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Code · REGISTER · 2006-11-02 · Federal Aviation Administration (FAA), Department of Transportation (DOT) · Proposed Rules

Proposed Rules. Notice of proposed rulemaking (NPRM)

29,858 words·~136 min read·/register/2006/11/02/06-9016

A research copy — for the controlling text, always check the official state or federal source. Not legal advice.

BILLING CODE 4910-13-P DEPARTMENT OF TRANSPORTATION Federal Aviation Administration 14 CFR Part 39 [Docket No. FAA-2006-26217; Directorate Identifier 2006-NM-209-AD] RIN 2120-AA64 Airworthiness Directives; Bombardier Model DHC-8-400 Series Airplanes AGENCY: Federal Aviation Administration (FAA), Department of Transportation (DOT). ACTION: Notice of proposed rulemaking (NPRM). SUMMARY: The FAA proposes to adopt a new airworthiness directive
(AD)for certain Bombardier Model DHC-8-400 series airplanes. This proposed AD would require revising the Airworthiness Limitations Items
(ALI)of the maintenance requirements manual to require additional inspection requirements of the maintenance requirements manual for certain principal structural elements
(PSEs)related to fuselage cutouts and to reduce an inspection threshold for an existing ALI task on the aft entry door. This proposed AD results from data obtained from the manufacturer's fatigue testing. We are proposing this AD to detect and correct fatigue cracking of certain PSEs, which could result in reduced structural integrity of the airplane. DATES: We must receive comments on this proposed AD by December 4, 2006. ADDRESSES: Use one of the following addresses to submit comments on this proposed AD. • *DOT Docket Web site:* Go to *http://dms.dot.gov* and follow the instructions for sending your comments electronically. • *Government-wide rulemaking Web site:* Go to *http://www.regulations.gov* and follow the instructions for sending your comments electronically. • *Mail:* Docket Management Facility, U.S. Department of Transportation, 400 Seventh Street, SW., Nassif Building, room PL-401, Washington, DC 20590. • *Fax:*
(202)493-2251. • *Hand Delivery:* Room PL-401 on the plaza level of the Nassif Building, 400 Seventh Street, SW., Washington, DC, between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays. Contact Bombardier, Inc., Bombardier Regional Aircraft Division, 123 Garratt Boulevard, Downsview, Ontario M3K 1Y5, Canada, for the service information identified in this proposed AD. FOR FURTHER INFORMATION CONTACT: George Duckett, Aerospace Engineer, Airframe and Propulsion Branch, ANE-171, FAA, New York Aircraft Certification Office, 1600 Stewart Avenue, suite 410, Westbury, New York 11590; telephone
(516)228-7325; fax
(516)794-5531. SUPPLEMENTARY INFORMATION: Comments Invited We invite you to submit any relevant written data, views, or arguments regarding this proposed AD. Send your comments to an address listed in the ADDRESSES section. Include the docket number “FAA-2006-26217; Directorate Identifier 2006-NM-209-AD” at the beginning of your comments. We specifically invite comments on the overall regulatory, economic, environmental, and energy aspects of the proposed AD. We will consider all comments received by the closing date and may amend the proposed AD in light of those comments. We will post all comments we receive, without change, to *http://dms.dot.gov* , including any personal information you provide. We will also post a report summarizing each substantive verbal contact with FAA personnel concerning this proposed AD. Using the search function of that Web site, anyone can find and read the comments in any of our dockets, including the name of the individual who sent the comment (or signed the comment on behalf of an association, business, labor union, etc.). You may review the DOT's complete Privacy Act Statement in the **Federal Register** published on April 11, 2000 (65 FR 19477-78), or you may visit *http://dms.dot.gov.* Examining the Docket You may examine the AD docket on the Internet at *http://dms.dot.gov* , or in person at the Docket Management Facility office between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays. The Docket Management Facility office (telephone
(800)647-5227) is located on the plaza level of the Nassif Building at the DOT street address stated in the ADDRESSES section. Comments will be available in the AD docket shortly after the Docket Management System receives them. Discussion Transport Canada Civil Aviation (TCCA), which is the airworthiness authority for Canada, notified us that an unsafe condition may exist on certain Bombardier Model DHC-8-400 series airplanes. TCCA advises that results from data obtained from the manufacturer's fatigue testing for cracking require new additional inspection requirements for certain principal structural elements
(PSEs)related to fuselage cutouts, and a reduced inspection threshold for an existing ALI task on the aft entry door. Fatigue cracking of certain PSEs, if not corrected, could result in reduced structural integrity of the airplane. Relevant Service Information Bombardier has issued Temporary Revisions ALI-53, dated February 16, 2006, and ALI-54, dated March 27, 2006, to the Airworthiness Limitations Items (ALI), Part 2, Section 2, of the Bombardier Q400 Dash 8 Maintenance Requirements Manual, PSM 1-84-7. The TRs describe additional inspection requirements for principal structural elements
(PSEs)related to fuselage cutouts and revise an existing ALI task on the aft entry door with a reduced threshold inspection. Accomplishing the actions specified in the service information is intended to adequately address the unsafe condition. TCCA mandated the service information and issued Canadian airworthiness directive CF-2006-10, dated May 12, 2006, to ensure the continued airworthiness of these airplanes in Canada. FAA's Determination and Requirements of the Proposed AD This airplane model is manufactured in Canada and is type certificated for operation in the United States under the provisions of section 21.29 of the Federal Aviation Regulations (14 CFR 21.29) and the applicable bilateral airworthiness agreement. Pursuant to this bilateral airworthiness agreement, the TCCA has kept the FAA informed of the situation described above. We have examined the TCCA's findings, evaluated all pertinent information, and determined that we need to issue an AD for certain Bombardier Model DHC-8-400 series airplanes of this type design that are certificated for operation in the United States. Therefore, we are proposing this AD, which would require accomplishing the actions specified in the Temporary Revisions described previously. Costs of Compliance This proposed AD would affect about 21 airplanes of U.S. registry. The proposed actions would take about 1 work hour per airplane, at an average labor rate of $80 per work hour. Based on these figures, the estimated cost of the proposed AD for U.S. operators is $1,680, or $80 per airplane. Authority for This Rulemaking Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, section 106, describes the authority of the FAA Administrator. Subtitle VII, Aviation Programs, describes in more detail the scope of the Agency's authority. We are issuing this rulemaking under the authority described in subtitle VII, part A, subpart III, section 44701, “General requirements.” Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action. Regulatory Findings We have determined that this proposed AD would not have federalism implications under Executive Order 13132. This proposed AD would not have a substantial direct effect on the States, on the relationship between the national Government and the States, or on the distribution of power and responsibilities among the various levels of government. For the reasons discussed above, I certify that the proposed regulation: 1. Is not a “significant regulatory action” under Executive Order 12866; 2. Is not a “significant rule” under the 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. We prepared a regulatory evaluation of the estimated costs to comply with this proposed AD and placed it in the AD docket. See the ADDRESSES section for a location to examine the regulatory evaluation. List of Subjects in 14 CFR Part 39 Air transportation, Aircraft, Aviation safety, Safety. The Proposed Amendment Accordingly, under the authority delegated to me by the Administrator, the FAA proposes to amend 14 CFR part 39 as follows: PART 39—AIRWORTHINESS DIRECTIVES 1. The authority citation for part 39 continues to read as follows: Authority: 49 U.S.C. 106(g), 40113, 44701. § 39.13 [Amended] 2. The Federal Aviation Administration
(FAA)amends § 39.13 by adding the following new airworthiness directive (AD): **Bombardier, Inc. (Formerly de Havilland, Inc.):** Docket No. FAA-2006-26217; Directorate Identifier 2006-NM-209-AD. Comments Due Date
(a)The FAA must receive comments on this AD action by December 4, 2006. Affected ADs
(b)None. Applicability
(c)This AD applies to certain Bombardier Model DHC-8-400 series airplanes, serial numbers 4001, 4003, 4004, 4006, and 4008 through 4126 inclusive, certificated in any category. Unsafe Condition
(d)This AD results from data obtained from the manufacturer's fatigue testing. We are issuing this AD to detect and correct fatigue cracking of certain principal structural elements (PSEs), which could result in reduced structural integrity of the airplane. Compliance
(e)You are responsible for having the actions required by this AD performed within the compliance times specified, unless the actions have already been done. Note 1: This AD requires revisions to certain operator maintenance documents to include new inspections. Compliance with these inspections is required by 14 CFR 91.403(c). For airplanes that have been previously modified, altered, or repaired in the areas addressed by these inspections, the operator may not be able to accomplish the inspections described in the revisions. In this situation, to comply with 14 CFR 91.403(c), the operator must request approval for an alternative method of compliance according to paragraph
(g)of this AD. The request should include a description of changes to the required inspections that will ensure the continued damage tolerance of the affected structure. The FAA has provided guidance for this determination in Advisory Circular
(AC)25-1529-1. Maintenance Requirements Manual Revision
(f)Within 60 days after the effective date of this AD, revise the Airworthiness Limitations Items (ALI), Part 2, Section 2, of the Bombardier Q400 Dash 8 Maintenance Requirements Manual, PSM 1-84-7, by incorporating the information in Bombardier Temporary Revisions
(TR)ALI-53, dated February 16, 2006, and ALI-54, dated March 27, 2006. Thereafter, except as provided in paragraph
(g)of this AD, no alternative structural inspection intervals may be approved for the fuselage and doors as specified in the TRs. Note 2: The actions required by paragraph
(f)of this AD may be done by inserting copies of TR ALI-53, dated February 16, 2006, and TR ALI-54, dated March 27, 2006; into the ALI, Part 2, Section 2, of the Bombardier Q400 Dash 8 Maintenance Requirements Manual, PSM 1-84-7. When TRs ALI-53 and ALI-54 have been included in the general revisions of the maintenance requirements manual, the general revisions may be inserted into the maintenance requirements manual, provided the relevant information in the general revision is identical to that in TRs ALI-53 and ALI-54. Alternative Methods of Compliance (AMOCs) (g)(1) The Manager, New York Aircraft Certification Office (ACO), FAA, has the authority to approve AMOCs for this AD, if requested in accordance with the procedures found in 14 CFR 39.19.
(2)Before using any AMOC approved in accordance with § 39.19 on any airplane to which the AMOC applies, notify the appropriate principal inspector in the FAA Flight Standards Certificate Holding District Office. Related Information
(h)Canadian airworthiness directive CF-2006-10, dated May 12, 2006, also addresses the subject of this AD. Issued in Renton, Washington, on October 25, 2006. Kalene C. Yanamura, Acting Manager, Transport Airplane Directorate, Aircraft Certification Service. [FR Doc. E6-18461 Filed 11-1-06; 8:45 am] BILLING CODE 4910-13-P DEPARTMENT OF TRANSPORTATION Federal Aviation Administration 14 CFR Part 39 [Docket No. FAA-2006-26219; Directorate Identifier 2004-SW-49-AD] RIN 2120-AA64 Airworthiness Directives; Bell Helicopter Textron Model 204B, 205A, 205A-1, 205B, 210, 212, 412, 412CF, and 412EP Helicopters AGENCY: Federal Aviation Administration, DOT. ACTION: Notice of proposed rulemaking (NPRM). SUMMARY: This document proposes adopting a new airworthiness directive
(AD)for Bell Helicopter Textron
(Bell)Model 204B, 205A, 205A-1, 205B, 210, 212, 412, 412CF, and 412EP helicopters. The AD would require certain checks and inspections of each tail rotor blade assembly (T/R blade) at specified intervals and repairing or replacing, as applicable, any unairworthy T/R blade. This proposal is prompted by eight reports of T/R blade failures. The actions specified by the proposed AD are intended to prevent failure of a T/R blade and subsequent loss of control of the helicopter. DATES: Comments must be received on or before January 2, 2007. ADDRESSES: Use one of the following addresses to submit comments on this proposed AD: • *DOT Docket Web site:* Go to *http://dms.dot.gov* and follow the instructions for sending your comments electronically; • *Government-wide rulemaking Web site:* Go to *http://www.regulations.gov* and follow the instructions for sending your comments electronically; • *Mail:* Docket Management Facility; U.S. Department of Transportation, 400 Seventh Street, SW., Nassif Building, Room PL-401, Washington, DC 20590; • *Fax:* 202-493-2251; or • *Hand Delivery:* Room PL-401 on the plaza level of the Nassif Building, 400 Seventh Street, SW., Washington, DC, between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays. You may get the service information identified in this proposed AD from Bell Helicopter Textron, Inc., P.O. Box 482, Fort Worth, Texas 76101, telephone
(817)280-3391, fax
(817)280-6466. You may examine the comments to this proposed AD in the AD docket on the Internet at *http://dms.dot.gov.* FOR FURTHER INFORMATION CONTACT: Michael Kohner, Aviation Safety Engineer, FAA, Rotorcraft Directorate, Rotorcraft Certification Office, Fort Worth, Texas 76193-0170, telephone
(817)222-5447, fax
(817)222-5783. SUPPLEMENTARY INFORMATION: Comments Invited We invite you to submit any written data, views, or arguments regarding this proposed AD. Send your comments to the address listed under the caption ADDRESSES . Include the docket number “FAA-2006-26219, Directorate Identifier 2004-SW-49-AD” at the beginning of your comments. We specifically invite comments on the overall regulatory, economic, environmental, and energy aspects of the proposed AD. We will consider all comments received by the closing date and may amend the proposed AD in light of those comments. We will post all comments we receive, without change, to *http://dms.dot.gov* , including any personal information you provide. We will also post a report summarizing each substantive verbal contact with FAA personnel concerning this proposed rulemaking. Using the search function of our docket Web site, you can find and read the comments to any of our dockets, including the name of the individual who sent or signed the comment. You may review the DOT's complete Privacy Act Statement in the **Federal Register** published on April 11, 2000 (65 FR 19477-78) or you may visit *http://dms.dot.gov.* Examining the Docket You may examine the docket that contains the proposed AD, any comments, and other information in person at the Docket Management System
(DMS)Docket Office between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays. The Docket Office (telephone 1-800-647-5227) is located at the plaza level of the Department of Transportation NASSIF Building in Room PL-401 at 400 Seventh Street, SW., Washington, DC. Comments will be available in the AD docket shortly after the DMS receives them. Discussion There have been eight reported failures due to fatigue cracking of T/R blades installed on Bell Model 212 and 412 helicopters (three failures on the Bell Model 212 and five failures on the Bell Model 412) with a blade assembly part number (P/N) 212-010-750-009, -105, and -107. Six of the cracks initiated between blade stations 30 to 33.5; one crack initiated at blade station 21.9; and one crack initiated at blade station 27.6. Three of the failures were in-flight and the T/R blades were installed on Bell Model 412 series helicopters. In one of the in-flight failures, the T/R blade failed due to a fatigue crack that initiated in the blade skin from a nick .060 inches long by .008 inches deep. The initial damage was above the maximum allowable damage limit for the blade skin provided in the maintenance manual. That failed blade had accumulated 1,478 hours time-in-service (TIS). In another in-flight failure, a section of the T/R blade separated from the helicopter during cruise flight at 5,500 feet. The helicopter was reported to have violently turned down and to the left. The helicopter “leveled out” at approximately 1,000 feet before setting down in the water. The blade failed due to a cracked stainless steel leading edge spar that originated from a corrosion pit .001 inches deep. The corrosion area extended .003 inches along the surface of the origin location. That blade had accumulated 4,643 hours TIS. In the third in-flight failure, sanding on the spar and chem-milling was found during a post-accident investigation. The crack had initiated at blade station 21.9 and the blade had accumulated 1,232 hours TIS. Also, the following blades were found cracked during an inspection: Model Year P/N 212-010-750- Hours TIS Blade station (in.) Crack length
(in)Initial damage part and type Initial damage size 212 1973 -009 3,224 32.2 6.5 Skin—Corrosion .030 in. wide. 212 1985 -009 279 31.5 13.0 Spar—Manufacturing Notch .090 in. wide. 212 1991 -105 423 30.8 8.0 Skin—Non Sharp Dent .75 in. long. 412 1990 -009 3,876 27.6 8.0 Skin—Corrosion Unknown. 412 1996 -105 1,235 30.0 8.3 Skin—Scratch .45 in. long by .005 in. deep. A preliminary investigation after one of the in-flight blade failures indicated that the operator (Canadian Department of Defense) was not using any specific inspection methods to detect small-scale damage on the T/R blades as required by the maintenance manual. A daily inspection was being conducted from the ground with the tail rotor mounted over 10 feet off of the ground. Inquiries to other Model 212 and 412 helicopter operators indicate that some of them are not accomplishing adequate inspections either. The accident investigation team concluded that without a detailed visual inspection, the probability of detection is extremely low for the kind of damage and fatigue crack that results from the tail rotor design and usage. The Canadian Department of Defense now uses a 12.5-hour inspection interval for the detailed visual inspection using a 2-power magnifying glass for the T/R blades on their Model 412CF helicopters. This interval was implemented as a result of a risk assessment performed for the T/R blade failure. If damage is suspected, this is followed by a 10-power magnifying glass and appropriate measuring tools (i.e. optical micrometer). The striation count for the failed blade indicates a crack propagation rate of approximately 77 hours TIS from damage initiation to blade failure. We have determined that: • The T/R blades are susceptible to impact damage from outside sources (gravel, stone, hail, etc.). The impact damage is the originating point for initiating fatigue cracks with subsequent growth until the blade fails from overload on the remaining intact structure; • Fatigue cracks have also initiated from corrosion and corrosion pits; • Model 205A, 205A-1, and certain 204B helicopters with the same part-numbered T/R blades as those installed on Model 212 and 412 helicopters should be included in this proposed AD; and • Model 205B and 210 helicopters with the same type-designed T/R blades as those installed on Model 212 and 412 helicopters should also be included in this proposed AD. We have reviewed the following Bell documents: • Operations Safety Notice OSN 205-02-37, OSN 205B-02-10, OSN 212-02-39, OSN 412-02-25, OSN 412CF-02-05, and OSN UH-1H-II-02-3, dated August 27, 2002. That Operations Safety Notice applies to all owners and operators of Bell 205, 205B, 212, 412, 412CF, and UH-1H-II helicopters and was written to remind operators of the following: • The importance of accomplishing a complete inspection of the T/R blades at specified inspection intervals; • That the blades must be cleaned in order to perform an adequate visual inspection to determine their condition; and • That maintenance manuals and component repair and overhaul manuals are to be consulted for damage limits and repair criteria as required. • Alert Service Bulletin No. 412CF-03-20, dated February 6, 2003, which applies to Model 412CF helicopters and provides instructions for doing a visual inspection of certain T/R blades immediately and every 25 hours TIS in accordance with Model 412CF maintenance manual and instructions for sending the affected tail rotor blade to DND “Calgary Supply Center” for refinishing and reidentification. • Bell Maintenance Document C-12-146-000/MF-001, Mod 4, dated February 12, 2004, which applies to Model 412CF helicopters and specifies a tail rotor blade damage records check and a visual inspection for dents, nicks, cracks, paint chips, or blisters using a 2-power magnifying glass and a good source of light in specified areas of the tail rotor blades (reference 64-00-00, section 64-38, page 42). This unsafe condition is likely to exist or develop on other helicopters of the same type designs. Therefore, the proposed AD would require the following actions: • Before each start of the engines, visually checking each T/R blade for a crack; • Within 25 hours TIS or 15 days, whichever occurs first, and thereafter at intervals not to exceed 25 hours TIS or 15 days, whichever occurs first, cleaning and visually inspecting each T/R blade for a crack, corrosion, nick, scratch, or dent using a 3-power or higher magnifying glass and a bright light; • If certain damage is found, inspecting for a crack or corrosion using a 10-power or higher magnifying glass and measuring the depth of any damage; and • Before further flight, replacing any cracked T/R blade and repairing or replacing any otherwise unairworthy T/R blade. The requirements of the proposed AD would be interim actions until either a more rigorous inspection is developed or a new blade that is more damage tolerant is designed. The manufacturer is currently considering a redesign of these T/R blades. We estimate that this proposed AD would affect 388 helicopters of U.S. registry. There are approximately 184 Model 205A and 205A-1 helicopters, 8 Model 205B helicopters, 101 Model 212 helicopters, 80 Model 412, 412CF, and 412EP helicopters, and 15 modified Model 204B helicopters. Each visual check would take .125 hours, each visual inspection would take .5 hours, and 6 hours to remove and replace each T/R blade assembly, if necessary. The average labor rate is $80. Replacement parts would cost $11,243 for each T/R blade assembly. Based on these figures, the estimated cost impact of the proposed AD for all of the affected models would be $1,847,295 assuming an average of 600 hours TIS per year for each helicopter resulting in 365 visual checks, 24 inspections, and 5 T/R blade assembly replacements for the total fleet. Regulatory Findings We have determined that this proposed AD would not have federalism implications under Executive Order 13132. Additionally, this proposed AD would not have a substantial direct effect on the States, on the relationship between the national Government and the States, or on the distribution of power and responsibilities among the various levels of government. For the reasons discussed above, I certify that the proposed regulation: 1. Is not a “significant regulatory action” under Executive Order 12866; 2. Is not a “significant rule” under the 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. We prepared a draft economic evaluation of the estimated costs to comply with this proposed AD. See the DMS to examine the draft economic evaluation. Authority for This Rulemaking Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, section 106, describes the authority of the FAA Administrator. Subtitle VII, Aviation Programs, describes in more detail the scope of the Agency's authority. We are issuing this rulemaking under the authority described in subtitle VII, part A, subpart III, section 44701, “General requirements.” Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action. List of Subjects in 14 CFR Part 39 Air transportation, Aircraft, Aviation safety, Safety. The Proposed Amendment Accordingly, pursuant to the authority delegated to me by the Administrator, the Federal Aviation Administration proposes to amend 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. § 39.13 [Amended] 2. Section 39.13 is amended by adding a new airworthiness directive to read as follows: **Bell Helicopter Textron:** Docket No. FAA-2006-26219; Directorate Identifier 2004-SW-49-AD. Applicability The following model helicopters, with the specified tail rotor blade assembly (T/R blade) installed, certificated in any category: Helicopter model With T/R blade assembly, part number (P/N) 204B 212-010-750-009, -105, or -113. 205A and 205A-1 212-010-750-009, -105, or -113. 205B 212-010-750-109, -111, -117, -125, or -135 212-015-501-115 or -121. 210 212-010-001-101. 212 212-010-750-009, -105, or -113. 412 212-010-750-009, -011, -105, -107, -113, or -115. 412CF 212-010-750-009, -011, -105, -107, -113, or -115. 412EP 212-010-750-009, -011, -105, -107, -113, or -115. Compliance Required as indicated. To prevent failure of a T/R blade and subsequent loss of control of the helicopter, accomplish the following:
(a)Before each start of the engines, visually check both sides of each T/R blade for a crack. An owner/operator (pilot) holding at least a private pilot certificate may perform this visual check and must enter compliance with this paragraph into the aircraft maintenance records in accordance with 14 CFR 43.11 and 91.417(a)(2)(v).
