Federal Register proposed rules — 1996-06-03

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FR Doc. 96-13880 Availability of Funds and Collection of Checks

[Federal Register Volume 61, Number 107 (Monday, June 3, 1996)]
[Proposed Rules]
[Pages 27802-27818]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-13880]

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FEDERAL RESERVE SYSTEM

12 CFR Part 229
[Regulation CC; Docket No. R-0926]

Availability of Funds and Collection of Checks

AGENCY: Board of Governors of the Federal Reserve System.

ACTION: Proposed rule.

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SUMMARY: The Board is proposing amendments to its Regulation CC
relating to the availability of funds and collection of checks. The
proposed amendments do not represent any major policy changes and are
intended to clarify the regulation and, in some cases, reduce the
compliance burden for depository institutions.

DATES: Comments must be submitted on or before August 2, 1996.

ADDRESSES: Comments, which should refer to Docket No. R-0926, may be
mailed to Mr. William W. Wiles, Secretary, Board of Governors of the
Federal Reserve System, 20th Street and Constitution Avenue NW.,
Washington, D.C. 20551. Comments addressed to Mr. Wiles also may be
delivered to the Board's mail room between 8:45 a.m. and 5:15 p.m. and
to the security control room outside of those hours. Both the mail room
and the security control room are accessible from the courtyard
entrance on 20th Street between Constitution Avenue and C Street NW.
Comments may be inspected in Room MP-500 between 9:00 a.m. and 5:00
p.m.

FOR FURTHER INFORMATION CONTACT: Louise Roseman, Associate Director
(202/452-2789), Division of Reserve Bank Operations and Payment
Systems; Stephanie Martin, Senior Attorney (202/452-3198), Heatherun
Allison, Attorney (202/452-3565), Legal Division; Manley Williams,
Staff Attorney, (202/736-5565), Division of Consumer and Community
Affairs. For the hearing impaired only, contact Dorothea Thompson,
Telecommunications Device for the Deaf (TDD) (202/452-3544), Board of
Governors of the Federal Reserve System, 20th and C Streets NW.,
Washington, D.C. 20551.

SUPPLEMENTARY INFORMATION: The Board is proposing amendments to its
Regulation CC (12 CFR Part 229), Availability of Funds and Collection
of Checks. The proposed amendments are clarifying and technical in
nature and do not represent any major policy changes. The proposed
amendments to subpart B of the regulation, governing availability
schedules and disclosures, address a variety of issues, including the
treatment of deposits received at ``contractual'' branches (such as
affiliate banks). Many of the proposed amendments are designed to
reduce the burden on depository institutions of complying with the
regulation. For example, the proposed amendments would provide more
flexibility for banks giving hold notices under emergency conditions,
clarify the various media by which written notices may be given, and
delete certain notice content requirements. The Board is also proposing
to update the Model Forms in Appendix C.
The proposed amendments to subpart C, governing collection of
checks, would make various clarifications of the interaction between
Regulation CC and the Uniform Commercial Code (U.C.C.), set forth rules
for checks drawn on banks in Guam, American Samoa, and the Northern
Mariana Islands, and address other check collection matters. The Board
is specifically requesting comment on the time required for a bank to
qualify a returned check for automated processing (Sec. 229.31(a)), the
provisions regarding the extension of the midnight deadline
(Sec. 229.30(c)), and the extent of a presenting bank's preferred claim
against a closed paying bank (Sec. 229.39(d)).
A red-lined version of the proposed amendments to the regulation,
model forms, and Commentary is available from the Board's Freedom of
Information Office or by calling 202-452-3684.

Section-by-Section Analysis

Available for withdrawal (Sec. 229.2(d)). The regulation defines
``available for withdrawal'' to mean available for all uses generally
permitted to the customer for actually and finally collected funds
under the bank's account agreement or policies. The Commentary to this
definition clarifies that funds are considered available for withdrawal
even if they are being held to satisfy, among other things, the
customer's liability arising from the certification, guaranty, or
acceptance of a check or the sale of a cashier's or teller's check. The
Board has received several inquiries as to whether funds would be
considered available for withdrawal if they are being held to satisfy a
contingent obligation of the customer relating to the customer's
account. For example, a depositary bank might receive a notification
that the customer has authorized a debit to the account at a point-of-
sale terminal. Banks often ``memo-post'' these debits to the customer's
account in advance of the settlement date. The Board proposes to revise
the Commentary to clarify that funds held to meet contingent
obligations of the customer related to the account are considered to be
available for withdrawal.
Definition of ``bank'' (Sec. 229.2(e)). The regulation states that,
for purposes of subpart C, the term ``bank'' includes any person
engaged in the business of banking, including a Federal Reserve Bank, a
Federal Home Loan Bank, and a state or unit of general local government
to the extent that the state or unit of general local government acts
as a paying bank. The Board proposes to amend the regulation's
definition of ``bank'' to clarify that the Federal Reserve Banks, the
Federal Home Loan Banks, and state or units of general local government
are not necessarily engaged in the business of banking, notwithstanding
the fact that they are included in this definition.
Definition of ``traveler's check'' (Sec. 229.2(hh)). The Commentary
states that ``[t]raveler's checks that are not issued by banks may not
have any words on them identifying a bank as drawee or paying agent * *
*.'' Some commenters have interpreted this provision to mean that
traveler's checks are prohibited from having words on them identifying
a bank. The Board proposes to revise the Commentary to clarify that
only a description of a possible situation, and not a prohibition, is
intended.
Notice requirement to state amount of deposit (Secs. 229.13(g) and
229.16(c)). Regulation CC requires a notice of an exception hold
(Sec. 229.13(g)(1)(i)(B)) or a case-by-case hold
(Sec. 229.16(c)(2)(i)(B)) to include the amount of the deposit from
which funds will be held. Some banks have noted that when they learn
that a check is being returned by the paying

[[Page 27803]]

bank several days after the day of deposit, it is often difficult to
trace the check back to a particular deposit, especially in cases where
a corporate customer makes several multi-check deposits on a single
day. The Act does not require the notice to contain the amount of the
deposit. The Board is proposing to eliminate the ``amount of deposit''
requirement for both exception and case-by-case hold notices. The Board
also requests comment on the burdens to depositary banks and the
benefits to customers of the requirement for hold notices to include
the date of deposit.
Emergency exception notices (Secs. 229.13(g)). The regulation
allows a depositary bank to place an exception hold on funds deposited
by check in the case of an emergency, such as computer or
communications interruptions, suspension of payments by another bank,
or war. The regulation requires the depositary bank to provide a notice
to the customer of the emergency hold in the same manner in which it
provides notice under the other exception holds, except that no notice
is necessary if the funds are made available before the notice must be
sent. Some banks have argued that during a major disaster they would be
unable to meet the timing deadline for emergency exception hold
notices. (Under the current regulation, the bank would have to mail or
deliver the notice to the customer no later than the first business day
following the day the facts upon which a determination to invoke the
hold become known to the depositary bank.) The current deadline may be
impracticable due to the time required to move to a backup processing
site and the need for the bank to focus on other customer service
priorities in the event of major disasters.
Section 604(f)(2)(C) of the Act requires depositary banks to send
emergency exception hold notices ``in accordance with regulations of
the Board.'' Therefore, the Board has the authority to adopt a more
flexible provision regarding the timing of emergency hold notices.
Because of the difficulty of determining an appropriate time deadline
for notices in advance of any particular emergency, the Board is
proposing to amend Regulation CC to require a depositary bank to give
reasonable notice of emergency exception holds. Reasonable notice in
some situations might consist of individual notices mailed to customers
as soon as practicable or, in other situations, may consist of general
notices, such as postings at branches or ATMs, or newspaper,
television, or radio notices. The Board proposes to amend
Sec. 229.13(g) and revise the accompanying Commentary to provide
separate requirements for emergency condition exception notices.
Written notices (Secs. 229.13(g) and 229.15(a)). Section 229.13(g)
requires a depositary bank to provide written exception hold notices to
customers. Section 229.15(a) requires banks to make availability policy
disclosures in writing. Some banks have asked whether a notice sent
through electronic mail would be permissible. The Board is proposing to
revise the Commentary to both these sections to clarify that notices
delivered via fax or electronic media that display text on a monitor or
screen, such as electronic mail, screenphone, or interactive
television, are considered written notices.
Exception holds and the cash withdrawal rule (Sec. 229.13(h)).
Section 229.12(d) permits a depositary bank to extend holds on deposits
of local, nonlocal, and certain other checks by one business day for
purposes of withdrawals by cash or similar means, with the exception of
$400, which must be made available by 5:00 p.m. on the original
availability day (the ``cash withdrawal rule''). The purpose of the
cash withdrawal rule is to allow depositary banks an additional day to
learn if a check is being returned before allowing irrevocable
withdrawals from the customer's account. Some banks have asked how the
cash withdrawal rule works in conjunction with the exception holds. For
example, if a large deposit exception hold is placed on a $7,000 local
check, $100 must be made available on the next business day, an
additional $4,900 must be available by the second business day after
deposit for check-writing purposes and by the third business day after
deposit for withdrawal by cash or similar means. The banks asked
whether the five-day exception hold on the $2,000 remainder is added to
the second business day for all purposes, or whether the hold period
may be added to the second day for check-writing withdrawals and to the
third day for cash and similar withdrawals. The Board believes that it
is not necessary to extend the exception hold period for cash
withdrawal purposes, as in almost every case the depositary bank should
learn of a returned local check by the seventh business day after
deposit. Therefore, the Board is proposing to clarify that the
exception hold periods may be applied to the availability schedules for
local and nonlocal checks and checks deposited in a nonproprietary ATM,
but may not be extended under the cash withdrawal rule.
Disclosure of branch-specific policies (Sec. 229.16(a)). Section
229.16 requires banks to furnish notices of their specific availability
policies. Some banks have established different availability policies
at different branches (or for deposits accepted on behalf of the bank
by affiliates or ``contractual branches''). These banks have asked
about the disclosure implications of different policies and whether
such a bank must disclose to every customer what routing numbers are
local to each location where deposits are accepted. The Board is
proposing to revise the Commentary to Sec. 229.16(a) to clarify that a
bank may provide customers with a branch-specific disclosure. The Board
proposes that banks, when determining which disclosure to provide, be
allowed to allocate customers between branches through good faith use
of a reasonable method, such as where the customer opened the account.
This proposal is consistent with the disclosure requirement in the
Interagency Policy Statement on Branch Closings.1
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\1\ 58 FR 49083, September 21, 1993.
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Deposits at contractual branches (Secs. 229.2(s), 229.10(c),
229.14(a), 229.19(a)). Due to easing of interstate branching
restrictions, the practice of one bank accepting deposits on behalf of
another bank (``contractual branching'') is growing more prevalent. The
Board proposes to clarify the Commentary regarding treatment of
deposits at contractual branches. The proposed revision to the
Commentary to the definition of local paying bank (Sec. 229.2(s))
states that a branch of a bank that is acting as an agent of the
depositary bank is considered a branch of the depositary bank.
Therefore, a check would be deemed local or nonlocal based on the
location of the contractual branch with respect to the location of the
paying bank.
The Board also proposes to revise the Commentary to Secs. 229.10(c)
and 229.19(a) to clarify that deposits at contractual branches would be
treated similarly to deposits at proprietary ATMs; that is, deposits at
contractual branches would be considered deposited when the funds are
received by the contractual branch teller. However, deposits at
contractual branches would not be considered deposited at a teller
station staffed by an employee of the depositary bank within the
meaning of Sec. 229.10(c)(ii)-(v). The Board is also proposing to
revise the Commentary to Sec. 229.19(a) to state that the depositary
bank could set a noon cut-off hour for deposits at contractual
branches, as these deposits are treated as received at ``off-premise''
facilities. Finally, the Board proposes to revise the Commentary to
Sec. 229.14(a) to clarify

[[Page 27804]]

that, in the case of a deposit at a contractual branch, interest must
accrue when the account-holding bank receives credit for the deposit,
not when the contractual branch receives credit.
Holds on other funds--notices (Sec. 229.19(e)). Section 229.19(e)
provides that when a bank accepts a deposit to an account that is
subject to the Regulation CC availability requirements, the bank may
not place a hold on any other funds of the customer that exceeds those
requirements. Similarly, if a customer cashes a check over the counter
(other than an ``on-us'' check), Sec. 229.19(e) prohibits the bank from
placing a hold on a transaction account of that customer that exceeds
the Regulation CC schedules that would apply to that check. Section
229.19(e) does not explicitly address whether the depositary bank must
provide a hold notice (case-by-case or safeguard exception) in these
cases. The Board is proposing to revise the Commentary to 229.19(e) to
clarify that such a hold requires a notice if an exception or case-by-
case notice would have been required under 229.13 or 229.16 had the
funds been deposited in an account or had the hold been placed on those
funds.
Midnight deadline extension (Sec. 229.30(c)). The regulation
(Sec. 229.30(c)(1)) allows a bank to return a check after the midnight
deadline, in order to expedite delivery, as long as it uses a means of
delivery designed to get the returned check to the receiving bank by
the end of that receiving bank's next banking day, or later if ``highly
expeditious transportation'' is used. Section 229.30(c)(2) allows a
paying bank to extend a Saturday midnight deadline if the checks get to
a returning bank by the cut-off hour for the returning bank's next
processing cycle or to a depositary bank by the end of the depositary
bank's next banking day. The Board proposes to amend the regulation to
clarify that Sec. 229.30(c)(1) pertains to all midnight deadlines other
than Saturday midnight deadlines, and that Sec. 229.30(c)(2) pertains
only to extension of a Saturday midnight deadline.
The Board also requests comment on whether further modifications to
the regulation would be desirable in light of problems posed by
nonstandard banking days other than Saturdays, e.g., mid-week holidays.
For example, should the Sec. 229.30(c)(2) midnight deadline extension
apply in all instances when a bank is open on a non-business day, such
as a mid-week holiday? Do nonstandard banking days cause other problems
for banks in complying with the regulation?
In addition, some banks have asked whether the regulation's
conditions for extending a midnight deadline require a determination of
motive or whether the regulation simply sets forth a ``time-of-
receipt'' test. Specifically, questions have arisen concerning whether
Sec. 229.30(c) is available only ``in order to expedite delivery'' (and
not, for example, to avoid a kite) or whether extension of the midnight
deadline is permitted for any reason so long as the returned check is
received by the receiving bank by the end of that bank's next banking
day (or later if ``highly expeditious transportation'' is used). The
Board requests comment on the circumstances under which banks make use
of the extension of the midnight deadline and under which the extension
should be available.
Extra day to create qualified returned checks (Sec. 229.31(a)).
Section 229.31(a) allows a returning bank to convert a returned check
to a qualified returned check (i.e., to encode the returned check with
the routing number of the depositary bank, the amount of the check, and
a return identifier so that it can be handled in an automated manner).
If the returning bank creates a qualified returned check,
Sec. 229.31(a) provides a one-day extension in the returning bank's
time frame for meeting the ``forward-collection'' expeditious return
test in Sec. 229.31(a)(2) (but not the ``two-day/four-day'' test) and
the deadlines for return under Regulation J and the U.C.C. This
extension does not apply if the returning bank returns the check
directly to the depositary bank, because in that case the preparation
of the qualified returned check will not expedite handling by other
banks. Given the improvements in the check return system since
Regulation CC was first implemented, the Board believes that the one-
day extension is rarely used and is unnecessary. The Board proposes to
eliminate the extension and to amend Sec. 229.31(a) of the regulation
and revise the accompanying Commentary accordingly. The Board requests
comment on whether this extension is still necessary and, if so, a
description of the operational problems that elimination of the
extension would cause.
Midnight deadline warranty and U.C.C. defenses (Sec. 229.34(a)(1)).
Section 229.34(a)(1) requires a paying or returning bank that returns a
check to warrant that the return is within its deadlines under
Regulation CC, Regulation J, and the U.C.C. The Commentary to
Sec. 229.30(a) clarifies that a paying bank is not responsible for
failure to make expeditious return under that section to a party that
has breached a presentment warranty under U.C.C. 4-208. This Commentary
is consistent with U.C.C. 4-302(b), which subjects the paying bank's
liability for missing its midnight deadline to defenses based on a
breach of a presentment warranty or fraud. The Board proposes to revise
the Commentary to Sec. 229.34(a)(1) to clarify that a paying or
returning bank's warranty of timely return within the U.C.C. deadline
is subject to U.C.C. claims or defenses.
Set-off rights (Sec. 229.34(c)(4)) and returning bank liability
(Sec. 229.31(a)). Under Sec. 229.34(c)(4), if a paying bank overpays a
presenting bank for checks presented, the paying bank may set off the
excess amount paid against subsequent settlements for checks presented
by that bank. The Board proposes to amend that section (and revise the
accompanying Commentary) to give any bank in the collection or return
chain the right to offset excess settlement made to a particular bank
against settlement for subsequent checks or returned checks transferred
by that bank.
The Board also proposes to revise the Commentary to Sec. 229.31(a),
which discusses the returning bank's liability if it makes an encoding
error when creating a qualified returned check. The Commentary
currently points out that the returning bank could be liable under
Sec. 229.38 for losses caused by negligence. The Board proposes to add
that the returning bank could also be liable for a breach of its
encoding warranty under Sec. 229.34(c)(3).
Time limit for notice of warranty breach (Sec. 229.34(f)). Sections
4-207(d) and 4-208(e) of the U.C.C. provide that a claimant on a breach
of warranty must give notice to the warrantor within 30 days after the
claimant has reason to know of the breach and the identity of the
warrantor, or else the warrantor is discharged to the extent of any
loss caused by the delay in notice. The Board proposes to add this time
limitation for notices of warranty claims to Regulation CC. The Board's
proposal would ensure that the same time limitations apply for check-
related warranty claims, regardless of whether the claim is under state
or federal law.
Electronic presentment (Sec. 229.36(c)). Section 229.36(c) allows a
bank to present a check electronically under an agreement with the
paying bank. That section and the accompanying Commentary contain
references to check ``truncation'' (generally a term used to describe a
system in which the physical check is held at some point in the check
collection process). An electronic presentment arrangement may, but
does not necessarily, include truncation of

[[Page 27805]]

the physical check. Therefore, the Board proposes to amend
Sec. 229.36(c) and revise the accompanying Commentary to apply it to
``electronic presentment'' arrangements, not merely ``truncation''
arrangements. The Board also proposes to revise the Commentary by
adding an example of an electronic presentment arrangement.
Labelling requirements for payable-through checks (Sec. 229.36(e)).
A bank that arranges for a check drawn on it to be payable through
another bank must ensure that certain information is printed on the
face of the check. Specifically, Sec. 229.36(e) requires that these
checks show (1) the name, location, and first four digits of the
routing number of the bank by which the check is payable, and (2) the
words ``payable through'' followed by the name and location of the
payable-through bank. The Board adopted these labelling requirements to
enable banks and their customers to identify payable-through checks and
to determine whether they are local or nonlocal. The provisions
regarding the ``payable through'' designation and the name and location
of the payable-through bank are similar to provisions in U.C.C. 4-106.
As these particular labelling requirements are covered by state law,
the federal regulatory provision appears to be unnecessary, and the
Board is proposing to eliminate it from Regulation CC. The Board would
retain the labelling requirements regarding the name, location, and
first four digits of the routing number of the bank by which the check
is payable.
Measure of damages (Sec. 229.38(a)). The Commentary states that the
measure of damages provided in Sec. 229.38(a) ``derives from U.C.C. 4-
103(e) and 4-202(c).'' The Board proposes to revise the Commentary to
clarify the effect of U.C.C. 4-202(c) upon the measure of damages, as
U.C.C. 4-202(c) does not state a measure of damages but rather limits
liability by providing that a bank that has exercised ordinary care is
not liable for the insolvency, neglect, misconduct, mistake, or default
of others, or for the loss or destruction of an item by others.
Correction to Commentary (Sec. 229.38(d)). In the 1995 technical
amendments to Regulation CC (60 FR 51669, October 3, 1995), some words
were inadvertently dropped from the Commentary to Sec. 229.38(d). The
Board is proposing to correct the Commentary.
Preferred claim against depositary bank (Sec. 229.39(b)). Section
229.39(b) gives a bank a preferred claim against a closed paying or
depositary bank that ``finally pays'' a check or returned check without
settling for it. A paying bank ``finally pays'' (becomes accountable
for) a check if it doesn't settle for or return the check by the
applicable deadline. A depositary bank is obligated to ``pay'' for a
returned check under Sec. 229.32(b) but may not return the returned
check. The depositary bank can meet its obligations under
Sec. 229.32(b) only by settling for the returned check. Therefore, the
depositary bank cannot ``finally pay'' for a returned check without
settling for it. The Board proposes to amend Sec. 229.39(b) and revise
the accompanying Commentary to clarify this distinction. The substance
of Sec. 229.39(b) would not change.
Preference against presenting bank (Sec. 229.39(d)). Section
229.39(d) gives a paying bank a preferred claim against a closed
presenting bank in the event that the presenting bank breaches an
amount or encoding warranty as provided in Sec. 229.34(c) (1) or (3)
and does not reimburse the paying bank for adjustments for a settlement
made by the paying bank in excess of the value of the checks presented.
This preference is intended to have the effect of a perfected security
interest and is intended to put the paying bank in the position of a
secured creditor for purposes of the receivership provisions of the
Federal Deposit Insurance Act and similar provisions of state law.
The Board added Sec. 229.39(d) in 1992, as part of the ``same-day
settlement'' amendments to Regulation CC (57 FR 46956, October 14,
1992). At that time, some cementers suggested that the preferred claim
should extend to claims other than adjustments, such as breach of a
U.C.C. presentment warranty (e.g., warranties against forged or missing
indorsements and alterations). At that time, the Board noted that a
preferred claim against a failed presenting bank for forgeries, missing
indorsements, and alterations may reduce risk to the paying bank. That
risk, however, was not directly related to the obligation to make same-
day settlement and was not addressed in the original proposal,
therefore the Board did not adopt the cementers' suggestion. The Board
is now requesting comment on whether Sec. 229.39(d) should be expanded
to cover the U.C.C. presentment warranties.
Exclusions (Sec. 229.42). The regulation exempts certain checks
from the expeditious return and notice of nonpayment requirements
(e.g., a check drawn upon the United States Treasury, a U.S. Postal
Service money order, or a check drawn on a state or a unit of general
local government that is not payable through or at a bank). The Board
proposes to amend the regulation to reflect that such checks are also
exempt from the same-day settlement requirements of Sec. 229.36(f).
Checks payable in Guam, American Samoa, and the Northern Mariana
Islands (Sec. 229.43). The Board has received inquiries as to the
applicability of Regulation CC to checks drawn on depository
institutions located in Guam, American Samoa, and the Northern Mariana
Islands (``Pacific island banks''). For purposes of the Board's
Regulation J, which governs collection of checks through Federal
Reserve Banks, Pacific island banks are deemed to be in the Twelfth
Federal Reserve District. Some checks drawn on these institutions
(``Pacific island checks'') bear U.S. routing numbers and are generally
handled by banks in the U.S. in the same manner as other checks.
Because the Act does not include Guam, American Samoa, or the
Northern Mariana Islands in the definition of ``United States,''
Pacific island banks are not ``banks'' and Pacific island checks are
not ``checks'' as defined in Regulation CC. Banks often handle Pacific
island checks in the same manner as other checks, however. The Board
believes that applying some of the provisions of subpart C to Pacific
island checks would provide an appropriate legal framework for the
handling of these checks. The Board proposes to add a new Sec. 229.43
to the regulation and accompanying Commentary to set forth the
provisions of subpart C that apply to checks drawn on Pacific island
banks.
The Board is proposing that the regulation specifically allow banks
to handle Pacific island checks for direct return and to convert them
to qualified returned checks. Because the subpart B availability
schedules do not apply to Pacific island checks, the Board is not
proposing to subject returning banks to the expeditious return
requirements of Sec. 229.31, even though, as a practical matter, the
Board believes that in most cases, banks will handle returned Pacific
island checks expeditiously. The Board requests comment on whether the
liability for failure to comply with expeditious return rules should
apply for Pacific island checks. In addition, the Board is proposing
that depositary banks that receive notice of nonpayment on Pacific
island checks are not subject to the provisions of Sec. 229.33(d)
requiring timely notice to the depositary bank's customer. Again, the
Board believes that in practice, most depositary banks would give
notice to their customer within the time frame required by
Sec. 229.33(d) and requests comment on whether that section should
apply to depositary banks with regard to Pacific island checks.

[[Page 27806]]

The only Regulation CC warranties that would apply to banks
handling Pacific island checks for forward collection or return are the
cash letter total and encoding warranties in Sec. 229.34(c)(2) and (3).
In addition, the Board would apply relevant provisions of Secs. 229.35-
229.42 to banks that handle Pacific island checks.
Model Forms (Appendix C). The Board proposes to make technical and
stylistic changes to facilitate use of the model forms. For example,
the Board would revise the typefaces. Information that a bank must
insert, such as the bank's cut-off hour, would be italicized in
parentheses. Where a provision is required only if a bank has elected
to take advantage of a particular section of the regulation (requiring
the use of a special deposit slip to receive next-day availability for
a teller's check, for example) the provision would be enclosed in
brackets and the additional disclosure requirements (how to obtain a
special deposit slip, for example) would be italicized within
parentheses in the brackets. Banks that use earlier versions of the
model forms would be protected from civil liability under
Sec. 229.21(e), but would be encouraged to use new versions when
reordering or reprinting supplies. The Board requests comment on
whether any models in addition to those currently in Appendix C would
be helpful to banks.
The Board proposes the following additional changes to the models:
Model C-3 Next-day availability, case-by-case holds to statutory
limits, and Sec. 229.13 exceptions. The Board proposes to revise Model
C-3, to clarify the availability of funds subject to a hold. Generally,
the first $100 is available on the first business day after deposit.
The first $100 may not be available, however, if the funds are subject
to an exception hold under Sec. 229.13.
Model C-5 Holds to statutory limits on all deposits. The Board
proposes to revise Model C-5 to facilitate use of the form by banks
that elect to impose the limitation on withdrawals by cash under
Sec. 229.12(d).
Model C-10 Cash withdrawal limitation. The Board proposes to
revise Model C-10 to facilitate the incorporation of the clause into
the various model availability policy disclosures.
Model C-12 Exception hold notice. The Board proposes to revise
Model C-12 to clarify that the optional provision concerning overdraft
or returned check fees applies only to the last category of reasons,
reasonable cause to doubt collectibility. In addition, to reflect the
proposed change to Sec. 229.13(g)(1)(i)(B), the Board would delete the
reference to the amount of the deposit.
Model C-13 Reasonable cause hold notice. To reflect the proposed
change to Sec. 229.13(g)(1)(i)(B), the Board proposes to delete the
reference to the amount of the deposit.
Model C-16 Case-by-case hold notice. The Board proposes to revise
the model notice to incorporate optional language for banks that elect
to impose the cash withdrawal limitation. In addition, to reflect the
proposed change to Sec. 229.16(c)(2)(i)(B), the Board would delete the
reference to the amount of the deposit.
Commentary to model forms. The Board proposes to make a number of
technical and stylistic changes to the Commentary to the model
disclosures, clauses, and notices. For example, the proposed Commentary
clarifies that the Act's protection from liability for banks that use
the models properly applies to the model clauses and notices as well as
to the model disclosures. In addition, the proposed Commentary to
Models C-2 through C-5 clarifies that in disclosing that a longer delay
may apply, a bank may disclose when funds will be generally available
based on when the funds would be available if the deposit were of a
nonlocal check. The proposed Commentary to model notices C-12 through
C-16 clarifies that a bank should modify the notices if it places a
hold on other funds.

Initial Regulatory Flexibility Analysis

The Regulatory Flexibility Act (5 U.S.C. 601-612) requires an
agency to publish an initial regulatory flexibility analysis with any
notice of proposed rulemaking. Two of the requirements of an initial
regulatory flexibility analysis (5 U.S.C. 603(b)), a description of the
reasons why action by the agency is being considered and a statement of
the objectives of, and legal basis for, the proposed rule, are
contained in the supplementary material above. The proposed rules
require no additional reporting or recordkeeping requirements and do
not overlap with other federal rules.
Another requirement for the initial regulatory flexibility analysis
is a description of and, where feasible, an estimate of the number of
small entities to which the proposed rule will apply. The proposal will
apply to all depository institutions regardless of size. The proposed
amendments generally clarify rights and duties of depository
institutions and do not impose any substantial economic burden on small
entities.

Paperwork Reduction Act

In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C.
Ch. 3506; 5 CFR 1320 Appendix A.1), the Board reviewed the proposed
rulemaking under the authority delegated to the Board by the Office of
Management and Budget. Comments on the collections of information
should be sent to the Office of Management and Budget, Paperwork
Reduction Project (7100-0235), Washington, DC 20503, with copies of
such comments to be sent to Mary M. McLaughlin, Federal Reserve Board
Clearance Officer, Division of Research and Statistics, Mail Stop 97,
Board of Governors of the Federal Reserve System, Washington, DC 20551.
The collection of information requirements in this proposed
rulemaking are found in 12 CFR 229.13, 229.15(a), 229.16(a), 229.16(c),
229.19(e), 229.34(f), former 229.36(e), and Appendix C. This
information is intended to alert consumers about their financial
institutions' check-hold policies and to help prevent unintentional
(and costly) overdrafts. The respondents are for-profit financial
institutions, including small businesses. The Board's Regulation CC
applies to all types of depository institutions, not just state member
banks. However, under Paperwork Reduction Act regulations, the Federal
Reserve accounts for the burden of the paperwork associated with the
regulation only for state member banks. Any estimates of paperwork
burden for institutions other than state member banks that would be
affected by the proposed amendments would be provided by the federal
agency or agencies that supervise those lenders.
The Federal Reserve may not conduct or sponsor, and an organization
is not required to respond to, this information collection unless it
displays a currently valid OMB control number. The OMB control number
is 7100-0235.
The proposed amendments are not expected to change the ongoing
annual burden. The estimated burden per response ranges from 3 minutes
(for a notice of exception, a case-by-case hold notice, or a notice to
a potential new customer or to any person upon request) to 20 hours for
notices of changes in policy. There are 1,042 state member banks and an
average frequency of 3,314 responses per respondent each year. The
total amount of annual burden is estimated to be 183,711 hours. Based
on an hourly cost of $20, the annual cost to the public is estimated to
be $3,674,220. There is not estimated to be any annual cost burden over
the annual

[[Page 27807]]

hour burden. Additionally, the Federal Reserve estimates that there is
associated capital or start up cost in the amount of $80 per bank for
revising the notices to conform with the new model availability policy
disclosures, clauses, and notices when a bank exhausts its current
supply.
Because the notices are not provided to the Federal Reserve, no
issue of confidentiality under the Freedom of Information Act arises.
The disclosure of information to consumers with regard to the
availability of funds is available to the public. The account
information regarding the availability of funds in an individual's
account is confidential between the institution and the consumer.
Comments are invited on: (a) whether the proposed revised
collection of information is necessary for the proper performance of
the Federal Reserve's functions; including whether the information has
practical utility; (b) the accuracy of the Federal Reserve's estimate
of the burden of the proposed revised information collection, including
the cost of compliance; (c) ways to enhance the quality, utility, and
clarity of the information to be collected; and (d) ways to minimize
the burden of information collection on respondents, including through
the use of automated collection techniques or other forms of
information technology.

List of Subjects in 12 CFR Part 229

Banks, Banking, Federal Reserve System, Reporting and recordkeeping
requirements.

For the reasons set forth in the preamble, 12 CFR Part 229 is
proposed to be amended as set forth below:

PART 229--AVAILABILITY OF FUNDS AND COLLECTION OF CHECKS
(REGULATION CC)

1. The authority citation for part 229 continues to read as
follows:

Authority: 12 U.S.C. 4001 et seq.

2. In Sec. 229.2, the first sentence in paragraph (e) concluding
text is revised to read as follows:

Sec. 229.2 Definitions.

* * * * *
(e) * * *

For purposes of subpart C of this part and, in connection therewith,
this subpart A, the term bank also includes any person engaged in the
business of banking, as well as a Federal Reserve Bank, a Federal Home
Loan Bank, and a state or unit of general local government to the
extent that the state or unit of general local government acts as a
paying bank. * * *
* * * * *
3. Section 229.13 is amended as follows:
a. In paragraphs (g)(1) introductory text and (g)(1)(ii)(A), the
phrase ``paragraphs (b) through (f)'' is revised to read ``paragraphs
(b) through (e)'';
b. Paragraphs (g)(1)(i)(B) and (g)(1)(i)(E) are revised;
c. Paragraph (g)(1)(ii)(B) is removed and the paragraph designation
(g)(1)(ii)(A) is removed;
d. Paragraph (g)(4) is redesignated as paragraph (g)(5) and new
paragraph (g)(4) is added; and
e. Paragraph (h) is revised.
The addition and revisions read as follows:

Sec. 229.13 Exceptions.

* * * * *
(g) Notice of exception--(1) * * *
(i) * * *
(B) The date of the deposit;
* * * * *
(E) The time period within which the funds will be available for
withdrawal.
* * * * *
(4) Emergency conditions exception notice. When a depositary bank
extends the time when funds will be available for withdrawal based on
the application of the emergency conditions exception contained in
paragraph (f) of this section, it must provide the depositor with
notice in a reasonable form and within a reasonable time given the
circumstances. The notice shall include the reason the exception was
invoked and the time period within which funds shall be made available
for withdrawal, unless the depositary bank, in good faith, does not
know at the time the notice is given the duration of the emergency and,
consequently, when the funds must be made available. The depositary
bank is not required to provide a notice if the funds subject to the
exception become available before the notice must be sent.
* * * * *
(h) Availability of deposits subject to exceptions. (1) If an
exception contained in paragraphs (b) through (f) of this section
applies, the depositary bank may extend the time periods established
under Secs. 229.10(c) and 229.12 (b), (c), (e), and (f) by a reasonable
period of time.
(2) If a depositary bank invokes an exception contained in
paragraphs (b) through (e) of this section with respect to a check
described in Sec. 229.10(c)(1) (i) through (v) or Sec. 229.10(c)(2), it
shall make the funds available for withdrawal not later than a
reasonable period after the day the funds would have been required to
be made available had the check been subject to Sec. 229.12 (b), (c),
(e), or (f).
(3) If a depositary bank invokes an exception under paragraph (f)
of this section based on an emergency condition, the depositary bank
shall make the funds available for withdrawal not later than a
reasonable period after the emergency has ceased or the period
established in Secs. 229.10(c) and 229.12 (b), (c), (e), or (f),
whichever is later.
(4) For the purposes of this section, a ``reasonable period'' is an
extension of up to one business day for checks described in
Sec. 229.10(c)(1)(vi), five business days for checks described in
Sec. 229.12(b)(1) through (4), and six business days for checks
described in Sec. 229.12(c)(1) and (2) or for checks deposited in a
nonproprietary ATM. A longer extension may be reasonable, but the bank
has the burden of so establishing.
4. Section Sec. 229.16(c)(2)(i)(B) is revised to read as follows:

Sec. 229.16 Specific availability policy disclosure.

* * * * *
(c) Longer delays on a case-by-case basis. * * *
(2) * * * (i) * * *
(B) The date of the deposit;
* * * * *
5. In Sec. 229.30, paragraph (c) is revised to read as follows:

Sec. 229.30 Paying bank's responsibility for return of checks.

* * * * *
(c) Extension of deadline. The deadline for return or notice of
nonpayment under the U.C.C. or Regulation J (12 CFR part 210), or
section 229.36(f)(2) is extended to the time of dispatch of such return
or notice of nonpayment where a paying bank, in an effort to expedite
delivery of a returned check to a bank, uses a means of delivery that
would ordinarily result in receipt by the bank to which it is sent--
(1) On or before the receiving bank's next banking day following
the otherwise applicable deadline, for all deadlines other than those
described in paragraph (c)(2) of this section; this deadline is
extended further if a paying bank uses a highly expeditious means of
transportation, even if this means of transportation would ordinarily
result in delivery after the receiving bank's next banking day; or
(2) Prior to the cut-off hour for the next processing cycle (if
sent to a returning bank), or on the next banking day (if sent to the
depositary bank), for

[[Page 27808]]

a deadline falling on a Saturday that is a banking day (as defined in
the applicable U.C.C.) for the paying bank.
* * * * *
6. In Sec. 229.31, the last two sentences of paragraph (a)
concluding text are removed.
7. In Sec. 229.34, the section heading and paragraph (c)(4) are
revised and a new paragraph (f) is added to read as follows:

Sec. 229.34 Warranties.

* * * * *
(c) Warranty of settlement amount, encoding, and offset. * * *
* * * * *
(4) If a bank settles with another bank in amount exceeding the
total amount of the checks or returned checks received, the bank may
set off the excess settlement amount against subsequent settlements for
checks or returned checks it receives from the other bank.
* * * * *
(f) Notice of claim. Unless a claimant gives notice of a claim for
breach of warranty under this section to the bank that made the
warranty within 30 days after the claimant has reason to know of the
breach and the identity of the warranting bank, the warranting bank is
discharged to the extent of any loss caused by the delay in giving
notice of the claim.
8. In Sec. 229.36, the heading and the last sentence of paragraph
(c) and paragraph (e)(1) are revised to read as follows:

Sec. 229.36 Presentment and issuance of checks.

* * * * *
(c) Electronic presentment. * * * An electronic presentment
agreement may not extend return times or otherwise vary the
requirements of this part with respect to parties interested in the
check that are not party to the agreement.
* * * * *
(e) Issuance of payable-through checks. (1) A bank that arranges
for checks payable by it to be payable through another bank shall
require that the name, location, and first four digits of the nine-
digit routing number of the bank by which the check is payable be
printed conspicuously on the face of each check.
* * * * *
9. In Sec. 229.39, paragraphs (b) and (d) are revised to read as
follows:

Sec. 229.39 Insolvency of bank.

* * * * *
(b) Preference against paying or depositary bank. If a paying bank
finally pays a check, or if a depositary bank becomes obligated to pay
a returned check, and suspends payment without making a settlement for
the check or returned check with the prior bank that is or becomes
final, the prior bank has a preferred claim against the paying bank or
the depositary bank.
* * * * *
(d) Preference against presenting bank. If a paying bank settles
with a presenting bank for one or more checks, and if the presenting
bank breaches a warranty specified in Sec. 229.34(c)(1) or (3) or in
the U.C.C. with respect to those checks and suspends payments before
satisfying the paying bank's warranty claim, the paying bank has a
preferred claim against the presenting bank for the amount of the
warranty claim.
* * * * *
10. Section 229.42 is revised to read as follows:

Sec. 229.42 Exclusions.

The expeditious return (Secs. 229.30(a) and 229.31(a)), notice of
nonpayment (Sec. 229.33) and same-day settlement (Sec. 229.36(f))
requirements of this subpart do not apply to a check drawn upon the
United States Treasury, to a U.S. Postal Service money order, or to a
check drawn on a state or a unit of general local government that is
not payable through or at a bank.
11. A new Sec. 229.43 is added to read as follows:

Sec. 229.43 Checks payable in Guam, American Samoa, and the Northern
Mariana Islands.

(a) Definitions. For the purposes of this section--
(1) Pacific island bank means an office of an institution that
would be a bank as defined in Sec. 229.2(e) but for the fact that the
office is located in Guam, American Samoa, or the Northern Mariana
Islands;
(2) Pacific island check means a negotiable demand draft drawn on
or payable through or at a Pacific island bank, which is not a check as
defined in Sec. 229.2(k).
(3) The definitions in Sec. 229.2 apply to this section, unless
otherwise noted.
(b) Rules applicable to Pacific island checks. To the extent a bank
handles a Pacific island check as if it were a check defined in
Sec. 229.2(k), the bank is subject to the following sections of this
part as if the Pacific island check were a check defined in
Sec. 229.2(k):
(1) Sec. 229.31, except that the returning bank is not subject to
the requirement to return a Pacific island check in an expeditious
manner;
(2) Sec. 229.32;
(3) Sec. 229.34(c)(2), (c)(3), (d), and (e);
(4) Sec. 229.35; for purposes of Sec. 229.35(c), the Pacific island
bank is deemed to be a bank;
(5) Sec. 229.36(d);
(6) Sec. 229.37;
(7) Sec. 229.38(a) and (c) through (h);
(8) Sec. 229.39(a), (b), (c) and (e); and
(9) Secs. 229.40 through 229.42.
12. Appendix C to Part 229 is amended as follows:
a. The appendix heading is revised;
b. The introductory text is revised;
c. The heading above the contents listing for models C-1 through C-
5 is revised;
d. The heading immediately above model policy disclosure ``C-1--
Next-day availability'' is revised; and
d. Model Availability Policy Disclosures C-1 through C-5, Model
Clauses C-9 and C-10, and Model Notices C-12 through C-16 are revised.
The revisions read as follows:

Appendix C to Part 229--Model Availability Policy Disclosures, Clauses,
and Notices

This appendix contains model availability policy disclosures,
clauses, and notices to facilitate compliance with the disclosure
requirements of Regulation CC (12 CFR part 229). Although use of
these models is not required, banks using them properly to make
disclosures required by the Regulation CC are deemed to be in
compliance.

Model Availability Policy Disclosures

* * * * *

Model Availability Policy Disclosures

C-1--Next-day availability

YOUR ABILITY TO WITHDRAW FUNDS

Our policy is to make funds from your deposits available to you
on the first business day after the day we receive your deposit.
Electronic direct deposits will be available on the day we receive
the deposit. Once they are available, you can withdraw the funds in
cash and we will use the funds to pay checks that you have written.
For determining the availability of your deposits, every day is
a business day, except Saturdays, Sundays, and federal holidays. If
you make a deposit before (time of day) on a business day that we
are open, we will consider that day to be the day of your deposit.
However, if you make a deposit after (time of day) or on a day we
are not open, we will consider that the deposit was made on the next
business day we are open.

C-2--Next-day availability and Sec. 229.13 exceptions

YOUR ABILITY TO WITHDRAW FUNDS

[[Page 27809]]

consider that day to be the day of your deposit. However, if you
make a deposit after (time of day) or on a day we are not open, we
will consider that the deposit was made on the next business day we
are open.

LONGER DELAYS MAY APPLY

Funds you deposit by check may be delayed for a longer period
under the following circumstances:
We believe a check you deposit will not be paid.
You deposit checks totaling more than $5,000 on any one
day.
You redeposit a check that has been returned unpaid.
You have overdrawn your account repeatedly in the last
six months.
There is an emergency, such as failure of computer or
communications equipment.
We will notify you if we delay your ability to withdraw funds
for any of these reasons, and we will tell you when the funds will
be available. They will generally be available no later than the
(number) business day after the day of your deposit.

SPECIAL RULES FOR NEW ACCOUNTS

If you are a new customer, the following special rules will
apply during the first 30 days your account is open.
Funds from electronic direct deposits to your account will be
available on the day we receive the deposit. Funds from deposits of
cash, wire transfers, and the first $5,000 of a day's total deposits
of cashier's, certified, teller's, traveler's, and federal, state
and local government checks will be available on the first business
day after the day of your deposit if the deposit meets certain
conditions. For example, the checks must be payable to you (and you
may have to use a special deposit slip). The excess over $5,000 will
be available on the ninth business day after the day of your
deposit. If your deposit of these checks (other than a U.S. Treasury
check) is not made in person to one of our employees, the first
$5,000 will not be available until the second business day after the
day of your deposit.
Funds from all other check deposits will be available on the
(number) business day after the day of your deposit.

C-3--Next-day availability, case-by-case holds to statutory limits, and
Sec. 229.13 exceptions

YOUR ABILITY TO WITHDRAW FUNDS

LONGER DELAYS MAY APPLY

In some cases, we will not make all of the funds that you
deposit by check available to you on the first business day after
the day of your deposit. Depending on the type of check that you
deposit, funds may not be available until the fifth business day
after the day of your deposit. The first $100 of your deposits,
however, may be available on the first business day.
If we are not going to make all of the funds from your deposit
available on the first business day, we will notify you at the time
you make your deposit. We will also tell you when the funds will be
available. If your deposit is not made directly to one of our
employees, or if we decide to take this action after you have left
the premises, we will mail you the notice by the day after we
receive your deposit.
If you will need the funds from a deposit right away, you should
ask us when the funds will be available.
In addition, funds you deposit by check may be delayed for a
longer period under the following circumstances:
We believe a check you deposit will not be paid.
You deposit checks totaling more than $5,000 on any one
day.
You redeposit a check that has been returned unpaid.
You have overdrawn your account repeatedly in the last
six months.
There is an emergency, such as failure of computer or
communications equipment.
We will notify you if we delay your ability to withdraw funds
for any of these reasons, and we will tell you when the funds will
be available. They will generally be available no later than the
(number) business day after the day of your deposit.

SPECIAL RULES FOR NEW ACCOUNTS

C-4--Holds to statutory limits on all deposits (includes chart)

YOUR ABILITY TO WITHDRAW FUNDS

Our policy is to delay the availability of funds that you
deposit in your account. During the delay, you may not withdraw the
funds in cash and we will not use the funds to pay checks that you
have written.

DETERMINING THE AVAILABILITY OF A DEPOSIT

The length of the delay is counted in business days from the day
of your deposit. Every day is a business day except Saturdays,
Sundays, and federal holidays. If you make a deposit before (time of
day) on a business day that we are open, we will consider that day
to be the day of your deposit. However, if you make a deposit after
(time of day) or on a day we are not open, we will consider that the
deposit was made on the next business day we are open.
The length of the delay varies depending on the type of deposit
and is explained below.

Same-Day Availability

Funds from electronic direct deposits to your account will be
available on the day we receive the deposit.

Next-Day Availability

Funds from the following deposits are available on the first
business day after the day of your deposit:
U.S. Treasury checks that are payable to you.
Wire transfers.
Checks drawn on (bank name) [unless (any limitations
related to branches in different states or check processing
regions)].
If you make the deposit in person to one of our employees, funds
from the following deposits are also available on the first business
day after the day of your deposit:
Cash.
State and local government checks that are payable to
you [if you use a special deposit slip available from (where deposit
slip may be obtained)].
Cashier's, certified, and teller's checks that are
payable to you [if you use a special deposit slip available from
(where deposit slip may be obtained)].
Federal Reserve Bank checks, Federal Home Loan Bank
checks, and postal money orders, if these items are payable to you.
If you do not make your deposit in person to one of our
employees (for example, if you mail the deposit), funds from these
deposits will be available on the second business day after the day
of your deposit.

Other Check Deposits

To find out when funds from other check deposits will be
available, look at the first four digits of the routing number on
the check:

BILLING CODE 6210-01-P

[[Page 27810]]

[GRAPHIC] [TIFF OMITTED] TP03JN96.000

BILLING CODE 6210-01-C

[[Page 27811]]

Some checks are marked ``payable through'' and have a four- or
nine-digit number nearby. For these checks, use this four-digit
number (or the first four digits of the nine-digit number), not the
routing number on the bottom of the check, to determine if these
checks are local or nonlocal. Once you have determined the first
four digits of the routing number (1234 in the examples above), the
following chart will show you when funds from the check will be
available:

----------------------------------------------------------------------------------------------------------------
When funds are available if a deposit
First four digits from routing number When funds are available is made on a Monday
----------------------------------------------------------------------------------------------------------------
[Local numbers]......................... $100 on the first business Tuesday.
day after the day of your
deposit.
Remaining funds on the second Wednesday.
business day after the day
of your deposit.
All other numbers...................... $100 on the first business Tuesday.
day after the day of your
deposit.
Remaining funds on the fifth Monday day of following week.
business of the day after
the your deposit.
----------------------------------------------------------------------------------------------------------------

If you deposit both categories of checks, $100 from the checks
will be available on the first business day after the day of your
deposit, not $100 from each category of check.

LONGER DELAYS MAY APPLY

SPECIAL RULES FOR NEW ACCOUNTS

C-5--Holds to statutory limits on all deposits

YOUR ABILITY TO WITHDRAW FUNDS

DETERMINING THE AVAILABILITY OF A DEPOSIT

Same-Day Availability

Funds from electronic direct deposits to your account will be
available on the day we receive the deposit.

Next-Day Availability

Funds from the following deposits are available on the first
business day after the day of your deposit:
U.S. Treasury checks that are payable to you.
Wire transfers.
Checks drawn on (bank name) [unless (any limitations
related to branches in different states or check processing
regions)].
If you make the deposit in person to one of our employees, funds
from the following deposits are also available on the first business
day after the day of your deposit:
Cash.
State and local government checks that are payable to
you [if you use a special deposit slip available from (where deposit
slip may be obtained)].
Cashier's, certified, and teller's checks that are
payable to you [if you use a special deposit slip available from
(where deposit slip may be obtained)].
Federal Reserve Bank checks, Federal Home Loan Bank
checks, and postal money orders, if these items are payable to you.
If you do not make your deposit in person to one of our
employees (for example, if you mail the deposit), the deposit will
be treated like a deposit of a local check. Funds from these
deposits will generally be available on the second business day
after the day of your deposit.

Other Check Deposits

The delay for other check deposits depends on whether the check
is a local or a nonlocal check. To see whether a check is a local or
a nonlocal check, look at the routing number on the check:

BILLING CODE 6210-01-P

[[Page 27812]]

[GRAPHIC] [TIFF OMITTED] TP03JN96.001

BILLING CODE 6210-01-C

[[Page 27813]]

If the first four digits of the routing number (1234 in the
examples above) are (list of local numbers), then the check is a
local check. Otherwise, the check is a nonlocal check. Some checks
are marked ``payable through'' and have a four- or nine-digit number
nearby. For these checks, use the four-digit number (or the first
four digits of the nine-digit number), not the routing number on the
bottom of the check, to determine if these checks are local or
nonlocal. Our policy is to make funds from local and nonlocal checks
available as follows.
1. Local checks. The first $100 from a deposit of local checks
will be available on the first business day after the day of your
deposit. The remaining funds will be available on the second
business day after the day of your deposit.
For example, if you deposit a local check of $700 on a Monday,
$100 of the deposit is available on Tuesday. The remaining $600 is
available on Wednesday.
2. Nonlocal checks. The first $100 from a deposit of nonlocal
checks will be available on the first business day after the day of
your deposit. The remaining funds will be available on the fifth
business day after the day of your deposit.
For example, if you deposit a $700 nonlocal check on a Monday,
$100 of the deposit is available on Tuesday. The remaining $600 is
available on Monday of the following week.

LONGER DELAYS MAY APPLY

SPECIAL RULES FOR NEW ACCOUNTS

If you are a new customer, the following special rules will
apply during the first 30 days your account is open.
Funds from electronic direct deposits to a new account will be
available on the day we receive the deposit. Funds from deposits of
cash, wire transfers, and the first $5,000 of a day's total deposits
of cashier's, certified, teller's, traveler's, and federal, state
and local government checks will be available on the first business
day after the day of your deposit if the deposit meets certain
conditions. For example, the checks must be payable to you (and you
may have to use a special deposit slip). The excess over $5,000 will
be available on the ninth business day after the day of your
deposit. If your deposit of these checks (other than a U.S. Treasury
check) is not made in person to one of our employees, the first
$5,000 will not be available until the second business day after the
day of your deposit.
Funds from all other check deposits will be available on the
(number) business day after the day of your deposit.
* * * * *

Model Clauses

* * * * *

C-9--Automated teller machine deposits (extended hold)

DEPOSITS AT AUTOMATED TELLER MACHINES

Funds from any deposits (cash or checks) made at automated
teller machines (ATMs) we do not own or operate will not be
available until the fifth business day after the day of your
deposit. This rule does not apply at ATMs that we own or operate.
(A list of our ATMs is enclosed.) or (A list of ATMs where you
can make deposits but that are not owned or operated by us is
enclosed.) or (All ATMs that we own or operate are identified as our
machines.)

C-10--Cash withdrawal limitation

CASH WITHDRAWAL LIMITATION

We place certain limitations on withdrawals in cash. In general,
$100 of a deposit is available for withdrawal in cash on the first
business day after the day of deposit. In addition, a total of $400
of other funds becoming available on a given day is available for
withdrawal in cash at or after (time no later than 5:00 p.m.) on
that day. Any remaining funds will be available for withdrawal in
cash on the following business day.
* * * * *

Model Notices

C-12--Exception hold notice

NOTICE OF HOLD

Account number: (number)
Date of deposit: (date)
We are delaying the availability of $(amount being held) from
this deposit. These funds will be available on the (number) business
day after the day of your deposit.
We are taking this action because:

--A check you deposited was previously returned unpaid.
--You have overdrawn your account repeatedly in the last six months.
--The checks you deposited on this day exceed $5,000.
--An emergency, such as failure of computer or communications
equipment, has occurred.
--We believe a check you deposited will not be paid for the
following reasons[*]:

----------------------------------------------------------------------

[*]If you did not receive this notice at the time you made the
deposit and the check you deposited is paid, we will refund to you
any fees for overdrafts or returned checks that result solely from
the additional delay that we are imposing. To obtain a refund of
such fees, (description of procedure for obtaining refund).

