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Code · REGISTER · 2007-02-05 · AID Agency for International Development NOTICES Meetings: Voluntary Foreign Aid Advisory Committee, 5258 E7-1764 Agricultural Agricultural Marketing Service NOTICES Agency information collection acti · Unknown

Unknown. Final rule

51,892 words·~236 min read·/register/2007/02/05/07-490

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

--- schema: federal-register doc_type: fedreg source_file: FR-2007-02-05.xml --- 72 23 Monday, February 5, 2007 Contents AID Agency for International Development NOTICES Meetings: Voluntary Foreign Aid Advisory Committee, 5258 E7-1764 Agricultural Agricultural Marketing Service NOTICES Agency information collection activities; proposals, submissions, and approvals, 5258-5259 E7-1758 Grade standards: Mangos, 5259-5260 E7-1760 Mushrooms, 5260 E7-1761 Oranges and grapefruit (California and Arizona), 5260-5261 E7-1759 Peppers (other than sweet peppers), 5261 E7-1762 Agriculture Agriculture Department See Agricultural Marketing Service See Animal and Plant Health Inspection Service See Forest Service See Rural Housing Service Air Force Air Force Department NOTICES Agency information collection activities; proposals, submissions, and approvals, 5274-5277 07-477 07-478 07-479 07-480 07-482 07-483 07-484 Animal Animal and Plant Health Inspection Service NOTICES Environmental statements; availability, etc.:
Nonregulated status determinations— Monsanto Co; soybean genetically engineered for glyphosate herbicide tolerance, 5261-5263 E7-1793 Safflower; genetically engineered to express carp growth hormones; field release, 5263-5264 E7-1790 Arts Arts and Humanities, National Foundation See National Foundation on the Arts and the Humanities Bonneville Bonneville Power Administration NOTICES Meetings: Transmission rate case; hearing, 5283-5288 E7-1773 Centers Centers for Disease Control and Prevention NOTICES Agency information collection activities; proposals, submissions, and approvals, 5297-5298 E7-1776 E7-1782 Children Children and Families Administration NOTICES Meetings:
People with Intellectual Disabilities, President's Committee, 5298 E7-1805 Commerce Commerce Department See Economic Analysis Bureau See Industry and Security Bureau See International Trade Administration See National Oceanic and Atmospheric Administration Defense Defense Department See Air Force Department See Navy Department NOTICES Meetings; Sunshine Act, 5273-5274 07-499 Economic Economic Analysis Bureau RULES International services surveys: BE-125; transactions in selected services and intangible assets with foreign persons; quarterly survey, 5169-5171 E7-1786 BE-185; financial services transactions between U.S. providers and foreign persons; quarterly survey, 5167-5169 E7-1783 Education Education Department NOTICES Grants and cooperative agreements; availability, etc.:
Safe and drug-free schools programs— Alcohol and other drug prevention models on college campuses, 5279-5282 E7-1806 Meetings: Historically Black Colleges and Universities President's Board of Advisors, 5282 07-469 Energy Energy Department See Bonneville Power Administration See Federal Energy Regulatory Commission NOTICES Meetings: Nuclear Energy Research Advisory Committee, 5282-5283 E7-1772 EPA Environmental Protection Agency PROPOSED RULES Air quality implementation plans; approval and promulgation; various States:
Alaska, 5232-5239 E7-1802 NOTICES Meetings: Acute Exposure Guideline Levels for Hazardous Substances National Advisory Committee, 5288-5289 E7-1792 Clean Air Scientific Advisory Committee, 5289-5290 E7-1791 Executive Executive Office of the President See Presidential Documents FAA Federal Aviation Administration RULES Airworthiness directives: Airbus, 5157-5166 E7-1601 E7-1602 Bombardier, 5164-5167 E7-1600 NOTICES Agency information collection activities; proposals, submissions, and approvals, 5314-5315 07-464 07-466 Reports and guidance documents; availability, etc.:
Required Navigation Performance Special Aircraft and Aircrew Authorization Required approaches; approval consultants, 5315-5316 07-467 FCC Federal Communications Commission NOTICES Debarment proceedings: Premio, Inc., 5290 E7-1795 FDIC Federal Deposit Insurance Corporation PROPOSED RULES Deposit insurance coverage: Industrial bank subsidiaries of financial companies, 5217-5228 E7-1854 NOTICES Reports and guidance documents; availability, etc.: Industrial loan company and bank applications and notices; moratorium extension, 5290-5294 E7-1853 Federal Election Federal Election Commission NOTICES Expenditure and contribution limits; price index increases, 5294-5296 E7-1755 Meetings;
Sunshine Act, 5296 07-525 Federal Emergency Federal Emergency Management Agency RULES Flood elevation determinations: Various States, 5197-5214 E7-1769 PROPOSED RULES Flood elevation determinations: Various States, 5239-5255 E7-1770 E7-1771 NOTICES Agency information collection activities; proposals, submissions, and approvals, 5298-5299 E7-1768 Federal Energy Federal Energy Regulatory Commission RULES Organization, functions, and authority delegations: Enforcement Office Director et al., 5171-5174 E7-1737 Federal Reserve Federal Reserve System NOTICES Banks and bank holding companies:
Change in bank control, 5296 E7-1779 Change in bank control; correction, 5296 E7-1780 Permissible nonbanking activities, 5296 E7-1778 Forest Forest Service NOTICES Land and resource management plans, etc.: Lake Tahoe Basin Management Unit, CA, 5264-5265 07-475 Health Health and Human Services Department See Centers for Disease Control and Prevention See Children and Families Administration Homeland Homeland Security Department See Federal Emergency Management Agency See U.S. Citizenship and Immigration Services Industry Industry and Security Bureau NOTICES Meetings:
Information Systems Technical Advisory Committee, 5265 07-489 IRS Internal Revenue Service RULES Income taxes: Foreign corporations; U.S. transfers of stock or securities, 5174-5197 07-490 PROPOSED RULES Income taxes: Certain transfers of stock or securities by U.S. persons to foreign corporations, 5228-5230 07-496 NOTICES Agency information collection activities; proposals, submissions, and approvals, 5316 E7-1815 International International Trade Administration NOTICES Antidumping:
Honey from— China, 5265-5266 E7-1809 Pasta from— Italy and Turkey, 5266-5268 E7-1811 Preserved mushrooms from— China, 5268 E7-1807 India, 5268-5269 E7-1810 Countervailing duties: Pasta from— Italy, 5271-5273 E7-1816 Turkey, 5269-5271 E7-1813 International International Trade Commission NOTICES Import investigations: Wireless conference calling devices, components, and devices containing same, 5300-5301 E7-1801 Labor Labor Department NOTICES Organization, functions, and authority delegations:
Chief Acquisition Officer et al., 5320-5322 E7-1812 Millennium Millennium Challenge Corporation NOTICES Meetings; Sunshine Act, 5301 07-511 National Foundation National Foundation on the Arts and the Humanities NOTICES Agency information collection activities; proposals, submissions, and approvals, 5301-5303 E7-1765 E7-1766 Meetings: Arts Advisory Panel, 5303 E7-1885 NOAA National Oceanic and Atmospheric Administration RULES Marine mammals: Commercial fishing operations— Atlantic Large Whale Take Reduction Plan, 5214-5216 07-488 PROPOSED RULES Fishery and conservation management:
Alaska; fisheries of Exclusive Economic Zone— Bering Sea and Aleutian Islands king and tanner crabs, 5255-5257 E7-1804 NOTICES Scientific research permit applications, determinations, etc., 5273 E7-1803 Navy Navy Department NOTICES Agency information collection activities; proposals, submissions, and approvals, 5277-5278 07-476 Meetings: Chief of Naval Operations Executive Panel, 5278 E7-1775 Patent licenses; non-exclusive, exclusive, or partially exclusive: Ionova Technologies, Inc., 5278 E7-1788 Walleye Technologies, Inc., 5278-5279 E7-1789 Nuclear Nuclear Regulatory Commission NOTICES *Applications, hearings, determinations, etc.:* Dominion Energy Kewaunee, Inc., 5303-5305 E7-1784 Personnel Personnel Management Office RULES Health benefits, Federal employees:
Payment of premiums for periods of leave without pay or insufficient pay, 5151-5153 E7-1754 Postal Postal Regulatory Commission PROPOSED RULES Practice and procedure: Postal rate and fee changes, 5230-5232 E7-1787 Presidential Presidential Documents PROCLAMATIONS *Special observances:* American Heart Month (Proc. 8104), 5323-5326 07-527 ADMINISTRATIVE ORDERS Darfur Peace and Accountability Act of 2006; assignment of functions (Memorandum of January 25, 2007), 5149 07-512 Rural Rural Housing Service RULES Direct single family housing loans and grants:
Homeownership education requirements, 5153-5157 E7-1817 SEC Securities and Exchange Commission NOTICES Self-regulatory organizations; proposed rule changes: International Securities Exchange, LLC, 5305-5306 E7-1763 New York Stock Exchange LLC, 5306-5314 E7-1777 E7-1781 Transportation Transportation Department See Federal Aviation Administration Treasury Treasury Department See Internal Revenue Service See United States Mint MISSING FOR: U.S. Citizenship and Immigration Services U.S.
Citizenship and Immigration Services NOTICES Agency information collection activities; proposals, submissions, and approvals, 5299-5300 E7-1747 E7-1794 U.S. Mint United States Mint NOTICES American eagle gold and silver proof coins; uncirculated coin price increase, 5317 E7-1757 Veterans Veterans Affairs Department NOTICES Meetings: Veterans’ Disability Benefits Commission, 5317 07-491 Women Veterans Advisory Committee, 5317-5318 07-492 Separate Parts In This Issue Part II Labor Department, 5319-5322 E7-1812 Part III Executive Office of the President, Presidential Documents, 5323-5326 07-527 Reader Aids Consult the Reader Aids section at the end of this issue for phone numbers, online resources, finding aids, reminders, and notice of recently enacted public laws.
To subscribe to the Federal Register Table of Contents LISTSERV electronic mailing list, go to http://listserv.access.gpo.gov and select Online mailing list archives, FEDREGTOC-L, Join or leave the list (or change settings); then follow the instructions. 72 23 Monday, February 5, 2007 Rules and Regulations OFFICE OF PERSONNEL MANAGEMENT 5 CFR Part 890 RIN 3206-AG66 Federal Employees Health Benefits: Payment of Premiums for Periods of Leave Without Pay or Insufficient Pay AGENCY:
Office of Personnel Management. ACTION: Final rule. SUMMARY: The Office of Personnel Management
(OPM)is issuing final regulations to rewrite certain sections of the Federal regulations in plain language. These final regulations require Federal agencies to provide employees entering leave without pay
(LWOP)status, or whose pay is insufficient to cover their Federal Employees Health Benefits
(FEHB)premium payments, written notice of their opportunity to continue their FEHB coverage. Employees who want to continue their enrollment must sign a form agreeing to pay their premiums directly to their agency on a current basis, or to incur a debt to be withheld from their future salary. The purpose of this final regulation is to rewrite the existing regulations to ensure that employees who are entering LWOP status, or whose pay is insufficient to pay their FEHB premiums, are fully informed when they decide whether or not to continue their FEHB coverage. EFFECTIVE DATE: This regulation is effective on March 7, 2007. FOR FURTHER INFORMATION CONTACT: Michael Kaszynski, Policy Analyst, at U.S. Office of Personnel Management, 1900 E Street, NW., Room 3425, Washington DC 20415. 202.606.0004. SUPPLEMENTARY INFORMATION: The Office of Personnel Management
(OPM)issued an interim regulation containing most of the substantive changes of this final regulation on July 22, 1996, at 61 FR 37807. This regulation is an up-dated plain language version of 61 FR 37807. On June 16, 2006, OPM published this plain language rewrite as a proposed regulation at 71 FR 34849. We received no comment on the proposed regulation. There have been no changes to the regulation from its proposed version. Collection of Information Requirement This final rule does not impose information collection and recordkeeping requirements that meet the definition of the Paperwork Reduction Act of 1995's term “collection of information” which means obtaining, causing to be obtained, soliciting, or requiring the disclosure to third parties or the public, of facts or opinions by or for an agency, regardless of form or format, calling for either answers to identical questions posed to, or identical reporting or recordkeeping requirements imposed on ten or more persons, other than agencies, instrumentalities, or employees of the United States; or answers to questions posed to agencies, instrumentalities, or employees of the United States which are to be used for general statistical purposes. Consequently, it need not be reviewed by the Office of Management and Budget under the authority of the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 *et seq.* ). Regulatory Flexibility Act The Regulatory Flexibility Act
(RFA)requires agencies to analyze options for regulatory relief of small businesses. For purposes of the RFA, small entities include small businesses, nonprofit organizations, and government agencies with revenues of $11.5 million or less in any one year. This rulemaking affects FEHB Program enrollment practices which do not impact the dollar threshold. Therefore, I certify that this regulation will not have a significant economic impact on a substantial number of small entities. Regulatory Impact Analysis We have examined the impact of this final rule as required by Executive Order 12866 (September 1993, Regulatory Planning and Review), the RFA (September 16, 1980, Pub. L. 96-354), section 1102(b) of the Social Security Act, the Unfunded Mandates Reform Act of 1995, (Pub. L. 104-4), and Executive Order 13132. Executive Order 12866 (as amended by Executive Order 13258, which merely assigns responsibility of duties) directs agencies to assess all costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts, and equity). A regulatory impact analysis
(RIA)must be prepared for major rules with economically significant effects ($100 million or more in any one year). This rule is not considered a major rule, as defined in section 804(2) of title 5, United States Code, because we estimate it will only affect Federal Government employment offices. Any resulting economic impact would not be expected to exceed the dollar threshold. Executive Order 12866, Regulatory Review This rule has been reviewed by the Office of Management and Budget in accordance with Executive Order 12866. List of Subjects in 5 CFR Part 890 Administrative practice and procedure, Government employees, Health facilities, Health insurance, Health professionals, Hostages, Iraq, Kuwait, Lebanon, Military Personnel, Reporting and recordkeeping requirements, Retirement. Office of Personnel Management. Linda M. Springer, Director. For the reasons set forth in the preamble, OPM is amending 5 CFR part 890 as follows: PART 890—FEDERAL EMPLOYEES HEALTH BENEFITS PROGRAM 1. The authority citation for part 890 continues to read as follows: Authority: 5 U.S.C. 8913; § 890.803 also issued under 50 U.S.C. 403p, 22 U.S.C. 4069c and 4069c-1; subpart L also issued under sec. 599C of Pub. L. 101-513, 104 Stat. 2064, as amended; § 890.102 also issued under sections 11202(f), 11232(e), 11246
(b)and
(c)of Pub. L. 105-33, 111 Stat. 251; and section 721 of Pub. L. 105-261, 112 Stat. 2061, unless otherwise noted. 2. In § 890.502, the section heading and paragraphs (a), (b), (c),
(d)and
(e)are revised to read as follows: § 890.502 Withholdings, contributions, LWOP, premiums, and direct premium payment.
(a)*Employee and annuitant withholdings and contributions.*
(1)Employees and annuitants are responsible for paying the enrollee share of the cost of enrollment for every pay period during which they are enrolled. An employee or annuitant incurs a debt to the United States in the amount of the proper employee or annuitant withholding required for each pay period during which they are enrolled if the appropriate health benefits withholdings or direct premium payments are not made.
(2)An individual is not required to pay withholdings for the period between the end of the pay period in which he or she separates from service and the commencing date of an immediate annuity, if later.
(3)Temporary employees who are eligible to enroll under 5 U.S.C. 8906a must pay the full subscription charges including both the employee share and the Government contribution. Employees with provisional appointments under § 316.403 of this chapter are not considered eligible for coverage under 5 U.S.C. 8906a for the purpose of this paragraph.
(4)The employing office must calculate the withholding for employees whose annual pay is paid during a period shorter than 52 workweeks on an annual basis and prorate the withholding over the number of installments of pay regularly paid during the year.
(5)The employing office must make the withholding required from enrolled survivor annuitants in the following order. First, withhold from the annuity of a surviving spouse, if there is one. If that annuity is less than the amount required, withhold to the extent necessary from the annuity of the youngest child, and if necessary, from the annuity of the next older child, in succession, until the withholding is met.
(6)Surviving spouses who have a basic employee death benefit under 5 U.S.C. 8442(b)(1)(A) and annuitants whose health benefits premiums are more than the amount of their annuities may pay their portion of the health benefits premium directly to the retirement system acting as their employing office, as described in paragraph
(d)of this section.
(b)*Procedures when an employee enters a leave without pay
(LWOP)status or pay is insufficient to cover premium.* The employing office must tell the employee about available health benefits choices as soon as it becomes aware that an employee's premium payments cannot be made because he or she will be or is already in a leave without pay
(LWOP)status or any other type of nonpay status. (This does not apply when nonpay is as a result of a lapse of appropriations.) The employing office must also tell the employee about available choices when an employee's pay is not enough to cover the premiums.
(1)The employing office must give the employee written notice of the choices and consequences as described in paragraphs (b)(2)(i) and
(ii)of this section and will send a letter by first class mail if it cannot give it to the employee directly. If it mails the notice, it is deemed to be received within 5 days.
(2)The employee must elect in writing to either continue health benefits coverage or terminate it. (Exception: An employee who is subject to a court or administrative order as discussed in § 890.301(g)(3) cannot elect to terminate his or her enrollment as long as the court/administrative order is still in effect and the employee has at least one child identified in the order who is still eligible under the FEHB Program, unless the employee provides documentation that he or she has other coverage for the child(ren).) The employee may continue coverage by choosing one of the following ways to pay and returning the signed form to the employing office within 31 days after he or she receives the notice (45 days for an employee residing overseas). When an employee mails the signed form, its postmark will be used as the date the form is returned to the employing office. If an employee elects to continue coverage, he or she must elect in writing one of the following:
(i)Pay the premium directly to the agency and keep the payments current. The employee must also agree that if he or she does not pay the premiums currently, the employing office will recover the amount of accrued unpaid premiums as a debt under paragraph (b)(2)(ii) of this section.
(ii)If the employee does not wish to pay the premium directly to the agency and keep payments current, he or she may agree that upon returning to employment or upon pay becoming sufficient to cover the premiums, the employing office will deduct, in addition to the current pay period's premiums, an amount equal to the premiums for a pay period during which the employee was in a leave without pay
(LWOP)status or pay was not enough to cover premiums. The employing office will continue using this method to deduct the accrued unpaid premiums from salary until the debt is recovered in full. The employee must also agree that if he or she does not return to work or the employing office cannot recover the debt in full from salary, the employing office may recover the debt from whatever other sources it normally has available for recovery of a debt to the Federal Government.
(3)If the employee does not return the signed form within the time period described in paragraph (b)(2) of this section, the employing office will terminate the enrollment and notify the employee in writing of the termination. (4)(i) If the employee is prevented by circumstances beyond his or her control from returning a signed form to the employing office within the time period described in paragraph (b)(2) of this section, he or she may write to the employing office and request reinstatement of the enrollment. The employee must describe the circumstances that prevented him or her from returning the form. The request for reinstatement must be made within 30 calendar days from the date the employing office gives the employee notice of the termination. The employing office will determine if the employee is eligible for reinstatement of coverage. When the determination is affirmative, the employing office will reinstate the coverage of the employee retroactive to the date of termination. If the determination is negative, the employee may request a review of the decision from the employing agency (see § 890.104).
(ii)If the employee is subject to a court or administrative order as discussed in § 890.301(g)(3), the coverage cannot terminate. If the employee does not return the signed form, the coverage will continue and the employee will incur a debt to the Federal Government as discussed in paragraphs (b)(2)(i) and (b)(2)(ii) of this section.
(5)Terminations of enrollment under paragraphs (b)(2) and
(3)of this section are retroactive to the end of the last pay period in which the premium was withheld from pay. The employee and covered family members, if any, are entitled to the temporary extension of coverage for conversion and may convert to an individual contract for health benefits. An employee whose coverage is terminated may enroll upon his or her return to duty in pay status in a position in which the employee is eligible for coverage under this part.
(c)*Procedures when agency under-withholds premiums.*
(1)An agency that withholds less than the amount due for health benefits contributions from an individual's pay, annuity, or compensation must submit an amount equal to the uncollected employee contributions and any applicable agency contributions to OPM for deposit in the Employees Health Benefits Fund.
(2)The agency must make the deposit to OPM as soon as possible, but no later than 60 calendar days after it determines the amount of an under-deduction that has occurred, regardless of whether or when the agency recovers the under-deduction. A subsequent agency decision on whether to waive collection of the overpayment of pay caused by failure to properly withhold employee health benefits contributions will be made under 5 U.S.C. 5584 as implemented by 4 CFR chapter I, subchapter G, unless the agency involved is excluded from 5 U.S.C. 5584, in which case any applicable authority to waive the collection may be used.
(d)*Direct premium payments for annuitants.*
(1)If an annuity, excluding an annuity under subchapter III of chapter 84 (Thrift Savings Plan), is too low to cover the health benefits premium, or if a surviving spouse receives a basic employee death benefit, the retirement system must provide written information to the annuitant or surviving spouse. The information must describe the health benefits plans available, and include the opportunity to either:
(i)Enroll in a health benefits plan in which the enrollee's share of the premium is less than the annuity amount; or
(ii)Pay the premium directly to the retirement system.
(2)The retirement system must accept direct payment for health benefits premiums in these circumstances. The annuitant or surviving spouse must continue direct payment of the premium even if the annuity increases to the extent that it covers the premium.
(3)The annuitant or surviving spouse must pay the retirement system his or her share of the premium for the enrollment for every pay period during which the enrollment continues, except for the 31-day temporary extension of coverage. The individual must make the payment after each pay period in which he or she is covered using a schedule set up by the retirement system. If the retirement system does not receive payment by the due date, it must notify the individual in writing that continued coverage depends upon payment being made within 15 days (45 days for annuitants or surviving spouses residing overseas) after the notice is received. If no subsequent payments are made, the retirement system terminates the enrollment 60 days after the date of the notice (90 days for annuitants or surviving spouses residing overseas). An annuitant or surviving spouse whose enrollment terminated due to nonpayment of premium may not reenroll or reinstate coverage unless there are circumstances beyond his or her control as provided in paragraph (d)(4) of this section.
(4)If the annuitant or surviving spouse is prevented by circumstances beyond his or her control from paying the premium within 15 days after receiving the notice, he or she may ask the retirement system to reinstate the enrollment by writing the retirement system. The individual must describe the circumstances and send the request within 30 calendar days from the termination date. The retirement system will determine if the annuitant or surviving spouse is eligible for reinstatement of coverage. When the determination is affirmative, the retirement system will reinstate the coverage retroactive to the date of termination. If the determination is negative, then the individual may request a review of the decision from the retirement system, as described in § 890.104.
(5)Termination of enrollment for failure to pay premiums within the time frame described in paragraph (d)(3) of this section is retroactive to the end of the last pay period for which payment was timely received.
(6)The retirement system will submit all direct premium payments along with its regular health benefits premiums to OPM according to procedures established by OPM.
(e)*Procedures for direct payment of premiums during LWOP after 365 days.*
(1)An employee who is granted leave without pay
(LWOP)under subpart L of part 630 of this chapter (Family and Medical Leave) after 365 days of continued coverage under § 890.303(e) must pay the employee contributions directly to the employing office and keep payments current.
(2)The employee must make payments after the pay period in which the employee is covered according to a schedule set up by the employing office. If the employing office does not receive the payment by the date due, it must notify the employee in writing that continued coverage depends upon payment being made within 15 days (45 days for employees residing overseas) after the notice is received. If no subsequent payments are made, the employing office terminates the enrollment 60 days after the date of the notice (90 days for enrollees residing overseas).
(3)If the enrollee was prevented by circumstances beyond his or her control from making payment within the timeframe in paragraph (e)(2) of this section, he or she may ask the employing office to reinstate the enrollment by writing to the employing office. The employee must file the request within 30 calendar days from the date of termination and must include supporting documentation.
(4)The employing office determines whether the employee is eligible for reinstatement of coverage. When the determination is affirmative, the employing office will reinstate the coverage of the employee retroactive to the date of termination. If the determination is negative, the employee may request the employing agency to review the decision as provided under § 890.104.
(5)An employee whose coverage is terminated under paragraph (e)(2) of this section may enroll if he or she returns to duty in a pay status in a position in which the employee is eligible for coverage under this part. [FR Doc. E7-1754 Filed 2-2-07; 8:45 am] BILLING CODE 6329-39-P DEPARTMENT OF AGRICULTURE Rural Housing Service 7 CFR Part 3550 RIN 0575-AC54 Direct Single Family Housing Loans and Grants AGENCY: Rural Housing Service, USDA. ACTION: Final rule. SUMMARY: Through this action, the Rural Housing Service
(RHS)is adopting homeownership education requirements. The lack of homeownership education is a well-known barrier to successful homeownership for many families. The intended effect of this action is to assure that first time homeowners financed under the Section 502 Direct program are well prepared for homeownership by assuring that they receive homeownership education. DATES: This rule is effective on May 7, 2007. FOR FURTHER INFORMATION CONTACT: Janet L. Carter, Senior Loan Specialist, Rural Housing Service, Stop 0783, 1400 Independence Avenue, SW., Washington, DC 20250-0783, Telephone: 202-720-1489; e-mail: *Janet.Carter@wdc.usda.gov* . SUPPLEMENTARY INFORMATION: Classification This rule has been determined to be not significant and was not reviewed by the Office of Management and Budget
(OMB)under Executive Order 12866. Paperwork Reduction Act of 1995 In accordance with the Paperwork Reduction of 1995, the information collection requirements contained in this regulation have been approved by OMB under control number 0575-0172. E-Government Act Compliance The Agency is committed to complying with the E-Government Act, to promote the use of Internet and other information technologies to provided increased opportunities for citizen access to Government information and services, and for other purposes. Civil Justice Reform This rule has been reviewed under Executive Order 12988, Civil Justice Reform. In accordance with that Executive Order:
(1)All State and local laws and regulations that are in conflict with this rule will be preempted;
(2)no retroactive effect will be given to this rule; and
(3)administrative proceedings in accordance with the regulations of the National Appeals Division of USDA at 7 CFR part 11 must be exhausted before bringing suit in court challenging action taken under this rule unless those regulations specifically allow bringing suit at an earlier time. Unfunded Mandates Reform Act Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), Public Law 104-4, establishes requirements for Federal agencies to assess the effects of their regulatory actions on State, local, and tribal governments and the private sector. Under section 202 of the UMRA, 2 U.S.C. 1532, RHS generally must prepare a written statement, including a cost-benefit analysis, for proposed and final rules with “Federal mandates” that may result in expenditures to State, local, or tribal governments, in the aggregate, or to the private sector, of $100 million or more in any one year. When such a statement is needed for a rule, section 205 of the UMRA generally requires RHS to identify and consider a reasonable number of regulatory alternatives and adopt the least costly, more cost-effective or least burdensome alternative that achieves the objectives of the rule. This rule contains no Federal mandates (under the regulatory provisions of Title II of the UMRA) for State, local and tribal Governments or the private sector. Therefore, this rule is not subject to the requirements of sections 202 and 205 of the UMRA. Programs Affected The programs affected by this proposed rule are 10.410, Low to Moderate Income Housing Loans and 10.417, Very Low-Income Housing Repair Loans and Grants. Intergovernmental Consultation For the reasons set forth in the final rule related Notice to 7 CFR part 3015, subpart V, these programs are not subject to Executive Order 12372 which requires intergovernmental consultation with State and local officials. Environmental Impact Statement This document has been reviewed in accordance with 7 CFR part 1940, subpart G, “Environmental Program.” It is the determination of RHS that this action does not constitute a major Federal action significantly affecting the quality of the human environment, and in accordance with the National Environmental Policy Act of 1969, Public Law 91-190, an Environmental Impact Statement is not required. Regulatory Flexibility Act This rule has been reviewed with regard to the requirements of the Regulatory Flexibility Act (5 U.S.C. 601-612). The undersigned has determined and certified by signature of this document that this rule will not have a significant economic impact on a substantial number of small entities. This rule imposes a new requirement on Agency applicants and borrowers; however, the new requirement of homeownership education will apply solely to the individual applicants and borrowers of Section 502 Direct Single Family Housing financing, not to small entities. There will be no significant information collection, or regulatory requirements imposed on small entities under this proposed rule. Federalism The policies contained in this rule do not have any substantial direct effect on States, on the relationship between the National government and the States, or on the distribution of power and responsibilities among the various levels of government. Nor does this rule impose a substantial direct compliance costs on State and local governments. Therefore, consultation with the States is not required. Background On March 6, 2006 the Agency published a proposed rule (71 FR 11167-9) with a 60 day comment period that would add homeowner education as a requirement for first time homebuyers that use Section 502 Direct loan funds to purchase a home. We received a total of 52 comments in response to the proposed rule. Overall the comments expressed support for the addition of the homeownership education requirement and generally agreed that homeowner education was necessary and beneficial. Many comments did have a recommendation or suggest a revision to the proposed rule. The comments are highlighted into significant issue areas and discussed below. A. Homeowner Education as a Requirement Will Be a Barrier for Low-Income Families and Should Not Be Mandatory The Agency received 5 comments stating that mandating homeowner education would create a barrier for families to access Section 502 loans for home purchase. The comments suggested the following as possible barriers for families: • Availability of homeowner education classes; • Perception of an additional requirement that could discourage applicants, realtors and sellers from participating in the program, • The travel time, distance and cost to the applicant(s), and • Lack of certified counselors in some areas. The Agency does not believe that these are insurmountable barriers. In fact, based on the overall comments received, the Agency has determined that the general consensus is that making homeowner education a requirement results in greater benefit to the borrowers than any perceived detrimental effect to the home buying process. While the agency has established some preferences under § 3550.11 for formats in training based on their effectiveness, adequate flexibility has been included to address the possible barriers raised. In addition, although the Agency does not expect the exception provision to be liberally used, it will be available. The State Director may grant an exception to borrowers on a case-by-case basis where the applicant documents a special need, such as a disability, that would impede completing the homeownership course, or where homeownership education is not reasonably available in the local area as further discussed below. Therefore, these comments have not been adopted. B. Waiver of Homeowner Education by State Directors Should Not Be Routinely Exercised—RD Should Use Its Resources To Have Homeowner Education Services Delivered in Underserved Areas The Agency received 9 comments indicating that the waiver provision should not be routinely exercised, and 3 comments indicating the waiver provision was needed but that flexibility should be built into the rule in exercising the waiver. The State/Local RD office will do an area by area assessment of the availability of homeowner education in the following forms, before requesting an exception for an individual from the State Director: Classroom, one-on-one counseling, interactive video conference, interactive home-study, interactive telephone counseling, and on-line counseling. Exception requests will be reviewed and granted on an individual case-by-case basis. The State Director will consider whether access to such homeownership counseling is “reasonably available” before granting an exception to the homeowner education requirement to an individual. Factors that will be taken into consideration regarding availability of homeowner education to borrowers in areas served by field offices include, but are not limited to: Distance, travel time, geographic obstacles and cost. The intent of the exception provision is to ensure that the homeowner education requirement is not a barrier to an applicant in securing a loan; however, it is not the intent of the Agency to have liberal use of the exception provision. The exception provision is intended to be used only in those rare instances where it is demonstrated that a borrower would not be able to access any form of homeowner education without undue hardship[m1]. C. Readily Available Counseling Should Be Defined The Agency received 1 comment stating that readily available counseling should be defined in the rule. Informal investigation indicated that in some states applicants traveled up to one hour to attend a homeowner education class, after work and on the weekends, if necessary. Other comments were received that indicated an applicant would have to travel to another county to receive counseling. Distances vary from state to state and the willingness of an applicant to attend a class will vary. Given the many differences from state to state, what is “ readily available” in this rule is better addressed by the State Director during the assessment of available homeowner education resources in the respective States. Factors that will be taken into consideration regarding availability of homeowner education to borrowers in areas served by field offices include, but are not limited to: distance, travel time, geographic obstacles and cost. D. Lack of funds to pay for homeownership education training/who will pay for the homeowner education if the borrower cannot afford it? The Agency received 7 comments regarding sources of funds to pay for homeowner education on behalf of very-low and low-income borrowers. Some commenters believe that the Agency should assist in paying for the required homeowner education. This issue will be addressed, in part, by the RD State Offices when they assess the availability of homeowner education throughout their respective states and compile, an annually updated resource list of certified organizations and trainers that provide homeowner education. Where there is a fee charged to the borrower for homeowner education, the States will also assess sources of funding for the borrower to pay for their homeowner education, for example, organizations that provide free homeowner education will be identified, and borrowers will be referred to the free training first in all states. The Agency research revealed that many organizations charge only a nominal fee to cover the cost of materials for homeowner education. If qualified, these providers will be identified, and borrowers will be referred to these classes if free classes are unavailable. In addition, the borrower will have the option of financing reasonable costs of the training, as determined by the State Director, by including the amount in the loan amount at loan closing. Inclusion of such costs will not substantially increase the monthly Section 502 borrower loan payments. The Agency believes that the overall benefit of homeownership education outweighs the burdens involved. The cost of homeowner education will be another allowed expense that can be added to the cost of home purchase, if requested. E. What is a reasonable fee to charge? Who decides? The Agency received 10 comments regarding reasonable fees to charge for homeowner education and suggesting that the Agency to set parameters for homeownership education fees as a guideline for the RD State Directors. RD does not believe it is appropriate to set or regulate the appropriate fee for providers. This should be determined based on local market conditions. Based on the comments received, the Agency will allow the State Directors to determine what is a reasonable fee to be charged for homeowner education based on the results of statewide assessments within their respective states. The Agency anticipates fees charged to borrowers based on the comments received to range from free to $400. F. Homeowner Education Training Fees Should Be Allowed to the Homebuyer in Excess of the Appraised Amount of the House The Agency received 3 comments indicating that the fee for homeowner education counseling should be allowed in the loan amount in excess of the appraised value of the house. In response, the Agency will allow reasonable homeowner education fees to be added to the loan amount in excess of the appraised value of the house and area loan limits under § 3550.63 in cases where the borrower requests to pay for the cost of the homeowner education by adding it to the loan amount. The Agency anticipates that such amounts will be insignificant portions of the loan. G. Should RD staff deliver the homeowner education? The Agency received 4 comments stating that RD staff should deliver the homeowner education training. Staff capacity and, qualification to deliver training vary from state to state. State Directors have the flexibility within their States to determine the feasibility of offering this training using staff resources given other program demands. RD staff would have to be trained and certified to provide homeowner education as required under this rule. H. Certification of Counselors: Should Include Certification From State Housing Finance Authorities or Other State Level Certification and Should Include Certification of Training That Is Culturally Appropriate for Native American Communities The Agency received 18 comments stating that certification of housing counselors should be allowed on the state-level, either by the State Housing Financing Agencies or other state-level certification processes, 4 comments stating the certification should model the HUD standard or one of the national organizations referenced in the proposed rule, and 1 commenting regarding certification of culturally appropriate training for Native American communities, especially Native Americans that reside on rural reservations. The Agency agrees that state-level certification and certification of culturally appropriate training for Native Americans should be included. It is addressed in the final rule by § 3550.11 permitting state-level certification by the State Housing Finance Agency or other state-level certification approved by the State Director, and certification by the National American Indian Housing Council, provided the required topics are included in their curriculum. The State Director will confirm that the housing counseling agencies that are not certified by a national agency identified in the final rule are certified by an approved state agency during the RD State Office assessment of available certified housing counseling agencies in their respective states. I. What process should applicants undergo to receive a certificate of completion? The Agency received 4 comments regarding the requirement for the borrower to have a certificate of completion or letter of completion from the housing counseling provider to document that the course was successfully completed. The main concern of these comments was that there should not be a testing component in order for the provider to issue a letter or certificate of completion to the participants. Since the language in the proposed rule lets the provider determine successful completion of their course, the Agency has determined that there is sufficient flexibility for each provider to make an appropriate individual assessment and; therefore, the language will remain the same in the final rule. J. At what point during the home purchase process should the Homeowner Education be required? The Agency received 8 comments regarding when during the home purchase process should the borrower complete homeowner education. Homeowner education must be completed by the borrower prior to closing their loan. When the borrowers receive their certificate of eligibility for a loan they will be advised that by accepting the certificate of eligibility they agree to submit documentation of homeowner education completion before loan closing and that they understand that it is a condition of loan closing. Language to this effect will be added to the Agency's certificate of eligibility document. At that time, the Agency will provide referrals to certified housing counselors to the borrower and discuss with the borrower where and when they will complete the homeowner education class. Generally, the comments stated that the earlier in the process the homeownership education is taken the greater it would benefit the borrower. It would be ideal if the borrowers would complete an homeowner education course before submitting a loan application and certainly before signing a purchase and sale agreement; however, realistically, as some comments indicated this may not be practicable in all cases. Many borrowers are unlikely to incur the expense of taking a homeowner education course if they have no confidence that they will be approved for a loan to buy a house. In recognition of these realities, the Agency also will offer some flexibility to providers in tailoring the curriculum to the attendee. For example, when the attendee has already located a dwelling to purchase, they need not be required to take that portion of the training dealing with shopping for a home. The provider could determine that the applicant already has satisfactory knowledge in this area. K. Will the requirement be the same for Self-Help families who apply for Section 502 Direct loans? The Agency received 2 comments regarding whether Self-Help families would have to comply with the homeowner education requirement. If the Self-Help families are applying for Section 502 loans, then this rule requiring homeowner education as set forth would apply. L. Suggestions for Adding Educational Components to Homeowner Education Course The Agency received 8 comments regarding additional topics that should be included in the required homeowner education. The Agency recognizes the value of these additional topics, therefore, the final rule will add them as recommended: Budgeting—Pre-& Post-Purchase; Credit Counseling; Lender Differences—especially predatory lending; and Post-Occupancy Education to include delinquency and foreclosure prevention. List of Subjects in 7 CFR Part 3550 Administrative practice and procedure, Conflict of interests, Environmental impact statements, Equal credit opportunity, Fair housing, Accounting, Housing, Loan programs—Housing and community development, Low and moderate income housing, Manufactured homes, Reporting and recordkeeping requirements, Rural areas, Subsidies. For the reasons stated in the preamble, chapter XXXV, Title 7 of the Code of Federal Regulations, is amended as follows: PART 3550—DIRECT SINGLE FAMILY HOUSING LOANS AND GRANTS 1. The authority citation for part 3550 continues to read as follows: Authority: 5 U.S.C. 301; 42 U.S.C. 1480. Subpart A—General 2. Section 3550.11 is added to read as follows: § 3550.11 State Director assessment of homeowner education.
