it satisfies the continuity of business enterprise requirement
of section 382(c)(1).
(2) Example. The following example illustrates the principle of
this paragraph (d).
Example. Continuity of business enterprise. L owns all the stock
of two subsidiaries, L1 and L2. The L group has an ownership change.
It has pre-change consolidated attributes attributable to L2. Each
of the members has historically conducted a separate line of
business. Each line of business is approximately equal in value. One
year after the ownership change, L discontinues its separate
business and the business of L2. The separate business of L1 is
continued for the remainder of the 2 year period following the
ownership change. The continuity of business enterprise requirement
of section 382(c)(1) is met even though the separate businesses of L
and L2 are discontinued.
(e) Limitations of losses under other rules. If a section 382
limitation for a post-change year exceeds the consolidated taxable
income that may be offset by pre-change attributes for any reason,
including the application of the limitation of Sec. 1.1502-21T(c), the
amount of the excess is carried forward under section 382(b)(2)
(relating to the carryforward of unused section 382 limitation).
Sec. 1.1502-94T Coordination with section 382 and the regulations
thereunder when a corporation becomes a member of a consolidated group
(temporary).
(a) Scope--(1) In general. This section applies section 382 and the
regulations thereunder to a corporation that is a new loss member of a
consolidated group. A corporation is a new loss member if it--
(i) Carries over a net operating loss that arose (or is treated
under Sec. 1.1502-21T(c) as arising) in a SRLY with respect to the
current group, and that is not described in Sec. 1.1502-91T(d)(1); or
(ii) Has a net unrealized built-in loss (determined under paragraph
(c) of this section on the day it becomes a member of the current group
by treating that day as a change date) that is not taken into account
under Sec. 1.1502-91T(d)(2) in determining whether two or more
corporations compose a loss subgroup.
(2) Successor corporation as new loss member. A new loss member
also includes any successor to a corporation that has a net operating
loss carryover arising in a SRLY and that is treated as remaining in
existence under Sec. 1.382-2(a)(1)(ii) following a transaction
described in section 381(a).
(3) Coordination in the case of a loss subgroup. For rules
regarding the determination of whether there is an ownership change of
a loss subgroup with respect to a net operating loss or a net
unrealized built-in loss described in Sec. 1.1502-91T(d) (relating to
the definition of loss subgroup) and the computation of a subgroup
section 382 limitation following such an ownership change, see
Secs. 1.1502-92T and 1.1502-93T.
(4) End of separate tracking of certain losses. If Sec. 1.1502-
96T(a) (relating to the end of separate tracking of attributes) applies
to a new loss member, then, while that member remains a member of the
consolidated group, there is an ownership change with respect to its
attributes described in Sec. 1.1502-96T(a)(2) only if the consolidated
group is a loss group and has an ownership change under Sec. 1.1502-
92T(b)(1)(i) (or that member has an ownership change under Sec. 1.1502-
96T(b) (relating to ownership changes of subsidiaries)). If, however,
the new loss member has had an ownership change before Sec. 1.1502-
96T(a) applies, see Sec. 1.1502-96T(c) for the continuing application
of the section 382 limitation with respect to the member's pre-change
losses.
(5) Cross-reference. See section 382(a) and Sec. 1.1502-96T(c) for
the continuing effect of an ownership change after a corporation
becomes or ceases to be a member.
(b) Application of section 382 to a new loss member--(1) In
general. Section 382 and the regulations thereunder apply to a new loss
member to determine, on a separate entity basis, whether and to what
extent a section 382 limitation applies to limit the amount of
consolidated taxable income that may be offset by the new loss member's
pre-change separate attributes. For example, if an ownership change
with respect to the new loss member occurs under section 382 and the
regulations thereunder, the amount of consolidated taxable income for
any post-change year that may be offset by the new loss member's pre-
change separate attributes shall not exceed the section 382 limitation
as determined separately under section 382(b) with respect to that
member for such year. If
[[Page 33353]]
the post-change year includes the change date, section 382(b)(3)(A) is
applied so that the section 382 limitation of the new loss member does
not apply to the portion of the taxable income for such year that is
allocable to the period in such year on or before the change date. See
generally Sec. 1.382-6 (relating to the allocation of income and loss).
(2) Adjustment to value. The value of the new loss member is
adjusted to the extent necessary to prevent any duplication of the
value of the stock of a member. For example, the principles of
Sec. 1.382-8T (relating to controlled groups of corporations) apply in
determining the value of a new loss member.
(3) Pre-change separate attribute defined. A pre-change separate
attribute of a new loss member is--
(i) Any net operating loss carryover of the new loss member
described in paragraph (a)(1) of this section; and
(ii) Any recognized built-in loss of the new loss member.
(4) Examples. The following examples illustrate the principles of
this paragraph (b).
Example 1. Basic case. (a) A and P each own 50 percent of the L
stock. On December 19, Year 6, P purchases 30 percent of the L stock
from A for cash. L has net operating losses arising in Year 1 and
Year 2 that it carries over to Year 6 and Year 7. The following is a
graphic illustration of these facts:
BILLING CODE 4830-01-U
[GRAPHIC] [TIFF OMITTED] TR27JN96.015
-(b) L is a new loss member because it has net operating loss
carryovers that arose in a SRLY with respect to the P group and L is
not a member of a loss subgroup under Sec. 1.1502-91T(d). Under
section 382 and the regulations thereunder, L is a loss corporation
on December 19, Year 6, that day is a testing date for L, and the
testing period for L commences on December 20, Year 3. -
(c) P's purchase of L stock does not cause an ownership change
of L on December 19, Year 6, with respect to the net operating loss
carryovers from Year 1 and Year 2 under section 382 and Sec. 1.382-
2T. The use of the loss carryovers, however, is subject to
limitation under Sec. 1.1502-21T(c). -
Example 2. Multiple new loss members. (a) The facts are the same
as in Example 1, and, on December 31, Year 6, L purchases all the
stock of L1 from B for cash. L1 has a net operating loss of $40
arising in Year 3 that it carries over to Year 7. The following is a
graphic illustration of these facts:
[[Page 33354]]
[GRAPHIC] [TIFF OMITTED] TR27JN96.016
BILLING CODE 4830-01-C
(b) L1 is a new loss member because it has a net operating loss
carryover from Year 3 that arose in a SRLY with respect to the P
group and L1 is not a member of a loss subgroup under Sec. 1.1502-
91T(d)(1). -
(c) L's purchase of all the stock of L1 causes an ownership
change of L1 on December 31, Year 6, under section 382 and
Sec. 1.382-2T. Accordingly, a section 382 limitation based on the
value of the L1 stock immediately before the ownership change limits
the amount of consolidated taxable income of the P group for any
post-change year that may be offset by L1's loss from Year 3.
(d) L1's ownership change in connection with its becoming a
member of the P group is an ownership change described in
Sec. 1.1502-96T(a). Thus, starting on January 1, Year 7, the P group
no longer separately tracks owner shifts of the stock of L1 with
respect to L1's loss from Year 3. Instead, the P group is a loss
group because of such loss under Sec. 1.1502-91T(c). -
Example 3. Ownership changes of new loss members. (a) The facts
are the same as in Example 2, and, on April 30, Year 7, C purchases
all the stock of P for cash. -
(b) L is a new loss member on April 30, Year 7, because its Year
1 and Year 2 losses arose in SRLYs with respect to the P group and
it is not a member of a loss subgroup under Sec. 1.1502-91T(d)(1).
The testing period for L commences on May 1, Year 4. C's purchase of
all the P stock causes an ownership change of L on April 30, Year 7,
under section 382 and Sec. 1.382-2T with respect to its Year 1 and
Year 2 losses. Accordingly, a section 382 limitation based on the
value of the L stock immediately before the ownership change limits
the amount of consolidated taxable income of the P group for any
post-change year that may be offset by L's Year 1 and Year 2 losses.
The use of those carryovers is also subject to limitation under
Sec. 1.1502-21T(c). -
(c) The P group is a loss group on April 30, Year 7, because it
is entitled to use L1's loss from Year 3, and such loss is no longer
treated as a loss of a new loss member starting the day after L1's
ownership change on December 31, Year 6. See Secs. 1.1502-96T(a) and
1.1502-91T(c)(2). C's purchase of all the P stock causes an
ownership change of P, and therefore the P loss group, on April 30,
Year 7, with respect to L1's Year 3 loss. Accordingly, a
consolidated section 382 limitation based on the value of the P
stock immediately before the ownership change limits the amount of
consolidated taxable income of the P group for any post-change year
that may be offset by L1's Year 3 loss.
-(c) Built-in gains and losses. As the context may require, the
principles of Secs. 1.1502-91T(g) and (h) and 1.1502-93T(c) (relating
to built-in gains and losses) apply to a new loss member on a separate
entity basis. See Sec. 1.1502-91T(g)(3).
(d) Information statements. The common parent of a consolidated
group that has a new loss member subject to paragraph (b)(1) of this
section during a consolidated return year must file the information
statement required by Sec. 1.382-2T(a)(2)(ii) because of any owner
shift, equity structure shift, or issuance or transfer of an option
with
[[Page 33355]]
respect
FR Doc. 96-15824 Regulations Under Section 1502 of the Internal Revenue Code of 1986; Limitations on Net Operating Loss Carryforwards and Certain Built-in Losses and Credits Following an Ownership Change of a Consolidated Group
to the new loss member. Instead of filing a separate statement
for each new loss member the common parent may file a single statement
described in Sec. 1.382-2T(a)(2)(ii) with respect to the stock
ownership of the common parent (which is treated as a loss
corporation). In addition to the information concerning stock ownership
of the common parent, the single statement must identify each new loss
member and state which new loss members, if any, have had ownership
changes during the consolidated return year. The new loss member is,
however, required to maintain the records necessary to determine if it
has an ownership change. This paragraph (d) applies with respect to the
attributes of a new loss member until an event occurs which ends
separate tracking under Sec. 1.1502-96T(a). After that time, the
information statement described in Sec. 1.1502-92T(e)(1) must be filed
with respect to these attributes.
Sec. 1.1502-95T Rules on ceasing to be a member of a consolidated
group (or loss subgroup) (temporary).
(a) In general--(1) Consolidated group. This section provides rules
for applying section 382 on or after the day that a member ceases to be
a member of a consolidated group (or loss subgroup). The rules concern
how to determine whether an ownership change occurs with respect to
losses of the member, and how a consolidated section 382 limitation (or
subgroup section 382 limitation) is apportioned to the member. As the
context requires, a reference in this section to a loss group, a
member, or a corporation also includes a reference to a loss subgroup,
and a reference to a consolidated section 382 limitation also includes
a reference to a subgroup section 382 limitation.
(2) Election by common parent. Only the common parent (not the loss
subgroup parent) may make the election under paragraph (c) of this
section to apportion either a consolidated section 382 limitation or a
subgroup section 382 limitation.
(3) Coordination with Secs. 1.1502-91T through 1.1502-93T. For
rules regarding the determination of whether there is an ownership
change of a loss subgroup and the computation of a subgroup section 382
limitation following such an ownership change, see Secs. 1.1502-91T
through 1.1502-93T.
(b) Separate application of section 382 when a member leaves a
consolidated group--(1) In general. Except as provided in Secs. 1.1502-
91T through 1.1502-93T (relating to rules applicable to loss groups and
loss subgroups), section 382 and the regulations thereunder apply to a
corporation on a separate entity basis after it ceases to be a member
of a consolidated group (or loss subgroup). Solely for purposes of
determining whether a corporation has an ownership change--
(i) Any portion of a consolidated net operating loss that is
apportioned to the corporation under Sec. 1.1502-21T(b) is treated as a
net operating loss of the corporation beginning on the first day of the
taxable year in which the loss arose;
(ii) The testing period may include the period during which (or
before which) the corporation was a member of the group (or loss
subgroup); and
(iii) Except to the extent provided in Sec. 1.1502-20(g) (relating
to reattributed losses), the day it ceases to be a member of a
consolidated group is treated as a testing date of the corporation
within the meaning of Sec. 1.382-2(a)(4).
(2) Effect of a prior ownership change of the group. If a loss
group has had an ownership change under Sec. 1.1502-92T before a
corporation ceases to be a member of a consolidated group (the former
member)--
(i) Any pre-change consolidated attribute that is subject to a
consolidated section 382 limitation continues to be treated as a pre-
change loss with respect to the former member after the attribute is
apportioned to the former member;
(ii) The former member's section 382 limitation with respect to
such attribute is zero except to the extent the common parent
apportions under paragraph (c) of this section all or a part of the
consolidated section 382 limitation to the former member;
(iii) The testing period for determining a subsequent ownership
change with respect to such attribute begins no earlier than the first
day following the loss group's most recent change date; and
(iv) As generally provided under section 382, an ownership change
of the former member that occurs on or after the day it ceases to be a
member of a loss group may result in an additional, lesser limitation
amount with respect to such loss.
(3) Application in the case of a loss subgroup. If two or more
former members are included in the same loss subgroup immediately after
they cease to be members of a consolidated group, the principles of
paragraphs (b) and (c) of this section apply to the loss subgroup.
Therefore, for example, an apportionment by the common parent under
paragraph (c) of this section is made to the loss subgroup rather than
separately to its members. -
(4) Examples. The following examples illustrate the principles of
this paragraph (b).
-Example 1. Treatment of departing member as a separate
corporation throughout the testing period. (a) A owns all the L
stock. L owns all the stock of L1 and L2. The L group has a
consolidated net operating loss arising in Year 1 that is carried
over to Year 3. On January 12, Year 2, A sells 30 percent of the L
stock to B. On February 7, Year 3, L sells 40 percent of the L2
stock to C, and L2 ceases to be a member of the group. A portion of
the Year 1 consolidated net operating loss is apportioned to L2
under Sec. 1.1502-21T(b) and is carried to L2's first separate
return year, which ends December 31, Year 3. The following is a
graphic illustration of these facts:
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BILLING CODE 4830-01-C-
[[Page 33357]]
(b) Under paragraph (b)(1) of this section, L2 is a loss
corporation on February 7, Year 3. Under paragraph (b)(1)(iii) of
this section, February 7, Year 3, is a testing date. Under paragraph
(b)(1)(ii) of this section, the testing period for L2 with respect
to this testing date commences on January 1, Year 1, the first day
of the taxable year in which the portion of the consolidated net
operating loss apportioned to L2 arose. Therefore, in determining
whether L2 has an ownership change on February 7, Year 3, B's
purchase of 30 percent of the L stock and C's purchase of 40 percent
of the L2 stock are each owner shifts. L2 has an ownership change
under section 382(g) and Sec. 1.382-2T because B and C have
increased their ownership interests in L2 by 18 and 40 percentage
points, respectively, during the testing period. -
Example 2. Effect of prior ownership change of loss group. (a) L
owns all the L1 stock and L1 owns all the L2 stock. The L loss group
had an ownership change under Sec. 1.1502-92T in Year 2 with respect
to a consolidated net operating loss arising in Year 1 and carried
over to Year 2 and Year 3. The consolidated section 382 limitation
computed solely on the basis of the value of the stock of L is $100.
On December 31, Year 2, L1 sells 25 percent of the stock of L2 to B.
L2 is apportioned a portion of the Year 1 consolidated net operating
loss which it carries over to its first separate return year ending
after December 31, Year 2. L2's separate section 382 limitation with
respect to this loss is zero unless L elects to apportion all or a
part of the consolidated section 382 limitation to L2. (See
paragraph (c) of this section for rules regarding the apportionment
of a consolidated section 382 limitation.) L apportions $50 of the
consolidated section 382 limitation to L2. -
(b) On December 31, Year 3, L1 sells its remaining 75 percent
stock interest in L2 to C, resulting in an ownership change of L2.
L2's section 382 limitation computed on the change date with respect
to the value of its stock is $30. Accordingly, L2's section 382
limitation for post-change years ending after December 31, Year 3,
with respect to its pre-change losses, including the consolidated
net operating losses apportioned to it from the L group, is $30,
adjusted as required by section 382 and the regulations thereunder.
-(c) Apportionment of a consolidated section 382 limitation--(1) In
general. The common parent may elect to apportion all or any part of a
consolidated section 382 limitation to a former member (or loss
subgroup). See paragraph (e) of this section for the time and manner of
making the election to apportion.
(2) Amount of apportionment. The common parent may apportion all or
part of each element of the consolidated section 382 limitation
determined under Sec. 1.1502-93T. For this purpose, the consolidated
section 382 limitation consists of two elements--
(i) The value element, which is the element of the limitation
determined under section 382(b)(1) (relating to value multiplied by the
long-term tax-exempt rate) without regard to such adjustments as those
described in section 382(b)(2) (relating to the carryforward of unused
section 382 limitation), section 382(b)(3)(B) (relating to the section
382 limitation for the post-change year that includes the change date),
section 382(h) (relating to built-in gains and section 338 gains), and
section 382(m)(2) (relating to short taxable years); and
(ii) The adjustment element, which is so much (if any) of the
limitation for the taxable year during which the former member ceases
to be a member of the consolidated group that is attributable to a
carryover of unused limitation under section 382(b)(2) or to recognized
built-in gains under 382(h).
(3) Effect of apportionment on the consolidated section 382
limitation. The value element of the consolidated section 382
limitation for any post-change year ending after the day that a former
member (or loss subgroup) ceases to be a member(s) is reduced to the
extent that it is apportioned under this paragraph (c). The
consolidated section 382 limitation for the post-change year in which
the former member (or loss subgroup) ceases to be a member(s) is also
reduced to the extent that the adjustment element for that year is
apportioned under this paragraph (c).
