Federal Register Vol. 81, No.33,

This proposed rule is part of the Administration's Export Control Reform Initiative (Initiative), the objective of which is to protect and enhance U.S. national security interests. The Initiative began in August 2009 when President Obama directed the Administration to conduct a broad-based review of the U.S. export control system to identify additional ways to enhance national security. The Department of State's International Traffic in Arms Regulations (ITAR) and its U.S. Munitions List (USML) are being amended to control only the items that provide the United States with a critical military or intelligence advantage or otherwise warrant such controls, and the Export Administration Regulations (EAR) are being amended to control military items that do not warrant USML controls. These changes will enhance national security by (i) improving interoperability of U.S. military forces with allied countries, (ii) strengthening the U.S. industrial base by, among other things, reducing incentives for foreign manufacturers to design out and avoid U.S.-origin content and services, and (iii) allowing export control officials to focus government resources on transactions that pose greater concern.

Pursuant to section 38(f) of the Arms Export Control Act (AECA), the President is obligated to review the USML “to determine what items, if any, no longer warrant export controls under” the AECA. The President must report the results of the review to Congress and wait 30 days before removing any such items from the USML. The report must “describe the nature of any controls to be imposed on that item under any other provision of law.” 22 U.S.C. 2778(f)(1).

Following the structure set forth in the final rule entitled “Revisions to the Export Administration Regulations: Initial Implementation of Export Control Reform” (78 FR 22660, April 16, 2013) (“April 16 (initial implementation) rule”), BIS published a proposed rule entitled “Revisions to the Export Administration Regulations (EAR): Control of Fire Control, Range Finder, Optical, and Guidance and Control Equipment the President Determines No Longer Warrant Control Under the United States Munitions List (USML)” (80 FR 25798, May 5, 2015) (“May 5 proposed rule”). That proposed rule was published in conjunction with a proposed rule published by the Department of State's Directorate of Defense Trade Controls (DDTC) to propose controls for the ITAR's USML Category XII.

The proposed changes described in this proposed rule and the corresponding changes in the State Department's proposed amendment to USML Category XII are based, in part, on a review of public comments submitted in response to the May 5 proposed rule. The review of the comments on USML Category XII by the Departments of Commerce, Defense, Homeland Security, and State (hereinafter, “the agencies” or the “interagency review”) focused on identifying those types of articles that provide the United States with a critical military or intelligence capability and that are not currently in normal commercial use. It is the intent of the above agencies that the proposed USML Category XII and corresponding 600 series ECCNs not control items in normal commercial use. Such items should be controlled under existing dual-use controls on the CCL, consistent with the Wassenaar Arrangement List of Dual-Use Goods and Technologies. However, if the proposed entries in USML Category XII or corresponding 600 series ECCNs include items in normal commercial use, then the public is encouraged to submit comments identifying such entries and examples of commercial items captured by those entries.

To address concerns regarding the sensitivity of certain dual-use items related to infrared detection capability, this proposed rule would add restrictions to the export or reexport of several sensors and cameras, and related software and technology, that provide important night vision capability for military use but are also widely used in civil products and applications. These proposed restrictions include amending the availability of certain license exceptions, including TSR, APR, and STA; expanding the license requirement in § 744.9 and scope of ECCN 0A919; adding new ECCN 0E987 for the development or production of commodities controlled by 0A987 that incorporate a focal plane array or image intensifier tube; expanding software controls related to items in ECCNs 6A002 and 6A003 by revising ECCNs 6D002, 6D003, and 6D991; and expanding the scope of read-out integrated circuits controlled under ECCN 6A990 and related software and technology in ECCNs 6D991 and 6E990.

This proposed rule would also revise controls pertaining to cameras classified under ECCN 6A993.a as a result of meeting the criteria to Note 3.a to ECCN 6A003.b.4.b (i.e., having a maximum frame rate equal to or less than 9 Hz). The interagency review found that these 9 Hz cameras have been incorporated into foreign military commodities. As a result, this proposed rule would amend § 744.9 to include such 9 Hz cameras and subject them to the license requirements described in that section. Additionally, this proposed rule would create new ECCN 0E987 to control technology required for the development or production of ECCN 0A987 commodities that incorporate a focal plane array or image intensifier tube.

As a result of the interagency review, BIS believes that a limited number of military items, primarily less-sensitive parts and components, should move from USML Category XII to the 600 series entries proposed in this rule. This proposed rule would create (or revise in the case of 7A611) the following “600 series” ECCNs: 7A611, military fire control, laser, imaging, and guidance and control commodities; 7B611, test, inspection, and production commodities “specially designed” for military fire control, laser, imaging, and guidance and control commodities; 7D611, software “specially designed” for the “development,” “production,” operation, or maintenance of commodities controlled by 7A611 or 7B611; and 7E611, technology “required” for the “development,” “production,” operation, installation, maintenance, repair, overhaul or refurbishing of commodities controlled by 7A611 or 7B611, or software controlled by 7D611.

In this proposed rule, all references to the USML are to the list of defense articles that are controlled for the purpose of export or temporary import pursuant to the ITAR, and not to the defense articles on the USML that are controlled by the Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF) for the purpose of permanent import under its regulations (see 27 CFR part 447). Pursuant to § 38(a)(1) of the AECA, all defense articles controlled for export or import are part of the USML under the AECA. For the sake of clarity, the list of defense articles controlled by ATF for the purpose of permanent import is the United States Munitions Import List (USMIL). The transfer of defense articles from the ITAR's USML to the EAR's CCL for the purpose of export controls does not affect the list of defense articles controlled on the USMIL under the AECA for the purpose of permanent import.

BIS intends this proposed rule to be evaluated on its own merits, and the public need not review the May 5 proposed rule to understand this action. Once the public comments on this rule are reviewed and responded to, BIS intends to publish a final rule.

BIS received 60 public comments in response to the May 5 proposed rule. Many of the comments focused on aspects of both the BIS proposed rule and the DDTC proposed rule. Generally, many commenters found that when the May 5 proposed rules used an unambiguous, bright line to delineate jurisdiction, the line was drawn in the wrong place. For many entries on the proposed USML Category XII, commenters found that no military specification or parameters were used to identify items warranting ITAR control. In addition, many commenters asserted that the proposed USML Category XII would capture items currently subject to the EAR, including some items that are currently EAR99. For other entries, commenters said the proposed rules added difficulty in determining jurisdiction. For instance, commenters indicated that new terms introduced to the ITAR in the proposal, such as “core” and “permanently encapsulated sensor assembly,” added new layers of complexity and confusion to the current controls. In addition, many commenters expressed concerns regarding new proposed controls in the EAR for certain infrared detection items and for the inclusion of certain items in the proposed 600 series entries.

Because of these concerns, one of the most common themes throughout the comments was that the May 5 proposed rules would lead to or further a competitive disadvantage for U.S. companies and research institutions. Commenters stated that many of the items proposed for control under either the proposed USML Category XII or 600 series entries were in normal commercial use and available from non-U.S. sources. To address these concerns, some commenters proposed additional parameters for various entries or recommended the use of “specially designed” in place of attempts to identify positive control parameters.

To address concerns raised in the public comments and to further harmonize and simplify the EAR, this proposed rule makes a number of changes from the May 5 proposed rule. First, this rule does not propose to amend part 742 to create a new worldwide Regional Stability (RS) control for dual-use items but would maintain a new worldwide RS control for certain military technology in ECCN 7E611.a. All other items described in this proposed rule that are or would be subject to RS controls would generally be subject to an RS Column 1 control, which imposes a license requirement for all destinations except Canada. For items the agencies believe warrant strict control, this proposed rule amends the availability of license exceptions or licensing policy, as described further below.

This proposed rule also does not include controls proposed in the May 5 proposed rule for certain maintenance, repair, or overhaul software or technology related to certain dual-use infrared detection commodities. Such controls, which were proposed in new ECCNs 6D994 and 6E994, would exceed those of the Wassenaar Arrangement, and based on public comments, would likely have resulted in extensive license requirements for purely commercial activities, such as civil automotive repair.

Due to the elimination of the term “permanent encapsulated sensor assembly” as a parameter for determining jurisdiction for focal plane arrays in DDTC's proposed rule, this proposed rule also does not include the definition for that term in part 772, as proposed in the May 5 proposed rule. This rule also removes references to that term that were proposed to be included in ECCN 6A002.

With respect to the structure of the 600 series, this proposed rule would create only one set of 600 series ECCNs corresponding to USML Category XII rather than two sets. The May 5 proposed rule included a 6x615 series for military fire control, range finder, and optical items and a 7x611 series for military guidance and control items. In order to simplify controls, this proposed rule would only establish one set of 600 series ECCNs, the 7x611 series, which would correspond to all items proposed for control under USML Category XII.

Additional changes made from the May 5 proposed rule are discussed more fully below.

This rule proposes new revisions to the EAR that were not included in the May 5 proposed rule. In order to make the EAR more consistent and easier to apply, this proposed rule would revise various parts of the EAR related to certain QRS-11 sensors and to license requirements related to uncooled thermal imaging cameras.

In 2007, DDTC and BIS published final rules (72 FR 31452 (June 7, 2007); 72 FR 62768 (Nov. 7, 2007)) that moved the licensing jurisdiction for certain QRS-11 quartz rate sensors from the ITAR to the EAR when such sensors were integrated into and included as an integral part of a Commercial Standby Instrument System (or aircraft incorporating such system) or exported solely for integration into such a system. The BIS final rule added certain QRS-11 sensors to ECCN 7A994 and included an RS Column 1 control. In addition, the BIS final rule amended § 734.4 to add certain QRS-11 sensors to the list of items for which there is no de minimis level for foreign-made items incorporating such content.

While predating Export Control Reform (ECR), the movement of certain QRS-11 sensors from the ITAR to the EAR reflects many of the rationales for ECR. The sensors, while originally designed for military application, began to be used in civil aircraft prior to the 2007 final rules. Thus, due to application of the see-through rule, State Department authorization would have been required for numerous exports and reexports involving civil aircraft.

With the advent of ECR, BIS believes that special controls are no longer warranted for certain QRS-11 sensors. Consequently, this proposed rule would remove the RS Column 1 control from ECCN 7A994, along with references to certain QRS-11 sensors in the License Requirements Notes and Related Controls. To the extent that such sensors are not described on the USML (and the agencies do not believe that any of the sensors are described on the revised USML), one would follow the Order of Review in Supplement No. 4 to part 774 to determine whether the sensors may be captured under a 600 series ECCN or under a dual-use ECCN.

This proposed rule would also remove and reserve § 734.4(a)(3), which currently provides that there is no de minimis level for certain foreign-made items incorporating certain QRS-11 sensors subject to the EAR. Depending on the classification of the applicable QRS-11 sensor, one would follow the applicable de minimis requirements for 600 series items or for non-600 series items. In addition, this proposed rule would remove the restriction on the availability of license exceptions for certain QRS-11 sensors under § 740.2(a)(9), and this proposed rule would remove references to QRS-11 sensors classified under ECCN 7A994 in ECCNs 7E994 (Related Controls) and 9A991 (License Requirement Notes and Related Controls). Finally, this proposed rule would also amend Note 1 in the definition of “specially designed” to remove the reference to ECCN 7A994. With the proposed removal of the RS Column 1 control, 7A994 would only be subject to the Anti-Terrorism reason for control and would not need to be included in Note 1.

On May 22, 2009, BIS published a final rule (74 FR 23941) (“May 2009 final rule”) that revised license requirements and license exception eligibility for certain uncooled thermal imaging cameras in ECCN 6A003. That rule revised ECCN 6A003 and § 742.6 to make the RS Column 1 reason for control inapplicable for certain transactions for a group of countries (now Country Group A:1) if certain uncooled thermal imaging cameras are fully packaged for use as consumer ready civil products or if such cameras with not more than 111,000 elements are to be embedded in civil products by authorized companies.

While BIS believes that this structure has been useful to address foreign availability concerns regarding uncooled thermal imaging cameras, the different authorization structure established by the May 2009 final rule added complexity to the regulations. Further, BIS believes that with the implementation of License Exception STA, the authorizations described in § 742.6(a)(2)(iii) and (v) are no longer necessary for exports or reexports of certain uncooled thermal imaging cameras in 6A003. Thus, this proposed rule would remove §§ 742.6(a)(2) and (a)(4)(ii). Also, this proposed rule would remove the current distinction in ECCN 6A003 for RS Column 1 and Column 2 controls and subject all items in 6A003 to the RS Column 1 reason for control. BIS acknowledges that this proposal would require a license for certain transactions that currently would not require one, but BIS believes that the use of STA will alleviate concerns regarding this change. BIS welcomes comments on this proposal.

Due to the proposed changes to § 742.6 and ECCN 6A003, this proposed rule would also amend corresponding footnotes (current footnotes 2 and 4) used in the Commerce Country Chart (Supplement No. 1 to part 738). In addition, this proposed rule would amend License Exception APR to remove references in § 740.16(b) to the text proposed for removal in § 742.6. This proposed rule would also amend § 742.4 to remove similar references to text in § 742.6 proposed for deletion. Finally, this proposed rule would remove and reserve § 743.3, which describes the current reporting requirement created by the May 2009 final rule.

The May 5 proposed rule included a number of proposed revisions to the EAR to address concerns regarding the sensitivity of certain items providing infrared detection capability. This proposed rule includes many of the same proposals, but with some differences noted below. This proposed rule would revise certain controls and policies for infrared detection items and foreign-made military commodities incorporating infrared detection items by amending §§ 734.4, 740.2, 740.16, 740.20, 742.6, and 744.9 of the EAR.

Section 734.4(a)(5) of the EAR currently provides that there is no de minimis level for foreign military commodities, as described in ECCN 0A919, that incorporate certain infrared detection items. Since this proposed rule would expand the scope of items controlled under ECCN 0A919, as described further below, § 734.4(a)(5) would also be revised to reflect changes to that ECCN. However, this proposed rule would amend the de minimis treatment for 0A919 items incorporating infrared detection content to make them consistent with 0A919 items incorporating 600 series or 9x515 content. Thus, under this proposed rule, there would be no de minimis level for foreign-made military commodities described in ECCN 0A919, which incorporate commodities classified under ECCNs 6A002, 6A003, 6A990, or 6A993.a (that meet the criteria of Note 3.a to ECCN 6A003.b.4.b), if the 0A919 commodities are destined for a country in Country Group D:5. When destined for a country outside of Country Group D:5, such 0A919 commodities would be subject to the 25% de minimis threshold.

Section 740.2 sets forth restrictions on all license exceptions, and the May 5 proposed rule included a restriction in § 740.2(a)(7) for certain 6E002 production technology for certain infrared detection components in 6A002.a.2 or a.3 as well as for 6E990 technology.

The interagency review re-examined those technologies that warranted additional restrictions under § 740.2. As a result of that review, this proposed rule would increase the scope of technology subject to the restriction by including certain development technology in ECCN 6E001. However, this proposed rule would also narrow the type of technology subject to the restriction to focus on technology related to the most sensitive dual-use focal plane arrays and image intensifier tubes in 6A002 to ensure that the restriction is not overly broad in covering technology related to all dual-use components. Thus, under this proposed rule, § 740.2(a)(7) would apply to 6E001 or 6E002 technology required for the development or production of the following focal plane arrays: photon detector, microbolometer detector, pyroelectric, or multispectral detector infrared focal plane arrays (IRFPAs), described in ECCN 6A002, having a peak response within the wavelength range exceeding 900 nm but not exceeding 30,000 nm, excluding lead sulfide or lead selenide IRFPAs having a peak response within the wavelength range exceeding 1,000 nm but not exceeding 5,000 nm and not exceeding 16 detector elements. Moreover, § 740.2(a)(7) would apply to 6E001 or 6E002 technology required for the development or production of third generation image intensifier tubes or image intensifier tubes greater than third generation (e.g., EBAPS). Such 6E001 and 6E002 technology would, however, remain eligible for § 740.11(b)(2) of License Exception GOV.

License Exception APR currently authorizes specified reexports of items subject to the EAR by certain countries to specified destinations without individual licenses from BIS. The May 5 proposed rule would increase the number of items ineligible for paragraph (a) of APR by including all items in ECCNs 6A002, 6A003, and 6A990 in the restrictions found in paragraph (a)(2). This proposed rule maintains that proposed change. Similarly, this proposed rule would also add all items in those ECCNs to the scope of items subject to the restriction in paragraph (b)(2) on the use of paragraph (b) of APR. Also, this proposed rule would further revise paragraph (b) of APR, as previously described, with respect to certain uncooled thermal imaging cameras. With the proposed removal of paragraph (b)(3), this proposed rule also revises paragraph (b) by consolidating the list of items ineligible to be reexported under paragraph (b)(1) in one location in paragraph (b)(2).

The EAR currently restricts the use of License Exception STA for specific commodities controlled by ECCNs 6A002, as well as related technology controlled by 6E001 or 6E002, for export or reexport to countries listed in § 740.20(c)(2). The May 5 proposed rule would amend § 740.20(b)(2) to remove License Exception STA availability for additional items related to infrared detection, and this proposed rule largely adopts that proposal. This rule maintains those proposed changes and would make License Exception STA unavailable for the following items: Newly-proposed technology controlled under ECCN 0E987; all commodities controlled under ECCN 6A002 or 6A990; software controlled under ECCN 6D002 for the “use” of commodities controlled under ECCN 6A002.b; software controlled under ECCN 6D003.c; software controlled under ECCN 6D991 for the “development,” “production,” or “use” of commodities controlled under ECCNs 6A002, 6A003, or 6A990; technology controlled under ECCN 6E001 for the “development” of commodities controlled under ECCNs 6A002 or 6A003; technology controlled under ECCN 6E002 for the “production” of commodities controlled under ECCNs 6A002 or 6A003; and technology controlled under ECCN 6E990.

As previously mentioned, this proposed rule does not include the worldwide RS control that was proposed in the May 5 proposed rule. Thus, this proposed rule also does not include the corresponding licensing policy that was proposed in the May 5 proposed rule for § 742.6(b)(1). However, this proposed rule would revise current § 742.6(b)(1) to include new licensing policy for 6E001 or 6E002 technology for the development or production of focal plane arrays or image intensifier tubes described in 6A002, or for 6E990 technology. Such technology would be subject to a presumption of denial for license applications for exports or reexports to countries in Country Group D:5. BIS is proposing this change due to the sensitivity of such technology.

Section 744.9 currently requires a license for the export or reexport to any destination other than Canada for cameras controlled by ECCNs 6A003.b.3, 6A003.b.4.b, or 6A003.b.4.c when the exporter knows or is informed that the item is intended to be used by a “military end-user” or to be incorporated into a “military commodity” controlled by ECCN 0A919, in addition to other applicable license requirements in the EAR.

This proposed rule, like the May 5 proposed rule, would revise § 744.9 to require a license for exports, reexports, or transfers (in-country) of commodities controlled by ECCN 0A987 (incorporating items in ECCNs 6A002 and 6A003, or certain cameras in 6A993.a), ECCN 6A002, ECCN 6A003, ECCN 6A990, ECCN 6A993.a commodities meeting the criteria of Note 3.a to ECCN 6A003.b.4.b, ECCN 8A002.d.1.c, and ECCN 8A002.d.2, when the exporter, reexporter, or transferor knows or is informed that the item is intended to be used by a “military end-user” or to be incorporated into a “military commodity” controlled by ECCN 0A919. Commodities controlled by ECCN 6A993.a as a result of meeting the criteria of Note 3.a to ECCN 6A003.b.4.b are cameras with a maximum frame rate equal to or less than 9 Hz. Although these 9 Hz cameras are subject only to Anti-Terrorism controls, the agencies determined that 9 Hz cameras are used in foreign-made military commodities and thus merited inclusion in § 744.9.

Based on public comments to the May 5 proposed rule, this proposed rule does not include the license requirement for such items if at the time of the export, reexport, or transfer, the person is unable to determine whether the item will be or is intended to be used by a military end user or incorporated into a 0A919 military commodity. Increasing the scope of § 744.9 to include both the unable to determine standard and the license requirement for 9 Hz cameras (which are often low-cost consumer goods sold through distributors or storefronts) would have triggered extensive license requirements due to the inability to determine whether the items would be purchased by military end users. To address concerns with that standard, while still making 9 Hz cameras subject to § 744.9 license requirements, this proposed rule omits the unable to determine standard and would maintain the existing knowledge standard in § 744.9.

ECCN 0A919 currently controls “military commodities” produced and located outside the United States that are not subject to the ITAR, and incorporate one or more cameras controlled under ECCNs 6A003.b.3, 6A003.b.4.b, or 6A003.b.4.c. In addition, ECCN 0A919 controls such “military commodities” if they incorporate more than a de minimis amount of U.S.-origin 600 series content or are the direct products of U.S.-origin 600 series technology or software.

To control the reexport of such military commodities that incorporate a wider group of items on the CCL, this proposed rule would revise ECCN 0A919 to control military commodities produced outside the United States that are not subject to the ITAR, and have any of the following characteristics: (i) Incorporate one or more commodities classified under ECCNs 6A002, 6A003, or 6A990; (ii) incorporate one or more commodities controlled under ECCN 6A993.a as a result of meeting the criteria specified in Note 3.a to ECCN 6A003.b.4.b (i.e., having a maximum frame rate equal to or less than 9 Hz); (iii) incorporate more than a de minimis amount of U.S.-origin “600 series” controlled content; or (iv) are direct products of U.S.-origin “600 series” technology or software. This proposed change to ECCN 0A919 mirrors the proposal in the May 5 proposed rule.

