Defining Issues | August 2022

Insight

Accounting for investments in tax credit structures

EITF releases proposal to expand the proportional amortization method (PAM) election.

Kimber Bascom

Kimber Bascom

Partner, Dept. of Professional Practice, KPMG US

+1 212-909-5664

Chase Stobbe

Chase Stobbe

Managing Director, Dept. of Professional Practice, KPMG US

1-571-695-5868

The proposal would allow investors to apply the PAM to all qualifying investments and to elect the PAM on a tax credit-program by tax credit-program basis.

Applicability

  • Entities that make qualifying investments in tax credit structures through limited liability entities (e.g. partnerships or LLCs)

Relevant dates

  • August 22, 2022 – FASB issued proposed ASU
  • October 6, 2022 – Comments on the proposed ASU are due

Key impacts

The proposed ASU would:

  • Expand the PAM election to include qualifying investments made under any nonrefundable tax credit program.
  • Allow investors to apply the PAM to all qualifying investments and to elect the PAM on a tax credit-program by tax credit-program basis.
  • Require the assessment of whether ‘substantially all’ of an investment’s projected benefits are from income tax benefits to be done on a discounted basis.
  • Clarify the identification of certain tax and non-tax benefits that go into the evaluation of the ‘substantially all’ criterion.
  • Clarify that entities with investments in multi-tier structures should assess significant influence in relation to the operations of the underlying project.
  • Clarify that an entity that applies the PAM must apply the flow-through method of accounting to the related tax credit.
  • Amend the disclosure requirements that apply to investments in tax credit programs for which the PAM is elected.
  • Allow adoption on either a retrospective or modified prospective basis.

Report contents

  • Applicability
  • Fast facts, impacts, actions
  • Proportional amortization method
  • Qualifying investment criteria
  • Clarification of certain criteria
  • Disclosure
  • Transition
  • Next steps

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