Federal Register Vol. 81, No.136,

The Office of Management and Budget (OMB) has waived the review process required by Executive Order 12866 for this action.

This proposed rule has been reviewed under Executive Order 12988, Civil Justice Reform. It is not intended to have retroactive effect.

The Agricultural Marketing Service (AMS) has assessed the impact of this proposed rule on Indian tribes and determined that this rule would not, to our knowledge, have tribal implications that require tribal consultation under Executive Order 13175. If a Tribe requests consultation, AMS will work with the Department of Agriculture's (USDA) Office of Tribal Relations to ensure meaningful consultation is provided where changes, additions, and modifications are identified in this proposed rule.

The Soybean Promotion, Research, and Consumer Information Act (Soybean Act) (7 U.S.C. 6301-6311) provides that administrative proceedings must be exhausted before parties may file suit in court. Under section 1971 of the Soybean Act, a person subject to the Soybean Order may file a petition with USDA stating that the Soybean Order, any provision of the Soybean Order, or any obligation imposed in connection with the Soybean Order, is not in accordance with the law and request a modification of the Soybean Order or an exemption from the Soybean Order. The petitioner is afforded the opportunity for a hearing on the petition. After a hearing, USDA would rule on the petition. The Soybean Act provides that district courts of the United States in any district in which such person is an inhabitant, or has their principal place of business, has jurisdiction to review USDA's ruling on the petition, if a complaint for this purpose is filed within 20 days after the date of the entry of the ruling.

Further, section 1974 of the Soybean Act provides, with certain exceptions, that nothing in the Soybean Act may be construed to preempt or supersede any other program relating to soybean promotion, research, consumer information, or industry information organized under the laws of the United States or any State. One exception in the Soybean Act concerns assessments collected by Qualified State Soybean Boards (QSSBs). The exception provides that to ensure adequate funding of the operations of QSSBs under the Soybean Act, no State law or regulation may limit or have the effect of limiting the full amount of assessments that a QSSB in that State may collect, and which is authorized to be credited under the Soybean Act. Another exception concerns certain referenda conducted during specified periods by a State relating to the continuation of a QSSB or State soybean assessment.

Section 11 of the Beef Research and Promotion Act of 1985 (Beef Act) (7 U.S.C. 2901-2911) provides that nothing in the Beef Act may be construed to preempt or supersede any other program relating to beef promotion organized and operated under the laws of the United States or any State.

The Soybean Act and the Soybean Order issued thereunder authorize the collection of an assessment from soybean producers of one-half of one percent (0.5 percent) of the net market value of soybeans, processed soybeans, or soybean products. In most cases, these assessments are collected by QSSBs that retain up to half of the assessments as authorized by the Soybean Act. The QSSBs as defined under Section 1967 (14) of the Soybean Act will forward the remainder to the United Soybean Board (Soybean Board), which administers the national soybean checkoff program.1

The original Soybean Order, which became effective July 9, 1991, mandated that all producers marketing soybeans pay an assessment of one-half of one percent (0.5 percent) of the net market price of the market price of soybeans sold. The original Soybean Order contained a provision in § 1220.228(b)(5)(i), which required QSSBs that were authorized or required to pay refunds to producers to certify to the Soybean Board that they would honor any request from a producer for a refund from the QSSB by forwarding to the Soybean Board those contributions for which the producer received a credit, pursuant to § 1220.223(a)(3). In other words, this section implicitly authorized refunds by the QSSB if State law allowed or required the QSSB to pay refunds; it further directed that the producer receive a credit for those refunds, with the amount sent to the Soybean Board.

Refunds under the soybean program were discontinued on October 1, 1995, after the Secretary determined through a producer poll that continuation of refunds was not favored by a majority of producers. In late 1995, 7 CFR 1220.228(b)(5)(i) was removed as part of rulemaking to eliminate obsolete regulatory language. However, this action had an unintended effect of inadvertently allowing QSSBs to retain a portion of the assessment even if not required by State law, under any circumstances.

In States where payments to a QSSB are not required by State law, the opportunity for producers to choose to direct the full federal assessment to the Soybean Board is already AMS' current policy; this rule is intended to formalize the policy. Therefore, AMS proposes adding provisions that remedy the removal of the original refund language. A new provision would be added to the Soybean Order to (i) require producers in States where refunds are authorized to forward that refund to the Soybean Board and (ii) provide an opportunity for a refund if the QSSB is not authorized by State statute but is organized and operating within a State and is certified by the Soybean Board, as provided by § 1220.228(a)(2). AMS proposes to require that the form must be postmarked by the 30th day of the month following the month the soybeans were sold. Assessments would not be able to be retroactively redirected from the QSSB to the Soybean Board. Likewise, AMS proposes to require that the QSSB must respond by the last day of the month following the month in which the OMB-approved QSSB-1 form was received.

Regardless of a State's requirements or refunding provisions, a producer is required by the Soybean Act to pay an assessment of one-half of one percent (0.5 percent) of the net market value of soybeans, processed soybeans, or soybean products. Several States have additional producer assessments, mandated by State statutes that are collected in addition to the assessment required by the Soybean Act as set forth in the chart provided. If a QSSB offers a producer refund under a State statute, the QSSB can only refund to the producer any State assessment collected in excess of the assessment that the producer is required to pay under the Soybean Act. AMS proposes that the portion of the assessment compelled by the Soybean Act that the QSSB would normally keep can be redirected to the national program by the producer if State law allows.

• A soybean producer in California pays an assessment for a soybean sale. The assessment is collected by a certified Western Region Soybean Board, which keeps 50% and forwards the remaining 50% to the Soybean Board. California has no State law requiring a California assessment, so the California producer may request that the 50% of the assessment amount retained by the Western Region Soybean Board be redirected to the Soybean Board.

• A soybean producer in Iowa pays an assessment for a soybean sale. The assessment is collected by Iowa Soybean Promotion Board, which keeps 50% and forwards the remaining 50% to the Soybean Board. Iowa has a State law with a refund provision, so the Iowa producer may request that the 50% of the assessment amount retained by the Iowa Soybean Promotion Board be redirected to the Soybean Board.

• A soybean producer in Virginia pays an assessment for a soybean sale. The assessment is collected by the Virginia Soybean Board which keeps 50% and forwards the remaining 50% to the Soybean Board. Virginia has a State law with no refund provision, so the Virginia soybean producer may not request that the 50% of the assessment amount retained by the Virginia Soybean Board be redirected to the Soybean Board.

Similarly, the Beef Promotion and Research Act of 1985 (Beef Act) and the Beef Promotion and Research Order (Beef Order) issued thereunder authorize the collection of an assessment from cattle producers of $1.00 per head of cattle sold. In most cases, these assessments are collected by Qualified State Beef Councils (QSBCs) that retain up to one-half of the assessments as authorized by the Beef Act. The QSBCs, as defined under Section 3(14) of the Beef Act, are required to forward the remainder to the Cattlemen's Beef Promotion and Research Board (Beef Board), which administers the national beef checkoff program.2

Comments Invited

We invite you to send any written relevant data, views, or arguments about this proposed AD. Send your comments to an address listed under the ADDRESSES section. Include “Docket No. FAA-2016-7427; Directorate Identifier 2016-NM-041-AD” at the beginning of your comments. We specifically invite comments on the overall regulatory, economic, environmental, and energy aspects of this proposed AD. We will consider all comments received by the closing date and may amend this proposed AD based on those comments.

We will post all comments we receive, without change, to http://www.regulations.gov, including any personal information you provide. We will also post a report summarizing each substantive verbal contact we receive about this proposed AD.

On, January 16, 2013, we issued AD 2013-02-08, Amendment 39-17329 (78 FR 7647, February 4, 2013) (“AD 2013-02-08”). AD 2013-02-08 requires actions intended to address an unsafe condition on all Bombardier, Inc. Model CL-600-2B19 (Regional Jet Series 100 & 440) airplanes.

Since we issued AD 2013-02-08, we have determined that not all affected attachment pins and trunnions were included in the required inspections of AD 2013-02-08. In addition, for airplanes on which certain service information was incorporated, incorrect attachment hardware may have been used to re-install the HSTA attachment pins and trunnions.

Transport Canada Civil Aviation (TCCA), which is the aviation authority for Canada, has issued Canadian Airworthiness Directive CF-2016-08, dated March 30, 2016 (referred to after this as the Mandatory Continuing Airworthiness Information, or “the MCAI”), to correct an unsafe condition for certain Bombardier, Inc. Model CL-600-2B19 (Regional Jet Series 100 & 440) airplanes. The MCAI states:

The required actions include measuring the diameter of the bolts that attach the trunnions and pins, measuring the diameter of the attach holes in the aircraft structure, and, as applicable, measuring the diameter of the attach holes in the trunnions and pins, doing detailed visual inspections for gouges, scratches, and corrosion of the trunnions and pins, doing detailed visual inspections for damage of the spacers, doing corrective actions, and re-identifying trunnions and pins. Corrective actions include replacing bolts, trunnions, pins, and spacers, increasing the diameter of the attach holes, and repairing trunnions and pins.

This proposed AD also removes certain airplanes from the applicability to correspond with the MCAI, which removed them from its applicability.

You may examine the MCAI in the AD docket on the Internet at http://www.regulations.gov by searching for and locating Docket No. FAA-2016-7427.

Bombardier has issued Service Bulletin 601R-27-160, Revision D, dated October 22, 2015. The service information describes procedures for measuring the diameter of certain bolts and attach holes, and, as applicable, measuring the diameter of the attach holes in the trunnions and pins, doing detailed visual inspections of the trunnions, pins, and spacers, doing corrective actions, and re-identifying trunnions and pins.

Bombardier has also issued Bombardier Temporary Revision 2B-2245, dated October 17, 2014, to Appendix B—Airworthiness Limitations, of Part 2, Airworthiness Requirements, of the Bombardier CL-600-2B19 Maintenance Requirements Manual to incorporate a revised Airworthiness Limitation task. The service information describes safe life limits for the HSTA trunnion support and attaching hardware.

Bombardier has also issued Bombardier Temporary Revision 2B-2186, dated August 8, 2011, to Appendix B—Airworthiness Limitations, Part 2, Airworthiness Requirements, of the Bombardier CL-600-2B19 Maintenance Requirements Manual to incorporate a revised Airworthiness Limitation task. The service information describes an inspection of the upper and lower installation pins of the horizontal stabilizer pitch trim actuator.

This service information is reasonably available because the interested parties have access to it through their normal course of business or by the means identified in the ADDRESSES section.

This product has been approved by the aviation authority of another country, and is approved for operation in the United States. Pursuant to our bilateral agreement with the State of Design Authority, we have been notified of the unsafe condition described in the MCAI and service information referenced above. We are proposing this AD because we evaluated all pertinent information and determined an unsafe condition exists and is likely to exist or develop on other products of the same type design.

We estimate that this proposed AD affects 489 airplanes of U.S. registry.

We estimate that it would take about 8 work-hours per product to comply with the basic requirements of this proposed AD. The average labor rate is $85 per work-hour. Based on these figures, we estimate the cost of this proposed AD on U.S. operators to be $332,520, or $680 per product.

In addition, we estimate that any necessary follow-on actions would take about 20 work-hours and require parts costing $4,391, for a cost of $6,091 per product. We have no way of determining the number of products that may need these actions.

Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, section 106, describes the authority of the FAA Administrator. “Subtitle VII: Aviation Programs,” describes in more detail the scope of the Agency's authority.

We are issuing this rulemaking under the authority described in “Subtitle VII, Part A, Subpart III, Section 44701: General requirements.” Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action.

We determined that this proposed AD would not have federalism implications under Executive Order 13132. This proposed AD would not have a substantial direct effect on the States, on the relationship between the national Government and the States, or on the distribution of power and responsibilities among the various levels of government.

For the reasons discussed above, I certify this proposed regulation:

1. Is not a “significant regulatory action” under Executive Order 12866;

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

3. Will not affect intrastate aviation in Alaska; and

4. Will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

Accordingly, under the authority delegated to me by the Administrator, the FAA proposes to amend 14 CFR part 39 as follows:

Comments Invited

We invite you to send any written relevant data, views, or arguments about this proposed AD. Send your comments to an address listed under the ADDRESSES section. Include “Docket No. FAA-2016-8178; Directorate Identifier 2015-NM-197-AD” at the beginning of your comments. We specifically invite comments on the overall regulatory, economic, environmental, and energy aspects of this proposed AD. We will consider all comments received by the closing date and may amend this proposed AD based on those comments.

We will post all comments we receive, without change, to http://www.regulations.gov, including any personal information you provide. We will also post a report summarizing each substantive verbal contact we receive about this proposed AD.

Transport Canada Civil Aviation (TCCA), which is the aviation authority for Canada, has issued Canadian Airworthiness Directive CF-2015-22, dated August 3, 2015 (referred to after this as the Mandatory Continuing Airworthiness Information, or “the MCAI”), to correct an unsafe condition for certain Bombardier, Inc. Model DHC-8-400 series airplanes. The MCAI states:

Bombardier, Inc. has issued Bombardier Service Bulletin 84-53-65, dated February 27, 2015. The service information describes procedures for inspections of the external surface of the fuselage skin panel for loose or working fasteners; a detailed visual inspection of the longeron joint fittings for the existence of shims; high frequency eddy current (HFEC) inspections of the longeron and the longeron joint fittings for any cracking; and replacement of longeron fittings, shims, and fasteners. This service information is reasonably available because the interested parties have access to it through their normal course of business or by the means identified in the ADDRESSES section.

This product has been approved by the aviation authority of another country, and is approved for operation in the United States. Pursuant to our bilateral agreement with the State of Design Authority, we have been notified of the unsafe condition described in the MCAI and service information referenced above. We are proposing this AD because we evaluated all pertinent information and determined an unsafe condition exists and is likely to exist or develop on other products of the same type design.

We estimate that this proposed AD affects 76 airplanes of U.S. registry.

We also estimate that it would take about 2 work-hours per product to comply with the basic requirements of this proposed AD. The average labor rate is $85 per work-hour. Based on these figures, we estimate the cost of this proposed AD on U.S. operators to be $12,920, or $170 per product.

In addition, we estimate that any necessary follow-on actions would take about 3 work-hours for the inspection for missing shims, 9 work-hours for the replacement of longeron fittings and shims, and 1 work-hour for a reporting requirement; and would require parts costing $3,222; for a cost of up to $4,327 per product. We have no way of determining the number of aircraft that might need these actions. We have received no definitive data that would enable us to provide cost estimates for repair of loose or working fasteners or structural damage specified in this proposed AD.

A federal agency may not conduct or sponsor, and a person is not required to respond to, nor shall a person be subject to penalty for failure to comply with a collection of information subject to the requirements of the Paperwork Reduction Act unless that collection of information displays a current valid OMB control number. The control number for the collection of information required by this proposed AD is 2120-0056. The paperwork cost associated with this proposed AD has been detailed in the Costs of Compliance section of this document and includes time for reviewing instructions, as well as completing and reviewing the collection of information. Therefore, all reporting associated with this proposed AD is mandatory. Comments concerning the accuracy of this burden and suggestions for reducing the burden should be directed to the FAA at 800 Independence Ave. SW., Washington, DC 20591, ATTN: Information Collection Clearance Officer, AES-200.

Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, section 106, describes the authority of the FAA Administrator. “Subtitle VII: Aviation Programs,” describes in more detail the scope of the Agency's authority.

We are issuing this rulemaking under the authority described in “Subtitle VII, part A, subpart III, Section 44701: General requirements.” Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action.

We determined that this proposed AD would not have federalism implications under Executive Order 13132. This proposed AD would not have a substantial direct effect on the States, on the relationship between the national Government and the States, or on the distribution of power and responsibilities among the various levels of government.

For the reasons discussed above, I certify this proposed regulation:

1. Is not a “significant regulatory action” under Executive Order 12866;

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

3. Will not affect intrastate aviation in Alaska; and

4. Will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

Accordingly, under the authority delegated to me by the Administrator, the FAA proposes to amend 14 CFR part 39 as follows:

Comments Invited

We invite you to send any written relevant data, views, or arguments about this proposed AD. Send your comments to an address listed under the ADDRESSES section. Include “Docket No. FAA-2016-8177; Directorate Identifier 2015-NM-129-AD” at the beginning of your comments. We specifically invite comments on the overall regulatory, economic, environmental, and energy aspects of this proposed AD. We will consider all comments received by the closing date and may amend this proposed AD based on those comments.

We will post all comments we receive, without change, to http://www.regulations.gov, including any personal information you provide. We will also post a report summarizing each substantive verbal contact we receive about this proposed AD.

Transport Canada Civil Aviation (TCCA), which is the aviation authority for Canada, has issued Canadian Airworthiness Directive CF-2015-06R1, dated April 22, 2015 (referred to after this as the Mandatory Continuing Airworthiness Information, or “the MCAI”), to correct an unsafe condition for certain Bombardier, Inc. Model BD-700-1A10 and BD-700-1A11 airplanes. The MCAI states:

You may examine the MCAI in the AD docket on the Internet at http://www.regulations.gov by searching for and locating Docket No. FAA-2016-8177.

We reviewed the following service information. This service information describes procedures for doing an operational test of the FCU back-up modules.

• Bombardier Global 5000, BD-700 Aircraft Maintenance Manual—Part II, Temporary Revision No. 27-48, dated October 5, 2015.

• Bombardier Global 5000, GL 5000 FEATURING GLOBAL VISION FLIGHT DECK—Aircraft Maintenance Manual—Part II, Temporary Revision No. 27-24, dated October 5, 2015.

• Bombardier Global 6000, GL 6000 Aircraft Maintenance Manual—Part II, Temporary Revision No. 27-24, dated October 5, 2015.

• Bombardier Global Express, BD-700 Aircraft Maintenance Manual—Part II, Temporary Revision No. 27-78, dated October 5, 2015.

• Bombardier Global Express XRS, BD-700 Aircraft Maintenance Manual—Part II, Temporary Revision No. 27-47, dated October 5, 2015.

This service information is reasonably available because the interested parties have access to it through their normal course of business or by the means identified in the ADDRESSES section.

This product has been approved by the aviation authority of another country, and is approved for operation in the United States. Pursuant to our bilateral agreement with the State of Design Authority, we have been notified of the unsafe condition described in the MCAI and service information referenced above. We are proposing this AD because we evaluated all pertinent information and determined an unsafe condition exists and is likely to exist or develop on other products of the same type design.

The MCAI specifies accomplishing an operational test of the FCU back-up modules, but does not specify a corrective action if the test is failed. If any FCU fails any operational test, this proposed AD would require repair using a method approved by the Manager, New York Aircraft Certification Office (ACO), ANE-170, FAA; or TCCA; or Bombardier, Inc.'s TCCA Design Approval Organization (DAO).

We estimate that this proposed AD affects 76 airplanes of U.S. registry.

We also estimate that it would take about 3 work-hours per product to comply with the basic requirements of this proposed AD. The average labor rate is $85 per work-hour. Based on these figures, we estimate the cost of this proposed AD on U.S. operators to be $19,380, or $255 per product.

We have received no definitive data that would enable us to provide cost estimates for the on-condition actions specified in this NPRM.

Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, section 106, describes the authority of the FAA Administrator. “Subtitle VII: Aviation Programs,” describes in more detail the scope of the Agency's authority.

We are issuing this rulemaking under the authority described in “Subtitle VII, Part A, Subpart III, Section 44701: General requirements.” Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action.

We determined that this proposed AD would not have federalism implications under Executive Order 13132. This proposed AD would not have a substantial direct effect on the States, on the relationship between the national Government and the States, or on the distribution of power and responsibilities among the various levels of government.

For the reasons discussed above, I certify this proposed regulation:

1. Is not a “significant regulatory action” under Executive Order 12866;

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

3. Will not affect intrastate aviation in Alaska; and

4. Will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

Accordingly, under the authority delegated to me by the Administrator, the FAA proposes to amend 14 CFR part 39 as follows:

Comments Invited

We invite you to send any written relevant data, views, or arguments about this NPRM. Send your comments to an address listed under the ADDRESSES section. Include “Docket No. FAA-2016-6692; Directorate Identifier 2016-NE-13-AD” at the beginning of your comments. We specifically invite comments on the overall regulatory, economic, environmental, and energy aspects of this NPRM. We will consider all comments received by the closing date and may amend this NPRM based on those comments.

We will post all comments we receive, without change, to http://www.regulations.gov, including any personal information you provide. We will also post a report summarizing each substantive verbal contact with FAA personnel concerning this NPRM.

The European Aviation Safety Agency (EASA), which is the Technical Agent for the Member States of the European Community, has issued EASA AD 2016-0084, dated April 28, 2016 (referred to hereinafter as “the MCAI”), to correct an unsafe condition for the specified products. The MCAI states:

Failure to inspect the engine upper bifurcation fairing as proposed by this AD could result in failure of the engine fire protection system, engine fire, and damage to the airplane.

You may obtain further information by examining the MCAI in the AD docket on the Internet at http://www.regulations.gov by searching for and locating Docket No. FAA-2016-6692.

RR has issued Alert Non-Modification Service Bulletin (NMSB) RB.211-72-AJ165, dated March 31, 2016. The NMSB describes procedures for inspecting and, if necessary, repairing or replacing the engine upper bifurcation fairing.

