Consistent with these missions, most regulations of the Department and its constituent bureaus are promulgated to interpret and implement the laws as enacted by the Congress and signed by the President. It is the policy of the Department to comply with applicable requirements to issue a notice of proposed rulemaking and carefully consider public comments before adopting a final rule. Also, in particular cases, the Department invites interested parties to submit views on rulemaking projects while a proposed rule is being developed.

In response to the events of September 11, 2001, the President signed the USA PATRIOT Act of 2001 into law on October 26, 2001. Since then, the Department has accorded the highest priority to developing and issuing regulations to implement the provisions in this historic legislation that target money laundering and terrorist financing. These efforts, which will continue during the coming year, are reflected in the regulatory priorities of the Financial Crimes Enforcement Network (FinCEN).

To the extent permitted by law, it is the policy of the Department to adhere to the regulatory philosophy and principles set forth in Executive Orders 12866 and 13563 and to develop regulations that maximize aggregate net benefits to society while minimizing the economic and paperwork burdens imposed on persons and businesses subject to those regulations.

Office of Financial Stability

On October 3, 2008, the President signed the Emergency Economic Stabilization Act of 2008 (EESA) (Pub. L. 110-334). Section 101(a) of EESA authorizes the Secretary of the Treasury to establish a Troubled Asset Relief Program (TARP) to "purchase, and to make and fund commitments to purchase, troubled assets from any financial institution, on such terms and conditions as are determined by the Secretary, and in accordance with this Act and policies and procedures developed and published by the Secretary."

EESA provides authority to issue regulations and guidance to implement the program. Regulations and guidance required by EESA include conflicts of interest, executive compensation, and tax guidance. The Secretary is also charged with establishing a program that will guarantee principal of, and interest on, troubled assets originated or issued prior to March 14, 2008.

The Department has issued guidance and regulations and will continue to provide program information through the next year. Regulatory actions taken to date include:

Executive compensation. In October 2008, the Department issued an interim final rule that set forth executive compensation guidelines for the TARP Capital Purchase Program (73 FR 62205). Related tax guidance on executive compensation was announced in IRS Notice 2008-94. In addition, among other EESA tax guidance, the IRS issued interim guidance regarding loss corporation and ownership changes in Notice 2008-100, providing that any shares of stock owned by the Department of the Treasury under the Capital Purchase Program will not be considered to cause Treasury's ownership in such corporation to increase. On June 15, 2009, the Department issued a revised interim final rule that sets forth executive compensation guidelines for all TARP program participants (74 FR 28394), implementing amendments to the executive compensation provisions of EESA made by the American Recovery and Reinvestment Act of 2009 (Pub. L.111-5). Public comments on the revised interim final rule regarding executive compensation were due by August 14, 2009, and will be considered as part of the process of issuing a final rule on this subject.

Conflicts of interest. On January 21, 2009, the Department issued an interim final rule providing guidance on conflicts of interest pursuant to section 108 of EESA (74 FR 3431). Comments on the interim final rule, which were due by March 23, 2009, will be considered as part of the process of issuing a final rule. A final rule was published on October 3, 2011.

The Department will continue implementing the EESA authorities to restore capital flows to the consumers and businesses that form the core of the Nation's economy.

Terrorism Risk Insurance Program Office

The Terrorism Risk Insurance Act of 2002 (TRIA) was signed into law on November 26, 2002. The law, which was enacted as a consequence of the events of September 11, 2001, established a temporary Federal reinsurance program under which the Federal Government shares the risk of losses associated with certain types of terrorist acts with commercial property and casualty insurers. The Act, originally scheduled to expire on December 31, 2005, was extended to December 31, 2007, by the Terrorism Risk Insurance Extension Act of 2005 (TRIEA). The Act has since been extended to December 31, 2014, by the Terrorism Risk Insurance Program Reauthorization Act of 2007 (TRIPRA).

The Office of the Assistant Secretary for Financial Institutions is responsible for developing and promulgating regulations implementing TRIA, as extended and amended by TRIEA and TRIPRA. The Terrorism Risk Insurance Program Office, which is part of the Office of the Assistant Secretary for Financial Institutions, is responsible for operational implementation of TRIA. The purposes of this legislation are to address market disruptions, ensure the continued widespread availability and affordability of commercial property and casualty insurance for terrorism risk, and to allow for a transition period for the private markets to stabilize and build capacity while preserving State insurance regulation and consumer protections.

Over the past year, the Office of the Assistant Secretary has issued proposed rules implementing changes authorized by TRIA as revised by TRIPRA. The following regulations should be published by December 31, 2011:

Final Netting. This final rule would establish procedures by which, after the Secretary has determined that claims for the Federal share of insured losses arising from a particular Program Year shall be considered final, a final netting of payments to or from insurers will be accomplished.

Affiliates. This proposed rule would make changes to the definition of "affiliate" to conform to the language in the statute.

Civil Penalty. This proposed rule would establish procedures by which the Secretary may assess civil penalties against any insurer that the Secretary determines, on the record after an opportunity for a hearing, has violated provisions of the Act.

Treasury will continue the ongoing work of implementing TRIA and carrying out revised operations as a result of the TRIPRA-related regulation changes.

Customs Revenue Functions

The Homeland Security Act of 2002 (the Act) provides that the Secretary of the Treasury retains sole legal authority over the customs revenue functions. The Act also authorizes the Secretary of the Treasury to delegate any of the retained authority over customs revenue functions to the Secretary of Homeland Security. By Treasury Department Order No. 100-16, the Secretary of the Treasury delegated to the Secretary of Homeland Security authority to prescribe regulations pertaining to the customs revenue functions subject to certain exceptions. This Order further provided that the Secretary of the Treasury retained the sole authority to approve such regulations.

During the past fiscal year, among the customs-revenue function regulations issued was an interim rule (76 FR 692) on January 6, 2011, which implemented the preferential tariff treatment and other customs-related provisions of the United States-Oman Free Trade Agreement Implementation Act. CBP plans to finalize this rulemaking in the first half of FY 2012.

On March 17, 2011, CBP also issued a final rule (76 FR 14575) that adopted, with some changes, the interim amendments to the CBP regulations relating to the country of origin of textile and apparel products. These amendments were necessitated, in part, by the expiration of the Agreement on Textile and Clothing and the resulting elimination of quotas on the entry of textile and apparel products from World Trade Organizations (WTO) members. The primary regulatory change consisted of the elimination of the requirement that a textile declaration be submitted for every importation of textile and apparel products.

This past fiscal year, consistent with the practice of continuing to move forward with Customs Modernization provisions of the North American Free Trade Implementation Act to improve its regulatory procedures and consistent with the goals of Executive Orders 12866 and 13563, Treasury and CBP finalized on August 17, 2011 (76 FR 50883), the March 2010 proposal and pertaining to how CBP issues courtesy notices of liquidation to importers of record whose entry summaries are filed in the Automated Broker Interface (ABI). In an effort to streamline the notification process and reduce CBP's printing and mailing costs, the final rule provides that all ABI filers (importers of record and brokers who file as the agent of an importer of record) will receive electronic courtesy notices beginning September 30, 2011. Importers of record whose entries are not filed through the ABI will continue to receive paper courtesy notices of liquidation. In addition, every importer of record with an Automated Commercial Environment (ACE) Account can now monitor the liquidation of its entries by using the reporting tool in the ACE Secure Data Portal Account.

On August 19, 2011, Treasury and CBP published a proposal (76 FR 51914) to amend the CBP regulations to extend the time period after the date of entry for an applicant to file the certification documentation required for duty-free treatment of certain visual and auditory material of an educational, scientific, or cultural character under chapter 98 of the Harmonized Tariff Schedule of the United States.

On September 2, 2011, Treasury and CBP adopted as a final rule (76 FR 54691) only the portion of its July 25, 2008, proposal for amending the country of origin rules codified in part 102 of the CBP regulations applicable to five specific product areas; namely, pipe fittings and flanges, greeting cards, glass optical fiber, rice preparations, and certain textile and apparel products, but, in the light of the public comments received, it did not adopt the proposal to establish uniform rules governing CBP determinations of the country of origin of imported merchandise.

