Federal Register Vol. 80, No.113,

Good Cause for Immediate Adoption

The FAA is adopting this final rule without prior notice and public comment effective June 12, 2015. Section 553(b)(B) of the Administrative Procedure Act (APA) (5 U.S.C.) authorizes agencies to dispense with notice and comment procedures for rules when the agency for “good cause” finds that those procedures are “impracticable, unnecessary, or contrary to the public interest.” Under this section, an agency, upon finding good cause, may issue a final rule without seeking comment prior to the rulemaking. Additionally, section 553(d) of the APA provides a “good cause” exception from the requirement to publish a substantive rule at least 30 days before its effective date.

Recent action by the International Civil Aviation Organization (ICAO) to remove the requirement in ICAO Annex 1 (Personnel Licensing), Chapter 2 (Licenses and Ratings for Pilots), Standard 2.1.10.1 to pair a pilot in command (PIC) who has reached age 60 with a pilot under age 60, triggered the sunset of the pilot pairing limitation in 49 U.S.C. 44729(c)(1). Based on this action, as of November 13, 2014, the statutory basis for the pilot pairing requirements in §§ 61.3(j)(2), 61.77(g), and 121.383(d)(2) and (e)(2) of Title 14 of the Code of Federal Regulations (14 CFR) no longer exists and these regulations are contrary to 49 U.S.C. 44729.

The FAA finds that notice and public comment to this immediately adopted final rule are unnecessary and contrary to the public interest because this final rule is limited to conforming 14 CFR parts 61 and 121 with recent changes to statutory requirements pertaining to pilot age limitations. On November 13, 2014, the statutory requirement in 49 U.S.C. 44729(c)(1) for a pilot in command who had reached age 60 to be paired with a pilot under age 60 ceased to be effective, although the regulatory requirements in 14 CFR pertaining to pilot pairing remained in place.

It is contrary to the public interest to allow regulatory requirements pertaining to pilot age limitations to remain in the Code of Federal Regulations when those requirements present a direct conflict with the statutory requirements in the United States Code pertaining to pilot age limitations. Further, under section 553(d)(3) of the APA, the FAA finds that good cause exists for making this rule effective upon publication to minimize any possible confusion between the statutory requirements pertaining to pilot age limitations in 49 U.S.C. 44729 and the regulatory requirements pertaining to pilot age limitations in §§ 61.3(j)(2), 61.77(g), and 121.383(d)(2) and (e)(2) of 14 CFR.

The FAA's authority to issue rules on aviation safety is found in Title 49 of the United States Code. Subtitle I, Section 106 describes the authority of the FAA Administrator. Subtitle VII, Aviation Programs, describes in more detail the scope of the Agency's authority. Additionally, the Fair Treatment for Experienced Pilots Act (Pub. L. 110-135), codified at 49 U.S.C. 44729, establishes requirements pertaining to pilot age limitations.

This rulemaking is promulgated under the authority described in 49 U.S.C. 106(f), which establishes the authority of the Administrator to promulgate regulations and rules and conform FAA requirements pertaining to pilot age limitations with the Fair Treatment for Experienced Pilots Act.

This final rule removes the requirements in §§ 61.3(j)(2), 61.77(g), and 121.383(d)(2) and (e)(2) for a PIC who has reached age 60 to be paired with a pilot under age 60 in international commercial air transport operations conducted under part 121, as well as for pilots relying on a certificate issued under part 61 and serving in certain international operations using civil airplanes on the U.S. registry. The removal of this restriction will allow all pilots serving on airplanes in international commercial air transport with more than one pilot, to serve beyond 60 years of age (until 65 years of age) without a requirement to be paired with a pilot under 60 years of age. This final rule conforms FAA regulations with ICAO standards and the Fair Treatment for Experienced Pilots Act, which no longer contain a pilot pairing requirement.

On December 13, 2007, the Fair Treatment for Experienced Pilots Act (Pub. L. 110-135) amended Title 49 of the United States Code by adding section 44729. Section 44729(a) raised the age limit for pilots serving in operations under part 121 1 from age 60 to age 65, subject to the limitations in section 44729(c) applicable to PICs on international flights.

Section 44729(c) provided a pilot pairing limitation for PICs serving on international flights. Specifically, section 44729(c)(1) states, “A pilot who has attained 60 years of age may serve as pilot-in-command in covered operations between the United States and another country only if there is another pilot in the flight deck crew who has not yet attained 60 years of age.” The pilot pairing requirement in section 44729(c)(1) was consistent with the pilot pairing standard in ICAO Annex 1 (Personnel Licensing), Chapter 2 (Licenses and Ratings for Pilots), Standard 2.1.10.1, applicable to multi-pilot crews in effect at the time that section 44729 was added to the United States Code. Until November 13, 2014, Standard 2.1.10.1 stated:

The Agency notes that for operations with a single pilot, Standard 2.1.10.1 requires the pilot to be under age 60.

The Fair Treatment for Experienced Pilots Act also provided for a self-executing sunset of the pilot pairing requirement. Specifically, section 44729(c)(2) provides that the pilot pairing requirement in section 44729(c)(1) would cease to be effective on the date that ICAO removed the pilot pairing limitation in Standard 2.1.10.1. Section 44729(c)(2) states that “[p]aragraph [c](1), shall cease to be effective on such date as the Convention on International Civil Aviation provides that a pilot who has attained 60 years of age may serve as pilot-in-command in international commercial operations without regard to whether there is another pilot in the flight deck crew who has not attained age 60.”

On July 15, 2009, the FAA published the “Part 121 Pilot Age Limit” final rule (74 FR 34229) to conform FAA regulations to the statutory requirements in the Fair Treatment for Experienced Pilots Act (codified at 49 U.S.C. 44729). Based on the statutory authority in 49 U.S.C. 44729, the 2009 final rule raised the pilot age limitation from 60 to 65 and added the pilot pairing requirement for pilots conducting part 121 operations and other multi-pilot operations, between or over the territory of more than one country using U.S.-registered airplanes.

In the 2009 final rule preamble, the Agency stated that it believed that the Fair Treatment for Experienced Pilots Act intended to harmonize FAA regulations with the ICAO standard pertaining to pilot age limitations and pilot pairing requirements, which would encompass international operations in addition to the part 121 operations identified by the Act. See 74 FR 34229, 34230 (July 15, 2009). The ICAO standard pertaining to pilot age limitations and pilot pairing applies to pilots serving in operations between his or her home state and another country, as well as between two territories outside of his or her home state.

Accordingly, to harmonize the Agency's regulations with the ICAO standard and further the intent of the Fair Treatment for Experienced Pilots Act, the 2009 final rule added the pilot age limitations and pilot pairing requirement for pilots conducting operations between two international territories using U.S.-registered airplanes and relying on certificates issued under part 61.2 As a result, for multi-pilot operations, the 2009 final rule increased the maximum age for a pilot to serve and added the pilot pairing requirement for part 121 operations and certain other international air service and air transportation operations using airplanes on the U.S. registry (See §§ 61.3(j), 61.77(e) and (g), and 121.383(d) and (e)).

The 2009 final rule did not change the maximum age for pilots serving in international operations covered by § 61.3(j)(1) using a single pilot (i.e., the pilot must be under age 60). See § 61.3(j)(2) and 61.77(g). A pilot is only permitted to continue to serve upon reaching age 60 if that pilot serves as a member of a multi-pilot crew that includes a pilot under age 60. Thus, as was the case prior to the 2009 final rule, operations covered by § 61.3(j)(1) that use a single pilot can only be operated by a pilot who has not yet reached 60 years of age.

During a meeting of the ICAO Council on March 3, 2014, Council members adopted Amendment 172 to Annex 1, Personnel Licensing. The amendment removed the requirement in Standard 2.1.10.1 to pair a PIC who has reached age 60 with a pilot under age 60, and renumbered the standard as 2.1.10. Without the pairing requirement, all pilots on multi-pilot crews serving in international air transport commercial operations may continue to serve as long as they have not reached 65 years of age.3 Amendment 172 to Annex 1, Personnel Licensing, became applicable on November 13, 2014.

As previously discussed, 49 U.S.C. 44729(c)(2) states that the pilot pairing requirement in 49 U.S.C. 44729(c)(1) ceases to be effective when ICAO removes the pilot pairing requirement from Annex 1 (Personnel Licensing), Chapter 2 (Licenses and Ratings for Pilots), Standard 2.1.10.1. On November 13, 2014, the revised Standard 2.1.10, that no longer contains the pilot pairing requirement, became applicable. Accordingly, on November 13, 2014, the pilot pairing limitation of 49 U.S.C. 44729(c)(1) ceased to be effective.

The FAA subsequently published a Notice of Policy (79 FR 67346, November 13, 2014) explaining that once the pilot pairing limitation of 49 U.S.C. 44729(c)(1) ceased to be effective, the statutory basis for the pilot pairing requirements in 14 CFR 61.3(j)(2), 61.77(g) and 121.383(d)(2) and (e)(2) would no longer exist, and those regulations would be contrary to 49 U.S.C. 44729. Based on the foregoing, in the Notice of Policy, the FAA further stated that it would no longer enforce the pilot pairing requirements contained in 14 CFR 61.3(j)(2), 61.77(g), and 121.383(d)(2) and (e)(2) as of the date the ICAO amendment became applicable and corresponding sunset of 49 U.S.C. 44729(c)(1). The ICAO amendment became applicable and the sunset of 49 U.S.C. 44729(c)(1) took place on November 13, 2014.

This final rule conforms FAA regulations in Title 14 of the Code of Federal Regulations (14 CFR) with the Fair Treatment for Experienced Pilots Act by removing the current pilot pairing requirements from parts 121 and 61. Specifically, the Agency has amended § 121.383(d) and (e) to allow all pilots serving in part 121 operations of any kind (i.e., domestic, flag, or supplemental) to serve as long as that pilot has not reached his or her 65th birthday. Additionally, the Agency has amended §§ 61.3 and 61.77 to allow all pilots relying on a certificate issued under part 61 and serving in certain international operations using civil airplanes on the U.S. registry to continue to serve in multi-pilot crews as long as they have not reached their 65th birthday. The maximum age for pilots serving in single pilot crews in operations covered by § 61.3(j)(1) has not changed.

This rulemaking provides relieving changes that create the opportunity for scheduling efficiencies because only the maximum pilot age of 65 needs to be considered in bidding for, or flying international flights. All pilots serving in any kind of part 121 operation (i.e., domestic, flag, or supplemental) may continue to serve until they reach their 65th birthday, regardless of the age of the other pilot(s) on their flightcrew. This rulemaking also provides relieving changes for certain other pilots with certificates issued in accordance with part 61, who serve with multi-pilot crews in international operations using civil airplanes on the U.S. registry.

Changes to Federal regulations must undergo several economic analyses. First, Executive Order 12866 and Executive Order 13563 direct that each Federal agency shall propose or adopt a regulation only upon a reasoned determination that the benefits of the intended regulation justify its costs. Second, the Regulatory Flexibility Act of 1980 (Pub. L. 96-354) requires agencies to analyze the economic impact of regulatory changes on small entities. Third, the Trade Agreements Act (Pub. L. 96-39) prohibits agencies from setting standards that create unnecessary obstacles to the foreign commerce of the United States. In developing U.S. standards, the Trade Act requires agencies to consider international standards and, where appropriate, that they be the basis of U.S. standards. Fourth, the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4) requires agencies to prepare a written assessment of the costs, benefits, and other effects of proposed or final rules that include a Federal mandate likely to result in the expenditure by State, local, or tribal governments, in the aggregate, or by the private sector, of $100 million or more annually (adjusted for inflation with base year of 1995). This portion of the preamble summarizes the FAA's analysis of the economic impacts of this final rule.

Department of Transportation Order DOT 2100.5 prescribes policies and procedures for simplification, analysis, and review of regulations. If the expected cost impact is so minimal that a proposed or final rule does not warrant a full evaluation, this order permits that a statement to that effect and the basis for it to be included in the preamble if a full regulatory evaluation of the cost and benefits is not prepared. Such a determination has been made for this final rule. The reasoning for this determination follows:

This final rule is relieving in that it removes the requirement to pair a pilot who has reached age 60 with a pilot who is under age 60 in international operations covered by part 121 and certain other international operations identified in §§ 61.3 and 61.77. The removal of this pilot pairing requirement eases flight scheduling and crew rest requirement costs because, for multi-pilot operations, only the maximum pilot age of 65 needs to be considered in bidding for, or flying international flights covered by part 121 and certain other international operations. The expected outcome will be lower costs. Therefore, a regulatory evaluation was not prepared.

FAA has therefore determined that this final rule is not a “significant regulatory action” as defined in section 3(f) of Executive Order 12866, and it is not “significant” as defined in DOT's regulatory policies and procedures provided in DOT 2100.5.

The Regulatory Flexibility Act of 1980 (Pub. L. 96-354) (RFA) establishes “as a principle of regulatory issuance that agencies shall endeavor, consistent with the objectives of the rule and of applicable statutes, to fit regulatory and informational requirements to the scale of the businesses, organizations, and governmental jurisdictions subject to regulation. To achieve this principle, agencies are required to solicit and consider flexible regulatory proposals and to explain the rationale for their actions to assure that such proposals are given serious consideration.” The RFA covers a wide range of small entities, including small businesses, not-for-profit organizations, and small governmental jurisdictions.

Agencies must perform a review to determine whether a rule will have a significant economic impact on a substantial number of small entities. If the agency determines that it will, the agency must prepare a regulatory flexibility analysis as described in the RFA.

However, if an agency determines that a rule is not expected to have a significant economic impact on a substantial number of small entities, section 605(b) of the RFA provides that the head of the agency may so certify and a regulatory flexibility analysis is not required. The certification must include a statement providing the factual basis for this determination, and the reasoning should be clear.

The FAA believes that this final rule does not have a significant economic impact on a substantial number of small entities for the following reasons. This final rule removes the age-based pilot pairing requirements from parts 121 and 61. The expected result will be reduced costs or minimal cost for any small entity affected by this rulemaking action. Therefore, as provided in section 605(b), the head of the FAA certifies that this rulemaking will not result in a significant economic impact on a substantial number of small entities.

The Trade Agreements Act of 1979 (Pub. L. 96-39), as amended by the Uruguay Round Agreements Act (Pub. L. 103-465), prohibits Federal agencies from establishing standards or engaging in related activities that create unnecessary obstacles to the foreign commerce of the United States. Pursuant to these Acts, the establishment of standards is not considered an unnecessary obstacle to the foreign commerce of the United States, so long as the standard has a legitimate domestic objective, such as the protection of safety, and does not operate in a manner that excludes imports that meet this objective. The statute also requires consideration of international standards and, where appropriate, that they be the basis for U.S. standards. The FAA has assessed the potential effect of this final rule and determined that it conforms to international standards regarding pilot age limits and, therefore, does not create unnecessary obstacles to the foreign commerce of the United States.

Title II of the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4) requires each Federal agency to prepare a written statement assessing the effects of any Federal mandate in a proposed or final agency rule that may result in an expenditure of $100 million or more (in 1995 dollars) in any one year by State, local, and tribal governments, in the aggregate, or by the private sector; such a mandate is deemed to be a “significant regulatory action.” The FAA currently uses an inflation-adjusted value of $151 million in lieu of $100 million. This final rule does not contain such a mandate; therefore, the requirements of Title II of the Act do not apply.

The Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)) requires that the FAA consider the impact of paperwork and other information collection burdens imposed on the public. The FAA has determined that there is no new requirement for information collection associated with this immediately adopted final rule.

In keeping with U.S. obligations under the Convention on International Civil Aviation, it is FAA policy to conform to ICAO Standards and Recommended Practices to the maximum extent practicable. The FAA has reviewed the corresponding ICAO Standards and Recommended Practices and has identified no differences with these proposed regulations.

Executive Order 13609, Promoting International Regulatory Cooperation, (77 FR 26413, May 4, 2012) promotes international regulatory cooperation to meet shared challenges involving health, safety, labor, security, environmental, and other issues and reduce, eliminate, or prevent unnecessary differences in regulatory requirements. The FAA has analyzed this action under the policy and agency responsibilities of Executive Order 13609, Promoting International Regulatory Cooperation. The FAA has determined that this action would eliminate differences between U.S. aviation standards and those of other civil aviation authorities by conforming FAA regulations to the corresponding ICAO Standards and Recommended Practices.

FAA Order 1050.1E identifies FAA actions that are categorically excluded from preparation of an environmental assessment or environmental impact statement under the National Environmental Policy Act in the absence of extraordinary circumstances. The FAA has determined this rulemaking action qualifies for the categorical exclusion identified in paragraph 312f and involves no extraordinary circumstances.

The FAA has analyzed this final rule under the principles and criteria of Executive Order 13132, Federalism. The Agency determined that this action will not have a substantial direct effect on the States, or the relationship between the Federal Government and the States, or on the distribution of power and responsibilities among the various levels of government; therefore, this final rule does not have Federalism implications.

The FAA analyzed this final rule under Executive Order 13211, Actions Concerning Regulations that Significantly Affect Energy Supply, Distribution, or Use (May 18, 2001). The Agency has determined that it is not a “significant energy action” under the Executive Order, and it is not likely to have a significant adverse effect on the supply, distribution, or use of energy.

An electronic copy of a rulemaking document may be obtained by using the Internet—

1. Search the Federal eRulemaking Portal (http://www.regulations.gov);

2. Visit the FAA's Regulations and Policies Web page at http://www.faa.gov/regulations_policies/ or

3. Access the Government Publishing Office's Web page at: http://www.thefederalregister.org/fdsys/.

Copies may also be obtained by sending a request (identified by amendment or docket number of this rulemaking) to the Federal Aviation Administration, Office of Rulemaking, ARM-1, 800 Independence Avenue SW., Washington, DC 20591, or by calling (202) 267-9677.

