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, the Department invites interested parties to submit views on rulemaking projects while a proposed rule is being developed.

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 published 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 2014, 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.

Bureau of the Fiscal Service

The Bureau of the Fiscal Service (Fiscal Service) 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.

The Fiscal Service, 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) Administering the Government's payments, collections and debt collection; (3) Implementing Treasury's borrowing authority, including rules governing the sale and issue of savings bonds, marketable Treasury securities, and State and local government securities; (4) Setting out the terms and conditions by which Treasury may buy back and redeem outstanding, unmatured marketable Treasury securities through debt buyback operations; (5) Governing securities held in Treasury's retail systems; (6) Governing the acceptability and valuation of collateral pledged to secure deposits of public monies and other financial interests of the Federal Government; and (7) Administering Governmentwide accounting programs.

During fiscal year 2013, the Fiscal Service 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, the Fiscal Service, 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.

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 2013, FinCEN issued the following regulatory actions:

Withdrawal of the Findings of Primary Money Laundering Concern and the Final Rules against Myanmar Mayflower Bank and Asia Wealth Bank. On October 1, 2012, FinCEN issued a notice repealing the final rule, "imposition of Special Measures Against Myanmar Mayflower Banks and Asia Wealth Bank" of April 12, 2004, and withdrawing the findings of November 25, 2003 that these entities were financial institutions of primary money laundering concern pursuant to 31 U.S.C. 5318A of the Bank Secrecy Act. FinCEN's actions were the result of the revocation of their licenses by the Government of Burma and the cessation of their business activities.

Amendments to the Definitions of Funds Transfer and Transmittal of Funds in the Bank Secrecy Act (BSA) Regulations. On December 6, 2012, FinCEN published a Notice of Proposed Rulemaking (NPRM) 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 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.

Imposition of Special Measure against Kassem Rmeiti & Co. For Exchange as a Financial Institution of Primary Money Laundering Concern. On April 23, 2013, FinCEN issued a finding that Kassem Rmeiti & Co. For Exchange (Rmeiti Exchange) is a financial institution operating outside of the United States that is of primary money laundering concern under section 311 of the USA PATRIOT Act. On April 23, 2013, FinCEN issued an NPRM to impose the first special measure and the fifth special measure against the institution. 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. In conjunction with the NPRM, FinCEN issued an order imposing certain recordkeeping and reporting obligations on covered financial institutions and principal money transmitters with respect to transactions involving Rmeiti Exchange.

Imposition of Special Measure against Halawi Exchange Co. as a Financial Institution of Primary Money Laundering Concern. On April 23, 2013, FinCEN issued a finding that Halawi Exchange Co. (Halawi) is a financial institution operating outside of the United States that is of primary money laundering concern under section 311 of the USA PATRIOT Act. On April 23, 2013, FinCEN issued an NPRM to impose the first special measure and the fifth special measure against the institution. 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. In conjunction with the NPRM, FinCEN issued an order imposing certain recordkeeping and reporting obligations on covered financial institutions and principal money transmitters with respect to transactions involving Halawi.

Imposition of Special Measure against Liberty Reserve S.A. as a Financial Institution of Primary Money Laundering Concern. On May 28, 2013, FinCEN issued a finding that Liberty Reserve S.A. is a financial institution operating outside of the United States that is of primary money laundering concern under section 311 of the USA PATRIOT Act. On May 28, 2013, FinCEN issued an NPRM to impose the fifth special measure against the institution. 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.

Administrative Rulings and Written Guidance. FinCEN published three administrative rulings and written guidance pieces, and provided 16 responses to written inquiries/correspondence interpreting the BSA and providing clarity to regulated industries.

FinCEN's regulatory priorities for fiscal year 2014 include finalizing any initiatives mentioned above that are not finalized by fiscal year end, as well as the following in-process and potential projects:

Amendment to the BSA Regulations-Definition of Monetary Instrument. On October 17, 2011, FinCEN published an NPRM 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.

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.

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.

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 IRS to resolve these issues, which may include additional guidance and rulemaking.

Cross Border Electronic Transmittal of Funds. On September 27, 2010, FinCEN issued an 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.