During fiscal year 2012, CBP and Treasury plan to give priority to the following regulatory matters involving the customs revenue functions:

Trade Act of 2002's preferential trade benefit provisions. Treasury and CBP plan to make permanent several interim regulations that implement the trade benefit provisions of the Trade Act of 2002.

Free Trade Agreements. Treasury and CBP also plan to issue interim regulations this fiscal year to implement the preferential trade benefit provisions of the United States-Singapore Free Trade Agreement Implementation Act. Treasury and CBP also expect to issue interim regulations implementing the preferential trade benefit provisions of the United States-Australia Free Trade Agreement Implementation Act and the United States-Peru Free Trade Agreement Implementation Act.

Customs and Border Protection's Bond Program. Treasury and CBP plan to publish a final rule amending the regulations to reflect the centralization of the continuous bond program at CBP's Revenue Division. The changes proposed would support CBP's bond program by ensuring an efficient and uniform approach to the approval, maintenance, and periodic review of continuous bonds, as well as accommodating the use of information technology and modern business practices.

Use of Sampling Methods and Offsetting of Overpayments and Over-Declarations in CBP Audits. Treasury and CBP plan to publish a final rule amending the regulations to add provisions for using sampling methods in CBP audits and for the offsetting of overpayments and over-declarations when an audit involves a calculation of lost duties, taxes, or fees or monetary penalties under 19 U.S.C. 1592.

Financial Crimes Enforcement Network

As chief administrator of the Bank Secrecy Act (BSA), the Financial Crimes Enforcement Network (FinCEN) is responsible for developing and implementing regulations that are the core of the Department's anti-money laundering and counter-terrorism financing efforts. FinCEN's responsibilities and objectives are linked to, and flow from, that role. In fulfilling this role, FinCEN seeks to enhance U.S. national security by making the financial system increasingly resistant to abuse by money launderers, terrorists and their financial supporters, and other perpetrators of crime.

The Secretary of the Treasury, through FinCEN, is authorized by the BSA to issue regulations requiring financial institutions to file reports and keep records that are determined to have a high degree of usefulness in criminal, tax, or regulatory matters or in the conduct of intelligence or counter-intelligence activities to protect against international terrorism. The BSA also authorizes requiring designated financial institutions to establish anti-money laundering programs and compliance procedures. To implement and realize its mission, FinCEN has established regulatory objectives and priorities to safeguard the financial system from the abuses of financial crime, including terrorist financing, money laundering, and other illicit activity. These objectives and priorities include: (1) Issuing, interpreting, and enforcing compliance with regulations implementing the BSA; (2) supporting, working with, and as appropriate, overseeing compliance examination functions delegated to other Federal regulators; (3) managing the collection, processing, storage, and dissemination of data related to the BSA; (4) maintaining a Governmentwide access service to that same data and for network users with overlapping interests; (5) conducting analysis in support of policymakers, law enforcement, regulatory and intelligence agencies, and the financial sector; and (6) coordinating with and collaborating on anti-terrorism and anti-money laundering initiatives with domestic law enforcement and intelligence agencies, as well as foreign financial intelligence units.

During fiscal year 2011, FinCEN issued the following regulatory actions:

Reorganization of BSA Rules. On October 26, 2010, FinCEN issued a final rule re-designating and reorganizing the BSA regulations in a new chapter, chapter X, within the Code of Federal Regulations. The regulations are now organized in a more consistent and intuitive structure that more easily allows financial institutions to identify their specific regulatory requirements under the BSA. In reorganizing the regulations, FinCEN has made BSA rules more accessible, easier to research, and easier to understand. The change promotes the goals of the BSA to protect the financial system from criminal abuse by facilitating compliance by regulated financial institutions.

Confidentiality of Suspicious Activity Reports. On November 23, 2010, FinCEN issued a final rule clarifying the non-disclosure provisions with respect to the regulations pertaining to the confidentiality of suspicious activity reports (SARs). In conjunction with this notice, FinCEN finalized two pieces of guidance (SAR Sharing with Affiliates for depository institutions and SAR Sharing with Affiliates for securities and futures industry entities), which permit certain financial institutions to share SARs with their U.S. affiliates that are also subject to SAR reporting requirements. The regulations and the guidance pieces promote the protection of SAR information while seeking to ensure that all appropriate parties have access to SARs. Allowing information sharing among affiliates also will help financial institutions protect themselves from abuses of financial crime, support overarching industry efforts to strengthen enterprise-wide risk management, and promote the reporting of even more useful information to FinCEN and law enforcement investigators.

Non-Bank Residential Mortgage Lenders and Originators. On December 9, 2010, FinCEN issued a Notice of Proposed Rulemaking (NPRM) to solicit public comment on the application of anti-money laundering (AML) program and SAR regulations to a specific sub-set of loan and finance companies; i.e., non-bank residential mortgage lenders and originators. The proposed regulations would close a regulatory gap that allows other originators, such as mortgage brokers and mortgage lenders not affiliated with banks, to avoid having AML and SAR obligations. Based on its ongoing work supporting criminal investigators and prosecutors in combating mortgage fraud, FinCEN believes that this regulatory measure will help mitigate some of the vulnerabilities that criminals have exploited. This NPRM was informed by comments received following an Advance Notice of Proposed Rulemaking issued in July 2009. FinCEN has a final rule to implement the proposed regulations in clearance and hopes to issue it prior to the end of FY 2011.

Imposition of Special Measure Against Lebanese Canadian Bank SAL as a Financial Institution of Primary Money Laundering Concern. On February 10, 2011, FinCEN issued a finding that the Lebanese Canadian Bank SAL is a financial institution of primary money laundering concern under section 311 of the USA PATRIOT Act for the bank's role in facilitating the money laundering activities of an international narcotics trafficking and money laundering network. Concurrently, FinCEN issued a Notice of Proposed Rulemaking to impose the fifth special measure against the bank. The fifth special measure prohibits or conditions the opening or maintaining of correspondent or payable-through accounts for the designated institution by U.S. financial institutions. These actions are intended to protect the U.S. financial system from the illicit proceeds flowing through the bank and to deprive this international narcotics trafficking and money laundering network of its preferred access point into the formal financial system.

FBAR Requirements. On February 24, 2011, working with the Department of Treasury, Office of Tax Policy, and the Internal Revenue Service, FinCEN, issued a final rule that amended the BSA implementing regulations regarding the filing of Reports of Foreign Bank and Financial Accounts (FBARs). The FBAR form is used to report a financial interest in, or signature or other authority over, one or more financial accounts in foreign countries. With slight modifications, the final rule adopted the proposed changes contained in the February 26, 2010, NPRM. FBARs are used in conjunction with SARs, CTRs, and other BSA reports to provide law enforcement and regulatory investigators with valuable information to fight fraud, money laundering, tax evasion, and other financial crime.

Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010 Reporting Requirements Under Section 104(e). As a result of a congressional mandate to prescribe regulations under the Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010 (CISADA), on May 2, 2011, FinCEN issued an NPRM to impose a reporting requirement that would be invoked, as necessary, to elicit information valuable in the implementation of CISADA and would work in tandem with other financial provisions of CISADA to isolate Iran's Islamic Revolutionary Guard Corps and financial institutions designated by the U.S. Government in connection with Iran's proliferation of weapons of mass destruction (WMD) or WMD delivery systems or in connection with its support for international terrorism. FinCEN published a final rule to implement the proposed regulations on October 11, 2011.

Money Services Businesses-Definitions and Other Regulations. On July 21, 2011, FinCEN issued a final rule revising the definitions for money services businesses (MSBs) to delineate more clearly the scope of entities regulated as MSBs, incorporating previously issued administrative rulings and guidance with regard to MSBs, and ensuring that certain foreign-located persons engaging in MSB activities within the United States are subject to BSA rules. The rule enables entities to determine in a more predictable and straightforward way whether they are operating as MSBs subject to BSA regulations. In clarifying that foreign entities conducting MSB activities in the United State are required to register, FinCEN recognizes that the Internet and other technological advances make it increasingly possible for persons to offer MSB services in the United States from foreign locations and seeks to ensure that the BSA rules apply to all persons engaging in MSB activities within the United States, regardless of their physical location.

