31736 Federal Register / Vol. 75, No. 107 / Friday, June 4, 2010 / Proposed Rules 

instrument panel within the pilot’s clear 

view: ‘‘AEROBATIC FLIGHT PROHIBITED.’’ 

(2) Before the next aerobatic flight after the 

effective date of this AD, do a canopy jettison 

test following Grob Aircraft AG Service 

Bulletin No. MSB1078–164, dated July 21, 

2009. 

(3) If the canopy jettison fails the test 

required in paragraph (f)(2) of this AD, before 

further aerobatic flight: 

(i) Contact Grob Aircraft AG, Customer 

Service, 86874 Tussenhausen-Mattsies, 

Germany, telephone: + 49 (0) 8268–998–105; 

fax; + 49 (0) 8268–998–200; email: 

productsupport@grob-aircraft.com, for an 

FAA-approved repair scheme and 

incorporate the repair scheme; or 

(ii) Replace the canopy handle following 

Grob Aircraft AG Service Bulletin No. 

MSB1078–164, dated July 21, 2009. 

(4) Within 7 days after doing the canopy 

jettison test required in paragraph (f)(2) of 

this AD or within 7 days after the effective 

date of this AD, whichever occurs later, 

submit a report of the test results using 

Appendix 1 of Grob Aircraft AG Service 

Bulletin No. MSB1078–164, dated July 21, 

2009, to Grob Aircraft AG at the address 

specified in paragraph (f)(3)(i) of this AD. 

(5) After the corrective actions specified in 

paragraphs (f)(3)(i) or (f)(3)(ii) are done or if 

the canopy jettison passed the test required 

in paragraph (f)(2) of this AD, before further 

flight, remove the placard that was installed 

in accordance with paragraph (f)(1) of this 

AD. 

FAA AD Differences 

Note: This AD differs from the MCAI and/ 

or service information as follows: The MCAI 

does not have a placard requirement. To 

eliminate any confusion and to ensure pilot 

awareness of the unsafe condition, we added 

a temporary placard requirement to this AD. 

Other FAA AD Provisions 

(g) The following provisions also apply to 

this AD: 

(1) Alternative Methods of Compliance 

(AMOCs): The Manager, Standards Office, 

FAA, has the authority to approve AMOCs 

for this AD, if requested using the procedures 

found in 14 CFR 39.19. Send information to 

ATTN: Greg Davison, Aerospace Engineer, 

FAA, Small Airplane Directorate, 901 Locust, 

Room 301, Kansas City, Missouri 64106; 

telephone: (816) 329–4130; fax: (816) 329– 

4090. Before using any approved AMOC on 

any airplane to which the AMOC applies, 

notify your appropriate principal inspector 

(PI) in the FAA Flight Standards District 

Office (FSDO), or lacking a PI, your local 

FSDO. 

(2) Airworthy Product: For any 

requirement in this AD to obtain corrective 

actions from a manufacturer or other source, 

use these actions if they are FAA-approved. 

Corrective actions are considered FAAapproved if they are approved by the State 

of Design Authority (or their delegated 

agent). You are required to assure the product 

is airworthy before it is returned to service. 

(3) Reporting Requirements: For any 

reporting requirement in this AD, under the 

provisions of the Paperwork Reduction Act 

(44 U.S.C. 3501 et.seq.), the Office of 

Management and Budget (OMB) has 

approved the information collection 

requirements and has assigned OMB Control 

Number 2120–0056. 

Related Information 

(h) Refer to MCAI European Aviation 

Safety Agency (EASA) AD No. 2009–0279, 

dated December 23, 2009; and Grob Aircraft 

AG Service Bulletin No. MSB1078–164, 

dated July 21, 2009, for related information. 

Issued in Kansas City, Missouri, on May 

27, 2010. 

Steven W. Thompson, 

Acting Manager, Small Airplane Directorate, 

Aircraft Certification Service. 

