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.

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) Collect the taxes on alcohol, tobacco, firearms and ammunition;

2) Protect the consumer by ensuring the integrity of alcohol products; and

3) Prevent unfair and unlawful market activity for alcohol and tobacco products.

In the last several years, TTB has recognized the changes in the industries it regulates, as well as the modernized enforcement tools available to it. As a consequence, TTB has focused on revising its regulations to ensure that it accomplishes its mission in a way that facilitates industry growth, while at the same time protecting the revenue and consumers of alcohol beverages. This modernization effort has resulted in the updating of Parts 9 (American Viticultural Areas) and 19 (Distilled Spirits Plants) of Title 27 of the Code of Federal Regulations. In addition to its beverage alcohol regulations, TTB published in fiscal year (FY) 2013, 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 latter three rules all published in June 2013.

In fiscal year 2014, TTB published a direct final rule amending its regulations in 27 CFR part 73 regarding the electronic submission of forms and other documents. To streamline the application process through TTB's secure, web-based applications (Permits Online, COLAs Online, and Formulas Online) and to enable current and prospective industry members to submit all required application forms electronically, TTB amended part 73 to provide for the electronic submission to TTB of forms requiring third-party signatures, such as bond forms and powers of attorney. Copies of such forms, bearing all required signatures and seals, may now be submitted electronically, along with a certification that the copy is an exact copy of the original, provided the submitter maintains the original along with other records and makes it available or submits it to TTB upon request. TTB further amended part 73 to provide that any requirement in the TTB regulations to submit a document to another agency may be met by the electronic submission of the document to the other agency, as long as the other agency provides for, and authorizes, the electronic submission of such document.

In that same final rule, TTB amended its regulations in 27 CFR part 19 governing the records that distilled spirits plant (DSP) proprietors must keep of finished products, by removing the requirement that DSP proprietors keep a daily summary record of the kind of distilled spirits bottled or packaged. Finally, TTB amended its regulations in 27 CFR parts 26 and 27 regarding closures that must be affixed to containers of imported distilled spirits products or of such products brought into the United States from Puerto Rico or the Virgin Islands. The amendments remove a requirement that a part of the closure remain attached to the container when opened, thereby aligning the regulations for such products with those applicable to domestic distilled spirits products. In summary, the amendments made by this final rule have lessened the regulatory burden on industry members by, among other changes: (1) providing for the electronic submission of documents requiring third-party signatures or corporate seals and of documents that the TTB regulations require be submitted to other agencies; (2) removing a recordkeeping requirement in 27 CFR 19.601 for DSP proprietors; and (3) removing a regulatory requirement related to the types of closures that must be used on certain distilled spirits containers.

In FY 2015, TTB will continue its multi-year Regulations Modernization effort by finalizing its Specially Denatured and Completely Denatured Alcohol regulations and prioritizing projects that will update its Labeling Requirements regulations, Import and Export regulations, Nonbeverage Products regulations, and Distilled Spirits Plant Reporting Requirements.

This fiscal year TTB plans to give priority to the following regulatory matters:

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. These amendments are necessary because they provide a reduction in regulatory burden while posing no risk to the revenue.

Under the authority of the Internal Revenue Code of 1986, as amended (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. Additionally, the reclassification of certain SDA formulas to CDA formulas will not jeopardize the revenue because it is more difficult to separate potable alcohol from CDA than it is from SDA, and because CDA has an offensive taste and is less likely to be used for beverage purposes. Similarly, authorizing new general-use formulas will not jeopardize the revenue because it will be difficult to remove potable alcohol from articles made with the specific SDA formulations. 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 any that might 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 wine, distilled spirits, 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). The regulations are being reviewed to assess their relevance in the 21st century. Revisions will provide clarity to industry to improve voluntary compliance. 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 to Export and Import Regulations Related to the International Trade Data System. TTB is currently preparing for the implementation of the International Trade Data System (ITDS) and, specifically, the transition to an all-electronic import and export environment. The ITDS, as described in section 405 of the Security and Accountability for Every Port Act of 2006 (the "SAFE Port Act") (Public Law 109-347), is an electronic information exchange capability, or "single window," through which businesses will transmit data required by participating agencies for the importation or exportation of cargo. To enhance Federal coordination associated with the development of the ITDS and put in place specific deadlines for implementation, President Obama, on February 19, 2014, signed an Executive Order (EO) on Streamlining the Export/Import Process for America's Businesses. In line with section 3(e) of the EO, TTB was required to develop an implementation timeline for ITDS implementation. Regulatory review for transition to the all-electronic environment is part of that process.