The Small Business Regulatory Enforcement Fairness Act (SBREFA) of 1996 requires FAA to comply with small entity requests for information or advice about compliance with statutes and regulations within its jurisdiction. A small entity with questions regarding this document, may contact its local FAA official, or the person listed under the FOR FURTHER INFORMATION CONTACT heading at the beginning of the preamble. To find out more about SBREFA on the Internet, visit http://www.faa.gov/regulations_policies/rulemaking/sbre_act/.

In consideration of the foregoing, the Federal Aviation Administration amends chapter I of Title 14, Code of Federal Regulations as follows:

The FAA's authority to issue rules regarding aviation safety is found in Title 49 of the United States Code. Subtitle I, Section 106 describes the authority of the FAA Administrator. Subtitle VII, Aviation Programs, describes in more detail the scope of the agency's authority. This rulemaking is promulgated under the authority described in Subtitle VII, Part A, Subpart I, Section 40103. Under that section, the FAA is charged with prescribing regulations to assign the use of airspace necessary to ensure the safety of aircraft and the efficient use of airspace. This regulation is within the scope of that authority as it amends Class E airspace at Tribune Municipal Airport, Tribune, KS.

On November 20, 2014, the FAA published in the Federal Register a notice of proposed rulemaking (NPRM) to establish Class E airspace extending upward from 700 feet above the surface at Tribune Municipal Airport, Tribune, KS, (79 FR 69072). Interested parties were invited to participate in this rulemaking effort by submitting written comments on the proposal to the FAA. No comments were received.

Class E airspace designations are published in Paragraphs 6005, of FAA Order 7400.9Y, dated August 6, 2014, and effective September 15, 2014, 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.

This document amends FAA Order 7400.9Y, airspace Designations and Reporting Points, dated August 6, 2014, and effective September 15, 2014. FAA Order 7400.9Y is publicly available as listed in the ADDRESSES section of this final rule. FAA Order 7400.9Y lists Class A, B, C, D, and E airspace areas, air traffic service routes, and reporting points.

This action amends Title 14, Code of Federal Regulations (14 CFR), Part 71 by establishing Class E airspace extending upward from 700 feet above the surface within a 6.5-mile radius of Tribune Municipal Airport, Tribune, KS, to accommodate new Standard Instrument Approach Procedures at the airport. The FAA is taking this action to enhance the safety and management of IFR operations at the airport.

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. Therefore, this regulation: (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 only affects air traffic procedures and air navigation, it is certified that this rule, when promulgated, does not have a significant economic impact on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

The FAA has determined that this action qualifies for categorical exclusion under the National Environmental Policy Act in accordance with FAA Order 1050.1E. “Environmental Impacts: Policies and Procedures,” paragraph 311a. This airspace action is not expected to cause any potentially significant environmental impacts, and no extraordinary circumstances exist that warrant preparation of an environmental assessment.

In consideration of the foregoing, the Federal Aviation Administration amends 14 CFR part 71 as follows:

In General Utilities & Operating Co. v. Helvering, 296 U.S. 200 (1935), the Supreme Court held that corporations generally could distribute appreciated property to their shareholders without the recognition of any corporate level gain (the General Utilities doctrine). Beginning in 1969, Congress enacted a series of exceptions to the General Utilities doctrine, starting with certain non-liquidating distributions of depreciable property. In the Tax Equity and Fiscal Responsibility Act of 1982, Public Law 97-248, 96 Stat. 324, Congress enacted current section 311(b) (originally designated as section 311(d)), which required a corporation to recognize gain on appreciated property distributed to a shareholder in redemption of shares. In 1984, Congress enacted legislation that required gain recognition for all non-liquidating distributions. Finally, as part of the Tax Reform Act of 1986, Public Law 99-514, 100 Stat. 2085, (the Act), Congress repealed what remained of the General Utilities doctrine by enacting section 336(a) of the Internal Revenue Code (Code) to apply gain and loss recognition to liquidating distributions. Under current law, sections 311(b) and 336(a) of the Code require a corporation that distributes appreciated property to its shareholders to recognize gain determined as if the property were sold to the shareholders for its fair market value. Additionally, section 631 of the Act added section 337(d) to the Code to permit the Secretary to prescribe regulations that are necessary or appropriate to carry out the purposes of the General Utilities repeal, “including regulations to ensure that [the repeal of the General Utilities doctrine] may not be circumvented through the use of any provision of law or regulations.”

After the enactment of sections 311(b) and 337(d), the Treasury Department and the IRS became aware of transactions in which taxpayers used a partnership to postpone or avoid completely gain generally required to be recognized under section 311(b). In one example of this transaction, a corporation entered into a partnership and contributed appreciated property. The partnership then acquired stock of that corporate partner, and later made a liquidating distribution of this stock to the corporate partner. Under section 731(a), the corporate partner did not recognize gain on the partnership's distribution of its stock. By means of this transaction, the corporation had disposed of the appreciated property it formerly held and had acquired its own stock, permanently avoiding its gain in the appreciated property. If the corporation had directly exchanged the appreciated property for its own stock, section 311(b) would have required the corporation to recognize gain upon the exchange.

In response to this type of transaction, the Treasury Department and the IRS issued Notice 89-37, 1989-1 CB 679, on March 9, 1989. Notice 89-37 announced that future regulations under section 337(d) would address the use of partnerships to avoid the repeal of the General Utilities doctrine. Specifically, the Treasury Department and the IRS determined that, in certain circumstances, the acquisition (or ownership) by a partnership of stock in one of its corporate partners (or stock of any member of the affiliated group of which the partner is a member) results in avoidance of the repeal of the General Utilities doctrine. Such avoidance occurs to the extent that a corporate partner, in substance, relinquishes an interest in appreciated property in exchange for an interest in its stock (or the stock of an affiliate). The Notice provided that section 311(b), rather than section 731(a), would apply when a partner received a distribution of its own stock, and that the partner would recognize gain whenever a pre-distribution transaction has the economic effect of an exchange of appreciated property for the partner's own stock.

On December 15, 1992, the Treasury Department and the IRS published a notice of proposed rulemaking under section 337(d) (PS-91-90, REG-208989-90, 1993-1 CB 919) in the Federal Register (57 FR 59324) addressing partnership transactions involving stock of a partner (the 1992 proposed regulations). The 1992 proposed regulations adopted two rules to protect the repeal of the General Utilities doctrine: the deemed redemption rule (the 1992 deemed redemption rule) and the distribution rule (the 1992 distribution rule). The 1992 proposed regulations also provided de minimis and inadvertence exceptions to these two rules.

The 1992 deemed redemption rule addressed pre-distribution transactions involving corporate partner stock owned or acquired by the partnership. The Treasury Department and the IRS believed that certain of these transactions created the economic effect of an exchange of appreciated property for corporate partner stock. The 1992 deemed redemption rule provided that a corporate partner recognizes gain at the time of, and to the extent that, any transaction (or series of transactions) has the economic effect of an exchange by the partner of its interest in appreciated property for an interest in its stock (or the stock of any member of the affiliated group of which such partner is a member) owned, acquired, or distributed by the partnership.

The 1992 distribution rule provided that a partnership's distribution to a partner of the partner's stock is treated as a redemption or an exchange of the stock of the partner for a portion of the partner's partnership interest with a value equal to the distributed stock. Thus, the 1992 distribution rule applied section 311(b) principles to the distribution to trigger gain to the corporate partner, rather than applying section 731, which would not have required gain recognition. The 1992 distribution rule ensured that section 311(b) would apply to any acquisition by the corporate partner of its own stock where the 1992 deemed redemption rule had not applied. The preamble to the 1992 proposed regulations indicated that commenters on the Notice raised concerns that the 1992 distribution rule could duplicate gain recognition and suggested a modified approach. However, the 1992 proposed regulations rejected the modified approach as overly complex.

As noted previously, the 1992 proposed regulations applied to stock of a partner, to stock of a partner's affiliate, and to other equity interests in the partner or affiliate. The 1992 proposed regulations used a modified affiliation standard to determine whether a partner and another corporation were affiliates. The 1992 proposed regulations treated a corporation as an affiliate of a partner at the time of a deemed redemption or distribution by the partnership if, immediately thereafter, the partner and corporation were members of an affiliated group as defined in section 1504(a) without regard to section 1504(b) (section 337(d) affiliation). On January 19, 1993, the Treasury Department and the IRS issued Notice 93-2, 1993-1 CB 292, which stated that the 1992 proposed regulations would be amended to limit the application of the regulations to transactions in which section 337(d) affiliation existed immediately before the deemed redemption or distribution. The Treasury Department and the IRS indicated that further study was required for cases in which section 337(d) affiliation did not exist prior to a distribution of stock by a partnership to a corporate partner, but resulted from the distribution.

The Treasury Department and the IRS received several written comments in response to Notice 89-37, the 1992 proposed regulations, and Notice 93-2. Commenters largely supported the 1992 deemed redemption rule, though some suggested modifications. Some commenters, however, opposed the 1992 distribution rule, asserting that the rule is overly broad and inconsistent with the deemed redemption rule. These comments are discussed in detail in the Explanation of Provisions section of this preamble.

After considering these comment letters, and taking into account subsequent changes in relevant law as described in part 1 of this preamble, the Treasury Department and the IRS are withdrawing the 1992 proposed regulations and simultaneously issuing temporary and final regulations that also serve as the text of new proposed regulations published in the Proposed Rules section of this issue of the Federal Register.

The purpose of these regulations authorized under section 337(d) is to prevent corporate taxpayers from using a partnership to circumvent gain required to be recognized under section 311(b) or section 336(a). These regulations, including the rules governing the amount and timing of recognized gain, must be applied in a manner consistent with, and which reasonably carries out, this purpose.

These regulations apply when a partnership, either directly or indirectly, owns, acquires, or distributes Stock of the Corporate Partner (as defined in part 1 of this preamble). Under these regulations, a Corporate Partner (as defined in part 1 of this preamble) may recognize gain when it is treated as acquiring or increasing its interest in Stock of the Corporate Partner held by a partnership in exchange for appreciated property in a manner that avoids gain recognition under section 311(b) or section 336(a). The regulations also provide exceptions under which a Corporate Partner is not required to recognize gain.

These regulations retain the 1992 deemed redemption rule with the modifications described in part 2 of this preamble. However, these regulations remove the 1992 distribution rule in response to comments. In its place, these regulations apply the deemed redemption rule to partnership distributions of Stock of the Corporate Partner to the Corporate Partner as though the partnership amended its agreement, immediately before the distribution, to allocate 100 percent of the distributed stock to the Corporate Partner.

These regulations apply to certain partnerships that hold stock of a Corporate Partner. For this purpose, a “Corporate Partner” is defined as a person that holds or acquires an interest in a partnership and that is classified as a corporation for federal income tax purposes. The regulations define “Stock of the Corporate Partner” expansively to include the Corporate Partner's stock, or other equity interests, including options, warrants, and similar interests, in the Corporate Partner or a corporation that controls (within the meaning of section 304(c)) the Corporate Partner. Stock of the Corporate Partner also includes interests in any entity to the extent that the value of the interest is attributable to Stock of the Corporate Partner.

These definitions of Corporate Partner and Stock of the Corporate Partner are consistent with those set forth in the 1992 proposed regulations except for two changes. First, these regulations modify the definition of Stock of the Corporate Partner. Based on changes in the law and comments received, the Treasury Department and the IRS have determined that the scope of the definition of “Stock of a Partner” in the 1992 proposed regulations was too narrow in certain instances and too broad in others. These regulations broaden the definition of Stock of a Corporate Partner to include stock or other equity interests of any corporation that controls the Corporate Partner within the meaning of section 304(c) (section 304(c) control), whereas the 1992 proposed regulations' definition was limited to stock or other equity interests issued by the Corporate Partner and its section 337(d) affiliates. Section 304(c) control generally exists when there is ownership of stock of a corporation possessing at least 50 percent of the total combined voting power of all classes of the corporation's stock that is entitled to vote or at least 50 percent of the value of the shares of all classes of stock of the corporation, while control of a corporation under section 1504(a)(2) requires ownership of stock of the corporation possessing at least 80 percent of the total voting power of the stock of the corporation and at least 80 percent of the total value of the stock of the corporation. The Treasury Department and the IRS believe the lower threshold for control set forth in section 304(c) is the more appropriate standard for this purpose because General Utilities repeal could be avoided by acquiring stock of a corporation that owns less than 80 percent of the vote and value of the Corporate Partner's stock. In addition, these regulations narrow the definition of Stock of a Corporate Partner to exclude stock of any corporation that does not possess section 304(c) control of the Corporate Partner, even if the corporation is a section 337(d) affiliate or a member of the same consolidated group as the Corporate Partner. The enactment of sections 732(f) and 755(c) subsequent to the issuance of the 1992 proposed regulations generally have served to prevent abusive transactions involving partnerships that own stock of lower tier section 337(d) affiliates of the Corporate Partner. Accordingly, these regulations do not apply to a partnership that owns, acquires, or distributes stock of any section 337(d) affiliate of the Corporate Partner unless that affiliate possesses section 304(c) control of the Corporate Partner. The Treasury Department and the IRS continue to study the application of these provisions and plan to issue additional guidance as needed to address further abuses in this area. Comments are requested regarding such guidance.

Second, these regulations add an exception for certain related-party partners. Under this exception, Stock of the Corporate Partner does not include any stock or other equity interest held or acquired by a partnership if all interests in the partnership's capital and profits are held by members of an affiliated group defined in section 1504(a) that includes the Corporate Partner. Thus, these regulations do not apply if, for example, a domestic corporation and its wholly owned domestic subsidiary (each of which is an includible corporation under section 1504(b)) are the only partners in a partnership and either corporation contributes stock of another affiliate. The Treasury Department and the IRS have determined that this additional exception is appropriate because the purpose of these regulations is not implicated if a partnership is owned entirely by affiliated corporations. The Treasury Department and the IRS invite comments on whether this exception should be extended, for example, to partnerships owned by controlled foreign corporations that are owned entirely by a single affiliated group.

For partnerships that hold Stock of the Corporate Partner, these regulations apply to a transaction (or series of transactions) that is a “Section 337(d) Transaction.” These regulations define a Section 337(d) Transaction as a transaction that has the effect of an exchange by a Corporate Partner of its interest in appreciated property for an interest in Stock of the Corporate Partner owned, acquired, or distributed by a partnership. For example, a Section 337(d) Transaction may occur if: (i) A Corporate Partner contributes appreciated property to a partnership that owns Stock of the Corporate Partner; (ii) a partnership acquires Stock of the Corporate Partner; (iii) a partnership that owns Stock of the Corporate Partner distributes appreciated property to a partner other than the Corporate Partner; (iv) a partnership distributes stock of the Corporate Partner to the Corporate Partner; or (v) a partnership agreement is amended in a manner that increases a Corporate Partner's interest in the Stock of the Corporate Partner (including in connection with a contribution to, or distribution from, a partnership).

If a partnership engages in a Section 337(d) Transaction, the Corporate Partner must recognize gain. The regulations define a “Gain Percentage” that the partnership uses to quantify the amount of gain recognized. The computation of the Gain Percentage is set forth in part 2 of this preamble.

These regulations largely retain the 1992 deemed redemption rule. If a transaction is a Section 337(d) Transaction described in part 1 of this preamble, a Corporate Partner must recognize gain under the deemed redemption rule. To determine the amount of gain, the Corporate Partner must first determine the amount of appreciated property (other than Stock of the Corporate Partner) effectively exchanged for Stock of the Corporate Partner (by value) and then calculate the amount of taxable gain recognized.

These regulations set forth general principles that apply in determining the amount of appreciated property effectively exchanged for Stock of the Corporate Partner. These general principles require that the Corporate Partner's economic interest with respect to both Stock of the Corporate Partner and all other appreciated property of the partnership be determined based on all facts and circumstances, including the allocation and distribution rights set forth in the partnership agreement. The deemed redemption rule applies only to the extent that the transaction has the effect of an exchange by the Corporate Partner of its interest in appreciated property for Stock of the Corporate Partner. Thus, these regulations do not apply to the extent a transaction has the effect of an exchange by a Corporate Partner of non-appreciated property for Stock of the Corporate Partner or has the effect of an exchange by a Corporate Partner of appreciated property for property other than Stock of the Corporate Partner.

A Corporate Partner must recognize gain under these regulations even if the Section 337(d) Transaction would not otherwise change the Corporate Partner's allocable share of gain under section 704(c). For example, if a Corporate Partner contributes appreciated property to a newly-formed partnership and an individual contributes cash that the partnership subsequently uses to purchase Stock of the Corporate Partner, then the purchase of the stock is a Section 337(d) Transaction even though the Corporate Partner's allocable share of gain in the appreciated property under section 704(c) is the same before and after the purchase. The Treasury Department and the IRS believe that this gain recognition is appropriate because a Section 337(d) Transaction may create an immediate benefit to the Corporate Partner equivalent to the benefit associated with the redemption of corporate stock in exchange for appreciated property. See Example 4 of § 1.337(d)-3T(h) in these regulations.

