Federal Register Vol. 83, No.23,

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

Interested parties are invited to participate in this proposed rulemaking by submitting such written data, views, or arguments, as they may desire. Comments that provide the factual basis supporting the views and suggestions presented are particularly helpful in developing reasoned regulatory decisions on the proposal. Comments are specifically invited on the overall regulatory, aeronautical, economic, environmental, and energy-related aspects of the proposal. Communications should identify both docket numbers and be submitted in triplicate to the address listed above. Persons wishing the FAA to acknowledge receipt of their comments on this notice must submit with those comments a self-addressed, stamped postcard on which the following statement is made: “Comments to Docket No. FAA-2017-1032; Airspace Docket No. 17-ANM-4”. The postcard will be date/time stamped and returned to the commenter.

All communications received before the specified closing date for comments will be considered before taking action on the proposed rule. The proposal contained in this notice may be changed in light of the comments received. A report summarizing each substantive public contact with FAA personnel concerned with this rulemaking will be filed in the docket.

An electronic copy of this document may be downloaded through the internet at http://www.regulations.gov. Recently published rulemaking documents can also be accessed through the FAA's web page at http://www.faa.gov/air_traffic/publications/airspace_amendments/.

You may review the public docket containing the proposal, any comments received, and any final disposition in person in the Dockets Office (see the ADDRESSES section for the address and phone number) between 9:00 a.m. and 5:00 p.m., Monday through Friday, except federal holidays. An informal docket may also be examined during normal business hours at the Northwest Mountain Regional Office of the Federal Aviation Administration, Air Traffic Organization, Western Service Center, Operations Support Group, 1601 Lind Avenue SW, Renton, WA 98057.

This document proposes to amend FAA Order 7400.11B, Airspace Designations and Reporting Points, dated August 3, 2017, and effective September 15, 2017. FAA Order 7400.11B is publicly available as listed in the ADDRESSES section of this document. FAA Order 7400.11B lists Class A, B, C, D, and E airspace areas, air traffic service routes, and reporting points.

The FAA is proposing an amendment to Title 14 Code of Federal Regulations (14 CFR) part 71 by modifying Class D airspace, establishing Class E surface area airspace, removing Class E airspace designated as an extension to a Class D or Class E surface area, and establishing Class E airspace extending upward from 700 feet above the surface at Tacoma Narrows Airport, Tacoma, WA.

Class D airspace would be modified to add a small extension south of the airport within 1.7 miles each side of a 189° bearing from the airport extending from the 4-mile radius to 5.3 miles south of the airport.

Class E surface area airspace would be established coincident with the dimensions of the Class D airspace and effective during the hours when the Class D is not in effect to protect IFR operations continuously.

Class E airspace designated as an extension would be removed as the extension north of the airport (within 1.8 miles each side of the 009° bearing from the Graye NDB extending from the 4-mile radius to .9 miles north of the NDB) protects no arrival aircraft within 1,000 feet of the surface. Also, the extension to the south (within 1.8 miles each side of the 187° bearing from Scenn OM extending from the 4-mile radius to 1 mile south of the OM; excluding that airspace within the Tacoma, McChord AFB, WA, Class D airspace area) protects no arrival aircraft within 1,000 feet of the surface beyond 5.3 miles south of the airport. By eliminating the unnecessary airspace, the remaining extension to the south would be less than 2 nautical miles in length, and must be Class D.

Class E airspace extending upward from 700 feet would be established at Tacoma Narrows Airport within 4 miles each side of the 007° and 187° bearings from the airport extending to 8 miles north and 7 miles south of the airport. This new airspace would duplicate the larger Seattle Class E airspace area, but would ensure sufficient airspace is designated for Tacoma Narrows Airport in case of any future modification.

Class D and Class E airspace designations are published in paragraph 5000, 6002, 6004, and 6005, respectively, of FAA Order 7400.11B, dated August 3, 2017, and effective September 15, 2017, which is incorporated by reference in 14 CFR 71.1. The Class D and E airspace designations listed in this document will be published subsequently in the Order.

The FAA has determined that this regulation only involves an established body of technical regulations for which frequent and routine amendments are necessary to keep them operationally current, is non-controversial and unlikely to result in adverse or negative comments. It, therefore: (1) Is not a “significant regulatory action” under Executive Order 12866; (2) is not a “significant rule” under DOT Regulatory Policies and Procedures (44 FR 11034; February 26, 1979); and (3) does not warrant preparation of a regulatory evaluation as the anticipated impact is so minimal. Since this is a routine matter that will only affect air traffic procedures and air navigation, it is certified that this rule, when promulgated, would not have a significant economic impact on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

This proposal will be subject to an environmental analysis in accordance with FAA Order 1050.1F, “Environmental Impacts: Policies and Procedures” prior to any FAA final regulatory action.

Accordingly, pursuant to the authority delegated to me, the Federal Aviation Administration proposes to amend 14 CFR part 71 as follows:

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

Interested parties are invited to participate in this proposed rulemaking by submitting such written data, views, or arguments, as they may desire. Comments that provide the factual basis supporting the views and suggestions presented are particularly helpful in developing reasoned regulatory decisions on the proposal. Comments are specifically invited on the overall regulatory, aeronautical, economic, environmental, and energy-related aspects of the proposal.

Communications should identify both docket numbers (Docket No. FAA-2017-0223; Airspace Docket No. 17-ANM-9) and be submitted in triplicate to DOT Docket Operations (see ADDRESSES section for address and phone number).

Persons wishing the FAA to acknowledge receipt of their comments on this notice must submit with those comments a self-addressed, stamped postcard on which the following statement is made: “Comments to Docket No. FAA-2017-0223/Airspace Docket No. 17-ANM-9.” The postcard will be date/time stamped and returned to the commenter.

All communications received on or before the specified closing date for comments will be considered before taking action on the proposed rule. The proposal contained in this notice may be changed in light of the comments received. A report summarizing each substantive public contact with FAA personnel concerned with this rulemaking will be filed in the docket.

An electronic copy of this document may be downloaded through the internet at http://www.regulations.gov. Recently published rulemaking documents can also be accessed through the FAA's web page at http://www.faa.gov/air_traffic/publications/airspace_amendments/.

You may review the public docket containing the proposal, any comments received, and any final disposition in person in the Dockets Office (see the ADDRESSES section for the address and phone number) between 9:00 a.m. and 5:00 p.m., Monday through Friday, except federal holidays. An informal docket may also be examined between 8:00 a.m. and 4:30 p.m., Monday through Friday, except federal holidays, at the Northwest Mountain Regional Office of the Federal Aviation Administration, Air Traffic Organization, Western Service Center, Operations Support Group, 1601 Lind Avenue SW, Renton, WA 98057.

This document proposes to amend FAA Order 7400.11B, Airspace Designations and Reporting Points, dated August 3, 2017, and effective September 15, 2017. FAA Order 7400.11B is publicly available as listed in the ADDRESSES section of this document. FAA Order 7400.11B lists Class A, B, C, D, and E airspace areas, air traffic service routes, and reporting points.

The FAA is proposing an amendment to Title 14 Code of Federal Regulations (14 CFR) Part 71 by modifying Class D airspace and Class E surface area airspace at Casper/Natrona County International Airport (formerly Natrona County International Airport) to within a 4.9-mile radius (from a 4.3-mile radius) of the airport from the airport 294° bearing clockwise to the airport 193° bearing, and within a 7-mile radius (from a 4.3-mile radius) of the airport from the 193° bearing clockwise to the airport 294° bearing.

This proposal also would remove Class E airspace designated as an extension to Class D or E surface area.

Additionally, Class E airspace extending upward from 700 feet above the surface would be reduced to within a 9.5-mile radius of the airport (from a 24-mile radius) from the airport 248° bearing clockwise to the airport 294° bearing, and within a 7-mile radius from the airport 294° bearing clockwise to the airport 004° bearing, with segments extending to 13.5 miles northeast, 10.4 miles east, 16.9 miles southwest. Also, Class E airspace extending upward from 1,200 feet above the surface would be removed since it is wholly contained within the larger Casper Class E en route airspace, and duplication is not needed.

This proposal would also update the airport's geographic coordinates in the associated Class D and E airspace to reflect the FAA's current aeronautical database. Lastly, this action would replace the outdated term “Airport/Facility Directory” with the term “Chart Supplement” in the Class D and associated Class E airspace legal descriptions. These modifications are necessary for the safety and management of IFR operations at the airport.

Class D and Class E airspace designations are published in paragraph 5000, 6002, 6004, and 6005, respectively, of FAA Order 7400.11B, dated August 3, 2017 and effective September 15, 2017, which is incorporated by reference in 14 CFR 71.1. The Class D and Class E airspace designations listed in this document will be published subsequently in the Order.

The FAA has determined that this proposed regulation only involves an established body of technical regulations for which frequent and routine amendments are necessary to keep them operationally current, is non-controversial and unlikely to result in adverse or negative comments. It, therefore: (1) Is not a “significant regulatory action” under Executive Order 12866; (2) is not a “significant rule” under DOT Regulatory Policies and Procedures (44 FR 11034; February 26, 1979); and (3) does not warrant preparation of a regulatory evaluation as the anticipated impact is so minimal. Since this is a routine matter that will only affect air traffic procedures and air navigation, it is certified that this proposed rule, when promulgated, would not have a significant economic impact on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

This proposal will be subject to an environmental analysis in accordance with FAA Order 1050.1F, “Environmental Impacts: Policies and Procedures” prior to any FAA final regulatory action.

Accordingly, pursuant to the authority delegated to me, the Federal Aviation Administration proposes to amend 14 CFR part 71 as follows:

Authority for This Rulemaking

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

Interested parties are invited to participate in this proposed rulemaking by submitting such written data, views, or arguments, as they may desire. Comments that provide the factual basis supporting the views and suggestions presented are particularly helpful in developing reasoned regulatory decisions on the proposal. Comments are specifically invited on the overall regulatory, aeronautical, economic, environmental, and energy-related aspects of the proposal.

Communications should identify both docket numbers (Docket No. FAA-2017-1091; Airspace Docket No. 17-AWP-26) and be submitted in triplicate to DOT Docket Operations (see “ADDRESSES” section for address and phone number).

Persons wishing the FAA to acknowledge receipt of their comments on this notice must submit with those comments a self-addressed, stamped postcard on which the following statement is made: “Comments to Docket No. FAA-2017-1091/Airspace Docket No. 17-AWP-26.” The postcard will be date/time stamped and returned to the commenter.

All communications received on or before the specified closing date for comments will be considered before taking action on the proposed rule. The proposal contained in this notice may be changed in light of the comments received. A report summarizing each substantive public contact with FAA personnel concerned with this rulemaking will be filed in the docket.

An electronic copy of this document may be downloaded through the internet at http://www.regulations.gov. Recently published rulemaking documents can also be accessed through the FAA's web page at http://www.faa.gov/air_traffic/publications/airspace_amendments/.

You may review the public docket containing the proposal, any comments received, and any final disposition in person in the Dockets Office (see the “ADDRESSES” section for the address and phone number) between 9:00 a.m. and 5:00 p.m., Monday through Friday, except federal holidays. An informal docket may also be examined between 8:00 a.m. and 4:30 p.m., Monday through Friday, except federal holidays, at the Northwest Mountain Regional Office of the Federal Aviation Administration, Air Traffic Organization, Western Service Center, Operations Support Group, 1601 Lind Avenue SW, Renton, WA 98057.

This document proposes to amend FAA Order 7400.11B, Airspace Designations and Reporting Points, dated August 3, 2017, and effective September 15, 2017. FAA Order 7400.11B is publicly available as listed in the ADDRESSES section of this document. FAA Order 7400.11B lists Class A, B, C, D, and E airspace areas, air traffic service routes, and reporting points.

