A bill to amend the Internal Revenue Code of 1986 to provide a special rule regarding allocation of interest expense of qualified infrastructure indebtedness of taxpayers.

Summary: Amends Internal Revenue Code provisions concerning the allocation of interest to provide as a general rule that interest expense attributable to qualified infrastructure indebtedness of a taxpayer shall be allocated and apportioned solely to sources within the United States and the taxpayer's assets (whether or not held in the United States) shall be reduced by the amount of qualified infrastructure indebtedness.

SECTION 1. TREATMENT OF INTEREST EXPENSE OF QUALIFIED INFRASTRUCTURE 
              INDEBTEDNESS.

    (a) In General.--Section 864(e) 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 inserting after paragraph (5) the following new 
paragraph:
            ``(6) Treatment of certain interest expense relating to 
        qualified infrastructure indebtedness.--
                    ``(A) In general.--Interest expense attributable to 
                qualified infrastructure indebtedness of a taxpayer 
                shall be allocated and apportioned solely to sources 
                within the United States and the taxpayer's assets 
                (whether or not held in the United States) shall be 
                reduced by the amount of qualified infrastructure 
                indebtedness.
                    ``(B) Qualified infrastructure indebtedness.--
                            ``(i) In general.--For purposes of this 
                        paragraph, the term `qualified infrastructure 
                        indebtedness' means debt incurred to carry on, 
                        or to acquire, build, or finance property used 
                        predominantly in, the trade or business of the 
                        furnishing or sale of electrical energy or 
                        natural gas in the United States. The 
                        determination of whether debt constitutes 
                        qualified infrastructure indebtedness under the 
                        previous sentence shall be made at the time the 
                        debt is incurred.
                            ``(ii) Required rate regulation.--The rates 
                        for the furnishing or sale of electrical energy 
                        or natural gas by a trade or business under 
                        clause (i) must be established or approved by--
                                    ``(I) the District of Columbia or a 
                                State or political subdivision thereof,
                                    ``(II) any agency or 
                                instrumentality of the United States, 
                                or
                                    ``(III) a public service or public 
                                utility commission or other similar 
                                body of the District of Columbia or of 
                                any State or political subdivision 
                                thereof.
                            ``(iii) Limitation.--If the rate regulation 
                        under clause (ii) applies only to a portion of 
                        the trade or business of the furnishing or sale 
                        of electrical energy or natural gas, the debt 
                        incurred to carry on, or to acquire, build, or 
                        finance property used in, such trade or 
                        business shall constitute qualified 
                        infrastructure indebtedness only to the extent 
                        that the ratio of the total outstanding 
                        qualified infrastructure indebtedness with 
                        respect to such trade or business (including 
                        such debt) to the total outstanding 
                        indebtedness with respect to such trade or 
                        business does not exceed the ratio of the 
                        assets used in the portion of the trade or 
                        business that is subject to such rate 
                        regulation to the total assets used in such 
                        trade or business. For purposes of the 
                        determination under the preceding sentence, 
                        assets shall be measured using book value for 
                        taxation purposes unless the taxpayer makes an 
                        election to use fair market value. Such 
                        election shall apply to the taxable year for 
                        which the election is made and all subsequent 
                        taxable years unless revoked with the consent 
                        of the Secretary.''
    (b) Effective Date.--
            (1) In general.--The amendments made by this section shall 
        apply to debt incurred in taxable years beginning after the 
        date of enactment of this Act.
            (2) Outstanding debt.--In the case of debt outstanding as 
        of the date of enactment of this Act, the determination of 
        whether such debt constitutes ``qualified infrastructure 
        indebtedness'' shall be made by applying the rules of section 
        864(e)(6)(B) of the Internal Revenue Code of 1986, as added by 
        this section, on the date such debt was incurred.