If the Corporate Partner has an existing interest in the partnership's Stock of the Corporate Partner prior to the Section 337(d) Transaction, the deemed redemption rule applies only with respect to the Corporate Partner's incremental increase in the Stock of the Corporate Partner. For example, changing allocations to increase a Corporate Partner's interest in the Stock of the Corporate Partner from 50 percent to 80 percent and to decrease the Corporate Partner's interest in other appreciated property from 80 percent to 50 percent would have the effect of an exchange by the Corporate Partner of the 30-percent incremental decrease in its interest in the appreciated property for the 30-percent incremental increase in the Stock of the Corporate Partner. See Example 5 of § 1.337(d)-3T(h) in these regulations.

For purposes of recognizing gain under the deemed redemption rule, the Corporate Partner's interest in an identified share of Stock of the Corporate Partner will never be less than the Corporate Partner's largest interest (by value) in that share of Stock of the Corporate Partner that was taken into account when the partnership previously determined whether there had been a Section 337(d) Transaction (regardless of whether the Corporate Partner recognized gain in the earlier transaction). See Example 6 of § 1.337(d)-3T(h) in these regulations. This rule ensures that alternating increases and decreases in a Corporate Partner's interest in Stock of the Corporate Partner do not cause duplicate gain recognition. This limitation does not apply if any reduction in the Corporate Partner's interest in the identified share of Stock of the Corporate Partner occurred as part of a plan or arrangement to circumvent the purpose of these regulations. See Example 7 of § 1.337(d)-3T(h) in these regulations.

In certain limited circumstances, a partnership's acquisition of Stock of the Corporate Partner does not have the effect of an exchange of appreciated property for that stock. For example, as one commenter asserted, if a partnership with an operating business uses the cash generated in that business to purchase Stock of the Corporate Partner, the deemed redemption rule should not apply to the stock purchase because the Corporate Partner's share in appreciated property has not been reduced, and thus no exchange has occurred. The Treasury Department and the IRS acknowledge that such stock acquisitions would not contravene the purposes of these regulations. Accordingly, these regulations adopt this comment and do not apply to stock purchases or other transactions that do not have the effect of an exchange of appreciated property for Stock of the Corporate Partner.

If a transaction is a Section 337(d) Transaction, the deemed redemption rule requires the Corporate Partner to recognize a percentage of its total gain in partnership appreciated property equal to a fraction, the numerator of which is the Corporate Partner's interest (by value) in appreciated property effectively exchanged for Stock of the Corporate Partner under the deemed redemption rule, and the denominator of which is the Corporate Partner's interest (by value) in appreciated property immediately before the Section 337(d) Transaction. This fraction is defined in these regulations as the “Gain Percentage.” The Corporate Partner's gain under the deemed redemption rule equals the product of (i) the Corporate Partner's Gain Percentage and (ii) the gain from the appreciated property that is the subject of the exchange that the that the Corporate Partner would recognize if, immediately before the Section 337(d) Transaction, all assets of the partnership and any assets contributed to the partnership in the section 337(d) Transaction were sold in a fully taxable transaction for cash in an amount equal to the fair market value of such property (taking into account section 7701(g)), reduced, but not below zero, by any gain the Corporate Partner is required to recognize with respect to the appreciated property in the Section 337(d) Transaction under any other section of the Code. For example, if a Corporate Partner would be allocated $100x of tax gain on a sale of appreciated partnership property (other than Stock of the Corporate Partner) and the Corporate Partner's interest in that appreciated partnership property (determined under all facts and circumstances) is $500x, and if the partnership engages in a Section 337(d) Transaction that reduces the Corporate Partner's interest in appreciated partnership property by $200x and increases the Corporate Partner's interest in Stock of the Corporate Partner by $200x, then the Corporate Partner's Gain Percentage equals 40% (200x/500x), and the Corporate Partner's gain under the deemed redemption rule is $40x (40% of $100x).

The gain from the hypothetical sale used to compute gain under the deemed redemption rule is determined by applying the principles of section 704(c), which generally requires the partnership to take into account variations between the adjusted tax basis and fair market value of partnership property at the time it is contributed to the partnership and upon certain other events that allow or require the value of partnership property to be redetermined under § 1.704-1(b)(2)(iv)(f). See Examples 3 and 5 of § 1.337(d)-3T(h) in these regulations. A partner's share of gain under section 704(c) for this purpose includes any remedial allocations under § 1.704-3(d) for a partnership that has elected under section 704(c) to report notional items of offsetting tax gain and loss to its partners to eliminate distortions that may arise when the partnership's total tax gain or loss on the sale of partnership property is less than all partners' aggregate share of gain or loss from the property.

These regulations also contain two rules related to the effect of the deemed redemption rule on partner and partnership basis. First, these regulations require the Corporate Partner to increase its basis in its partnership interest by an amount equal to the gain that the Corporate Partner recognizes in a Section 337(d) Transaction. This basis increase is necessary to prevent the Corporate Partner from recognizing gain a second time when the partnership liquidates (or, if property is distributed to the Corporate Partner, when that property is sold).

Second, the regulations require the partnership to increase its adjusted tax basis in the appreciated property that is treated as the subject of a Section 337(d) Transaction by the amount of gain that the Corporate Partner recognized with respect to that property as a result of the Section 337(d) Transaction. This basis increase applies regardless of whether the partnership has elected under section 754 to adjust the basis of partnership property. This rule prevents the Corporate Partner from recognizing gain a second time when the partnership sells the property that was effectively exchanged under the deemed redemption rule.

One commenter suggested that when a partnership owns or acquires stock in a Corporate Partner's subsidiary or a sister of the Corporate Partner and the stock is not issued as part of the transaction, the deemed redemption rule should not apply unless and until a subsequent transaction relating to the stock creates tax consequences that are inconsistent with General Utilities repeal. As discussed in part 1 of this preamble, these regulations only apply to Stock of a Corporate Partner, which under these regulations, does not include stock in a Corporate Partner's sister corporation or subsidiary unless such corporation possesses section 304(c) control of the Corporate Partner. Such control could exist, if, for example, a Corporate Partner's subsidiary were to own so-called “hook stock” in the Corporate Partner. If such control of the Corporate Partner does exist, then it is appropriate to treat stock of a Corporate Partner's subsidiary or sister corporation as Stock of the Corporate Partner because the value of that sister or subsidiary corporation's stock owned or acquired by the partnership is in part attributable to the Corporate Partner's stock.

Another commenter suggested that the deemed redemption rule is no longer necessary. The commenter explained that the acquisition of Stock of the Corporate Partner is not the appropriate time to impose tax and that the 1992 distribution rule and changes in the law since 1989 make it more difficult to exit a partnership tax-free. The Treasury Department and the IRS do not adopt this comment because a Section 337(d) Transaction may create an immediate benefit to the Corporate Partner equivalent to the benefit associated with the redemption of corporate stock in exchange for appreciated property. If the deemed redemption rule does not apply at the time of this exchange, the Corporate Partner can defer paying tax on this economic benefit in a manner that is inconsistent with section 311(b).

The 1992 distribution rule required a Corporate Partner to recognize gain when the partnership distributes Stock of the Corporate Partner to the Corporate Partner. Commenters noted a number of concerns with this rule and recommended eliminating it.

Several commenters noted that the rule was overly broad because it could cause the Corporate Partner to recognize gain in an amount that exceeded the appreciation in property effectively exchanged for the stock. For example, the rule could require a Corporate Partner to recognize gain upon a partnership's distribution of appreciated Stock of the Corporate Partner even though the partnership held no other appreciated property. One commenter stated that the 1992 distribution rule would therefore require the Corporate Partner to recognize gain on appreciation inherent in its partnership interest, even though the distribution does not implicate the repeal of the General Utilities doctrine and even though section 1032 provides for nonrecognition of gain on the distribution. The commenter maintained that the 1992 distribution rule should not apply when a Corporate Partner merely exchanges an indirect interest in its own stock for a direct interest in its own stock.

The Treasury Department and the IRS agree with these comments and adopt new rules governing the tax consequences of a distribution of Stock of the Corporate Partner to that Corporate Partner. Instead of adopting the 1992 distribution rule, these regulations extend the deemed redemption rule to certain distributions to the Corporate Partner of Stock of the Corporate Partner. These new rules governing distributions apply only if the distributed stock has previously been the subject of a Section 337(d) Transaction or becomes the subject of a Section 337(d) Transaction as a result of the distribution (a section 337(d) distribution). Additionally, these regulations do not apply to a distribution to the Corporate Partner of the Stock of the Corporate Partner to which section 732(f) applies at the time of the distribution. If the deemed redemption rule applies to a distribution, these regulations deem the partnership to amend its agreement immediately before the distribution to allocate 100 percent of the distributed stock to the Corporate Partner and to allocate an appropriately reduced interest in other partnership property away from the Corporate Partner. This deemed allocation is solely for purposes of recognizing gain under these regulations, and no inference is intended with regard to the treatment of such allocations generally.

If a distribution is a section 337(d) distribution, then in addition to any gain recognized under the deemed redemption rule upon the distribution of Stock of the Corporate Partner to the Corporate Partner, these regulations also require the Corporate Partner to recognize gain to the extent that the partnership's basis in the distributed Stock of the Corporate Partner exceeds the Corporate Partner's basis in its partnership interest (as reduced by any cash distributed in the transaction) immediately before the distribution. Recognition of gain in this circumstance is necessary to prevent the Corporate Partner from shifting basis away from its own stock onto other property of the partnership. The regulations provide an exception to this additional gain recognition rule if the gain recognition or basis reduction rules of section 732(f) apply at the time of the distribution. Although this exception generally ensures that gain recognized as a result of these regulations will not be duplicated as a result of section 732(f), duplication may still result in certain circumstances. For example, if a Corporate Partner recognizes gain under section 337(d) on a partnership distribution and section 732(f) does not apply to the distribution because the section 732(f) control requirement is not satisfied at the time of the distribution, but the control requirement is subsequently satisfied triggering section 732(f), then the Corporate Partner could recognize gain under both provisions. The Treasury Department and the IRS invite comments on how the rules in these regulations should be coordinated with section 732(f).

These regulations set forth two rules under sections 337 and 732 to coordinate the effects of the rule requiring gain recognition when the Stock of the Corporate Partner is stepped down on a section 337(d) distribution with existing rules for determining the basis of property upon partnership distributions. The first rule applies for purposes of determining the basis of property distributed to the Corporate Partner (other than the basis of the Corporate Partner in its own stock), the basis of the Corporate Partner's remaining partnership interest, and the partnership's basis in undistributed Stock of the Corporate Partner, and for purposes of computing gain on the distribution. For these purposes, the basis of Stock of the Corporate Partner distributed to the Corporate Partner equals the greater of: (i) The partnership's basis of that distributed Stock of the Corporate Partner immediately before the distribution, or (ii) the fair market value of that distributed Stock of the Corporate Partner immediately before the distribution less the Corporate Partner's allocable share of gain from all of the Stock of the Corporate Partner if the partnership sold all of its assets in a fully taxable transaction for cash in an amount equal to the fair market value of such property (taking into account section 7701(g)) immediately before the distribution. See Examples 2 and 3 of § 1.337(d)-3T(h) in these regulations. This special rule is necessary to prevent basis from shifting away from distributed Stock of the Corporate Partner to other property. This basis shift could occur, for example, upon a distribution of less than all of the partnership's Stock of the Corporate Partner to the Corporate Partner. The Treasury Department and the IRS request comments on this rule, including comments on whether its objectives would be better achieved through guidance under section 732 providing that on a distribution of a partial interest in partnership property, the basis of the distributed property in the hands of the distributee partner is determined by taking the principles of section 704(c) into account.

A second rule applies when a Corporate Partner receives both Stock of the Corporate Partner and other property in a section 337(d) distribution. Under this rule, the basis to be allocated to the properties distributed under section 732(a) or (b) is allocated first to the Stock of the Corporate Partner before taking into account the distribution of any other property (other than cash). Therefore, before taking into account the distribution of other property, the Corporate Partner will reduce its basis in its partnership interest by the Corporate Partner's basis in the distributed Stock of the Corporate Partner (but not below zero). The Corporate Partner will determine its basis in other distributed partnership property and in its remaining partnership interest after giving effect to this reduction. This rule, which governs the application of sections 732(a) and 732(b), is being promulgated pursuant to the specific statutory grant of authority in section 337(d)(1) to ensure that the purposes of the repeal of the General Utilities doctrine are not circumvented through the use of any provision of law or regulations.

When a Corporate Partner receives a partnership distribution of its own stock, it is unclear under existing law whether the Corporate Partner has basis in that stock. (See, for example, Rev. Rul. 2006-2, 2006-1 CB 261.) The resolution of this question is beyond the scope of these regulations. However, because the distribution to a Corporate Partner of its own stock affects the Corporate Partner's basis in other distributed property and any retained partnership interest, these regulations require the partnership and the Corporate Partner to determine the basis of other distributed property and any retained partnership interest by reference to the partnership's basis in the distributed Stock of the Corporate Partner. That is, the Corporate Partner determines its basis in other distributed property and in any retained partnership interest as though the distributed stock was stock other than Stock of the Corporate Partner. Similarly, the regulations compute any gain recognition on the distribution by comparing the Corporate Partner's basis in its partnership interest to the basis of that Stock of the Corporate Partner in the hands of the partnership (without regard to whether the Corporate Partner can have basis in the distributed stock). No inference is intended with respect to the question of whether a corporation has or does not have basis in its own stock.

These regulations retain the de minimis and inadvertence exceptions from the 1992 proposed regulations, but make small modifications to the de minimis rule to reduce burden. As set forth in these regulations, the de minimis rule provides that these regulations do not apply to a Corporate Partner if three conditions are satisfied. These conditions are tested upon the occurrence of a Section 337(d) Transaction and upon any subsequent revaluation event described in § 1.704-1(b)(2)(iv)(f).

The first condition requires that both the Corporate Partner and any persons related to the Corporate Partner under section 267(b) or section 707(b) own, in the aggregate, less than five percent of the partnership. The second condition requires that the partnership hold Stock of the Corporate Partner worth less than two percent of the value of the partnership's gross assets, including Stock of the Corporate Partner. The third condition requires that the partnership has never, at any point in time, held more than $1,000,000 in Stock of the Corporate Partner or more than two percent of any particular class of Stock of the Corporate Partner. The 1992 proposed regulations contained similar conditions, but capped the permissible value of the partnership's Stock of the Corporate Partner at $250,000.

These regulations provide a special rule that applies if the conditions of the de minimis rule are satisfied at the time of a Section 337(d) Transaction, but are not satisfied at the time of a subsequent Section 337(d) Transaction or revaluation event described in § 1.704-1(b)(2)(iv)(f). This rule provides that, solely for purposes of the deemed redemption rule, a Corporate Partner may determine its gain on the subsequent acquisition or revaluation event as if it had already recognized gain at the previous event. Accordingly, the Corporate Partner would only recognize gain with respect to appreciation arising between the earlier acquisition or revaluation event and the subsequent event. Neither the Corporate Partner nor the partnership increases its basis by the gain the Corporate Partner would have recognized if the de minimis rule did not apply to the prior acquisition or revaluation event.

These regulations also contain an inadvertence exception. The inadvertence exception provides that these regulations do not apply to Section 337(d) Transactions in which the partnership satisfies two requirements. First, the partnership must dispose of, by sale or distribution, the Stock of the Corporate Partner before the due date (including extensions) of its federal income tax return for the taxable year in which the partnership acquired the stock (or in which the Corporate Partner joined the partnership, if applicable). Second, the partnership must not have distributed the Stock of the Corporate Partner to the Corporate Partner or a person possessing section 304(c) control of the Corporate Partner. Other than broadening and narrowing the scope of related distributees as a result of the modified definition of Stock of the Corporate Partner, this inadvertence exception is generally unchanged from the 1992 proposed regulations. However, the Treasury Department and the IRS will consider comments with respect to removing the prohibition against distributions of Stock of the Corporate Partner to the Corporate Partner in light of the enactment of section 737, which requires a partner to recognize gain on property with built-in gain contributed to a partnership when the partnership distributes other property to the partner within seven years of the contribution.

The Treasury Department and the IRS are concerned that taxpayers could use tiered partnerships to circumvent these regulations. Therefore, these regulations require taxpayers to apply these regulations to tiered partnerships in a manner consistent with the regulations' purpose. See Example 8 of § 1.337(d)-3T(h) in these regulations.

These regulations apply to transactions occurring on or after June 12, 2015.

It has been determined that this Treasury Decision is not a significant regulatory action as defined in Executive Order 12866, as supplemented by Executive Order 13563. Therefore, a regulatory assessment is not required. For the applicability of the Regulatory Flexibility Act (5 U.S.C. chapter 6), refer to the Special Analyses section of the preamble to the cross-referenced notice of proposed rulemaking published in the Proposed Rules section in this issue of the Federal Register. 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 its impact on small business.

The principal authors of these regulations are Joseph R. Worst and Kevin I. Babitz, Office of the Associate Chief Counsel (Passthroughs and Special Industries). However, other personnel from the Treasury Department and the IRS participated in their development.

Accordingly, 26 CFR part 1 is amended as follows:

The Coast Guard will enforce the Safety Zones; Annual Events in the Captain of the Port Buffalo Zone listed in 33 CFR 165.939 for the following events:

Tom Graves Memorial Fireworks, Port Bay, NY; The safety zone listed in 33 CFR 165.939(a)(13) will be enforced from 9 p.m. to 10:30 p.m. on July 3, 2015.

Pursuant to 33 CFR 165.23, entry into, transiting, or anchoring within these safety zones during an enforcement period is prohibited unless authorized by the Captain of the Port Buffalo or his designated representative. Those seeking permission to enter one of these safety zones may request permission from the Captain of Port Buffalo via channel 16, VHF-FM. Vessels and persons granted permission to enter one of these safety zones shall obey the directions of the Captain of the Port Buffalo or his designated representative. While within a safety zone, all vessels shall operate at the minimum speed necessary to maintain a safe course.