TTB has completed its review of the regulatory requirements and identified those that it intends to update to account for the new all-electronic environment. TTB has not only focused on identifying requirements in order to align them with the new environment (such as amending requirements that reference submission of paper documents at entry), but also is reviewing existing requirements and processes to determine where modifications could better take advantage of the all-electronic capability while reducing burden. TTB is planning to publish rulemaking on its import and export regulations in FY15, for example, this rulemaking will address the collection of TTB F 5100.31 (Application for and Certification/Exemption of Label/Bottle Approval) and foreign certificate data in the ITDS environment..

In recent years, TTB has identified selected sections of its export regulations (27 CFR 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. As part of its effort to accommodate implementation of ITDS, TTB's proposed regulatory revisions will also 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 regulations in 27 CFR part 17 governing nonbeverage products made with taxpaid distilled spirits. These nonbeverage products include foods, medicines, and flavors. This proposal offers a new method of formula certification by incorporating quantitative standards into the regulations and establishing new voluntary procedures that would further streamline the formula review process for products that meet the standards. These proposals pose no risk to the revenue because TTB will continue to review the formulas; however, TTB will not take action on certified formula submissions unless the formulas require correction. This proposal would nearly eliminate the need for TTB to formally approve all 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.

Revisions to Distilled Spirits Plant Reporting Requirements. In FY 2012, TTB published an NPRM proposing to revise regulations in 27 CFR part 19 to 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 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 plans to revise the proposal and re-notice the issue.

Bureau of the Fiscal Service

The Bureau of the Fiscal Service (Fiscal Service) administers regulations pertaining to the Government's financial activities, including: (1) Implementing Treasury's borrowing authority, including regulating the sale and issue of Treasury securities, (2) Administering Government revenue and debt collection, (3) Administering Governmentwide accounting programs, (4) Managing certain Federal investments, (5) Disbursing the majority of Government electronic and check payments, (6) Assisting Federal agencies in reducing the number of improper payments, and (7) Providing administrative and operational support to Federal agencies through franchise shared services.

During fiscal year 2015, the Fiscal Service will accord priority to the following regulatory projects:

Amendment to Large Position Reporting Requirements. On behalf of Treasury (Financial Markets), the Fiscal Service plans to amend the Government Securities Act regulations (17 CFR chapter IV) to modify the large position reporting rules to improve the information reported so that Treasury can better understand supply and demand dynamics in certain Treasury securities.

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 promulgating their own rules to publish information about delinquent debtors and the standards for determining when use of this debt collection remedy is appropriate.

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 mission of the CDFI Fund is to increase economic opportunity and promote community development investments for underserved populations and in distressed communities in the United States. The CDFI Fund currently administers 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, the Financial Education and Counseling Pilot Program (FEC), the Capital Magnet Fund (CMF), and the CDFI Bond Guarantee Program (BGP).

In FY 2015, the CDFI Fund will publish updated regulations for its BEA Program and CDFI Program to incorporate the requirements of the Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (2 CFR part 200). In December 2013, the Office of Management and Budget (OMB) published a final rule that provides a government-wide framework for grants management, with the goal of combining several OMB guidance circulars, reducing administrative burden for award Recipients, and reducing the risk of waste, fraud and abuse of Federal financial assistance. The Uniform Federal Award Requirements codifies financial, administrative, procurement, and program management standards that Federal award agencies must follow. Each Federal agency is anticipated to codify these requirements by the end of calendar year 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 were the United States--Colombia Trade Promotion Agreement final rule, the United States-Panama Trade Promotion Agreement final rule, and the African Growth and Opportunity Act (AGOA) and Generalized System of Preferences and Trade Benefits under AGOA final rule. On October 1, 2013, U.S. Customs and Border Protection (CBP) published the United States--Colombia Trade Promotion Agreement final rule (78 FR 60191) that adopted interim amendments (77 FR 59064) of September 26, 2012, to the CBP regulations which implemented the preferential tariff treatment and other customs-related provisions of the United States--Colombia Trade Promotion Agreement Implementation Act. On May 21, 2014, CBP issued the United States-Panama Trade Promotion Agreement final rule (79 FR 29077) that adopted interim amendments (78 FR 63052) of October 23, 2013, to the CBP regulations, which implemented the preferential tariff treatment and other customs-related provisions of the United States-Panama Trade Promotion Agreement Implementation Act that took effect on October 31, 2012. In addition, CBP issued the African Growth and Opportunity Act (AGOA) and Generalized System of Preferences and Trade Benefits under AGOA final rule (79 FR 30356) on May 27, 2014, that adopted the interim amendments (65 FR 59668 and 68 FR 13820) of October 5, 2000, and March 21, 2003, respectively, to the CBP regulations.