C-13--Reasonable cause hold notice

NOTICE OF HOLD

Account number: number
Date of deposit: date
We are delaying the availability of the funds you deposited by
the following check: (description of check, such as amount and
drawer.)
These funds will be available on the number business day after
the day of your deposit. The reason for the delay is explained
below:

--We received notice that the check is being returned unpaid.
--We have confidential information that indicates that the check may
not be paid.
--The check is drawn on an account with repeated overdrafts.
--We are unable to verify the endorsement of a joint payee.
--Some information on the check is not consistent with other
information on the check.
--There are erasures or other apparent alterations on the check.
--The routing number of the paying bank is not a current routing
number.
--The check is postdated or has a stale date.
--Information from the paying bank indicates that the check may not
be paid.
--We have been notified that the check has been lost or damaged in
collection.
--Other:

----------------------------------------------------------------------
[If you did not receive this notice at the time you made the
deposit and the check you deposited is paid, we will refund to you
any fees for overdrafts or returned checks that result solely from
the additional delay that we are imposing. To obtain a refund of
such fees, description of procedure for obtaining refund.]

C-14--One-time notice for large deposit and redeposited check exception
holds

NOTICE OF HOLD

If you deposit into your account:
Checks totaling more than $5,000 on any one day, the
first $5,000 deposited on any one banking day will be available to
you according to our general policy. The amount in excess of $5,000
will generally be available on the (number) business day after the
day of deposit for checks dra

FR Doc. 96-13880 Availability of Funds and Collection of Checks

wn on (bank name), the (number) 
business day after the day of deposit for local checks and (number) 
business day after the day of deposit for nonlocal checks. If checks 
(not drawn on us) that otherwise would receive next-day availability 
exceed $5,000, the excess will be treated as either local or 
nonlocal checks depending on the location of the paying bank. If 
your check deposit, exceeding $5,000 on any one day, is a mix of 
local checks, nonlocal checks, checks drawn on (bank name), or 
checks that generally receive next-day availability, the excess will 
be calculated by first adding together the (type of check), then the 
(type of check), then the (type of check), then the (type of check).

[[Page 27814]]

     A check that has been returned unpaid, the funds will 
generally be available on the (number) business day after the day of 
deposit for checks drawn on (bank name), the (number) business day 
after the day of deposit for local checks and the (number) business 
day after the day of deposit for nonlocal checks. Checks (not drawn 
on us) that otherwise would receive next-day availability will be 
treated as either local or nonlocal checks depending on the location 
of the paying bank.

C-15--One-time notice for repeated overdraft exception hold

NOTICE OF HOLD

    Account Number: (number)
    Date of Notice: (date)
    We are delaying the availability of checks deposited into your 
account due to repeated overdrafts of your account. For the next six 
months, deposits will generally be available on the (number) 
business day after the day of your deposit for checks drawn on (bank 
name), the (number) business day after the day of your deposit for 
local checks, and the (number) business day after the day of deposit 
for nonlocal checks. Checks (not drawn on us) that otherwise would 
have received next-day availability will be treated as either local 
or nonlocal checks depending on the location of the paying bank.

C-16--Case-by-case hold notice

NOTICE OF HOLD

    Account number: (number)
    Date of deposit: (date)
    We are delaying the availability of $(amount being held) from 
this deposit. These funds will be available on the number business 
day after the day of your deposit [(subject to our cash withdrawal 
limitation policy)].
    [If you did not receive this notice at the time you made the 
deposit and the check you deposited is paid, we will refund to you 
any fees for overdrafts or returned checks that result solely from 
the additional delay that we are imposing. To obtain a refund of 
such fees, (description of procedure for obtaining refund).]
* * * * *
    13. In appendix E to Part 229, under section II, the last sentence 
of paragraph E.2. and the last sentence of paragraph HH.2. are revised 
and a new sentence is added to the end of paragraph S.1. to read as 
follows:

Appendix E to Part 229--Commentary

* * * * *
    II. Section 229.2 Definitions
* * * * *

E. 229.2(d)  Available for Withdrawal

* * * * *
    2. * * * For example, funds are available for withdrawal even 
though they are being held by a bank to satisfy a garnishment, tax 
levy, or court order restricting disbursements from the account; to 
satisfy the customer's liability arising from the certification of a 
check, sale of a cashier's or teller's check, guaranty or acceptance 
of a check, or similar transaction; or to satisfy a contingent 
liability of the customer related to the account.
* * * * *

S. 229.2(s)  Local Paying Bank

    1. * * * A branch of a bank accepting a deposit as agent for the 
depositary bank (a contractual branch) is a branch of the depositary 
bank for purposes of this definition.
* * * * *

HH. 229.2(hh)  Traveler's Check

* * * * *
    2. * * * Traveler's checks that are not issued by banks 
sometimes do not have any words on them identifying a bank as drawee 
or paying agent, but instead may bear unique routing numbers with an 
8000 prefix that identifies a bank as paying agent.
* * * * *
    14. In appendix E, under section IV, in paragraph D.3.a., three new 
sentences are added to the end to read as follows:
* * * * *

IV. Section 229.10  Next-Day Availability

* * * * *

D. 229.10(c)  Certain Check Deposits

* * * * *
    3. Deposits Made to an Employee of the Depositary Bank.
    a. * * * The depositary bank may have a contractual arrangement 
with another bank under which the other bank will accept deposits on 
behalf of the depositary bank. Employees of such a contractual 
branch would not be considered employees of the depositary bank for 
the purposes of this regulation, and deposits at contractual 
branches would be treated the same as deposits to a proprietary ATM 
for the purposes of this regulation. (See also, Commentary to 
Sec. 229.19(a).)
* * * * *
    15. In appendix E, under section VII:
    a. In paragraph H.1.a, the first sentence is revised and two new 
sentences are added to the end;
    b. Paragraph H.1.e. is removed and paragraph H.1.f. is redesignated 
as H.1.e.;
    c. Paragraph H.4. is redesignated as H.5. and new paragraph H.4. is 
added;
    d. The second sentence in paragraph I.1. is revised;
    e. The first sentence in paragraph I.4. is revised; and
    f. Paragraph I.5. is revised.
    The additions and revisions read as follows:
* * * * *

VII. Section 229.13  Exceptions

* * * * *

H. 229.13(g)  Notice of Exception

    1. In general.
    a. If a depositary bank invokes any of the safeguard exceptions 
to the schedules listed above, other than the new account or 
emergency conditions exception, and extends the hold on a deposit 
beyond the time periods permitted in Secs. 229.10(c) and 229.12, it 
must provide a notice to its customer. * * * A depositary bank 
satisfies the ``written'' notice requirement by sending an 
electronic transmission of a visual display of the text, if the 
customer agrees to receive account information through such means. 
The depositary bank, however, must give a paper copy of the notice 
to the customer upon request.
* * * * *
    4. Emergency conditions exception notice.
    a. If an account is subject to the emergency conditions 
exception under Sec. 229.13(f), the depositary bank must provide 
notice in a reasonable form within a reasonable time, depending on 
the circumstances. For example, a depositary bank may learn of a 
weather emergency or a power outage that affects the paying bank's 
operations. Under these circumstances, it likely would be reasonable 
for the depositary bank to provide an emergency conditions exception 
notice in the same manner and within the same time as required for 
other exception notices. On the other hand, if a depositary bank 
experiences a weather or power outage emergency that affects its own 
operations, it may be reasonable for the depositary bank to provide 
a general notice to all depositors via postings at branches and 
ATMs, or through newspaper, television, or radio notices.
    b. If the depositary bank extends the hold placed on a deposit 
due to an emergency condition, the regulation provides that the bank 
need not provide a notice if the funds would be available for 
withdrawal before the notice must be sent. For example, if on the 
last day of a hold period the depositary bank experiences a computer 
failure and customer accounts cannot be updated in a timely fashion 
to reflect the funds as available balances, notices are not required 
if the funds are made available before the notices must be sent.
* * * * *

I. 229.13(h)  Availability of Deposits Subject to Exceptions

    1. * * * This provision establishes that an extension of up to 
one business day for ``on us'' checks, five business days for local 
checks, and six business days for nonlocal checks and checks 
deposited in a nonproprietary ATM is reasonable. * * *
* * * * *
    4. One business day for ``on us'' checks, five business days for 
local checks, and six business days for nonlocal checks or checks 
deposited in a nonproprietary ATM, in addition to the time period 
provided in the schedule, should provide adequate time for the 
depositary bank to learn of the nonpayment of virtually all checks 
that are returned. * * *
    5. In the case of the application of the emergency conditions 
exception, the depositary bank may extend the hold placed on a check 
by not more than a reasonable period following the end of the 
emergency or the time funds must be available for withdrawal under 
Secs. 229.10(c) or 229.12(b), (c), (e), or (f), whichever is later.
* * * * *

[[Page 27815]]

    16. In appendix E, under section VIII, a new sentence is added to 
the end of paragraph A.1. to read as follows:
* * * * *

VIII. Section 229.14  Payment of Interest

A. 29.14(a) In General

    1. * * * In the case of a deposit at a contractual branch or 
agent of a depositary bank, credit is received on the day the 
depositary bank receives credit for the amount of the deposit, which 
may be different from the day the contractual branch or agent 
receives credit for the deposit.
* * * * *
    17. In appendix E, under section IX, two new sentences are added 
immediately following the second sentence of paragraph A.1. to read as 
follows:
* * * * *

IX. Section 229.15  General Disclosure Requirements

A. 229.15(a) Form of Disclosures

    1. * * * A depositary bank satisfies the requirement that 
disclosures be in writing and in a form the customer may keep by 
sending an electronic transmission of a visual display of the text, 
if the customer agrees to receive account information through such 
means. The depositary bank, however, must give a paper copy of the 
disclosure to the customer upon request. * * *
* * * * *
    18. In appendix E, under section X, paragraph A.3. is redesignated 
as paragraph A.4. and a new paragraph A.3. is added, and the last 
sentence of paragraph C.2.a. is revised to read as follows:
* * * * *

X. Section 229.16 Specific Availability Policy Disclosure

A. 229.16(a)  General

* * * * *
    3. A bank may establish different availability policies for 
different branches (or contractual branches) and may allocate 
customers to a particular branch for purposes of providing a 
specific availability policy. In this situation, the bank must 
allocate customers between branches through good faith use of a 
reasonable method, such as where the customer opened the account.
* * * * *

C. 229.16(c)  Longer Delays on a Case-by-Case Basis

* * * * *
    2. * * *
    a. * * * In addition, the notice must include the account 
number, the date of the deposit, and the amount of the deposit being 
delayed.
* * * * *
    19. In appendix E, under section XIII, three sentences are added to 
the end of paragraph A.2., the last four sentences of paragraph A.6.a. 
are revised, and a new paragraph E.4. is added to read as follows:
* * * * *

XIII. Section 229.19 Miscellaneous

A. 229.19(a)  When Funds Are Considered Deposited

* * * * *
    2. * * * The depositary bank might have a contractual 
arrangement with another bank under which the other bank will accept 
deposits on behalf of the depositary bank. Funds received at such a 
contractual branch are considered deposited when received by a 
teller at the contractual branch or deposited into a proprietary ATM 
of the contractual branch. (See also, Commentary to Sec. 229.10(c) 
on deposits made to an employee of the depositary bank.)
* * * * *
    6. Banking day of deposit.
    a. * * * For receipt of deposits at ATMs, contractual branches, 
or other off-premise facilities, such as night depositories or lock 
boxes, the depositary bank may establish a cut-off hour of 12:00 
noon or later (either local time of the branch or other location of 
the depositary bank at which the account is maintained or local time 
of the ATM, contractual branch, or other off-premise facility). The 
depositary bank must use the same timing method for establishing the 
cut-off hour for all ATMs, contractual branches, and other off-
premise facilities used by its customers. The choice of cut-off hour 
must be reflected in the bank's internal procedures, and the bank 
must inform its customers of the cut-off hour upon request. This 
earlier cut-off for ATM, contractual branch, or other off-premise 
deposits is intended to provide greater flexibility in the servicing 
of these facilities.
* * * * *

E. 229.19(e) Holds on Other Funds

* * * * *
    4. When a customer deposits a check in an account and the 
depositary bank places a hold on other funds of the customer, or 
when a customer cashes a check over the counter and the bank places 
a hold on an account of the customer, the bank must give whatever 
notice would be required under Secs. 229.13 or 229.16 had the funds 
been deposited in an account or had the hold been placed on those 
funds.
* * * * *
    20. In appendix E, under section XVI, a new sentence is added to 
the end of paragraphs C.1.a. and C.1.b. to read as follows:
* * * * *

XVI. Section 229.30  Paying Bank's Responsibility for Return of Checks

* * * * *

C. 229.30(c)  Extension of Deadline

    1. * * *
    a. * * * This paragraph applies to the extension of all midnight 
deadlines except Saturday midnight deadlines (which are covered 
exclusively by paragraph C.1.b of this appendix).
    b. * * * This paragraph applies exclusively to the extension of 
Saturday midnight deadlines.
* * * * *
    21. In appendix E, under section XVII, paragraph A.7. is revised to 
read as follows:
* * * * *

XVII. Section 229.31  Returning Bank's Responsibility for Return of 
Checks

A. 229.31(a)  Return of Checks

* * * * *
    7. Qualified returned checks. The expeditious return requirement 
for a returning bank in this regulation is more stringent in many 
cases than the duty of a collecting bank to exercise ordinary care 
under U.C.C. 4-202 in returning a check. A returning bank is under a 
duty to act as expeditiously in returning a check as it would in the 
forward collection of a check. Consistent with its duty of 
expeditious return and its midnight deadline under U.C.C. 4-202 and 
Sec. 210.12(a) of Regulation J (12 CFR 210.12(a)), a returning bank 
may qualify a returned check. A qualified returned check will be 
handled by subsequent returning banks more efficiently than a raw 
return. The qualified returned check must include the routing number 
of the depositary bank, the amount of the check, and a return 
identifier encoded on the check in magnetic ink. If the returning 
bank makes an encoding error in creating a qualified returned check, 
it may be liable under Sec. 229.38 for losses caused by any 
negligence or under Sec. 229.34(c)(3) for breach of an encoding 
warranty.
* * * * *
    22. In appendix E, under section XX, the first sentence of 
paragraph A.1. and paragraph C.5. are revised, and a new paragraph F. 
is added as follows:
* * * * *

XX. Section 229.34  Warranties

A. 229.34(a)  Warranty of Returned Check

    1. This paragraph includes warranties that a returned check, 
including a notice in lieu of return, was returned by the paying 
bank, or in the case of a check payable by a bank and payable 
through another bank, the bank by which the check is payable, within 
the deadline under the U.C.C. (subject to any claims or defenses 
under the U.C.C., such as breach of a presentment warranty), 
Regulation J (12 CFR Part 210), or Sec. 229.30(c); that the paying 
or returning bank is authorized to return the check; that the 
returned check has not been materially altered; and that, in the 
case of a notice in lieu of return, the original check has not been 
and will not be returned for payment. * * *
* * * * *

C. 229.34(c)  Warranty of settlement amount, encoding, and offset

* * * * *
    5. Paragraph (c)(4) provides that any bank in the forward-
collection or return chain may set off excess settlement paid to 
another bank against settlement owed to that bank for

[[Page 27816]]

checks or returned checks transferred subsequent to the excess 
settlement.
* * * * *

F. 229.34(f)  Notice of Claim

    1. This paragraph adopts for this Regulation CC the warranty 
notice provisions of U.C.C. sections 4-207(d) and 4-208(e).

    23. In appendix E, section XXII is amended as follows:
    a. Paragraph C. is revised; and
    b. In paragraph E., the first sentence of paragraph E.1. and 
paragraph E.2. are revised to read as follows:
* * * * *

XXII. Section 229.36  Presentment and Issuance of Checks

* * * * *

C. 229.36(c)  Electronic Presentment

    1. Electronic presentment includes a variety of procedures in 
which the physical check may be held (truncated) or delayed by the 
depositary or collecting bank, and the information from the check is 
transmitted to the paying bank electronically. Often, electronic 
presentment agreements provide that presentment takes place when the 
paying bank receives the electronic transmission. Express provision 
for truncation and electronic presentment is made in U.C.C. 4-110 
and 4-406(b). This paragraph allows electronic presentment by 
agreement with the paying bank; however, such agreement may not 
prejudice the interests of prior parties to the check. For example, 
an electronic presentment agreement may not extend the paying bank's 
time for return. Such an extension could damage the depositary bank, 
which must make funds available to its customers under mandatory 
availability schedules.
    2. An electronic presentment agreement must be designed so that 
the rights of third parties are not prejudiced by the agreement. For 
example, banks may agree to an electronic presentment arrangement 
whereby the presenting bank transmits information about the check 
electronically to the paying bank before the arrival of the physical 
checks. The parties (including the drawer of the check) could agree 
that presentment continues to occur upon arrival of the physical 
checks at the paying bank but that the paying bank will settle for 
and/or return the checks within the time frames that would apply if 
the electronic transmission constituted presentment, if the physical 
checks arrive by the time specified in the agreement.
* * * * *

E. 229.36(e)  Issuance of Payable Through Checks

    1. If a bank arranges for checks payable by it to be payable 
through another bank, it must require its customers to use checks 
that contain conspicuously on their face the name, location, and 
first four digits of the nine-digit routing number of the bank by 
which the check is payable. * * *
    2. If a payable-through check does not meet the requirements of 
this paragraph, the bank by which the check is payable may be liable 
to the depositary bank or others as provided in Sec. 229.38. For 
example, a bank by which a payable-through check is payable could be 
liable to a depositary bank that suffers a loss, such as lost 
interest or liability under Subpart B, that would not have occurred 
had the check met the requirements of this paragraph. Similarly, a 
bank may be liable under Sec. 229.38 if a check payable by it that 
is not payable through another bank is labeled as provided in this 
section. The bank by which the check is payable may be liable for 
additional damages if it fails to act in good faith.
* * * * *
    24. In appendix E, section XXIV is amended as follows:
    a. In paragraph A.2., the third sentence is revised; and
    b. In paragraph D.2.b., the second sentence is removed and two new 
sentences are added immediately following the first sentence to read as 
follows:
* * * * *

XXIV. Section 229.38  Liability

A. 229.38(a)  Standard of care; liability; measure of damages

* * * * *
    2. * * * The measure of damages provided in this section (loss 
incurred up to amount of check, less amount of loss party would have 
incurred even if bank had exercised ordinary care) is based on 
U.C.C. 4-103(e) (amount of the item reduced by an amount that could 
not have been realized by the exercise of ordinary care), as limited 
by 4-202(c) (bank is liable only for its own negligence and not for 
actions of subsequent banks in chain of collection). * * *
* * * * *

D. 229.38(d)  Responsibility for Certain Aspects of Checks

* * * * *
    2. * * *
    b. * * * Under Sec. 229.33(a), a paying bank that returns a 
check in the amount of $2,500 or more must provide notice of 
nonpayment to the depositary bank by 4:00 p.m. on the second 
business day following the banking day on which the check is 
presented to the paying bank. Even if a payable-through check in the 
amount of $2,500 or more is not returned through the payable-through 
bank as quickly as would have been required had the check been 
received by the bank by which it is payable, the depositary bank 
should not suffer damages unless it has not received timely notice 
of nonpayment. * * *
* * * * *
    25. In appendix E, under section XXV, the first sentence in 
paragraph C.1. and the first sentence in paragraph E.1. are revised to 
read as follows:
* * * * *

XXV. Section 229.39  Insolvency of Bank

* * * * *

C. 229.39(b)  Preference Against Paying or Depositary Bank

    1. This paragraph gives a bank a preferred claim against a 
closed paying bank that finally pays a check without settling for it 
or a closed depositary bank that becomes obligated to pay a returned 
check without settling for it. * * *
* * * * *

E. 229.39(d)  Preference Against Presenting Bank

    1. This paragraph gives a paying bank a preferred claim against 
a closed presenting bank in the event that the presenting bank 
breaches an amount or encoding warranty as provided in 
Sec. 229.34(c) (1) or (3) or a presentment warranty as provided in 
the U.C.C. (see U.C.C. 4-208) and does not reimburse the paying bank 
for adjustments for a settlement made by the paying bank in excess 
of the value of the checks presented. * * *
* * * * *
    26. In appendix E, under section XXVIII, the first sentence of 
paragraph A. is revised to read as follows:
* * * * *

XXVIII. Section 229.42  Exclusions

    A. Checks drawn on the United States Treasury, U.S. Postal 
Service money orders, and checks drawn on states and units of 
general local government that are presented directly to the state or 
unit of general local government and that are not payable through or 
at a bank are excluded from the coverage of the expeditious-return, 
notice-of-nonpayment and same-day settlement requirements of subpart 
C of this regulation CC. * * *
* * * * *
    27. In appendix E, section XXIX is redesignated as section XXX and 
a new section XXIX is added to read as follows:
* * * * *

XXIX. Section 229.43  Checks Payable in Guam, American Samoa, and the 
Northern Mariana Islands

A. 229.43(a)  Definitions

    1. Bank offices in Guam, American Samoa, and the Northern 
Mariana Islands (which Regulation CC defines as Pacific island 
banks) do not meet the definition of bank in Sec. 229.2(e) because 
they are not located in the United States. Some checks drawn on 
Pacific island banks (defined as Pacific island checks) bear U.S. 
routing numbers and are collected and returned by banks in the same 
manner as checks payable in the U.S.

B. 229.43(b)  Rules Applicable to Pacific Island Checks

    1. When a bank handles a Pacific island check as if it were a 
check as defined in Sec. 229.2(k), the bank is subject to certain 
provisions of Regulation CC, as provided in this section. Because 
the Pacific island bank is not a bank as defined in Sec. 229.2(e), 
it is not a paying bank as defined in Sec. 229.2(z) (unless 
otherwise noted in this section). Pacific island banks are not 
subject to the provisions

[[Page 27817]]

of Regulation CC. Banks that handle Pacific island checks are not 
subject to the provisions of subpart B of Regulation CC, including 
the availability, notice, and interest accrual requirements, with 
respect to these checks.
    2. A bank may agree to handle a Pacific island check as a 
returned check under Sec. 229.31 and may convert the returned 
Pacific island check to a qualified returned check. The returning 
bank is not, however, subject to the expeditious return requirements 
of Sec. 229.31. The returning bank may receive the Pacific island 
check directly from a Pacific island bank or from another returning 
bank. As a Pacific island bank is not a paying bank, Sec. 229.31(c) 
does not apply to a returning bank settling with the Pacific island 
bank.
    3. A bank might accept a Pacific island check for deposit (or 
otherwise accept the check as transferee) and collect the Pacific 
island check in the same manner as other checks. Under these 
circumstances, the depositary bank is subject to the provisions of 
Sec. 229.32, including the provisions regarding time and manner of 
settlement for returned checks in Sec. 229.32(b), in the event the 
Pacific island check is returned by a returning bank. If the 
depositary bank receives the returned Pacific island check directly 
from the Pacific island bank, however, the provisions of 
Sec. 229.32(b) do not apply, because the Pacific island bank is not 
a paying bank under Regulation CC. The depositary bank is not 
subject to the notice of nonpayment requirements in Sec. 229.33 for 
Pacific island checks.
    4. Banks that handle Pacific island checks in the same manner as 
other checks are subject to the indorsement provisions of 
Sec. 229.35. Section 229.35(c) eliminates the need for the 
restrictive indorsement ``pay any bank.'' For purposes of 
Sec. 229.35(c), the Pacific island bank is deemed to be a bank.
    5. Pacific island checks will often be intermingled with other 
checks in a single cash letter. Therefore, a bank that handles 
Pacific island checks in the same manner as other checks is subject 
to the transfer warranty provision in Sec. 229.34(c)(2) regarding 
accurate cash letter totals and the encoding warranty in 
Sec. 229.34(c)(3). A bank that acts as a returning bank for a 
Pacific island check is not subject to the warranties in 
Sec. 229.34(a). Similarly, because the Pacific island bank is not a 
``bank'' or a ``paying bank'' under Regulation CC, Sec. 229.34(b), 
(c)(1), and (c)(4) do not apply. For the same reason, the provisions 
of Sec. 229.36 governing paying bank responsibilities such as place 
of receipt and same-day settlement do not apply to checks presented 
to a Pacific island bank, and the liability provisions applicable to 
paying banks in Sec. 229.38 do not apply to Pacific island banks. 
Section 229.36(d), regarding finality of settlement between banks 
during forward collection, applies to banks that handle a Pacific 
island check in the same manner as other checks, as do the liability 
provisions of Sec. 229.38, to the extent the banks are subject to 
the requirements of Regulation CC as provided in this section, and 
Secs. 229.37 and 229.39 through 229.42.
* * * * *
    28. Newly-redesignated section XXX is revised to read as follows:
* * * * *

XXX. Appendix C--Model Availability Policy Disclosures, Clauses, and 
Notices

A. Introduction

    1. Appendix C contains model disclosures, clauses, and notices 
that may be used by banks to meet their disclosure responsibilities 
under the regulation. Banks using the models properly will be in 
compliance with the regulation's disclosure requirements.
    2. Information that must be inserted by a bank using the models 
is italicized within parentheses in the text of the models. Optional 
information and alternate ways of providing the information is 
enclosed in brackets.
    3. Banks may make certain changes to the format or content of 
the models, including deleting material that is inapplicable, 
without losing the Act's protection from liability for banks that 
use the models properly. For example, if a bank does not take 
advantage of the Sec. 229.13 exceptions, it may delete the material 
relating to those exceptions. The changes may not be so extensive, 
however, as to affect the substance, clarity, or meaningful sequence 
of the models. Acceptable changes include, for example:
    a. Using ``customer'' and ``bank'' instead of pronouns.
    b. Changing the typeface or size.
    c. Incorporating certain state law ``plain English'' 
requirements.
    4. Shorter time periods for availability may always be 
substituted for time periods used in the models.
    5. Banks may also add related information. For example, a bank 
may indicate that although funds have been made available to a 
customer and the customer has withdrawn them, the customer is still 
responsible for problems with the deposit, such as checks that were 
deposited being returned unpaid. Or a bank could include a telephone 
number to be used if a customer has an inquiry regarding a deposit.
    6. Banks are cautioned against using the models without 
reviewing their own policies and practices, as well as state and 
federal laws regarding the time periods for availability of specific 
types of checks. A bank using the models will be in compliance with 
the Act and the regulation only if the bank's disclosures correspond 
to its availability policy.
    7. Banks that have used earlier versions of the models (such as 
those models that gave Social Security benefits and payroll payments 
as examples of preauthorized credits available the day after 
deposit, or that did not address the cash withdrawal limitation) are 
protected from civil liability under Sec. 229.21(e). Banks are 
encouraged, however, to use current versions of the models when 
reordering or reprinting supplies.

B. Model Availability Policy Disclosures, Models C-1 through C-5

    1. Models C-1 through C-5 generally.
    a. Models C-1 through C-5 are models for the availability policy 
disclosures described in Sec. 229.16. The models accommodate a 
variety of availability policies, ranging from next-day availability 
to holds to statutory limits on all deposits. Model C-3 reflects the 
additional disclosures discussed in Secs. 229.16 (b) and (c) for 
banks that have a policy of extending availability times on a case-
by-case basis.
    b. As already noted, there are several places in the models 
where information must be inserted. This information includes the 
bank's cut-off times, limitations relating to next-day availability, 
and the first four digits of routing numbers for local banks. In 
disclosing when funds will be available for withdrawal, the bank 
must insert the ordinal number (such as first, second, etc.) of the 
business day after deposit that the funds will become available.
    c. Models C-1 through C-5 generally do not reflect any optional 
provisions of the regulation, or those that apply only to certain 
banks. Instead, disclosures for these provisions are included in 
Models C-6 through C-11. A bank using one of the model availability 
policy disclosures should also consider whether it must incorporate 
one or more of Models C-6 through C-11.
    d. While Sec. 229.10(b) of the regulation requires next-day 
availability for electronic payments, Treasury regulations (31 CFR 
Part 210) and ACH association rules require that preauthorized 
credits (``direct deposits'') be made available on the day the bank 
receives the funds. Models C-l through C-5 reflect these rules. Wire 
transfers, however, are not governed by Treasury or ACH rules, but 
banks generally make funds from wire transfers available on the day 
received or on the business day following receipt. Banks should 
ensure that their disclosures reflect the availability given in most 
cases for wire transfers.
    2. Model C-1 Next-day availability. A bank may use this model 
when its policy is to make funds from all deposits available on the 
first business day after a deposit is made. This model may also be 
used by banks that provide immediate availability by substituting 
the word ``immediately'' in place of ``on the first business day 
after the day we receive your deposit.''
    3. Model C-2  Next-day availability and Sec. 229.13 exceptions. 
A bank may use this model when its policy is to make funds from all 
deposits available to its customers on the first business day after 
the deposit is made, and to reserve the right to invoke the new 
account and other exceptions in Sec. 229.13 of the regulation. In 
disclosing that a longer delay may apply, a bank may disclose when 
funds will generally be available based on when the funds would be 
available if the deposit were of a nonlocal check.
    4. Model C-3  Next-day availability, case-by-case holds to 
statutory limits, and Sec. 229.13 exceptions. A bank may use this 
model when its policy, in most cases, is to make funds from all 
types of deposits available the day after the deposit is made, but 
to delay availability on some deposits on a case-by-case basis up to 
the maximum time periods allowed under the regulation. A bank using 
this model also reserves the right to invoke

[[Page 27818]]

the exceptions listed in Sec. 229.13 of the regulation. In 
disclosing that a longer delay may apply, a bank may disclose when 
funds will generally be available based on when the funds would be 
available if the deposit were of a nonlocal check.
    5. Model C-4  Holds to statutory limits on all deposits. A bank 
may use this model when its when its policy is to impose delays to 
the full extent allowed under Sec. 229.12 and to reserve the right 
to invoke the Sec. 229.13 exceptions. In disclosing that a longer 
delay may apply, a bank may disclose when funds will generally be 
available based on when the funds would be available if the deposit 
were of a nonlocal check. Model C-4 uses a chart to show the bank's 
availability policy for local and nonlocal checks and Model C-5 uses 
a narrative description.
    6. Model C-5  Holds to statutory limits on all deposits. A bank 
may use this model when its policy is to impose delays to the full 
extent allowed under Sec. 229.12 and to reserve the right to invoke 
the Sec. 229.13 exceptions. In disclosing that a longer delay may 
apply, a bank may disclose when funds will generally be available 
based on when the funds would be available if the deposit were of a 
nonlocal check.

C. Model Clauses, Models C-6 Through C-11

    1. Models C-6  through C-11 generally. Certain clauses like 
those in the models must be incorporated into a bank's availability 
policy disclosure under certain circumstances. The commentary to 
each clause indicates when a clause similar to the model clause is 
required.
    2. Model C-6  Holds on other funds (check cashing). A bank that 
reserves the right to place a hold on funds already on deposit when 
it cashes a check for a customer, as addressed in Sec. 229.19(e), 
must incorporate this type of clause in its availability policy 
disclosure.
    3. Model C-7  Holds on other funds (other account). A bank that 
reserves the right to place a hold on funds in an account of the 
customer other than the account into which the deposit is made, as 
addressed in Sec. 229.19(e), must incorporate this type of clause in 
its availability policy disclosure.
    4. Model C-8  Appendix B availability (nonlocal checks). A bank 
in a check processing region where the availability schedules for 
certain nonlocal checks have been reduced, as described in Appendix 
B of Regulation CC, must incorporate this type of clause in its 
availability policy disclosure. Banks using Model C-5 may insert 
this clause at the conclusion of the discussion titled ``Nonlocal 
checks.''
    5. Model C-9  Automated teller machine deposits (extended 
holds). A bank that reserves the right to delay availability of 
deposits at nonproprietary ATMs until the fifth business day 
following the date of deposit, as permitted by Sec. 229.12(f)(1), 
must incorporate this type of clause in its availability policy 
disclosure. A bank must choose among the alternative language based 
on how it chooses to differentiate between proprietary and 
nonproprietary ATMs, as required under Sec. 229.16(b)(5).
    6. Model C-10  Cash withdrawal limitation. A bank that imposes 
cash withdrawal limitations under Sec. 229.12 must incorporate this 
type of clause in its availability policy disclosure. Banks 
reserving the right to impose the cash withdrawal limitation and 
using Model C-3 should disclose that funds may not be available 
until the sixth (rather than fifth) business day in the first 
paragraph under the heading ``Longer Delays May Apply.''
    7. Model C-11  Credit union interest payment policy. A credit 
union subject to the notice requirement of Sec. 229.14(b)(2) must 
incorporate this type of clause in its availability policy 
disclosure. This model clause is only an example of a hypothetical 
policy. Credit unions may follow any policy for accrual provided the 
method of accruing interest is the same for cash and check deposits.

D. Model Notices, Models C-12 Through C-21

    1. Model Notices C-12  through C-21 generally. Models C-12 
through C-21 provide models for the various notices required by the 
regulation.
    2. Model C-12  Exception hold notice. This model satisfies the 
written notice required under Sec. 229.13(g) when a bank places a 
hold based on a Sec. 229.13 exception. If the bank places the hold 
on other funds (see Sec. 229.19(e)), the notice should be modified 
accordingly. If a hold is being placed on more than one check in a 
deposit, each check need not be described, but if different reasons 
apply, each reason must be indicated. A bank may use the actual date 
when funds will be available for withdrawal rather than the number 
of the business day following the day of deposit. A bank must 
incorporate in the notice the material set out in brackets if it 
imposes overdraft or returned check fees after invoking the 
reasonable cause exception under Sec. 229.13(e).
    3. Model C-13  Reasonable cause hold notice. This notice 
satisfies the written notice required under Sec. 229.13(g) when a 
bank invokes the reasonable cause exception under Sec. 229.13(e). If 
the bank places the hold on other funds (see Sec. 229.19(e)), the 
notice should be modified accordingly. The notice provides the bank 
with a list of specific reasons that may be given for invoking the 
exception. If a hold is being placed on more than one check in a 
deposit, each check must be described separately, and if different 
reasons apply, each reason must be indicated. A bank may disclose 
its reason for doubting collectibility by checking the appropriate 
reason on the model. If the ``Other'' category is checked, the 
reason must be given. A bank may use the actual date when funds will 
be available for withdrawal rather than the number of the business 
day following the day of deposit. A bank must incorporate in the 
notice the material set out in brackets if it imposes overdraft or 
returned check fees after invoking the reasonable cause exception 
under Sec. 229.13(e).
    4. Model C-14  One-time notice for large deposit and redeposited 
check exception holds. This model satisfies the notice requirements 
of Sec. 229.13(g)(2) concerning nonconsumer accounts. If the bank 
places the hold on other funds (see Sec. 229.19(e)), the notice 
should be modified accordingly.
    5. Model C-15  One-time notice for repeated overdraft exception 
hold. This model satisfies the notice requirements of 
Sec. 229.13(g)(3). If the bank places the hold on other funds (see 
Sec. 229.19(e)), the notice should be modified accordingly.
    6. Model C-16  Case-by-case hold notice. This model satisfies 
the notice required under Sec. 229.16(c)(2) when a bank with a case-
by-case hold policy imposes a hold on a deposit. If the bank places 
the hold on other funds (see Sec. 229.19(e)), the notice should be 
modified accordingly. This notice does not require a statement of 
the specific reason for the hold, as is the case when a Sec. 229.13 
exception hold is placed. A bank may specify the actual date when 
funds will be available for withdrawal rather than the number of the 
business day following the day of deposit when funds will be 
available. A bank must incorporate in the notice the material set 
out in brackets if it imposes overdraft fees after invoking a case-
by-case hold.
    7. Model C-17  Notice at locations where employees accept 
consumer deposits and Model C-18  Notice at locations where 
employees accept consumer deposits (case-by-case holds). These 
models satisfy the notice requirement of Sec. 229.18(b). Model C-17 
reflects an availability policy of holds to statutory limits on all 
deposits, and Model C-18 reflects a case-by-case availability 
policy.
    8. Model C-19  Notice at automated teller machines. This model 
satisfies the ATM notice requirement of Sec. 229.18(c)(1).
    9. Model C-20  Notice at automated teller machines (delayed 
receipt). This model satisfies the ATM notice requirement of 
Sec. 229.18(c)(2) when receipt of deposits at off-premises ATMs is 
delayed under Sec. 229.19(a)(4). It is based on collection of 
deposits once a week. If collections occur more or less frequently, 
the description of when deposits are received must be adjusted 
accordingly.
    10. Model C-21  Deposit slip notice. This model satisfies the 
notice requirements of Sec. 229.18(a) for deposit slips.

    By order of the Board of Governors of the Federal Reserve 
System, May 15, 1996.
William W. Wiles,
Secretary of the Board.
[FR Doc. 96-13880 Filed 5-31-96; 8:45 a.m.]
BILLING CODE 6210-01-P

Complete official Federal Register PDF

FR Doc. 96-13836 Recording and Reporting Occupational Injuries and Illnesses; Extension of Comment Period

[Federal Register Volume 61, Number 107 (Monday, June 3, 1996)]
[Proposed Rules]
[Pages 27850-27851]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-13836]

=======================================================================
-----------------------------------------------------------------------

DEPARTMENT OF LABOR

Occupational Safety and Health Administration

29 CFR Parts 1904 and 1952

Recording and Reporting Occupational Injuries and Illnesses; 
Extension of Comment Period

AGENCY: Occupational Safety and Health Administration (OSHA), 
Department of Labor.

ACTION: Proposed Rule; Extension of comment period.

-----------------------------------------------------------------------

SUMMARY: OSHA published a Notice of Proposed Rulemaking covering the

[[Page 27851]]

recording and reporting of workplace deaths, injuries and illnesses, 
which appeared in the Federal Register on February 2, 1996 (61 FR 
4030). At the request of stakeholders, OSHA is extending the end of the 
public comment period through July 1, 1996.

DATES: Written comments on the NPRM must be postmarked on or before 
July 1, 1996.

ADDRESSES: Written comments should be submitted in quadruplicate or one 
original (hardcopy) and 1 disk (5\1/4\ or 3\1/2\) in Wordperfect 5.0, 
5.1, 6.0 or ASCII to: Docket Officer, Docket No. R-02, Occupational 
Safety and Health Administration, Room N-2625, U.S. Department of 
Labor, 200 Constitution Avenue NW, Washington, D.C. 20210, telephone 
(202) 219-7894. Comments of 10 pages or less may be transmitted by 
facsimile to (202) 219-5046 provided the original and 4 copies of the 
comment are sent to the Docket Officer thereafter.

FOR FURTHER INFORMATION CONTACT:
Ms. Anne Cyr, U.S. Department of Labor, OSHA, Room N-3647, 200 
Constitution Avenue NW., Washington, DC 20210, (202) 219-8148.

SUPPLEMENTARY INFORMATION: OSHA published a Notice of Proposed 
Rulemaking covering the recording and reporting of workplace deaths, 
injuries and illnesses along with announcing a public meeting which was 
held March 26-29, which appeared in the Federal Register on February 2, 
1996 (61 FR 4030). OSHA published a second notice to provide the public 
with additional information regarding the economic analysis of the 
proposed rule in the Federal Register on February 29, 1996 (61 FR 7758-
7760). OSHA published a third notice to announce a second public 
meeting and an extension of the comment period on April 8, 1996 (61 FR 
15435). The second public meeting was held April 30 and May 1 to give 
the public another opportunity to provide OSHA with information on the 
proposed rule. The transcript of that meeting, along with additional 
material, has been placed in the docket by OSHA. The additional 
material consists of the following documents:

    1. ``Subcontractor Safety as Influenced by General Contractors 
on Small and Medium Sized Projects''. University of Washington, 
Jimmie Hinze and Lori A. Figone, October 1988.
    2. ``Assuring Accuracy in Employer Injury and Illness Records'', 
U.S. General Accounting Office (HRD-89-23), December 1988.
    3. Various materials relating to OSHA inspection activity for 
significant occupational injury and illness recordkeeping cases.
    4. Various OSHA and BLS letters to the public interpreting 
OSHA's occupational injury and illness recording and reporting 
regulations.
    5. Various letters and documents describing OSHA's collection of 
1995 workplace injury and illness information.
    6. Documents relating to a pilot program to evaluate the 
accuracy of workplace injury and illness records, including 
``Evaluating Workplace Injury and Illness Records; Testing a 
Procedure'' Monthly Labor Review, April 1988.
    7. A July 21, 1978 Federal Register Notice announcing rule 
changes for ``Access to the Log of Occupational Injuries and 
Illnesses to Employees and their Representatives'' (43 FR 31324).
    8. A December 28, 1982 Federal Register Notice announcing rule 
changes for ``Exemption From Requirements for Recording Occupational 
Injuries and Illnesses'' (47 FR 57699).

    The transcripts of both public meetings, comments from the public 
and documentary evidence are available from the OSHA Docket Office (see 
Addresses) Docket No. R-02.

    Signed in Washington, DC, this 29th day of May, 1996.
Joseph A. Dear,
Assistant Secretary of Labor.
[FR Doc. 96-13836 Filed 5-30-96; 8:45 am]
BILLING CODE 4510-26-M

Complete official Federal Register PDF

FR Doc. 96-13815 Oversales Signs

[Federal Register Volume 61, Number 107 (Monday, June 3, 1996)]
[Proposed Rules]
[Pages 27818-27821]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-13815]

=======================================================================
-----------------------------------------------------------------------

DEPARTMENT OF TRANSPORTATION

Office of the Secretary

14 CFR Part 250

[Docket No. OST-96-1255 Notice 96-7]
RIN 2105-AC45

Oversales Signs

AGENCY: Office of the Secretary, DOT.

ACTION: Notice of proposed rulemaking.

-----------------------------------------------------------------------

SUMMARY: The Department proposes to eliminate a consumer notice about 
airline oversales that is required to appear on signs at airports, city 
ticket offices, and travel agencies, on the basis that the information 
will continue to be

[[Page 27819]]

available through other means. This action is taken on the Department's 
initiative, as a result of the President's Regulatory Reinvention 
Initiative.

DATES: Comments on the issues discussed in this document should be 
received by July 18, 1996. Late-filed comments will be considered to 
the extent practicable.

ADDRESSES: Comments should be sent to Docket Clerk, Docket No. OST-96-
1255, Room PL-401, Department of Transportation, 400 Seventh Street SW, 
Washington, DC 20590. For the convenience of persons who will be 
reviewing the docket, it is requested that commenters provide an 
original and three copies of their comments. Comments can be inspected 
from 10:00 a.m. to 5:00 p.m. at the address listed for mailing 
comments. Commenters who wish the receipt of their comments to be 
acknowledged should include a stamped, self-addressed postcard with 
their comments. The docket clerk will date-stamp the postcard and mail 
it to the commenter. Comments should be on 8\1/2\ by 11 inch white 
paper using dark ink and should be without tabs and unbound.
    An electronic version of this notice of proposed rulemaking will be 
available at http://www.dot.gov/dotinfo/general/rules/aviation.html 
shortly after publication in the Federal Register.

FOR FURTHER INFORMATION CONTACT: Tim Kelly, Aviation Consumer 
Protection Division, Office of Aviation Enforcement and Proceedings, 
Office of the General Counsel, Department of Transportation, 400 
Seventh Street SW, Room 4107, Washington, DC 20590, telephone (202) 
366-5952.

SUPPLEMENTARY INFORMATION: Airlines overbook (accept more reservations 
than there are seats on a flight) in order to compensate for ``no 
shows'' (passengers with confirmed reservations who do not show up for 
their flight and do not cancel their reservation). Overbooking fills 
seats that would otherwise go empty, thus keeping load factors up and 
fares down. It also allows more passengers to obtain reservations on 
the flight of their choice.
    The Department of Transportation (Department or DOT) allows 
overbooking but regulates it; see 14 CFR Part 250. Section 250.11(a) of 
this regulation requires U.S. and foreign air carriers and travel 
agencies to display a notice about overbooking at every desk or 
position in the United States where tickets are sold. (The original 
document adopting this rule can be found at 42 FR 12422, March 4, 
1977.) The notice must be in boldface type at least one-fourth of an 
inch high, and must read as follows:

Notice--Overbooking of Flights

    Airline flights may be overbooked, and there is a slight chance 
that a seat will not be available on a flight for which a person has 
a confirmed reservation. If the flight is overbooked, no one will be 
denied a seat until airline personnel first ask for volunteers 
willing to give up their reservation in exchange for a payment of 
the airline's choosing. If there are not enough volunteers the 
airline will deny boarding to other persons in accordance with its 
particular boarding priority. With few exceptions persons denied 
boarding involuntarily are entitled to compensation. The complete 
rules for the payment of compensation and each airline's boarding 
priorities are available at all airport ticket counters and boarding 
locations. Some airlines do not apply these consumer protections to 
travel from some foreign countries, although other consumer 
protections may be available. Check with your airline or your travel 
agent.

    The oversale protections of Part 250 do not apply to inbound 
international flights to the United States. Section 250.11(e) states 
that any U.S. or foreign air carrier that chooses to fully comply with 
Part 250 on inbound international flights to the United States need not 
use the last two sentences of the above Sec. 250.11(a) notice.
    In his Regulatory Reinvention Initiative Memorandum of March 4, 
1995, President Clinton directed Federal agencies to conduct a page-by-
page review of all of their regulations and to ``eliminate or revise 
those that are outdated or otherwise in need of reform.'' In response 
to that directive, the Department has undertaken a review of its 
aviation economic and consumer regulations as contained in 14 CFR 
Chapter II. This rulemaking is one result of those efforts. Other 
rulemakings will address other regulations.
    Section 250.11(b) requires that the text of the oversales sign also 
appear on a notice that must accompany every ticket, and we plan to 
leave this ticket notice requirement in place. The Department has 
tentatively decided that it is no longer necessary to require this 
notice both on signs and in tickets, and consequently we are proposing 
to eliminate the requirement for the oversales sign for carriers and 
travel agencies that provide the ticket notice. Most carriers that 
offer ``ticketless'' transportation send passengers a copy of the 
consumer notices required by DOT rules, including the Sec. 250.11(b) 
notice.1 Where a carrier does not provide this notice in writing 
to each customer, however, the notice would have to continue to appear 
on signs at locations where that carrier sells tickets, e.g. airports 
and city ticket offices.
---------------------------------------------------------------------------

    \1\ On January 19, 1996, the Department published a Federal 
Register notice seeking comment on the issue of passenger notices as 
applied to ticketless travel. See 61 FR 1309; also available on the 
World Wide Web at http://www.dot.gov/dotinfo/general/rules/
aviation.html. The comment period for that Notice ended March 19, 
1996. After examining the comments in that proceeding, the 
Department will determine, among other things, whether ``ticket'' in 
the context of currently required ticket notices would include air 
transportation sold without a conventional paper ticket and, 
consequently, whether the existing rules require ticketless sales to 
be accompanied by the passenger notices that are currently required 
to be included on or with tickets.
---------------------------------------------------------------------------

    We have decided to propose elimination of the sign rather than the 
ticket notice because the ticket notice is normally provided earlier in 
the process, and it is a record that the passenger can retain. At 
airports, the oversales sign is sometimes placed in locations where it 
is difficult to read. In addition, there have been occasional 
objections from airports over the placement of required signage. 
Eliminating the requirement for the sign should be particularly 
beneficial to the more than 45,000 travel agencies in the United 
States, many of whom are small businesses.
    This revision should not impair consumer protection. Air travelers 
will continue to receive the same information via ticket notices. In 
addition, Sec. 250.9 requires carriers to give a lengthier written 
handout to anyone who is actually denied boarding, and to anyone else 
who requests this handout. (The ticket notice makes reference to this 
handout.) Finally, the substantive consumer protections of Part 250 
continue to apply even where specific passengers might not receive 
notice about those protections. In other words, during an oversale 
situation, carriers are under an affirmative obligation to solicit 
volunteers and pay compensation to all eligible passengers who are 
denied boarding involuntarily, not simply those who request these 
services as a result of reading a notice.
    As indicated above, the ticket notice requirement in Sec. 250.11(b) 
is being retained. The text of the ticket notice is not contained in 
current Sec. 250.11(b); instead, because the text of the ticket notice 
and the sign is identical, current Sec. 250.11(b) (the ticket notice 
provision) incorporates the notice text by reference to the text in 
Sec. 250.11(a) (the sign provision). Because Sec. 250.11(a) is being 
eliminated, we are proposing to move the text of the ticket notice to 
Sec. 250.11(b). We are also proposing to change the word ``notices'' in 
the first sentence of current Sec. 250.11(b) to ``notice''; the 
singular form is more accurate and is the form used in the remainder of 
current Sec. 250.11(b). Finally, we are proposing to remove the word 
``station'' from the phrase ``desk,

[[Page 27820]]

station or position'' in current Sec. 250.11(a) (proposed 
Sec. 250.11(b)) because it is confusing. This provision refers to an 
individual staffed counter position, whereas the airlines use 
``station'' to refer to a carrier's entire operation at a particular 
city.
    We are also taking this opportunity to propose changes to certain 
outdated language in Part 250. We are proposing to change references to 
the Civil Aeronautics Board, our predecessor in aviation economic 
regulation, to the Department of Transportation. Citations to sections 
of the Federal Aviation Act shall be changed to reflect the current 
section numbers of these statutory provisions in the United States 
Code, as a result of a 1994 recodification which absorbed that Act 
directly into the U.S. Code and renumbered its sections. A statutory 
change that occurred at the time of this recodification incorporated 
``overseas air transportation'' into ``interstate air transportation'' 
and eliminated the former term, and we are proposing to make 
corresponding changes to the term ``overseas air transportation'' 
wherever it occurs in Part 250.

Regulatory Analyses and Notices

    This NPRM is considered to be a non-significant rulemaking under 
DOT's regulatory policies and procedures, 44 FR 11034. The NPRM was not 
subject to review by the Office of Information and Regulatory Affairs 
pursuant to Executive Order 12866.
    The proposal would have minimal economic impact, and accordingly no 
regulatory evaluation has been prepared. The principal impact will be 
that several dozen air carriers and more than 45,000 travel agencies, 
many of whom are small businesses, will no longer have to display this 
sign. The economic impact is difficult to quantify. There has been no 
continuing direct cost associated with display of the signs, and thus 
elimination of this requirement will not produce an immediate monetary 
savings. Some carriers may choose not to incur the labor cost of 
removing signs, particularly since the information on the sign is still 
accurate. The major economic benefit will result from the fact that 
this sign will not have to be erected at future airline and travel 
agency locations. That will bring about both material and labor 
savings.
    The NPRM has been analyzed in accordance with the principles and 
criteria contained in Executive Order 12612, and it has been determined 
that it does not have sufficient federalism implications to warrant the 
preparation of a Federalism Assessment.
    While the proposal would benefit a large number of small 
businesses, I certify that the proposal, if adopted, would not have a 
significant economic impact on a substantial number of small entities.

List of Subjects in 14 CFR Part 250

    Air carriers, Consumer protection.

    For the reasons set forth above, the Department proposes to amend 
title 14, chapter II, subchapter A, part 250 as follows:

PART 250--[AMENDED]

    1. The authority citation for part 250 would continue to read as 
follows:

    Authority: 49 U.S.C. chapters 401, 411, 413, 417.

    2. In Sec. 250.1, revise the definition of ``Carrier'' to read as 
follows:

Sec. 250.1  Definitions.

* * * * *
    Carrier means
    (1) A direct air carrier, except a helicopter operator, holding a 
certificate issued by the Department of Transportation pursuant to 49 
U.S.C. 41102 (formerly sections 401(d)(1), 401(d)(2), 401(d)(5) and 
401(d)(8) of the Federal Aviation Act of 1958), or an exemption from 49 
U.S.C. 41101 (formerly section 401(a) of the Act), authorizing the 
transportation of persons, or
    (2) A foreign route air carrier holding a permit issued by the 
Department pursuant to 49 U.S.C. 41301 through 41306 (formerly section 
402 of the Act), or an exemption from the appropriate provision of 49 
U.S.C. 41301 through 41306, authorizing the scheduled foreign air 
transportation of persons.

Sec. 250.2  [Amended]

* * * * *
    3. In Sec. 250.2, remove the words ``or overseas.''

Sec. 250.2  [Amended]

    4. In Sec. 250.2b(b), remove the word ``Board'' in the last 
sentence and add in its place ``DOT.''

Sec. 250.4  [Amended]

    5. In Sec. 250.4(c), remove ``the Board'' and add in its place 
``DOT.''

Sec. 250.5  [Amended]

    6. In Sec. 250.5(a), remove the words ``and overseas'' in the last 
sentence.

Sec. 250.9  [Amended]

    7. In Sec. 250.9(b), in the subsection entitled Compensation for 
Denied Boarding, remove the phrase ``Civil Aeronautics Board'' and add 
in its place ``Department of Transportation.''

