Unknown. Final rule

78,791 words·~358 min read·/register/2008/07/29/08-1475

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

--- schema: federal-register doc_type: fedreg source_file: FR-2008-07-29.xml --- 73 146 Tuesday, July 29, 2008 Contents Agriculture Agriculture Department See Food Safety and Inspection Service Air Force Air Force Department NOTICES Exclusive Patent License, 43916-43917 E8-17325 Antitrust Antitrust Division NOTICES National Cooperative Research and Production Act (1993): American Society of Mechanical Engineers, 43951 E8-17043 Cooperative Research Group on Clean Diesel V, 43952 E8-17042 Limo Foundation, 43952 E8-17041 Recreational Off-Highway Vehicle Organization, 43952 E8-17040 Army Army Department See Engineers Corps NOTICES Privacy Act;

Systems of Records, 43917-43922 E8-17318 E8-17320 E8-17322 Arts Arts and Humanities, National Foundation See National Foundation on the Arts and the Humanities Coast Guard Coast Guard RULES Safety Zones: Maine; Sector Northern New England August Swim Events, 43868-43871 E8-17292 Commerce Commerce Department See International Trade Administration See National Institute of Standards and Technology See National Oceanic and Atmospheric Administration Comptroller Comptroller of the Currency PROPOSED RULES Risk-Based Capital Guidelines;

Capital Adequacy Guidelines: Standardized Framework, 43982-44060 E8-16262 Defense Defense Department See Air Force Department See Army Department See Engineers Corps NOTICES Agency Information Collection Activities; Proposals, Submissions, and Approvals, 43916 E8-17323 Education Education Department RULES Improving the Academic Achievement of the Disadvantaged: Migrant Education Program, 44102-44125 E8-16859 Energy Energy Department See Federal Energy Regulatory Commission NOTICES Meetings:

Fusion Energy Sciences Advisory Committee; Cancellation, 43923 E8-17339 Engineers Engineers Corps NOTICES Solicitation for Public Sector Nominations to Serve on the Committee on Levee Safety, 43922-43923 E8-17341 EPA Environmental Protection Agency RULES Approval and Promulgation of Air Quality Implementation Plans: Montana; Revisions to the Administrative Rules of Montana - Air Quality, Incinerators, 43871-43873 E8-17094 NOTICES Draft Toxicological Review of Tetrachloroethylene (Perchloroethylene):

In Support of Summary Information on the Integrated Risk Information System (IRIS), 43932 E8-17345 Meetings: Environmental Laboratory Advisory Board; Teleconference, 43932-43933 E8-17342 Executive Executive Office of the President See Presidential Documents FAA Federal Aviation Administration RULES Airworthiness Directives: Cessna Aircraft Company Models 175 and 175A Airplanes, 43845-43847 E8-16583 Establishment of Class E Airspace: Venetie, AK, 43847-43848 E8-17075 PROPOSED RULES Airworthiness Directives:

DG Flugzeugbau GmbH Model DG 500MB Gliders, 43875 E8-17369 FCC Federal Communications Commission NOTICES Agency Information Collection Activities; Proposals, Submissions, and Approvals, 43933-43934 E8-17346 FDIC Federal Deposit Insurance Corporation PROPOSED RULES Risk-Based Capital Guidelines; Capital Adequacy Guidelines: Standardized Framework, 43982-44060 E8-16262 NOTICES Agency Information Collection Activities; Proposals, Submissions, and Approvals, 43934-43935 E8-17256 Federal Energy Federal Energy Regulatory Commission RULES Standards for Business Practices and Communication Protocols for Public Utilities, 43848-43860 E8-17194 NOTICES Combined Notice Of Filings, 43923 E8-17344 Environmental Impact Statements;

Availability, etc.: Palomar Gas Transmission, LLC, et al., 43924-43926 E8-17302 Filings: Entergy Services, Inc., 43926 E8-17278 New York Independent System Operator, Inc., 43926-43927 E8-17279 E8-17280 North American Electric Reliability Corp., 43927 E8-17277 Meetings: Independent Coordinator of Transmission Transmission Summit, 43927-43928 E8-17282 Preliminary Permit Applications Accepted, etc.: FFP Missouri 10, LLC; FFP Missouri 11, LLC, 43929 E8-17289 FFP Missouri 1, LLC; FFP Missouri 2, LLC, 43928 E8-17284 FFP Missouri 3, LLC;

FFP Missouri 4, LLC, 43929 E8-17285 FFP Missouri 5, LLC; FFP Missouri 6, LLC, 43929-43930 E8-17286 FFP Missouri 7, LLC, 43930 E8-17287 FFP Missouri 8, LLC; FFP Missouri 9, LLC, 43930-43931 E8-17288 Suspensions of Procedural Schedules: SFPP, L.P., 43931 E8-17281 Texaco Refining and Marketing Inc. et al., 43931 E8-17283 Third Amendment Application: Southeast Supply Header, LLC, 43931 E8-17290 Federal Highway Federal Highway Administration NOTICES Final Federal Agency Actions on a Proposed U.S.

Highway Project in California, 43972-43973 E8-17367 Federal Railroad Federal Railroad Administration NOTICES Application for Approval of Discontinuance or Modification of a Railroad Signal System or Relief from the Requirements of Regulations, 43973-43974 E8-17294 Informational Filing, 43974 E8-17295 Petition for Waiver of Compliance, 43974-43976 E8-17293 E8-17394 Federal Reserve Federal Reserve System PROPOSED RULES Risk-Based Capital Guidelines; Capital Adequacy Guidelines:

Standardized Framework, 43982-44060 E8-16262 NOTICES Change in Bank Control Notices; Acquisition of Shares of Bank or Bank Holding Companies, 43935-43936 E8-17355 Meetings; Sunshine Act, 43936 08-1476 Fish Fish and Wildlife Service PROPOSED RULES Endangered and Threatened Wildlife and Plants; Annual Notice of: 90-Day Finding on a Petition to List the Tucson Shovel-Nosed Snake (Chionactis occipitalis klauberi) as Threatened or Endangered with Critical Habitat, 43905-43910 E8-17221 Findings on Resubmitted Petitions for Foreign Species, 44062-44099 E8-17215 Revised Critical Habitat for the San Bernardino Kangaroo Rat (Dipodomys merriami parvus), 43910-43911 E8-17054 NOTICES Endangered and Threatened Wildlife and Plants; 5-Year Status Review of 20 Southeastern Species, 43947-43948 E8-17368 Food Food and Drug Administration NOTICES Amendments Act (of 2007):

Prohibition Against Food to Which Drugs or Biological Products Have Been Added, etc., 43937-43940 E8-17356 Determination: SANOREX (Mazindol) Tablets 1 and 2 Milligrams Were Not Withdrawn From Sale for Reasons of Safety or Effectiveness; Correction, 43940 E8-17303 Draft Information Sheet Guidance, 43940-43941 E8-17305 Meetings: Blood Products Advisory Committee, 43941-43942 E8-17359 Risk Communication Advisory Committee, 43942-43943 E8-17304 Food Food Safety and Inspection Service NOTICES Meetings:

Codex Committee on Processed Fruits and Vegetables, 43912-43913 E8-17257 Health Health and Human Services Department See Centers for Disease Control and Prevention See Food and Drug Administration See Health Resources and Services Administration See National Institutes of Health See Substance Abuse and Mental Health Services Administration PROPOSED RULES Developmental Disabilities Program, 43904-43905 E8-17296 NOTICES Meetings: American Health Information Community Confidentiality, Privacy & Security Workgroup, 43937 E8-17313 American Health Information Community Consumer Empowerment Workgroup, 43936 E8-17297 American Health Information Community Population Health and Clinical Care Connections Workgroup, 43937 E8-17314 American Health Information Community Quality Workgroup, 43936-43937 E8-17298 Health Health Resources and Services Administration NOTICES Agency Information Collection Activities;

Proposals, Submissions, and Approvals, 43943-43944 E8-17354 Homeland Homeland Security Department See Coast Guard NOTICES Agency Information Collection Activities; Proposals, Submissions, and Approvals, 43946-43947 E8-17338 Interior Interior Department See Fish and Wildlife Service See Land Management Bureau IRS Internal Revenue Service RULES Converting an IRA Annuity to a Roth IRA, 43860-43863 E8-17271 Modifications to Subpart F Treatment of Aircraft and Vessel Leasing Income;

Correction, 43863 E8-17269 Section 42 Utility Allowance Regulations Update, 43863-43868 E8-17268 PROPOSED RULES Alcohol Fuel and Biodiesel; Renewable Diesel; Alternative Fuel; Diesel-Water Fuel Emulsion; Taxable Fuel Definitions; Excise Tax Returns, 43890-43904 E8-17270 Employee Stock Purchase Plans under Internal Revenue Code Section 423, 43875-43890 E8-17255 Regulations Under Section 2642(g); Hearing, 43904 E8-17291 NOTICES Agency Information Collection Activities; Proposals, Submissions, and Approvals:

Corrections, 43978 E8-17253 International International Trade Administration NOTICES Antidumping Duty: Crawfish Tail Meat from the People's Republic of China, 43913 E8-17358 Steel Threaded Rod from the People's Republic of China, 43913-43914 E8-17365 International International Trade Commission NOTICES Monitoring of U.S. Imports: Tomatoes; Peppers, 43950-43951 E8-17311 Termination of Review: Lawn and Garden Steel Fence Posts from China, 43951 E8-17312 Justice Justice Department See Antitrust Division Labor Labor Department NOTICES Management of United States Government Accountability Office Reports, 44128-44129 E8-17332 Land Land Management Bureau NOTICES Environmental Impact Statements;

Intent: Creek Coal Bed Natural Gas Development Project (Project), located in Fremont County, WY, 43948-43949 E8-17327 Meetings: Idaho Falls District Resource Advisory Council Meeting, 43949-43950 E8-17330 Proposed Reinstatement of Terminated Oil and Gas Lease, 43950 E8-17317 National Foundation National Foundation on the Arts and the Humanities NOTICES Delegation of Authority, 43952 E8-17240 National Institute National Institute of Standards and Technology NOTICES Approval of Federal Information Processing Standard

(FIPS)Publication 198-1, The Keyed-Hash Message Authentication Code (HMAC), a Revision of FIPS 198, 43914 E8-17363 Construction Grant Program Extension of Due Date for Proposals, 43915 08-1475 NIH National Institutes of Health NOTICES Meetings: Center for Scientific Review, 43944 E8-17166 National Institute on Alcohol Abuse and Alcoholism, E8-17165 43944-43945 E8-17167 National Library of Medicine, 43945 E8-17044 NOAA National Oceanic and Atmospheric Administration NOTICES Applications: Diving Operations, Recreational Fishing, Research, etc.; Flower Garden Banks National Marine Sanctuary Advisory Council, 43915-43916 E8-17192 Draft Management Plan and Environmental Assessment: Gerry E. Studds Stellwagen Bank National Marine Sanctuary, 43916 E8-17193 Nuclear Nuclear Regulatory Commission PROPOSED RULES Consideration of Petition in the Rulemaking Process: David Lochbaum, Union of Concerned Scientists, 43874-43875 E8-17321 Consider Petition in the Rulemaking Process: Scott Portzline, Three Mile Island Alert, 43874 E8-17319 NOTICES Applicaction to License the Export of High Enchiched Uranium, 43953 E8-17315 Facility Operating Licenses: Biweekly Notice; No Significant Hazards Considerations, 43953-43960 E8-17102 Meetings; Sunshine Act, 43960 08-1473 Security Inspection and Security Performance Assessment of Licensees, 43960-43962 E8-17324 Postal Postal Regulatory Commission NOTICES Express Mail, 43962-43963 E8-17301 Presidential Presidential Documents PROCLAMATIONS *Special observances:* Anniversary of the Americans with Disabilities Act (Proc. 8276), 44131-44134 08-1478 Parents’ Day (Proc. 8277), 44135-44136 08-1479 EXECUTIVE ORDERS Zimbabwe; Blocking Property of Additional Persons Undermining Democratic Processes or Institutions (EO 13469), 43841-43843 08-1480 SEC Securities and Exchange Commission NOTICES Meetings; Sunshine Act, 43963 E8-17414 Self-Regulatory Organizations; Proposed Rule Changes: Chicago Board Options Exchange, Inc., 43963-43966 E8-17310 NASDAQ Stock Market LLC, 43966-43968 E8-17309 NYSE Arca, Inc, 43968-43971 E8-17307 E8-17308 SBA Small Business Administration NOTICES Delegation of Authority, 43971-43972 E8-17361 State State Department NOTICES Meetings: Shipping Coordinating Committee, 43972 E8-17347 Substance Substance Abuse and Mental Health Services Administration NOTICES Agency Information Collection Activities; Proposals, Submissions, and Approvals, 43945-43946 E8-17336 Thrift Thrift Supervision Office PROPOSED RULES Risk-Based Capital Guidelines; Capital Adequacy Guidelines: Standardized Framework, 43982-44060 E8-16262 NOTICES OTS Minority Depository Institutions Advisory Committee, 43978 E8-17370 Transportation Transportation Department See Federal Aviation Administration See Federal Highway Administration See Federal Railroad Administration Treasury Treasury Department See Comptroller of the Currency See Internal Revenue Service See Thrift Supervision Office NOTICES Agency Information Collection Activities; Proposals, Submissions, and Approvals, 43976-43978 E8-17267 E8-17350 E8-17351 MISSING FOR: U.S.-China Economic and Security Review Commission U.S.-China Economic and Security Review Commission NOTICES Meetings: U.S.-China Economic and Security Review Commission, 43978-43979 E8-17299 Separate Parts In This Issue Part II Federal Deposit Insurance Corporation; Federal Reserve System; Treasury Department, Comptroller of the Currency; Treasury Department, Thrift Supervision Office, 43982-44060 E8-16262 Part III Interior Department, Fish and Wildlife Service, 44062-44099 E8-17215 Part IV Education Department, 44102-44125 E8-16859 Part V Labor Department, 44128-44129 E8-17332 Part VI Executive Office of the President, Presidential Documents, 43841-43843 08-1480 Reader Aids Consult the Reader Aids section at the end of this issue for phone numbers, online resources, finding aids, reminders, and notice of recently enacted public laws. To subscribe to the Federal Register Table of Contents LISTSERV electronic mailing list, go to http://listserv.access.gpo.gov and select Online mailing list archives, FEDREGTOC-L, Join or leave the list (or change settings); then follow the instructions. 73 146 Tuesday, July 29, 2008 Rules and Regulations DEPARTMENT OF TRANSPORTATION Federal Aviation Administration 14 CFR Part 39 [Docket No. FAA-2007-29240; Directorate Identifier 2007-CE-076-AD; Amendment 39-15618; AD 2008-15-06] RIN 2120-AA64 Airworthiness Directives; Cessna Aircraft Company Models 175 and 175A Airplanes AGENCY: Federal Aviation Administration (FAA), Department of Transportation (DOT). ACTION: Final rule. SUMMARY: We are adopting a new airworthiness directive

(AD)for certain Cessna Aircraft Company (Cessna) Models 175 and 175A airplanes. This AD requires you to check the airplane logbook to determine if the original engine mounting brackets have been replaced. If the original engine mounting brackets are still installed, this AD requires you to repetitively inspect those brackets for cracks and replace any cracked engine mounting bracket. After replacing all four original engine mounting brackets, no further action will be required by this AD. This AD was prompted by a report that the engine became detached from the firewall during landing on one of the affected airplanes. We are issuing this AD to detect and correct cracks in the engine mounting brackets, which could result in failure of the engine mounting bracket. This failure could lead to the engine detaching from the firewall. DATES: This AD becomes effective on September 2, 2008. On September 2, 2008, the Director of the Federal Register approved the incorporation by reference of certain publications listed in this AD. ADDRESSES: For service information identified in this AD, contact Cessna Aircraft Company, Product Support, P.O. Box 7706, Wichita, Kansas 67277; telephone:

(316)517-5800; fax:

(316)942-9006. To view the AD docket, go to U.S. Department of Transportation, Docket Operations, M-30, West Building Ground Floor, Room W12-140, 1200 New Jersey Avenue, SE., Washington, DC 20590, or on the Internet at *http://www.regulations.gov.* The docket number is FAA-2007-29240; Directorate Identifier 2007-CE-076-AD. FOR FURTHER INFORMATION CONTACT: Gary Park, Aerospace Engineer, 1801 Airport Road, Room 100, Wichita, Kansas 67209; telephone:

(316)946-4123; fax:

(316)946-4107. SUPPLEMENTARY INFORMATION: Discussion On March 31, 2008, we issued a proposal to amend part 39 of the Federal Aviation Regulations (14 CFR part 39) to include an AD that would apply to certain Cessna Models 175 and 175A airplanes. This proposal was published in the **Federal Register** as a notice of proposed rulemaking

(NPRM)on April 8, 2008 (73 FR 19017). The NPRM proposed to require you to check the airplane logbook to determine if the original engine mounting brackets have been replaced. If the original engine mounting brackets are still installed, the NPRM proposed to require you to repetitively inspect those brackets for cracks and replace any cracked engine mounting bracket. After replacing all four original engine mounting brackets, no further action would be required by the NPRM. Comments We provided the public the opportunity to participate in developing this AD. We received no comments on the proposal or on the determination of the cost to the public. Conclusion We have carefully reviewed the available data and determined that air safety and the public interest require adopting the AD as proposed except for minor editorial corrections. We have determined that these minor corrections: • Are consistent with the intent that was proposed in the NPRM for correcting the unsafe condition; and • Do not add any additional burden upon the public than was already proposed in the NPRM. Costs of Compliance We estimate that this AD affects 1,218 airplanes in the U.S. registry. We estimate the following costs to do the inspection: Labor cost Parts cost Total cost per airplane Total cost on U.S. operators 7.5 work-hours × $80 per hour = $600 Not applicable $600 $730,800 We estimate the following costs to do any necessary replacements: Labor cost Parts cost Total cost per airplane 3 work-hours per bracket × $80 per hour = $240 per bracket. 4 brackets per airplane × $240 per bracket = $960 $200 per bracket. 4 × $200 = $800 for all 4 brackets $440 per bracket. $1,760 to replace all 4 brackets. 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 AD. Regulatory Findings We have determined that this AD will not have federalism implications under Executive Order 13132. This AD will not have a substantial direct effect on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government. For the reasons discussed above, I certify that this AD: 1. Is not a “significant regulatory action” under Executive Order 12866; 2. Is not a “significant rule” under the DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979); and 3. Will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act. We prepared a summary of the costs to comply with this AD (and other information as included in the Regulatory Evaluation) and placed it in the AD Docket. You may get a copy of this summary by sending a request to us at the address listed under ADDRESSES . Include “Docket No. FAA-2007-29240; Directorate Identifier 2007-CE-076-AD” in your request. List of Subjects in 14 CFR Part 39 Air transportation, Aircraft, Aviation safety, Incorporation by reference, Safety. Adoption of the Amendment Accordingly, under the authority delegated to me by the Administrator, the Federal Aviation Administration amends part 39 of the Federal Aviation Regulations (14 CFR part 39) as follows: PART 39—AIRWORTHINESS DIRECTIVES 1. The authority citation for part 39 continues to read as follows: Authority: 49 U.S.C. 106(g), 40113, 44701. § 39.13 [Amended] 2. FAA amends § 39.13 by adding the following new AD: **2008-15-06 Cessna Aircraft Company:** Amendment 39-15618; Docket No. FAA-2007-29240; Directorate Identifier 2007-CE-076-AD. Effective Date

(a)This AD becomes effective on September 2, 2008. Affected ADs

(b)None. Applicability

(c)This AD applies to the following airplane models and serial numbers that are certificated in any category: Model Serial Nos. Year manufactured

(1)175 55001 through 55703 1958.

(2)175 55704 through 56238 1959.

(3)175 28700A, 626, and 640 1958 and 1959.

(4)175A 691, and 56239 through 56777 1960. Unsafe Condition

(d)A report that the engine became unattached from the firewall during landing on one of the affected airplanes prompts this AD. We are issuing this AD to detect and correct cracks in the engine mounting brackets, which could result in failure of the engine mounting bracket. This failure could lead to the engine detaching from the firewall. Compliance

(e)To address this problem, you must do the following, unless already done: Actions Compliance Procedures

(1)Check the airplane logbook to determine if all four of the original engine mounting brackets have been replaced Within the next 30 days after September 2, 2008 (the effective date of this AD) The owner/operator holding at least a private pilot certificate as authorized by section 43.7 may do this action.

(2)If you can positively determine that all four of the original engine mounting brackets have been replaced, no further action is required Not applicable Make an entry into the aircraft logbook showing compliance with this portion of the AD in accordance with 14 CFR 43.9. The owner/operator holding at least a private pilot certificate as authorized by section 43.7 may do this action.

(3)If you cannot positively determine that all four of the original engine mounting brackets have been replaced, inspect each of the upper and lower engine mounting brackets on both the left and right sides for cracks as specified in the service bulletin Initially inspect within the next 12 months after September 2, 2008 (the effective date of this AD). If no cracks are found, repetitively inspect thereafter at intervals not to exceed 500 hours time-in-service

(TIS)until all four of the original engine mounting brackets are replaced Follow Cessna Single Engine Service Bulletin SEB07-2, Revision 2, dated June 18, 2007.

(4)If cracks are found in any of the engine mounting brackets during any inspection required in paragraph (e)(3) of this AD, replace the cracked engine mounting bracket(s) Before further flight after the inspection in which cracks are found. Replacing the cracked engine mounting bracket terminates the repetitive inspection required in paragraph (e)(3) of this AD only for the replaced engine mounting bracket Follow Cessna Single Engine Service Bulletin SEB07-2, Revision 2, dated June 18, 2007.

(5)To terminate the repetitive inspections required in paragraph (e)(3) of this AD, you may replace all four original engine mounting brackets At any time before or after the initial inspection required in paragraph (e)(3) of this AD Follow Cessna Single Engine Service Bulletin SEB07-2, Revision 2, dated June 18, 2007.

(6)Dispose of every replaced bracket following 14 CFR 43.10, paragraph (c)(6), which states the following: “Mutilation. The part may be mutilated to deter its installation in a type certificated product. The mutilation must render the part beyond repair and incapable of being reworked to appear to be airworthy” Before further flight after the engine mounting bracket is removed for replacement Not applicable. Alternative Methods of Compliance (AMOCs)

(f)The Manager, Wichita Aircraft Certification Office (ACO), FAA, has the authority to approve AMOCs for this AD, if requested using the procedures found in 14 CFR 39.19. Send information to ATTN: Gary Park, Aerospace Engineer, FAA, Wichita ACO, 1801 Airport Road, Room 100, Wichita, Kansas 67209; telephone: 316-946-4123; fax: 316-946-4107; e-mail address: *gary.park@faa.gov.* 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. Material Incorporated by Reference

(g)You must use Cessna Single Engine Service Bulletin SEB07-2, Revision 2, dated June 18, 2007, to do the actions required by this AD, unless the AD specifies otherwise.

(1)The Director of the Federal Register approved the incorporation by reference of this service information under 5 U.S.C. 552(a) and 1 CFR part 51.

(2)For service information identified in this AD, contact Cessna Aircraft Company, Product Support, P.O. Box 7706, Wichita, Kansas 67277.

(3)You may review copies at the FAA, Central Region, Office of the Regional Counsel, 901 Locust, Kansas City, Missouri 64106; or at the National Archives and Records Administration (NARA). For information on the availability of this material at NARA, call 202-741-6030, or go to: *http://www.archives.gov/federal_register/code_of_federal_regulations/ibr_locations.html* . Issued in Kansas City, Missouri, on July 15, 2008. Kim Smith, Manager, Small Airplane Directorate, Aircraft Certification Service. [FR Doc. E8-16583 Filed 7-28-08; 8:45 am] BILLING CODE 4910-13-P DEPARTMENT OF TRANSPORTATION Federal Aviation Administration 14 CFR Part 71 [Docket No. FAA-2008-0460; Airspace Docket No. 08-AAL-18] Establishment of Class E Airspace; Venetie, AK AGENCY: Federal Aviation Administration (FAA), DOT. ACTION: Final rule. SUMMARY: This action establishes Class E airspace at Venetie, AK to provide adequate controlled airspace to contain aircraft executing Standard Instrument Approach Procedures (SIAPs) and Obstacle Departure Procedures (ODPs). Two SIAPs and an ODP are being developed for the Venetie Airport at Venetie Alaska. This action establishes Class E airspace upward from 700 feet (ft.) and 1,200 ft. above the surface at the Venetie Airport, Venetie, AK. DATES: *Effective Date:* 0901 UTC, September 25, 2008. The Director of the Federal Register approves this incorporation by reference action under title 1, Code of Federal Regulations, part 51, subject to the annual revision of FAA Order 7400.9 and publication of conforming amendments. FOR FURTHER INFORMATION CONTACT: Gary Rolf, AAL-538G, Federal Aviation Administration, 222 West 7th Avenue, Box 14, Anchorage, AK 99513-7587; telephone number

(907)271-5898; fax:

(907)271-2850; e-mail: *gary.ctr.rolf@faa.gov.* Internet address: *http://www.alaska.faa.gov/at.* SUPPLEMENTARY INFORMATION: History On Thursday, May 29, 2008, the FAA proposed to amend part 71 of the Federal Aviation Regulations (14 CFR part 71) to establish Class E airspace upward from 700 ft. and 1,200 ft. above the surface at Venetie, AK (73 FR 30820). The action was proposed in order to create Class E airspace sufficient in size to contain aircraft while executing instrument procedures for the Venetie Airport. Class E controlled airspace extending upward from 700 ft. and 1,200 ft. above the surface in the Venetie Airport area is established by this action. Interested parties were invited to participate in this rulemaking proceeding by submitting written comments on the proposal to the FAA. No comments were received. The rule is adopted as proposed. The area will be depicted on aeronautical charts for pilot reference. The coordinates for this airspace docket are based on North American Datum 83. The Class E airspace areas designated as 700/1,200 ft. transition areas are published in paragraph 6005 of FAA Order 7400.9R, *Airspace Designations and Reporting Points,* signed August 15, 2007, and effective September 15, 2007, which is incorporated by reference in 14 CFR 71.1. The Class E airspace designations listed in this document will be published subsequently in the Order. The Rule This amendment to 14 CFR part 71 establishes Class E airspace at the Venetie Airport, Alaska. This Class E airspace is established to accommodate aircraft executing instrument procedures, and will be depicted on aeronautical charts for pilot reference. The intended effect of this rule is to provide adequate controlled airspace for Instrument Flight Rules

(IFR)operations at the Venetie Airport, Venetie, Alaska. The FAA has determined that this regulation only involves an established body of technical regulations for which frequent and routine amendments are necessary to keep them operationally current. It, therefore—(1) Is not a “significant regulatory action” under Executive Order 12866;

(2)is not a “significant rule” under DOT Regulatory Policies and Procedures (44 FR 11034; February 26, 1979); and

(3)does not warrant preparation of a regulatory evaluation as the anticipated impact is so minimal. Since this is a routine matter that will only affect air traffic procedures and air navigation, it is certified that this rule will not have a significant economic impact on a substantial number of small entities under the criteria of the Regulatory Flexibility Act. The FAA's authority to issue rules regarding aviation safety is found in Title 49 of the United States Code. Subtitle 1, 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 1, Section 40103, Sovereignty and use of airspace. Under that section, the FAA is charged with prescribing regulations to ensure the safe and efficient use of the navigable airspace. This regulation is within the scope of that authority because it creates Class E airspace sufficient in size to contain aircraft executing instrument procedures for the Venetie Airport and represents the FAA's continuing effort to safely and efficiently use the navigable airspace. List of Subjects in 14 CFR Part 71 Airspace, Incorporation by reference, Navigation (air). Adoption of the Amendment In consideration of the foregoing, the Federal Aviation Administration amends 14 CFR part 71 as follows: PART 71—DESIGNATION OF CLASS A, CLASS B, CLASS C, CLASS D, AND CLASS E AIRSPACE AREAS; AIRWAYS; ROUTES; AND REPORTING POINTS 1. The authority citation for 14 CFR part 71 continues to read as follows: Authority: 49 U.S.C. 106(g), 40103, 40113, 40120; E.O. 10854, 24 FR 9565, 3 CFR, 1959-1963 Comp., p. 389. § 71.1 [Amended] 2. The incorporation by reference in 14 CFR 71.1 of Federal Aviation Administration Order 7400.9R, *Airspace Designations and Reporting Points,* signed August 15, 2007, and effective September 15, 2007, is amended as follows: Paragraph 6005 Class E Airspace Extending Upward From 700 Feet or More Above the Surface of the Earth. AAL AK E5 Venetie, AK [New] Venetie, Venetie Airport, AK (Lat. 67°00′31″ N., long. 146°21′59″ W.) That airspace extending upward from 700 feet above the surface within a 6.4-mile radius of the Venetie Airport, AK, and within 3.9 miles either side of the 062° bearing from the Venetie Airport, AK, extending from the 6.4-mile radius to 10.1 miles northeast of the Venetie Airport, AK; and that airspace extending upward from 1,200 feet above the surface within a 70-mile radius of the Venetie Airport, AK. Issued in Anchorage, AK, on July 17, 2008. Anthony M. Wylie, Manager, Alaska Flight Services Information Area Group. [FR Doc. E8-17075 Filed 7-28-08; 8:45 am] BILLING CODE 4910-13-P DEPARTMENT OF ENERGY Federal Energy Regulatory Commission 18 CFR Part 38 [Docket No. RM05-5-005; Order No. 676-C] Standards for Business Practices and Communication Protocols for Public Utilities Issued July 21, 2008. AGENCY: Federal Energy Regulatory Commission, DOE. ACTION: Final rule. SUMMARY: The Federal Energy Regulatory Commission (Commission) is revising its regulations to incorporate by reference the latest version (Version 001) of certain standards adopted by the Wholesale Electric Quadrant

(WEQ)of the North American Energy Standards Board (NAESB). NAESB's standards revise its Open Access Same-Time Information Systems (OASIS) business practice standards, revise four business practice standards relating to reliability issues, add new standards on transmission loading relief for the Eastern Interconnection, add new standards for public key infrastructure, and add a new OASIS implementation guide. Incorporating these revised standards will provide customers with information that will enable them to obtain transmission service on a non-discriminatory basis and will assist the Commission in supporting needed infrastructure and the reliability of the interstate transmission grid. DATES: *Effective Date:* This Final Rule will become effective on August 28, 2008. Dates for implementation of the standards are provided in the Final Rule. The Director of the Federal Register has approved the Incorporation by reference of the standards addressed in the Final Rule effective August 28, 2008. FOR FURTHER INFORMATION CONTACT: Ryan M. Irwin (technical issues), Office of Energy Market Regulation, Federal Energy Regulatory Commission, 888 First Street, NE., Washington, DC 20426,

(202)502-6454. Kay Morice (technical issues), Office of Energy Market Regulation, Federal Energy Regulatory Commission, 888 First Street, NE., Washington, DC 20426,

(202)502-6507. Gary D. Cohen (legal issues), Office of the General Counsel, Federal Energy Regulatory Commission, 888 First Street, NE., Washington, DC 20426,

(202)502-8321. SUPPLEMENTARY INFORMATION: Before Commissioners: Joseph T. Kelliher, Chairman; Suedeen G. Kelly, Marc Spitzer, Philip D. Moeller, and Jon Wellinghoff. Table of Contents Paragraph numbers I. Background 2 II. Discussion 7 A. Overview 7 B. Issues Raised by Commenters 12 1. Cost of Obtaining NAESB Standards 13 2. Interpretation of NAESB Standards and OATT Principles 16 3. Weighing Costs and Benefits of Proposed Standards 18 4. Implementation Date for WEQ-001 20 5. WEQ-001-0.5 22 6. WEQ-001-1.5(d) 25 7. WEQ-001-11 (Resales) 28 8. WEQ-001-11.2.1 36 9. WEQ-001-11.3 through WEQ-001-11.3.3 39 10. WEQ-001-11.5.3 47 11. Resales of Conditional Long Term Firm Reservations 53 12. WEQ-004 (Coordinate Interchange) and WEQ-008 (Transmission Loading Relief—Eastern Interconnection) 62 13. WEQ-012-1.5 (Public Key Infrastructure) 73 14. Requests for Modifications to NAESB Standards 76 III. Implementation Dates and Procedures 80 IV. Notice of Use of Voluntary Consensus Standards 85 V. Information Collection Statement 86 VI. Environmental Analysis 95 VII. Regulatory Flexibility Act Certification 97 VIII. Document Availability 99 IX. Effective Date and Congressional Notification 102 1. The Federal Energy Regulatory Commission (Commission) is amending its regulations under the Federal Power Act

(FPA)1 to incorporate by reference the latest version (Version 001) of certain business practice standards concerning the Open Access Same-Time Information Systems (OASIS) and gas/electric coordination and four business practice standards relating to reliability issues adopted by the Wholesale Electric Quadrant

(WEQ)of the North American Energy Standards Board (NAESB). These revised standards update earlier versions of these standards that the Commission previously incorporated by reference into its regulations at 18 CFR 38.2 in Order Nos. 676, 676-B, and 698. 2 In addition, in this Final Rule, the Commission is amending its regulations under the FPA to incorporate by reference NAESB's new standards on transmission loading relief

(TLR)for the Eastern Interconnection and on public key infrastructure

(PKI)and to add a new OASIS implementation guide. 1 16 U.S.C. 791a, *et seq.* 2 *Standards for Business Practices and Communication Protocols for Public Utilities,* Order No. 676, 71 FR 26,199 (May 4, 2006), FERC Stats. & Regs., ¶ 31,216 (Apr. 25, 2006), *reh'g denied,* Order No. 676-A, 116 FERC ¶ 61,255 (2006), Order No. 676-B, 72 FR 21,095 (Apr. 30, 2007), FERC Stats. & Regs. ¶ 31,246 (Apr. 19, 2007), *Standards for Business Practices for Interstate Natural Gas Pipelines; Standards for Business Practices for Public Utilities,* Order No. 698, 72 FR 38757 (July 16, 2007), FERC Stats. & Regs., ¶ 31,251 (June 25, 2007), *order on clarification and reh'g,* Order No. 698-A, 121 FERC ¶ 61,264 (2007). I. Background 2. NAESB is a non-profit standards development organization established in January 2002 that serves as an industry forum for the development of business practice standards that promote a seamless marketplace for wholesale and retail natural gas and electricity. 3 Since 1995, NAESB and its predecessor, the Gas Industry Standards Board, have been accredited members of the American National Standards Institute (ANSI), complying with ANSI's requirements that its standards reflect a consensus of the affected industries. 4 3 *See Standards for Business Practices and Communication Protocols for Public Utilities,* Notice of Proposed Rulemaking, 72 FR 8318 (Feb. 26, 2007), FERC Stats. & Regs. ¶ 32,612, at P 3 (Feb. 20, 2007). 4 *Id.* 3. NAESB's standards include business practices that streamline the transactional processes of the natural gas and electric industries, as well as communication protocols and related standards designed to improve the efficiency of communication within each industry. NAESB supports all four quadrants of the gas and electric industries—wholesale gas, wholesale electric, retail gas, and retail electric. All participants in the gas and electric industries are eligible to join NAESB and participate in standards development. 5 5 *Id.* P 4. 4. NAESB's procedures are designed to ensure that all industry members can have input into the development of a standard, whether or not they are members of NAESB, and each standard NAESB adopts is supported by a consensus of the relevant industry segments. 6 6 *Id.* P 5. 5. On December 26, 2007, NAESB submitted a report detailing its new and revised Version 001 business practice standards dated October 31, 2007 with minor corrections applied on November 16, 2007. 7 These standards update the standards that we incorporated by reference into our regulations in Order Nos. 676, 676-B and 698, add a new OASIS implementation guide, and add new standards to:

(1)Provide additional functionality for OASIS transactions;

(2)provide business practice standards for TLR in the Eastern Interconnection; and

(3)provide business practice standards governing PKI. 7 The Version 001 standards do not include modifications of existing standards or new standards to support Order No. 890, the Commission's Final Rule amending the Commission's *pro forma* Open Access Transmission Tariff, *Preventing Undue Discrimination and Preference in Transmission Service,* Order No. 890, 72 FR 12,266 (Mar. 15, 2007), FERC Stats. & Regs. ¶ 31,241 (Feb. 16, 2007), *order on reh'g,* Order No. 890-A, 73 FR 2984 (Jan. 16, 2008), FERC Stats. & Regs. ¶ 31,261 (Dec. 28, 2007), *reh'g pending,* with the exception of modifications to resales and transfers to address the Commission's rules for resales described in Order No. 890 at P 815 and n. 496. 6. On April 21, 2008, the Commission issued a Notice of Proposed Rulemaking, wherein we proposed to incorporate by reference into the Commission's regulations the WEQ Version 001 Standards (with certain exceptions) including NAESB's new standards on TLR, PKI, and the new OASIS implementation guide. 8 In response to the WEQ Version 001 NOPR, ten comments were filed. 9 8 *Standards for Business Practices and Communication Protocols for Public Utilities,* Notice of Proposed Rulemaking, 73 FR 22,849 (Apr. 28, 2008), FERC Stats. & Regs. ¶ 32,633

(2008)(WEQ Version 001 NOPR). 9 Commenters on the WEQ Version 001 NOPR, and the abbreviations used in this Final Rule to identify them are listed in the Appendix. II. Discussion A. Overview 7. In this Final Rule, the Commission is amending its regulations under the FPA to incorporate by reference the NAESB WEQ Version 001 standards that the Commission proposed to incorporate in the WEQ Version 001 NOPR. 10 While many of the standards simply revise or update existing standards, some of the standards address new business practices. For example, NAESB adopted new business practice standards for resales and transfers to standardize secondary transmission service on the OASIS. These standards also standardize how resales and transfers are conducted off the OASIS. NAESB also adopted PKI standards to create greater security for business transactions taking place over the Internet. In addition, NAESB has revised and added standards establishing business practices related to the North American Electric Reliability Corporation

(NERC)reliability standards. 11 For example, NAESB has adopted standards governing TLR that specify business practices for cutting transmission services in the event of a TLR, consistent with the NERC reliability standards. 10 Consistent with our proposal in the WEQ Version 001 NOPR, we are not revising our regulations to incorporate by reference the following standards: Standards of Conduct for Electric Transmission Providers (WEQ-009) and Contracts Related Standards (WEQ-010). In addition, consistent with our discussion in the WEQ Version 001 NOPR, we are not incorporating by reference the following WEQ-001 standards: WEQ-001-0.1, 001-0.9 through WEQ-001-0.13, WEQ-001-1.0 through WEQ-001-1.8 and WEQ-001-9.7. 11 In Docket No. RM08-7-000, the Commission is issuing a Final Rule (being issued simultaneously with this rule) approving six modified Reliability Standards submitted to the Commission for approval by the North American Electric Reliability Corporation (NERC). The rule being issued in Docket No. RM08-7-000 is also approving NERC's proposed interpretation of five specific Requirements of Commission-approved Reliability Standards. While the Final Rule being issued in Docket No. RM08-7-000 addresses modified Reliability Standards, the Final Rule being issued in the instant proceeding (i.e., in Docket No. RM05-5-005), is addressing, among other matters, the business practice standards related to these Reliability Standards. 8. In the NOPR, we asked for comment on differences in definitions in a few of the NERC's and NAESB's TLR standards. The comments indicate that NERC and NAESB have formed a subcommittee to ensure that their definitions are complementary in the future. We are very pleased that NERC and NAESB have taken active steps to ensure that their respective definitions are harmonized so as to ensure that these standards will operate efficiently in the future. 9. The specific NAESB standards that we are incorporating by reference in this Final Rule are: • Business Practices for Open Access Same-Time Information Systems (OASIS), Version 1.4 (WEQ-001, Version 001, Oct. 31, 2007, with minor corrections applied on Nov. 16, 2007) including Standards 001-0.2 through 001-0.8, 001-0.14 through 001-0.20, 001-2.0 through 001-9.6.2, 001-9.8 through 001-12.5.2, and 001-A and 001-B; 12 12 The WEQ Version 001 package of standards includes Version 1.4 of the OASIS Standards. The reference to Version 1.4 is based on the fact that this is the fourth set of revisions to the Version 1.0 OASIS Standards that the Commission adopted in Order No. 889. Open Access Same-Time Information System and Standards of Conduct, 61 FR 21,737 (May 10, 1996), FERC Stats. & Regs. ¶ 31,035 (April 24, 1996). The Version 1.4 reference appears in Standards WEQ-001, WEQ-002, WEQ-003, and WEQ-013. • Business Practices for Open Access Same-Time Information Systems (OASIS) Standards & Communication Protocols, Version 1.4 (WEQ-002, Version 001, Oct. 31, 2007, with minor corrections applied on Nov. 16, 2007) including Standards 002-0.1 through 002-5.10; • Open Access Same-Time Information Systems (OASIS) Data Dictionary, Version 1.4 (WEQ-003, Version 001, Oct. 31, 2007, with minor corrections applied on Nov. 16, 2007) including Standard 003-0; • Coordinate Interchange (WEQ-004, Version 001, Oct. 31, 2007, with minor corrections applied on Nov. 16, 2007) including Purpose, Applicability, and Standards 004-0.1 through 004-17.2, and 004-A through 004-D; 13 13 *See supra* note 11. • Area Control Error

(ACE)Equation Special Cases Standards (WEQ-005, Version 001, Oct. 31, 2007, with minor corrections applied on Nov. 16, 2007) including Purpose, Applicability, and Standards 005-0.1 through 005-3.1.3, and 005-A; • Manual Time Error Correction (WEQ-006, Version 001, Oct. 31, 2007, with minor corrections applied on Nov. 16, 2007) including Purpose, Applicability, and Standards 006-0.1 through 006-12; • Inadvertent Interchange Payback (WEQ-007, Version 001, Oct. 31, 2007, with minor corrections applied on Nov. 16, 2007) including Purpose, Applicability, and Standards 007-0.1 through 007-2, and 007-A; • Transmission Loading Relief—Eastern Interconnection (WEQ-008, Version 001, Oct. 31, 2007, with minor corrections applied on Nov. 16, 2007) including Purpose, Applicability, and Standards 008-0.1 through 008-3.11.2.8, and 008-A through 008-D; 14 14 *Id.* • Gas/Electric Coordination (WEQ-011, Version 001, Oct. 31, 2007, with minor corrections applied on Nov. 16, 2007) including Standards 011-0.1 through 011-1.6; 15 15 These standards are identical to the standards the Commission incorporated by reference into its regulations at 18 CFR 38.2 in Order No. 698. • Public Key Infrastructure

(RTO)and are not covered in the public utility's OATT, the public utility will not need to modify its OATT to include the OASIS standards. 16 *See* Order No. 676, FERC Stats. & Regs. ¶ 31,216 at P 100. If the public utility makes no unrelated tariff filing by January 31, 2009, it must make a separate tariff filing incorporating these standards by that date. They are to use the language specified later in this order, *see infra* P 83. We also note that, as discussed in P 82, once the standards have become effective, utilities must abide by the standards even before they make their tariff filings incorporating the standards into their tariffs. 17 Order No. 676, FERC Stats. & Regs. ¶ 31,216 at P 20. 11. NAESB approved the standards under its consensus procedures. 18 Adoption of consensus standards is appropriate because the consensus process helps ensure the reasonableness of the standards by requiring that the standards draw support from a broad spectrum of all segments of the industry. Moreover, since the industry itself has to conduct business under these standards, the Commission's regulations should reflect those standards that have the widest possible support. In section 12(d) of the National Technology Transfer and Advancement Act of 1995 (NTT&AA), Congress affirmatively requires federal agencies to use technical standards developed by voluntary consensus standards organizations, like NAESB, as a means to carry out policy objectives or activities. 19 18 The WEQ's procedures ensure that all industry members can have input into the development of a business practice standard, whether or not they are members of NAESB, and each standard it adopts is supported by a consensus of the five industry segments: Transmission, generation, marketer/brokers, distribution/load serving entities, and end users. Under the WEQ process, for a standard to be approved, it must receive a super-majority vote of 67 percent of the members of the WEQ's Executive Committee with support from at least 40 percent of each of the five industry segments. For final approval, 67 percent of the WEQ's general membership must ratify the standards. 19 Pub. L. No. 104-113, 12(d), 110 Stat. 775 (1996), 15 U.S.C. 272 note (1997). B. Issues Raised by Commenters 12. Comments in response to the WEQ Version 001 NOPR were filed by ten commenters. While some of these comments raise concerns about specific standards, none of the ten comments filed raise any general objection to the Commission's proposal to incorporate by reference the WEQ standards into the Commission's regulations. 1. Cost of Obtaining NAESB Standards a. Comments 13. Lafayette and LEPA are concerned that the cost of obtaining the NAESB standards impedes dissemination and understanding of the applicable requirements. Lafayette and LEPA claim that incorporating by reference standards necessarily purchased at not insubstantial costs imposes a burden on small entities, particularly where issues of interpretation of the standards arise. b. Commission Determination 14. In Order No. 676, the Commission explained that standards organizations are permitted to charge for standards incorporated by reference into federal government regulations. 20 Under the Freedom of Information Act, to be eligible for incorporation by reference, standards must be reasonably available to the class of persons affected by their publication. 21 The NAESB standards are reasonably available to all industry members. The cost for obtaining the NAESB standards for non-members is $100 for the printed standards booklet and $300 for the CD-ROM of the standards. NAESB members can obtain the standards on-line at no cost. 20 Order No. 676, FERC Stats. & Regs. ¶ 31,216 at P 97. 21 1 CFR 51.7(a)(2)-(4). 15. The arguments raised here by Lafayette and LEPA are identical to those that the Commission considered and rejected in Order No. 676, which became a final determination when no party filed a request for rehearing of Order No. 676 objecting to the Commission's finding on this issue. None of the arguments raised here by Lafayette and LEPA lead us to reverse the determination that the Commission previously reached on this issue in Order No. 676, i.e., that the standards are reasonably available to all industry members. Furthermore, the Commission finds that the benefits to both the industry and the public that have resulted from the adoption of an industry-driven approach to standards development outweigh the cost of the fees required to obtain the NAESB standards. If industry participants remain concerned about the accessibility of the standards, these concerns should be addressed through the NAESB process. 2. Interpretation of NAESB Standards and OATT Principles a. Comments 16. LEPA requests that the Commission clarify that it will interpret NAESB standards in accordance with the principles underlying the OATT. In particular, LEPA requests that the Commission clarify that it is not, by incorporating the NAESB standards, intending to override settled matters of contract law or the Commission policies underlying open access transmission service. b. Commission Determination 17. The NAESB standards are incorporated by reference in the regulations and therefore must be followed to the same extent as other regulations and policies of the Commission. The Commission's regulations require compliance with both the *pro forma* OATT (18 CFR 35.28) and the NAESB standards that the Commission has incorporated by reference (18 CFR 38.2) and that must be included in the utility's OATT. If LEPA is concerned that there are inconsistencies between specific NAESB standards and the Commission's open access transmission service regulations, it can seek an interpretation of the standards from NAESB and can make appropriate filings with the Commission. 3. Weighing Costs and Benefits of Proposed Standards a. Comments 18. The Midwest ISO is concerned that the cost of complying with and implementing some of the WEQ-001 NAESB standards (for example, standards WEQ-001-9.4.3 22 and WEQ-001-12 23 ) will be greater than the benefits that will result. The Midwest ISO believes it would be unreasonable and unduly discriminatory to adopt a business practice that results in substantial compliance costs while producing only negligible benefits for a particular NAESB segment or a group of industry participants and states that the Commission has the authority to determine what costs are considered just and reasonable through rulemaking. Thus, Midwest ISO is not, at this time, requesting a waiver of specific standards (such as WEQ-001-9.4.3 and WEQ-001-12) but is asking that the Commission provide a waiver option and that NAESB be directed to review this entire topic. The Midwest ISO wants consideration to be given to the relative costs and benefits of the standards for entities such as the Midwest ISO or to allow affected entities to seek waivers. 24 22 WEQ-001-9.4.3 provides that “[I]f the TP determines that only a portion of the requested capacity can be accommodated, the TP shall extend to the TC that portion of the capacity (i.e. , partial service) that can be accommodated through a COUNTEROFFER. An example is shown in Appendix B.” 23 WEQ-001-12 is the set of standards for transfers. 24 Midwest ISO Comments at 5-9. b. Commission Determination 19. NAESB's stakeholder process for adopting standards ensures that an industry consensus is necessary before any standard is approved. This process helps to ensure that all approved standards are beneficial to the industry. However, as we explained in order No. 676, each public utility that wants a waiver of any standard we are incorporating by reference in this Final Rule may file a request for waiver, supported by the reasons it believes a waiver is warranted. 25 To the extent that implementation of certain standards will result in substantial compliance costs for small industry participants, we have in the past considered waivers of extensions of compliance obligations where granting such requests would not noticeably diminish the expected benefits to the rest of the industry that would derive from compliance with the standard. Any such waiver requests should specifically detail the expected compliance costs and the reasons why a waiver would not diminish the overall expected benefits from compliance with the standard. Therefore, we will incorporate these standards in our regulations, as proposed in the WEQ Version 001 NOPR. 25 Order No. 676, FERC Stats. & Regs. ¶ 31,216 at P 79. 4. Implementation Date for WEQ-001 a. Comments 20. PJM argues that in order to implement the Resale and Transfer functionality required by WEQ-001, PJM will have to develop the internal business documentation, develop the software modifications, and test those modifications. To provide sufficient time to implement the necessary scheduling and settlements application changes, PJM requests an implementation date of January 31, 2009 or later for WEQ-001. NYISO agrees with PJM's comment and requests that the Commission institute an effective date of January 31, 2009 or later for compliance with WEQ-001. b. Commission Determination 21. In order to allow adequate time to implement the new Resale and Transfer standards in WEQ-001, the Commission will provide for an implementation date for the WEQ-001 standards of January 31, 2009, as requested. 5. WEQ-001-0.5 22. WEQ-001-0.5 defines identical service requests as “those OASIS transmission service requests that have exactly the same values” for certain OASIS template Data Elements. The standard also states, “Service requests where any combination of PATH, POR and/or POD represent exactly the same commercial transmission elements shall be considered as `having the exact same value.' ” a. Comments 23. Bonneville is concerned that no other OASIS template Data Elements are subject to the qualifying language “having the exact same value” included in the Data Elements of PATH, POR, and POD. Bonneville seeks clarification that “identical service requests” includes multiple transmission service requests that have substantially similar start times and stop times even if those elements are not exactly the same. b. Commission Determination 24. Bonneville's requested clarification would change the meaning of this standard. The standard as adopted by NAESB requires that “identical service requests” must have “exactly the same values” for start time and stop time, not “substantially similar start times and stop times.” Bonneville has not provided us with sufficient evidence that the standard needs to be modified as it suggests. If Bonneville believes the standard should be modified, it should, as we stated in Order No. 676, seek such a change through NAESB. 26 26 *E.g.,* Order No. 676, FERC Stats. & Regs. ¶ 31,216 at P 67. 6. WEQ-001-1.5(d) 25. WEQ-001-1.5(d) provides, in part: In the event that an OASIS user's grossly inefficient method of accessing an OASIS node or obtaining information from the node seriously degrades the performance of the node, a Responsible Party may limit a user's access to an OASIS node without prior Commission approval. a. Comments 26. Bonneville asserts that the Responsible Party should have the right to determine whether the inefficient access of an OASIS node “seriously degrades” the performance of the node and recommends that WEQ-001-1.5(d) be revised. b. Commission Determination 27. We are not incorporating WEQ-001-1.5(d) by reference in our regulations, because the standard is one of several that restate the Commission's regulations, in this case § 37.5(d) of the Commission's regulations. As we stated in Order No. 676, the proper function of the NAESB business practice standards is to provide business practice standards that implement the Commission's regulations, not merely restate them. 27 27 *E.g., id.* P 72 and 74. 7. WEQ-001-11 (Resales) 28. WEQ-001-11 states: Any Transmission Customer (Reseller) shall have the right to offer for sale the scheduling rights associated with the points of delivery and receipt of a Firm or Non-Firm Point-To-Point Transmission Service reservation ( *i.e.* Parent Reservation). Any Eligible Customer (Assignee) may request to purchase scheduling rights from the Reseller. a. Comments 29. Duke argues for the modification of WEQ-001-11, which establishes a two-party transaction on OASIS between the reseller and the assignee for resale transactions. Duke claims that, because the transmission provider is permitted to annul the transaction if the assignee does not execute the required service agreement, an inappropriate burden is placed on the transmission provider to intervene in a transaction to which it is not a party. Duke recommends that this standard be revised to provide for a three-party transaction, similar to the one presented in WEQ 001-12.1.2. 30. In addition, Duke asserts that, although WEQ-001-11 provides for the resale of both Firm Point-to-Point and Non-Firm Point-to-Point scheduling rights and permits the use of a blanket service agreement, the form of Service Agreement for resales that appears in the pro forma OATT refers only to firm sales. Duke suggests that this form may require revision to include non-firm sales. 31. Duke also requests guidance, in the form of examples of an Electric Quarterly Report

