REG-121475-03_Final

Federal Register / Vol. 72, No. 135 / Monday, July 16, 2007 / Rules and Regulations
interested persons an opportunity to
view and/or print the contents of this
document via the Internet through
FERC’s Home Page (http://www.ferc.gov)
and in FERC’s Public Reference Room
during normal business hours (8:30 a.m.
to 5 p.m. Eastern time) at 888 First
Street, NE., Room 2A, Washington, DC
20426.
81. From FERC’s Home Page on the
Internet, this information is available on
eLibrary. The full text of this document
is available on eLibrary in PDF and
Microsoft Word format for viewing,
printing, and/or downloading. To access
this document in eLibrary, type the
docket number excluding the last three
digits of this document in the docket
number field. User assistance is
available for eLibrary and the FERC’s
Web site during normal business hours
from FERC Online Support at (202) 502–
6652 (toll-free at 1–866–208–3676) or
e-mail at [email protected], or
the Public Reference Room at (202) 502–
8371, TTY (202) 502–8659. E-Mail the
Public Reference Room at
[email protected].

used for the transmission of electric
energy in interstate commerce or for the
sale of electric energy at wholesale in
interstate commerce and to any nonpublic utility that seeks voluntary
compliance with jurisdictional
transmission tariff reciprocity
conditions.
■ 3. Section 38.2 is amended by adding
new paragraph (a)(8) to read as follows:

IX. Effective Date and Congressional
Notification
82. These regulations are effective
August 15, 2007. The Commission has
determined, with the concurrence of the
Administrator of the Office of
Information and Regulatory Affairs of
OMB, that this rule is not a ‘‘major rule’’
as defined in section 351 of the Small
Business Regulatory Enforcement
Fairness Act of 1996.

Authority: 15 U.S.C. 717–717w, 3301–
3432; 42 U.S.C. 7101–7352; 43 U.S.C. 1331–
1356.

List of Subjects in 18 CFR Parts 38 and
284
Continental shelf, Natural gas,
Incorporation by reference, Reporting
and recordkeeping requirements.
By the Commission.
Kimberly D. Bose,
Secretary.

§ 38.2 Incorporation by reference of North
American Energy Standards Board
Wholesale Electric Quadrant standards.

(a) * * *
(8) Gas/Electric Coordination
Standards (WEQ–011, Version 1, as
adopted in Recommendation R04021
July 8, 2005).
*
*
*
*
*
PART 284—CERTAIN SALES AND
TRANSPORTATION OF NATURAL GAS
UNDER THE NATURAL GAS POLICY
ACT OF 1978 AND RELATED
AUTHORITIES
4. The authority citation for part 284
continues to read as follows:

■

5. In § 284.12, paragraph (a)(1)(i) is
revised to read as follows:

■

§ 284.12 Standards for pipeline business
operations and communications.

(a) * * *
(1) * * *
(i) Additional Standards (General
Standards and Creditworthiness
Standards) (Version 1.7, December 31,
2003) and Additional Standards (Gas/
Electric Operational Communications)
(Version 1.8, September 30, 2006, with
minor corrections applied December 31,
2006).
*
*
*
*
*
[FR Doc. E7–13591 Filed 7–13–07; 8:45 am]
BILLING CODE 6717–01–P

In consideration of the foregoing, the
Commission amends parts 38 and 284 of
Chapter I, Title 18, Code of Federal
Regulations, as follows.

■

PART 38—BUSINESS PRACTICE
STANDARDS AND COMMUNICATION
PROTOCOLS FOR PUBLIC UTILITIES
1. The authority citation for part 38
continues to read as follows:

■

2. Section 38.1 is revised to read as
follows:

ycherry on PRODPC74 with RULES

■

Applicability.

15:14 Jul 13, 2007

Jkt 211001

26 CFR Parts 1 and 602
[TD 9339]

Qualified Zone Academy Bonds;
Obligations of States and Political
Subdivisions
Internal Revenue Service (IRS),
Treasury.
ACTION: Final and temporary
regulations.
AGENCY:

This part applies to any public utility
that owns, operates, or controls facilities

VerDate Aug<31>2005

Internal Revenue Service

RIN 1545–BG44

Authority: 16 U.S.C. 791–825r, 2601–2645;
31 U.S.C. 9701; 42 U.S.C. 7101–7352.

§ 38.1

DEPARTMENT OF THE TREASURY

PO 00000

Frm 00019

Fmt 4700

Sfmt 4700

38767

SUMMARY: This document contains final
and temporary regulations that provide
guidance to state and local governments
that issue qualified zone academy bonds
and to banks, insurance companies, and
other taxpayers that hold those bonds
on the program requirements for
qualified zone academy bonds. The
temporary regulations implement the
amendments to section 1397E of the
Internal Revenue Code (Code)
(discussed in this preamble) and
provide guidance on the maximum
term, permissible use of proceeds, and
remedial actions for qualified zone
academy bonds. The text of these
temporary regulations also serves as the
text of the proposed regulations set forth
in the notice of proposed rulemaking on
this subject in the Proposed Rules
section in this issue of the Federal
Register. The portions of this rule that
are final regulations provide necessary
cross-references to the temporary
regulations.
DATES: Effective Date: These regulations
are effective on September 14, 2007.
Applicability Date: For dates of
applicability, see § 1.1397E–1(m) of
these regulations.
FOR FURTHER INFORMATION CONTACT:
Timothy L. Jones or Zoran Stojanovic,
(202) 622–3980 (not a toll-free number).
SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act
These temporary regulations are being
issued without prior notice and public
procedure pursuant to the
Administrative Procedure Act (5 U.S.C.
553). For this reason, the collection of
information contained in these
regulations has been reviewed, and
pending receipt and evaluation of
public comments, approved by the
Office of Management and Budget under
control number 1545–1908. Responses
to this collection of information are
required to obtain or retain a benefit.
An agency may not conduct or
sponsor, and a person is not required to
respond to, a collection of information
unless it displays a valid control
number assigned by the Office of
Management and Budget.
For further information concerning
this collection of information, and
where to submit comments on the
collection of information and the
accuracy of the estimated burden, and
suggestions for reducing this burden,
please refer to the preamble to the crossreferencing notice of proposed
rulemaking published in the Proposed
Rules section of this issue of the Federal
Register.
Books and records relating to a
collection of information must be

E:\FR\FM\16JYR1.SGM

16JYR1

38768

Federal Register / Vol. 72, No. 135 / Monday, July 16, 2007 / Rules and Regulations

ycherry on PRODPC74 with RULES

retained as long as their contents may
become material in the administration
of any internal revenue law. Generally,
tax returns and tax return information
are confidential, as required by 26
U.S.C. 6103.
Background
Section 1397E(a) of the Code provides
that an eligible taxpayer (within the
meaning of section 1397E(d)(6)) that
holds a qualified zone academy bond
(‘‘QZAB’’ or ‘‘QZABs’’) on a credit
allowance date is allowed a credit
against Federal income tax for the
taxable year that includes the credit
allowance date. In general, a QZAB is a
bond issued by a state or local
government to finance certain eligible
public school purposes under section
1397E(d). Section 1397E(b) provides
that the amount of the QZAB credit
equals the product of the credit rate and
the face amount of the bond held by the
taxpayer on the credit allowance date.
Under section 1397E(b)(2), the credit
rate is determined by the Treasury
Department and equals the percentage
that the Department estimates generally
will permit the issuance of QZABs
without discount and without interest
cost to the issuer. Section 1397E(i)(1)
defines ‘‘credit allowance date’’ as the
last day of the one-year period
beginning on the issue date of the issue
and the last day of each successive oneyear period thereafter. Under section
1397E(d)(3), the maximum term of a
QZAB is determined by the Treasury
Department and equals the term that the
Treasury Department estimates will
result in the present value of the
obligation to repay the principal on the
bond being equal to 50 percent of the
face amount of the bond.
Section 1397E(j) provides that the
amount of the QZAB credit allowed to
the taxpayer is included in the
taxpayer’s gross income.
Section 1397E(e) imposes a national
limitation on the amount of QZABs that
may be issued for each calendar year.
The limitation is allocated by the
Treasury Department among the States
on the basis of their respective
populations of individuals below the
poverty line.
Section 1397E was amended by
section 107 of the Tax Relief and Health
Care Act of 2006, Public Law 109–432,
120 Stat. 2922 (2006) (the ‘‘2006 Act’’),
by adding certain requirements for a
bond to be a QZAB. In general, the 2006
Act added a new five-year spending
period requirement, arbitrage
investment restrictions, and information
reporting requirements. Specifically, the
2006 Act added new section 1397E(f),
which generally imposes spending

VerDate Aug<31>2005

15:14 Jul 13, 2007

Jkt 211001

period restrictions under which an
issuer of QZABs must reasonably
expect, as of the issue date, that: (1) At
least 95 percent of the proceeds from the
sale of the issue are to be spent for one
or more qualified purposes with respect
to qualified zone academies within the
5-year period beginning on the issue
date of the QZAB; (2) a binding
commitment with a third party to spend
at least 10 percent of the proceeds from
the sale of the issue will be incurred
within the six-month period beginning
on the issue date of the QZAB; and (3)
such purposes will be completed with
due diligence and the proceeds from the
sale of the issue will be spent with due
diligence. New Section 1397E(f)(2)
added by the 2006 Act provides
authority to the Secretary of the
Treasury to extend the five-year
spending period. To the extent that less
than 95 percent of the proceeds of the
issue are spent within the five-year
spending period (plus any extension
granted by the Secretary of the
Treasury), the 2006 Act requires the
issuer to redeem the nonqualified bonds
within 90 days after the end of such
period.
In addition, the 2006 Act added new
section 1397E(g), which generally
requires that an issue of QZABs must
satisfy the arbitrage investment
restrictions of section 148 with respect
to the proceeds of the issue.
Finally, the 2006 Act added new
section 1397E(h), which generally
requires that issuers of QZABs submit
information reporting returns to the IRS
similar to the information reporting
returns required to be submitted to the
IRS under section 149(e) for tax-exempt
state or local bonds.
Temporary regulations (TD 8755)
interpreting section 1397E were
published on January 7, 1998 (63 FR
671), and amended on July 1, 1999 (TD
8826; 64 FR 35573). Final regulations
under section 1397E (TD 8903) were
published on September 26, 2000 (65 FR
57732) (the ‘‘Final Regulations’’). On
March 26, 2004, a notice of proposed
rulemaking (REG–121475–03) was
published in the Federal Register (69
FR 15747) (the ‘‘2004 Proposed
Regulations’’). The 2004 Proposed
Regulations proposed to amend the
existing Final Regulations by providing
guidance on the maximum term,
permissible use of proceeds, and
remedial actions for QZABs. A public
hearing was scheduled for July 21, 2004.
The public hearing was cancelled
because no requests to speak were
received. Written comments on the 2004
Proposed Regulations were received.
After consideration of the written
comments, and in light of the statutory