As with the May 5 proposed rule, this proposed rule would create a new ECCN for technology required for the “development” or “production” of commodities controlled by ECCN 0A987, if such commodities incorporate a focal plane array or image intensifier tube. ECCN 0E987 would be subject to RS Column 1 and Anti-Terrorism Column 1 controls. In addition, items controlled by 0E987 would not be eligible for License Exception STA.

ECCN 6A002 currently controls specified optical sensors or equipment and components therefor. The Department of State's proposed rule for Category XII, which is being published concurrently with this rule, proposes the use of “specially designed” for certain focal plane arrays, image intensifier tubes, and other related items that would be subject to the ITAR. Because of that change, this proposed rule does not include references in 6A002 to “permanent encapsulated sensor assembly” or use luminous sensitivity to describe those image intensifier tubes subject to the EAR and controlled under 6A002.

As noted above, this proposed rule does not include the worldwide RS control that was proposed in the May 5 proposed rule. This proposed rule maintains the existing reasons for control and would revise the Related Controls paragraph to include references to controls in USML Category XII, as well as proposed controls in ECCN 0A919 and § 744.9.

ECCN 6A003 currently controls specified cameras, systems or equipment and components therefor. As with the May 5 proposed rule, this proposed rule would add a reference to USML Category XII(c) in the Related Controls paragraph of ECCN 6A003. Also, this rule revises the Related Controls references to ECCN 0A919 and § 744.9 to reflect the expansion of the applicability of those provisions to all of ECCN 6A003.

Due to proposed changes described previously regarding license requirements for certain uncooled thermal imaging cameras in ECCN 6A003, this proposed rule would also revise the applicability of the regional stability control to the ECCN by eliminating the RS Column 2 control and applying the RS Column 1 control to the entire ECCN. This proposed change would result in requiring a license for certain items in 6A003 that currently may not require a license when exported or reexported to certain destinations. While License Exception STA would be available for many of these transactions, BIS encourages organizations that may be affected by this change to submit public comments, including any quantitative data, on the impact of this proposal.

Under the Department of State's proposed rule to revise USML Category XII, certain read-out integrated circuits (ROICs) would be controlled under XII(e). ROICs that are “specially designed” for focal plane arrays controlled under ECCN 6A002.a.3 would be classified under ECCN 6A990 and subject to the RS Column 1 reason for control. Unlike the May 5 proposed rule, this proposed rule would also add a note to clarify that ROICs “specially designed” for civil automotive applications would not be controlled under ECCN 6A990. BIS is proposing this note in order to address technological and market developments, and this note parallels a similar carve out in ECCN 6A003.

ROICs classified under 6A990 would not be eligible for License Exception STA and would be subject to the limitations on the use of License Exception APR in § 740.16(a)(2) and (b)(2). This rule also proposes to insert references to Category XII(e), ECCN 0A919, and § 744.9 under the Related Controls paragraph. Also, this rule would allow for the use of License Exception LVS for this ECCN with a $500 value limit. This change would ensure that controls on ROICs subject to the EAR are not more restrictive than controls for ROICs proposed to be controlled in USML Category XII(e), which would be eligible for the exemption in § 123.16(b)(2) of the ITAR.

As previously mentioned, § 744.9 is proposed to be revised to require a license for 9 Hz cameras if exported to a “military end user” or if incorporated into a “military commodity.” To remind readers of the applicability of § 744.9 and ECCN 0A919 to 9 Hz cameras, this proposed rule would provide a reference to those provisions under the Related Controls paragraph of 6A993.

The Wassenaar Arrangement's Lists of Dual-Use Goods and Technologies impose limited controls on software related to commodities controlled under ECCNs 6A002 and 6A003. As a result, the CCL currently has the following multilateral and unilateral software controls related to such items: ECCN 6D002 (software “specially designed” for the “use” of commodities controlled under ECCN 6A002.b), ECCN 6D003.c (software designed or modified for cameras incorporating “focal plane arrays” specified by ECCN 6A002.a.3.f and designed or modified to remove a frame rate restriction and allow the camera to exceed the frame rate specified in ECCN 6A003.b.4 Note 3.a), and ECCN 6D991 (software specially designed for the “use” of commodities controlled under ECCN 6A002.a.1.d).

To address concerns regarding the lack of comprehensive software controls related to commodities controlled under ECCNs 6A002 and 6A003, this proposed rule would consolidate existing, unilateral software controls and would expand them to revise ECCN 6D991 to also control software, not elsewhere specified, that is “specially designed” for the “development,” “production,” or “use” of commodities controlled by ECCNs 6A002 or 6A003. Under this proposed rule, such software would be subject to the RS Column 1 reason for control. Also, this proposed rule would remove eligibility to use License Exception TSR for the software described above in ECCNs 6D002 and 6D003.c.

To prevent confusion over multiple ECCNs potentially controlling the same software, this proposed rule would add language to the Related Controls paragraphs of ECCN 6D991 to confirm that software currently controlled under ECCNs 6D002 and 6D003.c would remain controlled under those provisions. To reflect this understanding, this proposed rule would also revise the Related Controls paragraphs of ECCNs 6D002 and 6D003 to provide references to ECCNs 6D991.

ECCNs 6E001 and 6E002 currently control “development” and “production” technology, respectively, related to multiple ECCNs in Category 6, including items related to infrared detection in ECCNs 6A002 and 6A003. This proposed rule would remove eligibility for License Exception TSR for all 6E001 or 6E002 technology related to commodities controlled under 6A002 or 6A003, and this proposed rule would add guidance to the Related Controls paragraphs in ECCNs 6E001 and 6E002 to provide clarity on technology controls related to commodities subject to the ITAR.

This proposed rule would establish a “600 series” by revising ECCN 7A611 and adding new ECCNs 7B611, 7D611, and 7E611 for military fire control, laser, imaging, and guidance and control commodities, software, and technology. Categories 6 and 7 of the CCL currently control certain laser, imaging, and guidance and control items. In order to ease understanding and use of this “600 series,” BIS is proposing to consolidate such controls under Category 7 rather than both Categories 6 and 7. However, should readers look for such 600 series items in Category 6, this proposed rule would amend ECCN 6A611 to refer readers to Category 7 to locate the appropriate controls. ECCN 6A611 was added to the CCL by a previously published final rule entitled Revisions to the Export Administration Regulations (EAR): Control of Military Electronic Equipment and Other Items the President Determines No Longer Warrant Control Under the United States Munitions List (USML), 79 FR 37551 (July 1, 2014). Also, to assist readers in locating controls for navigation and avionics items “specially designed” for a military application, this proposed rule would move the current heading of ECCN 7A611 into the Related Controls paragraph of proposed ECCN 7A611.

Under this proposed “600 series,” ECCN 7A611 would control military fire control, laser, imaging, and guidance and control equipment that would be removed from USML Category XII and that are not covered by an existing ECCN subject to controls for reasons other than Anti-Terrorism (AT) reasons. Due to the increased use of “specially designed” in the proposed USML Category XII and to ensure that no current defense articles are inadvertently decontrolled, ECCN 7A611 would use “specially designed” as the primary control parameter in paragraphs .a through .e, which would control certain guidance, navigation, or control systems; inertial measurement units; accelerometers; gyros or angular rate sensors; or gravity meters (gravimeters). Paragraph .x would control “parts,” “components,” “accessories,” and “attachments” that are “specially designed” for a commodity controlled by ECCN 7A611 (except 7A611.y) or a defense article in USML Category XII and not controlled elsewhere on the USML or in 7A611.y or 3A611.y. All items controlled under 7A611 (excluding 7A611.y) would be controlled for NS, RS, AT, and UN reasons. Paragraph .y would control specific “parts,” “components,” “accessories,” and “attachments” “specially designed” for a commodity subject to control in ECCN 7A611, or a defense article in USML Category XII and not elsewhere specified on the USML or in the CCL, and “parts,” “components,” “accessories,” and “attachments” “specially designed” therefor. No items would be listed in 7A611.y under this proposed rule, but should any items be added, they would be subject to AT controls only.

This proposed rule does not include any of the items enumerated under ECCN 6A615 in the May 5 proposed rule in ECCN 7A611. Due to the increased use of “specially designed” in USML Category XII in the State Department's corresponding proposed rule, BIS believes that many of the items previously proposed for control under ECCN 6A615 would be controlled under USML Category XII. In addition, after reviewing public comments, BIS believes that many of the items proposed for control under ECCN 6A615.c in the May 5 proposed rule would be adequately captured as dual-use items under ECCN 6C004.

New ECCN 7B611 would impose controls on test, inspection, and production equipment and related commodities “specially designed” for military fire control, laser, imaging, and guidance and control equipment. Paragraph .a would control such equipment “specially designed” for the “development,” “production,” repair, overhaul, or refurbishing of items controlled in ECCN 7A611 (except 7A611.y) or commodities in USML Category XII that are not enumerated in USML Category XII or controlled by a “600 series” ECCN. Paragraph .b would control environmental test facilities “specially designed” for certification, qualification, or testing of commodities controlled in ECCN 7A611 (except 7A611.y) or commodities in USML Category XII that are not enumerated in USML Category XII or a “600 series” ECCN. Paragraph .c would control field test equipment “specially designed” to evaluate or calibrate the operation of systems described in USML Category XII(a), (b), or (c). Paragraphs .d through .w are reserved. Paragraph .x would control parts, components, accessories, and attachments that are “specially designed” for such test, inspection and production equipment that are not enumerated on the USML or controlled by another “600 series” ECCN. Items in ECCN 7B611 would be controlled for NS, RS, AT, and UN reasons.

New ECCN 7D611 would control “software” “specially designed” for the “development,” “production,” operation, or maintenance of commodities controlled by 7A611 or 7B611. Such software would be controlled for NS, RS, AT, and UN reasons. Any software added to 7D611.y would be controlled for AT reasons only.

New ECCN 7E611 would control “technology” “required” for the “development,” “production,” operation, installation, maintenance, repair, overhaul, or refurbishing of items controlled by 7A611, 7B611, or 7D611. Such technology would be controlled for NS, RS, AT, and UN reasons. Any technology added to 7E611.y would be controlled for AT reasons only. As described in proposed § 742.6(a)(8), the RS control would impose a license requirement for exports and reexports of technology in 7E611.a to all destinations, including Canada (all other technology in 7E611, other than 7E611.y, would be subject to an RS Column 1 control). BIS believes that this worldwide RS control would only affect technical data currently controlled in USML Category XII(f) that is not eligible for the Canadian exemption under Supplement No. 1 to part 126 of the ITAR. As described in § 742.6(b)(1), 7E611.a technology would be subject to the same licensing policy as other 600 series items. In addition, License Exception STA would not be available for 7E611.a technology but would be available for technology in 7E611.b or .c for exports or reexports to Country Group A:5.

The May 5 proposed rule included revisions to many existing dual-use ECCNs to provide cross references to controls for similar items subject to the ITAR under the proposed revisions to USML Category XII. This proposed rule includes revisions to the same ECCNs but updates many of the cross references to account for changes since the State Department's May 5 proposal.

ECCN 0A987 currently controls specified optical sighting devices, and this proposed rule would revise ECCN 0A987.f to specify that the entry controls laser aiming devices or laser illuminators “specially designed” for use on firearms, and having an operational wavelength exceeding 400 nm but not exceeding 710 nm. A proposed note to ECCN 0A987.f would further specify that the entry does not control laser boresighting devices that must be placed in the bore or chamber to provide a reference for aligning the firearms sights. This proposed rule would also provide jurisdictional guidance in the Related Controls paragraph to more clearly delineate jurisdiction between USML Category XII and ECCN 0A987.

ECCN 2A984 currently controls concealed object detection equipment that operates in the frequency range from 30 GHz to 3000 GHz and has a spatial resolution of 0.5 milliradians up to and including 1 milliradian at a standoff distance of 100 meters. Under the Department of State's proposed revisions to USML Category XII, certain terahertz imaging systems would be enumerated under USML Category XII(c). Consequently, this proposed rule would add a reference to Category XII(c) in the Related Controls paragraph of ECCN 2A984.

ECCN 6A004 currently controls optical equipment and components, including gimbals meeting a number of parameters, including slew, bandwidth, angular pointing error, diameter, and angular acceleration. The Department of State proposes to control certain gimbals under Category XII(e). To aid in properly determining jurisdiction and classification of gimbals, this proposed rule would amend the Related Controls paragraph of ECCN 6A004 to reference gimbals controlled under USML Category XII(e).

ECCN 6A005 currently controls specified lasers, components and optical equipment. The Department of State's corresponding proposed rule would control certain laser systems and lasers under USML Category XII(b) and (e), respectively. To aid in properly determining jurisdiction and classification, this proposed rule would revise the Related Controls paragraph of ECCN 6A005 to refer readers back to USML Category XII(b) and (e) for laser systems or lasers subject to the ITAR. Additionally, this proposed rule would add a reference in the Related Controls paragraph to USML Category XVIII for certain laser-based directed energy weapon items.

ECCNs 6A007 and 6A107 currently control certain gravity meters (gravimeters) and gravity gradiometers. Under the State Department's proposed rule, certain gravity meters and gravity gradiometers subject to the ITAR would be controlled under USML Category XII(d). Consequently, this proposed rule would add references to the Related Controls paragraphs of ECCNs 6A007 and 6A107 to refer readers to that paragraph in Category XII. This proposed rule also adds a reference to ECCN 7A611 in the Related Controls paragraphs of those ECCNs.

ECCN 6A008 currently controls radar systems, equipment, and assemblies, including certain laser detection and ranging (LADAR) and light detection and ranging (LIDAR) equipment under ECCN 6A008.j. The Department of State's proposed rule would control certain LIDAR, LADAR, and range-gated systems in USML Category XII(b). Consequently, this proposed rule would amend the Related Controls paragraph of ECCN 6A008 to add references to those provisions of Category XII.

ECCNs 7A001 and 7A101 control certain accelerometers. The Department of State's proposed rule would control certain accelerometers subject to the ITAR under USML Category XII(e). Therefore, this proposed rule would amend the Related Controls paragraphs of ECCNs 7A001 and 7A101 to add references to USML Category XII(d). This proposed rule also adds references to ECCN 7A611 in the Related Controls paragraphs of those ECCNs.

ECCNs 7A002 and 7A102 control certain gyros or angular rate sensors. Under the State Department's proposed rule, certain gyros or angular rate sensors would be subject to the ITAR under USML Category XII(e). This proposed rule would amend the Related Controls paragraphs of ECCNs 7A002 and 7A102 to add references to USML Category XII(e). This proposed rule also adds references to ECCN 7A611. For the Related Controls paragraph in ECCN 7A102, this proposed rule would also add references to ECCNs 7A002 and 7A994.

ECCN 7A003 controls inertial measurement equipment or systems. Under the State Department's proposed rule, certain guidance or navigation systems would be subject to the ITAR under USML Category XII(d). This proposed rule would amend the Related Controls paragraph of ECCN 7A003 to add a reference to that USML entry. Also, this proposed rule would add a reference to ECCN 7A611.

ECCN 7A005 currently controls specified Global Navigation Satellite Systems (GNSS) receiving equipment. This proposed rule would amend the Related Controls section of ECCN 7A005 to use “GNSS” in place of “GPS” and to provide a reference to GNSS receiving equipment subject to the ITAR under USML Category XII.

To reflect the expansion of the scope of § 744.9 to apply to 8A002.d.1.c and .d.2 items, this proposed rule would add an additional sentence regarding § 744.9 to the Related Controls paragraph of 8A002.

The April 16 (initial implementation) rule imposed certain unique de minimis requirements on items controlled under the new “600 series” ECCNs. Section 734.3 of the EAR provides, inter alia, that under certain conditions, items made outside the United States that incorporate items subject to the EAR are not subject to the EAR if they do not exceed a de minimis percentage of controlled U.S.-origin content. Under the April 16 (initial implementation) rule, there is no de minimis eligibility for “600 series” items destined for countries subject to a U.S. arms embargo, but there is a 25% de minimis percentage for “600 series” items destined for all countries not subject to U.S. arms embargoes. The fire control, laser, imaging, and guidance and control items that would be subject to the EAR as a result of this proposed rule would become eligible for de minimis treatment, so long as they are not destined for a country subject to a U.S. arms embargo.

Unless subject to the restrictions on the use of STA in § 740.20(b)(2), many of the fire control, laser, imaging, and guidance and control items described in this proposed rule would become eligible for several license exceptions, including STA, which would be available for exports to certain government agencies of NATO and other multi-regime allies. The exchange of information and statements required under STA is substantially less burdensome than the license application requirements currently required under the ITAR. Some items covered by this rule also would be eligible for the following license exceptions: LVS (limited value shipments), up to $1500, and RPL (servicing and parts replacement).

The Administration has stated since the beginning of the Export Control Reform Initiative that the reforms will be consistent with U.S. obligations to the multilateral export control regimes. Accordingly, the Administration will, in this proposed rule, exercise its national discretion to implement, clarify, and, to the extent feasible, align its controls with those of the regimes. USML Category XII encompasses multiple WAML categories, including ML 5 (e.g., fire control and range-finding systems), ML 11 (e.g., “guidance and navigation equipment”), and ML 15 (e.g., imaging equipment). For simplicity, this proposed rule uses one of these categories—ML 11 (“electronic equipment specially designed for military use,” including “guidance and navigation equipment”)—to add items moving from USML Category XII to the new 600 series ECCNs ending in “11.”

BIS seeks comments on this proposed rule. BIS will consider all comments received on or before April 4, 2016. All comments must be in writing and submitted via one or more of the methods listed under the ADDRESSES caption to this notice. All comments (including any personal identifiable information or information for which a claim of confidentially is asserted either in those comments or their transmittal emails) will be available for public inspection and copying. Parties who wish to comment anonymously may do so by submitting their comments via www.regulations.gov, leaving the fields for information that would identify the commenter blank, and including no identifying information in the comment itself.

Although the Export Administration Act expired on August 20, 2001, the President, through Executive Order 13222 of August 17, 2001, 3 CFR, 2001 Comp., p. 783 (2002), as amended by Executive Order 13637 of March 8, 2013, 78 FR 16129 (March 13, 2013) and as extended by the Notice of August 7, 2015, 80 FR 48233 (August 11, 2015), has continued the Export Administration Regulations in effect under the International Emergency Economic Powers Act. BIS continues to carry out the provisions of the Export Administration Act, as appropriate and to the extent permitted by law, pursuant to Executive Order 13222, as amended by Executive Order 13637.

1. Executive Orders 13563 and 12866 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, distribute impacts, and equity). Executive Order 13563 emphasizes the importance of quantifying both costs and benefits, of reducing costs, of harmonizing rules, and of promoting flexibility. This rule has been designated a “significant regulatory action,” although not economically significant, under section 3(f) of Executive Order 12866. Accordingly, the rule has been reviewed by the Office of Management and Budget (OMB).

2. Notwithstanding any other provision of law, no person is required to respond to, nor is subject to a penalty for failure to comply with, a collection of information, subject to the requirements of the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.) (PRA), unless that collection of information displays a currently valid OMB control number. This proposed rule would affect two approved collections: Simplified Network Application Processing + System (control number 0694-0088), which includes, among other things, license applications, and License Exceptions and Exclusions (0694-0137).

As stated in the proposed rule published on July 15, 2011 (76 FR 41958) (“July 15 proposed rule”), BIS initially believed that the combined effect of all rules to be published adding items to the EAR that will be removed from the ITAR as part of the administration's Export Control Reform Initiative would increase the number of license applications to be submitted by approximately 16,000 annually. As the review of the USML has progressed, the interagency group has gained more specific information about the number of items that will come under BIS jurisdiction and whether those items would be eligible for export under license exceptions. As of June 21, 2012, BIS revised that estimate to an increase in license applications of 30,000 annually, resulting in an increase in burden hours of 8,500 (30,000 transactions at 17 minutes each) under control number 0694-0088. BIS continues to believe that its revised estimate is accurate.

Some items formerly on the USML would become eligible for License Exception STA under this rule. As stated in the July 15 proposed rule, BIS believes that the increased use of License Exception STA resulting from the combined effect of all rules to be published adding items to the EAR that would be removed from the ITAR as part of the Administration's Export Control Reform Initiative would increase the burden associated with control number 0694-0137 by about 23,858 hours (20,450 transactions at 1 hour and 10 minutes each).

BIS expects that this increase in burden would be more than offset by a reduction in burden hours associated with approved collections related to the ITAR. This proposed rule addresses controls on fire control, laser, imaging, and guidance and control items. With few exceptions, most exports of such items, even when destined to NATO member states and other close allies, require State Department authorization. In addition, the exports of technology necessary to produce such items in the inventories of the United States and its NATO and other close allies require State Department authorizations. Under the EAR, as proposed, such technology that would be subject to the EAR would become eligible for export to NATO member states and other close allies under License Exception STA unless otherwise specifically excluded. Use of License Exception STA imposes a paperwork and compliance burden because, for example, exporters must furnish information about the item being exported to the consignee and obtain from the consignee an acknowledgement and commitment to comply with the EAR. However, the Administration believes that complying with the requirements of STA is likely less burdensome than applying for licenses. For example, under License Exception STA, a single consignee statement can apply to an unlimited number of products, need not have an expiration date, and need not be submitted to the government in advance for approval. Suppliers with regular customers can tailor a single statement and assurance to match their business relationship rather than applying repeatedly for licenses with every purchase order to supply reliable customers in countries that are close allies or members of export control regimes or both.

Control number 0694-0137 also includes thermal imaging camera reporting under § 743.3. This proposed rule would remove the reporting requirement in § 743.3. Thus, BIS estimates this elimination would reduce the total annual burden hours in control number 0694-0137 by 60 hours annually (60 reports at 1 hour each).