(EQR)filing, of multiple resale transactions under a blanket agreement. Alternatively, Duke suggests that the Commission could rescind its requirement that the transmission provider report resale transactions in its EQR filings and substitute a requirement that summary reports showing a compilation of OASIS Resale reservations be posted quarterly on OASIS. b. Commission Determination 32. The standard Duke refers to as a model for revising the standards for resales to provide for a three-party transaction 28 specifies that a transfer must be agreed to by the reseller, the assignee and the transmission provider. Transfers are distinct from resales because transfers result in a full conveyance of rights and obligations from the original transmission customer to the assignee. In the case of both a resale and transfer, however, the assignee must first execute a service agreement with the transmission provider. 29 In both instances, the transmission provider therefore has an opportunity to ensure that the assignee meets the transmission provider's credit requirements and is otherwise committed to abide by the terms and conditions of the transmission provider's OATT governing the reassignment of transmission service. 28 WEQ-001-12.1.2 states that “[t]he Transfer must be agreed to by the FOTC [Financially Obligated Transmission Customer], the Assignee, and the TP. The Conveyance of Transfer rights is not complete until the TP approves the transfer. The Transmission Provider shall not unduly withhold such approval.” 29 See Order No. 890-A, FERC Stats. & Regs. ¶ 31,261 at P 425. 33. The Commission considers it reasonable for the industry to reach consensus through the NAESB process to require transaction-specific approval by the transmission provider for transfers, but not for resales. In a resale, the original transmission customer's service agreement remains in place and any default by the assignee does not relieve the original customer of its obligation to pay for service. 30 That may not be the case in a transfer 31 and, therefore, it is reasonable to provide transmission providers with additional protection in the form of the right to review and approve the transfer. Therefore, we see no need to modify the standards for resales as suggested by Duke and will incorporate these standards by reference as we proposed in the WEQ Version 001 NOPR. 30 *See id.* 31 *See id.* P 425, n.165. 34. In addition, Duke's concern regarding the reference to firm sales in the title of the Form of Service Agreement in Attachment A-1 of the *pro forma* OATT has been resolved by the Commission in Order No. 890-A. There the Commission revised Attachment A-1 to the *pro forma* OATT to clarify that the use of a blanket service agreement for resales is similar to the use of a blanket service agreement for primary capacity. 32 The specification sheet for long-term reassignments was retained, consistent with the use of a specification sheet for long-term sales of primary capacity. 33 32 *Id.* P 424. 33 *See id.,* n.164. 35. Finally, Duke's comments on the transmission provider's EQR obligations are beyond the scope of this rulemaking. The Commission adopted the EQR reporting requirement for reassigned capacity in the Order No. 890 proceeding, in which Duke actively participated, and Duke has failed to justify here rescission of that reporting requirement. 34 Should Duke or any other transmission provider have particular concerns regarding how to comply with its reporting obligation, it should bring the matter to the Commission's attention for resolution. 35 34 *See* Order No. 890, FERC Stats. & Regs. ¶ 31,241 at P 817; Order No. 890-A, FERC Stats. & Regs. ¶ 31,261 at P 423 and n.162; Order No. 890-B, 123 FERC ¶ 61,299 at P 84 (2008). 35 The Commission recently clarified and expanded the opportunities for regulated entities and others to obtain guidance regarding compliance with the rules and regulations administered by the Commission. *See Obtaining Guidance on Regulatory Requirements,* 123 FERC ¶ 61,157 (2008). 8. WEQ-001-11.2.1 36. WEQ-001-11.2.1 states: The Assignee shall be obligated directly to the TP for any usage-based charges and overuse penalties resulting from its subsequent use of the Resale. a. Comments 37. The Midwest ISO is concerned that WEQ-001-11.2.1 introduces a high risk of financial exposure to the transmission provider in the event that the assignee defaults on payment. The Midwest ISO believes that the RTO should not have to bear the financial risk associated with an assignee defaulting on usage-based market charges. Furthermore, the Midwest ISO is concerned that this standard does not address the allocation and ownership of Financial Transmission Rights/Auction Revenue Rights. To address these concerns, the Midwest ISO recommends that WEQ-001-11 be revised to include prior validation requirements, similar to those mandated by the Commission in Order Nos. 890 and 890-A in the context of service agreements. Alternatively, the Midwest ISO requests clarification and assurance that those standards are to be interpreted such that transmission providers will not be held liable in the event of nonperformance of a resale obligation. b. Commission Determination 38. The Commission does not interpret WEQ-001-11.2.1 to expose a transmission provider to high financial risks in an event an assignee defaults on usage-based charges. At least 24 hours prior to any resale an Assignee must execute a service agreement with the Transmission Provider under WEQ-001-11.1.7. The Commission has held that this service agreement is a requirement meant to commit the Assignee to abide by the terms and conditions of the Transmission Provider's OATT governing the reassignment of transmission service. 36 The assignee therefore must comply with all creditworthiness requirements required for signing a service agreement. If an Assignee were to default on its usage-based charges or overuse penalties, it would still be subject to its service agreement with the Transmission Provider, and the Transmission Provider would have access to any collateral or other assurances required under its OATT. Furthermore, Midwest ISO itself points out the Commission's policy in Order No. 890-A that allows a transmission provider to take action against the Assignee as it would any other default under the *pro forma* OATT, as well as transfer to the reseller its legal rights to enforce the Assignee's payment obligations. 37 We find that these procedural protections, coupled with NAESB standard WEQ-001-11.2.1.1, which grants the Transmission Provider the right to nullify the Resale in the event the service agreement is not executed, address the concerns of Midwest ISO regarding its comments on financial exposure and the request for prior validation. The Commission will therefore incorporate this standard into the Commission's regulations by reference as we proposed in the WEQ Version 001 NOPR. 36 Order No. 890-A, FERC Stats. & Regs. ¶ 31,261 at P 423. 37 *Id.* n.166. 9. WEQ-001-11.3 Through WEQ-001-11.3.3 39. Standards WEQ-001-11.3 through WEQ-001-11.3.3 describe the service attributes and timing of resales. These standards read as follows: WEQ-001-11.3: A Resale shall retain all the same transmission service attributes, transmission service priority, and points of delivery and receipt of the Parent Reservation. For example, if one hour of a Monthly Firm reservation is Resold, the Resale reservation shall be a Monthly Firm Resale reservation lasting one hour. WEQ-001-11.3.1: The TP's OASIS shall not impose any restrictions regarding the timing of a Resale, either submission times or service duration, except that the start and stop times of the Resale must be within the bounds of the Parent Reservation(s) that are designated as supporting the Resale. WEQ-001-11.3.2: The Reseller shall have the right to aggregate multiple reservations into a single Resale provided that each reservation being aggregated is of exactly the same service attribute, priority, product and point of receipt/point of delivery. WEQ-001-11.3.3: A Resale must be in whole hours, beginning at the top of the hour, and within the start and stop time(s) of the Parent Reservation(s). a. Comments 40. Southern Companies recommends that the Commission reject the portions of WEQ-001-11.3 through WEQ-001-11.3.3 that seem to require transmission providers to provide hourly firm service to assignees. Southern Companies argues that these provisions are inconsistent with the provisions of Order No. 890, the *pro forma* OATT, and the Commission's regulations. 41. First, Southern Companies states that, in Order No. 890, the Commission determined that transmission providers are not required to provide hourly firm service; it argues, therefore, that portions of WEQ-001-11.3 through WEQ-001-11.3.3 are in conflict with Order No. 890 and therefore should be rejected. Second, Southern Companies states that, in the *pro forma* OATT, the minimum term of firm point-to-point transmission service that is required to be offered is one day. 42. Lastly, Southern Companies points out that the Commission's regulations mandate that a reseller choosing to use OASIS to offer for resale transmission capacity must post relevant information on the same OASIS as used by the transmission provider from whom the reseller purchased the transmission capacity and in the same manner that the transmission provider posts its own information. Southern Companies argues that, if a reseller is allowed to sell hourly firm service when the transmission provider does not offer it, then the reseller will be unable to comply with the Commission's regulations regarding the posting of relevant information because the transmission provider will not have display pages, tables, etc., that are designed for hourly firm service. 43. Duke recommends against the adoption of WEQ-001-11.3.2 due to the administrative difficulties that the aggregation of multiple resale reservations could create. Duke argues that the value of this practice to its customers is nominal relative to the billing complexities that could be involved. b. Commission Determination 44. A consensus of the electric industry has found that allowing customers the ability to resell scheduling rights on less than daily basis will increase the flexibility of resales and better serve the needs of customers. We agree that providing such enhanced flexibility is desirable. 45. We also find no inconsistency between these standards and Order No. 890, the *pro forma* OATT, or the Commission's regulations. Southern Companies appears to be confusing its obligation to offer transmission service with the resale of scheduling rights by customers that have previously reserved service. When a customer reserves daily transmission service, it is given the right to schedule the use of transmission capacity up to the amount reserved in every hour of that day (subject to OATT scheduling deadlines). The customer is not required to schedule use in each hour of the day and, in fact, could use as little as a single hour of the reserved service. 46. The assumption of a customer's scheduling rights by an assignee for one or more hours does not mean the transmission provider is offering hourly service to the assignee. As the Commission explained in Order No. 890-A, the reassignment of transmission capacity simply results in the reseller obtaining the right to schedule the reserved capacity during the period of the reassignment, consistent with the original customer's reservation. 38 Indeed, permitting such resales is consistent with the Commission's determination in Order No. 888 that “a public utility's tariff must explicitly permit voluntary reassignment of all *or a part of* a holder's firm transmission capacity rights to any eligible customer.” 39 We therefore find that WEQ-001-11.3.1 and WEQ-001-11.3.3 are not inconsistent with Order Nos. 888 and 890 and provide customers with additional flexibility to obtain capacity in competition with the transmission provider. 40 38 Order No. 890-A, FERC Stats. & Regs. ¶ 31,261 at P 425. 39 *Promoting Wholesale Competition Through Open Access Non-Discriminatory Transmission Services by Public Utilities; Recovery of Stranded Costs by Public Utilities and Transmitting Utilities* , Order No. 888, 61 FR 21,540 (May 10, 1996), FERC Stats. & Regs. ¶ 31,036 at 31,696 (1996), *order on reh'g* , Order No. 888-A, 62 FR 12,274 (Mar. 14, 1997), FERC Stats. & Regs. ¶ 31,048 (1997), *order on reh'g* , Order No. 888-B, 81 FERC ¶ 61,248 (1997), *order on reh'g* , Order No. 888-C, 82 FERC ¶ 61,046 (1998), *aff'd in relevant part sub nom. Transmission Access Policy Study Group* v. *FERC* , 225 F. 3d 667 (D.C. Cir. 2000) *(TAPS* v. *FERC)* , *aff'd sub nom. New York* v. *FERC* , 535 U.S. 1

(2002)(emphasis in original; footnotes omitted). 40 In the event of an hourly assignment of scheduling rights, the assignee would be subject to the same scheduling deadlines stated in the transmission provider's OATT as applicable to the reseller, *e.g.* , 10 a.m. of the day prior to commencement of service if the transmission provider does not otherwise offer hourly firm service. Recently, in Order No. 890-B, the Commission directed transmission providers to include in their EQRs the rate that would have been charged under their OATTs had the assignee purchased primary service from the transmission provider for the term of the reassignment. *See* Order No. 890-B at P 84. If the transmission provider does not offer hourly firm service, the tariff rate that would be reported for an assignee receiving hourly scheduling rights would be the rate for daily service. 10. WEQ-001-11.5.3 47. WEQ-001-11.5.3 states: All resales must include the price of the Resale. Price units shall always be $/MW-Hour reserved. a. Comments 48. Southern Companies recommends that the Commission reject WEQ-001-11.5.3. Southern Companies claims that forcing resales to be converted to an hourly price is meaningless, particularly when transmission providers are not required to provide hourly firm service. Furthermore, Southern Companies claims that this provision is inconsistent with both the pro forma OATT and the Commission's regulations. Reassigned service is governed by the transmission provider's OATT, and Southern Companies claims that in order to be consistent with the transmission provider's OATT, the price of a resale should be based upon the increments of service that are set forth in that OATT and agreed to by the reseller and assignee. Furthermore, Southern Companies cites section 23.1 of the *pro forma* OATT, which mandates that assignees receive the same services and priority of service as did the reseller, and that the assignee is subject to all the terms and conditions of the tariff. Lastly, the Commission's regulations state that the transmission provider must post OASIS information for third parties in the same way that it posts its own information. Southern Companies argues that the transmission provider would be unable to comply with this regulation if WEQ-001-11.5.3 is adopted and the transmission provider does not offer hourly firm service because the transmission provider would be required to post prices in units different from the units in which it reports its own prices if they are based on the increments of service provided. Southern Companies notes that they raised these concerns throughout the NAESB process of developing the standards. 49. Bonneville argues that because resales may be of different increments of service, the pricing for the different increments must be permitted to vary to reflect these increments. Furthermore, Bonneville claims that the term “Price units” in proposed WEQ-001-11.5.3 is inconsistent with the definition of “PRICE_UNITS” in the OASIS Data Dictionary, WEQ-003-0. Bonneville recommends that WEQ-001-11.5.3 read as follows: All resales must include the price of the Resale. *PRICE_UNITS* shall *be specified (* *e.g.* *, $/MWhr, $/MWmonth, etc.).* 50. Duke supports the adoption of WEQ-001-11.5.3. Duke claims that this requirement both simplifies the calculation of bills and provides the Commission with a consistent price format for the comparison of resale transactions. If the pricing methodology prepared by NAESB is not acceptable, then Duke would support a requirement that the total resale price be included in the reservation, with the Transmission Provider billing the total amount to the Assignee in one bill and crediting the total amount to the Reseller in a single credit, regardless of the duration of the resale reservation. b. Commission Determination 51. The Commission in Order No. 890 did not address whether the price for resales must be stated in a particular unit of measure, such as $/MW-Hour. Instead, the Commission left to negotiating parties the determination of the price for a particular reassignment of transmission capacity. It is not unreasonable for the industry to have reached consensus that the price of resales should be stated in $/MW-Hour. The Commission agrees with Duke that having a consistent price format for all resale transactions will make it easier for the Commission to compare such transactions to each other. This requirement also will improve the transparency and openness of resales of transmission service, allowing potential reassignment customers to better understand the comparative value of assigned transmission service. Therefore, we will incorporate this standard by reference as we proposed in the WEQ Version 001 NOPR. 52. Neither Southern Companies nor Bonneville stated a compelling reason as to why the Commission should not accept the proposed NAESB standard. It is the obligation of the parties negotiating the reassignment to state the price for the transaction and, pursuant to this standard, all such prices will be in a consistent format. We recognize that this may result in the posting of Resale prices that are not in the same unit of measure as the original reservation under which the Resale is accomplished. Nothing in Order No. 890 or our regulations prohibits this approach, which we conclude will permit customers to better compare prices for different transactions on the same transmission system, as well as transactions across transmission providers. 11. Resales of Conditional Long Term Firm Reservations 53. WEQ-001-11.1.7 states that “[t]he Assignee must execute a service agreement with the Transmission Provider that will govern the provision of reassigned service no later than twenty-four hours prior to the scheduling deadline applicable for the commencement of the reassigned service. The Transmission Provider may establish a blanket service agreement to include Resale transactions.” 54. WEQ-001-11.7 states that “[i]n the event a Transmission Provider requires that a higher priority, competing transmission service request must displace all or a portion of a confirmed lower priority reservation, the TP shall have the right to nullify any Resales that reference the displaced reservation as their Parent.” 55. WEQ-001-11.7.1 states that “[o]nce the conditional window on the Parent Reservation has closed, Resales for firm service are not subject to displacement in accordance with Standard WEQ-001-11.” a. Comments 56. Duke strongly recommends that the resale of Conditional Long Term Firm reservations be prohibited so that transmission providers can effectively manage these reservations and assure the reliable operation of the transmission grid. In the event that the resale of these reservations is permitted, Duke argues that they should only be permitted during periods in which the reservations are unconditionally firm and such resales should be restricted to the remaining portion of the biennial reassessment period, where applicable. 57. Furthermore, Duke argues that although WEQ-001-11.1.7 permits the use of blanket service agreements, if the resale of Conditional Long Term Firm reservations is allowed, then the use of a blanket service agreement as specified in WEQ-001-11.1.7 would not be permitted under Order No. 890. Duke states that, pursuant to Order No. 890, transmission providers and assignees are to execute a non-conforming Service Agreement for resales that specifies either specific system conditions during which conditional curtailment may occur or annual number of curtailment hours during which conditional curtailment may occur. 41 41 Duke cites Order No. 890, FERC Stats. & Regs. ¶ 31,241 at P 960. 58. Bonneville also recommends that the Commission adopt a provision at WEQ-001-11.7 preventing transmission customers from initiating any resale during the conditional window because permitting this practice could allow resales initiated prematurely to impose risks on all parties involved in the transaction and could lead to inefficiencies in the resale market. b. Commission Determination 59. As the Commission explained in Order No. 890-A, and reiterates above, the reassignment of transmission capacity results in the reseller obtaining the right to schedule the reserved capacity during the period of the reassignment consistent with the original customer's reservation. 42 This applies equally to long-term firm point-to-point service using the conditional firm option adopted in Order No. 890. We conclude that the NAESB standards adequately address resales of conditional firm transactions. WEQ-001-11.1 makes clear that confirmation of a resale “shall also convey any outstanding conditions that may exist on the Parent Reservation (such as conditional approval pursuant to section 13.2(ii) of the OATT).” WEQ-001-11.7 and WEQ-001-11.7.1 also address the transmission provider's right to nullify resale transactions when a higher priority transaction displaces a lower priority transaction and when those rights apply to conditional firm transactions. 42 Order No. 890-A, FERC Stats. & Regs. ¶ 31,261 at P 425. 60. Since these standards permit resales of conditional firm transactions and give the transmission provider the right to nullify resales of displaced transactions, we find that the standards address the concerns of Duke and Bonneville about the effective management of conditional firm transactions. If Duke and Bonneville believe that these standards are not workable upon implementation, they may submit a request to NAESB to modify these standards based on their experience with these standards. 61. The Commission finds no reason to reject the industry's decision to permit a transmission provider to develop a blanket service agreement for resales of conditional firm service. Order No. 890 required only that an original conditional firm service contract would be nonconforming in every case, and thus, would be required to be filed with the Commission for approval. However, we see no reason to prohibit the use of a blanket service agreement for the resale of conditional firm service, since the resale only provides the right to schedule service consistent with the original transmission customer's reservation, which will be on file with the Commission. We agree with NAESB that the development of a blanket agreement for resales is beneficial because it will help encourage and expedite the processing of resales. 12. WEQ-004 (Coordinate Interchange) and WEQ-008 (Transmission Loading Relief—Eastern Interconnection) 62. WEQ-004 provides the NAESB business practice standards for coordinate interchange. These standards are designed to facilitate the transfer of electric energy between entities responsible for balancing load and generation. 63. WEQ-008 provides the NAESB business practice standards to complement the transmission loading relief procedures needed for curtailment and reloading of interchange transactions to relieve overloads on transmission facilities modeled for the eastern interconnection. a. NOPR Requests for Comments 64. In the WEQ Version 001 NOPR, the Commission raised three questions concerning reliability-related standards and sought comments in response to these questions. First, as to WEQ-004, the Commission asked whether passive approval (also referred to as confirmation by silence) is appropriate for a business practice intended to complement a reliability standard. 43 Second, the Commission also asked a question about e-tagging. 44 Third, as to WEQ-008, the Commission asked whether the differences in NAESB and NERC definitions are significant and whether a single definition for reliability-related terms should be adopted in future standards. 45 43 WEQ Version 001 NOPR at P 21. 44 *Id.* P 20. No comments in response to this question were received. 45 *Id.* P 28. b. Comments 65. In response to the Commission's request for comments regarding whether confirmation by silence is appropriate for a business practice intended to complement a reliability standard, NERC claims that it does not create a reliability impact and that the NAESB Standard does not alter the NERC Reliability Standards requirements, which require active response by the Balancing Authority and Transmission Service Provider. 66. In response to the Commission's request for comments on whether the differences in the definition used by NAESB and NERC are significant and whether a single definition for reliability-related terms should be adopted in future standards, NERC asserts that the definitions do not affect the industry's ability to successfully implement the standards as written and reports that it is working with NAESB to develop more in-depth coordination procedures to ensure that definitions are consistent between both organizations. This task has been assigned to a newly formed Standards Committee Process Subcommittee. 67. Regarding the Commission's request for comment concerning the differences in the reliability-related definitions used by NAESB and NERC, the Midwest ISO states that it will rely on an effort undertaken by NAESB to resolve these differences and assumes that the Commission will direct that NAESB and NERC use the same definitions. SPP concurs with and endorses the comments submitted by the Midwest ISO on whether the differences in reliability-related definitions are significant and whether single definitions should be adopted in future standards. 68. The Midwest ISO is concerned that the inclusion of the Regional Difference in Appendix D of WEQ-008 Transmission Loading Relief—Eastern Interconnection results in overlapping requirements, since the same Regional Difference appears as Section E in the NERC TLR Standard IRO-006-04—Reliability Coordination—Transmission Loading Relief. NERC retains responsibility for the Regional Difference Section of the NERC TLR Standard (section E) while a field test permitting PJM, Midwest ISO, and SPP market flows to use a three percent threshold is being conducted; however, when the field test and an evaluation of the results are completed and a recommendation on the proper curtailment threshold that will be included in the Regional Difference is approved based on the results, the Regional Difference will be transferred to NAESB and removed from the NERC TLR Standard. In Order No. 693, 46 the Commission stated that it would neither approve nor remand the waiver of the regional difference to NERC TLR Standard IRO-006-03 while the field test was being conducted, and the Midwest ISO requests that the Commission take a similar action regarding WEQ-008 Appendix D, neither approving it nor remanding it while the field test is being conducted. 46 Mandatory Reliability Standards for the Bulk-Power System, 72 FR 31,452 (June 7, 2007), FERC Stats. & Regs. ¶ 31,242, at P 989 (Mar. 16, 2007). c. Commission Determination 69. As stated above, NAESB and NERC have agreed to establish a subcommittee to ensure that their definitions are consistent. Since all industry segments indicate that any existing differences in terms used by NAESB and NERC will not affect reliability or the ability to implement these standards, we will incorporate these standards. 47 47 In Docket No. RM08-7-000, the Commission has deferred action on the proposed NERC TLR Reliability Standards. However, there is no need for us to defer action on WEQ-008. Thus, we will proceed to incorporate WEQ-008 by reference in this Final Rule. If developments concerning NERC's TLR Reliability Standards necessitate revisions to these standards, we are relying on NAESB, in coordination with NERC, to adopt any needed revisions. 70. While we will adopt the Regional Differences Section in Appendix D of the WEQ-008 TLR—Eastern Interconnection standards, we will not require it to be implemented until after the completion of the field tests within PJM, Midwest ISO, and SPP. Currently, the Regional Differences Section is housed in the NERC Reliability Standards and will remain so until the completion of the field tests. 48 NERC states that, at that time, Section E of the NERC TLR Standard will be deleted from its Reliability Standards and transferred to the NAESB Business Practice Standards. 48 Pursuant to section E of the NERC TLR Standard. 71. The Commission is mindful of Midwest ISO's concern regarding overlapping requirements, and therefore will postpone the implementation of Appendix D until after the field tests are over and NERC has transferred its responsibility to NAESB. This transfer will leave the responsibility for the Regional Differences Section in only one party's hands at a given time, and alleviate Midwest ISO's concerns. 72. Regarding the Commission's request for comments concerning passive approval, NERC replied that it does not believe NAESB's standard allowing confirmation by silence creates a detrimental effect on reliability. In addition, NAESB's standard does not alter or interfere with any of the reliability requirements for the NERC Reliability Standard. Therefore, we will accept the NAESB standard. 13. WEQ-012-1.5 (Public Key Infrastructure) 49 49 As we explained in the WEQ Version 001 NOPR, FERC Stats. & Regs. ¶ 32,633, n.23, the PKI mechanism involves the use of extremely long prime numbers, called keys, to provide assurance that communications are properly protected. Two keys are involved—a private key, which only the user has access to, and a public key, which can be accessed by anyone. The two keys work together so a message scrambled with the private key can only be unscrambled with the public key and vice versa. The more digits in these keys, the more secure the process. Similar to proving an identity through a handwritten signature offline, a digital signature is used to prove an identity online. 73. WEQ-012-1.5 provides that the WEQ authorized certification authority may impose a “reasonable fee” for the issuance or renewal of certificates and other services and may not impose a fee to revoke certificates, for access to the subscriber's certificate, or for access to an authorized certification authority's published certificate revocation list. 50 50 Defined in WEQ-012-0.7. a. Comments 74. The Midwest ISO is concerned about the provision in WEQ-012-1.5, stating that the provisions allowing a “reasonable fee” for the issuance or renewal of certificates and other services could lead to arbitrary fees and undue discrimination, because it: does not define what constitutes a “reasonable fee,” does not establish a methodology for determining whether or not a fee is reasonable, and does not establish what entity has the responsibility of deciding what constitutes a reasonable fee. Furthermore, the Midwest ISO is concerned that the standard does not identify how often certificates must be renewed, which results in ambiguity regarding how often fees would be charged. Lastly, the Midwest ISO is concerned that because the standard allows for imposing “reasonable fees” for other services, additional fees may be charged. To address these concerns, the Midwest ISO requests that the Commission direct NAESB to modify WEQ-012-1.5 to remove the ambiguities and recommends that all fees charged by a NAESB WEQ Certification Authority be approved by the Commission. b. Commission Determination 75. The Commission will incorporate the standard. In order to implement PKI encryption companies are required to use a Certification Authority, and the company can choose among potential certifiers who offer electronic certificates that meet the NAESB PKI Standards. 51 Competition among the Certification Authorities should ensure that fees are reasonable. In any event, the fees charged by a Certification Authority for PKI are not subject to the Commission's jurisdiction, because they are not fees for the transmission or sale at wholesale of electric energy in interstate commerce. 51 Certification Authorities are no different than other entities which public utilities must hire to comply with Commission or other government regulations. For instance, the Commission requires companies to produce audited financial statements, and companies therefore must pay fees to produce such statements. Midwest ISO's request for the Commission to regulate Certification Authority fees is akin to asking the Commission to approve the fees certified public accountants charge for preparing financial statements. 14. Requests for Modifications to NAESB Standards a. Comments 76. In their comments, Bonneville 52 and Duke 53 request modifications to numerous NAESB standards, and suggests the addition of two new standards. Bonneville's comments do not object to the incorporation by reference of these standards, nor allege that the standards are inconsistent with Commission policy, but in main part offer editorial suggestions that in Bonneville's view will make the standards clearer or clarify how they will play out in specific situations. For example, Bonneville's Attachment A suggests a number of revisions that attempt to make certain standards clearer by adding qualifications already implicit in NAESB's adopted standards. 54 52 Specifically, Bonneville suggests revisions to WEQ-001-8.3, WEQ-013-2.1, WEQ-013-2.2, WEQ-013-2.4.2, WEQ-013-2.6.4, WEQ-013-2.6.5.1, WEQ-013-2.6.5.2, WEQ-013-2.6.6, WEQ-013-2.6.7.1, and WEQ-013-2.6.7.2. Bonneville also suggests the addition of new standards WEQ-001-11.5.4 and WEQ-001-12.5.3. 53 Duke's suggested revisions relate only to WEQ-001-12. Duke suggests substituting the term “assignment” for “transfer,” and adding a restricted value and definition for the term “transfer” (or its replacement). 54 *See, e.g.* , WEQ-013-2.6.6 and WEQ-013-2.6.7.1. b. Commission Determination 77. The Commission will not modify the various NAESB standards as requested by Bonneville and Duke. The task before the Commission in this Final Rule is to review the standards recently adopted by NAESB, and to decide whether to incorporate those standards by reference into the Commission's regulations as mandatory standards that must be complied with by public utilities. Our task is not to rewrite NAESB's standards to make editorial revisions and enhancements, even if commenters correctly observe and point out some improvement that could be added to the standards. If the Commission finds NAESB's standards inadequate or finds that they conflict with the Commission's policies or regulations, we will decline to incorporate that standard by reference into our regulations and on occasion we may provide NAESB with guidance as to revisions NAESB might make to that standard to make it acceptable to the Commission. 78. While it is appropriate for commenters who object to the Commission's incorporation by reference of a standard to raise those arguments with the Commission, Bonneville should direct any proposed modifications or additions to NAESB's standards to NAESB for consideration. Following this procedure, Bonneville's proposed changes can receive proper consideration from all industry segments before they are acted on. 55 55 As to Bonneville's request that we clarify the reference to “deferral requests posted by the Primary Provider,” *see* Bonneville Comments at 7, this matter may also be brought up with NAESB. 79. Duke also suggests that WEQ-001-12 be modified so as to revise the procedure established in Order No. 890-A for the pricing of reassigned transmission. But, as Duke concedes, WEQ-001-12 does not address the issue of pricing reassigned transmission. Duke is attempting to use the adoption of WEQ-001-12 as a pretext to collaterally attack an issue already determined by Order No. 890-A. III. Implementation Dates and Procedures 80. The standards incorporated by reference in this Final Rule must be implemented by October 1, 2008, with the following exceptions:

(1)The reliability related standards (WEQ-004 Coordinate Interchange, WEQ-005 Area Control Error

(ACE)Equation Special Cases, WEQ-006 Manual Time Error, WEQ-007 Inadvertent Interchange Payback, and WEQ-008 Transmission Loading Relief—Eastern Interconnection) are required to be implemented by the later of the effective date of the Final Rule in RM08-7-000 or the effective date of this Final Rule;

(2)WEQ-001 OASIS Standards are required to be implemented by January 31, 2009; and

(3)Appendix D to the WEQ-008 Transmission Loading Relief—Eastern Interconnection standards need not be implemented until NERC completes the field testing. 81. To reduce the burden on filers, as we did in Order No. 676, although public utilities must fully comply with the requirements of this Final Rule in accordance with the implementation schedule above, we are not requiring public utilities immediately to file revised OATTs incorporating these changes. 82. The Commission is also requiring, consistent with our regulation at 18 CFR 35.28(c)(vi), each electric utility to revise its OATT to include the Version 001 WEQ standards we are incorporating by reference herein. For standards that do not require implementing tariff provisions, the Commission will allow the utility to incorporate the WEQ standard by reference in its OATT. We are not, however, requiring a separate tariff filing to accomplish this change. Consistent with our prior practice, we will allow public utilities the option of including these changes as part of an unrelated tariff filing. 56 However, consistent with our prior practice, as of the implementation dates above, public utilities must abide by these standards even before they update their tariffs to incorporate these changes. 56 *See* Order No. 676, FERC Stats. & Regs. ¶ 31,216 at P 100. If the public utility makes no unrelated tariff filing by January 31, 2009, it must make a separate tariff filing incorporating these standards by that date. They are to use the language specified later in this order, *see infra* P 83. 83. If adoption of these standards does not require any changes or revisions to existing OATT provisions, public utilities may comply with this rule by adding a provision to their OATTs that incorporates the standards adopted in this rule by reference, including the standard number and Version 001 to identify the standard. To incorporate these standards into their OATTs, public utilities must use the following language in their OATTs: • Business Practices for Open Access Same-Time Information Systems (OASIS), Version 1.4 (WEQ-001, Version 001, Oct. 31, 2007, with minor corrections applied on Nov. 16, 2007) including Standards 001-0.2 through 001-0.8, 001-0.14 through 001-0.20, 001-2.0 through 001-9.6.2, 001-9.8 through 001-12.5.2, and 001-A and 001-B; • Business Practices for Open Access Same-Time Information Systems (OASIS) Standards & Communication Protocols, Version 1.4 (WEQ-002, Version 001, Oct. 31, 2007, with minor corrections applied on Nov. 16, 2007) including Standards 002-0.1 through 002-5.10; • Open Access Same-Time Information Systems (OASIS) Data Dictionary, Version 1.4 (WEQ-003, Version 001, Oct. 31, 2007, with minor corrections applied on Nov. 16, 2007) including Standard 003-0; • Coordinate Interchange (WEQ-004, Version 001, October 31, 2007, with minor corrections applied on Nov. 16, 2007) including Purpose, Applicability, and Standards 004-0.1 through 004-17.2, and 004-A through 004-D; • Area Control Error

(ACE)Equation Special Cases Standards (WEQ-005, Version 001, Oct. 31, 2007, with minor corrections applied on Nov. 16, 2007) including Purpose, Applicability, and Standards 005-0.1 through 005-3.1.3, and 005-A; • Manual Time Error Correction (WEQ-006, Version 001, Oct. 31, 2007, with minor corrections applied on Nov. 16, 2007) including Purpose, Applicability, and Standards 006-0.1 through 006-12; • Inadvertent Interchange Payback (WEQ-007, Version 001, Oct. 31, 2007, with minor corrections applied on Nov. 16, 2007) including Purpose, Applicability, and Standards 007-0.1 through 007-2, and 007-A; • Transmission Loading Relief—Eastern Interconnection (WEQ-008, Version 001, Oct. 31, 2007, with minor corrections applied on Nov. 16, 2007) including Purpose, Applicability, and Standards 008-0.1 through 008-3.11.2.8, and 008-A through 008-D; • Gas/Electric Coordination (WEQ-011, Version 001, Oct. 31, 2007, with minor corrections applied on Nov. 16, 2007) including Standards 011-0.1 through 011-1.6; • Public Key Infrastructure

(PKI)(WEQ-012, Version 001, Oct. 31, 2007, with minor corrections applied on Nov. 16, 2007) including Recommended Standard, Certification, Scope, Commitment to Open Standards, and Standards 012-0.1 through 012-1.26.5; and • Business Practices for Open Access Same-Time Information Systems (OASIS) Implementation Guide, Version 1.4 (WEQ-013, Version 001, Oct. 31, 2007, with minor corrections applied on Nov. 16, 2007) including Introduction and Standards 013-0.1 through 013-4.2. 84. If a public utility requests waiver of a standard, it will not be required to comply with the standard until the Commission acts on its waiver request. Therefore, if a public utility has obtained a waiver or has a pending request for a waiver, its proposed revision to its OATT should not include the standard number associated with the standard for which it has obtained or seeks a waiver. Instead, the public utility's OATT should specify those standards for which the public utility has obtained a waiver or has pending a request for waiver. Once a waiver request is denied, the public utility will be required to include in its OATT the standard(s) for which waiver was denied. IV. Notice of Use of Voluntary Consensus Standards 85. Office of Management and Budget Circular A-119 (section 11) (February 10, 1998) provides that when a federal agency issues or revises a regulation containing a standard, the agency should publish a statement in the Final Rule stating whether the adopted standard is a voluntary consensus standard or a government-unique standard. In this rulemaking, the Commission is incorporating by reference voluntary consensus standards developed by the WEQ. V. Information Collection Statement 86. OMB's regulations in 5 CFR 1320.11

(2005)require that it approve certain reporting and recordkeeping requirements (collections of information) imposed by an agency. Upon approval of a collection of information, OMB assigns an OMB control number and an expiration date. Respondents subject to the filing requirements of this Final Rule will not be penalized for failing to respond to this collection of information unless the collection of information displays a valid OMB control number. 87. This Final Rule will affect the following existing data collections: Standards for Business Practices and Communication Protocols for Public Utilities (FERC-717) and Electric Rate Schedule Filings (FERC-516). 88. The following burden estimate is based on the projected costs for the industry to implement revisions to the WEQ Standards currently incorporated by reference into the Commission's regulations at 18 CFR 38.2 and to implement the new standards adopted by NAESB that we are incorporating by reference in this Final Rule. Data collection Number of respondents Number of responses per respondent Hours per response Total number of hours FERC-516 176 1 6 1,056 FERC-717 176 1 10 1,760 Totals 2,816 *Total Annual Hours for Collection:* (Reporting and Recordkeeping, (if appropriate)) = 2816 hours. *Information Collection Costs:* The Commission seeks comments on the costs to comply with these requirements. It has projected the average annualized cost for all respondents to be the following: 57 57 The total annualized costs for the information collection is $901,120. This number is reached by multiplying the total hours to prepare responses

(2816)by an hourly wage estimate of $320 (a composite estimate that includes legal, technical and support staff rates, $200+$95+$25=$320), 2816 hours × $320/hour= $901,120. FERC-516 FERC-717 Annualized Capital/Startup Costs $337,920 $563,200 Annualized Costs (Operations & Maintenance) N/A Total Annualized Costs 337,920 563,200 89. The Commission sought comments on the burden of complying with the requirements imposed by these requirements. No comments were filed addressing the reporting burden. 58 58 We note, however, that two comments argued that it would be too costly for small entities to obtain copies of the NAESB Standards from NAESB. We addressed these comments in the preamble of this Final Rule. 90. The Commission's regulations adopted in this rule are necessary to establish a more efficient and integrated wholesale electric power grid. Requiring such information ensures both a common means of communication and common business practices that provide entities engaged in the wholesale transmission of electric power with timely information and uniform business procedures across multiple transmission providers. These requirements conform to the Commission's goal for efficient information collection, communication, and management within the electric power industry. The Commission has assured itself, by means of its internal review, that there is specific, objective support for the burden estimates associated with the information requirements. 91. OMB regulations 59 require OMB to approve certain information collection requirements imposed by agency rule. The Commission is submitting notification of this proposed rule to OMB. These information collections are mandatory requirements. 59 5 CFR 1320.11. *Title:* Standards for Business Practices and Communication Protocols for Public Utilities ( *formerly* Open Access Same Time Information System) (FERC-717); Electric Rate Schedule Filings (FERC-516). *Action:* Proposed collection. *OMB Control No.:* 1902-0096 (FERC-516); 1902-0173 (FERC-717). *Respondents:* Business or other for profit, (Public Utilities—Not applicable to small businesses). *Frequency of Responses:* One-time implementation (business procedures, capital/start-up). *Necessity of the Information:* This rule, will upgrade the Commission's current business practice and communication standards. Specifically, these standards include several modifications to the existing business practice standards as well as creating new standards to provide additional functionality for OASIS transactions, transmission loading relief and public key infrastructure. The standards will assist in providing greater security for business transactions over the Internet, identify the business practices to be used to relieve potential or actual loading on a constrained facility and facilitate the transfer of electric energy between entities responsible for balancing load and generation. These practices will ensure that potential customers of open access transmission service receive access to information that will enable them to obtain transmission service on a non-discriminatory basis and will assist the Commission in maintaining a safe and reliable infrastructure and also will assure the reliability of the interstate transmission grid. The implementation of these standards and regulations is necessary to increase the efficiency of the wholesale electric power grid. 92. The information collection requirements of this Final Rule are based on the transition from transactions being made under the Commission's existing business practice standards to conducting such transactions under the proposed revisions to these standards and to account for the burden associated with the new standard(s) being proposed here (i.e., WEQ-008 and WEQ-012). 93. *Internal Review:* The Commission has reviewed the revised business practice standards and has made a determination that the revisions adopted in this Final Rule are necessary to maintain consistency between the business practice standards and reliability standards on this subject. The Commission has assured itself, by means of its internal review, that there is specific, objective support for the burden estimate associated with the information requirements. 94. Interested persons may obtain information on the reporting requirements by contacting the following: Federal Energy Regulatory Commission, Attn: Michael Miller, Office of the Executive Director, 888 First Street, NE., Washington, DC 20426, Tel:

(202)502-8415/Fax:

(202)273-0873, E-mail: *michael.miller@ferc.gov.* VI. Environmental Analysis 95. The Commission is required to prepare an Environmental Assessment or an Environmental Impact Statement for any action that may have a significant adverse effect on the human environment. 60 The Commission has categorically excluded certain actions from these requirements as not having a significant effect on the human environment. 61 60 Order No. 486, *Regulations Implementing the National Environmental Policy Act of 1969* , 52 FR 47,897 (Dec. 17, 1987), FERC Stats. & Regs., Regulations Preambles 1986-1990 ¶ 30,783 (1987). 61 18 CFR 380.4. 96. The actions required by this Final Rule fall within categorical exclusions in the Commission's regulations for rules that are clarifying, corrective, or procedural, for information gathering, analysis, and dissemination, and for sales, exchange, and transportation of electric power that requires no construction of facilities. 62 Therefore, an environmental assessment is unnecessary and has not been prepared in this Final Rule. 62 *See* 18 CFR 380.4(a)(2)(ii), 380.4(a)(5), 380.4(a)(27). VII. Regulatory Flexibility Act Certification 97. The Regulatory Flexibility Act of 1980

(RFA)63 generally requires a description and analysis of final rules that will have significant economic impact on a substantial number of small entities. The regulations adopted here impose requirements only on public utilities, which are not small businesses, and, these requirements are, in fact, designed to benefit all customers, including small businesses. 63 5 U.S.C. 601-612. 98. The Commission has followed the provisions of both the RFA and the Paperwork Reduction Act on potential impact on small business and other small entities. Specifically, the RFA directs agencies to consider four regulatory alternatives to be considered in a rulemaking to lessen the impact on small entities: tiering or establishment of different compliance or reporting requirements for small entities, classification, consolidation, clarification or simplification of compliance and reporting requirements, performance rather than design standards, and exemptions. As the Commission originally stated in Order No. 889, the OASIS regulations now known as Standards for Business Practices and Communication Protocols for Public Utilities, apply only to public utilities that own, operate, or control transmission facilities subject to the Commission's jurisdiction and should a small entity be subject to the Commission's jurisdiction, it may file for waiver of the requirements. 64 This is consistent with the exemption provisions of the RFA. Accordingly, pursuant to section 605(b) of the RFA, 65 the Commission hereby certifies that the regulations proposed herein will not have a significant adverse impact on a substantial number of small entities. 64 We also have provided for requests of waiver in instances where compliance would be very burdensome and a waiver would not diminish the overall benefits of the standards. *See supra* P 19. 65 5 U.S.C. 605(b). VIII. Document Availability 99. In addition to publishing the full text of this document in the **Federal Register** , the Commission provides all interested persons an opportunity to view and/or print the contents of this document via the Internet through FERC's Home Page ( *http://www.ferc.gov* ) and in FERC's Public Reference Room during normal business hours (8:30 a.m. to 5 p.m. Eastern time) at 888 First Street, NE., Room 2A, Washington, DC 20426. 100. From FERC's Home Page on the Internet, this information is available in the eLibrary. The full text of this document is available in the eLibrary both in PDF and Microsoft Word format for viewing, printing, and/or downloading. To access this document in eLibrary, type the docket number excluding the last three digits of this document in the docket number field. 66 66 NAESB's Dec. 26, 2007 submittal is also available for viewing in eLibrary. The link to this file is as follows: *http://elibrary.ferc.gov:0/idmws/doc_info.asp?document_id=13566661* . 101. User assistance is available for eLibrary and the FERC's Web site during our normal business hours. For assistance contact FERC Online Support at *FERCOnlineSupport@ferc.gov* or toll-free at

(866)208-3676, or for TTY, contact

(202)502-8659. IX. Effective Date and Congressional Notification 102. This Final Rule will become effective August 28, 2008. The Commission has determined with the concurrence of the Administrator of the Office of Information and Regulatory Affairs, Office of Management and Budget, that this rule is not a major rule within the meaning of section 251 of the Small Business Regulatory Enforcement Fairness Act of 1996. 67 67 *See* 5 U.S.C. 804(2). List of Subjects in 18 CFR part 38 Electric utilities, Reporting and recordkeeping requirements, Incorporation by reference. By the Commission. Nathaniel J. Davis, Sr., Deputy Secretary. In consideration of the foregoing, the Commission amends Chapter I, Title 18, part 38 of the *Code of Federal Regulations* , as follows: PART 38—BUSINESS PRACTICE STANDARDS AND COMMUNICATION PROTOCOLS FOR PUBLIC UTILITIES 1. The authority citation for part 38 continues to read as follows: Authority: 16 U.S.C. 791-825r, 2601-2645; 31 U.S.C. 9701; 42 U.S.C. 7101-7352. 2. In § 38.2, paragraphs (a)(1) through

(8)are revised, and paragraphs (a)(9) through

(11)are added to read as follows: § 38.2 Incorporation by reference of North American Energy Standards Board Wholesale Electric Quadrant standards.