This notice is issued under authority of 33 CFR 165.939 and 5 U.S.C. 552(a). In addition to this notice in the Federal Register, the Coast Guard will provide the maritime community with advance notification of these enforcement periods via Broadcast Notice to Mariners or Local Notice to Mariners. If the Captain of the Port Buffalo determines that this safety zone need not be enforced for the full duration stated in this notice he or she may use a Broadcast Notice to Mariners to grant general permission to enter the respective safety zone.

The Coast Guard will enforce the safety zone listed in 33 CFR 165.935, Safety Zone, Milwaukee Harbor, Milwaukee, WI, at the following times for the following events:

(1) Pridefest fireworks display on June 6, 2015 from 9:15 p.m. until 10:15 p.m.;

(2) Polish Fest fireworks display on June 13, 2015 from 10:15 p.m. until 11:15 p.m.;

(3) Summerfest fireworks display on each day of June 24, 2015 and July 2, 2015 from 9:15 p.m. until 10:30 p.m.;

(4) Festa Italiana fireworks display on each day of July 17, 18, and 19, 2015 from 10:15 p.m. until 11:15 p.m.;

(5) German Fest fireworks display on each day of July 24 and 25, 2015 from 10:15 p.m. until 11:15 p.m.;

(6) Irish Fest fireworks display on August 13, 2015 from 10:15 p.m. until 11:15 p.m.;

(7) Indian Summer fireworks display on each day of September 11 and 12, 2015 from 9:45 p.m. until 10:45 p.m.

This safety zone will encompass the waters of Lake Michigan within Milwaukee Harbor including the Harbor Island Lagoon enclosed by a line connecting the following points: beginning at 43°02′00″ N., 087°53′53″ W.; then south to 43°01′44″ N., 087°53′53″ W.; then east to 43°01′44″ N., 087°53′25″ W.; then north to 43°02′00″ N., 087°53′25″ W.; then west to the point of origin. All vessels must obtain permission from the Captain of the Port Lake Michigan or her on-scene representative to enter, move within, or exit the safety zone. Vessels and persons granted permission to enter the safety zone must obey all lawful orders or directions of the Captain of the Port Lake Michigan or her on-scene representative.

This document is issued under authority of 33 CFR 165.935 Safety Zone, Milwaukee Harbor, Milwaukee, WI and 5 U.S.C. 552(a). In addition to this publication in the Federal Register, the Coast Guard will provide the maritime community with advance notification of the enforcement periods via Broadcast Notice to Mariners or Local Notice to Mariners. The Captain of the Port Lake Michigan or her on-scene representative may be contacted via VHF Channel 16.

On March 12, 2008, EPA promulgated a revised 8-hour ozone NAAQS of 0.075 parts per million (ppm). See 73 FR 16436 (March 27, 2008). Under EPA's regulations at 40 CFR part 50, the 2008 8-hour ozone NAAQS is attained when the 3-year average of the annual fourth-highest daily maximum 8-hour average ambient air quality ozone concentrations is less than or equal to 0.075 ppm. 40 CFR 50.15. Ambient air quality monitoring data for the 3-year period must meet a data completeness requirement. The ambient air quality monitoring data completeness requirement is met when the average percent of days with valid ambient monitoring data is greater than 90 percent, and no single year has less than 75 percent data completeness as determined in Appendix I of part 50.

Upon promulgation of a new or revised NAAQS, the Clean Air Act (CAA or Act) requires EPA to designate as nonattainment any area that is violating the NAAQS based on the three most recent years of ambient air quality data at the conclusion of the designation process. The bi-state Charlotte Area was designated nonattainment for the 2008 8-hour ozone NAAQS on April 30, 2012 (effective July 20, 2012) using 2009-2011 ambient air quality data. See 77 FR 30088 (May 21, 2012). At the time of designation, the bi-state Charlotte Area was classified as a marginal nonattainment area for the 2008 8-hour ozone NAAQS. On March 6, 2015, EPA finalized a rule entitled “Implementation of the 2008 National Ambient Air Quality Standards for Ozone: State Implementation Plan Requirements” (SIP Requirements Rule) that establishes the requirements that state, tribal, and local air quality management agencies must meet as they develop implementation plans for areas where air quality exceeds the 2008 8-hour ozone NAAQS.1 See 80 FR 12264. This rule establishes nonattainment area attainment dates based on Table 1 of section 181(a) of the CAA, including an attainment date three years after the July 20, 2012, effective date, for areas classified as marginal for the 2008 8-hour ozone NAAQS. Therefore, the attainment date for the bi-state Charlotte Area is July 20, 2015.

Based on the nonattainment designation, South Carolina was required to develop a SIP revision addressing certain CAA requirements for the Area. Specifically, pursuant to CAA section 182(a)(3)(B) and section 182(a)(1), South Carolina was required to submit a SIP revision addressing the emissions statements and emissions inventory requirements, respectively.

Ground level ozone is not emitted directly into the air, but is created by chemical reactions between oxides of nitrogen (NOX) and volatile organic compounds (VOC) in the presence of sunlight. Emissions from industrial facilities and electric utilities, motor vehicle exhaust, gasoline vapors, and chemical solvents are some of the major sources of NOX and VOC. Section 182(a)(3)(B) of the CAA requires each state with ozone nonattainment areas to submit a SIP revision requiring annual emissions statements to be submitted to the state by the owner or operator of each NOX or VOC stationary source 2 located within a nonattainment area showing the actual emissions of NOX and VOC from that source. The first statement is due three years from the area's nonattainment designation, and subsequent statements are due at least annually thereafter. Section 182(a)(1) of the CAA requires states with areas designated nonattainment for the ozone NAAQS to submit a SIP revision providing a comprehensive, accurate, and current inventory of actual emissions from all sources of the relevant pollutant or pollutants in such area. NOX and VOCs are the relevant pollutants because they are the precursors of ozone.

On August 8, 2014, South Carolina submitted a SIP revision that, among other things, addressed emissions statements requirements related to the 2008 8-hour ozone NAAQS for its portion of the bi-state Charlotte Area. Additionally, on August 22, 2014, South Carolina submitted a SIP revision that included a base year emissions inventory for the Area. EPA is now taking action to approve the portion of the August 8, 2014 SIP revision related to emissions statements as meeting the requirements of sections 110 and 182(a)(3)(B) of the CAA and to approve the portion of the August 22, 2014 SIP revision related to the base year inventory as meeting the requirements of sections 110 and 182(a)(1) of the CAA.3 More information on EPA's analysis of South Carolina's SIP revisions provided below.

As discussed above, section 182(a)(1) of the CAA requires states to submit a comprehensive, accurate, and current inventory of actual emissions from all sources of the relevant pollutant or pollutants in each ozone non-attainment area. The section 182(a)(1) base year inventory is defined in the SIP Requirements Rule as “a comprehensive, accurate, current inventory of actual emissions from sources of VOC and NOX emitted within the boundaries of the nonattainment area as required by CAA section 182(a)(1).” See 40 CFR 51.1100(bb). The inventory year must be selected consistent with the baseline year for the RFP plan as required by 40 CFR 51.1110(b),4 and the inventory must include actual ozone season day emissions as defined in 40 CFR 51.1100(cc) 5 and contain data elements consistent with the detail required by 40 CFR part 51, subpart A. See 40 CFR 51.1115(a), (c), (e). In addition, the point source emissions included in the inventory must be reported according to the point source emissions thresholds of the Air Emissions Reporting Requirements (AERR) in 40 CFR part 51, subpart A. 40 CFR 51.1115(d).

South Carolina selected 2011 as the base year for the emissions inventory which is the year corresponding with the first triennial inventory under 40 CFR part 51, subpart A. This base year is one of the three years of ambient data used to designate the Area as a nonattainment area and therefore represents emissions associated with nonattainment conditions. The emissions inventory is based on data developed and submitted by SC DHEC to EPA's 2011 National Emissions Inventory (NEI), and it contains data elements consistent with the detail required by 40 CFR part 51, subpart A.6

South Carolina's emissions inventory for its portion of the Area provides 2011 typical average summer day emissions data for NOX and VOCs for the following general source categories: stationary point, area, non-road mobile, on-road mobile, and events.7 A detailed discussion of the inventory development is located in Appendix A of the South Carolina submittal which is provided in the docket for this action. The table below provides a summary of the emissions inventory.

The emissions reported for York County reflect the emissions for only the nonattainment portion of the county. The inventory contains point source emissions data for facilities located within the South Carolina portion of the Area based on Geographic Information Systems (GIS) mapping. For the remaining emissions categories, emissions from the South Carolina portion of the bi-state Charlotte Area were determined based on the population of the portion of York County that is included in the Area. More detail on the emissions inventory for individual sources categories is provided below and in Appendix A of the State's August 22, 2014 submittal.

Point sources are large, stationary, identifiable sources of emissions that release pollutants into the atmosphere. The point source emissions inventory for South Carolina's portion of the bi-state Charlotte Area was developed from facility-specific emissions data. A detailed account of the point sources can be found in Appendix A of the August 22, 2014, submittal, which is located in the docket for today's action. The point source emissions data meets the point source emissions thresholds of 40 CFR part 51, subpart A.

Area sources are small emission stationary sources which, due to their large number, collectively have significant emissions (e.g., dry cleaners, service stations). Emissions for these sources were estimated by multiplying an emission factor by such indicators of collective emissions activity as production, number of employees, or population. These emissions were estimated at the county level. South Carolina developed its inventory according to the current EPA emissions inventory guidance for area sources.8 A detailed account of the area sources can be found in Appendix A of the August 22, 2014, submittal.

On-road mobile sources include vehicles used on roads for transportation of passengers or freight. South Carolina developed its on-road emissions inventory using EPA's Motor Vehicle Emissions Simulator (MOVES) model for each ozone nonattainment county.9 County level on-road modeling was conducted using county-specific vehicle population and other local data. South Carolina developed its inventory according to the current EPA emissions inventory guidance for on-road mobile sources.10 A detailed account of the on-road sources can be found in Appendix A of the August 22, 2014, submittal.

Non-road mobile sources include vehicles, engines, and equipment used for construction, agriculture, recreation, and other purposes that do not use roadways (e.g., lawn mowers, construction equipment, railroad locomotives, and aircraft). South Carolina calculated emissions for most of the non-road mobile sources using EPA's NONROAD2008a model 11 and developed its non-road mobile source inventory according to the current EPA emissions inventory guidance for non-road mobile sources.12 The railroad locomotive emissions are calculated with fuel use data, track miles and emission factors. A detailed account of the non-road mobile sources can be found in Appendix A of the August 22, 2014, submittal.

SC DEHC included 2011 actual emissions from event sources in its emissions inventory. Events sources in 2011 included wildfires and prescribed fires. Wildfires are unplanned, unwanted wild land fires including unauthorized human-caused fires, escaped prescribed fire projects, or other inadvertent fire situations where the objective is to put the fire out. Prescribed fires are any fires ignited by management actions to meet specific objectives related to the reduction of the biomass potentially available for wildfires. South Carolina calculated actual event source emissions using the 2011 NEI version 1 dataset developed by EPA. A detailed account of the event sources can be found in Appendix A of the August 22, 2014 submittal.

For the reasons discussed above, EPA has determined that South Carolina's emissions inventory meets the requirements under CAA section 182(a)(1) and the SIP Requirements Rule for the 2008 8-hour ozone NAAQS.

Pursuant to section 182(a)(3)(B), states with ozone nonattainment areas must require annual emissions statements from NOX and VOC stationary sources within those nonattainment areas. This requirement applies to all ozone nonattainment areas regardless of classification (e.g., Marginal, Moderate).

On August 8, 2014, South Carolina submitted a SIP revision to amend portions of Regulation No. 61-62.1, Definitions and General Requirements, as currently incorporated into the SIP, to reflect recent changes to the rule.13 The changes to Regulation No. 61-62.1 that address emission statement requirements are the revision to the Section III title,14 the addition of a second paragraph to Section III.A.,15 and the addition of Section III.C.16 EPA has determined that these three specific changes to Section III of Regulation No. 61-62.1, identified in the August 8, 2014 SIP submission, meet the requirements of section 182(a)(3)(B) for the 2008 8-hour ozone NAAQS and is approving those changes into the SIP.

In this rule, EPA is finalizing regulatory text that includes incorporation by reference. In accordance with the requirements of 1 CFR 51.5, EPA is incorporating the following changes to Regulation No. 61-62.1, titled “Definitions and General Requirements”: modification of the title of Section III, addition of a second paragraph to Section III.A defining an “emissions statement,” and addition of Section III.C titled “Emissions Statement Requirements” which were state effective on June 27, 2014. EPA has made, and will continue to make, documents generally available electronically through www.regulations.gov and/or in hard copy at the appropriate EPA office (see the ADDRESSES section of this preamble for more information).

EPA is approving the portions of the SIP revisions submitted by South Carolina on August 22, 2014 and August 8, 2014, that relate to the base year emissions inventory and emissions statement requirements,17 respectively, for the State's portion of the bi-state Charlotte Area. EPA has concluded that the portions of the State's submissions that EPA is approving meet the relevant requirements of sections 110 and 182 of the CAA. EPA is publishing this rule without prior proposal because the Agency views this as a noncontroversial submittal and anticipates no adverse comments. However, in the proposed rules section of this Federal Register publication, EPA is publishing a separate document that will serve as the proposal to approve the SIP revision should adverse comments be filed. This rule will be effective August 11, 2015 without further notice unless the Agency receives adverse comments by July 13, 2015.

If EPA receives such comments, then EPA will publish a document withdrawing the final rule and informing the public that the rule will not take effect. All adverse comments received will then be addressed in a subsequent final rule based on the proposed rule. EPA will not institute a second comment period. Parties interested in commenting should do so at this time. If no such comments are received, the public is advised that this rule will be effective on August 11, 2015 and no further action will be taken on the proposed rule. Please note that if EPA receives adverse comment on an amendment, paragraph, or section of this rule and if that provision may be severed from the remainder of the rule, the Agency may adopt as final those provisions of the rule that are not the subject of an adverse comment.

Under the CAA, 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 CAA. 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 Orders 12866 (58 FR 51735, October 4, 1993) and 13563 (76 FR 3821, January 21, 2011);

• 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 CAA; 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 direct final rule for the South Carolina portion of the bi-state Charlotte area does not have Tribal implications as specified by Executive Order 13175 (65 FR 67249, November 9, 2000), because it does not have substantial direct effects on an Indian Tribe. The Catawba Indian Nation Reservation is located within the South Carolina portion of the bi-state Charlotte Area. Pursuant to the Catawba Indian Claims Settlement Act, S.C. Code Ann. 27-16-120, “all state and local environmental laws and regulations apply to the [Catawba Indian Nation] and Reservation and are fully enforceable by all relevant state and local agencies and authorities.” EPA notes that today's action 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).

Under section 307(b)(1) of the CAA, petitions for judicial review of this action must be filed in the United States Court of Appeals for the appropriate circuit by August 11, 2015. Filing a petition for reconsideration by the Administrator of this final rule does not affect the finality of this action for the purposes of judicial review nor does it extend the time within which a petition for judicial review may be filed, and shall not postpone the effectiveness of such rule or action. Parties with objections to this direct final rule are encouraged to file a comment in response to the parallel notice of proposed rulemaking for this action published in the proposed rules section of today's Federal Register, rather than file an immediate petition for judicial review of this direct final rule, so that EPA can withdraw this direct final rule and address the comment in the proposed rulemaking. This action may not be challenged later in proceedings to enforce its requirements. See section 307(b)(2).

Therefore, 40 CFR part 52 is amended as follows:

I. What action is the EPA taking?

The New York State Department of Environmental Conservation submitted a State Implementation Plan (SIP) revision request to remove a reference from the carbon monoxide (CO) SIP to a limited off-street parking program that only applied in the Manhattan Central Business District of New York City (CBD). The program limits the number of parking spaces permitted in newly constructed buildings. The EPA is approving New York's request to remove a reference to this limited off-street parking program in New York County because this SIP revision will not interfere with any applicable requirement concerning attainment and reasonable further progress (RFP) toward attainment and maintenance of any NAAQS or with any other applicable requirement of the CAA. The EPA has reviewed all the public comments and agrees with the State and City of New York that there is no evidence that removal from the SIP will interfere with attainment or maintenance of the NAAQS in the area or with any other CAA applicable requirement. In addition, New York, in its SIP modeling to support the previously EPA-approved demonstrations of attainment of the various NAAQS, did not take credit for any emission reductions that may be attributed to the limited off-street parking program measures. After removal from the federal SIP, the limited off-street parking program, which is implemented by the New York City Department of City Planning and subject to New York City administrative procedures will no longer be federally enforceable. Removal of the limited off-street parking program from the SIP will not change the program's status under local law.

Our April 12, 2013 proposed approval of the SIP provided for a public comment period that ran from April 12 through May 13, 2013. We received comments from the City of New York Law Department and from Mr. Daniel Gutman, some of which were timely. The City of New York Law Department submitted a letter dated May 13, 2013. Mr. Gutman provided several comments to the EPA: A May 13, 2013 letter, a June 7, 2013 electronic mail message, a June 11, 2013 electronic mail message and a July 26, 2013 letter. All comments, even those from Mr. Gutman that were received after the close of the public comment period, are included in the docket for this action. Although we are not required to respond to Mr. Gutman's late-submitted comments, we are electing to do so in this final action.

