Federal Register / Vol. 69, No. 205 / Monday, October 25, 2004 / Rules and Regulations 62181

SUPPLEMENTARY INFORMATION: Phoenix 

Scientific, Inc., 3915 South 48th St. Ter., 

St. Joseph, MO 64503, filed a 

supplement to ANADA 200–265 that 

provides for use of PRAZI–C 

(praziquantel) Tablets for the removal of 

certain tapeworm parasites in dogs. 

Phoenix Scientific, Inc.’s PRAZI–C 

Tablets are approved as a generic copy 

of Bayer HealthCare LLC’s Tape Worm 

Tabs approved under NADA 111–798. 

The supplemental ANADA is approved 

as of September 15, 2004, and the 

regulations are amended in 21 CFR 

520.1870 to reflect the approval. The 

basis of approval is discussed in the 

freedom of information summary.

In accordance with the freedom of 

information provisions of 21 CFR part 

20 and 21 CFR 514.11(e)(2)(ii), a 

summary of safety and effectiveness 

data and information submitted to 

support approval of this application 

may be seen in the Division of Dockets 

Management (HFA–305), Food and Drug 

Administration, 5630 Fishers Lane, rm. 

1061, Rockville, MD 20852, between 9 

a.m. and 4 p.m., Monday through 

Friday.

The agency has determined under 21 

CFR 25.33(a)(1) that this action is of a 

type that does not individually or 

cumulatively have a significant effect on 

the human environment. Therefore, 

neither an environmental assessment 

nor an environmental impact statement 

is required.

This rule does not meet the definition 

of ‘‘rule’’ in 5 U.S.C. 804(3)(A) because 

it is a rule of ‘‘particular applicability.’’

Therefore, it is not subject to the 

congressional review requirements in 5 

U.S.C. 801–808.

List of Subjects in 21 CFR Part 520

Animal drugs.

■ Therefore, under the Federal Food, 

Drug, and Cosmetic Act and under 

authority delegated to the Commissioner 

of Food and Drugs and redelegated to the 

Center for Veterinary Medicine, 21 CFR 

part 520 is amended as follows:

PART 520—ORAL DOSAGE FORM 

NEW ANIMAL DRUGS

■ 1. The authority citation for 21 CFR 

part 520 continues to read as follows:

Authority: 21 U.S.C. 360b.

■ 2. Section 520.1870 is amended by 

revising paragraph (b)(2) to read as 

follows:

§ 520.1870 Praziquantel tablets.

* * * * *

(b) * * *

(2) No. 059130 for use of the product 

described in paragraph (a)(1) of this 

section, as in paragraph (c)(1) of this 

section.

* * * * *

Dated: October 14, 2004.

Steven D. Vaughn,

Director, Office of New Animal Drug 

Evaluation, Center for Veterinary Medicine.

[FR Doc. 04–23761 Filed 10–22–04; 8:45 am]

BILLING CODE 4160–01–S

DEPARTMENT OF HEALTH AND 

HUMAN SERVICES

Food and Drug Administration

21 CFR Part 524

Ophthalmic and Topical Dosage Form 

New Animal Drugs; Ivermectin Topical 

Solution

AGENCY: Food and Drug Administration, 

HHS.

ACTION: Final rule.

SUMMARY: The Food and Drug 

Administration (FDA) is amending the 

animal drug regulations to reflect 

approval of an abbreviated new animal 

drug application (ANADA) filed by 

Norbrook Laboratories, Ltd. The 

ANADA provides for topical use of 

ivermectin on cattle for treatment and 

control of various species of external 

and internal parasites.

DATES: This rule is effective October 25, 

2004.

FOR FURTHER INFORMATION CONTACT:

Lonnie W. Luther, Center for Veterinary 

Medicine (HFV–104), Food and Drug 

Administration, 7519 Standish Pl., 

Rockville, MD 20855, 301–827–8549, email: lonnie.luther@fda.gov.

SUPPLEMENTARY INFORMATION: Norbrook 

Laboratories, Ltd., Station Works, 

Newry BT35 6JP, Northern Ireland, filed 

ANADA 200–272 for NOROMECTIN 

(ivermectin) Pour On for Cattle. The 

application provides for topical use of 

0.5 percent ivermectin solution on cattle 

for the treatment and control of various 

species of gastrointestinal nematodes, 

lungworms, grubs, horn flies, lice, and 

mites. Norbrook Laboratories, Ltd.’s 

NOROMECTIN Pour-On for Cattle is 

approved as a generic copy of Merial 

Ltd.’s IVOMEC Pour-On for Cattle, 

approved under NADA 140–841. The 

application is approved as of September 

13, 2004, and the regulations are 

amended in 21 CFR 524.1193 to reflect 

the approval. The basis of approval is 

discussed in the freedom of information 

summary.

In accordance with the freedom of 

information provisions of 21 CFR part 

20 and 21 CFR 514.11(e)(2)(ii), a 

summary of safety and effectiveness 

data and information submitted to 

support approval of this application 

may be seen in the Division of Dockets 

Management (HFA–305), Food and Drug 

Administration, 5630 Fishers Lane, rm. 

1061, Rockville, MD 20852, between 9 

a.m. and 4 p.m., Monday through 

Friday.

The agency has determined under 21 

CFR 25.33(a)(1) that this action is of a 

type that does not individually or 

cumulatively have a significant effect on 

the human environment. Therefore, 

neither an environmental assessment 

nor an environmental impact statement 

is required.

This rule does not meet the definition 

of ‘‘rule’’ in 5 U.S.C. 804(3)(A) because 

it is a rule of ‘‘particular applicability.’’

Therefore, it is not subject to the 

congressional review requirements in 5 

U.S.C. 801–808.

List of Subjects in 21 CFR Part 524

Animal drugs.

■ Therefore, under the Federal Food, 

Drug, and Cosmetic Act and under 

authority delegated to the Commissioner 

of Food and Drugs and redelegated to the 

Center for Veterinary Medicine, 21 CFR 

part 524 is amended as follows:

PART 524—OPHTHALMIC AND 

TOPICAL DOSAGE FORM NEW 

ANIMAL DRUGS

■ 1. The authority citation for 21 CFR 

part 524 continues to read as follows:

Authority: 21 U.S.C. 360b.

§ 524.1193 [Amended]

■ 2. Section 524.1193 is amended in 

paragraph (b)(2) by adding in numerical 

order ‘‘055529’’.

Dated: October 8, 2004.

Steven D. Vaughn,

Director, Office of New Animal Drug 

Evaluation, Center for Veterinary Medicine.

[FR Doc. 04–23760 Filed 10–22–04; 8:45 am]

BILLING CODE 4160–01–S

DEPARTMENT OF THE TREASURY

Internal Revenue Service 

26 CFR Parts 1 and 602 

[TD 9160] 

RIN 1545–AY35 

Information Reporting Under Section 

6050P for Discharges of Indebtedness

AGENCY: Internal Revenue Service (IRS), 

Treasury.