(a)* * *

(1)Business Practices for Open Access Same-Time Information Systems (OASIS), Version 1.4 (WEQ-001, Version 001, Oct. 31, 2007, with minor corrections applied on Nov. 16, 2007) with the exception of Standards 001-0.1, 001-0.9 through 001-0.13, 001-1.0 through 001-1.8, and 001-9.7;

(2)Business Practices for Open Access Same-Time Information Systems (OASIS) Standards & Communication Protocols, Version 1.4 (WEQ-002, Version 001, Oct. 31, 2007, with minor corrections applied on Nov. 16, 2007);

(3)Open Access Same-Time Information Systems (OASIS) Data Dictionary, Version 1.4 (WEQ-003, Version 001, Oct. 31, 2007, with minor corrections applied on Nov. 16, 2007);

(4)Coordinate Interchange (WEQ-004, Version 001, Oct. 31, 2007, with minor corrections applied on Nov. 16, 2007);

(5)Area Control Error

(ACE)Equation Special Cases (WEQ-005, Version 001, Oct. 31, 2007, with minor corrections applied on Nov. 16, 2007);

(6)Manual Time Error Correction (WEQ-006, Version 001, Oct. 31, 2007, with minor corrections applied on Nov. 16, 2007);

(7)Inadvertent Interchange Payback (WEQ-007, Version 001, Oct. 31, 2007, with minor corrections applied on Nov. 16, 2007);

(8)Transmission Loading Relief—Eastern Interconnection (WEQ-008, Version 001, Oct. 31, 2007, with minor corrections applied on Nov. 16, 2007);

(9)Gas/Electric Coordination (WEQ-011, Version 001, Oct. 31, 2007, with minor corrections applied on Nov. 16, 2007);

(10)Public Key Infrastructure

(PKI)(WEQ-012, Version 001, Oct. 31, 2007, with minor corrections applied on Nov. 16, 2007); and

(11)Business Practices for Open Access Same-Time Information Systems (OASIS) Implementation Guide, Version 1.4 (WEQ-013, Version 001, Oct. 31, 2007, with minor corrections applied on Nov. 16, 2007). Note: The following appendix will not be published in the Code of Federal Regulations. List of Entities Filing Comments on NOPR in Docket No. RM05-5-005, and the Abbreviations Used To Identify Them Bonneville Power Administration (Bonneville). Duke Energy Corporation (Duke). Lafayette Utilities System (Lafayette). Louisiana Energy and Power Authority (LEPA). Midwest Independent Transmission System Operator, Inc. (Midwest ISO). New York Independent System Operator, Inc. (NYISO). North American Electric Reliability Corporation (NERC). PJM Interconnection, L.L.C. (PJM). Southern Company Services, Inc. (Southern Companies). Southwest Power Pool, Inc. (SPP). [FR Doc. E8-17194 Filed 7-28-08; 8:45 am] BILLING CODE 6717-01-P DEPARTMENT OF THE TREASURY Internal Revenue Service 26 CFR Part 1 [TD 9418] RIN 1545-BE65 Converting an IRA Annuity to a Roth IRA AGENCY: Internal Revenue Service (IRS), Treasury. ACTION: Final regulations. SUMMARY: This document contains final regulations under section 408A of the Internal Revenue Code (Code). These final regulations provide guidance concerning the tax consequences of converting a non-Roth IRA annuity to a Roth IRA. These final regulations affect individuals establishing Roth IRAs, beneficiaries under Roth IRAs, and trustees, custodians and issuers of Roth IRAs. DATES: *Effective date:* These final regulations are effective July 29, 2008. *Applicability date:* These regulations are applicable to any Roth IRA conversion where an annuity contract is distributed or treated as distributed from a traditional IRA on or after August 19, 2005. FOR FURTHER INFORMATION CONTACT: William D. Gibbs at 202-622-6060 (not a toll-free number). SUPPLEMENTARY INFORMATION: Background Roth IRAs and Conversions This document contains final regulations that amend the Income Tax Regulations (26 CFR Part 1) under section 408A of the Code relating to Roth IRAs. Section 408A of the Code, which was added by section 302 of the Taxpayer Relief Act of 1997, Public Law 105-34 (111 Stat. 788), establishes the Roth IRA as a type of individual retirement plan, effective for taxable years beginning on or after January 1, 1998. The identifying characteristic of Roth IRAs is that all contributions to Roth IRAs are after-tax contributions (that is, an IRA owner cannot take a deduction for a contribution made to a Roth IRA) but qualified distributions are tax-free. A qualified distribution from a Roth IRA is a distribution that is made:

(1)at least 5 years after the account owner (or the account owner's spouse) made a Roth IRA contribution, and

(2)after age 59 1/2 , after death, on account of disability, or for a first-time home purchase. A taxpayer whose modified adjusted gross income for a year does not exceed $100,000 (and who, if married, files jointly) 1 may convert an amount held in a non-Roth IRA (that is, a traditional IRA or SIMPLE IRA) to an amount held in a Roth IRA. If a taxpayer converts an amount held in a non-Roth IRA to a Roth IRA, the taxpayer must include the value of the non-Roth IRA being converted in gross income (to the extent the conversion is not a conversion of basis in the non-Roth IRA). 1 These limitations are removed for taxable years beginning after December 31, 2009. A conversion may be accomplished by means of a rollover, trustee-to-trustee transfer, or account redesignation. Regardless of the means used to convert, any amount converted from a non-Roth IRA to a Roth IRA is treated as distributed from the non-Roth IRA and rolled over to the Roth IRA. In the case of a conversion involving property, the conversion amount generally is the fair market value of the property on the date of distribution or the date the property is treated as distributed from the traditional IRA. Final regulations regarding Roth IRAs were published in the **Federal Register** on February 4, 1999 (64 FR 5597). On August 19, 2005, the IRS issued temporary regulations under section 408A (70 FR 48868) relating to conversions involving annuities. These temporary regulations were also issued in identical form as proposed regulations (70 FR 48924). Rev. Proc. 2006-13 (2006-1 CB 315), which was issued on January 17, 2006, in response to several comments received on the temporary and proposed regulations, provided interim guidance with respect to the temporary regulations. See § 601.601(d)(2)(ii)( *b* ). After consideration of all comments received on the proposed regulations, these final regulations adopt the provisions of the proposed regulations with certain modifications described in the Explanation of Provisions. Explanation of Provisions Like the proposed regulations, these final regulations clarify that when a non-Roth individual retirement annuity is converted to a Roth IRA, the amount that is treated as distributed is the fair market value of the annuity contract on the date the annuity contract is converted. Similarly, when a non-Roth individual retirement account holds an annuity contract as an account asset and the account is converted to a Roth IRA, the amount that is treated as distributed with respect to the annuity contract is the fair market value of the annuity contract on the date the annuity contract is converted (that is distributed or treated as distributed from the non-Roth IRA). One commentator suggested that the final regulations should clarify that where a conversion is made by surrendering an annuity without retaining or transferring rights, the amount converted, and hence the amount that must be included in income as a result of the conversion, is limited to the surrendered cash value (the actual proceeds to be deposited into the Roth IRA). Rev. Proc. 2006-13 provided that, in such a case, the valuation methods in the temporary regulations do not apply. The final regulations adopt this suggestion. Thus, to the extent an individual retirement annuity or an annuity contract held by an individual retirement account is surrendered with no retained or transferred rights, the amount treated as a distribution is limited to the surrendered cash value (the actual proceeds available to be deposited into the Roth IRA). The proposed regulations used a methodology from the gift tax regulations (§ 25.2512-6) to determine fair market value of an annuity contract. Those rules depend on how soon after purchase the contract was converted and whether future premiums were to be paid. The different time periods were “soon after” the contract was sold and after the contract “has been in force for some time.” A commentator stated that these terms are not defined and do not lend themselves to clear or uniform interpretation. In response to these comments, the final regulations modify the application of the valuation rules taken from the gift tax regulations (collectively referred to under these regulations as the gift tax method). The applicability of one valuation rule within the gift tax method is based upon whether the company which sold the initial contract sells comparable annuities. If there is such a comparable contract currently being sold, the fair market value of the contract is determined as the price of the comparable contract. For example, assume a taxpayer who is age 60 at the time of the conversion had purchased from an insurance company a contract at an earlier age which will pay him $500 per month for life beginning at age 70. If the insurance company is selling contracts that will provide a taxpayer who is age 60 $500 per month for life at age 70, then the fair market value of the taxpayer's contract, for purposes of determining the amount converted, is the current price of the similar contract. (If the conversion occurs soon after the annuity was sold, the comparable contract is the annuity itself and, thus, the fair market value of the annuity is established by the actual premiums paid for such contract.) This comparable contract valuation rule subsumes the first two methods under the proposed regulations. The gift tax method under the final regulations includes a second alternative for situations where there is no comparable contract. If no comparable contract is available to make a comparison, the fair market value is established through an approximation that is based on the interpolated terminal reserve at the date of the conversion, plus the proportionate part of the gross premium paid before the date of the conversion which covers the period extending beyond that date. This reserve alternative is the same as the third method under the proposed regulations, except that it applies whenever there is no comparable contract. Rev. Proc. 2006-13 provided an alternative to the valuation method in the proposed regulations based on the accumulation of premiums and this alternative is included in the final regulations. Under this “accumulation method”, the fair market value of an annuity contract is permitted to be determined using the methodology provided in § 1.401(a)(9)-6, A-12, with the following modifications. First, all front-end loads and other non-recurring charges assessed in the twelve months immediately preceding the conversion must be added to the account value. Second, future distributions are not to be assumed in the determination of the actuarial present value of additional benefits. Finally, the exclusions provided under § 1.401(a)(9)-6, A-12(c)(1) and (c)(2), are not to be taken into account. These final regulations also provide authority for the Commissioner to issue additional guidance regarding the fair market value of an individual retirement annuity, including formulas to be used for determining fair market value. Effective Date These regulations are applicable to any Roth IRA conversion where an annuity contract is distributed or treated as distributed from a traditional IRA on or after August 19, 2005. However, taxpayers may instead apply the valuation methods in the temporary regulations and Rev. Proc. 2006-13 for annuity contracts distributed or treated as distributed from a traditional IRA on or before December 31, 2008. See § 601.601 (d)(2)(ii)(b). Thus, for example, the adoption of these final regulations does not eliminate the special rule for 2005 conversions set forth in section 4 of Rev. Proc. 2006-13. Special Analyses It has been determined that these final regulations are not a significant regulatory action as defined in Executive Order 12866. Therefore, a regulatory assessment is not required. It also has been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to these final regulations and because these regulations do not impose a collection of information on small entities, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not apply. Pursuant to section 7805(f) of the Code, the proposed regulations preceding these final regulations were submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on their impact on small business. Drafting Information The principal authors of these regulations are William Douglas Gibbs and Cathy V. Pastor of the Office of the Division Counsel/Associate Chief Counsel (Tax Exempt and Government Entities). However, other personnel from the IRS and Treasury Department participated in the development of these regulations. List of Subjects in 26 CFR Part 1 Income taxes, Reporting and recordkeeping requirements. Adoption of Amendments to the Regulations Accordingly, 26 CFR part 1 is amended as follows: PART 1—INCOME TAXES **Paragraph 1.** The authority citation for part 1 continues to read, in part, as follows: Authority: 26 U.S.C. 7805 * * * **Par. 2.** Section 1.408A-4T is removed. § 1.408A-4T [Removed]. **Par. 3.** Section 1.408A-4 is amended by revising Q-14 and A-14 to read as follows: § 1.408A-4 Converting amounts to Roth IRAs. Q-14. What is the amount that is treated as a distribution, for purposes of determining income inclusion, when a conversion involves an annuity contract? A-14.

(a)*In general* —(1) *Distribution of Fair Market Value Upon Conversion.* Notwithstanding § 1.408-4(e), when part or all of a traditional IRA that is an individual retirement annuity described in section 408(b) is converted to a Roth IRA, for purposes of determining the amount includible in gross income as a distribution under § 1.408A-4, A-7, the amount that is treated as distributed is the fair market value of the annuity contract on the date the annuity contract is converted. Similarly, when a traditional IRA that is an individual retirement account described in section 408(a) holds an annuity contract as an account asset and the traditional IRA is converted to a Roth IRA, for purposes of determining the amount includible in gross income as a distribution under § 1.408A-4, A-7, the amount that is treated as distributed with respect to the annuity contract is the fair market value of the annuity contract on the date that the annuity contract is distributed or treated as distributed from the traditional IRA. The rules in this A-14 also apply to conversions from SIMPLE IRAs.

(2)*Annuity contract surrendered.* Paragraph (a)(1) of this paragraph A-14 does not apply to a conversion of a traditional IRA to the extent the conversion is accomplished by the complete surrender of an annuity contract for its cash value and the reinvestment of the cash proceeds in a Roth IRA, but only if the surrender extinguishes all benefits and other characteristics of the contract. In such a case, the cash from the surrendered contract is the amount reinvested in the Roth IRA.

(3)*Definitions.* The definitions set forth in § 1.408A-8 apply for purposes of this paragraph A-14.

(b)*Determination of fair market value* —(1) *Overview* —(i) *Use of alternative methods.* This paragraph

(b)sets forth methods which may be used to determine the fair market value of an individual retirement annuity for purposes of paragraph (a)(1) of this paragraph A-14. However, if, because of the unusual nature of the contract, the value determined under one of these methods does not reflect the full value of the contract, that method may not be used.

(ii)*Additional guidance.* Additional guidance regarding the fair market value of an individual retirement annuity, including formulas to be used for determining fair market value, may be issued by the Commissioner in revenue rulings, notices, or other guidance published in the Internal Revenue Bulletin (see § 601.601(d)(2)(ii)( *b* )).

(2)*Gift tax method* —(i) *Cost of contract or comparable contract.* If with respect to an annuity, there is a comparable contract issued by the company which sold the annuity, the fair market value of the annuity may be established by the price of the comparable contract. If the conversion occurs soon after the annuity was sold, the comparable contract may be the annuity itself, and thus, the fair market value of the annuity may be established through the sale of the particular contract by the company (that is, the actual premiums paid for such contract).

(ii)*Use of reserves where no comparable contract available.* If with respect to an annuity, there is no comparable contract available in order to make the comparison described in paragraph (b)(2)(i) of this paragraph A-14, the fair market value may be established through an approximation that is based on the interpolated terminal reserve at the date of the conversion, plus the proportionate part of the gross premium last paid before the date of the conversion which covers the period extending beyond that date.

(3)*Accumulation method.* As an alternative to the gift tax method described in paragraph (b)(2) of this paragraph A-14, this paragraph (b)(3) provides a method that may be used for an annuity contract which has not been annuitized. The fair market value of such an annuity contract is permitted to be determined using the methodology provided in § 1.401(a)(9)-6, A-12, with the following modifications:

(i)All front-end loads and other non-recurring charges assessed in the twelve months immediately preceding the conversion must be added to the account value.

(ii)Future distributions are not to be assumed in the determination of the actuarial present value of additional benefits.

(iii)The exclusions provided under § 1.401(a)(9)-6, A-12(c)(1) and (c)(2), are not to be taken into account.

(c)*Effective/applicability date.* The provisions of this paragraph A-14 are applicable to any conversion in which an annuity contract is distributed or treated as distributed from a traditional IRA on or after August 19, 2005. However, for annuity contracts distributed or treated as distributed from a traditional IRA on or before December 31, 2008, taxpayers may instead apply the valuation methods in § 1.408A-4T (as it appeared in the April 1, 2008, edition of 26 CFR part 1) and Revenue Procedure 2006-13 (2006-1 CB 315) (See § 601.601(d)(2)(ii)( *b* )). Linda E. Stiff, Deputy Commissioner for Services and Enforcement. Approved: July 20, 2008. Eric Solomon, Assistant Secretary of the Treasury (Tax Policy). [FR Doc. E8-17271 Filed 7-28-08; 8:45 am] BILLING CODE 4830-01-P DEPARTMENT OF THE TREASURY Internal Revenue Service 26 CFR Part 1 [TD 9406] RIN 1545-BH03 Modifications to Subpart F Treatment of Aircraft and Vessel Leasing Income; Correction AGENCY: Internal Revenue Service (IRS), Treasury. ACTION: Correcting amendment. SUMMARY: This document contains a correction to final and temporary regulations (TD 9406) that was published in the **Federal Register** on Thursday, July 3, 2008 (73 FR 38113) addressing the treatment of certain income and assets related to the leasing of aircraft or vessels in foreign commerce under sections 367, 954, and 956 of the Internal Revenue Code. The regulations reflect statutory changes made by section 415 of the American Jobs Creation Act of 2004. In general, the regulations will affect the United States shareholders of controlled foreign corporations that derive income from the leasing of aircraft or vessels in foreign commerce and U.S. persons that transfer property subject to these leases to a foreign corporation. DATES: This correction is effective July 29, 2008, and is applicable on July 3, 2008. FOR FURTHER INFORMATION CONTACT: Concerning the temporary regulations under section 367, John H. Seibert at

(202)622-3860; concerning the temporary regulations under section 954 or 956, Paul J. Carlino at

(202)622-3840 (not toll-free numbers). SUPPLEMENTARY INFORMATION: Background The final and temporary regulations that are the subjects of this document are under sections 367, 954, and 956 of the Internal Revenue Code. Need for Correction As published, final and temporary regulations (TD 9406) contain an error that may prove to be misleading and is in need of clarification. List of Subjects in 26 CFR Part 1 Income taxes, Reporting and recordkeeping requirements. Correction of Publication Accordingly, 26 CFR part 1 is corrected by making the following correcting amendment: PART 1—INCOME TAXES **Paragraph 1.** The authority citation for part 1 continues to read, in part, as follows: Authority: 26 U.S.C. 7805 * * * **Par. 2.** Section 1.954-2(c)(2) is amended by adding paragraph

(vii)to read as follows: § 1.954-2 Foreign personal holding company income.

(c)* * *

(2)* * *

(vii)[Reserved]. For further guidance, see § 1.954-2T(c)(2)(vii). LaNita Van Dyke, Chief, Publications and Regulations Branch, Legal Processing Division, Associate Chief Counsel (Procedure and Administration). [FR Doc. E8-17269 Filed 7-28-08; 8:45 am] BILLING CODE 4830-01-P DEPARTMENT OF THE TREASURY Internal Revenue Service 26 CFR Part 1 [TD 9420] RIN 1545-BC22 Section 42 Utility Allowance Regulations Update AGENCY: Internal Revenue Service (IRS), Treasury. ACTION: Final regulations. SUMMARY: This document contains final regulations that amend the utility allowances regulations concerning the low-income housing tax credit. The final regulations update the utility allowance regulations to provide new options for estimating tenant utility costs. The final regulations affect owners of low-income housing projects who claim the credit, the tenants in those low-income housing projects, and the State and local housing credit agencies that administer the credit. DATES: *Effective Date:* These regulations are effective July 29, 2008. *Applicability Date:* For dates of applicability see § 1.42-12(a)(4). FOR FURTHER INFORMATION CONTACT: David Selig

(202)622-3040 (not a toll-free number). SUPPLEMENTARY INFORMATION: Background This document contains amendments to the Income Tax Regulations (26 CFR Part 1) relating to the low-income housing credit under section 42 of the Internal Revenue Code (Code). On June 19, 2007, the IRS and Treasury Department published in the **Federal Register** proposed regulations under section 42(g)(2)(B)(ii) (72 FR 33703). Written and electronic comments responding to the proposed regulations were received and a public hearing was held on the proposed regulations on October 9, 2007. After consideration of all the comments, the proposed regulations are adopted as amended by this Treasury decision. General Overview Section 42(a) provides that, for purposes of section 38, the amount of the low-income housing credit determined under section 42 for any taxable year in the credit period is an amount equal to the applicable percentage of the qualified basis of each qualified low-income building. A qualified low-income building is defined in section 42(c)(2) as any building that is part of a qualified low-income housing project. A qualified low-income housing project is defined in section 42(g)(1) as any project for residential rental property if the project meets one of the following tests elected by the taxpayer:

(1)At least 20 percent of the residential units in the project are rent-restricted and occupied by individuals whose income is 50 percent or less of area median gross income; or

(2)at least 40 percent of the residential units in the project are rent-restricted and occupied by individuals whose income is 60 percent or less of area median gross income. If a taxpayer does not meet the elected test, the project is not eligible for the section 42 credit. Under section 42(g)(4), section 142(d)(2)(B) applies when determining whether any project is a qualified low-income housing project under section 42(g)(1). Section 142(d)(2)(B) provides that the income of individuals and area median gross income is determined by the Secretary in a manner consistent with determinations of lower income families and area median gross income under section 8 of the United States Housing Act of 1937. Under Rev. Rul. 94-57 (1994-2 CB 5), taxpayers may rely on a list of income limits released by the Department of Housing and Urban Development

(HUD)until 45 days after HUD releases a new list of income limits, or until HUD's effective date for the new list, whichever is later. In order to qualify as a rent-restricted unit within the meaning of section 42(g)(2), the gross rent for the unit must not exceed 30 percent of the imputed income limitation applicable to the unit. Section 42(g)(2)(B)(ii) requires the inclusion in gross rent of a utility allowance determined by the Secretary after taking into account the determinations under section 8 of the United States Housing Act of 1937. Section 1.42-10(a) provides that if utility costs (other than telephone) for a residential rental unit are paid directly by the tenant, then the gross rent for that unit includes the applicable utility allowance as determined under § 1.42-10. Section 1.42-10(b) provides rules for calculating the appropriate utility allowance based upon whether

(1)the building receives rental assistance from the Farmers Home Administration (FmHA), now known as the Rural Housing Service;

(2)the building has any tenant that receives FmHA rental assistance;

(3)the building is not described in

(1)or

(2)above and the building's rents and utility allowances are reviewed by HUD on an annual basis; or

(4)the building is not described in (1), (2), or

(3)above (other buildings). Currently, under § 1.42-10(b)(4), other buildings generally use the applicable Public Housing Authority

(PHA)utility allowance established for the Section 8 Existing Housing Program or use a local utility company estimate. The local utility company estimate may be obtained by any interested party (including a low-income tenant, a building owner, or a State or local housing credit agency (Agency)). The proposed regulations proposed two additional options for calculating utility allowances. The first option would permit a building owner to obtain a utility estimate for each unit in a building from the Agency that has jurisdiction over the building (the Agency estimate). The Agency estimate must take into account the local utility rates data, property type, climate variables by region in the State, taxes and fees on utility charges, and property building materials and mechanical systems. An Agency may also use actual utility company usage data and rates for the building. The second option would permit a building owner to calculate utility allowances using the “HUD Utility Schedule Model” found on the Low-Income Housing Tax Credits page at *http://www.huduser.org/datasets/lihtc.html* (or successor URL). The HUD Utility Schedule Model is based on data from the Residential Energy Consumption Survey

(RECS)conducted by the Department of Energy. RECS data provides energy consumption by structure for heating, air conditioning, cooking, water heating, and other electric (lighting and refrigeration). The HUD Utility Schedule Model incorporates building location and climate. Summary of Comments and Explanation of Changes Exclusions From Utility Allowance Prior to these final regulations, § 1.42-10(a) provided for the exclusion of telephone costs in determining the amount of the utility allowance to be included in gross rent. The proposed regulations excluded cable television costs as well as telephone costs. The final regulations retain the exclusions for cable television and telephone costs and also exclude Internet costs. The IRS and Treasury Department believe it is appropriate to exclude cable television and Internet costs as comparable to telephone costs. Additional Option for Determining Utility Allowances Commentators stated that the Agency estimate in the proposed regulations may be administratively burdensome for some Agencies. As an alternative, commentators suggested adding an option that would allow utility estimates to be calculated by a state-certified engineer or other qualified professional. The commentators specified that, under this option, computer software could be developed that would estimate the energy or water and sanitary sewer service cost for each type of unit in a building. The estimates would be determined based on the applicable current local utility billing rate schedule and would be applied to all comparable units in the building using specific information about the design, materials, equipment, and location of the building. A computer software model that incorporates specific information about the design and location of the building for which the utility allowances are being developed, and that can be updated with actual consumption data and with consumption estimates as new efficiency measures and improvements are undertaken, would provide more accurate estimates of utility consumption. Therefore, the final regulations also include a new option allowing building owners to retain the services of a qualified professional to calculate utility allowances based on an energy consumption model. The use of this new option is subject to several special rules. First, the energy consumption model must, at a minimum, take into account specific factors including, but not limited to, unit size, building orientation, design and materials, mechanical systems, appliances, and characteristics of the building location. Second, the utility estimates must be calculated by either

(1)a properly licensed engineer or

(2)a qualified professional approved by the Agency that has jurisdiction over the building (together, qualified professional). The qualified professional and the building owner must not be related within the meaning of section 267(b) or 707(b). Third, the building owner must furnish a copy of the estimates derived from the energy consumption model to the Agency and make copies of the estimates available to all tenants in the building. Finally, the building owner must pay for all costs incurred in obtaining the utility estimates from the qualified professional and providing the estimates to the Agency and tenants. Default Option/Option Ordering One commentator suggested that the final regulations should provide a default option because, in the absence of a definitive standard for determining utility allowances, building owners would use the option that yields the lowest utility estimates. Commentators further requested clarification as to which option should be used when multiple options are available, whether building owners may use different options for different utilities, and whether owners may change the options used for calculating utilities from time to time. An energy consumption model developed by a qualified professional that takes into account specific information about the design and location of the building for which the utility allowances are being developed should produce the most accurate utility estimates. It is expected that this more accurate model will be the model most commonly used by most building owners, particularly those with buildings that are not very old. However, if a building owner selects an option that yields higher utility allowances, the building owner should be free to accept a lower amount of rent from tenants. Therefore, there is no need for a stated default option or option ordering rule. Further, the final regulations neither prohibit using different options for different utilities nor prohibit changing the options used for calculating utilities. If an Agency determines that a building owner has understated the utility allowances for the building under the particular option chosen by the owner for calculating the utility allowance, and the building's units are not rent-restricted units under section 42(g)(2) as a result, the Agency must report the noncompliance on Form 8823, *Low-Income Housing Credit Agencies Report of Noncompliance or Building Disposition.* Application of Newly Calculated Utility Allowances Under current § 1.42-10(c) of the regulations, if the applicable utility allowance for units changes, the new utility allowance must be used to compute gross rent of rent-restricted units due 90 days after the change (the 90-day period). The proposed regulations limited the effective date of any new utility allowances to the earlier of the date the building has achieved 90 percent occupancy for a period of 90 consecutive days or the end of the first year of the credit period. The proposed regulations also modified § 1.42-10(c) by requiring that a building owner must review at least annually the basis on which utility allowances have been established and must update the applicable utility allowance. The review must take into account any changes to the building such as any energy conservation measures that affect energy consumption and changes in utility rates. Commentators suggested that building owners should be obligated to adjust utility allowances when utility rates increase by a stated percentage, for example, 10 percent, which is the rule for revising utility allowance schedules for PHAs under 24 CFR 982.517(c). This HUD rule provides that a PHA must review its schedule of utility allowances each year and revise its allowance for a utility category if the utility rate has changed by 10 percent or more since the utility allowance schedule was last revised. The commentators did not address decreases in utility rates. A commentator also suggested that the final regulations should require an Agency to review or have owners review local utility rates quarterly to determine if rates have increased sufficiently to require an adjustment. A different commentator suggested limiting reviews to no more than once per year. The IRS and Treasury Department do not believe that fluctuations in utility rates within a given year should trigger recalculations of utility allowances more than once a year. The IRS and Treasury Department do not believe that the additional burden of updating the utility allowances more than once a year is warranted at this time. Utility rates generally do not change more than once a year, and yearly updated utility allowances would reflect average rates applicable to all tenants in a building from year to year. Therefore, the final regulations require building owners to calculate new utility allowances once during the calendar year regardless of any percentage change in utility rates. Building owners may choose, however, to calculate new utility allowances more frequently than once during the calendar year provided the owner complies with the requirements of these regulations, including the notification requirements to the Agency and tenants. Another commentator suggested that new utility allowances should be implemented within 90 days after HUD publishes its annual income limits (which are used in determining section 42 rents), but in no case later than June 30 of any year. Section 42 rents under section 42(g)(2) may or may not increase depending on HUD's calculation of area median gross income. Therefore, the IRS and Treasury Department do not believe that the rules should require that the effective date of any new utility allowance coincide with the section 42 effective date of HUD's income lists. Building owners, however, may choose to implement any new utility allowances on the section 42 effective date of HUD's income lists. To bring financial stability to a project during the beginning of its operations, the final regulations clarify that the building owner is not required to review the utility allowances, or implement new utility allowances, until the earlier of the date the building has achieved 90 percent occupancy for a period of 90 consecutive days or the end of the first year of the credit period. Procedural Safeguards for Tenants One commentator made several recommendations regarding procedural safeguards for tenants including: Owners should be required to give tenants 30 days notice before the effective date of any utility allowance; tenants should be provided with all information used in calculating the utility allowances; tenants should be given the opportunity to comment on the proposed allowances; and owners should be required to review those comments prior to the utility allowances becoming effective. The commentator believed that the new options for determining utility allowances should be available only after one full year of occupancy and one full year after the building is placed in service. A commentator also recommended that a building owner should be allowed to use the new options only if the owner provides all data to the Agency no later than February 15 and the Agency informs the owner whether the proposed utility allowances are approved by March 31. To provide tenants with the opportunity to comment on proposed utility allowances to the Agency and building owner, the final regulations apply the existing disclosure requirement under current § 1.42-10(b)(4)(ii)(B) (regarding the utility company estimate) to an owner using a utility company estimate, the HUD Utility Schedule Model, or an energy consumption model. Therefore, an owner must submit copies of the proposed utility allowances to the Agency and make the proposed utility allowances available to all tenants in the building at the beginning of the 90-day period before the utility allowances are used in determining the gross rents of rent-restricted units. Similarly, the final regulations require that any utility estimates obtained under the Agency estimate option must be made available to all tenants in the building at the beginning of the 90-day period. An Agency may continue to require additional information from the owner during the 90-day period. Commentators suggested that the final regulations should limit the use of the HUD Utility Schedule Model to data for a twelve-month period ending in the most recent calendar year and require the owner to certify the accuracy of the data and the calculations of the utility allowances. However, the HUD Utility Schedule Model already incorporates consumption data derived from RECS data. Thus, building owners using this option need not be required to use consumption data for any particular twelve-month period. These final regulations, however, provide that the use of the energy consumption model is limited to consumption data for a twelve-month period ending no earlier than 60 days prior to the beginning of the 90-day period. In the case of newly constructed or renovated buildings with less than twelve months of consumption data, the energy consumption model allows a qualified professional to use consumption data for the twelve-month period of units of similar size and construction in the geographic area in which the building containing the units is located. Further, the final regulations require that utility rates used for the HUD Utility Schedule Model, the Agency estimate option, and the energy consumption model must be no older than the rates in place 60 days prior to the beginning of the 90-day period. In addition to these safeguards, if an Agency determines that a building owner has understated the utility allowances for the owner's building under the particular option chosen, and, therefore, some or all of the units in the building are not rent-restricted units under section 42(g)(2), then the Agency must report the noncompliance to the Service on Form 8823, *Low-Income Housing Credit Agencies Report of Noncompliance or Building Disposition.* Commentators requested that building owners should be required to certify the estimate and the accuracy of the data used under the new options. Because Agencies may request additional information at any time during their mandatory review of proposed utility allowances, and must report any noncompliance to the Service, the final regulations do not require building owners to provide such certification. Utility Allowances for Tenants With Special Needs One commentator suggested that the calculation of utility allowances should take into account any special needs tenants such as people with disabilities who require high energy consumption equipment. Section 42 does not require that the owner's calculation of utility allowances be based on a tenant's particular use of utility services. If such a requirement were imposed, owners and Agencies would have to determine the utility allowance for the tenants in each unit, as opposed to allowances based on the size of the unit, which would greatly increase burden. Additionally, it is unclear whether it is appropriate to implement rules that might encourage tenants to be indifferent to their energy consumption. Such indifference could lead to cost overruns by owners, and the viability of low-income housing could be jeopardized. Therefore, the final regulations do not require the calculation of utility allowances based on consumption by particular tenants. Calculation of Utility Company Estimate Option for Deregulated Utilities Section 1.42-10(b)(4)(ii)(B) currently provides that any interested party (including an owner, low-income tenant, or Agency) may obtain a local utility company estimate for a unit. The estimate is obtained when the interested party receives, in writing, information from a local utility company providing the estimated cost of that utility for a unit of similar size and construction for the geographic area in which the building containing the units is located. In light of utility services deregulation, the proposed regulations proposed to amend this option by requiring the interested party to obtain cost estimates from the local utility company that include combined rate charges from multiple utility companies. Commentators thought this proposed amendment would require the interested party to obtain utility consumption estimates from every utility company providing the same utility service and stated that this would present an unworkable administrative burden in deregulated jurisdictions with multiple utility providers. In some jurisdictions, many utility providers may be available for a given building. The proposed amendment was not intended to require the interested party to obtain utility consumption estimates from every utility company providing the same utility service. The amendment was proposed to address deregulation by requiring the interested party to obtain estimates for all the components of the utility service if the service is divided between two or more types of service providers (for example, electric generation and electric transmission). The final regulations clarify that, in the case of deregulated utility services, the interested party is required to obtain an estimate from only one utility company even if multiple companies can provide the same utility service to a unit. However, the utility company furnishing the estimate must offer utility services to the building in order for that utility company's rates to be used in calculating utility allowances. The estimate should include all component charges for providing the utility service. Agency Costs/Administrative Burden One commentator requested that specific language be added to address when Agencies may charge a reasonable fee for making a determination pursuant to the Agency estimate option, and who bears the fee when a particular option is used. The proposed regulations provided that costs incurred in obtaining an Agency estimate are borne by the building owner. The final regulations adopt this provision, and further require building owners to pay for all costs incurred in obtaining the estimates under the HUD Utility Schedule Model and the energy consumption model and in providing estimates to Agencies and tenants. Effective/Applicability Date The proposed regulations were proposed to be effective for taxable years beginning on or after the date of publication of the final regulations in the **Federal Register** . A commentator suggested that the final regulations be effective earlier on the basis that if they are published after 2007, they would not be effective until 2009 for calendar year taxpayers. The IRS and Treasury Department believe that the burden associated with an earlier effective date is not warranted. Therefore, the final regulations do not adopt this suggestion. However, in order to allow a building owner to implement the utility allowances as of the first day of the owner's taxable year beginning on or after July 29, 2008, the final regulations provide that taxpayers may rely on the rules for determining utility allowances before the first day of the owner's taxable year beginning on or after July 29, 2008 provided that any utility allowances so calculated are effective no earlier than the first day of the owner's taxable year beginning on or after July 29, 2008. Special Analyses It has been determined that this Treasury decision is not a significant regulatory action as defined in Executive Order 12866. Therefore, a regulatory assessment is not required. It has also been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to these regulations. It is hereby certified that the collection of information in these regulations will not have a significant economic impact on a substantial number of small entities. This certification is based on the fact that the information has previously been reviewed and approved under OMB control number 1545-1102, and that the information required by these final regulations adds no new burden to the existing requirements. Accordingly, a Regulatory Flexibility Analysis under the provisions of the Regulatory Flexibility Act (5 U.S.C. chapter 6) is not required. Pursuant to section 7805(f) of the Code, the notice of proposed rulemaking was submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small business. Drafting Information The principal author of these regulations is David Selig, Office of the Associate Chief Counsel (Passthroughs and Special Industries), IRS. However, other personnel from the IRS and Treasury Department participated in their development. List of Subjects in 26 CFR Part 1 Income taxes, Reporting and recordkeeping requirements. Adoption of Amendments to the Regulations Accordingly, 26 CFR part 1 is amended as follows: PART 1—INCOME TAXES **Paragraph 1.** The authority citation for part 1 continues to read in part as follows: Authority: 26 U.S.C. 7805 * * * **Par. 2.** Section 1.42-10 is amended by: 1. Revising the first sentence of paragraph (a). 2. Revising paragraphs (b)(1), (b)(2), and (b)(3), and the introductory text of paragraph (b)(4). 3. Adding two sentences at the end of paragraph (b)(4)(ii)(A). 4. Adding three sentences after the second sentence in paragraph (b)(4)(ii)(B). 5. Adding paragraphs (b)(4)(ii)(C), (b)(4)(ii)(D), and (b)(4)(ii)(E). 6. Revising paragraph (c). 7. Adding paragraph (d). The additions and revisions read as follows: § 1.42-10 Utility allowances.

(a)* * * If the cost of any utility (other than telephone, cable television, or Internet) for a residential rental unit is paid directly by the tenant(s), and not by or through the owner of the building, the gross rent for that unit includes the applicable utility allowance determined under this section. * * *

(b)*Applicable utility allowances* —(1) *Buildings assisted by the Rural Housing Service.* If a building receives assistance from the Rural Housing Service (RHS-assisted building), the applicable utility allowance for all rent-restricted units in the building is the utility allowance determined under the method prescribed by the Rural Housing Service

(RHS)for the building (whether or not the building or its tenants also receive other state or federal assistance).

(2)*Buildings with Rural Housing Service assisted tenants.* If any tenant in a building receives RHS rental assistance payments (RHS tenant assistance), the applicable utility allowance for all rent-restricted units in the building (including any units occupied by tenants receiving rental assistance payments from the Department of Housing and Urban Development (HUD)) is the applicable RHS utility allowance.

(3)*Buildings regulated by the Department of Housing and Urban Development.* If neither a building nor any tenant in the building receives RHS housing assistance, and the rents and utility allowances of the building are reviewed by HUD on an annual basis (HUD-regulated building), the applicable utility allowance for all rent-restricted units in the building is the applicable HUD utility allowance.

(4)*Other buildings.* If a building is neither an RHS-assisted nor a HUD-regulated building, and no tenant in the building receives RHS tenant assistance, the applicable utility allowance for rent-restricted units in the building is determined under the following methods.

(ii)* * *

(A)* * * However, if a local utility company estimate is obtained for any unit in the building under paragraph (b)(4)(ii)(B) of this section, a State or local housing credit agency (Agency) provides a building owner with an estimate for any unit in a building under paragraph (b)(4)(ii)(C) of this section, a cost estimate is calculated using the HUD Utility Schedule Model under paragraph (b)(4)(ii)(D) of this section, or a cost estimate is calculated by an energy consumption model under paragraph (b)(4)(ii)(E) of this section, then the estimate under paragraph (b)(4)(ii)(B), (C), (D), or

(E)becomes the applicable utility allowance for all rent-restricted units of similar size and construction in the building. Paragraphs (b)(4)(ii)(B), (C), (D), and

(E)of this section do not apply to units to which the rules of paragraphs (b)(1), (2), (3), or (4)(i) of this section apply.

(B)* * * In the case of deregulated utility services, the interested party is required to obtain an estimate only from one utility company even if multiple companies can provide the same utility service to a unit. However, the utility company must offer utility services to the building in order for that utility company's rates to be used in calculating utility allowances. The estimate should include all component deregulated charges for providing the utility service. * * *

(C)*Agency estimate.* A building owner may obtain a utility estimate for each unit in the building from the Agency that has jurisdiction over the building provided the Agency agrees to provide the estimate. The estimate is obtained when the building owner receives, in writing, information from the Agency providing the estimated per-unit cost of the utilities for units of similar size and construction for the geographic area in which the building containing the units is located. The Agency estimate may be obtained by a building owner at any time during the building's extended use period (see section 42(h)(6)(D)). Costs incurred in obtaining the estimate are borne by the building owner. In establishing an accurate utility allowance estimate for a particular building, an Agency (or an agent or other private contractor of the Agency that is a qualified professional within the meaning of paragraph (b)(4)(ii)(E) of this section) must take into account, among other things, local utility rates, property type, climate and degree-day variables by region in the State, taxes and fees on utility charges, building materials, and mechanical systems. If the Agency uses an agent or other private contractor to calculate the utility estimates, the agent or contractor and the owner must not be related within the meaning of section 267(b) or 707(b). An Agency may also use actual utility company usage data and rates for the building. However, use of the Agency estimate is limited to the building's consumption data for the twelve-month period ending no earlier than 60 days prior to the beginning of the 90-day period under paragraph (c)(1) of this section and utility rates used for the Agency estimate must be no older than the rates in place 60 days prior to the beginning of the 90-day period under paragraph (c)(1) of this section. In the case of newly constructed or renovated buildings with less than 12 months of consumption data, the Agency (or an agent or other private contractor of the Agency that is a qualified professional within the meaning of paragraph (b)(4)(ii)(E) of this section) may use consumption data for the 12-month period of units of similar size and construction in the geographic area in which the building containing the units is located.

(D)*HUD Utility Schedule Model.* A building owner may calculate a utility estimate using the “HUD Utility Schedule Model” that can be found on the Low-Income Housing Tax Credits page at *http://www.huduser.org/datasets/lihtc.html* (or successor URL). Utility rates used for the HUD Utility Schedule Model must be no older than the rates in place 60 days prior to the beginning of the 90-day period under paragraph (c)(1) of this section.

(E)*Energy consumption model.* A building owner may calculate utility estimates using an energy and water and sewage consumption and analysis model (energy consumption model). The energy consumption model must, at a minimum, take into account specific factors including, but not limited to, unit size, building orientation, design and materials, mechanical systems, appliances, and characteristics of the building location. The utility consumption estimates must be calculated by either a properly licensed engineer or a qualified professional approved by the Agency that has jurisdiction over the building (together, qualified professional), and the qualified professional and the building owner must not be related within the meaning of section 267(b) or 707(b). Use of the energy consumption model is limited to the building's consumption data for the twelve-month period ending no earlier than 60 days prior to the beginning of the 90-day period under paragraph (c)(1) of this section, and utility rates used for the energy consumption model must be no older than the rates in place 60 days prior to the beginning of the 90-day period under paragraph (c)(1) of this section. In the case of newly constructed or renovated buildings with less than 12 months of consumption data, the qualified professional may use consumption data for the 12-month period of units of similar size and construction in the geographic area in which the building containing the units is located.

(c)*Changes in applicable utility allowance* —(1) *In general.* If, at any time during the building's extended use period (as defined in section 42(h)(6)(D)), the applicable utility allowance for units changes, the new utility allowance must be used to compute gross rents of the units due 90 days after the change (the 90-day period). For example, if rent must be lowered because a local utility company estimate is obtained that shows a higher utility cost than the otherwise applicable PHA utility allowance, the lower rent must be in effect for rent due at the end of the 90-day period. A building owner using a utility company estimate under paragraph (b)(4)(ii)(B) of this section, the HUD Utility Schedule Model under paragraph (b)(4)(ii)(D) of this section, or an energy consumption model under paragraph (b)(4)(ii)(E) of this section must submit copies of the utility estimates to the Agency that has jurisdiction over the building and make the estimates available to all tenants in the building at the beginning of the 90-day period before the utility allowances can be used in determining the gross rent of rent-restricted units. An Agency may require additional information from the owner during the 90-day period. Any utility estimates obtained under the Agency estimate under paragraph (b)(4)(ii)(C) of this section must also be made available to all tenants in the building at the beginning of the 90-day period. The building owner must pay for all costs incurred in obtaining the estimates under paragraphs (b)(4)(ii)(B), (C), (D), and

(E)of this section and providing the estimates to the Agency and the tenants. The building owner is not required to review the utility allowances, or implement new utility allowances, until the building has achieved 90 percent occupancy for a period of 90 consecutive days or the end of the first year of the credit period, whichever is earlier.

(2)*Annual review.* A building owner must review at least once during each calendar year the basis on which utility allowances have been established and must update the applicable utility allowance in accordance with paragraph (c)(1) of this section. The review must take into account any changes to the building such as any energy conservation measures that affect energy consumption and changes in utility rates.

(d)*Record retention.* The building owner must retain any utility consumption estimates and supporting data as part of the taxpayer's records for purposes of § 1.6001-1(a). **Par. 3.** Section 1.42-12 is amended by adding paragraph (a)(4) to read as follows: § 1.42-12 Effective dates and transitional rules.

(a)* * *

(4)*Utility allowances.* The first sentence in § 1.42-10(a), § 1.42-10(b)(1), (2), (3), and (4), the last two sentences in § 1.42-10(b)(4)(ii)(A), the third, fourth, and fifth sentences in § 1.42-10(b)(4)(ii)(B), § 1.42-10(b)(4)(ii)(C), (D), and (E), and § 1.42-10(c) and

(d)are applicable to a building owner's taxable years beginning on or after July 29, 2008. Taxpayers may rely on these provisions before the beginning of the building owner's taxable year beginning on or after July 29, 2008 provided that any utility allowances calculated under these provisions are effective no earlier than the first day of the building owner's taxable year beginning on or after July 29, 2008. The utility allowances provisions that apply to taxable years beginning before July 29, 2008 are contained in § 1.42-10 (see 26 CFR part 1 revised as of April 1, 2008). Linda E. Stiff, Deputy Commissioner for Services and Enforcement. Approved: July 20, 2008. Eric Solomon, Assistant Secretary of the Treasury (Tax Policy). [FR Doc. E8-17268 Filed 7-28-08; 8:45 am] BILLING CODE 4830-01-P DEPARTMENT OF HOMELAND SECURITY Coast Guard 33 CFR Part 165 [Docket No. USCG-2008-0695] RIN 1625-AA00 Safety Zone; Maine; Sector Northern New England August Swim Events. AGENCY: Coast Guard, DHS. ACTION: Temporary final rule. SUMMARY: The Coast Guard is establishing temporary safety zones during the month of August around the “Sprucewold Cabbage Island Swim,” “Tri for a Cure Triathlon,” “Greater Burlington YMCA Lake Swim,” “Y-Tri Triathlon,” and “Rockland Breakwater Swim” marine events while the events are in progress. These safety zones are needed to protect swimmers, event sponsors' safety vessels, and others in the maritime community from the safety hazards that may arise from events of this type. Entry into these safety zones is prohibited unless authorized by the Captain of the Port Sector Northern New England. DATES: This rule is effective from August 9 through August 23, 2008. ADDRESSES: Documents indicated in this preamble as being available in the docket are part of docket USCG-2008-0695 and are available online at *www.regulations.gov.* They are also available for inspection or copying two locations: the Docket Management Facility (M-30), U.S. Department of Transportation, 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, and at U.S. Coast Guard Sector Northern New England, 259 High Street, South Portland, ME 04106 between the hours of 8 a.m. and 4 p.m., Monday through Friday, except Federal holidays. FOR FURTHER INFORMATION CONTACT: If you have questions on this temporary rule, call LT Jarrett Bleacher, U.S. Coast Guard Sector Northern New England, Waterways Management Division, at

(207)741-5421. If you have questions on viewing the docket, call Renee V. Wright, Program Manager, Docket Operations, telephone 202-366-9826. SUPPLEMENTARY INFORMATION: Regulatory Information The Coast Guard is issuing this temporary final rule without prior notice and opportunity to comment pursuant to authority under section 4(a) of the Administrative Procedure Act

(APA)(5 U.S.C. 553(b)). This provision authorizes an agency to issue a rule without prior notice and opportunity to comment when the agency for good cause finds that those procedures are “impracticable, unnecessary, or contrary to the public interest.” Under 5 U.S.C. 553(b)(B), the Coast Guard finds that good cause exists for not publishing a notice of proposed rulemaking

(NPRM)with respect to this rule. The logistics of these events were not provided to the Coast Guard with sufficient time to publish a NPRM and still ensure that this temporary final rule would be effective by August 9, 2008, the start of the events. These safety zones are needed to protect the event participants and maritime public by ensuring that large numbers of swimmers remain separate and safe from vessel traffic. Under 5 U.S.C. 553(d)(3), the Coast Guard finds that good cause exists for making this rule effective less than 30 days after publication in the **Federal Register** . Immediately implementing this rule promotes the public interest by protecting the maritime public and participants. Background and Purpose The “Greater Burlington YMCA Lake Swim,” “Tri for a Cure,” “Y-Tri Triathlon Swim,” “Sprucewold Cabbage Island Swim,” and “Rockland Breakwater Swim” are annual marine swimming events held in the month of August. This rule creates safety zones from 8 a.m. to 6 p.m. EDT on August 9, 2008 for 33 CFR 165.T01-0695(a) (“Greater Burlington YMCA Lake Swim”), 7:30 a.m. to 9:30 a.m. EDT on August 9, 2008 for 33 CFR 165.T01-0695(b) (“Tri for a Cure”), 9 a.m. to 10 a.m. EDT on August 9, 2008 for 33 CFR 165.T01-0695(c) (“Y-Tri Triathlon”), 3 p.m. to 4 p.m. EDT on August 9, 2008 for 33 CFR 165.T01-0695(d) (“Sprucewold Cabbage Island Swim”), and 10 a.m. to 12 p.m. on August 23, 2008 for 33 CFR 165.T01-0695(e) (“Rockland Breakwater Swim”). Discussion of Rule This rule establishes fixed safety zones for each of these events in the locations and at the times listed in the regulatory text. During the effective period of the safety zones, vessel traffic will be prohibited from entering the affected locations during the marine events, unless specifically authorized by the Captain of the Port Sector Northern New England. These safety zones are needed to safeguard the maritime public and the participants from the hazards associated with this type of large scale swimming event. The Captain of the Port anticipates negligible negative impact on vessel traffic from these temporary safety zones as they will be in effect only for a short duration. The zones are not expected to affect commercial vessels transiting in or out of the port. The zones around the events will only be enforced while the participants are in the water. The enhanced safety to life and property provided by this rule greatly outweighs any potential negative impacts. Public notifications will be made during the entire effective period of these safety zones via marine information broadcasts. Regulatory Analyses We developed this rule after considering numerous statutes and executive orders related to rulemaking. Below we summarize our analyses based on 13 of these statutes or executive orders. Regulatory Planning and Review This rule is not a significant regulatory action under section 3(f) of Executive Order 12866, Regulatory Planning and Review, and does not require an assessment of potential costs and benefits under section 6(a)(3) of that Order. The Office of Management and Budget has not reviewed it under that Order. The Coast Guard expects the economic impact of this rule to be so minimal that a full regulatory evaluation is unnecessary. The effect of this rule will not be significant for the following reasons: the safety zones will be of limited duration; the events are designed to avoid, as much as practicable, deep draft, fishing, and recreational boating traffic routes; vessels may be authorized to transit the zone with permission of the COTP; and, advance notice of the zones will be provided via marine broadcast. Small Entities Under the Regulatory Flexibility Act (5 U.S.C. 601-612), we have considered whether this rule would have a significant economic impact on a substantial number of small entities. The term “small entities” comprises small businesses, not-for-profit organizations that are independently owned and operated and are not dominant in their fields, and governmental jurisdictions with populations of less than 50,000. The Coast Guard certifies under 5 U.S.C. 605(b) that this rule will not have a significant economic impact on a substantial number of small entities. This rule may affect the following entities, some of which may be small entities: The owners or operators of vessels intending to transit the safety zones. However, this rule will not have a significant economic impact on a substantial number of small entities due to the minimal time that vessels will be restricted from the areas, the ample space available for vessels to maneuver and navigate around the zones, and advance notifications will be made to the local community by marine information broadcasts. Assistance for Small Entities Under section 213(a) of the Small Business Regulatory Enforcement Fairness Act of 1996 (Pub. L. 104-121), we offer to assist small entities in understanding the rule so that they can better evaluate its effects on them and participate in the rulemaking process. Small businesses may send comments on the actions of Federal employees who enforce, or otherwise determine compliance with, Federal regulations to the Small Business and Agriculture Regulatory Enforcement Ombudsman and the Regional Small Business Regulatory Fairness Boards. The Ombudsman evaluates these actions annually and rates each agency's responsiveness to small business. If you wish to comment on actions by employees of the Coast Guard, call 1-888-REG-FAIR (1-888-734-3247). The Coast Guard will not retaliate against small entities that question or complain about this rule or any policy or action of the Coast Guard. Collection of Information This rule calls for no new collection of information under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520). Federalism A rule has implications for federalism under Executive Order 13132, Federalism, if it has a substantial direct effect on State or local governments and would either preempt State law or impose a substantial direct cost of compliance on them. We have analyzed this rule under that Order and have determined that it does not have implications for federalism. Unfunded Mandates Reform Act The Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1531-1538) requires Federal agencies to assess the effects of their discretionary regulatory actions. In particular, the Act addresses actions that may result in the expenditure by a State, local, or tribal government, in the aggregate, or by the private sector of $100,000,000 or more in any one year. Though this rule will not result in such an expenditure, we do discuss the effects of this rule elsewhere in this preamble. Taking of Private Property This rule will not effect a taking of private property or otherwise have taking implications under Executive Order 12630, Governmental Actions and Interference with Constitutionally Protected Property Rights. Civil Justice Reform This rule meets applicable standards in sections 3(a) and 3(b)(2) of Executive Order 12988, Civil Justice Reform, to minimize litigation, eliminate ambiguity, and reduce burden. Protection of Children We have analyzed this rule under Executive Order 13045, Protection of Children from Environmental Health Risks and Safety Risks. This rule is not an economically significant rule and does not create an environmental risk to health or risk to safety that may disproportionately affect children. Indian Tribal Governments This rule does not have tribal implications under Executive Order 13175, Consultation and Coordination with Indian Tribal Governments, because it does not have a substantial direct effect on one or more Indian tribes, on the relationship between the Federal Government and Indian tribes, or on the distribution of power and responsibilities between the Federal Government and Indian tribes. Energy Effects We have analyzed this rule under Executive Order 13211, Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use. We have determined that it is not a “significant energy action” under that order because it is not a “significant regulatory action” under Executive Order 12866 and is not likely to have a significant adverse effect on the supply, distribution, or use of energy. The Administrator of the Office of Information and Regulatory Affairs has not designated it as a significant energy action. Therefore, it does not require a Statement of Energy Effects under Executive Order 13211. Technical Standards The National Technology Transfer and Advancement Act (NTTAA) (15 U.S.C. 272 note) directs agencies to use voluntary consensus standards in their regulatory activities unless the agency provides Congress, through the Office of Management and Budget, with an explanation of why using these standards would be inconsistent with applicable law or otherwise impractical. Voluntary consensus standards are technical standards (e.g., specifications of materials, performance, design, or operation; test methods; sampling procedures; and related management systems practices) that are developed or adopted by voluntary consensus standards bodies. This rule does not use technical standards. Therefore, we did not consider the use of voluntary consensus standards. Environment We have analyzed this rule under Commandant Instruction M16475.lD and Department of Homeland Security Management Directive 5100.1, which guide the Coast Guard in complying with the National Environmental Policy Act of 1969

(NEPA)(42 U.S.C. 4321-4370f), and have concluded, under the Instruction, that there are no factors in this case that would limit the use of a categorical exclusion under section 2.B.2 of the Instruction. Therefore, this rule is categorically excluded, under figure 2-1, paragraph (34)(g), of the Instruction, from further environmental documentation. A final environmental analysis checklist and a final categorical exclusion determination are available in the docket where indicated under ADDRESSES . List of Subjects in 33 CFR Part 165 Harbors, Marine safety, Navigation (water), Reporting and recordkeeping requirements, Security measures, and Waterways. For the reasons discussed in the preamble, the Coast Guard amends 33 CFR part 165 as follows: PART 165—REGULATED NAVIGATION AREAS AND LIMITED ACCESS AREAS 1. The authority citation for part 165 continues to read as follows: Authority: 33 U.S.C. 1226, 1231; 46 U.S.C. 701, 3306, 3703; 50 U.S.C. 191, 195; 33 CFR 1.05-1(g), 6.04-1, 6.04-6, and 160.5; Pub. L. 107-295, 116 Stat. 2064; Department of Homeland Security Delegation No. 0170.1. 2. Add temporary § 165.T01-0695 to read as follows: § 165.T01-0695 Safety Zone; Maine; Sector Northern New England August Swim Events.