This product has been approved by the aviation authority of the United Kingdom and is approved for operation in the United States. Pursuant to our bilateral agreement with the European Community, EASA has notified us of the unsafe condition described in the MCAI and service information referenced above. We are proposing this AD because we evaluated all information provided by EASA and determined the unsafe condition exists and is likely to exist or develop on other products of the same type design. This NPRM would require repetitive inspections of the engine upper bifurcation fairing and repairing or replacing any fairing that fails inspection.

We estimate that this proposed AD affects 125 engines installed on airplanes of U.S. registry. We estimate that it would take about 3.25 hours to inspect the upper bifurcation fairing do the inspection. We estimate that 5 engine fairings will require repair at 8 hours per engine and that an additional 5 engine fairings will require replacement at 30 hours per engine. We also estimate that materials and parts costs would be $500 for each engine. The cost for repair or replacement would be about $5,900 or $15,250 respectively. The average labor rate is $85 per hour. Based on these figures, we estimate the cost of this proposed AD on U.S. operators to be $55,681.

Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, section 106, describes the authority of the FAA Administrator. “Subtitle VII: Aviation Programs,” describes in more detail the scope of the Agency's authority.

We are issuing this rulemaking under the authority described in “Subtitle VII, Part A, Subpart III, Section 44701: General requirements.” Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action.

We determined that this proposed AD would not have federalism implications under Executive Order 13132. This proposed AD would not have a substantial direct effect on the States, on the relationship between the national Government and the States, or on the distribution of power and responsibilities among the various levels of government.

For the reasons discussed above, I certify this proposed regulation:

(1) Is not a “significant regulatory action” under Executive Order 12866,

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

(3) Will not affect intrastate aviation in Alaska to the extent that it justifies making a regulatory distinction, and

(4) Will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

Accordingly, under the authority delegated to me by the Administrator, the FAA proposes to amend 14 CFR part 39 as follows:

Comments Invited

We invite you to participate in this rulemaking by submitting written comments, data, or views. We also invite comments relating to the economic, environmental, energy, or federalism impacts that might result from adopting the proposals in this document. The most helpful comments reference a specific portion of the proposal, explain the reason for any recommended change, and include supporting data. To ensure the docket does not contain duplicate comments, commenters should send only one copy of written comments, or if comments are filed electronically, commenters should submit only one time.

We will file in the docket all comments that we receive, as well as a report summarizing each substantive public contact with FAA personnel concerning this proposed rulemaking. Before acting on this proposal, we will consider all comments we receive on or before the closing date for comments. We will consider comments filed after the comment period has closed if it is possible to do so without incurring expense or delay. We may change this proposal in light of the comments we receive.

We propose to adopt a new AD for Sikorsky Model S-92A helicopters with certain part-numbered frame assemblies installed. This proposed AD is prompted by a fatigue analysis that indicates stress concentrations may develop at the steel doublers on the main transmission airframe support structure top deck, adjacent to the transmission feet. Additionally, a helicopter was discovered with a crack in the STA 362 frame and skin. This proposed AD would require inspecting the main transmission fwd and aft frame assemblies and adjacent skins for a crack and loose fasteners and replacing or repairing any cracked part or loose fastener. This proposed AD would also require establishing life limits for certain frame assemblies. The proposed actions are intended to detect a crack in the frame assemblies and to prevent failure of the main transmission frame assemblies and subsequent loss of control of the helicopter.

We are proposing this AD because we evaluated all known relevant information and determined that an unsafe condition exists and is likely to exist or develop on other helicopters of the same type design.

Sikorsky issued S-92 Alert Service Bulletin (ASB) 92-53-008, Basic Issue, dated June 13, 2012 (ASB 92-53-008); S-92 ASB 92-53-009, Basic Issue, dated December 6, 2012 (ASB 92-53-009); and S-92 ASB 92-53-012, Basic Issue, dated February 10, 2014 (ASB 92-53-012). ASB 92-53-008 provides procedures for a one-time inspection of the main transmission frames and beams for a crack, missing or loose fastener or collar, damage, deformation, and corrosion. ASB 92-53-009 specifies an inspection before the first flight of the day and a recurring 150-hour inspection of the interior and exterior surfaces of the upper flanges and beams. ASB 92-53-012 specifies altering the fwd and aft transmission support frames by replacing the fasteners in accordance with Sikorsky Special Service Instructions No. 92-074-E, Revision E, dated April 9, 2014. After this alteration, the parts are re-identified with a new part number. Sikorsky refers to this alteration as a service life extension program modification.

This proposed AD would establish a life limit for certain part-numbered frame assemblies by removing from service any part that has reached or exceeded its new life limit. Frame assemblies that are altered under Sikorsky's service life extension program and re-identified with a new part number must be removed from service upon accumulating the life limit of the old part-number or within certain hours TIS since the alteration, whichever occurs first.

This proposed AD would also require, for helicopters with certain part-numbered frame assemblies, within 24 clock-hours and thereafter before the first flight of each day or at intervals not to exceed 24 clock-hours, whichever occurs later, inspecting the top deck skin, straps, and fasteners for a crack and loose fasteners in two locations. If there is a loose fastener or a crack, this proposed AD would require repairing or replacing the cracked or loose part and performing additional inspections of the STA 328 frame, STA 362 frame, and the butt line (BL) 16.5 beams.

Finally, this proposed AD would require repetitively inspecting the STA 328 frame, STA 362 frame, and the BL 16.5 beams once the frame assembly exceeds certain hours TIS.

The service information requires providing certain information to Sikorsky and this proposed AD would not. The service information specifies performing a fluorescent penetrant inspection if there is a suspected crack and contacting Sikorsky if there is a crack, while this proposed AD would only require repairing or replacing any cracked part. Contacting Sikorsky would not be required.

We estimate that this proposed AD would affect 80 helicopters of U.S. Registry.

We estimate that operators may incur the following costs to comply with this AD. Labor costs are estimated at $85 per work-hour. We estimate a minimal cost to establish and revise the life limit of the frame assembly. We estimate it would take 1 work-hour to visually inspect the skin and 1 work-hour to inspect STA 328 and 362 frames. No parts would be needed for a total cost of $6,800 for the fleet for each inspection per inspection cycle. If a fastener is replaced, we estimate the cost to be minimal. If a frame is replaced, it would take 3,360 work-hours and a required parts cost of $296,000 for a total cost of $581,600 per helicopter.

We determined that this proposed AD would not have federalism implications under Executive Order 13132. This proposed AD would not have a substantial direct effect on the States, on the relationship between the national Government and the States, or on the distribution of power and responsibilities among the various levels of government.

For the reasons discussed, I certify this proposed regulation:

1. Is not a “significant regulatory action” under Executive Order 12866;

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

3. Will not affect intrastate aviation in Alaska to the extent that it justifies making a regulatory distinction; and

4. Will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

We prepared an economic evaluation of the estimated costs to comply with this proposed AD and placed it in the AD docket.

Accordingly, under the authority delegated to me by the Administrator, the FAA proposes to amend 14 CFR part 39 as follows:

Background A. Introduction

This document contains proposed regulations that would amend 26 CFR part 1 under section 355 of the Code. The proposed regulations would provide additional guidance regarding the device prohibition of section 355(a)(1)(B) and provide a minimum threshold for the assets of one or more active trades or businesses, within the meaning of section 355(a)(1)(C) and (b), of the distributing corporation and each controlled corporation (in each case, within the meaning of section 355(a)(1)(A)).

This Background section of the preamble (1) summarizes the requirements of section 355, (2) discusses the development of current law and IRS practice under section 355 and the regulations thereunder, and (3) explains the reasons for the proposed regulations.

Generally, if a corporation distributes property with respect to its stock to a shareholder, section 301(b) provides that the amount of the distribution is equal to the amount of money and the fair market value of other property received. Under section 301(c), this amount is treated as (1) the receipt by the shareholder of a dividend to the extent of the corporation's earnings and profits, (2) the recovery of the shareholder's basis in the stock, and/or (3) gain from the sale or exchange of property. The corporation recognizes gain under section 311(b) to the extent the fair market value of the property distributed exceeds the corporation's adjusted basis in the property. However, section 355 provides that, under certain circumstances, a corporation (Distributing) may distribute stock and securities in a corporation it controls within the meaning of section 368(c) (Controlled) to its shareholders and security holders without causing either Distributing or its shareholders or security holders to recognize income, gain, or loss on the distribution.

Section 355 has numerous requirements for a distribution to be tax-free to Distributing and its shareholders. Some of these requirements are intended to prevent a distribution from being used inappropriately to avoid shareholder-level tax on dividend income. As examples, section 355(a)(1)(B) provides that the transaction must not be used principally as a device for the distribution of the earnings and profits of Distributing or Controlled or both (a device), and section 355(a)(1)(C) and (b) require Distributing and Controlled each to be engaged, immediately after the distribution, in the active conduct of a trade or business (an active business). To qualify for this purpose, an active business must have been actively conducted throughout the five-year period ending on the date of the distribution and must not have been acquired, directly or indirectly, within this period in a transaction in which gain or loss was recognized. Section 355(b)(2)(B), (C), and (D).

Distributions of the stock of Controlled generally take three different forms: (1) A pro rata distribution to Distributing's shareholders of the stock of Controlled (a spin-off), (2) a distribution of the stock of Controlled in redemption of Distributing stock (a split-off), or (3) a liquidating distribution in which Distributing distributes the stock of more than one Controlled, either pro rata or non-pro rata (in either case, a split-up).

The earliest predecessor of section 355 was section 202(b) of the Revenue Act of 1918, ch. 18 (40 Stat. 1057, 1060), which permitted a tax-free exchange by a shareholder of stock in a corporation for stock in another corporation in connection with a reorganization. This section did not allow tax-free spin-offs. In section 203(c) of the Revenue Act of 1924, ch. 234 (43 Stat. 253, 256), Congress amended this provision to allow tax-free spin-offs pursuant to plans of reorganization.

Taxpayers tried to use this provision to avoid the dividend provisions of the Code by having Distributing contribute surplus cash or liquid assets to a newly formed Controlled and distribute the Controlled stock to its shareholders. See, e.g.,Gregory v. Helvering, 293 U.S. 465 (1935). Congress reacted to this abuse by eliminating the spin-off provision in the Revenue Act of 1934, ch. 277 (48 Stat. 680). The legislative history states that the provision had provided a method for corporations “to pay what would otherwise be taxable dividends, without any taxes upon their shareholders” and that “this means of avoidance should be ended.” H.R. Rep. No. 73-704, at 14 (1934).

In section 317(a) of the Revenue Act of 1951, ch. 521 (65 Stat. 452, 493), Congress re-authorized spin-offs pursuant to plans of reorganization:

During debate on this legislation, Senator Hubert Humphrey expressed concerns about spin-offs and argued that these restrictions were necessary. See, e.g., 97 Cong. Rec. 11812 (1951) (“Unless strictly safeguarded, [a spin-off provision] can result in a loophole that will enable a corporation to distribute earnings and profits to stockholders without payment of the usual income taxes.”); Id. (“Clauses (A) and (B) of section 317 provide very important safeguards against the tax avoidance which would be possible if section 317 were adopted without clauses (A) and (B).”). See also 96 Cong. Rec. 13686 (1950) (“It was the viewpoint of the committee that [a spin-off] must be strictly a bona fide transaction, not colorable, not for the purpose of evading the tax.”).

Until 1954, a spin-off, split-off, or split-up was eligible for tax-free treatment only if Distributing transferred property to Controlled as part of a reorganization. In 1954, Congress adopted section 355 as part of the 1954 Code. As a significant innovation, section 355 allowed spin-offs, split-offs, and split-ups to be tax-free without a reorganization, and this innovation remains in effect.

Courts applying section 355 (or a predecessor provision) have generally placed greater emphasis on the substance of the transaction than on compliance with the technical requirements of the statute. Thus, some courts have determined that a transaction does not qualify under section 355 (or a predecessor provision), notwithstanding strict statutory compliance, on the basis that the substance of the transaction was inconsistent with congressional intent. For example, in Gregory, the Supreme Court held that compliance with the letter of the spin-off statute was insufficient if the transaction was otherwise indistinguishable from a dividend. The Supreme Court observed that the transaction in Gregory was “an operation having no business or corporate purpose-a mere device which put on the form of a corporate reorganization as a disguise for concealing its real character.” Gregory, 293 U.S. at 469.

Other courts have found that a transaction does qualify under section 355 despite its failure to comply with all of the statutory requirements. For example, in Commissioner v. Gordon, 382 F.2d 499 (2d Cir.1967), rev'd on other grounds, 391 U.S. 83 (1968), the court addressed section 355(b)(2)(C). Pursuant to that section, a corporation is treated as engaged in the active conduct of a trade or business only if the trade or business was not acquired in a transaction in which gain or loss was recognized in whole or in part within the five-year period ending on the date of the distribution. The court concluded that, despite the fact that gain was recognized when Distributing transferred a trade or business to Controlled, section 355(b)(2)(C) was not violated because new assets were not brought within the combined corporate shells of Distributing and Controlled. The court stated:

Regulations under section 355 of the 1954 Code were issued in 1955 (the 1955 regulations). TD 6152 (20 FR 8875). These regulations included § 1.355-2(b)(3), which provided the following:

Additional regulations under section 355 were issued in 1989 (the 1989 regulations). TD 8238 (54 FR 283). These regulations provide substantially more guidance than the 1955 regulations to determine whether a distribution was a device. Section 1.355-2(d)(1) provides that “a tax-free distribution of the stock of a controlled corporation presents a potential for tax avoidance by facilitating the avoidance of the dividend provisions of the Code through the subsequent sale or exchange of stock of one corporation and the retention of the stock of another corporation. A device can include a transaction that effects a recovery of basis.”

This provision clarifies that, although the device prohibition primarily targets the conversion of dividend income to capital gain, a device can still exist if there would be a recovery of stock basis in lieu of receipt of dividend income and even if the shareholder's federal income tax rates on dividend income and capital gain are the same.

The 1989 regulations also expand on the statement in the 1955 regulations that the device analysis takes into account all of the facts and circumstances by specifying three factors that are evidence of device and three factors that are evidence of nondevice. One of the device factors, described in § 1.355-2(d)(2)(iv)(B), expands the statement in the 1955 regulations that consideration will be given to the nature, kind, and amount of the assets of Distributing and Controlled immediately after the transaction (the nature and use of assets device factor). First, this provision provides that “[t]he existence of assets that are not used in a trade or business that satisfies the requirements of section 355(b) is evidence of device. For this purpose, assets that are not used in a trade or business that satisfies the requirements of section 355(b) include, but are not limited to, cash and other liquid assets that are not related to the reasonable needs of a business satisfying such section.” This provision continues to provide that “[t]he strength of the evidence of device depends on all the facts and circumstances, including, but not limited to, the ratio for each corporation of the value of assets not used in a trade or business that satisfies the requirements of section 355(b) to the value of its business that satisfies such requirements.” Finally, the provision provides that “[a] difference in the ratio described in the preceding sentence for the distributing and controlled corporation is ordinarily not evidence of device if the distribution is not pro rata among the shareholders of the distributing corporation and such difference is attributable to a need to equalize the value of the stock distributed and the value of the stock or securities exchanged by the distributees.”

Although this provision describes the factor, it provides little guidance relating to the quality or quantity of the relevant assets and no guidance on how the factor relates to other device factors or nondevice factors.

The nondevice factors in § 1.355-2(d)(3) are the presence of a corporate business purpose, the fact that the stock of Distributing is publicly traded and widely held, and the fact that the distribution is made to certain domestic corporate shareholders.

Section 1.355-2(d)(5) specifies certain distributions that ordinarily are not considered a device, notwithstanding the presence of device factors, because they ordinarily do not present the potential for federal income tax avoidance in converting dividend income to capital gain or using stock basis to reduce shareholder-level tax. These transactions include a distribution that, in the absence of section 355, with respect to each distributee, would be a redemption to which sale-or-exchange treatment applies.

Section 1.355-3 provides rules for determining whether Distributing and Controlled satisfy the active business requirement. Proposed regulations issued in 2007 would amend § 1.355-3. REG-123365-03 (72 FR 26012). The Treasury Department and the IRS continue to study the active business requirement issues considered in those proposed regulations.

The fact that Distributing's or Controlled's qualifying active business is small in relation to all the assets of Distributing or Controlled is generally recognized as a device factor. A separate issue is whether a relatively small active business satisfies the active business requirement. In Rev. Rul. 73-44 (1973-1 CB 182), Controlled's active business represented a “substantial portion” but less than half of the value of its total assets. The revenue ruling states:

The IRS has taken the position, in letter rulings and internal memoranda, that an active business can satisfy the active business requirement regardless of its absolute or relative size. However, no published guidance issued by the Treasury Department or the IRS takes this position.

In 1996, the Treasury Department and the IRS issued Rev. Proc. 96-43 (1996-2 CB 330), which provided that (1) the IRS ordinarily would not issue a letter ruling or determination letter on whether a distribution was described in section 355(a)(1) if the gross assets of the active business would have a fair market value that was less than five percent of the total fair market value of the gross assets of the corporation directly conducting the active business, but (2) a ruling might be issued “if it can be established that, based upon all relevant facts and circumstances, the trades or businesses are not de minimis compared with the other assets or activities of the corporation and its subsidiaries.” This no-rule provision was eliminated in Rev. Proc. 2003-48 (2003-2 CB 86). Since that time, until the publication of Rev. Proc. 2015-43 (2015-40 IRB 467) and Notice 2015-59 (2015-40 IRB 459), discussed in Part D.1 of this Background section of the preamble, the IRS maintained its position that the relative size of an active business is a device factor rather than a section 355(b) requirement. The IRS issued numerous letter rulings on section 355 distributions involving active businesses that were de minimis in value compared to the other assets of Distributing or Controlled.

The IRS interpreted section 355(b) in this manner in part as a result of the mechanical difficulties of satisfying the active business requirement. These mechanical difficulties are discussed further in Part D.3.c of this Background section of the preamble.

As an example, until section 355(b) was amended by section 202 of the Tax Increase Prevention and Reconciliation Act of 2005, Public Law 109-222 (120 Stat. 345, 348); Division A, section 410 of the Tax Relief and Health Care Act of 2006, Public Law 109-432 (120 Stat. 2922, 2963); and section 4(b) of the Tax Technical Corrections Act of 2007, Public Law 110-172 (121 Stat. 2473, 2476) (the Separate Affiliated Group, or SAG, Amendments), if, immediately after the distribution, a corporation did not directly engage in an active business, it could satisfy the active business requirement only if substantially all of its assets consisted of stock and securities of corporations it controlled that were engaged in an active business (the holding company rule). See section 355(b) prior to the SAG Amendments. Because of the limited application of the holding company rule, corporations often had to undergo burdensome restructurings prior to section 355 distributions merely to satisfy the active business requirement. See, e.g., H.R. Rep. No. 109-304, at 54 (2005).

As another example, until 1992, no guidance provided that Distributing or Controlled could rely on activities conducted by a partnership to satisfy the active business requirement, even if Distributing or Controlled held a substantial interest in the partnership and participated in its management. This situation changed after the Treasury Department and the IRS published revenue rulings permitting this reliance. See Rev. Rul. 92-17 (1992-1 CB 142) amplified by Rev. Rul. 2002-49 (2002-2 CB 288) and modified by Rev. Rul. 2007-42 (2007-2 CB 44).

The device prohibition continues to be important even though the federal income tax rates for dividend income and capital gain may be identical for many taxpayers. In Rev. Proc. 2003-48, the Treasury Department and the IRS announced that the IRS would no longer rule on whether a transaction is a device or has a business purpose. As a result, since the publication of Rev. Proc. 2003-48, the IRS has made only limited inquiries as to device and business purpose issues raised in requests for private letter rulings under section 355.

As explained in Part C of this Background section of the preamble, section 355 and its predecessors have had a long and contentious history. Despite the safeguards in the Code and regulations, and the courts' interpretations in accordance with congressionally-articulated statutory purposes, taxpayers have attempted to use section 355 distributions in ways that the Treasury Department and the IRS have determined to be inconsistent with the purpose of section 355.

On September 14, 2015, the Treasury Department and the IRS issued Rev. Proc. 2015-43 and Notice 2015-59 in response to concerns relating to distributions involving relatively small active businesses, substantial amounts of investment assets, and regulated investment companies (RICs) or real estate investment trusts (REITs). The notice states that the Treasury Department and the IRS are studying issues under sections 337(d) and 355 relating to these transactions and that these transactions may present evidence of device, lack an adequate business purpose or a qualifying active business, or circumvent the purposes of Code provisions intended to implement repeal of the General Utilities doctrine, a doctrine under which a corporation generally could distribute appreciated property to its shareholders without recognizing gain (General Utilities repeal). The notice invited comments with respect to these issues and one commenter (the commenter) submitted a comment letter.

