SECTION 1. ALLOCATION TO SOURCES WITHIN THE UNITED
STATES OF INTEREST EXPENSE ON INDEBT-
EDNESS FINANCING RATE-REGULATED ELEC-
TRIC ENERGY OR NATURAL GAS INFRA-
STRUCTURE 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 para-
graphs (6) and (7) as paragraphs (7) and (8), respectively,
and by inserting after paragraph (5) the following new
paragraph:
‘‘(6) TREATMENT OF CERTAIN INTEREST EX-
PENSE RELATING TO QUALIFIED INFRASTRUCTURE
INDEBTEDNESS.—
‘‘(A) IN GENERAL.—Interest on any quali-
fied infrastructure indebtedness shall be allo-
cated and apportioned solely to sources within
the United States, and such indebtedness shall
not be taken into account in allocating and ap-
portioning other interest expense.
‘‘(B) QUALIFIED
INFRASTRUCTURE
IN-
DEBTEDNESS.—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 other-
wise 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 sub-
paragraph (B)(i) in a trade or business is
rate regulated, the term ‘qualified infra-
structure indebtedness’ shall not include
nonqualified indebtedness.
‘‘(ii) 
NONQUALIFIED
INDEBTED-
NESS.—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 in-
debtedness 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, fur-
nishing 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 mar-
ket value for all assets. Such an election,
once made, shall be irrevocable.
‘‘(v) TIME FOR MAKING DETERMINA-
TION.—The determination of whether in-
debtedness is qualified infrastructure in-
debtedness 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 sepa-
rately 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 in-
debtedness outstanding as of the date of enactment
of this Act, the determination of whether such in-
debtedness constitutes qualified infrastructure in-
debtedness 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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