(a)State Director's will make an assessment of the availability of certified homeowner education in their respective states and maintain an annually updated listing of providers and their reasonable costs.
(b)The order of preference for homeowner education formats is as follows:
(1)Classroom; one-on-one counseling; or interactive video conference.
(2)If none of the formats in paragraph (b)(1) of this section is reasonably available; as determined under § 3550.53(i), then the applicant may use interactive home-study or interactive telephone counseling of at least four hours duration.
(3)If none of the formats in paragraphs (b)(1) and (b)(2) of this section is reasonably available as determined under § 3550.53(i), then the applicant may use on-line counseling to meet the homeownership education requirement.
(c)Homeownership education must include a letter or certificate of completion and be provided by homeownership education counselors that are certified by any of the following:
(1)The Department of Housing and Urban Development (HUD);
(2)NeighborWorks America (NWA);
(3)The National Federation of Housing Counselors (NFHC);
(4)National American Indian Housing Council (NAIHC); or
(5)The State Housing Finance Agency or other qualified organization approved by the State Director.
(d)The provider will issue a letter or certificate of completion to document that the borrower has satisfactory knowledge of these minimum topics:
(1)Preparing for homeownership (evaluate readiness to go from rental to homeownership),
(2)Budgeting (pre and post-purchase),
(3)Credit counseling,
(4)Shopping for a home,
(5)Lender differences (predatory lending),
(6)Obtaining a mortgage (mortgage process, different types of mortgages),
(7)Loan closing (closing process, documentation, closing costs),
(8)Post-occupancy counseling (delinquency and foreclosure prevention),
(9)Life as a homeowner (homeowner warranties, maintenance and repairs),
(e)The provider may tailor the homeownership education training to the needs of the borrower to ensure satisfactory knowledge of the topics listed in paragraph
(d)of this section. Subpart B—Section 502 Origination 3. Section 3550.52 (d)(10) is added to read as follows: § 3550.52 Loan purposes.
(d)* * *
(10)Reasonable fees for homeownership education as determined by the State Director under § 3550.11 of this subpart. Such fees may be added to the loan amount in excess of the area loan limit and appraised value of the house. 4. Section 3550.53(i) is added to read as follows: § 3550.53 Eligibility requirements.
(i)*Homeownership education.* Applicants who are first-time homebuyers must agree to provide documentation, in the form of a completion certificate or letter from the provider, that a homeownership education course from a certified provider under § 3550.11 has been successfully completed as defined by the provider prior to loan closing. Requests for exceptions to the homeowner education requirement will be reviewed and granted on an individual case-by-case basis. The State Director may grant an exception the homeownership education requirement for individuals in geographic areas within the State where the State Director verifies that certified homeownership education is not reasonably available in the local area in any of the formats listed in § 3550.11(b). Whether such homeownership education is reasonably available will be determined based on factors including, but not limited to: Distance, travel time, geographic obstacles, and cost. On a case-by-case basis, the State Director also may grant an exception, provided the applicant borrower documents a special need, such as a disability, that would unduly impede completing a homeownership course in a reasonably available format. Dated: January 5, 2007. Russell T. Davis, Administrator, Rural Housing Service. [FR Doc. E7-1817 Filed 2-2-07; 8:45 am] BILLING CODE 3410-XV-P DEPARTMENT OF TRANSPORTATION Federal Aviation Administration 14 CFR Part 39 [Docket No. 2003-NM-123-AD; Amendment 39-14920; AD 2007-03-09] RIN 2120-AA64 Airworthiness Directives; Airbus Model A300 Airplanes; Model A300 B4-601, B4-603, B4-620, B4-622, B4-605R, B4-622R, F4-605R, F4-622R, and C4-605R Variant F Airplanes (Collectively Called A300-600 Series Airplanes); and Model A310 Airplanes AGENCY: Federal Aviation Administration, DOT. ACTION: Final rule. SUMMARY: This amendment adopts a new airworthiness directive (AD), applicable to all of the airplanes identified above, that requires revising the FAA-approved maintenance program to include a new airplane maintenance manual task that specifies a detailed inspection after each ram air turbine
(RAT)retraction. This AD also requires, for certain airplanes, a one-time inspection to detect breaks in the bottom flange fitting of the RAT and corrective actions, if necessary; for certain airplanes, an adjustment of the ejection jack; and, for certain other airplanes, replacement of the aluminum part with an improved steel part. The actions specified by this AD are intended to prevent failure of the RAT yoke fitting, which could result in the loss of RAT function and possible loss of critical flight control in the event of certain emergency situations. This action is intended to address the identified unsafe condition. DATES: Effective March 12, 2007. The incorporation by reference of certain publications listed in the regulations is approved by the Director of the Federal Register as of March 12, 2007. ADDRESSES: The service information referenced in this AD may be obtained from Airbus, 1 Rond Point Maurice Bellonte, 31707 Blagnac Cedex, France. This information may be examined at the Federal Aviation Administration (FAA), Transport Airplane Directorate, Rules Docket, 1601 Lind Avenue, SW., Renton, Washington. FOR FURTHER INFORMATION CONTACT: Tim Backman, Aerospace Engineer, International Branch, ANM-116, FAA, Transport Airplane Directorate, 1601 Lind Avenue, SW., Renton, Washington 98057-3356; telephone
(425)227-2797; fax
(425)227-1149. SUPPLEMENTARY INFORMATION: A proposal to amend part 39 of the Federal Aviation Regulations (14 CFR part 39) to include an airworthiness directive
(AD)that is applicable to Airbus Model A300 airplanes; Model A300 B4-601, B4-603, B4-620, B4-622, B4-605R, B4-622R, F4-605R, F4-622R, and C4-605R Variant F series airplanes (collectively called A300-600 series airplanes); and Model A310 airplanes was published as a supplemental notice of proposed rulemaking
(NPRM)in the **Federal Register** on May 9, 2006 (71 FR 26884). That action proposed to require revising the FAA-approved maintenance program to include a new airplane maintenance manual task that specifies a detailed inspection after each ram air turbine
(RAT)extension. That action also proposed to require a one-time inspection to detect breaks in the bottom flange fitting of the RAT and corrective actions, if necessary; for certain airplanes, an adjustment of the ejection jack; and, for certain other airplanes, replacement of the aluminum part with an improved steel part. Comments Interested persons have been afforded an opportunity to participate in the making of this amendment. Due consideration has been given to the comments received. Request To Remove Airplanes From Requirement To Do Detailed Inspection Airbus requests that we remove Model A300 airplanes from the “effectivity” of paragraph
(a)of the supplemental NPRM, which specifies a detailed inspection for breaks of the bottom flange fitting of the yoke fitting for the RAT swivel coupling, and replacement if necessary. Airbus states that all Model A300-B2 and -B4 airplanes are equipped with Dowty RATs that have swivel coupling yoke fittings. The Dowty fittings are to be replaced in accordance with Airbus Service Bulletin A300-57-0244, dated March 4, 2005. That action is specified in paragraph
(b)of the Supplemental NPRM. Airbus states that the FAA should specify that these airplanes are to use the up-to-date requirements of French airworthiness directives F-2005-089, dated June 8, 2005; and F-2005-090 R1, dated July 6, 2005. We agree with removing Model A300 airplanes from paragraph
(a)of the AD. Airbus and the European Aviation Safety Agency
(EASA)have assessed the risk based on worldwide fleet reports and decided that the necessary actions are those in Airbus Service Bulletin A300-57-0244, which specifies replacing the RAT swivel fitting. We have revised the AD by removing the reference to Model A300 airplanes in paragraph (a), deleting sub-paragraph (a)(1), and re-numbering the subsequent sub-paragraphs accordingly. Request To Change References to RAT Extension Airbus also points out that the revision to the FAA-approved maintenance program to specify an inspection for breaks of the bottom flange of the RAT swivel coupling yoke fitting after each RAT extension that is specified in the supplemental NPRM should instead specify an inspection after each RAT retraction. Airbus states that changing the wording in the supplemental NPRM would be consistent with Airbus and EASA documentation. We agree with the request to change “extension” to “retraction” in the AD. The inspection should be done after the extension-retraction cycle rather than after each RAT extension. We have revised paragraph
(c)and the Summary of the AD accordingly. Request To Eliminate Reference to French Airworthiness Directive Airbus also requests that we remove the reference to French airworthiness directive F-2003-149 R1, dated June 8, 2005, which is included in Note 5 of the supplemental NPRM. Airbus states that the one-time inspection in French airworthiness directive F-2003-149 R1 is completed, and this AD should mandate the up-to-date requirements by following the actions in French airworthiness directives F-2005-089 and F-2005-090 R1. These airworthiness directives refer to the airplane maintenance manual
(AMM)sections for inspections following each retraction. We agree with the request to remove the reference to French airworthiness directive F-2003-149 R1. Based on the fleet results obtained by Airbus and EASA in response to that airworthiness directive, the necessary corrective actions have been decided and are mandated through French airworthiness directives F-2005-089 and F-2005-090 R1. We have changed Note 4 of this AD to remove the reference to French airworthiness directive F-2003-149 R1. Request To Clarify Credit Statement Airbus also requests that we change paragraph
(d)of the supplemental NPRM, “Credit for Actions Accomplished Previously,” regarding credit. Paragraph
(d)states that actions done in accordance with Airbus All Operator's Telexes
(AOTs)57A6096 and 57A2085, both dated March 6, 2003, are acceptable for compliance with the corresponding actions in paragraph
(a)of the supplemental NPRM. Airbus points out that only Revision 01 of the same AOTs (both dated April 11, 2005) are acceptable because only those revisions take into account the complementary investigations that identify the RAT swivel fitting failure and the corresponding corrective actions. We agree that only Revisions 01 of Airbus A300-600 AOT 57A6096 and Airbus A310 AOT 57A2085 take into account the complementary investigations that identify the RAT swivel fitting failure and the corresponding corrective actions. Operators that did the actions in the original issues of the AOTs must verify the adjustment of the ejection jack and correct the adjustment, as applicable, in accordance with Revision 01 of the AOTs. Therefore, we have removed paragraph
(d)of the supplemental NPRM, and re-lettered the subsequent paragraphs in the AD accordingly. Request To Refer to AMM TradeWinds Airlines states that paragraph (c)(3) of the supplemental NPRM should not specify Airbus Temporary Revision
(TR)29-015, dated April 12, 2005, but instead should refer to Airbus A300 AMM Chapter 29-25-00, Page Block 301, dated March 1, 2006. TradeWinds states that TR 29-015 contains instructions only for certain Model A300 airplanes. For other Model A300 airplanes, the instructions are in a different TR. Therefore, TradeWinds requests that we refer to Airbus A300 AMM Chapter 29-25-00 in paragraph (c)(3) of the supplemental NPRM, and that we also remove Note 3 of the supplemental NPRM, which refers to TR 29-015. We agree with the request to revise paragraph (c)(3) of this AD and remove Note 3 of the supplemental NPRM. Airbus confirms that the TR references are assigned within a given code to a specific operator; therefore, the TR number may vary for different operators. Therefore, we have revised this AD as follows: We changed paragraph (c)(3) of the AD to refer to Airbus A300 AMM Chapter 29-25-00, Page Block 301, dated March 1, 2006; revised paragraph
(c)to remove the reference to the TR; removed Note 3; and renumbered the subsequent notes accordingly. Request To Change Reference to Aluminum Part TradeWinds Airlines also requests that we change paragraph
(c)of the supplemental NPRM to specify replacing the RAT swivel coupling yoke fitting with a new steel part rather than with a new aluminum part. TradeWinds points out that paragraph
(b)of the supplemental NPRM mandates replacing the aluminum fitting with a steel fitting. We partially agree with TradeWinds. We agree that the paragraph should refer to the steel fitting. We disagree with removing the reference to the aluminum fitting. Paragraph
(c)of this AD applies to airplanes with either a Dowty or a Hamilton Sundstrand RAT. Paragraph
(b)of this AD applies only to airplanes with Dowty RATs. Discrepant Hamilton Sundstrand RATs can be replaced with either an aluminum part or a steel part. Therefore, we have revised paragraph
(c)of the AD to specify replacing the part with a new aluminum or steel part, as applicable. Explanation of Additional Changes to This AD Paragraph
(c)of the supplemental NPRM specifies making repairs using a method approved by either the FAA or the Direction GOrale de l'Aviation Civile
(DGAC)(or its delegated agent). The European Aviation Safety Agency
(EASA)has assumed responsibility for the airplane models subject to this AD. Therefore, we have revised paragraph
(c)of this AD to specify making repairs using a method approved by the FAA, the DGAC (or its delegated agent), or the EASA (or its delegated agent). We have clarified the applicability to include the words “all” in the following statement: “Applicability: All Model A300 airplanes; Model A300 B4-601, B4-603, B4-620, B4-622, B4-605R, B4-622R, F4-605R, F4-622R, and C4-605R Variant F airplanes; and Model A310 airplanes; certificated in any category.” Conclusion After careful review of the available data, including the comments noted above, the FAA has determined that air safety and the public interest require the adoption of the rule with the changes described previously. The FAA has determined that these changes will neither increase the economic burden on any operator nor increase the scope of the AD. Cost Impact The following table provides the estimated costs for U.S. operators to comply with this AD. There are approximately 165 airplanes of U.S. registry that are affected by this AD. Estimated Costs Action Work hours Average labor rate per hour Parts Cost per airplane Fleet cost Detailed Inspection 1 $80 $0 $80 $13,200 AMM Revision 1 80 0 80 13,200 Replacement with Steel Fork Fitting 6 80 470 950 156,750 The cost impact figure discussed above is based on assumptions that no operator has yet accomplished any of the requirements of this AD action, and that no operator would accomplish those actions in the future if this AD were not adopted. The cost impact figures discussed in AD rulemaking actions represent only the time necessary to perform the specific actions actually required by the AD. These figures typically do not include incidental costs, such as the time required to gain access and close up, planning time, or time necessitated by other administrative actions. 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 Impact The regulations adopted herein will 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. Therefore, it is determined that this final rule does not have federalism implications under Executive Order 13132. For the reasons discussed above, I certify that this action
(1)Is not a “significant regulatory action” under Executive Order 12866;
(2)is not a “significant rule” under DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979); and
(3)will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act. A final evaluation has been prepared for this action and it is contained in the Rules Docket. A copy of it may be obtained from the Rules Docket at the location provided under the caption ADDRESSES . List of Subjects in 14 CFR Part 39 Air transportation, Aircraft, Aviation safety, Incorporation by reference, Safety. Adoption of the Amendment Accordingly, pursuant to the authority delegated to me by the Administrator, the Federal Aviation Administration amends part 39 of the Federal Aviation Regulations (14 CFR part 39) as follows: PART 39—AIRWORTHINESS DIRECTIVES 1. The authority citation for part 39 continues to read as follows: Authority: 49 U.S.C. 106(g), 40113, 44701. § 39.13 [Amended] 2. Section 39.13 is amended by adding the following new airworthiness directive: **2007-03-09 Airbus:** Amendment 39-14920. Docket 2003-NM-123-AD. *Applicability:* All Model A300 airplanes; Model A300 B4-601, B4-603, B4-620, B4-622, B4-605R, B4-622R, F4-605R, F4-622R, and C4-605R Variant F airplanes; and Model A310 airplanes; certificated in any category. *Compliance:* Required as indicated, unless accomplished previously. To prevent failure of the ram air turbine
(RAT)yoke fitting, which could result in the loss of RAT function and possible loss of critical flight control in the event of certain emergency situations, accomplish the following: Detailed Inspection and Replacement
(a)For Model A300-600 series airplanes, and Model A310 airplanes: Within 1,300 flight hours or 6 months after the effective date of this AD, whichever occurs first, do a detailed inspection for breaks of the bottom flange fitting of the yoke fitting for the RAT swivel coupling in accordance with the applicable all operators telex
(AOT)in paragraph (a)(1) or (a)(2) of this AD. If the flange fitting is broken, before further flight, replace the flange fitting with a new flange fitting in accordance with the applicable AOT. For airplanes equipped with Hamilton Sundstrand RATs, verify the adjustment of the ejection jack, and correct the adjustment as applicable.
(1)For Model A300-600 series airplanes: Airbus A300-600 AOT 57A6096, Revision 01, dated April 11, 2005.
(2)For Model A310 airplanes: Airbus A310 AOT 57A2085, Revision 01, dated April 11, 2005. Note 1: For the purposes of this AD, a detailed inspection is defined as: “An intensive visual examination of a specific structural area, system, installation, or assembly to detect damage, failure, or irregularity. Available lighting is normally supplemented with a direct source of good lighting at intensity deemed appropriate by the inspector. Inspection aids such as mirror, magnifying lenses, etc., may be used. Surface cleaning and elaborate access procedures may be required.”
(b)For Model A300 airplanes, Model A300-600 series airplanes, and Model A310 airplanes equipped with Dowty Rotol RATs, except airplanes on which Airbus Modification 12986 has been done: Within 12 months after the effective date of this AD, replace the RAT swivel coupling fork fitting with a new steel fitting, in accordance with the Accomplishment Instructions of Airbus Service Bulletin A300-57-0244, dated March 4, 2005 (for Model A300 airplanes); A300-57-6099, dated February 23, 2005 (for Model A300-600 series airplanes); or A310-57-2086, dated March 1, 2005 (for Model A310 airplanes); as applicable. Revisions
(c)For all airplanes: Within 3 months after the effective date of this AD: Incorporate the information in the applicable aircraft maintenance manual
(AMM)specified in paragraphs (c)(1), (c)(2), and (c)(3) of this AD, into the FAA-approved maintenance program to specify an inspection for breaks of the bottom flange of the RAT swivel coupling yoke fitting after each RAT retraction; and replacement of the RAT swivel coupling yoke fitting with a new aluminum or steel part as applicable; in accordance with a method approved by the Manager, International Branch, ANM-116, Transport Airplane Directorate, FAA; or the Direction Générale de l'Aviation Civile (or its delegated agent); or European Aviation Safety Agency (or its delegated agent). The page blocks specified in paragraphs (c)(1), (c)(2), and (c)(3) of this AD, as applicable, are one approved method for the actions required by paragraph
(c)of this AD. Thereafter, except as provided by paragraph
(d)of this AD, no alternative inspection intervals may be approved for the bottom flange of the RAT swivel coupling yoke fitting.
(1)Airbus A300-600 AMM, Chapter 29-25-00, Page Block 301, dated June 1, 2005.
(2)Airbus A310 AMM, Chapter 29-25-00, Page Block 301, dated June 1, 2005.
(3)Airbus A300 AMM Chapter 29-25-00, Page Block 301, dated March 1, 2006. Note 2: After revising the maintenance program to include the required periodic inspections according to this paragraph, operators do not need to make a maintenance log entry to show compliance with this AD every time those inspections are accomplished thereafter. Note 3: 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
(d)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. Alternative Methods of Compliance (d)(1) In accordance with 14 CFR 39.19, the Manager, International Branch, ANM-116, is authorized to approve alternative methods of compliance for this AD.
(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. Note 4: The subject of this AD is addressed in French airworthiness directives F-2005-089, dated June 8, 2005; and F-2005-090 R1, dated July 6, 2005. Incorporation by Reference
(e)Unless otherwise specified in this AD, the actions must be done in accordance with the applicable service information specified in Table 1 of this AD. This incorporation by reference was approved by the Director of the Federal Register in accordance with 5 U.S.C. 552(a) and 1 CFR part 51. To get copies of this service information, contact Airbus, 1 Rond Point Maurice Bellonte, 31707 Blagnac Cedex, France. To inspect copies of this service information, go to the FAA, Transport Airplane Directorate, 1601 Lind Avenue, SW., Renton, Washington; or to the National Archives and Records Administration (NARA). For information on the availability of this material at the NARA, call
(202)741-6030, or go to *http://www.archives.gov/federal_register/code_of_federal_regulations/ibr_locations.html* . Table 1.—Material Incorporated by Reference Service information Revision level Date Airbus A300-600 All Operators Telex 57A6096 01 April 11, 2005. Airbus A310 All Operators Telex 57A2085 01 April 11, 2005. Airbus Service Bulletin A300-57-0244 Original March 4, 2005. Airbus Service Bulletin A300-57-6099 Original February 23, 2005. Airbus Service Bulletin A310-57-2086 Original March 1, 2005. Effective Date
(f)This amendment becomes effective on March 12, 2007. Issued in Renton, Washington, on January 24, 2007. Ali Bahrami, Manager, Transport Airplane Directorate, Aircraft Certification Service. [FR Doc. E7-1601 Filed 2-2-07; 8:45 am] BILLING CODE 4910-13-P DEPARTMENT OF TRANSPORTATION Federal Aviation Administration 14 CFR Part 39 [Docket No. FAA-2006-24289; Directorate Identifier 2005-NM-186-AD; Amendment 39-14921; AD 2007-03-10] RIN 2120-AA64 Airworthiness Directives; Airbus Model A300 Airplanes; A300 B4-600, B4-600R, and F4-600R Series Airplanes, and Model A300 C4-605R Variant F Airplanes (Collectively Called A300-600 Series Airplanes); and A310 Airplanes AGENCY: Federal Aviation Administration (FAA), Department of Transportation (DOT). ACTION: Final rule. SUMMARY: The FAA is adopting a new airworthiness directive
(AD)for all Airbus airplanes identified above. This AD requires improving the routing of certain electrical wire bundles in certain airplane zones, as applicable to the airplane model. This AD results from fuel system reviews conducted by the manufacturer. We are issuing this AD to reduce the potential of ignition sources inside fuel tanks, which, in combination with flammable fuel vapors, could result in fuel tank explosions and consequent loss of the airplane. DATES: This AD becomes effective March 12, 2007. The Director of the Federal Register approved the incorporation by reference of certain publications listed in the AD as of March 12, 2007. ADDRESSES: You may examine the AD docket on the Internet at *http://dms.dot.gov* or in person at the Docket Management Facility, U.S. Department of Transportation, 400 Seventh Street, SW., Nassif Building, Room PL-401, Washington, DC. Contact Airbus, 1 Rond Point Maurice Bellonte, 31707 Blagnac Cedex, France, for service information identified in this AD. FOR FURTHER INFORMATION CONTACT: Thomas Stafford, Aerospace Engineer, International Branch, ANM-116, Transport Airplane Directorate, FAA, 1601 Lind Avenue, SW., Renton, Washington 98057-3356; telephone
(425)227-1622; fax
(425)227-1149. SUPPLEMENTARY INFORMATION: 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 street address stated in the ADDRESSES section. Discussion The FAA issued a supplemental notice of proposed rulemaking
(NPRM)to amend 14 CFR part 39 to include an AD that would apply to all Airbus Model A300 airplanes; A300 B4-600, B4-600R, and F4-600R series airplanes, and Model A300 C4-605R Variant F airplanes (collectively called A300-600 series airplanes); and A310 airplanes. That supplemental NPRM was published in the **Federal Register** on September 11, 2006 (71 FR 53341). That supplemental NPRM proposed to require the actions in the original NPRM, which were improving the routing of certain electrical wire bundles in certain airplane zones, as applicable to the airplane model. That supplemental NPRM also revised the original NPRM by removing certain proposed requirements, and extending the compliance time for a certain replacement. That supplemental NPRM also specified that the actions are considered interim until a terminating action for the removed proposed requirements is approved and available. Relevant Service Information Since we issued the supplemental NPRM, we have reviewed and approved the service bulletins listed in the following table. We referred to earlier revisions of these service bulletins as appropriate sources of service information for accomplishing certain actions in the supplemental NPRM. We have changed paragraphs (f)(2), (g), (h)(1), and (h)(2), and Table 1 of this AD to include references to these new revisions, and to give credit for accomplishment of previous revisions. The changes in the service information do not change the scope of the AD. New Revisions of Certain Service Bulletins Airbus Service Bulletin— Was Issued to— A300-24-6004, Revision 04, dated November 15, 2005 • Change the manufacturer's serial numbers in Paragraph 1.A. “Effectivity.” • Specify that the service bulletin has been rendered mandatory in France. • Give the European Aviation Safety Agency
(EASA)designation organization approval number. • Include references to certain other documents. • Update certain access and test information. • Include a note regarding the removal of a certain clamp. A300-24-6043, Revision 07, dated October 11, 2006 • Change the manufacturer's serial numbers in Paragraph 1.A. “Effectivity.” • Revise manpower estimates. • Include references to certain other documents. • Revise materials description. • Add a note regarding the size of certain clamps. A300-28-6056, Revision 01, dated January 20, 2006 • Change the manufacturer's serial numbers in Paragraph 1.A. “Effectivity.” • Specify that the service bulletin is part of the fuel safety assessment program. • Specify that the service bulletin has been rendered mandatory in France. • Include references to certain other documents. • Update material, price, and industry support information. • Update certain access and part number information. A310-24-2009, Revision 04, dated November 15, 2005 • Change the manufacturer's serial numbers in Paragraph 1.A. “Effectivity.” • Specify that the service bulletin has been rendered mandatory in France. • Give the EASA designation organization approval number. • Include references to certain other documents. • Update certain access and test information. • Include a note regarding the removal of a certain clamp. Comments We provided the public the opportunity to participate in the development of this AD. We have considered the comment received. Request To Change Incorporation of Certain Information The Modification and Replacement Parts Association (MARPA) states that, typically, airworthiness directives are based on service information originating with the type certificate holder or its suppliers. MARPA adds that manufacturer service documents are privately authored instruments generally having copyright protection against duplication and distribution. MARPA notes that when a service document is incorporated by reference into a public document, such as an airworthiness directive, it loses its private, protected status and becomes a public document. MARPA adds that if a service document is used as a mandatory element of compliance, it should not simply be referenced, but should be incorporated into the regulatory document; by definition, public laws must be public, which means they cannot rely upon private writings. MARPA is concerned that the failure to incorporate essential service information could result in a court decision invalidating the AD. MARPA adds that incorporated by reference service documents should be made available to the public by publication in the Docket Management System (DMS), keyed to the action that incorporates them. MARPA notes that the stated purpose of the incorporation by reference method is brevity, to keep from expanding the **Federal Register** needlessly by publishing documents already in the hands of the affected individuals; traditionally, “affected individuals” means aircraft owners and operators, who are generally provided service information by the manufacturer. MARPA adds that a new class of affected individuals has emerged, since the majority of aircraft maintenance is now performed by specialty shops instead of aircraft owners and operators. MARPA notes that this new class includes maintenance and repair organizations, component servicing and repair shops, parts purveyors and distributors, and organizations manufacturing or servicing alternatively certified parts under part 21 of the Federal Aviation Regulations (14 CFR part 21), § 21.303 (parts manufacturer approval) (PMA). MARPA adds that the concept of brevity is now nearly archaic as documents exist more frequently in electronic format than on paper. Therefore, MARPA asks that the service documents deemed essential to the accomplishment of the NPRM be incorporated by reference into the regulatory instrument, and published in the DMS. We understand MARPAs comment concerning incorporation by reference. The Office of the Federal Register
(OFR)requires that documents that are necessary to accomplish the requirements of the AD be incorporated by reference during the final rule phase of rulemaking. This final rule incorporates by reference the document necessary for the accomplishment of the requirements mandated by this AD. Further, we point out that while documents that are incorporated by reference do become public information, they do not lose their copyright protection. For that reason, we advise the public to contact the manufacturer to obtain copies of the referenced service information. Additionally, we do not publish service documents in DMS. We are currently reviewing our practice of publishing proprietary service information. Once we have thoroughly examined all aspects of this issue, and have made a final determination, we will consider whether our current practice needs to be revised. However, we consider that to delay this AD action for that reason would be inappropriate, since we have determined that an unsafe condition exists and that the requirements in this AD must be accomplished to ensure continued safety. Therefore, we have not changed the AD in this regard. Clarification of Paragraph (f)(2) We have clarified paragraph (f)(2) of this AD to specify the intended paragraph identifier referenced in that paragraph. Conclusion We have carefully reviewed the available data, including the comment received, and determined that air safety and the public interest require adopting the AD with the change described previously. We have determined that these changes will neither increase the economic burden on any operator nor increase the scope of the AD. Interim Action We consider this AD interim action. The EASA, which is the airworthiness authority for the European Union, has informed us that the manufacturer is currently developing an additional modification that will address the unsafe condition identified in this AD. Once this modification is developed, approved, and available, we may consider additional rulemaking. Costs of Compliance The following table provides the estimated costs for U.S. operators to comply with this AD. This AD affects about 169 airplanes of U.S. registry. The following table provides the estimated costs for U.S. operators to comply with this AD. The average labor rate is $80 per work hour. Estimated Costs For airplanes on which this action is required— Work hours Parts Cost per airplane Action 3, Modify the retaining and protection system 4 to 16 $836 to $1,056 $1,156 to $2,336. Action 4, Modify the electrical wiring of routes 1P and 2P 2 $720 $880. Action 5, Inspect the wire looms on the wing trailing edge 8 Operator Supplied $640. Action 6, Replace the nylon clamps of the electrical routes in the hydraulic compartment and in the shroud box 44 to 98 $100 to $5,700 $3,620 to $13,540. Based on these figures, the estimated cost of the AD for U.S. operators is up to $2,939,924, or up to $17,396 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 AD will not have federalism implications under Executive Order 13132. This AD will 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 this AD:
(1)Is not a “significant regulatory action” under Executive Order 12866;
(2)Is not a “significant rule” under DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979); and
(3)Will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act. We prepared a regulatory evaluation of the estimated costs to comply with this 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, Incorporation by reference, Safety. Adoption of the Amendment Accordingly, under the authority delegated to me by the Administrator, the FAA amends 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): **2007-03-10 Airbus:** Amendment 39-14921. Docket No. FAA-2006-24289; Directorate Identifier 2005-NM-186-AD. Effective Date
(a)This AD becomes effective March 12, 2007. Affected ADs
(b)None. Applicability
(c)This AD applies to all Airbus Model A300 airplanes; A300 B4-601, B4-603, B4-620, B4-622, B4-605R, B4-622R, A300 F4-605R, F4-622R, and C4-605R Variant F airplanes; and A310 airplanes; certificated in any category. Unsafe Condition
(d)This AD results from fuel system reviews conducted by the manufacturer. We are issuing this AD to reduce the potential of ignition sources inside fuel tanks, which, in combination with flammable fuel vapors, could result in fuel tank explosions and consequent loss 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. Action 3—Modify the Retaining and Protection System
(f)For all airplanes identified in paragraphs (f)(1) and (f)(2) of this AD: Within 26 months after the effective date of this AD, modify the retaining and protection system for the electrical bundles located at the wing-to-fuselage junction, under the flap control screw jack.