(4) Effect on corporations to which the consolidated section 382
limitation is apportioned. The amount of the value element that is
apportioned to a former member (or loss subgroup) is treated as the
amount determined under section 382(b)(1) for purposes of determining
the amount of that corporation's (or loss subgroup's) section 382
limitation for any taxable year ending after the former member (or loss
subgroup) ceases to be a member(s). Appropriate adjustments must be
made to the limitation based on the value element so apportioned for a
short taxable year, carryforward of unused limitation, or any other
adjustment required under section 382. The adjustment element
apportioned to a former member (or loss subgroup) is treated as an
adjustment under section 382(b)(2) or section 382(h), as appropriate,
for the first taxable year after the member (or members) ceases to be a
member (or members).
(5) Deemed apportionment when loss group terminates. If a loss
group terminates, to the extent the consolidated section 382 limitation
is not apportioned under paragraph (c)(1) of this section, the
consolidated section 382 limitation is deemed to be apportioned to the
loss subgroup that includes the common parent, or, if there is no loss
subgroup that includes the common parent immediately after the loss
group terminates, to the common parent. A loss group terminates on the
first day of the first taxable year that is a separate return year with
respect to each member of the former loss group.
(6) Appropriate adjustments when former member leaves during the
year. Appropriate adjustments are made to the consolidated section 382
limitation for the consolidated return year during which the former
member (or loss subgroup) ceases to be a member(s) to reflect the
inclusion of the former member in the loss group for a portion of that
year.
(7) Examples. The following examples illustrate the principles of
this paragraph (c).
Example 1. Consequence of apportionment. (a) L owns all the L1
stock and L1 owns all the L2 stock. The L group has a $200
consolidated net operating loss arising in Year 1 that is carried
over to Year 2. At the close of December 31, Year 1, the group has
an ownership change under Sec. 1.1502-92T. The ownership change
results in a consolidated section 382 limitation of $10 based on the
value of the stock of the group. On August 29, Year 2, L1 sells 30
percent of the stock of L2 to A. L2 is apportioned $90 of the
group's $200 consolidated net operating loss under Sec. 1.1502-
21T(b). L, the common parent, elects to apportion $6 of the
consolidated section 382 limitation to L2. The following is a
graphic illustration of these facts:
BILLING CODE 4830-01-U
[[Page 33358]]
[GRAPHIC] [TIFF OMITTED] TR27JN96.018
(b) For its separate return years ending after August 29, Year 2
(other than the taxable year ending December 31, Year 2), L2's
section 382 limitation with respect to the $90 of the group's net
operating loss apportioned to it is $6, adjusted, as appropriate,
for any short taxable year, unused section 382 limitation, or other
adjustment. For its consolidated return years ending after August
29, Year 2, (other than the year ending December 31, Year 2) the L
group's consolidated section 382 limitation with respect to the
remaining $110 of pre-change consolidated attribute is $4 ($10 minus
the $6 value element apportioned to L2), adjusted, as appropriate,
for any short taxable year, unused section 382 limitation, or other
adjustment.
(c) For the L group's consolidated return year ending December
31, Year 2, the value element of its consolidated section 382
limitation is increased by $4 (rounded to the nearest dollar), to
account for the period during which L2 was a member of the L group
($6, the consolidated section 382 limitation apportioned to L2,
times 241/365, the ratio of the number of days during Year 2 that L2
is a member of the group to the number of days in the group's
consolidated return year). See paragraph (c)(6) of this section.
Therefore, the value element of the consolidated section 382
limitation for Year 2 of the L group is $8 (rounded to the nearest
dollar).
(d) The section 382 limitation for L2's short taxable year
ending December 31, Year 2, is $2 (rounded to the nearest dollar),
which is the amount that bears the same relationship to $6, the
value element of the consolidated section 382 limitation apportioned
to L2, as the number of days during that short taxable year, 124
days, bears to 365. See Sec. 1.382-4(c).
Example 2. Consequence of no apportionment. The facts are the
same as in Example 1, except that L does not elect to apportion any
portion of the consolidated section 382 limitation to L2. For its
separate return years ending after August 29, Year 2, L2's section
382 limitation with respect to the $90 of the group's pre-change
consolidated attribute apportioned to L2 is zero under paragraph
(b)(2)(ii) of this section. Thus, the $90 consolidated net operating
loss apportioned to L2 cannot offset L2's taxable income in any of
its separate return years ending after August 29, Year 2. For its
consolidated return years ending after August 29, Year 2, the L
group's consolidated section 382 limitation with respect to the
remaining $110 of pre-change consolidated attribute is $10,
adjusted, as appropriate, for any short taxable year, unused section
382 limitation, or other adjustment.
Example 3. Apportionment of adjustment element. The facts are
the same as in Example 1, except that L2 ceases to be a member of
the L group on August 29, Year 3, and the L group has a $4
carryforward of an unused consolidated section 382 limitation (under
section 382(b)(2)) to the 1993 consolidated return year.
The carryover of unused limitation increases the consolidated
section 382 limitation for the Year 3 consolidated return year from
$10 to $14. L may elect to apportion all or any portion of the $10
value element and all or any portion of the $4 adjustment element to
L2.
(d) Rules pertaining to ceasing to be a member of a loss subgroup--
(1) In general. A corporation ceases to be a member of a loss
subgroup--
(i) On the first day of the first taxable year for which it files a
separate return; or
(ii) The first day that it ceases to bear a relationship described
in section 1504(a)(1) to the loss subgroup parent (treating for this
purpose the loss subgroup parent as the common parent described in
section 1504(a)(1)(A)).
(2) Examples. The principles of this paragraph (d) are illustrated
by the following examples.
Example 1. Basic case. (a) P owns all the L stock, L owns all
the L1 stock and L1 owns all the L2 stock. The P group has a
consolidated net operating loss arising in Year 1 that is carried
over to Year 2. On December 11, Year 2, P sells all the stock of L
to corporation M. Each of L, L1, and L2 is apportioned a portion of
the Year 1 consolidated net operating loss, and thereafter each
joins with M in filing consolidated returns. Under Sec. 1.1502-92T,
the L loss subgroup has an ownership change on December 11, Year 2.
The L loss subgroup has a subgroup section 382 limitation of $100.
The following is a graphic illustration of these facts:
BILLING CODE 4830-01-U
[[Page 33359]]
[GRAPHIC] [TIFF OMITTED] TR27JN96.019
BILLING CODE 4830-01-C
[[Page 33360]]
(b) On May 22, Year 3, L1 sells 40 percent of the L2 stock to A.
L2 carries over a portion of the P group's net operating loss from
Year 1 to its separate return year ending December 31, Year 3. Under
paragraph (d)(1) of this section, L2 ceases to be a member of the L
loss subgroup on May 22, Year 3, which is both (1) the first day of
the first taxable year for which it files a separate return and (2)
the day it ceases to bear a relationship described in section
1504(a)(1) to the loss subgroup parent, L. The net operating loss of
L2 that is carried over from the P group is treated as a pre-change
loss of L2 for its separate return years ending after May 22, Year
3. Under paragraphs (a)(2) and (b)(2) of this section, the separate
section 382 limitation with respect to this loss is zero unless M
elects to apportion all or a part of the subgroup section 382
limitation of the L loss subgroup to L2.
Example 2. Formation of a new loss subgroup. The facts are the
same as in Example 1, except that A purchases 40 percent of the L1
stock from L rather than purchasing L2 stock from L1. L1 and L2 file
a consolidated return for their first taxable year ending after May
22, Year 3, and each of L1 and L2 carries over a part of the net
operating loss of the P group that arose in Year 1. Under paragraph
(d)(1) of this section, L1 and L2 cease to be members of the L loss
subgroup on May 22, Year 3. The net operating losses carried over
from the P group are treated as pre-change subgroup attributes of
the loss subgroup composed of L1 and L2. The subgroup section 382
limitation with respect to those losses is zero unless M elects to
apportion all or part of the subgroup section 382 limitation of the
L loss subgroup to the L1 loss subgroup. The following is a graphic
illustration of these facts:
BILLING CODE 4830-01-U
[GRAPHIC] [TIFF OMITTED] TR27JN96.020
Example 3. Ceasing to bear a section 1504(a)(1) relationship to
a loss subgroup parent. (a) A owns all the stock of P, and P owns
all the stock of L1 and L2. The P group has a consolidated net
operating loss arising in Year 1 that is carried over to Year 3 and
Year 4. Corporation M acquires all the stock of P on November 11,
Year 3, and P, L1, and L2 thereafter file consolidated returns with
M. M's acquisition results in an ownership change of the P loss
subgroup under Sec. 1.1502-92T(b)(1)(ii). The following is a graphic
illustration of these facts:
BILLING CODE 4830-01-U
[[Page 33361]]
[GRAPHIC] [TIFF OMITTED] TR27JN96.021
BILLING CODE 4830-01-C
[[Page 33362]]
(b) P distributes the L2 stock to M on October 7, Year 4. L2
ceases to be a member of the P loss subgroup on October 7, Year 4,
the first day that it ceases to bear the relationship described in
section 1504(a)(1) to P, the P loss subgroup parent. See paragraph
(d)(1)(ii) of this section. Thus, the section 382 limitation with
respect to the pre-change subgroup attributes attributable to L2 is
zero except to the extent M elects to apportion all or a part of the
subgroup section 382 limitation of the P loss subgroup to L2.
Example 4. Relationship through a successor. The facts are the
same as in Example 3, except that, instead of P's distributing the
stock of L2, L2 merges into L1 on October 7, Year 4. L1 (as
successor to L2 in the merger within the meaning of Sec. 1.382-
2T(f)(4)) continues to bear a relationship described in section
1504(a)(1) to P, the loss subgroup parent. Thus, L2 does not cease
to be a member of the P loss subgroup as a result of the merger.
(e) Filing the election to apportion--(1) Form of the election to
apportion. An election under paragraph (c) of this section must be made
by the common parent. The election must be made in the form of the
following statement: ``THIS IS AN ELECTION UNDER Sec. 1.1502-95T OF THE
INCOME TAX REGULATIONS TO APPORTION ALL OR PART OF THE [insert either
CONSOLIDATED SECTION 382 LIMITATION or SUBGROUP SECTION 382 LIMITATION,
as appropriate] TO [insert name and E.I.N. of the corporation (or the
corporations that compose a new loss subgroup) to which allocation is
made]. The declaration must also include the following information, as
appropriate--
(i) The date of the ownership change that resulted in the
consolidated section 382 limitation (or subgroup section 382
limitation);
(ii) The amount of the consolidated section 382 limitation (or
subgroup section 382 limitation) for the taxable year during which the
former member (or new loss subgroup) ceases to be a member of the
consolidated group (determined without regard to any apportionment
under this section;
(iii) The amount of the value element and adjustment element of the
consolidated section 382 limitation (or subgroup section 382
limitation) that is apportioned to the former member (or new loss
subgroup) pursuant to paragraph (c) of this section; and
(iv) The name and E.I.N. of the common parent making the
apportionment.
(2) Signing of the election. The election statement must be signed
by both the common parent and the former member (or, in the case of a
loss subgroup, the common parent and the loss subgroup parent) by
persons authorized to sign their respective income tax returns.
(3) Filing of the election. The election statement must be filed by
the common parent of the group that is apportioning the consolidated
section 382 limitation (or the subgroup section 382 limitation) with
its income tax return for the taxable year in which the former member
(or new loss subgroup) ceases to be a member. The common parent must
also deliver a copy of the statement to the former member (or the
members of the new loss subgroup) on or before the day the group files
its income tax return for the consolidated return year that the former
member (or new loss subgroup) ceases to be a member. A copy of the
statement must be attached to the first return of the former member (or
the first return in which the members of a new loss subgroup join) that
is filed after the close of the consolidated return year of the group
of which the former member (or the members of a new loss subgroup)
ceases to be a member.
(4) Revocation of election. An election statement made under
paragraph (c) of this section is revocable only with the consent of the
Commissioner.
Sec. 1.1502-96T Miscellaneous rules (temporary).
(a) End of separate tracking of losses--(1) Application. This
paragraph (a) applies to a member (or a loss subgroup) with a net
operating loss carryover that arose (or is treated under Sec. 1.1502-
21T(c) as arising) in a SRLY (or a net unrealized built-in gain or loss
determined at the time that the member (or loss subgroup) becomes a
member of the consolidated group if there is--
(i) An ownership change of the member (or loss subgroup in
connection with, or after, becoming a member of the group; or
(ii) A period of 5 consecutive years following the day that the
member (or loss subgroup) becomes a member of a group during which the
member (or loss subgroup) has not had an ownership change.
(2) Effect of end of separate tracking. If this paragraph (a)
applies with respect to a member (or loss subgroup), then, starting on
the day after the earlier of the change date (but not earlier than the
day the member (or loss subgroup) becomes a member of the consolidated
group) or the last day of the 5 consecutive year period described in
paragraph (a)(1)(ii) of this section, the member's net operating loss
carryover that arose (or is treated under Sec. 1.1502-21T(c) as
arising) in a SRLY, is treated as described in Sec. 1.1502-
91T(c)(1)(i). Also, the member's separately computed net unrealized
built-in gain or loss is included in the determination whether the
group has a net unrealized built-in gain or loss. The preceding
sentences also apply for purposes of determining whether there is an
ownership change with respect to such attributes following such change
date (or earlier day) or 5 consecutive year period. Thus, for example,
starting the day after the change date or the end of the 5 consecutive
year period--
(i) The consolidated group which includes the new loss member or
loss subgroup is no longer required to separately track owner shifts of
the stock of the new loss member or loss subgroup parent to determine
if an ownership change occurs with respect to the attributes of the new
loss member or members included in the loss subgroup;
(ii) The group includes the member's attributes in determining
whether it is a loss group under Sec. 1.1502-91T(c);
(iii) There is an ownership change with respect to such attributes
only if the group is a loss group and has an ownership change; and
(iv) If the group has an ownership change, such attributes are pre-
change consolidated attributes subject to the loss group's consolidated
section 382 limitation.
(3) Continuing effect of end of separate tracking. As the context
may require, a current group determines which of its members are
included in a loss subgroup on any testing date by taking into account
the application of this section in the former group. See the example in
Sec. 1.1502-91T(f)(2).
(4) Special rule for testing period. For purposes of determining
the beginning of the testing period for a loss group, the member's (or
loss subgroup's) net operating loss carryovers (or net unrealized
built-in gain or loss) described in paragraph (a)(2) of this section
are considered to arise--
-(i) in a case described in paragraph (a)(1)(i) of this section, in
a taxable year that begins not earlier than the later of the day
following the change date or the day that the member becomes a member
of the group; and -(ii) in a case described in paragraph (a)(1)(ii) of
this section, in a taxable year that begins 3 years before the end of
the 5 consecutive year period.
(5) Limits on effects of end of separate tracking. The rule
contained in this paragraph (a) applies solely for purposes of
Secs. 1.1502-91T through 1.1502-95T and this section (other than
paragraph (b)(2)(ii)(B) of this section (relating to the definition of
pre-change attributes of a subsidiary)) and Sec. 1.1502-98T, and not
for purposes of other provisions of the consolidated return
regulations,
[[Page 33363]]
including, for example, Secs. 1.1502-15T and 1.1502-21T (relating to
the consolidated net operating loss deduction). See also paragraph (c)
of this section for the continuing effect of an ownership change with
respect to pre-change attributes.
-(b) Ownership change of subsidiary--(1) Ownership change of a
subsidiary because of options or plan or arrangement. Notwithstanding
Sec. 1.1502-92T, a subsidiary may have an ownership change for purposes
of section 382 with respect to its attributes which a group or loss
subgroup includes in making a determination under Sec. 1.1502-91T(c)(1)
(relating to the definition of loss group) or Sec. 1.1502-91T(d)
(relating to the definition of loss subgroup). The subsidiary has such
an ownership change if it has an ownership change under the principles
of Sec. 1.1502-95T(b) and section 382 and the regulations thereunder
(determined on a separate entity basis by treating the subsidiary as
not being a member of a consolidated group) in the event of--
(i) The deemed exercise under Sec. 1.382-4(d) of an option or
options (other than an option with respect to stock of the common
parent) held by a person (or persons acting pursuant to a plan or
arrangement) to acquire more than 20 percent of the stock of the
subsidiary; or
(ii) An increase by 1 or more 5-percent shareholders, acting
pursuant to a plan or arrangement to avoid an ownership change of a
subsidiary, in their percentage ownership interest in the subsidiary by
more than 50 percentage points during the testing period of the
subsidiary through the acquisition (or deemed acquisition pursuant to
Sec. 1.382-4(d)) of ownership interests in the subsidiary and in
higher-tier members with respect to the subsidiary.
(2) Effect of the ownership change--(i) In general. If a subsidiary
has an ownership change under paragraph (b)(1) of this section, the
amount of consolidated taxable income for any post-change year that may
be offset by the pre-change losses of the subsidiary shall not exceed
the section 382 limitation for the subsidiary. For purposes of this
limitation, the value of the subsidiary is determined solely by
reference to the value of the subsidiary's stock.
(ii) Pre-change losses. The pre-change losses of a subsidiary are--
(A) Its allocable part of any consolidated net operating loss which
is attributable to it under Sec. 1.1502-21T(b) (determined on the last
day of the consolidated return year that includes the change date) that
is not carried back and absorbed in a taxable year prior to the year
including the change date;
(B) Its net operating loss carryovers that arose (or are treated
under Sec. 1.1502-21T(c) as having arisen) in a SRLY; and
(C) Its recognized built-in loss with respect to its separately
computed net unrealized built-in loss, if any, determined on the change
date.
