Transportation Equity Act for the 21st Century; Implementation Procedures for the Approval and Administration of Projects To Reduce the Evasion of Motor Fuel and Other Highway Use Taxes

DEPARTMENT OF TRANSPORTATION

Federal Highway Administration

[FHWA Docket No. FHWA 98-4262]

Transportation Equity Act for the 21st Century; Implementation

Procedures for the Approval and Administration of Projects To Reduce

the Evasion of Motor Fuel and Other Highway Use Taxes

AGENCY: Federal Highway Administration (FHWA), DOT.

ACTION: Notice; request for comments.

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SUMMARY: Over the years, funds have been authorized by the Congress for

use by the States and the Internal Revenue Service (IRS) to reduce the

evasion of motor fuel and highway use taxes. This document sets forth

revised procedures, pursuant to sections 1101 and 1114 of the

Transportation Equity Act for the 21st Century (TEA-21) (Pub. L. 105-

178, 112 Stat. 107), for allocating these funds to the States and the

IRS and provides implementation guidance for the approval and

administration of such projects under 23 U.S.C. 143. The FHWA seeks

public comment from all interested parties regarding the revised

funding allocation and administrative procedures described in this

notice. The procedures described in this notice may be modified based

on the comments received.

DATES: Comments must be received on or before November 23, 1998.

ADDRESSES: Your signed, written comments must refer to the docket

number appearing at the top of this document and you must submit the

comments to the Docket Clerk, U.S. DOT Dockets, Room PL-401, 400

Seventh Street, SW., Washington, DC 20590-0001. All comments received

will be available for examination at the above address between 10 a.m.

and 5 p.m., e.t., Monday through Friday, except Federal holidays. Those

desiring notification of receipt of comments must include a self-

addressed, stamped envelope or postcard.

FOR FURTHER INFORMATION CONTACT: Mr. Stephen J. Baluch, Office of

Policy Development, 202-366-0570; or Mr. Wilbert Baccus, Office of the

Chief Counsel, 202-366-0780; Federal Highway Administration, 400

Seventh Street, SW., Washington, D.C. 20590. Office hours are from 7:45

a.m. to 4:15 p.m., e.t., Monday through Friday, except Federal

holidays.

SUPPLEMENTARY INFORMATION:

Electronic Access

Internet users can access all comments received by the U.S. DOT

Dockets, Room PL-401, by using the universal resource locator

(URL):http://dms.dot.gov. It is available 24 hours each day, 365 days

each year. Please follow the instructions online for more information

and help.

An electronic copy of this document may be downloaded using a modem

and suitable communications software from the Government Printing

Office's Electronic Bulletin Board Service at (202)512-1661. Internet

users may reach the Federal Register's home page at: http//

www.nara.gov/fedreg and the Government Printing Office's database at:

http//www.access.gpo.gov/nara.

Background

Sections 1101 and 1114 of the TEA-21 authorize funding for highway

use tax evasion projects under 23 U.S.C 143. This notice sets forth

certain procedures for allocating those funds to the States and

provides guidance for the approval and administration of projects to

reduce the evasion of motor fuel and other highway use taxes. Funding

authorized for highway use tax evasion projects includes $10 million

for fiscal year (FY) 1998 and $5 million per year for FY 1999 through

2003, and up to one-fourth of 1 percent of funds apportioned to the

States for the Surface Transportation Program (STP) for ``initiatives

to halt the evasion of payment of motor fuel taxes'' (23 U.S.C.

143(b)(8)).

In accordance with 23 U.S.C. 143(c), the major part of the funding

authorized in section 1101(a)(14) of TEA-21 for highway use tax evasion

projects will be provided to the IRS for the development and

maintenance of an automated fuel reporting system. The Federal Highway

Administrator, as delegated by the Secretary of Transportation

(Secretary), and the Commissioner of the IRS have approved a Memorandum

of Understanding (MOU) for the purposes of implementing this system. A

copy of the MOU is provided as an attachment to this notice. The MOU

establishes the funding to be provided to the IRS. As long as the IRS

has met the funding needs to establish and operate the automated fuel

reporting system, pursuant to the Secretary's authority under 23 U.S.C.

143(b)(2), the IRS may use a portion of the funds for continuation of

the IRS examination and criminal investigation activities of the Joint

Federal/State Motor Fuel Tax Compliance Project (or Joint Compliance

Project), previously funded under the Intermodal Surface Transportation

Efficiency Act of 1991 (ISTEA), Public Law 102-240, 105 Stat. 1914, or

for any other activity specified in 23 U.S.C. 143(b).