3. This rule does not contain policies with Federalism implications as that term is defined under E.O. 13132.

4. The Regulatory Flexibility Act (RFA), as amended by the Small Business Regulatory Enforcement Fairness Act of 1996 (SBREFA), 5 U.S.C. 601 et seq., generally requires an agency to prepare a regulatory flexibility analysis of any rule subject to the notice and comment rulemaking requirements under the Administrative Procedure Act (5 U.S.C. 553) or any other statute, unless the agency certifies that the rule will not have a significant economic impact on a substantial number of small entities. Under section 605(b) of the RFA, however, if the head of an agency (or his or her designee) certifies that a rule will not have a significant impact on a substantial number of small entities, the statute does not require the agency to prepare a regulatory flexibility analysis. Pursuant to section 605(b), the Chief Counsel for Regulation, Department of Commerce, submitted a memorandum to the Chief Counsel for Advocacy, Small Business Administration, certifying that the May 5 proposed rule would not have a significant impact on a substantial number of small entities. The rationale for that certification was set forth in the preamble to that proposed rule. Although BIS received no comments on that rationale, and has accordingly made no changes to the proposed rule based on the RFA certification, BIS has determined that, in the interest of openness and transparency, it will briefly restate the rationale behind the certification here.

This proposed rule is part of the Administration's Export Control Reform Initiative, which seeks to revise the USML to a positive list—one that does not use generic, catch-all controls for items listed—and to move some items that the President has determined no longer merit control under the ITAR to control under the CCL.

Although BIS does not collect data on the size of entities that apply for and are issued export licenses, and is therefore unable to estimate the exact number of small entities—as defined by the Small Business Administration's regulations implementing the RFA—BIS acknowledges that some small entities may be affected by this proposed rule.

The main effects on small entities resulting from this rule will be in application times, costs, and delays in receiving licenses to export goods subject to the CCL. However, while small entities may experience some costs and time delays for exports due to the license requirements of the CCL, these costs and delays will likely be significantly less than they were for items previously subject to the USML. BIS believes that in fact this rule will result in significantly reduced administrative costs and delays for exports of items that will, upon this rule's implementation, be subject to the EAR rather than the ITAR. Currently, USML applicants must pay to use the USML licensing procedure even if they never actually are authorized to export. Registration fees for manufacturers and exporters of articles on the USML start at $2,250 per year, increase to $2,750 for organizations applying for one to ten licenses per year and further increases to $2,750 plus $250 per license application (subject to a maximum of three percent of total application value) for those who need to apply for more than ten licenses per year. By contrast, BIS is statutorily prohibited from imposing licensing fees. In addition, exporters and reexporters of goods that would become subject to the EAR under this rule would need fewer licenses because their transactions would become eligible for license exceptions that were not available under the ITAR. Additionally, the ITAR controls parts and components even when they are incorporated—in any amount—into a foreign-made product. That limitation on the use of U.S.-made goods subject to the ITAR discouraged foreign manufacturers from importing U.S. goods. However, the EAR has a de minimis exception for U.S.-manufactured goods that are incorporated into foreign-made products. This exception may benefit small entities by encouraging foreign producers to use more U.S.-made items in their goods.

Even where an exporter or reexporter would need to obtain a license under the EAR, that process is both cheaper and the process is more flexible than obtaining a license under the ITAR. For example, unlike the ITAR, the EAR does not require license applicants to provide BIS with a purchase order with the application, meaning that small (or any) entities can enter into negotiations or contracts for the sale of goods without having to caveat any sale presentations with a reference to the need to obtain a license under the ITAR before shipment can occur. Second, the EAR allows license applicants to obtain licenses to cover all expected exports or reexports to a particular consignee over the life of a license, rather than having to obtain a new license for every transaction.

In short, BIS expects that the changes to the EAR proposed in this rule will have a positive effect on all affected entities, including small entities. While BIS acknowledges that this rule may have some cost impacts to small (and other) entities, those costs are more than offset by the benefits to the entities from the licensing procedures under the EAR, which are much less costly and less time consuming than the procedures under the ITAR. Accordingly, the Chief Counsel for Regulation for the Department of Commerce has certified that this rule, if implemented, will not have a significant economic impact on a substantial number of small entities. Accordingly, an initial regulatory flexibility analysis is not required, and none has been prepared.

For the reasons stated in the preamble, the Export Administration Regulations (15 CFR parts 730-774) are proposed to be amended as follows:

The Directorate of Defense Trade Controls (DDTC), U.S. Department of State, administers the International Traffic in Arms Regulations (ITAR) (22 CFR parts 120-130). The items subject to the jurisdiction of the ITAR, i.e., defense articles, are identified on the ITAR's U.S. Munitions List (USML) (22 CFR 121.1). With few exceptions, items not subject to the export control jurisdiction of the ITAR are subject to the jurisdiction of the Export Administration Regulations (EAR), 15 CFR parts 730-774, which includes the Commerce Control List (CCL) in Supplement No. 1 to Part 774), administered by the Bureau of Industry and Security (BIS), U.S. Department of Commerce. Both the ITAR and the EAR impose license requirements on exports and reexports. Items not subject to the ITAR or to the exclusive licensing jurisdiction of any other set of regulations are subject to the EAR.

The revisions contained in this rule are part of the Department of State's retrospective plan under E.O. 13563.

All references to the USML in this rule are to the list of defense articles that are controlled for the purpose of export or temporary import pursuant to the ITAR, and not to the defense articles on the USML that are controlled by the Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF) for the purpose of permanent import under its regulations (see 27 CFR part 447). Pursuant to § 38(a)(1) of the Arms Export Control Act (AECA), all defense articles controlled for export or import are part of the USML under the AECA. For the sake of clarity, the list of defense articles controlled by ATF for the purpose of permanent import is the United States Munitions Import List (USMIL). The transfer of defense articles from the ITAR's USML to the EAR's CCL for the purpose of export control does not affect the list of defense articles controlled on the USMIL under the AECA for the purpose of permanent import.

The revision of USML Category XII was first published as a proposed rule (RIN 1400-AD32) on May 5, 2015, for public comment (see 80 FR 25821) (first proposed rule). The comment period ended July 6, 2015. One hundred twenty parties submitted public comments, which were reviewed and considered by the Department and other agencies.

The majority of the public comments stated that the proposed controls in USML Category XII included items that are in commercial and civil applications, identifying items that would largely be controlled under paragraphs (b), (c), (d), and (e), and requested that the Department limit the USML controls for most paragraphs to items specially designed for the military. The comments varied in level of detail and specific paragraphs addressed, if any, but the general tenor of the public comments was consistent. These comments led the Department to reevaluate USML Category XII in its entirety and to draft this second proposed rule to allow for public feedback on new proposed changes. Given the thorough redrafting of USML Category XII, the Department does not address each public comment in detail.

This second proposed rule revises USML Category XII, covering fire control, range finder, optical and guidance and control equipment, to advance the national security objectives of the President's Export Control Reform initiative and to more accurately describe the articles within the category, in order to establish a “bright line” between the USML and the CCL for the control of these articles. The revisions to Category XII being proposed in this second proposed rule are described below, along with a description of any changes from the first proposed rule.

The most significant change from the first proposed rule to this second proposed rule is that, in response to a high number of substantive public comments, certain articles will be controlled based on the design intent of the manufacturer. This was decided because the Department found that certain articles could be used as components or as end items for the same military application. While applying the standard terminology “specially designed for a defense article” would apply to articles that operate as a component for a higher-level assembly, that terminology would not describe the same articles when used as end items on their own for the same military purpose. To address this concern, paragraphs (b)(6) and (c)(2)(iii) control articles if they are specially designed for a military end user. A military end user is defined in the new Note to Category XII as the national armed services, National Guard, national police, government intelligence or reconnaissance organizations, or any person or entity whose actions or functions are intended to support military end uses. An item is specially designed for a military end user if it was created for use by a military end user or users. If an item is created for both military and non-military end users, or if the item was created for no specific end user, then it is not specially designed for a military end user. Contemporaneous documents are required to support the design intent; otherwise, use by a military end user will establish that the item was specially designed for a military end user.

Paragraph (a) is revised to add subparagraphs (1) through (10) to more clearly describe the articles controlled in (a).

Paragraph (a)(1) is added for fire control systems. In response to one comment, the Department moved the control on “specially designed parts and components” to paragraph (e) for this paragraph and others, so that all parts and components are described in paragraph (e). None of the parts and components in paragraph (e) are designated significant military equipment. One comment requested clarification on the classification of defense articles enumerated elsewhere in the USML that are specially designed components of a fire control system, such as fire control computers for aircraft, described in USML Category VIII(h)(16). A control on “specially designed parts and components” is a catch all control for items that are not elsewhere specified in the USML, and items that are explicitly described elsewhere, such as USML Category VIII(h)(16), are controlled by that entry.

Paragraph (a)(2) is added for weapons sights and weapons aiming or imaging systems, with certain infrared focal plane arrays, image intensifier tubes, ballistic computers, or lasers, when specially designed for a defense article. The Department received multiple comments requesting revisions to this paragraph. These comments were not adopted, as these weapons sights and weapon aiming and imaging systems all relate to the sighting, aiming, or imaging for a defense article and therefore warrant USML control.

Paragraph (a)(3) is added for electronic or optical weapon positioning, laying, or spotting systems.

Paragraph (a)(4) is added for certain laser spot trackers and laser spot detectors that are for laser target designators or coded laser target markers controlled in paragraph (b)(1). The Department revised this control from the first proposed rule by tying it to paragraph (b)(1) to more specifically describe the kinds of items controlled by this paragraph.

Paragraph (a)(5) is added for bomb sights and bombing computers.

Paragraph (a)(6) is added for electro-optical missile or ordnance tracking systems.

Paragraph (a)(7) is added for electro-optical ordnance guidance systems.

Paragraph (a)(8) is added for electro-optical systems that automatically detect and locate weapons launch or fire.

Paragraph (a)(9) is added for remote wind sensing systems specially designed for ballistic-corrected aiming.

Paragraph (a)(10) is added for certain helmet mounted display (HMD) systems. In response to comments, the Department limited the scope of the control for HMD's with optical sights or slewing devices that control infrared imaging systems and end items from the first proposed rule, to those infrared systems and end items that are also defense articles themselves. This clarifies that HMDs for civilian firefighter systems are not described in this control.

Paragraph (b) is revised to add subparagraphs (1) through (7) to more clearly describe the articles controlled in (b). Controls on lasers and others parts and components of laser systems are moved to paragraph (e).

Paragraph (b)(1) is added for laser target designators or coded target markers that mediate the delivery of ordnance to a target. The Department made the control language from the first proposed rule more specific to more completely describe the defense articles controlled by this paragraph.

Paragraph (b)(2) is added for infrared laser target illumination systems having a variable beam divergence. The Department made the control language from the first proposed rule more specific to more completely describe the defense articles controlled by this paragraph.

Paragraph (b)(3) is added for certain laser range finders. In response to comments, the Department revised the control language from the first proposed rule to specify only laser ranger finders operating at a wavelength of 1064 nm and having a Q-switched pulse output, and laser ranger finders operating in excess of 1064 nm and meeting certain technical parameters.

Paragraph (b)(4) is added for certain targeting or target location systems. In response to public comments, the Department revised the control from the first proposed rule to require that the system use a Global Navigation Satellite System (GNSS), guidance, or navigation defense article.

Paragraph (b)(5) is added for optical augmentation systems.

Paragraph (b)(6) is added for light detection and ranging (LIDAR), laser detection and ranging (LADAR), or range-gated systems specially designed for a military end user.

Paragraph (b)(7) is added for developmental lasers and laser systems funded by the Department of Defense, with certain exceptions.

Paragraph (c) is revised to add subparagraphs (1) through (9) to more clearly describe the articles controlled in (c). Controls on image intensifier tubes (IITs), infrared focal plane arrays (IRFPAs), IRFPA dewar cooler assemblies (IDCAs), gimbals, and other parts and components of imaging systems are moved to paragraph (e).

Paragraph (c)(1) is added for night vision or infrared cameras specially designed for defense articles. The Department revised this entry in response to comments regarding non-military uses of cameras and imaging systems described in the first proposed rule. As a specially designed component of another defense article, a camera, as defined in the Note to paragraph (c)(1), is eligible for paragraph (b) of specially designed in § 120.41.

Paragraph (c)(2) is added for certain binoculars, bioculars, monoculars, goggles, or head or helmet-mounted imaging systems. The Department revised this entry in response to comments regarding non-military uses of binocular, goggles, and other close eye systems described in the first proposed rule. For articles that employ third generation IITs or are sensor fused, the Department described the articles based on their technical characteristics. For articles with an IRFPA or infrared imaging camera, the articles are controlled if specially designed for a military end user.

Paragraph (c)(3) is added for targeting systems specially designed for defense articles.

Paragraph (c)(4) is added for infrared search and track (IRST) systems that utilize a longwave IRFPA and maintain positional or angular state of a target through time. The Department revised this control from the first proposed rule in response to public comments regarding non-military IRST systems.

Paragraph (c)(5) is added for certain infrared imaging systems, described in nine subparagraphs: (1) Mobile systems that provide real-time target location at ranges greater than 5 km; (2) airborne stabilized systems specially designed for military reconnaissance; (3) multispectral imaging systems that classify or identify military or intelligence targets or characteristics; (4) automated missile detection or warning systems; (5) systems hardened to withstand electromagnetic pulse (EMP) or chemical, biological, or radiological threats; (6) systems incorporating mechanisms to reduce signature; (7) certain aerial persistent surveillance systems; (8) certain gimbaled infrared systems; (9) systems specially designed for USML platforms. The Department revised this entry from the first proposed rule in response to comments regarding non-military imaging systems described in the proposed rule.

Paragraph (c)(6) is added for certain terahertz imaging systems. In response to public comments, the Department revised the technical parameter from the first proposed rule from 0.3 milliradians to 0.1 milliradians.

Paragraph (c)(7) is added for systems or equipment incorporating an infrared beacon or emitter specially designed for Combat Identification. The Department revised this entry to Combat Identification from Identification Friend or Foe (IFF) in the first proposed rule in response to public confusion regarding IFF.

Paragraph (c)(8) is added for systems that project radiometrically calibrated scenes directly into the entrance aperture of an electro-optical or infrared (EO/IR) sensor controlled in this subchapter within either the spectral band exceeding 10 nm but not exceeding 400 nm, or the spectral band exceeding 900 nm but not exceeding 30,000 nm.

Paragraph (c)(9) is added for developmental imaging systems funded by the Department of Defense.

Paragraph (d) is revised to include controls on GNSS equipment previously controlled in Category XV and to add subparagraphs (1) through (6) to more clearly describe the articles controlled in (d). Controls on inertial measurement units, accelerometers, gyroscopes, GNNS security devices, and other parts and components of navigation systems are moved to paragraph (e).

Paragraph (d)(1) is added for certain guidance or navigation systems. The Department did not adopt public comments to revise this entry to items specially designed for the military. Rather the Department has revised the technical parameters from the first proposed rule to a level that more clearly describes the military critical technology.

Paragraph (d)(2) is added for GNSS receiving equipment, moved from Category XV.

Paragraph (d)(3) is added for GNSS anti-jam systems specially designed for use with the anti-jam antennae described in USML Category XI(c)(10). In response to public comments, the Department revised the entry for anti-jam GNNS systems from the first proposed rule by expressly linking the control to the anti-jam antennae described in USML Category XI(c)(10).

Paragraph (d)(4) is added for certain mobile relative gravimeters.

Paragraph (d)(5) is added for certain mobile gravity gradiometers.

Paragraph (d)(6) is added for developmental guidance, navigation, or control systems funded by the Department of Defense.

Paragraph (e) is revised to add subparagraphs (1) through (23) to more clearly describe the parts and components for the systems in (a)-(d) that are controlled in (e).

Paragraph (e)(1) is added for parts and components specially designed for articles described in paragraph (a)(1) or (a)(8).

Paragraph (e)(2) is added for lasers specially designed for defense articles. In response to public comments regarding the non-military uses of lasers described in the first proposed rule, the Department limited this entry to lasers that are specially designed for defense articles.

Paragraph (e)(3) is added for laser stacked arrays specially designed for defense articles. In response to public comments regarding the non-military uses of laser stacked arrays described in the first proposed rule, the Department limited this entry to laser stacked arrays that are unique to defense articles.

Paragraph (e)(4) is added for IRFPAs specially designed for defense articles. In response to public comments, the Department completely revised the controls on IRFPAs from the first proposed rule, limiting the USML control to those that are unique to defense articles.

Paragraph (e)(5) is added for certain charge multiplication focal plane arrays specially designed for defense articles. In response to public comments, the Department completely revised the controls on charge multiplication focal plane arrays from the first proposed rule, limiting the USML control to those that are unique to defense articles.

Paragraph (e)(6) is added for second generation and greater IITs specially designed for defense articles, and specially designed parts and components therefor. This control includes third generation IITs, EBAPS, night vision and thermal fused IITs, and all subsequent IIT designs. In response to public comments, the Department completely revised the controls on IITs from the first proposed rule, limiting the USML control to those that are unique to defense articles.

Paragraph (e)(7) is added for parts and components specially designed for articles described in paragraph (c)(3), (c)(4), or (c)(5)(vi)-(vii).

Paragraph (e)(8) is added for inertial measurement units specially designed for defense articles. In response to public comments, the Department revised the controls on inertial measurement units from the first proposed rule to a technical parameter based control to a control on all inertial measurement units that are unique to defense articles.

Paragraph (e)(9) is added for GNSS security devices, Selective Availability Anti-Spoofing Module (SAASM), Security Module (SM), and Auxiliary Output Chip (AOC) chips.

Paragraph (e)(10) is added for certain accelerometers that meet the technical parameters. In response to public comments regarding the non-military uses of accelerometers described in the first proposed rule, the Department revised this entry to more specifically describe the items warranting control on the USML.

Paragraph (e)(11) is added for certain gyroscopes and angular rate sensors that meet the technical parameters. In response to public comments regarding the non-military uses of gyroscopes and angular rate sensors described in the first proposed rule, the Department revised this entry to more specifically describe the items warranting control on the USML.

Paragraph (e)(12) is added for optical sensors that have a spectral filter that is specially designed for items controlled in USML Category XI(a)(4) and optical sensor assemblies that provide threat warning or tracking for those items controlled in USML Category XI(a)(4). In response to public comments, the Department revised the control from the first proposed rule to add the specially designed control parameter.

Paragraph (e)(13) is added for read-out integrated circuits (ROICs) specially designed for defense articles.

Paragraph (e)(14) is added for IDCAs, with or without an IRFPA, specially designed for defense articles, other than those in USML Category XV, and specially designed parts and components therefor.

Paragraph (e)(15) is added for gimbals specially designed for defense articles in this category.

Paragraph (e)(16) is added for IRFPA Joule-Thomson (JT) self-regulating cryostats specially designed for defense articles.

Paragraph (e)(17) is added for infrared lenses, mirrors, beam splitters or combiners, filters, and treatments and coatings, specially designed for defense articles.

Paragraph (e)(18) is added for drive, control, signal, or image processing electronics specially designed for defense articles in this category.

Paragraph (e)(19) is added for near-to-eye displays specially designed for defense articles in this category.

Paragraph (e)(20) is added for resonators, receivers, transmitters, modulators, gain media, and drive electronics or frequency converters specially designed for defense articles in this category.

Paragraph (e)(21) is added for two-dimensional infrared scene projector emitter arrays (i.e., resistive arrays) specially designed for infrared scene generators controlled in USML Category IX(a)(10).

Paragraph (e)(22) is added for classified parts, components, accessories, attachments, and associated equipment.

Paragraph (e)(23) is added for developmental IITs, FPAs, ROICs, accelerometers, gyroscopes, angular rate sensors, and inertial measurement units funded by the Department of Defense.

Paragraph (f) is revised to more clearly describe the technical data and defense services controlled in paragraph (f). In response to public comments, the Department significantly revised paragraph (f), so that it now mirrors the other technical data and defense services paragraphs in ECR-revised USML Categories.

A new (x) paragraph has been added to USML Category XII, allowing ITAR licensing for commodities, software, and technology subject to the EAR provided those commodities, software, and technology are to be used in or with defense articles controlled in USML Category XII and are described in the purchase documentation submitted with the application.

Finally, articles common to the Missile Technology Control Regime (MTCR) Annex and the USML are to be identified on the USML with the parenthetical “(MT)” at the end of each section containing such articles. A separate proposed rule will address the sections in the ITAR that include MTCR definitions.

The following definitions explain and amplify terms used in this Category and are provided to assist exporters in understanding the scope of the proposed control.

Charge multiplication is a form of electronic image amplification, the generation of charge carriers as a result of an impact ionization gain process.

Focal plane array is a linear or two-dimensional planar layer, or combination of planar layers, of individual detector elements, with or without readout electronics, which work in the focal plane.

Image intensifier tube refers to an imaging device that incorporates a photoemissive transducer (i.e., photocathode) and achieves electron image amplification in the vacuum space.

Multispectral refers to producing discrete outputs associated with more than one spectral band of response.

As the U.S. Government works through the proposed revisions to the USML, some control parameters are proposed recognizing that they may control items in normal commercial use and on the Wassenaar Arrangement's Dual Use List. With the thought that multiple perspectives would be beneficial to the USML revision process, the Department welcomes the assistance of users of the lists and requests input on the following:

(1) A key goal of this rulemaking is to ensure the USML and the CCL together control all the items that meet Wassenaar Arrangement commitments embodied in Munitions List Categories 5, 11 and 15 (WA-ML15) and the relevant Dual Use List Categories including the IRFPAs in Category 6 (WA-DU 6.A.2). To that end, the public is asked to identify any potential lack of coverage brought about by the proposed rules for Category XII contained in this notice and the new and revised ECCNs published separately by the Department of Commerce when reviewed together.