On December 18, 2013, Treasury and CBP published a final rule titled Members of a Family for Purposes of Filing a CBP Family Declaration (78 FR 76529) that amended the regulations by expanding 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.

This past fiscal year, consistent with the goals of Executive Orders 12866 and 13563, Treasury and CBP proposed changes to Documentation Related to Goods Imported From U.S. Insular Possessions on January 14, 2014 (79 FR 2395), 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. CBP plans to finalize this rule during fiscal year 2015.

During fiscal year 2015, CBP and Treasury also plan to give priority to the following regulatory matters involving the customs revenue functions:

In-Bond Process. 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, Treasury and CBP plan to finalize this fiscal year the proposal to change the in-bond process by issuing final regulations to amend the in-bond regulations that were proposed on February 22, 2012 (77 FR 10622). The proposed changes, including the automation of the in-bond process, would 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.

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. 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.

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 2015, 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 fees on branded prescription drugs under section 9008 of the ACA, fees on health insurance providers under section 9010 of the ACA, the tax on indoor tanning services under 5000B, the net investment income tax under section 1411, and the additional Medicare tax under sections 3101 and 3102.

In fiscal year 2015, Treasury and the IRS will continue to provide guidance to implement tax provisions of the ACA, including:

Interest on Deferred Tax Liability for Contingent Payment Installment Sales. Section 453 of the Internal Revenue Code generally allows taxpayers to report the gain from a sale of property in the taxable year or years in which payments are received, rather than in the year of sale. Section 453A of the Code imposes an interest charge on the tax liability that is deferred as a result of reporting the gain when payments are received. The interest charge generally applies to installment obligations that arise from a sale of property using the installment method if the sales price of the property exceeds $150,000, and the face amount of all such installment obligations held by a taxpayer that arose during, and are outstanding as of the close of, a taxable year exceeds $5,000,000. The interest charge provided in section 453A cannot be determined under the terms of the statute if an installment obligation provides for contingent payments. Accordingly, in section 453A(c)(6), Congress authorized the Secretary of the Treasury to issue regulations providing for the application of section 453A in the case of installment sales with contingent payments. Treasury and the IRS intend to issue proposed regulations that, when finalized, will provide guidance and reduce uncertainty regarding the application of section 453A to contingent payments.

Rules for Home Construction Contracts. In general, section 460(a) requires taxpayers to use the percentage-of-completion method (PCM) to account for taxable income from any long-term contract. Under the PCM, income is generally reported in installments as work is performed, and expenses are generally deducted in the taxable year incurred. However, taxpayers with contracts that meet the definition of a "home construction contract," under section 460(e)(4), are not required to use the PCM for those contracts and may, instead, use an exempt method. Exempt methods include the completed contract method (CCM) and the accrual method. Under the CCM, for example, a taxpayer generally takes into account the entire gross contract price and all incurred allocable contract costs in the taxable year the taxpayer completes the contract. Treasury and the IRS believe that amended rules are needed to reduce uncertainty and controversy, including litigation, regarding when a contract qualifies as a "home construction contract" and when the income and allocable deductions are taken into account under the CCM. On August 4, 2008, Treasury and the IRS published proposed regulations on the types of contracts that are eligible for the home construction contract exemption. The preamble to those regulations stated that Treasury and the IRS expected to propose additional rules specific to home construction contracts accounted for using the CCM. After considering comments received and the need for additional and clearer rules to reduce ongoing uncertainty and controversy, Treasury and the IRS have determined that it would be beneficial to taxpayers to present all of the proposed changes to the current regulations in a single document. Treasury and the IRS plan to withdraw the 2008 proposed regulations and replace them with new, more comprehensive proposed 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. To assist in resolving areas of controversy and uncertainty with respect to research expenses, Treasury and the IRS plan to issue regulations with respect to the definition and credit eligibility of expenditures for internal use software, the election of the alternative simplified credit, and the allocation of the credit among members of a controlled group.

