Federal Register / Vol. 60, No. 67 / Friday, April 7, 1995 / Proposed Rules 17731

standards should govern the operation

of electronic information systems and

how information systems should be

developed in accordance with those

standards. We would also like comment

on how the cost of system development

and use should be recovered.

Questions Regarding Standards and

System Development

12. What standard information should

be included in the datasets to be

exchanged electronically? What

standard definitions and units should be

used for this information?

13. What standard record formats and

identification codes are needed to

exchange the information associated

with comparable access?

14. What standard codes should be

used to identify facilities,

interconnection points, and other

locations?

15. What standard protocol(s) should

be developed to download and upload

files, or to exchange information across

the information network?

16. Should a regional or national

information system be developed?

17. If some regional development of

information systems is desirable, what

regional entities should develop and

maintain the system? Do these entities

currently exist? If they do not exist, how

should they be developed?

18. What system development and

usage costs should be borne by all

transmission users, and what costs

should be paid for only by users of the

information system?

[FR Doc. 95–8553 Filed 4–6–95; 8:45 am]

BILLING CODE 6717–01–P

SOCIAL SECURITY ADMINISTRATION

20 CFR Chapter III

Review of Social Security

Administration Regulations

AGENCY: Social Security Administration.

ACTION: Notice with Request for

Comments.

SUMMARY: In accordance with President

Clinton’s memorandum of March 4,

1995 to heads of Departments and

Agencies which announced a

government-wide Regulatory

Reinvention Initiative, we are soliciting

comments on Social Security

Administration (SSA) regulations which

mandate burdens on States, other

governmental agencies or the private

sector and suggestions to reduce or

eliminate any such mandated burden.

DATES: To be sure your comments are

considered, we must receive them no

later than May 8, 1995.

ADDRESSES: Comments should be

submitted in writing to the

Commissioner of Social Security, P.O.

Box 1585, Baltimore, Maryland 21235,

sent by telefax to (410) 966–2830, sent

by E-mail to ‘‘regulations@ssa.gov,’’ or

delivered to the Division of Regulations

and Rulings, Social Security

Administration, 3–B–1 Operations

Building, 6401 Security Boulevard,

Baltimore, Maryland 21235, between

8:00 a.m. and 4:30 p.m. on regular

business days. Comments may be

inspected during these same hours by

making arrangements with the contact

person shown below.

FOR FURTHER INFORMATION CONTACT:

Henry D. Lerner, Legal Assistant,

Division of Regulations and Rulings,

Social Security Administration, 6401

Security Boulevard, Baltimore, MD

21235, telephone (410) 965–1762.

SUPPLEMENTARY INFORMATION: The

Regulatory Reinvention Initiative

announced by the President on March 4,

1995 is designed to provide to all

Americans the benefits of effective

regulation while minimizing burdens on

States and members of the public. The

initiative is aimed primarily at

regulatory agencies which impose

mandatory burdens on States, other

governmental entities and the private

sector as part of their core business

processes.

While SSA is not generally regarded

as a ‘‘regulatory agency,’’ SSA does

issue regulations. However, SSA

regulations usually serve only to

amplify Congressional direction in

administering the social insurance and

assistance programs for which we are

responsible. While we have some

program rules which may create a

burden on the public in terms of forms

completion or other activities

concerning information collection, we

generally do not impose mandatory

burdens on States, other governmental

entities or the private sector.

We recognize that members of the

public may have a very different view

of the burdens imposed by SSA

regulations than the views of those who

administer the programs. In the hope of

obtaining the widest possible span of

viewpoints, we issue this invitation for

public comments on any SSA

regulations which mandate actions by

States, other governmental entities, or

the private sector. We are requesting

that the public assist us in identifying

any SSA regulation which creates such

a burden, along with suggested changes

to lessen or eliminate the burden. We

request further that commenters provide

specific details regarding the regulation

which imposes the burden, the nature of

the burden, and the recommended

solution.

