C.3 Scope of QAHP Guidance

Since LIHTCs are earned over a 10-year period, an investor should assess whether it can reasonably expect LIHTCs generated over the life of the investee to be available for distribution to the investor.

In the application of the guidance on equity method investments, an investor with an ownership in a QAHP entity is generally presumed to have significant influence on the basis of its level of ownership (see Section 3.2); however, ASC 323-740-25-1A excludes reference to any ownership thresholds. As noted in paragraph BC12 of ASU 2014-01, the EITF’s intent in reaching the conclusions in the ASU was “to identify those investments that are made for the primary purpose of receiving tax credits and other tax benefits” and to allow an investor to elect the proportional amortization method to account for such investments. Further, the EITF believed that “an investor who has the ability to influence the operating and financial policies of the [QAHP] entity should not be precluded from [electing the proportional amortization method] as long as that investor does not have the ability to exercise significant influence.” In accordance with its objective, the EITF concluded that the presumption that an investor can exercise significant influence at 20 percent or more voting stock ownership would not apply to investments in QAHP entities since that presumption “was intended for application to investments in common stock and not to investments in limited liability partnership interests.” Although the EITF did not indicate that the quantitative thresholds typically associated with an investor’s possessing significant influence over a partnership would not apply to an investment in a QAHP entity, it is reasonable to conclude, on the basis of the EITF’s stated objective, that an investor in a QAHP entity would not be required to consider the guidance in ASC 323-30 that a 3 percent to 5 percent ownership interest in a partnership constitutes significant influence over the partnership. Rather, the qualitative indicators included in ASC 323-10-15-6 and 15-7 should be considered to determine whether an investor has significant influence.

As a result, an investor that holds the majority of limited partnership interests (e.g., 99 percent of the limited partnership units) in a QAHP may be able to conclude that it does not have the ability to exercise significant influence over the QAHP’s operating and financial policies. However, if the investor concludes that it participates in the QAHP’s policy-making processes, it would be deemed to have significant influence and would not be eligible to apply the proportional amortization method to account for its investment in the QAHP entity. In addition to the indicators of significant influence discussed in Section 3.3, factors to consider in the determination of whether an investor participates in the policy-making processes of a QAHP entity include the following:

• Does the investor have the ability to make decisions about the day-to-day operations of the QAHP entity (e.g., accepting tenants, setting rent)?
• Does the investor have the ability to vote on operating and capital budgets or otherwise participate in making decisions about the day-to-day operations of the QAHP?

The existence of protective rights (e.g., the ability to remove the GP with cause or to veto the sale of a property owned by the QAHP entity for significantly less than its fair value) would generally not provide the investor with significant influence over the QAHP entity.

While the term “substantially all” is not defined in the Codification, we believe that a threshold of 90 percent should generally be used to determine whether the tax credits and tax benefits generated by an investee meet the substantially all threshold. However, if an investor has previously established an accounting policy to quantify substantially all (such as a policy established during the implementation of ASC 842 to evaluate lease classification), that existing policy should continue to be used.