The Monetary Accounting Requirements Board launched a proposed accounting requirements replace Monday that goals to enhance the accounting and disclosures for investments in tax credit score buildings.
The publicity draft, which comes from FASB’s Rising Points Job Power, originated from questions that arose a few 2014 accounting commonplace that allowed firms to elect to use the proportional amortization technique to account for investments largely made for the aim of receiving earnings tax credit and different earnings tax advantages. The steering issued by FASB on the time restricted the proportional amortization technique to investments in Low-Earnings Housing Tax Credit score buildings.
Beneath the proportional amortization technique, an organization amortizes the preliminary value of the funding in proportion to the earnings tax credit and different earnings tax advantages acquired and acknowledges the web amortization and earnings tax credit and different earnings tax advantages within the earnings assertion as a part of the earnings tax expense or profit. Investments in different varieties of tax credit score buildings are normally accounted for utilizing the fairness or value technique, which ends up in funding beneficial properties and losses and tax credit being introduced gross on the earnings assertion of their respective line objects.
Whereas the unique steering restricted the choice to Low-Earnings Housing Tax Credit, in recent times, stakeholders have requested FASB to let reporting entities elect to use the proportional amortization technique to tax fairness investments that generate tax credit by means of different packages, such because the New Markets Tax Credit score, the Historic Rehabilitation Tax Credit score and the Renewable Vitality Tax Credit score. They identified that the proportional amortization technique provides customers of monetary statements a greater understanding of the returns from investments which might be made primarily for the aim of receiving earnings tax credit and different earnings tax advantages than the fairness or value strategies.
The amendments within the proposed accounting requirements replace would allow reporting entities to elect to account for his or her tax fairness investments utilizing the proportional amortization technique if particular situations are met, whatever the program from which the earnings tax credit are acquired. The election can be made on a program-by-program foundation. The proposed amendments would additionally require firms to make sure disclosures so monetary assertion customers can higher perceive the character and affect of the entity’s investments that generate earnings tax credit and different earnings tax advantages.
FASB is asking for feedback on the proposed ASU by Oct. 6, 2022.