(1)For Model A300 airplanes: Do the actions specified in paragraph
(f)of this AD in accordance with the Accomplishment Instructions of Airbus Service Bulletin A300-24-0085, Revision 06, dated October 13, 2005.
(2)For Model A300 B4-601, B4-603, B4-620, B4-622, B4-605R, B4-622R, A300 F4-605R, F4-622R, and C4-605R Variant F airplanes, except those on which Airbus Modification 10505 has been done: Do the actions specified in paragraph
(f)of this AD in accordance with the Accomplishment Instructions of Airbus Service Bulletin A300-24-6043, Revision 07, dated October 11, 2006. Action 4—Modify the Electrical Wiring of Routes 1P and 2P
(g)For Model A300 B4-601, B4-603, B4-620, B4-622, B4-605R, B4-622R, A300 F4-605R, F4-622R, and C4-605R Variant F airplanes; except those on which Airbus Modification 11741 has been done: Within 26 months after the effective date of this AD, modify the electrical wiring of routes 1P and 2P (along the top panel of the shroud box and the rear spars of the wings) by extending the protective conduits up to the next support, and replace the two existing clamps on this support with new, improved clamps. Do all actions in accordance with the Accomplishment Instructions of Airbus Service Bulletin A300-28-6056, Revision 01, dated January 20, 2006. Action 5—Inspect the Wire Looms
(h)For all airplanes identified in paragraphs (h)(1) and (h)(2) of this AD: Within 26 months after the effective date of this AD, do a general visual inspection of the wire looms on the wing trailing edge for improperly held wires in the clamps, restore the electrical bundles to good condition, and replace the affected nylon clamps with metallic clamps that have an elastomer lining. Do all applicable corrective action before further flight. Repeat the inspection thereafter at intervals not to exceed 26 months until all clamps have been replaced.
(1)For Model A300 B4-601, B4-603, B4-620, B4-622, B4-605R, B4-622R, A300 F4-605R, F4-622R, and C4-605R Variant F airplanes; except those on which Airbus Modification 6478 has been done: Do the actions specified in paragraph
(h)of this AD in accordance with the Accomplishment Instructions of Airbus Service Bulletin A300-24-6004, Revision 04, dated November 15, 2005.
(2)For Model A310 airplanes, except those on which Airbus Modification 6478 has been done: Do the actions specified in paragraph
(h)of this AD in accordance with the Accomplishment Instructions of Airbus Service Bulletin A310-24-2009, Revision 04, dated November 15, 2005. Action 6—Improve the Quality of the Electrical Routes
(i)For all airplanes identified in paragraphs (i)(1), (i)(2), and (i)(3) of this AD: Within 26 months after the effective date of this AD, replace the nylon clamps of the electrical routes in the hydraulic compartment and in the shroud box with new metallic clamps that have white silicone lining (for airplanes identified in paragraph (i)(1) of this AD); and/or replace the nylon clamps and change the location of routes 1P and 2P to improve the retention of the wiring loom (for airplanes identified in paragraphs (i)(2) and (i)(3) of this AD); as applicable.
(1)For Model A300 airplanes; except those on which Airbus Modification 11763 has been done: Do the actions specified in paragraph
(i)of this AD in accordance with the Accomplishment Instructions of Airbus Service Bulletin A300-24-0100, dated April 7, 2005.
(2)For Model A300 B4-601, B4-603, B4-620, B4-622, B4-605R, B4-622R, A300 F4-605R, F4-622R, and C4-605R Variant F airplanes; except those on which Airbus Modifications 11763 and 12995 have been done: Do the actions specified in paragraph
(i)of this AD in accordance with the Accomplishment Instructions of Airbus Service Bulletin A300-24-6084, Revision 01, dated June 28, 2005.
(3)For Model A310 airplanes, except those on which Airbus Modification 11763 has been done: Do the actions specified in paragraph
(i)of this AD in accordance with the Accomplishment Instructions of Airbus Service Bulletin A310-24-2091, dated March 4, 2005. Parts Installation
(j)After the effective date of this AD, no person may install on any airplane plate assemblies with part numbers A5351088000000 or A5351088000100 unless they have been modified in accordance with paragraph
(f)of this AD. Actions Accomplished According to Previous Revisions of Service Bulletins
(k)Actions done before the effective date of this AD in accordance with the service bulletins identified in Table 1 of this AD are acceptable for compliance with the corresponding requirements in this AD. Table 1.—Previous Revisions of Service Bulletins Airbus Service Bulletin Revision level Date A300-24-0085 Original December 12, 1994. A300-24-0085 03 January 17, 1996. A300-24-0085 04 July 23, 1996. A300-24-0085 05 March 6, 2001. A300-24-6004 1 January 28, 1988. A300-24-6004 2 February 24, 1995. A300-24-6004 03 June 30, 1998. A300-24-6043 Original December 12, 1994. A300-24-6043 01 February 7, 1995. A300-24-6043 02 May 10, 1995. A300-24-6043 03 January 17, 1996. A300-24-6043 04 March 6, 2001. A300-24-6043 05 August 30, 2001. A300-24-6043 06 October 13, 2005. A300-24-6084 Original March 4, 2005. A300-28-6056 Original February 18, 1998. A310-24-2009 Original May 31, 1985. A310-24-2009 1 January 28, 1988. A310-24-2009 2 February 24, 1995. A310-24-2009 03 June 30, 1998. Alternative Methods of Compliance (AMOCs) (l)(1) The Manager, International Branch, ANM-116, Transport Airplane Directorate, 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
(m)European Aviation Safety Agency airworthiness directive 2006-0074, dated April 3, 2006, also addresses the subject of this AD. Material Incorporated by Reference
(n)You must use the service information specified in Table 2 of this AD to perform the actions that are required by this AD, unless the AD specifies otherwise. The Director of the Federal Register approved the incorporation by reference of these documents in accordance with 5 U.S.C. 552(a) and 1 CFR part 51. Contact Airbus, 1 Rond Point Maurice Bellonte, 31707 Blagnac Cedex, France, for a copy of this service information. You may review copies at the Docket Management Facility, U.S. Department of Transportation, 400 Seventh Street SW., Room PL-401, Nassif Building, Washington, DC; on the Internet at *http://dms.dot.gov* ; or at the National Archives and Records Administration (NARA). For information on the availability of this material at the NARA, call
(202)741-6030, or go to *http://www.archives.gov/federal_register/code_of_federal_regulations/ibr_locations.html* . Table 2.—Material Incorporated by Reference Airbus Service Bulletin Revision level Date A300-24-0085 06 October 13, 2005. A300-24-0100 Original April 7, 2005. A300-24-6004 04 November 15, 2005. A300-24-6043 07 October 11, 2006. A300-24-6084 01 June 28, 2005. A300-28-6056 01 January 20, 2006. A310-24-2009 04 November 15, 2005. A310-24-2091 Original March 4, 2005. Issued in Renton, Washington, on January 24, 2007. Ali Bahrami, Manager, Transport Airplane Directorate, Aircraft Certification Service. [FR Doc. E7-1602 Filed 2-2-07; 8:45 am] BILLING CODE 4910-13-P DEPARTMENT OF TRANSPORTATION Federal Aviation Administration 14 CFR Part 39 [Docket No. FAA-2006-26046; Directorate Identifier 2006-NM-172-AD; Amendment 39-14922; AD 2007-03-11] RIN 2120-AA64 Airworthiness Directives; Bombardier Model CL-600-2B19 (Regional Jet Series 100 & 440) Airplanes AGENCY: Federal Aviation Administration (FAA), Department of Transportation (DOT). ACTION: Final rule. SUMMARY: The FAA is adopting a new airworthiness directive
(AD)for certain Bombardier Model CL-600-2B19 (Regional Jet Series 100 & 440) airplanes. This AD requires inspecting for discrepancies of the activation mechanism of certain chemical oxygen generators, and corrective action if necessary. This AD results from several incidents, on certain airplane models, of incorrect installation of the release pin into the safety pin hole of the activation mechanism of the chemical oxygen generator; this resulted in failure to activate the chemical oxygen generator when required. A separate incident occurred on a different airplane model during deployment of the cabin oxygen system, which resulted in failure of the release pin to activate the oxygen generator at a flight attendant station. We are issuing this AD to prevent failure of the activation mechanism of the chemical oxygen generator, which could result in the unavailability of supplemental oxygen and possible incapacitation of passengers and cabin crew during an in-flight decompression. DATES: This AD becomes effective March 12, 2007. The Director of the Federal Register approved the incorporation by reference of certain publications listed in the AD as of March 12, 2007. ADDRESSES: You may examine the AD docket on the Internet at *http://dms.dot.gov* or in person at the Docket Management Facility, U.S. Department of Transportation, 400 Seventh Street SW., Nassif Building, Room PL-401, Washington, DC. Contact Bombardier, Inc., Canadair, Aerospace Group, P.O. Box 6087, Station Centre-ville, Montreal, Quebec H3C 3G9, Canada, for service information identified in this AD. FOR FURTHER INFORMATION CONTACT: Dan Parrillo, Aerospace Engineer, Systems and Flight Test Branch, ANE-172, FAA, New York Aircraft Certification Office, 1600 Stewart Avenue, Suite 410, Westbury, New York 11590; telephone
(516)228-7305; fax
(516)794-5531. SUPPLEMENTARY INFORMATION: Examining the Docket You may examine the airworthiness directive
(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 street address stated in the ADDRESSES section. Discussion The FAA issued a notice of proposed rulemaking
(NPRM)to amend 14 CFR part 39 to include an AD that would apply to certain Bombardier Model CL-600-2B19 (Regional Jet Series 100 & 440) airplanes. That NPRM was published in the **Federal Register** on October 12, 2006 (71 FR 60083). That NPRM proposed to require inspecting for discrepancies of the activation mechanism of certain chemical oxygen generators, and corrective action if necessary. Comments We provided the public the opportunity to participate in the development of this AD. We have considered the comments received. Request To Incorporate by Reference/Publish Service Information The Modification and Replacement of Parts Association (MARPA) states that frequently ADs are derived from service information originating with the type certificate holder or its suppliers. MARPA also states that manufacturer's service documents are privately authored instruments generally enjoying copyright protection against duplication and distribution. MARPA contends that when a service document is incorporated by reference pursuant to 5 U.S.C. 552(a) and 1 CFR part 51 into a public document such as an AD, it loses its private, protected status and becomes itself a public document. MARPA explains that if a service document is used as a mandatory element of compliance it should not simply be referenced, but should be incorporated into the regulatory document. MARPA states that public laws by definition must be public, which means they cannot rely for compliance upon private writings, especially when the writings originate in a foreign country. MARPA adds that the interpretation of a document is not a question of fact, but of law, bound by the figurative four corners of the document; therefore, unless the service document is incorporated by reference, a court of law will not consider it when interpreting the AD. MARPA is concerned that failure to incorporate-by-reference the relevant service information could result in a court decision invalidating the AD. MARPA advises that it was informed that service documents are usually not incorporated into proposed actions (NPRMs), but only into final actions. MARPA notes that there is no indication in the NPRM that the FAA intends to incorporate by reference the necessary service information; in addition, there is no indication of which service documents are mandatory and which are merely sources of additional service information; therefore, the reader is unsure of the FAA's intent. MARPA asks that future proposed actions indicate the FAA intent by including the following, or a similar statement: “We intend to incorporate by reference the following publications.” MARPA also states that incorporation by reference service documents should be made available to the public by publication in the Docket Management System
(DMS)keyed to the action that incorporates them. MARPA adds that, under the aforementioned authorities, incorporation by reference is a technique used to reduce the size of the **Federal Register** when the information is already available to the affected individuals. MARPA notes that, traditionally, “affected individuals” has meant aircraft owners and operators who are generally provided service information by the manufacturer. MARPA states that a new class of affected individuals has emerged since the majority of aircraft maintenance is now performed by specialty shops instead of aircraft owners and operators. MARPA adds that this new class includes maintenance and repair organizations (MRO), component servicing and repair shops, parts purveyors and distributors and organizations manufacturing or servicing alternatively certified parts under section 21.303 (“Replacement and modification parts”) of the Federal Aviation Regulations (14 CFR 21.303). Further, MARPA notes that the concept of brevity is now nearly archaic as documents exist more frequently in electronic format than on paper. Therefore, MARPA asks that the service documents deemed essential to the accomplishment of the NPRM be incorporated by reference into the regulatory instrument, and published in DMS prior to release of the AD. We understand MARPA's comment concerning incorporation by reference. The Office of the Federal Register
(OFR)requires that documents that are necessary to accomplish the requirements of the AD be incorporated by reference during the final rule phase of rulemaking. This final rule incorporates by reference the documents necessary for the accomplishment of the requirements mandated by this AD. Further, we point out that while documents that are incorporated by reference do become public information, they do not lose their copyright protection. For that reason, we advise the public to contact the manufacturer to obtain copies of the referenced service information. The FAA does not concur with the commenter's request to indicate in an NPRM our intent to incorporate service information by reference. When we propose that actions be accomplished in accordance with certain service information in an NPRM, the public may assume we intend to IBR that service information, as requested by the Office of the Federal Register. Service information that is cited in the proposed AD as a source of additional information is not presented as a requirement, and the public may assume we do not intend to IBR that service information. No change to this final rule is necessary in regard to the commenter's request. In regard to MARPA's request to post service bulletins on the Department of Transportation's DMS, we are currently in the process of reviewing issues surrounding the posting of service bulletins on the DMS as part of an AD docket. Once we have thoroughly examined all aspects of this issue and have made a final determination, we will consider whether our current practice needs to be revised. No change to the final rule is necessary in response to this comment. Conclusion We have carefully reviewed the available data, including the comments received, and determined that air safety and the public interest require adopting the AD as proposed. Costs of Compliance This AD affects about 145 airplanes of U.S. registry. The inspection in Bombardier Alert Service Bulletin A601R-35-014 takes about 3 work hours per airplane, at an average labor rate of $80 per work hour. Based on these figures, the estimated cost of this inspection for U.S. operators is $34,800, or $240 per airplane. The inspection in Bombardier Service Bulletin 601R-35-016 takes about 1 work hour per airplane, at an average labor rate of $80 per work hour. Based on these figures, the estimated cost of this inspection for U.S. operators is $11,600, 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 AD will not have federalism implications under Executive Order 13132. This AD will 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 this AD:
(1)Is not a “significant regulatory action” under Executive Order 12866;
(2)Is not a “significant rule” under DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979); and
(3)Will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act. We prepared a regulatory evaluation of the estimated costs to comply with this 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, Incorporation by reference, Safety. Adoption of the Amendment Accordingly, under the authority delegated to me by the Administrator, the FAA amends 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): **2007-03-11 Bombardier, Inc. (Formerly Canadair):** Amendment 39-14922. Docket No. FAA-2006-26046; Directorate Identifier 2006-NM-172-AD. Effective Date
(a)This AD becomes effective March 12, 2007. Affected ADs
(b)None. Applicability
(c)This AD applies to Bombardier Model CL-600-2B19 (Regional Jet Series 100 & 440) airplanes, certificated in any category; as identified in Bombardier Alert Service Bulletin A601R-35-014, dated September 25, 2003; and Bombardier Service Bulletin 601R-35-016, dated September 8, 2005. Unsafe Condition
(d)This AD results from several incidents, on certain airplane models, of incorrect installation of the release pin into the safety pin hole of the activation mechanism of the chemical oxygen generator; this resulted in failure to activate the chemical oxygen generator when required. A separate incident occurred on a different airplane model during deployment of the cabin oxygen system, and resulted in failure of the release pin to activate the oxygen generator at a flight attendant station. We are issuing this AD to prevent failure of the activation mechanism of the chemical oxygen generator, which could result in the unavailability of supplemental oxygen and possible incapacitation of passengers and cabin crew during an in-flight decompression. 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. Inspections/Corrective Action
(f)Do the detailed inspections for discrepancies of certain chemical oxygen generators of each flight attendant and lavatory oxygen panel, as applicable, and each passenger service unit of the passenger oxygen system, as specified in paragraphs (f)(1) and (f)(2) of this AD, as applicable.
(1)For airplanes identified in paragraph 1.A. of Bombardier Alert Service Bulletin A601R-35-014, dated September 25, 2003: Within 550 flight hours after the effective date of this AD, do a one-time inspection for correct alignment and engagement of the release pin with the lanyard tube in the mask container module of the activation (firing) mechanism in the chemical oxygen generator by doing all the actions, including all applicable corrective actions, in accordance with the Accomplishment Instructions of Bombardier Alert Service Bulletin A601R-35-014, dated September 25, 2003. Do all applicable corrective actions before further flight.
(2)For airplanes identified in paragraph 1.A. of Bombardier Service Bulletin 601R-35-016, dated September 8, 2005: Within 1,100 flight hours after the effective date of this AD; do a one-time inspection for correct installation of the release pin of the activation mechanism of the chemical oxygen generator, by doing all the actions, including all applicable corrective actions, in accordance with the Accomplishment Instructions of Bombardier Service Bulletin 601R-35-016, dated September 8, 2005. Do all applicable corrective actions before further flight. Note 1: For the purposes of this AD, a detailed inspection is: “An intensive examination of a specific item, installation, or assembly to detect damage, failure, or irregularity. Available lighting is normally supplemented with a direct source of good lighting at an intensity deemed appropriate. Inspection aids such as mirror, magnifying lenses, etc., may be necessary. Surface cleaning and elaborate procedures may be required.” Note 2: Bombardier Service Bulletin 601R-35-016, dated September 8, 2005, refers to B/E Aerospace Service Bulletin 117003-35-4, dated March 29, 2001, as an additional source of service information for accomplishing the inspection and corrective action specified in paragraph
(f)of this AD. Alternative Methods of Compliance (AMOCs) (g)(1) The Manager, New York Aircraft Certification Office, 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-2006-11, dated May 31, 2006, also addresses the subject of this AD. Material Incorporated by Reference
(i)You must use Bombardier Alert Service Bulletin A601R-35-014, dated September 25, 2003; and Bombardier Service Bulletin 601R-35-016, dated September 8, 2005; as applicable; to perform the actions that are required by this AD, unless the AD specifies otherwise. The Director of the Federal Register approved the incorporation by reference of these documents in accordance with 5 U.S.C. 552(a) and 1 CFR part 51. Contact Bombardier, Inc., Canadair, Aerospace Group, P.O. Box 6087, Station Centre-ville, Montreal, Quebec H3C 3G9, Canada, for a copy of this service information. You may review copies at the Docket Management Facility, U.S. Department of Transportation, 400 Seventh Street SW., Room PL-401, Nassif Building, Washington, DC; on the Internet at *http://dms.dot.gov;* or at the National Archives and Records Administration (NARA). For information on the availability of this material at the NARA, call
(202)741-6030, or go to *http://www.archives.gov/federal_register/code_of_federal_regulations/ibr_locations.html* . Issued in Renton, Washington, on January 24, 2007. Ali Bahrami, Manager, Transport Airplane Directorate, Aircraft Certification Service. [FR Doc. E7-1600 Filed 2-2-07; 8:45 am] BILLING CODE 4910-13-P DEPARTMENT OF COMMERCE Bureau of Economic Analysis 15 CFR Part 801 [Docket No. 061005257-7018-02] RIN 0691-AA62 International Services Surveys: BE-185, Quarterly Survey of Financial Services Transactions Between U.S. Financial Services Providers and Foreign Persons AGENCY: Bureau of Economic Analysis, Commerce. ACTION: Final rule. SUMMARY: This final rule amends regulations of the Bureau of Economic Analysis, Department of Commerce
(BEA)to set forth the reporting requirements for the BE-185, Quarterly Survey of Financial Services Transactions Between U.S. Financial Services Providers and Foreign Persons. This survey replaces a similar but more limited survey, the BE-85, Quarterly Survey of Financial Services Transactions Between U.S. Financial Services Providers and Unaffiliated Foreign Persons. A new agency form number and survey title are being introduced because the survey program is being reconfigured to begin collection of data on transactions with affiliated foreigners using the same survey instruments as are used to collect information on transactions with unaffiliated foreigners. This change will allow respondents to report financial services transactions with foreign persons on one quarterly survey, rather than on as many as three different quarterly surveys. The BE-185 survey will be conducted quarterly beginning with the first quarter of 2007. The BE-185 survey data will be used to update universe estimates from similar data reported on the BE-80, Benchmark Survey of Financial Services Transactions Between U.S. Financial Services Providers and Unaffiliated Foreign Persons and on the benchmark and quarterly direct investment surveys that were administered to collect data on transactions with affiliated foreign persons. DATES: This final rule will be effective March 7, 2007 FOR FURTHER INFORMATION CONTACT: Obie G. Whichard, Chief, International Investment Division (BE-50), Bureau of Economic Analysis, U.S. Department of Commerce, Washington, DC 20230; e-mail *obie.whichard@bea.gov;* or phone
(202)606-9890. SUPPLEMENTARY INFORMATION: In the November 16, 2006 **Federal Register** , 71 FR 66706, BEA published a notice of proposed rulemaking setting forth reporting requirements for the BE-185, Quarterly Survey of Financial Services Transactions Between U.S. Financial Services Providers and Foreign Persons. No comments were received on the proposed rule. Thus, the proposed rule is adopted without change. This final rule amends 15 CFR Part 801.9 to replace the reporting requirements for the BE-85, Quarterly Survey of Financial Services Transactions Between U.S. Financial Services Providers and Unaffiliated Foreign Persons, with requirements for the BE-185, Quarterly Survey of Financial Services Transactions Between U.S. Financial Services Providers and Foreign Persons. Description of Changes The BE-185 survey is a mandatory survey and will be conducted, beginning with transactions for the first quarter of 2007, by BEA under the International Investment and Trade in Services Survey Act (22 U.S.C. 3101—3108). For the initial quarter of coverage, BEA will send the survey to potential respondents in March of 2007; responses will be due by May 15, 2007. The BE-185 will collect all the same information as the BE-85 but will also include financial services transactions with affiliated parties (i.e., with foreign affiliates, foreign parents, and foreign affiliates of foreign parents). BEA is currently collecting these transactions on its quarterly direct investment surveys (the BE-577, Direct Transactions of U.S. Reporter with Foreign Affiliate, the BE-605, Transactions of U.S. Affiliate, except a U.S. Banking Affiliate, with Foreign Parent, and the BE-605 Bank, Transactions of U.S. Banking Affiliate with Foreign Parent). These transactions with affiliated parties that are collected on BEA(s quarterly direct investment surveys will now be collected on the BE-185 instead. In addition, the BE-185 will bifurcate the category for brokerage services into two categories, by collecting information on services related to equities transactions separately from other brokerage services. Survey Background The Bureau of Economic Analysis (BEA), U.S. Department of Commerce, will conduct the BE-185 survey under the International Investment and Trade in Services Survey Act (22 U.S.C. 3101-3108), hereinafter, “the Act” and Section 5408 of the Omnibus Trade and Competitiveness Act of 1988 (Pub. L. 100-418, 15 U.S.C. 4908(b)). Section 4(a) of the Act (22 U.S.C. 3103(a)) provides that the President shall, to the extent he deems necessary and feasible, conduct a regular data collection program to secure current information related to international investment and trade in services and publish for the use of the general public and United States Government agencies periodic, regular, and comprehensive statistical information collected pursuant to this subsection. In Section 3 of Executive Order 11961, as amended by Executive Orders 12318 and 12518, the President delegated the responsibilities under the Act for performing functions concerning international trade in services to the Secretary of Commerce, who has redelegated them to BEA. The survey will provide a basis for updating estimates of the universe of financial services transactions between U.S. and foreign persons. The data are needed to monitor trade in financial services; analyze its impact on the U.S. and foreign economies; compile and improve the U.S. international transactions, national income and product, and input-output accounts; support U.S. commercial policy on financial services; assess and promote U.S. competitiveness in international trade in services; and improve the ability of U.S. businesses to identify and evaluate market opportunities. Executive Order 12866 This final rule has been determined to be not significant for purposes of E.O. 12866. Executive Order 13132 This final rule does not contain policies with Federalism implications sufficient to warrant preparation of a Federal assessment under E.O. 13132. Paperwork Reduction Act The collection-of-information in this final rule has been approved by the Office of Management and Budget
(OMB)under the Paperwork Reduction Act. Notwithstanding any other provisions of the law, no person is required to respond to, nor shall any person be subject to a penalty for failure to comply with, a collection of information subject to the requirements of the Paperwork Reduction Act unless that collection displays a currently valid Office of Management and Budget Control Number. The OMB control number for the BE-185 is 0608-0065; the collection will display this number. The BE-185 quarterly survey is expected to result in the filing of reports containing mandatory data from approximately 175 respondents on a quarterly basis, or 700 annually. The respondent burden for this collection of information will vary from one respondent to another, but is estimated to average 10 hours per response (40 hours annually), including time for reviewing instructions, searching existing data sources, gathering and maintaining the data needed, and completing and reviewing the collection of information. Thus, the total respondent burden for the BE-185 survey is estimated at 7,000 hours, compared to 5,000 hours estimated for the previous BE-85 survey. The increase in burden is a result of the inclusion of transactions with affiliated foreign persons. Comments regarding this burden estimate or any other aspect of this collection of information should be addressed to: Director, Bureau of Economic Analysis (BE-1), U.S. Department of Commerce, Washington, DC 20230, fax: 202-606-5311; and the Office of Management and Budget, O.I.R.A., Paperwork Reduction Project 0608-0065, Attention PRA Desk Officer for BEA, via e-mail at *pbugg@omb.eop.gov* or by fax at 202-395-7245. Regulatory Flexibility Act The Chief Counsel for Regulation, Department of Commerce, has certified to the Chief Counsel for Advocacy, Small Business Administration, under provisions of the Regulatory Flexibility Act (5 U.S.C. 605(b)), that this rule will not have a significant economic impact on a substantial number of small entities. The factual basis for this certification was published with the proposed rule. No comments were received regarding the economic impact of this rule. As a result, no final regulatory flexibility analysis was prepared. List of Subjects in 15 CFR Part 801 International transactions, Economic statistics, Financial services, Foreign trade, Penalties, Reporting and recordkeeping requirements. Dated: January 30, 2007. J. Steven Landefeld, Director, Bureau of Economic Analysis. For the reasons set forth in the preamble, BEA amends 15 CFR Part 801, as follows: PART 801—SURVEY OF INTERNATIONAL TRADE IN SERVICES BETWEEN U.S. AND FOREIGN PERSONS 1. The authority citation for 15 CFR Part 801 continues to read as follows: Authority: 5 U.S.C. 301; 15 U.S.C. 4908; 22 U.S.C. 3101-3108; and E.O. 11961, 3 CFR, 1977 Comp., p. 86, as amended by E.O. 12318, 3 CFR, 1981 Comp., p. 173, and E.O. 12518, 3 CFR, 1985 Comp., p. 348. 2. Revise § 801.9(c)(4). to read as follows: § 801.9 Reports required.
(c)Quarterly surveys. * * *
(4)BE-185, Quarterly Survey of Financial Services Transactions Between U.S. Financial Services Providers and Foreign Persons:
(i)A BE-185, Quarterly Survey of Financial Services Transactions Between U.S. Financial Services Providers and Foreign Persons, will be conducted covering the first quarter of the 2007 calendar year and every quarter thereafter.
(A)*Who must report—(1) Mandatory reporting.* Reports are required from each U.S. person who is a financial services provider or intermediary, or whose consolidated U.S. enterprise includes a separately organized subsidiary or part that is a financial services provider or intermediary, and that had sales of covered services to foreign persons that exceeded $20 million for the previous fiscal year or expects sales to exceed that amount during the current fiscal year, or had purchases of covered services from foreign persons that exceeded $15 million for the previous fiscal year or expects purchases to exceed that amount during the current fiscal year. These thresholds should be applied to financial services transactions with foreign persons by all parts of the consolidated U.S. enterprise combined that are financial services providers or intermediaries. Because the thresholds are applied separately to sales and purchases, the mandatory reporting requirement may apply only to sales, only to purchases, or to both sales and purchases. Quarterly reports for a year may be required retroactively when it is determined that the exemption level has been exceeded. ( *i* ) The determination of whether a U.S. financial services provider or intermediary is subject to this mandatory reporting requirement may be based on the judgment of knowledgeable persons in a company who can identify reportable transactions on a recall basis, with a reasonable degree of certainty, without conducting a detailed records search. ( *ii* ) Reporters who file pursuant to this mandatory reporting requirement must provide data on total sales and/or purchases of each of the covered types of financial services transactions and must disaggregate the totals by country. ( *2* ) *Voluntary reporting.* If a financial services provider or intermediary, or all of a firm's subsidiaries or parts combined that are financial services providers or intermediaries, had covered sales of $20 million or less, or covered purchases of $15 million or less during the previous fiscal year, and if covered sales or purchases are not to expected to exceed these amounts in the current fiscal year, a person is requested to provide an estimate of the total for each type of service for the most recent quarter. Provision of this information is voluntary. The estimates may be based on the reasoned judgment of the reporting entity. Because these thresholds apply separately to sales and purchases, voluntary reporting may apply only to sales, only to purchases, or to both.
(B)*BE-185 definition of financial services provider.* The definition of financial services provider used for this survey is identical in coverage to Sector 52 B Finance and Insurance, and holding companies that own or influence, and are principally engaged in making management decisions for these firms (part of Sector 55 B Management of Companies and Enterprises) of the North American Industry Classification System, United States, 2002. For example, companies and/or subsidiaries and other separable parts of companies in the following industries are defined as financial services providers: Depository credit intermediation and related activities (including commercial banking, savings institutions, credit unions, and other depository credit intermediation); nondepository credit intermediation (including credit card issuing, sales financing, and other nondepository credit intermediation); activities related to credit intermediation (including mortgage and nonmortgage loan brokers, financial transactions processing, reserve, and clearinghouse activities, and other activities related to credit intermediation); securities and commodity contracts intermediation and brokerage (including investment banking and securities dealing, securities brokerage, commodity contracts dealing, and commodity contracts brokerage); securities and commodity exchanges; other financial investment activities (including miscellaneous intermediation, portfolio management, investment advice, and all other financial investment activities); insurance carriers; insurance agencies, brokerages, and other insurance related activities; insurance and employee benefit funds (including pension funds, health and welfare funds, and other insurance funds); other investment pools and funds (including open-end investment funds, trusts, estates, and agency accounts, real estate investment trusts, and other financial vehicles); and holding companies that own, or influence the management decisions of, firms principally engaged in the aforementioned activities.
(C)*Covered types of services.* The BE-185 survey covers the following types of financial services transactions (purchases and/or sales) between U.S. financial services providers and foreign persons: Brokerage services related to equities transactions; other brokerage services; underwriting and private placement services; financial management services; credit-related services, except credit card services; credit card services; financial advisory and custody services; securities lending services; electronic funds transfer services; and other financial services.