All funds not provided to the IRS will be allocated to the States

for efforts to reduce the evasion of highway use taxes, including

continued participation in regional motor fuel tax enforcement task

forces. Nine such task forces have been organized since 1991 covering

all States, under the coordination and leadership of the IRS district

offices and State revenue agencies in the nine lead States (California,

Florida, Indiana, Massachusetts, North Carolina, Nebraska, New Jersey,

Oregon, and Texas).

The FHWA intends to distribute the available funds so as to

provide, if possible, at least half of the annual funding allocation

that was provided under the ISTEA, that is, $50,000 for lead States and

$25,000 for all other States and the District of Columbia. In each

fiscal year, allocations would be made only to States that have

expended and billed the FHWA for all but 1 year's

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amount of obligated funds. In order for sufficient funds to be

available to meet this target allocation, the following actions are

recommended:

1. State revenue agencies are encouraged to extend the

completion date for current projects utilizing unexpended funds (the

FHWA will grant reasonable extensions of time up to December 2003

for current projects);

2. States should submit timely reimbursement vouchers so the

FHWA can track the balance of unexpended funds for use in making

annual allocations; and

3. Funds not obligated by June 30 would not be restored in

future years.

The reduced allocations to the States will not be sufficient to

fully fund some of the expenditure items previously budgeted, such as,

auditor and investigator salaries, equipment purchases, and

computerization initiatives. Funding for such items would have to be

provided from the one-fourth percent allowable use of STP funds by

mutual agreement between the State transportation and revenue agencies.

But in any event, the $5 million total available for distribution to

the States for FYs 1999-2003 should, by judicious use of remaining

unexpended funds and careful allocation to meet State needs, provide

sufficient minimum funding for all States to continue participation in

the activities of the Joint Compliance Project.

Steering Committee

At the outset of the Joint Compliance Project in 1990, a Steering

Committee was formed to lend guidance to the regional task forces,

serve as a clearinghouse for exchanging information among the task

forces, recommend strategies for expanding the project, review

progress, and resolve differences among project participants. The FHWA

plans to continue using the Steering Committee, with at least one

meeting each year, to assist the States, the IRS, and the task forces

in adapting to the changing funding situation under TEA-21. Lead States

should continue to designate a representative and alternate to serve on

the Steering Committee. In addition, under the MOU to be signed between

the IRS and the FHWA, the IRS has proposed forming a work group

comprised of State, industry, and Federal agency participants that will

develop and monitor an implementation plan for the automated fuel

reporting system.

Project Requirements

The following requirements apply to highway use tax evasion

projects funded from allocated funds under section 1101(b)(14) or from

STP funds:

1. Obligation authority--

a. Allocated funds--Obligation authority will be provided when

funds are allocated by an FHWA Notice. The funds allocated to a State

shall remain available to the State revenue agency responsible for

motor fuel tax enforcement for obligation until June 30 of each fiscal

year, at which time any unobligated funds will be withdrawn.

b. STP funds--Funds are available for obligation at the request of

the State highway agency for the period specified in the law, i.e., for

a period of up to 3 years following the year authorized. Funds

obligated shall be included within the obligation limitation

distributed to the State by the FHWA.

2. Federal share (allocated funds and STP funds)--

As provided in 23 U.S.C. 143(b)(6), funds are available at 100 percent

Federal share.

3. Maintenance of effort certification--

a. Allocated funds--As specified in 23 U.S.C. 143(b), States

wishing to receive allocations for tax evasion projects must certify

that the aggregate expenditure of funds of the State, exclusive of

Federal funds, for motor fuel tax enforcement activities will be

maintained at a level which does not fall below the average level of

such expenditures for its last 2 fiscal years.

b. STP funds--Maintenance of effort certification is not required.

4. Task force participation--

a. Allocated funds--To receive allocations under this program, the

State revenue agency responsible for enforcement of State motor fuel

taxes shall sign the Memorandum of Understanding agreeing to

participate in at least one of the regional task forces. States may

join one or more task forces to best meet their needs for coordinated

fuel tax enforcement.

b. STP funds--Signing the Memorandum of Understanding for

participation in a regional task force is not required.

5. Project agreement--

a. Allocated funds--The State revenue agency shall sign two copies

of the Project Agreement (FHWA-1548 as amended after July 1, 1998).

b. STP funds--The State highway agency shall sign the Project

Agreement (PR-2). (A copy of the Project Agreement forms (FHWA-1548 and

PR-2) may be obtained from the contacts listed in this notice.)

6. Project eligibility--

a. Allocated funds--Funds are available for projects to reduce

evasion of motor fuel and other highway use taxes.

b. STP funds--Funds are available for ``initiatives to halt the

evasion of payment of motor fuel taxes'' (emphasis added) as specified

in 23 U.S.C. 143(b)(8).

