Federal Register / Vol. 76, No. 5 / Friday, January 7, 2011 / Rules and Regulations 1063 

ECCN 5D002 that is subject to the EAR 

(see § 734.3(b)(3) of the EAR). Such 

source code is eligible for License 

Exception TSU under this paragraph (e) 

even if it is subject to an express 

agreement for the payment of a licensing 

fee or royalty for commercial production 

or sale of any product developed using 

the source code. 

(2) Restrictions. This paragraph (e) 

does not authorize: 

(i) Export or reexport of any 

encryption software classified under 

ECCN 5D002 that does not meet the 

requirements of paragraph (e)(1), even if 

the software incorporates or is specially 

designed to use other encryption 

software that meets the requirements of 

paragraph (e)(1) of this section; or 

(ii) Any knowing export or reexport to 

a country listed in Country Group E:1 in 

Supplement No. 1 to part 740 of the 

EAR. 

(3) Notification requirement. You 

must notify BIS and the ENC Encryption 

Request Coordinator via e-mail of the 

Internet location (e.g., URL or Internet 

address) of the publicly available 

encryption source code or provide each 

of them a copy of the publicly available 

encryption source code. If you update or 

modify the source code, you must also 

provide additional copies to each of 

them each time the cryptographic 

functionality of the source code is 

updated or modified. In addition, if you 

posted the source code on the Internet, 

you must notify BIS and the ENC 

Encryption Request Coordinator each 

time the Internet location is changed, 

but you are not required to notify them 

of updates or modifications made to the 

encryption source code at the 

previously notified location. In all 

instances, submit the notification or 

copy to crypt@bis.doc.gov and to 

enc@nsa.gov. 

Note to paragraph (e): Posting 

encryption source code on the Internet 

(e.g., FTP or World Wide Web site) 

where it may be downloaded by anyone 

neither establishes ‘‘knowledge’’ of a 

prohibited export or reexport for 

purposes of this paragraph, nor triggers 

any ‘‘red flags’’ imposing a duty to 

inquire under the ‘‘Know Your 

Customer’’ guidance provided in 

Supplement No. 3 to part 732 of the 

EAR. Publicly available encryption 

object code software classified under 

ECCN 5D002 is not subject to the EAR 

when the corresponding source code 

meets the criteria specified in this 

paragraph (e), see § 734.3(b)(3) of the 

EAR. 

* * * * * 

PART 742—[AMENDED] 

■ 11. The authority citation for part 742 

continues to read as follows: 

Authority: 50 U.S.C. app. 2401 et seq.; 50 

U.S.C. 1701 et seq.; 22 U.S.C. 3201 et seq.; 

42 U.S.C. 2139a; 22 U.S.C. 7201 et seq.; 22 

U.S.C. 7210; Sec 1503, Pub. L. 108–11, 117 

Stat. 559; E.O. 12058, 43 FR 20947, 3 CFR, 

1978 Comp., p. 179; E.O. 12851, 58 FR 33181, 

3 CFR, 1993 Comp., p. 608; E.O. 12938, 59 

FR 59099, 3 CFR, 1994 Comp., p. 950; E.O. 

13026, 61 FR 58767, 3 CFR, 1996 Comp., p. 

228; E.O. 13222, 66 FR 44025, 3 CFR, 2001 

Comp., p. 783; Presidential Determination 

2003–23 of May 7, 2003, 68 FR 26459, May 

16, 2003; Notice of August 12, 2010, 75 FR 

50681 (August 16, 2010); Notice of November 

4, 2010, 75 FR 68673 (November 8, 2010). 

■ 11. Section 742.15 is amended: 

■ a. By revising the fourth sentence of 

paragraph (b) introductory text; and 

■ b. By adding a note to paragraph (b) 

introductory text to read as follows: 

* * * * * 

(b) * * * Exports and reexports 

authorized under paragraphs (b)(1) and 

(b)(3) of this section (including of mass 

market encryption software that would 

be considered publicly available under 

§ 734.3(b)(3) of the EAR) must be 

supported by an encryption registration 

in accordance with paragraph (b)(7) of 

this section and the specific instructions 

of paragraph (r)(1) of Supplement No. 2 

to part 748 of the EAR. * * * 

Note to introductory text of paragraph (b): 

Mass market encryption software that would 

be considered publicly available under 

§ 734.3(b)(3) of the EAR, and is authorized for 

export and reexport under this paragraph (b), 

remains subject to the EAR until the 

encryption registration and all applicable 

classification or self-classification 

requirements set forth in this section are 

fulfilled. 

