DEPARTMENT OF THE TREASURY
Statement of Regulatory Priorities
The primary missions of the Department of the Treasury are:
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 USA PATRIOT Act of 2001 was signed 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, 13563, and 13609 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.
Community Development Financial Institutions Fund
The Community Development Financial Institutions Fund (CDFI 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) 2013, 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.
Also in FY 2013, the CDFI Fund will publish revised Environmental Quality Regulations (12 CFR 1815) which will reflect economic and programmatic changes affecting applicants and awardees. The current environmental quality regulations do not reflect the full expansion of programs administered by the CDFI Fund to date. The revised regulations will include technical clarifications, revised definitions, and modifications to categorical exclusions relevant to the CDFI Fund's programs.
In FY 2013, subject to funding availability, the CDFI 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.
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 the United States--Oman Free Trade Agreement final rule (76 FR 65365) of October 21, 2011 that adopted interim amendments (76 FR 692) of 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 also issued the United States-Peru Trade Promotion Agreement interim amendments (76 FR 66875) of November 3, 2011 to the CBP regulations which implemented the United States-Peru Trade Promotion Agreement. CBP plans to finalize this rulemaking before the end of the fiscal year 2012. In addition, CBP published on March 19, 2012 the United States-Korea Free Trade Agreement interim amendments (77 FR 15943) to the CBP regulations which implemented the preferential tariff treatment and other customs-related provisions of the United States-Korea Free Trade Agreement Implementation Act, which took effect on March 15, 2012. CBP also plans to finalize this rulemaking in 2013.
On October 25, 2011, Treasury and CBP issued a final rule (76 FR 65953) that amended 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.
On February 22, 2012, Treasury and CBP published a final rule (77 FR 10368) which amends the CBP regulations by extending 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 March 26, 2012, CBP also issued a final rule (77 FR 17331) that adopted, without change, the April 2011 proposal that where an owner or master of a vessel documented under the laws of the United States fails to timely pay the duties determined to be due to CBP that are associated with the purchase of equipment for, or repair to, the vessel while it is outside the United States, interest will accrue on the amounts owed to CBP and that person will be liable for interest. The purpose of this rule is to ensure that the regulations reflect that CBP collects interest as part of its inherent revenue collection functions in situations where an owner or master of a vessel fails to pay the vessel repair duties determined to be due within 30 days of CBP issuing the bill.
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 June 8, 2012 (77 FR 33966), its March 2010 proposal regarding customs broker recordkeeping requirements as they pertain to the location and method of record retention. The amendments permit a licensed customs broker, under prescribed conditions, to store records relating to his or her customs transactions at any location within the customs territory of the United States. The amendments also removed the requirement, as it currently applies to brokers who maintain separate electronic records, that certain entry records must be retained in their original format for the 120-day period after the release or conditional release of imported merchandise. These changes maximize the use of available technologies and serve to conform CBP's recordkeeping requirements to reflect modern business practices without compromising the agency's ability to monitor and enforce recordkeeping compliance.
During fiscal year 2013, CBP and Treasury plan to give priority to the following regulatory matters involving the customs revenue functions:
Members of a Family for Purposes of Filing a CBP Family Declaration. Treasury and CBP plan to finalize a proposal to expand the definition of the term, "members of a family residing in one household," to allow more U.S. returning residents traveling as a family upon their arrival in the United States to be eligible to group their duty exemptions and file a single customs declaration for articles acquired abroad.
Informal Entry Limit and Removal of a Formal Entry Requirement. Treasury and CBP plan to publish a final rule amending the regulations to increase the $2,000 limit on the aggregate customs value of informal entries to its statutory maximum of $2,500 in order to mitigate the effects of inflation and to meet the international commitments to Canada for the Beyond the Border Initiative. It also removes the requirement for formal entry for certain articles formerly subject to absolute quotas under the Agreement on Textiles and Clothing.
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-Colombia Trade Promotion 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.
Disclosure of Information for Certain Intellectual Property Rights Enforced at the Border. Treasury and CBP plan to finalize interim amendments to the CBP regulations which provides a pre-seizure notice procedure for disclosing information appearing on the imported merchandise and/or its retail packing suspected of bearing a counterfeit mark to an intellectual property right holder for the limited purpose of obtaining the right holder's assistance in determining whether the mark is counterfeit or not.
