### 72355 Federal Register / Vol. 76, No. 226 / Wednesday, November 23, 2011 / Proposed Rules

proposed AD would 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.

For the reasons discussed above, I certify this proposed regulation:

(1) Is not a ‘‘significant regulatory action’’ under Executive Order 12866,

(2) Is not a ‘‘significant rule’’ under the DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979),

(3) Will not affect intrastate aviation in Alaska, and

(4) 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.

List of Subjects in 14 CFR Part 39

Air transportation, Aircraft, Aviation safety, Incorporation by reference, Safety.

The Proposed Amendment

Accordingly, under the authority delegated to me by the Administrator, the FAA proposes to amend 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. The FAA amends § 39.13 by adding the following new airworthiness directive (AD):

Pratt & Whitney: Docket No. FAA–2011– 1194; Directorate Identifier 2011–NE–

36–AD.

(a) Comments Due Date

We must receive comments by January 23,

2012.

(b) Affected ADs

None.

(c) Applicability

This AD applies to all Pratt & Whitney PW4050, PW4052, PW4056, PW4056(–3), PW4156, PW4060, PW4060(–3), PW4060A, PW4152, PW4152(–3), PW4156A, PW4158, PW4158(–3), PW4460, PW4460(–3), PW4462, and PW4462(–3) turbofan engines.

(d) Unsafe Condition

This AD was prompted by reports of five engine in-flight shutdowns and seven unplanned engine removals due to clogging of No. 4 bearing compartment oil pressure and scavenge tubes. We are issuing this AD to prevent an engine fire, a fractured fan drive shaft, and damage to the airplane. (e) Compliance

Comply with this AD within the compliance times specified, unless already

done.

(f) Inspection and Cleaning of No. 4 Bearing Compartment for Coking

(1) Within 1,000 cycles-in-service (CIS) after the effective date of this AD, initially inspect and clean the No. 4 bearing compartment in accordance with Accomplishment Instructions, paragraphs 2.A. through 2.A.(4)(b)3 of Pratt & Whitney

Alert Service Bulletin No. PW4ENG–A72– 436, Revision 6, dated September 30, 1999.

(2) Thereafter, within every additional 1,000 CIS, perform the inspection and cleaning specified in paragraph (f)(1) of this

AD.

(g) Modification To Stop Buildup of Coking in the No. 4 Bearing Compartment

(1) At the next engine visit to a maintenance facility that is capable of performing the following on-wing method or in-shop method of modification to the No. 4 bearing compartment, but not to exceed 5 years after the effective date of this AD, do the following:

(i) Replace the No. 4 bearing packing transfer tube assembly;

(ii) Replace the No. 4 bearing internal scavenge tube assembly;

(iii) Remove the No. 4 bearing shield, and the No. 4 bearing shield option; and

(iv) Install new No. 4 bearing shield options.

(2) For doing the on-wing method of the modification, do the work in accordance with Accomplishment Instructions, Paragraphs 2.A. through 2.A.(9)(a)3d of Pratt & Whitney Service Bulletin (SB) No. PW4ENG–72–472, Revision 5, dated April 14, 1998.

(3) For doing the in-shop method of the modification, do the work in accordance with Paragraphs 2.B. through 2.B.(2)(f)2d of Pratt & Whitney SB No. PW4ENG–72–472, Revision 5, dated April 14, 1998.

(h) Rerouting of the No. 4 Bearing Pressure and Scavenge Tubes

(1) At the next shop visit at which the engine is sufficiently disassembled to perform the rerouting, but not to exceed 5 years after the effective date of this AD, do the following:

(i) Modify the turbine exhaust case to relocate the No. 4 bearing pressure and scavenge tube ports;

(ii) Replace the internal No. 4 bearing pressure and scavenge tubes;

(iii) Modify or replace the turbine case cooling brackets to support the new No. 4 bearing pressure and scavenge tubes;

(iv) Replace the turbine case manifolds as necessary; and

(v) Install the new brackets and clamps to support the new routing configuration.

(2) Do the work specified in paragraph (h)

of this AD in accordance with Accomplishment Instructions paragraph 2 of Pratt & Whitney SB No. PW4ENG–79–76, Revision 4, dated February 14, 2002. (i) Terminating Action to the Repetitive Inspections and Cleaning

Performing the modifications specified in both paragraphs (g) and (h), of this AD is terminating action to the repetitive inspections and cleanings specified in paragraph (f)(2) of this AD.

(j) Alternative Methods of Compliance (AMOCs)

The Manager, Engine Certification Office, may approve AMOCs for this AD. Use the procedures found in 14 CFR 39.19 to make your request.

(k) Related Information

(1) For more information about this AD, contact Stephen Sheely, Aerospace Engineer, Engine & Propeller Directorate, FAA, 12 New England Executive Park, Burlington, MA

01803; phone: (781) 238–7750; fax: (781)

238–7199; email: stephen.k.sheely@faa.gov.

(2) For service information identified in this AD, contact Pratt & Whitney, 400 Main St., East Hartford, CT 06108; telephone: (860) 565–8770; fax: (860) 565–4503. You may review copies of the referenced service information at the FAA, Engine & Propeller Directorate, 12 New England Executive Park, Burlington, MA. For information on the availability of this material at the FAA, call (781) 238–7125.

Issued in Burlington, Massachusetts, on November 15, 2011.

Peter A. White, Manager, Engine & Propeller Directorate, Aircraft Certification Service.

[FR Doc. 2011–30138 Filed 11–22–11; 8:45 am]

**BILLING CODE 4910–13–P**

**DEPARTMENT OF JUSTICE**

**Drug Enforcement Administration**

**21 CFR Part 1300**

**[Docket No. DEA–341P]**

**RIN 1117–AB31**

**Classification of Two Steroids, Prostanozol and Methasterone, as** 
**Schedule III Anabolic Steroids Under**
**the Controlled Substances Act**

**AGENCY :**  Drug Enforcement Administration (DEA), Department of Justice.

**ACTION :**  Notice of proposed rulemaking.

**SUMMARY :**  This Notice of Proposed Rulemaking (NPRM) proposes to classify the following two steroids as
‘‘anabolic steroids’’ under the Controlled Substances Act (CSA): prostanozol (17 b -hydroxy-5 aandrostano[3,2-c]pyrazole) and methasterone (2 a ,17 a-dimethyl-5 aandrostan-17 b -ol-3-one). The Drug Enforcement Administration (DEA) believes that this action is necessary to prevent the abuse and trafficking of


### 72356 Federal Register / Vol. 76, No. 226 / Wednesday, November 23, 2011 / Proposed Rules

these steroids. If the regulations are amended, these steroids will be listed as
Schedule III controlled substances subject to the regulatory control provisions of the CSA.