(ii)[Reserved] [FR Doc. E7-1783 Filed 2-2-07; 8:45 am] BILLING CODE 3510-07-P DEPARTMENT OF COMMERCE Bureau of Economic Analysis 15 CFR Part 801 [Docket No. 061005256-7017-02] RIN 0691-AA61 International Services Surveys: BE-125, Quarterly Survey of Transactions in Selected Services and Intangible Assets With Foreign Persons AGENCY: Bureau of Economic Analysis, Commerce. ACTION: Final rule. SUMMARY: This final rule amends regulations of the Bureau of Economic Analysis, Department of Commerce
(BEA)to set forth the reporting requirements for the BE-125, Quarterly Survey of Transactions in Selected Services and Intangible Assets with Foreign Persons. This survey replaces a similar but more limited survey, the BE-25, Quarterly Survey of Transactions with Unaffiliated Foreign Persons in Selected Services and in Intangible Assets. A new agency form number and survey title are being introduced because the survey program is being reconfigured to begin collection of data on transactions with affiliated foreigners using the same survey instruments as are used to collect information on transactions with unaffiliated foreigners and because services once collected on an annual basis will now be collected quarterly. This change will allow respondents to report transactions in services and intangible assets with foreign persons on one quarterly survey, rather than on as many as three different quarterly surveys and one annual survey. The BE-125 survey will be conducted quarterly beginning with the first quarter of 2007. The BE-125 survey data will be used to update universe estimates from similar data reported on the BE-120, Benchmark Survey of Transactions in Selected Services and Intangible Assets with Foreign Persons and on the benchmark and quarterly direct investment surveys that were administered to collect data on transactions with affiliated foreign persons. DATES: This final rule will be effective March 7, 2007. FOR FURTHER INFORMATION CONTACT: Obie G. Whichard, Chief, International Investment Division (BE-50), Bureau of Economic Analysis, U.S. Department of Commerce, Washington, DC 20230; e-mail *obie.whichard@bea.gov* ; or phone
(202)606-9890. SUPPLEMENTARY INFORMATION: In the November 20, 2006 **Federal Register** , 71 FR 67086, BEA published a notice of proposed rulemaking setting forth reporting requirements for the BE-125, Quarterly Survey of Transactions in Selected Services and Intangible Assets with Foreign Persons. No comments were received on the proposed rule. Thus, the proposed rule is adopted without change. This final rule amends 15 CFR 801.9 to replace the reporting requirements for the BE-25, Quarterly Survey of Transactions with Unaffiliated Foreign Persons in Selected Services and in Intangible Assets, with requirements for the BE-125, Quarterly Survey of Transactions in Selected Services and Intangible Assets with Foreign Persons. Description of Changes The BE-125 survey is a mandatory survey and will be conducted, beginning with transactions for the first quarter of 2007, by BEA under the International Investment and Trade in Services Survey Act (22 U.S.C. 3101-3108), hereinafter, “the Act.” For the initial quarter of coverage, BEA will send the survey to potential respondents in March of 2007; responses will be due by May 15, 2007. The BE-125 will collect information now reported on the BE-25, Quarterly Survey of Transactions Between U.S. and Unaffiliated Foreign Persons in Selected Services and in Intangible Assets, and will also include services transactions that BEA is currently collecting on the BE-22, Annual Survey of Selected Services Transactions Between U.S. and Unaffiliated Foreign Persons, and services transactions with affiliated parties (i.e., with foreign affiliates, foreign parents, and foreign affiliates of foreign parents). In addition to discontinuing the BE-25, BEA also will discontinue the BE-22 at the time the BE-125 is implemented. BEA is currently collecting information on the transactions with affiliated parties on its quarterly direct investment surveys (the BE-577, Direct Transactions of U.S. Reporter with Foreign Affiliate, the BE-605, Transactions of U.S. Affiliate, except a U.S. Banking Affiliate, with Foreign Parent, and the BE-605 Bank, Transactions of U.S. Banking Affiliate with Foreign Parent). These transactions with affiliated parties that are collected on BEA's quarterly direct investment surveys will now be collected on the BE-125 instead. In addition, the BE-125 will combine several services into one “other selected services” category, which includes any services not individually covered by the survey or available from other sources. Survey Background The Bureau of Economic Analysis (BEA), U.S. Department of Commerce, will conduct the survey under the International Investment and Trade in Services Survey Act (22 U.S.C. 3101-3108), hereinafter, “the Act.” Section 4(a) of the Act (22 U.S.C. 3103(a)) provides that the President shall, to the extent he deems necessary and feasible, conduct a regular data collection program to secure current information related to international investment and trade in services and publish for the use of the general public and United States Government agencies periodic, regular, and comprehensive statistical information collected pursuant to this subsection. In Section 3 of Executive Order 11961, as amended by Executive Orders 12318 and 12518, the President delegated the responsibilities under the Act for performing functions concerning international trade in services to the Secretary of Commerce, who has redelegated them to BEA. The survey will provide a basis for updating estimates of the universe of transactions between U.S. and foreign persons in selected services and intangible assets. The data are needed to monitor trade in services and intangible assets; analyze its impact on the U.S. and foreign economies; compile and improve the U.S. international transactions, national income and product, and input-output accounts; support U.S. commercial policy on services and intangible assets; assess and promote U.S. competitiveness in international trade in services; and improve the ability of U.S. businesses to identify and evaluate market opportunities. Executive Order 12866 This final rule has been determined to be not significant for purposes of E.O. 12866. Executive Order 13132 This final rule does not contain policies with Federalism implications sufficient to warrant preparation of a Federal assessment under E.O. 13132. Paperwork Reduction Act The collection-of-information in this final rule has been approved by the Office of Management and Budget
(OMB)under the Paperwork Reduction Act. Notwithstanding any other provisions of the law, no person is required to respond to, nor shall any person be subject to a penalty for failure to comply with, a collection of information subject to the requirements of the Paperwork Reduction Act unless that collection displays a currently valid Office of Management and Budget Control Number. The OMB control number for the BE-125 is 0608-0067; the collection will display this number. The BE-125 quarterly survey is expected to result in the filing of reports containing mandatory data from approximately 1,000 respondents on a quarterly basis, or 4,000 annually. The respondent burden for this collection of information will vary from one respondent to another, but is estimated to average 16 hours per response (64 hours annually), including time for reviewing instructions, searching existing data sources, gathering and maintaining the data needed, and completing and reviewing the collection of information. Thus, the total respondent burden for the BE-125 survey is estimated at 64,000 hours, compared to 35,200 hours estimated for the previous BE-25 survey. The increase in burden is a result of three factors: More U.S. persons with transactions in international services, the addition of selected services transactions that were previously covered by the BE-22, annual survey of selected services transactions (9,200 burden hours), and the inclusion of transactions with affiliated foreign persons. Comments regarding this burden estimate or any other aspect of this collection of information should be addressed to: Director, Bureau of Economic Analysis (BE-1), U.S. Department of Commerce, Washington, DC 20230, fax: 202-606-5311; and the Office of Management and Budget, O.I.R.A., Paperwork Reduction Project 0608-0067, Attention PRA Desk Officer for BEA, via e-mail at * * * or by fax at 202-395-7245. Regulatory Flexibility Act The Chief Counsel for Regulation, Department of Commerce, has certified to the Chief Counsel for Advocacy, Small Business Administration, under provisions of the Regulatory Flexibility Act (5 U.S.C. 605(b)), that this rule will not have a significant economic impact on a substantial number of small entities. The factual basis for this certification was published with the proposed rule. No comments were received regarding the economic impact of this rule. As a result, no final regulatory flexibility analysis was prepared. List of Subjects in 15 CFR Part 801 International transactions, Economic statistics, Foreign trade, Penalties, Reporting and recordkeeping requirements. Dated: January 30, 2007. J. Steven Landefeld, Director, Bureau of Economic Analysis. For the reasons set forth in the preamble, BEA amends 15 CFR Part 801, as follows: PART 801—SURVEY OF INTERNATIONAL TRADE IN SERVICES BETWEEN U.S. AND FOREIGN PERSONS 1. The authority citation for 15 CFR Part 801 continues to read as follows: Authority: 5 U.S.C. 301; 15 U.S.C. 4908; 22 U.S.C. 3101-3108; and E.O. 11961, 3 CFR, 1977 Comp., p. 86, as amended by E.O. 12318, 3 CFR, 1981 Comp., p. 173, and E.O. 12518, 3 CFR, 1985 Comp., p. 348. 2. Amend § 801.9 by removing and reserving paragraph (b)(2) and revising paragraph (c)(6) to read as follows: § 801.9 Reports required.
(c)Quarterly surveys. * * *
(6)BE-125, Quarterly Survey of Transactions in Selected Services and Intangible Assets with Foreign Persons:
(i)A BE-125, Quarterly Survey of Transactions in Selected Services and Intangible Assets with Foreign Persons, will be conducted covering the first quarter of the 2007 calendar year and every quarter thereafter.
(A)*Who must report—(1) Mandatory reporting.* Reports are required from each U.S. person that:
(a)Had sales of covered services or intangible assets to foreign persons that exceeded $6 million for the previous fiscal year or are expected to exceed that amount during the current fiscal year; or
(b)had purchases of covered services or intangible assets from foreign persons that exceeded $4 million for the previous fiscal year or are expected to exceed that amount during the current fiscal year. Because the thresholds are applied separately to sales and purchases, the mandatory reporting requirement may apply only to sales, only to purchases, or to both sales and purchases. Quarterly reports for a year may be required retroactively when it is determined that the exemption level has been exceeded. ( *2* ) *Voluntary reporting.* Reports are requested from each U.S. person that had sales of covered services or intangible assets to foreign persons that were $6 million or less for the previous fiscal year and are expected to be less than or equal to that amount during the current fiscal year, or had purchases of covered services or intangible assets from foreign persons that were $4 million or less for the previous fiscal year and are expected to be less than or equal to that amount during the current fiscal year. Provision of this information is voluntary. The estimates may be based on recall, without conducting a detailed records search. Because these thresholds apply separately to sales and purchases, voluntary reporting may apply only to sales, only to purchases, or to both.
(B)Any person receiving a BE-125 survey form from BEA must complete all relevant parts of the form and return the form to BEA. A person that is not subject to the mandatory reporting requirement in paragraph (c)(6)(i)(A)( *1* ) of this section and is not filing information on a voluntary basis must complete Parts 1 and 2 of the survey. This requirement is necessary to ensure compliance with the reporting requirements and efficient administration of the survey by eliminating unnecessary follow-up contact.
(C)*Covered services and intangible assets.* The BE-125 survey is intended to collect information on U.S. international trade in all types of services and intangible assets for which information is not collected in other BEA surveys and is not available to BEA from other sources. The major types of services transactions not covered by the BE-125 survey are travel, transportation, insurance (except for purchases of primary insurance), financial services (except for purchases by non-financial firms), and expenditures by students and medical patients who are studying or seeking treatment in a country different from their country of residence. Covered services are: Advertising services; accounting, auditing, and bookkeeping services; auxiliary insurance services; computer and data processing services; construction services; data base and other information services; educational and training services; engineering, architectural, and surveying services; financial services (purchases only, by companies or parts of companies that are not financial services providers); industrial engineering services; industrial-type maintenance, installation, alteration, and training services; legal services; management, consulting, and public relations services (including allocated expenses); merchanting services (sales only); mining services; operational leasing services; other trade-related services; performing arts, sports, and other live performances, presentations, and events; premiums paid on purchases of primary insurance; losses recovered on purchases of primary insurance; research, development, and testing services; telecommunications services; and other selected services. “Other selected services” includes, but is not limited to: Agricultural services; account collection services; disbursements to fund news-gathering costs of broadcasters; disbursements to fund news-gathering costs of print media; disbursements to fund production costs of motion pictures; disbursements to fund production costs of broadcast program material other than news; disbursements to maintain government tourism and business promotion offices; disbursements for sales promotion and representation; disbursements to participate in foreign trade shows (purchases only); employment agencies and temporary help supply services; language translation services; mailing, reproduction, and commercial art; management of health care facilities; salvage services; satellite photography and remote sensing/satellite imagery services; security services; space transport (includes satellite launches, transport of goods and people for scientific experiments, and space passenger transport); transcription services; and waste treatment and depollution services. The intangible assets covered by the BE-125 survey are rights related to: Industrial processes and products; books, compact discs, audio tapes and other copyrighted material and intellectual property; trademarks, brand names, and signatures; performances and events pre-recorded on motion picture film and television tape, including digital recording; broadcast and recording of live performances and events; general use computer software; business format franchising fees; and other intangible assets, including indefeasible rights of users.
(ii)[Reserved] [FR Doc. E7-1786 Filed 2-2-07; 8:45 am] BILLING CODE 3510-07-P DEPARTMENT OF ENERGY Federal Energy Regulatory Commission 18 CFR Parts 35, 366, and 375 [Docket No. RM06-20-000; Order No. 691] Delegations of Authority Issued January 29, 2007. AGENCY: Federal Energy Regulatory Commission, DOE. ACTION: Final rule. SUMMARY: The Federal Energy Regulatory Commission (Commission) is amending its regulations governing delegations of authority to the Directors of the Office of Enforcement and the Office of Energy Markets and Reliability, as well as to the Commission's Chief Accountant. These amendments will eliminate regulatory uncertainty and provide clarity regarding the authority delegated to the Office of Enforcement and the Chief Accountant. EFFECTIVE DATE: This Final Rule is effective January 29, 2007. FOR FURTHER INFORMATION CONTACT: Connie Caldwell, Office of Enforcement, Federal Energy Regulatory Commission, 888 First Street, NE., Washington, DC 20426,
(202)502-6489, *connie.caldwell@ferc.gov.* SUPPLEMENTARY INFORMATION: Before Commissioners: Joseph T. Kelliher, Chairman; Suedeen G. Kelly, Marc Spitzer, Philip D. Moeller, and Jon Wellinghoff. 1. The Federal Energy Regulatory Commission (Commission) is amending 18 CFR Parts 35, 366, and 375 to revise its regulations governing delegations of authority to the Directors of the Office of Enforcement
(OE)1 and the Office of Energy Markets and Reliability (OEMR), as well as to the Commission's Chief Accountant. 2 These amendments will eliminate regulatory uncertainty and provide clarity regarding the authority delegated to the Office of Enforcement and the Chief Accountant. 1 The changes to the regulations in Part 375 relate only to the Office of Enforcement and the Chief Accountant. While this rule makes certain changes to the Part 375 delegations to the Director of the Office of Markets, Tariffs, and Rates (now the Office of Energy Markets and Reliability), those changes are made merely to conform the regulations to current office structures and the responsibilities of the Office of Enforcement. The Commission anticipates issuing a rule in the future that will address other changes to Part 375. 2 The Commission's Chief Accountant reports to the Director of Enforcement, but is delegated certain authority directly by the Commission. I. Background 2. The Commission has broad statutory authority to perform acts and make rules that are necessary or appropriate to carry out its statutory functions. 3 This includes the delegation of its statutory authority to staff members on routine matters, “which in many cases represent nothing more than a ministerial judgment by the office director concerning procedural matters,” to allow the Commission to focus on more complex and controversial tasks. 4 The Commission has delegated certain of its authority in a series of orders beginning in 1978. 5 3 *See* Regulations Delegating Authority, Order No. 492, 53 FR 16058 (May 5, 1988), FERC Stats. & Regs. Regulations Preambles 1986-1990 ¶ 30,814 at 31,117 & n. 2 (1988), *citing* 16 U.S.C. 825h (Federal Power Act), 15 U.S.C. 717o (Natural Gas Act), and 15 U.S.C. 3411 (Natural Gas Policy Act of 1978). 4 *See* J.R. Ferguson and Associates, 20 FERC ¶ 61,132 at p. 61,291
(1982)(footnote omitted). 5 Existing delegations of authority were promulgated in a series of rulemakings initiated in 1978. *See* Delegations to Various Office Directors of Certain Commission Authority, 43 FR 36433 (Aug. 17, 1978), FERC Stats. & Regs. Regulations Preambles 1977-1981 ¶ 30,016 (1978); Chief Accountant, *et al.* , Delegation of Authority; Final Regulation, Order No. 38, 44 FR 45449 (Aug. 8, 1979), FERC Stats. & Regs. Regulations Preambles 1977-1981 ¶ 30,068 (1979), *reh'g denied* , 8 FERC ¶ 61,299 (1979); Delegation of the Commission's Authority to the Directors of Office of Electric Power Regulation, Office of the Chief Accountant, and Office of Pipeline and Producer Regulation, Order No. 147, 46 FR 29700 (June 3, 1981), FERC Stats. & Regs. Regulations Preambles 1977-1981 ¶ 30,259 (1981); Delegation of Authority, Order No. 224, 47 FR 17806 (Apr. 26, 1982), FERC Stats. & Regs. Regulations Preambles 1982-1985 ¶ 30,356 (1982); Regulations Delegating Authority, Order No. 492, 53 FR 16058 (May 5, 1988), FERC Stats. & Regs. Regulations Preambles 1986-1990 ¶ 30,814 (1988); Streamlining Commission Procedures for Review of Staff Action, Order No. 530, 55 FR 50677 (May 5, 1988), FERC Stats. & Regs. Regulations Preambles 1986-1990 ¶ 30,906 (1990), *reh'g denied* , Order No. 530-A, 56 FR 4719 (Feb. 6, 1991), FERC Stats. & Regs. Regulations Preambles 1991-1996 ¶ 30,914 (1991); Delegation of Authority to the Secretary, the Director of the Office of Electric Power Regulation, and the General Counsel, Order No. 585, 60 FR 62326 (Dec. 6, 1995), FERC Stats. & Regs. Regulations Preambles January 1991-June 1996 ¶ 31,030 (1995); Delegation of Authority, Order No. 613, 64 FR 73403 (Dec. 30, 1991), FERC Stats. & Regs. Regulations Preambles July 1996-December 2000 ¶ 31,087 (1999); Delegation of Authority, Order No. 632, 68 FR 25814 (May 14, 2003), FERC Stats. & Regs. Regulations Preambles 2001-2005 ¶ 31,087 (2003). 3. When the Office of Market Oversight and Investigations (OMOI), the predecessor to OE, was created in 2003, the Commission issued Order No. 632, 6 which promulgated OMOI's original delegations of authority. In Order No. 632, the Commission stated that certain delegations to the General Counsel and to the Director of the Office of Markets, Tariffs, and Rates (OMTR, now known as the Office of Energy Markets and Reliability or OEMR), were being duplicated in OMOI's delegations. 6 Delegations of Authority, Order No. 632, 68 FR 25814 (May 14, 2003), FERC Stats. & Regs. Regulations Preambles 2001-2005 ¶ 31,087 (2003). 4. The following year, in Order No. 650, 7 the Commission revised the delegations promulgated in Order No. 632 to reflect the move of the Division of Regulatory Audits (renamed the Division of Financial Audits) from the Office of the Executive Director
(OED)to OMOI. In Order No. 650, the relevant delegation provisions were added to the OMOI delegations and deleted from the OED delegations. In 2005, pursuant to another reorganization, the Regulatory Accounting policy function, as well as the Chief Accountant, were moved from OMTR to OMOI. 7 Delegations of Authority, 69 FR 64659 (Nov. 8, 2004), FERC Stats. & Regs. Regulations Preambles 2001-2005 ¶ 31,169 (2004). The original designation as Order No. 651 was corrected to Order No. 650 by an errata notice issued on November 12, 2004. 5. On April 17, 2006, the reorganization and renaming of OMOI as OE became effective. OE includes an administrative branch and four divisions—Investigations, Audits, Financial Regulation (for which the Chief Accountant also serves as the Division Director), and Energy Market Oversight. II. Discussion 6. Part 375, Subpart C, of the Commission's rules and regulations sets out delegations of authority to the various office directors, such as the Directors of OMOI (now called OE) 8 and OMTR (now called OEMR), 9 as well as to statutory officers such as the Chief Accountant. 10 The regulations in Part 375 which are amended by this rule are found in §§ 375.303, 375.307, and 375.314, and are discussed below. 8 18 CFR 375.314. 9 18 CFR 375.307. 10 18 CFR 375.303. 7. Section 375.314 11 includes the delegations of authority to the Director of OMOI (now OE). Amendments to this section are made to replace the former office title of Office of Market Oversight and Investigations with the title Office of Enforcement and occur in the title to § 375.314, and in the text of § 375.314(b), (c), and (d). 12 11 18 CFR 375.314. 12 18 CFR 375.314(b), (c), and (d), respectively. 8. Sections 375.314(i), (j), and
(k)13 of the current delegations to the Director of OMOI (now OE) concern auditing matters and essentially duplicate delegations formerly made to the Director of OMTR (now OEMR) at a time when auditing matters were handled in OMTR. These matters fall solely within the purview of the Director of OE. Accordingly, this rule removes § 375.307(a), (c), and
(d)14 from the delegations to the Director of OMTR (now OEMR). 13 18 CFR 375.314(i), (j), and (k), respectively. 14 18 CFR 375.307(a), (c), and (d), respectively. 9. The remaining amendments to the regulations, as discussed below, reflect changes in the responsibilities of the Chief Accountant which occurred when the Regulatory Accounting policy function was moved to OMOI (now OE), discussed above, as well as through delegations made by the Commission in Order Nos. 667 15 and 679. 16 When the Regulatory Accounting policy function was moved to OMOI (now OE), responsibility for administering Annual Reports (FERC Form Nos. 1, 1-F, 2, 2-A, and 6) 17 and Electric Quarterly Reports
(EQRs)18 were transferred to the Chief Accountant. These, as well as all other forms, data collections, and reports administered by the Chief Accountant, assist the Commission in its review and approval of cost-based rates. The data contained in these forms, data collections, and reports serve other purposes as well. 15 Repeal of the Public Utility Holding Company Act of 1935 and Enactment of the Public Utility Holding Company Act of 2005, Order No. 667, 70 FR 75592 (Dec. 20, 2005), FERC Stats. & Regs. ¶ 31,197 (2005), *order on reh'g,* Order No. 667-A, 71 FR 28446 (May 16, 2006), FERC Stats. & Regs. ¶ 31,213 (2006), *order on reh'g,* Order No. 667-B, 71 FR 42750 (July, 28, 2006), FERC Stats. & Regs. ¶ 31,224 (2006), *reh'g pending.* 16 Promoting Transmission Investment through Pricing Reform, Order No. 679, 71 FR 43294 (Jul. 31, 2006), 116 FERC ¶ 61,057 (2006); *order on reh'g,* Order No. 679-A, 117 FERC ¶ 61,345 (2006). 17 *See* 18 CFR 141.1, 141.2, 260.1, 260.2, and 357.2, respectively. 18 *See* 18 CFR 35.10b. 10. In Order No. 679, among other things, the Commission created FERC-730 (report of transmission investment activity) 19 and delegated to the Chief Accountant the authority to act on motions for extensions of time to file the newly-created FERC-730, or motions to waive the requirements applicable to those filings. However, that recent delegation is not reflected in the Chief Accountant's delegations in 18 CFR 375.303. Instead, the delegatory language was codified as part of § 35.35(h), which comprises the regulations describing the report and the filing requirements for that report. In order to centralize all delegations to the Chief Accountant, this rule amends the regulations to add this delegation to 18 CFR 375.303, and revises § 35.35(h)(3) to remove the delegatory language therein. 19 *Codified at* 18 CFR 35.35(h). 11. In Order Nos. 667, among other things, the Commission created FERC Form No. 60 (Annual Report of Centralized Service Companies). 20 In Order No. 667-A, the Commission created FERC-61 (narrative description of service company functions). 21 In Order No. 667-A, the Commission delegated to the Chief Accountant the authority to act on motions for extensions of time to file and requests for waiver of the requirements of FERC Form No. 60 and FERC-61. 22 In Order No. 684, §§ 375.303(f) and
(g)were amended to include those delegations also. 23 In order to centralize all delegations to the Chief Accountant, this rule amends 18 CFR 375.303, and revises § 366.23(a)(3) to remove the delegatory language therein. 20 20 Order No. 667 at P 82-85; *codified at* 18 CFR 366.23. 21 Order No. 667-A at P 49; *codified at* 18 CFR 366.23. 22 Order No. 667-A; *codified at* 18 CFR 366.23(a)(3). 23 Financial Accounting, Reporting and Records Retention Requirements Under the Public Utility Holding Company Act of 2005, 71 FR 65200 (Nov. 7, 2006), FERC Stats. & Regs. ¶ 31,229
(2006)at P 222-223. 12. To summarize, currently, the Chief Accountant is authorized to:
(1)Act on motions for extension of time to file Form No. 60, FERC-61, and FERC-730;
(2)act on requests for waiver of the requirements of Form Nos. 3-Q and 6-Q, 24 Form No. 60, FERC-61, and FERC-730; and
(3)issue deficiency letters regarding Form Nos. 3-Q and 6-Q. The rule amends the regulations to uniformly authorize the Chief Accountant to:
(1)Act on motions for extensions of time to file,
(2)act on requests for waiver of the requirements of, and
(3)issue deficiency letters regarding, each of the above-discussed forms, data collections, and reports (Form Nos. 1, 1-F, 2, 2-A, 6, 3-Q, 6-Q, 60; FERC-61, FERC-730; and EQRs), so that the delegated authority applicable to these forms, data collections, and reports is consistent. To effectuate this delegation, the rule amends § 375.303 by replacing existing paragraphs
(f)and
(g)to provide that the Chief Accountant may deny or grant, in whole or in part, motions for extension of time to file, or requests for waiver of the requirements of Annual Reports (Form Nos. 1, 1-F, 2, 2-A, and 6); Quarterly Reports (Form Nos. 3-Q and 6-Q); Annual Report of Centralized Service Companies (Form No. 60); Narrative Description of Service Company Functions (FERC-61); Report of Transmission Investment Activity (FERC-730); and EQRs, as well as, where required, the electronic filing of such information, and provide notification if one of those forms, data collections, or reports is submitted and fails to comply with applicable statutory requirements, and with all applicable Commission rules, regulations or notify a party that a submission is acceptable. 24 18 CFR 141.400 (electric), 260.300 (natural gas), and 357.4 (oil), respectively. 13. Further, to centralize the authority delegated to the Chief Accountant and to avoid confusion as to the responsibility for the forms, data collections, and reports discussed herein, the delegations of authority to the Director of OMTR (now OEMR) are revised by removing the parenthetical phrase in 18 CFR 375.307(h)(3) which references Form Nos. 1, 1-F, 2, 2-A, and 6, and by removing in its entirety 18 CFR 375.307(i)(8), which also references Form No. 1. III. Information Collection Statement 14. Review by the Office of Management and Budget, 25 pursuant to section 3507(d) of the Paperwork Reduction Act of 1995, 26 is not required since this final rule does not contain new or modified information collection or recordkeeping requirements. 25 5 CFR 1320.11. 26 44 U.S.C. 3507(d). IV. Environmental Analysis 15. The Commission is required to prepare an Environmental Assessment or an Environmental Impact Statement for any action that may have a significant adverse effect on the human environment. 27 Part 380 of the Commission's regulations exempts certain actions from the requirement that an Environmental Analysis or Environmental Impact Statement be prepared. Included is an exemption for procedural, ministerial, or internal administrative actions. 28 As this Final Rule falls within that exemption, issuance of the Rule does not represent a major federal action having a significant adverse effect on the human environment under the Commission's regulations implementing the National Environmental Policy Act, and, thus, does not require an Environmental Analysis or Environmental Impact Statement. 29 27 Regulations Implementing the National Environmental Policy Act, 52 FR 47897 (Dec. 17, 1987), FERC Stats. & Regs. Regulations Preambles 1986-1990 ¶ 30,783 (1987), *codified at* 18 CFR Part 380. 28 18 CFR 380.4(1) and (5). 29 *Id.* V. Regulatory Flexibility Certification 16. The Regulatory Flexibility Act of 1980
(RFA)30 generally requires a description and analysis of Final Rules that will have significant economic impact on a substantial number of small entities. Rules that are exempt from the notice and comment requirements of section 553(b) of the Administrative Procedure Act are exempt from the RFA requirements. This Final Rule concerns matters of internal agency procedure and, therefore, an analysis under the RFA is not required. 30 5 U.S.C. 601-12. VI. Document Availability 17. In addition to publishing the full text of this document in the **Federal Register,** the Commission provides all interested persons an opportunity to view and/or print the contents of this document via the Internet through FERC's Home Page *(http://www.ferc.gov)* and in FERC's Public Reference Room during normal business hours (8:30 a.m. to 5 p.m. Eastern time) at 888 First Street, NE., Room 2A, Washington DC 20426. 18. From FERC's Home Page on the Internet, this information is available in eLibrary. The full text of this document is available in eLibrary in PDF and Microsoft Word format for viewing, printing, and/or downloading. To access this document in eLibrary, type the docket number excluding the last three digits of this document in the docket number field. 19. User assistance is available for eLibrary and the FERC's Web site during normal business hours from our Help line at
(202)502-8222 or the Public Reference Room at
(202)502-8371 Press 0, TTY
(202)502-8659. E-Mail the Public Reference Room at *public.referenceroom@ferc.gov* . VII. Effective Date and Congressional Notification 20. These regulations are effective on issuance. While the Administrative Procedure Act generally mandates that an opportunity for comment be provided when an agency promulgates regulations, notice and comment are not required where a rule, as here, relates to agency personnel or agency organization, procedure, or practice. 31 Since these regulations only concern internal agency procedure and will not affect regulated entities or the general public, notice and comment are not required. 31 *See* 5 U.S.C. 553(b)(A) and (B). 21. The Small Business Regulatory Enforcement Fairness Act of 1996 32 requires agencies to report to Congress on the promulgation of certain Final Rules prior to their effective dates. Rules of agency procedure and practice are excluded from this notification requirement. 33 Therefore, this Final Rule will not be submitted to Congress. 32 5 U.S.C. 801. 33 5 U.S.C. 804(3)(C). List of Subjects 18 CFR 35 Electric power rates, Electric utilities, Reporting and recordkeeping requirements. 18 CFR 366 Electric power, Natural gas, Reporting and recordkeeping requirements. 18 CFR 375 Authority delegations (Government Agencies), Seals and insignia, Sunshine Act. By the Commission. Magalie R. Salas, Secretary. In consideration of the foregoing, the Commission amends parts 35, 366, and 375, Chapter I, Title 18, *Code of Federal Regulations* , as follows: PART 35—FILING OF RATE SCHEDULES AND TARIFFS 1. The authority citation for part 35 continues to read as follows: Authority: 16 U.S.C. 791-825r, 2601-2645; 31 U.S.C. 9701; 42 U.S.C. 7101-7352. 2. Amend § 35.35 by revising paragraph (h)(3) to read as follows: § 35.35 Transmission infrastructure investment.
(h)* * *
(3)For good cause shown, the Commission may extend the time within which any FERC-730 filing is to be filed or waive the requirements applicable to any such filing. PART 366—PUBLIC UTILITY HOLDING COMPANY ACT OF 2005 3. The authority citation for part 366 continues to read as follows: Authority: Pub. L. No. 109-58, 1261 *et seq.* , 119 Stat. 594, 972 *et seq.* 4. Amend § 366.23 by revising paragraph (a)(3), to read as follows: § 366.23 FERC Form No. 60, annual report of service companies, and FERC-61, narrative description of service company functions.
(a)* * *
(3)For good cause shown, the Commission may extend the time within which any such report or narrative description required to be filed pursuant to paragraphs (a)(1) or
(2)of this section is to be filed or waive the requirements applicable to any such report or narrative description. PART 375—THE COMMISSION 5. The authority citation for part 375 continues to read as follows: Authority: 5 U.S.C. 551-557; 15 U.S.C. 717-717w, 3301-3432; 16 U.S.C. 791-825r, 2601-2645; 42 U.S.C. 7101-7352. 6. Amend § 375.303 by revising paragraphs
(f)and
(g)to read as follows: § 375.303 Delegations to the Chief Accountant.
(f)Deny or grant, in whole or in part, motions for extension of time to file, or requests for waiver of the requirements of the following forms, data collections, and reports: Annual Reports (Form Nos. 1, 1-F, 2, 2-A, and 6); Quarterly Reports (Form Nos. 3-Q and 6-Q); Annual Report of Centralized Service Companies (Form No. 60); Narrative Description of Service Company Functions (FERC-61); Report of Transmission Investment Activity (FERC-730); and Electric Quarterly Reports, as well as, where required, the electronic filing of such information (§ 385.2011 of this chapter, Procedures for filing on electronic media, paragraphs (a)(6), (c), and (e)).
(g)Provide notification if a submitted Annual Report (Form Nos. 1, 1-F, 2, 2-A, and 6), Quarterly Report (Form Nos. 3-Q and 6-Q), Annual Report of Centralized Service Companies (Form No. 60), Narrative Description of Service Company Functions (FERC-61), Report of Transmission Investment Activity (FERC-730), or Electric Quarterly Report fails to comply with applicable statutory requirements, and with all applicable Commission rules, regulations, and orders for which a waiver has not been granted, or, when appropriate, notify a party that a submission is acceptable. 7. Amend § 375.307 as follows: A. Remove paragraphs (a), (c), (d), and (i)(8) and redesignate paragraphs
(b)and
(e)through
(p)as paragraphs
(a)through (m). B. Revise redesignated paragraph (h)(3) to read as follows: § 375.307 Delegations to the Director of the Office of Markets, Tariffs and Rates.