We do not consider as part of this

initiative SSA regulations which

provide the rules we use to determine

entitlement to retirement, survivors,

disability insurance or supplemental

security income benefits since they do

not, by their very nature, impose

mandatory burdens. Also, we view as

outside the scope of this initiative our

internal operating procedures in which

members of the public do not have a

direct role, including the statutory

relationship under which State

Disability Determination Services make

disability determinations on behalf of

SSA.

We do consider ‘‘burdens’’ on

individuals and other segments of the

public as needing our attention.

However, in accord with the principles

of the National Performance Review we

initiated a process that allows customers

to provide input on such matters. By

means of focus groups, customer

surveys, comment cards, and other

means, we have in place a process for

determining the needs of the public we

serve. We will address burdens on

individuals through a separate initiative

to provide ‘‘world class service’’ to the

public. This is a long-term project

related to one of the Agency’s major

goals. Accordingly, we are restricting

this request for comments to those SSA

regulations which appear to impose

mandatory burdens on States, other

governmental entities, or the private

sector.

Dated: April 4, 1995.

Shirley Chater,

Commissioner of Social Security.

[FR Doc. 95–8751 Filed 4–6–95; 8:45 am]

BILLING CODE 4190–29–P

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[FI–33–94]

RIN 1545–AS76

Debt Instruments with Original Issue

Discount; Annuity Contracts

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
17732 Federal Register / Vol. 60, No. 67 / Friday, April 7, 1995 / Proposed Rules

federal income tax treatment of annuity

contracts not issued by insurance

companies. Under the proposed

regulations, certain annuity contracts

are taxed as debt instruments for

purposes of the original issue discount

provisions of the Internal Revenue

Code. The proposed regulations provide

guidance to sellers and buyers of these

contracts. This document also provides

a notice of a public hearing on the

proposed regulations.

DATES: Written comments must be

received by Tuesday, July 18, 1995.

Requests to appear and outlines of

topics to be discussed at the public

hearing scheduled for Tuesday, August

8, 1995, at 10 a.m. also must be received

by Tuesday, July 18, 1995.

ADDRESSES: Send submissions to:

CC:DOM:CORP:T:R (FI–33–94), room

5228, Internal Revenue Service, POB

7604, Ben Franklin Station, Washington,

DC 20044. In the alternative,

submissions may be hand delivered

between the hours of 8 a.m. and 5 p.m.

to: CC:DOM:CORP:T:R (FI–33–94),

Courier’s Desk, Internal Revenue

Service, 1111 Constitution Avenue NW.,

Washington, DC. A public hearing has

been scheduled for Tuesday, August 8,

1995, at 10 a.m. in the Auditorium,

Internal Revenue Building, 1111

Constitution Avenue NW., Washington,

DC.

FOR FURTHER INFORMATION CONTACT:

Concerning the regulations, Andrew C.

Kittler, (202) 622–3940, or Jeffrey W.

Maddrey, (202) 622–3940; concerning

submissions and the hearing, Michael

Slaughter, (202) 622–7190 (not toll-free

numbers).

SUPPLEMENTARY INFORMATION:

Background

Sections 163(e) and 1271 through

1275 of the Internal Revenue Code of

1986 (Code) provide rules for the

treatment of debt instruments that have

original issue discount (OID). On

February 2, 1994, the IRS published in

the Federal Register final regulations

under these sections (59 FR 4799). This

document contains proposed

amendments to § 1.1275–1(d) relating to

the definition of a debt instrument for

purposes of the OID provisions of the

Code.

Explanation of Provisions

Section 1275(a)(1)(A) provides that

the term debt instrument means a bond,

debenture, note, or certificate or other

evidence of indebtedness. Under

§ 1.1275–1(d), the term debt instrument

means any instrument or contractual

arrangement that constitutes

indebtedness under general principles

of federal income tax law (including, for

example, a certificate of deposit or a

loan).

