The Small Business Watchdog

As the voice of small business in government, Advocacy invites you to post your thoughts on this moderated blog, provided as a forum for the small business community.

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Promising Startups Recognized by Water Technology Nonprofit

March 27th, 2014 · Comments Off

Drought

By Yvonne Lee, Region IX Advocate

On March 17, I met 12 fascinating water technology entrepreneurs from around the world. These innovative food and agricultural businesses were the finalists selected to attend the 2014 Imagine H2O (IH2O) Boot Camp in San Francisco, where they had the opportunity to meet with a network of potential investors.

Imagine H2O is a nonprofit organization that seeks to encourage innovators to solve the world’s water problems. It achieves this goal by hosting competitions and providing an accelerator program for innovative startup businesses. The boot camp was organized by IH2O’s Food and Agriculture Program, which supports emerging water businesses whose primary value proposition improves water use, treatment, supply, or discharge in the food and agriculture sector.

With much of the U.S. facing water challenges—California has suffered the driest year in history, thereby forcing many farmers to abandon their fields—these innovative businesses promise to help farmers and ranchers use innovative and clean energy to deliver cost efficient and safe food products to American consumers.

For example, one startup company recycles discarded produce from supermarkets into liquid fertilizers for farmers in less than three hours. Another growth-stage firm developed innovative manure treatment technology to recycle livestock manure into clean water. Its CEO drank the end product and lived to make a lively investment pitch the next day. A couple of other entrepreneurs offered aerial technology to help growers concentrate their water and fertilizer input/output and disease prevention down to a specific plant while maintaining production management and data.

While these entrepreneurs passionately believe their businesses will improve the overall availability, affordability, and safety of sustainable food, they also recognize innovative water technology is more challenging to attract capital compared to other high technology businesses. Although more venture capital firms have begun to pay attention to this industry, the main source of capital continues to come from angel investors, crowdfunding, family businesses, and foundations. Many entrepreneurs expressed interest in the Office of Advocacy’s work involving the new crowdfunding and other capital fund rules. And, since patents are central to innovative water technology development and commercialization, these entrepreneurs are also concerned with intellectual property, patent, and trademark protection.

Several of the finalists chosen to attend the IH2O Boot Camp were non-U.S. firms. I was intrigued to hear that one Australian family-owned water technology business has decided to move its manufacturing factory from China to the United States for their new business building above-ground, non-submerged bioreactors. These products can help U.S. and global agricultural businesses achieve regulated discharge standards at low energy and cost.

The owners of the Australian company told me they were attracted to the U.S. as a manufacturing hub because America produces higher quality work that is recognized around the world. More importantly, trademark and intellectual property are legally enforced, enabling small businesses to focus their resources on research, development, and marketing. As for the labor cost advantage China and much of Asia had once offered, it has gradually been eroded, making the U.S. labor force more competitive.

The owners did relate, however, that they have some concerns regarding regulations in the U.S. They said they would welcome a simpler understanding of regulatory costs, compliance, and procedures related to exporting to Asia, the European Union, and Australia without the need to employ a regulatory consultant that larger firms could afford. Their final decision on where to build their factory would factor in which U.S. region offers a friendly regulatory approval environment, competitive port charges, and time-sensitive export processing. These are significant costs to manufacturing for the global market in the U.S.

I also met with a previous IH2O competition winner who suggested the water technology industry is heavily regulated by at least a half a dozen federal agencies. He said he was concerned that any duplicative or lengthy review and approval process could slow down or detour the concept to marketing track for early-stage firms.

According to IH2O, 80 percent of the world’s water is connected to food and agriculture. These amazing water technology entrepreneurs and others will continue to find innovative ways to increase resources to support agricultural businesses. And Advocacy will continue to amplify their interests and concerns.

Yvonne Lee is Office of Advocacy’s regional advocate for Arizona, California, Nevada, Hawaii, and the territory of Guam. You can reach her at yvonne.lee@sba.gov.