The FAA is proposing an amendment to Title 14 Code of Federal Regulations (14 CFR) part 71 for airspace redesign by modifying Class D airspace to a 4.6-mile radius (from a 4.5-mile radius) of the airport from the airport 297° bearing clockwise to the airport 164° bearing, thence direct to the point of beginning. This modification would provide additional Class D airspace south of the airport and would remove Class D airspace southwest and northwest of the airport, thereby containing instrument IFR departure aircraft until reaching 700 feet above the surface, and removing airspace not required by IFR operations. Also, this action would remove the reference to the El Nido VOR/DME in the legal description due to its planned decommissioning as the FAA transitions from ground-based to satellite-based navigation.

Class E airspace extending upward from 700 feet above the surface would be modified to a 7.2-mile (from a 7-mile) radius of the airport, and would remove the 23-mile extension northwest of the airport.

Additionally, the airport's geographic coordinates would be updated to match the FAA's aeronautical database for the Class D and Class E airspace areas. An editorial change also would be made to the Class E surface area airspace legal description replacing “Airport/Facility Directory” with the term “Chart Supplement”.

These actions are necessary for the safety and management of IFR operations at this airport.

Class E airspace designations are published in paragraph 6002, and 6005, respectively, of FAA Order 7400.11B, dated August 3, 2017 and effective September 15, 2017, which is incorporated by reference in 14 CFR 71.1. The Class E airspace designation listed in this document will be published subsequently in the Order.

The FAA has determined that this proposed regulation only involves an established body of technical regulations for which frequent and routine amendments are necessary to keep them operationally current, is non-controversial and unlikely to result in adverse or negative comments. It, therefore: (1) Is not a “significant regulatory action” under Executive Order 12866; (2) is not a “significant rule” under DOT Regulatory Policies and Procedures (44 FR 11034; February 26, 1979); and (3) does not warrant preparation of a regulatory evaluation as the anticipated impact is so minimal. Since this is a routine matter that will only affect air traffic procedures and air navigation, it is certified that this proposed rule, when promulgated, would not have a significant economic impact on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

This proposal will be subject to an environmental analysis in accordance with FAA Order 1050.1F, “Environmental Impacts: Policies and Procedures” prior to any FAA final regulatory action.

Accordingly, pursuant to the authority delegated to me, the Federal Aviation Administration proposes to amend 14 CFR part 71 as follows:

Background

This document contains proposed regulations that supplement the regulations proposed in the notice of proposed rulemaking (REG-136118-15) published in the Federal Register on June 14, 2017 (82 FR 27334) (the “June 14 NPRM”) and amend the Income Tax Regulations (26 CFR part 1) under Subpart—Partners and Partnerships and the Procedure and Administration Regulations (26 CFR part 301) under Subpart—Tax Treatment of Partnership Items to implement the centralized partnership audit regime. Furthermore, certain provisions of the June 14 NPRM are being amended.

For information relating to (1) the new centralized partnership audit regime enacted by the Bipartisan Budget Act (BBA), Public Law 114-74 (129 Stat. 58 (2015)) (as amended by the Protecting Americans from Tax Hikes Act of 2015, Pub. L. 114-113 (129 Stat. 2242 (2015))); (2) Notice 2016-23 (2016-13 I.R.B. 490 (March 28, 2016)), which requested comments on the new partnership audit regime enacted by the BBA; and (3) the temporary regulations (TD 9780, 81 FR 51795 (August 5, 2016)) and a notice of proposed rulemaking (REG-105005-16, 81 FR 51835 (August 5, 2016)), which provided the time, form, and manner for a partnership to make an election into the centralized partnership audit regime for a partnership taxable year beginning before the general effective date of the regime, see the Background section of the June 14 NPRM.

The June 14 NPRM addressed various issues concerning the scope and process of the new centralized partnership audit regime. Unless otherwise noted, all references to proposed regulations in this preamble refer to the regulations proposed by the June 14 NPRM.

Proposed §§ 301.6225-1, 301.6225-2, and 301.6225-3 provide rules relating to partnership adjustments, including the computation of the imputed underpayment, modification of the imputed underpayment, and the treatment of adjustments that do not result in an imputed underpayment.

Proposed § 301.6225-1 sets forth rules for computing the imputed underpayment, and proposed § 301.6225-2 sets forth the rules under which the partnership may request a modification to adjust the imputed underpayment calculated under proposed § 301.6225-1. The modification rules contained in proposed § 301.6225-2 generally allow: (1) Modifications that result in the exclusion of certain adjustments, or portions thereof, from the calculation of the imputed underpayment (such as a modification under proposed § 301.6225-2(d)(2) (amended returns by partners), (d)(3) (tax-exempt partners), (d)(5) (certain passive losses of publicly traded partnerships), (d)(7) (partnerships with partners that are qualified investment entities described in section 860 of the Internal Revenue Code (Code)), (d)(8) (partner closing agreements), and, if applicable, (d)(9) (other modifications)); (2) rate modifications, which affect only the taxable rate applied to the total netted partnership adjustment (described in proposed § 301.6225-2(d)(4)); and (3) modifications to the number and composition of imputed underpayments (described in proposed § 301.6225-2(d)(6)).

Proposed § 301.6225-3 sets forth rules for the treatment of adjustments that do not result in an imputed underpayment. In general, pursuant to proposed § 301.6225-3(b)(1) the partnership takes the adjustment into account in the adjustment year as a reduction in non-separately stated income or as an increase in non-separately stated loss depending on whether the adjustment is to an item of income or loss. Proposed § 301.6225-3(b)(2) provides that if an adjustment is to an item that is required to be separately stated under section 702 of the Internal Revenue Code (Code) the adjustment shall be taken into account by the partnership on its adjustment year return as an adjustment to such separately stated item. Proposed § 301.6225-3(b)(3) provides that an adjustment to a credit is taken into account as a separately stated item.

Proposed §§ 301.6226-1, 301.6226-2, and 301.6226-3 provide rules relating to the election under section 6226 by a partnership to have its reviewed year partners take into account the partnership adjustments in lieu of paying the imputed underpayment determined under section 6225, the statements the partnership must send to its partners, and the rules for how the partners take into account the adjustments, including the computation and payment of the partners' liability. If a partnership makes the election under section 6226 to “push out” adjustments to its reviewed year partners, the partnership is not liable for the imputed underpayment. Instead, under proposed § 301.6226-3, reviewed year partners must pay any additional chapter 1 tax that results from taking the adjustments reflected on the statements into account in the reviewed year and from changes to the tax attributes in the intervening years. In addition to being liable for the additional tax, the partner must also calculate and pay any penalties, additions to tax, or additional amounts determined to be applicable during the partnership-level proceeding, and any interest determined in accordance with proposed § 301.6226-3(d).

Finally, proposed § 301.6241-1 provides definitions for purposes of the centralized partnership audit regime.

On December 19, 2017, proposed rules (REG-120232-17 and REG-120233-17) were published in the Federal Register (82 FR 60144) that would allow tiered partnerships to push out audit adjustments through to the ultimate taxpayers and provides rules implementing the procedural and administrative aspects of the partnership audit regime. For proposed rules regarding international provisions under the centralized partnership audit regime, see (REG-119337-17) published in the Federal Register on November 30, 2017 (82 FR 56765).

These proposed regulations provide rules that were reserved in the June 14 NPRM under proposed §§ 301.6225-4 and 301.6226-4. It also provides related proposed amendments to §§ 1.704-1, 1.705-1, and 1.706-4. Specifically, these rules address how and when partnerships and their partners adjust tax attributes to take into account partnership adjustments under both sections 6225 and 6226. The public provided comments in response to the June 14 NPRM, and some comments discussed issues relevant to the reserved sections under proposed §§ 301.6225-4 and 301.6226-4, which were taken into consideration in drafting these proposed regulations.

Because these regulations are supplementing the regulations published in the June 14 NPRM, the numbering and ordering of some of the provisions do not follow typical conventions. The Department of the Treasury (Treasury Department) and the IRS anticipate that these provisions will be appropriately integrated when both these regulations and the proposed regulations in the June 14 NPRM are finalized.

These proposed rules are consistent with the policy described in “The General Explanation of Tax Legislation Enacted for 2015” (Bluebook), which explained that “[u]nder the centralized partnership audit regime, the flowthrough nature of the partnership under subchapter K of the Code is unchanged, but the partnership is treated as a point of collection of underpayments that would otherwise be the responsibility of partners.” Joint Comm. on Taxation, JCS-1-16, “General Explanations of Tax Legislation Enacted in 2015”, 57 (2016).

The preamble to the June 14 NPRM announced that the Treasury Department and the IRS intended to provide additional rules providing for adjustments to the basis of partnership property and book value of any partnership property if the partnership adjustment is a change to an item of gain, loss, amortization or depreciation (i.e., the change is basis derivative). These proposed regulations, when finalized, will provide this guidance.

The June 14 NPRM defines a partnership adjustment as any adjustment to any item of income, gain, loss, deduction, or credit of a partnership (as defined in proposed § 301.6221(a)-1(b)(1)), or any partner's distributive share thereof (as described in proposed § 301.6221(a)-1(b)(2)). See proposed § 301.6241-1(a)(6). Under the rules in proposed § 301.6225-1, each partnership adjustment is either (i) taken into account in the determination of an imputed underpayment, or (ii) considered a partnership adjustment that does not give rise to an imputed underpayment. For a partnership adjustment that is taken into account in the determination of the imputed underpayment, these proposed regulations provide rules for adjusting partnership asset basis and book value, rules for the creation of notional items, rules for allocating these notional items under section 704(b), successor rules for situations in which reviewed year partners (as defined in proposed § 301.6241-1(a)(9)) are not adjustment year partners (as defined in proposed § 301.6241-1(a)(2)), and rules for determining the impact of notional items on tax attributes in certain situations. See section (2)(B) of this preamble. These regulations also provide rules for the allocation of any partnership expenditure related to the imputed underpayment. See section (2)(B)(vii) of this preamble. Finally, these regulations provide guidance in the case of a partnership adjustment that does not give rise to an imputed underpayment. See section (2)(C) of this preamble.

Prior to the enactment of the centralized partnership audit regime, in the case of an adjustment to an item of income, gain, loss, deduction or credit in the context of an examination by the IRS for or related to a partnership, partnership adjustments were generally taken into account by the partners of the partnership for the year under examination by a new or corrected allocation of the relevant item, and partners took those items into account with respect to the partnership year under examination. In contrast, under the centralized partnership audit regime, for a partnership adjustment that is taken into account in the determination of an imputed underpayment, the partnership adjustment is generally taken into account by the partnership in the year in which the related payment obligation (the imputed underpayment) arises. Further, in light of the fact that these partnership adjustments are with respect to a partnership year that is earlier than the year in which the imputed underpayment arises, the partners of the partnership may have changed in the later year.

Under subchapter K, a partnership generally computes items of income, gain, loss, deduction or credit under section 703, which are then allocated to the partners under section 704. Under section 705, a partner increases its basis in its partnership interest (outside basis) by its distributive share of taxable income of the partnership as determined under section 703(a). However, in the case of a positive partnership adjustment that is taken into account in the determination of an imputed underpayment, section 6225 does not itself provide for an item of taxable income under section 703(a) to be allocated to partners. Instead, calculations are made at the partnership level and the partnership pays the liability in the form of an imputed underpayment. Failure to provide adjustments to outside basis that reflect the partnership adjustments that resulted in the imputed underpayment could lead to a partner being effectively taxed twice on the same item of income, once indirectly on payment of the imputed underpayment and again on a disposition of the partnership interest or on a distribution of cash by the partnership. Taxing the same item of income twice is not consistent with the flowthrough nature of partnerships under subchapter K. Thus, these proposed regulations provide for adjustment to a partner's basis in its interest—and certain other tax attributes that are interdependent with basis under subchapter K—in order to prevent effective double taxation or other distortions.