The proposed regulations in this notice of proposed rulemaking would address the device prohibition (including the business purpose requirement as it pertains to device) and the active business requirement. Congress has addressed certain other issues discussed in Notice 2015-59. See section 311 of the Protecting Americans from Tax Hikes Act of 2015, Public Law 114-113 (129 Stat. 3040, 3090), in which Congress added section 355(h), which generally denies section 355 treatment if either Distributing or Controlled is a REIT unless both are REITs immediately after the distribution, and section 856(c)(8), which generally provides that Distributing or Controlled will not be eligible to make a REIT election within the ten-year period after a section 355 distribution. Separate temporary and proposed regulations address transactions that avoid the application of sections 355(h) and 856(c)(8). See REG-126452-15 (Certain Transfers of Property to RICs and REITs) (81 FR 36816), cross-referencing TD 9770 (81 FR 36793). The Treasury Department and the IRS continue to study issues relating to General Utilities repeal presented by other transactions involving the separation of nonbusiness assets from business assets, and are considering issuing guidance under section 337(d) to address these issues. See Part D.4 of this Background section of the preamble.

The commenter believes that new rules are not needed for transactions that raise the purely shareholder-level concerns that are the subject of the device prohibition. According to the commenter, those transactions likely do not qualify under section 355 under current law and are infrequent. Although largely agreeing with this statement, the Treasury Department and the IRS have determined that certain clarifying changes should be made to the device rules. As discussed in Part C.3.b of this Background section of the preamble, the current regulations relating to device are not specific as to the quality or quantity of assets relevant in the nature and use of assets device factor or the appropriate weighing of the device and nondevice factors. The Treasury Department and the IRS have determined that, in some situations, insufficient weight has been given to the nature and use of assets device factor and that device factors have not been balanced correctly against nondevice factors.

For example, if, after a distribution, Distributing or Controlled holds mostly liquid nonbusiness assets, the shareholders of that corporation can sell their stock at a price that reflects the value of the nonbusiness assets, and such a sale is economically similar to a distribution of the liquid nonbusiness assets to the shareholders that would have been treated as a dividend to the extent of earnings and profits of the corporation. See, e.g., Gregory. If Distributing's ratio of nonbusiness assets to total assets differs substantially from Controlled's ratio, the distribution could facilitate a separation of the nonbusiness assets from the business assets by means of the sale of the stock in the corporation with a large percentage of nonbusiness assets. No corporate-level gain, and possibly little or no shareholder-level gain, would be recognized.

Taxpayers have taken the position that nondevice factors in the regulations can outweigh the substantial evidence of device presented in such distributions. For example, certain taxpayers have viewed even a weak business purpose, combined with the fact that the stock of Distributing is publicly traded, as offsetting evidence of device presented by distributions effecting a separation of nonbusiness assets from business assets, even if pressure from public shareholders was a significant motivation for the distribution. The Treasury Department and the IRS do not agree that these types of nondevice factors should outweigh the substantial evidence of device presented by a distribution that separates nonbusiness assets from business assets.

Accordingly, the Treasury Department and the IRS have determined that the regulations should provide clearer, more objective guidance regarding the nature and use of assets device factor and the appropriate weighing of device factors and nondevice factors. The Treasury Department and the IRS also have determined that if a high enough proportion of assets of Distributing or Controlled consists of nonbusiness assets, and if the assets of the other corporation include a much lower proportion of nonbusiness assets, the evidence of device is so strong that nondevice factors generally should not be allowed to overcome the evidence of device.

The commenter also noted that the importance of device, traditionally understood as reflecting shareholder-level policies, has diminished in the context of a unified rate regime for long-term capital gains and qualified dividend income for some taxpayers. However, because of continuing differences in the federal income tax treatment of capital gains and dividends, including the potential for basis recovery (see § 1.355-2(d)(1)) and the availability of capital gains to absorb capital losses, the device prohibition continues to be important.

The commenter stated that section 355 is meant to apply to genuine separations of businesses, and that section 355(b) should not function as a formality. Nevertheless, the commenter does not believe that the active business requirement needs to be strengthened through the adoption of a requirement of a minimum amount of active business assets.

After studying this issue, the Treasury Department and the IRS have determined that Distributing or Controlled should not satisfy the active business requirement by holding a relatively de minimis active business. As described in the remainder of this Part D.3, the Treasury Department and the IRS have determined that interpreting section 355(b) as having meaning and substance and therefore requiring an active business that is economically significant is consistent with congressional intent, case law, and the reorganization provisions. In addition, given the developments in the tax law described in Part D.3.c of this Background section of the preamble, the Treasury Department and the IRS have determined that allowing a de minimis active business to satisfy the active business requirement is not necessary to reduce the burden of compliance with the active business requirement. Furthermore, requiring a minimum relative size for an active business is not inconsistent with the facts of Rev. Rul. 73-44 or with its conclusion. See Part D.3.d of this Background section of the preamble.

Allowing section 355(b) to be satisfied with an active business that is economically insignificant in relation to other assets of Distributing or Controlled is not consistent with the congressional purpose for adopting the active business requirement. It is generally understood that Congress intended section 355 to be used to separate businesses, not to separate inactive assets from a business. See S. Rep. No. 83-1622, at 50-51 (section 355 “contemplates that a tax-free separation shall involve only the separation of assets attributable to the carrying on of an active business” and does not permit “the tax free separation of an existing corporation into active and inactive entities”); see also Coady v. Commissioner, 33 T.C. 771, 777 (1960), aff'd, 289 F.2d 490 (6th Cir. 1961) (stating that a function of section 355(b) is “to prevent the tax-free separation of active and inactive assets into active and inactive corporate entities”) (emphasis in original); § 1.355-1(b) (“[s]ection 355 provides for the separation . . . of one or more existing businesses”). Additionally, when the active business of Distributing or Controlled is economically insignificant in relation to its other assets, it is unlikely that any non-federal tax purpose for separating that business from other businesses is a significant purpose for the distribution. See § 1.355-2(b)(1) (“Section 355 applies to a transaction only if it is carried out for one or more corporate business purposes. . . . The potential for the avoidance of Federal taxes by the distributing or controlled corporations. . . is relevant in determining the extent to which an existing corporate business purpose motivated the distribution.”).

Further, as the Supreme Court held in Gregory, transactions are to be taxed in accordance with their substance. The reorganization regulations adopt the same principle. For example, § 1.368-1(b) provides that “[b]oth the terms of the specifications [of the reorganization provisions] and their underlying assumptions and purposes must be satisfied in order to entitle the taxpayer to the benefit of the exception from the general rule.” Additionally, § 1.368-1(c) provides that “[a] scheme, which involves an abrupt departure from normal reorganization procedure in connection with a transaction on which the imposition of tax is imminent, such as a mere device that puts on the form of a corporate reorganization as a disguise for concealing its real character, and the object and accomplishment of which is the consummation of a preconceived plan having no business or corporate purpose, is not a plan of reorganization.”

Accordingly, when a corporation that owns only nonbusiness assets and a relatively de minimis active business is separated from a corporation with another active business, the substance of the transaction is not a separation of businesses as contemplated by section 355.

In the past, the active business requirement was more difficult to satisfy than it is today, in part because of the limited application of the holding company rule, discussed in Part C.5 of this Background section of the preamble. However, several developments in the tax law have occurred that make the active business requirement easier to satisfy and negate the historical need to reduce the administrative burden of complying with section 355(b).

In the SAG Amendments, Congress amended section 355(b) to adopt the separate affiliated group rules of section 355(b)(3). Section 355(b)(3)(A) provides that, for purposes of determining whether a corporation meets the requirements of section 355(b)(2)(A), all members of the corporation's separate affiliated group (SAG) are treated as one corporation. Section 355(b)(3)(B) provides that a corporation's SAG is the affiliated group which would be determined under section 1504(a) if the corporation were the common parent and section 1504(b) did not apply.

Additionally, as discussed in Part C.5 of this Background section of the preamble, section 355(b) now can be satisfied through the ownership of certain interests in a partnership that is engaged in an active business. See Rev. Rul. 2007-42 and Rev. Rul. 92-17. Similarly, § 301.7701-3 now allows an eligible entity to elect to be disregarded as an entity separate from its owner and permits a corporation to satisfy the active business requirement through a tax-free acquisition without having to assume liabilities relating to an active business. Finally, the expansion rules of § 1.355-3(b)(3)(ii) have been developed so that it is easier to acquire the assets of an active business in a taxable transaction while complying with section 355(b). See, e.g., Rev. Rul. 2003-18 (2003-1 CB 467) and Rev. Rul. 2003-38 (2003-1 CB 811) (both describing facts and circumstances to be considered in determining whether one trade or business is in the same line of business as another).

Rev. Rul. 73-44 is sometimes cited in support of the proposition that a de minimis active business satisfies the section 355(b) requirement. However, Rev. Rul. 73-44 states only that there is no requirement in section 355(b) that a specific percentage of a corporation's assets be devoted to the active conduct of a trade or business, not that any size active business can satisfy section 355(b). In fact, the size of the active business in that ruling represented a substantial portion of Controlled's assets, although less than half of Controlled's value. Accordingly, Rev. Rul. 73-44 does not validate a section 355 distribution involving a de minimis active business, and the proposed regulations in this notice of proposed rulemaking addressing the minimum relative size of active businesses would not change the conclusion set forth in that revenue ruling. Nevertheless, the Treasury Department and the IRS intend to modify Rev. Rul. 73-44 with regard to the statement in the revenue ruling that there is no requirement that a specific percentage of a corporation's assets be devoted to the active conduct of a trade or business.

The Treasury Department and the IRS have observed, as noted in Notice 2015-59, that taxpayers may attempt to use section 355 distributions in ways that are inconsistent with the purpose of General Utilities repeal. Specifically, the Treasury Department and the IRS are concerned that certain taxpayers may be interpreting the current regulations under sections 337(d) and 355 in a manner allowing tax-free distributions motivated in whole or substantial part by a purpose of avoiding corporate-level taxation of built-in gain in investment or nonbusiness assets. See § 1.355-1(b) (“Section 355 provides for the separation . . . of one or more existing businesses formerly operated, directly or indirectly, by a single corporation . . . .”). The Treasury Department and the IRS continue to study whether permitting tax-free separations of large amounts of nonbusiness assets from business assets, especially when the gain in the nonbusiness assets is expected to be eliminated, is consistent with General Utilities repeal in all circumstances. Comments are welcome on potential additional guidance under section 337(d) addressing such transactions.

The proposed regulations would modify § 1.355-2(d), which addresses transactions that are or are not a device. The proposed regulations would modify the nature and use of assets device factor in § 1.355-2(d)(2)(iv), modify the corporate business purpose nondevice factor in § 1.355-2(d)(3)(ii), and add a per se device test.

The Treasury Department and the IRS have determined that device potential generally exists either if Distributing or Controlled owns a large percentage of assets not used in business operations compared to total assets or if Distributing's and Controlled's percentages of these assets differs substantially. A proposed change to the nature and use of assets device factor in § 1.355-2(d)(2)(iv) would focus on assets used in a Business (Business Assets) (each as defined in proposed § 1.355-2(d)(2)(iv)(B)) rather than assets used in an active business meeting the requirements of section 355(b) (a Five-Year-Active Business, as defined in proposed § 1.355-9(a)(2)). In general, Business would have the same meaning as a Five-Year-Active Business, but without regard to whether the business has been operated or owned for at least five years prior to the date of the distribution or whether the collection of income requirement in § 1.355-3(b)(2)(ii) is satisfied. Business Assets would be gross assets used in a Business, including reasonable amounts of cash and cash equivalents held for working capital and assets required to be held to provide for exigencies related to a Business or for regulatory purposes with respect to a Business. The Treasury Department and the IRS have determined that the presence of Business Assets generally does not raise any more device concerns than the presence of assets used in a Five-Year-Active Business (Five-Year-Active-Business Assets). Thus, the proposed regulations would modify § 1.355-2(d)(2)(iv)(B) to take into account Business Assets, not just Five-Year-Active-Business Assets.

Rev. Proc. 2015-43 (now incorporated into Rev. Proc. 2016-3 (2016-1 IRB 126)) and Notice 2015-59 focus on investment assets (using a modified section 355(g) definition) of a corporation as assets that may raise device concerns. However, after further study, the Treasury Department and the IRS have determined that investment assets as defined therein may include certain assets that do not raise device concerns, such as cash needed by a corporation for working capital, and may not include other assets that do raise device concerns, such as real estate not related to the taxpayer's Business. The Treasury Department and the IRS have determined that focusing on Nonbusiness Assets, as defined in the proposed regulations, is a better method of evaluating device or nondevice as compared to using investment assets as described in Rev. Proc. 2016-3 and Notice 2015-59. Thus, the proposed regulations would focus on Nonbusiness Assets rather than investment assets.

The proposed regulations would provide thresholds for determining whether the ownership of Nonbusiness Assets (gross assets that are not Business Assets) and/or differences in the Nonbusiness Asset Percentages (the percentage of a corporation's Total Assets (its Business Assets and Nonbusiness Assets) that are Nonbusiness Assets) for Distributing and Controlled are evidence of device. If neither Distributing nor Controlled has Nonbusiness Assets that comprise 20 percent or more of its Total Assets, the ownership of Nonbusiness Assets ordinarily would not be evidence of device. Additionally, a difference in the Nonbusiness Asset Percentages for Distributing and Controlled ordinarily would not be evidence of device if such difference is less than 10 percentage points or, in the case of a non-pro rata distribution, if the difference is attributable to a need to equalize the value of the Controlled stock and securities distributed and the consideration exchanged therefor by the distributees. Accordingly, the Treasury Department and the IRS propose to treat such circumstances as ordinarily not constituting evidence of device.

The Treasury Department and the IRS also propose to revise the nondevice factor in § 1.355-2(d)(3)(ii), which relates to corporate business purpose for a transaction as evidence of nondevice. Under the proposed revision, a corporate business purpose that relates to a separation of Nonbusiness Assets from one or more Businesses or from Business Assets would not be evidence of nondevice, unless the business purpose involves an exigency that requires an investment or other use of the Nonbusiness Assets in a Business. The Treasury Department and the IRS have determined that, absent such an exigency, such separations are not consistent with the intent of Congress to prevent section 355 from applying to a distribution that is used principally as a device.

The Treasury Department and the IRS also propose to add a per se device test to the device determination in proposed § 1.355-2(d)(5). Under proposed § 1.355-2(d)(5), if designated percentages of Distributing's and/or Controlled's Total Assets are Nonbusiness Assets, the transaction would be considered a device, notwithstanding the presence of any other nondevice factors, for example, a corporate business purpose or stock being publicly traded and widely held. By their nature, these transactions present such clear evidence of device that the Treasury Department and the IRS have determined that the nondevice factors can never overcome the device potential. The only exceptions to this per se device rule would apply if the distribution is also described in § 1.355-2(d)(3)(iv) (distributions in which the corporate distributee would be entitled to a dividends received deduction under section 243(a) or 245(b)) or in redesignated § 1.355-2(d)(6) (§ 1.355-2(d)(5) of the current regulations, relating to transactions ordinarily not considered as a device).

The per se device test would have two prongs, both of which must be met for the distribution to be treated as a per se device.

The first prong would be if Distributing or Controlled has a Nonbusiness Asset Percentage of 662/3 percent or more. If 662/3 percent or more of the Total Assets of either corporation consist of Nonbusiness Assets, a strong device potential exists.

The second prong of the test would compare the Nonbusiness Asset Percentage of Distributing with that of Controlled. The comparison would be similar to the comparison, in § 1.355-2(d)(2)(iv)(B) of the current regulations, between Distributing's ratio of assets not used in a Five-Year-Active Business to assets used in a Five-Year-Active Business and Controlled's ratio of such assets. However, the Treasury Department and the IRS recognize that valuation of assets may be difficult and that determining whether certain assets are Business Assets also may be difficult. Accordingly, rather than requiring Distributing and Controlled to make exact determinations of their Nonbusiness Asset Percentages, which would then be compared to the other corporation's Nonbusiness Asset Percentage, the second prong of the per se device test would provide for three bands in making this comparison. These bands generally would provide for the comparison of the Nonbusiness Asset Percentages of Distributing and Controlled but require less precision in asset valuation.

In the first band, if one corporation's Nonbusiness Asset Percentage is 662/3 percent or more, but less than 80 percent, the distribution would fall within the band if the other corporation's Nonbusiness Asset Percentage is less than 30 percent. In the second band, if one corporation's Nonbusiness Asset Percentage is 80 percent or more, but less than 90 percent, the distribution would fall within the band if the other corporation's Nonbusiness Asset Percentage is less than 40 percent. In the third band, if one corporation's Nonbusiness Asset Percentage is 90 percent or more, the distribution would fall within the band if the other corporation's Nonbusiness Asset Percentage is less than 50 percent. All of these bands represent cases in which the Nonbusiness Asset Percentages of Distributing and Controlled are significantly different.

If both prongs of the per se device test are met, that is, if the Nonbusiness Asset Percentage for either Distributing or Controlled is 662/3 percent or more and the Nonbusiness Asset Percentages of Distributing and Controlled fall within one of the three bands, the distribution would be a per se device. Otherwise, the general facts-and-circumstances test of § 1.355-2(d), as modified by these proposed regulations, would apply to determine if the transaction was a device.

In making the determination of which assets of a corporation are Business Assets and which are Nonbusiness Assets, if Distributing or Controlled owns a partnership interest or stock in another corporation, the proposed regulations would provide four operating rules.

First, all members of a SAG with respect to which Controlled is the common parent (CSAG) and all members of a SAG with respect to which Distributing is the common parent excluding Controlled and its SAG (DSAG) would be treated as a single corporation. Thus, any stock owned by one member of a SAG in another member of the same SAG and any intercompany obligations between the same SAG members would be disregarded.

Second, a partnership interest would generally be considered a Nonbusiness Asset. However, if, by reason of a corporation's ownership interest or its ownership interest and participation in management of the partnership, the corporation is considered to be engaged in the Business conducted by such partnership (based on the criteria that would be used to determine whether such corporation is considered to be engaged in the Five-Year-Active Business of such partnership under Rev. Ruls. 92-17, 2002-49, and 2007-42), the fair market value of the partnership interest would be allocated between Business Assets and Nonbusiness Assets in the same proportion as the proportion of the fair market values of the Business Assets and the Nonbusiness Assets of the partnership.

Third, a rule similar to the partnership interest rule would apply for corporate stock owned by Distributing or Controlled. That is, stock in a corporation, other than a member of the DSAG or the CSAG, would generally be a Nonbusiness Asset. However, there would be an exception for stock in a Member of a 50-Percent-Owned Group. For this purpose, a 50-Percent-Owned Group would have the same meaning as SAG, except substituting “50-percent” for “80-percent,” and a Member of a 50-Percent-Owned Group would be a corporation that would be a member of a DSAG or CSAG, with such substitution. If a Member of a 50-Percent-Owned Group with respect to Distributing or Controlled owns stock in another Member of such 50-Percent-Owned Group (other than a member of the DSAG or the CSAG, respectively), the fair market value of such stock would be allocated between Business Assets and Nonbusiness Assets in the same proportion as the proportion of the fair market values of the Business Assets and the Nonbusiness Assets of the issuing corporation.

Fourth, the proposed regulations would provide for adjustments to prevent distortion if Distributing or Controlled owes money to or is owed money by a partnership or Member of a 50-Percent-Owned Group.

The partnership rules and the 50-Percent-Owned Group rules are designed to recognize that ownership of a partnership interest or stock in a Member of a 50-Percent-Owned Group may reflect an investment in Business Assets, Nonbusiness Assets, or both, while minimizing the significance of changes in the form of ownership of Business Assets and Nonbusiness Assets.

If a transaction involves distributions by Distributing of the stock of more than one Controlled, proposed §§ 1.355-2(d)(2)(iv) and 1.355-2(d)(5) would apply to all such Controlleds. To the extent any rule would require a comparison between characteristics of Distributing and Controlled, there would have to be a comparison between Distributing and each Controlled and between each Controlled and each other Controlled. If any comparison under proposed § 1.355-2(d)(2)(iv) or § 1.355-2(d)(5) would result in a determination that a distribution is a device, then all distributions involved in the transaction would be considered a device.

Section 355(b) does not literally provide a minimum absolute or relative size requirement for an active business to qualify under section 355(b). Nevertheless, as discussed in Part D.3 of the Background section of the preamble, the Treasury Department and the IRS have determined that Congress intended that section 355(b) would require that distributions have substance and that a distribution involving only a relatively de minimis active business should not qualify under section 355 because such a distribution is not a separation of businesses as contemplated by section 355.

To ensure that congressional intent is satisfied and to reduce uncertainty, the Treasury Department and the IRS propose to add new § 1.355-9. This section would provide that, for the requirements of section 355(a)(1)(C) and (b) to be satisfied with respect to a distribution, the Five-Year-Active-Business Asset Percentage (the percentage determined by dividing the fair market value of a corporation's Five-Year-Active-Business Assets by the fair market value of its Total Assets) of each of Controlled (or the CSAG) and Distributing (or the DSAG excluding Controlled and other CSAG members) must be at least five percent. Similar to the proposed definition of Business Assets, Five-Year-Active-Business Assets would include reasonable amounts of cash and cash equivalents held for working capital and assets required to be held to provide for exigencies related to a Five-Year-Active Business or for regulatory purposes with respect to a Five-Year-Active Business.