Estate Tax Portability of Decedent's Unused Exclusion Amount. The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (TRA of 2010) amended sections 2010 and 2505 of the Internal Revenue Code to provide an estate of a decedent survived by a spouse the opportunity to transfer, or port, unused applicable exclusion amount to and for the benefit of the surviving spouse. Although the portability provisions of TRA of 2010 were originally scheduled to expire on December 31, 2012, the American Taxpayer Relief Act of 2012 made the portability provisions permanent. Treasury and the IRS plan to issue final regulations on or before June 15, 2015, to replace sunsetting temporary regulations. The final regulations will provide rules for electing portability, determining the unused exclusion amount available from the estate of the first-to-die spouse to the surviving spouse, and applying the ported unused exclusion amount to the surviving spouse's subsequent transfers.

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. On September 16, 2013, Treasury and the IRS published proposed regulations (78 FR 56842) to address selected current issues involving the arbitrage investment 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. Treasury and the IRS plan to provide additional guidance on the arbitrage investment restrictions, including guidance on the issue price definition used in the computation of bond yield.

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 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 2014, Treasury and the IRS addressed some of these issues through published guidance, including guidance on an entity's qualification as a REIT in the context of transactions involving distressed mortgage loans. Treasury and the IRS plan to address more of these issues in published guidance.

Definition of Real Property and Qualifying Income for REIT Purposes. A taxpayer must satisfy certain asset and income requirements to qualify as a REIT under section 856. REITs have sought to invest in various types of assets that are not directly addressed by the current regulations or other published guidance. On May 14, 2014, Treasury and the IRS published proposed regulations (79 FR 27508) to update and clarify the definition of real property for REIT qualification purposes, including guidance addressing whether a component of a larger item is tested on its own or only as part of the larger item, the scope of the asset to be tested, and whether certain intangible assets qualify as real property. Treasury and the IRS plan to finalize the proposed regulations in the fiscal year. Treasury and the IRS also plan to provide guidance clarifying the definition of income for purposes of section 856.

Corporate Spin-offs and Split-offs. Section 355 and related provisions of the Internal Revenue Code allow for the tax-free distribution of stock or securities of a controlled corporation if certain requirements are met. For example, the distributing corporation must distribute a controlling interest in the controlled corporation, and both the distributing and controlled corporations must be engaged in the active conduct of a trade or business immediately after the distribution. The Treasury Department and the IRS intend to provide guidance on the qualification of a distribution for tax-free treatment under section 355, including (1) final regulations that address when a corporation is treated as engaged in an active trade or business, and (2) final regulations that define predecessor or successor corporation for purposes of the exception to tax-free treatment under section 355(e). The Treasury Department and the IRS also intend to provide guidance relating to the tax treatment of other transactions undertaken as part of a plan that includes a distribution of stock or securities of a controlled corporation, such as changes to the voting power of the controlled corporation's stock in anticipation of the distribution, the issuance of debt of the distributing corporation and retirement of such debt using stock or securities of the controlled corporation, and the transfer of cash or property between a distributing or controlled corporation and its shareholder(s) in connection with the distribution.

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 issued proposed regulations to address certain issues that arise in the disguised sale context and other issues regarding the partners' shares of partnership liabilities. Treasury and the IRS are considering comments on the proposed regulations and expect to issue regulations in fiscal year 2015.

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 always achieve the purpose of the statute. 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.

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 2015 addressing these 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) proposed regulations under section 6707A addressing statutory changes to the method of computing the penalty for failure to disclose reportable transactions.

