Proposed Rules. Advanced notice of proposed rulemaking and request for comment (ANPR); notice of extension of comment period

46,851 words·~213 min read·/register/2008/02/28/08-871

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BILLING CODE 6712-01-P 73 40 Thursday, February 28, 2008 Proposed Rules NATIONAL CREDIT UNION ADMINISTRATION 12 CFR Parts 708a and 708b Mergers, Conversion From Credit Union Charter, and Account Insurance Termination; Extension of Comment Period AGENCY: National Credit Union Administration (NCUA). ACTION: Advanced notice of proposed rulemaking and request for comment (ANPR); notice of extension of comment period. SUMMARY: The NCUA Board recently issued an ANPR regarding mergers, conversions from credit union charter, and account insurance termination that provided a 60-day comment period, 73 FR 5461 (Jan. 30, 2008).

NCUA received several oral requests to extend the comment period and has decided to extend the comment period for an additional 30 days. DATES: Comments must be received by April 30, 2008. ADDRESSES: You may submit comments by any of the following methods (please send comments by one method only): • *Federal eRulemaking Portal: http://www.regulations.gov.* Follow the instructions for submitting comments. • NCUA Web Site: *http://www.ncua.gov/RegulationsOpinionsLaws/proposed_regs/proposed_regs.html* .

Follow the instructions for submitting comments. • *E-mail:* Address to *regcomments@ncua.gov.* Include “[Your name] Comments on FCU Bylaws” in the e-mail subject line. • *Fax:*

(703)518-6319. Use the subject line described above for e-mail. • *Mail:* Address to Mary Rupp, Secretary of the Board, National Credit Union Administration, 1775 Duke Street, Alexandria, Virginia 22314-3428. • *Hand Delivery/Courier:* Same as mail address. *Public inspection:* All public comments are available on the agency's Web site at *http://www.ncua.gov/RegulationsOpinionsLaws/comments* as submitted, except as may not be possible for technical reasons. Public comments will not be edited to remove any identifying or contact information. Paper copies of comments may be inspected in NCUA's law library, at 1775 Duke Street, Alexandria, Virginia 22314, by appointment weekdays between 9 a.m. and 3 p.m. To make an appointment, call

(703)518-6546 or send an e-mail to *OGCMail@ncua.gov.* FOR FURTHER INFORMATION CONTACT: Elizabeth Wirick, Staff Attorney, Office of General Counsel, National Credit Union Administration, 1775 Duke Street, Alexandria, Virginia 22314-3428 or telephone:

(703)518-6540. SUPPLEMENTARY INFORMATION: At its January 2008 meeting, the NCUA Board issued an ANPR addressing several issues related to credit union mergers, conversion from a credit union charter, and account insurance termination, 73 FR 5461 (Jan. 30, 2008). The ANPR requested comment on whether NCUA should issue regulations to govern merger of a federally insured credit union

(FICU)into, or a FICU's conversion to, a financial institution other than a mutual savings bank, and whether NCUA should amend its regulations on mergers, charter conversions, and changes in account insurance. These transactions present issues affecting member rights and ownership interests, and the ANPR specifically requested comment on how NCUA regulations should address four categories of these issues: Management's Duties, Member Right to Equity, Communications to Members, and Member Voting. NCUA received several oral requests to extend the comment period by 30 days. The Board believes a 30-day extension will facilitate submission of comments without causing undue delay to the rulemaking process. Accordingly, the comment period for the ANPR is extended until April 30, 2008. By the National Credit Union Administration Board on February 20, 2008. Mary F. Rupp, Secretary of the Board. [FR Doc. E8-3831 Filed 2-27-08; 8:45 am] BILLING CODE 7535-01-P SMALL BUSINESS ADMINISTRATION 13 CFR Parts 121, 125, 127 and 134 RIN 3245-AF40 Women-Owned Small Business Federal Contract Assistance Procedures AGENCY: U.S. Small Business Administration (SBA). ACTION: Proposed rule, notice of reopening of comment period and correction. SUMMARY: SBA is reopening the comment period for an additional 30 days and making two technical corrections. DATES: Comments on the proposed rule on Women-Owned Small Business Federal Contract Assistance Procedures (72 FR 73285), must be received on or before March 31, 2008. ADDRESSES: You may submit comments, identified by 3245-AF40, by any of the following methods: • Federal eRulemaking Portal: *http://www.regulations.gov.* Follow the instructions for submitting comments. • Mail, Hand Delivery/Courier: Robert C. Taylor, Office of Contract Assistance, Office of Government Contracting, U.S. Small Business Administration, 409 3rd Street, SW., Washington, DC 20416. All comments will be posted on *http://www.regulations.gov.* If you wish to submit confidential business information

(202)205-7319, *WOSBProposedRegulation@sba.gov.* SUPPLEMENTARY INFORMATION: On December 27, 2007, SBA published in the **Federal Register** a proposed rule on Women-Owned Small Business Federal Contract Assistance Procedures (72 FR 73285). This proposed rule would add a new part to SBA's regulations that would implement procedures to increase procurement opportunities for Women-Owned Small Business Concerns, as authorized under the Small Business Act. It would also make the relevant conforming amendments to SBA's current procurement regulations. The original comment period was from December 27, 2007, through February 25, 2008. SBA is reopening the comment period for a limited time until March 31, 2008 for the following reasons. First, this will accommodate the great level of interest that the proposed rule has generated and the requests to extend the comment period. Furthermore, SBA is making two necessary technical corrections to the proposed rule. The first correction is in the ADDRESSES section of the proposed rule and amends the Federal eRulemaking Portal Web address and all references to that Web address to read *http://www.regulations.gov.* Finally, SBA is amending the words of issuance to further emphasize that this is a proposed rule. In SBA's docket Id fr27de07-17 appearing on page 73286 in the **Federal Register** on December 27, 2007, the ADDRESSES section is corrected to read as follows: ADDRESSES: You may submit comments, identified by 3245-AF40, by any of the following methods: • Federal eRulemaking Portal: *http://www.regulations.gov.* Follow the instructions for submitting comments. • Mail, Hand Delivery/Courier: Robert C. Taylor, Office of Contract Assistance, Office of Government Contracting, U.S. Small Business Administration, 409 3rd Street, SW., Washington, DC 20416. All comments will be posted on *http://www.regulations.gov.* If you wish to submit confidential business information

(CBI)as defined in the User Notice at *http://www.regulations.gov* , please submit the comments to Robert C. Taylor and highlight the information that you consider to be CBI and explain why you believe this information should be held confidential. SBA will make a final determination as to whether the comments will be published or not. Furthermore on page 73295 in the **Federal Register** (72 FR 73285), the words of issuance are corrected to read as follows: Accordingly, for the reasons stated in the preamble, SBA proposes to amend 13 CFR parts 121, 125, 127 and 134 as follows: (Authority: 15 U.S.C. 634) Dated: February 25, 2008. Fay E. Ott, Associate Administrator for Government Contracting and Business Development. [FR Doc. E8-3889 Filed 2-27-08; 8:45 am] BILLING CODE 8025-01-P DEPARTMENT OF TRANSPORTATION Federal Aviation Administration 14 CFR Part 39 [Docket No. FAA-2007-28389; Directorate Identifier 2006-NM-171-AD] RIN 2120-AA64 Airworthiness Directives; Boeing Model 777-200, -200LR, -300, and -300ER Series Airplanes AGENCY: Federal Aviation Administration (FAA), DOT. ACTION: Supplemental notice of proposed rulemaking (NPRM); reopening of comment period. SUMMARY: We are revising an earlier proposed airworthiness directive

(AD)for certain Boeing Model 777-200, -200LR, -300, and -300ER series airplanes. The original NPRM would have required revising the Airworthiness Limitations

(AWLs)section of the Instructions for Continued Airworthiness by incorporating new limitations for fuel tank systems to satisfy Special Federal Aviation Regulation No. 88 requirements. The original NPRM would also have required the initial performance of certain repetitive inspections specified in the AWLs to phase in those inspections, and repair if necessary. The original NPRM resulted from a design review of the fuel tank systems. This action revises the original NPRM by reducing the initial compliance time of certain repetitive inspections, adding more airplanes, and referring to new service information. We are proposing this supplemental NPRM to prevent the potential for ignition sources inside fuel tanks caused by latent failures, alterations, repairs, or maintenance actions, which, in combination with flammable fuel vapors, could result in fuel tank explosions and consequent loss of the airplane. DATES: We must receive comments on this supplemental NPRM by March 19, 2008. ADDRESSES: You may send comments by any of the following methods: • *Federal eRulemaking Portal:* Go to *http://www.regulations.gov.* Follow the instructions for submitting comments. • *Fax:* 202-493-2251. • *Mail:* U.S. Department of Transportation, Docket Operations, M-30, West Building Ground Floor, Room W12-140, 1200 New Jersey Avenue, SE., Washington, DC 20590. • *Hand Delivery:* U.S. Department of Transportation, Docket Operations, M-30, West Building Ground Floor, Room W12-140, 1200 New Jersey Avenue, SE., Washington, DC 20590, between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays. For service information identified in this AD, contact Boeing Commercial Airplanes, P.O. Box 3707, Seattle, Washington 98124-2207. Examining the AD Docket You may examine the AD docket on the Internet at *http://www.regulations.gov* ; or in person at the Docket Management Facility between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays. The AD docket contains this proposed AD, the regulatory evaluation, any comments received, and other information. The street address for the Docket Office (telephone 800-647-5527) is in the ADDRESSES section. Comments will be available in the AD docket shortly after receipt. FOR FURTHER INFORMATION CONTACT: Kathrine Rask, Aerospace Engineer, Propulsion Branch, ANM-140S, FAA, Seattle Aircraft Certification Office, 1601 Lind Avenue, SW., Renton, Washington 98057-3356; telephone

(425)917-6505; fax

(425)917-6590. SUPPLEMENTARY INFORMATION: Comments Invited We invite you to send any written relevant data, views, or arguments about this proposed AD. Send your comments to an address listed under the ADDRESSES section. Include “Docket No. FAA-2007-28389; Directorate Identifier 2006-NM-171-AD” at the beginning of your comments. We specifically invite comments on the overall regulatory, economic, environmental, and energy aspects of this proposed AD. We will consider all comments received by the closing date and may amend this proposed AD because of those comments. We will post all comments we receive, without change, to *http://www.regulations.gov* , including any personal information you provide. We will also post a report summarizing each substantive verbal contact we receive about this proposed AD. Discussion We issued a notice of proposed rulemaking

(NPRM)(the “original NPRM”) to amend 14 CFR part 39 to include an airworthiness directive

(AD)that would apply to certain Boeing Model 777-200, -200LR, -300, and -300ER series airplanes. That original NPRM was published in the **Federal Register** on July 3, 2007 (72 FR 36373). That original NPRM proposed to require revising the Airworthiness Limitations

(MPD)Document, D622W001-9 (hereafter referred to as “Revision October 2007 of the MPD”). The original NPRM referred to Revision March 2006 of the MPD as the appropriate source of service information for accomplishing the proposed actions. Among other actions, Revision October 2007 of the MPD revises the task description for AWL No. 28-AWL-01 and increases the repetitive interval for AWL No. 28-AWL-18. (AWL No. 28-AWL-18 was introduced in Revision September 2007 of the MPD). We have revised paragraphs (f), (g), and

(h)of this supplemental NPRM to refer to Revision October 2007 of the MPD. We have also determined that more airplanes would be affected by this supplemental NPRM. All Model 777 airplanes with an original standard airworthiness certificate or original export certificate of airworthiness issued before December 5, 2007, are affected by this supplemental NPRM. Accordingly, we have revised paragraph

(c)of this supplemental NPRM. We have also updated the “Costs of Compliance” section of this supplemental NPRM to account for the additional airplanes. In paragraphs (h)(1)(i) and (h)(2)(i) of the original NPRM, we inadvertently specified the compliance time as “* * * before the accumulation of 36,000 total flight cycles or within 120 months. * * *” The correct compliance time is 16,000 total flight cycles or within 3,000 days, as specified in Revision October 2007 of the MPD. We have revised this supplemental NPRM accordingly. Changes Made to This Supplemental NPRM For standardization purposes, we have revised this supplemental NPRM in the following ways: • We have added a new paragraph

(i)to this supplemental NPRM to specify that no alternative inspections, inspection intervals, or CDCCLs may be used unless they are part of a later approved revision of Revision October 2007 of the MPD, or unless they are approved as an alternative method of compliance (AMOC). Inclusion of this paragraph in the AD is intended to ensure that the AD-mandated airworthiness limitations changes are treated the same as the airworthiness limitations issued with the original type certificate. • We have revised Note 2 of this AD to clarify that an operator must request approval for an AMOC if the operator cannot accomplish the proposed inspections because an airplane has been previously modified, altered, or repaired in the areas addressed by the proposed inspections. Comments We gave the public the opportunity to participate in developing the original NPRM. We addressed certain comments received in this supplemental NPRM. The remaining comments are being evaluated and will be addressed in the final rule. Request To Allow Inspections Done According to a Maintenance Program Japan Airlines

(JAL)requests that we revise paragraph

(h)of the original NPRM to allow an operator to update its FAA-approved maintenance program to include the initial inspections and repair for certain AWLs. JAL states that the original NPRM would require accomplishing the initial inspection and repair of certain AWLs, which would require JAL to establish a special inspection and special recordkeeping for the proposed requirement. We agree and have revised paragraphs (h)(1) and (h)(2) of this supplemental NPRM to specify that accomplishing the applicable AWL as part of an FAA-approved maintenance program before the applicable compliance time constitutes compliance with the applicable requirements of those paragraphs. Request To Harmonize Task Descriptions JAL states that, in Revision March 2006 of the MPD, the task descriptions defining the applicable area are different for AWLs Nos. 28-AWL-01 and 28-AWL-02. (AWL No. 28-AWL-01 is a repetitive inspection of the external wires over the center fuel tank, and AWL No. 28-AWL-02 is a CDCCL to maintain the original design features for the external wires over the center fuel tank). JAL believes that the task descriptions for these AWLs should match. JAL presumes that, if one purpose for the inspection is to prevent a spark in the fuel vapor over the center fuel tank, then the applicable area should have a certain tolerance instead of defining the area by exact station number. JAL also requests that “Sta. 1045” be revised to “Sta. 1245” for AWL No. 28-AWL-01. We agree that the task descriptions for AWL Nos. 28-AWL-01 and 28-AWL-02 should be harmonized, and that there is an error in the station number in the task description for AWL No. 28-AWL-01. Revision October 2007 of the MPD includes a revised task description of AWL No. 28-AWL-01, which addresses JAL's comments. As stated previously, we have revised this supplemental NPRM to refer to Revision October 2007 of the MPD. Request To Add Additional References to Appendix 1 Boeing requests that we revise Appendix 1 of the original NPRM to reflect the correct airplane maintenance manual

(AMM)task titles and numbers for AWLs No. 28-AWL-02, No. 28-AWL-05, No. 28-AWL-06, No. 28-AWL-08, No. 28-AWL-10, No. 28-AWL-12, No. 28-AWL-15, No. 28-AWL-16, No. 28-AWL-17, and No. 28-AWL-19. JAL requests that we update Appendix 1 of the original NPRM to include all AWLs specified in the MPD, and that we indicate how to maintain the latest version of Appendix 1. JAL also requests that we correct the following errors in Appendix 1 of the original NPRM:

(1)For AWL No. 28-AWL-04, change “SWPM 20-10-15” to “SWPM 20-10-13,” and

(2)for AWL No. 28-AWL-15, change “28-41-05-404-801” to “28-41-05-400-801.” We disagree with revising the AMM references, since we have deleted Appendix 1 from this supplemental NPRM. The purpose of Appendix 1 was to assist operators in identifying the AMM tasks that could affect compliance with a CDCCL. However, we have also received several similar comments regarding the appendixes in other NPRMs that address the same unsafe condition on other Boeing airplanes. Those comments indicate that including non-required information in those NPRMs has caused confusion. Further, Revision October 2007 of the MPD contains most of the updated information that is listed in Appendix 1 of the original NPRM. Therefore, we have removed Appendix 1 from this supplemental NPRM. Request To Revise Note 2 Boeing requests that we revise Note 2 of the original NPRM to clarify the need for an AMOC. Boeing states that the current wording is difficult to follow, and that the note is meant to inform operators that an AMOC to the required MPD AWLs may be required if an operator has previously modified, altered, or repaired in the areas addressed by limitations. Boeing requests that we revise Note 2 as follows: • Add the words “according to paragraph (g)” at the end of the first sentence. • Replace the words “revision to” with “deviation from” in the last sentence. • Delete the words “(g) or” and “as applicable” from the last sentence. As stated previously, we have simplified the language in Note 2 of this supplemental NPRM for standardization with other similar ADs. The language the commenter requests that we change does not appear in the revised note. Therefore, no additional change to this supplemental NPRM is necessary in this regard. FAA's Determination and Proposed Requirements of the Supplemental NPRM We are proposing this supplemental NPRM because we evaluated all pertinent information and determined an unsafe condition exists and is likely to exist or develop on other products of the same type design. Certain changes described above expand the scope of the original NPRM. As a result, we have determined that it is necessary to reopen the comment period to provide additional opportunity for the public to comment on this supplemental NPRM. Costs of Compliance We estimate that this supplemental NPRM would affect 127 airplanes of U.S. registry. The following table provides the estimated costs, at an average labor rate of $80 per work hour, for U.S. operators to comply with this supplemental NPRM. Estimated Costs Action Work hours Parts Cost per airplane Number of U.S.-registered airplanes Fleet cost Maintenance program revision 8 None $640 127 $81,280 Inspection 8 None 640 127 81,280 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 determined that this proposed AD would not have federalism implications under Executive Order 13132. This proposed AD would not have a substantial direct effect on the States, on the relationship between the national Government and the States, or on the distribution of power and responsibilities among the various levels of government. For the reasons discussed above, I certify this proposed regulation: 1. Is not a “significant regulatory action” under Executive Order 12866, 2. Is not a “significant rule” under the DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979), and 3. Will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act. You can find our regulatory evaluation and the estimated costs of compliance in the AD Docket. List of Subjects in 14 CFR Part 39 Air transportation, Aircraft, Aviation safety, Safety. The Proposed Amendment Accordingly, under the authority delegated to me by the Administrator, the FAA proposes to amend 14 CFR part 39 as follows: PART 39—AIRWORTHINESS DIRECTIVES 1. The authority citation for part 39 continues to read as follows: Authority: 49 U.S.C. 106(g), 40113, 44701. § 39.13 [Amended] 2. The FAA amends § 39.13 by adding the following new AD: **Boeing:** Docket No. FAA-2007-28389; Directorate Identifier 2006-NM-171-AD. Comments Due Date

(a)We must receive comments by March 19, 2008. Affected ADs

(b)None. Applicability

(c)This AD applies to Boeing Model 777-200, -200LR, -300, and -300ER series airplanes; certificated in any category; with an original standard airworthiness certificate or original export certificate of airworthiness issued before December 5, 2007. Note 1: Airplanes with an original standard airworthiness certificate or original export certificate of airworthiness issued on or after December 5, 2007, must be already in compliance with the airworthiness limitations

(AWLs)specified in this AD because those limitations were applicable as part of the airworthiness certification of those airplanes. Note 2: 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

(AMOC)according to paragraph

(j)of this AD. The request should include a description of changes to the required inspections that will ensure the continued operational safety of the airplane. Unsafe Condition

(d)This AD results from a design review of the fuel tank systems. We are issuing this AD to prevent the potential for ignition sources inside fuel tanks caused by latent failures, alterations, repairs, or maintenance actions, which, in combination with flammable fuel vapors, could result in fuel tank explosions and consequent loss of the airplane. Compliance

(e)Comply with this AD within the compliance times specified, unless already done. Service Information

(f)The term “Revision October 2007 of the MPD,” as used in this AD, means Section 9 of the Boeing 777 Maintenance Planning Document

(MPD)Document, D622W001-9, Revision October 2007. Revision of Airworthiness Limitations

(AWLs)Section

(g)Before December 16, 2008, revise the AWLs section of the Instructions for Continued Airworthiness by incorporating the information in the sections specified in paragraphs (g)(1) and (g)(2) of this AD into the MPD; except that the initial inspections specified in paragraph

(h)of this AD must be done at the compliance times specified in paragraph

(h)of this AD.

(1)Subsection D, “AIRWORTHINESS LIMITATIONS—SYSTEMS, FUEL SYSTEMS AIRWORTHINESS LIMITATIONS,” of Revision October 2007 of the MPD.

(2)Subsection E, “PAGE FORMAT: SYSTEMS AIRWORTHINESS LIMITATIONS,” of Revision October 2007 of the MPD. Initial Inspections and Repair

(h)Do the inspections required by paragraphs (h)(1) and (h)(2) of this AD at the compliance times specified in paragraphs (h)(1) and (h)(2), in accordance with the applicable AWLs described in Subsection E, “PAGE FORMAT: SYSTEMS AIRWORTHINESS LIMITATIONS,” of Revision October 2007 of the MPD. If any discrepancy is found during these inspections, repair the discrepancy before further flight in accordance with Revision October 2007 of the MPD.

(1)At the later of the times specified in paragraphs (h)(1)(i) and (h)(1)(ii) of this AD, do a detailed inspection of external wires over the center fuel tank for damaged clamps, wire chafing, and wire bundles in contact with the surface of the center fuel tank, and repair any discrepancy, in accordance with AWL No. 28-AWL-01. Accomplishing AWL No. 28-AWL-01 as part of an FAA-approved maintenance program before the applicable compliance time specified in paragraph (h)(1)(i) or (h)(1)(ii) of this AD constitutes compliance with the requirements of this paragraph.

(i)Before the accumulation of 16,000 total flight cycles, or within 3,000 days since the date of issuance of the original standard airworthiness certificate or the date of issuance of the original export certificate of airworthiness, whichever occurs first.

(ii)Within 72 months after the effective date of this AD. Note 3: 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.”

(2)At the later of the times specified in paragraphs (h)(2)(i) and (h)(2)(ii) of this AD, do a special detailed inspection (resistance test) of the lightning shield-to-ground termination of the out tank wiring of the fuel quantity indicating system

(FQIS)and, as applicable, repair (restore) the bond to ensure the shield-to-ground termination meets specified resistance values, in accordance with AWL No. 28-AWL-03. Accomplishing AWL No. 28-AWL-03 as part of an FAA-approved maintenance program before the applicable compliance time specified in paragraph (h)(2)(i) or (h)(2)(ii) of this AD constitutes compliance with the requirements of this paragraph.

(ii)Within 24 months after the effective date of this AD. Note 4: For the purposes of this AD, a special detailed inspection is: “An intensive examination of a specific item, installation, or assembly to detect damage, failure, or irregularity. The examination is likely to make extensive use of specialized inspection techniques and/or equipment. Intricate cleaning and substantial access or disassembly procedure may be required.” No Alternative Inspections, Inspection Intervals, or Critical Design Configuration Control Limitation (CDCCLs)

(i)After accomplishing the actions specified in paragraphs

(g)and

(h)of this AD, no alternative inspections, inspection intervals, or CDCCLs may be used unless the inspections, intervals, or CDCCLs are part of a later revision of Revision October 2007 of the MPD that is approved by the Manager, Seattle Aircraft Certification Office (ACO); or unless the inspections, intervals, or CDCCLs are approved as an AMOC in accordance with the procedures specified in paragraph

(j)of this AD. Alternative Methods of Compliance (AMOCs) (j)(1) The Manager, Seattle ACO, FAA, ATTN: Kathrine Rask, Aerospace Engineer, Propulsion Branch, ANM-140S, 1601 Lind Avenue, SW., Renton, Washington 98057-3356; telephone

(425)917-6505; fax

(425)917-6590; has the authority to approve AMOCs for this AD, if requested using the procedures found in 14 CFR 39.19.

(2)To request a different method of compliance or a different compliance time for this AD, follow the procedures in 14 CFR 39.19. Before using any approved AMOC on any airplane to which the AMOC applies, notify your appropriate principal inspector

(PI)in the FAA Flight Standards District Office (FSDO), or lacking a PI, your local FSDO. Issued in Renton, Washington, on February 20, 2008. Ali Bahrami, Manager, Transport Airplane Directorate, Aircraft Certification Service. [FR Doc. E8-3765 Filed 2-27-08; 8:45 am] BILLING CODE 4910-13-P DEPARTMENT OF TRANSPORTATION Federal Aviation Administration 14 CFR Part 47 [Docket No. FAA-2008-0188; Notice No. 08-02] RIN 2120-AI89 Re-Registration and Renewal of Aircraft Registration AGENCY: Federal Aviation Administration (FAA), DOT. ACTION: Notice of proposed rulemaking (NPRM). SUMMARY: The FAA proposes to amend requirements concerning the registration of aircraft. This proposal is based on the need to increase and maintain the accuracy of aircraft registration information in the Civil Aviation Registry. The proposed procedures would ensure aircraft owners periodically provide information regarding changes in registration. These amendments would respond to the concerns of law enforcement and other government agencies and would provide more accurate, up-to-date aircraft registration information to all users of the Civil Aviation Registry database. DATES: Send your comments on or before *May 28, 2008* . Send your comments on the proposed information collection requirements on or before *May 28, 2008* . ADDRESSES: You may send comments identified by Docket Number FAA-2008-0188 using any of the following methods: • *Federal eRulemaking Portal:* Go to *http://www.regulations.gov* and follow the online instructions for sending your comments electronically. • *Mail* : Send comments to Docket Operations, M-30, U.S. Department of Transportation, 1200 New Jersey Avenue, SE., Room W12-140, West Building Ground Floor, Washington, DC 20590-0001. • *Hand Delivery or Courier* : Bring comments to Docket Operations in Room W12-140 of the West Building Ground Floor at 1200 New Jersey Avenue, SE., Washington, DC, between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays. • *Fax:* Fax comments to Docket Operations at 202-493-2251. For more information on the rulemaking process, see the SUPPLEMENTARY INFORMATION section of this document. *Privacy:* We will post all comments we receive, without change, to *http://www.regulations.gov* , including any personal information you provide. Using the search function of our docket web site, anyone can find and read the electronic form of all comments received into any of our dockets, including the name of the individual sending the comment (or signing the comment for an association, business, labor union, etc.). You may review DOT's complete Privacy Act Statement in the **Federal Register** published on April 11, 2000 (65 FR 19477-78) or you may visit *http://DocketsInfo.dot.gov* . Docket: To read background documents or comments received, go to *http://www.regulations.gov* at any time and follow the online instructions for accessing the docket. Or to the Docket Operations in Room W12-140 of the West Building Ground Floor at 1200 New Jersey Avenue, SE., Washington, DC, between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays. FOR FURTHER INFORMATION CONTACT: John Bent, Civil Aviation Registry, AFS-701, Mike Monroney Aeronautical Center, 6500 South MacArthur Boulevard, Oklahoma City, OK 73169; Telephone

(405)954-4331; e-mail *john.g.bent@faa.gov* . SUPPLEMENTARY INFORMATION: Later in this preamble under the Additional Information section, we discuss how you can comment on this proposal and how we will handle your comments. Included in this discussion is related information about the docket, privacy, and the handling of proprietary or confidential business information. We also discuss how you can get a copy of this proposal and related rulemaking documents. Authority for This Rulemaking The FAA's authority to issue rules regarding aviation safety is found in Title 49 of the United States Code. 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. This rulemaking is promulgated under the authority described in Subtitle VII, Part A., Subpart III, Chapter 441, Section 44111. Under that section, the FAA is charged with prescribing regulations considered necessary to carry out this part. In that section, Congress mandated the Administrator make modifications in the system for registering and recording aircraft necessary to make the system more effective in serving the needs of buyers and sellers of aircraft; officials responsible for enforcing laws related to the regulation of controlled substances and other users of the system. Other users of the system include persons charged with maintaining safety in air transportation and law enforcement agencies charged with maintaining national security. The modifications described in this NPRM include measures to ensure positive, verifiable, and timely identification of the true owners of aircraft operated in the national airspace system. For these reasons, these proposed changes are within the scope of our statutory authority and are a necessary and reasonable exercise of that authority. I. Background The Civil Aviation Registry (Registry) is responsible for developing, maintaining, and operating the national program for the registration of United States civil aircraft. In that capacity, the Registry's Aircraft Registration Branch maintains records on approximately 340,000 aircraft. During the 1980s, the use of aircraft in drug smuggling became an issue of increasing concern for the U.S. Customs Service, the Drug Enforcement Administration, and law enforcement agencies at all levels of government. These agencies, seeking quick and accurate identification of owners of civil aircraft, advocated an annual registration requirement. In 1988, Congress passed the FAA Drug Enforcement Assistance Act of 1988 (FAA DEA Act) (partially codified at 49 U.S.C. 44111), expanding FAA's mission to include providing assistance to law enforcement agencies involved in the enforcement of laws that regulate controlled substances. In the FAA DEA Act, Congress identified specific shortcomings in the system of records, mandated specific modifications, and authorized and directed rulemaking to make the aircraft registration system more effectively serve the needs of buyers and sellers of aircraft, law enforcement officials, and other users of the system. In response to this mandate, the FAA has made a number of administrative modifications to its registration process including requiring physical addresses or locations of owners; requiring legible printed or typed names on an application for aircraft registration; and various technical upgrades to the system of records. The FAA also implemented a focused enforcement program under which nearly 1,000 Certificates of Aircraft Registration (Certificates) have been revoked. This program concentrates on aircraft where a change in ownership has occurred, but the last registered owner has failed to complete and return the Certificate as required by 14 CFR 47.41(b). Notwithstanding administrative modifications to the registration system, legal enforcement efforts, the requirement for return of a Certificate after any of the events listed in 14 CFR 47.41 and 47.43, and the requirement for completion of the Triennial Aircraft Registration Report (14 CFR 47.51), the number of aircraft on the Registry whose owner can not be positively and verifiably identified in a timely manner is increasing. In addition to law enforcement need for aircraft registration information, user needs for accurate and current aircraft registration information have increased, and the many incremental improvements attained through automation and administrative changes are not sufficient to respond to those needs. While aircraft registration information is still used to support the delivery of airworthiness directives and other traditional safety-related uses, the information is increasingly relied upon for newer programs, such as flight plan verification. While various levels of law enforcement have used and continue to use registration data for drug and other law enforcement purposes, their efforts now have expanded to include matters of homeland security. To achieve a level of registration data reliability to meet current and evolving needs of users, modifications to the aircraft registration system must be made to ensure that only eligible aircraft remain on the Registry and that aircraft registration changes are reported within established intervals. Over the past several decades, the FAA has used several methods in an effort to maintain the accuracy of information on aircraft registration. From March 1970 through January 1978, Certificate holders were required to file an annual report to keep the aircraft Registry updated and limited to only those aircraft eligible for registration. The requirement for the annual report was withdrawn in 1978, when the Registry was reasonably current and was expected to remain current through contact with aircraft owners over the ordinary course of business. The amendment withdrawing this requirement noted that a reporting requirement might need to be instituted for aircraft registrants from whom no information was received within a reasonable period of time. (43 FR 3900, Jan. 30, 1978) This anticipation was fulfilled two years later on April 30, 1980, when Amendment 47-21 added 14 CFR 47.51 establishing the Triennial Aircraft Registration Report (Triennial). This regulation requires the holder of a Certificate to send, in response to a request from the FAA Aircraft Registry, a report on an aircraft when three years have passed without certain aircraft registration activities having taken place. Paragraph