PO 00000

Frm 00020

Fmt 4700

Sfmt 4700

changes made by the 2006 Act, the need
for regulatory guidance on those
statutory changes, and the close
connection between that needed
guidance and the guidance in the 2004
Proposed Regulations, the IRS and the
Treasury Department have determined
to issue coordinated guidance in these
temporary regulations (the ‘‘Temporary
Regulations’’), with an opportunity for
public comment in the corresponding
proposed regulations (the ‘‘Proposed
Regulations’’). Set forth in this preamble
is an explanation of certain provisions
of the Temporary Regulations.
Explanation of Provisions
I. Certain Definitions
A. In General
The Temporary Regulations employ
certain definitions used in the taxexempt bond area. Thus, the Temporary
Regulations employ certain definitions
used for general tax-exempt bond
purposes in § 1.150–1 and certain
definitions used for purposes of the
arbitrage investment restrictions on taxexempt bonds in § 1.148–1(b).
B. Definitions of Various Types of
Proceeds in General
In general, § 1.148–1(b) defines ‘‘sale
proceeds’’ as any amounts actually or
constructively received from the sale of
an issue, including amounts used to pay
underwriters’ discount or
compensation. In addition, § 1.148–1(b)
defines ‘‘investment proceeds’’ to mean
any amounts actually or constructively
received from investing proceeds of an
issue. Further, § 1.148–1(c) defines
‘‘replacement proceeds’’ to include
certain amounts with a reasonable
nexus to a bond issue, such as sinking
funds reasonably expected to be used to
pay debt service on a bond issue and
pledged funds pledged to pay debt
service on a bond issue with a
reasonable assurance that the funds will
be available to pay such debt service.
C. Proceeds for Purposes of the Use and
Spending Requirements
In general, the Temporary Regulations
provide that, for purposes of the
provisions of QZAB provisions
regarding the use and expenditure of
proceeds for qualified purposes within
prescribed periods, ‘‘proceeds’’ means
sale proceeds, as defined in § 1.148–
1(b), plus investment proceeds, as
defined in § 1.148–1(b). Thus, under the
Temporary Regulations, the requirement
in section 1397E(d)(1)(A) to use at least
95 percent of the proceeds of an issue
for a qualified purpose with respect to
a qualified zone academy applies by
taking into account both the sale

E:\FR\FM\16JYR1.SGM

16JYR1

Federal Register / Vol. 72, No. 135 / Monday, July 16, 2007 / Rules and Regulations

ycherry on PRODPC74 with RULES

proceeds of the issue and any
investment proceeds received from
investing those sale proceeds. Similarly,
under the Temporary Regulations, the
requirement in section 1397E(f) to
spend at least 95 percent of the proceeds
from the sale of an issue on qualified
purposes within a five-year period and
the associated requirements in section
1397E(f) apply to both sale proceeds of
an issue and investment proceeds
derived from investing sale proceeds.
Some commentators suggested that,
for purposes of the 95-percent test, the
definition of ‘‘proceeds’’ should be
limited to sale proceeds and should
exclude amounts received from
investing sale proceeds. These
commentators suggested that, when
sizing a bond issue to comply with the
95-percent test, it could be difficult for
an issuer to include investment earnings
because interest rates may be volatile
and the timing of expenditures may be
uncertain. The IRS and the Treasury
Department have considered this
comment and have concluded that the
definition of proceeds in the 2004
Proposed Regulations that applies for
purposes of the 95-percent test is
appropriate to ensure the use and
expenditures of proceeds of QZABs for
one or more qualified purposes under
section 1397E(d)(5) and (f). Thus, the
Temporary Regulations retain this
provision. This approach is consistent
with the view that, for purposes of
certain similar provisions on qualified
private activity bonds under section
141, which are based on use of 95% of
the net proceeds, as defined in section
150(a)(3), for qualified purposes, net
proceeds properly include both sale
proceeds and investment proceeds
pending expenditures for ultimate
qualified governmental purposes, with
certain reductions inapplicable to
QZABs.
D. Proceeds for Purposes of Private
Business Contribution
Section 1397E(d)(1)(C)(ii) provides
that a bond is a QZAB only if, among
other requirements, the issuer certifies
that it has written assurances that the
private business contribution
requirement of section 1397E(d)(2) will
be met with respect to the qualified
zone academy. Section 1397E(d)(2)(A)
provides that the private business
contribution requirement is met if the
eligible local education agency that
established the qualified zone academy
has written commitments from private
entities to make qualified contributions
(as defined in section 1397E(d)(2)(B))
having a present value (as of the issue
date of the issue) of not less than ten
percent of the proceeds of the issue. The

VerDate Aug<31>2005

15:14 Jul 13, 2007

Jkt 211001

2004 Proposed Regulations provide that,
for purposes of the private business
contribution requirement of section
1397E(d)(2), proceeds means sale
proceeds, as defined in § 1.148–1(b),
without regard to any investment
proceeds received or expected to be
received from investing those sale
proceeds. Commentators supported this
narrower definition of ‘‘proceeds’’ in the
2004 Proposed Regulations for purposes
of the private business contribution
requirement. The Temporary
Regulations retain this provision.
II. Maximum Term
Section 1397E(d)(3) provides that the
Secretary of the Treasury Department
shall determine, during each calendar
month, the maximum term for QZABs
issued during the following calendar
month. Section 1397E(d)(3) states that
the maximum term shall be the term
that the Secretary estimates will result
in the present value of the obligation to
repay the principal on the bond being
equal to 50 percent of the face amount
of the bond. Section 1.1397E–1(d) of the
existing Final Regulations provides that
the maximum term for a QZAB is
determined under section 1397E(d)(3)
by using a discount rate equal to 110
percent of the long-term adjusted
applicable Federal rate (AFR),
compounded semi-annually, for the
month in which the bond is issued. The
IRS publishes the long-term adjusted
AFR each month in a revenue ruling.
See § 601.601(d)(2)(ii)(b).
Section 1397E(b)(2) provides that the
Secretary shall determine, during each
calendar month, a credit rate for QZABs
issued during the following calendar
month. Section 1.1397E–1(b) provides
that the Secretary shall determine
monthly (or more often as deemed
necessary by the Secretary) the credit
rate the Secretary estimates generally
will permit the issuance of a QZAB
without discount and without interest
cost to the issuer. Notice 99–35 (1999–
2 CB 26), see § 601.601(d)(2)(ii)(b)
(‘‘Notice 99–35’’), indicates that, until
further notice, the credit rate for a
QZAB will be published daily by the
Bureau of Public Debt on its Internet site
for State and Local Government Series
securities (https://
www.treasurydirect.gov). Notice 99–35
also provides that the credit rate shall be
applied to a QZAB on the first day on
which there is a binding contract in
writing for the sale or exchange of the
bond. Notice 99–35 states that the credit
rate will be determined by the Treasury
Department based on its estimate of the
yield on outstanding AA rated corporate
bonds of a similar maturity for the
business day immediately prior to the

PO 00000

Frm 00021

Fmt 4700

Sfmt 4700

38769

date on which there is a binding
contract in writing for the sale or
exchange of the bond.
Prior to the issuance of the 2004
Proposed Regulations, questions were
raised regarding the maximum term of
a QZAB that is sold in one month and
issued in another month. Section
1.1397E–1(d) of the existing Final
Regulations provides that the maximum
term is determined based on the month
in which the bond is issued. However,
under Notice 99–35, the credit rate for
a QZAB is determined based on the first
day on which there is a binding contract
in writing for the sale or exchange of the
bond. The credit rate and maximum
term should be determined on the same
day because the credit rate for a bond
depends on its maximum term.
Accordingly, the 2004 Proposed
Regulations would amend § 1.1397E–
1(d) to provide that the maximum term
for a QZAB is determined based on the
first day on which there is a binding
contract in writing for the sale or
exchange of the bond.
Commentators supported the
maximum term provisions in the 2004
Proposed Regulations. The Temporary
Regulations retain these provisions.
At the present time, the Treasury
Department is continuing its current
practice of publishing the credit rate
and maximum term for QZABs on the
Bureau of Public Debt’s Internet site for
State and Local Government Series
securities (http://
www.publicdebt.treas.gov).
III. Use of Proceeds and Remedial
Actions
A. In General
Section 1397E(d)(1) provides that a
bond issued as part of an issue is a
QZAB only if, among other
requirements, at least 95 percent of the
proceeds of the issue are to be used for
a qualified purpose with respect to a
qualified zone academy established by
an eligible local education agency (as
defined in section 1397E(d)(4)(B)) and
the issue meets the requirements of
section 1397E(f) (relating to spending
periods), section 1397E(g) (relating to
arbitrage), and section 1397E(h) (relating
to information reporting requirements).
Section 1397E(d)(5) defines ‘‘qualified
purposes’’ for any qualified zone
academy to include: (i) Rehabilitating or
repairing the public school facility in
which such academy is established, (ii)
providing equipment for use at such
academy, (iii) developing course
materials for education to be provided at
such academy, and (iv) training teachers
and other school personnel in such
academy. Section 1397E(d)(4)(A)