(b)Within 25 hours time-in-service
(TIS)or 15 days, whichever occurs first, unless accomplished previously, and thereafter at intervals not to exceed 25 hours TIS or 15 days, whichever occurs first:
(1)Clean each T/R blade by hand using a mild degreaser and water to remove soot and grime on both sides of the blade using a coarse, loosely woven cotton cloth in a spanwise direction. Use a cloth with a color that contrasts with the color of the T/R blade so that a snag will be visible.
(2)Using a 3-power or higher magnifying glass and a bright light, visually inspect the T/R blade skins, leading edge spar, doublers, grip plates, and trailing edge for a crack, corrosion (may be indicated by blistering, peeling, flaking, bubbling, or cracked paint) and any other damage (including a nick, scratch, or dent). See Figure 1 of this AD. Pay particular attention to both sides of the T/R blade in the area located 10 to 25 inches from the T/R blade tip (blade station 26 to 41—the T/R blade tip is located at blade station 51). Also pay particular attention to any blade surface that was snagged by the cloth, as that may be an indication of a crack or paint chip that could lead to corrosion. 1. Pitch Horn Blade Bolts. 2. Blade Grip Bolt Holes. 3. External Balance Weights. 4. Doubler. 5. Trailing Edge. 6. Skin. 7. Honeycomb Core. 8. Tip Block. 9. Balance Screws. 10. Spar. 11. Grip Plate. 12. Drain Hole Doubler. 13. Butt Block. 14. Inner Grip Plate. 15. Tip Closure. EP02NO06.000
(3)If any blistering, peeling, flaking, bubbling, or cracked paint is detected, remove the paint from the affected area and visually inspect the affected area for corrosion or a crack using a 10-power or higher magnifying glass. If any corrosion is found, measure the depth of the corrosion (a digital optical micrometer is one tool that can be used for this measurement).
(4)If a nick, scratch, or dent is found, visually inspect for a crack using 10-power or higher magnifying glass and measure the depth of the damage (a digital optical micrometer is one tool that can be used for this measurement).
(c)Before further flight:
(1)Replace any T/R blade that has a crack with an airworthy blade.
(2)Replace any T/R blade that has any corrosion, nick, scratch, dent, or other damage that exceeds any maximum repair limit with an airworthy blade. Note 1: The maximum repair limits are specified in the applicable maintenance manual.
(3)Repair or replace with an airworthy blade any T/R blade that has any corrosion, nick, scratch, dent or other damage that is within the maximum repair limits. Note 2: The repair procedures are specified in the applicable maintenance manual and component repair and overhaul manuals.
(d)To request a different method of compliance or a different compliance time for this AD, follow the procedures in 14 CFR 39.19. Contact the Manager, Rotorcraft Certification Office, Rotorcraft Directorate, FAA, *Attn:* Michael Kohner, Aviation Safety Engineer, Fort Worth, Texas 76193-0170, telephone
(817)222-5447, fax
(817)222-5783, for information about previously approved alternative methods of compliance. Issued in Fort Worth, Texas, on October 26, 2006. Mark R. Schilling, Acting Manager, Rotorcraft Directorate, Aircraft Certification Service. [FR Doc. E6-18462 Filed 11-1-06; 8:45 am] BILLING CODE 4910-13-P DEPARTMENT OF THE TREASURY Internal Revenue Service 26 CFR Parts 1, 20, 25, 31, 53, 54, and 56 [REG-103038-05] RIN 1545-BE24 AJCA Modifications to the Section 6011 Regulations AGENCY: Internal Revenue Service (IRS), Treasury. ACTION: Notice of proposed rulemaking by cross-reference to temporary regulations. SUMMARY: This document contains proposed regulations under section 6011 of the Internal Revenue Code that modify the rules relating to the disclosure of reportable transactions under section 6011. These regulations affect taxpayers participating in reportable transactions under section 6011, material advisors responsible for disclosing reportable transactions under section 6111, and material advisors responsible for keeping lists under section 6112. DATES: Written or electronic comments and requests for a public hearing must be received by January 31, 2007. ADDRESSES: Send submissions to: CC:PA:LPD:PR (REG-103038-05), room 5203, Internal Revenue Service, PO Box 7604, Ben Franklin Station, Washington, DC 20044. Submissions may be hand delivered Monday through Friday between the hours of 8 a.m. and 4 p.m. to CC:PA:LPD:PR (REG-103038-05), Courier's Desk, Internal Revenue Service, Crystal Mall 4 Building, 1901 S. Bell St., Arlington, VA, or sent electronically, via the IRS Internet site at *http://www.irs.gov/regs* or via the Federal eRulemaking Portal at *www.regulations.gov* (indicate IRS and REG-103038-05). FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations, Tara P. Volungis or Charles Wien, 202-622-3070; concerning the submissions of comments and requests for hearing, Kelly Banks, 202-622-0392 (not toll-free numbers). SUPPLEMENTARY INFORMATION: Background This document proposes to amend 26 CFR part 1 by modifying and clarifying the rules relating to the disclosure of reportable transactions under section 6011. This document also proposes to amend 26 CFR parts 20, 25, 31, 53, 54, and 56 by modifying the rules for purposes of estate, gift, employment, and pension and exempt organizations excise taxes that require the disclosure of listed transactions by certain taxpayers on their Federal tax returns under section 6011. On February 28, 2003, the IRS issued final regulations under sections 6011, 6111, and 6112 (TD 9046) (the February 2003 regulations). The February 2003 regulations were published in the **Federal Register** (68 FR 10161) on March 4, 2003. On December 29, 2003, the IRS issued final regulations under section 6011 and 6112 (TD 9108) (the December 2003 regulations). The December 2003 regulations were published in the **Federal Register** (68 FR 75128) on December 30, 2003. Since the publication of the February 2003 regulations and the December 2003 regulations, the American Jobs Creation Act of 2004, Public Law 108-357, 118 Stat. 1418,
(AJCA)was enacted on October 22, 2004. The AJCA revised sections 6111 and 6112, thereby necessitating changes to the rules under section 6011. The IRS and Treasury Department also have received various comments and questions regarding the rules under § 1.6011-4. Consequently, the IRS and Treasury Department are proposing modifications to the rules regarding the disclosure of reportable transactions under § 1.6011-4. It should be noted that section 516 of the Tax Increase Prevention and Reconciliation Act of 2005, Public Law 109-222, 120 Stat. 345, (TIPRA), enacted on May 17, 2006, includes new excise taxes that target prohibited tax shelter transactions to which a tax-exempt entity is a party. Prohibited tax shelter transactions consist of listed transactions, confidential transactions, and transactions with contractual protection under section 6011. TIPRA also contains new disclosure requirements, which apply not only to tax-exempt entities but also to taxable entities that are parties to prohibited tax shelter transactions involving tax-exempt entities, and makes penalties applicable for failure to comply with each new disclosure requirement. The IRS and Treasury Department will issue separate guidance regarding the disclosure provision in TIPRA. Explanation of Provisions A. Removal of Transactions With a Significant Book-Tax Difference Under the current regulations in § 1.6011-4, there are six categories of reportable transactions. In accordance with the interim guidance provided in Notice 2006-6, 2006-5 I.R.B. 385, these proposed regulations eliminate the *transactions with a significant book-tax difference* category of reportable transaction that is in § 1.6011-4(b)(6). The IRS and Treasury Department have determined that this category of reportable transaction is no longer necessary due to the issuance of the Schedule M-3, “Net Income
(Loss)Reconciliation for Corporations With Total Assets of $10 Million or More”, which now provides the IRS a more complete disclosure of book-tax differences for corporations. The Schedule M-3 reporting requirements will be extended to partnerships and S corporations. The removal of the book-tax difference category applies to transactions that otherwise would have to have been disclosed on or after January 6, 2006 (regardless of when the transaction was entered into). B. Transactions of Interest The IRS and Treasury Department are proposing as a new category of reportable transaction the *transactions of interest* reportable transaction. A transaction of interest is a transaction that the IRS and Treasury Department believe has a potential for tax avoidance or evasion, but for which the IRS and Treasury Department lack enough information to determine whether the transaction should be identified specifically as a tax avoidance transaction. Transactions of interest will be identified in published guidance. When the IRS and Treasury Department have gathered enough information to make an informed decision as to whether the transaction of interest is a tax avoidance type of transaction, the IRS and Treasury Department may take one or more actions, including removing the transaction from the transactions of interest category in published guidance, designating the transaction as a listed transaction, or providing a new category of reportable transaction. Listed transactions do not have to be identified as transactions of interest before the transactions are identified as listed transactions. It is anticipated that, upon finalization of these proposed regulations, the transactions of interest category of reportable transaction will apply to transactions entered into on or after November 2, 2006. C. Lease Transactions These proposed regulations also eliminate the special rule for lease transactions. Under the current regulations this special rule provides that certain customary commercial leases of tangible personal property described in Notice 2001-18, 2001-1 C.B. 731, are excluded from all of the reportable transaction categories except listed transactions. Notice 2001-18 originally was published prior to the AJCA to provide exceptions from the confidential corporate tax shelter registration requirements under section 6111(d) and the list maintenance requirements under section 6112. The special rule for lease transactions that cross-references Notice 2001-18 was added to § 1.6011-4 in TD 9046 in February 2003. At that time, the IRS and Treasury Department were concerned that customary commercial lease transactions routinely would fall under the significant book-tax difference category of reportable transaction. The public also expressed concern that many customary leasing transactions would trigger the confidential transaction category of reportable transaction that was published in the temporary regulations under § 1.6011-4T in TD 9017 in October 2002 (and in the February 2003 regulations). Since the publication of the February 2003 regulations, the IRS and Treasury Department amended the confidential transaction category of reportable transaction in the December 2003 regulations, the AJCA removed the confidential corporate tax shelter provision in section 6111(d) in October 2004, and Notice 2006-6 signaled the removal of the significant book-tax difference transaction category of reportable transaction. Because the confidential transaction category has been narrowed and the significant book-tax difference transaction category is being removed, the IRS and Treasury Department believe that leasing transactions should be subject to the same disclosure rules as other transactions. While the IRS and Treasury Department do believe the disclosure rules should apply to all leasing transactions, the IRS and Treasury Department also believe that most customary commercial leasing transactions will not meet the reportable transaction requirements and will not be subject to disclosure. The IRS and Treasury Department intend to obsolete Notice 2001-18 when these proposed regulations are finalized. Comments regarding the removal of this exception, the transactions that will have to be disclosed as a consequence, if any, and the possibility of exceptions for specific types of leasing transactions as to each category of reportable transaction are requested. D. Transactions Involving a Brief Asset Holding Period These proposed regulations also modify the transactions involving a brief asset holding period category of reportable transaction in § 1.6011-4(b)(7). Section 901(l), added to the Code by the AJCA, and section 901(k) operate to disallow foreign tax credits for withholding and certain other foreign taxes imposed on dividends or other income or gain with respect to property if the taxpayer does not meet a minimum holding period. In light of the enactment of section 901(l), the proposed regulations amend the brief asset holding period category to exclude transactions resulting in a claimed foreign tax credit. E. Protective Disclosures The IRS receives disclosures that taxpayers file on a protective basis, claiming that the transactions are not subject to disclosure under section 6011. Some of those taxpayers fail to provide the IRS with the information requested under section 6011 and the regulations thereunder that would enable the IRS to make a determination as to whether the transaction is subject to disclosure. Consequently, the IRS and Treasury Department have added clarifying language in the proposed regulations that allows protective disclosures to be filed in situations where a taxpayer is unsure of whether the transaction should be disclosed under section 6011 if the taxpayer complies with the rules of § 1.6011-4 as if the transaction is subject to disclosure and the person furnishes the IRS the information requested under these regulations. F. Partners, Shareholders, and Beneficiaries The IRS and Treasury Department are aware of situations in which partners, shareholders, and beneficiaries have filed their Federal tax returns before receiving Schedule K-1s from the partnership, S corporation or trust that participated in a reportable transaction. The proposed regulations address this problem by providing that if a taxpayer in a partnership, S corporation, or trust receives a timely Schedule K-1 less than 10 calendar days before the due date of the taxpayer's return (including extensions) and, based on receipt of the timely Schedule K-1, the taxpayer determines that the taxpayer participated in a reportable transaction, the disclosure statement will not be considered late if the taxpayer discloses the reportable transaction by filing a disclosure statement with OTSA within 45 calendar days after the due date of the taxpayer's return (including extensions). A taxpayer filing a disclosure statement in accordance with this provision need only file the statement with OTSA and need not file an amended return to make the disclosure. This provision is proposed to be applicable for transactions entered into on or after the date these regulations are published as final regulations in the **Federal Register** . However, taxpayers currently may rely on this provision in the proposed regulations, and taxpayers who have filed a disclosure statement with OTSA within 45 calendar days after the due date of the taxpayer's return (including extensions) as provided in this provision have satisfied the disclosure requirements under § 1.6011-4. The IRS and Treasury Department solicit comments on whether there may be other situations in which a taxpayer may not know or have reason to know of its participation in a reportable transaction at the time the return is filed and ways in which the disclosure rules could address these situations. G. Tolling Provision Other proposed changes relate to the provisions for obtaining a private letter ruling and the tolling of the time for providing disclosure during the time the request for a ruling is pending. Because the IRS and Treasury Department believe that the removal of the tolling provision will promote effective tax administration, these proposed regulations eliminate the tolling of the time for providing disclosure when a taxpayer requests a private letter ruling. Temporary regulations removing the tolling provision are being issued concurrently with these proposed regulations. Taxpayers may still request a ruling on a transaction under the regular procedures for requesting a ruling, provided the ruling request is not factual or hypothetical, but the time for providing disclosure will not be tolled. The removal of the tolling provision is effective for all ruling requests received on or after November 1, 2006. H. Other Clarifications and Modifications These proposed regulations also clarify and/or modify other provisions under § 1.6011-4. The regulations for estate, gift, employment, and pension and exempt organizations excise taxes are proposed to be modified by making them applicable to transactions of interest. I. Comments The IRS and Treasury Department are aware of concerns expressed by commentators regarding the patenting of tax advice or tax strategies. The IRS and Treasury Department share these concerns and are exploring ways in which they could be addressed, including through the creation of a new category of reportable transaction. Comments are requested regarding the creation of such a category of reportable transaction. Comments also are requested on all proposed changes to the regulations. J. Effective Date Generally, when these proposed regulations become final, they will apply to transactions entered into on or after the date these regulations are published as final regulations in the **Federal Register** . However, upon publication the final regulations will apply to transactions of interest entered into on or after November 2, 2006. Special Analyses It has been determined that this notice of proposed rulemaking is not a significant regulatory action as defined in Executive Order 12866. Therefore, a regulatory assessment is not required. It also has been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to these regulations, and because these regulations do not impose a collection of information on small entities, the provisions of the Regulatory Flexibility Act (5 U.S.C. chapter 6) do not apply. The disclosure statement referenced in these regulations will be made available for public comment in accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. chapter 35). Pursuant to section 7805(f) of the Internal Revenue Code, this notice of proposed rulemaking will be submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small business. Comments and Requests for a Public Hearing Before these proposed regulations are adopted as final regulations, consideration will be given to any written comments (a signed original and eight
(8)copies) or electronic comments that are submitted timely to the IRS. The IRS and Treasury Department request comments on the clarity of the proposed rules, how they can be made easier to understand, and the administrability of the rules in the proposed regulations. All comments will be available for public inspection and copying. A public hearing will be scheduled if requested in writing by any person that submits timely written or electronic comments. If a public hearing is scheduled, notice of the date, time, and place for the public hearing will be published in the **Federal Register** . Drafting Information The principal authors of these regulations are Tara P. Volungis and Charles Wien, Office of the Associate Chief Counsel (Passthroughs and Special Industries). However, other personnel from the IRS and Treasury Department participated in their development. List of Subjects 26 CFR Part 1 Income taxes, Reporting and recordkeeping requirements. 26 CFR Part 20 Estate taxes, Reporting and recordkeeping requirements. 26 CFR Part 25 Gift taxes, Reporting and recordkeeping requirements. 26 CFR Part 31 Employment taxes, Income taxes, Penalties, Pensions, Railroad retirement, Reporting and recordkeeping requirements, Social security, Unemployment compensation. 26 CFR Part 53 Excise taxes, Foundations, Investments, Lobbying, Reporting and recordkeeping requirements. 26 CFR Part 54 Excise taxes, Pensions, Reporting and recordkeeping requirements. 26 CFR Part 56 Excise taxes, Lobbying, Nonprofit organizations, Reporting and recordkeeping requirements. Proposed Amendments to the Regulations Accordingly, 26 CFR parts 1, 20, 25, 31, 53, 54, and 56 are proposed to be amended as follows: PART 1—INCOME TAXES **Paragraph 1.** The authority citation for part 1 continues to read, in part, as follows: Authority: 26 U.S.C. 7805 * * * **Par. 2.** Section 1.6011-4 is revised to read as follows: § 1.6011-4 Requirement of statement disclosing participation in certain transactions by taxpayers.