ACTION: Final regulations.

62182 Federal Register / Vol. 69, No. 205 / Monday, October 25, 2004 / Rules and Regulations 

SUMMARY: This document contains final 

regulations relating to the information 

reporting requirement under section 

6050P of the Internal Revenue Code 

(Code) for discharges of indebtedness. 

These final regulations reflect the 

enactment of section 6050P(c)(2)(D) by 

the Ticket to Work and Work Incentives 

Improvement Act of 1999. These final 

regulations provide guidance on the 

information reporting requirements for 

discharges of indebtedness by 

organizations that have a significant 

trade or business of lending money. 

This document also contains 

amendments to the existing final 

regulations to reflect the amendments to 

section 6050P by the Debt Collection 

Improvement Act of 1996.

DATES: Effective date: These regulations 

are effective October 25, 2004. 

Applicability date: These regulations 

are applicable to discharges of 

indebtedness occurring on or after 

January 1, 2005.

FOR FURTHER INFORMATION CONTACT:

Joseph P. Dewald, at (202) 622–4910 

(not a toll-free number).

SUPPLEMENTARY INFORMATION: 

Background 

This document contains amendments 

to 26 CFR parts 1 and 602. The 

amendments describe circumstances in 

which an organization has a significant 

trade or business of lending money for 

purposes of section 6050P(c)(2)(D). The 

amendments also conform the existing 

final regulations under section 6050P to 

cover applicable entities, including 

executive, judicial, and legislative 

agencies. 

In general, section 6050P(a) requires 

certain organizations (applicable 

entities) to file information returns with 

the Internal Revenue Service (IRS), and 

to furnish information statements to 

debtors, reporting discharges of 

indebtedness of $600 or more. As 

enacted by the Omnibus Budget 

Reconciliation Act of 1993, Pub. L. 103–

66 (107 Stat. 312, 531–532 (1993)), 

section 6050P required ‘‘applicable 

financial entities’’ (including Federal 

executive agencies) to report discharges 

of indebtedness. The Debt Collection 

Improvement Act of 1996, Pub. L. 104–

134 (110 Stat. 1321, 368–369 (1996)) 

(the 1996 Act), amended section 6050P 

to cover ‘‘applicable entities.’’ Section 

6050P(c)(1) as amended defines an 

applicable entity to include: (1) Any 

executive, judicial, or legislative agency 

(as defined in 31 U.S.C. 3701(a)(4)); and 

(2) any applicable financial entity. 

Section 6050P(c)(2)(D) was enacted by 

section 553(a) of the Ticket to Work and 

Work Incentives Improvement Act of 

1999, Pub. L. 106–170 (113 Stat. 1860, 

1931 (1999)) (the 1999 Act), effective for 

discharges of indebtedness occurring 

after December 31, 1999. The 1999 Act 

amended section 6050P by expanding 

the applicable financial entities required 

to report. As expanded, the term 

includes any organization ‘‘a significant 

trade or business of which is the lending 

of money.’’

The IRS issued Notice 2000–22 

(2000–1 C.B. 902), which provides that 

penalties under sections 6721 and 6722 

for failures to report discharges of 

indebtedness occurring before January 

1, 2001, will not be imposed on 

organizations newly required to report 

under section 6050P(c)(2)(D). In Notice 

2001–8 (2001–1 C.B. 374), for these 

same organizations, the IRS extended 

the waiver of penalties to failures to 

report discharges of indebtedness 

occurring before the first calendar year 

that begins at least two months after 

final regulations under section 

6050P(c)(2)(D) are issued. 

A notice of proposed rulemaking 

under section 6050P(c)(2)(D) (REG–

107524–00) was published in the 

Federal Register (67 FR 40629) on June 

13, 2002. The proposed regulations 

address whether an organization has a 

significant trade or business of lending 

money for purposes of section 

6050P(c)(2)(D). The proposed 

regulations also reflect the amendments 

made by the 1996 Act. A public hearing 

was held on the proposed regulations on 

October 8, 2002. The IRS received 

written and electronic comments 

responding to the notice of proposed 

rulemaking. After consideration of all 

comments, the proposed regulations are 

adopted as revised by this Treasury 

decision. 

Explanation of Provisions and 

Summary of Comments 

Section 6050P(c)(2)(D) requires any 

organization ‘‘a significant trade or 

business of which is the lending of 

money’’ to report discharges of 

indebtedness. The proposed regulations 

provide guidance on whether an 

organization is engaged in a trade or 

business of lending money and whether 

that trade or business is significant. In 

general, the proposed regulations 

provide that the lending of money is a 

significant trade or business if money is 

loaned on a regular and continuing 

basis. The proposed regulations provide 

three safe harbors under which 

organizations will be considered not to 

have a significant trade or business of 

lending money. The final regulations 

retain these rules. 

1. Comments Concerning the Proposed 

Regulations 

A. Obligations Acquired From Persons 

Other Than the Debtor 

Several commentators requested 

clarification of the information reporting 

requirements for debt obligations 

acquired from persons other than the 

debtor. Section 1.6050P–2(e) of the 

proposed regulations provides that 

lending money includes acquisition of a 

debt obligation from a prior holder of 

the obligation and that gross income 

from an indebtedness is treated as gross 

income from lending money regardless 

of whether the debt was originated by 

the organization itself or by a related 

party. The final regulations clarify that 

a debt obligation acquired from the 

debtor or any person other than the 

debtor is subject to reporting under 

section 6050P(c)(2)(D) if the owner of 

the obligation is engaged in a significant 

trade or business of lending money. 

B. Gross Income From Lending of 

Money 

One commentator requested 

clarification on what amounts constitute 

gross income from lending money. 

Section 1.6050P–2(d) of the proposed 

regulations provides that gross income 

from lending money includes income 

from interest, fees, penalties, merchant 

discount, interchange, and gains arising 

from the sale of an indebtedness. The 

final regulations clarify that gross 

income from lending money includes: 

Interest (including qualified stated 

interest, original issue discount, and 

market discount); gains arising from the 

sale or other disposition of 

indebtedness; penalties with respect to 

indebtedness (whether or not the 

penalty is interest for Federal tax 

purposes); and fees with respect to 

indebtedness, including merchant 

discount or interchange (whether or not 

the fee is interest for Federal tax 

purposes).

C. ‘‘Factoring’’ Transactions 

(i) Commentators’ Description of 

‘‘Factoring’’ Transactions.—Several 

commentators addressed reporting 

issues associated with what the 

commentators called ‘‘factoring.’’ One 

commentator described factoring 

transactions, primarily between 

unrelated parties, as ordinarily 

involving (a) a factor, who performs the 

functions described below with respect 

to a pool of short-term accounts 

receivable (30-, 60-, or 90-day debt), (b) 

the factor’s client, who sells goods in 

exchange for the short-term accounts 

receivable, and (c) the client’s 

customers, who buy the goods and who 

Federal Register / Vol. 69, No. 205 / Monday, October 25, 2004 / Rules and Regulations 62183

issue the accounts receivable. According 

to the commentator, the factor generally 

performs the following functions: Initial 

credit investigation, selective 

assumption of the risk of loss 

(sometimes referred to as guaranteeing 

credit), on-going credit monitoring of 

the client’s customers, collection, and 

bookkeeping. 