Specifically, under proposed § 301.6225-4(a)(1), when there is a partnership adjustment (as defined in proposed § 301.6241-1(a)(6)), the partnership and its adjustment year partners (as defined in proposed § 301.6241-1(a)(2)) generally must adjust their specified tax attributes (as defined in proposed § 301.6225-4(a)(2)). Specified tax attributes are the tax basis and book value of a partnership's property, amounts determined under section 704(c), adjustment year partners' bases in their partnership interests, and adjustment year partners' capital accounts determined and maintained in accordance with § 1.704-1(b)(2). See proposed § 301.6225-4(a)(2).

In the case of a partnership adjustment that results in an imputed underpayment, the adjustments to specified tax attributes must be made on a partnership-adjustment-by-partnership-adjustment basis, and thus are created separately for each partnership adjustment (whether a negative adjustment or a positive adjustment) without regard to their summation as part of the determination of the total netted partnership adjustment in proposed § 301.6225-1(c)(3). See proposed § 301.6225-4(b)(1).

The partnership must first make appropriate adjustments to the book value and basis of property to take into account any partnership adjustment. See proposed § 301.6225-4(b)(2). This rule also requires amounts determined under section 704(c) to be adjusted to take into account the partnership adjustment. The partnership does not make any adjustments to the book value or basis of partnership property with respect to property that was held by the partnership in the reviewed year but is no longer held by the partnership in the adjustment year. Comments are requested as to whether, in these situations, a partnership should be allowed to adjust the basis (or book value) of other partnership property (such as in a manner similar to the rules that apply in allocating section 734(b) adjustments under section 755 (i.e., § 1.755-1(c))).

Proposed § 301.6225-4(b)(3) provides that notional items are then created with respect to the partnership adjustment, and these notional items are then allocated according to the rules described in section (2)(B)(iii) of this preamble. The items are considered notional items because their sole purpose is to affect partner-level specified tax attributes, and thus they are not considered to be items for purposes of adjusting other tax attributes.

In the case of a partnership adjustment that is an increase to income or gain, a notional item of income or gain is created in an amount equal to the partnership adjustment. Similarly, in the case of a partnership adjustment that is an increase to an expense or a loss, a notional item of expense or loss is created in an amount equal to the partnership adjustment. See proposed § 301.6225-4(b)(3)(ii) and (iii).

However, in the case of a partnership adjustment that is a decrease to income or gain, a notional item of expense or loss is created in an amount equal to the partnership adjustment. Similarly, in the case of a partnership adjustment that is a decrease to an expense or a loss, a notional item of income or gain is created in an amount equal to the partnership adjustment. See proposed § 301.6225-4(b)(3)(iv) and (v). These rules have the effect of reversing out the reviewed year allocation to the extent necessary to reflect the partnership adjustment.

Thus, under these proposed regulations, an adjustment year partner increases its outside basis for notional income that is allocated to it. Similarly, a partnership that determines and maintains capital accounts in accordance with § 1.704-1(b)(2)(iv) also adjusts capital accounts for notional items. See proposed § 301.6225-4(e), Example 1. In the case of a partnership adjustment that reflects a net increase or net decrease in credits as determined under proposed § 301.6225-1(d), the partnership creates one or more notional items of income, gain, loss, or deduction that reflects the change in the item giving rise to the credit. See proposed § 301.6225-4(b)(3)(vi).

Under these proposed regulations, only specified tax attributes are adjusted. Treasury Department and the IRS considered proposing broader rules for adjusting other tax attributes than those included in these proposed regulations. Tax attributes are defined in the June 14 NPRM as anything that can affect, with respect to a partnership or a partner, the amount or timing of an item of income, gain, loss, deduction, or credit (as defined in proposed § 301.6221(a)-1(b)(1)) or that can affect the amount of tax due in any taxable year. Examples of tax attributes include, but are not limited to, basis and holding period, as well as the character of items of income, gain, loss, deduction, or credit and carryovers and carrybacks of such items. See proposed § 301.6241-1(a)(10).

Comments are requested as to whether tax attributes other than specified tax attributes should be adjusted, at either the partner or the partnership level, when the partnership pays an imputed underpayment. Specifically, commenters are requested to address whether guidance should provide a general rule that partnership adjustments and notional items are taken into account as items for all purposes of Subtitle A, except to the extent of the partner's actual tax due. For example, guidance could provide that the partner level tax calculation includes notional items for purposes of calculating the tentative tax due, but that for purposes of determining the ultimate tax due, the partner's share of the imputed underpayment would be subtracted. Alternatively, guidance could provide a list of tax attributes that are generally adjusted, and a list of those that are not.

Specific tax attributes for which comments are requested include gross income rules for publicly traded partnerships under section 7704(b) and qualified investment entities described in section 860. Other tax attributes for which comments are requested include net operating loss carryforwards, other tax accounting under subchapter K, and those that contain limitations based on adjusted gross income (for example, the earned income credit allowed under section 32, the child tax credit allowed under section 24). Comments are also requested as to whether any special rules should be provided for adjustments to tax attributes in the cross-border context, and how those adjustments should differ, if at all, from adjustments to tax attributes made in the domestic context.

These regulations also contain rules to coordinate the changes to specified tax attributes made under these rules with other rules of the Code, including the rest of the centralized partnership audit regime. See proposed § 301.6225-4(a)(4). To the extent a partner or partnership appropriately adjusted tax attributes prior to a final determination under subchapter C of chapter 63 with respect to a partnership adjustment (for example, in the context of an amended return modification described in proposed § 301.6225-2(d)(2) or a closing agreement described in proposed § 301.6225-2(d)(8)), those tax attributes are not adjusted under this section. For example, when a partnership requests a modification of the imputed underpayment with respect to a partner-specific tax attribute (for example, a net operating loss) by the filing of an amended return by a partner or by entering into a closing agreement, the partner-specific tax attribute must be reduced to the extent it is used to modify the imputed underpayment.

The IRS is considering providing in forms, instructions, or other guidance that partnerships will be required to provide information to their partners about the amount and nature of changes to tax attributes and any other information needed by the partners.

Under section 704(b), a partner's distributive share of income, gain, loss, deduction, or credit (or item thereof) is determined under the partnership agreement if the allocation under the agreement has substantial economic effect. Section 1.704-1(b)(2)(i) provides that the determination of whether an allocation of income, gain, loss, or deduction (or item thereof) to a partner has substantial economic effect involves a two-part analysis that is made at the end of the partnership year to which the allocation relates. In order for an allocation to have substantial economic effect, the allocation must have both economic effect (within the meaning of § 1.704-1(b)(2)(ii)) and be substantial (within the meaning of § 1.704-1(b)(2)(iii)). If the allocation does not have substantial economic effect, or the partnership agreement does not provide for the allocation, then the allocation must be made in accordance with the partners' interest in the partnership under § 1.704-1(b)(3).

Commenters recommended applying the existing rules in subchapter K, including section 704(b), in the context of section 6225. While the basic principles of section 704(b) remain sound in the context of notional items, the unique nature of partnership adjustments under section 6225 requires the application of these principles to be modified. See proposed § 1.704-1(b)(1)(viii)(a). Specifically, the allocation of notional items cannot have substantial economic effect because the allocation relates to two different years—while generally determined with respect to the reviewed year, notional items are taken into account in the adjustment year. Thus, the proposed regulations provide that the allocation of a notional item does not have substantial economic effect, but, to address this issue, further provide that the allocation will be deemed to be in accordance with the partners' interests in the partnership if the allocation of a notional item of income or gain described in proposed § 301.6225-4(b)(3)(ii), or expense or loss described in proposed § 301.6225-4(b)(3)(iii), is made in the manner in which the corresponding actual item would have been allocated in the reviewed year under the section 704 regulations. Additionally, the allocation of a notional item of expense or loss described in proposed § 301.6225-4(b)(3)(iv), or a notional item of income or gain described in proposed § 301.6225-4(b)(3)(v), must be allocated to the reviewed year partners that were originally allocated that excess item in the reviewed year (or their successors). See proposed § 1.704-1(b)(4)(xi). As described in section (2)(B)(iv) of this preamble, however, these rules require treating successors as reviewed year partners.

While the determination of partnership adjustments under section 6225 is made with respect to reviewed year partners, it is the adjustment year partners that bear the economic burden (or benefit) of a partnership adjustment. As noted in section (2)(B)(i) of this preamble, outside basis adjustments must be made to avoid effectively taxing the same item of income twice. While this concern is clearest when a reviewed year partner remains a partner in the adjustment year, the same concern generally exists when the interest is transferred as the failure to provide outside basis would result in effectively taxing the same item of income twice, just with respect to two different taxpayers. Thus, these regulations provide successor rules under proposed § 1.704-1(b)(1)(viii)(b) for purposes of adjusting specified tax attributes, including outside basis.

A reviewed year partner's successor is generally defined as either a transferee that succeeds to the transferor partner's capital account under proposed § 1.704-1(b)(2)(iv)(l), or, in the case of a complete liquidation of a partner's interest, as the remaining partners to the extent their interests increased as a result of the liquidated partner's departure. See proposed §§ 1.704-1(b)(1)(viii)(b) and 301.6225-4(e), Example 3.

The June 14 NPRM provides that if any reviewed year partner with respect to whom an amount was reallocated is not also an adjustment year partner, the portion of the adjustment that would otherwise be allocated to such reviewed year partner is allocated instead to the adjustment year partner or partners who are the successor or successors to the reviewed year partner. See proposed § 301.6225-3(b)(4). Further, this rule provides that if the partnership cannot identify an adjustment year partner that is a successor to the reviewed year partner described in the previous sentence or if a successor does not exist, the portion of the adjustment that would otherwise be allocated to that reviewed year partner is allocated among the adjustment year partners according to the adjustment year partners' distributive shares.

A commenter stated that this rule in the June 14 NPRM allocating a reallocation adjustment that does not result in an imputed underpayment could result in situations in which partners in a publicly traded partnership described in section 7704(b) own units that are not fungible. In response to this comment and due to administrability concerns, the Treasury Department and the IRS reconsidered this rule and have concluded that it is appropriate to provide rules in these proposed regulations relating to any situation in which a partnership is unable, after exercising reasonable diligence, to determine a successor for a partnership adjustment under section 6225 (not only reallocation adjustments). These rules require that the proposed standard in the June 14 NPRM be replaced with a new proposed regulation. Therefore, these regulations amend proposed § 301.6225-3(b)(4) by removing the final two sentences and provide a rule in proposed § 1.704-1(b)(1)(viii)(b)(3) that if a partnership cannot determine the transferee for a partnership interest under proposed § 1.704-1(b)(1)(viii)(b)(2), the successor is deemed to be those partners in the adjustment year who were not also partners in the reviewed year or otherwise identifiable as successors to reviewed year partners, in proportion to their respective interests in the partnership.

Comments are requested as to whether these new proposed rules would similarly result in issues with respect to the fungibility of these partnership interests and, if so, specific recommendations for the final regulations to address fungibility concerns consistent with the centralized partnership audit regime, the rules of subchapter K, and the general framework of these proposed regulations. Specifically, commenters are requested to consider how the successor rules should operate when, due to the redemption of all reviewed year partners, there are no identifiable successors to reviewed year partners in the adjustment year.