(2) Another key goal of this rulemaking is to identify items proposed for control on the USML or the CCL that are not controlled on the Wassenaar Arrangement's Munitions or Dual Use List. The public is asked to identify any items proposed for control on the USML that are not controlled on the Wassenaar Arrangement's Munitions or Dual Use List.

(3) A third key goal of this rulemaking is to establish a “bright line” between the USML and the CCL for the control of these materials. The public is asked to provide specific examples of control criteria that do not clearly describe items that would be defense articles and thus do not establish a “bright line” between the USML and the CCL.

(4) Although the proposed revisions to the USML do not preclude the possibility that items in normal commercial use would or should be ITAR-controlled because, e.g., they provide the United States with a critical military or intelligence advantage, the U.S. government does not want to inadvertently control items on the ITAR that are in normal commercial use. Items that would be controlled on the USML in this proposed rule have been identified as possessing parameters or characteristics that provide a critical military or intelligence advantage. The public is thus asked to provide specific examples of items, if any, that would be controlled by the revised USML Category XII that are now in normal commercial use. The examples should demonstrate actual commercial use, not just potential or theoretical use, with supporting documents, as well as foreign availability of such items.

(5) For any criteria the public believes control items in normal commercial use, the public is asked to identify parameters or characteristics that differentiate such items from items exclusively or primarily in military use.

(6) For any criteria the public believes control items in normal commercial use, the public is asked to identify the multilateral controls (such as the Wassenaar Arrangement's Dual Use List), if any, for such items, and the consequences of such items being controlled on the USML.

(7) The Department seeks public comment on each paragraph of the proposed USML Category XII.

The Department of State is of the opinion that controlling the import and export of defense articles and services is a foreign affairs function of the United States Government and that rules implementing this function are exempt from sections 553 (rulemaking) and 554 (adjudications) of the Administrative Procedure Act (APA). Although the Department is of the opinion that this rule is exempt from the rulemaking provisions of the APA, the Department is publishing this rule with a 45-day provision for public comment and without prejudice to its determination that controlling the import and export of defense services is a foreign affairs function.

Since this rule is exempt from the rulemaking provisions of 5 U.S.C. 553, it does not require analysis under the Regulatory Flexibility Act.

This proposed amendment does not involve a mandate that will result in the expenditure by State, local, and tribal governments, in the aggregate, or by the private sector, of $100 million or more in any year and it will not significantly or uniquely affect small governments. Therefore, no actions were deemed necessary under the provisions of the Unfunded Mandates Reform Act of 1995.

This proposed amendment has been found not to be a major rule within the meaning of the Small Business Regulatory Enforcement Fairness Act of 1996.

This proposed amendment 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. Therefore, in accordance with Executive Order 13132, it is determined that this proposed amendment does not have sufficient federalism implications to require consultations or warrant the preparation of a federalism summary impact statement. The regulations implementing Executive Order 12372 regarding intergovernmental consultation on Federal programs and activities do not apply to this proposed amendment.

Executive Orders 13563 and 12866 direct agencies to assess 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, distributed impacts, and equity). Executive Order 13563 emphasizes the importance of quantifying both costs and benefits, of reducing costs, of harmonizing rules, and of promoting flexibility. This rule has been designated a “significant regulatory action,” although not economically significant, under section 3(f) of Executive Order 12866. Accordingly, the rule has been reviewed by the Office of Management and Budget (OMB).

The Department of State has reviewed the proposed amendment in light of Executive Order 12988 to eliminate ambiguity, minimize litigation, establish clear legal standards, and reduce burden.

The Department of State has determined that this rulemaking will not have tribal implications, will not impose substantial direct compliance costs on Indian tribal governments, and will not preempt tribal law. Accordingly, Executive Order 13175 does not apply to this rulemaking.

Following is a listing of approved Department of State information collections that will be affected by revision of the U.S. Munitions List (USML) and the Commerce Control List pursuant to the President's Export Control Reform (ECR) initiative. The list of collections and the description of the manner in which they will be affected pertains to revision of the USML in its entirety, not only to the categories published in this rule. In accordance with the Paperwork Reduction Act, the Department of State will request comment on these collections from all interested persons at the appropriate time. In particular, the Department will seek comment on changes to licensing burden based on implementation of regulatory changes pursuant to ECR, and on projected changes based on continued implementation of regulatory changes pursuant to ECR. The information collections are as follows:

(1) Statement of Registration, DS-2032, OMB No. 1405-0002. The Department estimates that between 3,000 and 5,000 of the currently registered persons will not need to maintain registration following full revision of the USML. This would result in a burden reduction of between 6,000 and 10,000 hours annually, based on a revised time burden of two hours to complete a Statement of Registration.

(2) Application/License for Permanent Export of Unclassified Defense Articles and Related Unclassified Technical Data, DSP-5, OMB No. 1405-0003. The Department estimates that there will be 35,000 fewer DSP-5 submissions annually following full revision of the USML. This would result in a burden reduction of 35,000 hours annually.

(3) Application/License for Temporary Import of Unclassified Defense Articles, DSP-61, OMB No. 1405-0013. The Department estimates that there will be 200 fewer DSP-61 submissions annually following full revision of the USML. This would result in a burden reduction of 100 hours annually.

(4) Application/License for Temporary Export of Unclassified Defense Articles, DSP-73, OMB No. 1405-0023. The Department estimates that there will be 800 fewer DSP-73 submissions annually following full revision of the USML. This would result in a burden reduction of 800 hours annually.

(5) Application for Amendment to License for Export or Import of Classified or Unclassified Defense Articles and Related Technical Data, DSP-6, -62, -74, -119, OMB No. 1405-0092. The Department estimates that there will be 2,000 fewer amendment submissions annually following full revision of the USML. This would result in a burden reduction of 1,000 hours annually.

(6) Request for Approval of Manufacturing License Agreements, Technical Assistance Agreements, and Other Agreements, DSP-5, OMB No. 1405-0093. The Department estimates that there will be 1,000 fewer agreement submissions annually following full revision of the USML. This would result in a burden reduction of 2,000 hours annually.

(7) Maintenance of Records by Registrants, OMB No. 1405-0111. The requirement to actively maintain records pursuant to provisions of the ITAR will decline commensurate with the drop in the number of persons who will be required to register with the Department pursuant to the ITAR. As stated above, the Department estimates that up to 5,000 of the currently-registered persons will not need to maintain registration following full revision of the USML. This would result in a burden reduction of 100,000 hours annually. However, the ITAR does provide for the maintenance of records for a period of five years. Therefore, persons newly relieved of the requirement to register with the Department may still be required to maintain records.

Accordingly, for the reasons set forth above, title 22, chapter I, subchapter M, part 121 is proposed to be amended as follows:

The revision to read as follows:

The collection of information contained in this notice of proposed rulemaking has been submitted to the Office of Management and Budget for review and approval in accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)). Comments on the collection of information should be sent to the Office of Management and Budget, Attn: Desk Officer for the Department of the Treasury, Office of Information and Regulatory Affairs, Washington, DC 20503, with copies to the Internal Revenue Service, Attn: IRS Reports Clearance Officer, SE:W:CAR:MP:T:T:SP, Washington, DC 20224. Comments on the collection of information should be received by April 19, 2016.

Comments are specifically requested concerning:

• Whether the proposed collection of information is necessary for the proper performance of the functions of the IRS, including whether the information will have practical utility;

• The accuracy of the estimated burden associated with the proposed collection of information;

• How the quality, utility, and clarity of the information to be collected may be enhanced;

• How the burden of complying with the proposed collection of information may be minimized, including through forms of information technology; and

• Estimates of capital or start-up costs and costs of operation, maintenance, and purchase of services to provide information.

The collection of information in these proposed regulations is in § 1.509(a)-4(i)(4)(iv)(D) (written record of close cooperation and coordination by the governmental supported organizations) and § 1.509(a)-4(i)(6)(iii)(B) (written record of contributions received by the supported organization). Requiring the supporting organization to collect written records of its governmental supported organizations' close cooperation and coordination with each other and written records of the contributions its supported organizations directly received in response to solicitations by the supporting organization permits the IRS to determine whether the supporting organization satisfies the requirements to be a functionally integrated or non-functionally integrated Type III supporting organization. The record keepers are Type III supporting organizations.

Estimated number of recordkeepers: 7,872.

Estimated average annual burden hours per recordkeeper: 2 hours.

Estimated total annual recordkeeping burden: 15,744.

Estimated frequency of collection of such information: Annual.

An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a valid control number assigned by the Office of Management and Budget.

Books or records relating to a collection of information must be retained as long as their contents may become material in the administration of any internal revenue law. Generally, tax returns and return information are confidential, as required by 26 U.S.C. 6103.

This document contains proposed amendments to the Income Tax Regulations (26 CFR part 1) regarding organizations described in section 509(a)(3) of the Internal Revenue Code (Code). An organization described in section 501(c)(3) is classified as either a private foundation or a public charity. To be classified as a public charity, an organization must be described in section 509(a)(1), (2), or (3). Organizations described in section 509(a)(3) are known as “supporting organizations.” Supporting organizations achieve their public charity status by providing support to one or more organizations described in section 509(a)(1) or (2), which in this context are referred to as “supported organizations.”

To be described in section 509(a)(3), an organization must satisfy (1) an organizational test, (2) an operational test, (3) a relationship test, and (4) a disqualified person control test. The organizational and operational tests require that a supporting organization be organized and at all times thereafter operated exclusively for the benefit of, to perform the functions of, or to carry out the purposes of one or more supported organizations. The relationship test requires a supporting organization to establish one of three types of relationships with one or more supported organizations. A supporting organization that is operated, supervised or controlled by one or more supported organizations is known as a “Type I” supporting organization. The relationship of a Type I supporting organization with its supported organization(s) is comparable to that of a corporate parent-subsidiary relationship. A supporting organization that is supervised or controlled in connection with one or more supported organizations is known as a “Type II” supporting organization. The relationship of a Type II supporting organization with its supported organization(s) involves common supervision or control by the persons supervising or controlling both the supporting organization and the supported organization(s). A supporting organization that is operated in connection with one or more supported organizations is known as a “Type III” supporting organization and is discussed further in the remainder of this preamble. Finally, the disqualified person control test requires that a supporting organization not be controlled directly or indirectly by certain disqualified persons.

These proposed regulations focus primarily on the relationship test for Type III supporting organizations. Specifically, the proposed regulations reflect statutory changes enacted by sections 1241 through 1243 of the Pension Protection Act of 2006, Public Law 109-280 (120 Stat. 780) (2006) (PPA)), which made the following five changes to the requirements an organization must satisfy to qualify as a Type III supporting organization:

(1) Removed the ability of a charitable trust to rely on the special rule under § 1.509(a)-4(i)(2)(iii) of the regulations then in effect;

(2) Directed the Secretary of the Treasury to promulgate regulations under section 509 that establish a new distribution requirement for Type III supporting organizations that are not “functionally integrated” (a non-functionally integrated (NFI) Type III supporting organization) to ensure that a “significant amount” is paid to supported organizations (for this purpose the term “functionally integrated” means a Type III supporting organization that is not required under Treasury regulations to make payments to supported organizations, because the supporting organization engages in activities that relate to performing the functions of, or carrying out the purposes of, its supported organization(s));

(3) Required a Type III supporting organization to provide annually to each of its supported organizations the information required by the Treasury Department and the IRS to ensure that the supporting organization is responsive to the needs or demands of its supported organization(s);

(4) Prohibited a Type III supporting organization from supporting any supported organization not organized in the United States; and

(5) Prohibited a Type I or Type III supporting organization from accepting a gift or contribution from a person who, alone or together with certain related persons, directly or indirectly controls the governing body of a supported organization of the Type I or Type III supporting organization.

These proposed regulations set forth additional rules on the requirements for Type III supporting organizations, including additional requirements to meet the responsiveness test for all Type III supporting organizations; additional rules regarding the qualification of an organization as a functionally integrated Type III supporting organization under § 1.509(a)-4(i)(4), including provisions for supporting organizations that support governmental entities; and additional rules regarding the required annual distributions under § 1.509(a)-4(i)(5) by a NFI Type III supporting organization. The proposed regulations also define the term “control” for purposes of section 509(f)(2), which prohibits a Type I supporting organization or a Type III supporting organization from accepting contributions from persons who control the governing body of its supported organization(s).

On August 2, 2007, the Treasury Department and the IRS published in the Federal Register (72 FR 42335) an advanced notice of proposed rulemaking (ANPRM) (REG-155929-06) in response to the PPA. The ANPRM described proposed rules to implement the changes made by the PPA to the Type III supporting organization requirements and solicited comments regarding those proposed rules.

On September 24, 2009, the Treasury Department and the IRS published in the Federal Register (74 FR 48672) a notice of proposed rulemaking (the 2009 NPRM) (REG-155929-06). The 2009 NPRM contained proposed regulations (the 2009 proposed regulations) setting forth the requirements to qualify as a Type III supporting organization under the PPA.

On December 28, 2012, the Treasury Department and the IRS published in the Federal Register (77 FR 76382) a Treasury decision (TD 9605) containing final and temporary regulations (the 2012 TD) regarding the requirements to qualify as a Type III supporting organization. Based on the comments received, the 2012 TD made certain changes to the rules proposed in the 2009 NPRM, included in the temporary regulations significant changes to the distribution requirement, and reserved certain topics for further consideration. Also on December 28, 2012, the Treasury Department and the IRS published in the Federal Register (77 FR 76426) a notice of proposed rulemaking (the 2012 NPRM) (REG-155929-06) that incorporated the text of the temporary regulations in the 2012 TD by cross-reference. The 2012 TD provided transition relief for Type III supporting organizations in existence on December 28, 2012, that met and continued to meet the test under former § 1.509(a)-4(i)(3)(ii), as in effect prior to December 28, 2012, treating them as functionally integrated until the first day of their second taxable years beginning after December 28, 2012. The preamble to the 2012 TD also identified issues for possible future rulemaking and requested comments. The IRS received three comments on these issues. The comments were considered in developing these proposed regulations and are available for public inspection at www.regulations.gov or upon request. No public hearing was requested.

The Treasury Department and the IRS published Notice 2014-4, 2014-2 I.R.B. 274, to provide additional transition relief for any Type III supporting organization that (1) supports at least one governmental supported organization to which the supporting organization is responsive within the meaning of § 1.509(a)-4(i)(3) and (2) engages in activities for or on behalf of the governmental supported organization that perform the functions of, or carry out the purposes of, the governmental supported organization and that, but for the involvement of the supporting organization, would normally be engaged in by the governmental supported organization itself. Notice 2014-4 provides that such an organization will be treated as a functionally integrated Type III supporting organization until the earlier of the date final regulations are published under § 1.509(a)-4(i)(4)(iv) in the Federal Register or the first day of the organization's third taxable year beginning after December 31, 2013.

On December 23, 2015, the Treasury Department and the IRS published in the Federal Register (80 FR 79684) a Treasury Decision (TD 9746) containing final regulations (the 2015 TD) regarding the distribution requirement for NFI Type III supporting organizations. The preamble of those regulations provided that supporting organizations supporting a governmental supported organization could continue to rely on Notice 2014-4 until the date of publication of the notice of proposed rulemaking prescribing the new proposed regulations under § 1.509(a)-(i)(4)(iv). The IRS received three comments in response to Notice 2014-4, which the Treasury Department and the IRS considered in developing these proposed regulations.

This section describes the proposed provisions and addresses comments that the Treasury Department and the IRS received in response to the 2012 TD and Notice 2014-4.

Type I and Type III supporting organizations are prohibited from accepting a gift or contribution from a person who, alone or together with certain related persons, directly or indirectly controls the governing body of a supported organization of the Type I or Type III supporting organization, or from persons related to a person possessing such control. Section 509(f)(2) and § 1.509(a)-4(f)(5). For this purpose, related persons include family members and 35-percent controlled entities within the meaning of section 4958(f). Although the 2012 TD reserved § 1.509(a)-4(f)(5)(ii), “Meaning of control,” the preamble to the 2012 TD indicated that the Treasury Department and the IRS intended to issue proposed regulations that would provide such a definition.

These proposed regulations define “control” for this purpose consistently with § 1.509(a)-4(j), which relates to control by disqualified persons for purposes of the disqualified person control test. In general, under the proposed regulations, the governing body of a supported organization is considered “controlled” by a person if that person, alone or by aggregating his or her votes or positions of authority with certain related persons, as described in section 509(f)(2)(B)(ii) and (iii), may require the governing body of the supported organization to perform any act that significantly affects its operations or may prevent the governing body of the supported organization from performing any such act.

Section 1.509(a)-4(i)(1) provides that for each taxable year, a Type III supporting organization must satisfy (i) a notification requirement, (ii) a responsiveness test, and (iii) an integral part test provided in the regulations. These proposed regulations provide additional rules regarding each of these requirements.

Section 509(f)(1)(A) provides that an organization shall not be considered a Type III supporting organization unless the organization provides to each supported organization, for each taxable year, such information as the Secretary may require to ensure that the organization is responsive to the needs or demands of the supported organizations.

To satisfy this notification requirement, § 1.509(a)-4(i)(2) requires a Type III supporting organization to provide to each of its supported organizations for each taxable year: (1) A written notice addressed to a principal officer of the supported organization describing the type and amount of all of the support it provided to the supported organization during the supporting organization's preceding taxable year; (2) a copy of the supporting organization's most recently filed Form 990, “Return of Organization Exempt from Income Tax,” or other annual information return required to be filed under section 6033; and (3) a copy of the supporting organization's governing documents, including any amendments (unless previously provided and not subsequently amended). For NFI Type III supporting organizations, the description of support in the written notice includes all of the distributions described in § 1.509(a)-4(i)(6) to the supported organization.

The proposed regulations amend § 1.509(a)-4(i)(2) to clarify that a supporting organization must deliver the required documents to each of its supported organizations by the last day of the fifth month of the taxable year after the taxable year in which the supporting organization provided the support it is reporting. This proposed change is intended to reduce confusion, but does not substantively change the due date or the content of the required notification. Date of delivery is determined applying the general principles of section 7502.

Section 1.509(a)-4(i)(3)(i) provides that a supporting organization meets the responsiveness test if it is “responsive to the needs or demands of a supported organization.” To meet this responsiveness test, an organization must satisfy: (1) A relationship test described in § 1.509(a)-4(i)(3)(ii) under which the officers, directors, or trustees of the organization have a specified relationship with the officers, directors, or trustees (and in some cases the members) of the supported organization; and (2) a significant voice test described in § 1.509(a)-4(i)(3)(iii) under which the officers, directors, or trustees of the supported organization, by reason of this relationship, have a significant voice in the investment policies of the supporting organization, the timing of grants, the manner of making grants, and the selection of grant recipients by the supporting organization, and in otherwise directing the use of the income or assets of the supporting organization. The preamble to the 2012 TD stated that, in determining the appropriate distribution amount for NFI Type III supporting organizations, the Treasury Department and the IRS considered the required relationship between a supporting organization and its supported organizations, and that the Treasury Department and the IRS intended to issue proposed regulations in the future that would amend the responsiveness test by requiring a Type III supporting organization to be responsive to all of its supported organizations.

In response to this proposal in the preamble to the 2012 TD, one commenter stated that a supporting organization should not be required to be responsive to all of its supported organizations because the resulting administrative burden would effectively limit the total number of organizations a supporting organization could support. The commenter suggested alternatives under which a supporting organization would be responsive to only a subset of its supported organizations that would vary from year to year.

The Treasury Department and the IRS note that the distinguishing characteristic of Type III supporting organizations, and the basis for their public charity classification, is that they are responsive to and significantly involved in the operations of their publicly supported organizations. See § 1.509(a)-4(f)(4). The Treasury Department and the IRS believe that, unless a Type III supporting organization is responsive to each of its supported organizations, the supported organizations cannot exercise the requisite level of oversight of and engagement with the supporting organization. Limiting the responsiveness requirement to fewer than all of the supported organizations may result in the necessary oversight and accountability being present for less than all of a supporting organization's operations. Therefore, the proposed regulations revise § 1.509(a)-4(i)(3)(i) to require a supporting organization to be responsive to the needs and demands of each of its supported organizations in order to meet the responsiveness test.

To illustrate how concerns about potential administrative burdens may be addressed consistent with the responsiveness test, the proposed regulations include a new example. The proposed example is intended to demonstrate one way in which a Type III supporting organization that supports multiple organizations may satisfy the responsiveness test in a manner that can be cost-effective. The example shows that a supporting organization can, with respect to each of its supported organizations, meet a different subset of the required relationships with the supporting organization's officers, directors, or trustees listed in § 1.509(a)-4(i)(3)(ii). It also shows how a supporting organization can organize and hold regular meetings, provide information, and encourage communication to help ensure that the supported organizations have a significant voice in the operations of the supporting organization.

Another commenter requested additional guidance regarding the ability of trusts to satisfy the significant voice requirement of the responsiveness test. The new Example 3 provides further illustration of how Type III supporting organizations, including charitable trusts, might satisfy the significant voice requirement of the responsiveness test. The Treasury Department and the IRS note that although the examples in the regulations relating to the responsiveness test may involve a Type III supporting organization that is organized as either a corporation or a trust, the applicable law and relevant regulatory provisions, as modified by the proposed regulations, are applicable to all Type III supporting organizations in the same manner, whether organized as a corporation or a trust. The Treasury Department and the IRS anticipate that Type III supporting organizations may be able to demonstrate they satisfy the responsiveness test in a variety of ways, and that the determination will be based on all the facts and circumstances.