Sec. 250.9  [Amended]

    8. In Sec. 250.9(b), in the subsection entitled Amount of Denied 
Boarding Compensation, remove ``the CAB'' and add in its place ``DOT.''

Sec. 250.11  [Amended]

    9. Section 250.11(a) is removed and reserved.
    10. Paragraph (b) of Sec. 250.11 is revised to read as follows:

Sec. 250.11  Public disclosure of deliberate overbooking and boarding 
procedures.

* * * * *
    (b) Every carrier shall include with each ticket sold in the United 
States the following notice, printed in at least 12-point type. The 
notice may be printed on a separate piece of paper, on the ticket 
stock, or on the ticket envelope. The last two sentences of the notice 
shall be printed in a typeface contrasting with that of the rest of the 
notice.

Notice--Overbooking of Flights

    Airline flights may be overbooked, and there is a slight chance 
that a seat will not be available on a flight for which a person has 
a confirmed reservation. If the flight is overbooked, no one will be 
denied a seat until airline personnel first ask for volunteers 
willing to give up their reservation in exchange for a payment of 
the airline's choosing. If there are not enough volunteers the 
airline will deny boarding to other persons in accordance with its 
particular boarding priority. With few exceptions persons denied 
boarding involuntarily are entitled to compensation. The complete 
rules for the payment of compensation and each airline's boarding 
priorities are available at all airport ticket counters and boarding 
locations. Some airlines do not apply these consumer protections to 
travel from some foreign countries, although other consumer 
protections may be available. Check with your airline or your travel 
agent.
    A ``ticketless'' carrier that does not provide a copy of this 
notice to passengers in writing in conjunction with air transportation 
purchased in the United States must display this notice continuously on 
a sign in a conspicuous public place at each desk and position in the 
United States staffed by its employees or its contractor (not including 
travel agencies) to sell transportation to passengers. The notice must 
be clearly visible and clearly readable to the traveling public and 
must be in boldface type at least one-fourth of an inch high.

Sec. 250.11  [Amended]

    11. In Sec. 250.11(c), remove the phrase ``paragraphs (a) and (b) 
of this section'' and add in its place ``paragraph (b) of this 
section.''

[[Page 27821]]

Sec. 250.12  [Amended]

    12. In Sec. 250.11(e), remove ``notices'' and add in its place 
``notice'' and remove the phrase ``paragraph (a) of this subsection'' 
and add in its place ``paragraph (b) of this section.''

    Issued this 1st day of April, 1996 at Washington, D.C.
Charles A. Hunnicutt,
Assistant Secretary for Aviation and International Affairs.
[FR Doc. 96-13815 Filed 5-31-96; 8:45 am]
BILLING CODE 4910-62-P

Complete official Federal Register PDF

FR Doc. 96-13810 The Importation of Ratites and Hatching Eggs of Ratites

[Federal Register Volume 61, Number 107 (Monday, June 3, 1996)]
[Proposed Rules]
[Pages 27797-27802]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-13810]

========================================================================
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. 107 / Monday, June 3, 1996 / Proposed 
Rules

[[Page 27797]]

DEPARTMENT OF AGRICULTURE

Animal and Plant Health Inspection Service

9 CFR Part 92

[Docket No. 95-044-1]

The Importation of Ratites and Hatching Eggs of Ratites

AGENCY: Animal and Plant Health Inspection Service, USDA.

ACTION: Proposed rule.

-----------------------------------------------------------------------

SUMMARY: We are proposing to amend the animal import regulations to 
relieve certain restrictions on the importation of ratites and hatching 
eggs of ratites into the United States from Canada. We believe that 
these proposed actions can be taken without increasing the risk of 
introducing poultry or livestock diseases into the United States. 
Additionally, we propose to allow adult ostriches from any country to 
be imported, in accordance with the regulations, through the New York 
Animal Import Center, based on space availability. Currently, with 
certain exceptions, ostriches may not be imported into the United 
States if they exceed either 36 inches in height or 30 pounds in 
weight. We are proposing this change after determining that the New 
York Animal Import Center has the facilities and trained personnel to 
handle adult ostriches. We believe that these proposed amendments would 
facilitate the importation into the United States of ratites and 
hatching eggs of ratites while ensuring the continued protection of the 
health of livestock and poultry in the United States.

DATES: Consideration will be given only to comments received on or 
before August 2, 1996.

ADDRESSES: Please send an original and three copies of your comments to 
Docket No. 95-044-1, Regulatory Analysis and Development, PPD, APHIS, 
suite 3C03, 4700 River Road Unit 118, Riverdale, MD 20737-1238. Please 
state that your comments refer to Docket No. 95-044-1. Comments 
received may be inspected at USDA, room 1141, South Building, 14th 
Street and Independence Avenue SW., Washington, DC, between 8 a.m. and 
4:30 p.m., Monday through Friday, except holidays. Persons wishing to 
inspect comments are requested to call ahead on (202) 690-2817 to 
facilitate entry into the comment reading room.

FOR FURTHER INFORMATION CONTACT: Dr. Tracye Butler, Staff Veterinarian, 
Import/Export Animals, National Center for Import and Export, VS, 
APHIS, 4700 River Road Unit 39, Riverdale, MD 20737-1231, (301) 734-
5097.

SUPPLEMENTARY INFORMATION:

Background

    The regulations in 9 CFR part 92 (referred to below as ``the 
regulations'') govern the importation into the United States of certain 
animals and birds, including ostriches and other flightless birds known 
as ratites, and their hatching eggs, to prevent the introduction of 
communicable diseases of livestock and poultry.
    Section 92.101 of the regulations, among other things, imposes 
general restrictions on the importation of ratites and hatching eggs of 
ratites. Paragraph (b)(3)(i) of Sec. 92.101 requires that all ratites, 
except ratites imported as zoological birds, and all hatching eggs of 
ratites entering the United States must originate from certified pen-
raised flocks and must be identified. Ratites must be identified by 
means of a microchip implant, hatching eggs of ratites by marking on 
the shell. Paragraph (b)(3)(i) also requires certain recordkeeping, 
reporting, and inspections related to the flock and premises of origin. 
Paragraph (b)(3)(ii) of Sec. 92.101 prohibits, with certain exceptions, 
the importation of ostriches more than 36 inches in height or 30 pounds 
in weight at the time of arrival in the United States.
    Section 92.103 of the regulations, among other things, requires 
that an importer submit a completed import permit application to import 
ratites or hatching eggs of ratites into the United States. The import 
permit application provides, among other things, information on the 
name and location of the quarantine facility in the United States that 
will maintain the ratites or hatching eggs of ratites during the 
mandatory quarantine period.
    Section 92.104 of the regulations, among other things, requires 
that ratites and their hatching eggs offered for importation from any 
part of the world be accompanied by a certificate issued by a full-time 
salaried veterinary officer of the national government of the exporting 
country or issued by a veterinarian authorized or accredited by the 
national government of the exporting country and endorsed by a full-
time salaried veterinary officer of the national government of that 
country. The certificate must state, among other things, that ratites 
and their hatching eggs offered for importation have been inspected and 
found free of evidence of communicable diseases and are identified in 
accordance with the provisions in Sec. 92.101.
    Section 92.105 of the regulations, among other things, specifies 
requirements for the inspection of ratites and hatching eggs of ratites 
at the port of entry in the United States. Paragraph (a) of 
Sec. 92.105, among other things, allows hatching eggs of ratites to be 
offered for importation into the United States at any international 
airport, or any land-border port within 20 miles of an international 
airport, serviced by Customs. In addition, hatching eggs of ratites may 
be shipped, in bond, from the port of first arrival to the Customs port 
of entry where the eggs will be inspected and quarantined. Paragraph 
(c) of Sec. 92.105 provides that ratites, other than hatching eggs of 
ratites, imported from any part of the world must be inspected by a 
veterinary inspector of the Animal and Plant Health Inspection Service 
(APHIS) at a listed port of entry. The ports of entry listed for 
ostriches are New York, NY; Stewart Airport, Newburgh, NY; and Miami, 
FL. The ports of entry listed for ratites other than ostriches are New 
York, NY; Stewart Airport, Newburgh, NY; Miami, FL; and Honolulu, HI.
    Section 92.106 of the regulations, among other things, imposes 
quarantine requirements on ratites and hatching eggs of ratites. 
Paragraph (b)(1) of Sec. 92.106, among other things, requires ratites 
imported from any part of the world to be quarantined upon arrival for 
a minimum of 30 days to determine the ratites' freedom from 
ectoparasites and communicable diseases. Paragraph (b)(3) of 
Sec. 92.106 requires that ratites be

[[Page 27798]]

treated for ectoparasites during the quarantine by an inspector until 
the inspector determines that the ratites are free of ectoparasites. 
Paragraph (b)(2) of Sec. 92.106, among other things, requires hatching 
eggs of ratites imported from any part of the world to be quarantined 
upon arrival, incubated for approximately 42 days, and held in 
quarantine for a minimum of 30 days following the hatch of the last 
chick in the lot, to determine the ratites' freedom from communicable 
diseases. Additionally, the ratites and hatching eggs of ratites must 
be tested for and found free of viral diseases of poultry, including 
exotic Newcastle disease.

Ratites and Hatching Eggs of Ratites From Canada

    We are proposing to exempt certain ratites and hatching eggs of 
ratites from Canada from quarantine requirements upon arrival in the 
United States. We are proposing this relief for ratites that meet the 
following conditions: (1) They were hatched and raised in Canada; or 
(2) if imported into Canada, they were quarantined upon arrival in 
Canada for a minimum of 28 days at a Canadian quarantine facility and 
remained in Canada for an additional 60 days following quarantine. We 
are also proposing to exempt ratite hatching eggs that were laid in 
Canada from U.S. quarantine requirements. We would continue to require 
that these ratites and hatching eggs of ratites be accompanied by a 
health certificate, in accordance with current Sec. 92.104(a), (c), and 
(d), and that they meet the other applicable requirements of the 
regulations.
    We are proposing this change to the regulations because we believe 
that ratites and their hatching eggs from Canada present a minimal risk 
of introducing animal and poultry diseases into the United States, as 
explained below.
    Currently, Canada's import regulations allow ratites to be imported 
into Canada only from Germany, The Netherlands, and the United Kingdom. 
We have determined that Canadian requirements for importing ratites and 
their hatching eggs into Canada are similar to U.S. requirements for 
importing ratites and their hatching eggs into the United States. 
Specifically, ratites imported into Canada must meet the following 
conditions to be eligible for entry into a Canadian quarantine station: 
(1) They were hatched in and have never been outside the country of 
origin, or they have been quarantined in the country of origin for at 
least 60 days; (2) they were inspected within 30 days immediately prior 
to the date of export and were found to be free from evidence of viral 
diseases of poultry, including Newcastle disease, and as far as could 
be determined have not been exposed to disease within the preceding 60 
days; (3) they tested negative for viral diseases; and (4) they were 
inspected and declared healthy by a Canadian veterinary inspector upon 
arrival in Canada. Upon arrival in Canada, the imported ratites must 
enter a Canadian quarantine station and remain in quarantine for a 
minimum of 28 days. During that time, they are thoroughly checked for 
ticks and other external parasites. Fecal samples are taken and checked 
for internal parasites. The detection of internal or external parasites 
necessitates treatment; however, no vaccine against Newcastle disease 
or laryngotracheitis is administered. The detection of viral diseases 
may necessitate slaughter and disposal of the carcass.
    Hatching eggs of ratites that are imported into Canada also undergo 
quarantine to ensure the hatched chicks are free from disease. Hatching 
eggs of ratites imported into Canada must enter a Canadian quarantine 
station and remain in Canadian quarantine for a minimum of 45 days 
following the hatch of the last chick in the lot in order for the 
chicks to be eligible for an Agriculture Canada health certificate for 
importation into the United States.
    Ratites imported into Canada under the conditions described above 
would present a negligible disease risk if allowed to enter the United 
States without undergoing quarantine. The quarantine period in Canada 
would offer sufficient opportunity for the diagnosis of communicable 
diseases. Upon release from quarantine, the imported ratites would join 
Canadian flocks for a minimum of 60 days. Additionally, ratites do not 
live in the wild in Canada, and, therefore, ratites of unknown disease 
history could not be trapped in the wild and then added to Canadian 
flocks for subsequent importation into the United States. Because of 
these factors, neither ratites imported into Canada, nor any Canadian-
origin ratites, would have occasion to be exposed to any communicable 
disease of concern to the United States.
    We therefore believe that removing the quarantine requirement for 
certain ratites and hatching eggs of ratites from Canada is warranted 
to eliminate duplications in Canadian and U.S. disease-prevention 
measures and relieve an unnecessary regulatory burden.
    We are also proposing to exempt ratites imported from Canada for 
consignment directly to slaughter in the United States from the 
requirement in Sec. 92.104(c)(8) that the ratites be treated for 
ectoparasites within 3 to 14 days before they are exported from Canada. 
We are proposing this change to minimize potential pesticide residue 
problems in ratite meat and to acknowledge that ratites from Canada 
that are consigned directly to slaughter in the United States would 
have little, if any, opportunity to come into contact with and transfer 
ticks to other animals. It is also unlikely that any ticks that could 
be on the ratites would be ticks exotic to the United States because 
there are no known ticks in Canada that are exotic to the United 
States.
    In addition, we are proposing to exempt Canadian ratite flocks from 
the pen-raised requirement and the identification and recordkeeping 
requirements in Sec. 92.101(b)(3). These requirements were established 
to prevent wild-caught ratites from being added to a ``pen-raised'' 
flock and then imported into the United States as ratites produced and 
maintained in a pen-raised flock. Because there are no wild ratites in 
Canada and because Canadian import restrictions make it unlikely that 
any wild-caught ratites would be imported into Canada, it does not 
appear that it is necessary to require Canadian flocks to meet the pen-
raised requirement and the identification and recordkeeping 
requirements in Sec. 92.101(b)(3).
    We are also proposing to allow ratites from Canada that are exempt 
from quarantine upon arrival to be offered for importation at the 
following ports, in addition to the ports listed in Sec. 92.105(c): 
Anchorage, AK; Fairbanks, AK; Los Angeles, CA; San Diego, CA; Denver, 
CO; Jacksonville, FL; Port Canaveral, FL; St.Petersburg-Clearwater, FL; 
Tampa, FL; Atlanta, GA; Eastport, ID; Chicago, IL; New Orleans, LA; 
Houlton, ME; Jackman, ME; Portland, ME; Detriot, MI; Baltimore, MD; 
Boston, MA; Port Huron, MI; Sault Ste. Marie, MI; Minneapolis, MN; 
Great Falls, MT; Opheim, MT; Raymond, MT; Sweetgrass, MT; Alexandria 
Bay, NY; Buffalo, NY; Champlain, NY; Dunseith, ND; Pembina, ND; Portal, 
ND; Portland, OR; San Juan, PR; Galveston, TX; Houston, TX; Highgate 
Springs, VT; Blaine, WA; Lynden, WA; Oroville, WA; Seattle, WA; 
Spokane, WA; Sumas, WA; and Tacoma, WA.
    We are proposing this change because, as explained above, ratites 
hatched and maintained in Canada, or legally imported into Canada, 
would present little, if any, risk of carrying an exotic animal or 
poultry disease, or of harboring ectoparasites that could transmit 
exotic diseases to animals or poultry in the United States.

[[Page 27799]]

Consequently, we do not believe that these ratites need to be 
individually handled and inspected at the port of arrival. Under these 
circumstances, it appears that ratites from Canada that would not 
require quarantine upon arrival in the United States could be offered 
for importation at ports other than those currently allowed, including 
small, limited ports that lack restraint and holding facilities.
    Canadian-origin hatching eggs of ratites would also be allowed to 
be offered for importation at the ports listed above and could continue 
to be offered for importation at any international airport, or at any 
land-border port within 20 miles of an international airport, serviced 
by Customs, in accordance with Sec. 92.105(a).
    We believe that increasing the number of ports through which 
ratites and their hatching eggs may enter the United States from Canada 
would facilitate trade between the United States and Canada, in 
accordance with the North American Free Trade Agreement and the General 
Agreement on Tariffs and Trade.
    We are proposing to exempt ratites and hatching eggs of ratites 
from Canada from the import permit requirements found in Sec. 92.103 if 
the ratites and hatching eggs qualify for exemption from quarantine 
upon arrival in the United States and enter the United States at a 
Canadian land border port, as listed in Sec. 92.203(b). This exemption 
would apply only to those ratites and hatching eggs that are imported 
from Canada through a land border port. If Canadian ratites or hatching 
eggs of ratites enter the United States through an airport or ocean 
port, then the ratites or hatching eggs must be accompanied by an 
import permit so that port inspectors will have prior notification of 
the arrival of the shipment of ratites or hatching eggs and be 
available to check the shipment.
    The exemptions discussed above for ratites and hatching eggs 
imported into the United States from Canada would be set forth in 
Sec. 92.107 in new paragraphs (b) and (c). Sections 92.101, 92.103, 
92.104, 92.105, and 92.106 would be amended to indicate that 
Sec. 92.107 contains exemptions for ratites and hatching eggs of 
ratites imported into the United States from Canada.

Adult Ostriches

    We are also proposing to allow ostriches greater than 36 inches in 
height or 30 pounds in weight to be imported into the United States 
from any country through the port of New York, NY, or through Stewart 
Airport, Newburgh, NY, and be quarantined at the New York Animal Import 
Center (NYAIC), based on space availability. As a result of our 
experience enforcing the regulations, we believe the NYAIC now has the 
facilities and trained personnel to handle adult ostriches. 
Additionally, if an ostrich greater than 36 inches in height or 30 
pounds in weight were imported into the United States from Canada 
without requiring quarantine, in accordance with the requirements 
proposed in this document, then that adult ostrich would be permitted 
entry into the United States through any of the ports proposed for the 
importation of Canadian ratites.

Miscellaneous

    We are proposing to make a correction to Sec. 92.103(a)(1) to 
remove a reference to Sec. 92.214. When part 92 was divided into seven 
subparts in 1990, some references within paragraphs no longer applied. 
We corrected most of these references, but we inadvertently overlooked 
the reference to Sec. 92.214 in Sec. 92.103(a)(1). Section 92.103(a)(1) 
provides import permit requirements and exceptions to those 
requirements for birds; whereas Sec. 92.214 explains import permit 
requirements for poultry. Therefore, we are proposing to remove the 
reference to Sec. 92.214 from Sec. 92.103(a)(1).
    We are also proposing to make minor editorial changes for clarity 
and consistency, and we are proposing to amend Secs. 92.103 and 92.104 
by adding a reference to the end of each section for the Office of 
Management and Budget control number assigned to approved information 
collection and recordkeeping requirements.

Executive Order 12866 and Regulatory Flexibility Act

    This proposed rule has been reviewed under Executive Order 12866. 
This rule has been determined to be not significant for purposes of 
Executive Order 12866, and, therefore, has not been reviewed by the 
Office of Management and Budget.
    This proposed rule would relieve some restrictions on the 
importation into the United States of ratites and hatching eggs of 
ratites from Canada and on the importation into the United States of 
adult ostriches. We anticipate that this proposed rule would affect 
only the ostrich industry because very few ratites other than ostriches 
have been imported into the United States since first being allowed in 
1986.
    Ostrich production in the United States has been growing rapidly 
over the last few years. According to a recent estimate, there are 
approximately 6,000 to 7,000 ostrich owners and more than 70,000 
breeding ostriches in the United States. Each farm owns an average of 8 
to 10 adult ostriches, but each farm's holdings can range anywhere from 
2 to 200 adult ostriches. All of these farms are considered small 
entities by Small Business Administration standards (annual gross 
receipts of less than $500,000). The American Ostrich Association 
reports its membership at 3,650 as of September 1995.
    Over the last 2 to 3 years, the supply of ostriches in the United 
States has steadily increased, which has greatly reduced domestic 
prices. For example, in 1992, market prices for ostriches of different 
ages ranged as follows: 3-month-old chicks sold for approximately 
$6,000 a pair; 6-month-old chicks sold for $8,000 to $15,000 a pair; 
yearlings sold for $12,000 to $25,000 a pair; 2-year-olds sold for 
$25,000 to $40,000 a pair; and adults (breeding pairs) sold for $40,000 
up to $100,000 a pair, depending upon proven breeding capabilities. 
Recent market prices for ostriches of different ages show a dramatic 
decrease from the market prices of 1992; estimates of 1995 market 
prices for ostriches of different ages are as follows: 3-month-old 
chicks sell for approximately $1,300 a pair; 6-month-old chicks sell 
for approximately $2,150 a pair; yearlings sell for approximately 
$4,300 a pair; 2-year-olds sell for approximately $8,600 a pair; and 
adults (breeding pairs) sell for approximately $14,700 a pair, 
depending upon proven breeding capabilities. Further, when compared to 
the market prices listed above for 1995, the estimated market prices 
for the first quarter of 1996 show approximately a fifty percent 
decrease in the market prices for ostriches in all age categories.
    No live ratites have been imported into the United States from any 
country since April of 1994. Removing the quarantine and other 
requirements for Canadian ratites and their hatching eggs could 
encourage imports by decreasing the cost of importing these ratites and 
hatching eggs. However, because of the decrease in market prices 
described above, we do not expect a heavy volume of ostriches or other 
ratites from Canada to be imported into the United States as a result 
of this rule.
    In addition, though the hatching eggs of ratites are more readily 
available, are cheaper to transport, and can be quarantined at private 
facilities, historically only about 26 percent of the imported eggs 
(this includes fertile and infertile eggs) have hatched chicks that 
survived beyond 30 days. Despite being a financially dangerous option, 
importers continue to import hatching eggs and are trying to improve 
their rate

[[Page 27800]]

of hatch and chick survival. However, because of the relatively low 
hatch and survival rate and the reduced market prices of ostriches of 
different ages, we do not expect a heavy volume of the hatching eggs of 
ratites from Canada to be imported into the United States as a result 
of this rule.
    Any imports from Canada that might result from this rule could 
cause a further decline in the domestic prices of ratites in the United 
States. However, we expect that domestic ratite importers would benefit 
by having fewer restrictions on Canadian imports. Over the short term, 
the proposed changes in the regulations might have a minor adverse 
economic impact on domestic ostrich producers. Over the long term, we 
expect the domestic ratite industry to benefit from any imports that 
may occur because reduced ostrich prices could lead to larger domestic 
populations of ostriches, benefiting consumers of ostriches and ostrich 
products. A larger domestic ratite population could further enhance the 
economic viability of commercial ratite breeding, slaughter, feather, 
and leather markets.
    We expect that the economic effect of allowing the importation of 
adult ostriches from all countries into the United States through the 
New York Animal Import Center would be insignificant because of the 
drastic decrease in the market prices of ostriches.
    Under these circumstances, the Administrator of the Animal and 
Plant Health Inspection Service has determined that this action would 
not have a significant economic impact on a substantial number of small 
entities.

Executive Order 12778

    This proposed rule has been reviewed under Executive Order 12778, 
Civil Justice Reform. If this proposed rule is adopted: (1) All State 
and local laws and regulations that are inconsistent with this rule 
will be preempted; (2) no retroactive effect will be given to this 
rule; and (3) administrative proceedings will not be required before 
parties may file suit in court challenging this rule.

Paperwork Reduction Act

    This proposed rule contains no new information collection or 
recordkeeping requirements under the Paperwork Reduction Act of 1995 
(44 U.S.C. 3501 et seq.).

List of Subjects in 9 CFR Part 92

    Animal diseases, Imports, Livestock, Poultry and poultry products, 
Quarantine, Reporting and recordkeeping.

    Accordingly, 9 CFR part 92 would be amended as follows:

PART 92--IMPORTATION OF CERTAIN ANIMALS AND POULTRY AND CERTAIN 
ANIMAL AND POULTRY PRODUCTS; INSPECTION AND OTHER REQUIREMENTS FOR 
CERTAIN MEANS OF CONVEYANCE AND SHIPPING CONTAINERS THEREON

    1. The authority citation for part 92 would continue to read as 
follows:

    Authority: 7 U.S.C. 1622; 19 U.S.C. 1306; 21 U.S.C. 102-105, 
111, 114a, 134a, 134b, 134c, 134d, 134f, 135, 136, and 136a; 31 
U.S.C. 9701; 7 CFR 2.22, 2.80, and 371.2(d).

    2. Section 92.101 would be amended as follows:
    a. By removing paragraph (b)(3)(ii).
    b. By redesignating paragraphs as follows:

------------------------------------------------------------------------
              Old designation                      New designation      
------------------------------------------------------------------------
(b)(3)(i).................................  (b)(3).                     
(b)(3)(i)(A)..............................  (b)(3)(i).                  
(b)(3)(i)(B)..............................  (b)(3)(ii).                 
(b)(3)(i)(C)..............................  (b)(3)(iii).                
(b)(3)(i)(D)..............................  (b)(3)(iv).                 
(b)(3)(i)(D)(1)...........................  (b)(3)(iv)(A).              
(b)(3)(i)(D)(2)...........................  (b)(3)(iv)(B).              
(b)(3)(i)(D)(3)...........................  (b)(3)(iv)(C).              
(b)(3)(i)(E)..............................  (b)(3)(v).                  
(b)(3)(i)(F)..............................  (b)(3)(vi).                 
(b)(3)(i)(G)..............................  (b)(3)(vii).                
(b)(3)(i)(H)..............................  (b)(3)(viii).               
(b)(3)(i)(I)..............................  (b)(3)(ix).                 
(b)(3)(i)(J)..............................  (b)(3)(x).                  
(b)(3)(i)(K)..............................  (b)(3)(xi).                 
(b)(3)(i)(L)..............................  (b)(3)(xii).                
------------------------------------------------------------------------

    c. By revising newly redesignated paragraph (b)(3) introductory 
text, to read as set forth below.
    d. In newly designated paragraph (b)(3)(vi), by removing the 
reference ``(b)(3)(i)(D)'' and adding ``(b)(3)(iv)'' in its place.
    e. In newly designated paragraph (b)(3)(vii), by removing the 
reference ``(b)(3)(i)(B)'' and adding ``(b)(3)(ii)'' in its place, and 
by removing the reference ``(b)(3)(i)(C)'' and adding ``(b)(3)(iii)'' 
in its place.
    f. In newly designated paragraph (b)(3)(x), the first sentence, by 
removing the reference ``(b)(3)(i)(B)'' and adding ``(b)(3)(ii)'' in 
its place, and by removing the reference ``(b)(3)(i)(C)'' and adding 
``(b)(3)(iii)'' in its place.
    g. In newly designated paragraph (b)(3)(x), the fourth sentence, by 
removing the reference ``(b)(3)(i)(E)'' and adding ``(b)(3)(v)'' in its 
place.

Sec. 92.101  General prohibitions; exceptions.

* * * * *
    (b) * * *
    (3) Except for ratites imported as zoological birds, and ratites 
and ratite hatching eggs imported from Canada in accordance with 
Sec. 92.107, ratites and hatching eggs of ratites may not be imported 
into the United States unless the following conditions are met:
* * * * *

Sec. 92.102  [Amended]

    3. Section 92.102(c) would be amended by removing the reference 
``Sec. 92.105(a)'' and adding ``Sec. 92.105'' in its place.
    4. Section 92.103 would be amended as follows:
    a. In paragraph (a)(1), the first sentence, by removing the 
reference ``92.214'' and adding ``92.107(b)'' in its place.
    b. By revising paragraphs (a)(1)(xiii), (a)(2)(iii), and (a)(2)(iv) 
to read as set forth below.
    c. In paragraph (a)(2)(v), by removing ``Sec. 92.101 (b)(3)(i)(G) 
and (b)(3)(i)(J)'' and adding ``Sec. 92.101 (b)(3)'' in its place; and 
by removing ``Sec. 92.101 (b)(3)(i)(B) and (b)(3)(i)(C)'' and adding 
``Sec. 92.101(b)(3)'' in its place.
    d. At the end of the section, by adding an OMB control number to 
read as set forth below.

Sec. 92.103  Import permits for birds; and reservation fees for spaces 
at quarantine facilities maintained by APHIS.

    (a) * * *
    (1) * * *
    (xiii) In addition, the application for a permit to import ratites 
or hatching eggs of ratites, except for ratites and hatching eggs of 
ratites imported from Canada in accordance with Sec. 92.107, shall 
specify the number of ratites or hatching eggs intended for 
importation, the size of the flock of origin, and the location of the 
premises where the flock of origin is kept; and shall state that, from 
the date of application through the date of export, APHIS 
representatives shall be granted access to the premises where the flock 
of origin is kept. (For ratites intended for importation as zoological 
birds, the flock of origin shall be the ratites intended for 
importation.)
    (2) * * *
    (iii) In addition, a permit to import ratites or hatching eggs of 
ratites, except for ratites or hatching eggs of ratites imported from 
Canada in accordance with Sec. 92.107, will be denied or withdrawn 
unless APHIS representatives are granted access to the premises where 
the flock of origin is kept (or, in the case of zoological birds, to 
the premises where the birds are kept), from the date of the 
application for the permit through the date of export;
    (iv) Except for ratites intended for importation as zoological 
birds and

[[Page 27801]]

ratites and hatching eggs of ratites imported from Canada in accordance 
with Sec. 92.107, a permit to import ratites or hatching eggs of 
ratites will be denied or withdrawn unless an APHIS representative has 
visited the premises where the flock of origin is kept within the 12-
month period before the intended importation and has determined that 
the flock is pen-raised and contains sufficient breeding pairs to 
produce the number of ratites or hatching eggs intended for 
importation.
* * * * *
(Approved by the Office of Management and Budget under control 
number 0579-0040)

    5. Section 92.104 would be amended as follows:
    a. By revising paragraphs (c)(2), (c)(8), (c)(13), (c)(14), 
(c)(15), (c)(16), (d)(2), (d)(9), (d)(10), and (d)(11) to read as set 
forth below.
    b. At the end of the section, by adding an OMB control number to 
read as set forth below.

Sec. 92.104  Certificates for pet birds, commercial birds, zoological 
birds, and research birds.

* * * * *
    (c) * * *
    (2) That, except when the certificate is for zoological birds or 
ratites imported from Canada in accordance with Sec. 92.107, the flock 
of origin is pen-raised and the ratites covered by the certificate were 
produced and maintained in that flock;
* * * * *
    (8) That, except as provided in Sec. 92.107 for ratites imported 
from Canada for immediate slaughter, the ratites were treated at least 
3 days but not more than 14 days before being loaded for shipment to 
the United States with a pesticide of a type and concentration 
sufficient to kill ectoparasites on the ratites;
* * * * *
    (13) That the number of ratites and hatching eggs of ratites 
exported from the flock of origin has not exceeded the ceiling required 
to be established under Sec. 92.101(b)(3)(ix);
    (14) That all the ratites and hatching eggs of ratites in the flock 
from which the ratites come were identified in accordance with 
Sec. 92.101(b)(3);
    (15) Except for ratites imported from Canada in accordance with 
Sec. 92.107, the number of ratite laying hens in the flock from which 
the ratites come;
    (16) For ratites required to be treated prior to shipment with a 
pesticide for ectoparasites, the certificate must also state the name, 
concentration, and date of administration of the pesticide used to 
treat the ratites;
* * * * *
    (d) * * *
    (2) That, except when the certificate is for hatching eggs of 
ratites imported from Canada in accordance with Sec. 92.107, the flock 
of origin is pen-raised, and the hatching eggs covered by the 
certificate were produced by that flock;
* * * * *
    (9) That the number of ratites and hatching eggs of ratites 
exported from the flock of origin has not exceeded the ceiling required 
to be established under Sec. 92.101(b)(3)(ix);
    (10) That all the ratites and hatching eggs of ratites in the flock 
from which the hatching eggs come were identified in accordance with 
Sec. 92.101(b)(3);
    (11) Except for hatching eggs of ratites imported from Canada in 
accordance with Sec. 92.107, the number of ratite laying hens in the 
flock from which the hatching eggs come.

(Approved by the Office of Management and Budget under control 
number 0579-0040)

    6. Section 92.105 would be amended as follows:
    a. In paragraph (a), by revising the first sentence to read as set 
forth below.
    b. In paragraph (c), by revising the introductory text and 
paragraph (c)(1) to read as set forth below.

Sec. 92.105  Inspection at the port of entry.

    (a) All commercial birds, zoological birds, and research birds, 
including hatching eggs of ratites, but excluding other ratites, 
imported into the United States, must be inspected by the port 
veterinarian at the Customs port of entry, which may be any 
international airport, or any land-border port within 20 miles of an 
international airport, serviced by Customs, as well as, for Canadian-
origin hatching eggs of ratites, ports listed in Sec. 92.107 (c). 
However, hatching eggs of ratites may be shipped, in bond, from the 
port of first arrival to the Customs port of entry at which they will 
be quarantined, for inspection, at that port.
* * * * *
    (c) Ratites, other than hatching eggs of ratites, imported from any 
part of the world must be inspected at the Customs port of entry by a 
veterinary inspector of APHIS and, except as provided in Sec. 92.107(b) 
for ratites imported from Canada, shall be permitted entry only at one 
of the following ports of entry:
    (1) Ostriches:
    (i) Up to 36 inches in height (as measured from the top of the head 
to the base of the feet) or 30 pounds in weight: New York, NY; Stewart 
Airport, Newburgh, NY; and Miami, FL.
    (ii) Exceeding 36 inches in height or 30 pounds in weight: New 
York, NY, and Stewart Airport, Newburgh, NY.
* * * * *

Sec. 92.106  [Amended]

    7. Section 92.106 would be amended as follows:
    a. In paragraph (b)(1), the first sentence, by adding the words ``, 
except as provided in Sec. 92.107,'' immediately following the words 
``any part of the world''.
    b. In paragraph (b)(2), the first sentence, by adding the words ``, 
except as provided in Sec. 92.107,'' immediately following the words 
``any part of the world''.
    8. Section 92.107 would be amended as follows:
    a. By adding the paragraph designation ``(a)'' immediately 
preceding the words ``In-bond shipments from Canada.''
    b. By adding new paragraphs (b) and (c) to read as follows:

Sec. 92.107  Special provisions.

* * * * *
    (b) Ratites from Canada. Ratites that were hatched and raised in 
Canada or ratites that were legally imported into Canada and, upon 
arrival in Canada, were quarantined for a minimum of 28 days at a 
Canadian quarantine facility and remained in Canada for an additional 
60 days following completion of quarantine may be imported into the 
United States:
    (1) Without being quarantined upon arrival in the United States; 
and
    (2) At any of the following ports of entry: Anchorage, AK; 
Fairbanks, AK; Los Angeles, CA; San Diego, CA; Denver, CO; 
Jacksonville, FL; Miami, FL; Port Canaveral, FL; St.Petersburg-
Clearwater, FL; Tampa, FL; Atlanta, GA; Honolulu, HI; Eastport, ID; 
Chicago, IL; New Orleans, LA; Boston, MA; Baltimore, MD; Houlton, ME; 
Jackman, ME; Portland, ME; Detroit, MI; Port Huron, MI; Sault Ste. 
Marie, MI; Minneapolis, MN; Great Falls, MT; Opheim, MT; Raymond, MT; 
Sweetgrass, MT; Alexandria Bay, NY; Buffalo, NY; Champlain, NY; New 
York, NY; Stewart Airport, Newburgh, NY; Dunseith, ND; Pembina, ND; 
Portal, ND; Portland, OR; San Juan, PR; Galveston, TX; Houston, TX; 
Highgate Springs, VT; Blaine, WA; Lynden, WA; Oroville, WA; Seattle, 
WA; Spokane, WA; Sumas, WA; and Tacoma, WA; and
    (3) If offered for entry at a Canadian land border port listed in 
Sec. 92.203(b), without an import permit; and
    (4) If consigned directly to slaughter from the port of entry, 
without being treated for ectoparasites within 3 to 14

[[Page 27802]]

days before shipment to the United States, as otherwise required by 
Sec. 92.104(c)(8).
    (c) Ratite eggs from Canada. Hatching eggs of ratites that were 
laid in Canada may be imported into the United States:
    (1) Without being quarantined upon arrival in the United States; 
and
    (2) At any of the ports of entry listed in paragraph (b)(2) of this 
section or authorized by Sec. 92.105(a); and
    (3) If offered for entry at a Canadian land border port listed in 
Sec. 92.203(b), without an import permit.

    Done in Washington, DC, this 28th day of May 1996.
Lonnie J. King,
Administrator, Animal and Plant Health Inspection Service.
[FR Doc. 96-13810 Filed 5-31-96; 8:45 am]
BILLING CODE 3410-34-P

Complete official Federal Register PDF

FR Doc. 96-13805 Federal Acquisition Regulation; Government Property

[Federal Register Volume 61, Number 107 (Monday, June 3, 1996)]
[Proposed Rules]
[Page 27851]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-13805]

=======================================================================
-----------------------------------------------------------------------

DEPARTMENT OF DEFENSE

48 CFR Parts 45 and 52

Federal Acquisition Regulation; Government Property

AGENCY: Department of Defense.

ACTION: Notice of public meetings.

-----------------------------------------------------------------------

SUMMARY: The next public meetings of the Government Property Rewrite 
Team are scheduled for June 19 and 20, 1996 (and might continue on June 
21, 1996, if necessary). Discussion will focus on a draft revision of 
FAR Part 45--Government Property and associated contract clauses.

DATES: Public Meetings: The public meetings will be conducted at the 
address shown below from 9:30 a.m. to 5:00 p.m., local time, on June 
19, 20, and, if necessary, June 21, 1996.

ADDRESSES: Public Meetings: The public meetings will be held in the 4th 
floor conference room, VSE Corporation, 2550 Huntington Ave., 
Alexandra, VA 22303.

FOR FURTHER INFORMATION CONTACT: Ms. Angelena Moy, by telephone at 
(703) 695-1097/1098, or by FAX at (703) 695-7596.

SUPPLEMENTARY INFORMATION:

Draft Materials

    Drafts of the materials to be discussed at the public meetings are 
available electronically in Microsoft Word 6.0 and ASCII text formats 
at the Major Policy Initiatives Internet Office Home Page--http://
www.acq.osd.mil/dp/mpi/
 Obtain paper copies from Ms. Angelena Moy, PDUSD (A&T) DP/MPI, Room 
3C128, The Pentagon, Washington DC 20301-3060.

Background

    The Director, Defense Procurement, is leading an Inter-Agency team 
that is considering revisions to the Federal Acquisition Regulation 
(FAR) Part 45, Government Property, which will reduce administrative 
burdens imposed by Part 45 on contractors and government personnel and 
improve government property management and disposal business processes. 
The Director, Defense Procurement, is providing a forum for an exchange 
of ideas and information with government and industry personnel by 
holding public meetings, soliciting public comments, and publishing 
notices of the public meetings in the Federal Register. The June 1996 
public meetings are intended to obtain comments or suggestions 
regarding the current draft FAR Part 45 which includes new and revised 
material recommended by public and government sources during and 
subsequent to the November 1995 public meetings.
Michele P. Peterson,
Executive Editor, Defense Acquisition Regulation Council.
[FR Doc. 96-13805 Filed 5-31-96; 8:45 am]
BILLING CODE 5000-04-M

Complete official Federal Register PDF

FR Doc. 96-13801 Standards for Conduct and Evaluation of Activities Carried Out by the Office of Educational Research and Improvement (OERI)Designation of Exemplary and Promising Programs

[Federal Register Volume 61, Number 107 (Monday, June 3, 1996)]
[Proposed Rules]
[Pages 27990-27993]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-13801]

[[Page 27989]]

_______________________________________________________________________

Part V

Department of Education

_______________________________________________________________________

34 CFR Part 701

Standards for Conduct and Evaluation of Activities Carried Out by the 
Office of Educational Research and Improvement (OERI)--Designation of 
Exemplary and Promising Programs; Proposed Rule

Federal Register / Vol. 61, No. 107 / Monday, June 3, 1996 / Proposed 
Rules

[[Page 27990]]

DEPARTMENT OF EDUCATION

34 CFR Part 701

RIN 1850-AA52

Standards for Conduct and Evaluation of Activities Carried Out by 
the Office of Educational Research and Improvement (OERI)--Designation 
of Exemplary and Promising Programs

AGENCY: Department of Education.

ACTION: Notice of proposed rulemaking (NPRM).

-----------------------------------------------------------------------

SUMMARY: The Assistant Secretary is developing these standards pursuant 
to the Office of Educational Research and Improvement's authorizing 
legislation, the ``Educational Research, Development, Dissemination, 
and Improvement Act of 1994.'' The major purpose of these standards is 
to provide quality assurance that programs designated by the Department 
of Education as either exemplary or promising have met criteria that 
will allow educators, professional organizations, and others to use 
these programs with confidence.

DATES: Comments must be received on or before August 2, 1996.

ADDRESSES: All comments concerning these proposed regulations should be 
addressed to Eve M. Bither, U.S. Department of Education, 555 New 
Jersey Avenue, N.W., Room 500, Washington, D.C. 20208-5530. Comments 
may also be sent through the Internet to: (Eve__B[email protected]).
    Comments that concern information collection requirements should be 
sent to the Office of Management and Budget at the address listed in 
the Paperwork Reduction Act section of this preamble.

FOR FURTHER INFORMATION CONTACT: Sharon Bobbitt, U.S. Department of 
Education, 555 New Jersey Avenue, N.W., Room 508, Washington, D.C. 
20208-5643. Telephone: (202) 219-2126. Internet: 
(Sharon__B[email protected]).
    Individuals who use a telecommunications device for the deaf (TDD) 
may call the Federal Information Relay Service (FIRS) at 1-800-877-8339 
between 8 a.m. and 8 p.m., Eastern time, Monday through Friday.

SUPPLEMENTARY INFORMATION:

Background

    On March 31, 1994, President Clinton signed Pub. L. 103-227, which 
includes Title IX, the ``Educational Research, Development, 
Dissemination, and Improvement Act of 1994'' (the ``Act''). The Act 
restructured the Office of Educational Research and Improvement (OERI) 
and provided it with a broad mandate to conduct an array of research, 
development, dissemination, and improvement activities aimed at 
strengthening the education of all students.

Statutory Requirements

    The legislation directed the Assistant Secretary to develop, in 
consultation with the National Educational Research Policy and 
Priorities Board, such standards as may be necessary to govern the 
conduct and evaluation of all research, development, and dissemination 
activities carried out by the Office to ensure that those activities 
meet the highest standards of professional excellence. The legislation 
requires that the standards be developed in three phases.
    In the first phase, standards were promulgated to establish the 
peer review process and evaluation criteria to be used for the review 
of applications for grants and cooperative agreements and proposals for 
contracts. The final regulations setting out these standards were 
published in the Federal Register on September 14, 1995 (60 FR 47808). 
These proposed regulations address the second phase of development by 
establishing the criteria to be used in reviewing potentially exemplary 
and promising educational programs. The Assistant Secretary will 
publish at a later date additional proposed regulations for phase three 
of the standards, which are to govern evaluation of the performance of 
recipients of grants and contracts and cooperative agreements with 
OERI.
    The OERI legislation requires that expert panels be established to 
review educational programs and recommend to the Secretary those 
programs that should be designated as exemplary or promising and 
disseminated through the Department's National Education Dissemination 
System. The legislation further requires the Assistant Secretary to 
develop standards that describe the procedures the panels will use in 
reviewing the educational programs. Section 941(a)(3) of the 
legislation broadly defines ``educational program'' to include 
``educational polices, research findings, practices and products.'' 
Educational programs may range in size and complexity from an 
individual instructional program--such as an elementary school science 
program--to a comprehensive reform initiative involving multiple goals 
and participants. Programs at all levels of education--preschool, 
elementary, secondary, and postsecondary--are eligible for 
consideration.
    The Act also requires that the Assistant Secretary review the 
procedures utilized by the National Institutes of Health (NIH), the 
National Science Foundation (NSF), and other Federal departments or 
agencies engaged in research and development and actively solicit 
recommendations from research organizations and members of the general 
public.
    In developing the review and evaluation procedures for the proposed 
standards, OERI has reviewed and considered dissemination practices and 
procedures used for identifying promising and exemplary programs by 
various foundations, research organizations, associations, and Federal 
agencies including NIH, NSF, the Federal Emergency Management Agency, 
the Department of Health and Human Services, and the National Endowment 
for the Arts. OERI adapted these review and evaluation procedures as 
appropriate.

Proposed Standards

    The proposed standards have been developed by the Assistant 
Secretary in consultation with the Board. The standards proposed in 
this NPRM--
     Require that expert panels be established to review 
educational programs and recommend to the Secretary those programs that 
should be designated as exemplary or promising and disseminated through 
the Department's National Education Dissemination System; and
     Establish a process that panels will use to review and 
evaluate educational programs and determine which programs to recommend 
to the Secretary for designation as exemplary or promising.
    Educational programs may be submitted at any time for consideration 
for designation as exemplary or promising. In addition, the Assistant 
Secretary will periodically establish and announce in the Federal 
Register specific topic areas of high priority for which programs will 
be invited or sought out. The legislation also provides that the 
Secretary may identify educational programs for the panels to review.
    Educational program submissions may include, as evidence of the 
effectiveness of the program, a range of assessments, evaluative 
information from users, and other objective performance indicators that 
are appropriate to the program. The legislation ensures that a panel 
may not eliminate any program from consideration based on the lack of 
one type of supporting data such as test scores.

[[Page 27991]]

    A standing group of experts, which will include teachers and 
others, will be appointed by the Assistant Secretary as appropriate. 
From that group, the Assistant Secretary will select members who have 
relevant knowledge and experience in specific topic areas to form 
expert panels to review programs in accordance with the criteria in 
these proposed regulations.
    In determining whether an educational program should be recommended 
as exemplary or promising, the panel is required by the legislation to 
consider (a) whether, based on empirical data, the program is effective 
and should be designated as exemplary, or (b) whether there is 
sufficient evidence to demonstrate that the program shows promise for 
improving student achievement and should be designated as promising. 
These proposed regulations require a panel to evaluate whether a 
program has met all of the criteria of educational effectiveness set 
forth in Subpart C of these proposed regulations. A panel may determine 
that a program shows promise for improving student achievement and 
recommend that the program be designated as promising if the program 
has met all of the criteria with respect to one context, or with one 
population. A panel may determine that a program is effective and 
recommend that the program be designated as exemplary if the program 
has met all of the criteria with respect to multiple contexts, or with 
multiple populations.
    Use of these criteria for evaluating programs will ensure that 
programs disseminated by the Department are high-quality, research-
based programs that have provided evidence indicating they have 
improved teaching or learning or both. The Department's dissemination 
system is designed to make programs available to the public as quickly 
as possible. The system will enable the Department to respond to all 
forms of requests for information and assistance, and to support the 
applications of research and best practice. The system will use 
electronic networking and the capabilities of:

National Research Institutes;
Educational Resources Information Center (ERIC);
Regional Educational Laboratories;
Department-supported technical assistance providers;
National Library of Education; and
Other public and private nonprofit entities, including education 
associations and networks.

    Prior to the adoption of these standards, exemplary programs were 
validated by the Department's Program Effectiveness Panel (PEP) and 
disseminated through the National Diffusion Network (NDN). With the 
adoption of these standards, the Department will recognize and 
disseminate promising educational programs in addition to exemplary 
programs.

Regulatory Flexibility Act Certification

    The Secretary certifies that these proposed regulations would not 
have a significant economic impact on a substantial number of small 
entities.
    The small entities that would be affected by these proposed 
regulations are small local educational agencies (LEAs) and private 
schools receiving Federal funds under this program. However, the 
regulations would not have a significant economic impact on the small 
LEAs and private schools affected, because the regulations would not 
impose excessive regulatory burdens or require unnecessary Federal 
supervision. The regulations would impose minimal requirements to 
ensure the proper expenditure of program funds.

Paperwork Reduction Act of 1995

    Section 701.4 contains information collection requirements. As 
required by the Paperwork Reduction Act of 1995, the Department of 
Education will submit a copy of this section to the Office of 
Management and Budget (OMB) for its review. (44 U.S.C. 3504(h))
    These regulations affect the following types of entities eligible 
to submit a program for review: Any public or private agency, 
organization or institution, or individual.
    The public reporting burden is estimated to range from 2 to 6 hours 
for each program submitted for review. The actual burden will be 
determined by how much descriptive information about their program each 
entity wishes to provide.
    Organizations and individuals desiring to submit comments on the 
information collection requirements should direct them to the Office of 
Information and Regulatory Affairs, OMB, Room 10235, New Executive 
Office Building, Washington, D.C. 20503; Attention: Wendy Taylor.
    The Department considers comments by the public on this proposed 
collection of information in--
     Evaluating whether the proposed collection of information 
is necessary for the proper performance of the functions of the 
Department, including whether the information will have practical 
utility;
     Evaluating the accuracy of the Department's estimate of 
the burden of the proposed collection of information, including the 
validity of the methodology and assumptions used;
     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, including through the use of appropriate 
automated, electronic, mechanical, or other technological collection 
techniques or other forms of information technology (e.g., permitting 
electronic submission of responses).
    OMB is required to make a decision concerning the collection of 
information contained in these proposed regulations between 30 and 60 
days after publication of this document in the Federal Register. 
Therefore, a comment to OMB 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.

Invitation To Comment

    Interested persons are invited to submit comments and 
recommendations regarding these proposed regulations.
    All comments submitted in response to these proposed regulations 
will be available for public inspection, during and after the comment 
period, in Room 600, 555 New Jersey Avenue, NW., Washington, DC, 
between the hours of 8:30 a.m. and 4 p.m., Monday through Friday of 
each week except Federal holidays.

Assessment of Educational Impact

    The Secretary particularly requests comments on whether the 
proposed regulations in this document would require transmission of 
information that is being gathered by or is available from any other 
agency or authority of the United States.

List of Subjects in 34 CFR Part 701

    Education, Educational research, Reporting and recordkeeping 
requirements.

    Dated: May 22, 1996.

(Catalog of Federal Domestic Assistance Number does not apply)
Sharon P. Robinson,
Assistant Secretary for Educational Research and Improvement.

    The Secretary proposes to amend Chapter VII of Title 34 of the Code 
of Federal Regulations by adding a new Part 701 to read as follows:

[[Page 27992]]

PART 701--STANDARDS FOR CONDUCT AND EVALUATION OF ACTIVITIES 
CARRIED OUT BY THE OFFICE OF EDUCATIONAL RESEARCH AND IMPROVEMENT 
(OERI)--DESIGNATION OF EXEMPLARY AND PROMISING PROGRAMS

Subpart A--General

Sec.
701.1  What is the purpose of these standards?
701.2  What definitions apply?
701.3  What entity is eligible to submit a program for review?
701.4  What must an entity submit for review?

Subpart B--Selection of Panel Members

701.10  How are panels established?
701.11  Who may serve as a member of the standing group?
701.12  How is the membership of expert panels determined?

Subpart C--The Expert Panel Review Process

701.20  How does an expert panel evaluate programs?
701.21  What is the difference between an exemplary and a promising 
program?
701.22  What criteria are used to evaluate programs for exemplary or 
promising designation?

    Authority: 20 U.S.C. 6011(i)

Subpart A--General

Sec. 701.1   What is the purpose of these standards?

    (a) The standards in this part implement section 941(d) of the 
Educational Research, Development, Dissemination, and Improvement Act 
of 1994.
    (b) These standards are intended to provide quality assurance that 
programs designated by the Department of Education as either exemplary 
or promising have met criteria that will allow educators, professional 
organizations, and others to use these programs with confidence.

(Authority: 20 U.S.C. 6011(i)(2)(E))

Sec. 701.2   What definitions apply?

    Definition in the Educational Research, Development, Dissemination, 
and Improvement Act of 1994. The following term used in this part is 
defined in 20 U.S.C. 6041(a)(3):

Educational program

(Authority: 20 U.S.C. 6041(a)(3))

Sec. 701.3   What entity is eligible to submit a program for review?

    Any public or private agency, organization, or institution, or an 
individual, may submit an educational program for review.

(Authority: 20 U.S.C. 6011(i)(2)(E))

Sec. 701.4   What must an entity submit for review?

    (a) To have its educational program considered for designation as 
exemplary or promising, the eligible entity must submit to the 
Secretary a description of the program and a discussion of the 
program's educational effectiveness, responsive to the criteria in 
Subpart C, Sec. 701.22.
    (b) Information submitted must include, to the extent relevant to 
the particular program--
    (1) A program abstract of 250 words or less;
    (2) A description of the salient features of the program;
    (3) A description of the program's philosophy and history;
    (4) Site information, including demographics;
    (5) A description of evaluation results;
    (6) Funding and staffing information; and
    (7) Organization name, address, telephone and fax numbers, e-mail 
address (if available), and contact person.

(Authority: 20 U.S.C. 6011(i)(2)(E))

Subpart B--Selection of Panel Members

Sec. 701.10   How are panels established?

    (a) The Assistant Secretary, in consultation with the National 
Educational Research Policy and Priorities Board established under 20 
U.S.C. 6021, establishes a standing group of educational experts. The 
Assistant Secretary may expand the membership of the standing group as 
necessary.
    (b) The Assistant Secretary selects members from the standing 
group, based on their areas of expertise, to serve on expert panels in 
specific topic areas for the purpose of reviewing and evaluating 
educational programs and recommending, to the Secretary, those programs 
that should be designated as exemplary or promising.

