issue-1996-04-22•Federal Register proposed rules — 1996-04-22
Federal Register proposed rules — 1996-04-22
issue-1996-04-22Federal Register proposed rules — 1996-04-22Proposed Regulation
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FR Doc. 96-9914 Proposed Approval and Promulgation of Revisions to the New Source Review State Implementation Plan; Ohio
[Federal Register Volume 61, Number 78 (Monday, April 22, 1996)]
[Proposed Rules]
[Pages 17669-17675]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-9914]
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ENVIRONMENTAL PROTECTION AGENCY
40 CFR Part 52
[OH96-1; FRL-5462-1]
Proposed Approval and Promulgation of Revisions to the New Source
Review State Implementation Plan; Ohio
AGENCY: United States Environmental Protection Agency (USEPA).
ACTION: Proposed rule.
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SUMMARY: The USEPA proposes to conditionally approve a requested State
Implementation Plan (SIP) revision submitted by the State of Ohio for
the purpose of meeting requirements of the Clean Air Act, as amended in
1990 (CAA) with regard to new source review (NSR) in areas that have
not attained the national ambient air quality standards (NAAQS). The
requested revision was submitted by the State to satisfy certain
Federal requirements for an approvable nonattainment new source review
SIP. This proposed conditional approval is based upon the State's
agreeing with two USEPA interpretations of the Ohio rules and a
commitment by the State to remedy the omission of a definition for
[[Page 17670]]
``Pollution Control Project'' in its NSR rules.
DATES: Comments on this proposed action must be received in writing by
June 21, 1996.
ADDRESSES: Comments on this proposed rule should be addressed to: J.
Elmer Bortzer, Chief, Regulation Development Section, Air Programs
Branch (5AR-18J), United States Environmental Protection Agency, Region
5, 77 West Jackson Boulevard, Chicago, Illinois 60604.
Copies of the State's submittal and other information are available
for inspection during normal business hours at the following location:
United States Environmental Protection Agency, Region 5, Air and
Radiation Division, Air Programs Branch, 77 West Jackson Boulevard,
Chicago, Illinois 60604.
FOR FURTHER INFORMATION CONTACT: Genevieve Nearmyer, Environmental
Engineer, Permits and Grants Section, Air Programs Branch, (5AR-18J),
United States Environmental Protection Agency, Region 5, 77 West
Jackson Boulevard, Chicago, Illinois 60604.
Anyone wishing to come to the Region 5 offices should first contact
Ms. Nearmyer at (312) 353-4761. Reference file OH96.
SUPPLEMENTARY INFORMATION:
I. Background
The air quality planning requirements for nonattainment NSR are set
out in part D of title I of the CAA. The USEPA has issued a ``General
Preamble'' describing its preliminary views on how USEPA intends to
review SIPs and SIP revisions submitted under part D, including those
State submittals containing nonattainment area NSR SIP requirements.
[See 57 FR 13498 (April 16, 1992) and 57 FR 18070 (April 28, 1992).]
Because USEPA is describing its interpretations here only in broad
terms, the reader should refer to the General Preamble for a more
detailed discussion of the interpretations of part D advanced in this
proposal and the supporting rationale regarding the approvability of
the submittals. Prior to USEPA's approval of a State's NSR SIP
submittal, the State may continue permitting only in accordance with
the new statutory requirements for permit applications completed after
the relevant SIP submittal date. This policy was explained in
transition guidance memoranda from John Seitz dated March 11, 1991 and
September 3, 1992.
As explained in the March 11 memorandum, USEPA does not believe
Congress intended to mandate the more stringent title I NSR
requirements during the time provided for SIP development. States were
thus allowed to continue to issue permits consistent with requirements
in their current NSR SIPs during that period, or apply 40 CFR part 51,
appendix S for newly designated areas that did not previously have NSR
SIP requirements.
The September 3 memorandum also addressed the situation where
States did not submit the part D NSR SIP requirements or revisions by
the applicable statutory deadline. For permit applications found
complete by the SIP submittal deadline, States may issue final permits
under the prior NSR rules, assuming certain conditions in the September
3 memorandum are met. However, for applications completed after the SIP
submittal deadline, USEPA will consider the source to be in compliance
with the CAA only where the source obtains from the State a permit that
is consistent with the substantive new NSR part D provisions in the
CAA. USEPA believes this guidance continues to apply to permitting
pending final action on NSR SIP submittals.
In this rulemaking action on the Ohio nonattainment NSR SIP
revisions, USEPA is proposing to apply its interpretations taking into
consideration the specific factual issues presented. Thus, USEPA will
consider any timely submitted comments before taking final action on
this proposed rule.
II. Review of the Ohio Submittal
Section 110(k) of the Act sets out provisions governing USEPA's
review of SIP submittals [see 57 FR 13565-66 (April 16, 1992)].
A. Analysis of State Submission
1. Procedural Background
The CAA requires States to observe certain procedural requirements
in developing implementation plans and plan revisions for submission to
USEPA. Section 110(a)(2) of the CAA provides that each implementation
plan submitted by a State must be adopted after reasonable notice and
public hearing.1 Section 110(l) of the CAA similarly provides that
each revision to an implementation plan submitted by a State under the
Act must be adopted by such State after reasonable notice and public
hearing.
---------------------------------------------------------------------------
\1\ Section 172(c)(7) of the CAA provides that plan provisions
for nonattainment areas shall meet the applicable provisions of
section 110(a)(2) of the CAA.
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The USEPA also must determine whether a submittal is complete and
therefore warrants further USEPA review and action. [See section
110(k)(1) and 57 FR 13565 (April 16, 1992).] The USEPA's completeness
criteria for SIP submittals are set out at 40 CFR part 51, appendix V.
The USEPA attempts to make completeness determinations within 60 days
of receiving a submittal. However, a submittal is deemed complete by
operation of law under section 110(k)(1)(B) of the CAA if a
completeness determination is not made by USEPA within 6 months after
receipt of the submission.
It should be noted that Ohio's initial NSR SIP submittal was
submitted in response to the part D requirements in 1977 Amendments to
the CAA. USEPA approved these provisions on October 31, 1980 (45 FR
72119). The State SIP submittal that is the subject of this proposed
rule concerns amendments to the earlier rules to satisfy the
requirements of the 1990 Amendments to the CAA. Ohio's previous attempt
at satisfying these additional with a submittal to USEPA on August 20,
1993 ended in final disapproval by USEPA on September 21, 1994 (59 FR
48392). This final rule initiated the sanctions process as discussed
below.
The State of Ohio submitted draft NSR rules to USEPA for parallel
processing on March 1, 1996. Parallel processing is a mechanism
developed to expedite USEPA action and a State SIP revision request.
Under parallel processing, the State submits its rules to USEPA when
their substance has been finalized but before they become finally
adopted by the State. The USEPA then initiates its analysis and rule
adoption process on the draft State rules. Although final action on the
requested SIP revision cannot occur until the rules are adopted and
effective, the time between final adoption by the State and approval by
USEPA is shortened because USEPA begins its review and approval process
before the State completes its rule adoption process.
The State of Ohio held a public hearing on January 6, 1996, to
provide the public an opportunity to present oral comments on the NSR
implementation plan revisions. After the public hearing the rules were
filed with the legislative rules committee. They were adopted by the
State and became effective on April 12, 1996, and submitted to USEPA on
April 12, 1996 as a requested revision to the SIP. Although the
requested SIP revision includes both NSR rules and attainment area
rules intended to provide for Prevention of Significant Deterioration
(PSD), at this time USEPA is only rulemaking on the Ohio NSR rules. The
PSD rules will be the subject of a separate action.
[[Page 17671]]
2. General Nonattainment NSR Requirements
The statutory requirements for nonattainment new source review SIPs
and permitting are found at sections 172 and 173 of the CAA. Part D of
title I of the CAA requires States to address a number of nonattainment
NSR provisions in a SIP revision submittal. These statutory
requirements have been supplemented with more detailed regulations
which have been codified at section 51.165 of title 40 of the Code of
Federal Regulations (40 CFR 51.165). What follows is a summary of how
the Ohio submittal addresses and satisfies each of the requirements for
an approvable NSR plan. A more detailed presentation is provided in
this proposed rule only in those areas where the Ohio submittal has not
clearly satisfied the requirements for approval. USEPA's complete
evaluation of the Ohio NSR Plan is contained in a technical support
document which is available at the Region 5 office listed in the
address section of this proposed rule.
a. Ohio has established provisions in response to section 173(a)(1)
of the CAA to assure that calculations of emissions offsets are based
on the same emissions baseline used in the demonstration of Reasonable
Further Progress (RFP). These provisions satisfy USEPA's requirements
for approval.
b. Ohio has established provisions in response to section 173(c)(1)
of the CAA to allow offsets to be obtained in another nonattainment
area if the area has an equal or higher nonattainment classification
and emissions from the other nonattainment area contribute to a NAAQS
violation in the area in which the source would construct. These
provisions satisfy USEPA's requirements for approval.
c. Ohio has established provisions in response to section 173(c)(1)
of the CAA which requires that any emissions offsets obtained in
conjunction with the issuance of a permit to a new or modified source
must be in effect and enforceable by the time the new or modified
source commences operation. These provisions satisfy USEPA's
requirements for approval.
d. Ohio has established provisions in response to section 173(c)(1)
of the CAA to assure that emissions increases from new or modified
sources are offset by real reductions in actual emissions. These
provisions satisfy USEPA's requirements for approval.
e. Section 173(c)(2) of the CAA prevents emission offsets from
being taken from reductions that are otherwise required by the CAA.
Such prohibitions are not expressly identified in Ohio Rule 3745-31-
22(A)(3) Emission Offsets. However, in the general provisions covering
all installation permits, Rule 3745-31-05(A)(2), a permit must not
violate any applicable laws. The term ``applicable laws'' is defined in
Rule 3745-31-01(f) as including provisions of the CAA. The USEPA views
this provision as effectively preventing the State from using emission
offsets from reductions otherwise required by the CAA. Ohio has
confirmed that USEPA's interpretation of the term ``applicable laws'',
is the same interpretation that the State uses in a April 12, 1996
letter; therefore, USEPA believes that this provision of the State rule
satisfies the approval requirements of section 173(c)(2) of the CAA.
f. Ohio has established provisions in response to sections
172(c)(4) and 173(a)(1)(B) of the CAA that reflect changes in growth
allowances; specifically, (1) the elimination of existing growth
allowances in any nonattainment area that received a notice prior to
the amended CAA that the SIP was substantially inadequate or receives
such a notice in the future; and (2) the restriction of growth
allowances to only those portions of nonattainment areas formally
targeted as special zones for economic development. These provisions
satisfy USEPA's requirements for approval.
g. Ohio has provided for the supplying of information from
nonattainment new source review permits to USEPA's Reasonably Available
Control Technology, Best Available Control Technology, Lowest
Achievable Emissions Reduction (RACT/BACT/LAER) clearinghouse in
response to the requirement in section 173(d) of the CAA. This
provision which is contained in the State's workplan of its NSR grant
satisfies USEPA's requirement for approval.
h. Ohio has established provisions in response to section 819 of
the CAA that effectively exempt activities related to stripper wells
from the new additional NSR requirements of subparts 2, 3, and 4 for
Particulate Matter of 10 microns or less (PM-10), Ozone, or Carbon
Monoxide (CO) nonattainment areas classified as serious or less and
having a population of less than 350,000. Although Ohio does not intend
to issue permits to stripper wells, Ohio's rules are consistent with
the requirements of the CAA and satisfy USEPA's requirements for
approval.
i. Ohio has established a definition of ``stationary source'' which
includes internal combustion engines other than the newly defined
category of ``nonroad engines''. This provision is consistent with the
requirements in sections 302(z) and 111(a)(3) of the CAA and,
therefore, approvable.
j. Ohio has established provisions in response to section 173(a)(3)
of the CAA to assure that owners or operators of each proposed new or
modified major stationary source demonstrate, as a condition of permit
issuance, the compliance of all other major stationary sources under
the same ownership in the State. These provisions satisfy USEPA's
requirements for approval.
k. Ohio has established provisions in response to 40 CFR
51.165(a)(3)(ii)(A) to ensure that emissions offset credit will be
allowed only for control below an emission limitation under an
applicable SIP that allows greater emissions than the potential to emit
of a source. These provisions satisfy USEPA's requirements for
approval.
l. Ohio has established provisions in response to 40 CFR
51.165(a)(3)(ii)(B) for existing fuel combustion sources which assure
that emissions credit is based on the allowable emissions under the
applicable SIP for the type of fuel being burned at the time the
application to construct is being filed. The provisions require that
should a source commit to switching to a cleaner fuel in the future,
the permit must be conditioned to require the use of a specified
alternative control measure which would achieve the same degree of
emission reduction should the source switch back to a dirtier fuel.
Adequate supplies of the new fuel must also be available. These
provisions satisfy USEPA's requirements for approval.
m. Ohio has established provisions in response to 40 CFR
51.165(a)(3)(ii)(C) that detail the criteria which must be met in order
for a source to receive credit for emissions reductions achieved by
shutting down an existing source or curtailing production or operating
hours below baseline levels. These provisions satisfy USEPA's
requirements for approval.
n. Ohio has established provisions in response to 40 CFR
51.165(a)(3)(ii)(D) that assure that no emissions credit may be allowed
for replacing one hydrocarbon compound with another with lesser
reactivity. These provisions satisfy USEPA requirements for approval.
o. Ohio has established provisions in response to 40 CFR
51.165(a)(3)(ii)(F) for procedures relating to the permissible location
of offsetting emissions. These provisions satisfy USEPA requirements
for approval.
p. Ohio has established provisions in response to 40 CFR
51.165(a)(3)(ii)(G) to assure that credit for an emission
[[Page 17672]]
reduction can be claimed to the extent that the State has not relied on
it in issuing a permit, preparing an attainment demonstration, or
demonstration of further reasonable progress.
q. Ohio has established provisions in response to 40 CFR
51.165(a)(4) which allow that fugitive emissions may be excluded from
the calculation of the potential of a stationary source or modification
to emit if the source does not belong to any of the source categories
listed in 40 CFR 51.165(a)(4). These provisions satisfy USEPA's
requirements for approval.
r. Ohio has established provisions in response to 40 CFR
51.165(a)(5)(i) to assure that being granted an approval to construct
shall not relieve any owner or operator of the responsibility to comply
fully with applicable provisions of the SIP and under any other
requirements under local, State or Federal law. These provisions
satisfy USEPA's requirements for approval.
s. Ohio has established provisions in response to 40 CFR
51.165(a)(5)(ii) to assure that a source or modification that becomes a
major stationary source or major modification by virtue of a relaxation
in any enforceable limitation would be required to apply the applicable
State rules to the source or modification as though construction had
not yet commenced. These provisions satisfy USEPA's requirements for
approval.
t. Ohio has established provisions in response to 40 CFR 51.165(b)
to assure that the Ohio nonattainment rules would apply to any new
major stationary source or major modification locating in areas
designated as attainment or unclassifiable when it would cause or
contribute to a violation of any national ambient air quality standard.
The new source or modification could alternatively choose to obtain
sufficient emission reductions to compensate for its adverse impact on
ambient air quality. These provisions satisfy USEPA's requirements for
approval.
u. Ohio has made some changes to the existing and previously
approved Rule 3745-3103 (Permit to Install Exemptions). This rule
addresses the cases in which exemptions from the requirement to obtain
a permit to install would be considered by Ohio. These changes are in
four sections: permanent exemptions, federal based exemptions,
discretionary exemptions, and permit-by-rule exemptions. USEPA's
analysis of these provisions is as follows.
A. The introductory paragraph to the permanent exemption section
states that the exemptions ``do not apply to a combination of common
emissions units that are a major stationary source or major
modification.'' USEPA interprets this language to mean that no sources
or modifications that are major under the federal rules would be
excused from the obligation to obtain a permit to install by this
section of the rule.
B. The federal based exemptions section excludes cleanup activities
associated with the Comprehensive Environmental Response, Compensation,
and Liability Act from the requirement to obtain a permit to install.
USEPA considers this approvable.
C. The discretionary exemptions section has been approved in a
previous rulemaking (45 FR 72119).
D. The permit-by-rule exemption section currently applies to one
exemption, emergency electrical generators or emergency fire fighting
water pumps. The equipment size constraints and recordkeeping
conditions of this exemption are consistent with the September 6, 1995
memo from John Seitz to Air Division Directors regarding calculating
potential to emit for emergency generators, and is therefore
approvable.
3. Ozone
According to section 172(c)(5) of the CAA, SIPs must require
permits for the construction and operation of new or modified major
stationary sources. The statutory permit requirements in ozone
nonattainment areas are generally contained in section 173, and in
subpart 2 of part D of the CAA. These are the minimum requirements that
States must include in an approvable implementation plan. For all
classifications of ozone nonattainment areas and for ozone transport
regions, States must adopt the appropriate major source thresholds and
offset ratios, and must adopt provisions to ensure that any new or
modified major stationary source of Oxides of Nitrogen (NOX)
satisfies the requirements applicable to any major source of Volatile
Organic Compounds (VOC), unless a special NOX exemption is granted
by the Administrator under the provision of section 182(f) of the CAA.
For serious and severe ozone nonattainment areas, State plans must
implement sections 182(c)(6), (7) and (8) of the CAA with regard to
modifications.
For emissions of VOC and NOX in ozone nonattainment areas,
Ohio has established the following major source thresholds in Rule
3745-31-01 (Definitions) under the definition of ``Major Stationary
Source'' and offset ratios in Rule 3745-31-26 (Offset Ratio
Requirements) as follows:
------------------------------------------------------------------------
Major source Offset NOX
Area classification threshold ratios provisions
----------------------------------------------------------------\2\-----
Marginal...................... 100 tpy....... 1.1:1 1.1:1
Moderate...................... 100 tpy....... 1.15:1 1.15:1
------------------------------------------------------------------------
\2\ It should be noted that Rule 3745-31-26(B) provides that NOx
emissions from stationary sources shall be treated as a nonattainment
air pollutant in each county that is designated nonattainment for
ozone. The offset requirements for ozone apply to NOX as well except
in areas that have been granted a waiver under section 182(f) of the
CAA. It should be noted that Ohio petitioned for and was granted a NOX
control waiver pursuant to the provisions of section 182(f)(1)(B) of
the CAA because additional NOX reductions would not produce net ozone
air quality benefits. See 60 FR 36051 (July 13, 1995). Since the ozone
nonattainment areas have been granted a NOx waiver under section
182(f), no NOX offsets will be required as long as this waiver remains
in effect.
Ohio does not have any serious, severe, or extreme ozone
nonattainment areas. Butler, Warren, Hamilton, and Clermont are all
designated as moderate ozone nonattainment areas.
Rule 3745-31-01 (Definitions) details that a net emissions increase
for VOC and NOX is significant under the definition of
``significant'' when the increase is greater than 40 tons per year. In
order to establish whether an increase in emissions is significant, the
net emissions increase must be calculated by comparing the average of
the most recent actual emissions of two consecutive years within the
past five year period that is representative of actual emissions unit
operation to the potential emissions of the modification. These
provisions satisfy USEPA's requirements for approval.
4. Carbon Monoxide Nonattainment NSR Requirements
The statutory permit requirements for carbon monoxide (CO)
nonattainment areas are generally contained in section 173, and in
subpart 3 of part D of the CAA. These are the minimum requirements that
States must include in an approvable implementation plan. States must
also adopt the appropriate major source threshold and offset ratio.
Rule 3745-31-01 (Definitions) under the definition of
``significant'' adopts a significance level of 100 tpy for CO. Rule
3745-31-01 (Definitions), under the definition of ``Major Stationary
Source'', adopts a major source threshold level of 100 tpy in a
nonattainment area. The offset requirement of an amount equal to the
amount of emissions increase for CO nonattainment areas would fall
under Rule 3745-31-26. Ohio does not currently have any CO
nonattainment areas. Even though these provisions
[[Page 17673]]
were not required they satisfy USEPA's approval requirements.
5. Particulate Matter Nonattainment NSR Requirements
The statutory permit requirements for PM-10 nonattainment areas are
generally contained in section 173, and in subpart 4 of part D of the
CAA. These are the minimum requirements that States must include in an
approvable implementation plan. For both the moderate and severe
classifications of PM-10 nonattainment areas, States must adopt the
appropriate major source threshold, offset ratio, significance level
for modifications, and provisions for PM-10 precursors.
Ohio has established major source thresholds, offset ratios,
modification significance levels, and PM-10 precursor provisions as
follows:
A. In Rule 3745-31-01 (Definitions), under the definition of
``Major Stationary Source'', a major source threshold level of 100 tpy
in areas classified as nonattainment has been established.
B. A general offset requirement of an amount equal to the amount of
emissions increase is established in Rule 3745-31-26.
C. Rule 3745-31-01 (Definitions) adopts a significance level of 15
tpy for PM-10 under the definition of ``significant''.
D. In accordance with the requirements of section 189 of the CAA,
Rule 3745-31-21 states that major stationary sources of PM-10
precursors shall be subject to the applicable control requirements
except where the Director determines that such sources do not
contribute significantly to the PM-10 levels that exceed the standard
in the area. It should be noted that on May 27, 1994 (59 FR 27464),
USEPA made a finding that PM-10 precursors do not contribute
significantly to PM-10 levels that exceed the standard.
PM precursors are pollutants emitted as gases that undergo
chemical transformations to become particulate, and principally include
sulfates and nitrates. Cuyahoga and a portion of Jefferson County are
designated as a moderate nonattainment area for particulate matter. No
area has been designated as a severe nonattainment area for particulate
matter. These provisions are consistent with USEPA approval
requirements.
6. Sulfur Dioxide Nonattainment NSR Requirements
The statutory permit requirements for sulfur dioxide (SO2)
nonattainment areas are generally contained in section 173, and in
subpart 5 of part D of the CAA. These are the minimum requirements that
States must include in an approvable implementation plan. For SO2
nonattainment areas, States must adopt the appropriate major source
threshold, offset ratio, and significance level for modifications.
The State of Ohio has established a major source threshold level of
100 tpy in Rule 3745-31-01 (Definitions), under the definition of Major
Stationary Source. A general offset requirement of an amount equal to
the amount of emissions increase is established in Rule 3745-31-26.
Rule 3745-31-01 (Definitions) under the definition of ``significant''
adopts a significance level of 40 tpy for SO2. Currently, portions
of Coshocton, Cuyahoga, Gallia, Jefferson, Lake, Lorain, and Lucas
Counties are designated as nonattainment for SO2. Summit County
has no designation pending USEPA action on a remand. These provisions
are sufficient for USEPA approval.
7. Lead Nonattainment NSR Requirements
The statutory permit requirements for lead nonattainment areas are
generally contained in section 173 and in subpart 5 of part D of the
CAA. These are the minimum requirements that States must include in an
approvable implementation plan. For lead nonattainment areas, States
must adopt the appropriate major source threshold, offset ratio, and
significance level for modifications.
Ohio established a major source threshold level for stationary
sources which emit or have the potential to emit 100 tpy of any
pollutant for which the area is designated as nonattainment in Rule
3745-31-01 under the definition of ``Major Stationary Source''. The
offset requirement of an amount equal to the amount of emission
increases would fall under the general definition of Rule 3745-31-26
and is acceptable to USEPA. Under the definition of Significant, Rule
3745-31-01 includes a significance level of 0.6 tpy for lead. There are
no areas of Ohio currently designated as not attaining the lead
standard.
8. Nitrogen Dioxide Nonattainment NSR Requirements
The statutory permit requirements for nitrogen dioxide (NO2)
nonattainment areas are generally contained in section 173, and in
subpart 5 of part D of the CAA. These are the minimum requirements that
States must include in an approvable implementation plan. For
nonattainment areas, States must adopt the appropriate major source
threshold, offset ratio and significance level for modifications.
Although Ohio has no NO2 nonattainment areas it has complied with
these requirements.
The State of Ohio has established a major source threshold level of
100 tpy in Rule 3745-31-01 (Definitions), under the definition of
``Major Stationary Source'' for nonattainment areas. Rule 3745-31-01
(Definitions), under the definition of ``significant'', adopts a
significance level of 40 tpy for nitrogen oxide (NOX). The
NOX offset requirement established in Rule 3745-31-26 states that
the offset requirements for ozone shall also apply to NOX unless a
NOX waiver is granted under section 182(f) of the CAA. NO2 is
considered a NOX so these provisions are also applicable to
NO2. As discussed in footnote 2, a NOX waiver has been
granted for all Ohio ozone nonattainment areas and the waiver
effectively suspends enforcement of these requirements as long as the
waiver remains in effect. These provisions satisfy USEPA's approval
requirements.
9. Miscellaneous Definition Changes
Any definitional changes under Rule 3745-31-01 as compared to the
definitions under 40 CFR 51.165 not specifically mentioned in this
proposed rule are not significant.
The definition of ``Building, Structure, Facility, or
Installation'' and ``Stationary Source'' in 40 CFR 51.165 have been
combined under the definition of ``Stationary Source'' under Rule 3745-
31-01. This combination of definitions satisfies USEPA's requirements
for approval.
The definition of ``Major Modification'' under Rule 3745-31-01 does
not provide for the exemptions allowed under 51.165 (a)(1)(v)(C) (8)
and (9) pertaining to pollution control projects and clean coal
technology demonstration projects. USEPA considers the absence of these
exemptions to be more stringent than the Federal definition and is,
therefore, approvable.
Ohio has chosen to omit the definition of ``electric utility steam
generating unit'' and the related definition of ``Representative Actual
Annual Emissions'' from 40 CFR 51.165 (a)(1) (xx) and (xxi) since those
terms are not used within the Ohio NSR rules. Electric utility steam
generating units under the Federal definition would be required by Ohio
rules to follow the same permitting process and applicable baseline
calculations as other source categories. In other words, Ohio has not
given electric utility steam generating units the additional
flexibility that the Federal rules would otherwise allow. On this point
the State rule is more
[[Page 17674]]
stringent than the Federal requirement and, therefore, approvable.
Under the definition of ``Actual Emissions'' in Rule 3745-31-01,
Ohio has not provided for a separate interpretation of actual emissions
for electric steam generating units provided for in 40 CFR
51.165(a)(1)(xii)(E). This omission is acceptable to USEPA and
approvable.
The definitions of ``Temporary Clean Coal Technology Demonstration
Project'' and ``Clean Coal Technology Demonstration Project'' are
contained in Rule 3745-31-21 as opposed to Ohio's Rule which holds the
definitions (3745-31-01). The placement of these definitions is
acceptable to USEPA and approvable.
The definition of ``Pollution Control Project'' from 40 CFR 51.165
(a)(1)(xxv) has been omitted from the Ohio rules although the term is
utilized in the definitions of ``modify'' and ``modification''.
Inclusion of the Federal definition of this term is a mandatory
requirement for Federal approval of the Ohio NSR requested SIP revision
unless the State demonstrates that the definition used in the State
rule is more or equally stringent as the Federal definition. Because
Ohio has not used this term in its NSR rule, it has not satisfied this
requirement. In an April 12, 1996 transmittal letter of Ohio's finally
adopted NSR rules to USEPA, Ohio has committed to modify its NSR rules
to incorporate the definition of ``Pollution Control Project'' not
later than September 21, 1997. Based on this commitment, USEPA proposes
approval of the Ohio NSR rules.
Each time Ohio used the term regulated pollutant in their rules,
such as the definitions of ``Major Stationary Source'' and
``Significant,'' the term is qualified with the statement ``including
lead compounds but excluding other air pollutants regulated due to
being listed under section 112 of the CAA''.
This statement is consistent with section 112(b)(6) of the CAA and
is, therefore, approvable.
III. Proposed Rulemaking Action
As stated above, the Ohio NSR submittal contains one deficiency
which is sufficient to serve as a basis for USEPA disapproval of the
State's requested SIP revision. Furthermore, two interpretations listed
in e. and u. of II(A)(1) could be a disapproval item in the absence of
State concurrence with USEPA's interpretation. Because, however, the
State has committed to remedy the deficiency identified not later than
September 21, 1997 and agreed that USEPA's interpretations of the State
rules are consistent with the State's own interpretations, USEPA
proposes to conditionally approve the requested SIP revision.
Conditional approval would allow the State one year from final
rulemaking to remedy the deficiencies identified above. If the State
remedies the deficiencies prior to the one year deadline, USEPA will
rulemake to convert the conditional approval to an approval. If the
State does not remedy the deficiencies within the allowed one year
period, the conditional approval will become a disapproval.
The rules proposed for conditional approval in this rulemaking
action are OAC 3745-31-01(A)(B)(C)(D)(E)(F)
(G)(H)(I)(J)(K)(L)(M)(N)(O)(Q)(R)(S)(V)(W)(X)(Y)(Z)(AA)(BB)(CC)
(DD)(EE)(FF)(GG)(HH)(II)(JJ)(KK)(LL)(MM)(NN)(OO)(PP)(SS)(TT)(WW)
(XX)(YY)(ZZ)(BBB)(DDD), 3745-31-02(A)(2)(C)(D), 3745-31-03
(A)(1)(2)(a)(3)(4), 3745-31-05(A)(2)(d)(f)(D)(F), 3745-31-09, 3745-31-
10, 3745-31-21, 3745-31-22, 3745-31-23, 3745-31-24, 3745-31-25, 3745-
31-26, 3745-31-27.
IV. Impact on Sanctions
In a final rule published on September 21, 1994 (59 FR 48392),
USEPA disapproved Ohio's August 20, 1993 submittal of a requested SIP
revision for NSR. That final rule initiated USEPA's sanction process as
discussed in USEPA's August 4, 1994 (59 FR 39832) Final Rule and Notice
on CAA Sanctions. This August 4, 1994 final rule finalized USEPA's
selection of sequence of mandatory sanctions for findings made pursuant
to section 179 of the CAA. See 59 FR 39832. This rulemaking states that
the section 179(b)(2) of the CAA offset sanction applies in an area 18
months from the date when the USEPA makes a finding under section
179(a) of the CAA with regard to that area. Furthermore, the section
179(b)(1) of the CAA highway funding restrictions apply in an area 6
months following application of the offset sanction. Because the
effective date of USEPA's disapproval of Ohio's earlier NSR SIP
revision request is October 21, 1994, the requirement for-two-for one
offsets of sources receiving permits for major new sources or
modifications located in Ohio nonattainment areas is scheduled to begin
April 21, 1996. Similarly the start date for imposing highway funding
sanctions is October 21, 1996. Any sanction USEPA imposes must remain
in place until USEPA determines that the State has come into
compliance.
Because USEPA is proposing to conditionally approve Ohio's
requested NSR SIP submittal, in the rules section of this Federal
Register the USEPA is issuing an interim final determination that the
Ohio has corrected the deficiency created when the USEPA disapproved
the Ohio requested SIP revision for NSR. This interim determination is
intended to defer the application of the two-for-one offset and highway
funding sanctions until USEPA makes a final determination on the Ohio's
NSR submittal.
V. Request for Public Comments
The USEPA is requesting comments on all aspects of the requested
SIP revision and USEPA's proposed rulemaking action. Comments received
by the date indicated above will be considered in the development of
USEPA's final rulemaking action.
VI. Executive Order 12866
The Office of Management and Budget (OMB) has exempted this
regulatory action from Executive Order 12866 review.
VII. Regulatory Flexibility
Under the Regulatory Flexibility Act, 5 U.S.C. 600 et seq., USEPA
must prepare a regulatory flexibility analysis assessing the impact of
any proposed or final rule on small entities. 5 U.S.C. 603 and 604.
Alternatively, USEPA may certify that the rule will not have a
significant impact on a substantial number of small entities. Small
entities include small businesses, small not-for-profit enterprises,
and government entities with jurisdiction over populations of less than
50,000.
USEPA's disapproval of the State request under section 110 and
subchapter I, part D of the CAA does not affect any existing
requirements applicable to small entities. Any pre-existing Federal
requirements remain in place after this disapproval. Federal
disapproval of the State submittal does not affect its state-
enforceability. Moreover, USEPA's disapproval of the submittal does not
impose any new Federal requirements. Therefore, USEPA certifies that
this disapproval action does not have a significant impact on a
substantial number of small entities because it does not remove
existing requirements nor does it impose any new Federal requirements.
SIP approvals under section 110 and subchapter I, part D of the CAA
do not create any new requirements, but simply approve requirements
that the State is already imposing. Therefore, because the Federal SIP-
approval does not impose any new requirements, I certify that it does
not have a significant impact on any small entities affected. Moreover,
due to the nature of the
[[Page 17675]]
Federal-State relationship under the CAA, preparation of a regulatory
flexibility analysis would constitute Federal inquiry into the economic
reasonableness of State action. The CAA forbids USEPA to base its
actions concerning SIP's on such grounds. Union Electric Co. v. U.S.
E.P.A., 427 U.S. 246, 256-66 (S.Ct 1976); 42 U.S.C. 7410(a)(2).
VIII. Unfunded Mandates
Under sections 202, 203 and 205 of the Unfunded Mandates Reform Act
of 1995 (Unfunded Mandates Act), signed into law on March 22, 1995,
USEPA must undertake various actions in association with proposed or
final rules that include a Federal mandate that may result in estimated
costs of $100 million or more to the private sector, or to a State,
local and/or tribal government(s) in the aggregate. The USEPA must also
develop a plan with regard to small governments that would be
significantly or uniquely affected by the rule.
Because this proposed rule if finally adopted is estimated to
result in the expenditure by State, local and tribal governments or the
private sector of less than $100 million in any one year, USEPA has not
prepared a budgetary impact statement or specifically addressed the
selection of the least costly, most cost effective, or least burdensome
alternative and because small governments will not be significantly or
uniquely affected by this rule, USEPA is not required to develop a plan
for small governments. Further, this proposed rule if finally adopted
only approves existing State regulations; it imposes no new
requirements.
List of Subjects in 40 CFR Part 52
Environmental protection, Air pollution control, Hydrocarbons,
Intergovernmental relations, New source review, Nitrogen dioxide,
Particulate matter, Lead, Carbon monoxide, Reporting and recordkeeping
requirements, Sulfur dioxide, Volatile organic compounds.
Authority: 42 U.S.C. 7401-7671q.
Dated: April 15, 1996.
David A. Ullrich,
Acting Regional Administrator.
[FR Doc. 96-9914 Filed 4-19-96; 8:45 am]
BILLING CODE 6560-50-P
Complete official Federal Register PDF
FR Doc. 96-9911 Labor Certification Process for the Permanent Employment of Aliens; Researchers Employed by Colleges and Universities
[Federal Register Volume 61, Number 78 (Monday, April 22, 1996)]
[Proposed Rules]
[Pages 17610-17614]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-9911]
=======================================================================
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DEPARTMENT OF LABOR
Employment and Training Administration
20 CFR Part 656
RIN 1205-A152
Labor Certification Process for the Permanent Employment of
Aliens; Researchers Employed by Colleges and Universities
AGENCY: Employment and Training Administration, Labor.
ACTION: Proposed rule.
-----------------------------------------------------------------------
SUMMARY: The Employment and Training Administration of the Department
of Labor proposes to amend its regulations relating to labor
certification for permanent employment of immigrant aliens in the
United States. The proposed amendments would change the way prevailing
wage determinations are made for researchers employed by colleges and
universities. The proposed rule also would change
[[Page 17611]]
the way prevailing wages are determined for colleges and universities.
The proposed rule also would change the way prevailing wages are
determined for colleges and universities filing H-1B labor condition
applications on behalf of researchers, since the regulations governing
prevailing wage determinations for the permanent program are followed
by State Employment Security Agencies in determining prevailing wages
for the H-1B program.
DATES: Interested persons are invited to submit written comments on the
proposed rule on or before May 22, 1996.
ADDRESSES: Submit written comments to the Assistant Secretary for
Employment and Training, U.S. Department of Labor, 200 Constitution
Avenue NW., Room N-4456, Washington, DC 20210, Attention: John M.
Robinson, Deputy Assistant Secretary.
FOR FURTHER INFORMATION CONTACT:
Contact Denis M. Gruskin, Senior Specialist, Division of Foreign labor
Certifications, Employment and Training Administration, Room N-4456,
200 Constitution Avenue NW., Washington, DC 20210. Telephone: (202)
219-5263 (this is not a toll-free number).
SUPPLEMENTARY INFORMATION:
A. Permanent Alien Employment Certification Process
Before the Department of State (DOS) and the Immigration and
Naturalization Service (INS) may issue visas and admit certain
immigrant aliens to work permanently in the United States, the
Secretary of Labor (Secretary) first must certify to the Secretary of
State and to the Attorney General that:
(a) There are not sufficient United States workers who are able,
willing, qualified, and available at the time of the application for a
visa and admission into the United States and at the place where the
alien is to perform the work; and
(b) The employment of such aliens will not adversely affect the
wages and working conditions of similarly employed United States
workers. 8 U.S.C. 1182(a)(5)(A).
If the Secretary, through the Employment and Training
Administration (ETA) of the Department of Labor (DOL or Department)
determines that there are no able, willing, qualified, and available
U.S. workers, and that the employment of the alien will not adversely
affect the wages and working conditions of similarly employed U.S.
workers, DOL so certifies to INS and to the DOS, by issuing a permanent
alien labor certification.
If DOL cannot make either of the above findings, the application
for permanent alien employment certification is denied. DOL may be
unable to make either of the two required findings for one or more
reasons, including, but not limited to:
(a) The employer has not adequately recruited U.S. workers for the
job offered to the alien, or has not followed the proper procedural
steps in 20 CFR part 656. These recruitment requirements and procedural
steps are designed to test the labor market for available U.S. workers.
They include providing notice of the job opportunity to the bargaining
representative (if any) or posting of the job opportunity on the
employer's premises, placing an advertisement in an appropriate
publication, and placing a job order for 30 days with the appropriate
local Employment Service office.
(b) The employer has not met its burden of proof under section 291
of the Immigration and Nationality Act (INA) [8 U.S.C. 1361], that is,
the employer has not submitted sufficient evidence of attempts to
obtain qualified, willing, able, and available U.S. workers and/or the
employer has not submitted sufficient evidence that the wages and
working conditions which the employer is offering will not adversely
affect the wages and working conditions of similarly employed U.S.
workers. With respect to the burden of proof, section 291 of the INA
states, in pertinent part, that:
Whenever any person makes application for a visa or any other
document required for entry, or makes application for admission, or
otherwise attempts to enter the United States, the burden of proof
shall be upon such person to establish that he is eligible for such
visa or such document, or is not subject to exclusion under any
provision of (the INA) * * *.
B. Department of Labor Regulations
The Department has promulgated regulations, at 20 CFR part 656,
governing the labor certification process described above for the
permanent employment of immigrant aliens in the United States. Part 656
was promulgated pursuant to section 212(a)(14) of the INA (now at
section 212(a)(5)(A)). 8 U.S.C. 1182(a)(5)(A).
These regulations set forth the factfinding process designed to
develop information sufficient to support the granting or denial of a
permanent labor certification. They describe the potential of the
nationwide system of public employment service offices to assist
employers in finding available U.S. workers and how the factfinding
process is utilized by DOL as the primary basis of developing
information for the certification determinations. See also 20 CFR parts
651-658; and the Wagner-Peyser Act (29 U.S.C. Chapter 4B).
Part 655 sets forth the responsibility of employers who desire to
employ immigrant aliens permanently in the United States. Such
employers are required to demonstrate that they have attempted to
recruit U.S. workers through advertising, through the Federal-State
Employment Service System, and by other specified means. The purpose is
to assure an adequate test of the availability of qualified, willing
and able U.S. workers to perform the work, and to insure that aliens
are not employed under conditions adversely affecting the wages and
working conditions of similarly employed U.S. workers.
C. Prevailing Wages and Researchers
Covered employers wishing to employ immigrant workers must recruit
for U.S. workers at prevailing wages. State employment security
agencies (SESA's or State agencies) survey prevailing wage rates on
behalf of DOL. The permanent labor certification regulations at
Sec. 656.40 specify how State agencies are to calculate prevailing
wages. The prevailing wage methodology set forth is used not only in
determining prevailing wages for job opportunities involved in
applications for permanent employment certification, but is also
followed in determining prevailing wages for the H-2B temporary
nonagricultural certification program, the H-1B labor condition
application (LCA) program, and the F-1 student off-campus employment
program. See 20 CFR part 655, subparts A, H, and J, respectively. In
each of these programs, the applicable legislative and/or regulatory
history require that prevailing wages be determined in accordance with
the requirements of the permanent labor certification regulations at 20
CFR 656.40.
The INA requires that the wages paid to an H-1B professional worker
be the higher of the actual wage paid to workers in the occupation or
the prevailing wage for the occupational classification in the area of
employment. The H-1B regulations incorporate the language of 20 CFR
656.40 (as required by H.R. Conference Report, No. 101-955, October 26,
1990, page 122) and provide employers filing H-1B applications the
option of obtaining a prevailing wage determination from the SESA,
using an independent authoritative source, or other legitimate
[[Page 17612]]
source, as defined at Sec. 655.731(a)(2)(iii) (B) and (C) of the H-1B
regulations.
Section 656.40 of the permanent labor certification regulations
requires that in the absence of a wage determination issued under the
Davis-Bacon Act, the Service Contract Act, or a collective bargaining
agreement, the prevailing wage shall be the weighted average rate of
wages paid to workers similarly employed in the area of intended
employment, i.e., ``the rate of wages to be determined, to the extent
feasible, by adding the wage paid to workers similarly employed in the
area of intended employment and dividing the total by the number of
such workers.'' Section 656.40(b) further provides that ``similarly
employed'' is defined as having substantially comparable jobs in the
occupational category in the area of intended employment.
D. Effects of Hathaway Children's Services on Prevailing Wages
Under the en banc decision of the Board of Alien Labor
Certification Appeals (hereinafter referred to as BALCA or Board) in
Hathaway Children's Service (91-INA-388, February 4, 1994), prevailing
wages are calculated by using wage data obtained by surveying employers
across industries in the occupation in the area of intended employment.
In Hathaway, BALCA overruled its decision in Tuskegee University, 87-
INA-561, Feb. 23, 1988, en banc, which interpreted Sec. 656.40 to
permit an examination of the nature of the employer's business in
ascertaining the appropriate prevailing wage. 87-INA-561 at 4. In
Tuskegee the Board said, in relevant part:
Thus to be ``similarly employed'' for purpose of a prevailing
wage determination, it is not enough that the jobs being compared
are in the same occupational category they must also be
``substantially comparable.'' Accordingly, it is wrong to focus only
on the job title or duties; the totality of the job opportunity must
be examined * * *.
It is clear that it is not only the job titles, but the nature
of the business or institution where the jobs are located--for
example, public or private, secular or religious, profit or non-
profit, multinational corporation or individual proprietorship--
which must be evaluated in determining whether the jobs are
``substantially comparable.''
In Hathaway, the Board declined to make an exception for
maintenance repairers employed by non-profit institutions, analogous to
the exception it had made in Tuskegee. The employer in Hathaway, a non-
profit United Way affiliate, urged that the Board's decision in
Tuskegee should be dispositive. The employer argued that the rationale
in Tuskegee necessarily extends to non-profit employers, thereby
differentiating them from for-profit employers.
The Board stated in Hathaway, that its holding in Tuskegee was ill-
advised and should be explicitly overruled. The Board went on to say
that:
The underlying purpose of establishing a prevailing wage rate is
to establish a minimum level of wages for workers employed in jobs
requiring similar skills and knowledge levels in a particular
locality. It follows that the term ``similarly employed'' does not
refer to the nature of the employer's business as such; on the
contrary, it must be determined on the basis of the similarity of
the skills and knowledge required of the job offered. Of course the
nature of the employer's business may be reflected in that
determination, to the extent it bears on the knowledge and skills
required to perform the duties of the job * * *. But neither the
record in Tuskegee nor the record before us today [in Hathaway,],
suggests that the skills and knowledge required to perform the
duties of the job opportunity being offered are any different
depending upon the employer's financial ability to pay the going
rate. Specifically, there is no evidence to suggest that the duties
of the job offered, either as an associate professor of physics in
Tuskegee or as a maintenance repairman in the present case
[Hathaway,], differed as between charitable non-profit institutions
and businesses operated for a profit. We find no basis, under the
Act or its implementing regulations, for allowing this Employer to
hire an alien so that it can pay sub-standard wages to its
maintenance repairer or other workers, on the ground that it cannot
pay the prevailing wage, while we tell the Mom-and-Pop shop next
door or around the corner that ``There is no provision in the law or
regulations which allows for waiver of the prevailing wage
requirements on the basis of an Employer's financial hardship''
[citing Norberto La Rosa (89-INA-287), March 27, 1991] * * *.
In accordance with the holding in Hathaway, SESA's were instructed
to survey all employers, without regard to the nature of the employer,
in the area of intended employment in determining prevailing wages for
an occupation.
It has since been asserted that implementation of this policy
resulted in considerably higher prevailing wage determinations for
research positions in colleges and universities. The higher education
community maintains that this policy will jeopardize its ability to
recruit foreign researchers with talents and skills not readily
available in the U.S. Further, the Department has received comments and
inquiries from Congress and other Federal agencies and organizations,
such as the Council of Economic Advisers (CEA), National Science
Foundation (NSF), the Department of Defense, Defense Research
Engineering (DRE), Office of Science and Technology Policy (OSTP),
National Institutes of Health (NIH), National Aeronautics and Space
Administration (NASA), United States Department of Agriculture (USDA),
United States Geological Survey (USGS), Department of Energy (DOE), and
Department of Transportation (DOT), expressing concern about the
Department's change of policy in determining prevailing wages for
researchers employed by universities.
E. Basis for Proposed Rule
The Department believes there are substantial policy reasons to
propose an exception whereby prevailing wage determinations for
researchers employed by colleges and universities should be based
solely on the wages paid by such institutions. These policy reasons are
discussed below.
1. Existing Precedent
Congress established precedent in the INA for treating colleges and
universities differently in their employment of talented, highly
qualified scholars who are members of the teaching profession. Special
procedures in DOL regulations were established for college and
university teachers because of the provisions at 8 U.S.C.
1182(a)(5)(A)(i) (I) and (II) which require, in relevant part, that DOL
must determine in cases involving aliens that are members of the
teaching profession that the U.S. applicant is at least as qualified
(equally qualified) as the alien before a labor certification can be
denied because a U.S. worker is available for the job opportunity. For
all other occupations, the DOL Certifying Officer need only find that
the U.S. applicant is qualified or meets the employer's minimum job
requirements. The ``special handling'' procedures for college and
university teachers provide for a more limited test of the labor market
than the basic process at 20 CFR 656.21 to successfully apply for a
labor certification.
The ``equally qualified'' language was added to section 212(a)(14)
of the INA [now at section 212(a)(5)(A), 8 U.S.C. 1182(a)(5)(A)] on
October 20, 1976, by the Immigration and Nationality Act Amendments of
1976, Pub. L. 94-571, Section 5, 90 Stat. 2705. The Judiciary Committee
of the House of Representatives stated, on passage of the bill, that:
The Committee believes that the Department of Labor has impeded
the efforts of colleges and universities to acquire outstanding
educators or faculty members who posses specialized knowledge or a
unique combination of administrative and teaching skills. As a
result, this legislation includes an amendment to section 212(a)(14)
which requires the Secretary of Labor to
[[Page 17613]]
determine that ``equally qualified'' American workers are available
in order to deny a labor certification for members of the teaching
profession * * *.
(H. Rep. No. 1553, 945h Cong., 2d Sess. 11 (Sept 15, 1976))
Prevailing wage determinations for college and university teachers
are necessarily based solely on the wages paid by colleges and
universities, since such teachers are employed only by institutions of
higher education. Research positions are closely related to teaching
(faculty) positions and often involve teaching duties, albeit not in a
classroom setting. As stated in a letter dated July 25, 1995, which the
Department received from the Association of American Universities
(AAU):
Teaching is a primary mission of universities and occurs in all
university settings. Teaching and research are inextricably
intermingled in universities with research extending into
undergraduate education, and teaching extending into postdoctoral
education. Academic research scientists are expected to operate as
teachers as well as researchers. University teaching includes a wide
range of activities beyond the traditional classroom lecture, such
as seminars, advising and other forms of mentoring. Some of the most
effective teaching about research is carried out by doing research,
and university research personnel often operate as student and
teacher at the same time in the same setting: a postdoctoral fellow
is instructed by the faculty researchers with whom he or she is
working at the same time he or she serves as a teacher for graduate
and undergraduate students working in the same lab.
2. Impact of Hathaway and Reinstatement of Previous Practice
The proposed rule would merely reinstate the practice that existed
before the decision in Hathaway of basing prevailing wage
determinations for researchers employed by colleges and universities
solely on the basis of the wages paid by such institutions. Hathaway
has had the greatest impact on colleges and universities wishing to
file H-1B LCA's or permanent labor certification applications on behalf
of researchers. Prior to Hathaway, SESA's in conducting prevailing wage
surveys for researchers employed by colleges and universities
consistently limited prevailing wage surveys to colleges and
universities. ETA is not aware of any other situation in which a
similar practice was consistently followed in determining prevailing
wages for an occupation found in a variety of industries.
The application of the policy resulting from the Hathaway decision
to the determination of prevailing wages for researchers has resulted
in markedly higher prevailing wage determinations than those made
previously. It has been alleged, for example, that prevailing wage
determinations post-Hathaway have been 34 to 93 percent in excess of
the actual wages paid to certain positions. Additionally,
Representative Lamar Smith stated in a letter to the Secretary of Labor
that:
Major research universities would clearly suffer if required to
pay industry-scale wages to researchers. They pay research
associates about $25,000 a year, as opposed to salaries of
approximately $65,000 in industry. Since the amount universities pay
under federal research grants is strictly limited by the federal
government, they would be effectively barred from using immigrants
in these positions. Even in instances where the schools found it
feasible to pay the higher salaries out of their own funds, this
would create discord with American employees and divert badly needed
resources. The end result could be dramatically impeded scientific
and technological progress in the United States.
Colleges and universities have also maintained that it would be
untenable for them to pay international staff more than their
counterparts who are United States citizens and lawful permanent
residents, and they would be forced to either increase the wages of
similarly employed U.S. citizens or stop hiring international faculty
and researchers on H-1B visas.
3. Nonproprietary Nature of Academic Research
It has also been advanced that a significant reason for basing
prevailing wage determinations for researchers employed by colleges and
universities solely on the wages paid by such institutions relates to
the nonproprietary nature of the research performed in an academic
setting as opposed to that performed in a private, for-profit setting.
The research product delivered by researchers in private, for-profit
organizations is proprietary in nature and can be appropriated by the
employing institution for commercial purposes. As pointed out by the
AAU in its July 25, 1995, letter:
Academic research scientists are expected to disseminate the
results of their research promptly and widely through publication in
peer-reviewed scientific journals; indeed, in the highly competitive
marketplace of fundamental research, professional recognition is
accorded to the first to publish a new discovery.
Industrial scientists are expected to apply the results of their
research to product development within their company (emphasis in
original); often, meeting this objective in a competitive
marketplace will require the industrial scientist to withhold
publishing research results of proprietary information either
indefinitely or at least until that information has been
incorporated into the company's development process.
This difference in application of the results of research is so
fundamental that it constitutes one of the greatest barriers to
cooperation between academic and industrial research programs. Most
universities have rules prohibiting the withholding of research
results, and many companies are reluctant to permit industry-
sponsored research results to be freed from proprietary restraints
on dissemination * * *.
The AAU went on to summarize the difference between academic
research scientists and industrial scientists, in relevant part, as
follows:
Academic research scientists must be able to expand the
frontiers of knowledge through an independently initiated and
sustained fundamental research program and be able to translate the
underlying body of knowledge, theories, principles and research
procedures to succeeding generations of researchers. In contrast,
industrial scientists must be able to translate basic discoveries
into a program of applied research and development that has a
reasonably high probability of producing marketable products and
processes as end results.
The Department specifically requests comments on whether there are
attributes of academic research that distinguish it from research
conducted by private, for-profit employers.
4. Concern of Other Federal Agencies
As indicated above, other Federal agencies and organizations, with
an interest in the research talent, knowledge, abilities and skills
available to the U.S. academic community, have expressed concerns that
the Hathaway decision could interfere with the ability of institutions
of higher education to obtain the services of talented foreign scholars
and researchers. These agencies which included, as stated above, the
CEA, NSF, DRE, OSTP, NIH, NASA, USDA, USGS, DOE, and DOT, expressed the
view that prevailing wage determinations for researchers employed by
institutions of higher education should not include wage data from
private sector employers.
Similarly, the Department is aware that Congress is examining
legislative options to address the concerns of the research community
on this matter. These options would extend the concept discussed in
this proposed rule to prevailing wage rates in other employment, such
as researchers employed by (a) institutions of higher education (as
proposed above), and (b) federal research agencies and their affiliated
nonprofit research institutions which are engaged in basic research and
which employ postdoctoral fellows and visiting scientists in a manner
similar to colleges and universities. While this
[[Page 17614]]
proposed rule would cover the college and university researchers, at
this time the Department has insufficient information on whether
extending the rule change to researchers in other employment is
supportable. Commenters, therefore, are invited to submit comments
about such a regulatory change and the Department will consider those
and any other comments in the development of the final rule.
5. Non-Pecuniary Factors
The academic community and others believe that intangible, non-
pecuniary incentives to working in an academic environment should be
considered in determining prevailing wages for researchers employed by
institutions of higher education. Such intangible benefits, according
to the CEA, ``may include autonomy in choice of research, contact with
students, immersion in an educational environment, and other types of
participation in a university environment.'' The Department is
interested in comments that specify the nature of these intangible
benefits and how they are unique to higher education.
Executive Order 12866
The Department has determined that this proposed rule is not an
``economically significant regulatory action'' within the meaning of
Executive Order 12866, in that it will not have an economic effect on
the economy of $100 million or more or adversely affect in a material
way the economy, a sector of the economy, productivity, competition,
jobs, the environment, public health or safety, or State, local, or
tribal governments or communities.
While it is not economically significant, the Office of Management
and Budget reviewed the proposed rule because of the novel legal and
policy issues raised by the rulemaking.
Regulatory Flexibility Act
The Department of Labor has notified the Chief Counsel for
Advocacy, Small Business Administration, and made the certification
pursuant to the Regulatory Flexibility Act at 5 U.S.C. 605(b), that the
rule does not have a substantial impact on a substantial number of
small entities.
Paperwork Reduction Act
The proposed rule would create no collection of information
requirements.
Catalog of Federal Domestic Assistance Number
This program is listed in the Catalog of Federal Domestic
Assistance at Number 17.203. ``Certification for Immigrant
Workers.''
List of Subjects in 20 CFR Part 656
Adminstrative practice and procedure, Agriculture, Aliens,
Crewmembers, Employment, Enforcement, Fashion models, Forest and forest
products, Gaum, Health professions, Immigration, Labor, Longshore work,
Migrant labor, Nurse, Penalties, Registered nurse, Reporting and
recordkeeping requirements, Specialty occupation, Wages, Working
conditions.
Proposed Rule
Accordingly, it is proposed to amend part 656 of Chapter V of title
20, Code of Federal Regulations, as follows:
PART 656--[AMENDED]
1. The Authority citation for Part 656 continues to read as
follows:
Authority: 8 U.S.C. 1182(a)(5)(A); 29 U.S.C. 49 et seq.; section
122, Pub. L. 101-649, 109 Stat. 4978.
Sec. 656.40 [Amended]
2. Section 656.40 is amended as follows:
a. In the introductory language in paragraph (b), the phrase
``except for researchers employed by colleges and universities'' is
added immediately after the phrase ``For purposes of this section,''.
b. Paragraph (c) is redesignated as paragraph (d), and a new
paragraph (c) is added to read as follows:
Sec. 656.40 Determination of prevailing wage for labor certification
purposes.
* * * * *
(c) For purposes of this section, ``similarly employed'' in the
case of researchers employed by colleges and universities in the area
of intended employment.'' If no researchers are employed by colleges
and universities other than the employer applicant, researchers
employed by colleges and universities outside the area of intended
employment shall be considered ``similarly employed.''
* * * * *
Signed at Washington, DC, this 16th day of April 1996.
Robert B. Reich,
Secretary of Labor.
[FR Doc. 96-9911 Filed 4-19-95; 8:45 am]
BILLING CODE 4510-30-M
Complete official Federal Register PDF
FR Doc. 96-9848 Clean Air Act Approval and Promulgation of New Source Review and Prevention of Significant Deterioration Implementation Plan for Monterey Bay Unified Air Pollution Control District
[Federal Register Volume 61, Number 78 (Monday, April 22, 1996)]
[Proposed Rules]
[Pages 17675-17677]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-9848]
-----------------------------------------------------------------------
ENVIRONMENTAL PROTECTION AGENCY
40 CFR Part 52
[CA 157-0007; FRL-5460-7]
Clean Air Act Approval and Promulgation of New Source Review and
Prevention of Significant Deterioration Implementation Plan for
Monterey Bay Unified Air Pollution Control District
AGENCY: Environmental Protection Agency (EPA).
ACTION: Notice of proposed rulemaking.
-----------------------------------------------------------------------
SUMMARY: The EPA proposes to approve with a contingency, and disapprove
in the alternative Monterey Bay Unified Air Pollution Control District
(District) Rules 207 and 215 for the purpose of meeting requirements of
the Clean Air Act, as amended in 1990 (CAA or Act) with regard to new
source review (NSR) in areas that have not attained the national
ambient air quality standards (NAAQS). Rules 207 (Review of New and
Modified Sources) and 215 (Banking of Emission Reductions) were
submitted by the State of California on behalf of the District as a
requested State Implementation Plan (SIP) revision to satisfy certain
Federal requirements for an approvable nonattainment new source review
SIP. This submittal also satisfies the requirements for a Prevention of
Significant Deterioration (PSD) program. This proposed approval is
contingent upon the District correcting existing deficiencies in its
NSR and PSD submittal before EPA promulgates a final rulemaking on this
submittal. Should the District fail to correct all deficiencies in this
submittal, then this notice will serve as a proposed disapproval of the
submittal.
DATES: Comments on this proposed action must be received in writing by
May 22, 1996.
ADDRESSES: To submit comments or receive further information, please
contact Steve Ringer, Environmental Engineer, New Source Section, Air &
Toxics Division (A-5-1), EPA Region 9, 75 Hawthorne Street, San
Francisco, CA 94105. Copies of the State's submittal and other
information are available for inspection during normal business hours
at the following locations: (1) EPA Region 9, 75 Hawthorne Street, San
Francisco, CA 94105; (2) Air Resources Board, 2020 L Street,
Sacramento, CA 95814; (3) Monterey Bay Unified Air Pollution Control
District, 24580 Silver Cloud Court, Monterey CA 93940.
FOR FURTHER INFORMATION CONTACT: Steve Ringer (415) 744-1260.
SUPPLEMENTARY INFORMATION: The air quality planning requirements for
nonattainment NSR are set out in part D of title I of the Clean Air
Act. EPA has issued a ``General Preamble'' describing EPA's preliminary
views on how EPA intends to review SIPs and SIP revisions submitted
under part D, including those State submittals containing nonattainment
NSR SIP requirements [see 57 FR 13498 (April 16, 1992) and 57 FR 18070
(April 28, 1992)]. Because EPA is describing its interpretations here
only in broad terms, the reader should refer to the General Preamble
for a more detailed discussion.
Procedural Background
The Act requires States to observe certain procedural requirements
in developing implementation plans and plan revisions for submission to
EPA. Section 110(a)(2) and section 110(l) of the Act provide that each
implementation plan or revision to an implementation plan submitted by
a State must be adopted after reasonable notice and public hearing.
Section 172(c)(7) of the Act provides that plan provisions for
nonattainment areas shall meet the applicable provisions of Section
110(a)(2).
The District held a public hearing on May 17, 1995 to entertain
public comment on rules 207 and 215. On May 17, 1995, the rules were
adopted by the District Board of Directors and submitted to the State.
On August 10, 1995 the rules were submitted to EPA as a proposed
revision to the California SIP.
EPA deemed the submittal complete on October 4, 1995. The submittal
has since been reviewed and found to be complete but lacking certain
requirements that would make it fully approvable. The District has,
however, committed to correct the deficiencies described below and
submit a rule with these changes for inclusion into the SIP. Therefore,
contingent on the submittal of a fully approvable SIP revision, as
described below, EPA proposes to approve the District's nonattainment
NSR and attainment PSD SIP submittal. If the District fails to correct
the deficiencies in this submittal, then EPA's final action will be a
disapproval.
Summary of Rule Contents
The Monterey Bay Unified Air Pollution Control District submitted
to EPA for adoption into the applicable NSR SIP Rules 207 (Review of
New or Modified Sources) and 215 (Banking of Emissions Reductions).
Rule 207 is intended to replace existing NSR SIP Rule 207 (Review of
New or Modified Source); and Rule 215 is a new addition to the existing
SIP.
These submitted rules constitute the District's new source
permitting
[[Page 17676]]
regulations. Rule 207 consists of definitions, requirements, including
applicability, major source definitions, offsets, increment analysis,
and Lowest Achievable Emission Rate/Best Available Control Technology.
Rule 215 establishes procedures for the creation, banking, and use of
emission reduction credits. This last rule has indirect bearing on new
source review, as these credits can be obtained by new sources and used
as offsets.
Within the District, Monterey County, San Benito County, and Santa
Cruz County are currently designated as Moderate nonattainment for
Ozone. All other areas within the District are designated as attainment
or unclassifiable with respect to the NAAQS. District nonattainment
rules must therefore apply to all major new or modified stationary
sources proposing to emit VOC or NOx in the nonattainment areas noted
above. The nonattainment provisions must also apply to any source which
would contribute to a violation of the NAAQS. The PSD provisions
submitted by the District apply to major new or modified stationary
sources proposing to emit attainment pollutants.
The Clean Air Act requirements are found at sections 172 and 173
for nonattainment NSR permitting and at section 165 for PSD permitting.
With certain exceptions, described below, the District's submittal
satisfies these requirements. For a detailed description of how the
submitted rule meets the applicable requirements, please refer to EPA's
technical support document.
Rule Deficiencies That Must Be Corrected
Rule 207
Section 4.2.9: Currently this section states that ``all emission
reductions must be in effect and enforceable by the time the new or
modified source commences operation''. However, section 173(a) of the
Clean Air Act requires that any emission reduction required as a
precondition of the issuance of a permit shall be made federally
enforceable prior to permit issuance. Therefore, the District must
change this language to meet the above Clean Air Act requirement.
Section 4.3.3.2: This section allows a source to obtain offsets
from a different air basin if the applicant provides them at the stated
ratios or at a ratio and distance approved by the District as long as
the source demonstrates a net air quality benefit. However, Section
173(c) of the Clean Air Act requires that emission reductions obtained
from another nonattainment area may be used only if (A) the other area
has an equal or higher nonattainment classification than the area in
which the source is located, and (B) emissions from such other area
contribute to a violation of the national ambient air quality standard
in the nonattainment area in which the source is located. Thus, the
rule should have language which explicitly requires the two conditions
above.
Proposed Action
EPA is proposing to approve, with disapproval in the alternative,
the plan revisions submitted by the California Resources Board on
behalf of Monterey Bay Unified Air Pollution Control District on August
10, 1995. Full approval as a final action on these rules is contingent
upon the District making the required changes listed above.
If the specified changes are not made before EPA's final action on
this submittal, then EPA's final action will be a disapproval. If
finalized, this disapproval would constitute a disapproval under
section 179(a)(2) of the Act (see 57 FR 13566-67). As provided under
section 179(a) of the Act, the District would have up to 18 months
after a final SIP disapproval to correct the deficiencies that are the
subject of the disapproval before EPA is required to impose sanctions.
If the District does not correct its SIP deficiencies within 18 months,
then section 179(a)(4) requires the immediate application of sanctions.
According to section 179(b), sanctions can take the form of a loss of
highway funds or a two to one emissions offset ratio. Once the
Administrator applies one of the section 179(b) sanctions, the State
will then have an additional six months to correct any deficiencies.
Section 179(a)(4) requires that both highway and offsets sanctions must
be applied if any deficiencies are still not corrected after the
additional six month period.
EPA is requesting comments on all aspects of the requested SIP
revision and EPA's proposed rulemaking action. Comments received by the
date indicated above will be considered in the development of EPA's
final rule.
Administrative Review
Nothing in this action should be construed as permitting or
allowing or establishing a precedent for any future request for
revision to any state implementation plan. Each request for revision to
the state implementation plan shall be considered separately in light
of specific technical, economic, and environmental factors and in
relation to relevant statutory and regulatory requirements.
Under the Regulatory Flexibility Act, 5 U.S.C. 600 et seq., EPA
must prepare a regulatory flexibility analysis assessing the impact of
any proposed or final rule on small entities. 5 U.S.C. 603 and 604.
Alternatively, EPA may certify that the rule will not have a
significant impact on a substantial number of small entities. Small
entities include small businesses, small not-for-profit enterprises,
and government entities with jurisdiction over populations of less than
50,000.
SIP approvals under section 110 and subchapter I, part D of the Act
do not create any new requirements, but simply approve requirements
that the State is already imposing. Therefore, because the Federal SIP-
approval does not impose any new requirements, I certify that it does
not have a significant impact on any small entities affected. Moreover,
due to the nature of the Federal-State relationship under the Act,
preparation of a regulatory flexibility analysis would constitute
Federal inquiry into the economic reasonableness of State action. The
Act forbids EPA to base its actions concerning SIPs on such grounds.
Union Electric Co. v. U.S. E.P.A., 427 U.S. 246, 256-66 (S.Ct 1976); 42
U.S.C. 7410(a)(2). The Office of Management and Budget has exempted
this rule from the requirements of section 6 of Executive Order 12866.
Unfunded Mandates
Under Section 202 of the Unfunded Mandates Reform Act of 1995, EPA
must prepare a budgetary impact statement to accompany any proposed or
final rule that includes a federal mandate that may result in estimated
costs to state, local, or tribal governments in the aggregate; or to
the private sector, of $100 million or more. EPA has determined that
the approval proposed in this document does not include such a federal
mandate, as this proposed federal action would approve pre-existing
requirements under state or local law, and would impose no new federal
requirements. Accordingly, no additional costs to state, local, or
tribal governments, or to the private sector, will result from this
action.
List of Subjects in 40 CFR Part 52
Environmental protection, Air pollution control, hydrocarbons,
intergovernmental relations, new source review, nitrogen dioxide,
particulate matter, reporting and record-keeping requirements, sulfur
dioxide, and volatile organic compounds.
Authority: 42 U.S.C. 7401-7671q.
[[Page 17677]]
Dated: April 10, 1996.
Felicia Marcus,
Regional Administrator.
[FR Doc. 96-9848 Filed 4-19-96; 8:45 am]
BILLING CODE 6560-50-P
Complete official Federal Register PDF
FR Doc. 96-9832 Irish Potatoes Grown in Washington; Modification of the Minimum Size Requirements
[Federal Register Volume 61, Number 78 (Monday, April 22, 1996)]
[Proposed Rules]
[Pages 17587-17588]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-9832]
-----------------------------------------------------------------------
DEPARTMENT OF AGRICULTURE
7 CFR Part 946
[FV96-946-1PR]
Irish Potatoes Grown in Washington; Modification of the Minimum
Size Requirements
AGENCY: Agricultural Marketing Service, USDA.
ACTION: Proposed rule with request for comments.
-----------------------------------------------------------------------
SUMMARY: This proposed rule would reduce the minimum diameter
requirement from 2\1/8\ inches to 2 inches for Russet type varieties of
Washington potatoes shipped during the July 15 through August 31 period
each season. Potato varieties currently being grown for shipment during
this period are similar in shape to those grown for marketing during
the balance of the season. Reducing the minimum diameter would
recognize this similarity and enable handlers to market a larger
portion of their crop in fresh outlets. This change would improve the
marketing of Washington potatoes and increase returns to producers as
well as provide consumers with increased supplies of potatoes.
DATES: Comments which are received by May 22, 1996 will be considered
prior to the issuance of a final rule.
ADDRESSES: Interested persons are invited to submit written comments
concerning this action. Comments must be sent in triplicate to the
Docket Clerk, Fruit and Vegetable Division, AMS, USDA, room 2523, South
Building, PO Box 96456, Washington, DC 20090-6456; FAX: (202) 720-5698.
All comments should reference the docket number and the date and
page number of this issue of the Federal Register and will be made
available for public inspection in the Office of the Docket Clerk
during regular business hours.
FOR FURTHER INFORMATION CONTACT: Dennis L. West, Northwest Marketing
Field Office, Marketing Order Administration Branch, Fruit and
Vegetable Division, AMS, USDA, 1220 SW Third Avenue, room 369,
Portland, Oregon 97204-2807; telephone: (503) 326-2724 or FAX (503)
326-7440; or Robert F. Matthews, Marketing Order Administration Branch,
Fruit and Vegetable Division, AMS, USDA, PO Box 96456, room 2523-S,
Washington, DC 20090-6456; telephone: (202) 690-0464 or FAX (202) 720-
5698.
SUPPLEMENTARY INFORMATION: This proposed rule is issued under Marketing
Agreement No. 113 and Marketing Order No. 946 (7 CFR part 946), both as
amended, regulating the handling of Irish potatoes grown in Washington,
hereinafter referred to as the ``order.'' The order is authorized by
the Agricultural Marketing Agreement Act of 1937, as amended, (7 U.S.C.
601-674), hereinafter referred to as the ``Act.'' The State of
Washington Potato Committee (Committee) is the agency responsible for
local administration of the marketing order program in the designated
production area.
The Department of Agriculture (Department) is issuing this rule in
conformance with Executive Order 12866.
This proposed rule has been reviewed under Executive Order 12778,
Civil Justice Reform. This rule is not intended to have retroactive
effect. This proposed rule would not preempt any State or local laws,
regulations, or policies, unless they present an irreconcilable
conflict with this rule.
The Act provides that administrative proceedings must be exhausted
before parties may file suit in court. Under section 608c(15)(A) of the
Act, any handler subject to an order may file with the Secretary a
petition stating that
[[Page 17588]]
the order, any provision of the order, or any obligation imposed in
connection with the order is not in accordance with law and request a
modification of the order or to be exempted therefrom. A handler is
afforded the opportunity for a hearing on the petition. After the
hearing the Secretary would rule on the petition. The Act provides that
the district court of the United States in any district in which the
handler is an inhabitant, or has his or her principal place of
business, has jurisdiction in equity to review the Secretary's ruling
on the petition, provided a bill in equity is filed not later than 20
days after the date of the entry of the ruling.
Pursuant to requirements set forth in the Regulatory Flexibility
Act (RFA), the Administrator of the Agricultural Marketing Service
(AMS) has considered the economic impact of this action on small
entities.
The purpose of the RFA is to fit regulatory actions to the scale of
business subject to such actions in order that small businesses would
not be unduly or disproportionately burdened. Marketing orders issued
pursuant to the Act, and rules issued thereunder, are unique in that
they are brought about through group action of essentially small
entities acting on their own behalf. Thus, both statutes have small
entity orientation and compatibility.
There are approximately 40 handlers of Washington potatoes that are
subject to regulation under the order and approximately 450 producers
in the regulated production area. Small agricultural service firms,
which include handlers of Washington potatoes, have been defined by the
Small Business Administration (13 CFR 121.601) as those whose annual
receipts are less than $5,000,000, and small agricultural producers are
defined as those whose annual receipts are less than $500,000. The
majority of potato handlers and producers regulated under the marketing
agreement and order may be classified as small entities.
Section 946.52 (7 CFR 946.52) authorizes the issuance of
regulations for grade, size, quality, maturity, and pack for any
variety or varieties of potatoes grown in different portions of the
production area during any period.
Size regulations are currently in effect under section 946.336 in
terms of minimum diameter and minimum weight. All Russet types must be
2\1/8\ inches minimum diameter or 4 ounces minimum weight during the
period July 15 through August 31 each season, and 2 inches or 4 ounces
during the remainder of the season. This rule amends section 946.336 by
reducing the minimum diameter requirement for Russet type varieties
from 2\1/8\ inches to 2 inches during the July 15 through August 31
period each season. Thus, the 2 inch minimum diameter or 4 ounce
minimum weight would apply to Russet type potatoes throughout the
entire season.
At its meeting on February 15, 1996, the Committee unanimously
recommended reducing the minimum diameter requirement for Russet type
varieties to 2 inches during the period July 15 through August 31, when
early crop shipments are made.
When the current minimum diameter requirement for Russet type
varieties was established, the Norgold Russet was the primary variety
being grown for the early market, i.e., the months of July and August.
This variety is more round in shape than those varieties grown for
shipment later in the season. The newer varieties grown for the early
market, such as the Norkotah Russet, are shaped the same as the
varieties traditionally marketed later in the season. Thus, there is no
need for a larger diameter requirement for earlier varieties.
Therefore, the Committee recommended that all Russet type varieties be
subject to the same minimum diameter requirement throughout the entire
marketing season.
Reducing the minimum diameter would enable handlers to market a
larger portion of the crop in fresh market outlets. This change is
expected to improve the marketing of Washington potatoes and increase
returns to producers.
Based on available information, the Administrator of the AMS has
determined that this action would not have a significant economic
impact on a substantial number of small entities.
A 30-day comment period is provided to allow interested persons to
respond to this proposal. All written comments timely received will be
considered before a final determination is made on this matter.
List of Subjects in 7 CFR Part 946
Marketing agreements, Potatoes, Reporting and recordkeeping
requirements.
For the reasons set forth in the preamble, it is proposed that 7
CFR part 946 be amended as follows:
PART 946--IRISH POTATOES GROWN IN WASHINGTON
1. The authority citation for 7 CFR part 946 continues to read as
follows:
Authority: 7 U.S.C. 601-674.
2. Section 946.336 is amended by revising paragraph (a)(2)(ii) to
read as follows:
Sec. 946.336 Handling regulation.
* * * * *
(a) * * *
(2) * * *
(ii) All Russet types, 2 inches (54.0 mm) minimum diameter, or 4
ounces minimum weight.
* * * * *
Dated: April 16, 1996.
Eric M. Forman,
Deputy Director, Fruit and Vegetable Division.
[FR Doc. 96-9832 Filed 4-19-96; 8:45 am]
BILLING CODE 3410-02-P
Complete official Federal Register PDF
FR Doc. 96-9831 Milk in the Southwest Plains Marketing Area; Proposed Suspension of Certain Provisions of the Order
[Federal Register Volume 61, Number 78 (Monday, April 22, 1996)]
[Proposed Rules]
[Pages 17588-17589]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-9831]
-----------------------------------------------------------------------
DEPARTMENT OF AGRICULTURE
7 CFR Part 1106
[DA-96-05]
Milk in the Southwest Plains Marketing Area; Proposed Suspension
of Certain Provisions of the Order
AGENCY: Agricultural Marketing Service, USDA.
ACTION: Proposed suspension of rule.
-----------------------------------------------------------------------
SUMMARY: This document invites written comments on a proposal to
suspend certain provisions of the Southwest Plains Federal milk
marketing order (Order 106) for the period of September 1996 through
August 1998. The proposal would suspend a portion of the supply plant
shipping requirement and the touch-base requirement under Order 106 for
a 2-year period. The action was requested by Kraft Foods, Inc. (Kraft),
which contends the suspension is necessary to prevent the uneconomical
and inefficient movement of milk and to ensure that producers
historically associated with the market will continue to have their
milk pooled under Order 106.
DATES: Comments are due no later than May 22, 1996.
ADDRESSES: Comments (two copies) should be filed with the USDA/AMS/
Dairy Division, Order Formulation Branch, Room 2971, South Building,
P.O. Box 96456, Washington, DC 20090-6456.
FOR FURTHER INFORMATION CONTACT: Nicholas Memoli, Marketing Specialist,
USDA/AMS/Dairy Division, Order Formulation Branch, Room 2971, South
Building, P.O. Box 96456, Washington, DC 20090- 6456, (202) 690-1932.
SUPPLEMENTARY INFORMATION: The Regulatory Flexibility Act (5 U.S.C.
601-612) requires the Agency to examine the impact of a proposed rule
on small entities. Pursuant to 5 U.S.C. 605(b), the Administrator of
the Agricultural Marketing Service has certified that this proposed
rule would not have a significant economic impact on a substantial
number of small
[[Page 17589]]
entities. Such rule would lessen the regulatory impact of the order on
certain milk handlers and would tend to ensure that dairy farmers would
continue to have their milk priced under the order and thereby receive
the benefits that accrue from such pricing.
The Department is issuing this proposed rule in conformance with
Executive Order 12866.
This proposed rule has been reviewed under Executive Order 12778,
Civil Justice Reform. This action is not intended to have a retroactive
effect. If adopted, this proposed rule will not preempt any state or
local laws, regulations, or policies, unless they present an
irreconcilable conflict with the rule.
The Agricultural Marketing Agreement Act of 1937, as amended (7
U.S.C. 601-674), provides that administrative proceedings must be
exhausted before parties may file suit in court. Under section
608c(15)(A) of the Act, any handler subject to an order may file with
the Secretary a petition stating that the order, any provisions of the
order, or any obligation imposed in connection with the order is not in
accordance with law and request a modification of the order or to be
exempted from the order. A handler is afforded the opportunity for a
hearing on the petition. After a hearing, the Secretary would rule on
the petition. The Act provides that the district court of the United
States in any district in which the handler is an inhabitant, or has
its principal place of business, has jurisdiction in equity to review
the Secretary's ruling on the petition, provided a bill in equity is
filed not later than 20 days after the date of the entry of the ruling.
Notice is hereby given that, pursuant to the provisions of the
Agricultural Marketing Agreement Act, the suspension of the following
provisions of the order regulating the handling of milk in the
Southwest Plains marketing area is being considered for the period of
September 1, 1996, through August 31, 1998:
In Sec. 1106.6, the words ``during the month''.
In Sec. 1106.7(b)(1), beginning with the words ``of February
through August'' and continuing to the end of the paragraph.
In Sec. 1106.13, paragraph (d)(1) in its entirety.
All persons who wish to send written data, views or arguments about
the proposed suspension should send two copies of them to the USDA/AMS/
Dairy Division, Order Formulation Branch, Room 2971, South Building,
P.O. Box 96456, Washington, DC 20090- 6456, by the 30th day after
publication of this notice in the Federal Register.
All written submissions made pursuant to this notice will be made
available for public inspection in the Dairy Division during regular
business hours (7 CFR 1.27(b)).
Statement of Consideration
The proposed rule would suspend the requirement that producers
``touch-base'' at a pool plant with at least one day's production
during the month before their milk is eligible for diversion to a
nonpool plant. By suspending the touch-base provision, producer milk
would not be required to be delivered to pool plants before going to
unregulated manufacturing plants.
The proposed suspension would also allow a supply plant that has
been associated with the Southwest Plains order during the months of
September 1995 through January 1996 to qualify as a pool plant without
shipping any milk to a pool distributing plant during the months of
September 1996 through August 1998. Without the suspension, a supply
plant would be required to ship 50 percent of its producer receipts to
pool distributing plants during the months of September through January
and 20 percent of its producer receipts to pool distributing plants
during the months of February through August to qualify as a pool plant
under the order.
According to Kraft's letter requesting the suspension, supplemental
milk supplies will not be needed to meet the fluid needs of
distributing plants. Kraft anticipates that there will be an adequate
supply of direct-ship producer milk located in the general area of
distributing plants available to meet the Class I needs of the market.
Consequently, it states, there is no need to require producers located
some distance from pool distributing plants to touch-base when their
milk can more economically be diverted directly to manufacturing plants
in the production area.
Accordingly, it may be appropriate to suspend the aforesaid
provisions from September 1, 1996, through August 31, 1998.
List of Subjects in 7 CFR Part 1106
Milk marketing orders.
The authority citation for 7 CFR Part 1106 continues to read as
follows:
Authority: 7 U.S.C. 601-674.
Dated: April 9, 1996.
Lon Hatamiya,
Administrator.
[FR Doc. 96-9831 Filed 4-19-96; 8:45 am]
BILLING CODE 3410-02-P
Complete official Federal Register PDF
FR Doc. 96-9830 Cranberries Grown in the States of Massachusetts, Rhode Island, Connecticut, New Jersey, Wisconsin, Michigan, Minnesota, Oregon, Washington, and Long Island in the State of New York; Change in Reporting Requirements
[Federal Register Volume 61, Number 78 (Monday, April 22, 1996)]
[Proposed Rules]
[Pages 17586-17587]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-9830]
-----------------------------------------------------------------------
DEPARTMENT OF AGRICULTURE
7 CFR Part 929
[Docket No. FV-96-929-1PR]
Cranberries Grown in the States of Massachusetts, Rhode Island,
Connecticut, New Jersey, Wisconsin, Michigan, Minnesota, Oregon,
Washington, and Long Island in the State of New York; Change in
Reporting Requirements
AGENCY: Agricultural Marketing Service, USDA.
ACTION: Proposed rule.
-----------------------------------------------------------------------
SUMMARY: This proposal invites comments on a change to the reporting
requirements currently prescribed under the cranberry marketing order.
The marketing order regulates the handling of cranberries grown in 10
States and is administered locally by the Cranberry Marketing Committee
(committee). This rule would modify language in the order's rules and
regulations to change the first date by which handlers must file their
acquisition report from February 5 to January 5 during each crop year.
This rule would provide more useful production information to the
cranberry industry at an earlier time.
DATES: Comments must be received by May 22, 1996.
ADDRESSES: Interested persons are invited to submit written comments
concerning this proposal. Comments must be sent in triplicate to the
Docket Clerk, Fruit and Vegetable Division, AMS, USDA, room 2525-S, PO
Box 96456, Washington, DC 20090-6456, Fax # (202) 720-5698. All
comments should reference the docket number and the date and page
number of this issue of the Federal Register and will be made available
for public inspection in the Office of the Docket Clerk during regular
business hours.
FOR FURTHER INFORMATION CONTACT: Patricia A. Petrella or Kathleen M.
Finn, Marketing Specialists, Marketing Order Administration Branch,
F&V, AMS, USDA, room 2522-S, PO Box 96456, Washington, DC 20090-6456:
telephone: (202) 720-1509, Fax # (202) 720-5698.
SUPPLEMENTARY INFORMATION: This proposal is issued under Marketing
Order No. 929 (7 CFR part 929), as amended, regulating the handling of
cranberries grown in 10 States, hereinafter referred to as the
``order.'' The order is effective under the Agricultural Marketing
Agreement Act of 1937, as amended (7 U.S.C. 601-674), hereinafter
referred to as the ``Act.''
The Department of Agriculture (Department) is issuing this rule in
conformance with Executive Order 12866.
This proposal has been reviewed under Executive Order 12778, Civil
Justice Reform. This rule is not intended to have retroactive effect.
This proposal will not preempt any State or local laws, regulations, or
policies, unless they present an irreconcilable conflict with this
rule.
The Act provides that administrative proceedings must be exhausted
before parties may file suit in court. Under section 608c(15)(A) of the
Act, any handler subject to an order may file with the Secretary a
petition stating that the order, any provision of the order, or any
obligation imposed in connection with the order is not in accordance
with law and request a modification of the order or to be exempted
therefrom. A handler is afforded the opportunity for a hearing on the
petition. After the hearing the Secretary would rule on the petition.
The Act provides that the district court of the United States in any
district in which the handler is an inhabitant, or has his or her
principal place of business, has jurisdiction in equity to review the
Secretary's ruling on the petition, provided a bill in equity is filed
not later than 20 days after date of the entry of the ruling.
Pursuant to requirements set forth in the Regulatory Flexibility
Act (RFA), the Administrator of the Agricultural Marketing Service
(AMS) has considered the economic impact of this action on small
entities.
The purpose of the RFA is to fit regulatory actions to the scale of
business subject to such actions in order that small businesses will
not be unduly or disproportionately burdened. Marketing orders issued
pursuant to the Act, and rules issued thereunder, are unique in that
they are brought about through group action of essentially small
entities acting on their own behalf. Thus, both statutes have small
entity orientation and compatibility.
There are approximately 15 handlers of cranberries who are subject
to regulation under the marketing order and approximately 1,100
producers of cranberries in the regulated area. Small agricultural
service firms, which includes handlers, have been defined by the Small
Business Administration (13 CFR 121.601)as those having annual receipts
of less than $5,000,000, and small agricultural producers are defined
as those having annual receipts of less than $500,000. The majority of
handlers and producers of cranberries may be classified as small
entities.
This proposal invites comments on a change to the reporting
requirements currently prescribed under the cranberry marketing order.
This rule would modify language in the order's rules and regulations to
change the first date by which handlers must file their acquisition
reports from February 5 to January 5. The committee unanimously
recommended that the date be changed from February 5 to January 1. The
Department proposes modifying the recommendation by requiring the first
report to be filed by January 5 in order to allow sufficient time for
the handlers to file the reports.
Section 929.62(b) of the cranberry marketing order provides
authority to require each handler to file promptly with the committee a
certified report as to the quantity of cranberries acquired during such
period as may be specified. The fiscal period under the order is from
September 1 of one year through August 31 of the following year.
Section 929.105(b) of the order's rules and regulations prescribe that
certified reports shall be filed by each handler to the committee not
later than the 5th day of February, May, and August of each fiscal
period and the 5th day of September of the succeeding fiscal period.
Such report shall show the total quantity of cranberries the handler
acquired and the total quantity of cranberries the handler handled from
the beginning of the reporting period indicated through January 31,
April 30, July 31, and August 31, respectively.
The committee recommended that the first acquisition report due to
the committee on February 5 that shows the total quantity of
cranberries the handler acquired through January 31 be changed
[[Page 17587]]
to an earlier date. This would provide producers and handlers vital
production information earlier in the season and allow them to plan
accordingly. The order's reporting and recordkeeping requirements have
not been amended since 1988. Handlers' techniques in gathering and
recording acquisition data have progressed considerably over the last
seven years. Handlers have indicated that they could provide the
committee with a acquisition report prior to January 1 of the crop
year.
Therefore, the committee recommended that Sec. 929.105(b) be
revised by changing the first reporting due date from February 5 to
January 1. As stated previously, the Department has modified this date
from January 1 to January 5. The first acquisition report currently
shows the total quantity of cranberries acquired and the total quantity
of cranberries handled from the beginning of the reporting period
through January 31. The committee also recommended that the January 31
date be changed to December 31 to make the report consistent with the
new due date. In addition, the Department proposes modifying
Sec. 929.105(b) by listing each one of the due dates. This would make
the section easier to understand as to when each report is due.
Based on available information, the Administrator of the AMS has
determined that this action would not have a significant economic
impact on a substantial number of small entities.
The information collection requirements contained in the referenced
section have been previously approved by the Office of Management and
Budget (OMB) under the provisions of the Paperwork Reduction Act of
1995 (Pub. L. 104-13) and have been assigned OMB number 0581-0103.
A 30-day comment period is provided to allow interested persons to
respond to this proposal. All written comments timely received will be
considered before a final determination is made on this matter.
List of Subjects in 7 CFR Part 929
Marketing agreements, Cranberries, Reporting and recordkeeping
requirements.
For the reasons set forth in the preamble, 7 CFR part 929 is
proposed to be amended as follows:
1. The authority citation for 7 CFR part 929 continues to read as
follows:
Authority: 7 U.S.C. 601-674.
PART 929--CRANBERRIES GROWN IN THE STATES OF MASSACHUSETTS, RHODE
ISLAND, CONNECTICUT, NEW JERSEY, WISCONSIN, MICHIGAN, MINNESOTA,
OREGON, WASHINGTON, AND LONG ISLAND IN THE STATE OF NEW YORK
2. Section 929.105 is amended by revising paragraph (b) to read as
follows:
Sec. 929.105 Reporting.
* * * * *
(b) Certified reports shall be filed with the committee, on a form
provided by the committee, by each handler not later than January 5,
May 5, and August 5 of each fiscal period and by September 5 of the
succeeding fiscal period showing:
(1) The total quantity of cranberries the handler acquired and the
total quantity of cranberries the handler handled from the beginning of
the reporting period indicated through December 31, April 30, July 31,
and August 31, respectively, and
(2) The respective quantities of cranberries and cranberry products
held by the handler on February 1, May 1, August 1, and August 31 of
each fiscal period.
Dated: April 9, 1996.
James R. Rodeheaver,
Acting Deputy Director, Fruit and Vegetable Division.
[FR Doc. 96-9830 Filed 4-19-96; 8:45 am]
BILLING CODE 3410-02-P
Complete official Federal Register PDF
FR Doc. 96-9829 Shelled Almonds and Almonds in the Shell; Grade Standards
[Federal Register Volume 61, Number 78 (Monday, April 22, 1996)]
[Proposed Rules]
[Pages 17580-17586]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-9829]
========================================================================
Proposed Rules
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains notices to the public of
the proposed issuance of rules and regulations. The purpose of these
notices is to give interested persons an opportunity to participate in
the rule making prior to the adoption of the final rules.
========================================================================
Federal Register / Vol. 61, No. 78 / Monday, April 22, 1996 /
Proposed Rules
[[Page 17580]]
DEPARTMENT OF AGRICULTURE
Agricultural Marketing Service
7 CFR Part 51
[Docket Number FV-95-305]
Shelled Almonds and Almonds in the Shell; Grade Standards
AGENCY: Agricultural Marketing Service, USDA.
ACTION: Proposed rule.
-----------------------------------------------------------------------
SUMMARY: This rule would revise the United States Standards for Grades
of Shelled Almonds and the United States Standards for Grades of
Almonds in the Shell. The Almond Board of California's Grades
Subcommittee (ABCGS) recommends changes ``to better reflect the
requirements of today's almond industry.'' The ABCGS specifically
requests changes to the foreign material tolerances; the tolerance for
live insects inside the shell; removing the language ``appearance of
the lot'' from all definitions in the standards; combining tolerances
for chipping and scratching and split and broken in the U.S. Standard
Sheller Run grade; revising current definitions; and adding new
definitions.
The Agricultural Marketing Service (AMS), in cooperation with
industry, and other interested parties develops and improves standards
of quality, condition, quantity, grade, and packaging in order to
facilitate commerce by providing buyers, sellers, and quality assurance
personnel uniform language and criteria for describing various levels
of quality and condition as valued in the marketplace.
DATES: Comments must be postmarked or courier dated on or before July
21, 1996.
ADDRESSES: Interested parties are invited to submit written comments
concerning this proposal. Comments must be sent to the Standardization
Section, Fresh Products Branch, Fruit and Vegetable Division,
Agricultural Marketing Service, U.S. Department of Agriculture, P.O.
Box 96456, Room 2049 South Building, Washington, DC 20090-6456. FAX
number (202) 720-8871. Comments should make reference to the date and
page number of this issue of the Federal Register and will be made
available for public inspection in the above office during regular
business hours.
FOR FURTHER INFORMATION CONTACT: Frank O'Sullivan, at the above address
or call (202) 720-2185.
SUPPLEMENTARY INFORMATION: The U.S. Department of Agriculture is
issuing this proposed rule in conformance with Executive Order 12866.
Pursuant to the requirements set forth in the Regulatory
Flexibility Act (5 U.S.C. 601 et seq.), the Administrator of AMS has
determined that this action will not have a significant economic impact
on a substantial number of small entities. This proposed rule for the
revision of U.S. Standards for Grades of Shelled Almonds and U.S.
Standards for Grades of Almonds In The Shell will not impose
substantial direct economic cost, recordkeeping, or personnel workload
changes on small entities, and will not alter the market share or
competitive position of these entities relative to large businesses.
This proposed rule has been reviewed under Executive Order 12778,
Civil Justice Reform. This action is not intended to have retroactive
effect. This proposed rule will not preempt any State or local laws,
regulations, or policies, unless they present an irreconcilable
conflict with this rule. There are no administrative procedures which
must be exhausted prior to any judicial challenge to the provisions of
the rule.
Agencies periodically review existing regulations. An objective of
the review is to ensure that the grade standards are serving their
intended purpose, the language is clear, and the standards are
consistent with AMS policy and authority.
The United States Standards for Grades of Shelled Almonds and
United States Standards for Grades of Almonds in the Shell are issued
in accordance with the provisions of the Agricultural Marketing Act of
1946. The standards were last revised in August 1960 and July 1964,
respectively. The ABCGS has requested that the standards be revised in
order to bring them into conformity with current cultural, harvesting
and marketing practices.
The definition of ``similar varietal characteristics'' in
Sec. 51.2117 of the current U.S. Standards for Grades of Shelled
Almonds states that the ``kernels are similar in shape and appearance.
For example, long types shall not be mixed with short types, or broad
types mixed with narrow types, and bitter almonds shall not be mixed
with sweet almonds. Color of the kernels shall not be considered, since
there is often a marked difference in skin color of kernels of the same
variety.'' The ABCGS recommended adding two designations to this
definition -- ``one type'' and ``California.'' This would affect all of
the grades that have a requirement for ``similar varietal
characteristics'' (only the U.S. No. 1 Pieces grade has no such
requirement). The ``one type'' designation would retain the current
definition of similar varietal characteristics. The ``California''
designation would allow for more than one variety of blanchable type
almonds to be mixed, including up to 25 percent of the ``Nonpareil'' or
similar type, and meet the definition of ``similar varietal
characteristics, California'' designation. Lots not designated as
either type would be considered ``one type.''
The industry commonly markets almonds indicating either individual
varieties or mixtures of several similar appearing varieties. There are
five established industry mixtures, including ``California.'' The other
four consist of ``Nonpareil,'' ``Mission,'' ``NePlus Ultra,'' and
``Inshell Bleaching.'' All are recognized as separate groupings and may
contain several varieties showing dissimilar characteristics (based on
shape and appearance). However, the varieties in each classification
have broad similarities in their uses, propensity for blanching, and
acceptance for particular end products. The ``California'' mixture is
widely recognized within the industry. The ``California'' mixture is
defined in the Almond Variety Update, 1985, referencing the
establishment of the definition in 1972 by USDA, Federal-State
Inspection Service. It may include the varieties Ballico, California,
Davey, Harvey, Merced, Norman, Ruby, Thompson, Vesta and all other
varieties that are similar to the varieties listed and in addition the
variety Nonpareil
[[Page 17581]]
may be included in the classification but not to exceed 25 percent by
weight of the lot. All varieties in the ``California'' mixture are
blanchable.
All blanchable type almonds are not similar in shape and
appearance. However, the ABCGS contends that handlers are not concerned
with differences in the shape or appearance of the almonds, as long as
they are blanchable. This mixing of varieties is a common practice in
the industry today. However, using the current standards, inspected
lots would not meet the requirement for similar varietal
characteristics, and would be certified as either failing to meet a
specific grade due to dissimilar varieties; or, as meeting a ``Mixed''
grade designation. The ABCGS states that these options (fails to meet a
specified grade and Mixed) negatively impact the marketing of such lots
even though the seller and buyer are fully aware of the product's
characteristics. (The U.S. Fancy and U.S. Extra No. 1 grades cannot be
re-designated as ``Mixed'' lots.)
By expanding the definition of similar varietal characteristics as
ABCGS recommends, the standards will be in-line with current marketing
practices. The change would allow lots that are comprised of blanchable
types, including up to 25 percent Nonpareil types, to meet the
requirements of ``similar varietal characteristics'' when so designated
as ``California'' type.
Currently, the U.S. No. 1, U.S. Select Sheller Run, U.S. Standard
Sheller Run, and U.S. No. 1 Whole and Broken grades may be designated
as U.S. No. 1 Mixed, U.S. Select Sheller Run Mixed, U.S. Standard
Sheller Run Mixed, and U.S. No. 1 Whole and Broken, Mixed if two or
more dissimilar varieties are found in excess of the tolerance, and all
other defects are within the tolerances. If the definition for
``similar varietal characteristics'' is changed as ABCGS recommends,
only those lots designated as ``one type'' or undesignated lots would
need be redesignated as ``Mixed'' if the tolerance for dissimilar
varieties is exceeded.
This proposed change regarding similar varietal characteristics
would not affect the U.S. Standards for Grades of Almonds In The Shell.
Because of the nature of in shell almonds, no change to the current
definition of similar varietal characteristics is warranted in this
standard.
The ABCGS recommends that the tolerances for foreign material be
tighter in most grades, including a ``zero tolerance'' for glass and
metal in all grades in the U.S. Standards for Grades of Shelled
Almonds. They contend that this tightening of the tolerances reflects
the current requirements of most buyers, and meets current food safety
concerns in regard to glass and metal. The ABCGS reports that major
buyers of almonds are setting more stringent tolerances (than current
tolerances in the U.S. grades) for foreign material in contract
specifications. In discussions with representatives of the industry,
most felt that although the tighter tolerances would be more difficult
to meet, it would not be impossible. The effect this change would have
on the industry would be to fail any lot found to have any amount of
glass or metal, and in most grades further restrict other types of
foreign material.
The ABCGS recommends that the tolerance for live insects inside the
shell be restricted to zero in the U.S. Standards for Grades of Almonds
In The Shell. They state that this tightening of the tolerance reflects
the requirements of consumers, and with effective fumigation practices
live insects can be eliminated. This change would cause any lot found
to have any amount of live insects if found inside the shell to fail to
meet any U.S. grade.
The ABCGS recommends to modify the U.S. Standard Sheller Run grade
within the U.S. Standards for Grades of Shelled Almonds by combining
the tolerances for chipped and scratched kernels (20 percent) and split
and broken kernels (15 percent). The new total tolerance would be 35
percent, with a restriction of not more than 15 percent for split and
broken. The ABCGS views chipped and scratched kernels as less
objectionable than split and broken kernels. Chipped and scratched
kernels essentially retain their full shape, but have superficial chips
and scratches of the pellicle and meat. Split and broken kernels are
those with 1/8 or more of the kernel split or broken off. The effect of
this change would be to allow with up to 35 percent chipped and
scratched (with 0 percent split and broken), or any combination of the
two types of defects totaling 35 percent (or less), as long as the
percentage of split and broken does not exceed 15 percent.
The ``Unclassified'' designation would be deleted from the two
grade standards. The term ``unclassified'' is not a grade within the
meaning of the standards and only serves to show that no grade has been
applied to the lot. Since this designation is rarely used and may
create some confusion in the marketplace, it would be deleted from the
standards.
The ABCGS recommends that current language referring to
``appearance of the lot'' be removed from both grade standards.
Currently, this language is found in the general definitions of
``injury,'' ``damage,'' and in the specific definition of ``damage by
chipped and scratched kernels'' in the shelled grades; and, in the
general definition of ``damage'' in the in-the-shell grades. This
language allows interpretations for various defects, whereby a lot of
almonds that are not considered injured, or damaged individually by
particular defects may be considered injured or damaged based on
affecting the appearance of the lot. Removing this language would limit
the scoring of defects based on the individual kernel and not on the
general appearance of the lot.
This change in both grade standards would cause defects to be
scored, based on the individual kernel, rather than based on the lot as
a whole.
ABCGS suggests that USDA revise the definition of ``damage by gum''
from its current definition of ``more than 1/8 of the surface
affected'' to an ``area aggregating more than the equivalent of a
circle 1/4 inch in diameter'' in both grade standards regardless of the
size of the almond. The ABCGS feels that gum is a serious defect on any
size nut, (generally viewed as an inedible) and should be scored more
tightly than at present. Industry generally allows less of an area to
be affected than the current standards permit. By using a specific area
rather than a percentage of the surface, scoring will be easier and
more objective for inspectors.
The ABCGS recommends that the definition of ``fairly uniform
color'' be changed in Sec. 51.2086 of the U.S. Standards for Grades of
Almonds In The Shell to account for uniformity in color of the shell,
whether lots of almonds are ``natural'' or ``bleached.'' The industry
offers in-the-shell almonds with both ``natural'' and ``bleached''
shells. Bleaching of the shells is an approved practice within the
industry, however, confusion exists between buyers and sellers
regarding the acceptability of bleached shells. Adding the reference of
bleaching in the definition of ``fairly uniform color'' should
eliminate the confusion.
The ABCGS recommends that the definition of ``decay'' be changed in
Sec. 51.2121 of the U.S. Standards for Grades of Shelled Almonds to
correspond with the definition in the U.S. Standards for Grades of
Almonds In The Shell from ``the kernel is putrid or decomposed'' to
``part or all of the kernel has become decomposed.'' The language and
wording of decay would be changed to promote uniformity and consistency
between the two grade standards.
The definitions of ``damage,'' ``insects,'' ``mold,'' and
``shriveling''
[[Page 17582]]
would be changed in the U.S. Standards for Grades of Almonds In The
Shell to correspond with the definitions in the U.S. Standards for
Grades of Shelled Almonds. The language and wording of these
definitions would be changed to promote uniformity and consistency
between the two grade standards.
Skin discoloration of the kernel (staining) is currently referenced
as a defect in the in-the-shell standard. Skin discoloration does not
change when the almonds are shelled, and therefore would be considered
a defect in the shelled standard. The ABCGS recommends specifically
referencing this defect in the shelled standards to promote uniformity
and consistency between the two grade standards. Although this skin
discoloration has historically been considered a defect in the shelled
almonds standards, specifically naming it will give a point of
reference to the industry and the inspection service.
In keeping with Departmental Regulations of moving towards
metrification, metric equivalents will be added, in parenthesis,
following any Imperial measurements, throughout the text of the
standards. The metric equivalents, in millimeters, are based on the
conversion of 64/64 on an inch equals 25.4 millimeters.
List of Subjects in 7 CFR Part 51
Agricultural commodities, Food grades and standards, Fruits, Nuts,
Reporting and recordkeeping requirements, Trees, Vegetables.
PART 51--[AMENDED]
For reasons set forth in the preamble, 7 CFR part 51 is proposed to
be amended as follows:
1. The authority citation for 7 CFR part 51 continues to read as
follows:
Authority: 7 U.S.C. 1621-1627.
2. In part 51, Subpart--United States Standards for Grades of
Almonds in the Shell is revised to read as follows:
Subpart--United States Standards for Grades of Almonds in the Shell
Grades
Sec.
51.2075 U.S. No. 1.
51.2076 U.S. No. 1 Mixed.
51.2077 U.S. No. 2.
51.2078 U.S. No. 2 Mixed.
Application of Tolerances
51.2079 Application of tolerances.
Determination of Grade
51.2080 Determination of grade.
Definitions
51.2081 Similar varietal characteristics.
51.2082 Loose extraneous and foreign material.
51.2083 Clean.
51.2084 Fairly bright.
51.2085 Fairly uniform color.
51.2086 Well dried.
51.2087 Decay.
51.2088 Rancidity.
51.2089 Damage.
51.2090 Serious damage.
51.2091 Thickness.
Subpart--United States Standards for Grades of Almonds in the Shell
Grades
Sec. 51.2075 U.S. No. 1.
``U.S. No. 1'' consists of almonds in the shell which are of
similar varietal characteristics and free from loose extraneous and
foreign material. The shells are clean, fairly bright, fairly uniform
color, and free from damage caused by discoloration, adhering hulls,
broken shells or other means. The kernels are well dried, free from
decay, rancidity, and free from damage caused by insects, mold, gum,
skin discoloration, shriveling, brown spot or other means.
(a) Unless otherwise specified, the almonds are of a size not less
than \28/64\ of an inch (11.1 mm) in thickness.
(b) In order to allow for variations incident to proper grading and
handling, the following tolerances are provided as specified:
(1) For external (shell) defects. 10 percent, by count, for almonds
which fail to meet the requirements of this grade other than for
variety and size;
(2) For dissimilar varieties. 5 percent, by count, including
therein not more than 1 percent for bitter almonds mixed with sweet
almonds;
(3) For size. 5 percent, by count, for almonds which are smaller
than the specified minimum thickness;
(4) For loose extraneous and foreign material. 2 percent, by
weight, including therein not more than 1 percent which can pass
through a round opening \24/64\ inch (9.5 mm) in diameter: Provided,
that such material is practically free from insect infestation; and,
(5) For internal (kernel) defects. 10 percent, by count, for
almonds with kernels failing to meet the requirements of this grade:
Provided, that not more than one-half of this tolerance or 5 percent
shall be allowed for kernels affected by decay or rancidity, damaged by
insects or mold or seriously damaged by shriveling: And provided
further, that no part of this tolerance shall be allowed for live
insects inside the shell.
Sec. 51.2076 U.S. No. 1 Mixed.
``U.S. No. 1 Mixed'' consists of almonds in the shell which meet
the requirements of U.S. No. 1 grade, except that two or more varieties
of sweet almonds are mixed.
Sec. 51.2077 U.S. No. 2.
``U.S. No. 2'' consists of almonds in the shell which meet the
requirements of U.S. No. 1 grade, except that an additional tolerance
of 20 percent shall be allowed for almonds with shells damaged by
discoloration.
Sec. 51.2078 U.S. No. 2 Mixed.
``U.S. No. 2 Mixed'' consists of almonds in the shell which meet
the requirements of U.S. No. 2 grade, except that two or more varieties
of sweet almonds are mixed.
Application of Tolerances
Sec. 51.2079 Application of tolerances.
The tolerances for the foregoing grades are applied to the entire
lot of almonds, based upon a composite sample drawn from containers
throughout the lot.
Determination of Grade
Sec. 51.2080 Determination of grade.
In grading the inspection sample, the percentage of loose hulls,
pieces of shell, chaff and foreign material is determined on the basis
of weight. Next, the percentages of nuts which are of dissimilar
varieties, undersize or have adhering hulls or defective shells are
determined by count, using an adequate portion of the total sample.
Finally, the nuts in that portion of the sample are cracked, and the
percentage having internal defects is determined on the basis of count.
Definitions
Sec. 51.2081 Similar varietal characteristics.
Similar varietal characteristics means that the almonds are similar
in shape, and are reasonably uniform in degree of hardness of the
shells, and that bitter almonds are not mixed with sweet almonds. For
example, hard-shelled varieties, semi-soft shelled varieties, soft-
shelled varieties and paper-shelled varieties are not mixed together,
nor are any two of these types mixed under this definition.
Sec. 51.2082 Loose extraneous and foreign material.
Loose extraneous and foreign material means loose hulls, empty
broken shells, pieces of shells, external insect infestation and any
substance other than almonds in the shell or almond kernels.
[[Page 17583]]
Sec. 51.2083 Clean.
Clean means that the shell is practically free from dirt and other
adhering foreign material.
Sec. 51.2084 Fairly bright.
Fairly bright means that the shells show good characteristic color.
Sec. 51.2085 Fairly uniform color.
Fairly uniform color means that the shells do not show excessive
variation in color, whether bleached or natural.
Sec. 51.2086 Well dried.
Well dried means that the kernel is firm and brittle, not pliable
or leathery.
Sec. 51.2087 Decay.
Decay means that part or all of the kernel has become decomposed.
Sec. 51.2088 Rancidity.
Rancidity means that the kernel is noticeably rancid to taste.
Sec. 51.2089 Damage.
Damage means any defect which materially detracts from the
appearance of the individual kernel, or the edible or shipping quality
of the almond. Any one of the following defects or combination thereof,
the seriousness of which exceeds the maximum allowed for any one defect
shall be considered as damage:
(a) Discoloration of the shell which is medium gray to black and
affects more than one-eighth of the surface in the aggregate. Normal
variations of a reddish or brownish color shall not be considered
discoloration;
(b) Adhering hulls which cover more than 5 percent of the shell
surface in the aggregate;
(c) Broken shells when a portion of the shell is missing, or the
shell is broken or fractured to the extent that moderate pressure will
permit the kernel to become dislodged;
(d) Insect injury when the insect, web or frass is present or there
is definite evidence of insect feeding;
(e) Mold, when visible on the kernel, except when white or gray and
easily rubbed off with the fingers;
(f) Gum, when a film of shiny, resinous appearing substance affects
an area aggregating more than the equivalent of a circle one-quarter
inch (6.4 mm) in diameter;
(g) Skin discoloration when more than one-half of the surface of
the kernel is affected by very dark or black stains contrasting with
the natural color of the skin;
(h) Shriveling when the kernel is excessively thin for its size, or
when materially withered, shrunken, leathery, tough or only partially
developed: Provided, that partially developed kernels are not
considered damaged if more than three-fourths of the pellicle is filled
with meat. An almond containing two kernels shall not be classed as
damaged if either kernel has more than three-fourths of the pellicle
filled with meat; and,
(i) Brown spot which affects an aggregate area on the kernel
greater than the area of a circle one-eighth inch (3.2 mm) in diameter.