Treasury and the IRS considered other alternatives to the successor rules in these proposed regulations, including allocating notional items only to adjustment year partners that were reviewed year partners, either solely in the amount for which they would have been allocated the notional item, or allocating to them (and no other partners) the full amount of the notional items. These proposed rules contain successor rules because that approach preserves the economics of the partners that were partners in both the reviewed and the adjustment year, and also facilitates any necessary private contracts between buyers and sellers of partnership interests. Comments are requested as to whether an approach other than successor rules are better suited to preserving the single-layer of tax in subchapter K while avoiding potential for abuse or other inappropriate tax results.

Comments are also requested as to how these successor rules should apply in the case of partnership mergers and divisions.

Finally, comments are requested on issues similar to those noted in the June 14 NPRM in section (5)(D)(ii) of the preamble, namely whether the allocation of adjustments to a successor of a reviewed year partner that was a tax-exempt partner may raise issues concerning private benefit to a person other than a tax-exempt partner, including issues that might affect the tax-exempt partner's status under section 501(c); excise taxes under chapter 42 of subtitle D of the Code or under sections 4975, 4976, or 4980; or requirements under title I of the Employee Retirement Income Security Act of 1974, Public Law 93-406 (88 Stat. 829 (1974)) as amended (ERISA), such as the fiduciary responsibility rules under part 4 thereof. The Treasury Department and the IRS request comments from the public on whether these potential issues may be adequately addressed in partnership agreements or whether guidance is needed to address these potential issues. Any comments related to title I of ERISA will be shared with the Department of Labor.

For certain types of partnership adjustments, notional items are not created. Specifically, notional items are not created for a partnership adjustment that does not derive from items that would have been allocated in the reviewed year under section 704(b), such as a partnership adjustment based upon a partner's failure to report gain under section 731, a partnership adjustment that is a change of an item of deduction to a section 705(a)(2)(B) expenditure, or a partnership adjustment to an item of tax-exempt income. See proposed § 301.6225-4(b)(4). Nevertheless, in these situations specified tax attributes are adjusted for the partnership and its reviewed year partners (or their successors) in a manner that is consistent with how the partnership adjustment would have been taken into account under the partnership agreement in effect for the reviewed year taking into account all facts and circumstances. See proposed § 301.6225-4(e), Example 5.

As noted in section (2)(B)(i) of this preamble, partners normally adjust their outside bases for notional items that are allocated to them. However, in certain cases, the proposed rules do not provide for adjustments to outside basis. Specifically, when a tax-exempt partner transfers its interest to a partner that is not tax-exempt (taxable partner) between the reviewed year and the adjustment year and the partnership requests a modification because of the reviewed year partner's status as a tax-exempt entity, the successor taxable partner is disallowed a basis adjustment. See proposed § 301.6225-4(b)(6)(iii)(B). Without this rule, a taxable successor partner would have a basis increase when no imputed underpayment was paid with respect to the partner's share of the partnership adjustment. Comments are requested as to whether this rule should be extended to rate modifications described in proposed § 301.6225-2(d)(4) as well. A basis adjustment is also disallowed when a reviewed year partner transfers its interest to a related party in a transaction in which not all gain or loss is recognized during an administrative proceeding under subchapter C of chapter 63 of the Code (subchapter C of chapter 63) and a principal purpose of the transfer was to shift the economic burden of the imputed underpayment among related parties. Comments are requested regarding whether basis adjustments should be disallowed in any other circumstances.

Proposed § 301.6225-4(c) describes how the partnership's expenditure arising from an imputed underpayment and any other amount under subchapter C of chapter 63 is taken into account by the partnership and its partners. No deduction is allowed under subtitle A of the Code for any payment required to be made by a partnership under subchapter C of chapter 63 and the amount is treated as an expenditure described in section 705(a)(2)(B). See proposed § 301.6241-4(a).

For an allocation to have economic effect, it must be consistent with the underlying economic arrangement of the partners. This means that, in the event that there is an economic benefit or burden that corresponds to the allocation, the partner to whom the allocation is made must receive such economic benefit or bear such economic burden. See § 1.704-1(b)(2)(ii). Generally, an allocation of income, gain, loss, or deduction (or item thereof) to a partner will have economic effect if, and only if, throughout the full term of the partnership, the partnership agreement provides: (1) For the determination and maintenance of the partners' capital accounts in accordance with § 1.704-1(b)(2)(iv); (2) for liquidating distributions to the partners to be made in accordance with the positive capital account balances of the partners; and (3) for each partner to be unconditionally obligated to restore the deficit balance in the partner's capital account following the liquidation of the partner's partnership interest. In lieu of satisfying the third criterion, the partnership may satisfy the qualified income offset rules set forth in § 1.704-1(b)(2)(ii)(d).

Section 1.704-1(b)(2)(iv)(i) provides specific rules for determining whether an allocation of a section 705(a)(2)(B) expenditure has substantial economic effect. Specifically, it requires that a partner's capital account be decreased by allocations made to such partner of expenditures described in section 705(a)(2)(B). See also § 1.704-1(b)(2)(iv)(b). Further, under section 705(a)(2)(B), the adjusted basis of a partner's interest in a partnership is decreased (but not below zero) by expenditures of the partnership that are not deductible in computing its taxable income and not properly chargeable to capital account.

Several commenters addressed how the partnership's payment of an imputed underpayment should be allocated among its partners and how the payment should be given effect. With respect to the payment's allocation, commenters recommended that the expenditure be allocated among the partners in accordance with their partnership agreement, subject to the rules of section 704(b) (including the regulatory requirements for substantial economic effect). The Treasury Department and the IRS agree with the commenters that the expenditure should be allocated under section 704. These proposed regulations contain special rules for allocating the expenditure under section 704(b).

With respect to book capital account adjustments for the imputed underpayment, commenters recommended that partners' capital accounts be adjusted to reflect the partnership's payment of the imputed underpayment. The Treasury Department and the IRS agree with this comment but conclude that because the expenditure is treated as an expenditure under section 705(a)(2)(B) pursuant to the June 14 NPRM (proposed § 301.6241-4(a)), existing rules provide this result.

The Treasury Department and the IRS have concluded, however, that the existing rules that determine whether the economic effect of an allocation is substantial should be modified to take into account the unique nature of these expenditures. When a partnership pays an imputed underpayment under section 6225, it has the effect of converting what would have been a non-deductible partner-level expenditure into a non-deductible partnership-level expenditure. The proposed regulations provide that an allocation of the nondeductible expenditure will be considered to be substantial only if the partnership allocates the expenditure in proportion to the notional item to which it relates, taking into account appropriate modifications. See proposed §§ 1.704-1(b)(2)(iii)(a) and (f), 301.6225-4(c) and 301.6225-4(e), Example 4. This rule aligns the economics of the income allocation (in this case, the notional income allocation) with the directly associated imputed underpayment expense in a manner consistent with the flowthrough nature of partnerships under subchapter K. Absent this substantiality rule in the regulations, partnerships could inappropriately allocate expenses to partners in the adjustment year in a manner inconsistent with the underlying economic arrangement of the partners. These new substantiality rules also apply to a payment made by a pass-through partner under proposed § 301.6226-3(e)(4).

Similarly, for partnerships that do not maintain capital accounts, the allocation of the expenditure cannot be in accordance with the partners' interests in the partnership to the extent it shifts the economic burden of the payment of the imputed underpayment away from a partner (or its successor) that would have been allocated the corresponding notional income item. However, the regulations provide that an allocation of an expense that satisfies the new substantiality rule and in which the partner's distribution rights are reduced by the partner's share of the imputed underpayment is deemed to be in accordance with the partners' interests in the partnership. See proposed § 1.704-1(b)(4)(xii). These proposed regulations do not address the extent to which the partnership may later reverse this allocation with a special chargeback or similar provision. Comments are requested on this issue.

One commenter recommended rules specifying that a partner's contribution of funds to the partnership for payment of an imputed underpayment will result in an increase in that partner's capital account. This comment is not adopted because the existing rules in subchapter K provide sufficient guidance for this circumstance. A commenter also recommended rules addressing the availability of a corporation's deduction under temporary § 1.163-9T(b)(2) for a payment of interest in respect of an underpayment of tax. This comment is not adopted because it is beyond the scope of these proposed regulations.

The proposed regulations also provide that in order for an allocation of an expenditure for interest, penalties, additions to tax, or additional amounts as determined under section 6233 to be substantial, it must be allocated to the reviewed year partner in proportion to the allocation of the related imputed underpayment, the related payment made by a pass-through partner under proposed § 301.6226-3(e)(4), or the related notional item to which it relates (whichever is appropriate), taking into account modifications under proposed § 301.6225-2 attributable to that partner. See proposed § 1.704-1(b)(2)(iii)(f)(3). This rule has a similar purpose as the rule in proposed § 1.704-1(b)(2)(iii)(f)(2) in that it aligns the economics of these expenses with the partnership items to which they relate. Under this rule, an expense for interest imposed under the Code will generally be allocated in proportion to the imputed underpayment from which it derives. Also, an expense arising from a substantial understatement of tax under section 6662(d) for an imputed underpayment will generally be allocated in proportion to the notional income item to which it relates.

In situations in which the reviewed year partner is not an adjustment year partner, the successor rules in proposed § 1.704-1(b)(1)(viii)(b) apply to the allocation of these expenditures. Under those rules, a partner admitted after the reviewed year will not ordinarily be allocated any section 705(a)(2)(B) expenditure in the adjustment year.

The June 14 NPRM provides that the rules under subchapter K apply in the case of a partnership adjustment that does not result in an imputed underpayment. See proposed § 301.6225-3(c). Further, proposed § 1.704-1(b)(4)(xiii) of these regulations provides that an allocation of an item arising from a partnership adjustment that does not result in an imputed underpayment (as defined in proposed § 301.6225-1(c)(2)) does not have substantial economic effect but will be deemed to be in accordance with the partners' interests in the partnership if it is allocated in the manner in which the item would have been allocated in the reviewed year under the regulations under section 704, taking into account the successor rules described in section (2)(B)(iv) of this preamble.

Section 6226(b) describes how partnership adjustments are taken into account by the reviewed year partners if a partnership makes an election under section 6226(a). Under section 6226(b)(1), each partner's tax imposed by chapter 1 of subtitle A of the Code (chapter 1 tax) is increased by the aggregate of the adjustment amounts as determined under section 6226(b)(2). This increase in chapter 1 tax is reported on the return for the partner's taxable year that includes the date the statement described under section 6226(a) is furnished to the partner by the partnership (reporting year). The aggregate of the adjustment amounts is the aggregate of the correction amounts. See proposed § 301.6226-3(b).

The adjustment amounts determined under section 6226(b)(2) fall into two categories. Under section 6226(b)(2)(A), in the case of the taxable year of the partner that includes the end of the partnership's reviewed year (first affected year), the adjustment amount is the amount by which the partner's chapter 1 tax would increase for the partner's first affected year if the partner's share of the adjustments were taken into account in that year. Under section 6226(b)(2)(B), in the case of any taxable year after the first affected year, and before the reporting year (that is, the intervening years), the adjustment amount is the amount by which the partner's chapter 1 tax would increase by reason of the adjustment to tax attributes determined under section 6226(b)(3) in each of the intervening years. The adjustment amounts determined under section 6226(b)(2)(A) and (B) are added together to determine the aggregate of the adjustment amounts for purposes of determining additional reporting year tax, which is the increase to the partner's chapter 1 tax in accordance with section 6226(b)(1).