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, early in 2013 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
RESTORE Act. On July 6, 2012, the President signed Public Law 112-141, commonly known as the Transportation Bill. The bill includes a significant new responsibility for Treasury under Section 1601 "Recourses and Ecosystems Sustainability, Tourism Opportunities and Revived Economies of the Gulf Coast States Act of 2012" (RESTORE Act). The RESTORE Act establishes the Gulf Coast Restoration Trust Fund (the Trust Fund) in the Treasury, to be available for expenditures to restore the Gulf Coast region from the Deepwater Horizon oil spill, and for funding approved Federal, State and local projects and programs to restore and protect the natural resources, ecosystems, fisheries, marine and wildlife habitats, beaches, coastal wetlands, and economy of that region. The RESTORE Act gives Treasury significant new responsibilities relating to the expenditures of moneys from the Trust Fund, and requires Treasury to develop procedures to assess whether the programs and activities carried out under the Act are compliant with applicable requirements and to develop requirements for the audit of programs and activities. To meet Treasury's new responsibility, Treasury proposes to issue the required procedures as regulations. The rule will apply to recipients of funds from the Trust Fund and authorized under the RESTORE Act, including the Gulf Coast Ecosystem Restoration Council and state and local governments in the five Gulf Coast States.
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, on Treasury's behalf, 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 2013, BPD will accord priority to the following regulatory projects:
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 2013, FMS's regulatory plan includes the following priorities:
Notice of Proposed Rulemaking for Publishing Delinquent Debtor Information. The Debt Collection Improvement Act of 1996, Pub. L. 104-134, 110 Stat. 1321 (DCIA) 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. Treasury proposes to issue a notice of proposed rulemaking seeking comments on a proposed rule that would 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.
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 Government-wide 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 2012, FinCEN issued the following regulatory actions:
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 October 11,2011, FinCEN issued a final rule imposing 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.
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 Suspicious Activity Reporting (SAR) Requirements for Housing Government-Sponsored Enterprises. On November 3, 2011, FinCEN issued 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.
Non-Bank Residential Mortgage Lenders and Originators. On February 7, 2012, FinCEN issued a Final rule to require a specific subset of loan and finance companies, i.e., non-bank residential mortgage lenders and originators, to comply with anti-money laundering (AML) program and SAR regulations. The regulations close a regulatory gap that previously allowed 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.
Imposition of Special Measure Against the Islamic Republic of Iran as a Jurisdiction of Primary Money Laundering Concern. On November 25, 2011, FinCEN issued a finding that the Islamic Republic of Iran is a jurisdiction of primary money laundering concern under section 311 of the USA PATRIOT Act for its direct support of terrorism and its pursuit of nuclear/ballistic missile capabilities, its reliance on state agencies or state-owned or -controlled financial institutions to facilitate weapons of mass destruction proliferation and financing, and its use of deceptive financial practices to facilitate illicit conduct and evade sanctions. On November 28, 2011, FinCEN issued a Notice of Proposed Rulemaking to impose the fifth special measure against the Islamic Republic of Iran. The fifth special measure prohibits or conditions the opening or maintaining of correspondent or payable-through accounts by U.S. financial institutions if the correspondent account involves the targeted jurisdiction. These actions are intended to serve as an additional tool in preventing Iran from accessing the U.S. financial system, to support and uphold U.S. national security and foreign policy goals, and to complement the U.S. Government's worldwide efforts to expose and disrupt international money laundering and terrorist financing.
Electronic Filing of Bank Secrecy Act (BSA) Reports. On February 24, 2012, FinCEN issued a final notice requiring that all financial institutions subject to Bank Secrecy Act (BSA) reporting, with the exception of those institutions granted limited hardship exceptions, use electronic filing for certain reports beginning no later than July 1, 2012. This requirement supports the Department of the Treasury's paperless initiative and efforts to make government operations more efficient. Also, it is intended to enhance significantly the quality of FinCEN's electronic data, improve its analytic capabilities in supporting law enforcement requirements, and result in a significant reduction in real costs to the U.S. Government and ultimately to U.S. taxpayers.
Customer Due Diligence Requirements. On February 29, 2012, FinCEN issued 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.
Imposition of Special Measure Against JSC Credex Bank as a Financial Institution of Primary Money Laundering Concern. On May 25, 2012, FinCEN issued a finding that JSC Credex Bank (Credex) is a financial institution of primary money laundering concern under section 311 of the USA PATRIOT Act. In addition to the bank's location in a high-risk jurisdiction, FinCEN has reason to believe that the bank has engaged in high volumes of transactions that are indicative of money laundering on behalf of shell corporations and has a history of ownership by shell corporations whose lack of transparency contributes to considerable uncertainty surrounding Credex's beneficial ownership. The lack of transparency associated with Credex indicates a high degree of money laundering risk and vulnerability to other financial crimes. On May 30, 2012, FinCEN issued a Notice of Proposed Rulemaking to impose the first special measure and the fifth special measure against the bank. The first special measure requires any U.S. financial institution to maintain records, file reports, or both, concerning the aggregate amount of transactions, or concerning each transaction, with respect to a financial institution operating outside of the United States found to be of primary money laundering concern. 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.