(h)* * *
(3)Accept for filing, data and reports required by Commission orders, or presiding officers' initial decisions upon which the Commission has taken no further action, if such filings are in compliance with such orders or decisions and, when appropriate, notify the filing party of such acceptance. § 375.314 [Amended] 8. In § 375.314, remove the words “Office of Market Oversight and Investigation” and add, in their place, the words “Office of Enforcement” in the following sections: A. Section 375.314 section heading; B. Section 375.314(b); C. Section 375.314(c); and D. Section 375.314(d). [FR Doc. E7-1737 Filed 2-2-07; 8:45 am] BILLING CODE 6717-01-P DEPARTMENT OF THE TREASURY Internal Revenue Service 26 CFR Parts 1 and 602 [TD 9311] RIN 1545-BG10 Certain Transfers of Stock or Securities by U.S. Persons to Foreign Corporations AGENCY: Internal Revenue Service (IRS), Treasury. ACTION: Final and temporary regulations. SUMMARY: This document contains final and temporary regulations under section 367(a) of the Internal Revenue Code
(Code)regarding gain recognition agreements. The final regulations are necessary to update cross-references in the current regulations. The temporary regulations are necessary to respond to comments requested in Notice 2005-74. The regulations primarily affect U.S. persons that transfer stock or securities to foreign corporations or corporations engaged in transactions that affect existing gain recognition agreements. The text of these temporary regulations also serves as the text of the proposed regulations (REG-147144-06) set forth in the notice of proposed rulemaking on this subject published elsewhere in this issue of the **Federal Register** . DATES: *Effective Date:* These regulations are effective February 5, 2007. *Applicability Dates:* For dates of applicability, see §§ 1.367(a)-3T(f) and 1.367(a)-8T(h). ADDRESSES: Send submissions to: CC:PA:LPD:PR (REG-147144-06), 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-147144-06), Courier's Desk, Internal Revenue Service, 1111 Constitution Avenue, NW., Washington, DC, 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* (IRS REG-147144-06). FOR FURTHER INFORMATION CONTACT: Daniel McCall,
(202)622-3860 (not a toll-free number). SUPPLEMENTARY INFORMATION: Paperwork Reduction Act These temporary regulations are being issued without prior notice and public procedure pursuant to the Administrative Procedure Act (5 U.S.C. 553). For this reason, the collections of information contained in these regulations have been reviewed and pending receipt and evaluation of public comments, approved by the Office of Management and Budget in accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)) under control number 1545-2056. Response to these collections of information is mandatory. An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information, unless the collection of information displays a valid control number. For further information concerning this collection of information, and where to submit comments on the collection of information and the accuracy of the estimated burden, and suggestions for reducing the burden, please refer to the preamble to the cross-referencing notice of proposed rulemaking published elsewhere in the Proposed Rules section of this issue of the **Federal Register** . Books and records relating to these collections 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 Section 367(a)(1) provides that if, in connection with any exchange described in section 332, 351, 354, 356, or 361, a United States person (U.S. transferor) transfers property to a foreign corporation (transferee foreign corporation), such foreign corporation shall not, for purposes of determining the extent to which gain shall be recognized on such transfer, be considered to be a corporation. Section 367(a)(2),
(3)and
(6)provides exceptions to this general rule and grants regulatory authority to provide additional exceptions and to limit the statutory exceptions. Exceptions to the general rule of section 367(a)(1) for certain transfers by a U.S. transferor of the stock or securities of a corporation (transferred corporation) to a transferee foreign corporation are provided in § 1.367(a)-3 (initial transfer). In some cases, these exceptions require, among other things, that the U.S. transferor file a gain recognition agreement (GRA), as provided in § 1.367(a)-8. Section 1.367(a)-3(b)(1)(ii) and (c)(1)(iii)(B). Pursuant to a GRA, the U.S. transferor agrees, among other things, to include in income the gain realized, but not recognized, on the initial transfer of the stock or securities, and pay any applicable interest, upon certain events (triggering events) that occur before the close of the fifth full taxable year following the year of the initial transfer. Section 1.367(a)-8(b)(1)(iii) and (3)(i). Section 1.367(a)-8(e)(1) and
(2)provides that dispositions of the stock or securities of the transferred corporation are generally triggering events. Similarly, § 1.367(a)-8(e)(3) provides that dispositions of substantially all (within the meaning of section 368(a)(1)(C)) of the assets of the transferred corporation are generally treated as deemed dispositions of the stock or securities of the transferred corporation and therefore are also triggering events. Finally, dispositions of stock of the transferee foreign corporation can also be triggering events. See § 1.367(a)-8(f)(2)(ii). Notwithstanding these rules, § 1.367(a)-8 provides that various nonrecognition transactions are not triggering events if certain requirements are satisfied. For example, § 1.367(a)-8(g) provides exceptions for certain transactions involving the U.S. transferor, the transferee foreign corporation, and the transferred corporation. Although these exceptions clearly contemplate some nonrecognition transactions, the current regulations are unclear whether, and if so how, the exceptions apply to various asset reorganizations involving section 361 exchanges by the U.S. transferor, the transferee foreign corporation, and the transferred corporation. Section 1.367(a)-8 also provides that certain nonrecognition transactions are not triggering events because the GRA is terminated without further effect. For example, § 1.367(a)-8(h)(3) lists certain nonrecognition transactions that terminate the GRA, provided that immediately after the transaction the basis in the transferred stock is not greater than the U.S. transferor's basis in the stock that, immediately before the initial transfer, necessitated the GRA. On September 28, 2005, the IRS and the Treasury Department issued Notice 2005-74 (2005-42 IRB 726), see § 601.601(d)(2), which announced the intention to amend the regulations under section 367(a) to address the effect on GRAs of certain asset reorganizations involving the U.S. transferor, the transferee foreign corporation, and the transferred corporation. The notice was issued in response to comments that the current regulations do not adequately address various asset reorganizations involving the U.S. transferor, the transferee foreign corporation, and the transferred corporation. Notice 2005-74 addressed the most common of these reorganizations and requested comments on other transactions (for example, certain upstream and downstream reorganizations). Notice 2005-74 generally provided that, if particular requirements are satisfied, certain asset reorganizations of the U.S. transferor, the transferee foreign corporation, or the transferred corporation will not constitute triggering events. A key premise of the notice was that the covered transactions involved situations where the ability to collect tax is sufficiently preserved in the event of a subsequent trigger of the GRA (that is, the obligor under the GRA remains unchanged as a result of the asset reorganization). In light of taxpayer comments and further study, however, the IRS and Treasury Department have determined that there are additional instances where the ability to collect tax after these asset reorganizations and certain other nonrecognition transactions (as defined in section 7701(a)(45)) is sufficiently preserved so that these transactions also should not constitute a triggering event if particular requirements are met. The IRS and Treasury Department also have concluded that other portions of the current section 367(a) regulations addressing GRAs should be revised. Explanation of Provisions A. Overview The temporary regulations adopt the rules announced in Notice 2005-74, with a number of modifications discussed below. Notice 2005-74 only provided guidance on a particular range of transactions, namely certain asset reorganizations, that are insufficiently addressed in the current regulations. The temporary regulations respond to comments and provide guidance on the effect on GRAs of transactions that are not addressed in the current regulation or Notice 2005-74. The temporary regulations also make additional changes to the existing regulations. For example, the temporary regulations modify and clarify procedural requirements attendant to entering into GRAs. Finally, the temporary regulations reorganize the current regulation so that distinct paragraphs address triggering events, exceptions to triggering events, and events that terminate a GRA. The IRS and Treasury Department continue to consider issuing additional public guidance that further revises § 1.367(a)-8. B. Effect of Certain Asset Reorganizations and Nontaxable Liquidations on Gain Recognition Agreements 1. Transfers of Transferee Foreign Corporation Stock by U.S. Transferor
(a)Asset Reorganizations Notice 2005-74 provided that if, in a section 361 transaction, a U.S. transferor transfers all or a portion of the stock or securities of the transferee foreign corporation to an acquiring domestic corporation (successor U.S. transferor) pursuant to certain asset reorganizations, the exchanges made pursuant to the asset reorganization will trigger the gain recognition agreement, unless various conditions are satisfied. These conditions are:
(1)The U.S. transferor must have been a member of a consolidated group (original consolidated group) at the time of the initial transfer and the common parent of such group (original common parent) entered into the original GRA;
(2)immediately after the asset reorganization, the successor U.S. transferor is a member of the original consolidated group (consolidation continuity requirement); and
(3)the original common parent enters into a new GRA with respect to the transfer subject to the original GRA, modified by substituting the successor U.S. transferor for the original U.S. transferor. A notice of the asset reorganization also must be provided with the successor U.S. transferor's next annual certification. For this purpose, an asset reorganization is defined as a reorganization described in section 368(a)(1) involving the transfer of assets by a corporation to another corporation pursuant to section 361, except that such term shall include reorganizations described in section 368(a)(1)(D) or
(G)only if the requirements of section 354(b)(1)(A) and
(B)are met. The IRS and Treasury Department received several comments that the consolidation continuity requirement was unduly restrictive because it focused on maintaining the same obligor for a GRA following the asset reorganization. Commentators asserted that an equal or better ability to collect the tax due as a result of a triggering event subsequent to such a reorganization may be preserved in certain instances where the consolidation continuity requirement would not be satisfied. However, these same commentators noted that if there were no consolidation continuity requirement, such that a U.S. transferor that is a member of a consolidated group at the time of the initial transfer could be acquired in a later asset reorganization by a corporation (successor corporation) that is not a member of such group without triggering the GRA, the actions of the successor corporation could inappropriately affect the liability of the original consolidated group under the GRA. As a result, the commentators requested that the consolidation continuity requirement be curtailed or eliminated, while at the same time not inappropriately exposing the original consolidated group to the liabilities arising from the actions of the successor corporation. The IRS and Treasury Department generally agree with these views. Therefore, the temporary regulations eliminate the consolidation continuity requirement and address concerns about the liability of a consolidated group that disposes of a U.S. transferor subject to a GRA. Specifically, the temporary regulations provide that when a U.S. transferor transfers all or a portion of the stock of the transferee foreign corporation to an acquiring corporation in an asset reorganization, the exchanges made pursuant to the reorganization will not be triggering events and the GRA will terminate without further effect, but only if certain requirements are satisfied. These requirements ensure that the ability to collect tax is sufficiently preserved and that the terms of the GRA are administrable. First, the acquiring corporation (successor U.S. transferor) must be a domestic corporation, and the successor U.S. transferor or the common parent of the consolidated group of which the successor U.S. transferor is a member (as applicable) must enter into a new GRA to recognize gain with respect to the initial transfer during the remaining term of the original GRA (with certain modifications). Second, with its next certification, the successor U.S. transferor must provide to the IRS the new GRA, notice of the transaction, and Form 8838 (Consent to Extend Time to Assess Tax Under Section 367) to extend the period of assessment of tax on the initial transfer. Third, unless the successor U.S. transferor is a member of the same consolidated group of which the U.S. transferor was a member immediately before the asset reorganization, the person entering into the new GRA must elect that, if the new GRA is triggered in whole or in part, the person will include the required amount in the year of the triggering event (as opposed to the year of the initial transfer). Requiring an inclusion in these circumstances only in the year of a subsequent triggering event when the U.S. transferor is no longer owned by the same consolidated group is necessary, among other reasons, because the successor U.S. transferor may not have existed in the year of the initial transfer. In such a case, the successor U.S. transferor would not be able to amend a return for the year of the initial transfer to include any tax due as a result of a subsequent triggering event. Moreover, the requirement is appropriate even if the successor U.S. transferor did exist in the year of the initial transfer because its tax year for the year of the initial transfer may be closed. In sum, this requirement assures the GRA rules are administrable and that the ability to collect tax is sufficiently preserved. If these requirements are met, the original GRA will terminate without further effect. The IRS and Treasury Department have decided to eliminate the consolidation continuity requirement because these three requirements adequately address the government's concern in this area by, among other things, preserving the ability to collect the tax due as a result of a triggering event subsequent to a covered asset reorganization. In many asset reorganizations, the successor U.S. transferor will have an equal or greater ability to pay the tax due in the case of a subsequent triggering event than would the original U.S. transferor. Furthermore, the current regulations generally do not impose any financial or other requirements on the ability of a U.S. transferor to enter into a GRA. But see § 1.367(a)-8(d) (imposing a security requirement in certain situations). Consequently, the IRS and Treasury Department believe that even if in some circumstances an acquisition of a U.S. transferor may affect the ability to collect the tax due as a result of a subsequent triggering event (for example, the U.S. transferor is acquired from a consolidated group by another consolidated group whose value is less than that of the original consolidated group), the requirements above nonetheless sufficiently preserve the ability to collect the tax that would be due if the new GRA were triggered and ensure that the terms of the GRA are administrable. As described in this section, the temporary regulations require that the acquirer be a domestic corporation because, among other reasons, the IRS and Treasury Department are concerned that if a foreign acquirer is allowed to enter into a new GRA, it may be difficult for the IRS to collect any tax due in the event of a subsequent trigger of the GRA. However, the IRS and Treasury Department continue to study whether it would be appropriate to allow a domestic corporate shareholder of the U.S. transferor to enter into a new GRA when a U.S. transferor is acquired by a foreign corporation in an asset reorganization under conditions similar to those provided in § 1.367(a)-3T(e). The IRS and Treasury Department welcome more detailed comments on specific approaches that could extend these rules to foreign acquisitions of the U.S. transferor.
(b)Nontaxable Liquidations The current regulations provide that, if a corporate U.S. transferor liquidates in a transaction that qualifies under sections 332 and 337, the GRA is triggered unless
(1)The U.S. transferor filed a consolidated income tax return with a U.S. parent corporation both in the year of the initial transfer and the year of the liquidation, and
(2)the common parent enters into a new GRA, with certain modifications. Section 1.367(a)-8(f)(2)(ii). The temporary regulations provide a similar rule. However, the temporary regulations eliminate the consolidation continuity requirement, so the U.S. transferor is no longer required to be a member of the same consolidated group in the year of the initial transfer and the year of the liquidation. Consequently, the temporary regulations provide that where a U.S. transferor disposes of the stock of the foreign transferee corporation in a liquidation that qualifies under sections 332 and 337, the disposition will not constitute a triggering event provided that:
(1)The distributee (successor U.S. transferor) is a domestic corporation described in section 332(b)(1);
(2)the successor U.S. transferor or, if the successor U.S. transferor is a member of a consolidated group, the common parent of the successor U.S. transferor's group, enters into a new GRA covering the remaining term of the original GRA (with certain modifications);
(3)where the successor U.S. transferor is not a member of the original consolidated group immediately after the liquidation, the person entering into the GRA agrees that if there is a subsequent triggering event, the taxpayer will recognize the gain in the year of the triggering event (as opposed to the year of the initial transfer); and
(4)the successor U.S. transferor provides, with its next annual certification, Form 8838 to extend the period of assessment of the tax on the initial transfer. If these conditions are satisfied, the original GRA will terminate without further effect. For reasons similar to those discussed above in the context of asset reorganizations involving the U.S. transferor, the IRS and Treasury Department believe that the temporary regulations sufficiently address the government's concerns in this area, including preserving the ability to collect tax due as a result of a subsequent triggering event. As a result, it is not necessary for the U.S. transferor to be a member of the same consolidated group in the year of the transfer and the year of the liquidation. In addition, the IRS and Treasury Department believe that it is appropriate to require an inclusion in the year of a subsequent triggering event if the successor U.S. transferor was not a member of a consolidated group with the U.S. transferor immediately before the liquidation for reasons similar to those discussed regarding asset reorganizations involving the U.S. transferor. 2. Transfers of Transferred Corporation Stock or Securities by Transferee Foreign Corporation in an Asset Reorganization Notice 2005-74 provided that if, in a section 361 transaction, a transferee foreign corporation transfers stock or securities of a transferred corporation to a foreign acquiring corporation in an asset reorganization, the exchanges made pursuant to the reorganization will be a triggering event, unless certain conditions are met. These conditions require that the U.S. transferor, common parent, or new common parent corporation, as applicable, enter into a new GRA, with certain modifications. In addition, the U.S. transferor also is required to provide the new GRA and a notice of the asset reorganization with its next annual certification. For purposes of this rule, Notice 2005-74 retained the same definition of asset reorganization as used for the provision dealing with transfers of transferee corporation stock, with certain modifications. Specifically, Notice 2005-74 excludes the following asset reorganizations:
(1)Triangular asset reorganizations described in § 1.358-6(b); and
(2)asset reorganizations where, after the reorganization, the same corporation is both the transferee foreign corporation (or successor transferee foreign corporation, as applicable) and the transferred corporation (or the successor transferred corporation, as applicable). The temporary regulations generally incorporate these rules and provide that if the above conditions are satisfied the original GRA will terminate without further effect. However, even if these conditions are satisfied, the temporary regulations provide specific gain recognition rules if the transferee foreign corporation transfers stock or securities of the transferred corporation in an asset reorganization and the U.S. transferor recognizes gain under section 356(a)(1). See section C of this preamble. As noted in this preamble, Notice 2005-74 excluded from the definition of the term asset reorganization any triangular asset reorganizations of the transferee foreign corporation and transferred corporation and certain upstream and downstream reorganizations. In response to comments and upon further study by the IRS and Treasury Department, the temporary regulations address the treatment of triangular asset reorganizations of the transferee foreign corporation and certain upstream and downstream reorganizations. See sections G and H of this preamble. 3. Transfers of Substantially All of a Transferred Corporation's Assets Notice 2005-74 provides that if a transferred corporation transfers substantially all its assets in an asset reorganization, the exchanges made pursuant to the reorganization will be a triggering event, unless certain conditions are met. These conditions require that the U.S. transferor, U.S. parent corporation or new U.S. parent corporation, as applicable, enters into a new GRA, with certain modifications. The U.S. transferor also is required to provide the new GRA and the notice of the asset reorganization with its next annual certification. The definition of asset reorganization is the same as that used in asset reorganizations involving the transferee foreign corporation. The temporary regulations generally incorporate these rules and provide that if these conditions are met, the original GRA will terminate without further effect. However, even if these conditions are satisfied, the temporary regulations provide specific gain recognition rules (described in section C of this preamble) if the transferred corporation transfers substantially all of its assets in an asset reorganization and the transferee foreign corporation recognizes gain under section 356(a)(1). In addition, although the definition of asset reorganization excludes triangular asset reorganizations and downstream mergers of the transferee foreign corporation, the temporary regulations address the tax treatment of these transactions. See sections G and H of this preamble. C. Special Rules Regarding Nonrecognition Transactions Involving Money or Other Property The current regulations provide that certain nonrecognition transactions are not triggering events if particular requirements are satisfied. However, commentators have stated that the current regulations provide that certain nonrecognition transactions at the transferee foreign corporation or transferred corporation level in which any money or other property (as described in sections 351(b) or 356(a)) is received in exchange are triggering events without exception. These commentators assert that it is not appropriate to trigger an entire GRA as a result of receiving a relatively minor amount of “boot” in the nonrecognition transaction. These commentators also note that the current regulations do not address clearly the treatment of transfers of transferee foreign corporation stock by a U.S. transferor in a nonrecognition transaction in which the U.S. transferor receives boot. The IRS and Treasury Department agree that the receipt of boot under section 351(b) or 356(a)(1) in connection with the disposition of transferred corporation stock or securities, or substantially all of a transferred corporation's assets, should not automatically trigger all the gain under a GRA. Accordingly, the temporary regulations provide that if certain conditions are met, the entire GRA will not be triggered when a transferee foreign corporation disposes of transferred corporation stock or securities in a nonrecognition transaction simply because the transferee foreign corporation receives boot. However, the IRS and Treasury Department believe that the GRA should be triggered to the extent that gain would be recognized in such a transaction by a transferee foreign corporation or a transferred corporation, before taking into account basis increases that may apply to the stock or securities disposed of as a result of triggering the GRA. The current, as well as the temporary regulations, provide that if a U.S. transferor is required to recognize gain because of a triggering event, then certain basis increases are allowed as of the date of the initial transfer. Therefore, in determining the amount of gain that is recognized under the GRA in such a transaction, the temporary regulations provide that the U.S. transferor first must recognize that amount of gain that the transferee foreign corporation or transferred corporation would have recognized under 351(b) or 356(a)(1), before taking into account the basis increases that are allowed under the regulations as of the date of the initial transfer. Second, if the U.S. transferor has not recognized all the gain realized, but not recognized, on the initial transfer, then its new GRA will reflect any remaining unrecognized gain on the initial transfer. Third, after the consequences of the transaction are determined under the temporary regulations, then the taxpayer must determine the amount of gain, if any, that the transferee foreign corporation or transferred corporation must recognize under 351(b) or 356(a)(1). In determining the amount to be recognized, the basis of the stock disposed of shall reflect the basis increase allowed as a result of the gain recognized under the GRA by the U.S. transferor. This special rule limiting recognition of gain in otherwise nonrecognition transactions involving boot applies only if the U.S. transferor complies with the otherwise applicable requirements of the exception to recognizing all of the gain subject to the GRA when there is a triggering event. This special rule is intended to require the U.S. transferor to recognize only an appropriate amount of income, without automatically triggering the entire GRA. The IRS and Treasury Department also believe that additional guidance is needed on the treatment of transfers of transferee foreign corporation stock by a U.S. transferor in a nonrecognition exchange in which the U.S. transferor receives boot. Therefore, the temporary regulations treat the disposition of transferee foreign corporation stock in a nonrecognition transaction by the U.S. transferor when the U.S. transferor receives money or other property as described in section 351(b) or 356(a) as a termination of the GRA in whole or in part. Consequently, if a new GRA is filed, then the U.S. transferor will recognize gain under the new GRA in the event of a subsequent triggering event in the amount of the gain realized, but not recognized, in the initial transfer less any gain recognized by the U.S. transferor under section 351(b) and 356(a)(1) in connection with the nonrecognition transaction. If, however, a new GRA is not filed in connection with the nonrecognition transaction, then the original GRA is triggered, and the U.S. transferor must recognize the gain that was realized, but not recognized, on the initial transfer less any gain recognized by the U.S. transferor under section 351(b) or 356(a)(1) in connection with the nonrecognition transaction. D. Effect of Consolidation and Deconsolidation on Gain Recognition Agreements Commentators noted that the current regulation does not adequately address the effect on GRAs of certain transactions involving consolidated groups. For example, the commentators noted that it is not clear what effect a U.S. transferor becoming a member of a consolidated group has on an existing GRA. The current regulations do provide, however, that if a U.S. transferor is a member of a consolidated group at the time of the initial transfer and ceases to be a member of the group during the term of the GRA, the common parent of such group that entered into the GRA continues to be liable under the original GRA. Section 1.367(a)-8(b)(5)(ii). Several commentators have raised concerns that such a result is not appropriate because the actions of an acquirer could unilaterally affect the liability of the original consolidated group under the GRA. The IRS and Treasury Department agree that the effect of these transactions needs to be clarified and rationalized. Accordingly, in response to these concerns, the temporary regulations provide specific rules addressing these transactions. In particular, the IRS and Treasury Department believe that the U.S. parent corporation of a consolidated group should not continue to be liable under a GRA with respect to a U.S. transferor that is no longer a member of such group. The temporary regulations provide that when a U.S. transferor becomes a member of a consolidated group (including a transaction where it joins such a group after being a member of another consolidated group) the transaction is a triggering event unless certain conditions are met. If these conditions are satisfied, the original GRA is terminated without further effect. These conditions require the U.S. parent corporation of the consolidated group that the U.S. transferor joins
(1)To enter into a new GRA for the remaining term of the original GRA and
(2)to elect to recognize gain in the taxable year of any subsequent triggering event (as opposed to the year of the initial transfer). A notice of the consolidation transaction must also be filed with the next annual certification. The IRS and Treasury Department believe that these requirements ensure that a GRA remains in effect after a U.S. transferor joins a consolidated group. These requirements are also consistent with § 1.1502-77(a), which provides that the common parent is the sole agent for each member of the consolidated group. In addition, the temporary regulations also cover situations in which a U.S. transferor ceases to be a member of a consolidated group and does not become a member of a new consolidated group. In these cases, the transaction is a triggering event, unless certain conditions are met. If these conditions are satisfied, the original GRA is terminated without further effect. These conditions require the U.S. transferor
(1)To enter into a new GRA for the remaining term of the original gain recognition agreement and
(2)to elect that in the event of a subsequent triggering event the U.S. transferor will recognize gain in the year of the triggering event. The U.S. transferor must also provide notice of the deconsolidation with the next annual certification. E. U.S. Transferor Goes Out of Existence in a Transaction Giving Rise to a Gain Recognition Agreement The current regulation provides that when a U.S. transferor goes out of existence in a transaction giving rise to a GRA, gain generally qualifies for nonrecognition treatment only if the U.S. transferor is owned by a single U.S. parent corporation, the U.S. transferor and its parent corporation file a consolidated Federal income tax return for the taxable year that includes the transfer, and the parent of the consolidated group enters into a GRA. Section 1.367(a)-8(f)(2)(i). The current regulation provides that a U.S. transferor that is controlled by five or fewer domestic corporations may request a ruling that the transaction qualifies for nonrecognition treatment. Section 1.367(a)-8(f)(2)(i). Notice 2005-74, in turn, provides a rule that treats all members of the U.S. parent's consolidated group for the taxable year that includes the transfer as a single corporation for purposes of § 1.367(a)-8(f)(2)(i). Thus, a U.S. transferor that is not directly owned by a single U.S. parent corporation may still qualify for nonrecognition, without requesting a ruling, when the U.S. transferor goes out of existence in a transaction giving rise to a GRA, if it is indirectly wholly owned by members of a consolidated group. The IRS and Treasury Department believe it is necessary to provide additional guidance on how GRAs are entered into when a U.S. transferor is controlled by multiple corporate shareholders with which the U.S. transferor does not join in filing a consolidated return. Moreover, the IRS and Treasury Department believe that in this area a single rule should apply both in consolidated and nonconsolidated situations. As a result, the temporary regulations provide unified rules, replacing both the current regulations and Notice 2005-74, in situations in which a U.S. transferor goes out of existence in a transaction giving rise to a GRA. The temporary regulations generally provide that when a U.S. transferor goes out of existence in a transaction giving rise to a GRA, the gain may qualify for nonrecognition treatment if
(1)The requirements of section 367(a)(5) and any regulations under that paragraph are satisfied such that five or fewer domestic corporations control the U.S. transferor and appropriate basis adjustments are made,
(2)the requirements of § 1.367(a)-3(c)(1) are satisfied if the transferred corporation is domestic,
(3)all domestic corporate shareholders of the U.S. transferor that own at least five percent of either the total voting power or the total fair market value of the stock of the transferee foreign corporation immediately after the transaction enter into GRAs with respect to their pro rata share of the gain in the transferred stock or securities that designate such domestic corporate shareholders as U.S. transferors for purposes of §§ 1.367(a)-3(b) and
(c)and 1.367(a)-8T, and
(4)all domestic corporate shareholders that enter into GRAs elect to recognize any gain upon a subsequent trigger of the GRA in the year of the triggering event. The temporary regulations eliminate the current regulation's option to request a private letter ruling because guidance is now provided on how GRAs are entered into by five or fewer domestic corporations that control a U.S. transferor satisfying section 367(a)(5). In addition, the temporary regulations clarify that the terms of section 367(a)(5) must be satisfied (along with other requirements) to avoid gain recognition on the U.S. transferor's section 361 transfer of stock or securities to a foreign acquiring corporation. Therefore, the rule in Notice 2005-74 treating consolidated group members as a single corporation is incorporated by reference to section 367(a)(5), which provides that all members of the same affiliated group are treated as one corporation. Lastly, because these rules address how gain recognition may be avoided under section 367(a)(1) on the initial transfer itself, rather than the effect of subsequent transactions on existing GRAs, these rules have been removed from § 1.367(a)-8 and included instead in § 1.367(a)-3T(e). F. Transfers of Transferred Corporation's Assets Under the current regulations, dispositions of substantially all of the assets of the transferred corporation (within the meaning of section 368(a)(1)(C)) are generally treated as deemed dispositions of the stock or securities of the transferred corporation and therefore are triggering events. Section 1.367(a)-8(e)(3). In Revenue Ruling 57-518 (1957-2 CB 253), see § 601.601(d)(2), the IRS stated that what constitutes “substantially all of the properties” as the term is used in section 368(a)(1)(C) “will depend upon the facts and circumstances in each case rather than upon any particular percentage.” However, Revenue Procedure 77-37 (1977-2 CB 586), see § 601.601(d)(2), provides that for ruling purposes, the transfer by a corporation of 70 percent of its gross assets or 90 percent of its assets net of liabilities will generally be deemed to be a transfer of substantially all of the assets of a corporation. Commentators have noted that defining substantially all by reference to section 368(a)(1)(C) may not be appropriate in the context of the GRA rules. The IRS and Treasury Department, however, generally believe that defining “substantially all” for these purposes by reference to the definition of the term under section 368(a)(1)(C) is appropriate. Nonetheless, the IRS and Treasury Department believe that it is important to clarify the scope of the term “substantially all,” as used in the current regulation and the temporary regulations. One commentator suggested that if a transferred corporation disposes of less than 70 percent of its gross assets or 90 percent of its assets net of liabilities, the transfer will not be treated as a disposition of substantially all of the assets of the transferred corporation for purposes of § 1.367(a)-8(e)(3), and thus, such a disposition would not trigger a GRA. This suggestion is not correct. If, upon considering the facts and circumstances, a transferred corporation has disposed of substantially all its assets, such a transaction is a triggering event, even if the transferred corporation disposes of less than 70 percent of a corporation's gross assets or 90 percent of its assets net of liabilities. The “substantially all” safe harbor provided in Revenue Procedure 77-37 is intentionally high so that the IRS does not need to engage in a factually detailed analysis before issuing a letter ruling. As a result, in the context of GRAs, the Revenue Procedure's threshold does not mean that a disposition of substantially all the assets does not occur upon the disposition of a lesser amount of assets. Therefore, the temporary regulations provide that whether a transferred corporation has disposed of substantially all of its assets is determined under all the facts and circumstances. G. Transactions That Terminate the GRA 1. Taxable Dispositions of Transferee Foreign Corporation Stock Section 1.367(a)-8(h)(1) provides that a GRA will terminate, in whole or in part, as a result of certain taxable dispositions of the transferee foreign corporation stock by the U.S. transferor. A key premise for this termination rule is that the basis in the transferee foreign corporation stock received by the U.S. transferor in the initial transfer is assumed to reflect the basis in the transferred stock or securities. The IRS and Treasury Department continue to believe this termination rule is appropriate. As a result, the temporary regulations generally retain this rule. However, the temporary regulations modify the termination rule to ensure that a GRA terminates only when the transferee foreign corporation stock disposed of in fact reflects the basis of the transferred stock or securities. This termination rule only applies to transferee foreign corporation stock that is received (or deemed received) in the initial transfer. The IRS and Treasury Department understand that in some cases, taxpayers may take the position that the basis in the transferee foreign corporation stock does not reflect the basis of the transferred stock or securities. For example, taxpayers may take the position that the basis in such transferee foreign corporation stock received also reflects the basis of other property that had a built-in loss when it was transferred to the transferee foreign corporation. Thus, the termination rule in the temporary regulations will apply only when the basis of the transferee foreign corporation stock received (or deemed received) in the initial transfer properly reflects the sum of the aggregate basis of the transferred stock or securities immediately before the initial transfer, plus any increase in the basis of such stock or securities as a result of recognizing gain on the transfer. In addition, for purposes of this basis determination, basis increases to the transferee foreign corporation stock as a result of income inclusions (for example, pursuant to section 961) shall not be taken into account. In cases where the basis of the relevant transferee foreign corporation stock exceeds the basis of the transferred stock or securities, however, the temporary regulations allow the U.S. transferor to take advantage of this termination rule if it elects to reduce its basis in the transferee foreign corporation stock such that it does not exceed the basis it had in the transferred stock or securities. If the U.S. transferor makes this election, the basis reduction will be effective immediately before the taxable disposition that terminates the GRA. In addition, if the U.S. transferor makes this election, it may increase its basis in other stock of the transferee foreign corporation it holds, if any, by a corresponding amount but not above the fair market value of such stock. Similar rules apply in the case of partial dispositions of transferee foreign corporation stock and dispositions of transferee foreign corporation stock in nonrecognition transactions in which a portion of the realized gain is recognized. 2. Certain Inbound Distributions or Transfers of the Transferred Stock Section 1.367(a)-8(h)(3) provides that a distribution of the transferred stock in a transaction qualifying under section 355 or sections 332 and 337 will terminate the GRA if the U.S. transferor's basis in the transferred stock or securities that it receives in the section 355 or 332 and 337 transaction does not exceed the basis the U.S. transferor had in the transferred stock or securities immediately before the initial transfer. In response to comments, however, the temporary regulations allow the U.S. transferor to take advantage of this termination rule if it elects to reduce the basis of the transferred stock or securities if the basis exceeds the basis the U.S. transferor had in the transferred stock or securities immediately before the initial transfer. For purposes of this basis determination, basis increases to the transferred stock as a result of income inclusions (for example, pursuant to section 961) shall not be taken into account. If the U.S. transferor elects to reduce basis in the transferred stock or securities it receives, the U.S. transferor shall increase its basis in other transferee foreign corporation stock (if any) by a corresponding amount but not above the fair market value of such stock. Although the temporary regulations generally provide that a GRA terminates in certain section 332 liquidations of the transferee foreign corporation, the IRS and Treasury Department are studying to what extent this rule should apply when the transferee foreign corporation has a minority shareholder and therefore recognizes gain under section 336 in connection with the section 332 liquidation. As noted in the request for comments, although the IRS and Treasury Department generally believe it is appropriate to terminate entirely the GRA in a section 332 liquidation, in other circumstances it may not be appropriate. For example, if after an initial transfer, a wholly-owned transferee foreign corporation issues a minority interest to a foreign shareholder, completely terminating the GRA upon a section 332 liquidation of the transferee foreign corporation does not account for the fact that the U.S. transferor has indirectly disposed of up to 20 percent of its interest in the transferred stock or securities. Therefore, when the temporary regulations are finalized, the IRS and Treasury Department may address the effect that section 336 gain has on a gain recognition agreement when a transferee foreign corporation with a minority shareholder liquidates under section 332. The temporary regulations expand the current rule to terminate GRAs when certain U.S. persons other than the original U.S. transferor receive the stock or securities that was transferred in the initial transfer. For example, if the transferred corporation is distributed to a domestic corporation or U.S. individual other than the U.S. transferor in a section 355 “split off,” the GRA would terminate if the domestic corporation or U.S. individual receives the transferred stock or securities with a basis that is not greater than the basis the U.S. transferor had in the transferred stock or securities immediately before the initial transfer. Finally, and in response to comments requested in Notice 2005-74, the temporary regulations also expand the current rule to provide that the GRA will terminate in additional transactions where the U.S. transferor or a domestic corporation receives the transferred stock or securities with a basis that is not greater than the basis the U.S. transferor had in the transferred stock or securities immediately before the initial transfer. These transactions are upstream asset reorganizations where the U.S. transferor acquires the assets of the transferee foreign corporation, downstream asset reorganizations where the transferred corporation acquires the assets of the transferee foreign corporation, and certain other asset reorganizations where a domestic corporation acquires the assets of the transferee foreign corporation. Consequently, the temporary regulations generally provide that the GRA terminates in particular circumstances when the transferred stock or securities are held with the correct basis by certain U.S. persons, even if the U.S. person is not the original U.S. transferor. However, the IRS and Treasury Department believe that it is not appropriate for the GRA to terminate when the transferred stock or securities may then be disposed of, directly or indirectly, by a foreign shareholder without being subject to U.S. tax. Therefore, this termination rule is limited to section 332 liquidations, section 355 distributions, and asset reorganizations where the domestic corporation that holds the transferred stock or securities after the transaction is either the U.S. transferor or a member of the same consolidated group of which the U.S. transferor is then a member. The IRS and Treasury Department continue to study whether it would be appropriate to expand the scope of the rule to transactions where the acquirer is not a member of the same consolidated group of which the U.S. transferor is then a member and request comments regarding such a rule. H. Triangular Reorganizations of Transferee Foreign Corporation and Transferred Corporation Notice 2005-74 provides rules that allow a U.S. transferor to avoid gain recognition on certain asset reorganizations of the transferee foreign corporation and transferred corporation. However, Notice 2005-74 restricts the definition of “asset reorganization” to exclude triangular asset reorganizations of the transferee foreign corporation and transferred corporation. In response to comments and after further study, the temporary regulations address the treatment of certain triangular asset reorganizations. Specifically, they provide that if the transferee foreign corporation or transferred corporation is acquired in a triangular asset reorganization, the exchanges made pursuant to the reorganization will not be triggering events if certain requirements are satisfied. For purposes of this rule, a triangular asset reorganization is limited to a transaction in which the acquiring subsidiary is foreign. The additional requirements are as follows. First, the U.S. transferor or common parent must enter into a new GRA to recognize gain with respect to the initial transfer during the remaining term of the original GRA, with certain modifications. In the case of a triangular asset reorganization of the transferee foreign corporation, the U.S. transferor also must make certain designations depending on whether the parent corporation of the foreign acquiring subsidiary is foreign or domestic and depending on the type of triangular asset reorganization. Finally, the U.S. transferor must provide notice of the transaction with its next annual certification. I. Other Changes The current regulations refer to “stock of the transferred corporation” in some paragraphs but refer to “stock or securities of the transferred corporation” in other paragraphs. The temporary regulations refer to “stock or securities of the transferred corporation” because either stock or securities, or both, may be subject to a GRA when transferred to a transferee foreign corporation by a U.S. person. In contrast, the temporary regulations generally refer only to stock, and not securities, of the transferee foreign corporation. The rules applying to a disposition of the transferee foreign corporation are concerned primarily with transactions in which the U.S. transferor loses or decreases its control of the transferee foreign corporation, which does not occur when a U.S. transferor disposes of securities of the transferee foreign corporation. The current regulation provides a reasonable cause exception to triggering a GRA when the person required to file the GRA fails to comply in any material respect with the terms of a GRA, or when the person fails to meet the timeliness requirement for submitting a GRA. The temporary regulations retain this reasonable cause exception but provide additional guidance on how the person should submit a request for reasonable cause relief. The temporary regulations also provide that the Area Director or Director of Field Operations, as applicable, shall notify the person in writing within 120 days of the filing if the person will be granted reasonable cause relief or if additional time is required to make the determination. The 120-day period runs from the date that the IRS notifies the person that its request has been received. Once this period begins, the person shall be deemed to have established reasonable cause if it is not again notified within 120 days. Effective Dates With the exception of the special boot rules described in section C of this preamble, these temporary regulations apply to GRAs filed with respect to transfers of stock or securities occurring on or after March 7, 2007. The boot rules described in section C of this preamble apply to GRAs filed with respect to transfers of stock or securities occurring on or after 180 days after February 5, 2007. However, GRAs that are filed after March 7, 2007 in connection with transactions entered into pursuant to a contract that was binding before February 5, 2007 are not subject to these regulations, but taxpayers may elect to apply the rules of these regulations to such a GRA. For all open years, taxpayers may apply rules of these regulations that were not already effective under § 1.367(a)-8 to GRAs filed before March 7, 2007. Similar effective date rules are provided for those transfers discussed in section E of this preamble (regarding a U.S. transferor that goes out of existence in a transaction giving rise to a GRA). Special Analyses It has been determined that this Treasury Decision is not a significant regulatory action as defined in Executive Order 12866. Therefore, a regulatory assessment is not required. It has also been determined that 5 U.S.C. 553(b) and
(d)do not apply to these regulations. For applicability of the Regulatory Flexibility Act, please refer to the cross-referenced notice of proposed rulemaking published elsewhere in this **Federal Register** . Pursuant to section 7805(f) of the Internal Revenue Code, this regulation has been submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small business. Request for Comments The IRS and Treasury Department are considering issuing subsequent public guidance to address additional issues under section 367(a). Accordingly, comments are requested regarding the application of § 1.367(a)-8, including whether other transactions should be excepted from being treated as triggering events pursuant to rules similar to those contained in the temporary regulations. For example, comments are requested as to the most appropriate treatment of divisive reorganizations qualifying under section 368(a)(1)(D) or (G), involving the U.S. transferor corporation, the transferee foreign corporation, and the transferred corporation. Comments also are requested on how a GRA is affected by a subsequent transaction to which section 304 applies involving transferee foreign corporation stock or transferred corporation stock. The IRS and Treasury Department believe that the rules in the temporary regulations generally deal with many transactions to which section 304 applies but request specific comments on any issues raised. In addition, the IRS and Treasury Department request comments on the rule in § 1.367(a)-8T(b)(3)(iii), which imposes interest on the additional tax, if any, that is required to be paid as a result of a triggering event. Specifically, comments are requested on whether interest should be imposed even when no additional tax is ultimately due as a result of a triggering event because, for example, a taxpayer has sufficient net operating losses to offset the tax that would otherwise be due as a result of a triggering event. If an interest charge is not required in such a case, a taxpayer may be viewed as inappropriately benefiting from deferring the realized but unrecognized gain on the initial transfer until a later year. However, there are other instances where the current regulations clearly permit such a benefit (for example, under § 1.367(a)-8(h)(1)(i) in certain taxable dispositions of the stock of the transferee foreign corporation). As described in section B.1.a of this preamble, comments are requested on whether a GRA should not be triggered, if certain conditions similar to those provided in § 1.367(a)-3T(e) are met, when a U.S. transferor is acquired by a foreign corporation in an asset reorganization. Specifically, the IRS and Treasury Department request comments on how to reconcile the terms of the GRA that would be filed pursuant to § 1.367(a)-3T(e) with the terms of a new GRA that would be filed to avoid triggering the original GRA. For example, the transferee foreign corporation under the outstanding GRA (and under the new GRA filed to avoid triggering the outstanding GRA) would be the transferred corporation with respect to the GRA filed pursuant to § 1.367(a)-3T(e). Finally, and as described in section G.2 of this preamble, the IRS and Treasury Department are studying to what extent the GRA termination rule should apply when the transferee foreign corporation liquidates in a transaction described in section 332 but also recognizes gain under section 336 because of a minority shareholder. Comments are requested on how the termination rule should address such a transaction, taking into consideration potentially different results depending on whether the minority shareholder is also subject to a GRA or is, for example, instead a foreign person who was issued transferee foreign corporation stock after the initial transfer. For information on how to submit comments or request a public heading, see the section “Comments and Requests for a Public Hearing,” set forth in the notice of proposed rulemaking published elsewhere in this issue of the **Federal Register** . Drafting Information The principal author of these temporary regulations is Daniel McCall of the Office of Associate Chief Counsel (International). However, other personnel from the IRS and the Treasury Department participated in their development. List of Subjects 26 CFR Part 1 Income taxes, Reporting and recordkeeping requirements. 26 CFR Part 602 Reporting and recordkeeping requirements. Amendments to the Regulations Accordingly, 26 CFR parts 1 and 602 are amended as follows: PART 1—INCOME TAXES **Paragraph 1.** The authority citation for part 1 is amended by adding new entries to read as follows: Authority: 26 U.S.C. 7805 * * * Section 1.367(a)-3T(e) also issued under 367(a) and (b).* * * Section 1.367(a)-8T also issued under 367(a) and (b).* * * **Par. 2.** For each entry in the table in the “Section” column, remove the language in the “Remove” column and add the language in the “Add” column in its place. Section Remove Add 1.367(a)-3(d)(3), Example 1(ii), fourth sentence § 1.367(a)-8(e) § 1.367(a)-8T(d)(1). 1.367(a)-3(d)(3), Example 1(ii), fourth sentence § 1.367(a)-8(b)(1)(vii) § 1.367(a)-8T(b)(1)(vii). 1.367(a)-3(d)(3), Example 1(ii), fifth sentence § 1.367(a)-8(b)(1)(vii) § 1.367(a)-8T(b)(1)(vii). 1.367(a)-3(d)(3), Example 1A(ii), first sentence § 1.367(a)-8(a)(3) § 1.367(a)-8T(a)(3). 1.367(a)-3(d)(3), Example 4(i), first sentence § 1.367(a)-8(e)(3)(i) § 1.367(a)-8T(d)(2). 1.367(a)-3(d)(3), Example 4(ii), first sentence § 1.367(a)-8(e)(3)(i) § 1.367(a)-8T(d)(2). 1.367(a)-3(d)(3), Example 4(ii), second sentence § 1.367(a)-8(h)(2), because A and W filed a consolidated Federal income tax return prior to the transaction § 1.367(a)-8T(g)(2), because A owned an amount of stock in W described in section 1504(a)(2) immediately before the transaction. 1.367(a)-3(d)(3), Example 6(ii), last sentence § 1.367(a)-8(e)(3)(i) § 1.367(a)-8T(d)(2). 1.367(a)-3(d)(3), Example 7A(ii), last sentence § 1.367(a)-8(b)(5) § 1.367(a)-8T(b)(5). paragraph (d)(3), Example 7A(ii), last sentence and (e)(3)(i) and V satisfies the requirements contained in § 1.367(a)- 8T(e)(1)(iii). 1.367(a)-3(d)(3), Example 8(ii), second to last sentence § 1.367(a)-8(e)(3)(i) § 1.367(a)-8T(d)(2). 1.367(a)-3(d)(3), Example 11(ii), sixth sentence § 1.367(a)-8(e) § 1.367(a)-8T(d)(1). 1.367(a)-3(d)(3), Example 11(ii), sixth sentence § 1.367(a)-8(b)(1)(vii) § 1.367(a)-8T(b)(1)(vii). 1.367(a)-3(e)(1)(A), first sentence
(e)(g). 1.367(a)-3(e)(1)(F), third sentence
(g)(j). 1.367(a)-3(e)(2), first sentence (e)(1) and
(g)(g)(1) and (j). 1.367(a)-3(e)(2), second sentence (e)(2) (g)(2). 1.367(a)-3(e)(2)(G), first sentence (e)(1)(G) (g)(1)(G). 1.367(a)-3(g)(1), first sentence (g)(2) (j)(2). 1.367(a)-3(g)(2)(i), first sentence (g)(2)(iii), (g)(2)(iv) (j)(2)(iii), (j)(2)(iv). 1.367(a)-3(g)(2)(ii), first sentence (g)(2)(iii) or
(iv)(j)(2)(iii) or (iv). 1.367(a)-3(g)(2)(ii), fourth sentence § 1.367(a)-3(f) § 1.367(a)-3(h). 1.367(a)-3(g)(2)(iii), first sentence (g)(2)(ii) (j)(2)(ii). 1.367(a)-3(g)(2)(iv), first sentence (g)(2)(i) and
(ii)(j)(2)(i) and (ii). 1.367(b)-4(b)(1)(iii), Example 4(i), last sentence § 1.367(a)-8(f)(2) § 1.367(a)-3T(e). **Par. 3.** Section 1.367(a)-3 is amended as follows: 1. The second sentence of paragraph
(a)is revised. 2. The first sentence of paragraph (d)(2)(iii) is revised. 3. Paragraph (d)(2)(iv) is revised. 4. The title and introductory text of paragraph (d)(2)(v) is revised. 5. The last two sentences of paragraph (d)(3), *Example 1A*
(ii)are revised. 6. The last two sentences of paragraph (d)(3), *Example 5A*
(ii)are revised. 7. The first and second sentences of paragraph (d)(3), *Example 7*
(ii)are revised. 8. The third sentence of paragraph (d)(3), *Example 7A*
(ii)is revised. 9. The last sentence of paragraph (d)(3), *Example 9*
(ii)is revised. 10. The title of paragraph (d)(3), *Example 10* is revised. 11. The third sentence of paragraph (d)(3), *Example 12*
(ii)is revised. 12. Redesignating paragraphs (e), (f), and
(g)as paragraphs (g), (h), and (j), respectively. 13. Adding new paragraphs
(e)and (i). The revisions and addition read as follows: § 1.367(a)-3 Treatment of transfers of stock or securities to foreign corporations.