Sec. 51.2090 Serious damage.
Serious damage means any defect which makes a kernel or piece of
kernel unsuitable for human consumption, and includes decay, rancidity,
insect injury and damage by mold. The following defect shall be
considered as serious damage: Shriveling when the kernel is seriously
withered, shrunken, leathery, tough or only partially developed:
Provided, that partially developed kernels are not considered seriously
damaged if more than one-fourth of the pellicle is filled with meat.
Sec. 51.2091 Thickness.
Thickness means the greatest dimension between the two semi-flat
surfaces of the shell measured at right angles to a plane extending
between the seams of the shell.
3. In Part 51, Subpart--United States Standards for Grades of
Shelled Almonds is revised to read as follows:
Subpart--United States Standards of Grades of Shelled Almonds
Grades
Sec.
51.2105 U.S. Fancy.
51.2106 U.S.Extra No. 1.
51.2107 U.S. No. 1.
51.2108 U.S. Select Sheller Run.
51.2109 U.S. Standard Sheller Run.
51.2110 U.S. No. 1 Whole and Broken.
51.2111 U.S. No. 1 Pieces.
Mixed Varieties
51.2112 Mixed varieties.
Size
51.2113 Size requirements.
51.2114 Tolerances for size.
Application of Tolerances
51.2115 Application of tolerances.
Definitions
51.2116 Similar varietal characteristics.
51.2117 Whole.
51.2118 Clean.
51.2119 Well dried.
51.2120 Decay.
51.2121 Rancidity.
51.2122 Insect injury.
51.2123 Foreign material.
51.2124 Doubles.
51.2125 Split or broken kernels.
51.2126 Particles and dust.
51.2127 Injury.
51.2128 Damage.
51.2129 Serious damage.
51.2130 Diameter.
51.2131 Fairly uniform in size.
Subpart -- United States Standards for Grades of Shelled Almonds
Grades
Sec. 51.2105 U.S. Fancy.
``U.S. Fancy'' consists of shelled almonds of similar varietal
characteristics which are whole, clean and well dried, and which are
free from decay, rancidity, insect injury, foreign material, doubles,
split or broken kernels, particles and dust, and free from injury
caused by chipped and scratched kernels, and free from damage caused by
mold, gum, shriveling, brown spot or other means. (See Secs. 51.2113
and 51.2114.)
In order to allow for variations incident to proper grading and
handling, the following tolerances, by weight, shall be permitted:
(a) For dissimilar varieties. 5 percent, including not more than
one-fifth of this amount, or 1 percent, for bitter almonds mixed with
sweet almonds;
(b) For doubles. 3 percent;
(c) For kernels injured by chipping and/or scratching. 5 percent;
(d) For foreign material. One-twentieth of 1 percent (0.05
percent). No part of this percentage shall be allowed for glass and
metal;
(e) For particles and dust. One-tenth of 1 percent (0.10 percent);
and,
(f) For other defects. 2 percent, including not more than one-half
of this amount, or 1 percent, for split or broken kernels, and
including not more than one-half of the former amount, or 1 percent,
for seriously damaged kernels.
Sec. 51.2106 U.S. Extra No. 1.
``U.S. Extra No. 1'' consists of shelled almonds of similar
varietal characteristics which are whole, clean and well dried, and
which are free from decay, rancidity, insect injury, foreign material,
doubles, split or broken kernels, particles and dust, and free from
damage caused by chipped and scratched kernels, mold, gum, shriveling,
brown spot or other means. (See Secs. 51.2113 and 51.2114.)
In order to allow for variations incident to proper grading and
handling, the following tolerances, by weight, shall be permitted:
(a) For dissimilar varieties. 5 percent, including not more than
one-fifth of this amount, or 1 percent, for bitter almonds mixed with
sweet almonds;
(b) For doubles. 5 percent;
(c) For kernels damaged by chipping and/or scratching. 5 percent;
[[Page 17584]]
(d) For foreign material. One-twentieth of 1 percent (0.05
percent). No part of this percentage shall be allowed for glass and
metal;
(e) For particles and dust. One-tenth of 1 percent (0.10 percent);
and,
(f) For other defects. 4 percent, including not more than one-
fourth of this amount, or 1 percent, for split or broken kernels, and
including not more than three-eighths of the former amount, or 1-1/2
percent, for seriously damaged kernels.
Sec. 51.2107 U.S. No. 1.
``U.S. No. 1'' consists of shelled almonds of similar varietal
characteristics which are whole, clean and well dried, and which are
free from decay, rancidity, insect injury, foreign material, doubles,
split or broken kernels, particles and dust, and free from damage
caused by chipped and scratched kernels, mold, gum, shriveling, brown
spot or other means. (See Secs. 51.2113 and 51.2114.)
In order to allow for variations incident to proper grading and
handling, the following tolerances, by weight, shall be permitted:
(a) For dissimilar varieties. 5 percent, including not more than
one-fifth of this amount, or 1 percent, for bitter almonds mixed with
sweet almonds;
(b) For doubles. 15 percent;
(c) For kernels damaged by chipping and/or scratching. 10 percent;
(d) For foreign material. One-twentieth of 1 percent (0.05
percent). No part of this percentage shall be allowed for glass and
metal;
(e) For particles and dust. One-tenth of 1 percent (0.10 percent);
and,
(f) For other defects. 5 percent including not more than one-fifth
of this amount, or 1 percent, for split or broken kernels, and
including not more than three-tenths of the former amount, or 1\1/2\
percent, for seriously damaged kernels.
Sec. 51.2108 U.S. Select Sheller Run.
``U.S. Select Sheller Run'' consists of shelled almonds of similar
varietal characteristics which are whole, clean and well dried, and
which are free from decay, rancidity, insect injury, foreign material,
doubles, split or broken kernels, particles and dust, and free from
damage caused by chipped and scratched kernels, mold, gum, shriveling,
brown spot or other means. (See Secs. 51.2113 and 51.2114.)
In order to allow for variations incident to proper grading and
handling, the following tolerances, by weight, shall be permitted:
(a) For dissimilar varieties. 5 percent, including not more than
one-fifth of this amount, or 1 percent, for bitter almonds mixed with
sweet almonds;
(b) For doubles. 15 percent;
(c) For kernels damaged by chipping and/or scratching. 20 percent;
(d) For foreign material. One-tenth of 1 percent (0.10 percent). No
part of this percentage shall be allowed for glass and metal;
(e) For particles and dust. One-tenth of 1 percent (0.10 percent);
(f) For split and broken kernels. 5 percent: Provided, that not
more than two- fifths of this amount, or 2 percent, shall be allowed
for pieces which will pass through a round opening 20/64 inch (7.9 mm)
in diameter; and,
(g) For other defects. 3 percent, including not more than two-
thirds of this amount, or 2 percent, for serious damage.
Sec. 51.2109 U.S. Standard Sheller Run.
``U.S. Standard Sheller Run'' consists of shelled almonds of
similar varietal characteristics which are whole, clean and well dried,
and which are free from decay, rancidity, insect injury, foreign
material, doubles, split or broken kernels, particles and dust, and
free from damage caused by chipped and scratched kernels, mold, gum,
shriveling, brown spot or other means. (See Secs. 51.2113 and 51.2114.)
In order to allow for variations incident to proper grading and
handling, the following tolerances, by weight, shall be permitted:
(a) For dissimilar varieties. 5 percent, including not more than
one-fifth of this amount, or 1 percent, for bitter almonds mixed with
sweet almonds;
(b) For doubles. 25 percent;
(c) For kernels damaged by chipping and/or scratching or split and
broken. 35 percent; Provided, that not more than three-sevenths of this
amount, or 15 percent, shall be allowed for split and broken: And
Provided Further, that not more than one-third of this latter amount,
or 5 percent, shall be allowed for pieces which will pass through a
round opening \20/64\ inch (7.9 mm) in diameter;
(d) For foreign material. Two-tenths of 1 percent (0.20 percent).
No part of this percentage shall be allowed for glass and metal;
(e) For particles and dust. One-tenth of 1 percent (0.10 percent);
and,
(f) For other defects. 3 percent, including not more than two-
thirds of this amount, or 2 percent, for serious damage.
Sec. 51.2110 U.S. No. 1 Whole and Broken.
``U.S. No. 1 Whole and Broken'' consists of shelled almonds of
similar varietal characteristics which are clean and well dried, and
which are free from decay, rancidity, insect injury, foreign material,
doubles, particles and dust, and free from damage caused by mold, gum,
shriveling, brown spot or other means.
(a) In this grade not less than 30 percent, by weight, of the
kernels shall be whole. Doubles shall not be considered as whole
kernels in determining the percentage of whole kernels.
(b) Unless otherwise specified, the minimum diameter shall be not
less than \20/64\ of an inch (7.9 mm). (See Secs. 51.2113 and 51.2114.)
(c) In order to allow for variations incident to proper grading and
handling, the following tolerances, by weight, shall be permitted:
(1) For dissimilar varieties. 5 percent, including not more than
one-fifth of this amount, or 1 percent, for bitter almonds mixed with
sweet almonds;
(2) For doubles. 35 percent;
(3) For foreign material. Two-tenths of 1 percent (0.20 percent).
No part of this percentage shall be allowed for glass and metal;
(4) For particles and dust. One-tenth of 1 percent (0.10 percent);
(5) For undersize. 5 percent; and,
(6) For other defects. 5 percent, including not more than three-
fifths of this amount, or 3 percent, for serious damage.
Sec. 51.2111 U.S. No. 1 Pieces.
``U.S. No. 1 Pieces'' consists of shelled almonds which are not
bitter, which are clean and well dried, and which are free from decay,
rancidity, insect injury, foreign material, particles and dust, and
free from damage caused by mold, gum, shriveling, brown spot or other
means.
(a) Unless otherwise specified, the minimum diameter shall be not
less than \8/64\ of an inch (3.2 mm). (See Secs. 51.2113 and 51.2114.)
(b) In order to allow for variations incident to proper grading and
handling, the following tolerances, by weight, shall be permitted:
(1) For bitter almonds mixed with sweet almonds. 1 percent;
(2) For foreign material. Two-tenths of 1 percent (0.20 percent).
No part of this percentage shall be allowed for glass and metal;
(3) For particles and dust. 1 percent; and
(4) For other defects. 5 percent, including not more than three-
fifths of this amount, or 3 percent, for serious damage.
Sec. 51.2112 Mixed varieties.
Any lot of shelled almonds designated as ``one type'' or
undesignated as to
[[Page 17585]]
type, which consists of a mixture of two or more dissimilar varieties
which meet the other requirements of any of the grades of U.S. No. 1,
U.S. Select Sheller Run, U.S. Standard Sheller Run, U.S. No. 1 Whole
and Broken may be designated as: ``U.S. No. 1 Mixed;'' ``U.S. Select
Sheller Run Mixed;'' ``U.S. Standard Sheller Run Mixed;'' ``U.S. No. 1
Whole and Broken Mixed;'' respectively; but no lot of any of these
grades may include more than 1 percent of bitter almonds mixed with
sweet almonds.
Size
Sec. 51.2113 Size requirements.
The size may be specified in terms of range in count of whole
almond kernels per ounce or in terms of minimum, or minimum and maximum
diameter. When a range in count is specified, the whole kernels shall
be fairly uniform in size, and the average count per ounce shall be
within the range specified. Doubles and broken kernels shall not be
used in determining counts. Count ranges per ounce commonly used are
shown below, but other ranges may be specified: Provided, that the
kernels are fairly uniform in size.
Count Range per Ounce
16 to 18, inclusive.
18 to 20, inclusive.
20 to 22, inclusive.
22 to 24, inclusive.
23 to 25, inclusive.
24 to 26, inclusive.
26 to 28, inclusive.
27 to 30, inclusive.
30 to 34, inclusive.
34 to 40, inclusive.
40 to 50, inclusive.
50 and smaller.
Sec. 51.2114 Tolerances for size.
(a) When a range is specified as, for example, ``\18/20\,'' no
tolerance for counts above or below the range shall be allowed.
(b) When the minimum, or minimum and maximum diameter are
specified, a total tolerance of not more than 10 percent, by weight,
may fail to meet the specified size requirements: Provided, that not
more than one-half of this amount, or 5 percent, may be below the
minimum size specified.
Application of Tolerances
Sec. 51.2115 Application of tolerances.
The tolerances for the grades are to be applied to the entire lot,
and a composite sample shall be taken for determining the grade.
However, any container or group of containers in which the almonds are
found to be materially inferior to those in the majority of the
containers shall be considered a separate lot.
Definitions
Sec. 51.2116 Similar varietal characteristics.
Similar varietal characteristics means that the kernels are similar
in shape and appearance. For example, long types shall not be mixed
with short types, or broad types mixed with narrow types, and bitter
almonds shall not be mixed with sweet almonds. Color of the kernels
shall not be considered, since there is often a marked difference in
skin color of kernels of the same variety.
(a) When a lot is specified as ``one type,'' all kernels shall be
the same in shape and appearance; and,
(b) When a lot is specified and carton marked as ``California,''
kernels present may include any one or a combination of blanchable
varieties within the ``California'' Marketing Classification. In
addition, Nonpareil or similar types may be included provided that it
does not exceed twenty-five percent (25%), by weight, of the lot.
Sec. 51.2117 Whole.
Whole means that there is less than one-eighth of the kernel
chipped off or missing, and that the general contour of the kernel is
not materially affected by the missing part.
Sec. 51.2118 Clean.
Clean means that the kernel is practically free from dirt and other
foreign substance.
Sec. 51.2119 Well dried.
Well dried means that the kernel is firm and brittle, and not
pliable or leathery.
Sec. 51.2120 Decay.
Decay means that part or all of the kernel has become decomposed.
Sec. 51.2121 Rancidity.
Rancidity means that the kernel is noticeably rancid to the taste.
Sec. 51.2122 Insect injury.
Insect injury means that the insect, web, or frass is present or
there is definite evidence of insect feeding.
Sec. 51.2123 Foreign material.
Foreign material means pieces of shell, hulls or other foreign
matter which will not pass through a round opening \8/64\ of an inch
(3.2 mm) in diameter.
Sec. 51.2124 Doubles.
Doubles means kernels that developed in shells containing two
kernels. One side of a double kernel is flat or concave.
Sec. 51.2125 Split or broken kernels.
Split or broken kernels means seven-eighths or less of complete
whole kernels but which will not pass through a round opening \8/64\ of
an inch (3.2 mm) in diameter.
Sec. 51.2126 Particles and dust.
Particles and dust means fragments of almonds kernels or other
material which will pass through a round opening \8/64\ of an inch (3.2
mm) in diameter.
Sec. 51.2127 Injury.
Injury means any defect which more than slightly detracts from the
appearance of the individual almond. The following shall be considered
as injury:
Chipped and scratched kernels when the affected area on an
individual kernel aggregates more than the equivalent of a circle one-
eighth inch (3.2 mm) in diameter.
Sec. 51.2128 Damage.
Damage means any defect which materially detracts from the
appearance of the individual kernel, or the edible or shipping quality
of the almonds. Any one of the following defects or combination
thereof, the seriousness of which exceeds the maximum allowed for any
one defect shall be considered as damage:
(a) Chipped and scratched kernels, when the affected area on an
individual kernel aggregates more than the equivalent of a circle one-
quarter inch (6.4 mm) in diameter;
(b) Mold, when visible on the kernel, except when white or gray and
easily rubbed off with the fingers.
(c) Gum, when a film of shiny, resinous appearing substance affects
an area aggregating more than the equivalent of a circle one-quarter
inch (6.4 mm) in diameter;
(d) Shriveling, when the kernel is excessively thin for its size,
or when materially withered, shrunken, leathery, tough or only
partially developed: Provided, that partially developed kernels are not
considered damaged if more than three-fourths of the pellicle is filled
with meat;
(e) Brown spot on the kernel, either single or multiple, when the
affected area aggregates more than the equivalent of a circle one-
eighth inch (3.2 mm) in diameter; and,
(f) Skin discoloration when more than one-half of the surface of
the kernel is affected by very dark or black stains contrasting with
the natural color of the skin.
[[Page 17586]]
Sec. 51.2129 Serious damage.
Serious damage means any defect which makes a kernel or piece of
kernel unsuitable for human consumption, and includes decay, rancidity,
insect injury and damage by mold.
Sec. 51.2130 Diameter.
Diameter means the greatest dimension of the kernel, or piece of
kernel at right angles to the longitudinal axis. Diameter shall be
determined by passing the kernel or piece of kernel through a round
opening.
Sec. 51.2131 Fairly uniform in size.
Fairly uniform in size means that, in a representative sample, the
weight of 10 percent, by count, of the largest whole kernels shall not
exceed 1.70 times the weight of 10 percent, by count, of the smallest
whole kernels.
Dated: April 9, 1996.
Lon Hatamiya,
Administrator.
[FR Doc. 96-9829 Filed 4-19-96; 8:45 am]
BILLING CODE 3410-02-P
Complete official Federal Register PDF
FR Doc. 96-9790 Railroad Contracts
[Federal Register Volume 61, Number 78 (Monday, April 22, 1996)]
[Proposed Rules]
[Page 17682]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-9790]
=======================================================================
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DEPARTMENT OF TRANSPORTATION
Surface Transportation Board
49 CFR Part 1313
[STB Ex Parte No. 541]
Railroad Contracts
AGENCY: Surface Transportation Board.
ACTION: Advance notice of proposed rulemaking; extension of comment due
date.
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SUMMARY: The original comment due date in this proceeding of April 25,
1996, is extended to May 28, 1996, at the request of the National Grain
and Feed Association (NGFA), the Association of American Railroads
(AAR), and the National Industrial Transportation League (NITL). This
proceeding solicited suggestions from the transportation community for
appropriate regulations to implement the new rail contract provisions.
DATES: Comments are due on May 28, 1996.
ADDRESSES: Send comments (an original and 10 copies) referring to STB
Ex Parte No. 541 to: Surface Transportation Board, Office of the
Secretary, Case Control Branch, 1201 Constitution Avenue NW.,
Washington, DC 20423.
FOR FURTHER INFORMATION CONTACT: Beryl Gordon, (202) 927-5610. [TDD for
the hearing impaired: (202) 927-5721.]
SUPPLEMENTARY INFORMATION: On March 26, 1996, an advance notice of
proposed rulemaking (ANPR) was served and published in the Federal
Register, at 61 FR 13147-13148, soliciting suggestions from the
transportation community for appropriate regulations to implement the
new rail contract provisions of 49 U.S.C. 10709. On April 15, 1996, a
joint request was filed by NGFA, AAR, and NITL, requesting an extension
of the comment due date until May 28, 1996, to give shipper and carrier
organizations the opportunity to reach negotiated agreements regarding
issues relevant to the proceeding.
In the ANPR, the various sectors of the transportation community
were encouraged to discuss the issues and present a proposal for
consideration. The jointly filed extension request is in keeping with
that encouragement. Accordingly, the due date for comments will be
extended to May 28, 1996.
Decided: April 16, 1996.
By the Board, Linda J. Morgan, Chairman.
Vernon A. Williams,
Secretary.
[FR Doc. 96-9790 Filed 4-19-96; 8:45 am]
BILLING CODE 4915-00-P
Complete official Federal Register PDF
FR Doc. 96-9775 Federal Home Loan Bank Directors' Compensation and Expenses
[Federal Register Volume 61, Number 78 (Monday, April 22, 1996)]
[Proposed Rules]
[Pages 17603-17606]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-9775]
=======================================================================
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FEDERAL HOUSING FINANCE BOARD
12 CFR Part 932
[No. 96-27]
Federal Home Loan Bank Directors' Compensation and Expenses
AGENCY: Federal Housing Finance Board.
ACTION: Notice of proposed rulemaking.
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SUMMARY: The Federal Housing Finance Board (Finance Board) is proposing
to repeal its Directors' Fees and Allowances Policy (Policy) and amend
its regulation on the compensation of Federal Home Loan Bank (Bank)
directors to provide greater flexibility to the Banks in compensating
their directors and to set forth a clear standard of reasonableness for
such compensation under the Federal Home Loan Bank Act (Bank Act). The
current Finance Board regulation on the compensation of Bank directors
subjects the payment of fees and expenses to limits set by the Finance
Board. Those limits and other criteria are contained in the Policy,
which essentially imposes a uniform directors' compensation structure
on all Banks. The proposed rule would replace the current regulatory/
policy scheme with an amended regulation permitting each Bank, within
certain general guidelines, to devise its own compensation structure
for Bank directors, and allowing each Bank to pay its directors for
such expenses as are payable by the Bank to its senior officers.
The Finance Board is also proposing a rule requiring that meetings
of a Bank's board of directors be held within the United States. This
will codify an important provision of the Finance Board's Policy, which
would be rescinded simultaneously with the adoption of a final rule on
Bank directors' compensation and expenses.
DATES: Comments must be received on or before June 21, 1996.
ADDRESSES: Comments may be mailed to: Executive Secretariat, Federal
Housing Finance Board, 1777 F Street, N.W., Washington, D.C. 20006.
Comments will be available for public inspection at this address.
FOR FURTHER INFORMATION CONTACT: Patricia L. Sweeney, Program Analyst,
District Banks Secretariat, (202) 408-2872; or Eric M. Raudenbush,
Attorney-Advisor, Office of General Counsel, (202) 408-2932; Federal
Housing Finance Board, 1777 F Street, N.W., Washington, D.C. 20006.
SUPPLEMENTARY INFORMATION:
I. Statutory and Regulatory Background
Subsection 7(i) of the Bank Act permits each Bank, with the
approval of the Finance Board, to pay its directors reasonable
compensation and necessary expenses for the time required of them in
the performance of their Bank-related duties, in accordance with
resolutions adopted by such directors. 12 U.S.C. 1427(i) (1994). A
general provision on Bank directors' compensation, which appears at
section 932.27 of the Finance Board's regulations, provides merely that
directors' fees shall be established by each Bank within limits set by
the Finance Board. See 12 CFR 932.27 (1995).
The Finance Board has exercised its statutory responsibility to
approve Bank director compensation and expenses largely through its
Directors' Fees and Allowances Policy, adopted by resolution of its
Board of Directors on February 23, 1993. See Finance Board Resolution
No. 93-12 (Feb. 23, 1993). The existing policy establishes a maximum
fee of $1,200 per day payable to the Chair of a Bank's board of
directors when presiding over meetings of the board or its executive
committee, and a maximum fee of $650 per day payable to all other
directors for attendance at board, committee, or other meetings for
which a fee is authorized. Under the Policy, daily meeting fees are the
only authorized source of compensation for Bank directors; the Policy
does not provide for payment of either a retainer, or non-cash benefits
to directors. The Policy also sets forth generally the categories of
expenses that are payable to Bank directors and identifies several
specific expense items the payment of which is either authorized or
prohibited.
The Banks first became subject to a formal policy on directors fees
and expenses in 1974, when the former Federal Home Loan Bank Board
(FHLBB) (the Finance Board's predecessor agency) adopted a policy that
revised, clarified and incorporated the various resolutions, minute
entries and interpretations on director compensation and expenses that
had been issued by the FHLBB since its creation in 1932. The FHLBB
policy was amended several times, lastly in 1986, when the current dual
$1200/$650 per day meeting fee caps were incorporated. When the Finance
Board succeeded the FHLBB as regulator of the Bank system in 1989, the
FHLBB's policy on Bank directors' fees and expenses remained in effect,
as provided by the Financial Institutions Reform, Recovery and
Enforcement Act's (FIRREA) provision on the continuation of orders,
resolutions, determinations and regulations of the FHLBB. See Public
Law 101-73, section 401(h), 103 Stat. 183 (1989) (codified at 12 U.S.C.
1437 note). The Policy is essentially identical to the FHLBB's 1986
policy.
The Bank Act currently vests in the Finance Board the
responsibility to supervise the Bank System, to regulate it for
financial safety and soundness, and to pass upon most matters of
corporate governance of the Banks. A series of studies and reports
mandated by the Housing and Community Development Act of 1992, Public
Law 102-550, section 1393, 106 Stat. 3672 (1992), including a report
prepared by the Finance Board in April 1993, concluded that the Finance
Board's authority over Bank corporate governance is in conflict with
the agency's primary role as Bank System regulator. Since the
completion of these studies, the Finance Board has been working closely
with the Banks to implement regulatory and policy changes designed to
devolve to the Banks the authority to set policy on matters of
corporate governance, to the extent permissible under the Bank Act. In
conjunction with these efforts, two separate task forces composed of
senior officials of the Banks have recommended that the Finance Board
rescind the Policy and establish broad
[[Page 17604]]
guidelines within which the Banks' boards of directors can set the
structure and limits for the compensation of their directors.
As part of its policy to devolve matters of corporate governance to
the Banks, the Finance Board is now proposing to rescind both its
current regulation on Bank directors' compensation and the Policy
adopted thereunder and to replace both with a comprehensive regulation
on Compensation and Expenses of Bank Directors. This proposed
regulation, though more detailed than the existing regulation, will
allow the Banks greater freedom to develop and implement their own
directors' compensation plans than is possible under the current
regulatory/policy scheme, while establishing clear and enforceable
regulatory limitations.
II. Analysis of the Proposed Rule
The proposed rule provides for the addition of a new Sec. 932.26 to
the Finance Board's regulations and for the revision of Sec. 932.27
thereof to contain entirely new text. Proposed Sec. 932.26 codifies
existing Finance Board policies requiring that most meetings of a
Bank's boards of directors and its committees be held within the
district served by that Bank and prohibiting Banks from holding any
such meetings outside the borders of the United States. This provision
is taken from the Finance Board's existing Policy and the codification
of these requirements as a regulation is intended merely to preserve
these important requirements when the Policy is rescinded.
The proposed rule also would replace Sec. 932.27 of the Finance
Board's regulations, entitled ``Compensation,'' with a new regulation
entitled ``Compensation and Expenses of Bank Directors.'' As a whole,
proposed Sec. 932.27 is intended to limit the total dollar pool
available to each Bank to compensate its directors to an appropriate
level, while providing the Banks with maximum flexibility to devise
their own directors' compensation schemes within the dollar limit. The
proposed regulation is not designed to answer specific compensation
issues; rather, it is intended to empower each Bank to exercise its
reasonable discretion to decide how to compensate its directors, and
thereby to allow many practices that are not authorized under the
Policy, including, without limitation: the payment of retainer fees,
the provision of non-cash benefits and the payment of meeting fees for
participation in telephonic meetings.
Paragraph (a) of the proposed regulation defines two terms--
''compensation'' and ``average compensation per director.''
Paragraph (b) of the proposed regulation is the operative provision
with respect to the compensation of directors. It requires each Bank to
adopt annually, by resolution of its board of directors, a written
policy to provide for the payment of ``reasonable compensation'' to its
directors for their work on Bank-related matters during the following
calendar year. In conjunction with the definition of ``compensation''
contained in paragraph (a), paragraph (b) is intended to permit the
Banks to remunerate their directors in a wide variety of fashions,
including through the use of daily meeting fees, retainer fees, cash or
non-cash fringe benefits, deferred payments, or combinations thereof.
Under proposed paragraph (b), the text of each Bank's policy must
detail the types of Bank-related meetings or other activities in which
its directors are required or expected to participate and for which
they may be compensated. In addition, the policy must explain fully the
methodology for determining the amounts and the circumstances under
which its directors may be paid, including, if applicable: setting
forth rates of compensation for participation in Bank-related
activities; setting forth any retainer fees payable to directors and
the circumstances under which they may be paid; explaining the
rationale behind any graduated meeting or retainer fee scales; and
detailing any non-cash fringe benefits to be provided to directors,
including the approximate cash value thereof. By requiring a detailed
written policy on director compensation, paragraph (b) is intended, in
part, to facilitate review of the Banks' director compensation
practices during the Finance Board's annual regulatory examination
process. The Finance Board specifically requests comment on whether to
include as part of the regulation a requirement that the Banks'
policies on director compensation be made available to the public
through either the Finance Board or the Banks individually and, if so,
whether the policies should be disseminated as a matter of course, or
merely made available upon request.
Paragraph (c) of the proposed regulation sets forth the substantive
limits on Bank directors' compensation that must be reflected in each
Bank's policy on director compensation. The requirements of this
subsection are designed to operate in tandem and are intended to
require each Bank to develop a compensation plan that, using a
reasonable pool of money, provides incentive for active director
participation in Bank-related affairs and rewards those directors who
assume greater responsibilities.
The introductory text to paragraph (c)(1) provides for a $28,000
cap on each Bank's annual ``average compensation per director'' (ACPD),
which is defined in paragraph (a) as the total amount the Bank pays in
compensation to all directors, divided by the total number of directors
designated by the Federal Housing Finance Board to serve on the Bank's
board for that year. By capping the ACPD, the proposed regulation
effectively would limit the total pool of money available to each Bank
to compensate its directors (to $28,000 times the total number of
directors), but, because each Bank has a different number of directors,
this has been expressed in terms of ``compensation per director''
instead of as a lump sum. Because the regulation caps only the average
amount paid to a Bank's directors, it would not prohibit a Bank from
paying one or more directors more than $28,000, as long as the average
compensation of all the Bank's directors does not exceed that amount.
In reaching the $28,000 figure, the board of directors of the
Finance Board has considered a number of factors, including: Bank
directors' earnings under the Policy; compensation of directors at
other Government Sponsored Enterprises (GSEs), including an analysis of
similarities and differences between the Banks and other GSEs that
might require different compensation levels; and the compensation of
board directors of Bank system member financial institutions. After
reviewing these factors, and considering the agency's statutory
responsibility to ``approve'' Bank directors' compensation, see 12
U.S.C. 1427(i), the Bank Act's requirement that such compensation be
``reasonable,'' see id., and the preference for providing a clear
regulatory standard, the board of directors of the Finance Board
concluded that an ACPD cap of $28,000 would be sufficient to allow the
Banks to attract high quality individuals to serve on their boards of
directors, yet is moderate enough, considering market rates, the Banks'
GSE status and the general duties of Bank directors, to qualify as
``reasonable compensation'' under the Bank Act.
As provided in paragraph (c)(2), the cap on ACPD will increase
automatically, beginning in 1997, to reflect the previous year's change
in the Consumer Price Index (CPI). Although paragraph (c)(2) requires
the Finance Board to communicate to the Banks each year's new ACPD cap
figure, the annual change in the regulatory ACPD
[[Page 17605]]
cap is not contingent upon such communication. It is understood that
the precise change in CPI will not be available until after the
beginning of the year to which it is to apply. However, the agency
views this provision as a mechanism for allowing the ACPD cap to keep
pace with the level of inflation over a number of years and does not
anticipate the need for Banks to make minute adjustments to their
compensation policies on an annual basis, although the proposed
regulation would not prohibit such adjustments.
Paragraph (c)(1)(i) requires that, keeping within stated cap on
ACPD, each Bank's policy on director compensation should be designed
such that, at year end, the total compensation paid to each director
reflects both the amount of time that the director has spent on Bank-
related business and the level of responsibility the director has
assumed with respect to his or her role on the Bank's board of
directors.
Specifically, the requirement that a directors' annual compensation
must reflect the amount of time spent on official Bank business is
intended to ensure that Bank directors are being paid for meetings they
actually attend and duties they actually perform for each Bank. For
example, a Bank's policy should ensure that, at year end, a director
who has attended every scheduled Bank-related meeting receives more in
compensation (all other factors being equal) than a director who has
missed more than a negligible amount of meetings. Although there are
many permissible ways for a Bank to implement this requirement, the one
method would be to incorporate into its policy a schedule of meeting
fees, the payment of which would be contingent upon directors'
attendance at appropriate Bank functions. While the proposed regulation
would not prohibit a Bank from paying a portion of its directors'
compensation in the form of a retainer fee, paragraph (c)(1)(i)
effectively would prohibit a Bank from paying its directors entirely
through retainer fees, unless their payment somehow was made contingent
on the fulfillment of Bank-related duties.
Paragraph (c)(1)(i) also requires that each director's total annual
compensation reflect the level of responsibility assumed by that
director. This requirement is aimed primarily at ensuring that
directors are rewarded appropriately for serving as committee Chair, or
for assuming other positions of responsibility. The provision leaves to
the discretion of the Bank the identification of the particular formal
or informal duties that warrant additional compensation. While the
provision also leaves to the discretion of the Bank the method of
incorporating such incentives into its director compensation policy,
the one method of doing so would be to provide for graduated scales of
meeting or retainer fees under which those assuming more responsibility
in general, or with respect to a particular meeting or function,
receive a higher sum than those who do not.
Paragraph (c)(1)(ii) requires each Bank to pay its Chair: (1) more
than any other director and (2) at least 125 percent of the Bank's
ACPD. Any plan under which a Bank's board Chair would not receive
significant additional compensation for assuming such duties would not
provide ``reasonable compensation,'' as required by subsection 7(i) of
the Bank Act. 12 U.S.C. 1427(i). Accordingly, although paragraph
(c)(1)(i) requires generally that a Bank stratify its compensation
based on the level of responsibility assumed by each director, the
Finance Board has determined that a requirement dealing specifically
with Bank Chairs is appropriate to ensure that statutory requirements
are being fulfilled. To avoid ambiguity in determining compliance with
the provision and to ensure that Bank Chairs are provided more than a
negligible premium for their additional service, the proposed rule
includes the specific ``125 percent'' minimum figure, arrived at after
reviewing the compensation practices of other GSEs and financial
institutions.
The Finance Board specifically requests comment on whether to
include as part of the regulation a provision under which a portion of
each Bank's directors' annual compensation would be contingent upon
that Bank's achievement of performance-related goals such as meeting
particular earnings targets, achieving a satisfactory regulatory
examination, or fulfilling the Bank's housing finance mission, and, if
so, whether these incentive goals should be set forth in the
regulation, or left to the discretion of the Banks.
Finally, paragraph (d) of the proposed regulation allows each Bank
to pay its directors such Bank-related travel, subsistence and other
related expenses as are payable to senior officers of the Bank under
the Bank's travel policy, except for gift or entertainment expenses.
This provision ties payment of directors' expenses to existing Bank
policies which are subject to regulatory examination and which may be
amended at the discretion of the Bank.
III. Regulatory Flexibility Act
The proposed rule applies only to the Banks, which do not come
within the meaning of ``small entities,'' as defined in the Regulatory
Flexibility Act. See 5 U.S.C. 601(6). Therefore, in accordance with 5
U.S.C. 605(b), the Finance Board hereby certifies that this proposed
rule, if promulgated as a final rule, will not have a significant
economic impact on a substantial number of small entities.
List of Subjects in 12 CFR Part 932
Conflict of interests, Federal home loan banks, Reporting and
recordkeeping requirements.
Accordingly, part 932, chapter IX, title 12, Code of Federal
Regulations, is hereby amended as follows:
PART 932--ORGANIZATION OF THE BANKS
1. The authority citation for part 932 continues to read as
follows:
Authority: 12 U.S.C. 1442a, 1422b, 1426, 1427, 1464; 18 U.S.C.
207; 42 U.S.C. 8101 et seq.
2. Section 932.26 is added to read as follows:
Sec. 932.26 Site of board of directors and committee meetings.
Meetings of a Bank's board of directors and committees thereof
usually should be held within the district served by the Bank. No
meetings of a Bank's board of directors and committees thereof may be
held in any location that is not within the United States, including
its possessions and territories.
3. Section 932.27 is revised to read as follows:
Sec. 932.27 Compensation and expenses of Bank directors.
(a) Definitions. As used in this section:
(1) Compensation means any payment of money or provision of any
other thing of value (or the accrual of a right to receive money or a
thing of value in a subsequent year) in consideration of a director's
performance of official duties for the Bank, including, without
limitation, retainer fees, daily meeting fees and fringe benefits.
(2) Average compensation per director means the sum of the total
annual compensation paid to all directors serving on a Bank's board of
directors, divided by the total number of directors designated by the
Federal Housing Finance Board to serve on the Bank's board for that
year.
(b) Annual compensation. Each Bank's board of directors shall
adopt annually by resolution a written policy to provide for the
payment to Bank directors of reasonable compensation for the
performance of their duties as
[[Page 17606]]
members of the Bank's board for the following calendar year, subject to
the requirements set forth in paragraph (c) of this section. At a
minimum, such policy shall address the activities or functions for
which attendance is necessary and appropriate and may be compensated,
and shall explain and justify the methodology for determining the
amount of compensation to be paid to directors.
(c) Policy requirements. Each Bank's policy on director
compensation shall conform to the following requirements:
(1) The Average Compensation Per Director for each Bank shall not
exceed $28,000 for the year 1996. Within this limit:
(i) The total annual compensation for each director shall reflect
both the amount of time spent on official Bank business and the level
of responsibility assumed by that director; and
(ii) The total annual compensation for the chair of each Bank's
board of directors shall not be equaled or exceeded by the total annual
compensation of any other director and shall not be less than 125
percent of the Average Compensation Per Director for that Bank.
(2) For 1997 and subsequent years, the limit on Average
Compensation Per Director set forth in paragraph (c)(1) of this section
shall be adjusted annually to reflect the preceding year's change in
the Consumer Price Index (CPI) for all urban consumers, as published by
the Bureau of Labor Statistics. Each year, as soon as practicable after
the publication of the previous year's CPI, the Board shall publish
notice, by Federal Register, distribution of a memorandum, or
otherwise, of the CPI-adjusted limit on Average Compensation Per
Director.
(d) Expenses. Each Bank may pay its directors for such necessary
and reasonable travel, subsistence and other related expenses incurred
in connection with the performance of their official duties as are
payable to senior officers of the Bank under the Bank's travel policy,
except that directors may not be paid for gift or entertainment
expenses.
By the Board of Directors of the Federal Housing Finance Board.
Dated: April 10, 1996.
Bruce A. Morrison,
Chairman.
[FR Doc. 96-9775 Filed 4-19-96; 8:45 am]
BILLING CODE 6725-01-U
Complete official Federal Register PDF
FR Doc. 96-9771 Summer Flounder Fishery; Proposed 1996 Recreational Fishery Management Measures
[Federal Register Volume 61, Number 78 (Monday, April 22, 1996)]
[Proposed Rules]
[Pages 17682-17683]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-9771]
=======================================================================
-----------------------------------------------------------------------
DEPARTMENT OF COMMERCE
National Oceanic and Atmospheric Administration
50 CFR Part 625
[Docket No. 960412110-6110-01; I.D. 030596E]
RIN 0648-AI93
Summer Flounder Fishery; Proposed 1996 Recreational Fishery
Management Measures
AGENCY: National Marine Fisheries Service (NMFS), National Oceanic and
Atmospheric Administration (NOAA), Commerce.
ACTION: Proposed rule; request for comments.
-----------------------------------------------------------------------
SUMMARY: NMFS issues this proposed rule to amend the regulations
implementing the Fishery Management Plan for the Summer Flounder
Fishery (FMP). This rule proposes a possession limit of eight fish per
person and a minimum fish size of 14 inches (35.6 cm) for the 1996
summer flounder recreational fishery. The intent of this action is to
comply with implementing regulations for the fishery that require NMFS
to publish measures for the upcoming fishing year that will prevent
overfishing of the resource.
DATES: Public comments on this proposed rule must be received on or
before May 17, 1996.
ADDRESSES: Comments should be sent to: Director, Northeast Region,
NMFS, One Blackburn Drive, Gloucester, MA 01930.
[[Page 17683]]
Copies of the environmental assessment prepared for the 1996 summer
flounder specifications and supporting documents used by the Summer
Flounder Monitoring Committee (Committee) are available from: Executive
Director, Mid-Atlantic Fishery Management Council, Room 2115, Federal
Building, 300 S. New Street, Dover, DE 19901-6790.
FOR FURTHER INFORMATION CONTACT: Regina L. Spallone, Fishery Policy
Analyst, (508)281-9221.
SUPPLEMENTARY INFORMATION: The FMP was developed jointly by the
Atlantic States Marine Fisheries Commission (ASMFC) and the Mid-
Atlantic Fishery Management Council (Council) in consultation with the
New England and South Atlantic Fishery Management Councils. The
management unit for the FMP is summer flounder (Paralichthys dentatus)
in U.S. waters of the Atlantic Ocean from the southern border of North
Carolina northward to the Canadian border. Implementing regulations for
the fishery are found at 50 CFR part 625.
Section 625.20 outlines the process for determining annual
commercial and recreational catch quotas and other restrictions for the
summer flounder fishery. The Committee, made up of representatives from
the ASMFC, the Council, the New England Fishery Management Council, and
NMFS is required to review, on an annual basis, scientific and other
relevant information and to recommend a quota and other restrictions
necessary to achieve a fishing mortality rate of 0.53 in 1993 through
1995, 0.41 in 1996, 0.30 in 1997, and 0.23 in 1998 and thereafter,
provided the allowable levels of fishing in 1996 and 1997 do not exceed
18.518 million lb (8.4 million kg), unless such levels have an
associated F of 0.23. This schedule is mandated by the FMP to prevent
overfishing and to rebuild the summer flounder resource. The Committee
reviews the following information annually to determine the allowable
levels of fishing and other restrictions necessary to achieve a given
fishing mortality rate goal: (1) Commercial and recreational catch
data; (2) current estimates of fishing mortality; (3) stock status; (4)
recent estimates of recruitment; (5) virtual population analysis, a
method for analyzing fish stock abundance; (6) levels of regulatory
noncompliance by fishermen or individual states; (7) impact of fish
size and net mesh regulations; (8) impact of gear, other than otter
trawls, on the mortality of summer flounder; and (9) other relevant
information. Pursuant to Sec. 625.20, after this review, the Committee
recommends management measures to ensure achievement of the appropriate
fishing mortality rate.
The 1996 final specifications, which were implemented on December
31, 1995 (61 FR 291, January 4, 1996), are: (1) A minimum commercial
fish size of 13 inches (33 cm), (2) a minimum mesh size restriction of
5.5-inch (14.0-cm) diamond or 6.0-inch (15.2-cm) square, (3) a
coastwide harvest limit of 18,518,830 lb (8.40 million kg); (4) a
coastwide commercial quota of 11,111,298 lb (5.04 million kg), and (5)
a coastwide recreational harvest limit of 7,407,532 lb (3.36 million
kg).
The recreational season, possession limit, and minimum size were
not established as part of the final specifications, because
recreational catch data for 1995 were not available for the Committee's
use in evaluating the effectiveness of the 1995 measures. Shortly after
preliminary data became available in October 1995, the Committee met to
review the 1995 data and to recommend measures for 1996. The Committee
recommended to continue the elimination of the closed season, an
individual possession limit of eight fish per person, and a minimum
fish size of 14 inches (35.6 cm). These recommendations, adopted by the
Council on January 26, 1996, are proposed in this action.
An apparent discrepancy exists between the harvest limit decrease
from 1995 to 1996 (7.76 million lb [3.52 million kg]) to 7.41 million
lb [3.36 million kg]) and the possession limit increase (from six fish
to eight fish). This increase in the possession limit is consistent
with the relaxation of the mortality reduction schedule recently
approved in Amendment 7 to the FMP (60 FR 57955, November 24, 1995).
Further, the Council believes that this increase is warranted because,
while the recreational harvest limit decreased from 1995 to 1996,
estimated 1995 landings are below both the 1995 and 1996 harvest
limits. This landings shortage occurred despite the fact that most
states implemented an eight fish per person possession limit in 1995,
as allowed under the ASMFC plan. The Council believes that the increase
to eight fish per person in the exclusive economic zone (EEZ) in 1996
will provide recreational harvesters with the opportunity to reach the
harvest limit.
Classification
This proposed rule has been determined to be not significant for
purposes of E.O. 12866.
The Assistant General Counsel for Legislation and Regulation of the
Department of Commerce certified to the Chief Counsel for Advocacy of
the Small Business Administration that this proposed rule, if adopted,
would not have a significant economic impact on a substantial number of
small entities, such as the charter boats and head boats that serve the
recreational fishery. Despite the increase in the possession limit that
this action would implement, it is anticipated that few recreational
fishermen will actually attain the maximum possession limit under this
rulemaking. Specifically, this action will not affect a substantial
number of small entities because it will not trigger the following
criteria: (1) The regulations are not likely to result in a change in
annual gross revenues by more than 5 percent; (2) annual compliance
costs will not increase by more than 5 percent; and (3) the regulations
will not force small entities to cease business operations. As a
result, a regulatory flexibility analysis was not prepared.
List of Subjects in 50 CFR Part 625
Fisheries, Fishing, Reporting and recordkeeping requirements.
Dated: April 16, 1996.
Gary Matlock,
Program Management Officer, National Marine Fisheries Service.
For the reasons set out in the preamble, 50 CFR part 625 is
proposed to be amended as follows:
PART 625--SUMMER FLOUNDER FISHERY
1. The authority citation for part 625 continues to read as
follows:
Authority: 16 U.S.C. 1801, et seq.
2. In Sec. 625.25, in paragraph (a) the first sentence is revised
to read as follows:
Sec. 625.25 Possession limit.
(a) No person shall possess more than eight summer flounder in, or
harvested from, the EEZ unless that person is the owner or operator of
a fishing vessel issued a moratorium permit under Sec. 625.4. * * *
* * * * *
[FR Doc. 96-9771 Filed 4-17-96; 11:50 am]
BILLING CODE 3510-22-F
Complete official Federal Register PDF
FR Doc. 96-9743 Proposed Establishment of Class E Airspace, Jackson, WY
[Federal Register Volume 61, Number 78 (Monday, April 22, 1996)]
[Proposed Rules]
[Pages 17606-17607]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-9743]
=======================================================================
-----------------------------------------------------------------------
DEPARTMENT OF TRANSPORTATION
Federal Aviation Administration
14 CFR Part 71
[Airspace Docket No. 96-ANM-004]
Proposed Establishment of Class E Airspace, Jackson, WY
AGENCY: Federal Aviation Administration (FAA), DOT.
ACTION: Notice of Proposed Rulemaking (NPRM).
-----------------------------------------------------------------------
SUMMARY: This proposed rule would revise the Jackson, Wyoming, Class E
airspace to accommodate a new Global Positioning System (GPS) Standard
Instrument Approach Procedure (SIAP) to the Jackson Hole Airport. The
area would be depicted on aeronautical charts for pilot reference.
DATES: Comments must be received on or before June 7, 1996.
ADDRESSES: Send comments on the proposal in triplicate to: Manager,
Operations Branch, ANM-530, Federal Aviation Administration, Docket No.
96-ANM-004, 1601 Lind Avenue S.W., Renton, Washington 98055-4056.
The official docket may be examined at the same address.
An informal docket may also be examined during normal business
hours at the address listed above.
FOR FURTHER INFORMATION CONTACT: James C. Frala, ANM-532. 4, Federal
Aviation Administration, Docket No. 96-ANM-004, 1601 Lind Avenue S.W.,
Renton, Washington 98055-4056; telephone number: (206) 227-2535.
SUPPLEMENTARY INFORMATION:
Comments Invited
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 the airspace docket number and be
submitted in triplicate to the address listed above. Commenters 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 Airspace Docket No. 96-
ANM-004.'' 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 comments received. All comments submitted will be available
for examination at the address listed above both before and after the
closing date for comments. A report summarizing each substantive public
contact with FAA personnel concerned with this rulemaking will be filed
in the docket.
Availability of NPRM's
Any person may obtain a copy of this NPRM by submitting a request
to the Federal Aviation Administration, Operations Branch, ANM-530,
1601 Lind Avenue S.W., Renton, Washington 98055-4056. Communications
must identify the notice number of this NPRM. Persons interested in
being placed on a mailing list for future NPRM's should also request a
copy of Advisory Circular No. 11-2A, which describes the application
procedures.
The Proposal
The FAA is considering an amendment to part 71 of the Federal
Aviation Regulations (14 CFR part 71) to revise Class E airspace at
Jackson, Wyoming, to accommodate a new GPS SIAP to the Jackson Hole
Airport. The area would be depicted on aeronautical charts for pilot
reference. The coordinates for this airspace docket are based on North
American Datum 83. Class E airspace areas extending upward from 700
feet or more above the surface of the earth are published in Paragraph
6005 of FAA Order 7400.9C dated August 17, 1995, and effective
September 16, 1995, which is incorporated by reference in 14 CFR 71.1.
The Class E airspace designation listed in this document would 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.
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, will not have a
[[Page 17607]]
significant economic impact on a substantial number of small entities
under the criteria of the Regulatory Flexibility Act.
List of Subjects in 14 CFR Part 71
Airspace, Incorporation by reference, Navigation (air).
The Proposed Amendment
In consideration of the foregoing, the Federal Aviation
Administration proposes to amend 14 CFR part 71 as follows:
PART 71--[AMENDED]
1. The authority citation for 14 CFR part 71 continues to read as
follows:
Authority: 49 U.S.C. 106(g), 40103, 40113, 40120; E.O. 10854, 24
FR 9565, 3 CFR, 1959-1963 Comp., p. 389; 14 CFR 11.69.
Sec. 71.1 [Amended]
2. The incorporation by reference in 14 CFR 71.1 of the Federal
Aviation Administration Order 7400.9c, Airspace Designations and
Reporting Points, dated August 17, 1995, and effective September 16,
1995, is amended as follows:
Paragraph 6005 Class E airspace areas extending upward from 700
feet or more above the surface of the earth.
* * * * *
ANM WY E5 Jackson, WY [revised]
Jackson Hole Airport, WY
(Lat. 43 deg.36'23''N. long. 110 deg.44'17''W)
Jackson VOR/DME
(Lat. 43 deg.36'30''N, long 110 deg.44'05''W)
Dunoir VOR/DME
(Lat. 43 deg.49'42''N, long. 110 deg.20'08''W)
That airspace extending upward from 700 feet above the surface
within a 4.3-mile radius of the Jackson Hole Airport, and within 4.4
miles west and 8.3 miles east of the Jackson VOR/DME 200 deg. radial
extending from the VOR/DME to 21.4 miles south of the miles south of
the VOR/DME, and within 2.2 miles each side of the Jackson VOR/DME
020 deg. radial extending from the VOR/DME to 10.5 miles north of
the VOR/DME; that airspace extending upward from 1,200 feet above
the surface within 7 miles west and 10.5 miles east of the Jackson
VOR/DME 020 deg. radial extending from the VOR/DME to 33.5 miles
north of the VOR/DME, and within 4.3 miles each side of the Jackson
VOR/DME 107 deg. radial extending from the VOR/DME to 13.1 miles
east of the VOR/DME, and within 5.3 miles north and 7.9 miles south
of the Dunior VOR/DME 102 deg. and 282 deg. radials extending from 7
miles east to 18.2 miles west of the Dunoir VOR/DME, and that
airspace south of the Jackson VOR/DME bounded on the east by the
southwest edge of V-328, on the south by lat. 42 deg.30'00''N, and
on the west by the southeast edge of V-465; excluding the Big Piney,
WY, Class E airspace areas.
* * * * *
Issued in Seattle, Washington, on April 4, 1996.
Richard E. Prang,
Acting Assistant Manager, Air Traffic Division, Northwest Mountain
Region.
[FR Doc. 96-9743 Filed 4-19-96; 8:45 am]
BILLING CODE 4910-13-M
Complete official Federal Register PDF
FR Doc. 96-9742 Proposed Amendment to Class E Airspace, Baker, MT
[Federal Register Volume 61, Number 78 (Monday, April 22, 1996)]
[Proposed Rules]
[Pages 17607-17608]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-9742]
-----------------------------------------------------------------------
DEPARTMENT OF TRANSPORTATION
14 CFR Part 71
[Airspace Docket No. 96-ANM-001]
Proposed Amendment to Class E Airspace, Baker, MT
AGENCY: Federal Aviation Administration (FAA), DOT.
ACTION: Notice of Proposed Rulemaking (NPRM).
-----------------------------------------------------------------------
SUMMARY: This proposed rule would amend the Baker, Montana, Class E
airspace to accommodate a revised Global Positioning System (GPS)
Standard Instrument Approach Procedure (SIAP) to Baker Municipal
Airport. The area would be depicted on aeronautical charts for pilot
reference.
DATES: Comments must be received on or before May 17, 1996.
ADDRESSES: Send comments on the proposal in triplicate to: Manager,
Operations Branch, ANM-530, Federal Aviation Administration, Docket No.
96-ANM-001, 1601 Lind Avenue SW., Renton, Washington 98055-4056.
The official docket may be examined at the same address.
An informal docket may also be examined during normal business
hours at the address listed above.
FOR FURTHER INFORMATION CONTACT:
James Frala, ANM-532.4, Federal Aviation Administration, Docket No. 96-
ANM-001, 1601 Lind Avenue SW., Renton, Washington 98055-4056; telephone
number: (206) 227-2535.
SUPPLEMENTARY INFORMATION:
Comments Invited
Interested parties are invited to participate in this proposed
rulemaking by submitting such written data, 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 the airspace docket number and be
submitted in triplicate to the address listed above. Commenters 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 Airspace Docket No. 96-
ANM-001.'' 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 the light of comments received. All comments submitted will be
available for examination at the address listed above both before and
after the closing date for comments. A report summarizing each
substantive public contact with FAA personnel concerned with this
rulemaking will be filed in the docket.
Availability of NPRM's
Any person may obtain a copy of this NPRM by submitting a request
to the Federal Aviation Administration, Operations Branch, ANM-530,
1601 Lind Avenue SW., Renton, Washington 98055-4056. Communications
must identify the notice number of this NPRM. Persons interested in
being placed on a mailing list for future NPRM's should also request a
copy of Advisory Circular No. 11-2A, which describes the application
procedure.
The Proposal
The FAA is considering an amendment to part 71 of the Federal
Aviation Regulations (14 CFR part 71) to amend Class E airspace at
Baker, Montana, to accommodate a revised GPS SIAP to Baker Municipal
Airport. The area would be depicted on aeronautical charts for pilot
reference. The coordinates for this airspace docket are based on North
American Datum 83. Class E airspace areas extending upward from 700
feet or more above the surface of the earth are published in Paragraph
6005 of FAA Order 7400.9C dated August 17, 1995, and effective
September 16, 1995, which is incorporated by reference in 14 CFR 71.1.
The Class E airspace designation listed in this document would 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.
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
[[Page 17608]]
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, will not
have a significant economic impact on a substantial number of small
entities under the criteria of the Regulatory Flexibility Act.
List of Subjects in 14 CFR Part 71
Airspace, Incorporation by reference, Navigation (air).
The Proposed Amendment
In consideration of the foregoing, the Federal Aviation
Administration proposed to amend 14 CFR part 71 as follows:
PART 71--[AMENDED]
1. The authority citation for 14 CFR part 71 continues to read as
follows:
Authority: 49 U.S.C. 106(g), 40103, 40113, 40120; E.O. 10854, 24
FR 9565, 3 CFR, 1959-1963 Comp., p. 389; 14 CFR 11.69.
Sec. 71.1 [Amended]
2. The incorporation by reference in 14 CFR 71.1 of the Federal
Aviation Administration Order 7400.9C, Airspace Designations and
Reporting Points, dated August 17, 1995, and effective September 16,
1995, is amended as follows:
Paragraph 6005 Class E airspace areas extending upward from 700
feet or more above the surface of the earth.
* * * * *
ANM MT E5 Baker, MT [Revised]
Baker Municipal Airport, MT
(Lat. 46 deg.20'52''N, long. 104 deg.15'34''W)
That airspace extending upward from 700 feet above the surface
within a- 8.9-mile radius of the Baker Municipal Airport extending
upward from 1,200 feet above the surface bounded by a line beginning
at lat. 46 deg.29'00''N, long. 104 deg.45'00''W; to lat.
46 deg.30'30''N, long. 104 deg.31'00''W; to lat. 46 deg.37'00''N,
long. 103 deg.59'40''W; to lat. 46 deg.37'55''N, long.
103 deg.53'45''W; to lat. 46 deg.25'45''N, long. 103 deg.37'30''W;
to lat. 46 deg.17'30''N, long. 103 deg.48'15''W; to lat.
45 deg.40'00''N, long. 103 deg.00'50''W; to lat. 45 deg.35'30''N,
long. 103 deg.01'45''W; to lat. 45 deg.55'20''N, long.
103 deg.53'15''W; to lat. 46 deg.00'00''N, long. 104 deg.13'00''W;
to lat. 46 deg.04'20''N, long. 104 deg.10'45''W; to the point of
beginning; excluding that portion within the Bowman Municipal
Airport, ND, 1,200-foot Class E airspace area.
* * * * *
Issued in Seattle, Washington, on March 29, 1996.
Richard E. Prang,
Acting Assistant Manager, Air Traffic Division, Northwest Mountain
Region.
[FR Doc. 96-9742 Filed 4-19-96; 8:45 am]
BILLING CODE 4910-13-M
Complete official Federal Register PDF
FR Doc. 96-9741 Proposed Establishment of Temporary Restricted Area R-3203D; Orchard, ID
[Federal Register Volume 61, Number 78 (Monday, April 22, 1996)]
[Proposed Rules]
[Pages 17608-17609]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-9741]
-----------------------------------------------------------------------
DEPARTMENT OF TRANSPORTATION
14 CFR Part 73
[Airspace Docket No. 96-ANM-3]
Proposed Establishment of Temporary Restricted Area R-3203D;
Orchard, ID
AGENCY: Federal Aviation Administration (FAA), DOT.
ACTION: Notice of proposed rulemaking.
-----------------------------------------------------------------------
SUMMARY: This notice proposes to establish a temporary Restricted Area
R-3203D at Orchard Training Area near Boise, ID, for the period June 1-
17, 1996. The Idaho Army National Guard has requested that this
temporary area be established to support its increased annual training
requirements. This temporary area would be established adjacent to an
existing Restricted Area R-3203A.
DATES: Comments must be received on or before May 20, 1996.
ADDRESSES: Send comments on the proposal in triplicate to: Manager, Air
Traffic Division, ANM-500, Docket No. 96-ANM-3, Federal Aviation
Administration, 1601 Lind Avenue, S.W., Renton, WA 98055-4056.
The official docket may be examined in the Rules Docket, Office of
the Chief Counsel, Room 916, 800 Independence Avenue, SW., Washington,
DC, weekdays, except Federal holidays, between 8:30 a.m. and 5:00 p.m.
An informal docket may also be examined during normal business
hours at the office of the Regional Air Traffic Division.
FOR FURTHER INFORMATION CONTACT: Ken McElroy, Airspace and Rules
Division (ATA-400), Office of Air Traffic Airspace Management, Federal
Aviation Administration, 800 Independence Avenue, SW., Washington, DC
20591; telephone: (202) 267-3075.
SUPPLEMENTARY INFORMATION:
Comments Invited
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 the airspace docket number and be
submitted in triplicate to the address listed above. Commenters 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 Airspace Docket No. 96-
ANM-3.'' The postcard will be date/time stamped and returned to the
commenter. Send comments on environmental and land-use aspects to: The
State of Idaho, Military Division, Headquarters Idaho Army National
Guard, Boise Air Terminal, 4040 W. Guard Street, Boise, ID 83705-8048.
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
comments received. All comments submitted will be available for
examination in the Rules Docket both before and after the closing date
for comments. A report summarizing each substantive public contact with
FAA personnel concerned with this rulemaking will be filed in the
docket.
Availability of NPRM's
Any person may obtain a copy of this Notice of Proposed Rulemaking
(NPRM) by submitting a request to the Federal Aviation Administration,
Office of Air Traffic Airspace Management, Attention: Airspace and
Rules Division, ATA-400, 800 Independence Avenue, SW., Washington, DC
20591, or by calling (202) 267-3075. Communications must identify the
notice number of this NPRM. Persons interested in being placed on a
mailing list for future NPRM's should contact the Federal Aviation
Administration, Office of Rulemaking, (202) 267-9677, to request a copy
of Advisory Circular No. 11-2A, which describes the application
procedure.
The Proposal
The FAA is proposing an amendment to part 73 of the Federal
Aviation Regulations (14 CFR part 73) to establish a temporary
Restricted Area R-3203D at Orchard Training Area, ID, adjacent to the
existing Restricted Area R-3203A, to assist the Idaho Army National
Guard in satisfying its annual training requirements. The proposed
restricted area would be in effect for the period June 1-17, 1996.
Expansion in the number of gun batteries assigned to Field Artillery
units, along with
[[Page 17609]]
requirements that each assigned battery accomplish several moves per
day to different surface firing points, has created the need to
temporarily expand the available restricted airspace to provide for
more effective training. All artillery firing would be directed into
existing impact areas located approximately in the center of Restricted
Area R-3203A. The temporary restricted area is needed to provide
protected airspace to contain the projectiles during flight between the
surface firing point and entry into the existing Restricted Area R-
3203A. The proposed temporary area would be used for Idaho National
Guard Field Artillery firing and would be released to the FAA for
public use during periods it is not required for military training.
The coordinates for this airspace docket are based on North
American Datum 83. Section 73.32 of part 73 of the Federal Aviation
Regulations was republished in FAA Order 7400.8C dated June 29, 1995.
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.
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, will not have a significant
economic impact on a substantial number of small entities under the
criteria of the Regulatory Flexibility Act.
Environmental Review
This proposal will be subjected to an environmental analysis by the
proponent and the FAA prior to any FAA final regulatory action.
List of Subjects in 14 CFR Part 73
Airspace, Navigation (air).
The Proposed Amendment
In consideration of the foregoing, the Federal Aviation
Administration proposes to amend 14 CFR part 73 as follows:
PART 73--[AMENDED]
1. The authority citation for 14 CFR part 73 continues to read as
follows:
Authority: 49 U.S.C. 106(g), 40103, 40113, 40120; E.O. 10854, 24
FR 9565, 3 CFR, 1959-1963 Comp., p. 389; 14 CFR 11.69.
Sec. 73.32 [Amended]
2. Section 73.32 is amended as follows:
R-3203D Orchard Training Area, ID [New]
Boundaries. Beginning at lat. 43 deg.14'00''N., long.
116 deg.316'30''W.;
To lat. 43 deg.17'51''N., long. 116 deg.16'25''W.;
To lat. 43 deg.19'02''N., long. 116 deg.14'45''W.;
To lat. 43 deg.19'02''N., long. 116 deg.06'36''W.;
To lat. 43 deg.15'58''N., long. 116 deg.01'12''W.;
To lat. 43 deg.15'00''N., long. 116 deg.01'00''W.;
To lat. 43 deg.17'00''N., long. 116 deg.05'00''W.;
To lat. 43 deg.17'00''N., long. 116 deg.12'00''W.;
To the point of beginning.
Designated altitudes. Surface to and including 22,000 feet MSL.
Times of use. As scheduled by NOTAM 24 hours in advance for the
period June 1-17, 1996, only.
Controlling agency. FAA, Boise ATCT.
Using agency. Idaho Army National Guard.
Issued in Washington, DC, on April 11, 1996.
Harold W. Becker,
Acting Program Director for Air Traffic Airspace Management.
[FR Doc. 96-9741 Filed 4-19-96; 8:45 am]
BILLING CODE 4910-13-U
Complete official Federal Register PDF
FR Doc. 96-9734 Labeling of Orally Ingested Over-the-Counter Drug Products Containing Calcium, Magnesium, and Potassium
[Federal Register Volume 61, Number 78 (Monday, April 22, 1996)]
[Proposed Rules]
[Pages 17807-17812]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-9734]
Federal Register / Vol. 61, No. 78 / Monday, April 22, 1996 /
Proposed Rules
[[Page 17807]]
DEPARTMENT OF HEALTH AND HUMAN SERVICES
Food and Drug Administration
21 CFR Parts 201 and 331
[Docket No. 95N-0254]
RIN 0910-AA63
Labeling of Orally Ingested Over-the-Counter Drug Products
Containing Calcium, Magnesium, and Potassium
AGENCY: Food and Drug Administration, HHS.
ACTION: Notice of proposed rulemaking.
-----------------------------------------------------------------------
SUMMARY: The Food and Drug Administration (FDA) is proposing to amend
the general labeling provisions for over-the-counter (OTC) drug
products to require that the labeling of all OTC drug products intended
for oral ingestion include the calcium content per dosage unit when the
product contains 20 milligrams (mg) or more per single dose; a warning
statement that persons with kidney stones and persons on a calcium-
restricted diet should not take the product unless directed by a doctor
when the product contains more than 3.2 grams (g) of calcium in the
labeled maximum daily dose; the magnesium content per dosage unit when
the product contains 8 mg or more per single dose; a warning statement
that persons with kidney disease and persons on a magnesium-restricted
diet should not take the product unless directed by a doctor if the
product contains more than 600 mg magnesium in the labeled maximum
daily dose; the potassium content per dosage unit when the product
contains 5 mg or more per single dose; and a warning statement that
persons with kidney disease and persons on a potassium-restricted diet
should not take the product unless directed by a doctor if the product
contains more than 975 mg potassium in the labeled maximum daily dose.
The agency is proposing that the calcium, magnesium, and potassium
content be labeled in mg per dosage unit, rounded to the nearest whole
number. FDA is issuing this notice of proposed rulemaking in order to
provide uniform calcium, magnesium, and potassium content and warning
labeling for all OTC drug products intended for oral ingestion whether
marketed under an OTC drug monograph, an approved application, or no
application.
DATES: Written comments by July 22, 1996. Written comments on the
agency's economic impact determination by July 22, 1996. The agency is
proposing that any final rule based on this proposal be effective 12
months after the date of its publication in the Federal Register.
ADDRESSES: Submit written comments to the Dockets Management Branch
(HFA-305), Food and Drug Administration, 12420 Parklawn Dr., rm. 1-23,
Rockville, MD 20857.
FOR FURTHER INFORMATION CONTACT: William E. Gilbertson, Center for Drug
Evaluation and Research (HFD-105), Food and Drug Administration, 5600
Fishers Lane, Rockville, MD 20857, 301-827-2304.
SUPPLEMENTARY INFORMATION:
I. Background
A. Calcium
In the advance notice of proposed rulemaking for OTC antacid drug
products (38 FR 8714 at 8718, April 5, 1973), the Advisory Review Panel
on OTC Antacid Drug Products (Antacid Panel) concluded that calcium
carbonate is safe when taken in a dosage of not more than 160
milliequivalents (mEq) of calcium (8 g calcium carbonate) per day. The
Antacid Panel stated that hypercalcuria in response to calcium
ingestion is not rare in the population and the danger of renal stone
formation has to be considered in determining the intake of calcium-
containing antacids.
The maximum daily dose for calcium carbonate or calcium phosphate
in Sec. 331.11(d) (21 CFR 331.11(d)) of the antacid monograph is 160
mEq (e.g., 3.2 g calcium). This amount of calcium is contained in 8.0 g
calcium carbonate, 18.7 g monobasic calcium phosphate, and 8.3 g
tribasic calcium phosphate. The warning in Sec. 331.30(c)(1) (21 CFR
331.30(c)(1)) states: ``Do not take more than (maximum recommended
daily dosage
* * *) in a 24-hour period, or use the maximum dosage of this product
for more than 2 weeks, except under the advice and supervision of a
physician.''
In the advance notice of proposed rulemaking for OTC digestive aid
drug products (47 FR 454 at 469, January 5, 1982), the Advisory Review
Panel on OTC Miscellaneous Internal Drug Products (Miscellaneous
Internal Panel) stated that adverse reactions associated with calcium
carbonate, including alkalosis, hypercalcemia, acid rebound, milk-
alkali syndrome, and constipation, usually occur with ingestion of
larger than recommended doses and/or with chronic ingestion. The
Miscellaneous Internal Panel stated that some antacids decrease the
effectiveness of many other drugs. The Miscellaneous Internal Panel
recommended the following labeling for drug products containing calcium
carbonate: (1) ``If you are taking other drugs, consult your physician
as this drug may interfere with their effectiveness,'' and (2) ``Do not
take for longer than 2 weeks or in greater than recommended amounts,
except on the advice of a physician.'' However, these warnings were
never finalized because no calcium salt attained monograph status as an
active ingredient for use as an OTC digestive aid drug product.
B. Magnesium
In the advance notice of proposed rulemaking for OTC antacid drug
products (38 FR 8714 at 8719), the Antacid Panel stated that in normal
renal function it is difficult to reach excessive magnesium blood
levels via the oral route, because magnesium enters and leaves the
cells rapidly. However, the Antacid Panel stated that hypermagnesemia
toxicity may occur in renal dysfunction and therefore a warning is
necessary. The Antacid Panel concluded that for those products in which
the maximal daily dose exceeds 50 mEq of magnesium, the labeling should
state: ``Do not use this product if you have kidney disease except
under the advice and supervision of a physician.''
In the final monograph for OTC antacid drug products (39 FR 19862
at 19868, June 6, 1974), the agency noted that at some of its early
meetings the Antacid Panel initially considered 150 mEq per day of
magnesium as the level for requiring a warning, but upon
reconsideration reduced the amount to 50 mEq. The Antacid Panel gave
several reasons for lowering this level: (1) The normal individual
consumes from 20 to 40 mEq of magnesium per day and about one-third of
that amount is absorbed into the body; (2) if a person is taking a
magnesium-containing antacid, approximately 15 to 30 percent of that
magnesium is absorbed, and (3) if a person does not have normal renal
function, it is possible to have hypermagnesemia toxicity, i.e., the
level of magnesium in the body may reach a toxic level.
The final monograph for OTC antacid drug products includes a
warning in Sec. 331.30(c)(4) for products containing more than 50 mEq
of magnesium in the recommended daily dosage, which states: ``Do not
use this product except under the advice and supervision of a physician
if you have kidney disease.'' Although persons with normal renal
function can easily tolerate more than 50 mEq of magnesium a day, the
agency included this warning in the monograph because large doses of an
antacid could present a serious problem for
[[Page 17808]]
individuals with reduced renal function.
In the advance notice of proposed rulemaking for OTC laxative drug
products (56 FR 12902 at 12905, March 21, 1975), the Advisory Review
Panel on OTC Laxative, Antidiarrheal, Emetic, and Antiemetic Drug
Products (Laxative Panel) stated that OTC laxative drug products
containing more than 50 mEq (600 mg) magnesium in the maximum
recommended daily dose should include a warning which states that
people with kidney disease should not use the product except under the
advice and supervision of a physician. In the Federal Register of
January 15, 1985 (50 FR 2124 at 2153), the agency published a tentative
final monograph for OTC laxative drug products that included the
warning recommended by the Laxative Panel. This rulemaking has not been
completed at this time.
In the advance notice of proposed rulemaking for OTC digestive aid
drug products (47 FR 454 at 471), the Miscellaneous Internal Panel
stated that high serum magnesium levels may result from magnesium
ingestion by persons with kidney damage. The Miscellaneous Internal
Panel agreed with the Antacid Panel that a warning statement should be
present on any magnesium hydroxide preparation (47 FR 470) and on any
magnesium trisilicate preparation (47 FR 471) for which the maximal
daily dose exceeds 50 mEq (600 mg) of magnesium. The Miscellaneous
Internal Panel also stated that magnesium hydroxide has the potential
for drug interactions with certain anticoagulants and antibiotics.
Similarly, the Miscellaneous Internal Panel noted that magnesium
trisilicate absorbs various alkaloids and antibiotics in vitro.
However, this warning was never finalized because no magnesium salt
attained monograph status as an active ingredient for use as an OTC
digestive aid drug product.
C. Potassium
In the advance notice of proposed rulemaking for OTC antacid drug
products (38 FR 8714 at 8719), the Antacid Panel stated that
hyperkalemia is rare for normal persons who can easily tolerate the
potassium content of antacid drug products. The Antacid Panel
concluded, however, that potassium can accumulate in the body of
persons with impaired renal function and exert toxic effects. The
Antacid Panel recommended the following warning for products containing
more than 25 mEq (975 mg) potassium in the maximum recommended daily
dose: ``Do not use this product if you have kidney disease except under
the advice and supervision of a physician.'' This warning appears in
Sec. 331.30(c)(6) of the antacid final monograph, slightly rephrased to
read: ``Do not use this product except under the advice and supervision
of a physician if you have kidney disease.''
In the advance notice of proposed rulemaking (56 FR 12902 at
12905), the Laxative Panel recommended that if a laxative product
contains more than 25 mEq (975 mg) of potassium in the maximum
recommended daily dose, the labeling should advise consumers with
kidney disease not to use the product except under the advice and
supervision of a physician. The agency is aware that some effervescent
laxative drug products contain significant amounts of potassium as
inactive ingredients. The Laxative Panel recommended that the inactive
ingredients be listed (with or without the amounts) for OTC laxative
drug products and that the availability of sodium, potassium, and
magnesium in the maximum recommended daily dose be stated in the
labeling. The Laxative Panel noted that certain inactive ingredients
(including calcium hydroxide and potassium carbonate) are added to some
laxative preparations to enhance their formulation or to contribute to
the effervescent qualities.
In the tentative final monograph for OTC laxative drug products (50
FR 2124 at 2153), the agency agreed with the Laxative Panel's
recommendation and proposed the following warning for those products
containing more than 975 mg potassium in the maximum recommended daily
dose: ``Do not use this product if you have kidney disease unless
directed by a doctor.'' This rulemaking has not been completed at this
time.
D. Rulemaking for Sodium Labeling of OTC Drug Products
The agency has already addressed sodium labeling in a final rule
published elsewhere in this issue of the Federal Register. That rule
amends the general labeling provisions for OTC drug products to include
sodium labeling and provides for across-the-board uniform sodium
content and warning labeling for all OTC drug products intended for
oral ingestion. New Sec. 201.64 requires sodium content labeling of all
products containing 5 mg or more sodium per single recommended dose and
requires that products containing more than 140 mg sodium per maximum
recommended daily dose be labeled with a general warning that states:
``Do not use this product if you are on a sodium-restricted diet unless
directed by a doctor.'' Section 201.64 also provides for the voluntary
use of certain descriptive terms (``sodium free,'' ``very low sodium,''
and ``low sodium''). These descriptive terms are the same terms used to
describe sodium content in food labeling.
Sodium content is expressed in mg per single dosage unit (e.g.,
tablet, teaspoonful), rounded-off to the nearest whole number, and
includes the total amount of sodium regardless of the source (both
active and inactive ingredients). OTC drug products ``intended for oral
ingestion'' also include gum and lozenge dosage forms, but do not
include dentifrices, mouthwashes, or mouth rinses. Because some OTC
drug products not intended for oral administration can contain very
high levels of sodium that may be absorbed from both active and
inactive ingredients, the agency has asked for comments from interested
individuals on whether the final rule should be amended to include
sodium labeling for OTC rectal, vaginal, dentifrice, mouthwash, and
mouth rinse drug products. The agency will address this subject in a
future issue of the Federal Register.
Two comments received to the tentative final monograph for OTC
laxative drug products contended that sodium labeling of OTC laxative
and other drug products should be consistent with FDA's food labeling
terminology. The comments stated that food products already bear FDA
terminology and the food terminology will become the dominant system.
Thus, other mandatory FDA labeling systems should be made consistent
with that system. The agency has used this approach in the final rule
for sodium labeling of OTC drug products published elsewhere in this
issue of the Federal Register.
E. Food Labeling Regulations
FDA regulations for food products address calcium and magnesium
labeling. Section 101.9 (21 CFR 101.9) requires the labeling of food
products to declare the content, as a percent of the Reference Daily
Intake (RDI), of calcium, iron, vitamin C, and vitamin E. Other
vitamins and minerals for which a RDI has been established, including
magnesium, may be listed voluntarily, unless they are added as a
nutrient supplement or a claim is made about them, in which case they
must be declared.
Section 101.9(c)(5) provides for the voluntary declaration of
potassium content in a labeled serving size. However, when a claim is
made about potassium, the declaration is mandatory and is placed on the
nutrition label
[[Page 17809]]
immediately following the sodium content. When the potassium content is
less than 5 mg per serving, the content is expressed as zero.
Vitamins and minerals, other than calcium, iron, vitamin C, and
vitamin E, present at less than 2 percent of the RDI are not required
to be declared in nutrition labeling but may be declared as zero or by
use of an asterisk referring to a footnote that states, ``Contains less
than 2% of the Daily Value of this (these) nutrient (nutrients)''
(Sec. 101.9(c)(8)(iii)). The RDI for calcium is 1,000 mg and for
magnesium is 400 mg (Sec. 101.9(c)(8)(iv)). Thus, for foods containing
less than 20 mg of calcium per serving, a declaration of zero is
required on the nutrition label. For foods containing less than 8 mg of
magnesium per serving, content declaration is not required (unless a
claim is made about the nutrient) or may be declared as zero or as less
than 2 percent of the Daily Value.
The regulations in Sec. 101.36(b)(3) (21 CFR 101.36(b)(3)) for
nutrition labeling of dietary supplements of vitamins and minerals
require that potassium be declared except when present in quantitative
amounts by weight that allow a declaration of zero.
The regulations for health claims related to calcium and
osteoporosis in Sec. 101.72(c)(2)(i)(E) (21 CFR 101.72(c)(2)(i)(E))
require the labeling of food products to state that a total dietary
intake greater than 2,000 mg of calcium has no further known benefit to
bone health. This requirement applies when the food or supplement
contains more than 400 mg of calcium per reference amount. A recently
published NIH Concensus Statement on optimal calcium intake states that
up to a total intake of 2,000 mg per day appears to be safe in most
individuals (``Optimal Calcium Intake,'' NIH Consensus Statement,
12(4):1-31, June 6-8, 1994).
II. The Agency's Tentative Conclusions on Labeling of Orally
Ingested OTC Drug Products Containing Calcium, Magnesium, and
Potassium
A. Basis for Rulemaking -
FDA believes that the public interest in, and the public health
consequences of, calcium, magnesium, and potassium intake have produced
a need for more informative and consistent labeling information for
these ingredients in OTC drug products. The agency believes certain
labeling requirements are needed to alert persons with renal failure,
kidney stones, or other conditions, and persons taking other
medications who wish to monitor their intake of calcium, magnesium, and
potassium. Consumers need to consider their intake from foods, dietary
supplements, and drugs. Therefore, the agency is proposing calcium,
magnesium, and potassium content and warning labeling for all OTC drug
products intended for oral ingestion that contain certain levels of
these ingredients (including both active and inactive ingredients).
B. Criteria for Content and Warning Labeling-
In order to establish uniform content declarations and warnings
relating to calcium, magnesium, and potassium for orally ingested OTC
drug products and to establish content labeling similar to that used in
food labeling, the agency is proposing to adopt: (1) 20 mg of calcium,
8 mg of magnesium, and 5 mg of potassium as the amount per single
recommended dose in an OTC drug product (which may involve one or more
dosage units, e.g., tablets, teaspoonsful, etc.) that requires a
content declaration; and (2) 3.2 g calcium, 600 mg magnesium, and 975
mg potassium as the amounts present in the maximum labeled daily dose
above which a warning is required. The agency is therefore proposing to
amend the general drug labeling provisions in part 201 (21 CFR part
201) to include these labeling requirements for OTC drug products
intended for oral ingestion.
The proposed levels for requiring content labeling are similar to
those used in food labeling. In contrast, the proposed levels for
requiring warnings are based on recommendations of FDA advisory review
panels in the early 1970's. The agency acknowledges that there may be
more recent scientific information to consider in setting requirements
for OTC drug product labeling. The agency specifically encourages
comment and data on this aspect of the proposal.
C. Basis for Amount Requiring Content Labeling
1. Calcium and Magnesium Content-
As stated in section I.E. of this document, a serving of food
containing 20 mg or more of calcium requires a content declaration, and
a serving of food containing 8 mg or more of magnesium (if added as a
supplement or if a claim is made) requires a content declaration in the
nutrition labeling of foods. Thus, the agency is using 20 mg calcium
and 8 mg magnesium per single recommended dose as the amounts at which
OTC drug products should include content labeling for these
ingredients.
2. Potassium Content
As noted in section I.E. of this document, potassium labeling for
foods is optional unless a claim is made about the potassium content;
but, if declared, it is expressed in mg per serving for those foods
containing 5 mg or more. In Sec. 201.64(a) of the final rule for sodium
labeling of OTC drug products, the agency required a declaration of the
sodium content for all OTC drugs intended for oral ingestion if the
sodium content per single recommended dose is 5 mg or more. The agency
believes it is not necessary to declare potassium amounts below 5 mg
per dose. However, the agency believes it is appropriate to declare the
potassium content if the product contains 5 mg or more per single
recommended dose.
D. Basis for Amount Requiring Warning Statements
The agency believes that for uniformity in labeling, warnings
should be required across-the-board for calcium, magnesium, and
potassium for those OTC drug products intended for oral ingestion
containing a certain concentration of these ingredients.
1. Calcium Warning
Based on the current requirements in the monograph for OTC antacid
drug products and the recommendations of the Miscellaneous Internal
Panel (see section I.A. of this document), the agency is proposing to
require the following warning for all OTC drug products containing more
than 3.2 g calcium (equivalent to 8 g calcium carbonate) per labeled
maximum daily dose: ``Do not use this product if you have kidney stones
or if you are on a calcium-restricted diet unless directed by a
doctor.'' The NIH Consensus Statement on optimal calcium intake
suggests that a 2,000 mg total daily intake is safe, but it does not
give a definitive conclusion as to what level is unsafe. When the 3,200
mg daily dosage level, proposed as the level requiring a warning, is
added to the 1,000 mg recommended daily intake that may be included in
a person's diet, the resulting 4,200 mg daily intake is considerably
higher than the 2,000 mg level found to be safe in the NIH consensus
statement. The agency invites comments on whether the proposed 3.2 g
level requiring a warning should be lowered.
2. Magnesium Warning
The agency is proposing to require the following warning for all
OTC drug products that contain more than 600 mg magnesium per labeled
maximum daily dose: ``Do not use this product if you have kidney
disease or if you are on a
[[Page 17810]]
magnesium-restricted diet unless directed by a doctor.'' This warning
is similar to the warning in Sec. 331.30(c)(4) of the final monograph
for OTC antacid drug products.
3. Potassium Warning
The agency is proposing to require the following warning for all
OTC drug products that contain more than 975 mg potassium per maximum
recommended dose: ``Do not use this product if you have kidney disease
or if you are on a potassium-restricted diet unless directed by a
doctor.'' This warning is similar to the warning in Sec. 331.30(c)(6)
of the final monograph for OTC antacid drug products.
E. Units of Measure-
The agency believes the units of measure, where possible, should be
similar for foods and drugs. The unit of measure in declaring the
content of these components in foods is mg or g per serving of food.
While a serving of food is not the same as a dosage of a drug, the
agency believes it is logical to declare the content in mg per dosage
unit of the drug and to require a content declaration if the ingredient
per dose (which could be contained in one or more active or inactive
ingredients and in one or more dosage units) is equal to the amount in
a serving of food that requires a declaration in the nutrition
labeling. This is similar to the agency's approach in the final rule
for sodium labeling of OTC drug products. Section 201.64(b) states:
``The sodium content shall be expressed in milligrams per dosage unit
and shall include the total amount of sodium regardless of the source,
i.e., from both active and inactive ingredients.''
F. Rounding to Whole Number
While the food labeling regulations allow for the content
declaration of certain ingredients (e.g., sodium and potassium) to be
labeled as ``zero'' up to a certain level (5 mg per serving)
(Sec. 101.9(c)(8)(i) and (c)(8)(ii)), the agency believes these
ingredients in drugs should not be labeled as zero content except when
the content is zero (based on rounding to the nearest whole number, as
in the regulation for sodium labeling of OTC drug products). As
discussed in the sodium labeling final rule, most OTC drug products are
manufactured and the concentration of ingredients can be strictly
controlled. Thus, the concentration of specific ingredients is expected
to be less variable in OTC drug products than in foods. For consistency
in labeling, the agency believes the labeling of these ingredients
should be expressed in mg per dosage unit rounded to the nearest whole
number for those products containing less than 1 g. For those products
containing 1 g or more per dosage unit, the content labeling may be
rounded to the nearest tenth of a g.
G. Implementation of Labeling Requirements
The agency encourages manufacturers to comply voluntarily with the
provisions of this proposed rule despite the fact that revisions in the
requirements may occur in the final rule in response to submitted
comments. Should any manufacturer choose to adopt the labeling
described in this proposed rule, and should any revisions occur in the
final rule, the agency will permit the use of existing stocks of labels
for those products labeled according to the proposed rule for a period
of 1 year following publication of the final rule.
Should this proposed amendment to part 201 relating to calcium,
magnesium, and potassium content and warning labeling of all OTC drug
products intended for oral ingestion be published as a final rule, then
the existing requirements relating to magnesium labeling in
Sec. 331.30(c)(4) and potassium labeling in Sec. 331.30(c)(5) of the
final monograph for OTC antacid drug products and the proposed labeling
requirements for magnesium and potassium being considered in other
ongoing OTC drug rulemakings will be deleted. The agency advises that
on or after 12 months after publication of a final rule any OTC drug
product subject to this rule that does not meet these labeling
requirements and that is initially introduced or initially delivered
for introduction into interstate commerce will be misbranded under
sections 201(n) and 502(a) and (f) of the Federal Food, Drug, and
Cosmetic Act (21 U.S.C. 321(n) and 352(a) and (f)).
III. Analysis of Impacts
FDA has examined the impacts of the proposed rule under Executive
Order 12866 and the Regulatory Flexibility Act (Pub. L. 96-354).
Executive Order 12866 directs agencies to assess all costs and benefits
of available regulatory alternatives, and when regulation is necessary,
to select regulatory approaches that maximize net benefits (including
potential economic, environmental, public health and safety, and other
advantages; distributive impacts; and equity). The agency believes that
this proposed rule is consistent with the regulatory philosophy and
principles identified in the Executive Order. In addition, the proposed
rule is not a significant regulatory action as defined by the Executive
Order and, thus, is not subject to review under the Executive Order.
The Regulatory Flexibility Act requires agencies to analyze
regulatory options that would minimize any significant impact of a rule
on small entities. Should this proposed rule become a final rule, one-
time label modification costs associated with changing product labels
would be incurred by some manufacturers. FDA estimates those costs to
total less than $500,000 for the entire industry. This projected cost
is based on estimates of the number of products that will be affected
by the proposed rule, the number of distinct label changes that will be
required, and the cost of printing new labels.
OTC antacid drug products are the primary products having a
significant number of orally administered active ingredients containing
calcium, magnesium, and potassium. The monograph for those products has
been in effect since 1974 and these products currently bear magnesium
and potassium warning labeling. For these products, the labeling change
would involve a slight change in wording, resulting only in a minor
cost to have a labeling revision printed. For those products containing
calcium, a new warning would be required in product labeling. In almost
all cases, this revision would be routinely done at the next labeling
printing so that minimal costs should be incurred. Manufacturers will
have up to 12 months after publication of a final rule in the Federal
Register to revise their product labeling. It is anticipated that most
antacid drug products would undergo a label printing within a 12-month
period. Products containing magnesium and potassium would need only
minor revisions, and products containing calcium would need to add some
new labeling.
Other OTC drug products (i.e., antidiarrheals, laxatives, and
internal analgesics) having one or a few calcium, magnesium, and
potassium-containing active ingredients that would be affected by
mandatory calcium, magnesium, and potassium labeling currently are not
required to bear the labeling recommended in this proposed rule. These
products would need to have new labels printed to incorporate the
labeling requirements of this rulemaking. These products will also need
to have new labeling printed in the future when the final monographs
for OTC antidiarrheal, laxative, and internal analgesic drug products
are published. This again involves one-time label modification costs.
For products that will be undergoing such labeling
[[Page 17811]]
changes, the incremental costs attributable to this rule for calcium,
magnesium, and potassium labeling would be negligible. A limited number
of OTC antidiarrheal, laxative, and internal analgesic drug products
contain calcium, magnesium, and potassium-containing active
ingredients.
Accordingly, the agency certifies that the proposed rule will not
have a significant economic impact on a substantial number of small
entities. Therefore, under the Regulatory Flexibility Act, no further
analysis is required.
The agency invites public comment regarding any substantial or
significant economic impact that this rulemaking would have on OTC drug
products intended for oral ingestion. Types of impact may include, but
are not limited to, costs associated with relabeling, repackaging, or
reformulating. Comments regarding the impact of this rulemaking on OTC
drug products should be --accompanied by appropriate documentation. A
period of 90 days from the date of publication of this proposed
rulemaking in the Federal Register will be provided for comments on
this subject to be developed and submitted. The agency will evaluate
any comments and supporting data that are received and will reassess
the economic impact of this rulemaking in the preamble to the final
rule.
IV. Paperwork Reduction Act of 1995
FDA tentatively concludes that the labeling requirements proposed
in this document are not subject to review by the Office of Management
and Budget because they do not constitute a ``collection of
information'' under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501
et seq.). Rather, the proposed warning statements are a ``public
disclosure of information originally supplied by the Federal government
to the recipient for the purpose of disclosure to the public'' (5 CFR
1320.3(c)(2)). The calcium, magnesium, and potassium content per dosage
unit is product formulation information that manufacturers have on hand
as part of their usual and customary business practice.
V. Environmental Impact
The agency has determined under 21 CFR 25.24(c)(6) that this action
is of a type that does not individually or cumulatively have a
significant effect on the human environment. Therefore, neither an
environmental assessment nor an environmental impact statement is
required.
VI. Request for Comments
Interested persons may, on or before July 22, 1996, submit to the
Dockets Management Branch (address above) written comments regarding
this proposal. Written comments on the agency's economic impact
determination may be submitted on or before July 22, 1996. Three copies
of all comments are to be submitted, except that individuals may submit
one copy. Comments are to be identified with the docket number found in
brackets in the heading of this document and may be accompanied by a
supporting memorandum or brief. Received comments may be seen in the
office above between 9 a.m. and 4 p.m., Monday through Friday.
List of Subjects
21 CFR Part 201
Drugs, Labeling, Reporting and recordkeeping requirements.
21 CFR Part 331
Labeling, Over-the-counter drugs.
Therefore, under the Federal Food, Drug, and Cosmetic Act, it is
proposed that title 21 of the Code of Federal Regulations be amended in
parts 201 and 331 as follows:
PART 201--LABELING
1. The authority citation for 21 CFR part 201 continues to read as
follows:
Authority: Secs. 201, 301, 501, 502, 503, 505, 506, 507, 508,
510, 512, 530-542, 701, 704, 721 of the Federal Food, Drug, and
Cosmetic Act (21 U.S.C. 321, 331, 351, 352, 353, 355, 356, 357, 358,
360, 360b, 360gg-360ss, 371, 374, 379e); secs. 215, 301, 351, 361 of
the Public Health Service Act (42 U.S.C. 216, 241, 262, 264).
2. New Sec. 201.70 is added to subpart C to read as follows:
Sec. 201.70 Calcium labeling.
(a) The labeling of over-the-counter (OTC) drug products intended
for oral ingestion shall contain the calcium content per dosage unit
(e.g., tablet, teaspoonful) if the calcium content of a single
recommended dose of the product (which may be one or more dosage units)
is 20 milligrams or more. OTC drug products intended for oral ingestion
include gum and lozenge dosage forms, but do not include dentifrices,
mouthwashes, or mouth rinses.
(b) The calcium content shall be expressed in milligrams or grams
per dosage unit and shall include the total amount of calcium
regardless of the source, i.e., from both active and inactive
ingredients. If less than 1 gram, milligrams should be used. The
calcium content shall be rounded-off to the nearest whole number in
milligrams (or tenth of a gram if over 1 gram) and shall be listed on a
separate line after the heading ``Calcium Content'' as the last
sentence in the ingredients section.
(c) The labeling of OTC drug products intended for oral ingestion
shall contain the following warning under the heading ``Warning'' (or
``Warnings'' if it appears with additional warning statements) if the
amount of calcium present in the labeled maximum daily dose of the
product is more than 3.2 grams: ``Do not use this product if you have
kidney stones or if you are on a calcium-restricted diet unless
directed by a doctor.''
(d) Any product subject to this paragraph that is not labeled as
required by this paragraph and that is initially introduced or
initially delivered for introduction into interstate commerce after
(date 1 year after publication of the final rule), is misbranded under
sections 201(n) and 502(a) and (f) of the Federal Food, Drug, and
Cosmetic Act.
3. New Sec. 201.71 is added to subpart C to read as follows:
Sec. 201.71 Magnesium labeling.
(a) The labeling of over-the-counter (OTC) drug products intended
for oral ingestion shall contain the magnesium content per dosage unit
(e.g., tablet, teaspoonful) if the magnesium content of a single
recommended dose of the product (which may be one or more dosage units)
is 8 milligrams or more. OTC drug products intended for oral ingestion
include gum and lozenge dosage forms, but do not include dentifrices,
mouthwashes, or mouth rinses.
(b) The magnesium content shall be expressed in milligrams or grams
per dosage unit and shall include the total amount of magnesium
regardless of the source, i.e., from both active and inactive
ingredients. If less than 1 gram, milligrams should be used. The
magnesium content shall be rounded-off to the nearest whole number in
milligrams (or tenth of a gram if over 1 gram) and shall be listed on a
separate line after the heading ``Magnesium Content'' as the last
sentence in the ingredients section.
(c) The labeling of OTC drug products intended for oral ingestion
shall contain the following warning under the heading ``Warning'' (or
``Warnings'' if it appears with additional warning statements) if the
amount of magnesium present in the labeled maximum daily dose of the
product is more than 600 milligrams: ``Do not use this product if
[[Page 17812]]
you have kidney disease or if you are on a magnesium-restricted diet
unless directed by a doctor.''
(d) Any product subject to this paragraph that is not labeled as
required by this paragraph and that is initially introduced or
initially delivered for introduction into interstate commerce after
(date 1 year after publication of the final rule), is misbranded under
sections 201(n) and 502(a) and (f) of the Federal Food, Drug, and
Cosmetic Act.
4. New Sec. 201.72 is added to subpart C to read as follows:
Sec. 201.72 Potassium labeling.
(a) The labeling of over-the-counter (OTC) drug products intended
for oral ingestion shall contain the potassium content per dosage unit
(e.g., tablet, teaspoonful) if the potassium content of a single
recommended dose of the product (which may be one or more dosage units)
is 5 milligrams or more. OTC drug products intended for oral ingestion
include gum and lozenge dosage forms, but do not include dentifrices,
mouthwashes, or mouth rinses.
(b) The potassium content shall be expressed in milligrams or grams
per dosage unit and shall include the total amount of potassium
regardless of the source, i.e., from both active and inactive
ingredients. If less than 1 gram, miligrams should be used. The
potassium content shall be rounded-off to the nearest whole number in
milligrams (or tenth of a gram if over 1 gram) and shall be listed on a
separate line after the heading ``Potassium Content'' as the last
statement in the ingredients section.
(c) The labeling of OTC drug products intended for oral ingestion
shall contain the following warning under the heading ``Warning'' (or
``Warnings'' if it appears with additional warning statements) if the
amount of potassium present in the labeled maximum daily dose of the
product is more than 975 milligrams: ``Do not use this product if you
have kidney disease or if you are on a potassium-restricted diet unless
directed by a doctor.''
(d) Any product subject to this paragraph that is not labeled as
required by this paragraph and that is initially introduced or
initially delivered for introduction into interstate commerce after
(date 1 year after publication of the final rule), is misbranded under
sections 201(n) and 502(a) and (f) of the Federal Food, Drug, and
Cosmetic Act.
PART 331--ANTACID PRODUCTS FOR OVER-THE-COUNTER (OTC) HUMAN USE
5. The authority citation for 21 CFR part 331 continues to read as
follows:
Authority: Secs. 201, 501, 502, 503, 505, 510, 701 of the
Federal Food, Drug, and Cosmetic Act (21 U.S.C. 321, 351, 352, 353,
355, 360, 371).
Sec. 331.30 [Amended]
6. Section 331.30 Labeling of antacid products is amended by
removing paragraphs (c)(4) and (c)(5) and by redesignating paragraph
(c)(6) as paragraph (c)(4).
Dated: March 30, 1996.
William K. Hubbard,
Associate Commissioner for Policy Coordination.
[FR Doc. 96-9734 Filed 4-19-96; 8:45 am]
BILLING CODE 4160-01-F
Complete official Federal Register PDF
FR Doc. 96-9683 Energy Conservation Program for Consumer Products: Test Procedure for Clothes Washers and Reporting Requirements for Clothes Washers, Clothes Dryers, and Dishwashers
[Federal Register Volume 61, Number 78 (Monday, April 22, 1996)]
[Proposed Rules]
[Pages 17589-17603]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-9683]
=======================================================================
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DEPARTMENT OF ENERGY
Office of Energy Efficiency and Renewable Energy
10 CFR Part 430
[Docket No. EE-RM-94-230A]
Energy Conservation Program for Consumer Products: Test Procedure
for Clothes Washers and Reporting Requirements for Clothes Washers,
Clothes Dryers, and Dishwashers
AGENCY: Office of Energy Efficiency and Renewable Energy, Department of
Energy.
ACTION: Supplemental Notice of Proposed Rulemaking.
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SUMMARY: The Department of Energy (DOE or Department) today is issuing
a supplemental notice of proposed rulemaking to expand the scope of the
Department's proposed rule to amend the clothes washer test procedure
used to test for compliance with the existing energy conservation
standard. The Association of Home Appliance Manufacturers (AHAM)
recommended an additional new test procedure that would apply to the
anticipated future clothes washer energy conservation standards. The
Department is reopening the comment period on its proposed rule to seek
comments on whether it should adopt the AHAM recommended test
procedure, with certain changes.
DATES: Written comments in response to this notice must be received by
June 6, 1996.
ADDRESSES: Written comments, 10 copies, are to be submitted to: U.S.
Department of Energy, Office of Energy Efficiency and Renewable Energy,
EE-43, Room 1J-018, ``Test Procedure for Clothes Washers and Reporting
Requirements for Clothes Washers, Clothes Dryers, and Dishwashers,''
Docket No. EE-RM-94-230A, Forrestal Building, 1000 Independence Avenue
SW., Washington, DC 20585, (202)-586-7574.
Copies of the transcript of the public hearing and the public
comments received on the proposed rule, may be read and/or photocopied
at the Department of Energy Freedom of Information Reading Room, U.S.
Department of Energy, Forrestal Building, Room 1E-190, 1000
Independence Avenue SW., Washington, DC 20585, (202) 586-6020 between
the hours of 9 a.m. and 4 p.m., Monday through Friday, except Federal
holidays.
[[Page 17590]]
FOR FURTHER INFORMATION CONTACT:
P. Marc LaFrance, U.S. Department of Energy, Energy Efficiency and
Renewable Energy, Mail Station EE-43, Forrestal Building, 1000
Independence Avenue SW., Washington, DC 20585-0121, (202) 586-8423
Eugene Margolis, Esq., U.S. Department of Energy, Office of General
Counsel, Mail Station GC-72, Forrestal Building, 1000 Independence
Avenue, SW., Washington, DC 20585, (202) 586-9507
SUPPLEMENTARY INFORMATION:
I. Introduction
II. Discussion
A. AHAM Recommended Test Procedure
Annual Energy Consumption
Capacity Measurement
Electrical Energy Supply
Remaining Moisture Content (RMC)
Sodium Hypochlorite Bleach
Suds-saver Provision
Temperature Use Factors
Test Cloth and Test Load
Uniformly Distributed Temperature Selections
Water-heating Clothes Washers
Water Consumption Factor
B. Related Matters
1. Potential Impacts/Changes to the Appendix J Test Procedure
Test Load Sizes
Water-heating Clothes Washers
Field Testing
2. Section 430.23, ``Test procedures for measures of energy
consumption,'' paragraph (j)
I. Introduction
On Thursday, March 23, 1995, the Department published a proposed
rule to amend the clothes washer test procedure. 60 FR 15330 (hereafter
referred to as the Notice of Proposed Rulemaking or NOPR). On July 12,
1995, a hearing on the proposed rule was held in Washington, DC.
The proposed amendment to the test procedure was based on the same
factual foundation as the existing test procedure and energy
conservation standards for clothes washers, so that the existing energy
conservation standard would not have to be adjusted. The Department
believes, however, that the existing test procedure currently
overstates the average annual energy consumption for clothes washers
because of changes in consumer habits since the current test procedure
was adopted.\1\ The Department had planned on initiating a subsequent
clothes washer test procedure rulemaking, at a later date, which would
take into account current consumer habits, and would be used as the
basis for considering revision of the clothes washer energy
conservation standards.\2\
---------------------------------------------------------------------------
\1\ Proctor & Gamble data indicates a decrease in the use of hot
water and the number of cycles per year over time.
\2\ The second round of clothes washer standards rulemaking was
initiated by the publication of an Advance Notice of Proposed
Rulemaking (ANOPR), (59 FR 56423, November 14, 1994.)
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In response to the NOPR, AHAM submitted comments asking DOE to
adopt an additional new test procedure to take effect when new
standards take effect. The Department greatly appreciates AHAM's effort
in developing a new test procedure. The Department is considering
adopting the test procedure with certain revisions. The Department is
considering issuance of a final rule with two test procedures, to be
codified in Appendices ``J'' and ``J1'' in the Code of Federal
Regulations, title 10, part 430, Sec. 430.23. Appendix ``J'' would be a
revision of the current test procedure, would be consistent with the
existing standards, and would become effective 30 days after issuance
of the final rule. Appendix ``J1'', based on AHAM's test procedures,
would be used in the analysis and review of revised efficiency
standards, and would apply to any revised standards. At that time the
Department would amend its regulations to replace Appendix ``J'' with
Appendix ``J1.''
The Department solicits comments from the public at this time on
issues raised by the AHAM recommended test procedure and by the options
under consideration with respect to this proposal. In connection with
the reopening of the comment period, the Department is proposing
regulatory language for part 430, Sec. 430.23, Appendix J1.
II. Discussion
A. AHAM Recommended Test Procedure
AHAM recommended a test procedure for use and adoption during the
next round of clothes washer standards rulemaking. The AHAM test
procedure addresses current consumer usage habits which result in
approximately a 30 percent reduction in energy consumption from the
current test procedure. Discussed below are comments by the following
industry representatives: General Electric Company (GE), Maytag and
Admiral Products (Maytag), Speed Queen Company (Speed Queen), Whirlpool
Corporation (Whirlpool), and Miele Appliances Inc. (Miele), directed to
the AHAM test procedures, as well as industry comments that were
directed to the NOPR but that concern matters also covered by the AHAM
test procedure. In addition, AHAM provided copies of its clothes washer
test procedure to non-industry representatives who have been involved
with the residential appliance standards program. (AHAM, No. 8).\3\ The
Department received comments concerning the AHAM test procedure from
the Clorox Company (Clorox), the Proctor and Gamble Company (P&G), and
American Council for and Energy Efficient Economy (ACEEE).
---------------------------------------------------------------------------
\3\ Comments on the NOPR have been assigned docket numbers and
have been numbered consecutively. Statements that were presented at
the July 12, 1995, public hearing are identified as Testimony.
---------------------------------------------------------------------------
Annual Energy Consumption
GE recommended that the Department incorporate into the AHAM test
procedure a table for the annual number of clothes washer cycles per
year based on the capacity of the clothes washer being tested for
determining annual energy consumption. GE's recommendation would in
essence specify a constant amount of clothing (in pounds) that is
washed per year per typical household. GE derived its table by
averaging P&G data for average wash loads used in ``regular'' and
``large'' capacity clothes washers. The GE table shows a range of
``Adjusted Annual Cycles (AAC)'' from 264 to 810 based on capacity.
(GE, No. 6 at 4). Maytag strongly opposes the GE recommendation
primarily because it states, ``there is no evidence that average load
size is a function of washer capacity. To the contrary, there is
evidence that wash load sizes are based on factors other than washer
capacity most of the time.'' (Maytag, No. 41 at 1).
The Department understands GE's purpose is to provide some type of
scale to adjust for the use of larger capacity machines. The Department
is proposing to reduce the number of annual cycles from 416 to 392, as
stated in the NOPR. The Department is aware that the number of annual
cycles has declined over time,\4\ while the shipment weighted average
capacity of clothes washers has increased over the same relative time
period.\5\ However, the Department believes that it is reasonable to
assume that the number of cycles for all sizes of clothes washers is
relatively constant and that families with large needs, based on
lifestyle or number of family members, purchase larger clothes washers
and families with smaller needs purchase smaller clothes washers. If
the GE table were to be employed it would result in the following
expected
[[Page 17591]]
consumer use cycles per year: using a 1.5 cubic foot compact clothes
washer, 517 cycles per year would be expected, whereas using a 3.2
cubic foot standard clothes washer, 298 cycles per year would be
expected.\6\ For the reasons indicated above, however, the Department
does not believe that there is such great variation in the average
usage of washers of different sizes. Moreover, the Department is not
aware of any data concerning current usage which establish that as the
capacity of a clothes washer increases, it is operated less frequently.
Therefore, the Department does not propose to incorporate a table to
allow for a variation in annual clothes washer cycles dependent upon
clothes washer capacity. The Department will reconsider this issue,
however, if it receives statistically valid data showing such a
variation.
---------------------------------------------------------------------------
\4\ Proctor and Gamble letter of September 2, 1994 to DOE.
\5\ AHAM Major Home Appliance Industry Book published 1995.
\6\ These figures were derived by DOE from the GE proposed table
using the specified clothes washer capacities.
---------------------------------------------------------------------------
Capacity Measurement
The AHAM recommended test procedure, as well as the current and
NOPR test procedures, require a test measurement of the clothes
container capacity. This capacity is defined as the volume which a dry
clothes load could occupy. This capacity is then used in the
calculation of the Energy Factor which is used to rate the efficiency
of clothes washers on a per load basis. The actual load, in pounds of
clothing, that a clothes washer can wash is a function of many
variables including the wetted clothes container volume which is
actually available for clothes washing, the agitation system and the
motor torque. The Department has used the measured clothes container
capacity as a proxy for the actual load a clothes washer is capable of
washing, and this has worked well for purposes of comparing vertical
axis clothes washers. However, there has been discussion as to whether
the measured capacity of a clothes container is a comparable proxy of
the load capability for horizontal axis clothes washers.
The DOE and AHAM recommended test procedures both require measuring
the capacity to the upper most part of the clothes washer container,
which includes the volume occupied by the tub ring. The maximum water
level in any vertical axis clothes washer may vary, but the water level
cannot go to the top of the tub ring. Maytag calculated that this
current method of measuring capacity results in the measured volume of
vertical-axis clothes washers exceeding the wetted volume by a minimum
of 15 percent to well over 20 percent. (Maytag, No. 13 at 1). However,
all the manufacturers, including Maytag, believe that the current
method for measuring vertical-axis clothes washer capacity is
sufficient and should not be changed. (AHAM, No. 33 at 5).
Since the measured and wetted volumes of a horizontal axis clothes
washer are the same, Maytag proposed multiplying the measured volume of
a horizontal axis clothes washer by a factor of 1.2. (Maytag, No. 13 at
2). This factor would mathematically increase the capacity of
horizontal-axis clothes washers and would result in a 20 percent
increase in the energy factor for horizontal-axis clothes washers. A
similar factor is included in the International Electrotechnical
Commission (IEC) 456 test procedure for clothes washers. ACEEE supports
a capacity credit for horizontal-axis clothes washers.\7\ ACEEE states
that the IEC test procedure has a 15 percent credit and believes the
credit may be too low. ACEEE believes the credit should be 21 percent.
(ACEEE, No. 32 at 3).
---------------------------------------------------------------------------
\7\ Commenters have used both terms ``factor'' and ``credit''
which are intended to mean the same thing.
---------------------------------------------------------------------------
Speed Queen opposes a horizontal-axis clothes washer capacity
adjustment factor stating that adequate time for discussion and comment
is needed on this ``recently raised issue.'' (Speed Queen, No. 29 at
3). GE opposes any horizontal-axis clothes washer capacity credit
stating, ``In view of the evidence, from P & G, that American consumer
washing habits are driven in large part by their perception of
capacity, proponents of a European adjustment factor must provide hard
data of its applicability to the U.S. market.'' (GE, No. 36 at 2).
Whirlpool also opposes any credit for horizontal-axis clothes washer
capacity because no data has been presented that would demonstrate a
difference of American loading habits for vertical-axis versus
horizontal-axis clothes washers. (Whirlpool, No. 37 at 4).