Amendment to the Bank Secrecy Act Regulations --Exemption from the Requirement to Report Transactions in Currency. On June 7, 2012, FinCEN issued a final rule to amend the regulations that allow depository institutions to exempt transaction of certain payroll customers from the requirement to report transactions in currency in excess of $10,000. By substituting the term "frequently" for the term "regularly" in the provision of the exemption rules dealing with payroll customers, depository institutions may rely on FinCEN's prior interpretation of the term "frequently" to mean five or more times a year. This change harmonizes the exemption standard for payroll customers with those for non-listed businesses and will provide greater ease of application and promote full use of the exemption for payroll customers.
This change is part of the Department of the Treasury's continuing effort to increase efficiency and effectiveness of its anti-money laundering and counter-terrorist financing policies.
Amendment to the Bank Secrecy Act Regulations - Requirement that Clerks of Court Report Certain Currency Transactions. On June 7, 2012, FinCEN issued a final rule amending the rules relating to the reporting of certain currency transactions consistent with a recent statutory amendment authorizing FinCEN to require clerks of court to file such reports with FinCEN. This information already is required to be reported by clerks of court pursuant to regulations issued by the Internal Revenue Service (IRS), but FinCEN heretofore had been limited in its ability to access and share that information further because of minor differences between the relevant statutory authorities applicable to FinCEN and the IRS. The final rule imposes no new or additional reporting or recordkeeping burden on clerks of court.
Amendments to the Definitions of Funds Transfer and Transmittal of Funds in the Bank Secrecy Act (BSA) Regulations. FinCEN has drafted an NPRM to be issued jointly with the Board of Governors of the Federal Reserve System proposing amendments to the regulatory definitions of "funds transfer" and "transmittal of funds" under the regulations implementing the Bank Secrecy Act (BSA). The proposed changes are intended to maintain the current scope to the definitions and are necessary in light of changes to the Electronic Fund Transfer Act that will result in certain currently covered transactions being excluded from BSA requirements.
Repeal of the Final Rule Imposing Special Measures and Withdrawal of the Findings of Primary Money Laundering Concern Against Myanmar Mayflower Bank and Asia Wealth Bank. FinCEN published in the Federal Register a document repealing the final rule "Imposition of Special Measures Against Myanmar Mayflower Bank and Asia Wealth Bank" and withdrawing the findings of these banks as financial institutions of primary money laundering concern issued on April 12, 2004. The banks' licenses were revoked by the Government of Burma and they have ceased their business activities.
Renewal of Existing Rules. FinCEN renewed without change a number of information collections associated with the following existing requirements: Anti-money laundering programs for money services businesses (31 CFR 1022.210); mutual funds (31 CFR 1024.210); operators of credit card systems (31 CFR 1028.210); dealers in precious metals, stones, or jewels (31 CFR 1027.210); and insurance companies (31 CFR 1025.210); customer identification programs for futures commission merchants and introducing brokers in commodities (31 CFR 1026.220); various depository institutions (31 CFR 1020.220); mutual funds (31 CFR 1024.220); securities broker-dealers (31 CFR 1023.220); report of international transportation of currency and monetary instruments (31 CFR 1010.340); reports of transactions in currency (31 CFR 1010.310); suspicious activity reporting by the securities and futures industries (31 CFR 1026.320 and 31 CFR 1023.320). FinCEN also renewed with changes the Registration of Money Services Business, Report 107, to incorporate recent changes to the MSB definitions and add provisions for prepaid access.
Administrative Rulings and Written Guidance. FinCEN published 14 administrative rulings and written guidance pieces, and provided 45 responses to written inquiries/correspondence interpreting the BSA and providing clarity to regulated industries.
FinCEN's regulatory priorities for fiscal year 2013, include finalizing any initiatives mentioned above that are not finalized by fiscal year end, as well as the following projects:
Anti-Money Laundering Program and SAR Requirements for Investment Advisers. FinCEN has drafted 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. FinCEN has been working closely with the Securities and Exchange Commission on issues related to the draft NPRM.
Amendment to the Bank Secrecy Act Regulations - Registration, Recordkeeping, and Reporting of Money Services Businesses. FinCEN has been developing an NPRM to amend the requirements for money services businesses with respect to registering with FinCEN and with respect to the information reported during the registration process. The proposed changes are intended to enhance the quality and timeliness of FinCEN's electronic data, improve analytic capabilities, and support law enforcement needs more effectively.
FBAR Requirements. On February 24, 2011, 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. 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 crimes. Since issuance of the final rule, FinCEN and the Internal Revenue Service (IRS) have received numerous requests for clarification, many of which involve employees who have signature authority over, but no financial interest in, the foreign financial accounts of their employers. FinCEN is working with the Internal Revenue Service (IRS) to resolve these issues, which may include additional guidance and rulemaking.