In making the determination of the percentage of a corporation's assets that are Five-Year-Active-Business Assets, if a corporation is considered to be engaged in a Five-Year-Active Business of a partnership, the fair market value of the partnership interest would be allocated between Five-Year-Active-Business Assets and Non-Five-Year-Active-Business Assets (assets other than Five-Year-Active-Business Assets) in the same proportion as the proportion of the fair market values of Five-Year-Active-Business Assets and Non-Five-Year-Active-Business Assets of the partnership.

Except in the case of a member of its SAG, neither Distributing nor Controlled would be considered to be engaged in the Five-Year-Active Business of a corporation in which it owns stock. Accordingly, such stock in a corporation would be considered a Non-Five-Year-Active-Business Asset. Although the proposed regulations relating to the device prohibition would provide an allocation rule for assets held by a Member of a 50-Percent-Owned Group, discussed in Part A.4 of this Explanation of Provisions section of the preamble, the Treasury Department and the IRS believe the SAG Amendments, discussed in Parts C.5 and D.3.c of the Background section of the preamble, limit the ability to take into account assets held by subsidiaries for purposes of the active business requirement. Accordingly, proposed § 1.355-9 would not provide a similar allocation rule for stock owned by Distributing or Controlled.

The commenter stated that the regulations should not provide a minimum size requirement for an active business in any distribution and that such a requirement could be especially problematic in intra-group distributions in preparation for a distribution outside of a group. Internal distributions often are necessary to align the proper assets within Distributing and Controlled prior to a distribution of the stock of Controlled outside the group. If a minimum size requirement is imposed on each of these internal distributions, taxpayers may have to undertake movements of active businesses within groups to meet the minimum size requirement for each internal distribution.

In enacting the SAG Amendments, Congress did not provide an exception to the requirements of section 355(b) for internal distributions that are preparatory to external distributions, although Congress permitted Distributing and Controlled to rely on active businesses held by members of their respective SAGs, even if such assets were distributed or sold within the SAG in a taxable transaction. Under the commenter's rationale, the regulations should not only permit an internal distribution with a de minimis active business, but could also permit tax-free treatment for taxable distributions or sales of assets within the SAG if such assets need to be moved in preparation of the external distribution. The Treasury Department and the IRS have determined that each distribution must meet all the requirements of section 355, including the requirement that Distributing and each Controlled conduct an active business immediately after the distribution. Accordingly, the proposed regulations would provide a five-percent minimum Five-Year-Active-Business Asset Percentage requirement for all distributions.

For purposes of determining whether a transaction would be considered a device and whether one or more Five-Year-Active Businesses would meet the five-percent minimum Five-Year-Active-Business Asset Percentage requirement of proposed § 1.355-9, the assets held by Distributing and by Controlled must be identified, and their character and fair market value must be determined. The assets under consideration would be the assets held by Distributing and by Controlled immediately after the distribution. Thus, for example, the stock of Controlled that is distributed would not be an asset of Distributing for this purpose. The character of the assets held by Distributing and by Controlled, as Business Assets or Nonbusiness Assets or as Five-Year-Active-Business Assets or Non-Five-Year-Active-Business Assets, also would be the character as determined immediately after the distribution.

The proposed regulations would provide, however, that the fair market value of assets would be determined, at the election of the parties on a consistent basis, either (a) immediately before the distribution, (b) on any date within the 60-day period before the distribution, (c) on the date of an agreement with respect to the distribution that was binding on Distributing on such date and at all times thereafter, or (d) on the date of a public announcement or filing with the Securities and Exchange Commission with respect to the distribution. The parties would be required to make consistent determinations between themselves, and use the same date, for purposes of applying the device rules of proposed § 1.355-2(d) and the five-percent minimum Five-Year-Active-Business Asset Percentage requirement of proposed § 1.355-9. If the parties do not meet these consistency requirements, the valuation would be determined as of immediately before the distribution unless the Commissioner determines that the use of such date is inconsistent with the purposes of section 355 and the regulations thereunder.

The proposed regulations would also provide anti-abuse rules. Under the anti-abuse rules, a transaction or series of transactions (such as a change in the form of ownership of an asset; an issuance, assumption or repayment of indebtedness; or an issuance or redemption of stock) would not be given effect if undertaken with a principal purpose of affecting the Nonbusiness Asset Percentage of any corporation in order to avoid a determination that a distribution was a device or affecting the Five-Year-Active-Business Asset Percentage of any corporation in order to avoid a determination that a distribution does not meet the requirements of § 1.355-9. The transactions covered by the anti-abuse rules generally would not include an acquisition or disposition of assets, other than an acquisition from or disposition to a person the ownership of whose stock would, under section 318(a) (other than paragraph (4) thereof), be attributed to Distributing or Controlled, or a transfer of assets between Distributing and Controlled. However, such transactions would not be given effect if they are transitory, for example, if Distributing contributes cash to Controlled and retains some of the stock of Controlled or Controlled debt instruments, and there is a plan or intention for Controlled to return the cash to Distributing in redemption of the stock or repayment of the debt.

IRS revenue procedures, revenue rulings, notices, and other guidance cited in this document are published in the Internal Revenue Bulletin (or Cumulative Bulletin) and are available from the Superintendent of Documents, U.S. Government Printing Office, Washington, DC 20402, or by visiting the IRS Web site at http://www.irs.gov.

Section 3 of Notice 2015-59 is obsolete as of July 15, 2016. The IRS will modify Rev. Rul. 73-44, as of the date the Treasury decision adopting these regulations as final regulations is published in the Federal Register, as necessary to conform to § 1.355-9 of these proposed regulations. The IRS solicits comments as to whether other publications should be modified, clarified, or obsoleted.

Certain IRS regulations, including this one, are exempt from the requirements of Executive Order 12866, as supplemented and reaffirmed by Executive Order 13563. Therefore, a regulatory impact assessment is not required. It has also been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to these proposed regulations. Pursuant to the Regulatory Flexibility Act (5 U.S.C. chapter 6), it is hereby certified that this regulation will not have a significant economic impact on a substantial number of small entities. This certification is based on the fact that these regulations primarily affect larger corporations operating more than one business and with a substantial number of shareholders. Thus, these regulations are not expected to affect a substantial number of small entities. Accordingly, a regulatory flexibility analysis is not required. Pursuant to section 7805(f) of the Code, these regulations will be submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on their impact on small business.

Before these proposed regulations are adopted as final regulations, consideration will be given to any written or electronic comments that are submitted timely to the IRS as prescribed in this preamble under the ADDRESSES heading. The Treasury Department and the IRS request comments on all aspects of the proposed regulations, including—

1. Whether there should be any exceptions to the application of proposed § 1.355-9.

2. Whether additional exceptions should be incorporated into the per se device rule in proposed § 1.355-2(d)(5).

3. The scope of the safe harbors relating to presence of Nonbusiness Assets as evidence of device under proposed § 1.355-2(d)(2)(iv)(C)(1) and (2) and whether additional safe harbors should be added to proposed § 1.355-2(d).

4. Whether the definition of Business Assets in proposed § 1.355-2(d)(2)(iv)(B)(2) should be revised, for example, to include additional categories of assets or to include cash or cash equivalents expected to be used for other categories of expenditures.

5. Whether the operating rules applicable to proposed § 1.355-2(d)(2)(iv)(D)(6) through (8) concerning the allocation of the value of a partnership interest between Business Assets and Nonbusiness Assets to its partners, the allocation of the value of the stock of a Member of a 50-Percent-Owned Group between Business Assets and Nonbusiness Assets to its shareholders, and certain borrowings should be modified, including whether the partnership rule should allocate an allocable share of the partnership's gross assets to its partners, whether different allocation rules should be used for partnership interests with different characteristics(for example, limited liability vs. non-limited liability), and whether the rules relating to borrowing between a partnership and a partner or between a Member of a 50-Percent-Owned Group and a shareholder should be made more specific.

6. Whether the anti-abuse rules in the proposed regulations pertaining to device and the five-percent minimum Five-Year-Active-Business Assets requirement should be revised, for example, to include or exclude additional transactions or to include a reference to acquisitions of assets by Distributing or Controlled on behalf of shareholders.

7. Whether the absence of any device factor, for example, a small difference in Nonbusiness Asset Percentages for Distributing and Controlled, should be considered a nondevice factor.

All comments will be available at www.regulations.gov or upon request.

A public hearing will be scheduled if requested in writing by any person that timely submits written or electronic comments. If a public hearing is scheduled, notice of the date, time, and place for the public hearing will be published in the Federal Register.

The principal authors of these proposed regulations are Stephanie D. Floyd and Russell P. Subin of the Office of Associate Chief Counsel (Corporate). Other personnel from the Treasury Department and the IRS participated in their development.

Accordingly, 26 CFR part 1 is proposed to be amended as follows:

The revisions and additions read as follows:

The revisions and additions read as follows:

I. Posting of Public Comments

Please note that all comments received are considered part of the public record and made available for public inspection online at http://www.regulations.gov. Information made available for public inspection includes personal identifying information (such as your name, address, etc.) voluntarily submitted by the commenter.

The Office of Justice Programs (OJP) does not require commenters to submit personal identifying information (such as your name, address, medical information, etc.) as part of your comment. However, if you wish to submit such information, but do not wish it to be posted online, you must include the phrase “PERSONAL IDENTIFYING INFORMATION” in the first paragraph of your comment. You must also locate all the personal identifying information that you do not want posted online in the first paragraph of your comment and identify what information you want the agency to redact. Personal identifying information identified and located as set forth above will be placed in the agency's public docket file, but not posted online.

If you wish to submit confidential business information as part of your comment but do not wish it to be posted online, you must include the phrase “CONFIDENTIAL BUSINESS INFORMATION” in the first paragraph of your comment. You must also prominently identify confidential business information to be redacted within the comment. If a comment has so much confidential business information that it cannot be effectively redacted, the agency may choose not to post that comment (or to only partially post that comment) on http://www.regulations.gov. Confidential business information identified and located as set forth above will not be placed in the public docket file, nor will it be posted online.

If you wish to inspect the agency's public docket file in person by appointment, please see the FOR FURTHER INFORMATION CONTACT paragraph.

The Public Safety Officers' Benefits (PSOB) Program, 42 U.S.C. 3796 et seq. (established pursuant to the Public Safety Officers' Benefits Act of 1976), is administered by the Bureau of Justice Assistance (BJA) of the Office of Justice Programs (OJP), U.S. Department of Justice. Generally speaking, the PSOB Program provides a one-time financial payment to the statutorily-eligible survivors of public safety officers who die as the direct and proximate result of personal injuries sustained in the line of duty, as well as educational assistance for their spouses and eligible children.

Alternatively, the PSOB Program also provides a one-time financial payment directly to public safety officers determined to be permanently and totally disabled as the direct and proximate result of personal injury sustained in the line of duty, as well as educational assistance for their spouses and eligible children.

42 U.S.C. 3796(a) authorizes the payment, to statutory survivors, of a benefit of $250,000, currently adjusted for inflation at $339,881, when the administering agency determines, under its regulations “that a public safety officer has died as the direct and proximate result of a personal injury sustained in the line of duty.” Similarly, 42 U.S.C. 3796(b) authorizes the agency to pay the same inflation-adjusted benefit, when it determines, under its regulations, that a public safety officer has “become permanently and totally disabled as the direct and proximate result of a personal injury sustained in the line of duty.” The agency has exercised its regulatory authority in regulations published in 28 CFR part 32 defining, among other things, “injury,” “line of duty injury,” and “direct and proximate result of an injury.” Those regulations specify the criteria that must be met in the ordinary course for a claimant to establish that a public safety officer sustained a line-of-duty injury and that the injury caused the officer's death or permanent and total disability.

Under the definition of injury in 28 CFR 32.3, a claimant must establish that a public safety officer sustained a “traumatic physical wound (or a traumatized physical condition of the body) directly and proximately caused by external force.” Under definitions related to causation in 28 CFR 32.3 (defining direct and proximate result of an injury and substantial factor), a claimant must also establish that the injury was the “substantial factor” in the officer's death or disability. “A factor substantially brings about a death, injury, [or] disability” if it was sufficient in and of itself to cause the death, injury, or disability, or no other factor (or combination of factors) “contributed to the death, injury, [or] disability . . . to so great a degree as it did.” 28 CFR 32.3 (defining substantial factor). Taken together, these regulations require that a claimant seeking benefits establish an injury, i.e., a traumatic physical wound or traumatized physical condition of the body directly and proximately caused by an external force or other agent, e.g., chemicals, as well as a death or disability, and a direct and proximate causal nexus between the injury and the death or disability.

In PSOB claims involving acute injuries caused by readily identifiable external forces such as a gunshot, motor vehicle accident, or other trauma with death occurring simultaneously or closely following injury, a claimant's burden in establishing the injury and causal link between injury and death may be straightforward and readily demonstrated. In such cases, a death certificate or an autopsy is generally sufficient to establish a traumatic wound or traumatized condition, the external force that caused the wound or condition, the officer's death, and a direct and proximate causal link between the injury and death.

In PSOB claims asserting injury or death resulting from exposure to unspecified toxins or hazards associated with line-of-duty activity, however, an autopsy may not sufficiently identify the mechanism of the injury, or adequately establish the direct and proximate causal link between the injury and the death (or permanent and total disability) necessary to support the approval of a claim under the PSOB Act. In such claims, more detailed medical evaluation may be required, and substantial medical evidence may need to be gathered and produced before PSOB determining officials may make the necessary findings to find the PSOB Act standards are met. For example, an autopsy usually is not sufficient evidence when the claims are based on the chronic, often latent, illnesses and conditions of 9/11 first responders; e.g., respiratory disorders and certain cancers. Similar burdens in gathering, producing, and evaluating medical evidence exist for 9/11 first responders claiming to be permanently and totally disabled as a result of exposure to unidentified toxins or hazards encountered in responding to the September 11, 2001, terrorist attacks.

Pursuant to the James Zadroga 9/11 Health and Compensation Act of 2010 (Pub. L. 111-347), as amended, the World Trade Center (WTC) Health Program, which is administered by the Director of the National Institute for Occupational Safety and Health (NIOSH), within the Centers for Disease Control and Prevention (a component of the U.S. Department of Health and Human Services), provides medical monitoring and treatment for WTC Health Program members with certain health conditions that are certified as related to the unique circumstances of the 9/11 explosions, ensuing conflagrations, and clean-up (9/11 disaster).1 In so doing, the Administrator of the WTC Health Program has an advisory committee including medical and scientific experts appointed to review and consider the latest research on connections that may exist between various medical conditions and exposure to the 9/11 disaster. The Administrator of the WTC Health Program may seek guidance and recommendations from these medical and scientific experts, in determining whether to propose adding conditions to the List of WTC-Related Health Conditions through rulemaking.

The List of WTC-Related Health Conditions is a list of illnesses or health conditions that, pursuant to an examination by a medical professional with expertise in treating or diagnosing the listed conditions, may be found to be related to a WTC Health Program member's exposure to airborne toxins, any other hazards, or any other adverse conditions resulting from the September 11, 2001, terrorist attacks. That a WTC Health Program member has a health condition or illness on the List of WTC-Related Health Conditions does not, by itself, establish that such health condition or illness was related to the 9/11 disaster and, therefore, is eligible for treatment in the WTC Health Program. Rather, the WTC Health Program also makes a specific decision as to whether a particular WTC Health Program member's exposure to the toxins, hazards, or other adverse conditions associated with the 9/11 disaster was “substantially likely to be a significant factor in aggravating, contributing to, or causing the illness or health condition.” 42 U.S.C. 300mm-22(a)(1)(A)(1). By law, such decision is based on an assessment of: (1) The individual's exposure to airborne toxins, any other hazard, or any other condition resulting from the terrorist attacks; and (2) the type of symptoms and temporal sequence of symptoms. 42 U.S.C. 300mm-22(a)(2). Together, the List of WTC-Related Health Conditions and individual assessment as to exposure and symptomatology comprise the general and specific findings that the WTC Health Program makes in establishing that a WTC Health Program member's particular illness or health condition is related to the 9/11 disaster.

To establish eligibility for death benefits under the PSOB Act, claimants must establish that a public safety officer suffered a personal injury in the line of duty that directly and proximately caused the officer's death. This statutory requirement excluded from coverage those conditions caused by stress and strain and occupational disease, such as practically speaking, most heart attacks and strokes.

The Hometown Heroes Survivors' Benefits Act of 2003 (Pub. L. 108-182) (Hometown Heroes Act) amended the PSOB Act by creating a statutory presumption in 42 U.S.C. 3796(k) of death by a line-of-duty injury, which may be rebutted by “competent medical evidence to the contrary,” in cases where a public safety officer dies of heart attack or stroke while engaging in, (or within 24 hours of engaging in) “nonroutine stressful or strenuous physical [line-of-duty] activity.” Implementation of the rebuttal language has proved challenging for OJP. In fact, the House Judiciary Committee in 2012 noted that “[one] particular term introduced into the PSOBA in 2003, `competent medical evidence to the contrary,' has not proven workable as introduced.” 2

In 2006 and 2008, OJP published final rules implementing the Hometown Heroes Act. The 2008 rule provided that the presumption attaches “unless it . . . is overcome by competent medical evidence to the contrary, when evidence indicates to a degree of medical probability that extrinsic circumstances, considered in combination (as one circumstance) or alone, were a substantial factor in bringing the heart attack or stroke about.” 3 The rule defined extrinsic circumstances as “[a]n event or events; or . . . [a]n intentional risky behavior or intentional risky behaviors.” Thus, under regulations implementing the previous presumption, the presumption was rebutted when competent medical evidence of record established that an event(s) or intentional risky behavior(s) 4 (as defined in the regulations) were the substantial factor in an officer's fatal heart attack or stroke.

OJP's experience is that consideration of cardiovascular disease risk factors and the concept of “risky behavior” have largely proven unworkable. In practice, medical examiners, even with a complete medical record, are rarely able to determine with medical precision whether an inadequately treated cardiovascular disease risk factor(s) was the substantial factor in the officer's fatal condition. As a result, the PSOB Program has expended significant time and resources on inconclusive results, i.e., claims in which a recognized cardiovascular disease risk factor is found to have somehow contributed to the officer's fatal condition but not to the degree that it rebutted the presumption. OJP's conclusion that the current interpretation is unworkable is further reflected in the low numbers of claims it has denied based on “risky behaviors.” Despite routinely seeking from claimants additional medical evidence and engaging in time-consuming independent medical review of such evidence, from Fiscal Year 2011 to date, BJA denied at the PSOB Office level less than 1% of all Hometown Heroes claims determined on the basis that an officer's “risky behaviors” were a substantial factor in bringing about the heart attack, stroke, or vascular rupture.

In January 2013, the Dale Long Public Safety Officers' Benefits Improvement Act of 2012 (Section 1086 of Pub. L. 112-239) (Dale Long Act) amended the rebuttal language in section 3796(k). As amended, the presumption is rebutted when “competent medical evidence establishes that the [public safety officer's] heart attack, stroke, or vascular rupture was unrelated to the [officer's] engagement or participation or was directly and proximately caused by something other than the mere presence of cardiovascular-disease risk factors.” As the amendment repealed the statutory language upon which OJP regulations implementing the presumption are based, e.g., Competent medical evidence to the contrary, such regulations are now obsolete.

Because of the medical and scientific evaluation that informs the List of WTC-Related Health Conditions (List), BJA proposes to use the List as a means for streamlining its own claim-specific evaluation, where a claim for PSOB Program benefits is based on a medical condition (not otherwise excluded from coverage under the PSOB Program) included in the List. Similarly, BJA also proposes, consistent with the law, regulations, policies, and procedures governing the WTC Health Program's certification of an individual's injuries as covered for treatment under the Program, and in conjunction with the List, to assess the individual public safety officer's exposure to toxins, hazards, and other adverse conditions resulting from the terrorist attacks as well as the type of symptoms and temporal sequence of symptoms. Under the proposed rule, BJA will independently use the WTC Health Program's “standards” for certification, which includes the Program's regulations, policies, and procedures, to establish an injury under the PSOB Act.

The proposed rule would establish a means by which claimants could establish that a public safety officer who suffered physical injury as a result of line-of-duty activity at a 9/11 crash site sustained an injury under the PSOB Act. More specifically, the rule would adopt the WTC Health Program standards for establishing injury or illness for public safety officers who responded to the9/11 disaster based on the medical and scientific evidence underlying those standards and to promote consistency in the process for determining claims resulting from exposure to a 9/11 crash site. Under the proposed rule, evidence demonstrating that a public safety officer (1) performed line-of-duty activity at a 9/11 crash site, (2) was diagnosed with a physical illness or condition on the List of WTC-Related Health Conditions as defined in 42 CFR part 88, (3) whose physical injury was directly and proximately caused by an illness or condition on the List, and (4) whose exposure to the hazards, toxins, and adverse conditions of the 9/11 disaster are found by the PSOB determining official to be substantially likely to have been a significant factor in aggravating, contributing to, or causing the responder's health condition, would establish an injury for purposes of the PSOB Act. Consistent with the VCF, which payments are treated by law as duplicative of PSOB Program payments and required to be offset, 42 U.S.C. 3796(f)(3), a claimant's injury would be limited to “physical harm” as defined 28 CFR 104.2(c).

