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.

Summary: Amends Internal Revenue Code provisions relating to rules for allocating interest to provide, in general, that 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.  Defines the term "qualified infrastructure indebtedness" to mean any indebtedness incurred to carry on the trade or business of the furnishing or sale of electric energy or natural gas in the United States, or to acquire, construct, or otherwise finance property used predominantly in such trade or business.

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.