Summary of the November Meeting of the Emerging Issues Task Force
This EITF Snapshot summarizes the November 11, 2021, meeting of
the Emerging Issues Task Force (“EITF” or “Task Force”). Initial Task Force consensuses
(consensuses-for-exposure) are exposed for public comment upon ratification by the
Financial Accounting Standards Board (FASB). After the comment period, the Task Force
considers comments received and redeliberates the issues at a scheduled meeting to reach
a final consensus. Those final consensuses are then provided to the FASB for final
ratification and, ultimately, issuance as an Accounting Standards Update (ASU).
The official EITF minutes will be posted to the Deloitte Accounting Research Tool (DART) and to the FASB’s
Web site (note that the official EITF minutes may contain details
that differ from those in this publication). EITF meeting materials (released before the
meeting and used to frame the discussion) are also available on those sites.
Issue 21-A, “Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method”
Status: Initial deliberations.
Affects: Entities that invest in tax credit programs other than low-income
housing tax credit (LIHTC) investments.
Background: Through the LIHTC program established by the federal
government, tax credits are awarded to developers of low-income housing. These
developers often monetize the value of tax credits with investors. For the
investor to receive these tax credits, a limited liability entity is typically
established in which the developer acts as the general partner and the investor
acts as the limited partner.
In January 2014, the FASB issued ASU 2014-011 (codified in ASC 323-7402), which allows investors to use the proportional amortization method to
account for LIHTC investments if the criteria in ASC 323-740-25-1 are met. ASC
323-740-35-2 states that, “[u]nder the proportional amortization method, the
investor amortizes the initial cost of the investment in proportion to the tax
credits” received through the LIHTC investment. Further, the investor recognizes
the amortization and the tax credits on a net basis in its income statement as a
component of income tax expense from continuing operations. If the criteria in
ASC 323-740-25-1 are not met, the investor typically uses the equity method to
account for its investment.
Since the issuance of ASU 2014-01, stakeholders have continued
to support expanding the proportional amortization method to investments in tax
credit programs other than LIHTC investments. At its September 22, 2021,
meeting, the FASB decided to add a project on this topic to the EITF’s technical
agenda. Accordingly, if the EITF reaches a consensus that such an expansion is
appropriate, it will evaluate whether narrow clarifications should be made to
the current criteria in ASC 323-740-25-1 to permit entities to use the
proportional amortization method to account for investments in tax credit
programs other than LIHTC investments.
Summary: At this meeting, the FASB staff
held an educational session (i.e., non-decision-making meeting) on this Issue.
During the meeting, the FASB staff gathered initial feedback from the Task Force
on any technical topics on which additional research is needed as well as on any
additional stakeholder outreach that the staff should perform. In addition, the
Task Force discussed several tax credit structures, including the New Market Tax
Credit Program, the Historic Rehabilitation Tax Credit Program, and the Renewal
Energy Tax Credit (RETC) Program. The Task Force provided the FASB staff with
substantial feedback on the RETC Program because of the timing, amount, and
potential variability of the cash flows received by the investor from this tax
credit structure.
Effective Date and Transition: If the Task Force reaches a consensus at a
future meeting, it will discuss effective date and transition.
Next Steps: The Task Force is expected to redeliberate this Issue at its
next meeting after considering the FASB staff’s additional research.
Administrative Matters
The next EITF decision-making meeting is tentatively scheduled for March 24,
2022.