Federal Register / Vol. 61, No. 83 / Monday, April 29, 1996 / Rules and Regulations 18675

the first column, a new amendatory

instruction 6 to read as follows:

Appendix G (Consisting of Appendices

G–1 and G–2), Appendix H (Consisting

of Appendices H–1 and H–2), Appendix

I (Consisting of Appendices I–1, I–2, I–

3, I–4, I–5, I–6, I–7, and I–8), Appendix

J (Consisting of Appendices J–1 and J–

2), Appendix K (Consisting of

Appendices K–1 Through K–4),

Appendix L, Appendix M—[Removed]

6. Appendix G (consisting of

Appendices G–1 and G–2), Appendix H

(consisting of Appendices H–1 and

H–2), Appendix I (consisting of

Appendices I–1, I–2, I–3, I–4, I–5, I–6,

I–7, and I–8), Appendix J (consisting of

Appendices J–1 and J–2), Appendix K

(consisting of Appendices K–1 through

K–4), Appendix L, and Appendix M are

removed.

Authority: 12 U.S.C. 2601 et seq.; 42 U.S.C.

3535(d).

Dated: April 19, 1996.

Camille E. Acevedo,

Assistant General Counsel for Regulations.

[FR Doc. 96–10533 Filed 4–26–96; 8:45 am]

BILLING CODE 4210–27–P

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[TD 8667]

RIN 1545–AT33

Lease Term; Exchanges of Tax-Exempt

Use Property

AGENCY: Internal Revenue Service (IRS),

Treasury.

ACTION: Final regulations.

SUMMARY: This document contains final

regulations relating to the lease term of

tax-exempt use property. The final

regulations also provide guidance

regarding certain like-kind exchanges

among related parties involving taxexempt use property.

DATES: These regulations are effective

April 29, 1996.

For dates of applicability see

‘‘Effective dates’’ section under the

SUPPLEMENTARY INFORMATION portion of

the preamble and §§ 1.168(h)–1(e) and

1.168(i)–2(g).

FOR FURTHER INFORMATION CONTACT: John

M. Aramburu of the Office of Assistant

Chief Counsel (Income Tax and

Accounting) at (202) 622–4960 (not a

toll-free number).

SUPPLEMENTARY INFORMATION:

Background

This document contains final

regulations under section 168 of the

Internal Revenue Code of 1986 (Code).

The regulations provide guidance

relating to certain exchanges of taxexempt use property among related

parties and the determination of lease

term under certain circumstances.

Proposed regulations (IA–18–95) were

published in the Federal Register on

April 21, 1995 (60 FR 19868). The IRS

received a number of comments on the

proposed regulations. A scheduled

public hearing was cancelled because

there were no requests to testify. After

consideration of all the comments, the

regulations proposed by IA–18–95 are

adopted as revised by this Treasury

decision. The revisions are discussed

below.

Overview

Under section 168, property used in a

trade or business, or held for the

production of income, generally may be

depreciated under the general

depreciation system (GDS) using

accelerated methods over relatively

short recovery periods. However, certain

property, including ‘‘tax-exempt use

property,’’ must be depreciated under

the alternative depreciation system

(ADS) described in section 168(g).

Section 168(h)(1)(A) generally defines

tax-exempt use property to include

tangible property (other than

nonresidential real property) leased to a

tax-exempt entity. For this purpose,

certain foreign entities and persons are

considered tax-exempt entities.

Congress subjected tax-exempt use

property to a slower depreciation

system than GDS to prevent tax-exempt

entities from indirectly claiming tax

benefits (in the form of reduced rentals)

‘‘from investment incentives for which

they [would] not qualify directly, and

effectively gain[ing] the advantage of

taking income tax deductions and

credits while having no corresponding

liability to pay any tax on income from

the property.’’ S. Rep. No. 169 (Vol. 1),

98th Cong., 2d Sess. 123 (1984).

In particular, section 168(g)(3)(A)

provides that tax-exempt use property

subject to a lease must be depreciated

using the straight-line method over a

period equal to the greater of the

property’s class life or 125 percent of

the lease term. Under section 168(i)(3),

options to renew generally must be

taken into account in determining the

lease term and the periods of certain

successive leases must be aggregated

with the period of an original lease.