* * * * * 

PART 772—[AMENDED] 

■ 11. The authority citation for part 772 

continue to read as follows: 

Authority: 50 U.S.C. app. 2401 et seq.; 50 

U.S.C. 1701 et seq.; E.O. 13222, 66 FR 44025, 

3 CFR, 2001 Comp., p. 783; Notice of August 

12, 2010, 75 FR 50681 (August 16, 2010). 

§ 772.1 [Amended] 

■ 12. In § 772.1, the definition of the 

term ‘‘commodity’’ is amended by 

removing the last two sentences of the 

definition. 

PART 774—[AMENDED] 

■ 13. The authority citation for part 774 

continues to read as follows: 

Authority: 50 U.S.C. app. 2401 et seq.; 50 

U.S.C. 1701 et seq.; 10 U.S.C. 7420; 10 U.S.C. 

7430(e); 22 U.S.C. 287c, 22 U.S.C. 3201 et 

seq., 22 U.S.C. 6004; 30 U.S.C. 185(s), 185(u); 

42 U.S.C. 2139a; 42 U.S.C. 6212; 43 U.S.C. 

1354; 15 U.S.C. 1824a; 50 U.S.C. app. 5; 22 

U.S.C. 7201 et seq.; 22 U.S.C. 7210; E.O. 

13026, 61 FR 58767, 3 CFR, 1996 Comp., p. 

228; E.O. 13222, 66 FR 44025, 3 CFR, 2001 

Comp., p. 783; Notice of August 12, 2010, 75 

FR 50681 (August 16, 2010). 

■ 14. In Supplement No. 1 to part 774 

(the Commerce Control List), Category 5, 

Part 2, Export Control Classification 

Number (ECCN) 5D002 is amended by 

adding the heading ‘‘License 

Requirements’’ after the ECCN heading 

and revising the last note in the License 

Requirements section to read as follows: 

Supplement No. 1 to Part 774 

* * * * * 

5D002 Information Security— 

‘‘Software as follows (see List of Items 

Controlled).’’ 

License Requirements 

* * * * * 

Note: Encryption source code classified 

under this entry remains subject to the EAR 

even when made publicly available in 

accordance with part 734 of the EAR. 

However, publicly available encryption 

object code software classified under ECCN 

5D002 is not subject to the EAR when the 

corresponding source code meets the criteria 

specified in § 740.13(e), see also § 734.3(b)(3) 

of the EAR. 

* * * * * 

Dated: December 20, 2010. 

Kevin J. Wolf, 

Assistant Secretary for Export 

Administration. 

[FR Doc. 2010–32803 Filed 1–6–11; 8:45 am] 

BILLING CODE 3510–33–P 

DEPARTMENT OF THE TREASURY 

Internal Revenue Service 

26 CFR Part 1 

[TD 9513] 

RIN 1545–BJ30 

Modifications of Debt Instruments 

AGENCY: Internal Revenue Service (IRS), 

Treasury. 

ACTION: Final regulation. 

SUMMARY: This document contains final 

regulations relating to the modification 

of debt instruments. The regulations 

clarify the extent to which the 

deterioration in the financial condition 

of the issuer is taken into account to 

determine whether a modified debt 

instrument will be recharacterized as an 

instrument or property right that is not 

debt. The regulations provide needed 


jdjones on DSK8KYBLC1PROD with RULES
1064 Federal Register / Vol. 76, No. 5 / Friday, January 7, 2011 / Rules and Regulations 

guidance to issuers and holders of debt 

instruments. 

DATES: Effective Date: These regulations 

are effective on January 7, 2011. 

Applicability Date: For dates of 

applicability, see § 1.1001–3(h). 

FOR FURTHER INFORMATION CONTACT: 

Diana Imholtz at (202) 622–3920 (not a 

toll-free number). 