Comprehensive Review and Revisions to the CMIR Regulations. FinCEN is in the preliminary stages of an initiative to address certain vulnerabilities with respect to currency flows across U.S. borders and the longstanding exemptions to the CMIR regulations.

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.

Changes to the Travel and Recordkeeping Requirements for Funds Transfers and Transmittals of Funds. FinCEN is considering changes to require that more information be collected and maintained by financial institutions on funds transfers and transmittals of funds to address concerns regarding transmissions of wires with missing originator fields. Changes can now be considered due to the recently enhanced information capacity within transmittal systems.

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 that it may propose various technical and other regulatory amendments in conjunction with its ongoing, comprehensive review of existing regulations to enhance regulatory efficiency, and as a result of the efforts of an interagency task force currently focusing on improvements to the U.S. regulatory framework for anti-money laundering.

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--Peru Trade Promotion Agreement final rule (77 FR 64031) of October 18, 2012 that adopted interim amendments (76 FR 68067) of November 3, 2011, to the U.S. Customs and Border Protection (CBP) regulations which implemented the preferential tariff treatment and other customs-related provisions of the United States--Peru Trade Promotion Agreement Implementation Act. CBP issued the United States--Korea Free Trade Agreement final rule (78 FR 32356) of May 30, 2013 that adopted interim amendments (77 FR 15943) of March 19, 2012 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 that took effect on March 15, 2012. In addition, CBP issued the United States-Colombia Trade Promotion Agreement final rule (78 FR 60191) on October 1, 2013, that adopted the interim amendments (77 FR 59064) of September 26, 2012 to the CBP regulations. On October 23, 2013, CBP also issued regulations (78 FR 63052), on an interim basis, on the United States-Panama Trade Promotion Agreement and CBP plans to finalize this rulemaking in fiscal year 2014.

On December 6, 2012, Treasury and CBP published a final rule (77 FR 72715) that amended the regulations to increase the $2,000 Informal entry 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 removed the requirement for the filing of a formal entry for certain articles formerly subject to absolute quotas under the Agreement on Textiles and Clothing.

On July 5, 2013, Treasury and CBP published a final rule (78 FR 40388) that adopted, with some changes based upon comments received, the March 2012 proposal that provides CBP will refuse admission into the customs territory of the United States to consumer products and industrial equipment found to be noncompliant with energy conservation and labeling standards pursuant to the mandate of the Energy Policy and Conservation Act of 1975 and its implementing regulations. Upon written or electronic notice from the Department of Energy or the Federal Trade Commission, CBP may conditionally release under bond to the importer such noncompliant products or equipment for purposes of reconditioning, relabeling, or other action so as to bring the subject product or equipment into compliance.

On July 8, 2013, Treasury and CBP finalized (78 FR 40627) its August 2012 proposal to promulgate regulations regarding the prohibitions and conditions that are applicable to the importation and exportation of rough diamonds pursuant to the Clean Diamond Trade Act, as implemented by the President in Executive Order 13312 dated July 29, 2003, and the Rough Diamonds Control Regulations (RDCR) issued by the Treasury's Department Office of Foreign Assets Control. In addition to restating pertinent provisions of the RDCR, the regulations clarify that any U.S. person exporting from, or importing to, the United States a shipment of rough diamonds must retain for a period of at least five years a copy of the Kimberley Process Certificate that must accompany such shipments and make the copy available for inspection when requested by CBP, and also requires formal entry for shipments of rough diamonds.

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 proposed changes on February 22, 2012 (77 FR 10368) to its in-bond process which allows imported merchandise to be entered at one U.S. port of entry without appraisement or payment of duties and transported by bonded carrier to another U.S. port of entry provided all statutory and regulatory conditions are met. At the destination port, the merchandise is entered into the commerce of the United States and duties paid, or the merchandise is exported. The proposed changes, including the automation of the in-bond process, are proposed to modernize, simplify, and facilitate the in-bond process while enhancing CBP's ability to regulate and track in-bond merchandise to ensure that in-bond merchandise is properly entered or exported. CBP plans to finalize its proposed rulemaking in fiscal year 2014.

During fiscal year 2014, 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.