(3) Coordination with Secs. 1.1502-91T, 1.1502-92T, and 1.1502-94T.
If an increase in percentage ownership interest causes an ownership
change with respect to an attribute under this paragraph (b) and under
Sec. 1.1502-92T on the same day, the ownership change is considered to
occur only under Sec. 1.1502-92T and not under this paragraph (b). See
Sec. 1.1502-94T for anti-duplication rules relating to value.
(4) Example. The following example illustrates paragraph (b)(1)(ii)
of this section.
Example. Plan to avoid an ownership change of a subsidiary. (a)
L owns all the stock of L1, L1 owns all the stock of L2, L2 owns all
the stock of L3, and L3 owns all the stock of L4. The L group has a
consolidated net operating loss arising in Year 1 that is carried
over to Year 2. L has assets other than its L1 stock with a value of
$900. L1, L2, and L3 own no assets other than their L2, L3, and L4
stock. L4 has assets with a value of $100. During Year 2, A, B, C,
and D, acting pursuant to a plan to avoid an ownership change of L4,
acquire the following ownership interests in the members of the L
loss group: (A) on September 11, Year 2, A acquires 20 percent of
the L1 stock from L and B acquires 20 percent of the L2 stock from
L1; and (B) on September 20, Year 2, C acquires 20 percent of the
stock of L3 from L2 and D acquires 20 percent of the stock of L4
from L3. The following is a graphic illustration of these facts:
BILLING CODE 4830-01-U
[[Page 33364]]
[GRAPHIC] [TIFF OMITTED] TR27JN96.022
BILLING CODE 4830-01-C
-(b) The acquisitions by A, B, C, and D pursuant to the plan
have increased their respective percentage ownership interests in L4
by approximately 10, 13, 16, and 20 percentage points, for a total
of approximately 59 percentage points during the testing period.
This more than 50 percentage point increase in the percentage
ownership interest in L4 causes an ownership change of L4 under
paragraph (b)(2) of this section.
-(c) Continuing effect of an ownership change. A loss corporation
(or loss subgroup) that is subject to a limitation under section 382
with respect to its pre-change losses continues to be subject to the
limitation regardless of whether it becomes a member or ceases to be a
member of a consolidated group. See Sec. 1.382-5T(d) (relating to
successive ownership changes and absorption of a section 382
limitation).
Sec. 1.1502-97T Special rules under section 382 for members under the
jurisdiction of a court in a title 11 or similar case (temporary).
[Reserved]
Sec. 1.1502-98T Coordination with section 383 (temporary).
-The rules contained in Secs. 1.1502-91T through 1.1502-96T also
apply for purposes of section 383, with appropriate adjustments to
reflect that section 383 applies to credits and net capital losses.
Similarly, in the case of net capital losses, general business credits,
and excess foreign taxes that are pre-change attributes, Sec. 1.383-1
applies the principles of Secs. 1.1502-91T through 1.1502-96T. For
example, if a loss group has an ownership change under Sec. 1.1502-92T
and has a carryover of unused general business credits from a pre-
change consolidated return year to a post-change consolidated return
year, the amount of the group's regular tax liability for the post-
change year that can be offset by the carryover cannot exceed the
consolidated section 383 credit limitation for that post-change year,
determined by applying the principles of Secs. 1.383-1(c)(6) and
1.1502-93T (relating to the computation of the consolidated section 382
limitation).
Sec. 1.1502-99T Effective dates (temporary).
-(a) Effective date. Sections 1.1502-91T through 1.1502-96T and
1.1502-98T apply to any testing date on or after January 1, 1997.
Sections 1.1502-94T through 1.1502-96T also apply on any date on or
after January 1, 1997, on which a corporation becomes a member of a
group or on which a corporation ceases to be a member of a loss group
(or a loss subgroup).
[[Page 33365]]
-(b) Testing period may include a period beginning before January
1, 1997. A testing period for purposes of Secs. 1.1502-91T through
1.1502-96T and 1.1502-98T may include a period beginning before January
1, 1997. Thus, for example, in applying Sec. 1.1502-92T(b)(1)(i)
(relating to the determination of an ownership change of a loss group),
the determination of the lowest percentage ownership interest of any 5-
percent shareholder of the common parent during a testing period ending
on a testing date occurring on or after January 1, 1997, takes into
account the period beginning before January 1, 1997, except to the
extent that the period is more than 3 years before the testing date or
is otherwise before the beginning of the testing period. See
Sec. 1.1502-92T(b)(1).
(c) Transition rules--(1) Methods permitted--(i) In general. For
the period ending before January 1, 1997, a consolidated group is
permitted to use any method described in paragraph (c)(2) of this
section which is consistently applied to determine if an ownership
change occurred with respect to a consolidated net operating loss, a
net operating loss carryover (including net operating loss carryovers
arising in SRLYs), or a net unrealized built-in loss. If an ownership
change occurred during that period, the group is also permitted to use
any method described in paragraph (c)(2) of this section which is
consistently applied to compute the amount of the section 382
limitation that applies to limit the use of taxable income in any post-
change year ending before, on, or after January 1, 1997. The preceding
sentence does not preclude the imposition of an additional, lesser
limitation due to a subsequent ownership change nor, except as provided
in paragraph (c)(1)(iii) of this section, does it permit the beginning
of a new testing period for the loss group.
-(ii) Adjustments to offset excess limitation. If an ownership
change occurred during the period ending before January 1, 1997, and a
method described in paragraph (c)(2) of this section was not used for a
post-change year, the members (or group) must reduce the section 382
limitation for post-change years for which an income tax return is
filed after January 1, 1997, to offset, as quickly as possible, the
effects of any section 382 limitation that members took into account in
excess of the amount that would have been allowable under Secs. 1.1502-
91T through 1.1502-96T and 1.1502-98T.
-(iii) Coordination with effective date. Notwithstanding that a
group may have used a method described in paragraph (c)(2)(ii) or (iii)
of this section for the period before January 1, 1997, Secs. 1.1502-91T
through 1.1502-96T and 1.1502-98T apply to any testing date occurring
on or after January 1, 1997, for purposes of determining whether there
is an ownership change with respect to any losses and, if so, the
collateral consequences. Any ownership change of a member other than
the common parent pursuant to a method described in paragraph
(c)(2)(ii) or (iii) of this section does not cause a new testing period
of the loss group to begin for purposes of applying Sec. 1.1502-92T on
or after January 1, 1997.
-(2) Permitted methods. The methods described in this paragraph
(c)(2) are:
-(i) A method that does not materially differ from the rules in
Secs. 1.1502-91T through 1.1502-96T and 1.1502-98T (other than those in
Sec. 1.1502-95T(c) (relating to the apportionment of a section 382
limitation) as they would apply to a corporation that ceases to be a
member of the group before January 1, 1997). As the context requires,
the method must treat references to rules in current regulations as
references to rules in regulations generally effective for taxable
years before January 1, 1997. Thus, for example, the taxpayer must
treat a reference to Sec. 1.382-4(d) (relating to options) as a
reference to Sec. 1.382-2T(h)(4) for any testing date to which
Sec. 1.382-2T(h)(4) applies. Similarly, a reference to Sec. 1.1502-
21T(c) may be a reference to Sec. 1.1502-21A(c), as appropriate.
Furthermore, the method must treat all corporations that were
affiliated on January 1, 1987, and continuously thereafter as having
met the 5 consecutive year requirement of Sec. 1.1502-91T(d)(2)(i) on
any day before January 1, 1992, on which the determination of net
unrealized built-in gain or loss of a loss subgroup is made;
-(ii) A reasonable application of the rules in section 382 and the
regulations thereunder applied to each member on a separate entity
basis, treating each member's allocable part of a consolidated net
operating loss which is attributable to it under Sec. 1.1502-21T(b) as
a net operating loss of that member and applying rules similar to
Sec. 1.382-8T to avoid duplication of value in computing the section
382 limitation for the member (see Sec. 1.382-8T(h) (relating to the
effective date and transition rules regarding controlled groups)); or
-(iii) A method approved by the Commissioner upon application by
the common parent.
-(d) Amended returns. A group may file an amended return in
connection with an ownership change occurring before January 1, 1997,
to modify the amount of a section 382 limitation with respect to a
consolidated net operating loss, a net operating loss carryover
(including net operating loss carryovers arising in SRLYs), or a
recognized built-in loss (or gain) only if it files amended returns:
-(1) For the earliest taxable year ending after December 31, 1986,
in which it had an ownership change, if any, under Sec. 1.1502-92T;
-(2) For all subsequent taxable years for which returns have
already been filed as of the date of the amended return;
-(3) The modification with respect to all members for all taxable
years ending in 1987 and thereafter complies with Secs. 1.1502-91T
through 1.1502-96T and 1.1502-98T; and
(4) The amended return(s) permitted by the applicable statute of
limitations is/are filed before March 26, 1997.
-(e) Section 383. This section also applies for the purposes of
section 383, with appropriate adjustments to reflect that section 383
applies to credits and net capital losses.
PART 602--OMB CONTROL NUMBERS UNDER THE PAPERWORK REDUCTION ACT
-Par. 3. The authority citation for part 602 continues to read in
part as follows:
-Authority: 26 U.S.C. 7805.
-Par. 4. In Sec. 602.101, paragraph (c) is amended by adding an
entry in numerical order to the table to read as follows:
Sec. 602.101 OMB Control numbers.
* * * * *
-(c) * * *
------------------------------------------------------------------------
Current OMB
CFR part or section where identified or described control No.
------------------------------------------------------------------------
* * * * *
1.1502-95T................................................. 1545-1218
* * * * *
------------------------------------------------------------------------
Margaret Milner Richardson,
Commissioner of Internal Revenue.
Approved: May 31, 1996.
Leslie Samuels,
Assistant Secretary of the Treasury.
[FR Doc. 96-15824 Filed 6-26-96; 8:45 am]
BILLING CODE 4830-01-U
Complete official Federal Register PDF
FR Doc. 96-15823 Consolidated ReturnsLimitations on the use of Certain Losses and Deductions
[Federal Register Volume 61, Number 125 (Thursday, June 27, 1996)]
[Rules and Regulations]
[Pages 33321-33335]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-15823]
-----------------------------------------------------------------------
DEPARTMENT OF THE TREASURY
26 CFR Parts 1 and 602
[TD 8677]
RIN 1545-AU35
Consolidated Returns--Limitations on the use of Certain Losses
and Deductions
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Final and temporary regulations.
-----------------------------------------------------------------------
SUMMARY: This document contains final and temporary amendments to the
consolidated return regulations relating to deductions and losses of
members. The temporary amendments concern the method for computing the
limitations with respect to separate return limitation year (SRLY)
losses. They also concern the rules relating to carryover and carryback
of losses to consolidated and separate return years and to the built-in
deduction rules. Final amendments are made amending definitions and
redesignating sections displaced by temporary regulations. The text of
these temporary regulations also serves as the text of the proposed
regulations set forth in the notice of proposed rulemaking on this
subject in the Proposed Rules section of this issue of the Federal
Register.
DATES: These amendments are effective June 27, 1996.
For dates of application and special transition rules, see
Effective Dates under SUPPLEMENTARY INFORMATION.
FOR FURTHER INFORMATION CONTACT: David B. Friedel at (202) 622-7550
(not a toll-free number).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collection of information contained in the temporary
regulations has been reviewed and approved by the Office of Management
and Budget in accordance with the Paperwork Reduction Act (44 U.S.C.
3507) under the control number 1545-1237. Section 1.1502-21T(b)(3)
requires a response from certain consolidated groups. The IRS requires
the information to assure that an election to relinquish a carryback
period is properly documented. Reponses to this collection of
information are required to obtain a benefit (relating to the carryover
of losses which would otherwise be carried back).
An agency may not conduct or sponsor, and a person is not required
to respond to, a collection of information unless the collection of
information displays a valid control number.
For further information concerning this collection of information,
and where to submit comments on the collection of information and the
accuracy of the estimated burden, and suggestions for reducing this
burden, please refer to the preamble to the cross-referencing notice of
proposed rulemaking published in the Proposed Rules section of this
issue of the Federal Register.
Books or records relating to a collection of information must be
retained as long as their contents may become material in the
administration of any Internal Revenue law. Generally, tax returns and
tax return information are confidential, as required by 26 U.S.C. 6103.
Background and Explanation of Provisions
On February 4, 1991, the IRS and Treasury published in the Federal
Register a notice of proposed rulemaking (CO-078-90, 56 FR 4228)
setting forth amendments to the rules regarding the net operating
losses, built-in deductions, and capital losses of consolidated groups,
including rules regarding the carryover and carryback of losses to
consolidated and separate return years. Some of the amendments are
clarifying, and some change the existing rules. The principal changes
related to losses arising in (or carried to) SRLY years. The preamble
to the proposed amendments explains the proposed changes in detail. The
IRS and Treasury also published Notice 91-27 (1991-2 C.B. 629) to
advise of intended modifications to the proposed amendments.
Generally, section 1503(a) requires that a consolidated group
determine its tax in accordance with the regulations under section 1502
prescribed before the last day prescribed by law for the filing of its
tax return. Many of the proposed amendments have proposed effective
dates of January 29, 1991, and other transitional rules for their
application. Because of this effective date, consolidated groups have
been uncertain whether the existing rules or the proposed rules (if
adopted) will determine their use of losses for consolidated return
years ending on or after January 29, 1991.
To address the uncertainty, the IRS and Treasury are issuing this
Treasury decision to adopt temporary amendments to the rules regarding
a consolidated group's losses, including the carryover and carryback of
SRLY losses. The temporary amendments are substantially identical to
the rules proposed on January 29, 1991. A more detailed discussion of
the effective dates of the temporary amendments, including special
transitional rules, is set forth below under Effective Dates.
These temporary amendments primarily address the uncertainty
created by the proposed effective dates. They do not address the
comments on the proposed amendments. Many of these comments are still
under consideration.
As companions to this Treasury decision, the IRS and Treasury also
issue two other sets of temporary regulations under sections 382 and
383
[[Page 33322]]
concerning the use of losses and deductions by consolidated groups and
by members of controlled groups. See TD 8678 and TD 8679 published
elsewhere in this issue of the Federal Register.
Effective Date
The temporary amendments are generally effective for consolidated
return years beginning on or after January 1, 1997. However, two
important changes are made to the effective date provisions set forth
in the proposed rules.
As proposed, the amendments generally applied to consolidated
return years ending on or after January 29, 1991, without regard to the
year in which the losses arose and without regard to whether the losses
are subject to the SRLY rules. An exception to the general effective
date rules was made for the proposed SRLY rules and built-in deduction
rules, which generally applied only to losses and deductions of
corporations that became members (and acquisitions occurring) on or
after January 29, 1991, without regard to when they arose. Thus, the
proposed amendments required the losses and deductions of members
acquired before January 29, 1991, to remain subject to the existing
SRLY limitations.
The temporary amendments revise this treatment. Losses and
deductions of a member (including SRLY losses) carried to consolidated
return years beginning on or after January 1, 1997, are governed by the
temporary amendments, regardless of the year in which the loss or
deduction was recognized, and regardless of when the member with the
SRLY loss became a member of the group.
The temporary amendments also contain rules relating to
consolidated return years ending on or after January 29, 1991, and
beginning before January 1, 1997. Specifically, a consolidated group
may apply the temporary amendments to those consolidated return years
provided that three principal conditions are met: (1) all the temporary
amendments must be applied consistently on the group's final return
(original or amended return) for each such year for which the statute
of limitations does not preclude the filing of an amended return on
January 1, 1997; (2) the temporary amendments relating to the treatment
of built-in deductions and SRLY losses must be applied with respect to
the losses and deductions of those corporations that became members of
the group, and to acquisitions occurring, on or after January 29, 1991,
and only with respect to such losses and deductions; and (3)
appropriate adjustments must be made in the earliest subsequent open
year to reflect any inconsistency in a year for which the statute of
limitations precludes the filing of an amended return on January 1,
1997. Until consolidated return years beginning on or after January 1,
1997, the rules of the existing regulations relating to the treatment
of built-in deductions and SRLY losses continue to apply to
corporations that became members before, and to acquisitions occurring
before, January 29, 1991. See Sec. 1.1502-21T(g)(3).
Special Analysis
It has been determined that this Treasury decision is not a
significant regulatory action as defined in EO 12866. Therefore, a
regulatory assessment is not required. It is hereby certified that
these regulations do not have a significant economic impact on a
substantial number of small entities. This certification is based on
the fact that these regulations will primarily affect affiliated groups
of corporations that have elected to file consolidated returns, which
tend to be larger businesses. Therefore, a Regulatory Flexibility
Analysis under the Regulatory Flexibility Act (5 U.S.C. chapter 6) is
not required. Pursuant to section 7805(f) of the Internal Revenue Code,
the notice of proposed rulemaking preceding these regulations were sent
to the Small Business Administration for comment on their impact on
small business.
Drafting Information
The principal author of these regulations is David B. Friedel of
the Office of Assistant Chief Counsel (Corporate), IRS. Other personnel
from the IRS and Treasury participated in their development.
Adoption of Amendments to the Regulations
Accordingly, 26 CFR parts 1 and 602 are amended as follows:
PART 1--INCOME TAXES
Paragraph 1. The authority citation for Part 1 is amended in part
by adding citations in numerical order to read as follows:
Authority: 26 U.S.C. 7805 * * *
Section 1.1502-0 also issued under 26 U.S.C. 1502. * * *
Section 1.1502-1T also issued under 26 U.S.C. 1502.