(a)The following area is a fixed safety zone for the “Greater Burlington YMCA Lake Swim”:

(1)*Location.* All waters in Lake Champlain in the vicinity of North Hero Island enclosed by an area from shore to shore starting at latitude 44°46′55″N, longitude 73°22′14″W; thence to latitude 44°47′08″N, longitude 73°19′05″W; from latitude 44°46′48″N, longitude 73°17′13″W; thence to latitude 44°46′09″N, longitude 73°16′39″W; and from latitude 44°41′08″N, longitude 73°20′58″W thence to latitude 44°41′36″N, longitude 73°23′01″W.

(2)*Effective Date.* This rule will be enforced from 8 a.m. to 6 p.m. on August 9, 2008.

(b)The following area is a fixed safety zone for the “Tri for a Cure Triathlon”:

(1)*Location.* All waters in the vicinity of Spring Point in Portland Harbor, Maine enclosed by a box starting at latitude 43°39′05″N, longitude 70°13′42″W; thence to latitude 43°39′08″N, longitude 70°13′39″W; thence to latitude 43°39′07″N, longitude 70°13′27″W thence to the point of beginning.

(2)*Effective Date.* This rule will be enforced from 7:30 a.m. to 9:30 a.m. on August 9, 2008.

(c)The following area is a fixed safety zone for the “Y-Tri Triathlon”:

(1)*Location.* All waters in the vicinity of Point Au Roche State Park in Plattsburgh, New York, enclosed by a box starting at latitude 44°46′30″N, longitude 73°23′26″W; thence to latitude 44°46′17″N, longitude 73°23′26″W; thence to latitude 44°46′17″N, longitude 73°23′46″W; thence to latitude 44°46′29″N, longitude 73°23′46″W; thence to the point of beginning.

(2)*Effective Date.* This rule will be enforced from 9 a.m. to 10 a.m. on August 9, 2008.

(d)The following area is a fixed safety zone for the “Sprucewold Cabbage Island Swim”:

(1)*Location.* All waters in the vicinity of Linekin Bay between Cabbage Island and Sprucewold Beach in Boothbay Harbor, Maine enclosed by a box starting at latitude 43°50′37″N, longitude 69°36′23″W; thence to latitude 43°50′37″N, longitude 69°36′59″W; thence to latitude 43°50′16″N, longitude 69°36′46″W; thence to latitude 43°50′22″N, longitude 69°36′21″W; thence to the point of beginning.

(2)*Effective Date.* This rule will be enforced from 3 p.m. to 4 p.m. on August 9, 2008.

(e)The following area is a fixed safety zone for the “Rockland Breakwater Swim”:

(1)*Location.* All waters in the vicinity of Rockland Breakwater in Rockland Harbor, Maine enclosed by a box starting at latitude 44°06′16″N, longitude 69°04′39″W; thence to latitude 44°06′14″N, longitude 69°04′36″W; thence to latitude 44°06′13″N, longitude 69°04′41″W; thence to latitude 44°06′16″N, longitude 69°04′42″W; thence to latitude 44°06′16″N, longitude 69°04′40″W.

(2)*Effective Date.* This rule will be enforced from 10 a.m. to 12 p.m. on August 23, 2008.

(f)* Definition:* As used in this section, designated representative means any Coast Guard commissioned, warrant, or petty officer, or any federal, state, or local law enforcement officer authorized to enforce this regulation on behalf of the Coast Guard Captain of the Port(COTP).

(g)Regulations.

(1)In accordance with the general regulations in 165.23 of this part, entry into or movement within this zone by any person or vessel is prohibited unless authorized by the COTP Sector Northern New England or the COTP's designated representative.

(2)Vessel operators desiring to enter or operate within the safety zones may contact the COTP or the COTP's designated representative for permission at telephone number 207-767-0303, on VHF Channel 13 (156.7 MHz), or VHF channel 16 (156.8 MHz). If permission is granted, all persons and vessels must comply with the instructions provided by the COTP or the COTP's designated representative. Dated: July 16, 2008. J.B. McPherson, Captain, U.S. Coast Guard, Captain of the Port, Sector Northern New England. [FR Doc. E8-17292 Filed 7-28-08; 8:45 am] BILLING CODE 4910-15-P ENVIRONMENTAL PROTECTION AGENCY 40 CFR Part 52 [EPA-R08-OAR-2006-0806, FRL-8683-5] Approval and Promulgation of Air Quality Implementation Plans; Montana; Revisions to the Administrative Rules of Montana—Air Quality, Incinerators AGENCY: Environmental Protection Agency (EPA). ACTION: Final rule. SUMMARY: The EPA is approving revisions to the State Implementation Plan

(SIP)submitted by the Governor of Montana on December 8, 1997, May 28, 2003, and August 25, 2004. The December 8, 1997 submittal revised the Administrative Rules of Montana

(ARM)chapter 8, subchapter 3, section 17.8.316 (Incinerators) by adding subsection (6). ARM 17.8.316(6) excludes incinerators from having to comply with the other provisions of ARM 17.8.316, including the particulate matter emissions standard of 0.10 grains per cubic foot and the 10% opacity standard, if these sources have been issued a Montana air quality permit under 75-2-215, Montana Code Annotated (MCA), and ARM 17.8.770, which pertain to permitting of solid or hazardous waste incinerators. The August 25, 2004 submittal made a minor editorial revision to ARM 17.8.316(5). The May 28, 2003 submittal made minor editorial revisions to ARM 17.8.316(6). In a December 12, 2007 Notice of Proposed Rulemaking (72 FR 70540), we proposed to approve these revisions to the Montana State Implementation Plan (SIP). This action is being taken under section 110 of the Clean Air Act (CAA). DATES: *Effective Date:* This final rule is effective August 28, 2008. ADDRESSES: EPA has established a docket for this action under Docket ID No. EPA-R08-OAR-2006-0806. All documents in the docket are listed on the *http://www.regulations.gov* Web site. Although listed in the index, some information is not publicly available, e.g., Confidential Business Information

(CBI)or other information whose disclosure is restricted by statute. Certain other material, such as copyrighted material, is not placed on the Internet and will be publicly available only in hard copy form. Publicly available docket materials are available either electronically through *http://www.regulations.gov* or in hard copy at the Air and Radiation Program, Environmental Protection Agency (EPA), Region 8, 1595 Wynkoop Street, Denver, Colorado 80202-1129. EPA requests that if at all possible, you contact the individual listed in the FOR FURTHER INFORMATION CONTACT section to view the hard copy of the docket. You may view the hard copy of the docket Monday through Friday, 8 a.m. to 4 p.m., excluding Federal holidays. FOR FURTHER INFORMATION CONTACT: Kathy Dolan, Air Program, U.S. Environmental Protection Agency (EPA), Region 8, 1595 Wynkoop Street, Denver, Colorado 80202-1129, 303-312-6142, *dolan.kathy@epa.gov* . SUPPLEMENTARY INFORMATION: Table of Contents I. Summary of SIP Revision II. Final Action III. Statutory and Executive Order Reviews Definitions For the purpose of this document, we are giving meaning to certain words or initials as follows:

(i)The words or initials *Act* or *CAA* mean or refer to the Clean Air Act, unless the context indicates otherwise.

(ii)The words *EPA, we, us* or *our* mean or refer to the United States Environmental Protection Agency.

(iii)The initials *SIP* mean or refer to State Implementation Plan.

(iv)The words *State* or *Montana* mean the State of Montana, unless the context indicates otherwise. I. Summary of SIP Revision On December 8, 1997, the State of Montana submitted a SIP revision for EPA's approval. The revision added subsection

(6)to section 17.8.316 (Incinerators) of the Administrative Rules of Montana (ARM), chapter 8 (Air Quality), subchapter 3 (Emission Standards). Subsection

(6)exempts incinerators from the requirements of ARM 17.8.316, including the particulate matter emissions standard of 0.10 grains per cubic foot and the 10% opacity standard, if these sources have been issued a Montana air quality permit under 75-2-215, MCA, and ARM 17.8.706(5). 1 2 1 MCA section 75-2-215 is titled “Solid or hazardous waste incineration—Additional permit requirements”. 2 ARM 17.8.706(5) was recodifed to ARM 17.8.770 effective on December 6, 2002. This provision has not been submitted by the State to be incorporated into the federally approved SIP. ARM 17.8.770 (formerly ARM 17.8.706(5)) requires applicants for a preconstruction permit for an incineration facility to submit a human health risk assessment protocol and a human health risk assessment. The revision also included wording changes to ARM 17.8.316. Most are minor editorial or technical corrections and do not change the substance of the rule. One of the changes was to substitute the words “solid and hazardous waste” for the word “refuse” in the rule. The effect of this change was to extend the rule requirements to incinerators burning solid or hazardous waste, not just refuse. The full text of the changes can be found in our Technical Support Document (TSD), which is contained in the Docket for this action. We interpret ARM 17.8.316(6) to allow terms of a permit to override a requirement that has been approved as part of the SIP (i.e., the provisions in ARM 17.8.316(1)-(5)). Therefore, an analysis was needed to show that this new rule would not interfere with compliance with the National Ambient Air Quality Standards (NAAQS) or Prevention of Significant Deterioration

(PSD)increments. Section 110(l) of the CAA states that EPA cannot approve a SIP revision that would interfere with any applicable requirement concerning attainment or reasonable further progress, as defined in section 171 of the CAA, or any other applicable requirements of the CAA. Montana did not provide any demonstration in its December 8, 1997 submittal that ARM 17.8.316(6) meets these criteria. Subsequent to the State's submittal, we requested information from the Montana Department of Environmental Quality

(DEQ)in order to conduct our own analysis on the impact of ARM 17.8.316(6) on the attainment and maintenance of the NAAQS for particulate matter with an aerodynamic diameter less than or equal to 10 and 2.5 micrometers (PM-10 and PM-2.5) and compliance with the PSD PM-10 increments. Based on this analysis, we have determined that this specific change to a SIP requirement will not adversely impact the attainment and maintenance of the PM-10 and PM-2.5 NAAQS, or compliance with the PM-10 increments, in Montana. Our analysis of this revision's impact is contained in the TSD for this action. In addition, the TSD discusses our verification that ARM 17.8.316(6) will not impact compliance with, or the ability to enforce, the Federal New Source Performance Standards

(NSPS)or Maximum Achievable Control Technology

(MACT)regulations. Based on a letter from the Montana DEQ dated October 2, 2007, and our own consideration of the rule change, we have determined that ARM 17.8.316(6) will not interfere with, supersede, or replace any NSPS or MACT requirements for sources, or affect in any way the State's, EPA's, or any other person's ability to enforce such NSPS or MACT requirements. The TSD and the DEQ letter are available for review as part of the Docket for this action. On August 25, 2004, the State of Montana submitted for our approval a revision to subsection

(5)to ARM 17.8.316 (Incinerators). This revision makes a minor change to the third sentence of subsection (5), from: “Testing shall be conducted in accordance with ARM 17.8.106 and the Montana Source Testing Protocol and Procedures Manual”; to: “Testing shall be conducted in accordance with ARM 17.8.106 and the Montana Source Test Protocol and Procedures Manual.” On May 28, 2003, the State of Montana submitted for our approval a revision to ARM 17.8.316(6). This revision makes minor changes to subsection (6), from: “This rule does not apply to incinerators for which an air quality preconstruction permit has been issued under 75-2-215, MCA, and ARM 17.8.706(5)”; to: “This rule does not apply to incinerators for which a Montana air quality permit has been issued under 75-2-215, MCA, and ARM 17.8.770.” II. Final Action Our review of the revisions to ARM 17.8.316 indicates that they are consistent with the CAA. Thus, we are approving the revisions to ARM 17.8.316, submitted on December 8, 1997, May 28, 2003, and August 25, 2004, into the Montana SIP. III. Statutory and Executive Order Reviews Under the Clean Air Act, the Administrator is required to approve a SIP submission that complies with the provisions of the Act and applicable Federal regulations. 42 U.S.C. 7410(k); 40 CFR 52.02(a). Thus, in reviewing SIP submissions, EPA's role is to approve state choices, provided that they meet the criteria of the Clean Air Act. Accordingly, this action merely approves state law as meeting Federal requirements and does not impose additional requirements beyond those imposed by state law. For that reason, this action: • Is not a “significant regulatory action” subject to review by the Office of Management and Budget under Executive Order 12866 (58 FR 51735, October 4, 1993); • Does not impose an information collection burden under the provisions of the Paperwork Reduction Act (44 U.S.C. 3501 *et seq.* ); • Is certified as not having a significant economic impact on a substantial number of small entities under the Regulatory Flexibility Act (5 U.S.C. 601 *et seq.* ); • Does not contain any unfunded mandate or significantly or uniquely affect small governments, as described in the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4); • Does not have Federalism implications as specified in Executive Order 13132 (64 FR 43255, August 10, 1999); • Is not an economically significant regulatory action based on health or safety risks subject to Executive Order 13045 (62 FR 19885, April 23, 1997); • Is not a significant regulatory action subject to Executive Order 13211 (66 FR 28355, May 22, 2001); • Is not subject to requirements of section 12(d) of the National Technology Transfer and Advancement Act of 1995 (15 U.S.C. 272 note) because application of those requirements would be inconsistent with the Clean Air Act; and • Does not provide EPA with the discretionary authority to address, as appropriate, disproportionate human health or environmental effects, using practicable and legally permissible methods, under Executive Order 12898 (59 FR 7629, February 16, 1994). In addition, this rule does not have tribal implications as specified by Executive Order 13175 (65 FR 67249, November 9, 2000), because the SIP is not approved to apply in Indian country located in the state, and EPA notes that it will not impose substantial direct costs on tribal governments or preempt tribal law. The Congressional Review Act, 5 U.S.C. 801 *et seq.,* as added by the Small Business Regulatory Enforcement Fairness Act of 1996, generally provides that before a rule may take effect, the agency promulgating the rule must submit a rule report, which includes a copy of the rule, to each House of the Congress and to the Comptroller General of the United States. EPA will submit a report containing this action and other required information to the U.S. Senate, the U.S. House of Representatives, and the Comptroller General of the United States prior to publication of the rule in the **Federal Register** . A major rule cannot take effect until 60 days after it is published in the **Federal Register** . This action is not a “major rule” as defined by 5 U.S.C. 804(2). List of Subjects in 40 CFR Part 52 Environmental protection, Air pollution control, Carbon monoxide, Incorporation by reference, Intergovernmental relations, Lead, Nitrogen dioxide, Ozone, Particulate matter, Reporting and recordkeeping requirements, Sulfur oxides, Volatile organic compounds. Dated: June 5, 2008. Carol Rushin, Acting Regional Administrator, Region 8. 40 CFR part 52 is amended to read as follows: PART 52—[AMENDED] 1. The authority citation for part 52 continues to read as follows: Authority: 42 U.S.C. 7401 *et seq.* Subpart BB—Montana 2. Section 52.1370 is amended by adding paragraph (c)(67) to read as follows: § 52.1370 Identification of plan.

(c)* * *

(67)On December 8, 1997, May 28, 2003, and August 25, 2004, the Governor of Montana submitted revisions to the Montana State Implementation Plan. The December 8, 1997 submittal adds subsection

(6)to Administrative Rules of Montana

(ARM)section 17.8.316 (Incinerators); the August 25, 2004 submittal makes a minor revision to ARM 17.8.316(5); and, the May 28, 2003 submittal makes minor editorial revisions to ARM 17.8.316(6).

(i)Incorporation by reference. Administrative Rules of Montana

(ARM)section 17.8.316, Incinerators, effective April 9, 2004.

(ii)Additional Material.

(A)October 2, 2007 Letter from MT DEQ to EPA regarding NSPS/MACT compliance. [FR Doc. E8-17094 Filed 7-28-08; 8:45 am] BILLING CODE 6560-50-P 73 146 Tuesday, July 29, 2008 Proposed Rules NUCLEAR REGULATORY COMMISSION 10 CFR Part 73 [Docket No. PRM-73-11; NRC-2001-0023] Petition for Rulemaking Filed by Scott Portzline, Three Mile Island Alert; Consider Petition in the Rulemaking Process AGENCY: Nuclear Regulatory Commission. ACTION: Resolution and closure of petition docket. SUMMARY: The Nuclear Regulatory Commission

(NRC)is considering the issues raised in a petition for rulemaking submitted by Scott Portzline, on behalf of the Three Mile Island Alert, in the ongoing “Power Reactor Security Requirements” rulemaking. The petitioner requested that the NRC regulations governing physical protection of plants and materials be amended to require NRC licensees to post at least one armed guard at each entrance to the “owner controlled areas”

(OCAs)surrounding all U.S. nuclear power plants. The petitioner stated that this should be accomplished by adding armed site protection officers

(SPOs)to the security forces—not by simply moving SPOs from their protected area

(PA)posts to the OCA entrances. The petitioner believes that its proposed amendment would provide an additional layer of security that would complement existing measures against radiological sabotage and would be consistent with the long-standing principle of defense-in-depth. DATES: The docket for the petition for rulemaking PRM-73-11 is closed on July 29, 2008. ADDRESSES: You can access publicly available documents related to this petition for rulemaking using the following methods: *Federal e-Rulemaking Portal:* Further NRC action on the issues raised by this petition will be accessible at the federal rulemaking portal, *http://www.regulations.gov* , by searching on rulemaking docket ID: NRC-2006-0016 and docket ID: NRC-2008-0019. The NRC also tracks all rulemaking actions in the “NRC Regulatory Agenda: Semiannual Report (NUREG-0936).” *NRC's Public Document Room (PDR):* The public may examine and have copied for a fee, publicly available documents at the NRC's PDR, Public File Area O-1F21, One White Flint North, 11555 Rockville Pike, Rockville, Maryland. *NRC's Agencywide Document Access and Management System (ADAMS):* Publicly available documents created or received at the NRC are available electronically at the NRC's Electronic Reading Room at *http://www.nrc.gov/NRC/reading-rm/adams.html.* From this page, the public can gain entry into ADAMS, which provides text and image files of NRC's public documents. If you do not have access to ADAMS or if there are any problems in accessing the documents located in ADAMS, contact the NRC PDR Reference staff at 1-800-397-4209, 301-415-4737 or by e-mail to *PDR.resource@nrc.gov.* FOR FURTHER INFORMATION CONTACT: Lauren Quinones, Office of Nuclear Reactor Regulation, U.S. Nuclear Regulatory Commission, Washington, DC 20555-0001, Telephone: 301-415-2007, or toll-free: 800-368-5642, *e-mail: Lauren.Quinones@nrc.gov.* SUPPLEMENTARY INFORMATION: On November 2, 2001 (66 FR 55603), the Nuclear Regulatory Commission

(NRC)published for public comment a petition for rulemaking

(PRM)filed by Scott Portzline, Three Mile Island Alert. The comment period closed on January 16, 2002. Eleven comments were received. In a **Federal Register** notice published January 5, 2007 (72 FR 481), the NRC informed the public that PRM-73-11 and the public comments received on the petition would be considered in the proposed rulemaking, “Power Reactor Security Requirements,” published in the **Federal Register** on October 26, 2006 (71 FR 62664). That rulemaking did consider the topics of PRM-73-13 and proposed extensive revisions to the NRC regulations in 10 CFR Parts 50, 72, and 73 that address security requirements for nuclear power reactor licensees. The comment period on that proposed rule expired on March 26, 2007. Dated at Rockville, Maryland, this 1st day of July 2008. For the Nuclear Regulatory Commission. R.W. Borchardt, Executive Director for Operations. [FR Doc. E8-17319 Filed 7-28-08; 8:45 am] BILLING CODE 7590-01-P NUCLEAR REGULATORY COMMISSION 10 CFR Part 73 [Docket No. PRM-73-13; NRC-2007-0023] David Lochbaum, Union of Concerned Scientists; Consideration of Petition in the Rulemaking Process AGENCY: Nuclear Regulatory Commission. ACTION: Resolution and closure of petition docket. SUMMARY: The Nuclear Regulatory Commission

(NRC)is considering the issues raised in a petition for rulemaking submitted by David Lochbaum, on behalf of the Union of Concerned Scientists, in the ongoing “Power Reactor Security Requirements” rulemaking. The petitioner requested that the NRC amend its regulations to require that licensees implement procedures to ensure that when information becomes known to a licensee about an individual that would prevent that individual from gaining unescorted access to the protected area of a nuclear power plant, the licensee will implement measures to ensure the individual does not enter the protected area, whether escorted, or not; and, when sufficient information is not available to a licensee about an individual to determine whether the criteria for unescorted access are satisfied, the licensee will implement measures to allow that individual to enter the protected area only when escorted at all times by an armed member of the security force who remains in periodic communication with security supervision. DATES: The docket for the petition for rulemaking PRM-73-13 is closed on July 29, 2008. ADDRESSES: You can access publicly available documents related to this petition for rulemaking using the following methods: *Federal e-Rulemaking Portal:* Further NRC action on the issues raised by this petition will be accessible at the federal rulemaking portal, *http://www.regulations.gov* , by searching on rulemaking docket ID: NRC-2006-0016 and docket ID: NRC-2008-0019. The NRC also tracks all rulemaking actions in the “NRC Regulatory Agenda: Semiannual Report (NUREG-0936).” *NRC's Public Document Room (PDR):* The public may examine and have copied for a fee, publicly available documents at the NRC's PDR, Public File Area O-1F21, One White Flint North, 11555 Rockville Pike, Rockville, Maryland. *NRC's Agencywide Document Access and Management System (ADAMS):* Publicly available documents created or received at the NRC are available electronically at the NRC's Electronic Reading Room at *http://www.nrc.gov/NRC/reading-rm/adams.html.* From this page, the public can gain entry into ADAMS, which provides text and image files of NRC's public documents. If you do not have access to ADAMS or if there are any problems in accessing the documents located in ADAMS, contact the NRC PDR Reference staff at 1-800-397-4209, 301-415-4737 or by e-mail to *PDR.resource@nrc.gov.* FOR FURTHER INFORMATION CONTACT: Lauren Quinones, Office of Nuclear Reactor Regulation, U.S. Nuclear Regulatory Commission, Washington, DC 20555-0001, Telephone: 301-415-2007, or toll-free: 800-368-5642, *e-mail: Lauren.Quinones@nrc.gov.* SUPPLEMENTARY INFORMATION: On April 9, 2007 (72 FR 17440), the Nuclear Regulatory Commission

(NRC)published for public comment a petition for rulemaking

(PRM)filed by David Lochbaum, Union of Concerned Scientists. The comment period closed on June 25, 2007 and the NRC received twelve comments. The NRC has determined that the issues raised in PRM-73-13 are appropriate for consideration and, in fact, the issues are already being considered in the ongoing “Power Reactors Security Requirements” rulemaking. NRC staff will address the comments filed in PRM-73-13 as part of the “Power Reactor Security Requirements” rulemaking. The proposed rule was published in the **Federal Register** on October 26, 2006 (71 FR 62664). That rulemaking did consider the topics of PRM-73-13 and proposed extensive revisions to the NRC regulations in 10 CFR Parts 50, 72, and 73 that address security requirements for nuclear power reactor licensees. The comment period on that proposed rule expired on March 26, 2007. Dated at Rockville, Maryland, this 1st day of July 2008. For the Nuclear Regulatory Commission. R.W. Borchardt, Executive Director for Operations. [FR Doc. E8-17321 Filed 7-28-08; 8:45 am] BILLING CODE 7590-01-P DEPARTMENT OF TRANSPORTATION Federal Aviation Administration 14 CFR Part 39 [Docket No. FAA-2008-0788; Directorate Identifier 2008-CE-039-AD] RIN 2120-AA64 Airworthiness Directives; DG Flugzeugbau GmbH Model DG-500MB Gliders AGENCY: Federal Aviation Administration (FAA), DOT. ACTION: Notice of proposed rulemaking; correction. SUMMARY: This document makes a correction to a proposed airworthiness directive (AD), which was published in the **Federal Register** on July 3, 2008 (73 FR 38160), and applies to certain Stemme GmbH & Co. KG (Stemme) Model S10-VT powered sailplanes. This document proposed to require replacement of the single ear clamps in the fuel system with improved design parts. The FAA incorrectly referenced the docket number of this proposed AD as “FAA-2008-0685” instead of “FAA-2008-0788.” This document corrects the docket number. DATES: The comment period ending date of August 4, 2008, remains the same. The FAA will also address any comments relating to this proposed AD submitted to Docket No. FAA-2008-0685. FOR FURTHER INFORMATION CONTACT: Greg Davison, Glider Program Manager, FAA, Small Airplane Directorate, 901 Locust, Room 301, Kansas City, Missouri 64106; telephone:

(816)329-4130; fax:

(816)329-4090. SUPPLEMENTARY INFORMATION: Discussion On June 27, 2008, the FAA issued a notice of proposed rulemaking

(NPRM)to require replacement of the single ear clamps in the fuel system with improved design parts. This NPRM was published in the **Federal Register** on July 3, 2008 (73 FR 38160). The FAA incorrectly referenced the docket number of this proposed AD as “FAA-2008-0685” instead of “FAA-2008-0788.” This document corrects the docket number. Need for the Correction This correction is needed to assure that all correspondence related to this subject is posted in the correct docket. Correction of Publication Accordingly, the publication of July 3, 2008 (73 FR 38160), which was the subject of FR Doc. E8-15177, is corrected as follows: On page 38160, in the first column, in the third line under the heading DEPARTMENT OF TRANSPORTATION , replace “FAA-2008-0685” with “FAA-2008-0788.” On page 38160, in the third column, in the third line, replace “FAA-2008-0685” with “FAA-2008-0788.” § 39.13 [Corrected] On page 38161, in the second column, in the fifth and sixth lines under the heading § 39.13 [Amended] , replace “FAA-2008-0685” with “FAA-2008-0788.” Action is taken herein to correct this reference in the proposed AD. The comment period ending date of August 4, 2008, remains the same. The FAA will also address any comments relating to this proposed AD submitted to Docket No. FAA-2008-0685. Issued in Kansas City, Missouri, on July 23, 2008. John R. Colomy, Acting Manager, Small Airplane Directorate, Aircraft Certification Service. [FR Doc. E8-17369 Filed 7-28-08; 8:45 am] BILLING CODE 4910-13-P DEPARTMENT OF THE TREASURY Internal Revenue Service 26 CFR Part 1 [REG-106251-08] RIN 1545-BH68 Employee Stock Purchase Plans Under Internal Revenue Code Section 423 AGENCY: Internal Revenue Service (IRS), Treasury. ACTION: Notice of proposed rulemaking. SUMMARY: This document contains proposed regulations relating to options granted under an employee stock purchase plan as defined in section 423 of the Internal Revenue Code (Code). These proposed regulations affect certain taxpayers who participate in the transfer of stock pursuant to the exercise of options granted under an employee stock purchase plan. These proposed regulations provide guidance to assist taxpayers in complying with section 423 in addition to clarifying certain rules regarding options granted under an employee stock purchase plan. This document also contains proposed regulations under sections 421 and 422 of the Code. DATES: Written or electronic comments must be received by October 27, 2008. ADDRESSES: Send submissions to: CC:PA:LPD:PR (REG-106251-08), room 5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, Washington, DC 20044. Submissions may be hand delivered Monday through Friday between the hours of 8 a.m. and 4 p.m. to CC:PA:LPD:PR (REG-106251-08), Courier's Desk, Internal Revenue Service, 1111 Constitution Avenue, NW., Washington, DC, or sent electronically via the Federal eRulemaking Portal at *http://www.regulations.gov/* (IRS REG-106251-08). FOR FURTHER INFORMATION CONTACT: Concerning these proposed regulations, Thomas Scholz at

(202)622-6030; concerning submissions of comments, and/or to request a hearing, Oluwafunmilayo Taylor, at

(202)622-7180 (not toll-free numbers). SUPPLEMENTARY INFORMATION: Background This document contains proposed amendments to 26 CFR part 1 under section 423 of the Code. This document also contains minor proposed amendments to 26 CFR part 1 under sections 421 and 422 of the Code. Section 423 was added to the Code by section 221(a) of the Revenue Act of 1964, Public Law 88-272 (78 Stat. 63 (1964)). Changes to the applicable law concerning section 423 were made by sections 1402(b)(1)(C) and 1402(b)(2) of the Tax Reform Act of 1976, Public Law 94-455 (90 Stat. 1731 and 1732-1733 (1976)); section 1001(b)(5) of the Deficit Reduction Act of 1984, Public Law 98-369 (98 Stat. 1011 (1984)); section 1114 of the Tax Reform Act of 1986, Public Law 99-514 (100 Stat. 2451 (1986)); and sections 11801(c)(9)(D)(i)-(ii) and 11801(c)(9)(E) of the Omnibus Budget Reconciliation Act of 1990, Public Law 101-508 (104 Stat. 1388-525 (1990)). Regulations under section 423 were published in the **Federal Register** on June 23, 1966 (TD 6887). These regulations were amended on September 27, 1979 (TD 7645), October 31, 1980 (TD 7728), and December 1, 1988 (TD 8235). In Notice 2004-55, 2004-34 IRB 319 (August 23, 2004), (see § 601.601(d)(2)(ii)( *b* )), the IRS and the Treasury Department requested comments concerning whether the existing regulations under section 423 should be amended, and if so, what issues should be addressed. Two comment letters were submitted in response to Notice 2005-55 and the suggestions in those letters are addressed in this preamble. In general, the income tax treatment of the grant of an option to purchase stock in connection with the performance of services and of the transfer of stock pursuant to the exercise of the option is determined under section 83 and the regulations thereunder. However, section 421 provides special rules for determining the income tax treatment of the transfer of shares of stock pursuant to the exercise of an option if the requirements of sections 422(a) or 423(a), as applicable, are met. Section 422 applies to incentive stock options and section 423 applies to options granted under an employee stock purchase plan (collectively, statutory options). Under section 421, if a share of stock is transferred to an individual pursuant to the exercise of a statutory option, there is no income at the time of exercise of the option with respect to the transfer and no deduction under section 162 is allowed to the employer corporation with respect to the transfer. Section 423(a) provides that section 421 applies to the transfer of stock to an individual pursuant to the exercise of an option granted under an employee stock purchase plan if:

(i)no disposition of the stock is made within two years from the date of grant of the option or within one year from the date of transfer of the share, and

(ii)at all times during the period beginning on the date of grant and ending on the day three months before the exercise of the option, the individual is an employee of either the corporation granting the option or a parent or subsidiary of such corporation, or a corporation (or a parent or subsidiary of such corporation) issuing or assuming a stock option in a transaction to which section 424(a) applies. Section 423(b) sets forth several requirements that must be met for a plan to qualify as an employee stock purchase plan. Section 423(c) provides a special rule that is applicable where the option exercise price is between 85 and 100 percent of the fair market value of the stock at the time the option was granted. Section 424 provides special rules applicable to statutory options, including rules concerning the modification of statutory options and the substitution or assumption of an option by reason of a corporate merger, consolidation, acquisition of property or stock, separation, reorganization, or liquidation. Section 424 also contains definitions of certain terms, including disposition, parent corporation, and subsidiary corporation. Finally, section 424 provides special rules related to attribution of stock ownership and the effect of stockholder approval on the date of grant of a statutory option. Explanation of Provisions These proposed regulations would provide a comprehensive set of rules governing stock options issued under an employee stock purchase plan and would incorporate substantially all of the rules contained in the existing regulations under section 423. These proposed regulations are comprised of two sections: Section 1.423-1, applicability of section 421(a); and § 1.423-2, employee stock purchase plan defined. These proposed regulations would amend the existing regulations under section 423 in several ways. First, these proposed regulations would update the existing regulations to incorporate statutory changes and to make them consistent, where appropriate, with the regulations under section 422 related to incentive stock options. The regulations under section 422 were last updated in 2004. See TD 9144, 2004-26 IRB 413. Second, these proposed regulations would update the existing regulations to provide additional guidance in certain areas as discussed below. Finally, these proposed regulations would also update the existing regulations to remove obsolete rules. 1. General Requirements Under § 1.423-2(a)(1) of these proposed regulations, an employee stock purchase plan must meet the requirements of paragraphs

(i)through

(ix)of § 1.423-2(a)(2). The terms of the plan, or an offering under the plan, must satisfy the requirements of paragraphs

(iii)through

(ix)of § 1.423-2(a)(2). Consistent with § 1.422-2(b)(1), § 1.423-2(a)(1) of these proposed regulations would provide that the plan and the terms of an offering must be in writing or electronic form, provided that such writing or electronic form is adequate to establish the terms of the plan or offering. Section 1.423-2(a)(2) of these proposed regulations lists the requirements that must be met for qualification as an employee stock purchase plan and provides cross references to the specific section of these regulations that addresses each requirement. Under § 1.423-2(a)(3) of these proposed regulations, if the terms of an option are inconsistent with the terms of the employee stock purchase plan or an offering under the plan, then the option will not be treated as granted under an employee stock purchase plan. (Section 1.423-2(a)(2) of the existing regulations has been re-numbered as § 1.423-2(a)(3) of these proposed regulations.) If an option with terms that are inconsistent with the terms of the plan or an offering under the plan is granted to an employee who is entitled to the grant of an option under the terms of the plan or offering, and the employee is not granted an option under the offering that qualifies as an option granted under an employee stock purchase plan, then the offering will not meet the requirements of § 1.423-2(e) of these proposed regulations, which generally requires that options be granted to all employees of any corporation whose employees are granted options under an employee stock purchase plan. As a result, none of the options granted under the offering will be eligible for the special tax treatment of section 421. *Example 1* in § 1.423-2(a)(4) illustrates this principle. Section 1.423-2(a)(4) of these proposed regulations contains additional examples to illustrate the principles of § 1.423-2(a)(3). If an option with terms that are inconsistent with the terms of the plan or an offering under the plan is granted to an individual who is not entitled to the grant of an option under the terms of the plan or offering, then the option will not be treated as an option granted under an employee stock purchase plan, and the grant of the option will not disqualify the options granted under the offering. *Examples 2 and 3* in § 1.423-2(a)(4) of these proposed regulations illustrate this principle. *Example 2* also appears in § 1.423-2(a)(2) of the existing regulations. If, at the time of grant, an option qualifies as an option granted under an employee stock purchase plan, but the terms of the option are not satisfied, then the option will not be treated as granted under an employee stock purchase plan. However, this failure to comply with the terms of the option will not disqualify the options granted under the plan or offering. *Example 4* in § 1.423-2(a)(4) of these proposed regulations illustrates this principle. 2. Stockholder Approval of the Employee Stock Purchase Plan To qualify as an employee stock purchase plan, section 423(b)(2) requires that the plan be approved by the stockholders of the granting corporation within 12 months before or after the date the plan is adopted. These proposed regulations would provide the same basic requirements for stockholder approval as those included in the existing regulations. Consistent with § 1.422-2(b)(2), these proposed regulations would provide additional guidance concerning the circumstances under which stockholder approval is required. These proposed regulations, like the existing regulations, would require stockholder approval if there is a change in the aggregate number of shares or in the employees eligible to be granted options under the plan. The standard for determining when stockholder approval is required under these proposed regulations generally is the same as under the existing regulations. These proposed regulations would clarify the requirements for stockholder approval and would provide a more comprehensive list of situations that require new stockholder approval of the plan. In particular, these proposed regulations would clarify that new stockholder approval is required if there is a change in the shares with respect to which options are issued or a change in the granting corporation. For example, assume that S, a wholly owned subsidiary of P, adopts an employee stock option plan under which options for S stock will be granted to S employees, and the plan is approved by the stockholder of S (in this case, P) within the applicable 24-month period. If S later amends the plan to provide for the grant of options to acquire P stock (rather than S stock), S must obtain approval from the stockholders of S (in this case, P) within 12 months before or after the date of the amendment of the plan because the amendment of the plan to allow the grant of options for P stock is considered the adoption of a new plan. See paragraph

(iii)of *Example 1* in § 1.423-2(c)(5) of these proposed regulations. This conclusion differs from that in paragraph

(iii)of *Example 1* under § 1.422-2(b)(6), which concludes that the stockholders of P rather than the stockholders of S must approve the plan as a result of its amendment to provide for the grant of options to acquire P stock. The IRS and the Treasury Department invite comment on this result and are proposing a conforming change to *Example 1* , paragraph

(iii)under § 1.422-2(b)(6). These proposed regulations also would provide additional guidance regarding the application of the stockholder approval requirements where an employee stock purchase plan is assumed in connection with a corporate transaction. *Example 3* in § 1.423-2(c)(5) of these proposed regulations illustrates this principle. 3. Maximum Aggregate Number of Shares Section 1.423-2(c)(3) of the existing regulations provides that an employee stock purchase plan must designate the maximum aggregate number of shares that may be issued under the plan. Consistent with § 1.422-2(b)(3)(ii), these proposed regulations would provide that the plan may specify that the maximum aggregate number of shares available for grants under the plan may increase annually by a specified percentage of the authorized, issued, or outstanding shares at the date of the adoption of the plan. Further, a plan providing that the maximum aggregate number of shares issued subject to options under the plan may change based on any other specific circumstances will satisfy the requirements of § 1.423-2(c)(3) only if the stockholders approve an immediately determinable maximum number of shares that may be issued under the plan in any event. *Examples 4 and 5* in § 1.423-2(c)(5) of these proposed regulations illustrate these principles. 4. Employees Covered by the Plan Section 423(b)(4) permits an employer to exclude from participation one or more of the following categories of employees: Employees who have been employed less than two years; Employees who customarily work 20 hours or less per week; Employees who customarily work not more than five months in any calendar year; and Highly compensated employees

(HCEs)within the meaning of section 414(q). Section 1.423-1(e)(1) of these proposed regulations has been updated to reflect the 1986 amendment of section 423(b)(4)(D) to substitute “highly compensated employees (within the meaning of section 414(q))” for “officers, persons whose principal duties consist of supervising the work of other employees, or highly compensated employees.” See Public Law 99-514, section 1114(b)(13). One commentator suggested that the regulations clarify that an employer may exclude from participation a subset of one of the groups set forth in section 423(b)(4). For example, an employer should be permitted to exclude a subset of HCEs, such as officers, from participation in the plan. The commentator further suggested that the regulations clarify that an employer may impose shorter service requirements than those permitted. For example, an employer should be permitted to exclude employees who have been employed less than one year from participation in the plan. The IRS and the Treasury Department agree that a more inclusive application of the rules of section 423(b)(4) is consistent with the intent of section 423. Accordingly, § 1.423-2(e)(2) of these proposed regulations would provide that an employee stock purchase plan does not fail to satisfy the coverage provision of section 423(b)(4) merely because the plan excludes employees who have completed a shorter period of service or whose customary employment is for fewer hours per week or fewer months in a calendar year than is specified in subparts (A),

(B)and

(C)of section 423(b)(4), provided the exclusion is applied in an identical manner to all employees of every corporation whose employees are granted options under the plan. In addition, these proposed regulations would provide that the terms of an employee stock purchase plan may exclude HCEs:

(a)with compensation above a certain level, or

(b)who are officers or subject to the disclosure requirements of section 16(a) of the Securities Exchange Act of 1934, provided the exclusion is applied in an identical manner to all HCEs of every corporation whose employees are granted options under the plan. *Examples 3, 4, 5, 6, and 7* in § 1.423-2(e)(6) of these proposed regulations illustrate these principles. (The examples under § 1.423-2(e)(3) of the existing regulations have been re-numbered as § 1.423-2(e)(6) of these proposed regulations.) Another commentator suggested that the regulations permit employers to exclude from plan participation employees who are nonresident aliens and who receive no earned income that constitutes income from sources within the United States. The IRS and the Treasury Department agree that it may be appropriate to exclude foreign employees from plan participation in certain limited circumstances. However, unlike section 410(b), section 423 does not provide an exclusion for such nonresident aliens. Accordingly, the IRS and the Treasury Department are constrained by statutory authority from providing a general exclusion from plan participation for employees who are nonresident aliens and who receive no United States source income. Therefore, § 1.423-2(e)(3) of these proposed regulations would provide that employees who are citizens or residents of a foreign jurisdiction (without regard to whether they are also citizens of the United States or resident aliens (within the meaning of § 7701(b)(1)(A))) may be excluded from the coverage of an employee stock purchase plan only if the grant of an option under the plan to a citizen or resident of the foreign jurisdiction is prohibited under the laws of such jurisdiction or if compliance with the laws of the foreign jurisdiction would cause the plan to violate the requirements of section 423. *Example 8* in § 1.423-2(e)(6) of these proposed regulations illustrates this principle. Another commentator suggested that the regulations permit employers to exclude collectively bargained employees from plan participation. However, unlike section 410(b), section 423 does not provide an exclusion for collectively bargained employees. Accordingly, the IRS and the Treasury Department are again constrained by statutory authority from providing a general exclusion from plan participation for collectively bargained employees. One commentator suggested that the regulations be amended to provide that an offering will not lose its tax-favored status due to the inadvertent exclusion of employees from plan participation. Rather, the commentator suggested that the granting corporation be permitted to correct certain errors in plan administration through a corrections program that would permit the excluded employees to participate in past offerings under a plan. Such a corrections program is beyond the scope of these regulations. However, the IRS and the Treasury Department invite comments on whether such a program is appropriate (including the statutory authority for such a program) and suggestions for the types of violations that might be covered and the methods of correction. Section 1.423-2(e)(4) of these proposed regulations includes language that appears under § 1.423-2(e)(1) of the existing regulations. Section 1.423-2(e)(2) of the existing regulations has been re-numbered as § 1.423-2(e)(5) of these proposed regulations. 5. Equal Rights and Privileges Section 423(b)(5) requires that, subject to certain exceptions, an employee stock purchase plan, by its terms, provide that all employees granted options under the plan have the same rights and privileges. Section 1.423-2(f)(3) of these proposed regulations includes language that appears in § 1.423-2(f)(1) of the existing regulations. (The examples in § 1.423-2(f)(2) of the existing regulations have been relocated to *Examples 1 and 2* of § 1.423-2(f)(7) of these proposed regulations. The example in § 1.423-2(f)(4) of the existing regulations has been relocated to *Example 3* of § 1.423-2(f)(7). Section 1.423-2(f)(4) of the existing regulations is re-numbered under these proposed regulations as § 1.423-2(f)(6)). One commentator suggested that a plan or offering should not fail to satisfy the equal rights and privileges provision of section 423(b)(5) if the provisions of the plan or offering applied to foreign employees are reasonably designed to avoid adverse consequences for such employee under foreign law as a result of plan participation. The IRS and the Treasury Department agree that in certain limited circumstances it may be appropriate for the terms of an employee stock purchase plan to be less favorable with respect to foreign employees than those terms are with respect to employees resident in the United States. Accordingly, § 1.423-2(f)(4) of these proposed regulations would provide that a plan or offering will not fail to satisfy the requirements of section 423(b)(5) if, in order to comply with the laws of a foreign jurisdiction, the terms of an option granted under a plan or offering to citizens or residents of such foreign jurisdiction (without regard to whether they are also citizens of the United States or resident aliens (within the meaning of § 7701(b)(1)(A))) are less favorable than the terms of options granted under the same plan or offering to employees resident in the United States. *Example 4* in § 1.423-2(f)(7) of these proposed regulations illustrates this principle. A plan or offering will not satisfy the requirements of section 423(b)(5), however, if, in order to comply with the laws of a foreign jurisdiction, the terms of the plan or offering are more favorable with respect to citizens or residents of such foreign jurisdiction than the terms of the plan or offering are with respect to employees resident in the United States. Another commentator suggested that the regulations addressing the carryover of amounts from one offering to another be clarified. In response to this comment, these proposed regulations would clarify § 1.423-2(f)(3) of the existing regulations (which has been re-numbered as § 1.423-2(f)(5)). Generally, a plan permitting one or more employees to carry forward amounts that were withheld but not applied toward the purchase of stock under an earlier plan or offering and apply such amounts toward the purchase of additional stock under a subsequent plan or offering will be a violation of the equal rights and privileges requirement under section 423(b)(5). However, the carry forward of amounts withheld but not applied toward the purchase of stock under an earlier plan or offering will not violate the equal rights and privileges requirement of section 423(b)(5) if all other employees participating in the current plan or offering are permitted to make direct payments toward the purchase of shares under a subsequent plan or offering in an amount equal to the excess of:

(a)the greatest amount that any employee is allowed to carry forward from an earlier plan or offering over

(b)the amount, if any, the employee will carry forward from an earlier plan or offering. *Example 5* in § 1.423-2(f)(7) of these proposed regulations illustrates this principle. Further, a plan will not fail to satisfy the equal rights and privileges requirement of section 423(b)(5) merely because employees are permitted to carry forward amounts representing a fractional share which were withheld but not applied toward the purchase of stock under an earlier plan or offering and apply such amounts toward the purchase of additional stock under a subsequent plan or offering. 6. Option Price Under section 423(b)(6), the option price must not be less than the lesser of:

(a)an amount equal to 85 percent of the fair market value of the stock at the time the option is granted, and

(b)an amount not less than 85 percent of the fair market value of the stock at the time the option is exercised. Consistent with § 1.422-2(e)(1), § 1.423-2(g)(1) of these proposed regulations would provide that the option price may be determined in any reasonable manner, including the valuation methods permitted under § 20.2031-2 (Estate Tax Regulations), so long as the option price meets the minimum pricing requirements of section 423(b)(6). 7. Date of Grant Section 1.421-1(c) provides, that for purposes of §§ 1.421-2 through 1.424-1, the language “the date of the granting of the option” and “the time such option is granted” and similar phrases refer to the date or time when the granting corporation completes the corporate action constituting an offer of stock for sale to an individual under the terms and conditions of a statutory option. The date of grant for an option granted under an employee stock purchase plan is important for several reasons. First, the favorable tax consequences under section 421 apply to the shares acquired pursuant to the exercise of an option granted under an employee stock purchase plan if the shares are not disposed of within two years from the date of grant of the option or within one year from the date of exercise of the option. Second, the $25,000 limitation under section 423(b)(8) is determined based on the fair market value of the stock measured on the date of grant of the option. The date of grant is also important for purposes of determining the employees eligible to participate in the plan and, in certain cases, determining the purchase price of stock under the plan. Section 1.421-1(c) further provides that a corporate action constituting an offer of stock for sale is not considered complete until the date on which the maximum number of shares that can be purchased under the option and the minimum option price are fixed or determinable. Because options under an employee stock purchase plan may be priced at the lesser of an amount equal to 85 percent of the fair market value of the stock at the time the option is granted, and an amount not less than 85 percent of the fair market value of the stock at the time the option is exercised, it is not always possible to determine the minimum option price on the first day of an offering. However, many granting corporations intend for the first day of an offering to be the date of grant. Accordingly, § 1.423-2(h)(2) of these proposed regulations would provide that, for purposes of options granted under an employee stock purchase plan, the principles of § 1.421-1(c) shall be applied without regard to the requirement that the minimum option price be fixed or determinable in order for the corporate action constituting an offer of stock to be considered complete. As a result, the first day of an offering could be the date of grant for an option issued under an employee stock purchase plan even though the minimum option price is not fixed or determinable on the first day of the offering. These proposed regulations include an amendment to § 1.421-1(c). One commentator questioned whether it is necessary for a plan to contain a limit on the number of shares that can be purchased by each participant during an offering in order for the date of grant of the option to be the first day of an offering. Section 1.423-2(h)(3) of these proposed regulations would provide that the date of grant will be the first day of an offering if the terms of an employee stock purchase plan or offering designate a maximum number of shares that may be purchased by each participant during the offering. Similarly, the date of grant will be the first day of an offering if the terms of the plan or offering require the application of a formula to establish, on the first day of the offering, the maximum number of shares that may be purchased by each participant during the offering. However, § 1.423-2(h)(3) of these proposed regulations does not require that an employee stock purchase plan or offering designate a maximum number of shares that may be purchased by each participant during the offering or incorporate a formula to establish a maximum number of shares that may be purchased by each participant during the offering. If the maximum number of shares that can be purchased under an option is not fixed or determinable until the date the option is exercised, then the date of exercise will be the date of grant of the option. The $25,000 limit under section 423(b)(8) and the limit on the aggregate number of shares that may be issued under an employee stock purchase plan are not sufficient to establish the maximum number of shares that can be purchased under an option so that the date of grant will be the first day of the offering. *Examples 1, 2, 3 and 4* in § 1.423-2(h)(4) of these proposed regulations illustrate these principles. Section 1.423-2(h) of the existing regulations is re-numbered as § 1.423-2(h)(1) of these proposed regulations. 8. Annual $25,000 Limitation Section 423(b)(8) provides that an employee stock purchase plan must, by its terms, provide that no employee may be permitted to purchase stock under all the employee stock purchase plans of his or her employer corporation and its related corporations at a rate which exceeds $25,000 in fair market value of the stock (determined on the date of grant) for each calendar year in which an option granted to the employee is outstanding and exercisable. Section 1.423-2(i) of these proposed regulations would provide guidance on the operation of the $25,000 limitation that incorporates and clarifies the guidance provided in the existing regulations. One commentator suggested that the calculation of the amount of stock that may be purchased under an employee stock purchase plan be determined in a manner consistent with the $100,000 limitation for incentive stock options described in § 1.422-4. The proposed regulations generally adopt this suggestion and would provide that the $25,000 limit for employee stock purchase plans is, to the extent possible, calculated in a manner consistent with the $100,000 limitation for incentive stock options. The timing of both measures is based on when the option first becomes exercisable and both measures are made based on the fair market value of the stock determined at the date of grant. Section 1.423-2(i) of these proposed regulations emphasizes that an employee may purchase up to $25,000 of stock (based on the fair market value of such stock on the date of grant) in each calendar year during which an option granted to the employee under an employee stock purchase plan is not only outstanding, but also exercisable. *Example 5* in § 1.423-2(i)(5) of these proposed regulations illustrates this principle. For clarification, *Example 1* in the existing regulations has been separated into *Example 1* and *Example 4* in § 1.423-2(i)(5) of these proposed regulations. 9. Special Rule Where Option Price Is Between 85 Percent and 100 Percent of the Value of the Stock Section 423(c) provides a special rule for calculating the timing and amount of compensation income that must be recognized when the option price for a share is between 85 and 100 percent of the value of the share on the date of grant. Generally, the income recognized is the lesser of:

(a)the excess of the fair market value of the share on the date of grant over the option price, and

(b)the excess of the fair market value of the share at the time of disposition (or death) over the option price. The flush language of section 423(c) provides that if the exercise price is not known on the date of grant, the exercise price shall be determined as if the option were exercised on the date of grant. One commentator suggested that it is unclear how this special rule and the flush language of section 423(c) apply when the option price is determined based on some percentage of the value of a share on the last day of an offering. *Example 3* of § 1.423-2(k)(3) of the existing regulations specifically addresses this issue and has been retained in § 1.423-2(k)(3) of these proposed regulations. *Example 4* has been added under § 1.423-2(k)(3) to illustrate the tax consequences under an employee stock purchase plan that uses a look-back feature to determine the exercise price of the option. Proposed Effective Date These regulations under section 423 are proposed to apply as of January 1, 2010, and will apply to any option issued under an employee stock purchase plan that is granted on or after that date. Taxpayers may rely on these proposed regulations for the treatment of any option issued under an employee stock purchase plan that is granted after publication of these proposed regulations in the **Federal Register** . Special Analyses It has been determined that this notice of proposed rulemaking is not a significant regulatory action as defined in Executive Order 12866. Therefore, a regulatory assessment is not required. It also has been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to these regulations, and because the regulations do not impose a collection of information on small entities, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not apply. Pursuant to section 7805(f) of the Code, these regulations have been submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on their 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 timely submitted to the IRS. The IRS and the Treasury Department 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 or electronic comments. If a public hearing is scheduled, notice of the date, time, and place for the hearing will be published in the **Federal Register** . Drafting Information The principal author of these proposed regulations is Thomas Scholz, Office of the Division Counsel/Associate Chief Counsel (Tax Exempt and Government Entities). However, other personnel from the IRS and the Treasury Department 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 part 1 continues to read in part as follows: Authority: 26 U.S.C. 7805 * * * **Par. 2.** Section 1.421-1, paragraphs (c)(1) and (j)(1) are revised to read as follows: § 1.421-1 Meaning and use of certain terms.