**DATES :**  Electronic comments must be
submitted and written comments must be postmarked on or before January 23,
2012. Commenters should be aware that
the electronic Federal Docket Management System will not accept comments after midnight Eastern Time on the last day of the comment period.

**ADDRESSES :**  To ensure proper handling of comments, please reference ‘‘Docket
No. DEA–341’’ on all electronic and written correspondence. DEA encourages all comments be submitted electronically through http:// www.regulations.gov using the electronic comment form provided on that site. An electronic copy of this document and supplemental information to this proposed rule are
also available at the http:// www.regulations.gov Web site for easy reference. Paper comments that duplicate the electronic submission are not necessary as all comments submitted to www.regulations.gov will be posted for public review and are part
of the official docket record. Should you, however, wish to submit written comments via regular or express mail, they should be sent to the Drug Enforcement Administration, Attention: DEA Federal Register Representative/ OD, 8701 Morrissette Drive, Springfield, Virginia 22152.

**FOR FURTHER INFORMATION CONTACT :**  Rhea D. Moore, Office of Diversion Control, Drug Enforcement Administration, 8701 Morrissette Drive, Springfield, Virginia 22152; Telephone (202) 307–7165.

**SUPPLEMENTARY INFORMATION :** 

Posting of Public Comments: Please
note that all comments received are considered part of the public record and made available for public inspection
online at http://www.regulations.gov and in the DEA’s public docket. Such information includes personal identifying information (such as your name, address, etc. ) voluntarily submitted by the commenter.

If you want to submit personal identifying information (such as your name, address, etc. ) as part of your comment, but do not want it to be posted online or made available in the public docket, you must include the phrase ‘‘PERSONAL IDENTIFYING INFORMATION’’ in the first paragraph of your comment. You must also place all the personal identifying information you do not want posted online or made available in the public docket in the first paragraph of your comment and identify what information you want redacted.

If you want to submit confidential business information as part of your comment, but do not want it to be posted online or made available in the public docket, you must include the phrase ‘‘CONFIDENTIAL BUSINESS INFORMATION’’ in the first paragraph of your comment. You must also prominently identify confidential
business information to be redacted
within the comment. If a comment has
so much confidential business information that it cannot be effectively redacted, all or part of that comment may not be posted online or made available in the public docket.

Personal identifying information and
confidential business information
identified and located as set forth above will be redacted, and the comment, in redacted form, will be posted online and placed in the DEA’s public docket file.
Please note that the Freedom of Information Act applies to all comments received. If you wish to inspect the agency’s public docket file in person by appointment, please see the ‘‘For Further Information’’ paragraph.

Background Information

On November 29, 1990, the President signed into law the Anabolic Steroids Control Act of 1990 (Title XIX of Pub. L. 101–647), which became effective February 27, 1991. This law established and regulated anabolic steroids as a class of drugs under Schedule III of the CSA. As a result, a new anabolic steroid is not scheduled according to the procedures set out in 21 U.S.C. 811, but can be administratively classified as an anabolic steroid through the rulemaking process by adding the steroid to the regulatory definition of an anabolic steroid in 21 CFR 1300.01(b)(4).

On October 22, 2004, the President signed into law the Anabolic Steroid Control Act of 2004 (Pub. L. 108–358), which became effective on January 20, 2005. Section 2(a) of the Anabolic
Steroid Control Act of 2004 amended 21 U.S.C. 802(41)(A) by replacing the existing definition of ‘‘anabolic steroid.’’
The Anabolic Steroid Control Act of 2004 classifies a drug or hormonal
substance as an anabolic steroid if the following four criteria are met: (A) The substance is chemically related to testosterone; (B) the substance is pharmacologically related to testosterone; (C) the substance is not an estrogen, progestin, or a corticosteroid; and (D) the substance is not dehydroepiandrosterone (DHEA). Any
substance that meets the criteria is
considered an anabolic steroid and must
be listed as a Schedule III controlled substance. DEA believes that prostanozol (17 b -hydroxy-5 aandrostano[3,2-c]pyrazole) and methasterone (2 a ,17 a-dimethyl-5 aandrostan-17 b -ol-3-one) meet this definition of ‘‘anabolic steroid,’’ and is proposing that they be added to the list
of anabolic steroids in 21 CFR 1300.01(b)(4).

Anabolic steroids are a class of drugs structurally related to the endogenous
hormone testosterone that exert androgenic (masculinizing) as well as anabolic (body building) effects. These effects are mediated primarily through binding of the anabolic steroid to the androgen receptor in target tissues (Evans, 2004). Anabolic effects include promotion of protein synthesis in skeletal muscle and bone, while the androgenic effects are characterized by the development of male secondary
sexual characteristics such as hair growth, deepening of the voice, glandular activity, thickening of the skin, and central nervous system effects, to name a few (Kicman, 2008). Anabolic efficacy is characterized by positive nitrogen balance and protein metabolism, resulting in increases in protein synthesis and lean body mass (Evans, 2004). These effects often come at a cost to the healthy individual who experiences clear physical and psychological complications (Trenton and Currier, 2005; Brower, 2002; Hall et al., 2005).

In the United States, only a small
number of anabolic steroids are approved for either human or veterinary use. Approved medical uses for anabolic steroids include treatment of androgen deficiency in hypogonadal males, adjunctive therapy to offset protein catabolism associated with prolonged administration of corticosteroids, treatment of delayed puberty in boys,
treatment of metastatic breast cancer in women, and treatment of anemia associated with specific diseases ( e.g., anemia of chronic renal failure, Fanconi’s anemia, and acquired aplastic anemia). However, with the exception of the treatment of male hypogonadism,
anabolic steroids are not the first-line treatment due to the availability of other preferred treatment options. DEA is not aware of any legitimate medical use or New Drug Applications (NDA) for the two substances that DEA is proposing to classify by this NPRM as anabolic
steroids under the definition set forth under 21 U.S.C. 802(41)(A). Moreover, DEA has not been able to identify any chemical manufacturers currently using
these substances as intermediates in their manufacturing process(es).