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 such as the trade benefit provisions for Caribbean Basin countries as well as for sub-Saharan Africa.

Free Trade Agreements. Treasury and CBP also plan to issue final regulations this fiscal year to implement the preferential trade benefit provisions of the United States-Singapore Free Trade Agreement Implementation Act and the United States-Panama Trade Promotion 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.

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.

Documentation Related to Goods Imported From U.S. Insular Possessions. Treasury and CBP plan to propose an amendment to the regulations to eliminate the requirement that a customs officer at the port of export verify and sign CBP Form 3229, Certificate of Origin for U.S. Insular Possessions, and to require instead that the importer present this form, upon CBP's request, rather than submit it with each entry as the current regulations require. The changes proposed would streamline the entry process by making it more efficient as it would reduce the overall administrative burden on both the trade and CBP. If the importer does not maintain CBP Form 3229 in its possession, the importer may be subject to a recordkeeping penalty.

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 year 2013 include:

Regulatory Capital Rules - Basel III (12 CFR parts 3, 5, 6, 165, 167). The banking agencies (OCC and Board of Governors of the Federal Reserve System (Federal Reserve) have issued a final rule that revises their risk-based and leverage capital requirements for banking organizations. (The Federal Deposit Insurance Corporation (FDIC) separately issued an interim final rule that is substantively the same as the OCC and Federal Reserve final rule.) The final rule consolidates three separate proposed rules that the banking agencies published on August 30, 2012 (77 FR 52792, 52888, 52978), into one final rule. The final rule implements a revised definition of regulatory capital, a new common equity tier 1 minimum capital requirement, a higher minimum tier 1 capital requirement, and, for banking organizations subject to the advanced approaches risk-based capital rules, a supplementary leverage ratio that incorporates a broader set of exposures in the denominator. The final rule incorporates new requirements are into the banking agencies' prompt corrective action framework and establishes limits on a banking organization's capital distributions and certain discretionary bonus payments if the banking organization does not hold a specified amount of common equity tier 1 capital in addition to the amount necessary to meet its minimum risk-based capital requirements. The final rule amends the methodologies for determining risk-weighted assets for all banking organizations, and introduces disclosure requirements that would apply to top-tier banking organizations domiciled in the United States with $50 billion or more in total assets. The final rule also adopts changes required by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (P.L. 111-203) to implement more stringent capital and leverage requirements and to replace regulatory references to credit ratings with new creditworthiness measures. In addition, the OCC has amended the market risk capital rule to apply to Federal savings associations. The final rule was published on October 11, 2013, 78 FR 62018.

Leverage Ratio. (12 CFR Part 3). The banking agencies issued a proposed rule that would strengthen the agencies' leverage ratio standards for large, interconnected U.S. banking organizations. The proposal would apply to any U.S. top-tier bank holding company (BHC) with at least $700 billion in total consolidated assets or at least $10 trillion in assets under custody (covered BHC) and any insured depository institution (IDI) subsidiary of these BHCs. In the Basel III final rule, the banking agencies established a minimum supplementary leverage ratio of 3 percent (supplementary leverage ratio), consistent with the minimum leverage ratio adopted by the Basel Committee on Banking Supervision, for banking organizations subject to the advanced approaches risk-based capital rules. In this proposed rule, the banking agencies are proposing to establish a "well capitalized" threshold of 6 percent for the supplementary leverage ratio for any IDI that is a subsidiary of a covered BHC, under the agencies' prompt corrective action framework. 78 FR 51101 (August 20, 2013).

Short-Term Investment Funds (12 CFR part 9). The OCC issued a final rule updating 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 proposed rule was issued on April 9, 2012 (77 FR 21057) and the final rule was issued on October 9, 2012 (77 FR 61229).

Flood Insurance (12 CFR parts 22 and 172). The banking agencies, the Farm Credit Administration, and the National Credit Union Administration have proposed revisions to their regulations regarding loans in areas having special flood hazards to implement provisions of the Biggert-Waters Flood Insurance Reform Act of 2012. In addition, the OCC proposed to integrate its flood insurance regulations for national banks, 12 CFR part 22, and Federal savings associations, 12 CFR part 172. 78 FR 65108 (October 30, 2013).

