Source: https://www.federalregister.gov/documents/2004/07/28/04-17200/revisions-to-the-certificates-of-divestiture-regulation
Timestamp: 2017-09-25 22:40:45
Document Index: 547728223

Matched Legal Cases: ['§\u20092634', '§\u20092634', '§\u20092634', '§\u20092634', 'art 2634', '§\u20092634', '§\u20092634', '§\u20092634', '§\u20092634', 'art 2634', 'art 2634', '§\u20092634', '§\u20092634', 'art 2640', '§\u20092634']

Federal Register :: Revisions to the Certificates of Divestiture Regulation
A Rule by the Government Ethics Office on 07/28/2004
Example 1 to § 2634.1004:
Example 2 to § 2634.1004:
Example 3 to § 2634.1004:
Example 4 to § 2634.1004:
https://www.federalregister.gov/d/04-17200 https://www.federalregister.gov/d/04-17200
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In this final rule, the Office of Government Ethics has rewritten its regulation concerning Certificates of Divestiture in plain language. This rule also revises certain procedures for issuing Certificates of Divestiture and the definition of permitted property into which proceeds of the sale of property are reinvested.
Section 1043 of the Internal Revenue Code of 1986, 26 U.S.C. 1043, was enacted as part of the Ethics Reform Act of 1989 (Pub. L. 101-194). Section 1043 authorizes the Director of OGE to issue a Certificate of Divestiture to an eligible person who is divesting property in order to comply with a Federal conflict of interest law, regulation, rule, or Executive order, or if requested by a congressional committee as a condition of confirmation. A person who receives a Certificate of Divestiture may defer payment of capital gains tax as long as he or she timely purchases certain permitted property with the proceeds of the sale. OGE published an interim rule on April 18, 1990 (at 55 FR 14407-14409) implementing section 1043. On June 25, 1996, the Office of Government Ethics published a final rule at 61 FR 32633-32636. The final rule was based on comments to the interim rule and on OGE's experience under the interim rule and the May 1990 Technical Corrections to the Ethics Reform Act of 1989 (Pub. L. 101-280), which amended section 1043 of the Internal Revenue Code of 1986. The OGE Certificates of Divestiture executive branchwide regulation is now codified at subpart J of 5 CFR part 2634.
On January 13, 2004, OGE published a set of proposed amendments to the regulation, proposing to make certain improvements. See 69 FR 1954-1957. The proposed rule provided a 60-day comment period. The Office of Government Ethics received one comment letter from an organization. After a careful review of the comment letter and making some additional plain language modifications, OGE is publishing this final rule.
We have attempted to improve the current Certificates of Divestiture regulation by: Organizing the material more logically; using shorter sentences; eliminating unnecessary technical language; and stating the rule's requirements more clearly. The one comment letter suggested many changes to make the regulation even simpler. After careful review, OGE has adopted some of the suggestions. In particular, we have redrafted §§ 2634.1001 and 2634.1003 of the proposed rule to make them easier to understand. Consequently, § 2634.1001 of the proposed rule is now divided into §§ 2634.1001 and 2634.1002, and proposed sections 2634.1002-2634.1007 have been renumbered in this final rule accordingly.
The final rule retains the same revisions as set forth in the proposed rule. First, we changed the meaning of a “diversified investment fund,” in paragraph (2) of the definition of permitted property in new (renumbered) § 2634.1003, to track the definition of diversified mutual fund and diversified unit investment trust as those terms are used in 5 CFR 2640.102.[1] Second, several changes will streamline and simplify the procedure OGE uses to issue a Certificate of Divestiture. The final rule clarifies the information related to financial disclosure that needs to be submitted as part of the Certificate of Divestiture request and simplifies the procedure related to the timing of a submission of a request to OGE.
In promulgating this final regulation, the Office of Government Ethics has adhered to the regulatory philosophy and the applicable principles of regulation set forth in section 1 of Executive Order 12866, Regulatory Planning and Review. This regulation has also been reviewed by the Office of Management and Budget under that Executive order. Moreover, in accordance with section 6(a)(3)(B) of E.O. 12866, the preambles to the proposed and final revisions, to be codified in a revised subpart J of 5 CFR part 2634, note the legal basis and benefits of as well as the need for the regulatory action. There should be no appreciable increase in costs to OGE or the executive branch of the Federal Government in administering this regulation, once it becomes effective, since the provisions only clarify and improve the Certificates of Divestiture regulatory procedures. Finally, this rulemaking is not economically significant under the Executive order and will not interfere with State, local or tribal governments.