BJA proposes to adopt the List of WTC-Related Health Conditions (other than mental health conditions) because these are illnesses or health conditions for which exposure to airborne toxins, any other hazard, or any other adverse condition resulting from the September 11, 2001, terrorist attacks, have been found by another federal program to potentially be related to 9/11 exposures. Because the PSOB Program already excludes mental health conditions from its coverage, the proposed rule would not extend its application to any mental health conditions on the List.

In addition, the adoption of the List and the WTC Health Program standards for assessing injury is warranted based on the unique circumstances associated with the response to the 9/11 disaster, the chronic, often latent, nature of health conditions linked to the response, and the rigorous evidentiary burden faced by PSOB claimants in establishing an injury under current regulations implementing the PSOB Act. PSOB claimants would still be required to satisfy the statutory requirement that such injury have been the direct and proximate cause of the public safety officer's death or permanent and total disability.

The proposed rule would cover those circumstances in which a claimant lacked a WTC Health Program certification or its equivalent, e.g., a determination by the Victim Compensation Fund that an individual's injury was eligible for compensation, that a public safety officer's 9/11 exposure is substantially likely to have been a significant factor in aggravating, contributing to, or causing a particular health condition. The proposed rule would also codify OJP's interpretation that its current regulations providing that a PSOB determining official may consider the factual findings of a public agency, 28 CFR 32.5(b), enable the PSOB Program to accept as evidence of a line-of-duty injury a “certification” by the WTC Program Administrator, as defined in 42 CFR 88.1, or its equivalent, that a particular public safety officer's exposure to airborne toxins, any other hazards, or any other adverse conditions resulting from the September 11, 2001, terrorist attacks is substantially likely to be a significant factor in aggravating, contributing to, or causing the condition.

This regulatory approach would promote the efficient resolution of issues related to injury (and in some cases, causation) without the need for the PSOB Program to conduct an individual review and investigation of the available medical literature in every claim associated with a 9/11 injury. It would promote consistency in federal decision making by allowing the complex medical decisions of another federal program (the WTC Health Program) to streamline the PSOB Program's own evaluation of the same medical issues. It also would lessen the burden on claimants who otherwise may face significant challenges in obtaining and producing significant medical documentation necessary to establish an injury.

Under the proposed rule, the PSOB Program would rely upon and apply the List and WTC Health Program standards to its independent determination of injury only where the claimant otherwise has established all of the applicable elements normally required for a PSOB claim; e.g., proof of status as a public safety officer and line-of-duty activity.

To maintain consistency with the September 11th Victim Compensation Fund of 2001 (VCF), as amended,5 the proposed rule would incorporate certain relevant definitions found in the James Zadroga 9/11 Health and Compensation Act of 2010, Public Law 111-347, as amended, and definitions found in implementing regulations: “Physical harm, and “WTC-related health condition.” In particular, OJP proposes to adopt the physical harm provision, which requires that the physical condition upon which the claim of injury is based was treated by a medical professional and may be verified by medical records that were created by or at the direction of the medical care provider, for purposes of maintaining the integrity of the PSOB Program.

The 2013 amendment to the PSOB Act established, in the PSOB Act itself, a limitation on payments by declaring that benefit payments made under the PSOB Act are in addition generally to any other benefit except payments under the VCF. 42 U.S.C. 3796(f)(3). Therefore, OJP proposes to add a new provision in 28 CFR 32.6, describing how and when the PSOB Program would pay benefits under the PSOB Act to persons who have received payments from the VCF.

Under the proposed rule, no death or disability benefits under the PSOB program would be payable when the VCF has made payments to or with respect to a public safety officer that are equal to or exceed the amount of such benefits payable under the PSOB Act. To account for circumstances when a PSOB claimant has a pending claim for VCF benefits, or the VCF has made payment to a PSOB claimant that is less than the amount payable under the PSOB Act, the proposed rule would clarify that nothing in the PSOB Act or the rule itself precludes payment of PSOB benefits before the VCF makes payment of compensation. In so doing, the PSOB Program could pay benefits to VCF claimants without waiting for the VCF to issue its payments. To prevent overpayments and ensure the offset is applied, before the PSOB Program pays any benefits based on injuries sustained in the 9/11 disaster, it would verify with the VCF the amount of any payments made or payable to a VCF claimant.

The proposed rule would also clarify that the offset does not extend to educational assistance payable under the PSOB Act, 42 U.S.C. 3796d—3796d-7. When viewed in the context of a statutory scheme providing for the payment of a particular one-time death or disability benefit, the agency believes that the ordinary meaning of “the benefit payable under this subchapter” suggests that the scope of the offset is limited to the death and disability benefit payable under 42 U.S.C. 3796. However, under current regulations that were promulgated before the offset statute was enacted, educational assistance may, with one exception, be paid only when PSOB Program death or disability benefits have been paid. As OJP has determined the offset does not extend to educational assistance, the proposed rule would revise the definition of “Eligible public safety officer” in current § 32.33 to authorize payment of educational assistance where death or disability benefits would have been paid but for the operation of the offset in 42 U.S.C. 3796(f).

As the Dale Long Act has amended 42 U.S.C. 3796(k), OJP proposes to amend its implementing regulations in 28 CFR 32.13 and 32.14 to reflect the revised statutory language. In implementing revised section 3796(k), the proposed rule would define in proposed § 32.13 the two circumstances when the presumption of death directly and proximately resulting from a line-of-duty injury associated with certain heart attacks, strokes, and vascular ruptures as provided in section 3796(k) is rebutted—i.e., when “competent medical evidence establishes that the [officer's] heart attack, stroke, or vascular rupture [1] was unrelated to the [officer's] engagement or participation or [2] was directly and proximately caused by something other than the mere presence of cardiovascular-disease risk factors.”

Under the proposed rule, an officer's heart attack, stroke, or vascular rupture would be considered as “unrelated to an [officer's] engagement or participation” if competent medical evidence established that an independent event or occurrence significantly contributed in bringing about the officer's heart attack, stroke, or vascular rupture. OJP believes that defining this rebuttal factor in terms of “an independent event or occurrence,” that is, something that happens to an officer, appropriately ensures that an off-duty heart attack, stroke, or vascular rupture caused by a clearly unrelated event, such as an off-duty officer's accident, is not covered by the presumption.

For example, a police officer's fatal heart attack due to electrocution suffered while performing home repair, established by competent medical evidence, would not be covered by the presumption despite occurring only 12 hours after the officer engaged in a situation involving nonroutine stressful or strenuous physical law enforcement activity. The heart attack is not covered by the presumption because competent medical evidence establishes that an independent event or occurrence (electrocution sustained while repairing home wiring) separate and apart from the officer's qualifying activity, i.e., engagement in a situation involving nonroutine stressful or strenuous physical law enforcement activity, significantly contributed in bringing about the officer's fatal heart attack. At the same time, such a construction would ensure that an officer's ordinary and routine off-duty activities such as yard work or exercise, that take place following qualifying, on-duty engagement or participation, would not be evaluated for their contribution to the officer's fatal heart attack, stroke, or vascular rupture.

Turning to the other rebuttal factor in the proposed rule, an officer's heart attack, stroke, or vascular rupture would be considered to be caused by “something other than the mere presence of cardiovascular-disease risk factors” when competent medical evidence establishes that the officer's heart attack, stroke, or vascular rupture was directly and proximately caused by the officer's ingestion of controlled substances on Schedule I of the drug control and enforcement laws or the officer's abuse of controlled substances on Schedules II-V of the drug control and enforcement laws. OJP believes that by defining this particular rebuttal factor in terms of intentional behaviors that are well established as adversely affecting cardiovascular health, that exceed the mere presence of cardiovascular disease risk factors, and that are readily attributable to an officer's actions, the proposed rule would appropriately rebut the presumption and preclude payment consistent with the language of the statute.

In addition to implementing the amended statutory language of the presumption, the proposed changes to § 32.13 would reduce the evidentiary burden on claimants seeking death benefits under section 3796(k) and streamline the processing of such claims by reducing the circumstances under which the PSOB Program would seek expert medical review and additional medical evidence. Towards this end, the proposed rule would eliminate as a basis for rebutting the presumption certain actions of the officer previously defined in regulations as “risky behaviors,” e.g., an officer's failure to adequately treat known cardiovascular-disease risk factors. OJP believes that eliminating this basis for rebuttal is justified based on its experience implementing the previous regulation which revealed that medical examiners, even with a complete medical record, itself a rare occurrence, were rarely able to determine whether a public safety officer was sufficiently non-compliant with treatment such that it could be said to be the direct and proximate cause of the officer's fatal heart attack, stroke, or vascular rupture. By omitting from the proposed rule those rebuttal factors which often required the collection and evaluation of extensive medical records as part of an independent medical examination and produced largely inconclusive results, the proposed rule would measurably reduce the burden on claimants and the agency.

Consistent with the amendments to the statutory rebuttal provision, the proposed rule would also eliminate from § 32.13 provisions defining “Competent medical evidence to the contrary,” “Excessive consumption of alcohol,” “Extrinsic circumstances,” “Risky behavior,” and “Undertaking of treatment.” In addition, the proposed rule would eliminate § 32.14(c), requiring the PSOB Office to provide notice to claimants when it determines the existence of competent medical evidence to the contrary. As the statute no longer includes such language, the provision is unnecessary.

This proposed rule has been drafted and reviewed in accordance with Executive Order 12866, “Regulatory Planning and Review,” section 1(b), Principles of Regulation, and in accordance with Executive Order 13563, “Improving Regulation and Regulatory Review,” section 1(b), General Principles of Regulation. Executive Orders 12866 and 13563 direct agencies to assess all costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts, and equity). As explained below, OJP has assessed the costs and benefits of this proposed rule as required by Executive Order 12866 and has determined that the benefits of the proposed rule justify the costs.

OJP's experience is that PSOB claimants have been largely unsuccessful in establishing an “injury” for delayed-onset medical conditions or illnesses, particularly cancer. As the proposed rule establishes an evidentiary standard intended for the unique circumstances of public safety officers who sustained an injury related to the 9/11 disaster, OJP estimates that the proposed rule would likely affect all of the 29 claims based on 9/11 injury (27 death/2 disability) currently pending in the PSOB Program without a WTC Health Program certification or its equivalent by enabling these claimants to establish an “injury” under the PSOB Act. Although there are currently 161 total PSOB death and disability claims pending with assertions of injuries based on 9/11 exposure, this estimate pertains only to the 29 claims not covered under OJP's current regulatory authority, as benefits paid through OJP's process of determining PSOB claims based on “certifications” issued by the WTC Health Program Administrator (or equivalent) under 28 CFR 32.5(b) would not be impacted as a result of this regulatory change.

If all 29 such claims were paid, the total PSOB Program death and disability benefit cost would be $8,778,198.80. Based on amounts appropriated in FY2016 for PSOB Program death benefits (“such sums as necessary”—estimated at $71,323,000) and disability and education benefits ($16,300,000), OJP knows that it could pay the death claims from its current appropriations, and estimates that it could pay the disability claims from its current appropriations. OJP's estimate does not account for any offset to PSOB Program payments based on VCF payments, which would reduce the amount of PSOB Program payments made; however, OJP is unable to estimate how many of the 29 claims would be approved by VCF. Regardless of whether a PSOB payment were offset by a VCF payment, there is no additional benefit cost, as the amounts that would be required are covered by current appropriations (with respect to death claims) and appear to be covered by such appropriations with respect to disability claims, and, barring unforeseen circumstances, would not exceed such amounts. As PSOB claims based on 9/11 injury would be processed by existing staff, OJP would not incur additional administrative or personnel costs in processing these claims.

The primary benefit of the proposed rule is that, pursuant to statute, it permits the PSOB Program to pay benefits to PSOB claimants who are awaiting a decision on eligibility for VCF benefits, pending receipt of VCF payments, or are in receipt of VCF payments less than the maximum PSOB Program death or disability payment. A secondary benefit is that it clarifies that claimants who would be eligible for payment of death or disability benefits under the PSOB Act but for the operation of the offset, would be eligible for educational assistance.

Estimating annual costs for public safety officers' educational assistance is difficult because of the nature of the payment.6 If all of the 29 currently pending claims based on 9/11 injury and lacking a WTC Health Program certification, or its equivalent, were approved, thereby creating potential eligibility for educational assistance, OJP estimates that the impact could be to add approximately 49 educational assistance claimants for FY2016 and beyond. Using the current maximum monthly payment rate of $1,021/month, OJP estimates that annual benefit costs could increase by approximately $450,261, annually (based on 49 claimants completing 9 months of educational assistance payable at the current maximum rate of $1,021/month).7 Based on the amount of funds appropriated for disability benefits and educational assistance in FY2016 ($16,300,000), OJP estimates that, barring unforeseen circumstances, it could pay these additional education claims from its current appropriation. As PSOB claims based on 9/11 injury would be processed by existing staff, OJP would not incur additional costs in processing these claims.

The primary benefit of the proposed rule is the reduced burden on both claimants and the agency in determining claims under 42 U.S.C. 3796(k). In defining the circumstances that warrant rebuttal in terms of readily ascertainable facts, OJP believes that the PSOB Program will, in most cases, be able to rely upon the evidence of injury and death ordinarily submitted with a claim, e.g., a death certificate or autopsy. Based on its experience, OJP estimates that, under the previous regulatory interpretation, it seeks additional evidence from claimants and independent medical review of medical evidence in approximately 50 percent of claims. Under the proposed rule, OJP estimates that the PSOB Program would need to seek additional evidence from claimants and independent medical review of medical evidence in less than 5 percent of claims. As the PSOB Program receives on average approximately 92 claims for benefits under 42 U.S.C. 3796(k) annually, OJP estimates that it would need to seek additional evidence and review in fewer than 1 in 20 such claims, which is significantly fewer than it seeks under the previous rule.

This reduction in evidentiary development is also expected to result in cost savings for medical reviews as well as the costs associated with obtaining medical records for such reviews. For every claim that does not require independent medical review, OJP estimates a savings of $1,652, which represents the average cost to the program of obtaining certain medical opinions in claims for PSOB Program death benefits from 2009 through 2015. OJP also estimates a savings to the claimant of $603 for the cost of obtaining medical records (an average of 900 pages in the claims sampled). This estimate is based on the maximum fees permitted by law, which vary by state,8 and the number of pages of medical records in claims for PSOB Program death benefits as determined in a random sampling of claims involving medical issues that require a claimant to provide such records. In addition, OJP believes that the streamlined criteria would increase the rate at which such claims are processed, however, it is difficult to quantify any additional cost savings resulting from such efficiencies.

In terms of benefit costs, OJP estimates that there will not be a significant increase in claims approved as compared to the previous regulatory criteria. Accordingly, the proposed rule does not significantly increase benefit costs. And, as these claims would be processed by existing staff, OJP would not incur additional administrative or personnel costs in processing these claims.

This proposed rule would impose no costs on state, local, or tribal governments, or on the private sector.

Although not an economically significant rulemaking under Executive Orders 12866 and 13563, The Office of Justice Programs has determined that this proposed rule is a “significant regulatory action” under section 3(f) of the Executive Order, and accordingly this rule has been reviewed by the Office of Management and Budget (OMB).

This proposed rule would not have substantial direct effects on the States, on the relationship between the federal government and the States, or on distribution of power and responsibilities among the various levels of government. The PSOB program statutes provide benefits to individuals and do not impose any special or unique requirements on States or localities. Therefore, in accordance with Executive Order No. 13132, it is determined that this proposed rule does not have sufficient federalism implications to warrant the preparation of a Federalism Assessment.

This proposed rule meets the applicable standards set forth in sections 3(a) & (b)(2) of Executive Order No. 12988. Pursuant to section 3(b)(1)(I) of the Executive Order, nothing in this proposed rule or any previous rule (or in any administrative policy, directive, ruling, notice, guideline, guidance, or writing) directly relating to the Program that is the subject of this rule is intended to create any legal or procedural rights enforceable against the United States, except as the same may be contained within part 32 of title 28 of the Code of Federal Regulations.

The Office of Justice Programs hereby certifies that this proposed rule would not have a significant economic impact on a substantial number of small entities for the following reasons: This proposed rule addresses federal agency procedures; furthermore, this proposed rule would make amendments to clarify existing regulations and agency practice concerning public safety officers' death, disability, and education benefits and would do nothing to increase the financial burden on any small entities. Therefore, an analysis of the impact of this proposed rule on such entities is not required under the Regulatory Flexibility Act (5 U.S.C. 601 et seq.).

This proposed rule would impose reporting or recordkeeping requirements under the Paperwork Reduction Act of 1995 (PRA) (44 U.S.C. 3501 et seq.). The PRA requires certain actions before an agency can adopt or revise a collection of information, including publishing a summary of the collection of information and a brief description of the need for and proposed use of the information. 44 U.S.C. 3507.

The proposed rule includes paperwork requirements in three collections of information previously approved by OMB for the PSOB Program. OJP published in the Federal Register on January 11, 2016, a 60-day notice of “Agency Information Collection Activities” for each of the following forms: Claim for Death Benefits (OMB Number 1121-0024), Report of Public Safety Officer's Death (OMB Number 1121-0025), and Public Safety Officers' Disability Benefits (OMB Number 1121-0166). In calculating the burden associated with these forms/collections, OJP reviewed its previous burden estimates and updated these to reflect the time required for claimants to gather the many different documents necessary to establish eligibility for these benefits, e.g., birth certificates, marriage certificates, divorce decrees (where applicable), public agency determinations as to death or disability benefits, medical records, etc. Information about the proposed collections is as follows:

1. Type of Information Collection: Reinstatement with change of a previously approved collection.

2. The Title of the Form/Collection: Claim for Death Benefits.

3. The agency form number, if any, and the applicable component of the Department sponsoring the collection: Bureau of Justice Assistance. Office of Justice Programs, United States Department of Justice.

4. Affected public who will be asked or required to respond, as well as a brief abstract:Primary: Eligible survivors of fallen public safety officers.

Abstract: BJA's Public Safety Officers' Benefits (PSOB) Office will use the Claim Form information to confirm the eligibility of applicants to receive Public Safety Officers' Death Benefits. Eligibility is dependent on several factors, including public safety officer status, an injury sustained in the line of duty, and the claimant status in the beneficiary hierarchy according to the PSOB Act. In addition, information to help the PSOB Office identify an individual is collected, such as Social Security numbers, telephone numbers, and email addresses. Changes to the claim form have been made in an effort to streamline the application process and eliminate requests for information that are either irrelevant or already being collected by other means.

OJP estimates that no more than 350 respondents will apply each year. Each application takes approximately 120 minutes to complete. OJP estimates that the total public burden (in hours) associated with the collection can be calculated as follows: Total Annual Reporting Burden: 350 x 120 minutes per application = 42,000 minutes/by 60 minutes per hour = 700 hours.

1. Type of Information Collection: Reinstatement with change of a previously approved collection.

2. The Title of the Form/Collection: Report of Public Safety Offices Death.

3. The agency form number, if any, and the applicable component of the Department sponsoring the collection: Bureau of Justice Assistance. Office of Justice Programs, United States Department of Justice.

4. Affected public who will be asked or required to respond, as well as a brief abstract: Primary: Public safety agencies experiencing the death of a public safety officer according to the PSOB Act.

Abstract: BJA's Public Safety Officers' Benefits (PSOB) Office will use the Report of Public Safety Officer's Death Form information to confirm the eligibility of applicants to receive Public Safety Officers' Death Benefits. Eligibility is dependent on several factors, including public safety officer status, an injury sustained in the line of duty, and the claimant status in the beneficiary hierarchy according to the Act. In addition, information to help the PSOB Office identify an individual is collected, such as Social Security numbers, telephone numbers, and email addresses. Changes to the report form have been made in an effort to streamline the application process and eliminate requests for information that are either irrelevant or already being collected by other means.

OJP estimates that no more than 350 respondents will apply each year. Each application takes approximately 240 minutes to complete. OJP estimates that the total public burden (in hours) associated with the collection can be calculated as follows: Total Annual Reporting Burden: 350 × 240 minutes per application = 84,000 minutes/by 60 minutes per hour = 1400 hours.

1. Type of Information Collection: Reinstatement with change of a previously approved collection.

2. The Title of the Form/Collection: Public Safety Officer's Disability Benefits.

3. The agency form number, if any, and the applicable component of the Department sponsoring the collection: Bureau of Justice Assistance. Office of Justice Programs, United States Department of Justice.

4. Affected public who will be asked or required to respond, as well as a brief abstract: Primary: Public safety officers who were permanently and totally disabled in the line of duty.

Abstract: BJA's Public Safety Officers' Benefits (PSOB) Office will use the PSOB Disability Application information to confirm the eligibility of applicants to receive Public Safety Officers' Disability Benefits. Eligibility is dependent on several factors, including public safety officer status, injury sustained in the line of duty, and the total and permanent nature of the line-of-duty injury. In addition, information to help the PSOB Office identify individuals is collected, such as Social Security numbers, telephone numbers, and email addresses. Changes to the application form have been made in an effort to streamline the application process and eliminate requests for information that are either irrelevant or already being collected by other means.

