June 16, 2022
The Emerging Issues Task Force (EITF) met on June 16, 2022, and deliberated the following topic:
Issue No. 21-A, “Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method.” The Task Force reached a consensus-for-exposure to expand the proportional amortization method of accounting to all tax credit investments that meet the criteria in paragraph 323-740-25-1. The Task Force reached a consensus-for-exposure that:
- The proportional amortization method can be elected on a tax-credit-program-by-tax-credit-program basis.
- The criteria in paragraph 323-740-25-1(a), (b), and (c) should be retained with no additional clarification to those criteria.
- 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 operations of the underlying project.
- 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. Additionally, clarification to this criterion would include that:
- Projected benefits refers to total return, including tax credits, other tax benefits, and non-tax-related cash flows, including refundable tax credits. Refundable tax credits should be included in the denominator but not in the numerator when performing the substantially all test.
- Substantially all should be determined using discounted amounts. The discount rate to be used should be consistent with the cash flow assumptions used by the investor in making the investment decision.
- The existing reassessment requirement 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.
- Entities should apply the flow-through method to tax equity investments that qualify for and are accounted for using the proportional amortization method.
The Board will consider for ratification the consensus-for-exposure on Issue 21-A on July 13, 2022. The next EITF meeting is tentatively scheduled for September 15, 2022. For more information on the EITF, including updates on the next EITF meeting date, please visit the FASB website.
EITF Meeting Recaps are provided for those interested in following the activities of the EITF. More details on the EITF’s projects can be found within the meeting minutes, which will be published on the FASB website in the coming weeks.