Withdrawal of the Finding of Primary Money Laundering Concern and the Final Rule Against VEF Banka. On July 26, 2011, FinCEN withdrew its April 2005 final rule and finding under section 311 of the USA PATRIOT Act. FinCEN withdrew its finding that VEF Banka was a financial institution of primary money laundering concern. FinCEN also withdrew the final rule against VEF Banka that imposed a special measure prohibiting U.S. financial institutions from, directly or indirectly, opening or maintaining correspondent accounts in the United States for VEF Banks.

Prepaid Access-Regulatory Framework for Activity Previously Referred to as Stored Value. On July 29, 2011, FinCEN issued a final rule establishing a more comprehensive regulatory framework for non-bank prepaid access. The rule puts in place suspicious activity reporting, and customer and transactional information collection requirements on providers and sellers of certain types of prepaid access similar to other categories of MSBs. It addresses regulatory gaps that have resulted from the proliferation of prepaid access innovations over the last 12 years and their increasing use as an accepted payment method. The regulations also provide a balance to provide law enforcement with the information needed to attack money laundering, terrorist financing, and other illicit transactions through the financial system, without hindering innovation and the many legitimate uses and societal benefits prepaid access offers.

Renewal of Existing Rules. FinCEN renewed without change a number of information collections associated with the following existing requirements: Additional records to be made and retained by banks (31 CFR 1020.410 and 1010.430); records to be made and retained by financial institutions (31 CFR 1010.410 and 1010.430); purchases of bank checks and drafts, cashier's checks, money orders and traveler's checks (31 CFR 1010.415 and 1010.430); reports of certain domestic coin and currency transactions (31 CFR 1010.370 and 1010.410(d)); reports of transactions with foreign financial agencies (31 CFR 1010.360); additional records to be made and retained by casinos (31 CFR 1021.410 and 1010.430); additional records to be made and retained by brokers or dealers in securities (31 CFR 1023.410 and 1010.430); additional records to be made and retained by currency dealers or exchangers (31 CFR 1022.410 and 1010.430); special rules for casinos (31 CFR 1021.210, 1021.410(b) and 1010.430); and correspondent accounts for foreign shell banks and recordkeeping and termination of correspondent accounts (31 CFR 1010.630 and 1010.670).

Administrative Rulings and Written Guidance. FinCEN published 6 administrative rulings and written guidance pieces, and provided 39 responses to written inquiries/correspondence (as of August 2011) interpreting the BSA and providing clarity to regulated industries. FinCEN anticipates issuing an additional 10 pieces by the end of FY 2011.

FinCEN's regulatory priorities for fiscal year 2012 include finalizing any initiatives mentioned above that are not finalized by fiscal year end, as well as the following projects:

Amendment to the BSA Regulations-Definition of Monetary Instrument. On October 17, 2011, FinCEN published an NPRM to address the mandate in the Credit Card Accountability, Responsibility, and Disclosure Act of 2009, which authorizes regulations regarding international transport of prepaid access devices because of the potential to substitute prepaid access for cash and other monetary instruments as a means to smuggle the proceeds of illegal activity into and out of the United States.

Anti-Money Laundering Program and SAR Requirements for Housing Government-Sponsored Enterprises. FinCEN plans to issue an NPRM that would define certain housing government-sponsored enterprises as financial institutions for the purpose of requiring them to establish anti-money laundering programs and report suspicious activity to FinCEN pursuant to the BSA.

Anti-Money Laundering Program and SAR Requirements for Investment Advisers. FinCEN is researching and developing an NPRM that would prescribe minimum standards for anti-money laundering programs to be established by certain investment advisers and to require such investment advisers to report suspicious activity to FinCEN.

Customer Due Diligence Requirements. FinCEN is developing an advance notice of proposed rulemaking to solicit public comment on a wide range of questions pertaining to the development of a customer due diligence (CDD) regulation that would clarify, consolidate, and strengthen existing CDD obligations for financial institutions and also incorporate the collection of beneficial ownership information into the CDD framework.

Anti-Money Laundering Program for State-Chartered Credit Unions and Other Depository Institutions without a Federal Functional Regulator. Pursuant to section 352 of the USA PATRIOT Act, certain financial institutions are required to establish AML programs. Continued from prior fiscal years, FinCEN is researching and developing rulemaking to require State-chartered credit unions and other depository institutions without a Federal functional regulator to implement AML programs.

Cross Border Electronic Transmittal of Funds. On September 27, 2010, FinCEN issued a Notice of Proposed Rulemaking (NPRM) in conjunction with the feasibility study prepared pursuant to the Intelligence Reform and Terrorism Prevention Act of 2004 concerning the issue of obtaining information about certain cross-border funds transfers and transmittals of funds. As FinCEN continues to develop the system to receive, store, and use this data, FinCEN may publish another NPRM prior to issuing a final rule.

Other Requirements. FinCEN also will continue to issue proposed and final rules pursuant to section 311 of the USA PATRIOT Act, as appropriate. Finally, FinCEN expects to propose various technical and other regulatory amendments in conjunction with its ongoing, comprehensive review of existing regulations to enhance regulatory efficiency.

Internal Revenue Service

The Internal Revenue Service (IRS), working with the Office of Tax Policy, promulgates regulations that interpret and implement the Internal Revenue Code and related tax statutes. The purpose of these regulations is to carry out the tax policy determined by Congress in a fair, impartial, and reasonable manner, taking into account the intent of Congress, the realities of relevant transactions, the need for the Government to administer the rules and monitor compliance, and the overall integrity of the Federal tax system. The goal is to make the regulations practical and as clear and simple as possible.

Most IRS regulations interpret tax statutes to resolve ambiguities or fill gaps in the tax statutes. This includes interpreting particular words, applying rules to broad classes of circumstances, and resolving apparent and potential conflicts between various statutory provisions.

During fiscal year 2012, the IRS will accord priority to the following regulatory projects:

Deduction and Capitalization of Costs for Tangible Assets. Section 162 of the Internal Revenue Code allows a current deduction for ordinary and necessary expenses paid or incurred in carrying on any trade or business. Under section 263(a) of the Code, no immediate deduction is allowed for amounts paid out for new buildings or for permanent improvements or betterments made to increase the value of any property or estate. Those expenditures are capital expenditures that generally may be recovered only in future taxable years, as the property is used in the taxpayer's trade or business. It often is not clear whether an amount paid to acquire, produce, or improve property is a deductible expense or a capital expenditure. Although existing regulations provide that a deductible repair expense is an expenditure that does not materially add to the value of the property or appreciably prolong its life, the IRS and Treasury believe that additional clarification is needed to reduce uncertainty and controversy in this area. In August 2006, the IRS and Treasury issued proposed regulations in this area and received numerous comments. In March 2008, the IRS and Treasury withdrew the 2006 proposed regulations and issued new proposed regulations, which have generated relatively few comments. The IRS and Treasury intend to finalize those regulations.

Arbitrage Investment Restrictions on Tax-Exempt Bonds. The arbitrage investment restrictions on tax-exempt bonds under section 148 generally limit issuers from investing bond proceeds in higher-yielding investments. Treasury and the IRS plan to issue proposed regulations to address selected current issues involving the arbitrage restrictions, including guidance on the issue price definition used in the computation of bond yield, working capital financings, grants, investment valuation, modifications and terminations of qualified hedging transactions, and selected other issues.

Guidance on the Tax Treatment of Distressed Debt. A number of tax issues relating to the amount, character, and timing of income, expense, gain, or loss on distressed debt remain unresolved. In addition, the tax treatment of distressed debt, including distressed debt that has been modified, may affect the qualification of certain entities for tax purposes or result in additional taxes on the investors in such entities, such as regulated investment companies, real estate investment trusts (REITs), and real estate mortgage investment conduits. During fiscal year 2011, Treasury and the IRS have addressed some of these issues through published guidance, including (1) a revenue procedure providing relief for certain modifications of distressed mortgage loans held by a REIT and (2) final regulations clarifying that the deterioration in the financial condition of the issuer of a modified debt instrument is not taken into account to determine whether the instrument is debt or equity. Treasury and the IRS plan to address more of these issues in published guidance.