As described by the commentator, 

after the credit investigation (on either 

a customer-specific or a pooled basis), 

the factor informs the client if the factor 

is willing to guarantee the receivables 

from some or all of the client’s 

customers. For customers whose 

accounts receivable the factor will not 

guarantee, the client may enter into the 

sale and accept an account receivable 

without the benefit of the factor’s 

guarantee or may refuse to extend credit 

and either make the sale for cash or 

forego the sale altogether. 

The commentator described factors’

competitive fees for typical transactions 

with unrelated parties as ranging 

between 0.35 percent of the face value 

of the accounts receivable (if the client 

retains the collection function) and 0.70 

percent of that face value (if the factor 

undertakes the collection function). In 

either case, the face value on the basis 

of which the fee is computed includes 

any accounts receivable that the client 

accepts from customers even though the 

factor is unwilling to assume the risk of 

loss on those accounts receivable. The 

factor determines the rate at which fees 

are charged on the basis of the initial 

credit investigation and of whether the 

factor undertakes collection and 

bookkeeping. 

To facilitate collection, according to 

the commentator, factors generally take 

legal title to the accounts receivable 

either at the time of, or shortly after, the 

sales transactions. If the factor performs 

all collection, the factor may take title 

to all accounts receivable as soon as 

they are issued by the customers. If, 

however, the client retains the initial 

collection responsibilities for a specified 

short period of time, the factor may take 

title at the end of that period only to 

those accounts receivable that are not 

paid within that period. If the factor 

guarantees the accounts receivable and 

collects, the factor pays the client, net 

of the factor’s fees, either soon after the 

receivables are collected or by a 

specified time if the receivables have 

not been collected. If the receivables are 

not guaranteed, the client receives 

payment only if and when the customer 

pays. The commentator explained that, 

if the factor has guaranteed the 

receivables, the factor has the right to 

recovery against a customer. If the factor 

does not guarantee the receivable and 

assumes collection responsibility, the 

factor assigns title back to the client 

when the receivables become 

uncollectible under the contract. 

For some clients, the factor also 

provides liquidity by advancing funds 

against the client’s aggregate accounts 

receivable. Advances are made based on 

the factor’s assessment of the client’s 

creditworthiness and are treated as a 

reduction of the amount the factor owes 

the client when the receivables are 

collected or, if the receivables are 

guaranteed, when the factor is required 

to pay the client under the guarantee. 

These advances are satisfied by the 

factor reducing the payments otherwise 

owed to the client. Interest is charged 

for the period of the outstanding 

advances, and the interest provides 

additional income to the factor over and 

above the fees for the credit 

investigation, credit guarantee, 

collection, and bookkeeping functions. 

The commentator urged that the 

unique aspects of these three-party 

relations make it extremely difficult for 

factors to report discharges under 

section 6050P. The commentator 

pointed out that, although the factor 

may hold title to a customer account 

receivable at the time the account 

receivable is discharged, the client is the 

one with a direct relation with the 

customer. Even if the factor agreed to 

guarantee accounts receivable of a 

customer, that decision may have been 

made after an inquiry into the 

characteristics of the client’s customers 

as a group, without any specific 

knowledge about the particular 

customer. Thus, the factor may know 

nothing about a customer that happens 

to be in default. 

For these reasons, the commentator 

suggested that reporting under section 

6050P should be the responsibility of 

the client, which has, or had, a direct 

relation with the debtor. The 

commentator further suggested that, if 

factors are required to report, the $600 

dollar threshold should be increased or 

any inclusion of the debtor’s taxpayer 

identification number (TIN) should be 

optional. 

The reporting requirements under 

section 6050P fall on the entity that 

owns the debt that is discharged. In the 

case of the transactions that the 

commentator called ‘‘factoring,’’

therefore, it is necessary to determine 

who is the owner of the account 

receivable for Federal tax purposes. This 

determination has to be made on the 

basis of all the facts and circumstances. 

The first question is whether the 

lending of money is a significant trade 

or business of the factor for the taxable 

year. This will be the case if, on a 

regular and continuing basis during the 

calendar year, the factor makes 

advances to the clients or acquires the 

clients’ accounts receivable. If the factor 

is an applicable entity for purposes of 

section 6050P(c)(2)(D), the second 

question is whether the factor owned 

the account receivable for Federal tax 

purposes when the account receivable 

was discharged. Section 6050P(c)(2)(D) 

does not require reporting by a factor if 

the factor was not the owner of the 

account receivable for Federal tax 

purposes at the time of the identifiable 

event marking the discharge.

The final regulations do not provide 

guidance on whether a factoring 

transaction should be treated as a 

purchase of accounts receivable for 

Federal tax purposes. Whether or not a 

factoring transaction is treated as a 

purchase for Federal tax purposes 

depends on the facts and circumstances 

of each transaction. The final 

regulations provide an example 

describing the reporting obligations if an 

account receivable is treated as 

purchased for Federal tax purposes and, 

alternatively, if it is not treated as 

purchased. This example, however, is 

not intended to address whether a 

purchase has taken place for Federal tax 

purposes, and, thus, no inference is 

intended concerning the character of the 

transactions addressed in these 

regulations for purposes of section 

6050P or for other provisions, including 

for purposes of determining effectively 

connected income of a foreign factor 

under § 1.864–4(c)(5). 

After evaluating the concerns 

described by the commentator and the 

requirements imposed by section 6050P, 

the IRS and the Treasury Department 

believe that the reporting requirements 

of these final regulations, combined 

with the January 1, 2005, effective date, 

provide reasonable and administrable 

rules and are consistent with the general 

requirements applicable to information 

reporting. The final regulations, 

therefore, do not adopt the 

recommendation that the $600 

threshold be raised for debt obligations 

acquired from persons other than the 

debtor, nor do the final regulations 

adopt the recommendation that a factor 

be allowed to report discharges without 

the debtor’s TIN. The $600 threshold 

and the requirement to include the 

debtor’s TIN derive from section 6050P. 

(ii) Filer May Request a Waiver of 

Penalty if the Filer Cannot Obtain the 

Debtor’s TIN.—If section 6050P requires 

an applicable entity to file an 

information return, the applicable entity 

may request a waiver under section 

6724 of any information reporting 

penalties under section 6721 and 6722. 

62184 Federal Register / Vol. 69, No. 205 / Monday, October 25, 2004 / Rules and Regulations 

Under section 6724, the IRS may waive 

the penalties if the failure is due to 

reasonable cause and is not due to 

willful neglect. Therefore, upon a 

showing of reasonable cause, the IRS 

may waive the penalty under section 

6721 for failure to file complete and 

correct information returns (including 

the failure to include a TIN) and the 

penalty under section 6722 for failure to 

furnish complete and correct 

information statements (including the 

failure to include a TIN). 