Certain annuity contracts, however,

are excluded from the definition of a

debt instrument for purposes of the OID

provisions. Under section

1275(a)(1)(B)(ii), an annuity contract to

which section 72 applies and which is

issued by an insurance company is

generally excluded from the definition

of debt instrument if the circumstances

of its issuance meet certain broad

statutory requirements. By contrast,

section 1275(a)(1)(B)(i) provides a more

limited exception from the definition of

debt instrument for an annuity contract

to which section 72 applies and which

is not issued by an insurance company.

The section 1275(a)(1)(B)(i) exception

applies if the annuity contract depends

(in whole or in substantial part) on the

life expectancy of one or more

individuals. Thus, if a contract is both

a debt instrument and an annuity

contract not issued by an insurance

company, it is subject to taxation as a

debt instrument under the OID

provisions rather than as an annuity

contract under section 72, unless it

qualifies for the exception provided in

section 1275(a)(1)(B)(i).

If a debt instrument has OID, section

1272 generally requires the holder of the

debt instrument to include OID in

income currently on a constant yield

basis, regardless of the holder’s overall

method of accounting. This mandatory

accrual is intended, in part, to provide

an economically accurate reflection of

income and to prevent a mismatch of

issuer deductions and holder

inclusions. In the case of a debt

instrument that does not pay interest on

a current basis, this mismatch would

occur if the holder were allowed to

defer including OID in income until the

year in which it is actually paid. See

H.R. Rep. No. 413 (Part I), 91st Cong.,

1st Sess. 109 (1969); H.R. Rep. No. 432

(Part II), 98th Cong., 2d Sess. 1242–43

(1984).

By contrast, the holder of an annuity

contract to which section 72 applies is

allowed to defer including economically

earned income until distributions on the

contract are made. Generally, under

section 72(b), the holder of an annuity

contract includes the earnings on the

contract in income on a pro rata basis

as distributions are made.

The disparity between the tax

treatment of debt instruments and that

of annuity contracts is most pronounced

in the case of an annuity contract that

provides for distributions to commence

significantly after the date of initial

investment. In that case, a substantial

portion of the value of the annuity

contract when distributions begin may

be attributable to income economically

earned prior to that time. If the contract

is taxed as an annuity contract under

section 72, the income economically

earned prior to the commencement of

distributions is not taxed to the holder

until distributions are made. If the same

contract, instead, is taxed under the OID

provisions as a debt instrument, income

is taxed to the holder in the year it is

earned, regardless of when distributions

are made.

Differences between the tax treatment

of debt instruments and annuity

contracts also exist when an annuity

contract provides for distributions

commencing on or near the date of

initial investment. Although the holder

of the contract has income inclusions

over the entire term of the contract, the

rate of inclusion under section 72 is

different from that under the OID

provisions. In general, the rules of

section 72 provide a less economically

accurate recognition of income than the

OID provisions. The difference in the

rate of inclusion, however, is most

significant in the case of an annuity

contract that has deferred payments or

payments that increase in amount over

the life of the contract.

The IRS has determined that the

exception contained in section

1275(a)(1)(B)(i) does not apply to

annuity contracts that provide for

significant deferral of income, that is,

those contracts that provide for no

distributions, or for relatively small

distributions, in the early years of the

contract. Since 1969, when Congress

first required current inclusion of OID

by holders, one of the principal

purposes of the OID rules has been to

provide a more economically accurate

reflection of income. See H.R. Rep. No.

413 (Part I), 91st Cong., 1st Sess. 109

(1969); H.R. Rep. No. 432 (Part II), 98th

Cong., 2d Sess. 1242–43 (1984). Given

the well-established Congressional

preference for current inclusion, it

would be inappropriate to interpret the

exception in section 1275(a)(1)(B)(i) as

permitting section 72 rather than the

OID provisions to govern the holder’s

tax treatment of annuity contracts that

provide for significant deferral.