E:\FR\FM\16JYR1.SGM

16JYR1

38770

Federal Register / Vol. 72, No. 135 / Monday, July 16, 2007 / Rules and Regulations

defines ‘‘qualified zone academy’’ as
any public school (or academic program
within a public school) that is
established by and operated under the
supervision of an eligible local
education agency to provide education
or training below the postsecondary
level if: (1) The public school or
program is designed in cooperation with
business in accordance with section
1397E(d)(4)(A)(i); (2) students in the
public school or program will be subject
to the same academic standards and
assessments as other students educated
by the eligible local education agency;
(3) the comprehensive education plan of
the public school or program is
approved by the eligible local education
agency; and (4) the public school is
located in an empowerment zone or
enterprise community (as defined in
section 1393), or there is a reasonable
expectation (as of the issue date of the
bonds) that at least 35 percent of the
students attending the school or
participating in the program will be
eligible for free or reduced-cost lunches
under the school lunch program
established under the Richard B. Russell
National School Lunch Act.

ycherry on PRODPC74 with RULES

B. Compliance With 95-Percent Test
1. In General
The 2004 Proposed Regulations
provide guidance on compliance with
the 95-percent test in section
1397E(d)(1)(A). Specifically, the 2004
Proposed Regulations provide that, in
general, an issue must satisfy two
requirements to comply with section
1397E(d)(1)(A). First, the issuer must
reasonably expect, as of the issue date
of the issue, to use at least 95 percent
of the proceeds of the issue for a
qualified purpose with respect to a
qualified zone academy for the entire
term of the issue (without regard to any
redemption provision). Second, except
as otherwise provided in the remedial
action provisions of the 2004 Proposed
Regulations, at least 95 percent of the
proceeds of the issue must actually be
used for a qualified purpose with
respect to a qualified zone academy for
the entire term of the issue (without
regard to any redemption provision).
For these purposes, under the 2004
Proposed Regulations, any unspent
proceeds are treated as used for a
qualified purpose with respect to a
qualified zone academy during any
period that the issuer reasonably
expects that those proceeds will be
spent with due diligence for a qualified
purpose with respect to a qualified zone
academy.
Some commentators suggested a
modification of the requirement in the

VerDate Aug<31>2005

15:14 Jul 13, 2007

Jkt 211001

2004 Proposed Regulations that at least
95 percent of the proceeds of an issue
both be reasonably expected to be used
and actually be used for a qualified
purpose for the entire term of the issue.
Specifically, these commentators
requested that the requirement be
altered to conform to the tax-exempt
bond provisions of § 1.141–2(d), which
look to a similar standard based on
reasonable expectations and deliberate
actions within an issuer’s control, with
certain exceptions for involuntary
conversions and actions in response to
directives from the Federal government.
These commentators noted that use of
the standards under section 141 would
be appropriate because the statutory
language of sections 141 and 1397E both
use the phrase ‘‘are to be used.’’ In
substance, the standards for interpreting
this phrase under the 2004 Proposed
Regulations and under section 141 both
incorporate reasonable expectations and
actual use, with certain special
exceptions to actual use in the case of
the standard under section 141. The IRS
and the Treasury Department believe,
however, that compliance standards for
the actual use of proceeds appropriately
may take into account the particular
governmental program involved.
The Temporary Regulations do not
adopt the suggestion to conform the 95percent test for QZABs to the deliberate
action provisions of § 1.141–2(d). The
Temporary Regulations retain the
proposed standard based on reasonable
expectations and actual use. The actual
use test is set forth under section
1397E(f)(3), as introduced by the 2006
Act, and is appropriate for the
circumstances involved with QZABs. In
addition, the control-based exceptions
to actual use under the deliberate action
standard under section 141 raise certain
administrability concerns in the context
of QZABs. For example, it may be
particularly difficult to determine if a
loss of qualified zone academy status is
within an issuer’s control.
The Temporary Regulations provide
guidance on the spending period
requirements introduced by the 2006
Act in section 1397E(f). Specifically, the
Temporary Regulations provide that an
issuer must both reasonably expect to
spend and actually spend at least 95
percent of the proceeds of an issue of
QZABs within the five-year period
beginning on the issue date of the issue
of QZABs (or be subject to the
additional requirement to redeem bonds
from unspent proceeds at the end of that
five-year period). The Temporary
Regulations clarify that the various
requirements relating to ‘‘reasonable
expectations’’ for the use of proceeds of
QZABs and actual actions to proceed

PO 00000

Frm 00022

Fmt 4700

Sfmt 4700

with ‘‘due diligence’’ to spend such
proceeds on qualified purposes are
based on objective reasonableness
standards, as used in the definition of
‘‘reasonable expectations or
reasonableness’’ in § 1.148–1(b) of the
arbitrage regulations.
2. Proceeds Spent for Rehabilitation,
Repair or Equipment
Section 1397E(d)(5)(A) and (B)
provides that the term ‘‘qualified
purpose’’ with respect to any qualified
zone academy includes rehabilitating or
repairing the public school facility in
which such academy is established, and
providing equipment for use at such
academy. The 2004 Proposed
Regulations specify that, if proceeds of
an issue are spent for a purpose
described in section 1397E(d)(5)(A) or
(B) with respect to a qualified zone
academy, then those proceeds are
treated as used for a qualified purpose
with respect to the academy during any
period after such expenditure that (1)
the property financed with those
proceeds is used for the purposes of the
academy and (2) the academy maintains
its status as a qualified zone academy.
For this purpose, the retirement from
service of financed property due to
normal wear or obsolescence does not
cause the property not to be used for a
qualified purpose with respect to a
qualified zone academy.
The Temporary Regulations provide
guidance on the applicable standard for
determining whether proceeds of
QZABs are used for a qualified purpose
of ‘‘rehabiliting’’ a public school facility
under section 1397E(d)(5)(A), based on
a known existing standard used for
purposes of the rehabilitation tax credit
under section 47. In particular, in
determining whether proceeds of
QZABs are used for a qualified purpose
of ‘‘rehabilitating’’ a public school
facility under section 1397E(d)(5)(A),
rules similar to those used for purposes
of the rehabilitation tax credit in section
47(c) (other than sections 47(c)(1)(B)
and 47(c)(2)(B)(v)) shall apply. Set forth
in this preamble is a general description
of certain aspects of this rehabilitation
expenditure standard. In general, the
rehabilitation standard under section 47
requires a substantial rehabilitation
involving a building that already has
been placed in service and a
rehabilitation process that preserves
specified portions of the existing walls
of the building. Specifically, at least 50
percent of the existing external walls of
the rehabilitated building must be
retained as external walls, at least 75
percent of the existing external walls
must be retained as internal or external
walls, and at least 75 percent of the

E:\FR\FM\16JYR1.SGM

16JYR1

Federal Register / Vol. 72, No. 135 / Monday, July 16, 2007 / Rules and Regulations
existing internal structural framework
must be retained. Under this
rehabilitation standard, eligible
rehabilitation expenditures include
some expenditures for reconstruction,
subject, however, to the foregoing
restrictions on retention of certain
percentages of the existing walls. In
addition, however, under this
rehabilitation standard, eligible
rehabilitation expenditures do not
include expenditures to enlarge existing
buildings or expenditures to acquire
existing buildings. In adopting the
rehabilitation standard used in section
47 for purpose of section 1397E, the IRS
and the Treasury Department declined
to adopt one public comment which
suggested that rehabilitation should
include complete reconstruction of a
building. Here, the IRS and the Treasury
Department determined that such a
broad interpretation of rehabilitation
effectively to include new construction
would be beyond Congressional intent.

ycherry on PRODPC74 with RULES

3. Proceeds Spent to Develop Course
Materials or Train Teachers
Section 1397E(d)(5)(C) and (D)
provides that the term ‘‘qualified
purpose’’ with respect to any qualified
zone academy includes developing
course materials for education to be
provided at such academy, and training
teachers and other school personnel in
such academy. The 2004 Proposed
Regulations provide that, if proceeds of
an issue are spent for a purpose
described in section 1397E(d)(5)(C) or
(D) with respect to a qualified zone
academy, then those proceeds are
treated as used for a qualified purpose
with respect to the academy during any
period after such expenditure.
Commentators supported this provision
of the 2004 Proposed Regulations. The
Temporary Regulations retain this
provision.
4. Special Rule for Determining Status
as Qualified Zone Academy
Section 1397E(d)(4)(A)(iv) provides
that a public school (or academic
program within a public school) is a
qualified zone academy only if, among
other requirements, the public school is
located in an empowerment zone or
enterprise community, or there is a
reasonable expectation (as of the issue
date of the issue) that at least 35 percent
of the students attending the school or
participating in the program (as the case
may be) will be eligible for free or
reduced-cost lunches under the school
lunch program established under the
Richard B. Russell National School
Lunch Act.
For purposes of determining whether
an issue complies with section

VerDate Aug<31>2005

15:14 Jul 13, 2007

Jkt 211001

1397E(d)(4)(A)(iv), the 2004 Proposed
Regulations provide that a public school
is treated as located in an empowerment
zone or enterprise community for the
entire term of the issue if the public
school is located in an empowerment
zone or enterprise community on the
issue date of the issue. Commentators
agreed with this provision of the 2004
Proposed Regulations relating to
empowerment zones and enterprise
communities. The Temporary
Regulations retain this provision.
Commentators also requested
clarification of the relevant time period
for determining compliance with the 35percent free or reduced-cost school
lunch program test. The Temporary
Regulations provide that the test looks
to whether there is a reasonable
expectation (as of the issue date of the
bonds) that at least 35 percent of the
students attending the school or
participating in the program (as the case
may be) will be eligible for free or
reduced-cost lunches during the oneyear period following the date the bonds
are issued.
C. Remedial Actions
1. In General
Prior to the issuance of the 2004
Proposed Regulations, comments were
received requesting guidance specifying
remedial actions that may be taken to
cure a violation of the 95-percent test in
section 1397E(d)(1)(A). The 2004
Proposed Regulations specify two
remedial actions that may be taken in
certain circumstances if less than 95
percent of the proceeds of an issue
actually are used for a qualified purpose
with respect to a qualified zone
academy. These remedial actions are
available only if the issuer reasonably
expected on the issue date of the bonds
that: (1) The issue would meet the
requirements of section 1397E(f)(1)(A),
(B), and (C); and (2) at least 95 percent
of the proceeds of the issue would be
used for a qualified purpose with
respect to a qualified zone academy for
the entire term of the issue (without
regard to any redemption provision).
As discussed in this preamble, the
two remedial actions specified in the
2004 Proposed Regulations are (1)
redemption or defeasance of the
nonqualified bonds, and (2) alternative
use of the disposition proceeds. If the
applicable requirements are met, the
redemption or defeasance remedial
action is available to cure any failure to
satisfy the 95-percent test that was not
reasonably expected as of the issue date.
The alternative use of disposition
proceeds remedial action applies only to