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 OCC issued an interim final rule on June 21, 2012, which consolidated the lending limits rules applicable to national banks and savings associations, removed the separate OCC regulation governing lending limits for savings associations, and implemented section 610 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which amends the statutory definition of "loans and extensions of credit" to include certain credit exposures arising from derivative transactions, repurchase agreements, reverse repurchase agreements, securities lending transactions, and securities borrowing transactions. The interim final rule was finalized with revisions on June 19, 2013 and published in the Federal Register on June 25, 2013. 78 FR 37930.

Appraisals for Higher- Risk Mortgages (12 CFR parts 34, 164). The banking agencies, CFPB, FHFA, and NCUA, issued a final rule on February 13, 2012 (78 FR 10368) to amend Regulation Z and its official interpretation. The rule revised Regulation Z to implement a new TILA provision requiring appraisals for "higher-risk mortgages" that was added to TILA as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act. For mortgages with an annual percentage rate that exceeds market-based prime mortgage rate benchmarks by a specified percentage, the rule generally requires 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 agencies issued a supplemental proposed rule on August 8, 2013 that would exempt from the requirements of the final rule (i) transactions secured by existing manufactured homes and not land; (ii) certain streamlined refinancings; and (iii) transactions of $25,000 or less. 78 FR 48548.

Annual Stress Test (12 CFR part 46). The OCC issued a final rule to 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 proposed rule was published on January 24, 2012 and the final rule on October 9, 2012. 77 FR 3408, 61238.

Regulatory priorities for fiscal year 2014 include finalizing the proposals listed above as well as the following rulemakings:

Integration of Savings Association Supervision (12 CFR chapter I). The OCC intends to propose amendments to integrate certain rules related to bank operations and compliance and securities-related matters of national banks and savings associations, revise some of these rules with the goal of eliminating unnecessary requirements while ensuring safety and soundness, and make other technical and conforming changes. These amendments will streamline OCC rules, reduce duplication, and create efficiencies by establishing in many areas a single set of rules for all entities supervised by the OCC. The OCC also is requesting comments on some of these rules on way to reduce regulatory burden pursuant to the Economic Growth and Regulatory Paperwork Reduction Act of 1996 (EGRPRA).

Appraisal Management Companies (12 CFR part 34). The OCC in an interagency rule with the FDIC, FRB, FHFA, NCUA and CFPB, plans to issue a proposed rule that will set minimum standards for state registration and regulation of appraisal management companies. The rule will implement the minimum requirements in section 1473 of Dodd-Frank to be applied by States in the registration of appraisal management companies. The proposed rule will also implement the requirement in section 1473 of the Dodd-Frank Act for States to report to the Appraisal Subcommittee of the Federal Financial Institutions Examination Council the information needed by the ASC to administer the national registry of appraisal management companies.

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 a proposed rule 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. The proposed rule was published on April 29, 2011. 76 FR 24090. A reproposal was issued on September 20, 2013. (78 FR 57928.)

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 proposed rule was issued 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. The proposed rule was published on May 11, 2011 (76 FR 27564).

Source of Strength. (12 CFR part 47). The banking agencies plan 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 insured 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.

Liquidity Coverage Ratio (12 CFR 50). The banking agencies plan to issue a proposed rule that would implement the liquidity coverage ratio consistent with agreements reached by the Basel Committee on Banking Supervision for certain banking organizations to promote improvements in the measurement and management of asset- and funding-liquidity risk. The proposal would establish a quantitative minimum liquidity coverage ratio that builds upon the liquidity coverage methodologies traditionally used by banking organizations to assess exposures to contingent liquidity events and would complement existing supervisory guidance.

Automated Valuation Models. (Parts 34, 164) The OCC, FRB, FDIC, NCUA, FHFA and CFPB, in consultation with the Appraisal Subcommittee and the Appraisal Standards Board of the Appraisal Foundation, are required to promulgate regulation to implement quality control standards required for automated valuation models. Section of 1473(q) of the Dodd Frank Wall Street Reform and Consumer Protection Act requires that automated valuation models used to estimate collateral value for mortgage lending comply with quality control standards designed to: ensure a high level of confidence in the estimates produced by automated valuation models; protect against manipulation of data; seek to avoid conflicts of interest; require random sample testing and reviews and account for other factors the agencies deem appropriate. The agencies plan to issue a proposed rule to implement the requirement for quality control standards.