(a)* * * In general, a transfer of stock or securities by a U.S. person to a foreign corporation that is described in section 351, 354 (including a reorganization described in section 368(a)(1)(B) and including an indirect stock transfer described in paragraph
(d)of this section), 356 or section 361(a) or
(b)is subject to section 367(a)(1) and, therefore, is treated as a taxable exchange, unless one of the exceptions set forth in paragraph
(b)of this section (regarding transfers of foreign stock or securities), paragraph
(c)of this section (regarding transfers of domestic stock or securities), or paragraph
(e)of this section (regarding transfers of stock or securities in a section 361 exchange) applies. * * *
(d)* * * (2)(iii) * * * For purposes of determining the amount of gain that a U.S. person is required to include in income as a result of a triggering event, see § 1.367(a)-8T(b)(3)(i) and (d).
(iv)* * * The U.S. transferor's agreement to recognize gain, as provided in § 1.367(a)-8, shall include appropriate provisions consistent with the principles of § 1.367(a)-3 and § 1.367(a)-8, including, for example, as an additional triggering event an indirect disposition of the transferred stock or securities. For example, in the case of a triangular section 368(a)(1)(B) reorganization described in paragraph (d)(1)(iii)(A) of this section, a triggering event shall include an indirect disposition of the transferred stock or securities by the transfer6ee foreign corporation, such as a disposition of the stock of the acquiring corporation (either foreign or domestic) by the transferee foreign corporation. In the case of a triangular section 368(a)(1)(B) reorganization described in paragraph (d)(1)(iii)(B) of this section, a disposition of the stock of the acquiring corporation by the domestic issuing corporation in a taxable transaction shall, for example, terminate the gain recognition agreement if the principles of § 1.367(a)-8T(g)(1)(i)(A) and
(B)are satisfied. See Examples 5 and 5A of this section.
(v)*Determination of whether substantially all of the transferred corporation's assets are disposed of.* For purposes of applying § 1.367(a)-8T(d)(2) to determine whether substantially all of the assets of the transferred corporation have been disposed of, the following assets shall be taken into account (but only if such assets are not fully taxable under section 367 in the taxable year that includes the indirect transfer)—
(3)* * * Example 1A. * * *
(ii)* * * If A leaves the P group, the gain recognition agreement would be triggered pursuant to § 1.367(a)-8T(d)(4), unless the exception provided under § 1.367(a)-8T(e)(8) applies. Example 5A * * *
(ii)* * * If Y sold substantially all of its assets (within the meaning of section 368(a)(1)(C)), the gain recognition agreement would be terminated because U owned an amount of stock in Y described in section 1504(a)(2) immediately before the transaction and Y is a domestic corporation. See § 1.367(a)-8T(g)(2). In addition, if F disposed of the stock of S in a taxable transaction the gain recognition agreement would be terminated if the principles of § 1.367(a)-8T(g)(1)(i)(A) and
(B)are satisfied. Example 7. * * *
(ii)* * * The disposition by R, the transferred corporation, of substantially all of its assets would terminate the gain recognition agreement if the assets were disposed of in a taxable transaction because V owned an amount of stock in Z described in section 1504(a)(2) immediately before the transaction, and R is a domestic corporation. See § 1.367(a)-8T(g)(2). Because the assets were transferred in an exchange to which section 351 applies, such transfer does not trigger the gain recognition agreement if V complies with the requirements contained in § 1.367(a)-8T(e)(1)(iii). * * * Example 7A. * * *
(ii)* * * Thus, the gain recognition agreement would terminate because V owned an amount of stock in Z described in section 1504(a)(2) immediately before the transaction, and R is a domestic corporation. See § 1.367(a)-8T(g)(2).* * * Example 9. * * *
(ii)* * * To determine whether there is a triggering event under § 1.367(a)-8T(d)(2), both the Business A assets in M and the Business B assets in R must be considered. Example 10. Concurrent application of asset transfer and indirect stock transfer rules in section 368(a)(1)(A)/(a)(2)(D) reorganization—(i) Facts. * * * Example 12. * * *
(ii)* * * E's transfer of its N stock could qualify for nonrecognition treatment if D satisfies the requirements in § 1.367(a)-3T(e).* * *
(e)[Reserved] For further guidance, see § 1.367(a)—3T(e).
(f)[Reserved] For further guidance, see § 1.367(a)-3T(f).
(i)[Reserved]. **Par. 4.** Section 1.367(a)-3T is added to read as follows: § 1.367(a)-3T Treatment of transfers of stock or securities to foreign corporations (temporary).
(a)through
(d)[Reserved]. For further guidance, see § 1.367(a)-3(a) through (d).
(e)*Transfers by a domestic corporation to a foreign corporation in a section 361 exchange* —(1) *General rule* . Notwithstanding paragraphs
(b)and
(c)of this section, if the U.S. transferor is a domestic corporation that transfers stock or securities to a foreign corporation in a section 361 exchange that would otherwise be subject to section 367(a)(1) under paragraph
(a)of this section, such transfer shall not be subject to section 367(a)(1) if—
(i)The conditions set forth in the second sentence of section 367(a)(5) and any regulations under that section have been satisfied, such that, for example, the U.S. transferor is controlled (within the meaning of section 368(c)) by 5 or fewer domestic corporations and appropriate basis adjustments are made;
(ii)In the case of transferred property that is stock or securities of a domestic corporation, the conditions set forth in paragraph
(c)of this section are satisfied;
(iii)All domestic corporate shareholders of the U.S. transferor immediately before the transaction that own 5 percent or more (applying the attribution rules of section 318, as modified by section 958(b)) of the total voting power or the total fair market value of the stock of the transferee foreign corporation immediately after the transaction enter into gain recognition agreements as provided in § 1.367(a)-8T with respect to their pro rata share (determined by the relative fair market value of the U.S. transferor stock or securities owned) of the gain that was realized but not recognized on the transfer of the stock or securities of the transferred corporation that, in addition to the terms of § 1.367(a)-8T(b), designate such domestic corporate shareholders as U.S. transferors for purposes of paragraphs
(b)and
(c)of this section and § 1.367(a)-8T; and
(iv)All domestic corporate shareholders that enter into gain recognition agreements pursuant to paragraph (e)(1)(iii) of this section make the election described in § 1.367(a)-8T(b)(1)(vii).
(2)*Certain triangular asset reorganizations* . If a transaction described in paragraph (e)(1) of this section qualifies as a triangular asset reorganization described in § 1.358-6(b)(2)(i) through (iii), or in sections 368(a)(1)(G) and (a)(2)(D), the principles of § 1.367(a)-3(d)(2)(iv) shall apply with respect to any gain recognition agreements filed in connection with such transaction.
(3)*Example.* The provisions of paragraph (e)(1) of this section are illustrated in the following example: Example.
(i)*Facts.* US1 and US2, domestic corporations, own 60% and 40%, respectively, of the fair market value of UST, also a domestic corporation. US1 and US2 are not members of the same consolidated group and are unrelated. UST owns 100% of FC, a foreign corporation. In year 1, UST transfers 100% of the stock of FC to FA, a foreign corporation, in a reorganization described in section 368(a)(1)(A) after which US1 and US2 own 6% and 4%, respectively, of the stock of FA. At the time of the initial transfer, the section 1248 amount with respect to the FC stock is $0. The notice requirement under § 1.367(b)-1(c) is satisfied. Section 7874 does not apply to FA's acquisition of the stock of FC. US1 and US2 satisfy the conditions set forth in the second sentence of section 367(a)(5), including making appropriate basis adjustments. Pursuant to paragraph (e)(1) of this section, US1 enters into a gain recognition agreement to recognize its pro rata share of the gain realized but not recognized on UST's transfer of the stock of FC to FA, designates itself as a U.S. transferor for purposes of paragraph
(b)of this section and § 1.367(a)-8T, and makes the election described in § 1.367(a)-8T(b)(1)(vii). US2 does not enter into a gain recognition agreement with respect to its pro rata share of the gain realized but not recognized on UST's transfer of the stock of FC to FA because US2 owns less than 5 percent of the stock of FA. In year 4, FA sells 30% of the FC stock for cash.
(ii)*Result.* Because the requirements of paragraph (e)(1)(i) through
(iv)of this section are satisfied, the transfer of the FC stock by UST to FA in the year 1 reorganization is not subject to section 367(a)(1). In addition, because FA partially disposes of the stock of FC in year 4, US1 must recognize 30% of its pro rata share of the gain realized but not recognized on the initial transfer of the FC stock to FA pursuant to § 1.367(a)-8T(d)(1)(iii). The proportion of gain recognized by US1 is determined by reference to the relative fair market value of the UST stock owned by US1 at the time of the initial transfer. Thus, US1 must include 18% of the gain realized, but not recognized, on the initial transfer (the 30% of the transferred property that was disposed of multiplied by the amount of gain subject to the gain recognition agreement (corresponding to the 60% of the fair market value of UST stock that US1 held immediately before the initial transfer)), and pay any applicable interest.
(iii)*Alternate facts.* The facts are the same as in paragraph
(i)of this *Example* , except that US1 and US2 are members of a consolidated group in which USP is the common parent. US2 is also a 5-percent transferee shareholder as a result of applying the attribution rules of section 318, as modified by section 958(b). The result is the same as in paragraph
(ii)of this Example, except that under § 1.367(a)-8T(a)(3)(i)(A) USP files gain recognition agreements on behalf of both US1 and US2. Thus, US1 and US2 must include in income in year 4 18% and 12%, respectively, of the gain realized, but not recognized, on the initial transfer (the 30% of the transferred property that was disposed of multiplied by the amount of gain subject to the gain recognition agreement (corresponding to the 60% and 40% of the fair market value of UST stock that US1 and US2, respectively, held immediately before the initial transfer)), and pay any applicable interest.
(f)*Effective date* —(1) *General rule* . The rules of this § 1.367(a)-3T(e) apply to transfers of stock or securities occurring on or after March 7, 2007. However, these rules do not apply to transfers of stock or securities occurring on or after March 7, 2007, if such transfer was entered into pursuant to a written agreement which was (subject to customary conditions) binding before February 5, 2007, and at all times thereafter. Solely for purposes of this paragraph (f), a transfer described in the preceding sentence shall be deemed to be a transfer occurring before March 7, 2007. For matters covered in this section for periods before March 7, 2007 but on or after July 20, 1998, the rule of § 1.367(a)-8(f)(2)(i) (see 26 CFR part 1, revised April 1, 2006) applies.
(2)*Transfers before effective date* —(i) *General rule* . Taxpayers may apply the rules of § 1.367(a)-3T(e) to transfers before March 7, 2007 and after July 20, 1998, for all open taxable years ending on or after July 20, 1998. This paragraph (f)(2)(i) applies only to rules in § 1.367(a)-3T(e) that were not already effective under the rules of § 1.367(a)-8(f)(2)(i).
(ii)*Special filing rule* . This paragraph (f)(2)(ii) provides the time and manner in which taxpayers may apply paragraph (f)(2)(i) of this section. Notwithstanding the rules provided in § 1.367(a)-8T(a)(2), all agreements, certifications, or other information related to the gain recognition agreement that should have been filed on or before March 7, 2007 with respect to a transfer shall be treated as having been timely filed, provided they are attached to a Federal income tax return amending the taxpayer's Federal income tax return for the taxable year in which they should have been attached. The amended return described in the preceding sentence must be filed before August 6, 2007. A taxpayer that wishes to apply paragraph (f)(2)(i) of this section but that fails to meet the filing requirement described in the preceding sentence must request reasonable cause relief as provided in § 1.367(a)-8T(e)(10).
(3)*Expiration* . The applicability of this section expires on or before February 1, 2010. **Par. 5.** Section 1.367(a)-8 is amended by revising paragraphs
(a)through
(i)to read as follows: § 1.367(a)-8 Gain recognition agreement requirements.
(a)through
(i)[Reserved]. For further guidance, see § 1.367(a)-8T(a) through (h). **Par. 6.** Section 1.367(a)-8T is added to read as follows: § 1.367(a)-8T Gain recognition agreement requirements (temporary).
(a)*In general* . This section specifies the terms and conditions for an agreement to recognize gain entered into pursuant to §§ 1.367(a)-3(b) through
(d)and 1.367(a)-3T(e) to qualify for nonrecognition treatment under section 367(a).
(1)*Definitions* . The following definitions apply for purposes of this section:
(i)*Asset reorganization* . Except as otherwise provided in this paragraph (a)(1)(i), the term *asset reorganization* means a reorganization described in section 368(a)(1) involving the transfer of assets by a corporation to another corporation pursuant to section 361, except that such term shall include reorganizations described in section 368(a)(1)(D) or
(G)only if the requirements of section 354(b)(1)(A) and
(B)are met. For purposes of paragraphs (e)(3)(ii) and (e)(3)(iii) of this section, the following reorganizations are excluded from the term “asset reorganization”:
(A)Triangular asset reorganizations described in § 1.358-6(b)(2)(i) through
(iii)or in sections 368(a)(1)(G) and (a)(2)(D). For rules applicable to triangular asset reorganizations described in § 1.358-6(b)(2)(i) through
(iii)or in sections 368(a)(1)(G) and (a)(2)(D), see paragraph (e)(4) of this section.
(B)Asset reorganizations where, after the reorganization, the same corporation is both the transferee foreign corporation (or successor transferee foreign corporation, as applicable) and the transferred corporation (or the successor transferred corporation, as applicable); for example, the acquisition of the transferee foreign corporation's assets by the transferred corporation in a reorganization described in section 368(a)(1). For rules applicable to certain upstream and downstream reorganizations involving the transferee foreign corporation and transferred corporation, see paragraphs (e)(6) and (g)(3) of this section.
(ii)The term *common parent* means a corporation that controls an affiliated group of corporations that files its Federal income tax returns on a consolidated basis.
(iii)The term *consolidated group* has the meaning set forth in § 1.1502-1(h).
(iv)The term *disposition* means any transfer that would constitute a disposition for any purpose of the Internal Revenue Code and the regulations thereunder. It also includes an indirect disposition of the stock of the transferred corporation as described in § 1.367(a)-3(d). It does not, however, include a redemption of stock under section 302(d) to the extent the redemption is treated as a distribution to which section 301(c)(1) applies.
(v)The term *gain recognition agreement* means an agreement described in paragraph
(b)of this section.
(vi)The term *initial transfer* means a transfer in connection with which a gain recognition agreement is filed in connection with an exchange described in §§ 1.367(a)-3(b) through
(d)and 1.367(a)-3T(e).
(vii)The term *nonrecognition transaction* means any disposition of property in a transaction in which gain or loss is not recognized in whole or in part for purposes of subtitle A.
(viii)The term *transferee foreign corporation* means the foreign corporation the stock of which is received in an exchange described in section 367(a) by a U.S. transferor.
(ix)*Transferred corporation.* Other than in the case of an indirect stock transfer, the term *transferred corporation* means the corporation the stock or securities of which are transferred by a U.S. transferor to a foreign corporation in an exchange described in section 367(a)(1). In the case of an indirect stock transfer, the term *transferred corporation* has the meaning set forth in § 1.367(a)-3(d)(2)(ii).
(x)The term *triggering event* means an event described in paragraph
(d)of this section, except as provided in paragraphs
(e)(exceptions to triggering events) and
(g)(terminations of gain recognition agreements) of this section.
(xi)The term *U.S. transferor* means a U.S. person (as defined in § 1.367(a)-1T(d)(1)) that transfers stock or securities of the transferred corporation in exchange for stock or securities of the transferee foreign corporation in an exchange described in section 367(a). For the application of the rules of this section to indirect transfers involving partnerships and interests therein, see § 1.367(a)-1T(c)(3).
(2)*Filing requirements for gain recognition agreements.* A U.S. transferor's gain recognition agreement must be attached to, and filed by the due date (including extensions) of, the U.S. transferor's income tax return for the taxable year that includes the date of the initial transfer, except that if the U.S. transferor is a member of a consolidated group for the taxable year in which the transfer was made, the agreement must be attached to the consolidated group's tax return. If a new gain recognition agreement is entered into pursuant to an exception in paragraph
(e)of this section, the agreement must be attached to, and filed by the due date (including extensions) of, the applicable income tax return for the taxable year that includes the date of the triggering event. If the timeliness requirement of this paragraph (a)(2) is not satisfied, see paragraph (e)(10) of this section.
(3)*Who must sign* —(i) *General rule* . The gain recognition agreement must be signed under penalties of perjury by the appropriate party corresponding to the following categories of U.S. transferor. A gain recognition agreement may also be signed by an agent authorized to do so under a general or specific power of attorney.
(A)In the case of a corporate U.S. transferor, a responsible officer, except that if the U.S. transferor (or successor U.S. transferor designated in a new gain recognition agreement entered into under paragraph
(e)of this section) is a member, but not the common parent of a consolidated group for the taxable year in which the transfer was made (or for the taxable year in which a new gain recognition agreement is entered into under paragraph
(e)of this section) the agreement must be entered into by the common parent and signed by a responsible officer of such common parent.
(B)In the case of an individual U.S. transferor (including a partner who is treated as a U.S. transferor by virtue of § 1.367(a)-1T(c)(3)), the individual.
(C)In the case of a trust or estate, a trustee, executor, or equivalent fiduciary.
(D)In the case of a bankruptcy case under Title 11, United States Code, a debtor in possession or trustee.
(ii)*Signature requirement* . When a gain recognition agreement, certification, or other information is required under this section to be attached to and filed by the due date (including extensions) of a U.S. Federal income tax return and signed under penalties of perjury by the person who signs the return, the attachment and filing of an unsigned copy is considered to satisfy such requirement, provided the taxpayer retains the original in its records in the manner specified by § 1.6001-1(e).
(b)*Gain recognition agreement* —(1) *Contents* . The gain recognition agreement must set forth the following information, with the heading “GAIN RECOGNITION AGREEMENT UNDER § 1.367(a)-8T” and with paragraphs labeled to correspond with the numbers set forth as follows:
(i)A statement that the document submitted constitutes the U.S. transferor's agreement to recognize gain in accordance with the requirements of this section.
(ii)A description of the property transferred as described in paragraph (b)(2) of this section.
(iii)The U.S. transferor's agreement to recognize gain, as described in paragraph (b)(3) of this section.
(iv)A waiver of the period of limitations as described in paragraph (b)(4) of this section.
(v)An agreement to file with the U.S. transferor's tax returns for the five full taxable years following the year of the initial transfer a certification as described in paragraph (b)(5) of this section.
(vi)A statement that arrangements have been made in connection with the transferred property to ensure that the U.S. transferor will be informed of any triggering events.
(vii)A statement as to whether, if all or a portion of the gain recognition agreement is triggered under paragraph
(d)of this section, the taxpayer elects to include the required amount in the year of the triggering event rather than in the year of the initial transfer.
(2)*Description of property transferred.*
(i)The agreement shall include a description of each property transferred by the U.S. transferor, an estimate of the fair market value of the property as of the date of the initial transfer, a statement of the cost or other basis of the property and any adjustments thereto, and the date on which the property was acquired by the U.S. transferor.
(ii)The U.S. transferor must provide the following information:
(A)The type or class, amount, and characteristics of the stock or securities transferred, as well as the name, address, and place of incorporation of the issuer of the stock or securities, and the percentage (by voting power and value) that the stock (if any) represents of the total stock outstanding of the transferred corporation.
(B)The name, address and place of incorporation of the transferee foreign corporation, and the percentage of stock (by voting power and value) that the U.S. transferor received or will receive in the transaction.
(C)If stock or securities are transferred pursuant to § 1.367(a)-3T(e), a statement that the conditions set forth in the second sentence of section 367(a)(5) and any regulations under that section have been satisfied, and an explanation of any basis or other adjustments made pursuant to section 367(a)(5) and any regulations under that paragraph.
(D)If the transferred corporation is a domestic corporation, the taxpayer identification number of the transferred corporation, together with a statement describing whether, and if so, how, section 7874 applies to the transfer, and a statement that all of the requirements of § 1.367(a)-3(c)(1) are satisfied.
(E)If the transferred corporation is a foreign corporation, a statement as to whether the U.S. transferor was a section 1248 shareholder, as defined in § 1.367(b)-2(b), of the transferred corporation immediately before the exchange, and, if so, a statement as to whether the U.S. transferor is a section 1248 shareholder with respect to the transferee foreign corporation stock received, and whether any reporting requirements or other rules contained in regulations under section 367(b) are applicable, and, if so, whether they have been satisfied.
(F)If the transaction involved the transfer of assets other than stock or securities and the transaction was subject to the indirect stock transfer rules of § 1.367(a)-3(d), a statement as to whether the reporting requirements under section 6038B have been satisfied with respect to the transfer of property other than stock or securities, and an explanation of whether gain was recognized under section 367(a)(1) and whether section 367(d) was applicable to the transfer of such assets, or whether any tangible assets qualified for nonrecognition treatment under section 367(a)(3) (as limited by section 367(a)(5) and §§ 1.367(a)-4T through 1.367(a)-6T).
(3)*Terms of agreement* —(i) *General rule* . If before the close of the fifth full taxable year (not less than 60 months) following the close of the taxable year of the initial transfer, there is a triggering event, then, unless an election is made under paragraph (b)(1)(vii) of this section, by the 90th day thereafter the U.S. transferor must file an amended Federal income tax return for the year of the initial transfer and recognize thereon the gain realized, but not recognized, upon the initial transfer, with interest. If an election under paragraph (b)(1)(vii) of this section was made, then, if a triggering event occurs, the U.S. transferor must include the gain realized, but not recognized, on the initial transfer in income on its Federal income tax return for the taxable year that includes the date of the triggering event. In accordance with paragraph (b)(3)(iii) of this section, interest must be paid on any additional tax due. If a taxpayer properly makes the election under paragraph (b)(1)(vii) of this section but later fails to include in income the gain realized, but not recognized, on the initial transfer, the Commissioner may, in his discretion, include the gain in the taxpayer's income in the year of the initial transfer.
(ii)*Offsets.* No special limitations apply with respect to net operating losses, capital losses, credits against tax, or similar items.
(iii)*Reporting of interest and gain.* If additional tax is required to be paid pursuant to paragraph (b)(3)(i) of this section, then interest must be paid on that amount at the rates determined under section 6621 with respect to the period between the date that was prescribed for filing the U.S. transferor's Federal income tax return for the year of the initial transfer and the date on which the additional tax for that year is paid. If the election in paragraph (b)(1)(vii) of this section is made, a taxpayer should include the amount of gain as taxable income on its Federal income tax return (together with other income or loss items) and include the amount of interest in its payment (or reduce the amount of any refund due by the amount of the interest). A taxpayer must also attach to its Federal income tax return a separate schedule with the heading “Calculation of Section 367 Tax and Interest,” on which the amount of tax attributable to the gain and the interest required to be paid under this section are separately identified and calculated.
(iv)*Basis adjustments* —(A) *Transferee foreign corporation* . If a U.S. transferor is required to recognize gain under this section as a result of a triggering event, then the transferee foreign corporation's basis in the transferred stock or securities shall be increased (as of the date of the initial transfer) by the amount of gain required to be recognized (but not by any tax or interest required to be paid on such amount) by the U.S. transferor.
(B)*U.S. transferor* . If a U.S. transferor is required to recognize gain as a result of a triggering event, then the U.S. transferor's basis in the stock of the transferee foreign corporation received (or deemed received) in the initial transfer shall be increased by the amount of gain required to be recognized (as of the date of the initial transfer) (but not by any tax or interest required to be paid on such amount).
(C)*Other adjustments* . Other appropriate adjustments to basis that are consistent with the principles of this paragraph (b)(3)(iv) may be made if the U.S. transferor is required to recognize gain under this section. In no case, however, shall the transferred corporation's net asset basis be increased as a result of the U.S. transferor recognizing gain under this section as a result of a triggering event.
(D)*Example* . The principles of this paragraph (b)(3) are illustrated by the following example: *Example* .
(i)*Facts* . D, a domestic corporation owning 100 percent of the stock of S, a foreign corporation, transfers all of the S stock to F, a foreign corporation, in an exchange described in section 368(a)(1)(B). The section 1248 amount with respect to the S stock at the time of the transfer is $0. In the exchange, D receives 20 percent of the voting stock of F. The transaction is subject to both sections 367(a) and (b). See §§ 1.367(a)-3(b) and 1.367(b)-1(a). All of the requirements of § 1.367(a)-3(b)(1) are satisfied, and D enters into a gain recognition agreement to qualify for nonrecognition treatment and does not make the election contained in paragraph (b)(1)(vii) of this section. Two years after the initial transfer, F transfers all of the S stock to F1, a foreign corporation, in an exchange to which section 351 applies, and D complies with the requirements of paragraph (e)(1)(ii) of this section. Four years after the initial transfer, D transfers its entire 20 percent interest in F's voting stock to a domestic partnership in exchange for an interest in the partnership and complies with the requirements of paragraph (e)(1)(i) of this section. D complies with the notice requirement under § 1.367(b)-1(c) for each transaction subject to section 367(b). Because D complies with the requirements of paragraph
(e)for each transaction that would otherwise be a triggering event, D is not required to recognize the gain that was realized, but not recognized, on the initial transfer. Five years after the initial transfer, S disposes of substantially all (as described in paragraph (d)(2) of this section) of its assets, and D is required by the terms of the gain recognition agreement to recognize all the gain that it realized on the initial transfer of the stock of S.