As Acting Director of the Office of Government Ethics, I certify under the Regulatory Flexibility Act (5 U.S.C. Start Printed Page 44894chapter 6) that this amendatory rule will not have a significant economic impact on a substantial number of small entities because it primarily affects Federal executive branch employees and members of their immediate families.
The Paperwork Reduction Act (44 U.S.C. chapter 35) does not apply to this final amended regulation because it does not contain any information collection requirements that require the approval of the Office of Management and Budget.
The Office of Government Ethics has determined that this rulemaking involves a nonmajor rule under the Congressional Review Act (5 U.S.C. chapter 8) and will submit a report thereon to the U.S. Senate, House of Representatives and General Accounting Office in accordance with that law at the same time this rulemaking document is sent to the Office of the Federal Register for publication in the Federal Register.
2. Subpart J of part 2634 is revised to read as follows:
Role of the Internal Revenue Service.
2634.1008
(a) Scope. 26 U.S.C. 1043 and the rules of this subpart allow an eligible person to defer paying capital gains tax on property sold to comply with conflict of interest requirements. To defer the gains, an eligible person must obtain a Certificate of Divestiture from the Director of the Office of Government Ethics before selling the property. This subpart describes the circumstances when an eligible person may obtain a Certificate of Divestiture and establishes the procedure that the Office of Government Ethics uses to issue Certificates of Divestiture.
(b) Purpose. The purpose of section 1043 and this subpart is to minimize the burden that would result from paying capital gains tax on the sale of assets to comply with conflict of interest requirements. Minimizing this burden aids in attracting and retaining highly qualified personnel in the executive branch and ensures the confidence of the public in the integrity of Government officials and decision-making processes.
The Internal Revenue Service (IRS) has jurisdiction over the tax aspects of a divestiture made pursuant to a Certificate of Divestiture. Eligible persons seeking to defer capital gains:
(a) Must follow IRS requirements for reporting dispositions of property and electing under section 1043 not to recognize capital gains; and
(b) Should consult a personal tax advisor or the IRS for guidance on these matters.
(a) The Director of the Office of Government Ethics may issue a Certificate of Divestiture for specific property in accordance with the procedures of § 2634.1005 of this subpart if:
(1) The Director determines that divestiture of the property by an eligible person is reasonably necessary to comply with 18 U.S.C. 208, or any other Federal conflict of interest statute, regulation, rule, or Executive order; or
(2) A congressional committee requires divestiture as a condition of confirmation.
(b) The Director of the Office of Government Ethics cannot issue a Certificate of Divestiture for property that already has been sold.
An employee of the Department of Commerce is directed to divest his shares of XYZ stock acquired through the exercise of options held in an employee benefit plan. His gain from the sale of the stock will be treated as ordinary Start Printed Page 44895income. Because only capital gains realized under Federal tax law are eligible for deferral under section 1043, a Certificate of Divestiture cannot be issued for the sale of the XYZ stock.
The Secretary of Treasury sells certain stock after receiving a Certificate of Divestiture and is considering reinvesting the proceeds from the sale into U.S. Treasury securities. However, because the Secretary of the Treasury is prohibited by 31 U.S.C. 329 from being involved in buying obligations of the United States Government, the Secretary cannot reinvest the proceeds in Start Printed Page 44896such securities. However, she may invest the proceeds in a diversified mutual fund. See the definition of permitted property at § 2634.1003.
(b) Complete divestiture. The Director will not issue a Certificate of Divestiture unless the employee agrees to divest all of the property that presents a conflict of interest, as well as other similar or related property that presents a conflict of interest under a Federal conflict of interest statute, regulation, rule, or Executive order. However, any property that qualifies for a regulatory exemption at 5 CFR part 2640 need not be divested for a Certificate of Divestiture to be issued.
§ 2634.1008
1. When the Certificate of Divestiture rule was first published in April 1990, the definition of “diversified investment fund” included common trust funds maintained by banks. At that time, common trust funds were required to be diversified under rules published by the Comptroller of the Currency. However, in December 1996, the Office of the Comptroller of the Currency eliminated the diversification requirement. See 61 FR 68543, 68551. Therefore, common trust funds are not a suitable alternative for permitted property and have been deleted from the definition of diversified investment fund. Eligible persons who invested in common trust funds as permitted property prior to the effective date of this final rule may continue to hold those funds.
[FR Doc. 04-17200 Filed 7-27-04; 8:45 am]