Inversion Transactions. On September 22, 2014, Treasury and the IRS issued Notice 2014-52, addressing the application of sections 7874 and 367 to inversions, as well as certain tax avoidance transactions that are undertaken after an inversion transaction. In this fiscal year, Treasury and the IRS expect to issue regulations implementing the rules described in Notice 2014-52. Also in this fiscal year, Treasury and the IRS expect to issue additional guidance to further limit inversion transactions that are contrary to the purposes of section 7874 and the benefits of post-inversion tax avoidance transactions. In addition, under the terms of the statute, section 7874 will not apply to an inversion if the post-transaction group has substantial business activities in the country in which the foreign acquiring corporation is organized when compared to the total business activities of the group. On June 7, 2012, Treasury and the IRS issued temporary regulations regarding the determination of whether a group satisfies the substantial business activities test. During fiscal year 2015, Treasury and the IRS intend to finalize these regulations.

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 by U.S. citizens and residents and generally requires foreign financial institutions (FFIs) to enter into an agreement (FFI Agreement) with the IRS to report information regarding financial accounts of U.S. persons and certain foreign entities with significant U.S. ownership. An FFI that does not enter into an FFI Agreement, or that is not otherwise deemed compliant with FATCA, generally will be subject to a withholding tax on the gross amount of certain payments from U.S. sources. The Treasury Department and the IRS have issued proposed, temporary, and final regulations under chapter 4; and proposed and temporary regulations under chapters 3 and 61, and section 3406, to coordinate with those chapter 4 regulations; as well as implementing revenue procedures and other guidance. The Treasury Department and the IRS expect to issue further guidance with respect to FATCA and related provisions in this fiscal year.

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 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. On December 5, 2013, Treasury and the IRS released final regulations relating to the 2012 temporary and proposed regulations. At the same time, Treasury and the IRS issued new proposed regulations based on comments received with respect to the 2012 proposed regulations. Treasury and the IRS expect to finalize these regulations 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, published temporary and proposed regulations in 2012 and final regulations in 2014 updating the interest allocation regulations to conform to the 2010 amendments to section 864(e)(5)(A), and issued two notices providing guidance under section 901(m) in 2014. Treasury and the IRS expect to issue additional guidance on EJMAA in this fiscal year, including additional guidance under section 901(m), final regulations under section 909, and temporary and proposed regulations under section 304(b)(5)(B).

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 section 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 this fiscal year to reduce uncertainty and controversy in this area.

Section 501(c) guidance. After reviewing over 150,000 comments submitted on the proposed regulations under section 501(c)(4) published in fiscal year 2014, Treasury and the IRS plan to issue revised proposed regulations that provide guidance under section 501(c) relating to limitations on political campaign activities of certain tax-exempt organizations.

Guidance responding to the SEC's money market reform rule. On July 23, 2014, the SEC adopted a final rule to reduce the systemic risk that money market funds present to the national economy. Later that day, IRS and the Treasury Department issued simplifying guidance designed to ameliorate the tax compliance difficulties that the SEC rule would otherwise pose to certain money market funds and their shareholders. In fiscal year 2015, the Treasury Department and the IRS intend to finalize the portion of this simplifying guidance that is only proposed.

Guidance Relating to Publicly Traded Partnerships. Section 7704 of the Internal Revenue Code provides that a partnership whose interests are traded on either an established securities market or on a secondary market (a "publicly traded partnership") is generally treated as a corporation for Federal tax purposes. However, section 7704(c) permits publicly traded partnerships to be treated as partnerships for Federal tax purposes if 90 percent or more of partnership income consists of "qualifying income." Section 7704(d) provides that income is generally qualifying income if it is passive income or is derived from exploration, development, mining or production, processing, refining, transportation, or marketing of a mineral or natural resource. Legislative history accompanying section 7704(d) provides little insight into the intended scope of this natural resource exception, and no administrative guidance has been issued. As technologies and commercial practices in the natural resource industries have evolved, uncertainty has arisen about the proper interpretation of the natural resource exception. Treasury and the IRS intend to issue guidance in this fiscal year to reduce uncertainty in this area.

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 2014, FinCEN issued the following regulatory actions:

Amendments to the Definitions of Funds Transfer and Transmittal of Funds in the Bank Secrecy Act (BSA) Regulations. On December 5, 2013, FinCEN issued a Final Rule jointly with the Board of Governors of the Federal Reserve System amending the regulatory definitions of "funds transfer" and "transmittal of funds" under the regulations implementing the BSA. The changes maintain the existing scope to the definitions and were necessary in light of changes to the Electronic Fund Transfer Act that would have resulted in certain currently covered transactions being excluded from BSA requirements.