Adverse health effects are associated
with abuse of anabolic steroids and


### 72357 Federal Register / Vol. 76, No. 226 / Wednesday, November 23, 2011 / Proposed Rules

depend on several factors ( e.g., age, sex, anabolic steroid used, the amount used, and the duration of use) (Hall and Hall, 2005; Quaglio et al., 2009). These include cardiovascular, dermatological, behavioral, hepatic, and gender specific
endocrine side effects. Anabolic steroids have direct and indirect impact on the developing adolescent brain and behavior (Sato et al., 2008). Furthermore, adolescent abuse of anabolic steroids may result in stunted growth due to premature closure of the growth plates in long bones. In adolescent boys, anabolic steroid abuse can cause precocious sexual development. In both girls and women,
anabolic steroid abuse induces permanent physical changes such as deepening of the voice, increased facial and body hair growth, menstrual irregularities, and clitoral hypertrophy. In men, anabolic steroid abuse can cause testicular atrophy, decreased sperm count, and sterility. Gynecomastia ( i.e., enlargement of the male breast tissue) can develop with the
abuse of those anabolic steroids with estrogenic actions. In both men and women, anabolic steroid abuse can damage the liver and may result in high cholesterol levels, which may increase
the risk of strokes and cardiovascular heart attacks. Furthermore, anabolic steroid abuse is purported to induce psychological effects such as aggression, increased feelings of hostility, and psychological dependence and addiction (Brower, 2002; Kanayama et al., 2008). Upon abrupt termination of long-term anabolic steroid abuse, a withdrawal syndrome may appear including severe depression. Additionally, polysubstance abuse is routinely associated with anabolic steroid abuse, where ancillary drugs, including recreational and prescription drugs, are abused in response to unwanted side effects (Hall et al., 2005; Parkinson et al., 2005; Skarberg et al., 2009).

A review of the scientific literature finds adverse health effects including liver toxicity with renal failure reported in conjunction with methasterone abuse (Shah et al., 2008; Jasiurkowski et al., 2006; Singh et al., 2009; Nasr and Ahmad, 2008; and Krishnan et al., 2009). In March 2006, the U.S. Food and Drug Administration (FDA) issued a Warning Letter in response to adverse
health effects associated with the product Superdrol (methasterone). In July 2009, FDA issued a warning regarding bodybuilding products containing steroid or steroid-like substances. In this warning, a product containing the THP ether derivative of prostanozol was named in conjunction with other products presenting safety

concerns. Evaluation of Statutory Factors for
Classification as an Anabolic Steroid

DEA is proposing by this NPRM to classify prostanozol (17 b -hydroxy-5 aandrostano[3,2-c]pyrazole) and methasterone (2 a ,17 a-dimethyl-5 aandrostan-17 b -ol-3-one) as anabolic
steroids under the definition set forth under 21 U.S.C. 802(41)(A). As noted previously, a drug or hormonal
substance is classified as an anabolic steroid by meeting the following four definitional requirements: (A) The substance is chemically related to testosterone; (B) the substance is pharmacologically related to testosterone; (C) the substance is not an estrogen, progestin, or corticosteroid; and (D) the substance is not DHEA.

(A) Chemically Related to Testosterone

To classify a substance as an anabolic steroid, a substance must be chemically
related to testosterone. A structure activity relationship (SAR) evaluation for each substance compared the
chemical structure of the steroid to that
of testosterone. Substances with a
structure similar to that of testosterone are predicted to possess comparable pharmacological and biological activity.

Prostanozol is also known by the following name: 17 b -hydroxy-5 aandrostano[3,2-c]pyrazole. DEA
determined that the chemical structure of prostanozol is similar to testosterone, differing by only the attachment of a pyrazole ring at carbon 2 (C2) and carbon 3 (C3) positions of the androstane skeleton, replacing the C3- keto group and the lack of a double bond between carbon 4 (C4) and carbon 5 (C5) positions. Similar modifications
to testosterone’s chemical structure have been documented and, in general, they have been found to be well tolerated, displaying both anabolic and androgenic activity (Fragkaki et al., 2009; Vida, 1969). Clinton and coworkers, in their synthesis of prostanozol, described the modification as a fusion of a pyrazole ring to the
androstane steroidal nucleus at C2 and C3 (Clinton et al., 1961). Further analysis finds the chemical structure of prostanozol to be very similar to the
anabolic steroid stanozolol. The two structures differ only about a 17 amethyl group (alpha methyl group attached to carbon 17).

Methasterone is known by the following chemical names: 2 a ,17 adimethyl-5 a-androstan-17 b -ol-3-one;

2 a ,17 a-dimethyl-17 b -hydroxy-5 aandrostan-3-one; 17 a-methyldrostanolone; methasteron; methyldrostanolone; 2 a ,17 adimethyldihydrotestosterone; and

2 a ,17 a-dimethyl-etiocholan-17 b -ol-3-
one. DEA has determined that the
chemical structure of methasterone is chemically related to testosterone. The
chemical structure of methasterone differs from testosterone by the following three chemical groups: an alpha methyl group at carbon 17 (C17), an alpha methyl group at C2, and the lack of a double bond between spanning
C4 and C5. Removal of the C4–C5 double bond (A-ring) and methylation at the C2 and C17 positions has been shown to increase anabolic activity (Zaffroni, 1960; Fragkaki et al., 2009). Furthermore, methyl group substitution at the C2 and C17 has been reported to impair aromatization, thus, prolonging the anabolic effect (Fragkaki et al., 2009).

(B) Pharmacologically Related to

Testosterone

A substance must also be pharmacologically related to testosterone ( i.e., produce similar biological effects) to be classified as a
Schedule III anabolic steroid. The pharmacology of a steroid, as related to testosterone, can be established by performing one or more of the following androgenic and anabolic activity assays: ventral prostate assay, seminal vesicle assay, levator ani assay, and androgen receptor binding and efficacy assays. These assays are described below.

Ventral Prostate Assay, Seminal Vesicle Assay, and Levator Ani Assay: The classic scientific procedure for evaluating androgenic (masculinizing) and anabolic (muscularizing) effects of a steroid is the ventral prostate assay, seminal vesicle assay, and levator ani assay. This testing paradigm allows for the direct comparison to testosterone. Select male accessory tissues ( i.e., the ventral prostate, seminal vesicles, and levator ani muscle) are testosterone sensitive, specifically requiring testosterone to grow and remain healthy. Upon the removal of the testes ( i.e., castration), the primary endogenous source of testosterone is eliminated causing the atrophy of the ventral prostate, seminal vesicles, and levator ani muscle (Eisenberg et al., 1949; Nelson et al., 1940; Scow, 1952; Wainman and Shipounoff, 1941).
Numerous scientific studies have demonstrated the ability of exogenous testosterone or a pharmacologically
similar steroid administered to rats following castration to maintain the normal weight and size of all three testosterone sensitive organs (Biskind and Meyer, 1941; Dorfman and


### 72358 Federal Register / Vol. 76, No. 226 / Wednesday, November 23, 2011 / Proposed Rules

1 2009 BIOQUAL, Inc. study commissioned by the
National Institutes of Health on behalf of DEA. Dorfman, 1963; Dorfman and Kincl, 1963; Kincl and Dorfman, 1964; Nelson et al., 1940; Scow, 1952; Wainman and Shipounoff, 1941). Thus, a steroid with testosterone-like activity will also prevent the atrophy of these three testosterone-dependent organs in
castrated rats.

