The Financial Accounting Standards Board (FASB) formally issued its plan to update standards used to account for tax credits in a move that would expand the proportional amortization method of accounting beyond low-income housing tax credit (LIHTC) investments to other tax credit structures.
FASB will take comments on the change until Oct. 6 from tax-preparers, companies and other stakeholders.
- The start of the open comment period marks another step forward for the standards update. It comes after FASB’s new issues task force signaled its support in June for applying the LIHTC accounting method to other investments such as Renewable Energy Tax Credits, New Markets Tax Credits, and Historic Rehabilitation Tax Credits.
The current standard that gave the option for applying the proportional amortization method to low-income housing tax credits was introduced by FASB in 2014.
Investments in other tax credit structures are typically accounted for using the equity or cost methods under which gains and losses and tax credits are presented on a gross basis on income statements, according to the U.S. accounting standards setter.
But some tax-preparers have been pushing for some a change. They’ve asserted that the current equity method of accounting used by non-LIHTC tax credit programs is unnecessarily complex and does not “fairly represent the economic characteristics or profitability of such investments,” according to a FASB exposure draft report on its proposed update issued Monday.
FASB has been moving forward with the process of update standards on a number of issues in recent months, following a lengthy outreach effort spearheaded in 2020 by the then newly arrived FASB Chair Richard Jones. It has added such issues as cryptocurrency and digital assets to its technical agenda, which signals an issue is a top priority and tees it up for standards setting and also dropped a four-year project to change goodwill accounting.