Section 1.1502-2 also issued under 26 U.S.C. 1502. * * *
Section 1.1502-15T also issued under 26 U.S.C. 1502. * * *
Section 1.1502-21T also issued under 26 U.S.C. 1502.
Section 1.1502-22T also issued under 26 U.S.C. 1502.
Section 1.1502-23T also issued under 26 U.S.C. 1502. * * *
Section 1.1502-79T also issued under 26 U.S.C. 1502.
Section 1.1502-15A also issued under 26 U.S.C. 1502.
Section 1.1502-21A also issued under 26 U.S.C. 1502.
Section 1.1502-22A also issued under 26 U.S.C. 1502.
Section 1.1502-23A also issued under 26 U.S.C. 1502.
Section 1.1502-41A also issued under 26 U.S.C. 1502.
Section 1.1502-79A also issued under 26 U.S.C. 1502.* * *
Par. 2. In the list below, for each section indicated in the left
column, remove the wording indicated in the middle column, and add the
wording indicated in the right column.
------------------------------------------------------------------------
Affected section Remove Add
------------------------------------------------------------------------
1.469-1(h)(2)................... 1.1502-21 1.1502-21T (Net
(consolidated net operating losses
operating loss), (temporary)), and
and 1.1502-22 1.1502-22T
(consolidated net (consolidated net
capital gain or capital gain and
loss). loss
(temporary)).
1.597-2(c)(5), first sentence... Secs. 1.1502-15, Secs. 1.1502-15T,
1.1502-21, and 1.1502-21T, and
1.1502-22. 1.1502-22T (or
Secs. 1.1502-15A
, 1.1502-21A, and
1.1502-22A, as
appropriate).
1.597-2(c)(5), second sentence.. Secs. 1.1502-15, Secs. 1.1502-15T,
1.1502-21 or 1.1502-21T or
1.1502-22. 1.1502-22T (or
Secs. 1.1502-15A
, 1.1502-21A or
1.1502-22A, as
appropriate).
1.597-4(g)(3), fifth sentence... Secs. 1.1502-15, Secs. 1.1502-15T,
1.1502-21 and 1.1502-21T and
1.1502-22. 1.1502-22T (or
Secs. 1.1502-15A
, 1.1502-21A and
1.1502-22A, as
appropriate).
[[Page 33323]]
1.597-4(g)(3), sixth sentence... Secs. 1.1502-15, Secs. 1.1502-15T,
1.1502-21, or 1.1502-21T, or
1.1502-22. 1.1502-22T (or
Secs. 1.1502-15A
, 1.1502-21A, or
1.1502-22A, as
appropriate).
1.904(f)-3(a)................... (or Secs. 1.1502- (or Sec. 1.1502-
21(b) and 1.1502- 21T(b) (or Secs.
79(a)). 1.1502-21A(b) and
1.1502-79A(a), as
appropriate)).
1.904(f)-3(b)................... (or Secs. 1.1502- (or Sec. 1.1502-
22 and 1.1502- 22T(b) (or Secs.
79(b). 1.1502-22A and
1.1502-79A(b), as
appropriate)).
1.1341-1(f)(2)(i)............... Sec. 1.1502-2A... Sec. 1.1502-2A
(as contained in
the 26 C.F.R.
edition revised
as of April 1,
1996).
1.1502-9(a), seventh sentence... Sec. 1.1502-79... Sec. 1.1502-21T(b
)(2) (or Sec.
1.1502-79A, as
appropriate).
1.1502-9(a), eighth sentence.... Sec. 1.1502-79... Sec. 1.1502-21T(b
)(1) (or Sec.
1.1502-79A, as
appropriate).
1.1502-9(f) Example 5(ii)....... Sec. 1.1502-21(c) Sec. 1.1502-21A(c
)
1.1502-11(a)(2)................. Sec. 1.1502-21... Secs. 1.1502-21T
(or 1.1502-21A,
as appropriate).
1.1502-11(a)(3)................. Sec. 1.1502-22... Secs. 1.1502-22T
(or 1.1502-22A,
as appropriate).
1.1502-11(a)(4)................. Sec. 1.1502-23... Secs. 1.1502-23T
(or 1.1502-23A,
as appropriate).
1.1502-11(b)(2)(iii) Example Sec. 1.1502-79... Sec. 1.1502-21T
1(c). (or Sec. 1.1502-
79A, as
appropriate).
1.1502-11(b)(2)(iii) Example Sec. 1.1502-79... Secs. 1.1502-21T
2(d). and 1.1502-22T,
respectively (or
Sec. 1.1502-79A,
as appropriate).
1.1502-11(b)(2)(iii) Example Sec. 1.1502-79... Sec. 1.1502-21T
3(e). (or Sec. 1.1502-
79A, as
appropriate).
1.1502-12(b).................... Sec. 1.1502-15 Secs. 1.1502-15A
shall be taken or 1.1502-15T
into account as shall be taken
provided in that into account as
section. provided in those
sections.
1.1502-13(c)(7)(ii) Example Sec. 1.1502-21(c) Sec. 1.1502-21T(c
10(d). ).
1.1502-13(g)(5) Example 4(b).... Sec. 1.1502-15... Sec. 1.1502-15T
(or Sec. 1.1502-
15A, as
appropriate).
1.1502-13(h)(2), Example 1(a)... Sec. 1.1502-21(c) Sec. 1.1502-21T(c
).
1.1502-13(h)(2), Example 1(b)... Sec. 1.1502-21(c) Sec. 1.1502-21T(c
).
1.1502-13(h)(2), Example 2(a)... Sec. 1.1502-15... Sec. 1.1502-15T.
1.1502-13(h)(2), Example 2(b)... 1.1502-22......... 1.1502-22T.
1.1502-15(a)(1), first sentence. Sec. 1.1502-21(c) Sec. 1.1502-21A(c
).
1.1502-15(a)(1), first sentence. Sec. 1.1502-22(c) Sec. 1.1502-22A(c
).
1.1502-15(a)(1), second sentence Under Secs. Under Secs.
1.1502-21, 1.1502- 1.1502-21A,
22, and 1.1502-79. 1.1502-22A, and
1.1502-79A (or
Secs. 1.1502-21T
and 1.1502-22T,
as appropriate).
1.1502-15(a)(1), second sentence In Sec. 1.1502- In Secs. 1.1502-
21(c) or Sec. 21T(c) or 1.1502-
1.1502-22(c) (as 22T(c) (or Secs.
the case may be). 1.1502-21A(c) or
1.1502-22A(c), as
appropriate), as
the case may be.
1.1502-15(a)(3)................. Sec. 1.1502-31A(b Sec. 1.1502-31A(b
)(9). )(9) (as
contained in the
26 C.F.R. edition
revised as of
April 1, 1996).
1.1502-18(f)(1)(ii), (1)(iii), Sec. 1.1502-39A.. Sec. 1.1502-39A
(2)(i), (2)(ii), and (4) (as contained in
Example (i) and (ii). the 26 C.F.R.
edition revised
as of April 1,
1996).
1.1502-18(f)(5)................. Sec. 1.1502-31A(b Sec. 1.1502-31A(b
)(1). )(1) (as
contained in the
26 C.F.R. edition
revised as of
April 1, 1996).
1.1502-20(a)(1)................. 1.1502-15(b)...... 1.1502-11(c).
1.1502-20(c)(4), Example 7(iii). Sec. 1.1502-21... Secs. 1.1502-21A
or 1.1502-21T.
1.1502-20(g)(3), Example 1(i)... Sec. 1.1502-21... Secs. 1.1502-21A
or 1.1502-21T.
1.1502-20(g)(3), Example 2(i)... Sec. 1.1502-21... Secs. 1.1502-21A
or 1.1502-21T.
1.1502-21(b)(1)................. Paragraph (a) of Secs. 1.1502-79A(
Sec. 1.1502-79. a).
1.1502-21(b)(1)................. Sec. 1.1502-15... Sec. 1.1502-15A
(or Sec. 1.1502-
11(c), as
appropriate).
1.1502-21(b)(2)(i).............. Paragraph (a)(4) This paragraph.
of Sec. 1.1502-
79.
1.1502-21(e)(1)(i).............. Paragraph (a)(3) This paragraph.
of Sec. 1.1502-
79.
1.1502-22(a)(1)(ii)............. Sec. 1.1502-23... Secs. 1.1502-23A
or 1.1502-23T.
1.1502-22(a)(3)................. Sec. 1.1502-15... Secs. 1.1502-15A
and 1.1502-11(c).
1.1502-22(b)(1)................. Paragraph (b) of Sec. 1.1502-79A(b
Sec. 1.1502-79. ) (or Sec.
1.1502-22T(b), as
appropriate).
1.1502-23....................... Secs. 1.1502-21(c Secs. 1.1502-21A(
) and 1.1502- c) and 1.1502-
22(c), as 22A(c), as
provided in Sec. provided in Sec.
1.1502-15(a). 1.1502-15A(a) (or
Secs. 1.1502-21T
(c) and 1.1502-
22T(c), as
provided in Sec.
1.1502-15T(a), as
appropriate).
1.1502-26(a)(1)(ii) concluding Paragraph (f) of Secs. 1.1502-21T(
text. Sec. 1.1502-21. e) or 1.1502-
21A(f), as
appropriate.
1.1502-32(b)(5) Example 2(b).... 1.1502-79......... 1.1502-21T(b).
1.1502-41(a).................... Paragraph (a)(1) Sec. 1.1502-22A(a
of Sec. 1.1502- ).
22.
1.1502-41(a).................... Sec. 1.1502-23... Sec. 1.1502-23A.
1.1502-41(b).................... Paragraph (a)(1) Sec. 1.1502-22A(a
of Sec. 1.1502- ).
22.
1.1502-41(b).................... Paragraph (b) of Sec. 1.1502-22A(b
Sec. 1.1502-22. ).
[[Page 33324]]
1.1502-42(f)(4)(i)(A)........... Sec. 1.1502-79(a) Sec. 1.1502-21T(b
(3).. ) (or Sec.
1.1502-79A(a)(3),
as appropriate).
1.1502-42(j) Example 4(b)....... Sec. 1.1502-79(a) Sec. 1.1502-79A(a
(3).. )(3).
1.1502-42(j) Example 4(c)....... Sec. 1.1502-21(b) Sec. 1.1502-21A(b
(3). )(3).
1.1502-42(j) Example 4(c)....... Sec. 1.1502-79(a) Sec. 1.1502-79A(a
(3). )(3).
1.1502-43(b)(2)(iv)............. Sec. 1.1502-21(a) Secs. 1.1502-21T(
a) or 1.1502-
21A(a), as
appropriate.
1.1502-43(b)(2)(v).............. Sec. 1.1502-22(a) Secs. 1.1502-22T(
a) or 1.1502-
22A(a), as
appropriate.
1.1502-43(b)(2)(vi)............. Sec. 1.1502-41(a) Secs. 1.1502-22T(
a) or 1.1502-41A,
as appropriate.
1.1502-43(b)(2)(vi)............. Sec. 1.1502-41(b) Secs. 1.1502-22T(
a) or 1.1502-41A,
as appropriate.
1.1502-43(b)(2)(vii)............ Sec. 1.1502-22(b) Secs. 1.1502-22T(
b) or 1.1502-
22A(b), as
appropriate.
1.1502-43(b)(2)(viii)........... Section 1.1502-15 Sections 1.1502-
(built-in 15A (Limitations
deductions) does. on built-in
deductions not
subject to Sec.
1.1502-15T) and
1.1502-15T (SRLY
limitation on
built-in losses
(temporary)) do.
1.1502-44(b)(2)................. Sec. 1.1502-21... Secs. 1.1502-21T
or 1.1502-21A (as
appropriate).
1.1502-44(b)(3)................. Sec. 1.1502-22... Secs. 1.1502-22T
or 1.1502-22A (as
appropriate).
1.1502-47(h)(2)(i).............. Sec. 1.1502-21... Secs. 1.1502-21T
or 1.1502-21A (as
appropriate).
1.1502-47(h)(2)(ii)............. Sec. 1.1502-21(f) Secs. 1.1502-21(A
)(f) or 1.1502-
21T(e) (as
appropriate).
1.1502-47(h)(2)(iii)............ Sec. 1.1502-21... Secs. 1.1502-21A
or 1.1502-21T (as
appropriate).
1.1502-47(h)(2)(iv)............. Sec. 1.1502-21... Secs. 1.1502-21A
or 1.1502-21T (as
appropriate).
1.1502-47(h)(2)(vii) Example.... Secs. 1.1502-21 Secs. 1.1502-21A
and 1.1502-79. and 1.1502-79A.
1.1502-47(h)(3)(iii)............ Sec. 1.1502-21(c) Secs. 1.1502-21A(
c) or 1.1502-
21T(c) (as
appropriate).
1.1502-47(h)(3)(iv) and (v)..... Sec. 1.1502-21(d) Sec. 1.1502-21A(d
).
1.1502-47(h)(4)(i), first Sec. 1.1502-22... Secs. 1.1502-22T
sentence. or 1.1502-22A (as
appropriate).
1.1502-47(h)(4)(i), second Sec. 1.1502-22(a) Secs. 1.1502-22T
sentence. or 1.1502-22A(a)
(as appropriate).
1.1502-47(h)(4)(ii), first Sec. 1.1502-22... Secs. 1.1502-22A
sentence. or 1.1502-22T.
1.1502-47(h)(4)(ii), first Sec. 1.1502-21... Secs. 1.1502-21T
sentence. or 1.1502-21A (as
appropriate).
1.1502-47(h)(4)(ii), second ``Sec. 1.1502-22( ``Sec. 1.1502-22A
sentence. d)''. (d)''.
1.1502-47(h)(4)(ii), second ``Sec. 1.1502-21( ``Sec. 1.1502-21A
sentence. d)''. (d)''.
1.1502-47(h)(4)(iii)............ Sec. 1.1502-22(b) Secs. 1.1502-22A(
(1). b)(1) or 1.1502-
22T(b).
1.1502-47(k)(5)................. Sec. 1.1502-22... Secs. 1.1502-22T
or 1.1502-22A (as
appropriate).
1.1502-47(l)(3)(i).............. Sec. 1.1502-21... Secs. 1.1502-21T
or 1.1502-21A (as
appropriate).
1.1502-47(m)(2)(ii)............. Sec. 1.1502-21... Secs. 1.1502-21T
or 1.1502-21A (as
appropriate).
1.1502-47(m)(2)(ii)............. Sec. 1.1502-22... Secs. 1.1502-22T
or 1.1502-22A (as
appropriate).
1.1502-47(m)(3)(i).............. Secs. 1.1502-21 Secs. 1.1502-21T
and 1.1502-22. and 1.1502-22T
(or Secs. 1.1502-
21A and 1.1502-
22A, as
appropriate).
1.1502-47(m)(3)(vi)(A), both Sec. 1.1502-79(a) Secs. 1.1502-21T(
instances. (3). b) or 1.1502-
79A(a)(3) (as
appropriate).
1.1502-47(m)(3)(vii)............ Sec. 1.1502-21(b) Sec. 1.1502-21A(b
(3)(ii). )(3)(ii).
1.1502-47(m)(3)(ix)............. Sec. 1.1502-15 Secs. 1.1502-15T
(including the and 1.1502-15A
exceptions in (including
paragraph (a)(4) applicable
thereof). exceptions
thereto).
1.1502-47(m)(5) Example 4....... Sec. 1.1502-15... Sec. 1.1502-15A.
1.1502-47(o)(2)(i).............. Sec. 1.1502-41... Secs. 1.1502-41A
or 1.1502-22T (as
appropriate).
1.1502-47(o)(2)(ii)............. Sec. 1.1502-41... Secs. 1.1502-41A
or 1.1502-22T (as
appropriate).
1.1502-47(q).................... Sec. 1.1502-21(b) Secs. 1.1502-21A(
(3) and Sec. b)(3) and 1.1502-
1.1502-79(a)(3). 79A(a)(3) (or
Sec. 1.1502-21T,
as appropriate).
1.1502-78(a).................... Sec. 1.1502-79 Secs. 1.1502-21T(
(a), (b), or (c). b), 1.1502-
22T(b), or 1.1502-
79(c) (or Secs.
1.1502-79A(a),
1.1502-79A(b), or
1.1502-79(c), as
appropriate).
1.1502-79(a)(1)(i).............. Sec. 1.1502-21... Sec. 1.1502-21A.
1.1502-79(b)(1)................. 1.1502-22......... 1.1502-22A.
[[Page 33325]]
1.1502-79(c)(1)................. Paragraph (a)(1) Sec. 1.1502-21T(b
and (2) of this ) (or Secs.
section. 1.1502-79A(a)(1)
and (2), as
appropriate).
1.1502-79(d)(1)................. Paragraph (a)(1) Sec. 1.1502-21T(b
and (2) of this ) (or Secs.
section. 1.1502-79A(a)(1)
and (2), as
appropriate).
1.1502-79(e)(1)................. Paragraph (a)(1) Sec. 1.1502-21T(b
and (2) of this ) (or Secs.
section. 1.1502-79A(a)(1)
and (2), as
appropriate).
1.1502-80(c).................... Sec. 1.1502-15(b) Sec. 1.1502-11(c)
.
1.1502-100(c)(2)................ Sec. 1.1502-21... Secs. 1.1502-21A
or 1.1502-21T (as
appropriate).
1.1503-2(d)(2)(i)............... Sec. 1.1502-21(c) Secs. 1.1502-21A(
c) or 1.1502-
21T(c), as
appropriate.