The proposed regulations provide that

an annuity contract qualifies for the

exception described in section

1275(a)(1)(B)(i) only if all payments

under the contract are periodic

payments that (1) are made at least

annually for the life (or lives) of one or

more individuals, (2) do not increase at

any time during the term of the contract,

and (3) are part of a series of payments

that begins within one year of the date

of the initial investment in the contract.
Federal Register / Vol. 60, No. 67 / Friday, April 7, 1995 / Proposed Rules 17733

The proposed regulations further

provide that an annuity contract that is

otherwise described in the preceding

sentence does not fail to qualify for the

section 1275(a)(1)(B)(i) exception

merely because it also provides for a

payment (or payments) made by reason

of the death of one or more individuals.

The proposed regulations only apply

to annuity contracts that are also debt

instruments under general principles of

federal income tax law. An annuity

contract that is not a debt instrument for

federal income tax purposes is not

subject to the OID provisions. See the

general rule of section 1275(a)(1)(A). It

is, therefore, unnecessary to inquire

whether such an annuity contract is

described in section 1275(a)(1)(B). For

example, an annuity contract under

which payments are wholly contingent

on the continued life of an individual

generally is not a debt instrument for

federal income tax purposes. As a result,

such a contract will continue to be taxed

as an annuity contract under section 72.

No inference is intended under the

proposed regulations as to whether a

particular annuity contract constitutes a

debt instrument for federal income tax

purposes.

Although the proposed regulations do

not apply to an annuity contract that is

not a debt instrument because it does

not provide for a guaranteed return, the

OID provisions nevertheless may apply

if a return is guaranteed by another

instrument. Thus, for example, it is

anticipated that the Commissioner’s

anti-abuse authority under § 1.1275–2T

would be invoked to apply the OID

provisions to the combination of an

annuity contract that is not a debt

instrument and a life insurance contract

that, together, effectively provide for a

guaranteed return.

Comments are requested on whether

certain annuity contracts other than

those described in the proposed

regulations should qualify for the

section 1275(a)(1)(B)(i) exception.

Proposed Effective Date

The proposed regulations are

proposed to be effective for annuity

contracts held on or after the date that

is 30 days after final regulations are

published in the Federal Register.

However, the proposed regulations will

not apply to an annuity contract that is

purchased prior to April 7, 1995. For

purposes of the proposed regulations,

any additional investment in a contract

made on or after April 7, 1995, will be

treated as the purchase of a contract

after April 7, 1995, unless the

investment is required to be made under

a binding contractual obligation that

was entered into prior to April 7, 1995.

If an annuity contract purchased

before the effective date of the

regulations is subject to the OID

provisions, after the effective date the

holder of the contract may account for

pre- effective date accruals on the

contract, on a prospective basis, in any

reasonable manner.

Special Analyses

It has been determined that this notice

of proposed rulemaking is not a

significant regulatory action as defined

in EO 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) and the Regulatory

Flexibility Act (5 U.S.C. chapter 6) do

not apply to these regulations, and,

therefore, a Regulatory Flexibility

Analysis is not required. Pursuant to

section 7805(f) of the Internal Revenue

Code, this notice of proposed

rulemaking will be 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) that are submitted

timely to the IRS. All comments will be

available for public inspection and

copying.

A public hearing has been scheduled

for Tuesday, August 8, 1995, at 10 a.m.

in the Auditorium, Internal Revenue

Building, 1111 Constitution Avenue

NW., Washington, DC. Because of access

restrictions, visitors will not be

admitted beyond the Internal Revenue

Building lobby more than 15 minutes

before the hearing starts.

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

apply to the hearing.

Persons that wish to present oral

comments at the hearing must submit

written comments, an outline of topics

to be discussed and the time to be

devoted to each topic (signed original

and eight (8) copies) by Tuesday, July

18, 1995.