PO 00000

Frm 00023

Fmt 4700

Sfmt 4700

38771

certain dispositions of financed
property for cash.
Commentators recommended that the
2004 Proposed Regulations be amended
to provide additional flexibility for
issuers if the failure to properly use
proceeds is based on a loss of status of
the public school or academic program
as a qualified zone academy. Consistent
with the 2006 Act, the Treasury
Department and the IRS have concluded
that the remedial actions of redemption
and defeasance in the 2004 Proposed
Regulations will adequately address
situations where there has been a
disqualifying change in the status of an
academy. The Temporary Regulations
retain these two remedial actions with
certain modifications relating to the
amendments to section 1397E
introduced by the 2006 Act.
2. Redemption or Defeasance of
Nonqualified Bonds
Under the 2004 Proposed Regulations,
a redemption or defeasance remedial
action is taken if: (1) All of the
nonqualified bonds of the issue
(determined by applying the principles
of § 1.142–2(e)) are redeemed within 90
days after the date on which the failure
to properly use proceeds occurs; (2) if
any nonqualified bonds of the issue are
not redeemed within 90 days after the
date on which the failure to properly
use proceeds occurs (the unredeemed
nonqualified bonds), a defeasance
escrow is established for the
unredeemed nonqualified bonds within
90 days after the date on which the
failure to properly use proceeds occurs;
or (3) if the failure to properly use
proceeds is a disposition of financed
property described in section
1397E(d)(5)(A) or (B) and the
consideration for the disposition is
exclusively cash, all of the disposition
proceeds (as defined in § 1.141–12(c)(1))
are used within 90 days after the date
of the disposition to redeem, or
establish a defeasance escrow for, a pro
rata portion of the nonqualified bonds of
the issue.
The Temporary Regulations retain the
remedial actions described in this
preamble but, in accordance with new
section 1397E(f)(3), the Temporary
Regulations limit defeasance of
nonqualified bonds to bonds the
proceeds of which have actually been
spent for a qualified purpose with
respect to a qualified academy within
the 5-year period beginning on the issue
date of the bonds. For proceeds that
have not been spent within the 5-year
period, the only remedial action
available to the issuer is redemption of
nonqualified bonds under the principles
of section 142.

E:\FR\FM\16JYR1.SGM

16JYR1

38772

Federal Register / Vol. 72, No. 135 / Monday, July 16, 2007 / Rules and Regulations

3. Failure to Properly Use Proceeds
For unspent proceeds, the 2004
Proposed Regulations provide that a
failure to properly use proceeds occurs
on the earlier of: (1) The first date on
which the public school (or academic
program within the public school) fails
to constitute a qualified zone academy;
or (2) the first date on which the issuer
fails to have a reasonable expectation to
proceed with due diligence to spend at
least 95 percent of the proceeds of the
issue for a qualified purpose with
respect to a qualified zone academy.
The Temporary Regulations retain the
provisions concerning the failure to
properly use unspent proceeds but
implement section 1397E(f)(1)(A) by
adding a provision that improper use
also occurs if 95 percent of the bond
proceeds have not been properly spent
within the 5-year period beginning on
the day the bonds are issued.
For proceeds that have been spent for
rehabilitation, repair or equipment
described in section 1397E(d)(5)(A) or
(B) with respect to a qualified zone
academy, the 2004 Proposed
Regulations provide that a failure to
properly use proceeds occurs on the
earlier of: (1) The first date on which the
public school (or academic program
within the public school) fails to
constitute a qualified zone academy;
and (2) the first date on which an action
is taken that causes the issuer to fail
actually to use at least 95 percent of the
proceeds of the issue for a qualified
purpose with respect to a qualified zone
academy. If proceeds have been spent
for course materials or training
described in section 1397E(d)(5)(C) or
(D) with respect to a qualified zone
academy, no event subsequent to such
expenditure shall constitute a failure to
properly use such proceeds under the
2004 Proposed Regulations.

ycherry on PRODPC74 with RULES

4. Defeasance Escrow
The 2004 Proposed Regulations define
‘‘defeasance escrow’’ as an irrevocable
escrow established to retire bonds on
the earliest call date after the date on
which the failure to properly use
proceeds occurs in an amount that is
sufficient to retire the bonds on that call
date. At least 90 percent of the weighted
average amount in a defeasance escrow
must be invested in investments (as
defined in § 1.148–1(b)), except that no
amount in a defeasance escrow may be
invested in any investment the obligor
(or any person that is a related party
with respect to the obligor within the
meaning of § 1.150–1(b)) of which is a
user of proceeds of the bonds. All
purchases or sales of an investment in
a defeasance escrow must be made at

VerDate Aug<31>2005

15:14 Jul 13, 2007

Jkt 211001

the fair market value of the investment
within the meaning of § 1.148–5(d)(6).
Under the 2004 Proposed Regulations,
the issuer must pay to the United States,
at the same time and in the same
manner as rebate amounts are required
to be paid under § 1.148–3 (or at such
other time or in such other manner as
the Commissioner may prescribe), 100
percent of the investment earnings on
amounts in the defeasance escrow. For
this purpose, the first computation
period begins on the date on which the
failure to properly use proceeds occurs.
Under the 2004 Proposed Regulations,
proceeds of QZABs (other than unspent
proceeds of the issue for which the
failure to properly use proceeds occurs)
are not permitted to be used to redeem
or defease the nonqualified bonds. In
addition, the issuer must provide
written notice to the Commissioner of
the establishment of the defeasance
escrow within 90 days of the date the
defeasance escrow is established.
Commentators suggested various
modifications to the requirement that
issuers rebate to the United States 100
percent of the investment earnings on
amounts in a defeasance escrow.
Alternative approaches suggested by
commentators included: (1) Limiting the
rebate requirement to investment
earnings in excess of the yield on the
issue of QZABs; (2) limiting the rebate
amount to investment earnings in excess
of the total debt service requirements to
be paid out of the defeasance escrow;
and (3) limiting the rebate amount to the
amount of the QZAB credit.
The IRS and Treasury Department
have concluded that the rebate
requirement should only apply to
earnings in excess of the yield on the
issue of QZABs. Thus, the Temporary
Regulations provide that the issuer of
QZABs with a defeasance escrow must
rebate to United States any investment
earnings in the defeasance escrow that
are in excess of the yield, as defined in
§ 1.148–1(b), on the issue of QZABs. For
this purpose, the credit rate for the
QZAB issue is not included in the yield
on the issue.
Some commentators suggested that
the first computation period for rebate
purposes begin on the date the
defeasance escrow is established, rather
than the date on which the failure to
properly use proceeds occurs. These
commentators noted that the 2004
Proposed Regulations create a possible
90-day period during which an issuer
would be required to compute yield on
an escrow that is yet to be established.
The Temporary Regulations adopt the
change in start date for the computation
period in accordance with this
comment.

PO 00000

Frm 00024

Fmt 4700

Sfmt 4700

One commentator recommended that
certain small, low-wealth local
education agencies be exempt from the
rebate requirement. The IRS and the
Treasury Department have considered
this recommendation and have
concluded that the rebate requirement is
appropriate to ensure compliance with
the 95-percent use-of-proceeds
requirement of section 1397E(d)(1)(A),
regardless of the size or wealth of the
local education agency. Thus, the
Temporary Regulations do not adopt
this recommendation.
Some commentators suggested that
the regulations provide that a
defeasance of a QZAB in the context of
taking a remedial action not be treated
as a significant modification (within the
meaning of § 1.1001–3) and reissuance
of the QZAB. The Temporary
Regulations do not address the
circumstances in which a reissuance of
a QZAB will occur. The Temporary
Regulations do provide, however, that,
for purposes of determining whether the
establishing of a defeasance escrow as a
remedial action results in an exchange
under § 1.1001–1(a), the QZAB is
treated as a tax-exempt bond under
§ 1.1001–3(e)(5)(ii)(B)(1). Section
1.1001–3(e)(5)(ii)(B)(1) provides that a
defeasance of a tax-exempt bond is not
a significant modification even if the
issuer is released from any liability to
make payments under the instrument if
the defeasance occurs by operation of
the terms of the original bond and the
issuer places in trust government
securities or tax-exempt government
bonds that are reasonably expected to
provide interest and principal payments
sufficient to satisfy the payment
obligations under the bond.
5. Alternative Use of Disposition
Proceeds
The alternative use of disposition
proceeds remedial action in the 2004
Proposed Regulations has four
requirements. First, the failure to
properly use proceeds must be a
disposition of financed property
described in section 1397E(d)(5)(A) or
(B) and the consideration for the
disposition must be exclusively cash.
Second, the issuer must reasonably
expect as of the date of the disposition
that: (1) All of the disposition proceeds,
plus any amounts received from
investing the disposition proceeds, will
be spent within two years after the date
of the disposition for a qualified
purpose with respect to a qualified zone
academy; or (2) to the extent not
expected to be so spent, used within 90
days after the date of the disposition to
take a redemption or defeasance
remedial action. Third, the disposition