(a)*In general.* Every taxpayer that has participated, as described in paragraph (c)(3) of this section, in a reportable transaction within the meaning of paragraph
(b)of this section and who is required to file a tax return must attach to its return for the taxable year described in paragraph
(e)of this section a disclosure statement in the form prescribed by paragraph
(d)of this section. The fact that a transaction is a reportable transaction shall not affect the legal determination of whether the taxpayer's treatment of the transaction is proper.
(b)*Reportable transactions* —(1) *In general.* A reportable transaction is a transaction described in any of the paragraphs (b)(2) through
(7)of this section. The term transaction includes all of the factual elements relevant to the expected tax treatment of any investment, entity, plan, or arrangement, and includes any series of steps carried out as part of a plan. There are six categories of reportable transactions: listed transactions, confidential transactions, transactions with contractual protection, loss transactions, transactions of interest, and transactions involving a brief asset holding period.
(2)*Listed transactions.* A listed transaction is a transaction that is the same as or substantially similar to one of the types of transactions that the Internal Revenue Service
(IRS)has determined to be a tax avoidance transaction and identified by notice, regulation, or other form of published guidance as a listed transaction.
(3)*Confidential transactions* —(i) *In general.* A confidential transaction is a transaction that is offered to a taxpayer under conditions of confidentiality and for which the taxpayer has paid an advisor a minimum fee.
(ii)*Conditions of confidentiality.* A transaction is considered to be offered to a taxpayer under conditions of confidentiality if the advisor who is paid the minimum fee places a limitation on disclosure by the taxpayer of the tax treatment or tax structure of the transaction and the limitation on disclosure protects the confidentiality of that advisor's tax strategies. A transaction is treated as confidential even if the conditions of confidentiality are not legally binding on the taxpayer. A claim that a transaction is proprietary or exclusive is not treated as a limitation on disclosure if the advisor confirms to the taxpayer that there is no limitation on disclosure of the tax treatment or tax structure of the transaction.
(iii)*Minimum fee.* For purposes of this paragraph (b)(3), the minimum fee is:
(A)$250,000 for a transaction if the taxpayer is a corporation.
(B)$50,000 for all other transactions unless the taxpayer is a partnership or trust, all of the owners or beneficiaries of which are corporations (looking through any partners or beneficiaries that are themselves partnerships or trusts), in which case the minimum fee is $250,000.
(iv)*Determination of minimum fee.* For purposes of this paragraph (b)(3), in determining the minimum fee, all fees for a tax strategy or for services for advice (whether or not tax advice) or for the implementation of a transaction are taken into account. Fees include consideration in whatever form paid, whether in cash or in kind, for services to analyze the transaction (whether or not related to the tax consequences of the transaction), for services to implement the transaction, for services to document the transaction, and for services to prepare tax returns to the extent return preparation fees are unreasonable in light of the facts and circumstances. For purposes of this paragraph (b)(3), a taxpayer also is treated as paying fees to an advisor if the taxpayer knows or should know that the amount it pays will be paid indirectly to the advisor, such as through a referral fee or fee-sharing arrangement. A fee does not include amounts paid to a person, including an advisor, in that person's capacity as a party to the transaction. For example, a fee does not include reasonable charges for the use of capital or the sale or use of property. The IRS will scrutinize carefully all of the facts and circumstances in determining whether consideration received in connection with a confidential transaction constitutes fees.
(v)*Related parties.* For purposes of this paragraph (b)(3), persons who bear a relationship to each other as described in section 267(b) or 707(b) will be treated as the same person.
(4)*Transactions with contractual protection* —(i) *In general.* A transaction with contractual protection is a transaction for which the taxpayer or a related party (as described in section 267(b) or 707(b)) has the right to a full or partial refund of fees (as described in paragraph (b)(4)(ii) of this section) if all or part of the intended tax consequences from the transaction are not sustained. A transaction with contractual protection also is a transaction for which fees (as described in paragraph (b)(4)(ii) of this section) are contingent on the taxpayer's realization of tax benefits from the transaction. All the facts and circumstances relating to the transaction will be considered when determining whether a fee is refundable or contingent, including the right to reimbursements of amounts that the parties to the transaction have not designated as fees or any agreement to provide services without reasonable compensation.
(ii)*Fees.* Paragraph (b)(4)(i) of this section only applies with respect to fees paid by or on behalf of the taxpayer or a related party to any person who makes or provides a statement, oral or written, to the taxpayer or related party (or for whose benefit a statement is made or provided to the taxpayer or related party) as to the potential tax consequences that may result from the transaction.
(iii)*Exceptions* —(A) *Termination of transaction.* A transaction is not considered to have contractual protection solely because a party to the transaction has the right to terminate the transaction upon the happening of an event affecting the taxation of one or more parties to the transaction.
(B)*Previously reported transaction.* If a person makes or provides a statement to a taxpayer as to the potential tax consequences that may result from a transaction only after the taxpayer has entered into the transaction and reported the consequences of the transaction on a filed tax return, and the person has not previously received fees from the taxpayer relating to the transaction, then any refundable or contingent fees are not taken into account in determining whether the transaction has contractual protection. This paragraph (b)(4) does not provide any substantive rules regarding when a person may charge refundable or contingent fees with respect to a transaction. See Circular 230, 31 CFR part 10, for the regulations governing practice before the IRS.
(5)*Loss transactions* —(i) *In general.* A loss transaction is any transaction resulting in the taxpayer claiming a loss under section 165 of at least—
(A)$10 million in any single taxable year or $20 million in any combination of taxable years for corporations;
(B)$10 million in any single taxable year or $20 million in any combination of taxable years for partnerships that have only corporations as partners (looking through any partners that are themselves partnerships), whether or not any losses flow through to one or more partners; or $2 million in any single taxable year or $4 million in any combination of taxable years for all other partnerships, whether or not any losses flow through to one or more partners;
(C)$2 million in any single taxable year or $4 million in any combination of taxable years for individuals, S corporations, or trusts, whether or not any losses flow through to one or more shareholders or beneficiaries; or
(D)$50,000 in any single taxable year for individuals or trusts, whether or not the loss flows through from an S corporation or partnership, if the loss arises with respect to a section 988 transaction (as defined in section 988(c)(1) relating to foreign currency transactions).
(ii)*Cumulative losses.* In determining whether a transaction results in a taxpayer claiming a loss that meets the threshold amounts over a combination of taxable years as described in paragraph (b)(5)(i) of this section, only losses claimed in the taxable year that the transaction is entered into and the five succeeding taxable years are combined.
(iii)*Section 165 loss.*
(A)For purposes of this section, in determining the thresholds in paragraph (b)(5)(i) of this section, the amount of a section 165 loss is adjusted for any salvage value and for any insurance or other compensation received. See § 1.165-1(c)(4). However, a section 165 loss does not take into account offsetting gains, or other income or limitations. For example, a section 165 loss does not take into account the limitation in section 165(d) (relating to wagering losses) or the limitations in sections 165(f), 1211, and 1212 (relating to capital losses). The full amount of a section 165 loss is taken into account for the year in which the loss is sustained, regardless of whether all or part of the loss enters into the computation of a net operating loss under section 172 or a net capital loss under section 1212 that is a carryback or carryover to another year. A section 165 loss does not include any portion of a loss, attributable to a capital loss carryback or carryover from another year, that is treated as a deemed capital loss under section 1212.
(B)For purposes of this section, a section 165 loss includes an amount deductible pursuant to a provision that treats a transaction as a sale or other disposition, or otherwise results in a deduction under section 165. A section 165 loss includes, for example, a loss resulting from a sale or exchange of a partnership interest under section 741 and a loss resulting from a section 988 transaction.
(6)*Transactions of interest.* A transaction of interest is a transaction that is the same as or substantially similar to one of the types of transactions that the IRS has identified by notice, regulation, or other form of published guidance as a transaction of interest.
(7)*Transactions involving a brief asset holding period.* A transaction involving a brief asset holding period is any transaction resulting in the taxpayer claiming a tax credit (other than a foreign tax credit) exceeding $250,000 if the underlying asset giving rise to the credit is held by the taxpayer for 45 days or less. For purposes of determining the holding period, the principles of section 246(c)(3) and (c)(4) apply.
(8)*Exceptions* —(i) *In general.* A transaction will not be considered a reportable transaction, or will be excluded from any individual category of reportable transaction under paragraphs (b)(3) through
(7)of this section, if the Commissioner makes a determination by published guidance that the transaction is not subject to the reporting requirements of this section. The Commissioner may make a determination by individual letter ruling under paragraph
(f)of this section that an individual letter ruling request on a specific transaction satisfies the reporting requirements of this section with regard to that transaction for the taxpayer who requests the individual letter ruling.
(ii)*Special rule for RICs.* For purposes of this section, a regulated investment company
(RIC)as defined in section 851 or an investment vehicle that is owned 95 percent or more by one or more RICs at all times during the course of the transaction are not required to disclose a transaction that is described in any of paragraphs (b)(3) through
(5)and (b)(7) of this section unless the transaction is also a listed transaction or a transaction of interest.
(c)*Definitions.* For purposes of this section, the following definitions apply:
(1)*Taxpayer.* The term *taxpayer* means any person described in section 7701(a)(1), including S corporations. Except as otherwise specifically provided in this section, the term *taxpayer* also includes an affiliated group of corporations that joins in the filing of a consolidated return under section 1501.
(2)*Corporation.* When used specifically in this section, the term *corporation* means an entity that is required to file a return for a taxable year on any 1120 series form, or successor form, excluding S corporations.
(3)*Participation* —(i) *In general* —(A) *Listed transactions.* A taxpayer has participated in a listed transaction if the taxpayer's tax return reflects tax consequences or a tax strategy described in the published guidance that lists the transaction under paragraph (b)(2) of this section. A taxpayer also has participated in a listed transaction if the taxpayer knows or has reason to know that the taxpayer's tax benefits are derived directly or indirectly from tax consequences or a tax strategy described in published guidance that lists a transaction under paragraph (b)(2) of this section. Published guidance may identify other types or classes of persons that will be treated as participants in a listed transaction. Published guidance also may identify types or classes of persons that will not be treated as participants in a listed transaction.
(B)*Confidential transactions.* A taxpayer has participated in a confidential transaction if the taxpayer's tax return reflects a tax benefit from the transaction and the taxpayer's disclosure of the tax treatment or tax structure of the transaction is limited in the manner described in paragraph (b)(3) of this section. If a partnership's, S corporation's or trust's disclosure is limited, and the partner's, shareholder's, or beneficiary's disclosure is not limited, then the partnership, S corporation, or trust, and not the partner, shareholder, or beneficiary, has participated in the confidential transaction.
(C)*Transactions with contractual protection.* A taxpayer has participated in a transaction with contractual protection if the taxpayer's tax return reflects a tax benefit from the transaction and, as described in paragraph (b)(4) of this section, the taxpayer has the right to the full or partial refund of fees or the fees are contingent. If a partnership, S corporation, or trust has the right to a full or partial refund of fees or has a contingent fee arrangement, and the partner, shareholder, or beneficiary does not individually have the right to the refund of fees or a contingent fee arrangement, then the partnership, S corporation, or trust, and not the partner, shareholder, or beneficiary, has participated in the transaction with contractual protection.
(D)*Loss transactions.* A taxpayer has participated in a loss transaction if the taxpayer's tax return reflects a section 165 loss and the amount of the section 165 loss equals or exceeds the threshold amount applicable to the taxpayer as described in paragraph (b)(5)(i) of this section. If a taxpayer is a partner in a partnership, shareholder in an S corporation, or beneficiary of a trust and a section 165 loss as described in paragraph (b)(5) of this section flows through the entity to the taxpayer (disregarding netting at the entity level), the taxpayer has participated in a loss transaction if the taxpayer's tax return reflects a section 165 loss and the amount of the section 165 loss that flows through to the taxpayer equals or exceeds the threshold amounts applicable to the taxpayer as described in paragraph (b)(5)(i) of this section. For this purpose, a tax return is deemed to reflect the full amount of a section 165 loss described in paragraph (b)(5) of this section allocable to the taxpayer under this paragraph (c)(3)(i)(D), regardless of whether all or part of the loss enters into the computation of a net operating loss under section 172 or net capital loss under section 1212 that the taxpayer may carry back or carry over to another year.
(E)*Transactions of interest.* A taxpayer has participated in a transaction of interest if the taxpayer is one of the types or classes of persons identified as participants in the transaction in the published guidance describing the transaction of interest.
(F)*Transactions involving a brief asset holding period.* A taxpayer has participated in a transaction involving a brief asset holding period if the taxpayer's tax return reflects items giving rise to a tax credit described in paragraph (b)(7) of this section. If a taxpayer is a partner in a partnership, shareholder in an S corporation, or beneficiary of a trust and the items giving rise to a tax credit described in paragraph (b)(7) of this section flow through the entity to the taxpayer (disregarding netting at the entity level), the taxpayer has participated in a transaction involving a brief asset holding period if the taxpayer's tax return reflects the tax credit and the amount of the tax credit claimed by the taxpayer exceeds $250,000.
(G)*Shareholders of foreign corporations* —(1) *In general.* A reporting shareholder of a foreign corporation participates in a transaction described in paragraphs (b)(2) through
(5)and (b)(7) of this section if the foreign corporation would be considered to participate in the transaction under the rules of this paragraph (c)(3) if it were a domestic corporation filing a tax return that reflects the items from the transaction. A reporting shareholder of a foreign corporation participates in a transaction described in paragraph (b)(6) of this section only if the published guidance identifying the transaction includes the reporting shareholder among the types or classes of persons identified as participants. A reporting shareholder (and any successor in interest) is considered to participate in a transaction under this paragraph (c)(3)(i)(G) only for its first taxable year with or within which ends the first taxable year of the foreign corporation in which the foreign corporation participates in the transaction, and for the reporting shareholder's five succeeding taxable years.
(2)*Reporting shareholder.* The term *reporting shareholder* means a United States shareholder (as defined in section 951(b)) in a controlled foreign corporation (as defined in section 957) or a 10 percent shareholder (by vote or value) of a qualified electing fund (as defined in section 1295).
(ii)*Examples.* The following examples illustrate the provisions of paragraph (c)(3)(i) of this section: Example 1. Notice 2003-55 (2003-2 C.B. 395), which modified and superseded Notice 95-53 (1995-2 C.B. 334) (see § 601.601(d)(2) of this chapter), describes a lease stripping transaction in which one party (the transferor) assigns the right to receive future payments under a lease of tangible property and treats the amount realized from the assignment as its current income. The transferor later transfers the property subject to the lease in a transaction intended to qualify as a transferred basis transaction, for example, a transaction described in section 351. The transferee corporation claims the deductions associated with the high basis property subject to the lease. The transferor's and transferee corporation's tax returns reflect tax positions described in Notice 2003-55. Therefore, the transferor and transferee corporation have participated in the listed transaction. In the section 351 transaction, the transferor will have received stock with low value and high basis from the transferee corporation. If the transferor subsequently transfers the high basis/low value stock to a taxpayer in another transaction intended to qualify as a transferred basis transaction and the taxpayer uses the stock to generate a loss, and if the taxpayer knows or has reason to know that the tax loss claimed was derived indirectly from the lease stripping transaction, then the taxpayer has participated in the listed transaction. Accordingly, the taxpayer must disclose the transaction and the manner of the taxpayer's participation in the transaction under the rules of this section. For purposes of this example, if a bank lends money to the transferor, transferee corporation, or taxpayer for use in their transactions, the bank has not participated in the listed transaction because the bank's tax return does not reflect tax consequences or a tax strategy described in the listing notice (nor does the bank's tax return reflect a tax benefit derived from tax consequences or a tax strategy described in the listing notice) nor is the bank described as a participant in the listing notice. Example 2. XYZ is a limited liability company treated as a partnership for tax purposes. X, Y, and Z are members of XYZ. X is an individual, Y is an S corporation, and Z is a partnership. XYZ enters into a confidential transaction under paragraph (b)(3) of this section. XYZ and X are bound by the confidentiality agreement, but Y and Z are not bound by the agreement. As a result of the transaction, XYZ, X, Y, and Z all reflect a tax benefit on their tax returns. Because XYZ's and X's disclosure of the tax treatment and tax structure are limited in the manner described in paragraph (b)(3) of this section and their tax returns reflect a tax benefit from the transaction, both XYZ and X have participated in the confidential transaction. Neither Y nor Z has participated in the confidential transaction because they are not subject to the confidentiality agreement. Example 3. P, a corporation, has an 80% partnership interest in PS, and S, an individual, has a 20% partnership interest in PS. P, S, and PS are calendar year taxpayers. In 2006, PS enters into a transaction and incurs a section 165 loss (that does not meet any of the exceptions to a section 165 loss identified in published guidance) of $12 million and offsetting gain of $3 million. On PS' 2006 tax return, PS includes the section 165 loss and the corresponding gain. PS must disclose the transaction under this section because PS' section 165 loss of $12 million is equal to or greater than $2 million. P is allocated $9.6 million of the section 165 loss and $2.4 million of the offsetting gain. P does not have to disclose the transaction under this section because P's section 165 loss of $9.6 million is not equal to or greater than $10 million. S is allocated $2.4 million of the section 165 loss and $600,000 of the offsetting gain. S must disclose the transaction under this section because S's section 165 loss of $2.4 million is equal to or greater than $2 million.
(4)*Substantially similar.* The term *substantially similar* includes any transaction that is expected to obtain the same or similar types of tax consequences and that is either factually similar or based on the same or similar tax strategy. Receipt of an opinion regarding the tax consequences of the transaction is not relevant to the determination of whether the transaction is the same as or substantially similar to another transaction. Further, the term *substantially similar* must be broadly construed in favor of disclosure. For example, a transaction may be substantially similar to a listed transaction even though it involves different entities or uses different Code provisions. (See *e.g.* , Notice 2003-54, 2003-2 C.B. 363, describing a transaction substantially similar to the transactions in Notice 2002-50, 2002-2 C.B. 98, and Notice 2002-65, 2002-2 C.B. 690.) The following examples illustrate situations where a transaction is the same as or substantially similar to a listed transaction under paragraph (b)(2) of this section. (Such transactions may also be reportable transactions under paragraphs (b)(3) through
(7)of this section.) The following examples illustrate the provisions of this paragraph (c)(4): *Example 1.* Notice 2000-44 (2000-2 C.B. 255) (see § 601.601(d)(2) of this chapter), sets forth a listed transaction involving offsetting options transferred to a partnership where the taxpayer claims basis in the partnership for the cost of the purchased options but does not adjust basis under section 752 as a result of the partnership's assumption of the taxpayer's obligation with respect to the options. Transactions using short sales, futures, derivatives or any other type of offsetting obligations to inflate basis in a partnership interest would be the same as or substantially similar to the transaction described in Notice 2000-44. Moreover, use of the inflated basis in the partnership interest to diminish gain that would otherwise be recognized on the transfer of a partnership asset would also be the same as or substantially similar to the transaction described in Notice 2000-44. *Example 2.* Notice 2001-16 (2001-1 C.B. 730) (see § 601.601(d)(2) of this chapter), sets forth a listed transaction involving a seller
(X)who desires to sell stock of a corporation (T), an intermediary corporation (M), and a buyer
(Y)who desires to purchase the assets (and not the stock) of T. M agrees to facilitate the sale to prevent the recognition of the gain that T would otherwise report. Notice 2001-16 describes M as a member of a consolidated group that has a loss within the group or as a party not subject to tax. Transactions utilizing different intermediaries to prevent the recognition of gain would be the same as or substantially similar to the transaction described in Notice 2001-16. An example is a transaction in which M is a corporation that does not file a consolidated return but which buys T stock, liquidates T, sells assets of T to Y, and offsets the gain recognized on the sale of those assets with currently generated losses.