[FR Doc. 2010–13422 Filed 6–3–10; 8:45 am] 

BILLING CODE 4910–13–P 

DEPARTMENT OF THE TREASURY 

Internal Revenue Service 

26 CFR Part 1 

[REG–106750–10] 

RIN 1545–BJ30 

Modifications of Debt Instruments 

AGENCY: Internal Revenue Service (IRS), 

Treasury. 

ACTION: Notice of proposed rulemaking 

and notice of public hearing. 

SUMMARY: This document contains 

proposed regulations relating to the 

modification of debt instruments. The 

regulations clarify the extent to which 

the deterioration in the financial 

condition of the issuer is taken into 

account to determine whether a 

modified debt instrument will be 

recharacterized as an instrument or 

property right that is not debt. The 

regulations provide needed guidance to 

issuers and holders of debt instruments. 

This document also provides notice of 

a public hearing on these proposed 

regulations. 

DATES: Written or electronic comments 

must be received by August 3, 2010. 

Outlines of topics to be discussed at the 

public hearing scheduled for 

Wednesday, September 8, 2010, at 10 

a.m. must be received by Wednesday, 

August 11, 2010. 

ADDRESSES: Send submissions to: 

CC:PA:LPD:PR (REG–106750–10), room 

5205, 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–106750– 

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 and REG– 

106750–10). 

FOR FURTHER INFORMATION CONTACT: 

Concerning the proposed regulations, 

Diana Imholtz, at (202) 622–3930; 

concerning submission of comments, 

the hearing, and/or to be placed on the 

building access list to attend the 

hearing, 

Richard.A.Hurst@irscounsel.treas.gov, 

at (202) 622–7180 (not toll-free 

numbers). 

SUPPLEMENTARY INFORMATION: 

Background 

Section 1.1001–3 provides rules for 

determining when a modification of a 

debt instrument results in an exchange 

for purposes of § 1.1001–1(a). In general, 

§ 1.1001–3 defines a modification and 

provides that a modification that is 

significant results in a deemed exchange 

of the original debt instrument for a 

modified debt instrument. Section 

1.1001–3 also addresses alterations to 

the terms of a debt instrument that 

result in a modified instrument that is 

not debt. Section 1.1001–3(c)(2)(ii) 

generally provides that a modification to 

a debt instrument occurs if an alteration 

changes the instrument to an instrument 

or property right that is not debt for 

Federal income tax purposes, even if the 

alteration occurs by operation of the 

original terms of the debt instrument. 

Section 1.1001–3(e)(5)(i) generally 

provides that a modification of a debt 

instrument that results in an instrument 

or property right that is not debt for 

Federal income tax purposes is a 

significant modification. For purposes 

of making the determination prescribed 

by § 1.1001–3(e)(5)(i), the regulations 

state that any deterioration in the 

financial condition of the issuer 

between the issue date of the 

unmodified debt instrument and the 

date of modification (as it relates to the 

issuer’s obligation to repay the debt 

instrument) is not taken into account, 

unless there is a substitution of a new 

obligor or the addition or deletion of a 

co-obligor. 

In response to the proposed 

regulations published on December 2, 

1992 (57 FR 57034), taxpayers were 

concerned that taking into account the 

creditworthiness of a financially 

troubled issuer when a debt instrument 

is modified would impose a significant 

barrier to restructuring distressed debt 

instruments. The rule in § 1.1001– 

3(e)(5)(i) to disregard the financial 

condition of the issuer was intended to 

address this concern. The preamble to 

the existing regulations published on 


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Federal Register / Vol. 75, No. 107 / Friday, June 4, 2010 / Proposed Rules 31737 

September 24, 1996 (TD 8675; 61 FR 

32926) explains that ‘‘for purposes of 

this regulation, unless there is a 

substitution of a new obligor, any 

deterioration in the financial condition 

of the issuer is not considered in 

determining whether the modified 

instrument is properly characterized as 

debt.’’ 