The Department notes that the measured volume of a vertical axis
clothes washer is larger than the wetted volume, whereas, these two
volumes are the same for horizontal axis clothes washers. Therefore,
for these two types of machines, capacity may not have the same
relationship to the amount of clothes a clothes washer is capable of
washing. However, the Department has no data to indicate that this
possible difference translates into an actual difference in load size
capability when the other variables that affect load size are
considered, or as to how American consumers will use horizontal axis
washers. If such data becomes available, the Department would consider
making an adjustment to the calculation of the energy factor of either
vertical or horizontal axis clothes washers to have relatively accurate
comparisons. However, today's notice of proposed rulemaking would make
no changes in this area.
Electrical Energy Supply
The NOPR would delete a provision in the existing test procedures
that allowed turning off of console lights which did not consume more
than 10 watts during the clothes washer test cycle. AHAM maintains this
provision in its recommended test procedure. Speed Queen, however,
indicated that it supported the Department's proposal to remove the
provision. (Speed Queen, No. 29 at 4). Today's notice is consistent
with the NOPR, and excludes this provision.
Remaining Moisture Content
The AHAM recommended test procedure includes a provision to test
the Remaining Moisture Content (RMC) of a test load. RMC represents a
percentage derived by dividing the moisture weight that is remaining in
the clothing at the completion of the clothes washer cycle by the
weight of the dry clothes prior to the clothes washing cycle. There are
several issues raised relating to the methodology for testing RMC.
GE expressed a concern about the possibility of manufacturers
providing manual selectable options to consumers which would affect the
resulting RMC of consumer wash loads. GE believes that the Department
should not use the lowest RMC level achieved in a clothes washer for
the future minimum energy conservation standard analysis or for energy
reporting, and that there should be some type of ``discounting of the
RMC credit.'' According to GE, consumers may not always choose the
setting which would result in the lowest RMC value. (Testimony at 157).
GE provided a chart showing four factors which affect RMC--spin speed,
spin time, load size, and rinse temperature (GE, No. 6 at appendix E)--
and stated that clothes washers could be manufactured that offered user
options for spin speed and duration. Whirlpool indicated that the AHAM
test procedure addresses the concern regarding consumer selection of
spin speed. Specifically, Whirlpool stated that the AHAM test procedure
requires the use of the energy test cycle, which specifies that the
spin speed recommended by the
[[Page 17592]]
manufacturer for cotton and linen clothes shall be used in the test
(section 2.1.1 AHAM submitted test procedure). (Testimony at 170). The
Department realizes there are several issues that affect RMC
measurement which have not been addressed and are discussed below,
which could affect the final test procedure methodology for testing
RMC.
Spin Speed and Spin Time
The Department is aware that the AHAM recommended test procedure
requires the use of the energy test cycle to conduct the RMC test. The
AHAM test procedure defines the ``energy test cycle'' as follows: ``the
cycle recommended by the manufacturer for washing cotton and/or linen
clothes. It includes the agitation/tumble operation, spin speed (s),
wash times, and rinse times applicable to that cycle, including water
heating time for water heating clothes washers, and applies to all
wash/rinse temperature selections and water levels available on the
model, regardless of whether the wash/rinse temperature selections or
water levels are available in the cycle recommended for cotton and/or
linens.'' This definition appears to address clothes washers with
multiple spin speeds, because spin speed is depicted as ``spin
speed(s).'' In addition, rinse time is depicted as ``rinse times.'' The
definition clearly states that testing for energy reporting shall be
conducted in the cycle the manufacturer specifies for cotton and/or
linen clothes.
The AHAM test procedure appears to be adequate in the situation
where the energy test cycle has only one spin speed and time. However,
the AHAM test procedure does not specify the spin speed to be used in
testing a clothes washer for which that cycle has several or a range of
values for spin speed and time for cotton and linen clothes. Therefore,
because exact consumer preferences are not known relative to the choice
of multiple spin speed or spin time selections, the Department is
considering the option of requiring the use of the average of the
extreme values of the spin speeds and times that are available in the
energy test cycle.\8\ The Department believes that this would address
the testing of clothes washers with multiple recommended spin speeds
and times, and might discount the RMC value as proposed by GE. The
Department welcomes comments on this issue.
---------------------------------------------------------------------------
\8\ Similarly, for example, the DOE dishwasher test procedure
has a 50 percent proration value for use of heated verses unheated
dry option. (42 FR 15423, March 17, 1977)
---------------------------------------------------------------------------
Load Size
GE provided a graph with RMC on the ``Y'' axis and Load Size on the
``X'' axis. (GE, No. 6 at appendix E). The graph was not quantified,
but depicted a relatively large negative slope of approximately 0.5.
Thus, according to the graph, as load size gets larger the RMC level
decreases substantially.\9\ The Department requested data from all
parties present at the hearing to help quantify the exact slope.
(Testimony at 160). So far, the Department has not received any such
data. The issue is important because the AHAM test procedure specifies
that the maximum test load be used to conduct the RMC test, which is
approximately 35 percent larger than an average test load. However, the
AHAM test procedure indicates, based on P&G data, that consumers use a
maximum load only 12 percent of the time whereas they use an average
load 74 percent of the time.
---------------------------------------------------------------------------
\9\ RMC is a percentage which decreases, although the actual
remaining moisture weight increases because the larger load retains
more moisture.
---------------------------------------------------------------------------
If GE's graph accurately depicts the slope, this would have a major
impact on the expected energy savings to consumers and manufacturer
efficiency/energy consumption representations, because data shows that
consumers use their clothes washers with an average size load 74
percent of the time. It would mean that, under the AHAM recommended
test procedure, the anticipated energy consumption to remove the
moisture from the clothing would be artificially low because the test
procedure calculates RMC on the basis of a maximum size load. Under the
AHAM test procedure RMC is first determined for a maximum size load.
The RMC thus determined is then adjusted in order to determine the
moisture content that would remain in an average size load. The
adjustment formula is based on the assumption that RMC as a percentage
amount is the same for different load sizes, the point that GE
disputes. An alternative to the AHAM recommended test method for RMC
could be to require testing using the average test load, rather than
the maximum test load with an adjustment. However, the Department
believes that this may increase test burden. Currently, the majority of
clothes washer models do not have adaptive control features such as
automatic water fill control. Under the AHAM recommended test
procedure, machines with adaptive controls need to be tested using an
average test load. Requiring testing of all machines using the average
test load may not be warranted if the slope is actually small. At this
time, the Department does not plan to change the AHAM recommended test
method. The Department requests data, comment and suggested changes to
the test procedure, if needed, to address this issue.
Energy Required To Remove Moisture From the Test Load
The RMC value is used to calculate the energy required to remove
moisture from the test load, ``DE''. The ``DE'' is calculated
using the maximum size test load, load adjustment factor (LAF) (P&G
ratio of maximum load size to average load size), nominal energy
required to remove moisture from clothes (constant for all clothes
washers, 0.5 KWh/lb) and the clothes dryer utilization factor (DUF)
(percentage of clothes washer loads that are dried by clothes dryers).
AHAM recommended a DUF of 83 percent, although P&G calculates the DUF
to be 84.4 percent.\10\ AHAM stated at the hearing it did not think
using the 84 percent figure would be controversial, but that it might
need to further consider the matter. (Testimony at 104-105). The
Department is using 84 percent for the DUF in today's proposal.
---------------------------------------------------------------------------
\10\ Comment 32 on Docket number EE-RM-94-403.
---------------------------------------------------------------------------
Sodium Hypochlorite Bleach
Clorox recommended that the Department adopt a definition for
sodium hypochlorite bleach (bleach) dispenser, and a corresponding
credit because of the potential for energy savings. (Clorox, No. 30 at
1). In regard to the clothes washer standard rulemaking, Clorox has
provided the Department with data indicating that a significant amount
of energy can be saved with the use of bleach.11 The savings would
be realized through the use of colder water for washing. The Clorox
data shows that cleaning performance is maintained or minimally
degraded at colder temperatures if bleach is used. Clorox recommended
revising the Temperature Use Factors (TUFs) and energy consumption
calculations to provide a credit to clothes washers equipped with a
bleach dispenser. Clorox stated, however, ``Consumer data identifies a
large area for potential energy savings due to the higher incidence of
hot water usage in bleach loads.'' (Emphasis added.) Clorox further
stated, ``Consumers that use bleach typically are more concerned with
getting their laundry clean, and recognize that hotter wash
temperatures provide the best results.'' (Clorox, No. 30 at 2).
---------------------------------------------------------------------------
\11\ Comment 41 on docket number EE-RM-94-403.
---------------------------------------------------------------------------
[[Page 17593]]
The data provided from Clorox relative to the cleaning performance
with bleach shows a significant potential for energy savings because
cleaning performance is maintained or minimally degraded when bleach is
added to cold water and detergent, versus when hot water is used with
just detergent. However, the energy savings do not appear to be
demonstrated by the data provided, because consumers who use bleach
tend to use hot water rather than shifting to cold water. Therefore,
the Department does not plan to include a provision for bleach in its
clothes washer test procedures. The Department welcomes comment on this
issue.
Suds-Saver Provision
The AHAM recommended test procedure does not provide a credit to
clothes washers with a suds-saver feature. Based on previous
information from AHAM (AHAM meeting, February 16, 1995), the Department
believes that AHAM eliminated this provision due to the relatively low
number of sales of clothes washers with a suds-saver feature.
Additionally, AHAM believes that a suds-saver credit is no longer
needed in the test procedure. The Department requests comments relative
to the elimination of the suds-saver credit.
Temperature Use Factors
The Department received several comments regarding the method for
determining Temperature Use Factors (TUFs), which are used to prorate
energy consumption among cold, warm and hot wash, as well as to factor
in a warm rinse if offered. Because any test procedure based on the
AHAM test procedure would not become effective until approximately the
year 2000, a significant emphasis in determining such test procedure's
TUF values has been on the need and method to project future consumer
usage habits based on currently available survey data.
AHAM provided the recommended test procedure with TUFs for wash
temperatures and a range of TUF values for rinse temperature. (AHAM,
No. 8). AHAM indicated that the original submission had been revised
and provided the final version of TUFs. The final version also included
a range of rinse TUF values. (AHAM, No. 48 at 1). GE indicated that it
supported the AHAM wash TUFs and provided justification for a warm
rinse TUF of 21 percent. GE provided a detailed analysis which included
linear regression projections and utilized ``differencing to eliminate
autocorrelation.'' (GE, No. 6 at 5 and No. 36 at 1). P&G provided data,
linear regression analysis with and without projections, and
recommendations for TUFs. P&G indicated that it believed the future
projections of the linear regression were valid for the wash TUFs,
although it thought the projection for the warm rinse TUF was too
aggressive. (P&G, No. 12 at 1). ACEEE believed the TUFs should be
determined by the average between a current linear regression and a
linear regression projected to the year 1999. (ACEEE, No. 32 at 3).
Although Whirlpool disagreed with AHAM's use of linear regression
projection to obtain wash TUF values, and instead recommended use of an
average of the last five years, it supported the AHAM wash TUFs because
the resultant difference was small. Whirlpool indicated that it
believed the warm rinse TUF value should be 33 percent. (Whirlpool, No.
37 at 2).
At the Department's request, the National Institute of Standards
and Technology (NIST) has conducted a linear regression with and
without future year projections. The NIST results varied slightly from
the P&G analysis results, probably due to rounding off to integers or
to use of the calendar year for the data (P & G survey data is
conducted over two calendar years, i.e., 93/94), but were basically
consistent with the P&G results. The following table provides the TUF
values as recommended from the various entities.
Presentation of Various Positions for Temperature Use Factors
----------------------------------------------------------------------------------------------------------------
Hot wash (DATA/ Warm wash Cold wash Warm rinse Warm rinse
TUF) (DATA/TUF) (DATA/TUF) (DATA) (TUF \3\)
----------------------------------------------------------------------------------------------------------------
P&G 1994 RAW DATA............... 0.16 0.48 0.36 0.18 N/A
AHAM............................ 0.14 0.47 0.39 \1\ 0.13-0.21 0.21-0.33
GE.............................. 0.14 0.47 0.39 0.13 0.21
WHIRLPOOL....................... \1\ 0.16 \1\ 0.50 \1\ 0.34 \1\ 0.21 \1\ 0.33
ACEEE........................... \1\ 0.14 \1\ 0.49 \1\ 0.37 \1\ 0.16 \1\ 0.27
P&G 1994 REGRESSION............. 0.15 0.51 0.34 0.18 \1\ 0.30
NIST 1994 REGRESSION............ \1\ 0.15 \1\ 0.50 \1\ 0.35 \1\ 0.19 \1\ 0.32
P&G 2000 REGRESSION............. 0.14 0.48 0.38 \2\ 0.16 \1\ 0.27
NIST 2000 REGRESSION............ \1\ 0.13 \1\ 0.48 \1\ 0.39 \1\ 0.13 \1\ 0.22
----------------------------------------------------------------------------------------------------------------
\1\ Calculated by NIST independently or based on comment.
\2\ Recommended by P&G, independent of regression results.
\3\ Presently accepted by all commenters as being calculated by (P&G data)/0.60, representing that 60 percent of
the clothes washers in the P&G survey had a warm rinse available.
The Department believes that linear regression is one acceptable
method of conducting data plotting because it is generally accepted,
for example, by educators, economists and businesses. However, to
project consumer usage data into the future, linear regression may be
unacceptable because it does not address factors which affect the
change in consumer's habits (e.g., per P&G: improvements in detergent,
change in fabric type or concern to save energy). (P&G, No. 12 at 1,2).
From a statistical standpoint, if data were available on the factors
which correlate to the decrease in hot water usage, then an accurate
prediction could be made. However, the Department does not have this
data and understands that the data is not readily available.
Considering P&G's comments, the Department believes the trend to choose
cooler wash temperatures is likely to continue, but possibly not at the
rate indicated by the linear regression projection. Considering the
above, the Department believes that the ACEEE position to average the
current TUF values and the projected TUF values is a reasonable
approach, since the test procedure is being developed for future use.
Therefore, in its modifications of the AHAM test procedure, DOE is
considering incorporation of the following TUFs: hot wash, 14 percent;
warm wash, 49 percent; cold wash, 37 percent; and warm rinse, 27
percent. The Department welcomes comments relating to the acceptability
of these TUF values.
[[Page 17594]]
Test Cloth and Test Load
AHAM recommended a requirement for pre-conditioning the ``energy
test cloths'' (see AHAM test procedure section 2.6.1.2). In this
section, AHAM referenced its standard ``test detergent IIA.'' The
Department believes that specifying a particular detergent is too
specific and may not be warranted because a variation in detergent for
preconditioning test cloth is unlikely to measurably affect the energy
consumption of a clothes washer being tested. Absent any justification
to require use of AHAM's detergent in performing the test procedure,
non-AHAM manufacturers should not be required to obtain the AHAM
detergent to test their clothes washers. Therefore, the Department is
considering changing the detergent to ``commercially available clothes
washer detergent that is suitable for 135 deg.F (57.2 deg.C) wash
water.'' The Department requests comment on this detergent description.
The Department is also concerned about the use of ``energy stuffer
cloths'' (test procedure section 2.6.2). Energy test cloths and energy
stuffer cloths are used to make up the various size test loads. An
energy stuffer cloth is approximately one sixth the size of an energy
test cloth. The concern is that if a large number of energy stuffer
cloths are used instead of energy test cloths, then the mechanical
energy needed to agitate the test load may be understated. The
Department believes that there should be a maximum number of energy
stuffer cloths that can be used to establish the test load. Therefore,
the Department is considering the option of setting the maximum number
of energy stuffer cloths that can be used to 5. This number represents
the maximum number of energy stuffer cloths that should be needed
because 6 energy stuffer cloths would be the equivalent of one energy
test cloth. The Department requests comments on this issue.
In its test load table (table 5.1), AHAM recommended a tolerance of
0.10 pounds. The Department believes this tolerance is too
large. A tolerance of 0.05 pounds appears to be more
suitable because the required test load sizes can easily be obtained
through the use of energy stuffer cloths that weigh approximately 0.04
pounds each. The Department requests comments on the tolerance value.
Uniformly Distributed Temperature Selections
At the hearing, the Department expressed concern regarding
terminology used in AHAM's recommended test procedure--``uniformly
distributed, by temperature [between hot wash and cold wash]''--
relative to the calculation or testing of a warm wash temperature
selection. (Testimony at 113). The AHAM test procedure requires that
the warm wash (or multiple warm wash) selection(s) be calculated, in
lieu of testing, when all of a model's temperature selections are
uniformly distributed. If not uniformly distributed, then each
temperature selection must be tested. The Department asked AHAM to
define ``uniformly distributed, by temperature (between hot wash and
cold wash)'' at the hearing. (Testimony at 115). AHAM responded with an
expanded definition that sets two conditions for a ``warm wash having
uniform distribution by temperature between hot wash and cold wash.''
(AHAM, No. 33 at 4). The first condition is: the ``theoretical mean
warm wash temperature'' equals the ``theoretical mean of all wash
temperatures.'' The second condition is: ``uniform separation'' of warm
wash temperatures exists. AHAM included detailed mathematical equations
(see AHAM No. 33 at 4) to further explain the above terms.
The Department appreciates AHAM's submission regarding the
definition and mathematical expressions. However, the Department
believes that a narrative definition would be more appropriate for the
rule language to maintain consistency with other definitions. The
Department is considering an approach that retains the content of the
AHAM definition, but converts it into narrative form through a
definition for ``uniformly distributed warm wash.''
AHAM also indicated without qualification that an ``infinite
selection'' warm wash temperature selection would be considered
uniformly distributed. If a clothes washer has an infinite number of
warm wash temperature selections which follows a proportional (or
linear) relationship with the warm wash selection device (dial, slide,
etc.), then clearly the warm wash temperature selection is uniformly
distributed and the recommended AHAM method for uniformly distributed
temperatures applies. However, the AHAM test procedure does not address
an infinite warm wash selection which follows a path that is not
proportional (linear). It is possible that some clothes washer
manufacturers, in the future, may employ non-linear infinite warm wash
selections. Therefore, the Department is considering the option of
revising sections 3.5.1 and 3.5.2 of the AHAM test procedure to address
this issue, and welcomes comments relative to the definitions and
revised sections it is considering.
In addition, Whirlpool has indicated a concern about the language
regarding intermediate warm wash temperatures. (Whirlpool No. 50 at 1).
Whirlpool recommended changing the terminology in the test procedure
from ``Warm Wash'' to ``Intermediate Wash'' to eliminate confusion. The
Department agrees with Whirlpool that the intent of the AHAM
recommended test procedure is that the warm wash temperatures refer to
all temperatures which are below the hottest hot (135 deg.F (57.2
deg.C)) and above the coldest cold. The Department agrees with
Whirlpool and believes that was the intent of the AHAM recommended test
procedure. Therefore, to prevent any possible ambiguity regarding warm
wash temperatures, the Department is considering defining ``warm wash''
as all temperature selections between the hottest and coldest. The
Department welcomes comments regarding the AHAM test procedure and the
acceptability of the new definition.
Water-Heating Clothes Washers
NIST on behalf of the Department expressed a concern regarding the
possible need to establish ambient test conditions for testing water-
heating clothes washers. (Testimony at 132). The Department believes
that the energy consumed in a water-heating clothes washer may be
affected by the ambient temperature of the clothes washer. Thus, if the
ambient temperature prior to and during testing is relatively hot, then
less energy will be consumed than under typical operating conditions,
i.e., the test will understate the clothes washer's energy consumption.
Conversely, if the ambient temperature prior to and during the test is
relatively cold, then the energy consumption will be overstated. The
Department asked AHAM to comment on this issue at the hearing.
(Testimony at 132). AHAM recommended adding ambient temperature
conditions for tests of water heating clothes washers, specified as 75
deg.F 5 deg.F. (AHAM, No. 33 at 6) . Speed Queen
supported the AHAM recommendation. (Speed Queen, No. 29 at 2). The
Department believes that AHAM's specified temperature is above room
temperature but reflects acceptable test conditions for manufacturer
facilities while preventing large variations. Therefore, DOE is
considering adoption of this requirement.
The Department is concerned about the testing of water-heating
clothes washers that may have been stored in an area that has a
temperature outside of
[[Page 17595]]
the above range, prior to testing. The concern is that the thermal mass
of the clothes washer may affect the resultant energy consumption.
Therefore, the Department is considering the addition of pre-
conditioning requirements for water-heating clothes washers. The unique
requirement would be to conduct the established pre-conditioning
procedure, if the water-heating clothes washer has not been stored in
the test room, at the specified ambient conditions, for at least 8
hours (see section 2.9.2). The Department welcomes comment on the 8
hour time frame and on the issue of ambient conditions for water-
heating clothes washers.
AHAM's recommended test procedure provides for testing water-
heating clothes washers that are capable of using externally heated
water. However, the AHAM test procedure only included a provision for
hot water heated externally by electricity and did not include a
provision for water-heating clothes washers that use hot water heated
externally by gas or oil. A test provision for hot water heated
externally by gas or oil is required for Federal Trade Commission
labeling. Therefore, the Department is considering adoption of such a
provision. Additionally, in doing so, the Department is also
considering simplification of the test procedure by combining sections
for water-heating and nonwater-heating clothes washers where
appropriate. The Department requests comments on these options.
Water Consumption Factor
In the NOPR, the Department proposed a Water Consumption Factor
(WCF) (clothes washer capacity per gallon per cycle). The Department
believes that providing a means of determining WCF may allow consumers,
utilities or other organizations to compare clothes washer water
consumption independent of clothes washer capacity. AHAM recommended
language to calculate total water consumption in gallons per cycle. The
AHAM expression is not adjusted to take into account variations of
model capacities and will penalize larger capacity clothes washers on a
comparison basis.
In response to the NOPR for Appendix ``J'', the Department received
several comments regarding the WCF. Miele and Speed Queen indicated
that WCF should be the inverse of what was proposed because many
utilities already use that factor (gallons per cycle per cubic foot
capacity). (Miele, No. 10 at 2 and Speed Queen, No. 29 at 3). AHAM
indicated that WCF on a per cycle basis can be expressed as cubic feet
per gallon (AHAM, No. 33 at 5). The Department agrees with Miele and
Speed Queen that the WCF should be consistent with existing utility
programs and represented on a per cycle basis as gallons (weighted
water consumption) per cubic foot capacity. Therefore, the Department
is considering addition of a provision to AHAM's recommended test
procedure to calculate WCF expressed as gallons per cycle per cubic
feet. The Department requests comments regarding this topic.
B. Related Matters
1. Potential Impacts/Changes to the Appendix J Test Procedure
Test Load Sizes
AHAM recommended that the Department adopt its test load table
(table 5.1 of the Appendix ``J1'' test procedure) for the Appendix
``J'' test procedure. The Department supports the incorporation of the
AHAM test load table because it reflects the latest consumer usage
data. However, the impact of the incorporation of the recommended AHAM
test load table will most likely result in the majority of front-loader
clothes washers being tested with larger test loads. The Department
realizes that front-loader clothes washers are not required to meet a
performance minimum energy conservation standard, but existing models
will require retesting and relabeling. The Department requests comments
relative to the acceptability of the AHAM recommended test load table
for the Appendix ``J'' test procedure.
Water-Heating Clothes Washers
AHAM recommended a provision for testing water-heating clothes
washers that have the capability of using externally heated water (see
discussion above). However, the provision for externally heated water
was not in the NOPR. Therefore, the Department plans on similarly
incorporating test procedures for water-heating clothes washers with
externally heated water capability in the final rule for the Appendix
``J'' test procedure. The Department requests comments on this issue.
Field Testing
Methods for testing nonconventional clothes washers are not
provided in the DOE current test procedure, the NOPR Appendix J, or
AHAM recommended test procedure. In addition, none of these test
procedures is valid for machines equipped with adaptive controls if
consumers use the adaptive cycle more than 50% of the time. AHAM's
recommended test procedure specifies guidelines for conducting field
tests of nonconventional clothes washers, and of machines with adaptive
controls where a manufacturer believes the controls will be used more
than 50% of the time. The field testing provisions provide guidelines
for manufacturers to conduct data gathering in support of a Petition
for Waiver pursuant to Code of Federal Regulation, Title 10, Part 430,
section 430.27. AHAM proposed that these same field testing provisions
be added to Appendix ``J''. The Department requests comments on this
proposal.
2. Section 430.23, ``Test Procedures for Measures of Energy
Consumption'', Paragraph (j)
The Department proposed revisions to Sec. 430.23 (j) in the NOPR.
These changes dealt with the number of annual clothes washer cycles,
corresponding Appendix ``J'' section number references and the
incorporation of the Modified Energy Factor descriptor. If Appendix
``J1'' is promulgated, Sec. 430.23(j) will need to be revised. The
Department plans to make the required section reference changes to
Sec. 430.23(j), for both the Appendix ``J'' and Appendix ``J1'' test
procedures.
List of Subjects in 10 CFR Part 430
Administrative practice and procedure, Energy conservation,
Household appliances.
Issued in Washington, DC, April 15, 1996.
Christine A. Ervin,
Assistant Secretary, Energy Efficiency and Renewable Energy.
For the reasons set forth in the preamble, part 430 of Chapter II
of Title 10, of the Code of Federal Regulations is proposed to be
amended as set forth below:
1. The authority citation for part 430 continues to read as
follows:
Authority: 42 U.S.C. 6291-6309.
2. Appendix J1 is added to subpart B of part 430 as follows:
Appendix J1 to Subpart B of Part 430--Uniform Test Method for Measuring
the Energy Consumption of Automatic and Semi-Automatic Clothes Washers.
Note: This test procedure applies to amendments to revise 1994
minimum energy conservation standards for clothes washers set forth
at Title 10 CFR 430.32(g).
1. Definitions
1.1 Adaptive control system refers to a clothes washer control
system which is capable of automatically adjusting washer operation
or washing conditions based on characteristics of the clothes load
placed in the clothes container, without allowing or requiring
consumer intervention and/or actions. Examples would be clothes
washer
[[Page 17596]]
control system independent selection, modifications, or absolute
control of wash water temperature, agitation and/or tumble cycle
time, number of rinse cycles, spin speed, etc.
Note: The energy consumption of any adaptive system which
depends on the use of, detection of, or the presence of either soil,
soap, suds, or any additive laundering substitute or complimentary
product to determine the operation of the clothes washer must be
determined following the field test procedures defined in section 6.
1.2 Adaptive water fill control system refers to a clothes
washer water fill control system which is capable of automatically
adjusting the water fill level based on the size or weight of the
clothes load placed in the clothes container, without allowing or
requiring consumer intervention and/or actions.
1.3 Bone-dry means a condition or a load of test cloth which
has been dried in a dryer at maximum temperature for a minimum of 10
minutes, removed and weighed before cool down, and then dried again
for 10 minute periods until the final weight change of the load is 1
percent or less.
1.4 Clothes container means the compartment within the clothes
washer that holds the clothes during the operation of the machine.
1.5 Compact refers to a clothes washer which has a clothes
container capacity of less than 1.6 cubic feet.
1.6 Deep rinse cycle refers to a rinse cycle in which the
clothes container is filled with water to a selected level and the
clothes load is rinsed by agitating it or tumbling it through the
water.
1.7 Energy test cycle means the cycle recommended by the
manufacturer for washing cotton and/or linen clothes. It includes
the agitation/tumble operation, spin speed(s), wash times, and rinse
times applicable to that cycle, including water heating time for
water heating clothes washers, and applies to all wash/rinse
temperature selections and water levels available on the model,
regardless of whether the wash/rinse temperature selections or water
levels are available in the cycle recommended for cottons and/or
linens.
1.8 Load use factor means the percentage of the total number of
wash loads that a user would wash a particular size (weight) load.
1.9 Manual control systems refers to the type of washer control
system which requires that the consumer make the choices that
determine washer operation or washing conditions, for example: wash/
rinse temperature selections, and wash time before starting the
cycle.
1.10 Manual water fill control system refers to a clothes
washer water fill control system which requires the consumer to
determine or select the water fill level.
1.11 Modified energy factor means the quotient of the cubic
foot (or liter) capacity of the clothes container divided by the
total clothes washer energy consumption per cycle, expressed as the
sum of the machine electrical energy consumption, the hot water
energy consumption, and the energy required for removal of remaining
moisture of the test load.
1.12 Nonwater-heating clothes washer refers to a clothes washer
which does not have an internal hot water heating device to generate
hot water.
1.13 Spray rinse cycle refers to a rinse cycle in which water
is sprayed onto the clothes for a period of time without maintaining
any specific water level in the clothes container.
1.14 Standard refers to a clothes washer which has a clothes
container capacity of 1.6 cubic feet or greater.
1.15 Temperature use factor means, for a particular wash/rinse
temperature setting, the percentage of the total number of wash
loads that an average user would wash with that setting.
1.16 Thermostatically controlled water valves refer to a set of
clothes washer valves which sense water temperature and adjust the
hot water and cold water supplies appropriately to maintain a
desired mixed water temperature.
1.17 Uniformly distributed warm wash refers to warm wash
selections for which the warm wash water temperatures have a linear
relationship with all discrete warm wash selections when the water
temperatures are plotted against equally spaced consecutive warm
wash selections between the hottest warm wash and the coldest warm
wash. If the warm wash has infinite selections, the warm wash water
temperature shall have a linear relationship with the distance on
the selection device (e.g. dial angle or slide movement) between the
hottest warm wash and the coldest warm wash. The criteria for a
linear relationship as specified above is that the difference
between the actual water temperature at any warm wash selection and
the corresponding temperature on the temperature/selection line
formed by connecting the warmest and the coldest warm selections is
less than 5 percent. In all cases, the mean water
temperature of the warmest and the coldest warm selections must
coincide with the mean of the hot and cold water temperature.
1.18 Warm wash refers to all temperature selections that are
below the hottest hot (135 deg.F (57.2 deg.C)) and
above the coldest cold temperature selection.
1.19 Water consumption factor means the quotient of the total
weighted per-cycle water consumption divided by the cubic foot (or
liter) capacity of the clothes washer.
1.20 Water-heating clothes washer refers to a clothes washer
where some or all of the hot water for clothes washing is generated
by a water heating device internal to the clothes washer.
1.21 Symbol usage.
The following identity relationships are provided to help
clarify the symbology used throughout this procedure. The other
symbols and corresponding terms from the table below a sample
variable can be substituted with their appropriate meanings:
1.21.1 For example, ``Electrical Energy Consumption'' for an
``Extra Hot Wash'' and ``Maximum Test Load'' would be depicted as
follows:
Emx
E--Electrical Energy Consumption
H--Hot Water Consumption
C--Cold Water Consumption
m--Extra Hot Wash (max. temp. >135 deg.F (57.2 deg.C.))
h--Hot Wash (max. temp. <=135 deg.F (57.2 deg.C.))
w--Warm Wash (intermediate temp.)
c--Cold Wash (minimum temp.)
x--Maximum Test Load
a+--Above Average Test Load
a--Average Test Load
a---Below Average Test Load
n--Minimum Test Load
1.21.2 For example, ``Hot Water Consumed by Warm Rinse'' for
the ``Maximum Test Load'' would be depicted as follows:
Rx
R--Hot Water Consumed by Warm Rinse
Er--Electrical Energy Consumed by Warm Wash/Warm Rinse
ER--Electrical Energy Consumed by Warm Rinse+--Maximum Test
Load
a+--Above Average Test Load
a--Average Test Load
a---Below Average Test Load
n--Minimum Test Load
1.21.3 For example, ``Temperature Use Factor'' for ``Extra Hot
Wash'' would be depicted as follows:
TUFm
m--Extra Hot Wash
h--Hot Wash
w--Warm Wash
c--Cold Wash
R--Warm Rinse
1.21.4 For example, ``Temperature Weighted Hot Water
Consumption'' for the ``Maximum Test Load'' would be depicted as
follows:
Vhx
x--Maximum Test Load
a+--Above Average Test Load
a--Average Test Load
a---Below Average Test Load
n--Minimum Test Load
1.21.5 For example, ``Hot Water Energy Consumption'' for the
``Maximum Test Load'' would be depicted as follows:
Emax
E--Hot Water Energy Consumption
F--Load Usage Factor
Q--Total Water Consumption
ME--Machine Electrical Energy Consumption
max--Maximum Test Load
avg--Average Test Load
min--Minimum Test Load
1.21.6 The following additional symbols are used in the test
procedure:
RMC--Remaining Moisture Content
WI--Initial Weight of Dry Test Load
WC--Weight of Test Load After Extraction
MET--Total Machine Electrical Energy Consumption
ETE--Total Per-Cycle Energy Consumption
2. Testing Conditions
2.1 Installation. Install the clothes washer in accordance with
manufacturer's instructions.
2.2 Electrical energy supply. Maintain the electrical supply at
the clothes washer terminal block within 2 percent of 120, 120/240,
or 120/208Y volts as applicable to the particular terminal block
wiring system and
[[Page 17597]]
within 2 percent of the nameplate frequency as specified by the
manufacturer. If the clothes washer has a dual voltage conversion
capability, conduct test at the highest voltage specified by the
manufacturer.
2.3 Supply Water Temperature.
2.3.1 Clothes washers in which electrical energy consumption
and/or water energy consumption are affected by the inlet water
temperature (for example, water heating clothes washers or clothes
washers with thermostatically controlled water valves). The
temperature of the hot water supply at the water inlets shall be
maintained at 135 deg.F +0 deg.F -10 deg.F (57.2 deg.C +0 deg.C
-5.5 deg.C) and the cold water supply at the water inlets shall be
maintained at 60 deg.F +0 deg.F -10 deg.F (15.6 deg.C +0 deg.C
-5.6 deg.C). A water meter shall be installed in both the hot and
cold water lines to measure water consumption.
2.3.2 Clothes washers in which electrical energy consumption
and water energy consumption are NOT affected by the inlet water
temperature. The temperature of the hot water supply shall be
maintained at 135 deg.F 5 deg.F (57.2 deg.C
2.8 deg.C) and the cold water supply shall be
maintained at 60 deg.F 5 deg.F (15.6 deg.C
2.8 deg.C). A water meter shall be installed in both the hot and
cold water lines to measure water consumption.
2.4 Water pressure. The static water pressure at the hot and
cold water inlet connection of the clothes washer shall be
maintained at 35 pounds per square inch gauge (psig) 2.5
psig (241.3 kPa 17.2 kPa) during the test. The static
water pressure for a single water inlet connection shall be
maintained at 35 psig 2.5 psig (241.3 kPa
17.2 kPa) during the test. A water pressure gauge shall
be installed in both the hot and cold water lines to measure water
pressure.
2.5 Instrumentation. Perform all test measurements using the
following instruments, as appropriate:
2.5.1 Weighing scales.
2.5.1.1 Weighing scale for test cloth. The scale shall have a
resolution of at least 0.2 ounces (5.7 g) and a maximum error no
greater than 0.3 percent of the measured value.
2.5.1.2 Weighing scale for clothes container capacity
measurements. The scale should have a resolution of 0.50 pounds (0.2
kg) and a maximum error no greater than 0.5 percent of the measured
value.
2.5.2 Watt-hour meter. The watt-hour meter shall have a
resolution no larger than 1 watt-hour (3.6 kJ) and a maximum error
no greater than 2 percent of the measured value for any demand
greater than 50 watts-hours (180.0 kJ).
2.5.3 Temperature measuring device. The device shall have an
error no greater than 1 deg.F ( 0.6 deg.C)
over the range being measured.
2.5.4 Water meter. The water meter shall have a resolution no
larger than 0.1 gallons (0.4 liters) and a maximum error no greater
than 2 percent for the water flow rates being measured.
2.5.5 Water pressure gauge. The water pressure gauge shall have
a resolution of 1 pound per square inch gauge (psig) (6.9 kPa) and
shall have an error no greater than 5 percent of any measured value.
2.6 Test cloths.
2.6.1 Energy test cloth.
2.6.1.1 The energy test cloth shall not be used for more than
25 test runs and shall be clean and consist of the following:
(a) Pure finished bleached cloth, made with a momie or granite
weave, which is 50 percent cotton and 50 percent polyester and
weighs 5.75 ounces per square yard (195.0 g/m\2\) and has 65 ends on
the warp and 57 picks on the fill. (b) Cloth material that is 24
inches by 36 inches (61.0 cm by 91.4 cm) and has been hemmed to 22
inches by 34 inches (55.9 cm by 86.4 cm) before washing. The maximum
shrinkage after five washes shall not be more than four percent on
the length and width.
2.6.1.2 The new test cloths, including energy test cloths and
energy stuffer cloths shall be pre-conditioned in a clothes washer
in the following manner:
2.6.1.2.1 For each gallon (3.79 liters) of water used, use 6
grams of a commercially available clothes washing detergent that is
suitable for 135 deg.F (57.2 deg.C) wash water, with the washer
set on maximum water level. Place detergent in washer and then place
the new load to be conditioned in the washer. Wash the load for ten
minutes in soft water (17ppm or less). Wash water is to be hot, and
controlled at 135 deg.F 5 deg.F (57.2 deg.C
2.8 deg.C). Rinse water temperature is to be cold, and
controlled at 60 deg.F 5 deg.F (15.6
deg.C 2.8 deg.C). Rinse the load through a second rinse using the
same water temperature (utilize an optional second rinse if
available).
2.6.1.2.2 Dry the load.
2.6.1.2.3 A final cycle is to be hot water wash with no
detergent followed by two cold water rinses.
2.6.1.2.4 Dry the load.
2.6.2 Energy stuffer cloth. The energy stuffer cloth shall be
made from energy test cloth material and shall consist of pieces of
material that are 12 inches by 12 inches (30.5 cm by 30.5 cm) and
have been hemmed to 10 inches by 10 inches (25.4 cm by 25.4 cm)
before washing. The maximum shrinkage after five washes shall not be
more than four percent on the length and width. The number of test
runs on the same energy stuffer cloth shall not exceed 25 runs.
2.7 Test Load Sizes. Maximum, minimum, and when required,
average test load sizes shall be determined using Table 5.1 and the
clothes container capacity as measured in 3.1 through 3.1.4. Test
loads shall consist of energy test cloths, except that adjustments
to the test loads to achieve proper weight can be made by the use of
energy stuffer cloths with no more than 5 stuffer clothes per load.
2.8 Use of Test Loads. Table 2.8 defines the test load sizes
and corresponding water fill settings which are to be used when
measuring water and energy consumption. ``Control System'' refers to
the type of clothes washer control system as defined in section 1 of
this appendix:
Table 2.8.--Test Load Sizes and Water Fill Settings Required
--------------------------------------------------------------------------------------------------------------------------------------------------------
Water fill control system Manual Manual Adaptive
--------------------------------------------------------------------------------------------------------------------------------------------------------
Manual Adaptive Manual or adaptive
Other control systems -----------------------------------------------------------------------------------------------------------------------
Test load size Water fill setting Test load size Water fill setting Test load size Water fill setting
--------------------------------------------------------------------------------------------------------------------------------------------------------
Max............... Max............... Max............... Max............... Max............... As determined by
the Clothes
Washer.
Min............... Min............... Avg............... Max............... Avg+\1\...........
Min............... Min............... Avg...............
.................. Avg\1\............
Min ..............
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ See 3.3.3.1, 3.4.3.1, or 3.6.3.1 to determine if these load sizes are required.
2.8.1 The test load sizes to be used to measure RMC are
specified in section 3.8.
2.8.2 Test loads for energy and water consumption measurements
shall be bone dry prior to the first cycle of the test, and dried to
a maximum of 104 percent of bone dry weight for subsequent testing.
2.8.3 Method of loading. Load the energy test cloths by
grasping them in the center, shaking them to hang loosely and then
put them into the clothes container prior to activating the clothes
washer.
2.9 Pre-conditioning.
2.9.1 Nonwater-heating clothes washer. If the clothes washer
has neither been tested nor filled with water in the preceding 96
hours, pre-condition it by running it through a cold rinse cycle and
then draining it to ensure that the hose, pump, and sump are filled
with water.
2.9.2 Water-heating clothes washer. If the clothes washer has
neither been tested nor filled with water in the preceding 96 hours
[[Page 17598]]
and/or if it has not been in the test room at the specified ambient
conditions for 8 hours, pre-condition it by running it through a
cold rinse cycle and then draining it to ensure that the hose, pump,
and sump are filled with water.
2.10 Wash time setting. If one wash time is prescribed in the
energy test cycle, that shall be the wash time setting; otherwise,
the wash time setting shall be the higher of either the minimum, or
70 percent of the maximum, wash time available in the energy test
cycle.
2.11 Test room temperature for water-heating clothes washers.
Maintain the test room ambient air temperature at
75 deg.F5 deg.F (23.9 deg.C 2.8 deg.C).
3. Test Measurements
3.1 Clothes container capacity. Measure the entire volume which
a dry clothes load could occupy within the clothes container during
washer operation according to the following procedures:
3.1.1 Line the inside of the clothes container with 2 mil
(0.051 mm) plastic sheet. All clothes washer components which occupy
space within the clothes container and which are recommended for use
with the energy test cycle shall be in place and shall be lined with
2 mil (0.051 mm) plastic sheet to prevent water from entering any
void space.
3.1.2 Record the total weight of the machine before adding
water.
3.1.3 Fill the clothes container manually with either 60
deg.F5 deg.F (15.6 deg.C2.8 deg. C) or
100 deg.F#10 deg.F (37.8 deg.C 2.8 deg.C)
water to its uppermost edge. Measure and record the weight of water,
W, in pounds.
3.1.4 The clothes container capacity is calculated as follows:
C=W/d.
Where:
C=Capacity in cubic feet.
W=Mass of water in pounds.
d=Density of water (62.0 lbs/ft3 for 100 deg. F (993 kg/m\3\
for 37.8 deg. C) or 62.3 lbs/ft\3\ for 60 deg. F (998 kg/m\3\ for
15.6 deg. C)).
3.2 Procedure for measuring water and energy consumption values
on all automatic and semi-automatic washers. All energy consumption
tests shall be performed under the energy test cycle, unless
otherwise specified. Table 3.2 defines the sections below which
govern tests of particular clothes washers, based on the number of
wash/rinse temperature selections available on the model, and/or
method of water heating. The procedures prescribed are applicable
regardless of a clothes washer's washing capacity, loading port
location, primary axis of rotation of the clothes container, and
type of control system.
Table 3.2.--Test Section Reference
----------------------------------------------------------------------------------------------------------------
Max. wash temp. available <=135 deg.F (57.2 deg.C) 135 deg.F
-------------------------------------------------------------------------------------- (57.2 deg.C) \2\
--------------------------
Number of wash temp. selections 1 2 =3 3 3
----------------------------------------------------------------------------------------------------------------
Test Sections Required to be Followed....... 3.6 3.4 3.4 3.3 3.3
\1\ 3.7 3.6 3.5 3.5 3.4
3.8 \1\ 3.7 3.6 3.6 3.5
........... 3.8 \1\ 3.7 \1\ 3.7 3.6
........... ........... 3.8 3.8 \1\ 3.7
........... ........... 3.8 3.8 \1\3.7
........... ........... ............. ........... 3.8
----------------------------------------------------------------------------------------------------------------
\1\ Only applicable to machines with warm rinse.
\2\ This only applies to water heating clothes washers on which the maximum wash temperature available exceeds
135 deg. F (57.2 deg. C).
3.2.1 Inlet water temperature and the wash/rinse temperature
settings.
3.2.1.1 For automatic clothes washers set the wash/rinse
temperature selection control to obtain the wash water temperature
desired (extra hot, hot, warm, or cold) and cold rinse and open both
the hot and cold water faucets.
3.2.1.2 For semi-automatic washers: (1) For hot water
temperature: open the hot water faucet completely and close the cold
water faucet; (2) for warm inlet water temperature: Open both hot
and cold water faucets completely; (3) for cold water temperature:
close the hot water faucet and open the cold water faucet
completely.
3.2.2 Total water consumption during the energy test cycle
shall be measured, including hot and cold water consumption during
wash, deep rinse, and spray rinse.
3.2.3 Clothes washers with adaptive/manual/consumer optional
control systems
3.2.3.1 Clothes washers with adaptive controls and alternate
manual controls. If clothes washers with adaptive controls allow
consumer selection of manual controls as an alternative, then both
manual and adaptive modes shall be tested and the energy
consumption, ETE , calculated in section 4 shall be the average
of the measured values. If the product manufacturer feels more
energy savings would result from the actual in home use of the
adaptive control system, then the procedures in section 6.2 can be
used as an alternate means to provide data in support of a waiver.
3.2.3.2 Clothes washers with adaptive water fill controls. When
testing these clothes washers in adaptive water fill control, the
maximum, minimum, and average water levels as defined in the
following sections shall be interpreted to mean that amount of water
fill which is selected by the control system when the respective
test loads are used, as defined in Table 2.8. The load usage factors
which shall be used when calculating energy consumption values are
defined in Table 4.1.3.
3.2.3.3 Clothes washers with adaptive control systems which do
not adaptively modify the water fill levels. The water fill selector
shall be set to the maximum water level available on the clothes
washer for the maximum and average test load sizes and set to the
minimum water level for the minimum test load size as defined in
Table 2.8. The load usage factors which shall be used when
calculating energy consumption values are defined in Table 4.1.3.
3.2.3.4 Clothes washers with manual control systems. The water
fill selector shall be set to the maximum water level available on
the clothes washer for the maximum test load size and set to the
minimum water level for the minimum test load size as defined in
Table 2.8. The load usage factors which shall be used when
calculating energy consumption values are defined in Table 4.1.3.
3.2.3.5 Clothes washers with consumer options for the energy
test cycle. Clothes washers which have more than one option or a
range of options for various characteristics (other than wash time)
of the energy test cycle, such as various spin speeds or adaptive
water fill selections, etc., shall be tested at the maximum and
minimum extremities of the available options. The energy consumption
and other equations calculated in section 4 shall be determined by
the average of the measured values.
3.3 ``Extra Hot Wash'' Cycle (Max Wash Temp >135 deg. F
(57.2 deg. C)). This section applies to water heating clothes
washers only. Water and electrical energy consumption shall be
measured for each water fill level and/or test load size as
specified in 3.3.1 through 3.3.3.5.2 for the hottest setting
available.
3.3.1 Maximum test load and water fill. Hot water consumption
(Hmx), cold water consumption (Cmx), and electrical energy
consumption (Emn) shall be measured for an extra hot wash/cold
rinse energy test cycle, with the controls set for the maximum water
fill level. The maximum test load size is to be used and shall be
determined per table 5.1.
3.3.2 Minimum test load and water fill. Hot water consumption
(Hmn), cold water consumption (Cmn), and electrical energy
consumption (Emn) shall be measured for an extra hot wash/cold rinse
energy test cycle, with the controls set for the minimum water fill
level. The minimum test load size is to be used and shall be
determined per table 5.1.
3.3.3 Average test load and water fill. For clothes washers
with adaptive controls, measure the values for hot water consumption
(Hma), cold water consumption (Cma), and electrical energy
consumption (Ema) for an extra hot wash/cold rinse energy test
cycle, with an average test load size as determined per table 5.1.
3.3.3.1 Steps 3.3.3.2 through 3.3.3.5.2 are to determine if
additional testing of clothes washers with adaptive water fill
controls is necessary, by checking for linearity in the
[[Page 17599]]
three water consumption values (minimum, average, and maximum)
measured.
3.3.3.2 Calculate the total water consumption for the maximum
test load size (Vx=Hmx+Cmx)
3.3.3.3 Ca
FR Doc. 96-9683 Energy Conservation Program for Consumer Products: Test Procedure for Clothes Washers and Reporting Requirements for Clothes Washers, Clothes Dryers, and Dishwashers
lculate the total water consumption for the average
test load size (Va=Hma+Cma)
3.3.3.4 Calculate the total water consumption for the minimum
test load size (Vn=Hmn+Cmn)
3.3.3.5 If Va is different than the average of Vx and
Vn by 5 percent or more then two additional test load sizes,
average(+) and average(-) shall be tested as follows:
3.3.3.5.1 To determine the average(+) test load size, add
the weights for the maximum and average test load sizes and divide
by two. Place the average(+) test load size into the clothes
washer and measure the hot water consumption (Hma+), cold water
consumption (Cma+), and electrical energy consumption
(Ema+) for an extra hot wash/cold rinse energy test cycle.
3.3.3.5.2 To determine the average(-) test load size, add
the weights for the average and minimum test load sizes and divide
by two. Place the average(-) test load size into the clothes
washer and measure the hot water consumption (Hma-), cold water
consumption (Cma-), and electrical energy consumption
(Ema-) for an extra hot wash/cold rinse energy test cycle.
3.4 ``Hot Wash'' Cycle (Max Wash Temp 135 deg.F
(57.2 deg.C)). Water and electrical energy consumption shall be
measured for each water fill level and/or test load size as
specified in 3.4.1 through 3.4.3.5.2 for 135 deg.F (57.2 deg.C)
wash if available or the hottest selection less than 135 deg.F
(57.2 deg.C).
3.4.1 Maximum test load and water fill. Hot water consumption
(Hhx), cold water consumption (Chx), and electrical energy
consumption (Ehx) shall be measured for a hot wash/cold rinse
energy test cycle, with the controls set for the maximum water fill
level. The maximum test load size is to be used and shall be
determined per table 5.1.
3.4.2 Minimum test load and water fill. Hot water consumption
(Hhn), cold water consumption (Chn), and electrical energy
consumption (Ehn) shall be measured for a hot wash/cold rinse
energy test cycle, with the controls set for the minimum water fill
level. The minimum test load size is to be used and shall be
determined per table 5.1.
3.4.3 Average test load and water fill. For clothes washers
with adaptive controls, measure the values for hot water consumption
(Hha), cold water consumption (Cha), and electrical energy
consumption (Eha) for a hot wash/cold rinse energy test cycle,
with an average test load size as determined per table 5.1.
3.4.3.1 Steps 3.4.3.2 through 3.4.3.5.2 are to determine if
additional testing of clothes washers with adaptive water fill
controls is necessary, by checking for linearity in the three water
consumption values (minimum, average, and maximum) measured.
3.4.3.2 Calculate the total water consumption for the maximum
test load size (Vx=Hhx+Chx)
3.4.3.3 Calculate the total water consumption for the average
test load size (Va=Hha+Cha)
3.4.3.4 Calculate the total water consumption for the minimum
test load size (Vn=Hhn+Chn)
3.4.3.5 If Va is different than the average of Vx and
Vn by 5 percent or more then two additional test load sizes,
average(+) and average(-) shall be tested as follows:
3.4.3.5.1 To determine the average(+) test load size, add
the weights for the maximum and average test load sizes and divide
by two. Place the average(+) test load size into the clothes
washer and measure the hot water consumption (Hha+), cold water
consumption (Cha+), and electrical energy consumption
(Eha+) for a hot wash/cold rinse energy test cycle.
3.4.3.5.2 To determine the average(-) test load size, add
the weights for the average and minimum test load sizes and divide
by two. Place the average(-) test load size into the clothes
washer and measure the hot water consumption (Hha-), cold water
consumption (Cha-), and electrical energy consumption
(Eha-) for a hot wash/cold rinse energy test cycle.
3.5 ``Warm Wash'' Cycle (Intermediate Wash Temperature
Selection Between Hot and Cold). Water and electrical energy
consumption shall be measured for each water fill level and/or test
load size as specified in 3.5.1 through 3.5.5.3 for the warm water
wash temperature.
3.5.1 For clothes washers with uniformly distributed warm wash
temperature selections, the reportable values to be used for the
warm water wash setting shall be the arithmetic average of hot and
cold selections measurements. This is a calculation only, no testing
is required.
3.5.2 For clothes washers that do not have uniformly
distributed warm wash temperature selections, test all intermediate
wash temperature selections for washers having discrete warm wash
selections. For washers having infinite warm wash selections which
are non-uniformly distributed by temperature between ``hot wash''
and ``cold wash'', test at 20 percent, 40 percent, 60 percent, and
80 percent positions of the temperature selection device between the
hottest hot (135 deg.F (57.2 deg.C)) wash and the
coldest cold wash. The reportable values to be used for the warm
water wash setting shall be the arithmetic averages of all tests
required in this section.
3.5.3 Maximum test load and water fill. Hot water consumption
(Hwx), cold water consumption (Cwx), and electrical energy
consumption (Ewx) shall be measured for a warm wash/cold rinse
energy test cycle, with the controls set for the maximum water fill
level. The maximum test load size is to be used and shall be
determined per table 5.1.
3.5.4 Minimum test load and water fill. Hot water consumption
(Hwn), cold water consumption (Cwn), and electrical energy
consumption (Ewn) shall be measured for a warm wash/cold rinse
energy test cycle, with the controls set for the minimum water fill
level. The minimum test load size is to be used and shall be
determined per table 5.1.
3.5.5 Average test load and water fill. For clothes washers
with adaptive controls, measure the values for hot water consumption
(Hwa), cold water consumption (Cwa), and electrical energy
consumption (Ewa) for a warm wash/cold rinse energy test cycle,
with an average test load size as determined per table 5.1.
3.5.5.1 If additional testing of clothes washers with adaptive
water fill controls was determined to be necessary by section
3.3.3.1 or 3.4.3.1. average(+) and average(-) test load
sizes shall be determined for warm wash as follows:
3.5.5.2 To determine the average(+) test load size, add
the weights for the maximum and average test load sizes and divide
by two. Place the average(+) test load size into the clothes
washer and measure the hot water consumption (Hwa+), cold water
consumption (Cwa+), and electrical energy consumption
(Ewa+) for a warm wash/cold rinse energy test cycle.
3.5.5.3 To determine the average(-) test load size, add
the weights for the average and minimum test load sizes and divide
by two. Place the average(-) test load size into the clothes
washer and measure the hot water consumption (Hwa-), cold water
consumption (Cwa-), and electrical energy consumption
(Ewa-) for a warm wash/cold rinse energy test cycle.
3.6 ``Cold Wash'' Cycle (Minimum Wash Temperature Selection).
Water and electrical energy consumption shall be measured for each
water fill level and/or test load size as specified in 3.6.1 through
3.6.3.5.2 for the coldest wash temperature selection available.
3.6.1 Maximum test load and water fill. Hot water consumption
(Hcx), cold water consumption (Ccx), and electrical energy
consumption (Ecx) shall be measured for a cold wash/cold rinse
energy test cycle, with the controls set for the maximum water fill
level. The maximum test load size is to be used and shall be
determined per table 5.1.
3.6.2 Minimum test load and water fill. Hot water consumption
(Hcn), cold water consumption (Ccn), and electrical energy
consumption (Ecn) shall be measured for a cold wash/cold rinse
energy test cycle, with the controls set for the minimum water fill
level. The minimum test load size is to be used and shall be
determined per table 5.1.
3.6.3 Average test load and water fill. For clothes washers
with adaptive controls, measure the values for hot water consumption
(Hca), cold water consumption (Cca), and electrical energy
consumption (Eca) for a cold wash/cold rinse energy test cycle,
with an average test load size as determined per table 5.1.
3.6.3.1 Steps 3.6.3.2 through 3.6.3.5.2 are to determine if
additional testing of clothes washers with adaptive water fill
controls is necessary, by checking for linearity in the three water
consumption values (minimum, average, and maximum) measured.
3.6.3.2 Calculate the total water consumption for the maximum
test load size ( Vx=Hcx+Ccx)
3.6.3.3 Calculate the total water consumption for the average
test load size (Va=Hca+Cca)
3.6.3.4 Calculate the total water consumption for the minimum
test load size (Vn=Hcn+Ccn)
3.6.3.5 If Va is different than the average of Vx and
Vn by 5 percent or more then two additional test load sizes,
average(+) and average(-) shall be tested as follows:
[[Page 17600]]
3.6.3.5.1 To determine the average(+) test load size, add
the weights for the maximum and average test load sizes and divide
by two. Place the average(+) test load size into the clothes
washer and measure the hot water consumption (Hca+), cold water
consumption (Cca+), and electrical energy consumption
(Eca+) for a cold wash/cold rinse energy test cycle.
3.6.3.5.2 To determine the average(-) test load size, add
the weights for the average and minimum test load sizes and divide
by two. Place the average(-) test load size into the clothes
washer and measure the hot water consumption (Hca-), cold water
consumption (Cca-), and electrical energy consumption
(Eca-) for a cold wash/cold rinse energy test cycle.
3.7 Warm Rinse.
3.7.1 Measure the amount of hot water consumed during the
hottest rinse cycle with the rinse temperature set to warm,
including all deep and spray rinses, for the maximum (Rx),
minimum (Rn), and average (Ra) test load sizes and/or
water fill levels.
3.7.2 Measure the total amount of electrical energy consumed by
the clothes washer with a warm wash and hottest rinse cycle,
including all wash, deep rinses, and spray rinses, for the maximum
(Erx), minimum (Ern), and average (Era) test load
sizes and/or water fill levels.
3.7.3 Subtract the electrical energy values for warm wash/cold
rinse as measured in section 3.5 (Ew) from the Er values determined
above in section 3.7.2 to calculate the additional electrical energy
required to heat the water and operate the clothes washer for the
warm wash/warm rinse cycle (ER).
(a) ERx=Erx-Ewx
(b) ERa=Era-Ewa
(c) ERn=Ern-Ewn
3.7.4 If additional testing of clothes washers with adaptive
water fill controls was determined to be necessary by section
3.3.3.1, 3.4.3.1, 3.5.5.1 or 3.6.3.1., the average(+) and
average(-) values shall be determined for warm rinse in
sections 3.7.1 (Ra+ and Ra-), 3.7.2 (Era+ and
Era-), and 3.7.3 (ERa+ and ERa-) as appropriate.
3.8 Remaining Moisture Content.
3.8.1 The wash temperature will be the same as the rinse
temperature for all testing.
3.8.2 For clothes washers with cold rinse only.
3.8.2.1 Determine the maximum test load as defined in table 5.1
and section 3.1.
3.8.2.2 Record the actual `bone dry' weight of the test load
(WImax).
3.8.2.3 Set water level selector to maximum fill.
3.8.2.4 Run the energy test cycle.
3.8.2.5 Record the weight of the test load immediately after
completion of the energy test cycle (WCmax).
3.8.2.6 Calculate the remaining moisture content of the maximum
test load, RMCmax, expressed as a percentage and defined as:
RMCmax = ((WCmax-WImax) / WImax) x 100%
3.8.3 For clothes washers with cold and warm rinse options.
3.8.3.1 Complete steps 3.8.2.1 through 3.8.2.5 for cold rinse.
Calculate the remaining moisture content of the maximum test load
for cold rinse, RMCCOLD, expressed as a percentage and defined as:
RMCCOLD = ((WCmax-WImax) / WImax) x 100%
3.8.3.2 Complete steps 3.8.2.1 through 3.8.2.6 for warm rinse.
Calculate the remaining moisture content of the maximum test load
for warm rinse, RMCWARM, expressed as a percentage and defined
as:
RMCWARM = ((WCmax-WImax) / WImax) x 100%
3.8.3.3 Calculate the remaining moisture content of the maximum
test load, RMCmax, expressed as a percentage and defined as:
RMCmax = RMCCOLD x (1-TUFR) +
RMCWARM x (TUFR).
4. Calculation of Derived Results from Test Measurements
All calculations for average, above average, and below average
test load sizes in this section are applicable only to those clothes
washers which were required to be tested in these conditions, as
stated in Table 2.8.
4.1 Hot water and machine electrical energy consumption of
clothes washers.
4.1.1 Per-cycle temperature-weighted hot water consumption for
maximum, intermediate, and minimum water fill levels using each
appropriate load size as defined in section 2.8 and Table 5.1.
Calculate for the cycle under test the per-cycle temperature
weighted hot water consumption for the maximum water fill level,
Vhx, the above average water fill level, Vha+, the average
water fill level, Vha, the below average water fill level,
Vha-, and the minimum water fill level, Vhn, expressed in
gallons per cycle (or liters per cycle) and defined as:
(a) Vhx=[Hmx x TUFm]
+[Hhx x TUFh]
+[Hwx x TUFw]
+[Hcx x TUFc]
+[Rx x TUFR]
(b) Vha+=[Hma+ x TUFm]
+[Hha++ x TUFh]
+[Hwa+ x TUFw]
+[Hca+ x TUFc]
+[Ra+ x TUFR]
(c) Vha=[Hma x TUFm]
+[Hha x TUFh]
+[Hwa x TUFw]
+[Hca x TUFc]
+[Ra x TUFR]
(d) Vha-=[Hma- x TUFm]
+[Hha- x TUFh]
+[Hwa- x TUFw]
+[Hca- x TUFc]
+[Ra- x TUFR]
(e) Vhn=[Hmn x TUFm]
+[Hhn x TUFh]
+[Hwn x TUFw]
+[Hcn x TUFc]
+[Rn x TUFR]
Where:
x, a, & n are the maximum, average, and minimum test load for the
clothes washer under test.
a+ is the above average test load size.
a- is the below average test load size.
Hmx, Hma+, Hma, Hma-, and Hmn, are reported
hot water consumption values, in gallons per-cycle (or liters per
cycle), at maximum, above average, average, below average, and
minimum fill, respectively, for the extra-hot wash cycle with the
appropriate test loads, as defined in section 2.8.
Hhx, Hha+, Hha, Hha-, and Hhn, are reported
hot water consumption values, in gallons per-cycle (or liters per
cycle), at maximum, above average, average, below average, and
minimum fill, respectively, for the hot wash cycle with the
appropriate test loads, as defined in section 2.8.
Hwx, Hwa+, Hwa, Hwa-, and Hwn, are reported
hot water consumption values, in gallons per-cycle (or liters per
cycle), at maximum, above average, average, below average, and
minimum fill, respectively, for the warm wash cycle with the
appropriate test loads, as defined in section 2.8.
Hcx, Hca+, Hca, Hca-, and Hcn, are reported
hot water consumption values, in gallons per-cycle (or liters per
cycle), at maximum, above average, average, below average, and
minimum fill, respectively, for the cold wash cycle with the
appropriate test loads, as defined in section 2.8.
Rx, Ra+, Ra, Ra-, and Rn are the reported
hot water consumption values, in gallons per- cycle (or liters per
cycle), at maximum, above average, average, below average, and
minimum fill, respectively, for the warm rinse cycle and the
appropriate test loads, as defined in section 2.8
TUFm, TUFh, TUFw, TUFc, and TUFR are
temperature use factors for extra hot wash, hot wash, warm wash,
cold wash, and warm rinse temperature selections, respectively, and
are as defined in Table 4.1.1.
Table 4.1.1.--Temperature Use Factors
--------------------------------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------------------------------------
Max Wash Temp Available........ 135 deg.F... 135 deg.F... 135 deg.F... >135 deg.F............. >135 deg.F
(57.2 deg.C)........... (57.2 deg.C)........... (57.2 deg.C)........... (57.2 deg.C)........... (57.2 deg.C)
No. Wash Temp Selections....... Single.................. 2 Temps................. 3 Temps...... 3 Temps................. >3 Temps
TUFm (extra hot)............... NA...................... NA...................... NA...................... 0.14.................... 0.05
TUFh (hot)..................... NA...................... 0.63.................... 0.14.................... NA...................... 0.09
TUFw (warm).................... NA...................... NA...................... 0.49.................... 0.49.................... 0.49
TUFc (cold).................... 1.00.................... 0.37.................... 0.37.................... 0.37.................... 0.37
TUFR (warm rinse).............. 0.27.................... 0.27.................... 0.27.................... 0.27.................... 0.27
--------------------------------------------------------------------------------------------------------------------------------------------------------
[[Page 17601]]
4.1.2 Total per-cycle hot water energy consumption for all
maximum, intermediate, and minimum water fill levels tested.
Calculate the total per-cycle hot water energy consumption for the
maximum water fill level, Emax, the minimum water fill level,
Emin, and the average water fill level, Eavg, expressed in
kilowatt-hours per cycle and defined as:
(a) Emax = [Vhx x T x K] = Total energy when a maximum
load is tested.
(b) Eavg = [Vha x T x K] or if above average and below average
test loads were required to be tested Eavg = [(\1/3\) x
(Vha+ + Vha + Vha-) + T x K] = Total energy for an
average load.
(c) Emin=[Vhn x T x K]=Total energy when a minimum load is
tested.
Where:
T=Temperature rise=75 deg.F (23.9 deg.C).
K=Water specific heat in kilowatt-hours per gallon degree F=0.00240
[0.00114 kWh/(L\ deg.C)].
Vhx, Vha+, Vha, Vha-, and Vhn, are as
defined in 4.1.1.
4.1.3 Total weighted per-cycle hot water energy consumption.
Calculate the total weighted per cycle hot water energy consumption,
ET, expressed in kilowatt-hours per cycle and defined as:
ET=[Emax x Fmax]+[Eavg x Favg]+[Emin x
Fmin]
Where:
Emax, Eavg, and Emin are as defined in 4.1.2.
Fmax, Favg, and Fmin are the load usage factors for
the maximum, average, and minimum test loads based on the size and
type of control system on the washer being tested. The values are as
shown in table 4.1.3.
Table 4.1.3.--Load Usage Factors
------------------------------------------------------------------------
Water Fill Control System Manual Manual Adaptive
------------------------------------------------------------------------
Manual or
Other Control Systems Manual Adaptive Adaptive
------------------------------------------------------------------------
Fmax= \1\.72 \2\.10 \3\.12
Favg= \2\.62 \3\.74
Fmin= \1\.28 \2\.28 \3\.14
------------------------------------------------------------------------
\1\ Reference 3.2.3.4
\2\ Reference 3.2.3.3.
\3\ Reference 3.2.3.2
4.1.4 Total Per-cycle hot water energy consumption using gas-
heated or oil-heated water. Calculate for the energy test cycle the
per-cycle hot water consumption, ETG, using gas heated or oil-
heated water, expressed in Btu per cycle (or megajoules per cycle)
and defined as:
ETG=ET x 1/e x 3412 Btu/kWh or ETG=ET x 1/
e x 3.3 MJ/kWh
Where:
e = Nominal gas or oil water heater efficiency = 0.75.
ET = As defined in 4.1.3.
4.1.5 Per-cycle machine electrical energy consumption for all
maximum, average, and minimum test load sizes. Calculate the total
per-cycle machine electrical energy consumption for the maximum
water fill level, MEmax, the minimum water fill level,
MEmin, and the average water fill level, MEavg, expressed
in kilowatt-hours per cycle and defined as:
(a) MEmax=[Emx x TUFm] +[Ehx x
TUFh]+[Ewx x
TUFw]+[Ecx x TUFc]+[ERx x TUFR]
(b) MEavg=[Ema
x TUFm][Eha
x TUFh]+[Ewa
x TUFw]+[Eca
x TUFc]+[ERa
x TUFR]
Note: Ema is the average of Ema+, Ema, and Ema-
if above average and below average test loads were required to be
tested. The same applies to Eha, Ewa, Eca, and
ERa.
(c) MEmin=[Emn
x TUFm]+[Ehn
x TUFh]+[Ewn
x TUFw]+[Ecn
x TUFc]+[ERn
x TUFR]
Where:
x, a, & n are the maximum, average, and minimum test load for the
clothes washer under test.
a+ & a- are the above average and below average test load
sizes for the clothes washer under test.
Emx, Ema+, Ema, Ema-, and Emn, are reported
electrical energy consumption values, in kilowatt-hours per cycle,
at maximum, above average, average, below average, and minimum test
loads, respectively, for the extra-hot wash cycle.
Ehx, Eha+, Eha, Eha-, and Ehn, are reported
electrical energy consumption values, in kilowatt-hours per cycle,
at maximum, above average, average, below average, and minimum test
loads, respectively, for the hot wash cycle.
Ewx, Ewa+, Ewa, Ewa-, and Ewn, are reported
electrical energy consumption values, in kilowatt-hours per cycle,
at maximum, above average, average, below average, and minimum test
loads, respectively, for the warm wash cycle.
Ecx, Eca+, Eca, Eca-, and Ecn, are reported
electrical energy consumption values, in kilowatt-hours per cycle,
at maximum, above average, average, below average, and minimum test
loads, respectively, for the cold wash cycle.
ERx, ERa+, ERa, ERa-, and ERn are reported
electrical energy consumption values, in kilowatt-hours per cycle,
at maximum, above average, average, below average, and minimum test
loads, respectively, for the warm rinse cycle.
TUFm, TUFh, TUFw, TUFc, and TUFR are as
defined in 4.1.1.
4.1.6 Total weighted per-cycle machine electrical energy
consumption. Calculate the total per cycle load size weighted energy
consumption, MET, expressed in kilowatt-hours per cycle and
defined as:
MET=[MEmax x Fmax]
+[MEavg x Favg]
+[MEmin x Fmin]
Where:
MEmax, MEavg, and MEmin are as defined in 4.1.5.
Fmax, Favg, and Fmin are as defined in 4.1.3.
4.1.7 Total per-cycle energy consumption when electrically
heated water is used. Calculate for the energy test cycle the total
per-cycle energy consumption, ETE, using electrical heated
water, expressed in kilowatt-hours per cycle and defined as:
ETE=ET
+MET
Where:
MET=As defined in 4.1.6.
ET=As defined in 4.1.3.
4.2 Water consumption of clothes washers.
4.2.1 Per-cycle water consumption. Calculate the maximum,
average, and minimum total water consumption, expressed in gallons
per cycle (or liters per cycle), for the cold wash/cold rinse cycle
and defined as:
Qmax=[Hcx
+Ccx]
Qavg=[Hca
+Cca]
Note: Hca is the average of Hca+, Hca, and
Hca- if above average and below average test loads were
required to be tested. The same applies to Cca.
Qmin=[Hcn
+Ccn]
Where:
Hcx, Ccx, Hca, Cca, Hcn, and Ccn are
as defined in 3.6.
4.2.2 Total weighted per-cycle water consumption. Calculate the
total weighted per cycle consumption, QT, expressed in gallons
per cycle (or liters per cycle) and defined as:
QT=[Qmax x Fmax]
+[Qavg x Favg]
+[Qmin x Fmin]
Where:
Qmax, Qavg, and Qmin are as defined in 4.2.1.
Fmax, Favg, and Fmin are as defined in 4.1.3.
4.2.3 Water consumption factor. Calculate the water consumption
factor, WCF, expressed in gallon per cycle per cubic feet (or liter
per cycle per liter), as:
WCF=QT/C
Where:
QT=as defined in section 4.2.2.
C=as defined in section 3.1.
4.3 Per-cycle energy consumption for removal of moisture from
test load. Calculate the per-cycle energy required to remove the
moisture of the test load, DE, expressed in kilowatt-hours per
cycle and defined as
DE=(LAF) x (Maximum test load weight)
x (RMCmax-4%) x (DEF) x (DUF)
Where:
LAF=Load adjustment factor=0.52.
Maximum test load weight=As shown in Table 5.1 expressed in lbs/
cycle.
RMCmax=As defined in 3.8.2.6 or 3.8.3.3.
DEF=nominal energy required for a clothes dryer to remove moisture
from clothes=0.5 kWh/lb (1.1 kWh/kg).
DUF=dryer usage factor, percentage of washer loads dried in a
clothes dryer=0.84.
4.4 Modified energy factor. Calculate the modified energy
factor, MEF, expressed in cubic feet per kilowatt-hour per cycle (or
[[Page 17602]]
liters per kilowatt-hour per cycle) and defined as:
MEF=C / (ETE+DE)
Where:
C=As defined in 3.1.4.
ETE=As defined in 4.1.7.
DE=As defined in 4.3.
5. Test Loads
Table 5.1.--Test Load Sizes
--------------------------------------------------------------------------------------------------------------------------------------------------------
Container volume cu. ft. < -----------------------------------------------------------------------------------------------
----------------
(liter) lb (kg) lb (kg) lb (kg)
--------------------------------------------------------------------------------------------------------------------------------------------------------
0 -0.80................................ 0 -22.7 3.00 1.36 3.00 1.36 3.00 1.36
0.80-0.90............................... 22.7-25.5 3.00 1.36 3.50 1.59 3.25 1.47
0.90-1.00............................... 25.5-28.3 3.00 1.36 3.90 1.77 3.45 1.56
1.00-1.10............................... 28.3-31.1 3.00 1.36 4.30 1.95 3.65 1.66
1.10-1.20............................... 31.1-34.0 3.00 1.36 4.70 2.13 3.85 1.75
1.20-1.30............................... 34.0-36.8 3.00 1.36 5.10 2.31 4.05 1.84
1.30-1.40............................... 36.8-39.6 3.00 1.36 5.50 2.49 4.25 1.93
1.40-1.50............................... 39.6-42.5 3.00 1.36 5.90 2.68 4.45 2.02
1.50-1.60............................... 42.5-45.3 3.00 1.36 6.40 2.90 4.70 2.13
1.60-1.70............................... 45.3-48.1 3.00 1.36 6.80 3.08 4.90 2.22
1.70-1.80............................... 48.1-51.0 3.00 1.36 7.20 3.27 5.10 2.31
1.80-1.90............................... 51.0-53.8 3.00 1.36 7.60 3.45 5.30 2.40
1.90-2.00............................... 53.8-56.6 3.00 1.36 8.00 3.63 5.50 2.49
2.00-2.10............................... 56.6-59.5 3.00 1.36 8.40 3.81 5.70 2.59
2.10-2.20............................... 59.5-62.3 3.00 1.36 8.80 3.99 5.90 2.68
2.20-2.30............................... 62.3-65.1 3.00 1.36 9.20 4.17 6.10 2.77
2.30-2.40............................... 65.1-68.0 3.00 1.36 9.60 4.35 6.30 2.86
2.40-2.50............................... 68.0-70.8 3.00 1.36 10.00 4.54 6.50 2.95
2.50-2.60............................... 70.8-73.6 3.00 1.36 10.50 4.76 6.75 3.06
2.60-2.70............................... 73.6-76.5 3.00 1.36 10.90 4.94 6.95 3.15
2.70-2.80............................... 76.5-79.3 3.00 1.36 11.30 5.13 7.15 3.24
2.80-2.90............................... 79.3-82.1 3.00 1.36 11.70 5.31 7.35 3.33
2.90-3.00............................... 82.1-85.0 3.00 1.36 12.10 5.49 7.55 3.42
3.00-3.10............................... 85.0-87.8 3.00 1.36 12.50 5.67 7.75 3.52
3.10-3.20............................... 87.8-90.6 3.00 1.36 12.90 5.85 7.95 3.61
3.20-3.30............................... 90.6-93.4 3.00 1.36 13.30 6.03 8.15 3.70
3.30-3.40............................... 93.4-96.3 3.00 1.36 13.70 6.21 8.35 3.79
3.40-3.50............................... 96.3-99.1 3.00 1.36 14.10 6.40 8.55 3.88
3.50-3.60............................... 99.1-101.9 3.00 1.36 14.60 6.62 8.80 3.99
3.60-3.70............................... 101.9-104.8 3.00 1.36 15.00 6.80 9.00 4.08
3.70-3.80............................... 104.8-107.6 3.00 1.36 15.40 6.99 9.20 4.17
--------------------------------------------------------------------------------------------------------------------------------------------------------
Notes:
(1) All test load weights are bone dry weights.
(2) Allowable tolerance on the test load weights are +/- 0.05 pounds (0.023 kg).
6. Field Testing
6.1 Nonconventional Wash System Energy Consumption Test.
If a clothes washer has washer controls or systems that do not
allow for adequate measurement of energy consumption under the test
procedure, or for calculation of energy consumption using a
procedure accepted by DOE and a representative number of other
manufacturers, such nonconventional clothes washers must be field
tested as a basis for a waiver request.
The field test shall consist of a minimum of 10 of the
nonconventional clothes washers (``test clothes washers'') and 10
clothes washers already being distributed in commerce (``base
clothes washers''). The tests shall include a minimum of 50 cycles
per clothes washer. The test clothes washers and base clothes
washers should be identical in construction except for the controls
or systems being tested. Equal numbers of both the test clothes
washer and the base clothes washer shall be tested simultaneously in
comparable settings to minimize seasonal and/or consumer laundering
conditions and/or variations. The clothes washers shall be monitored
in such a way as to accurately record the total energy consumption
per cycle. At a minimum, the following must be measured and recorded
throughout the test period for each clothes washer: Hot water usage
in gallons (or liters), electrical energy in kilowatt-hours, and the
cycles of usage.
The field test results will be used to determine the best method
to correlate the rating of the test clothes washer to the rating of
the base clothes washer. If the base clothes washer is rated at A
kWh per year, but field tests at B kWh per year, and the test
clothes washer field tests at D kWh per year, the test unit would be
rated as follows:
A x (D/B)=G kWh per year
6.2 Adaptive control system field test.
Section 3.2.3.1 defines the test method for measuring energy
consumption for clothes washers which incorporate control systems
having both adaptive wash cycle and alternate manual wash cycle
selections. Energy consumption calculated by the method defined in
section 3.2.3.1 assumes the adaptive cycle will be used 50 percent
of the time. The purpose of this section is to define the
requirements for developing in-house and field test data in support
of a request for a waiver when it is felt that the adaptive cycle
will be used more than 50 percent of the time.
The field test sample size shall be a minimum of 10 test clothes
washers. The test clothes washers shall be totally representative of
the design, construction, and control system that will be placed in
commerce. The duration of field testing in the user's house shall be
a minimum of 50 energy test cycles, for each unit. No special
instructions as to cycle selection or product usage shall be given
to the field test participants, other than inclusion of the product
literature pack which will be shipped with all units, and
instructions regarding filling out data collection forms, use of
data collection equipment, and/or basic procedural methods.
Prior to the test clothes washers being installed in the field
test locations, baseline data shall be developed for all field test
units by conducting laboratory tests as defined by section 1 through
section 5 of these test procedures to determine the energy
[[Page 17603]]
consumption, water consumption, and remaining moisture content
values.
The following data shall be measured and recorded for each wash
load during the test period: wash cycle selected (adaptive or
manual), clothes load dry weight (measured prior to placement into
the clothes washer) in pounds, and type of articles in the clothes
load (i.e., cottons, linens, permanent press, etc.).
The wash loads used in calculating the in-home percentage split
between adaptive and manual cycle usage shall be only those wash
loads which conform to the definition of the energy test cycle.
Calculate:
T=The total number of energy test cycles run during the field test
Ta=The total number of adaptive control energy test cycles
Tm=The total number of manual control energy test cycles
The percentage weighing factors:
Pa=(Ta/T) x 100 (the percentage weighing for adaptive
control selection)
Pm=(Tm/T) x 100 (the percentage weighing for manual
control selection)
Energy consumption (ETE), calculated in section 4.1, and
water consumption (QT), calculated in section 4.2, shall be the
weighted average of the measured values using Pa and Pm as
the weighing factors.
[FR Doc. 96-9683 Filed 4-19-96; 8:45 am]
BILLING CODE 6450-01-P
Complete official Federal Register PDF
FR Doc. 96-9676 Definition of United States (U.S.) Resident; Religious Record of Birth or Baptism as Evidence of Citizenship; Plan to Help Blind and Disabled Individuals Achieve Self-Support
[Federal Register Volume 61, Number 78 (Monday, April 22, 1996)]
[Proposed Rules]
[Pages 17609-17610]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-9676]
=======================================================================
-----------------------------------------------------------------------
SOCIAL SECURITY ADMINISTRATION
20 CFR Part 416
[Regulations No. 16]
RIN 0960-AE05
Definition of United States (U.S.) Resident; Religious Record of
Birth or Baptism as Evidence of Citizenship; Plan to Help Blind and
Disabled Individuals Achieve Self-Support
AGENCY: Social Security Administration (SSA).
ACTION: Proposed rules.
-----------------------------------------------------------------------
SUMMARY: These proposed regulations clarify SSA's policies on the
definition of a U.S. resident and the acceptable types of evidence for
proving status as a U.S. citizen or national. They clarify that, for
purposes of the Supplemental Security Income (SSI) program, ``resident
of the U.S.'' means the individual has established an actual dwelling
place in the U.S. and plans to continue living in the U.S. These
proposed regulations also clarify that, for purposes of the SSI
program, a religious record of a birth or baptism in the U.S. must have
been recorded in the U.S. within 3 months of the birth, in addition to
showing that the individual was born in the U.S., in order to be
acceptable evidence that the individual is a U.S. citizen or a national
of the U.S. In addition, these proposed regulations make a minor
technical correction to clarify wording regarding income that is used
or set aside to be used under a plan to become self-supporting.
DATES: To be sure that your comments are considered, we must receive
them no later than June 21, 1996.
ADDRESSES: Comments should be submitted in writing to the Commissioner
of Social Security, P.O. Box 1585, Baltimore, MD 21235, sent by telefax
to (410) 966-2830, sent by E-Mail to ``[email protected],'' or
delivered to the Division of Regulations and Rulings, Social Security
Administration, 3-B-1 Operations Building, 6401 Security Boulevard,
Baltimore, MD 21235, between 8:00 a.m. and 4:30 p.m. on regular
business days. Comments received may be inspected during these same
hours by making arrangements with the contact person shown below.
FOR FURTHER INFORMATION CONTACT: Lois Berg, Legal Assistant, Division
of Regulations and Rulings, Social Security Administration, 6401
Security Boulevard, Baltimore, MD 21235, (410) 965-1713.
SUPPLEMENTARY INFORMATION:
Background
To be eligible for SSI benefits, an individual must be a resident
of the U.S. (one of the 50 States, the District of Columbia, or the
Northern Mariana Islands). Generally, a person becomes a resident when
he or she arrives in the U.S., establishes an actual dwelling place in
the U.S., and plans to continue living in the U.S.
Our regulation at Sec. 416.1603(b) currently defines ``resident of
the U.S.'' as ``a person who is living within the geographical limits
of the United States.'' This definition is vague because it implies
that mere presence, such as that of a visitor, is sufficient to
establish residency. In addition, it does not fully support the
evidence of residency documents required to establish U.S. residency
listed in Sec. 416.1603(a).
Our proposed regulation specifies that an individual must establish
an actual dwelling place in the U.S. and intend to continue living in
the U.S. to be considered a U.S. resident. Clarification of this
regulation is necessary to address problems that have arisen where
individuals have established U.S. residency under current regulations,
but do not intend to live in the U.S.
In evaluating evidence of residency for SSI purposes, the term
``actual dwelling place'' will encompass different types of living
situations
[[Page 17610]]
including the situation of a homeless individual.
Another requirement for eligibility for SSI benefits is that an
individual must be either a citizen or national of the U.S. or an alien
lawfully admitted for permanent residence or otherwise permanently
residing in the U.S. under color of law. Section 416.1610 of the
regulations lists the various types of evidence that an individual can
submit as proof that he or she is a citizen or national. Among the
acceptable types of evidence for a U.S. citizen or national is a
religious record of birth or baptism which shows the individual was
born in the U.S. However, Sec. 416.1610(a)(2) currently does not
specify that the place of recordation must be in the U.S., nor does it
set any time limits on when the record must have been established.
Prior SSA studies have shown that religious records of birth or
baptism recorded in the U.S. within 3 months of birth are generally
reliable. Records made after 3 months of birth are more prone to fraud.
While not a foolproof fraud deterrent, this proposed regulation will
help to limit fraud by lessening the chance of an individual later
coming into the U.S. and using a fraudulent record to obtain SSI
benefits.
Explanation of Revisions
We propose to revise Sec. 416.1603(b) to define precisely what we
mean by ``living within the geographical limits of the United States''
and to reflect the evidence required by Sec. 416.1603(a). We also
propose to revise Sec. 416.1610(a)(2) to specify that, in addition to
showing that the individual was born in the U.S., a religious record of
birth or baptism must have been recorded in the U.S. within 3 months of
birth.
In addition, we propose making a minor technical correction to the
wording of the second sentence in Sec. 416.1180 concerning income that
is used or set aside to be used under a plan to become self-supporting
to correct a typographical error.
Electronic Versions
The electronic file of this document is available on the Federal
Bulletin Board (FBB) at 9 a.m. on the date of publication in the
Federal Register. To download the file, modem dial (202) 512-1387. The
FBB instructions will explain how to download the file and the fee.
This file is in WordPerfect and will remain on the FBB during the
comment period.
Regulatory Procedures
Regulatory Flexibility Act
We certify that these proposed regulations will not have a
significant economic impact on a substantial number of small entities
because they only affect individuals who claim benefits under title XVI
of the Social Security Act. Therefore, a regulatory flexibility
analysis as provided in Public Law 96-354, the Regulatory Flexibility
Act, is not required.
Executive Order 12866
We have consulted with the Office of Management and Budget (OMB)
and determined that these proposed regulations do not meet the criteria
for a significant regulatory action under Executive Order 12866. Thus,
they were not subject to OMB review.
Paperwork Reduction Act
These proposed regulations impose no reporting/recordkeeping
requirements necessitating clearance by OMB.
(Catalog of Federal Domestic Assistance Program No. 96.006,
Supplemental Security Income)
List of Subjects in 20 CFR Part 416
Administrative Practice and Procedure, Aged, Blind, Disability
benefits, Public assistance programs, Reporting and recordkeeping
requirements, Supplemental Security Income.
Dated: April 4, 1996.
Shirley S. Chater,
Commissioner of Social Security.
For the reasons set forth in the preamble, we are proposing to
amend subparts K and P of part 416 of chapter III of title 20 of the
Code of Federal Regulations as set forth below.
PART 416--SUPPLEMENTAL SECURITY INCOME FOR THE AGED, BLIND, AND
DISABLED
Subpart K--[Amended]
1. The authority citation for subpart K of part 416 continues to
read as follows:
Authority: Secs. 702(a)(5), 1602, 1611, 1612, 1613, 1614(f),
1621, and 1631 of the Social Security Act (42 U.S.C. 902(a)(5),
1381a, 1382, 1382a, 1382b, 1382c(f), 1382j, and 1383); sec. 211,
Pub. L. 93-66, 87 Stat 154 (42 U.S.C. 1382 note).
2. Section 416.1180 is amended by revising the second sentence to
read as follows:
Sec. 416.1180 General.
* * * If you are blind or disabled, we will pay you SSI benefits
and will not count the part of your income that you use or set aside to
use under a plan to become self-supporting.* * *
Subpart P--[Amended]
3. The authority citation for subpart P of part 416 continues to
read as follows:
Authority: Secs. 702(a)(5), 1614(a)(1)(B) and (e), and 1631 of
the Social Security Act (42 U.S.C. 902(a)(5), 1382c(a)(1)(B) and
(e), and 1383); 8 U.S.C. 1254a; sec. 502, Pub. L. 94-241, 90 Stat.
268 (48 U.S.C. 1681 note).
4. Section 416.1603 is amended by revising paragraph (b) to read as
follows:
Sec. 416.1603 How to prove you are a resident of the United States.
* * * * *
(b) What ``resident of the United States'' means. We use the term
``resident of the United States'' to mean a person who has established
an actual dwelling place within the geographical limits of the United
States with the intent to continue to live in the United States.
* * * * *
3. Section 416.1610 is amended by revising paragraph (a)(2) to read
as follows:
Sec. 416.1610 How to prove you are a citizen or a national of the
United States.
(a) * * *
(2) A certified copy of a religious record of your birth or
baptism, recorded in the United States within 3 months of your birth,
which shows you were born in the United States;
* * * * *
[FR Doc. 96-9676 Filed 4-19-96; 8:45 am]
BILLING CODE 4190-29-P
Complete official Federal Register PDF
FR Doc. 96-9505 Redress Provisions for Persons of Japanese Ancestry
[Federal Register Volume 61, Number 78 (Monday, April 22, 1996)]
[Proposed Rules]
[Pages 17667-17669]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-9505]
=======================================================================
-----------------------------------------------------------------------
DEPARTMENT OF JUSTICE
28 CFR Part 74
[Order No. 2017-96]
Redress Provisions for Persons of Japanese Ancestry
AGENCY: Department of Justice.
ACTION: Proposed rule.
-----------------------------------------------------------------------
SUMMARY: The Department of Justice hereby proposes a change to the
regulations governing redress provisions for persons of Japanese
ancestry. This change will amend the standards of the Civil Liberties
Act of 1988 to make eligible for payments of $20,000 those persons who
were born after their parents ``voluntarily'' evacuated from the
prohibited military zones of the West Coast of the United States as a
result of military proclamations issued pursuant to Executive Order
9066. This change will also make eligible for redress those persons who
were born outside the prohibited military zones in the United States
after their parents were released from internment camps during the
defined war period and
[[Page 17668]]
whose parents had resided in the prohibited military zones on the West
Coast immediately prior to their internment. In practice, this
amendment will make potentially eligible those persons who were born
after their parents were evacuated, relocated, or interned by the
United States Government, and who could not legally return to their
parents' original place of residence within the prohibited military
zones on the West Coast.
DATES: Comments must be submitted on or before June 6, 1996.
ADDRESSES: Comments may be mailed to the Office of Redress
Administration, P.O. Box 66260, Washington, DC 20035-6260.
FOR FURTHER INFORMATION CONTACT:
Tink D. Cooper or Emlei M. Kuboyama, Office of Redress Administration,
Civil Rights Division, U.S. Department of Justice, P.O. Box 66260,
Washington, DC 20035-6260; (202) 219-6900 (voice) or (202) 219-4710
(TDD). These are not toll-free numbers.
SUPPLEMENTARY INFORMATION:
I. Background
The Civil Liberties Act of 1988, Pub. L. No. 100-383 (codified at
50 U.S.C. app. 1989 et. seq., as amended) (``the Act''), enacted into
law the recommendations of the Commission on Wartime Relocation and
Internment of Civilians established by Congress in 1980. See Commission
on Wartime Relocation and Internment of Civilians Act, Pub. L. No. 96-
317 (1980). This bipartisan commission was established: (1) To review
the facts and circumstances surrounding Executive Order 9066, issued
February 19, 1942, and the impact of that Executive order on American
citizens and permanent resident aliens of Japanese ancestry; (2) to
review directives of United States military forces requiring the
relocation and, in some cases, detention in internment camps of these
American citizens and permanent resident aliens; and (3) to recommend
appropriate remedies. The Commission submitted to Congress in February
1983 a unanimous report, Personal Justice Denied, which extensively
reviewed the history and circumstances of the decisions to exclude,
remove, and then to detain Japanese-Americans and Japanese resident
aliens from the West Coast, as well as the treatment of Aleuts during
World War II. The final part of the Commission's report, Personal
Justice Denied Part 2: Recommendations, concluded that these events
were influenced by racial prejudice, war hysteria, and a failure of
political leadership, and recommended remedial action to be taken by
Congress and the President.
On August 10, 1988, President Ronald Reagan signed the Civil
Liberties Act of 1988 into law. The purposes of the Act were to
acknowledge and apologize for the fundamental injustice of the
evacuation, relocation, and internment of Japanese-Americans and
permanent resident aliens of Japanese ancestry, to make restitution,
and to fund a public education program to prevent the recurrence of any
similar event in the future.
Section 105 of the Act makes the Attorney General responsible for
identifying, locating, and authorizing payment of redress to eligible
individuals. 50 U.S.C. app. 1989b-4. The Attorney General delegated
these responsibilities and duties assigned to her to the Assistant
Attorney General for Civil Rights, who, in keeping with precedent, has
designated the Office of Redress Administration (``ORA'') in the Civil
Rights Division to carry out the responsibilities and duties mandated
by the Act.
The ORA is charged with identifying and locating persons eligible
under the Act. To date, restitution has been paid to a total of 79,832
Japanese-Americans and permanent resident aliens of Japanese ancestry.
In the preamble of the final regulation, the Civil Rights Division
stated that ``while children born in assembly centers, relocations
[sic] camps and internment camps are included as eligible for
compensation, the regulations do not include as eligible children born
after their parents had voluntarily relocated from prohibited military
zones or from assembly centers, relocation camps, or internment
camps.'' 54 Fed. Reg. 34160 (1989). A number of these persons asserted
claims for redress based on their parents' evacuation or internment by
the United States Government prior to their birth and their subsequent
inability to legally return to their parents' original place of
residence in the prohibited military zones on the West Coast. However,
based on section 108 of the Act and 28 CFR 74.4, ORA found these
persons ineligible for redress. In all, approximately 900 persons who
were born after their parents ``voluntarily'' evacuated from the
prohibited military zones or after their parents were released from
internment camps claimed compensation under the Act. Most of these
claimants were born prior to midnight on January 2, 1945, the effective
date of Proclamation No. 21, which rescinded the prohibited military
zones on the West Coast and lifted the general exclusion restrictions
on persons of Japanese ancestry. ORA's denial of redress to these
claimants was upheld during the administrative appeal process set forth
in 28 CFR 74.17 and in some decisions of the U.S. Court of Federal
Claims. See Ishida v. United States, 31 Fed. Cl. 280 (1994); Tanihara
v. United States, 32 Fed. Cl. 805 (1995). However, the United States
Court of Appeals for the Federal Circuit recently determined that ORA's
policy of denying such claims was inconsistent with the terms of the
Act. Ishida v. United States, 59 F.3d 1224 (Fed. Cir. 1995); Consolo v.
U.S., No. 94-5150 (Fed. Cir., July 10, 1995) (unpubl.).
II. Revised Interpretation
In order to conform to these recent decisions, the Civil Rights
Division proposes to revise its interpretation regarding the
eligibility for redress of persons who either were born after their
parents ``voluntarily'' evacuated from the prohibited military zones on
the West Coast or who were born after a parent had been evacuated from
the prohibited military zones on the West Coast and interned.
Specifically, the regulation would reverse the Civil Rights Division's
current policy of denying redress to such persons who were prevented by
law from returning to a parent's original place of residence in the
prohibited military zones on the West Coast, and who are otherwise
eligible under these regulations.
The appellant in Ishida was born on November 23, 1942, in Ohio,
after his parents had voluntarily evacuated from California in March
1942. His claim of deprivation was based on his inability to return to
California during World War II. The Department's determination of
ineligibility was affirmed by the U.S. Court of Federal Claims.
However, as mentioned above, on July 6, 1995, the U.S. Court of Appeals
for the Federal Circuit reversed, holding that persons such as Ishida,
who were excluded by law ``from the parents' original place of
residence or the family home'' in a prohibited military zone were
deprived of liberty as a result of the laws and orders specified in the
Act and were eligible to receive compensation under the Act. In the
companion case, Consolo, the court affirmed the trial court, holding
that for the reasons set forth in Ishida, the appellee, who was born in
Utah on April 11, 1943, after her parents had voluntarily evacuated
from California in March 1942, was also eligible to receive redress
under the Act.
The Civil Rights Division proposes that it be guided by certain
principles in applying the modified standard discussed above. First,
the Civil Rights
[[Page 17669]]
Division proposes to apply the standard not only to persons similarly
situated to the plaintiffs in Ishida and Consolo, who were born after
their parents ``voluntarily'' evacuated the prohibited military zones
on the West Coast pursuant to military proclamations, but also to
persons who were born after their parents had been evacuated from the
prohibited military zones on the West Coast and interned. These latter
persons, who were born outside of the prohibited military zones after
their parents were released from internment camps, also could not
return to their parents' original places of residence in the prohibited
military zones on the West Coast. Because, consistent with the Federal
Circuit's reasoning, persons in this category can also be deemed to
have been deprived of liberty, based solely on their Japanese ancestry,
as a result of certain Federal Government actions, the Civil Rights
Division proposes to make redress available to them. Accordingly,
redress will be made available to persons born outside of the
prohibited military zones after their parents were interned where at
least one parent's original place of residence immediately prior to his
or her internment was in the prohibited military zones of the West
Coast. However, this change will not affect those persons born outside
of the prohibited military zones after their parents were released from
internment camps during the defined war period where such parents had
resided outside of the prohibited military zones on the West Coast
immediately prior to their internment.
Second, the Civil Rights Division proposes to limit eligibility
under this policy to claimants born prior to January 3, 1945, the
effective date of Proclamation No. 21 (midnight on January 2, 1945).
Proclamation No. 21 lifted the general restrictions that had prevented
persons of Japanese ancestry from returning to their original places of
residence in the prohibited military zones on the West Coast.
Accordingly, persons born on or after January 3, 1945, could legally
return to their parents' original residence on the West Coast.
Historical evidence indicates that persons of Japanese ancestry
were, in fact, allowed to return to the West Coast without any
restrictions as early as December 17, 1944, the date on which
Proclamation No. 21 was issued and the War Department publicly
announced the lifting of the general exclusion orders. In addition, on
December 18, 1944, the Secretary of the Interior issued a press release
stating that the blanket exclusion orders for persons of Japanese
ancestry on the Pacific Coast were revoked. Moreover, War Relocation
Authority (``WRA'') records indicate that 26 people of Japanese
ancestry left WRA internment camps and returned to California between
December 17, 1944 and January 3, 1945. However, because the
proclamation might not have been fully implemented or fully publicized
at the time of its issuance, ORA will not use the earlier date of
issuance but will use the effective date of Proclamation No. 21.
Third, the West Coast is defined as those geographic areas in the
State of California, the western portions of Washington and Oregon, and
the southern portion of Arizona, where persons of Japanese ancestry
were initially required to reside and later barred from entering,
pursuant to several proclamations. Proclamation No. 4 prohibited
persons of Japanese ancestry from leaving parts of the West Coast while
the United States Government was preparing to forcibly evacuate them.
Subsequent proclamations were issued to exclude those of Japanese
ancestry from these defined West Coast areas. For example, persons of
Japanese ancestry were excluded from Military Area No. 1 pursuant to
Proclamation No. 7, dated June 8, 1942, and excluded from the
California portion of Military Area No. 2 pursuant to Proclamation No.
11, dated August 18, 1942.
III. Regulatory Impact Analysis
The Attorney General has determined that this proposed rule is not
a significant regulatory action under Executive Order No. 12866, and
accordingly this proposed rule has not been reviewed by the Office of
Management and Budget.
List of Subjects in 28 CFR Part 74
Administrative practice and procedure, Aliens, Archives and
records, Citizenship and naturalization, Civil rights, Indemnity
payments, Minority groups, Nationality, War claims.
For the reasons set forth in the preamble and by the authority
vested in me, including 28 U.S.C. 509 and 510, chapter I of title 28 of
the Code of Federal Regulations is proposed to be amended by revising
part 74 to read as follows:
PART 74--CIVIL LIBERTIES ACT REDRESS PROVISION
1. The authority citation for Part 74 continues to read as follows:
Authority: 50 U.S.C. app. 1989b.
2. In Subpart B, section 74.3 is amended by adding paragraph (b)(9)
to read as follows:
Subpart B--Standards of Eligibility
Sec. 74.3 Eligibility determinations.
(a) * * *
(b) * * *
(9) Individuals born after a parent had been evacuated, relocated,
or interned pursuant to paragraph (a)(4) of this section, and whose
parent's or parents' original place of residence was in the prohibited
military zones on the West Coast on or after March 2, 1942, and who
could not legally return to their parent's or parents' original place
of residence in the prohibited military zones on the West Coast prior
to January 3, 1945. This also includes those individuals who were born
after a parent had ``voluntarily'' evacuated pursuant to paragraph
(b)(3), and whose parent's or parents' original place of residence was
in the prohibited military zones on the West Coast immediately prior to
their evacuation, and who could not legally return to their parent's or
parents' original place of residence in the prohibited military zones
on the West Coast prior to January 3, 1945.
* * * * *
Dated: April 9, 1996.
Janet Reno,
Attorney General.
[FR Doc. 96-9505 Filed 4-19-96; 8:45 am]
BILLING CODE 4410-10-M
Complete official Federal Register PDF
FR Doc. 96-9358 Head Start Program
[Federal Register Volume 61, Number 78 (Monday, April 22, 1996)]
[Proposed Rules]
[Pages 17754-17792]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-9358]
[[Page 17753]]
_______________________________________________________________________
Part II
Department of Health and Human Services
_______________________________________________________________________
Administration for Children and Families
_______________________________________________________________________
45 CFR Parts 1301, 1303, et al.
Head Start Program; Proposed Rule
Federal Register / Vol. 61, No. 78 / Monday, April 22, 1996 /
Proposed Rules
[[Page 17754]]
DEPARTMENT OF HEALTH AND HUMAN SERVICES
Administration for Children and Families
45 CFR Parts 1301, 1303, 1304, 1305, 1306, and 1308
RIN 0970-AB55
Head Start Program
AGENCY: Administration on Children, Youth and Families (ACYF),
Administration for Children and Families (ACF), HHS.
ACTION: Notice of proposed rulemaking.
-----------------------------------------------------------------------
SUMMARY: The Administration for Children and Families is issuing this
Notice of Proposed Rulemaking to implement the statutory provisions for
establishing program performance standards for Early Head Start
grantees and Head Start grantee and delegate agencies providing
services to eligible Head Start children from birth to five years and
their families as well as pregnant women, and for taking corrective
actions when Head Start agencies fail to meet such standards.
DATES: In order to be considered, comments on this proposed rule must
be received on or before June 21, 1996.
ADDRESSES: Please address comments to the Associate Commissioner, Head
Start Bureau, Administration for Children, Youth and Families, P.O. Box
1182, Washington, D.C. 20013.
In order to ensure that public comments have maximum effect in
developing the final rule, we urge that each comment clearly identify
the specific section or sections of the regulations that comment
addresses and that comments be in the same order as the regulations.
Beginning 14 days after close of the comment period, comments will
be available for public inspection in Room 2218, 330 C Street, S.W.,
Washington, D.C. 20201, Monday through Friday between the hours of 9:00
a.m. and 4:00 p.m.
Comments that concern information collection requirements must be
sent to the Office of Management and Budget at the address listed in
the Paperwork Reduction Act section of the preamble.
A copy of these comments may also be sent to the Department
representative cited above.
FOR FURTHER INFORMATION CONTACT: E. Dollie Wolverton, Head Start
Bureau, (202) 944-5450.
Deaf and hearing impaired individuals may call the Federal Dual
Party Relay Service at 1-800-877-8339 between the hours of 8:00 a.m.
and 7:00 p.m. EDT, Monday through Friday.
SUPPLEMENTARY INFORMATION:
I. Summary
The Head Start program is authorized under the Head Start Act (the
Act), as amended (42 U.S.C. 9801 et seq.). Founded in 1965, the program
currently offers comprehensive services including high quality early
childhood education, nutrition, health, and social services, along with
a strong parent involvement focus, to low-income children nationwide.
The overall goal of the program is to bring about a greater degree of
social competence in preschool children from low-income families.
Social competence refers to the child's everyday effectiveness in
dealing with both his or her present environment and later
responsibilities in school and life. It takes into account the
interrelatedness of cognitive, intellectual, and social development;
physical and mental health; and nutritional needs.
Since the 1970's, the program performance standards have played a
central role in the Head Start program. The program performance
standards provide a standard and definition of quality services for the
approximately 2,112 community-based organizations nationwide that
administer Head Start as grantees or delegate agencies; serve as
training guides for staff and parents on the key elements of quality;
articulate a vision of service delivery to young children and families
that has served as a catalyst for program development and professional
education and training in the preschool field; and provide the
regulatory structure for the monitoring and enforcement of quality
standards in Head Start. Thus, their importance to the Head Start
program and to preschool education generally goes far beyond the
typical role of Federal regulations.
The authority for this Notice of Proposed Rule Making is sections
641A (a) and (d), 644 (a) and (c), and 645A(h)(2) of the Head Start
Act, as amended (42 U.S.C. 9801 et seq.). More specifically, the
purpose of this NPRM, the first wide-ranging revision of the program
performance standards in over 20 years, is to carry out the language in
the 1994 amendments to the Head Start Act providing for an update of
the Head Start Program Performance Standards.
Key provisions in the 1994 amendments require a review of the
performance standards in order to bring them up to date, cover new
topics, and include services to low income pregnant women and families
with infants and toddlers. In particular:
The new section 641A provides that the Secretary must
establish, by regulation, performance standards covering: (1) A range
of services for children and families, including health, education,
parental involvement, nutritional, and social services as well as
transition activities; (2) financial management and administration; and
(3) facilities. Subparagraph (a)(3)(C) of the new section provides that
the Secretary must review and revise, as necessary, the performance
standards in effect under prior law.
The amendments further provide that any revisions should
not result in an elimination or reduction of requirements regarding the
scope or types of health, education, parental involvement, nutritional,
social, or other services to a level below that of the requirements in
effect on November 2, 1978.
Section 641A(d) prescribes procedures for corrective
actions or termination to be taken with agencies which fail to meet the
standards described in subsection (a).
Section 645A(h)(2) requires that the Secretary develop
program guidelines for Early Head Start, the newly authorized program
for low-income pregnant women and families with infants and toddlers,
and to publish performance standards for such programs.
A fundamental challenge that we addressed in developing this NPRM
was to find the right balance among three important goals: (1)
Addressing the critically important new areas for regulation identified
in the statute; (2) maintaining quality and avoiding any reduction in
the level of services prescribed by the regulations, as mandated by the
statute; and (3) attempting to streamline the regulations, avoid
regulatory burden, and encourage flexibility, and innovation.
Our approach to identifying the right balance included wide-ranging
consultation with many different individuals and groups, consistent
with the new statutory requirements at Section 641(A)(a)(3) regarding
the consultations which the Secretary has to undertake and the factors
which the Secretary has to take into consideration in developing the
revised program performance standards. Following both the statute and
the Administration's regulatory reinvention principles, ACYF offered
extensive opportunities for program experts, local agencies, and other
interested parties to review and discuss the current program
performance standards.
In the late summer of 1994, ACYF formed a 33-member working group
composed of Central and Regional
[[Page 17755]]
Office staff to draft a plan for the development of these regulations.
The group was given responsibility both for developing standards
related to the new service expectations of the Early Head Start and
Head Start programs--e.g., transition services and services to pregnant
women and families with infants and toddlers--and for making
appropriate revisions to the existing standards which would support
quality services, better meet the individual needs of the diverse
population of Head Start children and families, and improve program
management. Over the summer, fall, and winter of 1994-1995, this group
convened 70 focus groups involving approximately 2,000 individuals. The
participants at these meetings were drawn from a cross-section of
program practitioners, including local sponsors of Head Start programs
as well as subject experts, parents, educators, technical assistance
providers, Federal Head Start staff from across the country, and
individuals with extensive experience conducting Head Start program
monitoring in a variety of settings.
Based on this broad consultation, as well as on the work of two
national Advisory Committees (the 1993 Advisory Committee on Head Start
Quality and Expansion and the 1994 Advisory Committee on Services to
Families with Infants and Toddlers), ACYF developed the following key
elements of its approach to this regulation: (1) The current program
performance standards should be reorganized to reduce fragmentation and
duplication, encourage holistic approaches, and emphasize partnerships
with families and communities; (2) a single set of integrated standards
for services from birth to age five should be developed; (3) the
regulation should focus on requirements that are key to maintaining
quality services and meeting new and emerging needs; and (4) the least
burdensome approach to maintaining quality and meeting emerging
challenges should be sought.
ACYF is particularly interested in receiving comments on the extent
to which the proposed rule forms the least burdensome approach to
regulation in order to protect grantee flexibility to innovate and
achieve quality outcomes in the most effective way possible, while
recognizing the statutory mandate to ensure that there is no reduction
in services and to provide standards supporting the implementation of a
range of new statutory requirements. Further, within this framework,
ACYF has consistently sought ways to make the regulation more outcome-
focused and less process-oriented. We urge commenters to share their
ideas on ways that we can continue to move in this direction.
II. The Head Start Program
The Head Start program served approximately 740,000 low-income
children and families in fiscal year 1994 through a network of 1,405
grantees and over 600 delegate agencies. (Delegate agencies have
approved written agreements with grantees to operate the program.)
Programs are funded through a direct Federal-to-local relationship, and
grantees include a wide range of local agencies: community action
agencies, single-purpose nonprofit agencies, local governments, and
school districts, among others. About 95 percent of the children in
Head Start programs are from low-income families (below the Federal
poverty line); about 13 percent of the children have disabilities; and
about 90 percent of the children served are 3 to 4 years old. As
described below, the 1994 Head Start amendments created a new
initiative within Head Start to expand and focus on services to infants
and toddlers.
Key principles of Head Start since its inception in 1965, and
reaffirmed most recently through a thorough review by the bipartisan
Advisory Committee on Head Start Quality and Expansion, include the
following:
Comprehensive services. To develop fully and achieve
social competence, children and their families need a comprehensive,
inter-disciplinary approach to services, including education, health,
nutrition, social services, and parent involvement. The range of
services available must also be responsive and appropriate to each
child and family's unique developmental, ethnic, cultural, and
linguistic experience and heritage.