(d)of this section provides for the suspension or revocation of a Certificate when there is a refusal or failure to send the report. Unfortunately, the Triennial has not proven effective in maintaining the accuracy and currency of the aircraft registration database. For example, while the Registry can determine from mail returned as undeliverable that certain aircraft registration addresses are out of date, we are unable to make a determination regarding how many Triennials are delivered to a registered owner's (former) address of record and are simply discarded by the current occupant. Efforts to improve the effectiveness of the Triennial through enforcement have proven to be expensive, time-consuming, and ineffective. Modern technology has allowed registration data to be used in increasingly sophisticated ways. An example of a technologically enabled proactive program needing accurate data is an initiative developed by FAA Strategic Operations Security with the Transportation Security Administration. *See* 70 FR 73323, December 9, 2005. This program uses aircraft registration status, along with other information, as a basis for granting or denying aircraft access to the national airspace system. An aircraft seeking to operate in U.S. airspace will have its identification checked. If the information found is sufficiently inconsistent with the profile of a properly registered aircraft, a pilot deviation will be filed on the operator, and the operator may be denied access to the national airspace. This program and others like it operate in real time and draw their information directly from Registry databases. The events of September 11, 2001, and our continuing war on terrorism have created additional motivation to develop every resource that can be used by government agencies seeking to ensure the day-to-day safety of our nation. To minimize the chance of disruptions for aircraft operators and effectively meet the needs of all users of the aircraft registration system and its data, the FAA has determined that the Aircraft Registry needs to confirm the status of questionable aircraft registrations and ensure the registry data is maintained at the highest reasonable level of accuracy. How accurate are the records today? Since the annual registration eligibility requirement ended in 1978, many aircraft have left service, been sold, or had owners who moved without reporting their change of status or address. Of the more than 343,000 aircraft registered, an estimated 104,000, or about one-third, are possibly no longer eligible for registration. Over the last several years: • 17,000 aircraft have been reported as sold by their former owners without the purchasers making application for registration (with about 15,900 being in the “sale-reported” category for more than 6 months); • 4,700 have started registration without completing the requirements (with about 2,100 being in the “registration-pending” category for more than 12 months); • About 30,100 aircraft are known to have bad addresses well beyond the 30 days allowed for reporting changes; • Almost 14,700 aircraft have had their Certificates revoked due to bad addresses, but remain in the system to prevent reassignment of their U.S. registration number (N-Number) until the FAA is positive the aircraft is no longer operating with that N-Number; and • Up to 41,000 additional unidentified aircraft are estimated to be inactive or possibly no longer eligible for registration. In addition to increased accuracy, removing ineligible aircraft from the Registry would eliminate a large pool of questionable N-Numbers. As mentioned above, the FAA, in concert with TSA, is evaluating flight plan filings to determine if an aircraft has the proper profile for operation in the national air space. It is advantageous to a drug trafficker or a terrorist to use an airplane with a registered N-number as these airplanes would be subject to less scrutiny. Revoking these registrations using 14 CFR part 13 enforcement procedures is slow, expensive, adversarial, and does not cancel the assignment of the N-number. With almost one-third of the aircraft on the register having a questionable registration status, it is clear that the needed accuracy and currency of aircraft registration data cannot be met with the present system of indefinite-duration Certificates that relies primarily on aircraft owners to report address changes, aircraft sales, aircraft destruction, or loss of registration eligibility. The FAA believes that limiting the duration of a Certificate would be the most effective method of increasing the accuracy of its records. Thus, the FAA, seeking to meet current and future needs, proposes in this NPRM: • The expiration of all Certificates for currently registered aircraft with re-registration requirements for those aircraft that remain eligible for registration; • The periodic expiration of all Certificates issued after the effective date of the proposed rule with a registration renewal process; • Elimination of the present Triennial Aircraft Registration Report program in its entirety; • Limits on the time an aircraft may remain in the sale reported category (without an application being made for registration) before its N-Number assignment is canceled; • Limits on the time an applicant or successive applicants for registration have to complete the registration process and provisions for reserving the aircraft's N-Number if the aircraft is not registered at the end of this time; and, • Cancellation of the N-number of an aircraft registered under a Dealer's Aircraft Registration Certificate (Dealer's Certificate), if the Dealer's Certificate has expired and application for registration has not been made under § 47.31. Under this proposal, aircraft owners desiring to maintain registration would have to re-register their aircraft within a specified time period. Re-registered aircraft would receive a Certificate with an expiration date, as would all new Certificates issued after the date of the rule. Thereafter, the Certificate would expire three years from the date of issuance, but would be renewable for successive three-year terms upon completion and submission of a brief renewal request form and payment of the applicable fee. A registered aircraft owner would have to promptly file re-registration and renewal actions. Since temporary operating authority (“pink copy”) under 14 CFR 47.31(b) would not be available for renewal purposes, no transfer of ownership would have taken place. Upon completion of processing by FAA, the renewed Certificate with a new expiration date would be mailed to the registered owner at the address indicated on the renewal form. Under 14 CFR 47.17, we currently charge $5.00 for obtaining a certificate of aircraft registration and would charge the same amount for a renewal registration under this proposal. However, the FAA is pursuing fairer, more cost-based funding for the future. One of the FAA's goals for its pending reauthorization is to match FAA funding more closely with the costs of providing services. Current FAA funding does not align with FAA's costs to provide services, and the current aircraft registration fee, which has been $5.00 since the mid-1960's, is an example of this disconnect. To move the FAA to a more cost-based organization, the Administration's proposal for FAA reauthorization, sent to Congress in February 2007, includes language that addresses registration and certification fees across the board. The House of Representatives adopted much of the Administration's proposal for these fees in H.R. 2881, which passed the House in September 2007. Once the outcome of the reauthorization legislation is known, the FAA will decide whether additional action is necessary through either further legislation or rulemaking. This notice also includes several non-substantive, technical amendments to establish consistency and conform the regulations to statute or current Registry practices. General Discussion of the Proposals Aircraft Re-Registration and Periodic Renewal of Registration The term “re-registration” as used in this document refers to the process for obtaining new Certificates for aircraft that were registered before the effective date of the rule and, therefore have a Certificate without an expiration date. The term “renewal,” when referring to aircraft registration, refers to periodic registration required for any aircraft that has a Certificate with an expiration date (i.e., a Certificate issued after the effective date of the rule). Currently, a Certificate does not expire. However, a Certificate may have been invalid from inception (see § 47.43) or become ineffective upon the occurrence of any of the events specified in § 47.41(a). The Certificate, with the reverse side completed, must be returned to the FAA Aircraft Registry after the sale of the aircraft or the occurrence of any other event specified in § 47.41. If the holder complies and returns the Certificate, the aircraft records can then be updated. However, the Registry is frequently not notified of a change affecting registration and consequently, the aircraft registration records may not reflect accurate registration information. If, for some reason, the Certificate were not available for return, proposed § 47.41(b) would require the last registered owner to send a statement to the Registry explaining why the Certificate is not available. Timely and adequate notice of ownership changes is the responsibility of the parties involved. The seller is responsible for returning the Certificate to the FAA with the reverse side completed. The new owner is responsible for filing an Aircraft Registration Application (Application) and evidence of ownership in compliance with part 47, if the owner intends to operate the aircraft. Inaccurate records have many negative consequences. For example, FAA uses aircraft records to identify owners of specific aircraft, so that safety related information such as airworthiness directives, can be delivered to those owners. Because of inaccurate information, many safety related mailings are returned without delivery. Aircraft manufacturers also use aircraft records for similar reasons. Law enforcement and security agencies rely upon FAA's aircraft records to identify owners of aircraft, but in many cases they are unable to do so within a reasonable timeframe and with an acceptable level of confidence. Out-of-date registration information may possibly result in loss of property, and if safety related information is not received, could result in personal injury. The FAA has concluded, as noted earlier, that the level of accuracy in the system of records must be significantly improved to better serve the needs of the users of the system. The FAA is proposing a 3-year renewal interval. The 3-year interval is based in part on its experience with the Triennial program (this program will be discussed in more detail later). With a 3-year renewal, the owner would bear the responsibility of meeting the renewal requirements as well as the consequences for failing to meet those requirements. This stands in contrast to the current situation in which a registered owner's failure to comply with regulatory requirements generally has no immediate consequences for that owner. Presently about 35% of registered aircraft are operating on potentially ineffective registrations, because the Registry has not been notified of registration changes. With the implementation of the proposed 3-year renewal, according to the analysis provided in the preliminary Regulatory Evaluation (a copy of which has been placed in the docket for this rulemaking), we estimate that the inaccuracy rate would drop to about 5.6% of the 240,000 aircraft expected to remain on the register. By comparison, a 5-year renewal interval would likely result in an error rate of about 12.5%, and a 7-year renewal interval would result in an error rate of about 21.8%. Even under the 3-year renewal interval, avoiding data degradation due to registration information changes would depend upon aircraft owners reporting all changes in a timely manner. Under proposed § 47.40(a), any aircraft registered before the effective date of the rule would have to be re-registered over a 3-year period. Re-registration would provide updated aircraft registration information and result in the issuance of a Certificate of Aircraft Registration with an expiration date three years after the last day of the month in which the certificate is issued. An example of a schedule for re-registration with sample dates is provided in proposed section § 47.40, to illustrate that aircraft registered in a given month would be required to re-register in a specific 3-month period. Because the aircraft could not be legally operated beyond the end of the 3-month period, the application and registration fee should be filed for re-registration in a timely manner within the specific time period identified. The pink slip may not be used as temporary authority to operate an aircraft that is being re-registered. The FAA recommends application be made at least 45 days before the end of the 3-month period. This scheduling, as shown by these sample dates, is necessary to manage the Registry's workload during the re-registration period. The actual dates for re-registration would be established upon publication of the final rule, and the schedule shown in proposed section § 47.40 would be changed accordingly. As mentioned in the previous paragraph, if re-registration were not accomplished, the Certificate would expire. Thereafter, the N-number assigned to the aircraft would be administratively cancelled no earlier than 30 days following the end of the specific period of time given for re-registration. Proposed § 47.15(i), described below, would provide for the cancellation of the N-number assignment for aircraft that do not accomplish re-registration within the specific timeframes. Re-registration would have the most dramatic effect on the Aircraft Registry, eliminating as many as 104,000 aircraft that are likely no longer eligible for registration. This would be an enormous improvement in the accuracy of the aircraft registration database. However, to maintain the necessary level of accuracy, re-registration needs to be followed by periodic renewal. The FAA believes that a 3-year renewal interval would be the best choice. Proposed § 47.40(b) would establish a 3-year expiration for initial Aircraft Registration Certificates issued after the effective date of the rule. The expiration date would be three years from the last day of the month in which they are issued. Approximately 120 days before the expiration date on a Certificate, the Registry would notify the aircraft owner at the address on the registration of the impending expiration and provide the Aircraft Registration Renewal form. The registrant would either mail in the Aircraft Registration Renewal form and a renewal fee, or if there were no change in registration information, file the completed form and pay the fee electronically through the Registry's Web site. Under proposed § 47.40(c), an applicant for renewal should apply 90 days in advance of the expiration date on the Certificate of Aircraft Registration to allow for receipt of the new certificate before expiration of the old one. A renewal certificate will expire three years after the expiration date of the previous certificate. A first Certificate of Aircraft Registration issued on or after (effective date of final rule) expires three years from the last day of the month in which the certificate is issued. Subsequent Certificates of Aircraft Registration, issued upon compliance with the renewal requirement, will expire three years after the expiration date of the previous certificate. For example, an aircraft first registered on June 15, 2010, would receive a certificate with an expiration date of June 30, 2013. When first renewed, the renewal certificate would have an expiration date of June 30, 2016. Future renewal registration certificates would have expiration dates of June 30, 2019, then 2022, and so on, even if the Aircraft Registration Renewal is filed, processed, and the certificate is issued well before the current expiration date. If the aircraft was not re-registered within the timeframes identified in the schedule or the expiration date on the Certificate has passed, the Certificate would expire. Although the Registry would issue a reminder notice, even in the absence of such notice, the applicant would be responsible for taking action in a timely manner to obtain a new Certificate before the expiration date. An expired Certificate could not be used for operation after the expiration date on the certificate. Since retention of an N-number is contingent upon maintenance of an unexpired registration certificate, the registration number assigned to the aircraft would be administratively cancelled no earlier than 30 days following the expiration of the certificate. Proposed § 47.41(a) clarifies that a Certificate is no longer valid once it has expired, and proposed § 47.15(i), described below, would provide for cancellation of the N-number assignment should the renewal of aircraft registration not be accomplished. Information regarding re-registration and renewal of aircraft registration would be posted on the Registry's Web site and also provided for media publication. Benefits of re-registration and renewal of aircraft registration would reach every user of the Aircraft Registry database. The FAA would realize cost savings when mailing airworthiness directives, conducting surveys of aircraft owners, and accomplishing other necessary contacts with aircraft owners. Aircraft manufacturers would realize similar cost savings when mailing safety notices. The above mailings would potentially reach more aircraft owners, and mailing cost would be reduced by not sending mailings to owners and operators of inactive aircraft that would no longer be carried on the Registry. With more owners receiving this information, fewer would be at risk to experience safety issues. Vendors who send out useful information regarding aircraft products would benefit from more accurate aircraft registration information, as would the owners who would receive that information. Triennial Aircraft Registration Report In an effort to maintain accurate information, existing § 47.51 requires an owner of a registered aircraft with no registration activity for the past 36 months to complete and send to the Registry a Triennial Aircraft Registration Report, AC Form 8050-73 (Triennial). If there has been a change in registered owner information, such as a change in current name, address, aircraft identification, or citizenship status, the returned form must reflect that change. The form is also used to report the sale, destruction, or other disposition of aircraft. We have gained experience and insight from the problems associated with the Triennial program. From the large number of Triennials that are returned as undeliverable, we have a count of known aircraft registrations with bad addresses. This count is not indicative of all such records, since some owners neglect to report an address change or leave a forwarding address. A new occupant who resides at the owner's former address may dispose of the mailing, viewing it as junk mail. As there are no current enforcement or follow-up actions, there is nothing to compel the owner to complete and return the Triennial. The 70,000 Triennial report notices sent annually to Certificate holders typically prompt 9,000 address changes and identify 5,000 aircraft with undeliverable addresses. There are also an undetermined number of notices that reach registered owners who choose not to report their aircraft's sale or destruction. Apart from the approximately 104,000 aircraft FAA projects as not eligible for registration, at any point in time at least 11.5% of the estimated 240,000 active aircraft on the register reflect inaccurate registration information. Because bad address returns and non-responses would result in the cancellation of an aircraft's registration under this proposal, this number should drop to the approximately 5.6% error rate cited earlier. The FAA proposes to remove § 47.51 and eliminate the requirement for aircraft owners to complete and return a Triennial Aircraft Registration Report, AC Form 8050-73. The proposed re-registration and renewal requirements would supersede and eliminate the need for the information obtained via the Triennial. The removal of the paperwork burden associated with the Triennial would help to offset that associated with the 3-year renewal requirement. A description of the paperwork burden associated with this NPRM appears later in this document. Sale Reported and Registration Pending There are currently about 17,000 aircraft (out of over 340,000) whose status is “sale reported.” Of these, about 15,900 have been in the “sale reported” category for more than 6 months, according to the preliminary Regulatory Evaluation. In these cases, FAA has received notice of a sale from the last registered owner, but no Application has been filed, and the aircraft has not been registered to the new owner. Historically, there have been approximately 17,000 “sale reported” aircraft at any given time. Many of the aircraft that were originally placed in this short-term category have remained there for more than two decades. This is due, in part, to Registry requirements that information effecting changes in aircraft registration come from authoritative sources who may not be available or willing to provide the information necessary to clarify the record. Almost 4,700 additional aircraft are in “registration pending,” which means the FAA has received evidence of ownership change and an Application, but due to various reasons is not able to complete the registration of the aircraft. Of these, about 2,100 have been in the “registration pending” category for more than 12 months. Under these circumstances, neither security and law enforcement agencies, nor the FAA, may be able to locate the owner. Currently § 47.41(b) requires the last registered owner to endorse the reverse of the Certificate and send it to the Registry after the sale of an aircraft or other event specified in § 47.41. Not only is the return of a Certificate important for maintaining current records, it is in the owner's best interest to declare his relinquishment of responsibility for the aircraft's operation after a sale or other event resulting in termination of registration. If the Certificate is not available, proposed § 47.41(b) would require the last registered owner to send a statement to the Registry as to why the Certificate is not available. Based on our aircraft registration experience, the FAA considers six months in “sale reported” and 12 months in “registration pending” as the maximum reasonable time an aircraft should remain in these transitional categories. Proposed § 47.15(i) provides that when these time limits are exceeded, the FAA may cancel assignment of N-numbers. Although these two categories are distinct, an aircraft may be “sale reported” for some period and change to “registration pending” upon the submission of an Application. Thus, under the FAA proposal, there is the possibility of an aircraft remaining in these short-term transitional categories for up to 18 months. Under this proposed rule, the FAA estimates that the numbers of aircraft in the “sale reported” and “registration pending” categories would decrease from their current levels of approximately 17,000 and 4,700, respectively. The FAA anticipates that after the effective date of this final rule, the number of aircraft in both categories would not go to zero, as new aircraft would be coming into the inventory on a daily basis. Thus, as this rulemaking would eliminate aircraft in the “sale reported” category with records greater than 6 months old and in the “registration pending” category with records greater than 12 months, the FAA expects the numbers of aircraft in these categories to decrease to about 1,300 and 2,500, respectively. Temporary Authority To Operate an Aircraft Title 49 U.S.C. 44101(b)(3) provides that an aircraft may be operated without registration for a reasonable period of time after a transfer of ownership. Existing § 47.31(b) does not limit the time a duplicate

(pink)copy of the Application together with an approved extension may be used to operate an aircraft. The FAA has determined that 12 months is a reasonable period of time to accomplish registration following a transfer of ownership. Proposed § 47.31(b)(2) would establish 12 months as the maximum time that the pink copy of the Application, including any subsequently issued extensions, may be used as temporary authority to operate the aircraft after ownership has transferred, and registration requirements have not been met. If the owner has not registered the aircraft within the 12-month timeframe, the aircraft would not be eligible for operation. Proposed § 47.31(b)(3) would clarify that temporary authority may not be used to operate the aircraft if there is no N-number assigned to the aircraft at the time application for registration is made. It is the responsibility of a prudent aircraft purchaser to establish whether the temporary authority to operate an aircraft is available prior to operation. It should be noted that expiration of a Certificate does not involve a transfer of ownership; therefore, pink copy operating authority would not be available. Aircraft Registration Proposed § 47.41(a) would be revised to specify that a Certificate is effective until a specified event has occurred, such as registration being revoked, cancelled, expired, or the ownership of the aircraft is transferred. Registration has always ended upon revocation, cancellation, or change of ownership. The term “expired” would be added to include those registrations that have not been re-registered under proposed § 47.40(a), following the date established in proposed § 47.40(a)(2), and those registrations issued after the date of the final rule that have passed their expiration dates and have not renewed in accordance with proposed § 47.40(c). At the point registration is no longer valid, the assignment of registration number would be cancelled in accordance with proposed § 47.15(i). Since it has not been the practice to suspend an aircraft registration, the term “suspended” would be removed from existing § 47.41(a). Existing § 47.41(a)(4) would be removed since reference to change of ownership would be incorporated into the introductory text. Proposed § 47.39 would clarify that an aircraft is registered on the date that the Registry determines that the requirements of part 47 have been met. The effective date of registration is shown by a date stamp on the Application and as the date of issuance on the Certificate. This would clarify that registration is not effective as of the date the Application and supporting documentation are received at the Registry. Dealer's Aircraft Registration Existing § 47.61(b) states that a Dealer's Aircraft Registration Certificate (Dealer's Certificate) is an alternative for the Certificate and may be used for any aircraft properly registered under that Dealer's Certificate. If an aircraft owned by a dealer is registered under the Dealer's Certificate, and that Dealer's Certificate expires, the registration of the aircraft is no longer valid. Proposed § 47.61(c) would add a requirement for those aircraft registered under a Dealer's Certificate that has expired. If an application for registration were not made under existing § 47.31, the assignment of an N-number to any aircraft registered under that expired Dealer's Certificate would be cancelled. This is reflected in proposed §§ 47.41(a) and 47.15(i). Before canceling the N-number, the Registry would provide written notice to the holder of the Dealer's Certificate to advise of the pending cancellation. Existing § 47.67 states that if a dealer is not a manufacturer, the holder of the Certificate must send evidence that he is the owner to the Registry before an aircraft can be operated under a Dealer's Certificate. Proposed § 47.67 would clarify that the dealer must provide evidence of ownership sufficient under existing § 47.11. Assignment of Aircraft Registration Numbers (N-Numbers) Under the Convention on International Civil Aviation (Chicago Convention), 61 Stat. 1180, “Every aircraft engaged in international air navigation shall bear its appropriate nationality and registration marks.” The United States complies with this requirement by issuing N-numbers to all registered aircraft, whether the aircraft are used for international or domestic flights. N-numbers must be placed on aircraft in compliance with 14 CFR part 45. The procedures for requesting and obtaining numbers are covered in 14 CFR part 47. Existing § 47.15 requires an applicant for registration to place a “U.S. identification number (registration mark)” on the application and on all supporting documents. All newly manufactured aircraft are assigned N-numbers; all aircraft previously registered in a foreign country that are being registered in the U.S. are assigned N-numbers. If a U.S.-registered aircraft is sold within the United States, the aircraft retains its N-number unless the new owner requests a new number. Existing § 47.15(a) requires for an aircraft last previously registered in the United States, that the applicant place the N-number that is already assigned to the aircraft on the Application and supporting evidence, provided the aircraft was registered at the time ownership was transferred. If an aircraft was last previously registered in the United States, but registration was terminated or ended (e.g., at the request of the owner, destroyed/scrapped, exported, etc.), there is no assigned N-number. Proposed § 47.15(a) would describe the procedure to acquire an N-number assignment. Under existing §§ 47.15(f) and 47.17, the Registry assigns a special registration number upon request and payment of a $10.00 fee. A special registration number may be reserved for use at a later time. A number may also be reserved indefinitely by paying $10.00 annually. Existing § 47.15(f) would be revised to specify the time within which a Certificate holder must place a special registration number on the aircraft after the Registry has authorized the number change. If not used, the authorization for a number change would expire one year from the date of issuance. Currently, the owner must notify the Registry within five days after placing the special registration number on the aircraft. The temporary authority to operate the aircraft with the special registration number would be valid only until receipt of a revised Certificate showing the new number, but not for more than 120 days from the date the number is placed on the aircraft. Frequently, the owner does not send the completed Assignment of Special Registration Numbers to the Registry in a timely fashion as required. The proposed change would place the responsibility on the registered owner to ensure that the completed Assignment of Special Registration Numbers is filed in a timely manner to ensure a revised Certificate can be received within 120 days. Proposed § 47.15(i) would clarify that an N-number is valid for operation only as long as the registration of the aircraft has not ended. The N-number would no longer be authorized for use when an aircraft is sold and not registered within stated time limits; a Certificate expires; a Certificate holder has not re-registered the aircraft under the re-registration requirements; or an aircraft is registered under a Dealer's Certificate that has expired, and application for registration has not been made under existing § 47.31. This proposal would limit the time an aircraft's registration status may remain in the transitional period following transfer of ownership. The Registry would cancel the assignment of an N-number if the Registry receives notice of sale, and no Application is received within six months (sale reported). The N-number would be cancelled if more than 12 months have passed since a new owner has provided evidence of ownership from the last registered owner and an Application, but the requirements of this part have not been met (registration pending). The N-number would be administratively cancelled at the expiration of an appropriate interval following termination of registration. At the time an aircraft meets the criteria to end registration, the last owner of record would be provided reasonable, advance notice that the N-number would be cancelled and given the opportunity to reserve the number prior to its being placed in an unavailable status. Proposed § 47.15(j) would be added to clarify that if the last owner of record desires to reserve the N-number, the request for reservation and fee must be filed before cancellation. At the time of cancellation, the Registry database also allows for the process of reserving the N-number. If a request to reserve the N-number and fee were not received before cancellation, the number would be unavailable for use for a period of five years. After the 5-year period, that number would be available. The anticipated cancellation of the estimated 104,000 N-numbers assigned to inactive aircraft would eventually free those numbers for reservation or assignment. Technical Amendments In addition to the changes we are adopting to implement the rulemaking, discussed above, we are also adopting a number of non-substantive changes to 14 CFR part 47. These technical amendments are primarily editorial in nature and are intended for clarification. Proposed § 47.2 would add the new definition of “Registry” to identify the FAA, Civil Aviation Registry, Aircraft Registration Branch. The definitions of U.S. citizen “partnership” and “corporation” would be revised to be identical with those found in 49 U.S.C. 40102(a)(15). Proposed § 47.7(d) would also be revised to clarify that a partnership may apply for registration only if each partner is an individual citizen of the United States. To ensure that signers' names can be clearly determined from the application record, proposed § 47.13(a) now would specify that the name of each signer on an Application be typed or legibly printed in the signature block. Notice of this administrative change was published March 23, 2004, in the **Federal Register** (69 FR 13614). Proposed § 47.13(a) also would clarify that a signature on an Application or a document filed as supporting evidence under this part must be in ink. The requirement for a request for cancellation of a Certificate to be signed in ink would be removed since the Registry does accept such requests by facsimile. The requirements for instruments made by representatives and signature requirements are identical not only for an Application and a request for cancellation of a Certificate, but also for any document filed as supporting evidence. Proposed § 47.13, paragraphs (b), (c), (d), (e), and (f), would include any document filed as supporting evidence under this part. A continuing concern for law enforcement is the use by a person registering an aircraft of a post office box or “mail drop” as a return address for the purpose of evading identification of the registered owner's address. Proposed § 47.45 would require that an applicant applying for a revised Certificate due to a change of address, provide a physical address or location when a post office box or “mail drop” is used for mailing purposes. This conforms to longstanding practice. Notice of this procedure was published October 20, 1994, in the **Federal Register** (19 FR 53013). Proposed § 47.45 would require that an applicant applying for a revised Certificate due to a change of address comply with the same requirement. Proposed § 47.49 would clarify that if a Certificate is lost, stolen, or mutilated, a written request is required stating the reason a replacement certificate is needed. It would also inform that the Registry issues a temporary Certificate by fax. Paperwork Reduction Act This proposal contains the following new information collection requirements. As required by the Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)), the FAA has submitted the information requirements associated with this proposal to the Office of Management and Budget for its review. *Title:* Aircraft Registration Renewal. *Summary:* The FAA proposes to amend 14 CFR part 47, requiring aircraft registration be renewed 36 months after the issuance of the Certificate and each three years, thereafter, as long as ownership is not transferred. Information from the Aircraft Registration Renewal form would be used to update registration information in the Registry's database. *Use:* This information collection supports the Department of Transportation's strategic goals on safety and security. The information collected will be necessary to obtain a renewal of aircraft registration. Title 49, U.S.C. Section 44101(a) provides that a person may operate an aircraft only when it is registered under section 44013. Currently aircraft registration does not expire. Under this proposal, each Certificate issued after adoption of the final rule would have a 3-year expiration date. If registration is to continue, each aircraft owner must apply for renewal by completing and filing an Aircraft Registration Renewal form at least 90 days before the expiration date on the Certificate. The aircraft owner would verify the existing registration information and report any changes. The Registry will use the information to update aircraft ownership information and place the form in the aircraft record. This proposal would support the informational needs of the Registry's database and all users of the database, including law enforcement and security agencies. *Respondents:* The likely respondents to this proposed information requirement are all aircraft owners who want to continue registration past the expiration date on their Certificate. The FAA estimates the number of registration renewals would be 64,489 annually; however, the number of aircraft owners and the signature requirements for each aircraft vary depending upon the registration type (e.g., individual, partnership, government, or co-ownership). *Frequency:* The FAA estimates that there would be 64,489 registration forms completed annually over the 20-year period examined by this proposed rule. This is based on the current estimate of 239,049 active registered aircraft and an annual average increase of 3,347 aircraft (to account for projected growth), as well as subsequent registration actions over this time period. The former number of aircraft would have to re-register, while the latter aircraft would have to register for the first time. After these initial registrations and re-registrations, aircraft would have to renew these registrations every three years. In addition, each year, a percentage of aircraft would renew earlier than their required 3-year schedule due to the normal course of business actions, such as an aircraft being sold and a new certificate being issued to the new owner/applicant. Over 20 years, the FAA estimates 1,289,786 forms would need to be completed, which averages 64,489 per year. The time to complete the single page Aircraft Registration Renewal form is estimated at 30 minutes. Therefore, 32,244.5 hours would be spent annually completing the required form. As described in the preliminary Regulatory Evaluation, the FAA estimates the hourly rate of an aircraft owner's time at $37.20 in 2005 dollars, so half an hour would equate to $18.60 per owner per form. Thus, the average cost per year equals $599,747.70 (32,244.5 hours times $18.60 per hour). The proposed re-registration requirement would also increase the paperwork burden associated with the existing Aircraft Registration Application collection (OMB No. 2120-0042). *Annual Burden Estimate:* Over 20 years, the FAA estimates 1,289,786 forms would need to be processed. Of these forms, 188,379 would be for re-registration and 1,101,407 would be for renewal. As described in the preliminary Regulatory Evaluation, the FAA estimates processing costs of $12.32 and $9.26, respectively, per form. Over 20 years, these costs sum to $12,519,856.52 (calculation: 188,379 times $12.32 plus 1,101,407 times $9.26), for an annual cost of $625,992.83 (calculation: $12,519,856.52 divided by 20). The FAA estimates that it will take 0.391 hours to process each re-registration form and 0.320 hours to process each renewal form. This difference comes from FAA's assumption that the time needed for certain tasks in the renewal process would be less than in the re-registration process, as these tasks would be done on-line, eliminating the need for paper to be processed. Over 20 years, the time to process all the re-registration and the renewals forms equals 73,656.19 hours and 352,450.19 hours, respectively, for a total burden of 426,106.37 hours, and an average annual burden of 21,305.32 hours. The agency is soliciting comments to—