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 Jeffrey W. Maddrey,

Office of Assistant Chief Counsel (Financial

Institutions and Products). However, other

personnel from the IRS and 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 1.1275–1 is amended

by:

1. Redesignating the text of paragraph

(d) following the heading as paragraph

(d)(1) and adding a heading for newly

designated paragraph (d)(1).

2. Adding paragraph (d)(2).

The additions read as follows:

§ 1.1275–1 Definitions.

* * * * *

(d) Debt instrument—(1) In general.

* * *

(2) Certain annuity contracts—(i)

General rule. An annuity contract

qualifies for the exception described in

section 1275(a)(1)(B)(i) only if all

payments under the contract are

periodic payments that—

(A) Are made at least annually for the

life (or lives) of one or more individuals;

(B) Do not increase at any time during

the term of the contract; and

(C) Are part of a series of payments

that begins within one year of the date

of the initial investment in the contract.

(ii) Certain death benefits permissible.

An annuity contract that is otherwise

described in paragraph (d)(2)(i) of this

section does not fail to be described in

that paragraph merely because it also

provides for a payment (or payments)

made by reason of the death of one or

more individuals.

(iii) Effective date. This paragraph

(d)(2) is effective for annuity contracts

held on or after the date that is 30 days

after final regulations are published in

the Federal Register. However, this

paragraph (d)(2) does not apply to an

annuity contract that is purchased prior

to April 7, 1995. For purposes of this

paragraph (d)(2)(iii), any additional

investment in a contract made on or

after April 7, 1995, is treated as the

purchase of a contract after April 7,

1995, unless the investment is required

to be made under a binding contractual
17734 Federal Register / Vol. 60, No. 67 / Friday, April 7, 1995 / Proposed Rules

obligation that was entered into prior to

April 7, 1995.

* * * * *

Michael P. Dolan,

Commissioner of Internal Revenue.

[FR Doc. 95–8523 Filed 4–6 –95; 8:45 am]

BILLING CODE 4830–01–U

DEPARTMENT OF THE INTERIOR

Office of Surface Mining Reclamation

and Enforcement

30 CFR Part 913

Illinois Regulatory Program

AGENCY: Office of Surface Mining

Reclamation and Enforcement (OSM),

Interior.

ACTION: Announcement of public

comment period and opportunity for

public hearing.

SUMMARY: OSM is requesting public

comment that would be considered in

deciding how to implement in Illinois

underground coal mine subsidence

control and water replacement

provisions of the Surface Mining

Control and Reclamation Act of 1977

(SMCRA), the implementing Federal

regulations, and/or counterpart State

provisions. Recent amendments to

SMCRA and the implementing Federal

regulations require that underground

coal mining operations conducted after

October 24, 1992, promptly repair or

compensate for subsidence-caused

material damage to noncommercial

buildings and to occupied dwellings

and related structures. These provisions

also require such operations to promptly

replace drinking, domestic, and

residential water supplies that have

been adversely affected by underground

coal mining.

OSM must decide if the Illinois

regulatory program (hereinafter referred

to as the ‘‘Illinois program’’) currently

has adequate counterpart provisions in

place to promptly implement the recent

amendments to SMCRA and the Federal

regulations. After consultation with

Illinois and consideration of public

comments, OSM will decide whether

initial enforcement in Illinois will be

accomplished through the State program

amendment process or by State

enforcement, by interim direct OSM

enforcement, or by joint State and OSM

enforcement.

DATES: Written comments must be

received by 4 p.m., C.S.T. on May 8,

1995. If requested, OSM will hold a

public hearing on May 2, 1995

concerning how the underground coal

mine subsidence control and water

replacement provisions of SMCRA and

the implementing Federal regulations,

or the counterpart State provisions,

should be implemented in Illinois.

Requests to speak at the hearing must be

received by 4 p.m., C.S.T. on April 24,

1995.

ADDRESSES: Written comments and

requests to speak at the hearing should

be mailed or hand-delivered to James F.