7. Allowable costs (allocated funds and STP funds)--An estimate of

costs by category of expenditure shall be attached to the Project

Agreement. Allowable costs shall be determined in accordance with the

Office of Management and Budget Circular A-87, ``Cost Principles for

State, Local and Indian Tribal Governments.'' With respect to travel

costs, the FHWA project funds may be used:

a. To reimburse State travel costs for motor fuel tax examination

and criminal investigation training;

b. For participation at regional task force meetings and other task

force activities, such as, joint audits and investigations;

c. For participation in International Fuel Tax Agreement audit and

enforcement committee activities;

d. For participation at meetings of the work group for the

automated fuel reporting system;

e. For other cooperative State efforts to foster motor fuel tax

compliance, such as, the meetings of the Uniformity Committee and the

annual and regional Federation of Tax Administrators motor fuel

conferences;

f. For participation of lead State representatives at Steering

Committee meetings; and

g. For participation of representatives from other States at

Steering Committee meetings when requested by the Steering Committee or

to participate in other special activities arranged by the Steering

Committee.

8. Intergovernmental review (allocated funds and STP funds)--The

State shall comply with the intergovernmental review requirements of 49

CFR part 17 according to the procedures established by the State.

9. Environmental impacts (allocated funds and STP funds)--With

respect to environmental impact and related procedures (23 CFR 771),

projects are considered to be a categorical exclusion under 23 CFR

771.117(c)(1).

10. Compliance with planning requirements--Highway use tax evasion

projects are deemed to be part of the long range plans discussed in 23

U.S.C. 134 and 135 with respect to enforcement of any highway user

taxes the revenues from which are used to finance the implementation of

projects in the plan. Projects should be included in the Transportation

Improvement Program (TIP) as follows:

a. Allocated funds--Since funds are allocated to State revenue

agencies only for the purpose of fuel tax evasion project activities,

projects are not

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required to be listed in the TIP discussed in 23 U.S.C. 134 and 135.

b. STP funds--Highway use tax evasion projects carried out by State

agencies shall be included in the transportation improvement program

(TIP) described in 23 U.S.C. 135. Highway use tax evasion projects

carried out by local government agencies within the boundaries of

metropolitan areas shall be included in the metropolitan TIP described

in 23 U.S.C. 134.

11. Project approval (allocated funds and STP funds)--The State

shall request FHWA approval for projects by submitting a letter to the

FHWA Division Administrator in the State requesting funds for the

project along with the following items:

a. Evidence of completion of the intergovernmental review

requirements;

b. The cost estimate by expenditure category; and

c. A signed original copy of the Project Agreement.

12. Project modifications (allocated funds and STP funds)--The

State shall request in writing the FHWA's approval of the following

items as necessary:

a. Revised budget whenever the estimate for a single cost category

changes by more than 10 percent of the total agreement amount, i.e.,

$5,000 for a $50,000 project;

b. Proposal for procurement of professional services, including

identification of the contractor and estimated cost, when the estimated

cost exceeds $10,000;

c. Extension of project completion date and reasons for the

extension; and

d. Additional funding if required to complete the project.

13. Progress reports (allocated funds and STP funds)--Annual

narrative and expenditure reports are required to document progress.

The report forms covering motor fuel tax examinations/audits, criminal

investigations, and roadside fuel checks are optional.

14. Audits (allocated funds and STP funds)--The State shall arrange

for audits when required by 49 CFR part 90.

15. Reimbursement--

a. Allocated funds--State revenue agencies may continue to submit

vouchers (PR-20) to the Division Administrator for payment.

b. STP funds--The State transportation agency would submit vouchers

for payment as part of the current billing process, and the State

transportation agency would make interagency fund transfers to other

State (or local) agencies carrying out project activities.

Effective Date

The procedures described in this notice are effective on the date

of publication, and may be modified by a subsequent notice based on the

comments received.

Request for Comments

The FHWA is requesting public comment from all interested parties

concerning the funding allocation, the administrative procedures

described in this notice, or on any suggestions to enhance motor fuel

tax compliance under this program.

Comments should be submitted to the docket by the deadline

indicated in the DATES caption. All comments received before the close

of business on the comment closing date indicated above will be

considered and will be available for examination in the docket room at

the above address. Comments received after the comment closing date

will be filed in the docket and will be considered to the extent

practicable. In addition to late comments, the FHWA will also continue

to file in the docket relevant information that becomes available after

the comment closing date, and interested persons should continue to

examine the docket for new material.

Authority: 23 U.S.C. 315; secs. 1101 and 1114, Pub. L. 105-178,

112 Stat. 107(1998); and 49 CFR 1.48)

Issued on: October 2, 1998.

Kenneth R. Wykle,

Federal Highway Administration, Administrator.

