This section of the FEDERAL REGISTER

contains regulatory documents having general

applicability and legal effect, most of which

are keyed to and codified in the Code of

Federal Regulations, which is published under

50 titles pursuant to 44 U.S.C. 1510.

The Code of Federal Regulations is sold by

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new books are listed in the first FEDERAL

REGISTER issue of each week.

Rules and Regulations Federal Register

42549

Vol. 69, No. 136

Friday, July 16, 2004

DEPARTMENT OF TRANSPORTATION 

Federal Aviation Administration 

14 CFR Part 39 

[Docket No. 2003–NM–109–AD; Amendment 

39–13728; AD 2004–14–19] 

RIN 2120–AA64 

Airworthiness Directives; Boeing 

Model 767 Series Airplanes

AGENCY: Federal Aviation 

Administration, DOT.

ACTION: Final rule.

SUMMARY: This amendment adopts a 

new airworthiness directive (AD), 

applicable to all Boeing Model 767 

series airplanes, that requires repetitive 

detailed inspections of the aft pressure 

bulkhead for indications of ‘‘oil cans’’ 

and previous ‘‘oil can’’ repairs, and 

corrective actions, if necessary. An ‘‘oil 

can’’ is an area on a pressure dome web 

that moves when pushed from the 

forward side. This action is necessary to 

detect and correct the propagation of 

fatigue cracks in the vicinity of ‘‘oil 

cans’’ on the web of the aft pressure 

bulkhead, which could result in rapid 

decompression of the passenger cabin, 

possible damage or interference with the 

airplane control systems that pass 

through the bulkhead, and consequent 

loss of control of the airplane. This 

action is intended to address the 

identified unsafe condition.

DATES: Effective August 20, 2004. 

The incorporation by reference of 

certain publications listed in the 

regulations is approved by the Director 

of the Federal Register as of August 20, 

2004.

ADDRESSES: The service information 

referenced in this AD may be obtained 

from Boeing Commercial Airplanes, 

P.O. Box 3707, Seattle, Washington 

98124–2207. This information may be 

examined at the Federal Aviation 

Administration (FAA), Transport 

Airplane Directorate, Rules Docket, 

1601 Lind Avenue, SW., Renton, 

Washington; or at the National Archives 

and Records Administration (NARA). 

For information on the availability of 

this material at NARA, call (202) 741–

6030, or go to: http://www.archives.gov/

federal_register/

code_of_federal_regulations/

ibr_locations.html.

FOR FURTHER INFORMATION CONTACT:

Suzanne Masterson, Aerospace 

Engineer, Airframe Branch, ANM–120S, 

FAA, Seattle Aircraft Certification 

Office, 1601 Lind Avenue, SW., Renton, 

Washington 98055–4056; telephone 

(425) 917–6441; fax (425) 917–6590.

SUPPLEMENTARY INFORMATION: A 

proposal to amend part 39 of the Federal 

Aviation Regulations (14 CFR part 39) to 

include an airworthiness directive (AD) 

that is applicable to all Boeing Model 

767 series airplanes was published in 

the Federal Register on February 6, 

2004 (69 FR 5771). That action proposed 

to require repetitive detailed inspections 

of the aft pressure bulkhead for 

indications of ‘‘oil cans’’ and previous 

‘‘oil can’’ repairs, and corrective actions, 

if necessary. An ‘‘oil can’’ is an area on 

a pressure dome web that moves when 

pushed from the forward side. 

Comments 

Interested persons have been afforded 

an opportunity to participate in the 

making of this amendment. Due 

consideration has been given to the 

comments received. 

Support for Proposed Rule 

One commenter states that it supports 

the proposed rule. 

Request for Clarification When Cause of 

Previous Repair Is Unknown 

One commenter requests clarification 

on what to do when the cause of the 

damage for a previous repair of the aft 

pressure bulkhead is unknown. The 

commenter notes that the cause of the 

damage might not be possible to 

determine. The commenter questions if 

operators should assume the cause of 

the damage was due to an ‘‘oil canning’’ 

condition when the cause of the damage 

for a previous repair is unknown. 