Under § 301.6724–1(a)(2)(ii), a penalty 

may be waived for reasonable cause if 

the failure arose from events beyond the 

filer’s control. Section 301.6724–

1(c)(6)(i) provides that events beyond 

the filer’s control include the failure of 

another person to provide the 

information necessary for the filer to file 

a correct information return. Section 

301.6724–1(a)(2) of the regulations 

provides that to establish reasonable 

cause, the filer must have acted in a 

responsible manner both before and 

after the failure occurred. Section 

301.6724–1(e) provides that a filer must 

undertake to act in a responsible 

manner in order to establish reasonable 

cause for failure to include a TIN (the 

TIN solicitation rules). 

Section 1.6050P–1(e)(6) of the existing 

final regulations provides special TIN 

solicitation rules for discharges of 

indebtedness. Under these rules, a filer 

must undertake to act in a responsible 

manner for purposes of section 6724 

and the regulations. Section 1.6050P–

1(e)(6) provides that a TIN obtained at 

the time of the indebtedness satisfies the 

solicitation requirements, unless the 

entity required to file knows that the 

TIN is incorrect. The regulations require 

the filer to solicit the debtor’s TIN if it 

has not obtained the debtor’s TIN prior 

to the occurrence of an identifiable 

event marking the discharge of 

indebtedness. The regulations further 

provide that, if the filer solicits the 

debtor’s TIN in the manner described in 

§ 301.6724–1(e)(1)(i) and (2), the filer is 

deemed to have acted in a responsible 

manner for purposes of section 6724. 

Section 1.6050P–1(e)(6)(ii) contemplates 

that the filer may undertake the TIN 

solicitation after the occurrence of the 

identifiable event. Therefore, a factor 

that fails to include a debtor’s TIN on 

the required information return and 

information statement may request a 

waiver of penalties and may establish 

reasonable cause under section 6724 if 

it complies with the special TIN 

solicitation rules in § 1.6050P–1(e)(6). 

D. Related Sellers of Nonfinancial 

Goods or Services 

Commentators requested clarification 

as to whether a finance company that 

acquires installment sales contracts 

from a related seller should be 

considered an organization that has a 

significant trade or business of lending 

money even if the seller would qualify 

for the exception to reporting for sellerfinancing transactions. Specifically, the 

commentators urged that a finance 

company related to a commonly owned 

automobile dealership not be required 

to report the discharge of an installment 

sales contract that originated between 

the automobile dealership and an 

automobile purchaser. 

The preamble to the proposed 

regulations explains that section 

6050P(c)(2)(D) applies on an entity-byentity basis and that the seller-financing 

exception is not available to a separate 

financing subsidiary of a retailer. The 

1999 Act took an entity-by-entity 

approach when it expanded the scope of 

section 6050P to reach ‘‘any 

organization a significant trade or 

business of which is the lending of 

money (such as finance companies and 

credit card companies whether or not 

affiliated with financial institutions).’’

See Joint Committee on Taxation Staff, 

General Explanation of Tax Legislation 

Enacted in the 106th Congress, 107th 

Cong., 1st Sess. 48 (2001) (emphasis 

added). The final regulations, therefore, 

do not adopt the recommendation to 

provide an exception to reporting for a 

company that finances purchases by the 

customers of a separate, but related, 

seller of nonfinancial goods or services. 

E. Reporting Amounts That Section 108 

Excludes From the Debtor’s Income 

Several commentators noted that 

often debtors may be insolvent at the 

time the debt is discharged and that, in 

these cases, the discharge is excludable 

from income under section 108(a)(1)(B). 

The legislative history to section 6050P, 

however, reflects that Congress intended 

entities to report discharges regardless 

of whether the debtor is subject to tax 

on the discharged debt, including 

whether the discharge qualifies for 

exclusion under section 108. See H.R. 

Conf. Rep. No. 213, 103d Cong., 1st 

Sess. 671 (1993). This principle is 

reflected in the general rule of 

§ 1.6050P–1(a)(3) of the existing final 

regulations and is not changed by this 

Treasury Decision. The existing 

regulations provide, ‘‘Except as 

otherwise provided in [§ 1.6050P–1], 

discharged indebtedness must be 

reported regardless of whether the 

debtor is subject to tax on the 

discharged debt under sections 61 and 

108 or otherwise by applicable law.’’

F. Reporting Discharges of FFELP Loans 

Other commentators requested 

clarification on the information 

reporting requirements for public, 

nonprofit guarantors that participate in 

the Federal Family Education Loan 

Program (FFELP) if the debtor defaults 

on the FFELP loan. According to the 

comments, a typical FFELP transaction 

involves a borrower, a lender (such as 

a bank, savings and loan association, 

credit union, school, or state or private 

nonprofit agency), a state or private 

nonprofit organization (guaranty 

agency), and the U.S. Department of 

Education. If a guaranty agency receives 

a default claim for nonpayment of a 

FFELP student loan, the guaranty 

agency generally pays a percentage of 

the outstanding balance to the holder of 

the loan. The U.S. Department of 

Education, in turn, reimburses the 

guaranty agency for a percentage of the 

default claim paid to the holder of the 

loan. The guaranty agency then acts on 

behalf of the U.S. Department of 

Education collecting against the 

borrower and remitting any amount 

collected, less a percentage for 

collection costs, to the U.S. Department 

of Education. 

One commentator suggested that the 

activities of the guaranty agency do not 

constitute the lending of money. This 

commentator suggested that guarantors 

of FFELP student loans are not 

applicable entities as defined in section 

6050P(c)(2)(D). Another commentator 

suggested that the final regulations 

provide that the information reporting 

requirements under section 6050P do 

not apply to any student loan made 

under Title IV of the Higher Education 

Act, including student loans under the 

FFELP. 

The information reporting 

requirements under section 6050P apply 

to student loans made under Title IV of 

the Higher Education Act. If the owner 

of the student loan for Federal tax 

purposes is an entity or organization 

that is an applicable entity within the 

meaning of section 6050P(c)(1), the 

owner must report under section 6050P 

upon the occurrence of an identifiable 

event marking the discharge of the 

indebtedness. 

2. Comments Concerning the Existing 

Final Regulations 

Several commentators raised issues 

relating to the reporting requirements in 

§ 1.6050P–1 of the existing final 

regulations. These comments are 

beyond the scope of this regulation 

project, which addresses whether an 

Federal Register / Vol. 69, No. 205 / Monday, October 25, 2004 / Rules and Regulations 62185

organization has a significant trade or 

business of lending money for purposes 

of section 6050P(c)(2)(D), but these 

comments may be addressed in future 

guidance. 