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 developing a 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 has continued to work on developing the system to receive, store, and use this data, FinCEN determined that a Supplemental NPRM that updates the previously published proposed rule would provide additional information to those banks and money transmitters that will become subject to the 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 2013, the IRS will accord priority to the following regulatory projects:
Deduction and Capitalization of Costs for Tangible Property. Section 162 of the Internal Revenue Code allows a deduction for ordinary and necessary expenses paid or incurred in carrying on a trade or business. Section 263(a) of the Code provides that no 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, and generally such capital expenditures may be recovered only in future taxable years. 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 standards for determining whether an amount paid for tangible property should be treated as an ordinary or capital expenditure can be difficult to discern. Treasury and the IRS believe that additional clarification is needed to reduce uncertainty and controversy in this area, and in December 2011 Treasury and the IRS issued proposed and temporary regulations in this area. We intend to finalize those regulations.
Research Expenditures. Section 41 of the Internal Revenue Code provides a credit against taxable income for certain expenses paid or incurred in conducting research activities. Section 174 of the Internal Revenue Code allows a taxpayer to elect to currently deduct or amortize certain research and experimental expenditures. To assist in resolving areas of controversy and uncertainty with respect to research expenses, Treasury and the IRS plan to issue guidance on both the credit and the deduction. With respect to the research credit, Treasury and the IRS plan to issue proposed regulations with respect to the definition and credit eligibility of expenditures for internal use software and the treatment of intra-group transfers of property for purposes of determining the controlled group's gross receipts for purposes of the credit computation. With respect to the deduction for research and experimental expenditures, Treasury and the IRS plan to issue guidance on the treatment of amounts paid or incurred in connection with the development of tangible property and guidance clarifying the procedures for the adoption and change of methods of accounting for the expenditures.
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, terminations of qualified hedging transactions, and selected other issues.
Contingent Notional Principal Contract Regulations. Notice 2001-44 (2001-2 CB 77) outlined four possible approaches for recognizing nonperiodic payments made or received on a notional principal contract (NPC) when the contract includes a nonperiodic payment that is contingent in fact or in amount. The Notice solicited further comments and information on the treatment of such payments. After considering the comments received in response to Notice 2001-44, Treasury and the IRS published proposed regulations (69 FR 8886) (the 2004 proposed regulations) that would amend section 1.446-3 and provide additional rules regarding the timing and character of income, deduction, gain, or loss with respect to such nonperiodic payments, including termination payments. On December 7, 2007, Treasury and IRS released Notice 2008-2 requesting comments and information with respect to transactions frequently referred to as prepaid forward contracts. Treasury and the IRS plan to re-propose regulations to address issues relating to the timing and character of nonperiodic contingent payments on NPCs, including termination payments and payments on prepaid forward contracts.
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 (REMICs). During fiscal year 2012, Treasury and the IRS have addressed some of these issues through published guidance, including guidance for REITs and REMICs relating to home mortgages refinanced under the Home Affordable Refinancing Program. 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 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 arising from such modifications or refinancings. Treasury and the IRS expect to finalize those regulations by the end of 2013.
Election To Treat Certain Stock Sales and Distributions as Asset Sales. Congress enacted section 336(e) as part of the provisions of the Tax Reform Act of 1986 implementing the repeal of the General Utilities doctrine (which had prevented corporate level recognition of gain on the sale or distribution of appreciated property in certain cases). Section 336(e) authorizes the Secretary to prescribe regulations allowing an election (Section 336(e) Election) to treat certain taxable sales, exchanges, or distributions (collectively, "dispositions") of stock in a corporation (a "target") instead as a sale of the target's underlying assets. If made, a Section 336(e) Election offers taxpayers relief from multiple taxation at the corporate level of the same economic gain. Treasury and the IRS published proposed regulations in 2008 that addressed dispositions by domestic corporations of domestic target to unrelated parties. Treasury and the IRS expect to finalize these regulations this year.
Disguised Sale and Allocation of Liabilities. A contribution of property by a partner to a partnership may be recharacterized as a sale under section 707(a)(2)(B) if the partnership distributes to the contributing partner cash or other property that is, in substance, consideration for the contribution. The allocation of partnership liabilities to the partners under section 752 may impact the determination of whether a disguised sale has occurred and whether gain is otherwise recognized upon a distribution. Treasury and the IRS have determined that guidance should be issued to address certain issues that arise in the disguised sale context and other issues regarding the partners' shares of partnership liabilities. Proposed regulations are expected to be issued later this year.