(c)*Time and date of granting option.*

(1)For purposes of this section and §§ 1.421-2 through 1.424-1, the language “the date of the granting of the option” and “the time such option is granted,” and similar phrases refer to the date or time when the granting corporation completes the corporate action constituting an offer of stock for sale to an individual under the terms and conditions of a statutory option. Except as set forth in § 1.423-2(h)(2), a corporate action constituting an offer of stock for sale is not considered complete until the date on which the maximum number of shares that can be purchased under the option and the minimum option price are fixed or determinable.

(j)*Effective/applicability date* —(1) *In general.* Except for paragraph (c)(1), these regulations are effective on August 3, 2004. Upon the date of publication of the Treasury decision adopting paragraph (c)(1) of this section as a final regulation in the **Federal Register** , paragraph (c)(1) will apply as of January 1, 2010. **Par. 3.** Section 1.422-2, paragraph (b)(6), *Example 1*

(iii)is revised to read as follows: § 1.422-2 Incentive stock options defined.

(b)* * *

(6)* * * Example (1). * * *

(iii)Assume the same facts as in paragraph

(i)of this Example 1. Assume further that the plan was approved by the stockholders of S (in this case, P) on March 1, 2006. On January 1, 2008, S changes the plan to provide that incentive stock options for P stock will be granted to S employees under the plan. Because there is a change in the stock available for grant under the plan, the change is considered the adoption of a new plan that must be approved by the stockholder of S (in this case, P) within 12 months before or after January 1, 2008. **Par. 4.** Section 1.422-5, paragraph (f)(1) is revised to read as follows: § 1.422-5 Permissible provisions.

(f)*Effective/applicability date* —(1) *In general.* Except for § 1.422-2(b)(6), *Example 1* (iii), these regulations are effective on August 3, 2004. Upon the date of publication of the Treasury decision adopting Section 1.422-2(b)(6), *Example 1*

(iii)of this section as a final regulation in the **Federal Register** , Section 1.422-2(b)(6), *Example 1*

(iii)will apply as of January 1, 2010. **Par. 5.** Section 1.423-1 is revised to read as follows: § 1.423-1 Applicability of section 421(a).

(a)*General rule.* Subject to the provisions of section 423(c) and paragraph

(k)of § 1.423-2, the special rules of income tax treatment provided in section 421(a) apply with respect to the transfer of a share of stock to an individual pursuant to the individual's exercise of an option granted under an employee stock purchase plan if the following conditions are satisfied—

(1)The individual makes no disposition of such share before the later of the expiration of the two-year period from the date of the grant of the option pursuant to which such share was transferred or the expiration of the one-year period from the date of transfer of such share to the individual; and

(2)At all times during the period beginning on the date of the grant of the option and ending on the day three months before the date of exercise, the individual was an employee of the corporation granting the option, a related corporation, or a corporation (or a related corporation) substituting or assuming the stock option in a transaction to which section 424(a) applies.

(b)*Cross-references.* For rules relating to the requisite employment relationship, see paragraph

(h)of § 1.421-1. For rules relating to the effect of a disqualifying disposition, see section 421(b) and paragraph

(b)of § 1.421-2. For the definition of the term *disposition* , see section 424(c) and paragraph

(c)of § 1.424-1. For the definition of the term *related corporation* , see section paragraph

(i)of § 1.421-1.

(c)*Effective/applicability date.* Upon the date of publication of the Treasury decision adopting the rules of this section as a final regulation in the **Federal Register** , these rules will apply as of January 1, 2010. **Par. 6.** Section 1.423-2 is revised to read as follows: § 1.423-2 Employee stock purchase plan defined.

(a)*In general* —(1) The term *employee stock purchase plan* means a plan that meets the requirements of paragraph (a)(2)(i) through

(ix)of this section. If the terms of the plan do not satisfy the requirements of paragraph (a)(2)(iii) through

(ix)of this section, such requirements may be satisfied by the terms of an offering made under the plan. However, where the requirements of paragraph (a)(2)(iii) through

(ix)are satisfied by the terms of an offering, such requirements will be treated as satisfied only with respect to options exercised under that offering. The plan and the terms of an offering must be in writing or electronic form, provided that such writing or electronic form is adequate to establish the terms of the plan or offering, as applicable.

(2)To qualify as an employee stock purchase plan under this section and § 1.423-1, the plan must meet all of the following requirements—

(i)The plan must provide that options can be granted only to employees of the employer corporation or of a related corporation (as defined in paragraph

(i)of § 1.421-1) to purchase stock in any such corporation (see paragraph

(b)of this section);

(ii)The plan must be approved by the stockholders of the granting corporation within 12 months before or after the date the plan is adopted (see paragraph

(c)of this section);

(iii)Under the terms of the plan, an employee cannot be granted an option if, immediately after the option is granted, the employee owns stock possessing 5 percent or more of the total combined voting power or value of all classes of stock of the employer corporation or of a related corporation (see paragraph

(d)of this section);

(iv)Under the terms of the plan, options must be granted to all employees of any corporation whose employees are granted any options by reason of their employment by the corporation (see paragraph

(e)of this section);

(v)Under the terms of the plan, all employees granted options must have the same rights and privileges (see paragraph

(f)of this section);

(vi)Under the terms of the plan, the option price cannot be less than the lesser of—

(A)An amount equal to 85 percent of the fair market value of the stock at the time the option is granted, or

(B)An amount not less than 85 percent of the fair market value of the stock at the time the option is exercised (see paragraph

(g)of this section);

(vii)Under the terms of the plan, options cannot be exercised after the expiration of—

(A)Five years from the date the option is granted if, under the terms of such plan, the option price cannot be less than 85 percent of the fair market value of the stock at the time the option is exercised, or

(B)Twenty-seven months from the date the option is granted, if the option price is not determined in the manner described in paragraph

(A)(see paragraph

(h)of this section);

(viii)Under the terms of the plan, no employee may be granted an option that permits the employee's rights to purchase stock under all employee stock purchase plans of the employer corporation and its related corporations to accrue at a rate that exceeds $25,000 of fair market value of the stock (determined at the time the option is granted) for each calendar year in which the option is outstanding at any time (see paragraph

(i)of this section); and

(ix)Under the terms of the plan, options are not transferable by the optionee other than by will or the laws of descent and distribution, and are exercisable, during the lifetime of the optionee, only by the optionee (see paragraph

(j)of this section).

(3)The determination of whether a particular option is an option granted under an employee stock purchase plan is made at the time the option is granted. If the terms of an option are inconsistent with the terms of the employee stock purchase plan or an offering under the plan, the option will not be treated as granted under an employee stock purchase plan. If an option with terms that are inconsistent with the terms of the plan or an offering under the plan is granted to an employee who is entitled to the grant of an option under the terms of the plan or offering, and the employee is not granted an option under the offering that qualifies as an option granted under an employee stock purchase plan, the offering will not meet the requirements of paragraph

(e)of this section. Accordingly, none of the options granted under the offering will be eligible for the special tax treatment of section 421. However, if an option with terms that are inconsistent with the terms of the plan or an offering under the plan is granted to an individual who is not entitled to the grant of an option under the terms of the plan or offering, the option will not be treated as an option granted under an employee stock purchase plan, and the grant of the option will not disqualify the options granted under the plan or offering. If, at the time of grant, an option qualifies as an option granted under an employee stock purchase plan, but the terms of the option are not satisfied, the option will not be treated as granted under an employee stock purchase plan and this failure to comply with the terms of the option will not disqualify the options granted under the plan or offering.

(4)*Examples.* The following examples illustrate the principles of paragraph (a)(3): Example 1. Corporation A operates an employee stock purchase plan under which options for A stock are granted to employees of A. The terms of an offering provide that the option price will be 90 percent of the fair market value of A stock on the date of exercise. A grants an option under the offering to Employee Z, an employee of A. The terms of the option provide that the option price will be 85 percent of the fair market value of A stock on the date of exercise. Because the terms of Z's option are inconsistent with the terms of the offering, the option granted to Z will not be treated as an option granted under the employee stock purchase plan. Further, unless Z is granted an option under the offering that qualifies as an option granted under the employee stock purchase plan, the offering will not meet the requirements of paragraph

(e)of this section and none of the options granted under the offering will be eligible for the special tax treatment of section 421. Example 2. Corporation B operates an employee stock purchase plan that provides that options for B stock may only be granted to employees of B. Under the terms of the plan, options may not be granted to consultants and other non-employees. B grants an option under the plan to Consultant Y, a consultant of B. Because Y is ineligible to receive an option under the plan by reason of Y's status as a non-employee, the grant of the option to Y is inconsistent with the terms of the plan and the option granted to Y will not be treated as an option granted under the employee stock purchase plan. However, the grant of the option to Y will not disqualify the options granted under the plan or offering because Y was not entitled to the grant of an option under the plan. Example 3. Corporation C operates an employee stock purchase plan under which options for C stock are granted to employees of C. C grants an option under the plan to Employee X, an employee of C who is a highly compensated employee. The terms of the employee stock purchase plan exclude highly compensated employees from participation in the plan. Because X is ineligible to receive an option under the plan by reason of X's exclusion from participation in the plan, the option granted to X will not be treated as an option granted under the employee stock purchase plan. However, the grant of the option to X will not disqualify the options granted under the plan or offering because X was not entitled to the grant of an option under the plan. Example 4. Corporation D operates an employee stock purchase plan under which options for D stock are granted to employees of D. D grants an option under the plan to Employee W, an employee of D. The terms of the option provide that the option price will be 90 percent of the fair market value of D stock on the date of exercise. On the date of exercise, W pays only 85 percent of the fair market value of D stock. Because the terms of W's option are not satisfied, the option granted to W will not be treated as an option granted under the employee stock purchase plan. However, the failure to comply with the terms of the option granted to W will not disqualify the options granted under the plan or offering.

(b)*Options restricted to employees.* An employee stock purchase plan must provide that options can be granted only to employees of the employer corporation (or employees of its related corporations) to purchase stock in the employer corporation (or one of its related corporations). If such a provision is not included in the terms of the plan, the plan will not be an employee stock purchase plan and options granted under the plan will not qualify for the special tax treatment of section 421. For rules relating to the employment requirement, see paragraph

(h)of § 1.421-1.

(c)*Stockholder approval* —(1) An employee stock purchase plan must be approved by the stockholders of the granting corporation within 12 months before or after the date such plan is adopted. The approval of the stockholders must comply with all applicable provisions of the corporate charter, bylaws and applicable State law prescribing the method and degree of stockholder approval required for the issuance of corporate stock or options. If the applicable State law does not prescribe a method and degree of stockholder approval, then an employee stock purchase plan must be approved—

(i)By a majority of the votes cast at a duly held stockholder's meeting at which a quorum representing a majority of all outstanding voting stock is, either in person or by proxy, present and voting on the plan; or

(ii)By a method and in a degree that would be treated as adequate under applicable State law in the case of an action requiring stockholder approval (such as an action on which stockholders would be entitled to vote if the action were taken at a duly held stockholders' meeting).

(2)For purposes of the stockholder approval required by this paragraph (c), ordinarily, a plan is adopted when it is approved by the granting corporation's board of directors, and the date of the board's action is the reference point for determining whether stockholder approval occurs within the applicable 24-month period. However, if the board's action is subject to a condition (such as stockholder approval) or the happening of a particular event, the plan is adopted on the date the condition is met or the event occurs, unless the board's resolution fixes the date of approval as the date of the board's action.

(3)An employee stock purchase plan, as adopted and approved, must designate the maximum aggregate number of shares that may be issued under the plan, and the corporations or class of corporations whose employees may be offered options under the plan. A plan that merely provides that the number of shares that may be issued under the plan may not exceed a stated percentage of the shares outstanding at the time of each offering or grant under the plan does not satisfy the requirements of this paragraph (c)(3). However, the maximum aggregate number of shares that may be issued under the plan may be stated in terms of a percentage of the authorized, issued, or outstanding shares on the date of the adoption of the plan. The plan may specify that the maximum aggregate number of shares available for grants under the plan may increase annually by a specified percentage of the authorized, issued, or outstanding shares on the date of the adoption of the plan. A plan that provides that the maximum aggregate number of shares that may be issued as options under the plan may change based on any other specific circumstances satisfies the requirements of this paragraph only if the stockholders approve an immediately determinable maximum number of shares that may be issued under the plan in any event. If there is more than one employee stock purchase plan under which options may be granted and stockholders of the granting corporation merely approve a maximum aggregate number of shares that are available for issuance under the plans, the stockholder approval requirements described in paragraph (c)(1) of this section are not satisfied. A separate maximum aggregate number of shares available for issuance pursuant to options must be specified and approved for each plan.

(4)Once an employee stock purchase plan is approved by the stockholders of the granting corporation, the plan need not be reapproved by the stockholders of the granting corporation within the prescribed 24-month period unless the plan is amended or changed in a manner that is considered the adoption of a new plan. Any increase in the aggregate number of shares that may be issued under the plan (other than an increase merely reflecting a change in the number of outstanding shares, such as a stock dividend or stock split) will be considered the adoption of a new plan requiring stockholder approval within the prescribed 24-month period. Similarly, a change in the designation of corporations whose employees may be offered options under the plan will be considered the adoption of a new plan requiring stockholder approval within the prescribed 24-month period unless the plan provides that designations of participating corporations may be made from time to time from among a group consisting of the granting corporation and its related corporations. The group from among which such changes and designations are permitted without additional stockholder approval may include corporations having become parents or subsidiaries of the granting corporation after the adoption and approval of the plan. In addition, a change in the granting corporation or the stock available for purchase under the plan will be considered the adoption of a new plan requiring stockholder approval within the prescribed 24-month period. Any other changes in the terms of an employee stock purchase plan are not considered the adoption of a new plan and, thus, do not require stockholder approval.

(5)*Examples.* The following examples illustrate the principles of this paragraph (c): Example 1.

(i)Corporation E is a subsidiary of Corporation F, a publicly traded corporation. On January 1, 2010, E adopts an employee stock purchase plan under which options for E stock are granted to E employees.

(ii)To meet the requirements of paragraph (c)(1) of this section, the plan must be approved by the stockholders of E (in this case, F) within 12 months before or after January 1, 2010.

(iii)Assume the same facts as in paragraph

(i)of this *Example 1* , except that the plan was approved by the stockholders of E (in this case, F) on March 1, 2010. On January 1, 2012, E changes the plan to provide that options for F stock will be granted to E employees under the plan. Because there is a change in the stock available for grant under the plan, under paragraph (c)(4) of this section, the change is considered the adoption of a new plan that must be approved by the stockholders of E (in this case, F) within 12 months before or after January 1, 2012. Example 2.

(i)Assume the same facts as in paragraph

(i)of *Example 1,* except that on March 15, 2011, F completely disposes of its interest in E. Thereafter, E continues to grant options for E stock to E employees under the plan.

(ii)The new E options are granted under a plan that meets the stockholder approval requirements of paragraph (c)(1) of this section without regard to whether E seeks approval of the plan from the stockholders of E after F disposes of its interest in E.

(iii)Assume the same facts as in paragraph

(i)of this *Example 2,* except that under the plan as adopted on January 1, 2010, only options for F stock are granted to E employees. Assume further that, after F disposes of its interest in E, E changes the plan to provide for the grant of options for E stock to E employees. Because there is a change in the stock available for purchase or grant under the plan, under paragraph (c)(4) of this section, the stockholders of E must approve the plan within 12 months before or after the change to the plan to meet the stockholder approval requirements of paragraph

(c)of this section. Example 3.

(i)Corporation G maintains an employee stock purchase plan. Corporation H does not maintain an employee stock purchase plan. On May 15, 2010, G and H consolidate under State law to form one corporation. The new corporation is named Corporation H. The consolidation agreement describes the G plan, including the maximum aggregate number of shares available for issuance under the plan after the consolidation. Additionally, the consolidation agreement states that the plan will be continued by H after the consolidation. The consolidation agreement is unanimously approved by the stockholders of G and H on May 1, 2010. H assumes the plan formerly maintained by G and continues to grant options under the plan to all eligible employees.

(ii)Because there is a change in the granting corporation (from G to H), under paragraph (c)(4) of this section, H is considered to have adopted a new plan. Because the plan is fully described in the consolidation agreement, including the maximum aggregate number of shares available for issuance under the plan, the approval of the consolidation agreement by the stockholders constitutes approval of the plan. Thus, the stockholder approval of the consolidation agreement satisfies the stockholder approval requirements of paragraph (c)(1) of this section, and the plan is considered to be adopted by H and approved by its stockholders on May 1, 2010. Example 4. Corporation I adopts an employee stock purchase plan on November 1, 2010. On that date, there are two million shares of I stock outstanding. The plan provides that the maximum aggregate number of shares that may be issued under the plan may not exceed 15 percent of the number of shares of I stock outstanding on November 1, 2010. Because the maximum aggregate number of shares that may be issued under the plan is designated in the plan, the requirements of paragraph (c)(3) of this section are met. Example 5.

(i)Corporation J adopts an employee stock purchase plan on March 15, 2010. The plan provides that the maximum aggregate number of shares of J stock available for issuance under the plan is 50,000, increased on each anniversary date of the adoption of the plan by 5 percent of the then outstanding shares. Because the maximum aggregate number of shares is not designated under the plan, the requirements of paragraph (c)(3) of this section are not met.

(ii)Assume the same facts as in paragraph

(i)of this *Example 5* , except that the plan provides that the maximum aggregate number of shares available under the plan is the lesser of

(a)50,000 shares, increased each anniversary date of the adoption of the plan by 5 percent of the then-outstanding shares, or

(b)200,000 shares. Because the maximum aggregate number of shares that may be issued under the plan is designated as the lesser of two numbers, one of which provides an immediately determinable maximum aggregate number of shares that may be issued under the plan in any event, the requirements of paragraph (c)(3) of this section are met.

(d)*Options granted to certain shareholders* —(1) An employee stock purchase plan must by its terms provide that an employee cannot be granted an option if the employee, immediately after the option is granted, owns stock possessing 5 percent or more of the total combined voting power or value of all classes of stock of the employer corporation or a related corporation. In determining whether the stock ownership of an employee equals or exceeds this 5 percent limit, the rules of section 424(d) (relating to attribution of stock ownership) shall apply, and stock that the employee may purchase under outstanding options (whether or not the options qualify for the special tax treatment afforded by section 421(a)) shall be treated as stock owned by the employee. An option is outstanding for purposes of this paragraph

(d)although under its terms it may be exercised only in installments or after the expiration of a fixed period of time. If an option is granted to an employee whose stock ownership (as determined under this paragraph (d)) exceeds the limitation set forth in this paragraph (d), no portion of the option will be treated as having been granted under an employee stock purchase plan.

(2)The determination of the percentage of the total combined voting power or value of all classes of stock of the employer corporation (or a related corporation) that is owned by the employee is made by comparing the voting power or value of the shares owned (or treated as owned) by the employee to the aggregate voting power or value of all shares actually issued and outstanding immediately after the grant of the option to the employee. The aggregate voting power or value of all shares actually issued and outstanding immediately after the grant of the option does not include the voting power or value of treasury shares or shares authorized for issue under outstanding options held by the employee or any other person.

(3)*Examples* . The following examples illustrate the principles of this paragraph (d): Example 1. Employee V, an employee of Corporation K, owns 6,000 shares of K common stock, the only class of K stock outstanding. K has 100,000 shares of its common stock outstanding. Because V owns 6 percent of the combined voting power or value of all classes of K stock, K cannot grant an option to V under K's employee stock purchase plan. If V's father and brother each owned 3,000 shares of K stock and V did not own any K stock, then the result would be the same because, under section 424(d), an individual is treated as owning stock held by the person's father and brother. Similarly, the result would be the same if, instead of actually owning 6,000 shares, V merely held an option on 6,000 shares of K stock, irrespective of whether the transfer of stock under the option could qualify for the special tax treatment of section 421, because this paragraph

(d)provides that stock the employee may purchase under outstanding options is treated as stock owned by such employee. Example 2. Assume the same facts as in *Example 1,* except that K is a subsidiary corporation of Corporation L. Irrespective of whether V owns any L stock, V cannot receive an option from L under L's employee stock purchase plan because he owns 5 percent of the total combined voting power of all classes of stock of a subsidiary of L, in this example, K. An employee who owns (or is treated as owning) stock in excess of the limitation of this paragraph (d), in any corporation in a group of related corporations, consisting of a parent and its subsidiary corporations, cannot receive an option under an employee stock purchase plan from any corporation in the group. Example 3. Employee U is an employee of Corporation M. M has only one class of stock, of which 100,000 shares are issued and outstanding. Assuming U does not own (and is not treated as owning) any stock in M or in any related corporation of M, M may grant an option to U under its employee stock purchase plan for 4,999 shares, because immediately after the grant of the option, U would not own 5 percent or more of the combined voting power or value of all classes of M stock actually issued and outstanding at such time. The 4,999 shares that U would be treated as owning under this paragraph

(d)would not be added to the 100,000 shares actually issued and outstanding immediately after the grant for purposes of determining whether U's stock ownership exceeds the limitation of this paragraph (d). Example 4. Assume the same facts as in *Example 3* but instead of an option for 4,999 shares, M grants U an option, purportedly under its employee stock purchase plan, for 5,000 shares. No portion of this option will be treated as granted under an employee stock purchase plan because U's stock ownership exceeds the limitation of this paragraph (d).

(e)*Employees covered by plan* —(1) Subject to the provisions of this paragraph

(e)and the limitations of paragraphs (d),

(f)and

(i)of this section, an employee stock purchase plan must, by its terms, provide that options are to be granted to all employees of any corporation whose employees are granted any of such options by reason of their employment by the corporation, except that one or more of the following categories of employees may be excluded from the coverage of the plan—

(i)Employees who have been employed less than two years;

(ii)Employees whose customary employment is 20 hours or less per week;

(iii)Employees whose customary employment is for not more than five months in any calendar year; and

(iv)Highly compensated employees (within the meaning of section 414(q)).

(2)An employee stock purchase plan does not fail to satisfy the coverage provision of paragraph (e)(1) of this section in the following circumstances—

(i)The plan excludes employees who have completed a shorter period of service or whose customary employment is for fewer hours per week or fewer months in a calendar year than is specified in paragraph (e)(1)(i),

(ii)and (iii), provided the exclusion is applied in an identical manner to all employees of every corporation whose employees are granted options under the plan.

(ii)The plan excludes highly compensated employees (within the meaning of section 414(q)) with compensation above a certain level or who are officers or subject to the disclosure requirements of section 16(a) of the Securities Exchange Act of 1934, provided the exclusion is applied in an identical manner to all highly compensated employees of every corporation whose employees are granted options under the plan.

(3)Notwithstanding paragraph (e)(1) of this section, employees who are citizens or residents of a foreign jurisdiction (without regard to whether they are also citizens of the United States or resident aliens (within the meaning of section 7701(b)(1)(A))) may be excluded from the coverage of an employee stock purchase plan under the following circumstances—

(i)The grant of an option under the plan to a citizen or resident of the foreign jurisdiction is prohibited under the laws of such jurisdiction; or

(ii)Compliance with the laws of the foreign jurisdiction would cause the plan to violate the requirements of section 423.

(4)No option granted under a plan or offering that excludes from participation any employees, other than those who may be excluded under this paragraph (e), and those barred from participation by reason of paragraphs (d),

(f)and

(i)of this section, can be regarded as having been granted under an employee stock purchase plan. If an option is not granted to any employee who is entitled to the grant of an option under the terms of the plan or offering, none of the options granted under such offering will be treated as having been granted under an employee stock purchase plan. However, a plan that, by its terms, permits all eligible employees to elect to participate in an offering will not violate the requirements of this paragraph solely because eligible employees who elect not to participate in the offering are not granted options pursuant to such offering.

(5)For purposes of this paragraph (e), the existence of the employment relationship between an individual and the corporation participating under the plan will be determined under paragraph

(h)of § 1.421-1.

(6)*Examples.* The following examples illustrate the principles of this paragraph (e): Example 1. Corporation N has a stock purchase plan that meets all the requirements of paragraph (a)(2) of this section except that options are not required to be granted to employees whose weekly rate of pay is less than $1,000. As a matter of corporate practice, however, N grants options under its plan to all employees, irrespective of their weekly rate of pay. Even though N's plan is operated in compliance with the requirements of this paragraph (e), N's plan is not an employee stock purchase plan because the terms of the plan exclude a category of employees that is not permitted under this paragraph (e). Example 2. Assume the same facts as in *Example 1* , except that the first offering under N's plan provides that options will be granted to all employees of N. The terms of the first offering will be treated as part of the terms of N's plan, but only for purposes of the first offering. Because the terms of the first offering satisfy the requirements of this paragraph (e), stock transferred pursuant to options exercised under the first offering will be treated as stock transferred pursuant to the exercise of options granted under an employee stock purchase plan for purposes of section 421. Example 3. Corporation O has a stock purchase plan that excludes from participation all employees who have been employed less than one year. Assuming all other requirements of paragraph (a)(2) of this section are satisfied, O's plan qualifies as an employee stock purchase plan under section 423. Example 4. Corporation P has a stock purchase plan that excludes from participation clerical employees who have been employed less than two years. However, non-clerical employees with less than two years of service are permitted to participate in the plan. P's plan is not an employee stock purchase plan because the exclusion of employees who have been employed less than two years applies only to certain employees of P and is not applied in an identical manner to all employees of P. If, instead, P's plan excludes from participation all employees (both clerical and non-clerical) who have been employed less than two years, then P's plan would qualify as an employee stock purchase plan under section 423 assuming all other requirements of paragraph (a)(2) of this section are satisfied. Example 5. Corporation Q has a stock purchase plan that excludes from participation all officers who are highly compensated employees (within the meaning of section 414(q)). Assuming all other requirements of paragraph (a)(2) of this section are satisfied, Q's plan qualifies as an employee stock purchase plan under section 423. Example 6. Corporation R maintains an employee stock purchase plan that excludes from participation all highly compensated employees (within the meaning of section 414(q)), except highly compensated employees who are officers of R. R's plan is not an employee stock purchase plan because the exclusion of all highly compensated employees except highly compensated employees who are officers of R is not a permissible exclusion under paragraph (e)(2)(ii) of this section. Example 7. Corporation S is the parent corporation of Subsidiary YY and Subsidiary ZZ. S maintains an employee stock purchase plan with both YY and ZZ participating under the plan. Under the terms of the plan, all employees of YY and ZZ are permitted to participate in the plan with the exception of ZZ's highly compensated employees with annual compensation greater than $300,000. S's plan is not an employee stock purchase plan because the exclusion of highly compensated employees with annual compensation greater than $300,000 is not applied in an identical manner to all employees of YY and ZZ. Example 8. The laws of Country A require that options granted to residents of Country A be transferable during the lifetime of the option recipient. Corporation T has a stock purchase plan that excludes residents of Country A from participation in the plan. Because compliance with the laws of Country A would cause options granted to residents of Country A to violate paragraph

(j)of this section, T may exclude residents of Country A from participation in the plan. Assuming all other requirements of paragraph (a)(2) of this section are satisfied, T's plan qualifies as an employee stock purchase plan under section 423.

(f)*Equal rights and privileges* —(1) Except as otherwise provided in paragraphs (f)(2) through (f)(6) of this section, an employee stock purchase plan must, by its terms, provide that all employees granted options under the plan shall have the same rights and privileges. Thus, the provisions applying to one option under an offering (such as the provisions relating to the method of payment for the stock and the determination of the purchase price per share) must apply to all other options under the offering in the same manner. If all the options granted under a plan or offering do not, by their terms, give the respective optionees the same rights and privileges, none of the options will be treated as having been granted under an employee stock purchase plan for purposes of section 421.

(2)The requirements of this paragraph

(f)do not prevent the maximum amount of stock that an employee may purchase from being determined on the basis of a uniform relationship to the total compensation, or the basic or regular rate of compensation, of all employees.

(3)A plan or offering will not fail to satisfy the requirements of this paragraph

(f)because the plan or offering provides that no employee may purchase more than a maximum amount of stock fixed under the plan.

(4)A plan or offering will not fail to satisfy the requirements of this paragraph

(f)if, in order to comply with the laws of a foreign jurisdiction, the terms of an option granted under a plan or offering to citizens or residents of such foreign jurisdiction (without regard to whether they are also citizens of the United States or resident aliens (within the meaning of section 7701(b)(1)(A))) are less favorable than the terms of options granted under the same plan or offering to employees resident in the United States. (5)(i) Except as provided in this paragraph and paragraph (f)(5)(ii) of this section, a plan permitting one or more employees to carry forward amounts that were withheld but not applied toward the purchase of stock under an earlier plan or offering and apply the amounts towards the purchase of additional stock under a subsequent plan or offering will be a violation of the equal rights and privileges under paragraph (f)(1) of this section. However, the carry forward of amounts withheld but not applied toward the purchase of stock under an earlier plan or offering will not violate the equal rights and privileges requirement of paragraph (f)(1) of this section if all other employees participating in the current plan or offering are permitted to make direct payments toward the purchase of shares under a subsequent plan or offering in an amount equal to the excess of the greatest amount which any employee is allowed to carry forward from an earlier plan or offering over the amount, if any, the employee will carry forward from an earlier plan or offering.

(ii)A plan will not fail to satisfy the requirements of this section merely because employees are permitted to carry forward amounts representing a fractional share, that were withheld but not applied toward the purchase of stock under an earlier plan or offering and apply the amounts toward the purchase of additional stock under a subsequent plan or offering.

(6)Paragraph

(f)does not prohibit the delaying of the grant of an option to any employee who is barred from being granted an option solely by reason of the employee's failing to meet a minimum service requirement set forth in paragraph (e)(1) of this section until the employee meets such requirement.

(7)*Examples.* The following examples illustrate the principles of this paragraph (f): Example 1. Corporation U has an employee stock purchase plan that provides that the maximum amount of stock that each employee may purchase under the offering is one share for each $100 of annual gross pay. The plan meets the requirements of this paragraph (f). Example 2. Corporation V has an employee stock purchase plan that provides that the maximum amount of stock that each employee may purchase under the offering is one share for each $100 of annual gross pay up to and including $10,000, and two shares for each $100 of annual gross pay in excess of $10,000. The plan will not meet the requirements of this paragraph

(f)because the amount of stock that may be purchased under the plan is not based on a uniform relationship to the total compensation of all employees. Example 3. Corporation W has an employee stock purchase plan that provides that options to purchase stock in an amount equal to ten percent of an employee's annual salary at a price equal to 85 percent of the fair market value on the first day of the offering will be granted to all employees other than those who have been employed less than 18 months. In addition, the plan provides that employees who have not yet met the minimum service requirements on the first day of the offering will be granted similar options on the date the 18 month service requirement has been attained. The plan meets the requirements of this paragraph (f). Example 4. Corporation X has an employee stock purchase plan that provides that options to purchase stock at a price equal to 90 percent of the fair market value at the time the option is exercised will be granted to all employees. The laws of Country B provide that options granted to employees who are residents of Country B must have a purchase price not less than 95 percent of the fair market value at the time the option is exercised. The plan will not fail to satisfy the requirements of this paragraph

(f)merely because the residents of Country B are granted options under the plan to purchase stock at a price equal to 95 percent of the fair market value at the time the option is exercised. Example 5. Corporation Y maintains an employee stock purchase plan. Employee T is employed by Y. T is granted an option under the current offering to purchase a maximum of 100 shares of Y stock at an option price equal to 85 percent of the fair market value of the stock at exercise. The plan permits the carry forward of withheld but unused amounts from an earlier offering. Prior to the exercise date, $2,000 of T's salary has been withheld and is available to be applied toward the purchase of Y stock. On the exercise date, the fair market value of Y stock is $20 per share. T is able to purchase 100 shares of Y stock at $17 per share for an aggregate purchase price of $1,700. T can carry forward $300 to the subsequent offering. Each employee in the subsequent offering other than T will be permitted to make direct payments toward the purchase of shares under the subsequent offering in a maximum amount of $300 less any amount the employee has carried forward from an earlier offering. The plan does not violate the equal rights and privileges requirement of this paragraph (f).

(g)*Option price* —(1) An employee stock purchase plan must, by its terms, provide that the option price will not be less than the lesser of—

(i)An amount equal to 85 percent of the fair market value of the stock at the time the option is granted, or

(ii)An amount that under the terms of the option may not be less than 85 percent of the fair market value of the stock at the time the option is exercised.

(2)The option price may be determined in any reasonable manner, including the valuation methods permitted under § 20.2031-2, so long as the option price meets the minimum pricing requirements of this paragraph (g). For general rules relating to the option price, see paragraph

(e)of § 1.421-1. For rules relating to the determination of when an option is granted, see paragraph

(c)of § 1.421-1 and § 1.423-2(h)(2). Any option that does not meet the minimum pricing requirements of this paragraph

(g)will not be treated as an option granted under an employee stock purchase plan irrespective of whether the plan or offering satisfies those requirements. If an option that does not meet the minimum pricing requirements is granted to an employee who is entitled to the grant of an option under the terms of the plan or offering, and the employee is not granted an option under such offering that qualifies as an option granted under an employee stock purchase plan, the offering will not meet the requirements of paragraph

(e)of this section. Accordingly, none of the options granted under the offering will be eligible for the special tax treatment of section 421.

(3)The option price may be stated either as a percentage or as a dollar amount. If the option price is stated as a dollar amount, then the requirement of this paragraph

(g)can only be met by a plan or offering in which the price is fixed at not less than 85 percent of the fair market value of the stock at the time the option is granted. If the fixed price is less than 85 percent of the fair market value of the stock at grant, then the option cannot meet the requirement of this paragraph

(g)even if a decline in the fair market value of the stock results in such fixed price being not less than 85 percent of the fair market value of the stock at the time the option is exercised, because that result was not certain to occur under the terms of the option.

(4)*Examples.* The following examples illustrate the principles of this paragraph (g): Example 1. Corporation Z has an employee stock purchase plan that provides that the option price will be 85 percent of the fair market value of the stock on the first day of the offering (which is the date of grant in this case), or 85 percent of the fair market value of the stock at exercise, whichever amount is the lesser. Upon the exercise of an option issued under Z's plan, Z agrees to accept an option price that is less than the minimum amount allowable under the terms of such plan. Notwithstanding that the option was issued under an employee stock purchase plan, the transfer of stock pursuant to the exercise of such option does not satisfy the requirement of this paragraph

(g)and cannot qualify for the special tax treatment of section 421. Example 2. Corporation AA has an employee stock purchase plan that provides that the option price is set at 85 percent of the fair market value of AA stock at exercise, but not less than $80 per share. On the first day of the offering (which is the date of grant in this case), the fair market value of AA stock is $100 per share. The option satisfies the requirement of this paragraph (g), and can qualify for the special tax treatment of section 421. Example 3. Assume the same facts as in *Example 2,* except that the option price is set at 85 percent of the fair market value of AA stock at exercise, but not more than $80 per share. This option cannot satisfy the requirement of this paragraph

(g)irrespective of whether, at the time the option is exercised, 85 percent of the fair market value of AA stock is $80 or less.

(h)*Option period* —(1) An employee stock purchase plan must, by its terms, provide that options granted under the plan cannot be exercised after the expiration of 27 months from the date of grant unless, under the terms of the plan, the option price is not less than 85 percent of the fair market value of the stock at the time of the exercise of the option. If the option price is not less than 85 percent of the fair market value of the stock at the time the option is exercised, then the option period provided under the plan must not exceed five years from the date of grant. If the requirements of this paragraph

(h)are not met by the terms of the plan or offering, then options issued under such plan or offering will not be treated as options granted under an employee stock purchase plan irrespective of whether the options, by their terms, are exercisable beyond the period allowable under this paragraph (h). An option that provides that the option price is not less than 85 percent of the fair market value of the stock at exercise may have an option period of 5 years irrespective of whether the fair market value of the stock at exercise is more or less than the fair market value of the stock at grant. However, if the option provides that the option price is 85 percent of the fair market value of the stock at exercise, but not more than some other fixed amount determined in accordance with the provisions of paragraph

(g)of this section, then irrespective of the price paid on exercise, the option period must not be more than 27 months.

(2)Section 1.421-1(c) provides that, for purposes of §§ 1.421-1 through 1.424-1, the language *the date of the granting of the option* and *the time such option is granted,* and similar phrases refer to the date or time when the granting corporation completes the corporate action constituting an offer of stock for sale to an individual under the terms and conditions of a statutory option. With respect to options granted under an employee stock purchase plan, the principles of § 1.421-1(c) shall be applied without regard to the requirement that the minimum option price must be fixed or determinable in order for the corporate action constituting an offer of stock to be considered complete.

(3)The date of grant will be the first day of an offering if the terms of an employee stock purchase plan or offering designate a maximum number of shares that may be purchased by each employee during the offering. Similarly, the date of grant will be the first day of an offering if the terms of the plan or offering require the application of a formula to establish, on the first day of the offering, the maximum number of shares that may be purchased by each employee during the offering. It is not required that an employee stock purchase plan or offering designate a maximum number of shares that may be purchased by each employee during the offering or incorporate a formula to establish a maximum number of shares that may be purchased by each employee during the offering. If the maximum number of shares that can be purchased under an option is not fixed or determinable until the date the option is exercised, then the date of exercise will be the date of grant of the option.

(4)*Examples.* The following examples illustrate the principles of this paragraph (h): Example 1.

(i)Corporation BB has an employee stock purchase plan that provides that the option price will be the lesser of 85 percent of the fair market value of the stock on the first day of an offering or 85 percent of the fair market value of the stock on the last day of the offering. Options are exercised on the last day of the offering. One million shares of BB stock are reserved for issuance under the plan. The plan provides that no employee may be permitted to purchase stock under the plan at a rate that exceeds $25,000 in fair market value of the BB stock (determined on the date of grant) for each calendar year during which an option granted to the employee is outstanding and exercisable. The terms of each option granted under an offering provide that a maximum of 500 shares may be purchased by the option recipient during the offering. Because the maximum number of shares that can be purchased under the option is fixed and determinable on the first day of the offering, the date of grant for the option is the first day of the offering.

(ii)Assume the same facts as in paragraph

(i)of *Example 1* except that BB's plan excludes all employees who have been employed less than 18 months. The plan provides that employees who have not yet met the minimum service requirements on the first day of an offering will be granted an option on the date the 18-month service requirement has been attained. With respect to those employees who have been employed less than 18 months on the first day of an offering, the date of grant for the option is the date the 18-month service requirement has been attained. Example 2. Assume the same facts as in paragraph

(i)of *Example 1* except that the terms of each option granted do not provide that a maximum of 500 shares may be purchased by the option recipient during the offering. Notwithstanding the fixed number of shares reserved for issuance under the plan and the $25,000 limitation set forth in the plan, the maximum number of shares that can be purchased under the option is not fixed or determinable until the last day of the offering when the option is exercised. Therefore the date of grant for the option is the last day of the offering when the option is exercised. Example 3. Corporation CC has an employee stock purchase plan that provides that the option price will be 85 percent of the fair market value of the stock on the last day of the offering. Options are exercised on the last day of the offering. Each offering under the plan begins on January 1 and ends on December 31 of the same calendar year. The terms of each option granted under an offering provide that the maximum number of shares that may be purchased by any employee during the offering equals $25,000 divided by the fair market value of the stock on the first day of the offering. The maximum number of shares that can be purchased under the option is fixed and determinable on the first day of the offering and therefore the date of grant for the option is the first day of the offering. Example 4. Assume the same facts as in *Example 3* except that the terms of each option granted under an offering provide that the maximum number of shares that may be purchased by any employee during the offering equals 10 percent of the employee's annual salary (determined as of January 1 of the year in which the offering commences) divided by the fair market value of the stock on the first day of the offering. The maximum number of shares that can be purchased under the option is fixed and determinable on the first day of the offering and therefore the date of grant for the option is the first day of the offering.

(i)*Annual $25,000 limitation* —(1) An employee stock purchase plan must, by its terms, provide that no employee may be permitted to purchase stock under all the employee stock purchase plans of the employer corporation and its related corporations at a rate that exceeds $25,000 in fair market value of the stock (determined at the time the option is granted) for each calendar year in which any option granted to the employee is outstanding at any time. In applying the foregoing limitation—

(i)The right to purchase stock under an option is deemed to accrue when the option (or any portion thereof) first becomes exercisable during the calendar year;

(ii)The right to purchase stock under an option accrues at the rate provided in the option, but in no case may such rate exceed $25,000 of fair market value of such stock (determined at the time such option is granted) for any one calendar year; and

(iii)A right to purchase stock that has accrued under one option granted pursuant to the plan may not be carried over to any other option.

(2)If an option is granted under an employee stock purchase plan that satisfies the requirement of this paragraph (i), but the option gives the optionee the right to buy stock in excess of the maximum rate allowable under this paragraph (i), then no portion of the option will be treated as having been granted under an employee stock purchase plan. Furthermore, if the option was granted to an employee entitled to the grant of an option under the terms of the plan or offering, and the employee is not granted an option under the offering that qualifies as an option granted under an employee stock purchase plan, then the offering will not meet the requirements of paragraph

(e)of this section. Accordingly, none of the options granted under the offering will be eligible for the special tax treatment of section 421.

(3)The limitation of this paragraph

(i)applies only to options granted under employee stock purchase plans and does not limit the amount of stock that an employee may purchase under incentive stock options (as defined in section 422(b)) or any other stock options except those to which section 423 applies. Stock purchased under options to which section 423 does not apply will not limit the amount that an employee may purchase under an employee stock purchase plan, except for purposes of the 5-percent stock ownership provision of paragraph

(d)of this section.

(4)Under the limitation of this paragraph (i), an employee may purchase up to $25,000 of stock (based on the fair market value of the stock at the time the option was granted) in each calendar year during which an option granted to the employee under an employee stock purchase plan is outstanding and exercisable. Alternatively, an employee may purchase more than $25,000 of stock (based on the fair market value of such stock at the time the option was granted) in a calendar year, so long as the total amount of stock that the employee purchases does not exceed $25,000 in fair market value of the stock (determined at the time the option was granted) for each calendar year in which the option was outstanding and exercisable. If, in any calendar year, the employee holds two or more outstanding and exercisable options granted under employee stock purchase plans of the employer corporation, or a related corporation, then the employee's purchases of stock attributable to that year under all options granted under employee stock purchase plans must not exceed $25,000 in fair market value of the stock (determined at the time the options were granted). Under an employee stock purchase plan, an employee may not purchase stock in anticipation that the option will be outstanding and exercisable in some future year. Thus, the employee may purchase only the amount of stock that does not exceed the limitation of this paragraph

(i)for the year of the purchase and for preceding years during which the option was outstanding and exercisable. Thus, the amount of stock that may be purchased under an option depends on the number of years in which the option is actually outstanding and exercisable. The amount of stock that may be purchased under an employee stock purchase plan may not be increased by reason of the failure to grant an option in an earlier year under such plan, or by reason of the failure to exercise an earlier option. For example, if an option is granted to an individual and expires without having been exercised at all, then the failure to exercise the option does not increase the amount of stock which such individual may be permitted to purchase under an option granted in a year following the year of such expiration. If an option granted under an employee stock purchase plan is outstanding and exercisable in more than one calendar year, then stock purchased pursuant to the exercise of such an option will be applied first, to the extent allowable under this paragraph (i), against the $25,000 limitation for the earliest year in which the option was outstanding and exercisable, then, against the $25,000 limitation for each succeeding year, in order.

(5)*Examples.* The following examples illustrate the principles of this paragraph (i): Example 1. Assume that Corporation DD maintains an employee stock purchase plan and that Employee S is employed by DD. On June 1, 2010, DD grants S an option under the plan to purchase a total of 750 shares of DD stock at $85 per share. On that date, the fair market value of DD stock is $100 per share. The option provides that it may be exercised at any time but cannot be exercised after May 31, 2012. Under this paragraph (i), the option must not permit S to purchase more than 250 shares of DD stock during the calendar year 2010, because 250 shares are equal to $25,000 in fair market value of DD stock determined at the time of grant. During the calendar year 2011, S may purchase under the option an amount of DD stock equal to the difference between $50,000 in fair market value of DD stock (determined at the time the option was granted) and the fair market value of DD stock (determined at the time of grant of the option) purchased during the year 2010. During the calendar year 2012, S may purchase an amount of DD stock equal to the difference between $75,000 in fair market value of the stock (determined at the time of grant of the option) and the total amount of the fair market value of the stock (determined at the time of grant of the option) purchased under the option during the calendar years 2010 and 2011. S may purchase $25,000 of stock for the year 2010, and $25,000 of stock for the year 2012, although the option was outstanding and exercisable for only a part of each of such years. However, S may not be granted another option under an employee stock purchase plan of DD or a related corporation to purchase stock of DD or a related corporation during the calendar years 2010, 2011, and 2012, so long as the option granted June 1, 2010, is outstanding. Example 2. Assume the same facts as in *Example 1,* except that the option granted to S in 2010 is terminated in 2011 without any part of the option having been exercised, and that subsequent to the termination and during 2011, S is granted another option under DD's employee stock purchase plan. Under that option, S may be permitted to purchase $25,000 of stock for 2011. The failure of S to exercise the option granted to S in 2010, does not increase the amount of stock that S may be permitted to purchase under the option granted to S in 2011. Example 3. Assume the same facts as in *Example 1,* except that, on May 31, 2012, S exercised the option granted to S in 2010, and purchased 600 shares of DD stock. Five hundred shares, the maximum amount of stock that could have been purchased in 2011, under the option, are treated as having been purchased for the years 2010 and 2011. Only 100 shares of the stock are treated as having been purchased for 2012. After S's exercise of the option on May 31, 2012, S is granted another option under DD's employee stock purchase plan. S may be permitted under the new option to purchase for 2012 stock having a fair market value of no more than $15,000 at the time the new option is granted. Example 4. Corporation EE maintains an employee stock purchase plan and Employee R is employed by EE. On August 1, 2010, EE grants R an option under the plan to purchase 150 shares of EE stock at $85 per share during each of the calendar years 2010, 2011, and 2012. On that date, the fair market value of EE stock is $100 per share. The option provides that it may be exercised at any time during years 2010, 2011, and 2012. Because this option permits R to purchase only $15,000 of EE's stock for each year the option is outstanding and exercisable, R could be granted another option by EE, or by a related corporation, in year 2010, permitting R to purchase an additional $10,000 of stock during each of the calendar years 2010, 2011, and 2012. Example 5. Corporation FF maintains an employee stock purchase plan and Employee Q is employed by FF. On September 1, 2010, FF grants Q an option under the plan that will be automatically exercised on August 31, 2011, and August 31, 2012. On August 31, 2011, Q may purchase under the option an amount of FF stock equal to $25,000 in fair market value of FF stock (determined at the time the option was granted). On August 31, 2012, Q may purchase under the option an amount of FF stock equal to the difference between $50,000 in fair market value of Q stock (determined at the time the option was granted) and the fair market value of Q stock (determined at the time of grant of the option) purchased during year 2011.

(j)*Restriction on transferability.* An employee stock purchase plan must, by its terms, provide that options granted under the plan are not transferable by the optionee other than by will or the laws of descent and distribution, and must be exercisable, during the optionee's lifetime, only by the optionee. For general rules relating to the restriction on transferability required by this paragraph (j), see paragraph (b)(2) of § 1.421-1. For a limited exception to the requirement of this paragraph (j), see section 424(h)(3).

(k)*Special rule where option price is between 85 percent and 100 percent of value of stock* —(1)(i) If all the conditions necessary for the application of section 421(a) exist, this paragraph

(k)provides additional rules that are applicable in cases where, at the time the option is granted, the option price per share is less than 100 percent (but not less than 85 percent) of the fair market value of the share. In that case, upon the disposition of the share by the employee after the expiration of the two-year and the one-year holding periods, or upon the employee's death while owning the share (whether occurring before or after the expiration of such periods), there shall be included in the employee's gross income as compensation (and not as gain upon the sale or exchange of a capital asset) the lesser of—

(A)The amount, if any, by which the price paid under the option was exceeded by the fair market value of the share at the time the option was granted, or

(B)The amount, if any, by which the price paid under the option was exceeded by the fair market value of the share at the time of such disposition or death.

(ii)For purposes of applying the rules of this paragraph (k), if the option price is not fixed or determinable at the time the option is granted, the option price will be computed as if the option had been exercised at such time. The amount of compensation resulting from the application of this paragraph

(k)shall be included in the employee's gross income for the taxable year in which the disposition occurs, or for the taxable year closing with the employee's death, whichever event results in the application of this paragraph (k).

(iii)The application of the special rules provided in this paragraph

(k)shall not affect the rules provided in section 421(a) with respect to the employee exercising the option, the employer corporation, or a related corporation. Thus, notwithstanding the inclusion of an amount as compensation in the gross income of an employee, as provided in this paragraph (k), no income results to the employee at the time the stock is transferred to the employee, and no deduction under section 162 is allowable at any time to the employer corporation or a related corporation with respect to such amount.

(iv)If, during the employee's lifetime, the employee exercises an option granted under an employee stock purchase plan, but the employee dies before the stock is transferred to the employee pursuant to the exercise of the option, then the transfer of the stock to the employee's executor, administrator, heir, or legatee is deemed, for the purpose of sections 421 and 423, to be a transfer of the stock to the employee exercising the option and a further transfer by reason of death from the employee to the employee's executor, administrator, heir, or legatee.

(2)If the special rules provided in this paragraph

(k)are applicable to the disposition of a share of stock by an employee, then the basis of the share in the employee's hands at the time of the disposition, determined under section 1011, shall be increased by an amount equal to the amount includible as compensation in the employee's gross income under this paragraph (k). However, the basis of a share of stock acquired after the death of an employee by the exercise of an option granted to the employee under an employee stock purchase plan shall be determined in accordance with the rules of section 421(c) and paragraph

(c)of § 1.421-2. If the special rules provided in this paragraph

(k)are applicable to a share of stock upon the death of an employee, then the basis of the share in the hands of the estate or the person receiving the stock by bequest or inheritance shall be determined under section 1014, and shall not be increased by reason of the inclusion upon the decedent's death of any amount in the decedent's gross income under this paragraph (k). See *Example (9)* of this paragraph with respect to the determination of basis of the share in the hands of a surviving joint owner.