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Message from the Chief Counsel: Success Stories from the 2013 Report on the Regulatory Flexibility Act

March 24th, 2014 · Comments Off

By Dr. Winslow Sargeant, Chief Counsel for Advocacy

Each year around this time, the Office of Advocacy issues the annual report on the Regulatory Flexibility Act. The report tells the story of Advocacy’s Office of Interagency Affairs, the group of administrative attorneys who track new proposed rules and encourage federal agencies to fulfill their RFA requirements to properly evaluate the impact of their proposed rules on small businesses. Our Office of Interagency Affairs consists of just over a dozen attorneys, assisted by a handful of regulatory economists. Yet Interagency tracks the work of more than 66 regulatory agencies.

RFAgraphic

While this is a herculean effort, it has a parallel in the small business world. Small business owners are the hardest working individuals I know. For many of them, the 40-hour work week and the two-week vacation are unknowns. The federal regulatory proposals that affect them are hundreds of pages long, and the time it takes to go from proposal to final rule often stretches over many years. Few, if any, small business owners are in a position to track the proposed rules that affect them and to make their views known.

Luckily, the RFA designates the Office of Advocacy as the RFA’s watchdog. Advocacy stays for the duration, monitoring rules over many years. Advocacy’s Office of Interagency Affairs monitors the Federal Register, works with agencies before and after rules are proposed, reaches out to small businesses, and conveys small business concerns in formal comment letters to agencies as the need arises.

In FY 2013, agencies finalized 14 rules that included changes in response to small business concerns raised by Advocacy. These rules affect millions of small businesses and they are a clear illustration of how the RFA works for small business. These changes saved small businesses at least $2.5 billion in first-year regulatory costs, while ensuring that agencies were able to meet their regulatory goals.

One of these rules concerned proposed changes to the On-site Consultation Program of the Occupational Safety and Health Administration (OSHA). Complying with every OSHA requirement can be a formidable challenge for a small business. OSHA’s On-site Consultation Program provides free, confidential advice to small employers looking to create safe workplaces. On-site Consultation services are separate from enforcement and do not result in penalties or citations. In 2010, OSHA proposed changes potentially opening participants to enforcement actions. Advocacy’s November 2010 comment letter expressed concern that this would discourage participation in a highly effective program. In August 2013, OSHA withdrew the proposed rule, leaving this successful program intact.

While the savings due to this action have no precise price tag, the benefits are clear. One person commented on Advocacy’s blog, “Small businesses often lack the funding or resources to hire an outside consultant so this program is very beneficial. It is so important to remain within OSHA compliance and it is a relief to read that OSHA is keeping the wall of separation between the consultation and enforcement departments.”

A second important rule change came from the Internal Revenue Service. In January 2013, the IRS announced a simplified option for claiming the home-office deduction. Over half of America’s small businesses are based at home, and they have long been subject to a great deal of paperwork if they wanted to take the business use of their home as a deduction on their taxes. Advocacy pressed this issue for decades. Most recently, in a 2009 letter to the Presidential Economic Recovery Advisory Board’s Tax Reform Subcommittee, Advocacy submitted a proposal to simplify the home-office deduction. The IRS estimates that this change in the rule will reduce the paperwork burden on small businesses by 1.6 million hours annually, which Advocacy estimated as saving $32 million. In announcing the change, the IRS called it “common sense.”

A third regulatory success story concerns home mortgages. The Consumer Financial Protection Bureau (CFPB) was created in the wake of the 2008 financial crisis to guard against the practices that brought the U.S. financial system to the brink of collapse. Advocacy has been involved in several of the agency’s rulemakings on home mortgages. In January 2013, the CFPB finalized the Mortgage Servicing rule. In issuing the final rule, CFPB recognized that small mortgage servicers were not the cause of the problem the rule was meant to address. As such, the CFPB exempted 96 percent of small servicers from certain requirements in the final rule, resulting in savings of between $1 billion and $2.3 billion.

These three examples represent years of vigilance by Advocacy’s Office of Interagency Affairs. Thanks to the RFA, this dedicated effort continues on rules of great importance to small businesses. Advocacy’s FY 2014 efforts are in high gear. The RFA continues to be small businesses’ best defense in the rulemaking process.