(1)Evaluate whether the proposed information requirement is necessary for the proper performance of the functions of the agency, including whether the information will have practical utility;

(2)Evaluate the accuracy of the agency's estimate of the burden;

(3)Enhance the quality, utility, and clarity of the information to be collected; and

(4)Minimize the burden of the collection of information on those who are to respond, including through the use of appropriate automated, electronic, mechanical, or other technological collection techniques or other forms of information technology. Individuals and organizations may send comments on the information collection requirement by May 28, 2008, and should direct them to the address listed in the ADDRESSES section at the end of this preamble. Comments also should be sent to the Office of Management and Budget, Office of Information and Regulatory Affairs, Attention: Desk Officer for FAA, New Executive Building, Room 10202, 725 17th Street, NW., Washington, DC 20053. According to the 1995 amendments to the Paperwork Reduction Act (5 CFR 1320.8(b)(2)(vi)), an agency may not collect or sponsor the collection of information, nor may it impose an information collection requirement unless it displays a currently valid OMB control number. The OMB control number for this information collection will be published in the **Federal Register** , after the Office of Management and Budget approves it. International Compatibility In keeping with U.S. obligations under the Convention on International Civil Aviation, it is FAA policy to comply with International Civil Aviation Organization

(ICAO)Standards and Recommended Practices to the maximum extent practicable. The FAA has determined that there are no ICAO Standards and Recommended Practices that correspond to these proposed regulations. II. Regulatory Evaluation, Regulatory Flexibility Determination, International Trade Impact Assessment, and Unfunded Mandates Assessment Changes to Federal regulations must undergo several economic analyses. First, Executive Order 12866 directs that each Federal agency shall propose or adopt a regulation only upon a reasoned determination that the benefits of the intended regulation justify its costs. Second, the Regulatory Flexibility Act of 1980 (Pub. L. 96-354) requires agencies to analyze the economic impact of regulatory changes on small entities. Third, the Trade Agreements Act (Pub. L. 96-39) prohibits agencies from setting standards that create unnecessary obstacles to the foreign commerce of the United States. In developing U.S. standards, this Trade Act requires agencies to consider international standards and, where appropriate, that they be the basis of U.S. standards. Fourth, the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4) requires agencies to prepare a written assessment of the costs, benefits, and other effects of proposed or final rules that include a Federal mandate likely to result in the expenditure by State, local, or tribal governments, in the aggregate, or by the private sector, of $100 million or more annually (adjusted for inflation with base year of 1995). This portion of the preamble summarizes the FAA's analysis of the economic impacts of this proposed rule. We suggest readers seeking greater detail read the preliminary Regulatory Evaluation, a copy of which we have placed in the docket for this rulemaking. In conducting these analyses, FAA has determined that this proposed rule:

(1)Has benefits that justify its costs,

(2)is not an economically “significant regulatory action” as defined in section 3(f) of Executive Order 12866,

(3)is “significant” as defined in DOT's Regulatory Policies and Procedures;

(4)would not have a significant economic impact on a substantial number of small entities;

(5)would not create unnecessary obstacles to the foreign commerce of the United States; and

(6)would not impose an unfunded mandate on State, local, or tribal governments, or on the private sector by exceeding the threshold identified above. These analyses are summarized below. Total Costs and Benefits of This Rulemaking This proposed rule would mandate that all aircraft owners re-register their aircraft over a 3 year period, and then renew these registrations on a 3 year basis. Total estimated costs, over 20 years, range from $30.53 million ($16.50 million, discounted) to $33.03 million ($17.38 million, discounted). These costs include both the costs to aircraft owners as well as processing costs for the Civil Aircraft Registry and include costs savings from the proposed elimination of the Triennial Program. The primary benefit of this rulemaking would be the increased accuracy of the records within the Aircraft Registry. Currently, over one third of registered aircraft information is incorrect. The FAA has concluded that the level of accuracy in the system of records must be significantly improved in order to better serve the needs of the users of the system as well as support its own operations. Benefits would accrue from improving the database as well as improving the data collection process. Who Is Potentially Affected by This Rulemaking Private Sector There are currently about 343,000 registered aircraft, of which about 239,000 are active aircraft. The FAA expects about 239,000 aircraft to re-register and then, every 3 years, renew their certificate. The FAA also expects between an additional 1,400 to 3,450 new aircraft to register each year. Government This proposal would increase the workload on the Civil Aviation Registry, which would have to process an additional 1.22 million to 1.29 million renewal and registration certificates over a 20-year period. However, this additional work would be partially offset by the proposed elimination of the Triennial Aircraft Registration Program. Our Cost Assumptions and Sources of Information • Discount rate—7%; • Period of analysis—2007 through 2026; • All monetary values are expressed in 2005 dollars; • The FAA based projections on two different annual growth rates for aircraft—1.4% and 0.6%. • The FAA uses the following unit costs:

(a)$5—cost per aircraft for both re-registration and renewal

(b)$37.20—hourly rate of an aircraft owner's time

(c)$12.32—FAA processing costs for re-registration per applicant

(d)$9.26—FAA processing costs for renewal per applicant

(e)$2.06—FAA processing costs for the Triennial Program for each notice sent

(f)$16.80—FAA processing costs for the Triennial Program per reply

(g)The FAA based projections on two different annual growth rates for aircraft—1.4% and 0.6%. A provision in the FAA Financing Reform Proposal would, if enacted, increase the re-registration and renewal fee to $45, based on direct and allocable indirect unit costs of the FAA Registry's Aircraft Registration Branch and an allowance for FAA Headquarters' overhead. This fee differs from the costs used in this analysis for the re-registration and renewal fee ($5), FAA processing costs for re-registration per applicant ($12.32), and FAA processing costs for renewal per applicant ($9.26). An explanation reconciling these cost differences can be found in the Addendum to the Initial Regulatory Analysis, which can be found in the docket for this rulemaking. Benefits of This Rulemaking The primary benefit of this rulemaking would be the increased accuracy of the records within the Aircraft Registry. Currently, over one third of registered aircraft information is incorrect. Inaccurate records have many negative consequences. For example, FAA uses aircraft records to identify owners of specific aircraft so that safety related information, such as airworthiness directives (ADs), can be delivered to those owners, but because of inaccuracies, many safety-related mailings are returned without delivery. Aircraft manufacturers also use aircraft records for the same reasons, to send out safety-related information. Law enforcement and security agencies rely upon FAA's aircraft records to identify and locate owners of aircraft. The FAA has concluded that the level of accuracy in the system of records must be significantly improved in order to better serve the needs of the users of the system as well as support its own operations. Specifically, benefits would accrue from improving the database as well as improving the data collection process. The benefits from improving the Registry database include cost savings, better service for aircraft owners, and help with law enforcement. The benefits to be realized by improving the data collection process also include cost savings as well as a more accurate response rate. Costs of This Rulemaking This rulemaking proposes that all aircraft owners would have to re-register their aircraft during a 3-year period under guidelines to be published, that all aircraft registrations would need to be renewed every 3 years, and that the present Triennial Program would be eliminated in its entirety. The FAA estimates that approximately 239,000 aircraft would each go through the proposed re-registration process, and so would be issued a new registration certificate, each with an expiration date, over the first three years of this rulemaking; it is this expiration date, with the subsequent renewals, that is at the heart of this rulemaking and would help to improve the Registry's records. An aircraft could also receive a new certificate through the normal course of business

(NCB)renewal process. For instance, if an aircraft was re-registered according to the schedule and was then sold at a later date, the certificate issued after the sale would be an NCB transaction and not a transaction from the re-registration schedule. In such a case, its 3-year clock would start anew. Over this 3-year period, approximately 188,400 of these 239,000 aircraft would be re-registered due to the re-registration requirement and 50,700 would receive their re-registration certificate during NCB. However, there would be additional registration activity during this time period, as the FAA assumes a range for the annual growth in the number of aircraft needing to register of about 1,400 to about 3,350. As a result, the FAA projects that 243,400 to 249,100 aircraft would either be re-registered or initially registered over the first 3 years of this proposal. As a result of re-registration, 79%, or about 188,400, of the 239,000 aircraft would be re-registered due to the re-registration requirement, and 21%, or 50,700, would receive their re-registration certificates during NCB. Following aircraft certificate re-registration would be their renewal every 3 years. In calculating the costs of renewal, the FAA counts the number of aircraft transactions that result in a new certificate due both to an NCB action as well as the number of aircraft certificates issued due to the rulemaking-mandated renewal program. In addition, as in the first three years, the FAA assumes an increase in the number of aircraft needing to register, reflecting the annual growth in the number of aircraft. The FAA estimates that the Registry would process from 1.22 million to 1.29 million certificate actions over 20 years. However, the Registry would achieve cost savings with the elimination of the Triennial Program. Over 20 years, the proposal to replace the current system with a 3-year re-registration program, followed by a 3-year renewal cycle would cost from $30.53 million ($16.50 million, discounted) to $33.03 million ($17.38 million, discounted). The FAA examined two other scenarios including 5 and 7 year renewal cycles with the Triennial Program eliminated. While these scenarios had lower costs, their much higher expected error rates would more than offset any advantage that these lower costs would bring, leading to doubts as to the accuracy and usefulness of the Registry's database. Initial Regulatory Flexibility Determination The Regulatory Flexibility Act of 1980

(RFA)establishes “as a principle of regulatory issuance that agencies shall endeavor, consistent with the objective of the rule and of applicable statutes, to fit regulatory and informational requirements to the scale of the business, organizations, and governmental jurisdictions subject to regulation.” To achieve that principle, the RFA requires agencies to solicit and consider flexible regulatory proposals and to explain the rationale for their actions. The RFA covers a wide-range of small entities, including small businesses, not-for-profit organizations and small governmental jurisdictions. Agencies must perform a review to determine whether a proposed or final rule will have a significant economic impact on a substantial number of small entities. If the agency determines that it will, the agency must prepare a regulatory flexibility analysis as described in the Act. However, if an agency determines that a proposed or final rule is not expected to have a significant economic impact on a substantial number of small entities, section 605(b) of the RFA provides that the head of the agency may so certify and a regulatory flexibility analysis is not required. The certification must include a statement providing the factual basis for this determination, and the reasoning should be clear. This proposed rule would affect all aircraft owners, through part 47, as all aircraft owners would be required to re-register and then periodically renew their aircraft. The total cost per certificate per aircraft owner is about $26. An aircraft owner would renew his or her certificate, on average, about 6 more times over a 20-year period for a total of 7 certificate actions; assuming 7 certificate actions would result in costs of about $181 over 20 years, or an average cost of $9 per year. For a small business that owned several aircraft, the cost of this proposed rule to them would be negligible and, therefore, not significant. Since annualized costs would be less than 1% of annual median revenue, the FAA believes that this proposed action would not have a significant economic impact on a substantial number of small entities. The FAA calls for comments on these assumptions; the FAA requests that all comments be accompanied by full documentation. International Trade Impact Assessment The Trade Agreements Act of 1979 prohibits Federal agencies from establishing any standards or engaging in related activities that create unnecessary obstacles to the foreign commerce of the United States. Legitimate domestic objectives, such as safety, are not considered unnecessary obstacles. The statute also requires consideration of international standards and, where appropriate, that they be the basis for U.S. standards. The FAA has assessed the potential effect of this NPRM and has determined that it would have only a domestic impact and therefore no affect on any trade-sensitive activity. Unfunded Mandates Assessment The Unfunded Mandates Reform Act of 1995 requires each Federal agency to prepare a written statement assessing the effects of any Federal mandate in a proposed or final agency rule that may result in an expenditure of $100 million or more (adjusted annually for inflation) in any one year by State, local, and tribal governments, in the aggregate, or by the private sector; such a mandate is deemed to be a “significant regulatory action.” The FAA currently uses an inflation-adjusted value of $128.1 million in lieu of $100 million. This proposed rule does not contain such a mandate. The requirements of Title II do not apply. Executive Order 13132, Federalism The FAA has analyzed this proposed rule under the principles and criteria of Executive Order 13132, Federalism. We have determined that this action would not have a substantial direct effect on the States, on the relationship between the national Government and the States, or on the distribution of power and responsibilities among the various levels of government, and therefore would not have federalism implications. Environmental Analysis FAA Order 1050.1E identifies FAA actions that are categorically excluded from preparation of an environmental assessment or environmental impact statement under the National Environmental Policy Act in the absence of extraordinary circumstances. The FAA has determined this proposed rulemaking action qualifies for the categorical exclusion identified in paragraph 312(d) and involves no extraordinary circumstances. Regulations That Significantly Affect Energy Supply, Distribution, or Use The FAA has analyzed this NPRM under Executive Order 13211, Actions Concerning Regulations that Significantly Affect Energy Supply, Distribution, or Use (May 18, 2001). We have determined that it is not a “significant energy action” under the executive order because it is not a “significant regulatory action” under Executive Order 12866, and it is not likely to have a significant adverse effect on the supply, distribution, or use of energy. Additional Information Comments Invited The FAA invites interested persons to participate in this rulemaking by submitting written comments, data, or views. We also invite comments relating to the economic, environmental, energy, or federalism impacts that might result from adopting the proposals in this document. The most helpful comments reference a specific portion of the proposal, explain the reason for any recommended change, and include supporting data. To ensure the docket does not contain duplicate comments, please send only one copy of written comments, or if you are filing comments electronically, please submit your comments only one time. We will file in the docket all comments we receive, as well as a report summarizing each substantive public contact with FAA personnel concerning this proposed rulemaking. Before acting on this proposal, we will consider all comments we receive on or before the closing date for comments. We will consider comments filed after the comment period has closed if it is possible to do so without incurring expense or delay. We may change this proposal in light of the comments we receive. Proprietary or Confidential Business Information Do not file in the docket information that you consider to be proprietary or confidential business information. Send or deliver this information directly to the person identified in the FOR FURTHER INFORMATION CONTACT section of this document. You must mark the information that you consider proprietary or confidential. If you send the information on a disk or CD-ROM, mark the outside of the disk or CD-ROM and also identify electronically within the disk or CD-ROM the specific information that is proprietary or confidential. Under 14 CFR 11.35(b), when we are aware of proprietary information filed with a comment, we do not place it in the docket. We hold it in a separate file to which the public does not have access, and place a note in the docket that we have received it. If we receive a request to examine or copy this information, we treat it as any other request under the Freedom of Information Act (5 U.S.C. 552). We process such a request under the DOT procedures found in 49 CFR part 7. Availability of Rulemaking Documents You can get an electronic copy of rulemaking documents using the Internet by—

(1)Searching the Federal eRulemaking Portal at ( *http://www.regulations.gov* );

(2)Visiting the FAA's Regulations and Policies web page at *http://www.faa.gov/regulations_policies/* ; or

(3)Accessing the Government Printing Office's Web page at *http://www.gpoaccess.gov/fr/index.html* . You can also get a copy by sending a request to the Federal Aviation Administration, Office of Rulemaking, ARM-1, 800 Independence Avenue, SW., Washington, DC 20591, or by calling

(202)267-9680. Make sure to identify the docket number, notice number, or amendment number of this rulemaking. You may access all documents the FAA considered in developing this proposed rule, including economic analyses and technical reports, from the internet through the Federal eRulemaking Portal referenced in paragraph (1). List of Subjects in 14 CFR Part 47 Aircraft, Reporting and recordkeeping requirements. III. The Proposed Amendment In consideration of the foregoing, the Federal Aviation Administration proposes to amend Chapter I of Title 14, Code of Federal Regulations, as follows: PART 47—AIRCRAFT REGISTRATION 1. The authority citation for part 47 continues to read as follows: Authority: 4 U.S.C. 1830; Pub. L. 108-297, 118 Stat. 1095 (49 U.S.C. 40101 note, 49 U.S.C. 44101 note); 49 U.S.C. 106(g), 40113-40114, 44101-44108, 44110-44113, 44703-44704, 44713, 45302, 46104, 46301. PART 47—[AMENDED] 2. Amend 14 CFR part 47 by removing the words “FAA Aircraft Registry” and “FAA Registry” wherever they appear and adding, in their place, the word “Registry”. §§ 47.5, 47.7, 47.9, 47.11, 47.35, and 47.37 [Amended] 3. Amend 14 CFR part 47 by removing the words “Application for Aircraft Registration” and “application” and adding, in their place, the words “Aircraft Registration Application, AC Form 8050-1” in the following places: a. Section 47.5(a) b. Section 47.7(a) c. Section 47.9(a) d. Section 47.11 (introductory text) e. Section 47.35(a) f. Section 47.37(a)(2) §§ 47.5, 47.7, and 47.11 [Amended] 4. Amend 14 CFR part 47 by removing the words “Application for Aircraft Registration” and “application” and adding, in their place, the words “Aircraft Registration Application” in the following places: a. Section 47.5(c) b. Section 47.7(c)(2) c. Section 47.11(h) §§ 47.5, 47.7, 47.8, 47.11, 47.31, and 47.43 [Amended] 5. Amend 14 CFR part 47 by removing the words “Certificate of Aircraft Registration” and “registration certificate” and adding in their place, the words “Certificate of Aircraft Registration, AC Form 8050-3” in the following places: a. Section 47.5(c) b. Section 47.7(d) c. Section 47.8(c) d. Section 47.11(e) e. Section 47.31(a) f. Section 47.43

(b)§§ 47.9, 47.33, and 47.35 [Amended] 6. Amend 14 CFR part 47 by removing the word “Administrator” and adding, in its place, the word “FAA” in the following places: a. Section 47.9(e) b. Sections 47.33(b) and 47.33(d) c. Section 47.35(b) 7. Revise § 47.1 to read as follows: § 47.1 Applicability. This part prescribes the requirement for registering aircraft under 49 U.S.C. 44101-44104. Subpart B applies to each applicant for, and holder of, a Certificate of Aircraft Registration, AC Form 8050-3. Subpart C applies to each applicant for, and holder of, a Dealer's Aircraft Registration Certificate, AC Form 8050-6. 8. Amend § 47.2 by adding the definition of “Registry” in alphabetical order and by revising paragraphs

(2)and

(3)of the definition of “U.S. citizen” to read as follows: § 47.2 Definitions. *Registry* means the FAA, Civil Aviation Registry, Aircraft Registration Branch. *U.S. citizen* * * *

(2)A partnership each of whose partners is an individual who is a citizen of the United States.

(3)A corporation or association organized under the laws of the United States or a State, the District of Columbia, or a territory or possession of the United States, of which the president and at least two-thirds of the board of directors and other managing officers are citizens of the United States, which is under the actual control of citizens of the United States, and in which at least 75 percent of the voting interest is owned or controlled by persons that are citizens of the United States. 9. Amend § 47.3 by revising paragraph

(a)to read as follows: § 47.3 Registration required.

(a)An aircraft may be registered under 49 U.S.C. 44103 only when the aircraft is not registered under the laws of a foreign country and is—

(1)Owned by a citizen of the United States;

(2)Owned by an individual citizen of a foreign country lawfully admitted for permanent residence in the United States;

(3)Owned by a corporation not a citizen of the United States when the corporation is organized and doing business under the laws of the United States or a State within the United States, and the aircraft is based and primarily used in the United States; or

(4)An aircraft of—

(i)The United States Government; or

(ii)A State, the District of Columbia, a territory or possession of the United States, or a political subdivision of a State, territory, or possession. 10. Revise the first sentence of § 47.7(d) introductory text to read as follows: § 47.7 United States citizens and resident aliens.

(d)*Partnerships.* A partnership may apply for a Certificate of Aircraft Registration, AC Form 8050-3, under 49 U.S.C. 44102 only if each partner, whether a general or limited partner, is an individual who is a citizen of the United States. * * * § 47.8 [Amended] 11. Amend § 47.8(c) by removing the reference to “§ 47.41(a)(5)” and adding, in its place, “§ 47.41(a)(3)”. § 47.11 [Amended] 12. Amend § 47.11(b)(1) by removing the words “certificate of repossession on FAA Form 8050-4” and adding, in its place, the words “Certificate of Repossession of Encumbered Aircraft, FAA Form 8050-4”. 13. Amend § 47.13 by revising paragraphs

(a)through

(f)to read as follows: § 47.13 Signatures and instruments made by representatives.

(a)Each person signing an Aircraft Registration Application, AC Form 8050-1, or a document submitted as supporting evidence under this part, must sign in ink. The Aircraft Registration Application must also have the typed or legibly printed name of each signer in the signature block.

(b)When one or more persons doing business under a trade name submits an Aircraft Registration Application, a document submitted as supporting evidence under this part, or a request for cancellation of a Certificate of Aircraft Registration, AC Form 8050-3, the application, document, or request must be signed by, or on behalf of, each person who shares title to the aircraft.

(c)When an agent submits an Aircraft Registration Application, a document submitted as supporting evidence under this part, or a request for cancellation of a Certificate of Aircraft Registration, on behalf of the owner, he must—

(1)State the name of the owner on the application, document, or request;

(2)Sign as agent or attorney-in-fact on the application, document, or request; and

(3)Submit a signed power of attorney, or a true copy thereof certified under § 49.21 of this chapter, with the application, document, or request.

(d)When a corporation submits an Aircraft Registration Application, a document submitted as supporting evidence under this part, or a request for cancellation of a Certificate of Aircraft Registration, it must—

(1)Have an authorized person sign the application, document, or request;

(2)Show the title of the signer's office on the application, document, or request; and

(3)Submit a copy of the authorization from the board of directors to sign for the corporation, certified as true under § 49.21 of this chapter by a corporate officer or other person in a managerial position therein, with the application, document, or request, unless—

(i)The signer of the application, document, or request is a corporate officer or other person in a managerial position in the corporation and the title of his office is stated in connection with his signature; or

(ii)A valid authorization to sign is on file at the Registry.

(4)The provisions of paragraph (d)(3) of this section do not apply to an irrevocable deregistration and export request authorization when an irrevocable deregistration and export request authorization under the Cape Town Treaty is signed by a corporate officer and is filed with the Registry.

(e)When a partnership submits an Aircraft Registration Application, a document submitted as supporting evidence under this part, or a request for cancellation of a Certificate of Aircraft Registration, it must—

(1)State the full name of the partnership on the application, document, or request;

(2)State the name of each general partner on the application, document, or request; and

(3)Have a general partner sign the application, document, or request.

(f)When co-owners, who are not engaged in business as partners, submit an Aircraft Registration Application, a document submitted as supporting evidence under this part, or a request for cancellation of a Certificate of Aircraft Registration, each person who shares title to the aircraft under the arrangement must sign the application, document or request. 14. Amend § 47.15 by: a. Removing the word “identification” wherever it appears, and adding, in its place the word “registration”; b. Revising paragraphs

(a)introductory text, (a)(2), (c), the first sentence of paragraph (d), and (f); c. Redesignating the undesignated paragraph following paragraph (a)(3) as (a)(4) and revising it; and d. Adding paragraphs

(i)and

(j)to read as set forth below. § 47.15 Registration number.

(a)*Number required.* An applicant for aircraft registration must place a U.S. registration number (registration mark) on his Aircraft Registration Application, AC Form 8050-1, and on any evidence submitted with the application. There is no charge for the assignment of numbers provided in this paragraph. This paragraph does not apply to an aircraft manufacturer who applies for a group of U.S. registration numbers under paragraph

(c)of this section; a person who applies for a special registration number under paragraphs

(d)through

(f)of this section; or a holder of a Dealer's Aircraft Registration Certificate, AC Form 8050-6, who applies for a temporary registration number under *§ 47.16.*

(2)*Aircraft last previously registered in the United States.* Unless the applicant applies for a different number under paragraphs

(d)through

(f)of this section, the applicant must place the U.S. registration number that is already assigned to the aircraft on his Aircraft Registration Application, and the supporting evidence. If there is no number assigned, the applicant must obtain a U.S. registration number from the Registry by request in writing describing the aircraft by make, model, and serial number.

(4)*Duration of a U.S. registration number assignment.* Authority to use the registration number obtained under paragraph (a)(1), (2), or

(3)of this section expires 90 days after the date it is issued unless the applicant submits an Aircraft Registration Application and complies with § 47.33 or § 47.37, as applicable, within that period of time. However, the applicant may obtain an extension of this 90-day period from the Registry if the applicant shows that the delay in complying with that section is due to circumstances beyond the applicant's control.

(c)An aircraft manufacturer may apply to the Registry for enough U.S. registration numbers to supply estimated production for the next 18 months. There is no charge for this allocation of numbers.

(d)Any available, unassigned U.S. registration number may be assigned as a special registration number. * * *

(f)The Registry authorizes a special registration number change on the Assignment of Special Registration Numbers, AC Form 8050-64. The authorization expires one year from the date the Registry issues an Assignment of Special Registration Numbers unless the special registration number is permanently placed on the aircraft. Within five days after the special registration number is placed on the aircraft, the owner must complete and sign the Assignment of Special Registration Numbers, state the date the number was placed on the aircraft, and return the original form to the Registry. The duplicate of the Assignment of Special Registration Numbers and the present Certificate of Aircraft Registration, AC Form 8050-3, must be carried in the aircraft as temporary authority to operate it. This temporary authority is valid until the date the owner receives the revised Certificate of Aircraft Registration showing the new registration number, but in no case is it valid for more than 120 days from the date the number is placed on the aircraft.

(i)When aircraft registration has ended, as described in § 47.41(a), the assignment of a registration number to an aircraft is no longer authorized for use except as provided in § 47.31(b) and will be cancelled:

(1)Following the date established in § 47.40(a)(2) for any aircraft that has not been re-registered under § 47.40(a);

(2)Following the expiration date shown on the Certificate of Aircraft Registration for any aircraft whose registration has not been renewed under § 47.40(c);

(3)Following the expiration date shown on the Dealer's Aircraft Registration Certificate, AC Form 8050-6, for any aircraft registered under subpart C of this part, when the certificate has not been renewed, and the owner has not applied for registration in accordance with § 47.31; or

(4)When ownership has transferred—

(i)Six months after first receipt of notice of aircraft sale or evidence of ownership from the last registered owner or successive owners, and an Aircraft Registration Application has not been submitted.

(ii)Six months after evidence of ownership authorized under § 47.67 has been submitted, and the applicant has not met the requirements of this part.

(iii)Twelve months after a new owner has submitted evidence of ownership and an Aircraft Registration Application under § 47.31, and the applicant has not met the requirements of this part.

(j)At the time an assignment of registration number is cancelled, the number may be reserved for one year in the name of the last owner of record if a request has been submitted with the fee required by § 47.17. If the request for reservation and fee are not submitted prior to cancellation, the registration number is unavailable for assignment for a period of five years. § 47.16 [Amended] 15. Amend § 47.16(a) by removing the words “Dealer's Aircraft Registration Certificates” and adding, in their place, the words “Dealer's Aircraft Registration Certificates, AC Form 8050-6,”. 16. Amend § 47.17 by revising paragraphs (a)(1), (4), (5), and

(6)to read as follows: § 47.17 Fees.

(a)* * *

(1)Certificate of Aircraft Registration (each aircraft) or renewal thereof $5.00 * * * * *

(4)Special registration number (each number) 10.00

(5)Changed, reassigned, or reserved registration number 10.00

(6)Replacement Certificate of Aircraft Registration 2.00 17. Amend § 47.31 as follows: a. Remove the words “Aircraft Bill of Sale, ACC Form 8050-2” where they appear in paragraph (a)(2), and add, in their place, the words “Aircraft Bill of Sale, AC Form 8050-2”; b. Revise paragraph

(b)to read as set forth below; and c. Remove paragraph (c). The revisions read as follows: § 47.31 Application.

(b)After compliance with paragraph

(a)of this section, the applicant of an aircraft last previously registered in the United States must carry the second duplicate copy

(pink)of the Aircraft Registration Application in the aircraft as temporary authority to operate without registration.

(1)This temporary authority is valid for operation within the United States until the date the applicant receives the Certificate of Aircraft Registration or until the date the FAA denies the application, but in no case for more than 90 days after the date the applicant signs the application. If by 90 days after the date the applicant signs the Aircraft Registration Application, the FAA has neither issued the Certificate of Aircraft Registration nor denied the application, the Registry will issue a letter of extension that serves as authority to continue to operate the aircraft without registration while it is carried in the aircraft.