Section 6226(b)(3) provides two rules regarding adjustments to tax attributes that would have been affected if the partner's share of adjustments were taken into account in the first affected year. First, under section 6226(b)(3)(A), in the case of an intervening year, any tax attribute must be appropriately adjusted for purposes of determining the adjustment amount for that intervening year in accordance with section 6226(b)(2)(B). Second, under section 6226(b)(3)(B), in the case of any subsequent taxable year (that is, a year, including the reporting year, that is subsequent to the intervening years referenced in 6226(b)(3)(A)), any tax attribute must be appropriately adjusted.

Under the June 14 NPRM, a reviewed year partner's share of the adjustments that must be taken into account by the reviewed year partner must be reported to the reviewed year partner in the same manner as originally reported on the return filed by the partnership for the reviewed year. See proposed § 301.6226-2(f). If the adjusted item was not reflected in the partnership's reviewed year return, the adjustment must be reported in accordance with the rules that apply with respect to partnership allocations, including under the partnership agreement. However, under proposed § 301.6226-2(f)(1), if the adjustments, as finally determined, are allocated to a specific partner or in a specific manner, the partner's share of the adjustment must follow how the adjustment is allocated in that final determination.

Section 301.6226-4(b) of these proposed regulations provides that the reviewed year partners or affected partners (as described in § 301.6226-3(e)(3)(i)) must take into account items of income, gain, loss, deduction or credit with respect to their share of the partnership adjustments as contained on the statements described in proposed § 301.6226-2 (pushed-out items) in the reporting year (as defined in proposed § 301.6226-3(a)). Similarly, partnerships adjust tax attributes affected by reason of a pushed-out item in the reviewed year. In the case of a reviewed year partner that disposed of its partnership interest prior to the reporting year, that partner may take into account any outside basis adjustment under these rules in an amended return to the extent otherwise allowable under the Code.

Unlike the proposed rules under section 6225 and subchapter K described in section 2 of this preamble, under section 6226, all tax attributes (as defined in proposed § 301.6241-1(a)(10)) are adjusted for pushed out items of income, gain, deduction, loss or credit.

Section (2)(B)(iii) of this preamble discusses the general mechanics of section 704(b). In accordance with the principles set forth in section 704(b), an allocation of a pushed-out item does not have substantial economic effect within the meaning of section 704(b)(2). However, the allocation of such an item will be deemed to be in accordance with the partners' interests in the partnership if it is allocated in the adjustment year in the manner in which the item would have been allocated under the rules of section 704(b), including § 1.704-1(b)(1)(i) (or otherwise taken into account under subtitle A) in the reviewed year (as defined in proposed § 301.6241-1(a)(8)), followed by any subsequent taxable years, concluding with the adjustment year (as defined in proposed § 301.6241-1(a)(1)). See proposed § 1.704-1(b)(4)(xiv).

Under the June 14 NPRM, a reviewed year partner that is furnished a statement under proposed § 301.6226-2 is required to pay any additional chapter 1 tax (additional reporting year tax) for the partner's taxable year which includes the date the statement was furnished to the partner in accordance with proposed § 301.6226-2 (the reporting year) that results from taking into account the adjustments reflected in the statement. See proposed § 301.6226-3. The additional reporting year tax is the aggregate of the adjustment amounts, as determined in proposed § 301.6226-3(b) and described in (3)(A) of this preamble.

A commenter recommended that adjustments to capital accounts and basis should be made to the reviewed year partners in the reviewed year to prevent distortions. This comment is not adopted because, in this context, section 6226 clearly applies to the adjustment year. These proposed regulations provide that adjustments to partnership-level tax attributes are calculated with respect to each year beginning with the reviewed year, followed by subsequent taxable years, concluding with the adjustment year. See proposed § 301.6226-4(b).

These proposed regulations provide that to the extent a pass-through partner (as defined in proposed § 301.6241-1(a)(5)) makes a payment in lieu of issuing statements to its owners described in proposed § 301.6226-3(e)(4), that payment will be treated similarly to the payment of an amount under subchapter C of chapter 63 for purposes of any adjustments to bases and capital accounts, and accordingly, the rules contained in proposed § 301.6225-4 will apply to determine any appropriate adjustments to bases and capital accounts. See proposed § 301.6226-3(e). To the extent that the pass-through partner continues to push out the partnership adjustments to its partners in accordance with proposed § 301.6226-3(e)(3), the partners receiving those adjustments will adjust their bases and capital accounts in accordance with the guidance provided in proposed § 301.6226-4.

Comments are requested as to how S corporations, trusts, and estates that are pass-through partners that pay an amount under proposed § 301.6226-3(e), and their shareholders and beneficiaries, respectively, should take these payments into account and adjust tax attributes.

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. Because the proposed regulations would not impose a collection of information on small entities, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not apply.

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

IRS Revenue Procedures, Revenue Rulings, Notices and other guidance cited in this preamble are published in the Internal Revenue Bulletin (or Cumulative Bulletin) and are available from the Superintendent of Documents, U.S. Government Publishing Office, Washington, DC 20402, or by visiting the IRS website at http://www.irs.gov.

Before these proposed regulations are adopted as final regulations, consideration will be given to any electronic and written comments that are submitted timely to the IRS as prescribed in this preamble under the ADDRESSES heading. The Treasury Department and the IRS request comments on all aspects of the proposed rules. All comments will be available at http://www.regulations.gov or upon request. A public hearing will be scheduled if requested in writing by any person that timely submits written comments. If a public hearing is scheduled, then notice of the date, time, and place for the public hearing will be published in the Federal Register.

Accordingly, 26 CFR parts 1 and 301 are proposed to be amended as follows:

The additions read as follows:

I. Table of Abbreviations CFR Code of Federal Regulations DHS Department of Homeland Security FR Federal Register NPRM Notice of proposed rulemaking Pub. L. Public Law § Section U.S.C. United States Code II. Background, Purpose, and Legal Basis

The Coast Guard proposes to establish two anchorage grounds one in the vicinity of Carleton Island, New York and the second near Tibbetts Point, New York. Each area has historically been used as an anchorage and the Saint Lawrence Seaway Development Corporation, at the request of its waterway users, has requested each area to be officially designated as Federal Anchorage Grounds.

Without this designation, pilots who anchor a ship in the respective areas are unable to disembark during sustained delay periods which hinder compliance with rest requirements and complicate pilot availability and logistics for other vessels. The Coast Guard proposes this rulemaking under authority in 33 U.S.C. 471, 1221 through 1236, 2071; 33 CFR 1.05-1; Department of Homeland Security Delegation No. 0170.1.

The Coast Guard is proposing to establish two new anchorage areas to be known as Carleton Island Anchorage and Tibbetts Point Anchorage.

The Carleton Island Anchorage would be located just northeast and adjacent to Carleton Island and Millen Bay. The boundaries of Carleton Island Anchorage are presented in the proposed regulatory text at the end of this document. The anchorage would be approximately .75 square miles. Proposed Carleton Island Anchorage is primarily intended for use by up-bound inland or ocean going bulk freight and tank ships, towing vessels and barges that need to anchor and wait for the availability of a Lake Ontario Pilot. Under this proposed rule no anchors would be allowed to be placed in the channel and no portion of the hull or rigging would be allowed to extend outside the limits of the anchorage area.

The Tibbetts Point Anchorage would be located just west and adjacent to Tibbetts Point and Fuller Bay. The boundaries of Tibbett's Point Anchorage are presented in the proposed regulatory text at the end of this document. The anchorage would be approximately 1.5 square miles. Proposed Tibbett's Point Anchorage is primarily intended for use by down-bound inland or ocean going bulk freight and tank ships, towing vessels and barges that need to anchor and wait for the availability of a River Pilot. Under this proposed rule no anchors would be allowed to be placed in the channel and no portion of the hull or rigging would be allowed to extend outside the limits of the anchorage area.

Whenever the maritime or commercial interests of the United States so require, the Saint Lawrence Seaway Development Corporation or their designated representative may direct the movement of any vessel anchored or moored within the anchorage area. The Coast Guard has ascertained the view of the Buffalo, New York District and Division Engineer, Corps of Engineers, U.S. Army, about the specific provisions of this proposed rule.

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

Executive Orders 12866 and 13563 direct agencies to assess the costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits. Executive Order 13563 emphasizes the importance of quantifying both costs and benefits, of reducing costs, of harmonizing rules, and of promoting flexibility.

Executive Order 13771 directs agencies to control regulatory costs through a budgeting process. This NPRM has not been designated a “significant regulatory action,” under Executive Order 12866. Accordingly, the NPRM has not been reviewed by the Office of Management and Budget, and pursuant to OMB guidance it is exempt from the requirements of Executive Order 13771.

We conclude that this proposed rule is not a significant regulatory action based on the location and size of the proposed anchorage grounds, as well as the historical automatic identification system (AIS) data. The impacts on routine navigation are expected to be minimal because the proposed anchorage grounds are located outside the navigational channel. When not occupied, vessels would be able to maneuver in, around and through the anchorage.

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

The number of small entities impacted and the extent of the impact, if any, is expected to be minimal. The anchorage area is not routinely transited by vessels heading to, or returning from, known fishing grounds. It is also not used by small entities, including small vessels, for anchoring due to the depth of water naturally present in the area.

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

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

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

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

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

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

We have analyzed this proposed rule under Department of Homeland Security Directive 023-01, which guides the Coast Guard in complying with the National Environmental Policy Act of 1969 (42 U.S.C. 4321-4370f), and have made a preliminary determination that this action is one of a category of actions that do not individually or cumulatively have a significant effect on the human environment. This proposed rule involves the establishment of a permanent anchorage near Carleton Island, New York. Normally such actions are categorically excluded from further review under paragraph L59(a) of Appendix A, Table 1 of DHS Instruction Manual 023-01-001-01, Rev. 01. A preliminary Record of Environmental Consideration supporting this determination is available in the docket where indicated under ADDRESSES. We seek any comments or information that may lead to the discovery of a significant environmental impact from this proposed rule.

The Coast Guard respects the First Amendment rights of protesters. Protesters are asked to contact the person listed in the FOR FURTHER INFORMATION CONTACT section to coordinate protest activities so that your message can be received without jeopardizing the safety or security of people, places, or vessels.

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

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

We accept anonymous comments. All comments received will be posted without change to http://www.regulations.gov and will include any personal information you have provided. For more about privacy and the docket, visit http://www.regulations.gov/privacyNotice.

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

We do not plan to hold a public meeting. You may submit a request for a public meeting by contacting Lieutenant Radcliffe under the ADDRESSES explaining why one would be beneficial. If we determine that one would aid in this rulemaking, we will hold one at a time and place announced by a later notice in the Federal Register.

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

On June 30, 2017, the Copyright Office published a notice of inquiry in the Federal Register to initiate the seventh triennial rulemaking proceeding under 17 U.S.C. 1201(a)(1), which provides that the Librarian of Congress, upon recommendation of the Register of Copyrights, may exempt certain classes of copyrighted works from the prohibition against circumventing a technological measure that controls access to a copyrighted work. 82 FR 29804 (June 30, 2017). On October 26, 2017, the Office published a notice of proposed rulemaking setting forth proposed exemptions for twelve classes of works and requesting responsive comments. 82 FR 49550 (Oct. 26, 2017). The responsive comments received thus far have been posted on the Office's website. See https://www.copyright.gov/1201/2018/.

At this time, the Office is announcing public hearings to be held in Washington, DC and Los Angeles to further consider the proposed exemptions. The Office plans to convene panels of witnesses for the proposals to be considered, and may combine certain panels if the witnesses and/or key issues substantially overlap. The Office will schedule panels for particular exemptions in either Washington, DC or Los Angeles unless compelling circumstances require that a proposed class be considered in both cities. Limiting the discussion of each proposed class to one city or another will better ensure that witnesses can respond to the points made by others and avoid duplicative discussion. All of the hearings will be live streamed online. If no request to testify is received for a proposed exemption, the Office will consider the class based on the written submissions and any ex-parte communications with interested parties (discussed below).