A. Amounts Forgiven Pursuant to the 

Terms of a Loan 

Commentators requested clarification 

as to whether an organization is 

required to report amounts forgiven 

pursuant to the terms of a debt 

obligation, including loan forgiveness 

under the FFELP upon a stated event 

(such as death, disability, or satisfaction 

of the service requirements of the 

Teacher Loan Forgiveness Program). 

The IRS may issue future guidance 

under section 6050P addressing 

amounts forgiven pursuant to the terms 

of a debt obligation for purposes of 

section 6050P. Pending issuance of 

future guidance, applicable entities will 

not be subject to penalties under section 

6721 and section 6722 for failure to 

report under section 6050P amounts 

forgiven pursuant to the terms of a debt 

obligation. 

B. Amounts That Are Defined as 

‘‘Indebtedness’’ Under § 1.6050P–1(c) of 

the Existing Final Regulations but That 

Do Not Arise in the Context of a MoneyLending Transaction 

One commentator requested 

clarification of the information reporting 

requirements for amounts that are owed 

to an organization but that do not arise 

in the context of a money-lending 

transaction. The commentator suggested 

that the definition of indebtedness in 

§ 1.6050P–1(c) of the existing final 

regulations should be revised to require 

reporting only of discharged amounts 

that would give rise to income under 

section 61(a)(12) and that the definition 

should cover only amounts arising in 

money-lending transactions. 

Alternatively, the commentator 

suggested that amounts owed that arise 

in non-money-lending transactions 

should not be ‘‘indebtedness’’ for 

purposes of section 6050P unless, and 

until, reduced to judgment. This 

commentator also suggested that 

discharges of amounts such as fees, 

penalties, administrative costs, and 

fines should not be subject to reporting 

under section 6050P regardless of 

whether the transaction is a moneylending transaction. Section 1.6050P–

1(d)(3) of the existing final regulations 

provides an exception to reporting for 

discharges of these amounts only in 

lending transactions. 

In particular, the commentator was 

concerned about amounts arising in 

leasing transactions. An organization 

that engages only in transactions that 

are treated as leases, and not as sales, for 

Federal tax purposes is not required to 

report under section 6050P, because 

leasing is not lending money for 

purposes of section 6050P(c)(2)(D) and 

§ 1.6050P–2(a). However, if an 

organization is otherwise engaged in a 

significant trade or business of lending 

money and is also engaged in leasing 

transactions, the existing final 

regulations under section 6050P would 

require the organization to report the 

discharge of any amount owed to it, 

including fees, administrative costs, and 

fines for the non-lending leasing 

transactions. 

The IRS and the Treasury Department 

may issue future guidance under section 

6050P addressing the requirements for 

reporting amounts discharged in nonlending transactions. Pending issuance 

of future guidance, applicable entities 

will not be subject to penalties under 

section 6721 and section 6722 for failure 

under section 6050P to report amounts 

discharged in non-lending transactions.

Effective Date 

In order to give organizations that are 

subject to section 6050P(c)(2)(D) time to 

comply with the reporting requirements 

of section 6050P, these regulations 

apply to discharges that occur on or 

after January 1, 2005. 

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 

has also 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 

regulations do 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 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 Joseph P. Dewald, Office 

of Associate Chief Counsel (Procedure 

and Administration), Administrative 

Provisions and Judicial Practice 

Division. However, other personnel 

from the IRS and Treasury Department 

participated in the development of the 

regulations.

List of Subjects 

26 CFR Part 1 

Income taxes, Reporting and 

recordkeeping requirements. 

26 CFR Part 602 

Reporting and recordkeeping 

requirements.

Adoption of Amendment to the 

Regulations

■ Accordingly, 26 CFR parts 1 and 602 

are amended as follows:

PART 1—INCOME TAXES

■ Paragraph 1. The authority citation for 

part 1 is amended by adding an entry in 

numerical order to read, in part, as 

follows:

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

Section 1.6050P–2 also issued under 26 

U.S.C. 6050P. * * *

■ Par. 2. Section 1.6050P–0 is amended 

as follows:

■ 1. The introductory text is amended by 

adding the language ‘‘and § 1.6050P–2’’

immediately after the language 

‘‘§ 1.6050P–1’’.

■ 2. The entry for § 1.6050P–1 is 

amended by removing the word 

‘‘financial’’.

■ 3. The entry for § 1.6050P–1(e)(2)(v) is 

added.

■ 4. The entries for §§ 1.6050P–1(e)(5) 

through (e)(8) are redesignated as entries 

for §§ 1.6050P–1(e)(6) through (e)(9) and 

a new entry for § 1.6050P–1(e)(5) is 

added.

■ 5. The entries for § 1.6050P–2 are 

added. 

The additions read as follows:

§ 1.6050P–0 Table of contents.

* * * * *

§ 1.6050P–1 Information reporting for 

discharges of indebtedness by certain 

entities.

* * * * *

(e) * * * 

(2) * * * 

(v) No double reporting.

* * * * *

(5) Entity formed or availed of to hold 

indebtedness.

* * * * *

§ 1.6050P–2 Organization a significant 

trade or business of which is the lending of 

money. 

(a) In general. 

(b) Safe harbors. 

(1) Organizations not subject to 

section 6050P in the previous calendar 

year. 

(2) Organizations that were subject to 

section 6050P in the previous calendar 

year. 

62186 Federal Register / Vol. 69, No. 205 / Monday, October 25, 2004 / Rules and Regulations 

(3) No test year. 

(c) Seller financing. 

(d) Gross income from lending of 

money. 

(e) Acquisition of an indebtedness 

from a person other than the debtor 

included in lending money. 

(f) Test year. 

(g) Predecessor organization. 

(h) Examples. 

(i) Effective date.

■ Par. 3. Section 1.6050P–1 is amended 

as follows:

■ 1. The section heading for

§ 1.6050P–1 is amended by removing the 

word ‘‘financial’’.

■ 2. Paragraphs (a)(1), (b)(2)(i)(F), (c), 

(e)(2)(i), (e)(3), (e)(7), (f)(1) introductory 

text, (f)(1)(ii), and (f)(2) are amended by 

removing the word ‘‘financial’’.

■ 3. The first sentence of paragraph (c) is 

amended by adding the language ‘‘and 

§ 1.6050P–2’’ immediately after the word 

‘‘section’’.

■ 4. Paragraph (e)(2)(v) is added.

■ 5. Paragraph (e)(4) is amended by 

removing ‘‘6050P(c)(1)(A)’’ each time it 

appears and adding ‘‘6050P(c)(2)(A)’’ in 

its place and by removing 

‘‘6050P(c)(1)(C)’’ and adding 

‘‘6050P(c)(2)(C)’’ in its place.

■ 6. Paragraphs (e)(5) through (e)(8) are 

redesignated as (e)(6) through (e)(9) and 

a new paragraph (e)(5) is added.