(2)This temporary authority is not available in connection with any Aircraft Registration Application received when 12 months have passed since the receipt of the first application following transfer of ownership by the last registered owner.

(3)If there is no registration number assigned at the time application for registration is made, the second duplicate copy

(pink)of the Aircraft Registration Application may not be used as temporary authority to operate the aircraft. 18. Amend § 47.33 by removing the word “identification” where it appears in paragraph (c), and adding, in its place, the word “registration”; and revising paragraph (a)(2) to read as follows: § 47.33 Aircraft not previously registered anywhere.

(a)* * *

(2)Submits with his Aircraft Registration Application, AC Form 8050-1, an Aircraft Bill of Sale, AC Form 8050-2, signed by the seller, an equivalent bill of sale, or other evidence of ownership authorized by § 47.11. 19. Revise § 47.39 to read as follows: § 47.39 Effective date of registration. An aircraft is registered on the date the Registry determines that the submissions meet the requirements of this part. The effective date of registration is shown by a date stamp on the Aircraft Registration Application, AC Form 8050-1, and as the date of issuance on the Certificate of Aircraft Registration, AC Form 8050-3. 20. Add § 47.40 to read as follows: § 47.40 Registration Expiration and Renewal.

(a)*Re-registration* . Each aircraft registered under this part before [effective date of final rule] must be re-registered in accordance with this paragraph.

(1)Each applicant for re-registration must comply with § 47.31, regardless of the year in which the aircraft was registered. Each holder of a Certificate of Aircraft Registration, AC Form 8050-3, must apply between October 1, 2008, and September 30, 2011, according to the following schedule: If the certificate was issued in Then, you must re-register between January 10/1/08 and 12/31/08. February 1/1/09 and 3/31/09. March 4/1/09 and 6/30/09. April 7/1/09 and 9/30/09. May 10/1/09 and 12/31/09. June 1/1/10 and 3/31/10. July 4/1/10 and 6/30/10. August 7/1/10 and 9/30/10. September 10/1/10 and 12/31/10. October 1/1/11 and 3/31/11. November 4/1/11 and 6/30/11. December 7/1/11 and 9/30/11.

(2)A Certificate of Aircraft Registration issued before [effective date of final rule] expires at the end of the 3-month period identified in the table that corresponds with the month the certificate was issued.

(3)The second duplicate copy

(pink)of the Aircraft Registration Application, AC Form 8050-1, may not be used as temporary authority to operate an aircraft that is being re-registered. The Registry may postpone the expiration date established in paragraph (a)(2) above, if application for re-registration has been made at least 45 days before that expiration date, and registration cannot be accomplished by the final date. Postponement will not be granted to an aircraft re-registered outside of the schedule in paragraph

(1)of this section.

(4)A Certificate of Aircraft Registration issued under this paragraph

(a)expires three years after the last day of the month in which it is issued.

(b)*Initial Registration* . A Certificate of Aircraft Registration issued in accordance with § 47.31 expires three years after the last day of the month in which it is issued.

(c)*Renewal* . Each holder of a Certificate of Aircraft Registration containing an expiration date may apply for renewal by submitting a completed Aircraft Registration Renewal, AC Form 8050-XXX, and the fee required by § 47.17. The Aircraft Registration Renewal and fee should be submitted at least 90 days before the certificate's expiration date to facilitate timely issuance and delivery of the new certificate before expiration. A certificate issued under this paragraph expires three years from the expiration date of the previous certificate. 21. Amend § 47.41 by— a. Removing paragraphs (a)(2) and (a)(4); b. Redesignating paragraph (a)(3) as (a)(2) and paragraphs (a)(5) through (a)(9) as paragraphs (a)(3) through (a)(7); c. Removing the semi-colon at the end of paragraphs (a)(1) through (a)(4) and adding in their place a period, and removing the phrase “; or” at the end of paragraph (a)(5) and adding, in its place, a period; and d. Revising the introductory text of paragraph

(a)and adding paragraph

(4)to read as follows: § 47.41 Duration and return of Certificate.

(a)Each Certificate of Aircraft Registration, AC Form 8050-3, issued by the FAA under this subpart is effective, unless registration has ended by reason of having been revoked, canceled, expired, or the ownership is transferred, until the date upon which one of the following events occurs:

(b)* * *

(4)If the certificate is not available, a statement describing the aircraft, stating the reason the certificate is not available, must be submitted to the Registry within the time required by this section. 22. Revise § 47.43(b) to read as follows: § 47.43 Invalid registration.

(b)If the registration of an aircraft is invalid under paragraph

(a)of this section, the holder of the invalid Certificate of Aircraft Registration, AC Form 8050-3, must return it as soon as possible to the Registry. 23. Revise § 47.45 to read as follows: § 47.45 Change of address. Within 30 days after any change in the mailing address or permanent residence of a registrant, the registrant must notify the Registry in writing of the change of address. If a post office box or mailing drop is used for mailing purposes, the registrant's physical address or location must also be shown. Upon acceptance, the Registry will issue, without charge, a revised Certificate of Aircraft Registration, AC Form 8050-3, reflecting the new mailing address. 24. Amend § 47.47 by revising the introductory text of paragraph

(a)and paragraph (a)(1) as follows: § 47.47 Cancellation of Certificate for export purpose.

(a)The holder of a Certificate of Aircraft Registration, AC Form 8050-3, or the holder of an irrevocable deregistration and export request authorization recognized under the Cape Town Treaty and filed with FAA who wishes to cancel the Certificate of Aircraft Registration for the purpose of export must submit to the Registry—

(1)A written request for cancellation of the Certificate of Aircraft Registration describing the aircraft by make, model, and serial number, stating the U.S. registration number and the country to which the aircraft will be exported; 25. Revise § 47.49 to read as follows: § 47.49 Replacement of Certificate.

(a)If the original Certificate of Aircraft Registration, AC Form 8050-3, is lost, stolen, or mutilated, the registered owner may submit to the Registry a written request that states the reason a replacement certificate is needed, and the fee required by § 47.17. The Registry will send a replacement certificate to the registered owner's mailing address or to another mailing address if requested in writing by the registered owner.

(b)The registered owner may request a temporary Certificate of Aircraft Registration pending receipt of a replacement certificate. The Registry issues a temporary Certificate of Aircraft Registration in the form of a fax that must be carried in the aircraft until receipt of the replacement certificate. § 47.51 [Removed and Reserved] 26. Remove and reserve § 47.51. 27. Amend § 47.61 by— a. Revising the section heading: b. Removing the word “Dealers'” from paragraph (b), and adding, in its place, the word “Dealer's”; and c. Revising the introductory text of paragraph

(a)and paragraph (a)(2) and adding paragraph

(c)to read as follows: § 47.61 Dealer's Aircraft Registration Certificates.

(a)The FAA issues a Dealer's Aircraft Registration Certificate, AC Form 8050-6, to U.S. manufacturers and dealers to—

(2)Facilitate operating, demonstrating, and merchandising aircraft by the manufacturer or dealer without the burden of obtaining a Certificate of Aircraft Registration, AC Form 8050-3, for each aircraft with each transfer of ownership, under Subpart B of this part.

(c)If the Dealer's Aircraft Registration Certificate expires under § 47.71, and an aircraft is registered under this Subpart, application for registration must be made under § 47.31, or the assignment of registration number may be cancelled in accordance with § 47.15(i)(3). § 47.63 [Amended] 28. Amend § 47.63(a) by removing the words “An Application for Dealers'” Aircraft Registration Certificates” and adding, in their place, the words “A Dealer's Aircraft Registration Certificate Application”. 29. Revise § 47.65 to read as follows: § 47.65 Eligibility. To be eligible for a Dealer's Aircraft Registration Certificate, AC Form 8050-6, the applicant must have an established place of business in the United States, must be substantially engaged in manufacturing or selling aircraft, and must be a citizen of the United States, as defined by 49 U.S.C. 40102 (a)(15). 30. Revise § 47.67 to read as follows: § 47.67 Evidence of ownership. Before using a Dealer's Aircraft Registration Certificate, AC Form 8050-6, for operating the aircraft, the holder of the certificate (other than a manufacturer) must send to the Registry evidence of ownership under § 47.11. An Aircraft Bill of Sale, AC Form 8050-2, or its equivalent, may be used as evidence of ownership. There is no recording fee. § 47.69 [Amended] 31. Amend § 47.69 by removing the words “Dealer's Aircraft Registration Certificate” in the introductory text, and adding, in their place, the words “Dealer's Aircraft Registration Certificate, AC Form 8050-6”. 32. Amend § 47.71 by— a. Removing the words “Dealer's Aircraft Registration Certificate” in paragraph (a), and adding, in their place, the words “Dealer's Aircraft Registration Certificate, AC Form 8050-6,”; and b. Revising paragraph

(b)to read as follows: § 47.71 Duration of Certificate; change of status.

(b)The holder of a Dealer's Aircraft Registration Certificate must immediately notify the Registry of any of the following—

(1)A change of name;

(2)A change of address;

(3)A change that affects status as a citizen of the United States; or

(4)The discontinuance of business. Issued in Washington, DC, on February 21, 2008. James J. Ballough Director, Flight Standards Service. [FR Doc. E8-3822 Filed 2-27-08; 8:45 am] BILLING CODE 4910-13-P SOCIAL SECURITY ADMINISTRATION 20 CFR Parts 404, 405, and 416 [Docket No. SSA 2007-0053] RIN 0960-AG54 Compassionate Allowances for Cancers; Office of the Commissioner, Hearing AGENCY: Social Security Administration (SSA). ACTION: Advance Notice of Proposed Rulemaking; Announcement of Public Hearing and Limited Reopening of Comment Period. SUMMARY: We are considering ways to quickly identify diseases and other serious medical conditions that obviously meet the definition of disability under the Social Security Act (the Act) and can be identified with minimal objective medical information. We are calling this method “Compassionate Allowances.” We held one public hearing already and plan to hold additional public hearings this year. This is the second hearing in the series. The purpose of this hearing is to obtain your views about the advisability and possible methods of identifying and implementing compassionate allowances for children and adults with cancers. Our first hearing, on December 4-5, 2007, dealt with rare diseases. We will address other kinds of medical conditions in later hearings. DATES: This hearing will be held April 7, 2008, between 8:45 a.m. and 5:30 p.m. Eastern Standard Time (EST), in Boston, MA. The hearing will be held at 7 Cambridge Center, Cambridge, MA, 02142, at the Broad Institute Auditorium of the Massachusetts Institute of Technology. While the public is welcome to attend the hearing, only invited witnesses will present testimony. You may also watch the proceedings live via webcast beginning at 9 a.m. Eastern Standard Time (EST). You may access the webcast link for the hearing on the Social Security Administration Web page at *http://www.socialsecurity.gov/compassionateallowances/hearings0407.htm.* ADDRESSES: You may submit written comments about the compassionate allowances initiative with respect to children and adults with cancers, as well as topics covered at the hearing by:

(1)Internet through the Federal eRulemaking Portal at *http://www.regulations.gov;*

(2)e-mail addressed to *Compassionate.Allowances@ssa.gov;* or

(3)mail to Diane Braunstein, Director, Office of Compassionate Allowances and Listings Improvements, ODP, ODISP, Social Security Administration, 4468 Annex, 6401 Security Boulevard, Baltimore, MD 21235-6401. We must receive written comments by May 9, 2008. FOR FURTHER INFORMATION CONTACT: *Compassionate.Allowances@ssa.gov.* You may also mail inquiries about this meeting to Diane Braunstein, Director, Office of Compassionate Allowances and Listings Improvements, ODP, ODISP, Social Security Administration, 4468 Annex, 6401 Security Boulevard, Baltimore, MD 21235-6401. For information on eligibility or filing for benefits, call our national toll-free number 1-800-772-1213 or TTY 1-800-325-0778, or visit our Internet site, Social Security Online, at *http://www.socialsecurity.gov.* SUPPLEMENTARY INFORMATION: Background Under titles II and XVI of the Act, we pay benefits to individuals who meet our rules for entitlement and have medically determinable physical or mental impairments that are severe enough to meet the definition of disability in the Act. The rules for determining disability can be very complicated, but some individuals have such serious medical conditions that their conditions obviously meet our disability standards. To better address the needs of these individuals, we are looking into ways to allow benefits as quickly as possible. On July 31, 2007, we published an advance notice of proposed rulemaking (ANPRM) in the **Federal Register** to solicit the public's views on what standards we should use for making compassionate allowances, methods we might use to identify compassionate allowances and suggestions for how to implement those standards and methods. (See 72 FR 41649.) You may read the ANPRM at *http://www.gpoaccess.gov/fr/index.html* or at *http://www.regulations.gov,* where you may also read the public comments we received. The 60-day comment period on the overall compassionate allowance initiative ended on October 1, 2007. We reopened the comment period in connection with our first public hearing in order to receive comments with respect to children and adults with rare diseases. This notice constitutes a limited reopening of the comment period with respect to children and adults with cancers, as well as topics covered at the hearing on April 7, 2008. Will We Respond to Your Comments? We will carefully consider your comments, although we will not respond directly to comments sent in response to this notice or the hearing. Thereafter, we will decide whether to implement the compassionate allowance initiative and, if so, how the initiative will be implemented. If we decide to issue regulations addressing compassionate allowances, we will publish a notice of proposed rulemaking

(NPRM)in the **Federal Register** . In accordance with the usual rulemaking procedures we follow, you will have a chance to comment on the revisions we propose in the NPRM, and we will summarize and respond to the significant comments in the preamble to any final rules. Additional Hearings We held a hearing on rare diseases on December 4 and 5, 2007. You may access a transcript of the hearing at *www.regulations.gov* , when it becomes available. We plan to hold additional hearings on chronic conditions and traumatic injuries, and will announce those hearings later with notices in the **Federal Register** . (Catalog of Federal Domestic Assistance Program Nos. 96.001, Social Security—Disability Insurance; 96.006, Supplemental Security Income. (72 FR 62608) Dated: February 6, 2008. Michael J. Astrue, Commissioner of Social Security. [FR Doc. E8-3720 Filed 2-27-08; 8:45 am] BILLING CODE 4191-02-P DEPARTMENT OF THE TREASURY Internal Revenue Service 26 CFR Part 1 [REG-124590-07] RIN 1545-BG11 Guidance Regarding Foreign Base Company Sales Income AGENCY: Internal Revenue Service (IRS), Treasury Department. ACTION: Notice of proposed rulemaking. SUMMARY: This document contains proposed regulations that provide guidance relating to foreign base company sales income, as defined in section 954(d), in cases in which personal property sold by a controlled foreign corporation

(CFC)is manufactured, produced, or constructed pursuant to a contract manufacturing arrangement or by one or more branches of the CFC. These regulations, in general, will affect CFCs and their United States shareholders. Certain portions of these proposed regulations restate changes to § 1.954-3(a)(4) that were contained in former proposed regulations. DATES: Written or electronic comments and requests for a public hearing must be received by May 28, 2008. ADDRESSES: Send submissions to: CC:PA:LPD:PR (REG-124590-07), Internal Revenue Service, PO Box 7604, Ben Franklin Station, Washington, DC 20044 or send electronically, via the Federal eRulemaking Portal at www.regulations.gov (IRS REG-121509-00). FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations, Ethan Atticks,

(202)622-3840; concerning submissions of comments, Kelly Banks,

(202)622-0392 (not toll-free numbers). SUPPLEMENTARY INFORMATION: Background A. Foreign Base Company Sales Income Under section 951(a)(1)(A)(i), a United States shareholder of a CFC includes in gross income its pro rata share of the CFC's subpart F income for the CFC's taxable year which ends with or within the taxable year of the shareholder. Section 952(a)(2) defines the term “subpart F income” to mean, in part, “foreign base company income.” Section 954(a)(2) defines “foreign base company income” to include foreign base company sales income (FBCSI) for the taxable year. Section 954(d)(1) defines FBCSI to mean income derived by a CFC in connection with

(1)the purchase of personal property from a related person and its sale to any person,

(2)the sale of personal property to any person on behalf of a related person,

(3)the purchase of personal property from any person and its sale to a related person, or

(4)the purchase of personal property from any person on behalf of a related person, provided (in all of these cases) that the property both is manufactured, produced, grown or extracted outside of the CFC's country of organization and is sold for use, consumption or disposition outside of such country. The Treasury regulations further define FBCSI and the applicable exceptions from FBCSI. These exceptions from FBCSI are contained in § 1.954-3(a)(2), which addresses personal property manufactured, produced, constructed, grown, or extracted within the CFC's country of organization (the same country manufacture exception), § 1.954-3(a)(3), which addresses personal property sold for use, consumption or disposition within the CFC's country of organization, and § 1.954-3(a)(4) which addresses personal property manufactured, produced or constructed by the CFC (the manufacturing exception). Section 1.954-3(a)(4)(i) provides that FBCSI does not include income of a CFC derived in connection with the sale of personal property manufactured, produced, or constructed by such corporation in whole or in part from personal property which it has purchased. It then states generally that a foreign corporation is considered to have manufactured, produced, or constructed personal property which it sells if the property sold is in effect not the property which it purchased. Specifically, § 1.954-3(a)(4)(i) states that personal property sold will be considered as not being the property purchased if the provisions of § 1.954-3(a)(4)(ii) or

(iii)are satisfied. Section 1.954-3(a)(4)(ii) and

(iii)set forth two separate tests to determine whether a CFC is considered to manufacture, produce, or construct personal property that it sells. First, § 1.954-3(a)(4)(ii) sets forth a “substantial transformation” test, pursuant to which if personal property is substantially transformed prior to sale, the property sold will be treated as having been manufactured, produced, or constructed by the selling corporation. Examples of substantial transformation provided in the regulations include the conversion of wood pulp to paper, steel rods to screws and bolts, and tuna fish to canned tuna. Second, § 1.954- 3(a)(4)(iii) sets forth a general “substantive test” and a safe harbor that apply when purchased property is used by the CFC as a component part of personal property that is sold by the CFC. Under the substantive test, the sale of personal property will be treated as the sale of a product manufactured by the CFC rather than the sale of component parts if the operations conducted by the CFC in connection with the property are substantial in nature and generally considered to constitute the manufacture, production, or construction of the property. The assembly of automobiles from component parts is provided as an example of an activity considered to be substantial in nature and generally considered to constitute the manufacture of a product. Under the safe harbor, without limiting the application of the substantive test, the operations of a selling corporation in connection with the use of purchased property as a component part of the personal property that is sold will be considered to constitute the manufacture of a product if in connection with such property conversion costs (direct labor and factory burden) of such corporation account for 20 percent or more of the total cost of goods sold. Section 1.954-3(a)(4)(iii) makes clear that, in no event, however, will packaging, prepackaging, labeling, or minor assembly operations constitute the manufacture, production, or construction of property for purposes of section 954(d)(1). For purposes of this preamble, satisfaction of the requirements of § 1.954-3(a)(4)(ii) or

(iii)will be referred to as satisfaction of the “physical manufacturing test.” B. The Branch Rule In addition to the general FBCSI rules of section 954(d)(1), section 954(d)(2) provides a special rule for purposes of determining FBCSI if a CFC carries on activities through a branch or similar establishment outside its country of organization and the carrying on of such activities has substantially the same effect as if such branch or similar establishment were a wholly owned subsidiary corporation (the branch rule). Under the branch rule, to the extent prescribed by regulations, the income attributable to the carrying on of such activities is treated as income derived by a wholly owned subsidiary of the CFC and constitutes FBCSI of the CFC. Section 1.954-3(b)(1)(i) (addressing sales or purchase branches) and

(ii)(addressing manufacturing branches) provide rules on the application of the branch rule. The purpose of the branch rule is to prevent a CFC from using a foreign branch to avoid the application of the FBCSI rules. Absent the branch rule, a CFC could engage in purchasing or manufacturing activities with respect to personal property in a high-tax jurisdiction and selling activities with respect to the property in a low-tax jurisdiction without incurring FBCSI. In such a case, the sales income would not be FBCSI to the CFC because the same person would be purchasing or manufacturing the personal property and selling the personal property. The branch rule therefore treats a sales, purchase, or manufacturing branch located outside of the country of organization of the CFC as a separate corporation so as to create a related party transaction between the branch and the remainder of the CFC for purposes of determining FBCSI. With respect to manufacturing branches, § 1.954-3(b)(1)(ii)( *a* ) provides that if a CFC carries on manufacturing, producing, constructing, growing, or extracting activities by or through a branch or similar establishment located outside of its country of organization and the use of that branch or similar establishment for such activities with respect to personal property purchased or sold by or through the remainder of the CFC has substantially the same tax effect as if that branch or similar establishment were a wholly owned subsidiary corporation of such CFC, that branch or similar establishment and the remainder of the CFC will be treated as separate corporations for purposes of determining FBCSI of such CFC. Section 1.954-3( *b* )(1)(ii)( *b* ) provides that the use of a manufacturing branch or similar establishment will be considered to have substantially the same tax effect as if it were a wholly owned subsidiary corporation of the CFC if the tax imposed on the income derived by the remainder of the CFC satisfies the test set forth in § 1.954-3(b)(1)(ii)( *b* ) (the manufacturing branch tax rate disparity test). There is also a separate tax rate disparity test which applies to sales or purchase branches under § 1.954-3(b)(1)(i)( *b* ) (the sales branch tax rate disparity test). For purposes of the manufacturing branch tax rate disparity test, the income considered to be derived by the remainder of the CFC is determined first by applying the rules of § 1.954-3(b)(2)(i) which treat the CFC and the manufacturing branch as separate corporations, and then by determining the income of the CFC that would be FBCSI under section 954(d)(1) and § 1.954-3(a)(1) if the CFC and the branch were separate corporations (but without applying the exceptions contained in § 1.954-3(a)(2), (3), and (4)). Specifically, § 1.954-3(b)(2)(i)( *a* ) treats the remainder of the CFC and the manufacturing branch as separate corporations. In addition, § 1.954-3(b)(2)(i)( *b* ) and ( *c* ) deem purchases or sales to be made “on behalf of” a related person to take into account that the remainder of the CFC and the branch are treated as separate corporations. Section 1.954-3(b)(2)(i)( *b* ) addresses sales and purchase branches by treating selling or purchasing activities conducted through a branch or similar establishment with respect to personal property as performed on behalf of the CFC if the CFC manufactures, produces, constructs, grows, extracts, purchases, or sells that same property. Section 1.954-3(b)(2)(i)( *c* ) provides a corollary rule addressing manufacturing branches, pursuant to which the purchase or sale of personal property by the remainder of the CFC is treated as performed on behalf of a branch that manufactures, produces, constructs, grows, or extracts that property. The general rule of § 1.954-3(a)(1) is then applied to determine the income that would be FBCSI if the branch and the remainder of the CFC were separate corporations subject to the “on behalf of” related party transactions described above. Section 1.954-3(b)(1)(ii)( *b* ) provides that the manufacturing branch tax rate disparity test is satisfied if the income that would be FBCSI after applying these special rules is taxed in the year when earned at an effective rate of tax that is less than 90 percent of, and at least 5 percentage points less than, the hypothetical effective rate of tax. The hypothetical effective rate of tax is the effective rate of tax which would apply to such income under the laws of the country in which the manufacturing branch is located, if, under the laws of such country, the entire income of the CFC were considered derived by such CFC from sources within such country from doing business through a permanent establishment therein, received in such country, and allocable to such permanent establishment, and the CFC were created or organized under the laws of, and managed and controlled in, such country. If the manufacturing branch tax rate disparity test is satisfied, § 1.954-3(b)(1)(ii)( *a* ) then treats the branch and the remainder of the CFC as separate corporations and the special rules of § 1.954-3(b)(2)(ii) are applied for purposes of determining FBCSI. Section 1.954-3(b)(2)(ii)( *a* ) through ( *c* ) provide separate CFC and related party rules that mirror § 1.954-3(b)(2)(i)( *a* ) through ( *c* ). Section 1.954-3(b)(2)(ii)( *d* ) through ( *f* ) provide special rules to prevent double counting of FBCSI and to align treatment of branches with the treatment of separate CFCs. In particular, § 1.954-3(b)(2)(ii)( *e* ) provides that income derived by a branch or similar establishment, or by the remainder of the CFC, will not be FBCSI if the income would not be so considered if it were derived by a separate CFC under like circumstances. C. Legal Developments In Rev. Rul. 75-7 (1975-1 CB 244), revoked by Rev. Rul. 97-48 (1997-2 CB 89), the IRS considered a case in which a CFC purchased raw material from related persons outside of its country of organization, contracted with an unrelated manufacturer located outside of its country of organization to process the raw material into a finished product, and then sold the finished product to unrelated persons outside of its country of organization. Under the terms of the arrangement, the contract manufacturer was paid a conversion fee. The raw material, work in process, and finished product remained the property of the CFC at all times. The CFC alone had complete control over the time and quantity of production as well as complete quality control over the conversion process. The IRS ruled, under these facts, that the performance of the operations by the contract manufacturer whereby the raw material was processed into a finished good was considered to be a performance by the CFC, and the CFC would therefore be treated as having substantially transformed personal property. The ruling further concluded that, because the CFC conducted the manufacturing activity outside of its country of organization, it was considered to do so through a branch or similar establishment. Because the manufacturing branch tax rate disparity test was not satisfied, however, the activities of the “branch” were not considered the activities of a separate CFC and the CFC was therefore entitled to the manufacturing exception from FBCSI. See § 601.601(d)(2)(ii)( *b* ). In *Ashland Oil, Inc.* v. *Commissioner,* 95 TC 348 (1990), the Tax Court held that an unrelated manufacturing corporation in a contract manufacturing arrangement with a CFC cannot be treated as a branch or similar establishment of the CFC. In *Vetco, Inc.* v. *Commissioner,* 95 TC 579 (1990), the Tax Court held that a wholly owned subsidiary of a CFC in a contract manufacturing arrangement with the CFC also cannot be treated as a branch or similar establishment of the CFC. In Rev. Rul. 97-48 the IRS revoked Rev. Rul. 75-7. Rev. Rul. 97-48 states that the IRS will follow *Ashland Oil, Inc.* v. *Commissioner* and *Vetco, Inc.* v. *Commissioner,* and therefore confirms that the IRS will not treat a separate contract manufacturer as a branch for purposes of section 954(d)(2). In addition, Rev. Rul. 97-48 rules that the activities of a contract manufacturer cannot be attributed to a CFC for purposes of either section 954(d)(1) or section 954(d)(2) to determine whether the income of a CFC is FBCSI. However, the ruling does not address the circumstances under which the activities of the CFC itself may qualify as manufacturing when a contract manufacturing or similar arrangement is in place. See § 601.601(d)(2)(ii)( *b* ). D. Business Developments Final regulations addressing FBCSI were first published in 1964 (TD 6734, 29 FR 6392). Since then, global economic expansion and globalization have led to significant changes in manufacturing. Many multinational groups have extensive manufacturing networks that straddle geographic borders. These cross-border manufacturing networks are created primarily to leverage expertise and cost efficiencies. In addition, the use of contract manufacturing arrangements has become a common way of manufacturing products because of the flexibility and efficiencies it affords. Accordingly, updated rules in this area are important to the continued competitiveness of U.S. businesses operating abroad. Explanation of Provisions In response to the growing importance of contract manufacturing and other manufacturing arrangements, the Treasury Department and the IRS propose to modernize the FBCSI regulations in light of current business structures and practices that are inadequately addressed by the current regulations. Specifically, the proposed regulations address:

(1)The application of the manufacturing exception where the physical manufacturing test is not satisfied by the CFC but where the CFC, and/or a branch of the CFC, is involved in the manufacturing process;

(2)the application of the branch rule to business structures involving the use of one or more branches engaged in manufacturing, producing, constructing, growing, or extracting activities; and

(3)other miscellaneous branch rule issues. Certain portions of these proposed regulations restate changes that were previously proposed in REG-104537-97 (63 FR 14669) and withdrawn in REG-113909-98 (64 FR 37727). A. Application of the Manufacturing Exception Where the Physical Manufacturing Test Is Not Satisfied by the CFC but the CFC Is Involved in the Manufacturing Process—Substantial Contribution to Manufacturing Section 954(d)(1) includes, as FBCSI, income from the purchase of personal property from any person and “its” sale to a related person. Some taxpayers argue that use of the word “its” implies that the property sold must be the same property that is purchased for the sales income to be FBCSI. Accordingly, these taxpayers assert that where the personal property purchased by the CFC is manufactured such that the property purchased is not the same as the property sold by the CFC, the property sold by the CFC is not the property purchased and therefore the sale of such property does not generate FBCSI, even if the CFC itself performs little or no part of the manufacture of that property. They further argue that the manufacturing exception under § 1.954-3(a)(4)(i) provides a safe harbor but does not define the universe of cases in which personal property sold by a CFC is considered to be different from the property purchased by the CFC for purposes of determining FBCSI. In addition, they argue that § 1.954-3(a)(4)(i) supports their view because it states, in part, that “[a] foreign corporation will be considered, for purposes of this subparagraph, to have manufactured, produced, or constructed personal property which it sells if the property sold is in effect not the property which it purchased.” The Treasury Department and the IRS believe that the position taken by these taxpayers is contrary to existing law, and results from an incorrect reading of section 954(d)(1) and § 1.954-3(a)(4)(i). Section 954(d)(1) requires only a purchase of personal property and the sale of that personal property by the CFC with no indication as to form. Moreover, section 954(d)(1)(A) limits FBCSI to income derived in connection with the purchase (or sale) of personal property that is manufactured, produced, grown, or extracted outside of the CFC's country of organization, thereby indicating that section 954(d)(1) is concerned with the segregation of purchase or sales and manufacturing into different jurisdictions, not merely with whether the property was manufactured. Section 1.954-3(a)(4) provides the only set of rules under which a change in form of personal property is considered relevant for purposes of determining FBCSI. The first sentence of Treas. Reg. § 1.954-3(a)(4) sets forth the general rule that “foreign base company sales income does not include income of a CFC derived in connection with the sale of personal property manufactured, produced, or constructed by such corporation in whole or in part from personal property which it has purchased.” The third sentence of that paragraph explains that “the property sold will be considered, for purposes of this subparagraph, as not being the property which is purchased if the provisions of subdivision