1.1503-2(d)(2)(ii).............. Sec. 1.1502-21(c) Secs. 1.1502-21A(
c) or 1.1502-
21T(c), as
appropriate.
1.1503-2(d)(4) Example 1(iv).... 1.1502-22......... 1.1502-22T(c).
1.1503-2(d)(4) Example 2(iv).... Sec. 1.1502-21(c) Sec. 1.1502-21A(c
).
1.1503-2(g)(2)(vii)(B)(1)....... Sec. 1.1502-21(c) Secs. 1.1502-21A(
c) or 1.1502-
21T(c) (as
appropriate).
1.1503-2(g)(2)(vii)(B)(2)....... Sec. 1.1502-21(c) Secs. 1.1502-21A(
c) or 1.1502-
21T(c) (as
appropriate).
1.1503-2(g)(2)(vii)(E).......... Sec. 1.1502-21(c) Secs. 1.1502-21A(
c) or 1.1502-
21T(c) (as
appropriate).
1.1503-2(g)(2)(vii)(G) Example 1 Sec. 1.1502-21(c) Secs. 1.1502-21A(
c) or 1.1502-
21T(c), as
appropriate.
1.1503-2(g)(2)(vii)(G) Example 2 Sec. 1.1502-21(c) Secs. 1.1502-21A(
c) or 1.1502-
21T(c), as
appropriate.
1.1503-2(h)(3).................. Sec. 1.1502-21(c) Secs. 1.1502-21A(
c) or 1.1502-
21T(c) (as
appropriate).
1.1503-2A(f)(1)(i) intro text... Sec. 1.1502-79(a) Sec. 1.1502-21T(b
(3). ).
1.1503-2A(f)(1)(i)(C)........... Sec. 1.1502-79... Sec. 1.1502-22T(b
).
1.1503-2A(f)(2)(i).............. Sec. 1.1502-21(c) Secs. 1.1502-21A(
(2). c)(2) or 1.1502-
21T(c) (as
appropriate).
1.1503-2A(f)(2)(ii)............. Sec. 1.1502-21(c) Secs. 1.1502-21A(
(2). c)(2) or 1.1502-
21T(c) (as
appropriate).
1.1503-2A(f)(4) Example 2(iv), Sec. 1.1502-21(c) Sec. 1.1502-21A(c
first sentence. (2). )(2).
1.1503-2A(f)(4) Example 2(iv), Sec. 1.1502-21(c) Sec. 1.1502-21A(c
second sentence. ).
1.1552-1(a)(3)(i)............... Sec. 1.1502-30A.. Sec. 1.1502-30A
(as contained in
the 26 C.F.R.
edition revised
as of April 1,
1996).
1.1552-1(b)(1).................. Sec. 1.1502-30A.. Sec. 1.1502-30A
(as contained in
the 26 C.F.R.
edition revised
as of April 1,
1996).
301.6402-7(g)(2)(iii)........... Sec. 1.1502-21(b) Secs. 1.1502-21T(
b) or 1.1502-
21A(b) (as
appropriate).
301.6402-7(g)(3) Example 2, Sec. 1.1502-21... Sec. 1.1502-21T.
second sentence.
301.6402-7(g)(3) Example 2, Sec. 1.1502-21(c) Sec. 1.1502-21T(c
third sentence. ).
301.6402-7(h)(1)(ii) Example (B) 1.1502-21(b)...... 1.1502-21T(b).
301.6402-7(h)(1)(ii) Example (B) 1.1502-22(b)...... 1.1502-22T(b).
------------------------------------------------------------------------
Sec. 1.1501-1 [Removed]
Par. 3. Section 1.1501-1 is removed. -
Par. 4. The undesignated centerheading immediately following
Sec. 1.1504-4 is revised from ``Regulations Applicable to Taxable Years
Prior to January 1, 1966'' to ``Regulations Applicable to Taxable Years
Before January 1, 1997''.
Secs. 1.1502-0A through 1.1502-3A, 1.1502-10A through 1.1502-19A and
1.1502-30A through 1.1502-51A [Removed]
Par. 5. Sections 1.1502-0A through 1.1502-3A, 1.1502-10A through
1.1502-19A, and 1.1502-30A through 1.1502-51A are removed.
Par. 6. Section 1.1502-0 is revised to read as follows:
Sec. 1.1502-0 Effective dates.
(a) The regulations under section 1502 are applicable to taxable
years beginning after December 31, 1965, except as otherwise provided
therein.
(b) The provisions of Secs. 1.1502-0A through 1.1502-3A, 1.1502-10A
through 1.1502-19A, and 1.1502-30A through 1.1502-51A (as contained in
the 26 CFR part 1 edition revised April 1, 1996) are applicable to
taxable years beginning before January 1, 1966.
Par. 7. Section 1.1502-1 is amended by revising paragraphs (b),
(f)(1), and (f)(2) introductory text, adding paragraphs (f)(4) and (j),
and adding and reserving paragraph (i) to read as follows:
Sec. 1.1502-1 Definitions.
* * * * *
(b) Member. The term member means a corporation (including the
common parent) that is included in the group, or as the context may
require, a corporation that is included in a subgroup.
* * * * *
(f) Separate return limitation year--(1) In general. Except as
provided in paragraphs (f)(2) and (3) of this section, the term
separate return limitation year (or SRLY) means any separate return
year of a member or of a predecessor of a member.
(2) Exceptions. The term separate return limitation year (or SRLY)
does not include:
* * * * *
(4) Predecessors and successors. The term predecessor means a
transferor or distributor of assets to a member (the successor) in a
transaction--
(i) To which section 381(a) applies; or
(ii) That occurs on or after January 1, 1997, in which the
successor's basis for the assets is determined, directly or
[[Page 33326]]
indirectly, in whole or in part, by reference to the basis of the
assets of the transferor or distributor, but only if the amount by
which basis differs from value, in the aggregate, is material. In the
case of such a transaction, only one member may be considered a
predecessor to or a successor of one other member.
* * * * *
(i) [Reserved]
(j) Affiliated. Corporations are affiliated if they are members of
a group with each other.
Par. 8. In Sec. 1.1502-2, paragraph (h) is revised to read as
follows:
Sec. 1.1502-2 Computation of tax liability.
* * * * *
(h) The tax imposed by section 1201, instead of the taxes computed
under paragraphs (a) and (g) of this section, computed by reference to
the net capital gain of the group (see Sec. 1.1502-22T) (or, for
consolidated return years to which Sec. 1.1502-22T does not apply,
computed by reference to the excess of the consolidated net long-term
capital gain over the consolidated net short-term capital loss (see
Sec. 1.1502-41A for the determination of the consolidated net long-term
capital gain and the consolidated net short-term capital loss));
* * * * *
Sec. 1.1502-15 [Amended]
Par. 9. In Sec. 1.1502-15, paragraph (b) is redesignated as
paragraph (c) of Sec. 1.1502-11, and the heading of newly designated
Sec. 1.1502-11, paragraph (c) is revised to read as follows:
Sec. 1.1502-11 Consolidated taxable income.
* * * * * -
(c) Disallowance of loss attributable to pre-1966 distributions. *
* *
Sec. 1.1502-15 [Redesignated as Sec. 1.1502-15A]
Par. 10. Section 1.1502-15 is redesignated as Sec. 1.1502-15A; the
section heading of the newly designated Sec. 1.1502-15A is revised; and
paragraph (b) is added to read as follows:
Sec. 1.1502-15A Limitations on the allowance of built-in deductions
for consolidated return years beginning before January 1, 1997.
* * * * * -
(b) Effective date. This section applies to any consolidated return
years to which Sec. 1.1502-21T does not apply. See Sec. 1.1502-21T(g)
for effective dates of that section. -
Par. 11. Section 1.1502-15T is added to read as follows:
Sec. 1.1502-15T SRLY limitation on built-in losses (temporary).
(a) SRLY limitation. Built-in losses are subject to the SRLY
limitation under Secs. 1.1502-21T(c) and 1.1502-22T(c) (including
applicable subgroup principles). Built-in losses are treated as
deductions or losses in the year recognized, except for the purpose of
determining the amount of, and the extent to which the built-in loss is
limited by, the SRLY limitation for the year in which it is recognized.
Solely for such purpose, a built-in loss is treated as a hypothetical
net operating loss carryover or net capital loss carryover arising in a
SRLY, instead of as a deduction or loss in the year recognized. To the
extent that a built-in loss is allowed as a deduction under this
section in the year it is recognized, it offsets any consolidated
taxable income for the year before any loss carryovers or carrybacks
are allowed as a deduction. To the extent not so allowed, it is treated
as a separate net operating loss or net capital loss carryover or
carryback arising in the year of recognition and, under Sec. 1.1502-
21T(c) or Sec. 1.1502-22T(c), the year of recognition is treated as a
SRLY.
(b) Built-in losses--(1) Defined. If a corporation has a net
unrealized built-in loss under section 382(h)(3) (as modified by this
section) on the day it becomes a member of the group (whether or not
the group is a consolidated group), its deductions and losses are
built-in losses under this section to the extent they are treated as
recognized built-in losses under section 382(h)(2)(B) (as modified by
this section). This paragraph (b) generally applies separately with
respect to each member, but see paragraph (c) of this section for
circumstances in which it is applied on a subgroup basis.
(2) Operating rules. Solely for purposes of applying paragraph
(b)(1) of this section, the principles of Sec. 1.1502-94T(c) apply with
appropriate adjustments, including the following:
(i) Ownership change. A corporation is treated as having an
ownership change under section 382(g) on the day the corporation
becomes a member of a group, and no other events (e.g., a subsequent
ownership change under section 382(g) while it is a member) are treated
as causing an ownership change. In the case of an asset acquisition by
a group, the assets and liabilities acquired directly from the same
transferor pursuant to the same plan are treated as the assets and
liabilities of a corporation that becomes a member of the group (and
has an ownership change) on the date of the acquisition. -
(ii) Recognized built-in gain or loss. A loss that is included in
the determination of net unrealized built-in gain or loss and that is
recognized but disallowed or deferred (e.g., under Sec. 1.1502-20 or
section 267) is not treated as a built-in loss unless and until the
loss would be allowed during the recognition period without regard to
the application of this section. Section 382(h)(1)(B)(ii) does not
apply to the extent it limits the amount of recognized built-in loss
that may be treated as a pre-change loss to the amount of the net
unrealized built-in loss.
(c) Built-in losses of subgroups--(1) In general. In the case of a
subgroup, the principles of paragraph (b) of this section apply to the
subgroup, and not separately to its members. Thus, the net unrealized
built-in loss and recognized built-in loss for purposes of paragraph
(b) of this section are based on the aggregate amounts for each member
of the subgroup. -
(2) Members of subgroups. A subgroup is composed of those members
that have been continuously affiliated with each other for the 60
consecutive month period ending immediately before they become members
of the group in which the loss is recognized. A member remains a member
of the subgroup until it ceases to be affiliated with the loss member.
For this purpose, the principles of Sec. 1.1502-21T(c)(2) (iv) through
(vi) apply with appropriate adjustments.
(3) Built-in amounts. Solely for purposes of determining whether
the subgroup has a net unrealized built-in loss or whether it has a
recognized built-in loss, the principles of Secs. 1.1502-91T (g) and
(h) apply with appropriate adjustments.
(d) Examples. For purposes of the examples in this section, unless
otherwise stated, all groups file consolidated returns, all
corporations have calendar taxable years, the facts set forth the only
corporate activity, value means fair market value and the adjusted
basis of each asset equals its value, all transactions are with
unrelated persons, and the application of any limitation or threshold
under section 382 is disregarded. The principles of this section are
illustrated by the following examples:
Example 1. Determination of recognized built-in loss. (a) P buys
all the stock of T during Year 1 for $100, and T becomes a member of
the P group. T has three depreciable assets. Asset 1 has an
unrealized loss of $20 (basis $45, value $25), asset 2 has an
unrealized loss of $25 (basis $50, value $25), and asset 3 has an
unrealized gain of $25 (basis $25, value $50).
[[Page 33327]]
(b) Under paragraph (b)(2)(i) of this section, T is treated as
having an ownership change under section 382(g) on becoming a member
of the P group. This treatment does not depend on whether P's
acquisition of the T stock actually constitutes an ownership change
under section 382(g), or whether T is subject to any limitation
under section 382. Under paragraph (b)(1) of this section, none of
T's $45 of unrealized loss is treated as a built-in loss unless T
has a net unrealized built-in loss under section 382(h)(3) on
becoming a member of the P group.
(c) Under section 382(h)(3)(A), T has a $20 net unrealized
built-in loss on becoming a member of the P group
(($20)+($25)+$25=($20)). Assume that this amount exceeds the
threshold requirement in section 382(h)(3)(B). Under section
382(h)(2)(B), the entire amount of T's $45 unrealized loss is
treated as a built-in loss to the extent it is recognized during the
5-year recognition period described in section 382(h)(7). Under
paragraph (b)(2)(ii) of this section, the restriction under section
382(h)(1)(B)(ii), which limits the amount of recognized built-in
loss that is treated as pre-change loss to the amount of the net
unrealized built-in loss, is inapplicable for this purpose.
Consequently, the entire $45 of unrealized loss (not just the $20
net unrealized loss) is treated under paragraph (b)(1) of this
section as a built-in loss to the extent it is recognized within 5
years of T's becoming a member of the P group. Under paragraph (a)
of this section, a built-in loss is subject to the SRLY limitation
under Sec. 1.1502-21T(c)(1).
(d) Under paragraph (b)(2)(i) of this section, the results would
be the same if T transferred all of its assets and liabilities to a
subsidiary of the P group in a single transaction described in
section 351.
Example 2. Actual application of section 382 not relevant. (a)
The facts are the same as in Example 1, except that P buys 55
percent of the stock of T during Year 1, resulting in an ownership
change of T under section 382(g). During Year 2, P buys the 45
percent balance of the T stock, and T becomes a member of the P
group.
(b) Although T has an ownership change for purposes of section
382 in Year 1 and not Year 2, T's joining the P group in Year 2 is
treated as an ownership change under section 382(g) for purposes of
this section. Consequently, for purposes of this section, whether T
has a net unrealized built-in loss under section 382(h)(3) is
determined as if the day T joined the P group were a change date.
Thus, the results are the same as in Example 1.
Example 3. Determination of a recognized built-in loss of a
subgroup. (a) During Year 1, P buys all of the stock of S for $100,
and S becomes a member of the P group. M is the common parent of
another group. At the beginning of Year 7, M acquires all of the
stock of P, and P and S become members of the M group. At the time
of M's acquisition of the P stock, P has (disregarding the stock of
S) a $10 net unrealized built-in gain (two depreciable assets, asset
1 with a basis of $35 and a value of $55, and asset 2 with a basis
of $55 and a value of $45), and S has a $75 net unrealized built-in
loss (two depreciable assets, asset 3 with a basis of $95 and a
value of $10, and asset 4 with a basis of $10 and a value of $20).
(b) Under paragraph (c) of this section, P and S compose a
subgroup on becoming members of the M group because P and S were
continuously affiliated for the 60 month period ending immediately
before they became members of the M group. Consequently, paragraph
(b) of this section does not apply to P and S separately. Instead,
their separately computed unrealized gains and losses are aggregated
for purposes of determining whether and the extent to which any
unrealized loss is treated as built-in loss under this section and
is subject to the SRLY limitation under Sec. 1.1502-21T(c).
(c) Under paragraph (c) of this section, the P subgroup has a
net unrealized built-in loss on the day P and S become members of
the M group determined by treating the day they become members as a
change date. The net unrealized built-in loss is the aggregate of
P's net unrealized built-in gain of $10 and S's net unrealized
built-in loss of $75, or an aggregate net unrealized built-in loss
of $65. (The stock of S owned by P is disregarded for purposes of
determining the net unrealized built-in loss. However, any loss
allowed on the sale of the stock within the recognition period is
taken into account in determining recognized built-in loss.) Assume
that the $65 net unrealized built-in loss exceeds the threshold
requirement under section 382(h)(3)(B).
(d) Under paragraphs (b)(1), (b)(2)(ii), and (c) of this
section, a loss recognized during the 5-year recognition period on
an asset of P or S held on the day that P and S became members of
the M group is a built-in loss except to the extent the group
establishes that such loss exceeds the amount by which the adjusted
basis of such asset on the day the member became a member exceeded
the fair market value of such asset on that same day. If P sells
asset 2 for $45 in Year 7 and recognizes a $10 loss, the entire $10
loss is treated as a built-in loss under paragraphs (b)(2)(ii) and
(c) of this section. If S sells asset 3 for $10 in Year 7 and
recognizes an $85 loss, the entire $85 loss is treated as a built-in
loss under paragraphs (b)(2)(ii) and (c) of this section (not just
the $55 balance of the P subgroup's $65 net unrealized built-in
loss).
(e) The determination of whether P and S constitute a SRLY
subgroup for purposes of loss carryovers and carrybacks, and the
extent to which built-in losses are not allowed under the SRLY
limitation, is made under Sec. 1.1502-21T(c).
Example 4. Computation of SRLY limitation. (a) During Year 1,
individual A forms T by contributing $300 and T sustains a $100 net
operating loss. During Year 2, T's assets decline in value to $100.