Comments OffTags: Regulatory Policy · Research & Statistics

Forum Seeks to Transform Maryland’s Small Business Ecosystem (Rescheduled to February 28)

February 12th, 2014 · Comments Off

On February 28, the SBA Office of Advocacy is visiting the state of Maryland, for the Voice of Small Business Forum to meet and learn from the state’s small businesses about the current business environment they are working in. It is the Office of Advocacy’s goal to engage, listen, and document the “big ideas, barriers, and best practices” that can influence policies to ensure future small business success.

The event will be held on Friday, February 28, from 8:00am to 4:30pm at the University of Maryland Baltimore County Research Center, 1450 S Rolling Road, Baltimore, MD 21227.

The six sessions will include discussions on:

  • Clean Technology
    • Business products, services and processes related to reducing/eliminating negative ecological impacts and improving use of natural resources
  • New Economy
    • Using the internet as a medium to support online business plans and domestic and international e-commerce
  • Cyber Defense/IT
    • Business innovators focused on supporting systems and networks that help ensure organizations anticipate and withstand system attacks
  • BioScience
    • Businesses addressing and innovating solutions for the life science and  human health sectors
  • NexGen Entrepreneurs
    • Entrepreneurs and inventors younger than 35 who are establishing a presence in the small business arena
  • Women, Veteran, Minority and Small Business Government Contractors

To register to attend and find out more about the event, visit the Voice of Small Business Forum website.

Note: This event was rescheduled from an earlier date due to bad weather.

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High Tech and Viniculture on Display During Tour of New Hampshire Women-Owned Businesses

February 5th, 2014 · Comments Off

On January 10, a group of intrepid New Englanders braved the weather (including a major highway closure due to ice and accidents) to join U.S. Senator Jeanne Shaheen (D-N.H.) and Acting SBA Administrator Jeanne Hulit for a roundtable discussion and business tour outside Manchester, New Hampshire. The day focused on women-owned businesses. While business owners’ concerns were diverse and wide-ranging, a single common theme emerged—the very limited availability of microloans.

Following the roundtable, Regional Advocate Lynn Bromley joined Senator Shaheen, Acting Administrator Hulit, and other SBA officials for a tour of two small businesses owned by women.

First was LaBelle Winery, where the roundtable was held. Winery owner Amy Labelle was named New Hampshire’s 2013 Woman Owned Small Business of the year, and for good reason. She and her husband, cellarmaster Cesar Arboleda, have grown their business from an idea 10 years ago to today’s ambitious enterprise. The business now employs 45 people in a facility that includes a store, café, tasting room, and the large post-and-beam function hall where the roundtable took place.

Before moving to her new location, LaBelle was bottling 18,000 gallons a year. One year and 27 stainless steel tanks later, she is producing 30,000 gallons. And she hopes to expand further.

LaBelle spent $5.3 million dollars on the new winery, a sum she calls “terrifying.” She calls her effort to secure financing a “study in persistence.” She and her husband pitched their plans to five banks before successfully arranging financing.

The second stop on the tour was Ion Beam Milling, a precision manufacturer of high-tech thin film products. These include standard microwave circuits as well as custom products built for specific applications.

Gail Quagan and her husband Bob founded Ion Beam Milling in 1982. Gail (the businesswoman) and Bob (the scientist) grew their business from a small facility with one miller, one machine, and two employees to today’s larger, modern facility with 13 full-time employees. CEO Jim Barrett now runs the day-to-day operations, Bob remains the chief science officer, and Gail the CFO.

As we were packing up to go, Barrett put in a plug for another local woman-owned business. Jim’s wife, Claudia Barrett, is the founder of a home-based coffee roasting business, CQ Coffee Roasters. That business is in full swing too—and fast outgrowing its space.

Pictured: In the lab at Ion Beam Milling, one of the company’s technicians explains their manufacturing process to the tour group. The group includes (from left) Ion Beam CEO Jim Barrett, Region I Administrator Seth Goodall, Sen. Jeanne Shaheen, Region I Advocate Lynn Bromley, and Acting SBA Administrator Jeanne Hulit.

Pictured: In the lab at Ion Beam Milling, one of the company’s technicians explains their manufacturing process to the tour group. The group includes (from left) Ion Beam CEO Jim Barrett, Region I Administrator Seth Goodall, Sen. Jeanne Shaheen, Region I Advocate Lynn Bromley, and Acting SBA Administrator Jeanne Hulit.