(Authority: 20 U.S.C. 6011(i)(2)(E), 6041(d))

Sec. 701.11   Who may serve as a member of the standing group?

    An individual may serve as a member of the standing group for the 
purpose of reviewing and evaluating educational programs for exemplary 
or promising status if that individual possesses two or more of the 
following qualifications:
    (a) Demonstrated expertise and experience in one or more specific 
educational areas.
    (b) Demonstrated expertise and experience across a broad range of 
educational policies and practices.
    (c) Experience in evaluating educational programs.
    (d) Experience or expertise in developing educational products.
    (e) Current employment as a teacher, principal or other school-
based or community-based professional (such as a guidance counselor, 
school media specialist, or health professional).

(Authority: 20 U.S.C. 6011(i)(2)(E), 6041(d))

Sec. 701.12   How is the membership of expert panels determined?

    (a) For the review of each program, or group of programs, the 
Assistant Secretary establishes an expert panel comprised of 
individuals who are members of the standing group.
    (b) In establishing the membership of each expert panel, the 
Assistant Secretary--
    (1) Selects individuals who have in-depth knowledge of the subject 
area or content of the program or group of programs to be evaluated;
    (2) Selects at least one current teacher, principal, or other 
school-based or community-based professional;
    (3) Ensures that no more than one-third of the panel members are 
employees of the Federal Government; and
    (4) Ensures that each panel member does not have a conflict of 
interest, as determined in accordance with paragraph (c) of this 
section, with respect to any educational program the panel member is 
asked to review.
    (c) Panel members are considered employees of the Department for 
the purposes of conflicts of interest analysis and are subject to the 
provisions of 18 U.S.C. 208, 5 CFR 2635.502, and the Department's 
policies used to implement those provisions.

(Authority: 20 U.S.C. 6011(i)(2)(E), 6041(d))

Subpart C--The Expert Panel Review Process

Sec. 701.20   How does an expert panel evaluate programs?

    (a) Each panel member shall--
    (1) Independently review each program based on the criteria in 
Sec. 701.22;
    (2) Provide written comments based on an analysis of the strengths 
and weaknesses of the program according to the criteria;
    (3) Participate in site visits if appropriate; and
    (4) Participate in a meeting of the expert panel, if appropriate, 
to discuss the reviews.
    (b) A panel may not eliminate an educational program from 
consideration based solely on the fact that the program does not have 
one specific type of supporting data, such as test scores.

[[Page 27993]]

    (c) Each expert panel shall make a recommendation to the Secretary 
as to whether the program is exemplary, promising, or neither.

(Authority: 20 U.S.C.6011(i)(2)(E), 6041(d))

Sec. 701.21   What is the difference between an exemplary and a 
promising program?

    (a) A panel may recommend to the Secretary that a program be 
designated as promising if the panel determines that the program has 
met each of the criteria of educational effectiveness in Sec. 701.22 
with respect to one context or one population.
    (b) A panel may recommend to the Secretary that a program be 
designated as exemplary if the panel determines that the program has 
met each of the criteria of educational effectiveness in Sec. 701.22 
with respect to multiple contexts or multiple populations.

(Authority: 20 U.S.C.6011(i)(2)(E), 6041(d)(2))

Sec. 701.22   What criteria are used to evaluate programs for exemplary 
or promising designation?

    In determining whether an educational program (``program'' includes 
educational polices, research findings, practices and products) should 
be recommended as exemplary, promising, or neither, each expert panel 
shall consider the following criteria of educational effectiveness:
    (a) Evidence of success. The expert panel considers--
    (1) Whether, based on a range of assessments, information from 
users, or other indicators as appropriate, the program contributes to 
solving substantial or important problems in teaching or learning; and
    (2) The extent to which--
    (i) Program effects are beneficial to the populations for whom the 
program was designed; or
    (ii) The product performs as expected for the educational consumers 
it was said to benefit.
    (b) Quality of the program. The expert panel considers--
    (1) Whether the program has clear goals, is based on sound research 
and practice, and incorporates accurate and up-to-date content;
    (2) Whether the program represents a substantially improved 
alternative to existing options;
    (3) The extent to which the program promotes equity and is free of 
bias based on race, gender, age, culture, ethnic origin, disability, or 
limited English proficiency status;
    (4) Whether the program is based on high expectations for the 
success of all participants;
    (5) Whether the program is appropriate to the target audiences; and
    (6) The extent to which any materials associated with the program 
conform to accepted standards of technical quality.
    (c) Educational significance. The expert panel considers--
    (1) The extent to which the program has the potential to increase 
knowledge or understanding of educational problems, and issues, or 
effective strategies for teaching or learning; and
    (2) Whether the program is described clearly enough so that it can 
be adapted or adopted in new sites.
    (d) Usefulness to others. The expert panel considers--
    (1) Whether the cost of the program (including money, staff time, 
and other required resources) is reasonable in light of expected 
benefits and compared to other alternatives; and
    (2) Whether the program is available for use by others.

(Authority: 20 U.S.C. 6011(i)(2)(E), 6041(d)(2))

[FR Doc. 96-13801 Filed 5-31-96; 8:45 am]
BILLING CODE 4000-01-P

Complete official Federal Register PDF

FR Doc. 96-13746 New England Fishery Management Council; Meeting

[Federal Register Volume 61, Number 107 (Monday, June 3, 1996)]
[Proposed Rules]
[Pages 27862-27863]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-13746]

-----------------------------------------------------------------------

DEPARTMENT OF COMMERCE
50 CFR Parts 650 and 651

[I.D. 052296A]

New England Fishery Management Council; Meeting

AGENCY: National Marine Fisheries Service (NMFS), National Oceanic and 
Atmospheric Administration (NOAA), Commerce.

ACTION: Public meeting.

-----------------------------------------------------------------------

SUMMARY: The New England Fishery Management Council (Council) will hold 
a 2-day public meeting to consider actions affecting New England 
fisheries in the exclusive economic zone.

DATES: The meeting will begin on Wednesday, June 5, 1996, at 10 a.m. 
and on Thursday, June 6, 1996, at 8:30 a.m.

ADDRESSES: The meeting will be held at the King's Grant Inn, Route 128 
and Trask Lane, Danvers, MA; telephone (508) 774-6800. Requests for 
special accommodations should be addressed to the New England Fishery 
Management Council, 5 Broadway, Saugus, MA 01906-1097; telephone: (617) 
231-0422.

FOR FURTHER INFORMATION CONTACT: Douglas G. Marshall, Executive 
Director, (617) 231-0422.

SUPPLEMENTARY INFORMATION:

June 5, 1996

    After introductions, the June 5 session will begin with the 
Groundfish Committee Report. Issues associated with the implementation 
of Amendment 7 to the Council's Northeast Multispecies Fishery 
Management Plan (Multispecies FMP) will be discussed along with 
amendment measures disapproved by the Secretary of Commerce. The 
committee also will provide an update on several pending framework 
adjustments to the plan, including possible modification of

[[Page 27863]]

gillnet effort reduction measures, establishment of area closures in 
the Gulf of Maine to protect juvenile and spawning fish, the possession 
limit for haddock, and Southern New England mesh size rules. There will 
be an update on the development of a plan amendment to address 
management of the whiting fishery and informal industry meetings on the 
displacement of fishing effort to New England inshore areas.
    During the afternoon session, a representative of the Office of 
Sustainable Development will brief the Council on Commerce's program to 
reduce fishing capacity in the groundfish fleet by paying vessel owners 
to retire vessels and their fishing privileges. The Marine Mammal 
Committee will then discuss a recommendation to initiate framework 
adjustment to the Multispecies FMP. If approved as an initial action, 
the Council would expand the timing of the Mid-coast Closure Area, 
currently in place to reduce the bycatch of harbor porpoise in the Gulf 
of Maine sink gillnet fishery, to include the period September 15 
through October 31. The afternoon agenda will conclude with a 
discussion of the Monkfish Committee's recommendation for an 
overfishing definition and management alternatives to be reviewed at 
future public hearings.

June 6, 1996

    The June 6 session will begin with reports from the Council 
Chairman, Executive Director, Director, Northeast Region, NMFS 
(Regional Director), and representatives from the Northeast Fisheries 
Science Center, Atlantic States Marine Fisheries Commission, U.S. Coast 
Guard, and the Mid-Atlantic Council. The Herring Committee will discuss 
mid-water trawl operations during the October 1 through 21 spawning 
closure period and a request for a herring fishery in the areas closed 
for groundfish conservation. The Large Pelagics Committee will discuss 
proposed regulations for Atlantic tunas, followed by the Gear Conflict 
Committee report. The Council will review recent public hearing 
comments on the development of a framework adjustment process to 
address gear conflicts through Council management plans. At the 
recommendation of the Sea Scallop Committee, the Council may take final 
action on Framework Adjustment 8 to the Atlantic Sea Scallop Fishery 
Management Plan (Scallop FMP). If approved, the action would allow some 
vessels fishing with dredges to also use nets to harvest sea scallops 
if they meet certain criteria. Scallop regulations currently prohibit 
dredge vessels from using nets to harvest scallops. The Council may 
also approve a new location for establishment of a temporary 
experimental use area 10 miles south of Martha's Vineyard for sea 
scallop research, enhancement, and aquaculture. The action would be 
submitted as Amendment 5 to the Scallop FMP. The meeting will conclude 
after the Council considers Illex squid management recommendations from 
the ad hoc Squid, Mackerel and Butterfish Committee and the conclusion 
of any other outstanding business.

Abbreviated Rulemaking--Atlantic Sea Scallops

    At the recommendation of its Scallop Committee, the Council will 
consider final action on Framework Adjustment 8 to the Scallop FMP 
under the framework for abbreviated rulemaking procedure contained in 
50 CFR 650.40. The Council proposes to allow vessels that have used a 
scallop dredge five times or less from 1988 through 1994 to continue to 
use nets to catch scallops. Options for determining whether it is 
impractical for vessels to use dredges include a change of owners, 
total refitting of the vessel, and horsepower limits.

Abbreviated Rulemaking Action--Northeast Multispecies

    The Council will consider initial action on Framework Adjustment 15 
to the Northeast Multispecies FMP under the framework for abbreviated 
rulemaking procedure contained in 50 CFR 651.40. The Council proposes 
to reduce further the bycatch of harbor porpoise in the Gulf of Maine 
sink gillnet fishery by expanding the closure period in the Mid-coast 
Area. Currently, the use of sink gillnets is prohibited from November 1 
through December 31. This adjustment would add September 15 through 
October 31 to the existing closure period. No change in area is 
proposed although the Council may recommend an experimental fishery to 
continue the assessment of the use of acoustic deterrents to mitigate 
the porpoise bycatch.
    The Council will consider public comments at a minimum of two 
Council meetings prior to making any final recommendations to the 
Regional Director, under the provisions for abbreviated rulemaking 
cited above. If the Regional Director concurs with the measures 
proposed by the Council, he will publish them as a final rule in the 
Federal Register.
    The Council will address any other outstanding business at the 
conclusion of the agenda items described above.

Special Accommodations

    The meeting is physically accessible to people with disabilities. 
Requests for sign language interpretation or other auxiliary aids 
should be directed to Douglas G. Marshall (see ADDRESSES) at least 5 
days prior to the meeting date.

    Dated: May 28, 1996.
Richard W. Surdi,
Acting Director, Office of Fisheries Conservation and Management, 
National Marine Fisheries Service.
[FR Doc. 96-13746 Filed 5-31-96; 8:45 am]
BILLING CODE 3510-22-F

Complete official Federal Register PDF

FR Doc. 96-13732 Land Records and Title Documents

[Federal Register Volume 61, Number 107 (Monday, June 3, 1996)]
[Proposed Rules]
[Pages 27822-27824]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-13732]

-----------------------------------------------------------------------

DEPARTMENT OF THE INTERIOR
25 CFR Part 150

RIN 1076-AD43

Land Records and Title Documents

AGENCY: Bureau of Indian Affairs, Interior.

ACTION: Proposed rule.

-----------------------------------------------------------------------

SUMMARY: The purpose of this rulemaking action is to revise the Land 
Records and Title Documents regulations. This rule was identified for 
reinvention under the National Performance Review. It is written in 
plain English to make the rule easier to read and understand for Indian 
landowners and Bureau realty staff.

DATES: Comments by interested parties must be in writing and we must 
receive them before August 2, 1996.

ADDRESSES: You must mail or hand carry your comments to Terrance 
Virden, Acting Director, Office of Trust Responsibilities, Bureau of 
Indian Affairs, Department of the Interior, 1849 C Street, N.W., MS 
4513 MIB, Washington, D.C. 20240.

FOR FURTHER INFORMATION CONTACT: Alice Harwood, Acting Chief, Division 
of Real Estate Services, Bureau of Indian Affairs, Department of the 
Interior, 1849 C Street, N.W., MS 4510 MIB, Washington, D.C. 20240.

SUPPLEMENTARY INFORMATION: We are publishing this proposed rule by the 
authority delegated by the Secretary of the Interior to the Assistant 
Secretary--Indian Affairs by 209 DM 8.
    Our policy is to give the public an opportunity to participate in 
the rule making process by submitting written comments regarding 
proposed rules. We will consider all comments received during the 
public comment period. We will determine necessary revisions and issue 
the final rule. Please refer to this preamble's ADDRESSES section for 
where you must submit your written comments on this proposed rule.
    We certify to the Office of Management and Budget (OMB) that these 
proposed regulations meet the applicable standards provided in Sections 
2(a) and 2(b)(2) of Executive Order 12778.
    This is not a significant rule under Executive Order 12866 and does 
not require review by the Office of Management and Budget.
    This rule imposes no unfunded mandates on any governmental or 
private entity and is in compliance with the provisions of the Unfunded 
Mandates of 1995.
    The information collection requirements in this part do not require 
approval by OMB under 44 U.S.C. 3501 et seq.
    We determined this proposed rule:
    (a) Will not have a significant economic impact on a substantial 
number of small entities under the Regulartory Flexibility Act (5 
U.S.C. 601 et seq.);
    (b) Does not constitute a major Federal action significantly 
affecting the human environment, and no detailed statement is needed 
under the Environmental Policy Act of 1969;
    (c) Does not have significant takings implications in accordance 
with Executive Order 12630; and
    (d) Does not have significant federalism effects.
    This rule was written by Quentin M. Jones, Division of Real Estate 
Services.

List of Subjects in 25 CFR Part 150

    Indians-lands.

    For the reasons set out in the preamble, we propose to revise Part 
150 of Title 25 of the Code of Federal Regulations, as follows:

PART 150--LAND RECORDS AND TITLE DOCUMENTS

Sec.
150.1  Definitions.
150.2  Purpose.
150.3  Why do we keep land title records?
150.4  What documents must be submitted for recording and who can 
submit them?
150.5  What are the responsibilities of the Land Titles and Records 
Offices?
150.6  Where are the Land Titles and Records Offices?
150.7  What other offices have title service responsibilities?
150.8  What if errors are discovered during the recording process?
150.9  When do I need a record of a land title?
150.10  How do I get a copy of a certified land title record, title 
status map, or a copy of a title document?
150.11  What are the restrictions for access to land records, title 
documents, and title reports?
150.12  What is a land status map and who prepares it?

    Authority: Act of June 30, 1834 (4 Stat. 738; 25 U.S.C. 9). Act 
of July 26, 1892 (27 Stat. 272; 25 U.S.C. 5). Reorganization Plan 
No. 3 of 1950 approved June 20, 1949 (64 Stat. 1262). (The Act of 
April 26, 1906 (34 Stat. 137); the Act of May 27, 1908 (35 Stat. 
312); and the Act of August 1, 1914 (38 Stat. 582, 598) deal 
specifically with land records of the Five Civilized Tribes.)

Sec. 150.1  Definitions.

    Administrative Law Judge means an employee of the Office of 
Hearings and Appeals, Department of the Interior, who has authority to 
probate the trust or restricted estates of deceased Indians.
    Agency means an Indian Agency or other field unit of the Bureau of 
Indian Affairs having Indian land under its immediate jurisdiction.
    Bureau means the Bureau of Indian Affairs.
    Commissioner means the Commissioner of Indian Affairs or authorized 
representative.
    Indian land means all lands held in trust by the United States for 
individual Indians or tribes, or all lands, titles to which are held by 
individual Indians or tribes, subject to Federal restrictions against 
alienation or encumbrance, or all lands which are subject to the rights 
of use, occupancy and/or benefit of certain tribes. For purposes of 
this part, the term Indian land also includes land for which the title 
is held in fee status by Indian tribes, and U.S. Government-owned land 
under Bureau jurisdiction.
    Land means real property or any interests therein.
    Land Titles and Records Office means offices within the Bureau of 
Indian Affairs with the Federal responsibility to record, provide 
custody, and maintain records that affect titles to Indian lands, to 
examine and evaluate titles, and to provide title status reports.
    Manager means the officer in charge of a Land Titles and Records 
Office.
    Recordation or recording means the acceptance of a title document 
by the appropriate Land Titles and Records Office. The purpose of 
recording is to provide evidence of a transaction, event, or happening 
that affects land titles to preserve a record of the title, to give 
constructive notice of the ownership, change of ownership, and the 
existence of encumbrances to the land.
    Secretary means the Secretary of the Interior or authorized 
representative.
    Superintendent means the designated officer in charge of an Agency.
    Title document means any document that affects the title to or 
encumbers Indian land and is required to be recorded by regulation or 
Bureau policy.
    Title examination means an examination and evaluation by a 
qualified title examiner for the completeness and accuracy of title 
documents.
    Title status report means a report issued after a title examination 
which shows the proper legal description of a tract of Indian land; 
current ownership, including any applicable conditions, exceptions, 
restrictions, or encumbrances on record; and whether

[[Page 27823]]

the land is in unrestricted, restricted, trust, or other status as 
indicated by the records in a Land Titles and Records Office.
    Tribe means a tribe, band, nation, community, rancheria, colony, 
pueblo or other federally recognized group of Indians.

Sec. 150.2  Purpose.

    This part contains the authorities, policy, and procedures 
governing the recording, custody, maintenance, use, and certification 
of title documents, and the issuance of title status reports for Indian 
land.

Sec. 150.3  Why do we keep land title records?

    (a) We are required to make and keep a record of every deed or 
document showing:
    (1) Who has rights and interests in Indian land;
    (2) The extent or amount of the rights and interests; and
    (3) Where the Indian land is located.
    (b) If you are an Indian land owner you may be required to provide 
copies of documents showing title to the land for approval of land use 
activity or its financing.

Sec. 150.4  What documents must be submitted for recording, and who can 
submit them?

    (a) Title documents other than probate records. If we approve or 
execute a deed or other conveyance of an interest in land executed by 
an Indian, his heirs, representatives, or assigns, which may require 
the approval of the President of the United States or the Secretary of 
the Interior, we must submit the original, a signed duplicate, or a 
certified copy for recording.
    (b) Probate records. Under 43 CFR part 4, Subpart D, Administrative 
Law Judges must submit the original record of Indian probate decisions 
and copies of petitions for rehearing, reopening, and other appeals to 
the appropriate Land Titles and Records Office.

Sec. 150.5  What are the responsibilities of the Land Titles and 
Records Offices?

    In addition to our record keeping responsibility, we:
    (a) Certify copies or make reproductions of title documents which 
can be admitted into evidence the same as the original. The fees for 
certified copies are established by a uniform fee schedule that is 
published in 43 CFR part 2, Appendix A.
    (b) Produce title status reports, real property inventories for 
probate proceedings, and title status maps.

Sec. 150.6  Where are the Land Titles and Records Offices?

------------------------------------------------------------------------
                                              BIA jurisdictional areas  
                 Location                              served           
------------------------------------------------------------------------
Aberdeen, South Dakota....................  Aberdeen and Minneapolis.   
Albuquerque, New Mexico...................  Albuquerque, Navajo, and    
                                             Phoenix.                   
Anadarko, Oklahoma........................  Anadarko, and Miami Agency  
                                             in Muskogee.               
Billings, Montana.........................  Billings.                   
Portland, Oregon..........................  Portland.                   
------------------------------------------------------------------------

Sec. 150.7  What other offices have title service responsibilities?

    (a) Muskogee Area Office is the office of record and performs 
limited title functions for all Indian land of the Five Civilized 
Tribes.
    (b) The Juneau Area Office has title service responsibility for the 
Juneau area.
    (c) The Cherokee Agency has title service responsibility for the 
Eastern Cherokee Reservation.
    (d) The Eastern Area Office is the office of record and provides 
title service responsibility for Indian land located under its 
jurisdiction.
    (e) The Sacramento Area Office has title service responsibility for 
Indian land located under its jurisdiction.
    (f) The Central office in Washington, D.C., provides title services 
for all other Indian land not shown above, including the land of the 
Absentee Wyandottes.

Sec. 150.8  What if errors are discovered during the recording process?

    When errors are discovered, we will:
    (a) Notify the originating office if an error is traced to a 
defective title document, other than a probate record; and
    (b) Initiate corrective action for errors discovered in probate 
records, as follows:
    (1) Issue an administrative modification to include any Indian land 
omitted from the inventory if the property is located in the same state 
and takes the same line of descent as the original probate decision. 
Authority is delegated to the Commissioner by 43 CFR 4.272 to make 
these modifications except on Indian reservations covered by special 
Inheritance Acts (43 CFR 4.300);
    (2) Send copies of administrative modifications to the appropriate 
Administrative Law Judge, agencies with jurisdiction over the Indian 
land, and to all persons who share in the estate;
    (3) Notify the Superintendent when other types of probate errors 
require corrective action by Administrative Law Judges;
    (4) Issue administrative corrections to correct probate errors 
which are clerical in nature and which do not affect vested property 
rights or involve questions of due process; and
    (5) Send copies of administrative corrections to the appropriate 
Administrative Law Judge and agency.

Sec. 150.9  When do I need a record of a land title?

    When you:
    (a) Are required by state, tribal or federal law to show ownership 
or interest;
    (b) Wish to make contracts or agreements requiring a showing of 
ownership or interest;
    (c) Wish to respond to a request that you show proof of rights and 
interests in Indian land; or
    (d) Wish to make a will or gift to include Indian land.

Sec. 150.10  How do I get a copy of a certified land title record, 
title status map, or copy of a title document?

    You must submit a written request to a Bureau agency or area 
office. That office will issue a written request, clearly identifying 
the tract of land, to the appropriate Land Titles and Records Office.

Sec. 150.11  What are the restrictions for access to land records, 
title documents, and title reports?

    (a) We allow access to land records and title documents unless 
access is restricted by the Privacy Act, 5 U.S.C. 552a, Freedom of 
Information Act, 5 U.S.C. 552, or other law restricting access. Unless 
authorized, monetary considerations on leases of tribal land will not 
be disclosed.
    (b) If information concerns individuals and is protected by the 
Privacy Act, we will not release it without their permission.

Sec. 150.12  What is a land status map and who prepares it?

    Land status maps reflect the individual tracts, tract numbers, and 
current status of the tract. The Land Titles and Records Offices 
prepare and maintain maps of all reservations and similar land areas 
within their jurisdictions. Base maps are prepared from plats of 
official survey made by the General Land Office and the Bureau of Land 
Management. These base maps show prominent physical features, sections, 
townships, and range lines and are used to prepare land status maps. 
The office also prepares other special maps, such as plats and townsite 
maps.

[[Page 27824]]

    Dated: May 22, 1996.
Ada E. Deer,
Assistant Secretary--Indian Affairs.
[FR Doc. 96-13732 Filed 5-31-96; 8:45 am]
BILLING CODE 4310-02-P

Complete official Federal Register PDF

FR Doc. 96-13731 Management by the Tribe and the Ute Distribution Corporation of the Ute Indian Tribe's Undivided Tribal Assets on the Uintah and Ouray Reservations, Utah

[Federal Register Volume 61, Number 107 (Monday, June 3, 1996)]
[Proposed Rules]
[Pages 27831-27833]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-13731]

-----------------------------------------------------------------------

DEPARTMENT OF THE INTERIOR
25 CFR Part 217

RIN 1076-AD37

Management by the Tribe and the Ute Distribution Corporation of 
the Ute Indian Tribe's Undivided Tribal Assets on the Uintah and Ouray 
Reservations, Utah

AGENCY: Bureau of Indian Affairs, Interior.

ACTION: Proposed rule.

-----------------------------------------------------------------------

SUMMARY: The Bureau of Indian Affairs (BIA) is proposing to amend the 
regulations governing the procedures, under the Secretary of the 
Interior's supervision, for jointly managing the undivided assets of 
the Ute Indian Tribe. This rule was identified for reinvention under 
the National Performance Review. It is written in plain English to make 
the rule easier to read and understand.

DATES: Comments must be received on or before August 2, 1996.

ADDRESSES: Mail or hand carry comments to Terrance Virden, Acting 
Director, Office of Trust Responsibilities, Bureau of Indian Affairs, 
Department of the Interior, 1849 C St. NW, Mail Stop 4513-MIB, 
Washington, DC 20240.

FOR FURTHER INFORMATION CONTACT: Kim Synder, Division of Energy and 
Minerals, Bureau of Indian Affairs at telephone (202) 208-3607.

SUPPLEMENTARY INFORMATION: Publication of the proposed rule by the 
Department of the Interior (Department) provides the public an 
opportunity to participate in the rulemaking process. Interested 
persons may submit written comments regarding the proposed rule to the 
location identified in the ``addresses'' section of this document.
    We certify to the Office of Management and Budget (OMB) that these 
proposed regulations meet the applicable standards provided in sections 
2(a) and 2(b)(2) of Executive Order 12778.
    This is not a significant rule under Executive Order 12866 and does 
not require review by the Office of Management and Budget.
    This rule imposes no unfunded mandates on any government or private 
entity and is in compliance with the provisions of the Unfunded 
Mandates Act of 1995.
    The information collection requirements in this part do not require 
approval by OMB under 44 U.S.C. 3501 et seq.
    We determined this proposed rule:
    (a) Will not have a significant economic impact on a substantial 
number of small entities under the Regulatory Flexibility Act (5 U.S.C. 
601 et seq.);
    (b) Does not constitute a major Federal action significantly 
affecting the quality of the human environment and no detailed 
statement is required under the National Environmental Policy Act of 
1969;
    (c) Does not have significant takings implications in accordance 
with Executive Order 12630; and
    (d) Does not have significant federalism effects.
    This rule was written by the Bureau of Indian Affairs' Regulatory 
Review Action Team.

List of Subjects in 25 CFR Part 217

    Indians-claims, Indians-land, mineral resources.
    For the reasons set out in the preamble, we propose to revise Part 
217 of Title 25 of the Code of Federal Regulations as follows:

PART 217--MANAGEMENT BY THE TRIBE AND THE UTE DISTRIBUTION 
CORPORATION OF THE UTE INDIAN TRIBE'S UNDIVIDED TRIBAL ASSETS ON 
THE UINTAH AND OURAY RESERVATION, UTAH

Sec.
217.1  What do certain terms mean?
217.2  What is the authority for this part?
217.3  What is the purpose of this part?
217.4  How do proceeds divide between the two groups?
217.5  What is the Secretary's role under this part?
217.6  How is wildlife managed?
217.7  What is the Joint Advisory Board and what do they do?
217.8  Must joint managers document decisions and file reports?
217.9  Who collects payments from mineral interests?
217.10  How are errors in paying mineral interests corrected?

    Authority: 25 U.S.C. 677z.

Sec. 217.1  What do certain terms mean?

    Act means the Act of August 27, 1954, 68 Stat. 868, 25 U.S.C. 677-
677aa, commonly referred to as the ``Ute Partition Act'' or the ``Ute 
Termination Act,'' as amended by the Act of August 2, 1956, 70 Stat. 
936, and the Act of September 25, 1962, 76 Stat. 597.
    Affiliated Ute Citizens of Utah (AUC) means the organization that 
represented the mixed-blood members of the Ute Indian Tribe to help 
partition and distribute divisible tribal assets and carry out other 
purposes under the Act before August 27, 1961, 12 midnight.
    Asset means any real, personal, or mixed property of the tribe, 
whether held by the tribe or by the United States in trust for them, or 
restricted from division by the United States.
    Full-blood means a member of the tribe who is on the final roll of 
full-bloods published April 5, 1956, 21 FR 2208, and also anyone 
enrolled later as a tribal member under the tribe's constitution, by-
laws, and ordinances.
    Indian mineral interest means any interest in minerals United 
States holds in trust to benefit the full-bloods and mixed-bloods, 
individually or as a tribe.
    Mixed-blood means a person who is on the final roll of mixed-bloods 
published April 5, 1956, 21 FR 2208. The mixed-blood roll is closed.
    Secretary means the Secretary of the Interior or other person 
acting under the Secretary's authority.
    Tribal Business Committee means the governing body of the Ute 
Indian Tribe, created under the tribe's constitution and by-laws.
    Tribe means the Ute Indian Tribe of the Uintah and Ouray 
Reservation, Utah. Starting April 5, 1956, when the

[[Page 27832]]

final rolls were published, the tribe has consisted exclusively of 
full-blood members, as determined by the tribe's constitution, by-laws, 
and ordinances.
    Undivided assets means those which are unadjudicated or 
unliquidated claims against the United States and rights in gas, oil, 
and minerals. They also consist of other assets existing on April 5, 
1956, which can't be distributed equitably and practically, including 
wildlife and the right to hunt and fish.
    Ute Distribution Corporation (UDC) means the corporation organized 
by the Affiliated Ute Citizens of Utah (AUC), under the Act and the 
laws of the State of Utah. The AUC irrevocably delegated authority to 
the UDC to represent the mixed-blood members of the tribe in joint 
management of undivided assets and to receive and distribute their net 
proceeds to stockholders of the UDC.

Sec. 217.2   What is the authority for this part?

    The basic authority for this part is the Act itself, 25 U.S.C. 
677z, but we have also tried to follow the decrees and directions of 
the federal courts in the following cases: Affiliated Ute Citizens v. 
United States, 406 U.S. 128 (1972); Reyos v. United States, 431 F.2d 
1337 (10th Cir. 1970); Affiliated Ute Citizens of Utah v. United 
States, 431 F.2d 1349 (10th Cir. 1970); United States v. Felter, 546 F. 
Supp. 1002 (D. Utah 1982); United States v. Felter, 752 F.2d 1505 (10th 
Cir. 1985); Murdock v. Ute Indian Tribe, et al., No. 91-4112, Slip. Op. 
(10th Cir. Sept. 9, 1992); and Affiliated Ute Citizens v. Ute Indian 
Tribe, Donald Hodel, et al., Federal District Court for Utah, 85-C-
0569J, Memorandum Opinion and Order, February 3, 1987, and Memorandum 
Opinion and Order, November 16, 1992.

Sec. 217.3   What is the purpose of this part?

    This part provides procedures for jointly managing undivided assets 
of the Ute Indian tribe, under the Secretary's supervision. In managing 
these assets, Tribal Business Committee represents the full-blood 
group, and the Ute Distribution Corporation (UDC) represents the mixed-
blood group.

Sec. 217.4   How do proceeds divide between the two groups?

    (a) The proceeds divide between the two groups in proportion to the 
number of persons on final membership rolls published April 5, 1956, in 
21 FR 2208. Based on these rolls, they received a certain percentage of 
all divisible assets; they have also received, and will continue to 
receive, the same percentages of net proceeds from undivided assets:
    (1) Full-bloods: 72.83814 percent;
    (2) Mixed-bloods: 27.16186 percent.
    (b) These percentages don't change, even though tribal membership 
has changed, and the type and number of UDC stockholders varies as they 
transfer stock. Originally, UDC's stockholders were all the people 
listed on the final roll of mixed-bloods.
    (c) The tribe and the UDC pay their own costs for managing 
undivided assets.

Sec. 217.5   What is the Secretary's role under this part?

    (a) Under this part, the Secretary's standard responsibilities 
include--
    (1) Supervising how the Tribal Business Committee and the UDC 
manage the Ute tribe's undivided assets;
    (2) Receiving the proceeds from undivided assets and, after 
deducting internal costs, dividing the net proceeds between the UDC and 
the tribe according to the established percentages;
    (3) Signing patents, deeds, assignments, releases, certificates, 
contracts, or other instruments needed to carry out the Act or to 
establish a marketable and recordable title to property disposed of 
under the Act (25 U.S.C. 677y).
    (b) If the Tribal Business Committee or the UDC's Board of 
Directors notifies the Secretary that they disagree on how to handle 
undivided assets, he or she--
    (1) Partitions the tribe's assets lawfully, equitably, and fairly 
to both groups (25 U.S.C. 677i);
    (2) Issues a written decision resolving the disagreement within 30 
days of receiving the notice; and
    (3) States this decision in letters to all interested parties.
    (c) The Secretary also handles other responsibilities stated in the 
Act or elsewhere in federal law.

Sec. 217.6   How is wildlife managed?

    Based on decisions in federal courts, wildlife on the Uintah and 
Ouray Reservation, Utah is an undivided asset because no one can 
equitably divide the tribe's or individual Indian's right to hunt and 
fish on it. Specifically, the rights of mixed-bloods to hunt and fish 
on the reservation will end whenever the last mixed-blood listed on the 
final roll dies. Thus, the Tribal Business Committee and the UDC must 
jointly manage the regulation of wildlife and hunting and fishing by 
tribal members and by mixed-bloods on the final roll.

Sec. 217.7   What is the Joint Advisory Board and what do they do?

    (a) The Joint Advisory Board is a group the Secretary may establish 
permanently or to consider a particular issue. It includes 
representatives of--
    (1) The Tribe;
    (2) The UDC; and
    (3) The Secretary.
    (b) The Joint Advisory Board:
    (1) Considers anything that concerns managing undivided assets;
    (2) If organized to consider a specific task, investigates and 
recommends actions on that task to the Secretary;
    (3) Transmits its decisions in writing to the Tribal Business 
Committee, the UDC's Board of Directors, and the Secretary.

Sec. 217.8   Must joint managers document decisions and file reports?

    Yes. The Tribal Business Committee and UDC's Board of Directors 
must:
    (a) Write out and place an authorized member's signature on all 
decisions or legal documents;
    (b) Accompany each decision or document with a resolution 
authorizing it to be signed;
    (c) Send all decisions or documents to the Secretary for approval 
or disapproval; and
    (d) File annual reports to the Secretary:
    (1) From the Tribal Business Committee on management of undivided 
assets to the tribal membership;
    (2) From UDC's Board of Directors on management of hunting and 
fishing to the mixed-bloods and of all other undivided assets to UDC 
stockholders.

Sec. 217.9   Who collects payments from mineral interests?

    The Minerals Management Service collects payments from mineral 
interests and sends them to the Bureau of Indian Affairs' Office of 
Trust Fund Management. Trust Fund Management deposits the money in a 
joint management account or Individual Indian Money account in the 
United States Treasury.

Sec. 217.10   How are errors in paying mineral interests corrected?

    (a) An error that results in underpaying or overpaying the tribe, 
UDC, or an allottee usually gets corrected within six months. The 
period may be longer if the amount is too large. The BIA's Office of 
Trust Fund Management takes money from the joint management account or 
diverts money that would otherwise go to an Individual Indian Money 
account and places it in the account of the appropriate joint manager 
or allottee. The amount includes principal and interest earned, as well 
as penalties, if any.
    (b) Reporting of an error depends on its source. If the error 
results from--

[[Page 27833]]

    (1) An action by BIA, the joint managers, or an allottee, the 
Secretary must immediately notify the BIA's Office of Trust Fund 
Management and the Minerals Management Service (MMS) of the error and 
how to correct it;
    (2) An action or inaction by MMS, a lessee, payee, or a person or 
company legally associated with a lessee, MMS must immediately notify 
the BIA's Office of Trust Fund Management of the error and how to 
correct it.

    Dated: May 22, 1996.
Ada E. Deer,
Assistant Secretary--Indian Affairs.
[FR Doc. 96-13731 Filed 5-31-96; 8:45 am]
BILLING CODE 4310-02-P

Complete official Federal Register PDF

FR Doc. 96-13729 General Agriculture and Range Regulations

[Federal Register Volume 61, Number 107 (Monday, June 3, 1996)]
[Proposed Rules]
[Pages 27824-27831]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-13729]

-----------------------------------------------------------------------

DEPARTMENT OF THE INTERIOR
25 CFR Part 166

RIN 1076-AD04

General Agriculture and Range Regulations

AGENCY: Bureau of Indian Affairs, Interior.

ACTION: Proposed rule.

-----------------------------------------------------------------------

SUMMARY: The purpose of this rule making action is to revise and rename 
the General Grazing Regulations to include provisions of the American 
Indian Agricultural Resource Management Act (AIARMA) enacted December 
3, 1993. The American Indian Agricultural Resource Management Act 
reaffirmed many aspects of the existing Indian agriculture program and 
established new program direction for agriculture trespass, management 
planning, and agriculture education assistance.

DATES: Comments must be submitted on or before October 1, 1996.

ADDRESSES: Mail comments to: Mr. Mark Bradford, Bureau of Indian 
Affairs, Division of Land and Water, 1849 C Street, N.W., Mail Stop 
4559 MIB, Washington, D.C. 20240.

FOR FURTHER INFORMATION CONTACT: Mr. Mark Bradford, Bureau of Indian 
Affairs, Division of Land and Water, telephone (202) 208-3598.

SUPPLEMENTARY INFORMATION: The proposed rule was developed with the 
participation of the affected Indian and Alaska Native public. Bureau 
of Indian Affairs (BIA) and tribal representatives formed four work 
groups (Leasing, Trespass, Education and, Management Plans) and a 
steering committee. The work groups first met in March 1994. We 
distributed three thousand copies of the first draft of the regulations 
for comment on April 29, 1994. The first draft did not provide for a 
consolidation of the permitting provisions in 25 CFR Parts 162 and 166.
    We conducted five formal hearings throughout the nation. The second 
draft was distributed for comment on June 28, 1994. The second draft 
included a cross-references summary sheet which showed how most of the 
permitting provisions in the existing Part 166 would be incorporated in 
Subpart D of the proposed Part 162, but it did not include the text of 
the proposed Subpart D. Input from these meetings and feedback from 
initial drafts were considered and addressed in this proposed rule.
    The AIARMA was enacted on December 3, 1993 (107 Stat. 2011, 25 
U.S.C. 3701 et seq.), and amended on November 2, 1994 (108 Stat. 4572). 
Section 102(a) of the AIARMA requires that all ``land management 
activities''--defined in Section 4(12)(D) to include the 
``administration and supervision of agricultural leasing and permitting 
activities, including a determination of proper land use, * * * 
appraisal, advertisement, negotiation, contract preparation, 
collecting, recording, and distributing lease rental receipts''--
conform to agricultural resource management plans, integrated resource 
management plans, and all tribal laws and ordinances. Section 102(b) 
requires that we recognize and enforce all tribal laws and ordinances 
which regulate land use or pertain to Indian agricultural land, and 
provide notice of such laws and ordinances to individuals or groups 
``undertaking activities'' on any affected land. Section 102(c) 
authorizes--but does not require--waivers of federal regulations or 
administrative policies which conflict with an agricultural resource 
management plan or a tribal law. Please note, Sections 102 (a)-(c) 
expressly provide for the recognition of only those tribal laws which 
do not conflict with federal law or our trust responsibility.
    Sections 105(b) (1)-(4) allows tribes to supersede our rules and 
regulations on preferences, bonding, and the leasing or permitting of 
heirship land, but Section 105(c)(3) allows individual landowners to 
exempt their land from these specific types of tribal actions where the 
owners of at least a 50% interest in such land object in writing.
    This proposed rule is published in exercise of authority delegated 
by the Secretary of the Interior to the Assistant Secretary-Indian 
Affairs by 208 DM 8.
    The policy of the Department of the Interior is, whenever 
practical, to afford the public an opportunity to participate in the 
rule making process. Accordingly, interested persons may submit written 
comments on the proposed rule to the location identified in the 
addresses section of this document.
    This document has been reviewed under Executive Order 12866 and is 
not a significant rule requiring Office of Management and Budget 
review. It will not have a significant economic impact on a substantial 
number of small entities under the Regulatory Flexibility Act (5 U.S.C. 
601 et seq.).
    The Department of the Interior has determined that this proposed 
rule does not constitute a major Federal action significantly affecting 
the quality of the human environment and that no detailed statement is 
required pursuant to the National Environmental Policy Act of 1969. 
This proposed rule was compiled by four workgroups comprised of BIA and 
tribal representatives.
    The information collection requirements contained in this part do 
not require approval by the Office of Management and Budget under 44 
U.S.C. 3501 et seq.

List of Subjects in 25 CFR Part 166

    Agriculture, Agricultural products, Education, Grazing lands, and 
Indian lands.

    For the reasons set out in the preamble, part 166 of title 25 of 
the Code of Federal Regulations is proposed to be revised as follows.

PART 166--GENERAL AGRICULTURE AND RANGE REGULATIONS

Subpart A--General Provisions

Sec.
166.1  Definitions.
166.2  Information collection.
166.3  What activities are regulated by this part?
166.4  What is BIA's Indian agriculture policy?
166.5  When will the BIA recognize tribal laws?
166.6  How is Indian agricultural land managed?

Subpart B--Indian Agricultural Land Trespass

166.20  What is our trespass policy?
166.21  How do tribes get concurrent civil jurisdiction?
166.22  What is agricultural trespass?
166.23  How are trespassers notified?
166.24  What actions are taken against trespassers?
166.25  What are the penalties, damages, and costs payable by 
trespassers?
166.26  How are the proceeds from trespass distributed?
166.27  What happens if you do not settle a civil trespass case?
166.28  How can you appeal our decisions?

Subpart C--Agriculture Education, Education Assistance, Recruitment and 
Training

166.30  How are the Indian agriculture education programs operated?
166.31  How can you become an agriculture intern?
166.32  How can you become an agriculture cooperative education 
student?
166.33  How can you get an agriculture scholarship?
166.34  What is agriculture education outreach?
166.35  Who can get assistance for postgraduate studies?
166.36  What can happen if we recruit you after graduation?

[[Page 27825]]

166.37  Who can be an intergovernmental intern?
166.38  Who can participate in continuing education and training?
166.39  What are your obligations to us after you participate in an 
agriculture education program?
166.40  What happens if you do not fulfill your obligation to us?

    Authority: 5 U.S.C.301; R.S. 463, 25 U.S.C. 2; R.S. 465, 25 
U.S.C. 9; and by sec. 6, 69 Stat. 986, 25 U.S.C. 466. Interpret or 
apply R.S. 2078, 25 U.S.C. 68; R.S. 2117, 25 U.S.C. 179; sec. 3, 26 
Stat. 795, 25 U.S.C. 397; sec. 1, 28 Stat. 305, 25 U.S.C. 402; sec. 
4, 36 Stat. 856, 25 U.S.C. 403; sec. 1, 39 Stat. 128, 25 U.S.C. 394; 
sec. 1, 41 Stat. 1232, 25 U.S.C. 393; C. 158, 47 Stat. 1417, 25 
U.S.C. 413; secs. 16, 17, 48 Stat. 987, 988, 25 U.S.C. 476, 477; C. 
210, 53 Stat. 840, 25 U.S.C. 68a, 87a; C. 554, 54 Stat. 745, 25 
U.S.C. 380; secs. 1, 2, 4, 5, 6, 69 Stat. 539, 540, 25 U.S.C. 415, 
415a, 415b, 415c, 415d,25 U.S.C. 3701, 3702, 3703, 3711, 3712, 3713, 
3714, 3731, 3732, 3733, 3734, 3741, 3742, 3743, 3744, 3745, 107 
Stat. 2011.

Subpart A--General Provisions

Sec. 166.1  Definitions.

    Agricultural product means:
    (a) Crops grown under cultivated conditions whether used for 
personal consumption, subsistence, or sold for commercial benefit, 
excluding any crop that is defined as illegal by tribal or Federal 
statute;
    (b) Domestic livestock, including cattle, sheep, goats, horses, 
buffalo, swine, reindeer, fowl, or other animals specifically raised 
and used for food or fiber or as a beast of burden;
    (c) Forage, hay, fodder, food grains, crop residues and other items 
grown or harvested for the feeding and care of livestock, sold for 
commercial profit, or used for other purposes; and
    (d) Other marketable or traditionally used materials authorized for 
removal from Indian agricultural lands.
    Approved organization means the Bureau of Indian Affairs, a tribe, 
tribal agricultural enterprise, Alaska Native Claims Settlement Act 
Corporation, or other Federal agencies providing agricultural services 
on Indian reservations.
    Authorized officer means any tribal or Bureau person authorized to 
detect and investigate Indian agricultural lands trespass of Public Law 
103-177.
    Beneficial owner means the individual or entity who holds an 
ownership or contractual or permitted interest in Indian land.
    Bureau means the Bureau of Indian Affairs of the Department of the 
Interior.
    Fair market value means the value of an agricultural product if 
sold, bartered, or traded within a competitive market, including 
appropriate seasonal or replacement values.
    Farmland means Indian land, excluding Indian forest land, that is 
used for production of food, feed, fiber, forage and seed oil crops or 
other agricultural products, and may be either dryland, irrigated, or 
irrigated pasture.
    Indian agricultural lands means Indian land, including farmland and 
rangeland, excluding Indian forest land (except where authorized 
grazing occurs) that is used for the production of agricultural 
products, and Indian lands occupied by industries that support the 
agricultural community, regardless of whether a formal inspection and 
land classification has been conducted.
    Indian land means land that is:
    (a) Held in trust by the United States for an Indian tribe; or
    (b) Owned by an Indian or Indian tribe and is subject to 
restrictions against alienation.
    Indian tribe means any Indian tribe, band, nation, pueblo, or other 
organized group or community, including any Alaska Native village or 
regional corporation as defined in or established pursuant to the 
Alaska Native Claims Settlement Act (43 U.S.C. 1601 et seq.), which is 
recognized as eligible for the special programs and services provided 
by the United States to Indians because of their status as Indians.
    Individual Indian means any person for whom the United States holds 
title to property in trust status, or holds title subject to federal 
restrictions against alienation or encumbrance.
    Land use authorization means a permit, lease, plan of operation, or 
instrument issued or approved by the authorized officer for the 
legitimate utilization of Indian agricultural lands or removal of 
resources from them.
    Lawful authority means a tribal or Bureau land use authorization or 
a right granted by tribal or Federal law or statute.
    Rangeland means Indian land, excluding Indian forest land, on which 
the native vegetation is predominantly grasses, grass-like plants, 
forbs, half-shrubs or shrubs suitable for grazing or browsing use, and 
includes lands revegetated naturally or artificially to provide a 
forage cover that is managed as native vegetation.
    Trespass means any use, occupancy, or development of Indian 
agricultural lands, without either a prior tribal or Bureau land use 
authorization or a right granted by tribal or Federal law or statute.

Sec. 166.2  Information collection.

    The information collection requirements contained in this part do 
not require the approval of the Office of Management and Budget under 
44 U.S.C. 3504(h) et seq.

Sec. 166.3  What activities are regulated by this part?

    The regulations in this part apply to all Indian agriculture and 
range land except when this part is superseded by legislation.

Sec. 166.4  What is BIA's Indian agriculture policy?

    (a)We must:
    (1) Carry out the trust responsibility of the United States and 
facilitate the self-determination of Indian tribes by providing for the 
management of Indian agricultural lands and related renewable resources 
in a manner consistent with identified tribal goals and priorities for 
conservation, multiple use, and sustained yield;
    (2) Take part in the management of Indian agricultural lands, with 
the full and active participation of the beneficial owners of the land, 
in a manner consistent with our trust responsibility and with the 
objectives of the beneficial owners;
    (3) Develop and manage agricultural resources consistent with 
integrated resource management plans in order to protect and maintain 
other values such as wildlife, fisheries, cultural resources, and 
recreation.
    (4) Increase the educational and training opportunities available 
to Indian people and communities in the practical, technical and 
professional aspects of agriculture and land management to improve the 
expertise and technical abilities of Indian tribes and their members.
    (b) Any Indian agricultural land management activity we undertake 
must:
    (1) Protect, conserve, and maintain or improve the productivity of 
Indian agricultural and range lands through the use of sound 
conservation practices and techniques including best management 
practices, applicable tribal codes, and state of the art soil and range 
conservation management techniques in planning, development, 
inventorying, classification, and management of the agricultural 
resources.
    (2) Manage Indian agricultural lands to increase production and 
expand the diversity and availability of agricultural products for 
subsistence, income, and employment of Indians and Alaska Natives.
    (3) Manage Indian agricultural resources consistent with integrated 
resource management plans in order to protect and maintain other values 
such as wildlife, fisheries, cultural resources, and recreation.

[[Page 27826]]

    (4) Manage Indian agricultural lands to enable Indian farmers and 
ranchers to maximize the available benefits by providing technical 
assistance, training in conservation practices, management and 
economics of agribusiness, sources and use of credit and marketing of 
agricultural products and other applicable subject areas.
    (5) Develop Indian agricultural lands and associated value-added 
industries of Indians and Indian tribes to promote self-sustaining 
communities.
    (6) Assist trust and restricted landowners in leasing their 
agricultural lands for a reasonable annual return, consistent with 
prudent management and conservation practices, and community goals as 
expressed in the tribal management plans and appropriate tribal 
ordinances.

Sec. 166.5  When will the BIA recognize tribal laws?

    We must comply with tribal laws pertaining to Indian agricultural 
land, and cooperate with the enforcement of these laws on Indian 
agricultural land, unless doing this would violate Federal law or our 
trust responsibility. This cooperation does not constitute a waiver of 
United States sovereign immunity and includes:
    (a) Assisting in the enforcement of these laws;
    (b) Notifying persons or entities undertaking activities on Indian 
agricultural lands;
    (c) Appearing in tribal forums when requested by a tribe; and
    (d) Waiving sections of this part that conflict with tribal law or 
the objectives of an agricultural resource management plan. We must 
inform the tribes of any refusal to waive regulations.

Sec. 166.6  How is Indian agricultural land managed?

    (a) We will manage Indian agricultural land either directly or 
through contracts, compacts, cooperative agreements, or grants under 
the Indian Self-Determination and Education Assistance Act (Public Law 
93-638, as amended).
    (b) In close consultation with the affected tribes, we must prepare 
and revise as necessary an agricultural resource management plan for 
all Indian agricultural lands unless a tribe notifies us that a plan is 
not needed. We will follow the tribe's current public hearing and 
notice policies. In the absence of a tribal policy, we will develop a 
public hearing and notification plan within 90 days of beginning to 
write the plan for tribal approval.

Subpart B--Indian Agricultural Land Trespass

Sec. 166.20  What is our trespass policy?

    We will:
    (a) Ensure that all uses, occupancies, or developments of Indian 
agricultural land are properly authorized and that these authorizations 
do not cause undue or unnecessary damage to Indian agricultural land or 
the improvements on it;
    (b) Investigate and determine accidental, willful, or incidental 
trespass;
    (c) Resolve all alleged trespass, either administratively or 
civilly, in a prompt, efficient manner;
    (d) Recover the value of products, damage costs, and enforcement 
costs as a consequence of the trespass;
    (e) Ensure that unnecessary or undue damage to Indian lands by 
trespass activities is rehabilitated and/or stabilized at the expense 
of the trespasser; and
    (f) Determine if there are contractual or permit violations by 
lessees and permittees as well as other violations of other Federal or 
tribal laws separate from the regulations in this part.

Sec. 166.21  How do tribes get concurrent civil jurisdiction?

    Tribes that adopt the regulations in this section, conformed as 
necessary to tribal law, have concurrent civil jurisdiction to enforce 
25 U.S.C. 3713 and this section against any person.
    (a) We will acknowledge concurrent civil jurisdiction over 
trespass, when we receive:
    (1) A formal tribal resolution documenting the tribe(s)' adoption 
of this part; and
    (2) Notification from the tribe that its court system is able to 
properly adjudicate agricultural trespasses, including:
    (i) A statement that the tribal court will enforce the Indian Civil 
Rights Act; or
    (ii) A tribal civil rights law that contains provisions for due 
process and equal protection that are similar to or stronger than those 
contained in the Indian Civil Rights Act.
    (b) Where an Indian tribe acquires concurrent civil jurisdiction 
over trespass cases under paragraph (a) of this section, we and the 
authorized tribal representatives are jointly responsible for 
coordinating prosecution of trespass actions.
    (1) When a tribe makes a timely request, we will defer prosecution 
of agricultural trespasses to the tribe.
    (2) When a deferral is not requested, we will determine with the 
authorized tribal representatives how concurrent tribal and Federal 
trespass jurisdiction will apply to each trespass.
    (3) When an Indian tribe acquires concurrent jurisdiction but does 
not request deferral of prosecution, we will file and prosecute an 
action in the tribal court or forum.
    (c) We will rescind an Indian tribe's concurrent civil jurisdiction 
over trespass cases under this part if we or a court of competent 
jurisdiction determine that the tribal court has not adhered to the due 
process or equal protection requirements of the Indian Civil Rights 
Act. If a rescission is justified, we will notify in writing. The 
notice will include the findings that justify the rescission and the 
steps needed to remedy the violations causing the rescission. We will 
notify the chief judge of the tribal judiciary. If there is no chief 
judge, we will notify the other authorized tribal official. If the 
tribe does not take the steps we specify within 60 days, the rescission 
of concurrent civil jurisdiction will become final. The affected tribe 
can appeal a Notice of Rescission under Part 2 of Title 25.
    (d) Nothing in this part prohibits or diminishes the authority of a 
tribe to prosecute individuals under its criminal or civil trespass 
laws where it has jurisdiction over those individuals.