At the beginning of Year 3, P buys all the stock of T for $100, and
T becomes a member of the P group with a net unrealized built-in
loss of $100. Assume that $100 exceeds the threshold requirements of
section 382(h)(3)(B). During Year 3, T recognizes its unrealized
built-in loss as a $100 ordinary loss. The members of the P group
contribute the following net income to the consolidated taxable
income of the P group (disregarding T's recognized built-in loss and
any consolidated net operating loss deduction under Sec. 1.1502-21T)
for Years 3 and 4:
------------------------------------------------------------------------
Year 3 Year 4 Total
------------------------------------------------------------------------
P group (without T)....................... $100 $100 $200
T......................................... 60 40 100
-----------------------------
CTI....................................... 160 140 300
------------------------------------------------------------------------
(b) Under paragraph (b) of this section, T's $100 ordinary loss
in Year 3 (not taken into account in the consolidated taxable income
computations above) is a built-in loss. Under paragraph (a) of this
section, the built-in loss is treated as a net operating loss
carryover for purposes of determining the SRLY limitation under
Sec. 1.1502-21T(c).
(c) For Year 3, Sec. 1.1502-21T(c) limits T's $100 built-in loss
and $100 net operating loss carryover from Year 1 to the aggregate
of the P group's consolidated taxable income through Year 3
determined by reference to only T's items. For this purpose,
consolidated taxable income is determined without regard to any
consolidated net operating loss deductions under Sec. 1.1502-21T(a).
(d) The P group's consolidated taxable income through Year 3 is
$60 when determined by reference to only T's items. Under
Sec. 1.1502-21T(c), the SRLY limitation for Year 3 is therefore $60.
(e) Under paragraph (a) of this section, the $100 built-in loss
is treated as a current deduction for all purposes other than
determination of the SRLY limitation under Sec. 1.1502-21T(c).
Consequently, a deduction for the built-in loss is allowed in Year 3
before T's loss carryover from Year 1 is allowed, but only to the
extent of the $60 SRLY limitation. None of T's Year 1 loss carryover
is allowed because the built-in loss ($100) exceeds the SRLY
limitation for Year 3.
(f) The $40 balance of the built-in loss that is not allowed in
Year 3 because of the SRLY limitation is treated as a $40 net
operating loss arising in Year 3 that is carried to other years in
accordance with the rules of Sec. 1.1502-21T(b). The $40 net
operating loss is treated under paragraph (a) of this section and
Sec. 1.1502-21T(c)(1)(ii) as a loss carryover or carryback from Year
3 that arises in a SRLY, and is subject to the rules of Sec. 1.1502-
21T (including Sec. 1.1502-21T(c)) rather than this section.
(g) The facts are the same as in paragraphs (a) through (f) of
this Example 4, except that T also recognizes additional built-in
losses in Year 4. For purposes of determining the SRLY limitation
for these additional losses in Year 4 (or any subsequent year), the
$60 of built-in loss allowed as a deduction in Year 3 is treated
under paragraph (a) of this section as a deduction in Year 3 that
reduces the P group's consolidated taxable income when determined by
reference to only T's items.
Example 5. Built-in loss exceeding consolidated taxable income
in the year recognized. (a) P buys all the stock of T during Year 1,
and T becomes a member of the P group. At the time of acquisition, T
has
[[Page 33328]]
a depreciable asset with an unrealized loss of $45 (basis $100,
value $55), which exceeds the threshold requirements of section
382(h)(3)(B). During Year 2, T sells its asset for $55 and
recognizes the unrealized built-in loss. The P group has $10 of
consolidated taxable income in Year 2, computed by disregarding T's
recognition of the $45 built-in loss and the consolidated net
operating loss deduction, while the consolidated taxable income
would be $25 if determined by reference to only T's items (other
than the $45 loss).
(b) T's $45 loss is recognized in Year 2 and, under paragraph
(b) of this section, constitutes a built-in loss. Under paragraph
(a) of this section and Sec. 1.1502-21T(c)(1)(ii), the loss is
treated as a net operating loss carryover to Year 2 for purposes of
applying the SRLY limitation under Sec. 1.1502-21T(c).
(c) For Year 2, T's SRLY limitation is the aggregate of the P
group's consolidated taxable income through Year 2 determined by
reference to only T's items. For this purpose, consolidated taxable
income is determined by disregarding any built-in loss that is
treated as a net operating loss carryover, and any consolidated net
operating loss deductions under Sec. 1.1502-21T(a). Consolidated
taxable income so determined is $25.
(d) Under Sec. 1.1502-21T(c), $25 of the $45 built-in loss could
be deducted in Year 2. Because the P group has only $10 of
consolidated taxable income (determined without regard to the $45),
the $25 loss creates a consolidated net operating loss of $15. This
loss is carried back or over under the rules of Sec. 1.1502-21T(b)
and absorbed under the rules of Sec. 1.1502-21T(a). This loss is not
treated as arising in a SRLY (see Sec. 1.1502-21T(c)(1)(ii)) and
therefore is not subject to the SRLY limitation under Sec. 1.1502-
21T(c) in any consolidated return year of the group to which it is
carried. The remaining $20 is treated as a loss carryover arising in
a SRLY and is subject to the limitation of Sec. 1.1502-21T(c) in the
year to which it is carried.
(e) Predecessors and successors. For purposes of this section, any
reference to a corporation or member includes, as the context may
require, a reference to a successor or predecessor, as defined in
Sec. 1.1502-1(f)(4).
(f) Effective date--(1) In general. This section applies to built-
in losses recognized in consolidated return years beginning on or after
January 1, 1997.
(2) Application to prior periods. See Sec. 1.1502-21T(g)(3) for
rules generally permitting a group to apply the rules of this section
to consolidated return years ending on or after January 29, 1991, and
beginning before January 1, 1997. A group must treat all corporations
that were affiliated on January 1, 1987, and continuously thereafter as
having met the 60 consecutive month requirement of paragraph (c)(2) of
this section on any day before January 1, 1992, on which the
determination of net unrealized built-in gain or loss of a subgroup is
made.
Par. 12. Section 1.1502-21 is redesignated as Sec. 1.1502-21A; the
heading of the newly designated Sec. 1.1502-21A is revised; and
paragraphs (d)(4), (e)(3) and (h) are added to read as follows:
Sec. 1.1502-21A Consolidated net operating loss deduction generally
applicable for consolidated return years beginning before January 1,
1997.
* * * * *
(d) * * *
(4) Cross-reference. See Sec. 1.1502-21T(d)(1) for the rule that
applies the principles of this paragraph (d) in consolidated return
years beginning on or after January 1, 1997, with respect to a
consolidated return change of ownership occurring before January 1,
1997.
(e) * * *
(3) Effective date. This paragraph (e) disallows or reduces the net
operating loss carryovers of a member as a result of a transaction to
which old section 382 (as defined in Sec. 1.382-2T(f)(21)) applies. See
Sec. 1.1502-21T(d)(2) for the rule that applies the principles of this
paragraph (e) in consolidated return years beginning on or after
January 1, 1997, with respect to such a transaction.
* * * * * -
(h) Effective date. Except as provided in Sec. 1.1502-21T (d)(1),
(d)(2), and (g)(3), this section applies to consolidated return years
beginning before January 1, 1997. -
Par. 13. Section 1.1502-21T is added to read as follows:
Sec. 1.1502-21T Net operating losses (temporary). -
(a) Consolidated net operating loss deduction. The consolidated net
operating loss deduction (or CNOL deduction) for any consolidated
return year is the aggregate of the net operating loss carryovers and
carrybacks to the year. The net operating loss carryovers and
carrybacks consist of-- -
(1) Any CNOLs (as defined in paragraph (e) of this section) of the
consolidated group; and -
(2) Any net operating losses of the members arising in separate
return years. -
(b) Net operating loss carryovers and carrybacks to consolidated
return and separate return years. Net operating losses of members
arising during a consolidated return year are taken into account in
determining the group's CNOL under paragraph (e) of this section for
that year. Losses taken into account in determining the CNOL may be
carried to other taxable years (whether consolidated or separate) only
under this paragraph (b). -
(1) Carryovers and carrybacks generally. The net operating loss
carryovers and carrybacks to a taxable year are determined under the
principles of section 172 and this section. Thus, losses permitted to
be absorbed in a consolidated return year generally are absorbed in the
order of the taxable years in which they arose, and losses carried from
taxable years ending on the same date, and which are available to
offset consolidated taxable income for the year, generally are absorbed
on a pro rata basis. See Example 2 of paragraph (c)(1)(iii) of this
section for an illustration of pro rata absorption of losses subject to
a SRLY limitation. Additional rules provided under the Code or
regulations also apply. See, e.g., section 382(l)(2)(B). -
(2) Carryovers and carrybacks of CNOLs to separate return years--
(i) In general. If any CNOL that is attributable to a member may be
carried to a separate return year of the member, the amount of the CNOL
that is attributable to the member is apportioned to the member
(apportioned loss) and carried to the separate return year. If carried
back to a separate return year, the apportioned loss may not be carried
back to an equivalent, or earlier, consolidated return year of the
group; if carried over to a separate return year, the apportioned loss
may not be carried over to an equivalent, or later, consolidated return
year of the group. For rules permitting the reattribution of losses of
a subsidiary to the common parent when loss is disallowed on the
disposition of subsidiary stock, see Sec. 1.1502-20(g). -
(ii) Special rules--(A) Year of departure from group. If a
corporation ceases to be a member during a consolidated return year,
net operating loss carryovers attributable to the corporation are first
carried to the consolidated return year, and only the amount so
attributable that is not absorbed by the group in that year is carried
to the corporation's first separate return year. -
(B) Offspring rule. In the case of a member that has been a member
continuously since its organization, the CNOL attributable to the
member is included in the carrybacks to consolidated return years
before the member's existence. See paragraph (f) of this section for
applications to predecessors and successors. If the group did not file
a consolidated return for a carryback year, the loss may be carried
back to a separate return year of the common parent under paragraph
(b)(2)(i) of this section, but only if the common parent was not a
member of a different consolidated group or of an
[[Page 33329]]
affiliated group filing separate returns for the year to which the loss
is carried or any subsequent year in the carryback period. Following an
acquisition described in Sec. 1.1502-75(d) (2) or (3), references to
the common parent are to the corporation that was the common parent
immediately before the acquisition. -
(iii) Equivalent years. Taxable years are equivalent if they bear
the same numerical relationship to the consolidated return year in
which a CNOL arises, counting forward or backward from the year of the
loss. For example, in the case of a member's third taxable year (which
was a separate return year) that preceded the consolidated return year
in which the loss arose, the equivalent year is the third consolidated
return year preceding the consolidated return year in which the loss
arose. See paragraph (b)(3)(iii) of this section for certain short
taxable years that are disregarded in making this determination. -
(iv) Amount of CNOL attributable to a member. The amount of a CNOL
that is attributable to a member is determined by a fraction the
numerator of which is the separate net operating loss of the member for
the year of the loss and the denominator of which is the sum of the
separate net operating losses for that year of all members having such
losses. For this purpose, the separate net operating loss of a member
is determined by computing the CNOL by reference to only the member's
items of income, gain, deduction, and loss, including the member's
losses and deductions actually absorbed by the group in the taxable
year (whether or not absorbed by the member). -
(v) Examples. For purposes of the examples in this section, unless
otherwise stated, all groups file consolidated returns, all
corporations have calendar taxable years, the facts set forth the only
corporate activity, value means fair market value and the adjusted
basis of each asset equals its value, all transactions are with
unrelated persons, and the application of any limitation or threshold
under section 382 is disregarded. The principles of this paragraph
(b)(2) are illustrated by the following examples:
Example 1. Offspring rule. (a) P is formed at the beginning of
Year 1 and files a separate return. P forms S on March 15 of Year 2,
and P and S file a consolidated return. P purchases all the stock of
T at the beginning of Year 3, and T becomes a member of the P group.
T was formed in Year 2 and filed a separate return for that year. P,
S, and T sustain a $1,100 CNOL in Year 3 and, under paragraph
(b)(2)(iv) of this section, the loss is attributable $200 to P, $300
to S, and $600 to T. -
(b) Of the $1,100 CNOL in Year 3, the $500 amount of the CNOL
that is attributable to P and S ($200 + $300) may be carried to P's
separate return in Year 1. Even though S was not in existence in
Year 1, the $300 amount of the CNOL attributable to S may be carried
back to P's separate return in Year 1 because S (unlike T) has been
a member of the P group since its organization and P is a qualified
parent under paragraph (b)(2)(ii)(B) of this section. To the extent
not absorbed in that year, the loss may then be carried to the P
group's return in Year 2. The $600 amount of the CNOL attributable
to T is a net operating loss carryback to T's separate return in
Year 2. -
Example 2. Departing members. (a) The facts are the same as in
Example 1. In addition, on June 15 of Year 4, P sells all the stock
of T. The P group's consolidated return for Year 4 includes the
income of T through June 15. T files a separate return for the
period from June 16 through December 31. -
(b) $600 of the Year 3 CNOL attributable to T is apportioned to
T and is carried back to its separate return in Year 2. To the
extent the $600 is not absorbed in T's separate return in Year 2, it
is carried to the consolidated return in Year 4 before being carried
to T's separate return in Year 4. Any portion of the loss not
absorbed in T's Year 2 or in the P group's Year 4 is then carried to
T's separate return in Year 4.
-(3) Special rules--(i) Election to relinquish carryback. A group
may make an irrevocable election under section 172(b)(3) to relinquish
the entire carryback period with respect to a CNOL for any consolidated
return year. The election may not be made separately for any member
(whether or not it remains a member), and must be made in a separate
statement entitled ``THIS IS AN ELECTION UNDER SECTION 1.1502-
21T(b)(3)(i) TO WAIVE THE ENTIRE CARRYBACK PERIOD PURSUANT TO SECTION
172(b)(3) FOR THE [insert consolidated return year] CNOLs OF THE
CONSOLIDATED GROUP OF WHICH [insert name and employer identification
number of common parent] IS THE COMMON PARENT.'' The statement must be
signed by the common parent and filed with the group's income tax
return for the consolidated return year in which the loss arises.
(ii) Special election for groups that include insolvent financial
institutions. For rules applicable to relinquishing the entire
carryback period with respect to losses attributable to insolvent
financial institutions, see Sec. 301.6402-7 of this chapter. -
(iii) Short years in connection with transactions to which section
381(a) applies. If a member distributes or transfers assets to a
corporation that is a member immediately after the distribution or
transfer in a transaction to which section 381(a) applies, the
transaction does not cause the distributor or transferor to have a
short year within the consolidated return year of the group in which
the transaction occurred that is counted as a separate year for
purposes of determining the years to which a net operating loss may be
carried. -
(iv) Special status losses. [Re
FR Doc. 96-15823 Consolidated ReturnsLimitations on the use of Certain Losses and Deductions
served] -
(c) Limitations on net operating loss carryovers and carrybacks
from separate return limitation years--(1) SRLY limitation--(i) General
rule. The aggregate of the net operating loss carryovers and carrybacks
of a member arising (or treated as arising) in SRLYs that are included
in the CNOL deductions for all consolidated return years of the group
under paragraph (a) of this section may not exceed the aggregate
consolidated taxable income for all consolidated return years of the
group determined by reference to only the member's items of income,
gain, deduction, and loss. For this purpose-- -
(A) Consolidated taxable income is computed without regard to CNOL
deductions; -
(B) Consolidated taxable income takes into account the member's
losses and deductions (including capital losses) actually absorbed by
the group in consolidated return years (whether or not absorbed by the
member); -
(C) In computing consolidated taxable income, the consolidated
return years of the group include only those years, including the year
to which the loss is carried, that the member has been continuously
included in the group's consolidated return, but exclude: -
(1) For carryovers, any years ending after the year to which the
loss is carried; and -
(2) For carrybacks, any years ending after the year in which the
loss arose; and -
(D) The treatment under Sec. 1.1502-15T of a built-in loss as a
hypothetical net operating loss carryover in the year recognized is
solely for purposes of determining the limitation under this paragraph
(c) with respect to the loss in that year and not for any other
purpose. Thus, for purposes of determining consolidated taxable income
for any other losses, a built-in loss allowed under this section in the
year it arises is taken into account. -
(ii) Losses treated as arising in SRLYs. If a net operating loss
carryover or carryback did not arise in a SRLY but is attributable to a
built-in loss (as defined under Sec. 1.1502-15T), the carryover or
carryback is treated for purposes of this paragraph (c) as arising in a
SRLY if the built-in loss was not allowed, after application of the
SRLY limitation, in the year it arose. For an
[[Page 33330]]
illustration, see Sec. 1.1502-15T(d), Example 5. -
(iii) Examples. The principles of this paragraph (c)(1) are
illustrated by the following examples:
Example 1. Determination of SRLY limitation. (a) In Year 1,
individual A forms T and T sustains a $100 net operating loss that
is carried forward. P buys all the stock of T at the beginning of
Year 2, and T becomes a member of the P group. The P group has $300
of consolidated taxable income in Year 2 (computed without regard to
the CNOL deduction). Such consolidated taxable income would be $70
if determined by reference to only T's items.
(b) T's $100 net operating loss carryover from Year 1 arose in a
SRLY. See Sec. 1.1502-1(f)(2)(iii). Thus, the $100 net operating
loss carryover is subject to the SRLY limitation in paragraph (c)(1)
of this section. The SRLY limitation for Year 2 is consolidated
taxable income determined by reference to only T's items, or $70.
Thus, $70 of the loss is included under paragraph (a) of this
section in the P group's CNOL deduction for Year 2.
