05-2 The Qualified Affordable Housing Project Investments Subsections provide income tax accounting guidance on a specific type of investment in real estate. This guidance applies to investments in limited liability entities that manage or invest in qualified affordable housing projects and are flow-through entities for tax purposes.
15-3 The guidance in the Qualified Affordable Housing Project Investments Subsections applies to reporting entities that are investors in qualified affordable housing projects through limited liability entities that are flow-through entities for tax purposes.
25-1 A reporting entity that invests in qualified affordable housing projects through limited liability entities (that is, the investor) may elect to account for those investments using the proportional amortization method (described in paragraphs 323-740-35-2 and 323-740-45-2) provided all of the following conditions are met:
a. It is probable that the tax credits allocable to the investor will be available.
aa. The investor does not have the ability to exercise significant influence over the operating and financial policies of the limited liability entity.
aaa. Substantially all of the projected benefits are from tax credits and other tax benefits (for example, tax benefits generated from the operating losses of the investment).
b. The investor’s projected yield based solely on the cash flows from the tax credits and other tax benefits is positive.
c. The investor is a limited liability investor in the limited liability entity for both legal and tax purposes, and the investor’s liability is limited to its capital investment.
25-1A In determining whether an investor has the ability to exercise significant influence over the operating and financial policies of the limited liability entity, a reporting entity shall consider the indicators of significant influence in paragraphs 323-10-15-6 through 15-7.
25-1B Other transactions between the investor and the limited liability entity (for example, bank loans) shall not be considered when determining whether the conditions in paragraph 323-740-25-1 are met, provided that all three of the following conditions are met:
- The reporting entity is in the business of entering into those other transactions (for example, a financial institution that regularly extends loans to other projects).
- The terms of those other transactions are consistent with the terms of arm’s-length transactions.
- The reporting entity does not acquire the ability to exercise significant influence over the operating and financial policies of the limited liability entity as a result of those other transactions.
An entity that used the effective yield method to account for its QAHP investments before adopting ASU 2014-01 may continue to apply that method for those prior investments