The Financial Accounting Standards Board released an
The change comes in response to requests from FASB's stakeholders who believe the proportional amortization method gives investors and other capital allocators a better understanding of the returns from investments made mainly for the purpose of receiving income tax credits and other income tax benefits. The updated standard emerged from a consensus by FASB's Emerging Issues Task Force about how to respond to the problem.
The update enables reporting entities to elect to account for qualifying tax equity investments using the proportional amortization method, regardless of the program giving rise to the related income tax credits.
Reporting entities were previously allowed to apply the proportional amortization method only to qualifying tax equity investments in low-income housing tax credit structures. In recent years, FASB's constituents asked the board to extend the application of the proportional amortization method to qualifying tax equity investments that generate tax credits through other programs, which resulted in the EITF addressing the issue with the new update. They contended that tax equity investors in economically similar investments that are made mainly for the purpose of receiving income tax credits and other income tax benefits should have the same election as LIHTC investors to account for those investments using the proportional amortization method.
For public companies, the amendments take effect for fiscal years starting after Dec. 15, 2023, including interim periods within those fiscal years. For all other entities, the amendments take effect for fiscal years beginning after Dec. 15, 2024, including interim periods within those fiscal years. Early adoption is allowed for all entities in any interim period, but if an entity adopts the amendments in an interim period, it needs to adopt them as of the beginning of the fiscal year that includes that interim period.
