- The Financial Accounting Standards Board will weigh whether to expand the proportional amortization method of accounting beyond low-income housing tax credit investments (LIHTC) on Wednesday, according to a FASB notice.
- In September the board voted 7-0 to add the project to its Emerging Issues Task Force agenda and to evaluate whether the current criteria for determining whether an investment could be accounted for using the proportional amortization was “operable” for other investments other than LIHTC.
- FASB issued the guidance in 2014 in part to encourage investors to support low-income housing projects that might otherwise lack capital, according to Tyler Baity, managing director at Forvis, an international CPA and advisory firm.
The accounting treatment could be expanded to be used in conjunction with such other programs as New Markets Tax Credits, Historic Rehabilitation Tax Credits and Renewable Energy Tax Credits, Baity wrote in a March 31 update. It also could impact Solar Investment Tax Credits and Production Tax Credits.
The U.S. accounting standards setter previously provided five criteria that an investment in a tax credit structure must meet to apply the proportional amortization method. 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 FASB.
In June EITF, created in 1984 to help FASB identify problems and provide timely guidance on emerging issues, moved to support the expansion of the accounting method’s use. It did not specify which tax credit proportional amortization would be expanded to, but rather removed a limitation that it could only be applied to structures that generate tax credits through the federal LIHTC program, according to FASB spokesperson Christine Klimek.