Sec. 166.22   What is agricultural trespass?

    The following uses or actions are acts of agricultural land 
trespass if unauthorized on land where a tribe has jurisdiction to 
enforce its laws:
    (a) Cultivating of irrigated or non-irrigated crops or the 
harvesting of native hay, forage, or seed;
    (b) Fencing or gates;
    (c) Developing water sources reserved to or administered by us;
    (d) Commercial filming or photography;
    (e) Sale or barter of goods or services;
    (f) Placing or storing of beehives;
    (g) Commercial use of Indian or tribally owned and controlled road 
or motorized vehicle use off road where prohibited;
    (h) Grazing;
    (i) Cutting, damaging, taking, harvesting, or removing of special 
agricultural products, including but not limited to: berries, nuts, 
flowers, seeds, moss, cones, leaves, mushrooms, cactus, yucca, and 
greenery for commercial purposes. (Non-commercial use of special 
agricultural products for religious and cultural traditions by tribal 
members are exempt);
    (j) Recreation, hunting, trapping, fishing, use of special areas, 
and developed recreation facilities;

[[Page 27827]]

    (k) Damaging or removing archaeological or paleontological 
resources;
    (l) Littering or disposing of agriculture related products, 
hazardous waste, household or business waste, or garbage.
    (m) Applying pesticides without tribal/Federal certification, 
misusing pesticides for purposes other than authorized by pesticide 
label, or appling pesticides at rates or solutions greater than label 
directions.
    (n) Aquaculture or the harvesting of fish raised for commercial 
sale or consumption; and
    (o) Other items designated by tribes as acts of Indian agricultural 
land trespass.

Sec. 166.23   How are trespassers notified?

    Unless otherwise provided under tribal law:
    (a) When there is reason to believe that Indian agricultural land 
or products are involved in trespass, we or the authorized tribal 
representative must immediately provide the following notice to the 
alleged trespasser, the possessor of trespass products, and any known 
lien holder:
    (1) Basis for the trespass determination;
    (2) Legal description of where trespass occurred;
    (3) Time frames for resolving the trespass; and
    (4) Actions that must be taken.
    (b) The actions may be:
    (1) Removal of the trespasser's property to prevent further loss, 
damage, or destruction to the Indian agricultural land; or,
    (2) Prohibition of removal of the agricultural products from the 
Indian agricultural land.

Sec. 166.24   What actions are taken against trespassers?

    (a) We will immediately take corrective action to protect Indian 
agricultural lands or products. If we seize agricultural products we 
may sell or dispose of them, if appropriate. We will keep equipment 
that we seize for use as evidence unless a court of competent 
jurisdiction orders otherwise.
    (b) Trespassers will be liable for fair market value of products 
illegally used or removed, and penalties and damages.
    (c) When there is reason to believe that Indian agricultural 
products are involved in trespass and the products have been removed to 
land not under our supervision, we must immediately notify the owner of 
the land or the party in possession of the trespass products that such 
products could be Indian trust property involved in a trespass and that 
no action to remove or otherwise dispose of the products may be taken 
unless authorized.
    (d) If we determine that the trespasser or possessor is unknown or 
refuses delivery of the trespass notice, the trespass notice will be 
posted at the tribal community building and the U.S. Post Office, and 
published in the local newspaper nearest to the Indian agricultural 
lands where the trespass is occurring.

Sec. 166.25   What are the penalties, damages, and costs payable by 
trespassers?

    (a) Trespassers may be assessed civil penalties such as the ones in 
the following table. Other penalties may also be assessed.

------------------------------------------------------------------------
           Penalty                              Comments                
------------------------------------------------------------------------
Double Damages...............  1. Must be based upon the highest value  
                                obtainable for the raw materials        
                                involved in the trespass.               
                               2. Must be assessed when a person without
                                lawful authority injures, severs, or    
                                carries off from a reservation any      
                                agricultural product.                   
                               3. Proof of Indian ownership of the      
                                premises and commission of the acts by  
                                the trespasser are prima facie evidence 
                                sufficient to support liability. There  
                                is no requirement to show willfulness of
                                intent.                                 
Costs associated with damage   Includes rehabilitation, revegetation,   
 to Indian land.                lost future revenue, lost profits, loss 
                                of productivity, damage to other        
                                resources, and other damages.           
Reasonable enforcement costs.  Includes detection, and all processes    
                                through prosecution and collection of   
                                damages. This covers field examination  
                                and survey, damage appraisal,           
                                investigation assistance and report     
                                preparation, witness expenses, demand   
                                letters, court costs, attorney fees, and
                                other costs.                            
Interest.....................  1. Must be based upon double the highest 
                                value obtainable for the raw materials  
                                involved in the trespass.               
                               2. Must be calculated at the highest rate
                                prescribed by tribal law. If there is no
                                tribal law, calculation must be based   
                                upon Federal law. Where there is no     
                                Federal law, calculation must be based  
                                upon judgments as prescribed by the law 
                                of the State where the trespass         
                                occurred.                               
                               3. Must be calculated from the date of   
                                the trespass until payment is made.     
------------------------------------------------------------------------

    (b) When the trespass actions have been resolved, but the 
trespasser has not settled civil penalties, damages, and costs, we will 
send a certified letter, return receipt requested, to the trespasser 
demanding immediate settlement. If settlement is not made within 5 
working days after date of receipt, we may refer the case to the 
appropriate prosecuting authority.

Sec. 166.26   How are the proceeds from trespass distributed?

    Unless otherwise provided under tribal law:
    (a) We will treat civil penalties and other damages collected under 
the regulations in this part, except for those related to land damage 
and enforcement costs, as proceeds from the sale of agricultural 
products from the Indian agricultural land upon which the trespass 
occurred.
    (b) If we confiscate and dispose of equipment, goods, or 
agricultural products from the trespasser, we will apply any cash or 
other proceeds to satisfy the civil penalties. If any money is left, we 
will return it to the trespasser. If we do not collect enough money 
from the trespasser, we will distribute civil penalties in accordance 
with the following table:

------------------------------------------------------------------------
               If we collect                We will distribute the money
------------------------------------------------------------------------
Damages up to the highest value of the      pro rata between the        
 trespass products.                          beneficial share and the   
                                             cost of restoring the land 
Damages over the highest value of the       pro rata between the        
 trespass product, but less than enough      beneficial share, the law  
 for full recovery.                          enforcement agency, and the
                                             cost of restoring the land 
------------------------------------------------------------------------

    (c) If beneficial owners trespass or are involved in trespass on 
their own land or undivided land in which they have a partial interest, 
they must not receive their beneficial share of any civil penalties and 
damages collected. If we collect civil penalties and damages as a 
result of a trespass, we will distribute them as follows:
    (1) Toward restoration of the land where the trespass occurred; and

[[Page 27828]]

    (2) Toward the enforcement agency's costs for rectifying the 
trespass.
    (d) We may accept payment of damages in the settlement of civil 
trespass cases. In the absence of a court order, we will determine the 
procedure and approve acceptance of any settlements negotiated by a 
tribe exercising its concurrent jurisdiction.

Sec. 166.27   What happens if you do not settle a civil trespass case?

    Unless otherwise provided by tribal law:
    (a) We will refuse to issue you a lease, permit, or license for 
use, development or occupancy, if you fail to make full payment of 
damages in the settlement of a civil trespass case.
    (b) If we determine that continuance of any use, occupancy, or 
development presents a risk to health, safety, or the environment, we 
will order an immediate, temporary suspension of the use, occupancy, or 
development before or during the pendency of an appeal. A person whose 
own direct economic interest is harmed by an action or decision may 
bring or participate in an appeal.

Sec. 166.28  How can you appeal our decisions?

    You may challenge an action we take under this part only through 
administrative appeal or under the Indian Self-Determination and 
Education Assistance Act only. The appeal must be filed in accordance 
with 25 CFR part 2, Appeal from administrative actions, except that an 
appeal of any action under this part must not stay any action unless we 
direct.

Subpart C--Agriculture Education, Education Assistance, Recruitment 
and Training

Sec. 166.30  How are the Indian agriculture education programs 
operated?

    (a) The purpose of the cooperative education program is to recruit 
and develop promising Indian and Alaska Natives who are enrolled in 
secondary schools, tribal or Alaska Native community colleges, and 
other post-secondary schools for employment as professional resource 
manager and other agriculture-related professionals by approved 
organizations.
    (b) We will operate the program in accordance with the provisions 
of 5 CFR 213.3202 (a) and (b).
    (c) We will establish an education committee to coordinate and 
carry out the agriculture education assistance programs and to select 
participants for all agriculture education assistance programs except 
the cooperative education program. The committee will include at least 
an American Indian professional educator in the field of natural 
resources or agriculture, a personnel specialist, a representative of 
the Intertribal Agriculture Council, and a natural resources or 
agriculture professional from the Bureau of Indian Affairs and a 
representative from American Indian Higher Education Consortium. The 
committee's duties will include the writing of a manual for the Indian 
and Alaska Native Agriculture Education and Assistance Programs.
    (d) We will monitor and evaluate the agriculture education 
assistance programs to ensure that there are adequate Indian and Alaska 
Native natural resources and agriculture-related professionals to 
manage Indian natural resources and agriculture programs by or for 
tribes and Alaska Native Corporations. Monitoring and evaluating will 
identify the number of participants in the intern, cooperative 
education, scholarship, and outreach programs; the number of 
participants who completed the requirements to become a natural 
resources or agriculture-related professional; and the number of 
participants completing advanced degree requirements.

Sec. 166.31  How can you become an agriculture intern?

    (a) The purpose of the agriculture intern program is to ensure the 
future participation of trained, professional Indians and Alaska 
Natives in the management of Indian and Alaska Native agricultural 
land. In keeping with this purpose, we will work with tribes and Alaska 
Natives:
    (1) To obtain the maximum degree of participation from Indians and 
Alaska Natives in the agriculture intern program;
    (2) To encourage agriculture interns to complete an undergraduate 
degree program in natural resources or agriculture-related field; and
    (3) To create an opportunity for the advancement of natural 
resources and agriculture-related technicians to professional resource 
management positions with the Bureau of Indian Affairs, other Federal 
agencies providing an agriculture service to their respective tribe, a 
tribe, or tribal agriculture enterprise.
    (b) Subject to restrictions imposed by agency budgets, we will 
establish and maintain in the BIA at least 20 positions for the 
agriculture intern program. All Indians and Alaska Natives who satisfy 
the qualification criteria may compete for positions.
    (c) Applicants for intern positions must meet the following 
criteria:
    (1) Be eligible for Indian preference as defined in 25 CFR part 5;
    (2) Possess a high school diploma or its recognized equivalent;
    (3) Be able to successfully complete the intern program within a 3-
year period; and
    (4) Possess a letter of acceptance to an accredited post-secondary 
school or demonstrate that one will be sent within 90 days.
    (d) We will advertise vacancies for agriculture intern positions 
semi annually, no later than the first day of April and October, to 
accommodate entry into school.
    (e) In selecting agriculture interns, we will seek to identify 
candidates who:
    (1) Have the greatest potential for success in the program;
    (2) Will take the shortest time period to complete the intern 
program; and
    (3) Provide the letter of acceptance required by paragraph (c)(4) 
of this section.
    (f) Agriculture interns must:
    (1) Maintain full-time status in an agriculture-related curriculum 
at an accredited post secondary school;
    (2) Maintain good academic standing;
    (3) Enter into an obligated service agreement to serve as a 
professional resource manager or agriculture-related professional with 
an approved organization for 2 years in exchange for each year in the 
program; and
    (4) Report for service with the approved organization during any 
break in attendance at school of more than 3 weeks. We will count this 
service toward satisfaction of the intern's obligated service.
    (g) The education committee will evaluate annually the performance 
of the agriculture intern program participants against requirements to 
ensure that they are satisfactorily progressing toward completion of 
program requirements.
    (h) We will pay all costs for tuition, books, fees and living 
expenses incurred by an agriculture intern while attending an 
accredited post secondary school.

Sec. 166.32  How can you become an agriculture cooperative education 
student?

    (a) To be considered for selection, applicants for the cooperative 
program must:
    (1) Meet the eligibility requirements and be subject to status 
requirements in 5 CFR Part 308; and
    (2) Be accepted into or enrolled in a course of study at an 
accredited post secondary institution which grants degrees in natural 
resources or agriculture-related curricula.

[[Page 27829]]

    (b) Cooperative education steering committees established at the 
field level will select program participants based on eligibility 
requirements without regard to applicants' financial needs.
    (c) A recipient of assistance under the cooperative education 
program will be required to enter into an obligated service agreement 
to serve as a natural resources or agriculture-related professional 
with an approved organization for one year in exchange for each year in 
the program.
    (d) We will pay all costs of tuition, books, fees, and 
transportation to and from the job site to school, for an Indian or 
Alaska Native student who is selected for the cooperative education 
program.

Sec. 166.33  How can you get an agriculture scholarship?

    (a) We may grant agriculture scholarships to Indians and Alaska 
Natives enrolled as full time students in accredited post-secondary and 
graduate programs of study in natural resources and agriculture-related 
curricula.
    (b) The education committee established in Sec. 166.30(a) will 
select program participants based on eligibility requirements 
stipulated in paragraphs (e) through (g) of this section without regard 
to applicants' financial needs or past scholastic achievements.
    (c) Recipients of scholarships must reapply annually to continue to 
receive funding beyond the initial award period. Students who have 
received scholarships in past years, are in good academic standing, and 
have been recommended for continuation by their academic institution 
will be given priority over new applicants for scholarship assistance.
    (d) The amount of scholarship funds an individual is awarded each 
year will be contingent upon the availability of funds appropriated 
each fiscal year and is subject to yearly change.
    (e) Preparatory scholarships are available for a maximum of 3 
academic years of general, undergraduate course work leading to a 
degree in natural resources or agriculture-related curricula and may be 
awarded to individuals who:
    (1) Possess a high school diploma or its recognized equivalent; and
    (2) Are enrolled and in good academic standing at an acceptable 
post secondary school.
    (f) Undergraduate scholarships are available for a maximum of three 
academic years and may be awarded to individuals who:
    (1) Have completed a minimum of 55 semester hours toward a 
bachelor's degree in a natural resources or agriculture-related 
curriculum; and
    (2) Have been accepted into a natural resource or agriculture-
related degree-granting program at an accredited college or university.
    (g) Graduate scholarships are available for a maximum of 5 academic 
years for individuals selected into the graduate program of an 
accredited college or university that grants advanced degrees in 
natural resources or agriculture-related fields.
    (h) A recipient of assistance under the scholarship program must 
enter into an obligated service agreement to serve as a natural 
resources or agriculture-related professional with the Bureau of Indian 
Affairs, other Federal agency providing assistance to their respective 
tribe, a tribe, tribal agriculture enterprise or ANCSA Corporation for 
one year for each year in the program.
    (i) We will pay all scholarships approved by the education 
committee established in Sec. 166.30(a) for which funding is available.

Sec. 166.34  What is agriculture education outreach?

    (a) We will establish and maintain an agriculture education 
outreach program for Indian and Alaska Native youth that will:
    (1) Encourage students to acquire academic skills needed to succeed 
in post secondary mathematics and science courses;
    (2) Promote agriculture career awareness;
    (3) Involve students in projects and activities oriented to 
agriculture related professions early so students realize the need to 
complete required pre college courses; and
    (4) Integrate Indian and Alaska Native agriculture program 
activities into the education of Indian and Alaska Native students.
    (b) We will develop and carry out the program in consultation with 
appropriate community education organizations, tribes, ANCSA 
Corporations, Alaska Native organizations and other federal agencies 
providing agriculture services to Indians.
    (c) The education committee established under Sec. 166.30(a) will 
coordinate and implement the program nationally.

Sec. 166.35  Who can get assistance for postgraduate studies?

    (a) The purpose of the postgraduate studies program is to enhance 
the professional and technical knowledge of Indian and Alaska Native 
natural resource and agriculture-related professionals working for an 
approved organization so that the best possible service is provided to 
Indian and Alaska Natives.
    (b) We may pay the cost of tuition, fees, books, and salary of 
Alaska Natives and Indians who are employed by an approved organization 
and who wish to pursue advanced levels of education in natural resource 
or agriculture-related fields.
    (c) The goal of the advanced study program is to encourage 
participants to obtain additional academic credentials such as a degree 
or diploma in a natural resources or agriculture-related field. 
Requirements of the postgraduate study program are:
    (1) the duration of course work cannot be less than one semester or 
more than three years; and
    (2) Students in the postgraduate studies program must meet 
performance standards as required by the graduate school offering the 
study program.
    (d) Program applicants must submit application packages to the 
education committee established under Sec. 166.30. At a minimum, such 
packages must contain a resume and an endorsement signed by the 
applicant's supervisor clearly stating the need for and benefits of the 
desired training.
    (e) The education committee must use the following criteria to 
select participants:
    (1) Need for the expertise sought at both the local and national 
levels;
    (2) Expected benefits, both locally and nationally; and
    (3) Years of experience and the service record of the employee.
    (f) Program participants will enter into an obligated service 
agreement to serve as a natural resources or agriculture-related 
professional with an approved organization for two years for each year 
in the program. We may reduce the obligated service requirement if the 
employee receives supplemental funding such as research grants, 
scholarships or graduate stipends and, as a result, reduces the need 
for financial assistance under this part. If the obligated service 
agreement is breached, we will collect the amount owed us in accordance 
with Sec. 166.37.

Sec. 166.36  What can happen if we recruit you after graduation?

    (a) The purpose of the postgraduation recruitment program is to 
recruit Indian and Alaska Native natural resource and trained 
agriculture technicians into the agriculture programs of approved 
organizations.
    (b) We may assume outstanding student loans from established 
lending institutions of Indian and Alaska Native natural resources and 
agriculture technicians who have successfully

[[Page 27830]]

completed a post-secondary natural resources or agriculture-related 
curriculum at an accredited institution.
    (c) Indian and Alaska Natives receiving benefits under this program 
will enter into an obligated service agreement in accordance with 
Sec. 166.38. Obligated service required under this program will be one 
year for every $5,000 of student loan debt repaid.
    (d) If the obligated service agreement is breached, we will collect 
student loan(s)in accordance with Sec. 166.39.

Sec. 166.37  Who can be an intergovernmental intern?

    (a) Natural resources or agriculture personnel working for an 
approved organization may apply for an internship within agriculture-
related programs of agencies of the Department of the Interior or other 
federal agencies providing an agriculture service to their respective 
reservations.
    (b) Natural resources or agriculture-related personnel from other 
Department of the Interior agencies may apply through proper channels 
for internships within Bureau of Indian Affairs agriculture programs 
and, with the consent of a tribe or Alaska Native organization, within 
tribal or Alaska Native agriculture programs.
    (c) Natural resources and agriculture personnel from agencies not 
within the Department of the Interior may apply, through proper agency 
channels and pursuant to an interagency agreement, for an internship 
within the Bureau of Indian Affairs and, with the consent of a tribe or 
Alaska Native organization, within a tribe, tribal agriculture 
enterprise or Alaska Native Corporation.
    (d) Natural resources or agriculture personnel from a tribe, tribal 
agriculture enterprise or Alaska Native Corporation may apply, through 
proper channels and pursuant to a cooperative agreement, for an 
internship within another tribe, tribal forest enterprise or ANCSA 
Corporation agriculture program.
    (e) The employing agency of participating Federal employees will 
provide for the continuation of salary and benefits.
    (f) The host agency for participating tribal, tribal agriculture 
enterprise or Alaska Native Corporation agriculture employees will 
provide for salaries and benefits.
    (g) A bonus pay incentive, up to 25 percent of the intern's base 
salary, may be provided to intergovernmental interns at the conclusion 
of the internship period. Bonus pay incentives will be at the 
discretion of and funded by the host organization and must be 
conditioned upon the host agency's documentation of the intern's 
superior performance, in accordance with the agency's performance 
standards, during the internship period.

Sec. 166.38   Who can participate in continuing education and training?

    (a) The purpose of continuing education and training is to 
establish a program to provide for the ongoing education and training 
of natural resources and agriculture personnel employed by approved 
organizations. This program will emphasize continuing education and 
training in three areas:
    (1) Orientation training including tribal-Federal relations and 
responsibilities;
    (2) Technical agriculture education; and
    (3) Developmental training in agriculture-based enterprises and 
marketing.
    (b) We will maintain an orientation program to increase awareness 
and understanding of Indian culture and its effect on natural resources 
management and agriculture practices and on Federal laws that effect 
natural resources management and agriculture operations and 
administration in the Indian agriculture program.
    (c) We will maintain a continuing technical natural resources and 
agriculture education program to assist natural resources managers and 
agriculture-related professionals to perform natural resources and 
agriculture management on Indian land.
    (d) We will maintain an agriculture land-based enterprise and 
marketing training program to assist with the development and use of 
Indian and Alaska Native agriculture resources.

Sec. 166.39   What are your obligations to us after you participate in 
an agriculture education program?

    (a) Individuals completing agriculture education programs with an 
obligated service requirement may be offered full time permanent 
employment with an approved organization to fulfill their obligated 
service within 90 days of the date all program education requirements 
have been completed. If employment is not offered within the 90-day 
period, the student will be relieved of obligated service requirements. 
Not less than 30 days before to the start of employment, the employer 
must notify the participant of the work assignment, its location and 
the date work must begin. If the employer is other than the Bureau of 
Indian Affairs, the employer must also notify us.
    (b) Employment time that can be credited toward obligated service 
requirement will begin the day after all program education requirements 
have been completed, with the exception of the agriculture intern 
program which includes the special provisions outlined in 
Sec. 166.31(f)(4). The minimum service obligation period will be one 
year of full time employment.
    (c) The employer has the right to designate the location of 
employment for fulfilling the service obligation.
    (d) A participant in any of the agriculture education programs with 
an obligated service requirement may, within 30 days of completing all 
program education requirements, request a deferment of obligated 
service to pursue postgraduate or post-doctoral studies. In such cases, 
we will issue a decision within 30 days of receipt of the request for 
deferral. We may grant such a request; however, deferments granted in 
no way waive or otherwise affect obligated service requirements.
    (e) A participant in any of the agriculture education programs with 
an obligated service requirement may, within 30 days of completing all 
program education requirements, request a waiver of obligated service 
based on personal or family hardship. We may grant a full or partial 
waiver or deny the request for wavier. In such cases, we will issue a 
decision within 30 days of receiving the request for waiver.

Sec. 166.40   What happens if you do not fulfill your obligation to us?

    (a) Any individual who accepts financial support under agriculture 
education programs with an obligated service requirement, and who does 
not accept employment or unreasonably terminates employment must repay 
us in accordance with the following table:

------------------------------------------------------------------------
                                  Costs that must be   Costs that do not
             Program                    repaid         need to be repaid
------------------------------------------------------------------------
Agriculture intern..............  Salary, tuition,    Salary paid during
                                   books, and fees     school breaks or 
                                   received while      when recipient   
                                   occupying           was employed by  
                                   position plus       an approved      
                                   interest.           organization.    
Cooperative education...........  Tuition, books,     ..................
                                   and fees plus                        
                                   interest.                            
Scholarship.....................  Costs of            ..................
                                   scholarship plus                     
                                   interest.                            

[[Page 27831]]

                                                                        
Postgradu-......................  All student loans   ..................
  ation re-.....................   assumed by us                        
  cruitment.....................   under the program                    
                                   plus interest.                       
Postgraduate studies............  Salary, tuition,    Salary paid during
                                   books, and fees     school breaks or 
                                   received while in   when recipient   
                                   the program plus    was employed by  
                                   interest.           an approved      
                                                       organization.    
------------------------------------------------------------------------

    (b) For agriculture education programs with an obligated service 
requirement, we will adjust the amount required for repayment by 
crediting toward the final amount of debt any obligated service 
performed before breach of contract.

    Dated: May 24, 1996.
Ada E. Deer,
Assistant Secretary--Indian Affairs.
[FR Doc. 96-13729 Filed 5-31-96; 8:45 am]
BILLING CODE 4310-02-P

Complete official Federal Register PDF

FR Doc. 96-13728 Contracts and Grants; School Construction; Special Grants to Small Tribes; Removal of Regulations

[Federal Register Volume 61, Number 107 (Monday, June 3, 1996)]
[Proposed Rules]
[Page 27833]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-13728]

-----------------------------------------------------------------------

DEPARTMENT OF THE INTERIOR
25 CFR Parts 271, 272, 274, 277 and 278

RIN 1076 AD 53

Contracts and Grants; School Construction; Special Grants to 
Small Tribes; Removal of Regulations

AGENCY: Bureau of Indian Affairs, Interior.

ACTION: Proposed Rule.

-----------------------------------------------------------------------

Summary: The Bureau of Indian Affairs (Bureau) is proposing the 
elimination of 25 CFR Parts 271, 272, 274, 277 and 278 as mandated by 
Executive Order 12866 to streamline the regulatory process and enhance 
the planning and coordination of new and existing regulations.

Dates: Comments must be received on or before August 2, 1996.

Addresses: Mail comments to James Thomas, Division of Self-
Determination Services, Office of Tribal Services, Bureau of Indian 
Affairs, Department of the Interior, 1849 C St. NW, Mail Stop 4603-MIB, 
Washington, DC 20240; OR, hand deliver them to Room 4603 at the above 
address. Comments will be available for inspection at this address from 
9:00 a.m. to 4:00 p.m., Monday through Friday beginning approximately 2 
weeks after publication of this document in the Federal Register.

For Further Information Contact: James Thomas, Office of Tribal 
Services, Bureau of Indian Affairs at telephone (202) 208-3463.

SUPPLEMENTARY INFORMATION:

Background

    The Bureau is promulgating new rules to implement the Indian Self-
Determination and Education Assistance Act, 25 CFR Part 900, which will 
replace Part 271, Contracts under Indian Self-Determination Act and 
Part 272, Grants under Indian Self-Determination Act. The Bureau is 
proposing the elimination of 25 CFR Part 274, School Construction 
Contracts or Services for Tribally Operated Previously Private Schools, 
Part 277, School Construction Contracts for Public Schools and Part 
278, Special Grants for Economic Development and Core Management Grants 
to Small Tribes because they are no longer necessary for the 
administration of Bureau programs.

Supplementary Information

    The authority to issue rules and regulations is vested in the 
Secretary of the Interior by 5 U.S.C. 301 and sections 463 and 465 of 
the Revised Statutes, 25 U.S.C. 2 and 9.
    Publication of this proposed rule by the Department of the Interior 
(Department) provides the public an opportunity to participate in the 
rulemaking process. Interested persons may submit written comments 
regarding this proposed rule to the location identified in the 
``addresses'' section of this document.

Executive Order 12778

    The Department has certified to the Office of Management and Budget 
(OMB) that this rule meets the applicable standards provided in 
sections 2(a) and 2(b)(2) of Executive Order 12778.

Executive Order 12866

    This rule is not a significant regulatory action under Executive 
Order 12866 and does not require review by the Office of Management and 
Budget.

Regulatory Flexibility Act

    This rule will not have a significant economic impact on a 
substantial number of small entities under the Regulatory Flexibility 
Act (5 U.S.C. 601 et seq.).

Executive Order 12630

    The Department has determined that this rule does not have 
``significant takings'' implications. This rule does not pertain to 
``taking'' of private property interests, nor does it impact private 
property.

Executive Order 12612

    The Department has determined that this rule does not have 
significant federalism effects because it pertains solely to Federal-
tribal relations and will not interfere with the roles, rights and 
responsibilities of states.

NEPA Statement

    The Department has determined that this rule does not constitute a 
major Federal action significantly affecting the quality of the human 
environment and that no detailed statement is required pursuant to the 
National Environmental Policy Act of 1969.

Unfunded Mandates Act of 1995

    This rule imposes no unfunded mandates on any governmental or 
private entity and is in compliance with the provisions of the Unfunded 
Mandates Act of 1995.

Paperwork Reduction Act of 1995

    This rule contains no information collection requirement that would 
require notification to the Office of Management and Budget.

Drafting Information

    The primary author of this document is Harriet Brown, Bureau of 
Indian Affairs.

List of Subjects

25 CFR Part 271

    Indians--tribal government, Indians--contracting.

25 CFR Part 272

    Indians--tribal government, Indians--grants.

25 CFR Parts 274 and 277

    Indians--school construction.

25 CFR Part 278

    Indians--special grants for economic development--core management 
grants.

    Under the authority of Executive Order 12866, and for the reasons 
stated above, 25 CFR parts 271, 272, 274, 277 and 278 are proposed to 
be removed.

    Dated: May 24, 1996.
Ada E. Deer,
Assistant Secretary--Indian Affairs.
[FR Doc. 96-13728 Filed 5-31-96; 8:45 am]
BILLING CODE 4310-02-P

Complete official Federal Register PDF

FR Doc. 96-13727 Applicability of the Rules of the Bureau of Indian Affairs

[Federal Register Volume 61, Number 107 (Monday, June 3, 1996)]
[Proposed Rules]
[Pages 27821-27822]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-13727]

=======================================================================
-----------------------------------------------------------------------

DEPARTMENT OF THE INTERIOR

Bureau of Indian Affairs

25 CFR Part 1

RIN 1076-AD64

Applicability of the Rules of the Bureau of Indian Affairs

AGENCY: Bureau of Indian Affairs, Interior.

ACTION: Proposed rule.

-----------------------------------------------------------------------

Summary: The Bureau of Indian Affairs (BIA) is proposing to amend the 
applicability of rules to make them more readable and comprehensive by 
rewriting them in plain English.

Dates: Comments must be received on or before August 2, 1996.

Addresses: Mail or hand carry comments to James McDivitt, Acting 
Director, Office of Management and Administration, Bureau of Indian 
Affairs, Department of the Interior, 1849 C St. NW, Mail Stop 4657-MIB, 
Washington, DC 20240.

For Further Information Contact: Dave Etheridge, Office of Secretary at 
telephone (202) 208-4361.

SUPPLEMENTARY INFORMATION: We are publishing this proposed rule by the 
authority delegated by the Secretary of the Interior to the Assistant 
Secretary--Indian Affairs by 209 DM 8.

Public Participation Statement

    Our policy is to give the public an opportunity to participate in 
the rulemaking process by submitting written comments regarding the 
proposed rules. We will consider all comments received during the 
public comment period. We will determine necessary revisions and issue 
the final rule. Please refer to this preamble's ADDRESSES section for 
where you must submit your written comments on this proposed rule.

Executive Order 12778

    The Department has certified to the Office of Management and Budget 
(OMB) that these proposed regulations meet the applicable standards 
provided in sections 2(a) and 2(b)(2) of Executive Order 12778.

Executive Order 12866

    This proposed rule is not a significant regulatory action under 
Executive Order 12866 and has not been reviewed by the Office of 
Management and Budget.

Regulatory Flexibility Act

    This proposed rule will not have a significant economic impact on a 
substantial number of small entities under the Regulatory Flexibility 
Act (5 U.S.C. 601 et seq.). This proposed rule will determine the 
funding levels to be awarded to tribes for the purposes of creating new 
or enhancing and improving existing tribal court systems. In the event 
a tribe elects to receive funding, there are likely to be improvements 
in the exercise of civil jurisdiction by tribes. This improvement may 
increase the rate of civil collections by private economic enterprises 
operating on or near Indian reservations. In addition, there may be an 
increase in the number of civil claims made against private economic 
enterprises.

Executive Order 12630

    The Department has determined that this proposed rule does not have 
significant ``takings'' implications. The proposed rule does not 
pertain to ``taking'' of private property interests, nor does it impact 
private property.

Executive Order 12612

    The Department has determined that this proposed rule does not have 
significant federalism effects because it pertains solely to Federal-
tribal relations and will not interfere with the roles, rights and 
responsibilities of states.

NEPA Statement

    The Department has determined that this proposed rule does not 
constitute a major Federal action significantly affecting the quality 
of the human environment and that no detailed statement is required 
pursuant to the National Environmental Policy Act.

Unfunded Mandates

    This rule imposes no unfunded mandates on any governmental or 
private entity and is in compliance with the provisions of the Unfunded 
Mandates Act of 1995.

Paperwork Reduction Act of 1995

    As required by the Paperwork Reduction Act of 1995 (44 U.S.C. 
3507(d)), the Department of the Interior has submitted a copy of these 
sections to the Office of Management and Budget (OMB) for its review.

Drafting Information

    The primary author of this document was Kimberly Toyekoyah, Bureau 
of Indian Affairs, Department of the Interior.

List of Subjects in 25 CFR Part 1

    Indians--land.

    For the reasons given in the preamble, Part 1 of Title 25, Chapter 
I of the Code of Federal Regulations is proposed to be revised as set 
forth below.

PART 1--APPLICABILITY OF RULES OF THE BUREAU OF INDIAN AFFAIRS

Sec.
1.1  Waiver of regulations.
1.2  State and local regulation of the use of Indian property.

    Authority: 5 U.S.C. 301; RS 463 25 U.S.C. 2.

Sec. 1.1  Waiver of regulations.

    The Secretary of the Interior may waive or make exception to any 
provision in Chapter I of Title 25 of the Code of Federal Regulations 
if the Secretary finds that it:
    (a) Is in the best interest of the Indians; and
    (b) Would not violate any federal statute or the United States 
Constitution.

Sec. 1.2  State and local regulation of the use of Indian property.

    (a) Except as provided in paragraph (b) of this section or in a 
federal statute, no restriction based on the law of any state or any 
subdivision of a state applies to the use of any property (including 
water rights) that is either:
    (1) Held by the United States in trust for an Indian or Indian 
tribe; or
    (2) Owned by an Indian or Indian tribe subject to a restriction 
against alienation imposed by the United States.
    (b) When the Secretary of the Interior finds that it is in the best 
interest of the Indian owner in achieving the highest and best use of 
the property, the Secretary may make a restriction based on the law of 
a state or a subdivision of a state applicable to specific property 
that is:
    (1) Held by the United States in trust for an Indian or Indian 
tribe;
    (2) Owned by an Indian or Indian tribe subject to a restriction 
against alienation imposed by the United States.

[[Page 27822]]

    Dated: May 24, 1996.
Ada E. Deer,
Assistant Secretary--Indian Affairs.
[FR Doc. 96-13727 Filed 5-31-96; 8:45 am]
BILLING CODE 4310-02-P

Complete official Federal Register PDF

FR Doc. 96-13723 Proposed Amendments to the Regulations on the Determination of Interest Expense Deduction of Foreign Corporations and Branch Profits Tax; Hearing

[Federal Register Volume 61, Number 107 (Monday, June 3, 1996)]
[Proposed Rules]
[Pages 27833-27834]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-13723]

=======================================================================
-----------------------------------------------------------------------

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[INTL-0054-95]
RIN 1545-AT96

Proposed Amendments to the Regulations on the Determination of 
Interest Expense Deduction of Foreign Corporations and Branch Profits 
Tax; Hearing

AGENCY: Internal Revenue Service, Treasury.

ACTION: Change of location of public hearing.

-----------------------------------------------------------------------

[[Page 27834]]

SUMMARY: This document changes the location of the public hearing on 
proposed regulations relating to the determination of the interest 
expense deduction of foreign corporations and branch profits tax.

DATES: The public hearing is being held on Thursday, June 6, 1996, 
beginning at 10:00 a.m.

ADDRESSES: The public hearing originally scheduled in the IRS 
Auditorium, Seventh floor, 7400 Corridor, Internal Revenue Building, 
1111 Constitution Avenue, NW, Washington, DC is changed to room 5718, 
Internal Revenue Building, 1111 Constitution Avenue, NW, Washington, 
DC.

FOR FURTHER INFORMATION CONTACT: Mike Slaughter of the Regulations 
Unit, Assistant Chief Counsel (Corporate), (202) 622-7190, (not a toll-
free number).

SUPPLEMENTARY INFORMATION: A notice of public hearing appearing in the 
Federal Register on Friday, March 8, 1996 (61 FR 9377), announced that 
a public hearing relating to proposed regulations under sections 882 
and 884 of the Internal Revenue Code will be held Thursday, June 6, 
1996, beginning at 10:00 a.m. in the IRS Auditorium, Seventh floor, 
7400 Corridor, Internal Revenue Building, 1111 Constitution Avenue, NW, 
Washington, DC and that requests to speak and outlines of oral comments 
should be received by Thursday, May 23, 1996.
    The location of the public hearing has changed. The hearing is 
being held in room 5718 on Thursday, June 6, 1996, beginning at 10:00 
a.m. The requests to speak and outlines of oral comments should be 
received by Thursday, May 23, 1996. Because of controlled access 
restrictions, attenders cannot be admitted beyond the lobby of the 
Internal Revenue Building until 9:45 a.m.
    Copies of the agenda are available free of charge at the hearing.
Cynthia E. Grigsby,
Chief, Regulations Unit, Assistant Chief Counsel (Corporate).
[FR Doc. 96-13723 Filed 5-31-96; 8:45 am]
BILLING CODE 4830-01-U

Complete official Federal Register PDF

FR Doc. 96-13719 Section 467 Rental Agreements

[Federal Register Volume 61, Number 107 (Monday, June 3, 1996)]
[Proposed Rules]
[Pages 27834-27850]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-13719]

-----------------------------------------------------------------------

DEPARTMENT OF THE TREASURY
26 CFR Part 1

[IA-292-84]
RIN 1545-AU11

Section 467 Rental Agreements

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking and notice of public hearing.

-----------------------------------------------------------------------

SUMMARY: This document contains proposed regulations relating to the 
treatment of rent and interest under certain agreements for the lease 
of tangible property. The proposed regulations apply to certain rental 
agreements that provide increasing or decreasing rents, or deferred or 
prepaid rent. This document also provides notice of a public hearing on 
these regulations.

DATES: Written comments, requests to appear and outlines of topics to 
be discussed at the public hearing scheduled for September 25, 1996, 
must be received by September 3, 1996.

ADDRESSES: Send submissions to: CC:DOM:CORP:R (IA-292-84), 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 (IA-292-84), Courier's 
Desk, Internal Revenue Service, 1111 Constitution Avenue NW., 
Washington, DC. The public hearing will be held in the Commissioner's 
Conference Room, 3rd Floor, 1111 Constitution Avenue NW., Washington, 
DC.

FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations, 
Forest Boone of the Office of Assistant Chief Counsel (Income Tax and 
Accounting) at (202) 622-4960; concerning submissions and the public 
hearing, Mike Slaughter at (202) 622-7190 (not toll-free numbers).

SUPPLEMENTARY INFORMATION:

Background

    This document contains proposed amendments to the Income Tax 
Regulations (26 CFR part 1) relating to section 467 of the Internal 
Revenue Code (Code). This section was added by the Tax Reform Act of 
1984. In general, section 467 requires parties to certain rental 
agreements to accrue rent and interest in accordance with the rules 
specified in section 467. These proposed regulations provide guidance 
regarding the applicability of section 467, and the amount of rent and 
interest required to be accrued under section 467. No inference should 
be drawn from any provision in the proposed regulations concerning 
whether an arrangement constitutes a lease for Federal income tax 
purposes.

Explanation of Provisions

1. Section 467 Rental Agreements

    Section 467(a) provides that, if a rental agreement is a section 
467 rental agreement, the lessor and lessee must take into account for 
a taxable year the section 467 rent and the section 467 interest for 
that year. A section 467 rental agreement is a rental agreement that 
has increasing or decreasing rents, or prepaid or deferred rents. A 
rental agreement has increasing or decreasing rents if the annualized 
fixed rent allocated to any rental period exceeds the annualized fixed 
rent allocated to any other rental period in the lease term. The 
proposed regulations provide that a rent holiday at the beginning of 
the lease term is disregarded in determining whether the rental 
agreement has increasing or decreasing rent if the rent holiday period 
is three months or less.
    In addition, the proposed regulations provide that a rental 
agreement has increasing or decreasing rent if it requires (or may 
require) the payment of contingent rent, other than contingent rent 
that is contingent due to (a) a provision computing rent based on a 
percentage of the lessee's gross or net receipts (but only if the 
percentage does not vary throughout the term of the lease); (b) 
adjustments based on a reasonable price index; or (c) a provision 
requiring the lessee to pay real estate taxes, insurance premiums, 
maintenance costs, or any other cost (other than a debt service cost) 
that relates to the leased property and is not within the control of 
the lessor or lessee or a person related to the lessor or lessee.
    Section 467(d)(1)(A) provides that a rental agreement has deferred 
rent if rent allocated to a calendar year is payable after the close of 
the succeeding calendar year. The proposed regulations provide that 
there is prepaid rent if rent allocated to a calendar year is payable 
prior to the beginning of the prior calendar year.
    Section 467(d)(2) provides that section 467 does not apply to a 
rental agreement if the aggregate rental payments and other 
consideration to be received for the use of the property do not exceed 
$250,000.

2. Section 467 Rent

    Under the proposed regulations, the section 467 rent for a taxable 
year is the sum of the fixed rent for any rental periods that begin and 
end in the taxable year, a ratable portion of the fixed rent for other 
rental periods beginning or ending in the taxable year, and any 
contingent rent that accrues in the taxable year. In general, the 
proposed regulations provide that rental periods may be of any length 
as long as (a) the rental periods are one year or less, cover the 
entire lease term, and do not overlap, and (b) each scheduled

[[Page 27835]]

payment under the rental agreement occurs within 30 days of the 
beginning or end of a rental period. The amount of fixed rent for a 
rental period depends on the terms of the rental agreement.
A. Disqualified Leaseback or Long-Term Agreement
    Section 467 provides that if the section 467 rental agreement is a 
leaseback or long-term agreement and has increasing or decreasing rents 
a principal purpose of which is tax avoidance (a disqualified leaseback 
or long-term agreement), the fixed rent for each rental period is the 
constant rental amount. The proposed regulations provide that (a) the 
Commissioner, rather than the parties to the rental agreement, will 
determine whether a rental agreement is a disqualified leaseback or 
long-term agreement and (b) a rental agreement will not be disqualified 
unless it requires more than $2,000,000 in rental payments and other 
consideration. The proposed regulations also provide that, if either 
the lessor or the lessee is not subject to Federal income tax on its 
income or is a tax- exempt entity (within the meaning of section 
168(h)(2)), the rental agreement will be closely scrutinized, and clear 
and convincing evidence will be required to establish that tax 
avoidance is not a principal purpose for providing increasing or 
decreasing rent.
    Section 467(b)(5) provides that regulations should set forth 
circumstances under which section 467 rental agreements will not be 
treated as disqualified leasebacks or long-term agreements, including 
circumstances relating to the use of price indices, percentage rents, 
reasonable rent holidays, or changes in amounts paid to third parties. 
In addition to these safe harbors, which have been included in the 
proposed regulations, the Conference Committee Report stated that the 
Committee anticipated that regulations under section 467 would adopt 
standards under which leases providing for fluctuations in rents by no 
more than a reasonable percentage above or below the average rent over 
the term of the lease will be deemed not motivated by tax avoidance. 
The report cited the standards for advance rulings on leveraged lease 
transactions set forth in Rev. Proc. 75-21 (1975-1 C.B. 715), and 
stated that such standards may not be appropriate for real estate 
leases. H.R. Rep. No. 861, 98th Cong., 2d Sess. 893 (1984).
    The proposed regulations contain a safe harbor providing that tax 
avoidance will not be considered to be a principal purpose for 
providing increasing or decreasing rents if the rents allocable to each 
calendar year of the lease do not vary from the average annual rents 
over the entire lease term by more than 10 percent. This safe harbor is 
based on, but is not identical to, the safe harbor contained in Rev. 
Proc. 75-21. The proposed regulations do not provide a safe harbor 
specifically applicable to real estate leases. The IRS and the Treasury 
Department invite comments regarding the nature and extent of a safe 
harbor for such leases, as well as comments on whether additional safe 
harbors are appropriate either generally or for particular industries.
    Section 467(e)(1) provides that the constant rental amount is the 
amount that, if paid at the end of each rental period, would result in 
a present value equal to the present value of all amounts payable under 
the disqualified leaseback or long-term agreement. If constant rental 
accrual is required, all rental periods must be equal in length except 
for an initial or final short rental period.
B. Agreements Without Adequate Interest
    If the section 467 rental agreement is not a disqualified leaseback 
or long-term agreement and does not provide adequate interest for 
prepaid or deferred rent, the proposed regulations provide that the 
fixed rent for each rental period is the proportional rental amount. 
The proportional rental amount is the fixed rent allocated to the 
rental period under the rental agreement multiplied by a fraction, the 
numerator of which is the present value of the amounts payable as fixed 
rent and interest on fixed rent under the rental agreement and the 
denominator of which is the present value of the fixed rent allocated 
to each rental period under the rental agreement. Under the proposed 
regulations, a rental agreement provides adequate interest if (a) no 
deferred or prepaid rent is required under the agreement, (b) there is 
deferred or prepaid rent but the agreement requires the payment of 
interest at an adequate single fixed rate, or (c) there is deferred or 
prepaid rent but the present values of rent payments and rent accruals 
meet certain tests set forth in the proposed regulations.
C. Rental Agreement Accrual
    The proposed regulations provide that if neither the constant 
rental amount nor the proportional rental amount is required to be 
accrued, the fixed rent for a rental period is the fixed rent allocated 
to that rental period in accordance with the section 467 rental 
agreement. The amount of fixed rent allocated to a rental period by the 
rental agreement depends on whether the agreement provides a specific 
allocation of fixed rent. The proposed regulations provide that if a 
rental agreement provides a specific allocation of fixed rent, the 
amount of fixed rent allocated to each rental period during the lease 
term is the amount of rent allocated to that period by the agreement. 
For this purpose, a rental agreement that allocates rent to a period is 
treated as allocating rent ratably within that period. Thus, if a 
rental agreement provides that $120,000 is allocated to each calendar 
year in the lease term, $10,000 of rent is allocated to each calendar 
month. In general, under the proposed regulations, a rental agreement 
specifically allocates fixed rent if the agreement unambiguously 
specifies, for periods of no longer than a year, a fixed amount of rent 
for which the lessee becomes liable on account of the use of the 
property during that period.
    If a section 467 rental agreement does not provide a specific 
allocation of fixed rent, the amount of fixed rent allocated to a 
rental period is the amount of fixed rent payable during that rental 
period.

3. Section 467 Interest

    The section 467 interest for a taxable year is the sum of the 
interest on fixed rent for any rental period that begins and ends in 
the taxable year, a ratable portion of the interest on fixed rent for 
any other rental period beginning or ending in the taxable year, and 
any interest that accrues on contingent rent during the taxable year. 
If a section 467 rental agreement provides an adequate stated rate of 
interest, the interest on fixed rent for a rental period is the 
interest provided in the agreement for that period. If no adequate 
stated rate of interest is provided, the interest on fixed rent for a 
rental period is determined under the section 467 loan rules.
    Under the proposed regulations, there is a deemed loan (a section 
467 loan) in a rental period if, at the beginning of that period, there 
is a difference between the amount of fixed rent payable under the 
section 467 rental agreement and the amount of fixed rent required to 
be accrued under the proposed regulations. For rental periods in which 
there is a section 467 loan, the interest for the rental period is 
equal to the product of the principal balance of the section 467 loan 
at the beginning of the rental period and the yield of the section 467 
loan.
    In general, the principal balance of a section 467 loan as of the 
beginning of any rental period is the difference between the cumulative 
amount of accrued fixed rent and interest and the

[[Page 27836]]

cumulative amount of fixed rent and interest payable under the section 
467 rental agreement. The yield of a section 467 loan is the discount 
rate at which the sum of the present values of all amounts payable by 
the lessee as fixed rent and interest on fixed rent, plus the sum of 
the negative present values of all amounts payable by the lessor as 
interest on prepaid fixed rent, equals the sum of the present values of 
the fixed rent allocated to the rental periods.
    The amount constituting a section 467 loan may be either positive 
or negative. For purposes of applying any aspect of the proposed 
regulations relating to a section 467 loan, the principal balance of 
the loan should be clearly identified as either positive or negative. 
For example, if the principal balance of a loan at the beginning of a 
rental period is a negative number, the interest on the loan for that 
period will also be a negative number.

4. Rental Agreements With Variable Rates of Interest

    The proposed regulations provide rules for section 467 rental 
agreements that provide for certain types of variable rates of 
interest. The rules in the proposed regulations are similar to the 
rules provided in Sec. 1.1275-5 for the computation of original issue 
discount (OID) for variable rate debt instruments providing for 
interest at qualified floating rates. Under the proposed regulations, a 
rental agreement provides variable interest if the rental agreement 
provides for stated interest that is paid or compounded at least 
annually at a rate or rates that meet the requirements of Sec. 1.1275-
5(a)(3)(i) (A) or (B) and Sec. 1.1275-5(a)(4). If a rental agreement 
provides for fluctuations in interest other than pursuant to one or 
more qualified floating rates the interest will be subject to the rules 
for contingent payments.
    Under the proposed regulations, if a section 467 rental agreement 
provides variable interest, the fixed rate substitutes (determined in 
the same manner as under Sec. 1.1275-5(e) treating the agreement date 
as the issue date) for the variable rates of interest called for by the 
agreement must be used in computing the proportional rental amount, the 
constant rental amount, the principal balance of a section 467 loan, 
and the yield of a section 467 loan. Further, in determining the 
interest on fixed rent for any rental period, the variable interest 
adjustment amount must be taken into account. The variable interest 
adjustment amount for a rental period is the difference between (a) the 
amount of interest that would have accrued during the rental period 
under the terms of the rental agreement, and (b) the amount of interest 
that would have accrued during the rental period under the terms of the 
agreement using the fixed rate substitutes.

5. Rental Agreements With Contingent Payments

    The proposed regulations reserve on the issue of the section 467 
treatment of contingent rent. The IRS and the Treasury Department 
anticipate that regulations addressing this issue will provide rules 
for contingent rent similar to those provided for computing OID for 
contingent payment debt instruments in Sec. 1.1275-4. The IRS and the 
Treasury Department invite comments regarding the application of the 
Sec. 1.1275-4 rules to section 467 rental agreements.

6. Recapture

    Section 467(c) provides that if a section 467 rental agreement is a 
leaseback or long-term agreement providing for increasing rent but is 
not subject to constant rental accrual, and the property subject to the 
agreement is disposed of, a portion of the gain realized on the 
disposition is required to be recaptured by the lessor as ordinary 
income. Accordingly, a leaseback or long-term agreement could be 
subject to section 467(c) even though it does not require more than 
$2,000,000 in rental payments and other consideration and is thus not 
subject to constant rental accrual.
    The recapture amount is equal to the lesser of the prior 
understated inclusions or the section 467 gain. The prior understated 
inclusions are the excess of (a) the aggregate amount of section 467 
rent and section 467 interest for the period during which the lessor 
held the property, determined as if the section 467 rental agreement 
were a disqualified leaseback or long-term agreement, over (b) the 
aggregate amount of section 467 rent and section 467 interest accrued 
by the lessor during that period. The section 467 gain is the excess of 
(a) the amount realized from the disposition, over (b) the sum of the 
adjusted basis of the property and the amount of any gain from the 
disposition that is treated as ordinary income under any provision of 
subtitle A of the Code other than section 467(c) (e.g., section 1245 or 
1250).
    In the case of a disposition that is not a sale, exchange, or 
involuntary conversion, the section 467 gain is the excess of (a) the 
fair market value of the property on the date of disposition, over (b) 
the sum of the adjusted basis of the property and the amount of any 
gain from the disposition that is treated as ordinary income under Code 
provisions other than section 467(c). The regulations provide 
exceptions to this recapture rule for dispositions by gift, transfers 
at death, and certain tax-free transactions.