Castrated male rats are administered the steroid for a number of days, then
the rats are euthanized and the previously described tissues are excised and weighed. Tissue weights from the three animal test groups are compared, castrated animals alone, castrated animals receiving the steroid, and healthy intact animals (control), to assess anabolic and androgenic activity. A reduction in tissue weights relative to the control group suggests a lack of androgenic and/or anabolic activity. An increase in tissue weights relative to the castrated rats receiving no steroid suggests an androgenic and/or anabolic
effect.

Androgen Receptor Binding and Efficacy Assay: Anabolic steroids bind with the androgen receptor to exert their biological effect. Affinity for the receptor is evaluated in the receptor binding assay, while the transactivation (functional) assay provides additional information as to both affinity and ability to activate the receptor. Receptor binding and transactivation studies are valuable tools in evaluating pharmacological activity and drawing comparisons to other substances. A steroid displaying affinity for the androgen receptor and properties of being an agonist in transactivation
studies is determined to be pharmacologically similar to

testosterone.

Studies used to evaluate anabolic steroids are the androgen receptor binding assay and the androgen receptortransactivation assay. Both are wellestablished and provide significant utility in evaluating steroids for affinity to their biological target and the modulation of activity. The androgen receptor binding assay provides specific detail as to the affinity of a steroid for the androgen receptor (biological target of anabolic steroids). To assess further whether the steroid is capable of activating the androgen receptor, the androgen receptor transactivation assay evaluates the binding of a steroid to the androgen receptor and subsequent interaction with DNA. In this study, transcription of a reporter gene provides information as to a steroid’s ability to modulate a biological event. This activity measurement provides information as to the potency of a steroid to bind to a receptor and either initiate or inhibit the transcription of the reporter gene. The androgen receptor binding assay and androgen receptor transactivation assay are highly valuable tools in assessing the potential activity of a steroid and comparing the activity to testosterone.

Results of the Androgenic and Anabolic Activity Assays

DEA reviewed the published scientific literature, and pharmacological studies were
undertaken to collect additional information on prostanozol and
methasterone in several different androgenic and anabolic activity assays.

Findings from these studies indicate that in addition to being structurally similar to testosterone, prostanozol and
methasterone have similar pharmacological activity as testosterone.

Prostanozol

The chemical synthesis and anabolic and androgenic effects of prostanozol (17 b -hydroxy-5 a-androstano[3,2- c]pyrazole) were published in 1961 (Clinton et al., 1961). Clinton and
coworkers evaluated the anabolic activity by means of nitrogen balance and androgenic activity based on weight changes of the ventral prostrate of prostanozol upon subcutaneous
administration to rats with the reference standard testosterone propionate. The potency ratio of anabolic activity to androgenic activity for prostanozol was reported to be eight (Clinton et al., 1961). In another study, prostanozol was reported to have approximately the same relative binding affinity for human sex steroid binding protein as testosterone (Cunningham et al., 1981).

To build on these findings, a pharmacological study 1 was conducted to evaluate the anabolic and androgenic effects of prostanozol in castrated male rats. Results were compared to testosterone by a similar protocol. Administration of prostanozol to castrated male rats by subcutaneous injection prevented the atrophy (loss in weight) of the ventral prostate, seminal vesicles, and levator ani muscle. 1 These

testosterone sensitive tissues experienced increases in weight comparable to testosterone in castrated male rats. Results from this study support that prostanozol possesses both androgenic and anabolic activity.
Additional studies were conducted to further assess prostanozol’s anabolic effect. In a competitive binding assay, prostanozol was found to possess affinity for the androgen receptor comparable to testosterone. 1 In the androgen receptor transactivation assay, prostanozol displayed increased activity
relative to testosterone. 1 Effects elicited by prostanozol in this transactivation assay were consistent and comparable to those of testosterone. Taken together, data from in vitro and in vivo assays indicate the pharmacology of prostanozol to be similar to testosterone.

Methasterone

The synthesis of methasterone (2 a ,17 a-dimethyl-5 a-androstan-17 b -ol3-one) was reported in 1956 and the anabolic activity in 1959 (Ringold and Rosenkranz, 1956; Ringold et al., 1959). Methasterone was described as a potent anabolic agent exhibiting weak androgenic activity in the castrated male rat (Ringold et al., 1959). Zaffaroni and coworkers reported methasterone possessed one-fifth the androgenic activity and four times the anabolic activity of the anabolic steroid methyltestosterone, when administered orally to the experimental animal (Zaffaroni et al., 1960).

Additional pharmacological studies
were undertaken to further evaluate the androgenic and anabolic effects of
methasterone. 1 Methasterone was administered subcutaneously and orally to castrated male rats. By both routes of administration, methasterone prevented the atrophy (loss in weight) of ventral prostate, seminal vesicles, and levator ani muscle. Tissue weight increases for
the castrated methasterone-treated animals were comparable to the
castrated rats treated with testosterone and methyltestosterone. These results were consistent with earlier findings
that methasterone is anabolic and androgenic (Zaffaroni, 1960; Ringold et al., 1959). Functional assays were also
undertaken to further evaluate
methasterone. 1 Methasterone displayed affinity for the androgen receptor comparable to testosterone in a competitive binding assay. 1 In the androgen receptor transactivation assay, methasterone displayed increased activity relative to testosterone. 1 Effects elicited by methasterone in the androgen transactivation assay were consistent and comparable to those of testosterone. Collectively, in vivo and in
vitro results indicate that the pharmacology of methasterone is similar

to testosterone.

(C) Not Estrogens, Progestins, and
Corticosteroids

DEA has determined that prostanozol
and methasterone are unrelated to estrogens, progestins, and
corticosteroids. DEA evaluated the SAR
for each of the substances. The chemical
structure of each substance was


### 72359 Federal Register / Vol. 76, No. 226 / Wednesday, November 23, 2011 / Proposed Rules

compared to that of estrogens, progestins, and corticosteroids, since
chemical structure can be related to its pharmacological and biological activity.
DEA found that these two substances lack the necessary chemical structures to impart significant estrogenic activity ( e.g., aromatic A ring) (Duax et al., 1988; Jordan et al., 1985; Williams and Stancel, 1996), progestational activity ( e.g., 17 b -alkyl group) (Williams and Stancel, 1996), or corticosteroidal activity ( e.g., 17 b -ketone group or 11 b

hydroxyl group) (Miller et al., 2002). Furthermore, methasterone was reported to display anti-estrogenic activity in mouse assay to assess estrogen stimulated uterine growth (Dorfman et al., 1961). To assess the estrogenic, progestational, and corticosteroid activity of prostanozol and methasterone, these substances were evaluated in receptor binding and functional transactivation assays.
Prostanozol and methasterone showed low binding affinity for the estrogen, progesterone, and glucocorticoid receptors. Furthermore, these steroids displayed low to no transactivation mediated by the estrogen receptors, progesterone receptors, or glucocorticoid receptors. Therefore, based on these data, prostanozol and methasterone are not estrogens, progestins, or corticosteroids and these anabolic steroids are not exempt from
control on this basis.