Certain Partnership Distributions Treated as Sales or Exchanges. In 1954, Congress enacted section 751 to prevent the use of a partnership to convert potential ordinary income into capital gain. In 1956, Treasury and the IRS issued regulations implementing section 751. The current regulations, however, do not achieve the purpose of the statute in many cases. In 2006, Treasury and the IRS published Notice 2006-14 (2006-1 CB 498) to propose and solicit alternative approaches to section 751 that better achieve the purpose of the statute while providing greater simplicity. Treasury and the IRS are currently working on proposed regulations following up on Notice 2006-14. These regulations will provide guidance on determining a partner's interest in a partnership's section 751 property and how a partnership recognizes income required by section 751.
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. In Publication 4832, Return Preparer Review, 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 the 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. On November 25, 2011, Treasury and the IRS published final regulations setting the competency testing fee at $27, and published proposed regulations on February 15, 2012, describing who must obtain a PTIN and who may obtain one. Treasury and the IRS intend to finalize those PTIN regulations in 2013. Finally, Treasury and the IRS intend to finalize temporary regulations under section 7216 addressing the disclosure or use of information by tax return preparers, which were issued in December 2009.
Circular 230 Rules Governing Written Tax Advice. After years of experience with the covered opinion rules in Circular 230 governing written tax advice, the government and practitioners agree that rules are often burdensome and provide only minimal taxpayer protection. On September 17, 2012, Treasury and the IRS published proposed regulations that modify the standards governing written tax advice under Circular 230. The proposed regulations streamline the existing rules for written tax advice by applying one standard for all written tax advice under proposed section 10.37. The proposed regulations revise section 10.37 to state affirmatively the standards to which a practitioner must adhere when providing written advice on a Federal tax matter. Proposed section 10.37 requires, among other things, that the practitioner base all written advice on reasonable factual and legal assumptions, exercise reasonable reliance, and consider all relevant facts that the practitioner knows or should know. A practitioner must also use reasonable efforts to identify and ascertain the facts relevant to written advice on a Federal tax matter under the proposed regulations. The proposed amendments will eliminate the burdensome requirement that practitioners fully describe the relevant facts (including the factual and legal assumptions relied upon) and the application of the law to the facts in the written advice itself, and the use of Circular 230 disclaimers in documents and transmissions, including e-mails. The proposed regulations also make several other necessary amendments to Circular 230. Treasury and IRS intend to finalize these regulations in 2013.
Penalties and Limitation Periods. 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 fiscal year 2013 addressing these new or amended penalty provisions. Specifically, on September 7, 2011, Treasury and the IRS published final regulations under section 6707A addressing when the penalty for failure to disclose reportable transactions applies. Treasury and the IRS intend to publish 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. 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) proposed regulations under section 6708 regarding the penalty for failure to make available upon request a list of advisees that is required to be maintained under section 6112; 3) final regulations under section 6501(c)(10) regarding the extension of the period of limitations to assess any tax with respect to a listed transaction that was not disclosed as required under section 6011; and 4) temporary and proposed regulations under section 6707A addressing statutory changes to the method of computing the section 6707A penalty, which were enacted after existing temporary regulations were published.
Whistleblower Regulations. Under section 7623(b), the Secretary shall make an award to whistleblowers in cases where a whistleblower provided information regarding underpayments of tax or violations of the internal revenue laws that resulted in proceeds being collected from an administrative or judicial action. On February 22, 2012, Treasury and the IRS published final regulations (TD 9580) defining "collected proceeds." Treasury and the IRS plan to issue proposed regulations providing comprehensive guidance on the whistleblower award program. The proposed regulations are expected to include guidance on the process for filing for an award, definitions of statutory terms, and guidance regarding how the amount of an award will be computed.
Basis Reporting. Section 403 of the Energy Improvement and Extension Act of 2008 (Pub. L. 110-343), enacted on October 3, 2008, added sections 6045(g), 6045(h), 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). 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 stock were published on October 18, 2010. Proposed regulations implementing these provisions for options and debt instruments were published on November 25, 2011. In response to comments on the proposed regulations, Notice 2012-34 extended the proposed effective date for basis reporting for options and debt instruments to January 1, 2014. Treasury and the IRS plan to issue final regulations for options and debt instruments in 2013.
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, Notice 2011-53, Announcement 2012-42, and proposed regulations which provide preliminary guidance and request comments on the most important and time-sensitive issues under chapter 4. Treasury and the IRS expect to issue final regulations and a model FFI Agreement in this fiscal year that respond to the comments received.
Withholding on Certain Dividend Equivalent Payments Under Notional Principal Contracts. The HIRE Act also added section 871(l) to the Code (now section 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. Treasury and the IRS also issued temporary and proposed regulations addressing cases in which dividend equivalents will be found to arise in connection with notional principal contracts and other financial derivatives. Treasury and the IRS expect to issue further guidance with respect to section 871(m) in this fiscal year.