The language in the preamble to the 

existing regulations suggests that for all 

purposes of § 1.1001–3 the financial 

deterioration of the issuer is generally 

not taken into account. Issuers and 

holders, however, are concerned that, as 

the existing regulations are currently 

drafted, a decline in the 

creditworthiness of the issuer, under 

certain circumstances, may be taken 

into account under § 1.1001–3. The 

uncertainty about the proper 

interpretation of the existing regulations 

has led taxpayers to request clarification 

on the circumstances in which the 

credit quality of the issuer should be 

considered in determining the nature of 

the instrument resulting from an 

alteration or modification of a debt 

instrument. Accordingly, the IRS and 

the Treasury Department believe it is 

appropriate to propose amendments to 

§ 1.1001–3 to clarify this issue. 

Explanation of Provisions 

In general, the proposed regulations 

require an analysis of all of the factors 

relevant to a debt determination of the 

modified instrument at the time of an 

alteration or modification. However, in 

making this determination for purposes 

of the regulation, any deterioration in 

the financial condition of the issuer 

between the issue date of the debt 

instrument and the date of the alteration 

or modification (as it relates to the 

issuer’s ability to repay the debt 

instrument) is not taken into account, 

unless there is a substitution of a new 

obligor or the addition or deletion of a 

co-obligor. 

As noted in this preamble, the 

proposed regulations clarify that any 

deterioration in the financial condition 

of the issuer is generally not taken into 

account to determine if the modified 

instrument is debt. For example, under 

the proposed regulations, any decrease 

in the fair market value of a debt 

instrument (whether or not publicly 

traded) between the issue date of the 

debt instrument and the date of the 

alteration or modification is not taken 

into account to the extent that the 

decrease in fair market value is 

attributable to the deterioration in the 

financial condition of the issuer and not 

to a modification of the terms of the 

instrument. Consistent with this rule in 

the proposed regulations, if a debt 

instrument is significantly modified and 

the issue price of the modified debt 

instrument is determined under 

§ 1.1273–2(b) or (c) (relating to a fair 

market value issue price for publicly 

traded debt), then any increased yield 

on the modified debt instrument 

attributable to this issue price generally 

is not taken into account to determine 

whether the modified debt instrument is 

debt or some other property right for 

Federal income tax purposes. However, 

any portion of the increased yield that 

is not attributable to a deterioration in 

the financial condition of the issuer, 

such as a change in market interest 

rates, is taken into account. 

Proposed Effective Date 

The regulations, as proposed, apply to 

alterations of the terms of a debt 

instrument on or after the date of 

publication of the Treasury decision 

adopting these rules as final regulation 

in the Federal Register. A taxpayer, 

however, may rely on these 

amendments for alterations of the terms 

of a debt instrument occurring before 

that date. 

Special Analyses 

It has been determined that this notice 

of proposed rulemaking is not a 

significant regulatory action as defined 

in Executive Order 12866. 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 

regulation does 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 Internal Revenue 

Code, this notice of proposed 

rulemaking has been submitted to the 

Chief Counsel for Advocacy of the Small 

Business Administration for comment 

on its impact on small business. 

Comments and Public Hearing 

Before these proposed regulations are 

adopted as final regulations, 

consideration will be given to any 

written comments (a signed original and 

eight (8) copies) or electronic comments 

that are submitted timely to the IRS. The 

IRS and the Treasury Department 

request comments on the clarity of the 

proposed rules and how they can be 

made easier to understand. All 

comments will be available for public 

inspection and copying. 

A public hearing has been scheduled 

for Wednesday, September 8, 2010, 

beginning at 10 a.m. in Auditorium, 

Internal Revenue Building, 1111 

Constitution Avenue, NW., Washington, 

DC. Due to building security 

procedures, visitors must enter at the 

Constitution Avenue entrance. In 

addition, all visitors must present photo 

identification to enter the building. 

Because of access restrictions, visitors 

will not be admitted beyond the 

immediate entrance area more than 30 

minutes before the hearing starts. For 

information about having your name 

placed on the building access list to 

attend the hearing, see the FOR FURTHER

INFORMATION CONTACT section of this 

preamble. 