■ 7. Paragraph (e)(7)(i), as redesignated, 

is amended by removing ‘‘(e)(6)’’ where 

it appears and adding ‘‘(e)(7)’’ and 

paragraph (e)(7)(ii), as redesignated, is 

amended by removing ‘‘(e)(6)(i)’’ where 

it appears and adding ‘‘(e)(7)(i)’’ in its 

place.

■ 8. Paragraph (h)(1) is amended by 

adding ‘‘and, except paragraph (e)(5) of 

this section, which applies to discharges 

of indebtedness occurring after 

December 31, 2004.’’, immediately after 

the language ‘‘1994’’. 

The additions read as follows:

§ 1.6050P–1 Information reporting for 

discharges of indebtedness by certain 

entities.

* * * * *

(e) * * * 

(2) * * * 

(v) No double reporting. If multiple 

creditors are considered to hold 

interests in an indebtedness for 

purposes of this paragraph (e)(2) by 

virtue of holding ownership interests in 

an entity, and the entity is required to 

report a discharge of that indebtedness 

under paragraph (e)(5) of this section, 

then the multiple creditors are not 

required to report the discharge of 

indebtedness.

* * * * *

(5) Entity formed or availed of to hold 

indebtedness. Notwithstanding 

§ 1.6050P–2(b)(3), if an entity (the 

transferee entity) is formed or availed of 

by an applicable entity (within the 

meaning of section 6050P(c)(1)) for the 

principal purpose of holding 

indebtedness acquired (including 

originated) by the applicable entity, 

then, for purposes of section 

6050P(c)(2)(D), the transferee entity has 

a significant trade or business of lending 

money.

* * * * *

■ Par. 4. Section 1.6050P–2 is added to 

read as follows:

§ 1.6050P–2 Organization a significant 

trade or business of which is the lending of 

money. 

(a) In general. For purposes of section 

6050P(c)(2)(D), the lending of money is 

a significant trade or business of an 

organization in a calendar year if the 

organization lends money on a regular 

and continuing basis during the 

calendar year. 

(b) Safe harbors—(1) Organizations 

not subject to section 6050P in the 

previous calendar year. For an 

organization that was not required to 

report under section 6050P in the 

previous calendar year, the lending of 

money is not treated as a significant 

trade or business for the calendar year 

in which the lending occurs if gross 

income from lending money (as 

described in paragraph (d) of this 

section) in the organization’s most 

recent test year (as defined in paragraph 

(f) of this section) is both less than $5 

million and less than 15 percent of the 

organization’s gross income for that test 

year. 

(2) Organizations that were subject to 

section 6050P in the previous calendar 

year. For an organization that was 

required to report under section 6050P 

for the previous calendar year, the 

lending of money is not treated as a 

significant trade or business for the 

calendar year in which the lending 

occurs if gross income from lending 

money (as described in paragraph (d) of 

this section) in each of the 

organization’s three most recent test 

years is both less than $3 million and 

less than 10 percent of the 

organization’s gross income for that test 

year. 

(3) No test year. The lending of money 

is not treated as a significant trade or 

business for an organization for the 

calendar year in which the lending 

occurs if the organization does not have 

a test year for that calendar year. 

(c) Seller financing. If the principal 

trade or business of an organization is 

selling nonfinancial goods or providing 

nonfinancial services and if the 

organization extends credit to the 

purchasers of those goods or services to 

finance the purchases, then, for 

purposes of section 6050P(c)(2)(D), 

these extensions of credit are not a 

significant trade or business of lending 

money. 

(d) Gross income from lending of 

money. For purposes of this section, 

gross income from lending of money 

includes—

(1) Income from interest, including 

qualified stated interest, original issue 

discount, and market discount; 

(2) Gains arising from the sale or other 

disposition of indebtedness; 

(3) Penalties with respect to 

indebtedness (whether or not the 

penalty is interest for Federal tax 

purposes); and 

(4) Fees with respect to indebtedness, 

including merchant discount or 

interchange (whether or not the fee is 

interest for Federal tax purposes). 

(e) Acquisition of an indebtedness 

from a person other than the debtor 

included in lending money. For 

purposes of this section, lending money 

includes acquiring an indebtedness not 

only from the debtor at origination but 

also from a prior holder of the 

indebtedness. Gross income arising from 

indebtedness is gross income from the 

lending of money without regard to who 

originated the indebtedness. If an 

organization acquires an indebtedness, 

the organization is required to report 

any cancellation of the indebtedness if 

the organization is engaged in a 

significant trade or business of lending 

money. 

(f) Test year. For any calendar year, a 

test year is a taxable year of the 

organization that ends before July 1 of 

the previous calendar year.

(g) Predecessor organization. If an 

organization acquires substantially all of 

the property that was used in a trade or 

business of some other organization (the 

predecessor) (including when two or 

more corporations are parties to a 

merger agreement under which the 

surviving corporation becomes the 

owner of the assets and assumes the 

liabilities of the absorbed corporation(s)) 

or was used in a separate unit of the 

predecessor, then whether the 

organization at issue qualifies for one of 

the safe harbors in paragraph (b) of this 

section is determined by also taking into 

account the test years, reporting 

obligations, and gross income of the 

predecessor. 

(h) Examples. The rules of this section 

are illustrated by the following 

examples:

Example 1. (i) Facts. Finance Company A, 

a calendar year taxpayer, was formed in Year 

1 as a non-bank subsidiary of Manufacturing 

Company and has no predecessor. A lends 

Federal Register / Vol. 69, No. 205 / Monday, October 25, 2004 / Rules and Regulations 62187

money to purchasers of Manufacturing 

Company’s products on a regular and 

continuing basis to finance the purchase of 

those products. A’s gross income from stated 

interest in Year 1 is $4.7 million. In Year 1, 

A’s gross income from fees and penalties 

with respect to the indebtedness is $0.5 

million, and A has no other gross income 

from lending money within the meaning of 

paragraph (d) of this section. 

(ii) Results. Section 6050P does not require 

A to report discharges of indebtedness 

occurring in Years 1 or 2, because A has no 

test year for those years. Notwithstanding 

that A lends money in those years on a 

regular and continuing basis, under 

paragraph (b)(3) of this section, A does not 

have a significant trade or business of 

lending money in those years for purposes of 

section 6050P(c)(2)(D). However, for Year 3, 

A’s test year is Year 1. A’s gross income from 

lending in Year 1 is not less than $5 million 

for purposes of the applicable safe harbor of 

paragraph (b)(1) of this section. Because A 

lends money on a regular and continuing 

basis and does not meet the applicable safe 

harbor, section 6050P requires A to report 

discharges of indebtedness occurring in Year 

3.

Example 2. (i) Facts. The facts are the same 

as in Example 1, except that A is a division 

of Manufacturing Company, rather than a 

separate subsidiary. Manufacturing 

Company’s principal activity is the 

manufacture and sale of non-financial 

products, and, other than financing the 

purchase of those products, Manufacturing 

Company does not extend credit or otherwise 

lend money. 