International Tax Provisions of the Education, Jobs, and Medicaid Assistance Act. On August 10, 2010, the Education, Jobs, and Medicaid Assistance Act of 2010 (EJMAA) (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 in which U.S. tax law and foreign tax law provide different rules for recognizing income and gain, and in cases in which 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 income 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 published temporary and proposed regulations addressing foreign tax credits under section 909 and expect to issue additional guidance on EJMAA in this fiscal year.
International Philanthropy. Treasury and the IRS plan to issue guidance intended to facilitate more efficient and effective international grantmaking by U.S. private foundations. Treasury and the IRS issued proposed regulations relating to program related investments on April 19, 2012. We are working on finalizing these regulations that incorporate additional, more modern examples of how private foundations may use program related investments to accomplish charitable purposes, both domestically and abroad. In addition, Treasury and the IRS issued proposed regulations on September 24, 2012 relating to the reliance standards for private foundations making tax-status determinations regarding foreign charitable organizations, which should facilitate foreign grantmaking.
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 on the application for recognition as a section 501(c)(29) organization; proposed regulations on the fees under sections 4375, 4376, and 4377 of the Code to fund the Patient-Centered Outcomes Research Trust Fund; proposed regulations regarding disclosures to the Department of Health and Human Services under section 6103(l)(21) of the Code; proposed regulations under section 4191 of the Code on the excise tax on medical device manufacturers and importers;
proposed regulations under section 501(r) of the Code on new requirements for charitable hospitals; and final regulations on the premium assistance tax credit under section 36B of the Code. In addition, Treasury and the IRS have issued guidance on other ACA provisions, including guidance on the treatment of certain nonprofit health insurers (section 833 of the Code), the $2,500 annual limit on salary reduction contributions to health flexible spending arrangements (section 125(i) of the Code), the procedures for nonprofit health insurance issuers to seek tax-exempt status (section 501(c)(29) of the Code), the reporting of the cost of coverage of group health insurance on Form W-2 (section 6051(a)(14) of the Code), and determining full-time employees for purposes of the shared responsibility for employers regarding health coverage (section 4980H of the Code). Treasury and the IRS will continue to provide additional guidance to implement tax provisions of the ACA in 2013.
Lifetime income from retirement plans. Treasury and the IRS continue to review certain regulations pertaining to retirement plans to determine whether any modifications could better achieve the objective of promoting retirement security by facilitating the offering of benefit distribution options in the form of annuities. As part of this initiative, proposed regulations were issued in February 2012 to facilitate the purchase of longevity annuity contracts under tax-qualified defined contribution plans, section 403(b) plans, individual retirement annuities and accounts (IRAs), and eligible governmental section 457 plans. These regulations provide the public with guidance necessary to comply with the required minimum distribution rules under the Code. Under the proposed amendments to these rules, prior to annuitization, the participant would be permitted to exclude the value of a longevity annuity contract that meets certain requirements from the account balance used to determine required minimum distributions. Thus, a participant would not need to commence distributions from the annuity contract before the advanced age at which the annuity would begin in order to satisfy the required minimum distribution rules and, accordingly, the contract could be designed with a fixed annuity starting date at the advanced age. Purchasing longevity annuity contracts could help participants hedge the risk of drawing down their benefits too quickly and thereby outliving their retirement savings. Treasury and the IRS intend to finalize these regulations.
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 July 31, 2013:
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.
Alcohol and Tobacco Tax and Trade Bureau
The Alcohol and Tobacco Tax and Trade Bureau (TTB) issues regulations to enforce the Federal laws relating to alcohol, tobacco, firearms, and ammunition excise taxes and certain non-tax laws relating to 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 Federal alcohol, tobacco, and firearms and ammunition taxes, and obtain a high level of voluntary compliance with laws governing those industries; and
3) Suppress commercial bribery, consumer deception, and other prohibited practices in the alcohol beverage industry.
In FY 2013, TTB plans to give priority to the following regulatory matters:
Modernization of Title 27, Code of Federal Regulations. TTB will continue its multi-year Regulations Modernization Project, which has resulted in the past few years of updating parts 9 (American Viticultural Areas) and 19 (Distilled Spirits Plants) of title 27, Code of Federal Regulations. In FY 2012, TTB finalized the temporary rule to amend regulations promulgated under the Children's Health Insurance Program Reauthorization Act of 2009 (CHIPRA), which included provisions to help prevent the diversion of tobacco products and to collect the tobacco excise taxes rightfully due. Congress mandated the regulation of processed tobacco to strengthen the enforcement authority for the Federal excise tax on tobacco products, which significantly increased under CHIPRA. A three-year temporary rule was published in June of 2009; the final rule was published in June 2012. As described in greater detail below, in FY 2013, TTB plans to continue its Regulations Modernization Project concerning its Specially Denatured and Completely Denatured Alcohol regulations, Labeling Requirement regulations, Nonbeverage Products 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 (IRC), TTB regulates denatured alcohol that is unfit for beverage use, and which may be removed from a regulated distilled spirits plant free 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 in turn decrease the dedication of TTB resources 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 analyses of 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.