Lease Term

The proposed regulations generally

include an additional period of time

during which a lessee may not continue

to be the lessee 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. The

arrangements described in the proposed

regulations are frequently referred to as

‘‘replacement leases.’’ One commentator

requested that the portion of the

proposed regulations dealing with

replacement leases be withdrawn. The

commentator argued that Congress

would not have intended that the term

of the replacement lease be taken into

account in determining lease term. The

IRS and Treasury believe that the

proposed regulations are consistent with

Congressional intent, and thus the final

regulations retain this portion of the

proposed regulations.

Another commentator indicated that

application of the proposed regulations

was unclear where property is subject to

multiple leases, possibly involving

multiple parties. The final regulations

clarify that if property is subject to more

than one lease (including any sublease)

entered into as part of a single

transaction (or a series of related

transactions), the lease term shall

include all periods described in one or

more of such leases. Thus, for example,

if one taxable corporation leases

property to another taxable corporation

for a 20-year term and, as part of the

same transaction, the lessee subleases

the property to a tax-exempt entity for

a 10-year term, then the lease term of

the property is 20 years, and during the

period of tax-exempt use it must be

depreciated using the straight line

method over the greater of its class life

or 25 years.

Finally, the final regulations provide

that lease term also includes any period

during which the lessee (or a related

party) has assumed or retained any risk

of loss with respect to the property

(including, for example, by holding a

note secured by the property). The IRS

and Treasury believe that such an

arrangement is generally similar to the

replacement leases described in the

proposed regulations. As in the case of

a replacement lease, the lessee is

assuming risk with respect to the value

of the property at the termination of the

initial lease term. In addition, the term

of the debt provides an objective

indication that the useful life of the

property exceeds the original term of the

lease, in which case failure to include

the term of the debt in the lease term
18676 Federal Register / Vol. 61, No. 83 / Monday, April 29, 1996 / Rules and Regulations

could allow a tax-exempt lessee to

benefit from depreciation deductions

that exceed economic depreciation,

which would be contrary to

Congressional intent.

Like-kind Exchanges

The proposed regulations also address

certain transactions between related

persons that are designed to circumvent

the tax-exempt use property rules

through the use of a like-kind exchange

described in section 1031. The proposed

regulations provide that property

(tainted property) transferred directly or

indirectly to the taxpayer by a related

person (the related party) as part of, or

in connection with, a transaction

described in section 1031 where the

related party receives tax-exempt use

property (related tax-exempt use

property) will, if the tainted property is

subject to an allowance for depreciation,

be treated in the same manner as the

related tax-exempt use property for

purposes of determining the allowable

depreciation deduction under section

167(a). Under this rule, the tainted

property is depreciated by the taxpayer

over the remaining recovery period of,

and using the same depreciation method

and convention as that of, the related

tax-exempt use property.

The rule applies only with respect to

direct or indirect transfers of property

involving related persons where (1)

section 1031 applies to any party, and

(2) a principal purpose of the transfer is

to avoid or limit the application of ADS.

For purposes of this rule, a person is

related to another person if they bear a

relationship specified in section 267(b)

or section 707(b)(1). An exchange

between members of a consolidated

group in a taxable year beginning on or

after July 12, 1995, will not be subject

to this provision because section 1031

does not apply to intercompany

transactions. See § 1.1502–80(f).

No comments were received with

respect to the treatment of like-kind

exchanges under the proposed

regulations. Accordingly, these

provisions of the proposed regulations

are adopted without modification by

this Treasury decision.

Effective Dates

The definition of lease term is

generally applicable to leases entered

into on or after April 20, 1995. The

changes made by the final regulations

apply to leases entered into after April

26, 1996. The treatment of like-kind

exchanges is applicable to transfers

made on or after April 20, 1995. No

inference is intended by these effective

dates as to the treatment of any

transaction under prior law. The

regulations do not preclude the

application of common law doctrines

(such as the substance over form or step

transaction doctrines) and other

authorities to transactions described in

the regulations (e.g., as to whether a

particular transaction should be

characterized as a lease or a conditional

sale for federal income tax purposes).