(D) Not Dehydroepiandrosterone

Dehydroepiandrosterone, also known as DHEA, is exempt from control as an anabolic steroid by definition (21 U.S.C. 802(41)(A)). Prostanozol and
methasterone are not dehydroepiandrosterone and therefore, are not exempt from control on this
basis.

Conclusion

Therefore, based on the above, DEA concludes that prostanozol and
methasterone meet the CSA definition
of ‘‘anabolic steroid’’ because each substance is: (A) Chemically related to testosterone; (B) pharmacologically related to testosterone; (C) not an estrogen, progestin, or a corticosteroid; and (D) not DHEA (21 U.S.C. 802(41)).
All anabolic steroids are classified as Schedule III controlled substances (21 U.S.C. 812). Once a substance is determined to be an anabolic steroid, DEA has no discretion regarding the scheduling of these substances. As discussed further below, all requirements pertaining to controlled
substances in Schedule III would pertain to these substances. Impact of Proposed Rule and Effect of Classifying These Substances as
Anabolic Steroids

If this rulemaking is finalized as proposed, DEA will classify prostanozol (17 b -hydroxy-5 a-androstano[3,2- c]pyrazole) and methasterone (2 a ,17 adimethyl-5 a-androstan-17 b -ol-3-one) as
Schedule III anabolic steroids. If
classified as Schedule III anabolic steroids, any person who manufactures, distributes, dispenses, imports, or exports prostanozol or methasterone or who engages in research or conducts instructional activities with respect to these two substances would be required to obtain a Schedule III registration in
accordance with the CSA and its implementing regulations. Manufacturers and importers of these two substances would be required to register with DEA and would be permitted to distribute these substances only to other DEA registrants. Only persons registered as dispensers would be allowed to dispense these substances
to end users. The CSA defines a practitioner as ‘‘a physician, dentist, veterinarian, scientific investigator, pharmacy, hospital, or other person licensed, registered, or otherwise permitted, by the United States or the jurisdiction in which he practices or does research, to distribute, dispense, conduct research with respect to, administer, or use in teaching or chemical analysis, a controlled substance in the course of professional practice or research.’’ 21 U.S.C. 802(21). At present, there are no approved
medical uses for these two substances. Until a manufacturer applies to the FDA and gains approval for products containing these substances, no person may dispense them in response to a prescription.

Manufacture, import, export, distribution, or sale of prostanozol (17 b

hydroxy-5 a-androstano[3,2-c]pyrazole) and methasterone (2 a ,17 a-dimethyl-5 aandrostan-17 b -ol-3-one) except by DEA registrants, would become a violation of the CSA that may result in imprisonment and fines (see, e.g., 21 U.S.C. 841, 960). Possession of these two steroids, unless legally obtained, would also become subject to criminal penalties (21 U.S.C. 844).

In addition, under the CSA, these two substances could be imported only for medical, scientific, or other legitimate uses (21 U.S.C. 952(b)) under an import declaration filed with DEA (21 CFR 1312.18). Importation of these substances would be illegal unless the person importing these substances is registered with DEA as an importer or researcher and files the required declaration for each shipment. An individual who purchases either of these substances directly from foreign companies and has them shipped to the
United States will be considered to be importing even if the steroids are intended for personal use. Illegal importation of these substances would be a violation of the CSA that may result in imprisonment and fines (21 U.S.C. 960).

Requirements for Handling Substances
Defined as Anabolic Steroids

Upon consideration of public comments from this NPRM, DEA may issue a final rule classifying prostanozol (17 b -hydroxy-5 a-androstano[3,2- c]pyrazole) and methasterone (2 a ,17 adimethyl-5 a-androstan-17 b -ol-3-one) as
anabolic steroids. If classified as anabolic steroids, prostanozol and methasterone would become subject to CSA regulatory controls and administrative, civil, and criminal sanctions applicable to the manufacture, distribution, dispensing, importation, and exportation of a Schedule III controlled substance, including the following:

Registration. Any person who manufactures, distributes, dispenses, imports, exports, or engages in research
or conducts instructional activities with
a substance defined as an anabolic steroid, or who desires to engage in such activities, would be required to be registered to conduct such activities
with Schedule III controlled substances
in accordance with 21 CFR Part 1301.

Security. Substances defined as anabolic steroids would be subject to Schedule III–V security requirements and would be required to be manufactured, distributed, and stored in accordance with 21 CFR 1301.71, 1301.72(b), (c), and (d), 1301.73, 1301.74, 1301.75(b) and (c), 1301.76 and

1301.77.

Labeling and Packaging. All labels and labeling for commercial containers
of substances defined as anabolic steroids would be required to comply with requirements of 21 CFR 1302.03–

1302.07.

Inventory. Every registrant required to keep records and who possesses any quantity of any substance defined as an anabolic steroid would be required to keep an inventory of all stocks of the substances on hand pursuant to 21 U.S.C. 827 and 21 CFR 1304.03, 1304.04 and 1304.11. Every registrant who desires registration in Schedule III for any substance defined as an anabolic steroid would be required to conduct an inventory of all stocks of the substances on hand at the time of registration.


### 72360 Federal Register / Vol. 76, No. 226 / Wednesday, November 23, 2011 / Proposed Rules

Records. All registrants would be required to keep records, as generally provided in 21 U.S.C. 827(a) and specifically pursuant to 21 CFR 1304.03,

1304.04, 1304.05, 1304.21, 1304.22, 1304.23 and 1304.26.

Prescriptions. All prescriptions for
these Schedule III substances or for products containing these Schedule III substances would be required to be issued pursuant to 21 U.S.C. 829(b) and
21 CFR 1306.03–1306.06 and 1306.21– 1306.27. All prescriptions for these Schedule III compounds or for products containing these Schedule III substances, if authorized for refilling,
would be limited to five refills within
six months of the date of issuance of the prescription. Controlled substance dispensing via the Internet would have to comply with 21 U.S.C. 829(e).

Importation and Exportation. All importation and exportation of any
substance defined as an anabolic steroid would be required to be in compliance with 21 U.S.C. 952(b) and 953(e) and 21

CFR Part 1312.