In general, the City of New York supports the EPA's proposed rule to approve New York's SIP request to remove a reference to a limited off-street parking program as it relates to the New York County portion of the New York-Northern New Jersey-Long Island, NY-NJ-CT CO attainment area. Mr. Gutman commented that the EPA should deny New York State's request to revise the SIP and not approve removal of the limited off-street parking program reference in the SIP.

A summary of the comments and the EPA's responses are provided below. Comments from the City of New York Law Department are referred to as “the City of New York” and comments from Mr. Daniel Gutman are referred to as “Mr. Gutman.”

Comment: Mr. Gutman stated that the limited off-street parking program, with a decline of 20,000 public parking spaces, has been effective in reducing automobile vehicle miles traveled (VMT) and improving auto and truck vehicle speeds in the Manhattan CBD, contributing to the ability of New York to meet ozone and fine particle (PM2.5) NAAQS.

Response: The EPA disagrees that Mr. Gutman has presented a clear relationship between the limited off-street parking restrictions and the ability of New York City to meet the ozone and PM2.5 NAAQS. While Mr. Gutman cited documents asserting the limited off-street parking has been reduced, and vehicle speeds have improved, he has not cited evidence that either, or both, of those events correlate with the downward trend of CO concentrations. Mr. Gutman has not provided any information that quantifies the emission reductions he asserts have been produced or the emission increases that he asserts would be produced by removal of the program, or that indicates that the removal of the program will interfere with maintenance of the NAAQS. The EPA's overall conclusion, as explained by Figures 1-3 and the narrative addressing emission factors, average speeds and VMT, is that motor vehicle emissions are going down; any increase in VMT is outweighed by the decrease in motor vehicle emission rates.

Based on the EPA's review of the “1981 Parking Study,” submitted by Mr. Gutman along with his comments, the Study found that the number of parking spaces was not a limiting factor for drivers deciding to drive into the CBD. The 1981 Parking Study found “[p]olicies based on changing auto trip cost and travel time may be ineffective in reducing auto trips since most of the variations in trip decisions are due to factors other than trip time and cost.” (1981 Parking Study p. i). It also found that “the air quality impact of economically based parking management strategies is minimal.” (1981 Parking Study p. i). Furthermore, “during the peak commuter entry hours there is no area of the CBD where lack of available off-street parking serves to limit auto entries.” (1981 Parking Study p. ii). EPA is aware of another study 1 which concludes that Boston's cap on off-street parking has contributed to the excess VMT from people “cruising” for on-street parking spaces. Therefore, the amount of VMT generated due to travel into cities is a complex function of many variables that includes the relationship between off-street and on-street parking. In this situation, the impact of removing the reference to the limited off-street parking program on the precursors to ozone and PM2.5 resulting from motor vehicles is so small as to not be meaningful and, most important, New York in its SIP modeling to support the previously EPA-approved demonstrations of attainment of the various NAAQS, did not take credit for any emission reductions that may be attributed to the limited off-street parking program measures.

No evidence was provided that a growth in the number of parking spaces in the CBD of New York City will lead to renewed growth of traffic, lower traffic speeds and/or higher emissions than assumed in New York's ozone and PM2.5 attainment demonstrations. The EPA therefore disagrees that it should be assumed there is a direct correlation between growth in the number of parking spaces in the City of New York and its impact on any baseline assumptions associated with New York's attainment demonstrations to date.

In evaluating removal of the reference to the parking restrictions, the EPA considered New York's SIP revision request to address all criteria air pollutants whose emissions and/or ambient concentrations may change as a result of the SIP revision. Regarding the air quality aspects of motor vehicle emissions and parking restrictions, increased emissions, if any, from additional motor vehicles in an area would be primarily CO compared to other criteria pollutants in the Manhattan CBD. Therefore, of all the criteria pollutants, CO concentrations would be the pollutant most sensitive to factors associated with the impact from changes to the existing limited off-street parking program that limits the number of parking spaces in permitted new construction.

As presented in our April 12, 2013 proposed rule, CO concentrations in the New York Metropolitan Area have not violated the NAAQS or come close to exceeding the NAAQS since 1992 and have trended downward since that year. Currently, measured CO concentrations show values of approximately 20 percent of the NAAQS. Also, as stated in the April 12, 2013, proposed rule, “This dramatic improvement can be attributed to the Federal Motor Vehicle Control Program along with advanced anti-pollution controls on motor vehicles.” 78 FR 21867, 21869.

A comparison of vehicle emission factors between 1990 and 2014 calculated using EPA's mobile source model, MOVES, shows how the rate of mobile emissions have been reduced. In addition, it also shows how the other pollutants of interest, including ozone and PM2.5, referenced by Mr. Gutman are emitted at levels significantly lower than CO (See Figure 1). The emission factors for 1990 and 2014 were calculated using default values for New York County (including default VMT). These are annual factors combining all vehicle types and road types.

Reviewing the data submitted as part of the CO maintenance plan for the New York Metropolitan Area 2 figure 2, below, shows the average daily speeds used in modeling. Vehicle speeds have decreased slightly on highways and increased slightly or remained constant, from 1990 to the present, on local, major collector, minor arterial and principle arterial roadways while monitored CO values have decreased significantly to the levels observed in 2013. The New York-Northern New Jersey-Long Island, NY-NJ-CT CO attainment area, which includes the Manhattan CBD, is meeting the NAAQS.

Based on traffic data from the New York State Department of Transportation, VMT increased from 1985 to 2006 and declined slightly from 2006 to 2011 (see Figure 3), but this has not affected average vehicle speeds in Manhattan or monitored CO concentrations which have decreased over the current period.

This is a summary of the Commission's Report and Order, ET Docket No. 13-44, FCC 14-208, adopted December 17, 2014, and released December 30, 2014. The full text of this document is available for inspection and copying during normal business hours in the FCC Reference Center (Room CY-A257), 445 12th Street SW., Washington, DC 20554. The full text may also be downloaded at: www.fcc.gov.

People with Disabilities: To request materials in accessible formats for people with disabilities (braille, large print, electronic files, audio format), send an email to [email protected] or call the Consumer & Governmental Affairs Bureau at 202-418-0530 (voice), 202-418-0432 (tty).

1. In the Notice of Proposed Rulemaking (“NPRM”) in this proceeding, the Commission proposed certain changes to ensure that its part 2 equipment authorization processes continue to operate efficiently and effectively, See Amendment of Parts 0, 1, 2, and 15 of the Commission's Rules regarding Authorization of Radiofrequency Equipment and Amendment of Part 68 regarding Approval of Terminal Equipment by Telecommunications Certification Bodies, Notice of Proposed Rulemaking, ET Docket No. 13-44, 28 FCC Rcd 1606 (2013) (NPRM); 78 FR 25916, May 3, 2013.

2. Specifically, the Commission proposed to clarify the obligations of TCBs and to strengthen the Commission's oversight of the TCBs. The Commission also proposed to require accreditation for all laboratories performing equipment authorization compliance tests. The Commission also proposed adopting updates to the measurement procedures used to determine RF equipment compliance.

3. In this Report and Order, the Commission updated its radiofrequency (RF) equipment authorization program. Specifically, it:

• Discontinued FCC acceptance of applications for equipment Certification of RF equipment and instead permitted TCBs to process and grant all applications for Certification;

• Codified a pre-grant approval procedure that TCBs must follow when certifying equipment based on new technology that requires consultation with the FCC;

• Clarified a TCB's responsibilities in performing post-market surveillance of products it has approved;

• Specified steps for addressing instances of deficient TCB performance, including appropriate sanctions for deficiencies that do not warrant rescinding a TCB's authority to issue a grant of Certification;

• Modified the rules to reference new standards used to accredit TCBs that approve RF equipment under part 2 of the Commission's rules and terminal equipment under part 68 of the Commission's rules;

• Required accreditation of all laboratories that test equipment subject to any of the certification procedures under part 2 of the Commission's rules and codify a procedure through which the Commission currently recognizes new laboratory accreditation bodies;

• Updated references to industry measurement procedures in the Commission's rules; and

• Provided greater flexibility under the Office of Engineering and Technology's (OET) existing delegated authority to enable it to address minor technical issues that may be raised when updating to the latest versions of industry standards that are referenced in parts 2, 5, 15, and 18 of the Commission's rules.

4. TCBs currently approve more than 98 percent of the RF equipment subject to the Certification process but are not permitted to certify equipment for which Commission rules or requirements do not exist or for which the application of the rules or requirements are unclear. Currently, OET publishes an “exclusion list” of the types of equipment that a TCB is not allowed to certify on the Commission's Knowledge DataBase (KDB) system. To enable TCBs to certify more types of devices, OET has established a “permit-but-ask” procedure that allows a TCB to review applications for Certification of equipment that would otherwise be excluded from TCB approval, provided that OET guidance on the specific test methods and technical requirements is sought prior to filing the application for Certification. Once a TCB has completed a review of equipment covered by the permit-but-ask procedure, it confirms with OET that appropriate measures have been taken prior to issuing a grant of Certification.

5. The Commission maintains a publicly-available database of all RF equipment certified by the Commission and TCBs (the Equipment Authorization System or “EAS”) that contains copies of applications for and grants of Certification. This database also contains information on all entities recognized by the Commission in the equipment authorization process, thus allowing the Commission to monitor the activities of TCBs and the equipment authorization program in general.

6. The Commission adopted the NPRM proposal to allow TCBs to issue all grants of equipment Certification, and to discontinue OET's acceptance and granting of applications for equipment Certification. Furthermore, the Commission eliminated the exclusion list and replaced it with pre-approval guidance procedures as proposed in the NPRM and supported by most of the commenters who addressed this issue. All items that were on the exclusion list or considered under the “permit-but-ask” procedure will now be considered under the pre-approval guidance procedures. Further, future changes to the devices and procedures included on the list will be made in a similar manner as the “permit-but-ask” list has been maintained, that is, via Commission/OET decision documents and OET Laboratory KDB guidance. Finally, the Commission adopted its proposal to allow TCBs to dismiss Certification applications consistent with the Commission's current dismissal authority, as also supported by several parties. The Commission also amended its rules to uniformly employ the phrase “set aside” to reference a TCB's decision to take back the grant of a Certification. In response to a question raised by Bay Area Compliance Laboratories Corp. (BACL), the Commission noted that TCBs will have authority to dismiss only those applications that have been submitted to them, and not those submitted to other TCBs. Similarly, TCBs will have authority to set aside only those grants of Certification that they have issued within the prior 30 days, and not those granted by other TCBs.

7. As it adopted the proposals to fully shift application processing to TCBs, the Commission noted its experience that TCBs have generally done an excellent job of reviewing and granting applications and following OET staff guidance on technical matters. The Commission noted that the various actions taken in the order would improve its oversight of the TCBs and ensure that products subject to Certification will comply with FCC rules. The Commission concluded that the adopted measures would continue the successful migration of additional responsibilities to TCBs while maintaining our control over the critical elements of the process, thus addressing National Association of Broadcasters' (NAB) underlying concern that devices with a greater potential for causing harmful interference are properly evaluated before being approved. The Commission also noted that, while ARRL, the National Association for Amateur Radio (ARRL) claims that the current TCB approval process has resulted in numerous incorrect grants of Certification, the group mentioned only one particular instance where an incorrect grant was alleged. The Commission did not find ARRLs arguments against the TCB processing proposals persuasive because ARRL had not provided any specific information to support this claim.

8. The Commission adopted the proposals made in the NPRM to codify existing application filing practice into its rules by modifying § 2.911 to specify how applicants will file with TCBs and modifying § 2.962 to specify that TCBs will file certification application information with the Commission electronically through the Commission's EAS. The Commission adopted its proposal to require TCBs to document via the EAS all information relevant to the processing of an application for certification, including pre-approval guidance inquiries and the dismissal of any applications. The Commission amended various sections of part 2 to reflect the TCB role in the Certification process.

9. The Commission decided to stop accepting applications for it to issue the grant of Certification as of the effective date of the Report and Order. The Commission modified § 1.1103 of the rules to remove the equipment authorization services sections related to Certification, and stated that no fee will be charged by the Commission when a TCB issues a grant of Certification. The Commission determined that it would review any applications that it received prior to the effective date under current procedures.

10. The Commission stated that Grants of certification are legal documents created by the TCB under the authority of the Commission when submitted to EAS, and must not be modified (by, for example, adding a letterhead or additional information) in any way.

11. The Commission agreed with the Hewlett Packard Company (HP) that a TCB may combine the different statements required of applicants—such as the verification of truthfulness and compliance with the Anti-Drug Abuse Act of 1988—into a single document with a single signature set, so long as the applicant makes all necessary certifications. The Commission declined HP's request to require TCB's to accept materials submitted by an applicant in electronic form rather than paper. While the Commission acknowledged that it expected that TCBs would accommodate electronic submissions to promote efficiency and reduce costs, it decided not to not mandate such a requirement because the existence of numerous TCB choices will give applicants the option to select a TCB on a variety of factors, including the convenience or efficiency of their provision of service.

12. The Commission did not adopt Bay Area Compliance Laboratories, Corp.'s (BACL) suggestion that it mandate the use of secure electronic signatures or require a time and date stamp on all documents submitted with the filing. The Commission was not convinced that the use of such requirements would fully resolve the issues of document authenticity, and stated that it expected TCBs to establish appropriate procedures to determine the veracity of documents.

13. The Commission determined, in response to comments of Northwest EMC, Inc., that a TCB confirmation of the authenticity of the test reports that submitted with an application for certification and is necessary. The Commission cited the existing TCB requirement to review submitted tests in a manner that allows it to be “confident that the product meets the relevant requirements before it certifies the product.” and noted that its adoption of an accreditation requirement for all compliance testing laboratories would ensure that the data reviewed by TCBs was based on testing that was performed by a competent organization.

14. The Commission found that Cisco and HP had not provided evidence to support their concern that TCBs could potentially establish higher fees to expedite the processing of applications. The Commission found it was not necessary to codify TCB fee requirements, noting the 36 TCBs recognized by the Commission to provide equipment authorization services and observing that clients can choose their TCB based upon factors most relevant to them, including cost.

15. TCBs are required to be accredited, and accreditation is conditioned on their performance of post-market surveillance on products that it has certified. Section 2.962(g) of the Commission's rules provides general guidance regarding the scope of such post-market surveillance and the actions the TCB shall take in the event of a compliance problem. OET has developed specific procedures, detailed in KDB Publication 610077, that TCBs can use for performing post-market surveillance. The current guidance specifies a sample rate of at least 5 percent.

16. The Commission adopted its proposals to codify the guidelines currently appearing in the KDB for conducting post-market surveillance by placing them into § 2.962 of the Commission's rules as mandatory requirements. The new § 2.962 will address the amount of surveillance required, the responsibilities related to testing, the timing and content of periodic reports required to be submitted to the Commission, and other pertinent requirements.

17. The Commission consolidated all part 2 rules referring to the post-market sampling process into § 2.945, which codifies the current procedure whereby TCBs may request samples of equipment that they have certified directly from the grantee of Certification. Further, the Commission adopted the proposed procedure that permits OET to request the grantee of Certification to submit a sample directly to the TCB that issued the grant of Certification, and stated that failure to comply with a TCB request could lead to Commission enforcement action. The Commission required the TCB to immediately notify the grantee and the Commission if it determines that a device fails to comply with the Commission's rules, established that the grantee will be required to take corrective actions, and required the TCB to submit a follow-up report on these actions to the Commission within 30 days. The Commission also required TCBs to submit periodic reports of their post-market surveillance activities and findings to OET.

18. The Commission also addressed specific process-related issues raised on the record. The Commission found little benefit in allowing a TCB to perform post-market surveillance on a device that it did not certify and identified potential complications, such as anti-competitive behavior where one TCB could raise doubt about the performance of another. Thus, the Commission adopted the requirement that TCBs shall perform post-market surveillance only on devices for which they issued the grant of Certification. The Commission affirmed that when a grantee challenges a TCB's finding that a device does not comply with the FCC rules, the grantee will be provided with appropriate information about test results and methodologies and the Commission will be the final arbiter in cases where a TCB and grantee are not able to resolve disagreements about compliance.

19. The Commission found that no commenter that filed in support of modifying the 5 percent sample size requirement provided sufficient evidence to justify either increasing or decreasing this number, and that in its monitoring of the market surveillance performed by TCBs, the Commission has found the vast majority of devices to be compliant. Most OET investigations have found that devices become non-compliant for reasons such as changes to the manufacturing process, and OET has been able to work with the grantee to resolve the matter and ensure compliance with our rules. When it has discovered manufacturers that are willfully non-compliant with our equipment authorization procedures, the Commission has not hesitated to take enforcement action.

20. The Commission rejected the TCB Council's suggestion that permissive changes and changes in FCC IDs not be included in the sampling process on the basis that the request did not include any actual filing totals that would quantify how the proposed change would affect the post-market surveillance burden of a given TCB; because it is not apparent that excluding a wide segment of applications would further improve the compliance process, since many products are updated via permissive changes; and because the inappropriate use of a permissive change or an FCC ID change presents the opportunity for the introduction of non-compliant equipment that needs to be monitored by inclusion in the sampling activity.

21. The Commission noted that, while the TCBs will continue to directly request samples from grantees, it intended to add a process to the EAS that allows TCBs to initiate a sample request from the Commission's EAS. This will allow the FCC to oversee the process, follow up directly with non-responsive grantees and improve the responsiveness of grantees.