Parent involvement and family focus. The Head Start
program is family-centered and is designed to foster the parent's role
as the principal influence on the child's development and as the
child's primary educator, nurturer, and advocate. Local Head Start
programs work in close partnerships with parents to develop and utilize
parents' individual strengths in order to successfully meet personal
and family objectives. In addition, parents are encouraged to become
involved in all aspects of Head Start, including direct involvement in
policy and program decisions that respond to their interests and needs.
Community Partnerships and Community-Based Services. Head
Start programs are intended to be community-based, with different
specific models of service provision flowing out of the differing needs
of differing communities. In addition, the most effective Head Start
programs have always been, in the words of the Advisory Committee on
Head Start Quality and Expansion, ``central community institutions''
for low-income families, building linkages and partnerships with other
service providers and leaders in the community.
III. Legislative and Programmatic History
In May 1994, the President signed into law the Head Start
Reauthorization Act of 1994. This legislation, enacted with bipartisan
sponsorship and support, amended the Head Start Act to extend the
program authorization period through fiscal year 1998. It also made a
number of changes to ensure that all children and families enrolled in
Head Start are offered high quality services that are responsive to
their needs. The legislation built on the vision and recommendations
contained in Creating A 21st Century Head Start, the report of the
Advisory Committee on Head Start Quality and Expansion, which was
issued in December 1993.
The Secretary formed the Advisory Committee in June 1993 to look at
Head Start quality and program expansion issues. The Committee worked
for six months before issuing its report. The report included numerous
recommendations, centered around:
--striving for excellence in staffing, management, oversight,
facilities, and research;
--expanding to better meet the needs of children and families; and
--forging new partnerships with communities, schools, the private
sector and other national initiatives.
In its report, the Advisory Committee reaffirmed the role and value
of the existing Head Start Program Performance Standards. However, it
also recommended that the standards be reviewed and revised to reflect
the changing nature of the Head Start population, the evolution of best
practices, program experience with the existing standards, and the
pending program expansion. Reviews in several specific areas were
recommended including: business practices and financial management;
staff levels and qualifications; developmentally appropriate curricula
and emergent literacy; transitional services; mental health;
nutritional requirements; family services; parental roles; services for
the ``birth-to-three'' population; transportation; and program
[[Page 17756]]
coordination. It also recommended the consideration of: (1) Standards
and systems in effect in other early childhood programs; (2) work in
other fields to establish outcome-based accountability systems; and (3)
the guiding principles of the Administration's National Performance
Review (i.e., increased responsiveness to clients, and the minimization
of regulations and paperwork). As principles for the review effort, it
called for the promotion of quality, responsiveness to community needs,
and the strengthening and streamlining of the standards. Finally, it
advised consideration of the special needs and circumstances of
programs serving American Indians and migrant and seasonal farm
workers.
In making its general recommendations, the Advisory Committee noted
the dramatic changes which had occurred in the world of Head Start
families between 1965 and 1993:
The needs of poor children and families are more
complicated and urgent. Violence, substance abuse, homelessness, lack
of education, and unemployment are helping to make them so. At the same
time, more of the Head Start service population is coming from single-
parent families, increasing numbers of parents are working, and family
literacy is increasingly being recognized as an important service need.
Over the past 28 years, the landscape of community
services has changed dramatically. There are new roles and enhanced
capacities for serving young children and their families. Today, we
also have new knowledge about the attributes of services and supports
that are effective in changing long-term outcomes for young children,
new knowledge about the importance of the first three years of life,
and new knowledge and appreciation for the continuum of developmental
and comprehensive services often needed before school and into the
early years to help children succeed in school.
While the Advisory Committee found that Head Start has succeeded in
improving the lives of young children and their families, it cited some
areas where further improvements were possible. These include: (1)
Consistency in the quality of programs; (2) responsiveness to the
diverse needs of Head Start families; (3) addressing the large unmet
need for Head Start services; and (4) coordination of Head Start with
other early childhood programs and elementary schools.
The 1994 Head Start amendments reflect similar concerns on the part
of the Congress. They include a number of provisions designed to
improve program quality--including new requirements with respect to
quality standards and program monitoring, technical assistance and
training, staff qualifications and development, and an allocation for
quality improvement activities. They also include a number of
provisions to expand the nature and scope of services and to make
programs more responsive to the needs of their service populations. For
example, they add new requirements with respect to family literacy
services and parental involvement, provide for an initiative for
pregnant women and families with infants and toddlers (Early Head
Start), expand opportunities for parental involvement, add requirements
to facilitate the successful transition of Head Start children to
elementary school, and mandate a study of the adequacy of full-day/
full-year programs.
The amendments further provide that, in revising the current
program performance standards and in developing new ones, the Secretary
must consult with experts in the fields of child development, early
childhood education, family services (including ``linguistically and
culturally appropriate services'' to children and families for whom
English is not the primary language), and administration and financial
management. They also require consultation with individuals with
experience operating Head Start programs.
Additionally, the amendments require that the Secretary take
several factors into consideration in developing the program
performance standards. These include: past experience with the existing
standards; changes over time in the Head Start service population;
developments in best practices with respect to child development,
children with disabilities, family services, program administration,
and financial management; projected needs related to Head Start
expansions; existing and potential standards and guidelines related to
the promotion of child health; the projected needs of expanded Head
Start programs; changes in the population of eligible children
(including changes in family structures and languages spoken in the
home); and local policies and activities designed to ensure the
successful transition of Head Start children to elementary school.
The Advisory Committee on Services for Families with Infants and
Toddlers was formed by the Secretary of Health and Human Services in
July 1994 to advise and inform the Department on the development of
program approaches for the new Head Start initiative serving low-income
pregnant women and families with infants and toddlers (later named
``Early Head Start''). The Advisory Committee drew upon the experience
of a number of different programs (such as the Comprehensive Child
Development Program, Parent and Child Centers, and Head Start Migrant
Programs), the insights provided by participants in over 30 focus
groups, three decades of research on child and family development, and
extensive consultations with experts and practitioners in the field.
In September 1994, the Advisory Committee on Services for Families
with Infants and Toddlers issued a formal statement setting forth both
its vision and goals and its recommendations for program principles and
cornerstones. It called for the development of a range of service
strategies that would support the growth of the young child within the
family and the growth of the family within the community. Thus, it
envisioned program approaches that were family-centered and community-
based. Its program principles included: (1) A commitment to excellence
in the quality of the services provided as well as in program
management; (2) the prevention and early detection of and early
intervention with problems; (3) the early, proactive, and ongoing
promotion of a child's healthy development; (4) the promotion of
positive, continuous relationships that nurture the child, parents,
family, and caregiving staff; (5) the promotion of parent involvement;
(6) the inclusion of children with disabilities and respect for
individual children and adults; (7) respect for home language and
culture; (8) responsiveness to the unique strengths and abilities of
the children, families, and communities served; (9) ensuring smooth
transitions; and (10) collaboration and the active pursuit of
partnerships with kindred programs.
A local education agency using funds under Title I of the
Elementary and Secondary Schools Act to provide early childhood
development services to low-income children below the age of compulsory
school attendance must comply with the Head Start Program Performance
Standards for such services beginning in fiscal year 1997. The proposed
performance standards governing early childhood development services
are found in Section 1304.21, Education and Early Childhood
Development. (Title I preschool programs using the Even Start model or
Even Start programs which are expanded through the use of Title I
[[Page 17757]]
funds are exempt from this requirement.) We have sought consultation
with school officials and education experts, as well as early childhood
experts, and have worked closely with the U.S. Department of Education
in developing this section of the NPRM.
Local educational agencies, school personnel, and persons
affiliated with Title I preschool programs are referred to the
Department of Education's Notice of Interpretation regarding the
applicability of Head Start performance standards to Title I preschool
programs that appears elsewhere in this Federal Register. We encourage
comments from local educational agencies, school personnel, and persons
affiliated with Title I preschool programs regarding the content of 45
CFR 1304.21 and its impact.
IV. Consultation and the Development of the NPRM
In keeping with the requirements of the statute and the
Administration's regulatory reinvention principles, ACYF sought
extensive public input prior to the development of these proposed
standards. As noted above, over the summer, fall, and winter of 1994-
1995, we conducted 70 focus groups involving approximately 2,000
individuals including subject experts, parents, educators, technical
assistance providers, local sponsors of Head Start programs, Federal
staff, and individuals with extensive program monitoring experience.
Fifteen of the focus groups addressed standards related to specific
subject areas such as child development and education; child medical,
dental, nutrition and mental health; and parent involvement. Subject-
area experts were key participants in those groups. Over 30 of the
focus groups addressed standards for pregnant women and families with
infants and toddlers. In addition, a focus group was convened with the
Department of Education to discuss the compatibility of these standards
with the Title I Improving America's Schools Act programs. The parents
of Head Start children were present at many focus groups, and one focus
group was devoted entirely to Head Start parents. In addition, one
group was devoted to obtaining recommendations from long-term leaders
of the Head Start movement who could provide unique insights into the
program's experience and development over time as well as the program
strengths and weaknesses that should be addressed.
Representatives from a wide array of national organizations and
agencies with particular interest in child and family issues also were
consulted. Among these organizations were the national, State, and
Regional Head Start Associations, Zero to Three, the National Center
for Learning Disabilities, the Family Impact Seminar, the Family
Resource Coalition, the National Black Child Development Institute, the
Elementary School Principals Association, the National Association for
the Education of Young Children, and the National Committee to Prevent
Child Abuse.
The ACYF also undertook a consultation process to draw upon the
expertise of Federal agencies and staff responsible for administering
related programs and serving related populations. The purpose of these
efforts was to promote greater consistency in the service and
regulatory approaches taken by various Federal programs and to solicit
expert advice on how to promote quality in Early Head Start and Head
Start services. Among the critical links in this process were those
with health and mental health agencies; the U.S. Public Health Service,
including the Health Resources and Services Administration's Maternal
and Child Health Bureau, the Indian Health Service and the Centers for
Disease Control and Prevention; the Health Care Financing
Administration, and the Center for Mental Health Services; the U.S.
Department of Education, including the Office of Educational Research
and Improvement; and the U.S. Department of Agriculture.
In reviewing and revising the standards, ACYF also carefully
reviewed the standards and performance criteria established by national
organizations and policy experts in early childhood development, health
and safety, child care, and related fields. Key documents reviewed
include the National Head Start Association's ``Quality Initiative''
draft report, the National Association for the Education of Young
Children's ``Accreditation Criteria and Procedures'' and
``Developmentally Appropriate Practice in Early Childhood Programs,''
the U.S. Public Health Services', Health Resources and Services
Administrations' Maternal and Child Health Bureau's ``National Health
and Safety Performance Standards: Guidelines for Out-of-Home Child
Care,'' developed in collaboration with the American Academy of
Pediatrics and the American Public Health Association, and produced in
collaboration with the Health Care Financing Administrations's Medicaid
Bureau ``Bright Futures: Guidelines for Health Supervision of Infants,
Children, and Adolescents'' report. The proposed rule also reflects the
guidance provided by contemporary academic literature in such fields as
early childhood education, child health and safety, family services,
and program management.
In addition, ACYF undertook an analysis of the current program
performance standards with which grantees have the most and,
conversely, the least difficulty in complying, as measured by results
from Head Start's monitoring instrument, the ``On-Site Program Review
Instrument'' (OSPRI). Finally, ACYF also studied the wealth of non-
regulatory material issued by ACYF and the Head Start Bureau since
1978, such as Information Memoranda, reports on demonstration programs,
and task force reports, which address key policy issues of possible
relevance to the program performance standards.
In drafting the proposed rule, ACYF also considered the
recommendations of both the Advisory Committee on Head Start Quality
and Expansion and the Advisory Committee on Services for Families with
Infants and Toddlers. These two groups included a wide range of
distinguished national experts, including practitioners, academics,
policy-makers in the Executive and legislative branches,
representatives of State government and the foundation community, and
parents. In addition, both groups commissioned considerable staff work
to support their deliberations. Thus, the collective efforts of these
two groups allowed access to a wealth of expertise, program experience,
and supporting documentation that would not otherwise have been
available.
Findings From the Consultation Process
The consultation process yielded the following major objectives for
revising the standards:
The organization of the standards should be improved to
promote a more integrated, holistic approach to service delivery;
The standards should serve as models for program quality
and encourage programs to strive for excellence;
The standards should achieve a better balance between the
clarity and precision of regulatory intent and regulatory flexibility
so that programs can be most responsive to local needs, settings, and
circumstances;
The standards should place greater emphasis on family-
focused aspects of the program by strengthening links with local
community providers, helping families identify and address
individualized goals, and ensuring that
[[Page 17758]]
the standards address important contemporary issues facing families
such as community violence, substance abuse, and literacy;
The standards regarding health and safety practices need
to be updated, with special attention to infant/toddler concerns,
current medical best practices, and serious blood-borne diseases, such
as HIV and Hepatitis B; and
New standards addressing financial and administrative
management should be added in order to strengthen program
accountability and management practices.
V. Approach of The Proposed Rule
Based on this extensive consultation, we sought to achieve a
balance among three critical goals: (1) Updating the program
performance standards to meet new challenges, as required in the
statute; (2) maintaining quality and ensuring no reduction in services,
as required in the statute; and (3) streamlining the standards to
minimize regulatory burden and encourage grantee innovation and
flexibility. We first made decisions about the scope of the proposed
rule, since a number of closely related regulations could have been
included or not included in a performance standards revision, and then
identified key principles regarding the structure and approach of this
proposal.
Scope of the Proposed Rule
This proposed rule deals most specifically with implementing the
amendments in section 641A(a) and (d) of the Act. It addresses the
requirements at: paragraph (a)(1) regarding the establishment of
standards; paragraph (a)(2) regarding the specification within the
regulations of minimum levels of accomplishment; paragraph (a)(4)
regarding the establishment of standards with respect to obligations to
delegate agencies; and paragraph (d) regarding the procedures to follow
when corrective actions or terminations are necessary. It also responds
to Sections 644(a) and (c) that require the issuance of regulations for
the organization, management, and administration of Head Start
programs. Finally, it addresses Section 645A(h), which requires that
the Secretary publish performance standards for programs that serve
low-income pregnant women and families with infants and toddlers.
The current Head Start Program Performance Standards are found at
45 CFR Part 1304. Additional regulations which are applicable to Head
Start agencies also are found at 45 CFR Parts 1301 (Head Start Grants
Administration), 1305 (Eligibility, Recruitment, Selection, Enrollment,
and Attendance in Head Start), 1306 (Head Start Staffing Requirements
and Program Options), 1308 (Disabilities Services), and Parts 74 and 92
(concerning the administration of grant awards).
As we considered the input from our consultation process, we
concluded that we needed to review these additional regulations to find
out whether a streamlined, integrated, and customer-friendly set of
performance standards in 45 CFR Part 1304 should bring together
requirements now included somewhere else. Therefore, in addition to
revising 45 CFR Part 1304, we also reviewed the regulations in 45 CFR
Parts 1301, 1305, 1306, and 1308 to determine where further technical
changes were needed.
In this NPRM, ACYF proposes to revise 45 CFR 1301.31 on personnel
policies and to make minimal technical modifications to 45 CFR Parts
1305, 1306, and 1308. A cross-reference will be added in these Parts to
ensure that they are used in conjunction with the provisions of Part
1304.
Additionally, as we reviewed the information gathered from our
consultations regarding services to infants and toddlers, we revised
somewhat our approach to regulations in this area. In the Early Head
Start program announcement, published in the Federal Register on March
17, 1995 (60 FR 14548), only 45 CFR Parts 1301, 1304, and 1305 were
cited as being applicable to Early Head Start programs. Upon further
consideration, we have determined that 45 CFR Parts 1306 and 1308 also
are generally applicable to these programs and are indicating this in
the proposed rule, with specific exceptions being noted.
Finally, the proposed rule does not address the amendments at
section 641A(b) related to the development of Head Start Program
Performance Measures or at 641A(c) related to the monitoring of local
agencies and programs. The statute does not mandate regulations in
these areas, and ACYF does not anticipate issuing regulations to
implement these provisions.
However, we are working to ensure that the substantive
deliberations and policy development currently underway on the program
performance measures and monitoring are effectively linked to the
revision of the program performance standards, since the three
activities must work in tandem to ensure consistent program quality. In
addition to ensuring linkages among the Federal work groups developing
these approaches, we will ensure that Early Head Start programs, Head
Start programs, and other interested parties receive program issuances
related to the development and implementation of the program
performance measures and revisions to the monitoring system as they
become available.
Briefly, the activities related to performance measures and
monitoring are as follows:
The Head Start Program Performance Measures are designed
to assess the quality and effectiveness of the Head Start program
nationally by providing program indicators and outcomes for children
and families. As such, they will provide a snapshot of how well the
Head Start program is performing, nationally and regionally, at a given
point in time and a process for the continuous improvement of local
programs. However, they will neither be used to evaluate individual
programs nor to monitor them for compliance with the Head Start Program
Performance Standards.
The ACYF is currently considering how the Head Start
monitoring system as a whole can be revised and improved. This effort
needs to mesh with the work on the revision of the program performance
standards so that the Head Start monitoring instrument (the Head Start
On-Site Program Review Instrument, or OSPRI) remains consistent with
the standards, as revised. Each grantee is monitored at least once
every three years.
Themes of the Newly Revised 45 CFR Part 1304
In drafting this proposed rule, we sought to achieve the delicate
balance described above: addressing new challenges and new statutory
areas for regulation, maintaining existing quality and services, and
streamlining the regulations to reduce burden and encourage innovation.
Our overall approach is built on four key themes.
1. The Head Start program performance standards should be
reorganized to reduce fragmentation and duplication, encourage holistic
approaches, and emphasize partnerships with families and communities.
Based on what we heard during the consultation process, we are
proposing an organizational structure for the program performance
standards that departs considerably from the structure of the current
version of the regulation. In particular, the overall structure of the
new standards is more holistic and integrated than the current
component-based organization, leading to better linkages among related
standards and less duplication and fragmentation.
[[Page 17759]]
Such an integrated structure was first suggested as part of the
work of the Advisory Committee on Services to Families with Infants and
Toddlers, which identified four cornerstones of successful programs for
very young children: child, family, community, and staff. This
recommendation for a broad-based, integrated structure was echoed in
the focus groups, where we heard that the most effective grantees
attempt to integrate their services across components and train their
staff to understand and serve children and families from a broader,
more comprehensive perspective. For this reason, previously separate
components, such as Parent Involvement and Social Services, and
dispersed standards, such as those addressing parent education and
program management issues, have been brought together under three
broader topical program areas that roughly follow the four cornerstones
proposed by the Advisory Committee: Early Childhood Development and
Health Services, Family and Community Partnerships, and Program Design
and Management.
Under these broad areas, we have proposed some additional
consolidations or reorganizations to improve clarity, bring together
related standards or emphasize areas of newly emerging or critical
importance. For example, the new section on ``Community Partnerships''
is intended to capture one of the most critical recommendations of the
Advisory Committee on Head Start Quality and Expansion, which also
emerged frequently in our focus group consultations: that, ``as Head
Start improves and expands, it must fit into the increasingly complex
array of Federal, State, and community level services and resources
available to low-income children and families.'' The proposed standards
in this area, which are largely new but are also drawn from the earlier
component standards for social services, require community
collaboration and identify key agencies with which local Early Head
Start and Head Start grantees must coordinate.
The standards in Subpart D entitled ``Program Design and
Management'' are comprised of four sections on Program Governance;
Management Systems and Procedures; Human Resources Management; and
Facilities, Materials, and Equipment. This structure brings together
requirements which were previously scattered and adds selected new
requirements in order to ensure a more intensive focus on program staff
and management. This more intensive focus responds to a statutory
requirement to develop improved administrative and financial management
standards; to a concern about the management of ever-more-complex
programs that was frequently heard in the consultation process; and to
explicit recommendations of the Advisory Committee on Head Start
Quality and Expansion to ``focus on staffing and career development,''
to ``improve the management of local programs,'' and to ``provide for
better facilities.''
2. A single set of integrated standards for services from birth to
age 5 should be developed. Initially, we anticipated issuing separate
NPRM's for services to low income pregnant women and families with
infants and toddlers (Early Head Start) and for Head Start grantees
serving children aged 3 to 5. Through the consultation process,
however, we concluded that it would make more sense to issue an
integrated set of standards, both for grantees, who might be operating
both types of programs, and for children and families, who might be
moving from one program to another and deserve continuity of services
and requirements to the extent possible. However, we were extremely
mindful of another critical point that we heard from both health and
child development experts: that infants and toddlers are not just small
preschoolers, and that it is critical for children's health, safety,
and development to ensure clear standards for quality that are
appropriately different for the different ages.
Therefore, our approach was to create a unified, integrated
structure, with age-specific standards where appropriate. For example,
in areas such as Early Childhood Development and Health Services, and,
to a lesser extent, in Family and Community Partnerships, it was
necessary to develop discrete standards that are applicable only to
grantees serving infants and toddlers (and, by extension, pregnant
women).
The decision to develop an integrated set of standards has
substantially reduced potential requirements on grantees. The NPRM
which was published on June 19, 1990 (55 FR 24899), entitled ``Program
Performance Standards for Head Start Programs Serving Infants, Toddlers
and Pregnant Women,'' (which was subsequently withdrawn on September
30, 1994, 59 FR 46806) contained 26 sections in all. The current NPRM
contains only 16 sections, yet covers services to Head Start eligible
children from birth to five years and their families. We believe that
this integrated approach saves grantees and delegate agencies
significant problems in having to work with two sets of regulations.
3. The regulation should focus on requirements that are key to
maintaining quality services and meeting new and emerging needs. One of
the major goals of the proposed rule is to update expectations for
grantees to ensure quality and to meet new and emerging program
challenges, with a specific focus on issues identified in the
reauthorizing legislation and by the two Advisory Committees. For
example, both the Advisory Committees and our own consultations
identified health services as being a critical component that needs
more attention to ensure quality outcomes for children and their
families. We heard that health services require special attention for
many reasons: because some Head Start programs have had difficulty with
some aspects of quality; because community-wide trends may be
endangering children's health and limiting their access to health care;
and because of the new program focus of Early Head Start, which serves
families with infants and toddlers and pregnant women. Examples of new
or revised requirements that emerged from our consultations include a
revision of the procedures and schedules for the assessment and
identification of child health, nutrition, and developmental concerns,
in order to meet current medical best practice; requirements related to
child safety in the presence of serious diseases such as
cytomegalovirus (CMV) and Human Immunodeficiency Virus (HIV);
requirements related to prenatal care for pregnant women; proper
procedures for handling child health emergencies; and improved mental
health services for troubled children and families.
Similarly, the proposed rule addresses emerging family and
community issues identified through consultations and in the statute.
One of the most frequently mentioned quality issues in the work of the
Advisory Committee on Head Start Quality and Expansion and in our own
consultations was the effect of the changing conditions of families--
including increased stress, family violence, substance abuse, poverty,
and homelessness--on the ability of programs to work effectively with
children and parents. These stresses require that programs focus
increased staff attention on individualized family support and goal-
setting. While we have not chosen the most prescriptive approaches to
providing such assistance, such as prescribing a ratio of families to
family service workers or specifying academic qualifications for those
workers, we have proposed a number of more flexible program
[[Page 17760]]
requirements. Programs must ensure that staff managing family service
workers have appropriate training and experience; they must carry out
the statutory mandate for family literacy services; and they must
strengthen their assessments of family needs and goals and provide
improved follow-up and coordination of service delivery with community
agencies, including elementary schools and Title I Improving America's
Schools Act preschool programs. The proposed rule also addresses the
other most frequently mentioned issue of emerging family needs: the
need to respond to working families, including developing parent
involvement approaches that meet the needs of working parents in the
Early Head Start and Head Start programs.
The proposed rule also addresses critical issues of program quality
related to agency management of increasingly complex programs, such as
governance; planning; communication, record-keeping, and reporting
systems; human resources management and professional development; and
facilities management. These issues were frequently raised throughout
the consultation process, including by grantees themselves.
Additionally, the proposed rule also addresses Federal enforcement
of minimum quality standards in cases where local agencies are
seriously deficient in their provision of program services. This
requirement (contained in Subpart E, entitled ``Implementation and
Enforcement'') implements specific statutory language in section 641A
of the Head Start Act concerning the corrective or termination
procedures to be followed when local agencies fail to comply with the
Head Start Program Performance Standards. This proposal also carries
out a central recommendation of the Advisory Committee on Head Start
Quality and Expansion that all programs should provide quality services
that live up to the Head Start vision.
4. The least burdensome approach to maintaining service quality and
meeting emerging challenges should be sought. At the same time that the
proposed rule implements a range of new statutory requirements and
complies with the statutory mandate to ensure that there is no
reduction in services, we have sought the least burdensome approaches
to regulation in order to protect grantee flexibility to innovate and
achieve quality outcomes in the most effective way possible. Among our
key approaches to achieving this balance, where possible, was to
identify process requirements in the current standards which could be
deleted or replaced with a simpler requirement without reducing the
quality of services. For example, we deleted an existing requirement
that Head Start programs provide child-sized eating utensils and
furniture. We also eliminated considerable duplication as a result of
the new organizational structure, and we pruned out-dated material,
such as a lengthy appendix related to staff personnel policies. We
eliminated a proposed requirement for the ``daily'' recording of
progress on each child because it would place a considerable paperwork
burden on programs, and because the requirement for the
individualization of services and individualized observations would
serve the aim of maintaining quality. And, we extended the required
time period for the completion of medical and dental assessments from
45 days to 90 days in response to comments, particularly from rural
communities, that the shorter timeframe was unrealistic and that
service quality can be protected with prompt action, but a more
realistic deadline.
The ACYF has consistently sought to design the new requirements in
ways that offer grantees flexibility in their implementation of the
requirements. For example, although the new transition requirements
carry out the specific intent of the statute, they also leave room for
local agencies to design their own specific procedures for implementing
these new requirements. Likewise, where possible, ACYF has sought to
add increased flexibility to the current regulation. For example, on
the advice of focus group participants, we have added a provision
allowing agencies operating the center-based program option to conduct
home visits outside the home when parents request such an arrangement
or when visits to the home present safety concerns for staff.
Also to streamline the regulation, we reduced the amount of
regulatory text devoted to discussing objectives and setting the
context for the program performance standards. While this material is
very important, much of it is not regulatory in nature. Therefore, we
have included it in this preamble, rather than in the regulatory text.
We also attempted to provide sufficient flexibility in the
standards so that they can apply to the wide range of auspices under
which individual programs are operated (such as elementary schools,
private non-profit agencies, and local governments, to name a few) and
to the wide range of program options from which agencies can now choose
(such as center-based programs, home-based programs, combinations of
center- and home-based programs, and locally designed program options).
While most of the standards apply equally to all program options, where
necessary we have created separate standards for the home-based program
or, alternatively, have indicated where particular standards apply only
to the center-based program option.
Finally, we looked for opportunities to make the regulations more
outcome-focused and less process-focused. One key example is the
regulation in Section E, which implements the new statutory requirement
for a corrective action process for deficient grantees leading to
prompt termination if services do not improve after the provision of
technical assistance. Our proposal is intended to focus monitoring
attention on those programs whose deficiencies affect the quality of
services and outcomes for children, rather than on those programs that
may have areas of non-compliance which need to be corrected but do not
seriously compromise their fundamental ability to promote children's
healthy development and social competence. ACF solicits comments on
additional ways to make the regulations more outcome-based.
VI. Summary of the Proposed Regulation
Objective
The Head Start Program Performance Standards are a means for
ensuring that all local agencies maintain the highest possible
standards in the provision of Early Head Start and Head Start services.
The standards are designed to ensure that the objectives of the Early
Head Start and Head Start programs are achieved. To that end, they
specify, in concrete terms, the features expected of a quality Early
Head Start and Head Start program, and they hold local agencies
responsible for meeting specific responsibilities in all program areas.
Just as local grantees and delegate agencies are expected to honor
the culture and to maximize the strengths and experiences of each child
and family, we recognize the differences and uniqueness of each local
program and the community in which it operates. Therefore, while all
agencies are expected to comply with the standards in this proposed
rule regarding program operations and activities, we will be providing
agencies with guidance material designed to suggest best practices for
implementing the standards in a manner appropriate to their local
circumstances. We also plan a variety of additional technical
assistance activities to assist agencies in
[[Page 17761]]
understanding and implementing the new standards.
VII. Section by Section Discussion of the NPRM
The following sections in the preamble discuss in more detail the
specific provisions in the proposed revisions to 45 CFR Part 1304. We
have attempted in our discussion to focus particularly on those
standards, or features of the standards, that are new to the proposed
rule, rather than provide an exhaustive explanation of every aspect of
the standards, some of which are unchanged from the current regulation.
Subpart A--General
Section 1304.1--Purpose and Scope
This section describes the purpose and scope of the proposed rule
and references the sections of the Head Start Act upon which the
proposed rule is based.
Section 1304.2--Effective Dates
This section provides that the proposed rule applies to all Early
Head Start and Head Start grantees and delegate agencies as of the
effective date. We welcome comments on whether we should provide for
waivers on certain requirements which are believed to be too difficult
for all affected agencies to meet by the effective date and which do
not compromise the safety or developmental needs of Early Head Start or
Head Start children.
Section 1304.3--Definitions
Paragraph (a) of this section provides definitions of the terms
used throughout the proposed rule and paragraph (b) cross-references
them to other definitions. Key words and phrases defined include:
developmentally appropriate, family, infant, toddler, preschooler,
assessment, policy group, program attendance, referral, staff, staff
caregiver, teacher, and volunteer.
The definitions in this section are consistent with the definitions
found in other Parts of this chapter and in other applicable Federal
regulations. Among the other sources we consulted in developing these
definitions are: the American Academy of Pediatrics, the American
Public Health Association and the Health Resources and Services
Administration's Maternal and Child Health Bureau's ``National Health
and Safety Performance Standards: Guidelines for Out-of-Home-Care''
(1992); the American Heritage Dictionary, Houghton Mifflin Company:
Boston (1992); the California Department of Education, Child
Development Division's ``Developmental Program for Infants/Toddlers''
(1993); the Department of Public Welfare, Commonwealth of Pennsylvania,
Pennsylvania Code (1992); the National Association for the Education of
Young Children's ``Accreditation Criteria and Procedures of the
National Academy of Early Childhood Programs'' (1991); the Office of
Human Development Services, U.S. Department of Health and Human
Services, Chapter XIII, Subchapter B--the Administration on Children,
Youth and Families, Head Start Program, 45 CFR Parts 1301-1308; the
U.S. Department of Education, 34 CFR Part 303, Early Intervention
Program for Infants and Toddlers with Disabilities; and the
Administration for Children and Families, Child Abuse Prevention and
Treatment Act, as amended, November 4, 1992.
Subpart B--Early Childhood Development and Health Services
General Objectives
The objective of this Subpart of the proposed rule is to provide
high quality, comprehensive services that foster each child's social
competence by supporting and nurturing the child's social, emotional,
cognitive, and physical development. Agencies must provide a safe,
comforting, stimulating, and secure environment for children that is
responsive to their varied ages, developmental levels, and special
needs. In addition, they must provide a variety of individualized
learning experiences that accommodate each child's unique temperament,
cultural and ethnic heritage, personal preferences, and style of social
interaction. As the first and primary educators of their children,
parents must be integrally involved in educational activities provided
both by the program and in the home. The learning experiences also must
be multi-dimensional, integrating the educational aspects of medical
and dental health, nutrition, and mental health services into program
activities.
Head Start services under this Subpart must place a great deal of
emphasis on medical, dental, and mental health. Each child's physical
and emotional health must be assessed as early in the program year as
possible, and strenuous efforts should be made to link each child and
family to a ``medical home'' or accessible system of ongoing preventive
health care and treatment. To ensure the continued healthy development
of children after they leave the Early Head Start or Head Start
program, agencies must collaborate actively with parents as partners in
their children's health care. Agencies must emphasize the benefits of
preventive health care: for instance, they must help parents understand
the link between sound nutritional habits and good health, and the
importance of creating a nurturing environment that supports the mental
well-being of children. Likewise, agencies must emphasize safety,
sanitation, and hygienic practices that promote continued good health.
Every aspect of Head Start services under this Subpart must be
responsive to children's individual strengths, circumstances and
special needs. For example, the nutrition program must be sensitive to
individual cultural and ethnic food preferences and accommodate special
dietary requirements, while also helping children to broaden their
nutritional experiences. Together, parents and staff must ensure that
children with special behavioral or other mental health concerns
receive appropriate mental health interventions and classroom
accommodations that enable them to enjoy the full benefits of Early
Head Start and Head Start participation. In addition, agencies must be
prepared to handle individual health emergencies, injuries or
infectious conditions that children may have in a manner that best
promotes the recovery of the affected child and that minimizes any
risks to other children, staff, and parents.
Consistent with these objectives, the proposed revisions would
place more emphasis than the current regulation on issues such as: (1)
The scope and quality of child assessments (including developmental and
behavioral assessments); (2) the involvement of parents and families in
the delivery of Head Start services and the promotion of healthy child
development; (3) the recognition of individual needs and cultural and
linguistic differences among children; (4) contemporary practices which
promote the child's physical, dental and mental health; and (5)
appropriate safety practices and procedures for addressing emergency
health problems. The proposed revisions also incorporate requirements
specifically related to the special developmental needs of infants and
toddlers.
Section 1304.20--Child Health and Developmental Assessment
Objective
The objective of this section of the proposed rule is to ensure
that all health and developmental concerns are identified for each
enrolled child. Also, agencies must link children and families
[[Page 17762]]
to a system of ongoing preventive health care--a ``medical home''--to
ensure that health care needs are met, and can continue to be met, by
the time the children and families leave the Early Head Start or Head
Start program. Therefore, it is vitally important to the healthy
development of children that staff actively involve parents as partners
in their children's health care so that they can understand the
importance of regular, ongoing preventive care and how to obtain it.
The picture of each child's development and physical health
obtained during the assessment process must be used to individualize
the program for each child to ensure that the child's potential is
fully developed. In addition, the process must be used as the basis for
further assessment and treatment, as specified in 45 CFR 1304.22.
Proposed Regulatory Provisions
(a) Assessment Process
The proposed rule would require an assessment which gathers and
records, to the greatest extent possible, all relevant historical
information about each child's health and development to enable a
health professional's review of a child's status on established
schedules of well child care and immunization no later than 90 calendar
days from the first day of each child's enrollment in programs with
durations of greater than 90 days. Grantee and delegate agencies
operating programs of shorter duration (90 days or less) must gather
the information and assure it has been reviewed by a health
professional(s) within 30 calendar days after each child's enrollment
in the program. Section 1304.20(a) of this Part cites the schedules of
diagnostic procedures and immunizations that must be followed for each
child and the sources of these schedules. These sources are: the
Centers for Disease Control and Prevention's Advisory Committee on
Immunization Practices and the schedule of well child care used by the
Health Care Financing Administration's Medicaid Bureau for the Early
and Periodic Screening, Diagnosis, and Treatment (EPSDT) program for
the State in which a Head Start program operates. The schedules must be
compared with each child's historical health information to determine
what, if any, procedures and/or immunizations are required.
When the health professional's review of a child's status on the
schedules of well child care and immunization indicates the child's
care/immunization are not up-to-date, then the program must work
collaboratively with the parents to secure the specific diagnostic
procedures and/or immunizations established in these schedules within
90 calendar days of the first day of the child's enrollment in the
program. Grantees and delegate agencies operating programs of shorter
duration (90 days or less) must implement a plan to secure the needed
services/immunizations within 30 calendar days of the first day of
enrollment in the program. For children who have received appropriate
care, programs must ensure that appropriate care continues. The
determination of appropriate care for a child will be based on the
recommendations of the child's health care provider.
The new assessment process proposed in the revised standards builds
in greater flexibility for local agencies, as they no longer will be
required to secure the same set of assessment procedures for each
enrolled child, but only those assessments which the review by health
professional(s) identifies as not-up-to-date by the established
schedules. Similarly, the expanded timeframes, from 45 to 90 days for
most programs, provides greater flexibility for programs, and is based
on feedback received during the focus groups that 45 days is often
insufficient to complete the assessments, particularly in rural areas.
The 30-day timeframe for programs operating 90 days or less is based on
concerns, also expressed during the focus groups, that a shorter period
is needed to assure that assessments are completed on all children
before they leave programs of shorter durations, such as migrant
programs.
The ACYF invites comments regarding the proposed 90- and 30-day
timeframes. The ACYF is particularly interested in whether these
timeframes would pose difficulties for grantee and delegate agencies,
whether they would allow sufficient time to gather information, and the
impact that these timeframes would have on the quality of health care
received by children who are enrolled in the program.
(b) Parent Involvement in the Assessment and Treatment Process
Paragraph (b) specifies the procedures that agencies must follow to
involve parents in their children's assessments and treatments. It
includes provisions on parental education, obtaining authorizations for
care (or documenting that such authorization was not obtainable),
ensuring that parents are properly informed about assessments and the
results of diagnostic and treatment procedures, and properly informing
the child of pending procedures.
(c) Medical and Dental Health Assessment
Paragraph (c) specifies an updated list of items which must be
included in the medical and dental health portion of the assessment,
such as size measurements; blood pressure, urinalysis, tuberculosis,
vision, and hearing tests; a check of immunization status; and other
appropriate tests based on individual, group and community risks. These
items will enable agencies to identify any deficiencies in the child's
development or health care history and are in keeping with the
recommendations of the major medical authorities previously cited.
(d) Developmental and Behavioral Assessment
Paragraph (d)(1) proposes requirements for the developmental and
behavioral assessments which must be performed for all children. Such
assessments must cover motor, language, cognitive or thinking, and
perceptual skills and must be performed in accordance with the schedule
referenced in section 1304.20(a)(2).
Agencies must involve mental health professionals in these
assessments either as a full staff member or on a consultant basis.
Also, they must consult a variety of information sources, including
members of the child's family, teachers, and others, in gathering
information on the child's social and emotional development. Further,
the assessments must be culturally sensitive and linguistically and age
appropriate for each child.
(e) Ongoing Assessment
Paragraph (e) proposes the requirements for ongoing assessments of
health and development even when no specific need for follow-up has
been identified. They specify the essential elements that must be
included in these ongoing assessments, including regular observations
of changes in physical appearance (e.g., illness), emotional and
behavioral patterns, and developmental progress as well as the regular
use of parental, staff, and mental health consultant observations.
(f) Individualization of the Program
Paragraph (f) provides that assessment, medical evaluation, and
treatment results, as well as insights from the child's parents, must
be used to help Early Head Start or Head Start staff and parent(s)
determine how they can best respond to each child's individual
characteristics and needs.
[[Page 17763]]
Individual Family Service Plans (IFSPs) must also be developed for each
infant and toddler with an identified disability, if one has not
already been developed, in accordance with Part H of the Individuals
with Disabilities Education Act (IDEA).
The development of the IFSPs does not place an additional burden on
Early Head Start or Head Start programs because no assessments are
required by Head Start beyond what is stipulated in Part H. A seamless
set of services can occur for children with disabilities since they can
participate in Part H through Early Head Start or Head Start programs.
Section 1304.21--Education and Early Childhood Development
Objectives
The objective of this section of the proposed rule is to provide
each child with a safe, nurturing, stimulating, enjoyable, and secure
environment in order to help him or her gain the skills and confidence
necessary to be prepared to succeed in their present environment and
with later responsibilities in school and life. The varied experiences
provided to each child will help children achieve the overall goal of
social competence through the acquisition of social, emotional,
intellectual and physical skills in a manner appropriate to each
child's age and stage of development. Program learning experiences must
be tailored to each child's unique temperament, cultural and ethnic
heritage, preferences, and style of interaction.
To provide each child with a comprehensive learning experience, the
educational aspects of medical and dental health, nutrition, and mental
health services must be integrated into the daily program of activities
for children. As the primary educators of their children, parents must
be integrally involved in the development of educational activities for
the program and the home. Particular attention must be paid to the
educational priorities of enrolled families and the local community
when providing child development and education services.
Proposed Regulatory Provisions
(a) Child Development and Education Approach for All Children
Paragraph (a)(1) provides the general framework for the agencies'
approach to child development and education services in keeping with
the recommendations of such organizations as the National Association
for the Education of Young Children. The approach must be
developmentally and linguistically appropriate. The approach also must
recognize individual preferences and individual patterns of development
as well as different ability levels, cultures, ages, and learning
styles.
Parents must be integrally involved in the development of the
program's curriculum and approach to child development and education
and must be provided opportunities to increase their child observation
skills in order to help plan the learning experiences.
Paragraph (a)(3) specifies the practices that agencies must follow
to support each child's social and emotional development. These include
new or modified concepts, such as support and respect for home
languages and cultures and the provision of an unrushed atmosphere and
predictable routines and transitions.
Paragraph (a)(4) specifies the practices agencies must follow to
support the development of cognitive and language skills. These include
developmentally appropriate activities, the explicit encouragement of
play and learning by doing in both indoor and outdoor settings, the
provision of opportunities for self-expression through the arts, and
support for developmentally appropriate literacy and numeracy
development through materials and activities.
Subsection (a)(5) specifies the practices that agencies must follow
to promote each child's physical growth. They include a slight
modification to an existing standard addressing the provision of
adequate time, space, equipment, and materials for active play or
movement that support the development of large muscles, and require an
appropriate environment for the participation of children with special
needs.
(b) Child Development and Education Approach for Infants and Toddlers
Paragraph (b)(1) specifies the special environmental and
developmental needs of infants and toddlers. It specifies the
additional requirements agencies must meet in serving these youngest
children.
Under paragraph (b)(1) agencies must provide an environment which
helps infants and toddlers develop secure attachment relationships,
develop trust and emotional security, and explore sensory and motor
experiences. Paragraph (b)(2) specifies that they must also provide an
environment which helps promote the social and emotional development of
infants and toddlers. More specifically, the environment must encourage
the development of self-knowledge, self-awareness, autonomy, self-
expression, and the emergence of communication skills.
Paragraph (b)(3) specifies the environmental conditions which
agencies must provide to promote the physical growth of infants and
toddlers. They must provide opportunities for small-motor development
that encourage the control and coordination of small, specialized
motions. The environment also must support the development of the
emerging physical skills of infants and toddlers (e.g., grasping,
pulling, pushing, crawling, walking, and climbing); and support the
appropriate use of toilet facilities (consistent with parental views).
(c) Child Development and Education Approach for Preschoolers
Paragraph (c) specifies the requirements needed to meet the special
developmental and educational needs of preschoolers. For the first
time, agencies are required to develop or select a curriculum with the
parents and apply it consistently, while also recognizing the need for
individualized activities that support each child's distinct pattern of
growth and development. Likewise, agencies must ensure that the program
environment helps children develop emotional security and facility in
social relationships. Through different types of indoor and outdoor
activities, agencies must promote a child's self-understanding and
feelings of competence, self-esteem, and positive attitudes toward
learning. We encourage comments on whether these requirements
adequately address the developmental and educational needs of
preschoolers to enable them to gain the skills and confidence necessary
to be prepared to succeed in their present environment and with later
responsibilities in school and life.
Section 1304.22--Child Health and Safety
Objective
The objective of this section of the proposed rule is to support
each child's healthy physical development through a range of medical
and dental health treatments and through an emphasis on safety
practices. Specifically, agencies must be prepared to handle health-
related emergencies as well as any injuries, illnesses, or infectious
conditions children may have in a manner that best promotes the
recovery of the affected child and that minimizes any risks to other
children and staff. In addition, agencies must emphasize the prevention
of injuries, illness, and the spread of disease. Finally, agencies must
actively involve parents in all aspects of
[[Page 17764]]
the medical and dental health area so that the parents understand the
importance of regular preventive care and treatment and how to obtain
them.
Proposed Regulatory Provisions
(a) Medical and Dental Follow-Up and Treatment
Paragraph (a)(1) proposes requirements for agencies related to
referrals for medical and dental care, including further diagnostic
testing, examinations, and treatment for each child with an observable,
suspected, or known health or developmental problem. It specifies that
these referrals must be made as early in the program year as possible
unless parental authorization for such services is denied. Such denial
must be documented. Paragraph (a)(2), as in the current regulation,
sets forth the specific requirements for the treatment of the medical
and dental conditions of each enrolled child. Additional standards on
parent involvement are in 45 CFR 1304.20(b).
(b) Health Emergency Procedures
The p
FR Doc. 96-9358 Head Start Program
roposed standards in this section have been developed to
increase protections for enrolled children and to avoid potential legal
liability problems for agencies. Paragraph (b) details the procedures
agencies must employ to deal with medical and dental health
emergencies. It first requires that agencies have written policies and
procedures for responding to health emergencies with which all staff
must be familiar and trained. These policies and procedures must
include the posting of policies and plans of action for emergency
situations where rapid response of the staff or immediate medical
attention is required. Likewise, the location and telephone numbers of
emergency care facilities and providers must be posted, and information
about how to contact responsible family and staff members must be
readily available.
Agencies must also post emergency evacuation routes and safety
procedures for the handling of other types of emergencies (e.g., fire-
or weather-related). (See 45 CFR 1304.53 of the proposed rule,
Facilities, Materials, and Equipment, for additional, related
requirements.)
In the event of emergencies involving enrolled children, agencies
must have written procedures specifying how the parents would be
notified. This section also requires that agencies establish methods
for handling cases of suspected or known child abuse and neglect that
are in compliance with applicable State laws.
(c) Conditions of Short-Term Exclusion and Admittance
The new standards in this section respond to current health
practices (e.g., the Centers for Disease Control and Prevention, the
Health Resources and Services Administration's Maternal and Child
Health Bureau, the American Academy of Pediatrics) regarding ways to
safeguard against the spread of serious illness while also protecting
the civil rights of individual enrolled children. Paragraph (c)
mandates that agencies must not deny program admission to or exclude
any child from program attendance in center-based activities solely on
the basis of his or her health care needs or medication requirements.
Paragraph (c)(2) specifies the conditions under which agencies must
exclude ill, injured, or contagious children from program
participation. A child must not be excluded if the program is able to
make reasonable modifications in its policies, practices, and
procedures which would enable the child to participate without
fundamentally altering the nature of the program.
Regarding children with illnesses in center-based settings,
paragraph (c)(3) mandates that agencies must use policies and
procedures consistent with professionally established guidelines on
short-term exclusions and readmittance of children. Agencies must also
notify the parent or other authorized person immediately to take the
excluded child home.
Paragraph (c)(4) requires grantee and delegate agencies to request
that parents inform them of any health risks their child may pose which
would require special health or safety precautions. When a child who
may pose a health risk is enrolled, the agency must inform responsible
staff of the child's condition so that they can take appropriate
actions, including precautions. However, the sharing of this
information must be consistent with any constraints imposed by the
program's confidentiality policy.
(d) Medication Administration
Paragraph (d) specifies the procedures agencies must follow with
respect to the administration of medications.
Agencies must establish and maintain written procedures regarding
the administration, handling, and storage of medication for every
child. These procedures include those specified in 45 CFR 1308.18 as
well as the need to label and store all medications safely and to train
staff in appropriate techniques for administering, handling, and
storing medications and the equipment used to administer them.
(e) Injury Prevention
Paragraph (e) proposes agency responsibilities to promote the
prevention of injuries by fostering an awareness of safety concerns and
safety practices, and by incorporating safety awareness into the
program's regular education activities for children and parents.
(f) Hygiene
Paragraph (f) describes the hygienic practices that agencies must
employ to prevent the spread of contagious diseases and to reflect
contemporary medical practice and recommendations. We recognize that
these requirements are very specific. However, we believe that the
level of detail is needed because the regulations for the first time,
cover services to infants and toddlers who are especially vulnerable to
contagious illnesses and other health threatening conditions. Public
Health officials who were consulted in the development of these
standards stressed the need for clear requirements on hygiene. We
welcome your comments on these requirements.
Paragraphs (f) (1), (2), (3), and (4) specify the minimum
circumstances under which staff, volunteers, and children must wash
their hands; that latex gloves must be worn by staff when in contact
with spills of blood or other bodily fluids; and the additional clean-
up and disposal procedures that agencies must follow when bodily fluids
are spilled.
Paragraph (f)(5) provides that agencies must adopt diapering
procedures that adequately protect the health and safety of children
served by the program and staff. Agencies must also ensure that
relevant staff are trained to follow these procedures properly.
Paragraph (f)(6) specifies the procedures which agencies must
follow when potties are utilized in a center-based setting.
Paragraph (f)(7) specifies that, in programs serving infants and
toddlers, agencies must provide space for each child's crib or cot to
be at least three feet apart to avoid the spreading of contagious
illness. We welcome comments about whether the proposed requirements
regarding the spacing of cribs and cots would pose any difficulties for
grantees.
(g) First Aid Kits
Under paragraph (g) agencies must maintain, at each site, well-
supplied first aid kits that are appropriate for the ages served. They
must keep these kits
[[Page 17765]]
readily available both at the site and on outings away from the site.
Each kit must be accessible to staff members at all times, but must be
kept out of the reach of children. Agencies are also responsible for
ensuring that the kits are restocked after use and that inventories are
conducted at regular intervals.
Section 1304.23--Child Nutrition
Objective
The objective of this section of the proposed rule is to supply
nutritional care for enrolled children that supplements and complements
that of the home and community. Further, nutrition staff must work
collaboratively with parents to help them understand the link between
nutrition and health, and must promote sound nutritional habits for
each child and family that they will take with them when they leave the
program. Agencies must use meal and snack times as social and learning
opportunities to help toddlers and preschoolers develop social
competence and knowledge about healthy eating. While the nutrition
programs must be sensitive to individual cultural and ethnic food
preferences and must accommodate special dietary requirements, at the
same time, they must also help children broaden their nutritional
experiences.
Proposed Regulatory Provisions
(a) Nutritional Assessment
Paragraph (a) of this section proposes requirements for agencies in
identifying the nutritional needs of enrolled children. Many of these
requirements are similar to existing regulations. Additions include:
(1) taking into account information about family cultural preferences
and infant and toddler feeding requirements; and (2) assessing detailed
information on the feeding patterns and habits of infants and toddlers,
updating this information regularly and sharing it daily with parents.
This last standard is an important part of quality nutritional services
for infants and toddlers and their families.
(b) Nutritional Services
Paragraph (b) specifies the requirements for agency nutritional
services and indicates which requirements apply only to center-based
programs.
It requires that agencies design and implement nutritional programs
that meet the nutritional needs, feeding requirements, and feeding
schedules of each child that are responsive to family, community, and
cultural eating preferences and dietary choices. As in the current
regulation, it specifies the quantities and kinds of food children must
receive in center-based settings and the schedule in which they must
receive it. However, the revised standards eliminate references to
specific required intervals between meals for children aged 3 to 5 to
avoid potential conflict with U.S. Department of Agriculture
requirements in this area. The nutrition standards have been broadened
to include infants and toddlers to ensure that they receive food
appropriate to their nutritional needs, developmental readiness, and
feeding skills. For example, infants and young toddlers who need it
must be fed ``on demand'' to the extent possible or at specifically
bounded intervals. In addition, agencies must comply with the more
specific nutritional guidelines of the U.S. Department of Agriculture.
Food served to preschoolers must use fat, sugar, and salt sparingly, in
keeping with contemporary research (e.g., the U.S. Department of
Agriculture, the National Center for Education in Maternal and Child
Health) concerning proper nutritional guidelines that promote good
health.
Finally, grantees must promote effective dental hygiene among
children in conjunction with meals.
(c) Meal Service
As in the current standards, paragraph (c) specifies the conditions
under which food must be served in center-based settings, with the
expectation that nutritional services contribute to the development and
socialization of enrolled children. The current standards make it clear
that eating should be a communal and socializing experience for
preschoolers, and the proposed standard extends this requirement to
toddlers. Other additions include requirements that staff hold infants
when feeding them and not put infants to bed with a bottle, in keeping
with recognized medical authorities regarding infant safety. In
addition, agencies must accommodate special medically based diets and
other special dietary requirements. The current standard requiring
child-sized utensils and furniture has been deleted in response to the
recommendations made by staff of local Head Start programs during the
focus groups.
Agencies should give children the opportunity to assist in meal
preparation and service only when they are developmentally ready.
(d) Family Assistance with Nutrition
Agencies must assist individual families with food preparation and
nutrition skills as part of their group socialization and parent
education activities.
(e) Food Safety and Sanitation
Paragraph (e) specifies the practices that agencies must employ to
ensure that food handling, preparation and consumption do not result in
any safety risks.
The new standards require that agencies establish whether the food
services with which they contract are properly licensed as an
indication that they are in compliance with appropriate food safety and
sanitation laws. Paragraph (e)(2) requires that programs serving
infants and toddlers provide facilities for the proper storage and
handling of breast milk for mothers who choose to breast feed their
children.
Section 1304.24--Child Mental Health
Objective
The objective of this section of the proposed rule is to provide
parents and staff with a better understanding of the contribution that
mental health services can make to the well-being of each child.
Specifically, parents and staff must understand the importance of
creating a nurturing environment that supports the mental health of all
children. Since parents are the primary nurturers of their children,
their involvement in mental health services is especially critical in
order to enhance their role in their child's mental wellness by the
time they leave the Early Head Start and/or Head Start program.
Together, parents and staff must ensure that children with special
behavioral and mental health concerns receive appropriate mental health
interventions that will enable them to enjoy the full benefits of Early
Head Start and Head Start participation. Finally, staff must receive
the professional guidance they need to design effective program
interventions for children with special mental health and behavioral
concerns.
Proposed Regulatory Provisions
(a) Mental Health Services
Paragraph (a)(1) describes the specific ways in which agencies must
work collaboratively with parents to promote the mental health of their
children, such as soliciting parental information, observations, and
concerns about their child's mental health, and discussing and
identifying with parents appropriate responses to their child's
behavior.
Paragraph (a)(2) provides that agencies must secure the services of
a mental health professional on a schedule of sufficient frequency to
[[Page 17766]]
identify and respond to family and staff concerns about each child's
mental health. This standard also addresses the concern of the Advisory
Committee on Head Start Quality and Expansion about the need to assist
those children who are facing an increasingly complex array of problems
and family crises.
Paragraph (a)(3) specifies the topics of the mental health
consultations that must take place among the mental health
professional, program staff, and parents. New standards include
consultation on how to design and implement program practices
responsive to identified concerns and how to promote children's mental
wellness through staff and parent education.
Subpart C--Family and Community Partnerships
General Objectives
The objective of this Subpart of the proposed rule is to ensure
that each enrolled family is supported in fostering their child's
development and in attaining their personal family goals. Agencies must
create trusting partnerships with parents and families that build on
family strengths and competencies and support their culture and
language. An essential part of these partnerships is the voluntary
involvement of parents in the full range of children's services,
including opportunities to serve in the classroom and to assist with
the choice of the program curriculum and the child development
approach. Parents also must be viewed as integral partners in the
processes of program planning, decisionmaking, and governance.
Agencies should work with families as partners to identify the
personal goals of participating families, help them overcome barriers
which prevent them from leaving poverty and help them gain the skills
needed to foster healthy connections with their communities. Support
should begin as soon as possible in the program year and should
emphasize prevention and early intervention, rather than remediation
and treatment. In addition, if families are not already linked to
services in the community, agencies should serve as a single point of
entry to help families find access to more specialized services and to
assist them in establishing support networks in the community and among
parents themselves that will promote family self-sufficiency beyond the
Early Head Start and Head Start programs. When Head Start families are
already working with another community agency to address family goals
for self-sufficiency, the grantee or delegate agency must coordinate,
to the greatest extent possible, with these other agencies and the
family to avoid duplicative, or conflicting, efforts.
To achieve this goal of collaborative, integrated, and
comprehensive services for families, agencies must provide the
leadership necessary to create a community environment that is
supportive of all low-income families and children, and a community
network of coordinated, accessible services that is responsive to their
needs. Agencies must work proactively to establish community
partnerships that engage in collaborative action, including continuous
community planning, service coordination, joint staff training, and the
joint identification and resolution of service delivery problems.
Special efforts must be made to establish fully functioning
partnerships with local education agencies, such as coordination with
Part H programs and schools providing Title I Improving America's
Schools Act services to preschool children.
Section 1304.40--Family Partnerships
Objective
The objective of this section of the proposed rule is to build
trusting relationships between grantees and parents that will assist
parents in meeting their personal goals and in fostering their child's
development. These relationships must be built by working with families
in a variety of ways that are responsive to their individual
circumstances and issues. Efforts must always be made to communicate
and develop relationships with families in their primary language.
Family partnerships must be used by agencies to identify families'
personal goals and the manner in which they can best be achieved. These
goals may involve the fulfillment of a range of needs, such as housing,
transportation, employment, and the development of effective parenting
and household management skills. Likewise, each family may be wrestling
with special concerns, such as domestic or community violence or
substance abuse. Agencies must have the capacity and staff expertise to
work intensively with families and link them to appropriate services in
the community to address these individual concerns and to accomplish
their personal goals.
In developing partnerships with parents, agencies must ensure that
parents are included as integral members of the Early Head Start or
Head Start team. As the primary educators of their children, agencies
must encourage parents to assist in the development of all of their
children's services, including the program's curriculum and child
development approach. Specifically, staff should provide opportunities
for parents to develop knowledge, skills, and experience in child
development and education, health promotion and disease prevention, and
family nutrition.
Agencies should also involve parents in assessing their children's
individual progress and special needs and help them learn to advocate
for their children's well-being in the community, including school and
child development settings. Agencies must also assist parents in
establishing individualized support networks in the community that will
promote family self-sufficiency beyond their participation in the Early
Head Start and Head Start programs.
While the participation of parents must remain voluntary, agencies
should make concerted efforts to encourage such participation by
demonstrating the importance of their participation as equal partners
in the program and by accommodating the parents' schedules.
Proposed Regulatory Provisions
(a) Assessment and Goal Setting
This section of the proposed rule requires that agencies
collaborate with families to build partnerships, establish mutual
trust, and identify family goals, strengths, and necessary supports.
Agencies must begin the process of building these partnerships as early
in the program year as possible. This section responds specifically to
the recommendation of the Advisory Committee on Head Start Quality and
Expansion to ``strengthen the assessment of family resources and
needs.''
As part of this partnership-building process, agencies must work
with parents to help them develop and implement, throughout the year,
individualized Family Partnership Agreements. These Agreements must
describe family goals and responsibilities, timetables and strategies
for achieving these goals, as well as progress toward achieving them.
The Family Partnership Agreements must appropriately reflect the
information provided by the family and by other community agencies
concerning preexisting family plans and goals to assist families toward
the goal of self-sufficiency.
Agencies have a responsibility to provide parents with a variety of
opportunities throughout the year to discuss their progress and to
update the Family Partnership Agreement, as
[[Page 17767]]
necessary. In meeting these responsibilities, agencies must respect
each family's cultural and ethnic background.
(b) Accessing Community Services and Resources
This section represents only a slight modification of the standards
in the current rule under the social services component. Greater
emphasis has been placed on referrals to services and resources that
address the types of assistance contemporary families may require, such
as counseling for problems related to substance abuse and domestic
violence and for employment training and location services.
Paragraph (b)(1) requires agencies to collaborate with all
participating parents to identify and access appropriate services and
resources. These might include emergency or crisis assistance;
education and other appropriate interventions regarding issues that
place families at risk; and opportunities for continuing education and
employment training and other employment services.
Paragraph (b)(2) specifies agency responsibilities to follow-up
with parents when referrals are made to determine whether the family
receives appropriate services on a timely basis and whether the
services meet the family's needs. We welcome comments regarding the
capacity of Head Start agencies to meet the requirement for staffing
and resources.
(c) Services to Pregnant Women Who Are Enrolled in Programs Serving
Pregnant Women, Infants, and Toddlers
In keeping with the mandates of both the Head Start Act, as
amended, and the Advisory Committee on Services to Families with
Infants and Toddlers that high quality services for infants, toddlers,
and pregnant women be established, this section requires that agencies
provide assistance to pregnant women in obtaining immediate access,
through referrals, to comprehensive prenatal care and postpartum care,
including early and continuing risk assessments, health promotion and
treatment, and mental health interventions and follow-up, as needed.
This set of standards also ensures strong preventive health care for
both mothers and their infants.
Paragraph (c) requires that agencies provide pregnant women and
other family members with prenatal education on a variety of specified
issues. The information will be made available through coordinated
efforts with local maternal and child health agencies. Under paragraph
(c)(3), they must provide information on the benefits of breast feeding
to all pregnant and nursing mothers and must also provide arrangements
necessary to accommodate mothers who choose to breast feed in center-
based programs.
(d) Parent Involvement--General
This section restates the general requirements of parent
involvement contained in the current rule with only slight
modifications.
(e) Parent Involvement in Child Development and Education
This section of the proposed rule lays out requirements for
parental involvement in child development and education that are very
similar to the requirements in the current rule.
Under paragraph (e)(3), agencies must directly or indirectly
provide opportunities for children and families to participate in
family literacy services by increasing their access to appropriate
materials and services and by helping them recognize and address their
own literacy goals.
(f) Parent Involvement in Health, Nutrition, and Mental Health
Education
The requirements of this section are also similar to those
contained in the current rule. Minor changes include requiring agencies
to assist parents in understanding how to enroll and participate in a
system of ongoing health care. In addition, mental health education
must include opportunities for parents to discuss issues related to
child mental health and to the mental health of their own child and
family in particular.
(g) Parent Involvement in Community Advocacy
This section incorporates a number of standards in the current rule
with only minor changes. The most notable addition is that agencies
must provide a comprehensive community resource list, if available, to
parents as part of the provision of the technical support necessary to
enable parents to secure community assistance on their own behalf.
(h) Parent Involvement in Transition Activities
This set of standards responds to the provisions of the Head Start
Act, as amended, to carry out specific actions to ``promote the
continued involvement of parents of children that participate in Head
Start programs in the education of their children upon transition to
school.'' Improved transition services are also key recommendations of
both Advisory Committees. Agencies must assist parents in becoming
their children's advocates as their children transition into Early Head
Start or Head Start from the home or other child development settings
and from Head Start to elementary school, Title I Improving America's
Schools Act preschool programs or other placements.
Staff must work to prepare parents to become their children's
advocates through such transition periods. At a minimum, they must meet
with parents toward the end of the child's participation in the program
to explain their child's progress while enrolled in Early Head Start or
Head Start.
In order to promote the continued involvement of parents in the
education and development of their children upon transition to school,
agencies must give parents information about their rights and
responsibilities within the school system and help them learn to
communicate with school personnel and to participate in decisions
related to their children's education. (See 45 CFR 1304.41(c) for
additional standards related to children's transition to and from Early
Head Start or Head Start.)
(i) Parent Involvement in Home Visits
This section augments the requirements of 45 CFR Part 1306
regarding home visits in all program options by making home visits as
convenient and safe as possible for both parents and staff. As in the
current regulation, agencies must not require that parents permit home
visits as a condition of their child's participation. However, every
effort must be made to explain the advantages of home visits to the
parents.
In addition, whenever possible, home visits must be scheduled to
permit the participation of both the enrolled child and the parents.
Also whenever possible, staff must conduct home visits in all program
options at times that are most convenient for the parents or primary
caregivers.
Home visits conducted under the center-based program option may now
take place outside the home, either at the parent's request or for
safety reasons, at an Early Head Start or Head Start site or at another
safe location that affords privacy.
Agencies serving infants and toddlers must arrange for health staff
to visit newborns and their families within two weeks after the
infant's birth to ensure the well-being of both the mother and child.
[[Page 17768]]
Section 1304.41--Community Partnerships
Objective
The objective of this section of the proposed rule is to ensure
that Early Head Start and Head Start agencies become active partners in
their communities, both to advocate for low-income families and to help
create a community environment that shares responsibility for the
healthy development of all of its children. Successful partnerships
require proactive behavior on the part of Early Head Start and Head
Start programs, and involve the commitment of significant staff time
and agency resources. Grantee and delegate agencies must provide
leadership in the community by working with parents and other service
providers to promote access to appropriate services that will enhance
each family's well-being and their movement toward self-sufficiency.
Agencies also must engage in continuous community planning to promote
collaborative action with other agencies in order to improve, share and
augment services, staff, information and funds. This includes service
coordination, joint training, and the joint identification and
resolution of service delivery problems.
Proposed Regulatory Provisions
(a) Partnerships
As a way of addressing the Advisory Committee on Head Start Quality
and Expansion's concern about local agencies' struggles with planning
and the coordination of services, and to promote the Advisory Committee
on Services to Families with Infants and Toddler's Program Cornerstone
of Community Building, the standards in this section have been
augmented to encourage greater collaboration on the part of Early Head
Start and Head Start agencies with other community service providers
that will enhance family services.
Paragraph (a)(1) requires that agencies take an active role in
community planning to ensure strong communication, cooperation, and the
sharing of information among grantees and their community partners and
to improve the delivery of community services to children and families.
(See 45 CFR 1304.51 for additional planning requirements.)
To promote access to community services that are responsive to
their clients' needs and to ensure that Early Head Start and Head Start
programs respond to community needs, agencies must take affirmative
steps to establish collaborative, ongoing relationships with community
organizations including health providers; mental health providers;
providers of nutritional services; providers of services to children
with disabilities and their families; family support and resource
organizations; providers of family preservation and support services;
children's protective services; educational and cultural institutions;
and child care providers. (See the existing regulations at 45 CFR
1308.4 for specific service requirements for children with disabilities
and their families.)
Agencies also must perform outreach to encourage appropriate
individuals from the community to participate as volunteers in the
Early Head Start and Head Start programs.
To enable the effective participation of children with disabilities
and their families, agencies must make specific efforts to develop
interagency agreements with local educational agencies (LEAs) and other
agencies within their service area. (See 45 CFR 1308.4 for specific
requirements concerning interagency agreements.)
(b) Advisory Committee
Paragraph (b) requires that agencies establish and maintain a
Health Services Advisory Committee which includes professionals and
volunteers from the community. Agencies also must establish and
maintain other Advisory Committees, as they deem appropriate, to
address service issues and to help agencies respond to community needs.
While a number of focus group participants strongly recommended that
additional Advisory Committees in other areas beyond Health Services be
required, these recommendations were not implemented to allow latitude
for agencies to establish any additional Advisory Committees that they
deem would be appropriate for their local programs.
(c) Transition Services
The following group of standards respond specifically to the new
statutory requirements for transition services as well as to the
recommendations of both Advisory Committees that program transition
activities be addressed in the standards. These new requirements
closely parallel the language of the Head Start Act, as amended.
Agencies must establish and maintain procedures to support the
successful transition of enrolled children and families from previous
child care and development programs into Early Head Start or Head Start
and from Head Start into elementary school, Title I Improving America's
Schools Act preschool programs, or other child care settings. They must
coordinate with appropriate agencies, and among migrant programs, on
the transfer of records; perform outreach to encourage staff to
communicate with their counterparts in the school and other child care
settings; initiate meetings involving parents and teachers to discuss
the developmental progress and abilities of individual children; and
initiate joint transition-related training with school or other child
development staff. (See the proposed rules at 45 CFR 1304.40(h) for
requirements related to parental participation in their child's
transition to and from Early Head Start or Head Start.)
Subpart D--Program Design and Management
General Objective
The objective of this Subpart of the proposed rule is to provide
the foundation for quality services to children and families. Strong,
committed governing bodies and policy groups that represent Early Head
Start and Head Start parents and the larger community must be
established to provide effective leadership to and oversight of the
program. Effective management systems and procedures must be in place
to support the implementation of program services, such as systematic
program planning procedures, responsive and smooth communication
systems, and efficient record-keeping and reporting systems. In
addition, agencies must create processes for program self-assessment
and delegate agency monitoring that ensure that progress in meeting
program objectives is carefully monitored and that program weaknesses
are identified and remedied.
Since the success of local programs depends, in large part, on the
quality of its staff, agencies must also implement human resource
management systems that ensure that dynamic, highly qualified staff are
selected for employment and that staff and volunteers are supported in
their work at the Early Head Start and Head Start programs. Agencies
must establish effective organizational structures that encourage a
coordinated, team approach to service delivery. They also must ensure
that staff to child ratios and classroom sizes are small enough to
support optimal caregiving relationships and individualized program
activities that protect the children's safety. In addition, agencies
must set reasonable job expectations for staff that are commensurate
with their demonstrated
[[Page 17769]]
skills and experience. Finally, agencies must support staff and
volunteers in meeting the challenges they face in their jobs by
providing adequate and appropriate supervision, regular feedback, and
structured opportunities for professional development.
The provisions of this Subpart also ensure that program facilities,
materials, and equipment support appropriate child development
practices and the program's unique features and design. Facilities,
materials, and equipment must be safe, developmentally appropriate, and
accessible to all children. In choosing an Early Head Start or Head
Start site, agencies must make the selection based on the findings from
the Community Needs Assessment and must be responsive to the needs and
circumstances of the community, children, and families served and aware
of environmental and safety risks that may affect the healthy growth
and development of children.
Section 1304.50--Program Governance
Objective
The objective of this section of the proposed rule is to ensure
that each local agency establishes governing bodies and policy groups
to oversee the implementation of the Head Start legislation,
regulations, and policies and to ensure that the program delivers high
quality, comprehensive services to enrolled children and families. As
stewards of the local program, the members of the local policy groups,
including Policy Councils, Policy Committees, and Parent Committees,
must adequately represent Early Head Start and Head Start parents as
well as individuals and organizations in the larger community who have
a concern for low-income families and their children. In order to serve
the local program well, members of the policy groups must understand
and perform a number of key oversight functions with dedication and
care. Performing these responsibilities should be an experience of
growth and empowerment for parents.
Proposed Regulatory Provisions
(a) Policy Group Structure
As in the current standards, paragraph (a) sets forth the
requirements for a formal structure of governance which enables
parental participation in policy-making and program operations. The
regulation is unchanged for grantee agency Policy Councils and delegate
agency Policy Committees. Center Committees have been renamed Parent
Committees, which must be established at the center level for center-
based programs. For other program options, a Parent Committee must be
established at the local program level.
Furthermore, it states that all policy groups must be established
as early in the program year as possible, and that Policy Councils and
Policy Committees may not be dissolved until their successors are both
elected and seated. It then provides clarification that the governing
body (formerly called the ``corporate board'') and the Policy Council
or Policy Committee may not have identical memberships and functions.
While none of the focus groups expressed any major concerns about the
current requirements regarding policy groups, we welcome any comments
you may have in this area.
(b) Policy Group Composition and Formation
Proposed regulations as to whether such groups, as defined in the
regulation, provide sufficient flexibility to meet local program needs
do not differ substantially from the current regulation. Minor changes
have been made to provide clarification or to increase agency
flexibility.
Paragraph (b)(1) sets forth requirements regarding the composition
and procedures by which policy group members are chosen, which must be
determined by the governing body of each program and approved by the
Policy Council or Policy Committee consistent with the regulations in
this Part.
Policy Councils and Policy Committees must include the parents of
currently enrolled children and community representatives. At least 51
percent of the members of each of these policy groups must be the
parents of currently enrolled children.
All parents of currently enrolled children serving on policy groups
must stand for election or re-election annually.
Policy Councils and Policy Committees must establish and maintain
procedures for selecting community representatives to serve on the
Policy Councils or Policy Committees. Community representatives must be
drawn from the local community and from local organizations that have a
concern and provide resources and services to low-income children and
families. Community representatives may include the parents of formerly
enrolled children.
To provide greater flexibility to local agencies, Policy Councils
and Policy Committees must determine and establish the terms of
membership for their policy groups.
Early Head Start or Head Start staff and agency managers with
responsibility for the program (and members of their families) may not
serve on the Policy Councils or Policy Committees.
Parent Committees must be comprised exclusively of the parents of
currently enrolled children.
The parents of children currently enrolled in all program options
must be adequately represented on established policy groups.
Paragraph (c) sets forth the minimum responsibilities for each of
the three types of policy groups that are described in Appendix A of
Section 1304.50.
(d) The Policy Council or Policy Committee
The responsibilities of Policy Councils and Policy Committees have
remained almost exactly the same as in the current regulation. Policy
Councils and Policy Committees must help develop, review and approve or
disapprove major governance and management policies and procedures
connected with local Early Head Start or Head Start programs. These
include: (1) Applications for grants and application amendments
(including indirect cost rates, program budgets, and operational
plans); (2) procedures describing how the governing body and the
appropriate policy group will implement shared decision-making; (3)
program planning procedures; (4) agency philosophy statements and
statements of program objectives; (5) the selection of delegate
agencies and their service areas (applies only to Policy Councils); (6)
group compositions and procedures by which policy group members are
chosen; (7) recruitment, selection and enrollment policies; and (8)
procedures for the agency's annual self-assessment of its progress in
carrying out the programmatic and fiscal intent of its grant
application, including any planning actions that may result from the
review of the annual audit and the Federal Performance Monitoring
Review.
With respect to personnel administration, Policy Councils and
Policy Committees must help to develop, review and approve or
disapprove: (1) Program personnel policies and policy changes
(including standards of conduct); and (2) decisions to hire and
terminate any person paid from Early Head Start or Head Start funds,
including the Early Head Start or Head Start director.
Under paragraph (d)(2), Policy Councils and Policy Committees also
have responsibility for a number of parent and community outreach
[[Page 17770]]
activities. They must: (1) Serve as a link to the Parent Committees,
agency governing bodies, public and private organizations, and the
community; (2) assist Parent Committees in communicating with parents
to ensure that they understand their rights and opportunities as
program participants; (3) assist Parent Committees and staff in
planning, coordinating, and organizing program activities for parents;
(4) assist in recruiting volunteer services and in mobilizing community
resources; and (5) establish and maintain procedures for working with
the grantee or delegate agency to resolve community complaints about
the program.
(e) Parent Committee
Under paragraph (e), the minimum responsibilities of Parent
Committees include: (1) Advising Early Head Start and Head Start staff
in developing and implementing local program policies, activities and
services; (2) planning, conducting, and participating in activities for
parents and staff; and (3) consistent with the guidelines established
by the governing body, Policy Council, and Policy Committees,
participating in staff recruitment and screening.
(f) Policy Group Reimbursement
To enable full participation by low-income individuals in policy
group activities, agencies must provide reimbursements for reasonable,
activity-related expenses, if necessary.
(g) Governing Body Responsibilities
In response to the many comments received from local Head Start
agencies during the focus groups, agencies must have written policies
defining the roles and responsibilities of governing body members and
informing them of the management procedures and functions necessary to
implement a high quality program.
(h) Internal Dispute Resolution
In response to the specific statutory requirement regarding
mediation procedures in section 646 of the Head Start Act, as amended,
each agency and Policy Council or Policy Committee must jointly
establish written procedures for resolving internal disputes, including
impasse procedures, resulting from shared decision-making
responsibilities. We are developing mediation procedures implementation
at the Federal level as required by section 646, when needed.
Section 1304.51--Management Systems and Procedures
Objective
The objective of this section of the proposed rule is to ensure
that local agencies are performing the management functions necessary
to enhance staff performance; deliver high quality services to children
and families; and comply with Federal, State, and local laws.
Specifically, they must conduct systematic program planning to guide
staff in the accomplishment of program goals and objectives and in the
delivery of responsive program services in a timely and fiscally
responsible manner. In addition, communications must flow easily among
governing bodies, policy groups, staff, families, and the larger
community, and must respond rapidly to ongoing informational needs.
Record-keeping and reporting systems also must support the program's
informational needs in a timely and efficient manner, while ensuring
that the privacy of staff and families is protected. Finally, self-
assessment and delegate monitoring procedures must ensure that progress
in meeting program objectives is carefully and regularly evaluated and
that program weaknesses are identified and addressed.
Proposed Regulatory Provisions
The proposed standards in the Management Systems and Procedures
area directly respond to Section 641A(a)(1)(B) of the Head Start Act,
as amended, which requires the establishment of administrative and
financial management standards.
(a) Program Planning
Paragraph (a) sets forth the requirements for agencies in
developing and implementing a program planning process. These standards
have been strengthened in accordance with the Advisory Committee on
Head Start Quality and Expansion's concern about the need to strengthen
local program planning and in response to focus group requests for the
delineation of a specific planning process in the standards. The
process must be systematic and ongoing; and include consultation with
the program's governing body, policy groups, program staff, and other
community organizations. The program planning activities, per se, must
include: (1) An assessment of community strengths, needs and resources,
in accordance with the requirements of 45 CFR Part 1305; (2) the
formulation of ``long-range'' program goals and short-term program and
financial objectives; and (3) the development of written implementation
plans for each program area covered by this Part (i.e., Early Childhood
Development and Health Services, Family and Community Partnerships, and
Program Design and Management).
(b) Communications--General
Standards on communications in this section simply represent a
reorganization and compilation of current standards and pre-existing
On-Site Program Review Instrument (OSPRI) requirements (which are based
on the current standards) regarding communication. No new requirements
have been added. Paragraph (b) provides that agencies must establish
and implement systems to ensure the timely and accurate provision of
information to parents, policy groups, staff, and the general
community.
(c) Communication With Families
Paragraph (c) requires that agency systems ensure regular,
effective two-way comprehensive communication between staff and
parents. Written and oral communications must be carried out in the
parents' primary language or through an interpreter, to the extent
feasible.
(d) Communication With Governing Bodies and Policy Groups
As in the current regulation, paragraph (d) requires that governing
bodies and members of policy groups, including Policy Councils and
Policy Committees, regularly receive information, such as policy
guidances and other communications.
(e) Communication Among Staff
This section requires that agencies have mechanisms for regular
communication among all program staff to facilitate quality outcomes
for children and families.
(f) Communication With Delegate Agencies
This section partially fulfills the statutory requirements of
Section 641A(a)(4) of the Head Start Act, as amended, regarding the
establishment of standards relating to obligations to delegate
agencies. Grantees must have procedures for ensuring that the governing
bodies, Policy Committees, and all staff of the grantee and delegate
agencies receive regulations, policies, and other pertinent
communications in a timely manner.
(g) Record-Keeping Systems
The proposed standard requires grantees to establish and maintain
record-keeping systems on children,
[[Page 17771]]
family and staff under the program. Comments are invited about whether
the standards should require that record-keeping systems be supported
by appropriate computer technology, and whether such a requirement
would pose an unreasonable burden for programs.
(h) Reporting Systems
The proposed standards respond to statutory requirements for
administrative and financial management standards. Again, however, ACYF
welcomes comments regarding the perceived burden of these standards and
whether ACYF should require that reporting systems be supported by
appropriate computer technology.
Paragraph (h) specifies the functions the agency reporting systems
must perform. Agencies must establish and maintain efficient and
effective reporting systems. The systems must generate regular
financial and program reports and official reports as required by
Federal, State, and local authorities.
(i) Program Self-Assessment and Monitoring
Under paragraph (h), agencies must conduct a self-assessment at
least once each program year in consultation with other community
agencies to evaluate their effectiveness and progress in meeting their
program goals and objectives. Agencies also must consult with their
policy groups and secure their participation in the conduct of these
self-assessments.
Grantees must also establish and implement procedures for the
periodic monitoring of delegate agencies and their compliance with
Federal regulations. If grantees identify any deficiencies in delegate
agency operations, they must inform the governing bodies of the
delegate agency and assist the delegate agency in developing plans,
including a timetable, for addressing the problems which were
identified. This standard also responds to the statutory requirement to
develop standards relating to obligations to delegate agencies.
Section 1304.52--Human Resources Management
Objective
The objective of this section of the proposed rule is to ensure
that programs recruit and select dynamic, well-qualified staff who
possess the skills and experience needed to provide high quality,
comprehensive services to children and families in the program. Staff
selected for employment in Early Head Start or Head Start should be
knowledgeable about the community served by the program in order to
enhance the delivery of services. In addition, they should be assisted
by the program to seek out opportunities for the development of new
skills and competencies that will improve their job performance. Since
no one staff member can possess all of the knowledge and skills
necessary to provide the wide-ranging services offered, staff members
should be selected for their ability to work as members of a
productive, mutually supportive team. Finally, staff must be willing to
abide by the program's strict standards of conduct for interacting with
children and families and must be of sound physical and emotional
health
Another objective of this section is to ensure that local agencies
provide an environment that is strongly supportive of program staff and
volunteers. First, agencies must establish dynamic and effective
organizational structures that encourage a coordinated, team approach
to service delivery. Second, agencies must ensure that staff to child
ratios and classroom sizes are small enough to support optimal
caregiving relationships and individualized program activities. Next,
agencies must set reasonable job expectations for staff that are
commensurate with their demonstrated skills and experience. Finally,
agencies must support staff and volunteers in meeting the challenges
they face in their jobs by providing adequate and appropriate
supervision, feedback, and opportunities for professional development.
The inclusion of detailed requirements for staff qualifications
reflect ACYF's commitment to improving the quality of services and
program management as well as a strong consensus among the sources
consulted about the need to strengthen requirements in these areas.
Proposed Regulatory Provisions
(a) Organizational Structure
In keeping with the Advisory Committee on Head Start Quality and
Expansion's recommendation to focus on staffing plans and personnel
policies, and with the statutory requirement to improve administrative
and financial management, paragraph (a) provides that agencies must
employ (and document) an organizational design that supports the
accomplishment of program objectives. The documentation must set forth
the major roles and responsibilities of each staff position and
demonstrate that adequate mechanisms for staff supervision and support
are in place. However, the proposed standard is structured to promote
the maximum flexibility possible on the part of local agencies in
carrying out its provisions.
At a minimum, agencies must formally assign responsibilities for
program management (i.e., to the Early Head Start or Head Start
director); for management of the different child development services;
and for management of family and community partnerships, including
parent activities.
(b) Staff Qualifications--General
Some of the requirements in this section are very similar to those
in the current rule. In addition, however, agencies must ensure that
staff have the knowledge, skills, and experience needed to perform
their assigned roles and functions responsibly. Although this has been
a long-standing unstated requirement of local agencies, it is now
stated explicitly to respond to the concerns of the Advisory Committee
on Head Start Quality and Expansion about staff qualifications and to
the mandate of Section 644(a)(2) of the Head Start Act, as amended, to
``assure that only persons capable of discharging their duties with
competence and integrity are employed.* * *'' Agencies must also ensure
that managers, supervisors, fiscal officers, classroom teachers, staff
working with infants and toddlers, home visitors, health staff, mental
health professionals, and nutritionists and dieticians meet more
specific qualification requirements, as noted below.
(c) Management Staff Qualifications
The proposed standards related to management staff qualifications
respond to the Advisory Committee on Head Start Quality and Expansion's
concerns about staffing and to statutory requirements that standards
for administrative and financial management and staff qualifications be
established. The proposed standards, however, broadly require agencies
to hire staff with relevant ``training and experience'' to give local
agencies as much flexibility as possible in meeting them. The ACYF
welcomes comments regarding the perceived burden of these proposed
standards.
Paragraph (c) includes specific qualification requirements that
apply to staff responsible for agency management.
The Early Head Start or Head Start director must have training and
experience relevant to early childhood or human services program
management.
Agencies must secure, on a regularly scheduled or ongoing basis,
the services
[[Page 17772]]
of a Certified Public Accountant (CPA) or an individual with other
appropriate credentials to serve as fiscal officer.
Staff managing education services must meet the requirements
specified in section 648A(a)(1) of the Head Start Act (and referenced
in 45 CFR 1306.21). They must also have training and experience in such
areas as the theories and principles of child growth and development,
early childhood education, and family support.
Staff managing health services must have training and experience in
public health, nursing, health education, prenatal and postpartum care
or health administration.
As in the current regulation, a certified or licensed nutritionist
or dietician either must manage the nutrition services as a full-time
staff person or supervise the nutrition services on a periodic and
regularly scheduled basis.
Staff managing family and community partnership services must have
training and experience in field(s) related to social, human or family
services.
Staff managing parent involvement services must have training,
experience and skills in assisting the parents of young children in
advocating and decision-making for their families.
Staff managing disability services must have training and
experience in securing and individualizing needed services for children
with disabilities.
(d) Mental Health Professional Qualifications
In order to respond effectively to the complex contemporary
challenges facing many of the families served by Early Head Start and
Head Start programs, a licensed or certified mental health professional
with experience and expertise in serving young children and their
families must provide services to these programs on a regularly
scheduled basis. The ACYF welcomes comments about whether this proposed
standard places a reasonable burden on local agencies.
(e) Health Staff Qualifications
To the extent that health staff perform health screenings,
immunizations, or other health procedures for children, they must have
appropriate professional licenses or certification to perform those
procedures. The proposed standard simply states this requirement
explicitly.
(f) Infant and Toddler Staff Qualifications
A necessary feature of high quality programs for infants and
toddlers, supported by research, is that staff working with infants and
toddlers have the training and experience necessary to develop
consistent, stable, and strongly supportive relationships with very
young children. This paragraph cross references the qualifications in
section 648A of the Head Start Act which includes as one possible
qualification persons who have earned a Child Development Associate
(CDA) credential. In addition to the statutory qualifications, they
must also have knowledge of infant and toddler development and of
methods for communicating effectively with infants and toddlers, their
parents, and other staff members. The ACYF welcomes comments, however,
on whether the qualifications that are cross-referenced pose
implementation problems for grantees and delegate agencies.
(g) Standards of Conduct
The proposed standards on staff standards of conduct respond to the
recommendations of focus group participants that specific staff
standards of conduct be established to safeguard children, families,
and staff themselves from perceived or actual abuse or civil rights
violations that may inadvertently occur during program hours as a
result of staff actions. In addition, these proposed standards comply
with section 644(a)(2) of the Head Start Act, as amended, to ``assure
that only persons capable of discharging their duties with competence
and integrity are employed...''
Agencies must ensure that all staff, consultants, and volunteers
abide by the program's standards of conduct. These standards must
protect against stereotyping and abuse and help ensure confidentiality,
child safety, and appropriate (positive) disciplining methods.
Agency standards of conduct must also cover the award and
administration of contracts or other financial awards for individuals
engaged in such activities. Employees may not solicit nor accept
personal gratuities, favors or anything of significant monetary value
from contractors or potential contractors.
Personnel policies and procedures must include provision for
appropriate penalties for violating the standards of conduct.
(h) Staff Performance Appraisals
Agencies must conduct annual performance reviews of each staff
member and use the results to assist staff in improving their skills
and professional competencies. This proposed standard responds, in
part, to section 644(a)(2) of the Head Start Act, as amended, which
requires that ``* * * employees are promoted or advanced under
impartial procedures calculated to improve agency performance and
effectiveness.''
(i) Staff and Volunteer Health
The following proposed standards augment current standards on staff
and volunteer health and conform to the latest recommendations of
leading health authorities (e.g., the Centers for Disease Control and
Prevention) regarding methods for ensuring that, insofar as possible,
both staff and child health are protected in local program settings.
Staff members must have regular, ongoing health appraisals, including
tuberculosis tests, as recommended by their health care provider or as
mandated by State and local laws.
Agencies must ensure that volunteers are screened for tuberculosis
before having contact with children. In no event may such screenings be
conducted less frequently than every two years.
Agencies must provide assistance to staff with mental health and
wellness concerns that may affect their job performance.
(j) Staffing Patterns
Agencies must meet the requirements of 45 CFR 1306.20 and current
requirements under this Part regarding program staffing patterns and
communication with families.
Two proposed standards have been added to ensure proper staff to
child ratios for very young children, as recommended by current
literature and by the Advisory Committee on Services to Families with
Infants and Toddlers. Agencies must ensure that each staff caregiver
working with infants and toddlers has responsibility for no more than
four infants and toddlers and that no more than eight infants and
toddlers are placed in any one room. Agencies serving mixed age groups
must ensure that each staff member has responsibility for no more than
six children, of which no more than two may be infants or toddlers. We
welcome comments on these staff to infant/toddler ratios.
Also, to improve safety protections for children and to guard
against legal liability problems for local agencies, the methods used
by staff to supervise the outdoor and indoor play areas must ensure
that children's safety can be easily monitored.
(k) Training and Development
The proposed standards on training and development have been added
to meet the recommendations of the
[[Page 17773]]
Advisory Committee on Head Start Quality and Expansion to focus more
strongly on staffing, training, and career development. However, in
order to protect local agency flexibility, these standards are
presented in general terms, and do not specify the particular topical
areas in which staff must be trained, as they do in current regulation.
The one exception is the specification that management training be
provided to governing body and Policy Council and Policy Committee
members, since this was a specific recommendation of the Advisory
Committee.
Agencies must provide an orientation to all new staff, consultants,
and volunteers. This orientation must cover, as required in the current
rule, the goals and philosophy of Early Head Start and/or Head Start
and the ways in which they are implemented in the local program.
Similar to the requirements of the current rule, agencies must also
establish and implement a structured approach to staff training and
development for program staff and volunteers that includes academic
credit, where possible, so that they will have the knowledge and skills
needed to fulfill their job responsibilities in accordance with the
requirements of 45 CFR 1306.23.
This approach must include an ongoing education program which is
responsive to the needs of relevant staff and volunteers.
Agencies also must provide training to governing body members and
Policy Council and Policy Committee members which will enable them to
carry out their program governance responsibilities effectively.
Section 1304.53--Facilities, Materials, and Equipment
General Objectives
The objectives of this section of the proposed rule are to ensure
that agencies plan carefully to provide facilities, materials, and
equipment that support appropriate early child development and
education practices and the unique features of the program, such as
size, choice of program option, service emphases, local community
resources, and the special circumstances of enrolled children and
families. The facilities, materials, and equipment must be safe,
developmentally appropriate, and accessible to all children. It is
important to note that these standards refer exclusively to facilities,
materials, and equipment owned and managed by local agencies and not to
those owned by enrolled families. In choosing an Early Head Start or
Head Start site, agencies must be responsive to the needs and
circumstances of the community, children, and families served and aware
of environmental and safety risks that may affect the healthy growth
and development of children.
Proposed Regulatory Provisions
(a) Head Start Physical Environment and Facilities
The proposed standards in this section augment those contained in
the education component of the current regulation (45 CFR Part 1304.2-
3) in keeping with the recommendation of the Advisory Committee on Head
Start Quality and Expansion that additional regulations on facilities
be established and the requirement in Section 641A(a)(1)(C) of the Head
Start Act, as amended, for standards addressing the condition and
location of facilities. In addition, the proposed standards have been
expanded to address safety concerns related to infants and toddlers and
to conform with the recommended standards of leading public health
authorities (e.g., the Health Resources and Services Administration's
Bureau of Maternal and Child Health in the U.S. Department of Health
and Human Services and the American Academy of Pediatrics).
As in the current regulation, the Early Head Start or Head Start
facility and physical environment must be both conducive to learning
and reflective of the different stages of development of each child. To
ensure that the standards are applicable to all program options,
agencies must strive to achieve such an environment in their respective
program settings.
Also as in the current regulation, agencies operating center-based
programs must provide appropriate space, organized into functional
areas, for program activities. (See 45 CFR 1308.4 for specific access
requirements for children with disabilities.)
To provide strong safety protections for infants and toddlers, the
indoor and outdoor space in Early Head Start or Head Start centers used
by mobile infants and toddlers must be located away from general
walkways and from areas used by older children.
As an explicit statement of a traditionally implicit requirement,
agencies must provide for the maintenance, repair, and security of all
Early Head Start and Head Start facilities, materials and equipment.
Agencies operating center-based programs also must provide an
indoor and outdoor environment free of toxins, such as cigarette smoke,
pesticides, herbicides, other air pollutants, and soil and water
contaminants. No child may be present when pesticide or herbicide
spraying is conducted. The inclusion of pesticides and herbicides in
the proposed standard responds to the particular concerns of migrant
programs.
As in the current regulation, agencies must provide barriers for
outdoor play areas at center-based programs which prevent children from
wandering away and getting into unsafe and unsupervised areas. To
promote child safety and reduce agency liability concerns, children
must not be exposed to vehicular traffic without supervision when
enroute to play areas.
Agencies must conduct annual safety inspections of their facility's
space, light, ventilation, heat, and other physical systems to ensure
that they are consistent with the health, safety and developmental
needs of children. At a minimum, they must meet specific requirements
related to the safety and effectiveness of the facility required by the
current regulation. Minor changes include proposed standards regarding
a safe and effective cooling as well as heating system; the
flammability of furnishings, decorations and materials that emit toxic
fumes when burned; appropriate numbers of smoke detectors; the
visibility and posting of exits and evacuation routes; protections for
electrical outlets and glass doors and windows; and the location of
diapering activities.
(b) Head Start Equipment, Toys, Materials, and Furniture
The proposed regulations pertaining to furniture, equipment, and
materials owned and operated by grantee or delegate agencies are almost
identical to those contained in the current rule. However, in keeping
with current public health advice, infant and toddler toys must be made
of non-toxic materials that can be sanitized.
Subpart E--Implementation and Enforcement
General Objectives
The objective of this Subpart of the proposed rule is to ensure
quality across programs serving children ages 3 to 5 by requiring that
areas of non-compliance or deficiencies with the Head Start Program
Performance Standards and regulations be remedied as quickly as
possible and that poorly performing programs be terminated. These
proposed standards are drawn from the specific statutory language of
section 641A(d) (1) and (2) of the Head Start Act, as amended,
concerning corrective
[[Page 17774]]
actions and quality improvement plans for poorly performing agencies.
They also respond to the recommendation of the Advisory Committee on
Head Start Quality and Expansion that prompt action be taken to address
concerns with poorly performing agencies.
Section 1304.60--Compliance
Proposed Regulatory Provisions
Head Start grantees and delegate agencies funded for indefinite
project periods as specified in 45 CFR 1304.2 must comply with the
requirements of Part 1304 within 6 months after the date of publication
of the final rule. The ACYF invites comments about whether the six-
month timeframe poses particular difficulties for programs.
The proposed regulations in this section differ from those in the
current rule regarding the processes grantee and delegate agencies must
follow in eliminating areas of non-compliance with the program
performance standards. In accordance with 641A(d) of the Head Start
Act, as amended, a new distinction is made between ``non-compliance''
(i.e., a single instance of a grantee's failure to conform to some
specific requirement) and ``deficiencies'' which involve a grantee
displaying such serious problems in one or more areas of its program
that the grantee's ability to provide quality Head Start services is
being compromised. Less critical areas of non-compliance must be
remedied within 90 days.
Section 1304.61--Quality Improvement Plan
Proposed Regulatory Provisions
Programs with areas of non-compliance that constitute a program
deficiency must submit a Quality Improvement Plan to the responsible
HHS official. This plan, if approved, must be implemented within a time
period not to exceed 12 months.
Other Regulatory Changes
Revisions to 45 CFR 1301.31--Personnel Policies
This section has been revised to reflect clarifications and policy
updates (including guidance received from the Advisory Committees and
the focus groups) on the requirements governing personnel policies that
grantees and delegate agencies must meet to operate a quality Head
Start program in accordance with the Head Start Act, as amended and the
implementing requirements in 45 CFR Chapter XIII, Subchapter B. For the
most part, each paragraph has been expanded or updated depending on the
need.
The current regulations at section 1301.31(a), among other things,
require Head Start agencies to establish and implement personnel
policies for themselves and their delegate agencies and list the
minimum areas which the policies must govern. The proposed revisions to
this paragraph extends the requirement for setting up personnel
policies to grantee and delegate agencies for the purpose of
flexibility.
Proposed paragraph (a) requires grantees and delegate agencies to
have written policies, which the Policy Council must approve, that
govern staff, consultants, and volunteers. The policies must cover: (1)
Staff qualifications, paragraph (f) of the current regulation with
modifications; (2) procedures for recruitment, selection and
termination, paragraph (a) of the current regulation but now expanded;
(3) standards of conduct, not in the current regulation; (4) training
and development, in paragraph (a) of the current regulation but
expanded; and (5) staff performance appraisals, paragraph (a) of the
current regulations but expanded. With the exception of the requirement
for recruitment, selection, and termination policies, the details for
the other policies are cross-referenced to specific sections of the
performance standards at 45 CFR Part 1304. The requirement for written
standards of conduct is proposed to be added to this paragraph in order
to assure that staff and volunteers have a document they can refer to
on such matters.
Paragraph (a) also proposes to add requirements for a written
policy on employee-management relations which was in current regulation
but has been expanded and now contains assurances of non-
discrimination. In addition, references to ``volunteers'' have been
incorporated throughout this paragraph, as appropriate, to ensure that
this important group is covered by the written policy.
Proposed paragraph (b) combines paragraphs (c), (e), and (g) of the
current regulation, but with edits and one additional requirement. It
sets forth the requirements for staff recruitment and selection
procedures and contains requirements related to the conduct of
interviews, verifications of personal and employment references,
criminal records checks, and signed declarations by all current and
prospective employees regarding criminal arrests/charges and
convictions related to child abuse and neglect. The new provision in
paragraph (b) requires grantee and delegate agencies to perform
outreach services to encourage individuals from the community to
participate as volunteers in Early Head Start and Head Start programs.
Paragraph (c), as proposed, retains the declaration exclusions which
are in paragraph (d) of the current regulation. Modifications have been
made, as necessary, in order to update t
FR Doc. 96-9358 Head Start Program
he list of items that can be
excluded.
Paragraph (d) of the proposed section 1301.31, currently at
paragraph (f), is unchanged.
Proposed paragraph (e), the last proposed paragraph in revised 45
CFR 1301.31, corresponds to the last paragraph (h) of the current 45
CFR 1301.31. It retains the requirement that grantees and delegate
agencies must develop a plan for responding to suspected or known child
abuse or sexual abuse and adds a cross-reference to the definition of
child abuse and sexual abuse found in 45 CFR 1340.2(d). The reference
to Appendix A, ``Identification and Reporting of Child Abuse and
Neglect,'' in the current regulation has been deleted because much of
the content contains dated information, and because references to staff
responsibilities and training with respect to child abuse and neglect
reporting have been updated and inserted in this section at paragraph
(e).
Technical and Conforming Amendments
The purpose and scope sections at 45 CFR 1305.1 and 1306.1 are
proposed to be amended in order to require that these Parts be used in
conjunction with, as applicable, the requirements at 45 CFR Part 1304
on performance standards. For example, some requirements in Part 1304
expand the comparable requirements in either Part 1305 or 1306, and the
cross-reference has been added to ensure that grantee and delegate
agencies take this into consideration. (Part 1308 already has a cross
reference to Part 1304 in its purpose and scope section.) Section
1306.1 also is proposed to be amended in order to include the time
frame in which there is an exception for Parent Child Centers as
consistent with section 645A(e)(2) of the Head Start Act, as amended.
In sections 45 CFR 1303.14(b) and 1303.15(c) revisions were made to
comport with the inclusion of sections 1304.60 and 1304.61 on
compliance and Quality Improvement Plans.
In addition, 45 CFR 1306.20, Program staffing patterns, is proposed
to be revised by adding a new paragraph (a) and redesignating the other
paragraphs. The new paragraph cites, for particular emphasis, the
requirement on staffing patterns that are set forth in section
1304.52(j). Section 1306.21, Staff qualification requirements, has been
[[Page 17775]]
revised to reflect the amendments in the Head Start Act that
redesignates staff qualifications from section 648 to 648A. Section
1306.30, Provisions of comprehensive child development services,
paragraph (c) is proposed to be revised to update the cross-reference
to Part 1304. For the same reason, the cross-reference in section
1306.33, Home-based program option, to the performance standards has
been corrected.
We propose to revise 45 CFR 1308.6(b)(1), Assessment of children,
to cross-reference the health and development assessment timeframes in
45 CFR 1304.20 and to retain the statement that screening may start in
the spring before program services begin in the fall.
VIII. Impact Analysis
Executive Order 12866
Executive Order 12866 requires that regulations be drafted to
ensure that there is consistency with the priorities and principles set
forth in this Executive Order. The Department has determined that this
rule is consistent with these priorities and principles. This Notice of
Proposed Rulemaking implements the statutory authority to promulgate
regulations for Head Start Program Performance Standards. The Head
Start Act, as amended, requires the addition of new performance
standards in the following areas: administrative and financial
management, transition activities, family literacy, a family needs
assessment and consultation process, and standards for programs serving
pregnant women and families with infants and toddlers. Many of the new
standards in this proposed rule are directly related to these specific
legislative mandates. Congress made no additional appropriation to fund
these new requirements, however, and so any funds spent toward the
improvement of services, facilities, infrastructures, or other purposes
related to this regulation are funds that would have been otherwise
spent by the program or other programs from the same appropriation
amount. In addition, new standards have been added in the areas of
health and developmental assessments, health emergency and safety
procedures, and family and community partnerships which are responsive
to the legislative mandates and Advisory Committee recommendations to
improve the quality of the Head Start program and to establish the
Early Head Start program. We believe that these proposed rules are
focused in ways that encourage maximum cost-effectiveness in agency
spending decisions.
Regulatory Flexibility Act of 1980
The Regulatory Flexibility Act (Public Law 96-354) requires the
Federal government to anticipate and reduce the impact of rules and
paperwork requirements on small businesses. For each rule with a
``significant economic impact on a substantial number of small
entities'' an analysis must be prepared describing the rule's impact on
small entities. Small entities are defined by the Act to include small
businesses, small non-profit organizations and small governmental
entities. These regulations would affect small entities.
However, it should be noted that all grantees and delegate agencies
are currently required to meet a large group of Head Start Program
Performance Standards. In keeping with the Head Start Act, as amended,
the new standards proposed here have been developed in consultation
with individuals who have experience operating Head Start programs.
Further, the proposed requirements that are more stringent with regard
to paperwork burden than the current requirements are based on the new
legislative mandates contained in the Head Start reauthorization, such
as the requirement for new infant and toddler standards, the need to
respond to changes over time in the kinds of services that the Head
Start population requires, the need to reflect best practices in the
field of early childhood development, and the need to promote Head
Start program quality and to facilitate Head Start expansion. Finally,
we believe that meeting these proposed requirements would not be
burdensome to grantee and delegate agencies because we are providing a
six-month phase-in period for compliance. We also believe that, as
grantee and delegate agencies implement these requirements, there will
be no ongoing burden.
For these reasons, the Secretary certifies that these rules will
not have a significant impact on substantial numbers of small entities.
Paperwork Reduction Act
Under the Paperwork Reduction Act of 1995, Public Law 104-13, all
Departments are required to submit to the Office of Management and
Budget (OMB) for review and approval any reporting or record-keeping
requirement inherent in a proposed or final rule. This NPRM contains
information collection requirements in certain sections which the
Department has submitted to OMB for its review.
The sections that contain information collection are 1304.20, 22,
23, 40, 50, 51, 52, 60, and 61 which respectively pertain to: child
health and developmental assessment; child health and safety; child
nutrition; family partnerships; program governance; management systems
and procedures; human resources management; compliance; and quality
improvement plan.
The respondents to the information collection requirements in the
rule are Early Head Start and Head Start grantee and delegate agencies
which may be State or local non-profit agencies or organizations. The
Department needs to require this collection of information in order to
assure that, Early Head Start and Head Start programs are operating
quality programs in accordance with the mandate of the Head Start Act,
as amended, and the recommendation of the Advisory Committee on Head
Start Quality and Expansion that Head Start programs be operated as
quality programs. Also, in order to monitor the programs, the
Department needs information on Early Head Start and Head Start
programs' efforts to provide and maintain quality services.
The frequency of grantee and delegate agency responses are
generally annual with the exception of start up activities for Early
Head Start and new Head Start programs. We estimate the annual average
burden hours per each grantee or delegate agency to be 787.46 hours.
Currently, there are a total of 2,112 agencies (1,433 grantees and 679
delegates) operating Early Head Start and or Head Start programs. The
total annual estimated information collection is 1,663,116 hours
(787.46 hours x 2112 agencies=1,663,116). It is important to note,
however, that most of the information collection requirements reflected
in the proposed revisions to Part 1304 are currently being implemented
by existing Head Start programs.
The Administration for Children and Families (ACF) will consider
comments by the public on these proposed collection of information in:
Evaluating whether the proposed collections are necessary
for the proper performance of the functions of ACF, including whether
the information will have practical utility;
Evaluating the accuracy of ACF's estimate of the burden of
the proposed collections of information;
Enhancing the quality, usefulness, and clarity of the
information to be collected; and
Minimizing the burden of the collection of information on
those who are to respond.
[[Page 17776]]
OMB is required to make a decision concerning the collections of
information contained in these proposed regulations between 30 and 60
days after publication of this document in the Federal Register.
Therefore, a comment is best assured of having its full effect if OMB
receives it within 30 days of publication. This does not affect the
deadline for the public to comment to the Department on the proposed
regulations. Written comments to OMB for the proposed information
collection should be sent directly to the following: Office of
Management and Budget, Paperwork Reduction Project, 725 17th Street,
NW., Washington, DC 20503, Attn: Ms. Wendy Taylor.
List of Subjects
45 CFR Part 1301
Administrative practice and procedure, Education of the
disadvantaged, Grant program/social programs, Selection of grantees.
45 CFR Part 1303
Administrative practice and procedure, Education of disadvantaged,
Grant programs--social programs, Reporting and recordkeeping
requirements
45 CFR Part 1304
Dental health, Education of the disadvantaged, Grant programs/
social programs, Health care, Mental health programs, Nutrition,
Reporting and recordkeeping requirements.
45 CFR Part 1305
Education of the disadvantaged, Grant programs/social programs,
Individuals with disabilities.
45 CFR Part 1306
Education of the disadvantaged, Grant program/social programs.
45 CFR Part 1308
Education of the disadvantaged, Grant programs/social programs,
Health care, Individuals with disabilities, Nutrition, Reporting and
recordkeeping.
(Catalog of Federal Domestic Assistance Program Number 93.600,
Project Head Start)
Dated: April 10, 1996.
Mary Jo Bane,
Assistant Secretary for Children and Families.
Approved: April 10, 1996.
Donna E. Shalala,
Secretary.
For the reasons set forth in the preamble, 45 CFR Chapter XIII,
Subchapter B is proposed to be amended as follows:
1. Part 1304 is revised to read as follows:
PART 1304--PROGRAM PERFORMANCE STANDARDS FOR OPERATION OF HEAD
START PROGRAMS BY GRANTEE AND DELEGATE AGENCIES
Subpart A--General
Sec.
1304.1 Purpose and scope.
1304.2 Effective dates.
1304.3 Definitions.
Subpart B--Early Childhood Development and Health Services
1304.20 Child health and developmental assessment.
1304.21 Education and early childhood development.
1304.22 Child health and safety.
1304.23 Child nutrition.
1304.24 Child mental health.
Subpart C--Family and Community Partnerships
1304.40 Family partnerships.
1304.41 Community partnerships.
Subpart D--Program Design and Management
1304.50 Program governance
1304.51 Management systems and procedures.
1304.52 Human resources management.
1304.53 Facilities, materials, and equipment.
Subpart E--Implementation and Enforcement
1304.60 Compliance.
1304.61 Quality improvement plan.
Authority: 42 U.S.C. 9801 et seq.
Subpart A--General
Sec. 1304.1 Purpose and scope.
This part prescribes regulations implementing sections 641A, 644
(a) and (c), and 645A (h) of the Head Start Act, as amended (42 U.S.C.
9801 et seq.). Section 641A, paragraph (a)(3)(C) directs the Secretary
of Health and Human Services to review and revise, as necessary, the
Head Start Program Performance Standards in effect under prior law.
This paragraph further provides that any revisions should not result in
an elimination or reduction of requirements regarding the scope or
types of Head Start services to a level below that of the requirements
in effect on November 2, 1978. Section 641A(a) directs the Secretary to
issue regulations establishing performance standards and minimum
requirements with respect to health, education, parent involvement,
nutrition, social, transition, and other Head Start services as well as
administrative and financial management, facilities, and other
appropriate program areas. Section 644 (a) and (c) requires the
issuance of regulations setting standards for the organization,
management, and administration of Head Start programs. Section 645A(h)
requires that the Secretary develop and publish performance standards
for the newly authorized program for low-income pregnant women and
families with infants and toddlers, entitled ``Early Head Start.'' The
regulations in this part respond to these provisions in the Head Start
Act, as amended, for new and/or revised Head Start Program Performance
Standards. These regulations define standards and minimum requirements
for the entire range of Head Start services, including those specified
in the authorizing legislation. They are applicable to both Head Start
and Early Head Start programs, with the exceptions noted, and are to be
used in conjunction with the regulations at 45 CFR Parts 1301, 1302,
1303, 1305, 1306, and 1308.