As a result of the proposed changes to the responsiveness test, the proposed regulations also include conforming changes to examples and other regulatory provisions.

Section 1.509(a)-4(i)(1) provides that, for each taxable year, a Type III supporting organization must satisfy the integral part test. The integral part test is satisfied under § 1.509(a)-4(i)(1)(iii) by maintaining significant involvement in the operations of one or more supported organizations and providing support on which the supported organizations are dependent. To satisfy this test, a Type III supporting organization must meet the requirements either for a functionally integrated Type III supporting organization or for an NFI Type III supporting organization, as set forth in § 1.509(a)-4(i)(4) or (5), respectively.

A Type III organization is functionally integrated under § 1.509(a)-4(i)(4) if (1) it engages in activities substantially all of which directly further the exempt purposes of one or more supported organizations and otherwise meets the requirements described in paragraph (i)(4)(ii) of that section, (2) it is the parent of each of its supported organizations as described in paragraph (i)(4)(iii) of that section, or (3) it supports a governmental supported organization and otherwise meets the requirements of paragraph (i)(4)(iv) of that section. The direct furtherance test is not addressed by these regulations.

Under the current regulations, a supporting organization is the parent of a supported organization if the supporting organization exercises a substantial degree of direction over the policies, programs, and activities of the supported organization and a majority of the officers, directors, or trustees of the supported organization is appointed or elected, directly or indirectly, by the governing body, members of the governing body, or officers (acting in their official capacities) of the supporting organization. See § 1.509(a)-4(i)(4)(iii). This definition was adopted by the 2012 TD; however, the preamble to the 2012 TD stated that the Treasury Department and the IRS had determined that the definition of parent was insufficiently specific. It further stated that the Treasury Department and the IRS intended to issue proposed regulations that would provide a new definition of parent.

As noted in the preamble to the 2009 NPRM, the classification of a parent organization as functionally integrated was intended to “apply to supporting organizations that oversee or facilitate the operation of an integrated system, such as hospital systems.” To more fully accomplish this purpose, the proposed regulations amend § 1.509(a)-4(i)(4)(iii) to clarify that in order for a supporting organization to qualify as the parent of each of its supported organizations, the supporting organization and its supported organizations must be part of an integrated system (such as a hospital system), and the supporting organization must engage in activities typical of the parent of an integrated system. Examples of these activities include (but are not limited to) coordinating the activities of the supported organizations and engaging in overall planning, policy development, budgeting, and resource allocation for the supported organizations. The Treasury Department and the IRS request comments on what activities are typical of the parent of an integrated system, and whether additional activities should be explicitly listed as examples.

The proposed regulations retain the requirement that the governing body, members of the governing body, or officers of the supporting organization must appoint or elect a majority of the officers, directors, or trustees of the supported organization. The Treasury Department and the IRS intend, as stated in the 2009 NPRM, the use of the phrase “appointed or elected, directly or indirectly” to mean the supporting organization could qualify as a parent of a second-tier (or lower) subsidiary. Thus, for example, if the directors of supporting organization A appoint a majority of the directors of supported organization B, which in turn appoints a majority of the directors of supported organization C, the directors of supporting organization A will be treated as appointing the majority of the directors of both supported organization B and supported organization C.

The preamble to the 2012 TD stated that the Treasury Department and the IRS intended that the new definition of parent would specifically address the power to remove and replace officers, directors, or trustees of the supported organization. The Treasury Department and the IRS interpret the existing requirement under § 1.509(a)-4(i)(4)(iii) that the parent organization have the power to appoint or elect a majority of the officers, directors, or trustees of each supported organization to include the requirement that the parent organization also have the power to remove and replace such officers, directors, or trustees, or otherwise have an ongoing power to appoint or elect with reasonable frequency. The Treasury Department and the IRS request comments on whether § 1.509(a)-4(i)(4)(iii) should be amended to provide further clarification on this issue.

The 2009 NPRM proposed an exception to the general rules for qualifying as a functionally integrated Type III supporting organization if the supporting organization supported only one governmental entity, which was defined as an entity the assets of which are subject to the appropriations process of a federal, state, local, or Indian tribal government. The 2009 NPRM also provided that in order to be considered functionally integrated, a substantial part of the supporting organization's total activities had to directly further the exempt purpose(s) of its supported organization, and that exempt purposes are not directly furthered by fundraising, grantmaking, or investing and managing non-exempt-use assets. The Treasury Department and IRS received multiple comments regarding this proposal. The 2012 TD stated the Treasury Department and the IRS were continuing to consider the public comments on the 2009 NPRM regarding this governmental entity exception and reserved § 1.509(a)-4(i)(4)(iv) for future guidance on how a Type III supporting organization can qualify as functionally integrated by supporting a governmental entity.

These proposed regulations take the prior comments into consideration and provide rules to qualify as functionally integrated both for new and existing Type III supporting organizations that support governmental supported organizations. These proposed rules also define the term “governmental supported organization.”

One commenter stated that the definition of a governmental supported organization in the 2009 NPRM was too complicated and difficult to understand and administer. This commenter proposed using the existing definition of a governmental unit in section 170(b)(1)(A)(v) and (c)(1).

The Treasury Department and the IRS agree with the commenter that for simplicity and administrability the term “governmental supported organization” should be defined by using an existing Code definition of a governmental unit. The proposed regulations define a governmental supported organization as a governmental unit described in section 170(c)(1), or an organization described in section 170(c)(2) and (b)(1)(A) (other than in clauses (vii) and (viii)) that is an instrumentality of one or more governmental units described in section 170(c)(1). The Treasury Department and the IRS further note that a governmental unit described in section 170(c)(1) includes all of the agencies, departments, and divisions of the governmental unit, and all such agencies, departments, and divisions will be treated as one governmental supported organization for purposes of § 1.509(a)-4(i)(4)(iv). The Treasury Department and the IRS specifically request comments on the proposed definition of governmental supported organization.

Two commenters said that the 2009 NPRM's limit of only one governmental supported organization was too strict and instead recommended allowing a supporting organization to qualify for this exception if it supports at least one governmental supported organization, as Notice 2014-4 provides. One commenter noted that the 2009 NPRM's limit of only one governmental supported organization would adversely affect existing supporting organizations that support an additional supported organization that is not itself a governmental entity, but that has a substantial operational connection with the governmental supported organization. Another commenter said that the test in Notice 2014-4 was not sufficient because it did not cover activities, such as fundraising and grant making, that the governmental supported organization could not otherwise perform.

In response to these comments, the Treasury Department and the IRS propose a new test for Type III supporting organizations that support only governmental supported organizations to qualify as functionally integrated. The Treasury Department and the IRS agree it would be appropriate to treat a Type III supporting organization that supports two or more governmental supported organizations as functionally integrated, provided that the governmental supported organizations are themselves connected geographically or operationally, which will help ensure that the supported organizations provide sufficient input to and oversight of the supporting organization. Thus, the proposed regulations provide that a supporting organization that supports more than one governmental supported organization may be considered functionally integrated if all of its governmental supported organizations either: (1) Operate within the same geographic region (defined as a city, county, or metropolitan area); or (2) work in close coordination or collaboration with one another to conduct a service, program, or activity that the supporting organization supports. To satisfy the close cooperation or coordination requirement, the proposed regulations require a supporting organization to maintain on file a letter from each of the governmental supported organizations (or a joint letter from all of them) describing their collaborative or cooperative efforts with respect to the particular service, program, or activity. In addition, the proposed regulations incorporate the 2009 NPRM proposed requirement that a substantial part of the supporting organization's total activities must directly further the exempt purposes of its governmental supported organization(s). The Treasury Department and the IRS believe that using a substantial part requirement, instead of the substantially all requirement in § 1.509(a)-4(i)(4)(iv)(A), is appropriate when supporting organizations support only governmental supported organizations operating in the same geographic region or working in close collaboration because the input from and oversight by the governmental supported organizations minimize the potential for abuse.

Two commenters stated that activities such as fundraising, grant-making, and managing non-exempt-use assets should be considered activities that directly further the exempt purposes of a governmental supported organization. The Treasury Department and the IRS note that the integral part test's definition of “directly further” in § 1.509(a)-4(i)(4)(ii)(C) generally excludes fundraising, making grants, and investing and managing non-exempt-use assets. The Treasury Department and the IRS excluded these items because they determined that a Type III supporting organization should qualify as functionally integrated only if the supporting organization itself conducts activities that perform the functions of or carry out the purposes of the supported organization (as distinguished from providing financial support for the activities carried out by the supported organization). The Treasury Department and the IRS do not believe a different definition of “directly further” should apply to supporting organizations that support governmental supported organizations. Accordingly, the proposed regulations do not adopt this comment. However, under the proposed rules, these types of organizations would be considered functionally integrated if a substantial part, but not substantially all, of their total activities directly further the exempt purposes of their governmental supported organization(s). Accordingly, these proposed regulations allow these organizations to conduct more fundraising and other financial activities, if certain requirements are met, than is permitted under the substantially all test of § 1.509(a)-4(i)(4)(ii).

In response to comments, the proposed regulations also provide a special rule for existing Type III supporting organizations, provided that they support no more than one additional supported organization that is not a governmental supported organization. A Type III supporting organization in existence on or before February 19, 2016 is treated as functionally integrated if: (1) It supports one or more governmental supported organizations and no more than one supported organization that is not a governmental supported organization; (2) it designated each of its supported organizations as provided in § 1.509(a)-4(d)(4) on or before February 19, 2016; and (3) a substantial part of its total activities directly furthers the exempt purposes of its governmental supported organization(s).

The proposed regulations also further extend the transition relief provided in Notice 2014-4 and extended by the 2015 TD. Under the proposed regulations, a Type III supporting organization in existence on or before February 19, 2016 that continues to meet the requirements of Notice 2014-4 is treated as functionally integrated until the earlier of the first day of the organization's first taxable year beginning after the date final regulations under § 1.509(a)-4(i)(4)(iv) are published or the first day of the organization's second taxable year beginning after February 19, 2016.

Section 1.509(a)-4(i)(5) generally provides that an NFI Type III supporting organization meets the integral part test if it satisfies the distribution requirement of paragraph (i)(5)(ii) of that section and the attentiveness requirement of paragraph (i)(5)(iii) of that section. Section 1.509(a)-4(i)(5)(ii) provides that, with respect to each taxable year, a supporting organization must distribute to or for the use of one or more supported organizations an amount equaling or exceeding its “distributable amount”. Section 1.509(a)-4(i)(6) provides the amount of a distribution made to a supported organization is the amount of cash or the fair market value of the property distributed.

For clarity and consistency, the proposed regulations revise § 1.509(a)-4(i)(5)(ii) to state that a supporting organization must make distributions as described in § 1.509(a)-4(i)(6) to satisfy the distribution requirement, and revise section 1.509(a)-4(i)(6) to describe in detail what distributions count towards the distribution requirement.

Section 1.509(a)-4(i)(5)(ii)(B) provides that the distributable amount is equal to the greater of 85 percent of an organization's adjusted net income for the immediately preceding taxable year (as determined by applying the principles of section 4942(f) and § 53.4942(a)-2(d)) or its minimum asset amount for the immediately preceding taxable year, reduced by the amount of taxes imposed on the supporting organization under subtitle A of the Code during the immediately preceding taxable year. See § 1.509(a)-4(i)(5)(ii)(B).

The Treasury Department and the IRS believe that, because the taxes under subtitle A of the Code are imposed on a supporting organization's unrelated business taxable income (pursuant to section 511) and the activity that produces the unrelated business taxable income does not further the supported organization's exempt purposes, these taxes should not be treated as an amount distributed to a supported organization. Therefore, the proposed regulations remove the provision in § 1.509(a)-4(i)(5)(ii)(B) that reduces the distributable amount by the amount of taxes subtitle A of the Code imposed on a supporting organization during the immediately preceding taxable year.

As noted above, § 1.509(a)-4(i)(6) provides details on the distributions by a supporting organization that count toward satisfying the distribution requirement imposed in § 1.509(a)-4(i)(5)(ii). The current regulations provide that distributions include but are not limited to: (1) Any amount paid to a supported organization to accomplish the supported organization's exempt purposes; (2) any amount paid by the supporting organization to perform an activity that directly furthers the exempt purposes of the supported organization within the meaning of § 1.509(a)-4(i)(4)(ii), but only to the extent such amount exceeds any income derived by the supporting organization from the activity; (3) any reasonable and necessary administrative expenses paid to accomplish the exempt purposes of the supported organization(s), which do not include expenses incurred in the production of investment income; (4) any amount paid to acquire an exempt-use asset described in § 1.509(a)-4(i)(8)(ii); and (5) any amount set aside for a specific project that accomplishes the exempt purposes of a supported organization to which the supporting organization is responsive.

The preamble to the 2012 TD stated that the list in § 1.509(a)-4(i)(6) is not exhaustive and other distributions may count toward the distribution requirement. The preamble further stated the Treasury Department and the IRS intended to propose regulations that more fully describe the expenditures (including expenditures for administrative and additional charitable activities) that do and do not count toward the distribution requirement.

The Treasury Department and the IRS believe that the non-exclusive list in the current regulations creates uncertainty for supporting organizations and the IRS about what counts toward the distribution requirement. Therefore, the proposed regulations revise and clarify the list in § 1.509(a)-4(i)(6) of what counts toward the distribution requirement and make it an exclusive list.

The 2012 TD clarified that reasonable and necessary administrative expenses paid to accomplish the exempt purposes of supported organizations, and not expenses incurred in the production of investment income, count toward the distribution requirement. For example, if a supporting organization conducts exempt activities that are for the benefit of, perform the functions of, or carry out the purposes of its supported organization(s) and also conducts nonexempt activities (such as investment activities or unrelated business activities), then the supporting organization's administrative expenses (such as salaries, rent, utilities and other overhead expenses) must be allocated between the exempt and nonexempt activities on a reasonable and consistently-applied basis. The administrative expenses attributable to the exempt activities are treated as distributions to its supported organization(s) if such expenses are reasonable and necessary. The administrative expenses and operating costs attributable to the nonexempt activities are not treated as distributions to the supported organization(s). The proposed regulations retain this provision, but also provide additional guidance on fundraising expenses.

The 2012 TD did not specifically address whether fundraising expenses count toward the distribution requirement. The proposed regulations specify that reasonable and necessary administrative expenses paid to accomplish the exempt purposes of a supported organization generally do not include fundraising expenses the supporting organization incurs. However, under the proposed regulations, reasonable and necessary expenses incurred by the supporting organization to solicit contributions that a supported organization receives directly from donors count toward the distribution requirement, but only to the extent that the amount of such expenses does not exceed the amount of contributions actually received by the supported organization as a result of the solicitation activities of the supporting organization. The Treasury Department and the IRS believe this rule would provide greater consistency with the treatment of contributions that supporting organizations receive directly and then distribute to their supported organizations (net of the supporting organizations' solicitation expenses). To ensure that a supporting organization has the information it needs to calculate the allowable expenses, the proposed regulations require the supporting organization to obtain written substantiation from the supported organization of the amount of contributions the supported organization actually received as a result of the supporting organization's solicitations.

One commenter requested that program related investments (PRIs) count toward the distribution requirement. The preamble to the 2012 TD stated the 2012 final and temporary regulations did not specifically address whether or not PRIs may count toward the distribution requirement or are excluded in calculating a supporting organization's distributable amount for a taxable year. The Treasury Department and the IRS recognize that private foundations may use PRIs in a variety of ways to accomplish their exempt purposes and that PRIs thus are treated as qualifying distributions under section 4942. However, because supporting organizations must be operated exclusively for the benefit of, to perform the functions of, or to carry out the purposes of their supported organizations, they differ from private foundations. For purposes of meeting the integral part test, the Treasury Department and the IRS do not believe that PRIs should be treated as distributions to supported organizations. The Treasury Department and the IRS believe that other provisions relating to the distribution requirement, such as the availability of set asides and the potential for carry-forwards of excess distributions, provide significant flexibility for supporting organizations to meet the current and future needs of their supported organizations. For these reasons, the proposed regulations do not adopt this comment.

These regulations are proposed to be effective on the date the Treasury decision adopting these rules as final or temporary regulations is published in the Federal Register. However, taxpayers may rely on the provisions of the proposed regulations until final or temporary regulations are issued.

The IRS Notice 2014-4 cited in this preamble is published in the Internal Revenue Bulletin and is 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.

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 regulations.

In connection with the requirements of the Regulatory Flexibility Act (5 U.S.C. chapter 6), it is hereby certified that the collection of information contained in the proposed regulations will not have a significant economic impact on a substantial number of small entities. This certification is based on the fact that the proposed regulations will not impact a substantial number of small entities.

Based on IRS Statistics of Income data for 2013, there are 1,052,495 active nonprofit charitable organizations recognized by the IRS under section 501(c)(3), of which only 7,872 organizations self-identified as Type III supporting organizations. The universe of organizations that would be affected by the collection of information under proposed § 1.509(a)-4(i)(4)(iii) and § 1.509(a)-4(i)(6)(iii) is a subset of all Type III supporting organizations. Thus, the number of organizations that would be affected by the collection of information under proposed § 1.509(a)-4(i)(4)(iii) and (i)(6)(iii), which is expected to be significantly less than 7,872, would not be substantial. Moreover, the time to complete the recordkeeping requirements is expected to be no more than 2 hours for each organization, which would not have a significant economic impact. Therefore, the collection of information under proposed § 1.509(a)-4(i)(4)(iii) and (i)(6)(iii) would not have a significant economic impact.

Pursuant to section 7805(f) of the Code, this regulation has been submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small business.

Before these proposed regulations are adopted as final regulations, consideration will be given to any electronic comments or written comments (a signed original and eight (8) copies) that are submitted timely to the IRS. The Treasury Department and the IRS request comments on all aspects of the proposed rules. All comments that are submitted by the public will be available for public inspection and copying at www.regulations.gov or upon request. A public hearing may be scheduled if requested in writing by any person that timely submits written comments. If a public hearing is scheduled, notice of the date, time, and place for the public hearing will be published in the Federal Register.

The principal authors of these regulations are Jonathan Carter and Mike Repass, Office of Associate Chief Counsel (Tax-Exempt and Government Entities). However, 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 SUPPLEMENTARY INFORMATION section is arranged as follows:

On July 18, 1997, the Environmental Protection Agency (EPA) promulgated a revised national ambient air quality standard (NAAQS or standards) for ozone (62 FR 38856) and a new NAAQS for fine particle matter (PM2.5) (62 FR 38652). The revised ozone NAAQS was based on 8-hour average concentrations. The 8-hour averaging period replaced the previous 1-hour averaging period, and the level of the NAAQS was changed from 0.12 parts per million (ppm) to 0.08 ppm. The new PM2.5 NAAQS established a health-based annual standard of 15.0 micrograms per cubic meter (µg/m3) based on a 3-year average of annual mean PM2.5 concentrations, and a 24-hour standard of 65 µg/m3 based on a 3-year average of the 98th percentile of 24-hour concentrations.

On October 17, 2006 (71 FR 61144), effective December 18, 2006, EPA revised the 24-hour average PM2.5 primary and secondary NAAQS from 65 µg/m3 to 35 µg/m3. As required by section 110(a)(1) of the CAA, the 110(a)(2) submittals were due within three years after promulgation of the revised standard.

On March 27, 2008 (73 FR 16436) EPA strengthened its NAAQS for ground-level ozone, revising the 8-hour primary ozone standard to 0.075 ppm. EPA also strengthened the secondary 8-hour ozone standard to the level of 0.075 ppm making it identical to the revised primary standard.

On November 12, 2008 (73 FR 66964), EPA promulgated a revised NAAQS for lead. The Agency revised the level of the primary lead standard from 1.5 µg/m3 to 0.15 µg/m3 . The EPA also revised the secondary NAAQS to 0.15 µg/m3 and made it identical to the revised primary standard.

Pursuant to section 110(a)(1) of the CAA, states are required to submit SIPs meeting the applicable requirements of section 110(a)(2) within three years after promulgation of a new or revised NAAQS or within such shorter period as EPA may prescribe. Section 110(a)(2) requires states to address basic SIP elements such as requirements for monitoring, basic program requirements, and legal authority that are designed to assure attainment and maintenance of the NAAQS. Section 110(a) imposes the obligation upon states to make a SIP submission to EPA for a new or revised NAAQS, but the contents of that submission may vary depending upon the facts and circumstances. In particular, the data and analytical tools available at the time the state develops and submits the SIP for a new or revised NAAQS affects the content of the submission. The content of such SIP submission may also vary depending upon what provisions the state's existing SIP already contains.

More specifically, section 110(a)(1) provides the procedural and timing requirements for SIPs. Section 110(a)(2) lists specific elements that states must meet for “infrastructure” SIP requirements related to a newly established or revised NAAQS. As mentioned earlier, these requirements include basic SIP elements such as requirements for monitoring, basic program requirements, and legal authority that are designed to assure attainment and maintenance of the NAAQS.