Criminal Liability. Any activity with any substance defined as an anabolic steroid not authorized by, or in violation of, the Controlled Substances Act or the Controlled Substances Import and Export Act would be unlawful.

Disposal of Anabolic Steroids

If this regulation is finalized as proposed, persons who possess
substances that become classified as
anabolic steroids and who wish to dispose of them rather than becoming registered to handle them should
contact their local DEA Diversion field office for assistance in disposing of these substances legally. The DEA Diversion field office will provide the person with instructions regarding the disposal. A list of local DEA Diversion field offices may be found at http:// www.deadiversion.usdoj.gov.

Regulatory Analyses

Regulatory Flexibility Act

The Administrator hereby certifies that this rulemaking has been drafted in accordance with the Regulatory Flexibility Act (5 U.S.C. 601–612). DEA
is not able to determine whether this regulation, if promulgated as a Final Rule, will not have a significant economic impact on a substantial
number of small entities. DEA has not identified any company based in the
United States that manufactures or distributes these substances. Thus, DEA does not believe this proposed rule would have a significant economic impact on a substantial number of small
entities. Because DEA is unable to determine whether this regulation as proposed would have a significant economic impact on a substantial number of small entities, DEA seeks comment on whether this regulation, if promulgated as a Final Rule, will have a significant economic impact on a
substantial number of small entities.

As of March 2010, DEA had identified approximately 75 dietary supplements that were currently or had been promoted for building muscle and increasing strength that purported to contain prostanozol or methasterone. Thirteen dietary supplements were purported to contain prostanozol and 62 dietary supplements were purported to contain methasterone. These dietary supplements are marketed and sold over
the Internet.

The manufacturers and distributors of dietary supplements purported to contain prostanozol and methasterone also sell a variety of other dietary supplements. DEA has identified a
substantial number of Internet distributors that sell these dietary supplements. However, these distributors also sell a variety of other nutritional products. Without information on the percentage of revenues derived from these dietary supplements, DEA is not able to determine the economic impact of the removal of these dietary supplements
alone on the business of the firms.
These steroids have been the focus of warning letters issued by the FDA. However, products continue to be marketed despite these warnings. DEA has not been able to identify any
chemical manufacturers that are currently using these substances as intermediates in their manufacturing process(es).

As of March 2010, DEA had identified
13 chemical manufacturers and
distributors that sell at least one of the
two steroids addressed in this NPRM. Most of these companies are located in China and sell a variety of other anabolic steroids. DEA notes that, as the vast majority of entities handling these substances are Internet based, it is virtually impossible to accurately quantify the number of persons handling these substances at any given time. DEA has not identified any company based in the United States that
manufactures or distributes these substances. DEA notes, upon placement into Schedule III, these substances may be used for analytical purposes.

Executive Orders 12866 and 13563

This rulemaking has been drafted in accordance with the principles of Executive Order 12866, 1(b), as reaffirmed by Executive Order 13563. This rule is not a significant regulatory action but has been reviewed by the Office of Management and Budget. As discussed above, the effect of this rule would be to remove products containing
these substances from the over-thecounter marketplace. DEA has no basis for estimating the size of the market for these products. DEA notes, however, that virtually all of the substances are imported. According to U.S. International Trade Commission data, the import value of all anabolic steroids in 2009 was $5.9 million. These two
substances would be a subset of those imports. The total market for products containing these substances, therefore, is probably quite small. Moreover, DEA believes that the importation of these two substances is for illegitimate

purposes.

The benefit of controlling these
substances is to remove from the marketplace substances that have dangerous side effects and no legitimate
medical use in treatment in the United States. As discussed in detail above, these substances can produce serious
health effects in adolescents and adults.
If medical uses for these substances are developed and approved, the drugs
would be available as Schedule III controlled substances in response to a prescription issued by a medical professional for a legitimate medical purpose. Until that time, however, this action would bar the importation, exportation, and sale of these two substances except for legitimate
research or industrial uses.

Executive Order 12988

This regulation meets the applicable standards set forth in Sections 3(a) and 3(b)(2) of Executive Order 12988 Civil Justice Reform.

Executive Order 13132

This rulemaking does not preempt or modify any provision of State law; nor does it impose enforcement responsibilities on any State; nor does it diminish the power of any State to enforce its own laws. Accordingly, this rulemaking does not have federalism implications warranting the application
of Executive Order 13132.

Executive Order 13175

This proposed rule will not have Tribal implications and will not impose substantial direct compliance costs on Indian Tribal governments.

Paperwork Reduction Act

This rule proposes to regulate two anabolic steroids, which are neither approved for medical use in humans nor approved for administration to cattle or


### 72361 Federal Register / Vol. 76, No. 226 / Wednesday, November 23, 2011 / Proposed Rules

other non-humans. Under this proposal, only chemical manufacturers who may
use these substances as chemical intermediates for the synthesis of other steroids would be required to register with DEA under the CSA. However, DEA has not been able to identify any
chemical manufacturers that are currently using these substances as intermediates in their manufacturing process(es). Although this proposal is unlikely to impose a new collection of information requirement under the Paperwork Reduction Act of 1995, 44 U.S.C. 3501–3521, DEA is nevertheless seeking input from the chemical industry on any manufacturing process(es) that may be affected.

Unfunded Mandates Reform Act of 1995

This rule will not result in the expenditure by state, local, and Tribal governments, in the aggregate, or by the private sector, of $136,000,000 or more (adjusted for inflation) 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, 2 U.S.C.

1532.

List of Subjects in 21 CFR Part 1300

Chemicals, Drug traffic control.
For the reasons set out above, 21 CFR part 1300 is proposed to be amended as
follows:

**PART 1300—DEFINITIONS**

1. The authority citation for part 1300
continues to read as follows:

Authority: 21 U.S.C. 802, 821, 829, 871(b), 951, 958(f).

2. Section 1300.01 is proposed to be amended by:

A. Redesignating paragraphs (b)(4)(xxxii) through (b)(4)(lxiii) as (b)(4)(xxxiii) through (b)(4)(lxiv),

B. Adding a new paragraph (b)(4)(xxxii),

C. Further redesignating newly designated paragraphs (b)(4)(lviii) through (b)(4)(lxiv) as (b)(4)(lix) through (b)(4)(lxv), and

D. Adding new paragraph (b)(4)(lviii). The additions read as follows:

**§ 1300.01 Definitions relating to controlled**

**substances.**

* * * * *

(b) * * * (4) * * * (xxxii) Methasterone (2 a ,17 adimethyl-5 a-androstan-17 b -ol-3-one)

* * * * *

(lviii) Prostanozol (17 b -hydroxy-5 aandrostano[3,2-c]pyrazole)

* * * * * Dated: November 8, 2011.
Michele M. Leonhart,

Administrator.