Anti-Money Laundering Program and Suspicious Activity Reporting (SAR) Requirements for Housing Government-Sponsored Enterprises. On February 25, 2014, FinCEN issued a Final Rule defining 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.

Imposition of Special Measure against FBME Bank Ltd., formerly known as Federal Bank of the Middle East, Ltd., as a Financial Institution of Primary Money Laundering Concern. On July 22, 2014, FinCEN issued a finding that FBME Bank Ltd. (FBME) 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 July 22, 2014, 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. 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 FBME.

Customer Due Diligence Requirements. On August 4, 2014, FinCEN issued a Notice of Proposed Rulemaking (NPRM) to solicit public comment on proposed rules under the BSA to clarify and strengthen customer due diligence requirements for banks, brokers or dealers in securities, mutual funds, and futures commission merchants and introducing brokers in commodities. The proposed rules contain explicit customer due diligence requirements and include a new regulatory requirement to identify beneficial owners of legal entity customers, subject to certain exemptions.

Administrative Rulings and Written Guidance. FinCEN published 13 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 2015 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. FinCEN continues to consider the issue based on comments received and developments in the prepaid industry. FinCEN intends to issue a supplemental NPRM to provide additional information for consideration and comment by the public.

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.

Report of Foreign Bank and Financial Accounts. FinCEN has drafted an NPRM to address requests from filers for clarification of certain requirements regarding the Report of Foreign Bank and Financial Accounts (FBAR) including requirements with respect to employees, who have signature authority over, but no financial interest in, the foreign financial accounts of their employers.

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 has drafted a Supplemental NPRM to update the previously published proposed rule and provide additional information to those banks and money transmitters that will become subject to the rule.

Anti-Money Laundering Program Requirements for Banks Lacking a Federal Functional Regulator. FinCEN has drafted an NPRM to remove the anti-money laundering (AML) program exemption for banks that lack a Federal functional regulator, including, but not limited to, private banks, non-federally insured credit unions, and certain trust companies. The proposed rule prescribes minimum standards for AML programs and would ensure that all banks, regardless of whether they are subject to Federal regulation and oversight, are required to establish and implement AML programs.

Amendments to the Definitions of Broker or Dealer in Securities. FinCEN has drafted an NPRM that proposes amendments to the regulatory definitions of broker or dealer in securities under the BSA regulations. The proposed changes would expand the current scope of the definitions to include funding portals and would require them to implement policies and procedures reasonably designed to achieve compliance with all of the BSA requirements that are currently applicable to brokers or dealers in securities.

Amendment to the Bank Secrecy Act Regulations - Registration, Recordkeeping, and Reporting of Money Services Businesses. FinCEN is considering issuing 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.

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 and to lower the threshold to $1,000 from $3,000, which would bring the United States into greater compliance with several criteria in the Financial Action Task Force (FATF) standards for cross-border wire transfers.

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.

Office of the Comptroller of the Currency

The primary mission of the Office of the Comptroller of the Currency (OCC) is to charter, regulate, and supervise all national banks and Federal Savings Associations (FSAs). The agency also supervises the Federal branches and agencies of foreign banks. The OCC's goal in supervising the financial institutions subject to its jurisdiction is to ensure that they operate in a safe and sound manner and in compliance with laws requiring fair treatment of their customers and fair access to credit and financial products.

Significant rules issued during fiscal year 2014 include:

Regulatory Capital Rules--Basel III (12 CFR parts 3, 5, 6, 165, 167). The OCC and the Board of Governors of the Federal Reserve System (FRB) issued a final rule that revises the 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 final rule issued by the OCC and the FRB.) The final rule consolidates three separate proposed rules that were published jointly by the OCC, FRB and FDIC (the banking agencies) 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 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 (Pub. L. 111-203) (the Dodd-Frank Act) to implement more stringent capital and leverage requirements and to replace regulatory references to credit ratings with new creditworthiness measures. The final rule was published on October 11, 2013, 78 FR 62018.

Enhanced Supplementary Leverage Ratio (12 CFR part 3). The banking agencies issued a final rule to strengthen the leverage ratio standards for large, interconnected U.S. banking organizations. The rule applies 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 final rule, the banking agencies 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. The final rule was issued on May 1, 2014, 79 FR 24528.