The Commonwealth of Puerto Rico through the Commonwealth of Puerto Rico Environmental Quality Board (PREQB) submitted five revisions to its SIP to satisfy the requirements of section 110(a)(2) of the CAA for the five different NAAQS. On November 29, 2006, PREQB submitted SIP revisions addressing the infrastructure requirements for the 1997 ozone and PM2.5 NAAQS. On January 22, 2013 and April 16, 2015, PREQB submitted SIP revisions addressing the infrastructure requirements for the 2006 PM2.5 and 2008 ozone NAAQS, and supplemented the November 2006 submittal for the 1997 ozone and PM2.5 NAAQS. On January 31, 2013, PREQB submitted SIP revisions addressing the infrastructure requirements for the 2008 lead NAAQS. On February 1, 2016, PREQB submitted additional provisions for inclusion into the SIP which address infrastructure SIP requirements for 1997 and 2008 ozone, 1997 and 2006 PM2.5 and 2008 lead NAAQS. Each of the infrastructure SIP revisions addressed the following infrastructure elements for the applicable NAAQS which EPA is proposing to approve pursuant to section 110(a)(2) of the CAA. Specifically sections 110(a)(2)(A), (B), portions of (C), portions of (D), (E), (F), (G), (H), portions of (J), (K), (L), and (M) for the 1997 and 2008 ozone, 1997 and 2006 PM2.5 and 2008 lead NAAQS.

EPA is acting upon Puerto Rico's SIP submissions that address the infrastructure requirements of section 110(a)(1) and (2) of the CAA for the 1997 and 2008 ozone, 1997 and 2006 PM2.5 and 2008 lead NAAQS. The requirement for states to make a SIP submission of this type arises out of section 110(a)(1). Pursuant to section 110(a)(1), states must make SIP submissions “within 3 years (or such shorter period as the Administrator may prescribe) after the promulgation of a national primary ambient air quality standard (or any revision thereof),” and these SIP submissions are to provide for the “implementation, maintenance, and enforcement” of such NAAQS. The statute directly imposes on states the duty to make these SIP submissions, and the requirement to make the submissions is not conditioned upon EPA's taking any action other than promulgating a new or revised NAAQS. Section 302(d) of the CAA includes the Commonwealth of Puerto Rico in the definition of the term “State.” Section 110(a)(2) includes a list of specific elements that “each such plan” submission must address.

EPA has historically referred to these SIP submissions made for the purpose of satisfying the requirements of section 110(a)(1) and (2) as “infrastructure SIP” submissions. Although the term “infrastructure SIP” does not appear in the CAA, EPA uses the term to distinguish this particular type of SIP submission from submissions that are intended to satisfy other SIP requirements under the CAA, such as “nonattainment SIP” or “attainment plan SIP” submissions to address the nonattainment planning requirements of part D of Title I of the CAA, “regional haze SIP” submissions required by EPA rule to address the visibility protection requirements of section 169A of the CAA, and nonattainment new source review permit program submissions to address the permit requirements of CAA, Title I, part D.

Section 110(a)(1) addresses the timing and general requirements for infrastructure SIP submissions and section 110(a)(2) provides more details concerning the required contents of these submissions. The list of required elements provided in section 110(a)(2) contains a wide variety of disparate provisions, some of which pertain to required legal authority, some of which pertain to required substantive program provisions, and some of which pertain to requirements for both authority and substantive program provisions.1 EPA therefore believes that while the timing requirement in section 110(a)(1) is unambiguous, some of the other statutory provisions are ambiguous. In particular, EPA believes that the list of required elements for infrastructure SIP submissions provided in section 110(a)(2) contains ambiguities concerning what is required for inclusion in an infrastructure SIP submission.

The following examples of ambiguities illustrate the need for EPA to interpret some section 110(a)(1) and section 110(a)(2) requirements with respect to infrastructure SIP submissions for a given new or revised NAAQS. One example of ambiguity is that section 110(a)(2) requires that “each” SIP submission must meet the list of requirements therein, while EPA has long noted that this literal reading of the statute is internally inconsistent and would create a conflict with the nonattainment provisions in part D of Title I of the CAA, which specifically address nonattainment SIP requirements.2 Section 110(a)(2)(I) pertains to nonattainment SIP requirements and part D addresses when attainment plan SIP submissions to address nonattainment area requirements are due. For example, section 172(b) requires EPA to establish a schedule for submission of such plans for certain pollutants when the Administrator promulgates the designation of an area as nonattainment, and section 107(d)(1)(B) allows up to two years or in some cases three years, for such designations to be promulgated.3 This ambiguity illustrates that rather than apply all the stated requirements of section 110(a)(2) in a strict literal sense, EPA must determine which provisions of section 110(a)(2) are applicable for a particular infrastructure SIP submission.

Another example of ambiguity within section 110(a)(1) and (2) with respect to infrastructure SIPs pertains to whether states must meet all of the infrastructure SIP requirements in a single SIP submission, and whether EPA must act upon such SIP submission in a single action. Although section 110(a)(1) directs states to submit “a plan” to meet these requirements, EPA interprets the CAA to allow states to make multiple SIP submissions separately addressing infrastructure SIP elements for the same NAAQS. If states elect to make such multiple SIP submissions to meet the infrastructure SIP requirements, EPA can elect to act on such submissions either individually or in a larger combined action.4 Similarly, EPA interprets the CAA to allow it to take action on the individual parts of one larger, comprehensive infrastructure SIP submission for a given NAAQS without concurrent action on the entire submission. For example, EPA has sometimes elected to act at different times on various elements and sub-elements of the same infrastructure SIP submission.5

Ambiguities within section 110(a)(1) and (2) may also arise with respect to infrastructure SIP submission requirements for different NAAQS. Thus, EPA notes that not every element of section 110(a)(2) would be relevant, or as relevant, or relevant in the same way, for each new or revised NAAQS. The states' attendant infrastructure SIP submissions for each NAAQS therefore could be different. For example, the monitoring requirements that a state might need to meet in its infrastructure SIP submission for purposes of section 110(a)(2)(B) could be very different for different pollutants, because the content and scope of a state's infrastructure SIP submission to meet this element might be very different for an entirely new NAAQS than for a minor revision to an existing NAAQS.6

EPA notes that interpretation of section 110(a)(2) is also necessary when EPA reviews other types of SIP submissions required under the CAA. Therefore, as with infrastructure SIP submissions, EPA also has to identify and interpret the relevant elements of section 110(a)(2) that logically apply to these other types of SIP submissions. For example, section 172(c)(7) requires attainment plan SIP submissions required by part D to meet the “applicable requirements” of section 110(a)(2); thus, attainment plan SIP submissions must meet the requirements of section 110(a)(2)(A) regarding enforceable emission limits and control measures and section 110(a)(2)(E)(i) regarding air agency resources and authority. By contrast, it is clear that attainment plan SIP submissions required by part D would not need to meet the portion of section 110(a)(2)(C) that pertains to the PSD program required in part C of Title I of the CAA, because PSD does not apply to a pollutant for which an area is designated nonattainment and thus subject to part D planning requirements. As this example illustrates, each type of SIP submission may implicate some elements of section 110(a)(2) but not others.

Given the potential for ambiguity in some of the statutory language of section 110(a)(1) and section 110(a)(2), EPA believes that it is appropriate to interpret the ambiguous portions of section 110(a)(1) and section 110(a)(2) in the context of acting on a particular SIP submission. In other words, EPA assumes that Congress could not have intended that each and every SIP submission, regardless of the NAAQS in question or the history of SIP development for the relevant pollutant, would meet each of the requirements, or meet each of them in the same way. Therefore, EPA has adopted an approach under which it reviews infrastructure SIP submissions against the list of elements in section 110(a)(2), but only to the extent each element applies for that particular NAAQS.

Historically, EPA has elected to use guidance documents to make recommendations to states for infrastructure SIPs, in some cases conveying needed interpretations on newly arising issues and in some cases conveying interpretations that have already been developed and applied to individual SIP submissions for particular elements.7 EPA most recently issued guidance for infrastructure SIPs on September 13, 2013 (2013 Guidance).8 EPA developed this document to provide states with up-to-date guidance for infrastructure SIPs for any new or revised NAAQS. Within this guidance, EPA describes the duty of states to make infrastructure SIP submissions to meet basic structural SIP requirements within three years of promulgation of a new or revised NAAQS. EPA also made recommendations about many specific subsections of section 110(a)(2) that are relevant in the context of infrastructure SIP submissions.9 The guidance also discusses the substantively important issues that are germane to certain subsections of section 110(a)(2). EPA interprets section 110(a)(1) and (2) such that infrastructure SIP submissions need to address certain issues and need not address others. Accordingly, EPA reviews each infrastructure SIP submission for compliance with the applicable statutory provisions of section 110(a)(2), as appropriate.

As an example, section 110(a)(2)(E)(ii) is a required element of section 110(a)(2) for infrastructure SIP submissions. Under this element, a state must meet the substantive requirements of section 128, which pertain to state boards that approve permits or enforcement orders and heads of executive agencies with similar powers. Thus, EPA reviews infrastructure SIP submissions to ensure that the state's SIP appropriately addresses the requirements of section 110(a)(2)(E)(ii) and section 128. The 2013 Guidance explains EPA's interpretation that there may be a variety of ways by which states can appropriately address these substantive statutory requirements, depending on the structure of an individual state's permitting or enforcement program (e.g., whether permits and enforcement orders are approved by a multi-member board or by a head of an executive agency). However they are addressed by the state, the substantive requirements of Section 128 are necessarily included in EPA's evaluation of infrastructure SIP submissions because section 110(a)(2)(E)(ii) explicitly requires that the state satisfy the provisions of section 128.

As another example, EPA's review of infrastructure SIP submissions with respect to the PSD program requirements in section 110(a)(2)(C), (D)(i)(II), and (J) focuses upon the structural PSD program requirements contained in part C and EPA's PSD regulations. Structural PSD program requirements include provisions necessary for the PSD program to address all regulated sources and NSR pollutants, including Green House Gases (GHGs). By contrast, structural PSD program requirements do not include provisions that are not required under EPA's regulations at 40 CFR 51.166 but are merely available as an option for the state, such as the option to provide grandfathering of complete permit applications with respect to the PM2.5 NAAQS. Accordingly, the latter optional provisions are types of provisions EPA considers irrelevant in the context of an infrastructure SIP action.

For other section 110(a)(2) elements, however, EPA's review of a state's infrastructure SIP submission focuses on assuring that the state's SIP meets basic structural requirements. For example, section 110(a)(2)(C) includes, inter alia, the requirement that states have a program to regulate minor new sources. Thus, EPA evaluates whether the state has an EPA-approved minor new source review program and whether the program addresses the pollutants relevant to that NAAQS. In the context of acting on an infrastructure SIP submission, however, EPA does not think it is necessary to conduct a review of each and every provision of a state's existing minor source program (i.e., already in the existing SIP) for compliance with the requirements of the CAA and EPA's regulations that pertain to such programs.

With respect to certain other issues, EPA does not believe that an action on a state's infrastructure SIP submission is necessarily the appropriate type of action in which to address possible deficiencies in a state's existing SIP. These issues include: (i) Existing provisions related to excess emissions from sources during periods of startup, shutdown, or malfunction (SSM) that may be contrary to the CAA and EPA's policies addressing such excess emissions; (ii) existing provisions related to “director's variance” or “director's discretion” that may be contrary to the CAA because they purport to allow revisions to SIP-approved emissions limits while limiting public process or not requiring further approval by EPA; and (iii) existing provisions for PSD programs that may be inconsistent with current requirements of EPA's “Final NSR Improvement Rule,” 67 FR 80186 (December 31, 2002), as amended by 72 FR 32526 (June 13, 2007) (NSR Reform). Thus, EPA believes it may approve an infrastructure SIP submission without scrutinizing the totality of the existing SIP for such potentially deficient provisions and may approve the submission even if it is aware of such existing provisions.10 It is important to note that EPA's approval of a state's infrastructure SIP submission should not be construed as explicit or implicit re-approval of any existing potentially deficient provisions that relate to the three specific issues just described.

EPA's approach to review of infrastructure SIP submissions is to identify the CAA requirements that are logically applicable to that submission. EPA believes that this approach to the review of a particular infrastructure SIP submission is appropriate, because it would not be reasonable to read the general requirements of section 110(a)(1) and the list of elements in section 110(a)(2) as requiring review of each and every provision of a state's existing SIP against all requirements in the CAA and EPA regulations merely for purposes of assuring that the state in question has the basic structural elements for a functioning SIP for a new or revised NAAQS. Because SIPs have grown by accretion over the decades as statutory and regulatory requirements under the CAA have evolved, they may include some outmoded provisions and historical artifacts. These provisions, while not fully up to date, nevertheless may not pose a significant problem for the purposes of “implementation, maintenance, and enforcement” of a new or revised NAAQS when EPA evaluates adequacy of the infrastructure SIP submission. EPA believes that a better approach is for states and EPA to focus attention on those elements of section 110(a)(2) of the CAA most likely to warrant a specific SIP revision due to the promulgation of a new or revised NAAQS or other factors.

For example, EPA's 2013 Guidance gives simpler recommendations with respect to carbon monoxide than other NAAQS pollutants to meet the visibility requirements of section 110(a)(2)(D)(i)(II), because carbon monoxide does not affect visibility. As a result, an infrastructure SIP submission for any future new or revised NAAQS for carbon monoxide need only state this fact in order to address the visibility prong of section 110(a)(2)(D)(i)(II).

Finally, EPA believes that its approach with respect to infrastructure SIP requirements is based on a reasonable reading of section 110(a)(1) and (2) because the CAA provides other avenues and mechanisms to address specific substantive deficiencies in existing SIPs. These other statutory tools allow EPA to take appropriately tailored action, depending upon the nature and severity of the alleged SIP deficiency. Section 110(k)(5) authorizes EPA to issue a “SIP call” whenever the Agency determines that a state's SIP is substantially inadequate to attain or maintain the NAAQS, to mitigate interstate transport, or to otherwise comply with the CAA.11

Section 110(k)(6) authorizes EPA to correct errors in past actions, such as past approvals of SIP submissions.12 Significantly, EPA's determination that an action on a state's infrastructure SIP submission is not the appropriate time and place to address all potential existing SIP deficiencies does not preclude EPA's subsequent reliance on provisions in section 110(a)(2) as part of the basis for action to correct those deficiencies at a later time. For example, although it may not be appropriate to require a state to eliminate all existing inappropriate director's discretion provisions in the course of acting on an infrastructure SIP submission, EPA believes that section 110(a)(2)(A) may be among the statutory bases that EPA relies upon in the course of addressing such deficiency in a subsequent action.13

In this rulemaking action, EPA is proposing approval of Puerto Rico's infrastructure SIP submittals for the 1997 and 2008 ozone, 1997 and 2006 PM2.5 and 2008 lead NAAQS as addressing requirements in section 110(a)(2)(A), (B), (C) (with the exception of program requirements for PSD), (D)(i) (with the exception of program requirements related to PSD), (D)(ii) (with the exception of program requirements related to PSD), (E), (F), (G), (H), (J) (with the exception of program requirements related to PSD), (K), (L), and (M) of the CAA.

On February 1, 2016, PREQB submitted rules from the Commonwealth of Puerto Rico Statutes, “Environmental Public Policy Act,” Act No. 416 (2004, as amended), Section 7.A, and Section 7.D and “Puerto Rico Government Ethics Law,” Act. No 1 (approved January 3, 2012), Section 5, for incorporation into the SIP to address the requirements of Sections 110(a)(2)(E)(ii) and 128 of the CAA. Among other things, these collective provisions prohibit members of the Commonwealth's Environmental Quality Board from having any “conflicts of interests that might interfere with the discharge their offices,” and require disclosure of potential conflicts of interest. EPA is proposing to approve these submissions, which are intended to apply to any person subject to CAA 128, for inclusion into the SIP as meeting CAA obligations under section 110(a)(2)(E)(ii) for the 1997 ozone, 1997 PM2.5, 2006 PM2.5, 2008 lead, and 2008 ozone NAAQS.

EPA Region 2 is the permitting authority for Puerto Rico's PSD Major Source Program. The sources affected by PSD Program are subject to the Federal Implementation Plan PSD control requirements in 40 CFR Sections 52.21. Puerto Rico does not have its own state adopted PSD program, its infrastructure submission is not approvable with respect to this element. Therefore, EPA is disapproving the following infrastructure SIP elements as they relate to the PSD program for lack of a State adopted PSD rule to satisfy section 110(a)(2) for the 1997 and 2008 ozone, 1997 and 2006 PM2.5, and 2008 lead NAAQS: sections 110(a)(2)(C), (D)(i) prong 3, (D)(ii) and (J). It should be noted that a FIP clock will not be started because a PSD FIP is currently in place, and sanctions will not be triggered.

Section 110(a)(2)(J) requires SIPs to meet applicable requirements of part C of the CAA related to visibility. Puerto Rico's submittal does not address the visibility portion of J, including submission of any visibility measures under this sub-element. As indicated in EPA's September 2013 Infrastructure Guidance, although states are subject to visibility and regional haze program requirements under part C, the visibility and regional haze program requirements under part C do not change due to promulgation of, or revision to, a NAAQS. The SIP is not required to be revised with respect to visibility protection since there are no new visibility obligations. Accordingly, air agencies do not need to address the visibility sub-element of section 110(a)(2)(J) in infrastructure SIP submissions. Since Puerto Rico did not make a submission addressing the visibility portion of (J), action on this sub-element is not applicable.

EPA is not acting on section 110(a)(2)(I), plan revisions for nonattainment areas. Specific SIP submissions for nonattainment areas, as required under CAA title I part D, are subject to a different submission schedule 14 than those for section 110 infrastructure elements and are reviewed and acted upon under a separate process.

A detailed analysis of EPA's review and rationale for proposing to approve and disapprove elements of the infrastructure SIP submittals as addressing these CAA requirements may be found in the Technical Support Document (TSD) for this proposed rulemaking action which is available on line at www.regulations.gov, Docket ID Number EPA-R02-OAR-2016-0060.

EPA is soliciting public comments on the issues discussed in this document. These comments will be considered before taking final action.

EPA is proposing to approve Puerto Rico's infrastructure submittals dated November 29, 2006, January 22 and 31, 2013, April 16, 2005 and February 1, 2016, for the 1997 and 2008 ozone, 1997 and 2006 PM2.5 and 2008 lead NAAQS, respectively, as meeting the requirements of section 110(a)(2) of the CAA, including specifically section 110(a)(2)(A), (B), (C) (with the exception of program requirements for PSD), (D)(i) (with the exception of program requirements related to PSD), (D)(ii) (with the exception of program requirements related to PSD), (E), (F), (G), (H), (J) (with the exception of program requirements related to PSD), (K), (L), and (M).

EPA is proposing to incorporate the Commonwealth of Puerto Rico's “Environmental Public Policy Act”, Act No. 416 (2004, as amended), Section 7.A, and Section 7.D and the “Puerto Rico Government Ethics Law,” Act. No. 1 (approved January 3, 2012), Section 5, for inclusion into Puerto Rico's SIP to address the requirements of Sections 110(a)(2)(E)(ii) and 128 of the CAA. EPA is further proposing to approve these submissions, which are intended to apply to any person subject to CAA 128, for inclusion into the SIP as meeting CAA obligations section 110(a)(2)(E)(ii) for the 1997 ozone, 1997 PM2.5, 2006 PM2.5, 2008 lead, and 2008 ozone NAAQS.

EPA is disapproving the following infrastructure SIP requirements as they relate to the PSD program for lack of a State adopted PSD rule to satisfy section 110(a)(2) for the 1997 and 2008 ozone NAAQS, 1997 and 2006 PM2.5 NAAQS, and 2008 lead NAAQS: sections 110(a)(2)(C), (D)(i) prong 3, (D)(ii) and (J). It should be noted that a FIP clock will not be started because a PSD FIP is currently in place, and sanctions will not be triggered. Since Puerto Rico is not required to address the visibility portion of section 110(a)(2)(J) in the context of an infrastructure SIP, and therefore did not make a submission, action on this sub-element is not applicable.

In this rule, EPA is proposing to include in a final EPA rule regulatory text that includes incorporation by reference. In accordance with requirements of 1 CFR 51.5, the EPA is proposing to incorporate by reference Puerto Rico's “Environmental Public Policy Act,” Act No. 416 (2004, as amended), Section 7.A, and Section 7.D and “Puerto Rico Government Ethics Law,” Act. No. 1 (approved January 3, 2012), Section 5. These provisions are intended to apply to any person subject to CAA Section 128. The EPA has made, and will continue to make, these documents generally available electronically through http://www.regulations (see the FOR FURTHER INFORMATION CONTACT section of this preamble for more information).

Under the CAA, the Administrator is required to approve a SIP submission that complies with the provisions of the CAA and applicable Federal regulations. 42 U.S.C. 7410(k); 40 CFR 52.02(a). Thus, in reviewing SIP submissions, EPA's role is to approve state choices, provided that they meet the criteria of the CAA. Accordingly, this action merely proposes to approve state law as meeting Federal requirements and does not impose additional requirements beyond those imposed by state law. For that reason, this proposed action:

• Is not a “significant regulatory action” subject to review by the Office of Management and Budget under Executive Order 12866 (58 FR 51735, October 4, 1993);

• does not impose an information collection burden under the provisions of the Paperwork Reduction Act (44 U.S.C. 3501 et seq.);

• is certified as not having a significant economic impact on a substantial number of small entities under the Regulatory Flexibility Act (5 U.S.C. 601 et seq.);

• does not contain any unfunded mandate or significantly or uniquely affect small governments, as described in the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4);

• does not have Federalism implications as specified in Executive Order 13132 (64 FR 43255, August 10, 1999);

• is not an economically significant regulatory action based on health or safety risks subject to Executive Order 13045 (62 FR 19885, April 23, 1997);

• is not a significant regulatory action subject to Executive Order 13211 (66 FR 28355, May 22, 2001);

• is not subject to requirements of Section 12(d) of the National Technology Transfer and Advancement Act of 1995 (15 U.S.C. 272 note) because application of those requirements would be inconsistent with the CAA; and

• does not provide EPA with the discretionary authority to address, as appropriate, disproportionate human health or environmental effects, using practicable and legally permissible methods, under Executive Order 12898 (59 FR 7629, February 16, 1994).