E:\FR\FM\16JYR1.SGM

16JYR1

Federal Register / Vol. 72, No. 135 / Monday, July 16, 2007 / Rules and Regulations
proceeds, plus any amounts received
from investing the disposition proceeds,
must be treated as proceeds for purposes
of section 1397E. Fourth, if all of the
disposition proceeds, plus any amounts
received from investing the disposition
proceeds, are not actually spent for a
qualified purpose within the two-year
period beginning on the date of the
disposition (or used within 90 days after
the date of the disposition to take a
redemption or defeasance remedial
action), the remainder of such amounts
must be used within 90 days after the
end of that two-year period for a
redemption or defeasance remedial
action.
Some commentators recommended
that the alternative use of disposition
proceeds remedial action be modified to
provide that the amounts relating to a
disposition that are required to be spent
for a qualified purpose be capped at the
principal amount of the QZAB
outstanding at the time of the
disposition. The IRS and Treasury
Department have considered this
comment and have concluded that the
requirement in the 2004 Proposed
Regulations that all of the disposition
proceeds, plus any amounts received
from investing the disposition proceeds,
be spent for a qualified purpose is
appropriate to ensure that QZABs are
issued for qualified purposes. Thus, the
Temporary Regulations do not adopt
this comment.

ycherry on PRODPC74 with RULES

D. Payment of Principal, Interest or
Redemption Price
The 2004 Proposed Regulations
provide that the use of proceeds of a
bond to pay principal, interest, or
redemption price of the bond or another
bond is not a qualified purpose within
the meaning of section 1397E(d)(5).
Thus, the use of proceeds of a bond to
refund another bond is not a qualified
purpose under the 2004 Proposed
Regulations. In addition, the use of
proceeds of a bond to fund a sinking
fund to repay the bond is not a qualified
purpose under the 2004 Proposed
Regulations.
One commentator recommended that
the 2004 Proposed Regulations be
modified to permit proceeds of a QZAB
to be used to repay an interim bridge
loan incurred with the explicit intent to
be refinanced with a subsequent
issuance. In response to this comment,
the Temporary Regulations provide an
exception to the general rule that the
use of proceeds of a bond to pay
principal, interest, or redemption price
of the bond or another bond is not a
qualified purpose under section
1397E(d)(5).

VerDate Aug<31>2005

15:14 Jul 13, 2007

Jkt 211001

IV. Arbitrage Investment Restrictions
New section 1397E(g) added by the
2006 Act provides that the arbitrage
requirements of section 148 applicable
to tax-exempt state or local
governmental bonds under section 103
also apply to QZABs. The Temporary
Regulations provide guidance regarding
the application of the arbitrage
requirements to QZABs.
In general, under section 148, subject
to various prompt spending exceptions
(for example, the 18-month prompt
spending exception to arbitrage rebate
for capital projects under § 1.148–7(d)
and the 2-year construction spending
exception to arbitrage rebate under
section 148(f)(4)(C) and § 1.148–7(e))
and other specified exceptions (for
example, the bona fide debt service
exception for certain long-term taxexempt governmental, non-private
activity bonds under section
148(f)(4)(A)), the arbitrage investment
restrictions, including the yield
restrictions and the arbitrage rebate
requirement, apply broadly to ‘‘gross
proceeds’’ of tax-exempt bonds. ‘‘Gross
proceeds’’ represents a broad catch-all
category of bond proceeds which
includes various subsidiary types of
proceeds, including, among others,
‘‘sale proceeds’’ derived from the sale of
bonds, ‘‘investment proceeds’’ derived
from investing proceeds of bonds, and
‘‘replacement proceeds’’ with a
reasonable nexus to a bond issue (for
example, sinking funds reasonably
expected to be used to pay debt service
on bonds and pledged funds used to
secure bonds).
The Temporary Regulation provide
that, except as otherwise provided, the
arbitrage investment restrictions under
section 148 and the exceptions to those
restrictions apply to gross proceeds of
QZABs issued under section 1397E to
the same extent and in the same manner
as they apply to gross proceeds of taxexempt state or local governmental
bonds issued under section 103. For this
purpose, references in the arbitrage
restrictions to tax-exempt bonds
generally shall be deemed to refer to
QZABs and, to the extent that any
particular arbitrage restriction depends
on whether bonds are private activity
bonds under section 141, the
determination of whether QZABs are
private activity bonds shall be based on
the general definition of private activity
bonds under section 141.
The Temporary Regulations provide
limited guidance to tailor the
application of the arbitrage investment
restrictions to QZABs in certain specific
respects. Thus, the Temporary
Regulations provide that a five-year

PO 00000

Frm 00025

Fmt 4700

Sfmt 4700

38773

temporary period exception to the
arbitrage yield restriction requirement
applies to proceeds of QZABs if an
issuer reasonably expects to spend 95
percent of the proceeds of an issue of
QZABs for qualified purposes within
the 5-year period beginning on the issue
date of the QZABs.
The Temporary Regulations provide
that, in determining the yield on an
issue of QZABs for arbitrage purposes,
the QZAB credit is disregarded. Here,
yield focuses on yield paid by the issuer
on the QZABs rather than the tax credit
benefit to the investor.
The Temporary Regulations provide
that the yield restriction rules are
inapplicable to amounts placed in
defeasance escrow as a remedial action.
The Treasury Department and IRS have
a concern that QZAB issuers may be
unable to find appropriate investments
of the amounts in the escrow at or below
the yield on the bonds.
The Temporary Regulations provide
that the exception to arbitrage yield
restriction for certain investments in
non-AMT tax-exempt bonds is
inapplicable to QZABs. The IRS and the
Treasury Department have a concern
about the clear arbitrage investment
potential associated with investing zeroyielding QZABs in non-AMT taxexempt bond investments at materially
higher yields.
The Temporary Regulations provide
that, in determining whether an issue of
QZABs qualifies for the small issuer
exception to the arbitrage rebate
requirement under section 148(f)(4)(D),
both QZABs and tax-exempt bonds
(other than private activity bonds) that
are reasonably expected to be issued or
actually issued by the QZAB issuer (and
other covered on-behalf-of entities and
subordinate entities) within a calendar
year are taken into account in measuring
the applicable size limitation.
Finally, consistent with the treatment
of defeasance escrows for purposes of
yield restriction, in applying the small
issuer exception to the rebate of
earnings from investments of amounts
in a defeasance escrow, the Temporary
Regulations provide that the issuer is
not treated as a small issuer and
amounts earned from such investments
must be rebated to the United States.
V. Information Reporting Requirement
Issuers of QZABs must submit
information reporting returns to the IRS
similar to the information reporting
returns required to be submitted to the
IRS under section 149(e) for tax-exempt
State or local bonds at the same time
and manner as those reports are
required to be submitted to the IRS on

E:\FR\FM\16JYR1.SGM

16JYR1

38774

Federal Register / Vol. 72, No. 135 / Monday, July 16, 2007 / Rules and Regulations

such forms as shall be prescribed by the
Commissioner for such purpose.
Effective/Applicability Dates
In general, except as otherwise
provided, the Temporary Regulations
apply to bonds sold on or after
September 14, 2007.
In general, except as otherwise
provided, § 1.1397E–1(h)(2), (i), and (j)
of the Temporary Regulations regarding
the five-year spending period, the
arbitrage investment restrictions, and
the information reporting requirement
added by the 2006 Act apply to bonds
issued pursuant to allocations of the
national qualified zone academy bond
volume cap authority arising in calendar
years after 2005 and sold on or after
September 14, 2007.
Issuers and taxpayers may apply the
Temporary Regulations in whole, but
not in part, to bonds sold before
September 14, 2007.
Certain other special effective dates
apply to particular provisions under
§ 1.1397E(m).
Special Analyses
It has been determined that this
Treasury decision is not a significant
regulatory action as defined in
Executive Order 12866. Therefore, a
regulatory assessment is not required. It
has also been determined that section
553(b) of the Administrative Procedure
Act (5 U.S.C. chapter 5) does not apply
to these regulations. For applicability of
the Regulatory Flexibility Act, please
refer to the cross-reference notice of
proposed rulemaking published
elsewhere in this Federal Register.
Pursuant to section 7805(f) of the Code,
this regulation has been submitted to
the Chief Counsel for Advocacy of the
Small Business Administration for
comment on its impact on small
business.
Drafting Information
The principal authors of these
regulations are Timothy L. Jones and
Zoran Stojanovic, Office of Division
Counsel/Associate Chief Counsel, IRS
(Tax Exempt and Governmental
Entities). However, other personnel
from the IRS and the Treasury
Department participated in their
development.
List of Subjects

ycherry on PRODPC74 with RULES

26 CFR Part 1
Income taxes, Reporting and
recordkeeping requirements.
26 CFR Part 602
Reporting and recordkeeping
requirements.

VerDate Aug<31>2005

15:14 Jul 13, 2007

Jkt 211001

Amendments to the Regulations
Accordingly, 26 CFR parts 1 and 602
are amended as follows:

■

PART 1—INCOME TAXES
Paragraph 1. The authority citation
for part 1 is amended by adding an entry
in numerical order to read as follows:

■

Authority: 26 U.S.C. 7805 * * *
Section 1.1397E–1T also issued under 26
U.S.C. 1397E. * * *

Par. 2. Section 1.1397E–1 is amended
by:
■ 1. Redesignating paragraphs (i), (j) and
(k) as (k), (l) and (m), respectively.
■ 2. Adding new paragraphs (i) and (j).
■ 3. Revising newly-designated
paragraph (m).
The additions and revisions read as
follows:
■

§ 1.1397E–1
bonds.

Qualified zone academy

*

*
*
*
*
(i) and (j) [Reserved]. For further
guidance, see § 1.1397E–1T(i) and (j).
*
*
*
*
*
(m) Effective/applicability dates.
Except as provided in this paragraph
(m), this section applies to bonds sold
on or after September 26, 2000. Each of
paragraphs (c) and (k) of this section
may be applied by issuers to bonds that
are sold before September 26, 2000.
Par. 3. Section 1.1397E–1T is added
to read as follows:

■

§ 1.1397E–1T Qualified zone academy
bonds (temporary).