7. Other Disposition Rules

    Under the proposed regulations, if property subject to a section 
467 rental agreement is sold, exchanged, or otherwise disposed of, the 
section 467 rent for a period is taken into account by the owner of the 
property during the period. The lessee, however, must continue to take 
section 467 rent and section 467 interest into account without regard 
to the change of ownership.
    Further, if there is a sale, exchange or other disposition of 
property subject to a section 467 rental agreement, the beginning 
balance of the transferor's section 467 loan after the transfer equals 
the net present value at the time of the transfer of all amounts 
subsequently payable as fixed rent and interest on fixed rent to the 
transferor and all amounts subsequently payable as interest on prepaid 
fixed rent by the transferor. The transferor must continue to take into 
account interest on the transferor's section 467 loan balance after the 
transfer. The beginning balance of the transferee's section 467 loan is 
equal to the principal balance of the section 467 loan immediately 
before the transfer reduced by the beginning balance of the 
transferor's section 467 loan after the transfer. Amounts payable to 
the transferor after the transfer are not taken into account in 
adjusting the transferee's section 467 loan balance.
    Finally, under the proposed regulations, if there is a disposition 
of property subject to a section 467 rental agreement, the transferor 
and transferee must treat the beginning balance of the transferee's 
section 467 loan as a liability that is either assumed in connection 
with the transfer of the property or secured by the property acquired 
subject to the liability (if negative) and as a reduction in the 
consideration for the transfer of the property (if positive). In the 
case of a positive section 467 loan balance, a reduction in the 
consideration for the transfer of the property is appropriate because 
the transferee will also be deemed to have acquired an asset other than 
the property itself, i.e., the loan, and a portion of the total 
consideration should be allocated to the loan balance. Similar rules 
apply to transfers of leasehold interests under section 467 rental 
agreements.
    In order to account for any timing differences that may exist 
between a schedule of payments under a section

[[Page 27837]]

467 rental agreement and a separate schedule providing an allocation of 
rent, it will be necessary, in appropriate cases, to determine the 
amount of a section 467 loan balance even if the rental agreement does 
not have either deferred or prepaid rent or if the rental agreement has 
deferred or prepaid rent but provides adequate stated interest. The 
proposed regulations provide that the section 467 loan rules apply to 
rental agreements described in the preceding sentence, but only for 
purposes of the rules relating to dispositions of property subject to a 
section 467 rental agreement and the rules relating to transfers of 
leasehold interests under a section 467 rental agreement.
    Although the proposed regulations contain rules applicable to all 
dispositions of property subject to a section 467 rental agreement and 
all transfers of leasehold interests under a section 467 rental 
agreement, the regulations reserve guidance on the question of whether 
special rules should be provided for transfers of property and 
leasehold interests in transactions in which gain or loss is not 
recognized in whole or in part. Examples of these transactions would 
include transfers between a partnership and one or more of its 
partners, transfers to a controlled corporation under section 351, 
transfers pursuant to a reorganization described in section 368(a), 
like-kind exchanges subject to section 1031, and transfers by gift or 
upon the death of the owner of the property or the holder of the 
leasehold interest. The IRS and Treasury Department invite comments on 
whether special rules should be provided for any of these transactions.

8. Proposed Effective Date

    The regulations are proposed to be effective for (1) rental 
agreements entered into after the date that final regulations under 
section 467 are published and (2) disqualified leasebacks and long-term 
agreements entered into after June 3, 1996. No inference should be 
drawn from the proposed effective date concerning the treatment of 
rental agreements entered into before the regulations are applicable. 
Moreover, the IRS will, in appropriate circumstances, apply the 
provisions of section 467 requiring constant rental accrual to rental 
agreements entered into on or before June 3, 1996.

9. Issues Not Addressed

    The proposed regulations do not address the application of section 
467 to payments for services. The IRS and the Treasury Department 
invite comments on the appropriate scope of rules under section 467 for 
transactions involving deferred payments for services in light of the 
scope of section 404. In addition, the IRS and the Treasury Department 
invite comments on whether rules should be provided for transactions 
involving prepayments for services.
    The proposed regulations do not address the application of section 
467 to transactions sometimes referred to as ``lease strips'' or 
``stripping transactions'', as described in Notice 95-53 (1995-44 
I.R.B. 21). Notice 95-53 provides that regulations will be issued 
pursuant to section 7701(l) (and, as appropriate, other sections of the 
Code) recharacterizing stripping transactions. The IRS and the Treasury 
Department invite comments on whether rules should be provided that 
would apply section 467 to such transactions.
    The proposed regulations do not provide for an adjustment to 
section 467 rent and interest where a section 467 rental agreement is 
modified. The IRS and the Treasury Department invite comments on the 
appropriate treatment of the lessor and lessee in these cases.
    The proposed regulations do not provide rules addressing the 
treatment of payments by the lessor to induce a lessee to enter into a 
rental agreement.

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 also has 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 proposed regulations, and, therefore, a Regulatory 
Flexibility Analysis is not required. Pursuant to section 7805(f) of 
the Internal Revenue Code, this notice of proposed rulemaking will be 
submitted to the Chief Counsel for Advocacy of the Small Business 
Administration for comment on its impact on small businesses.

Comments and 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 has been scheduled for September 25, 1996 at 10 
a.m. in the Commissioner's Conference Room, 1111 Constitution Avenue 
NW., Washington, DC. Because of access restrictions, visitors will not 
be admitted beyond the Internal Revenue Building lobby more than 15 
minutes before the hearing starts.
    The rules of 26 CFR 601.601(a)(3) apply to the hearing. Persons 
that wish to present oral comments at the hearing must submit written 
comments and submit an outline of the topics to be discussed and the 
time to be devoted to each topic by September 3, 1996. A period of 10 
minutes will be allotted to each person for making comments.
    An agenda showing the scheduling of the speakers will be prepared 
after the deadline for receiving outlines has passed. Copies of the 
agenda will be available free of charge at the hearing.

Drafting Information

    The principal author of these proposed regulations is Forest Boone 
of the Office of Assistant Chief Counsel (Income Tax and Accounting). 
However, other personnel from the IRS and Treasury Department 
participated in their development.

List of Subjects in 26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

Proposed Amendments to the Regulations

    Accordingly, 26 CFR part 1 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 to read as follows:

    Authority: 26 U.S.C. 7805 * * *
    Section 1.467-1 is also issued under 26 U.S.C. 467.
    Section 1.467-2 is also issued under 26 U.S.C. 467.
    Section 1.467-3 is also issued under 26 U.S.C. 467.
    Section 1.467-4 is also issued under 26 U.S.C. 467.
    Section 1.467-5 is also issued under 26 U.S.C. 467.
    Section 1.467-6 is also issued under 26 U.S.C. 467.
    Section 1.467-7 is also issued under 26 U.S.C. 467.
    Section 1.467-8 is also issued under 26 U.S.C. 467.
* * * * *
    Par. 2. In Sec. 1.61-8, the first sentence of paragraph (b) is 
revised to read as follows:

Sec. 1.61-8  Rents and royalties.

* * * * *
    (b) * * * Except as provided in section 467 and the regulations 
thereunder, gross income includes advance rentals, which must be 
included in income for the year of receipt regardless of the period 
covered

[[Page 27838]]

or the method of accounting employed by the taxpayer. * * *
* * * * *
    Par. 3. In Sec. 1.451-1, paragraph (g) is added to read as follows:

Sec. 1.451-1  General rule for taxable year of inclusion.

* * * * *
    (g) Timing of income from section 467 rental agreements. For the 
timing of income with respect to section 467 rental agreements, see 
section 467 and the regulations thereunder.
    Par. 4. Section 1.461-1 is amended by:
    1. Adding a sentence at the end of paragraph (a)(1).
    2. Adding paragraph (a)(2)(iii)(E).
    The additions read as follows:

Sec. 1.461-1  General rule for taxable year of deduction.

    (a) * * * (1) * * * See section 467 and the regulations thereunder 
for rules under which a liability arising out of the use of property 
pursuant to a section 467 rental agreement is taken into account.
    (2) * * *
    (iii) * * *
    (E) Except as otherwise provided by regulations or other published 
guidance issued by the Commissioner, in the case of a liability arising 
out of the use of property pursuant to a section 467 rental agreement, 
the all events test (including economic performance) is considered met 
in the taxable year in which the liability is to be taken into account 
under section 467 and the regulations thereunder.
* * * * *
    Par. 5. Section 1.461-4 is amended by:
    1. Revising the heading of paragraph (d)(3)(ii).
    2. Redesignating the text of paragraph (d)(3)(ii) following the 
heading as paragraph (d)(3)(ii)(A) and adding a heading for newly 
designated paragraph (d)(3)(ii)(A).
    2. Adding paragraph (d)(3)(ii)(B).
    3. Adding sentence at the end of the introductory text of paragraph 
(d)(7).
    The revisions and additions read as follows:

Sec. 1.461-4  Economic performance.

* * * * *
    (d) * * *
    (3) * * *
    (ii) Exceptions--(A) Volume, frequency of use, or income. * * *
    (B) Section 467 rental agreements. In the case of a liability 
arising out of the use of property pursuant to a section 467 rental 
agreement, economic performance occurs as provided in Sec. 1.461-
1(a)(2)(iii)(E).
* * * * *
    (7) * * * Assume further that the examples do not involve section 
467 rental agreements and, therefore, section 467 is not applicable.
* * * * *
    Par. 6. Sections 1.467-0 through 1.467-8 are added to read as 
follows:

Sec. 1.467-0  Table of contents.

    This section lists the major captions that appear in Secs. 1.467-1 
through 1.467-8.

Sec. 1.467-1  Treatment of lessors and lessees generally.

    (a) Overview.
    (1) In general.
    (2) Cases in which rules are inapplicable.
    (3) Limited effect for rental agreements with total rents 
between $250,000 and $2,000,000.
    (4) Summary of rules.
    (i) Basic rules.
    (ii) Special rules.
    (b) Method of accounting for section 467 rental agreements.
    (c) Section 467 rental agreements.
    (1) In general.
    (2) Increasing or decreasing rent.
    (i) Fixed rent.
    (A) In general.
    (B) Certain rent holidays disregarded.
    (ii) Fixed rent allocated to a rental period.
    (A) Specific allocation.
    (1) In general.
    (2) Rental agreements specifically allocating fixed rent.
    (B) No specific allocation.
    (iii) Contingent rent.
    (A) In general.
    (B) Certain contingent rent disregarded.
    (3) Deferred or prepaid rent.
    (i) Deferred rent.
    (ii) Prepaid rent.
    (iii) Rent allocated to a calendar year.
    (iv) Examples.
    (4) Rental agreements involving total payments of $250,000 or 
less.
    (i) In general.
    (ii) Special rules in computing amount described in paragraph 
(c)(4)(i).
    (d) Section 467 rent.
    (1) In general.
    (2) Fixed rent for a rental period.
    (i) Constant rental accrual.
    (ii) Proportional rental accrual.
    (iii) Section 467 rental agreement accrual.
    (e) Section 467 interest.
    (1) In general.
    (2) Interest on fixed rent for a rental period.
    (i) In general.
    (ii) Section 467 rental agreements with adequate interest.
    (3) Treatment of interest.
    (f) Modification of a rental agreement.
    (g) Treatment of amounts payable by lessor to lessee.
    (1) Interest.
    (2) Other amounts. [Reserved]
    (h) Meaning of terms.
    (i) [Reserved]
    (j) Computational rules.
    (1) Counting conventions.
    (2) Conventions regarding timing of rent and payments.
    (i) In general.
    (ii) Time amount is payable.
    (3) Annualized fixed rent.
    (4) Allocation of fixed rent within a period.
    (5) Rental period length.

Sec. 1.467-2  Rent accrual for section 467 rental agreements 
without adequate interest.

    (a) Section 467 rental agreement for which proportional rental 
accrual is required.
    (b) Adequate interest on fixed rent.
    (1) In general.
    (2) Section 467 rental agreements that provide for a variable 
rate of interest.
    (c) Computation of proportional rental amount.
    (1) In general.
    (2) Section 467 rental agreements that provide for a variable 
rate of interest.
    (d) Present value.
    (e) Applicable Federal rate.
    (1) In general.
    (2) Source of applicable Federal rates.
    (3) 110 percent of applicable Federal rate.
    (4) Term of the section 467 rental agreement.
    (i) In general.
    (ii) Section 467 rental agreements with variable interest.
    (f) Examples.

Sec. 1.467-3  Disqualified leasebacks and long-term agreements.

    (a) General rule.
    (b) Disqualified leaseback or long-term agreement.
    (1) In general.
    (2) Leaseback.
    (3) Long-term agreement.
    (i) In general.
    (ii) Statutory recovery period.
    (A) In general.
    (B) Special rule for leases of properties having different 
statutory recovery periods.
    (c) Tax avoidance as principal purpose for increasing or 
decreasing rent.
    (1) In general.
    (2) Safe harbors.
    (d) Calculating constant rental amount.
    (1) In general.
    (2) Initial or final short periods.
    (3) Method to determine constant rental amount; no short 
periods.
    (i) Step 1.
    (ii) Step 2.
    (iii) Step 3.
    (e) Example.

Sec. 1.467-4  Section 467 loan.

    (a) In general.
    (1) Overview.
    (2) No section 467 loan in the case of certain section 467 
rental agreements.
    (3) Rental agreements subject to constant rental accrual.
    (4) Special rule in applying the provisions of Sec. 1.467-7(e) 
or Sec. 1.467-7(f).
    (b) Principal balance.
    (1) In general.
    (2) Section 467 rental agreements that provide for prepaid fixed 
rent and adequate stated interest.
    (3) Timing of payments.

[[Page 27839]]

    (c) Yield.
    (1) In general.
    (i) Method of determining yield.
    (ii) Method of stating yield.
    (iii) Rounding adjustments.
    (2) Yield of section 467 rental agreements for which constant 
rental amount or proportional rental amount is computed.
    (3) Determination of present values.
    (d) Contingent payments.
    (e) Section 467 rental agreements that call for payments before 
or after the lease term.
    (f) Examples.

Sec. 1.467-5  Section 467 rental agreements with variable interest.

    (a) Variable interest on deferred or prepaid rent.
    (1) In general.
    (2) Exceptions.
    (b) Variable rate treated as fixed.
    (1) In general.
    (2) Variable interest adjustment amount.
    (i) In general.
    (ii) Sign of adjustment.
    (3) Section 467 loan balance.
    (c) Examples.

Sec. 1.467-6  Section 467 rental agreements with contingent 
payments.

    [Reserved]

Sec. 1.467-7  Section 467 recapture and other rules relating to 
dispositions.

    (a) Section 467 recapture.
    (b) Recapture amount.
    (1) In general.
    (2) Prior understated inclusions.
    (i) In general.
    (ii) Partial rental periods.
    (3) Section 467 gain.
    (i) In general.
    (ii) Certain dispositions.
    (c) Special rules.
    (1) Gifts.
    (2) Dispositions at death.
    (3) Certain tax-free exchanges.
    (i) In general.
    (ii) Dispositions covered.
    (4) Dispositions by transferee.
    (5) Like-kind exchanges and involuntary conversions.
    (6) Installment sales.
    (7) Dispositions covered by sections 170(e), 341(e)(12), or 
751(c).
    (d) Examples.
    (e) Other rules relating to dispositions.
    (1) In general.
    (2) Treatment of section 467 loan.
    (3) Special rules for transfers in certain nonrecognition 
transactions. [Reserved]
    (f) Treatment of assignments by lessee and lessee-financed 
renewals.
    (1) Substitute lessee use.
    (2) Lessor use.
    (3) Special rules for transfers in certain nonrecognition 
transactions. [Reserved]

Sec. 1.467-8  Effective date.

Sec. 1.467-1  Treatment of lessors and lessees generally.

    (a) Overview--(1) In general. When applicable, section 467 requires 
a lessor and lessee of tangible property to treat rents consistently 
and to use the accrual method of accounting regardless of their overall 
method of accounting. In addition, in certain cases involving tax 
avoidance, the lessor and lessee must take rent and stated or imputed 
interest into account under a constant rental method, pursuant to which 
time value of money principles are applied to treat the rent as having 
accrued ratably over the entire lease term.
    (2) Cases in which rules are inapplicable. Section 467 applies only 
to leases (or other similar arrangements) that constitute section 467 
rental agreements as defined in paragraph (c) of this section. For 
example, a rental agreement is not a section 467 rental agreement, and, 
therefore, is not subject to the provisions of this section and 
Secs. 1.467-2 through 1.467-8 (the section 467 regulations), if it 
specifies equal amounts of rent for each month (or other similar 
period) throughout the lease term and all payments of rent are due in 
the year to which the rent relates (or in the preceding or succeeding 
year). In addition, the section 467 regulations do not apply to a 
rental agreement that requires total rents of $250,000 or less 
determined, for this purpose, by disregarding any adjustments based on 
a reasonable price index and the amount of any rent resulting from the 
lessee's obligation to pay certain third-party expenses of the lessor.
    (3) Limited effect for rental agreements with total rents between 
$250,000 and $2,000,000. A rental agreement is a section 467 rental 
agreement, and, therefore, the section 467 regulations generally apply, 
if the agreement requires total rents of more than $250,000 and does 
not specify equal amounts of rent for each month (or other similar 
period) throughout the lease term. If, however, the rental agreement 
requires total rents of $2,000,000 or less (determined by disregarding 
adjustments and excluding the same types of rent that are disregarded 
or excluded for purposes of the $250,000 threshold requirement) and all 
payments of rent are due in the year to which the rent relates (or in 
the preceding or succeeding year), the only effect of the section 467 
regulations is to require the lessor and lessee to take rent into 
account in the year to which the rent relates.
    (4) Summary of rules--(i) Basic rules. Paragraph (c) of this 
section provides rules for determining whether a rental agreement is a 
section 467 rental agreement. Paragraphs (d) and (e) of this section 
provide rules for determining the amount of rent and interest, 
respectively, required to be taken into account by a lessor and lessee 
under a section 467 rental agreement. Paragraphs (f) through (h) and 
(j) of this section provide various definitions and special rules 
relating to the application of the section 467 regulations.
    (ii) Special rules. Section 1.467-2 provides rules for section 467 
rental agreements that have deferred or prepaid rents without providing 
for adequate interest. Section 1.467-3 provides rules for application 
of the constant rental accrual requirement, including criteria for 
determining whether an agreement is subject to this requirement. 
Section 1.467-4 provides rules for establishing and adjusting a section 
467 loan, the amount that a lessor is deemed to have loaned to the 
lessee, or vice versa, pursuant to the application of the section 467 
regulations. Sections 1.467-5 and 1.467-6 provide rules for applying 
the section 467 regulations where a rental agreement requires variable 
interest or certain contingent payments. Section 1.467-7 provides rules 
for the treatment of dispositions by a lessor of property subject to a 
section 467 rental agreement and the treatment of assignments by 
lessees and certain lessee- financed renewals of a section 467 rental 
agreement. Finally, Sec. 1.467-8 provides the effective date rules for 
the section 467 regulations.
    (b) Method of accounting for section 467 rental agreements. If a 
rental agreement is a section 467 rental agreement, as described in 
paragraph (c) of this section, the lessor and lessee must each take 
into account for any taxable year--
    (1) The section 467 rent for the taxable year (as defined in 
paragraph (d) of this section); and
    (2) The section 467 interest for the taxable year (as defined in 
paragraph (e) of this section).
    (c) Section 467 rental agreements--(1) In general. Except as 
otherwise provided in paragraph (c)(4) of this section, the term 
section 467 rental agreement means a rental agreement, as defined in 
paragraph (h) of this section, that has increasing or decreasing rents 
(as described in paragraph (c)(2) of this section), or prepaid or 
deferred rents (as described in paragraph (c)(3) of this section).
    (2) Increasing or decreasing rent--(i) Fixed rent--(A) In general. 
A rental agreement has increasing or decreasing rent if the annualized 
fixed rent, as described in paragraph (j)(3) of this section, allocated 
to any rental period exceeds the annualized fixed rent allocated to any 
other rental period in the lease term.
    (B) Certain rent holidays disregarded. Notwithstanding the 
provisions of paragraph (c)(2)(i)(A) of this section, a rental 
agreement does not have

[[Page 27840]]

increasing or decreasing rent if the increasing or decreasing rent is 
solely attributable to a rent holiday provision allowing reduced rent 
(including no rent) for a period at the beginning of the lease term, 
but only if the duration of the rent holiday does not exceed three 
months.
    (ii) Fixed rent allocated to a rental period--(A) Specific 
allocation--(1) In general. If a rental agreement provides a specific 
allocation of fixed rent, as described in paragraph (c)(2)(ii)(A)(2) of 
this section, the amount of fixed rent allocated to each rental period 
during the lease term is the amount of fixed rent allocated to that 
period by the rental agreement.
    (2) Rental agreements specifically allocating fixed rent. A rental 
agreement specifically allocates fixed rent if the rental agreement 
unambiguously specifies, for periods no longer than a year, a fixed 
amount of rent for which the lessee becomes liable on account of the 
use of the property during that period, and the total amount of fixed 
rent specified is equal to the total amount of fixed rent payable under 
the lease. For example, a rental agreement providing that rent is 
$100,000 per calendar year, and that provides for total payments of 
fixed rent equal to the total amount specified, specifically allocates 
rent. Similarly, a rental agreement that states the amount of rent 
accruing each month or the amount of rent allocated to each year 
contains a specific allocation if the total payments of fixed rent 
equal the total amount specified. A rental agreement stating only when 
rent is payable does not specifically allocate rent.
    (B) No specific allocation. If a rental agreement does not provide 
a specific allocation of fixed rent (for example, because the total 
amount of fixed rent specified is not equal to the total amount of 
fixed rent payable under the lease), the amount of fixed rent allocated 
to a rental period is the amount of fixed rent payable during that 
rental period. If an amount of fixed rent is payable before the 
beginning of the lease term, it is allocated to the first rental period 
in the lease term. If an amount of fixed rent is payable after the end 
of the lease term, it is allocated to the last rental period in the 
lease term.
    (iii) Contingent rent--(A) In general. A rental agreement has 
increasing or decreasing rent if it requires (or may require) the 
payment of contingent rent (as defined in paragraph (h) of this 
section), other than contingent rent described in paragraph 
(c)(2)(iii)(B) of this section.
    (B) Certain contingent rent disregarded. Contingent rent is 
disregarded for purposes of this paragraph (c)(2)(iii) to the extent--
    (1) The rent is contingent solely as the result of a provision 
pursuant to which the rent is equal to a percentage of the lessee's 
receipts (gross or net), but only if the percentage does not vary 
throughout the term of the lease;
    (2) The rent is contingent solely as the result of an adjustment 
based on a reasonable price index, as defined in paragraph (h) of this 
section; or
    (3) The rent is contingent solely as the result of a provision 
requiring the lessee to pay third-party costs, as defined in paragraph 
(h) of this section.
    (3) Deferred or prepaid rent--(i) Deferred rent. A rental agreement 
has deferred rent under this paragraph (c)(3) if the amount of rent 
allocated to a calendar year (determined under paragraph (c)(3)(iii) of 
this section), when added to the rent allocated to all preceding 
calendar years, exceeds the cumulative amount of rent payable as of the 
close of the succeeding calendar year.
    (ii) Prepaid rent. A rental agreement has prepaid rent under this 
paragraph (c)(3) if the amount of rent allocated to a calendar year 
(determined under paragraph (c)(3)(iii) of this section), when added to 
the rent allocated to all preceding calendar years, is less than the 
cumulative amount of rent payable before the beginning of the preceding 
calendar year.
    (iii) Rent allocated to a calendar year. For purposes of this 
paragraph (c)(3), the rent allocated to a calendar year is the sum of--
    (A) The fixed rent allocated to any rental period (determined under 
paragraph (c)(2)(ii) of this section) that begins and ends in the 
calendar year;
    (B) A ratable portion of the fixed rent allocated to any other 
rental period that begins or ends in the calendar year; and
    (C) Any contingent rent that accrues during the calendar year as 
provided in Sec. 1.467-6.
    (iv) Examples. The following examples illustrate the application of 
this paragraph (c)(3):

    Example 1. (i) A and B enter into a rental agreement that 
provides for the lease of property to begin on January 1, 1997, and 
end on December 31, 2000. The rental agreement provides that rent of 
$100,000 accrues during each year of the lease term. Under the 
rental agreement, no rent is payable during calendar year 1997, a 
payment of $100,000 is to be made on December 31, 1998, and December 
31, 1999, and a payment of $200,000 is to be made on December 31, 
2000. A and B both select the calendar year as their rental period. 
Thus, under paragraph (c)(3)(iii) of this section, the amount of 
rent allocated to each rental period under paragraph (c)(2)(ii) of 
this section is $100,000. Therefore, the rental agreement does not 
have increasing or decreasing rent as described in paragraph 
(c)(2)(i) of this section.
    (ii) Under paragraph (c)(3)(i) of this section, a rental 
agreement has deferred rent if, at the close of a calendar year, the 
cumulative amount of rent allocated under paragraph (c)(3)(iii) of 
this section exceeds the cumulative amount of rent payable as of the 
close of the succeeding year. In this example, there is no deferred 
rent: the rent allocated to 1997 ($100,000) does not exceed the 
cumulative rent payable as of December 31, 1998 ($100,000); the rent 
allocated to 1998 and preceding years ($200,000) does not exceed the 
cumulative rent payable as of December 31, 1999 ($200,000); the rent 
allocated to 1999 and preceding years ($300,000) does not exceed the 
cumulative rent payable as of December 31, 2000 ($400,000); and the 
rent allocated to 2000 and preceding years ($400,000) does not 
exceed the cumulative rent payable as of December 31, 2001 
($400,000). Therefore, because the rental agreement does not have 
increasing or decreasing rent and does not have prepaid or deferred 
rent, the rental agreement is not a section 467 rental agreement.
    Example 2. (i) A and B enter into a rental agreement that 
provides for the lease of personal property for ten years, beginning 
on January 1, 1997, and ending on December 31, 2006. The rental 
agreement provides for accruals of rent of $10,000 during each month 
of the lease term. Under paragraph (c)(3)(iii) of this section, 
$120,000 is allocated to each calendar year. The rental agreement 
provides for a $1,200,000 payment on December 31, 1997.
    (ii) The rental agreement does not have increasing or decreasing 
rent as described in paragraph (c)(2)(i) of this section. The rental 
agreement provides prepaid rent under paragraph (c)(3)(ii) of this 
section because an amount of rent allocated to a calendar year, when 
added to the rent allocated to all preceding calendar years, is less 
than the cumulative amount of rent payable before the beginning of 
the preceding calendar year. For example, the rent allocated to 1999 
and preceding calendar years ($360,000) is less than the cumulative 
amount of rent payable before the beginning of the preceding 
calendar year ($1,200,000 is payable on December 31, 1997). 
Accordingly, the rental agreement is a section 467 rental agreement.

    (4) Rental agreements involving total payments of $250,000 or 
less--(i) In general. A rental agreement is not a section 467 rental 
agreement if, taking into account any payments of contingent rent, and 
any other contingent consideration, the sum of the aggregate amount of 
rental payments under the rental agreement and the aggregate value of 
other consideration to be received for the use of property is not 
reasonably expected, as of the agreement date (as defined in paragraph 
(h) of this section), to exceed $250,000.
    (ii) Special rules in computing amount described in paragraph 
(c)(4)(i). The following rules apply in

[[Page 27841]]

determining the amount described in paragraph (c)(4)(i) of this 
section--
    (A) Stated interest on deferred rent is not taken into account. 
However, the Commissioner may recharacterize a portion of stated 
interest as additional rent if a rental agreement provides for interest 
on deferred rent at a rate that, in light of all of the facts and 
circumstances, is clearly greater than the arm's-length rate of 
interest that would have been charged in a lending transaction between 
the lessor and lessee.
    (B) Consideration that does not involve a cash payment is taken 
into account at its fair market value. A liability that is either 
assumed or secured by property acquired subject to the liability is 
taken into account at its remaining principal amount or, in the case of 
an obligation originally issued at a discount, at its adjusted issue 
price.
    (C) All leases that are part of the same transaction or a series of 
related transactions are treated as a single lease. Whether two or more 
leases are part of the same transaction or a series of related 
transactions depends on all the facts and circumstances.
    (D) Any increase or decrease in rent payable solely as a result of 
an adjustment based on a reasonable price index is not taken into 
account.
    (E) Contingent rent described in paragraph (c)(2)(iii)(B)(3) of 
this section is not taken into account.
    (d) Section 467 rent--(1) In general. The section 467 rent for a 
taxable year is the sum of--
    (i) The fixed rent for any rental period (determined under 
paragraph (d)(2) of this section) that begins and ends in the taxable 
year;
    (ii) A ratable portion of the fixed rent for any other rental 
period beginning or ending in the taxable year; and
    (iii) In the case of a section 467 rental agreement that provides 
for contingent rent, the contingent rent that accrues during the 
taxable year as provided in Sec. 1.467-6.
    (2) Fixed rent for a rental period--(i) Constant rental accrual. In 
the case of a section 467 rental agreement that is a disqualified 
leaseback or long-term agreement (as described in Sec. 1.467-3(b)), the 
fixed rent for a rental period is the constant rental amount (as 
determined under Sec. 1.467-3(d)).
    (ii) Proportional rental accrual. In the case of a section 467 
rental agreement that is not described in paragraph (d)(2)(i) of this 
section, and does not provide adequate interest on fixed rent (as 
determined under Sec. 1.467-2(b)), the fixed rent for a rental period 
is the proportional rental amount (as determined under Sec. 1.467-
2(c)).
    (iii) Section 467 rental agreement accrual. In the case of a 
section 467 rental agreement that is not described in paragraph 
(d)(2)(i) or (ii) of this section, the fixed rent for a rental period 
is the amount of fixed rent allocated to the rental period under the 
rental agreement, as determined under paragraph (c)(2)(ii) of this 
section.
    (e) Section 467 interest--(1) In general. The section 467 interest 
for a taxable year is the sum of--
    (i) The interest on fixed rent for any rental period that begins 
and ends in the taxable year;
    (ii) A ratable portion of the interest on fixed rent for any other 
rental period beginning or ending in the taxable year; and
    (iii) In the case of a section 467 rental agreement that provides 
for contingent rent, any interest that accrues on the contingent rent 
during the taxable year as provided in Sec. 1.467-6.
    (2) Interest on fixed rent for a rental period--(i) In general. 
Except as provided in paragraph (e)(2)(ii) of this section and 
Sec. 1.467-5(b)(1)(ii), the interest on fixed rent for a rental period 
is equal to the product of--
    (A) The principal balance of the section 467 loan (as described in 
Sec. 1.467-4(b)) at the beginning of the rental period; and
    (B) The yield of the section 467 loan (as described in Sec. 1.467-
4(c)).
    (ii) Section 467 rental agreements with adequate interest. Except 
in the case of a section 467 rental agreement that is a disqualified 
leaseback or long-term agreement, if a section 467 rental agreement 
provides adequate interest under Sec. 1.467-2(b)(1)(i) (agreements with 
no deferred or prepaid rent) or Sec. 1.467-2(b)(1)(ii) (agreements with 
adequate stated interest at a single fixed rate), the interest on fixed 
rent for a rental period is the amount of interest provided in the 
rental agreement for the period.
    (3) Treatment of interest. If the section 467 interest for a rental 
period is a positive amount, the lessor has interest income and the 
lessee has an interest expense. If the section 467 interest for a 
rental period is a negative amount, the lessee has interest income and 
the lessor has an interest expense.
    (f) Modification of a rental agreement. If, after the lease date, 
the lessor and lessee agree to a substantial modification of the terms 
of a lease, the modified lease is treated, except as provided in this 
paragraph (f), as a new rental agreement for purposes of this section 
and Secs. 1.467-2 through 1.467-8. If a principal purpose of such a 
modification is to avoid the purpose or intent of section 467, the 
Commissioner may treat the original and modified lease as a single 
rental agreement for purposes of this section and Secs. 1.467-2 through 
1.467-8.
    (g) Treatment of amounts payable by lessor to lessee--(1) Interest. 
For purposes of determining present value, any amounts payable by the 
lessor to the lessee as interest on prepaid rent are treated as 
negative amounts.
    (2) Other amounts. [Reserved]
    (h) Meaning of terms. The following meanings apply for purposes of 
this section and Secs. 1.467-2 through 1.467-8--
    (1) Agreement date means the earlier of the lease date or the first 
date on which there is a binding written contract that substantially 
sets forth the terms under which the property will be leased.
    (2) Contingent rent means any rent that is not fixed rent, 
including any amount reflecting an adjustment based on a reasonable 
price index.
    (3) Fixed rent means any rent to the extent its amount and the time 
at which it will be paid are fixed and determinable under the terms of 
the section 467 rental agreement as of the lease date, as defined in 
paragraph (h)(4) of this section. For this purpose, the possibility of 
a breach or other early termination of the rental agreement and any 
provision that makes adjustments based on a reasonable price index are 
disregarded in determining whether amounts specified in the agreement 
are fixed rent.
    (4) Lease date means the date on which the lessee first has the 
right to use property that is the subject of the section 467 rental 
agreement.
    (5) Lease term means the period during which the lessee has the use 
of property subject to the section 467 rental agreement. An option 
period is included in the lease term only if it is expected, as of the 
agreement date, that the option will be exercised by either the lessor 
or the lessee. For this purpose, a lessor is generally expected to 
exercise an option if, for example, as of the agreement date, the rent 
in effect for the option period exceeds the expected market rental for 
the property during such period. Similarly, a lessee is generally 
expected to exercise an option if, for example, as of the agreement 
date, the rent for the option period is less than the expected market 
rental for such period. The lessor's or lessee's determination that an 
option period is either included in or excluded from the lease term is 
not binding on the Commissioner. If the lessee (or a related person) 
agrees that one or both of them will or could be obligated to make 
payments in the nature of rent (within

[[Page 27842]]

the meaning of Sec. 1.168(i)-2(b)(2)) for a period when another lessee 
(the substitute lessee) or the lessor will have use of the property 
subject to the rental agreement, the Commissioner may, in appropriate 
cases, treat the period when the substitute lessee or lessor will have 
use of the property as part of the lease term. See paragraph 
Sec. 1.467-7(f) for special rules applicable to the lessee, substitute 
lessee, and lessor.
    (6) An adjustment is based on a reasonable price index if the 
adjustment reflects inflation or deflation occurring over a period 
during the lease term and is determined consistently under any 
generally recognized index for measuring inflation or deflation.
    (7) Except as otherwise provided in this paragraph (h)(7), two 
persons are related persons if they either have a relationship to each 
other that is specified in section 267(b) or section 707(b)(1) or are 
related entities within the meaning of sections 168(h)(4) (A), (B), or 
(C). For purposes of determining whether a section 467 rental agreement 
is a leaseback within the meaning of Sec. 1.467-3(b)(2), two persons 
are related persons if they are related persons within the meaning of 
section 465(b)(3)(C).
    (8) Rental agreement includes any agreement, whether written or 
oral, that provides for the use of tangible property and is treated as 
a lease for Federal income tax purposes.
    (9) Third-party costs include any real estate taxes, insurance 
premiums, maintenance costs, or any other cost (other than a debt 
service cost) that relates to the leased property and is not within the 
control of the lessor or lessee or any related person.
    (i) [Reserved].
    (j) Computational rules. For purposes of this section and 
Secs. 1.467-2 through 1.467-8, the following rules apply--
    (1) Counting conventions. Any reasonable counting convention may be 
used (e.g., 30 days per month/360 days per year) to determine the 
length of a rental period or to perform any computation. Rental periods 
of the same descriptive length, for example annual, semiannual, 
quarterly, or monthly, may be treated as being of equal length.
    (2) Conventions regarding timing of rent and payments--(i) In 
general. For purposes of determining present values and yield--
    (A) Except as otherwise provided in this section and Secs. 1.467-2 
through 1.467-7, the rent allocated to a rental period is taken into 
account on the last day of the rental period;
    (B) Any amount payable during the first half of the first rental 
period is treated as payable on the first day of that rental period;
    (C) Any amount payable during the first half of any other rental 
period is treated as payable on the last day of the preceding rental 
period; and
    (D) Any amount payable during the second half of a rental period is 
treated as payable on the last day of the rental period.
    (ii) Time amount is payable. For purposes of this paragraph (j)(2), 
an amount is payable on the last day for timely payment (that is, the 
last day such amount may be paid without incurring interest, computed 
at an arm's-length rate, or a substantial penalty charge) and an amount 
payable at the midpoint of a rental period is treated as payable during 
the first half of the rental period.
    (3) Annualized fixed rent. Annualized fixed rent is determined by 
multiplying the fixed rent allocated to the rental period under 
paragraph (c)(2)(ii) of this section by a number that represents the 
ratio of one year to the length of the rental period. Thus, if the 
fixed rent allocated to a rental period is $100,000 and the rental 
period is one month, the annualized fixed rent allocated to the rental 
period is $1,200,000.
    (4) Allocation of fixed rent within a period. A rental agreement 
that allocates fixed rent to any period is treated as allocating fixed 
rent ratably within that period. Thus, if a rental agreement provides 
that $120,000 is allocated to each calendar year in the lease term, 
$10,000 of rent is allocated to each calendar month.
    (5) Rental period length. Except as provided in Sec. 1.467-3(d)(1) 
(relating to agreements for which constant rental accrual is required), 
rental periods may be of any length and may vary in length as long as--
    (i) The rental periods are one year or less, cover the entire lease 
term, and do not overlap;
    (ii) Each scheduled payment under the rental agreement (other than 
a payment scheduled to occur before or after the lease term) occurs 
within 30 days of the beginning or end of a rental period; and
    (iii) In the case of a rental agreement that does not provide a 
specific allocation of fixed rent, the rental periods selected do not 
cause the agreement to be treated as a section 467 rental agreement 
unless all alternative rental period schedules would result in such 
treatment.

Sec. 1.467-2  Rent accrual for section 467 rental agreements without 
adequate interest.

    (a) Section 467 rental agreement for which proportional rental 
accrual is required. Under Sec. 1.467-1(d)(2)(ii), the fixed rent for 
each rental period is the proportional rental amount, defined under 
paragraph (c) of this section, if--
    (1) The section 467 rental agreement is not a disqualified 
leaseback or long-term agreement under Sec. 1.467-3(b); and
    (2) The section 467 rental agreement does not provide adequate 
interest on fixed rent under paragraph (b) of this section.
    (b) Adequate interest on fixed rent--(1) In general. A section 467 
rental agreement provides adequate interest on fixed rent if, 
disregarding any contingent rent--
    (i) The rental agreement has no prepaid or deferred rent as 
described in Sec. 1.467-1(c)(3);
    (ii) The rental agreement has prepaid or deferred rent, and--
    (A) The rental agreement provides interest (the stated rate of 
interest) on deferred or prepaid fixed rent at a single fixed rate (as 
defined in Sec. 1.1273-1(c)(1)(iii));
    (B) The stated rate of interest on fixed rent is no lower than 110 
percent of the applicable Federal rate (as defined in paragraph (e)(3) 
of this section);
    (C) The amount of deferred or prepaid fixed rent on which interest 
is charged is adjusted at least annually to reflect the amount of 
deferred or prepaid fixed rent as of a date no earlier than the date of 
the preceding adjustment and no later than the date of the succeeding 
adjustment; and
    (D) The rental agreement requires interest to be paid or compounded 
at least annually;
    (iii) The rental agreement provides for deferred rent but no 
prepaid rent, and the sum of the present values of all amounts payable 
by the lessee as fixed rent (and interest, if any, thereon) is equal to 
or greater than the sum of the present values of the fixed rent 
allocated to each rental period; or
    (iv) The rental agreement provides for prepaid rent but no deferred 
rent, and the sum of the present values of all amounts payable by the 
lessee as fixed rent, plus the sum of the negative present values of 
all amounts payable by the lessor as interest, if any, on prepaid fixed 
rent, is equal to or less than the sum of the present values of the 
fixed rent allocated to each rental period.
    (2) Section 467 rental agreements that provide for a variable rate 
of interest. For purposes of the adequate interest test under paragraph 
(b)(1) of this section, if a section 467 rental

[[Page 27843]]

agreement provides for variable interest, the rental agreement is 
treated as providing for fixed rates of interest on deferred or prepaid 
fixed rent equal to the fixed rate substitutes (determined in the same 
manner as under Sec. 1.1275-5(e) treating the agreement date as the 
issue date) for the variable rates called for by the rental agreement. 
For purposes of this section, a rental agreement provides for variable 
interest if the rental agreement provides for stated interest that is 
paid or compounded at least annually at a rate or rates that meet the 
requirements of Sec. 1.1275-5(a)(3)(i)(A) or (B) and Sec. 1.1275-
5(a)(4).
    (c) Computation of proportional rental amount--(1) In general. The 
proportional rental amount for a rental period is the amount of fixed 
rent allocated to the rental period under Sec. 1.467-1(c)(2)(ii), 
multiplied by a fraction. The numerator of the fraction is the sum of 
the present values of the amounts payable under the terms of the 
section 467 rental agreement as fixed rent and interest thereon. The 
denominator of the fraction is the sum of the present values of the 
fixed rent allocated to each rental period under the rental agreement.
    (2) Section 467 rental agreements that provide for a variable rate 
of interest. To calculate the proportional rental amount for a section 
467 rental agreement that provides for a variable rate of interest, see 
Sec. 1.467-5.
    (d) Present value. For purposes of determining adequate interest 
under paragraph (b) of this section or the proportional rental amount 
under paragraph (c) of this section, present values are determined as 
of the first day a fixed rent payment is called for by the section 467 
rental agreement if the rental agreement calls for payments of fixed 
rent prior to the lease term. Otherwise, present values are determined 
as of the first day of the first rental period in the lease term. The 
present value of any amount is determined using a discount rate equal 
to 110 percent of the applicable Federal rate. For purposes of the 
present value determination under paragraph (b)(1)(iv) of this section, 
the fixed rent allocated to a rental period must be discounted from the 
first day of the rental period. For other conventions and rules 
relating to the determination of present value, see Sec. 1.467-1(g) and 
(j).
    (e) Applicable Federal rate--(1) In general. The applicable Federal 
rate for a section 467 rental agreement is the applicable Federal rate 
in effect on the agreement date. Except as otherwise provided in this 
section, the applicable Federal rate for a rental agreement means--
    (i) The Federal short-term rate if the term of the rental agreement 
is not over 3 years;
    (ii) The Federal mid-term rate if the term of the rental agreement 
is over 3 years but not over 9 years; and
    (iii) The Federal long-term rate if the term of the rental 
agreement is over 9 years.
    (2) Source of applicable Federal rates. The Internal Revenue 
Service publishes the applicable Federal rates, based on annual, 
semiannual, quarterly, and monthly compounding, each month in the 
Internal Revenue Bulletin (see Sec. 601.601(d) of this chapter. 
However, the applicable Federal rates may be based on any compounding 
assumption. To convert a rate based on one compounding assumption to an 
equivalent rate based on a different compounding assumption, see 
Sec. 1.1272-1(j), Example 1.
    (3) 110 percent of applicable Federal rate. For purposes of 
Sec. 1.467-1, this section and Secs. 1.467-3 through 1.467-8, 110 
percent of the applicable Federal rate means 110 percent of the 
applicable Federal rate based on semiannual compounding, or any rate 
based on a different compounding assumption that is equivalent to 110 
percent of the applicable Federal rate based on semiannual compounding.
    (4) Term of the section 467 rental agreement--(i) In general. For 
purposes of determining 110 percent of the applicable Federal rate 
under this paragraph (e), the term of the section 467 rental agreement 
includes the lease term, any period before the lease term beginning 
with the first day an amount of fixed rent is payable under the terms 
of the rental agreement, and any period after the lease term ending 
with the last day an amount of fixed rent or interest thereon is 
payable under the rental agreement.
    (ii) Section 467 rental agreements with variable interest. If a 
section 467 rental agreement provides variable interest on prepaid or 
deferred fixed rent, the term of the rental agreement for purposes of 
calculating 110 percent of the applicable Federal rate is determined in 
accordance with paragraph (e)(4)(i) of this section by substituting for 
the term of the rental agreement, the longest period between interest 
rate adjustment dates, or, if the rental agreement provides an initial 
fixed rate of interest on prepaid or deferred fixed rent, the period 
between the agreement date and the last day the fixed rate applies, if 
this period is longer. If, as described in Sec. 1.1274-4(c)(2)(ii), the 
rental agreement provides for a qualified floating rate (as defined in 
Sec. 1.1275-5(b)) that in substance resembles a fixed rate, 110 percent 
of the applicable Federal rate is determined by reference to the lease 
term.
    (f) Examples. The following examples illustrate the application of 
this section. In each of these examples it is assumed that constant 
rental accrual does not apply:

    Example 1. (i) C agrees to lease property from D for five years 
beginning on January 1, 1998, and ending on December 31, 2002. The 
section 467 rental agreement provides that rent of $100,000 accrues 
in each calendar year in the lease term and that rent of $500,000 
plus $120,000 of interest is payable on December 31, 2002. Assume 
that the parties select the calendar year as the rental period and 
that 110 percent of the applicable Federal rate based on annual 
compounding is 10 percent.
    (ii) The rental agreement has deferred rent under Sec. 1.467- 
1(c)(3)(i) because the fixed rent allocated to calendar years 1998, 
1999, and 2000 is not paid until 2002. In addition, because the 
rental agreement does not state an interest rate, the rental 
agreement does not satisfy the requirements of paragraph (b)(1)(ii) 
of this section. Thus, the adequacy of interest must be determined 
under paragraph (b)(1)(iii) of this section.
    (iii)(A) Because the rental agreement has deferred fixed rent 
and no prepaid rent, the agreement has adequate interest only if the 
present value rules provided in paragraph (b)(1)(iii) are met. The 
present value of all fixed rent and interest payable under the 
rental agreement is $384,971.22, determined as follows: $384,971.22 
= $620,000/(1.10)\5\. The present value of all fixed rent allocated 
under the rental agreement (discounting the amount of fixed rent 
allocated to a rental period from the last day of the rental period) 
is $379,078.68, determined as follows:
[GRAPHIC] [TIFF OMITTED] TP03JN96.008

    (B) Accordingly, the sum of the present values of amounts 
payable exceeds the sum of the present values of fixed rent 
allocated. The rental agreement provides adequate interest on fixed 
rent.
    (iv) For an example illustrating the computation of the yield on 
the rental agreement and the allocation of the interest and rent 
provided for under the rental agreement, see Sec. 1.467-4(f), 
Example 2.
    Example 2. (i) E and F enter into a section 467 rental agreement 
for the lease of equipment beginning on January 1, 1998, and ending 
on December 31, 2002. The rental agreement provides that rent of 
$100,000 accrues for each calendar month during the lease term. All 
rent is payable on December 31, 2002, together with interest on 
accrued rent at a qualified floating rate set at a current value (as 
defined in Sec. 1.1275-5(a)(4)) that is compounded at the end of 
each calendar month and adjusted at the beginning of each calendar 
month throughout the lease term. Therefore, the rental agreement 
provides for variable interest within the meaning of paragraph 
(b)(2) of this section.

[[Page 27844]]

    (ii) On the agreement date the qualified floating rate is 7.5 
percent, and 110 percent of the applicable Federal rate, as defined 
in paragraph (e)(3) of this section, based on monthly compounding, 
is 7 percent. Under paragraph (b)(2) of this section, the fixed rate 
substitute for the qualified floating rate is 7.5 percent and the 
agreement is treated as providing for interest at this fixed rate 
for purposes of determining whether adequate interest is provided 
under paragraph (b) of this section. Accordingly, the requirements 
of paragraph (b)(1)(ii) of this section are satisfied, and the 
rental agreement has adequate interest.
    Example 3. (i) X and Y enter into a section 467 rental agreement 
for the lease of real property beginning on January 1, 1998, and 
ending on December 31, 2000. The rental agreement provides that rent 
of $80,000 is allocable to 1998, $100,000 is allocable to 1999, and 
$120,000 is allocable to 2000. Under the rental agreement, Y must 
make a $300,000 payment on December 31, 2000. Assume that both X and 
Y choose the calendar year as the rental period, X and Y are 
calendar year taxpayers, and 110 percent of the applicable Federal 
rate is 8.5 percent compounded annually. Assume further that the 
rental agreement fails to provid

FR Doc. 96-13719 Section 467 Rental Agreements

e adequate interest under paragraph 
(b)(1) of this section. Therefore, under Sec. 1.467-1(d)(2)(ii), the 
fixed rent for each rental period is the proportional rental amount.
    (ii)(A) The proportional rental amount is computed under 
paragraph (c) of this section. Because the rental agreement does not 
call for any fixed rent payments prior to the lease term, under 
paragraph (d) of this section, present value is determined as of the 
first day of the first rental period in the lease term. The sum of 
the present values of the amounts payable by the lessee under the 
rental agreement is computed as follows:
[GRAPHIC] [TIFF OMITTED] TP03JN96.009

    (B) The sum of the present values of the fixed rent allocated to 
each rental period (discounting the fixed rent allocated to a rental 
period from the last day of such rental period) is computed as 
follows:
[GRAPHIC] [TIFF OMITTED] TP03JN96.010

    (C) Thus, the fraction for determining the proportional rental 
amount is .9297194 ($234,872.43/$252,627.22). The section 467 fixed 
rents for the taxable years within the lease term are:

------------------------------------------------------------------------
           Taxable year                       Section 467 rent          
------------------------------------------------------------------------
1998.............................  $74,377.55 ($80,000  x  .9297194)    
1999.............................  92,971.94 ($100,000  x  .9297194)    
2000.............................  111,566.33 ($120,000  x  .9297194)   
------------------------------------------------------------------------

Sec. 1.467-3  Disqualified leasebacks and long-term agreements.

    (a) General rule. Under Sec. 1.467-1(d)(2)(i), constant rental 
accrual (as described under paragraph (d) of this section) must be used 
to determine the fixed rent for each rental period in the lease term if 
the section 467 rental agreement is a disqualified leaseback or long-
term agreement within the meaning of paragraph (b) of this section.
    (b) Disqualified leaseback or long-term agreement--(1) In general. 
A leaseback (as defined in paragraph (b)(2) of this section) or a long-
term agreement (as defined in paragraph (b)(3) of this section) is 
disqualified only if--
    (i) The amount determined with respect to the section 467 rental 
agreement under Sec. 1.467-1(c)(4) (relating to the exception for 
rental agreements involving total payments of $250,000 or less) exceeds 
$2,000,000;
    (ii) A principal purpose for providing increasing or decreasing 
rent is the avoidance of Federal income tax (as described in paragraph 
(c) of this section); and
    (iii) The Commissioner determines that it is appropriate to treat 
the section 467 rental agreement as a disqualified leaseback or long-
term agreement.
    (2) Leaseback. A section 467 rental agreement is a leaseback if the 
lessee (or a related person) had any interest (other than a de minimis 
interest) in the property at any time during the two-year period ending 
on the agreement date. For this purpose, interests in property include 
options and agreements to purchase the property (whether or not the 
lessee or related person was considered the owner of the property for 
Federal income tax purposes) and, in the case of subleased property, 
any interest as a sublessor.
    (3) Long-term agreement--(i) In general. A section 467 rental 
agreement is a long-term agreement if the lease term exceeds 75 percent 
of the statutory recovery period for the property.
    (ii) Statutory recovery period--(A) In general. The term statutory 
recovery period means--
    (1) In the case of property depreciable under section 168, the 
applicable period determined under section 467(e)(3)(A);
    (2) In the case of land, 19 years; and
    (3) In the case of any other tangible property, the period that 
would apply under section 467(e)(3)(A) if the property were property to 
which section 168 applied.
    (B) Special rule for leases of properties having different 
statutory recovery periods. In the case of a lease of two or more 
related properties that have different statutory recovery periods, the 
statutory recovery period for purposes of paragraph (b)(3)(ii)(A) of 
this section is the weighted average, based on the fair market values 
of the properties on the lease date, of the statutory recovery periods 
of each of the properties.
    (c) Tax avoidance as principal purpose for increasing or decreasing 
rent--(1) In general. Whether tax avoidance is a principal purpose for 
providing increasing or decreasing rent in a leaseback or long-term 
agreement is based on all of the facts and circumstances. However, if 
either the lessee or the lessor is not subject to Federal income tax on 
its income or is a tax- exempt entity (within the meaning of section 
168(h)(2)), the agreement will be closely scrutinized and clear and 
convincing evidence will be required to establish that tax avoidance is 
not a principal purpose for providing increasing or decreasing rent.
    (2) Safe harbors. Tax avoidance is not considered to be a principal 
purpose for providing increasing or decreasing rent if--
    (i) The rent allocated to each calendar year (determined without 
regard to any increase or decrease attributable to a provision 
described in paragraph (c)(2)(ii)(C) of this section) does not vary 
from the average rent allocated to all calendar years by more than 10 
percent (for this purpose, the rent allocated to a partial calendar 
year is adjusted by

[[Page 27845]]

multiplying the rent by the number of partial years in a full calendar 
year); or
    (ii) All of the increases and decreases in rent are attributable to 
one or more of the following provisions--
    (A) A provision requiring an increase in rent equal to a percentage 
of the lessee's receipts (gross or net) if the percentage does not vary 
throughout the term of the lease;
    (B) A provision requiring an adjustment based on a reasonable price 
index as described in Sec. 1.467-1(h);
    (C) A provision requiring the lessee to pay third-party costs as 
described in Sec. 1.467-1(h); or
    (D) A rent holiday provision allowing reduced rent (including no 
rent) for an interim period at the beginning of the lease term, but 
only if the duration of the rent holiday does not exceed the lesser of 
24 months or 10 percent of the lease term and there is a substantial 
business purpose for the rent holiday provision.
    (d) Calculating constant rental amount--(1) In general. Except as 
provided in paragraph (d)(2) of this section, the constant rental 
amount is the amount that, if paid at the end of each rental period, 
would result in a present value equal to the present value of all 
amounts payable under the disqualified leaseback or long-term agreement 
as rent and interest. In computing the constant rental amount, the 
rules for determining present value are the same as those provided in 
Sec. l.467-2(d) for computing the proportional rental amount. If 
constant rental accrual is required, all rental periods (other than an 
initial or final short period of not more than one month) must be equal 
in length and satisfy the requirements of Sec. 1.467-1(j)(5).
    (2) Initial or final short periods. If a disqualified leaseback or 
long-term agreement has an initial or final short rental period, the 
constant rental amount for the initial or final short period may be 
determined under any reasonable method. However, the sum of the present 
values of all the constant rental amounts must equal the present values 
of all amounts payable under the disqualified leaseback or long-term 
agreement as rent and interest. Any adjustment necessary to eliminate 
the section 467 loan balance because of the method used to determine 
the constant rental amount for short periods must be taken into account 
as section 467 rent for the final rental period.
    (3) Method to determine constant rental amount; no short periods--
(i) Step 1. Determine the present value of amounts payable under the 
disqualified leaseback or long-term agreement as rent or interest.
    (ii) Step 2. Determine the present value of $1 to be received at 
the end of each rental period during the lease term as of the first day 
of the first rental period during the lease term (or, if earlier, the 
first day a rent payment is required under the rental agreement).
    (iii) Step 3. Divide the amount determined in paragraph (d)(3)(i) 
of this section (Step 1) by the number of dollars determined in 
paragraph (d)(3)(ii) of this section (Step 2).
    (e) Example. The following example illustrates the application of 
paragraph (d) of this section:

    Example. (i) X and Y enter into a disqualified leaseback for a 
5-year lease of personal property beginning on January 1, 1998, and 
ending on December 31, 2002. The rental agreement provides that $0 
of rent is allocated to years 1998, 1999, and 2000, and that rent of 
$17,500,000 is allocated to years 2001 and 2002. The rental 
agreement provides that the rent allocated to each year is payable 
on December 31 of that year. Assume all rental periods are the 
calendar year. Assume also that 110 percent of the applicable 
Federal rate based on annual compounding is 12 percent.
    (ii) Step 1 in calculating the constant rental amount is to 
determine the present value of the two payments due under the rental 
agreement as follows:
[GRAPHIC] [TIFF OMITTED] TP03JN96.011

    (iii) Because no amounts of rent are payable before the lease 
term, Step 2 in calculating the constant rental amount is to 
determine the present value as of the first day of the lease term of 
$1 to be received at the end of each rental period during the lease 
term. This results in a present value of $3.6047762. In Step 3 the 
amount determined in Step 1 is divided by the number of dollars 
determined in Step 2. Thus, the constant rental amount is $5,839,901 
for each calendar year during the lease term computed as follows:
[GRAPHIC] [TIFF OMITTED] TP03JN96.012

Sec. 1.467-4  Section 467 loan.