Elective Deferral of Certain Business Discharge of Indebtedness Income. In the recent economic downturn, many business taxpayers realized income as a result of modifying the terms of their outstanding indebtedness or refinancing on terms subjecting them to less risk of default. The American Recovery and Reinvestment Act of 2009 includes a special relief provision allowing for the elective deferral of certain discharge of indebtedness income realized in 2009 and 2010. The provision, section 108(i) of the Code, is complicated and many of the details will have to be supplied through regulatory guidance. On August 9, 2009, Treasury and the IRS issued Revenue Procedure 2009-37 that prescribes the procedure for making the election. On August 13, 2010, Treasury and the IRS published temporary and proposed regulations (TD 9497 and TD 9498) in the Federal Register. These regulations provide additional guidance on such issues as the types of indebtedness eligible for the relief, acceleration of deferred amounts, the operation of the provision in the context of flow-through entities, the treatment of the discharge for the purpose of computing earnings and profits, and the operation of a provision of the statute deferring original issue discount deductions with respect to related refinancings. Treasury and the IRS intend to finalize those regulations.

Regulation of Tax Return Preparers. In June 2009, the IRS launched a comprehensive review of the tax return preparer program with the intent to propose a set of recommendations to ensure uniform and high ethical standards of conduct for all tax return preparers and to increase taxpayer compliance. The IRS published findings and recommendations in Publication 4832, Return Preparer Review. In the report, the IRS recommended increased oversight of the tax return preparer industry, including but not limited to, mandatory preparer tax identification number (PTIN) registration and usage, competency testing, continuing education requirements, and ethical standards for all tax return preparers. As part of a multi-step effort to increase oversight of Federal tax return preparers, Treasury and the IRS published in 2010 final regulations: 1) Authorizing the IRS to require tax return preparers who prepare all or substantially all of a tax return for compensation after December 31, 2010, to use PTINs as the preparer's identifying number on all tax returns and refund claims that they prepare and 2) setting the user fee for obtaining a PTIN at $50 plus a third-party vendor's fee. On June 3, 2011, Treasury and IRS published final regulations amending Circular 230, which established registered tax return preparers as a new category of tax practitioner and extended the ethical rules for tax practitioners to any individual who is a tax return preparer. Treasury and the IRS intend to publish additional guidance in 2011 and 2012 to specifically support the tax return preparer program and operations, including regulations that establish user fees for the return preparer competency examination and regulations that provide additional rules with respect to the PTIN. Treasury and the IRS also intend to publish regulations under Circular 230, which will include amendments to the opinion requirements.

Penalties. Congress amended several penalty provisions in the Internal Revenue Code in the past several years and Treasury and the IRS intend to publish a number of guidance projects in 2011 addressing these new or amended penalty provisions. Specifically, Treasury and the IRS intend to publish in 2011 proposed regulations under sections 6662, 6662A, and 6664, to provide further guidance on the circumstances under which a taxpayer could be subject to the accuracy-related penalty on underpayments or reportable transaction understatements and the reasonable cause exception, including clarifying that a taxpayer may not rely upon written advice to establish a reasonable cause and good faith defense if the advice states that it cannot be used for the purpose of avoiding penalties. Treasury and the IRS also intend to publish: 1) Proposed regulations under section 6676 regarding the penalty related to an erroneous claim for refund or credit; 2) final regulations under section 6707A addressing whether the penalty for failure to disclose reportable transactions applies, before the temporary regulations expire in September 2011; and 3) temporary and proposed regulations under section 6707A addressing statutory changes to the method of computing the section 6707A penalty, which occurred after existing temporary regulations were published.

Basis Reporting. Section 403 of the Energy Improvement and Extension Act of 2008 (Pub. L. No. 110-343), enacted on October 3, 2008, added sections 6045(g), 6045h, 6045A, and 6045B to the Internal Revenue Code. Section 6045(g) provides that every broker required to file a return with the Service under section 6045(a) showing the gross proceeds from the sale of a covered security must include in the return the customer's adjusted basis in the security and whether any gain or loss with respect to the security is long-term or short-term. Section 6045(h) extends the basis reporting requirement in section 6045(g) and the gross proceeds reporting requirement in section 6045(a) to options that are granted or acquired on or after January 1, 2013. Section 6045A provides that a broker and any other specified person (transferor) that transfers custody of a covered security to a receiving broker must furnish to the receiving broker a written statement that allows the receiving broker to satisfy the basis reporting requirements of section 6045(g). The transferor must furnish the statement to the receiving broker within 15 days after the date of the transfer or at a later time provided by the Secretary. Section 6045B requires issuers of specified securities to make a return relating to organizational actions that affect the basis of the security. Final regulations implementing these provisions for sales of stock were published on October 18, 2010. Treasury and the IRS plan to issue proposed regulations implementing these provisions for options and sales or exchanges of debt instruments.

Information Reporting for Foreign Accounts of U.S. Persons. In March 2010, chapter 4 (sections 1471 to 1474) was added to subtitle A of the Internal Revenue Code as part of the Hiring Incentives to Restore Employment Act (HIRE Act) (Pub. L. 111-147). Chapter 4 was enacted to address concerns with offshore tax evasion and generally requires foreign financial institutions (FFIs) to enter into an agreement (FFI Agreement) with the IRS to report information regarding certain financial accounts of U.S. persons and foreign entities with significant U.S. ownership. An FFI that does not enter into an FFI Agreement generally will be subject to a withholding tax on the gross amount of certain payments from U.S. sources, as well as the proceeds from disposing of certain U.S. investments. Treasury and the IRS published Notice 2010-60, Notice 2011-34, and Notice 2011-53, which provides preliminary guidance and requests comments on the most important and time-sensitive issues under chapter 4. Treasury and the IRS expect to follow up on these notices with regulations and a model FFI Agreement in this fiscal year. These regulations will address numerous issues, notably the definition of FFI, the due diligence required of withholding agents and FFIs in identifying U.S. accountholders, and the requirements for reporting U.S. accounts.

Withholding on Certain Dividend Equivalent Payments Under Notional Principal Contracts. The HIRE act also added section 871(l) to the Code (now sec. 871(m)), which designates certain substitute dividend payments in security lending and sale-repurchase transactions and dividend-referenced payments made under certain notional principal contracts as U.S.-source dividends for Federal tax purposes. In response to this legislation, on May 20, 2010, the IRS issued Notice 2010-46, addressing the requirements for determining the proper withholding in connection with substitute dividends paid in foreign-to-foreign security lending and sale-repurchase transactions. The IRS and Treasury intend to issue regulations to implement the provisions of this Notice, as well as regulations addressing cases where dividend equivalents should be found to arise in connection with notional principal contracts and other financial derivatives.

New International Tax Provisions of the Education, Jobs, and Medicaid Assistance Act. On August 10, 2010, the Education, Jobs, and Medicaid Assistance Act of 2010 (Pub. L. 111-226) was signed into law. The new law includes a significant package of international tax provisions, including limitations on the availability of foreign tax credits in certain cases where U.S. tax law and foreign tax law provide different rules for recognizing income and gain, and in cases where income items treated as foreign source under certain tax treaties would otherwise be sourced in the United States. The legislation also limits the ability of multinationals to reduce their U.S. tax burdens by using a provision intended to prevent corporations from avoiding U.S. income tax on repatriated corporate earnings. Other new provisions under this legislation limit the ability of multinational corporations to use acquisitions of related party stock to avoid U.S. tax on what would otherwise be taxable distributions of dividends. The statute also includes a new provision intended to tighten the rules under which interest expense is allocated between U.S.- and foreign-source incomes within multinational groups of related corporations when a foreign corporation has significant amounts of U.S.-source income that is effectively connected with a U.S. business. Treasury and the IRS expect to issue guidance on most of these provisions.

Guidance on Tax-Related Health Care Provisions. On March 23, 2010, the President signed the Patient Protection and Affordable Care Act of 2010 (Pub. L. 111-148) and on March 30, 2010, the President signed the Health Care and Education Reconciliation Act of 2010 (Pub. L. 111-152) (referred to collectively as the Affordable Care Act (ACA)). The ACA's comprehensive reform of the health insurance system affects individuals, families, employers, health care providers, and health insurance providers. The ACA provides authority for Treasury and the IRS to issue regulations and other guidance to implement tax provisions in the ACA, some of which are effective immediately and some of which will become effective over the next several years. Since enactment of the ACA, Treasury and the IRS, together with the Department of Health and Human Services and the Department of Labor, have issued a series of temporary and proposed regulations implementing various provisions of the ACA related to individual and group market reforms. In the past year, Treasury and IRS also have issued temporary and proposed regulations addressing the fee on branded prescription drug sales under section 9008 of the ACA and proposed regulations on the premium assistance tax credit under section 36B of the Code. In addition, Treasury and the IRS have issued guidance on specific ACA provisions, including guidance on the treatment of certain nonprofit health insurers (section 833 of the Code), the credit for small employers that provide health insurance coverage (section 45R of the Code), the adoption credit (section 36C of the Code), information reporting to employees of the cost of employer sponsored health coverage (section 6051(a)(14) of the Code), and additional requirements for tax-exempt hospitals (section 501(r) of the Code). Providing additional guidance to implement tax provisions of the ACA is a priority for Treasury and the IRS.

