Federal Register / Vol. 60, No. 77 / Friday, April 21, 1995 / Proposed Rules 19871

section 1031(a). Moreover, assume that a

principal purpose of the transfer of DA to B

or of FA to Z is to avoid the application of

the alternative depreciation system.

(ii) As in example 1, B has acquired

property from Z, a related person; Z’s gain is

not recognized pursuant to section 1031(a); Z

has received tax-exempt use property as part

of the transaction; and a principal purpose of

the transfer of DA to B or of FA to Z is to

avoid the application of the alternative

depreciation system. Thus, the transaction is

within the scope of this section even though

B has held tax-exempt use property for a

period of time and, during that time, has

used the alternative depreciation system with

respect to such property. Pursuant to

paragraph (b) of this section, B, which has a

substituted basis determined pursuant to

section 1031(d) of $500,000 in DA, must

depreciate the aircraft over the remaining

recovery period of FA, using the same

depreciation method and convention. Z

holds tax-exempt use property with a basis

of $10,000, which must be depreciated under

the alternative depreciation system.

(iii) Assume the same facts as in paragraph

(i) of this example, except that B and Z are

members of an affiliated group that files a

consolidated federal income tax return. Of

B’s $500,000 basis in DA, $10,000 is subject

to section 168(i)(7) and therefore not subject

to this section. The remaining $490,000 of

basis is subject to this section.

(e) Effective date. This section applies

to transfers made on or after April 20,

1995.

§ 1.168(i)–2 Lease term.

(a) In general. For purposes of section

168, a lease term is determined under

all the facts and circumstances.

Paragraph (b) of this section and

§ 1.168(j)–1T, Q&A 17, provide rules

that apply to determine whether a

period of time not included in the stated

duration of an original lease (additional

period) is included in the lease term,

under certain circumstances. These

rules do not prevent the inclusion of an

additional period in the lease term in

other circumstances.

(b) Lessee retains financial obligation.

(1) An additional period of time during

which a lessee may not continue to be

the lessee will nevertheless be included

in the lease term if the lessee (or a

related person) has agreed that one or

both of them will or could be obligated

to make a payment of rent or a payment

in the nature of rent with respect to

such period.

(2) For the purposes of this paragraph

(b), a payment in the nature of rent

includes a payment intended to

substitute for rent or to fund or

supplement the rental payments of

another. For example, a payment in the

nature of rent includes a payment of any

kind that is required to be made in the

event that—

(i) The leased property is not leased

for the additional period;

(ii) The leased property is leased for

the additional period under terms that

do not satisfy specified terms and

conditions;

(iii) There is a failure to make a

payment of rent with respect to such

additional period; or

(iv) Circumstances similar to those

described in paragraph (b)(2)(i), (ii), or

(iii) occur.

(3) For the purposes of this paragraph

(b), de minimis payments will be

disregarded.

(c) Related person. For purposes of

paragraph (b) of this section, a person is

related to the lessee if such person is

described in section 168(h)(4).

(d) Changes in status. Section

168(i)(5) (changes in status) applies if an

additional period is included in a lease

term under this section and the leased

property ceases to be tax-exempt use

property for such additional period.

(e) Example. The following example

illustrates the application of this

section. The example does not address

common law doctrines or other

authorities that may apply to cause an

additional period to be included in the

lease term or to recharacterize a lease as

a conditional sale or otherwise for

federal income tax purposes. Unless

otherwise indicated, parties to the

transactions are not related to one

another.

Example. Financial obligation with respect

to an additional period.—(i) Facts. X, a

taxable corporation, and Y, a foreign airline

whose income is not subject to United States

taxation, enter into a lease agreement under

which X agrees to lease an aircraft to Y for

a period of 10 years. The lease agreement

provides that, at the end of the lease period,

Y is obligated to find a subsequent lessee

(replacement lessee) to enter into a

subsequent lease (replacement lease) of the

aircraft from X for an additional 10-year

period. The provisions of the lease agreement

require that any replacement lessee be

unrelated to Y and that it not be a tax-exempt

entity as defined in section 168(h)(2). The

provisions of the lease agreement also set

forth the basic terms and conditions of the

replacement lease, including its duration and

the required rental payments. In the event Y

fails to secure a replacement lease, the lease

agreement requires Y to make a payment to

X in an amount determined under the lease

agreement.