(c) The facts are the same as in paragraph (a) of this Example
1, except that such consolidated taxable income (computed without
regard to the CNOL deduction and by reference to only T's items) is
a loss (a CNOL) of $370. Because the SRLY limitation may not exceed
the consolidated taxable income determined by reference to only T's
items, and such items aggregate to a CNOL, T's $100 net operating
loss carryover from Year 1 is not allowed under the SRLY limitation
in Year 2. Moreover, if consolidated taxable income (computed
without regard to the CNOL deduction and by reference to only T's
items) did not exceed $370 in Year 3, the carryover would still be
restricted under Sec. 1.1502-21T(c) in Year 3, because the aggregate
consolidated taxable income for all consolidated return years of the
group computed by reference to only T's items would not be a
positive amount.
Example 2. Net operating loss carryovers. (a) In Year 1,
individual A forms P and P sustains a $40 net operating loss that is
carried forward. P has no income in Year 2. Unrelated corporation T
sustains a net operating loss of $50 in Year 2 that is carried
forward. P buys the stock of T during Year 3, but T is not a member
of the P group for each day of the year. P and T file separate
returns and sustain net operating losses of $120 and $60,
respectively, for Year 3. The P group files consolidated returns
beginning in Year 4. During Year 4, the P group has $160 of
consolidated taxable income (computed without regard to the CNOL
deduction). Such consolidated taxable income would be $70 if
determined by reference to only T's items. These results are
summarized as follows:
----------------------------------------------------------------------------------------------------------------
Separate
Separate Separate affiliated Consolidated
year 1 year 2 year 3 year 4
----------------------------------------------------------------------------------------------------------------
P....................................................... $(40) $0 $(120) $90
T....................................................... 0 (50) (60) 70
-------------------------------------------------------
CTI..................................................... ............ ............ ............ 160
----------------------------------------------------------------------------------------------------------------
(b) P's Year 1, Year 2, and Year 3 are not SRLYs with respect to
the P group. See Sec. 1.1502-1(f)(2)(i). Thus, P's $40 net operating
loss arising in Year 1 and $120 net operating loss arising in Year 3
are not subject to the SRLY limitation under paragraph (c) of this
section. Under the principles of section 172, paragraph (b) of this
section requires that the loss arising in Year 1 be the first loss
absorbed by the P group in Year 4. Absorption of this loss leaves
$120 of the group's consolidated taxable income available for offset
by other loss carryovers.
(c) T's Year 2 and Year 3 are SRLYs with respect to the P group.
See Sec. 1.1502-1(f)(2)(ii). Thus, T's $50 net operating loss
arising in Year 2 and $60 net operating loss arising in Year 3 are
subject to the SRLY limitation. Under paragraph (c)(1) of this
section, the SRLY limitation for Year 4 is $70, and under paragraph
(b) of this section, T's $50 loss from Year 2 must be included under
paragraph (a) of this section in the P group's CNOL deduction for
Year 4. The absorption of this loss leaves $70 of the group's
consolidated taxable income available for offset by other loss
carryovers.
(d) P and T each carry over net operating losses to Year 4 from
a taxable year ending on the same date (Year 3). The losses carried
over from Year 3 total $180. Under paragraph (b) of this section,
the losses carried over from Year 3 are absorbed on a pro rata
basis, even though one arises in a SRLY and the other does not.
However, the group cannot absorb more than $20 of T's $60 net
operating loss arising in Year 3 because its $70 SRLY limitation for
Year 4 is reduced by T's $50 Year 2 SRLY loss already included in
the CNOL deduction for Year 4. Thus, the absorption of Year 3 losses
is as follows:
Amount of P's Year 3 losses absorbed = $120/($120 + $20) x $70 =
$60.
Amount of T's Year 3 losses absorbed = Sec. 20/($120 + $20) x
$70 = $10.
(e) The absorption of $10 of T's Year 3 loss further reduces T's
SRLY limitation to $10 ($70 of initial SRLY limitation, reduced by
the $60 net operating loss already included in the CNOL deductions
for Year 4 under paragraph (a) of this section).
(f) P carries its remaining $60 Year 3 net operating loss and T
carries its remaining $50 Year 3 net operating loss over to Year 5.
Assume that, in Year 5, the P group has $90 of consolidated taxable
income (computed without regard to the CNOL deduction). The group's
CTI determined by reference to only T's items is a CNOL of $4. For
Year 5, the CNOL deduction includes $60 of P's Year 3 loss but only
$6 of T's Year 3 loss (the aggregate consolidated taxable income for
Years 4 and 5 determined by reference to T's items, or $66, reduced
by T's SRLY losses actually absorbed by the group in Year 4, or
$60).
Example 3. Net operating loss carrybacks. (a)(1) P owns all of
the stock of S and T. The members of the P group contribute the
following to the consolidated taxable income of the P group for
Years 1, 2, and 3:
----------------------------------------------------------------------------------------------------------------
Year 1 Year 2 Year 3 Total
----------------------------------------------------------------------------------------------------------------
P................................................................. $100 $60 $80 $240
S................................................................. 20 20 30 70
T................................................................. 30 10 (50) (10)
---------------------------------------------
CTI............................................................... 150 90 60 300
----------------------------------------------------------------------------------------------------------------
(2) P sells all of the stock of T to individual A at the
beginning of Year 4. For its Year 4 separate return year, T has a
net operating loss of $30.
(b) T's Year 4 is a SRLY with respect to the P group. See
Sec. 1.1502-1(f)(1). T's $30 net operating loss carryback to the P
group from Year 4 is not allowed under Sec. 1.1502-21T(c) to be
included in the CNOL deduction under paragraph (a) of this section
for Year 1, 2, or 3, because the P group's consolidated taxable
income would not be a positive amount if determined by reference to
only T's items for all consolidated return years through Year 4
(without regard to the $30 net operating loss). However, the $30
loss is carried forward to T's Year 5 and succeeding taxable years
as provided under the Code.
-Example 4. Computation of SRLY limitation for built-in losses
treated as net operating loss carryovers. (a) In Year 1, individual
A forms T by contributing $300 and T sustains a $100 net operating
loss. During Year 2, T's assets decline in value by
[[Page 33331]]
$100. At the beginning of Year 3, P buys all the stock of T for
$100, and T becomes a member of the P group. At the time of the
acquisition, T has a $100 net unrealized built-in loss, which
exceeds the threshold requirements of section 382(h)(3)(B). During
Year 3, T recognizes its unrealized loss as a $100 ordinary loss.
The members of the P group contribute the following to the
consolidated taxable income of the P group for Years 3 and 4
(computed without regard to T's recognition of its unrealized loss
and any CNOL deduction under Sec. 1.1502-21T):
------------------------------------------------------------------------
Year 3 Year 4 Total
------------------------------------------------------------------------
P group (without T)....................... $100 $100 $200
T......................................... 60 40 100
-----------------------------
CTI....................................... 160 140 300
------------------------------------------------------------------------
(b) Under Sec. 1.1502-15T(a), T's $100 of ordinary loss in Year
3 constitutes a built-in loss that is subject to the SRLY limitation
under Sec. 1.1502-21T(c). The amount of the limitation is determined
by treating the deduction as a net operating loss carryover from a
SRLY. The built-in loss is therefore subject to a $60 SRLY
limitation for Year 3. The built-in loss is treated as a net
operating loss carryover solely for purposes of determining the
extent to which the loss is not allowed by reason of the SRLY
limitation, and for all other purposes the loss remains a loss
arising in Year 3. Consequently, under paragraph (b) of this
section, the $60 allowed under the SRLY limitation is absorbed by
the P group before T's $100 net operating loss carryover from Year 1
is allowed.
(c) Under Sec. 1.1502-15T(a), the $40 balance of the built-in
loss that is not allowed in Year 3 because of the SRLY limitation is
treated as a $40 net operating loss arising in Year 3 that is
subject to the SRLY limitation because, under Sec. 1.1502-
21T(c)(1)(ii), Year 3 is treated as a SRLY, and is carried to other
years in accordance with the rules of paragraph (b) of this section.
The SRLY limitation for Year 4 is the P group's consolidated taxable
income for Year 3 and Year 4 determined by reference to only T's
items and without regard to the group's CNOL deductions ($60+$40),
reduced by T's loss actually absorbed by the group in Year 3 ($60).
The SRLY limitation for Year 4 is $40.
(d) Under paragraph (c) of this section and the principles of
section 172(b), $40 of T's $100 net operating loss carryover from
Year 1 is included in the CNOL deduction under paragraph (a) of this
section in Year 4.
(2) SRLY subgroup limitation. In the case of a net operating loss
carryover or carryback for which there is a SRLY subgroup, the
principles of paragraph (c)(1) of this section apply to the SRLY
subgroup, and not separately to its members. Thus, the contribution to
consolidated taxable income and the net operating loss carryovers and
carrybacks arising (or treated as arising) in SRLYs that are included
in the CNOL deductions for all consolidated return years of the group
under paragraph (a) of this section are based on the aggregate amounts
of income, gain, deduction, and loss of the members of the SRLY
subgroup for the relevant consolidated return years (as provided in
paragraph (c)(1)(i)(C) of this section). For an illustration of
aggregate amounts during the relevant consolidated return years
following the year in which a member of a SRLY subgroup ceases to be a
member of the group, see paragraph (c)(2)(vii) Example 4 of this
section. A SRLY subgroup may exist only for a carryover or carryback
arising in a year that is not a SRLY (and is not treated as a SRLY
under paragraph (c)(1)(ii) of this section) with respect to another
group (the former group), whether or not the group is a consolidated
group. A separate SRLY subgroup is determined for each such carryover
or carryback. A consolidated group may include more than one SRLY
subgroup and a member may be a member of more than one SRLY subgroup.
Solely for purposes of determining the members of a SRLY subgroup with
respect to a loss:
(i) Carryovers. In the case of a carryover, the SRLY subgroup is
composed of the member carrying over the loss (the loss member) and
each other member that was a member of the former group that becomes a
member of the group at the same time as the loss member. A member
remains a member of the SRLY subgroup until it ceases to be affiliated
with the loss member. The aggregate determination described in
paragraph (c)(1) of this section and this paragraph (c)(2) includes the
amounts of income, gain, deduction, and loss of each member of the SRLY
subgroup for the consolidated return years during which it remains a
member of the SRLY subgroup. For an illustration of the aggregate
determination of a SRLY subgroup, see paragraph (c)(2)(vii) Example 2
of this section.
(ii) Carrybacks. In the case of a carryback, the SRLY subgroup is
composed of the member carrying back the loss (the loss member) and
each other member of the group from which the loss is carried back that
has been continuously affiliated with the loss member from the year to
which the loss is carried through the year in which the loss arises.
(iii) Built-in losses. In the case of a built-in loss, the SRLY
subgroup is composed of the member recognizing the loss (the loss
member) and each other member that was part of the subgroup with
respect to the loss determined under Sec. 1.1502-15T(c)(2) immediately
before the members became members of the group. The principles of
paragraphs (c)(2)(i) and (ii) of this section apply to determine the
SRLY subgroup for the built-in loss that is, under paragraph (c)(1)(ii)
of this section, treated as arising in a SRLY with respect to the group
in which the loss is recognized. For this purpose and as the context
requires, a reference in those paragraphs to a group or former group is
a reference to the subgroup determined under Sec. 1.1502-15T(c)(2).
(iv) Principal purpose of avoiding or increasing a SRLY limitation.
The members composing a SRLY subgroup are not treated as a SRLY
subgroup if any of them is formed, acquired, or availed of with a
principal purpose of avoiding the application of, or increasing any
limitation under, this paragraph (c). Any member excluded from a SRLY
subgroup, if excluded with a principal purpose of so avoiding or
increasing any SRLY limitation, is treated as included in the SRLY
subgroup.
(v) Coordination with other limitations. This paragraph (c)(2) does
not allow a net operating loss to offset income to the extent
inconsistent with other limitations or restrictions on the use of
losses, such as a limitation based on the nature or activities of
members. For example, any dual consolidated loss may not reduce the
taxable income to an extent greater than that allowed under section
1503(d) and Sec. 1.1503-2. See also Sec. 1.1502-47(q) (relating to
preemption of rules for life-nonlife groups).
(vi) Anti-duplication. If the same item of income or deduction
could be taken into account more than once in determining a limitation
under this paragraph (c), or in a manner inconsistent with any other
provision of the Code or regulations incorporating this paragraph (c),
the item of income or deduction is taken into account only once and in
such manner that losses are absorbed in accordance with the ordering
rules in paragraph (b) of this section and the underlying purposes of
this section.
(vii) Examples. The principles of this paragraph (c)(2) are
illustrated by the following examples:
Example 1. Members of SRLY subgroups. (a) During Year 1, P
sustains a $50 net operating loss. At the beginning of Year 2, P
buys all the stock of S at a time when the aggregate basis of S's
assets exceeds their aggregate value by $70 (as determined under
Sec. 1.1502-15T). At the beginning of Year 3, P buys all the stock
of T, T has a $60 net operating loss carryover at the time of the
acquisition, and T becomes a member of the P group. During Year 4, S
forms S1 and T forms T1, each by contributing assets with built-in
gains which are, in the aggregate, material. S1 and T1 become
members of the P group. M is the common parent of another group.
During Year 7, M acquires all of the
[[Page 33332]]
stock of P, and the members of the P group become members of the M
group for the balance of Year 7. The $50 and $60 loss carryovers of
P and T are carried to Year 7 of the M group, and the value and
basis of S's assets did not change after it became a member of the
former P group.
(b) Under paragraph (c)(2) of this section, a separate SRLY
subgroup is determined for each loss carryover and built-in loss. In
the P group, P's $50 loss carryover is not treated as arising in a
SRLY. See Sec. 1.1502-1(f). Consequently, the carryover is not
subject to limitation under paragraph (c) of this section in the P
group.
(c) In the M group, P's $50 loss carryover is treated as arising
in a SRLY and is subject to the limitation under paragraph (c) of
this section. A SRLY subgroup with respect to that loss is composed
of members which were members of the P group, the group as to which
the loss was not a SRLY. The SRLY subgroup is composed of P, the
member carrying over the loss, and each other member of the P group
that became a member of the M group at the same time as P. A member
of the SRLY subgroup remains a member until it ceases to be
affiliated with P. For Year 7, the SRLY subgroup is composed of P,
S, T, S1, and T1.
(d) In the P group, S's $70 unrealized loss, if recognized
within the 5-year recognition period after S becomes a member of the
P group, is subject to limitation under paragraph (c) of this
section. See Sec. 1.1502-15T and paragraph (c)(1)(ii) of this
section. Because S was not continuously affiliated with P, T, or T1
for 60 consecutive months prior to joining the P group, these
corporations cannot be included in a SRLY subgroup with respect to
S's unrealized loss in the P group. See paragraph (c)(2)(iii) of
this section. As a successor to S, S1 is included in a subgroup with
S in the P group. Because S did not cease to exist, however, S1's
contribution to consolidated taxable income may not be used to
increase the consolidated taxable income of the P group that may be
offset by the built-in loss. See paragraph (f) of this section.
(e) In the M group, S's $70 unrealized loss, if recognized
within the 5-year recognition period after S becomes a member of the
M group, is subject to limitation under paragraph (c) of this
section. Prior to becoming a member of the M group, S had been
continuously affiliated with P (but not T or T1) for 60 consecutive
months and S1 is a successor that has remained continuously
affiliated with S. Those members had a net unrealized built-in loss
immediately before they became members of the group under
Sec. 1.1502-15T(c). Consequently, in Year 7, S, S1, and P compose a
subgroup in the M group with respect to S's unrealized loss. S1's
contribution to consolidated taxable income may not be used to
increase the consolidated taxable income of the M group that may be
offset by the recognized built-in loss. See paragraph (f) of this
section.
(f) In the P group, T's $60 loss carryover arose in a SRLY and
is subject to limitation under paragraph (c) of this section. P, S,
and S1 were not members of the group in which T's loss arose and
cannot be members of a SRLY subgroup with respect to the carryover
in the P group. See paragraph (c)(2)(i) of this section. As a
successor to T, T1 is included in a SRLY subgroup with T in the P
group; however, because T did not cease to exist, T1's contribution
to consolidated taxable income may not be used to increase the
consolidated taxable income of the P group that may be offset by the
carryover. See paragraph (f) of this section.
(g) In the M group, T's $60 loss carryover arose in a SRLY and
is subject to limitation under paragraph (c) of this section. T and
T1 remain the only members of a SRLY subgroup with respect to the
carryover, but T1's contribution to consolidated taxable income may
not be used to increase consolidated taxable income of the M group
that may be offset by the carryover. See paragraph (f) of this
section.
Example 2. Computation of SRLY subgroup limitation. (a)
Individual A forms S. Individual B forms T. In Year 2, P buys all
the stock of S and T from A and B, and S and T become members of the
P group. For Year 3, the P group has a $45 CNOL, which is
attributable to P, and which P carries forward. M is the common
parent of another group. At the beginning of Year 4, M acquires all
of the stock of P and the former members of the P group become
members of the M group.
(b) P's year to which the loss is attributable, Year 3, is a
SRLY with respect to the M group. See Sec. 1.1502-1(f)(1). However,
P, S, and T compose a SRLY subgroup with respect to the Year 3 loss
under paragraph (c)(2)(i) of this section because Year 3 is not a
SRLY (and is not treated as a SRLY) with respect to the P group. P's
loss is carried over to the M group's Year 4 and is therefore
subject to the SRLY subgroup limitation in paragraph (c)(2) of this
section.
(c) In Year 4, the M group has $10 of consolidated taxable
income (computed without regard to the CNOL deduction for Year 4).
However, such consolidated taxable income would be $45 if determined
by reference to only the items of P, S, and T, the members included
in the SRLY subgroup with respect to P's loss carryover. Therefore,
the SRLY subgroup limitation under paragraph (c)(2) of this section
for P's net operating loss carryover from Year 3 is $45. Because the
M group has only $10 of consolidated taxable income in Year 4,
however, only $10 of P's net operating loss carryover is included in
the CNOL deduction under paragraph (a) of this section in Year 4.