Office of the Comptroller of the Currency (including former Office of Thrift Supervision)

The Office of the Comptroller of the Currency (OCC) was created by Congress to charter national banks, to oversee a nationwide system of banking institutions, and to assure that national banks are safe and sound, competitive and profitable, and capable of serving in the best possible manner the banking needs of their customers.

Pursuant to title III of the Dodd-Frank Wall Street Reform and Consumer Protection Act, all functions of the Office of Thrift Supervision (OTS) relating to Federal savings associations, including rulemaking authority, were transferred to the OCC on July 21, 2011.

The OCC seeks to assure a banking system in which national banks and Federal savings associations soundly manage their risks, maintain the ability to compete effectively with other providers of financial services, meet the needs of their communities for credit and financial services, comply with laws and regulations, and provide fair access to financial services and fair treatment of their customers.

Significant rules issued during fiscal year 2011 include:

Incentive-Based Compensation Arrangements: Section 956 of the Dodd-Frank Act requires the banking agencies, the National Credit Union Administration (NCUA), the Securities and Exchange Commission (SEC), and the Federal Housing Finance Agency (FHFA), to jointly prescribe regulations or guidance prohibiting any types of incentive-based payment arrangement, or any feature of any such arrangement, that the regulators determine encourages inappropriate risks by covered financial institutions by providing an executive officer, employee, director, or principal shareholder with excessive compensation, fees or benefits, or that could lead to material financial loss to the covered financial institution. The Act also requires such agencies to jointly prescribe regulations or guidance requiring each covered financial institution to disclose to its regulator the structure of all incentive-based compensation arrangements offered by such institution sufficient to determine whether the compensation structure provides any officer, employee, director, or principal shareholder with excessive compensation or could lead to material financial loss to the institution. The agencies issued an NPRM on April 14, 2011. 76 FR 21170. Work on a final rule is underway.

Retail Foreign Exchange Transactions: The OCC adopted a final rule authorizing national banks, Federal branches and agencies of foreign banks, and their operating subsidiaries to engage in off-exchange transactions in foreign currency with retail customers. It describes various requirements with which national banks, Federal branches and agencies of foreign banks, and their operating subsidiaries must comply to conduct such transactions. It is necessary pursuant to amendments by the Dodd-Frank Act to the Commodity Exchange Act (CEA) that provide that a United States financial institution for which there is a Federal regulatory agency shall not enter into, or offer to enter into, a transaction described in section 2(c)(2)(B)(i)(I) of the CEA with a retail customer except pursuant to a rule or regulation of a Federal regulatory agency allowing the transaction under such terms and conditions as the Federal regulatory agency shall prescribe a retail forex rule. This final rule was issued on July 14, 2011. 76 FR 41375. Work on an interim final rule to cover savings associations is underway.

Credit Risk Retention. The banking agencies, Securities and Exchange Commission, Federal Housing Finance Agency, and the Department of Housing and Urban Development proposed rules to implement the credit risk retention requirements of section 15G of the Securities Exchange Act of 1934 (15. U.S.C. section 78o-11), as added by section 941 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Section 15G generally requires the securitizer of asset-backed securities to retain not less than 5 percent of the credit risk of the assets collateralizing the asset-backed securities. Section 15G includes a variety of exemptions from these requirements, including an exemption for asset-backed securities that are collateralized exclusively by residential mortgages that qualify as "qualified residential mortgages," as such term is defined by the Agencies by rule. This NPRM was published on April 29, 2011. 76 FR 24090. Work on a final rule is underway.

Margin and Capital Requirements for Covered Swap Entities. The banking agencies, Farm Credit Administration, and the Federal Housing Finance Agency issued a proposed rule to establish minimum margin and capital requirements for registered swap dealers, major swap participants, security-based swap dealers, and major security-based swap participants for which one of the Agencies is the prudential regulator. This proposed rule implements sections 731 and 764 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which require the Agencies to adopt rules jointly to establish capital requirements and initial and variation margin requirements for such entities on all non-cleared swaps and non-cleared security-based swaps in order to offset the greater risk to such entities and the financial system arising from the use of swaps and security-based swaps that are not cleared. This NPRM was published on May 11, 2011. 76 FR 27564. Work on a final rule is underway.

OTS Integration; Dodd-Frank Implementation. The OCC adopted amendments to its regulations governing organization and functions, availability and release of information, post-employment restrictions for senior examiners, and assessment of fees to incorporate the transfer of certain functions of the Office of Thrift Supervision (OTS) to the OCC pursuant to title III of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The OCC also amended its rules pertaining to preemption and visitorial powers to implement various sections of the Act; change in control of credit card banks and trust banks to implement section 603 of the Act; and deposit-taking by uninsured Federal branches to implement section 335 of the Act. This final rule was effective and published on July 21, 2011. 76 FR 43549.

Republication of Regulations in Connection with OTS Integration Pursuant to Dodd-Frank. Pursuant to title III of the Dodd-Frank Wall Street Reform and Consumer Protection Act, all functions of the Office of Thrift Supervision relating to Federal savings associations and rulemaking authority of the OTS relating to all savings associations were transferred to the OCC on July 21, 2011 (transfer date). In order to facilitate the OCC's enforcement and administration of former OTS rules and to make appropriate changes to these rules to reflect OCC supervision of Federal savings associations as of the transfer date, the OCC republished, with nomenclature and other technical changes, those OTS regulations currently found at 12 CFR chapter V for which the OCC has authority to promulgate and will enforce as of the transfer date. The republished regulations are recodified with the OCC's regulations in chapter I at 12 CFR 100 et seq., effective on the transfer date. The republished regulations will supersede the OTS regulations in chapter V for purposes of OCC supervision and regulation of Federal savings associations, and for certain rules for purposes of the FDIC's supervision of State savings associations. This interim final rule was published on August 9, 2011. 76 FR 48950.

Prohibition and Restrictions on Proprietary Trading and Certain Interests In, and Relationships with, Hedge Funds and Private Equity Funds. The banking agencies, the Securities and Exchange Commission, and the Commodity Futures Trading Commission, issued a proposed rule that would implement section 619 of Dodd-Frank, which contains certain prohibitions and restrictions on the ability of banking entities and nonbank financial companies supervised by the Federal Reserve Board to engage in proprietary trading and have certain investments in, or relationships with, hedge funds or private equity funds. Section 619 is commonly referred to as the "Volcker Rule."

Community Reinvestment Act Regulations (12 CFR part 25). The banking agencies issued final regulations to revise provisions of their rules implementing the Community Reinvestment Act. The agencies proposed revising the term "community development" to include loans, investments, and services by financial institutions that support, enable, or facilitate projects or activities that meet the criteria described in section 2301(c)(3) of the Housing and Economic Recovery Act of 2008 (HERA) and are conducted in designated target areas identified in plans approved by the U.S. Department of Housing and Urban Development under the Neighborhood Stabilization Program (NSP), established by HERA. This final rule was published on December 20, 2010 (75 FR 79278).

Community Reinvestment Act Regulations (12 CFR part 25). On August 14, 2008, the Higher Education Opportunity Act (HEOA) was enacted into law (Pub. L. 110-315, 122 Stat. 3078). Section 1031 of the HEOA revised the Community Reinvestment Act (CRA) to require the banking agencies, when evaluating a bank's record of meeting community credit needs, to consider, as a factor, low-cost education loans provided by the bank to low-income borrowers. The banking agencies issued a final rule to implement section 1031 of the HEOA. In addition, the rule incorporates into the banking agencies' rules statutory language that allows them to consider as a factor when evaluating a bank's record of meeting community credit needs capital investment, loan participation, and other ventures undertaken by nonminority- and nonwomen-owned financial institutions in cooperation with minority- and women-owned financial institutions and low-income credit unions. A final rule was published on October 10, 2010 (75 FR 61035).