Special Analyses

It has been determined that this

Treasury decision is not a significant

regulatory action as defined in EO

12866. Therefore, a regulatory

assessment is not required. It has also

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, the notice of proposed rulemaking

preceding these regulations was

submitted to the Small Business

Administration for comment on its

impact on small business.

Drafting Information: The principal author

of these regulations is John M. Aramburu of

the Office of Assistant Chief Counsel (Income

Tax and Accounting). 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.

Adoption of Amendments to the

Regulations

Accordingly, 26 CFR part 1 is

amended as follows:

PART 1—INCOME TAXES

Paragraph 1. The authority citation

for part 1 is amended by adding entries

in numerical order to read as follows:

Authority: 26 U.S.C. 7805 * * *.

Section 1.168(h)–1 also issued under

26 U.S.C. 168. * * *

Section 1.168(i)–2 also issued under

26 U.S.C. 168. * * *

Par. 2. Sections 1.168(h)–1 and

1.168(i)–2 are added to read as follows:

§ 1.168(h)–1 Like-kind exchanges

involving tax-exempt use property.

(a) Scope. (1) This section applies

with respect to a direct or indirect

transfer of property among related

persons, including transfers made

through a qualified intermediary (as

defined in § 1.1031(k)–1(g)(4)) or other

unrelated person, (a transfer) if—

(i) Section 1031 applies to any party

to the transfer or to any related

transaction; and

(ii) A principal purpose of the transfer

or any related transaction is to avoid or

limit the application of the alternative

depreciation system (within the

meaning of section 168(g)).

(2) For purposes of this section, a

person is related to another person if

they bear a relationship specified in

section 267(b) or section 707(b)(1).

(b) Allowable depreciation deduction

for property subject to this section—(1)

In general. Property (tainted property)

transferred directly or indirectly to a

taxpayer by a related person (related

party) as part of, or in connection with,

a transaction in which the related party

receives tax-exempt use property

(related tax-exempt use property) will, if

the tainted property is subject to an

allowance for depreciation, be treated in

the same manner as the related taxexempt use property for purposes of

determining the allowable depreciation

deduction under section 167(a). Under

this paragraph (b), the tainted property

is depreciated by the taxpayer over the

remaining recovery period of, and using

the same depreciation method and

convention as that of, the related taxexempt use property.

(2) Limitations—(i) Taxpayer’s basis

in related tax-exempt use property. The

rules of this paragraph (b) apply only

with respect to so much of the

taxpayer’s basis in the tainted property

as does not exceed the taxpayer’s

adjusted basis in the related tax-exempt

use property prior to the transfer. Any

excess of the taxpayer’s basis in the

tainted property over its adjusted basis

in the related tax-exempt use property

prior to the transfer is treated as

property to which this section does not

apply. This paragraph (b)(2)(i) does not

apply if the related tax-exempt use

property is not acquired from the

taxpayer (e.g., if the taxpayer acquires

the tainted property for cash but section

1031 nevertheless applies to the related

party because the transfer involves a

qualified intermediary).

(ii) Application of section 168(i)(7).

This section does not apply to so much

of the taxpayer’s basis in the tainted

property as is subject to section

168(i)(7).

(c) Related tax-exempt use property.

(1) For purposes of paragraph (b) of this

section, related tax-exempt use property

includes—

(i) Property that is tax-exempt use

property (as defined in section 168(h))

at the time of the transfer; and

(ii) Property that does not become taxexempt use property until after the

transfer if, at the time of the transfer, it
Federal Register / Vol. 61, No. 83 / Monday, April 29, 1996 / Rules and Regulations 18677

was intended that the property become

tax-exempt use property.

(2) For purposes of determining the

remaining recovery period of the related

tax-exempt use property in the

circumstances described in paragraph

(c)(1)(ii) of this section, the related taxexempt use property will be treated as

having, prior to the transfer, a lease term

equal to the term of any lease that

causes such property to become taxexempt use property.

(d) Examples. The following examples

illustrate the application of this section.