(5)*Tax.* For purposes of this section, the term *tax* means Federal income tax.
(6)*Tax benefit.* A tax benefit includes deductions, exclusions from gross income, nonrecognition of gain, tax credits, adjustments (or the absence of adjustments) to the basis of property, status as an entity exempt from Federal income taxation, and any other tax consequences that may reduce a taxpayer's Federal income tax liability by affecting the amount, timing, character, or source of any item of income, gain, expense, loss, or credit.
(7)*Tax return.* For purposes of this section, the term *tax return* means a Federal income tax return and a Federal information return.
(8)*Tax treatment.* The tax treatment of a transaction is the purported or claimed Federal income tax treatment of the transaction.
(9)*Tax structure.* The tax structure of a transaction is any fact that may be relevant to understanding the purported or claimed Federal income tax treatment of the transaction.
(d)*Form and content of disclosure statement.* A taxpayer required to file a disclosure statement under this section must file a completed Form 8886, “Reportable Transaction Disclosure Statement” (or a successor form), in accordance with this paragraph
(d)and the instructions to the form. The Form 8886 (or a successor form) is the disclosure statement required under this section. The form must be attached to the appropriate tax return(s) as provided in paragraph
(e)of this section. If a copy of a disclosure statement is required to be sent to the Office of Tax Shelter Analysis
(OTSA)under paragraph
(e)of this section, it must be sent in accordance with the instructions to the form. To be considered complete, the information provided on the form must describe the expected tax treatment and all potential tax benefits expected to result from the transaction, describe any tax result protection (as defined in § 301.6111-3(c)(12) of this chapter) with respect to the transaction, and identify and describe the transaction in sufficient detail for the IRS to be able to understand the tax structure of the reportable transaction and the identity of all parties involved in the transaction. An incomplete Form 8886 (or a successor form) containing a statement that information will be provided upon request is not considered a complete disclosure statement. If the form is not completed in accordance with the provisions in this paragraph
(d)and the instructions to the form, the taxpayer will not be considered to have complied with the disclosure requirements of this section. If a taxpayer receives one or more reportable transaction numbers for a reportable transaction, the taxpayer must include the reportable transaction number(s) on the Form 8886 (or a successor form). See § 301.6111-3(d)(2) of this chapter.
(e)*Time of providing disclosure* —(1) *In general.* The disclosure statement for a reportable transaction must be attached to the taxpayer's tax return for each taxable year for which a taxpayer participates in a reportable transaction. In addition, a disclosure statement for a reportable transaction must be attached to each amended return that reflects a taxpayer's participation in a reportable transaction. A copy of the disclosure statement must be sent to OTSA at the same time that any disclosure statement is first filed by the taxpayer pertaining to a particular reportable transaction. If a reportable transaction results in a loss which is carried back to a prior year, the disclosure statement for the reportable transaction must be attached to the taxpayer's application for tentative refund or amended tax return for that prior year. In the case of a taxpayer that is a partnership, S corporation, or trust, the disclosure statement for a reportable transaction must be attached to the partnership, S corporation, or trust's tax return for each taxable year in which the partnership, S corporation, or trust participates in the transaction under the rules of paragraph (c)(3)(i) of this section. If a taxpayer in a partnership, S corporation, or trust receives a timely Schedule K-1 less than 10 calendar days before the due date of the taxpayer's return (including extensions) and, based on receipt of the timely Schedule K-1, the taxpayer determines that the taxpayer participated in a reportable transaction within the meaning of paragraph (c)(3) of this section, the disclosure statement will not be considered late if the taxpayer discloses the reportable transaction by filing a disclosure statement with OTSA within 45 calendar days after the due date of the taxpayer's return (including extensions).
(2)*Special rules* —(i) *Listed transactions and transactions of interest.* In general, if a transaction becomes a listed transaction or a transaction of interest after the filing of a taxpayer's tax return (including an amended return) reflecting the taxpayer's participation in the listed transaction or transaction of interest and before the end of the period of limitations for assessment of tax for any taxable year in which the taxpayer participated in the listed transaction or transaction of interest, then a disclosure statement must be filed, regardless of whether the taxpayer participated in the transaction in the year the transaction became a listed transaction or a transaction of interest, with OTSA within 60 calendar days after the date on which the transaction became a listed transaction or a transaction of interest. The Commissioner also may determine the time for disclosure of listed transactions and transactions of interest in the published guidance identifying the transaction.
(ii)*Loss transactions.* If a transaction becomes a loss transaction because the losses equal or exceed the threshold amounts as described in paragraph (b)(5)(i) of this section, a disclosure statement must be filed as an attachment to the taxpayer's tax return for the first taxable year in which the threshold amount is reached and to any subsequent tax return that reflects any amount of section 165 loss from the transaction.
(3)*Multiple disclosures.* The taxpayer must disclose the transaction in the time and manner provided for under the provisions of this section regardless of whether the taxpayer also plans to disclose the transaction under other published guidance, for example, § 1.6662-3(c)(2).
(4)*Example.* The following example illustrates the application of this paragraph (e): *Example.* In January of 2006, F, a calendar year taxpayer, enters into a transaction that at the time is not a listed transaction and is not a transaction described in any of the paragraphs (b)(3) through
(7)of this section. All the tax benefits from the transaction are reported on F's 2006 tax return filed timely in April 2007. On May 1, 2009, the IRS publishes a notice identifying the transaction as a listed transaction described in paragraph (b)(2) of this section. Upon issuance of the May 1, 2009 notice, the transaction becomes a reportable transaction described in paragraph
(b)of this section. The period of limitations on assessment for F's 2006 taxable year is still open. F is required to file Form 8886 for the transaction with OTSA within 60 calendar days after May 1, 2009.
(f)[The text of the proposed amendment to § 1.6011-4(f)(1) is the same as the text for § 1.6011-4T(f)(1) published elsewhere in this issue of the **Federal Register** ].
(2)*Protective disclosures.* If a taxpayer is uncertain whether a transaction must be disclosed under this section, the taxpayer may disclose the transaction in accordance with the requirements of this section and comply with all the provisions of this section, and indicate on the disclosure statement that the disclosure statement is being filed on a protective basis. The IRS will not treat disclosure statements filed on a protective basis any differently than other disclosure statements filed under this section. For a protective disclosure to be effective, the taxpayer must comply with these disclosure regulations by providing to the IRS all information requested by the IRS under this section.
(g)*Retention of documents.* In accordance with the instructions to Form 8886 (or a successor form), the taxpayer must retain a copy of all documents and other records related to a transaction subject to disclosure under this section that are material to an understanding of the tax treatment or tax structure of the transaction. The documents must be retained until the expiration of the statute of limitations applicable to the final taxable year for which disclosure of the transaction was required under this section. (This document retention requirement is in addition to any document retention requirements that section 6001 generally imposes on the taxpayer.) The documents may include the following: marketing materials related to the transaction; written analyses used in decision-making related to the transaction; correspondence and agreements between the taxpayer and any advisor, lender, or other party to the reportable transaction that relate to the transaction; documents discussing, referring to, or demonstrating the purported or claimed tax benefits arising from the reportable transaction; and documents, if any, referring to the business purposes for the reportable transaction. A taxpayer is not required to retain earlier drafts of a document if the taxpayer retains a copy of the final document (or, if there is no final document, the most recent draft of the document) and the final document (or most recent draft) contains all the information in the earlier drafts of the document that is material to an understanding of the purported tax treatment or tax structure of the transaction.
(h)*Effective date* —(1) *In general.* In general, this section applies to transactions entered into on or after the date these regulations are published as final regulations in the **Federal Register** . However, upon the publication of final regulations, this section will apply to transactions of interest entered into on or after November 2, 2006.
(2)[The text of the proposed amendment to § 1.6011-4(h)(2) is the same as the text for § 1.6011-4T(h)(2) published elsewhere in this issue of the **Federal Register** ]. PART 20—ESTATE TAX; ESTATES OF DECEDENTS DYING AFTER AUGUST 16, 1954 **Par. 3.** The authority citation for part 20 continues to read, in part, as follows: Authority: 26 U.S.C. 7805 * * * **Par. 4.** Section 20.6011-4 is amended as follows: 1. Paragraph
(a)is amended by adding the language “or a *transaction of interest* ” after the first occurrence of “listed transaction” and by adding the language “or transaction of interest” after the second occurrence of “listed transaction”. 2. Paragraph
(b)is revised. The revision reads as follows: § 20.6011-4 Requirement of statement disclosing participation in certain transactions by taxpayers.
(b)*Effective date.* This section applies to listed transactions entered into on or after January 1, 2003. Upon the publication of final regulations, this section will apply to transactions of interest entered into on or after November 2, 2006. PART 25—GIFT TAX; GIFTS MADE AFTER DECEMBER 31, 1954 **Par. 5.** The authority citation for part 25 continues to read, in part, as follows: Authority: 26 U.S.C. 7805 * * * **Par. 6.** Section 25.6011-4 is amended as follows: 1. Paragraph
(a)is amended by adding the language “or a *transaction of interest* ” after the first occurrence of “listed transaction” and by adding the language “or transaction of interest” after the second occurrence of “listed transaction”. 2. Paragraph
(b)is revised. The revision reads as follows: § 25.6011-4 Requirement of statement disclosing participation in certain transactions by taxpayers.
(b)*Effective date.* This section applies to listed transactions entered into on or after January 1, 2003. Upon the publication of final regulations, this section will apply to transactions of interest entered into on or after November 2, 2006. PART 31—EMPLOYMENT TAXES AND COLLECTION OF INCOME TAX AT SOURCE **Par. 7.** The authority citation for part 31 continues to read, in part, as follows: Authority: 26 U.S.C. 7805 * * * **Par. 8.** Section 31.6011-4 is amended as follows: 1. Paragraph
(a)is amended by adding the language “or a *transaction of interest* ” after the first occurrence of “listed transaction” and by adding the language “or transaction of interest” after the second occurrence of “listed transaction”. 2. Paragraph
(b)is revised. The revision reads as follows: § 31.6011-4 Requirement of statement disclosing participation in certain transactions by taxpayers.
(b)*Effective date.* This section applies to listed transactions entered into on or after January 1, 2003. Upon the publication of final regulations, this section will apply to transactions of interest entered into on or after November 2, 2006. PART 53—FOUNDATION AND SIMILAR EXCISE TAXES **Par. 9.** The authority citation for part 53 continues to read, in part, as follows: Authority: 26 U.S.C. 7805 * * * **Par. 10.** Section 53.6011-4 is amended as follows: 1. Paragraph
(a)is amended by adding the language “or a *transaction of interest* ” after the first occurrence of “listed transaction” and by adding the language “or transaction of interest” after the second occurrence of “listed transaction”. 2. Paragraph
(b)is revised. The revision reads as follows: § 53.6011-4 Requirement of statement disclosing participation in certain transactions by taxpayers.
(b)*Effective date.* This section applies to listed transactions entered into on or after January 1, 2003. Upon the publication of final regulations, this section will apply to transactions of interest entered into on or after November 2, 2006. PART 54—PENSION EXCISE TAXES **Par. 11.** The authority citation for part 54 continues to read, in part, as follows: Authority: 26 U.S.C. 7805 * * * **Par. 12.** Section 54.6011-4 is amended as follows: 1. Paragraph
(a)is amended by adding the language “or a *transaction of interest* ” after the first occurrence of “listed transaction” and by adding the language “or transaction of interest” after the second occurrence of “listed transaction”. 2. Paragraph
(b)is revised. The revision reads as follows: § 54.6011-4 Requirement of statement disclosing participation in certain transactions by taxpayers.
(b)*Effective date.* This section applies to listed transactions entered into on or after January 1, 2003. Upon the publication of final regulations, this section will apply to transactions of interest entered into on or after November 2, 2006. PART 56—PUBLIC CHARITY EXCISE TAXES **Par. 13.** The authority citation for part 56 continues to read, in part, as follows: Authority: 26 U.S.C. 7805 * * * **Par. 14.** Section 56.6011-4 is amended as follows: 1. Paragraph
(a)is amended by adding the language “or a *transaction of interest* ” after the first occurrence of “listed transaction” and by adding the language “or transaction of interest” after the second occurrence of “listed transaction”. 2. Paragraph
(b)is revised. The revision reads as follows: § 56.6011-4 Requirement of statement disclosing participation in certain transactions by taxpayers.
(b)*Effective date.* This section applies to listed transactions entered into on or after January 1, 2003. Upon the publication of final regulations, this section will apply to transactions of interest entered into on or after November 2, 2006. Mark E. Matthews, Deputy Commissioner for Services and Enforcement. [FR Doc. E6-18319 Filed 11-1-06; 8:45 am] BILLING CODE 4830-01-P DEPARTMENT OF THE TREASURY Internal Revenue Service 26 CFR Part 301 [REG-103039-05] RIN 1545-BE26 AJCA Modifications to the Section 6111 Regulations AGENCY: Internal Revenue Service (IRS), Treasury. ACTION: Notice of proposed rulemaking by cross-reference to temporary regulations. SUMMARY: This document contains proposed regulations under section 6111 of the Internal Revenue Code which provide the rules relating to the disclosure of reportable transactions by material advisors. These regulations affect material advisors responsible for disclosing reportable transactions under section 6111 and material advisors responsible for keeping lists under section 6112. DATES: Written or electronic comments and requests for a public hearing must be received by January 31, 2007. ADDRESSES: Send submissions to: CC:PA:LPD:PR (REG-103039-05), room 5203, Internal Revenue Service, PO Box 7604, Ben Franklin Station, Washington, DC 20044. Submissions may be hand delivered Monday through Friday between the hours of 8 a.m. and 4 p.m. to CC:PA:LPD:PR (REG-103039-05), Courier's Desk, Internal Revenue Service, Crystal Mall 4 Building, 1901 S. Bell St., Arlington, VA, or sent electronically, via the IRS Internet site at *http://www.irs.gov/regs* or via the Federal eRulemaking Portal at *http://www.regulations.gov* (indicate IRS and REG-103039-05). FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations, Tara P. Volungis or Charles Wien, 202-622-3070; concerning the submissions of comments and requests for hearing, Kelly Banks, 202-622-0392 (not toll-free numbers). SUPPLEMENTARY INFORMATION: Background This document proposes to amend 26 CFR part 301 by providing rules relating to the disclosure of reportable transactions by material advisors under section 6111. The American Jobs Creation Act of 2004, Public Law 108-357, 118 Stat. 1418,
(AJCA)was enacted on October 22, 2004. Section 815 of the AJCA amended section 6111 to require each material advisor with respect to any reportable transaction to make a return (in such form as the Secretary may prescribe) setting forth:
(1)Information identifying and describing the transaction;
(2)information describing any potential tax benefits expected to result from the transaction; and
(3)such other information as the Secretary may prescribe. Section 6111(a), as amended, also provides that the return must be filed not later than the date specified by the Secretary. Section 6111(b)(1), as amended, provides a definition for the term material advisor and includes as part of that definition a requirement that the material advisor derive certain threshold amounts of gross income that the Secretary may prescribe. The AJCA amendments to section 6111 also authorize the Secretary to prescribe regulations that provide:
(1)That only one person shall be required to meet the requirements of section 6111(a) in cases in which two or more persons would otherwise be required to meet such requirements;
(2)exemptions from the requirements of section 6111; and
(3)rules as may be necessary or appropriate to carry out the purposes of section 6111. Section 815 of the AJCA is effective for transactions with respect to which material aid, assistance, or advice is provided after October 22, 2004. Prior to these amendments, section 6111(a) required an organizer of a tax shelter to register the tax shelter with the Secretary not later than the day on which interests in the tax shelter were first offered for sale. Under former section 6111(c), the term tax shelter was defined as any investment with respect to which any person could reasonably infer from the representations made or to be made, in connection with the offering for sale of interests in the investments that the tax shelter ratio for any investor as of the close of any of the first five years ending after the date on which the investment was offered for sale may have been greater than two to one and which was:
(1)Required to be registered under a Federal or State law regulating securities;
(2)sold pursuant to an exemption from registration requiring the filing of a notice with a Federal or State agency regulating the offering or sale of securities; or
(3)a substantial investment (the aggregate amount which may have been offered for sale exceeded $250,000 and the expected involvement of five or more investors). Under former section 6111(d), for purposes of section 6111(a), the term tax shelter included any entity, plan, arrangement or transaction;
(1)A significant purpose of the structure of which is the avoidance or evasion of Federal income tax for a direct or indirect participant which is a corporation;
(2)which is offered to any potential participant under conditions of confidentiality; and
(3)for which the tax shelter promoters may receive fees in excess of $100,000 in the aggregate. In response to the AJCA, the IRS and Treasury Department issued interim guidance on section 6111 in Notice 2004-80, 2004-2 C.B. 963; Notice 2005-17, 2005-1 C.B. 606; Notice 2005-22, 2005-1 C.B. 756; and Notice 2006-6, 2006-5 I.R.B. 385 ( *see* § 601.601(d)(2)). The IRS and Treasury Department have received various comments and questions regarding the application of section 6111. Consequently, the IRS and Treasury Department propose new rules relating to the disclosure of reportable transactions by material advisors under section 6111. Explanation of Provisions A. In General These proposed regulations are being issued concurrently with proposed regulations under § 301.6112-1 and § 1.6011-4 published elsewhere in the **Federal Register** . Under these proposed regulations, each material advisor with respect to any reportable transaction (as defined in § 1.6011-4(b)(1)) must file a return by the date prescribed in the regulations. For this purpose, a person is a material advisor with respect to a transaction if the person provides any material aid, assistance, or advice with respect to organizing, managing, promoting, selling, implementing, insuring, or carrying out any reportable transaction, and directly or indirectly derives gross income in excess of the threshold amount for the material aid, assistance, or advice. A person provides material aid, assistance, or advice with respect to organizing, managing, promoting, selling, implementing, insuring, or carrying out any transaction if the person makes or provides a tax statement to or for the benefit of certain persons. The IRS and Treasury Department also may identify other types or classes of persons as material advisors in published guidance. Further, these proposed regulations provide that the threshold amount of gross income that a person may derive, directly or indirectly, for providing any material aid, assistance or advice is $50,000 in the case of a reportable transaction, substantially all of the tax benefits from which are provided to natural persons ($10,000 in the case of a listed transaction). This threshold amount of gross income is increased to $250,000 in any other case ($25,000 in the case of a listed transaction). For transactions of interest, the IRS and Treasury Department also may identify reduced threshold amounts in published guidance. A person will be treated as becoming a material advisor when all of the following events have occurred (in no particular order):
(A)The person provides material aid, assistance or advice;
(B)the person directly or indirectly derives gross income in excess of the threshold amount; and