OJP estimates that no more than 100 respondents will apply each year. Each application takes approximately 300 minutes to complete. OJP estimates that the total public burden (in hours) associated with the collection can be calculated as follows: Total Annual Reporting Burden: 100 × 300 minutes per application = 30,000 minutes/by 60 minutes per hour = 500 hours.

This proposed rule would not result in the expenditure by State, local, and tribal governments, in the aggregate, or by the private sector, of $100,000,000 or more in any one year, and it will not significantly or uniquely affect small governments. The PSOB program is a federal benefits program that provides benefits directly to qualifying individuals. Therefore, no actions were deemed necessary under the provisions of the Unfunded Mandates Reform Act of 1995.

Accordingly, for the reasons set forth in the preamble, part 32 of chapter I of Title 28 of the Code of Federal Regulations is proposed to be amended as follows:

The additions read as follows:

The Delaware Bay and River anchorage grounds are largely used by commercial vessel traffic. General regulations covering the anchorage of vessels in the port are set out in 33 CFR 110.157. In 1992, the Delaware River Main Channel Deepening project was authorized for construction by Public Law 102-580, Section 101 (6) of the Water Resources Development Act (WRDA) 1992; modified by Public Law 106-53, Section 308 of WRDA 1999 and further modified by Public Law 106-541, Section 306 of WRDA 2000. This project includes deepening the existing Delaware River Federal Navigation Channel from 40 to 45 feet from Philadelphia, Pennsylvania, and Camden, New Jersey to the mouth of the Delaware Bay. The Army Corps of Engineers (USACE) along with non-Federal sponsor, the Philadelphia Regional Port Authority (PRPA), commenced dredging for this project in 2010. This project, once completed, will allow for deeper draft vessels within the port and increase overall traffic, and anchorage usage. Due to this anticipated increase in marine traffic a review of the current Delaware Bay and River anchorage grounds was conducted by the Waterways Management Division Sector Delaware Bay, Philadelphia, PA in coordination with the Mariners Advisory Committee (MAC). Upon review it was found that multiple anchorage grounds in 33 CFR 110.157 were unusable for some larger vessels due to lack of depth needed to safely anchor. Other anchorage grounds are unusable because they spanned underneath bridges where it would be impractical for vessels to anchor, and posed an increased and unnecessary safety risk of bridge allision. The proposed changes to the Delaware Bay and River anchorages would eliminate unusable anchorage grounds and maximize usable anchorage grounds within the anchorage boundaries while continuing to safely support current and future port demands. The Coast Guard proposes this rulemaking under authority in 33 U.S.C. 1231.

The following changes are being proposed for seven Delaware Bay and River anchorage grounds.

Anchorage 1 Bombay off Hook Point, found in 33 CFR 110.157 (a)(2), currently has portions of the anchorage which intermittently experiences a water depth of 2 feet, which is unsafe for vessels to transit or anchor. The proposed changes would reduce the width of the anchorage to approximately 1,109 yards while extending the length to approximately 9,802 yards, thereby allowing more room for safe usable space within the anchorage.

Anchorage 3 southeast of Reedy Point, found in 33 CFR 110.157(a)(4), currently has portions of the anchorage in the navigational channel. Furthermore, the northern portion of the anchorage, in relation to the entrance to the Chesapeake and Delaware Canal, poses an unnecessary risk of vessel collisions due to the proximity of vessels transiting to and from the canal. The proposed changes would move this anchorage 1,573 yards south of the Chesapeake and Delaware Canal 2 light, bounding the east side of the anchorage along the west side of Reedy Island Range, and extend the anchorage south to the southern end of Reed Island Bar. These changes would eliminate portions of the anchorage that are in the navigational channel and increase the anchorage grounds southward.

Anchorage 6 off Deepwater Point, found in 33 CFR 110.157 (a)(7), currently has the southern portion of the anchorage approximately 480 yards north from the Delaware Memorial Bridge, this proximity creates an unnecessary risk of a bridge allision. To mitigate this risk, the proposed changes would relocate the southern boundary of the anchorage to approximately 701 yards north of the Delaware Memorial Bridge and extend the northern portion of the anchorage where it would end opposite the channel from the entrance of the Christina River.

Anchorage 8 off Thompson Point, found in 33 CFR 110.157(a)(9), currently has portions of the anchorage in less than 9 feet of water, causing an unnecessary safety risk to vessels attempting to transit or anchor. The proposed changes would increase usable anchorage grounds within the anchorage by reducing the width of the anchorage to approximately 231 yards and extending the northern end of the anchorage to the edge of Crab Point.

Anchorage 11 at Gloucester, found in 33 CFR 110.157(a)(12), currently has the northern portion of the anchorage approximately 71 yards south of the Walt Whitman Bridge. This proximity creates an unnecessary risk of a bridge allision. The proposed changes would increase the distance of the northern portion of the anchorage to 254 yards from the Walt Whitman Bridge, reducing the risk of a bridge allision for vessels in the anchorage.

Anchorage 12 between Gloucester and Camden, found in 33 CFR 110.157(a)(13), currently begins south of the Walt Whitman Bridge, bordering the northern line of Anchorage 11 traveling north to the southern boundary of Anchorage 13 at Camden, NJ. Anchorages 12 and 13 each span a bridge where anchoring a vessel is impractical and creates an unnecessary risk of bridge allision. The proposed changes would address this issue by relocating the south end of Anchorage 12 to begin 232 yards north of the Walt Whitman Bridge and relocating the northern boundary to approximately 155 yards south of the Benjamin Franklin Bridge. This would eliminate any anchorage grounds underneath the Walt Whitman Bridge and Benjamin Franklin Bridge, mitigating the unnecessary risk of a bridge allision.

Anchorage 13, found in 33 CFR 110.157(a)(14), currently begins on the east side of the channel adjoining and on the upstream side of Anchorage 12, to Cooper Point, Camden. Anchorages 12 and 13 each span a bridge where anchoring a vessel is impractical and creates an unnecessary risk of bridge allision. The proposed changes above would move the south end of Anchorage 13 to begin approximately 190 yards north of the Benjamin Franklin Bridge. Anchorage 13's northern boundary would remain the same, terminating in the vicinity of Coopers Point, Camden. This would eliminate any anchorage grounds underneath Benjamin Franklin Bridge, mitigating the unnecessary risk of a bridge allision.

We developed this proposed rule after considering numerous statutes and Executive orders related to rulemaking. Below we summarize our analyses based on a number of these statutes and Executive Orders.

Executive Orders 12866 and 13563 direct agencies to assess the costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits. Executive Order 13563 emphasizes the importance of quantifying both costs and benefits, of reducing costs, of harmonizing rules, and of promoting flexibility. This NPRM has not been designated a “significant regulatory action,” under Executive Order 12866. Accordingly, the NPRM has not been reviewed by the Office of Management and Budget.

This proposed rule is not a significant regulatory action because it would not interfere with existing maritime activity on the Delaware River. Rather, it would enhance navigational safety along the Delaware River by providing safer locations for vessels to anchor, improving navigation safety near bridges and reducing the potential for disruption to maritime traffic by anchored vessels potentially within the federal channel. Vessels may navigate in, around, and through the modified anchorages.

The Regulatory Flexibility Act of 1980, 5 U.S.C. 601-612, as amended, requires Federal agencies to consider the potential impact of regulations on small entities during rulemaking. The term “small entities” comprises small businesses, not-for-profit organizations that are independently owned and operated and are not dominant in their fields, and governmental jurisdictions with populations of less than 50,000. The Coast Guard certifies under 5 U.S.C. 605(b) that this proposed rule would not have a significant economic impact on a substantial number of small entities.

The proposed rule would affect owners and operators of vessels wishing to anchor in the Delaware Bay and River anchorages. Boundaries of some of the current anchorages would be modified, reduced, or increased depending on the water depth and relation of the anchorage to bridges along the Delaware Bay and River. The impact of the proposed rule changes would be minimal because the changes increase usable anchorage grounds and enable vessels to safely anchor in the anchorage boundaries.

If you think that your business, organization, or governmental jurisdiction qualifies as a small entity and that this rule would have a significant economic impact on it, please submit a comment (see ADDRESSES) explaining why you think it qualifies and how and to what degree this rule would economically affect it.

Under section 213(a) of the Small Business Regulatory Enforcement Fairness Act of 1996 (Pub. L. 104-121), we want to assist small entities in understanding this proposed rule. If the rule would affect your small business, organization, or governmental jurisdiction and you have questions concerning its provisions or options for compliance, please contact the person listed in the FOR FURTHER INFORMATION CONTACT section. The Coast Guard will not retaliate against small entities that question or complain about this proposed rule or any policy or action of the Coast Guard.

This proposed rule would not call for a new collection of information under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520).

A rule has implications for federalism under Executive Order 13132, Federalism, if it has a substantial direct effect on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government. We have analyzed this proposed rule under that Order and have determined that it is consistent with the fundamental federalism principles and preemption requirements described in Executive Order 13132.

Also, this proposed rule does not have tribal implications under Executive Order 13175, Consultation and Coordination with Indian Tribal Governments, because it would not have a substantial direct effect on one or more Indian tribes, on the relationship between the Federal Government and Indian tribes, or on the distribution of power and responsibilities between the Federal Government and Indian tribes. If you believe this proposed rule has implications for federalism or Indian tribes, please contact the person listed in the FOR FURTHER INFORMATION CONTACT section.

The Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1531-1538) requires Federal agencies to assess the effects of their discretionary regulatory actions. In particular, the Act addresses actions that may result in the expenditure by a State, local, or tribal government, in the aggregate, or by the private sector of $100,000,000 (adjusted for inflation) or more in any one year. Though this proposed rule would not result in such an expenditure, we do discuss the effects of this rule elsewhere in this preamble.

We have analyzed this proposed rule under Department of Homeland Security Management Directive 023-01 and Commandant Instruction M16475.lD, which guide the Coast Guard in complying with the National Environmental Policy Act of 1969 (42 U.S.C. 4321-4370f), and have made a preliminary determination that this action is one of a category of actions that do not individually or cumulatively have a significant effect on the human environment. This proposed rule involves directly with establishing, disestablishing, and modifying anchorage grounds. Normally such actions are categorically excluded from further review under paragraph 34(f) of Figure 2-1 of Commandant Instruction M16475.lD. A preliminary environmental analysis checklist and Categorical Exclusion Determination are available in the docket where indicated under ADDRESSES. We seek any comments or information that may lead to the discovery of a significant environmental impact from this proposed rule.

We view public participation as essential to effective rulemaking, and will consider all comments and material received during the comment period. Your comment can help shape the outcome of this rulemaking. If you submit a comment, please include the docket number for this rulemaking, indicate the specific section of this document to which each comment applies, and provide a reason for each suggestion or recommendation.

We encourage you to submit comments through the Federal eRulemaking Portal at http://www.regulations.gov. If your material cannot be submitted using http://www.regulations.gov, contact the person in the FOR FURTHER INFORMATION CONTACT section of this document for alternate instructions.

We accept anonymous comments. All comments received will be posted without change to http://www.regulations.gov and will include any personal information you have provided. For more about privacy and the docket, you may review a Privacy Act notice regarding the Federal Docket Management System in the March 24, 2005, issue of the Federal Register (70 FR 15086).

Documents mentioned in this NPRM as being available in the docket, and all public comments, will be in our online docket at http://www.regulations.gov and can be viewed by following that Web site's instructions. Additionally, if you go to the online docket and sign up for email alerts, you will be notified when comments are posted or a final rule is published.

For the reasons discussed in the preamble, the Coast Guard proposes to amend 33 CFR part 110 as follows:

This proposed rule is organized as follows:

Applicability: Entities such as industries, stormwater management districts, or publicly owned treatment works (POTWs) that directly or indirectly discharge selenium to the San Francisco Bay and Delta could be indirectly affected by this rulemaking because federal water quality standards (WQS) promulgated by EPA would be applicable to Clean Water Act (CWA) regulatory programs, such as National Pollutant Discharge Elimination System (NPDES) permitting. Citizens concerned with water quality in California could also be interested in this rulemaking. Categories and entities that could be affected include the following:

This table is not intended to be exhaustive, but rather provides a guide for readers regarding entities that could be indirectly affected by this action. Any parties or entities who depend upon or contribute to the water quality of the San Francisco Bay and Delta could be affected by this proposed rule. To determine whether your facility or activities could be affected by this action, you should carefully examine this proposed rule. If you have questions regarding the applicability of this action to a particular entity, consult the person listed in the FOR FURTHER INFORMATION CONTACT section.

CWA section 101(a)(2) (33 U.S.C. 1251(a)(2)) establishes a national goal, wherever attainable, of “water quality which provides for the protection and propagation of fish, shellfish, and wildlife and provides for recreation in and on the water . . .” In this proposal, the relevant goals are the protection and propagation of fish, shellfish, and wildlife.

CWA section 303(c) (33 U.S.C. 1313(c)) directs states to adopt WQS for their waters subject to the CWA. CWA section 303(c)(2)(A) and EPA's implementing regulations at 40 CFR part 131 require, among other things, that a state's WQS specify appropriate designated uses of the waters and water quality criteria that protect those uses. EPA's regulations at 40 CFR 131.11(a)(1) provide that “[s]uch criteria must be based on sound scientific rationale and must contain sufficient parameters or constituents to protect the designated use.” For waters with multiple use designations, the criteria must support the most sensitive use (40 CFR 131.11(a)(1)). In addition, 40 CFR 131.10(b) provides that “[i]n designating uses of a water body and the appropriate criteria for those uses, the [s]tate shall take into consideration the water quality standards of downstream waters and shall ensure that its water quality standards provide for the attainment and maintenance of the water quality standards of downstream waters.”

States are required to review applicable WQS at least once every three years and, if appropriate, revise or adopt new standards (CWA section 303(c)(1)). Any new or revised WQS must be submitted to EPA for review and approval or disapproval (CWA section 303(c)(2)(A) and (c)(3)). Under CWA section 303(c)(4)(B), the Administrator is authorized to determine, even in the absence of a state submission, that a new or revised standard is needed to meet CWA requirements.

Under CWA section 304(a), EPA periodically publishes criteria recommendations for states to consider when adopting water quality criteria for particular pollutants to meet the CWA section 101(a)(2) goals. In establishing numeric criteria, states should adopt water quality criteria based on EPA's CWA section 304(a) criteria, section 304(a) criteria modified to reflect site-specific conditions, or other scientifically defensible methods (40 CFR 131.11(b)(1)). CWA section 303(c)(2)(B) requires states to adopt numeric criteria for all toxic pollutants listed pursuant to CWA section 307(a)(1) for which EPA has published 304(a) criteria, as necessary to support the states' designated uses.

On December 22, 1992, EPA promulgated Water Quality Standards; Establishment of Numeric Criteria for Priority Toxic Pollutants; States' Compliance at 57 FR 60848 (hereafter referred to as the National Toxics Rule or NTR).1 The NTR established chemical-specific numeric criteria for priority toxic pollutants for states that EPA had determined were not in compliance with the requirements of CWA section 303(c)(2)(B). The NTR included selenium water quality criteria for the protection of aquatic life in the San Francisco Bay and Delta. On May 4, 1995, EPA issued a stay of the criteria for metals in the NTR and immediately promulgated revised criteria for metals in the NTR in the Stay of Federal Water Quality Criteria for Metals at 60 FR 22227 and Water Quality Standards; Establishment of Numeric Criteria for Priority Toxic Pollutants; States' Compliance—Revision of Metals Criteria, at 60 FR 22229.2 The 1995 Stay and Revision did not change the selenium water quality criteria for the San Francisco Bay and Delta. These criteria are currently applicable in the Bay and Delta, and consist of a chronic criterion of 5 micrograms per liter (μg/L), and an acute criterion of 20 μg/L. Both criteria are expressed in the total recoverable form of selenium.

The currently applicable selenium criteria for the protection of aquatic life in the San Francisco Bay and Delta were based on EPA's CWA section 304(a) recommended criteria values at the time that EPA promulgated the criteria in the NTR. These recommendations are documented in EPA's Ambient Water Quality Criteria for Selenium—1987, Office of Water, EPA-440/5-87-008, September, 1987.

EPA derived the 1987 freshwater aquatic life recommended criteria values for selenium from observed impacts on fish populations at a contaminated lake, Belews Lake, in North Carolina. The lake, a cooling water reservoir, had been affected by selenium loads from a coal-fired power plant. Since aquatic life was exposed to selenium from both the water column and diet, the criteria reflect both types of exposure in Belews Lake. EPA derived the 1987 saltwater aquatic life recommended criteria values for selenium using data from lab studies. EPA calculated the criteria in accordance with EPA's Guidelines for Deriving Numerical National Water Quality Criteria for the Protection of Aquatic Organisms and Their Uses, Office of Research and Development, 1985. The 1987 recommended freshwater criteria values for total recoverable selenium are 5 μg/L (chronic) and 20 μg/L (acute), and the saltwater criteria values for total recoverable selenium are 71 μg/L (chronic) and 300 μg/L (acute).

In the NTR, EPA promulgated selenium criteria for the San Francisco Bay and Delta based on the 1987 freshwater recommended criteria values for selenium, even though the San Francisco Bay and Delta are marine and estuarine waters. EPA used the more stringent freshwater values because of a concern that the saltwater criteria were not sufficiently protective “based on substantial evidence that there are high levels of selenium bioaccumulation in San Francisco Bay and the saltwater criteria fail to account for food chain effects” and “utilization of the saltwater criteria for selenium in the San Francisco Bay/Delta would be inappropriate.” (57 FR 60898).

Since then, EPA has taken steps to revise the 1987 CWA 304(a) recommended criteria for selenium to better account for bioaccumulation through the food chain in different ecosystems. EPA recently published a revised CWA 304(a) freshwater recommended criterion for selenium: Final Aquatic Life Ambient Water Quality Criterion for Selenium—Freshwater 2016, US EPA, Office of Water, EPA 822-R-16-006, June, 2016. EPA considered the methodology and information used to derive the revised CWA 304(a) recommended selenium criterion, along with additional information specific to the San Francisco Bay and Delta, in developing the revised selenium criteria values for the San Francisco Bay and Delta in this proposed rule.

On May 18, 2000, EPA promulgated Water Quality Standards; Establishment of Numeric Criteria for Priority Toxic Pollutants for the State of California at 65 FR 31681 (hereafter referred to as the California Toxics Rule or CTR).3 The CTR established numeric water quality criteria for priority toxic pollutants for inland surface waters and enclosed bays and estuaries within California. EPA promulgated the CTR after California rescinded its water quality control plans containing pollutant objectives (criteria). The criteria that EPA previously promulgated for California in the NTR,4 together with the criteria promulgated in the CTR and California's designated uses and anti-degradation provisions, set water quality standards for priority toxic pollutants for inland surface waters and enclosed bays and estuaries in California.

As required by section 7 of the Endangered Species Act (ESA) (16 U.S.C. 1531 et seq.), EPA consulted with the U.S. Fish and Wildlife Service (FWS) and the U.S. National Marine Fisheries Service (NMFS) (collectively, the Services) concerning EPA's rulemaking actions for California. EPA initiated consultation in 1994, and in March 2000, the Services issued a final Joint Biological Opinion. The final Joint Biological Opinion requested that EPA revise its 1987 recommended criteria values for selenium to ensure the protection of species listed as threatened or endangered, and later update the criteria for California consistent with the revised recommendations. In response, EPA reserved the acute freshwater selenium criterion from the final May 2000 CTR.

In September 2002, EPA, the Services, the U.S. Geological Survey (USGS), and the State of California met to discuss the development of revised selenium water quality criteria and recommended that California-specific selenium water quality criteria be developed as wildlife criteria. The agencies agreed that criteria should first be developed to protect aquatic life and aquatic-dependent wildlife using the Luoma-Presser (USGS) bioaccumulation model 5 for the San Francisco Bay and Delta based on the necessity for more stringent criteria in the estuary, and to subsequently develop criteria for the rest of California using appropriate methods.

Starting in 2003, EPA and the Services provided assistance to the USGS to model selenium fate and biological uptake in the San Francisco Bay and Delta using the USGS bioaccumulation model. USGS completed its report, entitled Ecosystem-Scale Selenium Modeling in Support of Fish and Wildlife Criteria Development for the San Francisco Bay-Delta Estuary, California, Administrative Report (the USGS Report), and submitted it to EPA in December 2010. USGS used site-specific data from various sources and species-specific data from the FWS. EPA analyzed the USGS Report and data from the FWS and other relevant reports to develop the selenium criteria for the San Francisco Bay and Delta in this proposed rule.

In 2013, two organizations filed a legal complaint against EPA, based in part on the fact that work on updating the reserved acute freshwater selenium criterion from the 2000 CTR had not yet been completed while EPA had previously determined, in the proposed CTR, that the criterion was among those necessary to implement section 303(c)(2)(B) of the CWA (62 FR 42160, August 5, 1997). EPA ultimately consented to a court-ordered resolution of these claims.6 Under the terms of the court order, EPA committed to developing updated selenium criteria for the California waters covered by the original CTR. However, this proposed rule relates to a different set of selenium criteria: Those selenium criteria that EPA previously proposed and finalized for the San Francisco Bay and Delta in the NTR. Since EPA has chosen to prioritize the development of this latter set of selenium criteria, EPA expects to defer proposing the remaining selenium criteria for the rest of California until no later than November 30, 2018, pursuant to the terms of the court-ordered resolution.