Fulton, Director, Springfield Field

Office at the address listed below.

Copies of the applicable parts of the

Illinois program, SMCRA, the

implementing Federal regulations,

information provided by Illinois

concerning its authority to implement

State counterparts to SMCRA and the

implementing Federal regulations, a

listing of any scheduled public hearings,

and all written comments received in

response to this document will be

available for public review at the

address listed below during normal

business hours, Monday through Friday,

excluding holidays: James F. Fulton,

Director, Springfield Field Office, Office

of Surface Mining Reclamation and

Enforcement, 511 West Capitol, Suite

202, Springfield, Illinois 62704,

Telephone: (217) 492–4495.

FOR FURTHER INFORMATION CONTACT:

James F. Fulton, Director, Springfield

Field Office, Telephone: (217) 492–

4495.

SUPPLEMENTARY INFORMATION:

I. Background

A. The Energy Policy Act

Section 2504 of the Energy Policy Act

of 1992, Public Law 102–486, 106 Stat.

2776 (1992) added new section 720 to

SMCRA. Section 720(a)(1) requires that

all underground coal mining operations

promptly repair or compensate for

subsidence-caused material damage to

noncommercial buildings and to

occupied residential dwellings and

related structures. Repair of damage

includes rehabilitation, restoration, or

replacement of the structures identified

in section 720(a)(1), and compensation

must be provided to the owner in the

full amount of the reduction in value of

the damaged structures as a result of

subsidence. Section 720(a)(2) requires

prompt replacement of certain

identified water supplies if those

supplies have been adversely affected

by underground coal mining operations.

These provisions requiring prompt

repair or compensation for damage to

structures, and prompt replacement of

water supplies, went into effect upon

passage of the Energy Policy Act on

October 24, 1992. As a result,

underground coal mine permittees in

States with OSM-approved regulatory

programs are required to comply with

these provisions for operations

conducted after October 24, 1992.

B. The Federal Regulations

Implementing the Energy Policy Act

On March 31, 1995, OSM

promulgated regulations at 30 CFR Part

817 to implement the performance

standards of sections 720(a) (1) and (2)

of SMCRA (60 FR 16722–16751).

30 CFR 817.121(c)(2) requires in part

that:

The permittee must promptly repair, or

compensate the owner for, material damage

resulting from subsidence caused to any noncommercial building or occupied residential

dwelling or structure related thereto that

existed at the time of mining. * * * The

requirements of this paragraph apply only to

subsidence-related damage caused by

underground mining activities conducted

after October 24, 1992.

30 CFR 817.41(j) requires in part that:

The permittee must promptly replace any

drinking, domestic or residential water

supply that is contaminated, diminished or

interrupted by underground mining activities

conducted after October 24, 1992, if the

affected well or spring was in existence

before the date the regulatory authority

received the permit application for the

activities causing the loss, contamination or

interruption.

30 CFR 843.25 provides that by July

31, 1995, OSM will decide, in

consultation with each State regulatory

authority with an approved program,

how enforcement of the new

requirements will be accomplished. As

discussed below, enforcement may be

accomplished through the 30 CFR Part

732 State program amendment process,

or by State, OSM, or joint State and

OSM enforcement of the requirements.

OSM will decide which of the following

enforcement approaches to pursue.

(1) State program amendment

process. If the State’s promulgation of

regulatory provisions that are

counterpart to 30 CFR 817.41(j) and

817.121(c)(2) is imminent, the number

and extent of underground mines that

have operated in the State since October

24, 1992, is low, the number of

complaints in the State concerning

section 720 of SMCRA is low, or the

State’s investigation of subsidencerelated complaints has been thorough

and complete so as to assure prompt

remedial action, then OSM could decide

not to directly enforce the Federal

provisions in the State. In this situation,

the State would enforce its State

statutory and regulatory provisions once

it has amended its program to be in

accordance with the revised SMCRA

and to be consistent with the revised