Federal Register / Vol. 76, No. 161 / Friday, August 19, 2011 / Rules and Regulations 51879 

List of Subjects in 26 CFR Part 1 

Income taxes, Reporting and 

recordkeeping requirements. 

Correction of Publication 

Accordingly, 26 CFR part 1 is 

corrected by making the following 

correcting amendments: 

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 1.1001–4T is amended 

by revising paragraphs (a)(1), (b)(1) and 

(b)(3) to read as follows: 

§ 1.1001–4T Modifications of certain 

derivative contracts (temporary). 

* * * * * 

(a) * * * 

(1) Both the party transferring or 

assigning its rights and obligations 

under the derivative contract and the 

party to which the rights and obligations 

are transferred or assigned are either a 

dealer or a clearinghouse; 

* * * * * 

(b) * * * 

(1) Dealer. For purposes of this 

section, a dealer is a taxpayer who 

meets the definition of a dealer in 

securities in section 475(c)(1) or is a 

dealer in commodities derivative 

contracts. 

* * * * * 

(3) Derivative contract. For purposes 

of this section, a derivative contract is 

a contract described in— 

(i) Section 475(c)(2)(D), 475(c)(2)(E), 

or 475(c)(2)(F) without regard to the last 

sentence of section 475(c)(2) referencing 

section 1256; 

(ii) Section 475(e)(2)(B), 475(e)(2)(C), 

or 475(e)(2)(D); or 

(iii) Section 1.446–3(c)(1). 

* * * * * 

LaNita Van Dyke, 

Chief, Publications and Regulations Branch, 

Legal Processing Division, Associate Chief 

Counsel (Procedure and Administration). 

[FR Doc. 2011–21180 Filed 8–18–11; 8:45 am] 

BILLING CODE 4830–01–P 

DEPARTMENT OF THE TREASURY 

Internal Revenue Service 

26 CFR Parts 1 and 17 

[TD 9546] 

RIN 1545–BD04 

Definition of Solid Waste Disposal 

Facilities for Tax-Exempt Bond 

Purposes 

AGENCY: Internal Revenue Service (IRS), 

Treasury. 

ACTION: Final regulations. 

SUMMARY: This document contains final 

regulations on the definition of solid 

waste disposal facilities for purposes of 

the rules applicable to tax-exempt bonds 

issued by State and local governments. 

These regulations provide guidance to 

State and local governments that issue 

tax-exempt bonds to finance solid waste 

disposal facilities and to taxpayers that 

use those facilities. 

DATES: Effective Date: These regulations 

are effective August 19, 2011. 

Applicability Date: For dates of 

applicability, see § 1.142(a)(6)–1(i). 

FOR FURTHER INFORMATION CONTACT: 

Timothy Jones, (202) 622–3980 (not a 

toll-free number). 

SUPPLEMENTARY INFORMATION:

Background 

This document amends the Income 

Tax Regulations (26 CFR part 1) under 

section 142 of the Internal Revenue 

Code (Code) to provide final rules for 

determining whether a facility is a solid 

waste disposal facility under section 

142(a)(6). This document also removes 

certain existing regulations on this 

subject. On September 16, 2009, the IRS 

published a Notice of Proposed 

Rulemaking (REG–140492–02) in the 

Federal Register (74 FR 47500) (the 

Proposed Regulations). The Proposed 

Regulations under proposed 

§ 1.142(a)(6)–1 would modify existing 

regulations under § 1.103–8(f)(2) of the 

Income Tax Regulations and § 17.1 of 

the temporary Income Tax Regulations 

(together, the Existing Regulations) on 

this subject. Public comments on the 

Proposed Regulations were received and 

a public hearing was held on January 5, 

2010. 

After consideration of the public 

comments, the IRS and the Treasury 

Department adopt the Proposed 

Regulations, with revisions, as final 

regulations by this Treasury decision 

(the Final Regulations). Significant 

aspects of the public comments and the 

revisions made in the Final Regulations 

are discussed in this preamble. 

Explanation of Provisions 

1. Introduction 

In general, interest on State or local 

bonds is excludable from gross income 

under section 103(a). Under section 

103(b), however, interest on private 

activity bonds is excludable from gross 

income under section 103 only if the 

bond meets the requirements for a 

qualified bond under section 141(e) and 

other applicable requirements under 

section 103. Section 141(e) defines a 

qualified bond to include an exempt 

facility bond that meets certain 

requirements. Section 142(a) defines an 

exempt facility bond to mean any bond 

that is issued as part of an issue 95 

percent or more of the net proceeds of 

which are to be used to provide an 

exempt facility specified in section 

142(a). Section 142(a)(6) includes a 

solid waste disposal facility as one 

specified type of qualified exempt 

facility. 

In general, the Proposed Regulations 

addressed the requirements for solid 

waste disposal facilities under section 

142(a)(6) for purposes of eligibility for 

tax-exempt private activity bond 

financing. The Proposed Regulations 

provided that a facility qualifies as a 

solid waste disposal facility if it 

processes solid waste in a qualified 

solid waste disposal process, performs 

preliminary functions, or is a 

functionally related or subordinate 

facility. The Proposed Regulations 

focused on eligible processes to dispose 

of solid waste, including a final disposal 

process, an energy conversion process, 

and a recycling process. The Proposed 

Regulations also provided a more 

developed definition of solid waste 

which focused on used materials and 

residual materials, with certain specific 

exclusions. The Proposed Regulations 

eliminated a ‘‘no-value’’ test from the 

solid waste definition under § 1.103– 

8(f)(2)(ii)(b) of the Existing Regulations, 

which provides that material does not 

qualify as solid waste unless, on the 

issue date of the tax-exempt bonds used 

to provide the solid waste disposal 

facility, the property is useless, unused, 

unwanted, or discarded solid material 

‘‘that has no market or other value at the 

place where the property is located’’ 

(No-Value Test). The Proposed 

Regulations also proposed various 

allocation and accounting rules based 

on existing principles for mixed-input 

facilities and mixed-use facilities. 

Overall, the Proposed Regulations 

implement a policy in favor of recycling 

through the use of solid waste disposal 

facilities. 

Commentators generally supported 

the approach taken towards solid waste 


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51880 Federal Register / Vol. 76, No. 161 / Friday, August 19, 2011 / Rules and Regulations 

disposal facilities under the Proposed 

Regulations. The Final Regulations 

retain the overall approach of the 

Proposed Regulations and make certain 

technical changes in response to public 

comments, as discussed further in this 

preamble. 

2. Solid Waste Disposal Facility 

The Proposed Regulations defined the 

term solid waste disposal facility to 

mean a facility that processes solid 

waste in a qualified solid waste disposal 

process, performs a preliminary 

function, or is a functionally related and 

subordinate facility. The Final 

Regulations retain this definition of a 

solid waste disposal facility. 

3. Definition of Solid Waste 

The Proposed Regulations defined the 

term solid waste to mean garbage, 

refuse, and other solid material derived 

from any agricultural, commercial, 

consumer, or industrial operation or 

activity, based largely on an existing 

definition under the Existing 

Regulations. The Proposed Regulations 

refined the existing definition to require 

that solid waste be either used material 

or residual material. The Proposed 

Regulations also eliminated the NoValue Test. Additionally, the Proposed 

Regulations required that the person 

who acquires the material must 

reasonably expect to introduce it into a 

qualified solid waste disposal process 

within a reasonable period of time after 

acquisition. 

The Proposed Regulations defined 

used material to mean any material that 

has been used previously as an 

agricultural, commercial, consumer, or 

industrial product or as a component of 

any such product. The Proposed 

Regulations defined residual material to 

mean any residual byproduct or excess 

unused raw material that remains from 

the production of any agricultural, 

commercial, consumer, or industrial 

product, provided that material 

qualified as residual material only to the 

extent that it constituted less than five 

percent (5%) of the total material 

introduced into the production process 

and it had a fair market value that is 

reasonably expected to be lower than 

that of any product made in that 

production process. 

The Final Regulations generally retain 

the core definition of solid waste from 

the Proposed Regulations but modify 

that definition in certain technical 

respects. The Final Regulations clarify 

that material is ‘‘solid’’ only if it is solid 

at ambient temperature and pressure. 

The Final Regulations also clarify that 

solid waste can result from 

governmental operations or activities. 

The Final Regulations expand the 

definition of solid waste to include 

animal waste. 

With respect to the definition of 

residual material, commentators 

generally supported the analytic 

standard under the Proposed 

Regulations but recommended removing 

the five percent (5%) size limitation on 

residual material. Commentators 

recommended removing this size limit 

because it unduly restricts the scope of 

residual material in many circumstances 

and it arbitrarily treats various 

industries and activities differently 

because residual amounts vary widely 

by industry and activity. The Final 

Regulations adopt this comment to 

eliminate the five percent (5%) size 

limitation on residual material and 

otherwise generally retain the analytic 

standard for residual material. The Final 

Regulations also expand the definition 

of residual material to include material 

derived from providing a service in 

which no product is produced. 

Further, for purposes of determining 

residual material when multiple 

production processes are operated on 

the same site, commentators 

recommended a separate evaluation of 

each process. Based on reasons 

associated with scope and 

administrability, the IRS and the 

Treasury Department intended to cover 

only residual material that remains at 

the end of integrated processes that are 

functionally interconnected or 

interdependent, based on all the facts 

and circumstances. Accordingly, the 

Final Regulations do not adopt this 

comment. Instead, the Final Regulations 

adopt an integrated process standard to 

limit residual material. 

4. Specific Exclusions From the 

Definition of Solid Waste 

In general, the Proposed Regulations 

excluded from the definition of solid 

waste the following items: (1) Virgin 

material; (2) solids within liquids and 

liquid waste; (3) precious metals; (4) 

hazardous material; and (5) radioactive 

material. The Final Regulations retain 

these exclusions with certain technical 

modifications. 

The exclusion for virgin material 

aimed to distinguish solid waste 

disposal from manufacturing. The 

exclusion for certain precious metals 

aimed to recognize that recovery of 

these metals generally would take place 

without regard to a recycling industry. 

With respect to the exclusions for 

hazardous and radioactive waste, the 

statute and legislative history indicate 

that Congress intended to exclude 

hazardous waste and radioactive waste 

from solid waste. The statute treats 

qualified hazardous waste facilities as 

eligible exempt facilities under section 

142(a)(10) separate and apart from solid 

waste disposal facilities under section 

142(a)(6). In addition, the legislative 

history provides, in relevant part, that 

‘‘the conferees wish to clarify that solid 

waste does not include most hazardous 

waste (including radioactive waste).’’ 

H.Rep. No. 99–841, at II–704 (1986), 

1986–3 (Vol. 4) CB 704. 

Some commentators expressed 

concern that the introduction of virgin 

material or precious metals into a final 

disposal process, such as a landfill (as 

contrasted with a recycling process), 

could disqualify a facility from 

treatment as a qualified solid waste 

disposal facility. The Final Regulations 

address this comment favorably and 

modify the definition of solid waste to 

allow the introduction of virgin 

materials and precious metals into a 

final disposal process. The Final 

Regulations also add a provision that 

allows the IRS to identify other 

excluded precious metals in future 

public administrative guidance. 

Commentators also recommended 

treating hazardous waste and 

radioactive waste as solid waste. The 

Final Regulations generally do not adopt 

this comment. The IRS and the Treasury 

Department believe that Congress 

generally intended to exclude these 

materials from the definition of solid 

waste. Recognizing that only certain 

hazardous waste and radioactive waste 

are required to be disposed of at 

regulated facilities, however, the Final 

Regulations limit the exclusions for 

these two types of waste to the extent 

that they are required to be disposed of 

or contained at a regulated hazardous 

waste or radioactive waste disposal 

facility. 

5. Qualified Solid Waste Disposal 

Process 

The Proposed Regulations provided 

for three eligible types of solid waste 

disposal processes: A final disposal 

process, an energy conversion process, 

and a recycling process. To provide 

flexibility for future innovation, the 

Proposed Regulations provided that, 

absent an express restriction in the 

proposed regulations, a solid waste 

disposal function may employ any 

biological, engineering, industrial, or 

technological method. 

The Final Regulations generally retain 

the eligible types of solid waste disposal 

processes from the Proposed 

Regulations, with technical 

clarifications. The Final Regulations 

clarify that a final disposal process 

includes the spreading of solid waste in 

an environmentally compliant and safe 


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Federal Register / Vol. 76, No. 161 / Friday, August 19, 2011 / Rules and Regulations 51881 

manner. The Final Regulations also 

clarify that an energy conversion 

process ends at the point at which 

useful energy is first created or 

incorporated into the form of synthesis 

gas, heat, hot water, or other useful 

energy. 

6. First Useful Product Principle 

The Proposed Regulations provided 

guidance on the standard for 

determining the first useful product for 

purposes of establishing the end point 

of a solid waste disposal process. The 

first useful product principle has 

particular application to recycling. 

Under the Proposed Regulations, a 

useful product generally included a 

product useful for consumption, either 

as an ultimate end-use product or as an 

input to some stage of a manufacturing 

or production process, and that could be 

sold for such use (taking into account 

operational constraints on such sales for 

certain integrated processes), whether or 

not actually sold. 

The Final Regulations generally retain 

the first useful product standard from 

the Proposed Regulations. Some 

commentators recommended that 

determinations under the first useful 

product rule take into account 

geographic location and transportation 

costs in certain situations. The Final 

Regulations adopt this comment. 

7. Mixed-Input Facilities 

The Proposed Regulations provided a 

mixed-input accounting rule, which 

treated a facility as a qualified solid 

waste disposal facility if at least 65 

percent of all of the material introduced 

into such facility in each year consisted 

of solid waste. This proposed rule 

recognizes that recycling processes may 

require supplemental inputs besides 

solid waste to operate viably. This 

proposed rule is similar to an existing 

rule under § 1.103–8(f)(2)(ii)(c) of the 

Existing Regulations. This proposed rule 

requires annual testing for compliance 

with the requisite 65 percent solid waste 

threshold. Several commentators 

recommended reformulating this 65 

percent test to require compliance based 

on an aggregate testing period measured 

over the life of the tax-exempt bonds 

instead of an annual testing period. 

These commentators expressed 

concerns about compliance with an 

annual test during start-up periods and 

aberrational years for various reasons. 

The Final Regulations retain the 

annual 65 percent test for mixed-input 

facilities with modifications. In 

response to the public comments, the 

Final Regulations provide a special rule 

that allows a three-year curative period 

to address the impact of extraordinary 

events outside the control of the 

operator of the solid waste disposal 

facility (such as natural disasters, 

strikes, major utility disruptions, or 

governmental interventions). In 

addition, the Final Regulations provide 

that the annual testing does not begin 

until the facility is placed in service 

within the meaning of the special 

placed-in-service definition in § 1.150– 

2(c), which focuses on the point at 

which a facility is operational at 

substantially its design level. 

8. Certain Other Changes 

Several commentators recommended 

removal of the proposed concept of 

facilities that perform a preliminary 

function for a qualified solid waste 

disposal process and removal of the 

threshold limit on preliminary functions 

that requires more than 50 percent of 

the materials that result from 

preliminary functions to constitute solid 

waste. The Final Regulations retain the 

concept of a preliminary function, but 

remove the 50 percent threshold limit 

on preliminary functions. The Final 

Regulations also provide for application 

of a mixed-use accounting rule to 

facilities that perform preliminary 

functions. 

One commentator expressed concern 

that Example 2 in the Proposed 

Regulations was confusing, and the 

Final Regulations remove that example 

with no substantive inference intended 

by that removal. The Final Regulations 

also expand and clarify certain other 

examples. 

Commentators recommended various 

transition rules for applicability of the 

Final Regulations to refunding bonds 

issued prior to the date of publication of 

the final regulations. The Final 

Regulations provide a transition rule for 

current refunding bonds the weighted 

average maturity of which is no longer 

than the remaining weighted average 

maturity of the refunded bonds. 

Effective/Applicability Dates 

The Final Regulations apply to bonds 

to which section 142 applies that are 

sold on or after October 18, 2011. 

Issuers may apply the Final Regulations 

to outstanding bonds sold before 

October 18, 2011. The Final Regulations 

need not be applied to bonds that are 

issued in a current refunding to refund 

bonds to which the Final Regulations do 

not apply if the weighted average 

maturity of the refunding bonds is no 

longer than the remaining weighted 

average maturity of the refunded bonds. 

Special Analyses 

It has been determined that this 

Treasury decision is not a significant 

regulatory action as defined in 

Executive Order 12866, as 

supplemented by Executive Order 

13563. 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 regulations 

are interpretative and 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 proposed regulations preceding 

these final regulations were 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 Timothy L. Jones, Office 

of Associate Chief Counsel (Financial 

Institutions and Products). However, 

other personnel from the IRS and the 

Treasury Department participated in 

their development. 

List of Subjects 

26 CFR Part 1 

Income taxes, Reporting and 

recordkeeping requirements. 

26 CFR Part 17 

Income taxes, Reporting and 

recordkeeping requirements. 

Adoption of Amendments to the 

Regulations 

Accordingly, under the authority of 

26 U.S.C. 7805, 26 CFR parts 1 and 17 

are 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 * * * 

§ 1.103–8 [Amended] 

■ Par. 2. Section 1.103–8 is amended by 

removing paragraph (f)(2)(ii) and 

redesignating paragraph (f)(2)(iii) as 

(f)(2)(ii). 

■ Par. 3. Section 1.142(a)(6)–1 is added 

to read as follows: 

§ 1.142(a)(6)–1 Exempt facility bonds: 

solid waste disposal facilities. 

(a) In general. This section defines the 

term solid waste disposal facility for 

purposes of section 142(a)(6). 

(b) Solid waste disposal facility. The 

term solid waste disposal facility means 

a facility to the extent that the facility— 


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51882 Federal Register / Vol. 76, No. 161 / Friday, August 19, 2011 / Rules and Regulations 

(1) Processes solid waste (as defined 

in paragraph (c) of this section) in a 

qualified solid waste disposal process 

(as defined in paragraph (d) of this 

section); 

(2) Performs a preliminary function 

(as defined in paragraph (f) of this 

section); or 

(3) Is functionally related and 

subordinate (within the meaning of 

§ 1.103–8(a)(3)) to a facility described in 

paragraph (b)(1) or (b)(2) of this section. 

(c) Solid waste—(1) In general. Except 

to the extent excluded under paragraph 

(c)(2) of this section, for purposes of 

section 142(a)(6), the term solid waste 

means garbage, refuse, and other solid 

material derived from any agricultural, 

commercial, consumer, governmental, 

or industrial operation or activity if the 

material meets the requirements of both 

paragraph (c)(1)(i) and paragraph 

(c)(1)(ii) of this section. For purposes of 

this section, material is solid if it is solid 

at ambient temperature and pressure. 

(i) Used material or residual material. 

Material meets the requirements of this 

paragraph (c)(1)(i) if it is either used 

material (as defined in paragraph 

(c)(1)(i)(A)) of this section or residual 

material (as defined in paragraph 

(c)(1)(i)(B) of this section). 

(A) Used material. The term used 

material means any material that is a 

product of any agricultural, commercial, 

consumer, governmental, or industrial 

operation or activity, or a component of 

any such product or activity, and that 

has been used previously. Used material 

also includes animal waste produced by 

animals from a biological process. 

(B) Residual material. The term 

residual material means material that 

meets the requirements of this 

paragraph (c)(1)(i)(B). The material must 

be a residual byproduct or excess raw 

material that results from or remains 

after the completion of any agricultural, 

commercial, consumer, governmental, 

or industrial production process or 

activity or from the provision of any 

service. In the case of multiple 

processes constituting an integrated 

manufacturing or industrial process, the 

material must result from or remain 

after the completion of such integrated 

process. As of the issue date of the 

bonds used to finance the solid waste 

disposal facility, the material must be 

reasonably expected to have a fair 

market value that is lower than the 

value of all of the products made in that 

production process or lower than the 

value of the service that produces such 

residual material. 

(ii) Reasonably expected introduction 

into a qualified solid waste disposal 

process. Material meets the 

requirements of this paragraph (c)(1)(ii) 

if it is reasonably expected by the 

person who generates, purchases, or 

otherwise acquires it to be introduced 

within a reasonable time after such 

generation, purchase or acquisition into 

a qualified solid waste disposal process 

described in paragraph (d) of this 

section. 

(2) Exclusions from solid waste. The 

following materials do not constitute 

solid waste: 

(i) Virgin material. Except to the 

extent that virgin material constitutes an 

input to a final disposal process or 

residual material, solid waste excludes 

any virgin material. The term virgin 

material means material that has not 

been processed into an agricultural, 

commercial, consumer, governmental, 

or industrial product, or a component of 

any such product. Further, for this 

purpose, material continues to be virgin 

material after it has been grown, 

harvested, mined, or otherwise 

extracted from its naturally occurring 

location and cleaned, divided into 

component elements, modified, or 

enhanced, as long as further processing 

is required before it becomes an 

agricultural, commercial, consumer, or 

industrial product, or a component of 

any such product. 

(ii) Solids within liquids and liquid 

waste. Solid waste excludes any solid or 

dissolved material in domestic sewage 

or other significant pollutant in water 

resources, such as silt, dissolved or 

suspended solids in industrial waste 

water effluents, dissolved materials in 

irrigation return flows or other common 

water pollutants, and liquid or gaseous 

waste. 

(iii) Precious metals. Except to the 

extent that a precious metal constitutes 

an input to a final disposal process and/ 

or an unrecoverable trace of the 

particular precious metal, solid waste 

excludes gold, silver, ruthenium, 

rhodium, palladium, osmium, iridium, 

platinum, gallium, rhenium, and any 

other precious metal material as may be 

identified by the Internal Revenue 

Service in future public administrative 

guidance. 

(iv) Hazardous material. Solid waste 

excludes any hazardous material that 

must be disposed of at a facility that is 

subject to final permit requirements 

under subtitle C of title II of the Solid 

Waste Disposal Act as in effect on the 

date of the enactment of the Tax Reform 

Act of 1986 (which is October 22, 1986). 

See section 142(h)(1) of the Internal 

Revenue Code for the definition of 

qualified hazardous waste facilities. 

(v) Radioactive material. Solid waste 

excludes any radioactive material 

subject to regulation under the Nuclear 

Regulatory Act (10 CFR 1.1 et. seq), as 

in effect on the issue date of the bonds. 

(d) Qualified solid waste disposal 

process. The term qualified solid waste 

disposal process means the processing 

of solid waste in a final disposal process 

(as defined in paragraph (d)(1) of this 

section), an energy conversion process 

(as defined in paragraph (d)(2) of this 

section), or a recycling process (as 

defined in paragraph (d)(3) of this 

section). Absent an express restriction to 

the contrary in this section, a qualified 

solid waste disposal process may 

employ any biological, engineering, 

industrial, or technological method. 

(1) Final disposal process. The term 

final disposal process means the 

placement of solid waste in a landfill 

(including, for this purpose, the 

spreading of solid waste over land in an 

environmentally compliant and safe 

manner with no intent to remove such 

solid waste), the incineration of solid 

waste without capturing any useful 

energy, or the containment of solid 

waste with a reasonable expectation as 

of the date of issue of the bonds that the 

containment will continue indefinitely 

and that the solid waste has no current 

or future beneficial use. 

(2) Energy conversion process. The 

term energy conversion process means a 

thermal, chemical, or other process that 

is applied to solid waste to create and 

capture synthesis gas, heat, hot water, 

steam, or other useful energy. The 

energy conversion process begins at the 

point of the first application of such 

process. The energy conversion process 

ends at the point at which the useful 

energy is first created, captured, or 

incorporated into the form of synthesis 

gas, heat, hot water, or other useful 

energy and before any transfer or 

distribution of such synthesis gas, heat, 

hot water or other useful energy, 

regardless of whether such synthesis 

gas, heat, hot water, or other useful 

energy constitutes a first useful product 

within the meaning of paragraph (e) of 

this section. 

(3) Recycling process—(i) In general. 

The term recycling process means 

reconstituting, transforming, or 

otherwise processing solid waste into a 

useful product. The recycling process 

begins at the point of the first 

application of a process to reconstitute 

or transform the solid waste into a 

useful product, such as 

decontamination, melting, re-pulping, 

shredding, or other processing of the 

solid waste to accomplish this purpose. 

The recycling process ends at the point 

of completion of production of the first 

useful product from the solid waste. 

(ii) Refurbishment, repair, or similar 

activities. The term recycling process 


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Federal Register / Vol. 76, No. 161 / Friday, August 19, 2011 / Rules and Regulations 51883 

does not include refurbishment, repair, 

or similar activities. The term 

refurbishment means the breakdown 

and reassembly of a product if such 

activity is done on a product-by-product 

basis and if the finished product 

contains more than 30 percent of its 

original materials or components. 

(e) First useful product. The term first 

useful product means the first product 

produced from the processing of solid 

waste in a solid waste disposal process 

that is useful for consumption in 

agricultural, consumer, commercial, 

governmental, or industrial operation or 

activity and that could be sold for such 

use, whether or not actually sold. A 

useful product includes both a product 

useful to an individual consumer as an 

ultimate end-use consumer product and 

a product useful to an industrial user as 

a material or input for processing in 

some stage of a manufacturing or 

production process to produce a 

different end-use consumer product. 

The determination of whether a useful 

product has been produced may take 

into account operational constraints that 

affect the point in production when a 

useful product reasonably can be 

extracted or isolated and sold 

independently. For this purpose, the 

costs of extracting, isolating, storing, 

and transporting the product to a market 

may only be taken into account as 

operational constraints if the product is 

not to be used as part of an integrated 

manufacturing or industrial process in 

the same location as that in which the 

product is produced. 

(f) Preliminary function. A 

preliminary function is a function to 

collect, separate, sort, store, treat, 

process, disassemble, or handle solid 

waste that is preliminary to and directly 

related to a qualified solid waste 

disposal process. 

(g) Mixed-use facilities—(1) In 

general. If a facility is used for both a 

qualified solid waste disposal function 

(including a qualified solid waste 

disposal process or a preliminary 

function) and a nonqualified function (a 

mixed-use facility), then the costs of the 

facility allocable to the qualified solid 

waste disposal function are determined 

using any reasonable method, based on 

all the facts and circumstances. See 

§ 1.103–8(a)(1) for allocation rules on 

amounts properly allocable to an 

exempt facility. Facilities qualify as 

functionally related and subordinate to 

a qualified solid waste disposal function 

only to the extent that they are 

functionally related and subordinate to 

the portion of the mixed-use facility that 

is used for one or more qualified solid 

waste disposal functions (including a 

qualified solid waste disposal process or 

a preliminary function). 

(2) Mixed inputs—(i) In general. 

Except as otherwise provided in 

paragraph (g)(2)(ii) of this section, for 

each facility (or a portion of a mixed-use 

facility) performing a qualified solid 

waste disposal process or a preliminary 

function, the percentage of the costs of 

the property used for such process that 

are allocable to a qualified solid waste 

disposal process or a preliminary 

function cannot exceed the average 

annual percentage of solid waste 

processed in that qualified solid waste 

disposal process or that preliminary 

function while the issue is outstanding. 

The annual percentage of solid waste 

processed in that qualified solid waste 

disposal process or preliminary function 

for any year is the percentage, by weight 

or volume, of the total materials 

processed in that qualified solid waste 

disposal process or preliminary function 

that constitute solid waste for that year. 

(ii) Special rule for mixed-input 

processes if at least 65 percent of the 

materials processed are solid waste—(A) 

In general. Except as otherwise 

provided in paragraph (g)(2)(ii)(B) of 

this section, for each facility (or a 

portion of a mixed-use facility) 

performing a qualified solid waste 

disposal process or preliminary 

function, if the annual percentage of 

solid waste processed in that qualified 

solid waste disposal process or 

preliminary function for each year that 

the issue is outstanding (beginning with 

the date such facility is placed in 

service within the meaning of § 1.150– 

2(c)) equals at least 65 percent of the 

materials processed in that qualified 

solid waste disposal process or 

preliminary function, then all of the 

costs of the property used for such 

process are treated as allocable to a 

qualified solid waste disposal process. 

The annual percentage of solid waste 

processed in such qualified solid waste 

disposal process or preliminary function 

for any year is the percentage, by weight 

or volume, of the total materials 

processed in that qualified solid waste 

disposal process or preliminary function 

that constitute solid waste for that year. 

(B) Special rule for extraordinary 

events. In the case of an extraordinary 

event that is beyond the control of the 

operator of a solid waste disposal 

facility (such as a natural disaster, 

strike, major utility disruption, or 

governmental intervention) and that 

causes a solid waste disposal facility to 

be unable to meet the 65 percent test 

under paragraph (g)(2)(ii)(A) of this 

section for a particular year, the 

percentage of solid waste processed for 

that year equals— 

(1) The sum of the amount of solid 

waste processed in the solid waste 

disposal facility for the year affected by 

the extraordinary event and the amount 

of solid waste processed in the solid 

waste disposal facility during the 

following two years in excess of the 

amount required to meet the general 65 

percent threshold for the facility during 

each of such two years; divided by 

(2) The total materials processed in 

the solid waste disposal facility during 

the year affected by the extraordinary 

event. If the resulting measure of solid 

waste processed for the year affected by 

the extraordinary event equals at least 

65 percent, then the facility is treated as 

meeting the requirements of the 65 

percent test under paragraph (g)(2)(ii)(A) 

of this section for such year. 

(iii) Facilities functionally related and 

subordinate to mixed-input facilities. 

Except to the extent that facilities are 

functionally related and subordinate to 

a mixed-input facility that meets the 65 

percent test under paragraph (g)(2)(ii) of 

this section, facilities qualify as 

functionally related and subordinate to 

a mixed-input facility only to the extent 

that they are functionally related and 

subordinate to the qualified portion of 

the mixed-input facility that is used for 

one or more qualified solid waste 

disposal functions (including a qualified 

solid waste disposal process or a 

preliminary function). 

(h) Examples. The following examples 

illustrate the application of this section: 

Example 1. Nonqualified Unused 

Material—Cloth. Company A takes wool and 

weaves it into cloth and then sells the cloth 

to a manufacturer to manufacture clothing. 

The cloth is material that has not been used 

previously as a product of or otherwise used 

in an agricultural, commercial, consumer, 

governmental, or industrial operation or 

activity, or as a component of any such 

product or activity. Accordingly, the cloth is 

not solid waste. 

Example 2. Residual Material—Waste Coal. 

Company B mines coal. Some of the ore 

mined is a low quality byproduct of coal 

mining commonly known as waste coal, 

which cannot be converted to energy under 

a normal energy-production process because 

the BTU content is too low. Waste coal has 

the lowest fair market value of any product 

produced in Company B’s coal mining 

process. Waste coal is solid waste because it 

is residual material within the meaning of 

paragraph (c)(1)(i)(B) of this section and 

Company B reasonably expects to introduce 

the waste coal into a solid waste disposal 

process. 

Example 3. Virgin Material—Logs. 

Company C cuts down trees and sells the logs 

to another company, which further processes 

the logs into lumber. In order to facilitate 

shipping, Company C cuts the trees into 

uniform logs. The trees are not solid waste 

because they are virgin material within the 

meaning of paragraph (c)(2)(i) of this section 


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51884 Federal Register / Vol. 76, No. 161 / Friday, August 19, 2011 / Rules and Regulations 

that are not being introduced into a final 

disposal process within the meaning of 

paragraph (d)(1) of this section. The division 

of such trees into uniform logs does not 

change the status of the trees as virgin 

material. 

Example 4. Qualified Solid Waste Disposal 

Process—Landfill. Company D plans to 

construct a landfill. The landfill will not be 

subject to the final permit requirements 

under subtitle C of title II of the Solid Waste 

Disposal Act (as in effect on the date of 

enactment of the Tax Reform Act of 1986). As 

of the issue date, Company D expects that the 

landfill will be filled entirely with material 

that will qualify as solid waste within the 

meaning of paragraph (c) of this section. 

Placing solid waste into a landfill is a 

qualified solid waste disposal process. The 

landfill is a qualified solid waste disposal 

facility. 

Example 5. Qualified Solid Waste Disposal 

Process—Recycling Tires. Company E owns a 

facility that converts used tires into roadbed 

material. The used tires are used material 

within the meaning of paragraph (c)(1)(i)(A) 

of this section that qualifies as solid waste. 

Between the introduction of the old tires into 

the roadbed manufacturing process and the 

completion of the roadbed material, the 

facility does not create any interim useful 

products. The process for the manufacturing 

of the roadbed material from the old tires is 

a qualified solid waste disposal process as a 

recycling process and the facility that 

converts the tires into roadbed material is a 

qualified solid waste disposal facility. This 

conclusion would be the same if the 

recycling process took place at more than one 

plant. 

Example 6. Qualified Solid Waste Disposal 

Process—Energy Conversion Process. 

Company F receives solid waste from a 

municipal garbage collector. Company F 

burns that solid waste in an incinerator to 

remove exhaust gas and to produce heat. 

Company F further processes the heat in a 

heat exchanger to produce steam. Company 

F further processes the steam to generate 

electricity. The energy conversion process 

ends with the production of steam. The 

facilities used to burn the solid waste and to 

capture the steam as useful energy are 

qualified solid waste disposal facilities 

because they process solid waste in an energy 

conversion process. The generating facilities 

used to process the steam further to generate 

electricity are not engaged in the energy 

conversion process and are not qualified 

solid waste disposal facilities. 

Example 7. Nonqualified Refurbishment. 

Company G purchases used cars and restores 

them. This restoration process includes 

disassembly, cleaning, and repairing of the 

cars. Parts that cannot be repaired are 

replaced. The restored cars contain at least 30 

percent of the original parts. While the cars 

are used material, the refurbishing process is 

not a qualified solid waste disposal process. 

Accordingly, Company G’s facility is not a 

qualified solid waste disposal facility. 

Example 8. Qualified Solid Waste Disposal 

Facility—First Useful Product Rule—Paper 

Recycling. (i) Company H employs an 

integrated process to re-pulp discarded 

magazines, clean the pulp, and produce retail 

paper towel products. Operational 

constraints on Company H’s process do not 

allow for reasonable extraction, isolation, and 

sale of the cleaned paper pulp independently 

without degradation of the pulp. Company H 

further processes the paper pulp into large 

industrial-sized rolls of paper which are 

approximately 12 feet in diameter. At this 

point in the process, Company H could either 

sell such industrial-sized rolls of paper to 

another company for further processing to 

produce retail paper products or it could 

produce those retail products itself. In 

general, paper pulp is a useful product that 

is bought and sold on the market as a 

material for input into manufacturing or 

production processes. The discarded 

magazines are used material within the 

meaning of paragraph (c)(1)(i)(A) of this 

section. Company H’s facility is engaged in 

a recycling process within the meaning of 

paragraph (d)(3) of this section to the extent 

that it repulps and cleans the discarded 

magazines generally and further to the extent 

that it produces industrial-sized rolls of 

paper under the particular circumstances 

here. Specifically, taking into account the 

operational constraints on Company H’s 

facility that limit its ability reasonably to 

extract, isolate, and sell the paper pulp 

independently, the first useful products 

within the meaning of paragraph (e) of this 

section from Company H’s recycling process 

are the industrial-sized rolls of paper. The 

portion of Company H’s facility that 

processes the discarded magazines and 

produces industrial-sized rolls of paper is a 

qualified solid waste disposal facility, and 

the portion of Company H’s facility that 

further processes the industrial-sized rolls of 

paper into retail paper towels is not a 

qualified solid waste facility. 

(ii) The facts are the same as in paragraph 

(i) of this Example 8, except that Company 

H is able reasonably to extract the cleaned 

paper pulp from the process without 

degradation of the pulp and to sell the 

cleaned paper pulp at its dock for a price that 

exceeds its costs of extracting the pulp from 

the process. Therefore, the paper pulp is the 

first useful product within the meaning of 

paragraph (e) of this section. As a result, the 

portion of Company H’s facility that 

processes the discarded magazines is a 

qualified solid waste disposal facility, and 

the portion of Company H’s facility that 

produces industrial-sized rolls of paper is not 

a qualified solid waste disposal facility. If, 

however, the only reasonable way Company 

H could sell the pulp was to transport the 

pulp to a distant market, then the costs of 

storing and transporting the pulp to the 

market may be taken into account in 

determining whether the pulp is the first 

useful product. 

Example 9. Preliminary Function—Energy 

Conversion Process. (i) Company I owns a 

paper mill. At the mill, logs from nearby 

timber operations are processed through a 

machine that removes bark. The stripped logs 

are used to manufacture paper. The stripped 

bark has the lowest fair market value of any 

product produced from the paper mill. The 

stripped bark falls onto a conveyor belt that 

transports the bark to a storage bin that is 

used to store the bark briefly until Company 

I feeds the bark into a boiler. The conveyor 

belt and storage bin are used only for these 

purposes. The boiler is used only to create 

steam by burning the bark, and the steam is 

used to generate electricity. The stripped 

bark is solid waste because it is residual 

material within the meaning of paragraph 

(c)(1)(i)(B) of this section and Company I 

expects to introduce the bark into an energy 

conversion process within a reasonable 

period of time. The creation of steam from 

the stripped bark is an energy conversion 

process that starts with the incineration of 

the stripped bark. The energy conversion 

process is a qualified solid waste disposal 

process. The conveyor belt performs a 

collection activity that is preliminary and 

that is directly related to the solid waste 

disposal function. The storage bin performs 

a storage function that is preliminary and 

that is directly related to the solid waste 

disposal function. Thus, the conveyor belt 

and storage bin are solid waste disposal 

facilities. The bark removal process is not a 

preliminary function because it is not 

directly related to the energy conversion 

process and it does not become so related 

merely because it results in material that is 

solid waste. 

(ii) The facts are the same as in paragraph 

(a) of this Example 9, except that the stripped 

bark represents only 55 percent by weight 

and volume of the materials that are 

transported by the conveyor belt. The 

remaining 45 percent of the materials 

transported by the conveyor belt are not solid 

waste and these other materials are sorted 

from the conveyor belt by a sorting machine 

immediately before the stripped bark arrives 

at the storage bin. Fifty-five percent of the 

costs of the conveyor belt and the sorting 

machine are allocable to solid waste disposal 

functions. 

Example 10. Preliminary Function—Final 

Disposal Process. Company J owns a waste 

transfer station and uses it to collect, sort, 

and process solid waste. Company J uses its 

trucks to haul the solid waste to the nearest 

landfill. At least 65 percent by weight and 

volume of the material brought to the transfer 

station is solid waste. The waste transfer 

station and the trucks perform functions that 

are preliminary and directly related to the 

solid waste disposal function of the landfill. 

Thus, the waste transfer station and the 

trucks qualify as solid waste disposal 

facilities. 

Example 11. Mixed-Input Facility. 

Company K owns an incinerator financed by 

an issue and uses the incinerator exclusively 

to burn coal and other solid material to create 

steam. Each year while the issue is 

outstanding, 40 percent by volume and 45 

percent by weight of the solid material that 

Company K processes in the conversion 

process is coal. The remainder of the solid 

material is either used material or residual 

material within the meaning of paragraph 

(c)(1)(i) of this section. Sixty percent of the 

costs of the property used to perform the 

energy conversion process are allocable to a 

solid waste disposal function. 

(i) Effective/Applicability Dates—(1) 

In general. Except as otherwise 

provided in this paragraph (i), this 


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Federal Register / Vol. 76, No. 161 / Friday, August 19, 2011 / Rules and Regulations 51885 

section applies to bonds to which 

section 142 applies that are sold on or 

after October 18, 2011. 

(2) Elective retroactive application. 

Issuers may apply this section, in 

whole, but not in part, to outstanding 

bonds to which section 142 applies and 

which were sold before October 18, 

2011. 

(3) Certain refunding bonds. An issuer 

need not apply this section to bonds 

that are issued in a current refunding to 

refund bonds to which this section does 

not apply if the weighted average 

maturity of the refunding bonds is no 

longer than the remaining weighted 

average maturity of the refunded bonds. 

PART 17—[REMOVED] 

■ Par. 4. Part 17 is removed. 

Steven T. Miller, 

Deputy Commissioner for Services and 

Enforcement. 

Approved by: August 9, 2011. 

Emily S. McMahon, 

(Acting) Assistant Secretary of the Treasury 

(Tax Policy). 

[FR Doc. 2011–21154 Filed 8–18–11; 8:45 am] 

BILLING CODE 4830–01–P 

DEPARTMENT OF HOMELAND 

SECURITY 

Coast Guard 

33 CFR Part 117 

[Docket No. USCG–2011–0696] 

Drawbridge Operation Regulation; 

Grassy Sound Channel, Middle 

Township, NJ 

AGENCY: Coast Guard, DHS. 

ACTION: Notice of temporary deviation 

from regulations. 

SUMMARY: The Commander, Fifth Coast 

Guard District, has issued a temporary 

deviation from the regulation governing 

the operation of the Grassy Sound/ 

Ocean Drive Bascule Bridge across the 

Grassy Sound Channel, mile 1.0, at 

Middle Township, NJ. The deviation is 

necessary to accommodate racers in 

‘‘The Wild Half’’ half marathon. This 

deviation allows the bridge to remain in 

the closed position to ensure safe 

passage for the half marathon racers. 

DATES: This deviation is effective from 

7:45 a.m. through 11 a.m. on August 28, 

2011. 

ADDRESSES: Documents mentioned in 

this preamble as being available in the 

docket are part of docket USCG–2011– 

0696 and are available online by going 

to http://www.regulations.gov, inserting 

USCG–2011–0696 in the ‘‘Keyword’’ 

box and then clicking ‘‘Search’’. They 

are 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 rule, call or 

e-mail Lindsey Middleton, Coast Guard; 

telephone 757–398–6629, e-mail 

Lindsey.R.Middleton@uscg.mil. If you 

have questions on viewing the docket, 

call Renee V. Wright, Program Manager, 

Docket Operations, telephone 202–366– 

9826. 

SUPPLEMENTARY INFORMATION: Cape May 

County Department of Public Works has 

requested a temporary deviation from 

the current operating regulations of the 

Grassy Sound/Ocean Drive Bascule 

Bridge across the Grassy Sound 

Channel, mile 1.0, at Middle Township, 

NJ. The route of ‘‘The Wild Half’’ half 

marathon crosses the bridge twice and 

the requested deviation is to 

accommodate the race participants. To 

facilitate this event, the draw of the 

bridge will be maintained in the closedto-navigation position from 7:45 a.m. 

until 11 a.m. on Sunday August 28, 

2011. 

The vertical clearance for this bridge 

in the closed position is 15 feet at Mean 

High Water and unlimited in the open 

position. The operating regulations are 

set forth in 33 CFR 117.721 which states 

that during this time of year the bridge 

shall open on signal from 6 a.m. to 8 

p.m. 

Vessels that can pass through the 

bridge in the closed position may do so 

at any time. The Coast Guard will 

inform the waterway users of the 

closure through our Local and Broadcast 

Notices to Mariners to minimize any 

impact caused by the temporary 

deviation. The bridge will be able to 

open for emergencies. In the past 6 years 

there have been minimal openings for 

this bridge during the morning hours in 

August. Most vessel traffic consists of a 

few tugs and tows and recreational 

boaters. Vessels can use the Stone 

Harbor Bridge across the Great Channel 

as an alternate route to Hereford Inlet 

and the Atlantic Ocean. 

In accordance with 33 CFR 117.35(e), 

the drawbridge must return to its regular 

operating schedule immediately at the 

end of the designated time period. This 

deviation from the operating regulations 

is authorized under 33 CFR 117.35. 

Dated: August 2, 2011. 

Waverly W. Gregory, Jr., 

Bridge Program Manager By direction of the 

Commander Fifth Coast Guard District. 

[FR Doc. 2011–21187 Filed 8–18–11; 8:45 am] 

BILLING CODE 9110–04–P 

DEPARTMENT OF HOMELAND 

SECURITY 

Coast Guard 

33 CFR Part 165 

[Docket No. USCG–2011–0718] 

RIN 1625–AA00 

Safety Zone; Thunder on Niagara, 

Niagara River, North Tonawanda, NY 

AGENCY: Coast Guard, DHS. 

ACTION: Temporary final rule. 

SUMMARY: The Coast Guard is 

establishing a temporary safety zone on 

Niagara River, North Tonawanda, NY. 

This temporary safety zone is intended 

to restrict vessels from a portion of the 

Niagara River during the Thunder on 

Niagara powerboat races. This 

temporary safety zone is necessary to 

protect spectators and vessels from the 

hazards associated with powerboat 

races. 

DATES: This rule is effective from 

10 a.m. on August 20, 2011 until 6 p.m. 

on August 21, 2011. 

ADDRESSES: Documents mentioned in 

this preamble as being available in the 

docket, are part of docket USCG–2011– 

0718 and are available online by going 

to http://www.regulations.gov, inserting 

USCG–2011–0718 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 Lieutenant Chris 

Mercurio, Waterways Management 

Division Chief, U.S. Coast Guard Sector 

Buffalo; telephone 716–843–9573, email Chris.F.Mercurio@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 


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