Sec. 1304.2 Effective dates.
Head Start grantee and delegate agencies funded or refunded after
[six months after final publication] must comply with these
requirements on the date that new groups of children begin receiving
services, or one year from [the date of publication of the final rule],
whichever occurs first. Nothing in this part prohibits grantee or
delegate agencies from voluntarily complying with these regulations
prior to the effective date.
Sec. 1304.3 Definitions.
(a) As used in this part: (1) Assessment means the ongoing
procedures used by appropriate qualified personnel throughout the
period of a child's eligibility to identify:
(i) The child's unique strengths and needs and the services
appropriate to meet those needs; and
(ii) The resources, priorities, and concerns of the family and the
supports and services necessary to enhance the family's capacity to
meet the developmental needs of their child.
(2) Children with disabilities means, for children ages 3 to 5,
those with mental retardation, hearing impairments including deafness,
speech or language impairments, visual impairments including blindness,
serious emotional disturbance, orthopedic impairments, autism,
traumatic brain injury, other health impairments, specific learning
disabilities, deaf-blindness, or multiple disabilities, and who, by
reason thereof, need special education and related services. The term
``children with disabilities'' for children aged 3 to 5, inclusive,
may, at a State's discretion, include children experiencing
developmental delays, as defined by the State and as measured by
appropriate
[[Page 17777]]
diagnostic instruments and procedures, in one or more of the following
areas: physical development, cognitive development, communication
development, social or emotional development, or adaptive development;
and who, by reason thereof, need special education and related
services. Infants and toddlers with disabilities are those from birth
to three years, as identified under the Part H Program (Individuals
with Disabilities Education Act) in their State.
(3) Collaboration and collaborative relationships: (i) With other
agencies, means planning and working with them in order to improve,
share and augment services, staff, information and funds; and
(ii) With parents, means working in partnership with them.
(4) Contagious means capable of being transmitted from one person
to another.
(5)(i) Deficiencies means a failure by a grantee or a delegate
agency to comply: (A) With one or more of the provisions of the
regulations in this part or in 45 CFR Parts 1301, 1305, 1306, and 1308
of this Title which apply to health, education, parental involvement,
nutritional, social, and transition activities described in section
642(d) of the Act, and other services, administrative and financial
management activities, the condition and location of facilities for
such agencies, programs and projects and other matters;
(B) With program design and management requirements;
(C) With applicable laws, regulations, policies, instructions,
assurances, terms and conditions;
(D) With the required fiscal or program reporting requirements
applicable to Head Start grantees; or
(E) With requirements of the Head Start Act.
(ii) Deficiencies also means, in accordance with part 1302 of this
chapter, the loss of legal status, permits or financial viability,
debarment from receiving Federal grants or contracts and the improper
use of Federal funds.
(6) Developmentally appropriate means any behavior or experience
that is appropriate for the age span of the children and is implemented
with attention to the different needs, interests, and developmental
levels and cultural backgrounds of individual children.
(7) Early Head Start program means a program that provides families
with children under 3 years of age and pregnant women with family-
centered services which facilitate child development, support parental
roles, and promote self-sufficiency.
(8) Family means for the purposes of the regulations in this part
all persons:
(i) Living in the same household who are:
(A) Supported by the income of the parent(s) or guardian(s) of the
child enrolling or participating in the program; or
(B) Related to the child by blood, marriage, or adoption; or
(ii) Related to the child enrolling or participating in the program
as parents or siblings, by blood, marriage, or adoption.
(9) Guardian means a person legally responsible for a child.
(10) Health means medical, dental, and mental well-being.
(11) Home visitor means the staff member assigned to work with
parents to provide comprehensive services to children and their
families children's home through home visits. The home visitor is the
infant and toddler caregiver in an Early Head Start program and the
classroom teacher in a center-based or combination option Head Start
program. In a home-based Head Start program, the staff person with
responsibility for conducting home visits and group socialization
activities is termed the ``home-visitor''.
(12) Individual Family Service Plan (IFSP) means a written plan for
providing early intervention services to a child eligible under Part H
of the Individuals with Disabilities Act (IDEA). See 34 CFR 303.340
through 303.346 for regulations concerning IFSP's.
(13) Infant means a child from birth through 12 months of age.
(14) Minimum requirements means that each Head Start grantee must
demonstrate a level of compliance with the regulations in this part, as
well as in 45 CFR Parts 1301, 1305, 1306, and 1308 of this Title, such
that no deficiency, as defined in this part, exists in its program.
(15) Non-compliance means any instance in which the Head Start
grantee is failing to comply with a specific statutory, regulatory or
policy requirement.
(16) Policy group means the formal group of parents and community
representatives required to be established by the agency to assist in
decisions about the planning and operation of the program.
(17) Preschooler means a child from 37 months of age through the
date that kindergarten or first grade is available for the child in the
child's community.
(18) Program attendance means the actual presence and participation
in the program of a child enrolled in an Early Head Start or Head Start
program.
(19) Referral means directing an Early Head Start or Head Start
child or family member(s) to an appropriate source or resource for
help, treatment or information.
(20) Staff means paid adults who have responsibilities related to
children and their families who are enrolled in Early Head Start or
Head Start programs.
(21) Staff caregiver means an adult who has direct responsibility
for the care and development of children from birth to 3 years of age
in a center-based setting.
(22) Teacher means an adult who has direct responsibility for the
care and development of children aged 3 to 5 years in a center-based
setting.
(23) Toddler means a child from 13 through 36 months of age.
(24) Volunteer means an unpaid person 16 years of age or older who
is trained to assist in implementing ongoing program activities under
the supervision of a staff person in areas such as health, education,
transportation, nutrition, and management.
(b) In addition to the definitions in this section, the definitions
as set forth in 45 CFR 1301.2, 1302.2, 1303.2, 1305.2, 1306.3, and
1308.3 also apply, as used in this part.
Subpart B--Early Childhood Development and Health Services
Sec. 1304.20 Child health and developmental assessment.
(a) Initial assessment process. (1) Grantee and delegate agencies
must gather and record, to the greatest extent possible, all relevant
historical information on each enrolled child's physical health and
emotional and cognitive development as early in the program year as
possible. Within 90 calendar days from the child's enrollment in the
program (with the exception noted in paragraph (a)(3) of this section,
they must assure that this current history of preventive care and
immunizations has been reviewed by a qualified health professional who
has determined whether the child is up-to-date according to established
schedules which incorporate the latest recommendations of the Centers
for Disease Control and Prevention's Advisory Committee on Immunization
Practices and the requirements for a schedule of well child care
employed by the Early and Periodic Screening, Diagnosis, and Treatment
(EPSDT) program for the State in which they operate.
(2) Grantee and delegate agencies must work collaboratively, with
the parents of each child whose preventive
[[Page 17778]]
care is determined not to be up-to-date with these established
schedules, to secure the specific tests, examinations, and assessments
recommended by the health care professional(s), and assist them in
obtaining needed immunizations. A follow-up plan to bring the child up-
to-date, as quickly as possible, but no later than 90 calendar days
from the child's enrollment in the program (with the exception noted in
paragraph (a)(3) of this section), must be implemented.
(3) Grantee and delegate agencies operating programs of shorter
durations (90 days or less) must gather the historical health
information and must assure that this current history of preventive
care and immunizations has been reviewed by a qualified health
professional(s) to determine the child's status on the established
schedules (referenced in 45 CFR 1304.21(a)(1)) no later than 30
calendar days after the child enrolls in the program. For any children
determined not to be up-to-date, these programs must implement a
follow-up plan to bring them up-to-date, as quickly as possible, but no
later than 30 calendar days after the child's enrollment in the
program.
(b) Parent involvement in the assessment and treatment processes.
In conducting the assessment process, as described in paragraph (a) of
this section, and in making all possible efforts to ensure that each
child receives appropriate health assessment, care and treatment,
grantee and delegate agencies must: (1) Inform parents immediately when
child health or developmental problems are suspected or identified;
(2) Familiarize parents with the use of and rationale for all
health-related procedures administered through the program or by
contract or agreement, and obtain advance parent or guardian
authorization for such procedures. Grantee and delegate agencies must
document when parental authorization for such procedures is denied.
Grantee and delegate agencies also must ensure that the results of
diagnostic and treatment procedures and ongoing assessments are shared
with and understood by the parents; and
(3) Inform the parents on how to familiarize their children in a
developmentally appropriate way and in advance about all of the
procedures they will receive while enrolled in the program.
(c) Medical and dental health assessment. Grantee and delegate
agencies must assure that medical and dental health assessments are
conducted by licensed and qualified professionals. These assessments
must include, as age appropriate:
(1) Measures for head circumference; height, weight, and blood
pressure; procedures including lead screening and urinalysis;
hereditary/metabolic screening; hematocrit or hemoglobin screening;
tuberculosis screenings; hearing and vision screenings; and physical
and dental examinations, as prescribed in professionally established
schedules of preventive care (i.e., the EPSDT schedule) cited in
Sec. 1304.20 (a)(1) of this part;
(2) Assessment of current immunization status as prescribed in the
professionally established schedules of immunizations cited in
Sec. 1304.20(a)(2) of this part; and
(3) Selected medical and developmental tests appropriate to the
community, population, and age group and the prevalent health problems
identified.
(d) Developmental and behavioral assessment. (1) Grantee and
delegate agencies must perform linguistically and age appropriate
developmental and behavioral assessments, that are also sensitive to
the child's culture, to the greatest extent possible, for each child as
prescribed in professionally established schedules of preventive care
cited in Sec. 1304.20 of (a)(2) of this part, including the assessment
of motor, language, social, cognitive, perceptual, and emotional
skills.
(2) Grantee and delegate agencies must obtain direct guidance from
the mental health professional on how to select and perform procedures
that assess the developmental and behavioral needs of children,
including guidance on how to use assessment findings to address
identified needs.
(3) The assessments must tap multiple sources of information on all
aspects of each child's development and behavior, including input from
family members, teachers, and other relevant staff who are familiar
with the child's typical behavior.
(e) Ongoing assessment. In addition to the periodic assessments
conducted by health professionals according to the schedule of well
child care described in Sec. 1304.20(a)(1) of this part, grantees and
delegate agencies must implement ongoing assessment procedures by which
Head Start and Early Head Start staff can identify any new or
reoccurring health or developmental concerns so that they may quickly
make appropriate referrals for further professional assessment. At a
minimum, ongoing assessment procedures include: periodic observations
and recordings, as appropriate, of individual children's developmental
progress, changes in physical appearance (e.g., signs of injury or
illness) and emotional and behavioral patterns. In addition, ongoing
assessments must include the periodic use of parental, staff, and
mental health consultant observations about each child.
(f) Individualization of the program. (1) Grantee and delegate
agencies must use the information from the health and developmental
assessments, the ongoing assessments, medical evaluations and
treatments, and insights from the child's parents to help staff and
parents determine how the program can best respond to each child's
individual characteristics, strengths and needs.
(2) In cases where an Individual Family Service Plan (IFSP) has not
already been developed for enrolled infants and toddlers with
disabilities, grantee and delegate agencies must develop such a plan in
accordance with part H of the Individuals with Disabilities Education
Act (IDEA).
Sec. 1304.21 Education and early childhood development.
(a) Child development and education approach for all children. (1)
In order to help children gain the skills and confidence necessary to
be prepared to succeed in their present environment and with later
responsibilities in school and life, grantee and delegate agencies'
approach to child development and education must:
(i) Be developmentally and linguistically appropriate, recognizing
that children have individual preferences and individual patterns of
development as well as different ability levels, cultures, ages, and
learning styles;
(ii) Provide an environment of acceptance that supports and
respects each child's gender, culture, language, and ethnicity; and
(iii) In center-based settings, provide a balanced daily program of
staff-directed and child-initiated activities, including individual and
small group activities.
(2) Parents must be:
(i) Invited to become integrally involved in the development of the
program's curriculum and approach to child development and education;
and
(ii) Provided opportunities to increase their child observation
skills and to share assessments with staff that will help plan the
learning experiences.
(3) Grantee and delegate agencies must support social and emotional
development by:
(i) Encouraging development which enhances each child's strengths
by:
(A) Building trust;
(B) Fostering independence;
(C) Setting consistent limits and realistic expectations;
[[Page 17779]]
(D) Encouraging respect for the feelings and rights of others; and
(E) Supporting and respecting the home language and culture of each
child in ways that support the child's health and well-being.
(ii) Allowing routines and transitions to occur in a timely,
predictable and unrushed manner according to each child's needs.
(4) Grantee and delegate agencies must provide for the development
of each child's cognitive and language skills by:
(i) Supporting each child's learning, using various strategies,
including experimentation, inquiry, observation, play and exploration;
(ii) Providing opportunities for creative self-expression through
activities such as art, music, movement, and dialogue;
(iii) Promoting interaction and language use among children and
between children and adults; and
(iv) Supporting emerging literacy and numeracy development through
materials and activities according to the developmental level of each
child.
(5) In center-based settings, grantee and delegate agencies must
promote each child's physical growth by:
(i) Providing sufficient time, indoor and outdoor space, equipment,
materials and adult guidance for active play or movement that support
the development of large muscle skills;
(ii) Providing appropriate time, space, equipment, materials and
adult guidance for the development of small-motor skills according to
each child's developmental level; and
(iii) Providing an appropriate environment and adult guidance for
the participation of children with special needs.
(b) Child development and education approach for infants and
toddlers. (1) Grantee and delegate agencies must provide an environment
for infants and toddlers which encourages:
(i) The development of secure relationships in out-of-home care
settings for infants and toddlers by having a limited number of
consistent caregivers over as extended a period of time as possible.
Staff caregivers must be able to understand the child's family's
culture and, whenever possible, speak the child's language;
(ii) Trust and emotional security so that each child can explore
the environment according to his or her developmental level; and
(iii) Opportunities for each child to explore a variety of sensory
and motor experiences with support and stimulation from staff
caregivers or family members.
(2) Grantee and delegate agencies must support the social and
emotional development of infants and toddlers by providing an
environment that:
(i) Encourages the development of self-knowledge, self-awareness,
autonomy, and self-expression; and
(ii) Supports the emerging communication skills of infants and
toddlers by providing daily opportunities for each child to listen and
express himself or herself freely.
(3) Grantee and delegate agencies must provide an environment that
promotes the physical development of infants and toddlers by:
(i) Providing opportunities for small-motor development that
encourage the control and coordination of small, specialized motions,
using the eyes, mouth, hands, and feet;
(ii) Supporting the development of the new-found physical skills of
infants and toddlers such as grasping, pulling, pushing, crawling,
walking, and climbing; and
(iii) Allowing and enabling children to independently use toilet
facilities when it is developmentally appropriate and when efforts to
encourage toilet training are supported by the parents.
(c) Child development and education approach for preschoolers. (1)
Grantee and delegate agencies, in collaboration with the parents, must
develop or select a curriculum that is adapted for each group and
applied consistently in the program and that:
(i) Supports each child's individual pattern of development and
learning;
(ii) Provides for the development of cognitive skills by
encouraging each child to organize his or her experiences, to
understand concepts, and to develop age appropriate literacy, numeracy,
reasoning, problem solving and decision-making skills, which form a
foundation for school readiness and later school success.
(iii) Integrates all educational aspects of the health, nutrition,
and mental health services into program activities;
(iv) Ensures that the program environment helps children develop
emotional security and facility in social relationships;
(v) Enhances each child's understanding of self as an individual
and as a member of a group;
(vi) Provides each child with opportunities for success to help
develop feelings of competence, self-esteem, and positive attitudes
toward learning; and
(vii) Provides individual, small group and large group activities
both indoors and outdoors.
(2) Staff must use a variety of strategies to promote and support
children's learning and developmental progress based on the assessment
of each child's individual strengths and needs.
Sec. 1304.22 Child health and safety.
(a) Medical and dental follow-up and treatment. (1) In
collaboration with the parents, to the greatest extent possible,
efforts must be made to obtain or arrange further diagnostic testing,
examinations, and treatment for each child with an observable or known
health or developmental problem, or one made suspect by the diagnostic
procedures performed in accordance with Sec. 1304.20(a)(1) of this
part, from an appropriate licensed or certified professional as early
in the program year as possible, unless the agency can document that
parental authorization for such services was denied. (See 45 CFR
1304.20(b) for additional standards on parent involvement.)
(2) For each enrolled child, medical follow-up and treatment must
include:
(i) Further examination, diagnostic testing and treatment if
necessary, of all concerns that are identified either during or
subsequent to the assessment process;
(ii) The identification and treatment, if appropriate, of any
underlying sensory or physical bases for any developmental problems
observed; and
(iii) Assistance to the parents as needed to learn how to obtain
any necessary prescription medications.
(3) For each enrolled child, dental follow-up and treatment must
include:
(i) Fluoride supplements and topical fluoride treatments as
recommended by dental professionals in communities where a lack of
adequate fluoride levels has been determined or for every child with
moderate to severe dental bone or tooth decay;
(ii) Other necessary preventive measures, such as dental sealants
and further dental treatment, as recommended by the dental
professional; and
(iii) Assistance to the parents as needed to learn how to obtain
any necessary prescriptions.
(4) Grantee and delegate agencies must provide or arrange for any
medical related services in accordance with the Individual Education
plan required under 45 CFR 1308.4, for each child with disabilities
that enable his or her optimal participation in the Early Head Start
and Head Start programs.
(5) Early Head Start and Head Start funds may be used for
professional medical and dental assessments and treatment only when no
other source of funding is available. When Early Head Start or Head
Start funds are used for
[[Page 17780]]
such services, there must be written documentation of the lack of
available funds from other sources.
(b) Health emergency procedures. Grantee and delegate agencies
operating center-based programs must establish and implement policies
and procedures to respond to medical and dental health emergencies,
with which all staff are familiar and trained. At a minimum, these
policies and procedures must include:
(1) Posted policies and plans of action for emergencies that
require rapid response on the part of staff (e.g., a child choking) or
immediate medical attention;
(2) Posted locations and telephone numbers of emergency care
facilities and providers. Up-to-date family contact information and
authorization for emergency care for each child and staff member must
be readily available;
(3) Posted emergency evacuation routes and other safety procedures
for emergencies (e.g., fire or weather-related) (See 45 CFR 1304.53 for
additional information);
(4) Methods of notifying parents in the event of an emergency
involving their child; and
(5) Established methods for handling cases of suspected or known
child abuse and neglect that are in compliance with applicable State
laws.
(c) Conditions of short-term exclusion and admittance. (1) Grantee
and delegate agencies must not deny program admission to or exclude any
child from program attendance solely on the basis of his or her health
care needs or medication requirements.
(2) Grantee and delegate agencies must exclude an ill, injured, or
contagious child from program participation in center-based activities
if:
(i) The child's illness, injury or contagious condition prevents
the child from participating in routine activities;
(ii) The illness, injury or contagious condition requires more care
than the program staff are able to provide without compromising the
needs of the other children in the group; and
(iii) Keeping the child in care poses a significant risk to health
or safety of the child and/or anyone in contact with the child.
(3) With regard to the implementation of paragraphs (c)(2) (i),
(ii), and (iii) of this section a child must not be excluded if the
program is able to make reasonable modifications in its policies,
practices and procedures or to provide appropriate auxiliary aids or
services which would enable the child to participate without
fundamentally altering the nature of the program. A child must not be
excluded if the program is able to eliminate the significant risk to
health or safety posed by the child's illness, injury or contagious
condition or to reduce the risk to an acceptable level.
(4) Policies and procedures regarding the short-term exclusion of
children with illnesses must be consistent with current professionally
established guidelines on short-term exclusion and readmittance (e.g.,
the U.S. Public Health Services's National Health and Safety
Performance Standards; Health Resources and Services Administration/
Maternal and Child Health Bureau). Agencies may not exclude a child
when his or her readmittance has been approved by a physician, local
health officer, or licensed nurse practitioner. Conditions of
readmittance for infectious diseases are under the control of the
State/local health department. When a child is excluded, the child's
parents or other authorized person must be notified immediately and
asked to take the child home.
(5) Grantee and delegate agencies must request parents to inform
them of any health risks their child may pose that require special
health or safety precautions. Programs must share information regarding
the health condition of a child with appropriate program staff, as
necessary, to allow for proper precautions in accordance with the
program's confidentiality policy.
(d) Medication administration. Grantee and delegate agencies must
establish and maintain written procedures regarding the administration,
handling, and storage of medication for every child (except when the
Head Start grantee or delegate is a school and as such is legally
prohibited from administering prescription medication), that include:
(1) Labeling and storing, under lock and key, and refrigerating, if
necessary, all medications, including those required for staff and
volunteers;
(2) Designating a staff member(s) or school nurse to administer,
handle and store child medications, including prescription and over-
the-counter drugs;
(3) Obtaining physicians' instructions and written parent or
guardian authorizations for all medications administered by staff;
(4) Maintaining an individual record of all medications dispensed,
and reviewing the record regularly with the child's parents;
(5) Recording changes in a child's behavior that have implications
for drug dosage or type, and sharing this information with the staff,
parents, and physicians; and
(6) Training appropriate staff members in proper techniques for
administering, handling, and storing medication, including the use of
any necessary equipment to administer medication.
(e) Injury prevention. Grantee and delegate agencies must foster an
awareness of safety concerns and safety practices among staff,
volunteers, children, and parents by incorporating safety awareness in
child and parent education activities.
(f) Hygiene. (1) Staff, volunteers, and children must wash their
hands with soap and running water at least at the following times:
(i) After diapering or toilet use;
(ii) Before food preparation, handling, consumption, or any other
food-related activity (e.g., setting the table);
(iii) Whenever hands are contaminated with blood or other bodily
fluids; and
(iv) After handling pets or other animals.
(2) Staff and volunteers must also wash their hands with soap and
running water:
(i) Before and after giving medications;
(ii) Before and after treating or bandaging a wound (nonporous
gloves should be worn if there is contact with blood or blood-
containing body fluids); and
(iii) After assisting a child with toilet use.
(3) Nonporous (e.g., latex) gloves must be worn by staff when they
are in contact with spills of blood or other bodily fluids.
(4) Spills of bodily fluids (e.g., urine, feces, blood, saliva,
nasal discharge, eye discharge or any fluid discharge) must be cleaned
and disinfected immediately in keeping with professionally established
guidelines (e.g., standards of the Occupational Safety Health
Administration, U.S. Department of Labor). Any tools and equipment used
to clean spills of bodily fluids must be cleaned and disinfected
immediately. Other blood-contaminated materials must be disposed of in
a plastic bag with a secure tie.
(5) Grantee and delegate agencies must adopt sanitation and hygiene
procedures for diapering that adequately protect the health and safety
of children served by the program and staff. Grantee and delegate
agencies also must ensure that relevant staff are trained to conduct
these procedures properly.
(6) Potties that are utilized in a center-based program must be
emptied into the toilet and cleaned and disinfected after each use in a
utility sink used for this purpose.
[[Page 17781]]
(7) Grantee and delegate agencies operating programs for infants
and toddlers must space cribs and cots at least three feet apart to
avoid spreading contagious illness.
(g) First aid kits. (1) Readily available, well-supplied first aid
kits appropriate for the ages and the program size served must be
maintained at each facility and available on outings away from the
site. Each kit must be accessible to staff members at all times, but
must be kept out of the reach of children.
(2) First aid kits must be restocked after use, and an inventory
must be conducted at regular intervals.
Sec. 1304.23 Child nutrition.
(a) Nutritional assessment. Staff and families must work together
to identify each child's nutritional needs, taking into account staff
and family discussions concerning:
(1) The nutrition-related assessment data (height, weight,
hemoglobin/hematocrit) obtained for each child as described in 45 CFR
1304.20(a);
(2) Information about family eating patterns, including cultural
preferences, special dietary requirements for each child with
nutrition-related health problems, and the feeding requirements of
infants and toddlers and each child with disabilities;
(3) For infants and toddlers, current feeding schedules, and
amounts and types of food provided, including whether breast milk or
formula and baby food is used; meal patterns; new foods introduced;
food intolerances and preferences; voiding patterns; and observations
related to developmental changes in feeding and nutrition. This
information must be shared with parents and updated regularly; and
(4) Information about major community nutritional issues, as
identified through the Community Needs Assessment and by the local
health department.
(b) Nutritional services. (1) Grantee and delegate agencies must
design and implement a nutrition program that meets the nutritional
needs, feeding requirements, and feeding schedules of each child,
including those with disabilities. Also, the nutrition program must
serve a variety of foods which broaden the child's food experience and
which consider cultural and ethnic preferences.
(i) Each child in a part-day center-based setting must receive
meals and snacks that provide at least \1/3\ of the child's daily
nutritional needs. Each child in a center-based full-day program must
receive snack(s), lunch, and other meals, as appropriate, that provide
\1/2\ to \2/3\ of the child's daily nutritional needs, depending upon
the length of the program day.
(ii) All children in morning center-based settings who have not
received breakfast at the time they arrive at the Early Head Start or
Head Start program must be served a nourishing breakfast;
(iii) Each infant and toddler in center-based settings must receive
food appropriate to his or her nutritional needs, developmental
readiness, and feeding skills, as recommended in the USDA meal pattern
or nutrient standard menu planning requirements outlined in 7 CFR parts
210, 220, and 226;
(iv) For 3- to 5-year-olds in center-based settings, the quantities
and kinds of food served must conform to recommended serving sizes and
minimum standards for meal patterns recommended in the USDA meal
pattern or nutrient standard menu planning requirements outlined in 7
CFR parts 210, 220, and 226;
(v) For 3- to 5-year-olds in center-based settings, foods high in
fat, sugar, and salt must be used sparingly;
(vi) Meal and snack periods in center-based settings must be
appropriately scheduled and adjusted, where necessary, to ensure that
individual needs are met. Infants and young toddlers who need it must
be fed ``on demand'' to the extent possible, or at appropriate
intervals.
(2) Grantee and delegate agencies operating home-based program
options must provide appropriate snacks and meals to each child during
group socialization activities.
(3) Staff must promote effective dental hygiene among children in
conjunction with meals.
(4) Parents and appropriate community agencies must be involved in
planning, implementing, and evaluating the agencies' nutritional
services.
(c) Meal service. Grantee and delegate agencies must ensure that
nutritional services in center-based settings contribute to the
development and socialization of enrolled children by providing that:
(1) A variety of food is served which broadens each child's food
experiences;
(2) Food is not used as punishment or reward, and that each child
is encouraged, but not forced, to eat or taste his or her food;
(3) Sufficient time is allowed for each child to eat;
(4) All toddlers and preschool children and their caregivers,
including volunteers, eat together family style:
(5) Infants are held while being fed and are not laid down to sleep
with a bottle;
(6) Medically based diets or other dietary requirements are
accommodated; and
(7) As developmentally appropriate, opportunity is provided for the
involvement of children in activities related to the preparation and
serving of meals.
(d) Family assistance with nutrition. Parent education activities
must include opportunities to assist individual families with food
preparation and nutritional skills. In the home-based program option,
these opportunities must be provided to parents through group
socialization activities.
(e) Food safety and sanitation. (1) Grantee and delegate agencies
must post evidence of compliance with all applicable Federal, State,
and local food safety and sanitation laws, including those related to
the storage, preparation and service of food and the health of food
handlers. In addition, agencies must contract only with food service
that are properly licensed.
(2) For programs serving infants and toddlers, facilities must be
available for the proper storage and handling of breast milk.
Sec. 1304.24 Child mental health.
(a) Mental health services. (1) Grantee and delegate agencies must
work collaboratively with parents (See 45 CFR 1304.40(f) for issues
related to parent education) by:
(i) Soliciting parental information, observations, and concerns
about their child's mental health;
(ii) Sharing staff observations of their child and discussing and
anticipating with parents their child's behavior and development,
including separation and attachment issues;
(iii) Discussing and identifying with parents appropriate responses
to their child's behaviors;
(iv) Discussing the creation of nurturing, supportive environments
and relationships in the home and at the program;
(v) Helping parents to better understand mental health issues; and
(vi) Supporting parents' participation in any needed mental health
interventions.
(2) Grantee and delegate agencies must secure the services of a
mental health professional on a schedule of sufficient frequency to
enable the timely and effective identification of and intervention in
family and staff concerns about each child's mental health.
(3) Mental health program services must include a regular schedule
of on-site mental health consultation involving the mental health
[[Page 17782]]
professional, program staff, and parents on how to:
(i) Design and implement program practices responsive to the
identified behavioral and mental health concerns of an individual child
or group of children;
(ii) Promote children's mental wellness by providing group and
individual staff and parent education on mental health issues;
(iii) Assist in providing special help for children with atypical
behavior or development; and
(iv) Utilize other community mental health resources, as needed.
Subpart C--Family and Community Partnerships
Sec. 1304.40 Family partnerships.
(a) Assessment and goal setting. (1) Grantee and delegate agencies
must engage in a process of collaborative partnership-building with
parents to establish mutual trust and to identify family goals,
strengths, and necessary services and other supports. This process must
be initiated as early in the program year as possible.
(2) As part of this process, grantee and delegate agencies must
assist parents to develop and implement, throughout the year,
individualized Family Partnership Agreements that describe family
goals, responsibilities, timetables and strategies for achieving these
goals as well as progress in achieving them.
(3) To avoid duplication of effort, or conflict with, any
preexisting family plans developed between other programs and the Head
Start family, the Family Partnership Agreement, staff and parents must
take into account, and build upon as appropriate, information obtained
from the family and other community agencies concerning preexisting
family plans and goals to assist families toward the goal of self-
sufficiency. To the greatest extent possible, grantee and delegate
agencies must coordinate with other agencies and families to support
accomplishment of goals in the preexisting plans.
(4) A variety of opportunities must be created by grantee and
delegate agencies for interaction with parents throughout the year.
(5) Meetings and interactions with families must be respectful of
families' cultural and ethnic backgrounds.
(b) Accessing community services and resources. (1) Grantee and
delegate agencies must work collaboratively with all participating
parents to identify and continually access, either directly or through
referrals, services and resources that are responsive to each family's
interests and goals, including:
(i) Emergency or crisis assistance, including such direct
interventions as the provision of food, housing, clothing, and
transportation;
(ii) Education and other appropriate interventions, including
opportunities for parents to participate in counseling programs or to
receive information on mental health issues that place families at
risk, such as substance abuse, child abuse and neglect, and domestic
violence; and
(iii) Opportunities for continuing education and employment
training and other employment services through formal and informal
networks in the community.
(2) Grantee and delegate agencies must follow-up with each family
to determine whether the kind, quality, and timeliness of the services
received through referrals met the families' expectations and
circumstances.
(c) Services to pregnant women who are enrolled in programs serving
pregnant women, infants, and toddlers. (1) Grantee and delegate
agencies must assist pregnant women to access comprehensive prenatal
and postpartum care, through referrals, immediately after enrollment in
the program. This care must include:
(i) Early and continuing risk assessments, which includes an
assessment of nutritional status as well as nutrition counseling and
food assistance, if necessary;
(ii) Health promotion and treatment, including medical and dental
examinations on a schedule deemed appropriate by the attending health
care providers as early in the pregnancy as possible; and
(iii) Mental health interventions and followup, including substance
abuse prevention and treatment services, as needed.
(2) Grantee and delegate agencies must provide pregnant women and
other family members, as appropriate, with prenatal education on fetal
development (including risks from smoking and alcohol), labor and
delivery, and post-partum recovery (including maternal depression).
(3) Grantee and delegate agencies must provide information on the
benefits of breast feeding to all pregnant and nursing mothers. For
those who choose to breast feed in center-based programs, arrangements
must be provided as necessary.
(d) Parent involvement--general. (1) In addition to involving
parents in program policy-making and operations (see 45 CFR 1304.50),
grantee and delegate agencies must provide parent involvement and
education activities that are responsive to the ongoing and expressed
needs of the parents themselves. Other community agencies should be
encouraged to assist in the planning and implementation of such
programs.
(2) Early Head Start and Head Start settings must be open to
parents during all program hours. Parents must be welcomed as visitors
and encouraged to observe children as often as possible during the
program year and to participate with children in group activities
outside the classroom or home such as children's field trips. However,
the participation of parents in any program activity must be voluntary
and must not be required as a condition of the child's enrollment.
(3) Grantee and delegate agencies must provide parents with
opportunities to participate in the program as employees or volunteers.
(e) Parent involvement in child development and education. (1)
Grantee and delegate agencies must provide opportunities to include
parents in the selection, adaption, and development of the program's
curriculum and approach to child development and education.
(2) Grantee and delegate agencies must provide opportunities for
parents to enhance their parenting skills, knowledge, and understanding
of the educational and developmental needs and activities of their
children and to share concerns about their children with program staff.
See 45 CFR 1304.21 for additional requirements related to parent
involvement.
(3) Grantee and delegate agencies must provide, either directly or
through referrals to other local agencies, opportunities for children
and families to participate in family literacy services by:
(i) Increasing family access to materials, services, and activities
essential to family literacy development; and
(ii) Assisting parents as adult learners to recognize and address
their own literacy goals.
(4) Teachers or staff caregivers in center-based programs must
conduct staff-parent conferences, as needed, but no less than two per
year, to enhance the knowledge and understanding of both staff and
parents of the educational and developmental needs and activities of
children in the program.
(f) Parent involvement in health, nutrition, and mental health
education. (1) Grantee and delegate agencies must provide an organized
medical, dental, nutrition, and mental health education program for
program staff, parents, and families.
(2) Grantee and delegate agencies must ensure that, at a minimum,
the
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medical and dental health education program:
(i) Assists parents in understanding how to enroll and participate
in a system of ongoing family health care.
(ii) Encourages parents to become active partners in their
children's medical and dental health care process and to accompany
their child to medical and dental examinations and appointments; and
(iii) Provides parents with the opportunity to learn the principles
of preventive medical and dental health, emergency first-aid, and
safety practices for use in the classroom and in the home. In addition
to the information on general topics (e.g. the prevention of Sudden
Infant Death Syndrome), information specific to health needs of
individual children must also be made available to the extent possible.
(3) Grantee and delegate agencies must ensure that the nutrition
education program includes, at a minimum:
(i) Nutrition education in the selection and preparation of foods
to meet family needs and in the management of food budgets; and
(ii) Parent discussions with program staff about the nutritional
status of their child.
(4) Grantee and delegate agencies must ensure that the mental
health education program provides, at a minimum (see 45 CFR 1304.24 for
issues related to mental health education):
(i) A variety of group opportunities for parents and program staff
to identify and discuss issues related to child mental health;
(ii) Individual opportunities for parents to discuss mental health
issues related to their child and family with program staff; and
(iii) The active involvement of parents in planning and
implementing any mental health interventions for their children.
(g) Parent involvement in community advocacy. (1) Grantee and
delegate agencies must:
(i) Support and encourage parents to influence the character and
goals of community services in order to make them more responsive to
their interests and needs; and
(ii) Provide the technical and other support, including an existing
comprehensive community resource list, if available, needed to enable
parents to secure, on their own behalf, available assistance from
public and private sources.
(2) Parents must be provided opportunities to work together, and
with other area residents, on activities that they have helped develop
and in which they have expressed an interest.
(h) Parent involvement in transition activities. (1) Grantee and
delegate agencies must assist parents in becoming their children's
advocate as they transition both into Early Head Start or Head Start
from the home or other child care setting, and from Head Start to
elementary school, a Title I Improving America's Schools Act preschool
program, or a child care setting.
(2) Staff must work to prepare parents to become their children's
advocate through transition periods by providing that, at a minimum, a
staff-parent meeting is held toward the end of the child's
participation in the program to enable parents to understand the
child's progress while enrolled at Head Start.
(3) To promote the continued involvement of Head Start parents in
the education and development of their children upon transition to
school, grantee and delegate agencies must:
(i) Provide education and training to parents to prepare them to
exercise their rights and responsibilities concerning the education of
their children in the school setting; and
(ii) Assist parents to communicate with teachers and other school
personnel so that parents can participate in decisions related to their
children's education.
(4) See 45 CFR 1304.41(c) for additional standards related to
children's transition to and from Early Head Start or Head Start.
(i) Parent involvement in home visits. (1) For center-based
programs, grantee and delegate agencies must not require that parents
permit home visits as a condition of the child's participation in Early
Head Start or Head Start. However, every effort must be made to explain
the advantages of home visits to the parents.
(2) In center-based programs, the child's teacher or staff
caregiver must conduct no less than two home visits per year to the
home of each enrolled child, unless the parents expressly forbid such
visits, in accordance with the requirements of 45 CFR 1306.32(b)(8).
(3) Grantee and delegate agencies must schedule home visits
whenever possible to permit the participation of both the enrolled
child and the parents and at times that are most convenient for the
parents or primary caregivers.
(4) In cases where parents whose children are enrolled in the
center-based program option ask that the home visits be conducted
outside the home, or in cases where a visit to the home presents
significant safety hazards for staff, the home visit may take place at
an Early Head Start or Head Start site or at another safe location that
affords privacy.
(5) In addition, grantee and delegate agencies operating home-based
program options must meet the requirements of 45 CFR 1306.33(a)(1)
regarding home visits.
(6) Grantee and delegate agencies serving infants and toddlers must
arrange for health staff to visit each newborn within two weeks after
the infant's birth to ensure the well-being of both the mother and the
child.
Sec. 1304.41 Community partnerships.
(a) Partnerships. (1) Grantee and delegate agencies must take an
active role in community planning to encourage strong communication,
cooperation, and the sharing of information among grantees and their
community partners and to improve the delivery of community services to
children and families. (See 45 CFR 1304.51 for additional planning
requirements.)
(2) Grantee and delegate agencies must take affirmative steps to
establish ongoing collaborative relationships with community
organizations, to promote the access of children and families to
community services that are responsive to their needs, and to ensure
that the Early Head Start and Head Start programs respond to community
needs, including:
(i) Health providers, such as clinics, doctors, dentists, and other
health professionals;
(ii) Mental health providers;
(iii) Nutritional service providers;
(iv) Individuals and agencies that provide services to children
with disabilities and their families. (See 45 CFR 1308.4 for specific
service requirements);
(v) Family preservation and support services;
(vi) Child protective services and any other agency to which child
abuse must be reported under State law;
(vii) Local elementary schools and other educational and cultural
institutions, such as libraries and museums, for both children and
families;
(viii) Providers of child care services; and
(ix) And any other organizations that may provide support and
resources to families.
(3) Grantee and delegate agencies must perform outreach to
encourage volunteers from the community to participate in the Early
Head Start and Head Start programs.
(4) To enable the effective participation of children with
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disabilities and their families, grantee and delegate agencies must
make specific efforts to develop interagency agreements with local
education agencies (LEAs) and other agencies within the grantee's
service area. (See 45 CFR 1308.4 (l) for specific requirements
concerning interagency agreements.)
(b) Advisory committees. Each grantee directly operating an Early
Head Start or Head Start program, and each delegate agency, must
establish and maintain a Health Services Advisory Committee which
includes professionals and volunteers from the community. Grantee and
delegate agencies also must establish and maintain such other service
Advisory Committees as they deem appropriate to address program service
issues such as community partnerships and to help agencies respond to
community needs.
(c) Transition services. (1) Grantee and delegate agencies must
establish and maintain procedures to support successful transitions for
enrolled children and families from previous child care programs into
Early Head Start or Head Start and from Head Start into elementary
school, Title I Improving America's Schools Act preschool programs, or
other child care settings. These procedures must include:
(i) Coordinating with the schools or other agencies to ensure that
individual Early Head Start or Head Start children's relevant records
are transferred to the school or next placement in which a child will
enroll or from earlier placements to Early Head Start or Head Start;
(ii) Outreach to encourage communication between Early Head Start
or Head Start staff and their counterparts in the schools and other
child care settings including principals, teachers, social workers and
health staff to facilitate continuity of programming;
(iii) Initiating meetings involving Head Start teachers and parents
and kindergarten or elementary school teachers to discuss the
developmental progress and abilities of individual children; and
(iv) Initiating joint transition-related training of Early Head
Start or Head Start staff and school or other child development staff.
(2) See 45 CFR 1304.40(h) for additional requirements related to
parental participation in their child's transition to and from Early
Head Start or Head Start.
Subpart D--Program Design and Management
Sec. 1304.50 Program governance.
(a) Policy group structure. (1) Grantee and delegate agencies must
establish and maintain a formal structure of governance through which
parents can participate in policy making and in the operation of the
program. This structure must consist of the following policy groups, as
appropriate:
(i) Policy Council. This Council must be established at the grantee
level.
(ii) Policy Committee. This Committee must be established at the
delegate agency level when the program is administered in whole or in
part by such agencies.
(iii) Parent Committee. For center-based programs, this committee
must be established at the center level. For other program options, an
equivalent committee must be established at the local program level.
(2) All policy groups must be established as early in the program
year as possible and grantee Policy Councils and delegate agency Policy
Committees may not be dissolved until successor Councils or Committees
are elected and seated.
(3) When a grantee has delegated the entire Head Start program to
one delegate agency, it is not necessary to have a Policy Council in
addition to a delegate agency Policy Committee. Instead, the Policy
Council must represent both the grantee and the delegate agency.
(4) The governing body (the group with legal and fiscal
responsibility for administering the Head Start program) and the Policy
Council or Policy Committee must not have identical memberships and
functions.
(b) Policy group composition and formation. (1) Each grantee and
delegate agency governing body operating an Early Head Start or Head
Start program must (except where such authority is ceded to the Policy
Council or Policy Committee) propose, within the framework of the
regulations in this part, the total size of their respective policy
groups (based on the number of centers, classrooms, and children served
by their Early Head Start or Head Start program), the procedures for
the election of parent members, and the procedure for the selection of
community representatives. These proposals must be approved by the
Policy Council or Committee.
(2) Policy Councils and Policy Committees must be comprised of two
types of representatives: parents of currently enrolled children and
community representatives. At least 51 percent of the members of these
policy groups must be the parents of currently enrolled children.
(3) All parents of currently enrolled children serving on policy
groups must stand for election or re-election annually.
(4) Community representatives must be drawn from the local
community and from local public or private community, civic, and
professional organizations that have a concern for and provide
resources and services to low-income children and families. Community
representatives may include the parents of formerly enrolled children.
(5) Policy Councils and Policy Committees may limit the number of
terms any individual may serve on either body.
(6) Early Head Start or Head Start staff members and grantee and
delegate agency managers with responsibility for the Early Head Start
or Head Start program (or members of their families) may not serve on
Policy Councils or Policy Committees.
(7) Parent Committees must be comprised exclusively of parents of
children currently enrolled at the center level (for center-based
programs) or at the equivalent level (for other program options).
(8) Parents of children currently enrolled in all program options
must be adequately represented on established policy groups.
(c) Policy group responsibilities--general. Policy groups must be
charged with the minimum responsibilities described in paragraphs (d)
and (e) of this section and repeated in Appendix A of this section.
(d) The policy council or policy committee. (1) Policy Councils and
Policy Committees must help to develop, review, and approve or
disapprove the following policies and procedures:
(i) Applications and amendments to applications for Early Head
Start and Head Start funding, including indirect cost rates, program
budgets, and operational plans, prior to the submission of such
applications to the grantee (in the case of Policy Committees) or to
HHS (in the case of Policy Councils);
(ii) Procedures describing how the governing body and the
appropriate policy group will implement shared decision-making;
(iii) Procedures for program planning in accordance with this part
and the requirements of 45 CFR part 1305 (this paragraph (d)(1)(iii) is
binding on Policy Councils exclusively);
[[Page 17785]]
(iv) The agency's program philosophy and long- and short-range
program objectives;
(v) The selection of delegate agencies and their service areas
(this paragraph (d)(1)(v) is binding on Policy Councils exclusively);
(vi) The composition of the Policy Council or the Policy Committee
and the procedures by which policy group members are chosen;
(vii) Criteria for defining recruitment, selection, and enrollment
priorities, in accordance with the requirements of 45 CFR part 1305;
(viii) Procedures for the annual self-assessment of the grantee or
delegate agency's progress in carrying out the programmatic and fiscal
intent of its grant application, including any planning actions that
may result from the review of the annual audit and the Federal
performance monitoring review;
(ix) Program personnel policies and subsequent changes to those
policies, in accordance with 45 CFR 1301.31(a), including standards of
conduct for program staff, consultants, and volunteers; and
(x) Decisions to hire and terminate any person paid from Early Head
Start or Head Start funds, including the Early Head Start
FR Doc. 96-9358 Head Start Program
or Head Start
director.
(2) In addition, Policy Councils and Policy Committees must perform
the following functions directly:
(i) Serve as a link to the Parent Committees, grantee and delegate
agency governing bodies, public and private organizations, and the
communities they serve;
(ii) Assist Parent Committees in communicating with parents
enrolled in all program options to ensure that they understand their
rights and opportunities in Early Head Start and Head Start and to
encourage their participation in the program;
(iii) Assist Parent Committees in planning, coordinating, and
organizing program activities for parents with the assistance of staff,
and ensuring that funds set aside from program budgets are used to
support parent activities;
(iv) Assist in recruiting volunteer services from parents,
community residents, and community organizations, and assist in the
mobilization of community resources to meet identified needs; and
(v) Establish and maintain procedures for hearing and working with
the grantee or delegate agency to resolve community complaints about
the program.
(e) Parent committee. The Parent Committee shall carry out at least
the following minimum responsibilities:
(1) Advise staff in developing and implementing local program
policies, activities, and services;
(2) Plan, conduct, and participate in informal as well as formal
programs and activities for parents and staff; and
(3) Within the guidelines established by the Governing Board,
Policy Council, or Policy Committee, participate in the recruitment and
screening of Early Head Start and Head Start employees.
(f) Policy group reimbursement. Grantee and delegate agencies must
enable low-income policy group members to participate fully in their
policy group responsibilities by providing, if necessary,
reimbursements for reasonable expenses incurred by the members in
fulfillment of their responsibilities.
(g) Governing body responsibilities. Grantee and delegate agencies
must have written policies that define the roles and responsibilities
of the governing body members and that inform them of the management
procedures and functions necessary to implement a high quality program.
(h) Internal dispute resolution. Each grantee and delegate agency
and Policy Council or Policy Committee jointly must establish written
procedures for resolving internal disputes, including impasse
procedures, among the governing body, policy groups, the Early Head
Start or Head Start director and executive director of the agency, and
staff.
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Sec. 1304.51 Management systems and procedures.
(a) Program planning. (1) Grantee and delegate agencies must
develop and implement a systematic, ongoing process of program planning
that includes consultation with the program's governing body, policy
groups, and program staff, and with other community organizations that
serve Early Head Start and Head Start or other low-income families with
young children. Program planning must include:
(i) An assessment of community strengths, needs and resources
through completion of the Community Needs Assessment, in accordance
with the requirements of 45 CFR part 1305;
(ii) The formulation of both multi-year (``long-range'') program
goals and short-term program and financial objectives that address the
findings of the Community Needs Assessment, are consistent with the
philosophy of Early Head Start and Head Start, and reflect the findings
of the program's annual self-assessment; and
(iii) The development of written plans for implementing services in
each of the program areas covered by this part (e.g., Early Childhood
Development and Health Services, Family and Community Partnerships, and
Program Design and Management).
(2) All program plans, and progress in meeting them, must be
reviewed by the grantee or delegate agency staff and reviewed and
approved by the Policy Council or Policy Committee at least annually,
and must be revised and updated as needed.
(b) Communications--general. Grantee and delegate agencies must
establish and implement systems to ensure that timely and accurate
information is provided to parents, policy groups, staff, and the
general community.
(c) Communication with families. (1) Grantee and delegate agencies
must ensure that effective two-way comprehensive communications between
staff and parents are carried out on a regular basis throughout the
program year.
(2) Communication with parents must be carried out in the parents'
primary language or through an interpreter, to the extent feasible.
(d) Communication with governing bodies and policy groups. Grantee
and delegate agency communication systems must ensure that the
following information is provided regularly to the grantee and delegate
governing bodies and to members of the policy groups:
(1) Procedures and timetables for program planning;
(2) Policies, guidelines, and other communications from HHS;
(3) Program and financial reports; and
(4) Program plans, policies, procedures, and Early Head Start and
Head Start grant applications.
(e) Communication among staff. Programs must have mechanisms for
regular communication among all program staff to facilitate quality
outcomes for children and families.
(f) Communication with delegate agencies. Grantees must have a
procedure for ensuring that delegate agency governing bodies, Policy
Committees, and all staff receive all regulations, policies, and other
pertinent communications in a timely manner.
(g) Record-keeping systems. Grantee and delegate agencies must
establish and maintain efficient and effective record-keeping systems
to provide accurate and timely information regarding children,
families, and staff.
(h) Reporting systems. Grantee and delegate agencies must establish
and maintain efficient and effective reporting systems that:
(1) Generate periodic reports of financial status and program
operations in order to control program quality, maintain program
accountability, and advise governing bodies, policy groups, and staff
of program progress; and
(2) Generate official reports for Federal, State, and local
authorities, as required by applicable law.
(i) Program self-assessment and monitoring. (1) At least once each
program year, and with the consultation and participation of the policy
groups, grantee and delegate agencies must conduct a self-assessment of
their effectiveness and progress in meeting program goals and
objectives in consultation with other community agencies.
(2) Grantees must establish and implement procedures for the
periodic monitoring of the Early Head Start and Head Start operations
of each of its delegate agencies and their compliance with Federal
regulations.
(3) Grantees must inform delegate agency governing bodies of any
deficiencies in delegate agency operations identified in the monitoring
review and must help them develop plans, including timetables, for
addressing identified problems.
Sec. 1304.52 Human resources management.
(a) Organizational structure. (1) Grantee and delegate agencies
must establish and maintain an organizational structure that supports
the accomplishment of program objectives. This structure must address
the major roles and responsibilities assigned to each staff position
and must provide evidence of adequate mechanisms for staff supervision
and support.
(2) At a minimum, grantee and delegate agencies must ensure that
the following program management roles are formally assigned to and
adopted by staff within the program:
(i) Program management (the Early Head Start or Head Start
director);
(ii) Management of early childhood development and health services,
including child development and education; child medical, dental, and
mental health; child nutrition; and, services for children with
disabilities; and
(iii) Management of family and community partnerships, including
parent activities.
(b) Staff qualifications--general. (1) Grantee and delegate
agencies must ensure that staff have the knowledge, skills, and
experience they need to perform their assigned roles and functions
responsibly.
(2) In addition, grantee and delegate agencies must ensure that
only candidates with the qualifications specified in this Part and in
45 CFR 1306.21 are hired for the following positions:
(i) Managers, supervisors, and fiscal officer;
(ii) Classroom teachers;
(iii)Infant and toddler staff caregivers;
(iv) Home visitors;
(v) Health staff;
(vi) Mental health professionals; and
(vii) Nutritionists or dieticians.
(3) Current and former Head Start parents must receive preference
for employment vacancies if they are well qualified.
(4) Staff and program consultants must be familiar with the ethnic
background and heritage of families in the program and must be able to
serve and effectively communicate, to the extent feasible, with
children and families with no or limited English proficiency .
(c) Management staff qualifications. (1) The Early Head Start or
Head Start director must have training and experience relevant to early
childhood or human services program management.
(2) Grantee and delegate agencies must secure the regularly
scheduled or ongoing services of a qualified fiscal officer with
Certified Public Accountant (CPA) or other appropriate credentials.
(3) In addition to meeting the minimum qualifications for classroom
teachers, as specified in section 648A of the Head Start Act staff
managing education services must have training
[[Page 17789]]
and experience in areas that include: the theories and principles of
child growth and development, early childhood education, and family
support.
(4) Health services must be managed by staff with training and
experience in public health, nursing, health education, prenatal and
postpartum care, or health administration.
(5) Nutrition services must be managed by a certified or licensed,
full-time staff nutritionist or dietician. Alternatively, nutrition
services must be supervised on a regularly scheduled basis by such a
qualified nutritionist or dietitian.
(6) Family and community partnership services must be managed by
staff with training and experience in field(s) related to social,
human, or family services.
(7) Parent involvement services must be managed by staff with
training, experience, and skills in assisting the parents of young
children in advocating and decision-making for their families.
(8) Disability services must be managed by staff with training and
experience in securing and individualizing needed services for children
with disabilities.
(d) Mental health professional qualifications. A licensed or
certified mental health professional with experience and expertise in
serving young children and their families must provide services to the
Early Head Start and Head Start programs on a regularly scheduled
basis.
(e) Health staff qualifications. To the extent that health staff
are performing health screenings, immunizations, or other health
procedures for children, they must have appropriate professional
licenses or certification to perform those procedures.
(f) Infant and toddler staff qualifications. Staff working with
infants and toddlers must have the training and experience necessary to
develop consistent, stable, and supportive relationships with very
young children. Head Start programs must comply with section 648A of
the Head Start Act and any subsequent amendments regarding the
qualifications of caregivers. The training must develop knowledge of
infant and toddler development, safety issues in infant and toddler
care (e.g., reducing the risk of Sudden Infant Death Syndrome), and
methods for communicating effectively with infants and toddlers, their
parents, and other staff members.
(g) Standards of conduct. (1) Grantee and delegate agencies must
ensure that all staff, consultants, and volunteers abide by the
program's standards of conduct. These standards must specify that:
(i) They will respect and promote the unique identity of each child
and family and refrain from stereotyping on the basis of gender, race,
ethnicity, culture, religion, or disability;
(ii) They will follow program confidentiality policies concerning
information about children, families, and other staff members;
(iii) No child will be left alone or unsupervised while under their
care; and
(iv) They will use positive methods of child guidance and will not
engage in corporal punishment, emotional or physical abuse, or
humiliation. In addition, they will not employ methods of discipline
that involve isolation, the use of food as punishment or reward, or the
denial of basic needs.
(2) Grantee and delegate agencies must ensure that all employees
engaged in the award and administration of contracts or other financial
awards sign statements that they will not solicit or accept personal
gratuities, favors, or anything of significant monetary value from
contractors or potential contractors.
(3) Personnel policies and procedures must include provision for
appropriate penalties for violating the standards of conduct.
(h) Staff performance appraisals. Grantee and delegate agencies
must perform annual performance reviews of each Head Start staff member
and use the results of these reviews to identify staff training and
professional development needs, modify staff performance agreements, as
necessary, and assist each staff member in improving his or her skills
and professional competencies.
(i) Staff and volunteer health. (1) Grantee and delegate agencies
must assure that each staff member has an initial health examination
and a periodic re-examination (as recommended by their health care
provider or as mandated by State or local laws) so as to assure that
they do not, because of communicable diseases, pose a significant risk
to the health or safety of others in the Head Start program that cannot
be eliminated or reduced by reasonable accommodation. This requirement
must be implemented consistent with the requirements of the Americans
with Disabilities Act and Section 504 of the Rehabilitation Act.
(2) Volunteers must be screened for tuberculosis before beginning
service that involves contact with children.
(3) Grantee and delegate agencies must assist staff with mental
health and wellness concerns that may affect their job performance.
(j) Staffing patterns. (1) Grantee and delegate agencies must meet
the requirements of 45 CFR 1306.20 regarding program staffing patterns.
(2) When a majority of children speak the same language, at least
one teacher or paid aide interacting regularly with the children must
speak their language.
(3) For center-based programs, the class size requirements
specified in 45 CFR 1306.32 must be maintained through the provision of
substitutes when regular classroom staff are absent.
(4) Grantee and delegate agencies must ensure that each staff
caregiver working exclusively with infants and toddlers has
responsibility for no more than four infants and toddlers and that no
more than eight infants and toddlers are placed in any one room.
(5) Grantees and delegate agencies serving infants and toddlers as
well as preschoolers must ensure that each staff member has
responsibility for no more than six children, of which no more than two
may be infants or toddlers.
(6) Staff must supervise the outdoor and indoor play areas in such
a way that children's safety can be easily monitored and ensured.
(k) Training and development. (1) Grantee and delegate agencies
must provide an orientation to all new staff, consultants, and
volunteers that includes, at a minimum, the goals and underlying
philosophy of Early Head Start and/or Head Start and the ways in which
they are implemented by the program.
(2) Grantee and delegate agencies must establish and implement a
structured approach to staff training and development, attaching
academic credit whenever possible, for staff and volunteers. This
system should be designed to help build relationships among staff and
to assist staff in acquiring or increasing the knowledge and skills
needed to fulfill their job responsibilities, in accordance with the
requirements of 45 CFR 1306.23.
(3) At a minimum, this system must include an ongoing education
program for relevant staff and volunteers which include, among other
things,:
(i) Methods for identifying and reporting child abuse and neglect
that comply with applicable State and local laws using so far as
possible, a helpful, rather than a punitive attitude toward abusing or
neglecting parents and other care takers; and
(ii) Methods for planning for successful child and family
transitions to and from the Early Head Start or Head Start program.
[[Page 17790]]
(4) Grantee and delegate agencies must provide training to Early
Head Start and Head Start governing body members and to Head Start
Policy Council and Policy Committee members to enable them to carry out
their program governance responsibilities effectively.
Sec. 1304.53 Facilities, materials, and equipment.
(a) Head Start physical environment and facilities. (1) Grantee and
delegate agencies operating center-based programs must provide a
physical environment and facilities conducive to learning and
reflective of the different stages of development of each child.
Grantee and delegate agencies must strive to achieve this environment
in settings for other program options as well.
(2) Grantee and delegate agencies must provide appropriate center
space for the conduct of all program activities. (See 45 CFR 1308.4 for
specific access requirements for children with disabilities.)
(3) The center space provided by grantees and delegate agencies
must be organized into functional areas that can be recognized by the
children and that allow for individual activities and social
interactions.
(4) The indoor and outdoor space in Early Head Start or Head Start
centers used by mobile infants and toddlers must be located away from
general walkways and from areas used by older children.
(5) Centers must have at least 35 square feet of usable indoor
space per child available for the care and use of children (i.e.,
exclusive of bathrooms, halls, kitchen, staff rooms, and storage
places) and at least 75 square feet of usable outdoor play space per
child.
(6) Facilities owned or operated by Early Head Start and Head Start
grantee or delegate agencies must meet the licensing requirements of 45
CFR 1306.30.
(7) Grantee and delegate agencies must provide for the maintenance,
repair, and security of all Early Head Start and Head Start facilities,
materials and equipment.
(8) Grantee and delegate agencies must provide a center-based
environment free of toxins, such as cigarette smoke, pesticides,
herbicides, and other air pollutants as well as soil and water
contaminants. Programs must ensure that no child is present when the
spraying of pesticides or herbicides is conducted.
(9) Outdoor play areas at center-based programs must be arranged so
as to prevent any child from leaving the premises and getting into
unsafe and unsupervised areas. Enroute to play areas, children must not
be exposed to vehicular traffic without supervision.
(10) Grantee and delegate agencies must conduct an annual safety
inspection to ensure that each facility's space, light, ventilation,
heat, and other physical arrangements are consistent with the health,
safety and developmental needs of children. At a minimum, agencies must
ensure that:
(i) In climates where such systems are necessary, there is a safe
and effective heating and cooling system that is insulated to protect
children and staff from potential burns;
(ii) No highly flammable furnishings, decorations, or materials
that emit highly toxic fumes when burned are used;
(iii) Flammable and other dangerous materials and potential poisons
are stored in locked cabinets or storage facilities separate from
stored medications and food and are accessible only to authorized
persons. All medications, including those required for staff and
volunteers, are labeled, stored under lock and key, refrigerated if
necessary, and kept out of the reach of children;
(iv) Rooms are well lit and provide emergency lighting in the case
of power failure;
(v) Approved, working fire extinguishers are readily available;
(vi) An appropriate number of smoke detectors are installed and
tested regularly;
(vii) Exits are clearly visible and evacuation routes are clearly
marked and posted so that the path to safety outside is unmistakable.
(See 45 CFR 1304.22 for additional emergency procedures);
(viii) Indoor and outdoor premises are cleaned daily and kept free
of undesirable and hazardous materials and conditions;
(ix) Paint coatings on both interior and exterior premises used for
the care of children do not contain hazardous quantities of lead;
(x) Electrical outlets accessible to children prevent shock through
the use of child-resistant covers, the installation of child-protection
outlets, or the use of safety plugs;
(xi) Windows and glass doors are constructed, adapted, or adjusted
to prevent injury to children;
(xii) Only sources of water approved by the local or State health
authority are used;
(xiii) Toilets and handwashing facilities are adequate, clean, in
good repair, and easily reached by children. Toileting and diapering
areas must be separated from areas used for cooking, eating, or
children's activities;
(xiv) Toilet training equipment is provided for children being
toilet trained;
(xv) All sewage and liquid waste is disposed of through a locally
approved sewer system, and garbage and trash are is stored in a safe
and sanitary manner; and
(xvi) Adequate provisions are made for children with disabilities
to ensure their safety, comfort, and participation.
(b) Head Start equipment, toys, materials, and furniture. (1)
Grantee and delegate agencies must provide and arrange sufficient
equipment, toys, materials, and furniture to meet the needs and
facilitate the participation of children and adults. Equipment, toys,
materials, and furniture owned or operated by the grantee or delegate
agency must be:
(i) Supportive of the specific educational objectives of the local
program;
(ii) Supportive of the cultural and ethnic backgrounds of the
children;
(iii) Age-appropriate and supportive of the abilities and
developmental needs of each child served, with special consideration
for the needs of children with disabilities;
(iv) Accessible, attractive, and inviting to children;
(v) Designed to provide a variety of learning experiences and to
encourage each child to experiment and explore; and
(vi) Stored in a safe and orderly fashion when not in use.
(2) Infant and toddler toys must be made of non-toxic materials
that can be sanitized.
(3) To reduce the risk of Sudden Infant Death Syndrome (SIDS), all
sleeping arrangements for infants must use firm mattresses and avoid
soft bedding materials such as comforters, pillows, fluffy blankets or
stuffed toys.
Subpart E--Implementation and Enforcement
Sec. 1304.60 Compliance.
(a) Head Start grantee and delegate agencies funded for indefinite
project periods must comply with the requirements of this part in
accordance with the effective dates set forth in 45 CFR 1304.2.
(b) If the responsible HHS official, as a result of information
obtained from a review of a Head Start program, determines a program to
have one or more deficiencies, he or she must notify the grantee
promptly in writing of the finding, identifying the deficiencies which
constitute a violation of the
[[Page 17791]]
minimum requirements, and informing the grantee that it must correct
them either immediately, effective on a specified date or pursuant to
an approved Quality Improvement Plan.
(c) If the responsible HHS official, as a result of information
obtained on the basis of a review of a Head Start program, determines a
program to be out of compliance with the Program Performance Standards,
other requirements of the Head Start regulations, the Act or the terms
and conditions of the grant and further determines that those areas of
non-compliance are not, judged individually or in the aggregate, of the
scope and magnitude that constitute a program deficiency, he or she
must notify the grantee promptly in writing of those areas of non-
compliance and inform the grantee that it has the period stated in the
notice, not to exceed 90 days, to come into compliance.
(d) The Head Start program must certify to the responsible HHS
official at such time that it has remedied the specified areas of non-
compliance, providing whatever documentation is requested by the
responsible HHS official to confirm such compliance.
(e) If the Head Start program cannot satisfactorily document that
it has remedied the specified areas of non-compliance, the non-
compliance will then constitute a deficiency; and the responsible HHS
official shall require the grantee to correct the areas of non-
compliance either immediately, effective on a specific date, or
pursuant to an approved Quality Improvement plan. The Head Start
program shall have no more than one year under a Quality Improvement
plan from the date of the initial notification of the existence of the
areas of deficiency to remedy the deficiency.
Sec. 1304.61 Quality improvement plan.
(a) Upon being designated as a program with one or more
deficiencies to be corrected pursuant to a Quality Improvement Plan,
the Head Start program must submit to the responsible HHS official a
Quality Improvement plan which specifies the actions that the grantee
will take, within a specified period of time, to remedy the
deficiencies identified under Sec. 1304.60.
(b) The responsible HHS official, within 30 days of receipt of the
Quality Improvement Plan, will inform the program, in writing, of the
plan's approval or specify the reasons that the plan is disapproved.
(c) If the Quality Improvement Plan is disapproved, the Head Start
grantee must submit a revised Quality Improvement Plan, making the
changes necessary to address the reasons that the initial plan was
disapproved.
(d) The Quality Improvement Plan must indicate the time frames in
which the grantee will remedy its deficiencies; in no case can this
period of time exceed 12 months from the time the grantee is notified
of its deficiencies.
(e) At such time as has been specified in the approved Quality
Improvement Plan for the correction of all deficiencies, or after such
date fixed for immediate resolution in a letter, if the identified
deficiencies have not been corrected, the responsible HHS official will
issue a letter of termination or denial of refunding under 45 CFR part
1303.
PART 1301--HEAD START GRANTS ADMINISTRATION
2. The authority citation for Part 1301 is revised to read as
follows:
Authority: 42 U.S.C. 9801 et seq.
3. Section 1301.31 is revised to read as follows:
Sec. 1301.31 Personnel policies.
(a) Written policies. Grantees and delegate agencies must establish
and implement written personnel policies for staff, consultants, and
volunteers that are approved by the Policy Council and that are made
available to all grantee and delegate agencies. At a minimum, such
policies must include:
(1) Descriptions of each staff, consultant, and volunteer position,
addressing, as appropriate, roles and responsibilities, relevant
qualifications, salary, and employee benefits. (See 45 CFR 1304.52(b),
Staff qualifications.)
(2) A description of the procedures for recruitment, selection and
termination. (See paragraph (b) of this Section, Staff recruitment and
selection procedures.)
(3) Standards of conduct. (See 45 CFR 1304.52(g), Standards of
conduct.)
(4) Descriptions of methods for providing staff and volunteers with
opportunities for training, development, and advancement. (See 45 CFR
1304.52(k), Training and development.)
(5) A description of the procedures for conducting staff
performance appraisals. (See 45 CFR 1304.52 (h), Staff performance
appraisals.)
(6) Assurances that the program is an equal opportunity employer
and does not discriminate on the basis of gender, race, ethnicity,
religion or disability; and
(7) A description of employee-management relation procedures,
including those for managing employee grievances and adverse actions.
(b) Staff recruitment and selection procedures. (1) Before an
employee is hired, grantee or delegate agencies must conduct:
(i) An interview with the applicant;
(ii) A verification of personal and employment references; and
(iii) A State or national criminal record check, as required by
State law or administrative requirement.
(2) Grantee and delegate agencies must require that all current and
prospective employees and volunteers sign a declaration prior to
employment or volunteer work that lists:
(i) All pending and prior criminal arrests and charges related to
child sexual abuse and their disposition;
(ii) Convictions related to other forms of child abuse and neglect;
and
(iii) All convictions of violent felonies.
(3) Grantee and delegate agencies must review each application for
employment individually in order to assess the relevancy of an arrest,
a pending criminal charge, or a conviction.
(4) Grantee and delegate agencies must perform outreach to
encourage individuals from the community to participate as volunteers
in the Head Start program.
(c) Declaration exclusions. The declaration required by paragraph
(b)(2) of this section may exclude:
(1) Traffic fines of $200.00 or less;
(2) Any offense, other than any offense related to child abuse and/
or child sexual abuse or violent felonies, committed before the
prospective employee's 18th birthday which was finally adjudicated in a
juvenile court or under a youth offender law;
(3) Any conviction the record of which has been expunged under
Federal or State law; and
(4) Any conviction set aside under the Federal Youth Corrections
Act or similar State authority.
(d) Probationary period. The policies governing the recruitment and
selection of staff must provide for a probationary period for all new
employees that allows time to monitor employee performance and to
examine and act on the results of the criminal record checks discussed
in paragraph (b) (1) of this section.
(e) Reporting child abuse or sexual abuse. Grantee and delegate
agencies must develop a plan for responding to suspected or known child
abuse or sexual abuse as defined in 45 CFR 1340.2(d) whether it occurs
inside or outside of the program.
(Approved by the Office of Management and Budget under control
number 0980-0173)
[[Page 17792]]
PART 1303--APPEAL PROCEDURES FOR HEAD START GRANTEES AND CURRENT OR
PROSPECTIVE DELEGATE AGENCIES
3. The authority citation for Part 1303 continues to read as
follows:
Authority: 42 U.S.C. 9801 et seq.
4. Section 1303.14 is amended by revising paragraph (b)
introductory text and paragraph (b)(4) to read as follows:
Sec. 1303.14 Appeal by a grantee from a termination of financial
assistance.
* * * * *
(b) Financial assistance may be terminated for any or all of the
following reasons:
* * * * *
(4) The grantee has in existence one or more deficiencies as
defined in 45 CFR part 1304;
* * * * *
5. Section 1303.15 is amended by revising paragraph (c) to read as
follows:
Sec. 1303.15 Appeal by a grantee from a denial of refunding.
* * * * *
(c) Refunding of a grant may be denied for existence of one or more
deficiencies as defined in 45 CFR part 1304.
PART 1305--ELIGIBILITY, RECRUITMENT, SELECTION, ENROLLMENT AND
ATTENDANCE IN HEAD START
6. The authority citation for Part 1305 continues to read as
follows:
Authority: 42 U.S.C. 9801 et seq.
7. Section 1305.1 is amended by adding a sentence at the end to
read as follows:
Sec. 1305.1 Purpose and scope.
* * * * *
These requirements are to be used in conjunction with the Head
Start Program Performance Standards at 45 CFR part 1304, as applicable.
PART 1306--HEAD START STAFFING REQUIREMENTS AND PROGRAM OPTIONS
8. The authority citation for Part 1306 is revised to read as
follows:
Authority: 42 U.S.C. 9801 et seq.
9. Section 1306.1 is revised to read as follows:
Sec. 1306.1 Purpose and scope.
This part sets forth requirements for Head Start program staffing
and program options that all Head Start grantees, with the exception of
Parent Child Center programs must meet. The exception for Parent Child
Centers is for fiscal years 1995, 1996, and 1997 as consistent with
section 645A(e)(2) of the Head Start Act, as amended. These
requirements including those pertaining to staffing patterns, the
choice of the program options to be implemented and the acceptable
ranges in the implementation of those options, have been developed to
help maintain and improve the quality of Head Start and to help promote
lasting benefits to the children and families being served. These
requirements are to be used in conjunction with the Head Start Program
Performance Standards at 45 CFR part 1304, as applicable.
10. Section 1306.20 is amended by redesignating paragraphs (a)
through (e) as (b) through (f) and adding a new paragraph (a) to read
as follows:
Sec. 1306.20 Program staffing patterns.
(a) Grantees must meet the requirements of 45 CFR 1304.52 (j),
Staffing patterns, in addition to the requirements of this section.
* * * * *
11. Section 1306.21 is revised to read as follows:
Sec. 1306.21 Staff qualification requirements.
Head Start programs must comply with section 648A of the Head Start
Act and any subsequent amendments, regarding the qualifications of
classroom teachers.
12. Section 1306.30 is amended by revising paragraph (c) to read as
follows:
Sec. 1306.30 Provisions of comprehensive child development services.
* * * * *
(c) The facilities used by Head Start grantees for regularly
scheduled center-based and combination program option classroom
activities or home-based group socialization activities must comply
with State and local requirements concerning licensing. In cases where
these licensing standards are less comprehensive or less stringent than
the Head Start regulations, or where no State or local licensing
standards are applicable, grantee and delegate agencies are, at a
minimum, required to assure that their facilities are in compliance
with the Head Start Program Performance Standards related to the safety
of facilities found in 45 CFR 1304.53(a), Physical environment and
facilities.
* * * * *
13. Section 1306.33 is amended by revising paragraph (c)(3) to read
as follows:
Sec. 1306.33 Home-based program option.
* * * * *
(c) * * *
(3) Grantees must follow the nutrition requirements specified in 45
CFR 1304.23(b)(2) and provide appropriate snacks and meals to the
children during group socialization activities.
PART 1308--HEAD START PROGRAM PERFORMANCE STANDARDS ON SERVICES FOR
CHILDREN WITH DISABILITIES
14. The authority citation for Part 1308 continues to read as
follows:
Authority: 42 U.S.C. 9801 et seq.
15. Section 1308.6 is amended by revising paragraph (b)(1) to read
as follows:
Sec. 1308.6 Assessment of children.
* * * * *
(b) * * *
(1) Grantees must provide for health and developmental assessments
of all Head Start children in accordance with the requirements of 45
CFR 1304.20. This does not preclude starting assessment in the spring,
before program services begin in the fall.
* * * * *
[FR Doc. 96-9358 Filed 4-19-96; 8:45 am]
BILLING CODE 4184-01-P
Complete official Federal Register PDF
FR Doc. 96-9347 Medicare and Medicaid Programs; New Payment Methodology for Routine Extended Care Services Provided in a Swing-Bed Hospital
[Federal Register Volume 61, Number 78 (Monday, April 22, 1996)]
[Proposed Rules]
[Pages 17677-17682]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-9347]
=======================================================================
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DEPARTMENT OF HEALTH AND HUMAN SERVICES
Health Care Financing Administration
42 CFR Part 413
[BPD-805-P]
RIN 0938-AG68
Medicare and Medicaid Programs; New Payment Methodology for
Routine Extended Care Services Provided in a Swing-Bed Hospital
AGENCY: Health Care Financing Administration (HCFA), HHS.
ACTION: Proposed Rule.
-----------------------------------------------------------------------
SUMMARY: This proposed rule would revise the regulations governing the
methodology for payment of routine extended care services furnished in
a swing-bed hospital. Medicare payment for these services is determined
based on the average rate per patient day paid by Medicare for these
same services provided in freestanding skilled nursing facilities
(SNFs) in the region in which the hospital is located. The reasonable
cost for these services is the higher of the reasonable cost rates in
effect for the current calendar year or for the previous calendar year.
In addition, this proposed rule would revise the regulations concerning
the method used to allocate hospital general routine inpatient service
costs for purposes of determining payments to swing-bed hospitals.
These changes are necessary to conform the regulations to section 1883
of the Social Security Act (the Act), and section 4008(j) of the
Omnibus Budget Reconciliation Act of 1990.
DATES: Comments will be considered if we receive them at the
appropriate address, as provided below, no later than 5 p.m. on June
21, 1996.
ADDRESSES: Mail written comments (1 original and 3 copies) to the
following address: Health Care Financing Administration, Department of
Health and Human Services, Attention: BPD-805-P, P.O. Box 7517,
Baltimore, MD 21207.
If you prefer, you may deliver your written comments (1 original
and 3 copies) to one of the following addresses:
Room 309-G, Hubert H. Humphrey Building, 200 Independence Avenue, SW,
Washington, DC 20201, or
Room C5-09-26, 7500 Security Boulevard, Baltimore, MD 21244-1850.
Because of staffing and resource limitations, we cannot accept
comments by facsimile (FAX) transmission. In commenting, please refer
to file code BPD-805-P. Comments received timely will be available for
public inspection as they are received, generally beginning
approximately 3 weeks after publication of a document, in Room 309-G of
the Department's offices at 200 Independence Avenue, SW, Washington,
DC, on Monday through Friday of each week from 8:30 a.m. to 5 p.m.
(phone: (202) 690-7890).
FOR FURTHER INFORMATION CONTACT: Katie Walker (410) 786-7278.
SUPPLEMENTARY INFORMATION:
I. Background
Frequently, hospitals participating in Medicare and Medicaid,
particularly those located in rural areas, have provided both inpatient
acute and long-term care in the same facility. However, Medicaid
regulations at 42 CFR 440.40 require that long-term care be provided in
a separately identifiable ``distinct-part'' unit.
Before the enactment of the Omnibus Budget Reconciliation Act of
1980 (Public Law 96-499), small rural hospitals had difficulty in
establishing separately identifiable units for Medicare and Medicaid
long-term care because of limitations in their physical plant and
accounting capabilities. These hospitals often had an excess of
hospital beds, while their communities had a scarcity of long-term care
beds in Medicare and Medicaid participating facilities. To alleviate
this problem, Congress enacted section 904 of Public Law 96-499, known
as the ``swing-bed provision,'' which authorized a cost-efficient means
of providing nursing home care in rural communities. This provision
added sections 1883 and 1913 of the Social Security Act (the Act),
under which certain rural hospitals with fewer than 50 beds could use
their inpatient facilities to furnish long-term care services to
Medicare and Medicaid patients. These hospitals are thus permitted to
vary the level of care they provide in response to changing patient
needs by using the same bed to furnish hospital services at one time
and SNF services at another.
Hospitals with approved swing-bed programs that furnished long-term
care services were paid at rates that were deemed appropriate for those
services and were generally lower than hospital rates. Medicare payment
for routine SNF services was made at the average Statewide Medicaid
rate for the previous calendar year. Payment for ancillary services was
made based on reasonable cost.
On December 22, 1987, the Omnibus Budget Reconciliation Act of 1987
(OBRA 1987) (Public Law 100-203) was enacted. Section 4005(b) of OBRA
1987 amended section 1883(b)(1) of the Act to provide for an expansion
of the existing Medicare swing-bed program to include rural hospitals
with more than 49 but fewer than 100 beds, effective for swing-bed
agreements entered into after March 31, 1988. Although rural hospitals
having more than 49 beds but fewer than 100 beds can be swing-bed
hospitals, they are subject to additional payment limitations that do
not apply to the smaller swing-bed hospitals.
Specifically, section 1883(d) of the Act states that Medicare
payment for SNF services furnished by hospitals with more than 49 beds
but fewer than 100 beds may not be made either for: (1) extended care
services that are furnished to a swing-bed hospital SNF patient more
than 5 days (excluding weekends and holidays) after a bed in a SNF
becomes available in the geographic region, unless the patient's
physician certifies within the 5-day period that the transfer of the
patient is not medically appropriate; or (2) days of SNF care in a cost
reporting period once Medicare covered days of SNF care exceed 15
percent of the product of the number of days in the period and the
average number of licensed beds in the hospital during that period.
Payment will, however, continue to be made for patients who are
receiving SNF care at the time the limit is reached.
Also, sections 4201(a)(3), 4204, 4211(h)(9), and 4214 of OBRA 1987
provide that effective with services furnished on or after October 1,
1990, the terms ``skilled nursing facilities'' (SNFs) and
``intermediate care facilities'' (ICFs) would no longer be used for the
purpose of certifying a facility for the Medicaid program. Instead,
they would be replaced by the term ``nursing facility'' (NF). Before
that date, under the Medicaid program, a swing-bed hospital could
furnish SNF-type, as well as ICF-type, services to non-Medicare
patients. Now, the NF level of care encompasses services that were
previously known as SNF-type and ICF-type services. Thus, for purposes
of the Medicaid program, facilities are no longer certified as ICFs but
instead are certified only as NFs, and can provide services as defined
in section 1919(a)(1) of the Act. Effective October 1, 1990, these
long-term care services furnished by swing-bed hospitals to Medicaid
and
[[Page 17678]]
to other non-Medicare patients have been referred to as NF-type
services.
On November 5, 1990, the Omnibus Budget Reconciliation Act of 1990
(OBRA 1990) (Public Law 101-508) was enacted. Section 4008(j) of OBRA
1990 amended section 1883(a)(2)(B)(ii)(II) of the Act to provide for a
new methodology to pay for routine SNF services provided in a swing-bed
hospital. Effective for services furnished on or after October 1, 1990,
Medicare payment for routine SNF services in a swing-bed hospital is
based on the average rate per patient day paid by Medicare for routine
services provided in freestanding SNFs in the region in which the
hospital is located. The rates are calculated using the regions as
defined in section 1886(d)(2)(D) of the Act.
Section 4008(j)(2) of OBRA 1990 also provides for a ``hold
harmless'' provision. Under this provision, if the reasonable cost of
routine SNF services furnished by a hospital during a calendar year is
less than the reasonable cost of these services determined for the
prior calendar year, payment is to be based on the reasonable cost
determination for the prior calendar year.
II. Provisions of This Proposed Rule
A. New Payment Rate Methodology
In accordance with section 1883 of the Act, as amended by section
4008(j) of OBRA 1990, this proposed rule would implement in regulations
a revised methodology for Medicare payment of routine SNF services
provided in a swing-bed hospital. Presently, under Sec. 413.114(c)(1),
the reasonable cost of routine SNF services is based on the average
Statewide rate per patient day paid under the State Medicaid plan for
routine services furnished by SNFs in that State during the previous
calendar year. Under this proposed rule, Medicare payment to a swing-
bed hospital for routine services would be based on the average rate
per patient day paid by Medicare for routine SNF services provided in a
freestanding SNF in the region in which the hospital is located. These
rates would be determined prospectively based on the most current SNF
settled cost reporting data available (increased in a compounded
manner, using the increase applicable to the SNF routine cost limits,
up to and including the calendar year for which the rates are in
effect). Rates would be calculated using the regions as defined in
section 1886(d)(2)(D) of the Act (that is, one of the nine census
divisions established by the Bureau of the Census). Payment for
ancillary services furnished as SNF services in swing-bed hospitals
would continue to be paid on a reasonable cost basis.
The rates applicable to calendar years 1990 through 1994, listed
below, have been published in section 2231 of the Provider
Reimbursement Manual (HCFA Pub. 15-1). We will continue to publish
annual updates in that manual.
Section B below describes the methodology for calculating the
Medicare swing-bed rates. Tables A through E provide the Medicare
swing-bed rates for services furnished on or after October 1, 1990, and
before December 31, 1990, as well as for services furnished in calendar
years 1991, 1992, 1993, 1994, and 1995. (These rates were applied
beginning October 1, 1990. Implementation of the rates was accomplished
by means of HCFA administrative issuances, as addressed above.) If
there are additional changes in the methodology, these revisions would
be published through notice and comment rulemaking in the Federal
Register.
In accordance with section 4008(j)(2) of OBRA 1990, this proposed
rule also includes a hold harmless provision for Medicare swing-bed
payments. As noted above, this provision would allow for payment of the
higher of the payment rate in effect for the current calendar year or
the payment rate received by the swing-bed hospital for the prior
calendar year.
B. Development of Medicare Swing-Bed Rates Effective for Services
Furnished on or after October 1, 1990 and before January 1, 1995
1. Data--In developing the Medicare payment rates for swing-bed
care, we use the actual freestanding SNF inpatient routine service
payments obtained from settled Medicare cost reports. For fiscal years
1990-1993, cost reports used were for periods ending on or after June
30, 1989 and through May 31, 1990; for 1994, cost reports used were for
periods ending on or after September 30, 1990 through August 31, 1991;
and for 1995, cost reports used were for periods ending on or after
October 31, 1992 through September 30, 1993. The data consist of
routine service payments that were adjusted for utilization review,
primary payor amounts, and application of lower of cost or charges. For
proprietary providers, the return on equity portion of the swing-bed
rate was adjusted to include only the routine portion (that is, the
return on equity component related to ancillary services costs was
removed).
HCFA adjusts these data, using the SNF market basket index (the
annual percent increase in SNF expenditures, considering inflation plus
an allowance for new technology) to inflate costs from the cost
reporting periods in the data base to the midpoint of the applicable
year to which the rates apply.
2. Group Means--HCFA calculated the means of adjusted routine
service payments and the routine portion of return on equity for each
census region as shown in Tables A through D.
(We note that effective October 1, 1993, section 13503(c) of the
Omnibus Budget Reconciliation Act of 1993 amended sections
1861(v)(1)(B) and 1878(f)(2) of the Act to eliminate return on equity
capital for SNF services furnished in a proprietary hospital. The
return on equity capital component was not added to the routine payment
rate for the months of October, November, and December of 1993 (Table
D) nor for any subsequent years.)
Table A.--Medicare Swing Bed Rates--For Services Furnished on or After
October 1, 1990 and Before December 31, 1990
------------------------------------------------------------------------
Routine Return on
Region payment equity 1
------------------------------------------------------------------------
1. New England (CT, ME, MA, NH, RI, VT)....... $86.51 $1.42
2. Middle Atlantic (PA, NJ, NY)............... 86.39 1.27
3. South Atlantic (DE, DC, FL, GA, MD, NC, SC,
VA, WV)...................................... 75.28 1.48
4. East North Central (IL, IN, MI, OH, WI).... 75.03 1.18
5. East South Central (AL, KY, MS, TN)........ 65.79 1.21
6. West North Central (IA, KS, MN, MO, NB, ND,
SD).......................................... 74.09 $1.34
7. West South Central (AR, LA, OK, TX)........ 67.85 1.87
8. Mountain (AZ, CO, ID, MT, NV, NM, UT, WY).. 81.32 1.47
[[Page 17679]]
9. Pacific (AK, CA, HI, OR, WA)............... 86.73 1.07
------------------------------------------------------------------------
1 The return of equity component is included only in the rate paid to
proprietary hospitals.
Table B.--Medicare Swing Bed Rates--For Services Furnished On or After
January 1, 1991 and Before December 31, 1991
------------------------------------------------------------------------
Routine Return on
Region payment equity \2\
------------------------------------------------------------------------
1. New England (CT, ME, MA, NH, RI, VT)....... $90.92 $1.42
2. Middle Atlantic (PA, NJ, NY)............... 90.73 1.27
3. South Atlantic (DE, DC, FL, GA, MD, NC, SC,
VA, WV)...................................... 79.03 1.28
4. East North Central (IL, IN, MI, OH, WI).... 78.78 1.18
5. East South Central (AL, KY, MS, TN)........ 69.14 1.21
6. West North Central (IA, KS, MN, MO, NB, ND,
SD).......................................... 77.83 1.34
7. West South Central (AR, LA, OK, TX)........ 71.22 1.87
8. Mountain (AZ, CO, ID, MT, NV, NM, UT, WY).. 85.34 1.47
9. Pacific (AK, CA, HI, OR, WA)............... 91.10 1.07
------------------------------------------------------------------------
\2\ The return on equity component is included only in the rate paid to
proprietary hospitals.
Table C.--Medicare Swing Bed Rates--For Services Furnished On or After
January 1, 1992 and Before December 31, 1992
------------------------------------------------------------------------
Routine Return on
Region payment equity \3\
------------------------------------------------------------------------
1. New England (CT, ME, MA, NH, RI, VT)....... $95.10 $1.42
2. Middle Atlantic (PA, NJ, NY)............... 94.91 1.27
3. South Atlantic (DE, DC, FL, GA, MD, NC, SC,
VA, WV)...................................... 82.67 1.48
4. East North Central (IL, IN, MI, OH, WI).... 82.40 1.18
5. East South Central (AL, KY, MS, TN)........ 72.32 1.21
6. West North Central (IA, KS, MN, MO, NB, ND,
SD).......................................... 81.41 1.34
7. West South Central (AR, LA, OK, TX)........ 74.50 1.87
8. Mountain (AZ, CO, ID, MT, NV, NM, UT, WY).. 89.27 1.47
9. Pacific (AK, CA, HI, OR, WA)............... 95.29 1.07
------------------------------------------------------------------------
3 The return on equity component is included only in the rate paid to
proprietary hospitals.
Table D.--Medicare Swing Bed Rates--For Services Furnished On or After
January 1, 1993 and Before December 31, 1993
------------------------------------------------------------------------
Routine Return on
Region payment equity 4
------------------------------------------------------------------------
1. New England (CT, ME, MA, NH, RI, VT)....... $100.05 $1.42
2. Middle Atlantic (PA, NJ, NY)............... 99.84 1.27
3. South Atlantic (DE, DC, FL, GA, MD, NC, SC,
VA, WV)...................................... 86.97 1.48
4. East North Central (IL, IN, MI, OH, WI).... 86.69 1.18
5. East South Central (AL, KY, MS, TN)........ 76.08 1.21
6. West North Central (IA, KS, MN, MO, NB, ND,
SD).......................................... 85.64 1.34
7. West South Central (AR, LA, OK, TX)........ 78.37 1.87
8. Mountain (AZ, CO, ID, MT, NV, NM, UT, WY).. 93.91 1.47
9. Pacific (AK, CA, HI, OR, WA)............... 100.24 1.07
------------------------------------------------------------------------
4 The return on equity component should be included in the rate paid to
proprietary hospitals only for the months of January through September
of this calendar year.
Table E.--Medicare Swing Bed Rates--For Services Furnished On or After
January 1, 1994 and Before December 31, 1994
------------------------------------------------------------------------
Routine
Region payment
------------------------------------------------------------------------
1. New England (CT, ME, MA, NH, RI, VT)...................... $108.48
2. Middle Atlantic (PA, NJ, NY).............................. 104.33
3. South Atlantic (DE, DC, FL, GA, MD, NC, SC, VA, WV)....... 89.47
4. East North Central (IL, IN, MI, OH, WI)................... 88.76
5. East South Central (AL, KY, MS, TN)....................... 79.44
[[Page 17680]]
6. West North Central (IA, KS, MN, MO, NB, ND, SD)........... 83.84
7. West South Central (AR, LA, OK, TX)....................... 84.97
8. Mountain (AZ, CO, ID, MT, NV, NM, UT, WY)................. 100.11
9. Pacific (AK, CA, HI, OR, WA).............................. 104.58
------------------------------------------------------------------------
Table F.--Medicare Swing Bed Rates--For Services Furnished On or After
January 1, 1995 and Before December 31, 1995
------------------------------------------------------------------------
Routine
Region payment
------------------------------------------------------------------------
1. New England (CT, ME, MA, NH, RI, VT)...................... $121.71
2. Middle Atlantic (PA, NJ, NY).............................. 117.28
3. South Atlantic (DE, DC, FL, GA, MD, NC, SC, VA, WV)....... 105.22
4. East North Central (IL, IN, MI, OH, WI)................... 105.73
5. East South Central (AL, KY, MS, TN)....................... 94.61
6. West North Central (IA, KS, MN, MO, NB, ND, SD)........... 99.75
7. West South Central (AR, LA, OK, TX)....................... 99.63
8. Mountain (AZ, CO, ID, MT, NV, NM, UT, WY)................. 117.21
9. Pacific (AK, CA, HI, OR, WA).............................. 125.80
------------------------------------------------------------------------
C. The Carve Out Method
In a swing-bed hospital, acute care services and long-term care
services are furnished interchangeably. To determine payment for
inpatient hospital services in a swing-bed hospital, section 1883(e) of
the Act provides that the costs attributable to routine long-term care
(SNF-type and ICF-type) services for all classes of patients are to be
subtracted (``carved out'') from the total allowable inpatient cost for
general inpatient routine services. The resulting amount represents the
general inpatient routine costs applicable to hospital routine care.
Once amounts attributable to SNF-type and ICF-type services have been
carved out, the average per diem cost of general routine hospital
services for swing-bed hospitals not subject to the prospective payment
system is then determined by dividing the remaining amount by the total
number of inpatient general routine hospital days (excluding SNF days
and ICF days). This method was chosen to avoid imposing a burdensome
cost finding process to allocate general routine service costs between
hospital and long-term care.
Swing-bed hospitals subject to the prospective payment system (PPS)
are paid for SNF-type services in the same manner as any other swing-
bed hospital. The carve out method would be used primarily to determine
proper payment of pass-through costs. The prospective payment rates
based on diagnosis related groups (DRGs) for inpatient hospital
services under PPS are unaffected by the carve out method.
As stated above, with the enactment of OBRA 1987, effective October
1, 1990, the distinction between SNFs and ICFs was eliminated under the
Medicaid program and the two types of facility were combined under the
term ``nursing facility'' (NF). This presented a problem in attempting
to determine the amount of the carve out. Since Medicaid payment is now
determined based on a NF rate, the carve out method could not be used
as previously defined.
This proposed rule would revise Sec. 413.53(a)(2) to set forth our
current policy regarding the carve out method (presently explained in
section 2230.5B of the Provider Reimbursement Manual) for SNF and NF
services furnished on or after October 1, 1990. Under the revised carve
out method, the reasonable cost of hospital routine services would be
determined by subtracting the reasonable costs attributable to routine
SNF-type and NF-type services from total inpatient routine service
costs. For swing-bed SNF days covered by Medicare, the amount
subtracted, or carved out, would be based on the regional Medicare
swing-bed SNF rate. If, under the hold harmless provision explained
above, a swing-bed hospital is paid based on the swing-bed SNF rate
that was in effect during the prior calendar year, that higher rate
would also be used for purposes of calculating the reasonable cost of
routine Medicare SNF days, to be subtracted from total routine costs
under the carve out method. For all non-Medicare swing-bed days, the
amount subtracted would be based on the average statewide rate paid for
routine services in NFs under the State Medicaid plan during the prior
calendar year, adjusted to approximate the average NF rate for the
current calendar year. (The NF rate would be used for non-Medicare
covered swing-bed days because such services may encompass services
that were formerly known as ICF and SNF-type services.)
D. Definitions
As discussed above, effective for services furnished on or after
October 1, 1990, the terms SNFs and ICFs were no longer to be used for
the purpose of certifying a facility for the Medicaid program, in
accordance with the provisions of OBRA 1987. Instead, they were
replaced by the term ``nursing facility'' (NF). Effective October 1,
1990, extended care services furnished by swing-bed hospitals to
Medicaid and to other non-Medicare patients have been referred to as
NF-type services.
To reflect the above provisions, we are making changes to the
definitions in Sec. 413.53(b) by (1) revising the definition of
``average cost per diem for general routine services''; (2) removing
the definition of ``ICF-type services;'' (3) adding a definition of
``nursing facility (NF)-type services;'' and (4) revising the
definition of ``SNF-type services.''
III. Impact Statement
For proposed rules such as this, we generally prepare a regulatory
flexibility analysis that is consistent with the Regulatory Flexibility
Act (RFA) (5 U.S.C. 601 through 612). For purposes of a RFA, States and
individuals are not considered small entities. However,
[[Page 17681]]
providers are considered to be small entities.
In addition, section 1102(b) of the Act requires us to prepare a
regulatory flexibility analysis for any proposed rule that may have a
significant impact on the operations of a substantial number of small
rural hospitals. Such an analysis must conform to the provisions of
section 604 of the RFA. With the exception of hospitals located in
certain rural counties adjacent to urban ares, for purposes of section
1102(b) of the Act, we define a small rural hospital as a hospital that
is located outside of a Metropolitan Statistical Area and has fewer
than 50 beds.
In accordance with the provisions of section 1883 of the Act, as
amended by section 4008(j) of OBRA 1990, this proposed rule would
revise the regulations to incorporate a new methodology for payment of
routine extended care services provided in a swing-bed hospital. As the
statute specifies, we are proposing that Medicare payment for these
services be determined based on the average rate per patient day paid
by Medicare for these same services provided in freestanding skilled
nursing facilities (SNFs) in the region in which the hospital is
located, during the most recent year for which cost reporting data are
available. This proposed rule would also provide that the reasonable
cost for these services is the higher of the reasonable cost rates in
effect for the current calendar year or for the previous calendar year.
In addition to the changes mandated by section 4008(j) of OBRA 1990
regarding payment for routine extended care services, we are proposing
a change to the carve out method of determining routine inpatient
hospital costs of swing-bed hospitals. As discussed above, with the
enactment of OBRA 1987, the distinction between SNFs and ICFs was
eliminated under the Medicaid program. Thus, the carve out method as
described in Sec. 413.53(a)(2) for computing costs associated with
routine SNF and ICF-type services cannot be used. This proposed rule
would codify in regulations existing policy concerning the carve out
method as set forth in section 2230.5B of the Provider Reimbursement
Manual.
As noted above, the major provisions of this proposed rule are
required by section 1883 of the Act, as amended by section 4008(j) of
OBRA 1990. Thus, a majority of the costs associated with these proposed
regulations are the result of legislation, and this rule, in and of
itself, has little or no independent effect or burden. Although we are
unable to provide a quantifiable estimate of impact, we note that the
only discretionary aspect of this rule is to set forth in regulations
our current policy concerning the carve out method. Codifying this
existing policy would have no economic impact.
Thus, we have determined, and we certify, that this proposed rule
would not have a significant impact on the operations of a substantial
number of small entities or on small rural hospitals. Therefore, we
have not prepared a regulatory flexibility analysis or an analysis of
the effects of this rule on small rural hospitals.
In accordance with the provisions of Executive Order 12866, this
proposed rule was not reviewed by the Office of Management and Budget.
IV. Collection of Information Requirements
This document does not impose information collection and
recordkeeping requirements. Consequently, it need not be reviewed by
the Office of Management and Budget under the authority of the
Paperwork Reduction Act of 1980 (44 U.S.C. 3501 et seq.).
V. Response to Comments
Because of the large number of items of correspondence we normally
receive on Federal Register documents published for comment, we are not
able to acknowledge or respond to them individually. We will consider
all comments we receive by the date and time specified in the ``DATES''
section of this preamble, and, if we proceed with a subsequent
document, we will respond to the comments in the preamble to that
document.
List of Subjects in 42 CFR Part 413
Health facilities, Kidney diseases, Medicare, Puerto Rico,
Reporting and recordkeeping requirements.
PART 413--PRINCIPLES OF REASONABLE COST REIMBURSEMENT; PAYMENT FOR
END-STAGE RENAL DISEASE SERVICES
1. The authority citation for part 413 continues to read as
follows:
Authority: Secs. 1102, 1861(v)(1)(A), and 1871 of the Social
Security Act (42 U.S.C. 1302, 1395x(v)(1)(A), and 1395hh).
Subpart D--Apportionment
2. Section 413.53 is amended by revising paragraph (a)(1)(ii)(C)
and (a)(2); under paragraph (b), definition of ``average cost per diem
for general routine services'', paragraph (2) is revised; the
definition of ``ICF-type services'' is removed; a new definition of
``nursing facility (NF) type services'' is added; and the definition of
``SNF-type services'' is revised, to read as follows:
Sec. 413.53 Determination of cost of services to beneficiaries.
(a) Principle. * * *
(1) Departmental method * * *
(ii) Exception: Indirect cost of private rooms. * * *
(C) Effective October 1, 1990, do not include private rooms
furnished for SNF-type and NF-type services under the swing-bed
provision in the number of days in paragraphs (a)(1)(ii)(A) and (B) of
this section.
(2) Carve out method--(i) The carve out method is used to allocate
hospital inpatient general routine service costs in a participating
swing-bed hospital, as defined in Sec. 413.114(b). Under this method,
effective for services furnished on or after October 1, 1990, the
reasonable costs attributable to the inpatient routine SNF-type and NF-
type services furnished to all classes of patients are subtracted from
total inpatient routine service costs before computing the average cost
per diem for inpatient routine hospital care.
(ii) The cost per diem attributable to the routine SNF-type
services covered by Medicare is based on the regional Medicare swing-
bed SNF rate in effect for a given calendar year, as described in
Sec. 413.114(c). The Medicare SNF rate applies only to days covered and
paid as Medicare days. When Medicare coverage runs out, the Medicare
rate no longer applies.
(iii) The cost per diem attributable to all non-Medicare swing-bed
days is based on the average statewide Medicaid NF rate for the prior
calendar year, adjusted to approximate the average NF rate for the
current calendar year.
(iv) The sum of total Medicare SNF-type days multiplied by the cost
per diem attributable to Medicare SNF-type services and the total NF-
type days multiplied by the cost per diem attributable to all non-
Medicare days is subtracted from total inpatient general routine
service costs. The cost per diem for inpatient routine hospital care is
computed based on the remaining inpatient routine service costs.
* * * * *
(b) Definitions. * * *
Average cost per diem for general routine services * * *
(2) For swing-bed hospitals, the amount computed by--(i)
Subtracting the routine costs associated with Medicare SNF-type days
and non-Medicare NF-type days from the total
[[Page 17682]]
allowable inpatient cost for routine services (excluding the cost of
services provided in intensive care units, coronary care units, and
other intensive care type inpatient hospital units and nursery costs);
and
(ii) Dividing the remainder (excluding the total private room cost
differential) by the total number of inpatient hospital days of care
(excluding Medicare SNF-type days and non-Medicare NF-type days of
care; days of care in intensive care units, coronary care units, and
other intensive care type inpatient hospital units; and newborn days;
but including total private room days).
* * * * *
Nursing facility (NF)-type services, formerly known as ICF and SNF-
type services, are routine services furnished by a swing-bed hospital
to Medicaid and other non-Medicare patients. Under the Medicaid
program, effective October 1, 1990, facilities are no longer certified
as SNFs or ICFs but instead are certified only as NFs and can provide
services as defined in section 1919(a)(1) of the Act.
* * * * *
Skilled nursing facility (SNF)-type services are routine services
furnished by a swing-bed hospital that would constitute extended care
services if furnished by an SNF. SNF-type services include routine SNF
services furnished in the distinct part SNF of a hospital complex that
is combined with the hospital general routine service area cost center
under Sec. 413.24(d)(5). Effective October 1, 1990, only Medicare
covered services are included in the definition of SNF-type services.
* * * * *
Subpart F--Specific Categories of Costs
3. In Sec. 413.114, paragraphs (c)(1) and (2) are removed,
paragraph (c)(3) is redesignated as paragraph (c)(2), and a new
paragraph (c)(1) is added to read as follows:
Sec. 413.114 Payment for posthospital SNF care furnished by a swing-
bed hospital.
* * * * *
(c) Principle. * * *
(1) The reasonable cost of routine SNF services is based on the
average Medicare rate per patient day for routine services provided in
freestanding SNFs in the region where the swing-bed hospital is
located. The rates are calculated using the regions as defined in
section 1886(d)(2)(D) of the Social Security Act. The rates are based
on the most recent year for which settled cost reporting period data
are available, increased in a compounded manner, using the increase
applicable to the SNF routine cost limits, up to and including the
calendar year for which the rates are in effect. If the current
Medicare swing-bed rate for routine extended care services furnished by
a swing-bed hospital during a calendar year is less than the rate for
the prior calendar year, payment is made based on the prior calendar
year's rate.
* * * * *
(Catalog of Federal Domestic Assistance Program No. 93.773,
Medicare--Hospital Insurance;) Catalog of Federal Domestic
Assistance Program No. 93.778, Medical Assistance Program)
Note: This document received at the Office of the Federal
Register on April 11, 1996.
Dated: September 29, 1995.
Bruce C. Vladeck,
Administrator, Health Care Financing Administration.
[FR Doc. 96-9347 Filed 4-19-96; 8:45 am]
BILLING CODE 4120-01-P
Complete official Federal Register PDF
FR Doc. 96-8936 General Revision of Regulations Relating to Withholding of Tax on Certain U.S. Source Income Paid to Foreign Persons and Related Collection, Refunds, and Credits; Revision of Information Reporting and Backup Withholding Regulations; and Removal of Regulations Under Part 35a and of Certain Regulations Under Income Tax Treaties
[Federal Register Volume 61, Number 78 (Monday, April 22, 1996)]
[Proposed Rules]
[Pages 17614-17667]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-8936]
=======================================================================
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 1, 31, 35a, 301, 502, 503, 509, 513, 514, 516, 517,
520, and 521
[INTL-O62-90; INTL-0032-93; INTL-52-86; INTL-52-94]
RINS 1545-AO27; 1545-AR90; 1545-AL99; 1545-AT00
General Revision of Regulations Relating to Withholding of Tax on
Certain U.S. Source Income Paid to Foreign Persons and Related
Collection, Refunds, and Credits; Revision of Information Reporting and
Backup Withholding Regulations; and Removal of Regulations Under Part
35a and of Certain Regulations Under Income Tax Treaties
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Notice of proposed rulemaking and withdrawal of notice of
proposed rulemaking.
-----------------------------------------------------------------------
SUMMARY: This document contains proposed regulations relating to the
withholding of income tax under sections 1441 and 1442 on certain U.S.
source income paid to foreign persons, the related tax deposit and
reporting requirements under section 1461, and the related collection,
refunds, and credits of withheld tax under sections 1461 through 1463
and section 6402. Additionally, this document contains proposed
regulations relating to the statutory exemption under sections 871(h)
and 881(c) for portfolio interest. This document proposes to remove
certain temporary employment tax regulations under the Interest and
Dividend Compliance Act of 1983 and to amend existing regulations under
sections 6041A and 6050N. This document also proposes changes to
proposed regulations contained in project number INTL-52-86, published
on February 29, 1988 (53 FR 5991) under sections 6041, 6042, 6045, and
6049. This document proposes related changes to the regulations under
sections 163(f), 165(j), 3401, 3406, 6114, and 6413 and proposes
further changes to the proposed regulations under section 6109
contained in project number IL-0024-94 published on June 8, 1995 (60 FR
30211). This document proposes to remove certain regulations under
income tax treaties. The IRS and Treasury have reviewed current
withholding and reporting procedures applicable to cross-border flows
of income and have concluded that changes are necessary in view of the
substantial growth in such flows over
[[Page 17615]]
the past 15 years. This document also removes proposed regulations
published on July 12, 1976 (41 FR 28517) and September 10, 1984 (49 FR
355110), respectively.
DATES: Written comments and requests for a public hearing must be
received by July 22, 1996.
ADDRESSES: Send submissions to: CC:DOM:CORP:R ([INTL-0032-93]), room
5228, Internal Revenue Service, POB 7604, Ben Franklin Station,
Washington, DC 20044. In the alternative, submissions may be hand
delivered between the hours of 8 a.m. and 5 p.m. to: CC:DOM:CORP:R
([INTL-0032-93]), Courier's Desk, Internal Revenue Service, 1111
Constitution Avenue NW., Washington, DC.
FOR FURTHER INFORMATION CONTACT: Philip Garlett, telephone (202) 622-
3880 (not a toll-free number), for questions on proposed regulations
under sections 1441, 1442, 1461, 1462, 1463, 3401, 6402, and 6413;
Gwendolyn A. Stanley, telephone (202) 622-3860 (not a toll-free number)
for questions on payments to partnerships; Carl Cooper, telephone (202)
622-3840 (not a toll-free number) for questions on proposed regulations
under sections 163(f), 165(j), 871(h) and 881(c) and on withholding
agreements; Teresa Burridge Hughes, telephone (202) 622-3880 (not a
toll-free number), for questions on proposed regulations under sections
6041 through 6049, 6050N; Teresa Burridge Hughes, telephone (202) 622-
3880 and Renay France, telephone (202) 622-4910, for questions on
proposed regulations under section 3406; Elissa Shendalman (202) 622-
3870 on proposed regulations under section 6045 and 6049 relating to
the reporting of payments made in a currency other than the U.S. dollar
or transactions subject to section 988; Lilo Hester, telephone (202)
874-1490 (not a toll-free number), for questions on proposed
regulations under section 6109; David F. Bergkuist, telephone (202)
622-3860 (not a toll-free number), for questions on proposed
regulations under section 6114.
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collections of information contained in this notice of proposed
rulemaking have been submitted to the Office of Management and Budget
for review in accordance with the Paperwork Reduction Act of 1995 (44
U.S.C. 3507).
Comments on the collection of information should be sent to the
Office of Management and Budget, Attn: Desk Officer for the Department
of the Treasury, Office of Information and Regulatory Affairs,
Washington, DC 20503, with copies to the Internal Revenue Service,
Attn: IRS Reports Clearance Officer, T:FP, Washington, DC 20224.
Comments on the collections of information should be received by June
21, 1996.
An agency may not conduct or sponsor, and a person is not required
to respond to, a collection of information unless the collection of
information displays a valid control number.
The collections of information relating to foreign persons that
receive payments subject to withholding under sections 1441 or 1442 of
the Internal Revenue Code are in Secs. 1.1441-1(e), 1.1441-4(a)(2),
1.1441-4(b) (1) and (2), 1.1441-4(c), (d) and (e), 1.1441-5(a)(2)(ii),
1.1441-5(b), 1.1441-6(b) and (c), 1.1441-8(b), 1.1441-9(b), 1.1461-1(b)
and (c), 301.6114-1, and 301.6402-3(e), 31.3401(a)(6)-1(e). This
information is required by the IRS to identify and verify the status of
persons to whom payments of U.S. source income is made. This
information will be used to claim foreign person status and, in
appropriate cases, to claim residence in a country with which the
United States has an income tax treaty in effect, so that withholding
at a reduced rate of tax may be obtained at source. The likely
respondents and recordkeepers are individuals, state or local
governments, farms, business or other for-profit institutions, federal
agencies, nonprofit institutions, and small business or organizations.
Responses to this collection of information are mandatory.