(C)the transaction is entered into by the taxpayer. The disclosure statement for a reportable transaction must be filed by the last day of the month that follows the end of the calendar quarter in which the advisor became a material advisor with respect to the reportable transaction. Form 8918, “Material Advisor Disclosure Statement,” will be published for use by material advisors to disclose reportable transactions and will supersede the Form 8264 which is currently being used for material advisor disclosures. The IRS will issue a reportable transaction number to material advisors who file the Form 8918. Material advisors must provide the reportable transaction number issued by the IRS to persons to whom the material advisor makes or provides tax statements with respect to the transaction. Public comment on the Form 8918 will be solicited in accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)). B. Incomplete Disclosure Statements Persons who file incomplete disclosures under section 6111 are subject to penalties under section 6707. The proposed regulations include clarifying language to the regulation reminding taxpayers that for a disclosure to be considered complete, the information provided on Form 8918 must describe the expected tax treatment and all potential tax benefits expected to result from the transaction, describe any tax result protection with respect to the transaction, and identify and describe the transaction in sufficient detail for the IRS to be able to understand the tax structure of the reportable transaction and the identity of the material advisor(s). An incomplete form containing a statement that information will be provided upon request is not considered a complete disclosure statement. C. Tax Result Protection Previous comments to the regulations under § 1.6011-4 stated that it is inappropriate to require reporting of transactions under the contractual protection filter of § 1.6011-4(b)(4) for which the taxpayer obtains tax result protection (sometimes referred to as “tax result insurance”) because numerous legitimate business transactions with tax indemnities would be subject to reporting. The IRS and Treasury Department removed tax result protection from that category of reportable transaction but cautioned that if the IRS and Treasury Department became aware of abusive transactions utilizing tax result protection, the issue would be reconsidered. The IRS and Treasury Department have since become aware of taxpayers who have obtained tax result protection for the tax benefits of a listed transaction from a third party provider. In the AJCA, Congress expressed concern about tax result protection for reportable transactions and included insuring in the list of activities added to the statutory language under section 6111. The IRS, Treasury Department, and Congress have an interest in learning more about the insuring of reportable transactions. Accordingly, while a transaction will not be a reportable transaction simply because there is tax result protection for the transaction, tax result protection provided for a reportable transaction may subject a person to the material advisor disclosure rules under section 6111 because a tax statement includes third party tax result protection that insures the tax benefits of a reportable transaction. D. Designation Agreements The proposed regulations include a provision allowing designation agreements for disclosure of reportable transactions similar to the provision in the current regulations under § 301.6112-1 that allows material advisors to have a designation agreement authorizing one material advisor to maintain a list of investors in the transaction. However, parties to the designation agreement may still be liable for the penalty under section 6707 if the designated material advisor fails to disclose the reportable transaction under section 6111. E. Post-Filing Advice The current regulations under § 301.6112-1 provide that a person will not be considered to be a material advisor with respect to a transaction if that person does not make or provide a tax statement regarding the transaction until after the first tax return reflecting tax benefit(s) of the transaction is filed with the IRS. The IRS and Treasury Department, however, believe that a person should be considered a material advisor for certain post-filing advice. Consequently, the proposed rule provides that the exception will not apply to a person who makes a tax statement with respect to the transaction if it is expected that the taxpayer will file a supplemental or amended return reflecting additional tax benefits from the transaction. F. Protective Disclosures The IRS receives disclosures filed on a protective basis from persons claiming that the transactions are not subject to disclosure under section 6111. Some of those disclosures fail to provide the IRS with the information requested under sections 6111 and 6112 and the regulations thereunder that would enable the IRS to make a determination as to whether the transaction is subject to disclosure. Consequently, the IRS and Treasury Department have added clarifying language in the proposed regulation that allows protective disclosures to be filed in situations where a person is unsure of whether the transaction should be disclosed under section 6111. However, the disclosure is effective only if the rules of § 301.6111-3 and § 301.6112-1 are followed. G. Tolling Provision In response to comments that asked whether the tolling provisions of § 1.6011-4(f) would apply to requests from a potential material advisor for a letter ruling under section 6111, Notice 2005-22 provided that, until further guidance is issued, if an advisor submits a request for a letter ruling on or before the date the return under section 6111 is due and fully discloses all relevant facts relating to the transaction, the obligation of the potential material advisor to disclose the transaction will be suspended as provided in § 1.6011-4(f). The IRS and Treasury Department believe that removing the tolling provision will promote effective tax administration. Consequently, these proposed regulations do not include a provision to toll the time for providing disclosure when a potential material advisor requests a ruling on a transaction. Potential material advisors may request a ruling under section 6111 on a transaction under the regular procedures for requesting a ruling, provided the ruling request is not factual or hypothetical, but the time for providing disclosure under section 6111 will not be tolled. The temporary regulations issued concurrently with these proposed regulations supersede the tolling provision in Notice 2005-22, effective for all ruling requests received on or after November 1, 2006. H. Effective Date Generally, when these proposed regulations become final, they will apply to transactions with respect to which a material advisor makes a tax statement on or after the date the regulations are published as final regulations in the **Federal Register** . However, upon publication the final regulations will apply to transactions of interest entered into on or after November 2, 2006 with respect to which a material advisor makes a tax statement under § 301.6111-3 on or after November 2, 2006. Special Analyses It has been determined that this notice of proposed rulemaking is not a significant regulatory action as defined in Executive Order 12866. Therefore, a regulatory assessment is not required. It also has been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to these regulations, and because these regulations do not impose a collection of information on small entities, the provisions of the Regulatory Flexibility Act (5 U.S.C. chapter 6) do not apply. The return referenced in these regulations will be made available for public comment in accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. chapter 35). Pursuant to section 7805(f) of the Internal Revenue Code, this notice of proposed rulemaking will be submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small business. Comments and Requests for a Public Hearing Before these proposed regulations are adopted as final regulations, consideration will be given to any written comments (a signed original and eight
(8)copies) or electronic comments that are submitted timely to the IRS. The IRS and Treasury Department request comments on the clarity of the proposed rules, how they can be made easier to understand, and the administrability of the rules in the proposed regulations. All comments will be available for public inspection and copying. A public hearing will be scheduled if requested in writing by any person that submits timely written or electronic comments. If a public hearing is scheduled, notice of the date, time, and place for the public hearing will be published in the **Federal Register** . Drafting Information The principal authors of these regulations are Tara P. Volungis and Charles Wien, Office of the Associate Chief Counsel (Passthroughs and Special Industries). However, other personnel from the IRS and Treasury Department participated in their development. List of Subjects in 26 CFR Part 301 Employment taxes, Estate taxes, Excise taxes, Gift taxes, Income taxes, Penalties, Reporting and recordkeeping requirements. Proposed Amendments to the Regulations Accordingly, 26 CFR part 301 is proposed to be amended as follows: PART 301—PROCEDURE AND ADMINISTRATION **Paragraph 1.** The authority citation for part 301 continues to read, in part, as follows: Authority: 26 U.S.C. 7805 * * * **Par. 2.** Section 301.6111-3 is added to read as follows: § 301.6111-3 Disclosure of reportable transactions.
(a)*In general.* Each material advisor, as defined in paragraph
(b)of this section, with respect to any reportable transaction, as defined in § 1.6011-4(b) of this chapter, must file a return as described in paragraph
(d)of this section by the date described in paragraph
(e)of this section.
(b)*Material advisor* —(1) *In general* . A person is a material advisor with respect to a transaction if the person provides any material aid, assistance, or advice with respect to organizing, managing, promoting, selling, implementing, insuring, or carrying out any reportable transaction, and directly or indirectly derives gross income in excess of the threshold amount as defined in paragraph (b)(3) of this section for the material aid, assistance, or advice. The term transaction includes all of the factual elements relevant to the expected tax treatment of any investment, entity, plan or arrangement, and includes any series of steps carried out as part of a plan.
(2)*Material aid, assistance, or advice* —(i) *In general* . Except as provided in paragraph (b)(5) of this section, a person provides material aid, assistance, or advice with respect to organizing, managing, promoting, selling, implementing, insuring, or carrying out any transaction if the person makes or provides a tax statement to or for the benefit of—
(A)A taxpayer who either is required to disclose the transaction under §§ 1.6011-4, 20.6011-4, 25.6011-4, 31.6011-4, 53.6011-4, 54.6011-4, or 56.6011-4 of this chapter because the transaction is a listed transaction or a transaction of interest, or would have been required to disclose the transaction under §§ 1.6011-4, 20.6011-4, 25.6011-4, 31.6011-4, 53.6011-4, 54.6011-4, or 56.6011-4 of this chapter if the transaction had become a listed transaction or a transaction of interest within the period of limitations in § 1.6011-4(e) of this chapter;
(B)A taxpayer who the potential material advisor knows is or reasonably expects to be required to disclose the transaction under § 1.6011-4 of this chapter because the transaction is or is reasonably expected to become a transaction described in § 1.6011-4(b)(3) through
(5)or
(7)of this chapter;
(C)A material advisor who is required to disclose the transaction under this section because it is a listed transaction or a transaction of interest; or
(D)A material advisor who the potential material advisor knows is or reasonably expects to be required to disclose the transaction under this section because the transaction is or is reasonably expected to become a transaction described in § 1.6011-4(b)(3) through
(5)or
(7)of this chapter.
(ii)*Tax statement* —(A) *In general* . A tax statement is any statement (including another person's statement), oral or written, that relates to a tax aspect of a transaction that causes the transaction to be a reportable transaction as defined in § 1.6011-4(b)(2) through
(7)of this chapter. A tax statement under this section includes tax result protection that insures some or all of the tax benefits of a reportable transaction.
(B)*Confidential transactions* . A statement relates to a tax aspect of a transaction that causes it to be a confidential transaction if the statement concerns a tax benefit related to the transaction and either the taxpayer's disclosure of the tax treatment or tax structure of the transaction is limited in the manner described in § 1.6011-4(b)(3) of this chapter by or for the benefit of the person making the statement, or the person making the statement knows the taxpayer's disclosure of the tax structure or tax aspects of the transaction is limited in the manner described in § 1.6011-4(b)(3) of this chapter.
(C)*Transactions with contractual protection* . A statement relates to a tax aspect of a transaction that causes it to be a transaction with contractual protection if the statement concerns a tax benefit related to the transaction and either— ( *1* ) The taxpayer has the right to a full or partial refund of fees paid to the person making the statement or the fees are contingent in the manner described in § 1.6011-4(b)(4) of this chapter; or ( *2* ) The person making the statement knows or has reason to know that the taxpayer has the right to a full or partial refund of fees (described in § 1.6011-4(b)(4)(ii) of this chapter) paid to another if all or part of the intended tax consequences from the transaction are not sustained or that fees (as described in § 1.6011-4(b)(4)(ii) of this chapter) paid by the taxpayer to another are contingent on the taxpayer's realization of tax benefits from the transaction in the manner described in § 1.6011-4(b)(4) of this chapter.
(D)*Loss transactions.* A statement relates to a tax aspect of a transaction that causes it to be a loss transaction if the statement concerns an item that gives rise to a loss described in § 1.6011-4(b)(5) of this chapter.
(E)*Transactions involving a brief asset holding period* . A statement relates to a tax aspect of a transaction involving a brief asset holding period if the statement concerns an item that gives rise to a tax credit described in § 1.6011-4(b)(7) of this chapter.
(iii)*Special rules* —(A) *Capacity as an employee* . A material advisor generally does not include a person who makes a tax statement solely in the person's capacity as an employee, shareholder, partner or agent of another person. Any tax statement made by that person will be attributed to that person's employer, corporation, partnership or principal. However, a person shall be treated as a material advisor if that person forms or avails of an entity with the purpose of avoiding the rules of section 6111 or 6112 or the penalties under section 6707 or 6708.
(B)*Post-filing advice* . A person will not be considered to be a material advisor with respect to a transaction if that person does not make or provide a tax statement regarding the transaction until after the first tax return reflecting tax benefit(s) of the transaction is filed with the IRS. However, this exception does not apply to a person who makes a tax statement with respect to the transaction if it is expected that the taxpayer will file a supplemental or amended return reflecting additional tax benefits from the transaction.
(C)*Publicly filed statements* . A tax statement with respect to a transaction that includes only information about the transaction contained in publicly available documents filed with the Securities and Exchange Commission no later than the close of the transaction will not be considered a tax statement to or for the benefit of a person described in paragraph (b)(2) of this section.
(3)*Gross income derived for material aid, assistance, or advice* —(i) *Threshold amount* —(A) *In general* . The threshold amount of gross income is $50,000 in the case of a reportable transaction substantially all of the tax benefits from which are provided to natural persons (looking through any partnerships, S corporations, or trusts). For all other transactions, the threshold amount is $250,000.
(B)*Listed transactions and transactions of interest* . For listed transactions described in §§ 1.6011-4, 20.6011-4, 25.6011-4, 31.6011-4, 53.6011-4, 54.6011-4, or 56.6011-4 of this chapter, the threshold amounts in paragraph (b)(3)(i)(A) of this section are reduced from $50,000 to $10,000 and from $250,000 to $25,000. For transactions of interest described in §§ 1.6011-4, 20.6011-4, 25.6011-4, 31.6011-4, 53.6011-4, 54.6011-4, or 56.6011-4 of this chapter, the threshold amounts in paragraph (b)(3)(i)(A) of this section may be reduced as identified in the published guidance describing the transaction.
(ii)*Gross income derived directly or indirectly for the material aid, assistance, or advice.* In determining the amount of gross income a person derives directly or indirectly for material aid, assistance, or advice, all fees for a tax strategy or for services for advice (whether or not tax advice) or for the implementation of a reportable transaction are taken into account. Fees include consideration in whatever form paid, whether in cash or in kind, for services to analyze the transaction (whether or not related to the tax consequences of the transaction), for services to implement the transaction, for services to document the transaction, and for services to prepare tax returns to the extent return preparation fees are unreasonable in light of all of the facts and circumstances. A fee does not include amounts paid to a person, including an advisor, in that person's capacity as a party to the transaction. For example, a fee does not include reasonable charges for the use of capital or the sale or use of property. The IRS will scrutinize carefully all of the facts and circumstances in determining whether consideration received in connection with a reportable transaction constitutes gross income derived directly or indirectly for aid, assistance, or advice. For purposes of this section, the threshold amount must be met independently for each transaction that is a reportable transaction and aggregation of fees among transactions is not required.
(4)*Date a person becomes a material advisor* —(i) *In general.* A person will be treated as becoming a material advisor when all of the following events have occurred (in no particular order)—
(A)The person provides material aid, assistance or advice as described in paragraph (b)(2) of this section;
(B)The person directly or indirectly derives gross income in excess of the threshold amount as described in paragraph (b)(3) of this section; and
(C)The transaction is entered into by the taxpayer to whom or for whose benefit the person provided the tax statement, or in the case of a tax statement provided to another material advisor, when the transaction is entered into by a taxpayer to whom or for whose benefit that material advisor provided a tax statement.
(ii)*Determining if the taxpayer entered into the transaction.* Material advisors, including those who cease providing services before the time the transaction is entered into, must make reasonable and good faith efforts to determine whether the event described in paragraph (b)(4)(i)(C) of this section has occurred.
(iii)*Listed transactions and transactions of interest.* If a transaction that was not a reportable transaction is identified as a listed transaction or a transaction of interest in published guidance after the occurrence of the events described in paragraph (b)(4)(i) of this section, the person will be treated as becoming a material advisor on the date the transaction is identified as a listed transaction or a transaction of interest.
(5)*Other persons designated as material advisors.* Published guidance may identify other types or classes of persons as material advisors.
(c)*Definitions.* For purposes of this section, the following definitions apply:
(1)*Reportable transaction.* The term *reportable transaction* is defined in § 1.6011-4(b)(1) of this chapter.
(2)*Listed transaction.* The term *listed transaction* is defined in § 1.6011-4(b)(2) of this chapter. *See also* §§ 20.6011-4(a), 25.6011-4(a), 31.6011-4(a), 53.6011-4(a), 54.6011-4(a), or 56.6011-4(a) of this chapter.
(3)*Derive.* The term *derive* means receive or expect to receive.
(4)*Person.* The term *person* means any person described in section 7701(a)(1), including an affiliated group of corporations that join in the filing of a consolidated return under section 1501.
(5)*Substantially similar.* The term *substantially similar* is defined in § 1.6011-4(c)(4) of this chapter.
(6)*Tax.* The term *tax* means Federal tax.
(7)*Tax benefit.* A tax benefit includes deductions, exclusions from gross income, nonrecognition of gain, tax credits, adjustments (or the absence of adjustments) to the basis of property, status as an entity exempt from Federal income taxation, and any other tax consequences that may reduce a taxpayer's Federal tax liability by affecting the amount, timing, character, or source of any item of income, gain, expense, loss, or credit.
(8)*Tax return.* The term *tax return* means a Federal tax return and a Federal information return.
(9)*Tax structure.* The tax structure of a transaction is any fact that may be relevant to understanding the purported or claimed Federal tax treatment of the transaction.
(10)*Tax treatment.* The tax treatment of a transaction is the purported or claimed Federal tax treatment of the transaction.
(11)*Taxpayer.* The term *taxpayer* is defined in § 1.6011-4(c)(1) of this chapter.
(12)*Tax result protection.* The term *tax result protection* includes insurance company and other third party products commonly described as tax result insurance.
(13)*Transaction of interest.* The term *transaction of interest* is defined in § 1.6011-4(b)(6) of this chapter. *See also* §§ 20.6011-4(a), 25.6011-4(a), 31.6011-4(a), 53.6011-4(a), 54.6011-4(a), or 56.6011-4(a) of this chapter.
(d)*Form and content of material advisor's disclosure statemen* t—(1) *In general.* A material advisor required to file a disclosure statement under this section must file a completed Form 8918, “Material Advisor Disclosure Statement” (or successor form) in accordance with this paragraph
(d)and the instructions to the form. To be considered complete, the information provided on the form must describe the expected tax treatment and all potential tax benefits expected to result from the transaction, describe any tax result protection with respect to the transaction, and identify and describe the transaction in sufficient detail for the IRS to be able to understand the tax structure of the reportable transaction and the identity of the material advisor(s). An incomplete form containing a statement that information will be provided upon request is not considered a complete disclosure statement. A material advisor may file a single form for substantially similar transactions. An amended form must be filed if information previously provided is no longer accurate, if additional information that was not disclosed becomes available, or if there are material changes to the transaction. A material advisor is not required to file an additional form for each additional taxpayer that enters into the same or substantially similar transaction. If the form is not completed in accordance with the provisions in this paragraph
(d)and the instructions to the form, the material advisor will not be considered to have complied with the disclosure requirements of this section.
(2)*Reportable transaction number.* The IRS will issue to a material advisor a reportable transaction number with respect to the disclosed reportable transaction. Receipt of a reportable transaction number does not indicate that the disclosure statement is complete, nor does it indicate that the transaction has been reviewed, examined, or approved by the IRS. Material advisors must provide the reportable transaction number to all taxpayers and material advisors to whom the material advisor makes or provides tax statements. The reportable transaction number must be provided at the time the transaction is entered into, or, if the transaction is entered into prior to the material advisor receiving the reportable transaction number, within 60 calendar days from the date the reportable transaction number is mailed to the material advisor.