In addition, this proposed rulemaking action, pertaining to Puerto Rico's section 110(a)(2) infrastructure requirements for the 1997 and 2008 ozone NAAQS, 1997 and 2006 PM2.5 NAAQS, and 2008 lead NAAQS does not have tribal implications as specified by Executive Order 13175 (65 FR 67249, November 9, 2000), because the SIP is not approved to apply in Indian country located in the state, and EPA notes that it will not impose substantial direct costs on tribal governments or preempt tribal law.

Throughout this document whenever “we,” “us,” or “our” is used, we mean EPA. This supplementary information section is arranged as follows:

This rulemaking addresses a submission from the Wisconsin Department of Natural Resources (WDNR). The state submitted its infrastructure SIP for the 2012PM2.5 1 NAAQS on July 13, 2015.

Under section 110(a)(1) and (2) of the CAA, states are required to submit infrastructure SIPs to ensure that their SIPs provide for implementation, maintenance and enforcement of the NAAQS, including the 2012 PM2.5 NAAQS. This submission must contain any revisions needed for meeting the applicable SIP requirements of section 110(a)(2), or certifications that their existing SIPs for the NAAQS already meet those requirements.

EPA highlighted this statutory requirement in an October 2, 2007, guidance document entitled “Guidance on SIP Elements Required Under Sections 110(a)(1) and (2) for the 1997 8-hour Ozone and PM2.5 National Ambient Air Quality Standards” (2007 Guidance) and has issued additional guidance documents, the most recent on September 13, 2013, entitled “Guidance on Infrastructure State Implementation Plan (SIP) Elements under CAA Sections 110(a)(1) and 110(a)(2)” (2013 Guidance). The SIP submission referenced in this rulemaking pertains to the applicable requirements of section 110(a)(1) and (2), and addresses the 2012 PM2.5 NAAQS.

EPA is acting upon the SIP submission from Wisconsin that addresses the infrastructure requirements of CAA section 110(a)(1) and (2) for the 2012 PM2.5 NAAQS. The requirement for states to make SIP submissions of this type arises out of CAA section 110(a)(1). States must make SIP submissions “within 3 years (or such shorter period as the Administrator may prescribe) after the promulgation of a national primary ambient air quality standard (or any revision thereof),” and these SIP submissions are to provide for the “implementation, maintenance, and enforcement” of such NAAQS. The statute directly imposes on states the duty to make these SIP submissions, and the requirement to make the submissions is not conditioned upon EPA's taking any action other than promulgating a new or revised NAAQS. Section 110(a)(2) includes a list of specific elements that “[e]ach such plan” submission must address.

EPA has historically referred to these SIP submissions made for the purpose of satisfying the requirements of CAA section 110(a)(1) and (2) as “infrastructure SIP” submissions. Although the term “infrastructure SIP” does not appear in the CAA, EPA uses the term to distinguish this particular type of SIP submission from submissions that are intended to satisfy other SIP requirements under the CAA, such as SIP submissions that address the nonattainment planning requirements of part D and the Prevention of Significant Deterioration (PSD) requirements of part C of title I of the CAA, and “regional haze SIP” submissions required to address the visibility protection requirements of CAA section 169A.

This rulemaking will not cover three substantive areas that are not integral to acting on a state's infrastructure SIP submissions: (i) Existing provisions related to excess emissions during periods of start-up, shutdown, or malfunction (”SSM”) at sources, that may be contrary to the CAA and EPA's policies addressing such excess emissions; (ii) existing provisions related to “director's variance” or “director's discretion” that purport to permit revisions to SIP-approved emissions limits with limited public notice or without requiring further approval by EPA, that may be contrary to the CAA; and, (iii) existing provisions for PSD programs that may be inconsistent with current requirements of EPA's “Final NSR Improvement Rule,” 67 FR 80186 (December 31, 2002), as amended by 72 FR 32526 (June 13, 2007) (“NSR Reform”). Instead, EPA has the authority to address each one of these substantive areas in separate rulemakings. A detailed history, interpretation, and rationale as they relate to infrastructure SIP requirements can be found in EPA's May 13, 2014, proposed rule entitled, “Approval and Promulgation of Air Quality Implementation Plans; Illinois, Michigan, Minnesota, Wisconsin; Infrastructure SIP Requirements for the 2008 Lead NAAQS” in the section, “What is the scope of this rulemaking?” (see 79 FR 27241 at 27242-27245).

EPA's guidance for this infrastructure SIP submission is embodied in the 2007 Guidance referenced previously. Specifically, attachment A of the 2007 Guidance (Required Section 110 SIP Elements) identifies the statutory elements that states need to submit in order to satisfy the requirements for an infrastructure SIP submission. As discussed, EPA issued additional guidance, the most recent being the 2013 Guidance that further clarifies aspects of infrastructure SIPs that are not NAAQS specific.

Pursuant to section 110(a), states must provide reasonable notice and opportunity for public hearing for all infrastructure SIP submissions. WDNR provided notice of a public comment period on May 19, 2015, held a public hearing at WDNR state Headquarters on June 17, 2015, and closed the public comment period on June 19, 2015. No comments were received during the WDNR's public comment period.

Wisconsin provided a detailed synopsis of how various components of its SIP meet each of the applicable requirements in section 110(a)(2) for the 2012 PM2.5 NAAQS. The following review evaluates the state's submission.

This section requires SIPs to include enforceable emission limits and other control measures, means or techniques, as well as schedules and timetables for compliance, and other related matters. However, EPA has long interpreted emission limits and control measures for attaining the standards as being due when nonattainment planning requirements are due.2 In the context of an infrastructure SIP, EPA is not evaluating the existing SIP provisions for this purpose. Instead, EPA is only evaluating whether the state's SIP has basic structural provisions for the implementation of the NAAQS.

Under Wisconsin Statutes (Wis. Stats.) 227 and 285, WDNR holds the authority to create new rules and implement existing emission limits and controls. Authority to monitor, update, and implement revisions to Wisconsin's SIP, including revisions to emission limits and control measures as necessary to meet NAAQS, is contained in Wis. Stats. 285.11-285.19. Authority related to specific pollutants, including the establishment of ambient air quality standards and increments, identification of nonattainment areas, air resource allocations, and performance and emissions standards, is contained in Wis. Stats. 285.21-285.29.

Specifically, authority for WNDR to create new rules and regulations is found in Wis. Stats. 227.11, 285.11, and 285.21. Wis. Stats. 227.11(2)(a) expressly confers rulemaking authority to an agency. Wis. Stats. 285.11(1) and (6) require that WDNR promulgate rules and establish control strategies in order to prepare and implement the SIP for the prevention, abatement, and control of air pollution in Wisconsin.

The 2013 Guidance states that to satisfy section 110(a)(2)(A) requirements, “an air agency's submission should identify existing EPA-approved SIP provisions or new SIP provisions that the air agency has adopted and submitted for EPA approval that limit emissions of pollutants relevant to the subject NAAQS, including precursors of the relevant NAAQS pollutant where applicable.” The following current Wisconsin Administrative Code Chapters Natural Resources (NR) contain existing emission limits and control requirements that apply to particulate emissions:

On January 1, 2015, EPA began implementing the Cross-State Air Pollution Rule (CSAPR). Wisconsin is subject to CSAPR's requirements regarding annual oxides of nitrogen (NOX) and SO2 power plant emissions, which are intended to address transport of PM2.5 to downwind states. EPA and WDNR expect that CSAPR will result in reduced NOX and SO2 emissions from Wisconsin's power plants, which will assist Wisconsin's efforts to attain and maintain the 2012 PM2.5 NAAQS.

In this rulemaking, EPA is not proposing to approve any new provisions in NR 415 or NR 431 that have not been previously approved by EPA. EPA is also not proposing to approve or disapprove any existing state provisions or rules related to start-up, shutdown or malfunction or director's discretion in the context of section 110(a)(2)(A). EPA proposes that Wisconsin has met the infrastructure SIP requirements of section 110(a)(2)(A) with respect to the 2012 PM2.5 NAAQS.

This section requires SIPs to include provisions to provide for establishing and operating ambient air quality monitors, collecting and analyzing ambient air quality data, and making these data available to EPA upon request. This review of the annual monitoring plan includes EPA's determination that the state: (i) Monitors air quality at appropriate locations throughout the state using EPA-approved Federal Reference Methods or Federal Equivalent Method monitors; (ii) submits data to EPA's Air Quality System (AQS) in a timely manner; and, (iii) provides EPA Regional Offices with prior notification of any planned changes to monitoring sites or the network plan.

WDNR continues to operate an extensive air monitoring network, which is used to determine compliance with the NAAQS. Furthermore, WDNR submits yearly monitoring network plans to EPA, and EPA approved WDNR's Annual Air Monitoring Network Plan on October 31, 2014. Monitoring data from WDNR are entered into EPA's AQS in a timely manner, and the state provides EPA with prior notification when changes to its monitoring network or plan are being considered. EPA proposes that Wisconsin has met the infrastructure SIP requirements of section 110(a)(2)(B) with respect to the 2012 PM2.5 NAAQS.

This section requires each state to provide a program for enforcement of control measures. Section 110(a)(2)(C) also includes various requirements relating to PSD.

1. Program for enforcement of control measures.

States are required to include a program providing for enforcement of all SIP measures and the regulation of construction of new or modified stationary sources to meet new source review (NSR) requirements under PSD and nonattainment new source review (NNSR) programs. Part C of the CAA (sections 160-169B) addresses PSD, while part D of the CAA (sections 171-193) addresses NNSR requirements.

WDNR maintains an enforcement program to ensure compliance with SIP requirements. The Bureau of Air Management houses an active statewide compliance and enforcement team that works in all geographic regions of the state. WDNR refers actions as necessary to the Wisconsin Department of Justice with the involvement of WDNR. Under Wis. Stats. 285.13, WDNR has the authority to impose fees and penalties to ensure that required measures are ultimately implemented. Wis. Stats. 285.83 and Wis. Stats. 285.87 provide WDNR with the authority to enforce violations and assess penalties. EPA proposes that Wisconsin has met the enforcement of SIP measures requirements of section 110(a)(2)(C) with respect to the 2012 PM2.5 NAAQS.

2. PSD.

Section 110(a)(2)(C) includes various PSD requirements: identification of NOX as a precursor to ozone provisions in the PSD program, identification of precursors to PM2.5 and the identification of PM2.5 and PM10 3 condensables in the PSD program, PM2.5 increments in the PSD program, and greenhouse gas (GHG) permitting and the “Tailoring Rule.” 4 In this rulemaking, we are not taking action on the state's satisfaction of the various PSD permitting requirements. Instead, EPA will evaluate Wisconsin's compliance with each of these requirements in a separate rulemaking.

This rule is accessible via the Internet at the Office of the Federal Register Web site at http://www.access.thefederalregister.org/su_docs/aces/aces140.html. Background information and documents are available at the NMFS West Coast Region Web site at http://www.westcoast.fisheries.noaa.gov/fisheries/management/pacific_halibut_management.html and at the Council's Web site at http://www.pcouncil.org.

The Northern Pacific Halibut Act (Halibut Act) of 1982, 16 U.S.C. 773-773K, gives the Secretary of Commerce (Secretary) general responsibility for implementing the provisions of the Halibut Convention between the United States and Canada (Halibut Convention) (16 U.S.C. 773c). It requires the Secretary to adopt regulations as may be necessary to carry out the purposes and objectives of the Halibut Convention and the Halibut Act. Section 773c of the Halibut Act also authorizes the regional fishery management councils to develop regulations in addition to, but not in conflict with, regulations of the IPHC to govern the Pacific halibut catch in their corresponding U.S. Convention waters.

Each year between 1988 and 1995, the Pacific Fishery Management Council (Council) developed and NMFS implemented a catch sharing plan in accordance with the Halibut Act to allocate the total allowable catch (TAC) of Pacific halibut between treaty Indian and non-Indian harvesters and among non-Indian commercial and sport fisheries in Area 2A. In 1995, NMFS implemented the Pacific Council-recommended long-term Plan (60 FR 14651, March 20, 1995). Every year since then, minor revisions to the Plan have been made to adjust for the changing needs of the fisheries.

For 2016, the Council recommendation includes minor modifications to sport fisheries to better match the needs of the fishery, and updates to the inseason procedures to reflect current practices. The Council also recommended changes to the codified regulations to remove coordinates that are described in groundfish regulations, match the changes to the Plan, and update descriptions of tribal treaty fishing areas. This rule does contain some dates for the sport fisheries based on the 2016 Plan as recommended by the Council because the affected states are holding public meetings to gather public input on final season dates given the final 2A TAC. The states will submit final season dates following their public meetings. Incidental Halibut Retention in the Sablefish Primary Fishery North of Pt. Chehalis, WA

The Plan provides that incidental halibut retention in the sablefish primary fishery north of Pt. Chehalis, WA, will be allowed when the Area 2A TAC is greater than 900,000 lb (408.2 mt), provided that a minimum of 10,000 lb (4.5 mt) is available above a Washington recreational TAC of 214,100 lb (97.1 mt). The 2016 TAC of 1,140,000 lb (517 mt) is sufficient to provide for this opportunity; therefore the Council will recommend landing restrictions at its March 2016 meeting. Following this meeting, NMFS will publish the restrictions in the Federal Register.

Through this proposed rule, NMFS requests public comments on the Pacific Council's recommended modifications to the Plan and the resulting proposed domestic fishing regulations by March 10, 2016. A 20 day comment period is necessary to allow adequate time for the final rule to be effective by April 1st when the incidental fisheries begin. The States of Washington, Oregon, and California will conduct public workshops in February to obtain input on the sport season dates. Following the proposed rule comment period, NMFS will review public comments and comments from the states, and issue a final rule. Either that final rule or an additional rule will include the IPHC regulations and regulations for the West Coast and Alaska.

Each year, the Washington Department of Fish and Wildlife (WDFW), Oregon Department of Fish and Wildlife (ODFW), California Department of Fish and Game (CDFG), and the tribes with treaty fishing rights for halibut consider whether to pursue changes to the Plan to meet the needs of the fishery. In determining whether changes are needed, the state agencies hold public meetings prior to the Council's September meeting. Subsequently, they recommend changes to the Council at its September meeting. In 2015, fishery managers from all three state agencies held public meetings on the Plan prior to the Council's September meeting. At the September 2015 Council meeting, NMFS, WDFW, and ODFW recommended changes to the Plan and codified regulations. The tribes and CDFW did not recommend changes to the Plan or regulations. The Council voted to solicit public input on all of the changes recommended by the state agencies, several of which were presented in the form of alternatives. WDFW and ODFW subsequently held public workshops on the recommended changes.

At its November 13-19, 2015, meeting the Council considered the results of state-sponsored workshops on the recommended changes to the Plan and public input provided at the September and November Council meetings, and made its final recommendations for modifications to the Plan. NMFS proposes to adopt all of the Council's recommended changes to the Plan as further discussed below. NMFS also proposed to make changes to the codified regulations.

1. In section (b), Allocations, add a statement that all allocations and subquotas are described in net weight. The goal of this change is to clarify that the Plan allocations and subquotas are described in net weight consistent with the IPHC's use of net weight.

2. In section (d), Treaty Indian Fisheries, modify the description of subarea 2A-1 to account for a recent court order (United States v. Washington, 2:09-sp-00001-RSM (W.D. Wash. Sept. 3, 2015)) regarding boundaries of tribal usual and accustomed fishing grounds; specifically, the western boundary for the Quinault Tribe's fishing area and the northern boundary of the Quileute Tribe's fishing area;

3. In section (f)(1)(ii), Washington North Coast subarea, this rule proposes several changes. The changes would modify the opening day in this area from the first Thursday in May to the first Saturday in May with a second opening the following week on Thursday and Saturday and a closure during the third week of May. The goal of this change is to allow for a longer season while giving WDFW time to assess the catch and provide adequate time for public notice of any later reopenings.

4. In section (f)(1)(v), Oregon central coast subarea, this rule proposes several changes to the text to implement several measures. First, there is a change to the Central Coast allocation so that the Oregon sport allocation is divided clearly among the Columbia River, Central Coast, and Southern Oregon subareas, instead of allocating to the Columbia River subarea first then dividing the remaining allocation between the Southern Oregon and Central Coast subareas. Second, the Council is added to the list of consulting agencies consistent with inseason procedures. Third, the opening date for the nearshore fishery is changed from July 1 to June 1 to allow for a longer season.

5. In section (f)(1)(vi), Southern Oregon subarea, this rule proposes changes to the allocations for this subarea, as stated above for the Central Coast subarea. The allocation is modified from 4.0 to 3.91 percent of the Oregon sport allocation. Also, incidental retention of sablefish, Pacific cod, and flatfish species in areas closed to fishing targeting groundfish is allowed in this subarea, to make incidental retention rules consistent throughout Oregon.

6. In section (f)(5)(iii)(B), Notice procedures, this rule proposes to remove the Notice to Mariners requirement because these are not used in the halibut fishery. The proposed change to the Plan reflects current practice.

7. In section (f)(6), Sport fishery closure provisions, this rule proposes to modify this section to state that closure determinations made by IPHC are done after consultation with NMFS, Council, and the affected state agencies. The goal of this change is for the Plan to reflect current practice.

NMFS proposes to approve the Council's recommendations and to implement the changes described above. A version of the Plan including these changes can be found at http://www.westcoast.fisheries.noaa.gov/fisheries/management/pacific_halibut_management.html.

1. Modify Tribal fishing area descriptions at § 300.64(i) to account for a recent court order (United States v. Washington, 2:09-sp-00001-RSM (W.D. Wash. Sept. 3, 2015)) regarding boundaries of tribal usual and accustomed fishing grounds; specifically, the western boundary for the Quinault Tribe's fishing area and the northern boundary of the Quileute Tribe's fishing area;

2. Remove the coordinates for the 30 fm depth contour at § 300.63(f) and 100 fm depth contour at § 300.63(g) and refer to groundfish regulations at § 660.71 for the 30 fm depth contour and § 660.73 for the 100 fm depth contour. This change is necessary because the halibut and groundfish fisheries use the same coordinates and they should be listed in one location;

3. Update the shoreward boundary of the non-trawl Rockfish Conservation Area listed in § 300.63(e) to the boundary line approximating the 30 fm depth contour. This closed area applies to commercial halibut fishing when retaining incidentally caught groundfish. The shoreward boundary of this closed area was modified through the 2015-2016 groundfish harvest specifications; and

4. Remove Notice to Mariners notice procedures at § 300.63(c)(3)(ii) to match modifications to Plan.

NMFS also proposes sport fishery management measures, including season dates and bag limits that are necessary to implement the Plan in 2016. The annual domestic management measures are published each year through a final rule. For the 2015 fishing season, the final rule for Area 2A sport fisheries was published on April 1, 2015 (80 FR 17344) and the final rule for the commercial fisheries was published on March 17, 2015 (80 FR 13771) along with the IPHC regulations. Therefore, the section numbers for the commercial fisheries below refer to sections in the March 17 final rule, and the section numbers for the recreational fisheries refer to sections in the April 1 final rule. Where season dates are not indicated, those dates will be provided in the final rule, following consideration of the 2016 TAC and consultation with the states and the public.

In Section 8 of the annual domestic management measures published on March 17, 2015, “Fishing Periods,” paragraphs (2), (3), and (4) are proposed to read as follows:

(1) * * *

(2) Each fishing period in the Area 2A directed fishery shall begin at 0800 hours and terminate at 1800 hours local time on June 22, July 6, July 20, August 3, August 17, August 31, September 14, and September 28, unless the Commission specifies otherwise.

(3) Notwithstanding paragraph (7) of section 11, an incidental catch fishery is authorized during the sablefish seasons in Area 2A in accordance with regulations promulgated by NMFS. This fishery will occur between 1200 hours local time on March 19 and 1200 hours local time on November 7.

(4) Notwithstanding paragraph (2), and paragraph (7) of section 11, an incidental catch fishery is authorized during salmon troll seasons in Area 2A in accordance with regulations promulgated by NMFS. This fishery will occur between 1200 hours local time on March 19 and 1200 hours local time on November 7.

In section 26 of the annual domestic management measures, “Sport Fishing for Halibut” paragraph (8) is proposed to read as follows:

(8) * * *

(a) The area in Puget Sound and the U.S. waters in the Strait of Juan de Fuca, east of a line extending from 48°17.30′ N. lat., 124°23.70′ W. long. north to 48°24.10′ N. lat., 124°23.70′ W. long., is not managed in-season relative to its quota. This area is managed by setting a season that is projected to result in a catch of 57,393 lb (26.03 mt).

(i) The fishing season in eastern Puget Sound (east of 123°49.50′ W. long., Low Point) is (season dates will be inserted when final rule is published). The fishing season in western Puget Sound (west of 123°49.50′ W. long., Low Point) is open (season dates will be inserted when final rule is published).

(ii) The daily bag limit is one halibut of any size per day per person.

(b) The quota for landings into ports in the area off the north Washington coast, west of the line described in paragraph (2)(a) of section 26 and north of the Queets River (47°31.70′ N. lat.) (North Coast subarea), is 108,030 lb (49 mt).

(i) The fishing seasons are:

(A) Fishing is open May 7, 12, and 14. Any openings after May 14 will be based on available quota and announced on the NMFS hotline.