Revisions to the Labeling Requirements (Parts 4 (Wine), 5 (Distilled Spirits), and 7 (Malt Beverages)), also known as Modernization of the Alcohol Beverage Labeling and Advertising Regulations. The Federal Alcohol Administration Act requires that alcohol beverages introduced in interstate 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 have the intent of accelerating the approval process, which will result in the regulated industries being able to bring products to market without undue delay.
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. The specific savings to TTB is unknown at this stage of the rulemaking project.
Revisions to the Beer Regulations (Part 25). Under the authority of the IRC, 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. 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 initially intended to publish an advance notice of proposed rulemaking (ANPRM) and solicit written comments from the public before proposing changes to its regulations in part 25. After discussions with industry groups and members, analyzing available data, and reviewing our existing regulations and requirements, TTB will propose for immediate consideration changes to our regulations that would reduce the tax return submission and filing and operations reporting burdens on "small" brewers. This regulatory proposal is entitled Penal Sum Exception for Brewers Eligible To File Federal Excise Tax Returns and Payments Quarterly and Other Proposed Revisions to the Beer Regulations. Such proposals would accelerate change in the regulations, compared to publishing an ANPRM and awaiting comments before proposing specific changes, and thus provide more immediate and significant relief from existing regulatory burdens. TTB will also solicit comments from the public in this notice of proposed rulemaking (NPRM) on other changes TTB could make to its beer regulations contained in part 25 that could further reduce the regulatory burden on brewers and at the same time meet statutory requirements and regulatory objectives. Upon consideration of comments received, TTB intends to develop and propose other specific regulatory changes.
Revisions to Distilled Spirits Plant Reporting Requirements. In FY 2012, TTB published an NPRM proposing 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, will address numerous concerns and desires for improved reporting by the affected 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 will 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 will result in additional savings in staff time (approximately 3 staff years) equaling $300,000 annually based on the more efficient and effective processing of reports and the use of report data to reconcile industry member tax accounts. Based on comments received in response to the NPRM, TTB will revise the proposed forms and publish them for additional public consideration, before issuing a final rule.
Office of the Comptroller of the Currency
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.
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 years 2011 and 2012 include:
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 (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. 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. The ANPRM was published on August 13, 2010 (75 FR 49423). OTS published a parallel ANPRM on October 14, 2010 (75 FR 63107). OCC published an NPRM on November 29, 2011 (76 FR 73526) and a final rule on June 13, 2012. 77 FR 35253.
Regulatory Capital Rules (12 CFR parts 3, 5, 6, 165, 167). The OCC, FRB, and FDIC (banking agencies) issued three joint notices of proposed rulemaking (NPRM 1, NPRM 2, and NPRM 3) that would revise and replace their current capital rules and other OCC rules:
The NPRMs were published on August 30, 2012. 77 FR 52792, 52888, 52978.
Risk-Based Capital Standards: Market Risk (12 CFR part 3). The banking agencies issued a final rule revising 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. An NPRM was published on January 11, 2011. 76 FR 1890. The final rule was published on August 30, 2012. 77 FR 53060.
Short-Term Investment Funds (12 CFR part 9). This final rule updates 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. The OCC issued an NPRM on April 9, 2012. 77 FR 21057. The final rule was issued on October 9, 2012. 77 FR 61229.
Lending Limits for Derivative Transactions (12 CFR parts 32, 159, and 160). Section 610 of the Dodd-Frank Act amends the lending limits statute, 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. 12 U.S.C. 1464(u)(1) applies this lending limit to savings associations. The amendment was effective 1 year after the transfer date, July 21, 2012. On June 21, 2012, the OCC issued an interim final rule that implements section 610. This interim final rule also integrates savings associations into part 32. 77 FR 37265.
Truth in Lending Act (TILA) (12 CFR parts 34, 164). Appraisals for High Risk Mortgages. The banking agencies, CFPB, FHFA, and NCUA, have issued a proposed rule to amend Regulation Z and its official interpretation. The proposed revisions to Regulation Z would implement a new TILA provision requiring appraisals for "higher-risk mortgages" that was added to TILA as part of the Dodd-Frank Act. For mortgages with an annual percentage rate that exceeds market-based prime mortgage rate benchmarks by a specified percentage, the proposed rule generally would require creditors to obtain an appraisal or appraisals meeting certain specified standards, provide applicants with a notification regarding the use of the appraisals, and give applicants a copy of the written appraisals used. The NPRM was published on September 5, 2012. 77 FR 54722.