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.

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, 2014:

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.

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.

During fiscal year 2014, the IRS will accord priority to the following regulatory projects:

Tax-Related Affordable Care Act 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 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 already effective and some of which will become effective over the next several years. Since enactment of the ACA, Treasury and the IRS have issued a series of temporary, proposed, and final regulations implementing over a dozen provisions of the ACA, including the premium tax credit under section 36B, the small business health coverage tax credit under section 45R, new requirements for charitable hospitals under section 501(r), limits on tax preferences for remuneration provided by certain health insurance providers under section 162(m)(6), the employer shared responsibility provisions under section 4980H, the individual shared responsibility provisions under section 5000A, insurer and employer reporting under sections 6055 and 6056, and several revenue-raising provisions, including a fee on branded prescription drugs and a tax on indoor tanning services.

In fiscal year 2014, Treasury and the IRS will continue to provide guidance to implement tax provisions of the ACA, including:

• Final regulations on information reporting by exchanges under section 36B(f)(3);
• Final regulations on minimum value of eligible-employer-sponsored plans under section 36B;
• Final regulations on limits on tax preferences for remuneration provided by certain health insurance providers under section 162(m)(6);
• Final regulations on new requirements for charitable hospitals under section 501(r);
• Final regulations on the net investment income tax under section 1411;
• Final regulations on the additional Medicare tax under sections 3101 and 3102;
• Final regulations on the employer shared responsibility provisions under section 4980H;
• Final regulations on the health insurance providers fee under section 9010 of the ACA;
• Final regulations on insurer and employer reporting under sections 6055 and 6056.
• Additional guidance on the medical device tax under section 4191.

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. We also provided additional industry-specific guidance related to property used to generate steam or electric power. Treasury and the IRS intend to finalize the proposed and temporary regulations. We also intend to provide additional industry-specific guidance relating to property used in the transmission and distribution of natural gas, property used in a cable television system, and property used in the retail industry.

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 regulations with respect to the definition and credit eligibility of expenditures for internal use software, the treatment of intra-group transactions for purposes of determining the controlled group's gross receipts for purposes of the credit computation, the election of the alternative simplified credit, and the allocation of the credit among members of a controlled group. 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, and terminations of qualified hedging transactions, and selected other issues.

Guidance on the Definition of Political Subdivision for Tax-Exempt, Tax-Credit, and Direct-Pay Bonds. A political subdivision may be a valid issuer of tax-exempt, tax-credit, and direct-pay bonds. Concerns have been raised recently about what is required for an entity to be a political subdivision. Treasury and the IRS plan to provide additional guidance under section 103 for determining when an entity is a political subdivision.

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 2013, Treasury and the IRS have addressed some of these issues through published guidance, including guidance relating to home mortgages refinanced under the Home Affordable Modification Program - Principal Reduction Alternative, final regulations to determine the issue price of a debt instrument issued in certain refinancings of publicly traded debt, and a notice relating to the conclusive presumption of bad debts. Treasury and the IRS plan to address more of these issues in published guidance.

Corporate Spin-offs and Split-offs. Section 355 and related provisions of the Internal Revenue Code allow for the tax-free division a corporation into two corporations under certain conditions. The IRS and Treasury Department intend to provide guidance on a variety of topics relating to these provisions. Two of these topics were the subject of previous regulatory proposals: the active trade or business requirement of section 355(b) and when a corporation is a predecessor or successor corporation under section 355(e). Other topics to be addressed are: when a corporation is a controlled corporation that can be distributed under section 355(a) given changes to the voting power of its various classes of stock in anticipation of the distribution; when stock or securities of the distributed corporation can be used to retire debt of the distributing corporation that was issued in anticipation of the distribution; and when various items of cash or property flowing between a corporation and its shareholders should be treated as being in exchange for each other.