List of References

Biskind, G.R. and Meyer, M.A. (1941). The comparative androgenic potency of testosterone, methyltestosterone and testosterone propionate administered in pellet form. Endocrinology, 28 (2): 217–

221. Brower, K.J. (2002). Anabolic steroid abuse and dependence. Current Psychiatry Reports, 4: 377–387. Clinton, R.O., Manson, A.J., Stonner, F.W., Neumann, H.C., Christiansen, R.G., Clarke, R.L., Ackerman, J.H., Page, D.F., Dean, J.W., Dickinson, W.B., and Carabateas, C. (1961). Steroidal[3,2- c]pyrazoles. II. Androstanes, 19-
Norandrostanes and their Unsaturated Analogs. Journal of the American Chemical Society, 83: 1478–1491. Cunningham, G.R., Tindall, D.J., Lobl, T.J., Campbell, J.A., and Means, A.R. (1981). Steroid structural requirements for high affinity binding to human sex steroid binding protein (SBP). Steroids, 38 (3):

243–262. Dorfman, R.I. and Dorfman, A.S. (1963). The assay of subcutaneously injected androgens in the castrated rat. ACTA Endocrinologica, 42: 245–253. Dorfman, R.I. and Kincl, F.A. (1963). Relative potency of various steroids in an anabolic-androgenic assay using the
castrated rat. Endocrinology, 72: 259–

266. Dorfman, R.I., Kincl, F.A., and Ringold, H.J. (1961). Anti-estrogen assay of neutral steroids administered by subcutaneous injection. Endocrinology, 68: 17–24. Duax, W.L., Griffin, J.F., Weeks, C.M., and Wawrzak, Z. (1988). The mechanism of action of steroid antagonists: Insights from crystallographic studies. Journal of Steroid Biochemistry and Molecular Biology, 31: 481–492. Eisenberg, E., Gordan, G.S. and Elliott, H.W. (1949). Testosterone and tissue respiration of the castrate male rat with possible test for myotrophic activity. Endocrinology, 45 (2): 113–119. Evans, N.A. (2004). Current concepts in anabolic-androgenic steroids. The American Journal of Sports Medicine,

32 (2): 534–542. Fragkaki, A.G., Angelis, Y.S., Koupparis, M., Tsantili-Kakoulidou, A., Kokotos, G., Georgakopoulos, C. (2009). Structural characteristics of anabolic androgenic steroids contributing to binding to the androgen receptor and to their anabolic and androgenic activities. Applied
modifications in the steroidal structure. Steroids, 74: 172–197. Hall, R.C.W. and Hall, R.C.W. (2005). Abuse of supraphysiological doses of anabolic
steroids. Southern Medical Journal,

98 (5): 550–555. Hall, R.C.W. Hall, R.C.W., and Chapman, M.J. (2005). Psychiatric complications of
anabolic steroid abuse. Psychosomatics,

46 (4): 285–290. Hartig, P.C., Bobseine, K.L., Britt, B.H., Cardon, M.C., Lambright, C.R., Wilson, V.S., and Gray, L.E. (2002). Development of two androgen receptor assays using
adenoviral transduction of MMTV-Luc reporter and/or hAR for endocrine screening. Toxicological Sciences, 66:

82–90. Jasiurkowski, B., Raj, J., Wisinger, D., Carlson, R., Zou, L., and Nadir, A. (2006). Cholestatic jaundice and IgA nephropathy induced by OTC muscle building agent superdrol. American Journal of Gastroenterology, 101 (11):

2659–2662. Jordan, V.C., Mittal, S., Gosden, B., Koch, R.,and Lieberman, M.E. (1985). Structureactivity relationships of estrogen. Environmental Health Perspectives, 61:

97–110. Kanayama, G., Hudson, J.I., and Pope, H.G. (2008). Long-term psychiatric andmedical consequences of anabolicandrogenic steroid abuse: A looming public health concern? Drug and Alcohol Dependence, 98: 1–12. Kicman, A.T. (2008). Pharmacology of
anabolic steroids. British Journal of Pharmacology, 154: 502–521. Kincl, F.A. and Dorfman, R.I. (1964). Anabolic-androgenic potency of various steroids in a castrated rat assay. Steroids,

3: 109–122. Krishnan, P.V., Feng, Z–Z., Gordon, S.C. (2009). Prolonged intrahepatic cholestasis and renal failure secondary to anabolic androgenic steroid-enriched dietary supplements. Journal of Clinical Gastroenterology, 43 (7): 672–675. Miller, D.D., Brueggemeier, R.W., and Dalton, J.T. (2002). Adrenocorticoids. In D.A. Williams and T.L. Lemke (Eds.) Foye’s Principle of Medicinal Chemistry (5th ed.). Philadelphia, Lippincott Williams
and Wilkins. Nasr, J. and Ahmad, J. (2009). Severe
cholestasis and renal failure associated with the use of the designer steroid superdrol (methasteron): A case report
and literature review. Digestive Diseases and Science, 54: 1144–46. Nelson, D., Greene, R.R. and Wells, J.A. (1940). Variations in the effectiveness of percutaneously applied androgens in the

rat. Endocrinology, 26: 651–655. Parkinson, A.B. and Evans, N.A. (2005). Anabolic androgenic steroids: A survey
of 500 users. Medicine & Science in Sports & Exercise, 644–651. Quaglio, G., Fornasiero, A., Mezzelani, P., Moreschini, S., Lugoboni, F., and Lechi, A. (2009). Anabolic steroids: Dependence and complications of
chronic use. Internal and Emergency Medicine, 4: 289–296. Ringold, H.J., Batres, E., Halpern, O., and Necoechea, E. (1959). Steroids. CV. 2-Methyl and 2-hydroxymethyleneandrostane derivatives. Journal of the American Chemical Society, 81: 427–

432. Ringold, H.J. and Rosenkranz, G. (1956). Steroids. LXXXIII. Synthesis of 2-methyl and 2,2-dimethyl hormone analogs. Journal of Organic Chemistry, 21: 1333–

1335. Sato, S.M., Schulz, K.M., Sisk, C.L., and Wood, R.I. (2008). Adolescents and


### 72362 Federal Register / Vol. 76, No. 226 / Wednesday, November 23, 2011 / Proposed Rules

androgens, receptors, and rewards. Hormones and Behavior, 53: 647–658. Scow, R.O. (1952). Effect of testosterone on
muscle and other tissues and on carcass composition in hypophysectomized, thyroidectomized, and gonadectomized
male rats. Endocrinology, 51: 42–51. Skarberg, K., Nyberg, F., and Engstrom, I. (2009). Multisubstance use as a feature of addiction to anabolic-androgenic
steroids. European Addiction Research,