Supplementary Leverage Ratio (12 CFR part 3). The banking agencies issued a final rule to revise the denominator of the supplementary leverage ratio (total leverage exposure) that the agencies adopted in July 2013 as part of comprehensive revisions to the agencies' regulatory capital rules (2013 capital rule). The rule revises the treatment of on- and off-balance sheet exposures for purposes of determining total leverage exposure, and more closely aligning the agencies' rules on the calculation of total leverage exposure with international leverage ratio standards. The proposed rule was issued on May 1, 2014, 79 FR 24596. The final rule was issued on September 26, 2014, 79 FR 57725.

Integration of National Bank and Federal Savings Association Regulations: Licensing Rules (12 CFR Parts 4, 5, 7, 14, 32, 34, 100, 116, 143, 144, 145, 146, 150, 152, 159,160, 161, 162, 163, 174, 192, 193). The OCC issued a proposed rule to integrate its rules relating to policies and procedures for corporate activities and transactions involving national banks and FSAs. The proposed rule also revises some of these rules in order to eliminate unnecessary requirements, consistent with safety and soundness, and to make other technical and conforming changes. The proposal also included amendments to update OCC rules for agency organization and function. The proposed rule was issued on June 10, 2014, 79 FR 33260.

Assessment of Fees (12 CFR part 8). The OCC issued a final rule to increase assessments for national banks and FSAs with assets of more than $40 billion. The increase ranges between 0.32 percent and approximately 14 percent, depending on the total assets of the institution as reflected in its June 30, 2014, Consolidated Report of Condition and Income. The average increase in assessments for affected banks and FSAs will be 12 percent. The final rule will not increase assessments for banks or FSAs with $40 billion or less in total assets. The OCC will implement the increase in assessments by issuing an amended Notice of Office of the Comptroller of the Currency Fees and Assessments, which will become effective as of the semiannual assessment due on September 30, 2014. In conjunction with the increase in assessments, the final rule updates the OCC's assessment rule to conform with section 318 of the Dodd-Frank Act, which reaffirmed the authority of the Comptroller of the Currency to set the amount of, and methodology for, assessments. The proposed rule was issued on April 28, 2014, 79 FR 23297. The final rule was issued on July 9, 2014 (79 FR 38769).

Flood Insurance (12 CFR parts 22 and 172). The banking agencies, Farm Credit Administration (FCA), and the National Credit Union Administration (NCUA) 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 (Biggert-Waters) and the OCC issued a proposed rule to integrate its flood insurance regulations for national banks, 12 CFR part 22, and FSAs, 12 CFR part 172. The proposed rule was issued on October 30, 2013, 78 FR 65108.

OCC Guidelines Establishing Heightened Standards for Certain Large Insured National Banks, Insured Federal Savings Associations, and Insured Federal Branches; Integration of Regulations (12 CFR part 30). The OCC issued a final rule adopting new Guidelines as an appendix to its safety and soundness standards regulations that establish minimum standards for the design and implementation of a risk governance framework for large insured national banks, insured FSAs, and insured Federal branches of foreign banks with average total consolidated assets of $50 billion or more and minimum standards for a board of directors in overseeing the framework's design and implementation. The standards contained in the Guidelines are enforceable by the terms of a Federal statute that authorizes the OCC to prescribe operational and managerial standards for national banks and FSAs. The proposed rule was issued on January 27, 2014, 79 FR 4282. The final rule was issued on September 11, 2014, 79 FR 54518.

Appraisals for Higher-Risk Mortgages (12 CFR parts 34, 164). The banking agencies, the Consumer Financial Protection Bureau (CFPB), Federal Housing Finance Agency (FHFA), and the NCUA, issued a final rule on February 13, 2013, 78 FR 10368, to amend Regulation Z and its official interpretation. The rule revised Regulation Z to implement a new Truth in Lending Act (TILA) provision requiring appraisals for any "higher-risk mortgage" 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 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 rule 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. The supplemental final rule was issued on December 26, 2013, 78 FR 78520.

Appraisal Management Companies (12 CFR part 34). The banking agencies, FHFA, NCUA and CFPB, issued a proposed rule that would set minimum standards for state registration and regulation of appraisal management companies. The rule would implement the minimum requirements in section 1473 of the Dodd-Frank Act to be applied by states in the registration of appraisal management companies. It also would implement the requirement in section 1473 of the Dodd-Frank Act for States to report to the Appraisal Subcommittee (ASC) of the Federal Financial Institutions Examination Council the information needed by the ASC to administer the national registry of appraisal management companies. The proposed rule was issued on April 9, 2014, 79 FR 19521.