Standards Governing the Release of a Suspicious Activity Report (12 CFR part 4). Confidentiality of Suspicious Activity Reports (12 CFR part 21). The OCC and OTS separately issued final regulations governing the release of non-public OCC or OTS information set forth in 12 CFR part 4, subpart C, and section 510.5. These final rules clarify that the decision to release a suspicious activity report (SAR) will be governed by the standards set forth in amendments to the SAR regulations, that are part of separate, but simultaneously issued, final rulemakings discussed below. These final rules were published on December 3, 2010. 75 FR 75574, 75583. The OCC's and OTS's final regulations implementing the Bank Secrecy Act governing the confidentiality of a suspicious activity report (SAR): Clarify the scope of the statutory prohibition on the disclosure by an institution of a SAR; address the statutory prohibition on the disclosure by the government of a SAR as that prohibition applies to the OCC's or OTS's standards governing the disclosure of SARs; clarify that the exclusive standard applicable to the disclosure of a SAR, or any information that would reveal the existence of a SAR, by the OCC or OTS, is to fulfill official duties consistent with the purposes of the BSA; and modify the safe harbor provision in its rules to include changes made by the USA PATRIOT Act. These final rules are based upon a similar rule prepared by the Financial Crimes Enforcement Network (FinCEN). These final rules were issued on December 3, 2010. 75 FR 75576, 75586.

Risk-Based Capital Guidelines; Revising Transitional Floors for Advanced Approaches Rule (12 CFR part 3). The Federal banking agencies issued a notice of proposed rulemaking and final rule to revise the transitional floors in the advanced approaches risk-based capital rule to preclude a decline in a banking organization's risk-based capital requirements during the transition period. Under the revisions, the capital floors used by a banking organization subject to the advanced approaches during its first, second, and third transitional floor periods are 100 percent of the bank's tier 1 and total risk-based capital requirements computed under the agencies' general risk-based capital rules. The NPRM was published on December 30, 2010. 75 FR 82317. The final rule was issued on June 28, 2011. 76 FR 37620. OTS issued a parallel proposal on March 8, 2011, but did not issue a final rule. 76 FR 12611.

Regulatory priorities for fiscal year 2012 include, in addition to those listed above that have not yet been finalized, the following:

Strengthening Tier 1 Capital Other Capital Enhancements, Standardized Approach (Basel III). (12 CFR part 3). The banking agencies currently are working jointly on rules to implement provisions in the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) and to update capital standards to maintain and improve consistency in agency rules. These rules include revisions to implement the International Convergence of Capital Management and Capital Standards: A Revised Framework (Basel II Framework). The Federal banking agencies plan to amend their current capital rules, including revisions to the definition of Tier 1 capital and the leverage capital ratio. This rule would implement a comprehensive set of revisions issued by the Basel Committee in December 2010 to amend the Basel II Capital Framework. Key components of the rule include: Revisions to the definition of Tier 1, the addition of a capital conservation buffer, the addition of a countercyclical buffer, revisions to counterparty credit risk requirements (includes central counterparties), a new international leverage ratio, and new liquidity ratio requirements. In addition, this rule includes the rule entitled Alternatives to the Use of Credit Ratings in the Risk-Based Capital Guidelines of the Federal Banking Agencies (12 CFR part 3). Section 939A of the Dodd-Frank Act directs all Federal agencies to review, no later than 1 year after enactment, any regulation that requires the use of an assessment of credit-worthiness of a security or money market instrument and any references to or requirements in regulations regarding credit ratings. The agencies are also required to remove references or requirements of reliance on credit ratings and to substitute an alternative standard of credit-worthiness. The agencies issued an ANPRM describing the areas in their risk-based capital standards where the agencies rely on credit ratings, as well as the Basel Committee on Banking Supervision's recent amendments to the Basel Accord, which could affect those standards and requested comment on potential alternatives to the use of credit ratings. The ANPRM was published on August 25, 2010 (75 FR 52283).

Risk-Based Capital Standards: Market Risk: The banking agencies issued a notice of proposed rulemaking to revise their market risk capital rules to modify their scope to better capture positions for which the market risk capital rules are appropriate; reduce procyclicality in market risk capital requirements, enhance the rules' sensitivity to risks that are not adequately captured under current regulatory measurement methodologies; and increase transparency through enhanced disclosures. This NPRM was published on January 11, 2011. 76 FR 1890. Work on a final rule is underway.

Alternatives to the Use of External Credit Ratings in the Regulations of the OCC (12 CFR parts 1, 16, and 28). Section 939A of the Dodd-Frank Wall Street Reform and Consumer Protection Act directs all Federal agencies to review, no later than 1 year after enactment, any regulation that requires the use of an assessment of credit-worthiness of a security or money market instrument and any references to or requirements in regulations regarding credit ratings. The agencies are also required to remove references or requirements of reliance on credit ratings and to substitute an alternative standard of credit-worthiness. Through an advanced notice of proposed rulemaking (ANPRM), the OCC sought to gather information as it begins to review its regulations pursuant to the Dodd-Frank Act. It described the areas where the OCC's regulations, other than those that establish regulatory capital requirements, currently rely on credit ratings; sets forth the considerations underlying such reliance; and requests comment on potential alternatives to the use of credit ratings. Work on an NPRM is underway. The ANPRM was published on August 13, 2010 (75 FR 49423). OTS published a parallel ANPRM on October 14, 2010 (75 FR 63107).

Recordkeeping Requirements for Securities Activities: The Gramm-Leach-Bliley Act requires the banking agencies to adopt recordkeeping requirements sufficient to facilitate and demonstrate compliance with the exceptions to the definitions of "broker" or "dealer" for banks in the Securities Exchange Act of 1934. Work on an NPRM is underway.

Integration of Savings Association Supervision. Pursuant to the transfer of OTS functions relating to Federal savings associations to the OCC, the OCC plans to issue one or more rulemakings resulting from our review of OCC rules applicable to banks and/or savings associations that will consolidate our rules and establish, to the extent practicable, consistent regulations for national banks and federal savings associations.

Lending Limits for Derivative Transactions. Section 610 of the Dodd-Frank Act amends the lending limit, 12 U.S.C. section 84, to apply it to any credit exposure to a person arising from a derivative transaction and certain other transactions between the bank and the person. The amendment is effective 1 year after the transfer date, July 21, 2012. The OCC plans to issue a rule that will amend our lending limit regulation set forth at 12 CFR part 32 to conform to this new requirement.

Annual Stress Test (12 CFR part 46). This regulation will implement 12 U.S.C. 5365(i) that requires annual stress testing to be conducted by financial companies with total consolidated assets of more than $10 billion and establishes a definition of stress test, methodologies for conducting stress tests, and reporting and disclosure requirements.

Collective Investment Funds. This notice of proposed rulemaking will update the regulation of short-term investment funds (STIFs), a type of collective investment fund permissible under OCC regulations, through the addition of STIF eligibility requirements to ensure the safety of STIFs and to mitigate financial systemic risks.

Alcohol and Tobacco Tax and Trade Bureau

The Alcohol and Tobacco Tax and Trade Bureau (TTB) issues regulations to enforce Federal laws relating to alcohol, tobacco, firearms, and ammunition taxes and relating to commerce involving alcohol beverages and industrial alcohol. TTB's mission and regulations are designed to:

1) Regulate with regard to the issuance of permits and authorizations to operate in the alcohol and tobacco industries;

2) Assure the collection of all alcohol, tobacco, and firearms and ammunition taxes, and obtain a high level of voluntary compliance with all laws governing those industries; and

3) Suppress commercial bribery, consumer deception, and other prohibited practices in the alcohol beverage industry.