—Lynn Bromley, Region I Advocate

Lynn Bromley is Office of Advocacy’s regional advocate for Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island, and Vermont. You can reach her at lynn.bromley@sba.gov.

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Advocacy Asks SEC to Add Essential Small Business Analysis to Crowdfunding Proposal

January 22nd, 2014 · Comments Off

On January 16, the Office of Advocacy filed a public comment letter with the Securities and Exchange Commission (SEC) regarding the agency’s proposed rule on crowdfunding. The proposed rule provides the framework for the practice of crowdfunding, a method of financing by which small businesses and startups may offer stocks to a wide variety of investors online through funding portals and broker dealers.

Advocacy based its comment letter on feedback from small businesses. Specifically, Advocacy hosted small business roundtables in New York City (December 16, 2013) and Washington, D.C., (January 15, 2014) to gather input from small business representatives about the proposed rule. Advocacy also hosted several conference calls on this issue.

Assistant Chief Counsel Dillon Taylor facilitates a discussion of small business concerns with the SEC’s crowdfunding proposal at the New York City roundtable in December.

Pictured: Assistant Chief Counsel Dillon Taylor facilitates a discussion of small business concerns with the SEC’s crowdfunding proposal at the New York City roundtable in December.

Based on small business stakeholders’ feedback, Advocacy’s comment letter expresses concern that the initial regulatory flexibility analysis (IRFA) contained in the proposed rule lacks essential information required under the Regulatory Flexibility Act (RFA). Advocacy’s comment letter notes that the IRFA does not adequately describe the costs of the proposed rule for small entities. In addition, the IRFA fails to offer significant alternatives which accomplish the SEC’s stated objectives and minimize the proposal’s significant economic impact on small entities.

Advocacy recommended that the SEC republish a supplemental IRFA for public comment before proceeding with the rulemaking and that the agency consider small business representatives’ suggested alternatives to minimize the proposed rule’s potential impact.

Dillon Taylor, Assistant Chief Counsel

 

Pictured: Advocacy held a second roundtable in Washington, D.C., on January 15. Addressing the group is Samuel S. Guzik, a California-based securities attorney. Guzik provided a small business perspective on the SEC proposed rule.

Pictured: Advocacy held a second roundtable in Washington, D.C., on January 15. Addressing the group is Samuel S. Guzik, a California-based securities attorney. Guzik provided a small business perspective on the SEC proposed rule.

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Positive Small Business Indicators in 2013 and the Challenge Ahead

January 7th, 2014 · 3 Comments

The Year in Review: Implications for Small Businesses

Two important economic indicators released late in 2013—employment and interest rates—give us some optimism about small business and economic growth trends. Both of these indicators are key to consumer spending, which drives two-thirds of our nation’s economic activity.

At 7 percent, the unemployment rate in November 2013 was at its lowest level since 2008. Small businesses are responsible for 63 percent or 4.3 million of the 6.9 million jobs created since the recovery began. Interest rates rose slightly during the year but remain at historical lows. This has benefited the interest-sensitive construction and automobile industries, which had suffered sharp downturns following the Great Recession. In November 2013, building construction employment reversed its downturn and increased 3.3 percent over the prior year; 85 percent of these jobs are in small businesses. While automakers are typically large businesses, 74 percent of jobs in motor vehicle and parts are found in small businesses; these have benefited from 5.4 percent employment growth in this sector.

In addition to these promising trends, lower interest rates and dwindling inventories have led to double-digit increases in home prices in major metropolitan areas. The S&P/Case-Shiller Index of property prices in 20 cities climbed 13.6 percent from October 2012, the biggest 12-month gain since February 2006. Home equity is an important source of capital for small business, so improvement in home prices and home equity should boost access to capital. 

[Read more →]

→ 3 CommentsTags: Research & Statistics

Advocacy Testimony: Small Business Needs Improved Guidance on Reverse Auctions

December 20th, 2013 · Comments Off

Capitol dome detail

Every year, the federal government spends hundreds of billions of dollars on products and services across the country, making it the largest goods purchaser in the United States. Although this is a great opportunity for small businesses, it is often times an unrealized one. Small businesses create 60 percent of the net new jobs in this country and employ half of the private-sector workforce. So if America provided more federal contracts to small businesses, it would grow the economy of the United States. The federal government is already working to encourage small business participation in the procurement sector.