(3)*Examples.* The following examples illustrate the principles of this paragraph (k): Example 1. On June 1, 2010, the Corporation GG grants to Employee P, an employee of GG, an option under GG's employee stock purchase plan to purchase a share of GG stock for $85. The fair market value of GG stock on such date is $100 per share. On June 1, 2011, P exercises the option and on that date GG transfers the share of stock to P. On January 1, 2013, P sells the share for $150, its fair market value on that date. P's income tax return is filed on the basis of the calendar year. The income tax consequences to P and GG are as follows—

(i)Compensation in the amount of $15 is includible in P's gross income for the year 2013, the year of the disposition of the share. The $15 represents the difference between the option price ($85) and the fair market value of the share on the date the option was granted ($100), because the value is less than the fair market value of the share on the date of disposition ($150). For the purpose of computing P's gain or loss on the sale of the share, P's cost basis of $85 is increased by $15, the amount includible in P's gross income as compensation. Thus, P's basis for the share is $100. Because the share was sold for $150, P realizes a gain of $50, which is treated as long-term capital gain; and

(ii)GG is not entitled to any deduction under section 162 at any time with respect to the share transferred to P. Example 2. Assume the same facts as in *Example 1,* except that P sells the share of GG stock on January 1, 2014, for $75, its fair market value on that date. Because $75 is less than the option price ($85), no amount in respect of the sale is includible as compensation in P's gross income for the year 2014. P's basis for determining gain or loss on the sale is $85. Because P sold the share for $75, P realized a loss of $10 on the sale that is treated as a long-term capital loss. Example 3. Assume the same facts as in *Example 1,* except that the option provides that the option price shall be 90 percent of the fair market value of the stock on the day the option is exercised. On June 1, 2011, when the option is exercised, the fair market value of the stock is $120 per share so that P pays $108 for the share of the stock. Compensation in the amount of $10 is includible in P's gross income for the year 2013, the year of the disposition of the share. This is determined in the following manner: the excess of the fair market value of the stock at the time of the disposition ($150) over the price paid for the share ($108) is $42; and the excess of the fair market value of the stock at the time the option was granted ($100) over the option price, computed as if the option had been exercised at such time ($90), is $10. Accordingly, $10, the lesser, is includible in gross income. In this situation, P's cost basis of $108 is increased by $10, the amount includible in P's gross income as compensation. Thus, P's basis for the share is $118. Because the share was sold for $150, P realizes a gain of $32 that is treated as long-term capital gain. Example 4. Assume the same facts as in *Example 1,* except that the option provides that the option price shall be the lesser of 95 percent of the fair market value of the stock on the first day of the offering period and 95 percent of the fair market value of the stock on the day the option is exercised. On June 1, 2011, when the option is exercised, the fair market value of the stock is $120 per share. P pays $95 for the share of the stock. Compensation in the amount of $5 is includible in P's gross income for the year 2013, the year of the disposition of the share. This is determined in the following manner: the excess of the fair market value of the stock at the time of the disposition ($150) over the price paid for the share ($95) is $55; and the excess of the fair market value of the stock at the time the option was granted ($100) over the option price, computed as if the option had been exercised at such time ($95), is $5. Accordingly, $5, the lesser, is includible in gross income. In this situation, P's cost basis of $95 is increased by $5, the amount includible in P's gross income as compensation. Thus, P's basis for the share is $100. Because the share was sold for $150, P realizes a gain of $50 that is treated as long-term capital gain. Example 5. Assume the same facts as in *Example 1,* except that instead of selling the share on January 1, 2013, P makes a gift of the share on that day. In that case $15 is includible as compensation in P's gross income for 2013. P's cost basis of $85 is increased by $15, the amount includible in P's gross income as compensation. Thus, P's basis for the share is $100, which becomes the donee's basis, as of the time of the gift, for determining gain or loss. Example 6. Assume the same facts as in *Example 2,* except that instead of selling the share on January 1, 2014, P makes a gift of the share on that date. Because the fair market value of the share on that day ($75) is less than the option price ($85), no amount in respect of the disposition by way of gift is includible as compensation in P's gross income for 2014. P's basis for the share is $85, which becomes the donee's basis, as of the time of the gift, for the purpose of determining gain. The donee's basis for the purpose of determining loss, determined under section 1015(a), is $75 (fair market value of the share at the date of gift). Example 7. Assume the same facts as in *Example 1,* except that after acquiring the share of stock on June 1, 2011, P dies on August 1, 2012, at which time the share has a fair market value of $150. Compensation in the amount of $15 is includible in P's gross income for the taxable year closing with P's death, $15 being the difference between the option price ($85) and the fair market value of the share when the option was granted ($100), because such value is less than the fair market value at date of death ($150). The basis of the share in the hands of P's estate is determined under section 1014 without regard to the $15 includible in the decedent's gross income. Example 8. Assume the same facts as in *Example 7,* except that P dies on August 1, 2011, at which time the share has a fair market value of $150. Although P's death occurred within six months after the transfer of the share to P, the income tax consequences are the same as in *Example 7.* Example 9. Assume the same facts as in *Example 1,* except that the share of stock was issued in the names of P and P's spouse jointly with right of survivorship, and that P and P's spouse sold the share on June 15, 2012, for $150, its fair market value on that date. Compensation in the amount of $15 is includible in P's gross income for the year 2012, the year of the disposition of the share. The basis of the share in the hands of P and P's spouse for the purpose of determining gain or loss on the sale is $100, that is, the cost of $85 increased by the amount of $15 includible as compensation in P's gross income. The gain of $50 on the sale is treated as long-term capital gain, and is divided equally between P and P's spouse. Example 10. Assume the same facts as in *Example 1,* except that the share of stock was issued in the names of P and P's spouse jointly with right of survivorship, and that P predeceased P's spouse on August 1, 2012, at which time the share had a fair market value of $150. Compensation in the amount of $15 is includible in P's gross income for the taxable year closing with his death. See *Example 7.* The basis of the share in the hands of P's spouse as survivor is determined under section 1014 without regard to the $15 includible in the decedent's gross income. Example 11. Assume the same facts as in *Example 10,* except that P's spouse predeceased P on July 1, 2012. Section 423(c) does not apply in respect of the death of P's spouse. Upon the subsequent death of P on August 1, 2012, the income tax consequences in respect of P's taxable year closing with the date of P's death, and in respect of the basis of the share in the hands of P's estate, are the same as in *Example 7.* If P had sold the share on July 15, 2012 (after the death of P's spouse), for $150, its fair market value at that time, the income tax consequences would be the same as in *Example 1.*

(l)*Effective/applicability date.* Upon the date of publication of the Treasury decision adopting the rules of this section as a final regulation in the **Federal Register** , these rules will apply as of January 1, 2010. Linda E. Stiff, Deputy Commissioner for Services and Enforcement. [FR Doc. E8-17255 Filed 7-28-08; 8:45 am] BILLING CODE 4830-01-P DEPARTMENT OF THE TREASURY Internal Revenue Service 26 CFR Parts 1, 40, and 48 [REG-155087-05] RIN 1545-BF17 Alcohol Fuel and Biodiesel; Renewable Diesel; Alternative Fuel; Diesel-Water Fuel Emulsion; Taxable Fuel Definitions; Excise Tax Returns AGENCY: Internal Revenue Service (IRS), Treasury. ACTION: Notice of proposed rulemaking. SUMMARY: This document contains proposed regulations relating to credits and payments for alcohol mixtures, biodiesel mixtures, renewable diesel mixtures, alternative fuel mixtures, and alternative fuel sold for use or used as a fuel, as well as proposed regulations relating to the definition of gasoline and diesel fuel. These regulations reflect changes made by the American Jobs Creation Act of 2004, the Energy Policy Act of 2005, the Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users, and the Tax Technical Corrections Act of 2007. These regulations affect producers of alcohol, biodiesel, and renewable diesel; producers of alcohol, biodiesel, renewable diesel, and alternative fuel mixtures; sellers and users of alternative fuel; and certain persons liable for the tax on removals, entries, or sales of gasoline or diesel fuel. DATES: Written or electronic comments and requests for a public hearing must be received by October 27, 2008. ADDRESSES: Send submissions to CC:PA:LPD:PR (REG-155087-05), room 5203, Internal Revenue Service, PO Box 7604, Ben Franklin Station, Washington, DC 20044. Submissions may be hand delivered Monday through Friday between the hours of 8 a.m. and 4 p.m. to CC:PA:LPD:PR (REG-155087-05), Courier's Desk, Internal Revenue Service, 1111 Constitution Avenue, NW., Washington, DC, or sent electronically, via the Federal eRulemaking Portal at *http://www.regulations.gov* (IRS REG-155087-05). FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations, Stephanie Bland, Taylor Cortright, or DeAnn Malone, all of whom can be reached at

(202)622-3130 (not a toll-free call); concerning the submission of comments or requests for a public hearing, Oluwafunmilayo Taylor at

(202)622-7180 (not a toll-free call). SUPPLEMENTARY INFORMATION: Paperwork Reduction Act The collections of information contained in this notice of proposed rulemaking have been submitted to the Office of Management and Budget for review in accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)). Comments on the collection of information should be sent to the Office of Management and Budget, Attn: Desk Officer for the Department of the Treasury, Office of Information and Regulatory Affairs, Washington, DC 20503, with copies to the Internal Revenue Service, Attn: IRS Reports Clearance Officer, SE:W:CAR:MP:T:T:SP, Washington, DC 20224. Comments on the collection of information should be received by September 29, 2008. Comments are specifically requested concerning: Whether the proposed collection of information is necessary for the proper performance of the functions of the Internal Revenue Service, including whether the information will have practical utility; The accuracy of the estimated burden associated with the proposed collection of information; How the quality, utility, and clarity of the information to be collected may be enhanced; How the burden of complying with the proposed collection of information may be minimized, including through the application of automated collection techniques or other forms of information technology; and Estimates of capital or start-up costs and costs of operation, maintenance, and purchase of service to provide information. The collection of information in this proposed regulation is in § 48.6426-3(e), describing the certificate the biodiesel producer must give to the claimant of a biodiesel mixture credit or biodiesel credit; § 48.6426-3(f), describing the statement a biodiesel reseller must give to the claimant of a biodiesel mixture credit or biodiesel credit; § 48.6426-4(e), describing the certificate the renewable diesel producer must give to the claimant of a renewable diesel mixture credit or renewable diesel credit; § 48.6426-4(f), describing the statement a renewable diesel reseller must give to the claimant of a renewable diesel mixture credit or renewable diesel credit; and § 48.6426-6(c), describing the statement given to a seller of liquefied natural gas. This information is required to obtain a tax benefit. This information will be used by the IRS to substantiate claims for the tax benefits. The likely recordkeepers are business or other for-profit institutions and small businesses or organizations. Estimated total annual reporting burden: 17,710 hours. Estimated average annual burden hours per respondent varies from 2.5 hours to 25 hours, depending on individual circumstances, with an estimated average of 22 hours. Estimated number of respondents: 756. Estimated annual frequency of responses: On occasion. An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a valid control number assigned by the Office of Management and Budget. Books or records relating to a collection of information must be retained as long as their contents may become material in the administration of any internal revenue law. Generally, tax returns and tax return information are confidential, as required by 26 U.S.C. 6103. Background The Internal Revenue Code

(Code)provides incentives for certain renewable and alternative fuels. Before January 1, 2005, a reduced rate of tax applied to most alcohol-blended fuels. The American Jobs Creation Act of 2004 (Pub. L. 108-357) replaced the reduced rate of tax for alcohol-blended fuels with credits or payments for alcohol and alcohol mixtures that are sold for use or used as a fuel. The Act also added credits and payments for biodiesel and biodiesel mixtures sold for use or used as a fuel. Credit and payment provisions for renewable diesel, renewable diesel mixtures, alternative fuel, alternative fuel mixtures, and diesel-water fuel emulsions were added to the Code by the Energy Policy Act of 2005 (Pub. L. 109-58) and the Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users (Pub. L. 109-59) (SAFETEA). Technical corrections to SAFETEA were made by the Tax Technical Corrections Act of 2007 (Pub. L. 110-172). The incentives include a credit under section 6426 for alcohol fuel mixtures, biodiesel mixtures, renewable diesel mixtures (incorporated into section 6426 by section 40A(f)), and alternative fuel mixtures sold for use or used as a fuel and alternative fuel sold for use or used as a fuel in a motor vehicle or motorboat. The credit under section 6426 is allowed against the claimant's fuel tax liability. The incentives for these fuels also include a payment under section 6427(e) and a refundable income tax credit under section 34. The amount allowed as a payment or credit under these provisions is reduced by the claimant's excise tax liability against which a credit is allowed under section 6426. Section 40 provides a nonrefundable income tax credit for alcohol fuel mixtures, alcohol that is sold for use or used as a fuel, and for the production of alcohol by certain small ethanol producers; section 40A provides similar rules relating to biodiesel and renewable diesel. The Code includes coordination rules that limit the maximum incentive that may be claimed for any particular gallon of alcohol, biodiesel, renewable diesel, and alternative fuel. Generally, for alcohol that is ethanol, the benefit is $0.51 per gallon; for biodiesel, the incentive is $0.50 per gallon ($1.00 per gallon in the case of agri-biodiesel); for renewable diesel, the incentive is $1.00 per gallon; and, for alternative fuel, the incentive is $0.50 per gallon. In the case of small ethanol producers and small agri-biodiesel producers, however, the Code allows an additional income tax credit of $0.10 per gallon. Notice 2005-4 (2005-1 CB 289) describes the alcohol and biodiesel credits and payments and provides general guidance for these incentives. Comments received after the publication of Notice 2005-4 requested additional guidance with regard to the biodiesel producer certificates in the case of resale, commingled biodiesel, the definition of agri-biodiesel, and the definition of a biodiesel mixture. Guidance on these issues was provided in Notice 2005-62 (2005-2 CB 443). Notice 2005-80 (2005-2 CB 953) describes the registration requirements related to diesel-water fuel emulsions. Notice 2006-92, (2006-43 IRB. 774) describes the alternative fuel credits and payments. Notice 2007-37 (2007-17 IRB 1002) provides guidance on renewable diesel. Notice 2007-97 (2007-49 IRB 1092) provides guidance on liquid hydrocarbons for purposes of the definition of alternative fuel. Comments were received in response to these notices and have been considered in the development of this notice of proposed rulemaking. Renewable and Alternative Fuels; Currently Applicable Rules The IRS has received numerous inquiries about the proper steps that must be taken to comply with the tax laws and to take full advantage of the tax incentives for certain renewable and alternative fuels. The following are general rules that are currently applicable and would not be changed by these proposed regulations. Registration Registration by the IRS is required for each person that produces alcohol, biodiesel, renewable diesel, or blended taxable fuel or claims credits or payments with respect to alternative fuel. Application for registration is made on Form 637, “Application for Registration (For Certain Excise Tax Activities).” A person generally may not engage in an activity for which registration is required until the IRS has approved the person's registration with respect to the activity. Imposition of Tax Tax is imposed on the removal of a biodiesel mixture that is diesel fuel from the terminal at the terminal rack. In the case of blended taxable fuel, tax is imposed on a blender's sale or removal of the fuel and the blender is liable for the tax. Blended taxable fuel includes diesel fuel or gasoline produced outside of the bulk transfer/terminal system by mixing an untaxed liquid, such as biodiesel or alcohol, with a taxable fuel, such as diesel fuel or gasoline, that has been previously taxed (even if only at the Leaking Underground Storage Tank Trust Fund financing rate). Thus, for example, if a person produces, outside the bulk transfer/terminal system, a biodiesel mixture that is diesel fuel, that person is liable for tax on its removal or sale of the mixture. Further, tax generally is imposed on the delivery of fuel that has not been taxed into the fuel supply tank of a motor vehicle or diesel-powered train and on the delivery of alternative fuel (liquid fuel other than gas oil, fuel oil, or taxable fuel) into the fuel supply tank of a motorboat unless the delivery of the fuel or alternative fuel is for a nontaxable purpose. Liability for these excise taxes is reported on Form 720, “Quarterly Federal Excise Tax Return.” Persons that are liable for excise taxes may also be required to make semi-monthly deposits. See Form 720 for more information on deposits. Tax Incentives for Mixtures The excise tax credits for mixtures containing alcohol, biodiesel, renewable diesel, or alternative fuel must be claimed on Form 720, Schedule C. These credits are allowed to the extent of certain fuel tax liability. The credits are claimed by the person producing the mixture. The mixture producer may also claim payments (or refundable income tax credits) for incentives that exceed tax liability; that is, for the amount by which the maximum incentive allowable for the mixture exceeds the credit allowed on the Form 720. Notice 2005-62 contains guidance on the computation of payment limitations. Claims for payment are made either on Form 8849, “Claim for Refund of Excise Taxes,” or Schedule C, Form 720, “Quarterly Federal Excise Tax Return.” (Thus, claims on Form 720 may be for both an excise tax credit and a payment.) Claims for the refundable income tax credit are made on Form 4136, “Credit for Federal Tax Paid on Fuel,” which is attached to the claimant's income tax return. Tax Incentives for Neat Fuels A nonrefundable general business tax credit may be claimed for alcohol, biodiesel, and renewable diesel fuels that are not in a mixture and are used as a fuel. This is the only credit or payment allowed with respect to the use of these neat fuels as a fuel. Claims for the credit are made by the person using the renewable fuel in a trade or business or by the person that sold the fuel at retail and delivered it into a vehicle. The small ethanol producer credit and the small agri-biodiesel producer credit are also nonrefundable general business credits. Claims for nonrefundable general business credits are made on Form 6478, “Credit for Alcohol Used as Fuel,” and Form 8864, “Biodiesel and Renewable Diesel Fuels Credit,” attached to the claimant's income tax return. An excise tax credit may be claimed for alternative fuel that is not in a mixture and is used as a fuel. The excise tax credit is claimed on Form 720, Schedule C. The credit is allowed to the extent of certain fuel excise tax liability. The credit is claimed by the alternative fueler (unmixed fuel). If the incentive for unmixed alternative fuel exceeds the applicable excise tax liability the excess may be claimed as a payment on Form 8849 or as a refundable income tax credit on Form 4136. Explanation of Provisions The proposed regulations add provisions relating to registration requirements and excise tax credits or payments for alcohol, biodiesel, renewable diesel and alternative fuel mixtures and for alternative fuel and diesel-water fuel emulsions. The regulations provide definitions and prescribe rules for claiming a credit or payment. Specifically, the regulations prescribe the conditions to allowance of a credit or payment, the content of claims for credit or payment, and the form of applicable certificates. The proposed regulations also remove obsolete regulations relating to gasohol and other alcohol fuels. The proposed regulations generally adopt the rules of Notices 2005-4, 2005-62, 2005-80, 2006-92, 2007-37, and 2007-97. Differences between the notices and the proposed regulations are described in this preamble. Biodiesel Mixtures and Liability for Tax Notice 2005-62 provides that *biodiesel mixture* means a mixture of biodiesel and diesel fuel that contains at least 0.1 percent (by volume) of diesel fuel. That rule is unchanged by these proposed regulations. Under existing regulations, diesel fuel does not include “excluded liquid”; biodiesel mixtures with a high concentration of biodiesel typically are classified as an excluded liquid. The definition of “excluded liquid” predates the biodiesel incentives and was intended to ensure that the diesel fuel tax was not imposed on certain liquids typically not used as fuel. The proposed regulations revise the definition of “excluded liquid” so that all biodiesel mixtures, which are generally used as a substitute for diesel fuel, will be classified as diesel fuel for tax purposes. As a result, under the proposed regulations, tax is imposed on a biodiesel mixture when it is removed from the bulk transfer/terminal system. If a biodiesel mixture is produced outside the bulk transfer/terminal system, tax is imposed on the sale or removal of the mixture by the mixture producer. The mixture producer is liable for the tax and must be registered as a blender of taxable fuel. The tax incentive for the biodiesel mixture generally must be taken as a credit against the producer's fuel tax liability and any excess over the fuel tax liability is allowable as either a payment or an income tax credit. Also, the de minimis exception to the definition of “blended taxable fuel” is removed. Under this exception, a mixture is not blended fuel if the person creating the mixture adds less than 400 gallons of untaxed liquid to previously taxed fuel during the quarter and the operator of the vehicle using the mixture is liable for the tax on the untaxed liquid. Thus, in cases in which the untaxed liquid is alcohol, biodiesel, or alternative fuel, the exception prevents the credit for which the mixture producer is eligible from being used to offset the tax. With the removal of this exception, the same person (the producer of the mixture) will be liable for the tax and eligible for the credit that can be used to offset the tax. Biodiesel and EPA Registration Requirements The Code defines *biodiesel* as monoalkyl esters of long chain fatty acids derived from plant or animal matter that meet

(1)the registration requirements of the Environmental Protection Agency

(EPA)for fuel and fuel additives and,

(2)ASTM D6751. Under the proposed regulations, a product meets the EPA registration requirements if the EPA does not require the product to be registered. Thus, for example, if a biodiesel mixture is to be sold only at a marina for use in boats, the biodiesel in the mixture meets the EPA registration requirement because EPA registration requirements do not apply to fuels or fuel additives sold for use in boats. Biodiesel Certificates The Code provides that a claim relating to a biodiesel mixture is not allowed unless, among other conditions, the claimant obtains the prescribed certificate from the biodiesel producer. Under existing rules, as well as the proposed regulations, this certificate must be attached to the claim that is filed with the IRS. However, the proposed regulations do not require a separate certificate to accompany the claim filed by a mixture producer that is also the producer of the biodiesel in the mixture. Further, the proposed regulations require, as a condition to allowance of an excise tax credit or a payment, that the claimant obtain the certificate from a registered biodiesel producer. If the claim is for a nonrefundable general business credit, the certificate may be from the registered producer or importer. Erroneous Biodiesel Certificates Under the Code, a claim relating to a biodiesel mixture is not allowed if the mixture does not actually contain biodiesel. Guidance was requested on whether a claim would be allowed if the claimant attached a certificate for biodiesel and the information on the certificate proved to be incorrect. The proposed regulations make clear that such a claim is not allowed even if the claim is based on a biodiesel certificate that the claimant accepted in good faith. In such a case, however, the proposed regulations generally provide that reliance on the certificate will be treated as reasonable cause for purposes of the penalties imposed by sections 6651 (relating to failure to pay) and 6675 (relating to excessive claims). Alternative Fuel The Code allows a credit or payment for alternative fuel that is not in a mixture if the alternative fuel is sold for use or used as a fuel in a motor vehicle or motorboat. If the claim is based on a sale, the claimant must deliver the fuel into the fuel supply tank of the motor vehicle or motorboat or, in the case of a bulk sale, obtain the statement described in § 48.4041-5(a)(2), § 48.4041-21(b), or proposed § 48.6426-6(c). Registration of Alternative Fuelers A person must be registered by the IRS before claiming the alternative fuel or alternative fuel mixture credit or payment. Section 34 allows a refundable income tax credit with respect to alternative fuel or an alternative fuel mixture. This credit is claimed on Form 4136 filed with the claimant's Federal income tax return. Because partnerships do not file Federal income tax returns, the refundable income tax credit allowable with respect to a partnership's sale or use of alternative fuel is made by its partners. The partners may file Form 4136 with their income tax returns to claim a credit based on the information provided them on the partnership's Schedule K-1. The proposed regulations provide that a partner in a partnership is treated as a registered alternative fueler for purposes of claims on Form 4136 if the partnership is registered for purposes of claims for an excise tax credit or payment. A partner that is treated as registered under this rule is to provide the partnership's registration number on Form 4136. These rules also apply for purposes of ultimate vendor claims by partners in partnerships that are ultimate vendors of diesel fuel or kerosene. Small Ethanol Producer Credit Section 40(a)(3) provides an income tax credit for ethanol produced by eligible small ethanol producers. The amount of ethanol that is eligible for the credit during any taxable year cannot exceed 15,000,000 gallons for any producer. A small ethanol producer generally means a person whose productive capacity for all alcohol, including alcohol for which a credit is not allowable under section 40, does not exceed 60,000,000 gallons at any time during the taxable year. Section 40(g)(5) authorizes the Secretary to prescribe regulations to prevent the credit from benefiting a person that directly or indirectly has a productive capacity for alcohol in excess of 60,000,000 gallons and to prevent any person from directly or indirectly benefiting with respect to more than 15,000,000 gallons during the taxable year. Section 40A provides similar rules with respect to the small agri-biodiesel producer credit. The proposed regulations provide that *producer* means the person that has title to the ethanol immediately after the ethanol is created. Also, the producer must use a feedstock other than ethanol to produce the ethanol. The proposed regulations do not allow the credit for ethanol produced at the facilities of a contract manufacturer if the contract manufacturer has a direct or indirect productive capacity of more than 60,000,000 gallons of alcohol during the taxable year. Similarly, if the manufacturer does not have a productive capacity of more than 60,000,000 gallons but more than 15,000,000 gallons of ethanol is produced at the manufacturer's facilities during the taxable year, the proposed regulations allow the credit with respect to only the first 15,000,000 gallons of ethanol produced at the facilities during the taxable year. These rules apply to small agri-biodiesel producers also. Gasoline and Gasoline Blends The Code defines gasoline as including gasoline blends. The proposed regulations generally define a gasoline blend as any liquid that contains at least 0.1 percent (by volume) of finished gasoline and that is suitable for use as a fuel in a motor vehicle or motorboat. Thus, for example, E-85 (a mixture of 85 percent ethanol made from corn or other agricultural products and 15 percent gasoline) is treated as a gasoline blend. Tax is imposed on the gasoline blend when it is removed from the bulk transfer/terminal system or, if it is blended taxable fuel, when it is sold or removed by the blender. The proposed regulations also classify leaded gasoline as gasoline. Thus, for example, gasoline products that are sold as “racing gasoline” generally are treated as gasoline even though their lead content make them unsuitable for highway use. Excise Tax Returns The privilege to file consolidated returns under section 1501 applies only to income tax returns and not to excise tax returns. The proposed regulations note this rule and also reflect the rules of § 301.7701-2(c)(2)(v), which was added by TD 9356 (72 FR 45891, August 16, 2007), relating to the excise tax treatment of certain business entities that are treated as separate from their owner for income tax purposes. Proposed Effective/Applicability Date The amendments to the regulations generally are proposed to be effective on the date they are published as final regulations in the **Federal Register** . Future Regulations Projects Future proposed regulations will address other fuel-related provisions in the American Jobs Creation Act, the Energy Policy Act, and SAFETEA. These include provisions related to kerosene used in aviation, the Leaking Underground Storage Tank Trust Fund tax, the tax on alternative fuel, and two-party exchanges. Availability of IRS Documents IRS notices cited in this preamble are published in the Internal Revenue Bulletin or Cumulative Bulletin and are available at IRS.gov. Special Analyses It has been determined that this notice of proposed rulemaking is not a significant regulatory action as defined in Executive Order 12866. Therefore, a regulatory assessment is not required. It also has been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to these proposed regulations. It is hereby certified that this regulation will not have a significant economic impact on a substantial number of small entities. This certification is based on IRS estimates that less than 700 small entities will be required to provide certificates each year, such certificates will be provided only on occasion, and the average annual burden per respondent will be 22 hours. The economic impact of the collection of information is limited to completing a certificate in the form prescribed by the regulations. The certificate can be completed by filling in a small number of fields with information that is readily available to the taxpayer, and completion of a certificate should generally take less than 15 minutes. Accordingly, the time and resources required to prepare and provide these certificates is minimal and will not have a significant effect on those entities providing them. Therefore, an analysis under the Regulatory Flexibility Act (5 U.S.C. chapter 6) is not required. Pursuant to section 7805(f) of the Internal Revenue Code, this notice of proposed rulemaking has been submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small business. Comments and Requests for a Public Hearing Before these proposed regulations are adopted as final regulations, consideration will be given to any written (a signed original and eight

(8)copies) or electronic comments that are submitted timely to the IRS. The IRS and the Treasury Department request comments on the clarity of the proposed regulations and how they may 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 hearing will be published in the **Federal Register** . Drafting Information The principal authors of these regulations are Taylor Cortright and Frank Boland, Office of Associate Chief Counsel (Passthroughs and Special Industries). However, other personnel from the IRS and the Treasury Department participated in their development. List of Subjects 26 CFR Part 1 Income taxes, Reporting and recordkeeping requirements. 26 CFR Parts 40 and 48 Excise taxes, Reporting and recordkeeping requirements. Proposed Amendments to the Regulations Accordingly, 26 CFR parts 1, 40, and 48 are proposed to be amended as follows: PART 1—INCOME TAXES **Paragraph 1.** The authority citation for part 1 is amended by adding entries in numerical order to read in part as follows: Authority: 26 U.S.C. 7805 * * * Section 1.40-2 also issued under 26 U.S.C. 40(g)(5); Section 1.40A-1 also issued under 26 U.S.C. 40A(e)(5); * * * **Par. 2.** Section 1.40-1 is revised to read as follows: § 1.40-1 Alcohol used as a fuel. For the definition of “alcohol” for purposes of the credits allowed by section 40, see § 48.6426-1(c) of this chapter. **Par. 3.** Sections 1.40-2 and 1.40A-1 are added to read as follows: § 1.40-2 Small ethanol producer credit.

(a)*In general.* Section 40 provides a small ethanol producer credit for each gallon of qualified ethanol production of an eligible small ethanol producer. Section 40(b)(4)(B) defines “qualified ethanol production”. Section 40(g)(1) defines “eligible small ethanol producer”. Section 40(g)(5) provides authority to prescribe such regulations as may be necessary to prevent the credit from directly or indirectly benefiting any person with a direct or indirect productive capacity of more than 60 million gallons of alcohol during the taxable year. A person has produced ethanol if the person has title to the ethanol immediately after it is created.

(b)*Qualified ethanol production.* Section 40(b)(4)(B) limits qualified ethanol production to ethanol that is produced by an eligible small ethanol producer. Ethanol is “produced” for this purpose only when a feedstock other than ethanol is transformed into ethanol.

(c)*Denial of credit for ethanol produced at certain facilities.* The person at whose facilities ethanol is produced is treated for purposes of section 40(g)(5) as an indirect beneficiary of any credit allowed with respect to the ethanol. Accordingly, the small ethanol producer credit is not allowed with respect to ethanol that is produced at the facilities of a contract manufacturer or other person if such contract manufacturer or other person has a direct or indirect productive capacity of more than 60 million gallons of alcohol during the taxable year. Similarly, if the manufacturer does not have a productive capacity of more than 60 million gallons but more than 15 million gallons of ethanol is produced at the manufacturer's facilities during the taxable year, the small ethanol producer credit is allowed with respect to only the first 15 million gallons of ethanol produced at the facilities during the taxable year.

(d)*Examples.* The following examples illustrate the application of this section: Example 1. X purchases hydrous ethanol and processes it into anhydrous ethanol. X is not the producer of the ethanol because X does not transform a feedstock other than ethanol into ethanol. Example 2. Y arranges with contract manufacturer Z to produce 10 million gallons of ethanol. Y is not related to Z. Y provides the raw materials and retains title to them and to the finished ethanol. Z has the capacity to produce 100 million gallons of alcohol per year. The small producer credit is not allowed with respect to the 10 million gallons of ethanol because it is produced at the facilities of a contract manufacturer that has a productive capacity of more than 60 million gallons of alcohol during the taxable year.

(e)*Effective/applicability date.* This section is applicable on and after the date of publication of these regulations in the **Federal Register** as final regulations. § 1. 40A-1 Biodiesel.

(a)*In general.* Rules similar to the rules of § 1.40-2 apply for purposes of the small agri-biodiesel producer credit allowed by section 40A.

(b)*Definitions.* For the definitions of “biodiesel” and “renewable diesel” for purposes of the credits allowed by section 40A, see § 48.6426-1(b) of this chapter.

(c)*Effective/applicability date.* This section is applicable on and after the date of publication of these regulations in the **Federal Register** as final regulations. PART 40—EXCISE TAX PROCEDURAL REGULATIONS **Par. 4.** The authority citation for part 40 is amended by removing the entry for section 40.6071(a)-3 to read in part as follows: Authority: 26 U.S.C. 7805 * * * **Par. 5.** Section 40.0-1 is amended by revising paragraph

(d)and adding paragraph

(e)to read as follows: § 40.0-1 Introduction.

(d)*Person.* For purposes of this part, each business unit that has, or is required to have, a separate employer identification number is treated as a separate person. Thus, business units (for example, a parent corporation and a subsidiary corporation, a proprietorship and a related partnership, or the various members of a consolidated group), each of which has a different employer identification number, are separate persons.

(e)*Effective/applicability date.* This part is effective for returns and deposits that relate to calendar quarters beginning after September 30, 2008. For rules applicable to returns and deposits that relate to prior periods, see 26 CFR part 40 (revised as of April 1, 2008). § 40.6302(c)-1 [Amended] **Par. 6.** Section 40.6302(c)-1 is amended as follows: 1. Paragraph (e)(1)(ii) is amended by removing the language “components);” and adding “components); and” in its place. 2. Paragraph (e)(1)(iii) is amended by removing the language “chemicals); and” and adding “chemicals).” in its place. 3. Paragraph (e)(1)(iv) is removed. PART 48—MANUFACTURERS AND RETAILERS EXCISE TAXES **Par. 7.** The authority citation for part 48 is amended by removing the entries for §§ 48.4081-6, 48.6427-8, 48.6427-9, 48.6427-10, and 48.6427-11 and adding entries in numerical order to read in part as follows: Authority: 26 U.S.C. 7805 * * * Section 48.6426-3 also issued under 26 U.S.C. 6426(c). Section 48.6426-4 also issued under 26 U.S.C. 6426(c). Section 48.6427-8 also issued under 26 U.S.C. 6427(n). Section 48.6427-9 also issued under 26 U.S.C. 6427(n). Section 48.6427-10 also issued under 26 U.S.C. 6427(n). Section 48.6427-11 also issued under 26 U.S.C. 6427(n). Section 48.6427-12 also issued under 26 U.S.C. 6427(n). § 48.0-1 [Amended] **Par. 8.** Section 48.0-1 is amended as follows: 1. In the second sentence, “and related credits, refunds, and payments” is added after “Code”. 2. In the third sentence, “certain luxury items,” is removed. 3. In the fourth sentence, “aviation fuel,” is removed. **Par. 9.** Section 48.0-4 is added to read as follows: § 48.0-4 Forms. Any reference to a form in this part is also a reference to any other form designated for the same use by the Commissioner after the date these regulations are published in the **Federal Register** as final regulations. All such forms must be completed in accordance with the instructions for the forms and contain any additional information required by this part. § 48.4041-0 [Amended] **Par. 10.** Section 48.4041-0 is amended as follows: 1. In the first sentence, the language “sales or uses of diesel fuel” is removed and “any liquid (other than biodiesel) that is sold for use or used as a fuel in a diesel-powered highway vehicle or diesel-powered train” is added in its place. 2. In the second sentence, the language “diesel fuel tax” is removed and “tax with respect to these liquids” is added in its place. § 48.4041-18 [Removed and Reserved] **Par. 11.** Section 48.4041-18 is removed and reserved. **Par. 12.** Section 48.4041-19 is revised to read as follows: § 48.4041-19 Reduction in tax for qualified methanol or ethanol fuel and partially exempt methanol or ethanol fuel.

(a)*In general.* Section 4041(b)(2) provides a reduced rate of tax under sections 4041(a)(2) and

(d)for qualified methanol or ethanol fuel. Section 4041(m) provides a reduced rate of tax under section 4041(a)(2) for partially exempt methanol or ethanol fuel.

(b)*Qualified methanol or ethanol fuel and partially exempt methanol or ethanol fuel defined.* For purposes of section 4041(b)(2) and this section, qualified methanol or ethanol fuel is liquid motor fuel, at least 85 percent of which (by volume) consists of alcohol produced from coal (including peat). For purposes of section 4041(m) and this section, partially exempt methanol or ethanol fuel is a liquid motor fuel, at least 85 percent of which (by volume) consists of alcohol produced from natural gas (including ethanol produced through the process of thermally cracking ethane that is a constituent of natural gas). The actual gallonage of each component of the mixture (without adjustment for temperature) shall be used in determining whether, at the time of the taxable sale or use, the applicable 85 percent alcohol requirement has been met. A mixture containing less than 85 percent alcohol produced from coal (or less than 85 percent alcohol produced from natural gas) may be treated as satisfying the applicable percentage requirement. In determining whether a particular mixture should be so treated, the Commissioner shall take into account the existence of any facts and circumstances establishing that, but for the commercial and operational realities of the blending process, it may reasonably be concluded that the mixture would have contained at least 85 percent alcohol from the appropriate source. The necessary facts and circumstances will not be found to exist if over a period of time the mixtures blended by a blender show a consistent pattern of failing to contain at least 85 percent alcohol from the appropriate source.

(c)*Effective/applicablity date.* This section is applicable on and after the date of publication of these regulations in the **Federal Register** as final regulations. For provisions applicable to prior periods, see 26 CFR 48.4041-19 (revised as of April 1, 2008). § 48.4041-20 [Removed and Reserved] **Par. 13.** Section 48.4041-20 is removed and reserved. **Par. 14.** Section 48.4081-1 is amended as follows: 1. Paragraph

(b)is amended by: a. Revising the definition of Blender. b. Adding the definition of Diesel-water fuel emulsion in alphabetical order. c. Adding the language “(other than a mixture as defined in § 48.6426-1(b))” after “any liquid” in the introductory text of the definition of Excluded liquid. d. Revising the definition of Finished gasoline. e. Revising the definition of Gasoline. f. Adding the definition of Gasoline blend in alphabetical order. g. Revising the definition of Refinery. h. Removing the language “effective January 2, 1998,” from the last sentence in the definition of Terminal. 2. Paragraph

(c)is amended by: a. In paragraph (c)(1)(i), removing the language “paragraphs (c)(1)(ii) and (c)(1)(iii)” in the introductory text and adding “paragraph (c)(1)(ii)” in its place. b. In paragraph (c)(1)(ii), removing the language “A mixture” and adding “In calendar quarters beginning before the date of publication of these regulations in the **Federal Register** as final regulations, a mixture” in its place. c. Removing paragraph (c)(1)(iii). d. In paragraph (c)(2)(i), first sentence, adding the language “any of the following: a mixture (as defined in § 48.6426-1(b)) that contains diesel fuel; renewable diesel as defined in section 40A(f)(3); transmix (as defined in section 4083(a)(3)(B)); and” after “ *diesel fuel* means”. e. In paragraph (c)(2)(ii), first sentence, adding the language “biodiesel, alternative fuel (as defined in section 6426(d)(2)), qualified methanol or ethanol fuel (as defined in section 4041(b)(2)(B)), partially exempt methanol or ethanol fuel (as defined in section 4041(m)(2)),” after “kerosene,”. f. In paragraph (c)(3)(i)(V) removing the language “gasoline;” and adding “gasoline; and” in its place. g. In paragraph (c)(3)(i)(W), removing the language “Toluene; and” and adding “Toluene.” in its place. h. Removing paragraph (c)(3)(i)(X). 3. Paragraph

(e)is amended by removing the language “48.4081-6(b),” and by adding the language “48.6426-1(b)” after “48.4101-1(b),”. 4. Revising paragraph (f). The revisions and additions read as follows: § 48.4081-1 Taxable fuel; definitions

(b)* * * *Blender* means the person that has title to blended taxable fuel immediately after it is created. *Diesel-water fuel emulsion* means diesel fuel at least 14 percent of which is water and with respect to which the emulsion additive is registered by a United States manufacturer with the Environmental Protection Agency pursuant to section 211 of the Clear Air Act (as in effect on March 31, 2003). *Finished gasoline* means all products that are commonly or commercially known or sold as gasoline and are suitable for use as a motor fuel, other than—

(1)Products that have an ASTM octane number of less than 75 as determined by the motor method; and

(2)Alternative fuel as defined in section 6426(d)(2). *Gasoline* means aviation gasoline, finished gasoline, gasoline blends, gasoline blendstocks, and leaded gasoline. *Gasoline blend* includes any liquid (other than finished gasoline) that contains at least 0.1 percent (by volume) of finished gasoline and that is suitable for use as a fuel in a motor vehicle or motorboat. However, the term does not include qualified methanol or ethanol fuel (as defined in section 4041(b)(2)(B)), partially exempt methanol or ethanol fuel (as defined in section 4041(m)(2)), or alcohol that is denatured under a formula approved by the Secretary. *Refinery* means a facility used to produce taxable fuel and from which taxable fuel may be removed by pipeline, by vessel, or at a rack. However, the term does not include a facility where only blended taxable fuel, and no other type of taxable fuel, is produced.

(f)*Effective/applicability date.* This section is applicable on and after the date of publication of these regulations in the **Federal Register** as final regulations. For provisions applicable to prior periods, see 26 CFR 48.4081-1 (revised as of April 1, 2008). § 48.4081-2 [Amended] **Par. 15.** Section 48.4081-2 is amended by removing the last sentence of paragraph (d). § 48.4081-3 [Amended] **Par. 16.** Section 48.4081-3 is amended as follows: 1. Paragraph (b)(1)(iii) is removed. 2. Removing the last sentence in paragraphs (g)(1) and (h). § 48.4081-6 [Removed and Reserved] **Par. 17.** Section 48.4081-6 is removed and reserved. § 48.4082-4 [Amended] **Par. 18.** Section 48.4082-4, is amended by adding the language “or biodiesel” after “taxable fuel” in paragraphs (a)(1)(iii) and (b)(1)(iii). **Par. 19.** Section 48.4101-1 is amended as follows: 1. Paragraph (a)(1) is amended by removing the language “4081 and” and adding “4081, for certain producers and importers of alcohol, biodiesel, and renewable diesel, and alternative fuelers under sections 6426 and 6427, and for purposes of” in its place. 2. Revising paragraphs (a)(2), (c)(1)(vi), (c)(1)(vii), and adding paragraph (c)(1)(viii). 3. Paragraphs (a)(3) and (b)(3) are removed and reserved. 4. Paragraph (b)(9) is amended by removing the language “48.4081-6(b), 48.4082-5(b), 48.4082-6(b), 48.4082-7(b)” and adding “48.4082-5(b), 48.4082-7(b), 48.6426-1(b),” in its place. 5. Revising paragraph (d)(2) and adding paragraph (d)(7). 6. Paragraph (d)(5) is amended by, removing the language “vendor; or” and adding “vendor;” in its place. 7. Paragraph (d)(6) is amended by removing the language “pump).” and adding “pump); or” in its place. 8. Paragraph (f)(1)(i) is amended by removing from the heading the language “and vessel operators.” and adding “vessel operators, alternative fuelers, producers or importers of alcohol, biodiesel, or renewable diesel, and diesel-water fuel emulsion producers.” in its place. 9. Paragraph (f)(1)(ii) is amended by removing the language in the heading “and vessel operators” and adding “vessel operators, alternative fuelers, producers or importers of alcohol, biodiesel, or renewable diesel, and diesel-water fuel emulsion producers” in its place. 10. Paragraph (f)(1)(ii) is amended by removing the language in the introductory text “or vessel operator” and adding “vessel operator, alternative fueler, producer or importer of alcohol, biodiesel, or renewable diesel, or diesel-water fuel emulsion producer” in its place. 11. Paragraph (f)(1)(ii)(B) is amended by adding the language “reporting,” after “payment,”. 12. Paragraph (f)(4)(ii)(A) is amended by removing the language in the introductory text “district director” and adding “Commissioner” in its place. 13. Paragraph (f)(4)(ii)(A)( *1* ) is amended by removing the language “district director);” and adding “Commissioner); and” in its place. 14. Paragraph (f)(4)(ii)(A)( *2* ) is amended by removing the language “district director); and” and adding “Commissioner.” in its place. 15. Removing paragraph (f)(4)(i)(A)( *3* ). 16. Paragraph (f)(4)(iii) is amended by removing the language “deposit, and payment” and adding “deposit, payment, reporting, and claim” in its place. 17. Revising paragraph (h)(2)(iii). 18. Paragraph (j)(2) is amended by removing the language in the introductory text “district director” and adding “Commissioner” in its place. 19. Paragraph (j)(2)(i), is amended by removing the language “district director);” and adding “Commissioner); and” in its place. 20. Paragraph (j)(2)(ii) is amended by removing the language “district director); and” and adding “Commissioner).” in its place. 21. Removing paragraph (j)(2)(iii). 22. Paragraph

(k)is amended by adding a new sentence between the existing second and third sentences. 23. Paragraph (l)(5) is added. The revisions and additions read as follows: § 48.4101-1 Taxable fuel; registration.

(a)* * *

(2)A person is registered under section 4101 only if the Commissioner has issued a registration letter to the person and the registration has not been revoked or suspended or the person is treated under this paragraph (a)(2) as registered under section 4101. The following persons are treated as registered under section 4101:

(i)The United States is treated as registered under section 4101 for all purposes.

(ii)A partner in a partnership is treated as registered under section 4101 for purposes of claims filed under section 34 if the partnership is registered under section 4101 for purposes of filing claims under section 6426 or 6427.

(iii)A taxable fuel registrant is treated as registered under section 4101 as a diesel-water fuel emulsion producer.

(iv)A foreign person is treated as registered under section 4101 as a producer of alcohol, biodiesel, or renewable diesel if—

(A)The person produces alcohol, biodiesel, or renewable diesel outside the United States and does not produce alcohol, biodiesel, or renewable diesel within the United States; and

(B)The alcohol, biodiesel, or renewable diesel is imported into the United States by a person registered under section 4101 as a producer or importer of alcohol, biodiesel, or renewable diesel.

(c)* * *

(1)* * *

(vi)A terminal operator;

(vii)A vessel operator; or

(viii)A producer or importer of alcohol, biodiesel, or renewable diesel.

(d)* * *

(2)An alternative fueler;

(7)A diesel-water fuel emulsion producer.

(h)* * *

(2)* * *

(iii)Make any false statement on, or violate the terms of, any certificate given to another person to support—

(A)Any claim for credit, refund, or payment; or

(B)An exemption from, or reduced rate of, tax imposed by section 4081; or

(k)* * * For rules relating to claims with respect to alcohol, biodiesel, renewable diesel and alternative fuel, see §§ 48.6426-1 through 48.6426-7. * * *

(l)* * *

(5)References in this section to biodiesel and alcohol are applicable after December 31, 2004. References in this section to renewable diesel and diesel-water fuel emulsion are applicable after December 31, 2005. References in this section to alternative fuel are applicable after September 30, 2006. **Par. 20.** Sections 48.6426-1 through 48.6426-7 are added to read as follows: § 48.6426-1 Renewable and alternative fuels; explanation of terms.

(a)*Overview.* This section provides an explanation of terms for purposes of the credits allowed by sections 34 and 6426 and the payments allowed by section 6427(e). The definition of *alcohol* in paragraph

(c)of this section is also applicable for purposes of the credits allowed by section 40. The definitions of *biodiesel* and *renewable diesel* in paragraph

(b)of this section are also applicable for purposes of the credits allowed by section 40A.

(b)*Explanation of terms.* *Agri-biodiesel* means biodiesel derived solely from virgin oils. Virgin oils include virgin vegetable oils from the sources listed in section 40A(d)(2), as well as virgin oils not listed, such as palm oil and fish oil. Biodiesel produced from a feedstock that includes any recycled oils (such as recycled cooking oils) is not agri-biodiesel because it is not derived solely from virgin oils. *Alcohol* is defined in paragraph

(c)of this section. *Alcohol fuel mixture* means a mixture of alcohol and taxable fuel that contains at least 0.1 percent (by volume) of taxable fuel. *Alternative fuel* means, except as otherwise provided in the following sentence, liquefied petroleum gas, P Series Fuels (as defined by the Secretary of Energy under 42 U.S.C. 13211(2)), compressed or liquefied natural gas, liquefied hydrogen, any liquid fuel derived from coal (including peat) through the Fischer-Tropsch process, and liquid fuel derived from biomass (as defined in section 45K(c)(3)). The term does not include ethanol, methanol, biodiesel, or renewable diesel. *Alternative fuel mixture* means a mixture of alternative fuel and taxable fuel that contains at least 0.1 percent (by volume) of taxable fuel. *Alternative fueler* means a person that—

(1)Is an alternative fueler (unmixed fuel); or

(2)Produces alternative fuel mixtures for sale or use in its trade or business. *Alternative fueler (unmixed fuel)* with respect to any alternative fuel that is sold for use or used as a fuel in a motor vehicle or motorboat is—

(1)In the case of alternative fuel on which tax is imposed by section 4041(a)(2) or (3), the person liable for such tax (determined in the case of compressed natural gas after the application of § 48.4041-21 and in the case of any other alternative fuel after the application of rules similar to the rules of §§ 48.4041-3 and 48.4041-5);

(2)In the case of alternative fuel that is not described in paragraph

(1)or

(3)of this definition, the person that would be so liable for such tax but for the application of an exemption provided by section 4041(a)(3)(B), (b), (f), (g), or (h); and

(3)In the case of liquefied natural gas

(LNG)that is sold in bulk for the exclusive use of a State that provides the written waiver described in § 48.6426-6(c)(4) and is delivered into a bulk supply tank that can only fuel motor vehicles and motorboats of the State, the person that sells the alternative fuel to the State. *Biodiesel* means biodiesel as defined in section 40A(d)(1). Biodiesel may be produced either within or outside the United States. Fuel meets the Environmental Protection Agency

(EPA)registration requirements described in section 40A(d)(1)(A) if the EPA does not require the fuel to be registered. *Biodiesel mixture* means a mixture of biodiesel and diesel fuel that contains at least at least 0.1 percent (by volume) of diesel fuel. The kerosene in a biodiesel mixture is not included in either the overall volume of the mixture or the volume of diesel fuel in the mixture for purposes of determining whether the biodiesel mixture satisfies the 0.1 percent requirement. The diesel fuel in a biodiesel mixture may be dyed or undyed. See, however, section 6715 for the penalty for willful alteration of the strength or composition of any dye in dyed fuel and § 48.6715-1 for related rules. *Commingled biodiesel* means biodiesel that is held by—

(1)Its producer in a storage tank at a time when the tank is used only for the storage of biodiesel and is used to store both biodiesel (other than agri-biodiesel) and agri-biodiesel; or

(2)A person other than its producer in a storage tank at a time when the tank is used only for the storage of biodiesel and is used to store biodiesel to which more than a single Certificate for Biodiesel applies. *Commingled renewable diesel* means renewable diesel held by a person other than its producer in a storage tank at a time when the tank is used only for the storage of renewable diesel and is used to store renewable diesel to which more than a single Certificate for Renewable Diesel applies. *Mixture* means an alcohol fuel mixture, a biodiesel mixture, a renewable diesel mixture, or an alternative fuel mixture. *Mixture producer* is the person that has title to the mixture immediately after it is created. *Motor vehicle* has the meaning given to the term by § 48.4041-8(c). Thus, for example, the term includes forklift trucks used to carry loads at industrial plants and warehouses. *Producer* means the person that produces alcohol, biodiesel, or renewable diesel. *Registered biodiesel producer* means a biodiesel producer that is registered under section 4101 as a producer of biodiesel. *Registered renewable diesel producer* means a renewable diesel producer that is registered under section 4101 as a producer of renewable diesel. *Renewable diesel* means renewable diesel as defined in section 40A(f)(3). For this purpose, a fuel meets the Environmental Protection Agency's (EPA's) registration requirements described in section 40A(f)(3)(A) if the EPA does not require the fuel to be registered or if diesel fuel coproduced from renewable diesel and petroleum feedstocks is registered. Renewable diesel may be produced either within or outside the United States. *Renewable diesel mixture* is defined in paragraph

(d)of this section. *Reseller* means, with respect to any biodiesel or renewable diesel, a person that buys and subsequently sells such fuel without using the fuel to produce a biodiesel or renewable diesel mixture. *Thermal depolymerization process* means, for purposes of the definition of *renewable diesel* in section 40A(f)(3), a process for the reduction of complex organic materials through the use of pressure and heat to decompose long chain polymers of hydrogen, oxygen, and carbon into short-chain petroleum hydrocarbons with a maximum length of around 18 carbons. A process may qualify as thermal depolymerization even if catalysts are used in the process. *Use as a fuel* is defined in paragraph

(e)of this section.