The State of California has nine Regional Water Quality Control Boards (Regional Boards), each located in and overseeing different areas of the state. The State Water Resources Control Board (SWRCB) in Sacramento oversees the actions of the nine Regional Boards and periodically establishes policy and standards for consistency across the Regional Boards. The San Francisco Bay Regional Water Quality Control Board (SFRWQCB) and the Central Valley Regional Water Quality Control Board (CVRWQCB) oversee different parts of the Bay and Delta. The SFRWQCB oversees all parts of the San Francisco Bay including the South San Francisco Bay, Lower San Francisco Bay, Central San Francisco Bay, San Pablo Bay, Carquinez Strait and Suisun Bay, and a small portion of the western side of Sacramento-San Joaquin Delta. The CVRWQCB oversees the remaining areas of the Delta which include the confluences of the Sacramento and the San Joaquin Rivers. Each Regional Board has a regional water quality control plan (Basin Plan) that sets forth the beneficial (designated) uses for the waterbodies it oversees. Once EPA finalizes the proposed criteria, each Regional Board will implement the criteria in its WQS programs for the waters it oversees.

In 1978, the SWRCB adopted a comprehensive plan for the Bay and Delta estuary: The Water Quality Control Plan for the San Francisco Bay/Sacramento-San Joaquin Delta Estuary. The plan was amended in 1991, 1995 and most recently in December 2006. This plan supplements the two regional Basin Plans that cover the estuary and establishes a comprehensive set of designated uses for all parts of the Bay and Delta. The plan describes the uses as existing uses.

The site-specific selenium criteria in this proposed rule are intended to protect aquatic life and aquatic-dependent wildlife, including federally listed threatened and endangered species, in the San Francisco Bay and Delta. The designated uses in the SWRCB water quality control plan for the protection of aquatic life and aquatic-dependent wildlife are listed in Table 1. The proposed criteria will establish levels of selenium that protect California's designated uses for the estuary.

The proposed criteria are being set at levels that will protect aquatic life and aquatic-dependent wildlife consistent with WARM, COLD, EST, WILD and RARE uses, as well as protect aquatic life consistent with MIGR and SPWN uses.

Under the CWA, Congress gave states primary responsibility for developing and adopting WQS for their waters (CWA section 303(a)-(c)). Although EPA is proposing selenium criteria for the protection of aquatic life and aquatic-dependent wildlife for marine and estuarine waters in California's San Francisco Bay and Delta, California continues to have the option to adopt and submit to EPA protective selenium criteria for these waters consistent with CWA section 303(c) and EPA's implementing regulations at 40 CFR part 131. EPA encourages California to expeditiously adopt protective criteria. Consistent with CWA section 303(c)(4), if California adopts and submits selenium criteria for the protection of aquatic life and aquatic-dependent wildlife, and EPA approves such criteria before finalizing this proposed rule, EPA would not proceed with the promulgation for those waters for which EPA approves California's criteria.

If EPA finalizes this proposed rule and California subsequently adopts and submits selenium criteria for the protection of aquatic and aquatic-dependent wildlife for marine and estuarine waters in the estuary, EPA proposes that once EPA approves California's WQS, the EPA-approved criteria in California's WQS would become the applicable criteria for CWA purposes and EPA's promulgated criteria would no longer be applicable criteria. EPA would undertake a rulemaking to withdraw the federal criteria for selenium, but that process would not delay California's approved criteria from becoming the sole applicable criteria for CWA purposes. EPA solicits comment on this approach.

Selenium is an element that occurs naturally in sediments of marine origin and enters the aquatic environment when rainwater comes into contact with deposits. Selenium can be further mobilized through anthropogenic activities such as agriculture irrigation, mining and petroleum refining. Once inorganic selenium is converted into a bioavailable form, it enters the food chain and can bioaccumulate. Depending on environmental conditions, one or another form of selenium such as selenate, selenite and organo-selenium, which differ in transformation rates and bioavailability, may predominate in the aquatic environment.

Selenium is an essential micro-nutrient, but the range between essential and toxic levels is narrow. A long-standing hypothesis is that toxicity occurs through biochemical pathways where excess selenium substitutes for sulphur in proteins, which alters their structure and function. More recent studies indicate that selenium may affect organisms through oxidative stress (see Final Aquatic Life Ambient Water Quality Criteria for Selenium—Freshwater 2016, U.S. EPA, Office of Water, EPA 822-R-16-006, June, 2016). Elevated selenium levels in fish and other wildlife inhibit normal growth and reduce reproductive success through effects that lower embryo survival, most notably teratogenesis.

Scientific studies indicate that selenium toxicity to aquatic life and aquatic-dependent wildlife is driven by diet (i.e., the consumption of selenium-contaminated prey food) rather than by direct exposure in the water column. Selenium can accumulate in the aquatic food web through various routes and at various rates. At the bottom of the food chain, bacteria and algae can bioaccumulate selenium to levels that greatly exceed water column concentrations, and some invertebrates such as filter-feeding clams, can efficiently accumulate selenium from suspended organic and inorganic particles. In the San Francisco Bay and Delta, clam-based food webs accumulate selenium at a much higher rate than insect-based food webs, and the invasive clam species, Potamocorbula amurensis, now found throughout the estuary, can accumulate selenium at a much higher rate than supplanted clam species. Therefore, species that feed on this clam in the estuary, such as diving birds and sturgeon, are exposed to higher levels of bioaccumulated selenium than species that feed mainly on insects or higher-order species within an insect-based food chain. The vulnerability of a species to selenium toxicity is determined by a number of factors in addition to the amount of contaminated prey food consumed. A species' sensitivity to selenium, its population status, and the duration, timing and life stage of exposure are all factors to consider. In addition, the hydrologic conditions and water chemistry of a water body affect bioaccumulation; in general, slow-moving, calm waters or lentic waters enhance the production of bioavailable forms of selenium (selenite), while faster-moving waters or lotic waters limit selenium uptake given the rapid movement and predominant form of selenium (selenate). EPA considered these and other factors in determining the proposed selenium criteria for the estuary.

Ecological Health of the Estuary: The San Francisco Bay and Delta is the largest estuary on the West Coast of North America and, as part of the Pacific Flyway, serves as an important migratory stopover and wintering area for a variety of waterfowl. The estuary is formed by the intersection of two large river systems, the Sacramento and San Joaquin Rivers, which drain approximately 40 percent of California. The estuary is comprised of a series of large and small bays, marshes, and channels leading to the Pacific Ocean through the Golden Gate. The system is critical to California's ecological and economic well-being, and has long been the subject of competing interests. The estuary is the hub of California's water distribution system, providing drinking water to 25 million people, supplying irrigation for 4 million acres of farmland, and supporting over 750 different species of plants and animals. The estuary contributes to the area's economically important recreational and commercial fishing and boating industries. However, as a result of these competing demands and associated stresses, the ecosystem has suffered greatly and water quality in the estuary is impaired, habitat is shrinking, important fish populations are at an all-time low, and several species are listed as threatened or endangered. In recent years, pelagic (open water) species have declined, with some fish populations in serious, critical condition. This sudden collapse in pelagic species, referred to as the pelagic organism decline (or POD), has been intensively studied, but no one factor has been identified as the cause. Many factors are thought to be responsible for the decline of the estuary's health including water pollution, invasive species, water diversion and water project operations, ocean conditions (limited food and adverse temperatures), and habitat destruction and degradation. For a more detailed discussion, see Unabridged Advanced Notice of Proposed Rulemaking for Water Quality Challenges in the San Francisco Bay/Sacramento-San Joaquin Delta Estuary, U.S. EPA, February 2011; 76 FR 9709, February 22, 2011.

Plan for Restoration: In 2009, the Federal Bay Delta Leadership Committee, a Cabinet-level, multi-agency committee charged with coordinating federal responses to Bay and Delta issues, issued its Interim Federal Action Plan, which outlined the federal government's proposal to address water resource management issues in the estuary. The Interim Federal Action Plan included an action for EPA to “address the effectiveness of current regulatory mechanisms designed to protect water quality in the Delta and its tributaries, including standards for toxics, nutrients, and estuarine habitat protection.” In response, after extensive public comment, EPA published Water Quality Challenges in the San Francisco Bay/Sacramento-San Joaquin Delta Estuary: EPA's Action Plan (the Action Plan) in August 2012. In the Action Plan, EPA concluded that existing programs under the CWA were not adequately safeguarding resources, and recommended seven priority activities to advance the protection and restoration of aquatic resources and ensure a reliable water supply in the watershed. The priority activities are: 1. Strengthen estuarine habitat protection standards; 2. Advance regional water quality monitoring and assessment; 3. Accelerate water quality restoration through Total Maximum Daily Loads (TMDLs); 4. Strengthen selenium water quality criteria; 5. Prevent pesticide pollution; 6. Restore aquatic habitats while managing methylmercury; and 7. Support the Bay Delta Conservation Plan (now called the California WaterFix). This proposed rule is intended to advance priority activity number four, Strengthen selenium water quality criteria.

Sources of Selenium: Sources of selenium in the estuary include the tributaries flowing into the Delta and Bay, municipal and industrial wastewater discharges, stormwater discharges, atmospheric deposition, and in-bay sediments. The largest contributors are the Sacramento and San Joaquin Rivers and the five oil refineries located along the Bay.

The headwaters of both rivers originate from snowmelt in the Sierra Nevada. The Sacramento River flows north to south into the Delta, and drains the northern portion of the Central Valley. The San Joaquin River flows east to west, then turns and flows south to north into the Delta, and drains the southern and central portions of the Central Valley, which are used extensively for farming. The two rivers meet in the Delta near Antioch and flow west into the northern reaches of the Bay, then southwest to the Pacific Ocean.

Selenium concentrations in the San Joaquin River are elevated from selenium enriched soils on the west side of the Central Valley. Agricultural irrigation practices mobilize naturally occurring selenium in the heavy soils derived from marine shale and sediment. Selenium concentrations in the Sacramento River are much lower than in the San Joaquin River and are generally at natural background levels.7 Flow volumes from each river vary depending on the water year type and season, and for the San Joaquin River, the volume of diversions. Therefore, selenium loads from the rivers vary, while loads from the refineries are more constant.

The San Joaquin watershed is much drier than the Sacramento watershed, and flows to the Bay from the San Joaquin River are significantly smaller than those from the Sacramento River. In addition, dams for hydropower and flood control further limit flows from the San Joaquin. Flow volume from the San Joaquin into the Delta as measured at Vernalis between 2002 and 2011 has ranged from approximately 8 to 30 percent of the flow volume from the Sacramento River at Freeport during the same time period.8 At Clifton Court Forebay in the San Joaquin Delta below Vernalis, the State Water Project pumps water from the Delta to the California Aqueduct for delivery to Southern California, and the Central Valley Project pumps water to the Delta Mendota Canal for delivery to Central Valley farmers. As a result of these diversions, even less flow from the San Joaquin enters the northern part of the Bay.

Although flows from the San Joaquin are much smaller than flows from the Sacramento, selenium concentrations have been significantly higher than concentrations in the Sacramento. In 1998 and 1999, concentrations of dissolved selenium in the San Joaquin River averaged 0.71 µg/L, and ranged from 0.40 to 1.07 µg/L at Vernalis.9 Concentrations in the San Joaquin have declined recently, but continue to be higher than levels in the Sacramento River. Recent data from 2010-2012 show that dissolved selenium concentrations range from 0.207 to 0.47 µg/L in the San Joaquin.10 Concentrations in the Sacramento have not materially changed during this time period. In 1998 and 1999, concentrations of dissolved selenium averaged 0.07 µg/L, and ranged from 0.05 to 0.11 µg/L at Freeport.9 More recent data from 2010-2012 show levels between 0.062 and 0.09 µg/L.10

Concentrations of dissolved selenium in the Delta and in the northern and central portions of the Bay from 1998-1999 ranged from 0.070 to 0.320 µg/L.9 Recent data from 2010-2012 show that concentrations have decreased, and range from 0.058 to 0.13 µg/L.10

Agriculture: Selenium concentrations in the San Joaquin River and the estuary are decreasing, in part, as a result of conservation actions from the agricultural industry and California's implementation of three selenium TMDLs in the Central Valley. TMDLs for a portion of the San Joaquin River, the Grassland Marshes, and Salt Slough (a tributary) are being implemented through Waste Discharge Requirements (WDRs) (permits) and the Grassland Bypass Project to reduce and reroute discharges of agricultural return flows from the west side of the watershed around sensitive wetlands.

Between 1986 and 1996, before construction of the Grassland Bypass Project and implementation of the TMDLs, selenium loads in the San Joaquin at Patterson and Crows Landing below the confluence of the Merced River averaged 8,129 pounds per year (lbs/year). Since 2000, selenium loads have ranged from 1,526-6,353 lbs/year, with the lowest loads in recent years.11 Between the mid-1990s and the mid-2000s, selenium loading to surface waters decreased by approximately one-half to two-thirds through agricultural water conservation measures such as harvesting crops that require less water, drip irrigation, water recycling and reuse on salt-tolerant crops, and land retirement. Although the final WDR loading targets have not been met, the agriculture industry has helped reduce selenium loads in the watershed. Final targets are scheduled to be achieved by 2019.

Refineries: Another source of selenium to the estuary is wastewater from the processing of selenium-rich crude oil, from the five major oil refineries located along the Bay. The recent decreases in selenium concentrations in the Bay are also the result of the refineries reducing selenium loads in wastewater discharges in response to California's implementation of more stringent NPDES permit limits. Selenium levels in crude vary, and the crude from the San Joaquin Basin can contain significantly higher levels than other sources of crude. Available data indicate that from 1986 through 1992, the cumulative selenium load to the Bay from the refineries averaged approximately 5,000 lbs/year, and ranged from 3,953 to 5,783 lbs/year.9 In 1991, California required the refineries to reduce their mass discharge of selenium and achieve more stringent wastewater concentration limits. The refineries achieved their mass-based limits and revised concentration limits by 1998. The average cumulative selenium load for all refineries since 1999 has been approximately 1,200 lbs/year, down approximately 75% from early 1990 levels.9 Activities undertaken by both the agriculture industry and the refineries have helped to reduce selenium loads to the Bay.

Invasive Clam Species: In the fall of 1986, after major flooding in the spring had wiped out large parts of the existing benthic community, a small bivalve was discovered in the northern reaches of San Francisco Bay.12 Its population rapidly increased and spread throughout the estuary. The species, Potamocorbula amurensis (P. amurensis), commonly known as Corbula, is native to China, Japan, and Korea, and is thought to have been introduced to the estuary from ballast water. Adults tolerate a wide range of salinity (1 to 32 parts per thousand), and although Corbula flourish in subtidal waters, they can also live in intertidal mudflats.12 The species is remarkably efficient in accumulating selenium from its environment 13 and is responsible for the accelerated bioaccumulation of selenium in the food chain of the fish and bird species in the Bay and Delta ecosystem. The species most at risk in the estuary from the Corbula invasion are believed to be clam-eating fish and bird species such as green and white sturgeon, scoter and scaup.

Need for Revised Criteria: EPA now has updated scientific information on selenium fate and bioaccumulation, as well as updated information on the Bay and Delta estuary ecosystem that was not available when EPA developed the existing Bay and Delta selenium criteria in the NTR. These data indicate the need for revised criteria. The explosion of the Corbula population in the early 1990s has drastically changed the food web and selenium bioaccumulation dynamics in the Bay and Delta. The Ecosystem-Scale Selenium Model for the San Francisco estuary allows EPA to develop revised selenium criteria that account for site-specific and species-specific characteristics, including species with greater exposure and/or susceptibility to selenium. In doing so, EPA is following the requirements at 40 CFR 131.11(a)(1) to derive criteria that are based on a sound scientific rationale and protect the most sensitive uses, which in the case of the Bay and Delta include migration of aquatic organisms (e.g., anadromous fish species), and habitat for rare, threatened and endangered species.

Although conditions have improved from reduced agriculture and refinery loads, ambient levels of selenium are not consistently below harmful levels in all parts of the estuary. Revised criteria are necessary to help ensure that protective levels are attained in all parts of the water body and are maintained in the future to protect designated uses. Several indigenous species are listed under the ESA as threatened or endangered, including green sturgeon, Chinook salmon, steelhead trout, delta smelt and the California Ridgway's rail, and many migratory bird species use the estuary as a wintering ground, including greater and lesser scaup, and white-winged, surf, and black scoter. The analyses to develop the fish tissue and the avian egg tissue benchmarks used in the modeling, and the modeling results used to derive the proposed water column criteria, indicate the health of these species would be negatively impacted from exposure to selenium water column concentrations above 0.2 µg/L, which would be allowed to occur under the existing NTR selenium criterion of 5.0 µg/L. Accordingly, EPA finds that it is necessary to propose revised and more protective criteria for selenium in order to help ensure the continued protection of these vulnerable species and associated designated uses.

Because California's existing aquatic life criteria for selenium in the salt and estuarine waters of the San Francisco Bay, upstream to and including Suisun Bay and the Sacramento-San Joaquin Delta, as promulgated by EPA in the NTR, are not protective of the applicable designated uses per the CWA and EPA's regulations at 40 CFR 131.11, EPA determines under CWA section 303(c)(4)(B) that new or revised WQS for the protection of aquatic life and aquatic-dependent wildlife are necessary to meet the requirements of the CWA for these California waters. EPA, therefore, proposes the revised selenium aquatic life and aquatic-dependent wildlife criteria in this rule in accordance with this 303(c)(4)(B) determination. EPA's determination is not itself a final action, nor part of a final action, at this time. After consideration of comments on the proposed rule, EPA will take final agency action on this rulemaking. It is at that time that any change to the water quality standards applicable in California would occur.

USGS Ecosystem-Scale Selenium Model: The Ecosystem-Scale Selenium Model uses species-specific and hydrologic site-specific information to model the fate and biological uptake of selenium in an aquatic ecosystem through diet. The model was originally developed for the San Francisco estuary. It conceptualizes and quantifies several key variables in order to predict how selenium moves from the water environment to wildlife species through the food chain. It can link selenium tissue concentrations in fish or avian wildlife to dissolved and particulate selenium concentrations in the water environment and to selenium tissue concentrations in prey food.

Starting in 2003, USGS worked with the Services and EPA to model the San Francisco Bay and Delta using various scenarios and endpoints (see the USGS Report). Using the best available data for the estuary, USGS modeled a clam-based food web from the Golden Gate through Suisun Bay to Chipps Island and an insect-based food web from Benicia to Rio Vista (in the Sacramento River Delta area) and to Stockton (in the San Joaquin River Delta area). Using site-specific partitioning coefficients to determine rates of selenium transformation between dissolved and particulate phases, the model can predict how efficiently selenium enters the base of the food web. Once selenium enters the food web, using site-specific trophic transfer factors, which relate selenium concentrations in a species to selenium concentrations in its food, the model can predict how efficiently selenium moves up into prey food and to a predator species. Alternatively, a protective tissue level of selenium in an upper trophic level fish species or in a terrestrial wildlife species (any predator species) can be used to back-calculate and predict the protective concentration of selenium in the species' prey, and the protective concentration of dissolved and particulate selenium at the base of its food web in the aquatic environment.

EPA Modeling: Using information from the Services on important and/or vulnerable fish and avian wildlife species in the estuary, and building on the USGS modeling of the estuary, EPA modeled the estuary to develop site-specific scenarios on which to base the proposed criteria (see Technical Support Document for the Proposed Aquatic Life and Aquatic-Dependent Wildlife Selenium Water Quality Criteria for the San Francisco Bay and Delta (2016), US EPA Region 9, June, 2016).

EPA considered various protective (benchmark) tissue values for representative fish and avian wildlife species to use in the modeling. EPA found that the most appropriate tissue benchmark values for fish species in the estuary are the recommended values in EPA's recent national recommended freshwater aquatic life criterion for selenium 14 and for avian species in the estuary, the egg tissue value discussed in EPA's approval of the State of Utah's avian wildlife criterion for Gilbert Bay of the Great Salt Lake.15 These benchmark values represent a 10% Effect Concentration (EC10), which is a concentration or level of a pollutant that may adversely affect up to 10% of a species population. In the national recommended freshwater aquatic life criterion for selenium, EPA used EC10 concentrations to develop the selenium water quality criterion values.14

EPA modeled two food webs in the estuary, a clam-based web and an insect-based web, to determine protective dissolved, particulate and prey-tissue selenium values. EPA modeled a clam-based food chain for fish and two clam-based food chains for birds that consume Corbula from the estuary, each chain representing at-risk fish and bird species in the estuary. The clam-based fish modeling represented white and juvenile green sturgeon, important species in the estuary that EPA determined are the most vulnerable clam-eating fish species. Although white sturgeon are not listed under the ESA, green sturgeon are threatened and the estuary is designated as critical habitat for the species. Since other important vulnerable fish species in the estuary such as Sacramento splittail consume less Corbula than sturgeon, the other species should be protected if sturgeon are protected.

