S 1226 IS

To amend the Internal Revenue Code of 1986 to provide that interest on indebtedness used to finance the furnishing or sale of rate-regulated electric energy or natural gas in the United States shall be allocated solely to sources within the United States.

June 16, 1999

Mr. MACK introduced the following bill; which was read twice and referred to the Committee on Finance

To amend the Internal Revenue Code of 1986 to provide that interest on indebtedness used to finance the furnishing or sale of rate-regulated electric energy or natural gas in the United States shall be allocated solely to sources within the United States.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

SECTION 1. ALLOCATION TO SOURCES WITHIN THE UNITED STATES OF INTEREST EXPENSE ON INDEBTEDNESS FINANCING RATE-REGULATED ELECTRIC ENERGY OR NATURAL GAS INFRASTRUCTURE INVESTMENTS.

(a) IN GENERAL- Subsection (e) of section 864 of the Internal Revenue Code of 1986 (relating to rules for allocating interest, etc.) is amended by redesignating paragraphs (6) and (7) as paragraphs (7) and (8), respectively, and by inserting after paragraph (5) the following new paragraph:

`(6) TREATMENT OF CERTAIN INTEREST EXPENSE RELATING TO QUALIFIED INFRASTRUCTURE INDEBTEDNESS-

`(A) IN GENERAL- Interest on any qualified infrastructure indebtedness shall be allocated and apportioned solely to sources within the United States, and such indebtedness shall not be taken into account in allocating and apportioning other interest expense.

`(B) QUALIFIED INFRASTRUCTURE INDEBTEDNESS- For purposes of this paragraph, the term `qualified infrastructure indebtedness' means any indebtedness incurred--

`(i) to carry on the trade or business of the furnishing or sale of electric energy or natural gas in the United States, or

`(ii) to acquire, construct, or otherwise finance property used predominantly in such trade or business.

`(C) RATE REGULATION-

`(i) IN GENERAL- If only a portion of the furnishing or sale referred to in subparagraph (B)(i) in a trade or business is rate regulated, the term `qualified infrastructure indebtedness' shall not include nonqualified indebtedness.

`(ii) NONQUALIFIED INDEBTEDNESS- For purposes of clause (i), the term `nonqualified indebtedness' means so much of the indebtedness which would (but for clause (i)) be qualified infrastructure indebtedness as exceeds the amount which bears the same ratio to the aggregate indebtedness of the taxpayer as the value of the assets used in the furnishing or sale referred to in subparagraph (B)(i) which is rate-regulated bears to the value of the total assets of the taxpayer.

`(iii) RATE-REGULATED DEFINED- For purposes of this subparagraph, furnishing or sale is rate-regulated if the rates for the furnishing or sale, as the case may be, have been established or approved by a State or political subdivision thereof, by an agency or instrumentality of the United States, or by a public service or public utility commission or other similar body of the District of Columbia or of any State or political subdivision thereof.

`(iv) ASSET VALUES- For purposes of clause (ii), assets shall be treated as having a value equal to their adjusted bases (within the meaning of section 1016) unless the taxpayer elects to use fair market value for all assets. Such an election, once made, shall be irrevocable.

`(v) TIME FOR MAKING DETERMINATION- The determination of whether indebtedness is qualified infrastructure indebtedness or nonqualified indebtedness shall be made at the time the indebtedness is incurred.

`(vi) SEPARATE APPLICATION TO ELECTRIC ENERGY AND NATURAL GAS- This subparagraph shall be applied separately to electric energy and natural gas.'

(b) EFFECTIVE DATE-

(1) IN GENERAL- The amendment made by this section shall apply to indebtedness incurred in taxable years beginning after the date of enactment of this Act.

(2) OUTSTANDING DEBT- In the case of indebtedness outstanding as of the date of enactment of this Act, the determination of whether such indebtedness constitutes qualified infrastructure indebtedness shall be made by applying the rules of subparagraphs (B) and (C) of section 864(e)(6) of the Internal Revenue Code of 1986, as added by this section, on the date such indebtedness was incurred.

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