(ii)*Result* . As a result of the triggering event and paragraph (b)(3)(iv) of this section, the amount of gain required to be recognized as a result of S's disposition of substantially all its assets (but not the tax or interest required to be paid on such amount) is reflected by an increased basis (as of the date of the initial transfer) in D's partnership interest, the partnership's interest in the 20 percent voting stock of F, F's stock of F1, and F1's stock of S. S, however, is not permitted to increase its basis in its assets for purposes of determining the direct or indirect U.S. tax results, if any, on the sale of its assets.
(4)*Waiver of period of limitation* . The U.S. transferor must file, with the gain recognition agreement, a waiver of the period of limitation on assessment of tax upon the gain realized on the initial transfer. The waiver shall be executed on Form 8838 “Consent to Extend the Time to Assess Tax Under Section 367—Gain Recognition Agreement” and shall extend the period for assessment of such tax to a date not earlier than the eighth full taxable year following the taxable year of the initial transfer. The waiver shall also contain such other terms with respect to assessment as may be considered necessary by the Commissioner to ensure the assessment and collection of the correct tax liability for each year for which the waiver is required. The waiver must be signed by a person who would be authorized to sign the agreement pursuant to the provisions of paragraph (a)(3) of this section.
(5)*Annual certification* . The U.S. transferor must file with its income tax return for each of the five full taxable years following the taxable year of the initial transfer a certification that there has not been a triggering event, and a description of any exception under paragraph
(e)of this section if such an exception is relied upon for the position that there has not been a triggering event. The U.S. transferor must include with its annual certification a statement describing any dispositions of assets by the transferred corporation that are not made in the ordinary course of business. The annual certification pursuant to this paragraph (b)(5) must be signed by a person who would be authorized to sign the agreement pursuant to the provisions of paragraph (a)(3) of this section.
(c)*Use of security* . The U.S. transferor may be required to furnish a bond or other security that satisfies the requirements of § 301.7101-1 of this chapter if the Area Director, Field Examination, Small Business/Self Employed or the Director of Field Operations, Large and Mid-Size Business (Director) determines that such security is necessary to ensure the payment of any tax on the gain realized, but not recognized, upon the initial transfer. Such bond or security generally will be required only if the stock or securities transferred are a principal asset of the U.S. transferor and the Director has reason to believe that a disposition of the stock or securities may be contemplated.
(d)*Triggering events* . If there is a triggering event described in this paragraph
(d)during the term of the gain recognition agreement, the U.S. transferor must include in income the gain realized, but not recognized, upon the initial transfer as provided in paragraph (b)(3)(i) of this section. In addition, the U.S. transferor must pay any interest required by paragraph (b)(3)(iii) of this section. See § 1.367(a)-3(d)(2)(iv) for additional triggering events when a gain recognition agreement has been filed in connection with an indirect stock transfer. Except to the extent provided in paragraphs
(e)and
(g)of this section, if any of the following events occur during the term of the gain recognition agreement, it shall constitute a triggering event:
(1)*Disposition of stock or securities of the transferred corporation* —(i) *In general* . A disposition, in whole or in part, by the transferee foreign corporation (or any other person) of the transferred stock or securities received by the transferee foreign corporation in the initial transfer. For purposes of this section, a reference to transferred stock or securities shall also include stock or securities of the transferred corporation the basis of which is determined (directly or indirectly) in whole or in part, by reference to the basis of the stock or securities transferred in the initial transfer. A disposition of all or a portion of the stock or securities of the transferred corporation by installment sale is treated as a disposition of the stock or securities in the year of the installment sale.
(ii)*Example* . The provisions of this paragraph (d)(1)(i) are illustrated by the following example: *Example* . *Interaction between trigger of gain recognition agreement and subpart F rules* —(i) *Facts* . USP, a domestic corporation, owns all of the stock of two foreign corporations, CFC1 and CFC2. USP's section 1248 amount with respect to CFC2 is $30. USP has a basis of $50 in its stock of CFC2; the stock of CFC2 has a fair market value of $100. In a transaction described in sections 351 and 368(a)(1)(B), USP transfers the stock of CFC2 to CFC1 in exchange for additional stock of CFC1 with a basis of $50. The transaction is subject to both sections 367(a) and (b). See §§ 1.367(a)-3(b) and 1.367(b)-1(a). To qualify for nonrecognition treatment under section 367(a), USP enters into a gain recognition agreement for $50 under this section. No election under paragraph (b)(1)(vii) of this section is made. USP also complies with the notice requirement under § 1.367(b)-1(c). Two years after the initial transfer, CFC1 sells the stock of CFC2 for $120. At the time of the sale, the section 1248 amount with respect to the CFC2 stock continues to be $30. The $70 of gain recognized on the sale of CFC2 stock would give rise to a $70 subpart F inclusion to USP under section 951(a)(1)(A).
(ii)*Result* —(A) *Trigger of gain recognition agreement with no election* . CFC1's sale of CFC2 stock is a triggering event. As a result, USP must amend its return for the year of the initial transfer and include $50 in income (as well as pay any applicable interest), $30 of which will be recharacterized as a dividend pursuant to section 1248. Under paragraph (b)(3)(iv) of this section, as of the date of the initial transfer, CFC1 has a basis of $100 in its CFC2 stock, and USP has a basis in its CFC1 stock of $100. As a result of the sale of CFC2 stock by CFC1, USP will have a $20 subpart F inclusion under section 951(a)(1)(A).
(B)*Trigger of gain recognition agreement with election* . Assume the same facts as in paragraph
(i)of this *Example* , except that USP elected under paragraph (b)(1)(vii) of this section to include the amount of gain realized, but not recognized, on the initial transfer, $50, in the year of the triggering event rather than in the year of the initial transfer. The result is the same as above, except that USP will include the $50 of gain on its tax return for the year of the triggering event, together with interest. For purposes of determining the amount of the $50 gain characterized as a dividend pursuant to section 1248, if any, of the $50 inclusion, USP will take into account the section 1248 amount of CFC2 at the time of the disposition in the year of the triggering event.
(iii)*Partial dispositions* . If the transferee foreign corporation or any other person disposes of only a portion of the stock or securities of the transferred corporation, then the U.S. transferor is required to recognize only a proportionate amount of the gain realized, but not recognized, upon the initial transfer. The proportion required to be recognized shall be determined by reference to the fair market value of the transferred stock or securities disposed of and the total fair market value of the transferred stock or securities immediately before the disposition.
(2)*Disposition of substantially all of the transferred corporation's assets* . A disposition of substantially all of the transferred corporation's assets (including stock in a subsidiary corporation or an interest in a partnership) by the transferred corporation or any other person. Solely for purposes of this section, the term *substantially all* has the meaning provided under section 368(a)(1)(C). Accordingly, the determination of whether substantially all of the transferred corporation's assets have been disposed of shall be made under all the facts and circumstances. For purposes of this paragraph (d)(2), dispositions of stock in connection with an asset reorganization of a corporation all or a portion the stock of which is owned by the transferred corporation, or a liquidation of a corporation the stock of which is owned by the transferred corporation in an amount satisfying the requirements of section 1504(a)(2) and to which sections 332 and 337 apply, shall not be taken into account. If the initial transfer was an indirect stock transfer, see § 1.367(a)-3(d)(2)(v). If the transferred corporation is a domestic corporation, see paragraph (g)(2) of this section. For an example of when a disposition of substantially all the transferred corporation's assets by a person other than the transferred corporation is a triggering event under this paragraph (d)(2), see paragraph (e)(6)(ii) of this section.
(3)*Disposition of the stock of the transferee foreign corporation* —(i) *General rule* . A disposition in whole or in part, by the U.S. transferor of the stock of the transferee foreign corporation that is received (or deemed received) in the initial transfer. For purposes of this section, a reference to stock described in the preceding sentence shall also include stock of the transferee foreign corporation the basis of which is determined, directly or indirectly, in whole or in part, by reference to the basis of the stock of the transferee foreign corporation that is received (or deemed received) in the initial transfer.
(ii)*Partial dispositions* . If the U.S. transferor disposes of only a portion of the stock of the transferee foreign corporation that is received (or deemed received) in the initial transfer, then the U.S. transferor is required to recognize only a proportionate amount of the gain realized, but not recognized, upon the initial transfer. The proportion required to be recognized shall be determined by reference to the fair market value of the transferee foreign corporation stock disposed of and the total fair market value of the transferee foreign corporation stock immediately before the disposition.
(4)*Deconsolidation* . A U.S. transferor that is a member of a consolidated group ceases to be a member of the consolidated group, other than by reason of an acquisition of the assets of the U.S. transferor in a transaction to which section 381(a) applies, or by reason of joining a new consolidated group as part of the same transaction. However, in the case of a transaction to which section 381(a) applies, see paragraph (d)(3) of this section (providing that a triggering event includes a disposition of the stock of the transferee foreign corporation).
(5)*Consolidation* . A U.S. transferor becomes a member of a consolidated group.
(6)*Individual U.S. transferor becomes a non-citizen nonresident* . A U.S. transferor that is an individual loses U.S. citizenship, or a U.S. transferor that is a long-term resident ceases to be taxed as a lawful permanent resident (as defined in section 877(e)(2)). Immediately before the date that the U.S. transferor loses U.S. citizenship or ceases to be taxed as a long-term resident, the gain recognition agreement will be triggered. No additional inclusion is required under section 877 with respect to the transferred stock or securities, and a gain recognition agreement under section 877 may not be used to avoid taxation under section 367(a) resulting from the trigger of the section 367(a) gain recognition agreement.
(7)*Death of an individual; trust or estate goes out of existence* . An individual U.S. transferor dies, or a U.S. transferor that is a trust or estate goes out of existence.
(8)*Failure to comply* . The failure to comply in any material respect with the requirements of this section or with the terms of a gain recognition agreement (for example, a failure to file an annual certification or Form 8838). Such a material failure to comply shall extend the period for assessment of tax until three years after the date on which the Director of Field Operations or Area Director receives actual notice of the failure to comply.
(e)*Exceptions* . Notwithstanding paragraph
(d)of this section, the following events shall not constitute triggering events:
(1)*Certain nonrecognition transactions* —(i) *Dispositions of stock of the transferee foreign corporation by the U.S. transferor* —(A) *Transfers to a corporation or partnership* . Except to the extent provided in paragraph (g)(1)(iv) of this section, a disposition of stock of the transferee foreign corporation by the U.S. transferor in an exchange to which section 351, 354 (but only in a reorganization described in section 368(a)(1)(B)), or 721 applies, will not be a triggering event under paragraph (d)(3) of this section, and the original gain recognition agreement shall terminate without further effect, if the U.S. transferor complies with requirements similar to those contained in paragraph (e)(1)(ii) of this section, providing for notice and an agreement to recognize gain in the case of a direct or indirect disposition of the stock previously held by the U.S. transferor. See paragraph (e)(3)(i) of this section for dispositions of the transferee foreign corporation stock in certain asset reorganizations.
(B)*Liquidations of the U.S. transferor under sections 332 and 337* . The disposition of the transferee foreign corporation stock pursuant to a liquidation of the U.S. transferor under sections 332 and 337 will not be a triggering event under paragraph (d)(3) of this section, and the original gain recognition agreement shall terminate without further effect, if the following conditions are satisfied: ( *1* ) The distributee is a domestic corporation described in section 332(b)(1). ( *2* ) The domestic distributee corporation (successor U.S. transferor) enters into a new gain recognition agreement pursuant to which it agrees to recognize gain (during the remaining term of the original gain recognition agreement), with respect to the initial transfer, modified by substituting the successor U.S. transferor in place of the original U.S. transferor, and agreeing to treat the successor U.S. transferor as the original U.S. transferor for purposes of this section. If, however, in connection with a liquidation described in section 332, the U.S. transferor recognizes gain under section 336 with respect to a portion of the stock of the transferee foreign corporation, and the conditions described in paragraph (g)(1) of this section are satisfied, the new gain recognition agreement that the successor U.S. transferor enters into shall reflect the gain realized, but not recognized, on the initial transfer (subject to adjustment for prior partial dispositions) less that proportion corresponding to gain recognized under section 336. The proportion is determined by reference to the relative fair market values of the transferee foreign corporation stock received (or deemed received) in the initial transfer on which the U.S. transferor recognized gain under section 336 and the total fair market value of the transferee foreign corporation stock received (or deemed received) by the U.S. transferor in the initial transfer that is distributed by the U.S. transferor in the liquidation. ( *3* ) The successor U.S. transferor makes the election described in paragraph (b)(1)(vii) of this section. However, if the U.S. transferor was a member of a consolidated group in the year of the initial transfer, and the successor U.S. transferor is also a member of the original consolidated group immediately after the liquidation, no such election must be made. ( *4* ) The successor U.S. transferor provides with its next annual certification (described in paragraph (b)(5) of this section) the new gain recognition agreement, a notice of the liquidation, and Form 8838 to extend the period for assessment of the tax on the initial transfer to a date not earlier than the eighth full taxable year following the taxable year of the initial transfer.
(ii)*Transfers of stock or securities of the transferred corporation by the transferee foreign corporation to a corporation or partnership* . Except to the extent provided in paragraph (f)(1)(i) of this section, a disposition of stock or securities of the transferred corporation by the transferee foreign corporation in an exchange to which section 351, 354 (but only in a reorganization described in section 368(a)(1)(B)), or 721 applies, will not be a triggering event described in paragraph (d)(1) of this section, and the original gain recognition agreement shall terminate without further effect, if the following conditions are satisfied:
(A)The transferee foreign corporation receives (or is deemed to receive) in exchange for the property disposed of, stock in a corporation, or an interest in a partnership, that acquired the transferred stock or securities (or receives stock in a corporation that controls the corporation acquiring the transferred stock or securities in the case of a triangular section 368(a)(1)(B) reorganization).
(B)The U.S. transferor provides a notice of the transfer with its next annual certification under paragraph (b)(5) of this section, setting forth— ( *1* ) A full description of the transfer; ( *2* ) The applicable nonrecognition provision; and ( *3* ) The name, address, and taxpayer identification number (if any) of the new transferee of the transferred stock or securities.
(C)The U.S. transferor provides with its next annual certification a new gain recognition agreement pursuant to which it agrees to recognize gain (during the remaining term of the original gain recognition agreement) with respect to the initial transfer, and in which it agrees that any of the following events also constitutes a triggering event: ( *1* ) A disposition of the stock or securities or partnership interest that the transferee foreign corporation received in exchange for the transferred stock or securities (other than in a disposition which itself qualifies under the rules of paragraph
(e)of this section). ( *2* ) The corporation or partnership that acquired the transferred stock or securities disposes of such property (other than in a disposition which itself qualifies under the rules of paragraph
(e)of this section). ( *3* ) Any other disposition that has the effect of an indirect disposition of the transferred stock or securities.
(iii)*Transfers of the transferred corporation's assets to a corporation or partnership.* Except to the extent provided in paragraph (f)(1)(ii) of this section, a disposition of substantially all of the transferred corporation's assets by the transferred corporation in an exchange to which section 351, 354 (but only in a reorganization described in section 368(a)(1)(B)—for example, where stock in a subsidiary corporation comprises substantially all of the transferred corporation's assets), or 721 applies, will not be a triggering event under paragraph (d)(2) of this section, and the original gain recognition agreement shall terminate without further effect, if the transferred corporation receives (or is deemed to receive) in exchange for all or a portion of its assets stock in a corporation or an interest in a partnership that acquired the assets of the transferred corporation (or receives stock in a corporation that controls the corporation acquiring the assets) and the U.S. transferor complies with requirements similar to those contained in paragraph (e)(1)(ii) of this section, (providing for notice and an agreement to recognize gain in the case of a direct or indirect disposition of the assets previously held by the transferred corporation). See paragraph (e)(3)(iii) of this section for dispositions of substantially all of the transferred corporation's assets in certain asset reorganizations.
(2)*Recapitalizations* —(i) *Transferred corporation.* Except to the extent provided in paragraph (f)(1) of this section, a transaction described in section 368(a)(1)(E) of the transferred corporation will not be a triggering event under paragraph (d)(1) of this section. The description of this exception that is required to be filed with the annual certification under paragraph (b)(5) of this section must include a description of the type or class, amount, and characteristics of the stock or securities that the transferred corporation issued in the reorganization.
(ii)*Transferee foreign corporation.* A section 368(a)(1)(E) reorganization of the transferee foreign corporation will not be a triggering event under paragraph (d)(3) of this section. The description of this exception that is required to be filed with the annual certification under paragraph (b)(5) of this section must include a description of the type or class, amount, and characteristics of the stock or securities that the transferee foreign corporation issued in the reorganization. See paragraph (g)(1) of this section for rules regarding the recognition of gain by the U.S. transferor in connection with nonrecognition exchanges.
(3)*Certain asset reorganizations* —(i) *Transfers of transferee foreign corporation's stock by U.S. transferor.* Except to the extent provided in paragraph (g)(1)(iv) of this section, if the U.S. transferor transfers all or a portion of the stock of the transferee foreign corporation to a domestic acquiring corporation (successor U.S. transferor) pursuant to an asset reorganization, the exchanges made pursuant to such asset reorganization will not be triggering events described in paragraph (d)(3) of this section, and the original gain recognition agreement shall terminate without further effect, if the following conditions are satisfied:
(A)The common parent of the original consolidated group, successor U.S. transferor, or new common parent, as applicable, enters into a new gain recognition agreement pursuant to which the successor U.S. transferor agrees to recognize gain (during the remaining term of the original gain recognition agreement) with respect to the initial transfer, modified by substituting the successor U.S. transferor in place of the original U.S. transferor and agreeing to treat the successor U.S. transferor as the original U.S. transferor for purposes of this section.
(B)The successor U.S. transferor or new common parent, as applicable, makes the election described in paragraph (b)(1)(vii) of this section. However, if the U.S. transferor was a member of a consolidated group in the year of the initial transfer, and the successor U.S. transferor is also a member of the original consolidated group immediately after the asset reorganization, no such election must be made.
(C)The successor U.S. transferor provides with its next annual certification (described in paragraph (b)(5) of this section)— ( *1* ) The new gain recognition agreement; ( *2* ) A notice of the transfer setting forth a full description of the transfer (including the date of such transfer), and the successor U.S. transferor's name, address, and taxpayer identification number; and ( *3* ) Form 8838 to extend the period for assessment of the tax on the initial transfer to a date not earlier than the eighth full taxable year following the taxable year of the initial transfer.
(ii)*Transfers of transferred corporation stock or securities by a transferee foreign corporation to a foreign acquiring corporation.* Except to the extent provided in paragraph (f)(1) of this section, if the transferee foreign corporation transfers all or a portion of the stock or securities of the transferred corporation to a foreign acquiring corporation (successor transferee foreign corporation) in an asset reorganization, the exchanges made pursuant to such reorganization will not be triggering events described in paragraph (d)(1) or (d)(3) of this section, and the original gain recognition agreement shall terminate without further effect, if the following conditions are satisfied:
(A)The U.S. transferor or common parent, as applicable, enters into a new gain recognition agreement pursuant to which the U.S. transferor agrees to recognize gain (during the remaining term of the original gain recognition agreement), with respect to the initial transfer, substituting the successor transferee foreign corporation in place of the original transferee foreign corporation, and agreeing to treat the successor transferee foreign corporation as the original transferee foreign corporation for purposes of this section.
(B)The U.S. transferor provides with its next annual certification (described in paragraph (b)(5) of this section) the new gain recognition agreement and a notice of the transfer setting forth a full description of the transfer (including the date of such transfer), and the successor transferee foreign corporation's name, address, and taxpayer identification number (if any).
(iii)*Transfers of substantially all of the transferred corporation's assets.* Except to the extent provided in paragraph (f)(2) of this section, if the transferred corporation transfers substantially all of its assets to an acquiring corporation (successor transferred corporation) pursuant to an asset reorganization, the exchanges made pursuant to such asset reorganization will not be triggering events under paragraph (d)(1) or (d)(2) of this section, and the original gain recognition agreement shall terminate without further effect, if the following conditions are satisfied:
(A)The U.S. transferor or common parent, as applicable, enters into a new gain recognition agreement pursuant to which the U.S. transferor agrees to recognize gain (during the remaining term of the original gain recognition agreement), with respect to the initial transfer, modified by— ( *1* ) Substituting the successor transferred corporation in place of the original transferred corporation and agreeing to treat the successor transferred corporation as the original transferred corporation for purposes of this section; and ( *2* ) Treating only the assets acquired by the successor transferred corporation from the original transferred corporation pursuant to the asset reorganization as the assets subject to the triggering event rules under paragraph (d)(2) of this section.
(B)The U.S. transferor provides with its next annual certification (described in paragraph (b)(5) of this section) the new gain recognition agreement and a notice of the transfer setting forth a full description of the transfer (including the date of such transfer), and the successor transferred corporation's name, address, and taxpayer identification number (if any).
(iv)*Example.* The rules of paragraph (e)(3) of this section are illustrated by the following examples: Example 1.
(i)*Facts.* UST, a domestic corporation incorporated under the laws of State A, owns 100% of the stock of TFD, a foreign corporation. In year 1, UST transfers all of the TFD stock to TFC, a foreign corporation, in an exchange to which section 351 applies. In the exchange, UST receives 100% of the stock of TFC. The transaction is subject to both sections 367(a) and (b). See §§ 1.367(a)-3(b) and 1.367(b)-1(a). All of the requirements of § 1.367(a)-3(b)(1) are satisfied, and UST enters into a gain recognition agreement. UST also complies with the notice requirement under § 1.367(b)-1(c). In year 3, UST transfers its assets in a section 361(a) exchange to USA, a newly formed domestic corporation incorporated under the laws of State B, in exchange for stock of USA, and UST distributes such stock to its shareholders in a transaction described in section 368(a)(1)(F).
(ii)*Result.* The transfer of the TFC stock by UST to USA pursuant to the section 368(a)(1)(F) reorganization is a triggering event under paragraph (d)(3) of this section. If, however, UST complies with the requirements contained in paragraph (e)(3)(i) of this section, the transfer will not be a triggering event.
(iii)*Alternate facts.* The facts are the same as in paragraph
(i)of this *Example 1* , except that the acquiring corporation is foreign instead of domestic. Because paragraph (e)(3)(i) of this section provides an exception to a triggering event under paragraph (d)(3) of this section only if the acquiring corporation in the asset reorganization is a domestic corporation, the section 368(a)(1)(F) reorganization is a triggering event without exception. See also section 367(a)(5) and §§ 1.367(a)-1T(f) and 1.367(a)-3T(e) (providing that certain corporate shareholders of a U.S. transferor may enter into a gain recognition agreement when the U.S. transferor goes out of existence in a section 361 initial transfer). Example 2.
(i)*Facts.* UST, a domestic corporation, owns 100% of the stock of three foreign corporations, FC1, FC2 and FC3. In year 1, USP transfers 100% of the stock of FC1 to FC2 in an exchange to which section 351 applies. The transaction is subject to both sections 367(a) and (b). See §§ 1.367(a)-3(b) and 1.367(b)-1(a). All of the requirements of § 1.367(a)-3(b)(1) are satisfied, and UST enters into a gain recognition agreement. UST also complies with the notice requirement under § 1.367(b)-1(c). In year 4, in a reorganization described in section 368(a)(1)(D), FC2 transfers all of its assets, including the stock of FC1, to FC3 in exchange for FC3 stock. FC2 transfers the FC3 stock to UST in exchange for FC2 stock held by UST, and the FC2 stock is canceled.
(ii)*Analysis.* The transfer of FC1 stock to FC3 and the exchange of FC2 stock for FC3 stock by UST pursuant to the reorganization described in section 368(a)(1)(D) are triggering events under paragraphs (d)(1) and (d)(3) of this section. If, however, UST complies with the requirements contained in paragraph (e)(3)(ii) of this section, the transfers will not be triggering events. Example 3.
(i)*Facts.* UST, a domestic corporation, owns 100% of the stock of two foreign corporations, FC1 and FC2. In year 1, UST transfers 100% of the stock of FC1 to FC2 in an exchange to which section 351 applies. The transaction is subject to both sections 367(a) and (b). See §§ 1.367(a)-3(b) and 1.367(b)-1(a). All of the requirements of § 1.367(a)-3(b)(1) are satisfied, and UST enters into a gain recognition agreement. UST also complies with the notice requirement under § 1.367(b)-1(c). In year 4, in a reorganization described in section 368(a)(1)(C), FC1 transfers all of its assets to FC3, an unrelated foreign corporation, in exchange for FC3 stock. FC1 transfers the FC3 stock to FC2 in exchange for the FC1 stock held by FC2 and the FC1 stock is canceled.
(ii)*Analysis.* FC1's transfer of all of its assets to FC3 and FC2's exchange of FC1 stock for FC3 stock pursuant to the reorganization described in section 368(a)(1)(C) are triggering events under paragraphs (d)(2) and (d)(1) of this section, respectively. If, however, UST complies with the requirements contained in paragraph (e)(3)(iii) of this section, the transfers will not be triggering events.
(4)*Certain triangular reorganizations* —(i) *Triangular asset reorganizations of the transferee foreign corporation.* For purposes of this paragraph (e)(4), the term *triangular asset reorganization* means a triangular reorganization described in § 1.358-6(b)(2)(i) through
(iii)or in sections 368(a)(1)(G) and (a)(2)(D) where the acquiring subsidiary is foreign. Except to the extent provided in paragraph (f)(1) or (g)(1)(iv) of this section, the exchanges made pursuant to a triangular asset reorganization of the transferee foreign corporation will not be triggering events under paragraph (d)(1) or (d)(3) of this section, and the original gain recognition agreement shall terminate without further effect, if the following conditions are satisfied:
(A)The U.S. transferor or common parent, as applicable, enters into a new gain recognition agreement pursuant to which the U.S. transferor agrees to recognize gain (during the remaining term of the original gain recognition agreement), with respect to the initial transfer, and in which the U.S. transferor agrees to— ( *1* ) If the parent corporation of the foreign acquiring subsidiary is foreign, treat such foreign parent as the original transferee foreign corporation for purposes of this section and treat as a triggering event a disposition of the stock of the foreign acquiring subsidiary, or, in the case of a reorganization described in section 368(a)(2)(E), the corporation originally identified as the transferee foreign corporation; and ( *2* ) If the parent corporation of the foreign acquiring subsidiary is domestic, treat the foreign acquiring subsidiary as the original transferee foreign corporation for purposes of this section, and apply the principles of paragraph
(g)of this section to taxable dispositions by the domestic parent corporation of the foreign acquiring subsidiary or, in the case of a reorganization described in section 368(a)(2)(E), the corporation originally identified as the transferee foreign corporation. In the case of a reorganization described in section 368(a)(2)(E) where the transferee foreign corporation is the merged corporation, rather than the surviving corporation, then the surviving corporation shall be treated as the transferee foreign corporation for purposes of this section.
(B)The U.S. transferor provides with its next annual certification (described in paragraph (b)(5) of this section) the new gain recognition agreement and a notice of the transfer setting forth a full description of the transfer (including the date of such transfer) and the name, address, and taxpayer identification number (if any) for the parent corporation of the foreign acquiring subsidiary.
(ii)*Triangular asset reorganizations of the transferred corporation.* Except to the extent provided in paragraph (f)(1) or (f)(2) of this section, the exchanges made pursuant to a triangular asset reorganization of the transferred corporation will not be triggering events in paragraph (d)(1) or (d)(2) of this section, and the original gain recognition agreement shall terminate without further effect, if the following conditions are satisfied:
(A)The U.S. transferor or common parent, as applicable, enters into a new gain recognition agreement pursuant to which the U.S. transferor agrees to recognize gain (during the remaining term of the original gain recognition agreement), in accordance with the rules of paragraph
(b)of this section, with respect to the initial transfer, and in which the U.S. transferor agrees to— ( *1* ) Treat a disposition of the stock of the acquiring parent as a triggering event; ( *2* ) If the reorganization is a triangular C reorganization or a reorganization described in section 368(a)(2)(D), treat a disposition of the stock of the foreign acquiring subsidiary as a triggering event; and ( *3* ) If the reorganization is described in section 368(a)(2)(E) and the merged corporation is the transferred corporation, treat a disposition of the stock of the surviving corporation as a triggering event.
(B)The U.S. transferor provides with its next annual certification (described in paragraph (b)(5) of this section) the new gain recognition agreement and a notice of the transfer setting forth a full description of the transfer (including the date of such transfer) and the name, address, and taxpayer identification number (if any) for the parent corporation of the foreign acquiring subsidiary.
(5)*Compulsory transfers.* A compulsory transfer under § 1.367(a)-4T(f)(2) that is not reasonably foreseeable by the U.S. transferor is not a triggering event under paragraphs (d)(1) through (d)(3) of this section.
(6)*Certain liquidations and upstream reorganizations of the transferred corporation into the transferee foreign corporation* —(i) *General rule.* A transfer of assets by the transferred corporation to the transferee foreign corporation pursuant to a liquidation described in section 332, where the transferee foreign corporation is described in section 332(b)(1), or pursuant to a reorganization described in section 368(a), and related exchanges of stock or securities of the transferred corporation will not be triggering events under paragraph (d)(1) or (d)(2) of this section. The description of this exception that is required to be filed with the annual certification under paragraph (b)(5) of this section must include a description of the transaction. In such a case, the original gain recognition agreement shall continue to apply during the remainder of its term. If, however, in connection with a liquidation described in section 332, the transferred corporation recognizes gain under section 336 with respect to a portion of its assets, such assets shall be treated as disposed of for purposes of paragraph (d)(2) of this section.
(ii)*Example.* The principles of this paragraph (e)(6) are illustrated by the following example: Example.
(i)*Facts.* UST, a domestic corporation, owns 100 percent of the stock of TFD, a foreign corporation. UST transfers all of the TFD stock to newly-formed TFC, a foreign corporation, in an exchange to which section 351 applies. In the exchange, UST receives 100 percent of the voting stock of TFC. The transaction is subject to both sections 367(a) and (b). See §§ 1.367(a)-3(b) and 1.367(b)-1(a). All of the requirements of § 1.367(a)-3(b)(1) are satisfied, and UST enters into a gain recognition agreement to qualify for nonrecognition treatment and does not make the election described in paragraph (b)(1)(vii) of this section. UST also complies with the notice requirement under § 1.367(b)-1(c). Two years after the initial transfer, TFD liquidates into TFC in a transaction described in sections 332 and 337, and UST complies with the requirements of this paragraph (e)(6). Four years after the initial transfer, TFC disposes of substantially all of the assets previously held by TFD.
(ii)*Result.* Because paragraph (d)(2) of this section provides that a disposition of substantially all of the transferred corporation's assets by any person is a triggering event, TFC's disposition of substantially all of the assets previously held by TFD is a triggering event. Under the terms of the gain recognition agreement, UST must amend its return for the year of the initial transfer and include in income the gain realized, but not recognized, on the initial transfer of the stock of TFD to TFC, and pay any interest charge.
(7)*Death of an individual U.S. transferor.* If the U.S. transferor is an individual and such individual dies, the individual's death will not be a triggering event under paragraph (d)(7) of this section, if—
(i)The person winding up the affairs of the U.S. transferor retains, for the duration of the waiver of the statute of limitations relating to the gain recognition agreement, assets to meet any possible liability of the U.S. transferor under the duration of the gain recognition agreement;
(ii)The person winding up the affairs of the U.S. transferor provides security as provided under paragraph
(c)of this section for any possible liability of the U.S. transferor under the gain recognition agreement; or
(iii)The person winding up the affairs of the U.S. transferor obtains a ruling from the Internal Revenue Service providing for successors to the U.S. transferor under the gain recognition agreement.
(8)*Deconsolidation.* A deconsolidation described in paragraph (d)(4) of this section will not be a triggering event, and the original gain recognition agreement shall terminate without further effect, if the following conditions are satisfied:
(i)The U.S. transferor enters into a new gain recognition agreement pursuant to which the U.S. transferor agrees to recognize gain (during the remaining term of the original gain recognition agreement) with respect to the initial transfer and makes the election described in paragraph (b)(1)(vii) of this section.
(ii)The U.S. transferor provides with its next annual certification (described in paragraph (b)(5) of this section) notice of the deconsolidation.
(9)*Consolidation.* A consolidation described in paragraph (d)(5) of this section will not be a triggering event, and the original gain recognition agreement shall terminate without further effect, if the following conditions are satisfied:
(i)The common parent of the consolidated group that includes the U.S. transferor immediately after the consolidation enters into a new gain recognition agreement pursuant to which the U.S. transferor agrees to recognize gain (during the remaining term of the original gain recognition agreement) with respect to the initial transfer and in which it makes the election described in paragraph (b)(1)(vii) of this section.
(ii)The U.S. transferor provides with its next annual certification (described in paragraph (b)(5) of this section) a notice of the consolidation.
(10)*Reasonable cause exception for failure to comply* —(i) *Request for relief.* A failure to comply described in paragraph (d)(8) of this section will not be a triggering event, and the timeliness requirement with respect to a gain recognition agreement shall be considered satisfied notwithstanding a failure to file the agreement in a timely manner, if the person required to file the gain recognition agreement, annual certification, or Form 8838 is able to demonstrate to the Area Director, Field Examination, Small Business/Self Employed or the Director of Field Operations, Large and Mid-Size Business (Director) having jurisdiction of the taxpayer's tax return for the taxable year, that such failure was due to reasonable cause and not willful neglect. In determining whether the person has reasonable cause, the Director shall consider whether the person acted reasonably and in good faith. Whether the person acted reasonably and in good faith will be determined after considering all the facts and circumstances. The Director shall notify the person in writing within 120 days of the filing if it is determined that the failure to comply was not due to reasonable cause, or if additional time will be needed to make such determination. For this purpose, the 120-day period shall begin to run on the date the Service notifies the person in writing that the request has been received and assigned for review. Once such period commences, if the person is not again notified within 120 days, then the person shall be deemed to have established reasonable cause. The reasonable cause exception of this paragraph (e)(10) shall apply only if, once the person becomes aware of the failure to file or comply with the agreement, the person complies with the requirements of paragraph (e)(10)(ii) of this section.