(ii)or

(iii)of this subparagraph are satisfied.” The plain language of the regulation, as well as the examples, clarify that in order to satisfy § 1.954-3(a)(4)(ii) or

(iii)the relevant manufacturing activities must be performed by the CFC itself. See, for example, *Electronic Arts, Inc.* v. *Commissioner,* 118 TC 226, 265

(2002)(stating that “petitioner's focus on certain language in section 1.954-3(a)(4), Income Tax Regs., overlooks the regulation's requirement that various actions have been done ‘by’ the corporation being evaluated”). See also, *Medchem* v. *Commissioner,* 116 TC 308 (2001). Further, this regulation was issued shortly after the statute became effective, and is consistent with the legislative history, which contemplates that property sold will be considered different from the property purchased only when the CFC itself manufactures that property. See S. Rep. No. 1881, 87th Cong., 2d Sess. (1962), 1962-3 C.B. 841, 949 (stating that “[i]n a case in which a controlled foreign corporation purchases parts or materials which it then transforms or incorporates into a final product, income from the sale of the final product would not be foreign base company sales income if the corporation substantially transforms the parts or materials, so that, in effect, the final product is not the property purchased.”) The proposed regulations clarify that for purposes of determining FBCSI personal property sold by a CFC will be considered to be the property purchased by the CFC regardless of whether it is sold in the same form in which it was purchased, in a different form than the form in which it was purchased, or as a component part of a manufactured product, except as specifically provided by the same country manufacture exception contained in § 1.954-3(a)(2) and the manufacturing exception contained in § 1.954-3(a)(4). Therefore, the only time that the manufacture of a product will affect whether income is FBCSI is when the manufacture of the product is performed by the CFC or performed in the country of organization of the CFC. With respect to the manufacturing exception contained in § 1.954-3(a)(4), the proposed regulations clarify that a CFC qualifies for the manufacturing exception from FBCSI only if the CFC, acting through its employees, manufactured the relevant product within the meaning of § 1.954-3(a)(4)(i). The proposed regulations also further provide rules to determine whether the activities of a branch or similar establishment outside the country in which the CFC is incorporated have substantially the same tax effect as if the branch or similar establishment were a wholly owned subsidiary corporation, and thus whether under section 954(d)(2) the income attributable to the branch or similar establishment constitutes FBCSI of the CFC. The Treasury Department and the IRS recognize, however, that due to business considerations in the global marketplace, personal property may be manufactured pursuant to a contract manufacturing arrangement under which the CFC engages in activities related to the manufacture of the property (for example, oversight, direction and control over the contract manufacturer) but does not satisfy the physical manufacturing test. In certain of these cases, the Treasury Department and the IRS believe that the CFC should qualify for the manufacturing exception to FBCSI. Accordingly, the proposed regulations modify § 1.954-3(a)(4) to provide that a CFC that provides a “substantial contribution” with respect to the manufacture, production, or construction of personal property, but that could not satisfy the physical manufacturing test, may have manufactured such property for purposes of the manufacturing exception. Specifically, proposed § 1.954-3(a)(4)(i) provides that, in addition to proposed § 1.954-3(a)(4)(ii) and (iii), a taxpayer may qualify for the manufacturing exception by satisfying the “substantial contribution test” in proposed § 1.954-3(a)(4)(iv). Pursuant to proposed § 1.954-3(a)(4)(iv)(b), a CFC will satisfy the substantial contribution test with respect to personal property only if the facts and circumstances evidence that the controlled foreign corporation makes a substantial contribution through the activities of its employees to the manufacture of that property. Factors to be considered in determining whether a CFC makes a substantial contribution to the manufacture of personal property include but are not limited to:

(1)Oversight and direction of the activities or process (including management of the risk of loss) pursuant to which the property is manufactured under the principles of § 1.954-3(a)(4)(ii) and (iii);

(2)performance of manufacturing activities that are considered in, but insufficient to satisfy the tests provided in § 1.954-3(a)(4)(ii) or (iii);

(3)control of the raw materials, work-in-process and finished goods;

(4)management of the manufacturing profits;

(5)material selection;

(6)vendor selection;

(7)control of logistics;

(8)quality control; and

(9)direction of the development, protection, and use of trade secrets, technology, product design and design specifications, and other intellectual property used in manufacturing the product. In light of the addition of the new test contained in proposed § 1.954-3(a)(4)(iv), the interaction between several existing regulation sections and the new test is clarified. First, the existing manufacturing exceptions under § 1.954-3(a)(4)(ii) and

(iii)are modified to clarify that the applicability of the tests under § 1.954-3(a)(4)(ii) and

(iii)are restricted to cases in which physical transformation or physical assembly or conversion of component parts is conducted by the selling corporation. Second, the definition of manufacturing for purposes of the same country manufacture exception contained in § 1.954-3(a)(2) is modified to exclude manufacturing as defined under the substantial contribution test, and to ensure that the modifications to the existing manufacturing exceptions under § 1.954-3(a)(4)(ii) and

(iii)do not narrow the same country manufacture exception. The Treasury Department and the IRS did not intend these regulations to change the scope of the same country manufacture exception. Section 1.954-3(a)(2) excludes manufacturing as defined under the substantial contribution test because a rule that expanded the definition of manufacturing to include § 1.954-3(a)(4)(iv) activities for purposes of the same country manufacture exception could prove difficult to administer. Such a rule could require an assessment of activities other than physical manufacturing conducted by an unrelated person. Modifying § 1.954-3(a)(2) ensures that the modifications to the existing manufacturing exceptions under § 1.954-3(a)(4)(ii) and

(iii)do not narrow the same country manufacture exception by clarifying that property manufactured in the country of organization of the selling corporation will qualify for the same country manufacture exception regardless of whose employees engage in manufacturing activities that satisfy the principles of § 1.954-3(a)(4)(ii) or (iii). Third, the proposed regulations modify § 1.954-3(a)(6), which addresses the application of the manufacturing exception to a CFC's distributive share of partnership income where the partnership manufactures and sells personal property. The reference to “the separate activities or property of the controlled foreign corporation or any other person,” in § 1.954-3(a)(6) was intended to clarify that the activities of another person could not be attributed to the partnership for purposes of applying the manufacturing exception. Because these proposed regulations clarify that no attribution is allowed for purposes of applying the manufacturing exception that language is now unnecessary and is therefore removed. Section 1.954-3(a)(6) is also modified consistent with the modifications to § 1.954-3(a)(4) providing that a CFC may only qualify for the manufacturing exception through the activities of its employees. B. Application of the Branch Rule to Business Structures Involving the Use of More Than One Branch Engaged in Manufacturing Proposed § 1.954-3(b)(2)(ii)( *c* )( *2* ) creates a rebuttable presumption with respect to the application of the substantial contribution test where a CFC claims to satisfy the substantial contribution test with respect to the activities of a branch of that CFC that satisfies § 1.954-3(a)(4)(ii) or (iii). Under this rebuttable presumption, if a branch of a CFC satisfies the physical manufacturing test with respect to personal property sold by the remainder of the CFC, the remainder of the CFC will be presumed not to make a substantial contribution to the manufacture of that personal property unless the CFC can rebut that presumption to the satisfaction of the Commissioner. The Treasury Department and the IRS believe that these rules are necessary as a backstop to the branch rule. In the absence of the rebuttable presumption, a rule permitting a CFC to qualify for the manufacturing exception based upon its contribution to the manufacturing activities of a branch would prove difficult to administer. Such a rule could encourage a CFC to elect classification of its subsidiaries that engage in manufacturing activities as disregarded entities, obfuscating the division of manufacturing labor and income between the CFC and its branches. Of course, the presumption may be rebutted and any adverse consequences alleviated by incorporating the branch that satisfies the physical manufacturing test. Although § 1.954-3(b)(1)(i)( *c* ) provides a rule addressing the use of multiple sales or purchase branches, § 1.954-3(b)(1)(ii) does not provide a corollary rule for the use of multiple manufacturing branches. The Treasury Department and the IRS believe that the lack of a specific rule addressing the use of more than one manufacturing branch does not currently limit the general manufacturing branch rule of § 1.954-3(b)(1)(ii)( *a* ) from applying to each manufacturing branch of a CFC in a case where a CFC performs manufacturing activities through more than one branch or similar establishment. Rather, such an application is consistent with the rules regarding multiple sales or purchase branches. Nonetheless, for clarity, the proposed regulations set forth rules addressing the use of multiple manufacturing branches. The proposed regulations set forth two rules addressing the application of the manufacturing branch tax rate disparity test to multiple manufacturing branches. Proposed § 1.954-3(b)(1)(ii)( *c* )( *2* ) addresses situations in which multiple branches each perform manufacturing activities with respect to separate items of personal property that are then sold by the CFC. Consistent with the rule for multiple sales branches, the proposed regulations require the separate application of the manufacturing branch tax rate disparity test to each branch that is manufacturing a separate item of personal property. Proposed § 1.954-3(b)(1)(ii)( *c* )( *3* ) addresses situations in which multiple branches, or one or more branches and the remainder of the CFC, perform manufacturing activities with respect to the same item of personal property that is then sold by the CFC. When multiple branches, or one or more branches and the remainder of the CFC, perform manufacturing activities with respect to the same item of personal property, the manufacturing branch tax rate disparity test is applied by giving satisfaction of the physical manufacturing test precedence over other contributions to manufacturing. Therefore, if only one branch, or only the remainder of the CFC, satisfies the physical manufacturing test of § 1.954-3(a)(4)(ii) or (iii), then the location of that branch or the remainder of the CFC will be the location of manufacturing of the personal property for purposes of applying the manufacturing branch tax rate disparity test. If more than one branch, or one or more branches and the remainder of the CFC, each satisfy the physical manufacturing test, then the branch or the remainder of the CFC located or organized in the jurisdiction that would impose the lowest effective rate of tax will be the location of manufacturing of the personal property for purposes of applying the manufacturing branch tax rate disparity test. If none of the branches nor the remainder of the CFC satisfies the physical manufacturing test, but the CFC as a whole satisfies the substantial contribution test contained in proposed § 1.954-3(a)(4)(iv), then the location of manufacturing of the personal property will be the location of the branch or the remainder of the CFC that provides the predominant amount of the CFC's substantial contribution to manufacturing. Whether any branch or the remainder of the CFC provides a predominant amount of the CFC's contribution to manufacturing is determined by applying the facts and circumstances test provided in § 1.954-3(a)(4)(iv) to weigh the contribution to manufacturing of each branch or the remainder of the CFC. If a predominant amount of the CFC's contribution to manufacturing is not provided by any one location, the location of manufacturing of the personal property for purposes of applying the manufacturing branch tax rate disparity test will be that place (either the remainder of the CFC or one of its branches) where manufacturing activity is performed and which would impose the highest effective rate of tax when applying either § 1.954-3(b)(1)(i)( *b* ) or (ii)( *b* ). Because the proposed regulations address cases in which two or more branches, or one or more branches and the remainder of the CFC, perform manufacturing activities related to the manufacture of the same item of property, § 1.954-3(b)(2)(ii)( *a* ) is modified to clarify the application of the branch rule where manufacturing activities are performed in more than one location. In such cases, proposed § 1.954-3(b)(2)(ii)( *a* ) provides that, for purposes of treating the location of sales or purchase income as a separate corporation for purposes of determining whether FBCSI is incurred, that separate corporation will exclude any branch or the remainder of the CFC that would be treated as a separate corporation, if the hypothetical rate imposed by the jurisdiction of each such branch or the remainder of the CFC were separately tested against the effective rate of tax imposed on the sales or purchase income under the relevant tax rate disparity test. C. Miscellaneous Branch Rule Issues The Treasury Department and the IRS also propose to amend certain other aspects of § 1.954-3(b) as follows: 1. Definition of a Manufacturing Branch While § 1.954-3(b)(1)(ii)( *a* ) defines a manufacturing branch as a branch or similar establishment through which a CFC carries on manufacturing activities, it does not explicitly require that § 1.954-3(a)(4)(i) be satisfied by the CFC as a whole in order for the manufacturing branch rule to apply. The Treasury Department and the IRS believe that a manufacturing branch only exists with respect to personal property sold by a CFC if the CFC (including any branch of that CFC) has manufactured that property. Accordingly, proposed § 1.954-3(b)(1)(ii)( *a* ) clarifies this point by providing that the manufacturing branch rule applies only where a CFC (including any branch of the CFC) satisfies the manufacturing requirement under proposed § 1.954-3(a)(4). 2. Modification of § 1.954-3(b)(2)(ii)(e) Section 1.954-3(b)(2)(ii)( *e* ) provides that income derived by a branch or similar establishment, or by the remainder of the CFC, will not be FBCSI if the income would not be so considered if it were derived by a separate CFC under like circumstances. For example, if a branch of a CFC purchases personal property from an unrelated person and sells the property to an unrelated person without any involvement by the remainder of the CFC, the branch rule will not apply to create a related party transaction between the branch and the remainder of the CFC. Therefore the purchase and sale of that personal property by the branch will not generate FBCSI. The proposed regulations provide that the substantial contribution test generally applies to a CFC that sells personal property where another person (for example, a second CFC) satisfies the physical manufacturing test with respect to that property. However, a negative presumption applies where a CFC claims to satisfy the substantial contribution test with respect to income from the sale of personal property where the physical manufacturing test is satisfied by a branch of that CFC. The effect of these rules is that, where a CFC seeks to rely on the substantial contribution test with respect to the income from the sale of personal property manufactured (within the meaning of § 1.954-3(a)(4)(ii) or (iii)) by one or more of its branches, but cannot rebut the negative presumption to the satisfaction of the Commissioner, a branch or the remainder of a CFC may have FBCSI where a separate CFC would not. Therefore, to integrate the rules regarding the substantial contribution test and its application under the branch rule, proposed § 1.954-3(b)(2)(ii)( *e* ) excepts from its general rule cases in which a branch satisfies the physical manufacturing test with respect to personal property and the remainder of the controlled foreign corporation fails to rebut the presumption that it does not satisfy the substantial contribution test with respect to the activities of that manufacturing branch. In addition, consistent with the clarification regarding the scope of the branch rule contained in proposed § 1.954-3(b)(1), § 1.954-3(b)(2)(ii)( *e* ) is modified to clarify that it applies only for purposes of paragraph

(b)of § 1.954-3 (that is, the branch rule). This clarifies that in no event will the branch rule cause income not to be FBCSI if that income would otherwise be FBCSI under section 954(d)(1). For example, assume a CFC incorporated in Country Y purchases personal property from a related party and has that property manufactured by a contract manufacturer in Country Z. If the CFC does not perform any other activity with respect to the manufacture of the property, and if the CFC sells the manufactured property through a branch located in Country Z for use, consumption, or disposition outside of Country Y, the income from the sale of that property is FBCSI under section 954(d)(1). If the branch located in Country Z were a separate CFC the income would not be FBCSI because it would be selling personal property manufactured in its country of organization, Country Z. However, because the income would be FBCSI to the CFC under section 954(d)(1), proposed § 1.954-3(b)(2)(ii)( *e* ) does not apply to create a different result. 3. Modification of § 1.954-3(b)(2)(i)(b), (b)(2)(ii)(b) and (b)(4), Example 3 Commentators have noted that § 1.954-3(b)(2)(i)( *b* ) and (ii)( *b* ) can be read to cause a branch that purchases from unrelated persons and sells to unrelated persons to have FBCSI even where the remainder of the CFC has no connection with the personal property that is sold. Although § 1.954-3(b)(2)(ii)( *e* ) should prevent such a result, commentators note that a contrary reading is possible because the sales branch rules of § 1.954-3(b)(2)(i)( *b* ) and (ii)( *b* ) apply, in part, with respect to personal property manufactured, produced, constructed, grown, or extracted by, or personal property purchased or sold by the “controlled foreign corporation” (as opposed to by the “remainder” of the controlled foreign corporation). For example, in a case in which a branch both manufactures and sells personal property, the branch could be considered to sell on behalf of the remainder of the CFC because the branch's manufacturing activities would be considered to be manufacturing activities of the CFC, thereby triggering the application of § 1.954-3(b)(2)(ii)( *b* ). Further, commentators note that § 1.954-3(b)(4), *Example 3* appears to support this reading because in that example a branch of a corporation purchases from a related person and sells to an unrelated person, and the branch is treated as selling that property on behalf of the remainder of the CFC, even though the remainder of the corporation does not manufacture, purchase, or sell the personal property. Section 1.954-3(b)(2)(i)( *b* ) and (ii)( *b* ) are intended to apply only to purchasing or selling by a branch with respect to personal property manufactured, purchased, or sold by “the remainder of” the CFC (including any branch treated as the remainder of the CFC). For example, the branch rule could apply in a case where personal property is manufactured by the CFC in the country of organization of the CFC and then sold by a branch of the CFC located outside of the country of organization of the CFC. However, the branch rule does not apply where, for example, a branch of the CFC purchases personal property from an unrelated party and sells it to an unrelated party without any involvement by the remainder of the CFC. Accordingly, the proposed regulations amend § 1.954-3(b)(2)(i)( *b* ) and (ii)( *b* ) by adding the words “remainder of” before each place where the words “controlled foreign corporation” appear in those paragraphs and by adding the words “(or by any branch treated as the remainder of the CFC)” after each place where the words “controlled foreign corporation” appear in those paragraphs. Consistent with this change, the proposed regulations revise the rationale for the result in § 1.954-3(b)(4), *Example 3* as described below. In § 1.954-3(b)(4), *Example 3,* a branch of a second-tier CFC purchases finished goods from the first-tier CFC and sells 90 percent of the product for use, consumption, or disposition outside of the country in which the branch is located and the country of organization of the second-tier CFC. The remainder of the second-tier CFC does not engage in any manufacturing or selling activities. The sales branch tax rate disparity test is met in comparison to the effective tax rate of the second-tier CFC (the first-tier CFC and second-tier CFC are organized in the same country). The example concludes that since the sales branch tax disparity test is met, the branch is treated as a separate CFC and is treated as selling personal property on behalf of the second-tier CFC and therefore the 90 percent of sales made for use, consumption, or disposition outside of the branch's country is FBCSI. The rationale of the example is incorrect because the branch is not selling on behalf of the second-tier CFC because the remainder of the second-tier CFC (not including the branch) does not manufacture, purchase, or sell the personal property. Therefore, § 1.954-3(b)(2)(i)( *b* ) and (ii)( *b* ) do not apply. However, the result is correct because the branch, treated as a separate corporation, is purchasing from a related person, the first-tier CFC, organized outside of the branch's country and selling to persons outside the branch's country and the branch is located in a jurisdiction that satisfies the sales branch tax rate disparity test with respect to the income from the sale of the personal property. Accordingly, the proposed regulations revise § 1.954-3(b)(4), *Example 3* to provide the correct rationale for the result. In addition, the result in § 1.954-3(b)(4), *Example 3* is further revised to add two alternative factual scenarios (purchase from an unrelated party, and manufacture within the meaning of proposed § 1.954-3(a)(4)(iv) by the selling branch) to illustrate the point that, in general, a branch will not have FBCSI if a separate CFC would not have FBCSI under like circumstances. Proposed Effective/Applicability Date These regulations will apply to taxable years of CFCs beginning on or after the date they are published as final regulations in the **Federal Register** , and for taxable years of United States shareholders in which or with which such taxable years of the CFCs end. Reliance on Proposed Regulations Until these regulations are finalized, taxpayers may choose to apply these regulations in their entirety to all open tax years as if they were final regulations. Request for Comments The Treasury Department and the IRS request comments on all aspects of these proposed regulations, including comments regarding the substantial contribution test, and the activities listed in § 1.954-3(a)(4)(iv)( *b* ). In particular, comments are requested on whether one or more safe harbors should be added to the substantial contribution test. In drafting the proposed regulations, the Treasury Department and the IRS considered a number of approaches to a safe harbor but ultimately chose to request comments in this regard because of difficulties in fashioning a safe harbor that would be flexible enough to apply across various industries and across a range of different types of manufacturing arrangements. Among the safe harbors considered in drafting the proposed regulations were:

(1)A list of mandatory activities;

(2)a cost based test;

(3)a compensation based test;

(4)a value based test;

(5)a tax rate disparity based test; and

(6)a percentage based test comparing the compensation paid to employees of the CFC for performing activities related to the manufacturing process vs. the total cost for all activities related to the manufacturing process (that is, including costs paid to a contract manufacturer but excluding the cost of raw materials and marketing intangibles). In addition, the Treasury Department and the IRS request comments as to whether the requirement, under the manufacturing exception from foreign base company sales income, that the activities of the CFC be performed by its employees, should permit commercial arrangements where individuals performing services for the CFC, while not on its payroll, are nevertheless controlled by employees of the CFC. Comments are also requested on whether it would be appropriate to add an anti-abuse rule similar to the foreign base company services substantial assistance test announced in Notice 2007-13 to prevent a CFC from qualifying for the manufacturing exception based on the application of the substantial contribution test in cases in which substantially all of the direct or indirect contributions to the manufacture of personal property provided collectively by the CFC and any related United States person is provided by one or more related United States persons. Such a rule might provide, for example, that where

(1)the United States parent of a CFC provides 45 percent of the manufacturing contribution,

(2)the CFC provides 5 percent of the manufacturing contribution, and

(3)an unrelated contract manufacturer provides 50 percent of the manufacturing contribution to the personal property, the CFC does not make a substantial contribution to the manufacture of that property because a related United States person provides 80 percent or more of the contribution to the manufacture of the property (90 percent in this case, 45/50) provided collectively by the CFC and any related United States person. Such a rule was considered but ultimately not included in the proposed regulations and comments are requested on whether or not such a rule should be added to the final regulations. See § 601.601(d)(2)(ii)( *b* ). In addition, comments are requested on the multiple manufacturing branch rules. First, comments are requested on whether the negative presumption rule concerning cases in which the selling branch or the remainder of the CFC performs activities described in proposed § 1.954-3(a)(4)(iv) is more appropriate than an alternative rule that would deny the use of the test contained in proposed § 1.954-3(a)(4)(iv) in cases in which a branch of the CFC manufactures the property within the meaning of proposed § 1.954-3(a)(4)(ii) or (iii). Second, comments are requested on the consequences of and possible alternatives to proposed § 1.954-3(b)(1)(ii)( *c* )( *3* )( *e* ), which provides that if a predominant amount of the CFC's substantial contribution is not provided by any one location, the location of manufacturing of the personal property will be considered to be that location (either the remainder of the CFC or one of its branches) which imposes the highest effective rate of tax that would be imposed on the sales income, among those locations where manufacturing activity related to the generation of that income is performed. The Treasury Department and the IRS considered a rule that would allow taxpayers to alternatively use the mean effective rate of tax among the locations where manufacturing activity is performed, so long as that effective rate of tax was within a set number of percentage points of the highest effective tax rate that would be imposed by any jurisdiction in which a manufacturing branch or the remainder of the CFC was located or organized. However, the Treasury Department and the IRS were concerned about the complexity of such a rule. The Treasury Department and the IRS request comments on whether this or other alternatives to the highest rate test would be appropriate. Finally, comments are requested on whether any modifications to § 1.954-3(b)(1)(i)( *b* ) and (b)(1)(ii)( *b* ) should be adopted to make the rules concerning the comparison of effective rates of tax easier to apply. Special Analyses It has been determined that this notice of proposed rulemaking is not a significant regulatory action as defined in Executive Order 12866. Therefore, a regulatory assessment is not required. It has also been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to these regulations and because the proposed regulation does not impose a collection of information on small entities, the Regulatory Flexibility Act (5 U.S.C. Ch. 6) does not apply. Pursuant to section 7805(f) of the Internal Revenue Code, this notice of proposed rulemaking was submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small business. Comments and Requests for Public Hearing Before these proposed regulations are adopted as final regulations, consideration will be given to any written (a signed original and eight

(8)copies) or electronic comments that are submitted timely to the IRS. The Treasury Department and the IRS request comments on the clarity of the proposed rules and how they can be made easier to understand. All comments will be available for public inspection and copying. A public hearing will be scheduled if requested in writing by any person that timely submits written comments. If a public hearing is scheduled, notice of the date, time, and place for the public hearing will be published in the **Federal Register** . Drafting Information The principal author of these regulations is Ethan Atticks, Office of Associate Chief Counsel (International). However, other personnel from the Treasury Department and the IRS participated in their development. List of Subjects in 26 CFR Part 1 Income Taxes, Reporting and recordkeeping requirements. Proposed Amendments to the Regulations Accordingly, 26 CFR part 1 is proposed to be amended as follows: PART 1—INCOME TAXES **Paragraph 1.** The authority citation for 26 CFR part 1 continues to read in part as follows: Authority: 26 U.S.C. 7805 * * * **Par. 2.** Section 1.954-3 is amended by: 1. Adding a new sentence after the first sentence of paragraph (a)(1)(i), and by revising the second sentence of *Example 1* in paragraph (a)(1)(iii), and the first sentence of *Example 2* in paragraph (a)(1)(iii). 2. Revising the third sentence of paragraph (a)(2). 3. Revising paragraph (a)(4)(i), and the first sentences of paragraphs (a)(4)(ii) and (iii), and by adding paragraph (a)(4)(iv). 4. Revising the text of paragraph (a)(6)(i). 5. Adding a new sentence to the end of paragraph (b)(1)(ii)( *a* ). 6. Redesignating the text of paragraph (b)(1)(ii)( *c* ) as paragraph (b)(1)(ii)( *c* )( *1* ), and adding a paragraph heading to newly designated paragraph (b)(1)(ii)( *c* )( *1* ). 7. Adding paragraphs (b)(1)(ii)( *c* )( *2* ), and ( *c* )( *3* ). 8. Revising paragraph (b)(2)(i)( *b* ). 9. Adding a new sentence to the end of paragraph (b)(2)(ii)( *a* ), and revising paragraph (b)(2)(ii)( *b* ). 10. Redesignating the text of paragraph (b)(2)(ii)( *c* ) as paragraph (b)(2)(ii)( *c* )( *1* ), adding a paragraph heading to newly redesignated paragraph (b)(2)(ii)( *c* )( *1* ), adding paragraph (b)(2)(ii)( *c* )( *2* ), and revising paragraph (b)(2)(ii)( *e* ). 11. Revising *Example 3* in paragraph (b)(4). 12. Adding paragraph (d). The additions and revisions read as follows: § 1.954-3 Foreign base company sales income.

(a)* * *

(1)*In general* —(i) *General rules.* * * * For purposes of the preceding sentence, except as provided in paragraphs (a)(2) and (a)(4) of this section, personal property sold by a controlled foreign corporation will be considered to be the same property that was purchased by the controlled foreign corporation regardless of whether the personal property is sold in the same form in which it was purchased, in a different form than the form in which it was purchased, or as a component part of a manufactured product. * * * *Example 1.* * * * Corporation A purchases from M Corporation, a related person, articles manufactured in the United States and sells the articles to P, not a related person, for delivery and use in foreign country Y. * * * *Example 2.* Corporation A in *Example 1* also purchases from P, not a related person, articles manufactured in country Y and sells the articles to foreign corporation B, a related person, for use in foreign country Z. * * *

(2)* * * The principles set forth in paragraphs (a)(4)(i), (a)(4)(ii), and (a)(4)(iii) of this section apply under this paragraph (a)(2) in determining what constitutes manufacture, production, or construction of personal property, excluding, in the case of manufacture, production, or construction by a person other than the controlled foreign corporation, the requirement set forth in paragraph (a)(4)(i) of this section that the provisions of paragraphs (a)(4)(ii) and (a)(4)(iii) of this section may only be satisfied through the activities of that person's employees. * * *

(4)*Property manufactured, produced, or constructed by the controlled foreign corporation* —(i)— *In general.* Foreign base company sales income does not include income of a controlled foreign corporation derived in connection with the sale of personal property manufactured, produced, or constructed by such corporation in whole or in part from personal property which it has purchased. A controlled foreign corporation will have manufactured, produced, or constructed personal property which the corporation sells only if such corporation satisfies the provisions of paragraphs (a)(ii), (a)(iii), or (a)(iv) of this section through the activities of its employees with respect to such property. A controlled foreign corporation will not be treated as having manufactured, produced, or constructed personal property which the corporation sells merely because the property is sold in a different form than the form in which it was purchased. For rules of apportionment in determining foreign base company sales income derived from the sale of personal property purchased and used as a component part of property which is not manufactured, produced, or constructed, see paragraph (a)(5) of this section.