The FAA agrees that clarification is 

needed when the cause of the damage 

for a previous repair of the aft pressure 

bulkhead is unknown. Paragraph (c) of 

the final rule requires a detailed 

inspection if any previous ‘‘oil can’’ 

repair is found during the inspection of 

the aft pressure bulkhead required by 

paragraph (b) of the final rule. If the 

cause of the damage for a previous 

repair is unknown, operators should 

assume the repairs are ‘‘oil can’’ repairs. 

We have added the following text to 

paragraph (b) of the final rule: ‘‘In the 

absence of information proving 

otherwise, assume a previous repair of 

the aft pressure bulkhead is an ‘oil can’ 

repair.’’ 

Request To Clarify Reference 

One commenter states that both 

service bulletins refer to Boeing 767 

Airplane Maintenance Manual (AMM) 

38–11–01/401 for the removal and 

installation of the potable water tanks. 

The commenter believes the correct 

reference is AMM 38–11–01/201. We 

infer that the commenter requests that 

the reference be clarified. 

We agree that the reference for the 

removal and installation of the potable 

water tanks should be clarified and have 

confirmed that AMM 38–11–01/201 is 

the correct reference. We have added 

the following text to paragraph (a) of the 

final rule: ‘‘Where Figure 5 of the 

service bulletin specifies to refer to 

Boeing 767 Airplane Maintenance 

Manual (AMM) 38–11–01/401 for the 

removal and installation of the potable 

water tanks, refer to AMM 38–11–01/

201.’’ 

Conclusion 

After careful review of the available 

data, including the comments noted 

above, the FAA has determined that air 

safety and the public interest require the 

adoption of the rule with the changes 

previously described. The FAA has 

determined that these changes will 

neither increase the economic burden 

on any operator nor increase the scope 

of the AD.

Interim Action 

This is considered to be interim 

action. The FAA may consider further 

rulemaking to reduce thresholds if 

cracks are reported earlier than the 

predicted fatigue life. 

Cost Impact 

There are approximately 890 

airplanes of the affected design in the 

worldwide fleet. The FAA estimates that 

398 airplanes of U.S. registry will be 

42550 Federal Register / Vol. 69, No. 136 / Friday, July 16, 2004 / Rules and Regulations 

affected by this AD, that it will take 

approximately 14 work hours per 

airplane to accomplish the required 

actions, and that the average labor rate 

is $65 per work hour. Based on these 

figures, the cost impact of the AD on 

U.S. operators is estimated to be 

$362,180, or $910 per airplane, per 

inspection cycle. 

The cost impact figure discussed 

above is based on assumptions that no 

operator has yet accomplished any of 

the requirements of this AD action, and 

that no operator would accomplish 

those actions in the future if this AD 

were not adopted. The cost impact 

figures discussed in AD rulemaking 

actions represent only the time 

necessary to perform the specific actions 

actually required by the AD. These 

figures typically do not include 

incidental costs, such as the time 

required to gain access and close up, 

planning time, or time necessitated by 

other administrative actions. 

Regulatory Impact 

The regulations adopted herein will 

not have a substantial direct effect on 

the States, on the relationship between 

the national Government and the States, 

or on the distribution of power and 

responsibilities among the various 

levels of government. Therefore, it is 

determined that this final rule does not 

have federalism implications under 

Executive Order 13132. 

For the reasons discussed above, I 

certify that this action (1) is not a 

‘‘significant regulatory action’’ under 

Executive Order 12866; (2) is not a 

‘‘significant rule’’ under DOT 

Regulatory Policies and Procedures (44 

FR 11034, February 26, 1979); and (3) 

will not have a significant economic 

impact, positive or negative, on a 

substantial number of small entities 

under the criteria of the Regulatory 

Flexibility Act. A final evaluation has 

been prepared for this action and it is 

contained in the Rules Docket. A copy 

of it may be obtained from the Rules 

Docket at the location provided under 

the caption ADDRESSES.

List of Subjects in 14 CFR Part 39 

Air transportation, Aircraft, Aviation 

safety, Incorporation by reference, 

Safety.

Adoption of the Amendment

■ Accordingly, pursuant to the authority 

delegated to me by the Administrator, 

the Federal Aviation Administration 

amends part 39 of the Federal Aviation 

Regulations (14 CFR part 39) as follows:

PART 39—AIRWORTHINESS 

DIRECTIVES

■ 1. The authority citation for part 39 

continues to read as follows:

Authority: 49 U.S.C. 106(g), 40113, 44701.