(d) In Year 5, the M group has $100 of consolidated taxable
income (computed without regard to the CNOL deduction for Year 5).
Neither P, S, nor T has any items of income, gain, deduction, or
loss in Year 5. Although the members of the SRLY subgroup do not
contribute to the $100 of consolidated taxable income in Year 5, the
SRLY subgroup limitation for Year 5 is $35 (the sum of SRLY subgroup
consolidated taxable income of $45 in Year 4 and $0 in Year 5, less
the $10 net operating loss carryover actually absorbed by the M
group in Year 4). Therefore, $35 of P's net operating loss carryover
is included in the CNOL deduction under paragraph (a) of this
section in Year 5.
Example 3. Inclusion in more than one SRLY subgroup. (a) At the
beginning of Year 1, S buys all the stock of T, and T becomes a
member of the S group. For Year 1, the S group has a CNOL of $10,
all of which is attributable to S and is carried over to Year 2. At
the beginning of Year 2, P buys all the stock of S, and S and T
become members of the P group. For Year 2, the P group has a CNOL of
$35, all of which is attributable to P and is carried over to Year
3. At the beginning of Year 3, M acquires all of the stock of P and
the former members of the P group become members of the M group.
(b) P's and S's net operating losses arising in SRLYs with
respect to the M group are subject to limitation under paragraph (c)
of this section. P, S, and T compose a SRLY subgroup for purposes of
determining the limitation for P's $35 net operating loss carryover
arising in Year 2 because, under paragraph (c)(2)(i) of this
section, Year 2 is not a SRLY with respect to the P group.
Similarly, S and T compose a SRLY subgroup for purposes of
determining the limitation for S's $10 net operating loss carryover
arising in Year 1 because Year 1 is not a SRLY with respect to the S
group.
(c) S and T are members of both the SRLY subgroup with respect
to P's losses and the SRLY subgroup with respect to S's losses.
Under paragraph (c)(2) of this section, S's and T's items cannot be
included in the determination of the SRLY subgroup limitation for
both SRLY subgroups for the same consolidated return year; paragraph
(c)(2)(vi) of this section requires the M group to consider the
items of S and T only once so that the losses are absorbed in the
order of the taxable years in which they were sustained. Because S's
loss was incurred in Year 1, while P's loss was incurred in Year 2,
the items will be added in the determination of the consolidated
taxable income of the S and T SRLY subgroup to enable S's loss to be
absorbed first. The taxable income of the P, S, and T SRLY subgroup
is then computed by including the consolidated taxable income for
the S and T SRLY subgroup less the amount of any net operating loss
carryover of S that is absorbed after applying this section to the S
subgroup for the year.
Example 4. Corporation ceases to be affiliated with a SRLY
subgroup. (a) P and S are members of the P group and the P group has
a CNOL of $30 in Year 1, all of which is attributable to P and
carried over to Year 2. At the beginning of Year 2, M acquires all
of the stock of P, and P and S become members of the M group. P and
S compose a SRLY subgroup with respect to P's net operating loss
carryover. For Year 2, consolidated taxable income of the M group
determined by reference to only the items of P (and without regard
to the CNOL deduction for Year 2) is $40. However, such consolidated
taxable income of the M group determined by reference to the items
of both P and S is a loss of $20. Thus, the SRLY subgroup limitation
under paragraph (c)(2) of this section prevents the M group from
including any of P's net operating loss carryover in the CNOL
deduction under paragraph (a) of this section in Year 2, and P
carries the loss to Year 3.
[[Page 33333]]
(b) At the end of Year 2, P sells all of the S stock and S
ceases to be a member of the M group and, in turn, ceases to be
affiliated with the P subgroup. For Year 3, consolidated taxable
income of the M group is $50 (determined without regard to the CNOL
deduction for Year 3), and such consolidated taxable income would be
$10 if determined by reference to only items of P. However, the
limitation under paragraph (c) of this section for Year 3 for P's
net operating loss carryover still prevents the M group from
including any of P's loss in the CNOL deduction under paragraph (a)
of this section. The limitation results from the inclusion of S's
items for Year 2 in the determination of the SRLY subgroup
limitation for Year 3 even though S ceased to be a member of the M
group (and the P subgroup) at the end of Year 2. Thus, the M group's
consolidated taxable income determined by reference to only the SRLY
subgroup members' items for all consolidated return years of the
group through Year 3 (determined without regard to the CNOL
deduction) is not a positive amount.
(d) Coordination with consolidated return change of ownership
limitation and transactions subject to old section 382--(1)
Consolidated return changes of ownership. If a consolidated return
change of ownership occurred before January 1, 1997, the principles of
Sec. 1.1502-21A(d) apply to determine the amount of the aggregate of
the net operating losses attributable to old members of the group that
may be included in the consolidated net operating loss deduction under
paragraph (a) of this section. For this purpose, Sec. 1.1502-1(g) is
applied by treating that date as the end of the year of change.
(2) Old section 382. The principles of Sec. 1.1502-21A(e) apply to
disallow or reduce the amount of a net operating loss carryover of a
member as a result of a transaction subject to old section 382.
(e) Consolidated net operating loss. Any excess of deductions over
gross income, as determined under Sec. 1.1502-11(a) (without regard to
any consolidated net operating loss deduction), is also referred to as
the consolidated net operating loss (or CNOL).
(f) Predecessors and successors--(1) In general. For purposes of
this section, any reference to a corporation, member, common parent, or
subsidiary, includes, as the context may require, a reference to a
successor or predecessor, as defined in Sec. 1.1502-1(f)(4).
(2) Limitation on SRLY subgroups. Except as the Commissioner may
otherwise determine, any increase in the consolidated taxable income of
a SRLY subgroup that is attributable to a successor is disregarded
unless the successor acquires substantially all the assets and
liabilities of its predecessor and the predecessor ceases to exist.
(g) Effective date.--(1) In general. This section generally applies
to consolidated return years beginning on or after January 1, 1997.
(2) SRLY limitation. Except in the case of those members (including
members of a SRLY subgroup) described in paragraph (g)(3)(iii) of this
section, a group does not take into account a consolidated taxable year
beginning before January 1, 1997, in determining the aggregate of the
consolidated taxable income under paragraph (c)(1) of this section
(including for purposes of Sec. 1.1502-15T and Sec. 1.1502-22T(c)) for
the members (or SRLY subgroups).
(3) Application to prior periods. A consolidated group may apply
the rules of this section to all consolidated return years ending on or
after January 29, 1991, and beginning before January 1, 1997, provided
that--
(i) The group's tax liability as shown on an original or an amended
return is consistent with the application of the rules of this section
(other than this paragraph (g)) and Secs. 1.1502-15T, 1.1502-22T,
1.1502-23T, 1.1502-91T through 1.1502-96T, and 1.1502-98T for each such
year for which the statute of limitations does not preclude the filing
of an amended return on January 1, 1997;
(ii) Each section described in paragraph (g)(3)(i) of this section
and Sec. 1.1502-1(f)(4)(ii) is applied by substituting ``taxable years
ending on or after January 29, 1991'' for ``taxable years beginning on
or after January 1, 1997'' (and ``before January 29, 1991'' for
``before January 1, 1997'' in the case of consolidated return changes
of ownership) as the context requires.
(iii) The rules of paragraph (c) of this section and Secs. 1.1502-
15T and 1.1502-22T(c) are applied only with respect to the losses and
deductions of those corporations that became members of the group
(including members of a subgroup), and to acquisitions occurring, on or
after January 29, 1991, (and only with respect to such losses and
deductions);
(iv) The rules of Secs. 1.1502-15A, 1.1502-21A(c) and 1.1502-22A(c)
are applied with respect to the losses and deductions of those
corporations that became members of the group, and to acquisitions
occurring, before January 29, 1991; and
(v) Appropriate adjustments are made in the earliest subsequent
open year to reflect any inconsistency in a year for which the statute
of limitations precludes the filing of an amended return on January 1,
1997.
(4) Waiver of carrybacks. Paragraph (b)(3)(i) of this section
(relating to the waiver of carrybacks) applies to net operating losses
arising in a consolidated return year for which the due date of the
income tax return (without regard to extensions) is on or after August
26, 1996.
Par. 14. Section 1.1502-22 is redesignated as Sec. 1.1502-22A; the
heading of the newly designated Sec. 1.1502-22A is revised; and
paragraphs (d)(3) and (e) are added to read as follows:
Sec. 1.1502-22A Consolidated net capital gain or loss generally
applicable for consolidated return years beginning before January 1,
1997.
* * * * *
(d) * * *
(3) Cross-reference. See Sec. 1.1502-22T(d) for the rule that
applies the principles of this paragraph (d) in consolidated return
years beginning on or after January 1, 1997, with respect to a
consolidated return change of ownership occurring before January 1,
1997.
(e) Effective date. This section applies to any consolidated return
years to which Sec. 1.1502-21T(g) does not apply. See Sec. 1.1502-
21T(g) for effective dates of that section.
Par. 15. Section 1.1502-22T is added to read as follows:
Sec. 1.1502-22T Consolidated capital gain and loss (temporary).
(a) Capital gain. The determinations under section 1222, including
capital gain net income, net long-term capital gain, and net capital
gain, with respect to members during consolidated return years are not
made separately. Instead, consolidated amounts are determined for the
group as a whole. The consolidated capital gain net income for any
consolidated return year is determined by reference to--
(1) The aggregate gains and losses of members from sales or
exchanges of capital assets for the year (other than gains and losses
to which section 1231 applies);
(2) The consolidated net section 1231 gain for the year (determined
under Sec. 1.1502-23T); and
(3) The net capital loss carryovers or carrybacks to the year.
(b) Net capital loss carryovers and carrybacks.--(1) In general.
The determinations under section 1222, including net capital loss and
net short-term capital loss, with respect to members during
consolidated return years are not made separately. Instead,
consolidated amounts are determined for the group as a whole. Losses
[[Page 33334]]
included in the consolidated net capital loss may be carried to
consolidated return years, and, after apportionment, may be carried to
separate return years. The net capital loss carryovers and carrybacks
consist of--
(i) Any consolidated net capital losses of the group; and
(ii) Any net capital losses of the members arising in separate
return years.
(2) Carryovers and carrybacks generally. The net capital loss
carryovers and carrybacks to a taxable year are determined under the
principles of section 1212 and this section. Thus, losses permitted to
be absorbed in a consolidated return year generally are absorbed in the
order of the taxable years in which they were sustained, and losses
carried from taxable years ending on the same date, and which are
available to offset consolidated capital gain net income, generally are
absorbed on a pro rata basis. Additional rules provided under the Code
or regulations also apply, as well as the SRLY limitation under
paragraph (c) of this section. See, e.g., section 382(l)(2)(B).
(3) Carryovers and carrybacks of consolidated net capital losses to
separate return years. If any consolidated net capital loss that is
attributable to a member may be carried to a separate return year under
the principles of Sec. 1.1502-21T(b)(2), the amount of the consolidated
net capital loss that is attributable to the member is apportioned and
carried to the separate return year (apportioned loss).
(4) Special rules--(i) Short years in connection with transactions
to which section 381(a) applies. If a member distributes or transfers
assets to a corporation that is a member immediately after the
distribution or transfer in a transaction to which section 381(a)
applies, the transaction does not cause the distributor or transferor
to have a short year within the consolidated return year of the group
in which the transaction occurred that is counted as a separate year
for purposes of determining the years to which a net capital loss may
be carried.
(ii) Special status losses. [Reserved]
(c) Limitations on net capital loss carryovers and carrybacks from
separate return limitation years. The aggregate of the net capital
losses of a member arising (or treated as arising) in SRLYs that are
included in the determination of consolidated capital gain net income
for all consolidated return years of the group under paragraph (a) of
this section may not exceed the aggregate of the consolidated capital
gain net income for all consolidated return years of the group
determined by reference to only the member's items of gain and loss
from capital assets as defined in section 1221 and trade or business
assets defined in section 1231(b), including the member's losses
actually absorbed by the group in the taxable year (whether or not
absorbed by the member). The principles of Sec. 1.1502-21T(c)(including
the SRLY subgroup principles under Sec. 1.1502-21T(c)(2)) apply with
appropriate adjustments for purposes of applying this paragraph (c).
(d) Coordination with respect to consolidated return change of
ownership limitation occurring in consolidated return years beginning
before January 1, 1997. If a consolidated return change of ownership
occurred before January 1, 1997, the principles of Sec. 1.1502-22A(d)
apply to determine the amount of the aggregate of the net capital loss
attributable to old members of the group (as those terms are defined in
Sec. 1.1502-1(g)), that may be included in the net capital loss
carryover under paragraph (b) of this section. For this purpose,
Sec. 1.1502-1(g) is applied by treating that date as the end of the
year of change.
(e) Consolidated net capital loss. Any excess of losses over gains,
as determined under paragraph (a) of this section (without regard to
any carryovers or carrybacks), is also referred to as the consolidated
net capital loss.
(f) Predecessors and successors. For purposes of this section, the
principles of Sec. 1.1502-21T(f) apply with appropriate adjustments.
(g) Effective date--(1) In general. This section applies to
consolidated return years beginning on or after January 1, 1997.
(2) Application to prior periods. See Sec. 1.1502-21T(g)(3) for
rules generally permitting a group to apply the rules of this section
to consolidated return years ending on or after January 29, 1991, and
beginning before January 1, 1997.
Par. 16. Section 1.1502-23 is redesignated Sec. 1.1502-23A; the
section heading of the newly designated Sec. 1.1502-23A is revised; the
current text of the section is designated as paragraph (a), and
paragraph (b) is added to read as follows:
Sec. 1.1502-23A Consolidated net section 1231 gain or loss generally
applicable for consolidated return years beginning before January 1,
1997.
* * * * *
(b) Effective date. This section applies to any consolidated return
years to which Sec. 1.1502-21T(g) does not apply. See Sec. 1.1502-
21T(g) for effective dates of that section.
Par. 17. Section 1.1502-23T is added to read as follows:
Sec. 1.1502-23T Consolidated net section 1231 gain or loss
(temporary).
(a) In general. Net section 1231 gains and losses of members
arising during consolidated return years are not determined separately.
Instead, the consolidated net section 1231 gain or loss is determined
under this section for the group as a whole.
(b) Recapture of ordinary loss. [Reserved]
(c) Effective date--(1) In general. This section applies to gains
and losses arising in the determination of consolidated net section
1231 gain or loss for taxable years beginning on or after January 1,
1997.
(2) Application to prior periods. See Sec. 1.1502-21T(g)(3) for
rules generally permitting a group to apply the rules of this section
to consolidated return years ending on or after January 29, 1991, and
beginning before January 1, 1997.
Par. 18. Section 1.1502-41 is redesignated as Sec. 1.1502-41A; the
section heading of the newly designated Sec. 1.1502-41A is revised; and
paragraph (c) is added to read as follows:
Sec. 1.1502-41A Determination of consolidated net long-term capital
gain and consolidated net short-term capital loss generally applicable
for consolidated return years beginning before January 1, 1997.
* * * * *
(c) Effective date. This section applies to any consolidated return
years to which Sec. 1.1502-21T(g) does not apply. See Sec. 1.1502-
21T(g) for effective dates of that section.
Par. 19. Section 1.1502-79A is added to read as follows:
Sec. 1.1502-79A Separate return years generally applicable for
consolidated return years beginning before January 1, 1997.
(a) through (e) [Reserved]
(f) Effective date. Paragraphs (a) and (b) of this section apply to
losses arising in consolidated return years to which Sec. 1.1502-21T(g)
does not apply. For this purpose net operating loss deductions,
carryovers, and carrybacks arise in the year from which they are
carried. See Sec. 1.1502-21T(g) for effective dates of that section.
Par. 20. In Sec. 1.1502-79, paragraphs (a) and (b) are redesignated
as Sec. 1.1502-79A, paragraphs (a) and (b).
Par. 21. Section 1.1502-79 is amended by adding new paragraphs (a)
and (b) to read as follows:
Sec. 1.1502-79 Separate return years.
(a) Carryover and carryback of consolidated net operating losses to
separate return years. For losses arising
[[Page 33335]]
in consolidated return years beginning before January 1, 1997, see
Sec. 1.1502-79A(a). For later years, see Sec. 1.1502-21T(b).
(b) Carryover and carryback of consolidated net capital loss to
separate return years. For losses arising in consolidated return years
beginning before January 1, 1997, see Sec. 1.1502-79A(b). For later
years, see Sec. 1.1502-22T(b).
* * * * *
PART 602--OMB CONTROL NUMBERS UNDER THE PAPERWORK REDUCTION ACT
Par. 22. The authority citation for part 602 continues to read in
part as follows:
Authority: 26 U.S.C. 7805.
Par. 23. In Sec. 602.101, paragraph (c) is amended by adding an
entry in numerical order to the table to read as follows:
Sec. 602.101 OMB Control numbers.
* * * * *
(c) * * *
------------------------------------------------------------------------
Current OMB
CFR part or section where identified or described control No.
------------------------------------------------------------------------
* * * * *
1.1502-21T............................................ 1545-1237
* * * * *
------------------------------------------------------------------------
Margaret Milner Richardson,
Commissioner of Internal Revenue.
Approved: May 31, 1996.
Leslie Samuels,
Assistant Secretary of the Treasury.
[FR Doc. 96-15823 Filed 6-26-96; 8:45 am]
BILLING CODE 4830-01-U
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