The examples do not address common

law doctrines or other authorities that

may apply to recharacterize or alter the

effects of the transactions described

therein. Unless otherwise indicated,

parties to the transactions are not

related to one another.

Example 1. (i) X owns all of the stock of

two subsidiaries, B and Z. X, B and Z do not

file a consolidated federal income tax return.

On May 5, 1995, B purchases an aircraft (FA)

for $1 million and leases it to a foreign airline

whose income is not subject to United States

taxation and which is a tax-exempt entity as

defined in section 168(h)(2). On the same

date, Z owns an aircraft (DA) with a fair

market value of $1 million, which has been,

and continues to be, leased to an airline that

is a United States taxpayer. Z’s adjusted basis

in DA is $0. The next day, at a time when

each aircraft is still worth $1 million, B

transfers FA to Z (subject to the lease to the

foreign airline) in exchange for DA (subject

to the lease to the airline that is a United

States taxpayer). Z realizes gain of $1 million

on the exchange, but that gain is not

recognized pursuant to section 1031(a)

because the exchange is of like-kind

properties. 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. Following the exchange,

Z has a $0 basis in FA pursuant to section

1031(d). B has a $1 million basis in DA.

(ii) 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. Accordingly, the

transaction is within the scope of this

section. Pursuant to paragraph (b) of this

section, B must recover its $1 million basis

in DA over the remaining recovery period of,

and using the same depreciation method and

convention as that of, FA, the related taxexempt use property.

(iii) If FA did not become tax-exempt use

property until after the exchange, it would

still be related tax-exempt use property and

paragraph (b) of this section would apply if,

at the time of the exchange, it was intended

that FA become tax-exempt use property.

Example 2. (i) X owns all of the stock of

two subsidiaries, B and Z. X, B and Z do not

file a consolidated federal income tax return.

B and Z each own identical aircraft. B’s

aircraft (FA) is leased to a tax-exempt entity

as defined in section 168(h)(2) and has a fair

market value of $1 million and an adjusted

basis of $500,000. Z’s aircraft (DA) is leased

to a United States taxpayer and has a fair

market value of $1 million and an adjusted

basis of $10,000. On May 1, 1995, B and Z

exchange aircraft, subject to their respective

leases. B realizes gain of $500,000 and Z

realizes gain of $990,000, but neither person

recognizes gain because of the operation of

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 2, 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. But see

§ 1.1502–80(f) making section 1031

inapplicable to intercompany transactions

occurring in consolidated return years

beginning on or after July 12, 1995.

(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, describe certain

circumstances that will result in a

period of time not included in the stated

duration of an original lease (additional

period) nevertheless being included in

the lease term. These rules do not

prevent the inclusion of an additional

period in the lease term in other

circumstances.

(b) Lessee retains financial

obligation—(1) In general. 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)—

(i) 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; or

(ii) Has assumed or retained any risk

of loss with respect to the property for

such period (including, for example, by

holding a note secured by the property).

(2) Payments in the nature of rent. For

purposes of paragraph (b)(1)(i) of this

section, 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 (whether denominated as

supplemental rent, as liquidated

damages, or otherwise) 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) of this section occur.

(3) De minimis rule. For the purposes

of this paragraph (b), obligations to

make de minimis payments will be

disregarded.

(c) Multiple leases or subleases. If

property is subject to more than one

lease (including any sublease) entered

into as part of a single transaction (or a

series of related transactions), the lease

term includes all periods described in

one or more of such leases. For example,

if one taxable corporation leases

property to another taxable corporation

for a 20-year term and, as part of the

same transaction, the lessee subleases

the property to a tax-exempt entity for

a 10-year term, then the lease term of

the property for purposes of section 168

is 20 years. During the period of taxexempt use, the property must be

depreciated under the alternative

depreciation system using the straight

line method over the greater of its class

life or 25 years (125 percent of the 20-

year lease term).

(d) 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).

(e) 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.
18678 Federal Register / Vol. 61, No. 83 / Monday, April 29, 1996 / Rules and Regulations

(f) Example. The following example

illustrates the principles 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.

(iii) 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).

(g) Effective date—(1) In general.