Books or records relating to a collection of information must be
retained as long as their contents may become material in the
administration of any internal revenue law. Generally, tax returns and
tax return information are confidential, as required by 26 U.S.C. 6103.
The burden for the reporting requirement contained in Secs. 1.1441-
1(e)(2), 1.1441-4(a)(2), 1.1441-4(b)(2), 1.1441-4(c)(2), 1.1441-4(d),
1.1441-4(e)(1), (2) and (3), 1.1441-6(b), 1.1441-8(b), 1.1441-9(a)(2),
301.6114-1(b)(4), and 301.6402-3(e) will be reflected in the burden of
Form W-8, Form 8833, Form 8233, and the income tax return of a foreign
person filed for purposes of claiming a refund of tax.
The collection of information requirement for corporations
contained in Sec. 1.6049-4(c) will be reflected in the burden of Form
W-8.
The requirement for the recordkeeping requirement in Sec. 1.6049-
5(c)(1) (ii) and (iii) is in an existing regulation, appearing in TD
7966 that was approved under OMB number 1545-0112.
Background
This document contains proposed amendments to the Income Tax
Regulations (CFR parts 1, 31, 35a and 301) under sections 163(f),
165(j), 871, 881, 1441, 1442, 1461, 1462, 1463, 3401, 3406, 6041,
6041A, 6042, 6045, 6049, 6050N, 6109, 6114, 6402, and 6413 of the
Internal Revenue Code (Code). This document also proposes to remove
certain regulations under income tax treaties.
Explanation of Provisions
A. Current Rules
These proposed regulations deal with the withholding of tax under
section 1441, 1442, or 1443 on amounts paid to foreign persons,
procedures for claiming foreign status to avoid backup withholding
under section 3406 on certain payments, and the reporting to the IRS of
payments to foreign persons. Reporting to the IRS may be required under
sections 6011 and 1461 or under the reporting provisions of chapter 61
of the Code, such as sections 6041, 6041A, 6042, 6044, 6045, 6049,
6050H, and 6050N, (the 1099 reporting provisions).
1. U.S. Income Tax on U.S. Source Income of Foreign Persons
Under sections 871(a) and 881(a) of the Code, non-resident alien
individuals and foreign corporations are subject to a 30 percent tax on
most items of income they receive from sources within the United States
that are not effectively connected with the conduct of a trade or
business in the United States. Income taxable under these provisions
includes interest, dividends, royalties, compensation, and other fixed
or determinable annual or periodical income. The tax liability imposed
under section 871(a) and 881(a) is generally collected by way of
withholding at source under section 1441(a) (for payments to non-
resident alien individuals and foreign partnerships) or under section
1442(a) (for payments to foreign corporations). Special withholding
provisions apply under section 1443 to payments of certain income to
foreign tax-exempt entities.
The 30 percent rate is often reduced under the Code or an income
tax treaty. Under current regulations, a withholding agent may
generally rely on a statement furnished by, or on behalf of, the
beneficial owner certifying entitlement to a reduced rate. For example,
the portfolio interest exception under section 871(h) and 881(c) is
conditioned upon the beneficial owner
[[Page 17616]]
of the interest providing a statement of foreign status to the U.S.
withholding agent, which can be provided on a Form W-8. See
Sec. 35a.9999-5(b), A-9. If a reduction is claimed under an income tax
treaty, the withholding agent may generally rely on a Form 1001
provided by, or on behalf of, the beneficial owner claiming residence
in a treaty country. For dividends, however, no certification is
required and the withholding agent may generally rely on the address of
the payee in the treaty country. The procedural requirements for
claiming a reduced rate of withholding may vary depending upon the type
of income, the taxpayer, or whether a treaty is involved.
A withholding agent is generally required to file an annual income
tax return on Form 1042 to report amounts upon which a tax was actually
withheld under chapter 3 of the Code or would have been required to be
withheld but for an exemption under the Code, the regulations, or an
income tax treaty. An information return on a Form 1042-S must be
attached to the Form 1042 and report each recipient's name and address,
amounts paid, and taxes withheld, if any. Section 1.1461-2(b) and (c).
2. Backup Withholding
Under chapter 61 of the Code and section 3406, a reportable
payment, as defined in section 3406(b), is subject to backup
withholding at the rate of 31 percent unless the payor receives a
taxpayer identifying number (TIN), generally on a Form W-9, and, for
reportable interest and dividends, a certification that the payee is
not subject to notified payee underreporting. The payor of a reportable
payment is also generally required to file Form 1099 with the IRS
showing the name, address, and TIN of the payee; the amount of the
payment; and the amount that was withheld, if any. The payor must also
provide a copy of Form 1099 to the payee, who must report the payment
on an income tax return to the extent the payment constitutes gross
income. A payor that fails to obtain a TIN or other required
information or to backup withhold when required under section 3406 may
also be liable under section 3403 for the amount that should have been
withheld. Information reporting by payors is critical to a matching
system that allows the IRS to match information provided by payors with
income reported on a payee's return.
The information reporting provisions of chapter 61 provide guidance
to help payors determine when payments are made to a foreign person
and, therefore, exempt from 1099 reporting and backup withholding.
Generally, depending upon the type of payment involved, a payor may
rely on a certification of foreign status made on Form W-8, Form 1001,
Form 4224, or on documentary evidence. Therefore, even though an amount
is exempt from withholding under chapter 3 of the Code if earned by a
foreign person (e.g., gain from the sale of securities), a payor must
nevertheless comply with specified certification procedures in order to
avoid being subject to backup withholding. Only amounts subject to
reporting under the 1099 reporting provisions can be subject to backup
withholding under section 3406. Therefore, payments to foreign persons
that are exempt from reporting are also exempt from backup withholding.
B. Need for Reform
The IRS and Treasury have reviewed the current withholding and
reporting procedures applicable to cross-border flows of income and
have concluded that changes are necessary in view of the substantial
growth in such flows over the past 15 years. The IRS and Treasury have
concluded that allowing the benefit of the reduced rate at source
continues to be desirable. A system that reduces withholding at source
permits an investor to receive its full income without the
administrative costs and delays that can occur when applying for a
refund of withheld taxes. This advantage, however, is necessarily
accompanied by the need to rely, in part, on withholding agents.
Withholding agents perform an important compliance function as
recipients of the necessary documentation substantiating claims of
foreign status and of reduced rates of withholding and as providers of
information to the IRS.
One of the important objectives of the proposed revisions is to
eliminate unnecessary burdens that the lack of standardization and
coordination of current procedures imposes on withholding agents. For
example, under current rules, different forms must be used for
different purposes; different standards of proof apply for establishing
foreign status for purposes of the 1099 reporting provisions (and the
related backup withholding provisions) and of the Chapter 3 withholding
provisions. Also, the revisions seek to facilitate compliance by
clarifying many of the uncertainties under current procedures (e.g.,
the scope of due diligence standards imposed on withholding agents).
This proposal also addresses the important issue of payments to
intermediaries (nominees, agents, etc.) and whether, in the case of
interest, dividends, and gross proceeds from publicly traded or widely
held obligations or stocks, intermediaries should certify status on
behalf of beneficial owners and, if so, how.
Under current rules, nominee procedures work differently for
different types of income. For example, a U.S. broker redeeming a
short-term obligation held by a foreign financial institution as an
agent may exempt the payment from 1099 reporting and backup withholding
and grant the exemption from the 30 percent tax under section 871(a)
without having to obtain certificates or documentation. If the foreign
financial institution makes a payment to another person offshore then
no certification or documentation is required. On the other hand if,
for example, the foreign financial institution, remitted the amount to
a person in the United States through a U.S. office, it might have to
obtain a Form W-8 or a Form W-9. In contrast, interest on registered
obligations may not qualify as portfolio interest under sections 871(h)
and 881(c) unless the U.S. withholding agent receives a statement that
the beneficial owner of the obligation is not a U.S. person (see
section 871(h)(2)(B)(ii)). Current regulations implement this condition
by requiring that a beneficial owner certification be passed up through
a chain of intermediaries to the U.S. withholding agent. These
procedures have proved difficult to implement in a number of cases and
these proposed regulations offer alternative procedures. The proposed
revisions, therefore, respond to the concerns expressed by various
representatives of the financial community regarding the cost of
complying with current procedures and potential harm to the
competitiveness of U.S. financial institutions in handling investment
transactions in the United States and abroad.
These proposed regulations are also responsive to the Congressional
mandate in section 342 of the Tax Equity and Fiscal Responsibility Act
of 1982 (TEFRA) that Treasury consider a range of options for replacing
the address/self-certification method of administering income tax
treaty benefits. Since 1982, the IRS and Treasury have studied several
options for improving the withholding tax procedures, including a
system of certification of residence in a treaty country and refund
systems. At hearings held in February of 1985 on proposed regulations
issued in 1984 under section 1441, comments from the public and several
U.S. treaty partners made it apparent that certification requirements,
[[Page 17617]]
as proposed, would create too many administrative problems for payments
made through nominees. The proposed revisions take these comments into
account and propose to rely on procedures essentially identical to the
procedures proposed for portfolio interest on registered obligations.
The streamlining of current procedures and the implementation of
workable nominee certification procedures represent a substantial
simplification and reduction of burden. The IRS and Treasury expect
that this, in turn, should result in greater compliance and improve the
ability by withholding agents and the IRS to detect abusive claims
under U.S. income tax treaties or under the Code.
C. Summary of Proposal
1. Changes Affecting Portfolio-Type Investments
The proposed regulations under section 1441 and related Code
provisions would substantially revise some aspects of the current
system for withholding on, and reporting of, amounts paid to foreign
persons. Current certification procedures (i.e., Forms W-8, 1001, 4224,
etc.,) would be unified and reliance standards would be clarified in an
effort to streamline the processing of cross-border payments,
particularly by banks and other financial institutions. Most forms (W-
8, 1001, 4224, 8709) are proposed to be combined into a single form
(Form W-8). In addition, taxpayer identifying numbers are not required
to be stated on withholding certificates, with certain limited
exceptions that do not affect market-based transactions. These changes
are important steps toward reducing the burden on withholding agents
and assisting taxpayer compliance.
The address rule for claiming tax treaty benefits for dividends is
proposed to be eliminated. Instead, dividends would be made subject to
the same beneficial owner and intermediary certification procedures as
are proposed for portfolio interest on registered obligations. It is
also proposed to apply the same procedures to bank deposit interest (as
described in section 871(i)(2)(A)). On the other hand, the documentary
evidence procedures currently in effect for bank deposit interest on
accounts held with foreign branches would be continued and would be
applied as well to offshore payments of dividends on publicly traded
stocks and portfolio interest on registered obligations. Therefore,
documentary evidence would become the general rule for dividends and
interest earned on accounts held with foreign branches. These proposed
changes illustrate the effort by the IRS and Treasury to eliminate
unnecessary procedural differences in order to reduce the burden on
withholding agents.
The proposal does not generally affect other important classes of
investment transactions. Thus, current portfolio interest rules for
bearer obligations (including commercial paper), convertible
obligations, pass-through certificates, as well as rules for broker
proceeds and short term obligations would be retained. In order to
further simplify compliance, the regulations under section 165(j)
(Sec. 1.165-12) are proposed to be revised to eliminate the
requirements that, in connection with delivery of bearer obligations,
holders receive statements and send confirmations. Provisions regarding
foreign-targeted registered obligations are to be retained. However,
because these special procedures have been rarely used, comments are
solicited on their usefulness and whether they should be retained.
Foreign intermediary procedures as currently applicable to
portfolio interest (which are proposed to become applicable to
dividends and bank deposit interest as well) are substantially revised
by providing several options, allowing different taxpayers to comply in
different ways. These options recognize that it is appropriate to adapt
withholding requirements to accommodate different types of transactions
and should provide substantial relief from current requirements.
In order to allow sufficient time for transition, the regulations
are proposed to be generally effective for payments made after 1997. In
addition, withholding agents would be allowed to continue to rely on
existing certificates after that date until their validity expires as
determined under current rules. Comments are solicited on whether these
proposed effective dates leave adequate time to implement necessary
system changes.
The regulations proposed in 1988 regarding the reporting by U.S.
banks of bank deposit interest paid to Canadian residents are
finalized, effective for payments made on or after January 1, 1997 with
respect to Forms W-8 furnished on or after that date. See the Rules and
Regulations section of this issue of the Federal Register.
2. Intermediary Procedures Options for Portfolio Interest, Dividends on
Publicly Traded Stock, and Bank Deposit Interest
The proposed regulations offer intermediary certification options
designed to simplify compliance by withholding agents. These procedures
would be mostly relevant to portfolio interest on registered
obligations, dividends on publicly traded stocks (eliminating the
address rule), and interest paid on bank deposits (as described in
section 871(i)(2)(A)). First, for portfolio interest on registered
obligations, the current certification procedures would be retained, as
an option and are not reproposed. See Sec. 35a.9999-5(b), A-9. These
rules will be included in final regulations in proposed Sec. 1.871-
14(c)(2)(iii) and, accordingly, that section of the proposed
regulations is reserved. Preserving the existing regulations is
designed to accommodate those taxpayers and withholding agents for whom
the current rules work appropriately.
The regulations propose to add two new procedures. First, a
withholding agent would be allowed to rely on an intermediary Form W-8
furnished on behalf of one or more beneficial owners (or other
intermediaries) without having to obtain beneficial owner documentation
if the intermediary has entered into a withholding agreement with the
IRS and, thus, is a ``qualified intermediary.'' In a chain of
intermediaries, an intermediary would be allowed to rely on the
intermediary Form W-8 of another qualified intermediary. If the other
intermediary is not qualified, the qualified intermediary would
generally be required to obtain beneficial owner documentation from the
other non-qualified intermediary. The qualified intermediary would then
pass such documentation up the chain or rely on such documentation when
issuing its intermediary Form W-8.
Under the withholding agreement procedure, a qualified intermediary
would agree with the IRS to obtain such documentation or certifications
as the agreement would specify. It is contemplated that institutions
that are subject to bona fide ``know-your-customer'' procedures under
their domestic laws will generally be permitted to rely on such
procedures. The withholding agreement will generally include provisions
for beneficial owner information to be reported or made available to
the IRS and for the IRS to audit such information. In appropriate
cases, the reporting and audit may be limited to
[[Page 17618]]
the beneficial ownership information pertaining to U.S. source income
(other than gross proceeds) of U.S. customers or to an audit of the
reports prepared by, and the methodology employed by, the approved
external auditors of the qualified intermediary.
The regulations propose a second intermediary procedure permitting
a foreign agent of a U.S. withholding agent to act on behalf of the
withholding agent. While the U.S. withholding agent would remain liable
for the acts (or failures to act) of its agent, the proposed procedure
streamlines the withholding process as the foreign agent would collect
the appropriate documentation on behalf of the U.S. withholding agent
and report beneficial owner information to the IRS without having to
furnish the documentation to the U.S. withholding agent. The
documentation requirements under this procedure would be the same as
those normally applicable to withholding agents.
Lastly, the proposed regulations provide that the U.S. competent
authority may agree to special withholding procedures with a foreign
competent authority under an income tax treaty. The United States
intends to consult with its tax treaty partners before implementing
changes that would affect its relationship with its treaty partners.
3. Use of Taxpayer Identifying Number
A taxpayer identifying number (TIN) is not required to be shown on
withholding documents provided for income on portfolio-type
investments.
A TIN continues to be required for claims of effectively connected
income. A TIN would also be required to support claims of benefits
under an income tax treaty (other than dividends on publicly traded
stocks). Therefore, for example, payments of dividends on non-publicly
traded stocks, royalties, or related party interest would require a TIN
to be shown on the withholding certificate in order for a withholding
agent to rely on a claim of a reduced rate under a tax treaty.
In the case of an individual, a TIN would generally be an IRS
individual taxpayer identifying number (ITIN) issued by the IRS to a
nonresident alien individual who is not otherwise eligible for a Social
Security Number. In the case of a non-individual, a TIN would be an
Employer Identification Number (EIN). Over time, the IRS will issue
EIN's to foreign persons that begin with the two digits ``98'' to
permit instant recognition of foreign status. See regulations proposed
under section 6109 contained in project number INTL-0024-94, published
on June 8, 1995 (60 FR 302111), describing the types of taxpayer
identifying numbers issued to nonresident alien individuals and the
manner in which a number can be obtained. Further revisions to the
regulations under section 6109 are proposed in order to require the
statement of a TIN in appropriate cases.
4. Other Proposed Changes
The regulations propose to clarify the extent of due diligence
expected from certain withholding agents, such as banks and other
financial institutions. Thus, for payments of portfolio-type income,
the withholding agent's due diligence would be limited to an
examination of the address stated on the withholding certificate. If
the address on the certificate were a U.S. address or did not match the
address information in its records, the withholding agent would have to
seek further proof of a claim of foreign status. This change would not
affect the current requirement that a withholding agent cannot ignore
what it actually knows when determining the extent to which it may rely
on a withholding certificate. However, in the case of financial
institutions, knowledge would be limited to information that can be
associated with the account under the same procedures as apply for
purposes of the backup withholding provisions.
As a further burden reduction, the regulations propose to eliminate
the requirement to attach withholding certificates to Forms 1042 and
1042-S. The current reporting requirements are otherwise unchanged
except for clarification of how these requirements apply in the case of
payments to intermediaries. Therefore, even though certification
procedures are proposed to be modified for bank deposit interest, such
interest continues to be exempt from reporting (except for certain
interest on bank deposits paid to Canadian residents).
The period of validity of a certificate of foreign status (Form W-
8) is limited to three years as under current law. However, a Form W-8
stating a beneficial owner's TIN is proposed to be valid indefinitely
if it relates to income required to be reported to the IRS (or if the
TIN is actually reported even though not otherwise required). The
validity period for certificates used to claim a reduced rate for
effectively connected income is proposed to be extended from one year
to three years.
The regulations propose new procedures dealing with payments to
foreign partnerships. These procedures generally would allow looking
through to the partners and reliance on a certification provided for
each partner. Alternatively, in order to facilitate certification for
partnerships with many partners or for tiered partnerships, the
regulations would also allow a foreign partnership to be a qualified
intermediary under an agreement with the IRS. In that case, the
partnership would be allowed to furnish an intermediary certificate for
the partnership. The partnership would be required to withhold under
section 1441 in the same manner as a domestic partnership. In addition,
the regulations would clarify the manner in which a foreign entity and
its interest holders can determine entitlement to benefits under an
income tax treaty with a particular country based upon the principles
in effect under the laws of that country.
The proposed regulations also address the practical difficulties
that exist under current rules due to the lack of clear guidelines on
determining the status of a payee as a U.S. or a foreign person in the
absence of documentation. While some guidelines exist in limited cases
(e.g., Sec. 35a.9999-5(b) A-10), guidance is incomplete. The proposed
regulations offer a comprehensive and uniform set of presumptions to
assist withholding agents with these determinations.
5. Changes to Reporting Rules Under Chapter 61 of the Internal Revenue
Code
On February 29, 1988, the IRS and Treasury published in project
number INTL-52-86 (53 FR 5991) proposed amendments to the 1099
information reporting regulations (the 1988 proposed regulations)
modifying the reporting requirements and the procedures for presenting
a claim of foreign status. The provisions in the 1988 proposed
regulations concerning information reporting of bank deposit interest
paid to persons resident in Canada are finalized. See Sec. 1.6049-
5(e)(2) of the 1988 proposed regulations and the Rules and Regulations
section of this issue of the Federal Register. The 1988 proposed
regulations are not otherwise amended. In order to standardize
procedures, changes are proposed to the procedures for certifying
foreign status that were proposed in 1988 so as to conform them to
those proposed under section 1441. The IRS and Treasury are considering
finalizing the 1988 proposed regulations at the same time that the
proposed regulations under section 1441 are finalized.
Proposed Effective Dates
Unless otherwise provided in the regulations, the regulations are
proposed to be effective for payments made after December 31, 1997. The
[[Page 17619]]
regulations contain a number of transition rules designed to phase out
currently outstanding withholding certificates (e.g., Forms W-8 and
1001)
Section-by-Section Analysis
Section 1.163-5 Denial of Interest Deduction on Certain Obligations
Issued After December 31, 1982, Unless Issued in Registered Form
Section 1.163-5(c) contains foreign targeting procedures applicable
to certain obligations issued in bearer form. Section 1.163-
5(c)(2)(i)(B)(5) would be revised to modify the cross-reference to the
documentary evidence rules since the Q&A regulations under part 35a are
proposed to be eliminated
Section 1.165-12 Denial of Deduction for Losses on Registration-
Required Obligations Not in Registered Form
Section 165(j)(1) and 1.165-12(a) deny a loss deduction to a holder
of a registration-required obligation that is not in registered form
unless the holder meets certain exceptions. Under Sec. 1.165-12(c)(1)
(iii) and (iv), the loss disallowance rule does not apply to a holder
that delivers a registration-required obligation that is in bearer form
and that is offered or sold in the United States if the holder delivers
the obligation to a financial institution, and the financial
institution provides a statement that it is a financial institution
within the meaning of Sec. 1.165-12(c)(1)(v), it is purchasing the
obligation for its own account, the account of another financial
institution, or an exempt organization, that will comply with section
165(j)(3) (A), (B), or (C). The loss disallowance rule also does not
apply if a holder delivers a registration-required obligation in bearer
form that is offered or sold outside the United States if it is
delivered to a financial institution and the holder gives the financial
institution a confirmation stating that any U.S. taxpayer that holds
the obligation in bearer form and that is not exempt under section
165(j)(3) (A), (B), or (C) will be denied a deduction for any loss or
capital gain treatment with respect to the obligation. A holder may
deliver a registration-required obligation in bearer form that is
offered and sold outside the United States to a person other than a
financial institution only if the holder has documentary evidence, as
described in
Section 35a.9999-4T, A-5 That the Person Is Not a U.S. Person
These proposed regulations would revise Sec. 1.165-12(c)(1)(iv) to
eliminate the requirement that the holder receive a statement from a
financial institution for bearer obligations offered or sold in the
United States. The proposed regulations would also eliminate the
requirement that the holder deliver a confirmation to a financial
institution for obligations offered or sold outside the United States.
These changes are proposed to reduce the documentation burden
associated with secondary market transactions. The documentary evidence
requirement for delivery outside the United States to a foreign person
other than a financial institution is retained. The proposed
regulations would clarify that the holder may receive such evidence
electronically
Section 1.871-14 Rules for Portfolio Interest
Under sections 871(h) and 881(c), interest that qualifies as
portfolio interest is generally exempt from tax and is exempt from
withholding at source under section 1441(b)(9). Section 1.871-14
proposes procedures governing whether interest (including original
issue discount) qualifies as portfolio interest described in section
871(h)(2). Section 1.1441-2(d) provides the exemption from withholding.
For interest on bearer obligations, the existing provisions in
Sec. 35a.9999-5(a), A-1 (dealing with portfolio interest on bearer
obligations) and in Sec. 35a.9999-5(c) (dealing with convertible
obligations) will be incorporated in Sec. 1.871-14(b) without
substantive changes and are not reproposed. These rules will be
restated in proposed Sec. 1.871-14 (b)(1) and (b)(2) that are currently
shown as reserved
For interest on registered obligations, section 871(h)(2)(B)(ii)
provides that such interest qualifies as portfolio interest only if the
U.S. withholding agent receives a statement that the beneficial owner
is not a United States person. Paragraph (c)(2)(i) provides that the
statement requirement would be satisfied if the beneficial owner
furnishes the type of documents described in proposed Sec. 1.1441-
1(e)(1)(i) for a withholding agent to rely on a claim of foreign
status. Thus, in the case of a payment to a beneficial owner, the
beneficial owner must provide a beneficial owner withholding
certificate described in proposed Sec. 1.1441-1(e)(2) or, if the
payment is made on an account held at a foreign branch, documentary
evidence may be substituted (see paragraph (c)(2)(ii)). The ability to
use documentary evidence on foreign branch accounts is a significant
change from current law and one that intends to reduce the burden on
transactions outside the United States. Further, as under current
regulations, the withholding certificate would not have to state a
taxpayer identifying number (although one may be provided, if desired).
See Sec. 35a.9999-5(b), A-9.
In the case of a payment to a foreign person that acts as an
intermediary (e.g., an agent, representative, nominee, etc.), the
proposed procedures under section 1441 would require either that the
intermediary furnish an intermediary withholding certificate or, if the
intermediary acts as the agent of the withholding agent, that the
intermediary be an authorized foreign agent. Under proposed
Sec. 1.1441-1(e)(3)(iv) or proposed Sec. 1.871-14(c)(2)(iii), the
certificate could be, as under current rules, a certificate to which
the beneficial owner documentation is attached (see Sec. 35a.9999-5(b),
A-9). Alternatively, under proposed Sec. 1.1441-1(e)(3)(ii), it could
be a certificate by which the intermediary certifies for the beneficial
owner (or other intermediaries) without being required to attach
beneficial owner documentation. The latter certificate could be issued
only by a qualified intermediary, i.e., a person that has an agreement
with the IRS. The qualified intermediary certificate would be issued
based upon certifications or documentation obtained by the qualified
intermediary. The same standards would apply to these documents as are
proposed to be applied to documents that a U.S. withholding agent is
required to obtain when paying directly to a beneficial owner.
Therefore, a taxpayer identifying number is not required to be shown on
a beneficial owner withholding certificate provided to the qualified
intermediary. Alternatively, the qualified intermediary could rely on
documentary evidence for accounts held at foreign branches. In
addition, different procedures may apply under the terms of a qualified
intermediary's agreement with the IRS.
Where a withholding agent acts through an authorized foreign agent,
certificates received by the agent would be deemed to be received by
the withholding agent. In that case, no certificate would be required
from the authorized agent. See proposed Sec. 1.1441-7(c)(2) for the
description of an authorized foreign agent and proposed Sec. 1.1461-1
(b)(2)(iii) and (c)(4)(iii) for the filing of returns by the
withholding agent and its authorized foreign agent. Paragraph
(c)(2)(iv) specifies that other procedures may apply under a competent
authority agreement with a country with which the United States has an
income tax treaty.
[[Page 17620]]
The regulations clarify the consequences of a late-received Form W-
8 or other documentation. Paragraph (c)(3) provides that the
withholding certificate may be received by the withholding agent at any
time before expiration of the beneficial owner's period of limitation
for claiming a refund of tax with respect to the interest. The
applicable period is described in section 6511(a). Under this rule, a
foreign person would be allowed, for example, to provide the required
certificate to a U.S. withholding agent (or its authorized foreign
agent) at any time prior to filing an income tax return and still be
able to qualify the interest as portfolio interest. However, a
withholding agent that does not hold a valid certificate (or other
valid documentation) when paying the interest would be required to
withhold. Failure to do so would make the withholding agent liable for
the tax if the required certification or documentation procedures are
not complied with prior to the expiration of the beneficial owner's
period of limitation. If a withholding agent fails to withhold although
it does not hold a valid certificate, but the documentation procedures
are ultimately complied with, a withholding agent would be liable for
interest pursuant to section 1463 even though there is no underlying
tax liability.
In addition, the withholding agent may be subject to penalties for
failure to withhold tax. See proposed Sec. 1.1441-1(f)(5).
Paragraphs (d) and (e) are reserved. Paragraph (d) will reflect the
rules in Sec. 35a.9999-5(e), regarding pass-through certificates.
Paragraph (e) will reflect the rules in 35a.9999-5(b) A-12 through A-15
regarding foreign-targeted registered obligations. These rules are not
reproposed. Under Sec. 1.871-14(g), the rules contained in proposed
regulation Sec. 1.871-14 are proposed to be effective for payments of
interest after December 31, 1997. However, withholding agents may
continue to rely on valid Forms W-8 that they hold on the date that is
60 days after the regulations become final until the forms expire under
the rules as in effect on April 22, 1996.
Section 1.1441-1 Requirement for the Withholding of Tax on Payments to
Foreign Persons
This section states the general rules concerning withholding on
payments to foreign persons. Paragraph (a) provides the general purpose
and scope of the section. Paragraph (b) states the general rule that a
withholding agent must withhold 30 percent of the gross amount of
income subject to withholding if paid to a foreign person unless the
beneficial owner of the income is a U.S. person or is a foreign person
entitled to a reduced rate of tax. A withholding agent may grant a
reduced rate at source in the case of a payment to a foreign person
only if, before payment, it can associate the appropriate documentation
with the payment. Therefore, actual knowledge that the beneficial owner
is a foreign person would not excuse the obligation to obtain
appropriate documentation. A withholding agent failing to act in
accordance with these rules may ultimately be relieved from the
liability for the tax under section 1461, but would, in any event, be
liable for interest, and possibly, penalties. See paragraph (f)(5). For
this purpose, payment to a foreign person includes a payment to a U.S.
person if the withholding agent has actual knowledge or reason to know
that the U.S. person is acting as the agent of a foreign person. These
rules restate current law. See Secs. 1.1441-1 and 1.1441-7(a)(1) of the
existing regulations.
Paragraph (c) defines terms, including payee and beneficial owner.
Paragraph (c)(3) defines a payee as the person to whom the payment is
made. This definition has significance for purposes of coordinating the
section 1441 withholding provisions with the 1099 reporting and backup
withholding rules under chapter 61 of the Code and section 3406,
respectively (the 1099 reporting and backup withholding provisions
determine consequences of payments based on payees; in contrast, the
section 1441 withholding provisions determine consequences of payments
based on beneficial owner). In the case of a payment to a foreign
partnership, paragraph (c)(3)(ii) provides that the partners, and not
the partnership, are considered to be the payees. However, a foreign
partnership could be considered a payee if it certified to the
withholding agent that it is a qualified intermediary (see paragraph
(e)(5) regarding qualified intermediaries) or if it certified that the
income is effectively connected with a U.S. trade or business (in which
case, the partnership must itself withhold the tax required under
section 1446). The provisions specify how these rules would apply on a
look-through basis to tiered partnership structures.
Under paragraph (c)(6), a beneficial owner is defined as the person
who, under U.S. tax principles, would be required to include the amount
paid in gross income. Therefore, under these principles, partners, and
not partnerships, are the beneficial owners (unless the partner is
itself a partnership, in which case, one looks through to the partners
of the highest tier foreign partnership). Therefore, the identification
of a beneficial owner is influenced by the classification of the entity
to which the payment is made. This proposed rule revises Sec. 1.1441-
3(f) of the existing regulations that, in effect, treats a partnership
as a beneficial owner for purposes of the withholding provisions. This
provision has created difficulties for partners of a foreign
partnership who wish to claim the benefit of a reduced rate at source
based on their status, but may not do so because the entity does not
qualify for the reduced rate. The proposed regulations would alleviate
these difficulties by permitting beneficial owner information to be
passed to the withholding agent or by permitting the partnership to be
a qualified intermediary.
The IRS and Treasury are aware that some large investment
partnerships hold significant amounts of U.S. portfolio type
investments. The IRS and Treasury understand that generally these
entities are treated as corporations under the provisions of section
7704(c)(3) and the regulations under that section. Therefore, the
proposed revisions requiring beneficial owner documentation for
partners would not adversely affect these entities. The IRS and
Treasury solicit comments on this point.
Generally, the determination of the classification of an entity,
including an entity organized in a foreign country, is made under U.S.
tax rules. Because U.S. and foreign laws may differ on classification
principles, the U.S. tax classification of an entity as a partnership
or a corporation may differ from the tax treatment of that entity under
the laws of a foreign country. Therefore, in the case of income paid to
a foreign entity, the entity might be considered the beneficial owner
under U.S. tax principles (because it is classified as an association
taxable as a corporation under U.S. tax principles), but, if foreign
tax principles are applied, its interest holders, rather than the
entity, might be considered the beneficial owners. This dual
characterization may give rise to difficulties in the application of
income tax treaties. In order to alleviate these difficulties,
paragraph (c)(6)(ii)(B) proposes that foreign tax principles, rather
than U.S. tax principles, apply to identify the beneficial owner of
income for which a claim of a reduced rate of withholding is made based
upon a tax treaty. Under this proposed rule, when a benefit is claimed
under a tax treaty with a particular country, the tax principles that
govern the determination
[[Page 17621]]
of who the beneficial owner is for purposes of obtaining benefits under
that treaty would be the principles in effect under the laws of that
country. This clarification is intended to address the significant
uncertainties resulting from the current lack of guidance on these
issues. The IRS and Treasury intend to consult with treaty partners in
order to promote uniformity in this area. Paragraph (c)(6)(iii)
provides that the beneficial owner rules in the proposed regulations
would not apply to trusts. Until further guidance is provided, the
rules in the current regulations would continue to apply trusts. See
Sec. 1.1441-3 (f) and (g) of the existing regulations.
While different procedures would apply depending upon whether a
payment is made to a corporation or a partnership, a withholding agent
would not be required to determine the classification of an entity when
making a payment to a foreign person. Rather, a withholding agent would
be allowed to rely on the classification claimed by the entity, unless
it had actual knowledge or reason to know otherwise.
Paragraph (d) deals with procedures that would enable a withholding
agent to determine the circumstances in which it could consider that
the payment is made to a U.S. person and is, therefore, exempt from
section 1441 withholding. This paragraph replaces Sec. 1.1441-5 of the
existing regulations and proposes to replace Form 1078 with Form W-9,
consistent with the manner in which a U.S. payee must generally provide
a taxpayer identifying number under section 3406. In the case of a
payment to an exempt recipient or a payment of scholarship, grant,
pension, or annuities, for which no Form W-9 is required under section
3406, a person also would be permitted to use a Form W-9 to establish
its U.S. status. The regulations specify the information that must be
stated on such a certificate, which parallels that required under
Sec. 31.3406(h)-3(e)(2) in order for a payor to reasonably rely on a
Form W-9. If no, or insufficient, documentation is provided, the
presumptions in Sec. 1.1441-1(f) would apply to determine whether the
beneficial owner should be treated as a foreign or U.S. person.
In the case of a payment to a foreign person acting as an
intermediary (e.g., agent, representative, or nominee) for a U.S.
person, paragraph (d)(3) provides that the intermediary may transmit a
Form W-9 for the U.S. person to claim U.S. status and avoid section
1441 withholding. If the U.S. person is not an exempt recipient, the
withholding agent would then have to comply with the 1099 reporting
requirements under chapter 61 of the Code, because, under these rules,
the U.S. person would be treated as a payee. Similarly, as a result of
the payee rules set forth in paragraph (c)(3)(ii) dealing with payments
to foreign partnerships, a withholding agent may treat a payment to a
foreign partnership as a payment made to a U.S. person to the extent of
the U.S. partner's distributive share of that payment. Similarly, the
withholding agent would have to comply with the 1099 reporting
requirements.
Paragraph (e) describes the conditions for a withholding agent to
rely upon a beneficial owner's claim of foreign status. Paragraph
(e)(1) provides that a withholding agent may rely upon a claim of
foreign status if, prior to making the payment, the withholding agent
(1) Holds a beneficial owner withholding certificate or an intermediary
withholding certificate, (2) complies with on-line confirmation
procedures when prescribed by the IRS, and (3) has not received a
notification from the IRS that the withholding certificate is incorrect
or unreliable. The withholding agent's reliance on the withholding
certificate is subject to the withholding agent's actual knowledge or
reason to know otherwise. See standards of knowledge in proposed
Sec. 1.1441-7(b).
Paragraph (e)(2) sets forth the requirements for a beneficial owner
withholding certificate. Generally, a withholding certificate would be
a Form W-8 or, in the case of certain compensation for personal
services, a Form 8233 (or an acceptable substitute) that is signed
under penalties of perjury by the beneficial owner and contains certain
required information. The certificate serves as a representation that
the beneficial owner is not a U.S. person and that the conditions for
claiming a reduced rate of withholding tax are satisfied. These
conditions may vary depending upon the nature of the income or the type
of exemption claimed.
Required information on a beneficial owner Form W-8 would include
the beneficial owner's name, permanent residence address, the type of
income to be received, and the basis for any reduced rate claimed.
Generally, the Form W-8 would not be required to state the beneficial
owner's taxpayer identifying number (``TIN''), except in limited cases
(see paragraph (e)(4)(vii), below).
Paragraph (e)(3) sets forth the requirements for an intermediary
withholding certificate. Intermediary withholding certificates may be
provided by one of three types of persons: (1) A qualified
intermediary, (2) a foreign partnership, or (3) an agent, nominee, or
other representative that is not a qualified intermediary.
Information required from a qualified intermediary on a Form W-8
would include similar information as that required for the beneficial
owner Form W-8 except that the information would relate to the
intermediary. In addition, the Form W-8 would have to state a TIN and
certify that the issuer is a qualified intermediary and has obtained
the appropriate certificates or documentation with respect to the
account holders covered by the Form W-8. A foreign partnership that is
not a withholding agent (because it is not a qualified intermediary or
acting for the account of others) would have to provide the same
information about itself, and attach the partners' withholding
certificates. In addition, the partnership would be required to state
an EIN on the withholding certificate. See proposed Sec. 1.1441-5(b)
for the certificates required to be attached in the case of tiered
partnerships. See also, proposed Sec. 1.1461-1(c)(4)(v) for Form 1042-S
filing requirements for the withholding agent.
An agent, nominee, or representative furnishing an intermediary
certificate would have to provide information about itself, state an
EIN for the intermediary (or an SSN or ITIN in the case of an
individual) and certify that it is not acting for its own account and
is using the Form W-8 to transmit beneficial owner certification for
the payment to which the Form W-8 relates. These procedures are
essentially similar to those in effect for portfolio interest on
registered obligations under Sec. 1.9999-5(b), A9 and that are proposed
to be retained in proposed Sec. 1.871-14(c)(2)(iii).
Paragraph (e)(4)(i) requires that, in the case of joint owners,
each owner provide a withholding certificate. This rule would parallel
the requirements for backup withholding purposes. See Sec. 31.3406(h)-
2(a).
Paragraph (e)(4)(ii)(A) provides the general rule that a
withholding certificate would be valid for a period of three years or
until the circumstances of the beneficial owner changed, making an item
of information on the certificate incorrect. However, under paragraph
(e)(4)(ii)(B), a withholding certificate that includes a TIN would be
valid indefinitely if the income (or, under special procedures, the
TIN) with which the certificate is associated were reported to the IRS.
For example, a bank may rely on a claim of foreign status by an account
holder if it holds a Form W-8 for the account holder even without a
TIN. In that case, the certificate would be valid for a period of three
years only.
[[Page 17622]]
If, however, the account holder were to state a TIN on the form and the
bank adopted procedures by which it reports the TIN to the IRS as
provided in proposed Sec. 1.1461-1(d), the certificate would be valid
indefinitely until a change in circumstances of the account holder made
the information on the form incorrect.
Second, certificates furnished to claim a reduced rate of
withholding on income that is effectively connected with the conduct of
a trade or business within the United States would also be limited to
three years in all circumstances. This is a change from existing
regulations under Sec. 1.1441-4(a)(2) that require that a new
certificate be filed each year. This change would relieve the burden
associated with annual renewal of these certificates and simplify
compliance by providing uniform validity period rules. The 3-year
period of validity for this certificate would extend from the date it
is signed to the last day of the third succeeding calendar year. This
change would insure a full 3-year validity period in all cases (and up
to four years where the certificate is furnished at the beginning of
the calendar year).
Under paragraph (e)(4)(iii), withholding certificates must be
retained for as long as they are relevant for the determination of the
withholding agent's liability under proposed Sec. 1.1461-1. This rule
would replace the 4-year retention period under current law and conform
the rules under section 1441 to the retention period required for Forms
W-9 under section 3406. This change is necessary because the Form W-8,
like Form W-9, is proposed to be made valid indefinitely in certain
circumstances. Paragraph (e)(4)(iv) anticipates the possibility that,
in the future, a withholding agent may rely on electronically
transmitted information otherwise required to be stated on a
withholding certificate.
Paragraph (e)(4)(v) provides for on-line confirmation procedures
for TIN's required to be stated on withholding certificates in order to
verify their correctness and the claim that it belongs to a foreign
person. Such procedures are being developed by the IRS and, when the
system becomes operational, the IRS may require certain categories of
withholding agents handling large volumes of payments to foreign
persons (such as certain teaching institutions) to perform on-line
confirmation of such TIN's. These procedures would be similar to those
currently in use under section 3406 in order to notify payors of an
incorrect TIN.
Paragraph (e)(4)(vi) defines an acceptable substitute form. As
under section 3406, these regulations would permit the use of
substitute forms provided the information furnished is the same as is
required under the regulations and is certified to be correct under
penalties of perjury. See Sec. 31.3406(h)-3(c)(1).
Paragraph (e)(4)(vii) provides all of the circumstances in which a
taxpayer is required to furnish a TIN on a withholding certificate for
purposes of the regulations under sections 1441, 1442, and 1443.
Taxpayers would be required to furnish a TIN when claiming the benefit
of a reduced rate under an income tax treaty (other than with respect
to dividends on publicly traded stocks) or because income is
effectively connected with a U.S. trade or business. In addition,
intermediaries, partnerships, foreign organizations claiming to be tax-
exempt under section 501(c), and private foundations would be required
to furnish a TIN. A TIN would be an IRS Individual Taxpayer
Identification Number (ITIN), a Social Security Number (SSN), or an
Employer Identification Number (EIN). A nonresident alien individual
not eligible for a social security number would be able to obtain an
ITIN from the IRS. See proposed regulations under section 6109
describing procedures for obtaining an ITIN.
Paragraph (e)(5)(i) provides that a qualified intermediary may
furnish a single intermediary withholding certificate to a withholding
agent on behalf of beneficial owners, other intermediaries, and U.S.
payees. The qualified intermediary would have to obtain certification
or documentation from these persons on whose behalf the intermediary
withholding certificate is provided. Generally, the certification and
documentation would be the same as that which a withholding agent is
required to obtain, subject to such modifications as the intermediary's
agreement with the IRS would provide. It is anticipated that the terms
of the agreement would be flexible enough to accommodate the individual
circumstances of a particular qualified intermediary, including any
locally applicable know-your-customer rules or practices. Therefore,
the agreement might acknowledge certain documentary evidence procedures
already in place and not require additional documentation. Paragraph
(e)(5)(ii) provides that a qualified intermediary is a foreign person
that is a party to a withholding agreement with the IRS and is a
clearing organization as defined in Sec. 1.163-5(c)(2)(i)(D)(8), a
financial institution as defined in Sec. 1.165-12(c)(1)(iv), a
partnership, or any other person acceptable within the discretion of
the IRS. A qualified intermediary would be able to either assume
primary responsibility for withholding and reporting to the IRS (if so
permitted under its agreement with the IRS) or leave that
responsibility to the withholding agent. A qualified intermediary that
assumes primary withholding responsibility would present an
intermediary withholding certificate to the withholding agent or
another qualified intermediary representing that it will withhold all
appropriate amounts and comply with all applicable reporting
requirements. The withholding agent or other qualified intermediary
would be allowed to rely on such a certificate and not withhold.
However, the withholding agent would have to file Forms 1042 and 1042-S
under section 1461 to report the payment to the qualified intermediary
and the qualified intermediary's EIN. See proposed Sec. 1.1461-
1(b)(2)(ii) and (c)(4)(ii).
A qualified intermediary that does not assume primary withholding
responsibility would present an intermediary withholding certificate to
a U.S. withholding agent or another qualified intermediary representing
that beneficial owners of U.S. income payments (other than gross
proceeds) are not U.S. persons and, if applicable, qualify for a
reduced rate of withholding. It is anticipated that a qualified
intermediary would establish separate accounts for income subject to
different withholding rates. A single intermediary withholding
certificate should serve as documentation for all these separate
accounts. In addition, the qualified intermediary would provide a Form
W-9 for each beneficial owner that is a U.S. person to whom payments of
income otherwise subject to withholding are made and for whom reporting
is required under chapter 61 of the Code.
A qualified intermediary would generally have to agree to be
subject to the same reporting requirements as apply to withholding
agents under proposed Sec. 1.1461-1(b) and (c), to allow periodic
inspection of its records, and to pay any amount of tax liability
determined to be due. The IRS intends to agree to arrangements with the
qualified intermediary so that, for example, inspection of records may
be minimized where the IRS otherwise gets sufficient access to
beneficial ownership information, through annual reporting of TIN's,
review of know-your-customer rules, and selection of appropriate
account information, or through an exchange of information program
under a tax treaty. In appropriate cases, the IRS may rely on audits
performed by an
[[Page 17623]]
institution's approved external auditors where, for example, under an
income tax treaty or local laws, the IRS would be given access to
appropriate auditor's records to verify compliance. Records may include
workpapers of, reports prepared by, and methodology employed by, the
approved external auditors.
A proposed revenue procedure providing guidance with respect to
withholding agreements has been published as Announcement 96-23
simultaneously with the publication of this document in the Federal
Register.
Paragraph (e)(5)(v) specifies that a foreign partnership that is a
qualified intermediary acting for its partners is a withholding agent
with respect to its partners' distributive shares of income paid to the
partnership. In that case, the partnership is subject to the same
withholding and reporting procedures as would apply to a domestic
partnership. Thus, any arrangement whereby the partnership would seek
to shift primary withholding responsibility to the withholding agent
under the provisions of paragraph (e)(5)(iv)(B) would not be
recognized.
Paragraph (f) contains a set of presumptions upon which a
withholding agent (for purposes of section 1441) and a payor (for
purposes of the 1099 reporting provisions) would rely to determine
whether to treat a person as U.S. or foreign if, at the time of
payment, the withholding agent or payor does not have actual knowledge
of the status of the person to whom the payment is made and lacks the
required documentation or knows or has reason to know that the
documentation it holds is incorrect or unreliable. A presumption under
this paragraph (f) could be rebutted by providing or correcting the
required documentation to the withholding agent or payor. Thus, these
presumptions would assist the payor in determining whether the income
paid is subject to the 1099 reporting and backup withholding regime (if
paid to a U.S. person that is not an exempt recipient) or to the
section 1441 withholding regime (if paid to a foreign person).
Presumptions of foreign status resulting from the application of
these provisions would, when applied for purposes of section 1441, only
affect whether the withholding agent should withhold 30 percent from
the payment on the ground that the payment may, under the provisions,
be treated as made to a foreign beneficial owner. However, the
presumptions could not operate to deem the payee as having established
proof of foreign status for purposes of claiming a reduced rate of tax
under the Code or an income tax treaty.
Paragraph (f)(2)(i) addresses reportable payments to a non-exempt
recipient (a non-exempt recipient is a person for whom the payor must
file a Form 1099; see proposed Sec. 1.6049-4(c)(1)(ii) for a list of
exempt recipients). Where a withholding agent lacks the required
documentation, it would presume that the payee is a U.S. individual.
Accordingly, the withholding agent would withhold 31 percent under
section 3406. Paragraph (f)(2)(ii) incorporates the concept of the 30-
day grace period under Sec. 31.3406(d)-3(a) for a payee to furnish a
Form W-9 to the payor. Because it may take longer to obtain the
required documentation from a foreign person than from a U.S. person,
the proposed regulations allow a withholding agent to treat a payee as
a beneficial owner that is a foreign person for up to 90 days from the
date the agent credits the payee's account (or until the end of the
calendar year if earlier) if the withholding agent has the name and a
foreign address for the account holder or a facsimile copy or an
electronic transmission of the information on a withholding
certificate. This special rule would defer the obligation to backup
withhold under section 3406 because there are sufficient indicia of
foreign status, but does not defer the obligation to withhold under
section 1441, if applicable. If the required documentation were
provided or corrected within the 90-day grace period, the amount
withheld may be refunded to the payee under the adjustment procedures
described in proposed Sec. 1.1461-2. The 90-day grace period would be
terminated if any part of the proceeds in the account that are subject
to the grace period were withdrawn (other than for purposes of
withholding an amount of tax). If the required documentation were not
provided or corrected by the expiration of the grace period, the payee
would be presumed to be a U.S. payee for purposes of section 3406 and
chapter 61 of the Code from the date the account was first credited.
A special rule for joint owners or payees is provided in paragraph
(f)(2)(iii) that would permit a withholding agent to presume that a
payment made to joint owners or payees for whom it does not hold the
required documentation is made to U.S. payees. The grace period would
apply to joint payees if each payee qualified for its application. If
any one of them withdrew any portion of the funds in the account, then
additional withholding under paragraph (f)(2)(ii)(A) would be required.
Paragraph (f)(2)(iv) addresses reportable payments to an exempt
recipient. In that case, the withholding agent could presume that the
payee is a foreign person if it knew the payee's TIN and the TIN began
with the two digits ``98.'' The withholding agent also could presume
that the payee is a foreign person if the payee had a foreign mailing
address or the payment were made outside of the United States (as
defined in proposed Sec. 1.6049-5(e)). In other cases, the withholding
agent could presume that the exempt recipient is a U.S. person. Thus,
for example, a U.S. withholding agent making a payment of interest on a
registered obligation to a corporation with an EIN beginning with the
digits ``98'' would not have to backup withhold under section 3406
(because the corporation is an exempt recipient). However, it should
withhold a 30 percent tax under section 1442 because the condition
under Sec. 1.871-14(c)(1)(iii) that a certificate of foreign status be
received by the U.S. withholding agent for the interest to qualify as
portfolio interest would not be satisfied. Thus, the withholding agent
should treat the interest as not qualified for the portfolio interest
exemption for purposes of section 1441(b)(9). Adjustments to the tax
may be made at a later time in accordance with proposed Sec. 1.1461-2
if the required documentation described in proposed Sec. 1.871-14(c)(2)
is later furnished. See proposed Secs. 1.871-14(c)(3) and 1.1441-
1(f)(5) for rules addressing late received documentation.
Paragraph (f)(3) contains special presumption provisions for
certain payments that are not subject to backup withholding:
scholarship and pension income. In the case of scholarship and grant
income, the withholding agent or payor may generally treat the payee as
a U.S. person unless it has U.S. visa information in its records
concerning the payee. For pension and annuities, the payment would be
presumed to be made to a U.S. person if the payor had the payee's
Social Security number and the payment were made either to a U.S.
mailing address or to a mailing address in a foreign country with which
the United States has an income tax treaty in effect that exempts
residents of the country from U.S. tax on that income. In all other
cases, the payor could presume that the payee is a foreign person. A
withholding agent may use these presumptions as a safe harbor or may,
at its option, choose to withhold at a higher rate if it were unsure of
the application of the presumption in a particular case.
[[Page 17624]]
Paragraph (f)(4) provides special rules for pass-through entities.
Paragraph (f)(4)(i) provides rules for determining whether to treat a
partnership as foreign or domestic. The withholding agent or payor
could presume that the partnership is a foreign partnership if the
withholding agent or payor actually knows that the partnership's EIN
begins with the digits ``98,'' if the mailing address of the
partnership is in a foreign country, if the payment is made outside of
the United States (as defined in proposed Sec. 1.6049-5(e)), or if the
withholding agent or payor knows or had reason to know that the
partnership is foreign.
Under paragraph (f)(4)(ii), a withholding agent or payor that makes
a reportable payment to a person determined to be a foreign partnership
could presume that any partner for which it does not hold the required
documentation is a U.S. individual. In that case, the payee would be
treated as a U.S. payee that is not an exempt recipient and the payment
would be subject to reporting under chapter 61 of the Code and to
backup withholding under section 3406.
Paragraph (f)(4)(iii) provides rules for partners' distributive
shares. A domestic partnership could treat a partner as a U.S. payee
if, at the time it is required to withhold on a reportable payment, it
did not hold all of the required documentation for that partner. A
foreign partnership that is a qualified intermediary under proposed
Sec. 1.1441-1(e)(5)(ii) could treat a partner as a foreign payee if, at
the time it were required to withhold on a reportable payment, it could
not associate the payment with the required documentation.
Paragraph (f)(5) clarifies that a withholding agent that does not
act in accordance with the presumptions and fails to withhold the
required amount may be liable under section 1461 or 3403 for the tax
that should have been withheld based upon the presumptions in paragraph
(f), unless the withholding agent can demonstrate either that the
correct amount of tax was, in fact, withheld or that the beneficial
owner paid the tax due. Proof of payment of tax could be established on
the basis of a Form 4669 furnished by the beneficial owner certifying
the amount of tax paid to the IRS. Proof that the correct amount of tax
was, in fact, withheld, could be based upon obtaining the required
documentation. Late-received documentation could be accepted as proof
of status and entitlement to a reduced rate of tax. However, if the
delays involved in obtaining this documentation affected its
reliability, the IRS could require further proof of status or
entitlement to a reduced rate. Further, pursuant to section 1463 or
section 3403, the withholding agent would be liable for interest under
section 6601, even though, ultimately, there is no underlying tax
liability. Penalties may also apply.
Under paragraph (f)(6), a reportable payment is an amount
reportable under section 3406(b) (without regard to any exception to
reporting under section 6041, 6041A, 6042, 6045, 6049, 6050A, or
6050N).
Paragraph (f)(7) provides that if overwithholding occurs under
section 1441 as a result of application of the presumptions in
paragraph (f), adjustments may be made in accordance with proposed
Sec. 1.1461-2(a). Appropriate refunds and credits may be claimed under
section 1464 or 6414. Amounts overwithheld under section 3406 are
subject to adjustments pursuant to Sec. 31.6413(a)-3(a)(1).
Paragraph (g) provides that these rules are effective for payments
made after December 31, 1997. However, transition rules are provided so
that valid certificates (as determined under current rules) that are
outstanding on the date that is 60 days after these regulations are
published as final regulations may continue to be relied upon for their
period of validity. In addition, dividends on publicly traded stocks
are given special transition relief. See proposed Sec. 1.1441-6(b)(2).
section 1.1441-2 Income Subject to Withholding
Paragraph (a) restates the rules in Secs. 1.1441-1 and -3(a) of the
existing regulations limiting withholding to items of income from
sources within the United States. Paragraph (b) simplifi
FR Doc. 96-8936 General Revision of Regulations Relating to Withholding of Tax on Certain U.S. Source Income Paid to Foreign Persons and Related Collection, Refunds, and Credits; Revision of Information Reporting and Backup Withholding Regulations; and Removal of Regulations Under Part 35a and of Certain Regulations Under Income Tax Treaties
es Sec. 1.1441-
2(a) of the existing regulations by providing that, for purposes of
chapter 3 of the Code, fixed or determinable, annual or periodical
(FDAP) income is any income includable in income under section 61,
subject to enumerated exceptions in paragraph (b)(2) (including certain
exceptions for original issue discount and capital gains, including
option premiums). Under these proposed rules, income paid under a
national principal contract would be FDAP, but see proposed
Sec. 1.1441-4(a)(3) for an exemption from withholding.
Paragraph (b)(3) reflects the position adopted by the IRS in TIR-
877 (December 27, 1966) and in Rev. Rul. 68-333, 1968-1 C.B. 390 that
FDAP includes original issue discount paid by an original issuer of
bonds or other obligations with original issue discount. However, under
the authority of section 1441(c)(8), only certain items of original
issue discount are currently subject to withholding of tax under
Chapter 3. The lack of rules in this area in the past reflects the
difficulties in determining the amount of OID upon which withholding
should be applied. These proposed regulations, however, identify
transactions in which information about the amount of original issue
discount would generally be known or available to the withholding
agent. Therefore, the proposed regulations require withholding on
amounts paid upon sale by an obligor that is related to the original
issuer. In addition, amounts that fail to qualify for the portfolio
interest exemption under section 871(h) or 881(c) (because, for
example, the statement described in section 871(h)(5) has not been
furnished to the U.S. withholding agent) would also be subject to
withholding, regardless of whether it is possible for the withholding
agent to determine precisely the amount of OID. See proposed
Sec. 1.871-14(c)(2). If the required documentation were not furnished,
the amounts could be treated as paid to a U.S. or foreign payee based
upon the presumptions in proposed Sec. 1.1441-1(f). If the amounts are
presumed paid to a U.S. payee, backup withholding under section 3406
might apply. See Sec. 31.3406(b)(2)-(2). If the amounts are presumed
paid to a foreign payee, withholding under section 1441 would apply
(unless the OID instrument had a maturity not exceeding 183 days from
the date of issue).
Under these rules, the entire amount of OID (as determined on the
date of issue) would have to be reported as taxable if the exact amount
of OID were not known. Any amount of overwithholding may be adjusted or
refunded in accordance with the procedures in proposed Sec. 1.1461-2(a)
or Sec. 1.1464-1.
The proposed changes to the OID rules would be effective for OID on
obligations issued after a date that is 60 days after these regulations
are published as final regulations.
Paragraph (c) restates Sec. 1.1441-2(b) of the existing regulations
to eliminate the reference to pre-1967 payments. It also eliminates the
reference to items of income under section 402(a)(2) and 403(a)(2),
relating to payments from certain employees trusts or under employee
annuities, in order to conform to the amendment made to sections
1441(b) and (c)(5) by Public Law 102-318 that deleted these sections
from the requirement of withholding under section 1441.
Paragraph (d) lists exemptions from withholding for certain items
that
[[Page 17625]]
otherwise constitute FDAP income. Paragraph (d)(1) lists the exceptions
that are not conditioned upon furnishing documentation (e.g., interest
on bearer or foreign targeted registered obligations, short-term
obligations). However, documentation may be required under the 1099
reporting provisions in order to avoid reporting under sections 6041 or
6049 and backup withholding under section 3406. Paragraph (d)(2) lists
two other exceptions, but those exceptions are conditioned upon
furnishing documentation described in proposed Sec. 1.871-14(c)(2). The
exceptions are portfolio interest on registered obligations described
in section 871(h)(2)(B) or 881(c)(2)(B) (other than foreign targeted
obligations) and bank deposit interest described in section
871(i)(2)(A). Because bank deposit interest is not subject to
beneficial owner documentation requirements under current rules, the
regulations propose a transition rule that would allow interest paid on
accounts in existence on or before a date that is 60 days after these
regulations are published as final regulations to continue to be
subject to current rules until December 31, 1999.
Paragraph (e) clarifies the meaning of payment for purposes of
withholding. An amount would be considered paid when it is includable
in income under the cash basis method of accounting. Under paragraph
(e)(2), income reallocated under section 482 from a U.S. person to a
related foreign person would be considered a payment for withholding
tax purposes. A payment would also be considered to be made if income
arose as a result of a secondary adjustment made after income is
allocated under section 482, unless the taxpayer entered into a
repatriation agreement that eliminated the liability for withholding.
Paragraph (e)(3) provides that income is not considered paid if it is
blocked under certain executive authority, but is considered paid on
the date the blocking restriction is removed and, therefore, subject to
withholding as of that date. Paragraph (e)(4) provides special payment
rules for dividends. These rules are similar to those in effect for
purposes of backup withholding. See Sec. 31.3406(b)(2)-4. Paragraph
(e)(5) coordinates the payment election for branch interest tax under
Sec. 1.884-4(c)(1) with section 6049 and the withholding provisions
under section 1441.
Section 1.1441-3 Amounts Subject to Withholding
Paragraph (a) restates the rule in Sec. 1.1441-2(a)(1) of the
existing regulations that withholding is generally imposed on the gross
amount of income. Paragraph (b) provides for special withholding rules
for interest. Paragraph (b)(1) restates the rule in Sec. 1.1441-3(c)(3)
of the existing regulations that requires withholding on the entire
amount of stated interest owed on an interest-bearing obligation,
regardless of the character of the amounts paid. The heading is
modified to eliminate any inference that this rule is limited to
payments on defaulted interest coupons. Paragraph (b)(2) restates the
exemption from withholding in Sec. 1.1441-4(h) of the existing
regulations regarding sales of obligations between interest payment
dates. An anti-abuse rule is added that would require withholding where
the withholding agent knew or had reason to know that the sale
transaction was part of a plan the principal purpose of which was to
avoid withholding through a pattern of sales and repurchases.
Paragraph (c) provides rules relating to corporate distributions
and substantially relieves the withholding burden imposed under
Sec. 1.1441-3(b) of the existing regulations on these distributions.
Under the proposed regulations, a corporation could determine the
amount of a distribution subject to withholding based on a reasonable
estimate of available earnings and profits for the taxable year. A
corporation that made a reasonable estimate, but nonetheless
underwithheld, would remain liable for the amount of tax underwithheld
(and interest), but not penalties. These proposed regulations adopt the
same ``reasonable estimate'' standard as is provided under
Sec. 31.3406(b)(2)-4(c)(2). Under paragraph (c)(2)(ii), an intermediary
could rely on a reasonable estimate represented by the distributing
corporation. The distributing corporation would be made liable for any
amount of underwithholding where the withholding agent had relied on
the representation and the estimate had not been reasonably determined.
Paragraph (c)(3) proposes special procedures for withholding on
certain distributions made by a Regulated Investment Company (RIC). In
order to determine whether a withholding obligation arises in that
case, a RIC would benefit from the same exceptions that would apply to
other corporations for distributions payable in stock or stock rights
or distributions treated in part or in full as in exchange for stock.
In addition, the proposed regulations provide that no withholding is
required for a distribution that is a capital gain dividend defined in
section 852(b)(3)(C) or an exempt interest dividend defined in section
852(b)(5)(A). Special procedures are proposed for implementing these
exemptions, however, because a RIC must specifically designate the
extent to which a distribution falls under one of these provisions.
Under applicable rules, the designation may be made as late as 60 days
after the close of the RIC's taxable year, and after making the
designation, the RIC may find that the amount so designated exceeds
what the Code and the regulations allow. This presents special
difficulties under section 1441, which assumes that the amounts subject
to withholding are fixed at the time they are paid.
To address these special difficulties, paragraph (c)(3) would allow
a RIC to designate interim distributions as being subject to section
852(b)(3)(C) or 852(b)(5)(A). If it later determined that the
designation was in excess of what was permitted and, as a result, had
underwithheld, the RIC would have to satisfy the tax liability and
could adjust the withholding pursuant to proposed Sec. 1.1461-2(b). A
RIC would not be subject to penalties for failure to withhold timely,
provided the designation was based upon a reasonable estimate when
made. However, interest would apply under section 6601. In addition,
the RIC might be liable for penalties if the IRS determined that the
estimates were not reasonably determined.
Paragraph (d) restates, without significant changes, the rule in
Sec. 1.1441-3(d) of the existing regulations regarding withholding on
the full amount realized from the sale of property where the
withholding agent does not know the amount of gain subject to
withholding. A withholding agent may, however, determine gain based on
the beneficial owner's withholding certificate if it indicates the
beneficial owner's basis in the property sold. This rule is of limited
application as most capital gains are exempt from withholding under
section 1441.
Paragraph (e) restates the rule in Sec. 1.1441-7(c) of the existing
regulations pertaining to payments in kind. The property conversion
requirement under current rules would be made optional. Instead, the
withholding agent could choose to obtain payment from another source.
The regulations further propose to clarify that the amount of a payment
in kind is measured by the fair market value of the property
transferred or of the services provided. Payments made in foreign
currency require a conversion of the amount of tax using the spot rate
(as defined in Sec. 1.988-1(d)(1)) or a reasonable spot rate
convention. Paragraph (e)(3) provides guidance
[[Page 17626]]
where the withholding agent's satisfaction of the beneficial owner's
tax liability constitutes additional income to the beneficial owner
that is subject to withholding. In that case, the final withholding tax
liability would be calculated under a gross-up formula.
The provisions currently stated under Sec. 1.1441-3(j), relating to
conduit financing arrangements, are proposed to be incorporated without
change into a new paragraph (f). These provisions are not reproposed.
The address rule in Sec. 1.1441-3(b)(3) of the existing regulations
would be eliminated and replaced by requirements to furnish appropriate
documentation or to establish foreign status and, if applicable,
residence in a treaty country. See proposed Sec. 1.1441-1(e) and
1.1441-6. Section Sec. 1.1441-3(c)(1) requiring withholding in the case
of interest paid on obligations issued by the U.S. government would be
deleted as unnecessary given the provisions in Sec. 1.1441-2(a)
describing income subject to withholding. Section Sec. 1.1441-3(c)(4)
addressing unknown owners would also be deleted because the presumption
provisions in Sec. 1.1441-1(f) provide guidance. The special rules for
tax-free covenant bonds issued prior to 1934 are proposed to be
deleted. Comments are solicited as to whether these rules are still
necessary.
Section 1.1441-4 Certain Exemptions From Withholding
Paragraph (a)(1) restates, without significant change, the
provisions in Sec. 1.1441-4(a) of the existing regulations regarding
the exemption from withholding for certain income effectively connected
with the conduct of a trade or business within the United States. The
regulations clarify that the exemption under this section does not
apply to claim an exemption under an income tax treaty (i.e., income
not attributable to a permanent establishment). Claims of treaty
benefit must be made under the procedures described in proposed
Sec. 1.1441-6.
Under paragraph (a)(2)(i), a withholding agent could rely on a
claim that income is effectively connected with the conduct of a trade
or business within the United States if it held a withholding
certificate so stating. The regulations do not permit a withholding
agent to rely on a qualified intermediary withholding certificate to
grant a reduced rate of withholding for income claimed to be
effectively connected, except in the case of a qualified intermediary
that is a partnership acting for its own account. A partnership that
does not claim to be a qualified intermediary could also furnish an
intermediary withholding certificate described in proposed Sec. 1.1441-
1(e)(3)(iii) (i.e., the transmittal certificate normally required from
a partnership transmitting its partners' documentation under the
procedures described in proposed Sec. 1.1441-5(b)). For purposes of
claiming an effectively connected income exemption, it would not be
necessary to attach the partners' documentation to the certificate
since the exemption is available regardless of the status of the
partners and, under section 1446, the partnership is required to
withhold. The validity period of a withholding certificate used to
claim an effectively connected exemption is proposed to be extended
from one year to three years (subject to amendment if a change in
circumstances affected the character of the income that the beneficial
owner anticipated would be effectively connected). This rule should
significantly ease the burden on continuing transactions that generate
effectively connected income every year.
The regulations propose to eliminate the requirement that the
certificate be attached to the Form 1042-S; the withholding agent would
be required to state the beneficial owner's TIN on the Form 1042-S. See
proposed Sec. 1.1461-1(c)(1)(i). If the withholding certificate were
silent as to whether the income is effectively connected or if the
required documentation were lacking, incorrect, or unreliable, the
withholding agent should presume that the income is not effectively
connected.
The rules provided in Sec. 1.1441-4(f) of the existing regulations
are proposed to be restated in a new paragraph (a)(2)(ii) and are not
reproposed. Paragraph (a)(2)(iii) provides for special rules for
payments made to joint owners that would require each joint owner to
provide a withholding certificate certifying that the income is
effectively connected with a trade or business in the United States.
These rules are consistent with the joint owners rules provided under
the section 3406 regulation. See Sec. 31.3406(h)-2(a).
Paragraph (a)(3) provides that no withholding is required on income
from national principal contracts regardless of whether a withholding
certificate is provided. However, such income would have to be reported
on a Form 1042 and 1042-S. This rule would significantly simplify the
paper flows currently associated with these transactions.
Paragraph (a)(4) parallels the rule in proposed Sec. 1.1441-1(f)(5)
regarding the consequences of acting in a manner contrary to prescribed
presumptions. Late received documentation could relieve the withholding
agent from the tax liability. However, an interest charge would apply
under section 6601 on the amount that should have been withheld even
if, ultimately, there is no underlying tax liability. In addition,
penalties might apply.
Paragraph (b) of the existing regulations concerning compensation
for personal services of an individual is substantially unchanged. A
new paragraph (b)(1)(ii) is added to require that withholding on
distributions from certain qualified pension plans and annuities occur
under section 1441 rather than under section 3405 as was required under
Sec. 1.1441-4T(b)(ii) (which expired on February, 1993). A new
paragraph (b)(1)(vi) is also added that would allow employers to wage
withhold on compensation that is otherwise exempt from wage withholding
by reason of section 3402(e). This rule provides relief for employers
of nonresident alien individuals who derive income from sources partly
within and partly without the United States on a regular basis (e.g.,
crew members working on cruise ships). Without this rule, employers
would have to withhold at the 30 percent rate instead of the lower wage
withholding rate.
The provisions under paragraph (b)(2) of the existing regulations
(dealing with a claim of reduced rate of withholding on personal
service income under an income tax treaty) are unchanged with one
exception. The 10-day review rule in paragraphs (b)(2)(i) and (iv)
would be extended to 20 days. This extension is necessary because of
the increase in the number of Forms 8233 that the IRS receives.
Paragraph (b)(6) is added to eliminate the requirement in
Sec. 1.1441-3(e) of the existing regulations to pro-rate the personal
exemption based on the period during which a nonresident alien
individual is present in the United States during the taxable year.
Therefore, the entire personal exemption amount could be taken into
account to determine the base amount on which to withhold.
Paragraph (c) incorporates the provisions in Sec. 1.1441-2(c) of
the existing regulations dealing with participants in certain exchange
or training programs and provides additional guidance with respect to
payments of scholarship or fellowship grants to nonresident alien
individuals. It reflects 1988 and 1994 statutory amendments to section
1441 concerning certain visa holders. Such income is subject to a lower
withholding rate of 14 percent under section 871(c). The regulations
propose an alternate withholding election so that taxpayers
[[Page 17627]]
may choose to be subject to the withholding rates applicable to wages,
which in many cases are likely to result in a lower rate. Also,
individuals who receive both scholarship or grants and compensation
income from the same withholding agent could choose to combine all
income on Form 8233 to claim a reduced rate under a tax treaty for both
types of income.
Paragraphs (d) (dealing with annuities) and (e) (dealing with
central banks of issue and the Bank of International Settlement) merely
reflect conforming changes regarding the proposed documentation
requirements.
Section 1.1441-5 Withholding on Payments to Pass-Through Entities
The existing regulations in Sec. 1.1441-5 address claims of U.S.
status. These provisions are restated, with modifications, in proposed
Sec. 1.1441-1(d).
This section, as revised, would provide special withholding
procedures for payments to partnerships. Paragraph (a) deals with
domestic partnerships. As under current regulations, payments to
domestic partnerships would not require withholding, even if the
partners were foreign persons. A domestic partnership is the
withholding agent for items of income included in the distributive
share of a partner that is a foreign person. Paragraph (b) proposes to
modify the current rules for payments to foreign partnerships to permit
a look-through approach, so that claims of reduced rate could be
presented by the partnership on behalf of the partners (including
partners that are U.S. persons). The look-through approach would apply
through tiers of foreign partnerships. In the alternative, a foreign
partnership could, under an agreement with the IRS, become a qualified
intermediary so that the partners' documentation would not have to be
furnished to the withholding agent. See proposed Sec. 1.1441-1(e)(5)
for rules applicable to qualified intermediaries. Paragraph (b)(2)
clarifies how the look-through approach would operate in the case of a
tiered partnership. Generally, the partnership would have to look
through tiers until it reached the beneficial owner (as determined
under proposed Sec. 1.1441-1(c)(6)). However, it could stop at any
level in the chain that constitutes a payee (as defined in proposed
Sec. 1.1441-1(c)(3)).
Section 1.1441-6 Claim of a Reduced Rate Under an Income Tax Treaty
The proposed regulations eliminate the ``address'' rule in
Sec. 1.1441-6(c)(1) of the existing regulations and in regulations
under several income tax treaties, which permits a withholding agent to
grant a reduced rate of tax under a treaty based upon the address of
the payee (including a nominee). Paragraph (b)(1) provides general
procedures for reliance by a withholding agent on a claim for a reduced
rate of withholding under a treaty based upon the documentation
requirements described in proposed Sec. 1.1441-1(e)(1)(i). A
withholding agent could rely upon a beneficial owner withholding
certificate described in proposed Sec. 1.1441-1(e)(2) as establishing
both foreign status and residence in the treaty country provided a TIN
is stated on the certificate. In addition, in the case of dividends
with respect to which an advance ruling is required in order to secure
the reduced rate of tax under the tax treaty, the withholding
certificate would have to state that the beneficial owner has obtained
such a ruling. Such rulings are currently required under a very limited
number of tax treaties: Austria, Denmark, Ireland, and Switzerland. See
paragraph (e) regarding the procedures for obtaining such a ruling.
Further, for amounts exceeding $500,000 in the aggregate for the
taxable year paid to a beneficial owner related to the withholding
agent, the beneficial owner would have to indicate on the certificate
that it will file a Form 8833 under section 6114. The regulations under
section 6114 are proposed to be modified accordingly. Claims of treaty
benefit could also be made on the basis of an intermediary withholding
certificate described in proposed Sec. 1.1441-1(e)(3). Further, a U.S.
withholding agent could act through an authorized foreign agent
described in proposed Sec. 1.1441-7(c)(2).
Paragraph (b)(2) provides special rules for certain dividends paid
on stock that is traded on a U.S. established market. For these
dividends, the withholding agent could grant treaty benefits based upon
the same documentation procedures as are proposed to apply to portfolio
interest on registered obligations (e.g., no TIN is required on a
beneficial owner withholding certificate). See proposed Sec. 1.871-
14(c)(2). Paragraph (b)(3) provides that the competent authorities may
agree to different certification procedures under an applicable tax
treaty.
Paragraph (b)(4) clarifies the manner in which beneficial owners
could claim benefits under a tax treaty where foreign law principles
apply to identify the beneficial owner of a payment made to a foreign
entity. Under proposed Sec. 1.1441-1(c)(6)(ii)(B), the beneficial owner
would be determined based upon the laws of the country whose tax treaty
with the United States is invoked to claim a reduced rate of tax.
These procedures are intended to apply in a reciprocal manner.
Therefore, paragraph (b)(4)(iv) provides that, if the IRS determined
that a treaty partner is not identifying beneficial owners in a similar
manner and, as a result, denies benefits under an otherwise applicable
treaty to an entity organized in the United States or to interest
holders residing in the United States, the benefits of these procedures
could be suspended for entities organized, or interest holders
residing, in that country until the competent authorities reached a
reciprocal agreement on the application of treaty benefits in such
cases. Suspension of benefits under this provision would be effective
on a prospective basis only.
Paragraph (c) states the rules regarding certification of a TIN by
the IRS. These procedures would apply to payments for which a Form W-8
is furnished with a TIN. They are directed to beneficial owners (or
their agents) and are designed to ensure that the IRS can verify the
beneficial owner's status as a resident of a treaty country based upon
the information return later filed by the withholding agent on Form
1042-S. If the IRS determined that the TIN does not support the
beneficial owner's claim of residence in the treaty country, it would
so notify the withholding agent. The IRS could waive the requirement
that a taxpayer certify its TIN with the IRS when it implements
procedures to verify a taxpayer's status directly with a foreign
competent authority. The IRS could also certify a TIN based upon
representations made by a qualified intermediary.
The IRS would certify a TIN based upon a certificate of residence
or documentary evidence. Paragraph (c)(3) describes a certificate of
residence as a certificate issued by the tax authorities of the treaty
country certifying that the taxpayer files income tax returns as a
resident of that country and is current on his filing obligations.
Paragraph (c)(4) describes documentary evidence as a document that is
no more than three-years old and sufficiently identifies the person and
the residence of that person in the treaty country.
Paragraph (e) incorporates the provisions in existing regulations
that condition the benefit of the reduced five-percent rate on related
party dividends to an advance ruling from the IRS determining that the
parent-subsidiary relationship is not established or maintained with
the principal purpose to secure the reduced rate. The ruling would be
required only
[[Page 17628]]
if so required under an applicable treaty. It must be requested prior
to the payment of the dividend. While a request made after payment
would not disqualify the dividend from the benefit of the reduced rate
if a favorable ruling is later obtained, the withholding agent would
nevertheless withhold. Failure to do so would subject the withholding
agent to an interest charge under section 6601. Also, the withholding
agent would be liable for the tax and related penalties if a favorable
ruling were not issued. See proposed Sec. 1.1441-1(f)(5) regarding the
consequences to the withholding agent when it does not withhold the
full amount even though it does not hold the required documentation
prior to payment.
The regulations are proposed to be effective for payments made
after December 31, 1997. However, certificates issued on or before the
date that is 60 days after these regulations are published as final
regulations will continue to be valid until they expire, based upon
existing regulations. In addition, because no documentation is
currently required for dividends, the regulations propose a transition
rule that would allow dividends paid on publicly-traded stock to
accounts in existence on or before a date that is 60 days after these
regulations are published as final regulations to continue to be
subject to the current address rule until December 31, 1999.
Section 1.1441-7 General Provisions Relating to Withholding Agents
This section modifies Sec. 1.1441-7 of the existing regulations
dealing with withholding agents. Paragraph (a) clarifies that a
withholding agent is any person that has the control, receipt, custody,
disposal, or payment of an item of income and not merely a person that
pays or causes an amount to be paid. If there are several withholding
agents with respect to one payment, only one tax should be withheld and
only one return should be filed.
Paragraph (b) restates the ``actual knowledge or reason to know''
standards applicable to a withholding agent as in effect under current
law. The IRS and Treasury are aware that the application of a ``reason
to know'' standard without limitation may be impractical in the case of
financial institutions handling large volumes of transactions for many
customers. Therefore, the regulations propose to limit the due
diligence expected from withholding agents paying portfolio interest,
deposit interest, or dividends on publicly traded stock. Under
paragraph (b)(2)(ii), a withholding agent's due diligence regarding a
beneficial owner certificate would be limited to examining the address
stated on the certificate. If this information indicated that the
beneficial owner might be a U.S. taxpayer or conflicted with
information that the withholding agent otherwise had in its records for
that account, the withholding agent would have to obtain specified
documentation to verify the beneficial owner's claim of foreign status
or residence. Paragraph (b)(3) proposes to incorporate rules consistent
with those under section 3406 dealing with universal accounts.
Therefore, if the withholding agent used a system of universal
accounts, it would be required to use that system to determine the
scope of its due diligence under the regulations.
Paragraph (c) restates and expands the provisions in Sec. 1.1441-
7(b) of the existing regulations pertaining to authorized agents and
adds provisions regarding an authorized foreign agent. This new concept
is intended to facilitate compliance by U.S. withholding agents that
make payments through their agent abroad. By imputing the acts of a
foreign agent to a U.S. withholding agent, the required documentation
could remain with the foreign agent and would not have to be provided
to the U.S. withholding agent. However, the regulations require that
the agent be ``authorized'' in order to insure that the IRS can verify
the foreign agent's compliance with the withholding procedures, which,
in turn, would determine whether the U.S. withholding agent has itself
complied. See proposed Sec. 1.1461-1 (b)(2)(iii) and (c)(4)(iii)
regarding corresponding filing requirements.
Section Sec. 1.1441-7(b)(3) of the Existing Regulations is Proposed
to be Deleted, Pending Comments on the Continuing Necessity of
Providing Guidance on Tax-Free Covenant Bonds
Paragraph (d) restates without changes the provisions in
Sec. 1.1441-7(a)(2) of the existing regulations dealing with the United
States as a withholding agent. Paragraph (e) restates without changes
the provisions in Sec. 1.1441-3(c)(2) of the existing regulations
dealing with assumed obligations. Section Sec. 1.1441-7(c) of existing
regulations dealing with payments other than money would be deleted and
restated in proposed Sec. 1.1441-3(f) dealing with withholding
procedures for payments in kind.
Section 1.1441-8T Foreign Government and International Organization
Exemption From Withholding
This section exempts from withholding certain types of income
excluded from gross income under section 892 that are paid to foreign
governments and international organizations. Revisions are proposed to
paragraph (b) of the existing regulations to conform the certification
procedures to the proposed withholding certificate procedures described
in proposed Sec. 1.1441-1(e)(1)(i). Therefore, Form 8709 would be
replaced by the standard withholding certificate (Form W-8), meaning
that foreign governments and international organizations would be
relieved from the requirement to furnish annual certification. A
foreign government or an international organization would not be
required to furnish a tax identifying number. However, if it did, the
certificate would be valid indefinitely for income required to be
reported on Form 1042 or for which the withholding agent reports the
TIN to the IRS. See proposed Sec. 1.1441-1(e)(4)(ii).
Section 1.1441-9 Exemption From Withholding on Exempt Income of
Foreign Tax-Exempt Corporations and Foreign Private Foundations
This new section provides that income paid to a foreign
organization described in section 501(c) would not be subject to
withholding under section 1442 if the income were not subject to tax as
unrelated business income under section 511 and the entity were exempt
from tax under section 501(a). For purposes of granting a reduced rate,
a withholding agent could rely on a withholding certificate satisfying
the requirements of proposed Sec. 1.1441-1(e)(1). A beneficial owner
certificate must include a taxpayer identifying number and must certify
that it will not be subject to tax under section 511, and that the IRS
has issued a determination letter. In the absence of such a letter, the
beneficial owner should provide an opinion of counsel stating that the
organization meets the conditions for a tax exemption under section
501(c). Since the affidavit requirement for foreign foundations is
proposed to be eliminated, foreign tax-exempt organizations would be
subject to the same documentation requirements as would apply to
foreign foundations under proposed Sec. 1.1443-1(b).
[[Page 17629]]
Section 1.1461-1 Deposit and Return of Tax Withheld
The provisions in Sec. 1.1461-1 of the existing regulations
pertaining to ownership certificates for bond interest are proposed to
be deleted. Interest on bonds described in this section would be
subject to the regular procedures provided in the regulations under
sections 1441 and 1443. The special rules would no longer be necessary
in view of the substitute procedures provided in the proposed
regulations. Comments are solicited as to the continuing need for
provisions governing tax-free covenant bonds.
Section 1.1461-1 contains proposed procedures for withholding
agents to pay the withheld tax and file the annual income tax return
and information returns with respect to payments of income subject to
section 1441 withholding. Paragraph (a) restates Sec. 1.1461-3 of the
existing regulations regarding the payment of amounts withheld. The
provisions regarding pre-1973 years are proposed to be deleted as
obsolete. Paragraph (b) revises Sec. 1.1461-2(b) of the existing
regulations on the filing of returns of amounts withheld. Paragraph
(b)(1) clarifies that the Form 1042 must include the total amount of
income paid during the preceding calendar year. Also, the filing date
is changed from March 15 to February 28 in order to conform with the
filing dates for Form 1099. The proposed regulations would eliminate
the requirement to attach the Forms 1042-S to the return. Instead, the
Forms 1042-S would have to be filed separately with a transmittal form.
See paragraph (c)(1)(i).
Paragraph (b)(2) describes applicable return requirements for
multiple withholding agents. Generally, as under current rules, only
one Form 1042 would have to be filed for an item of income. Exceptions
to this general rule are provided for payments to qualified
intermediaries where the U.S. withholding agent would have to file a
return, regardless of whether the qualified intermediary assumed
primary withholding responsibility for the payment and regardless of
whether the qualified intermediary were also required to file a return
under its agreement with the IRS. Another exception would be provided
for payments to an authorized foreign agent. In that case, the U.S.
withholding agent and the authorized foreign agent would each be
required to make a return. The return of the withholding agent would
report amounts paid to the authorized foreign agent. The return of the
authorized foreign agent would report amounts paid to the beneficial
owner or its intermediaries.
Paragraph (b)(3) requires that changes to the originally filed Form
1042 be filed on an amended return on a new Form 1042X. This change is
designed to facilitate the processing of returns by the IRS and would
be consistent with the procedures for filing other amended returns.
Paragraph (c) revises the provisions in Sec. 1.1461-2(c) of the
existing regulations regarding the filing of information returns on
Form 1042-S. As under existing regulations, any income subject to
withholding must be reported on an information return on Form 1042-S
and a return would be due irrespective of the fact that no tax was
withheld (e.g., the beneficial owner claimed an exemption or the
withholding agent failed to withhold).
The provisions of Sec. 1.1461-2(c)(3) of the existing regulations
requiring that the name of the beneficial owner be reported on Form
1042-S would be retained. However, more detailed guidance is provided
regarding reporting of income paid to intermediaries. See paragraph
(c)(4) below dealing with multiple agents. The proposed regulations
eliminate as unnecessary the requirements under existing regulations to
attach any certificate, form, or statement to the return.
Paragraph (c)(1)(ii) proposes new rules pertaining to joint owners.
A single Form 1042-S may be provided to one of the joint owners. In
that case, the withholding agent should provide the Form 1042-S to the
joint owner whose status determines the tax withheld. Further, any one
owner may request a separate Form 1042-S, but the total amounts of
income and tax reported paid and withheld on all the forms 1042-S may
not exceed the total amount of income actually paid and tax actually
withheld.
Paragraph (c)(2) replaces Sec. 1.1461-2(c)(1) of the existing
regulations and states that the items of income that are subject to
reporting on Form 1042-S are those items of income subject to
withholding, income from a notional principal contract, and amounts
described in sections 6041 through 6050P that are paid to a foreign
person and are not exempt from reporting under those sections or the
corresponding regulations. This provision is intended to standardize
reports of payments to foreign persons to the IRS and should simplify
compliance by withholding agents. Paragraph (c)(2)(ii) lists the
exceptions to reporting on a Form 1042-S. As under current regulations,
items of income exempt from reporting include portfolio interest on a
bearer obligation and original issue discount on short-term
obligations. An explicit exception for reporting on deposits described
in section 871(i)(2)(A) would be added. However, bank deposit interest
that is subject to withholding under section 1441 (because, for
example, documentation was not furnished but payments were made to a
foreign address; see special grace period provisions under proposed
Sec. 1.1441-1(f)(2)(i)(B)) would have to be reported. Also, interest on
bank deposit interest paid to Canadian residents would have to be
reported based upon provisions under final regulations under section
6049 published in the Rules and Regulations section of this issue of
the Federal Register. In addition to the items excepted from reporting
under existing Sec. 1.1461-1(c)(1), other items are added that prevent
duplicative reporting. Finally, the proposed regulations would clarify
that to the extent group-term life insurance and other items of income
required to be reported pursuant to the provisions in Secs. 1.6041-2
and 1.6052-1 can be associated with wages required to be reported on a
Form W-2, then such items may also be reported on a Form W-2 instead of
a Form 1042-S.
Paragraph (c)(3) restates the provisions of Sec. 1.1461-2(c)(2) of
the existing regulations regarding the types of information to be
included on Form 1042-S. It clarifies that the information could be
based on the information furnished by or on behalf of the beneficial
owner, as corrected based on the withholding agent's actual knowledge
if necessary. In addition, the Form 1042-S would have to include the
TIN of the beneficial owner if required to be shown on the withholding
certificate. Also, a beneficial owner's TIN that the beneficial owner
is not required to furnish but which is actually known to the
withholding agent would have to be reported on Form 1042-S.
Paragraph (c)(4) is added to provide rules for filing Form 1042-S
where there are multiple withholding agents. Generally, as with the
Form 1042, only one Form 1042-S must be filed with respect to an item
of income. Current rules requiring the withholding agent to identify
the beneficial owners of payments made to agents, nominees, or
representatives, if known, would be eliminated for payments to an
intermediary that either claims to be a qualified intermediary or is an
authorized foreign agent. In all other cases, the information on a Form
1042-S must be reported for each beneficial owner. This would modify
Sec. 1.1461-
[[Page 17630]]
2(c)(3)(i) of the existing regulations providing that beneficial owner
information be reported only if known. For payments made to a person
claiming to be a qualified intermediary or is an authorized foreign
agent, each withholding agent in the chain would be permitted to report
on one Form 1042-S reflecting the payment made to the next qualified
intermediary or authorized foreign agent in the chain. In the case of a
payment to an authorized foreign agent, however, the withholding agent
would be excused from the requirement to report the beneficial owner
information only to the extent that the authorized foreign agent
actually complies with the filing requirements under paragraph
(c)(4)(iv).
Paragraph (c)(5) is added to cross-reference the magnetic media
filing requirements applicable to Forms 1042-S under Sec. 1.6011-1(c).
Generally, a filer of 250 or more Forms 1042-S must file on magnetic
media, unless a waiver is granted.
Paragraph (d) would allow a withholding agent to provide a list of
taxpayer identifying numbers furnished by or on behalf of beneficial
owners to the extent the agent has relied upon such number to grant a
reduced rate of withholding tax. This is a special filing procedure
under which the reporting of the associated amount of income would not
be have to be reported.
Finally, paragraph (e) clarifies the provisions regarding
indemnification of withholding agents. Section 1461 indemnifies a
withholding agent from the claim of any person for the amount of any
payments made in accordance with the provisions of chapter 3 of the
Code. Some commentators and withholding agents have expressed concerns
that section 1461 could be interpreted to limit indemnification to
amounts that were required to be withheld. The proposed regulations
clarify that a withholding agent that withheld based upon a reasonable
belief that such amount was withheld in accordance with chapter 3 of
the Code would be treated for purposes of section 1461 as having
withheld in accordance with chapter 3 (even though it is later
determined that the withholding agent's application of the rules was
incorrect). Additionally, a withholding agent would be indemnified
against any claim of any person for the amount of any withholding made
in accordance with the grace period provisions under proposed
Sec. 1.1441-1(f)(2)(ii).
Paragraph (f) restates without changes Sec. 1.1461-2(f) of the
existing regulations dealing with amounts that may not constitute gross
income, in whole or in part. This rule would apply to amounts subject
to withholding under proposed Secs. 1.1441-3(b)(1) or 1.1441-3(d).
Paragraph (g) is added to provide guidance on requests of
extensions of time to file Form 1042, Forms 1042-S, and to furnish
Forms 1042-S to recipients. The rules with respect to such requests
would parallel those under section 6081. A change would be made,
however, to the form to be used for making a request for an extension
of time to file Forms 1042-S.
Currently, these requests are made on Form 2758; the proposed
regulations require such a request to be made on Form 8809.
Section 1.1461-2 Adjustments for Overwithholding and Underwithholding
of Tax
This section has also been renumbered and, although the rules are
the same as those of the current regulations in Sec. 1.1461-4, it has
been redrafted to simplify the language and to update the examples.
Specifically, the rule for reimbursements remains the same, but the
rule in proposed Sec. 1.1461-4(b) with respect to the adjustment of tax
payments or deposits is now titled ``set-offs,'' which more accurately
describes the adjustment process.
Section 1.1462-1 Withheld Tax as Credit to Recipient of Income
Section 1.1462-1(a) is clarified by stating that the amount of
income from which the tax is required to be withheld includes the
amount calculated under the gross-up formula in proposed Sec. 1.1441-
3(e)(3).
Section 1.1463-1 Tax Paid by Recipient of Income
This section provides that if the income tax for which the
beneficial owner and the withholding agent have joint liability under
section 1461 has been paid by either one of them, the IRS may not
collect from the other, regardless of the original liability for the
tax. This section has been changed to reflect the 1989 statutory
amendment (Pub. L. 101, 239, Sec. 7743(a)) that provides for the
imposition of interest and penalties on the party that fails to
withhold.
Prior Proposed Regulations Under Section 871 and Chapter 3 of the Code
In 1976, proposed regulations were published relating primarily to
withholding and original issue discount. In 1984, proposed regulations
were published relating primarily to claims of benefits under income
tax treaties. These proposed regulations were contained in project
number LR-2043, published on July 12, 1976 (41 FR 28517) and project
number LR-271-83, published on September 10, 1984 (49 FR 35511). Both
proposed regulations are being withdrawn on April 22, 1996.
Regulations Under Sections 6041, 6041A, 6042, 6045, 6049, and 6050N
These proposed regulations provide exceptions from information
reporting and backup withholding under sections 3406, 6041, 6041A,
6042, 6045, 6049, and 6050N for payments to foreign beneficial owners
and for income paid by certain foreign payors or middlemen.
Generally the regulations clarify and simplify the regulations
under sections 3406, 6041, 6042, 6045, and 6049 that were proposed on
February 29, 1988, at 53 FR 5991 (1988) (the 1988 proposed
regulations). In addition, the regulations under these sections are
proposed to be revised. The regulations also would add new exceptions
from reporting (including the addition of middleman rules) to sections
6041, 6041A, and 6050N. These proposed revisions and new exceptions
from reporting parallel the exceptions under these proposed regulations
under sections 6042 and 6049. Further, parallel provisions are found in
each section for: definitions of terms (such as non-U.S. payor or non-
U.S. middleman); presumptions as to whether a payee is U.S. or foreign
where the required documentation is lacking, incorrect, or unreliable;
rules for payments to joint owners; and rules for converting into U.S.
dollars amounts paid in foreign currency. In addition, the proposed
regulations specify that the standard of knowledge applicable to payors
and middlemen would be actual knowledge. Thus, the ``reason to know''
standard would not apply for purposes of the reporting provisions.
The subparagraphs under proposed Sec. 1.6042-3(a) (dealing with the
definition of dividends for purposes of information reporting under
that section) are proposed to be restated with changes in drafting
only. The substantive rules in that paragraph would be unchanged and
are, therefore, not reproposed. Also, Sec. 1.6042-3(b) (3) and (4) of
the 1988 proposed regulations (relating to capital gain dividends from
regulated investment companies and payments to exempt recipients) would
be redesignated as subparagraphs (vii) and (viii), respectively, of
proposed Sec. 1.6042-3(b)(1). These rules are not reproposed.
This document also proposes to revise the definition of an exempt
recipient in the case of a corporation. Section Sec. 1.6049-
4(c)(1)(ii)(A) of the 1988 proposed regulations provides that a person
would be treated as a corporation, and therefore as an exempt
[[Page 17631]]
recipient not subject to information reporting, if the name of the
payee or a corporate resolution provided to the payor clearly indicates
corporate status (the eyeball test). These proposed regulations retain
the eyeball test of the 1988 proposed regulations for payments (1)
other than interest, dividends and broker proceeds paid to accounts
established after a date that is 60 days after the date that these
regulations are published as final regulations in the Federal Register
and (2) other than interest, dividends and broker proceeds that are not
paid to a person to whom the payor has an account relationship. For
interest and dividends paid to a new account, the entity would be
required to provide either a corporate resolution or similar document
that clearly indicates corporate status, a Form W-9 with an EIN, or a
Form W-8. For interest and dividends paid where an account relationship
does not exist, the payor may continue to rely on the eyeball test if
the payor also has a mailing address of the payee in the United States.
The IRS and Treasury understand that financial institutions routinely
request a corporate resolution when opening accounts for entities.
Therefore, requiring such a document would not significantly increase
burden and would improve compliance. This proposed rule is reflected in
paragraph (c)(1)(ii)(A). In addition, the list of international
organizations under paragraph (c)(1)(ii)(G) is proposed to be
eliminated as a simplification measure.
In addition, the 1988 proposed regulations under Sec. 1.6049-5 are
proposed to be substantially redrafted, although without significant
substantive changes. Paragraph (b)(6) provides an exception from
reporting for amounts from sources outside the United States paid
outside the United States by a non-U.S. payor or non-U.S. middleman.
This provision duplicates that found in the 1988 proposed regulations
at proposed Secs. 1.6049-5(b)(8) and 1.6049-5(d)(3) (i), (ii), and the
foreign source portion of proposed Sec. 1.6049-5(d)(3)(iii).
Paragraph (b)(7) (which corresponds to Sec. 1.6049-5(c)(6) of the
1988 proposed regulations) would except portfolio interest paid on
bearer obligations if paid outside the United States. In these proposed
regulations, this exception would not apply where a U.S. middleman acts
as a custodian, nominee, or other agent of the payee and collects the
amount for, or on behalf of, the payee, whether or not the middleman is
also acting as agent of the payor. Paragraph (b)(8) (which corresponds
to Sec. 1.6049-5(c)(6) of the 1988 proposed regulations) provides an
exception for portfolio interest paid on registered obligations.
The provisions of Sec. 1.6049-5(b)(9) of the 1988 proposed
regulations, which excepted from reporting amounts paid by an
international organization (or its agent) on an obligation issued by
the international organization are proposed to be incorporated in
paragraph (b)(9) of these new proposed regulations. These rules are not
reproposed.
Paragraph (b)(10) (which corresponds to Sec. 1.6049-5(c)(5)(ii) of
the 1988 proposed regulations) provides an exception for certain short-
term foreign targeted obligations. Paragraph (b)(11) (which corresponds
to Sec. 1.6049-5(e)(1) (the parenthetical language) and Sec. 1.6049-
5(e)(2) (i) and (ii) of the proposed 1988 proposed regulations)
provides an exception for certain foreign-targeted obligations issued
by persons engaged in the banking business. Although the 1988 proposed
regulations limited the exceptions at Sec. 1.6049-5(e)(2) (i) and (ii)
to Canadians, these proposed regulations expand the scope of the
exceptions to apply to all beneficial owners. However, as under the
1988 proposed regulations, the exception would not apply where a U.S.
middleman acts as an agent of the payee.
Paragraph (b)(12) (which corresponds to Secs. 1.6049-5(b)(7) and
(c) (1), (2), and (3) of the 1988 proposed regulations) would except
any amount of U.S. source interest subject to withholding under section
1441. Such interest would be required to be reported on a Form 1042-S
under proposed Sec. 1.1461-1(c). This exception would replace
Sec. 1.6049-5(b)(1)(vi), (b)(1)(vi)(B)(1) and (b)(2)(iv) of the
existing regulations, which provide an exception for reporting for bank
deposit interest paid to a foreign person, but only if a Form W-8 (or
documentary evidence in appropriate cases) is provided to the payor.
The withholding certificate requirement for bank deposit interest is
now found at proposed Sec. 1.1441-2(d)(2).
Paragraph (b)(13) provides a new exception for assets blocked
pursuant to an executive order.
Paragraph (b)(14) provides the general rule for exempting any other
amount of otherwise reportable interest based on specified
documentation furnished to the payor or middleman. The standards of
documentation are described in paragraph (c) and would generally
parallel the documentation standards proposed for purposes of claiming
a reduced rate of withholding under section 1441. Therefore, the payor
could rely on a beneficial owner or intermediary withholding
certificate described in proposed Sec. 1.1441-1(e)(1)(i) provided it
complied with the procedures described in proposed Sec. 1.1441-1(e)(4)
(iv) and (v) (dealing with on-line confirmation and notification
procedures). No taxpayer identifying number is required to be stated on
a beneficial owner withholding certificate. These proposed regulations
retain the permission under current regulations to furnish documentary
evidence instead of a certificate for payments made to an off-shore
account. The on-shore and off-shore distinction is similar to that
found in the 1988 proposed regulations. The provisions of the 1988
proposed regulations contained in paragraphs (d), (e), (f), (g), (h),
(i), and (l) are withdrawn. Proposed paragraphs (j) (relating to
payments outside the United States) and (k) (dealing with original
issue discount) of the 1988 proposed regulations would be renumbered as
paragraphs (e) and (f), respectively. The provisions in these
paragraphs are not restated.
Section 31.3401(a)(6)-1(e)--Income Exempt From Income Tax
This section is amended to reflect the new certification procedures
under proposed Secs. 1.1441-1(e).
Backup Withholding Regulations Under Section 3406
Several changes to the backup withholding regulations under section
3406 are proposed to conform those regulations to the proposed
information reporting and chapter 3 withholding regulations. Section
31.3406(d)-3 (c) would be amended to extend to 90 days the current 30-
day grace period applicable to readily tradeable instruments acquired
directly from a payor if the payment were made to a person for whom
indicia of foreign status existed, as described in proposed
Sec. 1.1441-1(f)(2)(i)(B).
Section 31.3406(g)-1(e) would revise the proposed regulations
contained in project number IA-224-82 published in the Federal Register
on September 27, 1990 (55 FR 39427) to restate the principles that no
backup withholding applies under section 3406 to reportable payments
made outside the United States even though documentary evidence of non-
U.S. status may be required in order to exempt the payment from 1099
reporting, unless the payor has actual knowledge that the payee is a
United States person. The regulations propose to add an exception for
notional principal contract payments that are made outside the United
States.
Amendments to Sec. 31.6413(a)-3
The regulations under Sec. 31.6413(a)-3 are proposed to be amended
in order to
[[Page 17632]]
allow payers to refund backup withholding in certain circumstances.
Those regulations currently prohibit a refund of backup withholding
except when erroneous withholding has occurred. It is proposed to
expand the definition of erroneous withholding to a situation where the
withholding agent backup withholds because the payee fails to provide
sufficient documentation as required under section 3406 and 1441 and
the regulations under these sections. Where an appropriate withholding
certificate is later provided, the withholding agent could treat the
earlier withholding as erroneous withholding. However, the withholding
certificate should to be received prior to the end of the calendar year
in which the payment is made and prior to the time the payor furnishes
a Form 1099 to the payee with respect to the payment for which the
withholding erroneously occurred. The amount refunded would be the
amount actually withheld less the amount required to be withheld, if
any, under chapter 3 of the Code.
Removal of Q&A Regulations
The existing regulations under part 35a are proposed to be removed
in order to reflect the proposed revisions in this document.
Amendments to Sec. 301.6109-1
Amendments to the regulations under this section are currently
pending to authorize the IRS to issue taxpayer identifying numbers to
certain foreign persons and to require a taxpayer to state a TIN on any
tax return filed (other than an information return). These regulations
are proposed to be further amended to require that a TIN be stated on
withholding certificates as may be required under the regulations
proposed under sections 1441, 1442, and 1443.
Amendments to Sec. 301.6114-1
The regulations under section 6114 are proposed to be amended to
require certain foreign entities to file a Form 8833 if they are
claiming to be qualified under a limitation of benefits provision under
an income tax treaty, even though the income is also reported on a Form
1042 by the withholding agent. The filing requirement would be limited
to payments between related parties that exceed $500,000 for the
taxable year. See proposed Sec. 1.1441-6(b)(1).
Amendments to Sec. 301.6402-3(e)
Paragraph (e) of the regulations under Sec. 301.6402-3 is proposed
to be amended to require that returns filed to claim a refund of tax
include the taxpayer's TIN. In addition, the Form 1042-S would have to
be attached to the return and also show the taxpayer's TIN.
Removal of Certain Regulations Under Tax Conventions
This document proposes to remove certain regulations issued under
income tax conventions between the United States and Greece, Germany,
Switzerland, Ireland, France, Austria, Pakistan, Sweden and Denmark.
Removal of these regulations will be done in consultation with the
competent authorities of these countries.
Special Analyses
It has been determined that this notice of proposed rulemaking is
not a significant regulatory action as defined in EO 12866. Therefore,
a regulatory assessment is not required. It has also been determined
that section 553(b) of the Administrative Procedure Act (5 U.S.C.
chapter 5) and the Regulatory Flexibility Act (5 U.S.C. chapter 6) do
not apply to these regulations, and, therefore, a Regulatory
Flexibility Analysis is not required. Pursuant to section 7805(f) of
the Internal Revenue Code, these regulations will be submitted to the
Chief Counsel for Advocacy of the Small Business Administration for
comment on their impact on small business.
Comments and Requests for a Public Hearing
Before these proposed regulations are adopted as final regulations,
consideration will be given to any written comments (a signed original
and eight (8) copies) that are submitted timely to the IRS. All
comments will be available for public inspection and copying. A public
hearing will be scheduled on a date, time, and place as will be
published in the Federal Register.
List of Subjects
26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
26 CFR Part 31
Employment taxes, Income taxes, Penalties, Pensions, Railroad
retirement, Reporting and recordkeeping requirements, Social security,
Unemployment compensations.
26 CFR Part 35a
Employment taxes, Income taxes, Reporting and recordkeeping
requirements.
26 CFR Part 301
Employment taxes, Estate taxes, Excise taxes, Gift taxes, Income
taxes, Penalties, Reporting and recordkeeping
26 CFR 502
Greece, Reporting and recordkeeping requirements, Tax treaties.
26 CFR Part 503
Germany, reporting and recordkeeping requirements, Tax treaties.
26 CFR Part 509
Switzerland, Reporting and recordkeeping requirements, Tax
treaties.
26 CFR Part 513
Ireland, Reporting and recordkeeping requirements, Tax treaties.
26 CFR Part 514
France, Reporting and recordkeeping requirements, Tax treaties.
26 CFR 516
Austria, Reporting and recordkeeping requirements, Tax treaties.
26 CFR Part 517
Pakistan, Reporting and recordkeeping requirements, Tax treaties.
26 CFR Part 520
Sweden, Reporting and recordkeeping requirements, Tax treaties.
26 CFR Part 521
Denmark, Reporting and recordkeeping requirements, Tax treaties.
Proposed Amendment to the Regulations
Accordingly, under the authority of 26 U.S.C. 7805, 26 CFR chapter
I is proposed to be amended as follows:
PART 1--INCOME TAXES
Paragraph 1. The authority citation for part 1 is amended by adding
entries in numerical order and removing the entry for Sec. 1.1441-4T to
read as follows:
Authority: 26 U.S.C. 7805 * * *
Section 1.1441-2 also issued under 26 U.S.C. 1441(c)(4) and 26
U.S.C. 3401(a)(6).
Section 1.1441-3 also issued under 26 U.S.C. 1441(c)(4) and 26
U.S.C. 3401(a)(6). * * *
Section 1.1441-6 also issued under 26 U.S.C. 1441(c)(4) and 26
U.S.C. 3401(a)(6).
Section 1.1441-7 also issued under 26 U.S.C. 1441(c)(4) and 26
U.S.C. 3401(a)(6). * * *
[[Page 17633]]
Sec. 1.163-5 [Amended]
Par. 2. In Sec. 1.163-5 paragraph (c)(2)(i)(B)(5) is amended by
removing the language ``subdivision (iii) of A-5 of Sec. 35a.9999-4T''
in the last sentence and adding ``Sec. 1.6049-5(c)(2)(ii)'' in its
place.
Par. 3. Section 1.165-12(c) is amended by:
1. Removing paragraph (c)(1)(iii).
2. Redesignating paragraphs (c)(1)(iv) and (c)(1)(v) as paragraphs
(c)(1)(iii) and (c)(1)(iv), respectively.
3. Amending paragraphs (c)(1)(i) and (c)(1)(ii) by removing the
language ``(c)(1)(v)'' and adding ``(c)(1)(iv)'' in its place.
4. Revising newly designated paragraph (c)(1)(iii). The revision
reads as follows:
Sec. 1.165-12 Denial of deduction for losses on registration-required
obligations not in registered form.
* * * * *
(c) * * *
(1) * * *
(iii) The holder may deliver an obligation in bearer form that is
offered or sold inside the United States only if the holder delivers it
to a financial institution that is purchasing for its own account, the
account of another foreign institution, or an exempt organization that
will comply with the requirements of section 165(j)(3) (A), (B), or
(C). The holder may deliver a registration-required obligation in
bearer form that is offered and sold outside the United States to a
person other than a financial institution only if the holder has
evidence in its records that such person is not a U.S. citizen or
resident and does not have actual knowledge that such evidence is
false. Such evidence may include a statement by that person that is
delivered electronically. For purposes of this paragraph (c), the term
deliver includes a transfer of an obligation evidenced by a book entry
including a book entry notation by a clearing organization evidencing
transfer of the obligation from one member of the organization to
another member. For purposes of this paragraph (c), the term deliver
does not include a transfer of an obligation to the issuer or its agent
for cancellation or extinguishment.
* * * * *
Par. 4. Section 1.871-14 is added to read as follows:
Sec. 1.871-14 Rules relating to repeal of tax on interest of
nonresident alien individuals and foreign corporations received from
certain portfolio debt investments.
(a) General rule. No tax shall be imposed under sections
871(a)(1)(A), 871(a)(1)(C), 881(a)(1) or 881(a)(3) on any portfolio
interest as defined in sections 871(h)(2) and 881(c)(2) received by a
foreign person. But see section 871(h) or 882(a) if such interest is
effectively connected with the conduct of a trade or business within
the United States.
(b) Rules concerning obligations not in registered form--(1) In
general. [Reserved] For further guidance, see Sec. 35a.9999-5(a),
Answer 1.
(2) Convertible obligations. [Reserved] For further guidance, see
Sec. 35a.9999-5(c), Answers 18 and 19.
(3) Coordination with withholding and reporting rules. See
Sec. 1.1441-2(d)(1)(i) for an exception from documentation requirements
otherwise applicable for purposes of section 1441. See section 6049 and
Sec. 1.6049-5(b)(7) for rules relating to an exemption from Form 1099
reporting and backup withholding under section 3406.
(c) Rules concerning obligations in registered form--(1) In
general. In the case of interest paid on an obligation that is in
registered form, the term portfolio interest means any interest
(including original issue discount)--
(i) That is paid on an obligation issued after July 18, 1984;
(ii) That would be subject to tax under section 871(a)(1)(A),
871(a)(1)(C), 881(a)(1) or 881(a)(3) but for section 871(h) or 881(c);
and
(iii) With respect to which a United States (U.S.) person otherwise
required to deduct and withhold tax under section 1441(a) or 1442(a)
receives a statement that meets the requirements of section 871(h)(5)
that the beneficial owner of the obligation is not a U.S. person.
