II

106TH CONGRESS

1ST SESSION S. 1226

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.

IN THE SENATE OF THE UNITED STATES

JUNE 16, 1999

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

the Committee on Finance

A BILL

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.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,
2

•S 1226 IS

1 SECTION 1. ALLOCATION TO SOURCES WITHIN THE UNITED

2 STATES OF INTEREST EXPENSE ON INDEBT3 EDNESS FINANCING RATE-REGULATED ELEC4 TRIC ENERGY OR NATURAL GAS INFRA5 STRUCTURE INVESTMENTS.

6 (a) IN GENERAL.—Subsection (e) of section 864 of

7 the Internal Revenue Code of 1986 (relating to rules for

8 allocating interest, etc.) is amended by redesignating para9 graphs (6) and (7) as paragraphs (7) and (8), respectively,

10 and by inserting after paragraph (5) the following new

11 paragraph:

12 ‘‘(6) TREATMENT OF CERTAIN INTEREST EX13 PENSE RELATING TO QUALIFIED INFRASTRUCTURE

14 INDEBTEDNESS.—

15 ‘‘(A) IN GENERAL.—Interest on any quali16 fied infrastructure indebtedness shall be allo17 cated and apportioned solely to sources within

18 the United States, and such indebtedness shall

19 not be taken into account in allocating and ap20 portioning other interest expense.

21 ‘‘(B) QUALIFIED INFRASTRUCTURE IN22 DEBTEDNESS.—For purposes of this paragraph,

23 the term ‘qualified infrastructure indebtedness’

24 means any indebtedness incurred—
3

•S 1226 IS

1 ‘‘(i) to carry on the trade or business

2 of the furnishing or sale of electric energy

3 or natural gas in the United States, or

4 ‘‘(ii) to acquire, construct, or other5 wise finance property used predominantly

6 in such trade or business.

7 ‘‘(C) RATE REGULATION.—

8 ‘‘(i) IN GENERAL.—If only a portion

9 of the furnishing or sale referred to in sub10 paragraph (B)(i) in a trade or business is

11 rate regulated, the term ‘qualified infra12 structure indebtedness’ shall not include

13 nonqualified indebtedness.

14 ‘‘(ii) NONQUALIFIED INDEBTED15 NESS.—For purposes of clause (i), the

16 term ‘nonqualified indebtedness’ means so

17 much of the indebtedness which would (but

18 for clause (i)) be qualified infrastructure

19 indebtedness as exceeds the amount which

20 bears the same ratio to the aggregate in21 debtedness of the taxpayer as the value of

22 the assets used in the furnishing or sale

23 referred to in subparagraph (B)(i) which is

24 rate-regulated bears to the value of the

25 total assets of the taxpayer.
4

•S 1226 IS

1 ‘‘(iii) RATE-REGULATED DEFINED.—

2 For purposes of this subparagraph, fur3 nishing or sale is rate-regulated if the

4 rates for the furnishing or sale, as the case

5 may be, have been established or approved

6 by a State or political subdivision thereof,

7 by an agency or instrumentality of the

8 United States, or by a public service or

9 public utility commission or other similar

10 body of the District of Columbia or of any

11 State or political subdivision thereof.

12 ‘‘(iv) ASSET VALUES.—For purposes

13 of clause (ii), assets shall be treated as

14 having a value equal to their adjusted

15 bases (within the meaning of section 1016)

16 unless the taxpayer elects to use fair mar17 ket value for all assets. Such an election,

18 once made, shall be irrevocable.

19 ‘‘(v) TIME FOR MAKING DETERMINA20 TION.—The determination of whether in21 debtedness is qualified infrastructure in22 debtedness or nonqualified indebtedness

23 shall be made at the time the indebtedness

24 is incurred.
5

•S 1226 IS

1 ‘‘(vi) SEPARATE APPLICATION TO

2 ELECTRIC ENERGY AND NATURAL GAS.—

3 This subparagraph shall be applied sepa4 rately to electric energy and natural gas.’’

5 (b) EFFECTIVE DATE.—

6 (1) IN GENERAL.—The amendment made by

7 this section shall apply to indebtedness incurred in

8 taxable years beginning after the date of enactment

9 of this Act.

10 (2) OUTSTANDING DEBT.—In the case of in11 debtedness outstanding as of the date of enactment

12 of this Act, the determination of whether such in13 debtedness constitutes qualified infrastructure in14 debtedness shall be made by applying the rules of

15 subparagraphs (B) and (C) of section 864(e)(6) of

16 the Internal Revenue Code of 1986, as added by this

17 section, on the date such indebtedness was incurred.

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