(ii) Application of this section. The lease

agreement between X and Y obligates Y to

make a payment in the event the aircraft is

not leased for the period commencing after

the initial 10-year lease period and ending on

the date the replacement lease is scheduled

to end. Accordingly, pursuant to paragraph

(b) of this section, the term of the lease

between X and Y includes such additional

period, and the lease term is 20 years for

purposes of section 168.

(ii) Facts modified. Assume the same facts

as in paragraph (i) of this example, except

that Y is required to guarantee the payment

of rentals under the 10-year replacement

lease and to make a payment to X equal to

the present value of any excess of the

replacement lease rental payments specified

in the lease agreement between X and Y, over

the rental payments actually agreed to be

paid by the replacement lessee. Pursuant to

paragraph (b) of this section, the term of the

lease between X and Y includes the

additional period, and the lease term is 20

years for purposes of section 168.

(iv) Changes in status. If, upon the

conclusion of the stated duration of the lease

between X and Y, the aircraft either is

returned to X or leased to a replacement

lessee that is not a tax-exempt entity as

defined in section 168(h)(2), the subsequent

method of depreciation will be determined

pursuant to section 168(i)(5).

(f) Effective date. This section applies

to leases entered into on or after April

20, 1995.

Margaret Milner Richardson,

Commissioner of Internal Revenue.

[FR Doc. 95–9946 Filed 4–20–95; 8:45 am]

BILLING CODE 4830–01–M

DEPARTMENT OF JUSTICE

28 CFR Part 16

[AAG/A Order No. 102–95]

Exemption of Records System Under

the Privacy Act

AGENCY: Department of Justice.

ACTION: Proposed rule.

SUMMARY: The Department of Justice,

Bureau of Prisons (BOP), proposes to

exempt a Privacy Act system of records

from subsections (c)(3) and (4), (d),

(e)(2) and (3), (e)(5) and (8), (f) and (g)

of the Privacy Act, 5 U.S.C. 552a(j)(2)

and (k)(2). This system of records is the

BOP ‘‘Telephone Activity Record

System (JUSTICE/BOP–011).’’

Information in this system relates to

inmate telephone activity and may

include information relating to official

Federal investigations and matters of

law enforcement of the BOP pursuant to

18 U.S.C. 2510 et seq., 3621, 4003, 4042

and 4082. The exemptions are necessary

to protect third party privacy and to

avoid interference with law enforcement

activities, e.g., to preclude the

disclosure of investigative techniques,

to prevent subjects of investigations

from frustrating the investigative

process, and to more effectively ensure

the safety, security and good order of

Federal correctional facilities.

DATES: Submit any comments by May

22, 1995.
19872 Federal Register / Vol. 60, No. 77 / Friday, April 21, 1995 / Proposed Rules

ADDRESSES: Address all comments to

Patricia E. Neely, Staff Assistant,

Systems Policy Staff, Justice

Management Division, Department of

Justice, Washington, DC 20530 (Room

850, WCTR Building).

FOR FURTHER INFORMATION CONTACT:

Patricia E. Neely (202–616–0178).

SUPPLEMENTARY INFORMATION: In the

notice section of today’s Federal

Register, the Department of Justice

provides a description of the

‘‘Telephone Activity Record System’’,

JUSTICE/BOP–011.’’

Pursuant to the requirements of the

Regulatory Flexibility Act, 5 U.S.C. 601–

612, it is hereby stated that the order

will not have a ‘‘significant economic

impact on a substantial number of small

entities.’’

List of Subjects in 28 CFR Part 16

Administrative practices and

procedure, Freedom of Information Act,

Government in the Sunshine Act and

Privacy Act.

Pursuant to the authority vested in the

Attorney General by 5 U.S.C. 552a and

delegated to me by the Attorney General

Order No. 793–78, it is proposed to

amend 28 CFR part 16 as set forth

below.

Dated: April 6, 1995.

Stephen R. Colgate,

Assistant Attorney General for

Administration.

1. The authority for part 16 continues

to read as follows:

Authority: 5 U.S.C. 301, 552, 552a, 552b(g)

and 553; 18 U.S.C. 4203(a)(1); 28 U.S.C. 509,

510, 534; 31 U.S.C. 3717 and 9701.

2. It is proposed to amend 28 CFR

16.97 by adding and reserving

paragraph (d) and adding paragraphs (e)

and (f), to read as follows:

§ 16.97 Exemption of Federal Bureau of

Prisons (BOP) Systems—limited access.