22. The Commission observed that the requirements placed upon both the TCBs and the grantees should be sufficient to ensure that equipment samples are submitted and processed in a manner that ensures valid post-market surveillance, and that samples provided for testing will be appropriately representative of the marketed device. Thus, the Commission did not adopt suggestions in the record to implement additional compliance measures such as criminal sanctions or consumer refunds.

23. The Commission adopted the requirement that grantees, upon request, must provide a voucher to the Commission or the TCB authorizing the TCB to obtain a sample of the product from the marketplace at no cost to the Commission or TCB. As an alternative to providing a voucher, the grantee can allow the Commission or TCB to select a product randomly from the manufacturing or warehousing location. Furthermore, if special software or specialized mechanisms, methods, or modifications are required to test such unmodified production devices, the manufacturer must make these available (at no cost) along with any necessary instructions to the Commission or TCB upon request. In the case of expensive devices manufactured in limited numbers, the responsible party can negotiate with the TCB or the Commission for alternative means of providing a sample or providing a testing opportunity. The Commission agreed with commenters that such steps would help ensure that devices being post-market tested are representative of the devices being marketed.

24. An entity seeking recognition from the Commission as a TCB entitled by the FCC to issue grants of Certification must first be accredited by a Commission-recognized accreditation body as meeting applicable international standards and any additional Commission requirements. Subsequent to accreditation, the TCB would then apply to a recognized Designating Authority in its country that would designate it to the Commission for recognition. The Designating Authority evaluates the qualifications of prospective TCBs to ensure that they comply with all of the Commission's TCB requirements, and then designates them to the Commission via the EAS. TCBs outside the United States must be accredited and designated by an authority recognized by the Commission under the terms of a Mutual Recognition Agreement. For both foreign and domestic TCBs, once the Commission receives the Designating Authority's designation, the Commission performs a review of the TCB's qualifications and recognizes those that it determines meet the requirements. A recognized TCB will then be included on the Commission's publicly- available recognized TCB list. The NPRM included several proposals to clarify and codify this process.

25. All comments made in this regard supported the Commission's proposals, and the Commission revised §§ 2.960(b) and 68.160(b) of the rules to state with clarity that NIST is the recognized Designating Authority for TCBs within the United States (consistent with existing practice). NIST will continue to have authority to recognize other organizations to accredit TCBs. The Commission adopted the proposals codifying the requirement that an organization designated by NIST as a TCB would have to be recognized by the Commission before it could function as a TCB, and that the Commission could withdraw its recognition of a TCB designated by NIST that does not operate in accordance with the rules. The Commission made the designation and recognition requirements for domestic and foreign TCBs more consistent by modifying § 2.962 to clearly specify the recognition requirements for both foreign and domestic TCBs and address disputes over the recognition of foreign TCBs.

26. Currently, the rules state that the Commission will withdraw recognition of a domestic TCB if the TCB's accreditation or designation is withdrawn, if the Commission determines there is just cause for withdrawing the recognition, or if the TCB no longer wants the recognition. The rules do not specify any action less severe than the withdrawal of the designation or recognition of a TCB if the Commission has concerns about the performance of a TCB. In the NPRM, the Commission acknowledged that there can be performance issues which need correcting but do not warrant complete withdrawal of a TCB's recognition and it proposed measures that the Commission could take to address TCB performance issues.

27. The Commission adopted the proposed procedures for addressing TCB performance issues: Initially, OET would send the TCB a notification to correct any apparent deficiencies. While it awaits response, OET may choose to monitor all grants, setting aside any that were granted in error within the 30-day period provided for in the rules. If the TCB does not adequately address all identified deficiencies, OET will have the option of requiring that all Certification applications filed with that TCB would be processed using the pre-approval guidance procedure for a period of at least 30 days. Once a TCB demonstrates that it is again processing Certification applications in accordance with the rules, it would be permitted to resume normal processing.

28. For a TCB that continues to exhibit performance deficiencies after a Commission request for corrective action, the Commission could refer the case to the Designating Authority and accreditation body for investigation and identification of any necessary corrective actions. For such instances, the Commission will act based on the Designating Authority's and/or the accrediting body's response by, for example, limiting the scope of equipment that a TCB could approve or withdrawing its recognition of the TCB. For a foreign TCB recognized pursuant to the terms of a Mutual Recognition Agreement (MRA), the Commission will take similar actions, under the terms of the pertinent MRA. Any equipment Certifications previously approved by the TCB would remain valid unless specifically set aside or revoked by the Commission.

29. In adopting new procedures to address TCB performance issues, the Commission did not adopt American Association for Laboratory Accreditation's (A2LA) suggestion that the 60-day notice given to a TCB by the Commission when it intends to withdraw recognition be reduced routinely to 30 days, but the Commission did adopt the proposal permitting the reduction of the notice period if circumstances so warrant. The Commission identified other sanctions, including requiring the TCB to follow the pre-approval guidance procedure for all applications for certification before they can be granted, as well as an immediate suspension of recognition, if necessary. The Commission concluded that the procedures set forth are a clear indication of the Commission's willingness to address TCB performance issues, and address AFTRCC's concerns in this regard. The Commission noted that any finding that a TCB is non-compliant will be displayed on the Commission's Web site. Additionally, OET participates in workshops where TCBs are also required to attend in which OET presents changes and updates in the Commission rules; equipment authorization process and procedures; and updates to technical interpretations or guidance issued by the staff. Because these presentations are publicly available at the Commission's Web site, they include Commission guidance related to new or clarified TCB processes and procedures, and much of this guidance is the result of observations that OET derives from TCB audits and other information, the Commission concluded such processes are sufficient to address comments NAB raised regarding the overall transparency of the TCB process.

30. The rules currently require that TCBs that approve either RF equipment under part 2 or terminal equipment under part 68 of the Commission's rules meet the accreditation standards in specific ISO/IEC standards. Subsequent to the adoption of the rules specifying these requirements, several ISO/IEC guides were updated. In the NPRM, the Commission proposed to modify the rules in parts 2 and 68 to reflect these updates. Specifically, the Commission proposed replacing references to Guide 58 and Guide 61 with references to ISO/IEC 17011, and to replace references to Guide 65 with references to ISO/IEC 17065. The Commission also proposed to change the term “sub-contractors” to “external resources” in the part 2 and 68 rules for consistency with the revised ISO/IEC 17065. The Commission also proposed to update § 68.162 to correct outdated references to ISO/IEC Guide 25, which is now designated ISO/IEC 17025. In the Order, the Commission adopted these proposals and will require that the standards be met by September 15, 2015—A date suggested by A2LA that conforms to the compliance date for ISO/IEC 17065 that was adopted in an International Accreditation Forum decision.

31. The Certification and DoC processes specify the type of testing facility in which a product shall be tested for compliance with the Commission's technical standards. Devices authorized under the DoC process must be tested at a testing laboratory that OET recognizes as “accredited.” Devices authorized under the Certification process for operation under that operates under part 15 or 18 of the Commission's rules must be tested in a facility that is either accredited or has been recognized by OET as having met the requirements of § 2.948 of the Commission's rules (“Section 2.948-listed”).

32. Laboratory accreditation is a rigorous process involving an extensive review of documentation and onsite visits by representative(s) of the accrediting body, a process repeated at intervals not to exceed two years. A testing laboratory may be recognized by the OET as accredited if it is assessed to the ISO/IEC 17025 standard in accordance with the requirements in § 2.948 of the Commission's rules. The accreditation of a foreign-based testing laboratory is considered acceptable under only one of the following conditions: (1) It is based on the terms of an applicable government-to-government MRA with the United States; or (2) the laboratory is accredited by an organization that has entered into an arrangement between accrediting organizations that is recognized by the Commission. On the other hand, a testing laboratory may be recognized as 2.948-listed of our rules based upon OET review of the information specified by § 2.948(b).

33. The Commission adopted the NPRM proposal to require that all laboratories that test equipment subject to Certification or to DoC under any rule part be accredited to ISO/IEC 17025, thus ending the “2.948-listing” program for unaccredited labs to test equipment to be certified under parts 15 and 18 of the rules. The Commission retained the requirement that accredited testing laboratories must be reassessed at least every two years to ensure continued compliance with the accreditation requirements to provide confidence that equipment testing done in support of Certification applications is conducted in accordance with the applicable standard and to maintain the reliability of and confidence in our certification program in the face of increasingly complex technology and devices. The Commission found little evidence in the record that the accreditation requirement represents a significant impact on small test laboratories and such concerns are greatly outweighed by the costs that can result when equipment causes harmful interference to other radio services or must be pulled from the market due to non-compliance that is the result of improper testing.

34. The Commission further proposed to include laboratories located outside of the United States on the accredited testing laboratory list only if it recognized the laboratories' accreditation under the terms of a Mutual Recognition Agreement (MRA) or other agreement. Because some testing laboratories are located in countries that do not have an MRA with the United States, the Commission proposed to continue to require in § 2.948 of the rules that such a laboratory must be accredited by an organization recognized by the Commission for performing accreditations in the country where the laboratory is located. The Commission sought comment on the appropriate process for recognizing the accreditation of testing laboratories in countries that do not have an MRA with the United States, such as by recognizing accreditations made by accreditation bodies that have been peer reviewed through the International Laboratory Accreditation Cooperation (ILAC) or other organizations. Comments related to the appropriate process for recognizing the accreditation of test laboratories in countries that do not have an MRA with the United States were almost evenly split, with a slight majority indicating that we should not recognize foreign laboratories unless there is an MRA in place. The comments that supported the recognition of accredited testing laboratories located in non-MRA countries provided limited recommendations on procedures that would ensure that such testing laboratories have the appropriate capabilities and reliability and that all products approved are compliant with our rules. In this regard, the Commission decided that requests for recognition of testing laboratories in countries that do not have an MRA with the United States and which were accredited by accreditation bodies recognized by the Commission will be handled under our current procedures in § 2.948.

35. The Commission also adopted the requirement that testing laboratories may only sub-contract/outsource testing to laboratories that have been recognized by the Commission as accredited to the appropriate international standard. The Commission rejected comments asking it to adopt a more permissive rule that would also allow an accredited testing laboratory to sub-contract/outsource testing to a competent unaccredited entity. The Commission found it to be inconsistent to disallow submission of test results from an unaccredited submitting laboratory but allow submission of test results from an unaccredited sub-contracting laboratory. The Commission also noted that it had not been provided with any information indicating that sub-contracting with laboratories that are recognized by the Commission as accredited is more burdensome to applicants for certification than using a sub-contracting process that meets the requirements of ISO/IEC 17025, or that such burdens (if any) would be substantial enough to outweigh the benefits associated with ensuring that all work is performed by accredited laboratories. The Commission also found no reason to exempt bench testing from the accreditation requirement, citing the importance of ensuring that such tests are performed properly and observing that because equipment subject to certification is rarely subject only to bench tests, there would be little benefit in providing an exception for labs that perform only such testing.

36. While the “2.948 listing” process was ended, the Commission decided that it would still maintain a list of accredited testing laboratories that are acceptable to the Commission for testing equipment subject to the Certification and DoC procedures, as well as the types of equipment that each laboratory is accredited to test. Additionally, the Commission decided to retain the requirement in § 2.948 that test laboratories compile a description of their measurement facilities and require that they supply this information to a laboratory accreditation body for review as part of its documentation for accreditation or to the Commission upon request.

37. The Commission will cease recognizing new unaccredited 2.948-listed laboratories as of the effective date of the rules adopted in the Report and Order. Laboratories recognized under the 2.948 criteria as of the effective date of this Report and Order will continue to appear on the OET published list for such laboratories and be recognized until their expiration date of recognition or for one year from the effective date, whichever is sooner, to allow them time to become accredited. 2.948-listed laboratories whose recognition expires prior to one year from the effective date of the rules may request that the Commission extend their recognition date until one year from the effective date of the rules set forth in the Report and Order. Any testing that is completed by unaccredited recognized 2.948-listed laboratories during the one-year period beginning on the effective date of the rules adopted in the Report and Order will be accepted only in support of a Certification application submitted within 15 months of the aforementioned effective date.

38. Under § 2.948(d) of the rules, any entity seeking recognition from the Commission as an accreditation body for test laboratories must obtain the approval of OET. The Commission proposed, in the NPRM, to codify the type of information that an applicant that desires to be recognized as a laboratory accreditation body should provide in support of its application. Specifically, it proposed to codify the following criteria for OET to use when determining the acceptability of new laboratory accreditation bodies:

1. Successful completion of a ISO/IEC 17011 peer review, such as being a signatory to the International Laboratory Accreditation Cooperation (ILAC) Mutual Recognition Arrangement or other equivalent laboratory accreditation agreement;

2. Experience with the accreditation of electromagnetic compatibility (EMC), radio and telecom testing laboratories to ISO/IEC 17025. This can be demonstrated by having OET staff participate in a witness audit of the accreditation body performing an assessment of an EMC/Radio/Telecom testing laboratory; or by having OET staff review the report generated by the NIST laboratory accreditation evaluation program conducted to support the Asia Pacific Economic Cooperation (APEC) Mutual Recognition Arrangement for Conformity tries that do not have an MRA with the United States were almost evenly split, with an Assessment of Telecommunications Equipment. An applicant that offers other evidence has the burden of demonstrating that the information would enable OET to evaluate its experience with the accreditation of EMC, radio and telecom testing laboratories to ISO/IEC 17025.

3. Accreditation personnel/assessors with specific technical experience in the Commission equipment authorization rules and requirements; and

4. Procedures and policies developed by [the testing firm accreditation bodies] for the accreditation of testing laboratories for FCC equipment authorization programs.

39. The Commission adopted the proposal to codify the above criteria for OET's determination of the acceptability of new laboratory accreditation bodies. Under these rules, the applicant will submit information addressing each of the four elements to OET for evaluation. Applicants will be able to choose how they show that they meet each of the elements, and OET was directed to use its existing resources—including the KDB and public notice process—to provide additional guidance, clarification, and updates, as needed.

40. In a slight change from the proposal, the adopted rule will not list specific organizations that operate recognition programs under ISO/IEC 17011 and instead includes a general statement that recognition will be based on a peer review pursuant to an agreement found to be acceptable to the Commission. The Commission ultimately decided that the inclusion of specific organizations in the rules could inadvertently limit the flexibility of entities seeking recognition as an accreditation body or give the specific organization(s) a perceived advantage. Similarly, in response to NIST's suggestion that it clarify that its program only applies to domestic accrediting bodies, the Commission decided to remove the rule reference to the NIST program. The Commission will maintain a list of recognized accreditation bodies on its Web page to facilitate the prompt notice of new recognitions.

41. As to NIST's suggestion that the rule include further specific elaboration on other supporting evidence, the Commission noted that the rule specifies only the key elements that OET will use in evaluating the competence of an accreditation body and it gave OET the flexibility to accept other supporting evidence on a case-by-case basis in order to accommodate evolving industry practices.

42. Under the current rules, a measurement facility that is used for measuring radiated emissions from equipment subject to parts 15 and 18 must meet the site validation requirements in ANSI C63.4-2001. While radiated emission measurements at frequencies above 1 GHz are required for many devices subject to parts 15 and 18 of the rules, ANSI C63.4-2001 does not have specific site validation criteria for test facilities used for making radiated emissions in this frequency range. Rather, it only states that facilities determined to be suitable for performing measurements in the frequency range 30 MHz to 1 GHz are considered suitable for performing measurements in the frequency range 1 GHz to 40 GHz, without specific site validation criteria for the higher frequencies. Subsequent versions of the emission measurement standard, ANSI C63.4-2009 and ANSI C63.4-2014, both provide two options for test site validation for facilities used to make radiated emission measurements above 1 GHz, both of which include additional requirements. To be suitable for measurements in the frequency range 1 GHz to 40 GHz the facility must utilize RF absorbing material covers the ground plane in such a manner that either of the following conditions are met: (1) The site validation criteria specified in the CISPR 16-1-4 (CISPR 16) standard is met; or (2) a minimum area of the ground plane is covered using RF absorbing material.

43. In the NPRM, the Commission proposed to require that test facilities used to make radiated emission measurements on equipment authorized under any rule part meet the site validation requirements in ANSI C63.4-2009. Additionally, if the measurement site will be used for measuring radiated emissions in the range of 1 GHz to 40 GHz, it must meet the site validation criterion specified in ANSI C63.4 that references CISPR 16. The Commission indicated that the additional requirements were intended to provide better accuracy and repeatability of measurements than simply covering a minimum area of its ground plane. The Commission further proposed that a laboratory must confirm compliance with the site validation criterion no less than once every three years.

44. In the Order, the Commission required that test facilities that conduct radiated emission measurements above 1 GHz must meet the site validation requirements in ANSI C63.4-2014. The Commission found ANSI C63.4-2014 to be essentially the same as the 2009 version discussed in the NPRM (a specific set of validation criteria for test facilities that was missing in the 2001 version), and, noting that no parties had opposed ANSI C63's recommendation to we use the 2014 standard, determined that use of the 2014 version would avoid any confusion associated with using a version of the standard that is not the most current.

45. On its face, the adoption of the revised ANSI C63.4 standard necessitates compliance with the CISPR 16 standard. The Commission acknowledged the costs of the upgrades to test facilities that would be necessary to meet the site validation requirements in CISPR 16, and decided to allow either alternative for site validation in ANSI C63.4-2014 to be used to determine the suitability of a test facility to be used to make radiated emissions measurements above 1 GHz during a three-year transition period. After this time, test facilities used to make radiated emissions will be required to demonstrate compliance with the site validation criteria specified in CISPR 16. Because not all radiated emission measurement methods for licensed devices require the use of a test facility that meets the site validation requirements in ANSI C63.4-2014, the Commission revised to § 2.948(d) to specify that the site validation requirements only apply for radiated emissions test methods that require the use of a validated test site.