(e)*Time of providing disclosure.* The material advisor's disclosure statement for a reportable transaction must be filed with the Office of Tax Shelter Analysis
(OTSA)by the last day of the month that follows the end of the calendar quarter in which the advisor became a material advisor with respect to the reportable transaction or in which the circumstances necessitating an amended disclosure statement occur. The disclosure statement must be sent to OTSA at the address provided in the instructions for Form 8918 (or a successor form).
(f)*Designation agreements.* If more than one material advisor is required to disclose a reportable transaction under this section, the material advisors may designate by written agreement a single material advisor to disclose the transaction. The transaction must be disclosed by the last day of the month following the end of the calendar quarter that includes the earliest date on which a material advisor who is a party to the agreement became a material advisor with respect to the transaction as described in paragraph (b)(4) of this section. The designation of one material advisor to disclose the transaction does not relieve the other material advisors of their obligation to disclose the transaction to the IRS in accordance with this section, if the designated material advisor fails to disclose the transaction to the IRS in a timely manner.
(g)*Protective disclosures.* If a potential material advisor is uncertain whether a transaction must be disclosed under this section, the advisor may disclose the transaction in accordance with the requirements of this section and comply with all the provisions of this section, and indicate on the disclosure statement that the disclosure statement is being filed on a protective basis. The IRS will not treat disclosure statements filed on a protective basis any differently than other disclosure statements filed under this section. For a protective disclosure to be effective, the advisor must comply with the regulations under this section and § 301.6112-1 by providing to the IRS all information requested by the IRS under these sections.
(h)[The text of the proposed § 301.6111-3(h) is the same as the text for § 301.6111-3T(h) published elsewhere in this issue of the **Federal Register** ].
(i)Effective date—(1) *In general* . In general, this section applies to transactions with respect to which a material advisor makes a tax statement on or after the date these regulations are published as final regulations in the **Federal Register** . However, upon the publication of final regulations, this section will apply to transactions of interest entered into on or after November 2, 2006 with respect to which a material advisor makes a tax statement under § 301.6111-3 on or after November 2, 2006.
(2)[The text of the proposed § 301.6111-3(i)(2) is the same as the text for § 301.6111-3T(i)(2) published elsewhere in this issue of the **Federal Register** ]. Mark E. Matthews, Deputy Commissioner for Services and Enforcement. [FR Doc. E6-18321 Filed 11-1-06; 8:45 am] BILLING CODE 4830-01-P DEPARTMENT OF THE TREASURY Internal Revenue Service 26 CFR Part 301 [REG-103043-05] RIN 1545-BE28 AJCA Modifications to the Section 6112 Regulations AGENCY: Internal Revenue Service (IRS), Treasury. ACTION: Notice of proposed rulemaking. SUMMARY: This document contains proposed regulations under section 6112 of the Internal Revenue Code which provide the rules relating to the obligation of material advisors to prepare and maintain lists with respect to reportable transactions. These regulations affect material advisors responsible for keeping lists under section 6112. DATES: Written or electronic comments and requests for a public hearing must be received by January 31, 2007. ADDRESSES: Send submissions to: CC:PA:LPD:PR (REG-103043-05), room 5203, Internal Revenue Service, PO Box 7604, Ben Franklin Station, Washington, DC 20044. Submissions may be hand delivered Monday through Friday between the hours of 8 a.m. and 4 p.m. to CC:PA:LPD:PR (REG-103043-05), Courier's Desk, Internal Revenue Service, Crystal Mall 4 Building, 1901 S. Bell St., Arlington, VA, or sent electronically, via the IRS Internet site at *http://www.irs.gov/regs* or via the Federal eRulemaking Portal at *http://www.regulations.gov* (indicate IRS and REG-103043-05). FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations, Tara P. Volungis or Charles Wien, 202-622-3070; concerning the submissions of comments and requests for hearing, Kelly Banks, 202-622-0392 (not toll-free numbers). SUPPLEMENTARY INFORMATION: Paperwork Reduction Act The collection of information contained in this notice of proposed rulemaking has been submitted to the Office of Management and Budget for review in accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)). Comments on the collection of information should be sent to the Office of Management and Budget, Attn: Desk Officer for the Department of the Treasury, Office of Information and Regulatory Affairs, Washington, DC 20503, with copies to the Internal Revenue Service, Attn: IRS Reports Clearance Officer, SE:W:CAR:MP:T:T:SP, Washington, DC 20224. Comments on the collection of information should be received by January 2, 2007. Comments are specifically requested concerning: Whether the proposed collection of information is necessary for the proper performance of the functions of the Internal Revenue Service, including whether the information will have practical utility; The accuracy of the estimated burden associated with the proposed collection of information (see below); How the quality, utility, and clarity of the information to be collected may be enhanced; How the burden of complying with the proposed collections of information may be minimized, including through the application of automated collection techniques or other forms of information technology; and Estimates of capital or start-up costs and costs of operation, maintenance, and purchase of service to provide information. The collection of information in this proposed regulation is in § 301.6112-1(b) and (d). This information is required in order for a material advisor to comply with the list maintenance rules under section 6112. This information will be used to improve compliance with the tax laws by giving the IRS earlier notification of transactions that may not comport with the tax laws. The collection of information is mandatory. The likely respondents are business or other for-profit institutions or individuals. *Estimated total annual reporting burden:* 50,000 hours. *Estimated average annual burden hours per respondent:* 100 hours. *Estimated number of respondents:* 500. *Estimated annual frequency of responses:* On occasion. An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a valid control number assigned by the Office of Management and Budget. 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 proposes to amend 26 CFR part 301 by amending the rules relating to the list maintenance requirements of material advisors with respect to reportable transactions under section 6112. The American Jobs Creation Act of 2004, Public Law 108-357, 118 Stat. 1418,
(AJCA)was enacted on October 22, 2004. Section 815 of the AJCA amended section 6112 to provide that each material advisor (as defined in section 6111, as amended by the AJCA) with respect to any reportable transaction is required to maintain a list (in such manner as the Secretary may by regulations prescribe) identifying each person with respect to whom the advisor acted as a material advisor with respect to the transaction, and containing other information as the Secretary may by regulations require. Section 815 of the AJCA is effective for transactions with respect to which material aid, assistance, or advice is provided after October 22, 2004. Prior to the amendments to section 6111 made by the AJCA, the definition of material advisor was in § 301.6112-1 of the Procedure and Administration Regulations. In response to the AJCA, the IRS and Treasury Department issued interim guidance affecting section 6112 in Notice 2004-80, 2004-2 C.B. 963; Notice 2005-17, 2005-1 C.B. 606; Notice 2005-22, 2005-1 C.B. 756; and Notice 2006-6, 2006-5 I.R.B. 385 ( *see* § 601.601(d)(2)). The IRS and Treasury Department have received various comments and questions regarding the application of section 6112 under the AJCA. Consequently, the IRS and Treasury Department propose amendments to the rules relating to the list maintenance obligation of material advisors under section 6112. Explanation of Provisions A. In General These proposed regulations are being issued concurrently with proposed regulations under § 1.6011-4 and § 301.6111-3 published elsewhere in the **Federal Register** . The definition of material advisor is provided in the proposed regulations under § 301.6111-3(b). The definition of reportable transaction is provided in the proposed regulations under § 1.6011-4(b)(1). Under these proposed regulations, each material advisor for any reportable transaction must maintain a list identifying each person with respect to whom the advisor acted as a material advisor and containing other information described in the regulations. B. The List The information that must be contained in the list under these proposed regulations is similar to the information required to be included on the list under the current § 301.6112-1 regulations, with some additions or clarifications, such as, the name of each other material advisor to the transaction, if known by the material advisor, and any designation agreement to which the material advisor is a party. The IRS and Treasury Department believe that this information is required to be provided under the current regulations. However, due to questions raised by material advisors under the current regulations, these proposed amendments clarify that the name of other material advisors and designation agreements are required to be maintained. To date, the IRS has received lists under the current regulations that are not in a form that enables the IRS to determine without undue delay or difficulty the information required under the regulation. Some material advisors have merely produced boxes of documents rather than a list as required under § 301.6112-1. Under section 6708 as amended by the AJCA, any person who is required to maintain a list under section 6112(a) who fails to make the list available to the Secretary upon written request within 20 business days after the date of the request, must pay a penalty of $10,000 for each day of such failure. Failure to maintain the list in accordance with these regulations also subjects a person to the penalty under section 6708. The proposed regulations specifically clarify that the list to be maintained by the material advisor and furnished to the IRS upon request consists of three separate components:
(1)An itemized statement of information,
(2)a detailed description of the transaction, and
(3)copies of documents relating to the transaction. The itemized statement of information must contain all of the requested information in a form that is easy to understand (for example, in a format such as a list, spreadsheet, or table). In order for the material advisor to be in compliance with its obligations under section 6112, the material advisor must maintain and furnish in the time prescribed the itemized statement of information, the description of the transaction, and the copies of documents. Under the proposed regulations, the Secretary, in published guidance, may provide a form or method for maintaining and/or furnishing a list. C. Other Clarifications and Modifications The proposed regulations remove the provision detailing how a privilege is claimed with regard to certain information on the list. The regulations continue to require that if a claim of privilege is made, the material advisor must continue to maintain the list in accordance with these regulations. Similar to provisions in the current § 301.6112-1 regulations, material advisors under the proposed regulations may have a designation agreement authorizing one material advisor to maintain and furnish the list. However, the designation agreement does not relieve the other material advisors of their obligation to furnish the list if the designated material advisor fails to furnish the list in a timely manner. Thus, parties to a designation agreement may still be liable for the penalty under section 6708. Contrary to the provisions in the current regulations under § 301.6112-1, these proposed regulations contain no provision to toll the requirement for maintaining the list when a potential material advisor requests a private letter ruling on a specific transaction. The IRS and Treasury Department believe that removing the tolling provision will promote effective tax administration. Consequently, potential material advisors may request a ruling on a transaction, as provided in the temporary regulations under § 301.6111-3T(h), under the regular procedures for requesting a ruling, provided the ruling request is not factual or hypothetical, but the requirement for disclosing the transaction under section 6111 and maintaining the list under section 6112 will not be tolled. Final regulations removing the tolling provision are being issued concurrently with these proposed regulations. The removal of the tolling provision is effective for all ruling requests received on or after November 1, 2006. D. Effective Date Generally, when these proposed regulations become final, they will apply to transactions with respect to which a material advisor makes a tax statement on or after the date the regulations are published as final regulations in the **Federal Register** . However, upon publication the final regulations will apply to transactions of interest entered into on or after November 2, 2006 with respect to which a material advisor makes a tax statement under § 301.6111-3 on or after November 2, 2006. Special Analyses It has been determined that this notice of proposed rulemaking is not a significant regulatory action as defined in Executive Order 12866. Therefore, a regulatory assessment is not required. It also has been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to these regulations. It is hereby certified that the collection of information in these regulations will not have a significant economic impact on a substantial number of small entities. This certification is based upon the fact that most of the information is already required to be reported under the current regulations; the clarifications and new information required by the proposed regulations add little or no new burden to the existing requirements. 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, this notice of proposed rulemaking will be submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small business. Comments and Requests for a Public Hearing Before these proposed regulations are adopted as final regulations, consideration will be given to any written comments (a signed original and eight
(8)copies) or electronic comments that are submitted timely to the IRS. The IRS and Treasury Department request comments on the clarity of the proposed rules, how they can be made easier to understand, and the administrability of the rules in the proposed regulations. All comments will be available for public inspection and copying. A public hearing will be scheduled if requested in writing by any person that submits timely written or electronic comments. If a public hearing is scheduled, notice of the date, time, and place for the public hearing will be published in the **Federal Register** . Drafting Information The principal authors of these regulations are Tara P. Volungis and Charles Wien, Office of the Associate Chief Counsel (Passthroughs and Special Industries). However, other personnel from the IRS and Treasury Department participated in their development. List of Subjects in 26 CFR Part 301 Employment taxes, Estate taxes, Excise taxes, Gift taxes, Income taxes, Penalties, Reporting and recordkeeping requirements. Proposed Amendments to the Regulations Accordingly, 26 CFR part 301 is proposed to be amended as follows: PART 301—PROCEDURE AND ADMINISTRATION **Paragraph 1.** The authority citation for part 301 continues to read, in part, as follows: Authority: 26 U.S.C. 7805 * * * **Par. 2.** Section 301.6112-1 is revised to read as follows: § 301.6112-1 Material advisors of reportable transactions must keep lists of advisees, etc.
(a)*In general* . Each material advisor, as defined in § 301.6111-3(b), with respect to any reportable transaction, as defined in § 1.6011-4(b) of this chapter, shall prepare and maintain a list in accordance with paragraph
(b)of this section and shall furnish such list to the Internal Revenue Service
(IRS)in accordance with paragraph
(e)of this section.
(b)*Preparation and maintenance of lists* —(1) *In general* . A separate list must be prepared and maintained for each reportable transaction. However, one list must be maintained for substantially similar transactions. A list must be maintained in a form that enables the IRS to determine without undue delay or difficulty the information required in paragraph (b)(3) of this section. The Secretary may, by publication in the Internal Revenue Bulletin ( *see* § 601.601(d)(2)(ii)(b) of this chapter), provide a form or method for maintaining and/or furnishing a list.
(2)*Persons required to be included on lists* . A material advisor is required to maintain a list identifying each person with respect to whom the advisor acted as a material advisor with respect to the reportable transaction. However, a material advisor is not required to identify a person on the list if the person entered into a listed transaction or a transaction of interest more than 6 years before the transaction was identified in published guidance as a listed transaction or a transaction of interest.
(3)*Contents* . Each list must include the three components described in paragraph (b)(3)(i), (ii), and
(iii)of this section.
(i)*Statement* . An itemized statement containing the following information—
(A)The name of each reportable transaction, the citation to the published guidance number identifying the transaction if the transaction is a listed transaction or a transaction of interest, and the reportable transaction number obtained under section 6111;
(B)The name, address, and TIN of each person required to be included on the list;
(C)The date on which each person required to be included on the list entered into each reportable transaction, if known by the material advisor;
(D)The amount invested in each reportable transaction by each person required to be included on the list, if known by the material advisor;
(E)A summary or schedule of the tax treatment that each person is intended or expected to derive from participation in each reportable transaction; and
(F)The name of each other material advisor to the transaction, if known by the material advisor.
(ii)*Description of the transaction.* A detailed description of each reportable transaction that describes both the tax structure of the transaction and the purported tax treatment of the transaction.
(iii)*Documents* . The following documents—
(A)A copy of any designation agreement (as described in paragraph
(f)of this section) to which the material advisor is a party; and
(B)Copies of any additional written materials, including tax analyses or opinions, relating to each reportable transaction that are material to an understanding of the purported tax treatment or tax structure of the transaction that have been shown or provided to any person who acquired or may acquire an interest in the transactions, or to their representatives, tax advisors, or agents, by the material advisor or any related party or agent of the material advisor. However, a material advisor is not required to retain earlier drafts of a document provided the material advisor retains a copy of the final document (or, if there is no final document, the most recent draft of the document) and the final document (or most recent draft) contains all the information in the earlier drafts of such document that is material to an understanding of the purported tax treatment or the tax structure of the transaction.
(c)*Definitions* . For purposes of this section, the following terms are defined as:
(1)*Material advisor* . The term *material advisor* is defined in § 301.6111-3(b).
(2)*Reportable transaction* . The term *reportable transaction* is defined in § 1.6011-4(b)(1) of this chapter.
(3)*Listed transaction* . The term *listed transaction* is defined in § 1.6011-4(b)(2) of this chapter. *See also* §§ 20.6011-4(a), 25.6011-4(a), 31.6011-4(a), 53.6011-4(a), 54.6011-4(a), or 56.6011-4(a) of this chapter.
(4)*Substantially similar* . The term *substantially similar* is defined in § 1.6011-4(c)(4) of this chapter.
(5)*Person* . The term *person* is defined in § 301.6111-3(c)(4).
(6)*Related party* . A person is a *related party* with respect to another person if such person bears a relationship to such other person described in section 267(b) or 707(b).
(7)*Tax* . The term *tax* is defined in § 301.6111-3(c)(6).
(8)*Tax benefit* . The term *tax benefit* is defined in § 301.6111-3(c)(7).
(9)*Tax return* . The term *tax return* is defined in § 301.6111-3(c)(8).
(10)*Tax structure* . The term *tax structure* is defined in § 301.6111-3(c)(9).
(11)*Tax treatment.* The term *tax treatment* is defined in § 301.6111-3(c)(10).
(12)*Transaction of interest.* The term *transaction of interest* is defined in § 1.6011-4(b)(6) of this chapter. *See also* §§ 20.6011-4(a), 25.6011-4(a), 31.6011-4(a), 53.6011-4(a), 54.6011-4(a), or 56.6011-4(a) of this chapter.
(d)*Retention of lists.* Each material advisor must maintain each component of the list described in paragraph (b)(3) of this section in a readily accessible form for seven years following the earlier of the date on which the material advisor last made a tax statement relating to the transaction, or the date the transaction was last entered into, if known. If the material advisor required to prepare, maintain, and furnish the list is a corporation, partnership, or other entity (entity) that has dissolved or liquidated before completion of the seven-year period, the person responsible under State law for winding up the affairs of the entity must prepare, maintain and furnish each component of the list on behalf of the entity, unless the entity submits the list to the Office of Tax Shelter Analysis
(OTSA)within 60 days after the dissolution or liquidation. If State law does not specify any person as responsible for winding up the affairs, then each of the directors of the corporation, the general partners of the partnership, or the trustees, owners, or members of the entity are responsible for preparing, maintaining and furnishing each component of the list on behalf of the entity, unless the entity submits the list to the OTSA within 60 days after the dissolution or liquidation. The responsible person must also provide notice to OTSA of such dissolution or liquidation within 60 days after the dissolution or liquidation. The list and the notice provided to OTSA must be sent to: Internal Revenue Service, OTSA Mail Stop 4915, 1973 North Rulon White Blvd., Ogden, Utah 84404, or to such other address as provided by the Commissioner.
(e)*Furnishing of lists* —(1) *In general.* Each material advisor responsible for maintaining a list must, upon written request by the IRS, make each component of the list described in paragraph (b)(3) of this section available to the IRS by furnishing each component of the list to the IRS within 20 business days from the day on which the request is provided. The 20 business-day period shall begin on the first business day following the earlier of the date that the IRS mails a request for the list by certified or registered mail to the last known address of the material advisor required to maintain the list, or hand-delivers the written request in person. Business days include every calendar day other than Saturdays, Sundays, or legal holidays. For purposes of this paragraph (e), *legal holiday* shall have the same meaning provided in section 7503. The request is not required to be in the form of an administrative summons. Each component of the list must be furnished to the IRS in a form that enables the IRS to determine without undue delay or difficulty the information required in paragraph (b)(3) of this section. If any component of the list is not in a form that enables the IRS to determine without undue delay or difficulty the information required in paragraph (b)(3) of this section, the material advisor will not be considered to have complied with the list maintenance provisions in section 6112 and this section.
(2)*Claims of privilege.* Each material advisor who is required to maintain a list with respect to a reportable transaction, must still maintain the list pursuant to the requirements of this section even if a person asserts a claim of privilege with respect to the information specified in paragraph (b)(3)(iii)(B) of this section.
(f)*Designation agreements.* If more than one material advisor is required to maintain a list of persons for a reportable transaction, in accordance with paragraph
(b)of this section, the material advisors may designate by written agreement a single material advisor to maintain the list or a portion of the list. The designation of one material advisor to maintain the list does not relieve the other material advisors from their obligation to furnish the list to the IRS in accordance with paragraph (e)(1) of this section, if the designated material advisor fails to furnish the list to the IRS in a timely manner. A material advisor is not relieved from the requirement of this section because a material advisor is unable to obtain the list from any designated material advisor, any designated material advisor did not maintain a list, or the list maintained by any designated material advisor is not complete.
