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<PRE>[DOCID: f:s726is.txt]






107th CONGRESS
  1st Session
                                 S. 726

To amend the Internal Revenue Code of 1986 to provide for the treatment 
                    of prepayments for natural gas.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                             April 6, 2001

  Mr. Breaux (for himself, Mr. Thompson, Mr. Miller, Mr. Cleland, Ms. 
   Landrieu, Mr. Shelby, Mr. Bunning, and Mr. Frist) 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 for the treatment 
                    of prepayments for natural gas.

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

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Municipal Utility Natural Gas Supply 
Act of 2001''.

SEC. 2. ARBITRAGE RULES NOT TO APPLY TO PREPAYMENTS FOR NATURAL GAS.

    (a) In General.--Subsection (b) of section 148 of the Internal 
Revenue Code of 1986 (defining higher yielding investments) is amended 
by adding at the end the following new paragraph:
            ``(4) Exception for certain prepayments to ensure natural 
        gas supply.--The term `investment property' shall not include 
        any prepayment for the purpose of obtaining a supply of natural 
        gas reasonably expected to be used in a business of 1 or more 
        utilities each of which is owned and operated by a State or 
        local government, any political subdivision or instrumentality 
        thereof, or any governmental unit acting for or on behalf of 
        such a utility.''.
    (b) Effective Date.--The amendment made by this section shall take 
effect as if included in the amendments made by section 1301 of the Tax 
Reform Act of 1986.

SEC. 3. PRIVATE LOAN FINANCING TEST NOT TO APPLY TO PREPAYMENTS FOR 
              NATURAL GAS.

    (a) In General.--Paragraph (2) of section 141(c) of the Internal 
Revenue Code of 1986 (relating to exception for tax assessment, etc., 
loans) is amended by striking ``or'' at the end of subparagraph (A), by 
striking the period at the end of subparagraph (B) and inserting ``, 
or'', and by adding at the end the following new subparagraph:
                    ``(C) arises from a transaction described in 
                section 148(b)(4).''.
    (b) Effective Date.--The amendments made by this section shall take 
effect as if included in the amendments made by section 1301 of the Tax 
Reform Act of 1986.
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