Incentive-Based Compensation Arrangements (12 CFR part 42). Section 956 of the Dodd-Frank Act requires the banking agencies, NCUA, SEC, and FHFA, to jointly prescribe regulations or guidance prohibiting any type 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.
Credit Risk Retention (12 CFR part 43). The banking agencies, SEC, FHFA, and HUD 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 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.
Prohibition and Restrictions on Proprietary Trading and Certain Interests In, and Relationships with, Hedge Funds and Private Equity Funds (12 CFR part 44). The banking agencies, SEC, and CFTC, issued proposed rules that implement section 619 of the Dodd-Frank Act, 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. The OCC issued an NPRM on November 7, 2011. 75 FR 68846.
Margin and Capital Requirements for Covered Swap Entities (12 CFR part 45). The banking agencies, FCA, and FHFA 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 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.
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 will establish a definition of stress test, methodologies for conducting stress tests, and reporting and disclosure requirements. The OCC published an NPRM on January 24, 2012 and a final rule on October 9, 2012. 77 FR 3408, 61238.
Integration of Savings Association Supervision (12 CFR chapter V). Pursuant to the transfer of OTS functions relating to Federal savings associations to the OCC, the OCC issued two rulemakings in FY 2011 that incorporated savings associations into certain OCC rules and republished former OTS rules as OCC rules. An interim final rule was published on August 9, 2011 (76 FR 48950), and a final rule was published on July 21, 2012 (76 FR 43549).
Retail Foreign Exchange Transactions (12 CFR part 48). The OCC engaged in a rulemaking on retail foreign exchange transactions involving national banks to implement section 742 of the Dodd-Frank Act. The proposed rule was published on April 22, 2011 (76 FR 22633) and the final rule was published on July 14, 2011 (76 FR 41384). The final rule was amended through an interim final rule to apply to Federal savings associations on September 12, 2011 (76 FR 56096).
Civil Money Penalty Inflation Adjustment (12 CFR parts 19 and 109). The OCC has amended its rules of practice and procedure for national banks, set forth at 12 CFR part 19, and its rules of practice and procedure in adjudicatory proceedings for Federal savings associations, set forth at 12 CFR part 109, to adjust the maximum amount of each civil money penalty (CMP) within its jurisdiction to administer to account for inflation. These actions, including the amount of the adjustment, are required under the Federal Civil Penalties Inflation Adjustment Act of 1990 (Inflation Adjustment Act), as amended by the Debt Collection Improvement Act of 1996. This final rule was published on November 6, 2012. 77 FR 66529.
Regulatory priorities for fiscal year 2013 include finalizing the proposals listed above as well as initiating the following rulemakings:
Source of Strength. (12 CFR part 47). The OCC plans to issue a proposed rule to implement section 616(d) of the Dodd-Frank Act. Section 616(d) requires that bank holding companies, savings and loan holding companies and companies that directly or indirectly control an insurance depository institution serve as a source of strength for the insured depository institution. The appropriate Federal banking agency for the insured depository institution may require that the company submit a report that would assess the company's ability to comply with the provisions of the statute and its compliance. The OCC, the FDIC, and the Federal Reserve are required to jointly issue regulations to implement these requirements.
Integration of Savings Association Supervision (12 CFR chapter V). 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.
Appraisal Management Companies (12 CFR part 34). The OCC plans to issue a proposed rule that will set minimum standards for state registration and regulation of appraisal management companies.
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.
Definitions and Special Rules Regarding Accuracy-Related Penalties on Underpayments and Reportable Transaction Understatements and the Reasonable Cause Exception
Modernization of the Alcohol Beverage Labeling and Advertising Regulations
Revision of American Viticultural Area Regulations
Revision of Distilled Spirits Plant Regulations
Proposed Revisions to SDA and CDA Formulas Regulations
Implementation of Statutory Amendments Requiring the Qualification of Manufacturers and Importers of Processed Tobacco and Other Amendments
Proposed Revisions to Distilled Spirits for Fuel Use and Alcohol Fuel Plant Regulations
Self-Certification of Nonbeverage Product Formulas
Penal Sum Exception for Brewers Eligible To File Federal Excise Tax Returns and Payments Quarterly and Other Proposed Revisions to the Beer Regulation
Revisions to Distilled Spirits Plant Operations Reports and Regulations
Courtesy Notice of Liquidation
International Regulatory Cooperation
On May 1, 2012, the President signed Executive Order 13609, "Promoting International Regulatory Cooperation," which is designed to promote economic growth, innovation, competitiveness, and job creation through international regulatory cooperation. Although much of the Department's regulations are not covered by the Order (see section 6), the Department is committed to furthering the goals of the Order and looks for opportunities to engage in discussions that lead to increased and improved regulatory cooperation.
BILLING CODE 4810-25-P