(g)*Effective date.* In general, this section applies to transactions with respect to which a material advisor makes a tax statement under § 301.6111-3 on or after the date these regulations are published as final regulations in the **Federal Register** . However, upon the publication of final regulations, this section will apply to transactions of interest entered into on or after November 2, 2006 with respect to which a material advisor makes a tax statement under § 301.6111-3 on or after November 2, 2006. Mark E. Matthews, Deputy Commissioner for Services and Enforcement. [FR Doc. E6-18323 Filed 11-1-06; 8:45 am] BILLING CODE 4830-01-P DEPARTMENT OF JUSTICE Bureau of Prisons 28 CFR Part 524 [BOP-1141-P] RIN 1120-AB39 Intensive Confinement Center Program AGENCY: Federal Bureau of Prisons, Justice. ACTION: Proposed rule. SUMMARY: The Bureau of Prisons (Bureau) proposes to remove current rules on the intensive confinement center program (ICC). The ICC is a specialized program for non-violent offenders combining features of a military boot camp with traditional Bureau correctional values. The Bureau will no longer be offering the ICC program (also known as Shock Incarceration or Boot Camp) to inmates as a program option. This decision was made as part of an overall strategy to eliminate programs that do not reduce recidivism. DATES: Comments due by January 2, 2007. ADDRESSES: Our e-mail address is *BOPRULES@BOP.GOV.* Comments should be submitted to the Rules Unit, Office of General Counsel, Bureau of Prisons, 320 First Street, NW., Washington, DC 20534. You may view an electronic version of this rule at *http://www.regulations.gov.* You may also comment via the Internet to BOP at *BOPRULES@BOP.GOV* or by using the *www.regulations.gov* comment form for this regulation. When submitting comments electronically you must include the BOP Docket No. in the subject box. FOR FURTHER INFORMATION CONTACT: Sarah Qureshi, Office of General Counsel, Bureau of Prisons, phone
(202)307-2105. SUPPLEMENTARY INFORMATION: We initially published these regulations describing ICC eligibility requirements and successful program completion requirements as an interim rule in the **Federal Register** on April 26, 1996 (61 FR 18658). We received no comments on the interim rule. We later amended these regulations through another interim rule on October 15, 1997 (62 FR 53691). Again, we received no comments on that interim rule. Through this rulemaking, the Bureau seeks to be clear to inmates and the public regarding the termination of the ICC program. The current ICC regulations state that “[p]lacement in the intensive confinement center program is to be made by Bureau staff in accordance with sound correctional judgment and the availability of Bureau resources.” 28 CFR 524.32(b). The Bureau could, without rulemaking, discontinue the ICC program because it is no longer supported by “sound correctional judgment,” and/or because it diverts Bureau resources from more successful programs. Also, 18 U.S.C. 4046 does not *require* the establishment of a “shock incarceration” program. Rather, it authorizes the Bureau to grant sentence reductions to those inmates who successfully complete such a program, *i.e.* “The Bureau of Prisons *may* place in a shock incarceration program * * *” (emphasis added). However, because the Bureau seeks to minimize public confusion and accurately reflect its practice by eliminating unnecessary regulations, the Bureau now formally proposes the removal of the ICC regulations. The ICC program operated at Bureau institutions located in Bryan, Texas; Lewisburg, Pennsylvania; and Lompoc, California. Under this rule, no new ICC classes or associated extended community confinement and early release benefits will be offered. However, other pre-release programming opportunities will continue to exist. Despite anecdotal successes, research has found no significant difference in recidivism rates between inmates who complete boot camp programs and similar offenders who serve their sentences in traditional institutions. There is a national trend among correctional agencies to phase out boot camp programs, as a result of many years of experience. ( *See* National Institute of Justice Research for Practice Report, “Correctional Boot Camps: Lessons From a Decade of Research,” June 2003). The Bureau has determined that completion of boot camp programs does not tend to result in lower rates of recidivism as compared to offenders with similar background characteristics who did not participate in the program. ( *See* National Institute of Justice Report, “Multisite Evaluation of Shock Incarceration,” September 1994). Moreover, the costs associated with maintaining the federal boot camp programs exceed the costs of operating ordinary minimum security camps, as a result of
(1)the staff resources necessary to maintain the intensive core programming that make up the “shock incarceration” or “intensive confinement” experience, and
(2)the high costs of housing offenders for extended periods of time in Community Corrections Centers, where the per capita costs are higher than those of housing offenders in minimum security camps. While there are some cost savings due to the early release of offenders who successfully complete the program, these savings are minimal compared to the additional costs of operating the program, which create a net increased cost to the agency of more than $1 million per year. The lack of significant beneficial results has led the Bureau to the conclusion that it can no longer justify the expenditure of public funds to operate the ICC program. It is important to note that the phase out of the ICC does not represent a change in the Bureau's mission; the Bureau remains fully committed to operating safe and secure institutions and to providing opportunities for inmates to gain the skills and the training necessary for a successful, crime-free, return to the community. The Bureau has renewed its emphasis on allocating its resources to support programs that are proven effective. The ICC program has some attractive features, but it does not reduce recidivism. The Bureau operates several programs that are proven to significantly reduce recidivism. Research conducted over the past 20 years has demonstrated convincingly that inmates who participate in the Bureau's major inmate programs are substantially less likely to recidivate as compared to similar inmates who do not participate. These programs include Residential Substance Abuse Treatment, Vocational Training and Apprenticeship, Education and Federal Prison Industries (operated without appropriated funds). There are also other inmate programs, such as skills building and values development, that have been found, preliminarily, to affect inmate misconduct which is a valid predictor of recidivism. These programs are being carefully reviewed to determine their impact on recidivism. Therefore, for the aforementioned reasons, we propose to remove our rules in Subpart D of 28 CFR part 524. Executive Order 12866 This regulation has been drafted and reviewed in accordance with Executive Order 12866, “Regulatory Planning and Review”, section 1(b), Principles of Regulation. The Director, Bureau of Prisons has determined that this rule is a “significant regulatory action” under Executive Order 12866, section 3(f), and accordingly this rule has been reviewed by the Office of Management and Budget. Executive Order 13132 This regulation will not have substantial direct effects on the States, on the relationship between the national government and the States, or on distribution of power and responsibilities among the various levels of government. Under Executive Order 13132, this rule does not have sufficient federalism implications for which we would prepare a Federalism Assessment. Regulatory Flexibility Act The Director of the Bureau of Prisons, under the Regulatory Flexibility Act (5 U.S.C. 605(b)), reviewed this regulation. By approving it, the Director certifies that it will not have a significant economic impact upon a substantial number of small entities because: This rule is about the correctional management of offenders committed to the custody of the Attorney General or the Director of the Bureau of Prisons, and its economic impact is limited to the Bureau's appropriated funds. Unfunded Mandates Reform Act of 1995 This rule will not cause State, local and tribal governments, or the private sector, to spend $100,000,000 or more in any one year, and it will not significantly or uniquely affect small governments. We do not need to take action under the Unfunded Mandates Reform Act of 1995. Small Business Regulatory Enforcement Fairness Act of 1996 This rule is not a major rule as defined by § 804 of the Small Business Regulatory Enforcement Fairness Act of 1996. This rule will not result in an annual effect on the economy of $100,000,000 or more; a major increase in costs or prices; or significant adverse effects on competition, employment, investment, productivity, innovation, or on the ability of United States-based companies to compete with foreign-based companies in domestic and export markets. List of Subjects in 28 CFR Part 524 Prisoners. Harley G. Lappin, Director, Bureau of Prisons. Under rulemaking authority vested in the Attorney General in 5 U.S.C. 552(a) and delegated to the Director, Bureau of Prisons, we propose to amend 28 CFR part 524 as set forth below. SUBCHAPTER B—INMATE ADMISSION, CLASSIFICATION, AND TRANSFER PART 524—CLASSIFICATION OF INMATES 1. The authority for part 524 continues to read as follows: Authority: 5 U.S.C. 301; 18 U.S.C. 3521-3528, 3621, 3622, 3624, 4001, 4042, 4046, 4081, 4082 (Repealed in part as to offenses committed on or after November 1, 1987), 5006-5024 (Repealed October 12, 1984 as to offenses committed after that date), 5039; 21 U.S.C. 848; 28 U.S.C. 509, 510. 2. Subpart D—Intensive Confinement Center Program is removed and reserved. [FR Doc. E6-18437 Filed 11-1-06; 8:45 am] BILLING CODE 4410-05-P DEPARTMENT OF JUSTICE Bureau of Prisons 28 CFR Part 545 [BOP Docket No. BOP 1132-P] RIN 1120-AB33 Inmate Work and Performance Pay Program: Reduction in Pay for Drug- and Alcohol-Related Disciplinary Offenses AGENCY: Bureau of Prisons, Justice. ACTION: Proposed rule. SUMMARY: In this document, the Bureau of Prisons (Bureau) proposes to amend regulations on inmate work and performance pay to require that inmates receiving performance pay who are found through the disciplinary process (found in 28 CFR part 541) to have committed a level 100 or 200 series drug-or alcohol-related prohibited act will automatically have their performance pay reduced to maintenance pay level and will be removed from any assigned work detail outside the secure perimeter of the institution. DATES: Comments are due by January 2, 2007. ADDRESSES: Our e-mail address is *BOPRULES@BOP.GOV.* Comments should be submitted to the Rules Unit, Office of General Counsel, Bureau of Prisons, 320 First Street, NW., Washington, DC 20534. You may view an electronic version of this rule at *www.regulations.gov.* You may also comment on this regulation via the Internet at *BOPRULES@BOP.GOV* or by using the *www.regulations.gov* comment form for this regulation. When submitting comments electronically you must include the BOP Docket No. in the subject box. FOR FURTHER INFORMATION CONTACT: Sarah Qureshi, Office of General Counsel, Bureau of Prisons, phone
(202)307-2105. SUPPLEMENTARY INFORMATION: In this document, the Bureau amends regulations on inmate work and performance pay to require that inmates receiving performance pay who are found through the disciplinary process (found in 28 CFR part 541) to have committed a level 100 or 200 series drug-or alcohol-related prohibited act will automatically have their performance pay reduced to maintenance pay level and will be removed from any assigned work detail outside the secure perimeter of the institution. The presence of even minute quantities of drug or alcohol contraband poses serious problems to the security, discipline, and good order of a correctional institution. By requiring a reduction in performance pay as a result of a level 100 or 200 series drug-or alcohol-related prohibited act, this rule provides a disincentive that is commensurate with the seriousness of those types of prohibited acts. We currently have similar rules removing inmates from certain programs as a collateral consequence of disciplinary action. For instance, 28 CFR 345.52(g), pertaining to inmates earning Federal Prison Industries premium pay, provides for *automatic* removal from premium pay status if an inmate is found by a DHO to have committed any level 100 or 200 series offense. Likewise, with regard to the Bureau's drug abuse treatment program, 28 CFR 550.56(d) states that the drug abuse treatment coordinator may remove from the program an inmate found to have committed any level 100 or 200 offense. Also, under 28 CFR 544.73 (b)(1)(ii), if an inmate commits a prohibited act during enrollment in the Bureau's Literacy Program, that inmate is considered not to be making “satisfactory progress” towards obtaining a General Educational Development
(GED)credential, which could result in loss of good conduct time credit under 28 CFR 523.20. Like the aforementioned rules, this rule provides an additional disincentive for inmates in an effort to target and eliminate the use and/or introduction of drugs or alcohol into Bureau institutions. Executive Order 12866 This rule falls within a category of actions that the Office of Management and Budget
(OMB)has determined to constitute “significant regulatory actions” under section 3(f) of Executive Order 12866 and, accordingly, it was reviewed by OMB. The Bureau has assessed the costs and benefits of this rule as required by Executive Order 12866 Section 1(b)(6) and has made a reasoned determination that the benefits of this rule justify its costs. This rule will have the benefit of strengthening ongoing efforts to target and eliminate the use and/or introduction of drugs or alcohol into Bureau institutions. There will be no new costs associated with this rulemaking. Executive Order 13132 This regulation will not have substantial direct effects on the States, on the relationship between the national government and the States, or on distribution of power and responsibilities among the various levels of government. Therefore, under Executive Order 13132, we determine that this rule does not have sufficient Federalism implications to warrant the preparation of a Federalism Assessment. Regulatory Flexibility Act The Director of the Bureau of Prisons, under the Regulatory Flexibility Act (5 U.S.C. 605(b)), reviewed this regulation and by approving it certifies that it will not have a significant economic impact upon a substantial number of small entities for the following reasons: This rule pertains to the correctional management of offenders committed to the custody of the Attorney General or the Director of the Bureau of Prisons, and its economic impact is limited to the Bureau's appropriated funds. Unfunded Mandates Reform Act of 1995 This rule will not result in the expenditure by State, local and tribal governments, in the aggregate, or by the private sector, of $100,000,000 or more in any one year, and it will not significantly or uniquely affect small governments. Therefore, no actions were deemed necessary under the provisions of the Unfunded Mandates Reform Act of 1995. Small Business Regulatory Enforcement Fairness Act of 1996 This rule is not a major rule as defined by § 804 of the Small Business Regulatory Enforcement Fairness Act of 1996. This rule will not result in an annual effect on the economy of $100,000,000 or more; a major increase in costs or prices; or significant adverse effects on competition, employment, investment, productivity, innovation, or on the ability of United States-based companies to compete with foreign-based companies in domestic and export markets. List of Subjects in 28 CFR Part 545 Prisoners. Harley G. Lappin, Director, Bureau of Prisons. Under rulemaking authority vested in the Attorney General in 5 U.S.C. 301; 28 U.S.C. 509, 510 and delegated to the Director, Bureau of Prisons in 28 CFR 0.96, we propose to amend 28 CFR part 545 as set forth below. Subchapter C—Institutional Management PART 545—WORK AND COMPENSATION 1. Revise the authority citation for 28 CFR part 545 to read as follows: Authority: 5 U.S.C. 301; 18 U.S.C. 3013, 3571, 3572, 3621, 3622, 3624, 3663, 4001, 4042, 4081, 4082 (Repealed in part as to offenses committed on or after November 1, 1987), 4126, 5006-5024 (Repealed October 12, 1984 as to offenses committed after that date), 5039; 28 U.S.C. 509, 510. 2. In § 545.25, add paragraph
(e)to read as follows: § 545.25 Eligibility for performance pay.