A request to testify should be submitted to the Copyright Office using the form on the Office's website indicated in the ADDRESSES section above. Anyone wishing to testify with respect to more than one proposed class must submit a separate form for each request. If multiple people from the same organization wish to testify on different panels, each should submit a separate request for each panel. If multiple people from the same organization wish to testify on the same panel, each should submit a request for that panel, and explain the need for multiple witnesses in the comment field of the request form. If a party is considering whether to testify at a hearing, the party should submit a hearing request form even if no opposition has been filed. The Copyright Office will contact requesters should it determine that a hearing is unnecessary.

Depending upon the number and nature of the requests to testify, and in light of the limited time and space available for the public hearings, the Office may not be able to accommodate all requests to testify. The Office will give preference to those who have submitted substantive evidentiary submissions in support of or in opposition to a proposal. To the extent feasible, the Office encourages parties with similar interests to select a common representative to testify on their behalf.

All requests to testify must clearly identify:

• The name of the person desiring to serve as a witness.

• The organization or organizations represented, if any.

• Contact information (address, telephone, and email).

• The proposed class about which the person wishes to testify.

• A two- to three-sentence explanation of the testimony the witness expects to present.

• If the party is requesting the ability to demonstrate a use or a technology at the hearing, a description of the demonstration, including whether it will be prepared in advance or presented live, the approximate time required for such demonstration, and any presentation equipment that the person desires to use and/or bring to the hearing.

• The city in which the person prefers to testify (Washington, DC or Los Angeles).

The Office will try to take this preference into account in scheduling the hearings, but cannot guarantee that the relevant panel will be convened in the preferred city. Participants who are unable to testify in a particular city or on a particular date should so indicate in the comment field of the request form.

To facilitate the process of scheduling panels, it is essential that all of the required information listed above be included in a request to testify.

Following receipt of the requests to testify, the Office will prepare agendas for the hearings listing the panels and witnesses, which will be circulated to hearing participants and posted at https://www.copyright.gov/1201/2018/. As stated above, although the Office currently anticipates up to four days of hearings in Washington, DC and three days of hearings in Los Angeles, the Office may adjust this schedule depending upon the number and nature of requests to testify.

There will be time limits for each panel, which will be established after receiving all requests to testify. Generally, the Copyright Office plans to allot approximately one to two hours for each proposed class, although it may allot additional time for more complex classes.

Witnesses should expect the Office to have carefully studied all written comments, and the Office will expect witnesses to have done the same with respect to the classes for which they will be presenting. The hearings will focus on legal or factual issues that are unclear or underdeveloped in the written record, as identified by the Office, as well as demonstrative evidence.

The Office stresses that factual information is critical to the rulemaking process, and witnesses should be prepared to discuss, among other things, where the copies of the works sought to be accessed are stored, how the works would be accessed, and what would be done with the works after being accessed. The Office also encourages witnesses to provide real-world examples to support their arguments. In some cases, the best way to do this may be to provide a demonstration of a claimed noninfringing use or the technologies pertinent to a proposal. As noted above, a person wishing to provide a demonstration should include a request to do so with his or her request to testify, using the appropriate space on the form described above. To ensure proper documentation of the hearings, the Office will require that a copy of any audio, visual, or audiovisual materials that have been prepared in advance (e.g., slideshows and videos) be provided to the Office at the hearing. Live demonstrations may be recorded by a videographer provided by the Office. The Office may contact witnesses individually ahead of time to ensure that demonstrations can be preserved for the record in an appropriate form.

In addition to videography equipment, the Office expects to have a PC, projector, and screen in the hearing room to accommodate demonstrations. Beyond this equipment, witnesses are responsible for supplying and operating any other equipment needed for their demonstrations. Persons planning to bring additional electronic or audiovisual equipment must notify the Office at least five business days in advance of their scheduled hearing date by emailing John Riley, Attorney-Advisor, at [email protected].

All hearings will be open to the public, but seating will be limited and will be provided on a first-come, first-served basis. Witnesses and persons accompanying witnesses will be given priority in seating. As noted above, all of the hearings will be live streamed online.

Typically, the Office's communications with participants about an ongoing rulemaking do not include discussions about the substance of the proceeding apart from written comments and public hearings. As with prior section 1201 rulemakings, the written record may also include post-hearing questions issued by the Office to individual parties involved with a particular class, and the Office will continue to post any questions and responses on the Office's website as part of the public record. For this rulemaking, the Office has determined that informal communication with interested parties might also be beneficial, such as to discuss nuances of proposed regulatory language. Any such communication may occur after the public hearings, but before the Office has issued a recommendation to the Librarian of Congress regarding the exemptions. Parties wishing to participate in informal discussions with the Office should submit a written request to one or more of the persons listed in the contact information above.

The primary means to communicate views in the course of the rulemaking will, however, continue to be through the submission of written comments and testimony at the public hearings. In other words, informal communication will supplement, not substitute for, the written record and testimony at the public hearings. Should a party meet with the Office regarding this rulemaking, the participating party will be responsible for submitting a list of attendees and written summary of any oral communication to the Office, which will be made publicly available on the Office's website or regulations.gov. In sum, while the Office is establishing the option of informal meetings in this rulemaking, it will require that all such communications be reflected in the record to ensure the greatest possible transparency.

Section 169A(b)(2)(A) of the Clean Air Act (CAA or Act) requires states to submit regional haze plans that contain such measures as may be necessary to make reasonable progress towards the natural visibility goal, including a requirement that certain categories of existing major stationary sources built between 1962 and 1977 procure, install, and operate Best Available Retrofit Technology (BART) as determined by the state. Under the Regional Haze Rule (RHR), states are directed to conduct BART determinations for such “BART-eligible” sources that may be anticipated to cause or contribute to any visibility impairment in a Class I area. Rather than requiring source-specific BART controls, states also have the flexibility to adopt an emissions trading program or other alternative program as long as the alternative provides greater reasonable progress towards improving visibility than BART. See 40 CFR 51.308(e)(2). EPA provided states with this flexibility in the RHR, adopted in 1999, and further refined the criteria for assessing whether an alternative program provides for greater reasonable progress in two subsequent rulemakings. See 64 FR 35714 (July 1, 1999); 70 FR 39104 (July 6, 2005); 71 FR 60612 (October 13, 2006).

EPA demonstrated that CAIR would achieve greater reasonable progress than BART in revisions to the regional haze program made in 2005.1 See 70 FR 39104 (July 6, 2005). In those revisions, EPA amended its regulations to provide that states participating in the CAIR cap-and-trade programs pursuant to an EPA-approved CAIR SIP or states that remain subject to a CAIR FIP need not require affected BART-eligible electric generating units (EGUs) to install, operate, and maintain BART for emissions of SO2 and nitrogen oxides (NOX). As a result of EPA's determination that CAIR was “better-than-BART,” a number of states in the CAIR region, including Georgia, relied on the CAIR cap-and-trade programs as an alternative to BART for EGU emissions of SO2 and NOX in designing their regional haze plans. These states also relied on CAIR as an element of a long-term strategy (LTS) for achieving their reasonable progress goals (RPGs) for their regional haze programs. However, in 2008, the United States Court of Appeals for the District of Columbia Circuit (D.C. Circuit) remanded CAIR to EPA without vacatur to preserve the environmental benefits provided by CAIR. North Carolina v. EPA, 550 F.3d 1176, 1178 (D.C. Cir. 2008). On August 8, 2011 (76 FR 48208), acting on the D.C. Circuit's remand, EPA promulgated CSAPR to replace CAIR and issued FIPs to implement the rule in CSAPR-subject states.2 Implementation of CSAPR was scheduled to begin on January 1, 2012, when CSAPR would have superseded the CAIR program.

Due to the D.C. Circuit's 2008 ruling that CAIR was “fatally flawed” and its resulting status as a temporary measure following that ruling, EPA could not fully approve regional haze SIPs to the extent that they relied on CAIR to satisfy the BART requirement and the requirement for a LTS sufficient to achieve the state-adopted RPGs. On these grounds, EPA finalized a limited disapproval of Georgia's regional haze plan on June 7, 2012 (77 FR 33642), and in the same action, promulgated a FIP to replace reliance on CAIR with reliance on CSAPR to address the deficiencies in Georgia's regional haze plan. EPA finalized a limited approval of Georgia's regional haze SIP on June 28, 2012 (77 FR 38501), as meeting the remaining applicable regional haze requirements set forth in the CAA and the RHR.

In the June 7, 2012, limited disapproval action, EPA also amended the RHR to provide that participation by a state's EGUs in a CSAPR trading program for a given pollutant—either a CSAPR federal trading program implemented through a CSAPR FIP or an integrated CSAPR state trading program implemented through an approved CSAPR SIP revision—qualifies as a BART alternative for those EGUs for that pollutant.3 See 40 CFR 51.308(e)(4). Since EPA promulgated this amendment, numerous states covered by CSAPR have come to rely on the provision through either SIPs or FIPs.4

Numerous parties filed petitions for review of CSAPR in the D.C. Circuit, and on August 21, 2012, the court issued its ruling, vacating and remanding CSAPR to EPA and ordering continued implementation of CAIR. EME Homer City Generation, L.P. v. EPA, 696 F.3d 7, 38 (D.C. Cir. 2012). The D.C. Circuit's vacatur of CSAPR was reversed by the United States Supreme Court on April 29, 2014, and the case was remanded to the D.C. Circuit to resolve remaining issues in accordance with the high court's ruling. EPA v. EME Homer City Generation, L.P., 134 S. Ct. 1584 (2014). On remand, the D.C. Circuit affirmed CSAPR in most respects, but invalidated without vacating some of the CSAPR budgets as to a number of states. EME Homer City Generation, L.P. v. EPA, 795 F.3d 118 (D.C. Cir. 2015). The remanded budgets include the Phase 2 SO2 emissions budgets for Alabama, Georgia, South Carolina, and Texas and the Phase 2 ozone-season NOX budgets for 11 states. This litigation ultimately delayed implementation of CSAPR for three years, from January 1, 2012, when CSAPR's cap-and-trade programs were originally scheduled to replace the CAIR cap-and-trade programs, to January 1, 2015. Thus, the rule's Phase 2 budgets that were originally promulgated to begin on January 1, 2014, began on January 1, 2017.

On September 29, 2017 (82 FR 45481), EPA issued a final rule affirming the continued validity of the Agency's 2012 determination that participation in CSAPR meets the RHR's criteria for an alternative to the application of source-specific BART. EPA has determined that changes to CSAPR's geographic scope resulting from the actions EPA has taken or expects to take in response to the D.C. Circuit's budget remand do not affect the continued validity of participation in CSAPR as a BART alternative, because the changes in geographic scope would not have adversely affected the results of the air quality modeling analysis upon which the EPA based the 2012 determination. EPA's September 29, 2017, determination was based, in part, on EPA's final action approving a SIP revision from Alabama (81 FR 59869 (August 31, 2016)) adopting Phase 2 annual NOX and SO2 budgets equivalent to the federally-developed budgets and on SIP revisions submitted by Georgia and South Carolina to also adopt Phase 2 annual NOX and SO2 budgets equivalent to the federally-developed budgets.5 Since that time, EPA has approved the SIP revisions from Georgia and South Carolina. See 82 FR 47930 (October 13, 2017) and 82 FR 47936 (October 13, 2017), respectively.