(ii) Results. Under paragraph (c) of this 

section, that financing activity is not a 

significant trade or business of lending 

money for purposes of section 6050P(c)(2)(D), 

and section 6050P does not require 

Manufacturing Company to report discharges 

of indebtedness.

Example 3. (i) Facts. Company B, a 

calendar year taxpayer, is formed in Year 1. 

B has no predecessor and a part of its 

activities consists of the lending of money. B 

packages and sells part of the indebtedness 

it originates and holds the remainder. B is 

engaged in these activities on a regular and 

continuing basis. For Year 1, the sum of B’s 

gross income from sales of the indebtedness, 

plus other income described in paragraph (d) 

of this section, is only $4.8 million, but it is 

16% of B’s gross income in Year 1. 

(ii) Results. Because B lends money on a 

regular and continuing basis and does not 

meet the applicable safe harbor of paragraph 

(b)(1) of this section, section 6050P requires 

B to report discharges of indebtedness 

occurring in Year 3. B is not required to 

report discharges of indebtedness in Years 1 

and 2 because B has no test year for Years 

1 and 2.

Example 4. (i) Facts. The facts are the same 

as in Example 3. In addition, in each of Years 

2, 3, and 4, the sum of B’s gross income from 

sales of the indebtedness, plus other income 

described in paragraph (d) of this section, is 

less than both $3 million and 10% of B’s 

gross income. 

(ii) Results. (A) Because B was required to 

report under section 6050P for Year 3, the 

applicable safe harbor for Year 4 is paragraph 

(b)(2) of this section, which is satisfied only 

if B’s gross income from lending activities for 

each of the three most recent test years is less 

than both $3 million and 10% of B’s gross 

income. For Year 4, even though B has only 

two test years, B’s gross income in one of 

those test years, Year 1, causes B to fail to 

meet this safe harbor. Accordingly, B is 

required to report discharges of indebtedness 

under section 6050P in Year 4. For Year 5, 

B’s three most recent test years are Years 1, 

2, and 3. However, B’s gross income from 

lending activities in Year 1 is not less than 

$3 million and 10% of B’s gross income. 

Accordingly, section 6050P requires B to 

report discharges of indebtedness in Year 5. 

(B) For Year 6, B satisfies the applicable 

safe harbor requirements of paragraph (b)(2) 

of this section for each of the three most 

recent test years (Years 2, 3, and 4). 

Therefore, section 6050P does not require B 

to report discharges of indebtedness in Year 

6. Because B is not required to report for Year 

6, the applicable safe harbor for Year 7 is the 

one contained in paragraph (b)(1) of this 

section, and thus the only relevant test year 

is Year 5.

Example 5. (i) Facts. (A) Company C, a 

calendar year taxpayer, was formed in Year 

1 and, on a regular and continuing basis, 

enters into the following transactions with its 

clients, all of whom are unrelated parties to 

C. C does not have any other income. 

(B) C’s clients sell goods to customers, 

frequently accepting as payment accounts 

receivable that are due in 30 to 90 days. 

Under a contract with each client, C 

investigates the creditworthiness of the 

client’s customers with respect to the 

prospective sales, and, for each customer, C 

determines whether, and to what extent, C is 

willing to assume the risk of loss on accounts 

receivable to be issued by the customer. C’s 

decision whether to assume risk of loss may 

be based on an evaluation of the credit 

quality of particular customers or on the 

aggregate credit quality of all of the client’s 

prospective customers. If C is unwilling to 

assume the risk, the client either may refuse 

to extend any credit to the customer or may 

accept the account receivable and bear the 

risk of loss. 

(C) Pursuant to some contracts between C’s 

clients and C, C’s clients assign legal title to 

the accounts receivable to C when the 

accounts receivable are issued by the 

customers. For these accounts receivable, C 

agrees to undertake collections and to remit 

the amounts collected to the client, less a fee 

of 0.70 percent of the face value of the 

accounts receivable. Pursuant to other 

contracts between C’s clients and C, C’s 

clients retain legal title to the accounts 

receivable and retain the initial collection 

responsibility. For these accounts receivable, 

C’s fee is reduced to 0.35 percent. Both 

groups of accounts receivable include 

accounts receivable for which C has assumed 

the risk of loss and accounts receivable for 

which C has not assumed the risk of loss. 

(D) Based on all the facts and 

circumstances, C acquires ownership for 

Federal tax purposes of some, but not all, of 

the accounts receivable that it has agreed to 

collect and of some, but not all, of the 

accounts receivable for which the client has 

retained collection responsibility. 

(E) In Year 1, C’s total fee income with 

respect to accounts receivable of which it 

acquired tax ownership was $2 million. C’s 

fee income in Year 1 from accounts 

receivable of which it did not acquire tax 

ownership was $700,000. C does not have 

any other income for Year 1. 

(F) In Year 3, there were discharges of 

$950,000, representing $100,000 of customer 

defaults on those accounts receivable of 

which C was the owner for Federal tax 

purposes at the time of the identifiable event 

marking the discharge and $850,000 of 

customer defaults on the accounts receivable 

of which the clients, and not C, were the 

owner. Whenever C determined the 

uncollectibility of an account receivable for 

which it had not assumed the risk of loss, C 

reassigned title to the account receivable to 

the appropriate client. Each defaulting 

customer defaulted on an account receivable 

with an outstanding balance of at least $600. 

(ii) Results. (A) For Year 3, C’s test year is 

Year 1. Under paragraph (e) of this section, 

C’s $2 million fee income from the accounts 

receivable of which it acquired tax 

ownership is ‘‘gross income from lending 

money’’ for purposes of paragraph (b) of this 

section, because C was the owner of the 

accounts for Federal tax purposes. Under 

paragraph (e) of this section, C’s $700,000 fee 

income from the accounts receivable of 

which it did not acquire tax ownership is not 

‘‘gross income from lending money’’ for 

purposes of paragraph (b) of this section, 

because C was not the owner of the accounts 

receivable for Federal tax purposes. In Year 

1, therefore, C’s gross income from lending 

money is less than $5 million but is not less 

than 15% of C’s gross income. Because C 

lends money on a regular and continuing 

basis and does not meet the applicable safe 

harbor, section 6050P requires C to report 

discharges of indebtedness occurring in Year 

3. 

(B) In Year 3, section 6050P requires C to 

report the $100,000 of discharges of the 

accounts receivable of which C was the 

owner for Federal tax purposes at the time of 

the identifiable event marking the discharge. 

Unless an exception to reporting under 

paragraph (b) or (c) of this section applies, 

section 6050P requires C’s clients to report 

the $850,000 of discharges of the accounts 

receivable of which C did not become the 

owner.

(i) Effective date. This section applies 

to discharges of indebtedness occurring 

on or after January 1, 2005.

PART 602—OMB CONTROL NUMBERS 

UNDER THE PAPERWORK 

REDUCTION ACT

■ Par. 5. The authority citation for part 

602 continues to read as follows:

Authority: 26 U.S.C. 7805.