46. The Commission requires that most devices subject to part 15 technical requirements be tested to demonstrate compliance with the measurement procedures in ANSI C63.4 before they can be imported into or marketed within the United States. Specifically, § 15.31(a) of the rules states that the Commission will measure emissions from most intentional and unintentional radiators using the standard published by the American National Standard Institute Accredited Standards Committee C63®—Electromagnetic Compatibility (ANSI-ASC C63), titled ANSI C63.4-2003, American National Standard for Methods of Measurement of Radio-Noise Emissions from Low-Voltage Electrical and Electronic Equipment in the Range of 9 KHz to 40 GHz (ANSI C63.4 standard) to determine compliance with the Part 15 technical requirements.

47. The Commission has issued a number of public notices, interpretations and advisories on measurement standards to supplement the test procedures given in the ANSI C63.4 standard listed in the rules (i.e. ANSI C63.4-2003) to account for the growing number of intentional radiators and the resulting numbers of questions from test laboratories. Subsequently, ANSI-ASC C63 developed a new standard, ANSI C63.10-2009, for use in the measurement of intentional radiators in a wide range of frequency bands. This standard is essentially combines existing measurement procedures and associated Commission guidance for intentional radiators and does not add any new requirements for compliance testing. ANSI-ASC C63 also released a revised version of the ANSI C63.4 standard, ANSI C63.4-2014, to address unintentional radiators. Thus, ANSI C63.10 now contains the measurement procedures for intentional radiators, and ANSI C63.4 now contains the measurement procedures for unintentional radiators.

48. Upon publication of the 2009 standards by ANSI-ASC C63, OET issued a Public Notice announcing that, until it could initiate a rulemaking proceeding to incorporate the new standards into the rules, compliance measurements may be made under either the then-new 2009 standards or the 2003 standard currently in the rules. In the NPRM, the Commission proposed to update its rules to incorporate the latest standards—at that time, ANSI C63.10-2009 for intentional radiators and ANSI C63.4-2009 for unintentional radiators—into the rules. In keeping with its previous policy with respect to ANSI C63.4, the Commission proposed to exclude the use of the sections in ANSI C63.4-2009 that allow the use of rod antennas for electric field measurements below 30 MHz; an artificial hand for holding handheld devices; an absorbing clamp for radio noise power measurements; and relaxed limits for transient emissions. Subsequent to the release of the NPRM ANSI-ASC C63 published updated versions of both standards, ANSI C63.4-2014 and ANSI C63.10-2013.

49. In the NPRM the Commission asked several questions related to the use of the updated ANSI C63.4 standard. Specifically, it questioned whether the benefits of adopting the increased burdens associated with the new standard outweighed the associated costs. It also asked whether certain technical changes in the 2009 revision (e.g., a restriction on the use of hybrid antennas or the 2 dB rule) cause problems for manufacturers and/or test laboratories. Further, the Commission asked if the references to undated standards that are incorporated in the 2009 revision could result in a mandate of compliance with subsequently-modified standards without the opportunity for comment or transition period. The Commission also asked whether the interpretations of C63.4-2009 and C63.10-2009 on ANSI's Web site be accepted by the Commission as valid means for compliance. Finally, the Commission asked whether it could address the above concerns by not incorporating certain sections of the 2009 versions of the standards into the rules, and, if so, which particular sections should not be incorporated.

50. Finally, in the NPRM, the Commission recognized that work was underway to provide further updates to the standards, and sought comment on whether there were any significant differences between the 2009 versions of the standards and the latest drafts, and whether any of the changes in these drafts would address our concerns. After release of the NPRM and completion of the pleading cycle, ANSI-ASC C63 completed the process of adopting newer versions of both standards, and released ANSI C63.4-2014 and ANSI C63.10-2013.

51. ANSI-ASC C63 initially provided comments supporting the adoption of ANSI C63.4-2009 and ANSI C63.10-2009, along with suggestions that address concerns raised by other commenters. In its subsequent ex parte filings, ANSI C63.4 requested that the Commission update the rules to cross-reference ANSI C63.10-2013 and ANSI C63.4-2014.

52. ANSI-ASC C63 claimed that ANSI C63.4-2014 improved on various aspects of the C63.4-2009 standard. Specifically, the newest version of the standard addresses: Hybrid antenna qualification procedure; removal of testing procedures for transmitters as they are now covered by ANSI C63.10-2013; application of standard in the United States and Canada; improvements to “2 dB rule”; test setup details for tablet computers; test site validation interval guideline for radiated emissions above 1 GHz; use of RF absorber for radiated emissions above 1 GHz; visual display procedures based on size of screen; and further clarification on radiated emissions above 1 GHz.

53. ANSI-ASC C63 further stated that the ANSI C63.10-2013 standard further improved on various aspects of the C63.10-2009, and it noted changes relating to: Clarifications of instrumentation factors such as detector and antenna requirements; the use of spectrum analyzers; out-of-band emission (OOBE) and band edge requirements; millimeter wave procedures, measurements below 30 MHz and above 1 GHz; new procedures for wireless devices using new technology (e.g., Digital Transmission Systems (DTS); Unlicensed National Information Infrastructure (U-NII) devices; FM transmitters in vehicles; and Inductive Loop devices.

54. The Commission found that the improvements made in ANSI C63.4-2014 and ANSI C63.10-2013 represented the best measurement procedures, and it therefore decided to incorporate references to ANSI C63.4-2014 and ANSI C63.10-2013 into the rules as the measurement procedures for determining the compliance of unintentional and intentional radiators, respectively. The Commission concluded that the newest editions of the standards were adopted with the input of manufacturers, trade groups, and other academic bodies, and reflects the current state-of-the-art design and manufacturing processes. The new standards also provide a meaningful distinction between intentional and unintentional radiators, which will to ensure that noncompliant devices do not enter the marketplace where they may be difficult to eliminate. While the Commission acknowledged that compliance costs are a normal and expected part of a standards-driven regime where the standards are periodically updated, it noted that by implementing the 2013 and 2014 editions it can mitigate any costs that would have been associated with meeting the 2009 editions as an interim step, and recognized that there would be costs associated with not acting to implement the latest standards.

55. The Commission asserted its continued belief that there is insufficient evidence that rod antennas, artificial hands or absorber clamps produce accurate, repeatable measurements, and that short-duration emissions can produce as much nuisance to radio communications as continuous emissions, and decided to exclude ANSI C63.4-2014 sections that allow for these methods. The Commission also provided a transition period for ANSI C63.4 that will end one year from the effective date of the rules. During this time which parties may continue to comply with either ANSI C63.4-2003, ANSI C63.4-2009 (consistent with current practice) or with the new ANSI C63.4-2014. After the transition period date only compliance with ANSI C63.4-2014 will be accepted. The Commission also decided to apply a one-year transition period for use of the new edition of ANSI C63.10-2013.

56. The Commission also addressed numerous comments that addressed engineering and administrative issues implicated by the adoption of the new standards. Several commenters requested that the Commission not rule out future consideration of the use of CISPR 22 standard for measuring equipment subject to Part 15, as an alternative to ANSI C63.4-2009. In addition, HP proposed referencing CISPR 32 for test methods up to 6 GHz.

57. In the NPRM the Commission noted some differences between CISPR 22 requirements and those in ANSI C63.4-2009 and concluded that the ANSI standard was more appropriate for its purposes. Based on the record, the Commission to remains unconvinced that the measurement procedures in CISPR 22 for unintentional radiators would be an appropriate alternative to the ANSI-ASC standards. The Commission further noted that, CISPR 22 had been superseded by CISPR 32 and, in any event neither standard addresses all types of unintentional radiators covered in part 15.

58. Several commenters addressed the so-called “2 dB rule,” a method used to limit the amount of testing needed by determining the worst-case configuration. In this regard, ANSI-ASC C63 stated it had made additional improvements to the “2 dB rule” in ANSI C63.4-2014. The Commission found that the ANSI C63.4-2014 changes improved on ANSI C63.4-2009 and should address the record comments. Nevertheless, to reduce potential burdens on equipment manufactures and as proposed by HP, the Commission decided to continue accepting the use of the “2 dB” method in ANSI C63.4-2003 for demonstrating compliance with the requirement in § 15.31(i) until it adopts further revisions to the standard.

59. ACIL and dB Technology discussed the proper arrangement of the measurement antenna relative to the equipment under test (EUT) when performing radiated emissions testing above 1 GHz. The Commission offered guidance for such testing: Measurement procedures for radiated emissions measurements above 1 GHz have required that the measurement antenna be pointed at the source of the radiated emission from the EUT in a manner that ensures that the measurement is maximized. This can be achieved using different methods.

60. The Commission received several comments complaining that ANSI C63.4-2009 excludes hybrid antennas for making radiated emissions measurements. ANSI-ASC C63 stated that ANSI C63.4-2014 has addressed concerns with the use of hybrid antennas, and it recommended that the Commission allow the use of hybrid antennas for testing of products pursuant to the new procedures in ANSI C63.4-2014 that detail how they are to be used. The Commission agreed and found that the ANSI C63.4-2014 standard is an improvement over the 2009 standard in that it provides a means for the use of hybrid antennas that is appropriate and reliable for providing accurate measurements.

61. The Commission recognized that standards development organizations often provide informative explanations and interpretations of the standards that they develop, offering helpful insight to the rationale behind the development of a standard. While it will continue to consider them in response to requests for guidance or clarification, the Commission clarified that it will not incorporate the interpretations of standards organizations automatically into its rules, as some commenters had assumed. The Commission asserted its discretion to use its own judgment in interpreting standards, even as it is informed by the interpretation(s) of the standards organization. In addition, the Commission would not adopt the interpretation of a standards organization in a case in which doing so would effectively change the Commission's rules without the opportunity for comment. Moreover, the Commission pointed out that ANSI-ASC C63 comments indicated that it does not require parties to follow such explanations and interpretations to be considered “compliant” with a standard, until such time that they are included in the normative part of the standard via full approval process by the ANSI-ASC C63 committee. The Commission also disagreed with commenters who asserted that it should not adopt the new ANSI standards because they cross-references to other undated standards. These commenters were concerned that this practice could inadvertently result in new compliance requirements by introducing revised editions without the opportunity for comment or defined transition periods. The Commission recognized that the use of undated references could be unclear to users—particularly when there are several versions of the referenced standard. However, the Commission believed that requiring that only dated standards be cross-referenced would not always result in certainty regarding compliance requirements. ANSI-ASC C63 explained that it decided to use undated references to other ANSI-ASC C63 standards since it carefully reviews the effect of any revisions as part of the standards development process. The Commission accepted this convention, acknowledging that, under this approach, there could be a revision to a standard cross-referenced referenced in ANSI C63.4 or ANSI C63.10. When this occurs, OET will provide guidance via the KDB on the use of updated references in ANSI C63.4 and ANSI C63.10. If the change that would result in a substantive change in requirements, the revised cross-referenced standard would not take effect until the Commission or OET on delegated authority completes a rulemaking adopting that change.

62. Finally, the Commission addressed a specific and narrow concern raised by Inovonics which stated that, while its products meet the frequency hopping requirements for unlicensed devices in § 15.247(a)(1)(i) using the bandwidth measurement procedure in ANSI C63.4-2003, it would be unable to meet the frequency hopping requirement using the proposed bandwidth measurement procedure in ANSI C63.10-2009 due to difference in resolution bandwidth setting techniques when measuring occupied bandwidth. Inovonics asserted that redesigning future products to meet the frequency hopping requirement would impose burdens on consumers of large-scale unlicensed systems who would no longer be able to modify their existing systems without substantially replacing all of their equipment. It suggested that, if the Commission adopts a revised standard, it include an extensive grandfathering period for testing equipment under the existing standard.

63. The Commission agreed with Inovonics argument that application of the 2009 standard would result in Inovonics' existing consumers having to choose whether to replace entire systems or forego the benefits of updating equipment or expanding their existing installations, and that application of the standard would be so unduly burdensome as to run counter to the public interest. In the evaluation of devices from Inovonics that are designed to be compatible with Inovonics equipment that has already been authorized, the Commission will to continue to accept the bandwidth measurement procedure in ANSI C63.4-2003 for purposes of demonstrating that products meet the frequency hopping requirements for its unlicensed devices in § 15.247(a)(1)(i). Inovonics must phase out its use of the 2003 standard after December 31, 2020—the date it suggests in its comments—or when the Commission adopts further revisions to the standard, whichever occurs first. The Commission found that this transition would allow Inovonics sufficient time to prepare its customers for replacing their systems as it plans equipment designs that can be tested to comply with the updated standard. Because it will still be subject to the objective measurement procedure embodied in the 2003 standard, the Commission affirmed its confidence that Inovonics' equipment will comport with the appropriate part 15 technical requirements and not create a risk of interference.

64. Parts 2 and 15 of the Commission's rules incorporate various industry measurement standards that have been developed by different industry groups, subject to periodic revision. The Commission has delegated authority to the Chief of OET to make editorial non-substantive changes to the rules pertaining to parts 2, 5, 15, and 18 of the rules, including references to updated standards that do not involve substantive changes. Non-editorial revisions to the rules require action by the full Commission and all rule changes to reference updated standards have been effected by Commission action. In the NPRM, the Commission proposed to explicitly allow OET to update references to industry standards that are already in the rules in parts 2, 5, 15 and 18 of the rules, provided that the changes do not raise major compliance issues.

65. The Commission adopted its NPRM proposal to give the Chief of OET delegated authority to engage in limited rulemaking action in order to modify parts 2, 5, 15, and 18 of rules to reference updated versions of standards that are already referenced in the rules. When it updates these references, in order to effectuate any degree of change to the substantive obligations of any party subject to FCC regulation, OET must follow Administrative Procedure Act (APA) requirements by publishing a notice in the Federal Register, providing sufficient opportunity for public comment, and considering the record compiled in the proceeding prior to adopting any substantive update to the standards. OET will determine whether there is a need for a transition period, and the appropriate length of any such transition, based on the comments filed in response to each public notice. In cases where parties provide convincing evidence that the proposed use of an updated standard would, in fact, raise major compliance issues, the Commission directed OET to refer the matter for review and decision by the Commission.

66. The Commission amended § 2.1033 of the rules to require that applications for Certification include photographs or diagrams of the test set-up for each of the required types of tests applicable to the device for which Certification is requested. The photographs or diagrams must show enough detail to confirm other information contained in the test report, and any photographs must clearly show the test configuration used. The Commission stated that the changes will make the Certification procedure consistent with the verification and DoC procedures, which require photographs or diagrams, and will allow it to determine whether a test laboratory or TCB tested equipment in accordance with the applicable measurement procedures. The Commission determined that the cost of this requirement would negligible because it requires a test laboratory or TCB to take a minimal number of additional photographs during testing or provide some relatively simple diagrams and include those with the test report submitted with the application for Certification. Additionally, the Commission found no need to specify in § 2.1033 that photographs or diagrams may be in electronic format since it accepts only electronic filings from TCBs and because codifying such aspects of the filing procedure could limit OET's flexibility in modifying them later. Additionally, the Commission decided to not adopt Bay Area Compliance's suggestion regarding a time/date stamp requirement since such data could be easily altered in conjunction with a fraudulent filing.

67. Obsolete rules. The Commission removed § 15.109(g)(4) because it references a rule provision that was deleted in 2002. The Commission also deleted the note in § 15.31(a)(3) as unnecessary.

68. To allow time for currently operating laboratories to become fully accredited and comply with the new ANSI C63.4 site validation criteria above 1 GHz, the Commission proposed adopted the transition periods set forth in the NPRM and applied them to the versions of the standards it adopted. Testing laboratories currently listed by the Commission under the § 2.948 process will remain recognized for the sooner of one year from the effective date of the rules adopted herein or until the date that their listing expires. As of the effective date of the rules, new laboratories must be accredited in order to be added to the Commission's list of recognized testing laboratories and the Commission will not recognize new 2.948-listed laboratories. Testing laboratories whose 2.948-listings expire within one year of the effective date of the rules may renew their listing but the renewal will be valid only until one year after the effective date of the rules. Applicants for grants of Certification using recognized 2.948-listed testing laboratories that test devices up until one year after the effective date of the rules must submit those test reports for grants of Certification within 90 days of the end of the one-year transition period (i.e., within approximately 15 months of the effective date of the rules). The transition to the new site validation criteria will require testing laboratories to demonstrate compliance with the site validation criteria in ANSI C63.4-2014 clause 5.5.1 a) (CISPR 16-1-4), no later than three years after the effective date of the rules.

69. The docket included a Petition for Rulemaking filed by James E. Whedbee that proposed a new rule stating that a Commission license holder may use devices authorized for use under our part 15 rules and that such devices would not require a separate equipment authorization. Since the Commission currently does not place any restrictions on the use of part 15 devices by a holder of any other Commission license holder as long as the device is used within its authorized parameters, the Commission denied the petition as moot. To the extent that the petitioner intended to propose other alterations to our practice or procedures, the Commission found that the petition did not state what the proposed changes would do or why they are needed, and therefore failed to provide sufficient reason to justify the institution of a rulemaking proceeding.