* * * * *

(d) [Reserved]

(e) The following system of records is

exempt from 5 U.S.C. 552a (c)(3) and

(4), (d), (e)(2) and (3), (e)(5) and (8), (f)

and (g):

Telephone Activity Record System

(JUSTICE/BOP–011).

(f) These exemptions apply only to

the extent that information in this

system is subject to exemption pursuant

to 5 U.S.C. 552a(j)(2) and/or (k)(2).

Where compliance would not appear to

interfere with or adversely affect the law

enforcement process, and/or where it

may be appropriate to permit

individuals to contest the accuracy of

the information collected, the applicable

exemption may be waived, either

partially or totally, by the BOP.

Exemptions from the particular

subsections are justified for the

following reasons:

(1) From subsection (c)(3) to the

extent that this system of records is

exempt from subsection (d), and for

such reasons as those cited for

subsection (d) in paragraph (f)(3) below.

(2) From subsection (c)(4) to the

extent that exemption from subsection

(d) makes this exemption inapplicable.

(3) From the access provisions of

subsection (d) because exemption from

this subsection is essential to prevent

access of information by record subjects

that may invade third party privacy;

frustrate the investigative process;

jeopardize the legitimate correctional

interests of safety, security, and good

order of prison facilities; or otherwise

compromise, impede, or interfere with

BOP or other law enforcement agency

activities.

(4) From the amendment provisions

from subsection (d) because amendment

of the records may interfere with law

enforcement operations and would

impose an impossible administrative

burden by requiring that, in addition to

efforts to ensure accuracy so as to

withstand possible judicial scrutiny, it

would require that law enforcement

information be continuously

reexamined, even where the information

may have been collected from the record

subject. Also, some of these records

come from other Federal criminal

justice agencies or State, local and

foreign jurisdictions, or from Federal

and State probation and judicial offices,

and it is administratively impossible to

ensure that the records comply with this

provision.

(5) From subsection (e)(2) because the

nature of criminal and other

investigative activities is such that vital

information about an individual can be

obtained from other persons who are

familiar with such individual and his/

her activities. In such investigations it is

not feasible to rely solely upon

information furnished by the individual

concerning his/her own activities since

it may result in inaccurate information.

(6) From subsection (e)(3) because in

view of BOP’s operational

responsibilities, application of this

provision to the collection of

information is inappropriate.

Application of this provision could

provide the subject with substantial

information which may in fact impede

the information gathering process or

compromise an investigation.

(7) From subsection (e)(5) because in

the collection and maintenance of

information for law enforcement

purposes, it is impossible to determine

in advance what information is

accurate, relevant, timely and complete.

Material which may seem unrelated,

irrelevant or incomplete when collected

may take on added meaning or

significance at a later date or as an

investigation progresses. Also, some of

these records may come from other

Federal, State, local and foreign law

enforcement agencies, and from Federal

and State probation and judicial offices

and it is administratively impossible to

ensure that the records comply with this

provision. It would also require that law

enforcement information be

continuously reexamined even where

the information may have been

collected from the record subject.

(8) From subsection (e)(8) because the

nature of BOP law enforcement

activities renders impractical the notice

of compliance with compulsory legal

process. This requirement could present

a serious impediment to law

enforcement such as revealing

investigative techniques or the existence

of confidential investigations,

jeopardize the security of third parties,

or otherwise compromise law

enforcement efforts.

(11) From subsections (f) and (g) to

the extent that this system is exempt

from the access and amendment

provisions of subsection (d).

[FR Doc. 95–9807 Filed 4–20–95; 8:45 am]

BILLING CODE 4410–05–M

ENVIRONMENTAL PROTECTION

AGENCY

40 CFR Part 228

[FRL–5194–4]

Ocean Dumping; Proposed

Designation of Site

AGENCY: Environmental Protection

Agency (EPA).

ACTION: Proposed rule.

SUMMARY: EPA proposes to designate an

ocean dredged material disposal site,

the Humboldt Open Ocean Dredged Site

(HOODS), located offshore of Humboldt

Bay, California, for the disposal of

suitable dredged material removed from

the Humboldt Bay region and other

nearby harbors or dredging sites. EPA

has tentatively determined that the site

selected in the Draft EIS as the preferred

site will be the site designated as

HOODS in this Proposed Rule. The

proposed HOODS is located between

approximately 3 and 4 nautical miles (5

and 7 kilometers) west of the Humboldt

Bay entrance and occupies an area of 1

square nautical mile (3 square