■ Par. 6. In § 602.101, paragraph (b) is 

amended by removing two entries from 

the table as follows:

§ 602.101 OMB Control numbers.

* * * * *

62188 Federal Register / Vol. 69, No. 205 / Monday, October 25, 2004 / Rules and Regulations 

(b) * * *

CFR part or section where 

identified and described 

Current 

OMB control 

No. 

* * * * * 

1.6050P–1 ................................ 1545–1419 

1.6050P–1T .............................. 1545–1419 

* * * * * 

Approved: October 18, 2004. 

Mark E. Matthews, 

Deputy Commissioner for Services and 

Enforcement. 

Gregory F. Jenner, 

Assistant Secretary of the Treasury.

[FR Doc. 04–23747 Filed 10–22–04; 8:45 am] 

BILLING CODE 4830–01–P

DEPARTMENT OF VETERANS 

AFFAIRS 

38 CFR Parts 1 and 2 

RIN 2900–AK10 

Standards for Collection, Compromise, 

Suspension, or Termination of 

Collection Effort, and Referral of Civil 

Claims for Money or Property; 

Regional Office Committees on 

Waivers and Compromises; Salary 

Offset Provisions; Delegations of 

Authority

AGENCY: Department of Veterans Affairs.

ACTION: Final rule.

SUMMARY: This final rule revises the 

Department of Veterans Affairs (VA) 

regulations concerning the collection, 

compromise, suspension, termination, 

and referral of debts owed to VA. The 

revision clarifies and simplifies debt 

collection standards and reflects 

changes to Federal debt collection 

procedures under the Debt Collection 

Improvement Act of 1996. VA is also 

amending regulations pertaining to the 

administration of regional office 

Committees on Waivers and 

Compromises, as well as provisions 

pertaining to debt collection and to the 

Chief Financial Officer in the 

delegations of authority regulations. 

Other nonsubstantive changes are made 

for purposes of clarification.

DATES: Effective Date: November 24, 

2004.

FOR FURTHER INFORMATION CONTACT:

Peter Mulhern, Cash and Debt 

Management Division (047GC1), 

Department of Veterans Affairs, 810 

Vermont Ave., NW., Washington, DC 

20420, (202) 273–5570.

SUPPLEMENTARY INFORMATION: On 

December 29, 2003, VA published in the 

Federal Register (68 FR 74893) a 

proposed rule to bring VA’s debt 

collection regulations into compliance 

with the provisions of the Debt 

Collection Improvement Act of 1996 

(DCIA), Public Law 104–134, 110 Stat. 

1321, 1358 (April 26, 1996), the 

subsequent revision of the Federal 

Claims Collection Standards (FCCS)(31 

CFR parts 900 through 904) by the 

Department of the Treasury (Treasury) 

and the Department of Justice in 2000, 

and with Treasury’s additional rules in 

31 CFR part 285. VA’s current debt 

collection regulations include tools such 

as offset of VA benefit payments, 

assessment of interest and late payment 

charges, use of consumer reporting and 

private collection agencies, and Federal 

salary offset. We proposed to add to 

VA’s debt collection regulations more 

collection tools now authorized by the 

DCIA and revised FCCS. These tools 

include centralized administrative offset 

through the use of the Treasury Offset 

Program (TOP), the transfer or referral of 

delinquent debt to Treasury for 

collection (cross-servicing), and 

administrative wage garnishment. We 

also proposed to amend our debt 

collection regulations by deleting 

provisions that are either obsolete or 

duplicative of Treasury and Treasury/

DOJ regulations, as well as to ensure 

that our regulations are consistent with 

statutory mandates and that they are 

clearly written. 

In addition, VA proposed to amend a 

regulation pertaining to the Committees 

on Waivers and Compromises to allow 

each station Director the authority to 

appoint the person responsible for the 

Committee’s administrative control. Our 

current regulation, which states that the 

station Fiscal Officer must have 

administrative control authority, does 

not allow the station Director any 

discretion in this matter. 

We further proposed to amend a 

regulation so that VA’s Chief Financial 

Officer (CFO) would have the ability to 

redelegate debt collection authority to 

administration heads and staff office 

directors as the CFO deems appropriate. 

We provided a 60-day comment 

period which ended on February 27, 

2004. We received two submissions in 

response to our invitation for comments 

on the proposed regulations. One, from 

an individual, discussed the 

individual’s experience with VA after 

VA informed him that an overpayment 

existed due to his son’s dropping out of 

college, and said that VA had withheld 

almost all of a monthly payment of 

benefits (which he asserted was without 

prior notice). He said that the VA 

employee he contacted had not been 

aware of an allegedly larger amount VA 

owed him due to an increase in the 

number of his children. He asserted that 

VA’s efficiency in the measures 

involved in collecting a debt are far 

ahead of those involved in paying 

veterans their benefits, and asked for 

help in putting ‘‘customer needs (benefit 

payments) first.’’ He did not say 

whether he thought rulemaking changes 

could provide the help he was 

requesting nor whether adoption of the 

proposed rule would itself help, and we 

see no need for changes in the proposed 

rule to be made based on this 

submission. The other submission, from 

the Disabled American Veterans (DAV), 

is discussed below. 

DAV states that our proposed new 

paragraph (c)(4) in 38 CFR 1.912a 

violates 38 U.S.C. 5314(b). This new 

paragraph states that VA will begin 

collection action from VA benefit 

payments after an initial adverse 

decision on a debtor’s request for waiver 

or the debtor’s informal dispute of the 

existence or amount of a benefit debt. 

DAV argues that there is no statutory 

change to section 5301(c) or section 

5314 justifying the addition of this 

provision, and that VA provides no 

explanation of this change in the 

preamble. DAV notes that the preamble 

cites the DCIA as the authority for most 

of the changes for our proposed 

rulemaking. DAV notes further that the 

DCIA’s principal amendments to 

strengthen debt collection authority 

included amendments to the 

administrative offset provisions of 31 

U.S.C. 3716. DAV correctly states that 

while collections under 38 U.S.C. 

5301(c) must be conducted in 

accordance with procedures prescribed 

in 31 U.S.C. 3716, collections under 38 

U.S.C. 5314 are not subject to the 

general provisions applicable to other 

claims collections as set forth in 31 

U.S.C. 3716. According to DAV, there is 

no statutory authority or other 

explanation for our proposed new 

paragraph (c)(4) in 38 CFR 1.912a.

The preamble to the proposed rule 

did contain an explanation that 

encompassed the proposed change to 

add paragraph (c)(4) to 38 CFR 1.912a, 

since it is one of the changes that was 

proposed to ensure that our debt 

collection regulations are consistent 

with statutory mandates and clearly 

written (68 FR 74893, 74894). DAV is 

correct that there is no statutory change 

to 38 U.S.C. 5301(c) or 5314 that 

pertains to the addition of this 

provision. However, we believe that 

DAV is incorrect in stating that our 

proposed new paragraph violates 

section 5314(b).