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 proposed regulations on February 15, 2012 that would amend the current regulations to add categories of preparers and further clarify who may obtain a PTIN. Treasury and the IRS intend to finalize the proposed regulations in 2014.

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. Treasury and the IRS intend to publish a number of guidance projects in fiscal year 2014 addressing these new or amended penalty provisions. Specifically, Treasury and the IRS intend to publish final 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. The proposed regulations were published on March 8, 2013. Treasury and the IRS also 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. Further, Treasury and the IRS intend to publish 1) 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 2) temporary and proposed regulations under section 6707A addressing statutory changes to the method of computing the section 6707A penalty for failure to disclose reportable transactions.

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." Proposed regulations were published on December 18, 2012, that included 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. Treasury and the IRS plan to issue final regulations 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 or that is not deemed to comply with the requirements of section 1471 generally will be subject to a withholding tax on the gross amount of certain payments from U.S. sources, as well as, after 2016, the gross proceeds from disposing of certain U.S. investments. To date, Treasury and the IRS have published Notice 2010-60, Notice 2011-34, Notice 2011-53, Announcement 2012-42, and proposed and final regulations under chapter 4. Notice 2013-43 was also recently published to provide revised timelines for the implementation of FATCA. This year Treasury and the IRS expect to publish certain substantive changes and corrections to the chapter 4 final regulations; a model FFI Agreement; revised Qualified Intermediary, Withholding Foreign Partnership, and Withholding Foreign Trust Agreements coordinating the requirements of these agreements with the chapter 4 requirements of entities executing these agreements; and revisions to the regulations under chapters 3 and 61 to coordinate with the requirements of the regulations under chapter 4.

Withholding on Certain Dividend Equivalent Payments on Certain Equity Derivatives. 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. On January 23, 2012, 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 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 in 2012 and expect to issue additional guidance on EJMAA in this fiscal year.

Transfers of Intangibles to Foreign Corporations. Section 367(d) of the Internal Revenue Code requires, except as provided in regulations, a U.S. person who transfers intangible property to a foreign corporation in an exchange described in section 351 or 361 of the Code to treat the transfer as a sale for payments which are contingent upon the productivity, use, or disposition of such property, and to take into account amounts which reasonably reflect the amounts which would have been received annually in the form of such payments over the useful life of such property, or at the time of the disposition of the property. The amounts so taken into account must be commensurate with the income attributable to the intangible. Under existing temporary regulations issued in 1986, section 367(d) is made inapplicable to the transfer of "foreign goodwill or going concern value," as defined in the regulations. The existing regulations provide general guidance regarding the application of section 367(d), although controversy regarding the application of section 367(d) to certain transfers led the Treasury and the IRS to publish Notice 2012-39 on July 13, 2012. Treasury and the IRS intend to issue additional guidance in 2014 to reduce uncertainty and controversy in this area.

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.

Section 501(c)(4) guidance. Treasury and the IRS plan to issue proposed regulations that provide guidance relating to measurement of an organization's primary activity and whether it is operated primarily for the promotion of social welfare, including guidance relating to political campaign intervention. Treasury and the IRS intend to issue further guidance on these issues in fiscal year 2014.

Alcohol and Tobacco Tax and Trade Bureau

The Alcohol and Tobacco Tax and Trade Bureau (TTB) issues regulations to implement and 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, 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 2014, 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 in the updating of Parts 9 (American Viticultural Areas) and 19 (Distilled Spirits Plants) of Title 27, Code of Federal Regulations. In December 2012, TTB published a temporary rule and concurrent Notice of Proposed Rulemaking (NPRM) that would lessen the number of required excise tax returns and operations reports for small brewers and also provide a flat $1,000 penal sum for the brewer's bond for such brewers. TTB believes these proposals will lessen costs and increase efficiencies for those businesses. The regulatory proposals also will reduce the administrative burden on TTB. If small brewers submitted quarterly returns and operations reports, TTB could reduce the overall time it spends processing these forms.