(a) In general—(1) Overview. In
general, a qualified zone academy bond
(QZAB or QZABs) is a taxable bond
issued by a state or local government the
proceeds of which are used to improve
certain eligible public schools. An
eligible taxpayer that holds a QZAB
generally is allowed annual Federal
income tax credits in lieu of periodic
interest payments. These credits
compensate the eligible taxpayer for
lending money to the issuer and
function as payments of interest on the
bond. Accordingly, this section
generally treats the allowance of a credit
as if it were a payment of interest on the
bond. This section also provides other
rules for QZABs, including rules
governing the credit rate, the private
business contribution requirement, the
maximum term, use and expenditure of
proceeds, remedial actions, eligible
issuers, arbitrage investment
restrictions, and information reporting.
(2) Certain definitions—(i) In general.
For purposes of this section, except as
otherwise provided in this section, the
following definitions apply: the

PO 00000

Frm 00026

Fmt 4700

Sfmt 4700

definitions set forth in this section; the
definitions used for general tax-exempt
bond purposes in § 1.150–1; and the
definitions used for purposes of the
arbitrage investment restrictions on taxexempt bonds in § 1.148–1(b).
(ii) Applicable definition of
proceeds—(A) Use and expenditure
provisions. Except as provided in
paragraphs (a)(2)(ii)(B) and (a)(2)(ii)(C)
of this section, for purposes of all
applicable requirements regarding use
and expenditure of proceeds of QZABs
under section 1397E and this section,
proceeds means ‘‘sale proceeds,’’ as
defined in § 1.148–1(b), plus
‘‘investment proceeds,’’ as defined in
§ 1.148–1(b).
(B) Private business contribution
requirement. For purposes of the private
business contribution requirement of
section 1397E(d)(2), proceeds means
‘‘sale proceeds,’’ as defined in § 1.148–
1(b).
(C) Arbitrage investment restrictions.
For purposes of the scope of application
of the arbitrage investment restrictions
under section 1397E(g) and paragraph
(i) of this section, proceeds generally
means gross proceeds, as defined in
§ 1.148–1(b). In addition, in applying
the arbitrage investment restrictions
under paragraph (i) of this section and
section 148, the various applicable
definitions of the various types of
proceeds of tax-exempt bonds under
§ 1.148–1(b) shall apply.
(b) and (c) [Reserved]. For further
guidance, see § 1.1397E–1(b) and (c).
(d) Maximum term. The maximum
term for a QZAB is determined under
section 1397E(d)(3) by using a discount
rate equal to 110 percent of the longterm adjusted applicable Federal rate
(AFR), compounded semi-annually, for
the month in which the bond is sold.
The Internal Revenue Service publishes
this figure each month in a revenue
ruling that is published in the Internal
Revenue Bulletin. See
§ 601.601(d)(2)(ii)(b) of this chapter. A
bond is sold on the sale date, as defined
in § 1.150–1(c)(6), which is the first day
on which there is a binding contract in
writing for the sale or exchange of the
bond.
(e) through (g) [Reserved]. For further
guidance, see § 1.1397E–1(e) through
(g).
(h) Use of proceeds—(1) In general.
Section 1397E(d)(1) provides that a
bond issued as part of an issue is a
QZAB only if, among other
requirements, at least 95 percent of the
proceeds of the issue are to be used for
a qualified purpose with respect to a
qualified zone academy established by
an eligible local education agency (as
defined in section 1397E(d)(4)(B)), and

E:\FR\FM\16JYR1.SGM

16JYR1

ycherry on PRODPC74 with RULES

Federal Register / Vol. 72, No. 135 / Monday, July 16, 2007 / Rules and Regulations
the issue meets the requirements of
section 1397E(f) and (g). Section
1397E(d)(5) defines qualified purpose,
with respect to any qualified zone
academy, as rehabilitating or repairing
the public school facility in which such
academy is established, providing
equipment for use at such academy,
developing course materials for
education to be provided at such
academy, and training teachers and
other school personnel in such
academy. Section 1397E(d)(4)(A)
defines qualified zone academy as any
public school (or academic program
within a public school) that is
established by and operated under the
supervision of an eligible local
education agency to provide education
or training below the postsecondary
level and that meets the requirements of
section 1397E(d)(4)(A)(i), (ii), (iii) and
(iv).
(2) Use of proceeds requirements. An
issue meets the requirements of sections
1397E(d)(1)(A) and (f) only if—
(i) The issuer reasonably expects, as of
the issue date of the issue, that—
(A) At least 95 percent of the proceeds
from the sale of the issue are to be spent
for 1 or more qualified purposes with
respect to qualified zone academies
within the 5-year period beginning on
the issue date of the QZAB;
(B) A binding commitment with a
third party to spend at least 10 percent
of the proceeds from the sale of the
issue will be incurred within the 6month period beginning on the issue
date of the QZAB;
(C) At least 95 percent of the proceeds
from the sale of the issue will be spent
for a qualified purpose with respect to
a qualified zone academy with due
diligence (with due diligence measured
by the reasonableness standard under
§ 1.148–1(b); and
(D) At least 95 percent of the proceeds
of the issue will be used for a qualified
purpose with respect to a qualified zone
academy for the entire term of the issue
(without regard to any redemption
provision); and
(ii) Except as otherwise provided in
paragraph (h)(7) of this section, at least
95 percent of the proceeds of the issue
are actually used for a qualified purpose
with respect to a qualified academy for
the entire term of the issue (without
regard to any redemption provision).
(iii) Extension of 5-year period. The
Commissioner may extend the period
described in paragraph (h)(2)(i)(A) of
this section if the issuer, prior to the end
of such period, submits a private ruling
request, and establishes to the
satisfaction of the Commissioner that—

VerDate Aug<31>2005

15:14 Jul 13, 2007

Jkt 211001

(A) The failure to satisfy the 5-year
spending requirement is due to
reasonable cause; and
(B) The expenditure of at least 95
percent of the proceeds from the sale of
the issue will be spent for a qualified
purpose with respect to a qualified zone
academy will proceed with due
diligence.
(3) Unspent proceeds. For purposes of
paragraphs (h)(2)(i)(D) and (h)(2)(ii) of
this section, during the period described
in paragraph (h)(2)(i)(A) of this section,
including any extension under
paragraph (h)(2)(iii) of this section,
unspent proceeds are treated as used for
a qualified purpose with respect to a
qualified zone academy if the issuer
reasonably expects to proceed with due
diligence to spend those proceeds for a
qualified purpose with respect to a
qualified zone academy during that
period.
(4) Proceeds spent for rehabilitation,
repair or equipment—(i) In general.
Under section 1397E(d)(5)(A) the term
qualified purpose with respect to any
qualified zone academy includes
rehabilitating or repairing the public
school facility in which such academy
is established. For this purpose, in
determining whether proceeds are spent
for rehabilitation, rules similar to those
under section 47(c) (other than sections
47(c)(1)(B) and 47(c)(2)(B)(iv)) shall
apply. Under section 1397E(d)(5)(B) the
term qualified purpose also includes
providing equipment for use at such
academy. If proceeds of an issue are
spent for a purpose described in section
1397E(d)(5)(A) or (B) with respect to a
qualified zone academy, then those
proceeds are treated as used for a
qualified purpose with respect to the
academy during any period after such
expenditure that—
(A) The property financed with those
proceeds is used for the purposes of the
academy; and
(B) The academy maintains its status
as a qualified zone academy under
section 1397E(d)(4).
(ii) Retirement from service. The
retirement from service of financed
property due to normal wear or
obsolescence does not cause the
property to fail to be used for a qualified
purpose with respect to a qualified zone
academy.
(5) Proceeds spent to develop course
materials or train teachers. Section
1397E(d)(5)(C) and (D) provides that the
term qualified purpose with respect to
any qualified zone academy includes
developing course materials for
education to be provided at such
academy, and training teachers and
other school personnel in such
academy. If proceeds of an issue are

PO 00000

Frm 00027

Fmt 4700

Sfmt 4700

38775

spent for a purpose described in section
1397E(d)(5)(C) or (D) with respect to a
qualified zone academy, then those
proceeds are treated as used for a
qualified purpose with respect to the
academy during any period after such
expenditure.
(6) Special rule for determining status
as qualified zone academy. Section
1397E(d)(4)(A)(iv) provides that a public
school (or academic program within a
public school) is a qualified zone
academy only if, among other
requirements, the public school is
located in an empowerment zone or
enterprise community (as defined in
section 1393), or there is a reasonable
expectation (as of the issue date of the
issue) that at least 35 percent of the
students attending the school or
participating in the program (as the case
may be) will be eligible for free or
reduced-cost lunches under the school
lunch program established under the
Richard B. Russell National School
Lunch Act. For purposes of determining
whether an issue complies with section
1397E(d)(4)(A)(iv)—
(i) A public school is treated as
located in an empowerment zone or
enterprise community for the entire
term of the issue if the public school is
located in an empowerment zone or
enterprise community on the issue date
of the issue; and
(ii) The determination of whether
there is a reasonable expectation (as of
the issue date of the issue) that at least
35 percent of the students attending the
school or participating in the program
(as the case may be) will be eligible for
free or reduced-cost lunches under the
school lunch program established under
the Richard B. Russell National School
Lunch Act is based on expectations
regarding the one-year period following
the issue date.
(7) Remedial actions—(i) General rule.
If less than 95 percent of the proceeds
of an issue are properly used (as
determined under paragraph (h)(7)(ii)(D)
of this section), the issue will be treated
as meeting the requirements of section
1397E(d)(1)(A) if the issue met the
requirements of paragraph (h)(2)(i) of
this section and a remedial action is
taken under paragraph (h)(7)(ii) or (iii)
of this section.
(ii) Redemption or defeasance—(A) In
general. A remedial action is taken
under this paragraph (h)(7)(ii) if the
requirements of paragraphs (h)(7)(ii)(B)
and (C) of this section are met.
(B) Retirement of nonqualified
bonds—(1) In general. The requirements
of this paragraph (h)(7)(ii)(B) are met
if—
(i) All of the nonqualified bonds of the
issue (determined by applying the