(B) If sufficient quota remains the fishery will reopen until there is not sufficient quota for another full day of fishing and the area is closed by the Commission. After May 14, any fishery opening will be announced on the NMFS hotline at 800-662-9825. No halibut fishing will be allowed after May 14 unless the date is announced on the NMFS hotline.

(ii) The daily bag limit is one halibut of any size per day per person.

(iii) Recreational fishing for groundfish and halibut is prohibited within the North Coast Recreational Yelloweye Rockfish Conservation Area (YRCA). It is unlawful for recreational fishing vessels to take and retain, possess, or land halibut taken with recreational gear within the North Coast Recreational YRCA. A vessel fishing with recreational gear in the North Coast Recreational YRCA may not be in possession of any halibut. Recreational vessels may transit through the North Coast Recreational YRCA with or without halibut on board. The North Coast Recreational YRCA is a C-shaped area off the northern Washington coast intended to protect yelloweye rockfish. The North Coast Recreational YRCA is defined in groundfish regulations at § 660.70(a).

(c) The quota for landings into ports in the area between the Queets River, WA (47°31.70′ N. lat.), and Leadbetter Point, WA (46°38.17′ N. lat.)(South Coast subarea), is 42,739 lb (19.39 mt).

(i) This subarea is divided between the all-waters fishery (the Washington South coast primary fishery), and the incidental nearshore fishery in the area from 47°31.70′ N. lat. south to 46°58.00′ N. lat. and east of a boundary line approximating the 30 fm depth contour. This area is defined by straight lines connecting all of the following points in the order stated as described by the following coordinates (the Washington South coast, northern nearshore area):

(1) 47°31.70′ N. lat, 124°37.03′ W. long;

(2) 47°25.67′ N. lat, 124°34.79′ W. long;

(3) 47°12.82′ N. lat, 124°29.12′ W. long;

(4) 46°58.00′ N. lat, 124°24.24′ W. long.

The south coast subarea quota will be allocated as follows: 40,739 lb (18.48 mt) for the primary fishery and 2,000 lb (0.91 mt) for the nearshore fishery. The primary fishery commences on May 1, and continues 2 days a week (Sunday and Tuesday) until May 17. If the primary quota is projected to be obtained sooner than expected, the management closure may occur earlier. Beginning on May 29 the primary fishery will be open at most 2 days per week (Sunday and/or Tuesday) until the quota for the south coast subarea primary fishery is taken and the season is closed by the Commission, or until September 30, whichever is earlier. The fishing season in the nearshore area commences on May 1, and continues 7 days per week. Subsequent to closure of the primary fishery, the nearshore fishery is open 7 days per week, until 42,739 lb (19.39 mt) is projected to be taken by the two fisheries combined and the fishery is closed by the Commission or September 30, whichever is earlier. If the fishery is closed prior to September 30, and there is insufficient quota remaining to reopen the northern nearshore area for another fishing day, then any remaining quota may be transferred in-season to another Washington coastal subarea by NMFS via an update to the recreational halibut hotline.

(ii) The daily bag limit is one halibut of any size per day per person.

(iii) Seaward of the boundary line approximating the 30-fm depth contour and during days open to the primary fishery, lingcod may be taken, retained and possessed when allowed by groundfish regulations at 50 CFR 660.360, subpart G.

(iv) Recreational fishing for groundfish and halibut is prohibited within the South Coast Recreational YRCA and Westport Offshore YRCA. It is unlawful for recreational fishing vessels to take and retain, possess, or land halibut taken with recreational gear within the South Coast Recreational YRCA and Westport Offshore YRCA. A vessel fishing in the South Coast Recreational YRCA and/or Westport Offshore YRCA may not be in possession of any halibut. Recreational vessels may transit through the South Coast Recreational YRCA and Westport Offshore YRCA with or without halibut on board. The South Coast Recreational YRCA and Westport Offshore YRCA are areas off the southern Washington coast established to protect yelloweye rockfish. The South Coast Recreational YRCA is defined at 50 CFR 660.70(d). The Westport Offshore YRCA is defined at 50 CFR 660.70(e).

(d) The quota for landings into ports in the area between Leadbetter Point, WA (46°38.17′ N. lat.), and Cape Falcon, OR (45°46.00′ N. lat.) (Columbia River subarea), is 11,009 lb (4.99 mt).

(i) This subarea is divided into an all-depth fishery and a nearshore fishery. The nearshore fishery is allocated 500 pounds of the subarea allocation. The nearshore fishery extends from Leadbetter Point (46°38.17′ N. lat., 124°15.88′ W. long.) to the Columbia River (46°16.00′ N. lat., 124°15.88′ W. long.) by connecting the following coordinates in Washington 46°38.17′ N. lat., 124°15.88′ W. long. 46°16.00′ N. lat., 124°15.88′ W. long and connecting to the boundary line approximating the 40 fm (73 m) depth contour in Oregon. The nearshore fishery opens May 2, and continues 3 days per week (Monday-Wednesday) until the nearshore allocation is taken, or September 30, whichever is earlier. The all depth fishing season commences on May 1, and continues 4 days a week (Thursday-Sunday) until 10,509 lb (4.77 mt) are estimated to have been taken and the season is closed by the Commission, or September 30, whichever is earlier. Subsequent to this closure, if there is insufficient quota remaining in the Columbia River subarea for another fishing day, then any remaining quota may be transferred inseason to another Washington and/or Oregon subarea by NMFS via an update to the recreational halibut hotline. Any remaining quota would be transferred to each state in proportion to its contribution.

(ii) The daily bag limit is one halibut of any size per day per person.

(iii) Pacific Coast groundfish may not be taken and retained, possessed or landed when halibut are on board the vessel, except sablefish, Pacific cod, and flatfish species when allowed by Pacific Coast groundfish regulations, during days open to the all depth fishery only.

(iv) Taking, retaining, possessing, or landing halibut on groundfish trips is only allowed in the nearshore area on days not open to all-depth Pacific halibut fisheries.

(e) The quota for landings into ports in the area off Oregon between Cape Falcon (45°46.00′ N. lat.) and Humbug Mountain (42°40.50′ N. lat.) (Oregon Central Coast subarea), is 206,410 lb (93.63 mt).

(i) The fishing seasons are:

(A) The first season (the “inside 40-fm” fishery) commences June 1, and continues 7 days a week, in the area shoreward of a boundary line approximating the 40-fm (73-m) depth contour, or until the sub-quota for the central Oregon “inside 40-fm” fishery of 24,769 lb (11.24 mt), or any in-season revised subquota, is estimated to have been taken and the season is closed by the Commission, whichever is earlier. The boundary line approximating the 40-fm (73-m) depth contour between 45°46.00′ N. lat. and 42°40.50′ N. lat. is defined at § 660.71(k).

(B) The second season (spring season), which is for the “all-depth” fishery, is open (season dates will be inserted when final rule is published). The allocation to the all-depth fishery is 181,641 lb (82.4 mt). If sufficient unharvested quota remains for additional fishing days, the season will re-open. Notice of the re-opening will be announced on the NMFS hotline (206) 526-6667 or (800) 662-9825. No halibut fishing will be allowed on the re-opening dates unless the date is announced on the NMFS hotline.

(C) If sufficient unharvested quota remains, the third season (summer season), which is for the “all-depth” fishery, will be open (season dates will be inserted when final rule is published) or until the combined spring season and summer season quotas in the area between Cape Falcon and Humbug Mountain, OR, are estimated to have been taken and the area is closed by the Commission, or October 31, whichever is earlier. NMFS will announce on the NMFS hotline in July whether the fishery will re-open for the summer season in August. No halibut fishing will be allowed in the summer season fishery unless the dates are announced on the NMFS hotline. Additional fishing days may be opened if sufficient quota remains after the last day of the first scheduled open period. If, after this date, an amount greater than or equal to 60,000 lb (27.2 mt) remains in the combined all-depth and inside 40-fm (73-m) quota, the fishery may re-open every Friday and Saturday, beginning (insert date of first back up dates) and ending October 31. If after September 7, an amount greater than or equal to 30,000 lb (13.6 mt) remains in the combined all-depth and inside 40-fm (73-m) quota, and the fishery is not already open every Friday and Saturday, the fishery may re-open every Friday and Saturday, beginning September 9 and 10, and ending October 31. After September 4, the bag limit may be increased to two fish of any size per person, per day. NMFS will announce on the NMFS hotline whether the summer all-depth fishery will be open on such additional fishing days, what days the fishery will be open and what the bag limit is.

(ii) The daily bag limit is one halibut of any size per day per person, unless otherwise specified. NMFS will announce on the NMFS hotline any bag limit changes.

(iii) During days open to all-depth halibut fishing, no Pacific Coast groundfish may be taken and retained, possessed or landed, when halibut are on board the vessel, except sablefish, Pacific cod, and flatfish species, when allowed by Pacific Coast groundfish regulations.

(iv) When the all-depth halibut fishery is closed and halibut fishing is permitted only shoreward of a boundary line approximating the 40-fm (73-m) depth contour, halibut possession and retention by vessels operating seaward of a boundary line approximating the 40-fm (73-m) depth contour is prohibited.

(v) Recreational fishing for groundfish and halibut is prohibited within the Stonewall Bank YRCA. It is unlawful for recreational fishing vessels to take and retain, possess, or land halibut taken with recreational gear within the Stonewall Bank YRCA. A vessel fishing in the Stonewall Bank YRCA may not possess any halibut. Recreational vessels may transit through the Stonewall Bank YRCA with or without halibut on board. The Stonewall Bank YRCA is an area off central Oregon, near Stonewall Bank, intended to protect yelloweye rockfish. The Stonewall Bank YRCA is defined at § 660.70(f).

(f) The quota for landings into ports in the area south of Humbug Mountain, OR (42°40.50′ N. lat.) to the Oregon/California Border (42°00.00′ N. lat.) (Southern Oregon subarea) is 8,605 lb (3.9 mt).

(i) The fishing season commences on May 1, and continues 7 days per week until the subquota is taken, or October 31, whichever is earlier.

(ii) The daily bag limit is one halibut per person with no size limit.

(iii) No Pacific Coast groundfish may be taken and retained, possessed or landed, except sablefish, Pacific cod, and flatfish species, in areas closed to groundfish, if halibut are on board the vessel.

(g) The quota for landings into ports south of the Oregon/California Border (42°00.00′ N. lat.) and along the California coast is 29,640 lb (13.44 mt).

(i) The fishing season will be open (season dates will be inserted when final rule is published), or until the subarea quota is estimated to have been taken and the season is closed by the Commission, or October 31, whichever is earlier. NMFS will announce any closure by the Commission on the NMFS hotline (206) 526-6667 or (800) 662-9825.

(ii) The daily bag limit is one halibut of any size per day per person.

Regulations governing the U.S. fisheries for Pacific halibut are developed by the IPHC, the Pacific Fishery Management Council, the North Pacific Fishery Management Council, and the Secretary of Commerce. Section 5 of the Northern Pacific Halibut Act of 1982 (Halibut Act, 16 U.S.C. 773c) provides the Secretary of Commerce with the general responsibility to carry out the Convention between Canada and the United States for the management of Pacific halibut, including the authority to adopt regulations as may be necessary to carry out the purposes and objectives of the Convention and Halibut Act. This proposed rule is consistent with the Secretary of Commerce's authority under the Halibut Act.

This proposed rule has been determined to be not significant for purposes of Executive Order 12866.

The Regulatory Flexibility Act (RFA), 5 U.S.C. 603 et seq., requires government agencies to assess the effects that regulatory alternatives would have on small entities, including small businesses, and to determine ways to minimize those effects. When an agency proposes regulations, the RFA requires the agency to prepare and make available for public comment an Initial Regulatory Flexibility Analysis (IRFA) that describes the impact on small businesses, non-profit enterprises, local governments, and other small entities. The IRFA is to aid the agency in considering all reasonable regulatory alternatives that would minimize the economic impact on affected small entities. After the public comment period, the agency prepares a Final Regulatory Flexibility Analysis (FRFA) that takes into consideration any new information or public comments. A summary of the IRFA is provided below. The reasons why action by the agency is being considered, the objectives and legal basis for this rule are described above.

The main management objective for the Pacific halibut fishery in Area 2A is to manage fisheries to remain within the TAC for Area 2A. Another objective is to allow each commercial, recreational (sport), and tribal fishery to target halibut in the manner that is appropriate to meet both the conservation requirements for species that co-occur with Pacific halibut. A third objective is to meet the needs of fishery participants in particular fisheries and fishing areas.

Each year, the states of Washington, Oregon, California, and the treaty tribes that fish for halibut meet with their fishery participants to review halibut management under the Plan. Based on feedback from these meetings and experience from the previous year's fishing season, the states or the tribes may propose changes to the Plan. Proposed changes to the Plan are intended to remedy any problems encountered during the previous year's management, problems with other fisheries with overlapping management jurisdiction (i.e., Pacific Coast groundfish), or other anticipated problems.

The 2A Halibut Catch Sharing Plan, as outlined above, allocates the TAC at various levels. The commercial fishery is further divided into a directed commercial fishery that is allocated 85 percent of the commercial allocation of the Pacific halibut TAC, and the other 15 percent is allocated for incidental catch in the salmon troll fishery. The directed commercial fishery in Area 2A is confined to southern Washington (south of 46°53.30′ N. lat.), Oregon, and California. North of 46°53.30′ N. lat. (Pt. Chehalis), the Plan allows for incidental halibut retention in the sablefish primary fishery when the overall Area 2A halibut TAC is above 900,000 lb (408.2 mt). The Plan also divides the sport fisheries into seven geographic subareas, each with separate allocations, seasons, and bag limits. The non-tribal allocation is divided into four shares. At the first level, there are specific percentage allocations for tribal and non-tribal fisheries. The non-tribal portion is then allocated to commercial components and to recreational components. The commercial component is then apportioned into directed, incidental troll, and incidental sablefish fisheries. The recreational portions for Oregon and Washington are furthered apportioned into area subquotas, and these subquotas are further split into seasonal or depth fisheries (nearshore vs all depths). There may be gear restrictions and other management measures established as necessary to minimize the potential of exceeding these allocations.

At the September meeting, the Council adopted a range of Plan alternatives for public review. For 2016, the Council adopted two types of changes that are discussed separately below. The first were the routine recreational fishery adjustments to the Plan proposed by the states each year to accommodate the needs of their fisheries. The second were changes to the Plan and codified regulations proposed by NMFS which do not have alternatives, because they are either mandated by a recent court decision or are administrative in nature. At its November meeting, the Council made final Plan change recommendations from the range of alternatives for the recreational fishery adjustments; which is described in detail below.

The proposed changes to the Plan are expected to slightly increase fishing opportunities in some areas and at some times and to slightly decrease fishing opportunities in other areas and at other times. The Council's recommended changes to the Plan modify the opening dates for the sport fisheries in Washington and Oregon with the goal of extending the seasons and increasing opportunity. The change to the tribal Usual &Accustomed (U&A) boundaries is made to comply with a court order, and NMFS has no discretion to do otherwise. Thus this change is not analyzed here. The Council considered changes to the Washington North Coast, Columbia River, Oregon Central Coast, and Southern Oregon subareas:

The Small Business Administration defines a “small” harvesting business as one with annual receipts, not in excess of $20.5 million. For related fishprocessing businesses, a small business is one that employs 500 or fewer persons. For wholesale businesses, a small business is one that employs not more than 100 people. For marinas and charter/party boats, a small business is one with annual receipts, not in excess of $7.5 million. This rule directly affects charterboat operations, and participants in the non-treaty directed commercial fishery off the coast of Washington, Oregon, and California. Applying the SBA's size standard for small businesses, NMFS considers all of the charterboat operations and participants in the non-treaty directed commercial fishery affected by this action as small businesses.

Specific data on the economics of halibut charter operations is unavailable. However, in January 2004, the Pacific States Marine Fisheries Commission (PSMFC) completed a report on the overall West Coast charterboat fleet. In surveying charterboat vessels concerning their operations in 2000, the PSMFC estimated that there were about 315 charterboat vessels in operation off Washington and Oregon. In 2000, IPHC licensed 130 vessels to fish in the halibut sport charter fishery. Comparing the total charterboat fleet to the 130 and 142 IPHC licenses in 2000 and 2007, respectively, approximately 41 to 45 percent of the charterboat fleet could participate in the halibut fishery. The PSMFC has developed preliminary estimates of the annual revenues earned by this fleet and they vary by size class of the vessels and home state. Small charterboat vessels range from 15 to 30 feet and typically carry 5 to 6 passengers. Medium charterboat vessels range from 31 to 49 feet in length and typically carry 19 to 20 passengers. (Neither state has large vessels of greater than 49 feet in their fleet.) Average annual revenues from all types of recreational fishing, whalewatching and other activities ranged from $7,000 for small Oregon vessels to $131,000 for medium Washington vessels. These data confirm that charterboat vessels qualify as small entities under the Regulatory Flexibility Act. This analysis continues the main conclusions developed in previous analyses that charterboats and the non-treaty directed commercial fishing vessels are small businesses. See 77 FR 5477 (Feb 3, 2012) and 76 FR 2876 (Jan 18, 2011). In 2015, 512 vessels were issued IPHC licenses to retain halibut. IPHC issues licenses for: the directed commercial fishery and the incidental fishery in the sablefish primary fishery in Area 2A (22 licenses in 2015); incidental halibut caught in the salmon troll fishery (363 licenses in 2015); and the charterboat fleet (127 licenses in 2013, the most recent year available). No vessel may participate in more than one of these three fisheries per year. These license estimates overstate the number of vessels that participate in the fishery. IPHC estimates that 60 vessels participated in the directed commercial fishery, 100 vessels in the incidental commercial (salmon) fishery, and 13 vessels in the incidental commercial (sablefish) fishery. Although recent information on charterboat activity is not available, prior analysis indicated that 60 percent of the IPHC charterboat license holders may be affected by these regulations.

Commercial harvest vessels in West Coast fisheries are generally “small businesses,” unless they are associated with a catcher-processor company or affiliated with a large shorebased processing company. Catcher-processors cannot target halibut or keep halibut as bycatch. NOAA is unaware that any “large” seafood processing companies are affiliated with any of the IPHC permit holders.

The major effect of halibut management on small entities will be from the Area 2A TAC which is set by the IPHC, an international body. Based on the recommendations of the states, the Council and NMFS are proposing minor changes to the Plan to provide increased recreational and commercial opportunities under the allocations that result from the TAC. There are no large entities involved in the halibut fisheries; therefore, none of these changes will have a disproportionate negative effect on small entities versus large entities. These minor proposed changes to the Plan are not expected to have a significant economic impact on a substantial number of small entities.

This proposed rule does not contain a collection of information requirement subject to review and approval by the Office of Management and Budget (OMB) under the Paperwork Reduction Act (PRA).

There are no projected reporting or recordkeeping requirements associated with this action.

There are no relevant Federal rules that may duplicate, overlap, or conflict with this action.

Pursuant to Executive Order 13175, the Secretary recognizes the sovereign status and co-manager role of Indian tribes over shared Federal and tribal fishery resources. Section 302(b)(5) of the Magnuson-Stevens Fishery Conservation and Management Act establishes a seat on the Pacific Council for a representative of an Indian tribe with federally recognized fishing rights from California, Oregon, Washington, or Idaho.

The U.S. Government formally recognizes that the 13 Washington Tribes have treaty rights to fish for Pacific halibut. In general terms, the quantification of those rights is 50 percent of the harvestable surplus of Pacific halibut available in the tribes' usual and accustomed fishing areas (described at 50 CFR 300.64). Each of the treaty tribes has the discretion to administer their fisheries and to establish their own policies to achieve program objectives. Accordingly, tribal allocations and regulations, including the proposed changes to the Plan, have been developed in consultation with the affected tribe(s) and, insofar as possible, with tribal consensus.

In 2014, a Biological Opinion (BiOp) was completed for the 2014-2016 Area 2A Pacific Halibut Catch Sharing Plan. The BiOp concluded that the continued implementation of the Plan was not likely to adversely affect southern resident killer whales, leatherback sea turtles, humpback whales, blue whales, fin whales, Guadalupe fur seals, north Pacific right whales, sei whales, sperm whales, and steller sea lions. Further the BiOp concluded that continuing implementation of the Plan was likely to adversely affect but not likely to jeopardize Puget Sound/Georgia basin bocaccio, canary rockfish, and yelloweye rockfish, southern green sturgeon, lower Columbia River Chinook, and Puget Sound Chinook. The BiOp also concluded that the continued implementation of the Plan was not likely to adversely modify critical habitat of southern resident killer whales, leatherback sea turtles, Puget Sound/Georgia basin bocaccio, canary rockfish, and yelloweye rockfish, southern green sturgeon, lower Columbia River Chinook, and Puget Sound Chinook. Because the halibut fishery does not overlap with the critical habitat for the remaining listed species it was determined that, an evaluation of the effects on critical habitat was not applicable. Finally, in a letter dated March 12, 2014, NMFS determined that fishing activities conducted under the Plan would have no effect on eulachon. None of the Council's recommended changes to the Plan proposed in this rule change the determinations made in the BiOp because they do not result in changes to fishing behavior such that the impacts to listed species is anticipated to change. NMFS is currently conducting informal consultation with the U.S. Fish and Wildlife Service regarding the ongoing implementation of the Catch Sharing Plan and its effects on short-tailed and black-footed albatross, California least tern, marbled murrelet, bull trout, and sea otters.

For the reasons set out in the preamble, 50 CFR part 300, subpart E, is proposed to be amended as follows: