Federal Register / Vol. 62, No. 194 / Tuesday, October 7, 1997 / Rules and Regulations 52253

all adverse experiences that are the

subject of these postmarketing 15-day

Alert reports and shall submit followup

reports within 15 calendar days of

receipt of new information or as

requested by FDA. If additional

information is not obtainable, records

should be maintained of the

unsuccessful steps taken to seek

additional information. Postmarketing

15-day Alert reports and followups to

them shall be submitted under separate

cover.

(iii) Submission of reports. The

requirements of paragraphs (c)(1)(i) and

(c)(1)(ii) of this section, concerning the

submission of postmarketing 15-day

Alert reports, shall also apply to any

person whose name appears on the label

of a licensed biological product as a

manufacturer, packer, distributor,

shared manufacturer, joint

manufacturer, or any other participant

involved in divided manufacturing. To

avoid unnecessary duplication in the

submission to FDA of reports required

by paragraphs (c)(1)(i) and (c)(1)(ii) of

this section, obligations of persons other

than the licensed manufacturer of the

final biological product may be met by

submission of all reports of serious

adverse experiences to the licensed

manufacturer of the final product. If a

person elects to submit adverse

experience reports to the licensed

manufacturer of the final product rather

than to FDA, the person shall submit

each report to the licensed manufacturer

of the final product within 5 calendar

days of receipt of the report by the

person, and the licensed manufacturer

of the final product shall then comply

with the requirements of this section.

Under this circumstance, a person who

elects to submit reports to the licensed

manufacturer of the final product shall

maintain a record of this action which

shall include:

(A) A copy of all adverse biological

product experience reports submitted to

the licensed manufacturer of the final

product;

(B) The date the report was received

by the person;

(C) The date the report was submitted

to the licensed manufacturer of the final

product; and

(D) The name and address of the

licensed manufacturer of the final

product.

(iv) Report identification. Each report

submitted under this paragraph shall

bear prominent identification as to its

contents, i.e., ‘‘15-day Alert report,’’ or

‘‘15-day Alert report-followup.’’

* * * * *

(f) Reporting forms. (1) Except as

provided in paragraph (f)(3) of this

section, the licensed manufacturer shall

complete the reporting form designated

by FDA for each report of an adverse

experience (FDA Form 3500A, or, for

vaccines, a VAERS form; foreign events

including those associated with the use

of vaccines, may be submitted either on

an FDA Form 3500A or, if preferred, on

a CIOMS I form).

* * * * *

(g) Multiple reports. A licensed

manufacturer should not include in

reports under this section any adverse

experience that occurred in clinical

trials if they were previously submitted

as part of the license application. * * *

* * * * *

Dated: September 25, 1997.

William K. Hubbard,

Associate Commissioner for Policy

Coordination.

[FR Doc. 97–26255 Filed 10–6–97; 8:45 am]

BILLING CODE 4160–01–F

DEPARTMENT OF JUSTICE

Drug Enforcement Administration

21 CFR Parts 1309, 1310 and 1313

[DEA Number 154F]

RIN 1117–AA42

Implementation of the Comprehensive

Methamphetamine Control Act of 1996;

Possession of List I Chemicals

Definitions, Record Retention, and

Temporary Exemption From Chemical

Registration for Distributors of

Combination Ephedrine Products

AGENCY: Drug Enforcement

Administration (DEA), Justice.

ACTION: Final rule.

SUMMARY: DEA is finalizing the Interim

Rule, which included a request for

comment, published in the Federal

Register on February 10, 1997, (62 FR

5914). The Interim Rule amended the

regulations to incorporate certain

amendments to the Controlled

Substances Act (CSA) made by the

Comprehensive Methamphetamine

Control Act of 1996 (MCA) and to

provide temporary exemption from

registration for persons who distribute

combination ephedrine products.

Comments were received regarding

industry interpretation of certain

requirements of both the CSA and the

MCA. This notice responds to those

comments and clarifies the

requirements of the CSA and MCA with

respect to the distribution of

combination ephedrine products.

EFFECTIVE DATE: October 7, 1997.

FOR FURTHER INFORMATION CONTACT: G.

Thomas Gitchel, Chief, Liaison and

Policy Section, Office of Diversion

Control, Drug Enforcement

Administration, Washington, D.C.

20537, Telephone (202) 307–7297.

SUPPLEMENTARY INFORMATION: On

February 10, 1997, DEA published an

interim rule, with request for comment,

in the Federal Register (62 FR 5914) to

implement certain regulatory changes

mandated by the MCA and to provide

temporary exemption from registration

pending promulgation of final

regulations to implement the MCA.

Five comments were received

regarding the interim rule. Three

separate issues were raised in the

comments:

(1) Two comments expressed support

for the temporary exemptions and urged

that the exemption from registration for

retail distributors as described in the

MCA be made permanent. DEA agrees

and will make the exemption

permanent.

(2) Three comments asserted that

DEA’s interpretation of the MCA is

incorrect and that the registration

requirement does not apply to

wholesale distributors that engage in

only sub-threshold transactions of

combination ephedrine products.

Specifically, the commentors assert

that while Section 302(a)(1) of the CSA

(21 U.S.C. 822(a)(1)) requires that any

person who distributes a List I chemical

must register, that requirement is

tempered by Section 303(h) of the CSA

(21 U.S.C. 823(h)), which provides, in

part, that registration shall not be

required for the distribution of a drug

product that is exempted under section

102(39)(A)(iv). Section 102(39) of the

CSA (21 U.S.C. 802(39)) defines the

term ‘‘regulated transaction’’. The

definition provides in paragraph (A)(iv)

that a transaction in a listed chemical

contained in a drug product that may be

marketed or distributed under the Food,

Drug, and Cosmetic Act (FDC Act) is not

a regulated transaction, unless the drug

contains ephedrine, pseudoephedrine,

or phenylpropanolamine, and the

quantity of ephedrine,

pseudoephedrine, or

phenylpropanolamine equals or exceeds

the threshold established for the

chemical. These provisions are echoed

in DEA’s regulations; Title 21, Code of

Federal Regulations (CFR), Section

1309.21(a) requires registration for the

distribution of a List I chemical, other

than a List I chemical contained in a

drug product that is exempted under 21

CFR section 1310.01(f)(1)(iv). The

commentors assert the definition of

regulated transaction provides that a
52254 Federal Register / Vol. 62, No. 194 / Tuesday, October 7, 1997 / Rules and Regulations

drug product remains exempt if the

amount of List I chemical involved in

the transaction is less than the threshold

established for that chemical. Under the

circumstances, the commentors argue

that persons who engage only in subthreshold distributions of List I

chemicals contained in drug products

are exempt from the registration

requirement.

The commentors analysis of the

referenced portions of the law fails to

acknowledge certain points of law that

must be considered in determining who

must register.

First, the MCA amends existing

language to remove the exemption for

combination ephedrine products. The

specific language that is subject to the

commentors analysis (21 U.S.C.

802(39)(A)(iv) (I) and (II) and 21 U.S.C.

823(h)) was added to the CSA by the

Domestic Chemical Diversion Control

Act of 1993 (DCDCA).

A review of the legislative history of

the DCDCA reveals that, as described in

a letter of support for the DCDCA from

the then Acting Administrator of DEA to

the Chairman of the House Committee

on Energy and Commerce, the

registration system established under

that act was ‘‘* * * precisely patterned

after the system which we have

successfully employed for handlers of

controlled substances since 1971.’’ (U.S.

Congressional and Administrative

News, 103rd Congress, Vol. 4, Page

2986) The registration system for

handlers of controlled substances, while

providing for the exemption of certain

products that contain controlled

substances, does not consider the

quantity involved in a distribution

when determining whether registration

is required; either the product is exempt

or non-exempt. Thus, 21 U.S.C. 823(h)

provides that the exemption from

registration applies to exempted

products, and not, as the commentor

apparently reads it, to selective

exempted distributions. In addition, the

House Report No. 103–379, relating to

the bill (H.R. 3216) which subsequently

was enacted as the DCDCA, states ‘‘This

provision removes the exemption from

record-keeping and reporting

requirements of the Controlled

Substances Act (CSA) for drugs

containing ephedrine as the only active

medicinal ingredient * * * It also

removes the exemption for ephedrine

products containing therapeutically

insignificant quantities of other active

ingredients.’’ [emphasis added] At the

time the DCDCA was enacted, the

established threshold for ephedrine in

any form was one kilogram. As Congress

did not mention thresholds in its

discussion of the exemption from

registration created by the 1993

amendments, it follows that in enacting

21 U.S.C. 823(h), it meant the

exemption from registration to apply to

drug products themselves, rather than to

transactions in drug products. Exempt

products are not subject to the CSA’s

system of thresholds; therefore,

thresholds had no relevance to the

discussion.

Therefore, a distributor who

distributes any amount of a List I

chemical, including a drug product that

is not exempt, is subject to the

registration requirement.

Two additional points were raised in

this matter by the commentors. The first

dealt with the claimed inconsistency in

DEA’s determination to exempt retail

distributors from the registration

requirement and not exempt wholesale

distributors if they engage solely in subthreshold sales. These commentors

stated that since retail distributors, by

definition, limit sales to sub-threshold

levels, wholesale distributors who limit

sales to the substantially higher

thresholds for wholesalers should also

be exempt from registration.

There is no inconsistency in DEA’s

decision. The United States Congress,

with the substantial participation of the

affected industries, developed the MCA

with the intent of providing controls to

prevent the diversion of products to the

illicit manufacture of

methamphetamine, while not

unnecessarily interfering with legitimate

public access to the products at the

retail level.

The MCA does not make any pretense

of amending the existing chemical

registration and recordkeeping

requirements under the CSA, as

amended by the CDTA and DCDCA. The

principal effect of the MCA is the

removal of the exemption for

pseudoephedrine,

phenylpropanolamine, and combination

ephedrine drug products, making these

products subject to the controls under

the CSA that apply to all List I

chemicals. Thus, as with any other List

I chemical, any person who distributes,

imports, or exports any amount of these

products will be subject to the chemical

registration requirement and, to the

extent that the transaction(s) meet the

threshold criteria, the chemical

recordkeeping and reporting

requirements.

Within this framework, the MCA

specifically establishes in the CSA the

unique category of ‘retail distributor’

which is distinct from all other

distributors of List I chemicals. A retail

distributor is defined as a ‘‘* * *

person whose activities as a distributor

relating to pseudoephedrine or

phenylpropanolamine products are

limited almost exclusively to sales for

personal use, both in number of sales

and volume of sales, either directly to

walk-in customers or in face-to-face

transactions by direct sales.’’ The MCA

further provides that the ‘‘* * * sale of

ordinary over-the-counter

pseudoephedrine or

phenylpropanolamine products by retail

distributors shall not be a regulated

transaction * * *’’ [emphasis added].

These provisions clearly establish

Congress’ intent that public access to

the products at the retail level be

protected and that the protection

applies only to one specific type of

activity carried out by one specific type

of distributor. It is equally clear, given

the absence of any corresponding

provisions in the MCA for other

distributors, that the existing chemical

controls, including registration, apply to

the activities of all other distributors.

DEA recognized that the threat of

diversion from the retail level would be

minimized by adherence to the 24 gram

per transaction threshold and that this

reduced threat does not now justify the

potential impact that the chemical

controls might have on legitimate public

access to the products at the retail level.

Thus, DEA determined that an

exemption from the registration

requirement for retail distributors of

combination ephedrine products who

engage exclusively in sub-threshold

transactions was consistent with the

intent of the MCA that legitimate public

access to drug products at the retail

level be protected.

The absence of any exceptions in the

MCA for non-retail distributors, coupled

with the much larger thresholds (1

kilogram for combination ephedrine

products and pseudoephedrine and 2.5

kilograms for phenylpropanolamine);

the need to balance the lack of controls

over transactions at the retail level with

controls at the wholesale level; and the

fact that it has been DEA’s experience

that the most efficient and effective

means to identify and control diversion

from the retail and wholesale levels is

through application of the controls at

the wholesale level, all pointed to the

need to maintain the registration

requirement envisioned by the MCA at

the wholesale level.

The second concern dealt with the

lack of a comprehensive listing

identifying all of the products that

contain ephedrine, and the difficulties

that distributors could encounter in

terms of identifying regulated products

and complying with the chemical

control requirements. DEA recognizes

that in the absence of a ‘closed system’

of distribution as exists for controlled
Federal Register / Vol. 62, No. 194 / Tuesday, October 7, 1997 / Rules and Regulations 52255

substances, the identification of

products that may be subject to

regulation is more difficult. DEA will,

where possible, work with the industry

to assist in identification of such

products. Further, the MCA makes all

products containing ephedrine subject

to regulation. Manufacturers of such

products will have to obtain their

distributor customers DEA registration

numbers prior to distributing the

products, which should assist in

identifying products that are subject to

regulation.

(3) Two comments asserted that the

MCA exemption for sales of ordinary

over-the-counter pseudoephedrine and

phenylpropanolamine products by retail

distributors and EAS’s general

exemption for retail distributors (21 CFR

1309.29) should also apply to

distributions to the retail distributors by

warehouses that are owned or operated

by the owner of a retail chain. The

commentors argue that the definition of

retail distributors should encompass the

entire retail distribution system, which

includes both the retail outlets and the

warehouses or storage facilities which

are owned or operated by the same

corporate entity that owns the retail

outlets. They state that the distributions

from the warehouses or storage facilities

are not sales but transfers or

intracompany sales within the retail

distributor operation that are related to

the retail sales of the products. One

commentor last noted that within their

industry warehouses and storage

facilities are classified within the same

Standard Industrial Classification (SIC)

code that the MCA references in the

definition for the retail outlets.

The MCA provides that the ‘‘* * *

sale of ordinary over-the-counter

pseudoephedrine or

phenylpropanolamine products by retail

distributors shall not be a regulated

transaction * * *’’. MCA, Section

401(b)(1); 21 U.S.C. 802(39)

(A)(iv)(I)(aa). The MCA defines ‘retail

distributor’ as ‘‘* * * a grocery store,

general merchandise store, drug store, or

other entity or person whose activities

as a distributor relating to

pseudoephedrine or

phenylpropanolamine products are

limited almost exclusively to sales for

personal use, both in number of sales

and volume of sales, either directly to

walk-in customers or in face-to-face

transactions by direct sales.’’ (emphasis

added] MCA Section 401(b)(4); 21

U.S.C. 802(46). ‘Sales for personal use’

is defined as ‘‘* * * the sale of belowthreshold quantities in a single

transaction to an individual for

legitimate medical use.’’ MCA 401(b)(4);

21 U.S.C. 802(46)(B).

The definitions printed above

describe the activities that a retail

distributor may engage in with

sufficient detail to establish the type of

transactions that are to be exempted

from regulation. The MCA provides that

the exemption shall apply to sales by

persons whose activities are limited

almost exclusively to sales to

individuals for legitimate medical use,

both in number of sales and volume of

sales, either directly to walk-in

customers or in face-to-face transactions

by direct sales. This language clearly

does not contemplate an exception for a

major class of wholesale distributions.

Further, the assertion that retail

distributor should be defined as the

corporate entity that is engaged in the

process of retail distribution fails to

acknowledge the requirements of the

CSA with respect to separate

registration for separate locations. The

chemical registration requirements

parallel the registration requirements

established for controlled substances

handlers; under such requirements,

each location at which List I chemicals

are distributed, imported, or exported

must be viewed individually, as a

separate person, for purposes of

application of the chemical controls

under the CSA.

Under the circumstances, the MCA

cannot be read as providing an

exemption for warehouses or storage

facilities that operate within a retail

distribution system. The MCA

recognizes, quite logically, that if one

portion of the distribution chain is to be

granted exemption from regulation, then

the other portion of the chain must be

subject to control to insure that the

distribution chain does not become a

source of supply for the

methamphetamine traffickers.

DEA does wish to note that in

addition to receiving comments

regarding registration for distributors of

sub-threshold amounts of product and

registration for distributors within retail

distribution chains, the agency was also

approached directly by the commentors

for clarification of the requirements in

each case. At the same time that this

notice was drafted, individual responses

were also provided directly to the

commentors in response to their

requests for clarification. While it may

appear unusual for DEA to respond

directly to persons regarding issues that

have been raised in formal comments

submitted in response to a rulemaking

notice, it should be noted that neither

concern has a direct bearing on the

substance of the interim rule. The

question of registration of distributors of

sub-threshold amounts of product

involves interpretation of the

registration requirements established

under the DCDCA in 1993; the MCA is

only peripherally involved through its

removal of the exemption from

regulation for pseudoephedrine,

phenylpropanolamine, and combination

ephedrine products, subjecting them to

the existing registration requirements.

The question of registration for

distributors within the retail

distribution system involves

clarification of a specific provision of

the law which does not require any

additional regulatory provisions to

implement beyond technical

amendments to make the language of

the regulations consistent with the

language of the law. Further, it was

necessary that the requestors be given

clarification of these points as quickly

as possible to insure that the affected

distributors could be advised as to the

need to submit applications for

registration prior to the deadline.

Following the close of the comment

period of April 11, 1997, DEA received

a written request, dated April 17, 1997,

for an extension of the filing deadline

for the temporary exemption in 21 CFR

1310.09. The requestor, a representative

of a segment of industry heretofore not

subject to DEA’s chemical controls,

cited industry misunderstandings

regarding the registration requirements

of the CSA and DEA’s administration of

the chemical control program in

justifying the need for an extension of

the deadline. DEA recognized that there

had been confusion in the industry

regarding the application of certain

requirements under the MCA; therefore,

the application deadline for temporary

exemption was extended to July 12,

1997.

Accordingly, DEA’s interim rule,

published on February 10, 1997 (62 FR

5914), and amended on May 21, 1997

(62 FR 27693), is being adopted as a

final rule.

The Deputy Assistant Administrator

for the Office of Diversion Control

hereby certifies that this rulemaking

will not have a significant economic

impact upon a substantial number of

entities whose interests must be

considered under the Regulatory

Flexibility Act, 5 U.S.C. 601 et seq. This

rulemaking is an administrative action

to make the regulations consistent with

the law and to avoid interruption of

legitimate commerce by granting

temporary exemptions from registration

pending promulgation, through notice

and comment, of the regulations

necessary to implement the provisions

of the MCA pertaining to combination

ephedrine products. Further, since this

is a temporary action which provides

affected persons with a means to
52256 Federal Register / Vol. 62, No. 194 / Tuesday, October 7, 1997 / Rules and Regulations

comply with the law pending

promulgation of regulations

implementing the MCA, this action is

not a significant regulatory action and

therefore has not been reviewed by the

Office of Management and Budget

pursuant to Executive Order 12866.

Consideration of the significant and

impact of the new requirements of the

MCA will be addressed as part of a

future notice by DEA proposing

regulations to implement the MCA.

This action has been analyzed in

accordance with the principles and

criteria in Executive Order 12612, and it

has been determined that this rule does

not have sufficient federalism

implications to warrant the preparation

of Federalism Assessment.

This rule will not resulting the

expenditure by State, local, and tribal

governments, in the aggregate, or by the

private sector, of $100,000,000 or more

in any one year, and will not

significantly or uniquely affect small

governments.

Therefore, no actions were deemed

necessary under the provisions of the

Unfunded Mandates Reform Act of

1995.

This rule is not a major rule as

defined by Section 804 of the Small

Business Regulatory Enforcement

Fairness Act of 1996. This rule will not

result in an annual effect on the

economy of $100,000,000 or more; a

major increase in costs or prices; or

significant adverse effects on

competition, employment, investment,

productivity, innovation, or on the

ability of United States-based

companies to compete with foreignbased companies in domestic and

export markets.

Accordingly, the interim rule

amending 21 CFR parts 1309, 1310, and

1313, which was published at 62 FR

5914 on February 10, 1997, and

amended at 62 FR 27693 on May 21,

1997, is adopted as a final rule.

Dated: September 29, 1997.

John H. King,

Deputy Assistant Administrator, Office of

Diversion Control.

[FR Doc. 97–26177 Filed 10–6–97; 8:45 am]

BILLING CODE 4410–09–M

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 53

[TD 8736]

RIN 1545–AU66

Time for Filing Form 4720 Return

AGENCY: Internal Revenue Service (IRS),

Treasury.

ACTION: Final and temporary

regulations.

SUMMARY: This document contains a

regulation that specifies the filing date

by which Form 4720 returns must be

filed by disqualified persons and

organization managers liable for Internal

Revenue Code section 4958 excise taxes.

These excise taxes are imposed on

excess benefit transactions between

disqualified persons and section

501(c)(3) organizations (except for

private foundations) or section 501(c)(4)

organizations.

DATES: This regulation is effective

October 7, 1997.

For dates of applicability, see

§ 53.6071–1(f).

FOR FURTHER INFORMATION CONTACT:

Phyllis Haney, (202) 622–4290 (not a

toll-free number).

SUPPLEMENTARY INFORMATION:

Background

This document contains amendments

to the Foundation and Similar Excise

Taxes regulations (26 CFR part 53)

under Internal Revenue Code (Code)

section 6071. Those amendments

provide guidance on the time for filing

the return that is required to accompany

payment of section 4958 excise taxes.

This rule was first published in Notice

96–46 (1996–39 I.R.B. 7) (September 23,

1996). A notice of proposed rulemaking

(NPRM) of that rule was published at 62

FR 84, by cross reference to a temporary

regulation, (TD 8705, 62 FR 25), on

January 2, 1997. The deadline for

comments on the NPRM was April 2,

1997; no comments were received.

Taxpayer Bill of Rights 2, Public Law

104–168, 110 Stat. 1452 (TBOR2),

enacted July 30, 1996, added section

4958 to the Code, which imposes excise

taxes on excess benefit transactions.

Section 4958 taxes apply retroactively to

excess benefit transactions occurring on

or after September 14, 1995. The taxes

do not, however, apply to any benefit

arising from a transaction pursuant to

any written contract which was binding

on September 13, 1995, and at all times

thereafter before such transaction

occurred.

An ‘‘excess benefit transaction’’

subject to tax under section 4958 is any

transaction in which an economic

benefit is provided by an organization

described in Code section 501(c)(3)

(except for a private foundation) or

501(c)(4) directly or indirectly to, or for

the use of, any disqualified person if the

value of the economic benefit provided

exceeds the value of the consideration

(including the performance of services)

received for providing the benefit. A

‘‘disqualified person’’ is any person who

was, at any time during the 5-year

period ending on the date of the excess

benefit transaction, in a position to

exercise substantial influence over the

affairs of the organization. Disqualified

persons also include family members

and certain entities in which at least 35

percent of the control or beneficial

interest are held by persons described in

the preceding sentence.

Code section 4958 imposes three

taxes. The first tax is equal to 25 percent

of the excess benefit amount, and is to

be paid by any disqualified person who

engages in an excess benefit transaction.

The second tax is equal to 200 percent

of the excess benefit amount, and is to

be paid by any disqualified person if the

excess benefit transaction is not

corrected within the taxable period. The

third tax is equal to 10 percent of the

excess benefit amount, and is to be paid

generally by any organization manager

who knowingly participates in an excess

benefit transaction. The maximum

amount of this third tax with respect to

any one excess benefit transaction may

not exceed $10,000. An ‘‘organization

manager’’ is any officer, director,

trustee, or any individual having powers

or responsibilities similar to those of

any officer, director, or trustee. Final

regulations under Code section 6011

were published on January 2, 1997, at

TD 8705 (62 FR 25), prescribing Form

4720 for calculating and paying the first

and third taxes described above.

TBOR2 also amended Code section

6033(b) to require section 501(c)(3)

organizations to report the amounts of

the taxes paid under section 4958 with

respect to excess benefit transactions

involving the organization, as well as

any other information the Secretary may

require concerning those transactions.

Section 6033(f) also was amended to

impose the same reporting requirements

on section 501(c)(4) organizations.

Those amendments to section 6033 only

apply to organizations’ returns for

taxable years beginning after July 30,

1996. These and other TBOR2

amendments to the reporting

requirements for section 501(c)(3) and

section 501(c)(4) organizations are