The rules of 26 CFR 601.601(a)(3) 

apply to the hearing. Persons who wish 

to present oral comments at the hearing 

must submit electronic or written 

comments and an outline of the topics 

to be discussed and the time to be 

devoted to each topic (signed original 

and eight (8) copies) by Wednesday, 

August 11, 2010. A period of 10 minutes 

will be allotted to each person for 

making comments. An agenda showing 

the scheduling of the speakers will be 

prepared after the deadline for receiving 

outlines has passed. Copies of the 

agenda will be available free of charge 

at the hearing. 

Drafting Information 

The principal author of these 

regulations is Diana Imholtz, Office of 

Associate Chief Counsel (Financial 

Institutions & Products). However, other 

personnel from the IRS and the Treasury 

Department participated in their 

development. 

List of Subjects in 26 CFR Part 1 

Income taxes, Reporting and 

recordkeeping requirements. 

Proposed Amendments to the 

Regulations 

Accordingly, 26 CFR part 1 is 

proposed to be 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 * * * 

Par. 2. Section 1.1001–3 is amended 

by revising paragraphs (c)(2)(ii), (e)(5)(i) 

and (h) and adding paragraph (f)(7) to 

read as follows: 

§ 1.1001–3 Modifications of debt 

instruments. 

* * * * * 

(c) * * * 

(2) * * * 

(ii) Property that is not debt. An 

alteration that results in an instrument 

or property right that is not debt for 

Federal income tax purposes is a 


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31738 Federal Register / Vol. 75, No. 107 / Friday, June 4, 2010 / Proposed Rules 

modification unless the alteration 

occurs pursuant to a holder’s option 

under the terms of the instrument to 

convert the instrument into equity of the 

issuer (notwithstanding paragraph 

(c)(2)(iii) of this section). The rules of 

paragraph (f)(7) of this section apply to 

determine whether an alteration or 

modification results in an instrument or 

property right that is not debt. 

* * * * * 

(e) * * * 

(5) Changes in the nature of a debt 

instrument—(i) Property that is not 

debt. A modification of a debt 

instrument that results in an instrument 

or property right that is not debt for 

Federal income tax purposes is a 

significant modification. The rules of 

paragraph (f)(7) of this section apply to 

determine whether a modification 

results in an instrument or property 

right that is not debt. 

* * * * * 

(f) * * * 

(7) Rules for determining whether an 

alteration or modification results in an 

instrument or property right that is not 

debt—(i) In general. Except as provided 

in paragraph (f)(7)(ii) of this section, the 

determination of whether an instrument 

resulting from an alteration or 

modification of a debt instrument will 

be recharacterized as an instrument or 

property right that is not debt for 

Federal income tax purposes shall take 

into account all of the factors relevant 

to such a determination. 

(ii) Financial condition of the 

obligor—(A) Deterioration in financial 

condition of the obligor generally 

disregarded. Except as provided in 

paragraph (f)(7)(ii)(B) of this section, in 

making a determination as to whether 

an instrument resulting from an 

alteration or modification of a debt 

instrument will be recharacterized as an 

instrument or property right that is not 

debt under this section, any 

deterioration in the financial condition 

of the obligor between the issue date of 

the debt instrument and the date of the 

alteration or modification (as it relates 

to the obligor’s ability to repay the debt 

instrument) is not taken into account. 

For example, any decrease in the fair 

market value of a debt instrument 

(whether or not the debt instrument is 

publicly traded) between the issue date 

of the debt instrument and the date of 

the alteration or modification is not 

taken into account to the extent that the 

decrease in fair market value is 

attributable to the deterioration in the 

financial condition of the obligor and 

not to a modification of the terms of the 

instrument. 

(B) Substitution of a new obligor; 

addition or deletion of co-obligor. If 

there is a substitution of a new obligor 

or the addition or deletion of a coobligor, the rules in paragraph 

(f)(7)(ii)(A) of this section do not apply. 

* * * * * 

(h) Effective/applicability date—(1) In 

general. Except as otherwise provided 

in paragraph (h)(2) of this section, this 

section applies to alterations of the 

terms of a debt instrument on or after 

September 24, 1996. Taxpayers, 

however, may rely on this section for 

alterations of the terms of a debt 

instrument after December 2, 1992, and 

before September 24, 1996. 

