FASB Updates Accounting for Tax Credit Investments
The Financial Accounting Standards Board (FASB) recently issued an Accounting Standards Update (ASU) intended to improve the accounting and disclosures for investments in tax credit structures. The new ASU is a consensus of the FASB’s Emerging Issues Task Force (EITF).
The ASU allows reporting entities to elect to account for qualifying tax equity investments using the proportional amortization method, regardless of the program giving rise to the related income tax credits. The ASU responds to stakeholder feedback that the proportional amortization method provides investors and other allocators of capital with a better understanding of the returns from investments that are made primarily for the purpose of receiving income tax credits and other income tax benefits.
Reporting entities were previously permitted to apply the proportional amortization method only to qualifying tax equity investments in low-income housing tax credit (LIHTC) structures. In recent years, stakeholders asked the FASB to extend the application of the proportional amortization method to qualifying tax equity investments that generate tax credits through other programs, which resulted in the EITF addressing this issue.