(c)*Alcohol; definition* —(1) *In general.* Except as otherwise provided in this paragraph (c), *alcohol* means any alcohol, including methanol and ethanol, that is not a derivative product of petroleum, natural gas, or coal (including peat). Thus, for example, the term does not include an ethanol by-product produced from a derivative of petroleum or natural gas. However, the term does include alcohol made from renewable resources, such as agricultural or forestry products. The term also includes alcohol made from urban wastes, such as methanol made from methane gas formed at waste disposal sites.

(2)*Source of the alcohol.* Alcohol may be produced either within or outside the United States.

(3)*Proof and denaturants.* Except for purposes of section 40, alcohol does not include alcohol with a proof of less than 190 degrees (determined without regard to added denaturants). For purposes of section 40, alcohol does not include alcohol with a proof of less than 150 degrees (determined without regard to added denaturants). If alcohol includes impurities or denaturants, the volume of alcohol is determined under the following rules:

(i)Except for purposes of section 40, the volume of alcohol includes the volume of any impurities (other than added denaturants and any fuel with which the alcohol is mixed) that reduce the purity of the alcohol to not less than 190 proof (determined without regard to added denaturants and any fuel with which the alcohol is mixed).

(ii)For purposes of section 40, the volume of alcohol includes the volume of any impurities (other than added denaturants and any fuel with which the alcohol is mixed) that reduce the purity of the alcohol to not less than 150 proof (determined without regard to added denaturants and any fuel with which the alcohol is mixed).

(iii)The volume of alcohol includes the volume of any approved denaturants that reduce the purity of the alcohol, but only to the extent that the volume of the approved denaturants does not exceed five percent of the unadjusted volume of the alcohol. The unadjusted volume of the alcohol is determined for this purpose by including in unadjusted volume the approved denaturants and the impurities included in volume under paragraph (c)(3)(i) or

(ii)of this section. If the volume of the approved denaturants exceeds five percent of the unadjusted volume of the alcohol, the excess over five percent is not considered alcohol.

(iv)For purposes of this paragraph (c)(3), approved denaturants are any denaturants (including gasoline and other nonalcohol fuel denaturants) that reduce the purity of the alcohol and are added to such alcohol under a formula approved by the Secretary.

(4)*ETBE.* Ethyl tertiary butyl ether

(ETBE)and other ethers produced from alcohol are treated as alcohol. The ether is treated as alcohol of the same type as the alcohol used to produce the ether and the volume of alcohol resulting from such treatment is the volume of alcohol of such type with an energy content equal to the energy content of the ether.

(d)*Renewable diesel mixture; definition* —(1) *In general.* *Renewable diesel mixture* means—

(i)A mixture of renewable diesel and diesel fuel (other than renewable diesel) that contains at least 0.1 percent (by volume) of diesel fuel (other than renewable diesel); and

(ii)Fuel produced from biomass (as defined in section 45K(c)(3)) and petroleum feedstocks using a thermal depolymerization process if such fuel has been registered by the Environmental Protection Agency

(EPA)under section 211 of the Clean Air Act (42 U.S.C. 7545) and meets the requirements of ASTM D975 or D396.

(2)*Special rules.* The kerosene in a renewable diesel mixture is not included in either the overall volume of the mixture or the volume of diesel fuel in the mixture for purposes of determining whether the renewable diesel mixture satisfies the 0.1 percent requirement. The diesel fuel in the renewable diesel mixture may be dyed or undyed. See, however, section 6715 for the penalty for willful alteration of the strength or composition of any dye in dyed fuel and § 48.6715-1 for related rules. For availability for ASTM specifications, see § 48.4081-1(d).

(e)*Use as a fuel; definitions* —(1) A mixture is *used as a fuel* when it is consumed in the production of energy. Thus, for example, a mixture is used as a fuel when it is consumed in an internal combustion engine to power a vehicle or in a furnace to produce heat. However, a mixture that is destroyed in a fire or other casualty loss is not used as a fuel.

(2)A mixture is *sold for use as a fuel* if the producer sells the fuel and has reason to believe that the mixture will be used as a fuel by either the producer's buyer or any later buyer of the mixture.

(3)Alternative fuel (not in a mixture) is sold for use or used as a fuel in a motor vehicle or motorboat when the alternative fueler (unmixed fuel) with respect to the fuel delivers it into the fuel supply tank of a motor vehicle or motorboat or sells it in bulk for use by the buyer as a fuel in a motor vehicle or motorboat.

(f)*Other definitions.* For the definitions of taxable fuel and diesel fuel, see § 48.4081-1.

(g)*Effective/applicability date.* This section is applicable on and after the date these regulations are published as final regulations in the **Federal Register** . § 48.6426-2 Alcohol fuel mixtures.

(a)*Overview.* This section provides rules under which an alcohol fuel mixture producer may claim an excise tax credit under section 6426, a payment under section 6427, or an income tax credit under section 34. These claims relate to the mixture producer's sale or use of an alcohol fuel mixture and are based on the amount of alcohol used to produce the alcohol fuel mixture. For the applicable claim rate, see section 6426.

(b)*Conditions to allowance* —(1) *Excise tax credit.* A claim for the alcohol fuel mixture credit with respect to an alcohol fuel mixture is allowed under section 6426 only if each of the following conditions is satisfied:

(i)The claimant produced the alcohol fuel mixture for sale or use in the trade or business of the claimant.

(ii)The claimant sold the alcohol fuel mixture for use as a fuel or used the alcohol fuel mixture as a fuel.

(iii)The claimant has made no other claim with respect to the alcohol in the mixture or, if another claim has been made, such other claim is disregarded under this paragraph (b)(1)(iii). A claim is disregarded under this paragraph (b)(1)(iii) if it is—

(A)A claim for the small ethanol producer credit under section 40; or

(B)An erroneous claim under section 6427 and either the claim has been disallowed or the claimant has repaid the government the amount received under section 6427 with interest.

(iv)The claimant has filed a timely claim on Form 720, “Quarterly Federal Excise Tax Return,” that contains all the information required in paragraph

(c)of this section.

(2)*Payment or income tax credit.* A claim for an alcohol fuel mixture payment under section 6427 or an income tax credit under section 34 is allowed only if—

(i)The conditions of paragraphs (b)(1)(i) and

(ii)of this section are met; and

(ii)The claimant has filed a timely claim for payment on Form 720 or Form 8849, “Claim for Refund of Excise Taxes,” or for a credit on Form 4136, “Credit for Federal Tax Paid on Fuels,” that contains all the information required by paragraph

(c)of this section.

(3)*ETBE; sold for use or used as a fuel.* An alcohol fuel mixture that is produced at a refinery and that includes ethyl tertiary butyl ether or other ethers produced from alcohol is treated as meeting the requirement of paragraph (b)(1)(ii) of this section when the mixture is removed from the refinery and any subsequent sale or use of the mixture is disregarded for purposes of this section.

(4)*Overall limitations on credits and payments.* See § 48.6426-7(a) for overall limitations on credits and payments allowed with respect to mixtures under sections 34, 6426, and 6427.

(c)*Content of claim.* Each claim for an alcohol fuel mixture credit or payment must contain the following information with respect to the mixture covered by the claim:

(1)The amount of alcohol in the alcohol fuel mixture.

(2)A statement that the conditions to allowance described in paragraph

(b)of this section have been met.

(3)A statement that the claimant either—

(i)Produced the alcohol it used in the mixture; or

(ii)Has in its possession a record of the name, address, and employer identification number of the person(s) that sold the alcohol to the claimant and the date of purchase.

(d)*Effective/applicability date.* This section is applicable on and after the date these regulations are published as final regulations in the **Federal Register** . § 48.6426-3 Biodiesel mixtures.

(a)*Overview.* This section provides rules under which a biodiesel mixture producer may claim an excise tax credit under section 6426, a payment under section 6427, or an income tax credit under section 34. These claims relate to the mixture producer's sale or use of a biodiesel mixture and are based on the amount of biodiesel used to produce the biodiesel mixture. For the applicable claim rate, see section 6426.

(b)*Conditions to allowance* —(1) *Excise tax credit.* A claim for the biodiesel mixture credit with respect to a biodiesel mixture is allowed under section 6426 only if each of the following conditions is satisfied:

(i)The claimant produced the biodiesel mixture for sale or use in the trade or business of the claimant.

(ii)The claimant sold the biodiesel mixture for use as a fuel or used the biodiesel mixture as a fuel.

(iii)The claimant—

(A)Produced the biodiesel in the mixture; or

(B)Has obtained a certificate from the registered biodiesel producer as described in paragraph

(e)of this section and, if applicable, a statement described in paragraph

(f)of this section, for such biodiesel and has no reason to believe any information in the certificate and statement is false.

(iv)The claimant has made no other claim with respect to the biodiesel in the mixture or, if another claim has been made, such other claim is disregarded under this paragraph (b)(1)(iv). A claim is disregarded under this paragraph (b)(1)(iv) if it is—

(A)A claim for the small agri-biodiesel producer credit under section 40A; or

(B)An erroneous claim under section 6427 and either the claim has been disallowed or the claimant has repaid the government the amount received under section 6427 with interest.

(v)The claimant has filed a timely claim on Form 720, “Quarterly Federal Excise Tax Return,” that contains all the information required in paragraph

(c)of this section.

(2)*Payment or income tax credit.* A claim for a biodiesel mixture payment under section 6427 or an income tax credit under section 34 is allowed only if—

(i)The conditions of paragraphs (b)(1)(i), (ii), and

(iii)of this section are met; and

(ii)The claimant has filed a timely claim for payment on Form 720 or Form 8849, “Claim for Refund of Excise Tax,” or for a credit on Form 4136, “Credit for Federal Tax Paid on Fuels,” that contains all the information required by paragraph

(c)of this section.

(3)*Overall limitations on credits and payments.* See § 48.6426-7(a) for overall limitations on credits and payments allowed with respect to mixtures under sections 34, 6426, and 6427.

(c)*Content of claim.* Each claim for a biodiesel mixture credit or payment must contain the following information with respect to the mixture covered by the claim:

(1)The amount of agri-biodiesel and biodiesel other than agri-biodiesel in the biodiesel mixture.

(2)Unless the claimant is the producer of the biodiesel in the biodiesel mixture, a copy of the applicable Certificate for Biodiesel described in paragraph

(e)of this section and Statement(s) of Biodiesel Reseller described in paragraph

(f)of this section. In the case of a certificate and statement that support a claim made on more than one claim form, the certificate and statement are to be included with the first claim and the claimant is to provide information related to the certificate and statement on any subsequent claim in accordance with the instructions applicable to the claim form.

(3)A statement that the conditions to allowance described in paragraph

(b)of this section have been met.

(4)A statement that the claimant either—

(i)Is a registered biodiesel producer and produced the biodiesel it used in the mixture; or

(ii)Has in its possession a record of the name, address, and employer identification number of the person(s) that sold the biodiesel to the claimant and the date of purchase.

(d)*Commingled biodiesel; accounting method.* For purposes of determining the certificate applicable to commingled biodiesel, a person that holds commingled biodiesel may identify the biodiesel it sells or uses by any reasonable method, including the first-in, first-out method applied either on a tank-by-tank basis or on an aggregate basis to all commingled biodiesel the person holds.

(e)*Certificate for Biodiesel* —(1) *In general.* The certificate to be obtained by the claimant is a statement that is signed under penalties of perjury by a person with authority to bind the registered biodiesel producer, is in substantially the same form as the model certificate in paragraph (e)(4) of this section, and contains all the information necessary to complete such model certificate.

(2)*Certificate identification number.* The certificate identification number is determined by the producer and must be unique to each certificate.

(3)*Multiple certificates for single sale.* A registered biodiesel producer may, with respect to a particular sale of biodiesel, provide multiple separate certificates, each applicable to a portion of the total volume of biodiesel sold. Thus, for example, a biodiesel producer that sells 5,000 gallons of biodiesel may provide its buyer with five certificates for 1,000 gallons each. The multiple certificates may be provided either to the buyer at or after the time of sale or to a reseller in the circumstances described in paragraph (f)(2) of this section.

(4)*Model certificate.* CERTIFICATE FOR BIODIESEL Certificate Identification Number: __________ (To support a claim related to biodiesel or a biodiesel mixture under the Internal Revenue Code) The undersigned biodiesel producer (“Producer”) hereby certifies the following under penalties of perjury: 1. Producer's name, address, and employer identification number 2. Name, address, and employer identification number of person buying the biodiesel from Producer 3. Date and location of sale to buyer 4. This certificate applies to ____ gallons of biodiesel. 5. Producer certifies that the biodiesel to which this certificate relates is: ____% Agri-biodiesel (derived solely from virgin oils) ____ % Biodiesel other than agri-biodiesel 6. This certificate applies to the following sale: ____ Invoice or delivery ticket number ____ Total number of gallons of biodiesel sold under that invoice or delivery ticket number (including biodiesel not covered by this certificate) 7. ____ Total number of certificates issued for that invoice or delivery ticket number 8. Name, address, and employer identification number of reseller to whom certificate is issued (only in the case of certificates reissued to a reseller after the return of the original certificate) 9. ____ Original Certificate Identification Number (only in the case of certificates reissued to a reseller after return of the original certificate) 10. Producer is registered as a biodiesel producer with registration number ____. Producer's registration has not been suspended or revoked by the Internal Revenue Service. Producer certifies that the biodiesel to which this certificate relates is monoalkyl esters of long chain fatty acids derived from plant or animal matter and that it meets the requirements of the American Society of Testing and Materials D6751 and the registration requirements for fuels and fuel additives established by EPA under section 211 of the Clean Air Act (42 U.S.C. 7545). Producer understands that the fraudulent use of this certificate may subject Producer and all parties making any fraudulent use of this certificate to a fine or imprisonment, or both, together with the costs of prosecution. Printed or typed name of person signing this certificate Title of person signing Signature and date signed

(f)*Statement of Biodiesel Reseller* —(1) *In general.* A person that receives a Certificate for Biodiesel, and subsequently sells the biodiesel without producing a biodiesel mixture, is to give the certificate and a statement that satisfies the requirements of this paragraph

(f)to its buyer. The statement must contain all of the information necessary to complete the model statement in paragraph (f)(4) of this section and be attached to the Certificate for Biodiesel. A reseller cannot make multiple copies of a Certificate for Biodiesel to divide the certificate between multiple buyers.

(2)*Multiple resales.* If a single Certificate for Biodiesel applies to biodiesel that a reseller expects to sell to multiple buyers, the reseller should return the certificate (together with any statements provided by intervening resellers) to the producer who may reissue to the reseller multiple Certificates for Biodiesel in the appropriate volumes. The reissued certificates must include the Certificate Identification Number from the certificate that has been returned.

(3)*Withdrawal of the right to provide a certificate.* The Internal Revenue Service may withdraw the right of a reseller of biodiesel to provide the certificate and a statement under this section if the Internal Revenue Service cannot verify the accuracy of the reseller's statements. The Internal Revenue Service may notify any person to whom the buyer has provided a statement that the reseller's right to provide the certificate and a statement has been withdrawn.

(4)*Model statement of biodiesel reseller.* STATEMENT OF BIODIESEL RESELLER (To support a claim related to biodiesel or a biodiesel mixture under the Internal Revenue Code) The undersigned biodiesel reseller (“Reseller”) hereby certifies the following under penalties of perjury: 1. Reseller's name, address, and employer identification number 2. Name, address, and employer identification number of Reseller's buyer 3. Date and location of sale to buyer 4. Volume of biodiesel sold 5. Certificate Identification Number on the Certificate for Biodiesel Reseller has bought the biodiesel described in the accompanying Certificate for Biodiesel and Reseller has no reason to believe that any information in the certificate is false. Reseller has not been notified by the Internal Revenue Service that its right to provide a certificate and a statement has been withdrawn. Reseller understands that the fraudulent use of this statement may subject Reseller and all parties making any fraudulent use of this statement to a fine or imprisonment, or both, together with the costs of prosecution. Printed or typed name of person signing this certificate Title of person signing Signature and date signed

(g)*Erroneous certificates; reasonable cause.* If a claim for credit or payment described in this section is based on erroneous information in a certificate or statement described in paragraph (e)(4) or (f)(4) of this section, the claim is not allowed. Thus, for example, if a producer identifies a product as agri-biodiesel on a Certificate for Biodiesel and the product does not meet the registration requirements established by EPA, a claim for a biodiesel mixture credit based on the certificate is not allowed. However, if the claimant has met the conditions of paragraph (b)(1)(iii)(B) of this section with respect to the certificate or statement, reliance on the certificate or statement will be treated as reasonable cause for purposes of the penalties imposed by sections 6651 (relating to failure to pay) and 6675 (relating to excessive claims).

(h)*Effective/applicability date.* This section is applicable on and after the date of publication of these regulations as final regulations in the **Federal Register** . § 48.6426-4 Renewable diesel mixtures.

(a)*Overview.* This section provides rules under which a renewable diesel mixture producer may claim an excise tax credit under section 6426, a payment under section 6427, or an income tax credit under section 34. These claims relate to the mixture producer's sale or use of a renewable diesel mixture and are based on the amount of renewable diesel used to produce the renewable diesel mixture. For the applicable claim rate, see section 40A(f)(2).

(b)*Conditions to allowance* —(1) *Excise tax credit.* A claim for the renewable diesel mixture credit with respect to a renewable diesel mixture is allowed under section 6426 only if each of the following conditions is satisfied:

(i)The claimant produced the renewable diesel mixture for sale or use in the trade or business of the claimant.

(ii)The claimant sold the renewable diesel mixture for use as a fuel or used the renewable diesel mixture as a fuel.

(iii)The claimant—

(A)Produced the renewable diesel in the mixture; or

(B)Has obtained a certificate from the registered renewable diesel producer as described in paragraph

(e)of this section and, if applicable, a statement described in paragraph

(f)of this section, for such renewable diesel and has no reason to believe any information in the certificate and statement is false.

(iv)The claimant has made no other claim with respect to the renewable diesel in the mixture or, if another claim has been made, such other claim is disregarded under this paragraph (b)(1)(iv). A claim is disregarded under this paragraph (b)(1)(iv) if it is an erroneous claim under section 6427 and either the claim has been disallowed or the claimant has repaid the government the amount received under section 6427 with interest.

(v)The claimant has filed a timely claim on Form 720, “Quarterly Federal Excise Tax Return,” that contains all the information required in paragraph

(c)of this section.

(2)*Payment or income tax credit.* A claim for a renewable diesel mixture payment under section 6427 or an income tax credit under section 34 is allowed only if—

(i)The conditions of paragraphs (b)(1)(i), (ii), and

(iii)of this section are met; and

(c)of this section.

(3)*Overall limitations on credits and payments.* See § 48.6426-7(a) for overall limitations on credits and payments allowed with respect to mixtures under sections 34, 6426, and 6427.

(c)*Content of claim.* Each claim for a renewable diesel mixture credit or payment must contain the following information with respect to the mixture covered by the claim:

(1)The amount of renewable diesel in the renewable diesel mixture.

(2)Unless the claimant is the producer of the renewable diesel in the renewable diesel mixture, a copy of the applicable Certificate for Renewable Diesel described in paragraph

(e)of this section and Statement(s) of Renewable Diesel Reseller described in paragraph

(3)A statement that the conditions to allowance described in paragraph

(b)of this section have been met.

(4)A statement that the claimant either—

(i)Is a registered renewable diesel producer and produced the renewable diesel it used in the mixture; or

(ii)Has in its possession a record of the name, address, and employer identification number of the person(s) that sold the renewable diesel to the claimant and the date of purchase.

(d)*Commingled renewable diesel; accounting method.* For purposes of determining the certificate applicable to commingled renewable diesel, a person that holds commingled renewable diesel may identify the renewable diesel it sells or uses by any reasonable method, including the first-in, first-out method applied either on a tank-by-tank basis or on an aggregate basis to all commingled renewable diesel the person holds.

(e)*Certificate for Renewable Diesel* —(1) *In general.* The certificate to be obtained by the claimant is a statement that is signed under penalties of perjury by a person with authority to bind the registered renewable diesel producer, is substantially in the same form as the model certificate in paragraph (e)(4) of this section, and contains all the information necessary to complete such model certificate.

(2)*Certificate identification number.* The certificate identification number is determined by the producer and must be unique to each certificate.

(3)*Multiple certificates for single sale.* A registered renewable diesel producer may, with respect to a particular sale of renewable diesel, provide multiple separate certificates, each applicable to a portion of the total volume of renewable diesel sold. Thus, for example, a renewable diesel producer that sells 5,000 gallons of renewable diesel may provide its buyer with five certificates for 1,000 gallons each. The multiple certificates may be provided either to the buyer at or after the time of sale or to a reseller in the circumstances described in paragraph (f)(2) of this section.

(4)*Model certificate.* CERTIFICATE FOR RENEWABLE DIESEL Certificate Identification Number: (To support a claim related to renewable diesel or a renewable diesel mixture under the Internal Revenue Code) The undersigned renewable diesel producer (“Producer”) hereby certifies the following under penalties of perjury: 1. Producer's name, address, and employer identification number 2. Name, address, and employer identification number of person buying the renewable diesel from Producer 3. Date and location of sale to buyer 4. This certificate applies to ____ gallons of renewable diesel. 5. This certificate applies to the following sale: ____ Invoice or delivery ticket number ____ Total number of gallons of renewable diesel sold under that invoice or delivery ticket number (including renewable diesel not covered by this certificate) 6. ____ Total number of certificates issued for that invoice or delivery ticket number 7. Name, address, and employer identification number of reseller to whom certificate is issued (only in the case of certificates reissued to a reseller after the return of the original certificate) 8. ______ Original Certificate Identification Number (only in the case of certificates reissued to a reseller after return of the original certificate) 9. Producer is registered as a renewable diesel producer with registration number ____. Producer's registration has not been suspended or revoked by the Internal Revenue Service. Producer certifies that the renewable diesel to which this certificate relates is diesel fuel derived from biomass (as defined in section 45K(c)(3) of the Internal Revenue Code) using a thermal depolymerization process and that it meets the requirements of the American Society of Testing and Materials D975 or D396 and the registration requirements for fuels and fuel additives established by EPA under section 211 of the Clean Air Act (42 U.S.C. 7545). Producer understands that the fraudulent use of this certificate may subject Producer and all parties making any fraudulent use of this certificate to a fine or imprisonment, or both, together with the costs of prosecution. Printed or typed name of person signing this certificate Title of person signing Signature and date signed

(f)*Statement of Renewable Diesel Reseller* —(1) *In general.* A person that receives a Certificate for Renewable Diesel, and subsequently sells the renewable diesel without producing a renewable diesel mixture, is to give the certificate and a statement that satisfies the requirements of this paragraph

(f)to its buyer. The statement must contain all of the information necessary to complete the model statement in paragraph (f)(4) of this section and be attached to the Certificate for Renewable Diesel. A reseller cannot make multiple copies of a Certificate for Renewable Diesel to divide the certificate between multiple buyers.

(2)*Multiple resales.* If a single Certificate for Renewable Diesel applies to renewable diesel that a reseller expects to sell to multiple buyers, the reseller should return the certificate (together with any statements provided by intervening resellers) to the producer who may reissue to the reseller multiple Certificates for Renewable Diesel in the appropriate volumes. The reissued certificates must include the Certificate Identification Number from the certificate that has been returned.

(3)*Withdrawal of the right to provide a certificate.* The Internal Revenue Service may withdraw the right of a reseller of renewable diesel to provide the certificate and a statement under this section if the Internal Revenue Service cannot verify the accuracy of the reseller's statements. The Internal Revenue Service may notify any person to whom the buyer has provided a statement that the reseller's right to provide the certificate and a statement has been withdrawn.

(4)*Model statement of renewable diesel reseller.* STATEMENT OF RENEWABLE DIESEL RESELLER (To support a claim related to renewable diesel or a renewable diesel mixture under the Internal Revenue Code) The undersigned renewable diesel reseller (“Reseller”) hereby certifies the following under penalties of perjury: 1. Reseller's name, address, and employer identification number 2. Name, address, and employer identification number of Reseller's buyer 3. Date and location of sale to buyer 4. Volume of renewable diesel sold 5. Certificate Identification Number on the Certificate for Renewable Diesel Reseller has bought the renewable diesel described in the accompanying Certificate for Renewable Diesel and Reseller has no reason to believe that any information in the certificate is false. Reseller has not been notified by the Internal Revenue Service that its right to provide a certificate and a statement has been withdrawn. Reseller understands that the fraudulent use of this statement may subject Reseller and all parties making any fraudulent use of this statement to a fine or imprisonment, or both, together with the costs of prosecution. Printed or typed name of person signing this certificate Title of person signing Signature and date signed

(g)*Erroneous certificates; reasonable cause.* If a claim for credit or payment described in this section is based on erroneous information in a certificate or statement described in paragraph (e)(4) or (f)(4) of this section, the claim is not allowed. Thus, for example, if a producer identifies a product as renewable diesel on a Certificate for Renewable Diesel and the product does not meet the registration requirements established by EPA, a claim for a renewable diesel mixture credit based on the certificate is not allowed. However, if the claimant has met the conditions of paragraph (b)(1)(iii)(B) of this section with respect to the certificate or statement, reliance on the certificate or statement will be treated as reasonable cause for purposes of the penalties imposed by sections 6651 (relating to failure to pay) and 6675 (relating to excessive claims).

(h)*Effective/applicability date.* This section is applicable on and after the date these regulations are published as final regulations in the **Federal Register** . § 48.6426-5 Alternative fuel mixtures.

(a)*Overview.* This section provides rules under which an alternative fueler that produces an alternative fuel mixture may claim an excise tax credit under section 6426, a payment under section 6427, or an income tax credit under section 34. These claims relate to the mixture producer's sale or use of an alternative fuel mixture and are based on the amount of alternative fuel used to produce the alternative fuel mixture. For the applicable claim rate, see section 6426.

(b)*Conditions to allowance* —(1) *Excise tax credit.* A claim for the alternative fuel mixture credit with respect to an alternative fuel mixture is allowed under section 6426 only if each of the following conditions is satisfied:

(i)The claimant produced the alternative fuel mixture for sale or use in the trade or business of the claimant.

(ii)The claimant sold the alternative fuel mixture for use as a fuel or used the alternative fuel mixture as a fuel.

(iii)The claimant is registered under section 4101 as an alternative fueler.

(iv)The claimant has made no other claim with respect to the alternative fuel in the mixture or, if another claim has been made, such other claim is disregarded under this paragraph (b)(1)(iv). A claim is disregarded under this paragraph (b)(1)(iv) if it is an erroneous claim under section 6427 and either the claim has been disallowed or the claimant has repaid the government the amount received under section 6427 with interest.

(v)The claimant has filed a timely claim on Form 720, “Quarterly Federal Excise Tax Return,” that contains all the information required by the claim form described in paragraph

(c)of this section.

(2)*Payment or income tax credit.* A claim for an alternative fuel mixture payment under section 6427 or an alternative fuel mixture credit under sections 34 and 6427 is allowed only if—

(i)The conditions of paragraphs (b)(1)(i), (ii), and

(iii)of this section are met; and

(ii)The claimant has filed a timely claim for payment on Form 720 or Form 8849, “Claim for Refund of Excise Taxes,” or for a credit on Form 4136, “Credit for Fuel Tax Paid on Fuels,” that contains all the information required by the claim form described in paragraph

(c)of this section.

(3)*Overall limitations on credits and payments.* See § 48.6426-7(a) for overall limitations on credits and payments allowed with respect to mixtures under sections 34, 6426, and 6427.

(c)*Content of claim.* Each claim for an alternative fuel mixture credit or payment must contain the following information with respect to the mixture covered by the claim:

(1)The amount of alternative fuel in the alternative fuel mixture.

(2)A statement that the conditions to allowance described in paragraph

(b)of this section have been met.

(3)A statement that the claimant either—

(i)Produced the alternative fuel it used in the mixture; or

(ii)Has in its possession—

(A)A record of the name, address, and employer identification number of the person(s) that sold the alternative fuel to the claimant and the date of purchase; and

(B)An invoice or other purchase documentation identifying the alternative fuel.

(d)*Effective/applicability date.* This section is applicable on and after the date these regulations are published as final regulations in the **Federal Register** . § 48.6426-6 Alternative fuel.

(a)*Overview.* This section provides rules under which an alternative fueler (unmixed fuel) may claim an excise tax credit under section 6426, a payment under section 6427, or an income tax credit under section 34. These claims are based on the amount of alternative fuel sold or used. For the applicable claim rate, see section 6426.

(b)*Conditions to allowance* —(1) *Excise tax credit.* A claim for the alternative fuel excise tax credit with respect to alternative fuel sold for use or used as a fuel in a motor vehicle or motorboat is allowed under section 6426 only if each of the following conditions is satisfied:

(i)The claimant is the alternative fueler (unmixed fuel) with respect to the fuel.

(ii)The claimant is registered under section 4101 as an alternative fueler (unmixed fuel).

(iii)The claimant has made no other claim with respect to the alternative fuel or, if another claim has been made, such other claim is disregarded under this paragraph (b)(1)(iii). A claim is disregarded under this paragraph (b)(1)(iii) if it is an erroneous claim under section 6427 and either the claim has been disallowed or the claimant has repaid the government the amount received under section 6427 with interest.

(iv)The claimant has filed a timely claim on Form 720, “Quarterly Federal Excise Tax Return,” that contains all the information required by the claim form described in paragraph

(c)of this section.

(2)*Payment or income tax credit.* A claim for an alternative fuel payment under section 6427 or an income tax credit under section 34 is allowed only if—

(i)The conditions of paragraphs (b)(1)(i) and

(ii)of this section are met;

(ii)The sale or use is in the claimant's trade or business; and

(iii)The claimant has filed a timely claim for payment on Form 8849, “Claim for Refund of Excise Taxes,” or for a credit on Form 4136, “Credit for Fuel Tax Paid on Fuels,” that contains all the information required by paragraph

(c)of this section.

(3)*Overall limitations on credits and payments.* See § 48.6426-7(b) for overall limitations on credits and payments allowed with respect to alternative fuel under sections 34, 6426, and 6427.

(c)*Content of claim.* Each claim for an alternative fuel credit or payment must contain the following information with respect to the alternative fuel covered by the claim:

(1)The amount of alternative fuel sold or used.

(2)A statement that the conditions to allowance described in paragraph

(b)of this section have been met.

(3)A statement that the claimant either—

(i)Produced the alternative fuel it sold or used; or

(ii)Has in its possession—

(A)A record of the name, address, and employer identification number of the person(s) that sold the alternative fuel to the claimant and the date of purchase; and

(B)An invoice or other purchase documentation identifying the alternative fuel.

(4)In the case of liquefied natural gas

(LNG)that the claimant sold in bulk for the exclusive use of the State and delivered into a bulk supply tank that can only fuel motor vehicles or motorboats of the State, a statement that the claimant has in its possession a written waiver, signed under penalties of perjury by a person with authority to bind the State, stating that the LNG is delivered in bulk for the exclusive use of the State in a motor vehicle or motorboat and that the State gives up its right to claim any alternative fuel credit for such LNG.

(d)*Effective/applicability date.* This section is applicable on and after the date these regulations are published as final regulations in the **Federal Register** § 48.6426-7 Overall limitations on credits and payments.

(a)*Limitations applicable to mixtures.* In the case of mixtures, the following limitations apply:

(1)The aggregate amount that, but for the coordination rules in sections 6426(g) and 6427(e)(3), would be allowable to a claimant either as a credit under section 6426 or a payment under section 6427 with respect to sales and uses of mixtures during a calendar quarter is allowed only as a credit under section 6426 to the extent such amount does not exceed the claimant's tax liability under section 4081 for the calendar quarter.

(2)The aggregate amount allowed to a claimant as a payment under section 6427 or an income tax credit under section 34 with respect to sales and uses of mixtures during a calendar quarter shall not exceed the amount that, but for the coordination rules in sections 6426(g) and 6427(e)(3), would be allowable to the claimant with respect to such sales and uses reduced by the claimant's tax liability under section 4081 for the calendar quarter.

(b)*Limitations applicable to alternative fuel.* In the case of alternative fuel, the following limitations apply:

(1)The aggregate amount that, but for the coordination rules in sections 6426(g) and 6427(e)(3), would be allowable to a claimant either as a credit under section 6426 or a payment under section 6427 with respect to sales and uses of alternative fuel during a calendar quarter is allowed only as a credit under section 6426 to the extent such amount does not exceed the claimant's tax liability under section 4041 for the calendar quarter.

(2)The aggregate amount allowed to a claimant as a payment under section 6427 or an income tax credit under section 34 with respect to sales and uses of alternative fuel during a calendar quarter shall not exceed the amount that, but for the coordination rules in sections 6426(g) and 6427(e)(3), would be allowable to the claimant with respect to such sales and uses reduced by the claimant's tax liability under section 4041 for the calendar quarter.

(c)*Effective/applicability dates.* This section is applicable on and after the date of publication of these regulations as final regulations in the **Federal Register** . **Par. 21.** Section 48.6427-8 is amended as follows: 1. Revising paragraph (b)(1)(v) and adding (b)(1)(vii)(E). 2. Paragraph (b)(1)(vii)(C) is amended by removing the language “vehicle; or” and adding “vehicle;” in its place. 3. Paragraph (b)(1)(vii)(D) is amended by removing the language “6427(b)(3)).” and adding “6427(b)(3)); or” in its place. 4. Paragraph

(f)is amended by removing the language from the first sentence “1994.” and adding “1994, and paragraph (b)(1)(vii)(E), which is applicable after the date these regulations are published as final regulations in the **Federal Register** .” in its place.” The revision and addition read as follows: § 48.6427-8 Diesel fuel and kerosene; claims by ultimate purchasers.

(b)* * *

(1)* * *

(v)The diesel fuel or kerosene was not used on a farm for farming purposes (as defined in § 48.6420-4) or, except in the case of fuel described in paragraph (b)(1)(vii)(E) of the section, by a State;

(vii)* * *

(E)For the exclusive use, in the case of blended taxable fuel that is produced by a State and is both diesel fuel and a mixture (as defined in § 48.6426-1(b)), of the State that produced the blended taxable fuel. **Par. 22.** Section 48.6427-12 is added to read as follows: § 48.6427-12 Alcohol, alternative fuel, biodiesel, and renewable diesel.

(a)*In general.* This section contains special rules for payments related to fuels containing alcohol, alternative fuel, biodiesel, and renewable diesel. Other rules for these payments are in §§ 48.6426-1 through 48.6426-7.

(b)*Coordination with excise tax credit.* If the aggregate amount a person receives as a payment under section 6427(e) with respect to sales and uses of mixtures during a calendar quarter exceeds the amount allowed under § 48.6426-7(a), the excess constitutes an excessive amount for purposes of section 6206 and such amount, as well as the civil penalty under section 6675, may be assessed as if it were a tax imposed by section 4081. If the excessive amount is repaid to the government, with interest from the date of the payment (section 6602), on or before the due date of the Form 720, “Quarterly Federal Excise Tax Return,” for the calendar quarter, the claim for the excessive amount will be treated as due to reasonable cause and the penalty under section 6675 will not be imposed with respect to the claim. If a person claims an income tax credit under section 34 in lieu of a payment under section 6427(e) with respect to sales and uses of mixtures during a calendar quarter and the aggregate amount claimed as an income tax credit with respect to such sales and uses exceeds the amount allowed under § 48.6426-7(a)(2), the income tax rules related to assessing an underpayment of income tax liability apply. The section 6675 penalty for excessive claims with respect to fuels does not apply in the case of section 34 income tax credits. Similar rules apply to excessive claims under sections 34 or 6427 with respect to sales and uses of alternative fuel.

(c)*Payment computation for certain blenders* —(1) *In general.* This paragraph

(c)applies to a blender for any calendar quarter in which the blender's entire tax liability under section 4081 is based solely on the volume of alcohol in alcohol fuel mixtures, biodiesel in biodiesel mixtures, renewable diesel in renewable diesel mixtures, or alternative fuel in alternative fuel mixtures. If this paragraph

(c)applies for a calendar quarter, the blender may use the following procedure to determine the amount it may claim as an income tax credit under section 34 or a payment under section 6427(e) with respect to each mixture that it sells or uses during the quarter:

(i)First, determine the amount allowed under section 6426 as a credit on Form 720 by multiplying the volume of untaxed liquid used to produce the mixture by the tax imposed per gallon on the untaxed liquid.

(ii)Then, determine the total credit and payment allowable by multiplying the volume of untaxed liquid used to produce the mixture by the tax credit rate per gallon.

(iii)Then, subtract the amount determined in paragraph (c)(1)(i) of this section (the section 6426 credit amount) from the amount determined in paragraph (c)(1)(ii) of this section. This difference is the amount of the payment or income tax credit that may be claimed with respect to that mixture.

(2)*Example.* The following example illustrates the provisions of this paragraph (c):

(i)P is a biodiesel mixture producer. P produces blended taxable fuel outside of the bulk transfer/terminal system by adding biodiesel that is agri-biodiesel to taxed diesel fuel. See §§ 48.4081-1(c)(1) and 48.4081-3(g). P has no § 4081 liability other than its liability as a blender on its sale of the biodiesel mixture. During the period August 1 through August 10 (at which time the tax rate on diesel fuel is $0.244 per gallon and the claim amount on agri-biodiesel is $1.00 per gallon), P uses 5,000 gallons of agri-biodiesel to produce a biodiesel mixture. P determines that it may claim $3,780 as a payment under section 6427(e) with respect to this mixture. P computes this amount by—

(A)Multiplying 5,000 (gallons of agri-biodiesel) × $0.244 (tax imposed per gallon) = $1,220;

(B)Multiplying 5,000 (gallons of agri-biodiesel) × $1.00 (tax credit rate per gallon) = $5,000; and

(C)Subtracting $1,220 from $5,000 = $3,780.

(ii)On August 11, P files Form 8849 for the period August 1-August 10. To avoid an excessive claim, P limits the claim on Form 8849 to $3,780 reporting 3,780 gallons of agri-biodiesel.

(iii)On Form 720 P reports liability for IRS No. 60(c) of $1,220 (5,000 gallons × $.244) and claims a credit on Schedule C for $1,220 for period August 1-August 10, reporting on Schedule C 1,220 gallons of agri-biodiesel.

(d)*Effective/applicability date.* This section is applicable on and after the date these regulations are published as final regulations in the **Federal Register** . Kevin M. Brown, Deputy Commissioner for Services and Enforcement. [FR Doc. E8-17270 Filed 7-28-08; 8:45 am] BILLING CODE 4830-01-P DEPARTMENT OF THE TREASURY Internal Revenue Service 26 CFR Parts 26 and 301 [REG-147775-06] RIN 1545-BH63 Regulations Under Section 2642(g); Hearing AGENCY: Internal Revenue Service (IRS), Treasury. ACTION: Cancellation of notice of public hearing on proposed rulemaking. SUMMARY: This document cancels a public hearing on proposed rulemaking providing guidance under section 2642(g)(1). The proposed regulations describe the circumstances and procedures under which an extension of time will be granted under section 2642(g)(1). The proposed guidance affects individuals (or their estates) who failed to make a timely allocation of generation-skipping transfer

(GST)exemption to a transfer, and individuals (or their estates) who failed to make a timely election under section 2632(b)(3) or (c)(5). DATES: The public hearing, originally scheduled for August 5, 2008, at 10 a.m., is cancelled. FOR FURTHER INFORMATION CONTACT: Richard A. Hurst of the Publications and Regulations Branch, Legal Processing Division, Associate Chief Counsel (Procedure and Administration), at *Richard.A.Hurst@irscounsel.treas.gov.* SUPPLEMENTARY INFORMATION: A notice of public hearing that appeared in the **Federal Register** on Thursday, April 17, 2008 (73 FR 20870), announced that a public hearing was scheduled for August 5, 2008, at 10 a.m., in the auditorium, Internal Revenue Building, 1111 Constitution Avenue, NW., Washington, DC. The subject of the public hearing is under sections 2642 and 9100 of the Internal Revenue Code. The public comment period for these regulations expired on July 16, 2008. Outlines of topics to be discussed at the hearing were due on July 15, 2008. The notice of proposed rulemaking and notice of public hearing instructed those interested in testifying at the public hearing to submit an outline of the topics to be addressed. As of Friday, July 18, 2008, no one has requested to speak. Therefore, the public hearing scheduled for August 5, 2008, is cancelled. LaNita Van Dyke, Chief, Publications and Regulations Branch, Legal Processing Division, Associate Chief Counsel, (Procedure and Administration). [FR Doc. E8-17291 Filed 7-28-08; 8:45 am] BILLING CODE 4830-01-P DEPARTMENT OF HEALTH AND HUMAN SERVICES 45 CFR Parts 1385, 1386, 1387, and 1388 RIN 0970-AB11 Developmental Disabilities Program AGENCY: Administration on Developmental Disabilities, Administration for Children and Families, HHS. ACTION: Proposed rule; reopening of comment period. SUMMARY: The Administration on Developmental Disabilities

(ADD)reopens the public comment period on the proposed rule published in the **Federal Register** on April 10, 2008 (73 FR19708) to propose clarifications and new requirements to implement the Developmental Disabilities Assistance and Bill of Rights Act of 2000 (DD Act of 2000). During the comment period there were instances when the electronic system was not available and individuals were having difficulties using the system. ADD is reopening the comment period of the NPRM to ensure that all individuals have an opportunity to comment on the proposed rule. Also, the submission of comments electronically will now be through the OMB regulations Web site, regulations.gov, rather than ACF's regulations Web site. DATES: Comments will be accepted through September 29, 2008. ADDRESSES: Interested persons are invited to submit comments regarding this proposed rule to: Commissioner, Administration on Developmental Disabilities, Administration for Children and Families, 370 L'Enfant Promenade, SW., Mail Stop: HHH 405D, Washington, DC 20447. Persons may also transmit comments electronically via the internet at: *http://www.regulations.gov.* Electronic comments must include the full name, address, and organizational affiliation (if any) of the commenter. All comments and letters will be available for public inspection, Monday through Friday 7 a.m. to 4 p.m., at the address above, by calling

(202)690-5841 to set up an appointment and gain entry to the building. Electronically-submitted comments will be available for viewing immediately. To download an electronic version of the rule, access the OMB Web site *http://www.regulations.gov.* FOR FURTHER INFORMATION CONTACT: Elsbeth Porter Wyatt, Administration on Developmental Disabilities, telephone

(202)690-5841 (Voice). The TDD telephone number for the Administration on Developmental Disabilities is

(202)690-6415. These are not toll-free numbers. This document will be made available in alternative formats upon request. Dated: July 22, 2008. Ann C. Agnew, Executive Secretary to the Department. [FR Doc. E8-17296 Filed 7-28-08; 8:45 am] BILLING CODE 4194-01-P DEPARTMENT OF THE INTERIOR Fish and Wildlife Service 50 CFR Part 17 [FWS-R2-ES-2008-0060]; [1111-FY06-MO-B2] Endangered and Threatened Wildlife and Plants; 90-Day Finding on a Petition To List the Tucson Shovel-Nosed Snake (Chionactis occipitalis klauberi) as Threatened or Endangered with Critical Habitat AGENCY: Fish and Wildlife Service, Interior. ACTION: Notice of 90-day petition finding and initiation of status review. SUMMARY: We, the U.S. Fish and Wildlife Service (Service), announce a 90-day finding on a petition to list the Tucson shovel-nosed snake ( *Chionactis occipitalis klauberi* ) as threatened or endangered under the Endangered Species Act of 1973, as amended (Act). We find that the petition presents substantial scientific or commercial information indicating that listing the Tucson shovel-nosed snake may be warranted. Therefore, with the publication of this notice, we are initiating a status review of the subspecies, and we will issue a 12-month finding to determine if listing the subspecies is warranted. To ensure that the status review of the Tucson shovel-nosed snake is comprehensive, we are soliciting scientific and commercial information regarding this subspecies. DATES: To allow us adequate time to conduct a status review, we request that information be submitted on or before September 29, 2008. ADDRESSES: You may submit information by one of the following methods: • *Federal eRulemaking Portal: http://www.regulations.gov.* Follow the instructions for submitting comments. • *U.S. mail or hand-delivery:* Public Comments Processing, Attn: FWS-R2-ES-2008-0060, Division of Policy and Directives Management, U.S. Fish and Wildlife Service, 4401 N. Fairfax Drive, Suite 222, Arlington, VA 22203. We will not accept e-mail or faxes. We will post all information received on *http://www.regulations.gov* . This generally means that we will post any personal information you provide us (see the Information Solicited section below for more details). FOR FURTHER INFORMATION CONTACT: Steve Spangle, Field Supervisor, Arizona Ecological Services Office, 2321 West Royal Palm Drive, Suite 103, Phoenix, AZ 85021; telephone 602-242-0210; facsimile 602-242-2513. If you use a telecommunications device for the deaf (TDD), please call the Federal Information Relay Service

(FIRS)at 800-877-8339. SUPPLEMENTARY INFORMATION: Information Solicited When we make a finding that a petition presents substantial information indicating that listing a species may be warranted, we are required to promptly commence a review of the status of the species. To ensure that the status review is complete and based on the best available scientific and commercial information, we are soliciting information on the status of the Tucson shovel-nosed snake. We request information from the public, other concerned governmental agencies, Tribes, the scientific community, industry, or any other interested parties concerning the status of the Tucson shovel-nosed snake. We are seeking information regarding the subspecies' historical and current status and distribution, its biology and ecology, its taxonomy (especially genetics of the subspecies), ongoing conservation measures for the subspecies and its habitat, and threats to either the subspecies or its habitat. If we determine that listing the Tucson shovel-nosed snake is warranted, it is our intent to propose critical habitat to the maximum extent prudent and determinable at the time we would propose to list the subspecies. Therefore, with regard to areas within the geographical range currently occupied by the Tucson shovel-nosed snake, we also request data and information on what may constitute physical or biological features essential to the conservation of the subspecies, where these features are currently found, and whether any of these features may require special management considerations or protection. In addition, we request data and information regarding whether there are areas outside the geographical area occupied by the subspecies that are essential to the conservation of the subspecies. Please provide specific information as to what, if any, critical habitat should be proposed for designation, if the subspecies is proposed for listing, and why that proposed habitat meets the requirements of the Act. Please note that comments merely stating support or opposition to the action under consideration without providing supporting information, although noted, will not be considered in making a determination, as section 4(b)(1)(A) of the Act directs that determinations as to whether any species is a threatened or endangered species must be made “solely on the basis of the best scientific and commercial data available.” Based on the status review, we will issue a 12-month finding on the petition, as provided in section 4(b)(3)(B) of the Act. You may submit your information concerning this finding by one of the methods listed in the ADDRESSES section. We will not consider submissions sent by e-mail or fax or to an address not listed in the ADDRESSES section. If you submit information via *http://www.regulations.gov* , your entire submission—including any personal identifying information—will be posted on the Web site. If your submission is made via a hardcopy that includes personal identifying information, you may request at the top of your document that we withhold this information from public review. However, we cannot guarantee that we will be able to do so. We will post all hardcopy submissions on *http://www.regulations.gov* . Information and materials we receive, as well as supporting documentation we used in preparing this finding, will be available for public inspection on *http://www.regulations.gov* , or by appointment, during normal business hours, at the U.S. Fish and Wildlife Service, Arizona Ecological Services Office (see FOR FURTHER INFORMATION CONTACT ). Background Section 4(b)(3)(A) of the Act requires that we make a finding on whether a petition to list, delist, or reclassify a species presents substantial scientific or commercial information to indicate that the petitioned action may be warranted. Such findings are based on information contained in the petition, supporting information submitted with the petition, and information otherwise available in our files at the time we make the finding. To the maximum extent practicable, we are to make this finding within 90 days of receipt of the petition and publish our notice of this finding promptly in the **Federal Register** . Our standard for “substantial information,” as defined in the Code of Federal Regulations at 50 CFR 424.14(b), with regards to a 90-day petition finding is “that amount of information that would lead a reasonable person to believe that the measure proposed in the petition may be warranted.” If we find that substantial information was presented, we are required to promptly commence a status review of the species. We evaluated the information provided by the petitioner in accordance with 50 CFR 424.14(b). Our process for making this 90-day finding under section 4(b)(3)(A) of the Act and 50 CFR 424.14(b) of our regulations is limited to a determination of whether the information in the petition meets the “substantial scientific and commercial information” threshold (as mentioned above). We received a petition, dated December 15, 2004, from the Center for Biological Diversity

(CBD)requesting that we list the Tucson shovel-nosed snake as threatened or endangered throughout its range and designate critical habitat within its range in the United States. The petition, which was clearly identified as such, contained detailed information on the natural history, biology, current status and distribution of the Tucson shovel-nosed snake. It also contained information on what the petitioner reported as potential threats to the subspecies from urban development, agricultural practices, collecting, inadequacy of existing regulations, drought, and climate change. In response to the petitioner's requests, we sent a letter to the petitioner, dated September 7, 2005, explaining that, due to funding constraints in fiscal year 2005, we would not be able to address the petition in a timely manner. On February 28, 2006, the petitioner filed a 60-day notice of intent to sue