The Federal Alcohol Administration Act and the Internal Revenue Code authorize regulations for the labeling of wine, distilled spirits, and malt beverages, which should, among other things, ensure that labels provide the consumer with adequate information as to the identity and quality of the product. In July 2007, in response to a petition for rulemaking from a consumer advocacy group and comments received in response to a 2005 advance notice of proposed rulemaking, TTB published a proposed rule concerning the inclusion of a statement of calories, carbohydrates, fat, and protein per serving in a serving facts panel on wine, beer, and distilled spirits labels. The proposed rule also invited public comments on the extension of alcohol content labeling requirements to all alcohol beverages, which currently apply only to some alcohol beverages. TTB is continuing to evaluate the cost burden to industry and benefits to consumers

In addition to the regulatory action described above, in FY 2012, TTB plans to give priority to the following regulatory matters:

As described in greater detail below, in FY 2012 TTB plans to continue its Regulations Modernization Project concerning its Specially Denatured and Completely Denatured Alcohol regulations, Labeling Requirement regulations, Export regulations, and Beer regulations.

Revision to Specially Denatured and Completely Denatured Alcohol Regulations: TTB plans to propose changes to regulations for specially denatured alcohol (SDA) and completely denatured alcohol (CDA) that would result in cost savings for both TTB and regulated industry members. Under the authority of the Internal Revenue Code of 1986, TTB regulates denatured alcohol that is unfit for beverage use, and which may be removed from a regulated distilled spirits plant without payment of tax. SDA and CDA are widely used in the American fuel, medical, and manufacturing sectors. The industrial alcohol industry far exceeds the beverage alcohol industry in size and scope, and it is a rapidly growing industry in the United States. Some concerns have been raised that the current regulations may create significant roadblocks for industry members in getting products to the marketplace quickly and efficiently. TTB is proposing to reclassify certain SDA formulas as CDA and to issue new general-use formulas for articles made with SDA so that industry members would less frequently need to seek formula approval from TTB and fewer TTB resources would need to be devoted to formula review. TTB estimates that these proposed changes would result in an 80 percent reduction in the formula approval submissions currently required from industry members and would reduce total annual paperwork burden hours on affected industry members from 2,415 to 517 hours. The reduction in formula submissions will enable TTB to redirect its resources to address backlogs that exist in other areas of TTB's mission activities, such as analyzing compliance samples for industrial/fuel alcohol to protect the revenue and working with industry to test and approve new and more environmentally friendly denaturants. Other proposed changes would remove unnecessary regulatory burdens and update the regulations to align them with current industry practice.

CHIPRA Final Rule: TTB will make final a temporary rule to amend regulations promulgated under the Children's Health Insurance Program Reauthorization Act of 2009 (CHIPRA). The Act provides enforcement mechanisms to assist in preventing the diversion of tobacco materials to illegal manufacturers, and the regulations implement these enforcement mechanisms. A 3-year temporary rule was published in June of 2009 to continue the implementation of these CHIPRA provisions, a final rule must be published by June 2012 to meet the requirements of 26 U.S.C. 7805 regarding the expiration of temporary rules.

Revisions to the Labeling Requirements (parts 4 (Wine), 5 (Distilled Spirits), and 7 (Malt Beverages)): The Federal Alcohol Administration Act requires that alcohol beverages introduced in interstate or foreign commerce have a label issued and approved under regulations prescribed by the Secretary of the Treasury. In connection with E.O. 13563, TTB has near-term plans to revise the regulations concerning the approval of labels for distilled spirits, wine, and malt beverages to reduce the cost to TTB of reviewing and approving an ever increasing number of applications for label approval (well over 130,000 per year). Currently, the review and approval process requires a staff of at least 13 people for the pre-approval of labels in addition to management review. These regulatory changes, to be developed with industry input, also are intended to accelerate the approval process, which shall result in the regulated industries being able to bring products to market faster.

Selected Revisions of Export Regulations (part 28): TTB has identified selected sections of its export regulations (part 28) that should be amended to assist industry members in complying with the regulations. Current regulations require industry members to obtain documents and follow procedures that are outdated and not entirely consistent with current industry practices regarding exportation. Under its regulatory authority, TTB routinely provides exceptions to these regulatory provisions. Revising these regulations will provide industry members with clear and up-to-date procedures for removal of alcohol for exportation without having to pay excise taxes (under the Internal Revenue Code, beverage alcohol may be removed from the premises of a distilled spirits plant for exportation without payment of tax), thus increasing their willingness and ability to export their products.

Revisions to the Alcohol Fuel Plant Regulations: TTB's alcohol fuel plant regulations (within part 19) need to be revised to reflect the current state of the alcohol fuel industry. Alcohol produced at a TTB-approved alcohol fuel plant may be removed from the plant without payment of tax if properly denatured and used only for fuel. Primarily focused on the development of smaller capacity plants, the alcohol fuel plant regulations were initially drafted to promote growth in the industry and to provide minimal permitting, recordkeeping, reporting, and bonding requirements. In the United States, there are currently over 1,400 permitted ethanol fuel plants that produced over 9 billion gallons of ethanol for fuel use in 2010. Fewer than 200 of the largest fuel ethanol plants produce 8 billion gallons of fuel ethanol. The significant growth of the industry, especially the largest capacity plants, since the previous issuance of the applicable regulations has resulted in potential risks to the revenue not currently addressed in the regulations. If just 1 percent of this alcohol were diverted for beverage use, the tax loss would approximate $2.4 billion. Current reporting requirements for certain plants are not sufficient to provide adequate information to TTB to monitor industry compliance and to identify removals of alcohol that should be subject to tax; alcohol removed for beverage purposes or without proper denaturation may go unnoticed. TTB is also considering other changes, such as the addition of provisions regarding the disposition of by-products of the production process, which would update the regulations to reflect current industry practice.

Revision of the Part 17 Regulations, "Drawback on Taxpaid Distilled Spirits Used in Manufacturing Nonbeverage Products," To Allow Self-Certification of Nonbeverage Product Formulas: TTB is considering revisions to the part 17 regulations governing nonbeverage products made with taxpaid distilled spirits. These nonbeverage products include foods, medicines, and flavors. The revisions would practically eliminate the need for TTB to formally approve nonbeverage product formulas by proposing to allow for self-certification of such formulas. The changes would result in significant cost savings for an important industry which currently must obtain formula approval from TTB, and some savings for TTB, which must review and take action to approve or disapprove each formula. Estimating the specific savings to TTB is premature as this rulemaking project is in the early stages of internal deliberation.

Revisions to the Beer Regulations (part 25): Under the Internal Revenue Code, TTB regulates activities at breweries. The regulations of title 27 of the Code of Federal Regulations, part 25, address the qualification of breweries, bonds and taxation, removals without payment of tax, and records and reporting. The brewery regulations were last revised in 1986 and need to be updated to reflect changes to the industry, including the increased number of small ("craft") brewers. TTB plans to issue an advance notice of proposed rulemaking soliciting comments regarding potential ways to decrease the regulatory burden on industry members (e.g., streamlining and/or reducing the reporting and recordkeeping requirements for the industry, which includes many small businesses.) and increase efficiency for both the industry and TTB. TTB intends to develop and propose specific regulatory changes after consideration of comments received.

Revisions to Distilled Spirits Plant Reporting Requirements: TTB will propose to revise regulations in part 19 and replace the current four report forms used by distilled spirits plants to report their operations on a monthly basis with two new report forms that would be submitted on a monthly basis (plants that qualify to file taxes on a quarterly basis would submit the new reports on a quarterly basis). This project, which was included in the President's FY 2012 budget for TTB as a cost saving item, would address numerous concerns and desires for improved reporting by the distilled spirits industry and result in cost savings to the industry and TTB by significantly reducing the number of monthly plant operations reports that must be completed and filed by industry members and processed by TTB. TTB preliminarily estimates that this project would result in an annual savings of approximately 23,218 paperwork burden hours (or 11.6 staff years) for industry members and 629 processing hours (or 0.3 staff years) and $12,442 per year for TTB in contractor time. In addition, TTB estimates that this project would save staff time (approximately 3 staff years costing $300, as a result of more efficient and effective processing of reports and the use of report data to reconcile industry member tax accounts.

Bureau of the Public Debt

The Bureau of the Public Debt (BPD) has responsibility for borrowing the money needed to operate the Federal Government and accounting for the resulting debt, regulating the primary and secondary Treasury securities markets, and ensuring that reliable systems and processes are in place for buying and transferring Treasury securities.