A portion of Georgia's July 26, 2017, SIP submittal seeks to correct the deficiencies identified in the June 7, 2012, limited disapproval of its regional haze plan submitted on February 11, 2010, and supplemented on November 19, 2010, by replacing reliance on CAIR with reliance on CSAPR.6 Specifically, Georgia requests that EPA amend the State's regional haze plan by replacing its reliance on CAIR with CSAPR to satisfy SO2 and NOX BART requirements and first implementation period SO2 reasonable progress requirements for EGUs formerly subject to CAIR,7 and to support the RPGs for the Class I areas in Georgia for the first implementation period. EPA is proposing to approve the regional haze portion of the SIP submittal and amend the SIP accordingly.

By statute, plans meeting the requirements of sections 110(a)(1) and (2) of the CAA are to be submitted by states within three years (or less, if the Administrator so prescribes) after promulgation of a new or revised NAAQS to provide for the implementation, maintenance, and enforcement of the new or revised NAAQS. EPA has historically referred to these SIP submissions made for the purpose of satisfying the requirements of sections 110(a)(1) and 110(a)(2) as “infrastructure SIP” submissions. Sections 110(a)(1) and (2) require states to address basic SIP elements such as for monitoring, basic program requirements, and legal authority that are designed to assure attainment and maintenance of the newly established or revised NAAQS. More specifically, section 110(a)(1) provides the procedural and timing requirements for infrastructure SIPs. Section 110(a)(2) lists specific elements that states must meet for the infrastructure SIP requirements related to a newly established or revised NAAQS. The contents of an infrastructure SIP submission may vary depending upon the data and analytical tools available to the state, as well as the provisions already contained in the state's implementation plan at the time in which the state develops and submits the submission for a new or revised NAAQS.8

Section 110(a)(2)(D) has two components: 110(a)(2)(D)(i) and 110(a)(2)(D)(ii). Section 110(a)(2)(D)(i) includes four distinct components, commonly referred to as “prongs,” that must be addressed in infrastructure SIP submissions. The first two prongs, which are codified in section 110(a)(2)(D)(i)(I), are provisions that prohibit any source or other type of emissions activity in one state from contributing significantly to nonattainment of the NAAQS in another state (prong 1) and from interfering with maintenance of the NAAQS in another state (prong 2). The third and fourth prongs, which are codified in section 110(a)(2)(D)(i)(II), are provisions that prohibit emissions activity in one state from interfering with measures required to prevent significant deterioration of air quality in another state (prong 3) or from interfering with measures to protect visibility in another state (prong 4). Section 110(a)(2)(D)(ii) requires SIPs to include provisions ensuring compliance with sections 115 and 126 of the Act, relating to interstate and international pollution abatement.

Through this action, EPA is proposing to convert the conditional approvals of the prong 4 portions of Georgia's infrastructure SIP submissions for the 2008 8-hour Ozone, 2010 1-hour NO2, 2010 1-hour SO2, and 2012 annual PM2.5 NAAQS to full approvals, as discussed in section III of this notice.9 All other applicable infrastructure SIP requirements for these SIP submissions have been or will be addressed in separate rulemakings. A brief background regarding the NAAQS relevant to this proposal is provided below. For comprehensive information on these NAAQS, please refer to the Federal Register notices cited in the following subsections.

On June 2, 2010, EPA revised the 1-hour primary SO2 NAAQS to an hourly standard of 75 parts per billion (ppb) based on a 3-year average of the annual 99th percentile of 1-hour daily maximum concentrations. See 75 FR 35520 (June 22, 2010). States were required to submit infrastructure SIP submissions for the 2010 1-hour SO2 NAAQS to EPA no later than June 2, 2013. Georgia submitted an infrastructure SIP submission for the 2010 1-hour SO2 NAAQS on October 22, 2013, as supplemented on July 25, 2014. This proposed action only addresses the prong 4 element of that submission.10

On January 22, 2010, EPA promulgated a new 1-hour primary NAAQS for NO2 at a level of 100 ppb, based on a 3-year average of the 98th percentile of the yearly distribution of 1-hour daily maximum concentrations. See 75 FR 6474 (February 9, 2010). States were required to submit infrastructure SIP submissions for the 2010 1-hour NO2 NAAQS to EPA no later than January 22, 2013. Georgia submitted an infrastructure SIP submission for the 2010 1-hour NO2 NAAQS on March 25, 2013. This proposed action only addresses the prong 4 element of this submission.11

On December 14, 2012, EPA revised the annual primary PM2.5 NAAQS to 12 micrograms per cubic meter (μg/m3). See 78 FR 3086 (January 15, 2013). States were required to submit infrastructure SIP submissions for the 2012 PM2.5 NAAQS to EPA no later than December 14, 2015. Georgia submitted an infrastructure SIP submission for the 2012 PM2.5 NAAQS on December 14, 2015. This proposed action only addresses the prong 4 element of that submission.12

On March 12, 2008, EPA revised the 8-hour Ozone NAAQS to 0.075 parts per million. See 73 FR 16436 (March 27, 2008). States were required to submit infrastructure SIP submissions for the 2008 8-hour Ozone NAAQS to EPA no later than March 12, 2011. Georgia submitted an infrastructure SIP for the 2008 8-hour Ozone NAAQS on May 14, 2012. This proposed action only addresses the prong 4 element of that submission.13

CAA section 110(a)(2)(D)(i)(II) requires a state's implementation plan to contain provisions prohibiting sources in that state from emitting pollutants in amounts that interfere with any other state's efforts to protect visibility under part C of the CAA (which includes sections 169A and 169B). EPA most recently issued guidance for infrastructure SIPs on September 13, 2013 (2013 Guidance).14 The 2013 Guidance states that these prong 4 requirements can be satisfied by approved SIP provisions that EPA has found to adequately address any contribution of that state's sources that impacts the visibility program requirements in other states. The 2013 Guidance also states that EPA interprets this prong to be pollutant-specific, such that the infrastructure SIP submission need only address the potential for interference with protection of visibility caused by the pollutant (including precursors) to which the new or revised NAAQS applies.

The 2013 Guidance lays out how a state's infrastructure SIP submission may satisfy prong 4. One way that a state can meet the requirements is via confirmation in its infrastructure SIP submission that the state has an approved regional haze plan that fully meets the requirements of 40 CFR 51.308 or 51.309. 40 CFR 51.308 and 51.309 specifically require that a state participating in a regional planning process include all measures needed to achieve its apportionment of emission reduction obligations agreed upon through that process. A fully approved regional haze plan will ensure that emissions from sources under an air agency's jurisdiction are not interfering with measures required to be included in other air agencies' plans to protect visibility.

Alternatively, in the absence of a fully approved regional haze plan, a state may meet the requirements of prong 4 through a demonstration in its infrastructure SIP submission that emissions within its jurisdiction do not interfere with other air agencies' plans to protect visibility. Such an infrastructure SIP submission would need to include measures to limit visibility-impairing pollutants and ensure that the reductions conform with any mutually agreed regional haze RPGs for mandatory Class I areas in other states.

Georgia's May 14, 2012, 2008 8-hour Ozone infrastructure SIP submission; March 25, 2013, 2010 1-hour NO2 submission; October 22, 2013, 2010 1-hour SO2 submission as supplemented on July 25, 2014; and December 14, 2015, 2012 annual PM2.5 submission rely on the State having a fully approved regional haze plan to satisfy its prong 4 requirements. However, EPA has not fully approved Georgia's regional haze plan, as the Agency issued a limited disapproval of the State's original regional haze plan on June 7, 2012, due to its reliance on CAIR.

On May 26, 2016, Georgia submitted a commitment letter to EPA to submit a SIP revision that adopts provisions for participation in the CSAPR annual NOX and annual SO2 trading programs, including annual NOX and annual SO2 budgets that are at least as stringent as the budgets codified for Georgia, and revises its regional haze plan to replace reliance on CAIR with CSAPR for certain regional haze provisions. In its letter, Georgia committed to providing this SIP revision within one year of EPA's final conditional approval of the prong 4 portions of the infrastructure SIP revisions. On September 26, 2016 (81 FR 65899), EPA conditionally approved the prong 4 portion of Georgia's infrastructure SIP submissions for the 2008 8-hour Ozone, 2010 1-hour NO2, 2010 1-hour SO2, and 2012 annual PM2.5 NAAQS based on this commitment letter from the State. In accordance with the State's May 26, 2016, commitment letter, Georgia submitted a SIP revision on July 26, 2017, to adopt provisions for participation in the CSAPR annual NOX and annual SO2 trading programs and to replace reliance on CAIR with reliance on CSAPR for certain regional haze provisions. As noted above, EPA approved the portion of Georgia's July 26, 2017, SIP revision adopting CSAPR. See 82 FR 47930 (October 13, 2017).

EPA is proposing to approve the regional haze portion of the State's July 26, 2017, SIP revision replacing reliance on CAIR with CSAPR, and to convert EPA's previous action on Georgia's regional haze plan from a limited approval/limited disapproval to a full approval because final approval of this portion of the SIP revision would correct the deficiencies that led to EPA's limited approval/limited disapproval of the State's regional haze plan. Specifically, EPA's approval of the regional haze portion of Georgia's July 26, 2017, SIP revision would satisfy the SO2 and NOX BART requirements and first implementation period SO2 reasonable progress requirements for EGUs formerly subject to CAIR and the requirement that a LTS include measures as necessary to achieve the State-adopted RPGs. Thus, EPA is also proposing to remove EPA's FIP for Georgia which replaced reliance on CAIR with reliance on CSAPR to address the deficiencies identified in the limited disapproval of Georgia's regional haze SIP. Because a state may satisfy prong 4 requirements through a fully approved regional haze plan, EPA is therefore also proposing to convert the conditional approvals to full approvals of the prong 4 portion of Georgia's May 14, 2012, 2008 8-hour Ozone infrastructure SIP submission; March 25, 2013, 2010 1-hour NO2 submission; October 22, 2013, 2010 1-hour SO2 submission as supplemented on July 25, 2014; and December 14, 2015, 2012, annual PM2.5 submissions.

As described above, EPA is proposing to take the following actions: (1) Approve the regional haze portion of Georgia's July 26, 2017, SIP submission to change reliance from CAIR to CSAPR; (2) convert EPA's limited approval/limited disapproval of Georgia's February 11, 2010, regional haze plan as supplemented on November 19, 2010, to a full approval; (3) remove EPA's FIP for Georgia which replaced reliance on CAIR with reliance on CSAPR to address the deficiencies identified in the limited disapproval of Georgia's regional haze SIP; and (4) convert EPA's September 26, 2016, conditional approvals to full approvals of the prong 4 portion of Georgia's May 14, 2012, 2008 8-hour Ozone submission; March 25, 2013, 2010 1-hour NO2 submission; the State's October 22, 2013, 2010 1-hour SO2 submission as supplemented on July 25, 2014; and the State's December 14, 2015, 2012 annual PM2.5 submission. All other applicable infrastructure requirements for the infrastructure SIP submissions have been or will be addressed in separate rulemakings.

Under the CAA, the Administrator is required to approve a SIP submission that complies with the provisions of the Act and applicable federal regulations. See 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, these proposed actions merely propose to approve state law as meeting Federal requirements and do not impose additional requirements beyond those imposed by state law. For that reason, these proposed actions:

• Are not significant regulatory actions subject to review by the Office of Management and Budget under Executive Orders 12866 (58 FR 51735, October 4, 1993) and 13563 (76 FR 3821, January 21, 2011);

• Are not Executive Order 13771 (82 FR 9339, February 2, 2017) regulatory actions because SIP approvals are exempted under Executive Order 12866;

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

• Are 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.);

• Do 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);

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

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

• Are not significant regulatory actions subject to Executive Order 13211 (66 FR 28355, May 22, 2001);

• Are 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

• Do 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).