Memorandum of Understanding Between the U.S. Department of

Transportation (DOT) and the Internal Revenue Service (IRS)

Purpose: The purpose of this Memorandum of Understanding (MOU)

is to implement the provisions of 23 United States Code (U.S.C.)143,

relating to highway use tax evasion projects, in particular the

requirement for the development and maintenance for an excise fuel

reporting system.

Background: On June 9, 1998, the President signed the

Transportation Equity Act for the 21st Century (TEA-21), Public Law

105-178, authorizing highway, highway safety, transit, and other

surface transportation programs for the next 6 years. TEA-21, as

amended, builds on the initiatives established in the Intermodal

Surface Transportation Efficiency Act of 1991, and combines the

continuation and improvement of current programs with new

initiatives to meet America's needs through efficient and flexible

transportation. A key part of funding these highway improvements is

the collection of Federal and State revenues used for this purpose.

Recognizing the need to ensure compliance for revenue

collection, section 1114 of TEA-21, amended 23 U.S.C. 143 to require

that the Secretary of Transportation (hereinafter referred to as the

``Secretary'') shall carry out highway use tax evasion projects in

accordance with the provisions therein. Section 143 provides that

the funds made available to carry out highway use tax evasion

projects may be allocated to the IRS and the States, and that the

Secretary shall not impose any condition on the use of funds

allocated to the IRS under this subsection.

Title 23, U.S.C. Section 143, further limits the use of funds,

provides for the establishment and operation of an automated fuel

reporting system, provides for a funding priority, and a MOU between

the Secretary and IRS for the purposes of the development and

maintenance by the IRS of an excise fuel reporting system.

Wherefore, the DOT and the IRS agree that:

I. Automated Excise Fuel Reporting System (the System) a.k.a. Excise

Fuel Information Reporting System (EXFIRS)

(A) The IRS shall develop and maintain the system through

contracts.

(1) The IRS believes that a participative process with all

stakeholders is the best method to use in the design and development

of ExFIRS. By October 1, 1998, the IRS will form a workgroup with

participants representing industry, States, the Federal Highway

Administration (FHWA), and the IRS. The workgroup will be headed by

the IRS Director, Excise Taxes, and will develop an implementation

plan to provide for a basic automated excise fuel reporting system,

and for enhancements that will best serve the stakeholders,

including industry, the States, the FHWA, other government agencies,

the IRS, etc.

(2) Workgroup members will determine the system needs and assist

the IRS in assembling an implementation plan for use in contracting.

(3) The IRS will use the most expeditious method to obtain

qualified contractors to complete the project.

(4) The implementation plan will be a living document. The plan

will be monitored by the workgroup on an ongoing basis with

revisions to the content, scope, timing, as needed.

(B) The system shall be under the control of the IRS.

(C) To allow for a transition of funding for the States, the IRS

projects that the following funding can be made available to the

States for motor fuel compliance projects:

FY99....................................................... $1,500,000

FY00....................................................... 1,250,000

FY01....................................................... 1,000,000

FY02....................................................... 750,000

FY03....................................................... 500,000

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Total.................................................. 5,000,000

(D) The system shall be made available for use by appropriate

State and Federal revenue, tax, and law enforcement authorities,

subject to section 6103 of the Internal Revenue Code of 1986.

II. Limitation on Use of Funds

Funds made available to carry out highway use tax evasion

projects shall be used only:

(A) to expand efforts to enhance motor fuel tax enforcement;

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(B) to fund additional IRS staff, but only to carry out

functions described in this paragraph;

(C) to supplement motor fuel tax examinations and criminal

investigations;

(D) to develop automated data processing tools to monitor motor

fuel production and sales;

(E) to evaluate and implement registration and reporting

requirements for motor fuel taxpayers;

(F) to reimburse State expenses that supplement existing fuel

tax compliance efforts; and

(G) to analyze and implement programs to reduce tax evasion

associated with other highway use taxes.

III. Funding Availability and Priority

(A) The Secretary shall, by Reimbursable Agreement, provide

available funding to the IRS for the automated fuel reporting system

and for highway use tax evasion projects as described in 23 U.S.C.

143.

(B) The Secretary shall make available sufficient funds for each

of fiscal years 1998 through 2003 to the IRS to establish and

operate an automated fuel reporting system as its first priority.

IV. Oversight

The FHWA Director, Office of Policy Development, and the IRS

Director, Specialty Taxes, will review the development and

implementation of highway use tax evasion project activity.

Dated: September 3, 1998

Kenneth R. Wykle,

Administrator, Federal Highway Administration.

Dated: September 10, 1998.

Charles O. Rossotti,

Commissioner, Internal Revenue Service.

[FR Doc. 98-27231 Filed 10-8-98; 8:45 am]

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