SUPPLEMENTARY INFORMATION: 

Background 

This document contains amendments 

to 26 CFR part 1. On June 4, 2010, a 

notice of proposed rulemaking (REG– 

106750–10, 2010–25 IRB 765) was 

published in the Federal Register 

(75 FR 31736) that proposed 

amendments to § 1.1001–3 to clarify the 

circumstances in which the credit 

quality of the issuer should be 

considered in determining the nature of 

the instrument resulting from an 

alteration or modification of a debt 

instrument. Because no requests to 

speak were submitted by August 11, 

2010, no public hearing was held. One 

written comment was received in 

response to the notice of proposed 

rulemaking. After consideration of this 

comment, the proposed regulations are 

adopted as revised by this Treasury 

decision. The revisions are discussed in 

this preamble. 

Explanation and Summary of 

Comments 

The only comment received on the 

proposed regulations requested that the 

regulations clarify that § 1.1001–3 

applies not only to determine whether 

an exchange of the original debt 

instrument for a modified instrument 

has occurred but also to classify the 

modified instrument resulting from the 

exchange. The IRS and the Treasury 

Department intend that Federal income 

tax principles be used to determine the 

classification of a modified instrument 

resulting from an exchange except as 

specifically provided in § 1.1001–3(f)(7). 

To avoid doubt on the operation of the 

rules in the proposed regulations, the 

final regulations add language to the 

general rule of § 1.1001–3(b) to make 

clear that the rules provided in 

§ 1.1001–3(f)(7) apply to determine 

whether the modified instrument 

received in an exchange will be 

classified as debt for Federal income tax 

purposes. Thus, unless there is a 

substitution of a new obligor or the 

addition or deletion of a co-obligor, all 

relevant factors (for example, creditor 

rights or subordination) other than any 

deterioration in the financial condition 

of the issuer are taken into account in 

determining whether a modified 

instrument is properly classified as debt 

for Federal income tax purposes. 

Effective/Applicability Date 

The regulations apply to alterations of 

the terms of a debt instrument on or 

after January 7, 2011. A taxpayer, 

however, may rely on § 1.1001–3(f)(7) 

for alterations of the terms of a debt 

instrument occurring before that date. 

Special Analyses 

It has been determined that this 

Treasury decision is not a significant 

regulatory action as defined in 

Executive Order 12866. Therefore, a 

regulatory assessment is not required. It 

also has been determined that section 

553(b) of the Administrative Procedure 

Act (5 U.S.C. chapter 5) does not apply 

to these regulations, and because the 

regulation does not impose a collection 

of information on small entities, the 

Regulatory Flexibility Act (5 U.S.C. 

chapter 6) does not apply. Pursuant to 

section 7805(f) of the Internal Revenue 

Code, the notice of proposed rulemaking 

preceding this regulation was submitted 

to the Chief Counsel for Advocacy of the 

Small Business Administration for 

comment on its impact on small 

business. 

Drafting Information 

The principal author of these final 

regulations is Diana Imholtz, Office of 

Associate Chief Counsel (Financial 

Institutions & Products), IRS. However, 

other personnel from the IRS and the 

Treasury Department participated in 

their development. 

List of Subjects in 26 CFR Part 1 

Income taxes, Reporting and 

recordkeeping requirements. 

Adoption of the Amendments to the 

Regulations 

■ Accordingly, 26 CFR part 1 is 

amended as follows: 

PART 1—INCOME TAXES 

■ Paragraph 1. The authority citation 

for part 1 continues to read in part as 

follows: 

Authority: 26 U.S.C. 7805 * * * 

■ Par. 2. Section 1.1001–3 is amended 

by: 

■ 1. Revising paragraphs (b), (c)(2)(ii), 

(e)(5)(i) and (h). 

■ 2. Adding paragraph (f)(7). 

The revisions and addition read as 

follows: 

§ 1.1001–3 Modifications of debt 

instruments. 

* * * * * 

(b) General rule. For purposes of 

§ 1.1001–1(a), a significant modification 

of a debt instrument, within the 

meaning of this section, results in an 

exchange of the original debt instrument 

for a modified instrument that differs 

materially either in kind or in extent. A 

modification that is not a significant 

modification is not an exchange for 

purposes of § 1.1001–1(a). Paragraphs 

(c) and (d) of this section define the 

term modification and contain examples 

illustrating the application of the rule. 

Paragraphs (e) and (f) of this section 

provide rules for determining when a 

modification is a significant 

modification. Paragraph (f) of this 

section also provides rules for 

determining whether the modified 

instrument received in an exchange will 

be classified as an instrument or 

property right that is not debt for federal 

income tax purposes. Paragraph (g) of 

this section contains examples 

illustrating the application of the rules 

in paragraphs (e) and (f) of this section. 