(e)Inmates receiving performance pay who are found through the disciplinary process (part 541 of this subchapter) to have committed a level 100 or 200 series drug-or alcohol-related prohibited act will automatically have their performance pay reduced to maintenance pay level and will be removed from any assigned work detail outside the secure perimeter of the institution. [FR Doc. E6-18447 Filed 11-1-06; 8:45 am] BILLING CODE 4410-05-P DEPARTMENT OF JUSTICE Bureau of Prisons 28 CFR Part 550 [Docket No. BOP-1139-P] RIN 1120-AB41 Drug Abuse Treatment Program: Eligibility of D.C. Code Offenders for Early Release Consideration AGENCY: Bureau of Prisons, Justice. ACTION: Proposed rule. SUMMARY: In this document, the Bureau of Prisons (Bureau) proposes to extend early release consideration to D.C. Code offenders pursuant to D.C. Code § 24-403.01. DATES: Comments due by January 2, 2007. FOR FURTHER INFORMATION CONTACT: Sarah Qureshi, Office of General Counsel, Bureau of Prisons, phone
(202)307-2105, e-mail *BOPRULES@BOP.GOV.* SUPPLEMENTARY INFORMATION: On July 1, 2004 (69 FR 39887), we published a proposed rule revising all the regulations on the Drug Abuse Treatment Program in 28 CFR part 550, subpart F (2004 proposed rule). We now propose to revise 28 CFR 550.55(a) of the 2004 proposed rule to extend early release consideration to D.C. Code offenders pursuant to D.C. Code § 24-403.01. The 2004 proposed rule, § 550.55(a), stated that inmates may be eligible for early release by a period not to exceed 12 months if they were sentenced to a term of imprisonment under 18 U.S.C. Chapter 227, Subchapter D for a nonviolent offense and successfully complete a residential drug abuse treatment program, as described in § 550.53, during their current commitment. We now propose to modify § 550.55(a) from the 2004 proposed rule to state that inmates may be eligible for early release by a period not to exceed 12 months if they were sentenced to a term of imprisonment under *either* 18 U.S.C. Chapter 227, Subchapter D for a nonviolent offense; or D.C. Code § 24-403.01 for a nonviolent offense, meaning an offense other than those in D.C. Code § 23-1331(4). There has been no change to the provision in the 2004 rule stating that in addition to the above criteria, inmates must successfully complete a residential drug abuse treatment program, as described in § 550.53, during their current commitment. Statutory Authority The Residential Drug Abuse Program
(RDAP)is available to all eligible inmates pursuant to Title 18 U.S.C. 3621(b) and (e). Section 3621(b) generally obligates the Bureau to provide “substance abuse treatment for each prisoner the Bureau determines has a treatable condition of addiction or abuse.” Section 3621(e)(1) states that the Bureau “shall, subject to the availability of appropriations, provide residential substance abuse treatment * * * for all eligible prisoners.” Further, under § 3621(e)(2)(B), the period a prisoner convicted of a nonviolent offense remains in custody after successfully completing a treatment program may be reduced by the Bureau of Prisons, but such reduction may not be more than one year from the term the prisoner must otherwise serve. Early Release Regulation In 1995, the Bureau published a regulation to implement the early release incentive which defined the term “crime of violence” and provided a framework for Bureau employees to make early release determinations. *See* 60 FR 27692 (May 25, 1995) (previously codified at 28 CFR 550.58). Instructive policy was issued in Program Statement 5162.02, Definition of Term, “Crimes of Violence.” In the regulation and policy, the Bureau defined the term “crime of violence” pursuant to 18 U.S.C. 924(c)(3). Subsequently, there was a split among Circuit Courts regarding the validity of this approach. The split prompted the Bureau to revise the regulation in 1997 to explicitly rely upon the discretion allotted to the Director of the Bureau to grant a sentence reduction. *See* 62 FR 53690 (Oct. 15, 1997) (codified at 28 CFR 550.58(a), currently in 550.55). The revised regulation was designed to achieve consistent administration of the early release incentive and to clearly demonstrate that the Bureau now relied upon the discretion of the Director to determine eligibility for certain program benefits. The revised regulation and policy resulted in another split among the Circuit Courts which was resolved by the Supreme Court's decision in *Lopez* v. *Davis* , 531 U.S. 230 (2001). In *Lopez,* the Supreme Court held that the revised regulation found at 28 CFR 550.58 (currently in § 550.55) is a permissible exercise of the Bureau's discretion under § 3621(e)(2)(B) for assessing program benefit eligibility. D.C. Code Offenders—Eligibility for Early Release The Bureau initially codified its rules regarding its Drug Abuse Treatment Programs on January 7, 1994. Subsequently, on May 25, 1995, the Bureau amended its rules on Drug Abuse Treatment Programs to allow for the consideration of early release of eligible inmates who successfully completed the RDAP. Excluded from this category of eligible inmates were inmates in Bureau custody not serving a sentence for a federal offense (e.g., D.C. Code offenders, contractual borders, INS detainees, and pretrial inmates). However, D.C. Code § 24-403.01(d-1), amended on May 24, 2005, states that D.C. Code offenders sentenced under D.C. Code § 24-403.01 for a nonviolent offense are eligible for early release consideration in accordance with 18 U.S.C. 3621(e)(2). Accordingly, the Director now extends early release eligibility pursuant to 18 U.S.C. 3621(e)(2) to D.C. Code offenders for successful completion of the RDAP. Eligibility for early release for D.C. Code offenders participating in the Residential Drug Abuse Program
(RDAP)requires a determination that the inmate has not committed a crime of violence as defined by D.C. Code § 23-1331(4). The National Capital Revitalization and Self-Government Improvement Act of 1997, approved August 5, 1997, (Pub. L. 105-33; 111 Stat. 740) (“Revitalization Act”) dictates that D.C. Code felony offenders “shall be subject to any law or regulation applicable to persons committed for violations of laws of the United States consistent with the sentence imposed, and the Bureau of Prisons shall be responsible for the custody, care, subsistence, education, treatment and training of such persons.” D.C. Code § 24-101(b). Therefore, as with federal offenders, it is also within the Director's discretion, as provided by 18 U.S.C. 3621(e), to determine D.C. Code offenders' eligibility for early release according to the same criteria used for federal offenders. This criteria, which appears in current § 550.58, gives the following list of inmates not eligible for early release:
(1)Immigration and Customs Enforcement detainees;
(2)Pretrial inmates;
(3)Contractual boarders (for example, State, or military inmates);
(4)Inmates who have a prior felony or misdemeanor conviction for:
(i)homicide (including deaths caused by recklessness, but not including deaths caused by negligence or justifiable homicide),
(ii)forcible rape,
(iii)robbery,
(iv)aggravated assault,
(v)arson,
(vi)kidnaping; or
(vii)an offense that by its nature or conduct involves sexual abuse offenses committed upon minors;
(5)Inmates who have a current felony conviction for:
(i)an offense that has as an element, the actual, attempted, or threatened use of physical force against the person or property of another,
(ii)an offense that involved the carrying, possession, or use of a firearm or other dangerous weapon or explosives (including any explosive material or explosive device),
(iii)an offense that by its nature or conduct, presents a serious potential risk of physical force against the person or property of another; or
(iv)an offense that by its nature or conduct involves sexual abuse offenses committed upon minors;
(6)Inmates who have been convicted of an attempt, conspiracy, or other offense which involved an underlying offense to commit any offense listed in paragraph
(4)and/or (5); or
(7)Inmates who previously received an early release under 18 U.S.C. 3621(e). Title 18 U.S.C. 3621(e)(2)(B) establishes two prerequisites for early release consideration:
(1)Conviction of a nonviolent offense and
(2)successful completion of drug treatment. If those prerequisites are met, the Bureau may grant early release. Thus, because of the Revitalization Act, the explicit intention of the D.C. Government stated in D.C. Code § 24-403.01, the statutory language of § 3621, the Bureau's regulations, and the Bureau's clearly established use of discretion as held in *Lopez* , the Bureau can consider D.C. Code offenders for RDAP early release as it does for Federal offenders. Executive Order 12866 This regulation has been drafted and reviewed in accordance with Executive Order 12866, “Regulatory Planning and Review”, section 1(b), Principles of Regulation. The Director, Bureau of Prisons has determined that this rule is not a “significant regulatory action” under Executive Order 12866, section 3(f), and accordingly this rule has not been reviewed by the Office of Management and Budget. In particular, the Bureau has assessed the costs and benefits of this rule as required by Executive Order 12866 Section 1(b)(6) and has made a reasoned determination that the benefits of this rule justify its costs. Clarifying and streamlining this rule and eliminating unnecessary text and obsolete language will have the benefit of easier readability and improved understanding of our drug treatment programs. We strengthen the program by calculated revisions designed to allow inmates to succeed in drug treatment while avoiding expending resources unnecessarily. Executive Order 13132 This regulation will not have substantial direct effects on the States, on the relationship between the national government and the States, or on distribution of power and responsibilities among the various levels of government. Under Executive Order 13132, this rule does not have sufficient federalism implications for which we would prepare a Federalism Assessment. Regulatory Flexibility Act The Director of the Bureau of Prisons, under the Regulatory Flexibility Act (5 U.S.C. 605(b)), reviewed this regulation. By approving it, the Director certifies that it will not have a significant economic impact upon a substantial number of small entities because: This rule is about the correctional management of offenders committed to the custody of the Attorney General or the Director of the Bureau of Prisons, and its economic impact is limited to the Bureau's appropriated funds. Unfunded Mandates Reform Act of 1995 This rule will not cause State, local and tribal governments, or the private sector, to spend $100,000,000 or more in any one year, and it will not significantly or uniquely affect small governments. We do not need to take action under the Unfunded Mandates Reform Act of 1995. Small Business Regulatory Enforcement Fairness Act of 1996 This rule is not a major rule as defined by § 804 of the Small Business Regulatory Enforcement Fairness Act of 1996. This rule will not result in an annual effect on the economy of $100,000,000 or more; a major increase in costs or prices; or significant adverse effects on competition, employment, investment, productivity, innovation, or on the ability of United States-based companies to compete with foreign-based companies in domestic and export markets. List of Subjects in 28 CFR Part 550 Prisoners. Harley G. Lappin, Director, Bureau of Prisons. Under the rulemaking authority vested in the Attorney General in 5 U.S.C 301; 28 U.S.C. 509, 510 and delegated to the Director, Bureau of Prisons in 28 CFR 0.96, we propose to amend 28 CFR part 550 as follows. SUBCHAPTER C—INSTITUTIONAL MANAGEMENT PART 550—DRUG PROGRAMS 1. The authority citation for part 550 continues to read as follows: Authority: 5 U.S.C. 301; 18 U.S.C. 3521-3528, 3621, 3622, 3624, 4001, 4042, 4046, 4081, 4082 (Repealed in part as to offenses committed on or after November 1, 1987), 5006-5024 (Repealed October 12, 1984 as to offenses committed after that date), 5039; 21 U.S.C. 848; 28 U.S.C. 509, 510; Title V, Pub. L. 91-452, 84 Stat. 933 (18 U.S.C. Chapter 223). Subpart F—Drug Abuse Treatment Program 2. Revise § 550.55 (a)(1) as follows: § 550.55 Eligibility for early release.
(a)*Eligibility.* Inmates may be eligible for early release by a period not to exceed 12 months if they:
(1)were sentenced to a term of imprisonment under either:
(i)18 U.S.C. Chapter 227, Subchapter D for a nonviolent offense; or
(ii)D.C. Code § 24-403.01 for a nonviolent offense, meaning an offense other than those in D.C. Code § 23-1331(4); and [FR Doc. E6-18439 Filed 11-1-06; 8:45 am] BILLING CODE 4410-05-P 71 212 Thursday, November 2, 2006 Notices DEPARTMENT OF AGRICULTURE Agricultural Marketing Service [Docket Number FV-06-301] United States Standards for Grades of Mixed Commodities AGENCY: Agricultural Marketing Service, USDA. ACTION: Notice. SUMMARY: The Agricultural Marketing Service
(AMS)of the Department of Agriculture
(USDA)is establishing voluntary United States Standards for Grades of Mixed Commodities. The standards will provide industry with a common language and uniform basis for trading, thus promoting the orderly and efficient marketing for fresh fruits and vegetables that are mixed in a package. DATES: *Effective Date:* December 4, 2006. FOR FURTHER INFORMATION CONTACT: Cheri L. Emery, Standardization Section, Fresh Products Branch, Fruit and Vegetable Programs, Agricultural Marketing Service, U.S. Department of Agriculture, 1400 Independence Ave., SW., Room 1661, South Building, Stop 0240, Washington, DC 20250-0240,
(202)720-2185, fax
(202)720-8871, or e-mail *Cheri.Emery@usda.gov.* The United States Standards for Grades of Mixed Commodities is available either from the above address or by accessing the AMS, Fresh Products Branch Web site at: *http://www.ams.usda.gov/standards/stanfrfv.htm.* SUPPLEMENTARY INFORMATION: Section 203(c) of the Agricultural Marketing Act of 1946 (7 U.S.C. 1621-1627), as amended, directs and authorizes the Secretary of Agriculture “To develop and improve standards of quality, condition, quantity, grade and packaging and recommend and demonstrate such standards in order to encourage uniformity and consistency in commercial practices.” AMS is committed to carrying out this authority in a manner that facilitates the marketing of agricultural commodities and makes copies of official standards available upon request. The United States Standards for Grades of Fruits and Vegetables not connected with Federal Marketing Orders or U.S. Import Requirements, no longer appear in the Code of Federal Regulations, but are maintained by USDA, AMS, Fruit and Vegetable Programs. AMS is establishing voluntary United States Standards for Grades of Mixed Commodities using the procedures that appear in Part 36, Title 7 of the Code of Federal Regulations (7 CFR part 36). Background AMS previously published a notice in the **Federal Register** (71 FR 3816-3817), on January 24, 2006, soliciting comments on the proposed voluntary United States Standards for Grades of Mixed Commodities. The proposed standards contained the U.S. Mixed grade. In addition, there were “Sample Basis,” “Tolerances,” and “Application of Tolerances” sections. AMS also defined “Mixed,” “Injury,” “Damage,” and “Serious Damage.” In response to the notice, a comment was received from an individual asking “ * * * how would commodities with tolerances of less than 10% be handled?” The total tolerance in the United States Standards for Grades of Mixed Commodities would be 10 percent. Therefore, when commodities are being certified under the mixed commodities standards the 10 percent tolerance would apply regardless of the tolerances in the individual standards. Additionally, the commenter asked, “Can commodities under a Marketing Order (with less than 10% tolerance, i.e. onions from Idaho and Eastern Oregon) be packed under this standard?” Marketing orders are issued under the Agricultural Marketing Agreement Act of 1937 (7 U.S.C. 601-608) and commodities regulated under such orders must meet handling requirements that may include tolerances that differ from the 10 percent tolerance that appears in the mixed commodities standards. The voluntary mixed commodities standards are issued under the Agricultural Marketing Act of 1946 and the 10 percent total tolerance for such mixed commodities would be applicable to grading and certification under this program. Certification under the U.S. mixed commodities standard would not meet the requirements of the marketing order program. The adoption of the U.S. grade standards will provide the mixed commodity industry with U.S. grade standards similar to those extensively in use by the fresh produce industry to assist in orderly marketing of other commodities. The official grade of a lot of mixed commodities covered by these standards will be determined by the procedures set forth in the Regulations Governing Inspection, Certification, and Standards of Fresh Fruits, Vegetables, and Other Products (Sec. 51.1 to 51.61). The United States Standards for Grades of Mixed Commodities will be effective 30 days after publication of this notice in the **Federal Register** . Authority: 7 U.S.C. 1621-1627. Dated: October 27, 2006. Lloyd C. Day, Administrator, Agricultural Marketing Service. [FR Doc. E6-18514 Filed 11-1-06; 8:45 am] BILLING CODE 3410-02-P DEPARTMENT OF AGRICULTURE Forest Service Clearwater National Forest; ID; Selway Bitterroot Wilderness Invasive Plants Management Project AGENCY: Forest Service, USDA. ACTION: Notice of intent to prepare an environmental impact statement. SUMMARY: The project proposes to contain and control the spread of non-native invasive plant species within the Selway Bitterroot Wilderness and non-Wilderness lands forming the margins of the Wilderness. Chemical and biological treatments are proposed along with other site-specific methods such as hand pulling and grubbing. All treatments would be ground-based. DATES: Comments concerning this analysis must be received by December 1, 2006. The draft environmental impact statement is expected in October, 2007 and the final environmental impact statement is expected April, 2008. ADDRESSES: Written comments concerning this notice or a request to be placed on the project mailing list should be addressed to: Chad Benson ( *cbenson@fs.fed.us* ), district Ranger, Powell Ranger Station, Lolo, MT 59847. Electronic comments may be submitted to: *comments-northern-clearwater@fs.fed.us* . If you choose to comment by e-mail, please include your name and regular mailing address with your comment. The subject line must contain the name of the project for which you are submitting comments (i.e. SBW invasive Plants Project). Acceptable formats are MS Word, WordPerfect, or RTF. All comments, including names and address when provided, are placed in the record and are available for public inspection and copying. The public may inspect comments received at the Powell Ranger District Office. FOR FURTHER INFORMATION CONTACT: Chad Benson, District Ranger, Powell Ranger District. Phone:
(208)942-0307. Additional information is also available on the Forest Web site at *http://www.fs.fed.us/r1/clearwater/Projects* . SUPPLEMENTARY INFORMATION: Project Area The project area consists of the entire Selway Bitterroot Wilderness (1,348,000 acres) as well as key areas adjacent to the wilderness on the Nez Perce, Clearwater, Bitterroot, and Lolo National Forests in western Montana and north central Idaho. Non-wilderness areas involve portions of the road and trail network leading into or passing through the wilderness and other specifically identified priority area. The project area is approximately 1,398,000 acres in size. Purpose and Need for Action Non-native invasive plants are a growing problem in the Selway Bitterroot Wilderness and surrounding areas. Without efforts to control these weeds, they will continue to expand into new areas and the number of new weed species will increase. The purpose of this project is to prevent the establishment of new invaders and reduce the impacts of established invasive plants on native plant community stability, sustainability and diversity within the Selway Bitterroot Wilderness. Inside the Selway Bitterroot Wilderness, approximately 111,000 acres are currently occupied to some degree by spotted knapweek sulfur cinquefoil, St. Johnswort (goatweed) and oxeye daisy. Spotted knapweek accounts for approximately 90 percent of the occupied acres. Newer invaders such as Dalmatian toadflax, musk thistle, and meadow hawkweed occupy very small acreages at the present time. Outside the Wilderness but within the project area, approximately 5,000 acres are occupied by invasive species with the potential to expand into new areas of the Wilderness. Proposed Action The National Forests of the Selway Bitterroot Wilderness propose to apply integrated and adaptive approaches to reduce the effects of non-native invasive plant species on natural plant communities and ecosystems within the project area. Approximately 500 to 1500 acres a year are proposed for physical treatments including: chemical treatments, hand pulling, and revegetation with native plants. Biological control organisms would be applied to approximately 10,000 additional acres within the project area. Aerial spray application is not proposed. Grazing of domestic animals to reduce weeds within the Wilderness is not proposed. All treatments and applications would be ground-based. The emphasis of the treatments would be to eradicate new invaders as they are discovered and to contain the spread of established non-native plants. Possible Alternatives The Forest Service will consider alternatives to the proposed action including a “no action” alternative in which none of the proposed activities would be implemented. Additional alternatives being considered examine varying levels and locations for the proposed activities to achieve the proposal's purpose and need, as well as respond to issues and other resource concerns. Responsible Official The Responsible Official is the Forest Supervisor of the Clearwater National Forest, 12730 Highway 12, Orofino, Idaho 83544. The Responsible Official will decide if the proposed project will be implemented and will document the decision and reasons for the decision in a Record of Decision. That decision will be subject to Forest Service Appeal Regulations. The responsibility for preparing the DEIS and FEIS has been delegated to the District Ranger, Powell Ranger Station, Lolo, MT 59847. Nature of Decision To Be Made The decision would specify methods and materials to be used or applied to contain and control unwanted plant species within the project area. The decision would specify the areas to be treated as well as the terms and conditions under which treatment methods and materials would be applied. Administrative actions to monitor effects and effectiveness as well as promote prevention through public awareness and education would also be specified. The anticipated life of the decision would be 10 to 15 years. Scoping Process Each of the National Forests managing a portion of the Selway Bitterroot Wilderness maintains a listing of individuals and organizations that have expressed an interest in being informed of and providing input to projects including these types of activities or in this specific location. All of these contacts will be sent the initial scoping document. A legal notice describing the scoping process will be published in the paper of record for each of the National Forests. Comment Requested This notice of intent initiates the scoping process which guides the development of the environmental impact statement. Early Notice of Importance of Public Participation in Subsequent Environmental Review: A draft environmental impact statement will be prepared for comment. The comment period on the draft environmental impact statement will be 45 days from the date the Environmental Protection Agency publishes the notice of availability in the **Federal Register** . The Forest Service believes, at this early stage it is important to give reviewers notice of several court ruling related to public participation in the environmental review process. First, reviewers of draft environmental impact statements must structure their participation in the environmental review of the proposal so that it is meaningful and alerts an agency to the reviewer's position and contentions. *Vermont Yankee Nuclear Power Corp.* v. *NRDC* , 435 U.S. 519, 553 (1978). Also, environmental objections that could be raised at the draft environmental impact statement stage but that are not raised until after completion of the final environmental impact statement may be waived or dismissed by the courts. *City of Angoon* v. *Hodel* , 803 F.2d 1016, 1022 (9th Cir. 1986) and *Wisconsin Heritages, Inc.* v. *Harris* , 490 F. Supp. 1334, 1338 (E.D. Wis. 1980). Because of these court rulings, it is very important that those interested in this proposed action participate by the close of the 45-day comment period so that substantive comments and objections are made available to the Forest Service at a time when it can meaningfully consider them and respond to them in the final environmental impact statement. To assist the Forest Service in identifying and considering issues and concerns on the proposed action, comments on the draft environmental impact statement should be as specific as possible. It is also helpful if comments refer to specific pages or chapters of the draft statement. Comments may also address the adequacy of the draft environmental impact statement or the merits of the alternatives formulated and discussed in the statement. Reviewers may wish to refer to the Council on Environmental Quality Regulations for implementing the procedural provisions of the National Environmental Policy Act at 40 CFR 1503.3 in addressing these points. Comments received, including the names and addresses of those who comment, will be considered part of the public record on this proposal and will be available for public inspection. (Authority: 40 CFR 1501.7 and 1508.22; Forest Service Handbook 1909.15, Section 21) Dated: October 26, 2006. Thomas K. Reilly, Forest Supervisor. [FR Doc. 06-9016 Filed 11-1-06; 8:45 am]
Connectionstraces to 25
Traces to 25 documents
38 references not yet in our index
  • 14 CFR 39
  • 26 CFR 1
  • T.D. 9046
  • T.D. 9108
  • Pub. L. 108-357
  • 118 Stat. 1418
  • Pub. L. 109-222
  • 120 Stat. 345
  • T.D. 9017
  • 26 CFR 20
  • 26 CFR 25
  • 26 CFR 31
  • 26 CFR 53
  • 26 CFR 54
  • 26 CFR 56
  • 31 CFR 10
  • 26 CFR 301
  • 28 CFR 524
  • 28 CFR 524.32(b)
  • 18 USC 3521-3528
  • 28 CFR 545
  • 28 CFR 541
  • 28 CFR 550
  • 28 CFR 550.58
  • 28 CFR 550.58(a)
  • 531 U.S. 230
  • Pub. L. 105-33
  • 111 Stat. 740
  • Pub. L. 91-452
  • 84 Stat. 933
  • 7 USC 1621-1627
  • 7 CFR 36
  • 7 USC 601-608
  • 435 U.S. 519
  • 803 F.2d 1016
  • 490 F. Supp. 1334
  • 40 CFR 1503.3
  • 40 CFR 1501.7
Citation graph
cites case law
Proposed Rules
Notice of proposed rulemaking (NPRM)
C.F.R.§ 21.29
Fed. Reg.Proposed Rules
Fed. Reg.Notices
U.S.C.§ 106
C.F.R.§ 91.403
C.F.R.§ 39.19
C.F.R.§ 43.11
U.S.C.§ 7805
U.S.C.§ 3507
SCOTUS531 U.S. 230
SCOTUS435 U.S. 519
F. App'x803 F.2d 1016
Cites 63 · showing 12Cited by 0 across 0 sources
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