(ii)*Requirements for reasonable cause relief* —(A) *Time of submission.* Requests for reasonable cause relief will only be considered if once the person becomes aware of the failure to file or comply with the agreement, the person attaches all the documents that should have been filed, as well as a complete written statement setting forth the reasons for the failure to timely comply, to an amended return that amends the return to which the documents should have been attached pursuant to the rules of section 367(a) and the regulations under that paragraph.
(B)*Notice requirement.* In addition to the requirement of paragraph (e)(10)(ii)(A) of this section, the person must provide a copy of the amended return and all required attachments to the Director as follows: ( *1* ) If the taxpayer is under examination for any taxable year when the person requests relief, the taxpayer must provide a copy of the amended return and attachments to the personnel conducting the examination. ( *2* ) If the taxpayer is not under examination for any taxable year when the person requests relief, the taxpayer must provide a copy of the amended return and attachments to the Director having jurisdiction over the taxpayer's return.
(f)*Gain recognized in connection with certain nonrecognition transactions* —(1) *Dispositions of transferred stock or securities* —(i) *General rule.* If a disposition of the transferred stock or securities occurs in connection with a nonrecognition transaction described in paragraph (e)(1)(ii), (e)(2)(i), (e)(3)(ii), (e)(3)(iii), or (e)(4) of this section and gain is recognized by the transferee foreign corporation in connection with the transaction (for example, under sections 351(b) or 356(a)(1)), the U.S. transferor must recognize gain pursuant to the gain recognition agreement as determined under paragraph (f)(1)(ii) of this section. This paragraph (f)(1)(i) shall not apply to the extent that the gain recognized is treated as a dividend under section 356(a)(2).
(ii)*Method for determining amount of gain to be recognized.* The portion of the gain recognition agreement that must be recognized under paragraph (f)(1)(i) of this section, if any, is the gain that would be recognized by the transferee foreign corporation on such disposition (but not in excess of the amount of the gain recognition agreement). For purposes of this paragraph (f)(1)(ii), the gain that would be recognized in the nonrecognition transactions listed in paragraph (f)(1)(i) of this section by the transferee foreign corporation shall be calculated before taking into account any basis increase that may apply under paragraph (b)(3)(iv) of this section as a result of the gain that the U.S. transferor is required to recognize. If the amount of gain that the transferee foreign corporation would be required to recognize is less than the amount of the gain subject to the gain recognition agreement, then the new gain recognition agreement filed pursuant to paragraph (e)(1)(ii), (e)(2)(i), (e)(3)(ii), (e)(3)(iii), or (e)(4) of this section shall provide that the U.S. transferor shall recognize the remaining portion of the gain that was realized, but not recognized, on the initial transfer if a subsequent triggering event occurs.
(iii)*Example.* The rule of this paragraph (f)(1) is illustrated by the following example: Example.
(i)*Facts.* UST, a domestic corporation owning 100% of the stock of TFD, a foreign corporation, transfers all of the TFD stock to newly formed TFC, a foreign corporation, in an exchange to which section 351 applies. In the exchange, UST receives 100% of the stock of TFC. The transaction is subject to both sections 367(a) and (b). See §§ 1.367(a)-3(b) and 1.367(b)-1(a). All of the requirements of § 1.367(a)-3(b)(1) are satisfied, and UST enters into a gain recognition agreement to qualify for nonrecognition treatment and does not make the election contained in paragraph (b)(1)(vii) of this section. UST also complies with the notice requirement under § 1.367(b)-1(c). At the time of the initial transfer, UST has a basis of $50 in the stock of TFD, which has a fair market value of $100. Thus, the amount of gain subject to the gain recognition agreement is $50. Two years after the initial transfer, TFC and X, an unrelated domestic corporation, form CFC, a foreign corporation. TFC transfers the stock of TFD to CFC in an exchange to which section 351 applies. UST also complies with the notice requirement under § 1.367(b)-1(c). At the time of the transfer, TFC's basis in the TFD stock equals $50 and the fair market value remains $100. In the exchange, TFC receives 25% of the stock of CFC and $35 of cash. Before taking into account adjustments made under paragraph (b)(3)(iv) of this section, TFC would recognize $35 of gain under section 351(b). X transfers property to CFC in exchange for the remaining 75% of the CFC stock. Under paragraph (d)(1) of this section, TFC's disposition of the TFD stock is a triggering event. However, UST complies with the requirements of paragraph (e)(1)(ii) of this section providing for an exception to the triggering event.
(ii)*Result.* Under paragraph (f)(1)(ii) of this section, pursuant to the terms of the gain recognition agreement, UST must recognize $35 of the $50 gain realized, but not recognized, on the initial transfer. The new gain recognition agreement that UST files pursuant to paragraph (e)(1)(ii)(C) of this section will reflect the $15 that remains of the gain realized, but not recognized, on the initial transfer. Under paragraph (b)(3)(iv)(A) of this section, TFC's basis in the TFD stock is increased (as of the date of the initial transfer) by $35 to $85. Under paragraph (b)(3)(iv)(B) of this section, UST's basis in the TFC stock is also increased by $35. Finally, after taking account of adjustments under paragraph (b)(3)(iv) of this section, TFC must recognize $15 of gain under section 351(b).
(2)*Dispositions of substantially all of the transferred corporation's assets.* If a disposition of substantially all of the assets of the transferred corporation occurs in connection with a nonrecognition transaction described in paragraph (e)(1)(iii), (e)(3)(iii), or (e)(4)(ii) of this section and gain is recognized on such disposition (for example, under section 351(b) or 356(a)(1)), the U.S. transferor must recognize gain pursuant to the gain recognition agreement to the extent of such gain recognized (but not in excess of the gain realized, but not recognized, on the initial transfer). This paragraph (f)(2) shall not apply to the extent that recognized gain is treated as a dividend under section 356(a)(2).
(g)*Transactions that terminate the gain recognition agreement or reduce the amount of gain required to be recognized pursuant to a gain recognition agreement.* Notwithstanding paragraph
(d)of this section, the following events shall not constitute triggering events and instead shall either terminate the gain recognition agreement, or reduce the amount of gain required to be recognized pursuant to a gain recognition agreement:
(1)*Taxable disposition of stock of the transferee foreign corporation by U.S. transferor* —(i) *General rule.* If the U.S. transferor disposes of all the stock of the transferee foreign corporation that is received (or deemed received) in the initial transfer, then the gain recognition agreement shall terminate without further effect if—
(A)Immediately before the disposition, the aggregate basis of the transferee foreign corporation stock disposed of does not exceed the sum of the aggregate basis of the transferred stock or securities immediately before the initial transfer plus any increase in the basis of such stock or securities as a result of the recognition of gain on the initial transfer. For purposes of this paragraph (g)(1)(i)(A), an increase in basis of the stock disposed of as a result of an income inclusion with respect to such stock (for example, pursuant to section 961) shall not be taken into account; and
(B)All realized gain (if any) in the stock disposed of is recognized currently and included in taxable income as a result of the disposition.
(ii)*Partial dispositions* —(A) *General rule.* If the U.S. transferor disposes of a portion of the stock of the transferee foreign corporation that is received (or deemed received) in the initial transfer in a transaction that satisfies the conditions described in paragraphs (g)(1)(i)(A) and
(B)of this section, such disposition will not be a triggering event and the gain recognition shall remain in effect. For purposes of determining whether the condition described in paragraph (g)(1)(i)(A) of this section is satisfied, however, the aggregate basis of the stock of the transferee foreign corporation disposed of is compared to the aggregate basis of the transferred stock or securities exchanged for such stock at the time of the initial transfer.
(B)*Subsequent triggering event.* If the gain recognition agreement is triggered after a disposition described in paragraph (g)(1)(ii)(A) of this section, the U.S. transferor shall be required to recognize only a proportionate amount of the gain subject to the gain recognition agreement that otherwise would be required to be recognized on a subsequent triggering event. Except as provided in paragraph (g)(1)(iv) of this section, the proportion required to be recognized shall be determined by reference to the percentage of stock (based on relative fair market value) of the transferee foreign corporation received (or deemed received) in the initial transfer that is retained by the U.S. transferor.
(iii)The rule of paragraph (g)(1)(ii) of this section is illustrated by the following example: Example.
(1)*Facts.* A, a United States citizen, owns 100% of the outstanding stock of foreign corporation X. In a transaction to which section 351 applies, A exchanges his stock in X (and other assets) for 100% of the outstanding stock of foreign corporation Y. The transaction is subject to both sections 367(a) and (b). See §§ 1.367(a)-3(b) and 1.367(b)-1(a). A enters into a gain recognition agreement, makes the election contained in paragraph (b)(1)(vii) of this section, and also complies with the notice requirement under § 1.367(b)-1(c). In the second year following the initial transfer, A disposes of 60% of the fair market value of the stock of Y, and the requirements of paragraphs (g)(1)(i)(A) and
(B)are met with respect to such disposition. In the fourth year following the initial transfer, Y disposes of 50% of the fair market value of the stock of X.
(ii)*Result.* The disposition of 60% of the stock of Y is not a triggering event, and the gain recognition agreement continues in effect. The disposition of X stock, however, is a triggering event under paragraph (d)(1)(i) of this section. As a result of the subsequent disposition of 50% of the stock of X, under paragraphs (d)(1)(iii) and (g)(1)(ii)(B) of this section, A is required to include in income in the year of such disposition 20% (40% of the fair market value of Y multiplied by 50% of the fair market value of X) of the gain that A realized but did not recognize on the initial transfer of the X stock to Y, and pay any applicable interest.
(iv)*Certain nonrecognition transactions.* The rules described in these paragraphs (g)(1)(iv)(A) through
(C)apply if the U.S. transferor disposes of all or a portion of the stock of the transferee foreign corporation received (or deemed received) in the initial transfer pursuant to a nonrecognition transaction described in paragraph (e)(1)(i), (e)(2)(ii), (e)(3)(i), or (e)(3)(ii) of this section, the condition described in paragraph (g)(1)(i)(A) of this section is satisfied with respect to such disposition, and gain is recognized in connection with the disposition (for example, under sections 351(b), 356(a)(1), or 336). If, however, only a portion of the stock of the transferee corporation stock is disposed of pursuant to this paragraph (g)(1)(iv), then for purposes of determining whether the condition described in paragraph (g)(1)(i)(A) of this section is satisfied, the aggregate basis of the stock disposed of is compared to the aggregate basis of the transferred stock or securities exchanged for such stock at the time of the initial transfer.
(A)*U.S. transferor files new gain recognition agreement.* This paragraph (g)(1)(iv)(A) applies if the U.S. transferor (or successor U.S. transferor, as applicable) enters into a new gain recognition agreement as provided in paragraph (e)(1)(i), (e)(3)(i), or (e)(3)(ii) of this section, as applicable. In such a case, the amount of gain subject to the new gain recognition agreement shall equal the amount of gain realized, but not recognized, on the initial transfer, less any gain recognized by the U.S. transferor in connection with the nonrecognition transaction. If the amount of gain recognized on the transfer is equal to or greater than the amount of gain realized, but not recognized, on the initial transfer, then the original gain recognition agreement shall terminate without further effect.
(B)*U.S. transferor does not file a new gain recognition agreement.* This paragraph (g)(1)(iv)(B) applies if the U.S. transferor (or successor U.S. transferor, as applicable) fails to enter into a new gain recognition agreement as provided in paragraph (e)(1)(i), (e)(3)(i), or (e)(3)(ii) of this section, as applicable. In such a case, the amount required to be recognized by the U.S. transferor pursuant to the gain recognition agreement shall be the amount of gain realized, but not recognized, on the initial transfer, less any gain recognized by the U.S. transferor in connection with the nonrecognition transaction.
(C)*Special rule for recapitalizations.* Because paragraph (e)(2)(ii) of this section does not require the U.S. transferor to enter into a new gain recognition agreement, the amount of gain subject to the gain recognition agreement shall equal the amount of gain realized, but not recognized, on the initial transfer, less any gain recognized by the U.S. transferor in connection with the nonrecognition transaction described in paragraph (e)(2)(ii) of this section.
(v)*Election to reduce basis* —(A) *General rule.* For purposes of paragraphs (g)(1)(i),
(ii)and
(iv)of this section, the U.S. transferor may elect to reduce its aggregate basis in the stock disposed of effective immediately before the disposition such that the condition described in paragraph (g)(1)(i)(A) is satisfied. If an election is made pursuant to this paragraph (g)(1)(v), the U.S. transferor may increase its basis in other stock of the transferee foreign corporation it holds, if any, by a corresponding amount but not above the fair market value of such stock.
(B)*Election.* The election pursuant to this paragraph (g)(1)(v) is made by filing with the U.S. transferor's income tax return for the taxable year in which the disposition of the transferee foreign corporation stock occurs, a statement setting forth the following information, with the heading “Election to Reduce Stock Basis Under § 1.367(a)-8T(g)(1)(v)”: ( *1* ) A description of the transferee foreign corporation stock that the U.S. transferor has disposed of. ( *2* ) An estimate of the fair market value of the stock as of the date of the disposition. ( *3* ) A comparison of the basis of the transferee foreign corporation stock before and after the election that is made pursuant to this paragraph (g)(1)(v). ( *4* ) The date on which the transferee foreign corporation stock was disposed of by the U.S. transferor.
(vi)The rules of paragraph (g)(1) of this section are illustrated by the following examples: Example 1.
(i)*Facts.* USP, a domestic corporation, owns 100% of the stock of two foreign corporations, FC1 and FC2. The basis and fair market value of the FC1 stock is $100 and $90, respectively. The basis and fair market value of the FC2 stock is $0 and $100, respectively. USP also owns land that has a basis and fair market value of $10. In year 1, USP transfers 100% of the stock of FC1 and FC2 and the land to FC3, a newly formed foreign corporation, in exchange for 20 shares of FC3 stock. The transfer of the stock of FC1 and FC2 qualifies under section 351 and section 368(a)(1)(B). The transfer of the land qualifies under section 351. The transfer of the FC2 stock is subject to both section 367(a) and (b). See §§ 1.367(a)-3(b) and 1.367(b)-1(a). Pursuant to § 1.367(a)-3(b)(1)(ii) and this section, USP enters into a gain recognition agreement with respect to the $100 of gain in the FC2 stock and complies with the notice requirement under § 1.367(b)-1(c). USP takes the position that its basis in each of the 20 shares of FC3 stock received in the transfer equals $5.5 (($100+$0+10)/20). In year 3, USP sells 100% of its FC3 stock to an unrelated person for cash.
(ii)*Result.* The disposition of the FC3 stock is a triggering event described in paragraph (d)(3) of this section. The disposition does not terminate the gain recognition agreement pursuant to paragraph (g)(1)(i) of this section because USP takes the position that the basis of each of the 10 shares of FC3 stock it received in exchange for the FC2 stock in the initial transfer equals $5.5. Thus, the total basis in the 10 shares received for the FC2 stock equals $55, which exceeds the $0 basis USP had in the FC2 stock it transferred to FC3 in the initial transfer. As a result, the condition described in paragraph (g)(1)(i)(A) of this section is not satisfied. USP may, however, elect to reduce its basis in 10 of the FC3 shares it disposes of from $5.5 to $0, and increase its basis in its remaining 10 shares of FC2 stock by $5.5, pursuant to paragraph (g)(1)(v) of this section. As a result, the condition described in paragraph (g)(1)(i)(A) of this section would be satisfied, the disposition would not be a triggering event, and the gain recognition would terminate without further effect. Example 2.
(i)*Facts.* USP, a domestic corporation, owns 100% of the stock of FC1, a foreign corporation. The basis and fair market value of the FC1 stock is $0 and $80, respectively. In year 1, USP transfers 100% of the stock of FC1 to FC2, a newly formed foreign corporation, in exchange for 20 shares of FC2 stock. The transfer of the stock of FC1 qualifies under section 351 and section 368(a)(1)(B). The transfer of the FC1 stock is subject to both section 367(a) and (b). See §§ 1.367(a)-3(b) and 1.367(b)-1(a). Pursuant to § 1.367(a)-3(b)(1)(ii) and this section, USP enters into a gain recognition agreement with respect to the $80 of gain in the FC1 stock and complies with the notice requirement under § 1.367(b)-1(c). USP's basis and fair market value in the FC2 stock it receives at the time of the transfer is $0 and $80, respectively. In year 3, when the fair market value of the FC2 stock continues to equal $80, USP transfers land that has a basis and fair market value of $20 to FC2 in a transfer that qualifies under section 351, but does not receive additional shares of FC2 in connection with such transfer. In year 5, USP sells 100% of its FC2 stock to an unrelated person for cash.
(ii)*Result.* The disposition of the FC3 stock is a triggering event described in paragraph (d)(3) of this section. The disposition would not terminate the gain recognition agreement pursuant to paragraph (g)(1)(i) of this section if the basis in each of the 20 FC2 shares that USP sells equals $1 ($20/20 shares) because immediately before the disposition the basis in the FC2 shares received for the FC1 shares exceeds the basis of the FC1 shares at the time of the initial transfer. As a result, the condition described in paragraph (g)(1)(i)(A) of this section would not be satisfied. USP may, however, elect to adjust its basis in its FC2 shares such that 16 of the shares have zero basis (reflecting the basis of the FC1 stock) and 4 of the shares have $20 of basis (reflecting the basis of the land). In such a case, the condition described in paragraph (g)(1)(i)(A) of this section would be satisfied, the disposition would not be a triggering event, and the gain recognition agreement would terminate without further effect.
(2)*Certain dispositions by a domestic transferred corporation of substantially all of its assets.* If, immediately before the initial transfer, the U.S. transferor owned an amount of stock in the transferred corporation described in section 1504(a)(2), and the transferred corporation is domestic, then the gain recognition agreement shall terminate without further effect if the transferred corporation disposes of substantially all of its assets in a transaction in which all realized gain is recognized currently. If an indirect stock transfer necessitated the filing of the gain recognition agreement, such agreement shall terminate if, immediately before the indirect transfer, the U.S. transferor owned an amount of stock in the acquired corporation described in section 1504(a)(2) (or, in the case of a section 368(a)(1)(A) and (a)(2)(E) reorganization described in § 1.367(a)-3(d)(1)(ii), the U.S. transferor owned an amount of stock in the acquiring corporation described in section 1504(a)(2)) and the transferred corporation disposes of substantially all of its assets (taking into account § 1.367(a)-3(d)(2)(v)) in a transaction in which all realized gain is recognized currently.
(3)*Distribution or transfer by transferee foreign corporation of stock or securities of transferred corporation under section 337, 355 or 361* —(i) *Scope.* This paragraph (g)(3) applies if the transferee foreign corporation distributes or transfers the stock or securities that initially necessitated the filing of the gain recognition agreement (and any additional stock received after the initial transfer) pursuant to any of the following transactions:
(A)A liquidating distribution to the U.S. transferor or a domestic corporation that is a member of the same consolidated group of which the U.S. transferor is then a member and that qualifies under sections 332 and 337, if such domestic distributee corporation is described in section 332(b)(1).
(B)A distribution to the U.S. transferor, a domestic corporation that is a member of the same consolidated group of which the U.S. transferor is a member, or an individual that is a United States person, that qualifies under section 355.
(C)A transfer to the U.S. transferor or a domestic corporation that is a member of the same consolidated group of which the U.S. transferor is then a member and to which section 361 applies (but, if in connection with a reorganization described in section 368(a)(1)(D) or (G), only if the requirements of section 354(b)(1)(A) and
(B)are met).
(ii)*General rule.* If a distribution or transfer is described in paragraph (g)(3)(i) of this section, the gain recognition agreement shall terminate without further effect, provided that immediately after such distribution or transfer the basis in the transferred stock or securities in the hands of the domestic corporation or individual, as applicable, does not exceed the basis that the U.S. transferor had in the transferred stock or securities immediately before the initial transfer. For purposes of this paragraph (g)(3)(ii), only the basis in the stock or securities transferred shall be taken into account, and increases to stock basis as a result of income inclusions with respect to stock (for example, pursuant to section 961) shall not be taken into account. In the case of a transaction described in paragraph (g)(3)(i)(B) of this section, any reductions or redistributions of stock basis under § 1.367(b)-5(c)(2) or (4), respectively, shall be made before applying the rules of this paragraph (g)(3)(ii).
(iii)*Election to reduce basis in stock or securities of transferred corporation.* For purposes of paragraph (g)(3)(ii) of this section, the domestic corporation or individual, as applicable, may elect to reduce the basis in the stock or securities transferred to equal the basis the U.S. transferor had in the corresponding transferred stock or securities immediately before the initial transfer, such that the gain recognition agreement shall terminate without further effect. If such an election is made, the domestic corporation or individual may increase its basis in other stock of the transferred corporation it holds, if any, by a corresponding amount but not above the fair market value of such stock.
(iv)*Election.* The election pursuant to paragraph (g)(3)(iii) of this section is made by filing with the domestic corporation's or individual's income tax return for the taxable year in which the distribution or transfer occurs, a statement setting forth the following information, with the heading “Election to Reduce Stock Basis Under § 1.367(a)-8T(g)(3)(iii)”: ( *1* ) A description of the stock or securities received. ( *2* ) An estimate of the fair market value of the stock or securities as of the date of their receipt. ( *3* ) A statement comparing the basis of the stock or securities before and after the election. ( *4* ) The date on which the stock or securities were received.
(v)*Examples.* The rules of paragraph (g)(3) of this section are illustrated by the following examples: *Example 1.*
(i)*Facts.* USP, a domestic corporation, owns 100% of the stock of two foreign corporations, FC1 and FC2. FC1 has 10 shares of stock issued and outstanding. In year 1, when the basis and fair market value of the FC1 stock is $0 and $90, respectively, USP transfers its 10 shares of FC1 stock to FC2 in an exchange to which section 351 applies. The transaction is subject to both sections 367(a) and (b). See §§ 1.367(a)-3(b) and 1.367(b)-1(a). Pursuant to § 1.367(a)-3(b)(1)(ii) and this section, USP enters into a gain recognition agreement with respect to such transfer. USP also complies with the notice requirement under § 1.367(b)-1(c). In year 2, FC2 transfers land with a basis and fair market value of $10 to FC1 in exchange for one newly issued share of FC1 stock. In year 4, FC2 distributes all of its FC1 stock to USP in a liquidating distribution that qualifies under sections 332 and 337.
(ii)*Result.* In determining whether the gain recognition agreement entered into by USP is terminated under paragraph (g)(3) of this section, or in the alternative triggered under paragraph (d)(1) of this section, only the stock of FC1 transferred by USP to FC2 in year 1 is considered. Thus, the basis in the one share of FC1 stock issued to FC2 in year 2 in exchange for land is not taken into account. If instead of FC1 actually issuing another share of stock to FC2 in exchange for the land, FC1 was deemed to issue stock to FC2 in such exchange, then the gain recognition agreement would terminate only if USP elects to adjust the basis in its FC1 shares such that nine of the shares have zero basis and one of the shares has $10 of basis. *Example 2.*
(i)*Facts.* USP, a domestic corporation, owns 100% of the stock of two foreign corporations, FC and FD. In year 1, USP transfers 100% of the stock of FC to FD in an exchange to which section 351 applies. The transaction is subject to both sections 367(a) and (b). See §§ 1.367(a)-3(b) and 1.367(b)-1(a). At the time of the initial transfer, USP has a basis of $80 in its stock of FC; the stock of FC has a fair market value of $100. USP's basis in its stock of FD, and the fair market value of the FD stock, are both $100. Pursuant to § 1.367(a)-3(b)(1)(ii) and this section, USP enters into a gain recognition agreement with respect to the initial transfer. USP also complies with the notice requirement under § 1.367(b)-1(c). In year 4, FD distributes all of the stock of FC to USP in a pro rata distribution to which section 355 applies. At the time of the distribution, the fair market value of the FC stock has increased to $200, while the fair market value of the FD stock has remained $100. Under section 358, USP allocates its $180 predistribution basis in its FD stock between the FD stock and FC stock according to the stock blocks' relative fair market values, yielding a $60 basis in the FD stock and a $120 basis in the FC stock. Immediately before the distribution, USP's section 1248 amount with respect to FC and FD is zero.
(ii)*Result.* The distribution of FC stock is a triggering event under paragraph (d)(1) of this section. The distribution does not terminate the gain recognition agreement under paragraph (g)(3) of this section because after the distribution, USP's basis of $120 in the FC stock exceeds the $80 basis that USP had in the FC stock at the time of the initial transfer. If, however, USP elects to reduce its basis in the FC stock it receives to $80, then the condition described in paragraph (g)(3) of this section will be satisfied, and the gain recognition agreement will terminate without further effect. In addition, the $40 of basis that USP elected to reduce is redistributed to the stock of FD, the result of which is that USP has a basis of $100 in its FD stock.
(h)*Effective date* —(1) *General rule* —(i) *Gain recognition agreements filed for transfers on or after effective date.* With the exception of paragraph
(f)of this section, the rules of this section apply to gain recognition agreements filed with respect to transfers of stock or securities under Treas. Reg. §§ 1.367(a)-3(b) through
(d)and 1.367(a)-3T(e) occurring on or after March 7, 2007. The rules of paragraph
(f)of this section apply to gain recognition agreements filed with respect to transfers of stock or securities under Treas. Reg. §§ 1.367(a)-3(b) through
(d)and 1.367(a)-3T(e) occurring on or after August 6, 2007. However, the rules of this section do not apply to gain recognition agreements filed with respect to such a transfer of stock or securities occurring on or after March 7, 2007, if such transfer was entered into pursuant to a written agreement which was (subject to customary conditions) binding before February 5, 2007, and at all times thereafter. Solely for purposes of this paragraph (h), a transfer described in the preceding sentence shall be deemed to be a transfer occurring before March 7, 2007 to which the rules of § 1.367(a)-8 (see 26 CFR part 1, revised April 1, 2006) apply. See paragraph (h)(2)(iii) of this section for the ability to apply the rules of this section with respect to gain recognition agreements filed before March 7, 2007.
(ii)*Gain recognition agreements filed for transfers before effective date.* For matters covered in this section for periods before March 7, 2007 but on or after July 20, 1998, the corresponding rules of § 1.367(a)-8 (see 26 CFR part 1, revised April 1, 2006) apply. For matters covered in this section for periods before July 20, 1998, the corresponding rules of § 1.367(a)-3T(g) (see 26 CFR part 1, revised April 1, 1998) and Notice 87-85 ((1987-2 CB 395); see § 601.601(d)(2)(ii) of this chapter) apply. In addition, if a U.S. transferor entered into a gain recognition agreement for transfers before July 20, 1998, then the rules of § 1.367(a)-3T(g) (see 26 CFR part 1, revised April 1, 1998) continue to apply in lieu of this section in the event of any direct or indirect nonrecognition transfer of the same property. See also, § 1.367(a)-3(h).
(2)* Applicability to gain recognition agreements filed before effective date* —(i) *General rule.* This paragraph (h)(2)(i) applies only to rules in this regulation § 1.367(a)-8T that were not already effective under the rules of § 1.367(a)-8 (see 26 CFR part 1, revised April 1, 2006). Taxpayers may apply all or part of these regulations to gain recognition agreements filed with respect to transfers of stock or securities, for all open years, on or after July 20, 1998. If a taxpayer failed to file a gain recognition agreement with respect to a transfer of stock or securities on or after July 20, 1998 and before March 7, 2007, the taxpayer must first obtain reasonable cause relief under § 1.367(a)-8(c)(2) to file the gain recognition agreement before the taxpayer may apply this paragraph (h)(2)(i).
(ii)*Special filing rule for tax year ending before effective date.* This paragraph (h)(2)(ii) provides the time and manner in which taxpayers may apply paragraph (h)(2)(i) of this section. Notwithstanding the rules provided in § 1.367(a)-8T(a)(2), all agreements, certifications, or other information related to such gain recognition agreement that should have been filed on or before March 7, 2007 shall be treated as having been timely filed, provided they are attached to a Federal income tax return amending the taxpayer's Federal income tax return for the taxable year in which they should have been attached. The amended return described in the preceding sentence must be filed before August 6, 2007. A taxpayer that wishes to apply paragraph (h)(2)(i) of this section but that fails to meet the filing requirement described in the preceding sentence must request reasonable cause relief as provided in paragraph (e)(10) of this section.
(iii)*Tax year ending after effective date* . A taxpayer that entered into a gain recognition agreement to which § 1.367(a)-8 (see 26 CFR part 1, revised April 1, 2006) applies may apply the rules of this section in a tax year ending on or after March 7, 2007 by attaching the agreement, certification, or other information related to such gain recognition agreement that the rules of this section require in accordance with the rules of this section and with the time and manner rules provided in § 1.367(a)-8T(a)(2).
(iv)*Examples.* The rules of paragraph (h)(2) of this section are illustrated by the following examples: Example 1.
(i)*Facts.* USP, a domestic corporation, owns 100% of the stock of two foreign corporations, FC and FD. In 2003, USP transfers 100% of the stock of FC to FD in an exchange to which section 351 applies. The transaction is subject to both sections 367(a) and (b). See §§ 1.367(a)-3(b) and 1.367(b)-1(a). Pursuant to § 1.367(a)-3(b)(1)(ii) and this section, USP enters into a gain recognition agreement with respect to the initial transfer. USP also complies with the notice requirement under § 1.367(b)-1(c). In 2005, FD distributes all of the stock of FC to USP in a pro rata distribution to which section 355 applies. Under section 358, USP's basis in its FC stock exceeds the basis that USP had in FC immediately before the initial transfer.
(ii)*Result.* Under paragraph (h)(1)(ii) of this section, the rules of § 1.367(a)-8 apply because the gain recognition agreement was filed before March 7, 2007. As a result of the year 2005 transaction, under § 1.367(a)-8(e)(1), USP is required to recognize all of the gain subject to the gain recognition agreement, and pay any applicable interest. The gain recognition agreement does not terminate under § 1.367(a)-8(h)(3) because USP's basis in its FC stock immediately after the section 355 distribution exceeds the basis USP had in the FC stock immediately before the initial transfer. However, paragraph (g)(3)(iii) of this section provides a rule that would allow USP to elect to reduce its basis in the FC stock such that the conditions in paragraph (g)(3) of this section would be satisfied and the gain recognition agreement would terminate without further effect. Under paragraph (h)(2)(i) of this section, USP may apply paragraph (g)(3)(iii) of this section to the 2005 transaction, if 2005 is an open year, because the rule provided in paragraph (g)(3)(iii) of this section was not already effective under § 1.367(a)-8. Under paragraph (h)(2)(ii) of this section, USP must submit the documents required under paragraph (g)(3)(iii) of this section to a Federal income tax return amending its 2005 Federal income tax return before August 6, 2007. Example 2.
(i)*Facts.* UST, a domestic corporation, owns 100% of the stock of two foreign corporations, TFC and TFD. In 2003, USP transfers 100% of the stock of TFD to TFC in an exchange to which section 351 applies. The transaction is subject to both sections 367(a) and (b). See §§ 1.367(a)-3(b) and 1.367(b)-1(a). All of the requirements of § 1.367(a)-3(b)(1) are satisfied, and UST enters into a gain recognition agreement. UST also complies with the notice requirement under § 1.367(b)-1(c). In 2005, TFC transfers its TFD stock to F1, also a foreign corporation, in an exchange to which section 351 applies. UST does not file a new gain recognition agreement under § 1.367(a)-8(g)(2).
(ii)*Result.* Under paragraph (h)(1)(ii) of this section, the rules of § 1.367(a)-8 apply because the gain recognition agreement was filed before March 7, 2007. Under § 1.367(a)-8(e), UST must recognize the gain realized, but not recognized, on its initial transfer of TFD stock. Paragraph (h)(2)(i) of this section does not apply because the rule in paragraph (e)(1)(ii) of this section was already effective under § 1.367(a)-8(g)(2). Therefore, UST's only recourse from recognizing the gain subject to the gain recognition agreement is the reasonable cause exception provided in § 1.367(a)-8(c)(2).
(3)*Expiration.* The applicability of this section expires on or before February 1, 2010. PART 602—OMB CONTROL NUMBERS UNDER THE PAPERWORK REDUCTION ACT **Par. 7.** The authority citation for part 602 continues to read as follows: Authority: 26 U.S.C. 7805. **Par. 8.** In § 602.101, paragraph
(b)is revised by adding an entry for § 1.367(a)-8T in numerical order to the table to read as follows: § 602.101 OMB Control numbers. CFR part or section where identified and described Current OMB control No. * * * * * 1.367(a)-8T 1545-2056 * * * * * Kevin M. Brown, Deputy Commissioner for Services and Enforcement. Approved: January 31, 2007. Eric Solomon, Assistant Secretary of the Treasury (Tax Policy). [FR Doc. 07-490 Filed 2-1-07; 8:52 am]
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  • 5 CFR 890
  • Pub. L. 96-354
  • Pub. L. 104-4
  • Pub. L. 101-513
  • 104 Stat. 2064
  • Pub. L. 105-33
  • Pub. L. 105-261
  • 112 Stat. 2061
  • 7 CFR 3550
  • 7 CFR 11
  • 7 CFR 3015
  • 7 CFR 1940
  • Pub. L. 91-190
  • 5 USC 601-612
  • 14 CFR 39
  • 1 CFR 51
  • 14 CFR 21
  • 15 CFR 801
  • 15 CFR 801.9
  • 22 USC 3101-3108
  • Pub. L. 100-418
  • 18 CFR 375.314
  • 18 CFR 375.314(b)
  • 18 CFR 375.314(i)
  • 5 CFR 1320.11
  • 18 CFR 380
  • 5 USC 601-12
  • 18 CFR 35
  • 18 CFR 366
  • 18 CFR 375
  • 16 USC 791-825r
  • 42 USC 7101-7352
  • Pub. L. 109-58
  • 119 Stat. 594
  • 5 USC 551-557
  • 15 USC 717-717w
  • T.D. 9311
  • 26 CFR 1
  • 26 CFR 602
  • Treas. Reg. 1.367(a)
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U.S.C.§ 3501
Fed. Reg.Notices
Fed. Reg.Proposed Rules
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U.S.C.§ 8913
U.S.C.§ 403p
U.S.C.§ 4069c
Stat.Public Law 107–360
U.S.C.§ 8906a
Cite5 CFR 890
Pub. L.Pub. L. 96-354
Pub. L.Pub. L. 104-4
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