(c) * * * 

(2) * * * 

(ii) Property that is not debt. An 

alteration that results in an instrument 

or property right that is not debt for 

Federal income tax purposes is a 

modification unless the alteration 

occurs pursuant to a holder’s option 

under the terms of the instrument to 

convert the instrument into equity of the 

issuer (notwithstanding paragraph 

(c)(2)(iii) of this section). The rules of 

paragraph (f)(7) of this section apply to 

determine whether an alteration or 

modification results in an instrument or 

property right that is not debt. 

* * * * * 

(e) * * * 

(5) Changes in the nature of a debt 

instrument—(i) Property that is not 

debt. A modification of a debt 

instrument that results in an instrument 

or property right that is not debt for 

Federal income tax purposes is a 

significant modification. The rules of 

paragraph (f)(7) of this section apply to 

determine whether a modification 

results in an instrument or property 

right that is not debt. 

* * * * * 

(f) * * * 

(7) Rules for determining whether an 

alteration or modification results in an 

instrument or property right that is not 

debt—(i) In general. Except as provided 

in paragraph (f)(7)(ii) of this section, the 

determination of whether an instrument 

resulting from an alteration or 

modification of a debt instrument will 

be recharacterized as an instrument or 

property right that is not debt for 

Federal income tax purposes shall take 


jdjones on DSK8KYBLC1PROD with RULES
Federal Register / Vol. 76, No. 5 / Friday, January 7, 2011 / Rules and Regulations 1065 

into account all of the factors relevant 

to such a determination. 

(ii) Financial condition of the 

obligor—(A) Deterioration in financial 

condition of the obligor generally 

disregarded. Except as provided in 

paragraph (f)(7)(ii)(B) of this section, in 

making a determination as to whether 

an instrument resulting from an 

alteration or modification of a debt 

instrument will be recharacterized as an 

instrument or property right that is not 

debt, any deterioration in the financial 

condition of the obligor between the 

issue date of the debt instrument and 

the date of the alteration or modification 

(as it relates to the obligor’s ability to 

repay the debt instrument) is not taken 

into account. For example, any decrease 

in the fair market value of a debt 

instrument (whether or not the debt 

instrument is publicly traded) between 

the issue date of the debt instrument 

and the date of the alteration or 

modification is not taken into account to 

the extent that the decrease in fair 

market value is attributable to the 

deterioration in the financial condition 

of the obligor and not to a modification 

of the terms of the instrument. 

(B) Substitution of a new obligor; 

addition or deletion of co-obligor. If 

there is a substitution of a new obligor 

or the addition or deletion of a coobligor, the rules in paragraph 

(f)(7)(ii)(A) of this section do not apply. 

* * * * * 

(h) Effective/applicability date—(1) In 

general. Except as otherwise provided 

in paragraph (h)(2) of this section, this 

section applies to alterations of the 

terms of a debt instrument on or after 

September 24, 1996. Taxpayers, 

however, may rely on this section for 

alterations of the terms of a debt 

instrument after December 2, 1992, and 

before September 24, 1996. 

(2) Exception. Paragraph (f)(7) of this 

section applies to an alteration of the 

terms of a debt instrument on or after 

January 7, 2011. A taxpayer, however, 

may rely on paragraph (f)(7) of this 

section for alterations of the terms of a 

debt instrument occurring before that 

date. 

Steven T. Miller, 

Deputy Commissioner for Services and 

Enforcement. 

Approved: December 21, 2010. 

Michael Mundaca, 

Assistant Secretary of the Treasury (Tax 

Policy). 

[FR Doc. 2011–86 Filed 1–6–11; 8:45 am] 

BILLING CODE 4830–01–P 

DEPARTMENT OF HOMELAND 

SECURITY 

Coast Guard 

33 CFR Part 165 

[Docket No. USCG–2010–1133] 

RIN 1625–AA87 

Security Zone; 23rd Annual North 

American International Auto Show, 

Detroit River, Detroit, MI 

AGENCY: Coast Guard, DHS. 

ACTION: Temporary final rule. 

SUMMARY: The Coast Guard is 

establishing a temporary security zone 

on the Detroit River, Detroit, Michigan. 