§ 39.13 [Amended]

■ 2. Section 39.13 is amended by adding 

the following new airworthiness 

directive:

2004–14–19 Boeing: Amendment 39–13728. 

Docket 2003–NM–109–AD.

Applicability: All Model 767 series 

airplanes, certificated in any category. 

Compliance: Required as indicated, unless 

accomplished previously. 

To detect and correct the propagation of 

fatigue cracks in the vicinity of ‘‘oil cans’’ on 

the web of the aft pressure bulkhead, which 

could result in rapid decompression of the 

passenger cabin, possible damage or 

interference with the airplane control 

systems that pass through the bulkhead, and 

consequent loss of control of the airplane, 

accomplish the following: 

Service Bulletin References 

(a) The term ‘‘service bulletin,’’ as used in 

this AD, means the Accomplishment 

Instructions of the service bulletin specified 

in paragraph (a)(1) or (a)(2) of this AD, as 

applicable. Where Figure 5 of the service 

bulletin specifies to refer to Boeing 767 

Airplane Maintenance Manual (AMM) 38–

11–01/401 for the removal and installation of 

the potable water tanks, refer to AMM 38–

11–01/201. 

(1) For Model 767–200, –300, and –300F 

series airplanes: Boeing Alert Service 

Bulletin 767–53A0105, dated April 10, 2003. 

(2) For Model 767–400ER series airplanes: 

Boeing Alert Service Bulletin 767–53A0106, 

dated April 10, 2003. 

Initial and Repetitive Inspections 

(b) Perform a detailed inspection of the aft 

pressure bulkhead for indications of ‘‘oil 

cans’’ and previous ‘‘oil can’’ repairs, in 

accordance with the service bulletin, at the 

applicable time specified in paragraph (b)(1) 

or (b)(2) of this AD. In the absence of 

information proving otherwise, assume a 

previous repair of the aft pressure bulkhead 

is an ‘‘oil can’’ repair. Repeat the detailed 

inspection thereafter at intervals not to 

exceed 6,000 flight cycles.

Note 1: For the purposes of this AD, a 

detailed inspection is defined as: ‘‘An 

intensive visual examination of a specific 

structural area, system, installation, or 

assembly to detect damage, failure, or 

irregularity. Available lighting is normally 

supplemented with a direct source of good 

lighting at intensity deemed appropriate by 

the inspector. Inspection aids such as mirror, 

magnifying lenses, etc., may be used. Surface 

cleaning and elaborate access procedures 

may be required.’’

(1) For Model 767–200 and –300 series 

airplanes: Prior to the accumulation of 50,000 

total flight cycles, or within 1,000 flight 

cycles after the effective date of this AD, 

whichever is later.

(2) For Model 767–300F and –400ER series 

airplanes: Prior to the accumulation of 40,000 

total flight cycles, or within 1,000 flight 

cycles after the effective date of this AD, 

whichever is later. 

Indication of Previous ‘‘Oil Can’’ Repairs 

(c) If any previous ‘‘oil can’’ repair is found 

during any detailed inspection required by 

paragraph (b) of this AD: Before further flight, 

do a detailed inspection of the web around 

any ‘‘oil can’’ repair for cracks or smaller ‘‘oil 

cans,’’ in accordance with the service 

bulletin. 

(1) If any crack is found, before further 

flight, repair in accordance with the service 

bulletin. Where the service bulletin specifies 

to contact Boeing for repair, before further 

flight, repair per a method approved by the 

Manager, Seattle Aircraft Certification Office 

(ACO), FAA; or per data meeting the type 

certification basis of the airplane approved 

by a Boeing Company Designated 

Engineering Representative who has been 

authorized by the Manager, Seattle ACO, to 

make such findings. For a repair method to 

be approved, the approval must specifically 

reference this AD. 

(2) If any ‘‘oil can’’ is found, before further 

flight, perform the surface high frequency 

eddy current (HFEC) inspection specified in 

paragraph (d) of this AD. 