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, the Securities & Exchange Commission (SEC), and the Commodity Futures Trading Commission (CFTC) issued final rules to 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 FRB to engage in proprietary trading and have certain investments in, or relationships with, hedge funds or private equity funds. The final rule was issued on January 31, 2014, 79 FR 5536.

Treatment of Certain Collateralized Debt Obligations Backed Primarily by Trust Preferred Securities With Regard to Prohibitions and Restrictions on Certain Interests in, and Relationships With, Hedge Funds and Private Equity Funds (12 CFR part 44). The banking agencies, the CFTC, and the SEC issued an interim final rule that would permit banking entities to retain investments in certain pooled investment vehicles that invested their offering proceeds primarily in certain securities issued by community banking organizations of the type grandfathered under section 171 of the Dodd-Frank Act. The interim final rule was issued on January 31, 2014, 79 FR 5223.

Margin and Capital Requirements for Covered Swap Entities (12 CFR part 45). The banking agencies, FCA, and the 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. The proposed rule will implement 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 issued on September 24, 2014, 79 FR 57347).

Liquidity Coverage Ratio (12 CFR 50). The banking agencies issued a final rule to implement a quantitative liquidity requirement consistent with the liquidity coverage ratio standard established by the Basel Committee on Banking Supervision. The requirement is designed to promote improvements in the measurement and management of liquidity risk. The final rule applies to all internationally active banking organizations, that is, banking organizations with more than $250 billion in total assets or more than $10 billion in on-balance sheet foreign exposure, and to consolidated subsidiary depository institutions of internationally active banking organizations with $10 billion or more in total consolidated assets. The proposed rule was issued on November 29, 2013, 78 FR 71818. The final rule was issued on October 10 2014, 79 FR 61439.

Regulatory Publication and Review Under the Economic Growth and Regulatory Paperwork Reduction Act of 1996 (12 CFR chapter I). The banking agencies are conducting a review of the regulations they have issued to identify outdated, unnecessary, or unduly burdensome regulations for insured depository institutions. This review is required by section 2222 of the Economic Growth and Regulatory Paperwork Reduction Act of 1996 (EGRPRA). The first of four Federal Register requests for comment was issued on June 4, 2014, 79 FR 32172.

Regulatory priorities for fiscal year 2015 include finalizing the proposals and interim final rules listed above as well as the following rulemakings:

Flood Insurance (12 CFR parts 22 and 172). The banking agencies, FCA, and NCUA plan to issue a proposed rule to amend their regulations regarding loans in areas having special flood hazards to implement certain provisions of the Homeowner Flood Insurance Affordability Act of 2014 (HFIAA), which amends some of the changes to the Flood Disaster Protection Act of 1973 mandated by Biggert-Waters. The proposal would establish requirements with respect to the escrow of flood insurance payments, consistent with the changes set forth in HFIAA. The proposal also would implement an exclusion in HFIAA for certain detached structures from the mandatory flood insurance purchase requirement.

Automated Valuation Models (Parts 34, 164). The banking agencies, NCUA, FHFA and CFPB, in consultation with the Appraisal Subcommittee and the Appraisal Standards Board of the Appraisal Foundation, are required to promulgate regulations to implement quality-control standards required for automated valuation models. Section 1473(q) of the Dodd-Frank 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.

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 Dodd-Frank 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 proposed rule was issued on April 14, 2011, 76 FR 21170. Work on a final rule is underway.

Credit Risk Retention (12 CFR part 43). The banking agencies, SEC, FHFA, and the Department of Housing and Urban Development proposed rules to implement the credit risk retention requirements of section 15G of the Securities Exchange Act of 1934 (15 U.S.C. section 78o-11), as added by section 941 of the Dodd-Frank 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 proposal was issued on September 20, 2013, 78 FR 57928. Work on a final rule is underway.

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.

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). Congress is currently considering extending the Act for an additional period of time.

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.

In the event Congress extends the Program Treasury will continue the ongoing work of implementing TRIA and any changes contained in the extension of the Act.