ABA comments on proposal to improve accounting in tax credit structures

The American Bankers Association recently submitted comments to the Financial Accounting Standards Board on a proposal to broaden the availability of the option to apply the proportional amortization method from certain investments in affordable housing to any tax credit investment that meets specified criteria. In its letter, ABA noted that banks are significant participants in tax credit investment programs and generally believe these programs encourage capital investments in disadvantaged communities. Improvement is needed in the accounting treatment of a range of tax credit investments, such as those made in the New Markets Tax Credit, Historic Rehabilitation Tax Credit and various renewable energy tax credits, the association said.

ABA had several recommendations for FASB as it considers the draft standards update. The association said it supports the draft’s policy election to apply proportional amortization accounting on a program-by-program basis. However, ABA said FASB should remove the exclusion of refundable tax credits from the consideration of income tax credits and other tax benefits. It also warned the inclusions of “income tax” and “tax equity investment” in the draft language could lead to unintended scope limitations; urged FASB to remove the significant influence condition, which states the investor cannot have significant influence over the operating and financial policies of the underlying project; and stressed that transition options—as well as early adoption—should be allowed.