EPA modeled two clam-based food web scenarios for at-risk avian wildlife to represent two different patterns of avian clam-consumption in the estuary. The California Ridgway's rail (formerly the California clapper rail) is a small, endangered, indigenous bird that lives year-round in the estuary and eats mostly mollusks, but only a small percentage of Corbula. The five species of migratory diving waterfowl, greater and lesser scaup and white-winged, surf, and black scoter, live part-time in the estuary, but up to 90% of their diet may consist of Corbula from the estuary. These differences in living and eating patterns are sufficiently significant that EPA ran the model for each separately to ensure the criteria are protective of all avian wildlife in the Bay and Delta estuary.

Lastly, EPA modeled insect-eating fish to represent two important anadromous species, the endangered Chinook salmon and the threatened steelhead trout, and an important, threatened, indigenous species in the estuary, the delta smelt. Since anadromous species use the estuary as a migratory corridor, and adults returning to spawn do not feed during in-migration, EPA considered the diet of juveniles as they out-migrate through the estuary to the Pacific Ocean. Delta smelt, and juvenile Chinook salmon and steelhead trout, consume mainly insects, and do not feed on Corbula.

The model results indicate that clam-eating fish and clam-eating bird species are the most vulnerable species, and require lower dissolved and particulate water column selenium concentrations in the estuary than insect-eating fish in order to ensure that tissue levels stay below concentrations that may cause adverse effects. EPA considered the dissolved water column, particulate water column, and prey-tissue values necessary to protect all three categories of species in setting the proposed regulatory criteria values.

Water quality criteria establish the maximum allowable pollutant level that is protective of the designated uses of a water body. States (or in this case, EPA) adopt criteria as part of water quality standards. Under the CWA, water quality standards are used to derive effluent limitations in permits for point source dischargers, thereby limiting the amount of pollutants that may be discharged into a water body to maintain its designated uses. EPA is proposing selenium water quality criteria for the San Francisco Bay and Delta in tissue and in the water column (both dissolved and particulate selenium concentrations). EPA is proposing selenium tissue concentration criteria because they reflect biological uptake through diet, the predominant pathway for selenium toxicity, and because they are most predictive of the observed biological endpoint of concern: reproductive toxicity. However, tissue concentrations present challenges when attempting to use them to regulate or limit sources of pollutants. In order to facilitate monitoring and regulation of pollutant discharges, EPA is also proposing dissolved and particulate water column selenium concentration criteria needed to ensure the tissue concentration criteria are met. Because EPA used site-specific species and hydrologic information in the Ecosystem-Scale Selenium Model to determine the protective dissolved and particulate water column and prey selenium concentrations associated with the predator tissue concentrations, EPA proposes that the criteria in different media are equivalently protective and exceedance of any one medium would indicate an impairment of the designated use.

The proposed tissue criteria consist of fish tissue criteria, a whole body criterion of 8.5 micrograms per gram (µg/g) dry weight (dw) or a muscle criterion of 11.3 µg/g dw, and a clam (or prey) tissue criterion of 15 µg/g dw. EPA is proposing each of these tissue criteria as an instantaneous measurement not to be exceeded. The proposed chronic water column criterion is a dissolved selenium criterion of 0.2 µg/L, and the proposed particulate criterion is 1 µg/g. Each of these two values is a 30-day average, not to be exceeded more than once in three years.

Although selenium may cause acute toxicity at high concentrations, i.e., toxicity from a brief but highly elevated concentration of selenium in the water, chronic dietary exposure poses the highest risk to aquatic life and aquatic-dependent wildlife. Chronic toxicity occurs primarily through maternal transfer of selenium to eggs and causes subsequent reproductive effects. These chronic effects are observed at much lower concentrations than acute effects. Aquatic and aquatic-dependent communities are expected to be protected by the chronic criteria from any potential acute effects of selenium and an acute toxicity criterion is not pertinent for regulatory purposes. However, some high, short-term exposures could be detrimental by causing significant long-term, residual, bioaccumulative effects, i.e., by the introduction of a selenium load into the system. Therefore, EPA is also proposing an intermittent exposure water quality criterion to prevent long-term detrimental effects from these high, short-term exposures. EPA derived the proposed intermittent criterion as a fraction of the 30-day load based on the chronic water column criterion, after accounting for the background selenium concentration. EPA expects that a short-term, significantly elevated selenium scenario would rarely occur in the San Francisco Bay and Delta due to the large volume of water and tidal influences within the estuary that dilute and flush selenium loads through the Golden Gate. EPA is proposing this intermittent criterion to ensure protection of the ecosystem and for consistency with EPA's national recommended aquatic life criterion for selenium. A summary of the proposed criteria is included in Table 2.

The proposed criteria apply to all waters of the San Francisco Bay and Delta with salinities of greater than 1 part per thousand (ppt) 95% or more of the time.

California will have considerable discretion to implement these selenium criteria, once finalized, through various water quality control programs, including the NPDES program, which limits discharges to waters except in compliance with an NPDES permit. Among other things, EPA's regulations: (1) Specify how states and authorized tribes establish, modify or remove designated uses, (2) specify the requirements for establishing criteria to protect designated uses, including criteria modified to reflect site-specific conditions, (3) authorize states and authorized tribes to adopt WQS variances to provide time to achieve the applicable WQS, and (4) allow states and authorized tribes to include compliance schedules in NPDES permits to provide time for dischargers to achieve effluent limits based on the applicable WQS. Designated uses, site-specific criteria, variances, and compliance schedules are discussed in more detail below.

Designated Uses: EPA's proposed selenium criteria apply to marine and estuarine waters in the San Francisco Bay and Delta where the protection of aquatic life and aquatic-dependent wildlife are designated uses (see The Water Quality Control Plan for the San Francisco Bay/Sacramento-San Joaquin Delta Estuary, SWRCB, December 13, 2006). The federal regulations at 40 CFR 131.10 provide information on establishing, modifying, and removing designated uses. If California removes designated uses such that no aquatic life or aquatic-dependent wildlife uses apply to any particular water body segment affected by this rule and adopts the highest attainable use,16 and EPA finds that removal to be consistent with CWA section 303(c) and the implementing regulations at 40 CFR part 131, then the federal selenium aquatic life and aquatic-dependent wildlife criteria would no longer apply to that water body segment. Instead, any criteria associated with the newly designated highest attainable use would apply to that water body segment.

Site-Specific Criteria: The regulations at 40 CFR 131.11 specify requirements for modifying water quality criteria to reflect site-specific conditions. In the context of this rulemaking, a site-specific criterion (SSC) is an alternative value to the federal selenium criteria that would be applied on an area-wide or water body-specific basis that meets the regulatory test of protecting the designated uses, being scientifically defensible, and ensuring the protection and maintenance of downstream WQS. A SSC may be more or less stringent than the otherwise applicable federal criteria. A SSC may be appropriate when further scientific data and analyses can bring added precision to express the concentration of selenium that protects the aquatic life- and aquatic-dependent wildlife-related designated uses in a particular water body or portion of a water body. Since the San Francisco Bay and Delta is a large water body, a different SSC may be appropriate for a small segment of the estuary, e.g., South San Francisco Bay, if differing flow dynamics indicate that different criteria may be more appropriate. As discussed in section II. E., EPA proposes that once EPA approves criteria that California adopts and submits after EPA finalizes this proposed rule, the site-specific EPA-approved criteria in California's WQS would become effective for CWA purposes and EPA's promulgated criteria would no longer apply.

Variances: EPA's regulations at 40 CFR part 131.14 authorize states and authorized tribes to adopt WQS variances to provide time to achieve the applicable WQS. 40 CFR part 131 defines WQS variances at 131.3(o) as time-limited designated uses and supporting criteria for a specific pollutant(s) or water quality parameters(s) that reflect the highest attainable conditions during the term of the WQS variance. WQS variances adopted in accordance with 40 CFR part 131 allow states and authorized tribes to address water quality challenges in a transparent and predictable way. Variances help states and authorized tribes focus on making incremental progress in improving water quality, rather than pursuing a downgrade of the underlying water quality goals through a designated use change, when the current designated use is difficult to attain. EPA is proposing criteria that apply to use designations that California has already established. California currently has authority to use variances when implementing the criteria, as long as such variances are adopted consistent with 40 CFR 131.14 (see Policy for Implementation of Toxics Standards for Inland Surface Waters, Enclosed Bays, and Estuaries of California, Section 5.3, SWRCB, March 2, 2000, amended February 24, 2005; and Procedures for Case-by-Case Exceptions from Criteria/Objectives, SWRCB, April 15, 2008). California may use EPA-approved variance procedures, with respect to a temporary modification of its uses as it pertains to any federal criteria, when adopting such variances.

Compliance Schedules: EPA's regulations at 40 CFR 122.47 and 40 CFR 131.15 allow states and authorized tribes to include permit compliance schedules in their NPDES permits, when appropriate, in order to accommodate a discharger's need for additional time to meet its water quality-based effluent limits (WQBELs) implementing applicable WQS (such as time needed for facility upgrades and operational changes).

In 1990, EPA concluded that before a permitting authority can include a compliance schedule for a WQBEL in an NPDES permit, the state or authorized tribe must authorize its use in its WQS or implementing regulations.17 A permit compliance schedule authorizing provision (CSAP) authorizes, but does not require, the permit issuing authority to include compliance schedules in permits. EPA's approval of the state's or authorized tribe's permit CSAP as a WQS pursuant to 40 CFR 131.15 ensures that any NPDES permit that contains a compliance schedule meets the requirement that the WQBEL and any compliance deadlines derive from and comply with applicable WQS.

California is authorized to administer the NPDES program in the state, and has adopted several mechanisms to authorize compliance schedules in NPDES permits. In 2008, California adopted a statewide CSAP that EPA subsequently approved under CWA section 303(c), the Policy for Compliance Schedules in National Pollutant Discharge Elimination System Permits, SWRCB Resolution No. 2008-0025, April 15, 2008. This EPA-approved regulation authorizes the use of permit compliance schedules consistent with 40 CFR 131.15, and is not affected by this rule. The CSAP will allow California to grant compliance schedules, as appropriate, based on the federal selenium criteria for the Bay and Delta, once these criteria are finalized (see letters dated May 20, 2016 and May 27, 2016 from the SWRCB to EPA in the docket for this rule).

Pursuant to section 7(a) of the ESA, EPA is consulting with the FWS and NMFS concerning EPA's rulemaking action for selenium water quality criteria in the San Francisco Bay and Delta. EPA will initiate informal consultation, and will transmit to the Services documentation that supports the selenium water quality criteria in this proposed rule. As a result of this consultation, EPA may modify some provisions of this proposed rule. The basis for the selenium criteria in this proposed rule stems from many years of ongoing collaboration between EPA and the Services. EPA, FWS and NMFS will continue to work closely together on this ESA consultation process.

POTWs and industrial point sources that discharge to the Bay and Delta may incur some incremental compliance actions and costs as a result of the proposed criteria. California has NPDES permitting authority for these dischargers, and retains considerable discretion in implementing standards. EPA evaluated the potential costs to the municipal and industrial NPDES dischargers associated with state implementation of EPA's proposed dissolved water column criterion. EPA did not evaluate the potential costs associated with state implementation of EPA's proposed particulate water column criterion because particulate data are not available and because the state has discretion concerning implementation. This analysis is documented in Economic Analysis for Proposed Aquatic Life and Aquatic-Dependent Wildlife Criteria for Selenium in the San Francisco Bay and Delta, California (prepared for EPA by Abt Associates in Partnership with PG Environmental, LLC, June, 2016), which can be found in the docket for this rulemaking.

NPDES-permitted facilities that discharge selenium to affected portions of the Bay and Delta could potentially incur compliance costs. The types of affected facilities could include industrial facilities and POTWs discharging wastewater to surface waters (i.e., point sources). EPA expects that dischargers will use the same types of controls as they are currently using to comply with existing selenium criteria applicable to the Bay and Delta, to come into compliance with the revised criteria. Since the state recently adopted the North San Francisco Bay Selenium TMDL, and the TMDL requirements and underlying analyses indicate that current ambient water quality conditions (dissolved selenium levels at or below 0.2 µg/L) will be maintained, EPA did not include costs associated with point sources covered in the TMDL analysis.

EPA did not identify incremental compliance costs for nonpoint sources. Unlike point sources, California typically does not require nonpoint sources to achieve numeric WQBELs; instead, these sources often have best management practice (BMP) requirements, as well as load allocations associated with TMDLs. Regional Boards have already established TMDLs for selenium in the Lower San Joaquin River and the North San Francisco Bay, and EPA assumes the proposed selenium criteria will not result in the need for additional controls by nonpoint sources in those areas. It is uncertain to what extent nonpoint sources contribute selenium loadings to the Lower and South San Francisco Bay. EPA assumes that naturally-occurring selenium may be the primary source of selenium in the Lower and South San Francisco Bay, and as such, the incremental controls and costs for nonpoint sources as a result of the proposed criteria will not be significant.

Potentially affected facilities include those discharging to waters subject to the proposed criteria (i.e., marine or estuarine waters) that are not already included in the North San Francisco Bay Selenium TMDL. EPA identified 16 such point source facilities, all discharging to the Lower and South San Francisco Bay. Of these potentially affected facilities, 14 are POTWs and 2 are industrial dischargers (the San Francisco International Airport and the Bottling Group, LLC). Table 3 summarizes these potentially affected facilities by type and category.

For all potentially affected facilities, EPA used the last five years of effluent data (when available) and ambient monitoring data from the relevant monitoring station to determine whether there is reasonable potential for the facility to cause or contribute to an excursion above the proposed dissolved water column criterion for selenium. For those facilities that have reasonable potential, EPA calculated projected effluent limits. EPA conducted reasonable potential analyses and calculated effluent limitations for each facility based on California's permitting practices.18 In instances where the facility's maximum effluent selenium concentration exceeded the projected effluent limitations under the proposed criterion, EPA determined the likely compliance scenarios and costs. Following California's Policy for Implementation of Toxics Standards for Inland Surface Waters, Enclosed Bays, and Estuaries of California may result in a conservative evaluation for some point sources. However, the Regional Boards have substantial discretion to apply other implementing permitting procedures that are consistent with the Policy's requirements, and may elect to follow different methods to determine whether effluent limits are necessary and/or the value of the effluent limitations. These alternative methods may result in fewer facilities requiring action and/or less stringent permit limitations.

EPA assumed that dischargers would pursue the least cost means of compliance with WQBELs. Incremental compliance actions attributable to the proposed rule may include process optimization, source controls, end-of-pipe treatment, and alternative compliance mechanisms (e.g., site-specific criteria, variances, and dilution credits). For plants discharging at levels above California's minimum quantitation level, EPA has assumed that the facility will pursue conventional treatment methods to comply with the projected effluent limitations. Facilities operating below the quantitation level are discharging near the projected limitations, and EPA has assumed that compliance is likely to be achievable using process optimization methods. EPA annualized capital costs over 20 years using a 3% discount rate to obtain total annual costs per facility.

Of the 16 potentially affected facilities that EPA identified, 14 were found to have reasonable potential to cause or contribute to an excursion above the proposed criterion. For compliance with revised WQBELs under the proposed rule, EPA estimates the total annual cost to be approximately $16 million across the 14 facilities. Of these costs, nearly all are attributable to POTW dischargers (i.e., 13 POTWs and one industrial facility, the San Francisco International Airport).

This action is not a significant regulatory action and was, therefore, not submitted to the Office of Management and Budget (OMB) for review. The proposed rule does not establish any requirements directly applicable to regulated entities or other sources of toxic pollutants. However, these WQS may serve as a basis for development of NPDES permit limits. California has NPDES permitting authority, and retains considerable discretion in implementing WQS. In the spirit of Executive Order 12866, EPA evaluated the potential costs to NPDES dischargers associated with state implementation of EPA's proposed criteria. This analysis, Economic Analysis for Proposed Aquatic Life and Aquatic-Dependent Wildlife Criteria for Selenium in the San Francisco Bay and Delta, California, is summarized in section VI. of the preamble and is available in the docket.

This action does not impose an information collection burden under the PRA. While actions to implement these WQS could entail additional paperwork burden, this action does not directly contain any information collection, reporting, or record-keeping requirements.

I certify that this action will not have a significant economic impact on a substantial number of small entities under the RFA. This action will not impose any requirements on small entities. Small entities, such as small businesses or small governmental jurisdictions, are not directly regulated by this rule.

This action does not contain any unfunded mandate as described in UMRA, 2 U.S.C. 1531-1538, and does not significantly or uniquely affect small governments. As these water quality criteria are not self-implementing, the action imposes no enforceable duty on any state, local or tribal governments or the private sector.

This action does not have federalism implications. It will not have substantial direct effects on the states, on the relationship between the national government and the states, or on the distribution of power and responsibilities among the various levels of government. This rule does not alter California's considerable discretion in implementing these WQS, nor would it preclude California from adopting WQS that meet the requirements of the CWA, either before or after promulgation of the final rule, which would eliminate the need for federal standards upon EPA approval of the state WQS. Thus, Executive Order 13132 does not apply to this action.

In the spirit of Executive Order 13132 and consistent with EPA policy to promote communications between EPA and state and local governments, EPA specifically solicits comments on this proposed action from state and local officials.

This action does not have tribal implications as specified in Executive Order 13175. This proposed rule does not impose substantial direct compliance costs on federally recognized tribal governments, nor does it substantially affect the relationship between the federal government and tribes, or the distribution of power and responsibilities between the federal government and tribes. Thus, Executive Order 13175 does not apply to this action.

Consistent with the EPA Policy on Consultation and Coordination with Indian Tribes, EPA consulted with tribal officials during the development of this action. EPA will continue to communicate with the tribes prior to its final action.

The EPA interprets Executive Order 13045 as applying only to those regulatory actions that concern environmental health or safety risks that the EPA has reason to believe may disproportionately affect children, per the definition of “covered regulatory action” in section 2-202 of the Executive Order. This action is not subject to Executive Order 13045 because it does not concern an environmental health risk or safety risk.

This action is not subject to Executive Order 13211, because it is not a significant regulatory action under Executive Order 12866.

This proposed rulemaking does not involve technical standards.

The human health or environmental risk addressed by this action will not have potential disproportionately high and adverse human health or environmental effects on minority, low-income or indigenous populations. The criteria in this proposed rule will support the health and abundance of aquatic life and aquatic-dependent wildlife in the San Francisco Bay and Delta and will, therefore, benefit all communities that rely on these ecosystems.

For the reasons set forth in the preamble, EPA proposes to amend 40 CFR part 131 as follows:

Background and Purpose

Volume III of the Marine Safety Manual (MSM) provides information and interpretations on international conventions and U.S. statutes and regulations relating to marine industry personnel. The last updates to Volume III of the MSM were released on July 30, 2014 (79 FR 45451, Aug. 5, 2014). This document announces updates to portions of Part B and C.

Specifically, substantive changes include: (1) Updated guidance to align with the Howard Coble Coast Guard and Maritime Transportation Act of 2014; (2) manning scales for towing vessels certificated under 46 CFR Subchapter M from the recently published Inspection of Towing Vessels final rule (81 FR 40003, June 20, 2016); and (3) various policy updates involving vessel manning.

In addition to red-lining proposed changes and annotating each changed page with CH-2 in the footer, we have created a change matrix identifying proposed changes. Both of these documents are available for viewing in the public docket.

It should be noted that the proposed revisions in this draft change are not intended to preempt or take the place of separate policy initiatives regarding specific decisions on appeal or future regulations. Future changes to the MSM may be released if the Coast Guard promulgates new regulations or issues appeal decisions, which may affect the guidance and information contained within the MSM.

We encourage you to submit comments (or related material) on our draft Commandant Change Notice 16000, CH-2 to the Marine Safety Manual, Volume III, Marine Industry Personnel, COMDTINST M16000.8B, which is in the docket and contains substantive changes to Parts B and C of MSM Volume III. We will consider all submissions and may adjust our final action based on your comments. If you submit a comment, please include the docket number for this notice, indicate the specific section of the Commandant Change Notice to which each comment applies, and provide a reason for each suggestion or recommendation.

We encourage you to submit comments through the Federal eRulemaking Portal at http://www.regulations.gov. If your material cannot be submitted using http://www.regulations.gov, contact the person in the FOR FURTHER INFORMATION CONTACT section of this document for alternate instructions. Documents mentioned in this notice, and all public comments, are in our online docket at http://www.regulations.gov and can be viewed by following that Web site's instructions. Additionally, if you go to the online docket and sign up for email alerts, you will be notified when comments are posted or the Coast Guard publishes another document related to the draft Marine Safety Manual, Volume III, Parts B and C, Change-2.

We accept anonymous comments. All comments received will be posted without change to http://www.regulations.gov and will include any personal information you have provided. For more about privacy and the docket, you may review a Privacy Act notice regarding the Federal Docket Management System in the March 24, 2005, issue of the Federal Register (70 FR 15086).

This document is issued under authority of 5 U.S.C. 552(a).