D.7 Presentation and Disclosure
D.7.1 Presentation
ASC 323-740
45-2 Under the proportional
amortization method, the amortization of the investment
in the limited liability entity is recognized in the
income statement as a component of income tax expense
(or benefit). The current tax expense (or benefit) shall
be accounted for pursuant to the general requirements of
Topic 740.
ASC 323-740 requires the amortization of investments accounted
for under the proportional amortization method to be recognized as a component
of income tax expense (benefit). However, it does not address the balance sheet
presentation of such investments. EITF Issue 13-B, which resulted in the
issuance of ASU 2014-01, stated that QAHP “investments do not have the
characteristics of deferred tax assets and [that the EITF] agrees with the
stakeholders that deferred tax asset classification could have significant and
adverse consequences for both financial reporting and regulatory capital
purposes.” It further noted:
The FASB staff does not believe that the Task Force
needs to prescribe a balance sheet classification for the purpose of
achieving symmetry with the income statement classification. The FASB
staff believes that the presentation of those tax credit investments as
investments is reasonable and appropriate but, because reporting
entities often include such investments in other asset captions, the
staff recommends not prescribing a specific balance sheet
presentation.
As a result, in deliberating ASU 2014-01 and ASU 2023-02, the
EITF did not prescribe specific balance sheet presentation for investments
accounted for by using the proportional amortization method. On the basis of
this lack of guidance, there is diversity in practice in the balance sheet
presentation of these investments. While such an investment should not be
presented as a DTA, it may be appropriate to present it as an investment asset
or as a component of other assets.
D.7.2 Disclosure
ASC 323-740
50-1 A reporting entity
shall disclose information in annual and interim periods
that enables users of its financial statements to
understand the following information about its
investments that generate income tax credits and other
income tax benefits from a tax credit program for which
it has elected on a
tax-credit-program-by-tax-credit-program basis to apply
the proportional amortization method, including
investments within that elected tax credit program that
do not meet the conditions in paragraph 323-740-25-1:
- The nature of its investments
- The effect of the recognition and measurement of its investments and the related income tax credits and other income tax benefits on its financial position and results of operations.
50-1A To meet the objectives
in paragraph 323-740-50-1, a reporting entity shall
disclose the following information about its investments
that generate income tax credits and other income tax
benefits from a tax credit program for which it has
elected on a tax-credit-program-by-tax-credit-program
basis to apply the proportional amortization method,
including investments within that elected tax credit
program that do not meet the conditions in paragraph
323-740-25-1:
- The amount of income tax credits and other income tax benefits recognized during the period, including the line item in the statement of operations and statement of cash flows in which it has been recognized
- The amount of investments and the line item in which the investments are recognized in the statement of financial position
- For investments accounted for using the proportional amortization method, the amount of investment amortization recognized as a component of income tax expense (benefit)
- For investments accounted for using the proportional amortization method, the amount of non-income-tax-related activity and other returns received that is recognized outside of income tax expense (benefit) and the line item in the statement of operations and statement of cash flows in which it has been recognized
- For investments accounted for using the proportional amortization method, significant modifications or events that resulted in a change in the nature of the investment or a change in the relationship with the underlying project.
50-2 To meet the objectives
in paragraph 323-740-50-1, a reporting entity may
consider disclosing the following about its investments
that generate income tax credits and other income tax
benefits from a tax credit program for which it has
elected on a tax-credit-program-by-tax-credit-program
basis to apply the proportional amortization method,
including investments within that elected tax credit
program that do not meet the conditions in paragraph
323-740-25-1:
- Subparagraph superseded by Accounting Standards Update No. 2023-02.
- Subparagraph superseded by Accounting Standards Update No. 2023-02.
- Subparagraph superseded by Accounting Standards Update No. 2023-02.
- For investments accounted for using the equity method, the amount of investment income or loss included in pretax income
- Any commitments or contingent commitments (for example, guarantees or commitments to provide additional capital contributions), including the amount of delayed equity contributions and the year or years in which contingent commitments are expected to be paid
- The amount and nature of impairment losses during the year resulting from the forfeiture or ineligibility of income tax credits or other circumstances. For example, in a qualified affordable housing project investment, those impairment losses may be based on actual property-level foreclosures, loss of qualification due to occupancy levels, compliance issues with tax code provisions, or other issues.
If an investor has a tax equity investment accounted for by using the
proportional amortization method, certain additional disclosures may be
necessary owing to the unique nature of the investment. ASC 323-740-50-1
addresses the overall disclosure objectives for investments in tax equity
structures, which include (1) the nature of the tax equity investment and (2)
the effect of the investment on the investor’s financial position and results of
operations. ASC 323-740-50-1A specifies the information that entities must
disclose to meet the objectives outlined in ASC 323-740-50-1. By contrast, ASC
323-740-50-2 provides example disclosures that can be made to meet the
objectives in ASC 323-740-50-1.
Note that the guidance in ASC 323-740-50 is applicable to
investments that generate income tax credits and other income tax benefits from
a tax credit program to which the investor has elected to apply the proportional
amortization method regardless of whether the proportional amortization
method has actually been applied.