Indication of ‘‘Oil Can’’ 

(d) If any indication of an ‘‘oil can’’ is 

found during any detailed inspection 

specified in paragraph (b) or (c) of this AD: 

Before further flight, perform a surface HFEC 

inspection of the web around the periphery 

and in the center of the ‘‘oil can’’ indication 

for cracks, at all ‘‘oil cans,’’ and perform a 

detailed inspection of the web for cracks, in 

accordance with the service bulletin. 

Alternative inspection specified in the 

service bulletin is acceptable for this AD. 

(1) If no crack is found and the ‘‘oil can’’

meets the allowable limits specified in the 

service bulletin, do the action in either 

paragraph (d)(1)(i) or (d)(1)(ii) of this AD. 

(i) Repeat the surface HFEC inspection 

specified in paragraph (d) of this AD 

thereafter at intervals not to exceed 3,000 

flight cycles. 

(ii) Before further flight, repair the ‘‘oil 

can’’ in accordance with the service bulletin. 

Repair of all ‘‘oil cans’’ is considered a 

terminating action for the repetitive HFEC 

inspections required by paragraph (d)(1)(i) of 

this AD. However, continue to repeat the 

detailed inspection required by paragraph (b) 

of this AD. 

(2) If no crack is found and the ‘‘oil can’’

does not meet the specified allowable limits 

specified in the service bulletin: Before 

further flight, repair the ‘‘oil can’’ in 

accordance with the service bulletin. If, 

following the repair, any ‘‘oil can’’ remains 

that meets the allowable limits specified in 

the service bulletin, do the action required by 

either paragraph (d)(1)(i) or (d)(1)(ii) of this 

AD. 

(3) If any crack is found, before further 

flight, repair in accordance with the service 

bulletin. Where the service bulletin specifies 

to contact Boeing for appropriate action, 

before further flight, repair per a method 

Federal Register / Vol. 69, No. 136 / Friday, July 16, 2004 / Rules and Regulations 42551

approved by the Manager, Seattle ACO, or 

per data meeting the type certification basis 

of the airplane approved by a Boeing 

Company Designated Engineering 

Representative who has been authorized by 

the Manager, Seattle ACO, to make such 

findings. For a repair method to be approved, 

the approval must specifically reference this 

AD. 

Alternative Methods of Compliance 

(e) In accordance with 14 CFR 39.19, the 

Manager, Seattle ACO, is authorized to 

approve alternative methods of compliance 

for this AD. 

Incorporation by Reference 

(f) Unless otherwise specified in this AD, 

the actions shall be done in accordance with 

Boeing Alert Service Bulletin 767–53A0105, 

dated April 10, 2003; or Boeing Alert Service 

Bulletin 767–53A0106, dated April 10, 2003; 

as applicable. This incorporation by 

reference was approved by the Director of the 

Federal Register in accordance with 5 U.S.C. 

552(a) and 1 CFR part 51. Copies may be 

obtained from Boeing Commercial Airplanes, 

P.O. Box 3707, Seattle, Washington 98124–

2207. Copies may be inspected at the FAA, 

Transport Airplane Directorate, 1601 Lind 

Avenue, SW., Renton, Washington; or at the 

National Archives and Records 

Administration (NARA). For information on 

the availability of this material at NARA, call 

(202) 741–6030, or go to: http://

www.archives.gov/federal_register/

code_of_federal_regulations/

ibr_locations.html.

Effective Date 

(g) This amendment becomes effective on 

August 20, 2004.

Issued in Renton, Washington, on July 1, 

2004. 

Kalene C. Yanamura, 

Acting Manager, Transport Airplane 

Directorate, Aircraft Certification Service.

[FR Doc. 04–15759 Filed 7–15–04; 8:45 am] 

BILLING CODE 4910–13–P

DEPARTMENT OF THE TREASURY

Internal Revenue Service 

26 CFR Part 1 

[TD 9137] 

RIN 1545–BA81 

Partnership Transactions Involving 

Long-Term Contracts

AGENCY: Internal Revenue Service (IRS), 

Treasury.

ACTION: Final regulations.

SUMMARY: This document contains final 

regulations relating to partnership 

transactions involving contracts 

accounted for under a long-term 

contract method of accounting. The 

regulations are necessary to resolve 

issues that were reserved in final 

regulations under section 460 that were 

published in the Federal Register on 

May 15, 2002, addressing other midcontract changes in taxpayer engaged in 

completing such contracts. The effect of 

the regulations is to explain the tax 

consequences of these partnership 

transactions.