Except as provided in paragraph (g)(2)

of this section, this section applies to

leases entered into on or after April 20,

1995.

(2) Special rules. Paragraphs (b)(1)(ii)

and (c) of this section apply to leases

entered into after April 26, 1996.

Margaret Milner Richardson,

Commissioner of Internal Revenue.

Approved: March 26, 1996.

Leslie Samuels,

Assistant Secretary of the Treasury.

[FR Doc. 96–10395 Filed 4–26–96; 8:45 am]

BILLING CODE 4830–01–U

Bureau of Alcohol, Tobacco and

Firearms

27 CFR Part 47

[Notice No. 821]

Removal of Certain Restrictions on

Importation of Defense Articles and

Defense Services From the Russian

Federation

AGENCY: Bureau of Alcohol, Tobacco

and Firearms (ATF), Department of the

Treasury.

ACTION: Statement of policy.

SUMMARY: The Bureau of Alcohol,

Tobacco and Firearms (ATF) is

announcing (1) that it will remove the

Russian Federation from the list of

countries from which defense articles

and defense services may not be

imported and (2) implementation of

restrictions on the importation of certain

firearms and ammunition located or

manufactured in the Russian Federation

or previously manufactured in the

Soviet Union in accordance with an

agreement between the United States

and the Russian Federation and the

guidance of the Secretary of State

regarding matters affecting world peace

and the external security and foreign

policy of the United States as expressed

in a letter dated April 5, 1996.

DATES: Removal of the Russian

Federation from the list of proscribed

countries was effective April 5, 1996.

FOR FURTHER INFORMATION CONTACT:

Mary Jo Hughes, Chief, Firearms and

Explosives Imports Branch, Bureau of

Alcohol, Tobacco and Firearms, 650

Massachusetts Avenue, NW.,

Washington, DC 20226 (202–927–8320).

SUPPLEMENTARY INFORMATION: By letter

dated April 5, 1996, the Secretary of

State advised the Director, ATF, that,

under the authority of Section 38 of the

Arms Export Control Act (AECA), 22

U.S.C. § 2778, it is no longer the policy

of the United States to deny licenses,

other approvals, exports and imports of

defense articles and defense services

destined for or originating in the

Russian Federation (Russia). The State

Department has requested that the

Director implement this decision

immediately with respect to his

authority over imports under Section 38

of the AECA and amend the regulation

at 27 CFR 47.52(a) to reflect this change

in foreign policy.

The State Department also advised

that the President decided to negotiate

an agreement with Russia concerning

the export of munitions. Carrying out

such an agreement and keeping out

unacceptable types of munitions from

the United States are U.S. foreign policy

concerns. In addition, the State

Department informed ATF that an

Agreement between the Government of

the United States of America and the

Government of the Russian Federation

on exports of firearms and ammunition

from the Russian Federation to the

United States of America (the

Agreement) was signed on April 3,

1996, and entered into force on that

date. On this basis, the State Department

advised the Department of the Treasury

that Treasury should exercise the

authority delegated to it under Section

38 of the AECA by denying applications

to import firearms and ammunition

located or manufactured in Russia or

previously manufactured in the Soviet

Union that would be inconsistent with

the Agreement. The State Department

advised Treasury that the foregoing did

not apply to conditional imports of

firearms and ammunition which would

serve as samples for purposes of

determining whether the items are of a

type authorized for importation under

the Agreement.

The Agreement provides that Russia

shall not allow the exportation to the

United States of (1) firearms other than

those specified on Annex A to the

Agreement; and (2) ammunition

specified in Annex B to the Agreement.

Nine handguns and 29 rifles are listed

in Annex A. One type of ammunition is

listed in Annex B. The Agreement also

provides that new types of firearms and

ammunition manufactured after

February 9, 1996, may not be exported

by Russia under the Agreement unless

the parties agree in writing to amend the

Agreement accordingly. The Agreement

is published in its entirety at the end of

this notice.

ATF has taken or will take the

following actions to implement the

above:

(1) ATF will remove Russia from the

list of countries from which defense

articles and defense services may not be

imported into the United States. A

Treasury Decision amending § 47.52(a)

to reflect this action will be published

in the near future.