For example, a new GSA program by the federal government will hopefully increase the availability of government contracts to small businesses. The reverse auction program puts a request of goods and services online and gives businesses the opportunity to bid on providing the goods and services. Through the auction process, federal agencies award contracts to the lowest bidder while increasing the savings to the American taxpayer.

Although the intention of the program is good, the results have had mixed reviews. Many believe it works for the purchase of goods or simple services. However, when entering into more complex agreements and services, some believe the program is flawed.

Last week, the Office of Advocacy’s Assistant Chief Counsel Major Clark testified on the subject during a joint hearing of two subcommittees, the House Small Business Subcommittee on Contracting and Workforce and the Veterans’ Affairs Committee’s Subcommittee on Oversight and Investigations. In his testimony, Clark stated that the Office of Advocacy is not in opposition to reverse auctions in the federal marketplace; however, the office is committed to making sure that small business stakeholders have full opportunity to participate.

Moving forward, Advocacy believes we can continue to encourage participation by small businesses in the federal procurement process. For this particular program, Advocacy believes it is necessary that the Office of Federal Procurement Policy give clear guidance for reverse auctions to small businesses. Once small businesses are able to fully understand how reverse auctions will be carried out, small businesses will be able to not only participate, but also, gain these lucrative contracts.

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Advocacy Legal, Economic Staff Visit Small Municipal Landfill

December 12th, 2013 · Comments Off

The Environmental Protection Agency is in the process of revising the standards for municipal solid waste landfills required by the Clean Air Act. As a first step, EPA is conducting a Small Business Advocacy Review panel. This activity brings together the key rulemaking agencies and small business representatives of the industry that the rules will apply to. The panel lets the various parties discuss the approach to achieving air pollution reductions.

The topic of the panel, New Source Performance Standards (NSPS) for Municipal Solid Waste (MSW) Landfills, deals with the emissions of landfill gases, the result of biological materials decaying in landfills.  These gases are mostly carbon dioxide and methane, but EPA regulates them because of the small amount of other organic chemicals also released that can endanger public health.

Staff from Advocacy, EPA and the Office of Management and Budget have met twice with small entity representatives (SERs) to discuss the major issues. After participating in these discussions, Advocacy staff wanted to get a better understanding of the issues facing small municipalities and small businesses owning or operating landfills.

At the invitation of one of the SERs, four Advocacy staffers visited two landfills on the Delmarva Peninsula. (Delmarva is the three-state landmass between the Chesapeake Bay and the Atlantic Ocean shared by Delaware, Maryland, and Virginia.)

The first landfill (pictured below) was a small and relatively new one located in Caroline County, Maryland. The operators were just installing the first set of landfill gas controls on its first “cell.” (A cell is a section of the landfill.  Each landfill will have several cells, but will accept solid waste on only one cell at a time,  building up the cell over a hundred feet before moving to the next cell.)  The system of controls requires digging a trench into the compacted trash and laying perforated pipe to collect and move the landfill gases  to well heads set in the side of the pile.  From the well heads, landfill gas can be flared or, if there is enough volume,  burned to generate electricity.

Pictured: In November, four Advocacy staffers got a firsthand account of how landfill operators comply with Clean Air Act requirements. Making the trip were Director of Interagency Affairs Charles Maresca, Assistant Chief Counsel David Rostker, and Economists Christine Kymn and Jonathan Porat. They are standing alongside perforated pipes whichare buried in trenches to collect landfill gases  and direct them to well heads.

Pictured: In November, four Advocacy staffers got a firsthand account of how landfill operators comply with Clean Air Act requirements. Making the trip were Director of Interagency Affairs Charles Maresca, Assistant Chief Counsel David Rostker, and Economists Christine Kymn and Jonathan Porat. They are standing alongside perforated pipes which are buried in trenches to collect landfill gases and direct them to well heads.

 

The second landfill was a much larger and older facility; it had both open and closed cells with active control and energy recovery systems.  The engineers at both sites were extremely generous with their time, patiently explaining the basics of landfill management and the complexities of dealing with EPA regulations.