70. The OFR recently revised the regulations to require that agencies must discuss in the preamble of the rule ways that the materials the agency incorporates by reference are reasonably available to interested persons and how interested parties can obtain the materials. In addition, the preamble of the rule must summarize the material. 1 CFR 51.5(b). In accordance with OFR's requirements, the discussion in this section summarizes ANSI, CISPR and ISO/IEC standards. Copies of the standards are also available for purchase from the standards development organizations: The IEEE standards may be purchased from the Institute of Electrical and Electronic Engineers (IEEE), 3916 Ranchero Drive, Ann Arbor, MI 48108, 1-800-699-9277, http://www.techstreet.com/ieee; and the ANSI, ISO and IEC standards are available for purchase from American National Standards Institute (ANSI), 25 West 43rd Street, 4th Floor, New York, NY 10036, (212) 642-4900, http://webstore.ansi.org/ansidocstore/IEEE.

(1) ANSI C63.4-2014: “American National Standard for Methods of Measurement of Radio-Noise Emissions from Low-Voltage Electrical and Electronic Equipment in the Range of 9 kHz to 40 GHz,” ANSI approved June 13, 2014:

• Except sections 4.5.3, 4.6, 6.2.13, 8.2.2, 9, and 13, IBR approved for §§ 2.950(h), 15.31(a)(4), and 15.38(b)(1).

• Sections 5.4.4 through 5.5 IBR approved for §§ 2.910(c)(1), 2.948(d), and 2.950(f).

This standard, ANSI C63.4-2014, contains methods, instrumentation, and facilities for measurement of radio-frequency (RF) signals and noise emitted from electrical and electronic devices in the frequency range of 9 kHz to 40 GHz, as usable, for example, for compliance testing to U.S. (47 CFR part 15) and Industry Canada (ICES-003) regulatory requirements.

(2) ANSI C63.10-2013, “American National Standard of Procedures for Compliance Testing of Unlicensed Wireless Devices,” ANSI approved June 27, 2013, IBR approved for §§ 2.910(c)(3), 2.950(g), 15.31(a)(3), and 15.38(b)(4).

This standard, ANSI C63.10-2013, contains standard methods and instrumentation and test facilities requirements for measurement of radio frequency (RF) signals and noise emitted from unlicensed wireless devices (also called unlicensed transmitters, intentional radiators, and license-exempt transmitters) operating in the frequency range 9 kHz to 231 GHz.

(1) CISPR 16-1-4:2010-04: “Specification for radio disturbance and immunity measuring apparatus and methods—Part 1-4: Radio disturbance and immunity measuring apparatus—Antennas and test sites for radiated disturbance measurements” Edition 3.0, 2010-04, IBR approved for §§ 2.910(b)(1), 2.948(d), and 2.950(f).

This standard, CISPR 16-1-4:2010-04, specifies the characteristics and performance of equipment for the measurement of radiated disturbances in the frequency range 9 kHz to 18 GHz. Specifications for antennas and test sites are included. The requirements of this publication apply at all frequencies and for all levels of radiated disturbances within the CISPR indicating range of the measuring equipment.

(1) ISO/IEC 17011:2004(E), “Conformity assessment—General requirements for accreditation bodies accrediting conformity assessment bodies,” First Edition, 2004-09-01, IBR approved for §§ 2.910(d)(1), 2.948(e), 2.949(b)(1), 2.950(c) and (d), 2.960(b), and (c)(1), and 68.160(c)(1).

This standard, ISO/IEC 17011:2004(E), specifies general requirements for accreditation bodies assessing and accrediting conformity assessment bodies (CABs). It is also appropriate as a requirements document for the peer evaluation process for mutual recognition arrangements between accreditation bodies.

(2) ISO/IEC 17025:2005(E), “General requirements for the competence of testing and calibration laboratories,” Second Edition, 2005-05-15 IBR approved for §§ 2.910(d)(2), 2.948(e), 2.949(b)(2), 2.962(c)(3), (c)(4), and (d)(1), and 68.162(c)(3), (c)(4), and (d)(1).

This standard, ISO/IEC 17025:2005(E), specifies the general requirements for the competence to carry out tests and/or calibrations, including sampling. It covers testing and calibration performed using standard methods, non-standard methods, and laboratory-developed methods.

(3) ISO/IEC 17065:2012(E), “Conformity assessment—Requirements for bodies certifying products, processes and services,” First Edition, 2012-09-15, IBR approved for §§ 2.910(d)(3), 2.950(b), 2.960(b), 2.962(b)(1), (c)(1), (c)(4), (d)(1), (d)(3), (f)(2), and (g)(1), 68.160 (b) and 68.162(b)(1), (c)(1), (c)(4), (d)(1), (d)(2), (f)(2), and (g)(2).

This standard, ISO/IEC 17065:2012(E), specifies requirements, the observance of which is intended to ensure that certification bodies operate certification schemes in a competent, consistent and impartial manner, thereby facilitating the recognition of such bodies and the acceptance of certified products, processes and services on a national and international basis and so furthering international trade. This International Standard can be used as a criteria document for accreditation or peer assessment or designation by governmental authorities, scheme owners and others.

(4) ISO/IEC Guide 58:1993 “Calibration and testing laboratory accreditation systems—General requirements for operation and recognition”, First Edition 1993 IBR approved for §§ 2.910(d)(4), and 2.950(d).

This document, ISO/IEC Guide 58:1993, sets out the general requirements for the operation of a system for accreditation of calibration and/or testing laboratories so that the accreditations granted and the services covered by the accreditations may be recognized at a national or international level as competent and reliable.

(5) ISO/IEC Guide 61:1996 “General requirements for assessment and accreditation of certification/registration bodies”, First Edition 1996, IBR approved for §§ 2.910(d)(5), and 2.950(c).

This document, ISO/IEC Guide 61:1996, specifies general requirements for a body to follow if it is to be recognized at a national or international level as competent and reliable in assessing and subsequently accrediting certification bodies or registration bodies. Conformity to the requirements of this Guide will promote equivalence of national systems and facilitate agreements on mutual recognition of accreditations between such bodies.

(6) ISO/IEC Guide 65:1996, “General requirements for bodies operating product certification systems,” First Edition 1996, IBR approved for §§ 2.910(d)(6), and 2.950(b).

This document, ISO/IEC Guide 65: 1996, specifies requirements, the observance of which is intended to ensure that certification bodies operate third-party certification systems in a consistent and reliable manner, thereby facilitating their acceptance on a national and international basis and so furthering international trade.

71. As required by the Regulatory Flexibility Act of 1980, as amended (RFA),1 an Initial Regulatory Flexibility Analysis (IRFA) was incorporated in the NPRM of Proposed Rulemaking (Authorization of Radiofrequency Equipment NPRM) in ET Docket No. 13-44.2 The Commission sought written public comment on the proposals in the NPRM, including comment on the IRFA. Those comments are discussed in the following text. This present Final Regulatory Flexibility Analysis (FRFA) conforms to the RFA.3

72. In the Report and Order, the Commission took actions to update its radiofrequency (RF) equipment authorization program to build on the success realized by our use of Commission-recognized Telecommunication Certification Bodies (TCBs). The adopted rules will facilitate the continued rapid introduction of new and innovative products to the market while maintaining our ability to ensure that these products do not cause harmful interference with each other or with other communications devices and services.

Specifically, in this Report and Order the Commission:

• Discontinued FCC processing of any applications for equipment Certification of RF equipment;

• Permitted TCBs to process and grant all applications for Certification;

• Codified a pre-grant approval procedure that TCBs must currently follow when certifying equipment based on new technology that requires consultation with the FCC;

• Clarified a TCB's responsibilities in performing post-market surveillance of products it has approved;

• Specified steps for addressing instances of deficient TCB performance, including appropriate sanctions for deficiencies that do not warrant rescinding a TCB's authority to issue a grant of Certification;

• Modified the rules to reference current standards used to accredit TCBs that approve RF equipment under part 2 of the Commission's rules and terminal equipment under part 68 of the Commission's rules;

• Required accreditation of all laboratories that test equipment subject to any of the certification procedures under part 2 of the Commission's rules and codified a procedure through which the Commission currently recognizes new laboratory accreditation bodies;

• Updated references to industry measurement procedures in the Commission's rules; and provided greater flexibility under the Office of Engineering and Technology's (OET) existing delegated authority to enable it to address minor technical issues that may be raised when updating to the latest versions of industry standards that are referenced in parts 2, 5, 15, and 18 of the Commission's rules.

73. One commenter addressed the conclusions that were reached in the Initial Regulatory Flexibility Analysis (IRFA) regarding the economic impact that the proposed rules would have on small entities. That commenter, dB Technology, asserted that the IRFA failed to account for the negative effects of adopting the proposal to require that all laboratories that perform certification testing be accredited.4 Specifically, dB Technology stated that the “. . . cost overhead associated with `accreditation' which has a much more significant impact on smaller test labs . . . may result in some small test labs no longer being able to offer services to local small entities.” As a result, dB Technology concluded that there could be a “. . . reduction in the number of competing test labs and increased costs for manufacturers.” 5

74. In the Report and Order in this proceeding, the Commission adopted the requirement that all laboratories that perform Certification testing be accredited. It did so on the basis that requiring testing laboratory accreditation is an important adjunct to our decision to allow TCBs to certify all RF equipment, and because the requirement will provide a higher degree of confidence that equipment testing done in support of Certification applications is conducted in accordance with the applicable standards. To the extent that dB technologies is suggesting that the Commission take an alternate approach, such as continuing to allow for unaccredited laboratories, it was considered but rejected on the basis that it would not accomplish the objectives of the proceeding. It is extremely important that equipment be properly evaluated prior to being released into the marketplace (where it may be difficult or impossible to retrieve). Not requiring accreditation, or only applying such a requirement to certain types of laboratories, would present unacceptable risks to the integrity and success of our equipment authorization program. It would also increase the potential for the imposition of extraordinary costs (both costs associated with the identification and recall of noncompliant products by manufacturers, and costs associated with interference by noncompliant devices that could affect a larger group of users). For these reasons, the Commission adopted the accreditation rule based on the proposals in the NPRM and its accompanying IRFA.

75. Pursuant to the Small Business Jobs Act of 2010, the Commission was required to respond to any comments filed by the Chief Counsel for Advocacy of the Small Business Administration (SBA), and to provide a detailed statement of any change made to the proposed rules as a result of those comments. The Chief Counsel did not file any comments in response to the proposed rules in this proceeding.

76. The RFA directs agencies to provide a description of and, where feasible, an estimate of the number of small entities that may be affected by the proposed rules, if adopted.6 The RFA generally defines the term “small entity” as having the same meaning as the terms “small business,” “small organization,” and “small governmental jurisdiction.” In addition, the term “small business” has the same meaning as the term “small business concern” under the Small Business Act.7 A small business concern is one which: 1) is independently owned and operated; 2) is not dominant in its field of operation; and 3) satisfies any additional criteria established by the SBA.8

77. Radio and Television Broadcasting and Wireless Communications Equipment Manufacturing. The Census Bureau defines this category as follows: “This industry comprises establishments primarily engaged in manufacturing radio and television broadcast and wireless communications equipment. Examples of products made by these establishments are: transmitting and receiving antennas, cable television equipment, GPS equipment, pagers, cellular phones, mobile communications equipment, and radio and television studio and broadcasting equipment.” 9 The SBA has developed a small business size standard for Radio and Television Broadcasting and Wireless Communications Equipment Manufacturing, which is: all such firms having 750 or fewer employees. According to Census Bureau data for 2007, there were a total of 939 establishments in this category that operated for part or all of the entire year. Of this total, 912 had less than 500 employees and 17 had more than 1000 employees.10 Thus, under that size standard, the majority of firms can be considered small.

78. The Commission's rules require that equipment be authorized in accordance with one of three procedures specified in Subpart J of part 2 of the rules described below (with certain limited exceptions).11 These requirements not only minimize the potential for harmful interference, but also ensure that the equipment complies with our rules that address other policy objectives—such as RF human exposure limits and hearing aid compatibility (HAC) with wireless handsets. The specific provisions of the three procedures apply to various types of devices based on their relative likelihood of harmful interference and the significance of the effects of such interference from the particular device at issue.

Certification, the most rigorous process for devices with the greatest potential to cause harmful interference, is an equipment authorization issued by the Commission or grant of Certification by a recognized TCB based on an application and test data submitted by the responsible party (e.g., the manufacturer or importer).12 The testing is done by a testing laboratory listed by the Commission as approved for such work and the Commission or a TCB examines the test procedures and data to determine whether the testing followed appropriate protocols and the data demonstrates technical and operational compliance with all pertinent rules. Technical parameters and other descriptive information for all certified equipment submitted in an application for Certification are published in a Commission-maintained public database, regardless of whether it is approved by the Commission or a TCB.13

Declaration of Conformity (DoC) is a procedure that requires the party responsible for compliance to use an accredited testing laboratory that follows established measurement protocols to ensure that the equipment complies with the appropriate technical standards.14 The responsible party is not required to file an equipment authorization application with the Commission or a TCB, and equipment authorized under the DoC procedure is not listed in any Commission database. However, the responsible party must provide a test report and other information demonstrating compliance with the rules upon request by the Commission.

Verification is a procedure that requires the party responsible for compliance to rely on measurements that it or another party makes on its behalf to ensure that the equipment complies with the appropriate technical standards.15 The responsible party is not required to use an accredited testing laboratory. It is not required to file an application with the Commission or a TCB, and equipment authorized under the verification procedure is not listed in any Commission database. However, the responsible party must provide a test report and other information demonstrating compliance with the rules upon request by the Commission.

79. In the Notice of Proposed Rulemaking (“NPRM”) in this proceeding, the Commission proposed certain changes to ensure its part 2 equipment authorization processes continue to operate efficiently and effectively.16 Specifically, the Commission proposed to clarify the obligations of TCBs and to strengthen the Commission's oversight of the TCB's. The Commission also proposed to require accreditation for all labs performing equipment authorization compliance tests. The Commission also proposed adopting updates to the measurement procedures used to determine RF equipment compliance.

80. The Commission adopted its proposals specifying how applicants will file with TCBs and how TCBs will file with the Commission, and will required that the information provided to the Commission shall be submitted electronically through the Commission's EAS.

81. The Commission will stop accepting applications for grant of Certification as of the effective date of the Report and Order and will modify § 1.1103 of the rules to remove the equipment authorization services sections related to Certification as all of the processes under the Certification section will no longer be handled by the Commission, and no fee will be charged by the Commission when a TCB issues a grant of Certification. Applications received prior to the effective date will be reviewed following the current review procedures and approved if compliant with all requirements. Finally, the Commission also adopted the proposed TCB process changes and amended the various sections of part 2 that required updating to reflect the TCB role in the Certification process, as modified herein.

82. The RFA requires an agency to describe any significant alternatives that it has considered in reaching its proposed approach, which may include the following four alternatives (among others): (1) The establishment of differing compliance or reporting requirements or timetables that take into account the resources available to small entities; (2) the clarification, consolidation, or simplification of compliance or reporting requirements under the rule for small entities; (3) the use of performance, rather than design, standards; and (4) an exemption from coverage of the rule, or any part thereof, for small entities.17

83. The Commission adopted the proposed modifications to the administrative requirements for test laboratories and TCBs on the belief that the changes will make the equipment authorization program more efficient and effective, thus benefiting small entities. Specifically, TCBs will approve all equipment, including equipment that TCBs may not currently approve because it incorporates new technology or requires measurements for which the procedures are not yet clearly defined. To more efficiently implement this change, the Commission will also integrate a new procedure into our equipment authorization system that will enable TCBs to obtain guidance from the Commission on testing or other certification issues. It is expected that these changes will reduce the time required for manufacturers to obtain equipment approval.

84. The Commission also adopted its proposals to require accreditation of test laboratories that perform certification testing and establish additional measures to address TCB performance in order to ensure the continuing quality of the TCB program. This will benefit equipment manufacturers by ensuring that all TCBs operate in accordance with the Commission's rules, thus providing a clear path to market and a level playing field for all manufacturers, both large and small.

Report to Congress: The Commission will send a copy of the Report and Order, including this FRFA, in a report to Congress pursuant to the Congressional Review Act.18 In addition, the Commission will send a copy of the Report and Order, including this FRFA, to the Chief Counsel for Advocacy of the SBA. A copy of the Report and Order and FRFA (or summaries thereof) will also be published in the Federal Register.

85. This Report and Order contains no new information collection requirements, only non-substantive modifications.

86. The Commission will send a copy of this Report and Order to Congress and the Government Accountability Office pursuant to the Congressional Review Act.19

87. Pursuant to sections 1, 4(i), 7(a), 301, 302, 303(f), 303(g), 303(r), 307(e) and 332 of the Communications Act of 1934, as amended, 47 U.S.C. 151, 154(i), 157(a), 301, 302a, 303(f), 303(g), 303(r), 307(e), and 332, this Report and Order is adopted.

88. The rules and requirements adopted in this Report and Order will be effective July 13, 2015.

89. Pursuant to the authority of Section 5(c) of the Communications Act of 1934, as amended, 47 U.S.C. 155(c), the Commission delegate authority to the Office of Engineering and Technology as set forth herein.

90. The Petition for Rulemaking filed by James E. Whedbee is denied.

91. The Commission's Consumer and Governmental Affairs Bureau, Reference Information Center, shall send a copy of this Report and Order, including the Final Regulatory Certification, to the Chief Counsel for Advocacy of the Small Business Administration.

92. Pursuant to the authority contained in Sections 4(i), 4(j), and 303 of the Communications Act, as amended, 47 U.S.C. 154(i), 154(j) and 303, that should no petitions for reconsideration or applications for review be timely filed, this proceeding is terminated and ET Docket No. 13-44 is closed.

For the reasons discussed in the preamble, the Federal Communications Commission amends 47 CFR parts 0, 1, 2, 15 and 68 as follows: