Accounting Body Issues Proposal Regarding LIHTC Investments

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The Financial Accounting Standards Board Emerging Issues Task Force has issued for public comment an exposure draft outlining proposed changes to accounting rules that would expand the ability of public companies to utilize the effective yield method of accounting for low-income housing tax credit investments.

The organization released the proposed standards update April 17, and is seeking comments by June 17.

Many in the LIHTC industry believe that allowing more corporations to use the effective yield method would increase the number of corporate investors in housing credit investments.

The amendments to current accounting standards contained in the proposed update would permit reporting entities investing in a qualified affordable housing project through a limited liability entity to elect to account for the investment using the effective yield method if:

  • It is probable that the tax credits allocable to the investor will be available;
  • The investor retains no operational influence over the investment other than protective rights, and substantially all of the projected benefits are from tax credits and other tax benefits (for example, tax benefits generated from the operating losses of the investment);
  • The investor’s projected yield based solely on the cash flows from the tax credits and other tax benefits is positive; and,
  • The investor is a limited liability investor in the affordable housing project for both legal and tax purposes.

At present, an entity may elect to use the effective yield method for a LIHTC investment made through a limited partnership only if Nos. 3 and 4 above apply and if the availability of the tax credits allocable to the investor is guaranteed by a creditworthy entity through a letter of credit, tax indemnity agreement, or similar arrangement.

The exposure draft solicits responses to 10 questions, including whether the proposed changes should be extended to other types of tax credit investments as well.

(Proposed guidance: http://tinyurl.com/buct8c9)