(NOI)the Department of the Interior for failure to issue 90-day and 12-month findings, and a proposed listing rule, as appropriate, in response to the petition as required by 16 U.S.C. 1533(b)(3)(A) and (B). In response to the NOI, we agreed to submit a 90-day finding to the **Federal Register** as expeditiously as possible. The petition also requested that the Service consider an “intergrade zone” between the Tucson shovel-nosed snake and the Colorado Desert shovel-nosed snake as part of the Tucson shovel-nosed snake's range. An intergrade zone is an area of overlap between the ranges of two subspecies where individuals may possess intermediate characters or traits of both subspecies. It is generally recognized and accepted by practitioners of subspecies taxonomy that intergrade zones may exist between the ranges of two subspecies where the diagnostic characters of both subspecies may be found (Mayr 1942, 1963, 1969, 1970; Huxley 1943; Wake 1997, 2006; Rodríguez-Robles and De Jesus-Escobar 2000; Isaac *et al.* 2004; Krysko and Judd 2006). Current practice in the scientific literature is to objectively describe the ranges of different subspecies and any intergrade zones between them with narrative descriptions, maps, or both (e.g., Wake, 1997, 2006; Rodríguez-Robles and De Jesus-Escobar 2000; Mahrdt *et al.* 2001; Leaché and Reeder, 2002; Krysko and Judd 2006). Following this practice, intergrade zones are identified, but not assigned to either of the subspecies. As such, we find that including all shovel-nosed snakes within the intergrade zone in the subspecies taxon of the Tucson shovel-nosed snake would not be consistent with current scientific practice in describing the ranges of the subspecies and the intergrade zone between them. Therefore, we do not consider shovel-nosed snakes within the intergrade zone to be members of the Tucson shovel-nosed snake subspecies, and thus they are not included in our threats analysis below. Previous Federal Action No previous Federal action has been taken on the Tucson shovel-nosed snake. The Tucson shovel-nosed snake has no Federal regulatory status under the Act. Species Information The Tucson shovel-nosed snake was first described as a subspecies, *Sonora occipitalis klauberi,* by Stickel in 1941. The genus was changed to *Chionactis* from the genus *Sonora* two years later (Stickel 1943). Since being described, the Tucson shovel-nosed snake has been widely accepted as a subspecies (Klauber 1951, p. 187; Stebbins 2003, p. 394; Crother 2008, p. 48), and is one of four currently recognized subspecies of western shovel-nosed snakes, *Chionactis occipitalis* (Crother 2008). In a recent study of genetic variation of mitochondrial DNA, Wood *et al.*

(2006)found significant geographical structuring suggesting two distinct subspecies of western shovel-nosed snake rather than four, combining western populations of *C. o. occipitalis* , the Mojave shovel-nosed snake, with *C. o. talpina,* the Nevada shovel-nosed snake; and eastern populations of *C. o. occipitalis* with *C. o. annulata,* the Colorado Desert shovel-nosed snake, and *C. o. klauberi* . However, Wood *et al.'s* inference was based on a single genetic marker of mitochondrial DNA and did not include examination of nuclear markers, which would more fully elucidate our understanding of the taxonomic standing of this subspecies. Therefore, we continue to accept the currently accepted designation of the subspecies *C. o. klauberi.* The Tucson shovel-nosed snake is a small snake (250-425 millimeters

(mm)(9.84-16.73 inches (in)) total length) in the family Colubridae with a shovel-shaped snout, an inset lower jaw, and coloring that mimics coral snakes (Mahrdt *et al.* 2001, p. 731.1). The most notable features of the Tucson shovel-nosed snake distinguishing it from the other subspecies are

(a)the red crossbands suffused with dark pigment, making them appear brown or partly black, and

(b)both black and red crossbands not encircling the body (CBD 2004, p. 2). Like other shovel-nosed snakes, the Tucson shovel-nosed snake uses venom to capture arthropod prey (Rosen 2003). The diet of shovel-nosed snakes consists of scorpions, beetle larvae, spiders, crickets and centipedes (Rosen *et al.* 1996, p. 22-23). Like the other subspecies, the Tucson shovel-nosed snake probably feeds on scorpions. Glass (1972, p. 447) suggests that Tucson shovel-nosed snakes may have developed a resistance to scorpion venom. Rosen *et al.* (1996, p. 22) suggest that shovel-nosed snakes eat relatively frequently. The authors (pp. 22-23) further support this observation by noting that individual shovel-nosed snakes in captivity each consumed five to eight crickets per week, and showed significant weight loss after a two- to three-week lapse in feeding. Like the other three subspecies of the western shovel-nosed snake, the Tucson shovel-nosed snake uses “sand swimming” as its primary locomotion. The snake moves using a sideways swaying motion while it is either on or under the sand or loose soil (Stebbins 2003, p. 393). Shovel-nosed snakes are primarily nocturnal in activity, although specimens have been documented as active during daylight hours. Shovel-nosed snakes are predominantly active at air temperatures between 70 and 90 degrees Fahrenheit (21 and 32 degrees Celsius), and from 7 p.m. to 9 p.m. (Klauber 1951, p. 187). Rosen *et al.* (1996, p. 21) have also observed that shovel-nosed snakes have been documented to be active in the morning and just before sunset. Rosen *et al.* (1996, p. 21) further note that activity seems to be highest when summer and spring temperatures are moderate, and when the relative humidity is high. Klauber (1951, p. 185) indicates that scattered sand hummocks, crowned with mesquite or other desert shrubs, are favorite refuges for shovel-nosed snakes. Rosen (2003, p. 8) suggests that the Tucson shovel-nosed snake is found in more productive creosote-mesquite floodplain environments, differing from the habitats preferred by other subspecies of the western shovel-nosed snake. Rosen (2003, p. 8) describes the associated soils of the Tucson shovel-nosed snake as soft, sandy loams, with sparse gravel. The subspecies is historically known from Pima County in the Avra and Santa Cruz valleys and from southeastern Maricopa County and southern Pinal County, including the Gila River Indian Community. The area between the Tucson and Phoenix metropolitan areas is believed to encompass the majority of the current range of this subspecies, particularly west of Tucson northward along Avra Valley to Pinal County, and westward into Maricopa County. The last verifiable record of the Tucson shovel-nosed snake in Pima County was in 1979, near the intersection of Avra Valley Road and Sanders Road in the Avra Valley (Rosen 2003, p. 10). Although habitat still exists in Pima County, the current distribution and abundance in Pima County is unknown. According to the petition, most of the currently occupied range of the Tucson shovel-nosed snake is believed to lie in southern Pinal County and Maricopa County. An intergrade zone occurs between the range of the Colorado Desert shovel-nosed snake and the range of the Tucson shovel-nosed snake in Pima County (Klauber 1951, p. 159). Recent records of shovel-nosed snakes in Pima County have been from within the intergrade zone. Threats Analysis Section 4 of the Act (16 U.S.C. 1533), and its implementing regulations (50 CFR 424) set forth the procedures for adding species to the Federal Lists of Endangered and Threatened Wildlife and Plants. A species, subspecies, or distinct population segment of vertebrate taxa may be determined to be endangered or threatened due to one or more of the five factors described in section 4(a)(1) of the Act:

(A)Present or threatened destruction, modification, or curtailment of habitat or range;

(B)overutilization for commercial, recreational, scientific, or educational purposes;

(C)disease or predation;

(D)inadequacy of existing regulatory mechanisms; or

(E)other natural or manmade factors affecting its continued existence. In making this 90-day finding, we evaluated whether information on threats to the Tucson shovel-nosed snake, as presented in the petition, and clarified by information readily available in our files at the time of the petition review, is substantial, thereby indicating that the petitioned action may be warranted. Our evaluation of this information is presented below. A. Present or Threatened Destruction, Modification, or Curtailment of the Species' Habitat or Range The petition states that the Tucson shovel-nosed snake is known only from south central Arizona in Pima, Pinal, and Maricopa counties, where it is dependent on Sonoran Desert scrub, particularly areas with loose, sandy, wind-blown soils (CBD 2004, p. 6; Mattison 1989, p. 25). According to the petitioner, much of the habitat within the former range of the Tucson shovel-nosed snake has been converted to agricultural fields and urban development, as well as new roads to access these areas, all of which are unsuitable as habitat for this subspecies. The petition further claims that once an area has been plowed, or the soil has been compacted by urbanization or other factors, it is unknown whether the habitat can ever be recovered and, if so, how long it will take (CBD 2004, p. 10). The petitioner cites a personal communication with herpetologist Dr. Philip Rosen in which he pointed out that full recovery of native vegetation to pre-disturbance conditions has not been documented, and partial recovery of reptile and invertebrate groups has also not been observed. We interpret partial recovery to mean either the re-invasion of the disturbed lands by reptile and invertebrate groups or an increase in their populations following a decline associated with the disturbance. The petitioner notes that post-disturbance recovery (we presume of both vegetation and wildlife) is possible with enough time, but may not be practical because it may not provide habitat for the Tucson shovel-nosed snake before it is extirpated from areas adjacent to those rehabilitated habitats. The petitioner provided no data to support such claims regarding habitat recovery. To determine the historical and current distribution of Tucson shovel-nosed snake habitat, the petitioner developed a model of the snake's potential habitat with the cooperation of Dr. Rosen. The model was developed and refined based on Dr. Rosen's professional knowledge of habitat conditions, the conditions at observed locations, and descriptions of habitat requirements from the literature. Rosen (2003, p. 8) notes that significant amounts of Tucson shovel-nosed snake habitat in the eastern portion of the Avra Valley in Pima County was converted from desert to either agricultural or urban development between 1954 and 1966, with many canals, wells, and field-edge roads appearing in the interim. Rosen (2003, p. 7) also notes that traffic in the Avra Valley increased after the 1960s, especially in the late 1970s, following urban and agricultural development. Rosen (2003, p. 8) further indicates that agricultural development was already widespread in the western portion of the Avra Valley by 1959. Surveys for the Tucson shovel-nosed snake began in the mid-to-late 1950s by Dr. Charles H. Lowe and his graduate students at the University of Arizona, with a peak in the 1960s (Rosen 2003, p. 7). The petition refers to records indicating the Tucson shovel-nosed snake was reasonably abundant in the Avra Valley during the 1970s (Rosen 2003, p.10). The last verifiable record of the Tucson shovel-nosed snake in the Avra Valley was in 1979, near the intersection of Avra Valley Road and Sanders Road (Rosen 2003, p. 10). Surveys for the subspecies were conducted in the Avra Valley and part of Pinal County in 2003, 2004 and 2007 (Rosen 2003, p. 6; Rosen 2004, p. 2; Rosen 2007, p. 1). Surveys for shovel-nosed snakes were also conducted on Organ Pipe Cactus National Monument in Pima County from 1987 through 1994 (Rosen et al. 1996, pp. 6-7). Additionally, surveys have been conducted intermittently by various researchers throughout the range of the Tucson shovel-nosed snake since the mid-1990s. During these recent surveys, the Tucson shovel-nosed snake has been found in Pinal County (Rosen 2003, p. 9; Rosen 2007, p. 2). To determine the extent to which the Tucson shovel-nosed snake's historical habitat has been lost to urban or agricultural development, the petitioner combined the model of snake habitat (CBD 2004, p. 13) with coverage of urban and agricultural areas developed by the Southwestern Regional Gap Analysis Project, which used imagery current to 2001. Their model of “remaining good habitat” (CBD 2004, p. 15) covers roughly half of the historical range of the subspecies. Because of a lack of available soils data, their model of historical habitat does not include the entire range of the Tucson shovel-nosed snake on lands in the east-central portion of Pinal and Maricopa counties. The areas of habitat that were not modeled comprise approximately 25 percent of the historical range of the Tucson shovel-nosed snake. In the areas modeled, the petitioner indicated that 1,271,319 acres

(ac)(514,503 hectares (ha)) of potential habitat occur within the range of the Tucson shovel-nosed snake. Of this area, 914,015 ac (369,902 ha) (72 percent) have been converted to either agriculture or urban development (CBD 2004, p. 14). No estimates of habitat loss were presented for areas not evaluated by the models. The petitioner concluded that human population growth and habitat loss predicted for Pima County also are likely to occur within the species' range in Pinal and Maricopa counties, but did not provide supporting citations or other information (CBD 2004, p. 14). We concur, and have information readily available in our files that substantiates human population growth and habitat loss are occurring, and will continue to occur, in Pinal and Maricopa counties. For instance, population growth in Pinal County is the sixth fastest among all counties in the United States, and the current population of 313,000 is predicted to grow to 600,000 by 2015 (Pisano 2007). The town of Maricopa, which is within the current range of the Tucson shovel-nosed snake in Pinal County, had a population of 4,855 in 2004, but is now one of the country's fastest growing cities, and is planning for a population of 350,000 by 2025 (Holcombe 2005). Additionally, a 275-square-mile area of State Trust and private lands centered on Florence Junction, also in Pinal County, is being planned for development (Grammage 2006); approximately two thirds of this area falls within the current range of the Tucson shovel-nosed snake. From July 2004 to July 2005, the population of Maricopa County increased by 137,000, which was the largest numerical increase of any of the 3,141 counties in the nation during that period (The Business Journal of Phoenix 2006). The metropolitan areas of Tucson and Phoenix, between which the snake's current range exists, are forecasted to meet and merge within a decade, with the population increasing from 5 million today to upward of 10 million by 2040 (Reagor 2006). The petition also lists mining, off-highway vehicles, construction of roads, and livestock grazing as potential threats to the Tucson shovel-nosed snake and its habitat. According to the petitioners (CBD 2004, p. 16), the Pima County Multi-Species Conservation Plan

(2004)indicates that off-highway vehicles can crush snakes buried in the sand or compact soils used by the snake, although the Pima County Multi-Species Conservation Plan

(2004)does not provide specific evidence of this threat. The petition further claims that construction of roads fragments snake habitat, roads are a source of snake mortality, and that livestock grazing compacts soils and may reduce the snake's prey base by reducing and altering vegetation cover. No data or references were provided to support the claims that mining and livestock grazing are potential threats. Additionally, the petitioners provide no data to support the claim that road construction fragments snake habitat and roads are a source of snake mortality; however, we have information from our files which supports this claim. Papers by Rosen and Lowe (1994, pp. 146-148) and Andrews and Gibbons (2005, pp. 776-781) provide substantial information indicating that road construction and increased traffic on roads isolates habitat for snakes and increases snake mortality. We conclude that the petition provides substantial information to support the claim that agricultural and urban development present direct and indirect threats to the Sonoran Desert scrub habitat upon which the Tucson shovel-nosed snake currently depends. Dr. Phil Rosen has studied shovel-nosed snakes in Arizona for 17 years and has coauthored one peer-reviewed journal article regarding the reproductive ecology of *C. occipitalis* and coauthored a literature review of both species. Dr. Rosen has studied herpetology in the American Southwest for almost 30 years and has been instrumental in various aspects of conservation of reptiles and amphibians in the southwestern United States. Dr. Rosen has been active in helping Pima County develop the Sonoran Desert Conservation Plan, particularly with regard to the reptiles and amphibians being considered for protection in the plan. Additionally, Dr. Rosen has worked with the Town of Marana to help develop their Habitat Conservation Plan, which also considers the conservation of local reptiles. Both the Sonoran Desert Conservation Plan and the Town of Marana Habitat Conservation Plan are considering conservation of the Tucson shovel-nosed snake, and Dr. Rosen has helped them develop habitat models of what constitutes Tucson shovel-nosed snake habitat, including former habitat and remaining habitat. Although the petition relies heavily on non-peer-reviewed literature to support its claims regarding loss and degradation of Tucson shovel-nosed snake habitat, we find that the data presented, as well as clarifying information in our files, relating to threats from agricultural and urban development are credible and substantial, indicating that listing the Tucson shovel-nosed snake may be warranted. B. Overutilization for Commercial, Recreational, Scientific, or Educational Purposes The petition claims that scientific and commercial collection is not widespread, but that the Tucson shovel-nosed snake could be somewhat affected by collection in limited areas. The petition further claims that enforcement of laws prohibiting commercial collection of reptiles is limited. While we accept the claim that the Tucson shovel-nosed snake occurs within a limited distribution in Arizona, the petition does not provide data to substantiate the claim that the subspecies may be threatened by collection. Therefore, we find that the petition does not provide substantial information to support the claim that overutilization for commercial, recreational, scientific, or educational purposes may pose a significant threat to the Tucson shovel-nosed snake. C. Disease or Predation The petitioner presented no data that diseases affect Tucson shovel-nosed snakes. The petitioner provided data that predation by native wildlife occurs on Colorado Desert shovel-nosed snakes (Funk 1965, p. 16; Mahrdt and Banta 1996, p. 81). It is likely that predation also occurs on Tucson shovel-nosed snakes since most of the native wildlife occurs within the range of both subspecies; however, the petitioner provided no data to support predation as a significant impact to populations of Tucson shovel-nosed snakes. Therefore, we find that the petition does not provide substantial information that listing the subspecies due to disease or predation may be warranted. D. Inadequacy of Existing Regulatory Mechanisms The petition claims the Tucson shovel-nosed snake is not currently afforded any State or Federal protection and is not listed on any State or Federal list of species of concern. The petitioner indicated that, according to the Arizona Game and Fish Department's Wildlife Management Program Strategic Plan for the Years 2001-2006, the Tucson shovel-nosed snake is not included on Arizona's Wildlife of Special Concern list (Arizona Game and Fish Department 2001). The petitioner further stated that, even if the Tucson shovel-nosed snake was considered Wildlife of Special Concern, it would receive little protection because the list only serves to notify the public of the species' status and does not require any conservation or management actions (Arizona Game and Fish Department 2001). Since we received the petition, the Arizona Game and Fish Department has developed Arizona's Comprehensive Wildlife Conservation Strategy: 2005-2015 (CWCS), in which the Tucson shovel-nosed snake has been identified as a Species of Greatest Conservation Need for which immediate conservation action is necessary (Tier 1b under the Vulnerable category) (Arizona Game and Fish Department 2006, Appendix A p. 3, Appendix K p. 139). However, the CWCS was not designed to replace or duplicate the Department's existing wildlife management strategic plan (Arizona Game and Fish Department 2001), nor does it provide further regulatory protection for the snake. It serves only to prioritize funds and guide implementation of conservation activities for Arizona's vulnerable wildlife (Arizona Game and Fish Department 2006, p. 9). The petitioner claims that approximately 21 percent of the Tucson shovel-nosed snake's historical range (including the intergrade zone) occurs on lands administered by the State of Arizona. The percentage of State of Arizona lands within the current range (and excluding the intergrade zone) was not presented and is unknown to the Service. The State of Arizona currently has no regulations or programs to protect the Tucson shovel-nosed snake. The petitioner pointed out that the Federal Enabling Act for Arizona and the State Constitution limit conservation on State lands by requiring that use of the lands maximize the economic value of State lands to benefit schools. The petition further describes the Arizona Preserve Initiative (HB 2555) passed in 1996, which establishes a process by which State lands can be leased or purchased for conservation purposes; however, the petitioner claims that the legality of this law is in question because of the Arizona State Constitutional requirement to maximize economic value. The petitioner also claims that even without its legality issues, the Arizona Preserve Initiative provides little protection for the Tucson shovel-nosed snake because it only allows for the lease and purchase of State land. The Arizona Preserve Initiative does not require any purchase or lease to conserve habitat for the snake. Although State lands currently provide open space, there are no known plans to require protection of Tucson shovel-nosed snake habitat on State lands, and no other protections are afforded the snake on State lands. The petition claims that enforcement of laws prohibiting commercial collection of reptiles is limited. State law limits the collection of non-protected snakes to no more than four individuals of a species per year with a valid hunting license. If more than four are to be collected (e.g., for research purposes), a scientific collecting permit must be obtained. It is illegal to commercially sell, barter, or trade any native Arizona wildlife. While we are aware that the Arizona Game and Fish Department enforces these laws to the extent that it can, it is likely that some level of illegal collection of shovel-nosed snakes occurs. We do not, however, have information indicating the level of this illegal activity, nor how it impacts the population as a whole. The petition states that 16 percent of the Tucson shovel-nosed snake's habitat occurs on Bureau of Land Management

(BLM)lands, most of which falls within the intergrade zone of the snake. The intergrade zone is an area not included in this analysis (see Background). Of the remaining area (not within the intergrade zone), the petition states that the recent creation of the Ironwood Forest National Monument, which is administered by the BLM, provides the Tucson shovel-nosed snake possible protections. Additionally, we are aware of BLM lands between Tucson and Florence, Arizona, that may support habitat for the Tucson shovel-nosed snake for which the petitioner provided no information on status or threats. The BLM currently has no regulations to protect the Tucson shovel-nosed snake, does not survey for the snake on its habitat, and does not consider impacts on the subspecies during project-specific analyses. BLM lands are secure from agricultural and urban development; however, as previously mentioned, the petitioner claims that off-highway vehicle use, livestock grazing, roads, and mine leasing are all potential threats to Tucson shovel-nosed snakes and their habitat. The petitioner admitted that the extent of these threats and their impacts on the Tucson shovel-nosed snake have not been studied, but they expect that they are likely impacting the snake to some unknown level. Impacts from these activities may exist; however, the petition provides no data to support these claims. The petitioner points to the perceived inadequacies in the Pima County Multi-species Conservation Plan (referred to in the petition as the Sonoran Desert Conservation Plan) and the Town of Marana Habitat Conservation Plan as regulatory mechanisms. Because neither of these plans is finalized, we will not explore the adequacies of these plans as possible regulatory mechanisms for the snake. The petition provides no information about existing regulatory mechanisms on lands managed by the Gila River Indian Community, which is within the current range of the Tucson shovel-nosed snake. The petition does state that 17 percent of the snake's habitat is under the control of the Tohono O'odham Nation. Most of the Tohono O'odham lands are in Pima County west of Tucson, with a small portion falling within Pinal and Maricopa counties. All of these lands are within the intergrade zone, which we have excluded from consideration. We have reviewed the information provided in the petition as well as all sources cited in the petition. Many of the regulatory mechanisms discussed pertain to lands that are in the intergrade zone of the snake, which we have excluded from this analysis. For the remaining areas within the snake's range, we conclude that the petition and information in our files present substantial information that existing regulatory mechanisms may be inadequate to prevent the progressive decline of populations of the Tucson shovel-nosed snake and its habitat. E. Other Natural or Manmade Factors Affecting the Species' Continued Existence The petition claims that severe weather, particularly prolonged drought, has the potential to negatively impact Tucson shovel-nosed snake populations. The petitioner described prolonged drought as a potential reason that no Tucson shovel-nosed snakes were located in the Avra Valley within the historical range in Pima County during extensive searches by local researchers (Rosen 2003, p. 16). No data to support this claim were provided by the petitioner or by Rosen (2003), and although we have information in our files indicating that conditions in the United States (Intergovernmental Panel on Climate Change 2007, p. 9), and in the southwestern United States in particular (Seager *et al.* 2007, p. 1181) are likely to be drier and warmer in the near future, we have no information indicating such changes will negatively impact the Tucson shovel-nosed snake. The petitioner also claims that, in addition to prolonged drought, climate change or habitat modification that results in permanently wetter environmental conditions could also lead to further declines of this arid-adapted subspecies, particularly under prevailing conditions in which only fragments of the original distribution remain occupied. However, the petition provides no data to support the claim that climate change will result in wetter environmental conditions within the current range of the species, nor does it provide data to support the claims that the Tucson shovel-nosed snake responds negatively to wetter environmental conditions and that fragmented habitat would exacerbate negative impacts due to wetter conditions. Therefore, we do not find that the petition provides substantial information to support the claim that prolonged drought or climate change pose significant threats to the Tucson shovel-nosed snake. Finding We have reviewed the petition and the literature cited in the petition, and evaluated the information to determine whether the sources cited support the claims made in the petition. We also reviewed reliable information that was readily available in our files to clarify and verify information in the petition. Based on our evaluation of the information provided in the petition, and in accordance with recent applicable court decisions pertaining to 90-day findings, we find that the petition presents substantial scientific information indicating that listing the Tuscon shovel-nosed snake may be warranted. Our process for making this 90-day finding under section 4(b)(3)(A) of the Act is limited to a determination of whether the information in the petition presents “substantial scientific and commercial information,” which is interpreted in our regulations as “that amount of information that would lead a reasonable person to believe that the measure proposed in the petition may be warranted” (50 CFR 424.14(b)). The petitioners presented substantial information indicating that the Tucson shovel-nosed snake may be threatened by Factors A and D throughout the entire range of the subspecies. The petitioners did not present substantial information that Factors B, C and E are currently, or in the future, considered a threat to this species. Based on this review and evaluation, we find that the petition has presented substantial scientific or commercial information that listing the Tucson shovel-nosed snake throughout all or a portion of its range may be warranted due to current and future threats under Factors A and D. As such, we are initiating a status review to determine whether listing the Tucson shovel-nosed snake under the Act is warranted. We will issue a 12-month finding as to whether any of the petitioned actions are warranted. To ensure that the status review is comprehensive, we are soliciting scientific and commercial information regarding the Tuscon shovel-nosed snake. It is important to note that the “substantial information” standard for a 90-day finding is in contrast to the Act's “best scientific and commercial data” standard that applies to a 12-month finding as to whether a petitioned action is warranted. A 90-day finding is not a status assessment of the species and does not constitute a status review under the Act. Our final determination as to whether a petitioned action is warranted is not made until we have completed a thorough status review of the species, which is conducted following a positive 90-day finding. Because the Act's standards for 90-day and 12-month findings are different, as described above, a positive 90-day finding does not mean that the 12-month finding also will be positive. References Cited A complete list of all references cited is available, upon request, from the Arizona Ecological Services Office (see FOR ADDITIONAL INFORMATION CONTACT section). Author The primary author of this notice is the Arizona Ecological Services Office (see FOR ADDITIONAL INFORMATION CONTACT section). Authority The authority for this action is section 4 of the Endangered Species Act of 1973, as amended (16 U.S.C. 1531 *et seq.* ). Dated: July 14, 2008. Kenneth Stansell, Deputy Director, U.S. Fish and Wildlife Service. [FR Doc. E8-17221 Filed 7-28-08; 8:45 am] BILLING CODE 4310-55-P DEPARTMENT OF THE INTERIOR Fish and Wildlife Service 50 CFR Part 17 [FWS-R8-ES-2007-0008; 92210-1117-0000-FY08 B4] RIN 1018-AV07 Endangered and Threatened Wildlife and Plants; Revised Critical Habitat for the San Bernardino Kangaroo Rat (Dipodomys merriami parvus) AGENCY: Fish and Wildlife Service, Interior. ACTION: Proposed rule; reopening of comment period. SUMMARY: We, the U.S. Fish and Wildlife Service (Service) announce the reopening of the public comment period on the June 19, 2007, proposed rule (72 FR 33808) to revise critical habitat for the San Bernardino kangaroo rat ( *Dipodomys merriami parvus* ) under the Endangered Species Act of 1973, as amended (Act). This action will provide all interested parties with an additional opportunity to submit written comments on the proposed revised designation, draft economic analysis (DEA), and addendum to the DEA. Comments previously submitted need not be resubmitted as they are already incorporated into the public record and will be fully considered in any final decision. DATES: We are reopening the comment period and will accept information received or postmarked on or before August 13, 2008. ADDRESSES: You may submit comments by one of the following methods: • *Federal eRulemaking Portal: http://www.regulations.gov* . Follow the instructions for submitting comments. • *U.S. mail or hand-delivery:* Public Comments Processing, Attn: FWS-R8-ES-2007-0008, Division of Policy and Directives Management, U.S. Fish and Wildlife Service, 4401 N. Fairfax Drive, Suite 222, Arlington, VA 22203. We will not accept e-mail or faxes. We will post all comments on *http://www.regulations.gov* . This generally means that we will post any personal information you provide us (see the Public Comments section below for more information). FOR FURTHER INFORMATION CONTACT: Jim Bartel, Field Supervisor, U.S. Fish and Wildlife Service, Carlsbad Fish and Wildlife Office, 6010 Hidden Valley Road, Carlsbad, CA 92011; telephone 760/431-9440; facsimile 760/431-5901. If you use a telecommunications device for the deaf (TDD), call the Federal Information Relay Service

(FIRS)at 800-877-8339. SUPPLEMENTARY INFORMATION: Public Comments We will accept comments and information during this reopened comment period on our proposed revision to critical habitat for the San Bernardino kangaroo rat published in the **Federal Register** on June 19, 2007 (72 FR 33808), the additions to revised critical habitat and the notice of availability of the DEA published in the **Federal Register** on April 16, 2008 (73 FR 20581), and the addendum to the DEA made available to the public on the Federal eRulemaking Portal: *http://www.regulations.gov* on June 11, 2008. You may obtain copies of all of these documents on the Internet at *http://www.regulations.gov* . If you submitted comments or information previously on the proposed rule, revisions, or DEA during previous open comment periods, please do not resubmit them. These comments have been incorporated into the public record and will be fully considered in the preparation of our final determination. You may submit your comments and materials concerning the proposed rule, DEA and the addendum to the DEA by one of the methods listed in the ADDRESSES section. We will not consider comments sent by e-mail or fax or to an address not listed in the ADDRESSES section. If you submit a comment via *http://www.regulations.gov* , your entire comment—including any personal identifying information—will be posted on the Web site. If you submit a hardcopy comment that includes personal identifying information, you may request at the top of your document that we withhold this information from public review. However, we cannot guarantee that we will be able to do so. We will post all hardcopy comments on *http://www.regulations.gov* . Comments and materials we receive, as well as supporting documentation we used in preparing this proposed rule, will be available for public inspection on *http://www.regulations.gov* , or by appointment, during normal business hours, at the U.S. Fish and Wildlife Service, Carlsbad Fish and Wildlife Office (see FOR FURTHER INFORMATION CONTACT ). Background On June 19, 2007, we published a proposed rule to revise critical habitat for the San Bernardino kangaroo rat (72 FR 33808). On April 16, 2008, we published a notice in the **Federal Register** (73 FR 20581) announcing the availability of the draft economic analysis and changes to the proposed revised critical habitat designation for the San Bernardino kangaroo rat. Five critical habitat units, totaling approximately 7,779 acres (3,148 hectares), are proposed as revised critical habitat for the San Bernardino kangaroo rat. These units, which generally correspond to the three units in the 2007 proposed rule plus two additional units, if finalized, would entirely replace the current critical habitat designation for the San Bernardino kangaroo rat in 50 CFR 17.95(a). The proposed critical habitat is located within San Bernardino and Riverside Counties, California. For locations of these proposed units, please consult the proposed rule. The original public comment period for the proposed critical habitat rule closed on August 20, 2007. The public comment period was reopened for 30 days upon publication of the April 16, 2008 **Federal Register** notice, ending on May 16, 2008. An addendum to the DEA was made available for public comment on June 11, 2008, on the Federal eRulemaking Portal: *http://www.regulations.gov* . Because the addendum to the DEA was not available on the Federal eRulemaking Portal during the previous comment period, we are reopening the comment period to provide all interested parties with an additional opportunity to submit written comments on the proposed revised designation, the DEA, and the addendum to the DEA. Critical habitat is defined by the Act as:

(1)The specific areas within the geographical area occupied by the species, at the time it is listed pursuant to section 4 of the Act, on which are found those physical or biological features

(a)essential to the conservation of the species, and

(b)which may require special management considerations or protection, and

(2)Specific areas outside the geographic areas occupied by the species at the time it is listed, upon a determination that such areas are essential for the conservation of the species. If the proposed critical habitat designation is finalized, section 7(a)(2) of the Act would require that Federal agencies ensure that actions they fund, authorize, or carry out are not likely to jeopardize the continued existence of the species or result in the destruction or adverse modification of critical habitat. Section 4(b)(2) of the Act requires that we designate or revise critical habitat on the basis of the best scientific and commercial data available, after taking into consideration economic, and any other relevant, impacts of specifying any particular area as critical habitat. Authority: The authority for this action is the Endangered Species Act of 1973 (16 U.S.C. 1531 *et seq.* ). Dated: July 8, 2008. David Verhey, Acting Assistant Secretary for Fish and Wildlife and Parks. [FR Doc. E8-17054 Filed 7-28-08; 8:45 am] BILLING CODE 4310-55-P 73 146 Tuesday, July 29, 2008 Notices DEPARTMENT OF AGRICULTURE Food Safety and Inspection Service [Docket No. FSIS-2008-0021] Codex Alimentarius Commission: Meeting of the Codex Committee on Processed Fruits and Vegetables AGENCY: Office of the Under Secretary for Food Safety, USDA. ACTION: Notice of public meeting and request for comments. SUMMARY: The Office of the Under Secretary for Food Safety, U.S. Department of Agriculture (USDA), and the Agricultural Marketing Service

(AMS)are hosting a public meeting on August 14th, 2008. The objective of the public meeting is to provide information and receive public comments on agenda items and draft United States positions for the 24th Session of the Codex Committee on Processed Fruits and Vegetables (CCPFV), which will be held in Arlington, VA (Washington, DC, metro area), September 15-20, 2008. The Under Secretary for Food Safety and AMS recognize the importance of providing interested parties the opportunity to obtain background information on this forthcoming Session of CCPFV and to address items on the agenda. DATES: The public meeting is scheduled for Thursday, August 14, 2008, from 10 a.m. to 12 noon. ADDRESSES: The public meeting will be held in Room 2068, USDA, South Agriculture Building, 1400 Independence Avenue, SW., Washington, DC. Documents related to the 24th Session of CCPFV will be accessible via the World Wide Web at the following address: *http://www.codexalimentarius.net/current.asp* . The U.S. Delegate to the 24th Session of the CCPFV, Dorian LaFond, AMS, invites interested parties to submit their comments electronically to the following e-mail address *dorian.lafond@usda.gov* . For Further Information About the 24th Session of CCPFV Contact: Dorian LaFond, International Standards Coordinator, Fruit and Vegetable Division, Agricultural Marketing Service, USDA, 1400 Independence Avenue, SW., Washington, DC 20250, Phone:

(202)690-4944, Fax:

(202)720-0016, e-mail: *dorian.lafond@usda.gov* . For Further Information About the Public Meeting Contact: Doreen Chen-Moulec, International Issues Analyst, U.S. Codex Office, USDA, FSIS, Room 4861, South Building, 1400 Independence Avenue, SW., Washington, DC 20250, Phone:

(202)205-7760, Fax:

(202)720-3157. E-mail: *Doreen.chen-moulec@fsis.usda.gov* . SUPPLEMENTARY INFORMATION: Background The Codex Alimentarius (Codex) was established in 1963 by two United Nations organizations, the Food and Agriculture Organization and the World Health Organization. Through adoption of food standards, codes of practice, and other guidelines developed by its committees and by promoting their adoption and implementation by governments, Codex seeks to protect the health of consumers and ensure that fair practices are used in trade. The Codex Committee on Processed Fruits and Vegetables is hosted by the United States. It elaborates new and revised worldwide standards for various processed fruits and vegetables, including certain dried and canned products. This committee does not cover standards for fruit and vegetable juices. Issues To Be Discussed at the Public Meeting The following items on the Agenda for the 24th Session of CCPFV will be discussed during the public meeting: • Matters Referred to the Committee From Other Codex Bodies; • Proposed Layout for Codex Standards for Processed Fruits and Vegetables; • Draft Codex Standards for Jams, Jellies and Marmalades; • Draft Codex Standard for Certain Canned Vegetables (General Provisions); • Proposed Draft Annexes Specific to Certain Canned Vegetables (Draft Codex Standard for Certain Canned Vegetables); • Proposed Draft Guidelines for Packing Media on Canned Vegetables; • Proposed Draft Sampling Plans, including Methodological Provisions for Controlling Minimum Drained Weight of Canned Fruits and Vegetables in Packing Media; • Proposals for Amendments to the Priority List for the Standardization of Processed Fruits and Vegetables; • Methods of Analysis for Processed Fruits and Vegetables; and • Food Additive Provisions for Processed Fruits and Vegetables. Each issue listed will be fully described in documents distributed, or to be distributed, by the Secretariat prior to the Meeting. Members of the public may access or request copies of these documents (see ADDRESSES ). Public Meeting At the August 14th, 2008 public meeting, draft U.S. positions on the agenda items will be described and discussed, and attendees will have the opportunity to pose questions and offer comments. Written comments may be offered at the meeting or sent to the U.S. Delegate for the 24th Session of CCPFV, Dorian LaFond (see *For Further Information About the 24th Session of the CCPFV Contact* ). Written comments should state that they relate to activities of the 24th Session of the CCPFV. Additional Public Notification Public awareness of all segments of rulemaking and policy development is important. Consequently, in an effort to ensure that minorities, women, and persons with disabilities are aware of this notice, FSIS will announce it on-line through the FSIS Web page located at *http://www.fsis.usda.gov/regulations/2008_Notices_Index* /. FSIS also will make copies of this **Federal Register** publication available through the FSIS Constituent Update, which is used to provide information regarding FSIS policies, procedures, regulations, **Federal Register** notices, FSIS public meetings, recalls, and other types of information that could affect or would be of interest to constituents and stakeholders. The update is communicated via Listserv, a free electronic mail subscription service for industry, trade groups, consumer interest groups, health professionals, and other individuals who have asked to be included. The update is also available on the FSIS Web page. Through the Listserv and Web page, FSIS is able to provide information to a much broader and more diverse audience. In addition, FSIS offers an e-mail subscription service which provides automatic and customized access to selected food safety news and information. This service is available at *http://www.fsis.usda.gov/news_and_events/email_subscription/* . Options range from recalls to export information to regulations, directives and notices. Customers can add or delete subscriptions themselves, and they have the option to password protect their accounts. Done at Washington, DC, on July 23, 2008. Paulo Almeida, Acting U.S. Manager for Codex Alimentarius. [FR Doc. E8-17257 Filed 7-28-08; 8:45 am] BILLING CODE 3410-DM-P DEPARTMENT OF COMMERCE INTERNATIONAL TRADE ADMINISTRATION (A-570-848) Freshwater Crawfish Tail Meat from the People's Republic of China: Notice of Extension of Time Limit for the Preliminary Results of the Antidumping Duty Administrative Review AGENCY: Import Administration, International Trade Administration, Department of Commerce. EFFECTIVE DATE: July 29, 2008. FOR FURTHER INFORMATION CONTACT: Dmitry Vladimirov or Minoo Hatten, AD/CVD Operations, Office 5, Import Administration, International Trade Administration, U.S. Department of Commerce, 14th Street and Constitution Avenue, NW, Washington, DC 20230; telephone:

(202)482-0665 or

(202)482-1690, respectively. SUPPLEMENTARY INFORMATION: Background On October 31, 2007, the Department published a notice of initiation of administrative review of the antidumping duty order on freshwater crawfish tail meat from the People's Republic of China (PRC). *See Initiation of Antidumping and Countervailing Duty Administrative Reviews* , 72 FR 61621 (October 31, 2007). On June 6, 2008, we extended the time period for issuing the preliminary results of the review by 60 days until July 31, 2008. *See Freshwater Crawfish Tail Meat from the People's Republic of China: Notice of Extension of Time Limit for the Preliminary Results of the Antidumping Duty Administrative Review* , 73 FR 32289 (June 6, 2008). The period of review is September 1, 2006, through August 31, 2007. The preliminary results of the administrative review are currently due no later than July 31, 2008. Extension of Time Limit for Preliminary Results Section 751(a)(3)(A) of the Tariff Act of 1930, as amended (the Act), requires the Department to make a preliminary determination within 245 days after the last day of the anniversary month of an order for which a review is requested and a final determination within 120 days after the date on which the preliminary determination is published. If it is not practicable to complete the review within these time periods, section 751(a)(3)(A) of the Act allows the Department to extend the time limit for the preliminary determination to a maximum of 365 days after the last day of the anniversary month. We determine that it is not practicable to complete the preliminary results of the review within the current time limit because we require additional time to analyze additional factors-of-production data submitted by a respondent's affiliated producers in response to our decision to collapse them. Therefore, we are extending the time period for issuing the preliminary results of the review by 60 days until September 29, 2008. The deadline for the final results of the review continues to be 120 days after the publication of the preliminary results. This extension notice is issued and published in accordance with sections 751(a)(3)(A) and 777(i) of the Act and 19 CFR 351.213(h)(2). Dated: July 22, 2008. Stephen J. Claeys, Deputy Assistant Secretary for Import Administration. [FR Doc. E8-17358 Filed 7-28-08; 8:45 am] BILLING CODE 3510-DS-S DEPARTMENT OF COMMERCE International Trade Administration A-570-932 Postponement of Preliminary Determination of Antidumping Duty Investigation: Steel Threaded Rod from the People's Republic of China AGENCY: Import Administration, International Trade Administration, Department of Commerce. EFFECTIVE DATE: July 29, 2008. FOR FURTHER INFORMATION CONTACT: Bobby Wong or Toni Dach AD/CVD Operations, Office 9, Import Administration, International Trade Administration, U.S. Department of Commerce, 14th Street and Constitution Avenue, NW, Washington, DC 20230; telephone:

(202)482-0409 and

(202)482-1655, respectively. SUPPLEMENTARY INFORMATION: Postponement of Preliminary Determination On April 1, 2008, the Department of Commerce (the Department) published in the **Federal Register** the initiation of the antidumping investigation on steel threaded rod from the People's Republic of China (PRC). *See Steel Threaded Rod from the People's Republic of China: Initiation of Antidumping Duty Investigation* , 73 FR 17318 (April 1, 2008) ( *Initiation Notice* ). The notice of initiation stated that the Department would issue its preliminary determination for this investigation no later than 140 days after the date of issuance of the initiation, in accordance with section 733(b)(1)(A) of the Tariff Act of 1930, as amended (the Act). On July 15, 2008, the petitioner, Vulcan Threaded Products Inc., made a request pursuant to 19 CFR 351.205(b)(2) and

(e)for a 50-day postponement of the preliminary determination. The petitioner requested postponement of the preliminary determination in order to allow more time to analyze and comment on the respondents' questionnaire responses. For the reasons identified by the petitioner and because there are no compelling reasons to deny the request, the Department is postponing the deadline for the preliminary determination under section 733(c)(1)(A) of the Act by 50 days from the current deadline of August 12, 2008, to October 1, 2008. The deadline for the final determination will continue to be 75 days after the date of the preliminary determination, unless extended. This notice is issued and published pursuant to section 733(c)(2) of the Act and 19 CFR 351.205(f)(1). Dated: July 23, 2008. David M. Spooner, Assistant Secretary for Import Administration. [FR Doc. E8-17365 Filed 7-28-08; 8:45 am] BILLING CODE 3510-DS-S DEPARTMENT OF COMMERCE National Institute of Standards and Technology [Docket No.: 070413089-8493-02] Announcing Approval of Federal Information Processing Standard

(FIPS)Publication 198-1, The Keyed-Hash Message Authentication Code (HMAC), a Revision of FIPS 198 AGENCY: National Institute of Standards and Technology (NIST), Commerce. ACTION: Notice. SUMMARY: The National Institute of Standards and Technology

(NIST)announces approval of Federal Information Processing Standard

(FIPS)Publication 198-1, The Keyed-Hash Message Authentication Code (HMAC), a revision of FIPS 198. The FIPS specifies a mechanism for message authentication using cryptographic hash functions in federal information systems. The technical information about the security provided by the HMAC algorithm, and the length limit and security implications of truncated HMAC outputs have been removed from the revised standard. This information may need frequent updating, and its removal from the specification will enable NIST to employ a more effective process for keeping the information current. NIST will provide specific guidelines about the security provided by the HMAC and the use of truncation techniques for it in Special Publication

(SP)800-17, which can be updated in a timely manner as the technical conditions change. DATES: The approval changes are effective as of July 29, 2008. FOR FURTHER INFORMATION CONTACT: Elaine Barker, Telephone (301)975-2911, or via e-mail at *elaine.barker@nist.gov* or Quynh Dang,

(301)975-3610, e-mail: *quynh.dang@nist.gov* , National Institute of Standards and Technology, 100 Bureau Drive, Mailstop 8930, Gaithersburg, MD 20899. FIPS 198-1 is available electronically from the NIST Web site at: *http://csrc.nist.gov/publications/PubsFIPS.html* . NIST Special Publications

(SPs)are available electronically from the NIST Web site at: *http://csrc.nist.gov/publications/PubsFIPS.html* . SUPPLEMENTARY INFORMATION: On June 12, 2007, NIST published a notice in the **Federal Register** (72 FR 32281), announcing draft FIPS 198-1, and soliciting comments on draft standard from the public, research communities, manufacturers, voluntary standards organizations and federal, state and local government organizations. In addition, to being published in the **Federal Register** , the notice was posted on the NIST web pages. Information was provided about the submission of electronic comments and an electronic template for the submission of comments was made available. NIST received comments, responses, and questions from three federal government organizations and two from the public. The comments received asked for clarification of the text of the standard or recommended editorial and formatting changes. None of the comments opposed the approval of the revised standard. All of the suggestions and recommendations were carefully reviewed, and changes were made to the standard where appropriate. The following is the summary of the specific comments and NIST's responses to them: *Comment:* What are the changes between FIPS 198 and FIPS 198-1? *Response:* The length specifications for the truncated HMAC outputs and their security implications are no longer discussed in this Standard; instead, they are included in SP 800-107. The discussion about the limitations of MAC algorithms has been moved to SP 800-107. Examples and OIDs have been removed from the standards and are now posted on a NIST Web site that is identified in the Standard. This list of changes has been provided in Appendix A. *Comment:* “K” in the last sentence of Section 3 should be changed “K0” to be consistent with Section 4. *Response:* NIST revised the text in Section 3 to improve the clarity of the meaning of the text. *Comment:* The first paragraph of Section 5 talks about replacing one of the hashes with a different hash. The need for this paragraph is not clearly understood. *Response:* NIST revised Section 5 to improve the clarity of the intended meaning of the text. *Comment:* Why has truncation been removed from the algorithm specification? *Response:* Truncation is still addressed in FIPS 198-1. However, the length of the truncated HMAC outputs and the security implications of truncation are not discussed in this Standard; instead, they are discussed in SP 800-107. A pointer to SP 800-107 has been provided in FIPS 198-1. *Comment:* Why is the security of the HMAC not mentioned in the FIPS 198-1? *Response:* The discussion on the limitations of the MAC algorithms ( *i.e.* , the security discussion) has been moved to SP 800-107. A pointer to SP 800-107 has been provided in FIPS 198-1. *Comment:* A number of editorial and legal text changes were suggested. *Response:* NIST made the suggested changes. *Comment:* Change 0x00 to x‘00’ in Step 3 of Table 1 to make it consistent with the definition in Section 2.3. *Response:* NIST made the suggested change. *Comment:* Figure 1 does not accurately represent the steps in the HMAC algorithm. *Response:* NIST reviewed Figure 1 and determined that it is accurate. Security issues related to the HMAC algorithm, its applications and truncation limitations are addressed in draft NIST Special Publication 800-107, Recommendation for Using Approved Hash Algorithms. Draft NIST Special Publication 800-107 will become NIST Special Publication 800-107 in the near future. Authority: In accordance with the Information Technology Management Reform Act of 1996 (Pub. L. 104-106) and the Federal Information Security Management Act (FISMA) of 2002 (Pub. L. 107-347), the Secretary of Commerce is authorized to approve Federal Information Processing Standards (FIPS). NIST activities to develop computer security standards to protect Federal sensitive (unclassified) information systems are undertaken pursuant to specific responsibilities assigned to NIST by section 20 of the National Institute of Standards and Technology Act (5 U.S.C. 278g-3) as amended by section 303 of the Federal Information Security Management Act of 2002. *E.O. 12866:* This notice has been determined not be significant for the purpose of E.O.12866. Dated: July 21, 2008. James M. Turner, Deputy Director. [FR Doc. E8-17363 Filed 7-28-08; 8:45 am] BILLING CODE 3510-13-P DEPARTMENT OF COMMERCE National Institute of Standards and Technology RIN 0693-ZA81 [Docket No: 080411556-8904-02] Construction Grant Program Extension of Due Date for Proposals AGENCY: National Institute of Standards and Technology (NIST), United States Department of Commerce. ACTION: Notice. SUMMARY: Due to technical difficulties, NIST is extending the deadline for proposal submission for its Construction Grant Program competition to 3 p.m. Eastern Time, Friday, August 1, 2008. NIST will accept only paper submissions during the extended time period. DATES: Paper submissions must be received no later than 3 p.m. Eastern Time, Friday, August 1, 2008. Review, selection, and grant award processing is expected to be completed by the middle of November 2008. ADDRESSES: Paper submissions must be sent to the National Institute of Standards and Technology, 100 Bureau Drive, Stop 4701, Gaithersburg, MD 20899-4701. FOR FURTHER INFORMATION CONTACT: Barbara Lambis via e-mail at *barbara.lambis@nist.gov* or telephone

(301)975-4447. SUPPLEMENTARY INFORMATION: On May 27, 2008, the National Institute of Standards and Technology

(NIST)announced that it was soliciting proposals under a competitive Construction Grant Program for research buildings (73 FR 30380). The due date for submission of all proposals was 3 p.m. Eastern Time, Monday, July 21, 2008. Due to technical difficulties some applicants were unable to submit their proposals electronically on Monday, July 21, 2008. In order to provide all interested parties the opportunity to submit a proposal for the Construction Grant Program, NIST is extending the solicitation period until 3 p.m. Eastern Time, Friday, August 1, 2008. Electronic proposals received between 3 p.m. and 11:59 p.m. Eastern Time on July 21, 2008 will be deemed timely and given full consideration. Paper proposals received between 3 p.m., Monday, July 21, 2008 and the publication date of this notice will be deemed timely and given full consideration. During the extended solicitation period, NIST will accept only paper submissions. Applicants who attempted to submit electronic applications but were unsuccessful are encouraged to resubmit a paper application. Paper submissions must be received by 3 p.m. Eastern Time, Friday, August 1, 2008. Please note that for paper submissions the Program requires one original and two

(2)copies of the proposal. The application submission deadline applies to any mode of paper proposal delivery, including hand-delivery, courier, and express mailing, but not facsimile. Proposals submitted via facsimile will not be accepted. NIST will not make any allowances for late submissions. All NIST Construction Grant Program competition requirements and information announced in the May 27, 2008, **Federal Register** notice apply to proposals submitted during the extended time period with the exception of the review, selection, and grant award processing time that is now expected to be completed by the middle of November 2008. Executive Order 12372 (Intergovernmental Review of Federal Programs). Proposals under this program are not subject to Executive Order 12372. Executive Order 13132 (Federalism). This notice does not contain policies with Federalism implications as defined in Executive Order 13132. Executive Order 12866 (Regulatory Planning and Review). This notice is not a significant regulatory action under Sections 3(f)(3) and 3(f)(4) of Executive Order 12866, as it does not materially alter the budgetary impact of a grant program and does not raise novel policy issues. This notice is not an “economically significant” regulatory action under Section 3(f)(1) of the Executive Order, as it does not have an effect on the economy of $100 million or more in any one year, and it does not have a material adverse effect on the economy, a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or State, local, or tribal governments or communities. Administrative Procedure Act and Regulatory Flexibility Act. Prior notice and comment are not required under 5 U.S.C. 553, or any other law, for rules relating to public property, loans, grants, benefits or contracts (5 U.S.C. 553(a)). Because prior notice and an opportunity for public comment are not required pursuant to 5 U.S.C. 553 or any other law, the analytical requirements of the Regulatory Flexibility Act (5 U.S.C. et. seq.) are inapplicable. Therefore, a regulatory flexibility analysis is not required and has not been prepared. Dated: July 25, 2008. James M. Turner, Deputy Director. [FR Doc. 08-1475 Filed 7-25-08; 2:34 pm]

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