This zone is intended to restrict vessels 

from a portion of the Detroit River in 

order to ensure the safety of 

participants, visitors and public officials 

at the 23rd Annual North American 

International Auto Show (NAIAS) being 

held at Cobo Hall in downtown Detroit, 

MI. 

DATES: This rule is effective from 9 a.m. 

(local) on January 10, 2011, through 10 

p.m. (local) on January 23, 2011. 

ADDRESSES: Comments and material 

received from the public, as well as 

documents mentioned in this preamble 

as being available in the docket, are part 

of docket USCG–2010–1133 and are 

available online by going to http:// 

www.regulations.gov, inserting USCG– 

2010–1133 in the ‘‘Keyword’’ box, and 

then clicking ‘‘Search.’’ This material is 

also available for inspection or copying 

at the Docket Management Facility (M– 

30), U.S. Department of Transportation, 

West Building Ground Floor, Room 

W12–140, 1200 New Jersey Avenue, SE., 

Washington, DC 20590, between 9 a.m. 

and 5 p.m., Monday through Friday, 

except Federal holidays. 

FOR FURTHER INFORMATION CONTACT: If 

you have questions on this temporary 

rule, call or e-mail LT Katie Stanko, 

Prevention Department, Sector Detroit, 

Coast Guard; telephone (313) 568–9508, 

e-mail Katie.R.Stanko@uscg.mil. If you 

have questions on viewing the docket, 

call Renee V. Wright, Program Manager, 

Docket Operations, telephone 202–366– 

9826. 

SUPPLEMENTARY INFORMATION: 

Regulatory Information 

The Coast Guard is issuing this 

temporary final rule without prior 

notice and opportunity to comment 

pursuant to authority under section 4(a) 

of the Administrative Procedure Act 

(APA) (5 U.S.C. 553(b)). This provision 

authorizes an agency to issue a rule 

without prior notice and opportunity to 

comment when the agency for good 

cause finds that those procedures are 

‘‘impracticable, unnecessary, or contrary 

to the public interest.’’ Under 5 U.S.C. 

553(b)(B), the Coast Guard finds that 

good cause exists for not publishing a 

notice of proposed rulemaking (NPRM) 

with respect to this rule because 

delaying this rule would be contrary to 

the public interest of ensuring the 

security of the spectators and 

participants during this event should 

immediate action be necessary to 

prevent possible loss of life or property. 

Under 5 U.S.C. 553(d)(3), the Coast 

Guard finds that good cause exists for 

making this rule effective less than 30 

days after publication in the Federal 

Register. Delaying this rule would be 

contrary to the public interest of 

ensuring the security of the spectators 

and participants during this event 

should immediate action be necessary to 

prevent possible loss of life or property. 

Background and Purpose 

This temporary security zone is 

necessary to ensure the safety of the 

participants, visitors of the 23rd Annual 

North American International Auto 

Show (NAIAS) being held at Cobo Hall 

in downtown Detroit, MI from possible 

sabotage or other subversive acts. The 

public showing days of the NAIAS 

begin January 15 and extend through 

January 23. Prior to the public showing, 

there will also be multiple high profile 

events; including the press preview 

days (January 10–11, 2011), industry 

preview days (January 12–13, 2011), and 

the charity preview event (January 14, 

2011). In 2010, the NAIAS attendance 

for the public showing was over 650,000 

people and industry preview days 

attracted nearly 16,000 people 

representing 1,700 companies from 23 

countries. Attendance and participation 

at the 2011 NAIAS is anticipated to rival 

last year’s attendance and will likely be 

one of the largest media events in North 

America. Given the expected number of 

attendees, which includes high-profile 

visitors, at this event and the recent 

terrorist threats directed toward the City 

of Detroit, the Coast Guard is 

establishing and enforcing a security 

zone to safeguard the waterways from 

destruction, loss, or injury from 

sabotage or other subversive acts. 

All persons other than those approved 

by the Captain of the Port Detroit, or his 

authorized on-scene representative, are 

prohibited from entering or moving 

within this security zone. The Captain 

of the Port Detroit, or his authorized onscene representative, may be contacted 

via VHF Channel 16 for further 

instructions before transiting through 

the restricted area. The public will be 


jdjones on DSK8KYBLC1PROD with RULES