    (a) In general--(1) Overview. Except as provided in paragraph 
(a)(2) of this section, the section 467 loan rules of this section 
apply to a section 467 rental agreement if, as of the first day of that 
period, there is a difference between the amount of fixed rent payable 
under the rental agreement on or before the first day and the amount of 
fixed rent required to be accrued in accordance with Sec. 1.467-1(d)(2) 
before the first day. Paragraph (b) of this section provides rules for 
computing the principal balance of a section 467 loan at the beginning 
of any rental period. The principal balance of a section 467 loan may 
be positive or negative. For purposes of the Code, if the principal 
balance is positive, the amount represents a loan from the lessor to 
the lessee and, if the principal balance is negative, the amount 
represents a loan from the lessee to the lessor.
    (2) No section 467 loan in the case of certain section 467 rental 
agreements. Except as provided in paragraph (a)(3) and (4) of this 
section, this section does not apply to section 467 rental agreements 
that provide adequate interest under Sec. 1.467-2(b)(1)(i) (agreements 
with no deferred or prepaid rent) or Sec. 1.467-2(b)(1)(ii) (agreements 
with deferred or prepaid rent that provide adequate stated interest at 
a single fixed rate).
    (3) Rental agreements subject to constant rental accrual. 
Notwithstanding the provisions of paragraph (a)(2) of this section, 
this section applies to rental agreements subject to constant rental 
accrual under Sec. 1.467-3.
    (4) Special rule in applying the provisions of Sec. 1.467-7(e) or 
(f). Notwithstanding the provisions of paragraph (a)(2) of this 
section, this section applies to rental agreements that provide 
adequate interest under Sec. 1.467-2(b)(1) (i) or (ii), but only for 
purposes of applying the provisions of

[[Page 27846]]

Sec. 1.467-7(e) (relating to dispositions of property subject to a 
section 467 rental agreement) or Sec. 1.467-7(f) (relating to 
assignments by lessees and lessee-financed renewals) to a transaction 
described therein. Further, for section 467 rental agreements that 
provide adequate interest under Sec. 1.467-2(b)(1)(i) or (ii), the 
section 467 interest that accrues on the section 467 loan balance after 
the sale, exchange, or other disposition under Sec. 1.467-7(e) or the 
assignment or renewal under Sec. 1.467-7(f) is the section 467 interest 
that accrues under the terms of the rental agreement (if any).
    (b) Principal balance--(1) In general. Except as provided in 
paragraph (b)(2) of this section or in Sec. 1.467-7(e) or (f), the 
principal balance of the section 467 loan at the beginning of a rental 
period equals the fixed rent accrued in preceding rental periods--
    (i) Increased by the interest on fixed rent includible in the gross 
income of the lessor for preceding rental periods and any amount 
payable by the lessor on or before the first day of the rental period 
as interest on prepaid fixed rent; and
    (ii) Decreased by the interest on prepaid fixed rent includible in 
the gross income of the lessee for preceding rental periods and any 
amount payable by the lessee on or before the first day of the rental 
period as fixed rent or interest thereon.
    (2) Section 467 rental agreements that provide for prepaid fixed 
rent and adequate stated interest. If a section 467 rental agreement 
calls for prepaid fixed rent and provides adequate interest under 
Sec. 1.467-2(b)(1)(iv), the principal balance of the section 467 loan 
at the beginning of a rental period equals the principal balance 
determined under paragraph (b)(1) of this section, plus the fixed rent 
accrued for that rental period.
    (3) Timing of payments. For purposes of this paragraph (b), the day 
on which an amount is payable is determined under the rules of 
Sec. 1.467-1(j)(2).
    (c) Yield--(1) In general--(i) Method of determining yield. Except 
as provided in paragraph (c)(2) of this section, the yield of a section 
467 loan is the discount rate at which the sum of the present values of 
all amounts payable by the lessee as fixed rent and interest on fixed 
rent, plus the sum of the present values of all amounts payable by the 
lessor as interest on prepaid fixed rent, equals the sum of the present 
values of the fixed rent that accrues in accordance with Sec. 1.467-
1(d)(2). The yield must be constant over the term of the section 467 
rental agreement, and, when expressed as a percentage, must be 
calculated to at least two decimal places.
    (ii) Method of stating yield. In determining the section 467 
interest for a rental period, the yield of the section 467 loan must be 
stated appropriately by taking into account the length of the rental 
period. Section 1.1272-1(j) Example 1 provides a formula for converting 
a yield based on a period of one length to an equivalent yield based on 
a period of a different length.
    (iii) Rounding adjustments. Any adjustment necessary to eliminate 
the section 467 loan because of rounding the yield to two or more 
decimal places must be taken into account as section 467 interest for 
the final rental period determined as provided in paragraph (e) of this 
section.
    (2) Yield of section 467 rental agreements for which constant 
rental amount or proportional rental amount is computed. In the case of 
a section 467 rental agreement to which Sec. 1.467- 1(d)(2) (i) or (ii) 
applies, the yield of the section 467 loan equals 110 percent of the 
applicable Federal rate (based on a compounding period equal to the 
rental period).
    (3) Determination of present values. The rules for determining 
present value in computing the yield of a section 467 loan are the same 
as those provided in Sec. 1.467-2(d) for computing the proportional 
rental amount.
    (d) Contingent payments. Except as otherwise required under 
Sec. 1.467-6, contingent payments are not taken into account in 
calculating either the yield or the principal balance of a section 467 
loan.
    (e) Section 467 rental agreements that call for payments before or 
after the lease term. If a section 467 rental agreement calls for the 
payment of fixed rent or interest thereon before the beginning of the 
lease term, this section must be applied by treating the period 
beginning on the first day an amount is payable and ending on the day 
before the beginning of the first rental period of the lease term as 
one or more rental periods. If a rental agreement calls for the payment 
of fixed rent or interest thereon after the end of the lease term, this 
section must be applied by treating the period beginning on the day 
after the end of the last rental period of the lease term and ending on 
the last day an amount of fixed rent or interest thereon is payable as 
one or more rental periods. Rental period length for the period before 
the lease term or after the lease term is determined in accordance with 
the rules of Sec. 1.467-1(j)(5).
    (f) Examples. The following examples illustrate the application of 
this section:

    Example 1. (i)(A) A leases property to B for a three-year period 
beginning on January 1, 1998, and ending on December 31, 2000. The 
section 467 rental agreement has the following rent allocation 
schedule and payment schedule:

------------------------------------------------------------------------
                                                   Rent                 
                                                allocation     Payment  
------------------------------------------------------------------------
1998..........................................    $400,000  ............
1999..........................................     600,000  ............
2000..........................................     800,000    $1,800,000
------------------------------------------------------------------------

    (B) The rental agreement requires a $1.8 million payment to be 
made on December 31, 2000, but does not provide for interest on 
deferred rent. Assume A and B choose the calendar year as the rental 
period length. Assume further that 110 percent of the applicable 
Federal rate based on annual compounding is 10 percent.
    (ii) The rental agreement is not a disqualified leaseback or 
long-term agreement because it does not provide for the payment of 
more than $2,000,000 in rent (determined pursuant to Sec. 1.467-
3(b)(1)(i)). Because the section 467 rental agreement does not 
provide adequate interest under Sec. 1.467-2(b) and is not subject 
to constant rental accrual, the fixed rent that accrues during each 
rental period is the proportional rental amount as described in 
Sec. 1.467-2(c). The proportional rental amounts for each rental 
period are as follows:

1998   $370,370.37
1999   555,555.56
2000   740,740.74

    (iii) A section 467 loan arises at the beginning of the second 
rental period because the rent payable on or before that day (zero) 
is less than the fixed rent accrued under Sec. 1.467-1(d)(2) in all 
preceding rental periods ($370,370.37). Under paragraph (c)(2) of 
this section, the yield of the loan is equal to 110 percent of the 
applicable Federal rate (10 percent compounded annually). Because no 
payments are treated as made on or before the first day of the 
second rental period, the principal balance of the loan at the 
beginning of the second rental period is $370,370.37. The interest 
for the second rental period on fixed rent is $37,037.04 (.10 x 
$370,370.37) and, under Sec. 1.467-1(e)(3), is treated as interest 
income of the lessor and as an interest expense of the lessee.
    (iv) Because no payments are made on or before the first day of 
the third rental period, the principal balance of the loan at the 
beginning of the third rental period is equal to the fixed rent 
accrued during the first and second rental periods plus the lessor's 
interest income on fixed rent for the second rental period 
($962,962.97 = $370,370.37 + $555,555.56 + $37,037.04). The interest 
for the third rental period on fixed rent is $96,296.30 (.10 x 
$962,962.97). Thus, the sum of the fixed rent and interest on fixed 
rent for the three rental periods is equal to the total amount paid 
over the lease term (first year fixed rent accrual, $370,370.37, 
plus second year fixed rent and interest accrual, $555,555.56 + 
$37,037.04, plus third year fixed rent and interest accrual, 
$740,740.74 + $96,296.30, equals $1,800,000). B takes the amounts of 
interest and rent into account as expense and A takes such amounts 
into account as income for the

[[Page 27847]]

calendar years identified above, regardless of their respective 
methods of accounting.
    Example 2. (i) The facts are the same as in Example 1, 
Sec. 1.467-2(f).
    (ii)(A) Pursuant to paragraph (c)(1) of this section, the yield 
of the section 467 loan is 10.775078%, compounded annually. The 
following is a schedule of the rent allocable to each rental period 
during the lease term, the balance of the section 467 loan as of the 
end of each rental period (determined, in the case of the calendar 
year 2002, without regard to the single payment of rent and interest 
in the amount of $620,000 payable on the last day of the lease 
term), and the interest on the section 467 loan allocable to each 
rental period:

----------------------------------------------------------------------------------------------------------------
                                                                    Section 467     Section 467     Section 467 
                          Calendar year                              interest          rent        loan balance 
----------------------------------------------------------------------------------------------------------------
1998............................................................              $0     $100,000.00     $100,000.00
1999............................................................       10,775.08      100,000.00      210,775.08
2000............................................................       22,711.18      100,000.00      333,486.26
2001............................................................       35,933.41      100,000.00      469,419.67
2002............................................................       50,580.33      100,000.00      620,000.00
----------------------------------------------------------------------------------------------------------------

    (B) C takes the amounts of interest and rent into account as 
expense and D takes such amounts into account as income for the 
calendar years identified above, regardless of their respective 
methods of accounting.

Sec. 1.467-5   Section 467 rental agreements with variable interest.

    (a) Variable interest on deferred or prepaid rent--(1) In general. 
This section provides rules for computing section 467 rent and interest 
in the case of section 467 rental agreements providing variable 
interest. For purposes of this section, a rental agreement provides for 
variable interest if the rental agreement provides for stated interest 
that is paid or compounded at least annually at a rate or rates that 
meet the requirements of Sec. 1.1275-5(a)(3)(i) (A) or (B) and 
Sec. 1.1275-5(a)(4). If a section 467 rental agreement provides for 
interest that is neither variable interest nor determined by reference 
to a fixed rate, the amount of any interest will be treated as a 
contingent payment subject to Sec. 1.467-6.
    (2) Exceptions. This section is not applicable to section 467 
rental agreements that provide adequate interest under Sec. 1.467-
2(b)(1)(i) (agreements with no deferred or prepaid rent) or Sec. 1.467-
2(b)(1)(ii) (rental agreements with stated interest at a single fixed 
rate). The exceptions in this paragraph (a)(2) do not apply to rental 
agreements subject to constant rental accrual under Sec. 1.467-3.
    (b) Variable rate treated as fixed--(1) In general. If a section 
467 rental agreement provides variable interest--
    (i) The fixed rate substitutes (determined in the same manner as 
under Sec. 1.1275-5(e) treating the agreement date as the issue date) 
for the variable rates of interest on prepaid or deferred fixed rent 
provided by the rental agreement must be used in computing the 
proportional rental amount under Sec. 1.467-2(c), the constant rental 
amount under Sec. 1.467-3(d), the principal balance of a section 467 
loan under Sec. 1.467-4(b), and the yield of a section 467 loan under 
Sec. 1.467-4(c); and
    (ii) The interest on fixed rent for any rental period is equal to 
the amount that would be determined under Sec. 1.467-1(e)(2) if the 
section 467 rental agreement did not provide variable interest, using 
the fixed rate substitutes determined under paragraph (b)(1)(i) of this 
section in place of the variable rates called for by the rental 
agreement, plus the variable interest adjustment amount provided in 
paragraph (b)(2) of this section.
    (2) Variable interest adjustment amount--(i) In general. The 
variable interest adjustment amount for a rental period equals the 
difference between--
    (A) The amount of interest that, without regard to section 467, 
would have accrued during the rental period under the terms of the 
section 467 rental agreement; and
    (B) The amount of interest that, without regard to section 467, 
would have accrued during the rental period under the terms of the 
section 467 rental agreement using the fixed rate substitutes 
determined under paragraph (b)(1)(i) of this section in place of the 
variable interest rates called for by the rental agreement.
    (ii) Sign of adjustment. If the amount determined under paragraph 
(b)(2)(i)(A) of this section is greater than the amount determined 
under paragraph (b)(2)(i)(B) of this section, the variable interest 
adjustment amount is positive. If the amount determined under paragraph 
(b)(2)(i)(A) of this section is less than the amount determined under 
paragraph (b)(2)(i)(B) of this section, the variable interest 
adjustment amount is negative.
    (3) Section 467 loan balance. The variable interest adjustment 
amount is not taken into account in determining the principal balance 
of a section 467 loan under Sec. 1.467-4(b). Instead, the section 467 
loan balance is computed as if all amounts payable under the section 
467 rental agreement were based on the fixed rate substitutes 
determined under paragraph (b)(1)(i) of this section.
    (c) Examples. The following examples illustrate the application of 
this section:

    Example 1. (i) X and Y enter into a section 467 rental agreement 
for the lease of personal property beginning on January 1, 1998, and 
ending on December 31, 2000. It allocates $100,000 of rent to 1998, 
$200,000 to 1999, and $100,000 to 2000, and requires the lessee to 
pay all $400,000 of rent on December 31, 2000. The rental agreement 
requires the accrual of interest on unpaid accrued rent at two 
different qualified floating rates (as defined in Sec. 1.1275-5(b)), 
one for 1999 and the other for 2000, such interest to be paid on 
December 31 of the year it accrues. The rental agreement provides 
that the qualified floating rate is set at a current value within 
the meaning of Sec. 1.1275-5(a)(4). Assume that on the agreement 
date, 110 percent of the applicable Federal rate is 10 percent, 
compounded annually.
    (ii) The rental agreement is not a disqualified leaseback or 
long-term agreement because it does not provide for the payment of 
more than $2,000,000 in rent (determined pursuant to Sec. 1.467-
3(b)(1)(i)). To determine if the section 467 rental agreement 
provides for adequate interest under Sec. 1.467-2(b), Sec. 1.467-
2(b)(2) requires the use of fixed rate substitutes (in this example 
determined in the same manner as under Sec. 1.1275-5(e)(3)(i) 
treating the agreement date as the issue date) in place of the 
variable rates called for by the rental agreement. Assume that on 
the agreement date the qualified floating rates, and therefore the 
fixed rate substitutes, relating to 1999 and 2000 are 10 and 15 
percent compounded annually. Taking into account the fixed rate 
substitutes, the sum of the present values of all amounts payable by 
the lessee as fixed rent and interest thereon is greater than the 
sum of the present values of the fixed rent allocated to each rental 
period. Accordingly, the rental agreement provides adequate interest 
under Sec. 1.467-2(b)(1)(iii) and the fixed rent accruing in each 
calendar year during the rental agreement is the fixed rent 
allocated under the rental agreement.
    (iii) Because the section 467 rental agreement provides for 
variable interest on unpaid accrued fixed rent at qualified floating 
rates and the qualified floating rates are set at a current value, 
the requirements of Sec. 1.1275-5(a)(3)(i)(A) and (4) are met and 
the rental agreement provides for variable

[[Page 27848]]

interest within the meaning of paragraph (a)(1) of this section. 
Therefore, under paragraph (b)(1)(i) of this section, the yield of 
the section 467 loan is computed based on the fixed rate 
substitutes. Under Sec. 1.467-4(c), the constant yield (rounded to 
two decimal places) equals 13.63 percent compounded annually. Based 
on the fixed rate substitutes, the fixed rent, interest on fixed 
rent, and the principal balance of the section 467 loan, for each 
calendar year during the lease term, are as follows:

----------------------------------------------------------------------------------------------------------------
                                                            Accrued      Accrued       Projected      Cumulative
                                                              rent       interest       payment          loan   
----------------------------------------------------------------------------------------------------------------
1998....................................................     $100,000           $0              $0      $100,000
1999....................................................      200,000       13,630         (10,000)      303,630
2000....................................................      100,000       41,370        (445,000)            0
----------------------------------------------------------------------------------------------------------------

    (iv) To compute the actual reported interest on fixed rent for 
each calendar year, the variable interest adjustment amount, as 
described in paragraph (b)(2) of this section, must be added to the 
accrued interest determined in paragraph (iii) of this Example 1. 
Assume that the variable rates for 1999 and 2000 are actually 11 and 
14 percent, respectively. Without regard to section 467, the 
interest that would have accrued during each calendar year under the 
terms of the section 467 rental agreement, and the interest that 
would have accrued under the terms of the rental agreement using the 
fixed rate substitutes determined under paragraph (b)(1)(i) are as 
follows:

------------------------------------------------------------------------
                                                  Accrued      Accrued  
                                                  interest     interest 
                                                   under     using fixed
                                                   rental        rate   
                                                 agreement   substitutes
------------------------------------------------------------------------
1998..........................................           $0           $0
1999..........................................       11,000       10,000
2000..........................................       42,000       45,000
------------------------------------------------------------------------

    (v) Under paragraph (b)(2) of this section, the variable 
interest adjustment amount is $1,000 ($11,000-$10,000) for 1999 and 
is -$3,000 ($42,000-$45,000) for 2000. Thus, under paragraph 
(b)(1)(ii) of this section, the actual interest on fixed rent for 
1999 is $14,630 ($13,630+$1,000) and for 2000 is $38,370 
($41,370-$3,000).
    Example 2. (i) The facts are the same as in Example 1 except 
that 110 percent of the applicable Federal rate is 15 percent 
compounded annually and the section 467 rental agreement does not 
provide adequate interest under Sec. 1.467-2(b). Consequently, the 
fixed rent for each calendar year during the lease is the 
proportional rental amount.
    (ii) The sum of the present values of the fixed rent provided 
for each calendar year during the lease term, discounted at 15 
percent compounded annually, equals $303,936.87.
    (iii)(A) Paragraph (b)(1)(i) of this section requires the 
proportional rental amount to be computed based on the assumption 
that interest will accrue and be paid based on the fixed rate 
substitutes. Thus, the sum of the present values of the projected 
payments under the section 467 rental agreement equals $300,156.16, 
computed as follows:

$10,000/(1.15)2..............         =                   $7,561.44     
445,000/(1.15)3..............         =                  292,594.72     
                                              --------------------------
  ...........................                            300,156.16     
                                                                        

    (B) The fraction for computing the proportional rental amount 
equals .9875609 ($300,156.16/$303,936.87).
    (iv) Based on the fixed rate substitutes, the fixed rent, 
interest on fixed rent, and the balance of the section 467 loan for 
each calendar year during the lease term are as follows:

----------------------------------------------------------------------------------------------------------------
                                                         Proportional    Accrued       Projected      Cumulative
                                                             rent        interest       payment          loan   
----------------------------------------------------------------------------------------------------------------
1998...................................................    $98,756.09        $0.00              $0    $98,756.09
1999...................................................    197,512.18    14,813.41         (10,000)   301,081.68
2000...................................................     98,756.09    45,162.23        (445,000)         0.00
----------------------------------------------------------------------------------------------------------------

    (v) The variable interest adjustment amount in this example is 
the same as in Example 1. Under paragraph (b)(1)(ii) of this 
section, the actual interest on fixed rent for 1999 is $15,813.41 
($14,813.41+$1,000) and for 2000 is $42,162.23 ($45,162.23-$3,000).

Sec. 1.467-6  Section 467 rental agreements with contingent payments. 
[Reserved]

Sec. 1.467-7  Section 467 recapture and other rules relating to 
dispositions.

    (a) Section 467 recapture. Notwithstanding any other provision of 
the Code, except as provided in paragraph (c) of this section, a lessor 
disposing of property in a transaction to which this section applies 
must recognize the recapture amount (determined under paragraph (b) of 
this section) and treat that amount as ordinary income. This section 
applies to any disposition of property subject to a section 467 rental 
agreement that--
    (1) Is a leaseback (as defined in Sec. 1.467-3(b)(2)) or a long-
term agreement (as defined in Sec. 1.467-3(b)(3));
    (2) Is not disqualified under Sec. 1.467-3(b)(1); and
    (3) Allocates to any rental period fixed rent that, when 
annualized, exceeds the annualized fixed rent allocated to any 
preceding rental period.
    (b) Recapture amount--(1) In general. The recapture amount for a 
disposition is the lesser of--
    (i) The prior understated inclusions (determined under paragraph 
(b)(2) of this section); or
    (ii) The section 467 gain (determined under paragraph (b)(3) of 
this section).
    (2) Prior understated inclusions--(i) In general. The prior 
understated inclusions are the excess (if any) of--
    (A) The aggregate amount of section 467 rent and section 467 
interest for the period during which the lessor held the property, 
determined as if the section 467 rental agreement were a disqualified 
leaseback or long-term agreement; over
    (B) The aggregate amount of section 467 rent and section 467 
interest accrued by the lessor during that period.
    (ii) Partial rental periods. For purposes of this paragraph (b)(2), 
the aggregate amounts described in paragraph (b)(2)(i)(A) and (B) of 
this section include a ratable portion of the section 467 rent and 
section 467 interest for any partial rental period during which the 
lessor held the property.
    (3) Section 467 gain--(i) In general. Except as otherwise provided 
in paragraph (b)(3)(ii) of this section, the section 467 gain is the 
excess (if any) of--
    (A) The amount realized from the disposition; over
    (B) The sum of the adjusted basis of the property and the amount of 
any gain from the disposition that is treated as ordinary income under 
any provision of subtitle A of the Code other than section 467(c) 
(e.g., section 1245 or 1250).

[[Page 27849]]

    (ii) Certain dispositions. In the case of a disposition that is not 
a sale, exchange, or involuntary conversion, the section 467 gain is 
the excess (if any) of the fair market value of the property on the 
date of disposition over the amount determined under paragraph 
(b)(3)(i)(B) of this section.
    (c) Special rules--(1) Gifts. Paragraph (a) of this section does 
not apply to a disposition by gift. However, see paragraph (c)(4) of 
this section for dispositions by transferees.
    (2) Dispositions at death. Paragraph (a) of this section does not 
apply to a disposition if the basis of the property in the hands of the 
transferee is determined under section 1014(a). In the case of items 
constituting income in respect of a decedent, see section 691.
    (3) Certain tax-free exchanges--(i) In general. The recapture 
amount in the case of a disposition to which this paragraph (c)(3) 
applies is limited to the amount of gain recognized to the transferor 
(determined without regard to paragraph (a) of this section), reduced 
by the amount of any gain from the disposition that is treated as 
ordinary income under any provision of subtitle A of the Code other 
than section 467(c).
    (ii) Dispositions covered. This paragraph (c)(3) applies to a 
disposition of property if the basis of the property in the hands of 
the transferee is determined by reference to its basis in the hands of 
the transferor by reason of the application of section 332, 351, 361, 
721, or 731.
    (4) Dispositions by transferee. If the recapture amount with 
respect to a disposition of property (the first disposition) is limited 
under paragraph (c)(1) or (3) of this section and the transferee 
subsequently disposes of the property in a transaction to which this 
section applies, the amount described in paragraph (b)(2)(i)(A) of this 
section must be increased for purposes of determining the recapture 
amount for such subsequent disposition by the excess (if any) of--
    (i) The recapture amount on the first disposition, determined 
without regard to the limitations of paragraphs (c)(1) and (3) of this 
section; over
    (ii) The recapture amount on the first disposition determined after 
application of such limitations.
    (5) Like-kind exchanges and involuntary conversions. If property is 
disposed of or converted and, before the application of paragraph (a) 
of this section, gain is not recognized in whole or in part under 
section 1031 or 1033, then the amount of section 467 gain taken into 
account by the lessor is limited to the sum of--
    (i) The amount of gain recognized on the disposition or conversion 
of the property (determined without regard to paragraph (a) of this 
section); plus
    (ii) The fair market value of property acquired that is not subject 
to a section 467 rental agreement and that is not taken into account 
under paragraph (c)(5)(i) of this section.
    (6) Installment sales. In the case of an installment sale of 
property to which paragraph (a) of this section applies--
    (i) The recapture amount is recognized and treated as ordinary 
income in the year of the disposition; and
    (ii) Any gain in excess of the recapture amount shall be reported 
under the installment method of accounting if and to the extent that 
method is otherwise available under section 453.
    (7) Dispositions covered by sections 170(e), 341(e)(12), or 751(c). 
For purposes of sections 170(e), 341(e)(12), and 751(c), amounts 
treated as ordinary income under paragraph (a) of this section must be 
treated in the same manner as amounts treated as ordinary income under 
section 1245 or 1250.
    (d) Examples. The following examples illustrate the application of 
this section:

    Example 1. (i) X and Y enter into a section 467 rental agreement 
for a 5-year lease of personal property beginning on January 1, 
1997, and ending on December 31, 2001. The rental agreement provides 
that $0 of rent is allocated to 1997, 1998, and 1999, and $175,000 
is allocated to each of the years 2000 and 2001. The rental 
agreement provides that the calendar year will be the rental period 
and that the rent allocated to each calendar year is payable on the 
last day of that calendar year. Assume that both X and Y are 
calendar year taxpayers and that 110 percent of the applicable 
Federal rate is 11 percent, compounded annually. Assume further that 
the rental agreement is a long- term agreement (as defined in 
Sec. 1.467-3(b)(3)). The rental agreement is not a disqualified 
leaseback or long-term agreement because it does not provide for the 
payment of more than $2,000,000 in rent (determined pursuant to 
Sec. 1.467-3(b)(1)(i)). Therefore, the fixed rent allocated under 
Sec. 1.467-1(c)(2)(ii) is zero for the first three rental periods 
and $175,000 for the fourth and fifth rental periods.
    (ii) On December 31, 1999, X sells the property subject to the 
section 467 rental agreement to an unrelated person for $990,000. At 
the time of the sale, X's adjusted basis in the property is 
$550,000. Thus, X's gain on the sale of the property is $440,000. 
Assume that none of this gain would be treated as ordinary income 
under any provision of the Internal Revenue Code other than section 
467(c). Under paragraph (a) of this section, X is required to take 
the recapture amount into account as ordinary income. Under 
paragraph (b) of this section, the recapture amount is the lesser of 
the prior understated inclusions or the section 467 gain.
    (iii) (A) In computing the prior understated inclusions under 
paragraph (b)(2), assume that the section 467 rent and section 467 
interest (based on constant rental accrual) would be taken into 
account as follows if the section 467 rental agreement were a 
disqualified long-term agreement:

------------------------------------------------------------------------
                                               Section 467   Section 467
                                                  rent        interest  
------------------------------------------------------------------------
1997........................................    $59,290.59            $0
1998........................................     59,290.59      6,521.96
1999........................................     59,290.59     13,761.35
2000........................................     59,290.59     21,797.06
2001........................................     59,290.59     11,466.68
------------------------------------------------------------------------

    (B) The aggregate amount of the section 467 rent and section 467 
interest (based on constant rental accrual) for 1997, 1998, and 1999 
is $198,155.08 ((3 x $59,290.59) + $6,521.96 + $13,761.35). Since X 
did not take any section 467 rent or section 467 interest into 
account in 1997, 1998, and 1999, the prior understated inclusions 
are also $198,155.08. Since none of the gain is treated as ordinary 
income under any provision of the Code other than section 467(c), 
the entire amount of gain ($440,000) is section 467 gain. 
Accordingly, the recapture amount (, the lesser of the prior 
understated inclusions or the section 467 gain) treated as ordinary 
income is $198,155.08.
    Example 2. (i) The facts are the same as in Example 1 except 
that the section 467 rental agreement specifies that rents accrue 
and are paid in the following pattern:

------------------------------------------------------------------------
                                               Allocation      Payment  
------------------------------------------------------------------------
1997........................................       $60,000            $0
1998........................................        65,000             0
1999........................................        70,000             0
2000........................................        75,000       175,000
2001........................................        80,000       175,000
------------------------------------------------------------------------

    (ii) (A) Assume the section 467 rental agreement does not 
provide for adequate interest under Sec. 1.467-2(b), and, therefore, 
the fixed rent for a rental period is the proportional rental 
amount. See Sec. 1.467-1(d)(2)(ii). Assume that, under Sec. 1.467-
2(c), the following amounts would be required to be taken into 
account:

------------------------------------------------------------------------
                                               Section 467   Section 467
                                                  rent        interest  
------------------------------------------------------------------------
1997........................................    $51,585.97            $0
1998........................................     55,884.80      5,674.46
1999........................................     60,183.63     12,445.98
2000........................................     64,482.46     20,435.23
2001........................................     68,781.28     10,526.19
------------------------------------------------------------------------

    (B) The amount of section 467 rent and section 467 interest 
taken into account by A for 1997, 1998, and 1999 is $185,774.84. 
Thus, the prior understated inclusions are $12,380.24 (the excess of 
the aggregate amount of section 467 rent and section 467 interest, 
based on constant rental accrual, for these three years, , 
$198,155.08, over the aggregate amount of section 467 rent and 
section 467 interest actually taken into

[[Page 27850]]

account, $185,774.84). Since this amount is less than the section 
467 gain, the recapture amount treated as ordinary income is also 
$12,380.24.
    (e) Other rules relating to dispositions--(1) In general. If 
property subject to a section 467 rental agreement is sold, 
exchanged, or otherwise disposed of, the section 467 rent for a 
period is taken into account by the owner of the property during the 
period. The lessee, however, must continue to take section 467 rent 
and section 467 interest into account without regard to the change 
of ownership.

    (2) Treatment of section 467 loan. If there is a sale, exchange, or 
other disposition of property subject to a section 467 rental agreement 
(the transfer), the following rules apply in determining the amount of 
the section 467 loan for the period after the transfer, the amount 
realized by the transferor, and the transferee's basis in the property:
    (i) The beginning balance of the transferor's section 467 loan is 
equal to the net present value at the time of the transfer of all 
subsequent amounts payable as fixed rent and interest on fixed rent to 
the transferor and all subsequent amounts payable as interest on 
prepaid fixed rent by the transferor. The transferor must continue to 
take into account interest on the transferor's section 467 loan balance 
after the date of the transfer.
    (ii) The beginning balance of the transferee's section 467 loan is 
equal to the principal balance of the section 467 loan immediately 
before the transfer reduced (below zero, if appropriate) by the 
beginning balance of the transferor's section 467 loan. Amounts payable 
to the transferor are not taken into account in adjusting the 
transferee's section 467 loan balance.
    (iii) If the beginning balance of the transferee's section 467 loan 
is negative, the transferor and transferee must treat the balance as a 
liability that is either assumed in connection with the transfer of the 
property or secured by the property acquired subject to the liability. 
If the beginning balance of the transferee's section 467 loan is 
positive, the transferor and transferee must treat the balance as an 
additional asset acquired in connection with the transfer of the 
property. In the case of a positive beginning balance of the 
transferee's section 467 loan, the transferee will have an initial cost 
basis in the section 467 loan equal to the lesser of the beginning 
balance of the loan or the aggregate consideration for the transfer of 
the property subject to the section 467 rental agreement and the 
transfer of the transferor's interest in the section 467 loan.
    (3) Special rules for transfers in certain nonrecognition 
transactions. [Reserved]
    (f) Treatment of assignments by lessee and lessee-financed 
renewals--(1) Substitute lessee use. If a lessee assigns its interest 
in a section 467 rental agreement to a substitute lessee or a period 
when a substitute lessee has the use of property subject to a rental 
agreement is otherwise included in the lease term under Sec. 1.467-
1(h), the section 467 rent for a period is taken into account by the 
person having the use of the property during the period. In addition, 
the following rules apply in determining the amount of the section 467 
loan for the period when the substitute lessee has use of the property 
and in computing the taxable income of the lessee and substitute 
lessee--
    (i) The beginning balance of the lessee's section 467 loan is equal 
to the net present value, as of the date on which the substitute lessee 
first has use of the property, of all amounts subsequently payable by 
the lessee as fixed rent and interest on fixed rent and all amounts 
subsequently payable as interest on prepaid fixed rent to the lessee. 
For purposes of this paragraph (f), any amount otherwise payable by the 
lessee shall not be treated as an amount subsequently payable by the 
lessee to the extent that such payment, if made by the lessee, would 
give rise to a right of contribution or other similar claim against the 
substitute lessee or any other person. The lessee must continue to take 
into account interest on the lessee's section 467 loan balance after 
the substitute lessee first has use of the property.
    (ii) The beginning balance of the substitute lessee's section 467 
loan is equal to the principal balance of the section 467 loan 
immediately before the substitute lessee first has use of the property 
reduced (below zero, if appropriate) by the beginning balance of the 
lessee's section 467 loan. Amounts payable by the lessee to any person 
other than the substitute lessee (or a related person) or payable to 
the lessee by any person other than the substitute lessee (or a related 
person) are not taken into account in adjusting the substitute lessee's 
section 467 loan balance.
    (iii) If the beginning balance of the substitute lessee's section 
467 loan is positive, the beginning balance is treated as--
    (A) Gross income of the lessee for the taxable year in which the 
substitute lessee first has use of the property; and
    (B) A liability that is either assumed in connection with the 
transfer of the leasehold interest to the substitute lessee or secured 
by property acquired subject to the liability.
    (iv) If the beginning balance of the substitute lessee's section 
467 loan is negative--
    (A) The beginning balance is treated as an amount incurred by the 
lessee for the taxable year in which the substitute lessee first has 
use of the property; and
    (B) Repayments of the beginning balance are items of gross income 
of the substitute lessee in the taxable year in which the repayment 
occurs (determined by applying any repayment first to the beginning 
balance of the substitute lessee's section 467 loan).
    (v) For purposes of paragraph (f)(1)(iv)(B) of this section, 
repayments occur as the negative balance is amortized through the net 
accrual of rent and negative interest.
    (2) Lessor use. If a period when the lessor has the use of property 
subject to a section 467 rental agreement is included in the lease term 
under Sec. 1.467-1(h), the section 467 rent for the period is not taken 
into account and the lessor is treated as a substitute lessee for 
purposes of paragraph (f)(1) of this section.
    (3) Special rules for transfers in certain nonrecognition 
transactions. [Reserved]

Sec. 1.467-8  Effective date.

    Sections 1.467-1 through 1.467-7 are effective for--
    (a) Rental agreements entered into after the date these regulations 
are published as final regulations in the Federal Register; and
    (b) Disqualified leasebacks and long-term agreements entered into 
after June 3, 1996.
Margaret Milner Richardson,
Commissioner of Internal Revenue.
[FR Doc. 96-13719 Filed 5-31-96; 8:45 am]
BILLING CODE 4830-01-U

Complete official Federal Register PDF

FR Doc. 96-13701 Summer Flounder and Scup Fisheries; Amendment 8

[Federal Register Volume 61, Number 107 (Monday, June 3, 1996)]
[Proposed Rules]
[Pages 27851-27862]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-13701]

=======================================================================
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DEPARTMENT OF COMMERCE

National Oceanic and Atmospheric Administration

50 CFR Part 625

[Docket No. 960520141-6141-01; I.D. 042696A]
RIN 0648-AH05

Summer Flounder and Scup Fisheries; Amendment 8

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 and request for comments to

[[Page 27852]]

implement those provisions of Amendment 8 to the Fishery Management 
Plan (FMP) for the Summer Flounder and Scup Fisheries not initially 
disapproved. The amendment would implement management measures for the 
scup fishery in order to reduce fishing mortality and to allow the 
stock to rebuild.

DATES: Public comments must be received on or before July 18, 1996.

ADDRESSES: Comments on this proposed rule should be sent to Dr. Andrew 
A. Rosenberg, Director, Northeast Regional Office, NMFS, One Blackburn 
Drive, Gloucester, MA 01930. Mark the outside of the envelope, 
``Comments on Summer Flounder and Scup Plan.''
    Comments regarding burden-hour estimates for collection-of-
information requirements contained in this proposed rule should be sent 
to the Northeast Regional Director at the address above and the Office 
of Information and Regulatory Affairs, Office of Management and Budget 
(OMB), Washington, D.C. 20502 (Attention: NOAA Desk Officer).
    Copies of Amendment 8, the final environmental impact statement 
(FEIS), the initial regulatory flexibility analysis (IRFA), the 
regulatory impact review, and other supporting documents are available 
upon request from David R. Keifer, Executive Director, Mid-Atlantic 
Fishery Management Council, Room 2115, Federal Building, 300 South New 
Street, Dover, DE 19901.

FOR FURTHER INFORMATION CONTACT: Regina L. Spallone, Fishery Policy 
Analyst, 508-281-9221.

SUPPLEMENTARY INFORMATION:

Background

    The Mid-Atlantic Fishery Management Council (Council) began the 
development of an FMP for scup in 1978. Although preliminary 
development work was done, the plan was not completed. In January 1990, 
the Council and the Atlantic States Marine Fisheries Commission 
(Commission) began to develop a management plan for scup as an 
amendment to the summer flounder FMP. However, its development was 
delayed by a series of amendments to the FMP, and work on a separate 
scup plan was not resumed until 1993.
    The Council accelerated its work on scup measures after the release 
in March 1995 of the Plenary Report of the 19th Stock Assessment 
Workshop (19th SAW). The 19th SAW report established that the scup 
spawning stock biomass was at a record low level and warned that 
recruitment failure in a single year could collapse the fishery. The 
Council and the Commission adopted a scup FMP for NMFS review at their 
meeting in November 1995. Subsequently, NMFS requested that the scup 
regulations be incorporated into the Summer Flounder FMP, as an 
amendment, to reduce the number of separate regulations issued by the 
Federal government. As a result, scup management measures are submitted 
as Amendment 8 to the Summer Flounder and Scup FMP.
    At that same November meeting, the Council also voted to request 
emergency implementation on January 1, 1996, of some of the management 
measures contained in the proposed scup FMP to provide some immediate 
protection to the stock. The efforts of the Council and NMFS to prepare 
and review the required documents associated with emergency action were 
delayed by the government shutdown from December 21, 1995, through 
January 7, 1996, and by additional shutdowns due to severe winter 
weather. An emergency interim rule implemented regulations on March 22, 
1996 (March 27, 1996, 61 FR 13452) that imposed minimum fish size 
requirements of 9 inches (22.9 cm) total length (TL) for the commercial 
fishery, and 7 inches (17.8 cm) TL for the recreational fishery, and a 
minimum codend mesh size of 4 inches (10.2 cm) diamond for trawl 
vessels possessing 4,000 or more lb (1,814 or more kg) of scup. These 
emergency regulations remain in effect through June 25, 1996, at which 
time they would be extended for an additional 90 days at the request of 
the Council.
    Amendment 8 was prepared by the Council and Commission, in 
consultation with the New England and South Atlantic Fishery Management 
Councils. A notice of availability for the proposed amendment was 
published in the Federal Register on May 7, 1996. Copies of Amendment 8 
are available from the Council upon request (see ADDRESSES). The 
amendment revises the summer flounder (Paralichthys dentatus) FMP to 
include management measures for the scup fishery pursuant to the 
Magnuson Fishery Conservation and Management Act, as amended (Magnuson 
Act).
    The management unit for this fishery is scup (Stenotomus chrysops) 
in U.S. waters of the western Atlantic Ocean from 35 deg.15.3' N. 
latitude, the latitude of Cape Hatteras Light, NC, northward to the 
U.S.-Canadian border. Implementing regulations are authorized by the 
Magnuson Act and are found at 50 CFR part 625, subparts C and D.

Status of the Stocks

    Scup are currently overexploited and at a low biomass level. The 
status of this stock is fully explained in the emergency interim rule 
(March 27, 1996, 61 FR 13452) and, for the sake of brevity, is not 
repeated here. Overfishing for scup in Amendment 8 is defined in the 
FMP as fishing in excess of Fmax. Fmax is the biological 
reference point corresponding to an exploitation rate of 19 percent, 
and the level of fishing mortality (F) that produces maximum yield per 
recruit.

Disapproved Measures

    NMFS, on behalf of the Secretary of Commerce, disapproved six 
measures proposed in Amendment 8 upon preliminary evaluation of the 
amendment as authorized in section 304(a)(1)(A)(ii) of the Magnuson 
Act. Thus, they are not included in this proposed rule. These 
provisions would have conferred moratorium permit eligibility upon 
vessels that were re-rigging on January 26, 1993, and landed scup prior 
to the implementation of Amendment 8; require vessels to keep scup 
catches of less than 4,000 lb (1,814 kg) (the level at which the 
minimum codend mesh requirement is triggered) in 100-lb (45.4-kg) 
containers to enhance enforcement; require NMFS to accept state dealer 
permits in lieu of the required Federal permit; require NMFS to deny 
access to the exclusive economic zone (EEZ) to vessels from states that 
do not implement recreational measures equivalent to those specified in 
Amendment 8; defer to state regulations to define scup pot requirements 
for the residents of that state; and require any landings in excess of 
the recreational harvest limit to be subtracted from the harvest limit 
of the following year. These provisions have been determined to be 
inconsistent with the national standards of the Magnuson Act or other 
applicable law.
    As worded, the open-ended moratorium eligibility criterion would 
allow any vessel that could demonstrate ``re-rigging''--i.e., being 
made ``capable of catching scup''--on January 26, 1993, to qualify for 
a moratorium permit if it could demonstrate a landing of scup prior to 
the implementation date of this amendment. While the re-rigging 
provision reasonably addresses a fairness issue, the protracted aspect 
of the landing requirement is inconsistent with national standard 4. 
The landing requirement of this criterion allows a re-rigging vessel 
over 3 years to land scup in order to qualify for a moratorium permit. 
This fact is not reasonably calculated to promote conservation in

[[Page 27853]]

light of the severely overfished nature of the stock, and would allow 
more vessels into the fishery than would otherwise enter if a vessel 
owner were forced to demonstrate an intent to participate in the 
fishery by landing scup within a more reasonable time frame after re-
rigging occurs.
    The provision that would require fishing vessels using small mesh 
to box scup catches of less than 4,000 lb (1,814 kg) in standard 100-lb 
(45.4-kg) totes was proposed to facilitate enforcement of the mesh 
provisions. Potentially, a vessel could have up to 40 of these 
containers on board, while vessels possessing over 4,000 lb (1,814 kg) 
would not have to box their catch. Boxing up to 40 totes could prove 
infeasible for small vessels. There is nothing in the administrative 
record regarding the impact of this measure on the industry. This 
measure could be challenged as being arbitrary and capricious, and, 
therefore, may violate the Administrative Procedure Act (APA).
    The measure that would require NMFS to recognize state dealer 
permits in lieu of Federal dealer permits, if the permits contain the 
necessary information and are forwarded to NMFS by the appropriate 
state, was proposed as a way of easing the administrative burden on 
dealers. However, as proposed, this measure could not be implemented 
effectively without imposing significant costs. The measure would 
require changes to state dealer permit requirements, and extensive 
modifications to both the state and Federal computer systems, to make 
them comparable in order for the measure to be implemented in a manner 
that would not undermine the data collection system in the Northeast 
Region. Thus, at this time, the measure is not consistent with national 
standard 7.
    The provision that would require NMFS to prohibit the landing of 
scup from the EEZ by recreational vessels (party, charter, and private) 
of any state not in compliance with the recreational possession limit, 
size limits, and season was disapproved, because it discriminates 
between residents of different states and is inconsistent with national 
standard 4. The measure would penalize recreational harvesters by 
denying them access to fish in any portion of the EEZ based on the 
inaction of their state of residency.
    The provision that would adopt the definition of scup pot or trap 
in the state regulations that apply to a vessel's principal port of 
landing is problematic from a number of perspectives. First, not all 
coastal states have a definition of a scup pot or trap. As the 
specified escape vent requirement is dependent upon a defined pot or 
trap, some fishermen would be subject to the escape vent requirement, 
while others landing principally in a state without a defined pot or 
trap would not. This inequitable provision is thus inconsistent with 
national standard 4, and is also not in accordance with the amendment's 
objective to reduce fishing mortality on immature scup.
    Second, the administrative record provides no rationale for using 
the definition of scup pot or trap at a vessel's principal port of 
landing, as opposed to its home port, as a basis for imposing an escape 
vent requirement. Significant enforcement concerns arise from this 
provision and should have been addressed in the administrative record. 
For example, traps pulled, or vessels boarded, at sea to monitor 
compliance with the escape vent requirement would not identify a 
principal port of landing with the certainty necessary to prosecute an 
alleged violation. The FMP contains no definition of principal port of 
landing and even if the term were defined, verification of the 
principal port of landing would be unreasonably cumbersome. Therefore, 
the failure of the administrative record to discuss the rationale for 
the definition could cause adoption of this provision to violate the 
APA.
    The provision that would deduct the annual recreational harvest in 
excess of the specified limit from the limit for the following year 
would base the deductions on the results of the Marine Recreational 
Fishery Statistics Survey (MRFSS). This measure impacts the annual 
allocation of the recreational sector of the fishery with no clear 
conservation benefit, in violation of national standard 4. The MRFSS is 
an excellent fishery management tool for the purpose for which it was 
designed, that is, giving an overall projection of recreational catch 
from the recreational fishery from Maine to Texas. However, the survey 
was not intended to be used as a basis for calculating an overage in 
the recreational fishery that would then be deducted from the quota 
established for the subsequent year. The survey variability becomes 
problematic, and this problem is further exacerbated if the fishery is 
managed on a regional quota basis as is a possibility in the scup 
fishery. In addition, the survey variability could affect residents of 
different states unevenly with respect to quota overages. These 
problems make the provision inconsistent with national standard 4.
    Likewise, because the survey is based on contacts with recreational 
fishermen, it reflects a sampling variability in addition to variations 
in the stock. The effects of this sampling variability render its use 
to calculate overages inconsistent with national standard 6. In failing 
to account for these variations, the use of the survey affects the 
overall ability of the entire scup quota management process to achieve 
on a continuing basis, the optimum yield from this fishery. This raises 
concern regarding its consistency with national standard 1. Finally, it 
would take a significant expenditure of funds to reduce the survey 
variability, especially as the geographic area for which estimates are 
made is reduced, to render it consistent with national standard 2. This 
conflicts with national standard 7.
    The Council may resubmit proposed measures under section 
304(b)(3)(A) of the Magnuson Act that NMFS disapproved during 
preliminary evaluation. Such measures should address the deficiencies 
described by NMFS.

Additional Concerns

    NMFS has concerns about the enforceability of the 4,000-lb (1,814-
kg) threshold for triggering the minimum mesh requirement. The public 
is encouraged to submit comments about the feasibility of determining 
whether catches exceed the threshold level. NMFS is also concerned 
about the proposed minimum sizes for escape vents in scup pots or 
traps. The Council specified a minimum size of 3.1 inches (7.9 cm) in 
diameter for circular vents, a minimum size of 2.25 inches (5.7 cm) on 
each side for square vents, and an ``equivalent'' minimum size for 
rectangular vents. NMFS seeks public comments on the proposed minimum 
size specification for rectangular vents because the meaning of 
``equivalent'' is unclear.

Proposed Measures

Vessel, Dealer, and Operator Permits

    The Council proposes to establish a moratorium on commercial vessel 
permits for the directed fishery for scup. Any owner or operator of a 
vessel desiring to fish for scup within the EEZ for sale, or transport, 
or delivery for sale, of any scup taken within the EEZ would have to 
obtain a permit from NMFS for that purpose. Vessel owners would be 
required to demonstrate past participation in the fishery to obtain a 
commercial moratorium permit. The Council proposes to limit moratorium 
permits to vessels with documented

[[Page 27854]]

landings of scup for sale between January 26, 1988, and January 26, 
1993.
    The owner or operator of a party or charter boat (vessel for hire) 
desiring to fish for scup within the EEZ would have to obtain a 
charter/party boat permit from NMFS for that purpose. A party or 
charter boat could have both a charter/party boat permit and a 
commercial moratorium permit to catch and sell if the vessel meets the 
commercial vessel qualification requirements set forth in Amendment 8. 
However, such a vessel could not fish under any existing commercial 
rules if it were carrying passengers for a fee.
    An operator of a vessel with any permit issued under this FMP would 
be required to have a Federal operator permit. The operator permits 
issued to operators in the Northeast multispecies, American lobster, 
Atlantic sea scallops and/or Atlantic mackerel, squids, and butterfish 
fisheries, would satisfy this requirement. The operator would be held 
accountable for violations of the fishing regulations and could be 
subject to a permit sanction. During the permit sanction period, the 
operator could not work in any capacity aboard a federally permitted 
fishing vessel.
    Any dealer of scup would be required to have a NMFS dealer permit 
under the FMP. A dealer of scup would be defined as a person or firm 
that receives scup for a commercial purpose from the owner or operator 
of a vessel issued a moratorium permit pursuant to this FMP, other than 
solely for transport on land.

Reporting and Recordkeeping

    The Council intends to institute recordkeeping and reporting 
requirements for scup that are identical to those required by the 
Atlantic Mackerel, Squid, and Butterfish, the Summer Flounder, the 
Northeast Multispecies, and the Atlantic Sea Scallop Fishery Management 
Plans. The logbooks in use for those fisheries would be used to meet 
this requirement, so vessels or dealers reporting under those FMPs 
would not be subject to any additional reporting burdens, if a given 
vessel also harvested scup.
    Commercial logbooks would be submitted on a monthly basis by 
Federal moratorium and charter/party boat permit holders in order to 
monitor the fishery.
    Dealers with permits issued pursuant to the FMP would submit weekly 
reports showing all species purchased in pounds, and the name and 
permit number of the vessels from which the species were purchased. 
Buyers that do not purchase directly from vessels would not be required 
to submit reports under this provision.