E:\FR\FM\16JYR1.SGM

16JYR1

ycherry on PRODPC74 with RULES

38776

Federal Register / Vol. 72, No. 135 / Monday, July 16, 2007 / Rules and Regulations

principles of § 1.142–2(e)) are redeemed
within 90 days after the date on which
the failure to properly use proceeds
occurs; or
(ii) To the extent of proceeds of the
issue that have been actually spent for
a qualified purpose with respect to a
qualified zone academy, if any
nonqualified bonds of the issue are not
redeemed within 90 days after the date
on which the failure to properly use
such proceeds occurs (the unredeemed
nonqualified bonds), a defeasance
escrow is established for the
unredeemed nonqualified bonds within
90 days after the date on which the
failure to properly use proceeds occurs.
(2) Special rule for dispositions for
cash. If the failure to properly use
proceeds is a disposition of financed
property described in section
1397E(d)(5)(A) or (B) and the
consideration for the disposition is
exclusively cash, the requirements of
this paragraph (h)(7)(ii)(B) are met if all
of the disposition proceeds (as defined
in paragraph (h)(7)(iv) of this section)
are used within 90 days after the date
of the disposition to redeem, or
establish a defeasance escrow for, a pro
rata portion of the nonqualified bonds of
the issue.
(3) Definition of defeasance escrow.
For purposes of this section, a
defeasance escrow is an irrevocable
escrow established to retire
nonqualified bonds on the earliest call
date after the date on which the failure
to properly use proceeds occurs in an
amount that is sufficient to retire
nonqualified bonds on that call date. At
least 90 percent of the weighted average
amount in a defeasance escrow must be
invested in investments (as defined in
§ 1.148–1(b)), except that no amount in
a defeasance escrow may be invested in
any investment the obligor (or any
person that is a related party with
respect to the obligor within the
meaning of § 1.150–1(b)) of which is a
user of proceeds of the bonds. All
purchases or sales of an investment in
a defeasance escrow must be made at
the fair market value of the investment
within the meaning of § 1.148–5(d)(6).
(C) Additional rules—(1) Limitation
on source of funding. Proceeds of an
issue of QZABs (other than unspent
proceeds of the issue for which the
failure to properly use proceeds occurs)
must not be used to redeem or defease
nonqualified bonds under paragraph
(h)(7)(ii)(B) of this section.
(2) Rebate requirement. The issuer
must pay to the United States, at the
same time and in the same manner as
rebate amounts are required to be paid
under § 1.148–3 (or at such other time
or in such other manner as the

VerDate Aug<31>2005

15:14 Jul 13, 2007

Jkt 211001

Commissioner may prescribe), any
investment earnings on amounts in a
defeasance escrow established under
paragraph (h)(7)(ii)(B) of this section
that are in excess of the yield on the
issue of QZABs with respect to which
the defeasance escrow was established.
For this purpose, the first computation
period begins on the date on which the
defeasance escrow is established.
(3) Notice of defeasance. The issuer
must provide written notice to the
Commissioner, at the place designated
in § 1.150–5(a), of the establishment of
the defeasance escrow within 90 days of
the date the defeasance escrow is
established.
(D) When a failure to properly use
proceeds occurs—(1) Unspent proceeds.
For unspent proceeds, a failure to
properly use proceeds occurs on the
earlier of—
(i) The first date on which the public
school (or academic program within the
public school) fails to constitute a
qualified zone academy;
(ii) The first date on which the issuer
fails to have a reasonable expectation to
proceed with due diligence to spend at
least 95 percent of the proceeds of the
issue for a qualified purpose with
respect to a qualified zone academy; or
(iii) The last day of the period
described in paragraph (h)(2)(i)(A) of
this section, including any extension, if
less than 95 percent of the proceeds of
the issue are actually spent for a
qualified purpose with respect to a
qualified zone academy.
(2) Proceeds spent for rehabilitation,
repair or equipment. For proceeds that
have been spent for a purpose described
in section 1397E(d)(5)(A) or (B) with
respect to a qualified zone academy, a
failure to properly use proceeds occurs
on the earlier of—
(i) The first date on which the public
school (or academic program within the
public school) fails to constitute a
qualified zone academy; and
(ii) The first date on which an action
is taken that causes the issuer to fail to
actually to use at least 95 percent of the
proceeds of the issue for a qualified
purpose with respect to a qualified zone
academy.
(3) Proceeds spent for course
materials or training. If proceeds have
been spent for a purpose described in
section 1397E(d)(5)(C) or (D) with
respect to a qualified zone academy, no
event subsequent to such expenditure
shall constitute a failure to properly use
such proceeds.
(iii) Alternative use of disposition
proceeds. A remedial action is taken
under this paragraph (h)(7)(iii) if all of
the requirements of paragraphs

PO 00000

Frm 00028

Fmt 4700

Sfmt 4700

(h)(7)(iii)(A) through (D) of this section
are met—
(A) The failure to properly use
proceeds (as determined under
paragraph (h)(7)(ii)(D) of this section) is
a disposition of financed property
described in section 1397E(d)(5)(A) or
(B) and the consideration for the
disposition is exclusively cash;
(B) The issuer reasonably expects as
of the date of the disposition that—
(1) All of the disposition proceeds
will be spent within the two-year period
beginning with the date of the
disposition for a qualified purpose with
respect to a qualified zone academy; or
(2) To the extent not expected to be
so spent, the disposition proceeds will
be used within 90 days after the date of
the disposition to redeem or defease
bonds in a manner that meets the
requirements of paragraph (h)(7)(ii) of
this section;
(C) The disposition proceeds are
treated as proceeds for purposes of
section 1397E; and
(D) If all of the disposition proceeds
are not actually used in the manner
described in paragraph (h)(7)(iii)(B) of
this section, the remainder of such
amounts are used within 90 days after
the end of the period described in
paragraph (h)(7)(iii)(B)(1) of this section
for a remedial action that meets the
requirements of paragraph (h)(7)(ii) of
this section.
(iv) Definition of disposition proceeds
and allocation among multiple funding
sources. For purposes of this paragraph
(h)(7), disposition proceeds means
disposition proceeds, as defined in
§ 1.141–12(c)(1), plus amounts derived
from investing disposition proceeds. If
property has been financed with an
issue of QZABs and one or more other
funding sources, any disposition
proceeds from that property are
allocated to the issue under the
principles of § 1.141–12(c)(3).
(8) Payment of principal, interest or
redemption price—(i) In general. Except
as provided in paragraphs (h)(8)(ii) and
(h)(8)(iii) of this section, the use of
proceeds of a bond to pay principal,
interest, or redemption price of the bond
or another bond is not a qualified
purpose within the meaning of section
1397E(d)(5).
(ii) Exception for certain eligible
reimbursements of interim refinancings.
The use of proceeds of a bond (the
refinancing bond) to pay principal,
interest or redemption price of another
bond (the prior bond) is a qualified
purpose within the meaning of section
1397E(d)(5) to the extent that—
(A) The prior bond was not a QZAB
(and, in the case of a series of

E:\FR\FM\16JYR1.SGM

16JYR1

ycherry on PRODPC74 with RULES

Federal Register / Vol. 72, No. 135 / Monday, July 16, 2007 / Rules and Regulations
refinancings, no earlier bond in the
series was a QZAB);
(B) The proceeds of the prior bond (or
the original bond in the case of a series
of refinancings, as applicable) were
spent for a qualified purpose under
section 1397E(d)(5) (the original
expenditure); and
(C) The issuer makes a valid
reimbursement allocation to allocate the
proceeds of the refinancing bond to the
payment of the original expenditure (the
reimbursement allocation), which
allocation satisfies the requirements for
reimbursements under paragraph (h)(9)
of this section. For purposes of applying
the rules for reimbursement, a
refinancing bond which otherwise
meets the requirements of this
paragraph (h)(8)(ii) is eligible for
reimbursement and is not treated as a
disqualified refunding under § 1.150–
2(g).
(iii) Reissuance of a QZAB. For
purposes of determining whether the
establishing of a defeasance escrow
under paragraph (h)(7)(ii)(B)(1)(ii) of
this section results in an exchange
under § 1.1001–1(a), the QZAB is
treated as a tax-exempt bond under
§ 1.1001–3(e)(5)(ii)(B)(1).
(9) Reimbursement. An expenditure
for a qualified purpose may be
reimbursed with proceeds of a QZAB.
For this purpose, rules similar to those
on reimbursement of expenditures in
§ 1.142–4(b) and § 1.150–2 shall apply.
In applying these reimbursement rules,
expenditures eligible for reimbursement
under § 1.150–2(d)(3) shall be deemed
to mean any expenditure for a qualified
purpose under section 1397E(d)(5).
(i) Arbitrage investment restrictions—
(1) In general. Under section 1397E(g)
and this paragraph (i), and except as
otherwise provided in this paragraph (i),
the arbitrage investment restrictions and
rebate requirements under section 148
and § 1.148–1 to § 1.148–11, inclusive,
and the exceptions to those restrictions,
apply broadly to gross proceeds of
QZABs issued under section 1397E to
the same extent and in the same manner
as they apply to gross proceeds of taxexempt state or local governmental
bonds. For this purpose, references in
those sections to tax-exempt bonds
generally shall be deemed to refer to
QZABs and, to the extent that any
particular arbitrage restriction depends
on whether bonds are private activity
bonds under section 141, the
determination of whether QZABs are
private activity bonds shall be based on
the general definition of private activity
bonds under section 141. In applying
section 148 and the regulations under
that section to QZABs, the
modifications set forth in paragraphs