Advocacy staff find that site visits like these are invaluable to understanding the issues small entities face in regulatory compliance and help Advocacy present the small entity view to regulating agencies.

—David Rostker, Assistant Chief Counsel

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Conference Examines Changing Environment in Government and Its Impact on Minority Suppliers

November 25th, 2013 · Comments Off

In October, I participated on a panel at the national conference of the National Minority Supplier Development Council in San Antonio, Texas. The two-hour panel examined the changing environment in government and its impact on minority suppliers.

The Council promotes business opportunities for its 16,000 certified minority-owned businesses (mostly small), and connects them to its 3,500 corporate members. These include most of America’s largest companies, plus universities and other buying institutions. The importance of the minority business sector to overall health of the American economy should not be overlooked. Data shows that minority-owned firms are increasing in actual numbers and the amount of gross receipts. They are also creating jobs at a faster pace than non-minority businesses in a wide range of industries including professional, scientific and technical services, health care and social assistance, and construction. As these firms grow and build capacity the positive economic effects will be seen not only in minority communities but the country as a whole.

Other individuals on the panel included:

  • Gloria Pualan, director of Small Business Liaison/Socio-Economic Business Programs, Northrup Grumman;
  • Janice Williams-Hopkins, purchasing & supply management specialist for the U.S. Postal Service; and
  • David Hinson, national director of the Minority Business Development Agency at the U.S. Department of Commerce

While each speaker discussed their individual programs, the main takeaways from the panel included:

  • Government remains the largest purchaser of goods and services in the world. It has goals for doing business with small disadvantaged businesses. These goals should help increase opportunities for small and minority-owned businesses.
  • Prime contractors seem to be increasingly willing to examine unique partnering opportunities with minority businesses to work on government contracts.
  • The amount of help for small minority-owned businesses and subcontractors is growing. This is happening through the growth of mentor-protégée programs sponsored by government and corporations or prime contractors, as well as via other MBDA and SBA programs.

There was great information provided to attendees about the benefits of the federal government both as a customer and a resource to build their businesses. The Office of Advocacy is one of these resources. As the independent voice for small business within the federal government, we help small businesses by reviewing regulations before they become final and by performing and promoting economic research on small business and the economy. In addition, Advocacy’s Innovation Initiative is a project where we seek input from the innovation ecosystem on the challenges in starting and growing innovation businesses as well as solutions to these challenges.

I was glad for the opportunity to reach out to a traditionally underserved, yet growing, business sector.

Mark Harrison, Entrepreneur-in-Residence

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Preliminary Framework to Protect Critical Infrastructure from Cyberattack Introduced

October 25th, 2013 · 1 Comment

Online attacks on the nation’s critical infrastructure are one of the most serious challenges to U.S. national security. Power generation, transportation and telecommunications are the backbone of U.S. critical infrastructure, and these sophisticated systems rely on information technology, which makes them susceptible to online attacks.

In February 2013, President Obama issued Executive Order 13636—Improving Critical Infrastructure Cybersecurity, outlining steps to reduce the risk of cyberattack on power, transportation, and telecom networks.

On October 22, the U.S. Department of Commerce’s National Institute of Standards and Technology (NIST) released its Preliminary Cybersecurity Framework. The framework is the first step in helping critical infrastructure owners and operators reduce the risk of cyberattack. It outlines a set of steps that can be customized to various sectors and adapted by both large and small organizations while providing a consistent approach to cybersecurity. It also helps identify and prioritize opportunities for improvement within the context of risk management and to assess progress toward cybersecurity goals.

Framework Core Structure

Pictured: The framework core structure outlines the approach to assessing threats. From “Preliminary Cybersecurity Framework,” page 5.

In the near future, NIST will provide an opportunity for the public to submit comments on the framework. The Office of Advocacy will issue a Regulatory Alert when the public comment period opens. NIST plans to release the official framework in February 2014, as called for in the executive order.

Additional information about the preliminary framework is available on NIST’s website. For more information, call or email Assistant Chief Counsel Major Clark, (202) 205-7150.

—Assistant Chief Counsel Major Clark III

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