Appendix C — ASC 323-740 Before the Adoption of ASU 2023-02

C.4 Applying the Proportional Amortization Method

C.4.1 Applicability of the Proportional Amortization Method to a QAHP Investment That Generates Other Tax Credits in Addition to Affordable Housing Credits

As discussed in more detail in Section C.2, ASC 323-740 can be applied to QAHP investments that generate LIHTC credits. In some situations, the QAHP generates other tax credits (e.g., alternative energy credits or credits related to restoring and rehabilitating historic buildings), which are also allocated to investors in the QAHP. Because the scope of ASC 323-740 is limited to QAHP investments, it is unclear whether a QAHP investment that generates other credits in addition to LIHTC credits would be automatically excluded from its scope. While we believe that an entity needs to carefully consider the nature of the investment, we do not think that a QAHP investment that generates tax benefits other than LIHTC credits would automatically be excluded from the scope of ASC 323-740.

To consider the nature of a QAHP investment, an investor would need to determine whether the LIHTC program is the predominant program through which the QAHP investment generates credits. This is not a bright-line determination; however, the greater the proportion of the benefits derived from other tax credits in relation to the proportion of the benefits derived from LIHTC credits and tax benefits from operating losses of the investment, the more difficult it becomes to conclude that the investment is within the scope of ASC 323-740. For example, we believe that if 45 percent of the tax credits generated by a QAHP investment are attributable to LIHTC credits and the remaining 55 percent are associated with other tax credits, it would be difficult to conclude that the investment is within the scope of ASC 323-740. Alternatively, we believe that if 92 percent of the projected benefits of a QAHP investment are related to LIHTC credits and only 8 percent are associated with other tax credits, it would generally be appropriate to conclude that the investment could be within the scope of ASC 323-740, provided that the other scope requirements are met.

In the determination of whether the “substantially all” condition is met (see Section C.3.3), tax credits that are accounted for outside the scope of ASC 740, such as refundable tax credits, are included in the computation of the total projected benefits (i.e., the denominator) but are not included in the computation of the projected benefits from tax credits and other income tax benefits (i.e., the numerator). If any of the underlying credits represent transferable credits, an investor will need to consider its accounting policy choice for such credits in determining whether to include them in the numerator when assessing the “substantially all” condition. See Section 12.2.2 of Deloitte’s Roadmap Income Taxes for additional information on accounting for transferable tax credits.

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