(2) Required statement. A U.S. person will be considered to have
received a statement that meets the requirements of section 871(h)(5)
if either it complies with one of the procedures described in this
paragraph and does not have actual knowledge or reason to know that the
beneficial owner is a U.S. person or it complies with the procedures
described in paragraph (d) or (e) of this section.
(i) The U.S. person (or its authorized foreign agent described in
Sec. 1.1441-7(c)(2)) complies with the withholding certificate
procedures described in Sec. 1.1441-1(e)(1).
(ii) The U.S. person complies with the documentary evidence
procedures described in Sec. 1.6049-5(c)(2)(ii) (but only if payments
are made outside the United States with respect to offshore accounts).
See Sec. 1.6049-5(e) for determining the place of payment and
Sec. 1.6049-5(d)(3) for a definition of offshore accounts.
(iii) [Reserved] For further guidance, see Sec. 35a.9999-5(b),
Answer 9, sentences 5 through 13.
(iv) The U.S. person complies with procedures that the U.S.
competent authority may agree to with the competent authority of a
country with which the United States has an income tax treaty in
effect.
(3) Time for providing certificate or documentary evidence.
Interest on a registered obligation shall qualify as portfolio interest
if the withholding certificate or documentary evidence that must be
provided is furnished before expiration of the beneficial owner's
period of limitation for claiming a refund of tax with respect to such
interest. See, however, Sec. 1.1441-1(f)(5) for consequences to a
withholding agent that makes a payment without withholding even though
it cannot associate the payment with the required documentation prior
to the payment.
(4) Coordination with withholding and reporting rules. For an
exemption from withholding under section 1441 with respect to
obligations described in this paragraph (c), see Sec. 1.1441-2(d)(2).
For rules applicable to withholding certificates, see Sec. 1.1441-
1(e)(4). For application of presumptions when the U.S. person cannot
associate the payment with the required documentation, see Sec. 1.1441-
1(f). For standards of knowledge applicable to withholding agents, see
Sec. 1.1441-7(b). For rules relating to an exemption from Form 1099
reporting and backup withholding under section 3406, see section 6049
and Sec. 1.6049-5(b)(8). For rules relating to reporting on Forms 1042
and 1042-S, see Sec. 1.1461-1(b) and (c).
(d) Application of repeal of 30 percent withholding to pass-through
certificates. [Reserved] For further guidance, see Sec. 35a.9999-5(e),
Answers 21 and 22.
(e) Foreign-targeted registered obligations. [Reserved] For further
guidance, see Sec. 35a.9999-5(b), Answers 12 through 15.
(f) Definitions. For purposes of this section, the terms foreign
person and beneficial owner have the meaning set forth in Sec. 1.1441-
1(c)(2) and (c)(6), respectively; the term withholding agent has the
meaning set forth in Sec. 1.1441-7(a); and the term payment has the
meaning set forth in Sec. 1.1441-2(e).
(g) Effective date--(1) In general. This section shall apply to
payments of interest made after December 31, 1997.
(2) Transition rule. For purposes of paragraph (c)(2)(i) of this
section, a withholding agent that holds a valid Form W-8 on a date that
is 60 days after these regulations are published as final regulations
in the Federal Register may
[[Page 17634]]
treat it as a valid withholding certificate until its validity expires
under applicable provisions as in effect on April 22, 1996.
Par. 5. Section 1.1441-0 is added to read as follows:
Sec. 1.1441-0 Outline of regulation provisions for section 1441.
This section lists captions contained in Secs. 1.1441-1, 1.1441-2,
1.1441-3, 1.1441-4, 1.1441-5, 1.1441-6, 1.1441-7, 1.1441-8T, and
1.1441-9.
Sec. 1.1441-1 Requirement for the deduction and withholding of tax
on payments to foreign persons.
(a) Purpose and scope.
(b) General rule of withholding.
(c) Definitions.
(1) Withholding.
(2) Foreign person.
(3) Payee.
(4) Individual.
(5) Foreign corporations.
(6) Beneficial owner.
(7) Chapter 3 of the Internal Revenue Code.
(d) Claim of U.S. status by payee or beneficial owner.
(1) In general.
(2) Payments to a payee that is a U.S. person.
(3) Payments to a foreign person acting for a U.S. payee.
(e) Beneficial owner's claim of foreign status.
(1) Withholding agent's reliance.
(2) Beneficial owner withholding certificate.
(3) Intermediary withholding certificate.
(4) Applicable rules.
(5) Qualified intermediaries.
(f) Presumptions.
(1) In general.
(2) Reportable payments to non-exempt recipients.
(3) Special rules for scholarships, grants, pensions, annuities,
etc.
(4) Special rules for pass-through entities.
(5) Failure to act in accordance with presumptions.
(6) Reportable payment.
(7) Adjustment, refund, or credit of overwithheld tax.
(g) Effective date.
(1) In general.
(2) Transition rules.
Sec. 1.1441-2 Income subject to withholding.
(a) In general.
(b) Fixed or determinable annual or periodical income.
(1) In general.
(2) Exceptions.
(3) Original issue discount.
(4) Securities lending transactions.
(c) Other income subject to withholding.
(d) Items of income not subject to withholding under section
1441.
(1) Exemptions for which no withholding certificate or
documentation is required.
(2) Exemptions for portfolio interest and income on bank, etc.
deposits requiring a withholding certificate or documentation.
(e) Payment.
(1) General rule.
(2) Income allocated under section 482.
(3) Blocked income.
(4) Special rules for dividends.
(5) Certain interest accrued by a foreign corporation.
(6) Payments other than in U.S. dollars.
(f) Effective date.
Sec. 1.1441-3 Amounts subject to withholding.
(a) Withholding on gross amount.
(b) Withholding on payments on certain obligations.
(1) Withholding at time of payment of interest.
(2) No withholding between interest payment dates.
(c) Corporate distributions.
(1) General rule.
(2) Determination of accumulated and current earnings and
profits on the date of payment.
(3) Special rules in the case of distributions from a regulated
investment company.
(4) Overwithholding of tax.
(d) Withholding on certain gains.
(e) Payments other than in U.S. dollars.
(1) In general.
(2) Payments in foreign currency.
(3) Tax liability of beneficial owner satisfied by withholding
agent.
(f) Conduit financing arrangements.
(g) Effective date.
Sec. 1.1441-4 Certain exemptions from withholding.
(a) Certain income connected with a U.S. trade or business.
(1) In general.
(2) Withholding agent's reliance on a claim of effectively
connected income.
(3) Income on notional principal contracts.
(4) Failure to act in accordance with presumption.
(b) Compensation for personal services of an individual.
(1) Exemption from withholding.
(2) Manner of obtaining withholding exemption under tax treaty.
(6) Personal exemption.
(c) Special rules for scholarship and fellowship income.
(1) In general.
(2) Alternate withholding election.
(d) Annuities received under qualified plans.
(e) Income of foreign central bank of issue or the Bank for
International Settlements.
(f) Effective date.
(1) General rule.
(2) Transition rules.
Sec. 1.1441-5 Withholding on payments to pass-through entities.
(a) Domestic partnerships.
(1) Exemption from withholding on payment to domestic
partnerships.
(2) Withholding by a domestic partnership.
(b) Foreign partnerships.
(1) In general.
(2) Special rules in the case of tiered partnerships.
(3) Presumptions.
(4) Example.
(c) Trusts and estates. [Reserved]
(d) Effective date.
(1) General rule.
(2) Transition rules.
Sec. 1.1441-6 Claim of a reduced rate of tax under an income tax
treaty.
(a) In general.
(b) Reliance on claim of treaty benefits.
(1) In general.
(2) Special rules for certain dividends.
(3) Competent authorities agreement.
(4) Special rules for payments to certain foreign entities.
(c) Proof of tax residence in a treaty country.
(1) In general.
(2) Certification of t
FR Doc. 96-8936 General Revision of Regulations Relating to Withholding of Tax on Certain U.S. Source Income Paid to Foreign Persons and Related Collection, Refunds, and Credits; Revision of Information Reporting and Backup Withholding Regulations; and Removal of Regulations Under Part 35a and of Certain Regulations Under Income Tax Treaties
axpayer identifying number.
(3) Certificate of residence.
(4) Documentary evidence establishing residence in the treaty
country.
(d) Joint owners.
(e) Related party dividends under certain treaties.
(f) Effective date.
(1) General rule.
(2) Transition rules.
Sec. 1.1441-7 General provisions relating to withholding agents.
(a) Withholding agent defined.
(b) Standards of knowledge.
(1) In general.
(2) Reason to know.
(3) Universal accounts.
(c) Authorized agent.
(1) In general.
(2) Authorized foreign agent.
(3) Notification.
(4) Liability of U.S. withholding agent.
(5) Filing of returns.
(d) United States obligations.
(e) Assumed obligations.
(f) Conduit financing arrangements. [Reserved]
(g) Effective date.
Sec. 1.1441-8T Foreign government and international organization
exemption from withholding (temporary).
(a) Foreign governments.
(b) Statement claiming exemption.
(c) Effective date.
(1) In general.
(2) Transition rules.
Sec. 1.1441-9 Exemption from withholding on exempt income of a
foreign tax-exempt organization and foreign private foundations.
(a) Income not subject to tax under section 511.
(b) Statement claiming exemption.
(c) Effective date.
(1) In general.
(2) Transition rules.
Par. 6. Section 1.1441-1 is revised to read as follows:
Sec. 1.1441-1 Requirement for the deduction and withholding of tax on
payments to foreign persons.
(a) Purpose and scope. This section and Secs. 1.1441-2 through
1.1441-9 provide rules for withholding under section 1441 when a
payment is made to a foreign person. This section provides definitions
of terms used in
[[Page 17635]]
chapter 3 of the Internal Revenue Code and regulations under that
chapter. It prescribes procedures to determine whether a tax must be
withheld under chapter 3 of the Internal Revenue Code, including
presumptions for determining whether a withholding agent should treat a
payee as a United States (U.S.) person or a foreign person. Special
procedures regarding payments to foreign persons that act as
intermediaries are also provided. Section 1.1441-2 describes the income
subject to withholding under section 1441. Section 1.1441-3 provides
rules regarding the amount subject to withholding. Section 1.1441-4
provides exemptions from withholding for certain income effectively
connected with the conduct of a trade or business in the United States,
including certain compensation for the personal services of an
individual. Section 1.1441-5 provides rules regarding withholding on
payments made to pass-through entities. Section 1.1441-6 provides rules
regarding claiming a reduced rate of withholding under an income tax
treaty. Section 1.1441-7 defines the term withholding agent and
provides rules regarding withholding agents' obligations to withhold.
Section 1.1441-8T provides rules for income received by a foreign
government that is excluded from gross income under section 892.
Section 1.1441-9 provides rules for payments to foreign tax exempt
organizations and foreign private foundations.
(b) General rule of withholding. A withholding agent (as defined in
Sec. 1.1441-7(a)) must withhold 30 percent of the gross amount of a
payment (as defined in Sec. 1.1441-2(e)) of income subject to
withholding made to a payee that is a foreign person unless the
beneficial owner of the income is a foreign person entitled to a
reduced rate of tax and for the withholding agent holds an appropriate
withholding certificate or documentation or unless the beneficial owner
of the income is a U.S. person. For this purpose, a payment to the U.S.
agent of a foreign person is treated as a payment to a foreign person
if the withholding agent has actual knowledge or reason to know of the
agency relationship. For the documentation upon which a withholding
agent may rely in order to treat a payee or beneficial owner as a U.S.
person, see paragraph (d) of this section. For the documentation upon
which a withholding agent may rely in order to treat a payee or a
beneficial owner as a foreign person, see paragraph (e) of this
section. For applicable presumptions if the withholding agent cannot
associate the payment with the required documentation at the time of
payment, see paragraph (f) of this section. For definitions of foreign
person, payee, and beneficial owner, see paragraphs (c)(2), (3), and
(6) of this section, respectively. For the determination of income
subject to withholding, see Sec. 1.1441-2(a). For a definition of an
offshore account, see Sec. 1.6049-5(d)(3). For withholding procedures
applicable to payments to U.S. and foreign partnerships, respectively,
see Sec. 1.1441-5(a) and (b). For withholding procedures applicable to
payments to U.S. and foreign trusts and estates, see Sec. 1.1441-5(c).
(c) Definitions--(1) Withholding. The term withholding means the
deduction and withholding of tax at the applicable rate from the
payment of income.
(2) Foreign person. The term foreign person means a nonresident
alien individual, a foreign corporation, a foreign partnership, a
foreign trust, a foreign estate, and any other person that is not a
United States person for purposes of chapter 3 of the Internal Revenue
Code. A United States person is a person described in section
7701(a)(30), the U.S. government (including an agency or
instrumentality thereof), or a State and the District of Columbia
(including an agency or instrumentality thereof).
(3) Payee--(i) General rule. Except as otherwise provided in
paragraph (c)(3)(ii) of this section, a payee is the person to whom a
payment is made. See Sec. 1.1441-2(e) for the determination of when a
payment is considered made. Treatment of a person as a payee has
consequences for purposes of withholding under chapter 3 of the
Internal Revenue Code (see paragraph (b) of this section (relating to
the general rule of withholding)) as well as for purposes of reporting
income under the provisions of chapter 61 of the Internal Revenue Code
and backup withholding under section 3406. See paragraph (d)(3) of this
section for when a withholding agent may treat a payment to a foreign
person as a payment made to a payee that is a U.S. person if the
foreign person is acting for or representing the U.S. person.
(ii) Payments to a foreign partnership. For purposes of chapter 3
of the Internal Revenue Code, section 3406, and chapter 61 of the
Internal Revenue Code, a payment made to a foreign partnership shall be
treated as a payment made to the partners rather than to the
partnership. A withholding agent may, however, treat a payment to a
foreign partnership as made to the partnership (rather than to its
partners) if, with respect to the partnership, it holds an intermediary
withholding certificate described in paragraph (e)(3)(ii) of this
section (relating to a certificate from a qualified intermediary) or an
intermediary withholding certificate described in paragraph (e)(3)(iii)
of this section (relating to a certificate from a foreign partnership)
representing that the income to which the certificate relates is
effectively connected with the conduct of a trade or business in the
United States. In addition, if the withholding agent holds an
intermediary withholding certificate described in paragraph (e)(3)(iv)
of this section (relating to a certificate from an agent, nominee,
representative, etc.), then the payee shall be the person on whose
behalf the partnership is receiving the payment. In the case of tiered
foreign partnerships that are not treated as payees under the
provisions of this paragraph (c)(3)(ii), the payees shall be the
partners of the next higher-tier foreign partnership. Thus, the rules
of this paragraph (c)(3) shall apply through any number of tiers of
foreign partnerships in order to determine which partner is treated as
the payee. For example, if a payment is made to a foreign partnership
(second tier) and one of the partners of the second tier partnership is
another foreign partnership (first tier) with two individual partners,
the payment to the second tier is treated as made to the individual
partners of the first tier (unless the second tier partnership has
furnished one of the intermediary withholding certificates referred to
in this paragraph (c)(3)(ii)). If one of the partners in the first tier
is a domestic partnership, the domestic partnership is treated as the
payee under the provisions of paragraph (c)(3)(i) of this section, even
though one of the partners of the domestic partnership might be a
foreign partnership. If the first tier foreign partnership is a nominee
and furnishes an intermediary withholding certificate described in
paragraph (e)(3)(iv) of this section, the person on whose behalf the
first tier partnership receives the payment is treated as the payee.
See Sec. 1.1441-5(b) for rules regarding procedures applicable to
beneficial owners' claims of reduced rate of withholding under chapter
3 of the Internal Revenue Code.
(4) Individual--(i) Alien individual. The term alien individual
means an individual who is not a citizen or a national of the United
States. See Sec. 1.1-1(c).
(ii) Nonresident alien individual. The term nonresident alien
individual means a person described in section 7701(b)(1)(B), an alien
individual who is
[[Page 17636]]
a resident of a foreign country under the residence article of an
income tax treaty and Sec. 301.7701(b)-7(a)(1) of this chapter, or an
alien individual who is a resident of Puerto Rico, Guam, the
Commonwealth of Northern Mariana Islands, the U.S. Virgin Islands, or
American Samoa as determined under Sec. 301.7701(b)-1(d) of this
chapter. An alien individual who has made an election under section
6013(g) or (h) to be treated as a resident of the United States is
nevertheless treated as a nonresident alien individual for purposes of
withholding under chapter 3 of the Internal Revenue Code.
(5) Foreign corporations. For purposes of this section, a
corporation created or organized in Guam, the Commonwealth of Northern
Mariana Islands, the U.S. Virgin Islands, and American Samoa, is not
treated as a foreign corporation if the requirements of subparagraphs
(A), (B), and (C) of section 881(b)(1) are met for such corporation.
Further, a payment made to a foreign government or an international
organization shall be treated as a payment made to a foreign
corporation for purposes of withholding under chapter 3 of the Internal
Revenue Code.
(6) Beneficial owner--(i) General rule. In the case of a payment of
income, the term beneficial owner means the person required under U.S.
tax principles to include the amount paid in gross income under section
61 (determined without regard to an exclusion or exemption from gross
income under the Internal Revenue Code). Thus, a nominee, agent,
custodian, or any person acting in a similar capacity is not the
beneficial owner. In the case of a scholarship, the student receiving
the scholarship is the beneficial owner of that scholarship.
(ii) Special rules for certain entities--(A) General rule. The
beneficial owners of income paid to a partnership are those persons
that, under U.S. tax principles, are the taxpayers with respect to that
income in their separate or individual capacities. For example, a
partnership (first tier) that is a partner in another partnership
(second tier) is not the beneficial owner of income paid to the second
tier partnership since the first tier partnership is not liable for
income tax under U.S. tax principles. See, however, Sec. 1.1441-5(a)
for applicable withholding procedures for payments to a domestic
partnership. See also Sec. 1.1441-5(b)(2) for applicable withholding
procedures for payments to a foreign partnership where one of the
partners (at any level in the chain of tiers) is a domestic
partnership.
(B) Special rules when an income tax treaty applies. For purposes
of claiming a reduction in the rate of withholding on income paid to a
foreign entity based on an income tax treaty between the United States
and a foreign country, the tax principles in effect under the laws of
that foreign country shall apply to determine whether the entity or the
persons holding an interest in that entity are required to include the
amounts in income and, therefore, whether, under the principles of this
paragraph (c)(6), the entity or the interest holders in the entity are
the beneficial owners of the income. See Sec. 1.1441-6(b)(4)(iii)
permitting a withholding agent to treat, at its option, payments made
to a single foreign entity as beneficially owned in part by the entity
and, in part, by any one or more persons holding an interest in the
entity. The possibility of dual treatment may also occur if a reduced
rate of tax is claimed under the Internal Revenue Code for certain
types of income and under a U.S. income tax treaty for other types of
income or if reduced rates are claimed under different tax treaties.
For purposes of this paragraph (c)(6)(ii)(B), the term foreign entity
does not include a trust or an estate. See Sec. 1.1441-6(b)(4) for
procedures governing claims of benefits under an income tax treaty.
(C) Trusts. The provisions of paragraphs (c)(6)(i) and
(c)(6)(ii)(A) of this section shall not apply to a trust, whether
domestic or foreign. The beneficial owner of income paid to a trust
shall be determined under the provisions of Sec. 1.1441-3(f) and (g),
as in effect on the date preceding the date on which this document is
published as a final regulation in the Federal Register.
(7) Chapter 3 of the Internal Revenue Code. For purposes of the
regulations under sections 1441, 1442, and 1443, any reference to
chapter 3 of the Internal Revenue Code shall not include references to
sections 1445 and 1446, unless the context indicates otherwise.
(d) Claim of U.S. status by payee or beneficial owner--(1) In
general. Payments made to a U.S. person are not subject to the
withholding of tax under section 1441, absent actual knowledge or
reason to know that the U.S. person may be acting as an agent for a
foreign person. See paragraph (b) of this section. Absent actual
knowledge or reason to know otherwise, a withholding agent may apply
the provisions of this paragraph (d) to a payment of income otherwise
subject to withholding to determine whether to treat the payment as
made to a U.S. person. See paragraph (f) of this section for applicable
presumptions if the withholding agent cannot associate the payment with
the required documentation prior to the time of payment.
(2) Payments to a payee that is a U.S. person--(i) Reportable
payments. If a reportable payment (as defined in section 3406(b)) is
made to a payee that is not an exempt recipient (as defined under the
applicable information reporting provisions of chapter 61 of the
Internal Revenue Code), the withholding agent may treat the payment as
made to a U.S. person if the payee complies with the procedures
described in Secs. 31.3406(d)-1 through 31.3406(d)-5 of this chapter
(including requiring a payee to furnish its taxpayer identifying
number) and the withholding agent meets all the requirements described
in Sec. 31.3406(h)-3(e) of this chapter regarding reliance by a payor
on a Form W-9).
(ii) Payments to exempt recipients and certain other payments. If a
reportable payment is made to a payee that is an exempt recipient (as
defined under the applicable information reporting provisions of
chapter 61 of the Internal Revenue Code) or is a scholarship, grant,
pension, or annuity, a withholding agent may treat the payment as made
to a U.S. person if the payee provides a certificate of U.S. status.
For purposes of this paragraph (d)(2)(ii), a certificate of U.S. status
is a Form W-9 (or such other form as the Internal Revenue Service may
prescribe) that is signed under penalties of perjury by the payee and
contains all required information. For purposes of this paragraph
(d)(2)(ii), required information consists of the payee's name,
permanent residence address, and taxpayer identifying number. The
procedures described in Sec. 31.3406(h)-3(a) of this chapter shall
apply to payments to joint payees. A withholding agent that receives a
Form W-9 in order to satisfy this paragraph (d)(2)(ii) must retain the
form in accordance with the provisions of paragraph (e)(4)(iii) of this
section relating to the retention of withholding certificates. The
rules of this paragraph (d)(2)(ii) are only intended to provide a
method by which a withholding agent may determine that a payee is not a
foreign person and do not otherwise impose a requirement that
documentation be furnished by an exempt recipient or for payments
subject to this paragraph (d)(2)(ii).
(3) Payments to a foreign person acting for a U.S. payee. Absent
actual knowledge or reason to know otherwise, for purposes of chapter 3
of the Internal Revenue Code, section 3406, and chapter 61 of the
Internal Revenue Code, a withholding agent may treat a payment to a
foreign person as a payment made to a payee that is a U.S. person if it
receives an intermediary withholding certificate described in
[[Page 17637]]
paragraph (e)(3)(iv) of this section regarding the foreign person to
which is attached the applicable certification described in paragraph
(d)(2) of this section concerning the U.S. payee on whose behalf the
foreign person is receiving the payment. See paragraph (e)(5) of this
section for applicable procedures in the case of a payment to a foreign
person acting as a qualified intermediary. See also, Sec. 1.1441-
5(b)(1) for applicable procedures in the case of a payment to a foreign
partnership that is not a qualified intermediary.
(e) Beneficial owner's claim of foreign status--(1) Withholding
agent's reliance. Absent actual knowledge or reason to know otherwise,
a withholding agent may rely on a claim that the beneficial owner of
income is a foreign person, if, prior to the payment, it complies with
the requirements described in paragraphs (e)(1)(i), (ii), and (iii) of
this section. For this purpose, a withholding agent acting through an
authorized foreign agent is deemed to comply with such requirements to
the extent its authorized foreign agent so complies. See Sec. 1.1441-
7(c)(2) for the description of an authorized foreign agent. In the case
of a payment to a person other than an individual, a withholding agent
may rely on the claim of entity classification made on the basis of the
certification (or documentation, if applicable) furnished to the
withholding agent, unless it has actual knowledge or reason to know
that the classification claimed is incorrect.
(i) The withholding agent holds a beneficial owner withholding
certificate described in paragraph (e)(2)(i) of this section or an
intermediary withholding certificate described in paragraph (e)(3)(i)
of this section.
(ii) The withholding agent complies with the electronic
confirmation procedures described in paragraph (e)(4)(v) of this
section, if required.
(iii) The withholding agent has not been notified by the Internal
Revenue Service that any of the information on the withholding
certificate is incorrect or unreliable.
(2) Beneficial owner withholding certificate--(i) In general. A
beneficial owner withholding certificate is a statement by which the
beneficial owner of the income paid represents that it is a foreign
person and, if applicable, claims a reduced rate of withholding under
section 1441. A separate withholding certificate must be submitted to
each withholding agent. If the beneficial owner receives more than one
type of income from a single payor, the beneficial owner may submit one
withholding certificate to the single payor for the different types of
income. See paragraph (c)(6)(ii)(B) of this section and Sec. 1.1441-
6(b)(4)(i) for the determination of beneficial owner when a benefit is
claimed under an income tax treaty. A beneficial owner of an interest
in a mutual fund that has a common investment advisor or common
principal underwriter with other mutual funds (within the same family
of funds) may, in the discretion of the mutual fund, provide one
withholding certificate for shares acquired or owned in any of the
funds. See Sec. 31.3406(h)-3(a)(2) of this chapter.
(ii) Requirements for validity of certificate. A beneficial owner
withholding certificate is valid only if it is provided on a Form W-8
(or, in the case of personal services income described in Sec. 1.1441-
4(b), a Form 8233), its validity period has not expired, it is signed
under penalties of perjury by the beneficial owner and it contains all
of the information described in this paragraph (e)(2)(ii). The required
information is the name, permanent residence address, and taxpayer
identifying number (TIN) of the beneficial owner (if required), the
basis for the reduced rate of withholding claimed, if applicable,
(including any applicable tax treaty provisions), and any other
information as may be required (in addition to, or in lieu of, the
information described in this paragraph (e)(2)(ii)) by the regulations
under section 1441 or by a form or accompanying instructions. A
permanent residence address is the address in the country where the
person claims to be a resident for purposes of that country's income
tax. The address of a financial institution with which the beneficial
owner maintains an account, a post office box, or an address used
solely for mailing purposes is not a residence address for this
purpose. If the beneficial owner is an individual who does not to have
a tax residence in any country, the address is where the beneficial
owner normally resides. If the beneficial owner is a corporation, then
the address is where the corporation maintains its principal office in
its country of incorporation. Instead of the Form W-8 (or the Form
8233, if applicable), the withholding agent may rely on an acceptable
substitute form or such other form as the Internal Revenue Service may
prescribe. See paragraph (g)(2) of this section for continued validity
of certificates during the transition period. See paragraph (e)(4)(vii)
of this section for circumstances in which a taxpayer identifying
number is required on a beneficial owner withholding certificate.
(3) Intermediary withholding certificate--(i) In general. An
intermediary withholding certificate is a statement by which a foreign
payee represents that it is not the beneficial owner of the income paid
or is a statement furnished by a partnership for its partners. It is
used either to make representations regarding the status of beneficial
owners of the income or to transmit appropriate documentation to the
withholding agent. This paragraph (e)(3) describes the requirements for
the validity of an intermediary withholding certificate issued either
by a qualified intermediary, by a foreign partnership that is not a
qualified intermediary, or by any other person that is neither a
qualified intermediary nor a foreign partnership.
(ii) Intermediary withholding certificate from a qualified
intermediary. In the case of an intermediary withholding certificate
issued by a qualified intermediary (described in paragraph (e)(5)(ii)
of this section), the certificate is valid only if it is furnished on a
Form W-8 (or an acceptable substitute form or such other form as the
Internal Revenue Service may prescribe), it is signed under penalties
of perjury by an officer or partner of the qualified intermediary with
authority to sign for the intermediary, and it contains the information
and certifications described in this paragraph (e)(3)(ii).
(A) The name, permanent residence address (as described in
paragraph (e)(2)(ii) of this section), and the employer identification
number of the qualified intermediary.
(B) A certification that the issuer is a qualified intermediary.
(C) A certification that the issuer has obtained, as required in
the withholding agreement with the Internal Revenue Service, the
appropriate certificates (such as Forms W-8 or W-9) or any other
documentation regarding its account holders or partners.
(D) A statement whether the qualified intermediary is assuming
primary withholding responsibility for the amounts to which the
certificate relates.
(E) If the information is not assuming primary withholding
responsibility, the information and certificates required under
paragraph (e)(5)(iv)(B) of this section regarding the basis for any
reduced rate of withholding tax claimed.
(F) Any other information or certification as may be required (in
addition to, or in lieu of, the information and certifications
described in this paragraph (e)(3)(ii)) by the form or accompanying
instructions.
(iii) Intermediary withholding certificate from a foreign
partnership. In the case of an intermediary withholding
[[Page 17638]]
certificate issued under the provisions of Sec. 1.1441-5(b) by a
foreign partnership that is not a qualified intermediary, the
certificate is valid only if it is furnished on a Form W-8 (or an
acceptable substitute form or such other form as the Internal Revenue
Service may prescribe), it is signed under penalties of perjury by a
partner with authority to sign for the partnership, and it contains the
information and certifications described in this paragraph (e)(3)(iii).
(A) The name, permanent residence address (as described in
paragraph (e)(2)(ii) of this section), and the employer identification
number of the partnership.
(B) The basis for the reduced rate of withholding claimed,
expressed in relation to the distributive share of each partner to
which the certificate relates.
(C) The appropriate withholding certificates for the partners as
required under Sec. 1.1441-5(b)(1) (except for an intermediary
withholding certificate furnished in order to claim a reduced rate for
income effectively connected with the conduct of a trade or business in
the United States).
(D) A statement that the income is effectively connected with the
conduct of a trade or business in the United States, if applicable.
(E) Any other information or certification as may be required (in
addition to, or in lieu of, the information described in this paragraph
(e)(3)(iii)) by the form or accompanying instructions.
(iv) Intermediary withholding certificate from an agent, nominee,
representative, etc. In the case of an intermediary withholding
certificate issued by a person that is not a qualified intermediary and
is not acting for its own account, the certificate is valid if it is
described in this paragraph (e)(3)(iv). In addition, a certificate
furnished to qualify interest as portfolio interest for purposes of
sections 871(h) and 881(c) or to qualify dividends on publicly traded
stock (as defined in Sec. 1.1441-6(b)(2)) is valid if it is described
in Sec. 1.871-14(c)(2)(iii). A certificate is described in this
paragraph (e)(3)(iv) if it is furnished on a Form W-8 (or an acceptable
substitute form, or such other form as the Internal Revenue Service may
prescribe), it is signed under penalties of perjury by a person
authorized to sign for the issuer of the certificate, and it contains
the information and certifications described in this paragraph
(e)(3)(iv).
(A) The name, permanent resident address (as described in paragraph
(e)(2)(ii) of this section) and the taxpayer identifying number of the
issuer of the certificate.
(B) A certification that the issuer is not acting for its own
account and is using the certificate as a form to transmit beneficial
owner documentation for the payment to which the certificate relates
(or other applicable documentation concerning the person for whom the
intermediary is receiving the payment.
(C) If furnishing an intermediary certificate to transmit more than
one withholding certificate, the certificate may indicate the basis for
the reduced rate of withholding claimed, based upon the attached
withholding certificates.
(D) Any other information or certification as may be required (in
addition to, or in lieu of the information and certification described
in this paragraph (e)(3)(iv)) by the form or accompanying instructions.
(4) Applicable rules--(i) Joint owners. In the case of a payment to
joint owners, a withholding certificate must be provided by each owner
claiming to be a foreign person.
(ii) Period of validity--(A) Three year period. Except as otherwise
provided in paragraph (e)(4)(ii)(B) of this section, a beneficial owner
withholding certificate or an intermediary withholding certificate
shall remain valid for three years or until such time as a change in
circumstances makes any information on the certificate incorrect.
(B) Validity period where TIN provided. A withholding certificate
furnished with a taxpayer identifying number shall remain valid until
such time as a change in circumstances makes any information on the
certificate incorrect but only if the income for which such certificate
is furnished is required to be reported under Sec. 1.1461-1(c)(2)(ii)
or the taxpayer identifying number furnished on the certificate is
reported to the Internal Revenue Service under the procedures described
in Sec. 1.1461-1(d).
(C) Withholding certificate for effectively connected income.
Notwithstanding paragraph (e)(4)(ii)(B) of this section, the period of
validity of a withholding certificate furnished to a withholding agent
to claim a reduced rate of tax for income that is effectively connected
with the conduct of a trade or business within the United States shall
be limited to three years.
(D) Computation of three-year period. The three-year validity
period shall start from the date that the certificate is signed until
the last day of the third succeeding calendar year. For example, a
certificate signed on September 30, 1998 remains valid through December
31, 2001.
(E) Change in circumstances. If a change in circumstances makes any
information on the certificate incorrect, then the issuer of the
certificate must inform the withholding agent within 30 days of the
change and issue a new certificate. If a beneficial owner withholding
certificate is used to claim foreign status only (and not, also,
residence in a particular foreign country for purposes of an income tax
treaty), a change of address is a change in circumstances for purposes
of this paragraph (e)(4)(ii)(E) only if it changes to an address in the
United States. Further, a change of address within a foreign country is
not a change in circumstances for purposes of this paragraph
(e)(4)(ii)(E). A withholding agent may require a new certificate at any
time prior to a payment, even though the withholding agent has no
actual knowledge or reason to know that any information stated on the
certificate has changed.
(iii) Retention of withholding certificate. A withholding agent
must retain each withholding certificate for as long as it may be
relevant to the determination of the withholding agent's tax liability
under section 1461 and Sec. 1.1461-1.
(iv) Electronic transmission of information. Under procedures
issued by the Internal Revenue Service, a withholding agent may be
permitted to receive in electronic form the information required to be
included on a withholding certificate or a certificate of U.S. status.
(v) Electronic confirmation of information on withholding
certificate. Under procedures issued by the Internal Revenue Service, a
withholding agent may be required to use an electronic on-line system
to confirm with the Internal Revenue Service information concerning any
taxpayer identifying number stated on a withholding certificate or a
certificate of U.S. status.
(vi) Acceptable substitute form. For purposes of the regulations
under section 1441, 1442, and 1443, the term acceptable substitute in
the case of a Form W-8 or Form 8233 described in paragraph (e)(2) or
(e)(3) of this section is a document prepared and furnished based on
the rules set forth in Sec. 31.3406(h)-3(c)(1) of this chapter
(relating to substitutes for a Form W-9).
(vii) Requirement of taxpayer identifying number. A taxpayer
identifying number must be stated on a withholding certificate when
required by this paragraph (e)(4)(vii). A taxpayer identifying number
is required to be stated on a beneficial owner certificate if the
beneficial owner is claiming the benefit of a reduced rate under an
income tax treaty (other than with respect to dividends on stock traded
on
[[Page 17639]]
a U.S. established financial market), an exemption from withholding
because income is effectively connected with a U.S. trade or business,
an exemption under section 871(f) for certain annuities received under
qualified plans, or an exemption based on a foreign organization's tax
exempt status under section 501(c) or private foundation status. In
addition, a taxpayer identifying number is required to be stated on all
intermediary withholding certificates. A taxpayer identifying number is
an IRS individual tax identification number, an employer identification
number, or a social security number as described in section 6109 and
Sec. 301.6109-1 of this chapter, or any other identifier the
Commissioner may designate.
(5) Qualified intermediaries--(i) General rule. A qualified
intermediary, as defined in paragraph (e)(5)(ii) of this section, may
furnish an intermediary withholding certificate to a withholding agent
for purposes of certifying on behalf of beneficial owners,
intermediaries (such as agents or nominees acting for the accounts of
others), other qualified intermediaries or U.S. payees for the purpose
of claiming reduced rates of withholding tax under section 1441, 1442,
or 1443. Such certificate is in lieu of transmitting withholding
certificates or other required documentation to a withholding agent.
While the qualified intermediary is generally required to obtain
withholding certificates or other appropriate documentary evidence from
beneficial owners or payees pursuant to its agreement with the Internal
Revenue Service, it is not required to attach such documentation to the
intermediary withholding certificate.
(ii) Definition of qualified intermediary. The term qualified
intermediary means a foreign person that is a party to a withholding
agreement with the Internal Revenue Service and that is--
(A) A financial institution (as defined in Sec. 1.165-12(c)(1)(iv))
or a clearing organization (as defined in Sec. 1.163-5(c)(2)(i)(D)(8));
(B) A partnership; or
(C) Any other person acceptable to the Internal Revenue Service.
(iii) Withholding agreement--(A) In general. The Internal Revenue
Service may, upon request, enter into a withholding agreement with a
foreign person described in paragraph (e)(5)(ii) of this section
pursuant to such procedures as the Internal Revenue Service may
prescribe. The withholding agreement shall include the terms,
conditions and procedures that the Internal Revenue Service shall deem
appropriate to insure the collection of the tax due and reporting of
information under sections 1441, 1461, 3406 and chapter 61 of the
Internal Revenue Code.
(B) Terms of the withholding agreement. Generally, the agreement
must include provisions dealing with defining, obtaining, and
maintaining appropriate certification and documentation upon which the
foreign person may rely to ascertain the nationality and residence of
beneficial owners and U.S. payees, reporting account information to the
Internal Revenue Service or otherwise making the account information
available to the Internal Revenue Service, and, if applicable, acting
as an acceptance agent to perform the duties described in
Sec. 301.6109-1(d)(3)(iv)(A) of this chapter (as proposed in project
number INTL-0024-94, published on June 8, 1995 (60 FR 30211)). In
addition the agreement must specify the manner in which the Internal
Revenue Service will verify compliance with the agreement. In
appropriate cases, the Internal Revenue Service may agree to rely on
audits performed by an intermediary's approved external auditor's
records (including workpapers of the auditor and reports prepared by
the auditor indicating the methodology employed to verify the entity's
compliance with the agreement). For this purpose, the agreement shall
specify which auditor or class of auditors is approved. An external
auditor may not be approved unless it is subject to regulatory
supervision under the laws of the country in which a significant part
of the intermediary activities under the agreement are expected to
occur, its internal procedures require it to verify that the
intermediary complies with the terms of the withholding agreement and
to report non-compliance findings under the agreement in the same
manner as it is required to report other findings of non-compliance
with applicable local laws and regulatory requirements, and the
auditor's relevant records (i.e., workpapers and reports) are available
to the Internal Revenue Service. The agreement must include provisions
for the assessment and collection of tax in the event that failure to
comply with the terms of the agreement result in the failure by the
withholding agent or the qualified intermediary to withhold and deposit
the required amount of tax. Further, the agreement shall provide that a
qualified intermediary that withholds any amount of tax must make
deposits of the tax as required under Sec. 1.1461-1(a). The Internal
Revenue Service may require the posting of a bond conforming to the
requirements of Sec. 301.7101-1 of this chapter as to form of bond or
surety required. The agreement shall specify the scope of the agreement
in the case of a foreign person with branches or relevant intermediary
activities in more than one country. To determine the terms of any
particular withholding agreement, the Internal Revenue Service will
consider appropriate factors including whether or not the foreign
person agrees to assume primary responsibility as a withholding agent,
the type of local ``know-your-customer'' laws and practices to which it
is subject, the extent and nature of supervisory and regulatory control
exercised under the laws of the foreign country over the foreign
person, the volume of investments in U.S. securities (determined in
dollar amounts and number of account holders), and financial condition
of the foreign person.
(iv) Assignment of primary withholding responsibility--(A) In
general. A partnership that is a qualified intermediary acting for its
own account must assume primary withholding responsibility. Any other
qualified intermediary may assume primary withholding responsibility
only if it is permitted to do so under its agreement with the Internal
Revenue Service. A withholding agent and a qualified intermediary may
arrange on who of the withholding agent or the qualified intermediary
shall have primary responsibility for any amount required to be
withheld under this section and section 3406 for any one or more
classes of beneficial owners or payees and for any or more types of
income expected to be paid to the intermediary. In a relationship
between a withholding agent and a qualified intermediary, the qualified
intermediary may agree to assume primary withholding responsibility for
some types of income and not others. However, unless otherwise
specified in the agreement, primary withholding responsibility for a
type of income must be assumed for all beneficial owners and payees of
that income or for none of them.
(B) Applicable procedures when a qualified intermediary does not
assume primary withholding responsibility. When a qualified
intermediary does not assume primary withholding responsibility, the
intermediary withholding certificate must contain the information
described in this paragraph (e)(5)(iv)(B) or in any agreement between
the qualified intermediary and the Service. The certificate must
separately identify the assets that are associated with each U.S. payee
to
[[Page 17640]]
which the certificate relates and that generate the type of income
described in Sec. 1.1441-2(a) (i.e., income that would be subject to
withholding if paid to a foreign person). The qualified intermediary
must furnish a Form W-9 for each U.S. payee that is not an exempt
recipient and the name and address of each U.S. payee that is an exempt
recipient. The intermediary withholding certificate must also
separately identify the assets associated with non-U.S. payees to which
the certificate relates and the applicable withholding tax rate or
rates. If different withholding tax rates apply, the intermediary
withholding certificate must indicate the applicable rate for each
class of non-U.S. payees to which different withholding rates apply and
the assets associated with each class. For payments that the
intermediary withholding certificate states are made to U.S. payees, a
withholding agent dealing with a qualified intermediary that has not
assumed primary withholding responsibility must comply with applicable
reporting requirements under chapter 61 of the Internal Revenue Code in
the same manner as if it had received a Form W-9 (or acceptable
substitute form) directly from the U.S. payee. The withholding agent
must also comply with the return requirements under section 1461 and
Sec. 1.1461-1 (b)(2)(ii) and (c)(4)(ii) for payments made to non-U.S.
payees.
(C) Applicable procedures when qualified intermediary assumes
primary withholding responsibility. A withholding agent relying on an
intermediary withholding certificate from a qualified intermediary
representing that the qualified intermediary assumes primary
withholding responsibility as permitted under its agreement with the
Internal Revenue Service is relieved from the obligation to withhold on
payments made to the intermediary. The withholding agent must comply
with the return requirements under section 1461 and Sec. 1.1461-1
(b)(2)(ii) and (c)(4)(ii) for payments made to the qualified
intermediary.
(v) Special rules for qualified intermediaries that are foreign
partnerships. A foreign partnership that is a qualified intermediary
shall be a withholding agent with respect to its partner's distributive
share of income subject to withholding that is paid to the partnership.
Therefore, it shall withhold under the same procedures and at the same
time as is prescribed for withholding by a domestic partnership. See
Sec. 1.1441-5(a)(2) for withholding procedures applicable to domestic
partnerships. In addition, the partnership shall not be relieved from
its obligation to make a return on Form 1065 as required under section
6031 and the regulations under that section and to furnish the
statements required under section 6031(b) and the regulations under
that section.
(f) Presumptions--(1) In general--(i) Reliance. Absent actual
knowledge or reason to know otherwise, a withholding agent or a payor
described in Sec. 31.3406(a)-2 of this chapter may rely on the
presumptions of this paragraph (f) to determine whether to treat a
beneficial owner or a payee as a U.S. or a foreign person when, before
making a payment of income subject to withholding, or a payment subject
to reporting under chapter 61 of the Internal Revenue Code, the
withholding agent or payor cannot associate the payment with the
required documentation. When applying the provisions of this section,
any presumption of foreign status pursuant to this paragraph (f) shall
have effect only for purposes of applying the provisions of paragraph
(b) of this section (regarding the rules of withholding) and may not be
relied upon for purposes of granting a reduced rate of withholding
under the Internal Revenue Code (e.g. section 1441(c)(9) or (c)(10)) or
under an income tax treaty.
(ii) Required documentation. For purposes of this paragraph (f),
the term required documentation means the applicable documentation that
is required to be furnished in connection with the payment under this
section, under Sec. 1.871-14(c)(2), or under chapter 61 of the Internal
Revenue Code. A withholding agent or payor is not able to associate a
payment with required documentation if, for that payment, it lacks
documentation, the documentation it holds lacks information, or the
withholding agent or payor knows or has reason to know that information
associated with the required documentation is incorrect or unreliable.
For purposes of this paragraph (f)(1), a withholding agent or payor has
reason to know that information is incorrect or unreliable if the
withholding agent or payor would have reason to know under the rules of
Sec. 1.1441-7(b)(2) or cannot reasonably rely on a Form W-9 (or an
acceptable substitute) under Sec. 31.3406(h)-3(e) of this chapter. For
purposes of this paragraph (f)(1), a Form W-9 (or an acceptable
substitute) must contain the information described in Sec. 31.3406(h)-
3(e)(2)(i) through (iv) of this chapter in order for a payor to
reasonably rely on the Form W-9. In the case of other documentation,
the required information shall include only the name, permanent
residence address, taxpayer identifying number (when required), and
signature under penalties of perjury (when required).
(2) Reportable payments to non-exempt recipients--(i) In general.
Except as otherwise provided in paragraphs (f)(2)(ii) and (f)(4) of
this section, a reportable payment (as defined in paragraph (f)(6) of
this section) made to a payee who is an individual or other non-exempt
recipient is presumed made to a U.S. payee for purposes of chapter 61
of the Internal Revenue Code, section 3406, and this section if, before
payment, the withholding agent or payor cannot associate the payment
with the required documentation (as determined under paragraph
(f)(1)(i) of this section). In such a case, the withholding agent or
payor must treat the payment as a payment that may be subject to
reporting under chapter 61 of the Internal Revenue Code and the
regulations under that chapter and to backup withholding under section
3406 and the regulations under that section.
(ii) Special grace period for certain reportable payments in the
case of indicia of a foreign payee--(A) General rule. This paragraph
(f)(2)(ii)(A) applies to payments of dividends, interest, original
issue discount, broker proceeds described in Sec. 1.6045-1(d)(5), and
exchanges of personal property or services through barter exchanges
described in Sec. 1.6045-1(e)(2). A withholding agent or payor may
treat the payee as a beneficial owner that is a foreign person for the
grace period described in this paragraph (f)(2)(ii)(A) if, at the time
a payment is first credited to an account, the withholding agent or
payor has the name and an address in a foreign country for the account
holder or a facsimile copy or an electronic transmission of the
information contained in a withholding certificate described in
paragraph (e)(2) or (e)(3) of this section. The grace period is 90 days
from the date that the withholding agent or payor first credits the
account or, if shorter, until the end of the calendar year. If this
paragraph (f)(2)(ii)(A) applies, the withholding agent may then treat
the payee as a beneficial owner that is a foreign person and is,
therefore, required to withhold under section 1441 on the basis of this
presumption from the time that the amounts are credited to the account.
(B) Additional withholding in the event of payments or withdrawals.
If, at any time before provision or correction of the required
documentation within the grace period specified in paragraph
(f)(2)(ii)(A) of this section, the withholding agent loses control over
[[Page 17641]]
any part or all of the amounts in an account described in paragraph
(f)(2)(ii)(A) of this section (such as by making an actual payment from
the account or allowing withdrawal of any part or all of the amounts in
the account, other than for purposes of withholding an amount of tax),
then the withholding agent or payor must treat the payee as a U.S.
person for all amounts credited to the account during the grace period.
Accordingly, the payor must withhold to the extent required under
section 3406 on all reportable payments made to the account during the
period to which the grace period applies and thereafter. The amount of
backup withholding is equal to 31 percent of the reportable payments
reduced by any amount previously withheld from the amounts credited to
the account.
(C) Application of withholding upon expiration of grace period. If,
upon the termination of the grace period described under paragraph
(f)(2)(ii)(A) of this section, the required documentation has not been
furnished or corrected, the payee is then presumed to be a U.S. person
for purposes of section 3406 and chapter 61 of the Internal Revenue
Code. Accordingly, the payor must withhold to the extent required under
section 3406 on all reportable payments credited to the account during
the grace period and thereafter (until appropriate documentation has
been furnished or corrected). Any amount withheld from the payments
subject to the grace period may be credited toward any amount of backup
withholding due under section 3406. If the required documentation is
furnished or corrected on or before the expiration of the grace period
described in paragraph (f)(2)(ii)(A) of this section and establishes
that the beneficial owner is a foreign person, then any amount withheld
on any payment made during the grace period will be treated as having
been withheld under section 1441. To the extent such amount exceeds the
amount of tax ultimately determined to be owed under section 1441, the
excess shall be treated as an amount of overwithholding subject to
adjustment under Sec. 1.1461-2(a), or refund or credit under
Sec. 1.1464-1. If, on the other hand, U.S. status is established by
required documentation on or before expiration of the grace period,
then any amount withheld from the payments made during the grace period
may be credited towards any amount of backup withholding due under
section 3406. To the extent such tax exceeds the amount required to be
withheld under section 3406, the excess shall be treated as erroneously
withheld from the payee and shall be subject to adjustments as provided
in Sec. 31.6413(a)-3 of this chapter.
(iii) Joint owners or payees. A withholding agent or payor may
presume that a payment made to joint owners or payees for whom it
cannot associate the required documentation for all payees is made to
U.S. individuals. For purposes of applying this paragraph (f)(2)(iii),
the grace period rules in paragraph (f)(2)(ii)(A) of this section shall
apply only if each payee qualifies for it. In that case, the rules of
paragraph (f)(2)(ii)(B) of this section would apply when any one of the
joint account holders receives a payment, makes a withdrawal, or
reinvests any portion of the funds in the account that are subject to
the grace period.
(iv) Special rules for exempt recipients. If the payee is an exempt
recipient described in Sec. 1.6049-4(c)(1)(ii) and the withholding
agent or payor has actual knowledge of the payee's employer
identification number, then the withholding agent or payor may presume
that the payee is a foreign person if the employer identification
number begins with the two digits ``98.'' The withholding agent or
payor may also presume that the payee is foreign if the withholding
agent's or payor's communications with the payee are mailed to an
address in a foreign country, or if the payment is made outside the
United States (as defined in Sec. 1.6049-5(e)). In other cases, the
withholding agent or payor may presume that the exempt recipient is a
U.S. person and, therefore, subject to section 3406 and chapter 61 of
the Internal Revenue Code and the regulations under those provisions.
If a withholding agent or payor treats a payee as a foreign person
pursuant to the presumption of this paragraph (f)(2)(iv), it must treat
the payee as the beneficial owner and apply the provisions of section
1441, Sec. 1.871-14, and chapter 61 of the Internal Revenue Code
accordingly. If the withholding agent treats the payee as a foreign
person, it is subject to the return requirements of Sec. 1.1461-1(b)
and (c). The presumption of this paragraph (f)(2)(iv) may be rebutted
by providing the required documentation to the withholding agent or
payor.
(3) Special rules for scholarships, grants, pensions, annuities,
etc.--(i) Scholarships and grants. A payment representing scholarship
or fellowship grant income (as defined in section 117) is presumed made
to a U.S. person if the withholding agent or payor has a record of the
payee's U.S. visa status in its records. In that case, the withholding
agent or payor has reason to know that such individual is a foreign
person and, therefore, the presumption of this paragraph (f)(3)(i)
shall not apply.
(ii) Pensions, annuities, etc. A withholding agent or payor may
presume that a payment from a trust described in section 401(a), an
annuity plan described in section 401(a), an annuity plan described in
section 403(a), or a payment with respect to any annuity, custodial
account, or retirement income account described in section 403(b) is
made to a U.S. or foreign person under the rules of this paragraph
(f)(3)(ii).
(A) Such payment is presumed made to a U.S. person, if the
withholding agent or payor has a Social Security number for the payee
and a mailing address as described in this paragraph (f)(3)(ii)(A). A
mailing address is an address used for purposes of information
reporting or otherwise communicating with the payee that is an address
in the United States or in certain foreign countries with which the
United States has an income tax treaty. For this purpose, a income tax
treaty must provide that the payee, if an individual resident in that
country, would be entitled to an exemption from U.S. tax on amounts
described in this paragraph (f)(3)(ii).
(B) Such payment is presumed made to a foreign person in all cases
not described in paragraph (f)(3)(ii)(A) of this section.
(4) Special rules for pass-through entities--(i) Payments to
partnerships. In the case of a payment to a partnership, the
presumptions of this paragraph (f)(4)(i) shall apply to determine
whether to treat the partnership as a domestic or foreign partnership.
This determination must be made before determining who are the payees
under paragraph (c)(3) of this section. If the withholding agent or
payor has actual knowledge of the partnership's employer identification
number, then the withholding agent or payor may presume that the
partnership is a foreign partnership if the employer identification
number begins with the two digits ``98.'' The withholding agent or
payor may also presume that the partnership is foreign if the
withholding agent's or payor's communications with the partnership are
mailed to an address in a foreign country, or if the payment is made
outside the United States (as defined in Sec. 1.6049-5(e)). In all
other cases, the withholding agent or payor may presume that the
partnership is domestic. The presumptions in this paragraph (f)(4)(i)
may be rebutted by
[[Page 17642]]
providing the required documentation to the withholding agent or payor.
(ii) Payments to a foreign partnership. A withholding agent or
payor that makes a reportable payment to a partnership that it treats
as a foreign partnership may presume that a partner is a U.S. payee
that is not an exempt recipient if, before payment, the withholding
agent cannot associate the payment with the required documentation for
the partner. See paragraph (c)(3)(ii) of this section treating partners
of a foreign partnership as payees. In such case, the withholding agent
or payor must treat the portion of the payment allocable to the partner
as made to a U.S. payee who is not an exempt recipient. Thus, the
payment may be subject to reporting under chapter 61 of the Internal
Revenue Code and the regulations under that chapter and to backup
withholding under section 3406 and the regulations under that section.
The portion of a payment allocable to a partner shall be determined
based on the distributive shares of the partnership income allocable to
each partner.
(iii) Partners' distributive shares--(A) Domestic partnership. For
purposes of this paragraph (f)(4)(iii)(A), a domestic partnership may
presume that a partner is a U.S. payee that is not an exempt recipient
if, at the time it is required to withhold on the amount, the
partnership cannot associate the payment with the required
documentation for that partner and the amount relates to a reportable
payment made to the partnership.
(B) Foreign partnership. For purposes of this paragraph
(f)(4)(iii)(B), a foreign partnership that is a qualified intermediary
may treat a partner as a foreign payee if, at the time it is required
to withhold on the amount, it cannot associate the amount with the
required documentation for that partner.
(5) Failure to act in accordance with presumptions. A withholding
agent that, contrary to the presumptions in this paragraph (f), grants
a claim of reduced rate of withholding under section 1441 on income
subject to withholding will be liable under section 1461 for the tax
required to be withheld under section 1441, without the benefit of a
reduced rate unless the withholding agent can demonstrate to the
satisfaction of the District Director or the Assistant Commissioner
(International) that the proper amount of tax, if any, was in fact paid
to the Internal Revenue Service. Proof of payment of tax may be
established on the basis of a Form 4669 (or such other form as the
Internal Revenue Service may prescribe), establishing the amount of
tax, if any, actually paid by the beneficial owner on the income. Proof
that a reduced rate of withholding was appropriate may also be
established on the basis of the required documentation described in
paragraph (f)(1)(ii) of this section. However, if the required
documentation was not received by the withholding agent before the time
the payment was made or within the grace period specified in paragraph
(f)(2)(ii)(A) of this section, then the Commissioner, or his or her
delegate, may require additional proof if it determines that the delays
in obtaining the required documentation affect its reliability. The
withholding agent will be liable for interest under section 6601
regardless of whether the underlying tax liability is due. In addition,
the withholding agent may be subject to penalties.
(6) Reportable payment. Solely for purposes of the presumptions in
this paragraph (f), a reportable payment is any payment of income
subject to withholding (as defined in Sec. 1.1441-2(a)) or any payment
described in section 3406(b), notwithstanding the provisions in
sections 6041, 6041A, 6042, 6044, 6045, 6049, 6050A, 6050N and the
regulations under those sections that provide exemptions from reporting
based upon the status of the payee as a foreign person. For example, a
payment of interest described in Sec. 1.6049-5(b)(14) as a non-
reportable payment if paid to a foreign person is treated as a
reportable payment for purposes of this paragraph (f). Accordingly, the
withholding agent or payor must determine under the presumptions
described in this paragraph (f) whether to treat the beneficial owner
or payee as a foreign or U.S. person. See sections 6041 through 6049
and sections 6050A and 6050N and the regulations under those sections
for reporting requirements for amounts treated as reportable payments
for purposes of this paragraph (f).
(7) Adjustment, refund, or credit of overwithheld tax. If, as a
result of the presumption rules of paragraph (f) of this section, the
amount withheld under section 1441 is greater than the tax due,
adjustments may be made in accordance with the procedures described in
Sec. 1.1461-2(a). Alternatively, refunds or credits may be claimed in
accordance with the procedures described in Sec. 1.1464-1, relating to
refunds or credits claimed by the beneficial owner, or Sec. 1.6414-1,
relating to refunds or credits claimed by the withholding agent. If an
amount was withheld under section 3406, see Sec. 31.6413(a)-3(a)(1) of
this chapter.
(g) Effective date--(1) In general. This section applies to
payments of income made after December 31, 1997.
(2) Transition rules. For purposes of paragraph (e)(2)(i) and
(d)(2)(ii) of this section, a withholding agent that holds a valid Form
W-8, 1001, 4224, 1078, or a statement described in Sec. 1.1441-5(b) (as
contained in 26 CFR Part 1, edition revised April 1, 1995) on the date
that is 60 days after these regulations are published as final
regulations in the Federal Register may treat it as a valid withholding
certificate until its validity expires under applicable provisions as
in effect on April 22, 1996. In addition, the documentation
requirements for dividends on stock traded on a U.S. established
financial market described in Sec. 1.1441-6(b)(2) shall apply only to
accounts established after the date that is 60 days after these
regulations are published as final regulations in the Federal Register.
For accounts established on or before that date, the documentation
requirements under this section shall apply to payments made after
December 31, 1999.
Par. 7. Section 1.1441-2 is revised to read as follows:
Sec. 1.1441-2 Income subject to withholding.
(a) In general. For purposes of the regulations under section 1441,
the term income subject to withholding means items of income from
sources within the United States (not including items listed in
paragraph (d)(1) of this section) that constitute either fixed or
determinable annual or periodical income described in paragraph (b) of
this section or other income subject to withholding described in
paragraph (c) of this section. Withholding applies to the gross amount
of the payment made to a foreign person. See part I (section 861 and
following), subchapter N, chapter 1 of the Internal Revenue Code, and
the regulations under such part for rules governing the determination
of the source of income. See section 884(f) and the regulations
thereunder to determine the circumstances under which interest paid by
a foreign corporation is U.S. source income.
(b) Fixed or determinable annual or periodical income--(1) In
general. For purposes of chapter 3 of the Internal Revenue Code, fixed
or determinable annual or periodical income is all income included in
gross income under section 61 (including original issue discount),
except for the items listed in paragraph (b)(2) of this section.
(2) Exceptions. For purposes of chapter 3 of the Internal Revenue
Code, the items of income described in this paragraph (b)(2) are not
fixed or
[[Page 17643]]
determinable annual or periodical income--
(i) Gains derived from the sale of property (including market
discount and option premiums), except for gains described in paragraph
(b)(3) or (c) of this section;
(ii) Insurance premiums within the meaning of section 4372 paid to
a foreign insurer or reinsurer;
(iii) Items of U.S. source income that are excluded from gross
income under any provision of law without regard to the identity of the
holder, such as interest excluded from gross income under section
103(a); and
(iv) Any other income that the Internal Revenue Service may
determine, in published guidance, is not fixed or determinable annual
or periodical income.
(3) Original issue discount. Amounts of original issue discount are
fixed or determinable annual or periodical income. However, based on
the authority of section 1441(c)(8), only the original issue discount
described in this paragraph (b)(3) may be subject to withholding.
(i) Amounts paid by original issuer. Amounts paid by the original
issuer (or its paying agent) to the beneficial owner on any obligation
issued after March 31, 1972 and payable more than 6 months from the
date of original issue that represent original issue discount realized
by the beneficial owner upon the retirement of the obligation, or upon
payment by the issuer on the obligation, to the extent that the amount
is subject to tax under section 871(a)(1)(C) or under section
881(a)(3). This paragraph (b)(3)(i) only applies to original issue
discount as defined in section 1273(a)(1). Therefore, it does not apply
to market discount as defined in section 1278(a)(2).
(ii) Amounts paid by related obligor. Amounts paid by the obligor
(or its paying agent) on obligations issued after the date that is 60
days after these regulations are published as final regulations in the
Federal Register and payable more than 6 months from the date of
original issue representing an amount of original issue discount if the
obligor is related to the original issuer (within the meaning of
section 163(e)(3)), to the extent such accrued amount is subject to tax
under section 871(a)(1)(C)(ii) or under section 881(a)(3)(B).
(iii) Amounts paid in a sale between related parties. Amounts paid
on the sale or exchange of obligations issued after the date that is 60
days after these regulations are published as final regulations in the
Federal Register and payable more than 6 months from the date of
original issue representing an amount of original issue discount if the
seller is related to the purchaser within the meaning of section
163(e)(3), to the extent such accrued amount is subject to tax under
section 871(a)(1)(C)(i) or under section 881(a)(3)(A).
(iv) Amounts actually known to be taxable original issue discount.
Amounts paid on obligations issued after the date that is 60 days after
these regulations are published as final regulations in the Federal
Register and payable more than 6 months from the date of original issue
representing an amount of original issue discount if the obligor (or
the seller in the case of a sale or exchange of obligations) has actual
knowledge of the amount subject to tax under section 871(a)(1)(C) or
under section 881(a)(3).
(v) Amounts for which required documentation is not furnished. Any
amount of original issue discount paid on obligations issued after the
date that is 60 days after the publication of these regulations as
final regulations in the Federal Register and payable more than 6
months from the date of original issue representing an amount that
fails to qualify as portfolio interest under section 871(h) or 881(c)
(because of the failure to furnish the statement described in section
871(h)(5) and Sec. 1.871-14(c)(2)), to the extent the amount is subject
to tax under section 871(a)(1)(C)(ii) or under section 881(a)(3)(B).
The applicable rate of withholding tax shall be applied to the entire
amount of stated interest, if any, and original issue discount on the
obligation as determined on the date of original issue if the
withholding agent does not know what proportion of the payment on the
obligation represents taxable income. Adjustments to any amount of
overwithheld tax may be made in compliance with the procedures
described in Sec. 1.1461-2(a). Alternatively, refunds may be claimed in
compliance with the procedures in Sec. 1.1464-1.
(4) Securities lending transactions. [Reserved]
(c) Other income subject to withholding. Withholding is also
required on the gross amount of the following items of income:
(1) Gains described in sections 631(b) or (c), relating to
treatment of gain on disposal of timber, coal, or domestic iron ore
with a retained economic interest.
(2) Gains subject to the 30 percent tax under section 871(a)(1)(D)
or section 881(a)(4), relating to contingent payments received from the
sale or exchange of patents, copyrights, and similar intangible
property.
(d) Items of income not subject to withholding under section 1441--
(1) Exemptions for which no withholding certificate or documentation is
required. The items of income described in this paragraph (d)(1) are
not subject to withholding of tax under section 1441 regardless of the
fact that no withholding certificate or other documentation has been
furnished to establish foreign or U.S. status.
(i) Portfolio interest paid on bearer obligations that are
described in section 871(h)(2)(A) or 881(c)(2)(A) and Sec. 1.871-14(b).
See Sec. 1.6049-5(b)(7) regarding exemption from reporting under
section 6049, and thus, from backup withholding under section 3406.
(ii) Original issue discount on any obligation payable less than 6
months from the date of original issue described in section
871(g)(1)(B)(i). See Sec. 1.6049-5(b)(10), (11), and (14) for
exemptions from reporting under section 6049, and thus, from backup
withholding under section 3406.
(iii) Any amount of original issue discount not described in
paragraph (b)(3) of this section. See Sec. 1.6049-5(b)(10) and (11) for
exemptions from reporting under section 6049, and thus, from backup
withholding under section 3406.
(iv) Proceeds from a wager placed by a nonresident alien individual
in the games of blackjack, baccarat, craps, roulette, or big-6 wheel.
(2) Exemptions for portfolio interest and income on bank, etc.
deposits requiring a withholding certificate or documentation--(i) In
general. No withholding is required under sections 1441(c)(9) and
(c)(10) on interest and original issue discount that either qualifies
as portfolio interest on an obligation in registered form described in
section 871(h)(2)(B) or 881(c)(2)(B) (including interest on a foreign-
targeted registered obligation described in Sec. 1.871-14(e)) or is
paid on deposits described in section 871(i)(2)(A). A withholding agent
may exempt from withholding an amount of interest and original issue
discount paid on deposits described in section 871(i)(2)(A) only if,
prior to the payment, the withholding agent complies with the
procedures described in Sec. 1.871-14(c). The preceding sentence does
not apply to amounts of original issue discount described in paragraph
(d)(1)(ii) of this section or in Sec. 1.6049-5(b)(10) or (11).
(ii) Transition rule. The documentation requirements for interest
on deposits described in section 871(i)(2)(A) shall apply to payments
made after December 31, 1997 with respect to accounts established after
the date that is 60 days after these
[[Page 17644]]
regulations are published as final regulations in the Federal Register.
For accounts established on or before that date, the documentation
requirements under this section shall apply to payments made after
December 31, 1999.
(e) Payment--(1) General rule. A payment is considered made when
the amount would be includible in the income of the beneficial owner
under the U.S. tax principles governing the cash basis method of
accounting. A payment is considered made whether it is made directly to
the beneficial owner or paid to another person for the benefit of the
beneficial owner (e.g., to the agent of the beneficial owner). Thus, a
payment of income is considered made to a beneficial owner if it is
paid in complete or partial satisfaction of the beneficial owner's debt
to a creditor.
(2) Income allocated under section 482. A payment is considered
made to the extent income subject to withholding is allocated under
section 482. Further, income arising as a result of a secondary
adjustment made in conjunction with a reallocation of income under
section 482 from a foreign person to a related U.S. person is
considered paid to a foreign person unless the taxpayer to whom the
income is reallocated has entered into a repatriation agreement with
the Internal Revenue Service and the agreement eliminates the liability
for the withholding tax. For purposes of determining the liability for
withholding tax, the payment of income is deemed to have occurred on
the dates of the transactions that give rise to the allocation of
income and the secondary adjustments, if any.
(3) Blocked income. Income is not considered paid if it is blocked
under executive authority, such as the President's exercise of
emergency power under the Trading with the Enemy Act, 50 U.S.C. App. 5,
or the International Emergency Economic Powers Act, 50 U.S.C. 1701 et
seq. However, on the date that the blocking restrictions are removed,
the income that was blocked is considered constructively received by
the beneficial owner (and therefore paid for purposes of this section)
and subject to withholding under Sec. 1.1441-1.
(4) Special rules for dividends. For purposes of sections 1441 and
6042, in the case of stock for which the record date is earlier than
the payment date, dividends are considered paid on the payment date. In
the case of a corporate reorganization, if a beneficial owner is
required to exchange stock held in a former corporation for stock in a
new corporation before dividends that are to be paid with respect to
the stock in the new corporation will be paid on such stock, the
dividend is considered paid on the date that the payee or beneficial
owner actually exchanges the stock and receives the dividend. See
Sec. 31.3406(a)-4(a)(2) of this chapter.
(5) Certain interest accrued by a foreign corporation. For purposes
of sections 1441 and 6049, a foreign corporation shall be treated as
having made a payment of interest as of the last day of the taxable
year if it has made an election under Sec. 1.884-4(c)(1) to treat
accrued interest as if it were paid in that taxable year.
(6) Payments other than in U.S. dollars. For purposes of section
1441, a payment includes amounts paid in a medium other than U.S.
dollars. See Sec. 1.1441-3(e) for rules regarding the amount subject to
withholding in the case of such payments.
(f) Effective date. This section applies to payments of income made
after December 31, 1997.
Par. 8. Section 1.1441-3 is amended by:
1. Revising the heading of the section.
2. Revising paragraphs (a) through (e).
3. Removing paragraph (f).
4. Re
FR Doc. 96-8936 General Revision of Regulations Relating to Withholding of Tax on Certain U.S. Source Income Paid to Foreign Persons and Related Collection, Refunds, and Credits; Revision of Information Reporting and Backup Withholding Regulations; and Removal of Regulations Under Part 35a and of Certain Regulations Under Income Tax Treaties
designating paragraph (j) as paragraph (f).
5. Revising paragraph (g).
6. Removing paragraphs (h) and (i).
7. Removing the OMB parenthetical and the authority citation at the
end of the section.
The revisions read as follows:
Sec. 1.1441-3 Amounts subject to withholding.
(a) Withholding on gross amount. Except as otherwise provided in
regulations under section 1441, the amount subject to withholding under
Sec. 1.1441-1 is the gross amount of income subject to withholding. The
gross amount of income subject to withholding may not be reduced by any
deductions, except to the extent that one or more personal exemption is
allowed as provided under Sec. 1.1441-4(b)(6).
(b) Withholding on payments on certain obligations--(1) Withholding
at time of payment of interest. When making a payment on an interest-
bearing obligation, a withholding agent must withhold under
Sec. 1.1441-1 upon the gross amount of stated interest payable on the
interest payment date, regardless of whether the payment constitutes a
return of capital or the payment of income within the meaning of
section 61. To the extent an amount was withheld on an amount of
capital rather than interest, adjustments to any amount of overwithheld
tax may be made under the procedures described in Sec. 1.1461-2(a).
Alternatively, refunds or credits may be claimed by the beneficial
owner under the procedures described in Sec. 301.6402-2 of this
chapter.
(2) No withholding between interest payment dates--(i) In general.
A withholding agent is not required to withhold tax under Sec. 1.1441-1
upon interest accrued on the date of a sale of debt obligations when
that sale occurs between two interest payment dates, even though the
interest is subject to tax under section 871 or section 881. See
Sec. 1.6045-1(c) for reporting requirements by brokers with respect to
sale proceeds. The exemption from withholding granted by this paragraph
(b)(2) is not subject to the withholding certificate procedures
described in Sec. 1.1441-1(e)(1). However, the exception is not a
determination that the accrued interest is not fixed or determinable
annual or periodical income.
(ii) Anti-abuse rule. The exemption in paragraph (b)(2)(i) of this
section does not apply if the sale of securities is part of a plan the
principal purpose of which is to avoid tax by selling and repurchasing
securities and the withholding agent has actual knowledge or reason to
know of such plan.
(c) Corporate distributions--(1) General rule. Subject to the
provisions of this paragraph (c), a corporation making a distribution
with respect to its stock is not required to withhold under section
1441,1442, or 1443 on the portion of the distribution--
(i) That is treated as a nontaxable distribution payable in stock
or stock rights;
(ii) That is treated as a distribution in part or full payment in
exchange for stock;
(iii) That is not paid out of accumulated earnings and profits or
current earnings and profits;
(iv) That is paid by a regulated investment company and is a
capital gain dividend (as defined in section 852(b)(3)(C)) or an exempt
interest dividend (as defined in section 852(b)(5)(A)); or
(v) That is paid by a real property holding corporation (defined in
section 897(c)(2)) or a real estate investment trust (defined in
section 856) and is subject to withholding under section 1445 and the
regulations under that section.
(2) Determination of accumulated and current earnings and profits
on the date of payment--(i) General rule. In order for a corporation to
determine the amount of withholding tax due on any distribution with
respect to stock, the distributing corporation may, at its option,
either treat the entire distribution as a dividend as defined in
section 316 or may treat only a portion
[[Page 17645]]
of the distribution as a dividend if, prior to, and at a time
reasonably close to the date of payment, the distributing corporation
makes a reasonable estimate of the portion of the distribution that is
not a dividend based upon expected earnings and profits as relevant
facts and circumstances shall indicate. A reasonable estimate may be
made based on the procedures described in Sec. 31.3406(b)(2)-4(c)(2) of
this chapter.
(ii) Procedures in case of underwithholding. A distributing
corporation that determines at the end of the taxable year of the
distribution that it underwithheld under section 1441 shall be liable
under section 1461 for the amount underwithheld. No penalties shall be
imposed for failure to withhold and deposit tax if--
(A) The corporation made a reasonable estimate as provided in
paragraph (c)(2)(i) of this section; and
(B) Either--
(1) The corporation pays over the underwithheld amount on or before
the date that it is required to file a return on Form 1042 for the
calendar year of the distribution pursuant to Sec. 1.1461-2(b); or
(2) The corporation is not a calendar year taxpayer and it files an
amended return on Form 1042X (or such other form as the Commissioner
may prescribe) for the calendar year in which the distribution is made
and pays the additional amount of tax and interest within 60 days of
the close of the taxable year of the distribution.
(iii) Reliance on reasonable estimate by intermediary. For purposes
of determining whether the payment of a corporate distribution is a
dividend, a withholding agent that is not the distributing corporation
may rely on representations made by the distributing corporation
regarding the reasonable estimate of expected earnings and profits made
pursuant to paragraph (c)(2)(i) of this section. Failure by the
withholding agent to withhold the required amount due to an erroneous
estimate that the Internal Revenue Service has determined was not
reasonably made shall be imputed to the distributing corporation.
Therefore, the Internal Revenue Service may collect any additional
amount from the distributing corporation and subject the corporation to
applicable interest and penalties as a withholding agent.
(3) Special rules in the case of distributions from a regulated
investment company. If the amount of distributions designated as
subject to section 852(b)(3)(C) or 852(b)(5)(A) exceeds the amount
permitted to be designated under those sections for the taxable year,
then no penalties will be asserted for any resulting underwithholding
provided the designations were based on a reasonable estimate (made
pursuant to paragraph (c)(2)(i) of this section) and adjustments to the
amount withheld are made within the time period described in paragraph
(c)(2)(ii)(B) of this section. Any adjustment to the amount of tax due
and paid to the Internal Revenue Service by the withholding agent as a
result of underwithholding shall not be treated as a distribution for
purposes of section 562(c) and the regulations thereunder. Any amount
of U.S. tax that a foreign shareholder is treated as having paid on the
undistributed capital gain of a regulated investment company under
section 852(b)(3)(D) may be claimed by the foreign shareholder as a
credit or refund under Sec. 1.1464-1. The procedures described in
paragraph (c)(2)(iii) of this section shall apply in the case of
distributions made to an intermediary.
(4) Overwithholding of tax. If the tax on any distribution has been
overwithheld, adjustments may be made in accordance with the procedures
described in Sec. 1.1461-2(a). Alternatively, refunds or credits may be
claimed in accordance with Sec. 1.1464-1, relating to refunds or
credits claimed by the beneficial owner, or Sec. 1.6414-1, relating to
refunds or credits claimed by the withholding agent.
(d) Withholding on certain gains. Absent actual knowledge or reason
to know otherwise, a withholding agent may rely on a claim regarding
the amount of gain described in Sec. 1.1441-2(c) if the beneficial
owner withholding certificate, or other appropriate withholding
certificate, states the beneficial owner's basis in the property giving
rise to the gain. In the absence of a withholding certificate, the
withholding agent may withhold an amount under Sec. 1.1441-1 that is
necessary to assure that the tax withheld is not less than 30 percent
of the recognized gain. For this purpose, the recognized gain is
determined without regard to any deduction allowed by the Internal
Revenue Code from the gains. The amount so withheld shall not exceed 30
percent of the amount payable by reason of the transaction giving rise
to the recognized gain. Adjustments to any amount of overwithheld tax
may be made in accordance with the procedures described in Sec. 1.1461-
2(a). Alternatively, refunds or credits may be claimed in accordance
with Sec. 1.1464-1, relating to refunds or credits claimed by the
beneficial owner, or Sec. 1.6414-1, relating to refunds or credits
claimed by the withholding agent.
(e) Payments other than in U.S. dollars--(1) In general. The amount
of a payment made in a medium other than U.S. dollars is measured by
the fair market value of the property or services provided in lieu of
U.S. dollars. The withholding agent may liquidate the property prior to
payment in order to withhold the required amount of tax under section
1441 or obtain payment of the tax from an alternative source. However,
the obligation to withhold under section 1441 is not deferred even if
no alternative source can be located. Thus, for purposes of withholding
under chapter 3 of the Internal Revenue Code, the provisions of
Sec. 31.3406(h)-2(b)(2)(ii) of this chapter (relating to backup
withholding from another source) shall not apply. If the withholding
agent satisfies the tax liability related to such payments, the rules
of paragraph (e)(3) of this section apply.
(2) Payments in foreign currency. If the amount subject to
withholding tax is paid in a currency other than the U.S. dollar, the
amount of withholding tax under section 1441 shall be determined by
applying the applicable rate of withholding to the foreign currency
amount and converting the amount withheld into U.S. dollars on the date
of payment at the spot rate (as defined in Sec. 1.988-1(d)(1)) or
pursuant to a reasonable spot rate convention. For example, a
withholding agent may use a month-end spot rate or a monthly average
spot rate. A spot rate convention must be used consistently for all
non-dollar amounts withheld from year to year. Such convention cannot
be changed without the consent of the Commissioner. The U.S. dollar
amount so determined shall be treated by the beneficial owner as the
amount of tax paid on the income for purposes of determining the final
U.S. tax liability and, if applicable, claiming a refund or credit of
tax.
(3) Tax liability of beneficial owner satisfied by withholding
agent--(i) General rule. In the event the satisfaction of a tax
liability of a beneficial owner by a withholding agent constitutes
income to the beneficial owner and such income is of a type that is
subject to withholding, the amount of the payment deemed made by the
withholding agent for purposes of this paragraph (e)(3) shall be
determined under the following gross-up formula:
[GRAPHIC] [TIFF OMITTED] TP22AP96.002
[[Page 17646]]
(ii) Example. The following example illustrates the provisions of
this paragraph (e)(3):
Example. College X awards a qualified scholarship within the
meaning of section 117(b) to foreign student, FS, who is in the
United States on an F visa. FS is a resident of a country that does
not have an income tax treaty with the United States. The
scholarship is $20,000 to be applied to tuition, mandatory fees and
books, plus benefits in kind consisting of room and board and
roundtrip air transportation. College X agrees to pay any U.S.
income tax owed by FS with respect to the scholarship. The fair
market value of the room and board measured by the amount College X
charges non-scholarship students is $6,000. The cost of the
roundtrip air transportation is $2,600. Therefore, the total fair
market value of the scholarship received by FS is $28,600. However,
the amount taxable is limited to the fair market value of the
benefits in kind ($8,600) because the portion of the scholarship
amount for tuition, fees, and books is not included in gross income
under section 117. Under the gross-up formula, College X is deemed
to make a payment of $10,000 ($8,600 divided by (1-.14). The U.S.
tax that must be deducted and withheld from the payment under
section 1441(b) is $1,400 (.14 x $10,000). College X reports
scholarship income of $30,000 and $1,400 of U.S. tax withheld on
Forms 1042 and 1042-S.
* * * * *
(g) Effective date. This section applies to payments of income made
after December 31, 1997.
Par. 9. Section 1.1441-4 is amended by:
1. Revising the section heading.
2. Revising paragraphs (a) and (b)(1)(ii).
3. Adding paragraph (b)(1)(vi).
4. Revising the last sentence of paragraph (b)(2)(i).
5. Revising the introductory text of paragraph (b)(2)(ii).
6. Paragraph (b)(2)(ii) is amended by:
a. Revising paragraph (b)(2)(ii)(A).
b. Redesignating paragraph (b)(2)(ii)(H) as paragraph (b)(2)(ii)(J)
and amending newly designated paragraph (b)(2)(ii)(J) by removing the
period and adding ``; and'' in its place.
c. Redesignating paragraphs (b)(2)(ii) (B), (C), (D), (E), (F) and
(G) as paragraphs (b)(2)(ii) (D), (E), (F), (G), (H) and (I),
respectively.
d. Adding new paragraphs (b)(2)(ii) (B), (C), and (K).
e. Amending newly designated paragraph (b)(2)(ii)(I) by removing
the language ``, and'' and adding a semicolon in its place.
f. Amending newly designated paragraphs (b)(2)(ii) (D), (E), (F),
(G), and (H) by removing the comma at the end of the paragraphs and
adding a semicolon in its place.
7. The concluding text of paragraph (b)(2)(iv) is amended by:
a. Removing the language ``ten'' and adding ``20'' in its place.
b. Removing the language ``Director of Foreign Operations'' and
adding ``Assistant Commissioner (International)'' in its place.
8. Revising paragraph (b)(2)(v).
9. Adding paragraph (b)(2)(vi).
10. Adding paragraph (b)(6).
11. Revising paragraphs (c), (d), (e), and (f).
12. Removing paragraphs (g), (h), and (i).
13. Removing the OMB parenthetical and the authority citation at
the end of the section.
The revisions and additions read as follows:
Sec. 1.1441-4 Certain exemptions from withholding.
(a) Certain income connected with a U.S. trade or business--(1) In
general. No withholding is required under section 1441 on income
otherwise subject to withholding if the income is (or is deemed to be)
effectively connected with the conduct of a trade or business within
the United States and is includible in the beneficial owner's gross
income for the taxable year. For purposes of this paragraph (a), an
amount is not deemed to be includible in gross income if the amount is
(or is deemed to be) effectively connected with the conduct of a trade
or business within the United States and the beneficial owner claims an
exemption from tax under an income tax treaty because the income is not
attributable to a permanent establishment in the United States. To
claim a reduced rate of withholding because the income is not
attributable to a permanent establishment, see Sec. 1.1441-6(b)(1).
This paragraph (a) does not apply to income of a foreign corporation to
which section 543(a)(7) applies for the taxable year or to compensation
for personal services performed by an individual. See paragraph (b) of
this section for compensation for personal services performed by an
individual.
(2) Withholding agent's reliance on a claim of effectively
connected income--(i) In general. Absent actual knowledge or reason to
know otherwise, a withholding agent may rely on a claim of exemption
based upon paragraph (a)(1) of this section if, prior to the payment to
the foreign person, the withholding agent complies with the
requirements of Sec. 1.1441-1(e)(1) and is furnished either a
beneficial owner withholding certificate (including one that is
transmitted with an intermediary withholding certificate described in
Sec. 1.1441-1(e)(3)(iv)), or an intermediary withholding certificate
described in Sec. 1.1441-1(e)(3)(ii) from a partnership acting for its
own account (regardless of whether the distributive share information
is stated on the certificate and whether the certificates described in
Sec. 1.1441-1(e)(3)(iii)(C) are attached). For purposes of this
paragraph (a), a withholding certificate is not valid unless it
includes a taxpayer identifying number. A statement on the withholding
certificate that the income is effectively connected with the conduct
of a trade or business in the United States and that the income will be
reported by the beneficial owner on an income tax return will satisfy
the requirement of Sec. 1.1441-1(e)(2)(ii) or (e)(3)(iii) that the
certificate describe the basis for the claim of reduced rate. A
withholding agent may presume that the income is not effectively
connected with the conduct of a trade or business in the United States
if the withholding certificate is silent or if the withholding agent
cannot associate the payment with the required documentation (as
defined in Sec. 1.1441-1(f)(1)). See Sec. 1.1441-1(e)(4)(ii)(B)(2) for
the period of validity applicable to a certificate provided under this
section. A withholding certificate shall be effective only for the item
or items of income specified therein. In compliance with Sec. 1.1441-
1(e)(3)(ii)(A), the validity of the certificate expires when subsequent
circumstances arising during the taxable year indicate that the income
to which the certificate relates is not, or is no longer expected to
be, effectively connected with the conduct of a trade or business
within the United States.
(ii) Exemption of certain foreign partnerships and foreign
corporations. [Reserved] For guidance prior to the date these
regulations are published as final regulations in the Federal Register,
see Sec. 1.1441-4(f) as contained in the 26 CFR Part 1, edition revised
April 1, 1995.
(iii) Payment to joint owners. In the case of payments to joint
owners, a withholding certificate must be provided by each beneficial
owner claiming a reduced rate certifying that the income is effectively
connected with the conduct of a trade or business within the United
States.
(3) Income on notional principal contracts. A withholding agent
that pays income attributable to a notional principal contract
described in Sec. 1.863-7(a) shall have no obligation to withhold on
the amounts paid under the terms of the notional principal contract
regardless of whether a withholding certificate is provided. For rules
regarding the obligation to file a return, see Secs. 1.1461-1(c)(1)(i)
and 1.6041-1(d)(5).
[[Page 17647]]
(4) Failure to act in accordance with presumption. A withholding
agent that does not withhold, contrary to the presumption set forth in
paragraph (a)(2) of this section that income is not effectively
connected with the conduct of a trade or business within the United
States, shall be liable for the tax imposed under section 1461, without
the benefit of a reduced rate, unless the withholding agent can
demonstrate to the satisfaction of the District Director or the
Assistant Commissioner (International) that the income is effectively
connected and was included in the Federal income tax return of the
beneficial owner and that the proper amount of tax, if any, has been
paid to the Internal Revenue Service. Proof of payment of tax may be
established on the basis of a Form 4669 (or such other form as the
Internal Revenue Service may prescribe) establishing the amount of tax,
if any, actually paid by the beneficial owner on the income. Proof that
a reduced rate of withholding was appropriate may be established by an
appropriate withholding certificate described in Sec. 1.1441-
1(e)(1)(i). However, if the required documentation was not received by
the withholding agent before the time the payment was made or within
the period specified in Sec. 1.1441-1(f)(2)(i)(B)(1), then the District
Director or the Assistant Commissioner (International) may require
additional proof if it determines that the delays in obtaining the
required documentation affect its reliability. The withholding agent
will be liable for interest under section 6601 regardless of whether
the underlying tax liability is due. In addition, the withholding agent
may be subject to penalties.
(b) Compensation for personal services of an individual--(1)
Exemption from withholding. * * *
* * * * *
(ii) Such compensation that would be subject to withholding under
section 3402 but for the provisions of section 3401(a) (not including
paragraph (a)(6) of that section) and the regulations under that
section. This paragraph (b)(1)(ii) does not apply to payments to a
nonresident alien individual from any trust described in section
401(a), any annuity plan described in section 403(a), or any annuity,
custodial account, or retirement income account described in section
403(b). Thus, for example, payments to a nonresident alien individual
from a trust described in section 401(a) are subject to withholding
under section 1441 and not under section 3405 or 3406.
* * * * *
(vi) Compensation that is exempt from withholding under section
3402 by reason of section 3402(e), provided that the employee and his
employer enter into an agreement under section 3402(p) to provide for
the withholding of income tax upon payments of amounts described in
Sec. 31.3401(a)-3(b)(1) of this chapter. An employee who desires to
enter into such an agreement should furnish his employer with Form W-4
(withholding exemption certificate) (or such other form as the Internal
Revenue Service may prescribe). See section 3402(f) and the regulations
thereunder and Sec. 31.3402(p)-1 of this chapter.
(2) Manner of obtaining withholding exemption under tax treaty--(i)
In general. * * * The exemption from withholding becomes effective for
payments made at least 20 days after a copy of the accepted statement
is forwarded to the Assistant Commissioner (International).
(ii) Statement claiming withholding exemption. The statement
claiming an exemption from withholding shall be made on Form 8233 (or
an acceptable substitute). Form 8233 shall be dated, signed by the
beneficial owner under the penalties of perjury, and contain the
following information:
(A) The individual's name, permanent residence address, taxpayer
identifying number, and the U.S. visa number, if any;
(B) The individual's current immigration status and visa type;
(C) The individual's original date of entry into the United States;
* * * * *
(K) Any other information as the form may require.
* * * * *
(v) Copies of Form 8233. The withholding agent shall forward one
copy of each Form 8233 that is accepted under paragraph (b)(2)(iv) of
this section to the Assistant Commissioner (International), within five
days of his or her acceptance. The Assistant Commissioner
(International) may review the forms so submitted. The withholding
agent shall retain a copy of Form 8233.
(vi) Electronic filing. Under procedures published by the Internal
Revenue Service, Forms 8233 may be filed electronically with the
Internal Revenue Service.
* * * * *
(6) Personal exemption--(i) In general. To determine the tax to be
withheld at source under Sec. 1.1441-1 from remuneration paid for
personal services performed within the United States by a nonresident
alien individual and from scholarship and fellowship income described
in paragraph (c) of this section, a withholding agent may take into
account one personal exemption pursuant to sections 873(b)(3) and 151
regardless of whether the income is effectively connected. The
exemption does not need to be prorated for purposes of withholding
under section 1441.
(ii) Multiple exemptions. More than one personal exemption may be
claimed in the case of a resident of a contiguous country or a national
of the United States under section 873(b)(3). In addition, residents of
a country with which the United States has an income tax treaty in
effect may be eligible to claim more than one personal exemption if the
treaty so provides. Claims for more than one personal exemption shall
be made on the withholding certificate furnished to the withholding
agent. The exemptions do not need to be prorated for purposes of
withholding under section 1441.
(iii) Special rule where both scholarship and compensation income
is received. The fact that both scholarship income and compensation
income are received during the taxable year does not entitle the
taxpayer to claim more than one personal exemption amount (or more than
the additional amounts permitted under paragraph (b)(6)(ii) of this
section). Thus, if a nonresident alien student receives taxable
scholarship amounts from one payor and compensation income from another
payor, no more than the total personal exemption amount permitted under
the Internal Revenue Code or under an income tax treaty may be taken
into account by both payors.
(c) Special rules for scholarship and fellowship income--(1) In
general. Under section 871(c), certain amounts paid as a scholarship or
fellowship for study, training, or research in the United States to a
nonresident alien individual temporarily present in the United States
as a nonimmigrant under subparagraph (F), (J), (M), or (Q) of section
101(a)(15) of the Immigration and Nationality Act are treated as income
effectively connected with the conduct of a trade or business within
the United States. Such amounts (as described in the second sentence of
section 1441(b)) are subject to withholding tax under section 1441, but
at the lower rate of 14 percent. That rate may be reduced under the
provisions of an income tax treaty. Claims of a reduced rate under an
income tax treaty shall be made under the procedures described in
Sec. 1.1441-6(b)(1). Therefore, claims for amounts described in this
paragraph (c)(1) may not be shown on
[[Page 17648]]
a Form 8233. However, if the payee is receiving both compensation for
personal services and income described in this paragraph (c)(1) from
the same withholding agent, claims for both types of income may be
shown on Form 8233.
(2) Alternate withholding election. A withholding agent may elect
to withhold on the amounts described in paragraph (c)(1) of this
section at the rates applicable under section 3402, as if the income
were wages. Such election shall be made by obtaining a Form W-4 (or an
acceptable substitute or such other form as the Internal Revenue
Service may prescribe) from the beneficial owner. Such Form W-4 shall
also serve as notice to the beneficial owner that the income is being
treated as wages for purposes of withholding tax under section 1441.
(d) Annuities received under qualified plans. Withholding is not
required under section Sec. 1.1441-1 in the case of any amount received
as an annuity if the amount is exempt from tax under section 871(f) and
the regulations under that section. A statement on the beneficial owner
withholding certificate that the annuity is excluded from gross income
by reason of section 871(f) and the basis for that exclusion satisfies
the requirement of Sec. 1.1441-1(e)(2)(ii) that the beneficial owner
state the basis for the claim of reduced rate. A beneficial owner
withholding certificate furnished for purposes of claiming the benefits
of the exemption under this paragraph (d) is not valid unless it
includes a taxpayer identifying number. See Sec. 1.1441-1(f)(3)(ii)
regarding applicable presumptions if the withholding agent does not
hold the required documentation prior to payment.
(e) Income of a foreign central bank of issue or the Bank for
International Settlements. Section 895 provides for the exclusion from
gross income of certain income derived by a foreign central bank of
issue, or by the Bank for International Settlements, from obligations
of the United States or of any agency or instrumentality thereof or
from bank deposits. Absent actual knowledge or reason to know that a
foreign central bank of issue, or the Bank for International
Settlements, is operating outside the scope of the exclusion granted by
section 895, the withholding agent may rely on a claim of exemption if,
prior to making the payment, the withholding agent complies with the
requirements of Sec. 1.1441-1(e)(1). The following statement on a
beneficial owner withholding certificate satisfies the requirement in
Sec. 1.1441-1(e)(2)(ii) that the beneficial owner state the basis for
the claim of reduced rate:
(1) The bank is a foreign central bank of issue, or the Bank for
International Settlements; and
(2) The bank does not, and will not, hold the obligations or the
bank deposits covered by the withholding agreement for, or use them in
connection with, the conduct of a commercial banking function or other
commercial activity.
(f) Effective date--(1) General rule. This section applies to
payments of income made after December 31, 1997.
(2) Transition rules. A withholding agent that holds a valid Form
4224 on a date that is 60 days after the date these regulations are
published as final regulations in the Federal Register may treat it as
a valid withholding certificate until its validity expires under
applicable provisions as in effect on April 22, 1996.
Sec. 1.1441-4T [Removed]
Par. 10. Section 1.1441-4T is removed.
Par. 11. Section 1.1441-5 is revised to read as follows:
Sec. 1.1441-5 Withholding on payments to pass-through entities.
(a) Domestic partnerships--(1) Exemption from withholding on
payment to domestic partnerships. A payment of income to a domestic
partnership is not subject to withholding of tax under section 1441
even though it may have partners that are foreign persons. A payor
(within the meaning of section 3406) may rely, in accordance with the
procedures under Sec. 1.1441-1(d), on a Form W-9 furnished by the
partnership.
(2) Withholding by a domestic partnership--(i) In general. A
domestic partnership is required to withhold tax under Sec. 1.1441-1 as
a withholding agent on the gross amount of items of income subject to
withholding that are includible in the distributive share of income of
a partner that is a foreign person. Pursuant to the authority provided
under section 702(a), each partner shall take into account separately
its distributive share of items of income subject to withholding, and
thus the partnership, pursuant to section 703(a)(1), shall separately
state these items of gross income when computing its taxable income. A
partnership shall withhold when any distributions that include items of
income subject to withholding are made. To the extent a foreign
partner's distributive share of an item of income subject to
withholding has not been actually distributed, the partnership is
required to withhold on the partner's distributive share of that item
of income on the earlier of the date that the statement required under
section 6031(b) and Sec. 1.6031-1(b) to be provided to that partner is
mailed or otherwise furnished to the partner or the due date for
furnishing that statement as provided under Sec. 1.6031-1(b)(1). If a
partnership withholds on a distributive share before the income is
actually distributed to the partner, then withholding is not required
when the income is subsequently distributed.
(ii) Reliance on a partner's claim for reduced withholding. Absent
actual knowledge or reason to know otherwise, a domestic partnership
may rely on a claim for reduced withholding by a partner, if prior to
the time the partnership is required to withhold, the partnership
complies with the requirements of Sec. 1.1441-1(d) or (e)(1), whichever
is applicable, with respect to the partner. See the presumptions
described in Sec. 1.1441-1(f)(4)(iii)(A) applicable to a domestic
partnership in determining the U.S. or foreign status of its partners.
(b) Foreign partnerships--(1) In general. A withholding agent must
treat a payment to a foreign partnership as a payment to its partners,
except to the extent the partnership is treated as a payee under
Sec. 1.1441-1(c)(3)(ii). See Sec. 1.1441-1(e)(5)(v) for payments to a
foreign partnership that claims to be a qualified intermediary. If the
partnership is not treated as a payee, a withholding agent may, absent
actual knowledge or reason to know otherwise, rely on a claim for a
reduced rate of withholding by a partner if, prior to the payment, the
withholding agent holds an intermediary withholding certificate
described in Sec. 1.1441-1(e)(3)(iii) pertaining to the partner. The
certificate will be considered to pertain to the partner if the
appropriate withholding certificate for the partner is attached to the
intermediary withholding certificate. The appropriate withholding
certificate for the partner may be a beneficial owner withholding
certificate described in Sec. 1.1441-1(e)(2) (for a partner claiming to
be a foreign person and a beneficial owner, determined under the
provisions of Sec. 1.1441-1(c)(6)), the applicable certificates
described in Sec. 1.1441-1(d)(2) (for a partner claiming to be a U.S.
payee), an intermediary withholding certificate described in
Sec. 1.1441-1(e)(3)(ii) or (iv) (for a partner that is a qualified
intermediary or not otherwise acting for its own account), or an
intermediary withholding certificate described in Sec. 1.1441-
1(e)(3)(iii) representing that the income to which the certificate
relates is effectively connected with the conduct of a trade or
business in the
[[Page 17649]]
United States. A claim must be presented for each portion of the
payment that represents an item of income includible in the
distributive share of the partner. When making a claim for several
partners, the partnership may present a single intermediary withholding
certificate to which the partners' certificates are attached.
(2) Special rules in the case of tiered partnerships. If a foreign
or domestic partnership is a partner of a foreign partnership, the
rules of this paragraph (b)(2) shall apply.
(i) A withholding agent may treat any portion of a payment made to
a foreign partnership that represents an item of income includible in
the distributive share of a partner (at any level in the chain of
tiers) that is a domestic partnership as a payment to a U.S. person if
the domestic partnership complies with the procedures described in
Sec. 1.1441-1(d) (relating to the claim of U.S. status by a payee or
beneficial owner).
(ii) A withholding agent may treat any portion of a payment made to
a foreign partnership that represents an item of income includible in
the distributive share of a partner (at any level in the chain of
tiers) that is a foreign partnership as a payment to a foreign person
if the withholding agent may treat the foreign partnership as the payee
pursuant to the provisions in Sec. 1.1441-1(c)(3)(ii).
(iii) Where the partner in the foreign partnership to whom the
payment is made (second tier) is a foreign partnership (first tier),
the appropriate withholding certificate for the partner is an
intermediary withholding certificate described in Sec. 1.1441-
1(e)(3)(iii) issued by the second tier, and an intermediary withholding
certificate described in Sec. 1.1441-1(e)(3)(iii) issued by the first
tier to which is attached an appropriate withholding certificate for
each of the partners of the first tier. The rules of this paragraph
(b)(2)(iii) shall apply to any number of tiers of foreign partnerships.
(3) Presumptions. A withholding agent may apply the presumption
described in Sec. 1.1441-1(f)(4)(ii) to any portion of a payment for
which the withholding agent does not receive the required documentation
(as defined in Sec. 1.1441-1(f)(1)(ii)).
(4) Example. The rules of this paragraph (b) may be illustrated by
the following example:
Example. (i) Facts. FP is a foreign partnership organized under
the laws of Country X deriving interest that would qualify as
portfolio interest described in section 871(h)(2)(B) if the
statement described in section 871(h)(5) is furnished. FP has three
partners, A, B, and C. FP furnishes to the withholding agent an
intermediary withholding certificate described in Sec. 1.1441-
1(e)(3)(iii) to which it attaches a Form W-9 for A and a beneficial
owner withholding certificate for B. No documentation is attached
for C.
(ii) Analysis. Absent actual knowledge or reason to know
otherwise, the withholding agent may rely on A's Form W-9 to treat A
as a U.S. person and, therefore, does not withhold on A's share of
the payment. The withholding agent must comply with any information
reporting obligations under sections 6042 (i.e., issue a Form 1099)
with respect to A. Absent actual knowledge or reason to know
otherwise, the withholding agent may also rely on B's claim for
portfolio interest treatment for its share of the payment. The
withholding agent must report the payment to B on Forms 1042 and
1042-S. Because the withholding agent cannot associate the required
documentation (as defined Sec. 1.1441-1(f)(1)) for C's share of the
interest income, the withholding agent may, for purposes of section
3406, treat that amount as a reportable payment made to a U.S. payee
that is not an exempt recipient. See Sec. 1.1441-1(f)(4)(ii).
(c) Trusts and estates. [Reserved]
(d) Effective date--(1) General rule. This section applies to
payments of income made after December 31, 1997.
(2) Transition rules. A withholding agent that holds a valid
withholding certificate on the date that is 60 days after the date
these regulations are published as final regulations in the Federal
Register may treat it as a valid withholding certificate until its
validity expires under applicable provisions as in effect on April 22,
1996.
Par. 12. Section 1.1441-6 is revised to read as follows:
Sec. 1.1441-6 Claim of a reduced rate of tax under an income tax
treaty.
(a) In general. Under an income tax treaty in effect between the
United States and a foreign country, the rate of tax to be withheld on
a payment of income subject to withholding may be reduced if the
beneficial owner of the income is a resident of the foreign country.
Other requirements or conditions of the treaty, or revenue procedures
issued thereunder, for claiming treaty benefits must also be satisfied,
such as a limitation of benefits provision. If the requirements of this
section are met, the amount withheld from the payment may be reduced at
source to account for the treaty benefit. See also Sec. 1.1441-4(b)(2)
for rules regarding claims of reduced rate of withholding under an
income tax treaty in the case of compensation from personal services.
(b) Reliance on claim of treaty benefits--(1) In general. Absent
actual knowledge or reason to know otherwise, a withholding agent may
rely on a claim that a beneficial owner is entitled to a reduced rate
of withholding based upon an income tax treaty if, prior to the
payment, the withholding agent complies with the requirements of
Sec. 1.1441-1(e)(1). Except as otherwise provided in paragraph (b)(2)
or (b)(3) of this section, for purposes of this paragraph (b)(1), a
beneficial owner withholding certificate mentioned in Sec. 1.1441-
1(e)(1) means a beneficial owner withholding certificate described in
Sec. 1.1441-1(e)(2), that includes the beneficial owner's taxpayer
identifying number and states that the taxpayer has complied with the
advance ruling requirements described in paragraph (e) of this section
(if applicable), and, if the beneficial owner is a person related to
the withholding agent within the meaning of section 267(b) and 707(b),
that the beneficial owner will file the statement required under
Sec. 1.6114-1(b) (if applicable). The requirement to file an
information return under section 6114 for income subject to withholding
applies only to amounts paid during the calendar year that, in the
aggregate, exceed $500,000. See Sec. 301.6114-1(b) of this chapter. See
paragraph (d) of this section for circumstances under which the
withholding agent may be notified by the Internal Revenue Service that
the certificate cannot be relied upon to grant benefits under an income
tax treaty. A beneficial owner's taxpayer identifying number on a
withholding certificate is valid for purposes of establishing proof of
residence in a treaty country only if the taxpayer identifying number
is certified by the Internal Revenue Service. However, absent actual
knowledge or reason to know otherwise, a withholding agent may rely on
a taxpayer identifying number that appears correct on its face, without
having to inquire as to whether the taxpayer identifying number is
certified, if the permanent residence address on the certificate is in
the country whose tax treaty with the United States is invoked. See the
confirmation and notification procedures described in Sec. 1.1441-
1(e)(4) (iv) and (v).
(2) Special rules for certain dividends. In the case of dividends
on stock traded on a U.S. established financial market, a withholding
agent may rely on a beneficial owner withholding certificate described
in Sec. 1.1441-1(e)(2). For this purpose, a U.S. established financial
market is a national securities exchange that is registered under
section 6 of the Securities Exchange Act of 1934 (15 U.S.C. 78F), or an
interdealer quotation system sponsored by a national securities
association registered under
[[Page 17650]]
section 15A of the Securities Exchange Act of 1934. In the case of
payments made outside the United States (as defined in Sec. 1.6049-
5(e)) with respect to an offshore account (as defined in Sec. 1.6049-
5(d)(3)), a withholding agent may also consider that it holds a
withholding certificate if it holds a certificate of residence
described in paragraph (c)(3) of this section or documentary evidence
described in paragraph (c)(4) of this section that the withholding
agent has reviewed and maintains in its records. The withholding agent
maintains the reviewed documents by retaining either the documents
viewed or a photocopy thereof and noting in its records the date on
which, and by whom, the documents were received and reviewed. This
paragraph (b)(2) shall not apply to dividends that are exempt from
withholding based on a claim that the dividends are effectively
connected with the conduct of a trade or business in the United States.
(3) Competent authorities agreement. The procedures described in
this section may be modified to the extent the U.S. competent authority
may agree with the competent authority of a country with which the
United States has an income tax treaty in effect.
(4) Special rules for payments to certain foreign entities--(i)
Determination of beneficial owner. Under Sec. 1.1441-1(c)(6)(ii)(B),
the tax principles in effect under the laws of the country whose tax
treaty with the United States is invoked apply in certain cases to
determine the beneficial owner of income entitled to claim a reduced
rate of withholding under that income tax treaty. Thus, if a beneficial
owner, as determined under Sec. 1.1441-1(c)(6)(ii)(B), is not a
resident of the country whose law has been applied to determine
beneficial owner status, then a payment to a foreign entity will not
qualify for a reduced rate under that country's tax treaty with the
United States even if the foreign entity receiving the payment is
organized in that foreign country. Conversely, if a beneficial owner,
as determined under Sec. 1.1441-1(c)(6)(ii)(B), is a resident of the
country whose law has been applied to determine beneficial owner
status, then the beneficial owner's share of a payment to a foreign
entity will qualify for a reduced rate under the applicable income tax
treaty (provided other requirements for qualification are met) even if
the foreign entity receiving the payment is not organized in, or is not
a resident of, the foreign country in which the beneficial owner is
resident.
(ii) Withholding certificates. The person claiming a reduced rate
of tax under an income tax treaty shall apply the rules of Sec. 1.1441-
1(c)(6)(ii)(B) and paragraph (b)(4)(i) of this section to determine the
beneficial owner of income and entitlement to a reduced rate under an
income tax treaty. The beneficial owner so determined may provide, as
appropriate, a beneficial owner withholding certificate described in
paragraph (b)(1) or (b)(2) of this section. Thus, for example, if the
beneficial owner, as determined under Sec. 1.1441-1(c)(6)(ii)(B), is
the interest holder rather than the entity, then the entity shall be
treated as a foreign partnership for purposes of determining which
withholding certificate is appropriate. If, conversely, the beneficial
owner, as determined under Sec. 1.1441-1(c)(6)(ii)(B), is the entity
rather than the interest holders, then the entity shall be treated as a
corporation for purposes of determining which withholding certificate
is appropriate.
(iii) Request for dual treatment. As set forth in Sec. 1.1441-
1(c)(6)(ii)(B), a withholding agent may make payments to a foreign
entity that is simultaneously claiming a reduced rate of tax on its own
behalf and a reduced rate on behalf of persons in their capacity as
interest holders in that entity. In such a case, the withholding agent
may, at its option, accept such dual claims based, as appropriate, on
beneficial owner withholding certificates described in paragraph (b)
(1) or (2) of this section or documentary evidence described in
Sec. 1.6049-5(c)(2)(ii) furnished by such persons with respect to their
respective share of such payments, even though the withholding agent
holds different withholding certificates that requires it to treat the
entity inconsistently with respect to different payments or with
respect to different portions of the same payment. See paragraph
(b)(4)(v) Example 2 of this section.
(iv) Reciprocal application by treaty partners. Paragraph (b)(4) of
this section and the principles of Sec. 1.1441-1(c)(6)(ii)(B) will not
apply if the U.S. competent authority determines that a treaty partner
is not reciprocally applying the principles of Sec. 1.1441-
1(c)(6)(ii)(B) to entities organized under the laws of the United
States or to interest holders residing in the United States. In such
case, the rules set forth in Sec. 1.1441-1(c)(6) shall apply without
regard to the rules in Sec. 1.1441-1(c)(6)(ii)(B). This determination
shall be effective upon publication of relevant guidance by the Service
and shall apply prospectively only.
(v) Examples. This paragraph (b)(4) is illustrated by the following
examples:
Example 1--(i) Facts. Entity A is a business organization formed
under the laws of country Y that has an income tax treaty with the
United States. Under the laws of country Y, A is subject to tax at
the entity level and, therefore, is treated as the beneficial owner
of income it receives and as a resident of country Y for purposes of
the U.S.-Y tax treaty. A receives U.S. source royalties from
withholding agent R and claims a reduced rate of withholding under
the U.S.-Y tax treaty on its own behalf (rather than on behalf of
its interest holders). A furnishes a beneficial owner withholding
certificate described in paragraph (b)(1) of this section claiming
to be the beneficial owner of the royalties.
(ii) Analysis. For purposes of claiming treaty benefits under
the U.S.-Y treaty, A is treated as the beneficial owner of the
royalties under Sec. 1.1441-1(c)(6)(ii)(B) since, under the tax law
of country Y, A is required to include the royalties in income. R
may treat A as the beneficial owner of the income for purposes of
granting the benefit of a reduced rate under the U.S.-Y tax treaty.