(2) Exception. Paragraph (f)(7) of this 

section applies to an alteration of the 

terms of a debt instrument on or after 

the date of publication of the Treasury 

decision adopting these rules as final 

regulation in the Federal Register. A 

taxpayer, however, may rely on 

paragraph (f)(7) of this section for 

alterations of the terms of a debt 

instrument occurring before that date. 

Steven T. Miller, 

Deputy Commissioner for Services and 

Enforcement. 

[FR Doc. 2010–13492 Filed 6–3–10; 8:45 am] 

BILLING CODE 4830–01–P 

ENVIRONMENTAL PROTECTION 

AGENCY 

40 CFR Part 7 

[EPA–HQ–OA–2004–0002; FRL–9159–1] 

RIN 2090–AA37 

Nondiscrimination on the Basis of Age 

in Programs or Activities Receiving 

Federal Assistance From the 

Environmental Protection Agency 

AGENCY: Environmental Protection 

Agency (EPA). 

ACTION: Proposed rule. 

SUMMARY: EPA is proposing to take 

action on Nondiscrimination on the 

Basis of Age in Programs or Activities 

Receiving Federal Assistance from the 

Environmental Protection Agency. This 

document sets out EPA rules for 

implementing the Age Discrimination 

Act of 1975, as amended. The Act 

prohibits discrimination on the basis of 

age in programs or activities receiving 

Federal assistance. 

DATES: Comments must be received on 

or before August 3, 2010. 

ADDRESSES: Submit your comments, 

identified by Docket ID No. EPA–HQ– 

OA–2004–0002, by mail to OEI Docket, 

U.S. EPA, Mail Code: 28221T, 1200 

Pennsylvania Ave., NW, Washington, 

DC 20460. Comments can also be 

submitted electronically or through 

hand delivery/courier by following the 

detailed instructions in the ADDRESSES

section of the direct final rule located in 

the ‘‘Rules and Regulations’’ section of 

this Federal Register. 

FOR FURTHER INFORMATION CONTACT: Tom 

Walker, U.S. Environmental Protection 

Agency, Office of Civil Rights, (Mail 

Code 1201A), 1200 Pennsylvania Ave., 

NW., Washington, DC 20460, telephone 

(202) 343–9894. 

SUPPLEMENTARY INFORMATION: 

Why is EPA Issuing This Proposed 

Rule? 

This document proposes to take 

action on Nondiscrimination on the 

Basis of Age in Programs or Activities 

Receiving Federal Assistance from the 

Environmental Protection Agency. We 

have published a direct final rule 

approving regulations for implementing 

the Age Discrimination Act of 1975, as 

amended, which prohibits 

discrimination on the basis of age in 

programs or activities receiving Federal 

assistance in the ‘‘Rules and 

Regulations’’ section of this Federal 

Register because we view this as a 

noncontroversial action and anticipate 

no adverse comment. We have 

explained our reasons for this action in 

the preamble to the direct final rule. 

If we receive no adverse comment, we 

will not take further action on this 

proposed rule. If we receive adverse 

comment, we will withdraw the direct 

final rule and it will not take effect. We 

would address all public comments in 

any subsequent final rule based on this 

proposed rule. 

We do not intend to institute a second 

comment period on this action. Any 

parties interested in commenting must 

do so at this time. For further 

information, please see the information 

provided in the ADDRESSES section of 

this document. 

I. General Information 

These regulations implement 

provisions of the Age Discrimination 

Act of 1975, as amended. The Age 

Discrimination Act of 1975, 42 U.S.C. 

6101 et seq., (The Act) prohibits 

discrimination on the basis of age in 

programs or activities receiving Federal 

assistance. The Act applies to persons of 

all ages. The Act also contains specific 

exceptions that permit the use of certain 

age distinctions and factors other than 

age that meet the Act’s requirements. 

The Act however, does not cover 

employment discrimination on the basis 

of age. The Age Discrimination in 


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