PROJECT UPDATE

EITF 21-A, Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method

Last updated on December 6, 2022. Please refer to the Current Technical Plan for information about the expected release dates of exposure documents and final standards.

(Sections updated on the date above are indicated with an asterisk *)

 

Project Objective:

The objective of this project is to consider whether the proportional amortization method of accounting should be expanded to investments in tax credit structures beyond low-income housing tax credit (LIHTC) investments.
 

Background:

The FASB previously ratified a consensus of the EITF that resulted in the issuance of Accounting Standards Update No. 2014-01, Investments—Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Qualified Affordable Housing Projects, which provided five criteria that an investment in a tax credit structure must meet to be able to apply the proportional amortization method of accounting. Currently, only investments in LIHTC structures may apply the proportional amortization method.
 
The proportional amortization method results in the tax credit investment being amortized in proportion to the allocation of tax credits in each period, and also allows the investment amortization and tax credits to be presented on a net basis within the income tax line item. Investments in other tax credit structures are typically accounted for using the equity method or cost method. Under the equity and cost methods, investment gains/losses and tax credits are presented on a gross basis on an entity’s income statement.
 
The Board received two agenda requests asking that the proportional amortization method be made applicable to investments in New Market Tax Credit structures as well as other investment structures that are made primarily for the purpose of receiving tax credits and other tax benefits.
 
On September 22, 2021, the Board decided to add a project to the Emerging Issues Task Force agenda to consider whether the proportional amortization method should be expanded to investments in tax credits beyond LIHTC investments. The current scope of the Issue is to evaluate whether the criteria in paragraph 323-740-25-1 that permit LIHTC investments to be accounted for using the proportional amortization method are operable for investments in tax credit structures other than LIHTC structures.

Exposure Draft(s):

On August 22, 2022, the Board issued proposed Accounting Standards Update—Investments—Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method (a consensus of the Emerging Issues Task Force). The due date for comment letters is October 6, 2022.

  • Download the proposed Accounting Standards Update

There are no media releases or educational materials at this time.

Decisions Reached at Last Meeting:

The Task Force reached a final consensus consisting of the following decisions:

  1. To affirm the Task Force’s consensus-for-exposure reached at the June 16, 2022 EITF meeting, which included the following issues:
    1. The proportional amortization method should be elected by entities on a tax-credit-program-by-tax-credit-program basis.
    2. The criteria in paragraph 323-740-25-1(a), (b), and (c) should be retained with no additional clarification to those criteria (other than conforming edits).
    3. The criterion in paragraph 323-740-25-1(aa) should be retained with a clarification that the criterion would be evaluated in relation to the operating and financial policies of the underlying project.
    4. When applying the criterion in paragraph 323-740-25-1(aaa), the existence of refundable tax credits does not automatically preclude an investor from applying the proportional amortization method. Clarification to this criterion would also include that:
      1. Projected benefits refer to total return, including tax credits, other tax benefits, and non-tax-related cash flows (including refundable tax credits). Additionally, the Task Force clarified that refundable tax credits should be included in the denominator but not in the numerator when performing the substantially all test.
      2. “Substantially all” should be determined using discounted amounts, and the discount rate to be used should be consistent with the cash flow assumptions used by the investor in making the investment decision.
    5. The existing reassessment requirement in paragraph 323-740-25-1C should be retained with no additional clarifications. That is, entities would reassess whether a tax credit investment meets the proportional amortization method criteria only upon a change in the nature of the investment or a change in the relationship with the project sponsor.
    6. Entities should apply the flow-through method to tax equity investments that qualify for and are accounted for using the proportional amortization method.
  2. To remove the cost method in Subtopic 323-740.
  3. To remove the equity method example in Example 1 in Subtopic 323-740.
  4. To require that the delayed equity contribution guidance be applied to all investments that qualify for and are accounted for using the proportional amortization method.
  5. To affirm the Task Force’s consensus-for-exposure that an entity may apply the modified retrospective approach or the retrospective approach upon transition.
  6. To allow the amendments to the cost method, equity method example, and delayed equity contributions in Subtopic 323-740 to be applied using either (a) the entity’s general transition method or (b) a prospective transition method.
  7. To affirm the Task Force’s consensus-for-exposure on disclosures that would retain the disclosure objective and require certain disclosures for all investments in tax credit programs for which an entity has elected to use the proportional amortization method, regardless of whether the specific investment meets the criteria to apply the proportional amortization method.
  8. To require adoption for public business entities for fiscal years beginning after December 15, 2023, including interim periods in those fiscal years.
  9. To require adoption for other-than-public entities for fiscal years beginning after December 15, 2024, including interim periods in those fiscal years.
  10. To permit early adoption for all entities, including early adoption in any interim period after the issuance of a final Update as of the beginning of the fiscal year that includes that interim period.

Tentative Board Decisions:


See Proposed Update.

The Board meeting minutes, handouts, and videos are provided for the information and convenience of constituents who want to follow the Board’s deliberations. All of the conclusions reported are tentative and may be changed at future Board meetings. Decisions become final only after a formal written ballot to issue a final standard.

The following are links to the minutes for each meeting.  To view Board meetings and handouts from the past 90 days, click here.
 
December 1, 2022* EITF Meeting—The Task Force discussed feedback received on the proposed Accounting Standards Update and affirmed its consensus-for-exposure as a final consensus.
July 13, 2022 Board Meeting—The Board ratified the consensus-for-exposure on EITF 21-A reached by the EITF at its June 16, 2022 meeting.
June 16, 2022 EITF Meeting—The Task Force reached a consensus-for-exposure on Issue 21-A.
March 24, 2022 EITF Meeting—The Task Force held a decision-making meeting to discuss the Issue. The Task Force reached tentative conclusions on several matters and will continue discussions on the Issue at a future EITF meeting.
November 11, 2021 EITF Meeting—The Task Force held an educational meeting to discuss the Issue and areas of additional research and stakeholder outreach. 
September 22, 2021 Board Meeting—The Board decided to add the project to the Emerging Issue Task Force agenda.

The Board meeting to consider ratification of the final consensus on Issue 21-A is tentatively scheduled for January 2023.

Jeff Gabello
Supervising Project Manager
jjgabello@fasb.org

Ashley Tisckos
Project Manager
atisckos@fasb.org

Matthew Shea
Postgraduate Technical Assistant
mshea@fasb.org

Natalie Vaughan
Postgraduate Technical Assistant
nvaughan@fasb.org

The staff has prepared this summary for information purposes only. Any Board decisions are tentative and do not change current accounting. Official positions of the FASB are determined only after extensive due process and deliberations.
 

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