BPD administers regulations: (1) Governing transactions in Government securities by Government securities brokers and dealers under the Government Securities Act of 1986 (GSA), as amended; (2) Implementing Treasury's borrowing authority, including rules governing the sale and issue of savings bonds, marketable Treasury securities, and State and local government securities; (3) Setting out the terms and conditions by which Treasury may buy back and redeem outstanding, unmatured marketable Treasury securities through debt buyback operations; (4) Governing securities held in Treasury's retail systems; and (5) Governing the acceptability and valuation of collateral pledged to secure deposits of public monies and other financial interests of the Federal Government.

During fiscal year 2012, BPD will accord priority to the following regulatory projects:

Over-the-Counter Savings Bonds. In December 2011, BPD anticipates issuing a rule ending the sale of definitive (paper) savings bonds.

Savings Bond Paying Agent Regulations. BPD plans to issue a final rule amending the savings bond paying agent regulations (31 CFR parts 321, 330) to provide for the conversion from use of the EZ Clear system to Check 21 in processing savings bonds redeemed at financial institutions.

Eliminating Credit Rating References. In compliance with the Dodd-Frank Wall Street Reform and Consumer Protection Act, BPD, on behalf of Treasury (Financial Markets), plans to amend the Government Securities Act regulations (17 CFR chapter IV) to eliminate references to credit ratings from Treasury's liquid capital rule.

Financial Management Service

The Financial Management Service (FMS) issues regulations to improve the quality of Government financial management and to administer its payments, collections, debt collection, and Governmentwide accounting programs. For fiscal year 2012, FMS's regulatory plan includes the following priorities:

Debt Collection Authorities Under the Debt Collection Improvement Act. The Debt Collection Improvement Act of 1996 authorizes Federal agencies to publish or otherwise publicly disseminate information regarding the identity of persons owing delinquent nontax debts to the United States for the purpose of collecting the debts, provided certain criteria are met. FMS is proposing to amend its regulation to establish the procedures Federal agencies must follow before publishing information about delinquent debtors and the standards for determining when use of this debt collection remedy is appropriate.

Federal Government Participation in the Automated Clearing House. FMS recently amended its regulation governing the use of the Automated Clearing House (ACH) system by Federal agencies. The amendments adopt, with some exceptions, the 2009 ACH Rules published by NACHA-The Electronic Payments Association (NACHA), as the rules governing the use of the ACH Network by Federal agencies. FMS issued this rule to address changes that NACHA made to the ACH Rules since the publication of NACHA's 2007 ACH Rules book. These changes include new requirements to identify all international payment transactions using a new Standard Entry Class Code and to include certain information in the ACH record sufficient to allow the receiving financial institution to identity the parties to the transaction and to allow transactions to be screened for compliance with for Office of Foreign Assets Control (OFAC) requirements.

In addition, the amendments require financial institutions to provide limited account-related customer information related to the reclamation of post-death benefit payments as permitted under the Payment Transactions Integrity Act of 2008. The amendments also allow Federal payments to be delivered to pooled or master accounts established by nursing facilities for residents of those facilities or held by religious orders whose members have taken vows of poverty.

Indorsement and Payment of Checks Drawn on the United States Treasury. By amending our regulation governing the indorsement and payment of checks drawn on the United States Treasury, Treasury has the authority to direct Federal Reserve Banks to debit a financial institution's reserve account at the financial institution's servicing Federal Reserve Bank for all check reclamations that the financial institution has not protested. Financial institutions continue to have the right to file a protest with FMS if they believe a proposed reclamation is in error.

Domestic Finance-Office of the Fiscal Assistant Secretary (OFAS)

The Office of the Fiscal Assistant Secretary develops policy for and oversees the operations of the financial infrastructure of the Federal Government, including payments, collections, cash management, financing, central accounting, and delinquent debt collection.

Anti-Garnishment. On February 23, 2011, the Treasury published an interim final rule and request for public comment with the Office of Personnel Management, the Railroad Retirement Board, the Social Security Administration, and Veterans Affairs. Treasury plans to promulgate a final rule, with the Federal benefit agencies, in the next several months to give force and effect to various benefit agency statutes that exempt Federal benefits from garnishment. Typically, upon receipt of a garnishment order from a State court, financial institutions will freeze an account as they perform due diligence in complying with the order. The joint final rule will address this practice of account freezes to ensure that benefit recipients have access to a certain amount of lifeline funds while garnishment orders or other legal processes are resolved or adjudicated. The rule will provide financial institutions with specific administrative instructions to carry out upon receipt of a garnishment order. The final rule will apply to financial institutions, but is not expected to have specific provisions for consumers, debt collectors, or banking regulators. However, the banking regulators would enforce the policy in cases of non-compliance by means of their general authorities.

Community Development Financial Institutions Fund

The Community Development Financial Institutions Fund (Fund) was established by the Community Development Banking and Financial Institutions Act of 1994 (12 U.S.C. 4701 et seq.). The primary purpose of the CDFI Fund is to promote economic revitalization and community development through the following programs: The Community Development Financial Institutions (CDFI) Program, the Bank Enterprise Award (BEA) Program, the Native American CDFI Assistance (NACA) Program, and the New Markets Tax Credit (NMTC) Program. In addition, the CDFI Fund administers the Financial Education and Counseling Pilot Program (FEC), the Capital Magnet Fund (CMF), and the CDFI Bond Guarantee Program (BGP).

In fiscal year (FY) 2012, the CDFI Fund will publish Interim regulations implementing the CDFI Bond Guarantee Program (BGP). The BGP was established through the Small Business Jobs Act of 2010 and authorizes the Secretary of the Treasury (through the CDFI Fund) to guarantee the full amount of notes or bonds, including the principal, interest, and call premiums, issued to finance or refinance loans to certified CDFIs for eligible community or economic development purposes for a period not to exceed 30 years. The bonds or notes will support CDFI lending and investment by providing a source of long-term, patient capital to CDFIs. In accordance with Federal credit policy, the Federal Financing Bank (FFB), a body corporate and instrumentality of the United States Government under the general supervision and direction of the Secretary of the Treasury, will finance obligations that are 100 percent guaranteed by the United States, such as the bonds or notes to be issued by Qualified Issuers under the BGP.

In FY 2012, subject to funding availability, the Fund will provide awards through the following programs:

Community Development Financial Institutions (CDFI) Program. Through the CDFI Program, the CDFI Fund will provide technical assistance grants and financial assistance awards to financial institutions serving distressed communities.

Native American CDFI Assistance (NACA) Program. Through the NACA Program, the CDFI Fund will provide technical assistance grants and financial assistance awards to promote the development of CDFIs that serve Native American, Alaska Native, and Native Hawaiian communities.

Bank Enterprise Award (BEA) Program. Through the BEA Program, the CDFI Fund will provide financial incentives to encourage insured depository institutions to engage in eligible development activities and to make equity investments in CDFIs.

New Markets Tax Credit (NMTC) Program. Through the NMTC Program, the CDFI Fund will provide allocations of tax credits to qualified community development entities (CDEs). The CDEs in turn provide tax credits to private sector investors in exchange for their investment dollars; investment proceeds received by the CDEs are to be used to make loans and equity investments in low-income communities. The CDFI Fund administers the NMTC Program in coordination with the Office of Tax Policy and the Internal Revenue Service.

CDFI Bond Guarantee Program (BGP). Through the BGP, the CDFI Fund will select Qualified Issuers of federally guaranteed bonds, the bond proceeds will be used to make or refinance loans to certified CDFIs. The bonds must be a minimum of $100 million and may have terms of up to 30 years. The CDFI Fund is authorized to award up to $1 billion in guarantees per fiscal year through FY 2014.

Retrospective Review of Existing Regulations

Pursuant to section 6 of Executive Order 13563 "Improving Regulation and Regulatory Review" (Jan. 18, 2011), the following Regulatory Identifier Numbers (RINs) have been identified as associated with retrospective review and analysis in the Department's final retrospective review of regulations plan. Some of these entries on this list may be completed actions, which do not appear in "The Regulatory Plan." However, more information can be found about these completed rulemakings in past publications of the Unified Agenda on Reginfo.gov in the Completed Actions section for that agency. These rulemakings can also be found on Regulations.gov. Treasury's final plan can be found at: www.treasury.gov/open.