VerDate Aug<31>2005

15:14 Jul 13, 2007

Jkt 211001

(i)(2) through (6) of this section shall
apply.
(2) 5-year temporary period exception
to arbitrage yield restriction. If an issue
of QZABs meets the requirements of
section 1397E(f)(1) and paragraph
(h)(2)(i) of this section, then the
proceeds of the issue of QZABs are
treated as qualifying for a 5-year
temporary period exception to arbitrage
yield restriction under § 1.148–2(e)(2)
beginning on issue date of the issue.
(3) Disregard QZAB credit in QZAB
yield for arbitrage purposes. In
determining the yield on an issue of
QZABs for arbitrage purposes under
§ 1.148–4, the QZAB credit allowed
under section 1397E(a) is disregarded.
(4) Non-AMT tax-exempt bond
investment exception inapplicable. The
exception to arbitrage yield restriction
for investments of gross proceeds of taxexempt bonds in specified tax-exempt
bond investments not subject to section
148(b)(3)(B) (relating to an exception to
the definition of ‘‘investment property’’
for specified tax-exempt bonds) and
§ 1.148–2(d)(2)(v) (relating to a
corresponding exception to arbitrage
yield limitations) is inapplicable.
(5) Application of small issuer
exception to the arbitrage rebate
requirement. Except as otherwise
provided in paragraph (i)(6) of this
section, for purposes of the small issuer
exception to the arbitrage rebate
requirement under section 148(f)(4)(D)
and § 1.148–8, both QZABs and taxexempt bonds (other than private
activity bonds) that are actually issued
or reasonably expected to be issued by
the QZAB issuer (and applicable entities
aggregated under section 148(f)(4)(D))
within a calendar year are taken into
account in measuring the applicable
size limitation.
(6) Certain defeasance escrow
earnings. With respect to a defeasance
escrow established in a remedial action
for an issue of QZABs that meets the
special rebate requirement under
paragraph (d)(7)(ii)(C)(2) of this section,
the QZAB issuer is treated as ineligible
for the small issuer exception to
arbitrage rebate under section
148(f)(4)(D) and paragraph (i)(5) of this
section and compliance with that
special rebate requirement is treated as
satisfying applicable arbitrage
investment restrictions under section
148 for that defeasance escrow.
(j) Information reporting requirement.
Under section 1397E(h) and this
paragraph (j), issuers of QZABs are
required to submit information
reporting returns to the IRS similar to
the information reporting returns
required to be submitted to the IRS
under section 149(e) for tax-exempt

PO 00000

Frm 00029

Fmt 4700

Sfmt 4700

38777

state or local governmental bonds at the
same time and in the same manner as
those reports are required to be
submitted to the IRS on such forms as
shall be prescribed by the Commissioner
for such purpose.
(k) and (l) [Reserved]. For further
guidance, see § 1.1397E–1(k) and (l).
(m) Effective/applicability dates—(1)
In general. Except as otherwise
provided in this paragraph (m), this
section applies to bonds sold on or after
September 14, 2007.
(2) Special effective dates—(i)
Effective dates for paragraphs (h)(2), (i),
and (j) of this section in general.
Paragraphs (h)(2), (i), and (j) of this
section apply to bonds issued pursuant
to allocations of the national qualified
zone academy bond volume cap
authority for calendar years after 2005
and sold on or after September 14, 2007.
(ii) Permissive retroactive
application—(A) In general. Except as
otherwise provided in this paragraph
(m), issuers and taxpayers may apply
this section in whole, but not in part, to
bonds sold before September 14, 2007.
(B) Special rule for certain provisions.
For purposes of the permissive
retroactive application rule in paragraph
(m)(2)(ii)(A) of this section, paragraphs
(h)(2), (i), and (j) of this section need not
be applied to any bonds to which those
provisions do not otherwise apply
under the general effective date
provisions for those provisions in
paragraph (m)(2)(i) of this section.
(C) Definition of proceeds. Issuers and
taxpayers may apply paragraphs (d) and
(h) of this section, without regard to the
definition of proceeds in paragraph
(a)(2)(ii) of this section, to bonds sold
before September 14, 2007.
(D) Bonds issued before July 1, 1999.
Paragraphs (d) and (h)(9) of this section
may not be applied to bonds issued
before July 1, 1999.
(3) Expiration date. The applicability
of this section expires on or before July
13, 2010.
PART 602—OMB CONTROL NUMBERS
UNDER THE PAPERWORK
REDUCTION ACT
Par. 4. The authority citation for part
602 continues to read as follows:

■

Authority: 26 U.S.C. 7805.

Par. 5. In § 602.101, paragraph (b) is
amended by adding the following entry
in numerical order to the table to read
as follows:

■

§ 602.101

*

OMB Control numbers.

*
*
(b) * * *

E:\FR\FM\16JYR1.SGM

16JYR1

*

*

38778

Federal Register / Vol. 72, No. 135 / Monday, July 16, 2007 / Rules and Regulations

In the absence of any comments, the
proposed systems of records became
final 40 days thereafter.
No comments were filed regarding the
proposed rule exempting three of the
*
*
*
*
systems of records and portions of four
1.1397E–1T ..............................
1545–1908
other systems of records from certain
provisions of the Privacy Act, and
*
*
*
*
amending the NLRB’s existing Privacy
Act regulations for clarity. Accordingly,
Kevin M. Brown,
the Board has decided to implement the
Deputy Commissioner for Services and
proposed rule as a final rule, with
Enforcement.
changes to certain CFR section numbers.
Approved: July 3, 2007.
In particular, the proposed rule
Eric Solomon,
amended the Agency’s existing Privacy
Assistant Secretary of the Treasury (Tax
Act regulations by removing them from
Policy).
Sections 102.117(f) through (q) of
[FR Doc. E7–13665 Filed 7–13–07; 8:45 am]
subpart K, and inserting them as
Sections 102.117a(a) through (n) of
BILLING CODE 4830–01–P
subpart K. In order to maintain the
orderly codification of the CFR, the
Agency’s Privacy Act regulations
NATIONAL LABOR RELATIONS
instead will be inserted as Sections
BOARD
102.119(a) through (n) of subpart K. The
Agency’s current regulation at subpart
29 CFR Part 102
L, Section 102.119 (Post-employment
Restriction on Activities by Former
Privacy Act of 1974; Implementation
Officers and Employees), is now redesignated as subpart L, Section
AGENCY: National Labor Relations
102.120.
Board.
This rule relates to individuals rather
ACTION: Final rule.
than small business entities.
Accordingly, pursuant to the
SUMMARY: The National Labor Relations
requirements of the Regulatory
Board (NLRB) issues a final rule
Flexibility Act, 5 U.S.C. 601–612, this
exempting three systems of records and
rule will not have a significant impact
portions of four other systems of records on a substantial number of small
from certain provisions of the Privacy
business entities.
Act of 1974, 5 U.S.C. 552a, pursuant to
In accordance with the Paperwork
Section (k)(2) of that Act, 5 U.S.C.
Reduction Act of 1995 (44 U.S.C. 3501
552a(k)(2), and amending existing
et seq.), the Agency has determined that
Privacy Act regulations for clarity.
this rule will not impose new
recordkeeping, application, reporting, or
DATES: Effective July 16, 2007.
other types of information collection
FOR FURTHER INFORMATION CONTACT:
requirements on the public.
Tommie Gregg, Sr., Privacy Officer,
The rule will not have a substantial
National Labor Relations Board, Room
direct effect on the States, on the
7608, 1099 14th Street, NW.,
relationship between the national
Washington, DC 20570–0001, (202) 273–
Government and the States, or on the
2833, [email protected].
distribution of power and
SUPPLEMENTARY INFORMATION: On
responsibilities among levels of
December 13, 2006, the NLRB published government. Therefore, it is determined
in the Federal Register a notice
that this rule does not have federalism
proposing twelve systems of records
implications under Executive Order
under the Privacy Act of 1974, nine of
13132.
which consist of an electronic case
In accordance with Executive Order
tracking system and associated paper or 12866, it has been determined that this
electronic files, and the remaining three rule is not a ‘‘significant regulatory
systems consist of electronic case
action,’’ and therefore does not require
tracking systems only. The same day,
a Regulatory Impact Analysis.
the NLRB also published in the Federal
List of Subjects in 29 CFR Part 102
Register a notice of proposed rule
Privacy, Reporting and recordkeeping
exempting three of the systems of
requirements.
records and portions of four other
systems of records from certain
■ For the reasons stated in the above
provisions of the Privacy Act, and
Supplementary Information section,
amending the NLRB’s existing Privacy
Part 102 of title 29, ch. I of the Code of
Act regulations for clarity. Both notices
Federal Regulations, is amended as
provided for a public comment period.
follows:

ycherry on PRODPC74 with RULES

CFR part or section where
identified and described

VerDate Aug<31>2005

15:14 Jul 13, 2007

Current
OMB control
No.

Jkt 211001

PO 00000

Frm 00030

Fmt 4700

Sfmt 4700

PART 102—RULES AND
REGULATIONS, SERIES 8
1. The authority citation for part 102
is revised to read as follows:

■

Authority: Sections 1, 6, National Labor
Relations Act (29 U.S.C. 151, 156). Section
102.117 also issued under section
552(a)(4)(A) of the Freedom of Information
Act, as amended (5 U.S.C. 552(a)(4)(A)), and
Section 102.117a also issued under section
552a(j) and (k) of the Privacy Act of 1974 (5
U.S.C. 552a(j) and (k)). Sections 102.143
through 102.155 also issued under section
504(c)(1) of the Equal Access to Justice Act,
as amended (5 U.S.C. 504(c)(1)).

2. Section 102.117 is amended by
removing paragraphs (f) through (q) and
by revising the section heading to read
as follows:

■

§ 102.117 Freedom of Information Act
Regulations: Board materials and formal
documents available for public inspection
and copying; requests for described
records; time limit for response; appeal
from denial of request; fees for document
search and duplication; files and records
not subject to inspection.

*

*

§ 102.119

*

*

*

[Redesignated as § 102.120]

3. Section 102.119 is redesignated as
§ 102.120.
■ 4. A new § 102.119 is added to subpart
K to read as follows:
■

§ 102.119 Privacy Act Regulations:
notification as to whether a system of
records contains records pertaining to
requesting individuals; requests for access
to records, amendment of such records, or
accounting of disclosures; time limits for
response; appeal from denial of requests;
fees for document duplication; files and
records exempted from certain Privacy Act
requirements.

(a) An individual will be informed
whether a system of records maintained
by this Agency contains a record
pertaining to such individual. An
inquiry should be made in writing or in
person during normal business hours to
the official of this Agency designated for
that purpose and at the address set forth
in a notice of a system of records
published by this Agency, in a Notice of
Systems of Governmentwide Personnel
Records published by the Office of
Personnel Management, or in a Notice of
Governmentwide Systems of Records
published by the Department of Labor.
Copies of such notices, and assistance in
preparing an inquiry, may be obtained
from any Regional Office of the Board or
at the Board offices at 1099 14th Street,
NW., Washington, DC 20570. The
inquiry should contain sufficient
information, as defined in the notice, to
identify the record.
Reasonable verification of the identity
of the inquirer, as described in

E:\FR\FM\16JYR1.SGM

16JYR1