Minimum Fish Sizes

    Amendment 8 would establish minimum fish sizes that could be 
adjusted annually by the FMP Monitoring Committee (Monitoring 
Committee). The initial minimum fish sizes would be 9 inches (22.9 cm) 
TL for the commercial fishery and 7 inches (17.8 cm) TL for the 
recreational fishery.

Minimum Mesh Size

    The minimum mesh-size requirement for otter trawl vessels 
possessing a threshold catch of 4,000 lb or more (1,814 kg or more) of 
scup would be a minimum codend mesh size of 4.0 inches (10.2 cm) 
diamond mesh, inside measure, applied throughout the codend for at 
least 75 continuous meshes forward of the terminus of the net or, if 
the net is not long enough for such a measurement, the terminal \1/3\ 
of the net, measured from the terminus of the codend to the head rope. 
The minimum net mesh size and the threshold level could be adjusted 
annually, following the Monitoring Committee process set forth in the 
amendment.

Maximum Roller Size

    Amendment 8 would prohibit owners or operators of vessels issued 
moratorium permits from using roller rig trawl gear equipped with 
rollers greater than 18 inches (45.7 cm) in diameter. Maximum roller 
size could be changed annually following the Monitoring Committee 
process set forth in the amendment.

Pot and Trap Gear Requirements

    Scup pots and traps would be required to have a circular escape 
vent with a minimum diameter of 3.1 inches (7.9 cm) or a square escape 
vent with a minimum of 2.25 inches (5.7 cm) for each side (or an 
equivalent rectangular escape vent). The escape vent provision would be 
implemented at the start of the first calendar year following approval 
of Amendment 8, so that fishermen would not be required to pull their 
pots and add vents in the middle of the season. Scup pots and traps 
would be required to have hinges and fasteners on one panel or door 
made of degradable materials.
    The escape vent requirement could be adjusted annually following 
the Monitoring Committee process set forth in the amendment.

Seasonal and Area Closures

    Gear-specific seasonal and area closures could be implemented upon 
the recommendation of the Monitoring Committee, if required to reduce 
discards in the commercial fishery and prevent quota overruns.

Commercial Quota and Recreational Harvest Limit

    In the second year of implementation of the amendment, a coastwide 
harvest limit would be specified at a level that would reduce the 
exploitation rate to the level specified in the rebuilding schedule. 
This harvest limit would be allocated 78 percent to the commercial 
fishery, via a coastwide commercial quota, and 22 percent to the 
recreational fishery, via a recreational harvest limit. The coastwide 
harvest limit will be set annually following the Monitoring Committee 
process set forth in the amendment.
    The Council and the Commission may, in the future, alter the system 
to distribute and manage the annual commercial quota. Coastwide, 
regional, and state-by-state quotas may be considered in combination 
with different fractions of the fishing year.

Recreational Measures

    Beginning in the second year of implementation of the amendment, 
recreational landings would be compared to annual target harvest levels 
to determine if modifications to the recreational season, possession 
limit, and minimum size limit are required in the following year in 
order for the fishery to remain within specified harvest limits.

Classification

    Section 304(a)(1)(D)(ii) of the Magnuson Act, as amended, requires 
NMFS to publish regulations proposed by a Council within 15 days of 
receipt of the amendment and proposed regulations. At this time, NMFS 
has not determined whether the measures in Amendment 8 that these rules 
would implement are consistent with the national standards, other 
provisions of the Magnuson Act, and other applicable law. NMFS, in 
making that determination, will take into account the information, 
views, and comments received during the comment period.
    The Council prepared an FEIS for Amendment 8, a copy of which may 
be obtained from the Council (see ADDRESSES). The Council has 
determined that this rule, if implemented, would be consistent to the 
maximum extent practicable with the approved coastal management 
programs of the Atlantic states. New Hampshire, Massachusetts, Rhode 
Island, Connecticut, New Jersey, Pennsylvania, Delaware, and North 
Carolina agreed with this determination.

[[Page 27855]]

Maine, New York, and Virginia did not respond, and their concurrence is 
inferred.
    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. Amendment 8, as indicated in the regulatory impact 
review prepared by the Council, may reduce gross revenues of some 
vessels by more than 5 percent, or increase operating costs by more 
than 5 percent as a result of increases in compliance costs. However, 
it is unlikely that these impacts would affect more than 20 percent of 
the small entities engaged in this fishery because of the large 
assortment of other species also harvested by most vessels that harvest 
scup. In addition, most of the industry already use the proposed 4-inch 
(10.2-cm) mesh size and would not be affected by the regulation. 
Therefore, this rule would not have a significant impact on a 
substantial number of small entities.
    This proposed rule contains collection-of-information requirements 
subject to the Paperwork Reduction Act (PRA). Mandatory dealer 
reporting and the reporting of annual employment data under the Annual 
Processed Products Reports have been approved by OMB under control 
numbers 0648-0229, and 0648-0018, respectively. Dealer reporting 
responses are estimated to take 2 minutes and employment data responses 
6 minutes. The proposed rule also contains new requirements that have 
been submitted to OMB for approval. These requirements and their 
estimated response times are: Vessel permits and permit appeals at 30 
minutes per response, operator permits at 1 hour per response, observer 
notification requirement at 2 minutes per response, vessel marking (3 
locations) at 15 minutes per marking, and requests for an experimental 
fishing exemption at 1.9 hours.
    Notwithstanding any other provision of the law, no person is 
required to respond to, nor shall any person be subject to a penalty 
for failure to comply with a collection of information subject to the 
requirements of the PRA unless that collection of information displays 
a currently valid OMB control number.
    The response estimates shown include the time for reviewing 
instructions, searching existing data sources, gathering and 
maintaining the data needed, and completing and reviewing the 
collection of information. Send comments regarding any of these burden 
estimates or any other aspect of the collection of information to NMFS 
and OMB (see ADDRESSES).

List of Subjects in 50 CFR Part 625

    Fisheries, Fishing, Reporting and recordkeeping requirements.

    Dated: May 28, 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 AND SCUP FISHERIES

    1. The authority citation for part 625 continues to read as 
follows:

    Authority: 16 U.S.C. 1801 et seq.

    2. The part heading is revised as set forth above and the headings 
for subparts A and B are revised to read, ``Subpart A--General 
Provisions, Summer Flounder'', and ``Subpart B--Management Measures, 
Summer Flounder'', respectively.
    3. Subparts C and D, are revised to read as follows:

Subpart C--General Provisions, Scup

Sec.
625.31  Purpose and scope.
625.32  Definitions.
625.33  Relation to other laws. 625.34 Vessel permits.
625.35  Operator permit.
625.36  Dealer permit.
625.37  Recordkeeping and reporting requirements.
625.38  Vessel identification.
625.39  Prohibitions.
625.40  Facilitation of enforcement.
625.41  Penalties.

Subpart C--General Provisions, Scup

Sec. 625.31   Purpose and scope.

    The regulations in this part govern the conservation and management 
of scup in U.S. waters north of 35 deg.15.3' N. lat., (Cape Hatteras 
Light, NC), to the U.S./Canadian border.

Sec. 625.32  Definitions.

    In addition to the definitions in the Magnuson Act and Sec. 620.2 
of this chapter, the terms used in this part have the following 
meanings:
    Dealer means any person who receives scup for a commercial purpose 
from the owner or operator of a vessel issued a moratorium permit under 
Sec. 625.33 other than solely for transport on land.
    Fishery Management Plan (FMP) means the Fishery Management Plan for 
the Summer Flounder and Scup Fisheries and any amendments thereto.
    Fishing commercially means retaining scup in excess of the 
possession limit specified in Sec. 625.54.
    Fishing year means the 12-month period beginning on January 1, and 
ending on December 31.
    Scup means the species Stenotomus chrysops.
    Scup Monitoring Committee (Monitoring Committee) means a committee 
made up of staff representatives of the Mid-Atlantic, New England, and 
South Atlantic Fishery Management Councils, the Northeast Regional 
Office of NMFS, the Northeast Fisheries Science Center, and Commission 
representatives. The Council Executive Director or a designee chairs 
the Committee.
    Total length (TL) means the straight-line distance from the tip of 
the snout to the end of the tail (caudal fin) while the fish is lying 
on its side.

Sec. 625.33  Relation to other laws.

    (a) The relation of this part to other laws is set forth in 
Sec. 620.3 of this chapter and paragraph (b) of this section.
    (b) Nothing in these regulations supersedes more restrictive state 
management measures.
    (c) Additional regulations governing fishing for scup by foreign 
vessels in the EEZ are set forth in 50 CFR Part 611, subparts A and C.

Sec. 625.34  Vessel permits.

    (a) General--(1) Requirement. Subject to the eligibility 
requirements specified in paragraphs (b) and (c) of this section, the 
owner of a vessel of the United States, including a party or charter 
vessel, must obtain a permit issued under this part to fish for or 
retain scup in the EEZ.
    (2) Exemption. Any vessel, other than a party or charter boat, that 
observes the possession limit, multiplied by the number of persons on 
board, in Sec. 625.55 is exempt from the permit requirement.
    (3) Condition. Vessel owners who apply for a fishing vessel permit 
under this section must agree, as a condition of the permit, that the 
vessel's fishing activities, catch, and pertinent gear (without regard 
to whether such fishing occurs in the EEZ or landward of the EEZ, and 
without regard to where such fish or gear are possessed, taken or 
landed) will be subject to all requirements of this part. All such 
fishing activities, catch, and gear will remain subject to all 
applicable state requirements. If a requirement of this part differs 
from a management measure required by state law, any vessel owner 
permitted to fish in the EEZ must comply with the more restrictive

[[Page 27856]]

requirement. Owners and operators of vessels fishing under the terms of 
a moratorium permit issued pursuant to paragraph (b) of this section 
must also agree, as a condition of the permit, not to land scup in any 
state if the Regional Director has determined there is no longer 
commercial quota available.
    (b) Moratorium permit. (1) A vessel is eligible for a moratorium 
permit to fish for and retain scup in excess of the possession limit in 
Sec. 625.55 if it meets any of the following criteria:
    (i) The vessel landed and sold scup between January 26, 1988, and 
January 26, 1993; or
    (ii) The vessel is replacing a vessel of substantially similar 
harvesting capacity that involuntarily left the scup fishery during the 
moratorium, and both the entering and replaced vessels are owned by the 
same person. Vessel permits issued to vessels that involuntarily leave 
the fishery may not be combined to create larger replacement vessels.
    (iii) Vessels that are judged unseaworthy by the U.S. Coast Guard 
for reasons other than lack of maintenance may be replaced by a vessel 
of substantially similar harvesting capacity.
    (2) Restriction. No one may apply for the permit specified in 
paragraph (b)(1) of this section more than 12 months after the 
effective date of these regulations, or the events specified under 
paragraphs (h)(1) and (2) of this section. This section does not affect 
annual permit renewals.
    (3) Appeal of denial of permit. (i) Any applicant denied a 
moratorium permit may appeal to the Regional Director within 30 days of 
the notice of denial. Any such appeal shall be in writing. The only 
ground for appeal is that the Regional Director erred in concluding 
that the vessel did not meet the criteria in paragraph (b)(1)(i) of 
this section. The appeal shall set forth the basis for the applicant's 
belief that the Regional Director's decision was made in error.
    (ii) The appeal may be presented, at the option of the applicant, 
at a hearing before an officer appointed by the Regional Director.
    (iii) The hearing officer shall make a recommendation to the 
Regional Director.
    (iv) The decision on the appeal by the Regional Director is the 
final decision of the Department of Commerce.
    (c) Party and charter boat permit. Any party or charter boat is 
eligible for a permit to fish, other than a moratorium permit, if it is 
carrying passengers for hire, and is then subject to the possession 
limits specified in Sec. 625.56.
    (d) Vessel Permit Application. (1) An application for a permit 
under this section must be submitted and signed by the owner of the 
vessel on an appropriate form obtained from the Regional Director at 
least 30 days prior to the date on which the applicant desires to have 
the permit made effective. The Regional Director will notify the 
applicant of any deficiency in the application pursuant to this 
section. If the applicant fails to correct the deficiency within 30 
days following the date of notification, the application will be 
considered abandoned. Applicants for moratorium permits shall provide 
information with the application sufficient for the Regional Director 
to determine if the vessel meets the eligibility requirements. Dealer 
weighout forms and notarized statements from marine architects or 
surveyors or shipyard officials will be considered acceptable forms of 
proof.
    (2) Information requirements. In addition to applicable information 
required to be provided by paragraph (d)(1) of this section, an 
application for a permit under this section must contain at least the 
following information, and any other information required by the 
Regional Director: Vessel name; owner name, mailing address, and 
telephone number; U.S. Coast Guard documentation number and a valid 
copy of the vessel's U.S. Coast Guard documentation or, if 
undocumented, the vessel's state registration number and a copy of the 
current state registration; home port and principal port of landing; 
overall length; gross tonnage; net tonnage; engine horsepower; year the 
vessel was built; type of construction and type of propulsion; 
approximate fish hold capacity; type of fishing gear used by the 
vessel; number of crew; permit category; if the owner is a corporation, 
a copy of the Certificate of Incorporation and the names and addresses 
of all shareholders owning 25 percent or more of the corporation's 
shares; if the owner is a partnership, a copy of the Partnership 
Agreement and the names and addresses of all partners; if there is more 
than one owner, names of all owners having owned more than a 25-percent 
interest; the name and signature of the owner or the owner's authorized 
representative; permit number of any current or, if expired, previous 
Federal fishery permit issued to the vessel; a copy of charter/party 
boat license and number of passengers the vessel is licensed to carry 
(charter and party boats); and any other information required by the 
Regional Director to manage the fishery.
    (e) Fees. The Regional Director may charge a fee to recover 
administrative expenses of issuing a permit required under this 
section. The amount of the fee is calculated in accordance with the 
procedures of the NOAA Finance Handbook (available from the Regional 
Director) for determining administrative costs of each special product 
or service. The fee may not exceed such costs and is specified with 
each application form. The appropriate fee must accompany each 
application; if it does not, the application will be considered 
incomplete for purposes of paragraph (g) of this section. Any fee paid 
by an insufficiently funded commercial instrument shall render any 
permit issued on the basis thereof null and void.
    (f) Issuance. (1) Except as provided in subpart D of 15 CFR part 
904, the Regional Director will issue a permit under this section 
within 30 days of receipt of the application unless:
    (i) The applicant has failed to submit a complete application as 
described in paragraph (f) of this section. An application is complete 
when all requested forms, information, documentation, and fees, if 
applicable, have been received;
    (ii) The application was not received by the Regional Director by 
the deadlines set forth in paragraph (b)(3) of this section; or
    (iii) The applicant has failed to comply with all applicable 
reporting requirements of Sec. 625.37 during the 12 months immediately 
preceding the date of application.
    (2) Upon receipt of an incomplete application, or an application 
from a person who has not complied with all applicable reporting 
requirements of Sec. 625.37(b) during the 12 months immediately 
preceding the application, the Regional Director will notify the 
applicant of the deficiency. If the applicant fails to correct the 
deficiency within 30 days of the Regional Director's notification, the 
application will be considered abandoned.
    (g) Expiration. Except as provided in paragraph (b)(1)(ii) of this 
section, a permit expires:
    (1) When the owner retires the vessel from the fishery;
    (2) Upon the renewal date specified on the permit; or
    (3) When the ownership of the vessel changes. However, the Regional 
Director may authorize the continuation of a moratorium permit for the 
scup fishery if the new owner so requests. Applications for permit 
continuations must be addressed to the Regional Director.
    (h) Duration. A permit is valid until it is revoked, suspended, or 
modified under 15 CFR Part 904, or until it otherwise expires or 
ownership changes or the applicant has failed to report any

[[Page 27857]]

change in the information on the permit application to the Regional 
Director as specified in paragraph (k) of this section.
    (i) Replacement. Replacement permits for an otherwise valid permit 
may be issued by the Regional Director when requested in writing by the 
owner or authorized representative, stating the need for replacement, 
the name of the vessel, and the Federal fisheries permit number 
assigned. An application for a replacement permit will not be 
considered a new application. An appropriate fee may be charged for 
issuance of the replacement permit.
    (j) Transfer. Permits issued under this part are not transferable 
or assignable. A permit will be valid only for the fishing vessel and 
owner for which it is issued.
    (k) Change in application information. Any change in the 
information specified in paragraph (d)(2) of this section must be 
submitted by the applicant in writing to the Regional Director within 
15 days of the change. If the written notice of the change in 
information is not received by the Regional Director within 15 days, 
the permit is null and void.
    (l) Alteration. Any permit that has been altered, erased, or 
mutilated is invalid.
    (m) Display. The permit must be maintained in legible condition and 
displayed for inspection upon request by any authorized officer.
    (n) Sanctions. Procedures governing enforcement-related permit 
sanctions and denials are found at Subpart D of 15 CFR part 904.

Sec. 625.35  Operator permit.

    (a) General. Any operator of a vessel issued a valid Federal scup 
permit under this part, or any operator of a vessel fishing for scup in 
the EEZ or in possession of scup in or harvested from the EEZ, must 
have and carry on board a valid operator's permit issued under this 
part. An operator permit issued pursuant to parts 649, 650, 651, or 655 
shall satisfy the permitting requirements of this section.
    (b) Operator permit application. Applicants for a permit under this 
section must submit a completed permit application on an appropriate 
form obtained from the Regional Director. The application must be 
signed by the applicant and submitted to the Regional Director at least 
30 days prior to the date on which the applicant desires to have the 
permit made effective. The Regional Director will notify the applicant 
of any deficiency in the application pursuant to this section.
    (c) Condition. Vessel operators who apply for an operator's permit 
under this section must agree as a condition of this permit that the 
operator and vessel's fishing, catch, and pertinent gear (without 
regard to whether such fishing occurs in the EEZ or landward of the 
EEZ, and without regard to where such fish or gear are possessed, 
taken, or landed), are subject to all requirements of this part while 
fishing in the EEZ or aboard a vessel permitted under Sec. 625.34. The 
vessel and all such fishing, catch, and gear will remain subject to all 
applicable state or local requirements. Further, such operators must 
agree as a condition of this permit that, if the permit is suspended or 
revoked pursuant to 15 CFR part 904, the operator cannot be aboard any 
fishing vessel issued a Federal Fisheries Permit or any vessel subject 
to Federal fishing regulations while the vessel is at sea or engaged in 
offloading. If a requirement of this part and a management measure 
required by state or local law differ, any operator issued a permit 
under this part must comply with the more restrictive requirement.
    (d) Information requirements. An applicant must provide at least 
all the following information and any other information required by the 
Regional Director: Name, mailing address, and telephone number; date of 
birth; hair color; eye color; height; weight; social security number 
(optional) and signature of the applicant. The applicant must also 
provide two recent (no more than 1 year old) color passport-size 
photographs.
    (e) Fees. The Regional Director may charge a fee to recover the 
administrative expense of issuing a permit required under this section. 
The amount of the fee is calculated in accordance with the procedures 
of the NOAA Finance Handbook for determining the administrative costs 
of each special product or service. The fee may not exceed such costs 
and is specified on each application form. The appropriate fee must 
accompany each application; if it does not, the application will be 
considered incomplete for purposes of paragraph (f) of the section. Any 
fee paid by an insufficiently funded commercial instrument shall render 
any permit issued on the basis thereof null and void.
    (f) Issuance. Except as provided in Subpart D of 15 CFR part 904, 
the Regional Director shall issue an operator's permit within 30 days 
of receipt of a completed application if the criteria specified herein 
are met. Upon receipt of an incomplete or improperly executed 
application, the Regional Director will notify the applicant of the 
deficiency in the application. If the applicant fails to correct the 
deficiency within 30 days following the date of notification, the 
application will be considered abandoned.
    (g) Expiration. A Federal operator permit will expire upon the 
renewal date specified in the permit.
    (h) Duration. A permit is valid until it is revoked, suspended or 
modified under 15 CFR part 904, or otherwise expires, or the applicant 
has failed to report a change in the information on the permit 
application to the Regional Director as specified in paragraph (k) of 
this section.
    (i) Replacement. Replacement permits, for otherwise valid permits, 
may be issued by the Regional Director when requested in writing by the 
applicant, stating the need for replacement and the Federal operator 
permit number assigned. An applicant for a replacement permit must also 
provide two recent color passport-size photos of the applicant. An 
application for a replacement permit will not be considered a new 
application. An appropriate fee may be charged.
    (j) Transfer. Permits issued under this part are not transferable 
or assignable. A permit is valid only for the person to whom it is 
issued.
    (k) Change in application information. Notice of a change in the 
permit holder's name, address, or telephone number must be submitted in 
writing to, and received by, the Regional Director within 15 days of 
the change in information. If written notice of the change in 
information is not received by the Regional Director within 15 days, 
the permit is void.
    (l) Alteration. Any permit that has been altered, erased, or 
mutilated is invalid.
    (m) Display. Any permit issued under this part must be maintained 
in legible condition and displayed for inspection upon request by any 
authorized officer.
    (n) Sanctions. Vessel operators with suspended or revoked permits 
may not be aboard a federally permitted fishing vessel in any capacity 
while the vessel is at sea or engaged in offloading. Procedures 
governing enforcement-related permit sanctions and denials are found at 
Subpart D of 15 CFR part 904.
    (o) Vessel owner responsibility. Vessel owners are responsible for 
ensuring that their vessels are operated by an individual with a valid 
operator's permit issued under this section.

Sec. 625.36  Dealer permit.

    (a) General. Any dealer must have a valid permit issued under this 
part in their possession.
    (b) Dealer application. Applicants for a permit under this section 
must submit

[[Page 27858]]

a completed application on an appropriate form provided by the Regional 
Director. The application must be signed by the applicant and submitted 
to the Regional Director at least 30 days before the date upon which 
the applicant desires to have the permit made effective. The Regional 
Director will notify the applicant of any deficiency in the application 
pursuant to this section.
    (c) Information requirements. Applications must contain at least 
the following information and any other information required by the 
Regional Director: Company name, place(s) of business, mailing 
address(es) and telephone number(s); owner's name; dealer permit number 
(if a renewal); and name and signature of the person responsible for 
the truth and accuracy of the report. If the dealer is a corporation, a 
copy of the Certificate of Incorporation must be included with the 
application. If the dealer is a partnership, a copy of the Partnership 
Agreement and the names and addresses of all partners must be included 
with the application.
    (d) Fees. The Regional Director may charge a fee to recover the 
administrative expense of issuing a permit required under this section. 
The amount of the fee is calculated in accordance with the procedures 
of the NOAA Finance Handbook for determining administrative costs of 
each special product or service. The fee may not exceed such costs and 
is specified with each application form. The appropriate fee must 
accompany each application; if it does not, the application will be 
considered incomplete for purposes of paragraph (b)(3) of this section. 
Any fee paid by an insufficiently funded commercial instrument shall 
render any permit issued on the basis thereof null and void.
    (e) Issuance. Except as provided in subpart D of 15 CFR part 904, 
the Regional Director will issue a permit at any time during the 
fishing year to an applicant unless the applicant has failed to submit 
a completed application. An application is complete when all requested 
forms, information, and documentation have been received and the 
applicant has submitted all applicable reports specified in 
Sec. 625.37(a). Upon receipt of an incomplete or improperly executed 
application, the Regional Director will notify the applicant of the 
deficiency in the application. If the applicant fails to correct the 
deficiency within 30 days following the date of notification, the 
application will be deemed abandoned.
    (f) Expiration. A permit will expire upon the renewal date 
specified in the permit.
    (g) Duration. A permit is valid until it is revoked, suspended or 
modified under 15 CFR part 904, or otherwise expires, or ownership 
changes, or the applicant has failed to report any change in the 
information on the permit application to the Regional Director.
    (h) Replacement. Replacement permits, for otherwise valid permits, 
may be issued by the Regional Director when requested in writing by the 
applicant, stating the need for replacement and the Federal dealer 
permit number assigned. An application for a replacement permit shall 
not be considered a new permit. An appropriate fee may be charged.
    (i) Transfer. Permits issued under this part are not transferable 
or assignable. A permit is valid only for the person to whom, or other 
business entity to which, it is issued.
    (j) Change in application information. Within 15 days after a 
change in the information contained in an application submitted under 
this section, a written report of the change must be submitted to, and 
received by, the Regional Director. If written notice of the change in 
information is not received by the Regional Director within 15 days, 
the permit is void.
    (k) Alteration. Any permit that is altered, erased, or mutilated is 
invalid.
    (l) Display. Any permit, or valid duplicate thereof, issued under 
this part must be maintained in legible condition and displayed for 
inspection upon request by any authorized officer.
    (m) Federal versus state requirements. If a requirement of this 
part differs from a fisheries management measure required by state law, 
any dealer issued a Federal dealer permit must comply with the more 
restrictive requirement.
    (n) Sanctions. Procedures governing enforcement-related permit 
sanctions and denials are found at subpart D of 15 CFR Part 904.

Sec. 625.37  Recordkeeping and reporting requirements.

    (a) Dealers--(1) Weekly report. Dealers must send by mail to the 
Regional Director, or official designee, on a weekly basis on forms 
supplied by or approved by the Regional Director, a report of fish 
purchases. If authorized in writing by the Regional Director, dealers 
may submit reports electronically or through other media. The following 
information and any other information required by the Regional 
Director, must be provided in the report: Name and mailing address of 
dealer; dealer number; name and permit number of the vessels from which 
fish are landed or received; dates of purchases; pounds by species; 
price by species; and port landed. If no fish are purchased during the 
week, a report so stating must be submitted. All report forms must be 
signed by the dealer or other authorized individual.
    (2) Annual report. All persons required to submit reports under 
paragraph (a)(1) of this section are required to complete the 
``Employment Data'' section of the Annual Processed Products Reports; 
completion of the other sections on that form is voluntary. Reports 
must be submitted to the address supplied by the Regional Director.
    (3) Inspection. Upon the request of an authorized officer, or by an 
employee of NMFS designated by the Regional Director to make such 
inspections, the dealer must make immediately available for inspection 
copies of the required reports that have been submitted, or should have 
been submitted, and the records upon which the reports were based.
    (4) Record retention. Copies of reports, and records upon which the 
reports were based, must be retained and be available for review for 1 
year after the date of the last entry on the report. The dealer must 
retain such reports and records at his/her principal place of business.
    (5) Submitting reports. Reports must be received, or postmarked if 
mailed, within 3 days after the end of each reporting week. Each dealer 
will be sent forms and instructions, including the address to which to 
submit reports, shortly after receipt of a dealer permit.
    (6) At-sea activities. All persons purchasing, receiving, or 
processing any scup at sea, harvested in or from the EEZ, for landing 
at any port of the United States must submit information identical to 
that required by paragraphs (a)(1) and (2) of this section and provide 
those reports to the Regional Director or designee on the same 
frequency basis.
    (b) Vessel owners--(1) Fishing log reports. The owner of any vessel 
issued a Federal scup permit under Sec. 625.34 must maintain on board 
the vessel, and submit, an accurate daily fishing log report for all 
fishing trips regardless of species fished for or taken, on forms 
supplied by or approved by the Regional Director. If authorized in 
writing by the Regional Director, vessel owners may submit reports 
electronically. At least the following information, and any other 
information required by the Regional Director, must be provided: Vessel 
name, U.S. Coast Guard documentation number (or state registration 
number if undocumented);

[[Page 27859]]

permit number; date/time sailed; date/time landed; trip type; number of 
crew; number of anglers (if a charter or party trip); gear fished; 
quantity and size of gear; mesh/ring size; chart area fished; average 
depth; latitude/longitude (or loran station and bearings); total hauls 
per area fished; average tow time duration; pounds by species of all 
species landed or discarded; dealer permit number (if a commercial 
trip); dealer name; date sold; port and state landed; and vessel 
operator's name, signature, and operator permit number.
    (2) When to fill in the log. Fishing log reports must be filled in, 
except for information required but not yet ascertainable, before 
offloading has begun. All information in paragraph (b)(1) of this 
section must be filled in for each fishing trip before starting the 
next fishing trip.
    (3) Inspection. Upon the request of an authorized officer or an 
employee of NMFS designated by the Regional Director to make such 
inspections, at any time during or after a trip, owners and operators 
must make immediately available for inspection the fishing log reports 
currently in use or to be submitted.
    (4) Record retention. Copies of the fishing log reports must be 
retained and available for review for 1 year after the date of the last 
entry on the report.
    (5) Submitting reports. Fishing log reports must be received or 
postmarked, if mailed, within 15 days after the end of the reporting 
month. Each owner will be sent forms and instructions, including the 
address to which to submit reports, shortly after receipt of a Federal 
Fisheries Permit. If no fishing trip is made during a month, a report 
so stating must be submitted.

Sec. 625.38  Vessel identification.

    (a) Vessel name. Each fishing vessel owner subject to this part 
must affix permanently the vessel's name on the port and starboard 
sides of the bow and, if possible, on its stern if the vessel is over 
25 feet (7.6 m) in length.
    (b) Official number. Each fishing vessel owner subject to this 
section must display its official number on the port and starboard 
sides of the vessel's deckhouse or hull, and on an appropriate weather 
deck, so as to be visible from above by enforcement vessels and 
aircraft if the vessel is over 25 feet (7.6 m) in registered length. 
The official number is the U.S. Coast Guard documentation number, or 
the vessel's state registration number for vessel not required to be 
documented under title 46 of the United States Code.
    (c) Numerals. Except as provided in paragraph (e) of this section, 
the official number must be permanently affixed in block arabic 
numerals in contrasting color at least 18 inches (45.7 cm) in height 
for fishing vessels over 65 feet (19.8 m) in length, and at least 10 
inches (25.4 cm) in height for all other vessels over 25 feet (7.6 m) 
in length.
    (d) Duties of owner. Any vessel owner subject to this part will:
    (1) Keep the vessel's name and official number clearly legible and 
in good repair.
    (2) Ensure that no part of the vessel, its rigging, its fishing 
gear, or any other object obstructs the view of the official number 
from any enforcement vessel or aircraft.
    (e) Nonpermanent marking. Vessels carrying recreational fishing 
parties on a per capita basis or by charter must use markings that meet 
the above requirements, except for the requirement that they be affixed 
permanently to the vessel. The nonpermanent markings must be displayed 
in conformity with the above requirements when the vessel is fishing 
for scup.

Sec. 625.39  Prohibitions.

    (a) In addition to the general prohibitions specified in Sec. 620.7 
of this chapter, it is unlawful for any person owning or operating a 
vessel issued a valid Federal scup permit under Sec. 625.34, or issued 
an operator permit under Sec. 625.35, to do any of the following:
    (1) Land or possess at sea any scup, or parts thereof, that fail to 
meet the minimum fish size specified in Sec. 625.54.
    (2) Fail to affix and maintain markings as required by Sec. 625.38;
    (3) Possess scup in excess of the threshold amount specified in 
Sec. 625.53, unless the vessel meets the minimum mesh requirement 
specified in Sec. 625.53(a);
    (4) Fail to keep scup separate from other species if fishing with 
nets having mesh that does not meet the minimum mesh-size requirement 
specified in Sec. 625.53(a);
    (5) Land scup for sale in any state after the effective date 
published in the Federal Register notifying permit holders that 
commercial quota is no longer available;
    (6) Possess nets or netting that do not meet the minimum mesh 
requirement or that are modified, obstructed or constricted, if subject 
to the minimum mesh requirement specified in Sec. 625.53(a), unless the 
nets or netting are stowed in accordance with Sec. 625.53;
    (7) Fish with nets or netting that do not meet the minimum mesh 
requirement or that are modified, obstructed or constricted while in 
possession of scup in excess of the threshold amount specified in 
Sec. 625.53;
    (8) Sell or transfer to another person for a commercial purpose, 
other than transport on land, any scup, unless the transferee has a 
dealer permit issued under Sec. 625.36;
    (9) Carry passengers for hire, or carry more than three crew 
members for a charter boat or five crew members for a party boat, while 
fishing commercially pursuant to a moratorium permit issued pursuant to 
Sec. 625.34;
    (10) Refuse to embark a sea sampler if requested by the Regional 
Director;
    (11) Sell any scup that fail to meet the minimum fish size 
specified in Sec. 625.54(a);
    (12) Use a scup pot or trap that does not have the hinges and 
fasteners made of degradable materials as specified in Sec. 625.53;
    (13) Use a scup trap or pot that does not have a minimum escape 
vent of the size specified in Sec. 625.53;
    (14) Use roller rig trawl gear equipped with rollers greater than 
the size specified in Sec. 625.53; or
    (15) Possess scup in, or harvested from the EEZ in an area closed, 
or before or after a season established under Sec. 625.53.
    (b) It is unlawful for the owner or operator of a party or charter 
boat issued a permit (including a moratorium permit) pursuant to 
Sec. 625.34, when the boat is carrying passengers for hire or carrying 
more than three crew members if a charter boat or more than five 
members if a party boat, to:
    (1) Possess scup in excess of the possession limit established 
pursuant to Sec. 625.55;
    (2) Possess scup smaller than the minimum size limit for 
recreational fishermen established pursuant to Sec. 625.54(b);
    (3) Fish for scup other than during a season specified pursuant to 
Sec. 625.53;
    (4) Refuse to embark a sea sampler if requested by the Regional 
Director; or
    (5) Sell scup or transfer scup to another person for a commercial 
purpose.
    (c) It is unlawful for any person to do any of the following:
    (1) Possess scup in or harvested from the EEZ either in excess of 
the possession limit specified under Sec. 625.55 or before or after the 
time period specified under Sec. 625.53, unless the person is operating 
a vessel issued a moratorium permit under Sec. 625.34, and the 
moratorium permit is on board the vessel and has not been surrendered, 
revoked, or suspended;
    (2) Possess scup in or harvested from the EEZ in an area closed, or 
before or after a season established under Sec. 625.53;

[[Page 27860]]

    (3) Possess in or harvest from the EEZ scup that do not meet the 
minimum size specified in Sec. 625.54(b);
    (4) If subject to the permitting requirements in Secs. 625.34, 
625.35 or 625.36, to offload, cause to be offloaded, sell or buy any 
scup, whether on land or at sea, as an owner, operator, dealer, buyer 
or receiver in the scup fishery, without accurately preparing and 
submitting in a timely fashion the documents required by Sec. 625.37;
    (5) Purchase or otherwise receive, except for transport, scup from 
the owner or operator of a vessel issued a moratorium permit under 
Sec. 625.34 unless in possession of a valid permit issued under 
Sec. 625.36;
    (6) If subject to the permitting requirements of Sec. 625.36, to 
purchase or otherwise receive for commercial purposes scup caught by 
other than a vessel with a moratorium permit, unless the vessel has not 
been issued a permit under this part and is fishing exclusively within 
the waters under the jurisdiction of any state;
    (7) If subject to the permitting requirements of Sec. 625.36, to 
purchase or otherwise receive for a commercial purpose scup landed in 
any state after the effective date published in the Federal Register 
notifying permit holders that commercial quota is no longer available 
in that state;
    (8) Make any false statement, oral or written, to an authorized 
officer, concerning the catching, taking, harvesting, landing, 
purchase, sale, possession, or transfer of any scup;
    (9) Fail to report to the Regional Director within 15 days any 
change in the information contained in a permit application;
    (10) Assault, resist, oppose, impede, harass, intimidate, or 
interfere with or bar by command, impediment, threat, coercion or 
refusal of reasonable assistance of an observer or sea sampler 
conducting his or her duties aboard a vessel; or
    (11) Violate any other provision of this part, the Magnuson Act, or 
any regulation or permit issued under the Magnuson Act.
    (d) All scup possessed on board a party or charter boat issued a 
permit under Sec. 625.34(c) are deemed to have been harvested from the 
EEZ.
    (e) It is unlawful for any person to violate any terms of a letter 
authorizing experimental fishing pursuant to Sec. 625.57 or to fail to 
keep such letter on board the vessel during the time period of the 
experimental fishing.

Sec. 625.40   Facilitation of enforcement

    See Sec. 620.8 of this chapter.

Sec. 625.41   Penalties.

    See Sec. 620.9 of this chapter.

Subpart D--Management Measures, Scup

625.50  Catch quotas and other restrictions.
625.51  Closure.
625.52  Season and area restrictions.
625.53  Gear restrictions.
625.54  Minimum fish sizes.
625.55  Possession limit.
625.56  At-sea observer coverage.
625.57  Experimental fishery.
625.58  Protection of threatened and endangered sea turtles.

Subpart D--Management Measures, Scup

Sec. 625.50   Catch quotas and other restrictions.

    (a) Annual review. The Scup Monitoring Committee will review the 
following data on or before August 15 of each year to determine the 
allowable levels of fishing and other restrictions necessary to result 
in an exploitation rate of 47 percent in the second, third, and fourth 
years following Amendment 8 implementation, 33 percent in the fifth and 
sixth years following Amendment 8 implementation, and 19 percent in the 
seventh year following Amendment 8 implementation and thereafter.
    (1) As a basis for establishing these specifications and 
restrictions, the Monitoring Committee will review available data 
pertaining to the following:
    (i) Commercial and recreational catch data.
    (ii) Current estimates of fishing mortality.
    (iii) Stock status.
    (iv) Recent estimates of recruitment.
    (v) Virtual population analysis results.
    (vi) Levels of noncompliance by fishermen or individual states.
    (vii) Impact of size/mesh regulations.
    (viii) Sea sampling and winter trawl survey data, or, if sea 
sampling data are unavailable, length frequency information from the 
winter trawl survey and mesh selectivity analyses.
    (ix) Impact of gear other than otter trawls on the mortality of 
scup.
    (x) Any other relevant information.
    (b) Recommended measures. Based on this review, the Monitoring 
Committee will recommend to the Demersal Species Committee of the 
Council and the Commission the following measures it determines are 
necessary to assure that the exploitation rate specified in paragraph 
(a) of this section is not exceeded:
    (1) The coastwide commercial quota will be set from a range of 0 to 
the maximum allowed to achieve the exploitation rate specified in 
paragraph (a) of this section.
    (2) Commercial minimum fish size.
    (3) Minimum mesh size.
    (4) The recreational possession limit will be set from a range of 0 
to 50 scup to achieve the exploitation rate specified in paragraph (a) 
of this section.
    (5) The recreational minimum fish size will be set from a range of 
7 inches (17.8 cm) total length to 10 inches (25.4 cm) total length.
    (6) Recreational season.
    (7) Restrictions on gear other than otter trawls.
    (8) Season and area closures in the commercial fishery.
    (c) Annual fishing measures. The Demersal Species Committee shall 
review the recommendations of the Scup Monitoring Committee. Based on 
these recommendations and any public comment, the Demersal Species 
Committee shall make its recommendations to the Council; the Council 
shall review these recommendations. Based on these recommendations, and 
any public comment, the Council shall make recommendations to the 
Regional Director with respect to the measures necessary to assure that 
the exploitation rates specified in paragraph (a) of this section are 
not exceeded. Included in the recommendation will be supporting 
documents, as appropriate, concerning the environmental and economic 
impacts of the proposed action. The Regional Director will review these 
recommendations and any recommendations of the Commission. After such 
review, the Regional Director will publish in the Federal Register a 
proposed rule on or before October 15 to implement a coastwide 
commercial quota and recreational harvest limit and additional 
management measures for the commercial fishery, and will publish in the 
Federal Register a proposed rule on or before February 15 to implement 
additional management measures for the recreational fishery, if he/she 
determines that these measures are necessary to assure that the 
exploitation rates specified in paragraph (a) of this section are not 
exceeded. After considering public comment on each proposed rule, the 
Regional Director will publish a final rule in the Federal Register to 
implement the annual measures.
    (d) Additional quota measures. The commercial quota will be 
implemented as a coastwide quota. The Council and Commission may revise 
the system to distribute and manage the annual commercial quota 
allocations in accordance with the procedures set forth in this 
section. Vessel trip limits,

[[Page 27861]]

as well as coastwide, regional and state-by-state quotas may be 
considered in combination with different fractions of the fishing year. 
Any modification to the coastwide quota system shall be published as a 
proposed rule with a 45-day public comment period in the Federal 
Register. After considering public comment on the proposed rule, a 
final rule shall be published in the Federal Register to implement the 
modification.

Sec. 625.51  Closure.

    (a) EEZ Closure. The Regional Director will monitor the coastwide 
commercial quota based on dealer reports, state data, and other 
available information and shall determine the date when the commercial 
quota is harvested. The Regional Director shall close the EEZ to 
fishing for scup by commercial vessels for the remainder of the 
calendar year by publishing an announcement in the Federal Register 
advising that, effective upon a specific date, the commercial quota has 
been harvested, and notifying vessel and dealer permit holders that no 
commercial quota is available for landing scup.

Sec. 625.52  Season and area restrictions.

    If the Council determines through its annual review process that 
seasonal restrictions or area closures are necessary for the commercial 
or recreational sectors to achieve the exploitation rate specified or 
to attain other FMP objectives, such measures will be enacted through 
the procedure specified in Sec. 625.50.

Sec. 625.53  Gear restrictions.

    (a) Trawl vessel gear restrictions. (1) Otter trawlers whose owners 
are issued a scup moratorium permit under Sec. 625.34 and that possess 
4,000 or more lb (1,814 or more kg) of scup, must fish with nets that 
have a minimum mesh size of 4 inches (10.2 cm) diamond mesh applied 
throughout the codend for at least 75 continuous meshes forward of the 
terminus of the net or, for codends with less than 75 meshes, the 
minimum-mesh-size codend must be a minimum of one-third of the net, 
measured from the terminus of the codend to the head rope, excluding 
any turtle excluder device extension.
    (2) Owners or operators of otter trawlers issued a scup moratorium 
permit under Sec. 625.34 and fishing with, or possessing on board, nets 
or pieces of net that do not meet the minimum mesh requirements and 
that are not stowed in accordance with this section, may not retain 
4,000 or more lb (1,814 or more kg) of scup. Scup on board these 
vessels shall be stored separately and kept readily available for 
inspection.
    (3) Mesh-size measurement. Mesh sizes are measured by a wedge-
shaped gauge having a taper of 2 cm to 8 cm and a thickness of 2.3 
millimeters inserted into the meshes under a pressure or pull of 5 
kilograms. The mesh size will be the average of the measurement of any 
series of 20 consecutive meshes for nets having 75 or more meshes, and 
10 consecutive meshes for nets having fewer than 75 meshes. The mesh in 
the regulated portion of the net will be measured at least five meshes 
away from the lacings, running parallel to the long axis of the net.
    (4) Net modification. The owner or operator of a fishing vessel 
subject to this part shall not use any device, gear, or material, 
including, but not limited to, nets, net strengtheners, ropes, lines, 
or chafing gear, on the top of the regulated portion of a trawl net. 
However, one splitting strap and one bull rope (if present), consisting 
of line or rope no more than 3 inches (7.2 cm) in diameter, may be used 
if such splitting strap and/or bull rope does not constrict in any 
manner the top of the regulated portion of the net, and one rope no 
greater that 0.75 inches (1.9 cm) in diameter extending the length of 
the net from the belly to the terminus of the codend along each of the 
following: The top, bottom, and each side of the net. ``Top of the 
regulated portion of the net'' means the 50 percent of the entire 
regulated portion of the net that (in a hypothetical situation) will 
not be in contact with the ocean bottom during a tow if the regulated 
portion of the net were laid flat on the ocean floor. For the purpose 
of this paragraph, head ropes shall not be considered part of the top 
of the regulated portion of a trawl net. A vessel shall not use any 
means or mesh configuration on the top of the regulated portion of the 
net, as defined in Sec. 625.53(e), if it obstructs the meshes of the 
net or otherwise causes the size of the meshes of the net while in use 
to diminish to a size smaller than the minimum specified in 
Sec. 625.53(a).
    (5) Mesh obstruction or constriction. (i) The owner or operator of 
a fishing vessel may not use any mesh configuration, mesh construction, 
or other means on or in the top of the net, as defined in paragraph (3) 
of this section, if it obstructs the meshes of the net in any manner.
    (ii) No owner or operator of a fishing vessel may use a net capable 
of catching scup in which the bars entering or exiting the knots twist 
around each other.
    (6) Stowage of nets. The owner or operator of an otter trawl vessel 
retaining 4,000 or more lb (1,814 or more kg) of scup and subject to 
the minimum mesh requirement may not have available for immediate use 
any net, or any piece of net, not meeting the minimum mesh size 
requirement, or mesh that is rigged in a manner that is inconsistent 
with the minimum mesh size. A net that conforms to one of the following 
specifications and that can be shown not to have been in recent use is 
considered to be not ``available for immediate use:''
    (i) A net stowed below deck, provided:
    (A) It is located below the main working deck from which the net is 
deployed and retrieved.
    (B) The towing wires, including the ``leg'' wires, are detached 
from the net.
    (C) It is fan-folded (flaked) and bound around its circumference.
    (ii) A net stowed and lashed down on deck, provided:
    (A) It is fan-folded (flaked) and bound around its circumference.
    (B) It is securely fastened to the deck or rail of the vessel.
    (C) The towing wires, including the leg wires, are detached from 
the net.
    (iii) A net that is on a reel and is covered and secured, provided:
    (A) The entire surface of the net is covered with canvas or other 
similar material that is securely bound.
    (B) The towing wires, including the leg wires, are detached from 
the net.
    (C) The codend is removed from the net and stored below deck.
    (iv) Nets that are secured in a manner approved by the Regional 
Director, provided that the Regional Director has reviewed the 
alternative manner of securing nets and has published that alternative 
in the Federal Register.
    (7) The minimum net mesh set forth in paragraph (a)(1) of this 
section may be changed following the procedures in Sec. 625.50.
    (b) Scup pots or traps restrictions--(1) Degradable hinges. The 
owner or operator of fishing vessels issued a scup moratorium permit 
under Sec. 625.34 that are fishing with scup pots or traps, must fish 
with traps or pots that have degradable hinges and fasteners made of 
one of the following degradable materials:
    (i) Untreated hemp, jute, or cotton string of \3/16\ inches (4.8 
mm) diameter or smaller;
    (ii) Magnesium alloy, timed float releases (pop-up devices) or 
similar magnesium alloy fasteners; or
    (iii) Ungalvanized or uncoated iron wire of 0.094 inches (2.4 mm) 
diameter or smaller.

[[Page 27862]]

    (2) Escape Vents. (i) The owners or operators of fishing vessels 
issued a scup moratorium permit under Sec. 625.34 that are fishing with 
scup pots or traps, must fish with traps or pots that have a circular 
escape vent with a minimum of 3.1 inches (7.9 cm) in diameter, or a 
square escape vent with a minimum of 2.25 inches (5.7 cm) for each 
side, or an equivalent rectangular escape vent.
    (ii) The minimum escape vent size set forth in paragraph (b)(2) of 
this section may be revised following the procedures in Sec. 625.50.

Sec. 625.54  Minimum fish sizes.

    (a) The minimum size for scup is 9 inches (22.9 cm) TL for all 
vessels issued a moratorium permit under Sec. 625.34; if such a vessel 
is also issued a charter and party boat permit and is carrying 
passengers for hire, or carrying more than three crew members if a 
charter boat, or more than five crew members if a party boat, then the 
minimum size specified in paragraph (b) of this section applies.
    (b) The minimum size for scup is 7 inches (17.8 cm) TL for all 
vessels that do not qualify for a moratorium permit, or for party and 
charter vessels that are issued a moratorium permit but are fishing 
with passengers for hire, or carrying more than three crew members if a 
charter boat, or more than five crew members if a party boat.
    (c) The minimum size applies to whole fish or any part of a fish 
found in possession, e.g., fillets. These minimum sizes may be adjusted 
pursuant to the procedures in Sec. 625.50.

Sec. 625.55  Possession limit.

    (a) Pursuant to the procedures in Sec. 625.50, the Regional 
Director may limit the number of scup that may be possessed in or 
harvested from the EEZ by persons aboard vessels that have not been 
issued a valid moratorium permit.
    (b) If whole scup are processed into fillets, an authorized officer 
will convert the number of fillets to whole scup at the place of 
landing by dividing fillet number by 2. If scup are filleted into a 
single (butterfly) fillet, such fillet shall be deemed to be from one 
whole scup.
    (c) Scup harvested by vessels subject to the possession limit with 
more than one person aboard may be pooled in one or more containers. 
Compliance with the daily possession limit will be determined by 
dividing the number of scup aboard by the number of persons on board 
other than the captain and crew. If there is a violation of the 
possession limit on board a vessel carrying more than one person, the 
violation shall be deemed to have been committed by the owner and 
operator.

Sec. 625.56  At-sea observer coverage.

    (a) The Regional Director may require observers for any vessel 
holding a permit issued under Sec. 625.34.
    (b) Owners of vessels selected for observer coverage must notify 
the appropriate Regional Director or Center Director, as specified by 
the Regional Director, before commencing any fishing trip that may 
result in the harvest of scup. Notification procedures will be 
specified in selection letters to vessel owners.
    (c) An owner or operator of a vessel on which a NMFS-approved 
observer is embarked must:
    (1) Provide accommodations and food that are equivalent to those 
provided to the crew.
    (2) Allow the observer access to and use of the vessel's 
communications equipment and personnel upon request for the 
transmission and receipt of messages related to the observer's duties.
    (3) Allow the observer access to and use of the vessel's navigation 
equipment and personnel upon request to determine the vessel's 
position.
    (4) Allow the observer free and unobstructed access to the vessel's 
bridge, working decks, holding bins, weight scales, holds, and any 
other space used to hold, process, weigh, or store fish.
    (5) Allow the observer to inspect and copy any records associated 
with the catch and distribution of fish for that trip.

Sec. 625.57  Experimental fishery.

    (a) The Regional Director, in consultation with the Executive 
Director of the Council, may exempt any person or vessel from the 
requirements of this part for the conduct of experimental fishing 
beneficial to the management of the scup resource or fishery.
    (b) The Regional Director may not grant such exemption unless he/
she determines that the purpose, design, and administration of the 
exemption is consistent with the objectives of the FMP, the provisions 
of the Magnuson Act, and other applicable law, and that granting the 
exemption will not:
    (1) Have a detrimental effect on the scup resource and fishery;
    (2) Cause any quota to be exceeded; or
    (3) Create significant enforcement problems.
    (c) Each vessel participating in any exempted experimental fishing 
activity is subject to all provisions of this FMP except those 
necessarily relating to the purpose and nature of the exemption. The 
exemption will be specified in a letter issued by the Regional Director 
to each vessel participating in the exempted activity. This letter must 
be carried on board the vessel seeking the benefit of such exemption.

Sec. 625.58  Protection of threatened and endangered sea turtles.

    This section supplements existing regulations issued to regulate 
incidental take of sea turtles under authority of the Endangered 
Species Act under 50 CFR parts 217 and 227. In addition to the measures 
required under those parts NMFS will investigate the extent of take in 
flynet gear and if deemed appropriate, may develop and certify a Turtle 
Excluder Device (TED) for that gear.

[FR Doc. 96-13701 Filed 5-29-96; 1:02 pm]
BILLING CODE 3510-22-W

Complete official Federal Register PDF

Federal Register proposed rules — 1996-06-03

FR Doc. 96-13880 Availability of Funds and Collection of Checks

FR Doc. 96-13880 Availability of Funds and Collection of Checks

FR Doc. 96-13836 Recording and Reporting Occupational Injuries and Illnesses; Extension of Comment Period

FR Doc. 96-13815 Oversales Signs

FR Doc. 96-13810 The Importation of Ratites and Hatching Eggs of Ratites

FR Doc. 96-13805 Federal Acquisition Regulation; Government Property

FR Doc. 96-13801 Standards for Conduct and Evaluation of Activities Carried Out by the Office of Educational Research and Improvement (OERI)Designation of Exemplary and Promising Programs

FR Doc. 96-13746 New England Fishery Management Council; Meeting

FR Doc. 96-13732 Land Records and Title Documents

FR Doc. 96-13731 Management by the Tribe and the Ute Distribution Corporation of the Ute Indian Tribe's Undivided Tribal Assets on the Uintah and Ouray Reservations, Utah

FR Doc. 96-13729 General Agriculture and Range Regulations

FR Doc. 96-13728 Contracts and Grants; School Construction; Special Grants to Small Tribes; Removal of Regulations

FR Doc. 96-13727 Applicability of the Rules of the Bureau of Indian Affairs

FR Doc. 96-13723 Proposed Amendments to the Regulations on the Determination of Interest Expense Deduction of Foreign Corporations and Branch Profits Tax; Hearing

FR Doc. 96-13719 Section 467 Rental Agreements

FR Doc. 96-13719 Section 467 Rental Agreements

FR Doc. 96-13701 Summer Flounder and Scup Fisheries; Amendment 8

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