(ii)* * * If personal property purchased by a foreign corporation is substantially transformed by such foreign corporation prior to sale, the property sold by the selling corporation is manufactured, produced, or constructed by such selling corporation. * * *

(iii)* * * If purchased property is used as a component part of personal property which is sold, the sale of the property will be treated as the sale of a manufactured product, rather than the sale of component parts, if the assembly or conversion of the component parts into the final product by the selling corporation involves activities that are substantial in nature and generally considered to constitute the manufacture, production, or construction of property. * * *

(iv)*Substantial contribution to manufacturing of personal property* —( *a* )— *In general.* This paragraph (a)(4)(iv) applies only if a controlled foreign corporation does not satisfy paragraph (a)(4)(ii) or (a)(4)(iii) of this section, but the personal property purchased by a controlled foreign corporation would be considered to be manufactured, produced, or constructed prior to sale (under the principles of paragraphs (a)(4)(ii) or

(iii)of this section) by the controlled foreign corporation if the manufacturing, producing, and constructing activities undertaken with respect to the property prior to sale were undertaken by the controlled foreign corporation through the activities of its employees. If this paragraph (a)(4)(iv) applies, the personal property sold by the controlled foreign corporation is manufactured, produced, or constructed by such controlled foreign corporation only if the facts and circumstances evidence that the controlled foreign corporation makes a substantial contribution through the activities of its employees to the manufacture, production, or construction of the personal property sold. The determination of whether a controlled foreign corporation makes a substantial contribution through the activities of its employees to the manufacture, production, or construction of the personal property sold will involve, but will not necessarily be limited to, consideration of the activities set forth in paragraph (a)(4)(iv)( *b* ) of this section. The weight given to any activity (whether or not set forth) will vary with the facts and circumstances of the particular business. The presence or absence of any activity, or of a particular number of activities, is not determinative. Further, the fact that other persons make contributions to the manufacture, production, or construction of personal property prior to sale does not necessarily prevent the controlled foreign corporation from making a substantial contribution to the manufacture, construction, or production of that property through the activities of its employees. *(b) Activities.* Activities of a controlled foreign corporation's employees to be considered in determining whether a controlled foreign corporation makes a substantial contribution through the activities of its employees to the manufacture, construction, or production of personal property include but are not limited to— ( *1* ) Oversight and direction of the activities or process (including management of the risk of loss) pursuant to which the property is manufactured, produced, or constructed under the principles of paragraphs (a)(4)(ii) or

(iii)of this section; ( *2* ) Performance of activities that are considered in but that are insufficient to satisfy the tests provided in paragraphs (a)(4)(ii) and (a)(4)(iii) of this section; ( *3* ) Control of the raw materials, work-in-process and finished goods; ( *4* ) Management of the manufacturing profits; ( *5* ) Material selection; ( *6* ) Vendor selection; ( *7* ) Control of logistics; ( *8* ) Quality control; and ( *9* ) Direction of the development, protection, and use of trade secrets, technology, product design and design specifications, and other intellectual property used in manufacturing the product.

(c)The rules of this paragraph (a)(iv) are illustrated by the following examples: *Example 1* . *No substantial contribution to manufacturing.*

(i)*Facts* . FS, a controlled foreign corporation, purchases raw materials from a related person. The raw materials are then manufactured (under the principles of paragraph (a)(4)(iii)) of this section into Product X by CM, an unrelated corporation that performs the physical conversion outside of FS's country of organization, pursuant to a contract manufacturing arrangement. Product X is then sold by FS for use outside of FS's country of organization. At all times, FS retains control of the raw material, work-in-process, and finished goods, as well as the intangibles used in the conversion process. FS retains the right to oversee and direct the physical conversion of Product X by CM but does not regularly exercise, through its employees, its powers of oversight or direction.

(ii)*Result* . FS does not satisfy paragraph (a)(4)(ii) or (a)(4)(iii) of this section because FS does not, through the activities of its employees, substantially transform, convert or assemble personal property into Product X. However, Product X was manufactured (by CM), and therefore this paragraph (a)(4)(iv) applies. FS does not satisfy the test under this paragraph (a)(4)(iv) because it does not make a substantial contribution through the activities of its employees to the manufacture of Product X. Mere contractual ownership of materials and intellectual property and contractual rights to exercise powers of direction and control (without the exercise of those powers) are not sufficient to satisfy this paragraph (a)(4)(iv). Therefore, FS is not considered to have manufactured Product X under paragraph (a)(4)(i) of this section. *Example 2* . *Substantial contribution to manufacturing, unrelated manufacturer* .

(i)*Facts* . Assume the same facts as in *Example 1* , except for the following. FS, through its employees, is engaged in product design and quality control. Employees of FS regularly exercise the right to oversee and direct the activities of CM in the manufacture of Product X.

(i)Facts. FS, a controlled foreign corporation organized in Country M, purchases raw materials from a related person. The raw materials are then manufactured (under the principles of paragraph (a)(4)(iii) of this section) into Product X by CM, an unrelated contract manufacturer located in Country C. CM uses employees of another corporation to operate its manufacturing plant and convert the raw materials into Product X. Apart from the physical conversion of the raw materials into Product X, employees of FS perform all of the other activities with respect to the manufacture of Product X (for example, oversight and direction of the manufacturing process, control of raw materials, control of logistics, vendor selection, quality control). FS sells Product X for use, consumption or disposition outside Country M.

(ii)*Result* . If the manufacturing activities undertaken with respect to Product X between the time the raw materials were purchased and the time Product X was sold were undertaken by FS through the activities of its employees, FS would have satisfied the manufacturing exception contained in paragraph (a)(4)(iii) of this section with respect to Product X. Therefore, this paragraph (a)(4)(iv) applies. FS satisfies the test under this paragraph (a)(4)(iv) because it makes a substantial contribution through the activities of its employees to the manufacture of Product X. Therefore, FS is considered to have manufactured Product X. If CM's manufacturing plant were located in Country M, the test in paragraph (a)(2) of this section could be satisfied even if CM did not manufacture Product X through the activities of its employees. Example 4. *Automated manufacturing* .

(i)Facts. FS, a controlled foreign corporation, purchases raw materials from a related person. The raw materials are then manufactured (under the principles of paragraph (a)(4)(ii) of this section) into Product X by CM, an unrelated corporation located outside of FS's country of organization, pursuant to a contract manufacturing arrangement. Product X is then sold by FS to related and unrelated persons for use outside of FS's country of organization. Under the contract manufacturing arrangement, CM is responsible for the physical transformation of the raw materials into Product X. At all times, FS retains ownership of the raw material, work-in-process, and finished goods. FS retains the right to oversee and direct the physical conversion of Product X by CM but does not regularly exercise, through its employees, its powers of oversight or direction. FS is the owner of sophisticated software and network systems that remotely and automatically (without human involvement) take orders, route them to CM, order raw materials, and perform quality control. FS has a small number of computer technicians who monitor the software and network systems to ensure that they are running smoothly and to apply any necessary patches or fixes. The software and network systems were developed by employees of DP, the U.S. corporate parent of FS, pursuant to a cost sharing agreement between DP and FS. DP employees regularly supervise the computer technicians, evaluate the results of the automated manufacturing business, and make ongoing operational decisions, including with regard to acceptable performance of the manufacturing process, stoppages of that process, and product and process redesign and updates to meet the needs of the business and its customers. DP employees develop and provide to FS all of the upgrades to the software and network systems. DP also has employees who control the other aspects of the manufacturing process such as product design, vendor and material selection, management and retention of the manufacturing profits, and the selection of CM.

(ii)*Result* . FS does not satisfy paragraph (a)(4)(ii) or (a)(4)(iii) of this section with respect to Product X because FS does not, through the activities of its employees, substantially transform, convert or assemble personal property into Product X. If the manufacturing activities undertaken with respect to Product X between the time the raw materials were purchased and the time Product X was sold were undertaken by FS through the activities of its employees, FS would have satisfied the manufacturing exception contained in paragraph (a)(4)(iii) of this section with respect to Product X. Therefore, this paragraph (a)(4)(iv) applies. FS does not satisfy the test under this paragraph (a)(4)(iv) because it does not make a substantial contribution through the activities of its employees to the manufacture of Product X. Mere contractual ownership of materials and intellectual property together with contractual rights to exercise powers of direction and control and a small number of technical employees are not sufficient to satisfy this paragraph (a)(4)(iv). FS's primary contribution to the manufacture of Product X is the provision of the software and network systems to CM. Substantial operational responsibilities and decision making are exercised by DP employees who direct the activities of the FS employees. Therefore, FS is not considered to have manufactured Product X.

(6)* * *

(i)* * * To determine the extent to which a controlled foreign corporation's distributive share of any item of gross income of a partnership would have been foreign base company sales income if received by it directly, under § 1.952-1(g), the property sold will be considered to be manufactured, produced or constructed by the controlled foreign corporation, within the meaning of paragraph (a)(4) of this section, only if the manufacturing exception of paragraph (a)(4) of this section would have applied to exclude the income from foreign base company sales income if the controlled foreign corporation had earned the income directly, determined by taking into account the activities of the employees of, and property owned by, the partnership.

(b)* * *

(1)* * *

(ii)* * *

(a)* * * The provisions of this paragraph (b)(1)(ii)(a) will not apply unless the controlled foreign corporation (including any branches or similar establishments of such controlled foreign corporation) manufactures, produces, or constructs such personal property within the meaning of paragraph (a)(4)(i) of this section. ( *c* ) *Use of more than one branch* —(1) *Use of one or more sales or purchase branches in addition to a manufacturing branch* . * * * ( *2* ) *Use of more than one branch to manufacture, produce, construct, grow, or extract separate items of personal property* . If a controlled foreign corporation carries on manufacturing, producing, constructing, growing, or extracting activities with respect to separate items of personal property by or through more than one branch or similar establishment located outside the country under the laws of which such corporation is created or organized, then paragraphs (b)(2)(ii)( *b* ) and ( *c* ) of this section will be applied separately to each such branch or similar establishment (by treating such branch or similar establishment as if it were the only branch or similar establishment of the controlled foreign corporation and as if any such other branches or similar establishments were separate corporations) in determining whether the use of such branch or similar establishment has substantially the same tax effect as if such branch or similar establishment were a wholly owned subsidiary corporation of the controlled foreign corporation. The application of this paragraph (b)(1)(ii)(c)(2) is illustrated by the following example: Example. *Multiple branches that satisfy paragraph (a)(4)(ii) or (a)(4)(iii) of this section* .

(i)*Facts* . FS is a controlled foreign corporation organized in Country M. FS operates two branches, Branch A and Branch B located in Country A and Country B, respectively. Branch A and Branch B each manufacture separate items of personal property (Product X and Y respectively) within the meaning of paragraph (a)(4)(ii) or

(iii)of this section. Raw materials used in the manufacture of Product X and Product Y are purchased by FS from an unrelated person. FS engages in activities in Country M to sell Product X and Product Y to a related person for use, disposition or consumption outside of Country M. Employees of FS located in Country M perform only sales functions. The effective rate imposed on the income from the sales of Product X and Product Y is 10%. Country A imposes an effective rate of tax on sales income of 20%. Country B imposes an effective rate of tax on sales income of 12%.

(ii)*Result* . Pursuant to this paragraph (b)(1)(ii)( *c* )( *2* ), paragraph (b)(1)(ii)( *b* ) of this section is separately applied to Branch A and Branch B with respect to the sales income of FS attributable to Product X (manufactured by Branch A) and Product Y (manufactured by Branch B). Because the effective rate of tax on FS's sales income from the sale of Product X in Country M (10%) is less than 90% of, and at least 5 percentage points less than, the effective rate of tax that would apply to such income in the country in which Branch A is located (20%), the use of Branch A has substantially the same tax effect as if Branch A were a wholly owned subsidiary corporation of FS. Because the effective rate of tax on FS's sales income from the sale of Product Y in Country M (10%) is not less than 90% of, and at least 5 percentage points less than, the effective rate of tax that would apply to such income in the country in which Branch B is located (12%), the use of Branch B does not have substantially the same tax effect as if Branch B were a wholly owned subsidiary corporation of FS. Consequently, only Branch A is treated as a separate corporation apart from the remainder of FS for purposes of determining foreign base company sales income.

(3)*Use of more than one manufacturing branch, or one or more manufacturing branches and the remainder of the controlled foreign corporation, to manufacture, produce, construct, grow, or extract the same property* —( *a* )— *In general* . This paragraph (b)(1)(ii)( *c* )( *3* ) applies to determine the location of manufacturing, producing, constructing, growing or extracting of personal property for purposes of applying paragraphs (b)(1)(i)( *b* ) or (ii)( *b* ) of this section where more than one branch of a controlled foreign corporation, or one or more branches of a controlled foreign corporation and the remainder of the controlled foreign corporation, each engage in manufacturing, producing, constructing, growing or extracting activities with respect to the same item of personal property which is then sold by the controlled foreign corporation.

(b)* Physical manufacture, production, or construction in one or more locations * . If only one branch or only the remainder of a controlled foreign corporation satisfies either paragraph (a)(4)(ii) or (a)(4)(iii) of this section with respect to an item of personal property, then that branch or the remainder of the controlled foreign corporation will be the location of manufacturing, producing, or constructing of that property for purposes of applying paragraph (b)(1)(i)( *b* ) or (ii)( *b* ) of this section to the income from the sale of that property. See § 1.954-3(b)(1)(ii)( *c* )( *3* )( *f* ) *Example 1* . If more than one branch, or one or more branches and the remainder of the controlled foreign corporation, each independently satisfy either paragraph (a)(4)(ii) or (a)(4)(iii) of this section with respect to an item of property, then the location of manufacturing, producing, or constructing of that property for purposes of applying paragraph (b)(1)(i)( *b* ) or (ii)( *b* ) of this section will be that branch or the remainder of the controlled foreign corporation that satisfies paragraph (a)(4)(ii) or (a)(4)(iii) of this section and that is located or organized in the jurisdiction that would, after applying paragraph (b)(1)(ii)( *b* ) of this section to such branch or paragraph (b)(1)(i)( *b* ) of this section to the remainder of the controlled foreign corporation, impose the lowest effective rate of tax on the income allocated to such branch or the remainder of the controlled foreign corporation under such paragraph (that is, either paragraph (b)(1)(ii)( *b* ) or (b)(1)(i)( *b* ) of this section), if, under the laws of such country, the entire income of the controlled foreign corporation were considered derived by such corporation from sources within such country from doing business through a permanent establishment therein, received in such country, and allocable to such permanent establishment, and the corporation were created or organized under the laws of, and managed and controlled in, such country. See § 1.954-3(b)(1)(ii)( *c* )( *3* )( *f* ) *Example 2* .

(c)*Predominant contribution* . If none of the branches nor the remainder of a controlled foreign corporation satisfy paragraph (a)(4)(ii) or (a)(4)(iii) of this section with respect to an item of personal property, but the controlled foreign corporation as a whole makes a substantial contribution to the manufacture, production, or construction of that property within the meaning of paragraph (a)(4)(iv) of this section, then for purposes of applying paragraph (b)(1)(i)( *b* ) or (ii)( *b* ) or this section, the branch or the remainder of the controlled foreign corporation that makes the predominant amount of the controlled foreign corporation's substantial contribution with respect to the manufacture, production, or construction of that property will be the location of manufacturing, producing, or constructing with respect to that property. See § 1.954-3(b)(1)(ii)( *c* )( *3* )( *f* ) *Example 3* . Whether any branch or the remainder of the controlled foreign corporation provides a predominant amount of the controlled foreign corporation's substantial contribution is determined by weighing each branch's or the remainder of the controlled foreign corporation's relative contribution to the manufacture of the item of property as determined by applying the facts and circumstances test provided in paragraph (a)(4)(iv) of this section. If multiple branches are located in a single jurisdiction, then the activities of those branches will be aggregated for purposes of determining the branch or the remainder of the controlled foreign corporation that makes the predominant amount of the controlled foreign corporation's substantial contribution with respect to the manufacture, production, or construction of an item of property. For purposes of this paragraph (b)(1)(ii)( *c* )( *3* )( *c* ), a branch or the remainder of the controlled foreign corporation makes a predominant amount of the controlled foreign corporation's substantial contribution with respect to the manufacture, production, or construction of an item of personal property only if it makes a significantly greater contribution to the manufacture, production, or construction of that property than any other branch or the remainder of the controlled foreign corporation. The location of any particular activity (that is, for purposes of deciding whether that activity is conducted in a particular branch or in the remainder of the controlled foreign corporation) will be determined by applying the principles of paragraph (b)(1)(ii)( *c* )( *3* )( *d* ) of this section.

(d)*Location of activity* . The location of any activity with respect to the manufacture, production, or construction of an item of personal property is where the controlled foreign corporation makes a contribution through its employees to such activity. For example, the location of any activities concerning intangible property is not determined based on the formal assignment of intangible property, but on where employees of the controlled foreign corporation develop, protect, and direct the use of the intangible.

(e)*Where no branch or the remainder of the controlled foreign corporation provides a predominant contribution* . If neither a branch nor the remainder of a controlled foreign corporation independently satisfies paragraph (a)(4)(ii) or

(iii)of this section and neither a branch nor the remainder of the controlled foreign corporation provides a predominant amount of the controlled foreign corporation's contribution to the manufacture of an item of personal property, but the controlled foreign corporation as a whole makes a substantial contribution to the manufacture of that property within the meaning of paragraph (a)(4)(iv) of this section, then for purposes of applying paragraph (b)(1)(i)( *b* ) or (ii)( *b* ) of this section, the location of manufacturing of that property will be that branch or remainder of the controlled foreign corporation that provides a contribution to the manufacture of the property and that is located or organized in the jurisdiction that would, after applying paragraph (b)(1)(ii)( *b* ) of this section to such branch or (b)(1)(i)( *b* ) of this section to such remainder of the controlled foreign corporation, impose the highest effective rate of tax on the income allocated to such branch or such remainder of the controlled foreign corporation under that paragraph, if, under the laws of such country, the entire income of the controlled foreign corporation were considered derived by such corporation from sources within such country from doing business through a permanent establishment therein, received in such country, and allocable to such permanent establishment, and the corporation were created or organized under the laws of, and managed and controlled in, such country. See § 1.954-3(b)(1)(ii)( *c* )( *3* )( *f* ) *Example 4* .

(f)*Examples* . The following examples illustrate the application of this paragraph (b)(1)(ii)( *c* )( *3* ): *Example 1* . *Multiple branches that contribute to the manufacture of a single product, only one branch that satisfies paragraph (a)(4)(ii) or (a)(4)(iii) of this section* .

(i)*Facts* . FS is a controlled foreign corporation organized in Country M. FS operates three branches, Branch A, Branch B, and Branch C, located respectively in Country A, Country B, and Country C. Branch A, Branch B, and Branch C each performs different manufacturing activities with respect to the manufacture of Product X. Branch A, through the activities of its employees, designs Product X. Branch B, through the activities of its employees, provides quality control and oversight. Branch C, through the activities of its employees, manufactures Product X (within the meaning of paragraph (a)(4)(iii) of this section) using the designs of Branch A and under the oversight of the quality control personnel of Branch B. The activities of Branch A and B do not satisfy either paragraph (a)(4)(ii) or (a)(4)(iii) of this section. Employees of FS located in Country M purchase the raw materials used in the manufacture of Product X from a related person and control the work-in-process and finished goods throughout the manufacturing process. Employees of FS located in Country M also manage the risk of loss from the manufacture of Product X and the manufacturing profits from the sales of Product X. Further, employees of FS located in Country M control logistics, select vendors and raw materials, and oversee the coordination between the branches. Employees of FS located in Country M sell Product X to unrelated persons for use, consumption or disposition outside of Country M. The sales income from the sale of Product X is taxed in Country M at an effective rate of tax of 10%. Country C imposes an effective rate of tax of 20% on sales income.

(ii)*Result.* Because only the activities of Branch C satisfy paragraph (a)(4)(ii) or (a)(4)(iii) of this section, paragraph (b)(1)(ii)( *b* ) of this section is applied by considering only the effective rate of tax that would apply in Country C. The effective rates of tax in Country A and Country B are not considered, because Branch A and Branch B do not satisfy either paragraph (a)(4)(ii) or (a)(4)(iii) of this section. Because the effective rate of tax on the sales income (10%) is less than 90% of, and at least 5 percentage points less than, the effective rate of tax that would apply to such income in the country in which Branch C is located (20%), the use of Branch C has substantially the same tax effect as if Branch C were a wholly owned subsidiary corporation of FS. Therefore sales of Product X by the remainder of FS are treated as sales on behalf of Branch C. Pursuant to paragraph (b)(2)(ii)( *c* )( *2* ) of this section, FS will only qualify for the manufacturing exception under paragraph (a)(4)(iv) of this section if FS successfully rebuts, to the satisfaction of the Commissioner, the presumption that FS does not provide a substantial contribution to the manufacture of Product X. For this purpose, the activities of FS include the activities of Branch A or Branch B if either of those branches would not be treated as a separate corporation under paragraph (b)(1)(ii)( *b* ) of this section, if that paragraph were applied to each of Branch A and Branch B. *Example 2.* *Multiple branches satisfy paragraph (a)(4)(ii) or (a)(4)(iii) of this section with respect to the same product sold by the controlled foreign corporation.*

(i)*Facts* . Assume the same facts as in *Example 1* , except for the following. In addition to the design of Product X, Branch A also manufactures (within the meaning of paragraph (a)(4)(ii) of this section) a part of Product X. Branch C then combines that part with other parts to complete Product X. The activities of Branch C are sufficient to qualify as manufacturing under paragraph (a)(4)(iii) of this section with respect to Product X. Country A imposes an effective rate of tax of 12% on sales income.

(ii)*Result.* Because the activities of Branch A and Branch C satisfy the requirements of paragraph (a)(4)(ii) and

(iii)of this section respectively, paragraph (b)(1)(ii)(b) of this section is applied by comparing the effective rate of tax imposed on the income from the sales of Product X against the lowest effective rate of tax that would apply to the sales income in either Country A or Country C if paragraph (b)(1)(ii)(b) of this section were applied separately to Branch A and Branch C. The effective rate of tax in Country B is not considered because Branch B does not satisfy either paragraph (a)(4)(ii) or (a)(4)(iii) of this section. Because the effective rate of tax on the sales income of FS from the sale of Product X (10%) is not less than 90% of, and at least 5 percentage points less than, the effective rate of tax that would apply to such income in the country in which Branch A is located (12%), neither Branch A nor Branch C is treated as a separate corporation and sales of Product X by the remainder of the controlled foreign corporation are not treated as made on behalf of any branch. Example 3. *Predominant contribution by employees located in the country of organization of the controlled foreign corporation, traveling employees, paragraph (a)(4)(iii) of this section satisfied by an unrelated contract manufacturer.*

(i)*Facts.* FS, a controlled foreign corporation organized in Country M, purchases raw materials from a related person. The raw materials are then manufactured (under the principles of paragraph (a)(4)(iii) of this section) into Product X by CM, an unrelated corporation located in Country C that performs the physical conversion pursuant to a contract manufacturing arrangement. Employees of FS located in Country M sell Product X to unrelated persons for use, consumption or disposition outside of Country M. Employees of FS located in Country M engage in design, testing, quality control and oversight with respect to the manufacture of Product X. Employees of FS located in Country M also direct the use of intellectual property used in the manufacture of Product X from Country M. At all times, employees of FS located in Country M control the raw material, work-in-process and finished goods. Employees of FS located in Country M also control logistics, select vendors, and manage the risk of loss from the manufacture of Product X and the manufacturing profits from Product X. Quality control and oversight of the manufacturing process is conducted by employees of FS who are employed in country M but who regularly travel to Country C. Branch A, located in Country A, is the only branch of FS. Design work with respect to Product X conducted by Branch A is supplemental to the bulk of the design work, which is done by employees of FS located in Country M. FS as a whole (including Branch A) provides a substantial contribution to the manufacture of Product X within the meaning of paragraph (a)(4)(iv) of this section.

(ii)*Result.* FS qualifies for the exception to foreign base company sales income contained in paragraph (a)(4) of this section with respect to income from the sale of Product X because FS satisfies the test contained in paragraph (a)(4)(iv) of this section by providing a substantial contribution through the activities of its employees to the manufacture of Product X. The fact that employees of FS travel to the location of CM to perform some of the activities considered in determining whether a controlled foreign corporation makes a substantial contribution through the activities of its employees to the manufacturing of an item of personal property does not prevent activities of such employees while located in Country M from being considered in determining the applicability of paragraph (a)(4)(iv) of this section to FS. In addition, paragraph

(b)of this section does not apply to treat a branch of FS as having substantially the same tax effect as if the branch were a wholly owned subsidiary corporation, because FS, as opposed to Branch A, provides the predominant contribution with respect to Product X. Example 4. *Multiple branches perform manufacturing activities, no branch makes a predominant contribution, paragraph (a)(4)(iii) of this section is satisfied by an unrelated contract manufacturer.*

(i)*Facts.* FS, a controlled foreign corporation organized in Country M, purchases raw materials from a related person. The raw materials are then manufactured (under the principles of paragraph (a)(4)(iii) of this section) into Product X by CM, an unrelated corporation located in Country C that performs the physical conversion pursuant to a contract manufacturing arrangement. Employees of FS located in Country M sell Product X to unrelated persons for use, consumption or disposition outside of Country M. FS has two branches, Branch A and Branch B, located in Country A and Country B respectively. FS (including Branch A and Branch B) makes a substantial contribution within the meaning of paragraph (a)(4)(iv) of this section with respect to the manufacture of Product X. Branch A, through the activities of its employees, designs Product X. Branch B, through the activities of its employees, provides quality control and oversight of the manufacturing process. At all times, FS controls the raw materials, work-in-process and the finished Product X through employees located in Country M. FS also manages the risk of loss related to the manufacture of Product X and the manufacturing profits from the sales of Product X through employees located in Country M. Further, employees of FS located in Country M control logistics, select vendors, and oversee the coordination between the branches. Country M imposes an effective rate of tax on sales income of 10%. Country A imposes an effective rate of tax on sales income of 20% and Country B imposes an effective rate of tax on sales income of 24%.

(ii)*Result.* Based on the facts, neither the remainder of FS (through activities of its employees in Country M), nor Branch A, nor Branch B, provide a predominant amount of the controlled foreign corporation's substantial contribution to the manufacture of Product X. FS, Branch A, and Branch B each provide a contribution through the activities of their employees to the manufacture of Product X. Accordingly, paragraph (b)(1)(ii)( *b* ) of this section is applied by comparing the effective rate of tax imposed on the income from the sales of Product X against the effective rate of tax that would apply to the sales income in Branch B, which is located in the jurisdiction that would impose the highest effective rate of tax on the sales income (24%). Because the effective rate of tax imposed on the sales income by Country M (10%) is less than 90% of, and at least 5 percentage points less than, the effective rate of tax that would apply to such income in Country B (24%) the remainder of FS is treated as selling on behalf of Branch B. Further, for purposes of determining whether the remainder of FS qualifies for any exception from foreign base company sales income, applying paragraph (b)(2)(ii)( *a* ) of this section, the remainder of FS includes any branch of FS that would not, after the application of paragraph (b)(1)(ii)( *b* ) of this section to such branch, be treated as a separate corporation. In this case, the effective rate of tax imposed on the sales income by Country M (10%) is less than 90% of, and at least 5 percentage points less than, the effective rate of tax that would apply to such income in Country A (20%). Therefore, for purposes of determining foreign base company sales income, the remainder of FS does not include the activities of Branch A. The remainder of FS does not qualify for the manufacturing exception from foreign base company sales income contained in paragraph (a)(4)(iv) of this section. Because Product X is sold for use, consumption, or disposition outside of Country M, the income from the sale of Product X is foreign base company sales income. Example 5. *Multiple branches contribute to the manufacture of a single product, one branch sells the product, the remainder of the controlled foreign corporation does not participate.*

(i)*Facts.* FS is a controlled foreign corporation organized in Country M, a country that imposes a 0% effective rate of tax on sales income. FS operates two branches, Branch A and Branch B, located respectively in Country A, a country that imposes a 30% effective rate of tax on income, and Country B, a country that imposes a 0% effective rate of tax on income. Branch A and Branch B each perform different activities with respect to the manufacture of Product X. Branch A, through the activities of a large number of its employees working at a state of the art facility, expends significant time and resources to design a sophisticated product, Product X. Branch B, through the activities of its employees, purchases raw materials from a related person and contracts with CM, an unrelated corporation located in Country C, to manufacture Product X. The raw materials are then manufactured (under the principles of paragraph (a)(4)(iii) of this section) into Product X by CM. Branch A, through the activities of its employees, directs the use of intellectual property it developed, including product designs, to provide quality control and oversight to CM with respect to the manufacture of Product X. Branch B controls the raw materials, work in process, and the finished Product X. Branch B manages the risk of loss with respect to Product X throughout the manufacturing process. Branch B also controls logistics and selects vendors in connection with Product X. Branch B then sells Product X to unrelated persons for use, consumption or disposition outside of Country M. FS (including Branch A and Branch B) provides a substantial contribution within the meaning of paragraph (a)(4)(iv) of this section with respect to the manufacture of Product X. FS does not provide a contribution to the manufacture of Product X through employees located in Country M.

(ii)*Result.* Based on the facts, neither Branch A nor Branch B provides the predominant amount of FS's contribution to the manufacture of Product X. Further, Branch A and Branch B each provide a contribution through the activities of its employees to the manufacture of Product X. Accordingly, paragraph (b)(1)(ii)( *b* ) of this section is applied by comparing the effective rate of tax imposed on the income from the sales of Product X against the effective rate of tax that would apply to the sales income in Branch A, which is located in the jurisdiction that would impose the highest effective rate of tax on the sales income (30%). Because the effective rate of tax in Country B with respect to the sales income (0%) is less than 90% of, and at least 5 percentage points less than, the effective rate of tax that would apply to such income in Country A (30%), the seller, Branch B, is treated as selling on behalf of Branch A, which is treated as the remainder of FS pursuant to paragraph (b)(1)(ii)( *c* ) of this section. Further, for purposes of determining whether the remainder of FS qualifies for any exception from foreign base company sales income, Branch B, treated as the remainder of FS, includes any branch or remainder of FS that would not, after the application of paragraph (b)(1)(ii)( *b* ) of this section to such branch or (b)(1)(i)( *b* ) of this section to such remainder of FS, be treated as a separate corporation. In this case, the effective rate of tax (0%) is less than 90% of, and at least 5 percentage points less than, the effective rate of tax that would apply to such income in Country A (30%), but not country M (0%). Therefore, for purposes of determining foreign base company sales income, Branch B, treated as the remainder of FS, does not include the activities of Branch A, but does include the activities of the remainder of FS located in Country M. However, since the remainder of FS in Country M does not perform any activities related to the manufacture of Product X, the inclusion of the remainder of FS does not qualify Branch B for any exception from foreign base company sales income. Since the location of manufacturing of Product X is considered to be the location of Branch A rather than Branch B, Branch B, treated as the remainder of FS, does not qualify for the manufacturing exception from foreign base company sales income contained in paragraph (a)(4) of this section. Since the sale of Product X is for use, consumption, or disposition outside of Country B, the income from the sale of Product X is foreign base company sales income. Example 6. *Multiple branches contribute to the manufacture of a single product, the selling branch is located in the higher tax jurisdiction, the remainder of the controlled foreign corporation does not participate.*

(i)*Facts.* Assume the same facts as in *Example 5* except that Branch B rather than Branch A is located in the jurisdiction that would impose the higher effective rate of tax on income from the sales of Product X.