DATES: Effective Date: These regulations 

are effective July 16, 2004. 

Applicability Date: These regulations 

apply to transactions on or after May 15, 

2002.

FOR FURTHER INFORMATION CONTACT:

Richard Probst at (202) 622–3060 (not a 

toll-free number).

SUPPLEMENTARY INFORMATION: 

Background 

Section 460 of the Internal Revenue 

Code generally requires that taxpayers 

determine taxable income from a longterm contract using the percentage-ofcompletion method (PCM). Under 

regulations finalized in 2001 (TD 8929, 

2001–1 C.B. 756), a taxpayer using the 

PCM generally includes a portion of the 

total contract price in income for each 

taxable year that the taxpayer incurs 

contract costs allocable to the long-term 

contract. More specifically, to determine 

the income from a long-term contract, 

the taxpayer first computes the 

completion factor for the contract, 

which is the percentage of the estimated 

total allocable contract costs that the 

taxpayer has incurred (based on the all 

events test of section 461, including 

economic performance, regardless of the 

taxpayer’s method of accounting) 

through the end of the taxable year. 

Second, the taxpayer computes the 

amount of cumulative gross receipts 

from the contract by multiplying the 

completion factor by the total contract 

price, which is the amount that the 

taxpayer reasonably expects to receive 

under the contract. Third, the taxpayer 

computes the amount of current-year 

gross receipts, which is the difference 

between the cumulative gross receipts 

for the current taxable year and the 

cumulative gross receipts for the 

immediately preceding taxable year. 

This difference may be a loss (a negative 

number) based on revisions to estimates 

of total allocable contract costs or total 

contract price. Fourth, the taxpayer 

takes into account both the current-year 

gross receipts and the amount of 

allocable contract costs actually 

incurred during the taxable year. To the 

extent any portion of the total contract 

price has not been included in taxable 

income by the completion year, section 

460(b)(1) and the regulations require the 

taxpayer to include that portion in 

income for the taxable year following 

the completion year. 

A long-term contract or a portion of a 

long-term contract that is exempt from 

the PCM may be accounted for under 

any permissible method, including the 

completed contract method (CCM). 

Under the CCM, a taxpayer does not 

take into account the gross contract 

price and allocable contract costs until 

the contract is complete, even though 

progress payments are received in years 

prior to completion. 

A taxpayer generally must allocate 

costs to a contract subject to section 

460(a) in the same manner as direct and 

indirect costs are capitalized to property 

produced by a taxpayer under section 

263A. The regulations provide 

exceptions, however, that reflect the 

differences in the cost allocation rules of 

sections 263A and 460. 

Section 460(h) directs the Secretary to 

prescribe regulations to the extent 

necessary or appropriate to carry out the 

purpose of section 460, including 

regulations to prevent a taxpayer from 

avoiding section 460 by using related 

parties, pass-through entities, 

intermediaries, options, and other 

similar arrangements. 

On May 15, 2002, final regulations 

under section 460 were issued to 

address a mid-contract change in 

taxpayer engaged in completing a 

contract accounted for under a longterm contract method of accounting (TD 

8995; 2002–23 I.R.B. 1070). The 

regulations divide the rules regarding a 

mid-contract change in taxpayer into 

two categories—constructive 

completion transactions and step-in-theshoes transactions. 

In a constructive completion 

transaction, the taxpayer that originally 

accounted for the long-term contract 

(old taxpayer) must recognize income 

from the contract as of the time of the 

transaction. The contract price used to 

determine the amount of income 

recognized by the taxpayer is the 

amount realized from the transaction, 

reduced by any amounts paid by the old 

taxpayer to the taxpayer subsequently 

accounting for the long-term contract 

(new taxpayer) that are allocable to the 

contract. Similarly, the new taxpayer in 

a constructive completion transaction is 

treated as though it entered into a new 

contract as of the date of the transaction. 

The new taxpayer’s contract price is the 

amount that the new taxpayer 

reasonably expects to receive under the 

contract, reduced by the price paid by 

the new taxpayer for the contract, and 

increased by any amounts paid by the 

old taxpayer to the new taxpayer that 

are allocable to the contract. In contrast, 

in a step-in-the-shoes transaction, the