15: 99–106. Shah, N.L., Zacharias, I., Khettry, U., Afdhal, N., and Gordon, F.D. (2008).
Methasteron-associated cholestic liver injury: Clinicopathologic findings in 5

cases. Clinical Gastroenterology and Hepatology, 6 (2): 255–258. Singh, V., Rudraraju, M., Carey, E.J., Byrne, T.J., Vargas, H.E., Williams, J.E., Balan, V., and Douglas, D.D. (2009). Severehepatotoxicity caused by a methasteroncontaining, performance-enhancing supplement. Journal of Clinical Gastroenterology, 43 (3): 287. Trenton, A.J. and Currier, G.W. (2005).
Behavioural manifestations of anabolic
steroid use. CNS Drugs, 19 (7): 571–595. Vida, J.A. (1969). Androgens and Anabolic Agents: Chemistry and Pharmacology.
New York: Academic Press. Wainman, P. and Shipounoff, G.C. (1941).
The effects of castration and testosterone propionate on the striated perineal
musculature in the rat. Endocrinology,

29 (6): 975–978. Williams, C.L. and Stancel, G.M. (1996). Estrogens and Progestins. In J.G. Hardman, L.E. Limbird, P.B. Molinoff, R.W. Ruddon, A. Goodman Gilman (Eds.) Goodman and Gilman’s The Pharmacological Basis of Therapeutics (9th ed.). New York: McGraw-Hill, 1411–

1440. Wilson, V.S., Bobseine, K., Lambright, C.R., and Gray, L.E. (2002). A novel cell line, MDA-kb2, that stably expresses an androgen- and glucocorticoid-responsive reporter for the detection of hormone receptor agonists and antagonists. Toxicological Sciences, 66: 69–81. Zaffaroni, A. (1960). The effect of alkyl- and electronegative-group substitution on steroidal hormone activity. Acta Endrocrinologica, 34 (2 Suppla): S139–

S145.

[FR Doc. 2011–30081 Filed 11–22–11; 8:45 am]

**BILLING CODE 4410–09–P**

**DEPARTMENT OF THE TREASURY**

**Internal Revenue Service**

**26 CFR Part 1**

**[REG–149625–10]**

**RIN 1545–BK03**

**Application of the Segregation Rules**
**to Small Shareholders**

**AGENCY :**  Internal Revenue Service (IRS), Treasury. **ACTION :**  Notice of proposed rulemaking.

**SUMMARY :**  This document contains proposed regulations under section 382 of the Internal Revenue Code (Code). These proposed regulations provide guidance regarding the application of the segregation rules to public groups
under section 382 of the Code. These regulations affect corporations.

**DATES :**  Written or electronic comments and requests for a public hearing must be received by February 21, 2012.

**ADDRESSES :**  Send submissions to: CC:PA:LPD:PR (REG–149625–10), room 5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, Washington, DC 20044. Submissions may be hand delivered Monday through Friday between the hours of 8 a.m. and 4 p.m. to CC:PA:LPD:PR (REG–149625– 10), Courier’s Desk, Internal Revenue Service, 1111 Constitution Avenue NW., Washington, DC, or sent electronically via the Federal eRulemaking Portal at http://www.regulations.gov/ (IRS REG– 149625–10).

**FOR FURTHER INFORMATION CONTACT :**  Concerning the proposed regulations, Stephen R. Cleary, (202) 622–7750; concerning submission of comments or to request a public hearing, Oluwafunmilayo (Funmi) P. Taylor, (202) 622–7180 (not toll-free numbers).

**SUPPLEMENTARY INFORMATION :** 
Background

1. Segregation and Aggregation— Statute, Legislative History, and Current Regulations

Section 382 imposes a limitation on a corporation’s use of net operating loss carryovers following a change in ownership. The legislative history explains that a limitation is necessary following a change in ownership
because new shareholders otherwise would have an opportunity to contribute income-producing assets (or divert income opportunities) to the corporation, thus inappropriately accelerating the use of net operating loss carryovers. The section 382 limitation is intended to prevent a corporation from obtaining greater loss utilization than it could have achieved absent a change in ownership. S. Rep. No. 99–313 at 232 (1986).

A loss corporation has an ownership change if the percentage of stock of a loss corporation that is owned by one or more 5-percent shareholders has increased by more than 50 percentage points over the lowest percentage of stock of the loss corporation owned by such shareholders at any time duringthe testing period (generally, a threeyear period). For purposes of section 382, the attribution rules of section 318(a)(2) apply, without limitation, to
treat individuals as the owners of loss corporation stock. Pursuant to section 382(g)(4)(A), individual shareholders who own less than five percent of a loss corporation are aggregated and treated as a single 5-percent shareholder (a public group).

The regulations extend the public group concept to situations in which a loss corporation is owned by one or more entities, as defined in § 1.382–3(a) (generally, partnerships, corporations, estates, and trusts). If an entity directly or indirectly owns five percent or more of the loss corporation, that entity has its own public group if its owners who are not 5-percent shareholders own, in the aggregate, five percent or more of the loss corporation. (Such an entity is referred to as a 5-Percent Entity in this preamble.)

The segregation rules, which are generally contained in § 1.382–2T(j), and the exceptions thereto, which are generally contained in § 1.382–3(j), apply to certain transactions affecting ownership by the loss corporation’s direct public group and by the public groups of a 5-Percent Entity. The application of the segregation rules results in the creation of a new public group in addition to the one (or more) that existed previously. That new group is treated as a new 5-percent shareholder that increases its ownership interest in the loss corporation.

Section 382(g)(4)(B) mandates application of the segregation rules to transactions constituting equity structure shifts of the loss corporation. Generally, equity structure shifts are acquisitive asset reorganizations and recapitalizations under section 368. Section 382(g)(3)(B) provides regulatory authority to treat public offerings and similar transactions as equity structure shifts. Pursuant to that authority, the current segregation rules, subject to the
cash issuance and small issuance exceptions (described in this preamble),
treat issuances of stock under section 1032, redemptions, and redemption-like transactions as segregation events. The segregation rules also apply to transfers of loss corporation stock by an individual 5-percent shareholder to public shareholders and a 5-Percent Entity’s transfer of loss corporation stock to public shareholders.

The small issuance and cash issuance exceptions exempt certain amounts of stock issuances from the segregation rules. Generally, the small issuance exception exempts the total amount of stock issued during a taxable year to the extent it does not exceed 10 percent of the total value of the corporation’s