(ii)*Result.* Based on the facts, neither Branch A nor Branch B provides the predominant amount of FS's contribution to the manufacture of Product X. Since Branch B is located in the jurisdiction that would impose the higher effective rate of tax on income from the sale of Product X, Branch B is considered to be the location of manufacturing of Product X for purposes of applying paragraph

(b)of this section. Because all of the income from the sale of Product X is already taxed in Country B, the use of Branch B is not treated as having substantially the same tax effect as if Branch B were a wholly owned subsidiary corporation of FS, and therefore Branch B and the remainder of FS are not treated as separate corporations under paragraph (b)(1)(ii)( *a* ) of this section for purposes of determining foreign base company sales income.

(2)* * *

(i)* * * ( *b* ) *Activities treated as performed on behalf of the remainder of corporation.* With respect to purchasing or selling activities performed by or through the branch or similar establishment, such purchasing or selling activities will— ( *1* ) With respect to personal property manufactured, produced, constructed, grown, or extracted by the remainder of the controlled foreign corporation (or any branch treated as the remainder of the controlled foreign corporation); or ( *2* ) With respect to personal property (other than property described in paragraph (b)(2)(i)( *b* )( *1* ) of this section) purchased or sold, or purchased and sold, by the remainder of the controlled foreign corporation (or any branch treated as the remainder of the controlled foreign corporation), be treated as performed on behalf of the remainder of the controlled foreign corporation.

(ii)* * *

(a)*Treatment as separate corporations.* * * * For purposes of applying the rules of this paragraph (b)(2)(ii), a branch or similar establishment of a controlled foreign corporation treated as a separate corporation purchasing or selling on behalf of the remainder of the controlled foreign corporation under paragraph (b)(2)(ii)( *b* ) of this section, or the remainder of the controlled foreign corporation treated as a separate corporation purchasing or selling on behalf of a branch or similar establishment of the controlled foreign corporation under paragraph (b)(2)(ii)( *c* ) of this section, will exclude any other branch or similar establishment or remainder of the controlled foreign corporation that would be treated as a separate corporation (apart from the branch or similar establishment of a controlled foreign corporation that is treated as a separate purchasing or selling corporation under paragraph (b)(2)(ii)( *b* ) of this section or the remainder of the controlled foreign corporation that is treated as a separate purchasing or selling corporation under paragraph (b)(2)(ii)( *c* ) of this section) if the effective rate of tax imposed on the income of the purchasing or selling branch or similar establishment, or purchasing or selling remainder of the controlled foreign corporation, were tested against the effective rate of tax that would apply to such income if it were earned in the jurisdiction of such other branch or similar establishment or the remainder of the controlled foreign corporation under § 1.954-3(b)(1)(i)( *b* ) or (ii)( *b* ) of this section. ( *b* ) *Activities treated as performed on behalf of the remainder of corporation.* With respect to purchasing or selling activities performed by or through the branch or similar establishment, such purchasing or selling activities will— ( *1* ) With respect to personal property manufactured, produced, constructed, grown, or extracted by the remainder of the controlled foreign corporation (or any branch treated as the remainder of the controlled foreign corporation); or ( *2* ) With respect to personal property (other than property described in paragraph (b)(2)(ii)( *b* )( *1* ) of this section) purchased or sold, or purchased and sold, by the remainder of the controlled foreign corporation (or any branch treated as the remainder of the controlled foreign corporation), be treated as performed on behalf of the remainder of the controlled foreign corporation. ( *c* ) *Treatment of the use of a manufacturing branch by a controlled foreign corporation* —( *1* ) *Activities treated as performed on behalf of branch.* * * * ( *2* ) *Presumption where a controlled foreign corporation claims to satisfy the substantial contribution test and its own branch satisfies the physical manufacturing test.* If a branch or similar establishment is considered to manufacture, produce, or construct an item of personal property under paragraph (a)(4)(ii) or (a)(4)(iii) of this section, the remainder of the controlled foreign corporation (or any branch treated as the remainder of the controlled foreign corporation) will be presumed not to manufacture, produce, or construct that same item of personal property under paragraph (a)(4)(iv) of this section (even if it would have otherwise satisfied paragraph (a)(4)(iv) of this section with respect to such property). However, if a controlled foreign corporation demonstrates, to the satisfaction of the Commissioner, that the remainder of the controlled foreign corporation (or any branch treated as the remainder of the controlled foreign corporation) makes a substantial contribution to the manufacture of that item of personal property within the meaning of paragraph (a)(4)(iv) of this section, then the remainder of the controlled foreign corporation (or any branch treated as the remainder of the controlled foreign corporation), if treated as a separate corporation apart from its manufacturing branch under paragraph (b)(2)(ii)( *a* ) of this section, will be considered to manufacture, produce, or construct that item of personal property under paragraph (a)(4)(iv) of this section. The application of this paragraph (b)(2)(ii)( *c* )( *2* ) may be illustrated by the following examples: Example 1. *Manufacturing branch, paragraph (b)(1)(ii)(b) satisfied.*

(i)*Facts.* FS, a controlled foreign corporation organized in Country M, a country that imposes a 0% effective rate of tax on sales income, purchases raw materials from a related person. FS has one branch, Branch A, organized in Country A, a country that imposes a 30% effective rate of tax on sales income. The raw materials are manufactured (within the meaning of paragraph (a)(4)(iii) of this section) into Product X by Branch A. FS sells Product X for use, consumption, or disposition outside of Country M. Absent the application of paragraph (b)(2)(ii)(c)(2) of this section, the remainder of FS would also be considered a manufacturer of Product X under paragraph (a)(4)(iv) of this section. FS proves to the satisfaction of the Commissioner that the remainder of FS makes a substantial contribution to the manufacture of Product X.

(ii)*Result.* Since the effective rate of tax (0%) imposed on the sales income is less than 90% of, and at least 5 percentage points less than, the effective rate of tax that would apply to such income in the jurisdiction of Branch A (30%), the seller, the remainder of FS is treated as a separate corporation selling on behalf of Branch A. The remainder of FS (not including Branch A) does not satisfy paragraph (a)(4)(ii) or (a)(4)(iii) of this section with respect to Product X. If the manufacturing activities undertaken with respect to Product X between the time the raw materials were purchased and the time Product X was sold were undertaken by the remainder of FS (not including Branch A) through the activities of its employees, the remainder of FS would have satisfied the manufacturing exception contained in paragraph (a)(4)(iii) of this section with respect to Product X. Therefore, paragraph (a)(4)(iv) of this section applies. Because FS has successfully rebutted the presumption of paragraph (b)(2)(ii)( *c* )( *2* ) of this section by proving to the satisfaction of the Commissioner that the remainder of FS makes a substantial contribution to the manufacture (within the meaning of paragraph (a)(4)(iv) of this section) of Product X, it qualifies for the exception in paragraph (a)(4)(iv) of this section with respect to Product X. Therefore income from the sale of Product X, when treated as sold by the remainder of FS on behalf of Branch A, is not determined to be foreign base company sales income. Example 2. *Manufacturing branch, paragraph (b)(1)(ii)(b) is not satisfied.*

(i)*Facts.* Assume the same facts as in *Example 1,* except that Branch A is located in Country B, a country that imposes a 3% rate of tax on sales income.

(ii)*Result.* Paragraph (b)(1)(ii)( *b* ) of this section is not satisfied, because the effective rate of tax imposed on the sales income in Country M (0%) is not less than 90% of, and at least 5 percentage points less than, the effective rate of tax that would apply to such income in the jurisdiction of Branch A (3%). Therefore, Branch A is not treated as a separate corporation for purposes of determining foreign base company sales income. FS qualifies for the manufacturing exception in paragraph (a)(4) of this section because FS (including Branch A) satisfies paragraph (a)(4)(iii) of this section with respect to income from the sales of Product X. ( *e* ) *Comparison with ordinary treatment.* With the exception of cases in which a controlled foreign corporation seeks to rely on paragraph (a)(4)(iv) of this section and is unsuccessful in rebutting the presumption created by paragraph (b)(2)(ii)( *c* )( *2* ) of this section, income derived by a branch or similar establishment, or by the remainder of the controlled foreign corporation, will not be determined to be foreign base company sales income under paragraph

(b)of this section if the income would not be so considered if it were derived by a separate controlled foreign corporation under like circumstances.

(4)* * * Example 3.

(i)*Facts.* Corporation E, a controlled foreign corporation incorporated under the laws of foreign Country X, is a wholly owned subsidiary of Corporation D, also a controlled foreign corporation incorporated under the laws of Country X. Corporation E maintains Branch B in foreign Country Y. Both corporations use the calendar year as the taxable year. In 1964, Corporation E's sole activity, carried on through Branch B, consists of the purchase of articles manufactured in Country X by Corporation D, a related person, and the sale of the articles through Branch B to unrelated persons. 100 percent of the articles sold through Branch B are sold for use outside Country X and 90 percent are also sold for use outside of Country Y. The income of Corporation E derived by Branch B from such transactions is taxed to Corporation E by Country X only at the time Corporation E distributes such income to Corporation D and is then taxed on the basis of what the tax (a 40 percent effective rate) would have been if the income had been derived in 1964 by Corporation E from sources within Country X from doing business through a permanent establishment therein. Country Y levies an income tax at an effective rate of 50 percent on income derived from sources within such Country, but the income of Branch B for 1964 is effectively taxed by Country Y at a 5 percent rate since under the laws of such country, only 10 percent of Branch B's income is derived from sources within such country. Corporation E makes no distributions to Corporation D in 1964.

(ii)*Result.* In determining foreign base company sales income of Corporation E for 1964, Branch B is treated as a separate wholly owned subsidiary corporation of Corporation E, the 5 percent rate of tax being less than 90 percent of, and at least 5 percentage points less than the 40 percent rate. Income derived by Branch B, treated as a separate corporation, from the purchase from a related person (Corporation D), of personal property manufactured outside of Country Y and sold for use, disposition, or consumption outside of Country Y constitutes foreign base company sales income. If, instead, Corporation D were unrelated to Corporation E, none of the income would be foreign base company sales income because Corporation E would be purchasing from and selling to unrelated persons and if Branch B were treated as a separate corporation it would likewise be purchasing from and selling to unrelated persons. Alternatively, if Corporation D were related to Corporation E, but Branch B manufactured the articles prior to sale under the principles of paragraph (a)(4)(iv) of this section in conjunction with the manufacture of the articles (within the meaning of paragraph (a)(4)(ii) or (a)(4)(iii) of this section) by an unrelated contract manufacturer, then the income would not be foreign base company sales income because Branch B, treated as a separate corporation, would qualify for the manufacturing exception under paragraph (a)(4)(i) of this section.

(d)*Effective/applicability date.* The second sentence of paragraph (a)(1)(i), the second sentence of paragraph (a)(1)(iii) *Example 1,* the first sentence of paragraph (a)(1)(iii) *Example 2,* the third sentence of paragraph (a)(2), paragraph (a)(4)(i), the first sentence of paragraph (a)(4)(ii), the first sentence of paragraph (a)(4)(iii), paragraph (a)(4)(iv), the last sentence of paragraph (a)(6), the last sentence of paragraph (b)(1)(ii)( *a* ), paragraph (b)(1)(ii)( *c* )( *2* ), paragraph (b)(1)(ii)( *c* )( *3* ), paragraph (b)(2)(i)( *b* ), the last sentence of paragraph (b)(2)(ii)( *a* ), paragraph (b)(2)(ii)( *b* ), paragraph (b)(2)(ii)( *c* )( *2* ), paragraph (b)(2)(ii)( *e* ), and paragraph (b)(4) *Example 3* shall apply to taxable years of controlled foreign corporations beginning on or after the date these rules are published as final regulations in the **Federal Register** , and for taxable years of United States shareholders in which or with which such taxable years of the controlled foreign corporations end. Linda E. Stiff, Deputy Commissioner for Services and Enforcement. [FR Doc. E8-3557 Filed 2-27-08; 8:45 am] BILLING CODE 4830-01-P DEPARTMENT OF THE INTERIOR National Park Service 36 CFR Part 7 Negotiated Rulemaking Advisory Committee for Off-Road Vehicle Management for Cape Hatteras National Seashore AGENCY: National Park Service (NPS), Interior. ACTION: Notice of third, fourth, and fifth meetings. SUMMARY: Notice is hereby given, in accordance with the Federal Advisory Committee Act (Pub. L. 92-463, 86 Stat. 770, 5 U.S.C. App 1, section 10), of the third, fourth, and fifth meetings of the Negotiated Rulemaking Advisory Committee for Off-Road Vehicle Management at Cape Hatteras National Seashore. (See DATES section.) DATES: The Committee will hold its third meeting on March 18-19, 2008, from 8 a.m. to 5:30 p.m. on March 18, and from 8 a.m. to 4 p.m. on March 19. The meetings on both days will be held at the Avon Fire Hall, 40159 Harbor Drive, Avon, North Carolina 27915. The Committee will hold its fourth meeting on May 8-9, 2008, from 8 a.m. to 5:30 p.m. on May 8, and from 8 a.m. to 4 p.m. on May 9. The meetings on both days will be held at the Comfort Inn Oceanfront South, 8031 Old Oregon Inlet Road, Nags Head, NC 27959. The Committee will hold its fifth meeting on June 17-18, 2008, from 8 a.m. to 5:30 p.m. on June 17, and from 8 a.m. to 4 p.m. on June 18. The meetings on both days will be held at the Comfort Inn Oceanfront South, 8031 Old Oregon Inlet Road, Nags Head, NC 27959. These, and any subsequent meetings, will be held for the following reason: To work with the National Park Service to assist in potentially developing special regulations for ORV management at Cape Hatteras National Seashore. The proposed agenda for the third, fourth, and fifth meetings of the Committee may contain the following items: Approval of Meeting Summary from Last Meeting, Subcommittee and Members' Updates since Last Meeting, Alternatives Discussions, NEPA Update, and Public Comment. However, the Committee may modify its agenda during the course of its work. The meetings are open to the public. Interested persons may provide brief oral/written comments to the Committee during the public comment period of the meetings each day before the lunch break or file written comments with the Park Superintendent. FOR FURTHER INFORMATION CONTACT: Mike Murray, Superintendent, Cape Hatteras National Seashore, 1401 National Park Drive, Manteo, North Carolina 27954,

(252)473-2111, ext. 148. SUPPLEMENTARY INFORMATION: The Committee's function is to assist directly in the development of special regulations for management of off-road vehicles

(ORVs)at Cape Hatteras National Seashore (Seashore). Executive Order 11644, as amended by Executive Order 11989, requires certain Federal agencies to publish regulations that provide for administrative designation of the specific areas and trails on which ORV use may be permitted. In response, the NPS published a general regulation at 36 CFR 4.10, which provides that each park that designates routes and areas for ORV use must do so by promulgating a special regulation specific to that park. It also provides that the designation of routes and areas shall comply with Executive Order 11644, and 36 CFR § 1.5 regarding closures. Members of the Committee will negotiate to reach consensus on concepts and language to be used as the basis for a proposed special regulation, to be published by the NPS in the **Federal Register** , governing ORV use at the Seashore. The duties of the Committee are solely advisory. Dated: February 15, 2008. Michael B. Murray, Superintendent, Cape Hatteras National Seashore. [FR Doc. E8-3819 Filed 2-27-08; 8:45 am] BILLING CODE 4310-X6-P ENVIRONMENTAL PROTECTION AGENCY 40 CFR Part 52 [R03-OAR-2007-1157; FRL-8532-5] Approval and Promulgation of Air Quality Implementation Plans; Maryland; Revised Definition of Volatile Organic Compound

(VOC)AGENCY: Environmental Protection Agency (EPA). ACTION: Proposed rule. SUMMARY: EPA proposes to approve the State Implementation Plan

(SIP)revision submitted by the State of Maryland. The revisions update the SIP's reference to the EPA definition of “Volatile organic compounds (VOC).” In the Final Rules section of this **Federal Register** , EPA is approving the State's SIP submittal as a direct final rule without prior proposal because the Agency views this as a noncontroversial submittal and anticipates no adverse comments. A detailed rationale for the approval is set forth in the direct final rule. If no adverse comments are received in response to this action, no further activity is contemplated. If EPA receives adverse comments, the direct final rule will be withdrawn and all public comments received will be addressed in a subsequent final rule based on this proposed rule. EPA will not institute a second comment period. Any parties interested in commenting on this action should do so at this time. DATES: Comments must be received in writing by March 31, 2008. ADDRESSES: Submit your comments, identified by Docket ID Number R03-OAR-2007-1157 by one of the following methods: A. *www.regulations.gov.* Follow the on-line instructions for submitting comments. B. *E-mail:* *frankford.harold@epa.gov* C. *Mail:* EPA-R03-OAR-2007-1157, Harold A. Frankford, Office of Air Programs, Mailcode 3AP20, U.S. Environmental Protection Agency, Region III, 1650 Arch Street, Philadelphia, Pennsylvania 19103. D. *Hand Delivery:* At the previously-listed EPA Region III address. Such deliveries are only accepted during the Docket's normal hours of operation, and special arrangements should be made for deliveries of boxed information. *Instructions:* Direct your comments to Docket ID No. EPA-R03-OAR-2007-1157. EPA's policy is that all comments received will be included in the public docket without change, and may be made available online at *www.regulations.gov* , including any personal information provided, unless the comment includes information claimed to be Confidential Business Information

(CBI)or other information whose disclosure is restricted by statute. Do not submit information that you consider to be CBI or otherwise protected through *www.regulations.gov* or e-mail. The *www.regulations.gov* Web site is an “anonymous access” system, which means EPA will not know your identity or contact information unless you provide it in the body of your comment. If you send an e-mail comment directly to EPA without going through *www.regulations.gov* , your e-mail address will be automatically captured and included as part of the comment that is placed in the public docket and made available on the Internet. If you submit an electronic comment, EPA recommends that you include your name and other contact information in the body of your comment and with any disk or CD-ROM you submit. If EPA cannot read your comment due to technical difficulties and cannot contact you for clarification, EPA may not be able to consider your comment. Electronic files should avoid the use of special characters, any form of encryption, and be free of any defects or viruses. *Docket:* All documents in the electronic docket are listed in the *www.regulations.gov* index. Although listed in the index, some information is not publicly available, i.e., CBI or other information whose disclosure is restricted by statute. Certain other material, such as copyrighted material, is not placed on the Internet and will be publicly available only in hard copy form. Publicly available docket materials are available either electronically in *www.regulations.gov* or in hard copy during normal business hours at the Air Protection Division, U.S. Environmental Protection Agency, Region III, 1650 Arch Street, Philadelphia, Pennsylvania 19103. Copies of the State submittal are available at the Maryland Department of the Environment, 1800 Washington Boulevard, Suite 705, Baltimore, Maryland 21230. FOR FURTHER INFORMATION CONTACT: Harold A. Frankford,

(215)814-2108, or by e-mail at *frankford.harold@epa.gov* . SUPPLEMENTARY INFORMATION: For further information, please see the information provided in the direct final action, with the same title, that is located in the “Rules and Regulations” section of this **Federal Register** publication. Dated: February 12, 2008. Donald S. Welsh, Regional Administrator, Region III. [FR Doc. E8-3396 Filed 2-27-08; 8:45 am] BILLING CODE 6560-50-P ENVIRONMENTAL PROTECTION AGENCY 40 CFR Part 52 [EPA-R03-OAR-2007-1169; FRL-8532-7] Approval and Promulgation of Air Quality Implementation Plans; Virginia; Amendments to Existing Regulation Provisions Concerning Reasonably Available Control Technology AGENCY: Environmental Protection Agency (EPA). ACTION: Proposed rule. SUMMARY: EPA proposes to approve the State Implementation Plan

(SIP)revision submitted by the Commonwealth of Virginia for the purpose of establishing administrative amendments to the Commonwealth regulation governing source-specific nitrogen oxides (NO <sup>X</sup> ) reasonable available control technology (RACT). In the Final Rules section of this **Federal Register** , EPA is approving the State's SIP submittal as a direct final rule without prior proposal because the Agency views this as a noncontroversial submittal and anticipates no adverse comments. A detailed rationale for the approval is set forth in the direct final rule. If no adverse comments are received in response to this action, no further activity is contemplated. If EPA receives adverse comments, the direct final rule will be withdrawn and all public comments received will be addressed in a subsequent final rule based on this proposed rule. EPA will not institute a second comment period. Any parties interested in commenting on this action should do so at this time. DATES: Comments must be received in writing by March 31, 2008. ADDRESSES: Submit your comments, identified by Docket ID Number EPA-R03-OAR-2007-1169 by one of the following methods: A. *www.regulations.gov.* Follow the on-line instructions for submitting comments. *B. E-mail:* *fernandez.cristina@epa.gov.* C. *Mail:* EPA-R03-OAR-2007-1169, Cristina Fernandez, Chief, Air Quality Planning Branch, Mailcode 3AP21, U.S. Environmental Protection Agency, Region III, 1650 Arch Street, Philadelphia, Pennsylvania 19103. D. *Hand Delivery:* At the previously-listed EPA Region III address. Such deliveries are only accepted during the Docket's normal hours of operation, and special arrangements should be made for deliveries of boxed information. *Instructions:* Direct your comments to Docket ID No. EPA-R03-OAR-2007- 1169. EPA's policy is that all comments received will be included in the public docket without change, and may be made available online at *www.regulations.gov,* including any personal information provided, unless the comment includes information claimed to be Confidential Business Information

(CBI)or other information whose disclosure is restricted by statute. Do not submit information that you consider to be CBI or otherwise protected through *www.regulations.gov* or e-mail. The *www.regulations.gov* Web site is an “anonymous access” system, which means EPA will not know your identity or contact information unless you provide it in the body of your comment. If you send an e-mail comment directly to EPA without going through *www.regulations.gov,* your e-mail address will be automatically captured and included as part of the comment that is placed in the public docket and made available on the Internet. If you submit an electronic comment, EPA recommends that you include your name and other contact information in the body of your comment and with any disk or CD-ROM you submit. If EPA cannot read your comment due to technical difficulties and cannot contact you for clarification, EPA may not be able to consider your comment. Electronic files should avoid the use of special characters, any form of encryption, and be free of any defects or viruses. *Docket:* All documents in the electronic docket are listed in the *www.regulations.gov* index. Although listed in the index, some information is not publicly available, i.e., CBI or other information whose disclosure is restricted by statute. Certain other material, such as copyrighted material, is not placed on the Internet and will be publicly available only in hard copy form. Publicly available docket materials are available either electronically in *www.regulations.gov* or in hard copy during normal business hours at the Air Protection Division, U.S. Environmental Protection Agency, Region III, 1650 Arch Street, Philadelphia, Pennsylvania 19103. Copies of the State submittal are available at Virginia Department of Environmental Quality, 629 East Main Street, Richmond, Virginia 23219. FOR FURTHER INFORMATION CONTACT: Gregory Becoat,

(215)814-2036, or by e-mail at *becoat.gregory@epa.gov* . SUPPLEMENTARY INFORMATION: For further information, please see the information provided in the direct final action, Approval of Virginia's Amendments to Existing Regulation Provisions Concerning Reasonably Available Control Technology, that is located in the “Rules and Regulations” section of this **Federal Register** publication. Please note that if EPA receives adverse comment on an amendment, paragraph, or section of this rule and if that provision may be severed from the remainder of the rule, EPA may adopt as final those provisions of the rule that are not the subject of an adverse comment. Dated: February 12, 2008. Donald S. Welsh, Regional Administrator, Region III. [FR Doc. E8-3389 Filed 2-27-08; 8:45 am] BILLING CODE 6560-50-P FEDERAL COMMUNICATIONS COMMISSION 47 CFR Part 76 [MB Docket No. 07-42; FCC 07-208] Leased Commercial Access AGENCY: Federal Communications Commission. ACTION: Proposed rule. SUMMARY: In this document, the Commission seeks comment on the application of the Commission's revised leased access rate methodology and maximum allowable leased access rate to programmers that predominantly transmit sales presentations or program length commercials. DATES: Comments for this proceeding are due on or before March 31, 2008; reply comments are due on or before April 14, 2008. ADDRESSES: You may submit comments, identified by MB Docket No. 07-42, by any of the following methods: • *Federal eRulemaking Portal: http://www.regulations.gov.* Follow the instructions for submitting comments. • *Federal Communications Commission's Web site: http://www.fcc.gov/cgb/ecfs/.* Follow the instructions for submitting comments. • *People with Disabilities:* Contact the FCC to request reasonable accommodations (accessible format documents, sign language interpreters, CART, etc.) by *e-mail: FCC504@fcc.gov* or *phone:* 202-418-0530 or TTY: 202-418-0432. For detailed instructions for submitting comments and additional information on the rulemaking process, see the SUPPLEMENTARY INFORMATION section of this document. FOR FURTHER INFORMATION CONTACT: For additional information on this proceeding, contact Steven Broeckaert, *Steven.Broeckaert@fcc.gov;* or Katie Costello, *Katie.Costello@fcc.gov;* of the Media Bureau, Policy Division, 202-418-2120. SUPPLEMENTARY INFORMATION: This is a summary of the Commission's *Notice of Proposed Rulemaking* ( *NPRM* ), contained in MB Docket No. 07-42, FCC 07-208, adopted on November 27, 2007, and released on February 1, 2008. The full text of this document is available for public inspection and copying during regular business hours in the FCC Reference Center, Federal Communications Commission, 445 12th Street, SW., CY-A257, Washington, DC 20554. This document will also be available via ECFS ( *http://www.fcc.gov/cgb/ecfs/* ). (Documents will be available electronically in ASCII, Word 97, and/or Adobe Acrobat.) The complete text may be purchased from the Commission's copy contractor, 445 12th Street, SW., Room CY-B402, Washington, DC 20554. To request this document in accessible formats (computer diskettes, large print, audio recording, and Braille), send an e-mail to *fcc504@fcc.gov* or call the Commission's Consumer and Governmental Affairs Bureau at 202-418-0530 (voice), 202-418-0432 (TTY). Initial Paperwork Reduction Act of 1995 Analysis This document has been analyzed with respect to the Paperwork Reduction Act of 1995 (“PRA”), Public Law No. 104-13, 109 Stat 163

(1995)(codified in Chapter 35 of title 44 U.S.C.), and contains no proposed new or modified information collection requirements. In addition, therefore, it does not contain any new or modified “information collection burden for small business concerns with fewer than 25 employees,” pursuant to the Small Business Paperwork Relief Act of 2002 (“SBPRA”), Public Law No. 107-198, 116 Stat 729

(2002)(codified in Chapter 35 of title 44 U.S.C.); see 44 U.S.C. 3506(c)(4). Summary of Notice of Proposed Rulemaking I. Application of Leased Access Rules to Certain Programmers 1. The commercial leased access requirements are set forth in Section 612 of the Communications Act of 1934, as amended. The statute and corresponding leased access rules require a cable operator to set aside channel capacity for commercial use by unaffiliated video programmers. The purposes of Section 612 are “to promote competition in the delivery of diverse sources of video programming and to assure that the widest possible diversity of information sources are made available to the public from cable systems in a manner consistent with growth and development of cable systems.” In Report and Order, FCC 07-208, the Commission modified the leased access rate methodology but did not apply the changes to rates charged to programmers that predominantly transmit sales presentations or program length commercials. These direct sales programmers often “pay” for carriage—either directly or through some form of revenue sharing with the cable operator. In this Notice of Proposed Rulemaking (NPRM), the Commission seeks comment on whether the new methodology should be applied to the rates charged to programmers that predominantly transmit sales presentations or program length commercials. 2. In the Report and Order, the Commission modified the method for determining the leased access rate for full-time carriage on a tier and harmonized the rate methodology for carriage on tiers with more than 50% subscriber penetration and carriage on tiers with lower levels of penetration by calculating the leased access rate based upon the characteristics of the tier on which the leased access programming will be placed. Cable operators will calculate a leased access rate for each cable system on a tier-by-tier basis which will adequately compensate the operator for the net revenue that is lost when a leased access programmer displaces an existing program channel on the cable system. The Report and Order adopted a methodology to determine the “marginal implicit fee” rather than the “average implicit fee” in calculating leased access rates. The “average implicit fee” is calculated based on the average value of all of the channels in a tier instead of the value of the channels most likely to be replaced. The revised methodology eliminates this excess recovery. In addition, the Report and Order set a maximum allowable leased access rate of $0.10 per subscriber per month to ensure that leased access remains a viable outlet for programmers. 3. The Commission concluded not to apply the new rate methodology to programmers that predominantly transmit sales presentations or program length commercials. These programmers often “pay” for carriage—either directly or through some form of revenue sharing with the cable operator. Previously to the Report and Order, the Commission set the leased access rate for a la carte programmers at the “highest implicit fee” partly out of a concern that lower rates would simply lead these programmers to migrate to leased access if it were less expensive than what they are currently “paying” for carriage. Such a migration would not add to the diversity of voices and would potentially financially harm the cable system. The a la carte rate remains unchanged. Similarly, the Commission does not wish to set the leased access rates at a point at which programmers that predominantly transmit sales presentations or program length commercials simply migrate to leased access because it is less expensive than their current commercial arrangements. The Commission seeks on whether leased access is affordable at current rates to programmers that predominantly transmit sales presentations or program length commercials and whether reduced rates would simply cause migration of existing services to leased access. 4. The Commission is concerned about setting the leased access rates at a point at which programmers that predominantly transmit sales presentations or program length commercials simply migrate to leased access because it is less expensive than their current commercial arrangements. Accordingly, the Commission seeks comment regarding the use of leased access by programmers that predominantly transmit sales presentations and program length commercials. Specifically, is leased access affordable to these programmers at current rates? Will applying the modified rate formula discussed previously in this Report and Order cause migration of existing services to leased access? What would be the effect of such a migration? Is a separate category for direct sales programmers appropriate? II. Procedural Matters A. Ex Parte Rules 5. *Permit-But-Disclose.* The *NPRM* in this proceeding will be treated as “permit-but-disclose” subject to the “permit-but-disclose” requirements under § 1.1206(b) of the Commission's rules. *Ex parte* presentations are permissible if disclosed in accordance with Commission rules, except during the Sunshine Agenda period when presentations, *ex parte* or otherwise, are generally prohibited. Persons making oral *ex parte* presentations are reminded that a memorandum summarizing a presentation must contain a summary of the substance of the presentation and not merely a listing of the subjects discussed. More than a one- or two-sentence description of the views and arguments presented is generally required. Additional rules pertaining to oral and written presentations are set forth in § 1.1206(b). B. Filing Requirements 6. *Information.* For additional information on this proceeding, contact Katie Costello, *Katie.Costello@fcc.gov* of the Media Bureau, Policy Division,

