Dive Brief:
- The Financial Accounting Standards Board voted Wednesday to advance a project that may fill a gap in current rules related to the accounting treatment for nonrefundable transferable tax credits.
- Folllowing the emergence of new types of tax credits such as for clean energy investments, many report preparers and investors have flagged the need for new guidance, board members said.
- Board Member Hillary Salo said that concern about the matter has bubbled up for some time, including when the board was considering new standards for government grants and environmental credits. “I think it’s fair to answer,” Salo said in the meeting.
Dive Insight:
The CHIPS and Science Act of 2022, Inflation Reduction Act and One Big Beautiful Bill Act of 2025 have offered new tax credits. Yet current generally accepted accounting principles do not indicate how companies should account for credits that can be used to either reduce income tax paid by a company or sold to another taxpayer, according to documents prepared for the FASB meeting.
The FASB last year gained input on guidance needed for transferable tax credits. For example, some stakeholders suggested new rules should clarify whether a gain or loss following a credit transfer or sale should be presented in a company’s income statement.
FASB Chair Rich Jones, who voted in support of the new project, said looking at the valuation allowance guidance would resolve any questions among board members about where the information should reside.
Looking ahead, Jones said the board will need to define what a tax credit is: an asset or a financial instrument. He warned against making the guidance unnecessarily complex, especially when it pertains to a credit’s transferability.
“I think it’s generally self-evident when someone else can claim the credit you’ve sold it. That should be enough,” Jones said. “Do we really need to put someone in a model or say you have to go into a model to figure it out? I don’t think so.”
