Insights
Simpler accounting proposed for investments in tax credit structures
ARTICLE | April 07, 2023
Authored by RSM US LLP
The Financial Accounting Standards Board has issued Accounting Standards Update (ASU) 2023-02, Investments—Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method (a consensus of the Emerging Issues Task Force). The amendments in this ASU permit reporting entities to elect to account for their tax equity investments regardless of the tax credit program from which the income tax credits are received, using the proportional amortization method (PAM) if certain conditions are met. Under prior GAAP, reporting entities could only elect to apply the PAM to investments in low-income-housing tax credit (LIHTC) structures.
Electing the PAM for eligible investments allows the reporting entity to amortize the cost of the investment in proportion to the income tax credits and other income tax benefits received, and present both the amortization of the investment and the income tax credits together, as a component of income tax expense (benefit). An entity that does not elect the PAM for eligible investments will continue to apply the equity method of accounting in Accounting Standards Codification (ASC) Topic 323 or the guidance inASC 321, which results in investment income, gains and losses, and tax credits being presented gross on the income statement in their respective line items.
The ASU requires specific disclosures for all investments that generate income tax credits and other income tax benefits from a tax credit program for which the entity has elected to apply the PAM, including investments within that elected program that do not meet the conditions to apply the PAM.
For public business entities, the ASU is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. For all other entities, the ASU is effective for fiscal years beginning after December 15, 2024, including interim periods within those fiscal years. Early adoption is permitted. The amendment in this ASU must be applied either on a modified retrospective or a retrospective basis except for LIHTC investments not accounted for using the proportional amortization method.
Let's Talk!
Call us at +1 213.873.1700, email us at solutions@vasquezcpa.com or fill out the form below and we'll contact you to discuss your specific situation.
This article was written by RSM US LLP and originally appeared on Apr 07, 2023.
2022 RSM US LLP. All rights reserved.
https://rsmus.com/insights/financial-reporting/simpler-accounting-proposed-investments-tax-credit-structures.html
The information contained herein is general in nature and based on authorities that are subject to change. RSM US LLP guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. RSM US LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein. This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer.
RSM US Alliance provides its members with access to resources of RSM US LLP. RSM US Alliance member firms are separate and independent businesses and legal entities that are responsible for their own acts and omissions, and each is separate and independent from RSM US LLP. RSM US LLP is the U.S. member firm of RSM International, a global network of independent audit, tax, and consulting firms. Members of RSM US Alliance have access to RSM International resources through RSM US LLP but are not member firms of RSM International. Visit rsmus.com/about us for more information regarding RSM US LLP and RSM International. The RSM logo is used under license by RSM US LLP. RSM US Alliance products and services are proprietary to RSM US LLP.
Vasquez & Company LLP is a proud member of the RSM US Alliance, a premier affiliation of independent accounting and consulting firms in the United States. RSM US Alliance provides our firm with access to resources of RSM US LLP, the leading provider of audit, tax and consulting services focused on the middle market. RSM US LLP is a licensed CPA firm and the U.S. member of RSM International, a global network of independent audit, tax and consulting firms with more than 43,000 people in over 120 countries.
Our membership in RSM US Alliance has elevated our capabilities in the marketplace, helping to differentiate our firm from the competition while allowing us to maintain our independence and entrepreneurial culture. We have access to a valuable peer network of like-sized firms as well as a broad range of tools, expertise and technical resources.
For more information on how Vasquez & Company LLP can assist you, please call +1 213.873.1700.
Subscribe to receive important updates from our Insights and Resources.