(202)418-2120. 7. *Comment Information.* Pursuant to §§ 1.415 and 1.419 of the Commission's rules, 47 CFR 1.415, 1.419, interested parties may file comments and reply comments on or before the dates indicated on the first page of this document. Comments may be filed using:

(1)The Commission's Electronic Comment Filing System (ECFS),

(2)the Federal Government's eRulemaking Portal, or

(3)by filing paper copies. *See Electronic Filing of Documents in Rulemaking Proceedings,* 63 FR 24121, May 1, 1998. • *Electronic Filers:* Comments may be filed electronically using the Internet by accessing the ECFS: *http://www.fcc.gov/cgb/ecfs/* or the Federal eRulemaking Portal: *http://www.regulations.gov.* Filers should follow the instructions provided on the website for submitting comments. • For ECFS filers, if multiple docket or rulemaking numbers appear in the caption of this proceeding, filers must transmit one electronic copy of the comments for each docket or rulemaking number referenced in the caption. In completing the transmittal screen, filers should include their full name, U.S. Postal Service mailing address, and the applicable docket or rulemaking number. Parties may also submit an electronic comment by Internet e-mail. To get filing instructions, filers should send an e-mail to *ecfs@fcc.gov* , and include the following words in the body of the message, “get form.” A sample form and directions will be sent in response. • *Paper Filers:* Parties who choose to file by paper must file an original and four copies of each filing. If more than one docket or rulemaking number appears in the caption of this proceeding, filers must submit two additional copies for each additional docket or rulemaking number. Filings can be sent by hand or messenger delivery, by commercial overnight courier, or by first-class or overnight U.S. Postal Service mail (although we continue to experience delays in receiving U.S. Postal Service mail). All filings must be addressed to the Commission's Secretary, Office of the Secretary, Federal Communications Commission. • The Commission's contractor will receive hand-delivered or messenger-delivered paper filings for the Commission's Secretary at 236 Massachusetts Avenue, NE., Suite 110, Washington, DC 20002. The filing hours at this location are 8 a.m. to 7 p.m. All hand deliveries must be held together with rubber bands or fasteners. Any envelopes must be disposed of *before* entering the building. • Commercial overnight mail (other than U.S. Postal Service Express Mail and Priority Mail) must be sent to 9300 East Hampton Drive, Capitol Heights, MD 20743. • U.S. Postal Service first-class, Express, and Priority mail must be addressed to 445 12th Street, SW., Washington, DC 20554. • *People With Disabilities:* To request materials in accessible formats for people with disabilities (braille, large print, electronic files, audio format), send an e-mail to *fcc504@fcc.gov* or call the Consumer & Governmental Affairs Bureau at 202-418-0530 (voice), 202-418-0432 (tty). 8. *Availability of Documents.* Comments, reply comments, and *ex parte* submissions will be available for public inspection during regular business hours in the FCC Reference Center, Federal Communications Commission, 445 12th Street, SW., CY-A257, Washington, DC 20554. Persons with disabilities who need assistance in the FCC Reference Center may contact Bill Cline at

(202)418-0267 (voice),

(202)418-7365 (TTY), or *bill.cline@fcc.gov* . These documents also will be available from the Commission's Electronic Comment Filing System. Documents are available electronically in ASCII, Word 97, and Adobe Acrobat. Copies of filings in this proceeding may be obtained from Best Copy and Printing, Inc., Portals II, 445 12th Street, SW., Room CY-B402, Washington, DC 20554; they can also be reached by telephone, at

(202)488-5300 or

(800)378-3160; by e-mail at *fcc@bcpiweb.com;* or via their Web site at *http://www.bcpiweb.com.* To request materials in accessible formats for people with disabilities (Braille, large print, electronic files, audio format), send an e-mail to *fcc504@fcc.gov* or call the Consumer and Governmental Affairs Bureau at

(202)418-0531 (voice),

(202)418-7365 (TTY). C. Initial Paperwork Reduction Act of 1995 Analysis 9. The FNPRM has been analyzed with respect to the Paperwork Reduction Act of 1995 (“PRA”), Public Law No. 104-13, 109 Stat 163

(1995)(codified in Chapter 35 of title 44 U.S.C.) and contains no proposed new or modified information collection requirements. In addition, therefore, it does not contain any new or modified “information collection burden for small business concerns with fewer than 25 employees,” pursuant to the Small Business Paperwork Relief Act of 2002 (“SBPRA”), Public Law No. 107-198, 116 Stat 729

(2002)(codified in Chapter 35 of title 44 U.S.C.); *see* 44 U.S.C. 3506(c)(4). III. Initial Regulatory Flexibility Analysis 10. The Regulatory Flexibility Act of 1980, as amended (“RFA”), requires that a regulatory flexibility analysis be prepared for notice and comment rule making proceedings, unless the agency certifies that “the rule will not, if promulgated, have a significant economic impact on a substantial number of small entities.” The RFA generally defines the term “small entity” as having the same meaning as the terms “small business,” “small organization,” and “small governmental jurisdiction.” In addition, the term “small business” has the same meaning as the term “small business concern” under the Small Business Act. A “small business concern” is one which:

(1)Is independently owned and operated;

(2)is not dominant in its field of operation; and

(3)satisfies any additional criteria established by the Small Business Administration (SBA). As required by the RFA, the Commission has prepared an Initial Regulatory Flexibility Analysis (“IRFA”) of the possible significant economic impact on a substantial number of small entities of the proposals addressed in the FNPRM Initial Regulatory Flexibility Analysis. 11. As required by the Regulatory Flexibility Act of 1980, as amended (the “RFA”) the Commission has prepared this Initial Regulatory Flexibility Analysis (“IRFA”) of the possible significant economic impact on small entities by the policies and rules proposed in the Further Notice of Proposed Rulemaking (“FNPRM”). Written public comments are requested on this IRFA. Comments must be identified as responses to the IRFA and must be filed by the deadlines for comments provided on the first page of the document. The Commission will send a copy of the FNPRM, including this IRFA, to the Chief Counsel for Advocacy of the Small Business Administration (“SBA”). In addition, the FNPRM and IRFA (or summaries thereof) will be published in the **Federal Register** . A. Need for, and Objectives of, the Proposed Rules 12. *Overview.* The commercial leased access requirements set forth in Section 612 of the Communications Act of 1934 require a cable operator to set aside channel capacity for commercial use by video programmers unaffiliated with the cable operator. The purposes of Section 612 are “to promote competition in the delivery of diverse sources of video programming and to assure that the widest possible diversity of information sources are made available to the public from cable systems in a manner consistent with growth and development of cable systems.” 13. In the Report and Order in MB Docket No. 07-42, the Commission modified its formula used to calculate commercial leased access rates, which will result in making leased access channels a more viable outlet for leased access programming. The Order also provides that the maximum leased access rate will not exceed $0.10 per subscriber per month for any cable system. The Order, however, did not apply the modified rate formula or the maximum allowable leased access rate to programmers that predominantly transmit sales presentations or program length commercials. These direct sales programmers often “pay” for carriage—either directly or through some form of revenue sharing with the cable operator. 14. In the FNPRM, the Commission notes its concern about setting the leased access rates at a point at which programmers that predominantly transmit sales presentations or program length commercials simply migrate to leased access because it is less expensive than their current commercial arrangements. Accordingly, the FNPRM considers whether leased access at current rates is affordable to programmers that predominantly transmit sales presentations and program length commercials. The FNPRM considers whether applying the modified leased access rate formula to programmers that predominantly transmit sales presentations or program length commercials will cause migration of these services to leased access. If these services do migrate to leased access, the FNPRM considers the effect of such a migration. The FNPRM also considers whether a separate category for direct sales programmers is appropriate. 15. In the FNPRM, the Commission seeks comment on the foregoing issues. In particular, the FNPRM invites comment on issues that may impact small entities, including cable operators and leased access programmers. B. Legal Basis 16. The authority for the action proposed in the rulemaking is contained in Section 4(i), 303, and 612 of the Communications Act of 1934, as amended, 47 U.S.C. 154(i), 303, and 532. C. Description and Estimate of the Number of Small Entities to Which the Proposed Rules Will Apply 17. The RFA directs agencies to provide a description of, and where feasible, an estimate of the number of small entities that may be affected by the proposed rules, if adopted. The RFA generally defines the term “small entity” as having the same meaning as the terms “small business,” “small organization,” and “small governmental jurisdiction.” In addition, the term “small business” has the same meaning as the term “small business concern” under the Small Business Act. A “small business concern” is one which:

(1)Is independently owned and operated;

(2)is not dominant in its field of operation; and

(3)satisfies any additional criteria established by the Small Business Administration (“SBA”). 18. *Wired Telecommunications Carriers.* The 2007 North American Industry Classification System (“NAICS”) defines “Wired Telecommunications Carriers” (2007 NAISC code 517110) to include the following three classifications which were listed separately in the 2002 NAICS: Wired Telecommunications Carriers (2002 NAICS code 517110), Cable and Other Program Distribution (2002 NAISC code 517510), and Internet Service Providers (2002 NAISC code 518111). The 2007 NAISC defines this category as follows: “This industry comprises establishments primarily engaged in operating and/or providing access to transmission facilities and infrastructure that they own and/or lease for the transmission of voice, data, text, sound, and video using wired telecommunications networks. Transmission facilities may be based on a single technology or a combination of technologies. Establishments in this industry use the wired telecommunications network facilities that they operate to provide a variety of services, such as wired telephony services, including VoIP services; wired (cable) audio and video programming distribution; and wired broadband Internet services. By exception, establishments providing satellite television distribution services using facilities and infrastructure that they operate are included in this industry.” The SBA has developed a small business size standard for Wired Telecommunications Carriers, which is all firms having 1,500 employees or less. According to Census Bureau data for 2002, there were a total of 27,148 firms in the Wired Telecommunications Carriers category (2002 NAISC code 517110) that operated for the entire year; 6,021 firms in the Cable and Other Program Distribution category (2002 NAISC code 517510) that operated for the entire year; and 3,408 firms in the Internet Service Providers category (2002 NAISC code 518111) that operated for the entire year. Of these totals, 25,374 of 27,148 firms in the Wired Telecommunications Carriers category (2002 NAISC code 517110) had less than 100 employees; 5,496 of 6,021 firms in the Cable and Other Program Distribution category (2002 NAISC code 517510) had less than 100 employees; and 3,303 of the 3,408 firms in the Internet Service Providers category (2002 NAISC code 518111) had less than 100 employees. Thus, under this size standard, the majority of firms can be considered small. 19. *Cable and Other Program Distribution.* The 2002 NAICS defines this category as follows: “This industry comprises establishments primarily engaged as third-party distribution systems for broadcast programming. The establishments of this industry deliver visual, aural, or textual programming received from cable networks, local television stations, or radio networks to consumers via cable or direct-to-home satellite systems on a subscription or fee basis. These establishments do not generally originate programming material.” This category includes, among others, cable operators, direct broadcast satellite (“DBS”) services, home satellite dish (“HSD”) services, satellite master antenna television (“SMATV”) systems, and open video systems (“OVS”). The SBA has developed a small business size standard for Cable and Other Program Distribution, which is all such firms having $13.5 million or less in annual receipts. According to Census Bureau data for 2002, there were a total of 1,191 firms in this category that operated for the entire year. Of this total, 1,087 firms had annual receipts of under $10 million, and 43 firms had receipts of $10 million or more but less than $25 million. Thus, under this size standard, the majority of firms can be considered small. 20. *Cable System Operators (Rate Regulation Standard).* The Commission has also developed its own small business size standards for the purpose of cable rate regulation. Under the Commission's rules, a “small cable company” is one serving 400,000 or fewer subscribers nationwide. As of 2006, 7,916 cable operators qualify as small cable companies under this standard. In addition, under the Commission's rules, a “small system” is a cable system serving 15,000 or fewer subscribers. Industry data indicate that 6,139 systems have under 10,000 subscribers, and an additional 379 systems have 10,000-19,999 subscribers. Thus, under this standard, most cable systems are small. 21. *Cable System Operators (Telecom Act Standard).* The Communications Act of 1934, as amended, also contains a size standard for small cable system operators, which is “a cable operator that, directly or through an affiliate, serves in the aggregate fewer than 1 percent of all subscribers in the United States and is not affiliated with any entity or entities whose gross annual revenues in the aggregate exceed $250,000,000.” There are approximately 65.4 million cable subscribers in the United States today. Accordingly, an operator serving fewer than 654,000 subscribers shall be deemed a small operator, if its annual revenues, when combined with the total annual revenues of all its affiliates, do not exceed $250 million in the aggregate. Based on available data, we find that the number of cable operators serving 654,000 subscribers or less totals approximately 7,916. We note that the Commission neither requests nor collects information on whether cable system operators are affiliated with entities whose gross annual revenues exceed $250 million. Although it seems certain that some of these cable system operators are affiliated with entities whose gross annual revenues exceed $250,000,000, we are unable at this time to estimate with greater precision the number of cable system operators that would qualify as small cable operators under the definition in the Communications Act. 22. *Direct Broadcast Satellite (“DBS”) Service.* DBS service is a nationally distributed subscription service that delivers video and audio programming via satellite to a small parabolic “dish” antenna at the subscriber's location. Because DBS provides subscription services, DBS falls within the SBA-recognized definition of Cable and Other Program Distribution. This definition provides that a small entity is one with $13.5 million or less in annual receipts. Currently, three operators provide DBS service, which requires a great investment of capital for operation: DIRECTV, EchoStar (marketed as the DISH Network), and Dominion Video Satellite, Inc. (“Dominion”) (marketed as Sky Angel). All three currently offer subscription services. Two of these three DBS operators, DIRECTV and EchoStar Communications Corporation (“EchoStar”), report annual revenues that are in excess of the threshold for a small business. The third DBS operator, Dominion's Sky Angel service, serves fewer than one million subscribers and provides 20 family and religion-oriented channels. Dominion does not report its annual revenues. The Commission does not know of any source which provides this information and, thus, we have no way of confirming whether Dominion qualifies as a small business. Because DBS service requires significant capital, we believe it is unlikely that a small entity as defined by the SBA would have the financial wherewithal to become a DBS licensee. Nevertheless, given the absence of specific data on this point, we recognize the possibility that there are entrants in this field that may not yet have generated $13.5 million in annual receipts, and therefore may be categorized as a small business, if independently owned and operated. 23. *Private Cable Operators

(PCOs)also known as Satellite Master Antenna Television (SMATV) Systems.* PCOs, also known as SMATV systems or private communication operators, are video distribution facilities that use closed transmission paths without using any public right-of-way. PCOs acquire video programming and distribute it via terrestrial wiring in urban and suburban multiple dwelling units such as apartments and condominiums, and commercial multiple tenant units such as hotels and office buildings. The SBA definition of small entities for Cable and Other Program Distribution Services includes PCOs and, thus, small entities are defined as all such companies generating $13.5 million or less in annual receipts. Currently, there are approximately 150 members in the Independent Multi-Family Communications Council (IMCC), the trade association that represents PCOs. Individual PCOs often serve approximately 3,000-4,000 subscribers, but the larger operations serve as many as 15,000-55,000 subscribers. In total, PCOs currently serve approximately one million subscribers. Because these operators are not rate regulated, they are not required to file financial data with the Commission. Furthermore, we are not aware of any privately published financial information regarding these operators. Based on the estimated number of operators and the estimated number of units served by the largest ten PCOs, we believe that a substantial number of PCOs may qualify as small entities. 24. *Home Satellite Dish (“HSD”) Service.* Because HSD provides subscription services, HSD falls within the SBA-recognized definition of Cable and Other Program Distribution, which includes all such companies generating $13.5 million or less in revenue annually. HSD or the large dish segment of the satellite industry is the original satellite-to-home service offered to consumers, and involves the home reception of signals transmitted by satellites operating generally in the C-band frequency. Unlike DBS, which uses small dishes, HSD antennas are between four and eight feet in diameter and can receive a wide range of unscrambled

(free)programming and scrambled programming purchased from program packagers that are licensed to facilitate subscribers' receipt of video programming. There are approximately 30 satellites operating in the C-band, which carry over 500 channels of programming combined; approximately 350 channels are available free of charge and 150 are scrambled and require a subscription. HSD is difficult to quantify in terms of annual revenue. HSD owners have access to program channels placed on C-band satellites by programmers for receipt and distribution by MVPDs. Commission data shows that, between June 2004 and June 2005, HSD subscribership fell from 335,766 subscribers to 206,358 subscribers, a decline of more than 38 percent. The Commission has no information regarding the annual revenue of the four C-Band distributors. 25. *Broadband Radio Service and Educational Broadband Service.* Broadband Radio Service comprises Multichannel Multipoint Distribution Service

(MMDS)systems and Multipoint Distribution Service (MDS). MMDS systems, often referred to as “wireless cable,” transmit video programming to subscribers using the microwave frequencies of MDS and Educational Broadband Service

(EBS)(formerly known as Instructional Television Fixed Service (ITFS)). We estimate that the number of wireless cable subscribers is approximately 100,000, as of March 2005. The SBA definition of small entities for Cable and Other Program Distribution, which includes such companies generating $13.5 million in annual receipts, appears applicable to MDS and ITFS. 26. The Commission has also defined small MDS (now BRS) entities in the context of Commission license auctions. For purposes of the 1996 MDS auction, the Commission defined a small business as an entity that had annual average gross revenues of less than $40 million in the previous three calendar years. This definition of a small entity in the context of MDS auctions has been approved by the SBA. In the MDS auction, 67 bidders won 493 licenses. Of the 67 auction winners, 61 claimed status as a small business. At this time, the Commission estimates that of the 61 small business MDS auction winners, 48 remain small business licensees. In addition to the 48 small businesses that hold BTA authorizations, there are approximately 392 incumbent MDS licensees that have gross revenues that are not more than $40 million and are thus considered small entities. MDS licensees and wireless cable operators that did not receive their licenses as a result of the MDS auction fall under the SBA small business size standard for Cable and Other Program Distribution, which includes all such entities that do not generate revenue in excess of $13.5 million annually. Information available to us indicates that there are approximately 850 of these licensees and operators that do not generate revenue in excess of $13.5 million annually. Therefore, we estimate that there are approximately 850 small entity MDS (or BRS) providers, as defined by the SBA and the Commission's auction rules. 27. Educational institutions are included in this analysis as small entities; however, the Commission has not created a specific small business size standard for ITFS (now EBS). We estimate that there are currently 2,032 ITFS (or EBS) licensees, and all but 100 of the licenses are held by educational institutions. Thus, we estimate that at least 1,932 ITFS licensees are small entities. 28. *Local Multipoint Distribution Service.* Local Multipoint Distribution Service

(LMDS)is a fixed broadband point-to-multipoint microwave service that provides for two-way video telecommunications. The SBA definition of small entities for Cable and Other Program Distribution, which includes such companies generating $13.5 million in annual receipts, appears applicable to LMDS. The Commission has also defined small LMDS entities in the context of Commission license auctions. In the 1998 and 1999 LMDS auctions, the Commission defined a small business as an entity that had annual average gross revenues of less than $40 million in the previous three calendar years. Moreover, the Commission added an additional classification for a “very small business,” which was defined as an entity that had annual average gross revenues of less than $15 million in the previous three calendar years. These definitions of “small business” and “very small business” in the context of the LMDS auctions have been approved by the SBA. In the first LMDS auction, 104 bidders won 864 licenses. Of the 104 auction winners, 93 claimed status as small or very small businesses. In the LMDS re-auction, 40 bidders won 161 licenses. Based on this information, we believe that the number of small LMDS licenses will include the 93 winning bidders in the first auction and the 40 winning bidders in the re-auction, for a total of 133 small entity LMDS providers as defined by the SBA and the Commission's auction rules. 29. *Open Video Systems (“OVS”).* The OVS framework provides opportunities for the distribution of video programming other than through cable systems. Because OVS operators provide subscription services, OVS falls within the SBA-recognized definition of Cable and Other Program Distribution Services, which provides that a small entity is one with $ 13.5 million or less in annual receipts. The Commission has approved approximately 120 OVS certifications with some OVS operators now providing service. Broadband service providers

(BSPs)are currently the only significant holders of OVS certifications or local OVS franchises, even though OVS is one of four statutorily-recognized options for local exchange carriers

(LECs)to offer video programming services. As of June 2005, BSPs served approximately 1.4 million subscribers, representing 1.49 percent of all MVPD households. Among BSPs, however, those operating under the OVS framework are in the minority. As of June 2005, RCN Corporation is the largest BSP and 14th largest MVPD, serving approximately 371,000 subscribers. RCN received approval to operate OVS systems in New York City, Boston, Washington, D.C. and other areas. The Commission does not have financial information regarding the entities authorized to provide OVS, some of which may not yet be operational. We thus believe that at least some of the OVS operators may qualify as small entities. 30. *Cable and Other Subscription Programming.* The Census Bureau defines this category as follows: “This industry comprises establishments primarily engaged in operating studios and facilities for the broadcasting of programs on a subscription or fee basis * *. These establishments produce programming in their own facilities or acquire programming from external sources. The programming material is usually delivered to a third party, such as cable systems or direct-to-home satellite systems, for transmission to viewers.” The SBA has developed a small business size standard for firms within this category, which is all firms with $13.5 million or less in annual receipts. According to Census Bureau data for 2002, there were 270 firms in this category that operated for the entire year. Of this total, 217 firms had annual receipts of under $10 million and 13 firms had annual receipts of $10 million to $24,999,999. Thus, under this category and associated small business size standard, the majority of firms can be considered small. 31. *Motion Picture and Video Production.* The Census Bureau defines this category as follows: “This industry comprises establishments primarily engaged in producing, or producing and distributing motion pictures, videos, television programs, or television commercials.” The SBA has developed a small business size standard for firms within this category, which is all firms with $27 million or less in annual receipts. According to Census Bureau data for 2002, there were 7,772 firms in this category that operated for the entire year. Of this total, 7,685 firms had annual receipts of under $24,999,999 and 45 firms had annual receipts of between $25,000,000 and $49,999,999. Thus, under this category and associated small business size standard, the majority of firms can be considered small. Each of these NAICS categories is very broad and includes firms that may be engaged in various industries, including cable programming. Specific figures are not available regarding how many of these firms exclusively produce and/or distribute programming for cable television or how many are independently owned and operated. 32. *Motion Picture and Video Distribution.* The Census Bureau defines this category as follows: “This industry comprises establishments primarily engaged in acquiring distribution rights and distributing film and video productions to motion picture theaters, television networks and stations, and exhibitors.” The SBA has developed a small business size standard for firms within this category, which is all firms with $27 million or less in annual receipts. According to Census Bureau data for 2002, there were 377 firms in this category that operated for the entire year. Of this total, 365 firms had annual receipts of under $24,999,999 and 7 firms had annual receipts of between $25,000,000 and $49,999,999. Thus, under this category and associated small business size standard, the majority of firms can be considered small. Each of these NAICS categories is very broad and includes firms that may be engaged in various industries, including cable programming. Specific figures are not available regarding how many of these firms exclusively produce and/or distribute programming for cable television or how many are independently owned and operated. 33. *Small Incumbent Local Exchange Carriers.* We have included small incumbent local exchange carriers in this present RFA analysis. A “small business” under the RFA is one that, inter alia, meets the pertinent small business size standard (e.g., a telephone communications business having 1,500 or fewer employees), and “is not dominant in its field of operation.” The SBA's Office of Advocacy contends that, for RFA purposes, small incumbent local exchange carriers are not dominant in their field of operation because any such dominance is not “national” in scope. We have therefore included small incumbent local exchange carriers in this RFA, although we emphasize that this RFA action has no effect on Commission analyses and determinations in other, non-RFA contexts. 34. *Incumbent Local Exchange Carriers (“LECs”).* Neither the Commission nor the SBA has developed a small business size standard specifically for incumbent local exchange services. The appropriate size standard under SBA rules is for the category Wired Telecommunications Carriers. Under that size standard, such a business is small if it has 1,500 or fewer employees. According to Commission data, 1,307 carriers have reported that they are engaged in the provision of incumbent local exchange services. Of these 1,307 carriers, an estimated 1,019 have 1,500 or fewer employees and 288 have more than 1,500 employees. Consequently, the Commission estimates that most providers of incumbent local exchange service are small businesses. 35. *Competitive Local Exchange Carriers, Competitive Access Providers (CAPs), Shared-Tenant Service Providers,” and “Other Local Service Providers.”* Neither the Commission nor the SBA has developed a small business size standard specifically for these service providers. The appropriate size standard under SBA rules is for the category Wired Telecommunications Carriers. Under that size standard, such a business is small if it has 1,500 or fewer employees. According to Commission data, 859 carriers have reported that they are engaged in the provision of either competitive access provider services or competitive local exchange carrier services. Of these 859 carriers, an estimated 741 have 1,500 or fewer employees and 118 have more than 1,500 employees. In addition, 16 carriers have reported that they are “Shared-Tenant Service Providers,” and all 16 are estimated to have 1,500 or fewer employees. In addition, 44 carriers have reported that they are “Other Local Service Providers.” Of the 44, an estimated 43 have 1,500 or fewer employees and one has more than 1,500 employees. Consequently, the Commission estimates that most providers of competitive local exchange service, competitive access providers, “Shared-Tenant Service Providers,” and “Other Local Service Providers” are small entities. 36. *Electric Power Generation, Transmission and Distribution.* The Census Bureau defines this category as follows: “This industry group comprises establishments primarily engaged in generating, transmitting, and/or distributing electric power. Establishments in this industry group may perform one or more of the following activities:

(1)Operate generation facilities that produce electric energy;

(2)operate transmission systems that convey the electricity from the generation facility to the distribution system; and

(3)operate distribution systems that convey electric power received from the generation facility or the transmission system to the final consumer.” The SBA has developed a small business size standard for firms in this category: “A firm is small if, including its affiliates, it is primarily engaged in the generation, transmission, and/or distribution of electric energy for sale and its total electric output for the preceding fiscal year did not exceed 4 million megawatt hours.” According to Census Bureau data for 2002, there were 1,644 firms in this category that operated for the entire year. Census data do not track electric output and we have not determined how many of these firms fit the SBA size standard for small, with no more than 4 million megawatt hours of electric output. Consequently, we estimate that 1,644 or fewer firms may be considered small under the SBA small business size standard. D. Description of Proposed Reporting, Recordkeeping and Other Compliance Requirements 37. The rules ultimately adopted as a result of this FNPRM may contain new or modified information collections. We anticipate that none of the changes would result in an increase to the reporting and recordkeeping requirements of small entities. We invite small entities to comment in response to the FNPRM. E. Steps Taken To Minimize Significant Impact on Small Entities and Significant Alternatives Considered 38. The RFA requires an agency to describe any significant alternatives that it has considered in proposing regulatory approaches, which may include the following four alternatives (among others):

(1)The establishment of differing compliance or reporting requirements or timetables that take into account the resources available to small entities;

(2)the clarification, consolidation, or simplification of compliance or reporting requirements under the rule for small entities;

(3)the use of performance, rather than design, standards; and

(4)an exemption from coverage of the rule, or any part thereof, for small entities. 39. In response to the FNPRM, the Commission may choose to continue to apply its current leased access rates to programmers that predominantly transmit sales presentations or program length commercials; it may choose to apply the modified rate formula and the maximum allowable leased access rate of $0.10 per subscriber per month to these programmers; or it may adopt an alternative approach. We invite comment on the options the Commission is considering, or alternatives thereto as referenced above, and on any other alternatives commenters may wish to propose for the purpose of minimizing any significant economic impact on smaller entities. F. Federal Rules Which Duplicate, Overlap, or Conflict With the Commission's Proposals 40. None. IV. Additional Information 41. For additional information on this proceeding, contact Steven Broeckaert, *Steven.Broeckaert@fcc.gov;* or Katie Costello, *Katie.Costello@fcc.gov;* of the Media Bureau, Policy Division,

(202)418-2120. V. Ordering Clauses 42. Accordingly, *it is ordered,* pursuant to the authority found in sections 4(i), 303(r), and 628 of the Communications Act of 1934, as amended, 47 U.S.C. 154(i), 303(r), and 532, this *Notice of Proposed Rulemaking Is Adopted.* 43. *It is further ordered* that the Commission's Consumer and Governmental Affairs Bureau, Reference Information Center, shall send a copy of this *Notice of Proposed Rulemaking,* including the Initial Regulatory Flexibility Analysis, to the Chief Counsel for Advocacy of the Small Business Administration. Federal Communications Commission. Marlene H. Dortch, Secretary. [FR Doc. 08-871 Filed 2-27-08; 8:45 am]

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