Example 2--(i) Facts. The facts are the same as under Example 1,
except that one of A's interest holders, T, is a corporation
residing in country X. The U.S.-X tax treaty reduces the rate on
royalties to zero whereas the rate on royalties under the U.S.-Y tax
treaty is only reduced to 5 percent. Under the laws of country X, A
is taxable on a flow-through basis and not at the entity level and T
is required to include in income its distributive share of A's
income. T claims to be the beneficial owner of its share of the
royalty income paid to A and provides a beneficial owner certificate
to A claiming the benefit of a zero rate under the U.S.-X tax
treaty. A furnishes to R a beneficial owner withholding certificate
for itself for the portion of the payment for which A alone claims
to be the beneficial owner. In addition, it furnishes to R an
intermediary withholding certificate described in Sec. 1.1441-
1(e)(3)(iii) to which it attaches T's beneficial owner withholding
certificate for the portion of the payment for which T claims to be
the beneficial owner.
(ii) Analysis. For purposes of claiming treaty benefits under
the U.S.-Y treaty, A is treated as the beneficial owner of all of
the royalty income received from R under Sec. 1.1441-1(c)(6)(ii)(B),
since, under the tax law of country Y (i.e., under the laws of the
country whose treaty benefits are claimed), A is subject to tax on
that income. However, for purposes of claiming benefits under the
U.S.-X treaty, T may also be treated as the beneficial owner of its
share of the royalty income under Sec. 1.1441-1(c)(6)(ii)(B), since,
under the tax law of country X (i.e., the laws of the country whose
treaty benefits are claimed), T is required to include in income its
share of A's income. Therefore, R may treat the royalty payment to a
single foreign entity (A) as beneficially owned by different persons
as a result of claims presented under different treaties. R may, at
its option, grant dual treatment, that is, a reduced rate of zero
percent under the U.S.-X treaty on the portion of the royalty
payment for which T claims to be the beneficial owner and a reduced
rate of 5 percent under the U.S.-Y
[[Page 17651]]
treaty for the balance. However, under paragraph (b)(4)(iii) of this
section, the withholding agent may, at its option, treat A as the
sole beneficial owner of the royalty and grant benefits under the
U.S.-Y treaty only.
Example 3. (i) Entity A is a business organization formed under
the laws of country Y. A receives from withholding agent R U.S.
source royalties and U.S. source interest income that is potentially
eligible for the portfolio interest exemption under section 871(h)
and 881(c) of the Internal Revenue Code. A's interest holders are S,
an individual who resides in country Y, T, an individual who resides
in country X, and U, an individual resident in the United States.
The United States has a tax treaty with both country Y and country
X. The U.S.-Y tax treaty reduces the rate on royalties to 5 percent,
and the U.S.-X tax treaty reduces the rate to zero. A is classified
as a partnership under U.S. tax principles. Under the tax laws of
country Y, A is taxable on a flow-through basis, and S is required
to include in income her distributive share of A's income. Under the
tax laws of country X, A is taxable on a flow-through basis and T is
required to include in income her distributive share of A's income.
A furnishes R an intermediary withholding certificate described in
Sec. 1.1441-1(e)(3)(iii) to which it attaches--
(A) A Form W-9 for U; and
(B) Beneficial owner withholding certificates for S and T that
claim the portfolio interest exemption and a reduced rate of
withholding under the U.S. treaties with Y and X, respectively.
(ii) Analysis. For purposes of claiming benefits under the U.S.-Y
treaty, S is treated as the beneficial owner of his distributive share
of royalty income received from R under Sec. 1.1441-1(c)(6)(ii)(B)
since, under the tax law of country Y (i.e., the laws of the country
whose treaty benefits are claimed in the case of S), S is the person
required to include in income her distributive share of the royalty.
Therefore, R may withhold on S's proportionate share of the royalty
income paid to A at the 5 percent rate under the U.S.-Y tax treaty. For
purposes of claiming benefits under the U.S.-X tax treaty, T is treated
as the beneficial owner of her distributive share of royalty income
under Sec. 1.1441-1(c)(6)(ii)(B), since, under the laws of country X
(i.e., the laws of the country whose treaty benefits are claimed in the
case of T), T is the person required to include in income her
distributive share of the royalty. Therefore, R may withhold on T's
proportionate share of the royalty income paid to A at the zero rate
under the U.S.-X treaty, even though A is not organized in, or a
resident of, country X. R may rely on U's Form W-9 to treat U as a U.S.
person. Therefore, R does not withhold on U's share of the royalty
payment. R also does not withhold on any portion of the interest paid
to A because S and T have furnished beneficial owner certificates and U
has furnished a Form W-9.
(c) Proof of tax residence in a treaty country--(1) In general. A
beneficial owner establishes proof of its tax residence in a treaty
country for purposes of its claim to the withholding agent that a
reduced rate of tax applies under an income tax treaty by complying
with the procedures described in this paragraph (c) or with such other
procedures as the Internal Revenue Service may prescribe in published
guidance. For purposes of this section, the residence of a beneficial
owner must be determined in accordance with the provisions of the
applicable U.S. income tax treaty as may be clarified by any applicable
regulations thereunder or technical explanations thereof, and any
procedures issued by the Internal Revenue Service on the determination
or proper method of certifying residence under particular income tax
treaties.
(2) Certification of taxpayer identifying number--(i) In general. A
taxpayer may certify its taxpayer identifying number as required under
paragraph (b)(1) of this section by having the taxpayer identifying
number certified by the Internal Revenue Service either directly as
provided under paragraph (c)(2)(ii) of this section or through a
qualified intermediary as provided in paragraph (c)(2)(iii) of this
section.
(ii) IRS-certified TIN. The Internal Revenue Service may certify a
taxpayer identifying number based upon a certificate of residence
described in paragraph (c)(3) of this section or documentary evidence
described in paragraph (c)(4) of this section. The certificate or
documentary evidence must be furnished to the Internal Revenue Service
by or on behalf of the beneficial owner upon application for the
taxpayer identifying number or at any other time, as permitted under
such procedures as the Internal Revenue Service may prescribe. If the
tax residence of the beneficial owner changes, the beneficial owner
shall promptly notify the Internal Revenue Service of that change. In
addition, the Internal Revenue Service may exchange information for the
purpose of confirming with the appropriate tax authority of the other
country that the beneficial owner continues to be a tax resident of
that country. The Internal Revenue Service may from time to time, in
its discretion, request that the beneficial owner reconfirm its
residence in the treaty country.
(iii) Special rules for qualified intermediaries. The Internal
Revenue Service may certify a taxpayer identifying number based upon
the certification of a qualified intermediary described in Sec. 1.1441-
1(e)(5)(ii) regarding the tax residence of any of its account holders,
or persons owning an interest in the qualified intermediary, under
procedures agreed upon with the Internal Revenue Service. If a new
account or interest holder has a taxpayer identifying number at the
time it opens an account or acquires an interest, the qualified
intermediary may rely on a statement by the account or interest holder
that appropriate proof of tax residence in the treaty jurisdiction was
previously provided to the Internal Revenue Service. In such case, the
qualified intermediary must notify the Internal Revenue Service each
time the account or interest holder's address changes to another
country or when the account or interest holder terminates its
relationship with the qualified intermediary.
(3) Certificate of residence. A certificate of residence is
generally a certificate issued by the competent authority (or another
appropriate tax authority) of the treaty country of which the taxpayer
claims to be a resident that certifies that the taxpayer has filed its
most recent income tax return as a resident of that country. A
certificate of residence is valid for a period of three years or such
longer period as the Internal Revenue Service may prescribe. The
competent authorities may agree to a different procedure for certifying
residence, in which case such procedure shall govern for payments made
to a person claiming to be a resident of the country with which such an
agreement is in effect.
(4) Documentary evidence establishing residence in the treaty
country. Generally, documentary evidence used to establish residence in
a treaty country must include the name, address, and photograph of the
person seeking to prove residence, must be an official document issued
by an authorized governmental body (i.e., a government or agency
thereof, or a municipality), and must have been issued no more than
three years prior to presentation to the withholding agent. A document
older than three years may be relied upon as proof of residence only if
it is accompanied by additional evidence of the person's residence in
the treaty country (i.e., a bank statement, utility or medical bills).
Documentary evidence must be in the form of original documents or a
certified copy thereof.
(d) Joint owners. In the case of a payment to joint owners, all
owners must furnish a withholding certificate
[[Page 17652]]
or, if applicable, documentary evidence or a certificate of residence.
The applicable rate of tax on a payment of income to joint owners shall
be the highest applicable rate.
(e) Related party dividends under certain treaties. Income tax
treaties between the United States and Austria, Denmark, Ireland, and
Switzerland reduce the rate of tax on dividends between related
corporations to 5 percent subject to the condition that the
relationship between the domestic and foreign corporations was not
arranged or maintained for the purpose of securing the reduced rate. A
domestic corporation that makes a distribution to a resident of one of
these countries may treat this condition as satisfied if, prior to the
payment, a request has been made to the Internal Revenue Service for a
private letter ruling determining that the relationship between the
corporation and the shareholder was not arranged or maintained for such
purpose and the Service has either issued a favorable ruling (and the
ruling has not been revoked) or is considering the ruling request.
(f) Effective date--(1) General rule. This section applies to
payments of income made after December 31, 1997.
(2) Transition rules. For purposes of this section, a withholding
agent that holds a valid Form 1001 or 8233 on the date that is 60 days
after these regulations are published as final regulations in the
Federal Register may treat it as a valid withholding certificate until
its validity expires under applicable provisions as in effect on April
22, 1996. In addition, the documentation requirements for dividends on
stock traded on a U.S. established financial market described in
paragraph (b)(2) of this section shall apply only to accounts
established after the date that is 60 days after these regulations are
published as final regulations in the Federal Register. For accounts
established on or before that date, the documentation requirements
under this section shall apply to payments made after December 31,
1999.
Par. 13. Section 1.1441-7 is revised to read as follows:
Sec. 1.1441-7 General provisions relating to withholding agents.
(a) Withholding agent defined. For purposes of chapter 3 of the
Internal Revenue Code, the term withholding agent means any person,
U.S. or foreign, that has the control, receipt, custody, disposal, or
payment of an item of income of a foreign person subject to
withholding. See Sec. 1.1441-1(b) (dealing with general rules of
withholding) and Sec. 1.1441-1(f) (dealing with presumptions of U.S. or
foreign status in the absence of required documentation) for
determining whether a payment is considered made to a foreign person.
Any person who meets the definition of a withholding agent is required
to deposit any tax withheld under Sec. 1.1461-1(a) and to make the
returns prescribed by Sec. 1.1461-1(b) and (c). When several persons
qualify as withholding agents with respect to a single payment, only
one tax is required to be withheld and only one return (on Form 1042,
as required under Sec. 1.1461-1(b)), is required to be made.
(b) Standards of knowledge--(1) In general. If a withholding agent
does not withhold the full amount even though it has actual knowledge
or reason to know that a claim of U.S. status or of a reduced rate of
tax under section 1441 is incorrect, the withholding agent may be
liable for tax, interest, and penalties under sections 1461 and 1463
and the regulations under those sections. A withholding agent that has
received notification by the Internal Revenue Service that a claim of
U.S. status or of a reduced rate is incorrect has actual knowledge
beginning on the date that is 30 calendar days after the date the
notice is received. A withholding agent that fails to act in accordance
with the presumptions set forth in Sec. 1.1441-1(f) may be liable for
tax, interest, and penalties. See Sec. 1.1441-1(f)(5).
(2) Reason to know--(i) In general. A withholding agent will be
considered to have reason to know if it has sufficient knowledge of the
underlying facts such that a reasonably prudent person in the position
of the withholding agent would question the claim made or if the
withholding agent has actual knowledge of sufficient facts to put it on
notice that the claim is false.
(ii) Limits on duty to inquire in certain cases. In the case of
portfolio interest, interest on deposits described in section
871(i)(2)(A), and dividends described in Sec. 1.1441-6(b)(2), a
withholding agent's duty to inquire with respect to a beneficial owner
withholding certificate is limited to the circumstances listed in this
paragraph (b)(2)(ii). Where one or more of the circumstances described
in this paragraph (b)(2)(ii) exist for a withholding certificate, the
withholding agent may rely on the withholding certificate only after
documentation is provided in support of the claim of foreign status, or
reduced rate of tax under a tax treaty, and the certificate is
corrected, if appropriate.
(A) The permanent residence address on the withholding certificate
is an address in the United States.
(B) The payment is directed to a P.O. Box, an in-care-of address, a
U.S. address, or an account with a financial institution in the United
States.
(C) In the case of income for which benefits are claimed under an
income tax treaty, the permanent residence address or mailing address
is not in the corresponding treaty country.
(D) The beneficial owner notifies the withholding agent of an
address for mailing purposes and that address is--
(1) Different from the permanent residence or mailing address
stated on the withholding certificate provided to the withholding agent
by or for the beneficial owner; and
(2) The address is one that is described in paragraph
(b)(2)(ii)(A), (B), or (C) of this section.
(E) Such other circumstances as the Internal Revenue Service may
prescribe in published guidance.
(3) Universal accounts. A withholding agent that is a financial
institution dealing with the public and with which a customer may
open an account shall apply the rules of this paragraph (b) on an
account-by-account basis, except to the extent it uses a universal
account system that uses a customer identifier that can be used to
retrieve systemically any other accounts of the customer. See
Sec. 31.3406(c)-1(c)(3)(ii) and (c)(3)(iii)(C) of this chapter.
(c) Authorized agent--(1) In general. The acts of an agent of a
withholding agent (including the receipt of withholding certificates,
the payment of amounts of income subject to withholding, and the
deposit of tax withheld) shall be imputed to the withholding agent on
whose behalf it is acting. However, if the agent is a foreign person, a
withholding agent that is a U.S. person may treat the acts of the
foreign agent as its own for purposes of determining whether it has
complied with the provisions of this section, but only if the agent is
an authorized foreign agent, as defined in paragraph (c)(2) of this
section.
(2) Authorized foreign agent. An agent is an authorized foreign
agent only if--
(i) There is a written agreement between the withholding agent and
the foreign person acting as agent;
(ii) The notification procedures described in paragraph (c)(3) of
this section have been complied with;
(iii) Books and records and relevant personnel of the foreign agent
are available for examination by the Internal Revenue Service in order
to evaluate the withholding agent's compliance with the provisions of
chapter 3, section 3406, and chapter 61 of the Internal Revenue Code,
and the regulations under those provisions; for this purpose, the
foreign agent's actual knowledge or
[[Page 17653]]
reason to know shall be imputed to the U.S. withholding agent; and
(iv) The U.S. withholding agent remains fully liable for the acts
of its agent and does not assert any of the defenses that may otherwise
be available under common law principles of agency in order to avoid
tax liability under the Internal Revenue Code.
(3) Notification. A withholding agent that appoints an authorized
agent to act on its behalf for purposes of Sec. 1.871-14(c)(2), for the
withholding provisions of chapter 3 of the Internal Revenue Code, or
for the reporting provisions of chapter 61 of the Internal Revenue
Code, is required to file notice of such appointment with the Office of
the Assistant Commissioner (International). Such notice shall be filed
before the first payment for which the authorized agent acts as such.
(4) Liability of U.S. withholding agent. A withholding agent acting
through an authorized foreign agent is liable for any failure of the
agent, such as failure to withhold an amount or make payment of tax, in
the same manner and to the same extent as if the agent's failure had
been the failure of the U.S. withholding agent. Such liability shall
exist irrespective of the fact that the authorized foreign agent is
also a withholding agent and is itself separately liable for failure to
comply with the provisions of the regulations under sections 1441,
1442, or 1443. However, liability for tax, interest, and penalties
shall not be collected more than once.
(5) Filing of returns. See Sec. 1.1461-1(b)(2)(iii) and (c)(4)(iii)
regarding returns required to be made where a U.S. withholding agent
acts through an authorized foreign agent.
(d) United States obligations. If the United States is a
withholding agent for an item of interest, including original issue
discount, on obligations of the United States or of any agency or
instrumentality thereof, the withholding obligation of the United
States is assumed and discharged by--
(1) The Commissioner of the Public Debt, for interest paid by
checks issued through the Bureau of the Public Debt;
(2) The Treasurer of the United States, for interest paid by him or
her, whether by check or otherwise;
(3) Each Federal Reserve Bank, for interest paid by it, whether by
check or otherwise; or
(4) Such other person as may be designated by the Internal Revenue
Service.
(e) Assumed obligations. If, in connection with the sale of a
corporation's property, payment of the bonds or other obligations of
the corporation is assumed by the assignee, the assignee, whether an
individual, partnership, or corporation, shall be a withholding agent
to the extent amounts subject to withholding tax are paid to a foreign
person. Thus, the assignee shall deduct and withhold such taxes under
Sec. 1.1441-1 as would be required to be withheld by the assignor had
no such sale or transfer been made.
(f) Conduit financing arrangements. [Reserved]
(g) Effective date. This section applies to payments of income made
after December 31, 1997.
Par. 14. Section 1.1441-8T is amended as follows:
1. The section heading is revised.
2. Paragraph (b) is revised.
3. Paragraph (c) is added.
The revisions and additions read as follows:
Sec. 1.1441-8T Foreign government and international organization
exemption from withholding (temporary).
* * * * *
(b) Statement claiming exemption. Absent actual knowledge or reason
to know otherwise, the withholding agent may rely upon a claim of
exemption made by the foreign government or international organization,
if, prior to making the payment, the withholding agent satisfies the
requirements of Sec. 1.1441-1(e)(1). For purposes of this paragraph
(b), a beneficial owner withholding certificate means a certificate
described in Sec. 1.1441-1(e)(2). A statement on the withholding
certificate that the income is, or will be, exempt from taxation under
section 892 and the regulations under that section will satisfy the
requirement in Sec. 1.1441-1(e)(2)(ii) that the beneficial owner state
on the certificate the basis for the claim of reduced rate.
(c) Effective date--(1) In general. This section applies to
payments of income made after December 31, 1997.
(2) Transition rules. For purposes of this section, a withholding
agent that holds a valid Form 8709 on the date that is 60 days after
these regulations are published as final regulations in the Federal
Register may treat it as a valid withholding certificate until its
validity expires under applicable provisions as in effect on April 22,
1996.
Par. 15. Section 1.1441-9 is added to read as follows:
Sec. 1.1441-9 Exemption from withholding on exempt income of a
foreign tax-exempt organization and foreign private foundations.
(a) Income not subject to tax under section 511. No withholding of
tax is required under Sec. 1.1441-1 on income of a foreign organization
described in section 501(c) of the Internal Revenue Code that is not
subject to the tax imposed by section 511 of the Internal Revenue Code
and is exempt from tax under section 501(a). See Sec. 1.1443-1 for
withholding rules applicable to foreign private foundations.
(b) Statement claiming exemption. Absent actual knowledge or reason
to know otherwise, a withholding agent may rely upon a claim of
exemption by the foreign tax-exempt organization if, prior to making
the payment, the withholding agent meets the requirements of
Sec. 1.1441-1(e)(1) (except that the certificate must contain a
taxpayer identifying number). The requirement in Sec. 1.1441-
1(e)(2)(ii) that the beneficial owner state on the certificate the
basis for the claim of reduced rate shall be satisfied by the
beneficial owner certifying that the income is not, or will not be,
subject to tax under section 511 and that the Internal Revenue Service
has issued a determination letter (and the date thereof). If the
organization cannot certify that it has been issued such a letter, it
must provide an opinion of counsel that it is tax exempt under section
501(c).
(c) Effective date--(1) In general. This section applies to
payments of income made after December 31, 1997.
(2) Transition rules. For purposes of this section, a withholding
agent that holds a valid Form W-8, 1001 or 4224 on the date that is 60
days after the date these regulations are published as final
regulations in the Federal Register may treat it as a valid withholding
certificate until its validity expires under applicable provisions as
in effect on April 22, 1996.
Par. 16. Sections 1.1442-1 and 1.1442-2 are revised to read as
follows:
Sec. 1.1442-1 Withholding of tax on foreign corporations.
For regulations concerning the withholding of tax at source under
section 1442 in the case of foreign corporations, see Secs. 1.1441-1
through 1.1441-7 and 1.1441-9.
Sec. 1.1442-2 Exemption under a tax treaty.
For regulations providing for a claim of reduced withholding tax
under section 1442 by certain foreign corporations pursuant to the
provisions of an income tax treaty, see Sec. 1.1441-6.
Par. 17. Section 1.1442-3 is added to read as follows:
Sec. 1.1442-3 Tax exempt income of a foreign tax-exempt corporation.
For regulations providing for a claim of exemption for income
exempt from tax under section 501(a) of a foreign tax-
[[Page 17654]]
exempt corporation, see Sec. 1.1441-9. See Sec. 1.1443-1 for
withholding rules applicable to foreign foundations.
Sec. 1.1443-1 [Amended]
Par. 18. Section 1.1443-1 is amended by:
1. Amending the second sentence of paragraph (b)(4)(i) by removing
the words ``an affidavit of the foreign organization or''.
2. Amending the third sentence in paragraph (b)(4)(i) by removing
the words ``an affidavit or''.
Par. 19. Section 1.1461-1 is revised to read as follows:
Sec. 1.1461-1 Payment and returns of tax withheld.
(a) Payment of withheld tax--(1) Deposits of tax. Every withholding
agent who withholds tax pursuant to chapter 3 of the Internal Revenue
Code shall deposit such amount of tax with a Federal reserve bank or
authorized financial institution as provided in Sec. 1.6302-2(a). If
for any reason the total amount of tax required to be returned for any
calendar year purs
FR Doc. 96-8936 General Revision of Regulations Relating to Withholding of Tax on Certain U.S. Source Income Paid to Foreign Persons and Related Collection, Refunds, and Credits; Revision of Information Reporting and Backup Withholding Regulations; and Removal of Regulations Under Part 35a and of Certain Regulations Under Income Tax Treaties
uant to paragraph (b) of this section has not been
deposited pursuant to Sec. 1.6302-2, the withholding agent shall pay
the balance of tax due for such year at such place as the Internal
Revenue Service shall specify. The tax shall be paid when filing the
return required under paragraph (b)(2) of this section for such year,
unless the Internal Revenue Service specifies otherwise. See paragraph
(b)(2) of this section when there are multiple withholding agents.
(2) Penalties for failure to pay tax. For penalties and additions
to the tax for failure to timely pay the tax required to be withheld
under chapter 3 of the Internal Revenue Code, see sections 6656, 6672,
and 7202 and the regulations under those sections.
(b) Income tax return--(1) General rule. A withholding agent shall
make an income tax return on Form 1042 (or such other form as the
Internal Revenue Service may prescribe) for income paid during the
preceding calendar year that the withholding agent is required to
report on an information return on Form 1042-S (or such other form as
the Internal Revenue Service may prescribe) under paragraph (c)(1) of
this section. See section 6011 and Sec. 1.6011-1(c). The withholding
agent must file the return on or before February 28 of the calendar
year following the year in which the income was paid. The return must
show the aggregate amount of income paid and tax withheld required to
be reported on all the Forms 1042-S for the preceding calendar year by
the withholding agent, in addition to such information as is required
by the form and accompanying instructions. Withholding certificates or
other statements or information provided to a withholding agent are not
required to be attached to the return. A return must be filed under
this paragraph (b)(1) even though no tax was required to be withheld
during the preceding calendar year. The withholding agent must retain a
copy of Form 1042 for the applicable statute of limitations on
assessments and collection with respect to the items of income required
to be reported on the Form 1042. See section 6501 and the regulations
thereunder for the applicable statute of limitations. Adjustments to
the total amount of tax withheld, as described in Sec. 1.1461-2, shall
be stated on the return as prescribed by the form and accompanying
instructions.
(2) Multiple withholding agents--(i) General rule. Except as
otherwise provided in paragraphs (b)(2) (ii) and (iii) of this section,
no Form 1042 is required to be filed under paragraph (b)(1) of this
section if a return is filed by another withholding agent reporting the
same income in compliance with the provisions of this paragraph (b) and
any remaining tax due is paid with the return as required under
paragraph (a) of this section.
(ii) Payment to a qualified intermediary. A U.S. withholding agent
making a payment to a qualified intermediary (as defined in
Sec. 1.1441-1(e)(5)(ii)) must file a return under paragraph (b)(1) of
this section, regardless of whether the qualified intermediary assumes
primary withholding responsibility for the payment, as described in
Sec. 1.1441-1(e)(5)(iv) and regardless of whether the qualified
intermediary is also required to file a return under the terms of its
agreement with the Internal Revenue Service. A qualified intermediary's
agreement with the Internal Revenue Service shall specify the extent,
if any, to which the intermediary is subject to filing requirements
under this section.
(iii) Payment to or through an authorized foreign agent. Both the
U.S. withholding agent making a payment to or through an authorized
foreign agent (defined in Sec. 1.1441-7(c)) and the authorized foreign
agent are required to file a return under paragraph (b)(1) of this
section.
(3) Amended returns. An amended return may be filed on a Form 1042X
or such other form as the Internal Revenue Service may prescribe. An
amended return must include such information as the form and
accompanying instructions shall require, including, with respect to any
information that has changed from the time of the filing of the return,
the information that was shown on the original return and the corrected
information.
(c) Information returns--(1) Filing requirement--(i) In general. A
withholding agent must make an information return on Form 1042-S (or
such other form as the Internal Revenue Service may prescribe) to
report the items of income specified in paragraph (c)(2) of this
section that were paid during the preceding calendar year. One Form
1042-S shall be prepared for each beneficial owner (except as otherwise
provided in paragraph (c)(4) of this section regarding multiple
withholding agents). The Form 1042-S shall be prepared in such manner
as the form and accompanying instructions prescribe. One copy of the
Form 1042-S shall be filed with the Internal Revenue Service on or
before February 28 of the calendar year following the year in which the
item of income was paid. It shall be filed with a transmittal form as
provided in the instructions to the Form 1042-S and the transmittal
form. Withholding certificates or other statements or documentation
provided to a withholding agent are not required to be attached to the
information return. Another copy of the Form 1042-S shall be furnished
to the payee on or before February 28 of the calendar year following
the year in which the item of income was paid after the calendar year
of payment. The withholding agent shall retain a copy of each Form
1042-S for the statute of limitations on assessment and collection
applicable to the Form 1042 to which the Form 1042-S relates.
(ii) Joint owners. In the case of joint owners, a single Form 1042-
S may be prepared. However, any one of the owners may request that it
be furnished its own Form 1042-S. Where more than one Form 1042-S is
issued with respect to a single payment to joint owners, the aggregate
amount of income and tax withheld reported on the Forms 1042-S cannot
exceed the amount of income to the joint owners and tax withheld
thereon. If a single Form 1042-S is prepared, the form shall state the
name of only one owner and that name shall be that of the person whose
status the withholding agent relied upon to determine the applicable
rate of withholding tax.
(2) Income subject to reporting--(i) In general. Subject to the
exceptions in paragraph (c)(2)(ii) of this section, the items of income
required to be reported on a Form 1042-S are income subject to
withholding (as defined in Sec. 1.1441-2(a)), income on a notional
principal contract described in Sec. 1.1441-4(a)(3), and amounts
described in sections 6041
[[Page 17655]]
through 6050P that are paid to a foreign person and are not exempt from
reporting under sections 6041 through 6050P or the regulations under
those sections.
(ii) Exceptions to reporting. The items of income listed in this
paragraph (c)(2)(ii) are not required to be reported on a Form 1042-S.
(A) Any item of income paid by a partnership, trust or estate to
the extent the item of income is required to be reported by the
partnership, trust or estate under section 6031 or 6034.
(B) Any item required to be reported on a Form W-2, including an
item required to be shown on Form W-2 solely by reason of Sec. 1.6041-2
(relating to return of information as to payments to employees) or
Sec. 1.6052-1 (relating to information regarding payment of wages in
the form of group-term life insurance).
(C) Any item of income required to be reported on Form 1099, and
such other forms prescribed under sections 6041 through 6050P and the
regulations under these sections.
(D) Any item of income paid to foreign governments, international
organizations, and foreign central banks of issue that are exempt from
tax under section 892 or section 895.
(E) Income required to be reported on Form 8288 (U.S. Withholding
Tax Return for Dispositions by Foreign Persons of U.S. Real Property
Interests) or Form 8804 (Annual Return for Partnership Withholding Tax
(Section 1446)).
(F) Income on deposits described in section 871(i)(2)(A), unless
actually subject to withholding or specifically subject to reporting
under section 6049 and the regulations under that section.
(G) Interest on a foreign-targeted registered obligation described
in Sec. 1.871-14(e), except as otherwise provided in Sec. 1.871-
14(e)(4)(ii)(A).
(3) Required information. Form 1042-S shall include such
information as is required by the form and accompanying instructions.
The information shall be based upon the information provided by or on
behalf of the beneficial owner (e.g., a beneficial owner withholding
certificate or documentary evidence), as corrected and supplemented
based on the agent's actual knowledge or reason to know. In particular,
the Form 1042-S must include the information described in this
paragraph (c)(3), if applicable.
(i) The name, address, and taxpayer identifying number of the
withholding agent.
(ii) A description of each category of income paid (e.g., interest,
dividends, royalties, etc.) and the aggregate amount in each category
expressed in U.S. dollars.
(iii) The rate of withholding applied and, if applicable, the basis
for withholding at a reduced rate.
(iv) The name, permanent residence address, and taxpayer
identifying number (if required under Sec. 1.1441-1(e)(4)(vii) to be
shown on a beneficial owner withholding certificate or actually known
to the withholding agent making the return) of the beneficial owner.
(4) Multiple withholding agents--(i) In general. Except as
otherwise provided in paragraph (c)(4) (ii), (iii), and (v) of this
section, no information return is required to be filed under paragraph
(c)(1)(i) of this section if a return is filed by another withholding
agent reporting the same income in compliance with the provisions of
this paragraph (c).
(ii) Payment to a qualified intermediary. A withholding agent
making a payment to a qualified intermediary (defined in Sec. 1.1441-
1(e)(5)(ii)) must report the payment but may do so on a single Form
1042-S.
(iii) Payment to an authorized foreign agent--(A) Filing obligation
of foreign authorized agent. An authorized foreign agent (as described
in Sec. 1.1441-7(c)(2)) is subject to the filing requirements described
in paragraph (c)(1)(i) of this section because it is a withholding
agent. Therefore, to the extent the U.S. withholding agent for which it
is acting is not reporting the information required under this
paragraph (c), it must report the information required to be reported
under paragraph (c)(3) or (c)(4)(vi) of this section.
(B) Filing obligations of the U.S. withholding agent. A U.S.
withholding agent making a payment to an authorized foreign agent is
exempted from the requirement under paragraph (c)(4)(iv) of this
section to make a return on Form 1042-S for each beneficial owner and
may, instead, make a single Form 1042-S to report the payment made to
the authorized foreign agent. The exemption in this paragraph
(c)(4)(iii)(B) shall apply only to the extent the authorized foreign
agent complies with the filing requirements under paragraph
(c)(4)(iii)(A) of this section.
(iv) Payment to other foreign person not acting for its own
account. Payment of an item of income to an agent, nominee or
representative for the benefit of other persons in respect of whom
Forms 1042-S are required may not be shown on a single Form 1042-S but
must be identified on separate Forms 1042-S for each beneficial owner
if such agent, nominee, or representative is a foreign person and is
not a qualified intermediary or an authorized foreign agent.
(v) Payment to a foreign partnership. Payment of an item of income
to a foreign partnership that is not a qualified intermediary and acts
for its own account may not be shown on a single Form 1042-S but must
be identified on separate Forms 1042-S for each beneficial owner (or
partner that is a qualified intermediary or authorized foreign agent).
(vi) Required information. An information return on a Form 1042-S
by a withholding agent reporting payments to an intermediary or to a
foreign partnership described in paragraph (c)(4)(v) of this section
must contain the information contained in this paragraph (c)(4)(vi).
The information on the Form 1042-S must be based upon the withholding
certificates furnished by the payee, as corrected and supplemented by
the withholding agent's actual knowledge or reason to know.
(A) The name, address, and taxpayer identifying number of the
withholding agent.
(B) A description of each category of income paid (e.g., interest,
dividends, royalties, etc.) and the aggregate amount in each category
expressed in U.S. dollars.
(C) The rate of withholding applied.
(D) The basis for not withholding or withholding at a reduced rate.
(E) The name, address, and taxpayer identifying number of the
payee.
(F) In the case of a payment to a partnership acting for its own
account, the name, address, and taxpayer identifying number (if
required under Sec. 1.1441-1(e)(4)(vii) to be stated on the withholding
certificates or actually known to the withholding agent) of the person
for whom a Form 1042-S is required to be prepared pursuant to the
provisions of paragraph (c)(4)(v) of this section.
(5) Magnetic media reporting. A withholding agent that makes 250 or
more Form 1042-S information returns for a taxable year must file Form
1042-S returns on magnetic media. See Sec. 301.6011-2 of this chapter
for requirements applicable to a withholding agent that files Forms
1042-S on magnetic media and publications of the Internal Revenue
Service relating to magnetic media filing.
(d) Report of taxpayer identifying numbers. When so required or
permitted under procedures issued by the Internal Revenue Service, a
withholding agent may attach to the Form 1042 a list of all the
taxpayer identifying numbers that have been
[[Page 17656]]
furnished to the withholding agent and upon which the withholding agent
has relied to grant a reduced rate of withholding and that are not
otherwise required to be reported on a Form 1042-S under the provisions
of this section.
(e) Indemnification of withholding agent. A withholding agent is
indemnified against the claims and demands of any person for the amount
of any tax it deducts and withholds in accordance with the provisions
of chapter 3 of the Internal Revenue Code and the regulations under
that chapter. A withholding agent that withholds based on a reasonable
belief that such withholding is required under chapter 3 of the
Internal Revenue Code is treated for purposes of section 1461 and this
paragraph (e) as having withheld tax in accordance with the provisions
of chapter 3 of the Internal Revenue Code and the regulations under
that chapter. In addition, a withholding agent is indemnified against
the claims and demands of any person for the amount of any payments
made in accordance with the grace period provisions set forth in
Sec. 1.1441-1(f)(2)(ii)(A). This paragraph (e) does not apply to
relieve a withholding agent from tax liability under chapter 3 of the
Internal Revenue Code.
(f) Amounts paid not constituting gross income. Any amount withheld
in accordance with Secs. 1.1441-3(b)(1) and 1.1441-3(d) shall be
returned and paid in accordance with this section, even though the item
or amount paid to the beneficial owner may not constitute gross income
in whole or in part. For this purpose, a reference in this section to
an item or amount of income shall, where appropriate, be deemed to
refer to the amount subject to withholding under Secs. 1.1441-3(b)(1)
and 1.1441-3(d).
(g) Extensions of time for requests made for calendar year
beginning after the date of publication of these regulations as final
regulations in the Federal Register--(1) Extension of time to file Form
1042. The Internal Revenue Service may grant an extension of time in
which to file a Form 1042. Form 2758, Application for Extension of Time
to File Certain Excise, Income, Information, and Other Returns, or such
other form as the Internal Revenue Service may prescribe, must be used
to request an extension of time. The request must contain a statement
of the reasons for requesting the extension. The request must be mailed
or delivered not later than February 28 of the year following the end
of the calendar year for which the return will be filed.
(2) Extension of time to file Form 1042-S. The Internal Revenue
Service may grant an extension of time in which to file Form 1042-S.
Form 8809, Request for Extension of Time to File Information Returns,
or such other form as the Internal Revenue Service may prescribe, must
be used to request an extension of time. The request must contain a
statement of the reasons for requesting the extension. The request must
be mailed or delivered not later than February 28 of the year following
the calendar year for which the return will be filed.
(3) Extension of time to furnish Forms 1042-S. The Internal Revenue
Service may grant an extension of time in which to furnish Forms 1042-S
to beneficial owners or intermediaries. Form 8809, request for
Extension of Time to File Information Returns, or such other form as
the Internal Revenue Service may prescribe, must be used to request an
extension of time. The request must contain the withholding agent's
name and address, the withholding agent's taxpayer identifying number,
the type of statement and a statement of the reasons for requesting the
extension. The request must be signed by the withholding agent or a
person who is duly authorized to sign a return, statement, or other
document. The request must be mailed or delivered not later than
February 28 of the year following the end of the calendar year for
which the statement will be furnished.
(h) Penalties. For penalties and additions to the tax for failure
to file returns in accordance with this section, see sections 6651,
6662, 6663, 6721, 6722, 6723, 6724(c), 7201, 7203, and the regulations
under those sections.
(i) Effective date. This section shall apply to returns required
for payments made after December 31, 1997.
Par. 20. Section 1.1461-2 is revised to read as follows:
Sec. 1.1461-2 Adjustments for overwithholding or underwithholding of
tax.
(a) Adjustments of overwithheld tax--(1) In general. A withholding
agent that has overwithheld under chapter 3 of the Internal Revenue
Code and made a deposit of that tax as provided in Sec. 1.6302-2(a) may
adjust the overwithheld amount either pursuant to the reimbursement
procedure described in paragraph (a)(2) of this section or pursuant to
the set-off procedure described in paragraph (a)(3) of this section.
Adjustments under this paragraph (a) may only be made within the time
prescribed under paragraph (a) (2) or (3) of this section. After such
time, an adjustment to the amount overwithheld can only be claimed by
the beneficial owner with the Internal Revenue Service pursuant to the
procedures described in chapter 65 of the Internal Revenue Code. For
purposes of this section, the term overwithholding means any amount
actually withheld (determined before application of the adjustment
procedures under this section) from an item of income pursuant to
chapter 3 of the Internal Revenue Code in excess of the actual tax
liability due, regardless of whether such overwithholding was in error
or appeared correct at the time it occurred.
(2) Reimbursement of tax--(i) General rule. Under the reimbursement
procedure, the withholding agent may repay the beneficial owner for the
amount overwithheld by reducing, by the amount of tax actually repaid,
the amount of any deposit of tax made by the withholding agent under
Sec. 1.6302-2(a)(1)(iii) for any subsequent payment period occurring
before the end of the calendar year following the calendar year of
overwithholding. Any such reduction that occurs for a payment period in
the calendar year following the calendar year of overwithholding shall
be allowed only if--
(A) The withholding agent states, on a timely filed (not including
extensions) Form 1042-S for the calendar year of overwithholding, the
amount of tax withheld and the amount of any actual repayment; and
(B) The withholding agent states on a timely filed (not including
extensions) Form 1042 for the calendar year of overwithholding, that
the filing of the Form 1042 constitutes a claim for credit in
accordance with Sec. 1.6414-1.
(ii) Record maintenance. If the beneficial owner is repaid an
amount of withholding tax under the provisions of this paragraph
(a)(2), the withholding agent shall keep as part of its records a
receipt showing the date and amount of repayment and the withholding
agent must provide a copy or such receipt to the beneficial owner. For
this purpose, a canceled check or an entry in a statement is sufficient
provided that the check or statement contains a specific notation that
it is a refund of tax overwithheld.
(3) Set-offs. Under the set-off procedure, the withholding agent
may repay the beneficial owner by applying the amount overwithheld
against any amount which otherwise would be required under chapter 3 of
the Internal Revenue Code to be withheld from income paid by the
withholding agent to such person before the earlier of the due date for
filing the Form 1042-S for the calendar year of overwithholding or the
date that the Form 1042-S is actually filed with the Internal Revenue
Service.
[[Page 17657]]
For purposes of making a return on Form 1042 or 1042-S (or an amended
form) for the calendar year of overwithholding and for purposes of
making a deposit of the amount withheld, the reduced amount shall be
considered the amount required to be withheld from such income under
chapter 3 of the Internal Revenue Code.
(4) Examples. The principles of this paragraph (a) are illustrated
by the following examples:
Example 1. (i) N is a nonresident alien individual who is a
resident of the United Kingdom. In December 1997, a domestic
corporation C pays a dividend of $100 to N, at which time C
Corporation withholds $30 and remits the balance of $70 to N. On
February 10, 1998, prior to the time that C files its Form 1042, N
advises C Corporation that, pursuant to the income tax convention
with the United Kingdom, only $15 tax should have been withheld from
the $100 dividend and requests reimbursement of the $15 that was
erroneously withheld. Although C Corporation has already deposited
the $30 that was withheld, as required by Sec. 1.6302-2(a)(1)(iv),
such corporation repays N in the amount of $15.
(ii) During 1997, C Corporation makes no other payments upon
which tax is required to be withheld under chapter 3 of the Internal
Revenue Code; accordingly, its return on Form 1042 for such year,
which is filed on February 28, 1998, shows total tax withheld of
$30, an adjusted total tax withheld of $15, and $30 previously paid
for such year. Pursuant to Sec. 1.6414-1(b), C Corporation claims
credit for the overpayment of $15 shown on the Form 1042 for 1997.
Accordingly, it is permitted to reduce by $15 any deposit required
by Sec. 1.6302-2 to be made of tax withheld during the calendar year
1998. The Form 1042-S required to be filed by C Corporation with
respect to the dividend of $100 paid to N in 1997 is required to
show tax withheld of $30 and tax released of $15.
(iii) During 1998, C Corporation is required to withhold $200
under chapter 3 of the Internal Revenue Code, all of which is
withheld in June of that year. Pursuant to Sec. 1.6302-2(a)(1)(iii),
C Corporation deposits the amount of $185 on July 15, 1998, that is,
$200 less the $15 for which credit is claimed on the Form 1042 for
1997. On February 28, 1999, C Corporation files its return on Form
1042 for calendar year 1998, which shows total tax withheld of $200,
$185 previously deposited by C Corporation, and $15 allowable
credit.
Example 2. The facts are the same as in Example 1 except that
paragraph (iii) of Example 1 does not apply and C Corporation is
required to deposit on a quarter-monthly basis the tax withheld
under chapter 3 of the Internal Revenue Code. C Corporation
withholds tax of $100 between February 8 and February 15, 1998, and
complies with the quarter-monthly deposit requirement of
Sec. 1.6302-2(a)(1)(ii) by depositing $75 [($100 x 90 percent) less
$15] of the withheld tax within 3 banking days after February 15,
1998, and by depositing $10 [($100-$15) less $75] within 3 banking
days after March 15, 1998.
(b) Withholding of additional tax when underwithholding occurs. A
withholding agent may withhold the tax that should have been withheld
from previous payments from future payments made to a beneficial owner.
Such additional withholding of tax may only be made from payments made
before the date that the Form 1042 is required to be filed (not
including extensions). See Sec. 1.6302-2 for making deposits of tax or
Sec. 1.1461-1(a) for making payment of the balance of tax due for a
calendar year.
(c) Definition. For purposes of this section, the term payment
period means the period for which the withholding agent is required by
Sec. 1.6302-2(a)(1) to make a deposit of tax withheld under chapter 3
of the Internal Revenue Code.
(d) Effective date. This section applies to payments of income made
after December 31, 1997.
Secs. 1.1461-3 and 1.1461-4 [Removed]
Par. 21. Sections 1.1461-3 and 1.1461-4 are removed.
Par. 22. Section 1.1462-1 is amended by:
1. Revising paragraph (a).
2. Adding paragraph (c).
3. Removing the OMB parenthetical and the authority citation at the
end of the section.
The revision and addition read as follows:
Sec. 1.1462-1 Withheld tax as credit to recipient of income.
(a) Creditable tax. The entire amount of the income from which the
tax is required to be withheld (including amounts calculated under the
gross-up formula in Sec. 1.1441-3(e)(3)) shall be included in gross
income in the return required to be made by the beneficial owner of the
income, without deduction for the amount required to be withheld, but
the tax so withheld shall be allowed as a credit against the total
income tax computed in the beneficial owner's return.
* * * * *
(c) Effective date. This section applies to payments of income made
after December 31, 1997.
Par. 23. Section 1.1463-1 is revised to read as follows:
Sec. 1.1463-1 Tax paid by recipient of income.
(a) Tax paid. If the tax required to be withheld under chapter 3 of
the Internal Revenue Code is paid by the beneficial owner of the income
or by the withholding agent, it shall not be re-collected from the
other, regardless of the original liability therefor. However, this
section does not relieve the person that did not withhold tax from
liability for interest or any penalties or additions to tax otherwise
applicable.
(b) Effective date. This section applies to failures to withhold
occurring after December 31, 1989.
Par. 24. In Sec. 1.6041-1, the amendments to paragraph (a)(1) as
proposed in project number INTL-52-86 published on February 29, 1988,
at 53 FR 5993, are withdrawn.
Par. 25. Section 1.6041-1 is amended by:
1. Removing paragraph (a)(1)(iii).
2. Redesignating paragraphs (a)(1) introductory text and (a)(1)(i)
as paragraphs (a)(1)(i) introductory text and (a)(1)(i)(A).
3. Adding a heading for paragraph (a)(1).
4. Amending newly designated paragraph (a)(1)(i)(A) by adding the
word ``or'' at the end of the paragraph.
5. Redesignating paragraph (a)(1)(ii) as paragraph (a)(1)(i)(B) and
removing the language ``; or'' at the end of the paragraph and adding a
period in its place.
6. Designating the concluding text immediately following newly
designated paragraph (a)(1)(i)(B) as paragraph (a)(1)(ii).
7. Removing the first sentence of newly designated paragraph
(a)(1)(ii) and adding two new sentences in its place.
8. Adding paragraph (d)(5).
The revisions and additions read as follows:
Sec. 1.6041-1 Return of information as to payments of $600 or more
(a) General rule--(1) Information returns required--(i) * * *
(ii) The payments described in paragraphs (a)(1)(i)(A) and (B) of
this section shall not include any payments with respect to which a
statement is required by, or may be required under authority of section
6042(a) (relating to dividends); section 6043(a)(2) (relating to
distributions in liquidation); section 6044(a) (relating to patronage
dividends); section 6045 (relating to brokers' transactions with
customers); section 6049(a)(1) and (a)(2) (relating to interest);
section 6050N(a) (relating to royalties); or section 6050P(a) or (b)
(relating to cancellation of indebtedness). In addition, the payments
described in paragraphs (a)(1)(i)(A) and (B) of this section shall not
include amounts excepted from the definition of dividends under section
6042(b)(2) and Sec. 1.6042-3(b)(1), amounts described in section
6044(b), amounts excepted from reporting under
[[Page 17658]]
Sec. 1.6045-1(g)(1), amounts excepted from the definition of interest
under section 6049(b)(2)(C) or (D), Sec. 1.6049-4(c)), or Sec. 1.6049-
5(b)(6) through (14). * * *
* * * * *
(d) * * *
(5) Amounts paid after December 31, 1997, with respect to notional
principal contracts referred to in Sec. 1.1441-4(a)(3) that the payor
or middleman may treat as paid to a beneficial owner that is a foreign
person and that are not described in Sec. 1.6041-4(a)(2) or (4) shall
be reported on a Form 1042 and 1042-S in accordance with Sec. 1.1461-1
(b) and (c), whether or not effectively connected with the conduct of a
trade or business in the United States. Although reportable, amounts
described in this paragraph (d)(5) are not subject to backup
withholding under section 3406 if paid outside the United States. See
31.3406(g)-(1)(e) of this chapter.
* * * * *
Par. 26. In Sec. 1.6041-3, paragraph (q), as proposed to be added
in project number LR-3-87 on June 9, 1988, at 53 FR 21694, is
withdrawn.
Par. 27. Section 1.6041-3 is amended by:
1. Revising the introductory text of the section.
2. Revising paragraph (a).
3. Adding paragraph (q).
The addition and revisions read as follows:
Sec. 1.6041-3 Payments for which no return of information is required
under section 6041.
Returns of information are not required under section 6041 and
Secs. 1.6041-1 and 1.6041-2 for payments described in paragraphs (a)
through (q) of this section. See Sec. 1.6041-4 for reporting exemptions
regarding foreign-related items.
(a) Payments of income required to be reported on Forms 1120-S,
941, W-2, and W-3, (however, see Sec. 1.6041-2 with respect to Forms W-
2 and W-3);
* * * * *
(q) Payments to individuals as scholarships or fellowship grants,
as defined in Sec. 1.117-6(c)(3). This exception does not apply to any
amount of a scholarship or fellowship grant that represents payment for
services, as defined in Sec. 1.117-6(d)(2). See Sec. 1.1461-1(c) for
applicable reporting requirements with respect to amounts paid to
foreign persons.
Par. 28. Section 1.6041-4 is revised to read as follows:
Sec. 1.6041-4 Foreign-related items.
(a) Exempted foreign-related items. Returns of information are not
required under section 6041 and Secs. 1.6041-1 and 1.6041-2 for
payments of the items described in paragraphs (a) (1) through (4) of
this section.
(1) Returns of information are not required for payments that a
payor or middleman, as defined in paragraph (b)(1) of this section, may
treat as made to a beneficial owner that is a foreign person pursuant
to Sec. 1.1441-1(e)(1) and from which the payor or middleman is either
required to withhold tax under section 1441 or the regulations under
that section or would be so required but for exceptions in the
regulations under section 1441 (such as, for example, under
Sec. 1.1441-4 (dealing with effectively connected income) or
Sec. 1.1441-6 (dealing with a reduction of rate of tax under an income
tax treaty)). See Sec. 1.1441-1(e)(4)(i) in the case of payments to
joint owners.
(2) Returns of information are not required for payments of amounts
from sources outside the United States made by a non-U.S. payor or non-
U.S. middleman (as defined in paragraph (b)(2) of this section) outside
the United States. See Sec. 1.6049-5(e) for circumstances in which a
payment is considered to be made outside the United States.
(3) Returns of information are not required for payments of amounts
from sources outside the United States that a payor or middleman may
treat as paid to a beneficial owner that is a foreign person (because
such person has furnished a certificate described in Sec. 1.6049-
5(c)(1)). For purposes of this paragraph (a)(3), the provisions in
Sec. 1.6049-5 (c)(3) through (c)(6) (regarding operating rules related
to the certificate of foreign status) shall apply.
(4) Returns of information are not required for the period that the
amounts paid represent assets blocked as described in Sec. 1.1441-
2(e)(3). The exemption in this paragraph (a)(4) shall terminate when
payment is deemed to occur in accordance with the provisions of
Sec. 1.1441-2(e)(3).
(b) Definitions--(1) Payor and middleman. For purposes of this
section, the term payor means any person who is required to make an
information return with respect to any reportable payment, as described
in section 3406(b), including any middleman. The term middleman means
any person whose legal relationship to the payor or payee (including
any other middleman) is of a kind described in Sec. 1.6049-4(f)(4) (as
proposed in project number INTL-52-86 published in 1988-1 C.B. 892).
(2) Non-U.S. payor and non-U.S. middleman. For purposes of this
section, the term non-U.S. payor or non-U.S. middleman means a payor or
middleman other than--
(i) A person described in section 7701(a)(30);
(ii) The government of the United States, the government of any
State or political subdivision thereof (or any agency or
instrumentality of any of the foregoing);
(iii) A controlled foreign corporation within the meaning of
section 957(a); or
(iv) A foreign person 50 percent or more of the gross income of
which, from all sources for the three-year period ending with the close
of its taxable year preceding the collection or payment (or such part
of such period as the person has been in existence), was effectively
connected with the conduct of trade or business within the United
States.
(c) Applicable presumptions. The presumptions of Sec. 1.1441-1(f)
shall apply for determining the payee's status where the required
documentation is lacking, incorrect, or unreliable.
(d) Joint owners. In the case of amounts paid to joint owners for
which a certificate or documentation is required as a condition for
being exempt from reporting under this paragraph (d), a payor or
middleman must receive from each joint owner the required certification
or documentation. Where any one of the joint owners has not furnished
such certification or documentation, the payment is not exempt from
reporting under this section.
(e) Payee. For determination of payee, see Sec. 1.1441-1(c)(3).
(f) Conversion into United States dollars of amounts paid in
foreign currency. For rules concerning foreign currency conversion, see
Sec. 1.6049-4(d)(3)(i).
(g) Effective date--(1) General rule. The provisions of this
section apply to payments made after December 31, 1997.
(2) Transition rules. A payor that holds a valid Form W-8 on the
date that is 60 days after these regulations are published as final
regulations in the Federal Register may treat it as a valid certificate
until its validity expires under applicable provisions as in effect on
April 22, 1996.
Par. 29. Section 1.6041A-1 as proposed to be added in project
number LR-214-82, published on January 7, 1986, at 51 FR 626, is
amended by adding a new paragraph (d)(3), to read as follows:
Sec. 1.6041A-1 Returns regarding payments of remuneration for services
and certain direct sales.
* * * * *
[[Page 17659]]
(d) Exceptions to return requirement. * * *
* * * * *
(3) Foreign transactions--(i) In general. No return shall be
required under paragraph (a) of this section with respect to payments
described in this paragraph (d)(3).
(A) Returns of information are not required for payments of
remuneration for services that a payor or middleman, as defined in
paragraph (d)(3)(ii)(A) of this section, may treat as made to a
beneficial owner that is a foreign person pursuant to Sec. 1.1441-
1(e)(1) and from which the payor or middleman is either required to
withhold tax under section 1441 or the regulations under that section
or would be so required but for exceptions in the regulations under
section 1441 (such as, for example, under Sec. 1.1441-4 (dealing with
effectively connected income) or Sec. 1.1441-6 (dealing with a
reduction of rate of tax under an income tax treaty)). See Sec. 1.1441-
1(e)(4)(i) in the case of payments to joint owners.
(B) Returns of information are not required for payments of
remuneration for services and certain direct sales from sources outside
the United States made outside the United States by a non-U.S. payor or
non-U.S. middleman (as defined in paragraph (d)(3)(ii)(B) of this
section). See Sec. 1.6049-5(e) for circumstances in which a payment is
considered to be made outside the United States.
(C) Payments of services and certain direct sales from sources
outside the United States that a payor or middleman may treat as paid
to a beneficial owner that is a foreign person (because such person has
furnished a certificate described in Sec. 1.6049-5(c)(1)). For purposes
of this paragraph (d)(3)(i)(C), the provisions in Sec. 1.6049-5 (c)(3)
through (c)(6) (regarding operating rules related to the certificate of
foreign status) shall apply. See Sec. 1.6041-1(d)(5) for reportable
payments made to foreign persons.
(D) Amounts paid for services and certain direct sales for the
period that they represent assets blocked as described in Sec. 1.1441-
2(e)(3). The exemption in this paragraph (d)(3)(i)(D) shall terminate
when payment is deemed to occur in accordance with the provisions of
Sec. 1.1441-2(e)(3).
(ii) Definitions--(A) Payor and middleman. For purposes of this
section, the term payor means any person who is required to make an
information return with respect to any reportable payment, as described
in section 3406(b), including any middleman and the term middleman
means any person whose legal relationship to the payor or payee
(including any other middleman) is of a kind described in Sec. 1.6049-
4(f)(4) (as proposed in project number INTL-52-86 published in 1988-1
C.B. 892).
(B) Non-U.S. payor and non-U.S. middleman. For purposes of this
section, the term non-U.S. payor or non-U.S. middleman means a payor or
middleman other than--
(1) A person described in section 7701(a)(30);
(2) The government of the United States, the government of any
State or political subdivision thereof (or any agency or
instrumentality of any of the foregoing);
(3) A controlled foreign corporation within the meaning of section
957(a); or
(4) A foreign person 50 percent or more of the gross income of
which, from all sources for the three-year period ending with the close
of its taxable year preceding the collection or payment (or such part
of such period as the person has been in existence), was effectively
connected with the conduct of trade or business within the United
States.
(C) Applicable presumptions. The presumptions of Sec. 1.1441-1(f)
shall apply for determining the payee's status where the required
documentation is lacking, incorrect, or unreliable.
(D) Joint owners. In the case of amounts paid to joint owners for
which a certificate of documentation is required as a condition for
being exempt from reporting under this paragraph (d)(3), the payor or
middleman must receive from each joint owner the certification
described in paragraph (d)(3)(i) (A) or (C) of this section. Where any
one of the joint owners has not furnished such certification, the
payment is not exempt from reporting under this section unless
described in paragraph (d)(3)(i) (B) or (D) of this section.
(E) Payee. For determination of payee, see Sec. 1.1441-1(c)(3).
(iii) Effective date--(A) General rule. The provisions of this
paragraph (d)(3) apply to payments made after December 31, 1997.
(B) Transition rules. A payor that holds a valid Form W-8 on a date
that is 60 days after these regulations are published as final
regulations in the Federal Register may treat it as a valid certificate
until its validity expires under applicable provisions as in effect on
April 22, 1996.
* * * * *
Par. 30. In Sec. 1.6042-3, paragraph (b), as proposed to be revised
in project number INTL-52-86, published on February 29, 1988 (53 FR
5995) is amended by:
1. Removing paragraphs (b)(1) and (b)(2).
2. Redesignating paragraphs (b)(3) and (b)(4) as paragraphs
(b)(1)(vii) and (b)(1)(viii), respectively.
Par. 31. Section 1.6042-3 is amended by:
1. Revising paragraph (a) introductory text.
2. Removing paragraph (b) introductory text.
3. Adding paragraph (b)(1) heading.
4. Revising paragraph (b)(1) introductory text.
5. Adding paragraphs (b)(1)(i) through (b)(1)(vi).
6. Revising paragraphs (b)(2) through (b)(4).
7. Adding paragraphs (b)(5) through (b)(7).
The additions and revisions read as follows:
Sec. 1.6042-3 Dividends subject to reporting.
(a) In general. Except as provided in paragraph (b) of this
section, the term dividend for purposes of this section and
Secs. 1.6042-2 and 1.6042-4 means the amounts described in paragraphs
(a)(1) and (2) of this section.
* * * * *
(b) Exceptions--(1) In general. Returns of information are not
required under section 6042 and Secs. 1.6042-2 and 1.6042-4 for amounts
described in paragraphs (b)(1) (i) through (viii) of this section.
(i) Amounts paid by an insurance company to a policyholder, other
than a dividend upon its capital stock.
(ii) Payments (however denominated) by a mutual savings bank,
savings and loan association, or similar organization, in respect of
deposits, investment certificates, or withdrawable or repurchasable
shares. See, however, section 6049 and the regulations under that
section for provisions requiring reporting of these payments.
(iii) Distributions or payments from sources within the United
States that a payor or middleman (as defined in paragraph (b)(2) of
this section) may treat as made to a beneficial owner that is a foreign
person pursuant to Sec. 1.1441-1(e)(1) or, in the case of dividends
paid on stock traded on a U.S. established financial market (as defined
in Sec. 1.1441-6(b) (2)), pursuant to Sec. 1.1441-6(b)(2) or (3), or
Sec. 1.6049-5(c).
(iv) Distributions or payments from sources outside the United
States paid outside the United States by a non-U.S. payor or a non-U.S.
middleman (as defined in paragraph (b)(2)(ii) of this section). See
Sec. 1.6049-5(e) for circumstances in which a payment is considered to
be made outside the United States.
[[Page 17660]]
(v) Distributions or payments from sources outside the United
States that a payor or middleman may treat as paid to a beneficial
owner that is a foreign person (because such person has furnished a
certificate or documentary evidence as required under Sec. 1.6049-5(c)
(1) or (2)). For purposes of this paragraph (b)(1)(v), the provisions
in Sec. 1.6049-5 (c)(3) through (c)(6) (regarding operating rules
related to the certificate of foreign status) shall apply.
(vi) Distributions or payments for the period that the amounts
represent assets blocked as described in Sec. 1.1441-2(e)(3). The
exemption in this paragraph (b)(1)(vi) shall terminate when payment is
deemed to occur in accordance with the rules of Sec. 1.1441-2(e)(3).
* * * * *
(2) Definitions--(i) Payor and middleman. For purposes of this
section, the term payor means any person who is required to make an
information return with respect to any reportable payment, as described
in section 3406(b) (including any middleman), and the term middleman
means any person whose legal relationship to the payor or payee
(including any other middleman) is of a kind described in Sec. 1.6049-
4(f)(4) (as proposed in project number INTL-52-86 published in 1988-1
C.B. 892).
(ii) Non-U.S. payor and non-U.S. middleman. For purposes of this
section, the term non-U.S. payor or non-U.S. middleman means a payor or
middleman other than--
(A) A person described in section 7701(a)(30);
(B) The government of the United States, the government of any
State or political subdivision thereof (or any agency or
instrumentality of any of the foregoing);
(C) A controlled foreign corporation within the meaning of section
957(a); or
(D) A foreign person 50 percent or more of the gross income of
which, from all sources for the three-year period ending with the close
of its taxable year preceding the collection or payment (or such part
of such period as the person has been in existence), was effectively
connected with the conduct of trade or business within the United
States.
(3) Applicable presumptions. The presumptions of Sec. 1.1441-1(f)
shall apply for determining the payee's status under Sec. 1.6042-3
where the required documentation is lacking, incomplete, incorrect, or
unreliable.
(4) Joint owners. In the case of amounts paid to joint owners for
which a certificate or documentation is required as a condition for
being exempt from reporting under this paragraph (b), the payor or
middleman must receive from each joint owner the required certification
or documentation. Where any one of the joint owners has not furnished
the required certification or documentation, the payment is not exempt
from reporting under this section.
(5) Payee. For determination of payee, see Sec. 1.1441-1(c)(3).
(6) Conversion into United States dollars of amounts paid in
foreign currency. For rules concerning foreign currency conversion, see
Sec. 1.6049-4(d)(3)(i).
(7) Effective date--(i) General rule. The provisions of this
paragraph (b) apply to payments made after December 31, 1997.
(ii) Transition rules. A payor that holds a valid Form W-8 on the
date that is 60 days after these regulations are published as final
regulations in the Federal Register may treat it as a valid certificate
until its validity expires under applicable provisions as in effect on
April 22, 1996.
Par. 32. Section 1.6045-1 as proposed to be amended in project
number INTL-52-86, published on February 29, 1988, at 53 FR 5996, is
amended by:
1. Removing paragraph (a)(1).
2. Removing paragraphs (g)(1)(i), (g)(1)(ii), (g)(1)(iii) heading,
(g)(1)(iii)(A), (g)(2), (g)(3), and (g)(4).
3. Redesignating paragraph (g)(1)(iii)(B) as follows:
------------------------------------------------------------------------
Paragraph Redesignated as paragraph
------------------------------------------------------------------------
(g)(1)(iii)(B)............................ (g)(1)(ii)
(g)(1)(iii)(B)(1) introductory text....... (g)(1)(ii)(A) introductory
text
(g)(1)(iii)(B)(1)(i)...................... (g)(1)(ii)(A)(1)
(g)(1)(iii)(B)(1)(ii)..................... (g)(1)(ii)(A)(2)
(g)(1)(iii)(B)(2) introductory text....... (g)(1)(ii)(B) introductory
text
(g)(1)(iii)(B)(2)(i)...................... (g)(1)(ii)(B)(1)
(g)(1)(iii)(B)(2)(ii)..................... (g)(1)(ii)(B)(2)
(g)(1)(iii)(B)(2)(iii).................... (g)(1)(ii)(B)(3)
(g)(1)(iii)(B)(2)(iv)..................... (g)(1)(ii)(B)(4)
(g)(1)(iii)(B)(2)(v)...................... (g)(1)(ii)(B)(5)
------------------------------------------------------------------------
4. Removing in newly designated paragraph (g)(1)(ii)(A)
introductory text the language ``subdivision 2 of this paragraph
(g)(1)(iii)(B)'' and adding ``paragraph (g)(1)(ii)(B) introductory text
of this section'' in its place.
5. Removing in newly designated paragraph (g)(1)(ii)(B)
introductory text the language ``subdivision (1) of this paragraph
(g)(1)(iii)(B)'' and adding ``paragraph (g)(1)(ii)(A)'' in its place.
6. Removing in newly designated paragraph (g)(1)(ii)(B)(3) the
language ``Sec. 1.6049-5(j)(4)'' and adding ``Sec. 1.6049-5(e)'' in its
place.
Par. 33. Section 1.6045-1(d)(6)(iii) as proposed to be added in
project number INTL-0015-91, published on March 17, 1992, at 57 FR
9224, is withdrawn.
Par. 34. Section 1.6045-1 is amended by:
1. Revising the heading of paragraph (a) and republishing paragraph
(a) introductory text.
2. Revising paragraph (a)(1).
3. Revising paragraph (d)(6).
4. Revising paragraph (g)(1) heading; removing paragraph (g)(i)
introductory text; and revising paragraphs (g)(1)(i) and (g)(2) through
(g)(4).
The revisions read as follows:
Sec. 1.6045-1 Returns of information of brokers and barter exchanges.
(a) Definitions. The following definitions apply for purposes of
this section:
(1) The term broker means any person (other than a person who is
required to report a transaction under section 6043), U.S. or foreign,
that, in the ordinary course of a trade or business during the calendar
year, stands ready to effect sales to be made by others. A broker
includes an obligor that regularly issues and retires its own debt
obligations or a corporation that regularly redeems its own stock.
However, with respect to a sale (including a redemption or retirement)
effected at an office outside the United States, a broker includes only
a person described as a U.S. payor or U.S. middleman in Sec. 1.6049-
5(d)(1). In addition, a broker does not include an international
organization described in Sec. 1.6049-4(c)(1)(ii)(G) that redeems or
retires an obligation of which it is the issuer.
* * * * *
(d) * * *
(6) Conversion into United States dollars of proceeds paid in
foreign currency--(i) Conversion rules. When the amount subject to
reporting is paid in a currency other than the U.S. dollar, the amount
subject to reporting under this section shall be determined by
converting such foreign currency into U.S. dollars on the date of
payment at the spot rate (as defined in Sec. 1.988-1(d)(1)) or pursuant
to a reasonable spot rate convention. For example, a withholding agent
may use a month-end spot rate or a monthly average spot rate. A spot
rate convention must be used consistently with respect to all non-
dollar amounts withheld and from year to year. Such convention cannot
be changed without the consent of the Commissioner or his or her
delegate.
(ii) Effect of identification under Sec. 1.988-5 (a), (b), or (c)
where the taxpayer effects a sale and a hedge through the same broker--
(A) In general. In lieu of the amount reportable under paragraph
(d)(6)(i) of this section,
[[Page 17661]]
the amount subject to reporting shall be the integrated amount computed
under Sec. 1.988-5 (a), (b) or (c) if--
(1) A taxpayer effects through a broker a sale in exchange for
nonfunctional currency (as defined in Sec. 1.988-1(c)) and hedges all
or a part of such sale as provided in Sec. 1.988-5 (a), (b) or (c) with
the same broker; and
(2) The taxpayer complies with the requirements of Sec. 1.988-5
(a), (b) or (c) and so notifies the broker prior to the end of the
calendar year in which the sale occurs.
(B) Effective date. The provisions of this paragraph (d)(6)(ii)
apply to transactions entered into on or after the date that is 60 days
after these regulations are published as final regulations in the
Federal Register.
* * * * *
(g) Exempt foreign persons--(1) Brokers--(i) In general. No return
of information is required by a broker with respect to a customer who
is considered to be an exempt foreign person under this paragraph
(g)(1)(i). Unless it has actual knowledge or reason to know otherwise,
a broker may treat a customer as an exempt foreign person under the
circumstances described in paragraph (g)(1)(i) (A) through (D) of this
section. See Sec. 1.6045-1(c)(2)(ii) for reportable proceeds paid to
foreign persons.
(A) With respect to a sale effected at an office of a broker inside
the United States, the broker may treat the customer as an exempt
foreign person if the broker complies with the procedures described in
paragraph (g)(3) of this section.
(B) With respect to a sale effected at an office of a broker
outside the United States, the broker may treat the customer as an
exempt foreign person if the broker complies with the procedures
described in paragraph (g)(3) of this section or Sec. 1.6049-5(c)(2).
(C) With respect to a redemption or retirement of stock or an
obligation (the interest or original issue discount on which is
described in Sec. 1.6049-5(b) (6), (7), (10), or (11)) or the dividends
on which are described in Sec. 1.6042-3(b)(1)(iv)) that is effected at
an office of a broker outside the United States by the issuer (or its
paying or transfer agent), the broker may treat the customer as an
exempt foreign person if the broker is not also acting in its capacity
as a custodian, nominee, or other agent of the payee.
(D) With respect to a sale effected by a broker at an office of the
broker either inside or outside the United States, the broker may treat
the customer as an exempt foreign person for the period that those
proceeds are assets blocked as described in Sec. 1.1441-2(e)(3). For
purposes of this paragraph (g)(1)(i)(D) and section 3406, a payment is
deemed to occur in accordance with Sec. 1.1441-2(e)(3).
* * * * *
(2) Barter exchange. No return of information is required by a
barter exchange with respect to a client or a member that the barter
exchange may treat as a foreign person pursuant to the procedures
described in paragraph (g)(3) of this section.
(3) Certificate of foreign status--(i) In general. For purposes of
this paragraph (g), a broker may treat a customer as an exempt foreign
person if the broker complies with the requirements of Sec. 1.1441-
1(e)(1) (dealing with reliance by a withholding agent on a beneficial
owner's claim of foreign status). For purposes of this paragraph
(g)(3)(i), the broker may rely on a beneficial owner withholding
certificate described in Sec. 1.1441-1(e)(2). For purposes of this
paragraph (g)(3)(i), in the case of an individual beneficial owner, the
certificate shall include a certification that the beneficial owner has
not been, and at the time the certificate is furnished, reasonably
expects not to be present in the United States for a period aggregating
183 days or more during the calendar year.
(ii) Applicable presumptions. Absent actual knowledge or reason to
know otherwise, the presumptions under Sec. 1.1441-1(f) shall apply in
determining the payee's status where the required documentation is
lacking, incorrect, or unreliable.
(iii) Joint owners. In the case of amounts paid to joint owners for
which a certificate or documentation is required as a condition for
being exempt from reporting under paragraph (g)(1)(i) of this section,
a broker or barter exchange must receive from each joint owner the
required certification or documentation. Where any one of the joint
owners has not furnished the required certification or documentation,
the transaction is not exempt from reporting under paragraph (g)(1)(i)
of this section.
(iv) Payee. For a determination of payee, see Sec. 1.1441-1(c)(3).
(v) Operating rules. For purposes of this paragraph (g), the
provisions in Sec. 1.6049-5(c) (3) through (6) (regarding operating
rules related to the certificate of foreign status) shall apply.
(4) Effective date--(i) General rule. The provisions of this
paragraph (g) apply to payments made after December 31, 1997.
(ii) Transition rules. A payor that holds a valid Form W-8 on a
date that is 60 days after these regulations are published as final
regulations in the Federal Register may treat it as a valid certificate
until its validity expires under applicable provisions as in effect on
April 22, 1996.
* * * * *
Par. 35. In Sec. 1.6049-4, paragraphs (c)(1)(ii)(A) and
(c)(1)(ii)(G), as proposed in project number INTL-52-86, published on
February 29, 1988, at 53 FR 6000, are revised to read as follows:
Sec. 1.6049-4 Return of information as to interest paid and original
issue discount includible in gross income after December 31, 1982.
* * * * *
(c) * * * (1)* * *
(ii) * * *
(A) Corporation. A corporation, as defined in section 7701(a)(3),
whether domestic or foreign, is an exempt recipient. In addition, for
purposes of this paragraph (c)(1), the term corporation includes a
partnership all of whose members are corporations described in this
paragraph (c)(1)(ii)(A), but only if the partnership files with the
payor a certificate meeting the certification requirements set out
below. Absent actual knowledge or reason to know otherwise, a payor may
treat a payee as a corporation (and, therefore, as an exempt recipient)
if one of the requirements of paragraph (c)(1)(ii)(A) (1), (2), (3),
(4), (5), or (6) of this section are met before a payment is made.
(1) For payments other than interest, dividends, or broker
proceeds, the name of the payee contains an unambiguous expression of
corporate status that is ``Incorporated,'' ``Inc.,'' ``Corporation,''
``Corp.,'' ``P.C.,'' (but not ``Company'' or ``Co.'') or contains the
term indemnity company, reinsurance company, or assurance company.
(2) For payments of interest, dividends or broker proceeds that are
paid to a person with whom the payor does not have an account
relationship, the payor may rely on the test of paragraph
(c)(1)(ii)(A)(1) of this section if the payor also has a mailing
address of the payee in the United States.
(3) The payor has on file a corporate resolution or similar
document clearly indicating corporate status.
(4) The payor receives a Form W-9 which includes an EIN and a
statement from the payee that it is a domestic corporation.
(5) The payor receives a withholding certificate described in
Sec. 1.1441-1(e)(2), that includes an employer identification number
and a statement from the payee that it is a foreign corporation.
(6) The payor maintains an account for an entity claiming to be a
[[Page 17662]]
corporation and the account was established on or before a date that is
60 days after these regulations are published as final regulations in
the Federal Register and the name of the payee contains an unambiguous
expression of corporate status that is ``Incorporated,'' ``Inc.,''
``Corporation,'' ``Corp.,'' or ``P.C.'' (but not Company or Co.), or
contains the term insurance company, indemnity company, reinsurance
company, or assurance company.
* * * * *
(G) International organization. An international organization and
any wholly owned agency or instrumentality thereof are exempt
recipients. The term international organization shall have the meaning
ascribed to it in section 7701(a)(18). Without requiring a certificate,
a payor may treat a payee as an international organization if the payee
is designated as an international organization by executive order
(pursuant to 22 U.S.C. 288 through 288(f)).
* * * * *
Par. 36. Section 1.6049-4 is amended by revising paragraph (d)(3)
to read as follows:
* * * * *
(d) * * *
(3) Conversion into United States dollars of amounts paid in
foreign currency--(i) Conversion rules. When the amount subject to
reporting is paid in a currency other than the U.S. dollar, the amount
subject to reporting under this section shall be determined by
converting such foreign currency into U.S. dollars on the date of
payment at the spot rate (as defined in Sec. 1.988-1(d)(1)) or pursuant
to a reasonable spot rate convention. For example, a withholding agent
may use a month-end spot rate or a monthly average spot rate. A spot
rate convention must be used consistently with respect to all non-
dollar amounts withheld and from year to year. Such convention cannot
be changed without the consent of the Commissioner or delegate.
(ii) Special rule for Sec. 1.988-5(a) transactions where the payor
on both components of a qualified hedging transaction is the same
person--(A) In general. Interest or original issue discount on a
qualified debt instrument that is part of a qualified hedging
transaction under Sec. 1.988-5(a) shall be computed for section 6049
reporting purposes under the rules described in Sec. 1.988-5(a)(9)(ii)
if--
(1) The payor on the qualified debt instrument and the counterparty
to the Sec. 1.988-5(a) hedge are the same person; and
(2) The payee complies with the requirements of Sec. 1.988-5(a) and
so notifies its payor prior to the date required for filing Form 1099
as required by this section.
(B) Effective date. The provisions of this paragraph (d)(3)(ii)
apply to transactions entered into on or after December 31, 1997.
* * * * *
Par. 37. Section 1.6049-5, as proposed to be amended in project
number INTL-52-86, published on February 29, 1988, at 53 FR 6003, is
amended as follows:
1. Revising paragraphs (b) introductory text and (b)(6) through
(b)(8).
2. Adding paragraphs (b)(10) through (b)(14).
3. Revising paragraphs (c) and (d).
4. Removing paragraph (e) and redesignating paragraph (j) as new
paragraph (e).
5. Removing and reserving paragraph (f).
6. Revising paragraph (g).
7. Removing paragraphs (h) and (i).
8. Redesignating paragraph (k) as paragraph (f) and removing the
last sentence.
9. Removing paragraph (l).
The revisions and additions read as follows:
Sec. 1.6049-5 Interest and original issue discount subject to
reporting after December 31, 1982.
* * * * *
(b) Interest excluded from reporting requirement. The term interest
or original issue discount (OID) does not include--
* * * * *
(6) Amounts from sources outside the United States paid outside the
United States by a non-U.S. payor or a non-U.S. middleman (as defined
in paragraph (d)(2) of this section).
(7) Portfolio interest, as defined in Sec. 1.871-14(b)(1), paid
with respect to bearer obligations described in section 871(h)(2)(A) or
881(c)(2)(A) or with respect to a foreign- targeted registered
obligation defined in Sec. 1.6049-5(j)(4) (as proposed in project
number INTL-52-86 (1988-1 C.B. 892)) (other than by a U.S. middleman
(as defined in paragraph (d)(1) of this section) that, as a custodian
or nominee of the payee, collects the amount for, or on behalf of, the
payee, regardless of whether the middleman is also acting as agent of
the payor).
(8) Portfolio interest, as defined in Sec. 1.871-14(c)(1), paid
with respect to registered obligations described in section
871(h)(2)(B) or 881(c)(2)(B).
* * * * *
(10) Amounts paid outside the United States (other than by a U.S.
middleman (as defined in paragraph (d)(1) of this section) that, as a
custodian or nominee or other agent of the payee, collects the amount
for, or on behalf of, the payee, regardless of whether the middleman is
also acting as agent of the payor) with respect to an obligation that:
has a face amount or principal amount of not less than $500,000; has a
maturity (at issue) of 183 days or less; satisfies the requirements of
sections 163(f)(2)(B)(i) and (ii)(I) (as if it were a registration-
required obligation within the meaning of section 163(f)(2)(A)) and is
issued in accordance with the procedures of Sec. 1.163-5(c)(2)(i)(D);
and has on its face the following statement (or a similar statement
having the same effect)--``By accepting this obligation, the holder
represents and warrants that it is not a United States person (other
than an exempt recipient described in section 6049(b)(4) of the
Internal Revenue Code and regulations thereunder) and that it is not
acting for or on behalf of a United States person (other than an exempt
recipient described in section 6049(b)(4) of the Internal Revenue Code
and the regulations thereunder).'' If the obligation is in registered
form, it must be registered in the name of an exempt recipient
described in Sec. 1.6049-4(c)(1)(ii). For purposes of this paragraph
(b)(10), a middleman may treat an obligation as described in section
163(f)(2)(B) (i) and (ii)(I) and the regulations under that section if
the obligation, or coupons detached therefrom, whichever is presented
for payment, contains the statement described in this paragraph
(b)(10).
(11) Amounts paid with respect to an account or deposit with a U.S.
or foreign branch of a domestic or foreign corporation or partnership
that is paid with respect to an obligation described in paragraph
(b)(11) (i) or (ii) of this section, if the branch is engaged in the
commercial banking business; and the interest or OID is paid outside
the United States (other than by a U.S. middleman (as defined in
paragraph (d)(1) of this section) that acts as a custodian, nominee, or
other agent of the payee, and collects the amount for, or on behalf of,
the payee, regardless of whether the middleman is also acting as agent
of the payor).
(i) An obligation is described in this paragraph (b)(11)(i) if it
is not in registered form (within the meaning of section 163(f) and the
regulations under that section), is described in section 163(f)(2)(B)
and issued in accordance with the procedures of Sec. 1.163-5(c)(2)(i)
(C) or (D), and, in the case of a U.S. branch, is part of a larger
single public
[[Page 17663]]
offering of securities. For purposes of this paragraph (b)(11)(i), a
middleman may treat an obligation as described in section 163(f)(2)(B)
if the obligation, and any detachable coupons, contains the statement
described in section 163(f)(2)(B)(ii)(II) and the regulations under
that section.
(ii) An obligation is described in this paragraph (b)(11)(ii) if it
produces income described in section 871(i)(2)(A); has a face amount or
principal amount of not less than $500,000; satisfies the requirements
of sections 163(f)(2)(B) (i) and (ii)(I) (as if it were a registration-
required obligation within the meaning of section 163(f)(2)(A)) and is
issued in accordance with the procedures of Sec. 1.163-5(c)(2)(i) (C)
or (D); has on its face, and on any detachable coupons, the following
statement (or a similar statement having the same effect)--``By
accepting this obligation, the holder represents and warrants that it
is not a United States person (other than an exempt recipient described
in section 6049(b)(4) of the Internal Revenue Code and regulations
thereunder) and that it is not acting for or on behalf of a United
States person (other than an exempt recipient described in section
6049(b)(4) of the Internal Revenue Code and the regulations
thereunder).'' If the obligation is in registered form, it must be
registered in the name of an exempt recipient described in Sec. 1.6049-
4(c)(1)(ii). For purposes of this paragraph (b)(11)(ii), a middleman
may treat an obligation as described in sections 163(f)(2)(B) (i) and
(ii)(I) and the regulations under that section if the obligation, or
any detachable coupon, contains the statement described in this
paragraph (b)(11)(ii).
(12) Amounts that the payor may treat as paid to a beneficial owner
that is a foreign person pursuant to Sec. 1.1441-1(e)(1) and from which
the payor or middleman is either required to withhold tax under section
1441 or the regulations under that section or would be so required but
for exceptions in the regulations under section 1441 (such as, for
example, under Sec. 1.1441-4 (dealing with effectively connected
income) or Sec. 1.1441-6 (dealing with a reduction of rate of tax under
an income tax treaty)).
(13) Amounts for the period that they represent an asset blocked as
described in Sec. 1.1441-2(e)(3)). Payment of such amounts, including
interest that is past due and OID on obligations that mature on or
before the date that the assets are no longer blocked, is deemed to
occur in accordance with the rules of Sec. 1.1441-2(e)(3).
(14) Amounts that are from sources outside the United States or
original issue discount on any obligation payable less than 6 months
from the date of original issue described in section 871(g)(1)(B)(i)
and that a payor or middleman may treat as paid to a beneficial owner
that is a foreign person
(because such person has furnished a certificate or documentary
evidence as required under paragraph (c) of this section).
(c) Treatment of payee as a foreign person--(1) On-shore accounts
or payments inside the U.S. A payor or middleman making a payment with
respect to an on-shore account, as defined in paragraph (d)(3) of this
section, or making a payment inside the United States, as defined in
paragraph (e) of this section, may treat the payment as made to a
beneficial owner that is a foreign person if it complies with the
requirements under Sec. 1.1441-1(e)(1) (dealing with reliance by a
withholding agent on a beneficial owner's claim of foreign status). For
purposes of this section, beneficial owner shall be as defined in
Sec. 1.1441-1(c)(6)(ii)(A).
(2) Payments made outside the United States with respect to off-
shore accounts--(i) In general. In the case of a payment made outside
the United States with respect to an offshore account, as defined in
paragraph (d)(3) of this section, a payor or middleman may treat a
payment as made to a beneficial owner (as described in Sec. 1.1441-
1(b)(6)) that is a foreign person if it complies with the procedures
described in paragraph (c)(1) of this section or complies with the
documentary evidence procedures described in paragraph (c)(2)(ii) of
this section.
(ii) Documentary evidence. A payor or middleman complies with the
documentary evidence procedures if, prior to the payment, the payor or
middleman has established procedures to obtain, review, and maintain
documentary evidence sufficient to establish the identity of the
beneficial owner and the status of that person as a foreign person; and
the payor or middleman obtains, reviews, and maintains such documentary
evidence in accordance with those procedures. A payor or middleman
maintains the documents reviewed by retaining the original, certified
copy, or a photocopy of the documents reviewed and noting in its
records the date on which and by whom the document was received and
reviewed.
(3) Presumptions. The presumptions of Sec. 1.1441-1(f) shall apply
for determining the payee's status where the required documentation is
lacking, incorrect, or unreliable.
(4) Validity of certificates and documentary evidence. For rules
regarding the period of validity of a withholding certificate, see
Sec. 1.1441-1(e)(4)(ii). Documentary evidence or a certificate that
does not include a taxpayer identifying number shall be valid for a
period of three years from the date received by the payor or middleman.
The three-year validity period shall start from the date that the
certificate is signed (or the documentation is received) until the last
day of the third succeeding calendar year. For example, a withholding
certificate signed on September 10, 1998, remains valid through
December 31, 2001. A beneficial owner that becomes a U.S. person must,
however, inform a payor or middleman within 30 days of change of
status.
(5) Retention of withholding certificate. A payor or middleman must
retain each withholding certificate, any applicable documentary
evidence, and any information obtained in lieu of the withholding
certificate as long as it may be relevant to the determination of the
payor's or middleman's liability under the reporting provisions of this
chapter and related provisions.
(6) Standard of knowledge. A payor or middleman may not rely on a
certificate or documentary evidence described in paragraph (c)(1) or
(c)(2)(ii) of this section if it has actual knowledge that the
representations made therein or on the basis thereof are incorrect or
if any of the required information or certifications described in
Sec. 1.1441-1(f)(1)(ii) are lacking from the certificate or documentary
evidence.
(7) Joint owners. In the case of amounts paid to joint owners and
for which a certificate or documentation is required as a condition for
being exempt from reporting under this paragraph (c), a payor or
middleman must receive from each joint owner the required certification
or documentation. Where any one of the joint owners has not furnished
the required certification or documentation, the payment is not exempt
from reporting under this paragraph (c).
(8) Payee. For determination of payee, see Sec. 1.1441-1(c)(3).
(d) Definitions--(1) Payor or middleman and U.S. payor or U.S.
middleman. For purposes of this section, the term payor means any
person who is required to make an information return with respect to
any reportable payment, as described in section 3406(b) (including any
middleman). For purposes of this section, the term middleman means any
person whose legal relationship to the payor or payee (including any
other
[[Page 17664]]
middleman) is of a kind described in Sec. 1.6049-4(f)(4) (as proposed
in project number INTL-52-86 published in 1988-1 C.B. 892). Thus, a
person who, from within the United States, forwards an interest coupon
or discount obligation on behalf of a payee for presentation,
collection or payment outside the United States is also a middleman for
purposes of this section (but the transfer, although subject to
information reporting under this section, does not make the payment
subject to backup withholding under section 3406). For pu
FR Doc. 96-8936 General Revision of Regulations Relating to Withholding of Tax on Certain U.S. Source Income Paid to Foreign Persons and Related Collection, Refunds, and Credits; Revision of Information Reporting and Backup Withholding Regulations; and Removal of Regulations Under Part 35a and of Certain Regulations Under Income Tax Treaties
rposes of this
section, the term U.S. payor or U.S. middleman means a payor or
middleman that is--
(i) A person described in section 7701(a)(30);
(ii) The government of the United States, the government of any
State or political subdivision thereof (or any agency or
instrumentality of any of the foregoing);
(iii) A controlled foreign corporation within the meaning of
section 957(a); or
(iv) A foreign person 50 percent or more of the gross income of
which, from all sources for the three-year period ending with the close
of its taxable year preceding the collection or payment (or such part
of such period as the person has been in existence), was effectively
connected with the conduct of trade or business within the United
States.
(2) Non-U.S. payor or non-U.S. middleman. A non-U.S. payor or a
non-U.S. middleman is a payor or middleman that is not a U.S. payor or
a U.S. middleman.
(3) On-shore and off-shore accounts. An on-shore account means an
account maintained at an office or branch of a payor or middleman in
the United States. An offshore account means an account that is not an
on-shore account.
* * * * *
(g) Effective date--(1) General rule. The provisions of paragraphs
(b)(6) through (b)(14), (c), (d), and (e) of this section apply to
payments made after December 31, 1997.
(2) Transition rules. A payor that holds a valid Form W-8 on a date
that is 60 days after these regulations are published as final
regulations in the Federal Register may treat it as a valid certificate
until its validity expires under applicable provisions as in effect on
April 22, 1996.
Par. 38. Section 1.6050N-1 is amended by:
1. Revising the section heading.
2. Redesignating paragraphs (c) and (d) as paragraphs (d) and (e),
respectively.
3. Adding a new paragraph (c).
4. Revising newly designated paragraph (e).
The addition and revisions read as follows:
Sec. 1.6050N-1 Statement to recipients of royalties paid after
December 31, 1986.
* * * * *
(c) Exempted foreign-related items--(1) In general. No return shall
be required under paragraph (a) of this section for payments of the
items described in paragraphs (c)(1) (i) through (iii) of this section.
(i) Returns of information are not required for payments of
royalties that a payor or middleman, as defined in paragraph (c)(2)(i)
of this section, may treat as made to a beneficial owner that is a
foreign person pursuant to Sec. 1.1441-1(e)(1) and from which the payor
or middleman is either required to withhold tax under section 1441 or
the regulations under that section or would be so required but for
exceptions in the regulations under section 1441 (such as, for example,
under Sec. 1.1441-4 (dealing with effectively connected income) or
Sec. 1.1441-6 (dealing with a reduction of rate of tax under an income
tax treaty)). See Sec. 1.1441-1(e)(4)(i) in the case of payments to
joint owners.
(ii) Returns of information are not required for payments of
royalties from sources outside the United States made outside the
United States by a non-U.S. payor or non-U.S. middleman (as defined in
paragraph (c)(2)(ii) of this section). See Sec. 1.6049-5(e) for
circumstances in which a payment is considered to be made outside the
United States.
(iii) Returns of information are not required for payments of
royalties from sources outside the United States that a payor or
middleman may treat as paid to a beneficial owner that is a foreign
person (because such person has furnished a certificate described in
Sec. 1.6049-5(c)(1)). For purposes of this paragraph (c)(1)(iii), the
presumptions in Sec. 1.6049-5(c) (3) through (6) (regarding operating
rules related to the certificate of foreign status) shall apply.
(2) Definitions--(i) Payor and middleman. For purposes of this
section, the term payor means any person who is required to make an
information return with respect to any reportable payment, as described
in section 3406(b), including any middleman. For purposes of this
section, the term middleman means any person whose legal relationship
to the payor or payee (including any other middleman) is of a kind
described in Sec. 1.6049-4(f)(4) (as proposed in project number INTL-
52-86 published in 1988-1 C.B. 892).
(ii) Non-U.S. payor and non-U.S. middleman. The term non-U.S. payor
or non-U.S. middleman means a payor or middleman other than--
(A) A person described in section 7701(a)(30);
(B) The government of the United States, the government of any
State or political subdivision thereof (or any agency or
instrumentality of any of the foregoing);
(C) A controlled foreign corporation within the meaning of section
957(a); or
(D) A foreign person 50 percent or more of the gross income of
which, from all sources for the three-year period ending with the close
of its taxable year preceding the collection or payment (or such part
of such period as the person has been in existence), was effectively
connected with the conduct of trade or business within the United
States.
(iii) Applicable presumptions. The presumptions of Sec. 1.1441-1(f)
shall apply for determining the payee's status where the required
documentation is lacking, incorrect, or unreliable.
(iv) Joint owners. In the case of amounts paid to joint owners and
requiring a certificate or documentation as a condition for being
exempt from reporting under this paragraph (c), the payor or middleman
must receive from each joint owner the required certification. Where
any one of the joint owners has not furnished the required
certification, the payment is not exempt from reporting under this
section.
(v) Payee. For determination of payee, see Sec. 1.1441-1(c)(3).
* * * * *
(e) Effective date--(1) General rule. The provisions of paragraph
(c) of this section apply to payments made after December 31, 1997.
(2) Transition rules. A payor that holds a valid Form W-8 on a date
that is 60 days after these regulations are published as final
regulations in the Federal Register may treat it as a valid certificate
until its validity expires under applicable provisions as in effect on
April 22, 1996.
PART 31--EMPLOYMENT TAXES AND COLLECTION OF INCOME TAX AT SOURCE
Par. 39. The authority for part 31 continues to read in part as
follows:
Authority: 26 U.S.C. 7805 * * *
Par. 40. Section 31.3401(a)(6)-1 is amended by:
1. Revising the section heading.
2. Revising the heading and first sentence of paragraph (e).
3. Adding paragraph (f).
4. Removing the authority citation at the end of the section.
[[Page 17665]]
The addition and revisions read as follows:
Sec. 31.3401(a)(6)-1 Remuneration for services of nonresident alien
individuals.
* * * * *
(e) Exemption from income tax for remuneration paid for services
performed before January 1, 1998. Remuneration paid for services
performed within the United States by a nonresident alien individual
before January 1, 1998 is excepted from wages and hence is not subject
to withholding if such remuneration is, or will be, exempt from income
tax imposed by chapter 1 of the Internal Revenue Code by reason of a
provision of the Internal Revenue Code or an income tax convention to
which the United States is a party. * * *
(f) Exemption from income tax for remuneration paid for services
performed after December 31, 1997. Remuneration paid for services
performed within the United States by a nonresident alien individual
after December 31, 1997 is excepted from wages and hence is not subject
to withholding if such remuneration is, or will be, exempt from the
income tax imposed by chapter 1 of the Internal Revenue Code by reason
of a provision of the Internal Revenue Code or an income tax convention
to which the United States is a party. An employer may rely on a claim
that the employee is entitled to an exemption from tax if it complies
with the requirements of Sec. 1.1441-1(e)(1) of this chapter (for a
claim based on a provision of the Internal Revenue Code) or
Sec. 1.1441-4(b)(2) of this chapter (for a claim based on an income tax
convention).
Par. 41. In Sec. 31.3406(d)-3, paragraph (c) is revised to read as
follows:
Sec. 31.3406(d)-3 Special 30-day rules for certain reportable
payments.
* * * * *
(c) Application to foreign payees. The rules of paragraphs (a) and
(b) of this section also apply to a payee from whom the payor is
required to obtain a Form W-8 (or an acceptable substitute) or is to
obtain other evidence of foreign status (pursuant to relevant
regulations under an applicable Internal Revenue Code section),
provided the payee represents orally or otherwise, before or at the
time of the acquisition or sale of the instrument or the establishment
of the account, that the payee is not a United States citizen or
resident. In the case of a payment made after December 31, 1997, to a
person with respect to whom indicia of foreign ownership exists, as
described in Sec. 1.1441-1(f)(2)(ii)(A) of this chapter, at any time
before expiration of the 30-day grace period described in this
paragraph (c), the procedures described in that section shall apply,
including the special grace period. The 30-day and 90-day grace periods
shall run concurrently. Therefore, for example, if indicia of foreign
ownership were provided on the 28th day after a payment is credited to
an account, the 30-day grace period would convert to a 90-day grace
period under Sec. 1.1441-1(f)(2)(ii)(A) of this chapter, of which 28
days would have already elapsed.
Par. 42. In Sec. 31.3406(g)-1, paragraph (e) is added to read as
follows:
Sec. 31.3406(g)-1 Exception for payments to certain payees and certain
other payments.
* * * * *
(e) Certain reportable payments made outside the United States by
foreign persons, foreign offices of United States banks and brokers,
and others. A payor of a reportable payment or transfer is not required
to backup withholding under section 3406 if such reportable payment or
transfer is of a kind that is exempt from reporting if documentary
evidence described in Sec. 1.6049-5(2)(ii) of this chapter is provided
to the payor, unless the payor has actual knowledge that the payee is a
United States person. In addition, amounts paid with respect to
notional principal contracts described in Sec. 1.6041-1(d)(5) of this
chapter are not subject to backup withholding if they are paid outside
the United States, unless the payor has actual knowledge that the payee
is a United States person.
Par. 43. Section 31.3406(h)-2 is amended by:
1. Removing the heading of paragraph (e)(1).
2. Removing the paragraph designation (e)(1).
3. Removing paragraph (e)(2).
4. Revising paragraph (a)(3)(i) to read as follows:
Sec. 31.3406(h)-2 Special rules.
(a) * * *
(3) Joint foreign payees--(i) In general. If the relevant payee
listed on an account or instrument provides the penalties of perjury
statement regarding its foreign status, withholding under section 3406
applies unless--
(A) Every joint payee provides the statement regarding foreign
status (under the provisions of chapter 3 and chapter 61 of the
Internal Revenue Code and the regulations under those provisions); or
(B) Any one of the joint owners who has not established foreign
status provides a taxpayer identifying number to the payor in the
manner required in Sec. 31.3406(d)-1.
* * * * *
Par. 44. Section 31.6413(a)-3 is amended as follows:
1. In paragraph (a)(1)(iii), the language ``(including the
certification relating to foreign status described in Sec. 1.6049-
5(b)(2)(iv) of this chapter or Sec. 1.6045-1(g)(1) of this chapter)''
is removed and ``(including the documentation required under
Secs. 1.1441-1(e)(1), 1.6045-1(g)(3), and 1.6049-5(c) of this
chapter)'' is added in its place.
2. Paragraph (a)(1)(ii) is amended by removing ``or'' at the end of
the paragraph and paragraph (a)(1)(iii) is amended by removing the
period at the end of the paragraph and adding ``; or'' in its place.
3. Paragraph (a)(1)(iv) is added.
4. Paragraphs (a)(2) and (b)(2) are revised. The addition and
revisions read as follows:
Sec. 31.6413(a)-3 Repayment by payor of tax erroneously collected from
payee.
(a) * * * (1) * * *
(iv) The amount is withheld because a payor imposed backup
withholding on a payment made to a person because the payee failed to
furnish the required documentation described in Secs. 1.1441-1(e)(1),
1.6045-1(g)(3), and 1.6049-5(c) of this chapter and the payee
subsequently furnishes, completes, or corrects the required
documentation. The required documentation must be furnished, completed,
or corrected prior to the end of the calendar year in which the payment
is made and prior to the time the payor furnishes a Form 1099 to the
payee with respect to the payment for which the withholding erroneously
occurred.
(2) For purposes of paragraph (a)(1) of this section (other than
erroneous withholding occurring under the circumstances described in
paragraph (a)(1)(iv) of this section), if a payor or broker withholds
because the payor or broker has not received a taxpayer identifying
number or required certification and the payee subsequently provides a
taxpayer identifying number or a required certification to the payor,
the payor or broker may not refund the amount to the payee.
(b) * * *
(2) Adjustment after the deposit of the tax--(i) In general. Except
as provided in paragraph (b)(2)(ii) of this section, if the amount
erroneously withheld has been deposited prior to the time that the
refund is made to the payee, the payor or broker may adjust any
subsequent deposit of the tax collected under chapter 24 of the
Internal Revenue Code that the payor or broker is required to
[[Page 17666]]
make in the amount of the tax that has been refunded to the payee.
(ii) Erroneous withholding from a payee that is a foreign person.
Where a payor withholds in error from a payee that is a nonresident
alien or foreign person, as described in paragraph (b)(1) of this
section, the payor may refund some or all of the amount subject to
backup withholding under section 3406. A refund may be paid in
accordance with the requirements of this paragraph (b)(2)(ii) where the
required documentation is furnished, completed, or corrected prior to
the end of the calendar year in which the payment is made and prior to
the time the payor furnishes a Form 1099 to the payee with respect to
the payment for which the withholding erroneously occurred. The amount
of the refund will be the amount erroneously withheld less the amount
of tax required to be withheld, if any, under chapter 3 of the Internal
Revenue Code. With respect to the amount of the payment to the foreign
person and the amount of tax required to be withheld under chapter 3 of
the Internal Revenue Code, returns must be made in accordance with the
requirements of Sec. 1.1461-1 (b) and (c) of this chapter.
PART 35a--TEMPORARY EMPLOYMENT TAX REGULATIONS UNDER THE INTEREST
AND DIVIDEND TAX COMPLIANCE ACT OF 1983
Par. 45. The authority for part 35a is amended by removing the
entries for Sec. 35a.9999-3, Sec. 35a.9999-3A and Sec. 35a.9999-4T to
read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Secs. 35a.9999-1 through 35a.9999-3A, and 35a.9999-4T [Removed]
Par. 46. Sections 35a.9999-1 through 35a.9999-3A, and 35a.9999-4T
are removed.
PART 301--PROCEDURE AND ADMINISTRATION
Par. 47. The authority citation for part 301 continues to read in
part as follows:
Authority: 26 U.S.C. 7805. * * *
Par. 48. Section 301.6109-1 as proposed to be amended in project
number INTL-0024-94, published on June 8, 1995, at 60 FR 30214, is
amended as follows:
1. Paragraph (b)(2)(iii) is amended by removing ``and'' at the end
of the paragraph.
2. Paragraph (b)(2)(iv) is revised.
3. Paragraph (b)(2)(v) is added.
4. Paragraph (c) is revised.
The revisions and additions read as follows:
Sec. 301.6109-1 Identifying numbers.
* * * * *
(b) * * *
(2) * * *
(iv) A foreign person that makes a return of tax under this title
(including income, estate, and gift tax returns) but excluding
information returns, statements, or documents;
(v) A foreign person that furnishes a withholding certificate
described in Sec. 1.1441-1 (e)(2) or (e)(3) of this chapter to the
extent required under Sec. 1.1441-1(e)(4)(vii) of this chapter.
(c) Requirement to furnish another's number. Every person required
under this title to make a return, statement, or other document must
furnish such taxpayer identifying numbers of other U.S. persons and
foreign persons that are described in paragraph (b)(2) (i), (ii),
(iii), or (v) of this section as required by the forms and the
accompanying instructions. The taxpayer identifying number of any
person furnishing a withholding certificate referred to in paragraph
(b)(2)(v) of this section shall also be furnished if it is actually
known to the person making a return, statement, or other document
described in this paragraph (c). If the person making the return,
statement, or other document does not know the taxpayer identifying
number of the other person, and such other person is one that is
described in paragraph (b)(2) (i), (ii), (iii), or (v) of this section,
such person must request the other person's number. The request should
state that the identifying number is required to be furnished under
authority of law. When the person making the return, statement, or
other document does not know the number of the other person, and has
complied with the request provision of this paragraph (c), such person
must sign an affidavit on the transmittal document forwarding such
returns, statements, or other documents to the Internal Revenue
Service, so stating. A person required to file a taxpayer identifying
number shall correct any errors in such filing when such person's
attention has been drawn to them.
* * * * *
Par. 49. Section 301.6114-1 is amended by:
1. Revising paragraph (a)(1)(ii).
2. Revising paragraph (b)(4)(ii) introductory text, and adding
paragraphs (b)(4)(ii)(C) and (b)(4)(ii)(D)
3. Revising paragraphs (c)(1) and (d)(4)(v): The revisions read as
follows:
Sec. 301.6114-1 Treaty-based return positions.
(a) * * * (1) * * *
(ii) If a return of tax would not otherwise be required to be
filed, a return must nevertheless be filed for purposes of making the
disclosure required by this section. For this purpose, such return need
include only the taxpayer's name, address, taxpayer identifying number,
and be signed under the penalties of perjury (as well as the subject
disclosure). Also, the taxpayer's taxable year shall be deemed to be
the calendar year (unless the taxpayer has previously established, or
timely chooses for this purpose to establish, a different taxable
year). In the case of a disclosable return position relating solely to
income subject to withholding (as defined in Sec. 1.1441-2(a) of this
chapter), however, the statement required to be filed in paragraph (d)
of this section must instead be filed at times and in accordance with
procedures to be published by the Internal Revenue Service.
* * * * *
(b) * * *
(4) * * *
(ii) A treaty exempts from tax, or reduces the rate of tax on,
fixed or determinable annual or periodical income subject to
withholding under sections 1441 or 1442 that a foreign person receives
from a U.S. person, but only if described in paragraphs (b)(4)(ii) (A)
and (B) of this section, or paragraph (b)(4)(ii) (C) or (D) of this
section.
* * * * *
(C) For payments made after December 31, 1997, with respect to a
treaty that contains a limitation on benefits article, that--
(1) The treaty exempts from tax, or reduces the rate of tax on
income subject to withholding (as defined in Sec. 1.1441-2(a) of this
chapter) that is paid to a foreign person (other than a State,
including a political subdivision or local authority) that is the
beneficial owner of the income and the beneficial owner is related to
the person obligated to pay the income within the meaning of sections
267(b) and 707(b), and the income exceeds $500,000; and
(2) A foreign person (other than an individual or a State,
including a political subdivision or local authority) meets the
requirements of the limitation on benefits article of the treaty; or
(D) For payments made after December 31, 1997, with respect to a
treaty that imposes any other conditions for the entitlement of treaty
benefits, for example as a part of the interest, dividends, or royalty
article, that such conditions are met;
* * * * *
(c) Reporting requirement waived. * * *
(1) Notwithstanding paragraph (b)(4) or (5) of this section, that a
treaty has
[[Page 17667]]
reduced the rate of withholding tax otherwise applicable to a
particular type of fixed or determinable annual or periodical income
subject to withholding under section 1441 or 1442, such as dividends,
interest, rents, or royalties to the extent such income is beneficially
owned by an individual or a State (including a political subdivision or
local authority);
* * * * *
(d) * * *
(4) * * *
(v) The provision(s) of the limitation on benefits article (if any)
in the treaty that the taxpayer relies upon to meet the requirements of
that article and a statement of the relevant facts in support of the
taxpayer's claim.
* * * * *
Par. 50. Section 301.6402-3 is amended as follows:
1. Paragraph (e) is revised as set forth below.
2. Removing the OMB parenthetical and the authority citation at the
end of the section.
Sec. 301.6402-3 Special rules applicable to income tax.
* * * * *
(e) In the case of a nonresident alien individual or foreign
corporation, the appropriate income tax return on which the claim for
refund or credit is made must contain the tax identification number of
the taxpayer required pursuant to section 6109 and the entire amount of
income of the taxpayer subject to tax, even if the tax liability for
that income was fully satisfied at source through withholding under
chapter 3 of the Internal Revenue Code. Also, if the overpayment of tax
resulted from the withholding of tax at source under chapter 3 of the
Internal Revenue Code, a copy of the Form 1042-S required to be
provided to the beneficial owner pursuant to Sec. 1.1461-1(c)(1)(i) of
this chapter must be attached to the return. For purposes of claiming a
refund, the Form 1042-S must include the taxpayer identifying number of
the beneficial owner even if not otherwise required. No claim of refund
or credit under chapter 65 may be made by the taxpayer for any amount
that the withholding agent has repaid to the taxpayer pursuant to
Sec. 1.1461-2(a)(2) of this chapter or that was subject to a set-off
pursuant to Sec. 1.1461-2(a)(3) of this chapter. Upon request, a
taxpayer must also submit such documentation as the Commissioner (or
delegate), the District Director, or the Assistant Commissioner
(International), may require establishing that the taxpayer is the
beneficial owner of the income for which a claim of refund or credit is
being made.
PART 502--[REMOVED]
Par. 51. Part 502 is removed.
PART 503--[REMOVED]
Par. 52. Part 503 is removed.
PART 509--[AMENDED]
Par. 53. The authority citation for part 509 is revised and the
authority citation for ``Subpart--General Income Tax'' is removed, to
read as follows:
Authority: 26 U.S.C. 62, 3791 and 7805.
Par. 54. Part 509 is amended as follows:
1. Subpart--Withholding of Tax consisting of Secs. 509.1 through
509.10 is removed.
2. In Sec. 509.103, paragraph (e) is removed and reserved.
3. In Sec. 509.117, paragraph (a) is removed and reserved.
4. Sections 509.119 and 509.122 are removed.
PART 513--[AMENDED]
Par. 55. The authority citation for part 513 is revised to read as
follows:
Authority: 26 U.S.C. 62.
Par. 56. Part 513 is amended as follows:
1. Section 513.1 is removed.
2. Section 513.2 is amended as follows:
a. Paragraphs (a)(1) and (a)(2) are removed and reserved.
b. Paragraph (a)(4) is removed.
c. Paragraph (b) is removed and reserved.
d. Paragraphs (c) and (d) are removed.
3. Section 513.3 is amended as follows:
a. Paragraph (a)(1) is removed and reserved.
b. Paragraphs (b) and (c) are removed.
4. Section 513.4 is amended as follows:
a. Paragraph (a) is removed and reserved.
b. Paragraphs (c) and (d) are removed.
5. Section 513.5 is amended as follows:
a. Paragraph (a) is removed and reserved.
b. Paragraphs (c) and (d) are removed.
PART 514--[AMENDED]
Par. 57. The authority citation for part 514 is revised to read as
follows:
Authority: 26 U.S.C. 7805.
Par. 58. Part 514 is amended as follows:
1. The undesignated centerheading preceding Sec. 514.1 and
Secs. 514.1 through 514.10 are removed.
2. Sections 514.20 through 514.21 are removed.
3. In Sec. 514.22, paragraph (c) is removed.
4. Sections 514.23 through 514.32 are removed.
5. Sections 514.101 through 514.117 are removed.
PART 516--[REMOVED]
Par. 59. Part 516 is removed.
PART 517--[REMOVED]
Par. 60. Part 517 is removed.
PART 520--[REMOVED]
Par. 61. Part 520 is removed.
PART 521--[AMENDED]
Par. 62. The authority citation for part 521 is revised to read as
follows:
Authority: 26 U.S.C. 62, 143, 144, 211, and 231.
Par. 63. Part 521 is amended as follows:
1. Subpart--Withholding of Tax consisting of Secs. 521.1 through
521.8 is removed.
2. In Sec. 521.103, paragraph (d) is removed and reserved.
Margaret Milner Richardson,
Commissioner of Internal Revenue.
[FR Doc. 96-8936 Filed 4-15-96; 10:14 am]
BILLING CODE 4830-01-P
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