Additionally, in FY 2013, TTB published a temporary rule and concurrent NPRM pertaining to permits for importers of tobacco products and processed tobacco that would extend the duration of new permits from three years to five years. Furthermore, TTB published an NPRM concerning denatured alcohol and products made with industrial alcohol. The proposed amendments would remove unnecessary regulatory burdens on the industrial alcohol industry as well as TTB, and would align the regulations with current industry practice. These three rules were published in June 2013.

As described in greater detail below, in FY 2014, TTB plans to continue its Regulations Modernization Project concerning its Specially Denatured and Completely Denatured Alcohol regulations, Labeling Requirement regulations, Export regulations, Nonbeverage Products regulations and Beer regulations.

Revisions to Specially Denatured and Completely Denatured Alcohol Regulations. TTB proposed 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, 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. To help alleviate these concerns, TTB plans to issue a final rule that will reclassify certain SDA formulas as CDA and issue new general-use formulas for articles made with SDA. As a result of these changes, industry members would need to seek formula approval from TTB less frequently, and, in turn, TTB could decrease the resources it dedicates to formula review. TTB estimates that these changes will result in an 80 percent reduction in the formula approval submissions currently required from industry members and will 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 changes made by this final rule will 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)). 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 accordance with the mandate of Executive Order 13563 of January 18, 2011, regarding improving regulation and regulatory review, TTB has conducted an analysis of its regulations to identify if any may be outmoded, ineffective, insufficient, or excessively burdensome, and to modify, streamline, expand, or repeal them in accordance with what has been learned. As a result of its review, 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. The goal of these regulatory changes, to be developed with industry input, is to accelerate the approval process, which will result in the regulated industries being able to bring products to market without undue delay.

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, and, under its regulatory authority, TTB routinely provides exceptions to these regulatory provisions. Revising these regulations will provide industry members with clear and updated procedures for removal of alcohol for exportation without having to pay excise taxes (under the IRC, beverage alcohol may be removed for exportation without payment of tax), thus increasing their willingness and ability to export their products. Increasing American exports benefits the American economy and is consistent with Treasury and Administration priorities.

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 nearly 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 conducting discussions with industry groups and members, analyzing available data, and reviewing our existing regulations and requirements, TTB, in December 2012, proposed changes to our regulations that would reduce the tax return submission and filing and operations reporting burdens on "small" brewers. Such proposals would lessen the number of required excise tax returns and operations reports for small brewers and also provide a flat $1,000 penal sum for the brewer's bond for such brewers. The amendments 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 has solicited comments from the public in this notice of proposed rulemaking (NPRM) on other changes it 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.

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.

RESTORE Act. On September 6, 2013, the Department of the Treasury published proposed regulations concerning the investment and use of amounts deposited in the Gulf Coast Restoration Trust Fund, which was established in the Treasury of the United States by the Resources and Ecosystem Sustainability, Tourist Opportunities, and Revived Economies of the Gulf Coast States Act of 2012 (RESTORE Act). Eighty percent of the administrative and civil penalties paid under the Federal Water Pollution Control Act in connection with the Deepwater Horizon oil spill will be deposited into the Trust Fund and invested. Under terms described in the Act, amounts in the Trust Fund will be available for programs, projects, and activities that restore and protect the environment and economy of the Gulf Coast region which includes Alabama, Florida, Louisiana, Mississippi, and Texas. This regulation contains procedures required by the Act. The regulation recognizes that, under the statutory scheme, many expenditures from the Trust Fund will be grants. The financial management, auditing, and reporting requirements in Federal grant law and policy, therefore, apply to these expenditures. Overseeing compliance will be a responsibility resting primarily with the Federal and State entities which administer grants for the programs, projects, and activities funded under the Act. Treasury will carry out an important and supplemental role in overseeing the States' compliance with requirements in the Comprehensive Plan Component and the Spill Impact Component. The comment period closes on November 5, 2013.

Retrospective Review of Existing Regulations

The following regulations (identified by Regulatory Identifier Number)have been identified as candidates for retrospective review pursuant to the Department's most recent retrospective review of regulations plan issued in July 2013 pursuant to section 6 of Executive Order 13563 "Improving Regulation and Regulatory Review" (Jan. 18, 2011). Treasury's retrospective review plan can be found at: www.treasury.gov/open.

BILLING CODE  4810-25-P