The SIP is not approved to apply on any Indian reservation land or in any other area where EPA or an Indian tribe has demonstrated that a tribe has jurisdiction. In those areas of Indian country, the rule does not have tribal implications as specified by Executive Order 13175 (65 FR 67249, November 9, 2000), nor will it impose substantial direct costs on tribal governments or preempt tribal law.

The spiny lobster fishery of the Gulf of Mexico (Gulf) and the South Atlantic is managed under the FMP. The FMP was prepared by the Councils and implemented through regulations at 50 CFR part 622 under the authority of the Magnuson-Stevens Fishery Conservation and Management Act (Magnuson-Stevens Act) (16 U.S.C 1801 et seq.).

In 2012, NMFS implemented Amendment 10 to the FMP, which included an overfishing limit (OFL), acceptable biological catch (ABC), ACL, annual catch target (ACT), accountability measure (AM), and status determination criteria for spiny lobster (76 FR 75488; December 2, 2011). The OFL and ABC were specified using Tier 3a of the Gulf Council's ABC Control Rule (control rule), as recommended by the Scientific and Statistical Committees (SSCs) of the South Atlantic and Gulf of Mexico Fishery Management Councils (Councils). Applying the control rule, the SSCs recommended an OFL equal to the mean of the most recent 10 years of landings (fishing years 2000/2001 through 2009/2010) plus 2 standard deviations, and an ABC equal to the mean of the most recent 10 years of landings plus 1.5 standard deviations. This resulted in an OFL of 7.9 million lb (3.58 million kg) and an ABC of 7.32 million lb (3.32 million kg). The maximum sustainable yield (MSY) proxy and overfishing threshold (maximum fishing mortality threshold (MFMT)) were set equal to the OFL. The ACL was set equal to the ABC. The ACT, which equals the optimum yield (OY), was set at 90 percent of the ACL.

Since that time, the spiny lobster ACT has been exceeded three times, the ACL has been exceeded twice, and the OFL has been exceeded once. The AM established in Amendment 10 requires that the Councils convene a review panel if the spiny lobster ACT is exceeded, and the National Standard 1 guidelines state that if the ACL is exceeded more than once in a 4-year period, then the system of ACLs and AMs should be re-evaluated and modified, as necessary, to improve its performance and effectiveness (50 CFR 600.310(g)(7)). Therefore, The Councils convened a Spiny Lobster Review Panel (Review Panel) in February 2015, and again in March 2016, to assess whether action was needed to prevent the ACL from being exceeded. The Review Panel recommended that the catch levels for spiny lobster be based on the mean of landings during the fishing years 1991/1992 through 2015/2016, which is a longer time period than the 10-year period that was used to determine the current catch levels (fishing years 2000/2001 through 2009/2010). This is because the landings were historically low during the 2000/2001 through 2009/2010 time period used for the calculation of the current catch levels. The Review Panel determined that using the longer time period to calculate catch levels would better capture the dynamics of the fishery. Both SSCs agreed with the Review Panel and recommended using the longer time series of landings under Tier 3a of the control rule for setting the OFL and ABC. Using the longer time series of landings results in a revised OFL of 10.46 million lb (4.74 million kg) and a revised ABC of 9.60 million lb (4.35 million kg). Although the revised OFL and ABC are higher than the current OFL and ABC, using the longer time series is a more precautionary approach for calculating OFL and ABC than using the most recent 10 years of landings (2006/2007 through 2015/2016) because these landings have been historically high. The longer time series incorporates periods of both low and high landings.

This proposed rule would modify the stock ACL and ACT for spiny lobster and prohibit the use of traps for the recreational harvest of spiny lobster in the South Atlantic EEZ.

This proposed rule would revise the stock ACL and ACT based on the new ABC recommendation provided by the Councils' SSCs. As stated above, the current spiny lobster stock ACL is equal to the ABC, and the stock ACT is set at 90 percent of the ACL. This proposed rule would set the ACL equal to the ABC of 9.60 million lb (4.35 million kg), which is based on the mean landings from the years 1991/1992-2015/2016 plus 1.5 standard deviations. The ACT would be set at 8.64 million lb (3.92 million kg), which is 90 percent of the proposed ACL. As established in Amendment 10, the OY equals the ACT. NMFS does not expect the increase in the ACT and ACL to result in negative biological effects on the stock because current fishing effort is limited by the number of trap tags issued by the state of Florida, by commercial and recreational bag and possession limits in the EEZ in the South Atlantic and the Gulf EEZ, and by the duration of the fishing season, which varies depending on the area where spiny lobsters are harvested.

Currently, the use of traps is not allowed for recreational harvest of spiny lobster in the EEZ off Florida, but traps may be used for recreational harvest of spiny lobster in the South Atlantic EEZ off the states of Georgia, South Carolina, and North Carolina. This proposed rule would prohibit the use of traps for recreational harvest of spiny lobster in all of the South Atlantic EEZ.

The public has expressed little interest in using traps for the recreational harvest of spiny lobster, which may be a result of the two lobsters per person per trip limit applicable to harvest from Federal waters of the South Atlantic. However, the Councils are concerned that using this gear may become more popular and result in potential negative impacts on essential fish habitat and an increase in the use of vertical lines that may interact with protected species, for example, by creating entanglement issues. Trap gear also has the potential to “ghost fish,” which occurs when a trap continues to fish after it is lost. Because spiny lobsters are larger in size in the EEZ off Georgia, South Carolina, and North Carolina than in the EEZ off Florida, current trap configuration may not be efficient in capturing spiny lobster in these areas, and recreational traps used in these areas may require larger mouths (entrances), which could result in greater bycatch of fish, crabs, and other invertebrates, including undersized spiny lobsters.

As established in Amendment 10, the MSY proxy and MFMT are equal to the OFL, which was set at 7.9 million lb (3.58 million kg). Consistent with Amendment 10, Regulatory Amendment 4 would modify the MSY proxy and MFMT values, so that they are equal to the revised OFL of 10.46 million lb (4.74 million kg).

In addition to the measures associated with Regulatory Amendment 4, this proposed rule would also correct regulatory language that was mistakenly included in the final rule implementing Amendment 10. Amendment 10 modified the restrictions on the possession of undersized spiny lobsters for use as attractants in the commercial sector. Prior to Amendment 10, no more than fifty undersized spiny lobsters, or one per trap aboard the vessel, whichever was greater, could be retained on board for use as attractants. Amendment 10 changed this restriction to allow for no more than fifty per vessel plus one per trap aboard the vessel. This change was correctly included in the proposed rule to implement Amendment 10 (76 FR 59102; September 23, 2011), but was inadvertently changed in the final rule to include the additional phrase (from the prior language), “whichever is greater” (76 FR 75488; December 2, 2011). The final rule also inadvertently included this restriction twice in the applicable paragraph. To correct these mistakes, this proposed rule would change 50 CFR 622.407(c) to remove the phase “whichever is greater” and remove the first occurrence of the duplicative sentence. This proposed rule would also change the wording of the restriction slightly to more directly state that the total number of undersized spiny lobster allowed onboard a vessel is fifty plus one per trap. The restriction currently states: “No more than fifty undersized spiny lobsters, and one per trap aboard the vessel, may be retained aboard for use as attractants.” The proposed rule would change the “and” to “plus” so that the sentence reads: “No more than fifty undersized spiny lobsters plus one per trap aboard the vessel may be retained aboard for use as attractants.”

Pursuant to section 304(b)(1)(A) of the Magnuson-Stevens Act, the NMFS Assistant Administrator has determined that this proposed rule is consistent with Regulatory Amendment 4, the FMP, the Magnuson-Stevens Act, and other applicable law, subject to further consideration after public comment.

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

The Magnuson-Stevens Act provides the statutory basis for this proposed rule. No duplicative, overlapping, or conflicting Federal rules have been identified. A description of this proposed rule and its purpose and need are contained in the SUMMARY section of the preamble.

The Chief Counsel for Regulation of the Department of Commerce certified to the Chief Counsel for Advocacy of the Small Business Administration (SBA) that this proposed rule, if adopted, would not have a significant economic impact on a substantial number of small entities. The factual basis for this certification is described below.

This proposed rule would directly affect commercial and recreational fishing for spiny lobster in the Gulf EEZ and the South Atlantic EEZ. Anglers (recreational fishers) are not considered small entities as that term is defined in 5 U.S.C. 601(6). Consequently, estimates of the number of anglers directly affected by the rule and the impacts on them are not provided here.

Any commercial fishing business that operates a fishing vessel that lands whole spiny lobster in the Gulf EEZ and/or the South Atlantic EEZ, except off Florida, must have a valid Federal spiny lobster permit that is specifically assigned to that vessel. In the EEZ off Florida, a commercial vessel must have either a valid Federal spiny lobster permit or all required Florida licenses and certificates to harvest the species. Any vessel that lands only the tail from a spiny lobster caught in the EEZ must have a Federal tailing permit on board in addition to either a valid Federal spiny lobster permit or all required Florida licenses and certificates. Both Federal permits are open access permits.

As of March 1, 2017, there were 185 Federal spiny lobster and 210 spiny lobster tailing permits issued to a total of 272 vessels. Approximately 45 percent of those vessels have both Federal permits. These 272 vessels make up the federally permitted spiny lobster fleet. Approximately 75 percent of the Federal permits are held by businesses in Florida, followed in turn by those in North Carolina with approximately 12 percent. Florida businesses account for all but one of the vessels with only a tailing permit. NMFS estimates a total of 198 businesses hold all of the Federal spiny lobster permits assigned to the above 272 vessels.

The individual businesses have from 1 to 11 vessels in the federally permitted spiny lobster fleet. Approximately 84 percent of the 198 businesses have only one vessel in the fleet, and collectively these businesses account for 61 percent of the 272 federally permitted vessels. Approximately 95 percent of the businesses have no more than 2 vessels, while 3 percent have 6 or more vessels and collectively make up approximately 18 percent of the 272 vessels.

Approximately 99 percent of commercial landings of spiny lobster occur in Florida. Hence, NMFS expects that almost all of the impacts of the rule will be on commercial fishing businesses located in Florida, and within Florida, approximately 91 percent of the state's landings are in Monroe County.

For purposes of the Regulatory Flexibility Act, NMFS has established a small business size standard for businesses, including their affiliates, whose primary industry is commercial fishing (see 50 CFR 200.2). A business primarily involved in commercial fishing (NAICS 11411) is classified as a small business if it is independently owned and operated, is not dominant in its field of operation (including its affiliates), and its combined annual receipts are not in excess of $11 million for all of its affiliated operations worldwide. NMFS expects that most to all of the businesses that harvest spiny lobster in the EEZ (with or without a Federal permit) are small businesses, based on historical average annual revenues per vessel that are less than $50,000.

Regulatory Amendment 4 would revise the MSY proxy and MFMT. Those revisions would have no direct impact on any small businesses, and any indirect impact is dependent on subsequent action.

This proposed rule would increase the ACL to 9.60 million lb (4.35 million kg), and ACT to 8.64 million lb (3.92 million kg), whole weight. There would be no impact on small businesses, however, because there is no Federal closure if landings reach or are projected to reach the ACL or ACT.

In conclusion, NMFS expects this proposed rule would not have a significant economic impact on a substantial number of small entities. Therefore, an initial regulatory flexibility analysis is not required, and none has been prepared.

No new reporting, record-keeping, or other compliance requirements are introduced by this proposed rule. Accordingly, this proposed rule does not implicate the Paperwork Reduction Act.

For the reasons set out in the preamble, 50 CFR parts 600 and 622 are proposed to be amended as follows: